Q3 2019 Earnings Call
Recipe to Utilities Corporation third quarter earnings Conference call at this time, all participants line listen only mode. After the speakers presentation. There would be a question answer session.
Question give me the section you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you're to acquire any further assistance. Please press star as you know I wouldn't like to have the conference over to your speaker today Ms. Beth Cooper. Thank you. Please go ahead now.
Good morning, and welcome to the Chesapeake Utilities third quarter 2019 earnings conference call before we begin today could Chesapeake team would like to recognize all active retired and reserve members of our armed forces in the room and on the phone today.
On behalf of the entire Chesapeake organisations. Thanks for everything you've done to serve our country proudly each and every day. There is no value. We can place on the sacrifices you have me.
Now turning back to our call. We appreciate all of you taking time to listening today, joining me on the phone or Jeff householder president and CEO and Jim Moriarty Executive Vice President General Counsel and keep risk and compliance officer. We have other members of the management team in the room with US today the color taking place.
He said our energy Lane complex in Dover, Delaware.
Our presentation today will focus on our quarterly and year to date results through September Thirtyth 2019.
Much of our focus will be on a year to date performance as the weather in the third quarter generally results in earnings which are the most of the four quarters and the here.
As previously announced in the third quarter, we initiated a process to exit the natural gas marketing business through a series of transactions since all the assets. In contrast, the Pascoe our natural gas marketing subsidiary to date, we have closed on core transaction as a result, we have begun to report.
TESSCO as discontinued operations separate from our continuing operation I would refer you to our press release on Form 10-Q , four additional details on these transactions.
Lastly in addition to our performance we will also highlight many of the opportunity we see before.
Turning to talk turning to slide to our normal disclaimers are listed related to forward looking statements concerning the company's future performance.
Again, we refer you to our third quarter Form 10-Q , and 2018 annual report on Form 10-K for list of factors that could result in our actual performance differing from the forward looking information, including and putting it in the presentation.
Today's discussion will also include certain non-GAAP measures, such as gross margin and adjusted Ethiopia as well as highlight our performance in terms of both continuing operations and discontinued operations. In addition to the overall consolidated results I will now turn the call over to job.
Thanks, Doug Thanks for joining our third quarter coal.
As I indicated.
The third quarter is always a somewhat less will close bromine quarter natural gas and propane business is arbor, great time to prepare for work to complete a variety of system maintenance intervals and to accelerate a number of construction projects and take advantage of where you typically more weather the storm or the here.
I've been doing all that making significant progress on several important white barn projects, we've completed a number of pipeline replacement.
Well it looks down for we've installed or number of services a meter such a new customers and we've been expanding our mountain gas services business.
In addition to handling the sale of our gas marketing business.
Well, so far we held beginning to see some weather her show up on Delmarva, and Ohio, I'm happy to report its cold here today, and hopefully we'll be cold for next week as well as well into the water so well worn out although year to date 2019 earnings.
Work strong performance in 2019, and we fully expect to continue that through urea.
Turning to slide three I want to quickly her or it's just a few points related to our operations initiatives planned for results and the execution of our strategic plan.
Well bores inside the business we have.
Jimmy was improved but activity underway and our safety and operational compliance areas.
Real commitment to that.
I have to be the best in class, an operating areas, we're investing significantly and safety and operational support.
We've seen our gas distribution customer growth well above the national average.
Both the Delmarva and in Florida, and we expect that to continue for quite some time a customer demand is long haul pipeline replacement activities are sick never go and they continue to drive investments in our existing gas distribution and transmission operations and we see several more years a pipeline.
Replacement activity, especially at all for operations, we've been working very diligently over the last several more so far we've been corn cost business secure collaboration activities when opportunities. We were done Mcdonough for a number of operational synergies so leading to some additional efficiencies on that it was.
The lower overall operating expense in 2019, we expect that to continue going forward.
Financial side of the business significant gross margin growth both in this core Oh and year to date about a $4 million increased for the quarter at about $19 million so year to date so for.
Some of that is the T.C.G. a tax benefit that we have.
Seen hitting our bottom line on our regulated businesses and in our for a regulated natural gas business.
Margins are driving very significant operating income money P.S. growth for the first nine months or gap bps. So $2.59 represents about a 9.7% growth over 28 team we increased our dividend by 9.5% in May and we have a five year dividend growth girls the body.
At 4%.
So we're seeing continued strong performance relative to our peer group.
Oh, that's strong performance among other things also allowed us to a access some very competitively priced permanent capital.
All which will certainly benefit this year and I won't give a future.
