• A record-high net income of $26.1 million, or $2.73 per share, in 2010, compared to $15.9 million and $2.15 per share in 2009.
  • Excluding the impact of the FPU merger and merger-related costs, Chesapeake’s legacy businesses generated net income of $17.2 million, or $2.44 per share, in 2010, compared to $15.3 million, or $2.20 per share, in 2009. The $0.24 per share increase generated by Chesapeake’s legacy businesses in 2010 represents an 11-percent growth in earnings per share.
  • FPU’s net income increased by $7.5 million as a result of the inclusion of a full year’s results and improved performance, generating an increase of $0.22 per share in 2010.
  • The decrease in merger-related costs added $0.12 per share in 2010.

Dover, Delaware — Chesapeake Utilities Corporation (NYSE: CPK) today announced increased financial results for both the year and quarter ended December 31, 2010. The Company’s net income for the year ended December 31, 2010 was $26.1 million, or $2.73 per share, an increase of $10.2 million, or $0.58 per share, compared to $15.9 million, or $2.15 per share, for the year ended December 31, 2009. Excluding the impact of the FPU merger and merger-related costs, Chesapeake’s legacy businesses continued to experience strong earnings growth and generated net income of $17.2 million, or $2.44 per share, in 2010, compared to $15.3 million, or $2.20 per share, in 2009, representing an 11-percent growth in earnings per share. Chesapeake’s legacy businesses generated 41 percent of the increase in consolidated earnings per share for the year. The results of the legacy businesses reflect continued growth and expansions of the natural gas distribution and transmission systems on the Delmarva Peninsula, a rate increase for the Company’s Central Florida Gas division, favorable weather impacts and improved performance in the advanced information services business. These increases were partially offset by a decline in earnings from the natural gas marketing and propane wholesale marketing businesses. Florida Public Utilities Company (“FPU”) added $0.22 per share to the increase in the Company’s overall results in 2010 due to the inclusion of a full year’s results and improved performance. FPU’s results have been included in the Company’s consolidated results since the completion of the merger on October 28, 2009. The decrease in merger-related costs also added $0.12 per share to the increase in 2010.

The Company’s net income for the quarter ended December 31, 2010 was $7.1 million, or $0.74 per share, an increase of $923,000, or $0.03 per share, compared to $6.2 million, or $0.71 per share, for the same period in 2009. Excluding the impact of the FPU merger and merger-related costs, Chesapeake’s legacy businesses generated net income of $5.4 million, or $0.77 per share, in the fourth quarter of 2010, compared to $5.1 million, or $0.73 per share, for the same period in 2009, representing a five-percent growth in diluted earnings per share. Strong performance by the Delmarva propane distribution operation based on higher volume and retail margins, a rate increase for the Company’s Central Florida Gas division and favorable weather impacts all contributed to the increase generated by Chesapeake’s legacy businesses. FPU’s results for the fourth quarter of 2010, which include an additional accrual of $250,000 for the regulatory risk associated with FPU’s natural gas earnings and recovery of the purchase premium, decreased the earnings per share by $0.05 per share. Discussions with the Florida Office of Public Counsel (“Florida OPC”) and the Florida Public Service Commission (“Florida PSC”) staff regarding such matters are ongoing. Offsetting this decrease in earnings were lower merger-related costs expensed in the fourth quarter of 2010, compared to the same period in 2009, which added $0.04 per share.

“2010 was an exceptional year for Chesapeake,” stated Michael P. McMasters, President and Chief Executive Officer of Chesapeake Utilities Corporation. “We achieved significant growth on the Delmarva Peninsula with our continued efforts to expand the use of natural gas by very aggressively promoting the pricing advantage and environmentally-friendly features of natural gas. We also exceeded our goal to produce earnings accretion in the first year after the FPU merger as a result of cost savings and capitalizing on new integration opportunities in Florida. We are excited about the opportunities to further expand our business, both on the Delmarva Peninsula and in Florida, to ensure continued growth for both our customers and shareholders.”

