Standing
Strong.
Embracing
Change.
Shaping
Our Future.
2 0 2 0 A N N U A L R E P O R T
Table of
Contents
04
A Letter From
Our President
12
2020 Financial
Highlights
20
Our Company
26
Our Leadership
A Letter From
Our President
04
A Letter From Our President2020 Annual Report Chesapeake Utilities Corporation “It’s that sense of community,
of uniting in common purpose to
succeed no matter the obstacle,
that I will most remember about
our team in 2020.”
Jeff Householder
President and CEO
05
A Letter From Our PresidentStanding Strong. Embracing Change. Shaping Our Future. A Letter From
Our President
Standing Strong. Embracing Change. Shaping Our Future.
The theme for the Chesapeake Utilities Corporation Annual
Report speaks directly to the Company’s exceptional performance
in a challenging year as well as our optimistic outlook for future
growth and continued success. 2020 was an extraordinarily
eventful year. A global pandemic, actions for social justice and
political turmoil took center stage. Millions of our fellow citizens
struggled to make ends meet as businesses closed or were
downsized, jobs were lost and the economy stalled. In the energy
industry, we saw an increasing emphasis on climate change
and the transformation to a lower carbon future. In addition to
these dramatic events challenging our businesses, we started
the year with a significantly milder-than-normal winter season.
Jeff Householder, President and CEO,
conducts an all-employee call from
the Company’s Florida operations
headquarters in Yulee, Florida. During
these monthly discussions, Jeff and
members of the senior leadership
team provide employees with updates
related to the pandemic; the Company’s
initiatives and ongoing performance;
and the safety and well-being of our
colleagues, customers and communities.
06
A Letter From Our President2020 Annual Report Chesapeake Utilities Corporation 13.2%
GROWTH IN DILUTED
EARNINGS PER SHARE
from continuing operations
60 years
OF CONSECUTIVE
DIVIDEND PAYMENTS
to shareholders
15.1%
SHAREHOLDER RETURN
in 2020
Given the list of challenges, you might not
expect that Chesapeake Utilities Corporation
could deliver another year of record-breaking
performance. However, that is exactly what
our team accomplished. We grew Diluted
earnings per share from continuing operations
by 13.2% in 2020, our 14th consecutive year
of record earnings.
We paid a dividend to shareholders for the
60th consecutive year. In fact, Chesapeake
Utilities Corporation was one of the few energy
companies that delivered a positive Total
Shareholder Return in 2020, achieving an
annual return over 15%.
While our financial success was notable,
I am most proud of our unwavering focus on
advancing the important initiatives that will
continue our long history of growth and
upper-quartile performance. We strengthened
our safety culture and further expanded
initiatives that embrace our Environmental,
Social and Governance (ESG) responsibilities.
Our teams identified numerous opportunities
to grow our business, while continuing
to focus on reducing greenhouse gas
emissions. And, we accelerated a business
transformation process to address the
organizational and technology enhancements
that will support our continued growth.
It was a difficult year, but Chesapeake Utilities
Corporation’s employees rose to the occasion,
delivering uninterrupted energy services to our
customers and outstanding financial results to
our shareholders.
Standing
Strong
As I write this letter, the COVID-19 pandemic
continues to dramatically impact our nation.
We are ever mindful of the millions of people
who have been touched by this virus and
especially those that have lost family members,
friends and coworkers.
At Chesapeake Utilities Corporation, the
pandemic has tested our processes, our
technology, our safety protocols, our employee
policies and our financial strength. Of greater
importance, it tested our ability to work
remotely and collaborate as a team, making
tough and informed decisions, acting quickly,
standing strong together and supporting
each other. It’s that sense of community, of
uniting in common purpose to succeed no
matter the obstacle, that I will most remember
about our team in 2020. It was a year where
we could have easily opted to defer our
growth plan, delayed construction projects,
postponed important process and technology
advances and just focused on maintaining
minimum service levels. We decided early
on that was not for us. We moved quickly
to strengthen our cash liquidity, reassured
employees that their jobs were safe, engaged
with our communities, scoured the globe for
personal protective equipment, and instituted
virus protocols to keep our frontline operations
employees as safe as possible. We figured
out how to operate with half of our employees
working remotely. As a Company, collectively,
we were determined that the pandemic would
not sidetrack our long-standing growth and
earnings achievements.
I am pleased to report that Chesapeake Utilities
Corporation delivered record Diluted earnings
per share for 2020 of $4.26. Let me share a
few additional financial highlights:
We continued our strong record of
investment growth in 2020. Capital
expenditures totaled $195.9 million.
In 2018, we provided capital investment
guidance to investors indicating projected
expenditures of $750 million to $1 billion
over the 5-year period 2018-2022. Our
investment levels for the 2018-2020 period
alone are already approaching the lower
end of the guidance range, two years early.
07
A Letter From Our PresidentStanding Strong. Embracing Change. Shaping Our Future.
Annual margin growth in 2020 was
$25.2 million in a year where we experienced
reduced margins of approximately $5.3 million
attributable to COVID-19 volume reductions
and another approximately $4.3 million
weather related margin loss.
Net Income for 2020 was $71.5 million,
an increase of 9.7%; another record
performance year.
The Chesapeake Utilities Corporation
Board of Directors declared a 2020
annualized dividend of $1.76 per share,
an increase of 8.6%; our 17th consecutive
year of increased dividends.
We have doubled our annualized dividend
over the past 10 years.
Our Return on Equity from Continuing
Operations for 2020 was 11.5%.
Including 2020, our Total Shareholder
Return CAGR over 1, 3, 5, 10 and 20-year
historic periods has exceeded 13% for
each period.
Chesapeake Utilities Corporation was
selected for inclusion in the S&P Small
Cap 600 Index, a premier benchmark for
U.S. small cap companies.
We issued equity of $89.7 million which
helped strengthen our balance sheet and
achieve our targeted 50% debt and 50%
equity capital structure at year end.
Our stock price and market capitalization
reached all-time closing highs at the end of 2020,
$108.21 per share and $1.9 billion, respectively.
The outstanding 2020 financial achievements
listed above were the result of continued solid
growth and performance in both our regulated
and non-regulated businesses. Let me
highlight a few significant contributors to that
growth. Reflecting the higher demand for
our energy delivery services, our regulated
natural gas customer growth in both Florida
and on the Delmarva Peninsula continues to
be twice the national average. We completed
the acquisitions of two propane companies
(Boulden Propane in Delaware and Western
Natural Gas in Florida) and the Elkton Gas
natural gas system in Maryland. The Callahan
Intrastate Pipeline in Florida went into service
early and under budget, producing additional
margins. We executed a settlement agreement
approved by Florida regulators for the recovery
of Hurricane Michael capital investments and
expenses. We benefited from lower interest
rates and taxes. And, we effectively managed
our expenses across the Company to offset
pandemic related costs.
2020 changed not only the way we conduct
our business, but the way we approached
problem-solving and our view of the future.
We finished a tough year as a stronger
organization, more confident in our abilities
and decision-making, with an intense
focus on meeting both investor and societal
long-term expectations.
I think the success we achieved in modifying
our policies and operating practices to
overcome the pandemic has energized and
accelerated our efforts to address diversity
and inclusion, environmental sustainability,
and the business transformation required
to support growth. The lessons learned and
actions taken during 2020, both operationally
and culturally, will help propel our Company
to greater success in the years to come.
One of our most important objectives
is the continued support of a culture
that encourages diversity, inclusion and
acceptance. We understand clearly that
our stated values must be tied to actions.
We made significant progress in 2020. Our
Board of Directors now includes two female
Directors, an African American Director
and a Director who is of Middle Eastern
descent. Our Women in Energy initiative,
which has been active for a number of years,
supported increased gender diversity in the
$195.9 million
CAPITAL EXPENDITURES
in 2020
$1.76
2020 ANNUALIZED
DIVIDEND PER SHARE
an increase of 8.6%
17years
OF CONSECUTIVE
increased dividends
Embracing
Change
08
A Letter From Our President2020 Annual Report Chesapeake Utilities Corporation 2021 Top
Workplaces
USA
Chesapeake Utilities
Corporation was
named as a 2021 Top
Workplaces USA
award recipient for
mid-size companies.
This inaugural honor
celebrates our employee-
focused culture and all
of our employees as
they continue to come
together, providing
solutions, creating
innovation and embracing
change in support of our
customers, communities,
and each other.
Company that has resulted in several female
employees moving into leadership positions.
We established an Equity, Diversity and
Inclusion (EDI) Council in 2020 to build on
this momentum. The Council oversees our
efforts to improve diversity in recruitment,
employee development and advancement,
cultural awareness and related policies.
We also acknowledge our obligations to be
leaders in the communities where we live
and work. Chesapeake Utilities Corporation’s
employees have a long history of assuming
leadership roles and supporting, through
contributions and volunteerism, organizations
that serve our diverse communities. We will
continue to take an active role in opposing
racial inequality while ensuring that our
Company reflects the communities we
serve, is inclusive and welcomes diversity
of thoughts and ideas.
Chesapeake Utilities Corporation has a
long history of responsible, community-
centric and ethical business practices.
This year, we are formally highlighting
many of the Company’s accomplishments
to date in our inaugural ESG Report. The
call for a lower carbon energy future aligns
with actions we already have underway,
but also necessitates additional action
on our part. We are pursuing a three-part
plan. First, we have identified a number of
internal actions to reduce greenhouse gas
emissions, ranging from the completion
of our pipeline replacement programs to
improved emission detection technology at
our pipeline compressor stations. We are also
working with our contractors and suppliers
to encourage their environmental efforts.
Second, we are committed to supporting
our customers’ efforts to reduce end-use
emissions through conservation programs
that promote high-efficiency appliances
and technical assistance for large volume
customers to identify emission reduction
opportunities. Third, we are actively
supporting the development of several waste
to energy Renewable Natural Gas (RNG)
projects. Our participation extends from
transporting the RNG to market by pipeline or
our Marlin Gas Services’ compressed natural
gas (CNG) trailers to potential investment
in a biogas plant and, in some cases, solar
energy facilities to provide electricity to a
plant and significantly improve the RNG
carbon intensity score. In our inaugural ESG
report, which will be published later this year,
you will find more details on our community
giving, award-winning governance practices
and our continued steps down the path to a
sustainable energy future.
In 2020, we remained steadfast in
identifying growth opportunities that will
significantly grow the Company over the
next five years, similar to our historical
track record. To meet this growth, we have
continued to make progress on our Business
Transformation initiative. This included
ensuring that our organizational structure,
processes, employee skills, diversity and
technology were able to keep pace with our
growth objectives. We have simplified our
organization and business unit management
structure and are working to achieve greater
process standardization across our units.
We completed construction of our Safety
Town facility in Dover, Delaware, to provide
both hands-on and classroom training for our
operations technicians. We also committed
to the implementation of a comprehensive
Safety Management System and completed
development of a safety roadmap to guide
policy, process and training initiatives
for execution in 2021. Several technology
enhancement projects went into service in
2020: the Power Plan asset management
system, an automated work order
management system and a new customer
portal for our propane business were
among the most notable. We also continued
to commit significant resources to
cybersecurity, including a network-wide
assessment to assure that no damage
was caused by the recent SolarWinds Corp
event. We have also accelerated adoption
of improved technology to advance
communications and support the “new
normal” work environment likely to continue
even after the pandemic recedes.
09
A Letter From Our PresidentStanding Strong. Embracing Change. Shaping Our Future. Shaping
Our Future
In my letter to shareholders last year,
I noted that out of challenging times come
new opportunities. Little did I know what was
ahead of us in 2020. In spite of the challenges,
we moved forward. We invested close to
$138 million in major projects that will directly
produce customer margins or serve to
support our continued growth. Just one great
example is the Del-Mar Energy Pathway,
a transmission infrastructure project that
is approximately $50 million and currently
under construction to bring natural gas for
the first time to Somerset County, Maryland.
The project will enable our Delmarva natural
gas distribution system to expand and
serve thousands of new customers. As
our transmission and distribution systems
continue to expand toward the Delaware
beaches over the next few years, we will
convert approximately 10,000 underground
propane system customers currently served
by our Sharp Energy propane affiliate to
natural gas. Our Florida distribution systems
also continue to expand, adding several
thousand customers per year with several
years of pipeline replacement investments
to complete. The propane acquisitions we
integrated this year will continue to grow
and deliver future results. Finally, Marlin Gas
Services’ CNG transport business doubled its
margins in 2020 and will continue to expand
our ability to serve large load requirements in
2021 with the addition of liquefied natural gas
(LNG) transport tankers.
I hope I have conveyed my confidence that
we are well positioned for growth in 2021.
I anticipate another solid year of capital
investment in projects with attractive
margins that contribute to meaningful
earnings. I assure you that we will continue
our long-standing practice of disciplined
capital deployment, appropriately weighing
earnings projections against risk.
These are interesting and exciting times
filled with possibilities for those willing to
work hard and be creative. Even in this time
of industry transformation, we see great
opportunities to build on our strong foundation
of related businesses and continue to deliver
exceptional value to shareholders. Thank you
for your investment.
Jeffry M. Householder
President and Chief Executive Officer
“We finished a tough year as a stronger
organization, more confident in our
abilities and decision-making, with an
intense focus on meeting both investor
and societal long-term expectations.”
Jeff Householder
10
A Letter From Our President2020 Annual Report Chesapeake Utilities Corporation As many in-person opportunities have transformed to
online events, our employees remain connected with
peers and colleagues, representing the Company at
numerous virtual speaking engagements. Top, left to right,
are Debbie Smith, Community Engagement Manager;
and Kira Lake, Director of Growth and Retention;
joining Devon Rudloff, Assistant Vice President, Human
Resources, bottom right, for the Florida Women in
Energy Leadership Forum - Facebook Live. Hosted
by Board Member Lila Jaber, and founder of Florida
Women in Energy Leadership Forum, this live event
enabled teammates to share insight and professional
and personal experiences that impacted their careers,
especially in the energy industry.
11
A Letter From Our PresidentStanding Strong. Embracing Change. Shaping Our Future. 2020 Financial
Highlights
12
A Letter From Our President2020 Annual Report Chesapeake Utilities Corporation Our successful and disciplined
strategy has driven long-term
growth and 14 consecutive years
of superior earnings, therefore,
positioning the Company for
further growth opportunities.
13
A Letter From Our PresidentStanding Strong. Embracing Change. Shaping Our Future. 2020 Financial
Highlights
Our employees continued to come together across our
Company, standing strong to successfully exceed the
new challenges and uncertainties presented in 2020.
We embraced change and implemented improved solutions
for our customers. As we performed our day-to-day activities
without service interruptions, we expanded our businesses
and entered into new markets. We initiated and completed
business initiatives while ensuring the safety and well-being
of our customers, communities and each other.
Financial
Highlights
(dollars in thousands, except per share data)
2020
2019
2020/2019
% Change
2018
2019/2018
% Change
Gross Margin
$350,260
$325,104
Operating Income from Continuing Operations
$112,723
$106,285
Income from Continuing Operations
Net Income
Diluted Earnings Per Share:
From Continuing Operations
Consolidated
Annualized Dividends Per Share
Total Assets
Stockholders’ Equity
Other
Employees
Shares Outstanding at Year End
Average Distribution Customers
$70,642
$61,100
$71,498
$65,153
$4.21
$4.26
$1.76
$3.72
$3.96
$1.62
$1,932,487
$1,783,198
8%
6%
16%
10%
13%
8%
9%
8%
$300,146
$94,844
$56,968
$56,580
$3.47
$3.45
$1.48
$1,693,671
$697,085
$561,577
24%
$518,439
947
955
17,461,841
16,403,776
277,580
255,623
-1%
6%
9%
983
16,378,545
247,487
8%
12%
7%
15%
7%
15%
9%
5%
8%
-3%
—
3%
14
2020 Financial Highlights
2020 Annual Report Chesapeake Utilities Corporation
Our shared commitment and hard work
continue to be exemplified by our superior
performance and positive results. The
dedication of our employees positions us
for growth opportunities year after year,
and is reflected by the milestones achieved
and accolades earned, especially during this
unprecedented time. In today’s workplace,
our employees have gone above and
beyond mere compliance. We innovate with
responsibility and integrity to provide safe
and reliable delivery service and to use
our understanding of technology to instill
inclusiveness and to remain connected
with our colleagues and external
stakeholders. As a Company, we remain
grounded and steadfastly focused on
leading within the industry, growing our
businesses and supporting our communities
while shaping the future to facilitate
sustainable practices and generate
long-term value for our stakeholders.
2020 Diluted
Earnings Per Share
from Continuing
Operations was
A RECORD
$4.21, AN
INCREASE
OF $0.49
OR 13.2%
OVER 2019.
Diluted Earnings Per Share
from Continuing Operations
$2.63
$2.77
$2.89*
$3.47
$3.72
$4.21
C O M P O U N D A N N U A L G R O W T H R A T E ( C A G R ) = 9 . 9 %
2015
2016
2017
2018
2019
2020
*2017 excludes one-time Tax Cuts & Jobs Act Benefit.
In 2020, we
achieved an
11.5% AVERAGE
RETURN
ON EQUITY.
Average Return on Equity
from Continuing Operations
11.7%
11.0%
13.0%
11.3%
11.3%
11.5%
2015
2016
2017
2018
2019
2020
2020 Financial Highlights
Standing Strong. Embracing Change. Shaping Our Future.
15
Annualized Dividends
Per Share
Our Board of
Directors declared a
DIVIDEND
INCREASE
OF 8.6%,
OUR 17TH
CONSECUTIVE
YEAR OF
INCREASED
DIVIDENDS.
5 - Y E A R C O M P O U N D A N N U A L G R O W T H R A T E = 8 . 9 %
$1.48
$1.62
$1.76
$1.22
$1.15
$1.30
2015
2016
2017
2018
2019
2020
Annual Capital
Expenditures
(in millions)
$195.9
million in new Capital
Expenditures in 2020.
$300
$250
$200
$150
$100
$50
0
5-YEAR CUMULATIVE INVESTMENT OF $1.026 BILLION
$282.9
$169.4
$179.3
$199.0
$195.9
2016
2017
2018
2019
2020
Capital Expenditures excluding acquisitions
Acquisitions
Cap Ex/ Total Cap
35%
30%
25%
20%
15%
10%
5%
0%
16
2020 Annual Report Chesapeake Utilities Corporation
2020 Financial Highlights
Average Annualized
Shareholder Return
For periods ending December 31, 2020
15%
earned in 2020 by
investors on their
Chesapeake Utilities
Corporation’s investment.
13%
or higher return achieved
for each period.
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
15%
%
8
1
%
2
%
4
%
1
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%
5
1
-
%
7
1
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%
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0
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6
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3
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2
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%
0
1
%
8
%
7
1 Year
3 Year
5 Year
10 Year
20 Year
Peer Median
Peer 75th
Percentile
CPK
Dow Jones
Utilities Index
S&P 500 Index
Market Capitalization
$108.21
In the past 10
years, we have
DOUBLED
OUR MARKET
CAPITALIZATION
TWICE.
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2008 2009 2010
2011
2012
2013 2014 2015 2016 2017 2018
2019
2020
Market Cap (in millions)
Stock Price
2020 Financial Highlights
Standing Strong. Embracing Change. Shaping Our Future.
17
Aspire Energy earned
an American Gas
Association Safety
Achievement Award
for excellence in
both employee and
vehicular safety.
$111.40
per share stock price
reached an all-time high
on December 18, 2020
for the year.
Florida Public Utilities earned an
American Gas Association Safety
Award as a top performer for vehicular
safety by achieving the lowest
motor vehicle accident rate among
companies of its size and type.
In 2020, only gas
regulated utility
that increased
stock price
appreciation
year-over-year.
Standing Strong. Embracing Change. Shaping Our Future.
$1.9
billion in assets at
December 31, 2020.
2
consecutive years
recognized as a
Top Workplace in
Central Florida.
Received the 34th Annual Governor’s
Hurricane Conference “2020 Public
Education/Public Information Award”
for Florida Public Utilities’ innovative
and effective communications and
public resources that enhance hurricane
preparedness, response, recovery
and mitigation in the state of Florida.
2020 Annual Report Chesapeake Utilities Corporation per share stock price
reached an all-time high
on December 18, 2020
for the year.
9
consecutive years
recognized as a
Top Workplace
in Delaware.
14
consecutive years
of superior earnings.
Sharp Energy received recognition
as the “Best Propane Company
in 2020” and Chesapeake Utilities
was named “Best Company Over
50 People,” as nominated by
customers for the Delaware State
News Delaware Stars Recognition.
Named a 2021 Top
Workplaces USA award
recipient, celebrating our
employee-centric culture.
S&P Small Cap
600 Index
Chesapeake Utilities
Corporation was selected
for inclusion in this premier
benchmark for U.S. small
cap companies.
Standing Strong. Embracing Change. Shaping Our Future. Our
Company
20
A Letter From Our President2020 Annual Report Chesapeake Utilities Corporation Our commitment to improve service
reliability, and to ensure safety
and compliance in our operations
and everyday processes has consistently
led to industry recognition.
A Letter From Our PresidentStanding Strong. Embracing Change. Shaping Our Future. Our
Company
Chesapeake Utilities Corporation is a diversified
energy delivery company (NYSE: CPK) dedicated to
providing safe, reliable, and environmentally friendly
service to our customers. Headquartered in Dover,
Delaware, we have been serving customers since 1859,
operating primarily on the Delmarva Peninsula and in
Florida, Pennsylvania and Ohio.
Through our operating divisions and subsidiaries,
we are engaged in the distribution of natural gas,
propane gas and electricity; the transmission
of natural gas; the generation of electricity
and steam; mobile compressed natural gas
(CNG) solutions; and other businesses.
Safety is our top priority. There is nothing
more important than the safety of our team,
our customers and our communities. This
commitment is recognized by our employees’
genuine focus on safety by being accountable
for establishing and maintaining the highest
standards across our organization. We work
collectively with public officials, emergency
responders, customers and safety advocates
to promote a broader safety culture that
is embedded within the Company and our
communities. By adhering to best practices,
we continuously improve procedures and
training to ensure superior safety performance.
As a trusted and responsible energy provider,
the Company is built upon a legacy of caring,
committed to making positive contributions to
the economic prosperity and sustainability of its
communities. Our employees collaborate across
our businesses to understand customers’
challenges; identify innovative solutions; and
develop growth opportunities within our existing
businesses and new markets. With this process,
we provide a disciplined business approach as
we expand our energy services and extend our
geographic footprint, providing customers with
valuable options.
With the financial and operational strength
of the Company, a comprehensive purpose
continues across our organization where
our talented and diverse employees strive to
enhance our corporate responsibility related
to environmental, social and corporate
governance considerations. As a Company,
we cultivate a high-performance workforce,
and encourage integrity, diversity, accountability
and acceptance. We continue to enhance the
work experience by building a more inclusive
culture where everyone is respected and
valued. Our efforts are underway with the
Company’s newly created Equity, Diversity &
Inclusion (EDI) initiative, led by our CEO and an
appointed EDI Council. The EDI Council ensures
that our Company’s framework throughout
the organization promotes, supports and
strengthens equity, diversity and inclusion.
Through the EDI initiative, our teams will
reflect the communities that we serve and our
commitment will drive our business strategies,
policies and procedures, individual development
and community outreach.
22
Our Company
2020 Annual Report Chesapeake Utilities Corporation With the majority of our employees working
remotely, Connie Osei, Executive Assistant,
is one of our essential workers who manages
the day-to-day business and supports our
senior leadership team.
We are strongly committed to operating in a
sustainable manner and increasing environmental
benefits in our communities. Thomas Stanley,
Propane Operator I, conducts a delivery of propane
AutoGas at the Company’s fueling station in
Jacksonville, Florida. Propane AutoGas is a viable
alternative fuel, along with compressed natural
gas and renewable natural gas, in support of
the Company’s propane and natural gas vehicle
conversion systems for automobile fleets that
reduce emissions and lower costs.
During these unprecedented times, Chesapeake
Utilities Corporation continues to partner with
local and national organizations, supporting
community outreach initiatives. Pictured is
Amelia Lewis, Customer & Project Coordinator,
who created approximately 400 masks to share
with family, friends, and colleagues; and on behalf
of the Company, Amelia contributed a portion of
her masks to the Greater Dover Boys & Girls Club
in Dover, Delaware.
Pictured is Chris Allen, Senior Lineman. Over
the years, in response to numerous storms,
our employees across our businesses have
assisted energy companies throughout the
U.S. In 2020, many individuals lost power
and sustained damages to their homes or
businesses as a result of Hurricane Isaias. As
part of the Southeast Electric Exchange mutual
assistance network, a team of employees from
our electric distribution operations traveled to
New Jersey to assist with the storm restoration.
Our Company
23
Standing Strong. Embracing Change. Shaping Our Future. Business Operations
Natural Gas
Transmission
Eastern Shore Natural Gas Company (ESNG)
Owns and operates a 501-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. In 2019,
ESNG completed the construction of the largest system expansion project
in the Company’s history increasing its capacity by 26%.
501
miles of pipeline
50
BCF of natural gas
transported a year
Peninsula Pipeline Company, Inc. (PPC)
Owns and operates several intrastate natural gas pipelines throughout
seven counties in Florida. PPC provides transportation service that links
interstate pipelines to local distribution systems, industrial customers
and power generation facilities. In 2020, PPC completed the Callahan
Intrastate Pipeline, bringing additional natural gas capacity to Nassau
and Duval Counties in Florida.
Aspire Energy of Ohio, LLC
Owns and operates natural gas gathering infrastructure throughout
40 counties in Ohio. Provides natural gas supplies to several local
distribution companies and cooperatives. Primarily sources gas from
approximately 300 conventional producers and provides additional
services to maintain quality and reliability to wholesale markets.
Chesapeake Utilities, Elkton Gas Company
and Sandpiper Energy, Inc.
Own and operate approximately 1,900 miles of natural gas
distribution mains across nine counties in Delaware and Maryland.
Chesapeake Utilities, Elkton Gas Company and Sandpiper Energy,
Inc. distribute natural gas to approximately 92,000 customers.
In 2020, Sandpiper Energy, Inc. completed the final segment
of customer conversions from propane gas to natural gas
in Ocean City, Maryland, with approximately 10,000 customer
accounts converted.
Florida Public Utilities Company (FPU)
Owns and operates approximately 3,000 miles of natural gas
distribution mains across 21 counties in Florida. FPU and our
Florida division of Chesapeake Utilities Corporation distribute
natural gas to approximately 86,000 customers. FPU also owns
and operates electric utility assets across four counties in Florida
and distributes electricity to approximately 32,000 customers.
129
miles of pipeline
7
counties served
throughout Florida
2,700
miles of pipeline
40
counties served
throughout Ohio
1,900
miles of gas
distribution mains
92,000
customers
3,000
miles of gas
distribution mains
118,000
natural gas and
electric customers
Natural Gas
Distribution
and Electric
Distribution
24
Our Company
2020 Annual Report Chesapeake Utilities Corporation Propane
Distribution
Sharp Energy, Inc. and Flo-Gas Corporation
Distribute propane to customers in Delaware, Maryland, Virginia
and southeastern Pennsylvania (Sharp Energy), and Florida (Flo-Gas
Corporation). In 2020, Sharp Energy completed the acquisition
of Western Natural Gas Company in Jacksonville, Florida, providing
propane gas service to approximately 4,000 customers. This enables
Sharp Energy to extend the availability of its propane operations
in Florida and build upon our existing propane footprint in the state.
Collectively, Sharp Energy and Flo-Gas Corporation distribute
propane gas to approximately 67,000 customers. Sharp AutoGas
fuels over 1,500 vehicles and is available at 59 propane fueling
stations in Delaware, Florida, Maryland, Pennsylvania and Virginia.
67,000
customers
1,500
vehicles fueled
via AutoGas
Energy
Delivery
Development
Eight Flags Energy, LLC
Provides electricity and steam generation services through a
combined heat and power (CHP) plant on Amelia Island, Florida,
serving approximately 50% of Amelia Island’s demand for electricity.
The CHP plant produces electricity, steam and water with less air
pollutants and water usage, meeting an 80% efficiency target and
cutting overall energy consumption in half.
21
megawatts of
baseload power
80%
efficiency
Marlin Gas Services, LLC (Marlin)
Maintains one of the largest fleets of compressed natural gas (CNG)
steel tube trailers consisting of various sizes to provide solutions for all
of its customers’ various applications nationwide. Marlin offers interim
and long-term natural gas solutions when pipeline supplies are not
available, traditional methods cannot meet customer requirements,
and during pipeline outages. Marlin continues to actively expand the
territories it serves, as well as to leverage its personnel and technology
to serve liquefied natural gas (LNG) users and to provide transportation
services for renewable natural gas (RNG) from supply sources to
various pipeline interconnection points.
LEFT: Chesapeake Utilities
Corporation is grateful for the
dedication and perseverance of
our frontline essential employees
who perform a range of operations
to provide safe, reliable, efficient
and uninterrupted delivery service
to our customers. Pictured is
Virginia Nail, Senior Meter Technician.
RIGHT: Chesapeake Utilities
Corporation uses combined
heat and power (CHP) to provide
significant efficiency improvements
and cost savings while reducing
overall environmental impact.
Pictured is Joseph Moody,
Operations & Maintenance
Technician II, at our Eight Flags
Energy, LLC CHP Plant on Amelia
Island, Florida.
Our Company
25
Standing Strong. Embracing Change. Shaping Our Future. Our
Leadership
Chesapeake Utilities Corporation is
a responsible company that cultivates
a diverse and high-performance
workforce, encouraging employees
to be authentic leaders who continuously
work together to stand strong while
embracing change to shape our future.
Our
Leadership
Our leadership team is comprised of dedicated
and experienced individuals committed to a
collaborative Company culture, empowering
our employees and making a difference for
all stakeholders.
Jeffry M. Householder
Beth W. Cooper
James F. Moriarty
Cheryl M. Martin
President & Chief Executive Officer
Executive Vice President,
Chief Financial Officer &
Assistant Corporate Secretary
Executive Vice President, General
Counsel, Corporate Secretary and
Chief Policy and Risk Officer
Senior Vice President, Regulatory
and External Affairs
Jeffrey S. Sylvester
Kevin J. Webber
Vikrant A. Gadgil
Shane E. Breakie
Senior Vice President, Pipeline
Transmission and Regulated
Gas and Electric Distribution
Senior Vice President,
Unregulated Energy Delivery
and Business Development
Vice President and
Chief Information Officer
Vice President, Chesapeake
Utilities and Sandpiper Energy
28
Our Leadership
2020 Annual Report Chesapeake Utilities Corporation Michael D. Galtman
Andrew R. Hesson
Thomas E. Mahn
Joseph D. Steinmetz
Vice President and
Chief Accounting Officer
Vice President,
Propane Operations
Vice President and Treasurer
Vice President and
Corporate Controller
Jeffrey R. Tietbohl
Jason L. Bennett
Michael D. Cassel
William D. Hancock
Vice President and Chief Operating
Officer, Eastern Shore Natural
Gas Company, Peninsula Pipeline
Company and Aspire Energy
Assistant Vice President,
Operations Services
Assistant Vice President,
Regulatory Affairs and
Business Analysis
Assistant Vice President,
Fuel Supply and Logistics
Barry D. Kennedy
Kevin M. McCrackin
Danielle Mulligan
Kelley A. Parmer
Assistant Vice President,
Natural Gas Distribution
Assistant Vice President,
Business Development and Vice
President, Marlin Gas Services
Assistant Vice President,
Communications and Marketing
Assistant Vice President,
Customer Care
Stacie L. Roberts
Devon S. Rudloff
Drane A. Shelley
Assistant Vice President,
Corporate Governance
Assistant Vice President,
Human Resources
Assistant Vice President,
Florida Electric Distribution
Our Leadership
29
Standing Strong. Embracing Change. Shaping Our Future. Our Board
of Directors
The Board of Directors of Chesapeake Utilities
Corporation provides guidance, and insight for
the entire Company, leveraging their prior diverse
experiences and leadership expertise to strengthen
our business and long-term strategic focus.
John R. Schimkaitis
DIRECTOR SINCE 1996
Eugene H. Bayard, Esq.
DIRECTOR SINCE 2006
Thomas J. Bresnan
DIRECTOR SINCE 2001
Ronald G. Forsythe, Jr., Ph.D.
DIRECTOR SINCE 2014
Chair of the Board,
Retired President and Chief
Executive Officer, Chesapeake
Utilities Corporation
Of Counsel, Morris James LLP,
Georgetown, Delaware
Owner & President,
Denver Accounting Services,
Denver, Colorado
Chief Executive Officer,
Qlarant Corporation,
Easton, Maryland
Thomas P. Hill, Jr.
DIRECTOR SINCE 2006
Jeffry M. Householder
DIRECTOR SINCE 2019
Dennis S. Hudson, III
DIRECTOR SINCE 2009
Retired Vice President of
Finance & Chief Financial Officer,
Exelon Energy Delivery Company,
Philadelphia, Pennsylvania
President and Chief Executive
Officer, Chesapeake Utilities
Corporation
Executive Chair of the Board,
Former Chief Executive Officer,
Seacoast National Bank & Seacoast
Banking Corporation of Florida,
Stuart, Florida
Lila A. Jaber, Esq.
DIRECTOR SINCE 2020
President, Jaber Group Inc.,
Tallahassee, Florida
30
Our Leadership
2020 Annual Report Chesapeake Utilities Corporation Paul L. Maddock, Jr.
DIRECTOR SINCE 2009
Chief Executive Officer and
Manager, Palamad, LLC,
Palm Beach, Florida
Calvert A. Morgan, Jr.
DIRECTOR SINCE 2000
Dianna F. Morgan
DIRECTOR SINCE 2008
Retired Director and Former
Special Advisor, WSFS Financial
Corporation, and Retired Director
and Former Vice Chair, Wilmington
Savings Fund Society (WSFS
Bank), Wilmington, Delaware;
Retired Chair, President & Chief
Executive Officer, PNC Bank,
Delaware, Wilmington, Delaware
Former Senior Vice President,
Walt Disney World Co., Orlando,
Florida; Past Chair of the Board
of Trustees, University of Florida,
Gainesville, Florida
AUDIT
COMMITTEE
COMPENSATION
COMMITTEE
CORPORATE GOVERNANCE
COMMITTEE
INVESTMENT
COMMITTEE
Thomas J. Bresnan—CHAIR
Ronald G. Forsythe, Jr., Ph.D.
Thomas P. Hill, Jr.
Dennis S. Hudson, III
Dianna F. Morgan—CHAIR
Ronald G. Forsythe, Jr., Ph.D.
Dennis S. Hudson, III
Calvert A. Morgan, Jr.
Calvert A. Morgan, Jr.—CHAIR
Eugene H. Bayard, Esq.
Lila A. Jaber, Esq.
Paul L. Maddock, Jr.
Dianna F. Morgan
Jeffry M. Householder—CHAIR
Thomas J. Bresnan
Thomas P. Hill, Jr.
Calvert A. Morgan, Jr.
John R. Schimkaitis
Our Leadership
31
Standing Strong. Embracing Change. Shaping Our Future.
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 2020
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-11590
CHESAPEAKE UTILITIES CORPORATION
(Exact name of registrant as specified in its charter)
State of Delaware
(State or other jurisdiction of
incorporation or organization)
51-0064146
(I.R.S. Employer
Identification No.)
909 Silver Lake Boulevard, Dover, Delaware 19904
(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
Common Stock—par value per share $0.4867
Trading Symbol
CPK
Name of each exchange on which registered
New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 the 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
☒
Non-accelerated filer
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
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 a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report. ☒
The aggregate market value of the common shares held by non-affiliates of Chesapeake Utilities Corporation as of June 30, 2020, the last business day of its
most recently completed second fiscal quarter, based on the last sale price on that date, as reported by the New York Stock Exchange, was approximately $1.3
billion.
The number of shares of Chesapeake Utilities Corporation's common stock outstanding as of February 18, 2021 was 17,473,124
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Chesapeake Utilities Corporation Proxy Statement for the 2021 Annual Meeting of Shareholders are incorporated by reference in Part II and
Part III hereof.
Table of Contents
CHESAPEAKE UTILITIES CORPORATION
FORM 10-K
YEAR ENDED DECEMBER 31, 2020
TABLE OF CONTENTS
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers of the Registrant and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
Page
1
2
12
19
19
20
20
21
21
23
25
45
48
103
103
104
104
104
104
104
104
104
104
104
110
110
Table of Contents
GLOSSARY OF DEFINITIONS
ASC: Accounting Standards Codification issued by the FASB
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
Boulden: Boulden, Inc., an entity from whom we acquired certain propane operating assets
CARES Act: Coronavirus Aid, Relief, and Economic Security Act
CDC: U.S. Centers for Disease Control and Prevention
CDD: Cooling Degree-Day
CGS: Community Gas Systems
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 newly discovered coronavirus
CNG: Compressed natural gas
Degree-day: A degree-day is the 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
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 subsidiary of Chesapeake OnSight Services, LLC
Elkton Gas: Elkton Gas Company, a wholly-owned subsidiary of Chesapeake Utilities
FASB: Financial Accounting Standards Board
FERC: Federal Energy Regulatory Commission
FGT: Florida Gas Transmission Company
Flo-gas: Flo-gas Corporation, a wholly-owned subsidiary of FPU
FPU: Florida Public Utilities Company, a wholly-owned subsidiary of Chesapeake Utilities
GAAP: Generally Accepted Accounting Principles
GRIP: Gas Reliability Infrastructure Program
Gross Margin: a non-GAAP measure defined as operating revenues less the cost of sales. The Company's cost of sales
includes purchased fuel cost for natural gas, electricity and propane and the cost of labor spent on direct revenue-producing
activities and excludes depreciation, amortization and accretion
Table of Contents
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
MW: Megawatt, which is a unit of measurement for electric power or capacity
NOL: Net operating losses
NYL: New York Life Investors LLC, an institutional debt investment management firm, with which Chesapeake Utilities
entered into a Shelf Agreement and issued Shelf Notes
Peninsula Pipeline: Peninsula Pipeline Company, Inc., a wholly-owned subsidiary of Chesapeake Utilities
Peoples Gas: Peoples Gas System, an Emera Incorporated subsidiary
PESCO: Peninsula Energy Services Company, Inc., an inactive wholly-owned subsidiary of Chesapeake Utilities
Prudential: Prudential Investment Management Inc., an institutional investment management firm, with which Chesapeake
Utilities entered into a previous Shelf Agreement, which has been subsequently amended, 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 new $375 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 respective Shelf Agreement executed with various
counterparties
SICP: 2013 Stock and Incentive Compensation Plan
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
Uncollateralized Senior Notes: Our unsecured long-term debt issued primarily to insurance companies on various dates
U.S.: The United States of America
Western Natural Gas: Western Natural Gas Company
Table of Contents
PART I
References in this document to “Chesapeake,” “Chesapeake Utilities,” the “Company,” “we,” “us” and “our” mean Chesapeake
Utilities Corporation, its divisions and/or its subsidiaries, as appropriate in the context of the disclosure.
Safe Harbor for Forward-Looking Statements
We make statements in this Annual Report on Form 10-K (this "Annual Report") that do not directly or exclusively relate to
historical facts. Such statements are “forward-looking statements” within the meaning of Section 27A of the Securities Act of
1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation
Reform Act of 1995. One can typically identify forward-looking statements by the use of forward-looking words, such as
“project,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “continue,” “potential,” “forecast” or other similar
words, or future or conditional verbs such as “may,” “will,” “should,” “would” or “could.” These statements represent our
intentions, plans, expectations, assumptions and beliefs about future financial performance, business strategy, projected plans
and objectives of the Company. Forward-looking statements speak only as of the date they are made or as of the date indicated
and we do not undertake any obligation to update forward-looking statements as a result of new information, future events or
otherwise. These statements are subject to many risks and uncertainties. In addition to the risk factors described under Item 1A,
Risk Factors, the following important factors, among others, could cause actual future results to differ materially from those
expressed in the forward-looking statements:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
state and federal legislative and regulatory initiatives that affect cost and investment recovery, have an impact on rate
structures, and affect the speed and the degree to which competition enters the electric and natural gas industries;
the outcomes of regulatory, environmental and legal matters, including whether pending matters are resolved within
current estimates and whether the related costs are adequately covered by insurance or recoverable in rates;
the impact of climate change, including the impact of greenhouse gas emissions or other legislation or regulations
intended to address climate change;
the impact of significant changes to current tax regulations and rates;
the timing of certification authorizations associated with new capital projects and the ability to construct facilities at or
below estimated costs;
changes in environmental and other laws and regulations to which we are subject and environmental conditions of
property that we now, or may in the future, own or operate;
possible increased federal, state and local regulation of the safety of our operations;
the inherent hazards and risks involved in transporting and distributing natural gas, electricity and propane;
the economy in our service territories or markets, the nation, and worldwide, including the impact of economic
conditions (which we do not control) on demand for natural gas, electricity, propane or other fuels;
risks related to cyber-attacks or cyber-terrorism that could disrupt our business operations or result in failure of
information technology systems or result in the loss or exposure of confidential or sensitive customer, employee or
Company information;
adverse weather conditions, including the effects of hurricanes, ice storms and other damaging weather events;
customers' preferred energy sources;
industrial, commercial and residential growth or contraction in our markets or service territories;
the effect of competition on our businesses from other energy suppliers and alternative forms of energy;
the timing and extent of changes in commodity prices and interest rates;
the effect of spot, forward and future market prices on our various energy businesses;
the extent of our success in connecting natural gas and electric supplies to our transmission systems, establishing and
maintaining key supply sources, and expanding natural gas and electric markets;
the creditworthiness of counterparties with which we are engaged in transactions;
the capital-intensive nature of our regulated energy businesses;
our ability to access the credit and capital markets to execute our business strategy, including our ability to obtain
financing on favorable terms, which can be affected by various factors, including credit ratings and general economic
conditions;
the ability to successfully execute, manage and integrate a merger, acquisition or divestiture of assets or businesses and
the related regulatory or other conditions associated with the merger, acquisition or divestiture;
the impact on our costs and funding obligations, under our pension and other post-retirement benefit plans, of potential
downturns in the financial markets, lower discount rates, and costs associated with health care legislation and regulation;
the ability to continue to hire, train and retain appropriately qualified personnel;
the effect of accounting pronouncements issued periodically by accounting standard-setting bodies; and
risks related to the outbreak of a pandemic, including the duration and scope of the pandemic and the corresponding
impact on our supply chains, our personnel, our contract counterparties, general economic conditions and growth, and
the financial markets.
Chesapeake Utilities Corporation 2020 Form 10-K Page 1
Table of Contents
ITEM 1. Business.
Corporate Overview and Strategy
Chesapeake Utilities Corporation is a Delaware corporation formed in 1947 with operations primarily in the Mid-Atlantic
region, Florida and Ohio. We are an energy delivery company engaged in the distribution of natural gas, electricity and
propane; the transmission of natural gas; the generation of electricity and steam, and in providing related services to our
customers. Our strategy is focused on growing earnings from a stable utility foundation and investing in related businesses
and services that provide opportunities for returns greater than traditional utility returns. We are focused on identifying and
developing opportunities across the energy value chain, with emphasis on midstream and downstream investments that are
accretive to earnings per share, consistent with our long-term growth strategy and create opportunities to continue our record
of top tier returns on equity relative to our peer group. The Company’s growth strategy includes the continued investment and
expansion of the Company’s natural gas operations that provide a stable base of earnings, as well as investments in other
related (non-regulated businesses) and services. By investing in these related business and services, the Company creates
opportunities to sustain its track record of higher returns, as compared to a traditional utility.
Currently, the Company’s growth strategy is focused on the following platforms, including:
•
•
•
•
•
Optimizing the earnings growth in our existing businesses, which includes organic growth, territory expansions,
and new products and services as well as increased opportunities for collaboration and efficiencies across the
organization.
Identification and pursuit of additional pipeline expansions, including new interstate and intrastate transmission
projects.
Growth of Marlin Gas Services’ CNG transport business and expansion into LNG and RNG transport services as
well as methane capture.
Identifying and undertaking additional strategic propane acquisitions that provide a larger foundation in current
markets and expand our brand and presence into new strategic growth markets.
Pursuit of growth opportunities that enable us to utilize our integrated set of energy delivery businesses to
participate in renewable energy opportunities.
Operating Segments
We operate within two reportable segments: Regulated Energy and Unregulated Energy. The remainder of our operations is
presented as “Other businesses and eliminations." These segments are described below in detail.
Regulated Energy
Our regulated energy businesses are comprised of natural gas and electric distribution, as well as natural gas transmission
services. The following table presents net income for the year ended December 31, 2020 and total assets as of December 31,
2020, for our Regulated Energy segment by operation and area served:
Operations
(in thousands)
Natural Gas Distribution
Delmarva Natural Gas (1)
Central Florida Gas and FPU
Natural Gas Transmission
Eastern Shore
Peninsula Pipeline
Aspire Energy Express
Electric Distribution
FPU
Total Regulated Energy
Areas Served
Net Income
Total Assets
Delaware/Maryland
Florida
Delaware/Maryland/
Pennsylvania
Florida
Ohio
Florida
$
9,448
$
12,542
20,320
9,359
34
319,028
451,966
471,492
129,862
1,599
3,942
173,672
$
55,645
$
1,547,619
Chesapeake Utilities Corporation 2020 Form 10-K Page 2
Table of Contents
(1)
Delmarva Natural Gas consists of Delaware division, Maryland division, Sandpiper Energy and Elkton Gas.
Revenues in the Regulated Energy segment are based on rates regulated by the PSC in the states in which we operate or, in
the case of Eastern Shore, which is an interstate business, by the FERC. The rates are designed to generate revenues to
recover all prudent operating and financing costs and provide a reasonable return for our stockholders. Each of our
distribution and transmission operations has a rate base, which generally consists of the original cost of the operation's plant,
less accumulated depreciation, working capital and other assets. For Delmarva Natural Gas and Eastern Shore, rate base also
includes deferred income tax liabilities and other additions or deductions. Our Regulated Energy operations in Florida do not
include deferred income tax liabilities in their rate base.
Our natural gas and electric distribution operations bill customers at standard rates approved by their respective state PSC.
Each state PSC allows us to negotiate rates, based on approved methodologies, for large customers that can switch to other
fuels. Some of our customers in Maryland receive propane through underground distribution systems in Worcester County.
We bill these customers under PSC-approved rates and include them in the natural gas distribution results and customer
statistics.
Our natural gas and electric distribution operations earn profits on the delivery of natural gas or electricity to customers. The
cost of natural gas or electricity that we deliver is passed through to customers under PSC-approved fuel cost recovery
mechanisms. The mechanisms allow us to adjust our rates on an ongoing basis without filing a rate case to recover changes in
the cost of the natural gas and electricity that we purchase for customers. Therefore, while our distribution operating revenues
fluctuate with the cost of natural gas or electricity we purchase, our distribution margin (which we define as operating
revenues less purchased gas or electric cost) is generally not impacted by fluctuations in the cost of natural gas or electricity.
