Chesapeake Utilities Corporation is a diversified energy company that provides superior service to its customers and communities.
Earnings per share reached $2.86 (diluted), surpassing 2015 earnings by 5.1 percent. Total 2016 shareholder return, including stock price appreciation and dividends, was 20 percent over the past three years, bringing our compound annual shareholder return to 16 percent over the past 10 years.
Our record earnings in 2016 are the latest chapter in our broader growth record over the past 10 years. Throughout that period, our team has worked extremely hard to provide high-quality, safe, reliable service while continuing to identify and develop new opportunities to grow our Company. Their creative energy has generated powerful growth.
For example, over the past 10 years:
Market conditions continue to provide opportunities to grow our businesses. Relatively low natural gas and propane wholesale prices enable us to further expand our service offerings and our footprint. The combination of low prices and the environmental benefits of natural gas increases our opportunities to grow. Low interest rates, while expected to increase gradually over the next few years, remain very low compared to historical norms, lowering the costs of our pipeline and distribution expansions. The electric generation industry continues to view natural gas as the preferred fuel for new power plants. The increased adoption of combined heat and power (CHP) plants provides additional opportunities for growth.
We are energized by these opportunities. Our process to identify and develop investment opportunities is essential to our success. Our business units and our strategic development team diligently search for and evaluate potential opportunities for growth. With guidance from our Growth Council, they further develop those opportunities that are congruent with our strategy and our risk tolerance and are expected to generate returns on capital that will increase the value of our shareholders’ investment in us. Only after we have completed this process do we invest our shareholders’ capital.
Just a few examples of the creative growth opportunities that we have identified and developed over the past few years include: our expansion into Ohio through our acquisition of Gatherco, Inc., which was merged into our subsidiary, Aspire Energy of Ohio; Eight Flags Energy’s award-winning CHP plant on Amelia Island, FL; ESNG’s new, economic, year-round service options for electric generation customers; and Sharp Energy’s AutoGas propane fuel service for vehicles.
Going forward, we will continue to:
In all past and future initiatives, as in all else we do, our employees are at the heart of our success. Their care for our customers, our communities and each other strengthens all of our relationships. This shows in our five consecutive years of Top Workplace awards. Many hearts, hands and minds working together have produced the record earnings described in this letter and throughout this year’s annual report. Our team’s creative energy has indeed produced powerful growth.
We remain focused and determined to grow our Company, but growth for growth’s sake is not our strategy. Rather, our responsibility as we grow is to stay true to our shared values of Aspiring and Caring, and to our unwavering commitments to service, safety, the environment and the disciplined execution of our growth strategies. We owe that to our customers, our communities, our employees and to you.
I want to say, on behalf of our senior management team and our Board of Directors, thank you to our employees, customers, communities and to you, our shareholders, for bringing us to this milestone, our 70th anniversary of incorporation. You have made Chesapeake Utilities Corporation successful by every measure.
Michael P. McMasters
President and Chief Executive Officer
Michael P. McMasters, President and CEO, being interviewed by TheStreet.com on the NYSE trading floor.
We also look forward to celebrating in 2017 the 70th anniversary of Chesapeake’s incorporation in Delaware in 1947. The past 70 years is a story of creative energy producing powerful growth. Creative energy flows among our employees to our customers, communities, shareholders and business partners. We are energized by the reciprocal energy that flows from them to us.
Our business for more than 70 years has been energy; our goal, powerful service and growth with lasting value. Identifying creative solutions to meet customers’ energy needs, we produce long-term growth. Bringing our hearts and hands to serve our communities’ needs, we grow personally and forge lasting bonds with our fellow employees, our customers and our communities. The creative, powerful work that we do together for everyone we serve flows from our shared values of Aspiring and Caring.
Chesapeake is a growing company with ambitious aspirations to surpass our past success. Our employees are the creative and powerful heart of our Company. Everyone counts in helping us reach our growth and service goals. We encourage our employees to grow professionally and personally and to engage in community service.
