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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
 
 
 
FORM 10-Q
 
 
 
 

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2019
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                       to                      
Commission File Number: 001-11590 
 
 
 
CHESAPEAKE UTILITIES CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 

Delaware
 
51-0064146
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. Employer
Identification No.)
909 Silver Lake Boulevard, Dover, Delaware 19904
(Address of principal executive offices, including Zip Code)
(302) 734-6799
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock - par value per share $0.4867
CPK
New York Stock Exchange, Inc.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨ 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


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Large accelerated filer
 
x
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨
  
Smaller reporting company
 
¨
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
¨


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Common Stock, par value $0.486716,397,017 shares outstanding as of April 30, 2019.


Table of Contents

Table of Contents
 
 
 
 
 
 
 
    ITEM 1.
 
 
 
    ITEM 2.
 
 
 
    ITEM 3.
 
 
 
    ITEM 4.
 
 
 
 
 
    ITEM 1.
 
 
 
    ITEM 1A.
 
 
 
    ITEM 2.
 
 
 
    ITEM 3.
 
 
 
    ITEM 5.
 
 
 
    ITEM 6.
 
 



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GLOSSARY OF DEFINITIONS
ASC: Accounting Standards Codification issued by the FASB
ASU: Accounting Standards Update issued by the FASB
CDD: Cooling degree-day, which is a measure of the variation in weather based on the extent to which the daily average temperature (from 10:00 am to 10:00 am) is above 65 degrees Fahrenheit
Chesapeake or Chesapeake Utilities: Chesapeake Utilities Corporation, and its direct and indirect subsidiaries, as appropriate in the context of the disclosure
CHP: Combined heat and power plant
Company: Chesapeake Utilities Corporation, and its direct and indirect subsidiaries, as appropriate in the context of the disclosure
Degree-Day: A degree-day is the measure of the variation in the weather based on the extent to which the average daily temperature (from 10:00 am to 10:00 am) falls above or below 65 degrees Fahrenheit
Delmarva Peninsula: A peninsula on the east coast of the U. S. occupied by Delaware and portions of Maryland and Virginia
Dt(s): Dekatherm(s), which is a natural gas unit of measurement that includes a standard measure for heating value
Dts/d: Dekatherms per day
Eastern Shore: Eastern Shore Natural Gas Company, a wholly-owned subsidiary of Chesapeake Utilities
Eight Flags: Eight Flags Energy, LLC, a subsidiary of Chesapeake OnSight Services, LLC
FASB: Financial Accounting Standards Board
FERC: Federal Energy Regulatory Commission
FPU: Florida Public Utilities Company, a wholly-owned subsidiary of Chesapeake Utilities
GAAP: Accounting principles generally accepted in the United States of America
GRIP: Gas Reliability Infrastructure Program
Gross Margin: a non-GAAP measure defined as operating revenues less the cost of sales. The Company's cost of sales includes purchased fuel cost for natural gas, electricity and propane and the cost of labor spent on direct revenue-producing activities and excludes depreciation, amortization and accretion
Gulfstream: Gulfstream Natural Gas System, LLC, an unaffiliated pipeline network that supplies natural gas to FPU
HDD: Heating Degree-Day
Marlin Gas Services: Marlin Gas Services, LLC, a newly created subsidiary of Chesapeake Utilities that acquired certain operating assets of Marlin Gas Transport, Inc.
Marlin Gas Transport: Marlin Gas Transport, Inc., a supplier of mobile compressed natural gas utility and pipeline solutions
MetLife: MetLife Investment Advisors, an institutional debt investment management firm, with which we entered into the MetLife Shelf Agreement
MGP: Manufactured gas plant, which is a site where coal was previously used to manufacture gaseous fuel for industrial, commercial and residential use
MTM: Mark-to-Market (fair value accounting)
NYL: New York Life Investors LLC, an institutional debt investment management firm, with which Chesapeake Utilities entered into a Shelf Agreement
Peninsula Pipeline: Peninsula Pipeline Company, Inc., a wholly-owned subsidiary of Chesapeake Utilities
PESCO: Peninsula Energy Services Company, Inc., a wholly-owned subsidiary of Chesapeake Utilities


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Prudential: Prudential Investment Management Inc., an institutional investment management firm, with which Chesapeake Utilities has entered into a Shelf Agreement and issued Shelf Notes
PSC: Public Service Commission, which is the state agency that regulates utility rates and/or services in certain of our jurisdictions
Retirement Savings Plan: A qualified 401(k) retirement savings plan sponsored by Chesapeake Utilities
Revolver: Our unsecured revolving credit facility with certain lenders
Sandpiper: Sandpiper Energy, Inc., a wholly-owned subsidiary of Chesapeake Utilities
SEC: U.S. Securities and Exchange Commission
Senior Notes: Our unsecured long-term debt issued primarily to insurance companies on various dates
Sharp: Sharp Energy, Inc., a wholly-owned subsidiary of Chesapeake Utilities
Shelf Agreement: An agreement entered into by Chesapeake Utilities and a counterparty pursuant to which Chesapeake Utilities may request that the counterparty purchase our unsecured senior debt with a fixed interest rate and a maturity date not to exceed 20 years from the date of issuance
Shelf Notes: Unsecured senior promissory notes issuable under the Shelf Agreement executed with various counterparties
SICP: 2013 Stock and Incentive Compensation Plan
TCJA: Tax Cuts and Jobs Act enacted on December 22, 2017
TETLP: Texas Eastern Transmission, LP, an interstate pipeline interconnected with Eastern Shore's pipeline


Table of Contents

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
Chesapeake Utilities Corporation and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
 
 
 
Three Months Ended
 
 
March 31,
 
 
2019
 
2018
(in thousands, except shares and per share data)
 
 
 
 
Operating Revenues
 
 
 
 
Regulated Energy
 
$
103,618

 
$
109,393

Unregulated Energy and other
 
123,998

 
129,963

Total Operating Revenues
 
227,616

 
239,356

Operating Expenses
 
 
 
 
Regulated Energy cost of sales
 
36,516

 
48,231

Unregulated Energy and other cost of sales
 
89,703

 
99,826

Operations
 
37,144

 
32,702

Maintenance
 
3,681

 
3,593

Depreciation and amortization
 
11,074

 
9,704

Other taxes
 
5,505

 
4,894

Total Operating Expenses
 
183,623

 
198,950

Operating Income
 
43,993

 
40,406

Other income (expense), net
 
(45
)
 
68

Interest charges
 
5,710

 
3,664

Income Before Income Taxes
 
38,238

 
36,810

Income taxes
 
9,574

 
9,955

Net Income
 
$
28,664

 
$
26,855

Weighted Average Common Shares Outstanding:
 
 
 
 
Basic
 
16,384,927

 
16,351,338

Diluted
 
16,432,852

 
16,402,985

Earnings Per Share of Common Stock:
 
 
 
 
Basic
 
$
1.75

 
$
1.64

Diluted
 
$
1.74

 
$
1.64

The accompanying notes are an integral part of these financial statements.



