Chesapeake Utilities’ solid track record, driven by our strong aspiration for growth and commitment to care for our employees, customers, investors and the communities we serve.
Chesapeake Utilities’ solid track record, driven by our strong aspiration for growth and commitment to care for our employees, customers, investors and the communities we serve.
Chesapeake Utilities Corporation (Chesapeake Utilities) is a NYSE-traded company (CPK) focused on delivering outstanding service and attaining sustainable growth that generates long-term value for our employees, customers, investors and communities.
Headquartered in Dover, DE, our Company has been serving customers since 1859. Through our operating divisions and subsidiaries, Chesapeake Utilities provides natural gas distribution and transmission; electricity generation and distribution; propane gas distribution; and other energy related activities.
Chesapeake Utilities' past performance and positive results for 2018 reflect upon the hard work and dedication of our employees who are the heart of our Company. Our people drive our strategic plan, building upon the strong foundation that positions us for growth opportunities year after year.
We are a responsible Company that fosters a workplace where employees feel empowered to achieve their goals, know that they are cared for and take pride in what they do. Our employees work together across our businesses to identify innovative ways to serve our customers, grow our businesses and support our communities.
As we continue to expand our geographic footprint and enter into new markets, we remain grounded and steadfastly focused on long-term value for our stakeholders and generating results that lead the industry.
Owns and operates natural gas infrastructure including over 2,700 miles of pipeline systems in 40 counties throughout Ohio. Aspire Energy provides natural gas supplies to several local distribution companies and cooperatives. Aspire Energy primarily sources gas from approximately 300 conventional producers and provides additional services to maintain quality and reliability to wholesale markets.
Serves approximately 68,000 customers. Owns and operates approximately 1,400 miles of gas distribution mains. Chesapeake Utilities distributes natural gas through its Delaware and Maryland divisions to residential, commercial and industrial customers.
Owns and operates a 486-mile interstate pipeline that transports natural gas from four pipeline interconnection points in Pennsylvania to customers in Delaware, Maryland and Pennsylvania. ESNG transports over 50 billion cubic feet (BCF) of natural gas annually to local distribution companies, electric power generators and industrial customers throughout the region.
Provides electricity and steam generation services through a combined heat and power (CHP) plant on Amelia Island, FL, serving approximately 50% of Amelia Island’s demand for electricity.
Owns and operates approximately 2,900 miles of natural gas distribution mains across 21 counties in Florida and distributes natural gas to approximately 80,000 customers; electricity to 32,000 customers; and propane to 17,000 customers throughout Florida (includes the Company’s Florida natural gas division).
Maintains one of the largest fleets of tube trailers dedicated to transporting compressed natural gas (CNG). Marlin provides CNG services nationwide and offers interim solutions where pipeline supplies are not available or cannot meet customer requirements. With its primary focus on the Gulf Coast region from Texas to Florida, Marlin has transported more than 7 billion cubic feet of natural gas.
Provides natural gas supply, asset management and risk management services to retail and wholesale customers in the Mid-Atlantic, Southeast and Appalachian Basin regions. PESCO transacts on more than 10 transmission pipelines and over 16 local distribution companies in seven states.
Owns and operates several intrastate natural gas pipelines in Florida providing transportation service that links interstate pipelines to local distribution systems, industrial customers and power generation facilities.
Serves approximately 11,000 residential, commercial and industrial customers in Worcester County, MD. Originally comprised of propane distribution systems, Sandpiper Energy is actively converting its customers to natural gas. Sandpiper currently owns and operates over 300 miles of natural gas distribution mains.
Distributes propane to 42,000 customers in Delaware, Maryland, Virginia and southeastern Pennsylvania. Sharp AutoGas fuels over 1,200 vehicles and is available at 48 propane fueling stations in Delaware, Maryland, Virginia, Pennsylvania and Florida.
We continued to execute our long-term, disciplined growth strategy. Our annual capital investment of approximately $283 million and annual gross margin growth of $36.6 million were both record results. We had solid year-over-year growth in our natural gas and propane gas distribution operations. Our gas transmission businesses on the Delmarva Peninsula and in Florida completed two of the largest pipeline expansion projects in the Company's history. Chesapeake Utilities' 2018 adjusted earnings per share (EPS) increased 14.5%. We have consistently delivered long-term annual shareholder returns of 15%, and more recently as high as 25%, while at the same time being true to our unwavering commitment to the safe operation of our systems.