On the strategic side, we continue to execute on our fundamental strategy or we have found that and executed on significant investment opportunities over the past decade, and we're continuing to see those I believe steer of new projects that BPC, Kelly I'm pipeline, Florida, They all Ferndale part.
Quantum for Oh, several expansions in Palm Beach County that we'll talk about in some detail and a few moments are waiting for folks to approve the eastern shore Delmore pathway project, which we hope to have in service over the next year or so and.
And then we have good news on my part one opportunity out in Ohio distribution areas are the more on that old propane acquisitions are continuing to contribute significantly.
We have also very good news on the hurricane Michael rate recovery or cost recovery of the public Service Commission approved they sort of an agreement that we executed with the office support Council to.
Essentially so the structure of the recovery not the dollar amount, but the structure of the recovery that will allow us to began charging interim rates in seeing revenues fall back into that electric system to pay for the Hurricane Michael.
Costs, we will over the course, so I believe over the next probably five or six months settle on the final dollar amount for hurricane recovery. When it's great news that we have the structure employees and this is going to avoid full began in January we've also undertaken a recent FERC filing to establish.
Sure pipeline.
Our.
Quality standards for eastern shore system, Hi, it's our intent to bring a lot hopefully a significant amount of renewable natural gas into that system over the next several years. There are several projects are on the on more of our including one fairly substantial wanted to try to clean up some of the chicken way.
Yes that is both floating the bay, but also offers an opportunity for significant my nothing injection door part one.
So we hope to pursue that and see that those are orangeade molecules began to come into our pipeline here over the next couple of years number of new projects very close the finalization of some of them or not particularly secret we've been talking about our interest in a CHP project Oh.
On a mealy island the second CHP project, we hope that we are close to a getting that project to a point, where we can contractor and a and move forward with it.
Obviously affects indicated we've recently exited the natural gas marketing business turning to slide four let me just Mike a couple of comments about.
As part of our ongoing strategic planning process, we took a hard look at our peninsula energy services business. A there were three fundamental issues that ultimately drove our decision making to exit that business.
First and foremost as I Didnt think that the business was aligned with our long term growth strategy I, just wasn't making the kind of contribution that I thought we needed for the effort that we were putting and wanting that business.
It also exceeded our restaurants I was significantly a volatile oh, and frankly would have required some very significant additional investments to ensure that oh. The business continued to be profitable both in terms of human resources and system resources.
So we decided to exit the business, we identified a number of parties with interest in the business and we have substantially concluded the sale or exiting this business improves our earnings outlook.
Period.
Reduces the volatility of future earnings we are.
Happy to report that the sales price that we have received for the assets of this business on the contracts are fully recovers our posco investment.
Ended up selling the business to actually four separate entities and you see that on a under the sale of assets section on page four.
Oh.
Our yearend, we believe we will receive a total of approximately $15 million.
We estimate a pre tax gain ranging somewhere between five to 7 million depending on how the contract assignments go and the dollar amounts that we ultimately achieve for those for those sales contracts and we're now accounting as best indicated for Pascoe as a discontinued operation. So let me turn this back over to.
BAF and she will as always we'll provide some detail and color on our results. Thanks, Jeff as Jeff mentioned, we're very pleased with the speed with which we executed the sale of Tesco and the gain that we will ultimately recognized in the fourth quarter as you can see on slide five for the quarter and year to date our growth.
Gross margin growth has driven strong operating income growth.
Well or other operating expenses grew the pace of their growth slows to 5.6% for the quarter and more importantly, 2.5% on a year to date basis.
Gross margin grew 7.9% and 8.8% for the third quarter and year to date, driving operating income rose up 11.5% and 16.2% for the same period respectively.
Higher interest costs associated with increased short term borrowings and increase short term interest costs and the cost of long term that were offset by the gross margin growth in both periods.
EPS from continuing operations for the third quarter grew by a penny per share were 2.7% GAAP consolidated EPS was flat for the quarter.
On a year to date basis EPS from continuing operations grew by 29 cents per share or 12.2% GAAP consolidated EPS increased by 23 cents for the same period were 9.7% as mentioned earlier.
We used the slide I'm on slide six a highlight the growth projects and other strategic initiatives that are underway or recently completed as well as the margin contribution and beginning with this quarter, we've actually color coded and sort of these projects and initiatives by expansions acquisitions and regulatory.
Three initiatives.
For 2019, we expect margin growth of $22.3 million, which includes 18.3 million generated during the nine month period.
The 22.3 million dollar estimate increased $1.3 million since our previous disclosures in the second quarter.
Three largest contributor to the year to date 18.3 million dollar increase included $10.5 million from pipeline expansion.