Our natural gas transmission operations bill customers under rate schedules approved by the FERC or at rates negotiated with
customers.
Acquisition of Elkton Gas
In July 2020, we closed on the acquisition of Elkton Gas, which provides natural gas distribution service to approximately
7,000 residential and commercial customers within a franchised area of Cecil County, Maryland. See Item 8, Financial
Statements and Supplementary Data (Note 4, Acquisitions and Divestitures in the consolidated financial statements) for
further information. The results of Elkton Gas are now included within our Delmarva Natural Gas distribution operations.
Operational Highlights
The following table presents operating revenues, volumes and the average number of customers by customer class for our
natural gas and electric distribution operations for the year ended December 31, 2020:
Operating Revenues (in thousands)
Residential
Commercial
Industrial
Other (1)
Total Operating Revenues
Volumes (in Dts for natural gas/KW Hours for electric)
Residential
Commercial
Industrial
Other
Total Volumes
Average Number of Customers (4)
Residential
Commercial
Industrial
Other
Total Average Number of Customers
Delmarva
Natural Gas
Distribution (2)
Florida
Natural Gas
Distribution (3)
FPU
Electric
Distribution
$
$
64,640
30,788
9,138
290
104,856
3,697,300
3,671,768
5,236,104
270,013
12,875,185
62 % $
29 %
9 %
<1%
100 % $
38,975
30,745
39,054
12,225
120,999
32 % $
26 %
32 %
10 %
100 % $
45,550
34,494
1,336
(4,517)
76,863
29 % 1,897,364
29 % 5,921,505
40 % 32,215,804
2 % 2,900,247
100 % 42,934,920
4 %
14 %
75 %
7 %
100 %
305,020
293,262
14,806
—
613,088
84,191
7,764
195
16
92,166
91 %
9 %
<1%
<1%
100 %
77,936
5,574
2,530
14
86,054
91 %
6 %
3 %
<1%
100 %
25,044
7,280
2
—
32,326
59 %
45 %
2 %
(6) %
100 %
50 %
48 %
2 %
— %
100 %
77 %
23 %
<1%
— %
100 %
(1) Operating Revenues from "Other" sources include revenue, 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.
(2) Operating revenues, volumes and average customers for the Delmarva natural gas distribution operations includes those for Elkton Gas which was acquired in July 2020. See
Item 8, Financial Statements and Supplementary Data (Note 4, Acquisitions and Divestitures in the consolidated financial statements) for further information.
(3) Florida natural gas distribution includes Chesapeake Utilities' Central Florida Gas division, FPU and FPU's Indiantown and Fort Meade divisions.
Chesapeake Utilities Corporation 2020 Form 10-K Page 3
Table of Contents
(4) Average number of customers is based on the twelve-month average for the year ended December 31, 2020.
The following table presents operating revenues, by customer type, for Eastern Shore and Peninsula Pipeline for the year
ended December 31, 2020, as well as contracted firm transportation capacity by customer type, and design day capacity at
December 31, 2020:
Operating Revenues (in thousands)
Local distribution companies - affiliated (1)
Local distribution companies - non-affiliated
Commercial and industrial - affiliated
Commercial and industrial - non-affiliated
Other (2)
Total Operating Revenues
Contracted firm transportation capacity (in Dts/d)
Local distribution companies - affiliated
Local distribution companies - non-affiliated
Commercial and industrial - affiliated
Commercial and industrial - non-affiliated
Total Contracted firm transportation capacity
Eastern Shore
Peninsula Pipeline
$
$
26,855
24,953
—
22,905
404
75,117
36 % $
33 %
— %
31 %
<1%
100 % $
20,827
840
1,120
264
29
23,080
148,795
58,576
—
93,540
300,911
49 %
20 %
— %
31 %
100 %
306,400
4,825
1,500
600
313,325
90 %
4 %
5 %
1 %
<1%
100 %
98 %
1 %
1 %
<1%
100 %
100 %
Design day capacity (in Dts/d)
(1) Eastern Shore's and Peninsula Pipeline's service to our local distribution affiliates is based on the respective regulator's approved rates and is an integral component of the cost
associated with providing natural gas supplies to the end users of those affiliates. We eliminate operating revenues of these entities against the cost of sales of those affiliates in
our consolidated financial information; however, our local distribution affiliates include this amount in their purchased fuel cost and recover it through fuel cost recovery
mechanisms.
100 %
300,911
313,325
(2) Operating revenues from "Other" sources are from the rental of gas properties.
Regulatory Overview
The following table highlights key regulatory information for each of our principal Regulated Energy operations. Peninsula
Pipeline is not regulated with regard to cost of service by either the Florida PSC or FERC and is therefore excluded from the
table. See Item 8, Financial Statements and Supplementary Data (Note 19, Rates and Other Regulatory Activities, in the
consolidated financial statements) for further discussion on the impact of this legislation on our regulated businesses.
Natural Gas Distribution
Delmarva
Florida
Electric
Distribution
Natural Gas
Transmission
Operation/
Division
Delaware
Maryland
Sandpiper Elkton Gas (7)
Chesapeake's
Florida natural
gas division
FPU
FPU
Eastern Shore
Regulatory Agency
Delaware PSC
Maryland PSC
Florida PSC
FERC
Effective date - Last
Rate Order
Rate Base (in Rates)
(in Millions)
Annual Rate
Increase Approved
(in Millions)
01/01/2017
12/1/2007
12/01/2019
02/07/2019
01/14/2010
01/14/2010(1)
10/8/2020
08/01/2017
Not stated
Not stated
Not stated
Not stated
$46.7
$68.9
$24.9
Not stated
$2.3
$0.6
N/A(2)
$0.1
$2.5
$8.0
$3.4 base rate and
$7.7 from storm
surcharge
$9.8
Capital Structure (in
rates)(3)*
Not stated
LTD: 42%
STD: 5%
Equity: 53%
Not stated
LTD: 50%
Equity: 50%
LTD: 31% STD:
6% Equity: 43%
Other: 20%
LTD: 31% Equity:
47% Other:
22%
LTD: 22% STD:
23% Equity: 55%
Not stated
Allowed Return on
Equity
9.75% (4)
10.75%(4)
Not stated (5)
9.80%
10.80%(4)
10.85%(4)
10.25%(4), (6)
Not stated
TJCA Refund Status
associated with
customer rates
Refunded
(1) The effective date of the order approving the settlement agreement, which adjusted the rates originally approved on June 4, 2009.
(2) The Maryland PSC approved a declining return on equity that will result in a decline in our rates.
(3) Other components of capital structure include customer deposits, deferred income taxes and tax credits.
Refunded
Refunded
Refunded
Retained
Retained
N/A
Refunded
Chesapeake Utilities Corporation 2020 Form 10-K Page 4
Table of Contents
(4) Allowed after-tax return on equity.
(5) The terms of the agreement include revenue neutral rates for the first year (December 1, 2016 through November 30, 2017), followed by a schedule of rate
reductions in subsequent years based upon the projected rate of propane to natural gas conversions.
(6) The terms of the settlement agreement for the FPU electric division limited proceeding with the Florida PSC prescribed an authorized return on equity
range of 9.25 to 11.25 percent, with a mid-point of 10.25 percent.
(7) The rate increase and allowed return on equity for Elkton Gas were approved by the Maryland PSC before we acquired the company.
* LTD-Long-term debt; STD-Short-term debt.
In October 2018, Hurricane Michael passed through FPU's electric distribution operation's service territory in Northwest
Florida and caused widespread and severe damage to FPU's infrastructure resulting in the loss of electric service to 100
percent of its customers in the Northwest Florida service territory. FPU expended more than $65.0 million to restore service,
which was recorded as new plant and equipment, charged against FPU’s accumulated depreciation or charged against FPU’s
storm reserve.
In August 2019, FPU filed a limited proceeding requesting recovery of storm-related costs associated with Hurricane Michael
(capital and expenses) through a change in base rates. FPU also requested treatment and recovery of certain storm-related
costs as regulatory assets for items currently not allowed to be recovered through the storm reserve as well as the recovery of
capital replaced as a result of the storm. Recovery of these costs included a component of an overall return on capital
additions and regulatory assets. In March 2020, we filed an update to our original filing to account for actual charges incurred
through December 2019, revised the amortization period of the storm-related costs from 30 years as originally requested to
10 years, and included costs related to Hurricane Dorian of approximately $1.2 million in this filing.
In late 2019, the Florida PSC approved an interim rate increase, subject to refund, effective January 1, 2020, associated with
the restoration effort following Hurricane Michael. We fully reserved these interim rates, pending a final resolution and
settlement of the limited proceeding. In September 2020, the Florida PSC approved a settlement agreement between FPU and
the Office of the Public Counsel regarding final cost recovery and rates associated with Hurricane Michael. The settlement
agreement allowed us to: (a) refund the over-collection of interim rates through the fuel clause; (b) record regulatory assets
for storm costs in the amount of $45.8 million including interest which will be amortized over six years; (c) recover these
storm costs through a surcharge totaling $7.7 million annually; and (d) collect an annual increase in revenue of $3.3 million
to recover capital costs associated with new plant investments and a regulatory asset for the cost of removal and
undepreciated plant. The new base rates and storm surcharge were effective on November 1, 2020.
In September 2019, FPU filed a petition, with the Florida PSC, for approval of its consolidated electric depreciation rates.
The petition was joined to the Hurricane Michael docket, and was approved at the Florida PSC Agenda in September 2020.
The approved rates were retroactively applied effective January 1, 2020. See Item 8, Financial Statements and Supplementary
Data (Note 19, Rates and Other Regulatory Activities, in the consolidated financial statements) for further information.
The following table presents surcharge and other mechanisms that have been approved by the respective PSC for our
regulated energy distribution businesses. These include Delaware surcharges to expand natural gas service in its service
territory as well as for the conversion of propane distribution systems to natural gas, Maryland’s surcharges to fund natural
gas conversions and system improvements in Worcester County, Florida’s GRIP surcharge which provides accelerated
recovery of the costs of replacing older portions of the natural gas distribution system to improve safety and reliability and
the Florida electric distribution operation's limited proceeding which allowed recovery of storm-related costs.
Operation(s)/Division(s)
Delaware division
Maryland division
Sandpiper Energy
Elkton Gas
FPU and Central Florida Gas natural gas divisions
FPU electric division
Jurisdiction
Infrastructure
mechanism
Revenue
normalization
Delaware
Maryland
Maryland
Maryland
Florida
Florida
Yes
No
Yes
No
Yes
Yes
No
Yes
Yes
Yes
No
No
Chesapeake Utilities Corporation 2020 Form 10-K Page 5
Table of Contents
Weather
Weather variations directly influence the volume of natural gas and electricity sold and delivered to residential and
commercial customers for heating and cooling and changes in volumes delivered impact the revenue generated from these
customers. Natural gas volumes are highest during the winter months, when residential and commercial customers use more
natural gas for heating. Demand for electricity is highest during the summer months, when more electricity is used for
cooling. We measure the relative impact of weather using degree-days. A degree-day is the measure of the variation in the
weather based on the extent to which the average daily temperature falls above or below 65 degrees Fahrenheit. Each degree
of temperature below 65 degrees Fahrenheit is counted as one heating degree-day, and each degree of temperature above 65
degrees Fahrenheit is counted as one cooling degree-day. Normal heating and cooling degree-days are based on the most
recent 10-year average.
Competition
Natural Gas Distribution
While our natural gas distribution operations do not compete directly with other distributors of natural gas for residential and
commercial customers in our service areas, we do compete with other natural gas suppliers and alternative fuel providers for
sales to industrial customers. Large customers could bypass our natural gas distribution systems and connect directly to
interstate or interstate transmission pipelines, and we compete in all aspects of our natural gas business with alternative
energy sources, including electricity, oil, propane and renewables. The most effective means to compete against alternative
fuels are lower prices, superior reliability and flexibility of service. Natural gas historically has maintained a price advantage
in the residential, commercial and industrial markets, and reliability of natural gas supply and service has been excellent. In
addition, we provide flexible pricing to our large customers to minimize fuel switching and protect these volumes and their
contributions to the profitability of our natural gas distribution operations.
Natural Gas Transmission
Our natural gas transmission business competes with other interstate and intrastate pipeline companies to provide service to
large industrial, generation and distribution customers, primarily in the northern portion of the Delmarva Peninsula and in
Florida.
Electric Distribution
While our electric distribution operations do not compete directly with other distributors of electricity for residential and
commercial customers in our service areas, we do compete with other electricity suppliers and alternative fuel providers for
sales to industrial customers. Some of our large industrial customers may be capable of generating their own electricity, and
we structure rates, service offerings and flexibility to retain these customers in order to retain their business and contributions
to the profitability of our electric distribution operations.
Supplies, Transmission and Storage
Natural Gas Distribution
Our natural gas distribution operations purchase natural gas from marketers and producers and maintain contracts for
transportation and storage with several interstate pipeline companies to meet projected customer demand requirements. We
believe that our supply and capacity strategy will adequately meet our customers’ needs over the next several years and we
will continue to adapt our supply strategy to meet projected growth in customer demand within our service territories.
The Delmarva natural gas distribution systems are directly connected to Eastern Shore’s pipeline, which has connections to
other pipelines that provide us with transportation and storage. These operations can also use propane-air and liquefied
natural gas peak-shaving equipment to serve customers. In March 2020, our Delmarva Peninsula natural gas distribution
operations entered into asset management agreements with a third party to manage their natural gas transportation and storage
capacity. The agreements were effective as of April 1, 2020 and expire on March 31, 2023. Previously, our Delmarva
Peninsula natural gas distribution operation had asset management agreements with PESCO to manage their natural gas
transportation and storage capacity. Our Delmarva operations receive a fee, which we share with our customers, from the
asset manager, who optimizes the transportation, storage and natural gas supply for these operations.
Our Florida natural gas distribution operation uses Peninsula Pipeline and Peoples Gas to transport natural gas where there is
no direct connection with FGT. In May 2019, FPU natural gas distribution and Eight Flags entered into separate asset
management agreements with Emera Energy Services, Inc. to manage their natural gas transportation capacity. Short-term
agreements were entered for a term beginning July 2019 through October 2020 with long-term agreements executed for a 10-
year term commencing on November 2020. An agreement with Florida Southeast Connection LLC commenced in June 2020
for additional service to Palm Beach County for an initial term through December 2044.
Chesapeake Utilities Corporation 2020 Form 10-K Page 6
Table of Contents
A summary of our pipeline capacity contracts follows:
Division
Delmarva Natural Gas Distribution
Florida Natural Gas Distribution
Pipeline
Eastern Shore
Columbia Gas(1)
Transco(1)
TETLP(1)
Gulfstream(2)
FGT
Peninsula Pipeline
Peoples Gas
Florida Southeast Connection
LLC
Southern Natural Gas Company
Maximum Daily Firm
Transportation Capacity
(Dts)
Contract
Expiration Date
148,795
5,246
30,419
50,000
10,000
45,909 - 77,317
306,400
160
5,000
1,750
2021-2035
2023-2024
2021-2028
2027
2022
2022-2041
2033-2048
2024
2044
2030
(1) Transcontinental Gas Pipe Line Company, LLC ("Transco"), Columbia Gas Transmission, LLC ("Columbia Gas") and TETLP are interstate pipelines
interconnected with Eastern Shore's pipeline
(2) Pursuant to a capacity release program approved by the Florida PSC, all of the capacity under this agreement has been released to various third parties.
Under the terms of these capacity release agreements, Chesapeake Utilities is contingently liable to Gulfstream should any party, that acquired the capacity
through release, fail to pay the capacity charge.
Eastern Shore has three agreements with Transco for a total of 7,292 Dts/d of firm daily storage injection and withdrawal
entitlements and total storage capacity of 288,003 Dts. These agreements expire in March 2023. Eastern Shore retains these
firm storage services in order to provide swing transportation service and firm storage service to customers requesting such
services.
Aspire Energy Express, our Ohio intrastate pipeline subsidiary, entered into a precedent agreement for firm transportation
capacity with Guernsey Power Station, LLC ("Guernsey Power Station"), who is currently constructing a power generation
facility. Aspire Energy Express will provide firm natural gas transportation service to this facility. Guernsey Power Station
commenced construction of the project in October 2019. Aspire Energy Express is expected to commence construction of the
gas transmission facilities to provide the firm transportation service to the power generation facility in the fourth quarter of
2021.
Electric Distribution
Our Florida electric distribution operation purchases wholesale electricity under the power supply contracts summarized
below:
Area Served by Contract
Counterparty
Contracted Amount (MW) Contract Expiration Date
Northwest Florida
Northeast Florida
Northeast Florida
Northeast Florida
Northeast Florida
Gulf Power Company
Full Requirement*
Florida Power & Light Company
Full Requirement*
Eight Flags
Rayonier
WestRock Company
21
1.7 to 3.0
As-available
*The counter party is obligated to provide us with the electricity to meet our customers’ demand, which may vary.
2026
2026
2036
2036
N/A
Chesapeake Utilities Corporation 2020 Form 10-K Page 7
Table of Contents
Unregulated Energy
The following table presents net income for the year ended December 31, 2020 and total assets as of December 31, 2020, for
our Unregulated Energy segment by operation and area served:
Operations
Area Served
Net Income
Total Assets
(in thousands)
Propane Operations (Sharp, FPU
and Flo-gas) (1)
Energy Transmission (Aspire
Energy)
Energy Generation (Eight Flags)
Marlin Gas Services
Total
Delaware, Maryland, Virginia,
Pennsylvania, Florida
Ohio
Florida
The Eastern U.S.
$
$
6,485 $
144,805
3,407
2,260
1,404
13,556 $
115,882
40,666
45,541
346,894
(1) Includes results and total assets for Western Natural Gas, which we acquired in October 2020. See Item 8, Financial Statements and Supplementary Data
(Note 4, Acquisitions and Divestitures in the consolidated financial statements) for further information.
Propane Operations
Our propane operations sell propane to residential, commercial/industrial, wholesale and AutoGas customers, in the Mid-
Atlantic region and Florida, through Sharp Energy, Inc., Sharpgas, Inc., FPU and Flo-gas. We deliver to and bill our propane
customers based on two primary customer types: bulk delivery customers and metered customers. Bulk delivery customers
receive deliveries into tanks at their location. We invoice and record revenues for these customers at the time of delivery.
Metered customers are either part of an underground propane distribution system or have a meter installed on the tank at their
location. We invoice and recognize revenue for these customers based on their consumption as dictated by scheduled meter
reads. As a member of AutoGas Alliance, we install and support propane vehicle conversion systems for vehicle fleets and
provide on-site fueling infrastructure.
Propane Operations - Operational Highlights
For the year ended December 31, 2020, operating revenues, volumes sold and average number of customers by customer
class for our propane operations were as follows:
Residential bulk
Residential metered
Commercial bulk
Commercial metered
Wholesale
AutoGas
Other (3)
Total
Operating Revenues
(in thousands)(2)
Volumes
(in thousands of gallons)(2)
Average Number of
Customers (1)(2)
$
33,119
14,718
21,240
1,465
17,444
2,864
9,894
$
100,744
33 %
15 %
21 %
1 %
17 %
3 %
10 %
100 %
13,031
5,207
15,511
614
24,647
2,563
21 %
9 %
25 %
1 %
40 %
4 %
—
— %
42,817
17,654
6,178
250
46
89
—
61,573
100 %
67,034
64 %
26 %
10 %
<1%
<1%
<1%
— %
100 %
(1) Average number of customers is based on a twelve-month average for the year ended December 31, 2020.
(2) Operating revenues, volumes and average customer includes those for Western Natural Gas that was acquired in October 2020. See Item 8, Financial Statements
and Supplementary Data (Note 4, Acquisitions and Divestitures in the consolidated financial statements) for further information.
(3) Operating revenues from "Other" sources include revenues from customer loyalty programs; delivery, service and appliance fees; and unbilled revenues.
Competition
Our propane operations compete with national and local independent companies primarily on the basis of price and service.
Propane is generally a cheaper fuel for home heating than oil and electricity but more expensive than natural gas. Our
propane operations are largely concentrated in areas that are not currently served by natural gas distribution systems.
Chesapeake Utilities Corporation 2020 Form 10-K Page 8
Table of Contents
Supplies, Transportation and Storage
We purchase propane from major oil companies and independent natural gas liquids producers. Propane is transported by
truck and rail to our bulk storage facilities in Delaware, Maryland, Florida, Pennsylvania and Virginia, which have a total
storage capacity of 8.3 million gallons. Deliveries are made from these facilities by truck to tanks located on customers’
premises or to central storage tanks that feed our underground propane distribution systems. While propane supply has
traditionally been adequate, significant fluctuations in weather, closing of refineries and disruption in supply chains, could
cause temporary reductions in available supplies.
Weather
Propane revenues are affected by seasonal variations in temperature and weather conditions, which directly influence the
volume of propane used by our customers. Our propane revenues are typically highest during the winter months when
propane is used for heating. Sustained warmer-than-normal temperatures will tend to reduce propane use, while sustained
colder-than-normal temperatures will tend to increase consumption.
Unregulated Energy Transmission and Supply (Aspire Energy)
Aspire Energy owns approximately 2,700 miles of natural gas pipeline systems in 40 counties in Ohio. The majority of
Aspire Energy’s revenues are derived from long-term supply agreements with Columbia Gas of Ohio and Consumers Gas
Cooperative ("CGC"), which together serve more than 21,400 end-use customers. Aspire Energy purchases natural gas to
serve these customers from conventional producers in the Marcellus and Utica natural gas production areas. In addition,
Aspire Energy earns revenue by gathering and processing natural gas for customers.
For the twelve-month period ended December 31, 2020, Aspire Energy's operating revenues and deliveries by customer type
were as follows:
Operating revenues
Deliveries
(in thousands) % of Total
(in thousands Dts)
% of Total
Supply to Columbia Gas of Ohio
$
Supply to CGC
Supply to Marketers - unaffiliated
Other (including natural gas gathering and processing)
11,088
11,838
3,162
1,863
40 %
42 %
11 %
7 %
Total
$
27,951
100 %
2,363
1,612
1,966
131
6,072
39 %
27 %
32 %
2 %
100 %
Energy Generation (Eight Flags)
Eight Flags generates electricity and steam at its CHP plant located on Amelia Island, Florida. The plant is powered by
natural gas transported by Peninsula Pipeline and our Florida natural gas distribution operation and produces approximately
21 MW of electricity and 75,000 pounds per hour of steam. Eight Flags sells the electricity generated from the plant to our
Florida electric distribution operation and sells the steam to the customer who owns the site on which the plant is located both
under separate 20-year contracts.
Marlin Gas Services
Marlin Gas Services is a supplier of mobile CNG and virtual pipeline solutions, primarily to utilities and pipelines. Marlin
Gas Services provides temporary hold services, pipeline integrity services, emergency services for damaged pipelines and
specialized gas services for customers who have unique requirements. These services are provided by a highly trained staff of
drivers and maintenance technicians who safely perform these functions throughout the eastern United States. Marlin Gas
Services maintains a fleet of CNG trailers, mobile compression equipment, LNG tankers and vaporizers, and an internally
developed patented regulator system which allows for delivery of over 7,000 Dts/d of natural gas. Marlin Gas Services
continues to actively expand the territories it serves, as well as leveraging its fleet of equipment and patented technologies to
serve liquefied natural gas and renewable natural gas market needs.
Chesapeake Utilities Corporation 2020 Form 10-K Page 9
Table of Contents
Divestiture of PESCO
Beginning in the third quarter of 2019, our management began executing a strategy to sell the operating assets of PESCO. In
the fourth quarter of 2019, we closed on four separate transactions to sell PESCO's assets and contracts. As a result of these
sales, we have fully exited the natural gas marketing business, which provided natural gas management and supply services to
commercial and industrial customers in Florida, Delaware, Maryland, Pennsylvania, Ohio and other states. Accordingly,
PESCO’s historical financial results are reflected in our consolidated financial statements as discontinued operations, which
required retrospective application to financial information for all periods presented. See Item 8, Financial Statements and
Supplementary Data (Note 4, Acquisitions and Divestitures, in the consolidated financial statements) for further information.
Environmental Matters
See Item 8, Financial Statements and Supplementary Data (see Note 20, Environmental Commitments and Contingencies, in
the consolidated financial statements).
Human Capital Initiatives
We are a trusted energy delivery company providing essential, safe, reliable, affordable, sustainable and efficient energy
solutions to existing and new communities. Our success is the direct result of our employees and our strong culture that fully
engages our team and promotes equity, diversity, inclusion, integrity, accountability and reliability. We believe that a
combination of diverse team members and an inclusive culture contributes to the success of our Company and to enhanced
societal advancement. Each employee is a valued member of our team bringing a diverse perspective to help grow our
business and achieve our goals. Our tradition of serving employees, customers, investors, partners and communities is at the
core of our culture. Among the ongoing initiatives across our enterprise, we highlight below the importance of our team, as
well as our response to the COVID-19 pandemic, our culture of safety, and our environmental, social and governance
stewardship.
Our Team Drives Our Performance
Our President and CEO begins and ends every speech to employees by expressing his gratitude for everything they do to
ensure safety and enable the Company to generate strong financial performance, year-over-year. Our employees are the key
to our success. Our leadership and human resources teams are responsible for attracting and retaining top talent. We seek to
promote from within, reviewing strategic positions regularly and identifying potential internal candidates to fill those
positions, evaluating critical job skill sets to identify competency gaps and creating developmental plans to facilitate
employee professional growth. We provide training and development programs as well as tuition reimbursement to promote
continued professional growth.
As of December 31, 2020, we had a total of 947 employees, 110 of whom are union employees represented by two labor
unions: the International Brotherhood of Electrical Workers and the United Food and Commercial Workers Union. The
collective bargaining agreements with these labor unions expire in 2022. We consider our relationships with employees,
including those covered by collective bargaining agreements, to be in good standing. We provide a competitive Total
Rewards package for our employees including health insurance coverage, wellness initiatives, retirement savings benefits,
paid time off, employee assistance programs, competitive pay, career growth opportunities, paid volunteer time, and a culture
of recognition. In 2020, the Company was recognized as a Top Workplace for the ninth consecutive year. These honors were
based entirely on feedback from employees who were surveyed by the research firm ‘Energage’. Because of these accolades,
early in 2021, the Company earned national recognition as an inaugural 2021 Top Workplaces USA award recipient among
mid-sized companies.
In 2020, the Company enhanced our diversity initiatives and established an Equity, Diversity and Inclusion (“EDI”) Council
with newly expanded Employee Resource Groups (“ERG”). This initiative aligns with our current employee recognition and
appreciation programs and our Women in Energy ERG where we celebrate the dedication and success of women employees
within the energy industry and our Company. We are committed to a workplace that embraces a culture of equity, diversity
and inclusion that is open to individuals of different backgrounds, perspectives, genders and gender identities, races and
ethnicities, sexual orientations, religious beliefs, and individuals with disabilities. Additionally, in 2020, we hosted monthly
“EDI Wise” presentations whose primary purpose is to educate and inform employees about topics around equity, diversity
and inclusion. These presentations are recorded and are available to employees across the enterprise for viewing at their
convenience.
COVID-19 Response
On March 13, 2020, the United States declared a national emergency in response to the COVID-19 pandemic. Subsequently,
states enacted stay-at-home orders to slow the spread of the virus that causes COVID-19, and reduce the burden on the U.S.
Chesapeake Utilities Corporation 2020 Form 10-K Page 10
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health care system. In response to COVID-19, we promptly implemented our long-standing emergency response plan in
coordination and collaboration with the Board of Directors, senior leadership and our entire team across the organization. Our
objectives were simple – do whatever it takes to ensure the health, safety and well-being of our employees, customers and the
communities we serve. Our information systems team swiftly established protocols and security to ensure that the members
of our team had the technology and accessibility to safely work in a remote environment, given consideration to job
requirements. We worked with our operations team to ensure that our employees were designated essential workers, received
personal protective equipment and were compensated with premium pay for working on the front lines.
We created several Pandemic Taskforce teams and our Human Resources Taskforce took the lead on a Return to Work
protocol for those employees who were sick. Through these efforts, as well as our continued commitment to monitor, assess
and implement guidance and best practices recommended by the CDC, we have been able to maintain the continuity of the
essential services that we provide, while also minimizing the spread of the virus and promoting the health, well-being and
safety of our employees, customers and communities. While we continued to provide these services, we recognized the
impacts of the pandemic on the communities where we live and work. We took immediate steps and (i) donated an additional
$200,000, beyond our historical levels of charitable giving, to support response and relief organizations assisting
communities affected by the COVID-19 pandemic and (ii) authorized a one-time grant from our SHARING program for
customers economically impacted by the spread of the pandemic. To minimize financial hardships, at the onset of
COVID-19, the Company’s regulated businesses suspended disconnections and waived late payment fees for all of our
customers.
Our response to COVID-19 and financial performance in 2020 was a direct result of the strength and dedication of our team
members, our strong culture, our solid corporate governance practices, and the channels through which we engage and
collaborate across our family of businesses. We continue to hold regular companywide all employee calls and leadership
meetings with our President and CEO to discuss, among other things, matters pertaining to COVID-19, in addition to
distributing frequent, routine communications updates. The Company’s Board met regularly and virtually, throughout 2020,
and received updates on the Company’s actions related to COVID-19, the Company’s safety protocols, and ongoing
monitoring, including updates on the Company’s COVID-19 Human Resources Taskforce’s priorities and current employee
health statistics, and the Company’s risk posture.
Workplace Safety
We believe that there is nothing more important than the safety of our team, our customers and our communities. We are
committed to ensuring safety is at the center of our culture and the way we do business. The importance of safety is exhibited
throughout the entire organization, with the direction and tone set by both our Board and our President and CEO, and
including required attendance at monthly safety meetings and the inclusion of safety moments at key team meetings.
To meet our safety goals our employees remain committed and work together to ensure that our plans, programs, policies and
behaviors are aligned with our aspirations as a Company. The achievement of superior safety performance is both an
important short-term and long-term strategic initiative in managing our operations. For example, our new $1.0 million state-
of-the-art training center, named ‘Safety Town,’ provides employees hands-on training and simulated on-the-job field
experiences, which will help us maintain the integrity of our current infrastructure and future projects. This center will enable
us to further our community outreach, through the training of many regional first responders. Training and preparing our
current and future employees and contractors is critical to maintaining a skilled workforce and ensuring the long-term safety
of our local communities.
Environmental, Social and Governance Stewardship ("ESG")
Consistent with our culture of teamwork, the broad responsibility of ESG stewardship is supported across our organization by
the dedication and efforts of our Board of Directors and its Committees, as well as the entrepreneurship and dedication of our
team. As stewards of long-term enterprise value, the Board of Directors is committed to overseeing the sustainability of the
Company and its safety and operational compliance practices, and to promoting equity, diversity and inclusion that reflects
the diverse communities we serve. The Corporate Governance Committee oversees our ESG activities and initiatives to
continue enhancing our culture of sustainability and corporate governance practices. The Audit Committee oversees the
integrity of our financial statements and financial reporting process, our risk exposure, and implementation and effectiveness
of our risk management programs. The Compensation Committee promotes a culture of equity, diversity and inclusion and
contributes to the ability to attract, retain, develop and motivate both at the executive level and throughout the organization.
Finally, the Investment Committee assists the Board of Directors with evaluating investments pursuant to or in support of our
growth strategy, both organically and through acquisitions, including renewable natural gas and other sustainable initiatives.
Chesapeake Utilities Corporation 2020 Form 10-K Page 11
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Information About Executive Officers
Set forth below are the names, ages, and positions of our executive officers with their recent business experience. The age of
each officer is as of the filing date of this Annual Report.
Name
Jeffry M. Householder
Age
63
Executive
Officer Since
2010
Beth W. Cooper
54
2005
James F. Moriarty
63
2015
Offices Held During the Past Five Years
President (January 2019 - present)
Chief Executive Officer (January 2019 - present)
Director (January 2019 - present)
President of FPU (June 2010 - February 2019)
Executive Vice President (February 2019 - present)
Chief Financial Officer (September 2008 - present)
Senior Vice President (September 2008 - February 2019)
Assistant Corporate Secretary (March 2015 - present)
Executive Vice President (February 2019 - present)
General Counsel & Corporate Secretary (March 2015 - present)
Chief Policy and Risk Officer (February 2019 - present)
Senior Vice President (February 2017 - February 2019)
Vice President (March 2015 - February 2017)
Kevin J. Webber
Jeffrey S. Sylvester
62
51
2010
2019
Senior Vice President (February 2019 - present)
President FPU (February 2019 - December 2019)
Vice President Gas Operations and Business Development Florida
Business Units (July 2010 - February 2019)
Senior Vice President (December 2019 - present)
Vice President Black Hills Energy (October 2012 - December 2019)
Available Information on Corporate Governance Documents
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports and
amendments to these reports that we file with or furnish to the SEC at their website, www.sec.gov, are also available free of
charge at our website, www.chpk.com, as soon as reasonably practicable after we electronically file these reports with, or
furnish these reports to the SEC. The content of this website is not part of this Annual Report.
In addition, the following documents are available free of charge on our website, www.chpk.com:
•
•
•
•
Business Code of Ethics and Conduct applicable to all employees, officers and directors;
Code of Ethics for Financial Officers;
Corporate Governance Guidelines; and
Charters for the Audit Committee, Compensation Committee, Investment Committee, and Corporate Governance
Committee of the Board of Directors.
Any of these reports or documents may also be obtained by writing to: Corporate Secretary; c/o Chesapeake Utilities
Corporation, 909 Silver Lake Boulevard, Dover, DE 19904.
ITEM 1A. RISK FACTORS.
The following is a discussion of the primary factors that may affect the operations and/or financial performance of our
regulated and unregulated energy businesses. Refer to the section entitled Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations of this Annual Report for an additional discussion of these and other related
factors that affect our operations and/or financial performance.
Chesapeake Utilities Corporation 2020 Form 10-K Page 12
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FINANCIAL RISKS
Instability and volatility in the financial markets could negatively impact access to capital at competitive rates, which
could affect our ability to implement our strategic plan, undertake improvements and make other investments required for
our future growth.
Our business strategy includes the continued pursuit of growth and requires capital investment in excess of cash flow from
operations. As a result, the successful execution of our strategy is dependent upon access to equity and debt at reasonable
costs. Our ability to issue new debt and equity capital and the cost of equity and debt are greatly affected by our financial
performance and the conditions of the financial markets. In addition, our ability to obtain adequate and cost-effective debt
depends on our credit ratings. A downgrade in our current credit ratings could negatively impact our access to and cost of
debt. If we are not able to access capital at competitive rates, our ability to implement our strategic plan, undertake
improvements and make other investments required for our future growth may be limited.
Fluctuations in propane gas prices could negatively affect results of operations.
We adjust the price of the propane we sell based on changes in our cost of purchasing propane. However, if the market does
not allow us to increase propane sales prices to compensate fully for fluctuations in purchased propane costs, our results of
operations and cash flows could be negatively affected.
If we fail to comply with our debt covenant obligations, we could experience adverse financial consequences that could
affect our liquidity and ability to borrow funds.
Our long-term debt obligations and the Revolver contain financial covenants related to debt-to-capital ratios and interest-
coverage ratios. Failure to comply with any of these covenants could result in an event of default which, if not cured or
waived, could result in the acceleration of outstanding debt obligations or the inability to borrow under certain credit
agreements. Any such acceleration could cause a material adverse change in our financial condition. As of December 31,
2020, we were in compliance with all of our covenants.
Increases in interest rates may adversely affect our results of operations and cash flows.
Increases in interest rates could increase the cost of future debt issuances. Absent recovery of the higher debt cost in the rates
we charge our utility customers, our earnings could be adversely affected. Increases in short-term interest rates could
negatively affect our results of operations, which depend on short-term debt to finance accounts receivable and storage gas
inventories and to temporarily finance capital expenditures. Reference should be made to Item 7A, Quantitative and
Qualitative Disclosures about Market Risk for additional information.
Current market conditions could adversely impact the return on plan assets for our pension plans, which may require
significant additional funding.
Our pension plans are closed to new employees, and the future benefits are frozen. The costs of providing benefits and related
funding requirements of these plans are subject to changes in the market value of the assets that fund the plans and the
discount rates used to estimate the pension benefit obligations. The funded status of the plans and the related costs reflected
in our financial statements are affected by various factors that are subject to an inherent degree of uncertainty, particularly in
the current economic environment. Future losses of asset values and further declines in discount rates may necessitate
accelerated funding of the plans to meet minimum federal government requirements and may result in higher pension
expense in future years. Adverse changes in the benefit obligations of our pension plans may require us to record higher
pension expense and fund obligations earlier than originally planned, which would have an adverse impact on our cash flows
from operations, decrease borrowing capacity and increase interest expense.
OPERATIONAL RISKS
We are dependent upon construction of new facilities to support future growth in earnings in our natural gas and electric
distribution and natural gas transmission operations.
Construction of new facilities required to support future growth is subject to various regulatory and developmental risks,
including but not limited to: (i) our ability to obtain timely certificate authorizations, necessary approvals and permits from
regulatory agencies and on terms that are acceptable to us; (ii) potential changes in federal, state and local statutes and
regulations, including environmental requirements, that prevent a project from proceeding or increase the anticipated cost of
the project; (iii) our inability to acquire rights-of-way or land rights on a timely basis on terms that are acceptable to us;
(iv) lack of anticipated future growth in available natural gas and electricity supply; (v) insufficient customer throughput
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commitments; and (vi) lack of available and qualified third-party contractors which could impact the timely construction of
new facilities.
We operate in a competitive environment, and we may lose customers to competitors.
Natural Gas. Our natural gas transmission and distribution operations compete with interstate pipelines when our customers
are located close enough to a competing pipeline to make direct connections economically feasible. Customers also have the
option to switch to alternative fuels, including renewable energy sources. Failure to retain and grow our natural gas customer
base would have an adverse effect on our financial condition, cash flows and results of operations.
Electric. Our Florida electric distribution business has remained substantially free from direct competition from other electric
service providers but does face competition from other energy sources. Changes in the competitive environment caused by
legislation, regulation, market conditions, or initiatives of other electric power providers, particularly with respect to retail
electric competition, could adversely affect our results of operations, cash flows and financial condition.
Propane. Our propane operations compete with other propane distributors, primarily on the basis of service and price. Our
ability to grow the propane operations business is contingent upon capturing additional market share, expanding into new
markets, and successfully utilizing pricing programs that retain and grow our customer base. Failure to retain and grow our
customer base in our propane operations would have an adverse effect on our results of operations, cash flows and financial
condition.
Fluctuations in weather may cause a significant variance in our earnings.
Our natural gas distribution, propane operations and natural gas transmission operations, are sensitive to fluctuations in
weather conditions, which directly influence the volume of natural gas and propane we transport, sell and deliver to our
customers. A significant portion of our natural gas distribution, propane operations and natural gas transmission revenue is
derived from the sales and deliveries to residential, commercial and industrial heating customers during the five-month peak
heating season (November through March). Other than our Maryland natural gas distribution businesses (Maryland division,
Sandpiper Energy and Elkton Gas) which have revenue normalization mechanisms, if the weather is warmer than normal, we
sell and deliver less natural gas and propane to customers, and earn less revenue, which could adversely affect our results of
operations, cash flows and financial condition. Likewise, if the weather is colder than normal, we sell and deliver more
natural gas and propane to customers, and earn more revenue, which could positively affect our results of operations, cash
flows and financial condition. Variations in weather from year to year can cause our results of operations, cash flows and
financial condition to vary accordingly.
Our electric distribution operation is also affected by variations in weather conditions and unusually severe weather
conditions. However, electricity consumption is generally less seasonal than natural gas and propane because it is used for
both heating and cooling in our service areas.
Natural disasters, severe weather (such as a major hurricane) and acts of terrorism could adversely impact earnings.
Inherent in energy transmission and distribution activities are a variety of hazards and operational risks, such as leaks,
ruptures, fires, explosions, sabotage and mechanical problems. Natural disasters and severe weather may damage our assets,
cause operational interruptions and result in the loss of human life, all of which could negatively affect our earnings, financial
condition and results of operations. Acts of terrorism and the impact of retaliatory military and other action by the United
States and its allies may lead to increased political, economic and financial market instability and volatility in the price of
natural gas, electricity and propane that could negatively affect our operations. Companies in the energy industry may face a
heightened risk of exposure to acts of terrorism, which could affect our results of operations, cash flows and financial
condition. The insurance industry may also be affected by natural disasters, severe weather and acts of terrorism; as a result,
the availability of insurance covering risks against which we and our competitors typically insure may be limited. In addition,
the insurance we are able to obtain may have higher deductibles, higher premiums and more restrictive policy terms, which
could adversely affect our results of operations, financial condition and cash flows.
Operating events affecting public safety and the reliability of our natural gas and electric distribution and transmission
systems could adversely affect our operations and increase our costs.
Our natural gas and electric operations are exposed to operational events and risks, such as major leaks, outages, mechanical
failures and breakdown, operations below the expected level of performance or efficiency, and accidents that could affect
public safety and the reliability of our distribution and transmission systems, significantly increase costs and cause loss of
customer confidence. If we are unable to recover all or some of these costs from insurance and/or customers through the
regulatory process, our results of operations, financial condition and cash flows could be adversely affected.
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A security breach disrupting our operating systems and facilities or exposing confidential information may adversely
affect our reputation, disrupt our operations and increase our costs.
We continue to heavily rely on technological tools that support our business operations and corporate functions. There are
various risks associated with our information technology infrastructure, including hardware and software failure,
communications failure, data distortion or destruction, unauthorized access to data, misuse of proprietary or confidential data,
unauthorized control through electronic means, cyber-attacks, cyber-terrorism, data breaches, programming mistakes, and
other inadvertent errors or deliberate human acts. The failure of, or security breaches related to, our information technology
infrastructure, could lead to system disruptions or cause facility shutdowns. If such a failure, attack, or security breach were
to occur, our business, our earnings, results of operation and financial condition could be adversely affected. In addition, the
protection of customer, employee and Company data is crucial to our operational security. A breach or breakdown of our
systems that results in the unauthorized release of individually identifiable customer or other sensitive data could have an
adverse effect on our reputation, results of operations and financial condition and could also materially increase our costs of
maintaining our system and protecting it against future breakdowns or breaches. We take reasonable precautions to safeguard
our information systems from cyber-attacks and security breaches; however, there is no guarantee that the procedures
implemented to protect against unauthorized access to our information systems are adequate to safeguard against all attacks
and breaches. We also cannot assure that any redundancies built into our networks and technology, or the procedures we have
implemented to protect against cyber-attacks and other unauthorized access to secured data, are adequate to safeguard against
all failures of technology or security breaches.
Failure to attract and retain an appropriately qualified employee workforce could adversely affect operations.
Our ability to implement our business strategy and serve our customers depends upon our continuing ability to attract,
develop and retain talented professionals and a technically skilled workforce, and transfer the knowledge and expertise of our
workforce to new employees as our existing employees retire. Failure to hire and adequately train replacement employees,
including the transfer of significant internal historical knowledge and expertise to new employees, or the future availability
and cost of contract labor could adversely affect our ability to manage and operate our business. If we were unable to hire,
train and retain appropriately qualified personnel, our results of operations could be adversely affected.
A strike, work stoppage or a labor dispute could adversely affect our operations.
We are party to collective bargaining agreements with labor unions at some of our Florida operations. A strike, work
stoppage or a labor dispute with a union or employees represented by a union could cause interruption to our operations and
our results could be adversely affected.
Our businesses are capital-intensive, and the increased costs and/or delays of capital projects may adversely affect our
future earnings.
Our businesses are capital-intensive and require significant investments in ongoing infrastructure projects. Our ability to
complete our infrastructure projects on a timely basis and manage the overall cost of those projects may be affected by the
availability of the necessary materials and qualified vendors. Our future earnings could be adversely affected if we are unable
to manage such capital projects effectively, or if full recovery of such capital costs is not permitted in future regulatory
proceedings.
Our regulated energy business may be at risk if franchise agreements are not renewed, or new franchise agreements are
not obtained, which could adversely affect our future results or operating cash flows and financial condition.
Our regulated natural gas and electric distribution operations hold franchises in each of the incorporated municipalities that
require franchise agreements in order to provide natural gas and electricity. Ongoing financial results would be adversely
impacted in the event that franchise agreements were not renewed. If we are unable to obtain franchise agreements for new
service areas, growth in our future earnings could be negatively impacted.
Slowdowns in customer growth may adversely affect earnings and cash flows.
Our ability to increase gross margins in our natural gas, propane and electric distribution businesses is dependent upon
growth in the residential construction market, adding new commercial and industrial customers and conversion of customers
to natural gas, electricity or propane from other energy sources. Slowdowns in growth may adversely affect our results of
operations, cash flows and financial condition.
Chesapeake Utilities Corporation 2020 Form 10-K Page 15
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Energy conservation could lower energy consumption, which would adversely affect our earnings.
Federal and state legislative and regulatory initiatives to promote energy efficiency, conservation and the use of alternative
energy sources could lower energy consumption by our customers. In addition, higher costs of natural gas, propane and
electricity may cause customers to conserve fuel. To the extent a PSC or the FERC does not allow the recovery through
customer rates of higher costs or lower consumption from energy efficiency or conservation, and our propane margins cannot
be increased due to market conditions, our results of operations, cash flows and financial condition may be adversely
affected.
Commodity price increases may adversely affect the operating costs and competitive positions of our natural gas, electric
and propane operations, which may adversely affect our results of operations, cash flows and financial condition.
Natural Gas/Electricity. Higher natural gas prices can significantly increase the cost of gas billed to our natural gas
customers. Increases in the cost of natural gas and other fuels used to generate electricity can significantly increase the cost of
electricity billed to our electric customers. Damage to the production or transportation facilities of our suppliers, which
decreases their supply of natural gas and electricity, could result in increased supply costs and higher prices for our
customers. Such cost increases generally have no immediate effect on our revenues and net income because of our regulated
fuel cost recovery mechanisms. However, our net income may be reduced by higher expenses that we may incur for
uncollectible customer accounts and by lower volumes of natural gas and electricity deliveries when customers reduce their
consumption. Therefore, increases in the price of natural gas and other fuels can adversely affect our operating cash flows,
results of operations and financial condition, as well as the competitiveness of natural gas and electricity as energy sources.