This is my first letter to you as President and CEO of Chesapeake Utilities Corporation. I am pleased to report that 2018 was another record-setting year. Over the past decade, Chesapeake Utilities' growth and financial results have made us a top quartile performer among comparable energy companies in the U.S. One of the principal reasons for that success is our employees. We remain focused on attracting, developing and retaining the talent and experience required to maintain our culture and manage an ever-expanding and geographically diverse portfolio of assets.
Our Board of Directors has long held the view that succession planning is a critical component to sustaining and increasing shareholder value. One of the basic tenets of our strategy is to ensure we have the bench strength to promote internal candidates to fill key positions.
Last year, Mike McMasters, our CEO for the past eight years, retired. As many of you know, Mike was a 38-year Chesapeake Utilities employee. We are fortunate to have a number of employees whose careers, like Mike's, span the time when Chesapeake Utilities transformed itself from a small Delmarva distribution and interstate transmission pipeline to a multistate energy delivery company. Mike took over from John Schimkaitis not long after the acquisition of Florida Public Utilities Company. He led the Company over an unprecedented period of growth, where we added over $1 billion in gross plant. I was fortunate to work with Mike and the Chesapeake Utilities' team to drive that growth as President of the Company's Florida operations since 2010.
When Mike announced his retirement, our Board, with the assistance of a leading search firm, implemented the next steps of its executive succession plan. It's a testament to the strength and capabilities of our team that there were several well-qualified internal candidates to consider. I'm honored and humbled to have been chosen to lead this dynamic organization through our next period of growth. The Board's decision to appoint an internal successor is a strong endorsement of our successful strategic growth plan, which has consistently produced superior shareholder returns. I certainly appreciate the opportunity of assuming the leadership of a company in such great financial shape. All of us at Chesapeake Utilities look forward to writing the next chapter in our Company's growth story.
Over the past several years, we have received many accolades for our financial performance. However, the awards I am most proud of recognize our efforts to improve service reliability and sustain employee, customer and community safety. Chesapeake Utilities' operating units frequently receive national safety commendations. Most recently, in 2018, our Eastern Shore Natural Gas and Aspire Energy units were recognized for safety achievements by the American Gas Association.
Fostering a culture of operational safety and reliability requires a commitment from the top and throughout the organization of both intent and resources. Our intentions are clear. Safety is the most important facet of our business. Over the past five years, we have invested almost $250 million in pipeline integrity projects and improving our gas and electric transmission and distribution systems. As part of these upgrades, we have replaced almost 300 miles of natural gas pipeline, thousands of gas service lines and installed over 2,000 storm hardened electric poles. We've added personnel in key safety and compliance positions across the Company. New technologies have been deployed to better monitor our facilities and track maintenance requirements. This year, we will break ground on a new state-of-the-art safety training facility in Dover, DE.
Someone recently said to me that Chesapeake Utilities' combination of strategic focus, engaged employees and innovative approach to the market was the “secret sauce” responsible for our success. I think that's a good way to describe our Company. It is rare in my experience to find a group of employees as committed to customer and community service as those I work alongside at Chesapeake Utilities. Time after time, I have watched our people work to put customer interests first. Our employees actively look for creative solutions. They are not hesitant to try an innovative approach. Whether it's providing propane AutoGas to customer fleets, building a combined heat and power plant that delivers low cost steam to a paper mill or a new tariff service to a power generator, our employees consistently find a way to deliver for our customers. Our employees' concern for customers translates into a broader interest in the communities we serve. Later in this report you will see only a sampling of our extensive engagement in charitable and community service activities.
Our business strategy for 2019 is consistent with the successful strategy we have executed for the past several years. There are many opportunities to expand and grow within our existing, core distribution and transmission businesses. Our regulated units will continue to develop and pursue innovative regulatory solutions for investment cost recovery. We will selectively, and with our customary discipline, seek to develop projects and acquire businesses that complement our existing portfolio, provide rapid earnings accretion and generate target returns. As always, we will continue to invest in safe, reliable and efficient operations. Several of our operational objectives for 2019 are listed below:
In addition to the above operational objectives, we have established several financial objectives in support of increasing shareholder value:
We had a great year in 2018. Over the past several years, we have established a strong foundation that will support future growth. Chesapeake Utilities is well positioned to continue to build on that foundation and deliver exceptional service to our customers and industry leading results for our shareholders.