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Chesapeake Utilities Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 
 
 
Three Months Ended
 
 
March 31,
 
 
2019
 
2018
(in thousands)
 
 
 
 
Net Income
 
$
28,664

 
$
26,855

Other Comprehensive Income (Loss), net of tax:
 
 
 
 
Employee Benefits, net of tax:
 
 
 
 
Amortization of prior service cost, net of tax of $(5) and $(5), respectively
 
(14
)
 
(14
)
Net gain, net of tax of $42 and $41, respectively
 
121

 
108

Cash Flow Hedges, net of tax:
 
 
 
 
Unrealized gain (loss) on commodity contract cash flow hedges, net of tax of $1,194 and $(756), respectively
 
2,982

 
(1,788
)
Total Other Comprehensive Income (Loss), net of tax
 
3,089

 
(1,694
)
Comprehensive Income
 
$
31,753

 
$
25,161

The accompanying notes are an integral part of these financial statements.


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Chesapeake Utilities Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
 
Assets
 
March 31,
2019
 
December 31,
2018
(in thousands, except shares and per share data)
 
 
 
 
Property, Plant and Equipment
 
 
 
 
Regulated Energy
 
$
1,346,221

 
$
1,297,416

Unregulated Energy
 
241,126

 
237,682

Other businesses and eliminations
 
30,282

 
34,585

Total property, plant and equipment
 
1,617,629

 
1,569,683

Less: Accumulated depreciation and amortization
 
(312,949
)
 
(294,295
)
Plus: Construction work in progress
 
90,453

 
108,584

Net property, plant and equipment
 
1,395,133

 
1,383,972

Current Assets
 
 
 
 
Cash and cash equivalents
 
7,975

 
6,089

Trade and other receivables (less allowance for uncollectible accounts of $1,054 and $1,108, respectively)
 
74,098

 
85,404

Accrued revenue
 
20,747

 
27,499

Propane inventory, at average cost
 
6,865

 
9,791

Other inventory, at average cost
 
8,122

 
7,127

Regulatory assets
 
7,913

 
4,796

Storage gas prepayments
 
1,327

 
6,603

Income taxes receivable
 
9,059

 
15,300

Prepaid expenses
 
7,192

 
10,079

Derivative assets, at fair value
 
9,221

 
13,165

Other current assets
 
1,121

 
5,684

Total current assets
 
153,640

 
191,537

Deferred Charges and Other Assets
 
 
 
 
Goodwill
 
25,785

 
25,837

Other intangible assets, net
 
5,909

 
6,207

Investments, at fair value
 
7,509

 
6,711

Operating lease right-of-use assets (refer to Note 15)
 
12,523

 

Regulatory assets
 
77,101

 
72,422

Other assets
 
5,197

 
6,985

Total deferred charges and other assets
 
134,024

 
118,162

Total Assets
 
$
1,682,797

 
$
1,693,671

 
The accompanying notes are an integral part of these financial statements.

- 3

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Chesapeake Utilities Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
 
Capitalization and Liabilities
 
March 31,
2019
 
December 31,
2018
(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)
 
7,980

 
7,971

Additional paid-in capital
 
255,307

 
255,651

Retained earnings
 
284,111

 
261,530

Accumulated other comprehensive loss
 
(3,739
)
 
(6,713
)
Deferred compensation obligation
 
4,376

 
3,854

Treasury stock
 
(4,376
)
 
(3,854
)
Total stockholders’ equity
 
543,659

 
518,439

Long-term debt, net of current maturities
 
285,998

 
316,020

Total capitalization
 
829,657

 
834,459

Current Liabilities
 
 
 
 
Current portion of long-term debt
 
71,509

 
11,935

Short-term borrowing
 
276,393

 
294,458

Accounts payable
 
75,277

 
129,804

Customer deposits and refunds
 
29,710

 
34,155

Accrued interest
 
4,505

 
2,317

Dividends payable
 
6,067

 
6,060

Accrued compensation
 
8,506

 
13,923

Regulatory liabilities
 
15,085

 
7,883

Derivative liabilities, at fair value
 
6,798

 
14,871

Other accrued liabilities
 
14,719

 
12,828

Total current liabilities
 
508,569

 
528,234

Deferred Credits and Other Liabilities
 
 
 
 
Deferred income taxes
 
160,912

 
156,820

Regulatory liabilities
 
132,686

 
135,039

Environmental liabilities
 
7,370

 
7,638

Other pension and benefit costs
 
29,822

 
28,513

Operating lease - liabilities (refer to Note 15)
 
10,873

 

Deferred investment tax credits and other liabilities
 
2,908

 
2,968

Total deferred credits and other liabilities
 
344,571

 
330,978

Environmental and other commitments and contingencies (Notes 5 and 6)
 

 

Total Capitalization and Liabilities
 
$
1,682,797

 
$
1,693,671

The accompanying notes are an integral part of these financial statements.


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Chesapeake Utilities Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
 
Three Months Ended
 
 
March 31,
 
 
2019
 
2018
(in thousands)
 
 
 
 
Operating Activities
 
 
 
 
Net income
 
$
28,664

 
$
26,855

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
11,074

 
9,704

Depreciation and accretion included in other costs
 
2,135

 
2,276

Deferred income taxes
 
3,430

 
6,469

Realized (gain) loss on commodity contracts/sale of assets/investments
 
(363
)
 
3,416

Unrealized (gain) loss on investments/commodity contracts
 
(721
)
 
44

Employee benefits and compensation
 
382

 
228

Share-based compensation
 
487

 
1,520

Other, net
 

 
(12
)
Changes in assets and liabilities:
 
 
 
 
Accounts receivable and accrued revenue
 
18,147

 
9,649

Propane inventory, storage gas and other inventory
 
7,207

 
12,448

Regulatory assets/liabilities, net
 
3,121

 
11,511

Prepaid expenses and other current assets
 
11,873

 
8,095

Accounts payable and other accrued liabilities
 
(44,783
)
 
(26,932
)
Income taxes receivable
 
6,241

 
8,741

Customer deposits and refunds
 
(4,445
)
 
44

Accrued compensation
 
(5,548
)
 
(7,731
)
Other assets and liabilities, net
 
3,585

 
347

Net cash provided by operating activities
 
40,486

 
66,672

Investing Activities
 
 
 
 
Property, plant and equipment expenditures
 
(43,216
)
 
(63,116
)
Proceeds from sales of assets
 
115

 
193

Environmental expenditures
 
(268
)
 
(48
)
Net cash used in investing activities
 
(43,369
)
 
(62,971
)
Financing Activities
 
 
 
 
Common stock dividends
 
(5,877
)
 
(5,147
)
Issuance of stock under the Dividend Reinvestment Plan
 
(183
)
 
(164
)
Tax withholding payments related to net settled stock compensation
 
(692
)
 
(719
)
Change in cash overdrafts due to outstanding checks
 
84

 
2,352

Net repayment under line of credit agreements
 
(18,149
)
 
(24,213
)
Proceeds from long-term debt
 
30,000

 
25,000

Repayment of long-term debt, long-term borrowing under the Revolver and capital lease obligation
 
(414
)
 
(428
)
Net cash provided (used) by financing activities
 
4,769

 
(3,319
)
Net Increase in Cash and Cash Equivalents
 
1,886

 
382

Cash and Cash Equivalents—Beginning of Period
 
6,089

 
5,614

Cash and Cash Equivalents—End of Period
 
$
7,975

 
$
5,996

The accompanying notes are an integral part of these financial statements.