$5 million from the Marlin and all acquisition with Marlin generating 4.4 million of the 5 million dollar increase and 2.4 million from regulatory initiatives largely from the T.J. impact that our Florida natural gas distribution operation, we're able to retain.
For 2020, we anticipate $9.4 million, an incremental gross margin as projects are completed or partially put in service next year, we expect to add new projects and initiatives. So this table, including the limits in electric proceeding that we have filed which will add to the merger.
Ross trajectory in 2020 and beyond.
As you can see the table does not include new projects under development. Once projects have been approved we include them in our forecast of margin for 2020 on beyond depending on the actual in service date.
Most recent addition to this table is the Auburndale natural gas expansion, which is now in service and which added 113000 of incremental margin for the quarter and year to date, and which will generate annual margin next year of approximately 700000.
In our press release, we also introduced a new pipeline expansion project in Ohio, known as the Guernsey project, Jeff will discuss this project further in the presentation and again, we will add this project to the major projects and initiatives table in the fourth quarter press release, when we introduced the 2021.
Margin impact.
We currently operate into primary regions, where there are opportunities to bring natural gas to growing areas and community community. We continue to generate above average customer growth as shown on slide seven approximating just under 4% in both Delmarva and Florida. This organic.
Gross coupled with our focus on converting and modernizing our sandpiper and Florida distribution system has resulted in increased margin of $4.7 million on a year to date basis, representing 25% Chesapeake consolidated year to date margin growth.
Moving to slide eight on a year to date basis. The unregulated energy segment had several key margin drivers and these are the margin growth drivers and not all of the impacts in the segment, but those drivers out of $7 million of incremental gross margin. These drivers were led by Marlin, our propane or.
Operations on a fire with Marlins gross margin contribution alone, representing 4.4 million or 23% of Chesapeake charts of each year to date gross margin growth.
I'm now going to turn the call back over to Jeff the touch a little bit more on our recent regulatory initiatives.
So as you all know our regulatory initiatives.
A significant component in our overall strategic plan.
We've been quite successful over the years and are happy to report several additional successes. In addition to the nonregulated tax benefit that we talked about a second ago.
For the public service Commission approved retention of a portion of our T.C.J. tax savings for the company's Florida regulated natural gas operations. We ended up with a pick up a 1.3 million on reversal of two for 2018 tax reserves and 2.4 million as an incremental.
And we'll benefit beginning in 2019, and so far we've seen about 1.1 million in the first.
Nine months with 2019, one of the reasons. We were successful I believe is probably one of the only if not the only regulated natural gas utility in the country to actually retain a portion of these tax benefits as we focused our attention on using.
Some of these dollars significant amount of these dollars in our safety and operational compliance activities and so we've not only were covered costs that are critical to the operations of bar or system, but we've seen a nice pop in the equity returns in both before and public utilities and I'm looking forward to gas systems in Florida.
We're also are received a storm recovery or.
Surcharge of about $2.3 million to be recovered as it indicates here from April 2019 to March of 2021.
That is not for hurricane Michael the Big one down there in our electric system. These were four hurricanes Hermine and Matthew that came through our natural gas distribution system, all on Amelia Island the figures back.
We have not yet filed for recovery of the Oh $1 million or so that we expect on preparing for hurricane Dorian or the other thing when it came through.
There are a couple of recent filings with the PSC that are worth mentioning or one of them is the hurricane Michael recovery, we're seeing that I mentioned in passing a moment ago, we have as I as I indicated the structure of our recovery and the interim rates are already approved and we believe that will go.
Got a final approval on the final recovery amount here over the next few months.
Also I indicated that we have filed our eastern shore Oh.
Eastern shore has a filing to accommodate renewable natural gas, which we believe ultimately there's a pretty important.
Element of our total gas supply going forward.
Sure.
Thanks, Jeff they're turning to slide 11, as we mentioned earlier, we recorded GAAP earnings per share from continuing ops of $2.67 per share for the nine months ended September Thirtyth 2019, and we recorded.
In conjunction with that it was a result of our gross margin growth, which we've identified on slide 11 and that added a dollar three per share in terms of earning on the call side. We saw expected increases in expenses to support our grown a 44 cents per share, but at a much slower pace as discussed.
Previously on interest expense related to growth and fully funding hurricane Michael restoration costs increased 22 cents per share finally, our results on a year to date bases have been strong despite warmer than normal temperatures year to date in 2019 compared to last year as a result, our earnings.
Potential was negatively impacted by 20 cents per share due to lower consumption.
Earnings per share growth averaged 7.9% and 9.6% for the past five and 10 years ended December 31st.