Jeffry M. Householder
President and Chief Executive Officer
We executed on several strategic initiatives in 2018.
The largest single construction project in Chesapeake Utilities’ history was substantially completed and placed in-service in 2018. The $117 million transmission system expansion increased Delmarva delivery capacity by 26% and will help meet the growing energy requirements of southern Delaware and the Eastern Shore of Maryland.
In response to the winter peak days experienced in 2014 and 2015, ESNG initiated several projects to improve overall system operational reliability. During the 2018/2019 winter, ESNG set a new daily delivery record in excess of 250,000 dekatherms. Our record deliveries validate both our continued growth in system demand as well as the enhanced operational reliability.
To recover the cost of the system expansion and reliability projects, we completed a FERC rate proceeding that contributed $9.5 million in margin in 2018.
PPC, our intrastate transmission business in Florida, constructed a $36 million pipeline to serve industrial customers and two gas utilities in Escambia County, FL. PPC also completed a $9 million project to replace an aging, undersized lateral serving the FPU New Smyrna Beach distribution system.
Our propane business continued to grow. We completed the acquisition of the R.F. Ohl Company, a retail propane business in the Pocono Mountain region in Pennsylvania. Along with the Chipola Gas acquisition in Florida, completed at the end of 2017, we added 4,500 propane customers.
The AutoGas business keeps growing. In 2018, we delivered more than 2 million gallons of propane for vehicle fuel.
Late in 2018, we acquired Marlin Gas Services, an unregulated compressed natural gas (CNG) transport and delivery company. Marlin provides temporary CNG fuel service to support emergency and planned maintenance pipeline outages, hold gas distribution systems until permanent pipeline service can be established and offers a variety of specialty services such as transporting renewable landfill gas for pipeline injection. Marlin is a business we know well; we have been a customer for years. With the addition of Chesapeake Utilities’ capital and administrative support, we expect significant growth from Marlin in 2019.
Our Delmarva distribution utilities continues to grow, adding over 3,000 customers in 2018. The conversion of the underground propane system in and around Ocean City, MD, that Chesapeake Utilities acquired in 2013, is progressing on schedule. We have converted over 7,600 accounts to date. Two state grants awarded to DNG will enable us to install over 10 miles of new mains to serve new customers in Kent and Sussex Counties, DE.
One of our greatest, and at the same time most heartbreaking, accomplishments in 2018 was the response and restoration of electric service after Hurricane Michael. We describe in greater detail later in this report the tremendous work under very difficult conditions performed by our employees in partnership with local and state officials and many third-party electric workers, tree crews and others. They often say the most rewarding experiences come out of periods of great difficulty. The unwavering commitment and care of everyone involved in our restoration effort underscores that principle.
At Chesapeake Utilities, corporate governance is the foundation of our processes and our decision-making throughout the Company, beginning with our Board of Directors and extending to every employee. It reflects who we are, what we stand for and what we do. Our core values and strong culture unite us and stand as part of our foundation upon which we operate.
Chesapeake Utilities Corporation was the recipient of Ethical Boardroom Magazine’s 2018 award for Best Corporate Governance in the Utilities Sector in North America. The prestigious award recognizes outstanding leadership worldwide for companies that have raised the bar to ensure that strong corporate governance contributes daily to enhancing long-term value for all stakeholders.
Our commitment to safety is embedded in our culture and is a key component of our operations and everyday processes.
Chesapeake Utilities cares about creating a healthy and safe environment for our employees, customers and communities, just as we do for our families and ourselves. We encourage a culture dedicated to promoting safe and reliable energy options; a continuously safer workplace for employees; and safe service offerings for customers and within our communities. The efforts of our employees, who proactively pursue a positive safety culture for our stakeholders, have led to industry recognition and a strong reputation for being a safe and reliable Company.
Throughout our business areas, our safety and compliance departments are very involved with our strategic planning. A main focus of our safety and compliance teams is supporting the business units to ensure safe operations for, and adherence to, personal, public and pipeline safety. These teams work closely with public officials, emergency responders, customers and safety advocates to promote awareness of best practices for safety and reliability.