Propane. Propane costs are subject to changes as a result of product supply or other market conditions, including weather,
economic and political factors affecting crude oil and natural gas supply or pricing. For example, weather conditions could
damage production or transportation facilities, which could result in decreased supplies of propane, increased supply costs
and higher prices for customers. Such increases in costs can occur rapidly and can negatively affect profitability. There is no
assurance that we will be able to pass on propane cost increases fully or immediately, particularly when propane costs
increase rapidly. Therefore, average retail sales prices can vary significantly from year-to-year as product costs fluctuate in
response to propane, fuel oil, crude oil and natural gas commodity market conditions. In addition, in periods of sustained
higher commodity prices, declines in retail sales volumes due to reduced consumption and increased amounts of uncollectible
accounts may adversely affect net income.
Refer to Item 7A, Quantitative and Qualitative Disclosures about Market Risk for additional information.
A substantial disruption or lack of growth in interstate natural gas pipeline transmission and storage capacity or electric
transmission capacity may impair our ability to meet customers’ existing and future requirements.
In order to meet existing and future customer demands for natural gas and electricity, we must acquire sufficient supplies of
natural gas and electricity, interstate pipeline transmission and storage capacity, and electric transmission capacity to serve
such requirements. We must contract for reliable and adequate upstream transmission capacity for our distribution systems
while considering the dynamics of the interstate pipeline and storage and electric transmission markets, our own on-system
resources, as well as the characteristics of our markets. Our financial condition and results of operations would be materially
and adversely affected if the future availability of these capacities were insufficient to meet future customer demands for
natural gas and electricity. Currently, our Florida natural gas operation relies primarily on two pipeline systems, FGT and
Peninsula Pipeline, our intrastate pipeline subsidiary for most of its natural gas supply and transmission. Our Florida electric
operation secures electricity from external parties. Any continued interruption of service from these suppliers could adversely
affect our ability to meet the demands of our customers, which could negatively impact our earnings, financial condition and
results of operations.
Our use of derivative instruments may adversely affect our results of operations.
Fluctuating commodity prices may affect our earnings and financing costs because our propane operations use derivative
instruments, including forwards, futures, swaps, puts, and calls, to hedge price risk. While we have risk management policies
and operating procedures in place to control our exposure to risk, if we purchase derivative instruments that are not properly
matched to our exposure, our results of operations, cash flows, and financial condition may be adversely affected.
Our ability to grow our businesses could be adversely affected if we are not successful in making acquisitions or
integrating the acquisitions we have completed.
One of our strategies is to grow through acquisitions of complementary businesses. Acquisitions involve a number or risks
including, but not limited to, the assumption of material liabilities, the diversion of management’s attention from the
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management of daily operations to the integration of operations, difficulties in the assimilation and retention of employees
and difficulties in the assimilation of different cultures and internal controls. Future acquisitions could also result in, among
other things, the failure to identify material issues during due diligence, the risk of overpaying for assets, unanticipated
capital expenditures, the failure to maintain effective internal control over financial reporting, recording goodwill and other
intangible assets at values that ultimately may be subject to impairment charges and fluctuations in quarterly results. There
can also be no assurance that our past and future acquisitions will deliver the strategic, financial and operational benefits that
we anticipate. The failure to successfully integrate acquisitions could have an adverse effect on our results of operations, cash
flows and financial condition.
An impairment of goodwill could result in a significant charge to earnings.
In accordance with GAAP, goodwill is tested for impairment annually or whenever events or changes in circumstances
indicate impairment may have occurred. If the testing performed indicates that impairment has occurred, we are required to
record an impairment charge for the difference between the carrying value of the goodwill and the implied fair value of the
goodwill in the period the determination is made. The testing of goodwill for impairment requires us to make significant
estimates about our future performance and cash flows, as well as other assumptions. These estimates can be affected by
numerous factors, including: future business operating performance, changes in economic conditions and interest rates,
regulatory, industry or market conditions, changes in business operations, changes in competition or changes in technologies.
Any changes in key assumptions, or actual performance compared with key assumptions, about our business and its future
prospects could affect the fair value of one or more business segments, which may result in an impairment charge.
REGULATORY, LEGAL AND ENVIRONMENTAL RISKS
Regulation of our businesses, including changes in the regulatory environment, may adversely affect our results of
operations, cash flows and financial condition.
The Delaware, Maryland and Florida PSCs regulate our utility operations in those states. Eastern Shore is regulated by the
FERC. The PSCs and the FERC set the rates that we can charge customers for services subject to their regulatory jurisdiction.
Our ability to obtain timely rate increases and rate supplements to maintain current rates of return depends on regulatory
approvals, and there can be no assurance that our regulated operations will be able to obtain such approvals or maintain
currently authorized rates of return. When earnings from our regulated utilities exceed the authorized rate of return, the
respective regulatory authority may require us to reduce our rates charged to customers in the future.
We may face certain regulatory and financial risks related to pipeline safety legislation.
We are subject to a number of legislative proposals at the federal and state level to implement increased oversight over
natural gas pipeline operations and facilities to inspect pipeline facilities, upgrade pipeline facilities, or control the impact of a
breach of such facilities. Additional operating expenses and capital expenditures may be necessary to remain in compliance.
If new legislation is adopted and we incur additional expenses and expenditures, our financial condition, results of operations
and cash flows could be adversely affected, particularly if we are not authorized through the regulatory process to recover
from customers some or all of these costs and our authorized rate of return.
We are subject to operating and litigation risks that may not be fully covered by insurance.
Our operations are subject to the operating hazards and risks normally incidental to handling, storing, transporting,
transmitting and delivering natural gas, electricity and propane to end users. From time to time, we are a defendant in legal
proceedings arising in the ordinary course of business. We maintain insurance coverage for our general liabilities in the
amount of $51 million, which we believe is reasonable and prudent. However, there can be no assurance that such insurance
will be adequate to protect us from all material expenses related to potential future claims for personal injury and property
damage or that such levels of insurance will be available in the future at economical prices.
Costs of compliance with environmental laws may be significant.
We are subject to federal, state and local laws and regulations governing environmental quality and pollution control. These
evolving laws and regulations may require expenditures over a long period of time to control environmental effects at our
current and former operating sites, especially former MGP sites. To date, we have been able to recover, through regulatory
rate mechanisms, the costs associated with the remediation of former MGP sites. However, there is no guarantee that we will
be able to recover future remediation costs in the same manner or at all. A change in our approved rate mechanisms for
recovery of environmental remediation costs at former MGP sites could adversely affect our results of operations, cash flows
and financial condition.
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Further, existing environmental laws and regulations may be revised, or new laws and regulations seeking to protect the
environment may be adopted and be applicable to us. Revised or additional laws and regulations could result in additional
operating restrictions on our facilities or increased compliance costs, which may not be fully recoverable. Any such increase
in compliance costs could adversely affect our financial condition and results of operations. Compliance with these legal
obligations requires us to commit capital. If we fail to comply with environmental laws and regulations, even if such failure is
caused by factors beyond our control, we may be assessed civil or criminal penalties and fines, which could impact our
financial condition and results of operations. See Item 8, Financial Statements and Supplementary Data (see Note 20,
Environmental Commitments and Contingencies, in the consolidated financial statements).
Unanticipated changes in our tax provisions or exposure to additional tax liabilities could affect our profitability and cash
flow.
We are subject to income and other taxes in the U.S. Changes in applicable U.S. tax laws and regulations, or their
interpretation and application, including the possibility of retroactive effect, could affect our tax expense and profitability. In
addition, the final determination of any tax audits or related litigation could be materially different from our historical income
tax provisions and accruals. Changes in our tax provision or an increase in our tax liabilities, due to changes in applicable law
and regulations, the interpretation or application thereof, future changes in the tax rate or a final determination of tax audits or
litigation, could have a material adverse effect on our financial position, results of operations or cash flows.
Our business may be subject in the future to additional regulatory and financial risks associated with global warming and
climate change.
There have been a number of federal and state legislative and regulatory initiatives proposed in recent years in an attempt to
control or limit the effects of global warming and overall climate change, including greenhouse gas emissions, such as carbon
dioxide. The direction of future U.S. climate change regulation is difficult to predict given the potential for policy changes
under different Presidential administrations and Congressional leadership. The EPA may or may not continue developing
regulations to reduce greenhouse gas emissions. Even if federal efforts in this area slow, states, cities and local jurisdictions
may continue pursuing climate regulations. Any laws or regulations that may be adopted to restrict or reduce emissions of
greenhouse gases could require us to incur additional operating costs, such as costs to purchase and operate emissions
controls, to obtain emission allowances or to pay emission taxes, and reduce demand for our energy delivery services.
Federal, state and local legislative initiatives to implement renewable portfolio standards or to further subsidize the cost of
solar, wind and other renewable power sources may change the demand for natural gas. We cannot predict the potential
impact that such laws or regulations, if adopted, may have on our future business, financial condition or financial results.
Climate changes may impact the demand for our services in the future and could result in more frequent and more severe
weather events, which ultimately could adversely affect our financial results.
Significant climatic change creates physical and financial risks for us. Our customers' energy needs vary with weather
conditions, primarily temperature and humidity. For residential customers, heating and cooling represent their largest energy
use. To the extent weather conditions may be affected by climate change, customers' energy use could increase or decrease
depending on the duration and magnitude of any changes. To the extent that climate change adversely impacts the economic
health or weather conditions of our service territories directly, it could adversely impact customer demand or our customers’
ability to pay. Changes in energy use due to weather variations may affect our financial condition through volatility and/or
decreased revenues and cash flows. Extreme weather conditions require more system backups and can increase costs and
system stresses, including service interruptions. Severe weather impacts our operating territories primarily through
thunderstorms, tornadoes, hurricanes, and snow or ice storms. Weather conditions outside of our operating territories could
also have an impact on our revenues and cash flows by affecting natural gas prices. To the extent the frequency of extreme
weather events increases, this could increase our costs of providing services. We may not be able to pass on the higher costs
to our customers or recover all the costs related to mitigating these physical risks. To the extent financial markets view
climate change and emissions of greenhouse gases as a financial risk, this could adversely affect our ability to access capital
markets or cause us to receive less favorable terms and conditions in future financings. Our business could be affected by the
potential for investigations and lawsuits related to or against greenhouse gas emitters based on the claimed connection
between greenhouse gas emissions and climate change, which could impact adversely our business, results of operations and
cash flows.
We could be negatively impacted by the recent outbreak of COVID-19.
The outbreak of COVID-19 poses a health and financial crisis in the United States and globally, and related government
restrictions and requirements and private sector responses could adversely affect our business operations. It is impossible to
predict the effect and ultimate impact of the COVID-19 pandemic as the situation continues to evolve. We are responding to
COVID-19 by taking steps to mitigate the impact of its spread and the potential risks to us. We provide a critical service to
Chesapeake Utilities Corporation 2020 Form 10-K Page 18
Table of Contents
our customers, which means that it is paramount that we keep our employees who operate our businesses safe and minimize
unnecessary risk of the exposure to COVID-19. We have a Pandemic Response Plan that dates back to 2007. As soon as there
were indications that the virus was spreading from China to other countries, we updated this plan, and continue to modify and
adapt our operations given the fluid situation to ensure the continued delivery of our essential services. This plan guides our
emergency response, business continuity, and the precautionary measures we are taking on behalf of our employees, our
customer and the communities we serve. We have taken extra precautions for our employees who work in the field and for
employees who continue to work in our facilities, and we have implemented work from home policies where appropriate. We
have canceled travel plans, stopped movement between offices, transitioned to virtual, or on-line work, meetings and events,
and instituted “social distancing” as directed by the CDC and state and local governments in the areas we serve. We
temporarily suspended walk-in customer access to our natural gas, propane and electric offices, and reminded customers of
our online and direct mail payment options. We also established critical teams and task forces to guide us through key aspects
of this pandemic. This has, and continues to be, an evolving situation to which we have remained fully engaged. We have
instituted measures to ensure our supply chains remain open to us; however, there could be global shortages that will impact
our maintenance and capital programs that we currently cannot anticipate. We will continue to monitor developments
affecting our workforce, our customers and our suppliers, and we will take additional precautions that we determine are
necessary in order to mitigate the impacts. We continue to implement measures to ensure that our systems remain functional
in order to both serve our operational needs with a remote workforce and keep them running to ensure uninterrupted service
to our customers. We currently cannot estimate the potential future impacts to our financial position, results of operations,
and cash flows.
Although it is not possible to reliably estimate the duration or severity of the pandemic and, hence, its financial impact on the
Company, the extent to which COVID-19 impacts our results, financial position and liquidity will depend on many factors.
At the present time, not all of these factors can be predicted, including new information, which may emerge concerning the
severity and duration of the pandemic or any subsequent mutations, the actions mandated by governmental authorities to
contain COVID-19 and the availability and timing to identified vaccines, among others.
Additional risks and uncertainties not known to us at present, or that we currently deem immaterial, also may affect
Chesapeake Utilities. The occurrence of any of these known or unknown risks could have a material adverse impact on our
business, financial condition and results of operations.
Our certificate of incorporation and bylaws may delay or prevent a transaction that stockholders would view as favorable.
Our certificate of incorporation and bylaws, as well as Delaware law, contain provisions that could delay, defer or prevent an
unsolicited change in control of Chesapeake Utilities, which may negatively affect the market price of our common stock or
the ability of stockholders to participate in a transaction in which they might otherwise receive a premium for their shares
over the then current market price. These provisions may also prevent changes in management. In addition, our Board of
Directors is authorized to issue preferred stock without stockholder approval on such terms as our Board of Directors may
determine. Our common stockholders will be subject to, and may be negatively affected by, the rights of any preferred stock
that may be issued in the future.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. Properties.
Offices and other operational facilities
We own or lease offices and other operational facilities in our service territories located in Delaware, Maryland, Virginia,
Florida, Pennsylvania and Ohio.
Chesapeake Utilities Corporation 2020 Form 10-K Page 19
Table of Contents
Regulated Energy Segment
The following table presents a summary of miles of assets operated by our natural gas distribution, natural gas transmission
and electric business units as of December 31, 2020:
Operations
Natural Gas Distribution
Delmarva Natural Gas (Natural gas pipelines)
Delmarva Natural Gas (Underground propane pipelines)
Central Florida Gas and FPU (Natural gas pipelines)
Natural Gas Transmission
Eastern Shore
Peninsula Pipeline
Electric Distribution
FPU
Total
Miles
1,864
32
2,973
501
129
900
6,399
Peninsula Pipeline also has a 50 percent jointly owned intrastate transmission pipeline with Seacoast Gas Transmission, LLC
("Seacoast Gas Transmission") in Nassau County, Florida. The 26-mile pipeline will serve growing demand in both Nassau
and Duval Counties.
Unregulated Energy Segment
As of December 31, 2020 the following table presents propane storage capacity, miles of underground distribution mains and
transmission for our Unregulated Energy Segment operations:
Operations
Propane distribution
Propane storage capacity (gallons in millions)
Underground propane distribution mains (miles)
Unregulated Energy Transmission and gathering (Aspire Energy)
Natural gas pipelines (miles)
Gallons or miles
8.3
204
2,700
Florida liens
Until December 2020, all of the assets owned by FPU were subject to a lien in favor of the holders of its 9.08 percent first
mortgage bonds securing its indebtedness under its Mortgage Indenture and Deed of Trust. These assets were not subject to
any other lien as all other debt is unsecured. In December 2020, we redeemed FPU’s 9.08 percent secured first mortgage
bonds prior to their maturity and as a result FPU properties are no longer subject to a lien. See Note 13, Long-term Debt in
the Consolidated Financial Statements, for additional details.
ITEM 3. Legal Proceedings.
See Note 21, Other Commitments and Contingencies in the Consolidated Financial Statements, which is incorporated into
Item 3 by reference.
ITEM 4. Mine Safety Disclosures.
Not applicable.
Chesapeake Utilities Corporation 2020 Form 10-K Page 20
Table of Contents
PART II
ITEM 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Common Stock Dividends and Stockholder Information:
Chesapeake Utilities common stock is traded on the New York Stock Exchange ("NYSE") under the ticker symbol CPK. As
of February 18, 2021, we had 2,127 holders of record of our common stock. We declared quarterly cash dividends on our
common stock totaling $1.725 per share in 2020 and $1.585 per share in 2019, and have paid a cash dividend to our common
stock stockholders for 60 consecutive years. Future dividend payments and amounts are at the discretion of our Board of
Directors and will depend on our financial condition, results of operations, capital requirements, and other factors.
Indentures to our long-term debt contain various restrictions which limit our ability to pay dividends. Refer to Item 8,
Financial Statements and Supplementary Data (see Note 13, Long-Term Debt, in the consolidated financial statements) for
additional information.
Purchases of Equity Securities by the Issuer
The following table sets forth information on purchases by us or on our behalf of shares of our common stock during the
quarter ended December 31, 2020.
Total
Number
of Shares
Purchased
Average
Price Paid
per Share
Total Number of Shares
Purchased as Part of
Publicly Announced Plans
or Programs (2)
Maximum Number of
Shares That May Yet Be
Purchased Under the Plans
or Programs (2)
Period
October 1, 2020 through October 31, 2020 (1)
544 $
84.15
November 1, 2020 through November 30, 2020
December 1, 2020 through December 31, 2020
Total
—
—
—
—
544 $
84.15
—
—
—
—
—
—
—
—
(1) In October 2020, we purchased 544 shares of common stock on the open market for the purpose of reinvesting the dividend on shares held in the Rabbi
Trust accounts under the Non-Qualified Deferred Compensation Plan. The Non-Qualified Deferred Compensation Plan is discussed in detail in Item 8,
Financial Statements and Supplementary Data (see Note 17, Employee Benefit Plans, in the consolidated financial statements).
(2) Except for the purpose described in footnote (1), we have no publicly announced plans or programs to repurchase our shares.
Discussion of our compensation plans, for which shares of our common stock are authorized for issuance, is included in the
section of our Proxy Statement captioned “Equity Compensation Plan Information” and is incorporated herein by reference.
Chesapeake Utilities Corporation 2019 Form 10-K Page 21
Table of Contents
Common Stock Performance Graph
The stock performance graph and table below compares cumulative total stockholder return on our common stock during the
five fiscal years ended December 31, 2020, with the cumulative total stockholder return of the Standard & Poor’s 500 Index
and the cumulative total stockholder return of select peers, which include the following companies: Atmos Energy
Corporation; Black Hills Corporation; New Jersey Resources Corporation; NiSource Inc.; Northwest Natural Holding
Company; NorthWestern Corporation; ONE Gas Inc.; RGC Resources, Inc.; South Jersey Industries, Inc.; Spire Inc. and
Unitil Corporation.
The comparison assumes $100 was invested on December 31, 2015 in our common stock and in each of the foregoing indices
and assumes reinvested dividends. The comparisons in the graph below are based on historical data and are not intended to
forecast the possible future performance of our common stock.
2015
2016
2017
2018
2019
2020
Chesapeake Utilities
Industry Index
S&P 500 Index
$
$
$
100 $
100 $
100 $
120 $
122 $
112 $
144 $
138 $
136 $
151 $
156 $
130 $
181 $
175 $
171 $
209
147
203
Chesapeake Utilities Corporation 2020 Form 10-K Page 22
Stock PerformanceChesapeake UtilitiesIndustry IndexS&P 500 Index201520162017201820192020$100$150$200$250 Table of Contents
ITEM 6. SELECTED FINANCIAL DATA
Operating (1)
(in thousands)
Revenues
2020
For the Year Ended December 31,
2018
2019
2017
2016
Regulated Energy
Unregulated Energy
$ 352,746 $ 343,006 $ 345,281 $ 326,310 $ 305,689
152,526
154,151
161,905
140,076
108,364
Other businesses and eliminations
(17,074)
(17,552)
(16,870)
(16,740)
(9,318)
Total revenues
Operating income from Continuing
Operations
Regulated Energy
Unregulated Energy
Other businesses and eliminations
Total operating income from Continuing
Operations
Income from Continuing Operations
Income (loss) from Discontinued Operations,
Net of Tax
Gain on sale of Discontinued Operations, Net
of Tax
Net Income
Assets
(in thousands)
$ 488,198 $ 479,605 $ 490,316 $ 449,646 $ 404,735
$
92,124 $
86,584 $
79,215 $
74,584 $
71,515
20,664
19,938
17,125
(65)
(237)
(1,496)
14,938
205
11,732
402
$ 112,723 $ 106,285 $
94,844 $
89,727 $
83,649
$
70,642 $
61,100 $
56,968 $
60,321 $
43,283
686
(1,349)
(388)
(2,197)
1,392
170
5,402
—
—
—
$
71,498 $
65,153 $
56,580 $
58,124 $
44,675
Gross property, plant and equipment (1)
Net property, plant and equipment (1)
Total assets (2)
Capital expenditures (3)
$ 1,908,992 $ 1,746,532 $ 1,568,441 $ 1,310,993 $ 1,175,595
$ 1,601,178 $ 1,463,797 $ 1,353,520 $ 1,124,938 $ 986,664
$ 1,932,487 $ 1,783,198 $ 1,693,671 $ 1,414,934 $ 1,229,219
$ 195,875 $ 198,986 $ 282,861 $ 179,337 $ 169,376
Capitalization
(in thousands)
Stockholders’ equity
$ 697,085 $ 561,577 $ 518,439 $ 486,294 $ 446,086
Long-term debt, net of current maturities
508,499
440,168
316,020
197,395
136,954
Total capitalization
Current portion of long-term debt
Short-term debt
$ 1,205,584 $ 1,001,745 $ 834,459 $ 683,689 $ 583,040
13,600
45,600
175,644
247,371
11,935
294,458
9,421
250,969
12,099
209,871
Total capitalization and short-term financing
$ 1,394,828 $ 1,294,716 $ 1,140,852 $ 944,079 $ 805,010
(1) As a result of the sale of PESCO's assets and contracts during the fourth quarter of 2019, certain amounts have been revised to reflect application of
classification of PESCO as a discontinued operation for all periods presented and assets held for sale.
(2) Total assets for 2016 through 2018, include assets for PESCO, whose assets and contracts were sold in the fourth quarter of 2019.
(3) As a result of the sale of PESCO's assets and contracts during the fourth quarter of 2019, capital expenditures for 2016 to 2018 were recast to exclude
amounts associated with PESCO.
Chesapeake Utilities Corporation 2020 Form 10-K Page 23
Table of Contents
Common Stock Data and Ratios
Basic Earnings Per Share:
2020
For the Year Ended December 31,
2018
2017
2019
2016
Earnings Per Share from Continuing Operations
Earnings/(Loss) Per Share from Discontinued
Operations
Basic Earnings Per Share
Diluted Earnings Per Share
Earnings Per Share from Continuing Operations
Earnings/(Loss) Per Share from Discontinued
Operations
Diluted Earnings Per Share
Diluted earnings per share growth - 1 year (1)
Diluted earnings per share growth - 5 year (1)
Diluted earnings per share growth - 10 year (1)
Return on average equity (1)
Common equity / total capitalization
Common equity / total capitalization and short-term
financing
Capital expenditures / average total capitalization (1)
Book value per share
$
4.23
$
3.73
$
3.48
$
3.69
$
2.78
$
$
$
0.05
4.28
$
0.24
3.97
(0.02)
(0.13)
$
3.46
$
3.56
$
0.09
2.87
4.21
$
3.72
$
3.47
$
3.68
$
2.77
$
0.05
4.26
13.2 %
9.9 %
9.4 %
11.5 %
57.8 %
50.0 %
17.7 %
0.24
3.96
7.2 %
9.4 %
11.3 %
11.3 %
56.1 %
43.4 %
21.7 %
(0.02)
(0.13)
$
3.45
$
3.55
$
(5.7) %
10.0 %
11.3 %
11.3 %
62.1 %
45.4 %
37.3 %
32.9 %
14.3 %
11.5 %
13.0 %
71.1 %
51.5 %
28.3 %
0.09
2.86
5.3 %
9.0 %
9.8 %
11.0 %
76.5 %
55.4 %
31.1 %
$
39.92
$
34.23
$
31.65
$
29.75
$
27.36
Weighted average number of shares outstanding
16,711,579
16,398,443
16,369,616
16,336,789
15,570,539
Shares outstanding at year-end
Cash dividends declared per share
Dividend yield (annualized) (2)
Book yield (3)
Payout ratio (1)(4)
Additional Data
Customers
Natural gas distribution
Electric distribution
Propane operations
Total employees
17,461,841
16,403,776
16,378,545
16,344,442
16,303,499
$
1.73
$
1.59
$
1.44
$
1.28
$
1.20
1.6 %
4.7 %
40.9 %
1.7 %
4.8 %
1.8 %
4.7 %
42.6 %
41.4 %
1.7 %
4.5 %
34.7 %
1.8 %
4.7 %
43.2 %
178,220
164,134
158,387
153,537
149,179
32,326
67,034
947
31,818
59,671
955
32,185
56,915
983
32,026
54,760
945
31,695
54,947
903
(1) Diluted earnings per share growth, return on average equity, capital expenditures / average capitalization and payout ratio are calculated for continuing
operations.
(2) Dividend yield (annualized) is calculated by multiplying the fourth quarter dividend by four (4), then dividing that amount by the closing common stock
price at December 31.
(3) The book yield is calculated by dividing cash dividends declared per share (for the year) by average book value per share (for the year).
(4) The payout ratio is calculated by dividing cash dividends declared per share (for the year) by basic earnings per share from continuing operations.
Chesapeake Utilities Corporation 2020 Form 10-K Page 24
Table of Contents
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
This section provides management’s discussion of Chesapeake Utilities and its consolidated subsidiaries, with specific
information on results of operations, liquidity and capital resources, as well as discussion of how certain accounting principles
affect our financial statements. It includes management’s interpretation of our financial results and our operating segments, the
factors affecting these results, the major factors expected to affect future operating results as well as investment and financing
plans. This discussion should be read in conjunction with our consolidated financial statements and notes thereto in Item 8,
Financial Statements and Supplementary Data.
Several factors exist that could influence our future financial performance, some of which are described in Item 1A, Risk
Factors. They should be considered in connection with forward-looking statements contained in this Annual Report, or
otherwise made by or on behalf of us, since these factors could cause actual results and conditions to differ materially from
those set out in such forward-looking statements.
In the fourth quarter of 2019, we completed the sale of the assets and contracts of PESCO. As a result, PESCO’s results for all
periods presented have been separately reported as discontinued operations.
In March 2020, the CDC declared a national emergency due to the rapidly growing outbreak of COVID-19. In response to this
declaration and the rapid spread of COVID-19 within the United States, federal, state and local governments throughout the
country imposed varying degrees of restrictions on social and commercial activity to promote social distancing in an effort to
slow the spread of the illness. These restrictions have continued to significantly impact economic conditions in the United
States in 2020 and will continue into 2021. Chesapeake Utilities is considered an “essential business,” which allows us to
continue operational activities and construction projects while the social distancing restrictions remain in place. In response to
the COVID-19 pandemic and related restrictions, we implemented our pandemic response plan, which includes having all
employees who can work remotely do so in order to promote social distancing and providing personal protective equipment to
field employees to reduce the spread of COVID-19.
For the year ended December 31, 2020, the estimated impacts that COVID-19 had on our earnings were approximately $1.0
million, primarily driven by reduced consumption of energy largely in the commercial and industrial sectors and incremental
expenses associated with COVID-19, including protective personal equipment, bad debt expense and premium pay for field
personnel. The additional operating expenses we incurred support the ongoing delivery of our essential services during these
unprecedented times. In the fourth quarter of 2020, we established regulatory assets for the net incremental expense incurred for
our natural gas and electric distribution businesses as currently authorized by the Delaware, Maryland and Florida PSCs. We
are committed to communicating timely updates and will continue to monitor developments affecting our employees,
customers, suppliers, stockholders and take additional precautions as warranted to operate safely and to comply with the CDC,
Occupational Safety and Health Administration, state and local requirements in order to protect its employees, customers and
the communities. Refer to Item 8, Financial Statements and Supplementary Data, Note 19, Rates and Other Regulatory
Activities, for further information on the potential deferral of incremental expenses associated with COVID-19.
The following discussions and those later in the document on operating income and segment results include the use of the term
“gross margin," which is determined by deducting the cost of sales from operating revenue. Cost of sales includes the
purchased cost of natural gas, electricity and propane and the cost of labor spent on direct revenue-producing activities, and
excludes depreciation, amortization and accretion. Gross margin should not be considered an alternative to operating income
or net income, which are determined in accordance with GAAP. We believe that gross margin, although a non-GAAP measure,
is useful and meaningful to investors as a basis for making investment decisions. It provides investors with information that
demonstrates the profitability achieved by us under our allowed rates for regulated energy operations and under our
competitive pricing structures for unregulated energy operations. Our management uses gross margin in measuring our
business units’ performance and has historically analyzed and reported gross margin information publicly. Other companies
may calculate gross margin in a different manner.
Earnings per share information is presented on a diluted basis, unless otherwise noted.
Chesapeake Utilities Corporation 2020 Form 10-K Page 25
Table of Contents
OVERVIEW AND HIGHLIGHTS
(in thousands except per share data)
For the Year Ended December 31,
Business Segment:
Regulated Energy
Unregulated Energy
Other businesses and eliminations
Operating Income
Other income (expense), net
Interest charges
Income from Continuing Operations
Before Income Taxes
Income Taxes on Continuing Operations
Income from Continuing Operations
Income (loss) from Discontinued Operations,
Net of Tax
Gain on sale of Discontinued Operations, Net
of tax
Net Income
Basic Earnings Per Share of Common
Stock
Earnings Per Share from Continuing
Operations
Earnings/(loss) Per Share from
Discontinued Operations
Basic Earnings Per Share of Common Stock
Diluted Earnings Per Share of Common
Stock:
Earnings Per Share from Continuing
Operations
Earnings/(loss) Per Share from
Discontinued Operations
2020
2019
(decrease)
2019
2018
(decrease)
Increase
Increase
$ 92,124 $ 86,584 $
5,540 $ 86,584 $ 79,215 $
20,664
19,938
(65)
(237)
726
172
19,938
17,125
(237)
(1,496)
7,369
2,813
1,259
112,723
106,285
6,438
106,285
94,844
11,441
3,222
21,765
94,180
23,538
70,642
(1,847)
5,069
(1,847)
(607)
(1,240)
22,224
(459)
22,224
16,146
6,078
82,214
21,114
61,100
11,966
2,424
9,542
82,214
21,114
61,100
78,091
21,123
56,968
4,123
(9)
4,132
686
(1,349)
2,035
(1,349)
(388)
(961)
170
71,498
5,402
65,153
(5,232)
5,402
—
6,345
65,153
56,580
5,402
8,573
$
4.23 $
3.73 $
0.50 $
3.73 $
3.48 $
0.25
0.05
0.24
(0.19)
0.24
(0.02)
$
4.28 $
3.97 $
0.31 $
3.97 $
3.46 $
0.26
0.51
$
4.21 $
3.72 $
0.49 $
3.72 $
3.47 $
0.25
0.26
0.51
0.05
0.24
(0.19)
0.24
(0.02)
Diluted Earnings Per Share of Common Stock $
4.26 $
3.96 $
0.30 $
3.96 $
3.45 $
Chesapeake Utilities Corporation 2020 Form 10-K Page 26
Table of Contents
2020 compared to 2019
Key variances in continuing operations between 2020 and 2019 included:
(in thousands, except per share data)
Pre-tax
Income
Net
Income
Earnings
Per Share
Year ended December 31, 2019 Reported Results from Continuing Operations
$
82,214 $
61,100 $
3.72
Adjusting for unusual items:
Decreased customer consumption - primarily weather related
Interest expense associated with the early extinguishment of FPU mortgage bonds
Favorable income tax impact associated with the CARES Act
Gains from sales of assets
Increased (Decreased) Gross Margins:
Hurricane Michael Settlement Margin Impact*
Eastern Shore and Peninsula Pipeline service expansions*
Margin from recent acquisitions*
Natural gas growth (excluding service expansions)
Increased retail propane margins per gallon
Increased demand for CNG services for Marlin Gas Services*
Aspire Energy rate increases
Florida GRIP*
Eastern Shore margin from capital improvements and non-service expansion projects*
(Increased) Decreased Other Operating Expenses (Excluding Cost of Sales):
Depreciation and amortization associated with Hurricane Michael regulatory
proceeding settlement
Depreciation, amortization and property tax costs due to new capital investments
Operating expenses from recent acquisitions
Insurance
Payroll, benefits and other employee-related expenses
Interest charges(1)
Increased share count from 2020 equity offerings
Other income tax effects
Lower pension expense
Net Other changes
(4,305)
(961)
—
3,162
(2,104)
10,864
8,006
5,304
3,370
1,937
1,821
1,312
1,239
1,033
(3,145)
(715)
1,841
2,317
298
7,936
5,849
3,875
2,462
1,415
1,331
959
905
755
34,886
25,487
(7,133)
(6,262)
(3,269)
(2,088)
716
(18,036)
(1,232)
—
—
1,777
(3,325)
(5,210)
(4,575)
(2,388)
(1,525)
523
(13,175)
(900)
—
(1,060)
1,298
(2,406)
Year ended December 31, 2020 Reported Results from Continuing Operations
$
94,180 $
70,642 $
(0.19)
(0.04)
0.11
0.14
0.02
0.47
0.35
0.23
0.15
0.08
0.08
0.06
0.05
0.05
1.52
(0.31)
(0.27)
(0.14)
(0.09)
0.03
(0.78)
(0.05)
(0.08)
(0.06)
0.08
(0.16)
4.21
* See the Major Projects and Initiatives table.
(1) Interest charges includes amortization of a regulatory liability of $1.5 million related to the Hurricane Michael
regulatory proceeding settlement.
Chesapeake Utilities Corporation 2020 Form 10-K Page 27
Table of Contents
SUMMARY OF KEY FACTORS
Recently Completed and Ongoing Major Projects and Initiatives
We constantly pursue and develop additional projects and initiatives to serve existing and new customers, further grow our
businesses and earnings, with the intention of increasing shareholder value. The following represent the major projects/
initiatives recently completed and currently underway. In the future, we will add new projects and initiatives to this table once
substantially finalized and the associated earnings can be estimated.
Gross Margin for the Period
Year Ended December 31,
Estimate for Fiscal
2018
2019
2020
2021
2022
$
54 $
—
2,139 $
731
4,167 $
2,462
4,984 $
4,385
—
—
—
54
283
—
—
679
3,851
—
679
7,564
514
3,153
11,159
18,126
21,664
5,227
6,708
679
7,564
1,486
110
5,410
7,231
7,900
8,500
—
—
—
1,000
1,000
—
—
—
—
329
—
—
329
13,020
13,939
—
—
13,020
—
—
13,939
3,900
1,344
389
5,633
15,178
10,864
—
26,042
4,200
3,992
1,800
9,992
16,739
11,014
1,500
29,253
4,409
4,200
1,854
10,463
17,712
11,014
3,000
31,726
$
13,184 $
22,831 $
50,065 $
66,271 $
73,353
(in thousands)
Pipeline Expansions:
Western Palm Beach County, Florida Expansion (1)
Del-Mar Energy Pathway (1) (2)
Auburndale
Callahan Intrastate Pipeline (2)
Guernsey Power Station
Total Pipeline Expansions
CNG Transportation
RNG Transportation
Acquisitions:
Boulden Propane
Elkton Gas
Western Natural Gas
Total Acquisitions
Regulatory Initiatives:
Florida GRIP
Hurricane Michael regulatory proceeding
Capital Cost Surcharge Programs
Total Regulatory Initiatives
Total
(1) Includes gross margin generated from interim services.
(2) Includes gross margin from natural gas distribution services.
Chesapeake Utilities Corporation 2020 Form 10-K Page 28
Table of Contents
Detailed Discussion of Major Projects and Initiatives
Pipeline Expansions
Western Palm Beach County, Florida Expansion
Peninsula Pipeline is constructing four transmission lines to bring additional natural gas to our distribution system in West Palm
Beach, Florida. The first phase of this project was placed into service in December 2018 and generated incremental gross
margin of $2.0 million during 2020 compared to 2019. We expect to complete the remainder of the project in phases through
the second quarter of 2021, and estimate that the project will generate annual gross margin of $5.0 million in 2021 and $5.2
million in 2022.
Del-Mar Energy Pathway
In December 2019, the FERC issued an order approving the construction of the Del-Mar Energy Pathway project. Eastern
Shore anticipates that this project will be fully in-service by the beginning of the fourth quarter of 2021. The new facilities will:
(i) ensure an additional 14,300 Dts/d of firm service to four customers, (ii) provide additional natural gas transmission pipeline
infrastructure in eastern Sussex County, Delaware, and (iii) represent the first extension of Eastern Shore’s pipeline system into
Somerset County, Maryland. Construction of the project began in January 2020, and interim services in advance of this project
generated additional gross margin $1.7 million for the year ended December 31, 2020. The estimated annual gross margin from
this project including natural gas distribution service in Somerset County, Maryland, is approximately $4.4 million in 2021 and
$6.7 million annually thereafter.
Auburndale
In August 2019, the Florida PSC approved Peninsula Pipeline's Transportation Service Agreement with the Florida Division of
Chesapeake Utilities. Peninsula Pipeline purchased an existing pipeline owned by the Florida Division of Chesapeake Utilities
and Calpine, and has completed the construction of pipeline facilities in Polk County, Florida. Peninsula Pipeline provides
transportation service to the Florida Division of Chesapeake Utilities; these facilities increased both delivery capacity and
downstream pressure as well as introduced a secondary source of natural gas for the Florida Division of Chesapeake Utilities'
distribution system. Peninsula Pipeline generated additional gross margin from this project of $0.4 million for the year ended
December 31, 2020 compared to 2019 and expects to generate annual gross margin of $0.7 million in 2021 and beyond.
Callahan Intrastate Pipeline
In May 2018, Peninsula Pipeline announced a plan to construct a jointly owned intrastate transmission pipeline with Seacoast
Gas Transmission in Nassau County, Florida. The 26-mile pipeline will serve growing demand in both Nassau and Duval
Counties. This project was placed in service in June 2020, one month earlier than initially forecasted, and generated $3.9
million in additional gross margin for the year ended December 31, 2020. We expect to generate $7.6 million annually in gross
margin in 2021 and beyond.
Guernsey Power Station
Guernsey Power Station and our affiliate, Aspire Energy Express, entered into a precedent agreement for firm transportation
capacity whereby Guernsey Power Station will construct a power generation facility and Aspire Energy Express will provide
firm natural gas transportation service to this facility. Guernsey Power Station commenced construction of the project in
October 2019. Aspire Energy Express is expected to commence construction of the gas transmission facilities to provide the
firm transportation service to the power generation facility in the fourth quarter of 2021. This project is expected to produce
gross margin of approximately $0.5 million in 2021 and $1.5 million in 2022 and beyond.
CNG Transportation
Marlin Gas Services provides CNG temporary hold services, contracted pipeline integrity services, emergency services for
damaged pipelines and specialized gas services for customers who have unique requirements. For the year ended December 31,
2020, Marlin Gas Services generated additional gross margin of $1.8 million compared to the year ended December 31, 2019.
We estimate that Marlin Gas Services will generate annual gross margin of approximately $7.9 million in 2021, and $8.5
million in 2022, with potential for additional growth in future years. Marlin Gas Services continues to actively expand the
territories it serves, as well as leverage its patented technology to serve other markets, including pursuing liquefied natural gas
transportation opportunities and renewable natural gas transportation opportunities from diverse supply sources to various
pipeline interconnection points, as further outlined below.
Chesapeake Utilities Corporation 2020 Form 10-K Page 29
Table of Contents
RNG Transportation
Noble Road Landfill RNG Project
In September 2020, Fortistar and Rumpke Waste & Recycling announced commencement of construction of the Noble Road
Landfill RNG Project in Shiloh, Ohio. The project includes the construction of a new state-of-the-art facility that will utilize
advanced, patented technology to treat landfill gas by removing carbon dioxide and other components to purify the gas and
produce pipeline quality RNG. Aspire Energy will utilize its existing natural gas gathering assets to inject the RNG from this
project to its system for distribution to end use customers. Once flowing, the RNG volume will represent nearly 10 percent of
Aspire Energy’s gas gathering volumes.
Bioenergy Devco
In June 2020, our Delmarva natural gas operations and Bioenergy Devco (“BDC”), a developer of anaerobic digestion facilities
that create renewable energy and healthy soil products from organic material, entered into an agreement related to the
development of a project to create renewable natural gas. BDC and our affiliates are collaborating on this project in addition to
several other project sites where organic waste can be converted into a potentially carbon-negative energy source. This project
will provide us the opportunity to maintain the value of the green attributes of renewable natural gas as the gas is being
distributed to natural gas distribution customers.
The renewable natural gas resource created from organic material at BDC's anaerobic digestion facilities in Delaware, will be
processed for use by our Delmarva natural gas operations. Marlin Gas Services will transport the sustainable fuel from the BDC
facility to an Eastern Shore interconnection, where it will be introduced to the distribution system and ultimately distributed to
our natural gas customers.
CleanBay Project
In July 2020, our Delmarva natural gas operations and CleanBay Renewables Inc. ("CleanBay") announced a new partnership
to bring renewable natural gas to our operations. As part of this partnership, we will transport the renewable natural gas
produced at CleanBay's planned Westover, Maryland bio-refinery, to our natural gas infrastructure in the Delmarva Peninsula
region. Eastern Shore and Marlin Gas Services, will transport the renewable natural gas from CleanBay to our Delmarva natural
gas distribution system where it is ultimately delivered to the Delmarva natural gas distribution end use customers.
At the present time, we have disclosed that we expect to generate $1.0 million in 2021 in incremental margin from renewable
natural gas transportation beginning in 2021. As we continue to finalize contract terms associated with some of these projects,
additional information will be provided regarding incremental margin at a future time.
Acquisitions
Boulden Propane
In December 2019, Sharp acquired certain propane customers and operating assets of Boulden which provides propane
distribution service to approximately 5,200 customers in Delaware, Maryland and Pennsylvania. The customers and assets
acquired from Boulden have been assimilated into Sharp. The operations acquired from Boulden generated $3.6 million of
incremental gross margin for the year ended December 31, 2020 compared to 2019. We estimate that this acquisition will
generate additional gross margin of approximately $4.2 million in 2021, and $4.4 million in 2022, with the potential for
additional growth in future years.
Elkton Gas
In July 2020, we closed on the acquisition of Elkton Gas, which provides natural gas distribution service to approximately
7,000 residential and commercial customers within a franchised area of Cecil County, Maryland. The purchase price was
approximately $15.6 million, which included $0.6 million of working capital. Elkton Gas’ territory is contiguous to our
franchised service territory in Cecil County, Maryland. We generated $1.3 million in additional gross margin from Elkton Gas
for the year ended December 31, 2020 and estimate that this acquisition will generate gross margin of approximately
$4.0 million in 2021 and $4.2 million in 2022 and beyond.
Western Natural Gas
In October 2020, Sharp acquired certain propane operating assets of Western Natural Gas, which provides propane distribution
service throughout Jacksonville, Florida and the surrounding communities, for approximately $6.7 million, net of cash acquired.
The acquisition was accounted for as a business combination within our Unregulated Energy Segment in the fourth quarter of
2020. We generated $0.4 million in additional gross margin from Western Natural Gas in 2020 and we estimate that this
acquisition will generate gross margin of approximately $1.8 million in 2021.
Chesapeake Utilities Corporation 2020 Form 10-K Page 30
Table of Contents
Regulatory Initiatives
Florida GRIP
Florida GRIP is a natural gas pipe replacement program approved by the Florida PSC that allows automatic recovery, through
rates, of costs associated with the replacement of mains and services. Since the program's inception in August 2012, we have
invested $164.9 million of capital expenditures to replace 331 miles of qualifying distribution mains, including $21.0 million
and $16.7 million of new pipes during 2020 and 2019, respectively. GRIP generated additional gross margin of $1.2 million for
the year ended 2020 compared to 2019.
Hurricane Michael
In October 2018, Hurricane Michael passed through FPU's electric distribution operation's service territory in Northwest
Florida and caused widespread and severe damage to FPU's infrastructure resulting in 100 percent of its customers in the
Northwest Florida service territory losing electrical service.
In August 2019, FPU filed a limited proceeding requesting recovery of storm-related costs associated with Hurricane Michael
(capital and expenses) through a change in base rates. FPU also requested treatment and recovery of certain storm-related costs
as regulatory assets for items currently not allowed to be recovered through the storm reserve as well as the recovery of capital
replaced as a result of the storm. Recovery of these costs included a component of an overall return on capital additions and
regulatory assets. In March 2020, we filed an update to our original filing to account for actual charges incurred through
December 2019, revised the amortization period of the storm-related costs from 30 years as originally requested to 10 years,
and included costs related to Hurricane Dorian of approximately $1.2 million in this filing.
In September 2019, FPU filed a petition with the Florida PSC, for approval of its consolidated electric depreciation rates. The
petition was joined to the Hurricane Michael docket. The approved rates, which were part of the settlement agreement in
September 2020 that is described below, were retroactively applied effective January 1, 2020.
In September 2020, the Florida PSC approved a settlement agreement between FPU and the Office of the Public Counsel
regarding final cost recovery and rates associated with Hurricane Michael. Previously, in late 2019, the Florida PSC approved
an interim rate increase, subject to refund, effective January 1, 2020, associated with the restoration effort following Hurricane
Michael. We fully reserved these interim rates, pending a final resolution and settlement of the limited proceeding. The
settlement agreement allowed us to: (a) refund the over-collection of interim rates through the fuel clause; (b) record regulatory
assets for storm costs in the amount of $45.8 million including interest which will be amortized over six years; (c) recover these
storm costs through a surcharge for a total of $7.7 million annually; and (d) collect an annual increase in revenue of $3.3
million to recover capital costs associated with new plant investments and a regulatory asset for the cost of removal and
undepreciated plant. The new base rates and storm surcharge were effective on November 1, 2020. The following table
summarizes the impact of Hurricane Michael regulatory proceeding for the year ended December 31, 2020:
(in thousands)
Gross Margin
Depreciation
Amortization of regulatory assets
Operating income
Amortization of liability associated with interest expense
Pre-tax income
Income tax expense
Net income
For the Year Ended
December 31,
2020
$
$
10,864
(1,184)
8,317
3,731
(1,475)
5,206
1,403
3,803
Chesapeake Utilities Corporation 2020 Form 10-K Page 31
Table of Contents
Capital Cost Surcharge Programs
In December 2019, the FERC approved Eastern Shore’s capital cost surcharge to become effective January 1, 2020. The
surcharge, an approved item in the settlement of Eastern Shore’s last general rate case, allows Eastern Shore to recover capital
costs associated with mandated highway or railroad relocation projects that required the replacement of existing Eastern Shore
facilities. Eastern Shore expects to produce gross margin of approximately $1.5 million in 2021 and $3.0 million in 2022 from
relocation projects.