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Chesapeake Utilities Corporation and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
 
 
Common Stock (1)
 
 
 
 
 
 
 
 
 
 
 
 
(in thousands, except shares and per share data)
Number  of
Shares(2)
 
Par
Value
 
Additional  Paid-In
Capital
 
Retained
Earnings
 
Accumulated  Other Comprehensive
Loss
 
Deferred
Compensation
 
Treasury
Stock
 
Total
Balance at December 31, 2017
16,344,442

 
$
7,955

 
$
253,470

 
$
229,141

 
$
(4,272
)
 
$
3,395

 
$
(3,395
)
 
$
486,294

Net income

 

 

 
26,855

 

 

 

 
26,855

Cumulative effect of the adoption of ASU 2014-09

 

 

 
(1,498
)
 

 

 

 
(1,498
)
Reclassification upon the adoption of ASU 2018-02

 

 

 
907

 
(907
)
 

 

 

Other comprehensive loss

 

 

 

 
(1,694
)
 

 

 
(1,694
)
Dividend declared ($.3250 per share)

 

 

 
(5,381
)
 

 

 

 
(5,381
)
Dividend reinvestment plan

 

 
(1
)
 

 

 

 

 
(1
)
Share-based compensation and tax benefit (3)(4)
19,350

 
9

 
657

 

 

 

 

 
666

Treasury stock activities

 

 

 

 

 
178

 
(178
)
 

Balance at March 31, 2018
16,363,792

 
$
7,964

 
$
254,126

 
$
250,024

 
$
(6,873
)
 
$
3,573

 
$
(3,573
)
 
$
505,241

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
16,378,545

 
$
7,971

 
$
255,651

 
$
261,530

 
$
(6,713
)
 
$
3,854

 
$
(3,854
)
 
$
518,439

Net income

 

 

 
28,664

 

 

 

 
28,664

Prior period reclassification

 

 

 
115

 
(115
)
 

 

 

Other comprehensive income

 

 

 

 
3,089

 

 

 
3,089

Dividend declared ($0.3700 per share)

 

 

 
(6,198
)
 

 

 

 
(6,198
)
Dividend reinvestment plan

 

 
(1
)
 

 

 

 

 
(1
)
Share-based compensation and tax benefit (3) (4)
18,472

 
9

 
(343
)
 

 

 

 

 
(334
)
Treasury stock activities

 

 

 

 

 
522

 
(522
)
 

Balance at March 31, 2019
16,397,017

 
$
7,980

 
$
255,307

 
$
284,111

 
$
(3,739
)
 
$
4,376

 
$
(4,376
)
 
$
543,659

 
(1)
2,000,000 shares of preferred stock at $0.01 par value have been authorized. None has been issued or is outstanding; accordingly, no information has been included in the statements of stockholders’ equity.
(2)
Includes 101,997 shares at March 31, 2019, 97,053 shares at December 31, 2018, 93,422 shares at March 31, 2018 and 90,961 shares at December 31, 2017, respectively, held in a Rabbi Trust related to our Non-Qualified Deferred Compensation Plan.
(3)
Includes amounts for shares issued for directors’ compensation.
(4)
The shares issued under the SICP are net of shares withheld for employee taxes. For the three months ended March 31, 2019 and 2018, we withheld 7,635 and 10,436 shares, respectively, for taxes.

The accompanying notes are an integral part of these financial statements.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
1.    Summary of Accounting Policies
Basis of Presentation
References in this document to the “Company,” “Chesapeake Utilities,” “we,” “us” and “our” are intended to mean Chesapeake Utilities Corporation, its divisions and/or its subsidiaries, as appropriate in the context of the disclosure.
The accompanying unaudited condensed consolidated financial statements have been prepared in compliance with the rules and regulations of the SEC and GAAP. In accordance with these rules and regulations, certain information and disclosures normally required for audited financial statements have been condensed or omitted. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto, included in our latest Annual Report on Form 10-K for the year ended December 31, 2018. In the opinion of management, these financial statements reflect normal recurring adjustments that are necessary for a fair presentation of our results of operations, financial position and cash flows for the interim periods presented.
Due to the seasonality of our business, results for interim periods are not necessarily indicative of results for the entire fiscal year. Revenue and earnings are typically greater during the first and fourth quarters, when consumption of energy is highest due to colder temperatures.

Marlin Gas Transport and Ohl Fuel Oil Acquisitions
In December 2018, Marlin Gas Services acquired certain operating assets of Marlin Gas Transport. The acquisition will enable us to offer solutions to supply interruption scenarios and tailor other alternatives where pipeline supplies are unavailable or inadequate to meet customer requirements.
In December 2018, Sharp acquired certain propane operating assets and customers of R. F. Ohl Fuel Oil, Inc. ("Ohl"), which provided propane distribution service to approximately 2,500 residential and commercial customers in Pennsylvania.
We accounted for the purchases of the operating assets of Marlin Gas Transport and Ohl, which totaled approximately $18.4 million, as business combinations within our Unregulated Energy segment. Goodwill of $4.8 million, related to the Marlin Gas Transport acquisition, and $1.5 million, associated with the Ohl acquisition, were initially recorded at the close of these transactions. The amounts recorded in conjunction with these acquisitions are preliminary and subject to adjustment based on additional valuations performed during the measurement period. Due to the timing of these acquisitions, the revenue and net income from these acquisitions in 2018 were immaterial. For the quarter ended March 31, 2019, these acquisitions generated the following operating revenue and income:
 
Three Months Ended March 31, 2019
 
Operating Revenue
 
Operating Income
(in thousands)
 
 
 
Marlin Gas Services
$
2,434

 
$
1,375

Ohl
$
822

 
$
273


FASB Statements and Other Authoritative Pronouncements
Recently Adopted Accounting Standards
Leases (ASC 842) - In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. The standard establishes a right of use model that requires a lessee to recognize a right of use asset and lease liability for all leases with a term greater than 12 months. The update also expands the required quantitative and qualitative disclosures surrounding leases. ASC 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; ASU No. 2018-11, Targeted Improvements; and ASU No. 2019-01, Codification Improvements. We adopted ASU 2016-02 and the related amendments on January 1, 2019, and used the optional transition method for all existing leases. The optional transition method enables us to adopt the new standard as of the beginning of the period of adoption and does not require restatement of prior period financial information. As a result, prior period financial information has not been recast and continues to be reported under the accounting guidance that was effective during those periods.