Eastern Shore Natural Gas Company and Aspire Energy, earned Safety Achievement Awards from the AGA in 2018.
Our talented workforce, comprised of experienced professionals with diverse backgrounds working collaboratively across the Company, is a pillar of our foundation for growth.
At Chesapeake Utilities, we inspire our employees to perform at their best. We continue to invest in our people through programs that support our employees’ ambitions, creating value and reinforcing our culture.
New Heights University, an educational and professional development program, assists our employees by enhancing their leadership qualities to reach their fullest potential.
In 2018, the first class of the Aspiring Leaders Academy, a branch of the New Heights University, completed the 18-month leadership program. This initiative combined classroom sessions and independent assignments into an interactive learning experience for the development of current and future leaders throughout the Company.
The Aspiring Leaders Academy (ALA) was a great experience. Not only did the courses help me to develop my career, but they helped me develop personally as well. I was given time for reflection, gained a better understanding of others and most importantly formed friendships with my coworkers. I believe that being a part of the ALA class has helped me become the employee and manager I am today.Kim Smith, Manager,
Financial Planning and Analytics
Our employees make up the Chesapeake family, and by extension, their families are important to us. Chesapeake Utilities supports the aspirations of our employees and through the Chesapeake Aspiring Scholars program, the Company annually awards scholarship grants to students of our employees to assist with their educational pursuits at colleges, universities and technical schools. The program is open to high school seniors of employees across the Company.
Through our Chesapeake Wellness Program, we encourage a healthy lifestyle and community outreach via participation in our companywide Passport to Wellness competitions and Company-sponsored 5K runs/walks.
Our Passport to Wellness initiative enables employees to continuously track their cardio health progress through Walker Tracker, which integrates with all major wearable and mobile apps. This promotes goal attainment, social interaction, team building and friendly competition.
Our employees are the heart of our energy. They demonstrate their aspiring and caring nature in everything they do for their colleagues, customers and communities.
Everyone matters at Chesapeake Utilities. We continue to enhance the work experience by building a more inclusive culture that provides the resources for our employees to achieve their goals and make meaningful connections with fellow employees, customers and within our communities.
Through our Cares With a Cause program, Chesapeake Utilities provides employees with opportunities to serve our communities. Each quarter, we select a different charitable cause for our employees to support by volunteering time, donating funds or contributing items that may be needed.
In 2018, our employees collectively partnered with local charities to donate supplies at the start of the school year, promote breast cancer awareness, collect winter coats and support children’s health. In honor of our veterans, we partnered with local food banks and collected nonperishable food and other items leading up to Veteran’s Day. Additionally, for the last two years, the Cares With a Cause program united employees to assist with hurricane relief efforts.
In June 2018, the 27th World Gas Conference was hosted by the American Gas Association in Washington, D.C. This triennial conference is the leading global natural gas industry forum that aims to raise the voice of the industry while offering timely updates on strategic, commercial and technical issues facing the entire gas value chain. More than 600 of the industry’s most senior leaders from around the world were featured, including Aleida Socarras, Vice President of Chesapeake Utilities Corporation. Ms. Socarras presented as a panelist in the Industry Insights session “Collaboration Between Natural Gas and LPG in Market Development.”
The World Gas Conference provided us with an opportunity to showcase Chesapeake Utilities’ successful strategy of serving residential markets ahead of natural gas infrastructure with the use of propane Community Gas Systems (CGS). CGS customers enjoy all the benefits of gas while under-served areas build out to sufficient density to warrant expansion of natural gas service.Aleida Socarras,
Vice President, Chesapeake Utilities Corporation
Our Women In Energy program is a forum where women at Chesapeake Utilities are able to connect, network and share their unique experiences and perspectives as professionals in the energy industry. Our Company includes women in careers at various levels ranging from accounting, communications and engineering to meter technicians, gas control managers, pipeline locators and executive leaders. The Women In Energy program empowers women to explore alternative career paths that support the changing needs of the Company.
In recognition of International Women’s Day and Women’s History Month, female employees were honored for their expertise and dedication with a companywide celebration.
Visit our website to learn more about our Women In Energy program and the highlighted stories of our female employees who strengthen our foundation for growth.