Other Major Factors Influencing Gross Margin
Weather and Consumption
Weather conditions accounted for decreased gross margin of $4.3 million in 2020 compared to 2019 and $5.8 million compared
to Normal temperatures as defined below. The following table summarizes heating degree day ("HDD") and cooling degree day
(“CDD”) variances from the 10-year average HDD/CDD ("Normal") for the year ended December 31, 2020 compared to 2019.
HDD and CDD Information
Delmarva
Actual HDD
10-Year Average HDD ("Normal")
Variance from Normal
Florida
Actual HDD
10-Year Average HDD ("Normal")
Variance from Normal
Ohio
Actual HDD
10-Year Average HDD ("Normal")
Variance from Normal
Florida
Actual CDD
10-Year Average CDD ("Normal")
Variance from Normal
For the Years Ended December 31,
2020
2019
Variance
2019
2018
Variance
3,716
4,294
4,089
4,379
(578)
(290)
(373)
(85)
4,089
4,379
4,251
4,374
(162)
5
(290)
(123)
647
763
619
792
(116)
(173)
28
(29)
619
792
(173)
780
800
(20)
5,218
5,701
5,500
5,983
(483)
(483)
(282)
(282)
5,500
5,983
(483)
2,775
2,982
(207)
3,200
2,939
261
(425)
43
3,200
2,939
261
5,845
5,823
22
3,105
2,889
216
(161)
(8)
(345)
160
95
50
Natural Gas Distribution Margin Growth
Customer growth for our natural gas distribution operations, as a result of the addition of new customers and the conversion of
customers from alternative fuel sources to natural gas service, generated $3.4 million of additional margin in 2020. The average
number of residential customers served on the Delmarva Peninsula and Florida increased by approximately 5.3 percent and 4.1
percent, respectively, during 2020. On the Delmarva Peninsula, a larger percentage of the 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:
Chesapeake Utilities Corporation 2020 Form 10-K Page 32
Table of Contents
(in thousands)
Customer growth:
Residential
Commercial and industrial
Total customer growth
REGULATED ENERGY
For the Year Ended December
(in thousands)
Revenue
Cost of sales
Gross margin
Operations & maintenance
Gain from a settlement
Depreciation & amortization
Other taxes
Other operating expenses
Operating Income
Gross Margin increase
For the Year Ended December 31, 2020
Delmarva
Peninsula
Florida
$
$
1,516 $
380
1,896 $
807
667
1,474
2020
2019
Increase
(decrease)
2019
2018
Increase
(decrease)
$
352,746 $
91,994
343,006 $
102,803
9,740 $ 343,006 $ 345,281 $
(10,809)
102,803
260,752
104,379
240,203
102,099
(130)
(130)
46,079
18,300
168,628
92,124 $
35,227
16,423
153,619
86,584 $
20,549
2,280
—
10,852
1,877
15,009
5,540 $
$
240,203
102,099
121,828
223,453
97,741
(130)
(130)
35,227
16,423
153,619
86,584 $
31,876
14,751
144,238
79,215 $
(2,275)
(19,025)
16,750
4,358
—
3,351
1,672
9,381
7,369
2020 compared to 2019
Operating income for the Regulated Energy segment for 2020 was $92.1 million, an increase of $5.5 million, or 6.4 percent,
compared to 2019. In the fourth quarter of 2020, we established $1.9 million of regulatory assets based on the estimated net
incremental expense resulting from the COVID-19 pandemic for our natural gas distribution and electric businesses as currently
authorized by the Delaware, Maryland and Florida PSCs. Excluding the estimated unfavorable COVID-19 impacts of $4.2
million for the year, operating income increased $9.7 million as a result of the Hurricane Michael regulatory proceeding
settlement, higher gross margin from expansion projects completed by Eastern Shore and Peninsula Pipeline, organic growth in
our natural gas distribution businesses, contribution from the Elkton Gas acquisition and margin growth from GRIP. These
increases were offset by lower customer consumption driven primarily by milder weather; higher depreciation, amortization and
property taxes, including amortization of the regulatory asset associated with the Hurricane Michael regulatory proceeding
settlement; new expenses associated with Elkton Gas; and higher other operating expenses.
Items contributing to the year-over-year gross margin increase are listed in the following table:
(in thousands)
Margin contribution from Hurricane Michael regulatory proceeding settlement
Eastern Shore and Peninsula Pipeline service expansions
Natural gas distribution customer growth (excluding service expansions)
Margin contribution from Elkton Gas acquisition (completed July 2020)
Florida GRIP
Eastern Shore margin from capital relocation and non-service expansion projects
Unfavorable COVID-19 impacts on gross margin
Decreased customer consumption - primarily weather related
Other
Year-over-year increase in gross margin
$
$
10,864
8,006
3,370
1,344
1,239
1,033
(3,834)
(1,340)
(133)
20,549
Chesapeake Utilities Corporation 2020 Form 10-K Page 33
Table of Contents
The following narrative discussion provides further detail and analysis of the significant items in the foregoing table.
Margin Contribution from Hurricane Michael Regulatory Proceeding Settlement
We generated $10.9 million in additional gross margin as a result of the settlement of the Hurricane Michael regulatory
proceeding. Refer to Note 19, Rates and Other Regulatory Activities, in the consolidated financial statements for additional
information.
Eastern Shore and Peninsula Pipeline Service Expansions
We generated additional gross margin of $6.3 million from Peninsula Pipeline's Western Palm Beach County, Auburndale and
Callahan projects and $1.7 million in additional gross margin from Eastern Shore's Del-Mar Energy Pathway project.
Natural Gas Distribution Customer Growth
We generated additional gross margin of $3.4 million from natural gas customer growth. Gross margin increased by $1.5
million in Florida and $1.9 million on the Delmarva Peninsula in 2020 compared to 2019, due primarily to residential customer
growth of 5.3 percent on the Delmarva Peninsula and 4.1 percent in Florida. On the Delmarva Peninsula, a larger percentage of
the margin growth was generated from residential growth given the expansion of gas into new communities and conversions,
while in Florida, as gas heating is not a significant portion of residential use, a greater portion of the margin growth occurred in
the commercial and industrial sectors.
Margin Contribution from Elkton Gas
Gross margin increased by $1.3 million due to the margin generated by Elkton Gas which we acquired in July 2020.
Florida GRIP
Continued investment in the Florida GRIP generated additional gross margin of $1.2 million in 2020 compared to 2019.
Eastern Shore Margin from Capital Relocation and Non-service Expansion Projects
We generated additional gross margin of $1.0 million from Eastern Shore's surcharge on capital spent on several governmental-
mandated relocation and non-service expansion projects.
Unfavorable COVID-19 Impacts
Gross margin decreased by $3.8 million in 2020 compared to 2019, as a result of the lower customer consumption, which was
caused by the slowing of economic activities in our service territories as a result of restrictions imposed to promote social
distancing and slow down the spread of COVID-19.
Decreased Customer Consumption - Weather Related
Gross margin decreased by $1.3 million due to milder weather and lower other consumption on the Delmarva Peninsula and in
Florida in 2020 compared to 2019. The weather on the Delmarva Peninsula was 9 percent warmer in 2020 compared to 2019.
The major components of the increase in other operating expenses are as follows:
(in thousands)
Hurricane Michael settlement agreement - depreciation and amortization impact
Depreciation, amortization and property tax costs due to new capital investments
Unfavorable COVID-19 impacts (higher operating expenses)
Insurance (non-health) expense - both insured and self-insured components
Operating expenses from the Elkton Gas acquisition
Deferral of net expense increases of COVID-19 under PSC orders
Other variances
Period-over-period increase in other operating expenses
$
$
7,133
5,551
2,285
1,442
651
(1,925)
(128)
15,009
2019 compared to 2018
The results for the Regulated Energy segment for the year ended December 31, 2019 compared to 2018 are described in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K
for the year ended December 31, 2019, which is incorporated herein by reference.
Chesapeake Utilities Corporation 2020 Form 10-K Page 34
Table of Contents
UNREGULATED ENERGY
For the Year Ended December 31,
(in thousands)
Revenue
Cost of sales
Gross margin
Operations & maintenance
Depreciation & amortization
Other taxes
Other operating expenses
Operating Income
2020
2019
(decrease)
2019
2018
(decrease)
Increase
Increase
$ 152,526 $ 154,150 $
62,780
89,746
53,839
11,988
3,255
69,082
20,664 $
68,884
85,266
52,028
10,130
3,170
65,328
19,938 $
$
(1,624) $ 154,150
68,884
(6,104)
85,266
4,480
52,028
1,811
10,130
1,858
3,170
85
65,328
3,754
19,938
726 $
$ 161,904 $
84,707
77,197
48,689
8,263
3,120
60,072
17,125 $
$
(7,754)
(15,823)
8,069
3,339
1,867
50
5,256
2,813
2020 Compared to 2019
Operating income for the Unregulated Energy segment for 2020 was $20.7 million, an increase of $0.7 million compared to
2019. The increased operating income was due to an increase in gross margin of $4.5 million, which was partially offset by an
increase of $3.8 million in other operating expenses. Excluding the estimated COVID-19 impacts of $1.7 million, operating
income increased $2.4 million as a result of incremental gross margin from the acquisitions of the Boulden and Western Natural
Gas propane assets, higher retail propane margins per gallon, increased demand for Marlin Gas Services' CNG transportation
services and higher rates for Aspire Energy. These increases were partially offset by reduced gross margins from overall
warmer temperatures, higher depreciation, amortization and property taxes, expenses associated with recent acquisitions, and
increased insurance expense.
Gross Margin
Items contributing to the year-over-year increase in gross margin are listed in the following table:
(in thousands)
Propane Operations
Boulden and Western Natural Gas acquisitions (completed December 2019 and October 2020)
Increased retail propane margins per gallon driven by favorable market conditions and supply
management
Decreased customer consumption - primarily weather related
Marlin Gas Services
Increased demand for CNG services
Aspire Energy
Higher margins from negotiated rate increases
Decreased customer consumption - primarily weather related
Unfavorable COVID-19 impacts on gross margin
Other variances
Year-over-year increase in gross margin
Margin Impact
$
$
3,960
1,937
(2,448)
1,821
1,312
(517)
(1,457)
(128)
4,480
The following narrative discussion provides further detail and analysis of the significant items in the foregoing table.
Propane Operations
•
•
Boulden and Western Natural Gas - We generated gross margin of $3.6 million from Boulden which was acquired by
Sharp in December 2019 and $0.4 million from Western Natural Gas which was acquired by Sharp in October 2020.
Increased Retail Propane Margins - Gross margin increased by $1.9 million, due to lower propane inventory costs and
favorable market conditions. These market conditions, which include competition with other propane suppliers, as well
as the availability and price of alternative energy sources, may fluctuate based on changes in demand, supply and other
energy commodity prices.
Chesapeake Utilities Corporation 2020 Form 10-K Page 35
Table of Contents
• Decreased Customer Consumption Primarily Driven by Weather - Gross margin decreased by $2.4 million for the
Mid-Atlantic propane operations as weather on the Delmarva Peninsula was 9 percent warmer in 2020 compared to
2019.
Marlin Gas Services
•
Gross margin increased by $1.8 million, as compared to 2019 due to higher demand for CNG hold services.
Aspire Energy
•
•
Increased Margin Driven by Changes in Rates - Gross margin increased by $1.3 million, due primarily to higher
margins from negotiated rate increases.
Decreased Customer Consumption Primarily Driven by Weather - Gross margin decreased by $0.5 million due to
lower consumption as weather in Ohio was approximately 5 percent warmer in 2020 compared to 2019.
Unfavorable COVID-19 Impacts
•
Gross margin decreased by $1.5 million as a result of lower customer consumption, which was caused by the slowing
of economic activities in our service territories as a result of restrictions imposed to promote social distancing and to
slow down the spread of COVID-19.
Other Operating Expenses
Items contributing to the period-over-period increase in other operating expenses are listed in the following table:
(in thousands)
Depreciation and amortization due to new capital investments
Operating expenses from Boulden and Western Natural Gas acquisitions
Insurance expense (non-health) - both insured and self-insured
Other variances
Period-over-period increase in other operating expenses
1,840
1,510
645
(241)
3,754
$
2019 compared to 2018
The results for the Unregulated Energy segment for the year ended December 31, 2019 compared to 2018 are described in Item
7, Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-
K for the year ended December 31, 2019, which is incorporated by reference.
Divestiture of PESCO
As discussed in Note 4, Acquisitions and Divestitures, during the fourth quarter of 2019, we sold PESCO's assets and contracts
and accordingly have exited the natural gas marketing business. This was done in an effort to enable us to focus on the
strategies that support our core energy delivery business. As a result, we began to report PESCO as discontinued operations
during the third quarter of 2019 and excluded PESCO's performance from continuing operations for all periods presented and
classified its assets and liabilities as held for sale, where applicable.
Chesapeake Utilities Corporation 2020 Form 10-K Page 36
Table of Contents
OTHER INCOME (EXPENSE), NET
Other income (expense), net was $3.2 million and $(1.8) million for 2020 and 2019, respectively. Other income (expense), net
includes non-operating investment income (expense), interest income, late fees charged to customers, gains or losses from the
sale of assets for our unregulated businesses and pension and other benefits expense. The increase was primarily due to gains
from the sale of two properties and lower pension expense in 2020. The property sales were the result of consolidation of
certain operations facilities.
INTEREST CHARGES
2020 Compared to 2019
Interest charges for 2020 decreased by $0.5 million, compared to the same period in 2019, attributable primarily to a decrease
of $4.6 million in interest expense primarily on lower levels outstanding under our revolving credit facilities and lower interest
rates on short-term borrowings, $1.5 million of an amortization credit/reduction in interest expense associated with a regulatory
liability that was established in connection with the Hurricane Michael regulatory proceeding settlement and $0.5 million
primarily due to higher capitalized interest associated with growth projects. This decrease was offset by an increase of $5.9
million in interest expense on long-term debt as a result of several long-term debt placements in 2019 and 2020 and $1.0
million in interest and fees associated with the early payoff of the 9.08% FPU secured first mortgage bonds.
INCOME TAXES
2020 Compared to 2019
Income tax expense from continuing operations was $23.5 million for 2020 compared to $21.1 million for 2019. Our effective
income tax rate was 25.0 percent and 25.7 percent for the year ended December 31, 2020 and 2019, respectively. During the
year ended December 31, 2020, we implemented certain provisions of the CARES Act that allowed us to carryback net
operating losses from 2018 and 2019 into prior year periods where the federal income tax rate was higher. As a result, we
recognized a $1.8 million reduction in tax expense for the twelve months ended December 31, 2020. Excluding this impact of
the CARES Act, our effective tax rate for the year ended December 31, 2020 was 26.9 percent.
LIQUIDITY AND CAPITAL RESOURCES
Our capital requirements reflect the capital-intensive and seasonal nature of our business and are principally attributable to
investment in new plant and equipment, retirement of outstanding debt and seasonal variability in working capital. We rely on
cash generated from operations, short-term borrowings, and other sources to meet normal working capital requirements and to
temporarily finance capital expenditures. We may also issue long-term debt and equity to fund capital expenditures and to more
closely align our capital structure with our target capital structure. We maintain an effective shelf registration statement with the
SEC for the issuance of shares of common stock under various types of equity offerings, including shares of common stock
under our ATM equity program, as well as an effective registration statement with respect to the DRIP. Depending on our
capital needs and subject to market conditions, in addition to other possible debt and equity offerings, we may consider issuing
additional shares under the direct share purchase component of the DRIP and/or under the ATM equity program. Beginning in
the third quarter of 2020, we issued shares of common stock under both the DRIP and the ATM equity program.
Our energy businesses are weather-sensitive and seasonal. We normally generate a large portion of our annual net income and
subsequent increases in our accounts receivable in the first and fourth quarters of each year due to significant volumes of
natural gas, electricity, and propane delivered by our distribution operations, and our natural gas transmission operations to
customers during the peak heating season. In addition, our natural gas and propane inventories, which usually peak in the fall
months, are largely drawn down in the heating season and provide a source of cash as the inventory is used to satisfy winter
sales demand.
Capital expenditures for investments in new or acquired plant and equipment are our largest capital requirements. Our capital
expenditures were $195.9 million (including the purchase of certain propane assets of Western Natural Gas and certain natural
gas assets of Elkton Gas) in 2020.
Chesapeake Utilities Corporation 2020 Form 10-K Page 37
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The following table shows total capital expenditures for the year ended December 31, 2020 by segment and by business line:
(dollars in thousands)
Regulated Energy:
Natural gas distribution
Natural gas transmission
Electric distribution
Total Regulated Energy
Unregulated Energy:
Propane distribution
Energy transmission
Other unregulated energy
Total Unregulated Energy
Other:
Corporate and other businesses
Total Other
Total 2020 Capital Expenditures
For the Year Ended
December 31, 2020
$
$
85,257
58,609
3,234
147,100
15,455
19,398
11,442
46,295
2,480
2,480
195,875
In the table below, we have provided a preliminary range of our forecasted capital expenditures for 2021:
(dollars in thousands)
Regulated Energy:
Natural gas distribution
Natural gas transmission
Electric distribution
Total Regulated Energy
Unregulated Energy:
Propane distribution
Energy transmission
Other unregulated energy
Total Unregulated Energy
Other:
Corporate and other businesses
Total Other
Total 2021 Forecasted Capital Expenditures
Estimate for Fiscal 2021
High
Low
$
$
79,000
55,000
9,000
143,000
9,000
14,000
8,000
31,000
85,000
60,000
13,000
158,000
12,000
15,000
12,000
39,000
1,000
1,000
175,000
$
3,000
3,000
200,000
$
The 2021 budget, excluding acquisitions, includes capital expenditures associated with the following projects: Delmarva
Natural Gas distribution's Somerset County expansion and the Bioenergy Devco RNG Project, Eastern Shore's Del-Mar Energy
Pathway and the CleanBay RNG projects, Florida's Western Palm Beach County expansion and other potential pipeline
projects, continued expenditures under the Florida GRIP, further expansions of our natural gas distribution and transmission
systems, continued natural gas and electric system infrastructure improvement activities, facilities to support Marlin Gas
Services' legacy growth and expansion into RNG and LNG transport, information technology systems, and other strategic
initiatives and investments.
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, capital delays because of COVID-19
that are greater than currently anticipated, customer growth in existing areas, regulation, new growth or acquisition
Chesapeake Utilities Corporation 2020 Form 10-K Page 38
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opportunities, availability of capital and other factors discussed in Item 1A. Risk Factors. Historically, actual capital
expenditures have typically lagged behind the budgeted amounts.
The timing of capital expenditures can vary based on delays in regulatory approvals, securing environmental approvals and
other permits. The regulatory application and approval process has lengthened in the past few years, and we expect this trend to
continue.
Capital Structure
We are committed to maintaining a sound capital structure and strong credit ratings. This commitment, along with adequate and
timely rate relief for our regulated energy operations, is intended to ensure our ability to attract capital from outside sources at a
reasonable cost, which will benefit our customers, creditors, employees and stockholders.
The following tables present our capitalization, excluding and including short-term borrowings, as of December 31, 2020 and
2019 follows:
(in thousands)
Long-term debt, net of current maturities
Stockholders’ equity
Total capitalization, excluding short-term borrowings
(in thousands)
Short-term debt
Long-term debt, including current maturities
Stockholders’ equity
Total capitalization, including short-term borrowings
December 31, 2020
December 31, 2019
$
508,499
697,085
$ 1,205,584
42 % $
440,168
561,577
58 %
100 % $ 1,001,745
44 %
56 %
100 %
December 31, 2020
December 31, 2019
$
175,644
522,099
697,085
$ 1,394,828
247,371
13 % $
485,768
37 %
561,577
50 %
100 % $ 1,294,716
19 %
38 %
43 %
100 %
Our target ratio of equity to total capitalization, including short-term borrowings, is between 50 and 60 percent. Our equity to
total capitalization ratio, including short-term borrowings, was 50 percent as of December 31, 2020. We seek to align
permanent financing with the in-service dates of capital projects. We may utilize more temporary short-term debt when the
financing cost is attractive as a bridge to the permanent long-term financing or if the equity markets are volatile.
In the third and fourth quarter of 2020, we issued 1.0 million shares of common stock through our DRIP and the ATM
programs and received net proceeds of approximately $83.0 million which were added to our general funds. See Note 16,
Stockholders’ Equity, in the consolidated financial statements for additional information on commissions and fees paid in
connection with these issuances.
As of December 31, 2020, we had no restrictions on our cash balances. Chesapeake Utilities’ Senior Notes contain a restriction
that limits the payment of dividends or other restricted payments in excess of certain pre-determined thresholds. As of
December 31, 2020, $324.6 million of our consolidated net income were free of such restrictions.
Term Notes
In January 2019, we issued a $30.0 million unsecured term note through Branch Banking and Trust Company, with a maturity
date of February 28, 2020. This note was paid in full in February 2020 utilizing our short-term borrowing facilities.
Uncollateralized Senior Notes
All of our Senior Notes require periodic principal and interest payments as specified in each note. They also contain various
restrictions. The most stringent restrictions state that we must maintain equity of at least 40.0 percent of total capitalization
(including short-term borrowings), and the fixed charge coverage ratio must be at least 1.2 times. The most recent Senior Notes
issued since September 2013 also contain a restriction that we must maintain an aggregate net book value in our regulated
business assets of at least 50.0 percent of our consolidated total assets. Failure to comply with those covenants could result in
accelerated due dates and/or termination of the Senior Note agreements.
Chesapeake Utilities Corporation 2020 Form 10-K Page 39
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Shelf Agreements
We have entered into Shelf Agreements with Prudential, MetLife and NYL, whom are under no obligation to purchase any
unsecured debt. The following table summarizes our Shelf Agreements at December 31, 2020:
Shelf Agreement
(in thousands)
Prudential Shelf Agreement (1)
MetLife Shelf Agreement (2)
NYL Shelf Agreement (3)
Total
Total
Borrowing
Capacity
Less: Amount
of Debt
Issued
Less:
Unfunded
Commitments
Remaining
Borrowing
Capacity
$
370,000 $
(220,000)
— $
150,000
150,000
—
(140,000)
—
—
150,000
150,000
10,000
$
670,000 $
(360,000) $
— $
310,000
(1) In April 2020, we amended the Prudential Shelf Agreement to increase the available borrowing capacity by $150.0 million. The Shelf Agreement expires in
April 2023. In July 2020, we issued $50 million of Prudential Shelf Notes at the rate of 3.00 percent per annum.
(2) In May 2020, we amended an agreement with MetLife to provide a new $150 million MetLife Shelf Agreement for a three-year term ending May 2023.
(3) In August 2020 we issued $40 million of NYL Shelf Notes at the rate of 2.96 percent per annum. The NYL Shelf Agreement expires in November 2021.
The Senior Notes, Shelf Agreements and Shelf Notes set forth certain business covenants to which we are subject when any
note is outstanding, including covenants that limit or restrict our ability, and the ability of our subsidiaries, to incur
indebtedness, or place or permit liens and encumbrances on any of our property or the property of our subsidiaries.
Short-Term Borrowings
At December 31, 2020 and 2019, our short-term borrowing totaled $175.6 million and $247.4 million, respectively, at weighted
average interest rates of 1.28 percent and 2.62 percent, respectively. Included in the December 31, 2020 balance, is $60.0
million in short-term debt for which we have entered into interest rate swap agreements.
In September 2020, we entered into a new $375.0 million syndicated Revolver with six participating lenders. As a result of
entering into the Revolver, in September 2020, we terminated and paid all outstanding balances under the previously existing
bilateral lines of credit and the previous revolving credit facility.
The availability of funds under the Revolver is subject to conditions specified in the credit agreement, all of which we currently
satisfy. These conditions include our compliance with financial covenants and the continued accuracy of representations and
warranties contained in these agreements. We are required by the financial covenants in the Revolver to maintain, at the end of
each fiscal year, a funded indebtedness ratio of no greater than 65 percent. As of December 31, 2020, we are in compliance with
this covenant.
The Revolver expires on September 29, 2021 and is available to provide funds for our short-term cash needs to meet seasonal
working capital requirements and to temporarily fund portions of our capital expenditures. Borrowings under the Revolver are
subject to a pricing grid, including the commitment fee and the interest rate charged. Our pricing is adjusted each quarter based
upon our total indebtedness to total capitalization ratio. As of December 31, 2020, our pricing under the Revolver included a
commitment fee of 0.175 percent and an interest rate of 1.125 percent over LIBOR. Our available credit under the new
Revolver at December 31, 2020 was $196.9 million. As of December 31, 2020, we had issued $4.8 million in letters of credit to
various counterparties under the syndicated Revolver. Although the letters of credit are not included in the outstanding short-
term borrowings and we do not anticipate they will be drawn upon by the counterparties, the letters of credit reduce the
available borrowings under our syndicated Revolver.
In the second quarter of 2020, we entered into interest rate swaps with notional amounts totaling $100.0 million associated with
three of our short-term lines of credit which were settled in October 2020. The interest rate swaps were entered to hedge the
variability in cash flows attributable to changes in the short-term borrowing rates during this period. The fixed swap rates
ranged between 0.2615 and 0.3875 percent for the period. In the fourth quarter of 2020, we entered into an additional interest
rate swap with notional amounts totaling $60.0 million, through December 2021 with pricing of 0.20 percent and 0.205 percent
for the period associated with our outstanding borrowing under the Revolver. In February 2021, we entered into an additional
interest rate swap with a notional amount of $40.0 million through December 2021 at pricing of 0.17 percent. Our short-term
borrowing is based on the 30-day LIBOR rate. The interest swap was cash settled monthly as the counter-party pays us the 30-
day LIBOR rate less the fixed rate.
Chesapeake Utilities Corporation 2020 Form 10-K Page 40
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We are authorized by our Board of Directors to borrow up to $375 million of short-term debt, as required.
Key statistics regarding our unsecured short-term credit facilities (our Revolver and previous bilateral lines of credit and
revolving credit facility) for the years ended December 31, 2020 and 2019 are as follows:
(in thousands)
Average borrowings during the year
Weighted average interest rate for the year
Maximum month-end borrowings
2020
2019
$
230,526
$
257,587
1.50 %
3.11 %
$
284,914
$
302,379
2018
238,750
2.93 %
290,103
$
$
Cash Flows
The following table provides a summary of our operating, investing and financing cash flows for the years ended December 31,
2020, 2019 and 2018:
(in thousands)
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents—beginning of period
Cash and cash equivalents—end of period
Cash Flows Provided by Operating Activities
For the Year Ended December 31,
2018
2019
2020
$
$
158,916 $
(181,631)
19,229
(3,486)
6,985
3,499 $
102,964 $
(186,587)
84,519
896
6,089
6,985 $
117,362
(256,848)
139,961
475
5,614
6,089
Changes in our cash flows from operating activities are attributable primarily to changes in net income, adjusted for non-cash
items, such as depreciation and changes in deferred income taxes, and changes in working capital. Working capital
requirements are determined by a variety of factors, including weather, the prices of natural gas, electricity and propane, the
timing of customer collections, payments for purchases of natural gas, electricity and propane, and deferred fuel cost recoveries.
We normally generate a large portion of our annual net income and related increases in our accounts receivable in the first and
fourth quarters of each year due to significant volumes of natural gas and propane delivered to customers during the peak
heating season by our natural gas and propane operations and our natural gas supply, gathering and processing operation. In
addition, our natural gas and propane inventories, which usually peak in the fall months, are largely drawn down in the heating
season and provide a source of cash as the inventory is used to satisfy winter sales demand.
During 2020 and 2019, net cash provided by operating activities was $158.9 million and $103.0 million, respectively, resulting
in an increase in cash flows of $55.9 million. Significant operating activities generating the cash flows change were as follows:
•
•
•
•
•
•
Changes in net accounts receivable and accrued revenue and accounts payable and accrued liabilities increased cash
flows by $23.0 million, due in part to the absence of PESCO, whose assets and contracts were sold in the fourth
quarter of 2019, as well as the timing and receipt of customer receipts and vendor payments;
Net income, adjusted for non-cash adjustments and reconciling activities, increased cash flows by $23.6 million, due
primarily to higher net income, depreciation and amortization and gain on sale of assets;
Net cash flows from income taxes receivable increased by $11.9 million due primarily to tax refunds resulting from
implementation of the CARES Act in 2020 which allowed taxable losses to be carried back against prior year taxable
income;
Changes in net regulatory assets and liabilities increased cash flows by $2.8 million due primarily to the change in fuel
costs collected through the various cost recovery mechanisms;
Changes in net prepaid expenses and other current assets, customer deposits and refunds and other assets and
liabilities, net increased cash flows by $1.1 million; offset by
Net cash flows from changes in propane inventory, storage gas and other inventories which decreased by
approximately $6.5 million.
Chesapeake Utilities Corporation 2020 Form 10-K Page 41
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Cash Flows Used in Investing Activities
Net cash used in investing activities totaled $181.6 million and $186.6 million during the year ended December 31, 2020 and
2019, respectively, resulting in an increase in cash flows of $5.0 million. Key investing activities contributing to the cash flow
change included:
•
•
•
Cash used to pay for capital expenditures was $165.5 million for the year ended December 31, 2020, compared to
$184.7 million in December 31, 2019;
Net cash of $22.2 million was primarily used to acquire certain propane operating assets of Elkton Gas and Western
Natural Gas in 2020, compared to net cash of $24.0 million used to acquire operating assets of Boulden in 2019; and
Cash received from sales of assets was $8.1 million for the year ended December 31, 2020 due primarily to sale of
properties as a result of consolidation of certain operations facilities.
Cash Flows Provided by Financing Activities
Net cash provided by financing activities totaled $19.2 million for the year ended December 31, 2020, compared to net cash of
$84.5 million provided by financing activities during the prior year which resulted in a decrease in cash flows of $65.3 million,
primarily due to the following:
•
•
•
•
•
•
Increased cash flows of $61.0 million and $23.3 million, from new equity issued under the ATM and waiver
component of the DRIP, respectively;
Decreased cash flows from higher repayments of short-term borrowing of $25.7 million under our line of credit
arrangements;
Decreased cash flows of $109.8 million associated with less long-term debt issuances. For the year ended
December 31, 2020, we received net proceeds of $89.8 million from the issuance of Prudential Shelf Notes in July
2020 and NYL Shelf Notes in August 2020. For the year ended December 31, 2019 we received $199.6 million in net
cash proceeds from the issuance of Term Notes, Prudential Shelf Notes and Uncollateralized Senior Notes.
Decreased cash flows of $11.7 million as a result of the repayment of more long-term debt;
Increased cash flows of $0.3 million as a result of changes in cash overdrafts in 2020; and
Cash dividend payments of $27.2 million in 2020 compared to $24.7 million for 2019.
CONTRACTUAL OBLIGATIONS
We have the following contractual obligations and other commercial commitments as of December 31, 2020:
Contractual Obligations
(in thousands)
Long-term debt (1)
Operating leases (2)
Purchase obligations (3)
Transmission capacity
Storage capacity
Commodities
Electric supply
Unfunded benefits (4)
Funded benefits (5)
Total Contractual Obligations
2021
2022-2023
2024-2025
After 2025
Total
Payments Due by Period
$
13,600 $
37,700 $
42,200 $
429,500 $
523,000
2,027
3,907
3,052
4,419
13,405
35,330
2,044
25,728
6,357
310
66,434
2,618
—
12,788
606
56,533
—
—
12,887
572
169,102
—
—
32,402
1,274
327,399
4,662
25,728
64,434
2,762
3,863
89,259 $
3,090
127,143 $
3,090
118,334 $
3,031
639,728 $
13,074
974,464
$
(1) This represents principal payments on long-term debt. See Item 8, Financial Statements and Supplementary Data, Note 13, Long-Term Debt, for additional
information. The expected interest payments on long-term debt are $18.5 million, $34.7 million, $31.5 million and $95.3 million, respectively, for the periods
indicated above. Expected interest payments for all periods total $180.0 million.
(2) See Item 8, Financial Statements and Supplementary Data, Note 15, Leases, for additional information.
(3) See Item 8, Financial Statements and Supplementary Data, Note 21, Other Commitments and Contingencies, for additional information.
(4) These amounts associated with our unfunded post-employment and post-retirement benefit plans are based on expected payments to current retirees and
assume a retirement age of 62 for currently active employees. There are many factors that would cause actual payments to differ from these amounts, including
early retirement, future health care costs that differ from past experience and discount rates implicit in calculations. See Item 8, Financial Statements and
Supplementary Data, Note 17, Employee Benefit Plans, for additional information on the plans.
(5) We have recorded long-term liabilities of $15.9 million at December 31, 2020 for two qualified, defined benefit pension plans. The assets funding these plans
are in a separate trust and are not considered assets of ours or included in our balance sheets. The Contractual Obligations table above includes $2.3 million,
reflecting the payments we expect to make to the trust funds in 2021. Additional contributions may be required in future years based on the actual return earned
Chesapeake Utilities Corporation 2020 Form 10-K Page 42
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by the plan assets and other actuarial assumptions, such as the discount rate and long-term expected rate of return on plan assets. See Item 8, Financial
Statements and Supplementary Data, Note 17, Employee Benefit Plans, for further information on the plans. Additionally, the Contractual Obligations table
above includes deferred compensation obligations totaling $10.8 million, funded with Rabbi Trust assets in the same amount. The Rabbi Trust assets are
recorded under Investments on the consolidated balance sheets. We assume a retirement age of 65 for purposes of distribution from this trust.
OFF-BALANCE SHEET ARRANGEMENTS
Our Board of Directors has authorized us to issue corporate guarantees securing obligations of our subsidiaries and to obtain
letters of credit securing our subsidiaries' obligations. The maximum authorized liability under such guarantees and letters of
credit as of December 31, 2020 was $20.0 million. The aggregate amount guaranteed at December 31, 2020 was $5.7 million,
with the guarantees expiring on various dates through September 2021.
As of December 31, 2020, we have issued letters of credit totaling approximately $4.8 million related to the electric
transmission services for FPU's electric division, the firm transportation service agreement between TETLP and our Delaware
and Maryland divisions, and our current and previous primary insurance carriers. These letters of credit have various expiration
dates through October 5, 2021. There have been no draws on these letters of credit as of December 31, 2020. We do not
anticipate that the counterparties will draw upon these letters of credit, and we expect that they will be renewed to the extent
necessary in the future. Additional information is presented in Item 8, Financial Statements and Supplementary Data, Note 21,
Other Commitments and Contingencies in the consolidated financial statements.
CRITICAL ACCOUNTING POLICIES
We prepare our financial statements in accordance with GAAP. Application of these accounting principles requires the use of
estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures
of contingencies during the reporting period. We base our estimates on historical experience and on various assumptions that
are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying value of assets and liabilities that are not readily apparent from other sources. Since a significant portion of our
businesses are regulated and the accounting methods used by these businesses must comply with the requirements of the
regulatory bodies, the choices available are limited by these regulatory requirements. In the normal course of business,
estimated amounts are subsequently adjusted to actual results that may differ from the estimates.
Regulatory Assets and Liabilities
As a result of the ratemaking process, we record certain assets and liabilities in accordance with ASC Topic 980, Regulated
Operations, and consequently, the accounting principles applied by our regulated energy businesses differ in certain respects
from those applied by the unregulated businesses. Amounts are deferred as regulatory assets and liabilities when there is a
probable expectation that they will be recovered in future revenues or refunded to customers as a result of the regulatory
process. This is more fully described in Item 8, Financial Statements and Supplementary Data, Note 2, Summary of Significant
Accounting Policies, in the consolidated financial statements. If we were required to terminate the application of ASC Topic
980, we would be required to recognize all such deferred amounts as a charge or a credit to earnings, net of applicable income
taxes. Such an adjustment could have a material effect on our results of operations.
Valuation of Environmental Liabilities and Related Regulatory Assets
As more fully described in Item 8, Financial Statements and Supplementary Data, Note 20, Environmental Commitments and
Contingencies, in the consolidated financial statements, we are currently participating in the investigation, assessment or
remediation of former MGP sites for which we have sought or will seek regulatory approval to recover through rates the
estimated costs of remediation and related activities. Amounts have been recorded as environmental liabilities based on
estimates of future costs to remediate these sites, which are provided by independent consultants.
Financial Instruments
We utilize financial instruments to mitigate commodity price risk associated with fluctuations of natural gas, electricity and
propane and to mitigate interest rate risk. We continually monitor the use of these instruments to ensure compliance with our
risk management policies and account for them in accordance with GAAP, such that every derivative instrument is recorded as
either an asset or a liability measured at its fair value. It also requires that changes in the derivatives' fair value are recognized in
the current period earnings unless specific hedge accounting criteria are met. If these instruments do not meet the definition of
derivatives or are considered “normal purchases and normal sales,” they are accounted for on an accrual basis of accounting.
Additionally, GAAP also requires us to classify the derivative assets and liabilities based on the lowest level of input that is
significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement
requires judgment and may affect the fair value of the assets and liabilities and their placement within the fair value hierarchy.
Chesapeake Utilities Corporation 2020 Form 10-K Page 43
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We determined that certain propane put options, call options, swap agreements and interest rate swap agreements met the
specific hedge accounting criteria. We also determined that most of our contracts for the purchase or sale of natural gas,
electricity and propane either: (i) did not meet the definition of derivatives because they did not have a minimum purchase/sell
requirement, or (ii) were considered “normal purchases and normal sales” because the contracts provided for the purchase or
sale of natural gas, electricity or propane to be delivered in quantities that we expect to use or sell over a reasonable period of
time in the normal course of business. Accordingly, these contracts were accounted for on an accrual basis of accounting.
Additional information about our derivative instruments is disclosed in Item 8, Financial Statements and Supplementary Data,
Note 8, Derivative Instruments, in the consolidated financial statements.
Operating Revenues
Revenues for our natural gas and electric distribution operations are based on rates approved by the PSC of each state in which
we operate. Customers’ base rates may not be changed without formal approval by these PSCs. However, the PSCs authorized
our regulated operations to negotiate rates, based on approved methodologies, with customers that have competitive
alternatives. Eastern Shore’s revenues are based on rates approved by the FERC. The FERC has also authorized Eastern Shore
to negotiate rates above or below the FERC-approved maximum rates, which customers can elect as an alternative to negotiated
rates.
Peninsula Pipeline, our Florida intrastate pipeline subsidiary that is subject to regulation by the Florida PSC, has negotiated firm
transportation service contracts with third-party customers and with certain affiliates.
For regulated deliveries of natural gas, electricity and propane, we read meters and bill customers on monthly cycles that do not
coincide with the accounting periods used for financial reporting purposes. We accrue unbilled revenues for natural gas and
electricity that have been delivered, but not yet billed, at the end of an accounting period to the extent that they do not coincide.
We estimate the amount of the unbilled revenue by jurisdiction and customer class. A similar computation is made to accrue
unbilled revenues for propane customers with meters, such as community gas system customers, whose billing cycles do not
coincide with the accounting periods.
Our Ohio natural gas transmission/supply operation recognizes revenues based on actual volumes of natural gas shipped, using
contractual rates, which are based upon index prices that are published monthly.
Eight Flags records revenues based on the amount of electricity and steam generated and sold to its customers.
Our mobile compressed natural gas operation recognizes revenue for CNG services at the end of each calendar month for
services provided during the month based on agreed upon rates for labor, equipment utilized, costs incurred for natural gas
compression, miles driven, mobilization and demobilization fees.
Each of our natural gas distribution operations in Delaware and Maryland, our bundled natural gas distribution service in
Florida and our electric distribution operation in Florida has a fuel cost recovery mechanism. This mechanism provides a
method of adjusting billing rates to reflect changes in the cost of purchased fuel. The difference between the current cost of fuel
purchased and the cost of fuel recovered in billed rates is deferred and accounted for as either unrecovered fuel cost or amounts
payable to customers. Generally, these deferred amounts are recovered or refunded within one year.
We charge flexible rates to industrial interruptible customers on our natural gas distribution systems to compete with the price
of alternative fuel that they can use. Neither we, nor any of our interruptible customers, are contractually obligated to deliver or
receive natural gas on a firm service basis.
Allowance for Credit Losses
An allowance for expected credit losses is recorded against amounts due to reduce the net receivable balance to the amount we
reasonably expect to collect based upon our collections experience, the condition of the overall economy and our assessment of
our customers’ inability or reluctance to pay. If circumstances change, however, our estimate of the recoverability of accounts
receivable may also change. Circumstances which could affect our estimates include, but are not limited to, customer credit
issues, the level of natural gas, electricity and propane prices, impacts from pandemics and general economic conditions.
Accounts are written off once they are deemed to be uncollectible.
Goodwill and Other Intangible Assets
We test goodwill for impairment at least annually in December. The annual impairment testing for 2020 indicated no
impairment of goodwill. Additional information is presented in Item 8, Financial Statements and Supplementary Data, Note 11,
Goodwill and Other Intangible Assets, in the consolidated financial statements.
Chesapeake Utilities Corporation 2020 Form 10-K Page 44
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Other Assets Impairment Evaluations
We periodically evaluate whether events or circumstances have occurred which indicate that long-lived assets may not be
recoverable. When events or circumstances indicate that an impairment is present, we record an impairment loss equal to the
excess of the asset's carrying value over its fair value, if any.
Pension and Other Postretirement Benefits
Pension and other postretirement plan costs and liabilities are determined on an actuarial basis and are affected by numerous
assumptions and estimates including the market value of plan assets, estimates of the expected returns on plan assets, assumed
discount rates, the level of contributions made to the plans, and current demographic and actuarial mortality data. The assumed
discount rates and the expected returns on plan assets are the assumptions that generally have the most significant impact on the
pension costs and liabilities. The assumed discount rates, the assumed health care cost trend rates and the assumed rates of
retirement generally have the most significant impact on our postretirement plan costs and liabilities. Additional information is
presented in Item 8, Financial Statements and Supplementary Data, Note 17, Employee Benefit Plans, in the consolidated
financial statements, including plan asset investment allocation, estimated future benefit payments, general descriptions of the
plans, significant assumptions, the impact of certain changes in assumptions, and significant changes in estimates.
For 2020, actuarial assumptions include expected long-term rates of return on plan assets of 3.50 percent and 6.00 percent for
Chesapeake Utilities' pension plan and FPU’s pension plan, respectively, and discount rates of 2.25 percent and 2.50 percent for
Chesapeake Utilities' and FPU’s plans, respectively. The discount rate for each plan was determined by management
considering high-quality corporate bond rates, such as the Prudential curve index and the FTSE Index, changes in those rates
from the prior year and other pertinent factors, including the expected lives of the plans and the availability of the lump-sum
payment option. A 0.25 percent decrease in the discount rate could decrease our annual pension and postretirement costs by an
immaterial amount, and a 0.25 percent increase could increase our annual pension and postretirement costs by an immaterial
amount.
Actual changes in the fair value of plan assets and the differences between the actual return on plan assets and the expected
return on plan assets could have a material effect on the amount of pension benefit costs that we ultimately recognize. A 0.25
percent change in the rate of return could change our annual pension cost by approximately $0.2 million and would not have an
impact on the postretirement and Chesapeake Utilities supplemental executive retirement pension plan ("Chesapeake SERP")
because these plans are not funded.
Tax-Related Contingency
We account for uncertainty in income taxes in the consolidated financial statements only if it is more likely than not that an
uncertain tax position is sustainable based on its technical merits. Recognizable tax positions are then measured to determine
the amount of benefit recognized in the consolidated financial statements. We recognize penalties and interest related to
unrecognized tax benefits as a component of other income.
We account for contingencies associated with taxes other than income when the likelihood of a loss is both probable and
quantifiable. In assessing the likelihood of a loss, we do not consider the existence of current inquiries, or the likelihood of
future inquiries, by tax authorities as a factor. Our assessment is based solely on our application of the appropriate statutes and
the likelihood of a loss, assuming the proper inquiries are made by tax authorities.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
INTEREST RATE RISK
Long-term debt is subject to potential losses based on changes in interest rates. We evaluate whether to refinance existing debt
or permanently refinance existing short-term borrowings based in part on the fluctuation in interest rates. The fluctuation in
interest rates expose us to potential increased cost we could incur when we issue debt instruments or to provide financing and
liquidity for our business activities. We utilize interest rate swap agreements to mitigate short-term borrowing rate risk.
Additional information about our long-term debt and short-term borrowing is disclosed in Note 13, Long-Term Debt, and Note
14, Short-Term Borrowings, respectively, in the consolidated financial statements.
Chesapeake Utilities Corporation 2020 Form 10-K Page 45
Table of Contents
COMMODITY PRICE RISK
Regulated Energy Segment
We have entered into agreements with various wholesale suppliers to purchase natural gas and electricity for resale to our
customers. Our regulated energy distribution businesses that sell natural gas or electricity to end-use customers have fuel cost
recovery mechanisms authorized by the PSCs that allow us to recover all of the costs prudently incurred in purchasing natural
gas and electricity for our customers. Therefore, our regulated energy distribution operations have limited commodity price risk
exposure.
Unregulated Energy Segment
Our propane operations are exposed to commodity price risk as a result of the competitive nature of retail pricing offered to our
customers. In order to mitigate this risk, we utilize propane storage activities and forward contracts for supply.
We can store up to approximately 8.3 million gallons of propane (including leased storage and rail cars) during the winter
season to meet our customers’ peak requirements and to serve metered customers. Decreases in the wholesale price of propane
may cause the value of stored propane to decline, particularly if we utilize fixed price forward contracts for supply. To mitigate
the risk of propane commodity price fluctuations on the inventory valuation, we have adopted a Risk Management Policy that
allows our propane distribution operation to enter into fair value hedges, cash flow hedges or other economic hedges of our
inventory.
Aspire Energy is exposed to commodity price risk, primarily during the winter season, to the extent we are not successful in
balancing our natural gas purchases and sales and have to secure natural gas from alternative sources at higher spot prices. In
order to mitigate this risk, we procure firm capacity that meets our estimated volume requirements and we continue to seek out
new producers in order to fulfill our natural gas purchase requirements.
The following table reflects the changes in the fair market value of financial derivatives contracts related to propane purchases
and sales from December 31, 2019 to December 31, 2020:
(in thousands)
Sharp
Total
Balance at
December 31, 2019
Increase
(Decrease) in Fair
Market Value
Less Amounts
Settled
Balance at
December 31, 2020
$
$
(1,844) $
(1,844) $
4,292 $
4,292 $
734 $
734 $
3,182
3,182
There were no changes in the methods of valuations during the year ended December 31, 2020.
The following is a summary of fair market value of financial derivatives as of December 31, 2020, by method of valuation and
by maturity for each fiscal year period.
(in thousands)
Price based on Mont Belvieu - Sharp
Total
2021
2022
2023
Total Fair Value
$
$
2,669
2,669
$
$
508
508
$
$
5
5
$
$
3,182
3,182
WHOLESALE CREDIT RISK
The Risk Management Committee reviews credit risks associated with counterparties to commodity derivative contracts prior to
such contracts being approved.