Respectively based upon adjusted Yeah. This is actually shown on slide 12, 2019 results are strong on a year to date basis and the outlook as Jeff commented earlier remains very positive for the year as a whole whether viewed on a consolidated basis with pets goes gains included.
We're on a continuing operations basis.
2019, our outlook for earnings growth remains consistent with the previous guidance through 2022, as we continue to move to the ended the year and into 2020, we will update this guidance further as new projects are finalized.
Our team's relentless focus on finding new expansion projects than developing organic growth in our territories combined with regulatory ingenuity and cost efficiency will continue to drive increased earnings.
Slide 13 shows our performance quadrant, which is a slide that we consistently show in our presentation similar to prior period Chesapeake stands out amongst a wide range of gas and combine gas and electric your company with Capex, the total capitalization at 25.1% and.
Are we at 11.6% for the three years ended June Thirtyth 2019, given the capital investments. We have made under returns we have achieved on those investments. This performance continues to sustain us in the top right hand quadrant of high investment high return.
We also show that Chesapeake performance is not only above the peer median performance, but the 70 fiveth percentile in each of the key financial metrics. We monitor for the most recent three year period compared to our traditional gas company peers, and we put that in a box on the right you'll see again, our capex and our we that I just mentioned.
And our EPS growth over the three years of 10.1% dividend growth of 9.9, and total shareholder return approximating 15%.
Slide 14 reflects our updated Capex forecast for 2019, which is approximately 170 to 185 million, including approximately 75% for projects in our regulated energy segment and associated with natural gas distribution.
And submission and electric distribution project as we are approaching year end the actual amount of capital expenditures will largely depend upon the timing of approval for several of our project as well as finalization of several new projects that we are aggressively pursuing.
At the end of 2017, we established a five year capital forecast that supported our earnings per share guidance, a seven in three quarters to 9.5%. We estimated that we would spend between 750 million to $1 billion and capital expenditures from 28.
Team to 2022, this five year capital expenditure guidance aligns with our historical investment level.
Given our 2018 actual spending and current forecasted range for 2019, we're on track to meet this range of capital expenditures given the opportunities we see before us.
Notwithstanding that we recently updated our five year plan for strategic growth initiatives capital spending and earnings targets. Our disciplined approach to strategic investments has led to above average earnings per share growth and return on equity over the past five years, we expect to continue that trend going.
Forward and won't be providing updated earnings and capital guidance that could exceed the current five year guidance no later than our annual 2019 earnings release.
Our strategic planning process involves our businesses working collaboratively to identify future growth opportunities across the company. The strategic plan served as a roadmap for the future growth is a priority make no mistake about that but with equal attention paid to safety the communities we serve.
Environmental stewardship employee engagement and cost efficiency.
Slide 16 shows our capital structure for the last five fiscal years and as of September Thirtyth as you can see our equity to total capitalization represented approximately 45% excluding hurricane Michael which was not in our initial capital financing plans equity to total cash.
Capitalization represented 47% at the end of September we continue to monitor our capital structure and financing plans for debt and equity in conjunction with the timing of our capital spending an in service date for growth projects.
We expect to continue to migrate back closer to our target structure over time, considering marketing conditions planned projects regulatory initiatives and other key considerations.
One recent staff, we undertook in regards to this migration and part of our financing plan relates to the $60 million of intermediate term debt associated with Hurricane Michael which is due in early 2020 recently, we reach commercial terms with several financial institutions associated with the issue.
$70 million of 2.98% Uncollateralized senior notes in December of this year.
These notes are expected to mature in December 2034, and represent our lowest price senior notes in history and also demonstrate the overall financial strength of the company.
These nodes refinance not only the $60 million of intermediate term debt, but also $10 million of short term borrowing now I'm going to turn the call back over to Jeff to discuss several of our larger capital projects. Thanks, as Bob indicated we've done quite successful and identifying and executing on.
Oh capital projects and putting capital dollars. The work we continue to see that going forward. The list that you see on on page 17 on slide 17, its just a snapshot of solve our transmission projects. Both all these your store and are in our Florida operating areas you've heard us.
Speak for last couple of years about the 2017 eastern shore expansion that project is fully on service. We're seeing significant margins are a result in northwest, Florida expansion that went into a service or the middle of 2018 or this year, we're seeing fully annualized margins on that project and actually looking too.
Continue to expand.
Our opportunities over in the Panhandle of Florida serve additional customers off about pipe and Western Palm Beach County, or give a number of projects for the providing services into the western part of a county.
Callahan, our pipeline in Nassau County under construction of del Mar energy pathway waiting on for.
As is.