“Chesapeake Utilities’ Women In Energy program provides an outlet to share diversity of thought which strengthens an organization and provides a tool to encourage and support women in their careers with our Company.”Cheryl Martin,
Vice President, Regulatory Affairs
Caring is Always in Season! Year-round, we aspire to be a good neighbor by helping our customers and the communities in which we live, work and serve.
Employees feel valued when they are able to connect positive meaning to their work and are recognized for their accomplishments. Chesapeake Utilities cares about our employees and each and every one of them contributes to the success of our organization.
One way the Company expresses gratitude for employees is through the Chesapeake Cares program. A team of more than 40 Brand Champions organizes these events for their colleagues. During Cares events, we welcome new employees, celebrate employee milestones and highlight colleagues’ efforts and achievements through our recognition program.
Our peer-to-peer recognition program offers employees a way to acknowledge and show appreciation for coworkers who make a difference. Individuals are recognized for their contributions and promoting our shared values.
I have been a Brand Champion for almost four years. I think the Chesapeake Cares program is an awesome perk of this Company. I truly enjoy being a Brand Champion. It is actually really fun! It can be challenging to keep employees engaged but I feel like the Cares events help to promote everyone to stay connected. The program is based upon positive reassurance and the Cares recognition adds value and recognizes employees for all that they do.Stefanie Tanner,
On October 10, 2018 Hurricane Michael was the first Category 4 hurricane on record to make landfall in the Florida Panhandle. Michael’s 155 miles-per-hour sustained wind speed inflicted widespread and severe damage to Northwest Florida.
The FPU Northwest Division electric distribution system was squarely in the storm’s path as it came onshore and moved north into Georgia. The eye of the hurricane passed over virtually our entire system. All of our 13,000 customers were without power with significant portions of our system heavily damaged.
We have a well-developed storm response plan. Our employees are highly trained to assess damage and quickly began the process of service restoration. Our teams have significant experience with storm restoration, including recent efforts after Hurricanes Matthew and Irma. The damage from Hurricane Michael’s unprecedented force was unlike anything any of our crews had experienced.
I want to thank everyone at Florida Public Utilities Company. You did a great job. You had over 12,000 businesses and homes without power and I know that you worked really hard to get the power back on as soon as possible to help these families and businesses. Job well done for all that you do to help people fully recover.Rick Scott,
Former Florida Governor
Large sections of our system: miles of wire, thousands of poles and hundreds of transformers were on the ground. Thousands of trees were down in neighborhoods and along roadways across the impacted area. We had to cut our way down streets, often following a bulldozer, to even access our facilities.
Within the first week following the storm, we had restored critical medical facilities, several schools, wastewater treatment facilities and other critical service and commercial facilities. In less than a month, all customers who could receive service were restored. FPU committed over $60 million to the service restoration, rebuilding the system with upgraded storm hardened poles and equipment.
It’s been a humbling experience. This is the first time that I ever went through anything like this. The good part of this for me, from the inside looking out, is that you can see a lot of people come together, trying to help each other.Rhondon Gray,
As a leading energy provider for more than 150 years, we uphold our aspiring and caring culture.
We are a responsible Company that continues to honor our obligation to operate in a safe and environmentally friendly manner. As part of our commitment, our employees identify better and innovative ways to serve our customers, grow our businesses and support our communities to facilitate sustainable practices.
For the fourth consecutive year, Chesapeake Utilities partnered with the Delaware Chapter of The Nature Conservancy in support of the conservation and protection of natural resources in Delaware. In March 2018, more than 40 employee volunteers and family members spent a day at the conservancy’s Ponders Tract Preserve in Milton, DE, planting more than 60 native trees and shrubs, fixing deer fencing, restoring the main trails and trimming pine trees along the trails. In September 2018, our employees participated in the Dogfish Dash in Milton, DE. As a longtime Company sponsor, employee runners/walkers and event volunteers supported the Dogfish Head Brewery’s annual event which benefited the Delaware Chapter of The Nature Conservancy.
The Clean Cities Coalition - U.S. Department of Energy helps residents, businesses and fleet operators to work together to reduce the use of petroleum, develop regional economic opportunities and improve air quality. Chesapeake Utilities partners with the Delaware Clean Cities Coalition to improve air quality and increase the use of cleaner fuels in transportation. Chesapeake Utilities is also a member of the Maryland Clean Cities Coalition. FPU is an active member of the Florida Clean Cities Coalition, participating in three Florida chapters. We were sponsors of the 2018 National Clean Cities Annual Meeting.
