Chesapeake Utilities Corporation Reports Third Quarter 2020 Results

DOVER, Del., Nov. 4, 2020 /PRNewswire/ -- Chesapeake Utilities Corporation (NYSE: CPK) ("Chesapeake Utilities" or the "Company") today announced its financial results for the third quarter of 2020. The Company's net income for the quarter ended September 30, 2020 was $9.3 million, or $0.56 per share, compared to $5.6 million or $0.34 per share, for the same quarter of 2019. Net income for the nine months ended September 30, 2020 was $49.1 million, or $2.97 per share, compared to $42.6 million, or $2.59 per share, for the same period in 2019, representing an increase of 14.7 percent. In terms of continuing operations, the Company's EPS for the quarter ended September 30, 2020 totaled $0.56 per share, an increase of $0.18 per share over the same quarter of 2019. For the nine months ended September 30, 2020, EPS from continuing operations totaled $2.96 per share, an increase of $0.29 per share or 10.9 percent, over the same period in 2019.

Earnings for the third quarter of 2020 reflect increased earnings from the approval of the Hurricane Michael regulatory settlement by the Florida Public Service Commission ("PSC"), pipeline expansion projects, organic growth in the natural gas distribution operations and increased margin from Marlin Gas Services, LLC ("Marlin Gas Services"). These increases were offset by lower customer consumption driven primarily by weather and the unfavorable net impact of the coronavirus ("COVID-19") pandemic.

Year-to-date earnings were impacted by the factors noted above as well as higher retail propane margins, and contributions from the acquisitions of Boulden, Inc. ("Boulden") and Elkton Gas Company ("Elkton Gas") and by gains from two property sales totaling $2.3 million on an after tax basis. The property sales were made possible due to changes in the consolidation of certain operations.

In March 2020, the U.S. Centers for Disease Control and Prevention ("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. Chesapeake Utilities is considered an "essential business," which allows the Company to continue its operational activities and construction projects while the social distancing restrictions remain in place. In response to the COVID-19 pandemic and related restrictions, the Company implemented its 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 and others to reduce the spread of COVID-19. For the three and nine months ended September 30, 2020, the estimated impacts that COVID-19 had on the Company's earnings were approximately $0.7 million and $1.9 million, respectively, primarily driven by 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 the Company has incurred support the ongoing delivery of our essential services during these unprecedented times. As the COVID-19 pandemic is still ongoing, the Company is continuing to assess recoverability and to date, has not established regulatory assets associated with the incremental net expense impacts, as currently authorized by the Delaware, Maryland and Florida PSCs. The Company is committed to communicating timely updates and will continue to monitor developments affecting its employees, customers, suppliers, and 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.

"Our Company delivered strong third quarter results and is well positioned to achieve solid performance for the year, despite the challenges created by the COVID-19 pandemic. We also remain on track to achieve results within our stated 2022 EPS guidance range. The Company's performance to date has been driven by a myriad of growth initiatives across the enterprise. Since our second quarter earnings release, we have announced several key accomplishments, most notably the settlement of the Hurricane Michael regulatory proceeding, which had a significant impact on our third quarter and year-to-date results. The purchase of Elkton Gas at the end of July immediately created a solid foundation for our growing footprint in the Cecil County, Maryland area," stated Jeffrey Householder, President and Chief Executive Officer of Chesapeake Utilities Corporation. "Across all businesses, our dedicated team continued to execute, generating additional margin growth from expansions of our pipelines and Marlin Gas Services' suite of services, organic growth, key regulatory initiatives, and further integration of our strategic acquisitions. Just recently, we announced several new projects that will add to our earnings trajectory in 2021 and beyond, including several renewable natural gas projects and the acquisition of Western Natural Gas Company, a propane company in a growing market adjacent to our northern Florida service territory. Because of new growth opportunities like these, Chesapeake Utilities remains poised to further expand our delivery of essential services that our customers expect from us and to drive increased shareholder value over the coming years."

Capital Expenditures Forecast and Earnings Guidance Update

In February 2020, the Company reaffirmed its capital expenditures projection of $750 million - $1 billion of capital expenditures from 2018-2022. Additionally, the Company updated its previous EPS guidance by increasing the forecasted range for 2022 to $4.70 to $4.90 given the investments already made, those underway and the growth prospects included in the Company's strategic growth plan. The Company expects EPS to grow at an average annual rate of 7.75 percent to 9.50 percent.

The Company has continued to review its projections and remains supportive of this guidance, after taking into consideration its strategic plan, the expected impact of COVID-19 and the anticipated regulatory relief and opportunities for continued collaboration across the enterprise. The Company has historically achieved an average earnings growth at or above this range, and continues to view its long-term growth prospects as comparable to its historical growth.

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

**This press release includes references to non-Generally Accepted Accounting Principles ("GAAP") financial measures, including gross margin. A "non-GAAP financial measure" is generally defined as a numerical measure of a company's historical or future performance that includes or excludes amounts, or that is subject to adjustments, so as to be different from the most directly comparable measure calculated or presented in accordance with GAAP. Our management believes certain non-GAAP financial measures, when considered together with GAAP financial measures, provide information that is useful to investors in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionately positive or negative impact on results in any particular period.

The Company calculates "gross margin" by deducting the cost of sales from operating revenue. Cost of sales includes the 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. Other companies may calculate gross margin in a different manner. Gross margin should not be considered an alternative to operating income or net income, both of which are determined in accordance with GAAP. The Company believes 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 the Company under its allowed rates for regulated operations and under its competitive pricing structures for unregulated businesses. The Company's management uses gross margin in measuring its business units' performance.

Operating Results for the Quarters Ended September 30, 2020 and 2019

Consolidated Results

                                                                    Three Months Ended


                                                           
        
          September 30,




     
              (in thousands)                       2020                             2019        Change                  Percent
                                                                                                                    Change




     Gross margin                                           $
       
           79,508                          $
     67,298                $
      12,210  18.1
                                                                                                                                               %



     Depreciation, amortization and property taxes 22,976                                  16,010                           6,966        43.5
                                                                                                                                          %



     Other operating expenses                      39,126                                  36,931                           2,195         5.9
                                                                                                                                          %




     Operating income                                       $
       
           17,406                          $
     14,357                 $
      3,049  21.2
                                                                                                                                               %


Operating income for the three months ended September 30, 2020 increased by $3.0 million, or 21.2 percent, compared to the same period in 2019. The increase in operating income was largely driven by the settlement of the Hurricane Michael regulatory proceeding which improved operating income by $2.9 million, including $1.9 million in operating income that was previously billed under interim rates during the first half of 2020. Operating income for the quarter was also reduced by an estimated $1.9 million due to unfavorable impacts of COVID-19. For additional details on the Hurricane Michael regulatory proceeding, see the Major Projects and Initiatives discussion below.

Further contributing to the improved performance for the quarter was margin growth from the Company's organic growth projects, increased margins from investments in Florida Gas Reliability Infrastructure Program ("GRIP") and increased demand for Marlin Gas Services' compressed natural gas ("CNG") transportation services. These increases were partially offset by higher operating expenses related to growth initiatives.