As there's so many other pipelines in the country with so we believe that we have Oh, some hope that we will get the authorization that began construction on that pipeline fairly soon and put it into service for Q4 point 21.
A couple of other projects all one day element in Florida, and the currency power station.
We believe we'll be able to to see that project in construction and completed 2021. So a good list of projects that we have underway.
Turning the page to a slide 18, just a snapshot are two of the del Mar energy pathway project that I've just mentioned.
Got to estimated project costs of about 37 million or looking for an in service dates are getting the fourth quarter of 2021 contingent on getting the FERC authorization.
Ultimately looking out a little bit more than $5 million, a year and margin provides us some real opportunities for us to expand service not only on the Eastern Sussex County, Delaware, but down into service Academy in Maryland.
Variety of large anchor customers. There and then we will continue to grow up or distribution systems off of this transmission system.
On slide 19, and Palm Beach, we have four peninsula pipeline transmission projects are in this western Palm Beach area all of them to serve SP is distribution and the significant amount of of.
Homebuilding and commercial construction that's underway in this part of the county.
These four projects total about 30 million total capital Oh, and an additional which were not shown here on additional probably $10 million to $15 million and for our public utilities capital over the next several years as we begin to serve the.
Customers that will come on to be systems.
Annual margin or one when all of this as a service at 4.5 point 2 million.
And we have I should say, we have all of these segments in service right now either connected to upstream pipelines on a permanent basis or we're feeding them by Marlins CMG triggers absolutely been able to accelerate the in service date by number of months and achieve fairly significant margin increases as a result.
On slide 20, the color on pipeline, which is a joint personal pipeline projects with the Mira affiliate Seacoast part one about a 65 million dollar project. So we split the ownership 50 50, so ptcs ownership of about 32.5 million.
This is a 26 mile pipeline 16 inch.
CPC is building the pipeline and will operate the pipeline once it's in service.
Next year.
I was about 15 miles in the ground as I said, we've been very fairly busy accelerating our construction activities in the third quarter. So we're well underway on this pipeline, we're actually a month or two ahead of schedule and I always hesitate to say that because you never know what happens, especially with the weather.
But this part one is as being constructed well in advance of our of our schedule. We believe that we can hold to that borrowing any hurricanes or anything else that might both through there.
Guernsey power station that we indicated on slide 21.
As a project out in Ohio, the Guernsey power folks have obtained financing in Q3 of 29 team. We are working on the engineering design and the construction of interconnect facility is between tallgrass rux pipeline and our facilities in Ohio.
Oil and we hoped again to have this pipeline in service by late 2021.
No. Thank you, Jeff now, we'd like to turn the call over to Jim on to just touched a little bit on what we're doing in the area of the sustainability of DST Jim.
Thank you pass in dress and good morning to all on the phone.
Our he SG journey continues as we celebrate our 160 its anniversary as an energy solution provider.
We're very proud of the contributions that our team has made over that time to provide safe and reliable energy services and solutions to our employees customers and the communities we serve.
It is these contributions that have continued to progress CSG and that are now embedded in our culture and our DNA.
Comprehensive effort continues where a talented and I diverse team of employees are highlighting DSG at Chesapeake utilities.
We look forward to our many efforts across the organization such as our pipeline replacement CNG or LNG and CHP.
Which contribute to methane emission reductions.
Sustainable practices that makes sense for our stakeholders is not only prudent there's also the right thing for us to do.
In addition, our safety Achievement Awards continue our culture of safety and accountability.
We take seriously our responsibility to ensure safety is at the center of what we do.
And that we do all we tend to protect the well being of each other and our communities.
We would like to thank the company's employees and our veterans for their dedication entrepreneurship volunteerism and passion that they bring to work every day and not surprisingly. The reason why we were recognized for the eighth year in a row as a top workplace.
We thank also our board of directors for their leadership and our corporate governance Committee, who has oversight of our SG efforts.
And in that regard, we would like to recognize the chair of our corporate governance Committee Cal Morgan.
It was recently inducted into the Delaware business Hall of Fame for his many contributions to the state of Delaware and the various institutions to which she has devoted his time in town.
Frequently we are reminded of moments that enrich the culture that makes Chesapeake utilities Especial company.
Just this week our colleagues across the company joined together with our board member and chair of the compensation Committee Diana Morgan, who is the honorary speaker for women and energy event.
This forum encourages the open exchange of ideas and shared experiences and inspires dialogue across our organization, which further promotes our culture of diversity and inclusion.
As the corporate governance, we honor we are honored to have been selected again this year by the corporate Secretary magazine as one of the top three companies to be nominated for the governance team of the year Award.
We will be joining a talented group of industry professionals in New York City on November 21st for the award ceremony.