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At adoption, we elected the following practical expedients: (1) the ‘package of practical expedients,’ pursuant to which we did not need to reassess our prior conclusions about lease identification, lease classification and initial direct costs, (2) the ‘use-of-hindsight’ practical expedient, which allowed us to use hindsight in assessing impairment of our existing land easements, (3) creation of an accounting policy for short-term leases resulting in lease payments being recorded as an expense on a straight-line basis over the lease term, and (4) to not separate lease and non-lease components for all leases.
 
See Note 15, Leases, for additional information with respect to the impact of the adoption of the lease accounting guidance and the disclosures required by ASU 2016-02 and the related amendments.

Compensation - Stock Compensation (ASC 718) - In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. We adopted ASU 2018-07 on January 1, 2019. Implementation of this new standard did not have a material impact on our financial position or results of operations.
Recent Accounting Standards Yet to be Adopted
Intangibles-Goodwill (ASC 350) - In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. ASU 2017-04 will be effective for our annual and interim financial statements beginning January 1, 2020, although early adoption is permitted. The amendments included in this ASU are to be applied prospectively. We believe that implementation of this new standard will not have a material impact on our financial position or results of operations.
Fair Value Measurement (ASC 820) - In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which removes, modifies and adds certain disclosure requirements on fair value measurements in ASC 820. ASU 2018-13 will be effective for our annual and interim financial statements beginning January 1, 2020 and, since the changes only impact disclosures, will not have a material impact on our financial position or results of operations.

2.
Calculation of Earnings Per Share

 
 
Three Months Ended
 
 
March 31,
 
 
2019
 
2018
(in thousands, except shares and per share data)
 
 
 
 
Calculation of Basic Earnings Per Share:
 
 
 
 
 
 
 
 
 
Net Income
 
$
28,664

 
$
26,855

Weighted average shares outstanding
 
16,384,927

 
16,351,338

Basic Earnings Per Share
 
$
1.75

 
$
1.64

 
 
 
 
 
Calculation of Diluted Earnings Per Share:
 
 
 
 
Reconciliation of Numerator:
 
 
 
 
Net Income
 
$
28,664

 
$
26,855

Reconciliation of Denominator:
 
 
 
 
Weighted shares outstanding—Basic
 
16,384,927

 
16,351,338

Effect of dilutive securities—Share-based compensation
 
47,925

 
51,647

Adjusted denominator—Diluted
 
16,432,852

 
16,402,985

Diluted Earnings Per Share
 
$
1.74

 
$
1.64

 

3.     Revenue Recognition


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We recognize revenue when our performance obligations under contracts with customers have been satisfied, which generally occurs when our businesses have delivered or transported natural gas, electricity or propane to customers. We exclude sales taxes and other similar taxes from the transaction price. Typically, our customers pay for the goods and/or services we provide in the month following the satisfaction of our performance obligation.
The following table displays our revenue by major source based on product and service type for the three months ended March 31, 2019 and 2018:
 
 
Three months ended March 31, 2019
 
Three Months Ended March 31, 2018
(in thousands)
 
Regulated Energy
 
Unregulated Energy
 
Other and Eliminations
 
Total
 
Regulated Energy
 
Unregulated Energy
 
Other and Eliminations
 
Total
Energy distribution
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Delaware natural gas division
 
$
27,549

 
$

 
$

 
$
27,549

 
$
32,072

 
$

 
$

 
$
32,072

Florida natural gas division
 
7,900

 

 

 
7,900

 
5,864

 

 

 
5,864

FPU electric distribution
 
14,378

 

 

 
14,378

 
18,741

 

 

 
18,741

FPU natural gas distribution
 
23,786

 

 

 
23,786

 
23,213

 

 

 
23,213

Maryland natural gas division
 
10,047

 

 

 
10,047

 
10,672

 

 

 
10,672

Sandpiper natural gas/propane operations
 
7,082

 

 

 
7,082

 
8,964

 

 

 
8,964

Total energy distribution
 
90,742

 

 

 
90,742

 
99,526






99,526

 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
Energy transmission
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
Aspire Energy
 

 
13,470

 

 
13,470

 

 
12,077

 

 
12,077

Eastern Shore
 
19,056

 

 

 
19,056

 
15,597

 

 

 
15,597

Peninsula Pipeline
 
3,565

 

 

 
3,565

 
2,098

 

 

 
2,098

Total energy transmission
 
22,621

 
13,470

 

 
36,091


17,695


12,077




29,772

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy generation
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
Eight Flags
 

 
4,142

 

 
4,142

 

 
4,378

 

 
4,378

 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
Propane operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Propane delivery operations
 

 
46,125

 

 
46,125

 

 
52,104

 

 
52,104

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy services
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Marlin Gas Services
 

 
2,434

 

 
2,434

 

 

 

 

PESCO - Natural Gas Marketing
 

 
77,022

 

 
77,022

 
 
 
81,559

 

 
81,559

Total energy services
 

 
79,456

 

 
79,456

 

 
81,559

 

 
81,559

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other and eliminations
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
Eliminations
 
(9,745
)
 
(5,496
)
 
(14,236
)
 
(29,477
)
 
(7,828
)
 
(5,245
)
 
(15,598
)
 
(28,671
)
Other
 

 
405

 
132

 
537

 

 
494

 
194

 
688

Total other and eliminations
 
(9,745
)
 
(5,091
)
 
(14,104
)
 
(28,940
)
 
(7,828
)
 
(4,751
)
 
(15,404
)
 
(27,983
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total operating revenues (1)
 
$
103,618


$
138,102


$
(14,104
)

$
227,616

 
$
109,393

 
$
145,367

 
$
(15,404
)
 
$
239,356

(1) Total operating revenues for the three months ended March 31, 2019, include other revenue (revenues from sources other than contracts with customers) of $121,000 and $84,000 for our Regulated and Unregulated Energy segments, respectively and $(589,000) and $73,000 for our Regulated and Unregulated Energy segments, respectively, for the three months ended March 31, 2018. The sources of other revenues include revenue from alternative revenue programs related to revenue normalization for the Maryland division and Sandpiper and late fees.
Contract balances

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The timing of revenue recognition, customer billings and cash collections results in trade receivables, unbilled receivables (contract assets), and customer advances (contract liabilities) in our condensed consolidated balance sheets. The balances of our trade receivables, contract assets, and contract liabilities as of December 31, 2018 and March 31, 2019 were as follows:
 
 
Trade Receivables
 
Contract Assets (Non-current)
 
Contract Liabilities (Current)
(in thousands)
 
 
 
 
 
 
Balance at 12/31/2018
 
$
83,214

 
$
2,614

 
$
480

Balance at 3/31/2019
 
72,162

 
3,004

 
305

Increase (decrease)
 
$
(11,052
)
 
$
390

 
$
(175
)
Our trade receivables are included in trade and other receivables in the condensed consolidated balance sheets. Our non-current contract assets are included in other assets in the condensed consolidated balance sheet and relate to operations and maintenance costs incurred by Eight Flags that have not yet been recovered through rates for the sale of electricity to our electric distribution operation pursuant to a long-term service agreement.