For the fifth consecutive year in 2016, Chesapeake was recognized as a Top Workplace. Our employees’ responses to a third-party survey have bestowed this honor on our Company over the past five years. Employees point to the Company’s strong values and ethics, its genuine appreciation of employees, and their confidence in the direction of the Company as reasons why they believe Chesapeake is a Top Workplace.
Our employees’ creative energy also makes Chesapeake a Top Workplace. That energy is expressed through several ongoing programs that benefit our employees, their families, our customers and the communities where we live and serve.
For example, our monthly Chesapeake Cares events celebrate employee milestones, Company accomplishments and growth plans. Through our recognition program, employees honor fellow team members who have exemplified our shared values in their interactions with one another and customers. A team of more than 40 Brand Champions organizes Chesapeake Cares events for their colleagues at every Company location.
Through our Chesapeake Aspiring Scholars program, the Company annually supports the educational aspirations of employees’ children. In 2016, we awarded students of employees across our Company with scholarship grants to support their college education endeavors.
We also provide opportunities to support our employees’ health and wellness efforts. Our Chesapeake Wellness Program promotes health awareness and supports our employees’ efforts for a healthier lifestyle. Throughout our Wellness Program, we sponsor community runs and walks, and encourage employee participation with company sponsored registration for these events. We also host health fairs at Company locations for employees and family members, offering biometric screenings and other resources to support wellness.
Safety is a high priority in everything that we do. We encourage a culture dedicated to promoting safer environments in our workplaces and in communities we serve. Our Chesapeake Aspiring & Caring Employee Awards Program honors those who go the extra mile to excel in safety. We recognize employees for their exceptional efforts to protect the safety of their colleagues, our customers and communities which we serve.
In 2016, ESNG and FPU were both awarded Safety Achievement Awards by the American Gas Association (AGA). We also hosted an AGA Peer Review at which our employees and other AGA member companies shared their best safety practices.
Our customers and the communities where we live and work are extensions of our Chesapeake family. We strive to create meaningful connections with our customers and provide safe and reliable energy resources. We take that responsibility seriously.
In 2016, Nassau County, Florida honored FPU for going above and beyond to assist customers following Hurricane Matthew. On Amelia Island in Nassau County, approximately 90 percent of electric customers on the Island were without service after the storm, and our Eight Flags Energy CHP Plant was intentionally removed from service prior to the storm. FPU was the first group of responders on Amelia Island when law enforcement opened the roadways. Within three hours, our Eight Flags Energy CHP Plant was operating. By the end of the day, power was restored to approximately 80 percent of our customers affected by the storm. Full service to all of our customers was restored within 55 hours.
Beyond the energy services we provide, we take pride in being a true partner in our communities. Chesapeake employees served as volunteers on boards and committees and provided direct services to those in need. In 2016, we contributed more than $217,000 to approximately 100 organizations nominated by employees throughout the Company.
Chesapeake partnered with the American Heart Association as a Legacy Sponsor for the Go Red for Women® campaign. Elaine B. Bittner, Senior Vice President of Strategic Development, was the Event Chair for the third consecutive year and led a team of employee volunteers from our Delaware, Florida, Maryland and Ohio locations. In celebration of the “Power of a Woman’s Heart,” this team channeled their creative energy and assisted the Delaware American Heart Association with another record-breaking event, raising more than $220,000 in 2017 and approximately $470,000 over the past three years.
Annually, Chesapeake participates companywide in the United Way® campaign. In 2016, employees pledged more than $66,000. For the third consecutive year, FPU contributed $25,000 to Step Up for Students, Inc., which provides scholarships for underprivileged children to attend school through a tax credit program offered throughout the state of Florida.
For 13 years, our Company has been an active contributor to the Chesapeake Emergency Energy Recipient Program, also known as the SHARING Program, which not only assists natural gas and propane customers in Delaware and Maryland with paying their heating bills, but also provides grants used for appliance purchases and repairs. In 2016, we awarded 92 grants and since the beginning of the program, we have awarded grants totaling more than $544,000.