Regulated Energy Segment

                                                                Three Months Ended


                                                                  September 30,




     
                (in thousands)                     2020                        2019        Change                  Percent
                                                                                                               Change




     Gross margin                                         $
     
          66,491                          $
     54,961                $
      11,530  21.0

                                                                                                                                          %



     Depreciation, amortization and property taxes 19,617                             13,076                           6,541        50.0

                                                                                                                                     %



     Other operating expenses                      26,392                             24,345                           2,047         8.4

                                                                                                                                     %




     Operating income                                     $
     
          20,482                          $
     17,540                 $
      2,942  16.8

                                                                                                                                          %


Operating income for the Regulated Energy segment increased by $2.9 million for the three months ended September 30, 2020 compared to 2019, or 16.8 percent. Higher operating income was a result of the settlement of the Hurricane Michael regulatory proceeding, which included recognizing the first and second quarter rate impacts associated with the settlement, expansion projects completed and underway by Eastern Shore Natural Gas Company ("Eastern Shore") and Peninsula Pipeline Company, Inc. ("Peninsula Pipeline"), organic growth in the Company's natural gas distribution businesses and margin from increased investments in the Florida GRIP. These increases were partially offset by higher depreciation, amortization and property taxes including amortization of the regulatory asset associated with the Hurricane Michael regulatory proceeding settlement and higher other operating expenses. Operating income for the quarter was reduced by an estimated $1.5 million due to unfavorable impacts of COVID-19, which included an increase in bad debt expense of $1.3 million compared to the third quarter 2019.

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

                   (in thousands)


      Margin contribution from
       Hurricane Michael regulatory
       proceeding settlement (1)                              $
      8,261


      Eastern Shore and Peninsula
       Pipeline service expansions                 2,677


      Natural gas growth (excluding
       service expansions)                           797



     Florida GRIP                                   685


       Margin contribution from Elkton
        Gas (acquisition completed in
        July 2020)                                   357


      Decreased customer consumption -
       weather related                           (1,013)



     Other variances                              (234)



                   Quarter-over-quarter increase
                    in gross margin                      $
     
        11,530




                            (1) This amount includes $5.5
                             million of gross margin
                             previously invoiced under
                             interim rates that was not
                             recognized in revenue during
                             the first and second quarters
                             of 2020.

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

                   (in thousands)


      Unfavorable COVID-19 impacts
       (primarily bad debt expense)                       $
     1,334


      Payroll, Benefits and other
       employee-related expenses                  447


      Operating expenses from Elkton
       Gas acquisition (completed
       July 2020)                                 276



     Other variances                            (10)



                   Quarter-over-quarter increase
                    in other operating expenses       $
     
       2,047


Unregulated Energy Segment

                                                                    Three Months Ended


                                                        
          
          September 30,




     
                (in thousands)                     2020                             2019        Change                      Percent
                                                                                                                        Change




     Gross margin                                          $
        
              13,068                         $
       12,418                 $
      650    5.2

                                                                                                                                                  %



     Depreciation, amortization and property taxes  3,326                                   2,901                                 425      14.7

                                                                                                                                            %



     Other operating expenses                      12,834                                  12,686                                 148       1.2

                                                                                                                                            %




     Operating loss                                       $
        
              (3,092)                       $
       (3,169)                 $
      77    2.4

                                                                                                                                                  %


Operating results for the Unregulated Energy segment increased by $0.1 million for the third quarter, as compared to the third quarter of 2019. Excluding the estimated COVID-19 impacts of $0.3 million, operating income increased by $0.4 million driven by margin growth from Marlin Gas Services and incremental margin from the Boulden assets. These increases were partially offset by higher depreciation, amortization and property taxes and higher other operating expenses.

The major components of the increase in gross margin are shown below:

                   (in thousands)


      Marlin Gas Services -increased
       gross margin from demand for CNG
       transportation services                                $
     599


      Boulden acquisition (assets
       acquired in December 2019)                     327


      Unfavorable COVID-19 impacts on
       gross margin                                 (399)



     Other variances                                 123



                   Quarter-over-quarter increase in
                    gross margin                          $
     
       650


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

                   (in thousands)


      Operating expenses from
       Boulden acquisition
       (completed December 2019)                          $
     290


      Payroll, Benefits and other
       employee-related expenses                (202)



     Other variances                              60



                   Quarter-over-quarter
                    increase in other operating
                    expenses                          $
     
       148


Operating Results for the Nine Months Ended September 30, 2020 and 2019

Consolidated Results

                                                                          Nine Months Ended
                                                                September 30,




     
                (in thousands)                      2020                                  2019       Change               Percent
                                                                                                                      Change




     Gross margin                                          $
       
                253,418               $
      236,203                      $
        17,215   7.3

                                                                                                                                                   %



     Depreciation, amortization and property taxes  57,103                                  47,337             9,766                         20.6

                                                                                                                                              %



     Other operating expenses                      118,797                                 112,221             6,576                          5.9

                                                                                                                                              %




     Operating income                                       $
       
                77,518                $
      76,645                         $
        873   1.1

                                                                                                                                                   %


Operating income for the nine months ended September 30, 2020 increased by $0.9 million compared to the same period in 2019. Operating income for the period was reduced by an estimated $6.7 million due to unfavorable impacts of COVID-19, inclusive of an increase in bad debt expense of $1.9 million compared to the same period in 2019. Excluding this impact, operating income for the period increased by $7.6 million which included operating income of $2.9 million from the settlement of the Hurricane Michael regulatory proceeding, higher operating income from organic growth projects, gross margin contributions from the Boulden and Elkton Gas asset acquisitions completed in December 2019 and July 2020, respectively, and higher retail propane margins per gallon, partially offset by decreased margin from customer consumption associated with milder weather during 2020.

Regulated Energy Segment

                                                                         Nine Months Ended
                                                               September 30,




     
                (in thousands)                     2020                                 2019       Change               Percent
                                                                                                                    Change




     Gross margin                                         $
       
                191,745              $
      177,149                      $
      14,596   8.2

                                                                                                                                               %



     Depreciation, amortization and property taxes 47,144                                 38,694             8,450                       21.8

                                                                                                                                          %



     Other operating expenses                      78,225                                 73,145             5,080                        6.9

                                                                                                                                          %




     Operating income                                      $
       
                66,376               $
      65,310                       $
      1,066   1.6

                                                                                                                                               %


Operating income for the Regulated Energy segment for the nine months ended September 30, 2020 was $66.4 million, an increase of $1.1 million, compared to the same period in 2019. Excluding the estimated unfavorable COVID-19 impacts of $4.8 million, which included an increase in bad debt expense of $1.9 million, operating income increased $5.9 million as a result of the Hurricane Michael regulatory proceeding settlement, higher gross margin from expansion projects completed by Eastern Shore and Peninsula Pipeline and organic growth in the Company's natural gas distribution businesses. These increases were offset by higher depreciation, amortization and property taxes, including amortization of the regulatory asset associated with the Hurricane Michael regulatory proceeding settlement and higher other operating expenses.