Highlights for the fourth quarter of 2010 included:

  • Operating income from the Delmarva propane distribution operations for the fourth quarter of 2010 increased by $884,000, compared to the same period in 2009, due primarily to higher volumes from the colder-than-normal weather, the timing of deliveries and increased retail margins.
  • The rate increase for Chesapeake’s Florida division, effective in January 2010, contributed approximately $470,000 to gross margin for the quarter ended December 31, 2010.
  • Three-percent growth in residential customers for the Delmarva natural gas distribution operation generated $115,000 in additional gross margin in the fourth quarter of 2010, compared to the same period in 2009. Gross margin from commercial and industrial customers for the Delmarva natural gas distribution operation also increased by $186,000 in the fourth quarter of 2010, due primarily to the addition of 10 large commercial and industrial customers. Combined with the other new large commercial and industrial customers added during the first three quarters of the year, these new large commercial and industrial customers will generate an estimated annual margin of $748,000, of which $196,000 has been reflected in 2010’s results. The customer additions enable the Company to further extend the Delmarva natural gas distribution and transmission infrastructure, bringing cost-effective and environmentally-friendly natural gas to new areas on the Delmarva Peninsula and creating additional opportunities for future growth.
  • Colder temperatures on the Delmarva Peninsula and in Florida during the fourth quarter and year ended 2010, compared to the same periods in 2009, contributed additional gross margin of $472,000 and $927,000 respectively. Additionally, given that only two months of FPU’s results were included in Chesapeake’s consolidated 2009 gross margin, the appropriate comparison for 2010 for the weather impact on FPU is also normal weather. Higher-than-normal heating and cooling degree-days contributed $3.0 million in margin in 2010. The Company uses historical results as the normal weather for this analysis.
  • Eastern Shore Natural Gas Company (“ESNG”), the Company’s natural gas transmission subsidiary, generated additional gross margin of $140,000 from new transportation services commencing in late 2009 and during 2010. The new transportation services in 2010 will generate estimated annual margin of $332,000, of which $56,000 has been recognized in 2010.

    Although not affecting the Company’s results in 2010, ESNG completed the eight-mile mainline extension in December 2010 to interconnect with the Texas Eastern Transmission, LP (“TETLP”) pipeline. ESNG commenced its new transportation services to the Company’s Delaware and Maryland Divisions in January 2011. These new services will generate gross margin of $2.4 million in 2011, $3.9 million in 2012 and $4.3 million annually thereafter. ESNG’s interconnection will provide the Delmarva natural gas distribution operation with access to new sources of natural gas supply from other natural gas production regions, including the Appalachian production region, thereby providing increased reliability and diversity of supply. This new service will also provide the Delaware and Maryland divisions additional upstream transportation capacity to meet current customer demands and to increase their supply options as these divisions plan for sustainable growth.

  • On December 30, 2010, ESNG filed a base rate proceeding with the Federal Regulatory Energy Commission in accordance with the terms of the settlement agreement from its prior base rate base proceeding in 2008. ESNG expects the base rate proceeding to be completed in 2011.
  • Included in FPU’s results for the fourth quarter of 2010 is an additional accrual of $250,000 for the regulatory risk associated with FPU’s natural gas earnings, merger benefits and recovery of the purchase premium. The Company is required to detail known benefits, synergies, cost savings and cost increases resulting from the FPU merger and present the information in a “come-back” filing to the Florida PSC by April 29, 2011 (within 18 months of the merger). We are currently in discussions with the Florida OPC and the Florida PSC Staff regarding the benefits and cost savings of the merger, current and expected earnings levels as well as the recovery of approximately $34.9 million in purchase premium and $2.2 million in merger-related costs. The additional accrual during the fourth quarter, which brings the total accrual to $750,000, was recorded based on management’s assessment of FPU’s current earnings, the regulatory environment in Florida and progress of the current discussions.

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