We will continue to provide updates to you on our SG efforts, including in our annual report per year to year end 2019.
Thank you very much for being with us today and as always for your continued support.
And I'd like to turn this back to Jeff.
Thank you Jim just to briefly conclude the call on slide 23.
We are sort of all for all focused on executing our strategy.
Continuing to look for new development projects, we've been very successful finally grows over the last several years as I indicated we see.
Fairly strong investment.
Opportunities for us going forward.
Pipeline opportunities out there a fair amount of propane opportunities that we think makes sense to us.
More Marlin CNG services business is growing and we are continuing to expand that are across the southeast and mid Atlantic.
We just see a a very robust set of investment opportunities as we look to the end of this year and continue into 2020.
Now, let me turn they call back to the operator, and if there are a questions we will be delighted to the answer them.
As a reminder to ask a question you will need to press star one on your telephone to enjoy your question first of Pankey. Please standby well the composite roster first question is from the line of Tate Sullivan from Maxim Group. Your line is now open.
Hi, Thank you good morning.
Yes, if I may start off Marlin since you just mentioned it too and I think there were five cents. So it was five cents per share of expenses in the quarter related to Marlin expansion, maybe some of that was rated late it's a propane expansion. Besides the associated to be depreciation with building new trailers was that headcount additional headcount costs or can you talk more about that.
Such risks please.
I can talk a little bit about it yeah. There were a couple of headcount additions are there also some consulting expenses associated with Marlin as we look to expand into the RMG transport and LNG transport side of the business as well as looking too.
Slight additional logistics areas, both on the Delmarva and potentially a.
And another state so yeah, we've seen some increase expenses, but they are virtually all related to growing the business.
Okay. Thank you and next time on the Guernsey power station is this the first time you've disclosed this or can you remind me did you did you talk about it in December 2007, and have you done this type of work for any other natural gas power plants and the company's history.
So Pete in that regard. This is the first time that we've come out we were waiting for certain triggers with the counterparty to occur and so I'm. We're in a position to announce the project now and this isn't the first time that we've delivered natural gas on if you go back I mean eastern for has had a history.
Bringing natural gas to power plant. Most recently they did you know the project here to the garrison Energy Center in Dover, but there has been other projects as well. This is our first opportunity in Florida to have that kind of project or I'm, sorry, Ohio has that Florida, there, Ohio, and so we're really.
Excited about that.
Obviously, we're serving our own generation facility, a flags, which actually is in Florida again.
Okay, I guess I'm, just trying to I guess, it's different from some other companies I mean, what they call I mean is it a vendor business or fuel management business.
Is this similar to that type of business the currency power. So we're actually physically building a pipeline that will provide service from and that's it indicates here from a fall brass energy partners Rockies Express pipeline, the Interstate pipeline to the Guernsey power station. So it looks it looks.
A lot like our peninsula pipeline business in Florida, where were interconnecting an upstream Interstate five FERC regulated interstate pipe with and industrial customer or power generator in this case.
Well, we do a lot of that.
Okay. Thank you for that breaks banner were pretty typical project for us.
Okay.
And then not just to touch on the Hurricane Michael comments I have in the press release, you noticed noted a short term negatively impacted the at the end to one of the paragraph is that referring to the rate recovery or the recovery the cost starting in January best there what does that refer to that time or is that already occurred.
That's already occurred that's associated with the impact that we've had I mean, there were a few customers that have not come back on and so when you look out at on a year to date basis, you're still going to have the impact of those customers being on for the early part of 2018, they're not necessarily on in the early.
Part of 2019, so there's not really a lot but there is there is some impact there Tate.
Okay, most of that and some interest expense run well you have the they didn't have the margin piece and then you also have a little bit of the interest expense on the expense side a good part of the insurance has gone associated with the capital or the storm reserve, but there is a piece that though left and hitting our income statement.
Okay. Thank and last from me on the Capex Slide on Slide 14, do you normally best.
Shifts to a range at this time and years. It's the first time, you've done that and second what is what is the energy transmission unregulated spending please.
Sure. So this is actually the first time that we've come out and disclosed our range, but yes, we have a lot of projects and in particular as John talked about the dollar NRG pathway project you know, we're anticipating FERC approval and if we get that sooner than later certainly you'll see.
Some of the dollars on that project being spent there's also dollars in here associated on the energy transition transmission side, that's actually the aspire business and so the timing of so some of the expenditures associated with the Guernsey projects and then just some other expansion smaller expansions.
They have more of the organic type growth.
Some of that will depend again is where we're coming through the year end and so we tried to be pretty tight.