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

                   (in thousands)


      Margin Contribution from Hurricane
       Michael regulatory proceeding
       settlement                                              $
      8,261


      Eastern Shore and Peninsula
       Pipeline service expansions                  5,485


      Natural gas distribution -customer
       growth (excluding service
       expansions)                                  2,497


      Eastern Shore margin from capital
       improvements and non-service
       expansion projects                             793



     Florida GRIP                                    678


       Margin contribution from Elkton Gas
        acquisition (completed July 2020)             357


      Unfavorable COVID-19 impacts on
       gross margin                               (2,634)


      Absence of Florida tax savings (net
       of GRIP refunds) recorded in the
       first quarter of 2019 for 2018               (910)


      Decreased customer consumption -
       weather related                              (863)



     Other variances                                 932



                   Period-over-period increase in
                    gross margin                          $
     
        14,596


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

                   (in thousands)


      Unfavorable COVID-19 impacts
       (largely higher bad debt
       expense)                                             $
     2,194


      Insurance expense (non-health)
       - both insured and self-
       insured                                    1,377


      Payroll, benefits and other
       employee-related expenses                  1,029


      Facilities maintenance and
       outside services costs                       777


      Operating expenses from Elkton
       acquisition (completed July
       2020)                                        276



     Other variances                             (573)



                   Period-over-period increase in
                    other operating expenses            $
     
       5,080


Unregulated Energy Segment

                                                                        Nine Months Ended
                                                              September 30,




     
                (in thousands)                     2020                                2019        Change                  Percent
                                                                                                                       Change




     Gross margin                                         $
          
                61,883                       $
     59,340                $
     2,543     4.3

                                                                                                                                                  %



     Depreciation, amortization and property taxes  9,869                                      8,543                           1,326      15.5

                                                                                                                                           %



     Other operating expenses                      40,964                                     39,480                           1,484       3.8

                                                                                                                                           %




     Operating income                                     $
          
                11,050                       $
     11,317                $
     (267)  (2.4)

                                                                                                                                                  %


Operating income for the Unregulated Energy segment decreased by $0.3 million for the nine months ended September 30, 2020, compared to the same period in 2019. Excluding the estimated COVID-19 impacts of $1.6 million, operating income increased $1.3 million as a result of incremental gross margin from the acquisition of the Boulden propane assets, higher retail propane margins per gallon and increased demand for Marlin Gas Services' CNG transportation services. These increases were partially offset by reduced gross margins from overall warmer temperatures, expenses associated with recent acquisitions, and increased insurance expense.

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


       
                (in thousands)


                     Propane Operations

    ---

        Boulden acquisition (assets acquired in
         December 2019)                                               $
     2,763


        Increased retail propane margins per
         gallon driven by favorable market
         conditions and supply management                   1,892


        Decreased customer consumption -
         primarily weather related                        (1,540)


                     Marlin Gas Services

    ---

        Increased demand for CNG services                     694



       
                Aspire Energy

    ---

        Decreased customer consumption -
         primarily weather related                          (687)


        Higher margins from negotiated rate
         increases                                            443


        Unfavorable COVID-19 impacts on gross
         margin                                           (1,145)



       Other variances                                       123



                     Period-over-period increase in gross
                      margin                                      $
     
       2,543


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

                   (in thousands)


      Operating expenses from Boulden
       acquisition (completed in
       December 2019)                                      $
       939


      Insurance expense (non-health)
       - both insured and self-
       insured                                    523


      Unfavorable COVID-19 impacts
       (higher operating and bad debt
       expenses)                                  417



     Other variances                           (395)



                   Period-over-period increase
                    in other operating expenses       $
     
        1,484


Forward-Looking Statements

Matters included in this release may include forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those in the forward-looking statements. Please refer to the Safe Harbor for Forward-Looking Statements in the Company's 2019 Annual Report on Form 10-K and the Quarterly Report on Form 10-Q for the third quarter of 2020 for further information on the risks and uncertainties related to the Company's forward-looking statements. In addition, to the risks and uncertainties identified in the Company's 2019 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q for the first, second and third quarters of 2020, risks and uncertainties related to the COVID-19 pandemic could cause actual future results to differ materially from those expressed in any forward-looking statements, including, but not limited to, the duration and scope of the COVID-19 pandemic and impact on the demand for our services; our ability to obtain needed materials and components from our suppliers; actions governments, business, and individuals take in response to the pandemic, including mandatory business closures and restrictions on onsite commercial interactions; the impact of the pandemic and actions taken in response to the pandemic on global and regional economies and economic activity; the pace of recovery when the COVID-19 pandemic subsides; our customers' ability to make payments for our services; and general economic uncertainty in the United States and global markets and a continuation or worsening of economic conditions in the United States or low levels of economic growth.

Conference Call

Chesapeake Utilities will host a conference call on Thursday, November 5, 2020 at 4:00 p.m. Eastern Time to discuss the Company's financial results for the three and nine ended September 30, 2020. To participate in this call, dial 877.224.1468 and reference Chesapeake Utilities' 2020 Third Quarter Results Conference Call. To access the replay recording of this call, the accompanying transcript, and other pertinent quarterly information, use the link CPK - Conference Call Audio Replay, or visit the Investors/Events and Presentations section of the Company's website at www.chpk.com.

About Chesapeake Utilities Corporation

Chesapeake Utilities is a diversified energy company engaged in natural gas transmission and distribution; electricity generation and distribution; propane gas distribution; mobile compressed natural gas services; and other businesses. Information about Chesapeake Utilities and its family of businesses is available at https://www.chpk.com or through its Investor Relations (IR) App.

Please note that Chesapeake Utilities Corporation is not affiliated with Chesapeake Energy, an oil and natural gas exploration company headquartered in Oklahoma City, Oklahoma.

For more information, contact:

Beth W. Cooper
Executive Vice President, Chief Financial Officer and Assistant Corporate Secretary
302.734.6799

                                                                            
            
            
                  Financial Summary

                                                                                                 ---

                                                                          
            
            (in thousands, except per share data)




                                                                                             Three Months Ended                                        Nine Months Ended


                                                                              
            
            September 30,                         
          
              September 30,

                                                                                                                                                   ---

                                                                            2020                                     2019               2020                            2019

                                                                                                                                                                      ---


     
                Gross Margin



       Regulated Energy segment                                                 $
          
                66,491                                  $
            54,961               $
        
         191,745  $
        177,149



       Unregulated Energy segment                                        13,068                                               12,418                                61,883                59,340



       Other businesses and eliminations                                   (51)                                                (81)                                (210)                (286)




     
                Total Gross Margin                                            $
          
                79,508                                  $
            67,298               $
        
         253,418  $
        236,203






     
                Operating Income



        Regulated Energy segment                                                $
          
                20,482                                  $
            17,540                $
        
         66,376   $
        65,310



        Unregulated Energy segment                                      (3,092)                                             (3,169)                               11,050                11,317



        Other businesses and eliminations                                    16                                                 (14)                                   92                    18




     
                Total Operating Income                                 17,406                                               14,357                                77,518                76,645




     Other income (expense), net                                           (40)                                               (351)                                2,997                 (731)



     Interest Charges                                                     4,584                                                5,403                                15,452                16,583




     
                Income from Continuing Operations Before Income Taxes  12,782                                                8,603                                65,063                59,331



     Income Taxes on Continuing Operations                                3,502                                                2,352                                16,082                15,354




     
                Income from Continuing Operations                       9,280                                                6,251                                48,981                43,977



     Income (loss) from Discontinued Operations, Net of Tax                (19)                                               (630)                                  165               (1,388)




     
                Net Income                                                     $
          
                9,261                                   $
            5,621                $
        
         49,146   $
        42,589






     
                Basic Earnings Per Share of Common Stock



     Earnings from Continuing Operations                                          $
          
                0.56                                    $
            0.38                  $
        
         2.97     $
        2.68



     Earnings (loss) from Discontinued Operations                             -                                              (0.04)                                 0.01                (0.08)




     Basic Earnings Per Share of Common Stock                                     $
          
                0.56                                    $
            0.34                  $
        
         2.98     $
        2.60






     
                Diluted Earnings Per Share of Common Stock



     Earnings from Continuing Operations                                          $
          
                0.56                                    $
            0.38                  $
        
         2.96     $
        2.67



     Earnings (loss) from Discontinued Operations                             -                                              (0.04)                                 0.01                (0.08)




     Diluted Earnings Per Share of Common Stock                                   $
          
                0.56                                    $
            0.34                  $
        
         2.97     $
        2.59



Financial Summary Highlights
Key variances in continuing operations, between the third quarter of 2020 and the third quarter of 2019, included:


              
                (in thousands, except per share data)                                                    Pre-tax                      Net                Earnings
                                                                                                                Income                     Income              Per Share




              
                Third Quarter of 2019 Reported Results from Continuing Operations                                 $
      
      8,603                                    $
     
     6,251          $
     
     0.38



              
                Adjusting for Unusual Items:



              Hurricane Michael (net impact of the first and second quarter of 2020)(1)                               2,705                             1,964                               0.12



              Unfavorable COVID-19 impacts                                                                          (1,023)                            (742)                            (0.04)



              Decreased customer consumption - primarily weather related                                            (1,005)                            (729)                            (0.05)



                                                                                                                         677                               493                               0.03






              
                Increased (Decreased) Gross Margins:



              Margin contribution from the Hurricane Michael regulatory proceeding settlement*                        2,754                             1,999                               0.12



              Eastern Shore and Peninsula Pipeline service expansions*                                                2,677                             1,943                               0.12



              Natural gas growth (excluding service expansions)                                                         797                               578                               0.03



              Florida GRIP*                                                                                             685                               498                               0.03



              Margin contributions from Boulden and Elkton Gas acquisitions (completed July                             684                               496                               0.03
    2020 and December 2019, respectively)*



              Increased demand for CNG services for Marlin Gas Services*                                                599                               435                               0.03



                                                                                                                       8,196                             5,949                               0.36






              
                 (Increased) Decreased Operating Expenses (Excluding Cost of Sales):



              Depreciation and amortization associated with Hurricane Michael regulatory proceeding settlement      (1,781)                          (1,293)                            (0.08)



              Depreciation, amortization and property tax costs due to new capital investments                      (1,312)                            (952)                            (0.06)



              Operating expenses from Elkton Gas and Boulden acquisitions (completed July                             (867)                            (630)                            (0.04)
    2020 and December 2019, respectively)



              Facilities, maintenance and outside services costs                                                      (414)                            (301)                            (0.02)



              Insurance expense (non-health) - both insured and self-insured                                          (323)                            (234)                            (0.01)



                                                                                                                     (4,697)                          (3,410)                            (0.21)






              Interest charges                                                                                        (841)                            (611)                            (0.04)



              Lower pension expense                                                                                     388                               282                               0.02



              Net other changes                                                                                         456                               326                               0.02



                                                                                                                           3                               (3)






              
                Third Quarter of 2020 Reported Results from Continuing Operations                                $
      
      12,782                                    $
     
     9,280          $
     
     0.56




        *See the Major Projects and
         Initiatives table.



     
     
                  (1)          Includes amortization of
                                      regulatory liability associated
                                      with interest expense of $0.8
                                      million related to the Hurricane
                                      Michael regulatory proceeding
                                      settlement.

Key variances in continuing operations, between the nine months ended 2020 and the nine months ended 2019, included:


              
                (in thousands, except per share data)                                                    Pre-tax                    Net                 Earnings
                                                                                                                Income                   Income               Per Share




              
                Nine Months Ended September 30, 2019 Reported Results from Continuing Operations:                $
     
     59,331                                     $
     
     43,977          $
     
     2.67






              
                Adjusting for Unusual Items:



              Unfavorable COVID-19 impacts                                                                          (4,933)                         (3,587)                             (0.22)



              Decreased customer consumption - primarily weather related                                            (3,090)                         (2,247)                             (0.14)



              Absence of Florida tax savings (net of GRIP refunds) recorded in first quarter of 2019 for              (910)                           (667)                             (0.04)
    2018



              Gains from sales of assets                                                                              3,162                            2,317                                0.14



              Favorable income tax impact associated with net operating loss carryback                                                                1,669                                0.10



                                                                                                                     (5,771)                         (2,515)                             (0.16)






              
                Increased (Decreased) Gross Margins:



              Margin contribution from the Hurricane Michael regulatory proceeding settlement*                        8,261                            6,007                                0.36



              Eastern Shore and Peninsula Pipeline service expansions*                                                5,485                            3,988                                0.24



              Margin contribution from Elkton Gas and Boulden acquisitions (completed July 2020 and                   3,120                            2,269                                0.14
    December 2019, respectively)*



              Natural gas growth (excluding service expansions)                                                       2,497                            1,816                                0.11



              Increased retail propane margins per gallon                                                             1,892                            1,375                                0.08



              Eastern Shore margin from capital improvements and capital surcharge increases                            793                              576                                0.04



              Increased demand for CNG services for Marlin Gas Services*                                                694                              505                                0.03



              Florida GRIP*                                                                                             678                              493                                0.03



              Aspire Energy rate increases                                                                              443                              322                                0.02



                                                                                                                      23,863                           17,351                                1.05






              
                (Increased) Decreased Other Operating Expenses (Excluding Cost of Sales):



              Depreciation and amortization associated with Hurricane Michael regulatory proceeding settlement      (5,355)                         (3,894)                             (0.24)



              Depreciation, amortization and property tax costs due to new capital investments                      (3,732)                         (2,714)                             (0.16)



              Insurance expense (non-health) - both insured and self-insured                                        (1,900)                         (1,382)                             (0.08)



              Operating expenses from Elkton Gas and Boulden acquisitions (completed July 2020 and                  (1,900)                         (1,382)                             (0.08)
    December 2019, respectively)



              Facilities maintenance and outside services costs                                                     (1,294)                           (941)                             (0.06)



                                                                                                                    (14,181)                        (10,313)                             (0.62)






              Other income tax effects                                                                                                                (914)                             (0.06)



              Lower pension expense                                                                                   1,131                              822                                0.05



              Interest charges (1)                                                                                    (852)                           (620)                             (0.04)



              Net other changes                                                                                       1,542                            1,193                                0.07



                                                                                                                       1,821                              481                                0.02






              
                Nine Months Ended September 30, 2020 Reported Results from Continuing Operations                 $
     
     65,063                                     $
     
     48,981          $
     
     2.96




        *
                See the Major
         Projects and Initiatives table
         later in this press release.



     
     
                  (1)              Interest charges includes
                                          amortization of a regulatory
                                          liability of $1.1 million
                                          related to the Hurricane Michael
                                          regulatory proceeding
                                          settlement.

Recently Completed and Ongoing Major Projects and Initiatives
The Company constantly pursues and develops additional projects and initiatives to serve existing and new customers, and to further grow its businesses and earnings, with the intention to increase shareholder value. The following represent the major projects/initiatives recently completed and currently underway. Major projects and initiatives that have generated consistent year-over-year margin contributions are removed from the table. In the future, the Company will add new projects and initiatives to this table once negotiations are substantially final and the associated earnings can be estimated.