At times, we receive advances or deposits from our customers before we satisfy our performance obligation, resulting in contract liabilities. At March 31, 2019 and December 31, 2018, we had a contract liability of $305,000 and $480,000, respectively, which was included in other accrued liabilities in the condensed consolidated balance sheet, and which relates to non-refundable prepaid fixed fees for our Delmarva Peninsula propane delivery operation's retail offerings. Our performance obligation is satisfied over the term of the respective retail offering plan on a ratable basis. For the three months ended March 31, 2019 and 2018, we recognized revenue of $287,000 and $251,000, respectively.

Remaining performance obligations
Our businesses have long-term fixed fee contracts with customers in which revenues are recognized as performance obligations are satisfied over the contract term. Revenue for these businesses for the remaining performance obligations at March 31, 2019 are expected to be recognized as follows:

(in thousands)
2019
 
2020
 
2021
 
2022
 
2023
 
2024
 
2025 and thereafter
Eastern Shore and Peninsula Pipeline
$
28,754

 
$
36,791

 
$
33,510

 
$
26,566

 
$
21,146

 
$
18,969

 
$
193,651

Natural gas distribution operations
2,999

 
3,587

 
3,358

 
3,320

 
2,924

 
2,910

 
27,916

PESCO - Natural Gas Marketing
4,435

 
4,585

 
1,706

 
22

 

 

 

FPU electric distribution
223

 
297

 
297

 
109

 

 

 

Total revenue contracts with remaining performance obligations
$
36,411

 
$
45,260

 
$
38,871

 
$
30,017

 
$
24,070

 
$
21,879

 
$
221,567



4.
Rates and Other Regulatory Activities

Our natural gas and electric distribution operations in Delaware, Maryland and Florida are subject to regulation by their respective PSC; Eastern Shore, our natural gas transmission subsidiary, is subject to regulation by the FERC; and Peninsula Pipeline, our intrastate pipeline subsidiary, is subject to regulation by the Florida PSC.
Delaware
Effect of the TCJA on Customers: On January 31, 2019, the Delaware PSC approved the as-filed Delaware Division Delivery Service Rates reflecting the impact of the TCJA.  The new rates went into effect March 1, 2019, and we will have to complete refunds retroactive to February 2018, by June 30, 2019.  The order also provided for a line item billing credit that went into effect on April 1, 2019, for the return of the excess accumulated deferred income taxes ("ADIT").  Additional information on the TCJA impact is included in the table at the end of this Note 4, Rates and Other Regulatory Activities.

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Weather Normalization Adjustment: In January 2019, we filed with the Delaware PSC an application requesting approval to implement a weather normalization adjustment. The proposed weather normalization adjustment will provide either a billing credit (during colder than normal weather) or surcharge (during warmer than normal weather) designed to produce natural gas bills for customers that reflect normal temperatures. The weather normalization adjustment will ensure we do not over or under-collect Delaware PSC authorized levels of distribution revenues due to weather variability. The Delaware PSC issued an order on March 19, 2019 to open a docket and formally review the case.
Florida
Electric Limited Proceeding-Storm Recovery: In February 2018, FPU filed a petition with the Florida PSC, requesting recovery of incremental storm restoration costs related to several hurricanes and tropical storms, along with the replenishment of the storm reserve to its pre-storm level of $1.5 million. As a result of these hurricanes and tropical storms, FPU’s storm reserve was depleted and, at the time of this filing, had a deficit of $779,000. This matter went to hearing in December 2018 and was subsequently approved at the March 5, 2019 Agenda with the Final Order issued on March 25, 2019. FPU received approval to begin a surcharge of $1.54 per 1,000 kilowatt hour on customer bills for two years beginning in April 2019, to recover storm-related costs and replenish the storm reserve.
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 losing electrical service. FPU, after exerting extraordinary hurricane restoration efforts, restored service to those customers who were able to accept it. FPU expended more than $65.0 million to restore service, which has been recorded as new plant and equipment or charged against FPU’s storm reserve. In conjunction with the hurricane-related expenditures, we executed two 13-month unsecured term loans as temporary financing, each in the amount of $30 million. The interest cost associated with these loans is LIBOR plus 75 points. One of the term loans was executed in December 2018; the other was executed in January 2019. While there is a short-term negative impact, the storm is not expected to have a significant impact going forward, assuming reasonable regulatory treatment. We have begun preparing the necessary regulatory filings to seek recovery of the costs incurred, including the financing costs for the temporary debt issued to fund the new plant and equipment.
Effect of the TCJA on Customers: In February 2018, the Florida PSC opened dockets to consider the impacts associated with the TCJA. In May 2018, FPU’s natural gas divisions filed petitions and supporting testimony regarding the disposition of the related impacts of the TCJA. Hearings on this matter took place in November 2018, and the staff's recommendation was approved by the Florida PSC at the February 5, 2019 Agenda. Final orders were issued on February 25, 2019. Staff’s recommendations are summarized in the table at the end of this Note 4, Rates and Other Regulatory Activities.
Imbalance Petition: In February 2019, FPU filed a petition, with the Florida PSC, to modify the pool manager cash out tiers and respective cash out rates. With this petition, FPU further facilitates consistency across the Florida business units and eliminates the unintentional arbitrage opportunity created by the tariff. The petition does not have a financial impact for FPU, and it will benefit customers by lowering costs. This petition was approved by the Florida PSC at the April 2, 2019 Agenda.
Maryland Division and Sandpiper
There were no material regulatory matters during the quarter.
Eastern Shore
Del-Mar Energy Pathway Project: In September 2018, Eastern Shore filed a Certificate Application with the FERC, requesting authorization to construct and operate the Del-Mar Energy Pathway project, which will provide an additional 14,300 Dts/d of firm service to four customers. Facilities to be constructed include six miles of pipeline looping in Delaware; 13 miles of new mainline extension in Sussex County, Delaware and Somerset County, Maryland; and new pressure control and delivery stations in these counties. The benefits of this project include: (i) additional natural gas transmission pipeline infrastructure in eastern Sussex County, Delaware, and (ii) extension of Eastern Shore’s pipeline system, for the first time, into Somerset County, Maryland. During the fourth quarter of 2018, the FERC held a full project area scoping meeting in Sussex County, Delaware and issued a Notice of Schedule for Environmental Review. The Environmental Assessment for the Del-Mar Energy Pathway project was issued on April 1, 2019. As of the date of this filing, final FERC authorization was still pending.