Our Holiday Cares Volunteer Event, “Thanksgiving For All,” draws many enthusiastic participants. This program enables our employees throughout our business areas to give back to our communities within our service territories. Employees from Delaware, Florida, Maryland and Ohio donated approximately $30,000 and packaged more than 1,400 holiday meals for local food banks and other charitable organizations.
“The Thanksgiving for All program started five years ago in Delaware, and the passion and drive of our employees has resulted in a companywide effort to help families in need to enjoy a healthy and warm Thanksgiving dinner,” said Elaine B. Bittner, Senior Vice President of Strategic Development.
This summer, we expanded our Summer Cares program across our businesses with volunteer and charitable events taking place in Delaware, Florida, Maryland and Ohio. Volunteers from our business offices sorted more than 21,500 pounds of donated canned goods, fresh produce and other food items, and prepared approximately 4,800 summer meal packages for children in the community.
Through our companywide Cares With a Cause program we harness the power of our collective efforts to create a larger impact. Each quarter, we select a charitable cause to support through volunteering time or contributing goods. In 2016, our employees collectively partnered with local charities to donate books and school supplies at the start of the school year, promote breast cancer awareness, distribute employee donations of toys and gifts for Toys for Tots or local shelters and collect winter coats for Code Purple and local organizations assisting those in need.
Our Chesapeake Cares Mentor Program supports students in our communities. We partner with Connecting Generations and Junior Achievement to enable our employees companywide to become mentors in our local schools. The program focuses on in-school mentoring at all grade levels and an investment of our employees’ time provides encouragement and guidance for these students.
Through volunteer efforts and sponsorships, Chesapeake has partnered with the Delaware Chapter of The Nature Conservancy in support of conservation and protection of natural resources in Delaware. In 2016, employees from our Delaware, Maryland and Florida locations volunteered for local events. Through sponsorships Chesapeake has donated $55,000 to the Delaware Chapter.
“The Delaware Chapter of The Nature Conservancy staff continues to be impressed by the positive, can-do attitude of everyone they meet from our Company,” said Steve Thompson, Senior Vice President and a board member of the Delaware Chapter of The Nature Conservancy.
In 2016, Chesapeake was honored with the “Outstanding Service by a Major Company” award by the Jefferson Awards Foundation at the fourth annual “Salute to Service” in Delaware.
“It is an honor to be ranked with other companies who have spearheaded many initiatives to benefit Delaware communities. Our employees, through our companywide community programs and their individual charitable initiatives, exemplify Chesapeake’s caring and aspiring culture,” said Michael P. McMasters, President and CEO.
As one Company, we work together to develop meaningful connections with our customers, business partners, community organizations and local governments. Our employees’ creative energy strengthens these partnerships that powerfully benefit all.
In 2016, Chesapeake was honored to be named a top place to work five years in a row.
In 2016, ESNG and FPU were both awarded Safety Achievement Awards by the American Gas Association (AGA). Chesapeake also hosted an AGA Peer Review to cultivate best safety practices.
Employees from Delaware, Florida, Maryland and Ohio donated $30,000 and packaged more than 1,400 holiday meals for local food banks and other charitable organizations.
On March 8, we honored our female employees in recognition of International Women’s Day and Women’s History Month. Our team is comprised of talented and dedicated women who keep us moving forward.
Our Chesapeake Cares Mentor Program enables employees to connect with our communities and make a positive impact on the lives of local students.
Our employees’ commitment to our shared mission, vision and brand is the creative engine that powered this growth.
ESNG, our interstate natural gas pipeline subsidiary, generated new margin growth in 2016 from services established to meet customers’ growing energy needs pending completion of expansion projects.
In July 2016, ESNG began constructing two new projects, the White Oak Mainline Expansion to increase service to a power generation customer, and a System Reliability Project to reinforce critical points on ESNG’s system.