                                                                                                             
             
             Gross Margin for the Period



                                                                                    Three Months                         Nine Months Ended                             Year Ended                   Estimate for
                                                                              Ended



              
                Project/Initiative                                      September 30,                          September 30,                              December 31,         
        
          Fiscal




              
                in thousands                             2020                         2019         2020                       2019               2019                          2020       2021

    ---


              
                
                  Pipeline Expansions

    ---


              West Palm Beach County, Florida Expansion (1)               $
       
              1,020                      $
           745                                 $
           
           2,988                  $
         1,068            $
      2,139              $
      
      4,076  $
      4,984



              Del-Mar Energy Pathway (1)                             925                                189                            1,565                                          542           731                    2,398                  4,100



              Auburndale                                             170                                113                              509                                          113           283                      679                    679



              Callahan Intrastate Pipeline (including related      1,609                                                              2,146                                                                             4,039                  6,437
    natural gas distribution services)



                    Guernsey Power Station                                                                                                                                                                                                    514




              Total Pipeline Expansions                            3,724                              1,047                            7,208                                        1,723         3,153                   11,192                 16,714






              
                
                  Virtual Pipeline Growth

    ---


              Compressed Natural Gas Transportation                1,592                                993                            5,047                                        4,353         5,410                    7,000                  8,000



                   Renewable Natural Gas Transportation                                                                                                                                                                                     1,000




              Total Virtual Pipeline Growth                        1,592                                993                            5,047                                        4,353         5,410                    7,000                  9,000






              
                
                  Acquisitions

    ---


              Boulden Propane                                        327                                                              2,763                                                       329                    4,000                  4,200



              Elkton Gas                                             357                                                                357                                                                             1,365                  3,992



                   Western Natural Gas Company                                                                                                                                                                          250                  1,800




              Total Acquisitions                                     684                                                              3,120                                                       329                    5,615                  9,992






              
                
                  Regulatory Initiatives

    ---


              Florida GRIP                                         3,831                              3,146                           11,135                                       10,457        13,939                   14,976                 16,739



              Hurricane Michael regulatory proceeding (2)          8,261                                                              8,261                                                                            11,014                 11,014




              Total Regulatory Initiatives                        12,092                              3,146                           19,396                                       10,457        13,939                   25,990                 27,753






              
                Total                                         $
       
              18,092                    $
           5,186                                $
           
           34,771                 $
         16,533           $
      22,831             $
      
      49,797 $
      63,459





              
                (1)              Includes margin generated from
                                               interim services.



              
                (2)              This amount includes $5.5
                                               million of gross margin
                                               previously invoiced under
                                               interim rates that was not
                                               recognized in revenue during
                                               the first and second quarters
                                               of 2020.

Detailed Discussion of Major Projects and Initiatives

Pipeline Expansions

West Palm Beach County, Florida Expansion
Peninsula Pipeline is constructing four transmission lines to bring additional natural gas to the Company's distribution system in West Palm Beach, Florida. The first phase of this project was placed into service in December 2018 and generated $0.3 million and $1.9 million in additional gross margin for the three and nine months ended September 30, 2020, respectively. The Company expects to complete the remainder of the project in phases through the second quarter of 2021, and estimates that the project will generate gross margin of $4.1 million in 2020 and $5.0 million annually thereafter.

Del-Mar Energy Pathway
In December 2019, the Federal Energy Regulatory Commission 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 Dekatherms per day ("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 on the project began in January 2020, and interim services in advance of this project generated $0.9 million and $1.6 million in margin for the three and nine months ended September 30, 2020, respectively. The estimated gross margin from this project is approximately $2.4 million in 2020, $4.1 million in 2021 and $5.1 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 increasing both delivery capacity and downstream pressure as well as introducing a secondary source of natural gas for the Florida Division of Chesapeake Utilities' distribution system. Peninsula Pipeline generated gross margin from this project of $0.2 million and $0.5 million for the three and nine months ended September 30, 2020, respectively, and expects to generate annual gross margin of $0.7 million in 2020 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 $1.6 million and $2.1 million in additional gross for the three and nine months ended September 30, 2020, respectively. Peninsula Pipeline expects to generate gross margin of $4.0 million in 2020 and $6.4 million annually thereafter.

Guernsey Power Station
Guernsey Power Station, LLC ("Guernsey Power Station") and the Company's affiliate, Aspire Energy Express, LLC ("Aspire Energy Express"), entered into a precedent firm transportation capacity agreement 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 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 for 2022 and beyond.

Virtual Pipeline Growth

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 three and nine months ended September 30, 2020, Marlin Gas Services generated additional gross margin of $0.6 million and $0.7 million, respectively. We estimate that Marlin Gas Services will generate annual gross margin of approximately $7.0 million in 2020 and $8.0 million in 2021, with the 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 most recently, announcing its expansion into the transportation of renewable natural gas from diverse supply sources to various pipeline interconnection points, as further outlined below.

Renewable Natural Gas Transportation

Bioenergy DevCo
In June 2020, the Company 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 a project to remove excess organics from poultry waste and convert it into renewable natural gas. BDC and the Company's affiliates are collaborating on this project in addition to several other project sites where organic waste can be converted into a carbon-negative energy source. This project provides the opportunity for the Company to maintain the green attributes of the renewable natural gas as it is distributed to its natural gas distribution customers.

The resources generated from organic material at BDC's anaerobic digestion facilities in Delaware, will be processed by the Company and Eastern Shore and Marlin Gas Services will facilitate the transportation and receipt of renewable natural gas for multiple suppliers through its interconnect facility and equipment. Marlin Gas Services will transport the sustainable fuel to Eastern Shore, where it will be introduced to the Company's own distribution system and ultimately distributed to its natural gas customers.

CleanBay Project
In July 2020, the Company and CleanBay Renewables Inc. ("CleanBay") announced a new partnership to bring renewable natural gas to its Delmarva natural gas operations. As part of this partnership, the Company will transport the renewable natural gas produced at CleanBay's planned Westover, Maryland bio-refinery, to the Company's natural gas infrastructure in the Delmarva region. Eastern Shore and Marlin Gas Services, will transport the renewable natural gas from CleanBay to the Company's Delmarva natural gas distribution system where it is ultimately delivered to the Delmarva natural gas distribution end use customers.

At the present time, the Company has disclosed that it expects to generate at least $1.0 million in 2021 in incremental margin from renewable natural gas transportation services beginning in 2021. The Company continues to finalize contract terms associated with some of these projects. Additional information will be provided regarding incremental margin on these projects at a future time, as contracts are finalized.

Acquisitions

Boulden Propane
In December 2019, Sharp Energy, Inc. ("Sharp"), the Company's wholly-owned subsidiary, 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 $0.3 million and $2.8 million of incremental gross margin for the three and nine months ended September 30, 2020, respectively. The Company estimates that this acquisition will generate annual gross margin of approximately $4.0 million in 2020, and $4.2 million in 2021, with the potential for additional growth in future years.

Elkton Gas Company
In July 2020, the Company 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 is approximately $15.6 million, which included $0.6 million of working capital. Elkton Gas' territory is contiguous to the Company's franchised service territory in Cecil County, Maryland. The Company generated $0.4 million in additional gross margin from Elkton Gas and estimates that this acquisition will generate gross margin of approximately $1.4 million in 2020 and $4.0 million in 2021.

Western Natural Gas Company
In October 2020, Sharp acquired certain propane operating assets of Western Natural Gas Company, which provides propane distribution service throughout Jacksonville, Florida and the surrounding communities, for approximately $6.7 million, net of cash acquired. The acquisition will be accounted for as a business combination within the Unregulated Energy segment beginning in the fourth quarter of 2020. Sharp estimates that this acquisition will generate gross margin of approximately of $0.3 million in 2020 and $1.8 million in 2021.

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 $160.1 million of capital expenditures to replace 322 miles of qualifying distribution mains, including $16.1 million of new pipes during the first nine months of 2020. The Company expects to generate annual gross margin of approximately $15.0 million in 2020, and $16.7 million in 2021.