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Summary TCJA Table

The following table summarizes the TCJA impact on our regulated businesses:
 
 
Regulatory Liabilities related to ADIT
 
 
Operation and Regulatory Jurisdiction
 
Amount (in thousands)
Status
 
Status of Customer Rate impact related to lower federal corporate income tax rate
Eastern Shore (FERC)
 
$34,190
Will be addressed in Eastern Shore's next rate case filing
 
Implemented one-time bill credit (totaling $900,000) in April 2018 - Customer rates adjusted in April, 2018
Delaware Division (Delaware PSC)
 
$13,082
PSC approved amortization of ADIT in January 2019
 
Customer rates adjusted March 1, 2019. One-time bill credit to be implemented during the second quarter of 2019
Maryland Division (Maryland PSC)
 
$4,171
PSC approved amortization of ADIT in May 2018
 
Implemented one-time bill credit (totaling $365,000) in July 2018 - Customer rates adjusted effective May 1, 2018
Sandpiper Energy (Maryland PSC)
 
$3,803
PSC approved amortization of ADIT in May 2018
 
Implemented one-time bill credit (totaling $608,000) in July 2018 - Customer rates adjusted effective May 1, 2018
Chesapeake Florida Gas Division/Central Florida Gas (Florida PSC)
 
$8,346
PSC issued order authorizing amortization and retention of net ADIT liability by the Company on February 25, 2019
 
PSC Staff recommendation issued on January 24, 2019; final order was issued on February 25, 2019; No one-time bill credit or adjustment in rates will be applied; the tax savings arising from the TCJA rate reduction will be retained by the Company

FPU Natural Gas (includes FPU, Fort Meade, and Indiantown) (Florida PSC)
 
$19,478
Same treatment on a net basis as Chesapeake Florida Gas Division (above)

 
Same treatment on a net basis as Chesapeake Florida Gas Division (above)

FPU Electric (Florida PSC)
 
$5,950
In January 2019, PSC issued order approving amortization of ADIT through purchased power cost recovery, storm reserve and rates
 
TCJA benefit will flow back to its customers through a combination of reductions to the fuel cost recovery rate, base rates, as well as application to the storm reserve over the next several years
 
5. Environmental Commitments and Contingencies
We are subject to federal, state and local laws and regulations governing environmental quality and pollution control. These laws and regulations require us to remove or remediate, at current and former operating sites, the effect on the environment of the disposal or release of specified substances.
MGP Sites
We have participated in the investigation, assessment or remediation of, and have exposures at, seven former MGP sites. We have received approval for recovery of clean-up costs in rates for sites located in Salisbury, Maryland; Seaford, Delaware; and Winter Haven, Key West, Pensacola, Sanford and West Palm Beach, Florida. We are also in discussions with the Maryland Department of Environment ("MDE") regarding another former MGP site located in Cambridge, Maryland.
As of March 31, 2019 and December 31, 2018, we had approximately $8.9 million and $9.1 million, respectively, in environmental liabilities related to FPU’s MGP sites in Key West, Pensacola, Sanford and West Palm Beach. FPU has approval to recover, from insurance and through customer rates, up to $14.0 million of its environmental costs related to its MGP sites. As of March 31, 2019 and December 31, 2018, we had recovered approximately $11.6 million and $11.5 million, respectively, leaving approximately $2.4 million and $2.5 million, respectively, in regulatory assets for future recovery of environmental costs from FPU’s customers.
Environmental liabilities for our MGP sites are recorded on an undiscounted basis based on the estimate of future costs provided by independent consultants. We continue to expect that all costs related to environmental remediation and related activities, including any potential future remediation costs for which we do not currently have approval for regulatory recovery, will be recoverable from customers through rates.
The following is a summary of our remediation status and estimated costs to implement clean-up of our key MGP sites:

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MGP Site (Jurisdiction)
Status
Estimated Cost to Clean up
(Expect to Recover through Rates with Customers)
West Palm Beach (Florida)
Remedial actions approved by the Florida Department of Environmental Protection have been implemented on the east parcel of the site. We expect to implement similar remedial actions on other remaining portions, including the anticipated demolition of buildings on the site's west parcel in 2019.
Between $4.5 million to $15.4 million, including costs associated with the relocation of FPU’s operations at this site, which is necessary to implement the remedial plan, and any potential costs associated with future redevelopment of the properties.
Sanford (Florida)
In March 2018, the United States Environmental Protection Agency ("EPA") approved a "site-wide ready for anticipated use" status, which is the final step before delisting a site. Construction has been completed and restrictive covenants are in place to ensure protection of human health. The only remaining activity is long-term groundwater monitoring.
FPU's remaining remediation expenses, including attorneys' fees and costs, are anticipated to be less than $10,000. It is unlikely that FPU will incur any significant future costs associated with the site.
Winter Haven (Florida)
Remediation is ongoing.
Not expected to exceed $425,000, which includes costs of implementing institutional controls at the site.
Seaford (Delaware)
Conducted investigations of on-site and off-site impacts in the vicinity of the site, from 2014 through 2018, and submitted the findings to Delaware Department of Natural Resources and Environmental Control ("DNREC") in a March 2019 report. An interim action involving air-sparging/vapor extraction to mitigate on-site impact will be implemented, after the Work Plan has been submitted and approved by DNREC.
Between $273,000 and $465,000.
Cambridge (Maryland)
Currently in discussions with the MDE.
Unable to estimate.


6.
Other Commitments and Contingencies
Natural Gas, Electric and Propane Supply
Our Delmarva Peninsula natural gas distribution operations have asset management agreements with PESCO to manage their natural gas transportation and storage capacity. The agreements were effective as of April 1, 2017, and each has a three-year term, expiring on March 31, 2020.
In May 2013, Sandpiper entered into a capacity, supply and operating agreement with Eastern Gas & Water Investment Company, LLC ("EGWIC") to purchase propane through May 2019. Sandpiper has the option to enter into either a fixed per-gallon price for some or all of the propane purchases or a market-based price utilizing one of two local propane pricing indices. Sandpiper's remaining commitment at March 31, 2019 was approximately 288,000 gallons. Sandpiper has entered into an agreement with EGWIC to purchase any remaining assets at the end of the lease term and will transfer them to Sharp.
Also in May 2013, Sharp entered into a separate supply and operating agreement with EGWIC. Under this agreement, Sharp has a commitment to supply propane to EGWIC through May 2019. Sharp's remaining commitment as of March 31, 2019 was approximately 288,000 gallons. The agreement between Sharp and EGWIC is separate from the agreement between Sandpiper and EGWIC.
Chesapeake Utilities' Florida Division has firm transportation service contracts with Florida Gas Transmission Company ("FGT") and Gulfstream. Pursuant to a capacity release program approved by the Florida PSC, all of the capacity under these agreements has been released to various third parties, including PESCO. Under the terms of these capacity release agreements, Chesapeake Utilities is contingently liable to FGT and Gulfstream should any party, that acquired the capacity through release, fail to pay the capacity charge.