The Energy Lane campus earned Green Globes Certification by the Green Building Initiative. The office building and warehouse are nationally recognized for maintaining a higher standard of environmental integrity.
Chesapeake Utilities is a diversified energy provider that draws upon its legacy of expertise to conduct business with environmental responsibility.
We are strongly committed to operating in a green manner and increasing environmental benefits in our communities. As part of our strategic approach, our teams strive to identify solutions for more efficient energy use, generate savings for our customers and reduce the carbon emissions within our business operations.
Chesapeake Utilities provides environmentally friendly alternative fuels for vehicles including compressed natural gas (CNG) to reduce emissions in transportation applications.
Our new Energy Lane campus in Dover, DE, features Chesapeake Utilities’ new compressed natural gas (CNG) fueling station for public use on the Delmarva Peninsula. This station provides CNG for fleets and personal Natural Gas Vehicles. We have worked with the state of Delaware and the Clean Cities Coalition to create grants for alternative fuel vehicles and to develop a clean fuel corridor along the Delmarva Peninsula.
Chesapeake Utilities uses combined heat and power (CHP) to provide significant efficiency improvements and cost savings while reducing the overall environmental impact.
Our natural gas-fired Eight Flags Energy CHP Plant on Amelia Island, FL, generates approximately 21 megawatts of baseload power producing enough electricity to meet on average 50 percent of Amelia Island’s demand. The CHP plant was designed to produce electricity, steam and water with less air pollutants and water usage, meeting a 78 percent efficiency target.
The CHP plant is modeled to enhance the overall electric grid resiliency, since on-site power units do not rely on power transmission lines — keeping power on for customers in times of need. During major hurricanes, the CHP Plant had critical facilities, such as hospitals and larger commercial and industrial customers in operation soon after the storms had ended.
Chesapeake Utilities has assisted customers with the implementation of three CHP projects on the Delmarva Peninsula as a result of its commitment to providing valuable energy options to customers. The Company provides natural gas service to the CHP plant at Peninsula Regional Medical Center in Salisbury, MD; the Dogfish Head Brewery in Milton, DE; and the Seaford School District in Seaford, DE.
Propane AutoGas is a viable alternative fuel for automobiles that reduces emissions and lowers costs. As a member of Alliance AutoGas, Sharp Energy installs and supports propane vehicle conversion systems for vehicle fleets and provides on-site fueling infrastructure. With 48 AutoGas stations in operation in Delaware, Maryland, Virginia, Pennsylvania and Florida, Sharp Energy has deployed 87 propane-powered vehicles within our own fleet displacing approximately 155,000 gallons of gasoline annually.
In December 2018, Chesapeake Utilities acquired the assets of Marlin Gas Transport, Inc. and established a new subsidiary, Marlin Gas Services, LLC (Marlin). Marlin operates a fleet of compressed natural gas (CNG) tube trailers that provide mobile gas transport services to transmission and distribution pipelines and end-use customers. The company’s primary terminal location is in Spring Hill, FL. Over the past 15 years, Marlin has focused its business on the Southeast and Mid-Atlantic, but delivery capabilities extend nationwide. Marlin has transported over 7 billion cubic feet of gas.
Chesapeake Utilities’ Florida business unit has been a major Marlin customer. Over the past several years, FPU has relied on Marlin to provide temporary service to numerous expansion areas prior to installation of permanent pipeline facilities. We believe that our experience as a Marlin customer gives us the unique insight into the operational, regulatory and financial implications of deploying CNG tankers. We will leverage those insights to market Marlin’s services to similarly situated pipeline and distribution customers. The increased capital availability and support offered by Chesapeake Utilities will enable us to significantly expand Marlin’s targeted service area.
Marlin is a premier provider of virtual pipeline solutions. We are able to provide uninterrupted access to gas during planned and unplanned pipeline outages, as well as providing supply to customers not directly connected to pipeline supply. As demand for natural gas continues to increase, Marlin offers a great opportunity to expand Chesapeake Utilities’ gas service options and reach new customers in new markets.Kevin McCrackin,
Director, CNG/LNG Services