Additional information about our derivative instruments is disclosed in Item 8, Financial Statements and Supplementary Data,
Note 8, Derivative Instruments, in the consolidated financial statements.
Chesapeake Utilities Corporation 2020 Form 10-K Page 46
Table of Contents
INFLATION
Inflation affects the cost of supply, labor, products and services required for operations, maintenance and capital improvements.
To help cope with the effects of inflation on our capital investments and returns, we periodically seek rate increases from
regulatory commissions for our regulated operations and closely monitor the returns of our unregulated energy business
operations. To compensate for fluctuations in propane gas prices, we adjust propane sales prices to the extent allowed by the
market.
Chesapeake Utilities Corporation 2020 Form 10-K Page 47
Table of Contents
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Chesapeake Utilities Corporation
Opinions on the Consolidated Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Chesapeake Utilities Corporation and Subsidiaries (the
"Company") as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income,
stockholders' equity, and cash flows, for each of the years in the three-year period ended December 31, 2020, and the related
notes and financial statement schedule listed in Item 15(a)2 (collectively referred to as the "consolidated financial statements").
We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria
established in Internal Control - Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2020 and 2019, and the results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework: (2013) issued by
COSO.
Basis for Opinion
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on the Company's consolidated financial statements and an opinion on the Company’s internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
Chesapeake Utilities Corporation 2020 Form 10-K Page 48
Table of Contents
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging subjective, or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole,
and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on
the accounts or disclosures to which they relate.
Goodwill - Energy Transmission and Supply Services (Aspire Energy), Mid-Atlantic Propane Operations, Florida
Propane Operations and Marlin Gas Services - Unregulated Energy Segment - Refer to Notes 1 and 11 to the
consolidated financial statements
Critical Audit Matter Description
As described in Notes 1 and 11 to the consolidated financial statements, the Company has recorded approximately $31.1
million of goodwill within the Unregulated Energy reportable segment as of December 31, 2020, all of which relates to the four
reporting units listed above. To test goodwill for impairment, the Company uses a present value technique based on discounted
cash flows to estimate the fair value of its reporting units. Management’s testing of goodwill for 2020 indicated no impairment.
We determined the goodwill impairment assessment for the four reporting units listed above was a critical audit matter because
the fair value estimates require significant estimates and assumptions by management, including those relating to future revenue
and operating margin forecasts and discount rates. Testing these estimates involved increased auditor judgment and effort.
How the Critical Audit Matter was Addressed in the Audit
The primary procedures we performed to address this critical audit matter included:
• We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over
management’s goodwill impairment evaluation, including those over the determination of the fair value of the
reporting units within the Unregulated Energy reportable segment.
• We evaluated the appropriateness of management’s valuation methodology, including testing the mathematical
accuracy of the calculation.
• We assessed the historical accuracy of management’s revenue and operating margin forecasts.
• We compared the significant assumptions used by management to current industry and economic trends, current and
historical performance of each reporting unit, and other relevant factors.
• We performed sensitivity analyses of the significant assumptions to evaluate the changes in the fair value of the
reporting units that would result from changes in the assumptions.
• We evaluated whether the assumptions were consistent with evidence obtained in other areas of the audit, including
testing the Company’s fair value of all reporting units, inclusive of the Regulated and Unregulated Energy reporting
units, in relation to the market capitalization of the Company and assessed the results.
/s/ Baker Tilly US, LLP (formerly Baker Tilly Virchow Krause, LLP)
We have served as the Company's auditor since 2007.
Philadelphia, Pennsylvania
February 24, 2021
Chesapeake Utilities Corporation 2020 Form 10-K Page 49
Table of Contents
Chesapeake Utilities Corporation and Subsidiaries
Consolidated Statements of Income
(in thousands, except shares and per share data)
Operating Revenues
Regulated Energy
Unregulated Energy
Other businesses and eliminations
Total operating revenues
Operating Expenses
Regulated Energy cost of sales
Unregulated Energy and other cost of sales
Operations
Maintenance
Gain from a settlement
Depreciation and amortization
Other taxes
Total operating expenses
Operating Income
Other income (expense), net
Interest charges
Income from Continuing Operations Before Income Taxes
Income Taxes on Continuing Operations
Income from Continuing Operations
Income (loss) from Discontinued Operations, Net of Tax
Gain on sale of Discontinued Operations, Net of tax
Net Income
Weighted Average Common Shares Outstanding:
Basic
Diluted
Basic Earnings Per Share of Common Stock:
Earnings Per Share from Continuing Operations
Earnings/(Loss) Per Share from Discontinued Operations
Basic Earnings Per Share of Common Stock
Diluted Earnings Per Share of Common Stock:
Earnings Per Share from Continuing Operations
Earnings/(Loss) Per Share from Discontinued Operations
Diluted Earnings Per Share of Common Stock
For the Year Ended December 31,
2018
2019
2020
$
352,746 $
152,526
(17,074)
343,006 $
154,151
(17,552)
488,198
479,605
91,994
45,944
142,055
15,587
102,803
51,698
137,845
15,679
(130)
(130)
58,117
21,908
375,475
112,723
3,222
21,765
94,180
23,538
70,642
686
170
71,498 $
45,424
20,001
373,320
106,285
(1,847)
22,224
82,214
21,114
61,100
(1,349)
5,402
65,153 $
$
345,281
161,905
(16,870)
490,316
121,828
68,341
132,523
14,387
(130)
40,220
18,303
395,472
94,844
(607)
16,146
78,091
21,123
56,968
(388)
—
56,580
16,711,579
16,770,735
16,398,443
16,448,486
16,369,616
16,419,870
$
$
$
$
4.23 $
0.05
4.28 $
4.21 $
0.05
4.26 $
3.73 $
0.24
3.97 $
3.72 $
0.24
3.96 $
3.48
(0.02)
3.46
3.47
(0.02)
3.45
The accompanying notes are an integral part of the financial statements.
Chesapeake Utilities Corporation 2020 Form 10-K Page 50
Table of Contents
Chesapeake Utilities Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(in thousands)
Net Income
Other Comprehensive Income (Loss), net of tax:
Employee Benefits, net of tax:
Amortization of prior service cost, net of tax of $(18), $(20) and
$(22), respectively
Net gain (loss), net of tax of $(41), $368, and $(49), respectively
Cash Flow Hedges, net of tax:
Unrealized gain (loss) on commodity contract cash flow hedges,
net of tax of $1,392, $(176) and $(555), respectively
Unrealized (loss) on interest rate swap cash flow hedges, net of tax
of $(12) in 2020
Total Other Comprehensive Income (Loss)
Comprehensive Income
For the Year Ended December 31,
2018
2019
2020
$
71,498 $
65,153 $
56,580
(59)
(154)
(57)
1,052
(55)
(108)
3,643
(434)
(1,371)
(28)
3,402
—
561
—
(1,534)
$
74,900 $
65,714 $
55,046
The accompanying notes are an integral part of the financial statements.
Chesapeake Utilities Corporation 2020 Form 10-K Page 51
Table of Contents
Chesapeake Utilities Corporation and Subsidiaries
Consolidated Balance Sheets
Assets
(in thousands, except shares and per share data)
Property, Plant and Equipment
Regulated Energy
Unregulated Energy
Other businesses and eliminations
Total property, plant and equipment
Less: Accumulated depreciation and amortization
Plus: Construction work in progress
Net property, plant and equipment
Current Assets
Cash and cash equivalents
Trade and other receivables
Less: Allowance for credit losses
Trade receivables, net
Accrued revenue
Propane inventory, at average cost
Other inventory, at average cost
Regulatory assets
Storage gas prepayments
Income taxes receivable
Prepaid expenses
Derivative assets, at fair value
Other current assets
Total current assets
Deferred Charges and Other Assets
Goodwill
Other intangible assets, net
Investments, at fair value
Operating lease right-of-use assets
Regulatory assets
Receivables and other deferred charges
Total deferred charges and other assets
Total Assets
As of December 31,
2020
2019
$
1,577,576 $
300,647
30,769
1,908,992
(368,743)
60,929
1,601,178
1,441,473
265,209
39,850
1,746,532
(336,876)
54,141
1,463,797
3,499
61,675
(4,785)
56,890
21,527
5,906
5,539
10,786
2,455
12,885
13,239
3,269
436
136,431
6,985
50,899
(1,337)
49,562
20,846
5,824
6,067
5,144
3,541
20,050
13,928
—
2,879
134,826
38,731
8,292
10,776
11,194
113,806
12,079
194,878
1,932,487 $
32,668
8,129
9,229
11,563
73,407
49,579
184,575
1,783,198
$
The accompanying notes are an integral part of the financial statements.
Chesapeake Utilities Corporation 2020 Form 10-K Page 52
Table of Contents
Chesapeake Utilities Corporation and Subsidiaries
Consolidated Balance Sheets
Capitalization and Liabilities
(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)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Deferred compensation obligation
Treasury stock
Total stockholders’ equity
Long-term debt, net of current maturities
Total capitalization
Current Liabilities
Current portion of long-term debt
Short-term borrowing
Accounts payable
Customer deposits and refunds
Accrued interest
Dividends payable
Accrued compensation
Regulatory liabilities
Derivative liabilities, at fair value
Other accrued liabilities
Total current liabilities
Deferred Credits and Other Liabilities
Deferred income taxes
Regulatory liabilities
Environmental liabilities
Other pension and benefit costs
Operating lease - liabilities
Deferred investment tax credits and other liabilities
Total deferred credits and other liabilities
Environmental and other commitments and contingencies (Note 20 and 21)
Total Capitalization and Liabilities
As of December 31,
2020
2019
$
— $
8,499
348,482
342,969
(2,865)
5,679
(5,679)
697,085
508,499
1,205,584
13,600
175,644
60,253
33,302
2,905
7,683
13,994
6,284
127
15,240
329,032
205,388
142,736
4,299
30,673
9,872
4,903
397,871
—
7,984
259,253
300,607
(6,267)
4,543
(4,543)
561,577
440,168
1,001,745
45,600
247,371
54,068
30,939
2,554
6,644
16,236
5,991
1,844
12,077
423,324
180,656
127,744
6,468
30,569
9,896
2,796
358,129
$
1,932,487 $
1,783,198
The accompanying notes are an integral part of the financial statements.
Chesapeake Utilities Corporation 2020 Form 10-K Page 53
Table of Contents
Chesapeake Utilities Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the Year Ended December 31,
2019
2018
2020
(in thousands)
Operating Activities
Net Income
Adjustments to reconcile net income to net operating cash:
Depreciation and amortization
Depreciation and accretion included in operations expenses
Deferred income taxes, net
Gain on sale of discontinued operations
Realized gain (loss) on sale of assets/commodity contracts
Unrealized loss (gain) on investments/commodity contracts
Employee benefits and compensation
Share-based compensation
Changes in assets and liabilities:
Accounts receivable and accrued revenue
Propane inventory, storage gas and other inventory
Regulatory assets/liabilities, net
Prepaid expenses and other current assets
Accounts payable and other accrued liabilities
Income taxes receivable (payable)
Customer deposits and refunds
Accrued compensation
Other assets and liabilities, net
Net cash provided by operating activities
Investing Activities
Property, plant and equipment expenditures
Proceeds from sale of assets
Acquisitions, net of cash acquired
Proceeds from the sale of discontinued operations
Environmental expenditures
Net cash used in investing activities
Financing Activities
Common stock dividends
Issuance of stock for Dividend Reinvestment Plan
Proceeds from issuance of common stock, net of expenses
Tax withholding payments related to net settled stock compensation
Change in cash overdrafts due to outstanding checks
Net borrowings (repayments) under line of credit agreements
Proceeds from issuance of long-term debt
Repayment of long-term debt and finance lease obligation
Net cash provided by financing activities
Net (Decrease) Increase in Cash and Cash Equivalents
Cash and Cash Equivalents — Beginning of Period
Cash and Cash Equivalents — End of Period
Supplemental Cash Flow Disclosures (see Note 7)
$
71,498 $
65,153 $
56,580
58,117
9,599
24,709
(200)
(6,243)
(1,482)
207
4,829
(7,426)
1,709
(4,973)
2,424
4,941
7,165
2,238
(2,473)
(5,723)
158,916
(165,511)
8,080
(22,231)
200
(2,169)
(181,631)
(27,161)
22,627
60,980
(977)
(825)
45,900
8,752
24,476
(7,344)
(4,135)
(1,595)
1,985
4,279
36,489
8,227
(7,812)
11,115
(62,021)
(4,750)
(1,811)
2,120
(16,064)
102,964
(184,727)
427
(23,988)
22,871
(1,170)
(186,587)
(24,693)
(721)
—
(692)
(1,174)
(71,637)
89,822
(53,600)
19,229
(3,486)
6,985
3,499 $
(45,913)
199,648
(41,936)
84,519
896
6,089
6,985 $
$
40,802
8,535
21,226
—
5,497
429
856
2,813
(16,311)
2,107
2,250
(7,421)
35,907
(522)
(596)
708
(35,498)
117,362
(240,351)
782
(16,654)
—
(625)
(256,848)
(22,043)
(706)
—
(1,210)
(5,943)
49,432
154,819
(34,388)
139,961
475
5,614
6,089
The accompanying notes are an integral part of the financial statements.
Chesapeake Utilities Corporation 2020 Form 10-K Page 54
Table of Contents
Chesapeake Utilities Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
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
Loss
Deferred
Compensation
Treasury
Stock
Total
Balance at December 31, 2017
16,344,442
$
7,955
$
253,470
$
229,141
$
(4,272) $
3,395
$
(3,395) $
486,294
Net Income
Cumulative effect of the adoption of ASU
2014-09
Reclassification upon the adoption of ASU
2018-02
Other comprehensive loss
Dividends declared ($1.4350 per share)
Dividend reinvestment plan
Share-based compensation and tax benefit (3) (4)
Treasury stock activities(2)
—
—
—
—
—
—
34,103
—
—
—
—
—
—
—
16
—
—
—
—
—
—
(3)
2,184
—
Balance at December 31, 2018
16,378,545
7,971
255,651
Net Income
Prior period reclassification
Other comprehensive income
Dividends declared ($1.585 per share)
Dividend reinvestment plan
Share-based compensation and tax benefit (3) (4)
Treasury stock activities (2)
—
—
—
—
—
25,231
—
—
—
—
—
—
13
—
—
—
—
—
(3)
3,605
—
Balances at December 31, 2019
16,403,776
7,984
259,253
Net Income
Other comprehensive income
Dividends declared ($1.725 per share)
Equity issuances under various plans (5)
Share-based compensation and tax benefit (3) (4)
Treasury stock activities (2)
Cumulative effect of the adoption of ASU
2016-13
—
—
—
1,023,609
34,456
—
—
—
—
—
498
17
—
—
—
—
—
85,353
3,876
—
—
56,580
(1,498)
907
—
(23,600)
—
—
—
261,530
65,153
115
—
(26,191)
—
—
—
300,607
71,498
(29,106)
—
—
—
(30)
—
—
(907)
(1,534)
—
—
—
—
(6,713)
—
(115)
561
—
—
—
—
(6,267)
—
3,402
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
459
3,854
(459)
(3,854)
—
—
—
—
—
—
—
—
—
—
—
—
689
4,543
(689)
(4,543)
—
—
—
—
—
—
—
—
—
—
1,136
(1,136)
—
—
56,580
(1,498)
—
(1,534)
(23,600)
(3)
2,200
—
518,439
65,153
—
561
(26,191)
(3)
3,618
—
561,577
71,498
3,402
(29,106)
85,851
3,893
—
(30)
Balances at December 31, 2020
17,461,841
$
8,499
$
348,482
$
342,969
$
(2,865) $
5,679
$
(5,679) $
697,085
(1) 2,000,000 shares of preferred stock at $0.01 par value per share have been authorized. No shares have been issued or are outstanding; accordingly, no information has
been included in the Consolidated Statements of Stockholders’ Equity.
(2) Includes 105,087, 95,329 and 97,053 shares at December 31, 2020, 2019 and 2018, respectively, held in a Rabbi Trust related to our Non-Qualified Deferred
Compensation Plan.
(3) Includes amounts for shares issued for directors’ compensation.
(4) The shares issued under the SICP are net of shares withheld for employee taxes. For 2020, 2019 and 2018, we withheld 10,319, 7,635 and 16,918 shares, respectively,
for taxes.
(5) Includes the Retirement Savings Plan, DRIP and ATM equity issuances.
The accompanying notes are an integral part of the financial statements.
Chesapeake Utilities Corporation 2020 Form 10-K Page 55
Table of Contents
Notes to the Consolidated Financial Statements
1. ORGANIZATION AND BASIS OF PRESENTATION
Chesapeake Utilities, incorporated in 1947 in Delaware, is a diversified energy company engaged in regulated and unregulated
energy businesses.
Our regulated energy businesses consist of: (a) regulated natural gas distribution operations in central and southern Delaware,
Maryland’s eastern shore and Florida; (b) regulated natural gas transmission operations on the Delmarva Peninsula, in
Pennsylvania and in Florida; and (c) regulated electric distribution operations serving customers in northeast and northwest
Florida.
Our unregulated energy businesses primarily include: (a) propane operations in the Mid-Atlantic region and Florida; (b) our
unregulated natural gas transmission/supply operation in central and eastern Ohio; (c) our CHP plant in Florida that generates
electricity and steam; and (d) our subsidiary, based in Florida, that provides CNG, LNG and RNG transportation and pipeline
solutions, primarily to utilities and pipelines throughout the eastern United States.
Our consolidated financial statements include the accounts of Chesapeake Utilities and its wholly-owned subsidiaries. We do
not have any ownership interest in investments accounted for using the equity method or any interest in a variable interest
entity. All intercompany accounts and transactions have been eliminated in consolidation. We have assessed and, if applicable,
reported on subsequent events through the date of issuance of these consolidated financial statements. Where necessary to
improve comparability, prior period amounts have been changed to conform to current period presentation.
Beginning in the third quarter of 2019, our management began executing a strategy to sell the operating assets of PESCO. In the
fourth quarter of 2019, we closed on four separate transactions to sell PESCO's assets and contracts. As a result of these sales,
we have fully exited the natural gas marketing business. Accordingly, PESCO’s historical financial results are reflected in our
consolidated financial statements as discontinued operations, which required retrospective application to financial information
for all periods presented. Refer to Note 4, Acquisitions and Divestitures for further information.
Effects of COVID-19
On March 13, 2020, the CDC declared a national emergency due to the rapidly growing outbreak of COVID-19. In response to
this declaration and the rapid spread of COVID-19 within the United States, federal, state and local governments throughout the
country imposed varying degrees of restrictions on social and commercial activity to promote social distancing in an effort to
slow the spread of the illness. These restrictions have continued to significantly impact economic conditions in the United
States. We are considered an “essential business,” which allows us to continue our operational activities and construction
projects while the social distancing restrictions remain in place. In response to the COVID-19 pandemic and related restrictions,
we implemented our pandemic response plan, which includes having all employees who can work remotely do so in order to
promote social distancing and providing personal protective equipment to field employees to reduce the spread of COVID-19.
Impacts from the restrictions imposed in our service territories and the implementation of our pandemic response plan, included
reduced consumption of energy largely in the commercial and industrial sectors, higher bad debt expenses and incremental
expenses associated with COVID-19, including personal protective equipment and premium pay for field personnel. The
additional operating expenses we incurred support the ongoing delivery of our essential services during these unprecedented
times. In the fourth quarter of 2020, we established regulatory assets, as currently authorized by the Delaware, Maryland and
Florida PSCs, associated with the incremental expenses incurred by our natural gas and electric distribution businesses as a
result of the pandemic. We are continuing to provide timely updates, monitor developments affecting our employees,
customers, suppliers and stockholders, and take the necessary precautions to operate safely and comply with the CDC,
Occupational Safety and Health Administration, state and local requirements. Refer to Note 19, Rates and Other Regulatory
Activities, for further information on the regulated assets established as a result of the incremental expenses associated with
COVID-19.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates in
measuring assets and liabilities and related revenues and expenses. These estimates involve judgments about various future
economic factors that are difficult to predict and are beyond our control; therefore, actual results could differ from these
estimates. As additional information becomes available, or actual amounts are determined, recorded estimates are revised.
Consequently, operating results can be affected by revisions to prior accounting estimates.
Chesapeake Utilities Corporation 2020 Form 10-K Page 56
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Notes to the Consolidated Financial Statements
Property, Plant and Equipment
Property, plant and equipment are stated at original cost less accumulated depreciation or fair value, if impaired. Costs include
direct labor, materials and third-party construction contractor costs, allowance for funds used during construction ("AFUDC"),
and certain indirect costs related to equipment and employees engaged in construction. The costs of repairs and minor
replacements are charged to expense as incurred, and the costs of major renewals and betterments are capitalized. Upon
retirement or disposition of property within the regulated businesses, the gain or loss, net of salvage value, is charged to
accumulated depreciation. Upon retirement or disposition of property owned by the unregulated businesses, the gain or loss, net
of salvage value, is charged to income. A summary of property, plant and equipment for continuing operations by classification
as of December 31, 2020 and 2019 is provided in the following table:
(in thousands)
Property, plant and equipment
Regulated Energy
Natural gas distribution - Delmarva Peninsula and Florida
Natural gas transmission - Delmarva Peninsula, Pennsylvania and Florida
Electric distribution
Unregulated Energy
Propane operations – Mid-Atlantic and Florida
Natural gas transmission and supply – Ohio
Electricity and steam generation
Mobile CNG and pipeline solutions
Other
Total property, plant and equipment
Less: Accumulated depreciation and amortization
Plus: Construction work in progress
Net property, plant and equipment
Contributions or Advances in Aid of Construction
As of December 31,
2020
2019
$
782,329 $
705,095
667,538
127,710
608,727
127,651
151,258
141,945
87,962
36,521
24,905
30,769
73,658
35,436
14,014
40,006
1,908,992
1,746,532
(368,743)
(336,876)
60,929
54,141
$ 1,601,178 $ 1,463,797
Customer contributions or advances in aid of construction reduce property, plant and equipment, unless the amounts are
refundable to customers. Contributions or advances may be refundable to customers after a number of years based on the
amount of revenues generated from the customers or the duration of the service provided to the customers. Refundable
contributions or advances are recorded initially as liabilities. Non-refundable contributions reduce property, plant and
equipment at the time of such determination. As of December 31, 2020 and 2019, the non-refundable contributions totaled $2.9
million and $2.1 million, respectively.
AFUDC
Some of the additions to our regulated property, plant and equipment include AFUDC, which represents the estimated cost of
funds, from both debt and equity sources, used to finance the construction of major projects. AFUDC is capitalized in the
applicable rate base for ratemaking purposes when the completed projects are placed in service. During the years ended
December 31, 2020, 2019 and 2018 AFUDC totaled $0.7 million, $0.7 million and $1.9 million, respectively, which was
reflected as a reduction of interest charges.
Leases
We have entered into lease arrangements for office space, land, equipment, pipeline facilities and warehouses. These leases
enable us to conduct our business operations in the regions in which we operate. Our operating leases are included in operating
lease right-of-use assets, other accrued liabilities, and operating lease - liabilities in our consolidated balance sheets.
Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation
to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at
commencement date based on the present value of lease payments over the lease term. Leases with an initial term of 12 months
or less are not recorded on our balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease
Chesapeake Utilities Corporation 2020 Form 10-K Page 57
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Notes to the Consolidated Financial Statements
term. Our leases do not provide an implicit lease rate, therefore, we utilize our incremental borrowing rate, as the basis to
calculate the present value of future lease payments, at lease commencement. Our incremental borrowing rate represents the
rate that we would have to pay to borrow funds on a collateralized basis over a similar term and in a similar economic
environment.
We have lease agreements with lease and non-lease components. At the adoption of ASC 842, we elected not to separate non-
lease components from all classes of our existing leases. The non-lease components have been accounted for as part of the
single lease component to which they are related. See Note 15, Leases, for additional information.
Jointly-owned Pipelines
Property, plant and equipment for our Florida natural gas transmission operation included $26.4 million of assets at
December 31, 2020, which consist of the 26-mile Callahan intrastate transmission pipeline in Nassau County, Florida jointly-
owned with Seacoast Gas Transmission. Peninsula Pipeline's ownership is 50 percent. The pipeline was placed in-service
during the second quarter of 2020. Peninsula Pipeline's share of direct expenses for the jointly-owned pipeline are included in
operating expenses of our consolidated statements of income. Accumulated depreciation for this pipeline totaled $0.3 million at
December 31, 2020.
Property, plant and equipment for our Florida natural gas transmission operation also included $6.7 million of assets, at
December 31, 2020 and 2019, which consisted of the 16-mile pipeline from the Duval/Nassau County line to Amelia Island in
Nassau County, Florida, previously jointly owned with Peoples Gas. Effective October 2020, the parties agreed to terminate the
pre-existing ownership and capacity agreement and rescind their ownership interests in exchange for defined sections of the
pipeline. This resulted in Peninsula Pipeline taking a 100% ownership in the northern end of the pipeline. Accumulated
depreciation for this pipeline totaled $1.7 million and $1.5 million at December 31, 2020 and 2019, respectively.
Impairment of Long-lived Assets
We periodically evaluate whether events or circumstances have occurred, which indicate that other long-lived assets may not be
fully recoverable. The determination of whether an impairment has occurred is based on an estimate of undiscounted future
cash flows attributable to the asset, compared to the carrying value of the asset. When such events or circumstances are present,
we record an impairment loss equal to the excess of the asset's carrying value over its fair value, if any.
Depreciation and Accretion Included in Operations Expenses
We compute depreciation expense for our regulated operations by applying composite, annual rates, as approved by the
respective regulatory bodies. The following table shows the average depreciation rates used for regulated operations during the
years ended December 31, 2020, 2019 and 2018:
Natural gas distribution – Delmarva Peninsula
Natural gas distribution – Florida
Natural gas transmission – Delmarva Peninsula
Natural gas transmission – Florida
Electric distribution
2020
2.5%
2.5%
2.7%
2.3%
2.9%
2019
2.5%
2.6%
2.6%
2.4%
3.4%
2018
2.5%
2.9%
2.7%
2.3%
3.4%
Chesapeake Utilities Corporation 2020 Form 10-K Page 58
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Notes to the Consolidated Financial Statements
For our unregulated operations, we compute depreciation expense on a straight-line basis over the following estimated useful
lives of the assets:
Asset Description
Propane distribution mains
Propane bulk plants and tanks
Propane equipment, meters and meter installations
Measuring and regulating station equipment
Natural gas pipelines
Natural gas right of ways
CHP plant
Natural gas processing equipment
Office furniture and equipment
Transportation equipment
Structures and improvements
Other
Useful Life
10-37 years
10-40 years
5-33 years
5-37 years
45 years
Perpetual
30 years
20-25 years
3-10 years
4-20 years
5-45 years
Various
We report certain depreciation and accretion in operations expense, rather than as a depreciation and amortization expense, in
the accompanying consolidated statements of income in accordance with industry practice and regulatory requirements.
Depreciation and accretion included in operations expense consists of the accretion of the costs of removal for future
retirements of utility assets, vehicle depreciation, computer software and hardware depreciation, and other minor amounts of
depreciation expense. For the years ended December 31, 2020, 2019 and 2018, we reported $9.6 million, $8.8 million and $8.5
million, respectively, of depreciation and accretion in operations expenses.
Regulated Operations
We account for our regulated operations in accordance with ASC Topic 980, Regulated Operations, which includes accounting
principles for companies whose rates are determined by independent third-party regulators. When setting rates, regulators often
make decisions, the economics of which require companies to defer costs or revenues in different periods than may be
appropriate for unregulated enterprises. When this situation occurs, a regulated company defers the associated costs as
regulatory assets on the balance sheet and records them as expense on the income statement as it collects revenues. Further,
regulators can also impose liabilities upon a regulated company, for amounts previously collected from customers and for
recovery of costs that are expected to be incurred in the future, as regulatory liabilities. If we were required to terminate the
application of these regulatory provisions to our regulated operations, all such deferred amounts would be recognized in the
statement of income at that time, which could have a material impact on our financial position, results of operations and cash
flows.
We monitor our regulatory and competitive environments to determine whether the recovery of our regulatory assets continues
to be probable. If we determined that recovery of these assets is no longer probable, we would write off the assets against
earnings. We believe that the provisions of ASC Topic 980, Regulated Operations, continue to apply to our regulated
operations and that the recovery of our regulatory assets is probable.
Revenue Recognition
Revenues for our natural gas and electric distribution operations are based on rates approved by the PSC in each state in which
they operate. Customers’ base rates may not be changed without formal approval by these commissions. The PSCs, however,
have authorized our regulated operations to negotiate rates, based on approved methodologies, with customers that have
competitive alternatives. Eastern Shore’s revenues are based on rates approved by the FERC. The FERC has also authorized
Eastern Shore to negotiate rates above or below the FERC-approved maximum rates, which customers can elect as an
alternative to FERC-approved maximum rates.
For regulated deliveries of natural gas and electricity, we read meters and bill customers on monthly cycles that do not coincide
with the accounting periods used for financial reporting purposes. We accrue unbilled revenues for natural gas and electricity
delivered, but not yet billed, at the end of an accounting period to the extent that they do not coincide. We estimate the amount
of the unbilled revenue by jurisdiction and customer class.
All of our regulated natural gas and electric distribution operations have fuel cost recovery mechanisms, except for two utilities
that provide only unbundled delivery service (Chesapeake Utilities' Central Florida Gas division and FPU's Indiantown
division). These mechanisms allow us to adjust billing rates, without further regulatory approvals, to reflect changes in the cost
Chesapeake Utilities Corporation 2020 Form 10-K Page 59
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Notes to the Consolidated Financial Statements
of purchased fuel. Differences between the cost of fuel purchased and delivered are deferred and accounted for as either
unrecovered fuel cost or amounts payable to customers. Generally, these deferred amounts are recovered or refunded within one
year.
We charge flexible rates to our natural gas distribution industrial interruptible customers who can use alternative fuels.
Interruptible service imposes no contractual obligation to deliver or receive natural gas on a firm service basis.
Our unregulated propane delivery businesses record revenue in the period the products are delivered and/or services are
rendered for their bulk delivery customers. For propane customers with meters whose billing cycles do not coincide with our
accounting periods, we accrue unbilled revenue for product delivered but not yet billed and bill customers at the end of an
accounting period, as we do in our regulated energy businesses.
Our Ohio natural gas transmission/supply operation recognizes revenues based on actual volumes of natural gas shipped using
contractual rates based upon index prices that are published monthly.
Eight Flags records revenues based on the amount of electricity and steam generated and sold to its customers.
Our mobile compressed natural gas operation recognizes revenue for CNG services at the end of each calendar month for
services provided during the month based on agreed upon rates for labor, equipment utilized, costs incurred for natural gas
compression, miles driven, mobilization and demobilization fees.
We report revenue taxes, such as gross receipts taxes, franchise taxes, and sales taxes, on a net basis.
Cost of Sales
Cost of sales includes the direct costs attributable to the products sold or services provided to our customers. These costs
include primarily the variable commodity cost of natural gas, electricity and propane, costs of pipeline capacity needed to
transport and store natural gas, transmission costs for electricity, costs to gather and process natural gas, costs to transport
propane to/from our storage facilities or our mobile CNG equipment to customer locations, and steam and electricity generation
costs. Depreciation expense is not included in cost of sales.
Operations and Maintenance Expenses
Operations and maintenance expenses include operations and maintenance salaries and benefits, materials and supplies, usage
of vehicles, tools and equipment, payments to contractors, utility plant maintenance, customer service, professional fees and
other outside services, insurance expense, minor amounts of depreciation, accretion of removal costs for future retirements of
utility assets and other administrative expenses.
Cash and Cash Equivalents
Our policy is to invest cash in excess of operating requirements in overnight income-producing accounts. Such amounts are
stated at cost, which approximates fair value. Investments with an original maturity of three months or less when purchased are
considered cash equivalents.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable consist primarily of amounts due for sales of natural gas, electricity and propane and transportation and
distribution services to customers. An allowance for doubtful accounts is recorded against amounts due based upon our
collections experiences and an assessment of our customers’ inability or reluctance to pay. If circumstances change, our
estimates of recoverable accounts receivable may also change. Circumstances which could affect such estimates include, but are
not limited to, customer credit issues, natural gas, electricity and propane prices, impacts from pandemics and general economic
conditions. Accounts receivable are written off when they are deemed to be uncollectible.
Inventories
We use the average cost method to value propane, materials and supplies, and other merchandise inventory. If market prices
drop below cost, inventory balances that are subject to price risk are adjusted to their net realizable value. There was no lower-
of-cost-or-net realizable value adjustment for the years ended December 31, 2020, 2019 or 2018.
Goodwill and Other Intangible Assets
Goodwill is not amortized but is tested for impairment at least annually, or more frequently if an event occurs or circumstances
change that would more likely than not reduce the fair value of a reporting unit below its carrying value. We use a present value
technique based on discounted cash flows to estimate the fair value of our reporting units. An impairment charge is recognized
if the carrying value of a reporting unit’s goodwill exceeds its implied fair value. The testing of goodwill for the years ended
December 31, 2020, 2019 and 2018 indicated no goodwill impairment. Other intangible assets are amortized on a straight-line
basis over their estimated economic useful lives.
Chesapeake Utilities Corporation 2020 Form 10-K Page 60
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Notes to the Consolidated Financial Statements
Other Deferred Charges
Other deferred charges include issuance costs associated with short-term borrowings. These charges are amortized over the life
of the related short-term debt borrowings.
Asset Removal Cost
As authorized by the appropriate regulatory body (state PSC or FERC), we accrue future asset removal costs associated with
utility property, plant and equipment even if a legal obligation does not exist. Such accruals are provided for through
depreciation expense and are recorded with corresponding credits to regulatory liabilities or assets. When we retire depreciable
utility plant and equipment, we charge the associated original costs to accumulated depreciation and amortization, and any
related removal costs incurred are charged to regulatory liabilities or assets. The difference between removal costs recognized
in depreciation rates and the accretion and depreciation expense recognized for financial reporting purposes is a timing
difference between recovery of these costs in rates and their recognition for financial reporting purposes. Accordingly, these
differences are deferred as regulatory liabilities or assets. In the rate setting process, the regulatory liability or asset is excluded
from the rate base upon which those utilities have the opportunity to earn their allowed rates of return. The costs associated with
our asset retirement obligations are either currently being recovered in rates or are probable of recovery in future rates.
Pension and Other Postretirement Plans
Pension and other postretirement plan costs and liabilities are determined on an actuarial basis and are affected by numerous
assumptions and estimates, including the fair value of plan assets, estimates of the expected returns on plan assets, assumed
discount rates, the level of contributions made to the plans, and current demographic and actuarial mortality data. We review
annually the estimates and assumptions underlying our pension and other postretirement plan costs and liabilities with the
assistance of third-party actuarial firms. The assumed discount rates, expected returns on plan assets and the mortality
assumption are the factors that generally have the most significant impact on our pension costs and liabilities. The assumed
discount rates, health care cost trend rates and rates of retirement generally have the most significant impact on our
postretirement plan costs and liabilities.
The discount rates are utilized principally in calculating the actuarial present value of our pension and postretirement
obligations and net pension and postretirement costs. When estimating our discount rates, we consider high-quality corporate
bond rates, such as the Prudential curve index and the FTSE Index, changes in those rates from the prior year and other
pertinent factors, including the expected life of each of our plans and their respective payment options.
The expected long-term rates of return on assets are utilized in calculating the expected returns on the plan assets component of
our annual pension plan costs. We estimate the expected returns on plan assets of each of our plans by evaluating expected bond
returns, asset allocations, the effects of active plan management, the impact of periodic plan asset rebalancing and historical
performance. We also consider the guidance from our investment advisors in making a final determination of our expected rates
of return on assets.
We estimate the health care cost trend rates used in determining our postretirement net expense based upon actual health care
cost experience, the effects of recently enacted legislation and general economic conditions. Our assumed rate of retirement is
estimated based upon our annual reviews of participant census information as of the measurement date.
The mortality assumption used for our pension and postretirement plans is reviewed periodically and is based on the actuarial
table that best reflects the expected mortality of the plan participants.
Income Taxes, Investment Tax Credit Adjustments and Tax-Related Contingency
Deferred tax assets and liabilities are recorded for the income tax effect of temporary differences between the financial
statement basis and tax basis of assets and liabilities and are measured using the enacted income tax rates in effect in the years
in which the differences are expected to reverse. Deferred tax assets are recorded net of any valuation allowance when it is
more likely than not that such income tax benefits will be realized. Investment tax credits on utility property have been deferred
and are allocated to income ratably over the lives of the subject property.
We account for uncertainty in income taxes in our consolidated financial statements only if it is more likely than not that an
uncertain tax position is sustainable based on technical merits. Recognizable tax positions are then measured to determine the
amount of benefit recognized in the consolidated financial statements. We recognize penalties and interest related to
unrecognized tax benefits as a component of other income.
We account for contingencies associated with taxes other than income when the likelihood of a loss is both probable and
estimable. In assessing the likelihood of a loss, we do not consider the existence of current inquiries, or the likelihood of future
inquiries, by tax authorities as a factor. Our assessment is based solely on our application of the appropriate statutes and the
likelihood of a loss, assuming the proper inquiries are made by tax authorities.
Chesapeake Utilities Corporation 2020 Form 10-K Page 61
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Notes to the Consolidated Financial Statements
Financial Instruments
We utilize financial instruments to mitigate commodity price risk associated with fluctuations of natural gas, electricity and
propane and to mitigate interest rate risk. Our propane operations enter into derivative transactions, such as swaps, put options
and call options in order to mitigate the impact of wholesale price fluctuations on inventory valuation and future purchase
commitments. These transactions may be designated as fair value hedges or cash flow hedges, if they meet all of the accounting
requirements pursuant to ASC Topic 815, Derivatives and Hedging, and we elect to designate the instruments as hedges. If
designated as a fair value hedge, the value of the hedging instrument, such as a swap, future, or put option, is recorded at fair
value, with the effective portion of the gain or loss of the hedging instrument effectively reducing or increasing the value of the
hedged item. If designated as a cash flow hedge, the value of the hedging instrument, such as a swap or call option, is recorded
at fair value with the effective portion of the gain or loss of the hedging instrument being recorded in comprehensive income.
The ineffective portion of the gain or loss of a hedge is recorded in earnings. If the instrument is not designated as a fair value
or cash flow hedge, or it does not meet the accounting requirements of a hedge under ASC Topic 815, Derivatives and
Hedging, it is recorded at fair value with all gains or losses being recorded directly in earnings.
Our natural gas, electric and propane operations enter into agreements with suppliers to purchase natural gas, electricity, and
propane for resale to our respective customers. Purchases under these contracts, as well as distribution and sales agreements
with counterparties or customers, either do not meet the definition of a derivative, or qualify for “normal purchases and sales”
treatment under ASC Topic 815 Derivatives and Hedging, and are accounted for on an accrual basis.
We manage interest rate risk by entering into derivative contracts to hedge the variability in cash flows attributable to changes
in the short-term borrowing rates. We designate and account for the interest rate swaps as cash flows hedges. Accordingly,
unrealized gains and losses associated with the interest rate swaps are recorded as a component of accumulated other
comprehensive income (loss). When the interest rate swaps settle, the realized gain or loss will be recorded in the income
statement and recognized as a component of interest charges.
Recently Adopted Accounting Standards
Financial Instruments - Credit Losses (ASC 326) - In June 2016, the FASB issued ASU 2016-13, Measurement of Credit
Losses on Financial Instruments, which changes how entities account for credit losses for most financial assets and certain
other instruments, and subsequent guidance which served to clarify or amend the original standard. ASU 2016-13 and the
related amendments require entities to estimate lifetime expected credit losses for trade receivables and to provide additional
disclosure related to credit losses. We adopted ASU 2016-13 on January 1, 2020 and recorded an immaterial cumulative effect
in retained earnings as of that date. As a result, prior period financial information has not been recast and continues to be
reported under the accounting guidance that was effective during those periods.
Our estimate for expected credit losses has been developed by analyzing our portfolio of financial assets that present potential
credit exposure risk. These assets consist solely of our trade receivables from customers and contract assets. The estimate is
based on five years of historical collections experience, a review of current economic and operating conditions in our service
territories, and an examination of economic indicators which provide a reasonable and supportable basis of potential future
activity. Those indicators include metrics which we believe provide insight into the future collectability of our trade receivables
such as unemployment rates and economic growth statistics in our service territories.
When determining estimated credit losses, we analyzed the balance of our trade receivables based on the underlying line of
business. This resulted in an examination of trade receivables from our energy distribution, energy transmission, energy
delivery services and propane operations businesses. Our energy distribution business consists of all our regulated distribution
utility (natural gas and electric) operations on the Delmarva Peninsula and in Florida. These business units have the ability to
recover their costs through the rate making process, which can include consideration for amounts historically written off to be
included in rate base. Therefore, they possess a mechanism to recover credit losses which we believe reduces their exposure to
credit risk. Our energy transmission and energy delivery services business units consist of our natural gas pipelines and our
mobile CNG delivery operations. The majority of customers served by these business units are regulated distribution utilities
who also have the ability to recover their costs. We believe this cost recovery mechanism significantly reduces the amount of
credit risk. Our propane operations are unregulated and do not have the same ability to recover their costs as our regulated
operations. However, historically our propane operations have not had material write offs relative to the amount of revenues
generated.
Our estimate of expected credit losses reflects our anticipated losses associated with our trade receivables as a result of non-
payment from our customers beginning the day the trade receivable is established. We believe the risk of loss associated with
trade receivables classified as current presents the least amount of credit exposure risk and therefore, we assign a lower estimate
to our current trade receivables. As our trade receivables age outside of their expected due date, our estimate increases. Our
Chesapeake Utilities Corporation 2020 Form 10-K Page 62
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Notes to the Consolidated Financial Statements
allowance for credit losses relative to the balance of our trade receivables has historically been immaterial as a result of on time
payment activity from our customers.
During the first quarter of 2020, COVID-19 began to rapidly spread within the United States. Federal, state and local
governments throughout the country imposed restrictions to promote social distancing to slow the spread of the virus, which has
also had the effect of limiting commercial activity. These measures have resulted in significant job losses and a slowing of
economic activity across the United States and in the areas that we serve. We have considered the impact of COVID-19 on our
receivables for the twelve months ended December 31, 2020, monitored developments that impact our customers’ ability to pay
and have revised our estimates of expected credit losses to reflect these impacts.
(in thousands)
Balance at December 31, 2019
Additions:
Provision for credit losses
Recoveries
Deductions:
Write offs
Balance at December 31, 2020
$
$
1,337
3,827
613
(992)
4,785
Fair Value Measurement (ASC 820) - In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the
Disclosure Requirements for Fair Value Measurement, which removes, modifies and adds certain disclosure requirements on
fair value measurements in ASC 820. We adopted ASU 2018-13 beginning January 1, 2020 and, since the changes only
impacted disclosures, its adoption did not have a material impact on our results of operations or financial position.
Intangibles - Goodwill (ASC 350) - In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill
Impairment, which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill
impairment test. ASU 2017-04 was effective beginning January 1, 2020. The amendments included in this ASU are to be
applied prospectively, and its adoption did not have a material impact on our results of operations or financial position.
Chesapeake Utilities Corporation 2020 Form 10-K Page 63
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Notes to the Consolidated Financial Statements
3. EARNINGS PER SHARE
The following table presents the calculation of our basic and diluted earnings per share for the years ended December 31:
(in thousands, except shares and per share data)
Calculation of Basic Earnings Per Share:
Income from Continuing Operations
Income/(Loss) from Discontinued Operations
Net Income
Weighted average shares outstanding
Earnings Per Share from Continuing Operations
Earnings/(Loss) Per Share from Discontinued Operations
Calculation of Diluted Earnings Per Share:
Reconciliation of Denominator:
Weighted average shares outstanding — Basic
Effect of dilutive securities — Share-based compensation
Adjusted denominator — Diluted
Earnings Per Share from Continuing Operations
Earnings/(Loss) Per Share from Discontinued Operations
Basic Earnings Per Share
$
Diluted Earnings Per Share
$
4. ACQUISITIONS AND DIVESTITURES
Acquisition of Western Natural Gas
For the Year Ended December 31,
2018
2019
2020
$
$
70,642 $
856
71,498 $
61,100 $
4,053
65,153 $
56,968
(388)
56,580
16,711,579
$
16,398,443
4.23 $
0.05
4.28 $
16,369,616
3.48
(0.02)
3.46
3.73 $
0.24
3.97 $
16,711,579
59,156
16,770,735
$
16,398,443
50,043
16,448,486
16,369,616
50,254
16,419,870
3.47
(0.02)
3.45
3.72 $
0.24
3.96 $
4.21 $
0.05
4.26 $
In October 2020, Sharp acquired certain propane operating assets of Western Natural Gas, which provides propane distribution
service throughout Jacksonville, Florida and the surrounding communities, for approximately $6.7 million, net of cash acquired.
Additionally, the purchase price included $0.3 million of working capital. We recorded contingent consideration of $0.3 million
related to the seller's adherence to various provisions contained in the purchase agreement through the first anniversary of the
transaction closing. We accounted for this acquisition as a business combination within our Unregulated Energy Segment
beginning in the fourth quarter of 2020. There are multiple strategic benefits to this acquisition including it: (i) expands our
propane territory serviced in Florida and (ii) includes an established customer base with opportunities for future growth.
In connection with this acquisition, we recorded $3.5 million in property plant and equipment, $1.4 million in intangible assets
associated with customer relationships and non-compete agreements and $1.8 million in goodwill, all of which is deductible for
income tax purposes. The amounts recorded in conjunction with the acquisition are preliminary, and subject to adjustment
based on contractual provisions. The purchase price allocation will be finalized in the fourth quarter of 2021.
Acquisition of Elkton Gas
In July 2020, we closed on the acquisition of Elkton Gas, which provides natural gas distribution service to approximately
7,000 residential and commercial customers within a franchised area of Cecil County, Maryland for approximately $15.6
million, net of cash acquired. Additionally, the purchase price included $0.6 million of working capital. Elkton Gas’ territory is
contiguous to our franchised service territory in Cecil County, Maryland. Elkton Gas continues to operate out of its existing
office with the same local personnel who are now also serving our existing franchised service territory in Cecil County.
In connection with this acquisition, we recorded $15.9 million in property, plant and equipment, $0.6 million in accounts
receivable, $2.6 million in other liabilities, $2.6 million in regulatory liabilities and $4.3 million in goodwill, all of which is
Chesapeake Utilities Corporation 2020 Form 10-K Page 64
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Notes to the Consolidated Financial Statements
deductible for income tax purposes. All of the assets and liabilities are recorded in the Regulated Energy segment. The amounts
recorded in conjunction with the acquisition are preliminary, and subject to adjustment based on contractual provisions. The
purchase price allocation will be finalized in the third quarter of 2021.