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 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, FPU filed an update to the 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, the Florida PSC approved an interim rate increase, subject to refund, effective January 1, 2020, associated with the restoration effort following Hurricane Michael. FPU fully reserved these interim rates, pending a final resolution and settlement of the limited proceeding. The settlement agreement allowed FPU to: (a) record regulatory assets for storm costs in the amount of $45.8 million including interest which will be amortized over six years; (b) recover these storm costs through a surcharge for a total of $7.7 million annually; and (c) collect an annual increase in revenue of $3.3 million to recover capital costs associated with new plant 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 three and nine months ended September 30, 2020:

                                 Three Months             Nine Months
                                  Ended                    Ended


                  (in thousands) September 30,            September 30,
                                  2020(1)                   2020



     Gross Margin                              $
       2,754                        $
     8,261


     Depreciation                        (298)                            (883)


     Amortization of
      regulatory
      assets                             2,079                             6,238



     Operating
      income                               973                             2,906


     Amortization of
      liability
      associated
      with interest
      expense                            (360)                          (1,132)



     Pre-tax income                      1,333                             4,038


     Income tax
      expense                              365                             1,106



     Net income                                  $
       968                        $
     2,932






                            (1) The Hurricane Michael
                             impact for the three months
                             ended September 30, 2020, is
                             presented for comparison
                             purposes.

Other major factors influencing gross margin

Weather and Consumption
Weather conditions accounted for a $1.0 million decrease in gross margin during the third quarter of 2020, compared to the same period in 2019, due to a 17 percent decrease in Cooling Degree-Days ("CDDs") in Florida that resulted in reduced customer consumption for our electric operations. Compared to normal temperatures, as detailed below, gross margin was $0.5 million lower due to a lower number of CDDs in the Company's Florida service territory. For the nine-month period, overall milder temperatures decreased gross margin by $3.1 million compared to the same period in 2019 and $3.2 million compared to normal temperatures. The following table summarizes Heading Degree-Days ("HDD") and CDD variances from the 10-year average HDD/CDD ("Normal") for the three and nine months ended September 30, 2020 and 2019.

                                           Three Months Ended                         Nine Months Ended


                                           September 30,                         September 30,



                                      2020     2019           Variance  2020     2019                        Variance




     
                Delmarva



     Actual HDD                        43                  7             36              2,416                               2,576       (160)



     10-Year Average HDD ("Normal")    48                 61           (13)             2,797                               2,846        (49)




     Variance from Normal             (5)              (54)                 (381)                                    (270)




     
                Florida



     Actual HDD                                                                         343                                 379        (36)



     10-Year Average HDD ("Normal")                                                     508                                 532        (24)




     Variance from Normal                                                                              (165)                     (153)




     
                Ohio



     Actual HDD                        86                  2             84              3,383                               3,533       (150)



     10-Year Average HDD ("Normal")    79                 90           (11)             3,691                               3,742        (51)




     Variance from Normal               7               (88)                 (308)                                    (209)




     
                Florida



     Actual CDD                     1,337              1,620          (283)             2,412                               2,840       (428)



     10-Year Average CDD ("Normal") 1,573              1,553             20              2,666                               2,625          41




     Variance from Normal           (236)                67                  (254)                                      215


Natural Gas Distribution Margin Growth
Customer growth for the Company's 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 $0.8 million and $2.5 million for the three and nine months ended September 30, 2020, respectively. The average number of residential customers served on the Delmarva Peninsula and in Florida increased by 4.9 percent and 3.9 percent, respectively, during the third quarter of 2020 and 4.0 percent and 3.8 percent, respectively for the nine months ended September 30, 2020. 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 to natural gas as our distribution infrastructure continues to build out. In Florida, as gas heating is not a significant portion of residential use, the incremental margin is split more even among the sectors with 50-percent coming from each of the sectors on a year-to-date basis. The details for the three and nine months ended September 30, 2020 are provided in the following table:

                                                Three Months Ended                             Nine Months Ended


                                                September 30, 2020                             September 30, 2020




     (in thousands)            Delmarva Peninsula                    Florida        Delmarva Peninsula               Florida




     Customer Growth:



     Residential                                                  $
         302     $
      166                                         $
     1,069   $
       560



     Commercial and industrial                 78                            251                                 302         566




     Total Customer Growth                                        $
         380     $
      417                                         $
     1,371 $
       1,126


Capital Investment Growth and Associated Financing Plans
The Company's capital expenditures were $143.9 million for the nine months ended September 30, 2020. The following table shows a range of the expected 2020 capital expenditures by segment and by business line:

                                                                  2020



                   (dollars in thousands)     Low                           High



      Regulated Energy:


      Natural gas
       distribution                                    $
      77,000                     $
      85,000


      Natural gas
       transmission                        70,000                    74,000


      Electric distribution                 3,000                     5,000



      Total Regulated Energy              150,000                   164,000


      Unregulated Energy:


      Propane distribution                 14,000                    16,000


      Energy transmission                  17,000                    18,000


      Other unregulated
       energy                              12,000                    14,000



      Total Unregulated
       Energy                              43,000                    48,000



     Other:


      Corporate and other
       businesses                           2,000                     3,000




     Total Other                           2,000                     3,000



      Total 2020 Expected
       Capital Expenditures                       $
     
        195,000                $
     
        215,000


The capital expenditure projection is subject to continuous review and modification. Actual capital requirements may vary from the above estimates due to a number of factors, including changing economic conditions, capital delays because of COVID-19 that are greater than currently anticipated, customer growth in existing areas, regulation, new growth or acquisition opportunities and availability of capital. Historically, actual capital expenditures have typically lagged behind the budgeted amounts.

Management reaffirms its capital expenditure guidance of between $750 million and $1 billion for the five-year period between 2018 and 2022. From January 1, 2018 through September 30, 2020, the Company has invested $625.7 million in new capital expenditures.

The Company's target ratio of equity to total capitalization, including short-term borrowings, is between 50 and 60 percent. The Company's equity to total capitalization ratio, including short term borrowings, was 45 percent as of September 30, 2020. The Company 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 more volatile. The Company also maintains an effective shelf registration statement with the Securities and Exchange Commission for the issuance of shares under its Dividend Reinvestment and Direct Stock Purchase Plan (the "DRIP"). In June 2020, the Company filed a shelf registration statement with the Securities and Exchange Commission, which provides for the issuance of shares of its common stock in a variety of offering types. On August 17, 2020, the Company filed a prospectus supplement under the shelf registration statement for an At-the-Market ("ATM") program under which the Company may issue and sell shares of common stock up to an aggregate offering price of $75.0 million. In September 2020, the Company issued 0.2 million shares of common stock and received net proceeds of approximately $19.2 million, for the DRIP and ATM issuances, which were added to its general corporate funds. In October 2020, the Company issued an additional 0.7 million shares and received approximately $63.8 million in net proceeds, for the DRIP and ATM issuances. As a result of issuing additional equity in October 2020, the Company's equity to total capitalization ratio including short-term borrowings was approximately 50 percent at October 31, 2020, which is at the low end of its target range.

Depending on the Company's capital needs and subject to market conditions, in addition to other debt and equity offerings, the Company may consider, as necessary in the future, issuing additional shares under the direct stock purchase component of the DRIP, the ATM program, or pursuant to its shelf registration statement.

In September 2020, the Company entered into a $375.0 million syndicated revolving line of credit (the "Revolver"), with six participating lenders. The Revolver expires on September 29, 2021 and has a tiered commitment fee and interest rate schedule, based upon a pre-determined spread over LIBOR, depending upon the Company's total capitalization. As of September 30, 2020, when pricing was established fourth quarter of 2020, the applicable commitment fee represented 0.175 percent and the spread over LIBOR for the interest rate represented 1.125 percent. As a result of entering into the Revolver, in September 2020, the Company terminated and paid outstanding balances for all previously existing bilateral lines of credit and its previous revolving credit facility. The Company's available credit under the new Revolver at September 30, 2020 was $154.7 million. More information about the Company's new revolving line of credit as well as the renewal of several debt private placement shelf agreements is included in the Company's Quarterly Report on Form 10-Q for the third quarter of 2020.