In 2016, ESNG also led a request for regulatory approval to construct its 2017 Expansion Project, the largest single pipeline expansion in ESNG’s history, that will increase its firm transportation deliverability by 25 percent. This project will provide more than 60,000 dekatherms per day of additional firm natural gas service to meet ESNG customers’ growing energy needs.
Customer growth in our natural gas distribution and transmission services, over and above the growth attributable to recent service expansions, further boosted gross margin in 2016. This included new margin growth from transmission and distribution services to the CHP Plant built and operated by the Company’s affiliate, Eight Flags Energy, on Amelia Island, in Nassau County, FL.
The Eight Flags Energy CHP Plant, the first of its kind for our Company, is another example of our employees’ creative solutions to customers’ needs. The plant, which commenced operations in June 2016, is powered by natural gas provided by FPU and Peninsula Pipeline Company and produces three energy outputs: electricity, steam and heated water. Approximately 20 megawatts of power generated by the plant produces enough electricity to meet 50 percent of the Island’s demand at a projected savings of approximately $28 million over 20 years for FPU’s electric distribution customers. An unaffiliated customer located on the same site purchases the steam and heated water for use in its cellulose specialties production facility.
Power Engineering magazine named the Eight Flags Energy CHP Plant the “Best CHP Project of the Year.” “This award recognizes innovative and creative power projects that play a unique role in meeting local and regional demand for power,” said Power Engineering editor-in-chief Russell Ray. “The Eight Flags Energy CHP Plant goes above and beyond in meeting these standards.”
In 2013, Sandpiper Energy was formed and began conversions of customers from propane to natural gas to provide the preferred energy source to the region while reducing rates and introducing new service offerings. As of 2016, Sandpiper Energy converted more than 3,700 customers, bringing safe, clean and affordable natural gas to families and businesses in Worcester County, MD. Sandpiper Energy also began its efforts to bring natural gas to Ocean City, MD.
Aspire Energy continued its integration into the Chesapeake family in 2016, completing its first full year of operations as a Chesapeake company. Aspire Energy operates approximately 2,600 miles of pipeline systems in 40 of 88 counties in Ohio and supplies natural gas to two local distribution companies, which together serve more than 20,000 end-use customers. In 2016, Aspire Energy added new growth margin by successfully negotiating pricing amendments to long-term gas sales agreements, additional management fees and higher deliveries to its wholesale customers.
Our natural gas subsidiary, Peninsula Energy Services Company (PESCO), provides natural gas asset management, production services, retail and wholesale supply and risk management services. PESCO also experienced growth in 2016, adding energy expertise to our team, new customers, volumes of gas under contract and new marketing territories by expanding into the Mid-Atlantic, Southeast and Midwest.
Power Engineering magazine named our Eight Flags Energy CHP Plant "Best CHP Project of the Year." This award recognizes innovative and creative power projects that meet local and regional demands for power.
in total were delivered in 2016 to our customers on the Delmarva Peninsula, in Florida and in Pennsylvania.
The cover of this year’s annual report depicts our earnings per share growth and our strategy that has been producing that growth. The energy powering our growth starts with engaging our team.
Over the past 70 years, we have learned that connecting energy supplies with energy needs often requires creative solutions to meet customers’ needs. This is where our team is at its best, designing services and rates to make new services feasible and affordable. Our resourceful, creative energy has produced powerful growth.
Our strategic planning process involves all of our business units, thinking and planning for the next five years and updating the plan every year. We not only plan together; we execute our strategic plan with discipline. Our Growth Council evaluates new growth opportunities and monitors ongoing significant project developments from our existing businesses. With this process, we provide a disciplined capital investment process and identify and close any gaps in our financial, strategic and operational analysis of growth opportunities brought to the Council. Disciplined creative energy has produced powerful growth.
Nearly 60 years ago, we began to build ESNG’s interstate pipeline system to supply natural gas to distribution companies and large industrial customers on the Delmarva Peninsula. Over the past 20 years, ESNG has quadrupled its firm peak day service capacity in response to its customers’ growing energy needs.