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FPU’s electric supply contracts require FPU to maintain an acceptable standard of creditworthiness based on specific financial ratios. FPU’s agreement with Florida Power & Light Company requires FPU to meet or exceed a debt service coverage ratio of 1.25 times based on the results of the prior 12 months. If FPU fails to meet this ratio, it must provide an irrevocable letter of credit or pay all amounts outstanding under the agreement within five business days. FPU’s electric supply agreement with Gulf Power requires FPU to meet the following ratios based on the average of the prior six quarters: (a) funds from operations interest coverage ratio (minimum of two times), and (b) total debt to total capital (maximum of 65 percent). If FPU fails to meet the requirements, it has to provide the supplier a written explanation of actions taken, or proposed to be taken, to become compliant. Failure to comply with the ratios specified in the Gulf Power agreement could also result in FPU having to provide an irrevocable letter of credit. As of March 31, 2019, FPU was in compliance with all of the requirements of its fuel supply contracts.
Eight Flags provides electricity and steam generation services through its CHP plant located on Amelia Island, Florida. In June 2016, Eight Flags began selling power generated from the CHP plant to FPU pursuant to a 20-year power purchase agreement for distribution to our electric customers. In July 2016, Eight Flags also started selling steam, pursuant to a separate 20-year contract, to the landowner on which the CHP plant is located. The CHP plant is powered by natural gas transported by FPU through its distribution system and Peninsula Pipeline through its intrastate pipeline.

Corporate Guarantees
We have issued corporate guarantees to certain vendors of our subsidiaries, primarily PESCO. These corporate guarantees provide for the payment of natural gas purchases in the event that PESCO defaults. PESCO has never defaulted on its obligations to pay its suppliers. The liabilities for these purchases are recorded when incurred. The aggregate amount guaranteed at March 31, 2019 was approximately $77.3 million, with the guarantees expiring on various dates through December 2020.
Chesapeake Utilities also guarantees the payment of FPU’s first mortgage bonds. The maximum exposure under this guarantee is the outstanding principal plus accrued interest balances. The outstanding principal balances of FPU’s first mortgage bonds approximate their carrying values (see Note 14, Long-Term Debt, for further details).
As of March 31, 2019, we have issued letters of credit totaling approximately $7.0 million related to the electric transmission services for FPU's electric division, the firm transportation service agreement between TETLP and our Delaware and Maryland divisions, the payment of natural gas purchases for PESCO, and to our current and previous primary insurance carriers. These letters of credit have various expiration dates through March 2020. There have been no draws on these letters of credit as of March 31, 2019. We do not anticipate that the counterparties will draw upon these letters of credit, and we expect that they will be renewed to the extent necessary in the future.

7.
Segment Information
We use the management approach to identify operating segments. We organize our business around differences in regulatory environment and/or products or services, and the operating results of each segment are regularly reviewed by the chief operating decision maker (our Chief Executive Officer) in order to make decisions about resources and to assess performance.
Our operations are comprised of two reportable segments:
Regulated Energy. Includes energy distribution and transmission services (natural gas distribution, natural gas transmission and electric distribution operations). All operations in this segment are regulated, as to their rates and services, by the PSC having jurisdiction in each operating territory or by the FERC in the case of Eastern Shore.
Unregulated Energy. Includes energy transmission, energy generation (the operations of our Eight Flags' CHP plant), propane operations, the new mobile compressed natural gas utility and pipeline solutions subsidiary, and other energy services (natural gas marketing and related services). These operations are unregulated as to their rates and services. Also included in this segment are other unregulated energy services, such as energy-related merchandise sales and heating, ventilation and air conditioning, plumbing and electrical services.
The remainder of our operations is presented as “Other businesses and eliminations,” which consists of unregulated subsidiaries that own real estate leased to Chesapeake Utilities, as well as certain corporate costs not allocated to other operations.

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The following table presents financial information about our reportable segments:
 
 
Three Months Ended
 
 
March 31,
 
 
2019
 
2018
(in thousands)
 
 
 
 
Operating Revenues, Unaffiliated Customers
 
 
 
 
Regulated Energy
 
$
100,739

 
$
105,954

Unregulated Energy
 
126,877

 
133,402

Total operating revenues, unaffiliated customers
 
$
227,616

 
$
239,356

Intersegment Revenues (1)
 
 
 
 
Regulated Energy
 
$
2,879

 
$
3,439

Unregulated Energy
 
11,225

 
11,965

Other businesses
 
132

 
194

Total intersegment revenues
 
$
14,236

 
$
15,598

Operating Income
 
 
 
 
Regulated Energy
 
$
29,741

 
$
26,711

Unregulated Energy
 
15,127

 
13,684

Other businesses and eliminations
 
(875
)
 
11

Operating income
 
43,993

 
40,406

Other income (expense), net
 
(45
)
 
68

Interest charges
 
5,710

 
3,664

Income before Income Taxes
 
38,238

 
36,810

Income taxes
 
9,574

 
9,955

Net Income
 
$
28,664

 
$
26,855

 
(1) All significant intersegment revenues are billed at market rates and have been eliminated from consolidated operating revenues.
(in thousands)
 
March 31, 2019
 
December 31, 2018
Identifiable Assets
 
 
 
 
Regulated Energy segment
 
$
1,343,061

 
$
1,345,805

Unregulated Energy segment
 
296,836

 
306,045

Other businesses and eliminations
 
42,900

 
41,821

Total identifiable assets
 
$
1,682,797

 
$
1,693,671


Our operations are entirely domestic.

8.
Stockholder's Equity
Accumulated Other Comprehensive Loss
Defined benefit pension and postretirement plan items, unrealized gains (losses) of our propane swap agreements, call options natural gas swaps and futures contracts, designated as commodity contracts cash flow hedges, are the components of our accumulated other comprehensive loss. The following tables present the changes in the balance of accumulated other comprehensive (loss)/income as of March 31, 2019 and 2018. All amounts except the stranded tax reclassification are presented net of tax.