The last the big piece that you see on here is the other unregulated energy, hey, and that relates to Marlin business and as Jeff talked about you know, there's some things that we're doing there as we're looking to expand we brought Marlins presence here on the shore on the Delmarva Peninsula, we have some other opportunities that are underway.
Okay, and depending upon how far those get we could expand somewhere between that 8 million so that $14 million.
We will be trying to put out some more releases and information about some of these projects as are finalized.
Okay, great. Thank you. Thank you for all that detail have a have a good rest of the day.
Thanks Kate.
Your next question is from the line of Brian Russo from Sidoti and call. Your line is now open.
Hi, good morning.
Good morning, Brian how are you a good. Thank you just to drill a little bit deeper in the the.
Capex range.
Provided versus the specific.
Dollar amount previously it looks like well the entire forecast the capex seems to be relatively consistent at least at the midpoint of the high and low that you've just disclose but it looks like.
Any regulated.
Energy Capex is is.
Down at the midpoint of about 4.9 billion, whereas.
Total unregulated energy is up about 3.2 million that you just mentioned the Marlin of about point Eightmillion relative to the mid point and I was just wondering what what's changed.
The Reg energy.
And on Reg.
Well I mean, if it is our entire capex budget, so Brian as we're actually looking at it we look at it every month with our business units and update our forecast so depending upon the projects that they're working on and what they have on the horizon. You know one project may slow up in a given business.
One project May accelerate its really I wouldn't say, there's not really too much to read into those ships. Because we we can have fraud general just expansion projects and if we're slowing up in one maybe increasing in another its just really we keep refining it continually all the time.
Okay.
Makes sense to me and then also.
Just on the project margins you mentioned in the new currency power station.
Just to clarify did you say late 2021, so from a gross margin <unk> contribution, it's more like 22 and beyond.
Yes, yes, yes, that's correct.
Okay, great and.
Five to 7 million.
Dollar Pepsico gain that that's quite impressive.
It seems like 29 cents and yes.
We'll be recorded in the fourth quarter is that accurate.
I'm here to range between five and 7 million would give you a range of between 20 to 30 cents. If you strictly take that number on an after tax basis and use our average diluted shares for the nine month I'm. So your I mean that you're in the ballpark there Brian It will just depend on as.
Jeff mentioned, we've got to close out some contracts, we've given ourselves a little bit of room, just to make sure for the final settlement of everything and then any associated costs as we wind down but generally speaking that's 22 to 22 to 30 cents per.
First there.
Got it Okay and does the Tesco pending sales is that at all alter your.
[noise] intentions are on equities to rebalance the cap structure and Oh I'm 2020.
And we'll certainly look the cash flow reduce our short term data none that will shift you know raise our equity ratio as a percent of total capitalization slightly but it will not meaningfully impact our pursued over the longer term to bring our capital structure back closer to.
Our target range and and you saw us take a staff recently with our debt I think we'll continue to look at different things there as well as well look at the appropriate time on the equity side, but we look at a lot of things we looked at as I mentioned.
Well look at market conditions, the projects that are ebbing and flowing things like Pascoe, where we have proceeds coming in well also look at when certain projects are going to be completed and then placed into service. So theres a host of thing, but you'll continue to see us migrating our capital structure back there over time.
Okay very good and then just on on the Marlin outlook. It looks like you've added some capex for that.
Incurred some expenses for for growth over the past several quarters you've increased your your outlook on on gross margin there and I believe even in commentary in the Q.
2021 or beyond.
You see incremental growth relative to.
2020, and prior is any more details on that if you added more rigs or any any examples.
That.
Okay.
Growth in terms of investment.
We have added several additional.
Trailers and Weve added them in a little bit different fashion than what we what we bought originally which were a steel two drivers. These are composite trailers that come in the back of what looks like a semi truck of the capability of these trailer is a fair.
Fairly significantly more than the steel two drivers and so we're not only cutting solve our expenses at all four fewer terms on the trailer of what we're able to and we have done several of these so handle larger jobs and so it's a it's a progression going from the original two trailers to the.
Larger quantum trailers to ultimately a LNG trailers and being able to offer larger volumes per trailer, which again will reduce our costs ultimately, but also it opens up a significant.
The larger number of jobs for us and so we've acquired a number of those.
Okay, and then just lastly, just a clarification.
On the del Mar approval Pos process your project equal you're still waiting for buffer.
And now you're seeing for Q2.
2020.
CEO Dee Ann.
I believe previously you were seeing a midyear 2020 is that accurate.
Yes, we are I think so what we're saying on that side, Brian and for saying that we're hoping that we get certainly approval in the fourth quarter a bit here and then are expected in service date is in the fourth quarter fourth quarter of 20.1.