Approximately 40 years ago, we entered the propane business, and our propane wholesale and retail operations continue to grow. We are strengthening our storage and transportation assets to manage peak cold weather demands and support our competitive pricing structure based on local market conditions. We are growing organically in our traditional service areas and through acquisitions of other companies. We are converting large industrial customers from oil to propane, displacing millions of gallons of oil and thus reducing carbon emissions. We are building propane fueling stations to serve large fleets. In 2016, Sharp Energy delivered approximately one million gallons of propane transportation fuel, and supplies more than 600 vehicles with propane through 12 public and 19 private fueling stations in Delaware, Maryland and Pennsylvania, displacing approximately one million gallons of gasoline and diesel fuels.
For more than 35 years, Sharp Energy has had a strong presence on the Delmarva Peninsula. In 2016, Sharp Energy completed the construction of its new office location in Georgetown, DE and hosted a ribbon cutting event. This location positions Sharp Energy for the growth occurring in the area.
Over 30 years ago, we began to build our presence in Florida with our acquisitions of gas distribution companies in Central Florida in the mid-1980s, followed by our acquisition of FPU in 2009. Throughout the past seven years, our Florida team has identified and developed opportunities to build and operate energy delivery systems that connect supply with demand and provide creative solutions for customer needs throughout Florida, including, most recently, the Eight Flags Energy CHP Plant.
During the past 10 years, our growth has accelerated. We hosted a groundbreaking event for our new building being constructed in Dover, DE. This new facility will be home to Chesapeake Utilities, ESNG, Business and Information Services and Customer Care. This exemplifies the growth that we have experienced. Our secret - our employees and their creative energy of Aspiring and Caring continuously generating our powerful growth. The best is yet to come!
Dover Gas Light Company, a gas company located in Dover, DE, was started. Dover Gas Light would eventually become Chesapeake Utilities Corporation.
Chesapeake Utilities Corporation was incorporated in Delaware.
Two natural gas companies, Citizens Gas Company, Salisbury, MD and Sussex Gas Company, Seaford, DE, were acquired.
Eastern Shore Natural Gas Company, (ESNG) was incorporated in Delaware. By 1966, ESNG extended a pipeline from Bridgeville, DE to Cambridge and Easton, MD.
ESNG extended a pipeline from Parkesburg, PA to Salisbury, MD and began delivering gas to its customers in the region. During this time, Chesapeake Utilities Corporation converted three operating facilities from propane to natural gas.
Chesapeake Utilities Corporation acquired its first propane company, Mitchell’s Gas Service, Laurel, DE.
Clarence E. Sharp Company, Georgetown, DE, a propane distribution company, was acquired. Sharpgas, Inc., dba Sharp Energy, was formed to consolidate Chesapeake operations.
Central Florida Gas Company, Winter Haven, FL, a natural gas distribution company, was acquired. Chesapeake Utilities Corporation’s common stock began trading on the NASDAQ National Market System.
Cambridge Gas Company, Cambridge, MD, a natural gas distribution company, was acquired.
Plant City Natural Gas Company, Plant City, FL, a natural gas distribution company, and Kellam Energy Inc., Belle Haven, VA, a propane and oil products distribution company, were both acquired.
Chesapeake Utilities Corporation began trading on the NYSE as CPK.
Central Florida Gas Company’s service territory expanded to include Gadsden and Citrus Counties.
Completed the acquisition of Florida Public Utilities Company.
The Company purchased the operating assets of Eastern Shore Gas, now operating as Sandpiper Energy, Inc., to provide service to customers in Worcester County, MD on the Delmarva Peninsula.
Completion of the merger of Gatherco, Inc. into Aspire Energy of Ohio, LLC, located in Orrville, OH, providing natural gas midstream services, processing and transportation services to over 300 producers, and wholesale natural gas supply to over 20,000 end users in Ohio.
10th year of record earnings. CPK rings The Closing Bell® at the NYSE.
Chesapeake Utilities Corporation celebrates its 70th anniversary of incorporation.