                                                                           
              
              Chesapeake Utilities Corporation and Subsidiaries


                                                                         
             
              Condensed Consolidated Statements of Income (Unaudited)


                                                                           
              
              (in thousands, except shares and per share data)




                                                                                                       Three Months Ended                                            Nine Months Ended


                                                                                    
            
                September 30,                              
          
              September 30,

                                                                                                                                                                 ---

                                                                                  2020                                         2019                    2020                            2019

                                                                                                                                                                                     ---


     
                Operating Revenues



     Regulated Energy                                                                  $
             
                82,762                                      $
            74,580                $
        
          259,235  $
        251,601



     Unregulated Energy and other                                              18,657                                                    18,046                                    91,925                 96,029




     
                Total Operating Revenues                                    101,419                                                    92,626                                   351,160                347,630




     
                Operating Expenses



     Regulated Energy cost of sales                                            16,271                                                    19,619                                    67,490                 74,452



     Unregulated Energy and other cost of sales                                 5,640                                                     5,709                                    30,250                 36,975



     Operations                                                                34,959                                                    32,614                                   105,516                 99,558



     Maintenance                                                                3,717                                                     3,920                                    11,695                 11,200



     Gain from a settlement                                                         -                                                                                             (130)                 (130)



     Depreciation and amortization                                             18,293                                                    11,220                                    42,793                 33,612



     Other taxes                                                                5,133                                                     5,187                                    16,028                 15,318




     
                Total operating expenses                                     84,013                                                    78,269                                   273,642                270,985




     
                Operating Income                                             17,406                                                    14,357                                    77,518                 76,645



     Other income (expense), net                                                 (40)                                                    (351)                                    2,997                  (731)



     Interest charges                                                           4,584                                                     5,403                                    15,452                 16,583




     
                Income from Continuing Operations Before Income Taxes        12,782                                                     8,603                                    65,063                 59,331



     Income Taxes on Continuing Operations                                      3,502                                                     2,352                                    16,082                 15,354




     Income from Continuing Operations                                          9,280                                                     6,251                                    48,981                 43,977



     Income (loss) from Discontinued Operations, Net of Tax                      (19)                                                    (630)                                      165                (1,388)




     
                Net Income                                                            $
             
                9,261                                       $
            5,621                 $
        
          49,146   $
        42,589




     
                Weighted Average Common Shares Outstanding:



     Basic                                                                 16,533,748                                                16,403,776                                16,466,106             16,396,646



     Diluted                                                               16,592,842                                                16,453,867                                16,523,200             16,444,231



     
                Basic Earnings Per Share of Common Stock:



     Earnings from Continuing Operations                                                 $
             
                0.56                                        $
            0.38                   $
        
          2.97     $
        2.68



     Earnings (loss) from Discontinued Operations                                   -                                                   (0.04)                                     0.01                 (0.08)




     Basic Earnings Per Share of Common Stock                                            $
             
                0.56                                        $
            0.34                   $
        
          2.98     $
        2.60






     
                Diluted Earnings Per Share of Common Stock:



     Earnings from Continuing Operations                                                 $
             
                0.56                                        $
            0.38                   $
        
          2.96     $
        2.67



     Earnings (loss) from Discontinued Operations                                   -                                                   (0.04)                                     0.01                 (0.08)




     Diluted Earnings Per Share of Common Stock                                          $
             
                0.56                                        $
            0.34                   $
        
          2.97     $
        2.59


                                                  
     
     Chesapeake Utilities Corporation and Subsidiaries


                                                  
     
     Condensed Consolidated Balance Sheets (Unaudited)





     
                Assets                              September 30, 2020                                                 December 31, 2019



                   (in thousands, except shares
                    and per share data)


                    Property, Plant and Equipment



     Regulated Energy                                                      $
              
                1,564,420                          $
      1,441,473



     Unregulated Energy                                          278,897                                         265,209


      Other businesses and
       eliminations                                                30,365                                          39,850



       Total property, plant and
        equipment                                               1,873,682                                       1,746,532


       Less:  Accumulated depreciation
        and amortization                                        (358,851)                                      (336,876)


       Plus:  Construction work in
        progress                                                   52,519                                          54,141



       Net property, plant and
        equipment                                               1,567,350                                       1,463,797



                    Current Assets


      Cash and cash equivalents                                     3,056                                           6,985


      Trade and other receivables                                  53,132                                          50,899


      Less: Allowance for credit
       losses                                                     (4,130)                                        (1,337)



      Trade receivables, net                                       49,002                                          49,562



     Accrued revenue                                              11,545                                          20,846


      Propane inventory, at average
       cost                                                         4,099                                           5,824


      Other inventory, at average
       cost                                                         5,583                                           6,067



     Regulatory assets                                            10,372                                           5,144


      Storage gas prepayments                                       2,971                                           3,541


      Income taxes receivable                                      15,156                                          20,050



     Prepaid expenses                                             14,817                                          13,928


      Derivative assets, at fair
       value                                                        1,967



     Other current assets                                            753                                           2,879



       Total current assets                                       119,321                                         134,826



                    Deferred Charges and Other
                     Assets



     Goodwill                                                     36,930                                          32,668


      Other intangible assets, net                                  7,215                                           8,129


      Investments, at fair value                                    9,680                                           9,229


      Operating lease right-of-use
       assets                                                      11,077                                          11,563



     Regulatory assets                                           112,650                                          73,407


      Receivables and other deferred
       charges                                                     23,865                                          49,579



       Total deferred charges and
        other assets                                              201,417                                         184,575



                   Total Assets                                             $
              
                1,888,088                          $
      1,783,198


                                                                                                   
     
     Chesapeake Utilities Corporation and Subsidiaries


                                                                                                   
     
     Condensed Consolidated Balance Sheets (Unaudited)





              
                Capitalization and Liabilities                                                                                                 September 30, 2020                          December 31, 2019




              
                (in thousands, except shares and per share data)



              
                 Capitalization



               Stockholders' equity



              Preferred stock, par value $0.01 per share (authorized 2,000,000 shares), no shares                                                       
         
                $                          
              $
    issued and outstanding



              Common stock, par value $0.4867 per share (authorized 50,000,000 shares)                                                                                 8,126                    7,984



               Additional paid-in capital                                                                                                                            283,836                  259,253



               Retained earnings                                                                                                                                     328,357                  300,607



               Accumulated other comprehensive loss                                                                                                                  (3,629)                 (6,267)



               Deferred compensation obligation                                                                                                                        5,634                    4,543



               Treasury stock                                                                                                                                        (5,634)                 (4,543)




               Total stockholders' equity                                                                                                                            616,690                  561,577



               Long-term debt, net of current maturities                                                                                                             519,971                  440,168




               Total capitalization                                                                                                                                1,136,661                1,001,745




              
                 Current Liabilities



              Current portion of long-term debt                                                                                                                       15,600                   45,600



              Short-term borrowing                                                                                                                                   216,388                  247,371



              Accounts payable                                                                                                                                        46,492                   54,068



              Customer deposits and refunds                                                                                                                           32,635                   30,939



              Accrued interest                                                                                                                                         5,231                    2,554



              Dividends payable                                                                                                                                        7,293                    6,644



              Accrued compensation                                                                                                                                    10,903                   16,236



              Regulatory liabilities                                                                                                                                   6,460                    5,991