Acquisition of Boulden
In December 2019, Sharp acquired certain propane operating assets of Boulden, which provides propane distribution service to
approximately 5,200 customers in Delaware, Maryland and Pennsylvania, for approximately $24.6 million, net of cash
acquired. Additionally, the purchase price included $0.2 million of working capital. We recorded contingent consideration of
$0.6 million related to the seller's adherence to various provisions contained in the purchase agreement through the first
anniversary of the transaction closing. We accounted for the purchase of the operating assets of Boulden as a business
combination and integrated the business into our Sharp operation. There are multiple strategic benefits to this acquisition
including it: (i) overlays with the Elkton Gas acquisition to establish an integrated energy delivery platform in Cecil County,
Maryland; (ii) includes an established customer base with opportunities for future growth; and (iii) enables operational
synergies, including supply, for the northern Delmarva Peninsula.
In connection with this acquisition, we recorded $8.3 million in property, plant and equipment, $5.1 million in intangible assets
associated with customer relationships and non-compete agreements and $11.2 million in goodwill, all of which is deductible
for income tax purposes. The amounts recorded in conjunction with the acquisition were finalized in the fourth quarter of 2020.
These acquisitions generated the following operating revenues and income:
For the Year Ended
December 31, 2020
For the Year Ended
December 31, 2019
Operating Revenues
Operating Income
Operating Revenues
Operating Income
(in thousands)
Western Natural Gas
Elkton Gas
Boulden
$
$
$
Divestiture of PESCO
555
2,399
5,717
$
$
$
90
418
1,854
$
$
$
— $
— $
550 $
—
—
239
During the fourth quarter of 2019, we sold PESCO's assets and contracts in four separate transactions and exited the natural gas
marketing business. In 2020 and 2019, we received a total of $23.1 million in cash consideration from the buyers, inclusive of
working capital of $8.0 million and recognized total pre-tax gain of $7.5 million ($5.4 million after tax) in connection with
these transactions. As a result of the sales agreements, we began to report PESCO as discontinued operations during the third
quarter of 2019, excluded PESCO's performance from continuing operations for all periods presented and classified its assets
and liabilities as held for sale where applicable.
Operating revenues and costs of sales from the previous reporting periods, which were previously eliminated in consolidation
related to intercompany sales and purchases, have been grossed up and are now reflected as a component of operating revenues
and costs of sales for the year ended December 31, 2019 and 2018. We recast these amounts because, upon completion of the
sales transactions, we continued to provide and receive services from the buyers through the remainder of the contractual terms.
Chesapeake Utilities Corporation 2020 Form 10-K Page 65
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Notes to the Consolidated Financial Statements
A summary of discontinued operations presented in the consolidated statements of income includes the following:
(in thousands)
Operating revenues(1)
Cost of sales(1)
Other operating expenses
Operating loss
Interest and other income (expense)
Earnings / (Loss) from Discontinued Operations before income
taxes
Gain on sale of Discontinued Operations
Income tax (benefit) / expense
Gain / (Loss) from Discontinued Operations, Net of Tax
(1)
For the Year Ended December 31,
2019
2018
2020
$
26 $
161,289 $
—
230
(204)
1,013
157,646
5,221
(1,578)
(297)
809
(1,875)
200
153
7,344
1,416
$
856 $
4,053 $
258,713
252,111
6,825
(223)
(294)
(517)
—
(129)
(388)
Included in operating revenues and cost of sales for the years ended December 31, 2019 and 2018, is $19.8 million, and $31.5 million respectively,
representing amounts which had been previously eliminated in consolidation related to intercompany activity which continued with the buyers after the
disposition of the assets of PESCO.
Since the disposition of the assets and contracts of PESCO was completed in the fourth quarter of 2019, there were no assets or
liabilities classified as held for sale at December 31, 2020 and December 31, 2019.
We have elected not to separately disclose discontinued operations on the consolidated statements of cash flows. The following
table summarizes significant statements of cash flows data related to the discontinued operations of PESCO:
(in thousands)
Depreciation and amortization
Property, plant and equipment expenditures
Deferred income taxes
Realized / (loss) gain on commodity contracts
For the Year Ended December 31,
2019
2018
$
$
$
$
477 $
— $
(125) $
(2,161) $
582
115
1,088
5,002
Our Delmarva Peninsula natural gas distribution operations had executed asset management agreements with PESCO to
manage their natural gas transportation and storage capacity. The agreements were effective as of April 1, 2017, and expired on
March 31, 2020. As a result of the sale of the assets of PESCO, effective October 1, 2019, these agreements were managed by
New Jersey Resource Energy Services Company through the remainder of the contract term. In March 2020, our Delmarva
Peninsula natural gas distribution operations entered into new asset management agreements with a third party to manage their
natural gas transportation and storage capacity. The agreements were effective as of April 1, 2020, and expire on March 31,
2023. In addition to the asset management agreements, Eastern Shore had several firm transportation and capacity arrangements
with PESCO, which were included in the assets sold to United Energy Trading, LLC. Eastern Shore will continue to fulfill
these arrangements throughout the remainder of their contractual term. These agreements currently have expiration dates of
November 30, 2021.
5. REVENUE RECOGNITION
We recognize revenue when our performance obligations under contracts with customers have been satisfied, which generally
occurs when our businesses have delivered or transported natural gas, electricity or propane to customers. We exclude sales
taxes and other similar taxes from the transaction price. Typically, our customers pay for the goods and/or services we provide
in the month following the satisfaction of our performance obligation. The following table displays revenue from continuing
operations by major source based on product and service type for the years ended December 31, 2020, 2019 and 2018:
Chesapeake Utilities Corporation 2020 Form 10-K Page 66
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Notes to the Consolidated Financial Statements
(in thousands)
Energy distribution
Delaware natural gas division
Florida natural gas division
FPU electric distribution
FPU natural gas distribution
Maryland natural gas division
Sandpiper natural gas/propane operations
Elkton Gas
Total energy distribution
Energy transmission
Aspire Energy
Aspire Energy Express
Eastern Shore
Peninsula Pipeline
Total energy transmission
Energy generation
Eight Flags
Propane operations
Propane delivery operations
Energy delivery services
Marlin Gas Services
Other and eliminations
Eliminations
Other
Total other and eliminations
Total operating revenues (1)
For the year ended December 31, 2020
Regulated
Energy
Unregulated
Energy
Other and
Eliminations
Total
$
63,389 $
30,850
76,863
90,150
21,853
17,214
2,399
302,718
— $
—
—
—
—
—
—
—
16
75,117
23,080
98,213
—
—
—
27,951
—
—
—
27,951
16,147
100,744
7,818
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
63,389
30,850
76,863
90,150
21,853
17,214
2,399
302,718
27,951
16
75,117
23,080
126,164
16,147
100,744
7,818
(48,185)
—
(48,185)
(134)
—
(134)
(17,602)
528
(17,074)
(65,921)
528
(65,393)
$
352,746 $
152,526 $
(17,074) $
488,198
(1) Total operating revenues for the year ended December 31, 2020, include other revenue (revenues from sources other than contracts with customers) of $1.4
million and $0.2 million for our Regulated and Unregulated Energy segments, respectively. The sources of other revenues include revenue from alternative
revenue programs related to revenue normalization for Maryland division and Sandpiper and late fees.
Chesapeake Utilities Corporation 2020 Form 10-K Page 67
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Notes to the Consolidated Financial Statements
(in thousands)
Energy distribution
Delaware natural gas division
Florida natural gas division
FPU electric distribution
FPU natural gas distribution
Maryland natural gas division
Sandpiper natural gas/propane operations
Total energy distribution
Energy transmission
Aspire Energy
Aspire Energy Express
Eastern Shore
Peninsula Pipeline
Total energy transmission
Energy generation
Eight Flags
Propane operations
Propane delivery operations
Energy delivery services
Marlin Gas Services
Other and eliminations
Eliminations
Other
Total other and eliminations
Total operating revenues (1)
For the year ended December 31, 2019
Regulated
Energy
Unregulated
Energy
Other and
Eliminations
Total
$
62,659 $
28,485
77,416
82,418
22,517
19,068
292,563
— $
—
—
—
—
—
—
—
—
72,924
16,453
89,377
—
—
—
32,493
—
—
—
32,493
16,749
109,614
5,702
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
62,659
28,485
77,416
82,418
22,517
19,068
292,563
32,493
—
72,924
16,453
121,870
16,749
109,614
5,702
(38,934)
(10,407)
—
—
(38,934)
(10,407)
(18,081)
529
(17,552)
(67,422)
529
(66,893)
$
343,006 $
154,151 $
(17,552) $
479,605
(1) Total operating revenues for the year ended December 31, 2019, include other revenue (revenues from sources other than contracts with customers of $(0.1)
million and $0.3 million for our Regulated and Unregulated Energy segments, respectively. The sources of other revenues include revenue from alternative
revenue programs related to revenue normalization for Maryland division and Sandpiper and late fees.
Chesapeake Utilities Corporation 2020 Form 10-K Page 68
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Notes to the Consolidated Financial Statements
(in thousands)
Energy distribution
Delaware natural gas division
Florida natural gas division
FPU electric distribution
FPU natural gas distribution
Maryland natural gas division
Sandpiper natural gas/propane operations
Total energy distribution
Energy transmission
Aspire Energy
Aspire Energy Express
Eastern Shore
Peninsula Pipeline
Total energy transmission
Energy generation
Eight Flags
Propane operations
Propane delivery operations
Energy delivery services
Marlin Gas Services
Other and eliminations
Eliminations
Other
Total other and eliminations
Total operating revenues (1)
For the year ended December 31, 2018
Regulated
Energy
Unregulated
Energy
Other and
Eliminations
Total
$
70,338 $
25,341
79,803
81,118
24,172
22,088
302,860
— $
—
—
—
—
—
—
—
—
64,248
11,927
76,175
—
—
—
(33,754)
—
(33,754)
35,407
—
—
—
35,407
17,302
125,560
121
(16,485)
—
(16,485)
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
70,338
25,341
79,803
81,118
24,172
22,088
302,860
35,407
—
64,248
11,927
111,582
17,302
125,560
121
(17,522)
652
(16,870)
(67,761)
652
(67,109)
$
345,281 $
161,905 $
(16,870) $
490,316
(1) Total operating revenues for the year ended December 31, 2018, include other revenue (revenues from sources other than contracts with customers) of $0.2
million and $0.3 million for our Regulated and Unregulated Energy segments, respectively. The sources of other revenues include revenue from alternative
revenue programs related to revenue normalization for Maryland division and Sandpiper and late fees.
Regulated Energy Segment
The businesses within our Regulated Energy segment are regulated utilities whose operations and customer contracts are
subject to rates approved by the respective state PSC or the FERC.
Our energy distribution operations deliver natural gas or electricity to customers, and we bill the customers for both the delivery
of natural gas or electricity and the related commodity, where applicable. In most jurisdictions, our customers are also required
to purchase the commodity from us, although certain customers in some jurisdictions may purchase the commodity from a
third-party retailer (in which case we provide delivery service only). We consider the delivery of natural gas or electricity and/
or the related commodity sale as one performance obligation because the commodity and its delivery are highly interrelated
with two-way dependency on one another. Our performance obligation is satisfied over time as natural gas or electricity is
delivered and consumed by the customer. We recognize revenues based on monthly meter readings, which are based on the
quantity of natural gas or electricity used and the approved rates. We accrue unbilled revenues for natural gas and electricity
that have been delivered, but not yet billed, at the end of an accounting period, to the extent that billing and delivery do not
coincide.
Revenues for Eastern Shore are based on rates approved by the FERC. The FERC has also authorized Eastern Shore to
negotiate rates above or below the FERC-approved maximum rates, which customers can elect as an alternative to the FERC-
approved maximum rates. Eastern Shore's services can be firm or interruptible. Firm services are offered on a guaranteed basis
and are available at all times unless prevented by force majeure or other permitted curtailments. Interruptible customers receive
service only when there is available capacity or supply. Our performance obligation is satisfied over time as we deliver natural
gas to the customers' locations. We recognize revenues based on capacity used or reserved and the fixed monthly charge.
Chesapeake Utilities Corporation 2020 Form 10-K Page 69
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Notes to the Consolidated Financial Statements
Peninsula Pipeline is engaged in natural gas intrastate transmission to third-party customers and certain affiliates in the State of
Florida. Our performance obligation is satisfied over time as the natural gas is transported to customers. We recognize revenue
based on rates approved by the Florida PSC and the capacity used or reserved. We accrue unbilled revenues for transportation
services provided and not yet billed at the end of an accounting period.
Unregulated Energy Segment
Revenues generated from the Unregulated Energy segment are not subject to any federal, state, or local pricing regulations.
Aspire Energy primarily sources gas from hundreds of conventional producers and performs gathering and processing functions
to maintain the quality and reliability of its gas for its wholesale customers. Aspire Energy's performance obligation is satisfied
over time as natural gas is delivered to its customers. Aspire Energy recognizes revenue based on the deliveries of natural gas at
contractually agreed upon rates (which are based upon an established monthly index price and a monthly operating fee, as
applicable). For natural gas customers, we accrue unbilled revenues for natural gas that has been delivered, but not yet billed, at
the end of an accounting period, to the extent that billing and delivery do not coincide with the end of the accounting period.
Eight Flags' CHP plant, which is located on land leased from a customer, produces three sources of energy: electricity, steam
and heated water. This customer purchases the steam (unfired and fired) and heated water, which are used in the customer’s
production facility. Our electric distribution operation purchases the electricity generated by the CHP plant for distribution to its
customers. Eight Flags' performance obligation is satisfied over time as deliveries of heated water, steam and electricity occur.
Eight Flags recognizes revenues over time based on the amount of heated water, steam and electricity generated and delivered
to its customers.
For our propane operations, we recognize revenue based upon customer type and service offered. Generally, for propane bulk
delivery customers (customers without meters) and wholesale sales, our performance obligation is satisfied when we deliver
propane to the customers' locations (point-in-time basis). We recognize revenue from these customers based on the number of
gallons delivered and the price per gallon at the point-in-time of delivery. For our propane delivery customers with meters, we
satisfy our performance obligation over time when we deliver propane to customers. We recognize revenue over time based on
the amount of propane consumed and the applicable price per unit. For propane delivery metered customers, we accrue unbilled
revenues for propane that has been delivered, but not yet billed, at the end of an accounting period, to the extent that billing and
delivery do not coincide with the end of the accounting period.
Marlin Gas Services provides mobile CNG and pipeline solutions primarily to utilities and pipelines. Marlin Gas Services
provides temporary hold services, pipeline integrity services, emergency services for damaged pipelines and specialized gas
services for customers who have unique requirements. Marlin Gas Services' performance obligations are comprised of the
compression of natural gas, mobilization of CNG equipment, utilization of equipment and on-site CNG support. Our
performance obligations for the compression of natural gas, utilization of mobile CNG equipment and for the on-site CNG staff
support are satisfied over time when the natural gas is compressed, equipment is utilized or as our staff provide support services
to our customers. Our performance obligation for the mobilization of CNG equipment is satisfied at a point-in-time when the
equipment is delivered to the customer project location. We recognize revenue for CNG services at the end of each calendar
month for services provided during the month based on agreed upon rates for equipment utilized, costs incurred for natural gas
compression, miles driven, mobilization and demobilization fees.
Contract balances
The timing of revenue recognition, customer billings and cash collections results in trade receivables, unbilled receivables
(contract assets), and customer advances (contract liabilities) in our consolidated balance sheets. The balances of our trade
receivables, contract assets, and contract liabilities as of December 31, 2020 and 2019 were as follows:
(in thousands)
Balance at 12/31/2019
Balance at 12/31/2020
Increase (decrease)
Trade
Receivables
Contract Assets
(Noncurrent)
Contract Liabilities
(Current)
$
$
47,430 $
55,600
8,170 $
3,465 $
4,816
1,351 $
589
644
55
Our trade receivables are included in accounts receivable in the consolidated balance sheets. Our non-current contract assets are
included in receivables and other deferred charges in the consolidated balance sheet and relate to operations and maintenance
Chesapeake Utilities Corporation 2020 Form 10-K Page 70
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Notes to the Consolidated Financial Statements
costs incurred by Eight Flags that have not yet been recovered through rates for the sale of electricity to our electric distribution
operation pursuant to a long-term service agreement.
At times, we receive advances or deposits from our customers before we satisfy our performance obligation, resulting in
contract liabilities. Contract liabilities are included in other accrued liabilities in the consolidated balance sheets and relate to
non-refundable prepaid fixed fees for our Mid-Atlantic propane delivery operation's retail offerings. Our performance
obligation is satisfied over the term of the respective retail offering plan on a ratable basis. For the year ended December 31,
2020 and 2019, we recognized revenue of $1.3 million and $1.0 million, respectively.
Remaining performance obligations
Our businesses have long-term fixed fee contracts with customers in which revenues are recognized when performance
obligations are satisfied over the contract term. Revenue for these businesses for the remaining performance obligations at
December 31, 2020 are expected to be recognized as follows:
(in thousands)
2021
2022
2023
2024
2025
2026 and
thereafter
Eastern Shore and Peninsula Pipeline
$ 34,978 $ 27,155 $ 21,748 $ 19,587 $ 18,736 $
174,774
Natural gas distribution operations
FPU electric distribution
Total revenue contracts with remaining
performance obligations
Practical expedients
4,351
566
5,394
566
4,937
4,705
4,172
566
566
275
32,996
825
$ 39,895 $ 33,115 $ 27,251 $ 24,858 $ 23,183 $
208,595
For our businesses with agreements that contain variable consideration, we use the invoice practical expedient method. We
determined that the amounts invoiced to customers correspond directly with the value to our customers and our performance to
date.
6. SEGMENT INFORMATION
We use the management approach to identify operating segments. We organize our business around differences in regulatory
environment and/or products or services, and the operating results of each segment are regularly reviewed by the chief
operating decision maker (our Chief Executive Officer) in order to make decisions about resources and to assess performance.
Our operations are entirely domestic and are comprised of two reportable segments:
•
•
Regulated Energy. Includes energy distribution and transmission services (natural gas distribution, natural gas
transmission and electric distribution operations). All operations in this segment are regulated, as to their rates and
services, by the PSC having jurisdiction in each operating territory or by the FERC in the case of Eastern Shore.
Unregulated Energy. Includes energy transmission, energy generation (the operations of our Eight Flags' CHP plant),
propane operations, and mobile compressed natural gas distribution and pipeline solutions operations. Also included in
this segment are other unregulated energy services, such as energy-related merchandise sales and heating, ventilation
and air conditioning, plumbing and electrical services. These operations are unregulated as to their rates and services.
Effective in the third quarter of 2019, the natural gas marketing and related services subsidiary (PESCO), previously
reported in the Unregulated Energy segment, was reflected in discontinued operations. See Note 4, Acquisitions and
Divestitures for additional details of the divestiture of PESCO.
The remainder of our operations are presented as “Other businesses and eliminations,” which consists of unregulated
subsidiaries that own real estate leased to Chesapeake Utilities, as well as certain corporate costs not allocated to other
operations.
Chesapeake Utilities Corporation 2020 Form 10-K Page 71
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Notes to the Consolidated Financial Statements
The following table presents information about our reportable segments.
(in thousands)
Operating Revenues, Unaffiliated Customers
Regulated Energy
Unregulated Energy
Total operating revenues, unaffiliated customers
Intersegment Revenues (1)
Regulated Energy
Unregulated Energy
Other businesses
Total intersegment revenues
Operating Income
Regulated Energy
Unregulated Energy
Other businesses and eliminations
Operating Income
Other income (expense), net
Interest charges
Income from Continuing Operations before Income Taxes
Income Taxes on Continuing Operations
Income from Continuing Operations
Income (loss) from Discontinued Operations, Net of Tax
Gain on sale of Discontinued Operations, Net of tax
Net Income
Depreciation and Amortization
Regulated Energy
Unregulated Energy
Other businesses and eliminations
Total depreciation and amortization
Capital Expenditures
Regulated Energy
Unregulated Energy
Other businesses
Total capital expenditures
For the Year Ended December 31,
2018
2019
2020
350,853 $
137,345
488,198 $
340,857 $
138,748
479,605 $
343,313
147,003
490,316
1,893 $
15,181
528
17,602 $
2,149 $
15,403
529
18,081 $
92,124 $
20,664
(65)
112,723
3,222
21,765
94,180
23,538
70,642
686
170
71,498 $
86,584 $
19,938
(237)
106,285
(1,847)
22,224
82,214
21,114
61,100
(1,349)
5,402
65,153 $
46,079 $
11,988
50
58,117 $
35,227 $
10,130
67
45,424 $
1,968
14,902
652
17,522
79,215
17,125
(1,496)
94,844
(607)
16,146
78,091
21,123
56,968
(388)
—
56,580
31,876
8,263
81
40,220
147,100
46,295
2,480
195,875 $
130,604 $
60,034
8,348
198,986 $
235,912
38,585
8,364
282,861
$
$
$
$
$
$
$
$
$
$
(1) All significant intersegment revenues are billed at market rates and have been eliminated from consolidated revenues.
Identifiable Assets
Regulated Energy segment
Unregulated Energy segment
Other businesses and eliminations
Total identifiable assets
As of December 31,
2019
2020
$ 1,547,619 $ 1,434,066
296,810
52,322
$ 1,932,487 $ 1,783,198
347,665
37,203
Chesapeake Utilities Corporation 2020 Form 10-K Page 72
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Notes to the Consolidated Financial Statements
7. SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest and income taxes during the years ended December 31, 2020, 2019 and 2018 were as follows:
(in thousands)
Cash paid for interest
Cash (received) paid for income taxes, net of refunds
For the Year Ended December 31,
2018
2019
2020
$
$
22,884 $
(8,135) $
23,856 $
3,221 $
16,741
477
Non-cash investing and financing activities during the years ended December 31, 2020, 2019, and 2018 were as follows:
(in thousands)
Capital property and equipment acquired on account, but not paid for as of
December 31
Common stock issued for the Retirement Savings Plan
Common stock issued under the SICP
Capital lease obligation
8. DERIVATIVE INSTRUMENTS
For the Year Ended December 31,
2018
2019
2020
$
$
$
$
23,625 $
13,470 $
39,402
1,605 $
1,971 $
— $
— $
1,691 $
— $
—
2,006
1,310
We use derivative and non-derivative contracts to manage risks related to obtaining adequate supplies and the price fluctuations
of natural gas, electricity and propane and to mitigate interest rate risk. Our natural gas, electric and propane distribution
operations have entered into agreements with suppliers to purchase natural gas, electricity and propane for resale to our
customers. Our natural gas gathering and transmission company has entered into contracts with producers to secure natural gas
to meet its obligations. Purchases under these contracts typically either do not meet the definition of derivatives or are
considered “normal purchases and normal sales” and are accounted for on an accrual basis. Our propane distribution operations
may also enter into fair value hedges of their inventory or cash flow hedges of their future purchase commitments in order to
mitigate the impact of wholesale price fluctuations. Occasionally, we may enter into interest rate swap agreements to mitigate
risk associated with changes in short-term borrowing rates. As of December 31, 2020 and 2019, our natural gas and electric
distribution operations did not have any outstanding derivative contracts.
PESCO's Derivative Instruments
As discussed in Note 4, Acquisitions and Divestitures, during the fourth quarter of 2019, we sold PESCO's assets and contracts
and, therefore, we no longer have natural gas futures and contracts recorded in our consolidated financial statements.
Volume of Derivative Activity
As of December 31, 2020, the volume of our open commodity derivative contracts were as follows:
Business unit
Sharp
Sharp
Commodity
Propane (gallons)
Propane (gallons)
Quantity hedged
(in millions)
Designation
Longest expiration
date of hedge
17.6
0.4
Cash flows hedges
May 2023
Fair value hedges
February 2021
Sharp entered into futures and swap agreements to mitigate the risk of fluctuations in wholesale propane index prices associated
with the propane volumes expected to be purchased during the heating season. Under the futures and swap agreements, Sharp
will receive the difference between (i) the index prices (Mont Belvieu prices in December 2020 through May 2023) and (ii) the
per gallon propane swap prices, to the extent the index prices exceed the contracted prices. If the index prices are lower than the
swap prices, Sharp will pay the difference. We designated and accounted for the propane swaps as cash flows hedges. The
change in the fair value of the swap agreements is recorded as unrealized gain (loss) in other comprehensive income (loss) and
later recognized in the statement of income in the same period and in the same line item as the hedged transaction. We expect to
reclassify approximately $2.7 million of unrealized gain from accumulated other comprehensive income to earnings during the
next 12-month period ending December 31, 2021.
Chesapeake Utilities Corporation 2020 Form 10-K Page 73
Table of Contents
Notes to the Consolidated Financial Statements
Interest Rate Swap Activities
We manage interest rate risk by entering into derivative contracts to hedge the variability in cash flows attributable to changes
in the short-term borrowing rates. In the second quarter of 2020, we entered into interest rate swaps with notional amounts
totaling $100.0 million associated with three of our short-term lines of credit which expired in October 2020. The interest rate
swaps were entered to hedge the variability in cash flows attributable to changes in the short-term borrowing rates during this
period. Pricing on the interest rate swaps ranged between 0.2615 and 0.3875 percent for the period. In the fourth quarter of
2020, we entered into additional interest rate swaps with notional amount of $60.0 million through December 2021 with pricing
of 0.20 percent and 0.205 percent for the period associated with our outstanding borrowing under the Revolver. In February
2021, we entered into an additional interest rate swap with a notional amount of $40.0 million through December 2021 with
pricing of 0.17 percent. Our short-term borrowing is based on the 30-day LIBOR rate. The interest swap was cash settled
monthly as the counter-party pays us the 30-day LIBOR rate less the fixed rate.
We designated and accounted for interest rate swaps as cash flows hedges. Accordingly, unrealized gains and losses associated
with the interest rate swaps are recorded as a component of accumulated other comprehensive income (loss). When the interest
rate swaps settle, the realized gain or loss will be recorded in the income statement and recognized as a component of interest
charges. We expect to reclassify less than $0.1 million from accumulated other comprehensive income (loss) to earnings during
the next 12-month period ended December 31, 2021.
Broker Margin
Futures exchanges have contract specific margin requirements that require the posting of cash or cash equivalents relating to
traded contracts. Margin requirements consist of initial margin that is posted upon the initiation of a position, maintenance
margin that is usually expressed as a percent of initial margin, and variation margin that fluctuates based on the daily mark-to-
market relative to maintenance margin requirements. We currently maintain a broker margin account for Sharp, with the
balance related to the account is as follows:
(in thousands)
Sharp
Sharp
Financial Statements Presentation
Balance Sheet Location
Other Current Assets
Other Current Liabilities
December 31,
2020
December 31,
2019
$
$
—
1,505
$
$
2,317
—
The following tables present information about the fair value and related gains and losses of our derivative contracts. We did
not have any derivative contracts with a credit-risk-related contingency. Fair values of the derivative contracts recorded in the
consolidated balance sheets as of December 31, 2020 and 2019 are as follows:
(in thousands)
Derivatives designated as fair value hedges
Derivative Assets
Fair Value as of
Balance Sheet Location
December 31, 2020
December 31, 2019
Propane put options
Derivative assets, at fair value
Derivatives designated as cash flow hedges
Propane swap agreements
Total Derivative Assets
Derivative assets, at fair value
$
$
14 $
3,255
3,269 $
—
—
—
(in thousands)
Derivatives designated as fair value hedges
Derivative Liabilities
Fair Value as of
Balance Sheet Location
December 31, 2020
December 31, 2019
Propane put options
Derivative liabilities, at fair value
Derivatives designated as cash flow hedges
Propane swap agreements
Interest rate swap agreements
Total Derivative Liabilities
Derivative liabilities, at fair value
Derivative liabilities, at fair value
$
$
23 $
64
40
127 $
—
1,844
—
1,844
Chesapeake Utilities Corporation 2020 Form 10-K Page 74
Table of Contents
Notes to the Consolidated Financial Statements
The effects of gains and losses from derivative instruments are as follows:
(in thousands)
Derivatives not designated as hedging
instruments
Amount of Gain (Loss) on Derivatives:
Location of Gain
(Loss) on Derivatives
For the Year Ended December 31,
2020
2019
2018
Propane swap agreements
Cost of sales
$
— $
— $
(13)
Derivatives designated as fair value hedges
Put/Call option
Put/Call option
Derivatives designated as cash flow hedges
Propane swap agreements
Propane swap agreements
Cost of sales
Propane inventory
Cost of sales
Other comprehensive income (loss)
Interest rate swap agreements
Interest expense
Interest rate swap agreements
Other comprehensive income (loss)
Natural gas swap contracts
Other comprehensive income (loss)
Natural gas futures contracts
Other comprehensive income (loss)
Total
(12)
34
2,428
5,035
60
(40)
—
—
—
—
1,520
(253)
—
—
(63)
(294)
—
—
(647)
(2,773)
—
—
200
532
$
7,505 $
910 $
(2,701)
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The three
levels of the fair value hierarchy are the following:
Fair Value
Hierarchy
Level 1
Description of Fair Value Level
Unadjusted quoted prices in active
markets that are accessible at the
measurement date for identical,
unrestricted assets or liabilities
Level 2
Level 3
Quoted prices in markets that are not
active, or inputs which are observable,
either directly or indirectly, for
substantially the full term of the asset or
liability
Prices or valuation techniques requiring
inputs that are both significant to the fair
value measurement and unobservable
(i.e. supported by little or no market
activity)
Fair Value Technique Utilized
Investments - equity securities - The fair values of these
trading securities are recorded at fair value based on
unadjusted quoted prices in active markets for identical
securities.
Investments - mutual funds and other - The fair values of
these investments, comprised of money market and mutual
funds, are recorded at fair value based on quoted net asset
values of the shares.
Derivative assets and liabilities - The fair value of the
propane put/call options, propane and interest rate swap
agreements are measured using market transactions for similar
assets and liabilities in either the listed or over-the-counter
markets.
Investments - guaranteed income fund - The fair values of
these investments are recorded at the contract value, which
approximates their fair value.
Chesapeake Utilities Corporation 2020 Form 10-K Page 75
Table of Contents
Notes to the Consolidated Financial Statements
Financial Assets and Liabilities Measured at Fair Value
The following tables summarize our financial assets and liabilities that are measured at fair value on a recurring basis and the
fair value measurements, by level, within the fair value hierarchy as of December 31, 2020 and 2019, respectively:
As of December 31, 2020
(in thousands)
Assets:
Fair Value Measurements Using:
Quoted Prices in
Active Markets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value
Investments—equity securities
Investments—guaranteed income fund
Investments—mutual funds and other
Total investments
Derivative assets
$
21 $
2,156
8,599
10,776
3,269
21 $
—
8,599
8,620
—
— $
—
—
—
3,269
14,045 $
8,620 $
3,269 $
—
2,156
—
2,156
—
2,156
Total assets
Liabilities:
Derivative liabilities
As of December 31, 2019
(in thousands)
Assets:
Investments—equity securities
Investments—guaranteed income fund
Investments—mutual funds and other
Total investments
Derivative assets
Total assets
Liabilities:
Derivative liabilities
$
$
$
$
$
127 $
— $
127 $
—
Fair Value Measurements Using:
Quoted Prices in
Active Markets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value
27 $
803
8,399
9,229
—
9,229 $
27 $
—
8,399
8,426
—
8,426 $
— $
—
—
—
—
— $
1,844 $
— $
1,844 $
—
803
—
803
—
803
—
The following table sets forth the summary of the changes in the fair value of Level 3 investments for the years ended
December 31, 2020 and 2019:
(in thousands)
Beginning Balance
Purchases and adjustments
Transfers/disbursements
Investment income
Ending Balance
For the Year Ended December 31,
2020
2019
$
$
803
261
1,065
27
2,156
$
$
686
131
(29)
15
803
Investment income from the Level 3 investments is reflected in other expense, net in the consolidated statements of income.
Chesapeake Utilities Corporation 2020 Form 10-K Page 76
Table of Contents
Notes to the Consolidated Financial Statements
At December 31, 2020 and 2019, there were no non-financial assets or liabilities required to be reported at fair value. We
review our non-financial assets for impairment at least on an annual basis, as required.
Other Financial Assets and Liabilities
Financial assets with carrying values approximating fair value include cash and cash equivalents and accounts receivable.
Financial liabilities with carrying values approximating fair value include accounts payable, other accrued liabilities and short-
term debt. The fair value of cash and cash equivalents is measured using the comparable value in the active market and
approximates its carrying value (Level 1 measurement). The fair value of short-term debt approximates the carrying value due
to its near-term maturities and because interest rates approximate current market rates (Level 3 measurement).
At December 31, 2020, long-term debt, which includes the current maturities but excludes debt issuance cost, had a carrying
value of $523.0 million, compared to the estimated fair value of $548.5 million. At December 31, 2019, long-term debt, which
includes the current maturities but excludes finance lease obligations and debt issuance costs, had a carrying value of $486.6
million, compared to a fair value of $505.0 million. The fair value was calculated using a discounted cash flow methodology
that incorporates a market interest rate based on published corporate borrowing rates for debt instruments with similar terms
and average maturities, and with adjustments for duration, optionality, and risk profile. The valuation technique used to estimate
the fair value of long-term debt would be considered a Level 3 measurement.
See Note 17, Employee Benefit Plans, for fair value measurement information related to our pension plan assets.
10. INVESTMENTS
The investment balances at December 31, 2020 and 2019, consisted of the following:
(in thousands)
Rabbi trust (associated with the Non-Qualified Deferred Compensation Plan)
Investments in equity securities
Total
As of December 31,
2020
2019
$
$
10,755 $
21
10,776 $
9,202
27
9,229
We classify these investments as trading securities and report them at their fair value. For the years ended December 31, 2020,
2019 and 2018, we recorded net unrealized gains of $1.5 million, $1.6 million, and net unrealized losses of $0.4 million,
respectively in other income (expense) in the consolidated statements of income related to these investments. For the
investments in the Rabbi Trust, we also have recorded an associated liability, which is included in other pension and benefit
costs in the consolidated balance sheets and is adjusted each period for the gains and losses incurred by the investments in the
Rabbi Trust.
11. GOODWILL AND OTHER INTANGIBLE ASSETS
The carrying value of goodwill from continuing operations as of December 31, 2020 and 2019 was as follows:
(in thousands)
Balance at December 31, 2019
Additions (1)
Balance at December 31, 2020
Regulated Energy
Unregulated Energy
Total Goodwill
$
$
3,353
4,264
7,617
$
$
29,315
$
1,799
31,114
$
32,668
6,063
38,731
(1)Includes goodwill from the purchase of operating assets of Elkton Gas in the third quarter of 2020 and Western Natural Gas in October 2020.
The annual impairment testing for 2020 and 2019 indicated no impairment of goodwill.
Chesapeake Utilities Corporation 2020 Form 10-K Page 77
Table of Contents
Notes to the Consolidated Financial Statements
The carrying value and accumulated amortization of intangible assets subject to amortization as of December 31, 2020 and
2019 are as follows:
As of December 31,
2020
2019
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
(in thousands)
Customer relationships (1)
Non-Compete agreements (1)
Patents
Other
Total
(1) The customer relationship and non-compete agreements amounts includes $1.3 million and $0.1 million, respectively, recorded as a result of the purchase of
the operating assets of Western Natural Gas in October 2020. The amounts also include customer relationship and non-compete agreements amounts of $4.6
million and $0.5 million, respectively, recorded as a result of the purchase of the operating assets of Boulden in December 2019.
9,391 $
2,252
452
270
12,365 $
10,680 $
2,375
452
270
13,777 $
4,269 $
768
236
212
5,485 $
3,463
451
118
204
4,236
$
$
The customer relationships, non-compete agreements, patents and other intangible assets acquired in the purchases of the
operating assets of several companies are being amortized over a weighted average of 11 years. Amortization expense of
intangible assets for the year ended December 31, 2020, 2019 and 2018 was $1.2 million, $0.8 million and $0.4 million,
respectively. Amortization expense of intangible assets is expected to be $1.3 million for the year 2021, $1.0 million for the
year 2022 and $0.9 million for the years 2023 through 2025.
12. INCOME TAXES
We file a consolidated federal income tax return. Income tax expense allocated to our subsidiaries is based upon their respective
taxable incomes and tax credits. State income tax returns are filed on a separate company basis in most states where we have
operations and/or are required to file. Our state returns for tax years after 2015 are subject to examination. At December 31,
2020, the 2015 through 2019 federal income tax returns are under examination, and no report has been issued at this time.
We expect to have federal NOL totaling $6.3 million and $12.2 million in 2019 and 2018 respectively upon the settlement of
the Internal Revenue Service examination described above. Under the CARES Act, discussed below, we elected to carry the
losses back to 2015 and 2013. For state income tax purposes, we had NOL in various states of $40.0 million and $54.7 million
as of December 31, 2020 and 2019, respectively, almost all of which will expire in 2039. Excluding NOL from discontinued
operations, we have recorded deferred tax assets of $1.6 million and $5.5 million related to state NOL carry-forwards at
December 31, 2020 and 2019, respectively. We have not recorded a valuation allowance to reduce the future benefit of the tax
NOL because we believe they will be fully utilized.
Tax Law Changes
In March 2020, the CARES Act was signed into law and included several significant changes to the Internal Revenue Code.
The CARES Act includes certain tax relief provisions including the ability to carryback five years net operating losses arising in
a tax year beginning in 2018, 2019, or 2020. This provision allows a taxpayer to recover taxes previously paid at a 35 percent
federal income tax rate during tax years prior to 2018. In addition, the CARES Act removed the taxable income limitation to
allow a tax NOL to fully offset taxable income for tax years beginning before January 1, 2021. Our income tax expense for the
year ended December 31, 2020 included a tax benefit of $1.8 million attributable to the tax NOL carryback provided under the
CARES Act for losses generated in 2018 and 2019 and then applied back to our 2013 and 2015 tax years in which we paid
federal income taxes at a 35 percent tax rate.
On December 22, 2017, President Trump signed into law the TCJA. Substantially all of the provisions of the TCJA were
effective for taxable years beginning on or after January 1, 2018. The provisions that significantly impacted us include the
reduction of the corporate federal income tax rate from 35 percent to 21 percent. Our federal income tax expense for periods
beginning on January 1, 2018 are based on the new federal corporate income tax rate. The TCJA included changes to the
Internal Revenue Code, which materially impacted our 2017 financial statements. ASC 740, Income Taxes, requires recognition
of the effects of changes in tax laws in the period in which the law is enacted. ASC 740 requires deferred tax assets and
liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled.
During 2018, we completed the assessment of the impact of accounting for certain effects of the TCJA. At the date of
enactment in 2017, we re-measured deferred income taxes based upon the new corporate tax rate. See Note 19, Rates and Other
Regulatory Activities, for further discussion of the TCJA's impact on our regulated businesses.
Chesapeake Utilities Corporation 2020 Form 10-K Page 78
Table of Contents
Notes to the Consolidated Financial Statements
The following tables provide: (a) the components of income tax expense in 2020, 2019, and 2018; (b) the reconciliation
between the statutory federal income tax rate and the effective income tax rate for 2020, 2019, and 2018 from continuing
operations; and (c) the components of accumulated deferred income tax assets and liabilities at December 31, 2020 and 2019.
(in thousands)
Current Income Tax Expense
Federal
State
Other
Total current income tax expense (benefit)
Deferred Income Tax Expense (1)
Property, plant and equipment
Deferred gas costs
Pensions and other employee benefits
FPU merger-related premium cost and deferred gain
Net operating loss carryforwards
Other
Total deferred income tax expense
Income Tax Expense from Continuing Operations
Income Tax Expense (benefit) from Discontinued Operations
Total Income Tax
For the Year Ended December 31,
2018
2019
2020
$
$
(2,777) $
2,162
(47)
(662)
23,224
(714)
(75)
156
5,107
(3,498)
24,200
23,538
153
23,691 $
(2,252) $
(491)
(47)
(2,790)
25,907
79
(454)
(278)
(3,772)
2,422
23,904
21,114
1,416
22,530 $
(361)
617
(47)
209
19,178
(1,435)
454
(528)
(250)
3,495
20,914
21,123
(129)
20,994
(1) Includes $4.9 million, $4.7 million, and $3.5 million of deferred state income taxes for the years 2020, 2019 and 2018, respectively.
(in thousands)
Reconciliation of Effective Income Tax Rates for Continuing
Operations
Federal income tax expense (1)
State income taxes, net of federal benefit
ESOP dividend deduction
CARES Act Tax Benefit
Other
Total Income Tax Expense for Continuing Operations
Effective Income Tax Rate for Continuing Operations
(1) Federal income taxes were calculated at 21 percent for 2020, 2019, and 2018.
For the Year Ended December 31,
2018
2019
2020
$
19,778
$
17,264
$
16,400
5,051
(218)
(1,841)
768
23,538
24.99 %
$
5,093
(173)
—
$
(1,070)
21,114
25.65 %
$
4,071
(158)
—
810
21,123
27.13 %
Chesapeake Utilities Corporation 2020 Form 10-K Page 79
Table of Contents
Notes to the Consolidated Financial Statements
(in thousands)
Deferred Income Taxes
Deferred income tax liabilities:
Property, plant and equipment
Acquisition adjustment
Loss on reacquired debt
Deferred gas costs
Natural gas conversion costs
Storm reserve liability
Other
Total deferred income tax liabilities
Deferred income tax assets:
Pension and other employee benefits
Environmental costs
Net operating loss carryforwards
Self-insurance
Storm reserve liability
Accrued Expenses
Other
Total deferred income tax assets
$
Deferred Income Taxes Per Consolidated Balance Sheets
$
As of December 31,
2019
2020
199,287 $
6,618
201
509
5,379
7,073
5,587
224,654
4,636
1,064
1,587
—
409
6,153
5,417
19,266
205,388 $
173,466
6,969
220
1,223
4,956
10,316
1,456
198,606
3,818
1,486
5,523
146
96
2,064
4,817
17,950
180,656
Chesapeake Utilities Corporation 2020 Form 10-K Page 80
Table of Contents
Notes to the Consolidated Financial Statements
13. LONG-TERM DEBT
Our outstanding long-term debt is shown below:
(in thousands)
FPU secured first mortgage bonds:
9.08% bond, due June 1, 2022
Uncollateralized Senior Notes:
5.50% note, due October 12, 2020
5.93% note, due October 31, 2023
5.68% note, due June 30, 2026
6.43% note, due May 2, 2028
3.73% note, due December 16, 2028
3.88% note, due May 15, 2029
3.25% note, due April 30, 2032
3.48% note, due May 31, 2038
3.58% note, due November 30, 2038
3.98% note, due August 20, 2039
2.98% note, due December 20, 2034
3.00% note, due July 15, 2035
2.96% note, due August 15, 2035
Term Note due February 28, 2020
Less: debt issuance costs
Total long-term debt
Less: current maturities
Total long-term debt, net of current maturities
Annual maturities
As of December 31,
2020
2019
$
— $
7,990
—
9,000
17,400
5,600
16,000
45,000
70,000
50,000
50,000
100,000
70,000
50,000
40,000
—
(901)
522,099
(13,600)
508,499 $
2,000
12,000
20,300
6,300
18,000
50,000
70,000
50,000
50,000
100,000
70,000
—
—
30,000
(822)
485,768
(45,600)
440,168
$
Annual maturities and principal repayments of long-term debt are as follows:
Year
(in thousands)
Payments
Shelf Agreements
2021
2022
2023
2024
2025
Thereafter
Total
$
13,600 $
17,100 $
20,600 $
17,600 $
24,600 $
429,500 $ 523,000
We have entered into Shelf Agreements with Prudential, MetLife and NYL, whom are under no obligation to purchase any
unsecured debt. The following table summarizes our shelf agreements at December 31, 2020:
(in thousands)
Shelf Agreement
Prudential Shelf Agreement (1)
MetLife Shelf Agreement (2)
NYL Shelf Agreement (3)
Total
Total
Borrowing
Capacity
Less Amount
of Debt
Issued
Less Unfunded
Commitments
Remaining
Borrowing
Capacity
$
370,000 $
(220,000) $
— $
150,000
150,000
—
(140,000)
—
—
150,000
150,000
10,000
$
670,000 $
(360,000) $
— $
310,000
Chesapeake Utilities Corporation 2020 Form 10-K Page 81
Table of Contents
Notes to the Consolidated Financial Statements
(1) In April 2020, we amended the Prudential Shelf Agreement to increase the available borrowing capacity by $150.0 million. The Shelf Agreement expires in
April 2023. In July 2020, we issued $50 million of Prudential Shelf Notes at the rate of 3.00 percent per annum.
(2) In May 2020, we amended an agreement with MetLife to provide a new $150 million MetLife Shelf Agreement for a three-year term ending May 2023.
(3) In August 2020 we issued $40 million of NYL Shelf Notes at the rate of 2.96 percent per annum. The NYL Shelf Agreement expires in November 2021.
The Senior Notes, Shelf Agreements or Shelf Notes set forth certain business covenants to which we are subject when any note
is outstanding, including covenants that limit or restrict our ability, and the ability of our subsidiaries, to incur indebtedness, or
place or permit liens and encumbrances on any of our property or the property of our subsidiaries.
Term Notes
In January 2019, we issued a $30.0 million unsecured term note through Branch Banking and Trust Company, with a maturity
date of February 28, 2020. This note was paid in full in February 2020 utilizing our short-term borrowing facilities.
Secured First Mortgage Bonds
In December 2020, we redeemed FPU’s 9.08 percent secured first mortgage bonds outstanding of $8.0 million, prior to their
maturity, which included the outstanding principal balances, interest accrued, premium and fees. We used short-term borrowing
to finance the redemption of these bonds. The difference between the carrying value of those bonds and the amount paid at
redemption totaling $1.0 million was charged to expense. As a result of the redemption of these bonds, at December 31, 2020,
the restriction that limited the payment of dividends by FPU is no longer applicable.
Uncollateralized Senior Notes
All of our Uncollateralized Senior Notes require periodic principal and interest payments as specified in each note. They also
contain various restrictions. The most stringent restrictions state that we must maintain equity of at least 40.0 percent of total
capitalization (including short-term borrowings), and the fixed charge coverage ratio must be at least 1.2 times. The most recent
Senior Notes issued since September 2013 also contain a restriction that we must maintain an aggregate net book value in our
regulated business assets of at least 50.0 percent of our consolidated total assets. Failure to comply with those covenants could
result in accelerated due dates and/or termination of the Senior Note agreements.
Certain Uncollateralized Senior Notes contain a “restricted payments” covenant as defined in the respective note agreements.
