Business Context and Reporting Period
Chesapeake Utilities Corporation filed this Form 8-K on June 8, 2015, to report two material events: the Federal Energy Regulatory Commission (FERC) acceptance of an application for a System Reliability Project by its subsidiary, Eastern Shore Natural Gas Company, and an update to the Company's 2015 capital budget forecast.
Key Financial Metrics and Capital Expenditures
- System Reliability Project Cost: Estimated at $32.1 million.
- Original 2015 Capital Budget: $223.4 million (as disclosed in the Q1 2015 Form 10-Q).
- Revised 2015 Capital Expenditure Forecast: $160 million to $190 million.
- Acquisition Exclusion: Neither the original budget nor the revised forecast includes the $52.8 million net purchase price for Gatherco, Inc., acquired on April 1, 2015.
- Historical Spending Trend: Actual capital spending over the prior three years ranged from 82% to 88% of original budgets.
Material Changes and Project Details
The primary material change is the downward revision of the 2015 capital expenditure forecast. Over 75% of this decline is attributed to a shift in the timing of expenditures from 2015 to 2016 rather than a cancellation of projects. The System Reliability Project involves approximately 10.1 miles of sixteen-inch pipeline looping in New Castle and Kent Counties, Delaware, and a new compressor at the Bridgeville Compressor Station in Sussex County. The project aims to improve system reliability and flexibility, particularly regarding conditions experienced in recent winters.
Guidance, Outlook, and Management Commentary
- Regulatory Timeline: Eastern Shore requested a FERC Certificate order by December 2015. The next rate case, where rolled-in rate treatment for the project costs will be sought, is due by January 2017.
- Project In-Service Date: Targeted for the third quarter of 2016, contingent upon FERC approval in December 2015.
- Rate Treatment: The Company requested a predetermination of rolled-in rate treatment for the $32.1 million capital spend at the time of the next rate case.
Investor Verification Checklist
- Confirm the final FERC order date for the System Reliability Project Certificate (targeted December 2015).
- Verify the actual 2015 capital expenditure total against the revised $160-$190 million forecast.
- Monitor the January 2017 rate case filing to confirm the approval of rolled-in rate treatment for the $32.1 million project.
- Track the in-service date of the new pipeline and compressor facilities (targeted Q3 2016).