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Defined Benefit
 
Commodity
 
 
 
 
Pension and
 
Contracts
 
 
 
 
Postretirement
 
Cash Flow
 
 
 
 
Plan Items
 
Hedges
 
Total
(in thousands)
 
 
 
 
 
 
As of December 31, 2018
 
$
(5,928
)
 
$
(785
)
 
$
(6,713
)
Other comprehensive income before reclassifications
 

 
3,021

 
3,021

Amounts reclassified from accumulated other comprehensive income/(loss)
 
107

 
(39
)
 
68

Net current-period other comprehensive income
 
107

 
2,982

 
3,089

Prior-year reclassification
 

 
(115
)
 
(115
)
As of March 31, 2019
 
$
(5,821
)
 
$
2,082

 
$
(3,739
)
(in thousands)
 
 
 
 
 
 
As of December 31, 2017
 
$
(4,743
)
 
$
471

 
$
(4,272
)
Other comprehensive loss before reclassifications
 

 
(2,232
)
 
(2,232
)
Amounts reclassified from accumulated other comprehensive income/(loss)
 
94

 
444

 
538

Net prior-period other comprehensive income/(loss)
 
94

 
(1,788
)
 
(1,694
)
Stranded tax reclassification to retained earnings
 
(1,022
)
 
115

 
(907
)
As of March 31, 2018
 
$
(5,671
)
 
$
(1,202
)
 
$
(6,873
)
The following table presents amounts reclassified out of accumulated other comprehensive loss for the three months ended March 31, 2019 and 2018. Deferred gains or losses for our commodity contracts cash flow hedges are recognized in earnings upon settlement.
 
 
Three Months Ended
 
 
March 31,
 
 
2019
 
2018
(in thousands)
 
 
 
 
Amortization of defined benefit pension and postretirement plan items:
 
 
 
 
Prior service credit (1)
 
$
19

 
$
19

Net loss(1)
 
(163
)
 
(149
)
Total before income taxes
 
(144
)

(130
)
Income tax benefit
 
37

 
36

Net of tax
 
$
(107
)
 
$
(94
)
Gains and losses on commodity contracts cash flow hedges:
 
 
 
 
Propane swap agreements (2)
 
$
606

 
$
(464
)
Natural gas swaps (2)
 
11

 
(450
)
Natural gas futures (2)
 
(573
)
 
298

Total before income taxes
 
44

 
(616
)
Income tax benefit (expense)
 
(5
)
 
172

Net of tax
 
39

 
(444
)
Total reclassifications for the period
 
$
(68
)
 
$
(538
)
(1) These amounts are included in the computation of net periodic costs (benefits). See Note 9, Employee Benefit Plans, for additional details.
(2) These amounts are included in the effects of gains and losses from derivative instruments. See Note 12, Derivative Instruments, for additional details.
Amortization of defined benefit pension and postretirement plan items is included in operations expense, and gains and losses on propane swap agreements, call options and natural gas futures contracts are included in cost of sales in the accompanying condensed consolidated statements of income. The income tax benefit is included in income tax expense in the accompanying condensed consolidated statements of income.

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9.
Employee Benefit Plans
Net periodic benefit costs for our pension and post-retirement benefits plans for the three months ended March 31, 2019 and 2018 are set forth in the following tables:
 
 
Chesapeake
Pension Plan
 
FPU
Pension Plan
 
Chesapeake SERP
 
Chesapeake
Postretirement
Plan
 
FPU
Medical
Plan
For the Three Months Ended March 31,
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest cost
 
$
105

 
$
97

 
$
615

 
$
592

 
$
21

 
$
21

 
$
10

 
$
10

 
$
12

 
$
12

Expected return on plan assets
 
(127
)
 
(138
)
 
(693
)
 
(774
)
 

 

 

 

 

 

Amortization of prior service credit
 

 

 

 

 

 

 
(19
)
 
(19
)
 

 

Amortization of net loss
 
101

 
88

 
129

 
109

 
26

 
25

 
12

 
15

 

 

Net periodic cost (benefit)
 
79

 
47

 
51

 
(73
)
 
47

 
46

 
3

 
6

 
12

 
12

Amortization of pre-merger regulatory asset
 

 

 
190

 
191

 

 

 

 

 
2

 
2

Total periodic cost
 
$
79

 
$
47

 
$
241

 
$
118

 
$
47

 
$
46

 
$
3

 
$
6


$
14

 
$
14


We expect to record pension and postretirement benefit costs of approximately $1.3 million for 2019. Included in these costs is approximately $543,000 related to continued amortization of the FPU pension regulatory asset, which represents the portion attributable to FPU’s regulated energy operations for the changes in funded status that occurred, but were not recognized, as part of net periodic benefit costs prior to the FPU merger in 2009. This was deferred as a regulatory asset by FPU prior to the merger, to be recovered through rates pursuant to a previous order by the Florida PSC. The unamortized balance of this regulatory asset was approximately $351,000 and approximately $543,000 at March 31, 2019 and December 31, 2018, respectively. The other than service cost components of the net periodic costs have been recorded or reclassified to other income (expense), net in the condensed consolidated statements of income.

Pursuant to a Florida PSC order, FPU continues to record, as a regulatory asset, a portion of the unrecognized pension and postretirement benefit costs related to its regulated operations after the FPU merger. The portion of the unrecognized pension and postretirement benefit costs related to FPU’s unregulated operations and Chesapeake Utilities' operations is recorded to accumulated other comprehensive loss.
The following tables present the amounts included in the regulatory asset and accumulated other comprehensive loss that were recognized as components of net periodic benefit cost during the three months ended March 31, 2019 and 2018:
 
For the Three Months Ended March 31, 2019
 
Chesapeake
Pension
Plan
 
FPU
Pension
Plan
 
Chesapeake SERP
 
Chesapeake
Postretirement
Plan
 
FPU
Medical
Plan
 
Total
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Prior service credit
 
$

 
$

 
$

 
$
(19
)
 
$

 
$
(19
)
Net loss
 
101

 
129

 
26

 
12

 

 
268

Total recognized in net periodic benefit cost
 
101

 
129

 
26

 
(7
)
 

 
249

Recognized from accumulated other comprehensive loss (1)
 
101

 
24

 
26

 
(7
)
 

 
144

Recognized from regulatory asset
 

 
105

 

 

 

 
105

Total
 
$
101

 
$
129

 
$
26

 
$
(7
)
 
$

 
$
249



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Table of Contents

    
For the Three Months Ended March 31, 2018
 
Chesapeake
Pension
Plan
 
FPU
Pension
Plan
 
Chesapeake SERP
 
Chesapeake
Postretirement
Plan
 
FPU
Medical
Plan
 
Total
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Prior service credit
 
$

 
$

 
$

 
$
(19
)
 
$

 
$
(19
)
Net loss
 
88

 
109

 
25

 
15

 

 
237

Total recognized in net periodic benefit cost
 
88

 
109

 
25