The most restrictive covenants of this type are included within the 5.93 percent Senior Note, due October 31, 2023. The
covenant provides that we cannot pay or declare any dividends or make any other restricted payments in excess of the sum of
$10.0 million, plus our consolidated net income accrued on and after January 1, 2003. As of December 31, 2020, the cumulative
consolidated net income base was $581.0 million, offset by restricted payments of $256.4 million, leaving $324.6 million of
cumulative net income free of restrictions. As of December 31, 2020, we were in compliance with all of our debt covenants.
14. SHORT-TERM BORROWINGS
At December 31, 2020 and 2019, our short-term borrowings totaled $175.6 million and $247.4 million, respectively, at the
weighted average interest rates of 1.28 percent and 2.62 percent, respectively. Included in the December 31, 2020 balance, is
$60.0 million in short-term debt for which we have entered into interest rate swap agreements.
In September 2020, we entered into a new $375.0 million syndicated Revolver with six participating lenders. As a result of
entering into the Revolver, in September 2020, we terminated and paid all outstanding balances under the previously existing
bilateral lines of credit and the previous revolving credit facility.
The availability of funds under the Revolver is subject to conditions specified in the credit agreement, all of which we currently
satisfy. These conditions include our compliance with financial covenants and the continued accuracy of representations and
warranties contained in these agreements. We are required by the financial covenants in the Revolver to maintain, at the end of
each fiscal year, a funded indebtedness ratio of no greater than 65 percent. As of December 31, 2020, we are in compliance with
this covenant.
The Revolver expires on September 29, 2021 and is available to provide funds for our short-term cash needs to meet seasonal
working capital requirements and to temporarily fund portions of our capital expenditures. Borrowings under the Revolver are
subject to a pricing grid, including the commitment fee and the interest rate charged. Our pricing is adjusted each quarter based
upon total indebtedness to total capitalization ratio. As of December 31, 2020, our pricing under the Revolver included a
commitment fee of 0.175 percent and an interest rate of 1.125 percent over LIBOR. Our available credit under the new
Revolver at December 31, 2020 was $196.9 million. As of December 31, 2020, we had issued $4.8 million in letters of credit to
various counterparties under the syndicated Revolver. Although the letters of credit are not included in the outstanding short-
Chesapeake Utilities Corporation 2020 Form 10-K Page 82
Table of Contents
Notes to the Consolidated Financial Statements
term borrowings and we do not anticipate they will be drawn upon by the counterparties, the letters of credit reduce the
available borrowings under our syndicated Revolver.
In the second quarter of 2020, we entered into interest rate swaps with notional amounts totaling $100.0 million associated with
three of our short-term lines of credit which expired in October 2020. The interest rate swaps were entered to hedge the
variability in cash flows attributable to changes in the short-term borrowing rates during this period. The fixed swap rates
ranged between 0.2615 and 0.3875 percent for the period. In the fourth quarter of 2020, we entered into additional interest rate
swaps with notional amounts totaling $60.0 million through December 2021 with pricing of 0.20 percent and 0.205 percent for
the period associated with our outstanding borrowing under the Revolver. In February 2021, we entered into an additional
interest rate swap with a notional amount of $40.0 million through December 2021 with pricing of 0.17 percent. Our short-term
borrowing is based on the 30-day LIBOR rate. The interest swap was cash settled monthly as the counter-party pays us the 30-
day LIBOR rate less the fixed rate.
We are authorized by our Board of Directors to borrow up to $375 million of short-term debt, as required.
15. LEASES
We have entered into lease arrangements for office space, land, equipment, pipeline facilities and warehouses. These lease
arrangements enable us to better conduct business operations in the regions in which we operate. Office space is leased to
provide adequate workspace for all our employees in several locations throughout the Mid-Atlantic, Mid-West and in Florida.
We lease land at various locations throughout our service territories to enable us to inject natural gas into underground storage
and distribution systems, for bulk storage capacity, for our propane operations and for storage of equipment used in repairs and
maintenance of our infrastructure. We lease natural gas compressors to ensure timely and reliable transportation of natural gas
to our customers. Additionally, we lease a pipeline to deliver natural gas to an industrial customer in Polk County, Florida. We
also lease warehouses to store equipment and materials used in repairs and maintenance for our businesses.
Some of our leases are subject to annual changes in the Consumer Price Index (“CPI”). While lease liabilities are not re-
measured as a result of changes to the CPI, changes to the CPI are treated as variable lease payments and recognized in the
period in which the obligation for those payments was incurred. A 100-basis-point increase in CPI would not have resulted in
material additional annual lease costs. Most of our leases include options to renew, with renewal terms that can extend the lease
term from one to 25 years or more. The exercise of lease renewal options is at our sole discretion. The amounts disclosed in our
consolidated balance sheet at December 31, 2020, pertaining to the right-of-use assets and lease liabilities, are measured based
on our current expectations of exercising our available renewal options. Our existing leases are not subject to any restrictions or
covenants which preclude our ability to pay dividends, obtain financing or enter into additional leases. As of December 31,
2020, we have not entered into any leases, which have not yet commenced, that would entitle us to significant rights or create
additional obligations. The following table presents information related to our total lease cost included in our consolidated
statements of income:
( in thousands)
Operating lease cost (1)
Finance lease cost:
Amortization of lease assets
Interest on lease liabilities
Classification
Operations expense
Depreciation and amortization
Interest expense
Net lease cost
(1) Includes short-term leases and variable lease costs, which are immaterial.
Year Ended
December 31,
2020
2019
$
$
2,029 $
2,577
—
—
2,029 $
650
5
3,232
The following table presents the balance and classifications of our right-of-use assets and lease liabilities included in our
consolidated balance sheet at December 31, 2020 and 2019:
Chesapeake Utilities Corporation 2020 Form 10-K Page 83
Table of Contents
Notes to the Consolidated Financial Statements
(in thousands)
Assets
Balance sheet classification
December 31, 2020
December 31, 2019
Operating lease assets
Operating lease right-of-use assets
Liabilities
Current
Operating lease liabilities
Other accrued liabilities
Noncurrent
Operating lease liabilities
Operating lease - liabilities
Total lease liabilities
$
$
$
11,194 $
11,563
1,747 $
1,705
9,872
11,619 $
9,896
11,601
The following table presents our weighted-average remaining lease term and weighted-average discount rate for our operating
leases at December 31, 2020 and 2019:
December 31, 2020
December 31, 2019
Weighted-average remaining lease term (in years)
Operating leases
Weighted-average discount rate
Operating leases
8.70
3.8 %
8.88
3.8 %
The following table presents additional information related to cash paid for amounts included in the measurement of lease
liabilities included in our consolidated statements of cash flows at December 31, 2020 and 2019:
(in thousands)
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Year Ended December 31,
2020
2019
$
$
$
1,956 $
— $
— $
2,230
5
650
The following table presents the future undiscounted maturities of our operating leases at December 31, 2020 and for each of
the next five years and thereafter:
(in thousands)
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: Interest
Present value of lease liabilities
Operating Leases (1)
$
2,027
1,984
1,923
1,657
1,395
4,419
13,405
1,786
11,619
$
(1) Operating lease payments include $2.1 million related to options to extend lease terms that are reasonably certain of being exercised.
Chesapeake Utilities Corporation 2020 Form 10-K Page 84
Table of Contents
Notes to the Consolidated Financial Statements
16. STOCKHOLDERS' EQUITY
Common Stock Issuances
In June 2020, we filed a shelf registration statement with the SEC to facilitate the issuance of our common stock. In August
2020, we filed a prospectus supplement under the shelf registration statement for an ATM equity program under which we may
issue and sell shares of our common stock up to an aggregate offering price of $75.0 million. In the third and fourth quarters of
2020, we issued 0.7 million shares of common stock at an average price per share of $82.93 and received net proceeds of
approximately $61.0 million, after deducting commissions and other fees of $1.5 million.
We maintain an effective shelf registration statement with the SEC for the issuance of shares under our DRIP. Depending on
our capital needs and subject to market conditions, in addition to other possible debt and equity offerings, we may issue
additional shares under the direct stock purchase component of the DRIP. In the third and fourth quarters of 2020, we issued 0.3
million shares at an average price per share of $86.12 and received net proceeds of $22.0 million under the DRIP.
We used the net proceeds from the ATM equity program and the DRIP, after deducting the commissions or other fees and
related offering expenses payable by us, for general corporate purposes, including, but not limited to, financing of capital
expenditures, repayment of short-term debt, financing acquisitions, investing in subsidiaries, and general working capital
purposes.
Accumulated Other Comprehensive Loss
Defined benefit pension and postretirement plan items, unrealized gains (losses) of our propane swap agreements and natural
gas swaps and futures contracts, designated as commodity contracts cash flow hedges, and the unrealized gains (losses) of our
interest rate swap agreements designated as cash flow hedges are the components of our accumulated other comprehensive loss.
The following table presents the changes in the balance of accumulated other comprehensive loss for the years ended
December 31, 2020 and 2019. All amounts in the following tables are presented net of tax.
(in thousands)
As of December 31, 2018
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other
comprehensive income (loss)
Net current-period other comprehensive income (loss)
Prior-year reclassification
As of December 31, 2019
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other
comprehensive income (loss)
Net current-period other comprehensive income (loss)
As of December 31, 2020
Defined Benefit
Pension and
Postretirement
Plan Items
Commodity
Contract Cash
Flow Hedges
Interest Rate
Swap Cash
Flow Hedges
Total
$
(5,928) $
(872)
(785) $
2,161
— $
—
(6,713)
1,289
1,867
995
—
(4,933)
(578)
(2,595)
(434)
(115)
(1,334)
5,400
—
—
—
—
16
365
(213)
(5,146) $
(1,757)
3,643
2,309 $
$
(44)
(28)
(28) $
(728)
561
(115)
(6,267)
4,838
(1,436)
3,402
(2,865)
The following table presents amounts reclassified out of accumulated other comprehensive income (loss) for the years ended
December 31, 2020, 2019 and 2018. Deferred gains and losses of our commodity contracts cash flow hedges are recognized in
earnings upon settlement.
Chesapeake Utilities Corporation 2020 Form 10-K Page 85
Table of Contents
Notes to the Consolidated Financial Statements
(in thousands)
Amortization of defined benefit pension and postretirement plan
items:
Prior service cost (1)
Net gain (1)
Total before income taxes
Income tax benefit (4)
Net of tax
Gains and losses on commodity contracts cash flow hedges
Propane swap agreements (2)
Natural gas swaps (2)(3)
Natural gas futures (2)(3)
Total before income taxes
Income tax (expense) benefit (4)
Net of tax
Gains on interest rate swap cash flow hedges:
Interest rate swap agreements
Total before income taxes
Income tax expense
Net of tax
Total reclassifications for the period
For the Year Ended December 31,
2020
2019
2018
$
$
$
$
$
$
$
77
$
77
$
(592)
(515)
150
(365)
$
(2,600)
(2,523)
656
(1,867)
$
2,428
$
1,520
$
—
—
2,428
(671)
1,757
60
60
(16)
44
1,436
$
$
$
$
7
2,096
3,623
(1,028)
2,595
—
—
—
—
728
$
$
$
$
77
(579)
(502)
63
(439)
(647)
197
(2,010)
(2,460)
701
(1,759)
—
—
—
—
(2,198)
(1) These amounts are included in the computation of net periodic benefits. See Note 17, Employee Benefit Plans, for additional details.
(2) These amounts are included in the effects of gains and losses from derivative instruments. See Note 8, Derivative Instruments, for additional details.
(3) PESCO's results are reflected as discontinued operations in our consolidated statements of income.
(4) The income tax benefit is included in income tax expense in the accompanying consolidated statements of income.
17. EMPLOYEE BENEFIT PLANS
We measure the assets and obligations of the defined benefit pension plans and other postretirement benefits plans to determine
the plans’ funded status as of the end of the year. We record as a component of other comprehensive income/loss or a
regulatory asset the changes in funded status that occurred during the year that are not recognized as part of net periodic benefit
costs.
Defined Benefit Pension Plans
We sponsor three defined benefit pension plans: the Chesapeake Utilities Pension Plan ("Chesapeake Pension Plan"), the FPU
Pension Plan and the Chesapeake SERP.
The Chesapeake Pension Plan, a qualified plan, was closed to new participants, effective January 1, 1999, and was frozen with
respect to additional years of service and additional compensation, effective January 1, 2005. Benefits under the Chesapeake
Pension Plan were based on each participant’s years of service and highest average compensation, prior to the freezing of the
plan. Active participants on the date the Chesapeake Pension Plan was frozen were credited with two additional years of
service. In 2019, we executed a de-risking strategy for the Chesapeake Pension Plan. As a result, during the fourth quarter of
2019, we purchased annuities for those retirees currently receiving monthly payments and offered lump-sum payments to
terminated vested employees. Accordingly, the pension settlement expense associated with the de-risking strategy allocated to
our Regulated Energy operations was recorded as regulatory assets or deferred pending regulatory approval authorizing
recovery through rates. The remaining portion of the pension settlement expense totaling $0.7 million was recorded in other
expense in our consolidated statement of income which reflected the amount allocated to our Unregulated Energy operations or
was deemed not recoverable through the regulatory process.
Chesapeake Utilities Corporation 2020 Form 10-K Page 86
Table of Contents
Notes to the Consolidated Financial Statements
The FPU Pension Plan, a qualified plan, covers eligible FPU non-union employees hired before January 1, 2005 and union
employees hired before the respective union contract expiration dates in 2005 and 2006. Prior to the FPU merger, the FPU
Pension Plan was frozen with respect to additional years of service and additional compensation, effective December 31, 2009.
The Chesapeake SERP, a nonqualified plan, is comprised of two sub-plans. The first sub-plan was frozen with respect to
additional years of service and additional compensation as of December 31, 2004. Benefits under the Chesapeake SERP for the
first sub-plan were based on each participant’s years of service and highest average compensation, prior to the freezing of the
plan. Active participants on the date the Chesapeake SERP was frozen were credited with two additional years of service. The
second sub-plan provides fixed payments for several executives who joined the Company as a result of an acquisition and
whose agreements with the Company provided for this benefit.
The unfunded liability for all three plans at both December 31, 2020 and 2019, is included in the other pension and benefit costs
liability in our consolidated balance sheets.
The following schedules set forth the funded status at December 31, 2020 and 2019 and the net periodic cost for the years
ended December 31, 2020, 2019 and 2018 for the Chesapeake and FPU Pension Plans as well as the Chesapeake SERP:
At December 31,
(in thousands)
Change in benefit obligation:
Benefit obligation — beginning of year
Interest cost
Actuarial loss
Effect of settlement
Benefits paid
Benefit obligation — end of year
Change in plan assets:
Fair value of plan assets — beginning of
year
Actual return on plan assets
Employer contributions
Effect of settlement
Benefits paid
Fair value of plan assets — end of year
Reconciliation:
Funded status
Accrued pension cost
Assumptions:
Chesapeake
Pension Plan
FPU
Pension Plan
Chesapeake
SERP
2020
2019
2020
2019
2020
2019
$ 6,214
176
450
(612)
(82)
6,146
4,630
369
304
(612)
(82)
4,609
$ 10,712
375
1,443
(5,833)
(483)
6,214
8,649
1,180
1,117
(5,833)
(483)
4,630
$ 65,304
2,085
6,069
—
(3,092)
70,366
49,703
6,581
2,774
—
(3,092)
55,966
$ 59,377
2,452
6,508
—
(3,033)
65,304
43,601
7,978
1,157
—
(3,033)
49,703
$ 2,157
63
144
—
(152)
2,212
$ 2,285
74
159
—
(361)
2,157
—
—
152
—
(152)
—
—
—
361
—
(361)
—
(1,537)
$ (1,537)
(1,584)
$ (1,584)
(14,400)
$ (14,400)
(15,601)
$ (15,601)
(2,212)
$ (2,212)
(2,157)
$ (2,157)
Discount rate
Expected return on plan assets
2.25 %
3.50 %
3.00 %
6.00 %
2.50 %
6.00 %
3.25 %
6.50 %
2.25 %
— %
3.00 %
— %
Chesapeake Utilities Corporation 2020 Form 10-K Page 87
Table of Contents
Notes to the Consolidated Financial Statements
Chesapeake
Pension Plan
FPU
Pension Plan
Chesapeake
SERP
2020
2019 (1)
2018
2020
2019
2018
2020
2019
2018
For the Years Ended
December 31,
(in thousands)
Components of net periodic
pension cost:
Interest cost
Expected return on assets
Amortization of actuarial
loss
Settlement expense
Net periodic pension cost
Amortization of pre-
merger regulatory asset
Total periodic cost
Assumptions:
Discount rate
Expected return on plan
assets
$ 176
(157)
$ 375
(487)
$ 384
(542)
$ 2,085
(2,967)
$ 2,452
(2,770)
$ 2,339
(3,091)
243
203
465
391
1,982
2,261
343
—
185
552
—
(330)
505
—
187
404
—
(348)
—
$ 465
—
$ 2,261
—
$ 185
—
$ (330)
543
$ 730
761
$ 413
$ 63
—
20
—
83
—
$ 83
$ 74
—
85
58
217
—
$ 217
$ 83
—
101
—
184
—
$ 184
3.00 % 3.00 % 3.50 %
3.25 % 4.25 % 3.75 % 3.00 % 4.00 % 3.50 %
3.50 % 6.00 % 6.00 %
6.00 % 6.50 % 6.50 %
— % — % — %
(1) As a result of annuity purchases and lump sum payments associated with the de-risking of the Chesapeake Pension Plan, the discount rate for Chesapeake
Pension Plan was remeasured which triggered settlement accounting expense in the fourth quarter of 2019. We recorded $0.7 million of the settlement expense
in our consolidated statement of income which reflected a portion of the pension settlement expense that was deemed not recoverable through the regulatory
process.
Included in the net periodic costs for the FPU Pension Plan for the years ended December 31, 2019 and 2018 is amortization of
the FPU pension regulatory asset, which represents the portion attributable to FPU's regulated operations for the changes in
funded status that occurred, but were not recognized as part of net periodic cost, prior to the merger with Chesapeake Utilities in
October 2009. This was previously deferred as a regulatory asset to be recovered through rates pursuant to an order by the
Florida PSC. At December 31, 2020 and 2019, this regulatory asset was fully amortized. Excluding the service cost component,
the other components of the net periodic costs have been recorded or reclassified to other expense, net of tax, in the
consolidated statements of income.
Our funding policy provides that payments to the trust of each qualified plan shall be equal to at least the minimum funding
requirements of the Employee Retirement Income Security Act of 1974. The changes in investment types for the Chesapeake
Pension Plan at December 31, 2020 and 2019, compared to same period in 2018, are associated with the de-risking strategy
executed during the fourth quarter of 2019. The following schedule summarizes the assets of the Chesapeake Pension Plan and
the FPU Pension Plan, by investment type, at December 31, 2020, 2019 and 2018:
At December 31,
Asset Category
Equity securities
Debt securities
Other
Total
Chesapeake Pension Plan
FPU Pension Plan
2020
2019
2018
2020
2019
2018
— %
96 %
4 %
100 %
— %
92 %
8 %
100 %
49 %
41 %
10 %
100 %
54 %
37 %
9 %
100 %
53 %
37 %
10 %
100 %
50 %
41 %
9 %
100 %
The investment policy of both the Chesapeake Utilities and FPU Pension Plans is designed to provide the capital assets
necessary to meet the financial obligations of the plans. The investment goals and objectives are to achieve investment returns
that, together with contributions, will provide funds adequate to pay promised benefits to present and future beneficiaries of the
plans, earn a competitive return to increasingly fund a large portion of the plans’ retirement liabilities, minimize pension
expense and cumulative contributions resulting from liability measurement and asset performance, and maintain the appropriate
mix of investments to reduce the risk of large losses over the expected remaining life of each plan.
Chesapeake Utilities Corporation 2020 Form 10-K Page 88
Table of Contents
Notes to the Consolidated Financial Statements
The following allocation range of asset classes is intended to produce a rate of return sufficient to meet the plans’ goals and
objectives (this allocation range applied to the Chesapeake Pension Plan prior to the de-risking strategy executed during the
fourth quarter of 2019):
Asset Allocation Strategy
Asset Class
Domestic Equities (Large Cap, Mid Cap and Small Cap)
Foreign Equities (Developed and Emerging Markets)
Fixed Income (Inflation Bond and Taxable Fixed)
Alternative Strategies (Long/Short Equity and Hedge Fund of Funds)
Diversifying Assets (High Yield Fixed Income, Commodities, and Real Estate)
Cash
Minimum Allocation
Percentage
Maximum Allocation
Percentage
14 %
13 %
26 %
6 %
7 %
0 %
32 %
25 %
40 %
14 %
19 %
5 %
Due to periodic contributions and different asset classes producing varying returns, the actual asset values may temporarily
move outside of the intended ranges. The investments are monitored on a quarterly basis, at a minimum, for asset allocation and
performance. At December 31, 2020 and 2019, the assets of the Chesapeake Pension Plan and the FPU Pension Plan were
comprised of the following investments:
Asset Category
(in thousands)
Mutual Funds - Equity securities
U.S. Large Cap (1)
U.S. Mid Cap (1)
U.S. Small Cap (1)
International (2)
Alternative Strategies (3)
Mutual Funds - Debt securities
Fixed income (4)
High Yield (4)
Mutual Funds - Other
Commodities (5)
Real Estate (6)
Guaranteed deposit (7)
Total Pension Plan Assets in fair
value hierarchy
Investments measured at net asset
value (8)
Total Pension Plan Assets
Fair Value Measurement Hierarchy
At December 31, 2020
At December 31, 2019
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
$ 3,615
$ —
$ —
$ 3,615
$ 3,553
$ —
$ —
$ 3,553
1,672
—
891
—
11,307
—
5,586
—
23,071
—
21,563
—
2,606
—
24,169
—
2,246
1,954
—
—
—
—
—
—
—
—
—
—
—
—
1,672
1,604
891
726
11,307
9,855
5,586
4,739
23,071
20,477
21,563
19,220
2,606
2,476
24,169
21,696
2,246
1,954
1,708
2,288
—
—
1,019
1,019
—
4,200
—
1,019
5,219
3,996
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,604
726
9,855
4,739
—
20,477
—
19,220
—
2,476
—
21,696
—
—
1,147
1,147
1,708
2,288
1,147
5,143
$ 51,440
$ —
$ 1,019
52,459
$ 46,169
$ —
$ 1,147
47,316
8,116
$ 60,575
7,017
$ 54,333
(1) Includes funds that invest primarily in United States common stocks.
(2) Includes funds that invest primarily in foreign equities and emerging markets equities.
(3) Includes funds that actively invest in both equity and debt securities, funds that sell short securities and funds that provide long-term capital appreciation. The
funds may invest in debt securities below investment grade.
(4) Includes funds that invest in investment grade and fixed income securities.
(5) Includes funds that invest primarily in commodity-linked derivative instruments and fixed income securities.
(6) Includes funds that invest primarily in real estate.
(7) Includes investment in a group annuity product issued by an insurance company.
(8) Certain investments that were measured at net asset value per share have not been classified in the fair value hierarchy. These amounts are presented to
reconcile to total pension plan assets.
Chesapeake Utilities Corporation 2020 Form 10-K Page 89
Table of Contents
Notes to the Consolidated Financial Statements
At December 31, 2020 and 2019, our pension plans investments were classified under the same fair value measurement
hierarchy (Level 1 through Level 3) described under Note 9, Fair Value of Financial Instruments. The Level 3 investments
were recorded at fair value based on the contract value of annuity products underlying guaranteed deposit accounts, which was
calculated using discounted cash flow models. The contract value of these products represented deposits made to the contract,
plus earnings at guaranteed crediting rates, less withdrawals and fees. Certain investments that were measured at net asset value
per share have not been classified in the fair value hierarchy and are presented in the table above to reconcile to total pension
plan assets.
The following table sets forth the summary of the changes in the fair value of Level 3 investments for the years ended
December 31, 2020 and 2019:
(in thousands)
Balance, beginning of year
Purchases
Transfers in
Disbursements
Investment income
Balance, end of year
Other Postretirement Benefits Plans
For the Year Ended December 31,
2020
2019
$
$
1,147 $
3,190
921
(4,290)
51
1,019 $
627
2,274
3,090
(4,907)
63
1,147
We sponsor two defined benefit postretirement health plans: the Chesapeake Utilities Postretirement Plan ("Chesapeake
Postretirement Plan") and the FPU Medical Plan. The following table sets forth the funded status at December 31, 2020 and
2019:
At December 31,
(in thousands)
Change in benefit obligation:
Benefit obligation — beginning of year
$
Interest cost
Plan participants contributions
Actuarial loss (gain)
Benefits paid
Benefit obligation — end of year
Change in plan assets:
Fair value of plan assets — beginning of year
Employer contributions
Plan participants contributions
Benefits paid
Fair value of plan assets — end of year
Reconciliation:
Funded status
Accrued postretirement cost
Assumptions:
Discount rate
Chesapeake
Postretirement Plan
2019
2020
FPU
Medical Plan
2020
2019
$
1,100
26
166
(34)
(225)
1,033
—
59
166
(225)
—
$
$
1,002
39
149
73
(163)
1,100
—
14
149
(163)
—
1,224
30
37
(181)
(101)
1,009
—
64
37
(101)
—
1,187
48
38
47
(96)
1,224
—
58
38
(96)
—
(1,033)
(1,033)
$
$
(1,100)
(1,100)
(1,009)
(1,009)
$
$
(1,224)
(1,224)
2.25 %
3.00 %
2.50 %
3.25 %
Chesapeake Utilities Corporation 2020 Form 10-K Page 90
Table of Contents
Notes to the Consolidated Financial Statements
Net periodic postretirement benefit costs for 2020, 2019, and 2018 include the following components:
For the Years Ended December 31,
(in thousands)
Components of net periodic
postretirement cost:
Interest cost
Amortization of actuarial loss
Amortization of prior service cost
(credit)
Net periodic cost
Amortization of pre-merger regulatory
asset
Total periodic cost
Assumptions
Discount rate
Chesapeake
Postretirement Plan
2019
2020
2018
2020
FPU
Medical Plan
2019
2018
$
$
26
24
(77)
(27)
—
(27)
$
$
39
46
(77)
8
—
8
$
$
38
58
(77)
19
—
19
$
30
(19)
$
—
11
6
17
$
$
48
—
—
48
8
56
$
$
47
—
—
47
8
55
3.00 %
4.00 %
3.50 %
3.25 %
4.25 %
3.75 %
The following table presents the amounts not yet reflected in net periodic benefit cost and included in accumulated other
comprehensive loss or as a regulatory asset as of December 31, 2020:
(in thousands)
Prior service cost (credit)
Net loss (gain)
Total
Accumulated other comprehensive loss
(gain) pre-tax(1)
Post-merger regulatory asset
Total unrecognized cost
Chesapeake
Pension
Plan
FPU
Pension
Plan
Chesapeake
SERP
Chesapeake
Postretirement
Plan
FPU
Medical
Plan
Total
$
$
$
$
— $
— $
— $
(370) $
— $
(370)
2,033
21,242
699
546
(194)
24,326
2,033 $
21,242 $
699 $
176 $
(194) $
23,956
2,033 $
4,036 $
699 $
176 $
(37) $
6,907
—
17,206
—
—
(157)
17,049
2,033 $
21,242 $
699 $
176 $
(194) $
23,956
(1) The total amount of accumulated other comprehensive loss recorded on our consolidated balance sheet as of December 31, 2020 is net of income tax benefits
of $1.8 million.
Pursuant to a Florida PSC order, FPU continues to record as a regulatory asset a portion of the unrecognized pension and
postretirement benefit costs after the merger with Chesapeake Utilities related to its regulated operations, which is included in
the above table as a post-merger regulatory asset. As of December 31, 2020, the pre-merger regulatory asset related to the FPU
Pension and FPU Medical Plan was fully amortized.
Assumptions
The assumptions used for the discount rate to calculate the benefit obligations were based on the interest rates of high-quality
bonds in 2020, considering the expected lives of each of the plans. In determining the average expected return on plan assets for
each applicable plan, various factors, such as historical long-term return experience, investment policy and current and expected
allocation, were considered. Since Chesapeake Utilities' plans and FPU’s plans have different expected plan lives, particularly
in light of the lump-sum-payment option provided in the Chesapeake Pension Plan and the de-risking strategy implemented in
the fourth quarter of 2019 for Chesapeake's Plan, different assumptions regarding discount rate and expected return on plan
assets were selected for Chesapeake Utilities' and FPU’s plans. Since both pension plans are frozen with respect to additional
years of service and compensation, the rate of assumed compensation increases is not applicable.
The health care inflation rate for 2020 used to calculate the benefit obligation is 5.0 percent for medical and 6.0 percent for
prescription drugs for the Chesapeake Postretirement Plan; and 5.0 percent for both medical and prescription drugs for the FPU
Medical Plan.
Chesapeake Utilities Corporation 2020 Form 10-K Page 91
Table of Contents
Notes to the Consolidated Financial Statements
Estimated Future Benefit Payments
In 2021, we expect to contribute $0.3 million and $2.1 million to the Chesapeake Pension Plan and FPU Pension Plan,
respectively, and $0.2 million to the Chesapeake SERP. We also expect to contribute less than $0.1 million to both the
Chesapeake Postretirement Plan and FPU Medical Plan, in 2021.
The schedule below shows the estimated future benefit payments for each of the plans previously described:
(in thousands)
2021
2022
2023
2024
2025
Years 2026 through 2030
Chesapeake Pension
Plan
(1)
FPU Pension
Plan
(1)
Chesapeake
SERP
(2)
Chesapeake
Postretirement
Plan
(2)
FPU
Medical
(2)
Plan
$
$
$
$
$
$
384 $
99 $
981 $
106 $
1,007 $
1,193 $
3,409 $
3,493 $
3,559 $
3,601 $
3,680 $
18,627 $
151 $
150 $
148 $
146 $
158 $
735 $
68 $
66 $
61 $
58 $
55 $
222 $
67
67
66
67
67
317
(1) The pension plan is funded; therefore, benefit payments are expected to be paid out of the plan assets.
(2) Benefit payments are expected to be paid out of our general funds.
Retirement Savings Plan
For the years ended December 31, 2020, 2019 and 2018, we sponsored a 401(k) Retirement Savings Plan. This plan is offered
to all eligible employees who have completed three months of service. We match 100 percent of eligible participants’ pre-tax
contributions to the Retirement Savings Plan up to a maximum of six percent of eligible compensation. The employer matching
contribution is made in cash and is invested based on a participant’s investment directions. In addition, we may make a
discretionary supplemental contribution to participants in the plan, without regard to whether or not they make pre-tax
contributions. Any supplemental employer contribution is generally made in our common stock. With respect to the employer
match and supplemental employer contribution, employees are 100 percent vested after two years of service or upon reaching
55 years of age while still employed by us. New employees who do not make an election to contribute and do not opt out of the
Retirement Savings Plan will be automatically enrolled at a deferral rate of three percent, and the automatic deferral rate will
increase by one percent per year up to a maximum of ten percent. All contributions and matched funds can be invested among
the mutual funds available for investment.
Employer contributions to our Retirement Savings Plan totaled $5.9 million, $5.7 million, and $5.5 million for the years ended
December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, there were 813,230 shares of our common stock
reserved to fund future contributions to the Retirement Savings Plan.
Non-Qualified Deferred Compensation Plan
Members of our Board of Directors, and officers designated by the Compensation Committee, are eligible to participate in the
Non-Qualified Deferred Compensation Plan. Directors can elect to defer any portion of their cash or stock compensation and
officers can defer up to 80 percent of their base compensation, cash bonuses or any amount of their stock bonuses (net of
required withholdings). Officers may receive a matching contribution on their cash compensation deferrals up to six percent of
their compensation, provided it does not duplicate a match they receive in the Retirement Savings Plan. Stock bonuses are not
eligible for matching contributions. Participants are able to elect the payment of deferred compensation to begin on a specified
future date or upon separation from service. Additionally, participants can elect to receive payments upon the earlier or later of
a fixed date or separation from service. The payments can be made in one lump sum or annual installments for up to 15 years.
All obligations arising under the Non-Qualified Deferred Compensation Plan are payable from our general assets, although we
have established a Rabbi Trust to informally fund the plan. Deferrals of cash compensation may be invested by the participants
in various mutual funds (the same options that are available in the Retirement Savings Plan). The participants are credited with
gains or losses on those investments. Deferred stock compensation may not be diversified. The participants are credited with
dividends on our common stock in the same amount that is received by all other stockholders. Such dividends are reinvested
into our common stock. Assets held in the Rabbi Trust, recorded as Investments on the consolidated balance sheet, had a fair
value of $10.8 million and $9.2 million at December 31, 2020 and 2019, respectively. (See Note 10, Investments, for further
details). The assets of the Rabbi Trust are at all times subject to the claims of our general creditors.
Chesapeake Utilities Corporation 2020 Form 10-K Page 92
Table of Contents
Notes to the Consolidated Financial Statements
Deferrals of officer base compensation and cash bonuses and directors’ cash retainers are paid in cash. All deferrals of
executive performance shares, which represent deferred stock units, and directors’ stock retainers are paid in shares of our
common stock, except that cash is paid in lieu of fractional shares. The value of our stock held in the Rabbi Trust is classified
within the stockholders’ equity section of the consolidated balance sheets and has been accounted for in a manner similar to
treasury stock. The amounts recorded under the Non-Qualified Deferred Compensation Plan totaled $5.7 million and $4.5
million at December 31, 2020 and 2019, respectively, which are also shown as a deduction against stockholders' equity in the
consolidated balance sheet.
18. SHARE-BASED COMPENSATION PLANS
Our non-employee directors and key employees have been granted share-based awards through our SICP. We record these
share-based awards as compensation costs over the respective service period for which services are received in exchange for an
award of equity or equity-based compensation. The compensation cost is based primarily on the fair value of the shares
awarded, using the estimated fair value of each share on the date it was granted and the number of shares to be issued at the end
of the service period. We have 415,412 shares of common stock reserved for issuance under the SICP.
The table below presents the amounts included in net income related to share-based compensation expense for the awards
granted under the SICP for the years ended December 31, 2020, 2019 and 2018:
For the Year Ended December 31,
2019
2018
2020
(in thousands)
Awards to non-employee directors
Awards to key employees
Total compensation expense
Less: tax benefit
Share-based compensation amounts included in net income
$
$
733 $
4,096
4,829
(1,254)
3,575 $
620 $
3,659
4,279
(1,117)
3,162 $
539
2,871
3,410
(934)
2,476
Stock Options
There were no stock options outstanding or issued during the years 2018 through 2020.
Non-employee Directors
Shares granted to non-employee directors are issued in advance of these directors’ service periods and are fully vested as of the
date of the grant. We record a prepaid expense equal to the fair value of the shares issued and amortize the expense equally over
a service period of one year. In May 2019, each of our non-employee directors received an annual retainer of 751 shares of
common stock under the SICP for board service through the 2020 Annual Meeting of Stockholders; accordingly, 6,759 shares,
with a weighted average fair value of $93.14 per share, were issued and vested in 2019. In May 2020, each of our non-
employee directors received an annual retainer of 887 shares of common stock under the SICP for service as a director through
the 2021 Annual Meeting of Stockholders; accordingly, 8,870 shares, with a weighted average fair value of $84.47 per share,
were issued and vested in 2020.
In January 2020, a newly appointed member of our Board of Directors received a pro-rated retainer of 254 shares of common
stock under the SICP to serve as a non-employee director through the 2020 Annual Meeting of Stockholders. The shares
awarded to the non-employee director immediately vested upon issuance in January 2020, had a weighted average fair value of
$95.83 per share, and the expense was recognized over the remaining service period ending on the date of the 2020 Annual
Meeting of Stockholders
At December 31, 2020, there was $0.3 million of unrecognized compensation expense related to shares granted to non-
employee directors. This expense will be recognized over the remaining service period ending on the date of 2021 Annual
Meeting of Stockholders.
Our Compensation Committee is authorized to grant our key employees the right to receive awards of shares of our common
stock, contingent upon the achievement of established performance goals and subject to SEC transfer restrictions once awarded.
We currently have several outstanding multi-year performance plans, which are based upon the successful achievement of long-
term goals, growth and financial results and comprise both market-based and performance-based conditions and targets. The
fair value per share, tied to a performance-based condition or target, is equal to the market price per share on the grant date. For
the market-based conditions, we used the Monte Carlo valuation to estimate the fair value of each share granted.
Chesapeake Utilities Corporation 2020 Form 10-K Page 93
Table of Contents
Notes to the Consolidated Financial Statements
The table below presents the summary of the stock activity for awards to key employees:
Outstanding — December 31, 2018
Granted (1)
Vested
Expired
Forfeited (2)
Outstanding — December 31, 2019
Granted
Vested
Expired
Outstanding — December 31, 2020
Number of
Shares
Weighted Average
Fair Value
131,741 $
88,048
(25,831)
(15,086)
(21,055)
157,817
70,014
(35,651)
(5,302)
186,878 $
67.24
92.74
67.08
69.28
71.67
80.28
91.89
66.48
65.32
87.06
(1) Includes 43,032 shares that were granted to certain key employees in December 2019 associated with their promotion.
(2) In conjunction with the retirement of two key employees during 2019, these shares were forfeited for the remainder of the service periods associated with
awards granted during their employment with the Company.
The intrinsic value of these awards was $20.2 million, $15.1 million and $10.7 million in 2020, 2019 and 2018, respectively. At
December 31, 2020, there was $3.9 million of unrecognized compensation cost related to these awards, which is expected to be
recognized through 2022.
In 2020, 2019 and 2018, we withheld shares with a value at least equivalent to the employees’ minimum statutory obligation for
the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities with the
executives electing to receive the net shares. The below table presents the number of shares withheld and amounts remitted to
taxing authorities:
For the Year Ended December 31,
2019
2018
2020
(amounts except shares, in thousands)
Shares withheld to satisfy tax obligations
10,319
7,635
Amounts remitted to tax authorities to satisfy obligations
$
977
$
692
$
16,918
1,210
Chesapeake Utilities Corporation 2020 Form 10-K Page 94
Table of Contents
Notes to the Consolidated Financial Statements
19. RATES AND OTHER REGULATORY ACTIVITIES
Our natural gas and electric distribution operations in Delaware, Maryland and Florida are subject to regulation by their
respective PSC; Eastern Shore, our natural gas transmission subsidiary, is subject to regulation by the FERC; and Peninsula
Pipeline and Aspire Energy Express, our intrastate pipeline subsidiaries, are subject to regulation (excluding cost of service) by
the Florida PSC and Public Utilities Commission of Ohio, respectively.
Delaware
CGS: In August 2019, we filed with the Delaware PSC an application seeking an order that will establish the regulatory
accounting treatment and valuation methodology for the acquisition of propane CGS owned by our affiliate, Sharp and the
conversion of the CGS to natural gas service. We proposed to acquire each CGS one at a time and to pay replacement cost for
each CGS system. In addition, we requested authorization to pay for and capitalize the CGS residents’ behind-the-meter
conversion costs. Our existing natural gas customers will be protected against subsidizing the acquisitions and conversions of
the CGS systems because we will complete only those systems that meet our economic test. The application was reviewed by
the Delaware PSC, who approved and issued a final order in June 2020.
Maryland
Approval of the Elkton Gas Acquisition: In December 2019, we entered into an agreement with South Jersey Industries, Inc. to
acquire its subsidiary, Elkton Gas, which provides natural gas distribution service to approximately 7,000 residential and
commercial customers within a franchised area of Cecil County, Maryland. Elkton Gas territory is contiguous to our franchised
service territory in Cecil County, Maryland. On June 29, 2020, the Maryland PSC issued a final order approving the settlement
agreement, therefore, enabling the transaction to move forward. In July 2020, the transaction closed and we acquired Elkton
Gas as our wholly-owned subsidiary.
Application for Authority to Exercise a Franchise: In March 2020, we filed with the Maryland PSC an application seeking
approval to exercise a franchise granted to us by the Board of County Commissioners of Somerset County, Maryland in
December 2019. The application was approved in June 2020.
Florida
Hurricane Michael: In October 2018, Hurricane Michael passed through FPU's electric distribution operation's service territory
in Northwest Florida. The hurricane caused widespread and severe damage to FPU's infrastructure resulting in the loss of
electric service to 100 percent of its customers in the Northwest Florida service territory. FPU, after exerting extraordinary
hurricane restoration efforts, restored service to those customers who were able to accept it. FPU expended more than $65.0
million to restore service, which was recorded as new plant and equipment, charged against FPU’s accumulated depreciation or
charged against FPU’s storm reserve. Additionally, in 2019, amounts undergoing review by the Florida PSC for regulatory asset
treatment were recorded as receivables and other deferred charges.
In August 2019, FPU filed a limited proceeding requesting recovery of storm-related costs associated with Hurricane Michael
(capital and expenses) through a change in base rates. FPU also requested treatment and recovery of certain storm-related costs
as regulatory assets for items currently not allowed to be recovered through the storm reserve as well as the recovery of capital
replaced as a result of the storm. Recovery of these costs includes a component of an overall return on capital additions and
regulatory assets. In March 2020, we filed an update to our original filing to account for actual charges incurred through
December 2019, revised the amortization period of the storm-related costs from 30 years as originally requested to 10 years,
and included costs related to Hurricane Dorian of approximately $1.2 million in this filing.
In late 2019, the Florida PSC approved an interim rate increase, subject to refund, effective January 1, 2020, associated with the
restoration effort following Hurricane Michael. We fully reserved these interim rates, pending a final resolution and settlement
of the limited proceeding. In September 2020, the Florida PSC approved a settlement agreement between FPU and the Office of
the Public Counsel regarding final cost recovery and rates associated with Hurricane Michael. The settlement agreement
allowed us to: (a) refund the over-collection of interim rates through the fuel clause; (b) record regulatory assets for storm costs
in the amount of $45.8 million including interest which will be amortized over six years; (c) recover these storm costs through a
surcharge for a total of $7.7 million annually; and (d) collect an annual increase in revenue of $3.3 million to recover capital
costs associated with new plant and a regulatory asset for cost of removal and undepreciated plant. The new base rates and
storm surcharge were effective on November 1, 2020.
Electric Depreciation Study: In September 2019, FPU filed a petition, with the Florida PSC, for approval of its consolidated
electric depreciation rates. The petition was joined to the Hurricane Michael docket, and was approved at the Florida PSC
Agenda in September 2020. The approved rates were retroactively applied effective January 1, 2020.
Chesapeake Utilities Corporation 2020 Form 10-K Page 95
Table of Contents
Notes to the Consolidated Financial Statements
West Palm Beach Expansion Project: In June 2019, Peninsula Pipeline filed with the Florida PSC for approval of its
Transportation Service Agreement with FPU. Peninsula Pipeline will construct several new interconnection points and pipeline
expansions in Palm Beach County, Florida, which will enable FPU to serve an industrial research park and several new
residential developments. Peninsula Pipeline will provide transportation service to FPU, increasing reliability, system pressure
as well as introducing diversity in fuel source for natural gas to serve the increased demand in these areas. The petition was
approved by the Florida PSC at the August 6, 2019 Agenda. Interim services began in the fourth quarter of 2019. We expect to
complete the remainder of the project in phases through the second quarter of 2021.
Callahan Pipeline, Nassau County: In the second quarter of 2020, Peninsula Pipeline and Seacoast Gas Transmission
completed construction of a jointly owned 26-mile, 16-inch steel pipeline that interconnects to the Cypress Pipeline interstate
system in western Nassau County in order to serve growing demand in both Nassau and Duval counties, Florida. The Callahan
pipeline terminates into the existing Peninsula Pipeline, which serves Amelia Island and the Peoples Gas distribution system.
The Callahan Pipeline has enhanced FPU’s ability to expand service into Nassau County and has enabled Peoples Gas to
enhance its system pressure and the reliability of its service in Duval County.
Eastern Shore
Del-Mar Energy Pathway Project: In December 2019, the FERC issued an order approving the construction of the Del-Mar
Energy Pathway project. The order, which was applied for in September 2018 by Eastern Shore, approved the construction and
operation of new facilities that will provide an additional 14,300 Dts/d of firm service to four customers. Facilities to be
constructed include six miles of pipeline looping in Delaware; 13 miles of new mainline extension in Sussex County, Delaware
and Wicomico and Somerset Counties in Maryland; and new pressure control and delivery stations in these counties. The
benefits of this project include: (i) additional natural gas transmission pipeline infrastructure in eastern Sussex County,
Delaware, and (ii) extension of Eastern Shore’s pipeline system, for the first time, into Somerset County, Maryland.
Construction on the project began in January 2020, and Eastern Shore anticipates that this project will be fully in-service by the
end of 2021.
Capital Cost Surcharge: In December 2019, the FERC approved Eastern Shore’s proposed capital cost surcharge to become
effective January 1, 2020. The surcharge, an approved item in the settlement of Eastern Shore’s last general rate case, allows
Eastern Shore to recover capital costs associated with mandated highway or railroad relocation projects that required the
replacement of existing Eastern Shore facilities. Eastern Shore expects to recover $0.5 million in capital cost surcharges on an
annual basis. As government mandated relocations continue resulting in Eastern Shore undertaking capital expenditures, we
will continue to utilize the surcharge to seek recovery of these costs in accordance with the settlement from Eastern Shore’s last
general rate case.
Renewable Natural Gas Tariff: In October 2019, Eastern Shore filed an application with the FERC to include renewable natural
gas (biogas) utilization and standards in its tariff. Eastern Shore had proposed changes to its gas quality specifications that
would enable it to accommodate renewable natural gas at various receipt points on its system. Changes to the gas quality
specifications would ensure interchangeability of renewable natural gas with the natural gas currently delivered to Eastern
Shore. The tariffs became effective in November 2019.
Ohio
Aspire Energy Express: In October 2020, the Public Utilities Commission of Ohio approved the request by Aspire Energy
Express for authority to operate as an intrastate pipeline company in Ohio and also approved the submitted tariff. Aspire Energy
Express will utilize the pipeline to provide natural gas transportation service in Ohio, including delivery to the Guernsey Power
Station and other potential customers elsewhere in Ohio. Aspire Energy Express has entered into agreements with the Guernsey
Power Station to construct the pipeline and provide natural gas transportation service to the facility, which the Public Utilities
Commission of Ohio approved in November 2020. Aspire Energy Express intends to own and operate the proposed intrastate
pipeline facilities that will interconnect with the Rockies Express Pipeline and other potential points of receipt. The pipeline
facilities that will be initially constructed will provide firm transportation service to the Guernsey Power Station. Aspire Energy
Express will be subject to ongoing jurisdiction and supervision of the Public Utilities Commission of Ohio with respect to the
gas pipeline safety standards and requirements.