              Derivative liabilities, at fair value                                                                                                                      439                    1,844



              Other accrued liabilities                                                                                                                               18,531                   12,077




               Total current liabilities                                                                                                                             359,972                  423,324




              
                 Deferred Credits and Other Liabilities



              Deferred income taxes                                                                                                                                  202,649                  180,656



              Regulatory liabilities                                                                                                                                 142,280                  127,744



              Environmental liabilities                                                                                                                                4,447                    6,468



              Other pension and benefit costs                                                                                                                         27,462                   30,569



              Operating lease - liabilities                                                                                                                            9,681                    9,896



              Deferred investment tax credits and other liabilities                                                                                                    4,936                    2,796




               Total deferred credits and other liabilities                                                                                                          391,455                  358,129




              Environmental and other commitments and contingencies (1)



              
                Total Capitalization and Liabilities                                                                                                              $
     
     1,888,088                             $
     1,783,198




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

                                                                                                                                                                                                                                       
     
               Chesapeake Utilities Corporation and Subsidiaries


                                                                                                                                                                                                                                       
     
               Distribution Utility Statistical Data (Unaudited)




                                                                                                                           
         
                For the Three Months Ended September 30, 2020                                                                                                                  
              
          For the Three Months Ended September 30, 2019



                                                                                                 Delmarva NG                             Chesapeake                                       FPU NG                        FPU Electric                   Delmarva NG                                                  Chesapeake                                 FPU NG                              FPU Electric
                                                                                   Distribution (2)                           Utilities                                    Distribution                     Distribution                   Distribution                                                  Utilities
                                                                                                                               Florida                                                                                                                                                                    Florida                               Distribution                           Distribution
                                                                                                                             NG Division                                                                                                                                                                NG Division




       
                Operating Revenues


       
                (in thousands)



         Residential                                                                                         $
      
      6,722                                                                       $
     
     1,412                                                             $
              
                6,380                                                                     $
     
     11,308                                     $
      7,314            $
      1,349    $
      5,671 $
     14,460



         Commercial                                                                                   5,321                                               1,517                                                                 4,985                                                            9,077                                                             3,812                                           1,471                 5,588      11,216



         Industrial                                                                                   1,982                                               3,235                                                                 6,028                                                              414                                                             1,678                                           3,063                 5,707         591



         Other (1)                                                                                     (45)                                              1,146                                                                 3,174                                                                3                                                               456                                             827                   942     (2,093)

    ---


       
                Total Operating Revenues                                                                $
      
      13,980                                                                       $
     
     7,310                                                            $
              
                20,567                                                                     $
     
     20,802                                    $
      13,260            $
      6,710   $
      17,908 $
     24,174





       
                
                  Volume (in Dts for natural gas and KWHs for electric)



         Residential                                                                                210,787                                              56,754                                                               243,255                                                          101,555                                                           183,998                                          52,805               214,521      97,537



         Commercial                                                                                 508,172                                           1,047,271                                                               302,504                                                           88,250                                                           483,382                                       1,045,666               344,727      92,571



         Industrial                                                                               1,144,210                                           5,999,386                                                             1,080,078                                                            1,596                                                         1,233,019                                       7,019,573             1,114,359       7,460



         Other                                                                                       53,093                                                                                                                  738,191                                                                                                                            59,635                                                              583,267

    ---


       
                Total                                                                         1,916,262                                           7,103,411                                                             2,364,028                                                          191,401                                                         1,960,034                                       8,118,044             2,256,874     197,568





       
                Average Customers



         Residential                                                                                 84,343                                              17,930                                                                60,353                                                           25,104                                                            73,454                                          17,342                57,999      24,624



         Commercial                                                                                   7,710                                               1,583                                                                 3,984                                                            7,282                                                             7,040                                           1,555                 3,934       7,240



         Industrial                                                                                     181                                                  16                                                                 2,518                                                                2                                                               168                                              17                 2,440           2



         Other                                                                                           21                                                                                                                       14                                                                                                                                18                                                                   12

    ---


       
                Total                                                                            92,255                                              19,529                                                                66,869                                                           32,388                                                            80,680                                          18,914                64,385      31,866

    ---


                                                                                                                         
          
                For the Nine Months Ended September 30, 2020                                                                                          
              
          For the Nine Months Ended September 30, 2019



                                                                                                 Delmarva NG                           Chesapeake                                        FPU NG                           FPU Electric               Delmarva NG                          Chesapeake                                 FPU NG                              FPU Electric
                                                                                   Distribution (2)                         Utilities                                     Distribution                        Distribution               Distribution                          Utilities
                                                                                                                             Florida                                                                                                                                            Florida                               Distribution                           Distribution
                                                                                                                           NG Division                                                                                                                                        NG Division




       
                Operating Revenues


       
                (in thousands)



         Residential                                                                                        $
     
     49,472                                                                         $
      
      4,773                                                    $
     
     26,272                                                                     $
     
     26,225                                     $
     47,729               $
        4,645   $
     23,848 $
     35,121



         Commercial                                                                                  23,190                                              4,791                                                                   17,817                               23,151                                                            23,307                                            4,796                 19,924         28,838



         Industrial                                                                                   6,444                                              9,754                                                                   19,323                                  725                                                             5,839                                            9,450                 17,767          1,617



         Other (1)                                                                                  (4,535)                                             3,700                                                                    3,886                                  631                                                           (4,013)                                           2,734                (1,182)       (6,560)

    ---


       
                Total Operating Revenues                                                                $
     
     74,571                                                                        $
      
      23,018                                                    $
     
     67,298                                                                     $
     
     50,732                                     $
     72,862              $
        21,625   $
     60,357 $
     59,016





       
                
                  Volume (in Dts for natural gas and KWHs for electric)



         Residential                                                                              2,867,349                                            269,273                                                                1,136,539                              235,283                                                         2,962,532                                          268,993              1,036,872        235,406



         Commercial                                                                               2,730,931                                          3,270,286                                                                1,119,081                              220,238                                                         2,810,391                                        3,348,307              1,275,328        233,940



         Industrial                                                                               3,667,782                                         21,015,935                                                                3,466,115                               13,978                                                         3,960,447                                       21,419,122              3,688,370         18,383



         Other                                                                                      196,076                                                                                                                  2,000,351                                                                                               138,009                                                              1,771,243

    ---


       
                Total                                                                         9,462,138                                         24,555,494                                                                7,722,086                              469,499                                                         9,871,379                                       25,036,422              7,771,813        487,729





       
                Average Customers



         Residential                                                                                 83,752                                             17,784                                                                   59,638                               24,983                                                            73,698                                           17,178                 57,444         24,511



         Commercial                                                                                   7,756                                              1,582                                                                    3,982                                7,268                                                             7,090                                            1,543                  3,923          7,233



         Industrial                                                                                     195                                                 16                                                                    2,511                                    2                                                               168                                               17                  2,430              2



         Other                                                                                           18                                                                                                                         14                                                                                                    14                                                                     12

    ---


       
                Total                                                                            91,721                                             19,382                                                                   66,145                               32,253                                                            80,970                                           18,738                 63,809         31,746

    ---





     
     (1) Operating Revenues from "Other"
              sources include unbilled revenue,
              under (over) recoveries of fuel
              cost, conservation revenue, other
              miscellaneous charges, fees for
              billing services provided to third
              parties, and adjustments for pass-
              through taxes.



     
     (2) Delmarva NG distribution customers
              includes approximately 7,000
              customers acquired in the July
              2020 acquisition of Elkton Gas.

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SOURCE Chesapeake Utilities Corporation