COVID-19 Impact
We are monitoring the global outbreak of COVID-19 and taking steps to mitigate the potential risks posed by its spread. We
provide an “essential service” to our customers, which means that it is paramount that we keep our employees who operate our
business safe and informed. We have taken and are continuously monitoring and updating precautions and protocols to ensure
the safety of our employees and customers. As an “essential business” we are allowed to continue operational activity and
construction projects with appropriate safety precautions, personal protective equipment and social distancing restrictions in
Chesapeake Utilities Corporation 2020 Form 10-K Page 96
Table of Contents
Notes to the Consolidated Financial Statements
place. We have taken steps to assure our customers that disconnections for non-payment will be temporarily suspended. We are
also working with our suppliers to understand the potential impacts to our supply chain; if material negative impacts are
identified, we will work to mitigate them. This is a rapidly evolving situation, and could lead to extended disruption of
economic activity in our markets. We will continue to monitor developments affecting our employees, customers, suppliers and
shareholders, and will take additional precautions as warranted to comply with the CDC, state and local requirements and
recommendations to protect our employees, customers and the communities we serve.
As a result of these measures, we are incurring costs associated with crisis management and the pandemic response including
restrictions put in place by the state PSCs on utility disconnects for non-payment, technology costs incurred to expand work
from home capabilities, additional sanitation and cleaning costs and costs of acquiring personal protective equipment as well as
other expenses.
In April 2020, the Maryland PSC issued an order that authorized utilities to establish a regulatory asset to record prudently
incurred incremental costs related to COVID-19, beginning on March 16, 2020. The Maryland PSC found that the creation of a
regulatory asset for COVID-19 related expenses will facilitate the recovery of those costs prudently incurred to serve customers
during this period, and that the deferral of such costs is appropriate because the current catastrophic health emergency is outside
the control of the utility and is a non-recurring event.
In May 2020, the Delaware PSC issued an order that authorized Delaware utilities to establish a regulatory asset to record
COVID-19 related incremental costs incurred to ensure customers have essential utility services, for the period beginning on
March 24, 2020 and ending 30 days after the state of emergency ends. The creation of the regulatory asset for COVID-19
related costs offers utilities the ability to seek recovery of those costs.
In October 2020, the Florida PSC approved a joint petition of our natural gas and electric distribution utilities in Florida to
establish regulatory asset to record incremental expenses incurred due to COVID-19. This regulatory asset will allow us to seek
recovery of these costs in our next base rate proceeding. On November 16, 2020, the Office of Public Counsel filed a protest to
the order approving the establishment of this regulatory asset, contending that the order should be a reversed or modified and to
request a hearing on the protest. At this time, no hearing date has been established.
In the fourth quarter of 2020, we established regulatory assets based on the net incremental expense resulting from the
pandemic for our natural gas distribution and electric businesses as currently authorized by the Delaware, Maryland and Florida
PSCs.
Chesapeake Utilities Corporation 2020 Form 10-K Page 97
Table of Contents
Notes to the Consolidated Financial Statements
The table below highlights the impact to our various regulated businesses as a result of the TCJA:
Summary TCJA Table
Operation and Regulatory
Jurisdiction
Amount (in
thousands)
Status
Regulatory Liabilities related to ADIT
Eastern Shore (FERC)
$34,190
Will be addressed in Eastern Shore's
next rate case filing.
Delaware Division (Delaware
PSC)
$12,728
PSC approved amortization of
ADIT in January 2019.
Maryland Division
(Maryland PSC)
$3,970
PSC approved amortization of ADIT
in May 2018.
Sandpiper Energy (Maryland
PSC)
$3,713
PSC approved amortization of
ADIT in May 2018.
Chesapeake Florida Gas
Division/Central Florida Gas
(Florida PSC)
$8,184
order
issued
PSC
authorizing
amortization and retention of net
ADIT liability by the Company in
February 2019.
FPU Natural Gas (excludes
Fort Meade and Indiantown)
(Florida PSC)
$19,257
Same treatment on a net basis as
Chesapeake Utilities Florida Gas
Division (above).
FPU Fort Meade and
Indiantown Divisions
$309
Same treatment on a net basis as
Chesapeake Utilities Florida Gas
Division (above).
FPU Electric (Florida PSC)
$6,694
In January 2019, PSC issued order
approving amortization of ADIT
through purchased power
cost
recovery, storm reserve and rates.
Elkton Gas (Maryland PSC)
$1,124
PSC approved amortization of
ADIT in March 2018.
Status of Customer Rate impact related to
lower federal corporate income tax rate
Implemented one-time bill credit (totaling $0.9
million) in April 2018. Customer rates were
adjusted in April 2018.
Implemented one-time bill credit (totaling
$1.5 million) in April 2019. Customer rates
were adjusted in March 2019.
Implemented one-time bill credit (totaling $0.4
million) in July 2018. Customer rates were
adjusted in May 2018.
Implemented one-time bill credit (totaling
$0.6 million) in July 2018. Customer rates
were adjusted in May 2018.
Florida PSC's final order was
in
February 2019. Excluding GRIP, tax savings
arising from the TCJA rate reduction will be
retained by the Company.
issued
GRIP: Tax savings for 2018 will be refunded
to customers in 2020 through the annual GRIP
cost recovery mechanism. Future customer
GRIP surcharges will be adjusted to reflect tax
savings associated with TCJA.
Same treatment on a net basis as Chesapeake
Utilities Florida Gas Division (above).
Tax rate reduction: The impact was immaterial
for the divisions.
GRIP (Applicable to Fort Meade division
only): Same treatment as Chesapeake Utilities
Florida Gas Division (above).
TCJA benefit is provided to customers through
a combination of reductions to the fuel cost
recovery rate, base rates, as well as application
to the storm reserve over the next several
years.
Previous owner implemented one-time bill
credit (totaling less than $0.1 million) in May
2020. Customer rates were adjusted in April
2020.
Regulatory Assets and Liabilities
At December 31, 2020 and 2019, our regulated utility operations had recorded the following regulatory assets and liabilities
included in our consolidated balance sheets. These assets and liabilities will be recognized as revenues and expenses in future
periods as they are reflected in customers’ rates.
Chesapeake Utilities Corporation 2020 Form 10-K Page 98
Table of Contents
Notes to the Consolidated Financial Statements
(in thousands)
Regulatory Assets
Under-recovered purchased fuel and conservation cost recovery (1)
Under-recovered GRIP revenue (2)
Deferred postretirement benefits (3)
Deferred conversion and development costs (1)
Environmental regulatory assets and expenditures (4)
Acquisition adjustment (5)
Loss on reacquired debt (6)
Deferred costs associated with COVID-19 (7)
Deferred storm costs (8)
Other
Total Regulatory Assets
Regulatory Liabilities
Self-insurance (9)
Over-recovered purchased fuel and conservation cost recovery (1)
Over-recovered GRIP revenue (2)
Storm reserve (9)
Accrued asset removal cost (10)
Deferred income taxes due to rate change (11)
Interest related to storm recovery (8)
Other
Total Regulatory Liabilities
As of December 31,
2020
2019
$
2,078 $
278
17,716
23,054
1,743
28,755
795
1,925
44,320
3,928
$
124,592 $
$
533 $
4,422
338
2,673
45,315
90,845
3,353
1,541
5,144
—
16,311
20,881
2,241
30,329
869
—
—
2,776
78,551
873
2,724
2,668
1,437
36,767
89,191
—
75
$
149,020 $
133,735
(1) We are allowed to recover the asset or are required to pay the liability in rates. We do not earn an overall rate of return on these assets.
(2) The Florida PSC allowed us to recover through a surcharge, capital and other program-related-costs, inclusive of an appropriate return on investment,
associated with accelerating the replacement of qualifying distribution mains and services (defined as any material other than coated steel or plastic) in FPU’s
natural gas distribution, Fort Meade division and Chesapeake Utilities’ Central Florida Gas division. We are allowed to recover the asset or are required to pay
the liability in rates related to GRIP.
(3) The Florida PSC allowed FPU to treat as a regulatory asset the portion of the unrecognized costs pursuant to ASC Topic 715, Compensation - Retirement
Benefits, related to its regulated operations. This balance also includes the portion of pension settlement expense associated with the de-risking of the
Chesapeake Pension Plan pursuant to an order from the FERC that allowed us to defer Eastern Shore's portion. See Note 17, Employee Benefit Plans, for
additional information.
(4) All of our environmental expenditures incurred to date and our current estimate of future environmental expenditures have been approved by various PSCs
for recovery. See Note 20, Environmental Commitments and Contingencies, for additional information on our environmental contingencies.
(5) We are allowed to include the premiums paid in various natural gas utility acquisitions in Florida in our rate bases and recover them over a specific time
period pursuant to the Florida PSC approvals. We paid $34.2 million of the premium in 2009, including a gross up for income tax, because it is not tax
deductible, and $0.7 million of the premium paid by FPU in 2010.
(6) Gains and losses resulting from the reacquisition of long-term debt are amortized over future periods as adjustments to interest expense in accordance with
established regulatory practice.
(7) We deferred as regulatory assets the net incremental expense impact associated with the net expense impact of COVID-19 as authorized by the stated PSCs.
(8) The Florida PSC authorized us to recover regulatory assets (including interest) associated with the recovery of Hurricanes Michael and Dorian storm costs
which will be amortized between 6 and 10 years. Recovery of these costs includes a component of an overall return on capital additions and regulatory assets.
(9) We have storm reserves in our Florida regulated energy operations and self-insurance for our regulated energy operations that allow us to collect through
rates amounts to be used against general claims, storm restoration costs and other losses as they are incurred.
(10) See Note 1, Summary of Significant Accounting Policies, for additional information on our asset removal cost policies.
(11) We recorded a regulatory liability for our regulated businesses related to the revaluation of accumulated deferred tax assets/liabilities as a result of the
TCJA. The liability will be amortized over a period between 5 to 80 years based on the remaining life of the associated property. Based upon the regulatory
proceedings, we will pass back the respective portion of the excess accumulated deferred taxes to rate payers. See Note 12, Income Taxes, for additional
information.
Chesapeake Utilities Corporation 2020 Form 10-K Page 99
Table of Contents
Notes to the Consolidated Financial Statements
20. ENVIRONMENTAL COMMITMENTS AND CONTINGENCIES
We are subject to federal, state and local laws and regulations governing environmental quality and pollution control. These
laws and regulations require us to remove or remediate, at current and former operating sites, the effect on the environment of
the disposal or release of specified substances.
MGP Sites
We have participated in the investigation, assessment or remediation of, and have exposures at, seven former MGP sites. We
have received approval for recovery of clean-up costs in rates for sites located in Salisbury, Maryland; Seaford, Delaware; and
Winter Haven, Key West, Pensacola, Sanford and West Palm Beach, Florida.
As of December 31, 2020 and 2019, we had approximately $5.9 million and $8.0 million, respectively, in environmental
liabilities, related to FPU’s MGP sites in Key West, Pensacola, Sanford and West Palm Beach. FPU has approval to recover,
from insurance and from customers through rates, up to $14.0 million of its environmental costs related to its MGP sites. As of
December 31, 2020 and 2019, we have recovered approximately $12.4 million and $11.9 million, respectively, leaving
approximately $1.6 million and $2.1 million, respectively, in regulatory assets for future recovery from FPU’s customers.
Environmental liabilities for our MGP sites are recorded on an undiscounted basis based on the estimate of future costs
provided by independent consultants. We continue to expect that all costs related to environmental remediation and related
activities, including any potential future remediation costs for which we do not currently have approval for regulatory recovery,
will be recoverable from customers through rates.
The following is a summary of our remediation status and estimated costs to implement clean-up of our key MGP sites:
MGP Site
(Jurisdiction)
West Palm Beach
(Florida)
Sanford (Florida)
Winter Haven
(Florida)
Seaford
(Delaware)
Status
Remediation actions approved by the Florida
Department of Environmental Protection have been
implemented on the east parcel of the site. Similar
remediation actions have been initiated on the site's
west parcel, and construction of active remedial
systems are expected to be completed in 2021.
In March 2018, the United States Environmental
Protection Agency ("EPA") approved a "site-wide
ready for anticipated use" status, which is the final
step before delisting a site. Construction has been
completed and restrictive covenants are in place to
ensure protection of human health. The only
remaining activity
long-term groundwater
monitoring.
is
Estimated Cost to Clean Up
(Expect to Recover through Rates)
Between $3.3 million to $14.2 million, including
costs associated with the relocation of FPU’s
operations at this site, and any potential costs
associated with
the
properties.
redevelopment of
future
FPU's remaining remediation expenses, including
attorneys' fees and costs, are anticipated to be
immaterial.
Remediation is ongoing.
Not expected to exceed $0.4 million.
Conducted investigations of on-site and off-site
impacts in the vicinity of the site, from 2014
through 2018, and submitted the findings to
Delaware Department of Natural Resources and
Environmental Control ("DNREC") in a March
2019 report. An interim action involving air-
sparging/vapor extraction is being implemented, in
accordance with the DNREC-approved Work Plan.
Between $0.2 million and $0.5 million.
Chesapeake Utilities Corporation 2020 Form 10-K Page 100
Table of Contents
Notes to the Consolidated Financial Statements
21. OTHER COMMITMENTS AND CONTINGENCIES
Natural Gas, Electric and Propane Supply
In March 2020, our Delmarva Peninsula natural gas distribution operations entered into asset management agreements with a
third party to manage their natural gas transportation and storage capacity. The agreements were effective as of April 1, 2020
and expire on March 31, 2023.
In May 2019, FPU natural gas distribution operations and Eight Flags entered into separate asset management agreements with
Emera Energy Services, Inc. to manage their natural gas transportation capacity. Short-term agreements were entered for a term
beginning July 2019 through October 2020 with long-term agreements executed for a 10-year term that commenced in
November 2020.
Chesapeake Utilities' Florida Division has firm transportation service contracts with FGT and Gulfstream. Pursuant to a
capacity release program approved by the Florida PSC, all of the capacity under these agreements has been released to various
third parties. Under the terms of these capacity release agreements, Chesapeake Utilities is contingently liable to FGT and
Gulfstream should any party, that acquired the capacity through release, fail to pay the capacity charge. To date, Chesapeake
Utilities has not been required to make a payment resulting from this contingency.
FPU’s electric supply contracts require FPU to maintain an acceptable standard of creditworthiness based on specific financial
ratios. FPU’s agreement with Florida Power & Light Company requires FPU to meet or exceed a debt service coverage ratio of
1.25 times based on the results of the prior 12 months. If FPU fails to meet this ratio, it must provide an irrevocable letter of
credit or pay all amounts outstanding under the agreement within five business days. FPU’s electric supply agreement with Gulf
Power requires FPU to meet the following ratios based on the average of the prior six quarters: (a) funds from operations
interest coverage ratio (minimum of 2 times), and (b) total debt to total capital (maximum of 65 percent). If FPU fails to meet
the requirements, it has to provide the supplier a written explanation of actions taken, or proposed to be taken, to become
compliant. Failure to comply with the ratios specified in the Gulf Power agreement could also result in FPU having to provide
an irrevocable letter of credit. As of December 31, 2020, FPU was in compliance with all of the requirements of its fuel supply
contracts.
Eight Flags provides electricity and steam generation services through its CHP plant located on Amelia Island, Florida. In June
2016, Eight Flags began selling power generated from the CHP plant to FPU pursuant to a 20-year power purchase agreement
for distribution to our electric customers. In July 2016, Eight Flags also started selling steam pursuant to a separate 20-year
contract, to the landowner on which the CHP plant is located. The CHP plant is powered by natural gas transported by FPU
through its distribution system and Peninsula Pipeline through its intrastate pipeline.
The total purchase obligations for natural gas, electric and propane supplies are as follows:
Year
(in thousands)
2021
2022-2023
2024-2025
Beyond 2025
Total
Purchase Obligations
$
69,459
$
81,841
$
69,420
$
201,504
$
422,224
Corporate Guarantees
The Board of Directors has authorized us to issue corporate guarantees securing obligations of our subsidiaries and to obtain
letters of credit securing our subsidiaries' obligations. The maximum authorized liability under such guarantees and letters of
credit as of December 31, 2020 was $20.0 million. The aggregate amount guaranteed at December 31, 2020 was approximately
$5.7 million with the guarantees expiring on various dates through September 2021.
As of December 31, 2020, we have issued letters of credit totaling approximately $4.8 million related to the electric
transmission services for FPU's electric division, the firm transportation service agreement between TETLP and our Delaware
and Maryland divisions and our current and previous primary insurance carriers. These letters of credit have various expiration
dates through October 5, 2021. There have been no draws on these letters of credit as of December 31, 2020. We do not
anticipate that the counterparties will draw upon these letters of credit, and we expect that they will be renewed to the extent
necessary in the future.
Chesapeake Utilities Corporation 2020 Form 10-K Page 101
Table of Contents
Notes to the Consolidated Financial Statements
22. QUARTERLY FINANCIAL DATA (UNAUDITED)
In our opinion, the quarterly financial information shown below includes all adjustments necessary for a fair presentation of the
operations for such periods. Due to the seasonal nature of our business, there are substantial variations in operations reported on
a quarterly basis.
(in thousands except per share amounts)
2020 (1)
Operating Revenues
Operating Income
Net Income:
Income from Continuing Operations
Earnings/(Loss) from Discontinued Operations, Net of
Tax
Gain on sale of Discontinued Operations, Net of Tax
Net Income
Basic Earnings Per Share of Common Stock
Earnings Per Share from Continuing Operations
Earnings/(Loss) Per Share from Discontinued
Operations
Basic Earnings Per Share of Common Stock
Diluted Earnings Per Share of Common Stock
Earnings Per Share from Continuing Operations
Earnings/(Loss) Per Share from Discontinued
Operations
Diluted Earnings Per Share of Common Stock
2019 (1)
Operating Revenues
Operating Income
Net Income:
Income from Continuing Operations
Earnings/(Loss) from Discontinued Operations, Net of
Tax
Gain on sale of Discontinued Operations, Net of Tax
Net Income
Basic Earnings Per Share of Common Stock
Earnings Per Share from Continuing Operations
Earnings/(Loss) Per Share from Discontinued
Operations
Basic Earnings Per Share of Common Stock
Diluted Earnings Per Share of Common Stock
Earnings Per Share from Continuing Operations
Earnings/(Loss) Per Share from Discontinued
Operations
Diluted Earnings Per Share of Common Stock
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
For the Quarters Ended
March 31
June 30
September 30
December 31
152,690 $
42,134 $
97,051 $
17,977 $
101,419 $
17,406 $
137,038
35,206
29,041 $
10,661 $
9,280 $
21,661
(111)
—
28,930 $
125
170
10,956 $
(19)
—
9,261 $
691
—
22,352
1.77 $
0.65 $
0.56 $
(0.01)
0.02
—
1.76 $
0.67 $
0.56 $
1.77 $
0.64 $
0.56 $
(0.01)
0.02
—
1.76 $
0.66 $
0.56 $
1.24
0.04
1.28
1.24
0.04
1.28
160,464 $
44,122 $
94,542 $
18,165 $
92,626 $
14,357 $
131,974
29,641
28,811 $
8,914 $
6,251 $
17,123
(148)
—
28,663 $
(610)
—
8,304 $
(630)
—
5,621 $
39
5,402
22,564
1.76 $
0.54 $
0.38 $
(0.01)
(0.03)
(0.04)
1.75 $
0.51 $
0.34 $
1.75 $
0.54 $
0.38 $
(0.01)
(0.04)
(0.04)
1.74 $
0.50 $
0.34 $
1.05
0.33
1.38
1.04
0.33
1.37
(1) The sum of the four quarters does not equal the total for the year due to rounding.
Chesapeake Utilities Corporation 2020 Form 10-K Page 102
Table of Contents
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer, with the participation of other Company officials, have evaluated our
“disclosure controls and procedures” (as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the
Securities Exchange Act of 1934, as amended) as of December 31, 2020. Based upon their evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31,
2020.
CHANGE IN INTERNAL CONTROLS
In response to the COVID-19 pandemic and the current social distancing restrictions that have been established in our service
territories, we have implemented our pandemic response plan, which includes having office staff work remotely to promote
social distancing in efforts to reduce the spread of COVID-19. During the quarter ended December 31, 2020, the
implementation of our pandemic response plan did not result in a change in the design or operations of our internal controls
over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting. There has been no change in internal control over financial reporting (as such term is defined in Exchange
Act Rule 13a-15(f)) that occurred during the quarter ended December 31, 2020, that materially affected, or is reasonably likely
to materially affect, internal control over financial reporting.
CEO AND CFO CERTIFICATIONS
Our Chief Executive Officer and Chief Financial Officer have filed with the SEC the certifications required by Section 302 of
the Sarbanes-Oxley Act of 2002 as Exhibits 31.1 and 31.2 to our Annual Report on Form 10-K for the fiscal year ended
December 31, 2020. In addition, on May 19, 2020, our Chief Executive Officer certified to the NYSE that he was not aware of
any violation by us of the NYSE corporate governance listing standards.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Rule 13a-15(f) of the Exchange Act. A company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with GAAP. A company’s internal control over financial reporting includes those policies and
procedures that: (i) pertain to the maintenance of records which in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial
Officer, our management conducted an evaluation of the effectiveness of its internal control over financial reporting based on
the criteria established in an updated report entitled “Internal Control - Integrated Framework,” issued in May 2013 by the
Committee of Sponsoring Organizations of the Treadway Commission. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Our management has evaluated and concluded that our internal control over financial reporting was effective as of
December 31, 2020.
Our independent registered public accounting firm, Baker Tilly US, LLP (formerly Baker Tilly Virchow Krause, LLP), has
audited the effectiveness of our internal control over financial reporting as of December 31, 2020, as stated in its report which
appears under Part II, Item 8. Financial Statements and Supplementary Data.
Chesapeake Utilities Corporation 2020 Form 10-K Page 103
Table of Contents
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE.
We have adopted a Code of Ethics that applies to our Principal Executive Officer, President, Principal Financial Officer, Chief
Accounting Officer, Corporate Controller, Treasurer, and persons performing similar functions, which is a “code of ethics” as
defined by applicable rules of the SEC. This Code of Ethics is publicly available on our website at https://chpk.com. If we
make any amendments to this code other than technical, administrative or other non-substantive amendments, or grant any
waivers, including implicit waivers, from a provision of this code to our Principal Executive Officer, President, Principal
Financial Officer, Chief Accounting Officer or Corporate Controller, we intend to disclose the nature of the amendment or
waiver, its effective date and to whom it applies by posting such information on our website at the address and location
specified above.
The remaining information required by this Item is incorporated herein by reference to the sections of our Proxy Statement
captioned “Election of Directors (Proposal 1),” “Governance Trends and Director Education," "Corporate Governance
Practices,” “Board of Directors and its Committees” and “Delinquent Section 16(a) Reports.”
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated herein by reference to the sections of our Proxy Statement captioned
“Director Compensation,” “Executive Compensation” and “Compensation Discussion and Analysis".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
The information required by this Item is incorporated herein by reference to the sections of our Proxy Statement captioned
“Security Ownership of Certain Beneficial Owners and Management” and "Equity Compensation Plan Information."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this Item is incorporated herein by reference to the section of our Proxy Statement captioned
“Corporate Governance Practices” and "Director Independence."
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this Item is incorporated herein by reference to the portion of the Proxy Statement captioned “Fees
and Services of Independent Registered Public Accounting Firm."
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as part of this Annual Report:
(a)(1) All of the financial statements, reports and notes to the financial statements included in Item 8 of Part II of this
Annual Report on Form 10-K.
(a)(2) Schedule II—Valuation and Qualifying Accounts.
(a)(3) The Exhibits below.
Chesapeake Utilities Corporation 2020 Form 10-K Page 104
Table of Contents
• Exhibit 1.1
• Exhibit 3.1
• Exhibit 3.2
• Exhibit 3.3
• Exhibit 3.4
• Exhibit 3.5
• Exhibit 3.6
• Exhibit 3.7
• Exhibit 4.1
• Exhibit 4.2
• Exhibit 4.3
• Exhibit 4.4
• Exhibit 4.5
• Exhibit 4.6
Equity Distribution Agreement, dated August 17, 2020, by and between Chesapeake
Utilities Corporation and each of RBC Capital Markets, LLC, BofA Securities, Inc., Wells
Fargo Securities, LLC, Janney Montgomery Scott LLC, Guggenheim Securities, LLC,
Maxim Group LLC, Sidoti & Company, LLC, and Siebert Williams Shank & Co., LLC is
incorporated herein by reference to Exhibit 1.1 of our Current Report on Form 8-K, filed
August 17, 2020, File No. 001-11590.
Amended and Restated Certificate of Incorporation of Chesapeake Utilities Corporation is
incorporated herein by reference to Exhibit 3.1 of our Quarterly Report on Form 10-Q for
the period ended June 30, 2010, File No. 001-11590.
Amended and Restated Bylaws of Chesapeake Utilities Corporation, effective December
4, 2012, are incorporated herein by reference to Exhibit 3 of our Current Report on Form
8-K, filed December 7, 2012, File No. 001-11590.
First Amendment to the Amended and Restated Bylaws of Chesapeake Utilities
Corporation, effective December 3, 2014, is incorporated herein by reference to Exhibit
3.3 of our Annual Report on Form 10-K for the year ended December 31, 2014, File No.
001-11590.
Second Amendment to the Amended and Restated Bylaws of Chesapeake Utilities
Corporation, effective November 2, 2016, is incorporated herein by reference to Exhibit
3.3 of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, File
No. 001-11590.
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of
Chesapeake Utilities Corporation, is incorporated herein by reference to Exhibit 3.1 of our
Current Report on Form 8-K, filed May 9, 2017, File No. 001-11590.
Certificate of Elimination of Series A Participating Cumulative Preferred Stock of
Chesapeake Utilities Corporation, is incorporated herein by reference to Exhibit 3.6 to our
Annual Report on Form 10-K for the year ended December 31, 2017, File No. 001-11590.
Third Amendment to the Amended and Restated Bylaws of Chesapeake Utilities
Corporation, effective May 8, 2019, is incorporated by reference to Exhibit 3.1 of our
Current Report on Form 8-K, filed May 14, 2019, File No. 001-11590.
Note Agreement dated October 31, 2008, among Chesapeake Utilities Corporation, as
issuer, General American Life Insurance Company and New England Life Insurance
Company, relating to the private placement of Chesapeake Utilities Corporation's 5.93%
Senior Notes due 2023.†
Note Agreement dated June 29, 2010, among Chesapeake Utilities Corporation, as issuer,
Metropolitan Life Insurance Company and New England Life Insurance Company,
relating to the private placement of Chesapeake Utilities Corporation’s 5.68% Senior
Notes due 2026 and Chesapeake Utilities Corporation’s 6.43% Senior Notes due 2028.†
Note Agreement dated September 5, 2013, among Chesapeake Utilities Corporation, as
issuer, and certain note holders, relating to the private placement of Chesapeake Utilities
Corporation’s 3.73% Senior Notes due 2028 and Chesapeake Utilities Corporation’s
3.88% Senior Notes due 2029.†
Private Shelf Agreement dated October 8, 2015, between Chesapeake Utilities
Corporation, as issuer, and Prudential Investment Management Inc., relating to the private
placement of Chesapeake Utilities Corporation's 3.25% Senior Notes due 2032, 3.98%
Senior Notes due 2039, 3.0% Senior Notes due 2035, and the sale of other Chesapeake
Utilities Corporation unsecured Senior Notes from time to time, is incorporated herein by
reference to Exhibit 4.1 of our Quarterly Report on Form 10-Q for the period ended
September 30, 2015, File No. 001-11590.
First Amendment to Private Shelf Agreement dated September 14, 2018, between
Chesapeake Utilities Corporation, as issuer, and PGIM, Inc. (formerly known as Prudential
Investment Management, Inc.), and other purchasers that may become party thereto. †
Master Note Agreement dated March 2, 2017, among Chesapeake Utilities Corporation, as
issuer, NYL Investors LLC, and other certain note holders that may become party thereto
from time to time relating to the private placement of Chesapeake Utilities Corporation’s
3.48% Senior Notes due 2038 and Chesapeake Utilities Corporation’s 3.58% Senior Notes
due 2038, and Chesapeake Utilities Corporation’s 2.96% Senior Notes due 2035 †
Chesapeake Utilities Corporation 2020 Form 10-K Page 105
Table of Contents
• Exhibit 4.7
• Exhibit 10.1*
• Exhibit 10.2*
• Exhibit 10.3*
• Exhibit 10.4*
• Exhibit 10.5*
• Exhibit 10.6
• Exhibit 10.7
• Exhibit 10.8*
• Exhibit 10.9
• Exhibit 10.10
• Exhibit 10.11*
• Exhibit 10.12*
Description of Securities Registered Under Section 12 of the Securities Exchange Act of
1934, as amended, is filed herewith.
Chesapeake Utilities Corporation Cash Bonus Incentive Plan, effective January 1, 2015, is
incorporated herein by reference to our Proxy Statement dated March 31, 2015, in
connection with our Annual Meeting held on May 6, 2015, File No. 001-11590.
Chesapeake Utilities Corporation 2013 Stock and Incentive Compensation Plan, effective
May 2, 2013 is incorporated herein by reference to our Proxy Statement dated March 29,
2013 in connection with our Annual Meeting held on May 2, 2013, File No. 001-11590.
Non-Qualified Deferred Compensation Plan, effective January 1, 2014, is incorporated
herein by reference to Exhibit 10.8 of our Annual Report on Form 10-K for the year ended
December 31, 2013, File No. 001-11590.
Chesapeake Utilities Corporation Supplemental Executive Retirement Plan, as amended
and restated effective January 1, 2009, is incorporated herein by reference to Exhibit 10.27
of our Annual Report on Form 10-K for the year ended December 31, 2008, File No.
001-11590.
First Amendment to the Chesapeake Utilities Corporation Supplemental Executive
Retirement Plan as amended and restated effective January 1, 2009, is incorporated herein
by reference to Exhibit 10.30 of our Annual Report on Form 10-K for the year ended
December 31, 2010, File No. 001-11590.
Revolving Credit Agreement dated October 8, 2015, between Chesapeake Utilities
Corporation and PNC Bank, National Association, Bank of America, N.A., Citizens Bank
N.A., Royal Bank of Canada and Wells Fargo Bank, National Association as lenders, is
incorporated herein by reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q for
the period ended September 30, 2015, File No. 001-11590.
First Amendment dated February 25, 2016 to the Revolving Credit Agreement dated
October 8, 2015, between Chesapeake Utilities Corporation and PNC Bank, National
Association, Bank of America, N.A., Citizens Bank N.A., Royal Bank of Canada and
Wells Fargo Bank, National Association as lenders, is incorporated herein by reference to
Exhibit 10.24 of our Annual Report on Form 10-K for the year ended December 31, 2015,
File No. 001-11590.
Form of Performance Share Agreement, effective February 23, 2017 for the period 2017 to
2019, pursuant
to Chesapeake Utilities Corporation 2013 Stock and Incentive
Compensation Plan by and between Chesapeake Utilities Corporation and each of Beth
W. Cooper, Jeffry M. Householder, and James F. Moriarty, is incorporated herein by
reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q for the year ended June
30, 2017, File No. 001-11590.
Credit Agreement, dated November 28, 2017, by and between Chesapeake Utilities
Corporation and Branch Banking and Trust Company is incorporated herein by reference
to Exhibit 10.20 of our Annual Report on Form 10-K for the year ended December 31,
2018, File No. 001-11590.
Form of Performance Share Agreement, effective February 26, 2018 for the period 2018 to
2020, pursuant
to Chesapeake Utilities Corporation 2013 Stock and Incentive
Compensation Plan by and between Chesapeake Utilities Corporation and each of Beth W.
Cooper, Jeffry M. Householder and James F. Moriarty, is incorporated herein by reference
to Exhibit 10.1 of our Quarterly Report on Form 10-Q for the quarter ended March 31,
2018, File No. 001-11590.
Form of Performance Share Agreement, effective February 25, 2019 for the period
January 1, 2019 to December 31, 2021, pursuant to Chesapeake Utilities Corporation 2013
Stock and Incentive Compensation Plan by and between Chesapeake Utilities Corporation
and Jeffry M. Householder is incorporated herein by reference to Exhibit 10.24 of our
Annual Report on Form 10-K for the year ended December 31, 2018, File No. 001-11590..
Executive Employment Agreement dated February 25, 2019, between Chesapeake Utilities
Corporation and Jeffry M. Householder, is incorporated herein by reference to Exhibit
10.25 of our Annual Report on Form 10-K for the year ended December 31, 2018, File No.
001-11590.
Chesapeake Utilities Corporation 2020 Form 10-K Page 106
Table of Contents
• Exhibit 10.13
• Exhibit 10.14
• Exhibit 10.15*
• Exhibit 10.16
• Exhibit 10.17*
• Exhibit 10.18*
• Exhibit 10.19*
• Exhibit 10.20*
• Exhibit 10.21*
• Exhibit 10.22*
• Exhibit 10.23*
Term Note dated January 31, 2019 issued by Chesapeake Utilities Corporation in favor of
Branch Banking & Trust Company is incorporated herein by reference to Exhibit 10.1 of
our Quarterly Report on Form 10-Q for the quarter ended March 30, 2019, File No.
001-11590.
Term Loan Credit Agreement, dated January 31, 2019, by and between Chesapeake
Utilities Corporation and Branch Banking and Trust Company is incorporated herein by
reference to Exhibit 10.2 of our Quarterly Report on Form 10-Q for the quarter ended
March 30, 2019, File No. 001-11590.
Executive Retirement Agreement dated October 9, 2019, between Chesapeake Utilities
Corporation and Stephen C. Thompson is incorporated herein by reference to Exhibit 10.1
of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, File No.
001-11590.
Note Purchase Agreement dated November 19, 2019, between Chesapeake Utilities
Corporation, The Guardian Life Insurance Company of America, The Guardian Insurance
& Annuity Company, Inc., Berkshire Life Insurance Company of America, Thrivent
Financial for Lutherans, United of Omaha Life Insurance Company, and CMFG Life
Insurance Company is incorporated herein by reference to our Current Report on Form 8-
K filed on November 20, 2019, File No. 001-11590.
Form of Performance Share Agreement, effective December 3, 2019 for the period 2019 to
2020, pursuant
to Chesapeake Utilities Corporation 2013 Stock and Incentive
Compensation Plan by and between Chesapeake Utilities Corporation and each of Jeffry
M. Householder, Beth W. Cooper, James F. Moriarty and Kevin Webber is incorporated
herein by reference to Exhibit 10.25 to our Annual Report on Form 10-K for the year
ended December 31, 2019, File No. 001-11590.
Form of Performance Share Agreement, effective December 3, 2019 for the period 2019 to
2021, pursuant
to Chesapeake Utilities Corporation 2013 Stock and Incentive
Compensation Plan by and between Chesapeake Utilities Corporation and each of Jeffry
M. Householder, Beth W. Cooper, James F. Moriarty and Kevin Webber is incorporated
herein by reference to Exhibit 10.26 to our Annual Report on Form 10-K for the year
ended December 31, 2019, File No. 001-11590.
Executive Employment Agreement dated December 4, 2019, between Chesapeake Utilities
Corporation and Kevin Webber, is filed incorporated herein by reference to Exhibit 10.27
to our Annual Report on Form 10-K for the year ended December 31, 2019, File No.
001-11590.
Form of Performance Share Agreement, effective February 25, 2020 for the period 2020 to
2022, pursuant
to Chesapeake Utilities Corporation 2013 Stock and Incentive
Compensation Plan by and between Chesapeake Utilities Corporation and each of Jeffry
M. Householder, Beth W. Cooper, James F. Moriarty and Kevin Webber is incorporated
herein by reference to Exhibit 10.28 to our Annual Report on Form 10-K for the year
ended December 31, 2019, File No. 001-11590.
Amendment to Executive Employment Agreement dated December 4, 2019, between
Chesapeake Utilities Corporation and Jeffry M. Householder, is incorporated herein by
reference to Exhibit 10.29 to our Annual Report on Form 10-K for the year ended
December 31, 2019, File No. 001-11590.
Executive Employment Agreement dated May 6, 2020 between Chesapeake Utilities
Corporation and Beth W. Cooper, is incorporated herein by reference to Exhibit 10.1 to
our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, File No.
001-11590.
Executive Employment Agreement dated May 6, 2020 between Chesapeake Utilities
Corporation and James F. Moriarty, is incorporated herein by reference to Exhibit 10.2 to
our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, File No.
001-11590.
• Exhibit 10.24*
Executive Employment Agreement dated December 24, 2019, between Chesapeake
Utilities Corporation and Jeffry S. Sylvester, is filed herewith.
Chesapeake Utilities Corporation 2020 Form 10-K Page 107
Table of Contents
• Exhibit 10.25*
• Exhibit 10.26*
• Exhibit 10.27*
• Exhibit 10.28
• Exhibit 10.29
• Exhibit 10.30
• Exhibit 10.31
• Exhibit 10.32
• Exhibit 10.33
• Exhibit 10.34
• Exhibit 10.35
• Exhibit 10.36
Amendment to Executive Employment Agreement dated February 22, 2021, between
Chesapeake Utilities Corporation and Beth W. Cooper is filed herewith.
Amendment to Executive Employment Agreement dated February 22, 2021, between
Chesapeake Utilities Corporation and Jeffry M. Householder is filed herewith.
Form of Performance Share Agreement, effective February 24, 2021, for the period 2021
to 2023, pursuant to the Chesapeake Utilities Corporation 2013 Stock and Incentive
Compensation Plan by and between Chesapeake Utilities Corporation and each of Jeffry
M. Householder, Beth W. Cooper, James F. Moriarty, Kevin Webber, and Jeffrey S.
Sylvester is filed herewith.
Loan Agreement dated April 24, 2020, between Chesapeake Utilities Corporation and
PNC Bank, National Association is incorporated herein by reference to Exhibit 10.3 to our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, File No.
001-11590.
Loan Agreement dated April 27, 2020, between Chesapeake Utilities Corporation and
Bank of America, N.A. is incorporated herein by reference to Exhibit 10.4 to our Quarterly
Report on Form 10-Q for the quarter ended March 31, 2020, File No. 001-11590.
Revolving Line of Credit Note dated April 24, 2020 issued by Chesapeake Utilities
Corporation in favor of PNC Bank, National Association is incorporated herein by
reference to Exhibit 10.5 to our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2020, File No. 001-11590.
Promissory Note dated April 22, 2020, issued by Chesapeake Utilities Corporation and in
favor of Bank of America, N.A. is incorporated herein by reference to Exhibit 10.6 to our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, File No.
001-11590.
Credit Agreement dated May 29, 2020, between Chesapeake Utilities Corporation and
Citizens Bank National Association is incorporated herein by reference to Exhibit 10.1 to
our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, File No.
001-11590.
Loan Agreement dated May 6, 2020 between Chesapeake Utilities Corporation and Royal
bank of Canada is incorporated herein by reference to Exhibit 10.2 to our Quarterly Report
on Form 10-Q for the quarter ended June 30, 2020, File No. 001-11590.
Form of Revolving Loan Note in favor of Citizens Bank National Association is
incorporated herein by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q for
the quarter ended June 30, 2020, File No. 001-11590.
Form of Revolving Credit Note in favor of Royal Bank of Canada is incorporated herein
by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q for the quarter ended
June 30, 2020, File No. 001-11590.
Credit Agreement, dated September 30, 2020, by and between Chesapeake Utilities
Corporation, PNC Bank, National Association, and several other financial institutions
named therein is incorporated herein by reference to Exhibit 10.1 to our Quarterly Report
on Form 10-Q for the quarter ended September 30, 2020, File No. 001-11590.
• Exhibit 21
Subsidiaries of the Registrant is filed herewith.
• Exhibit 23.1
Consent of Independent Registered Public Accounting Firm is filed herewith.
• Exhibit 31.1
• Exhibit 31.2
• Exhibit 32.1
• Exhibit 32.2
Certificate of Chief Executive Officer of Chesapeake Utilities Corporation pursuant to
Exchange Act Rule 13a-14(a) and 15d – 14(a), is filed herewith.
Certificate of Chief Financial Officer of Chesapeake Utilities Corporation pursuant to
Exchange Act Rule 13a-14(a) and 15d – 14(a), is filed herewith.
Certificate of Chief Executive Officer of Chesapeake Utilities Corporation pursuant to 18
U.S.C. Section 1350, is filed herewith.
Certificate of Chief Financial Officer of Chesapeake Utilities Corporation pursuant to 18
U.S.C. Section 1350, is filed herewith.
• Exhibit 101.INS XBRL Instance Document is filed herewith.
• Exhibit 101.SCH XBRL Taxonomy Extension Schema Document is filed herewith.
• Exhibit 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document is filed herewith.
Chesapeake Utilities Corporation 2020 Form 10-K Page 108
Table of Contents
• Exhibit 101.DEF XBRL Taxonomy Extension Definition Linkbase Document is filed herewith.
• Exhibit 101.LAB XBRL Taxonomy Extension Label Linkbase Document is filed herewith.
• Exhibit 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document is filed herewith.
• Exhibit 104
Cover Page Interactive Data File - formatted in Inline XBRL and contained in Exhibit 101.
*
†
Management contract or compensatory plan or agreement.
These agreements have not been filed herewith pursuant to Item 601(b)(4)(v) of Regulation S-K under the Securities
Act of 1933, as amended. We hereby agree to furnish copies to the SEC upon request.
Chesapeake Utilities Corporation 2020 Form 10-K Page 109
Table of Contents
ITEM 16. FORM 10-K SUMMARY.
None.
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, Chesapeake Utilities Corporation
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
CHESAPEAKE UTILITIES CORPORATION
By:
/s/ JEFFRY M. HOUSEHOLDER
Jeffry M. Householder
President, Chief Executive Officer and Director
February 24, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ JEFFRY M. HOUSEHOLDER
Jeffry M. Householder
President, Chief Executive Officer and Director
February 24, 2021
/S/ BETH W. COOPER
Beth W. Cooper, Executive Vice President,
Chief Financial Officer,
and Assistant Corporate Secretary
(Principal Financial and Accounting Officer)
February 24, 2021
/S/ JOHN R. SCHIMKAITIS
John R. Schimkaitis
Chair of the Board and Director
February 24, 2021
/S/ EUGENE H. BAYARD, ESQ
Eugene H. Bayard, Esq., Director
February 24, 2021
/S/ THOMAS J. BRESNAN
Thomas J. Bresnan, Director
February 24, 2021
/S/ RONALD G. FORSYTHE, JR.
Dr. Ronald G. Forsythe, Jr., Director
February 24, 2021
/S/ THOMAS P. HILL, JR.
Thomas P. Hill, Jr., Director
February 24, 2021
/S/ DENNIS S. HUDSON, III
Dennis S. Hudson, III, Director
February 24, 2021
/S/ LILA A. JABER
Lila A. Jaber, Director
February 24, 2021
/S/ PAUL L. MADDOCK, JR.
Paul L. Maddock, Jr., Director
February 24, 2021
/S/ CALVERT A. MORGAN, JR.
Calvert A. Morgan, Jr., Director
February 24, 2021
/S/ DIANNA F. MORGAN
Dianna F. Morgan, Director
February 24, 2021
Chesapeake Utilities Corporation 2020 Form 10-K Page 110
Table of Contents
Chesapeake Utilities Corporation and Subsidiaries
Schedule II
Valuation and Qualifying Accounts
Additions
For the Year Ended December 31,
(In thousands)
Reserve Deducted From Related Assets
Reserve for Uncollectible Accounts
Balance at
Beginning of
Year
Charged to
Income
Other
Accounts
(1)
Deductions
(2)
Balance at End
of Year
2020
2019
2018
$
$
$
1,337 $
1,058 $
876 $
3,827 $
1,392 $
1,119 $
613 $
278 $
133 $
(992) $
(1,391) $
(1,070) $
4,785
1,337
1,058
(1) Recoveries.
(2) Uncollectible accounts charged off.
Chesapeake Utilities Corporation 2020 Form 10-K Page 111
CORPORATE INFORMATION
CORPORATE OFFICE
909 Silver Lake Boulevard
Dover, DE 19904
Telephone: 302.734.6799
Website: www.chpk.com
TRANSFER AGENT AND REGISTRAR
Computershare Trust Company, N.A.
c/o Chesapeake Utilities Corporation
P.O. Box 505000
Louisville, KY 40233-5000
Toll-Free Telephone (in US and Canada): 877.498.8865
Outside of US and Canada: 781.575.2879
Website: www.computershare.com/investor
DIVIDEND REINVESTMENT
AND DIRECT STOCK PURCHASE PLAN
The Dividend Reinvestment and Direct Stock Purchase
Plan provides flexible investment options for those
who wish to invest in the Company. Common stock
holders can have their dividends automatically
reinvested to purchase additional shares directly
through the Plan and/or send in additional optional
cash investments at any time to increase their
holdings. New investors can purchase shares directly
through the Plan. For more information, please
contact the Company’s transfer agent
(Computershare) as stated above.
ANALYST INFORMATION
Beth W. Cooper
Executive Vice President and Chief Financial Officer
Telephone: 302.734.6799
bcooper@chpk.com
Thomas E. Mahn
Vice President and Treasurer
Telephone: 302.734.6799
tmahn@chpk.com
QUARTER
ENDED 2020
March 31
June 30
September 30
December 31
QUARTER
ENDED 2019
COMMON STOCK AND DIVIDEND INFORMATION
NYSE: CPK
Chesapeake Utilities Corporation’s common stock is
traded on the New York Stock Exchange under the
symbol CPK.
PRICE RANGE
LOW
69.47
76.55
72.89
82.43
$
$
$
$
HIGH
101.29
95.00
89.10
111.40
$
$
$
$
DIVIDENDS
DECLARED
CLOSE PER SHARE*
$
$
$
$
$0.4050
$0.4400
$0.4400
$0.4400
85.71
84.00
84.30
108.21
PRICE RANGE
LOW
$77.59
$88.68
$89.44
$86.65
HIGH
$94.87
$95.99
$97.00
$98.55
March 31
$0.3700
June 30
$0.4050
September 30
$0.4050
$0.4050
December 31
*Declaration of dividends is at the discretion of the Board of Directors.
Dividends in 2020 and 2019 were paid quarterly.
DIVIDENDS
DECLARED
CLOSE PER SHARE*
$91.21
$95.02
$95.32
$95.83
PUBLIC INFORMATION AND SEC FILINGS
Our latest news and filings with the Securities and
Exchange Commission (SEC), including Forms 10-K,
10-Q and 8-K are available to view or request a
printed copy, free of charge, at our website,
www.chpk.com.
If you wish to request a printed copy of any of the
Company’s publications by mail, please send your
written request to Investor Relations at the Corporate
Office.
INVESTOR RELATIONS/SHAREHOLDER SERVICES
Heidi W. Watkins
Shareholder Services Manager
Telephone (toll free): 888.742.5275
hwatkins@chpk.com
909 Silver Lake Boulevard
Dover, Delaware 19904 USA
CHPK.COM