Oh fourth quarter of 2021, okay.
But now you know I mean, you will note I just would add you will note even though if you look at our press release today. There are interim services associated with that project that kicked in before that project is constructed so just keep that in mine and that's been eastern seaboard longstanding history, just talked about the same thing and flow.
Sure enough yeah, we have opportunities sometimes to implement interim services, whether it be utilization of available capacity or whether it's being bringing in marlin to help provide that kind of interim service on behalf of our pipeline.
Right, Okay. So I guess, you're comfortable with the developer.
Pathway projects.
Gross margin contribution.
Yes, basically basically unchanged from prior disclosures.
That's correct.
Okay, great. Thank you very much.
Thank you have a great weekend.
[noise].
Your next question is from the line of about family dollar from clear Harbor asset management. Your line is open.
Yes, good morning.
Hi, Rob.
Good morning.
I wanted to pick up on several points, the first two or or.
A quick.
And then two more subs ones.
The.
On the issue of energy efficiency and.
Yes, G. the port is what's in my mind, the Guernsey planned pictured on slide 21 appears to be an open cycle.
In the Masters racks of heat exchangers right next to them.
I'd like to think that.
The.
Initiative that you demonstrated in the eight flags of combined heat.
Extracting all the squeal from the pig is the kind of thing that maybe you could lead project designers going forward, you Didnt design Guernsey, but the visual.
Leaves me little frustrated.
You don't need to comment on that one unless you choose to.
I, probably choose not to the.
Although I know exactly what you're saying the there is an opportunity and we actually have had some conversations about a combined cycle operations here. So that's certainly is still a possibility.
Yes, Thank you Jeff.
And you you've never referred to and it may represent no opportunity for the company, but the Jacksonville Electric authority.
Effectively.
Putting out RFP is to dissolve itself. If that's not the right term forgive me I don't happen to follow with that much but is there any upside on anything that you see going on with Jack's right now.
Well you know obviously, we're not directly involved in that process and we moved on a couple of years ago from our purchase power agreement with J.D.A. that had been in effect for a number of years ER and for rebid process.
And ultimately ended up with a executing on agreement without peer that all at a significantly lower.
Price point.
Yeah, I suppose it depends on we still have some very minor.
Interconnects through an arrangement with female Jay and ourselves on how the power ultimately flows onto Amelia Island of saw US art I guess, there are some potential entanglements, there, but very few for US certainly I don't see anything on the on the price of electricity side.
And our operating systems are quite distinct and so I guess.
Potentially one oh.
When a transaction of that pipe occurs, especially a municipal utility going to an investor owned a there are always so you know ancillary political issues that.
Have a tendency to spill over regionally so we'll be keeping an eye on all that but I think we're probably a pretty good shape here.
Yes, okay.
Slide 18, the Delaware.
Whole series of opportunities.
Yeah.
My impression has been based on what you've done in the past.
Both in Delaware and coming down in.
Maryland is all sorts of opportunities.
That weren't apparent at first or were.
Planned for disclosed as it were but the simply occurred by virtue of you're bringing.
The gas availability to where it wasn't were backs acceding, making robust.
I'd like to think that the.
37 million.
Estimated project cost is.
Is well I would hope to be a fraction of what you might ultimately be doing in that area.
Is it useful to sketch out what goes beyond what opportunities are there beyond the particular program that.
That you've laid out and awaiting the approval.
Well I would I would say that we.
[laughter] are also hopeful as you indicate that we can do a variety of things not only with additional Easter shore advanced went down the peninsula, but the the development of our DMG distribution systems in those areas.
So I would agree there are certainly opportunities that we see in the future for continued development in these areas both from a industrial commercial customer.
Perspective, but also significant residential opportunities here and those then rollover and tomorrow and then a variety of other things. We I'll tell you. This is to come as no surprise.
Part of our expansion activity here is doing exactly what we were trying to do 10 years ago or so when we started our propane community gas system expansions, where we went out into these unserved areas and executed agreements with developers to put propane just.
Fusion M and we have thousands upon thousands of customers in these areas and overtime, we will begin to already have begun to convert those.
From natural gas or from propane over to natural gas and so as you might imagine we're looking for the next tranche of the community gas system activity. So we're looking very hard in these areas as developers continue to build off of our existing system.
To get out in front of that development as Im sure. We have gas customers. There what we can get the pipeline expanded and we can expand or distribution system. So yes were quite bullish on these areas.
Okay.
And finally.
Renewable natural gas.
Right.
Again harping on the part of DSG.
Hi.
This is really important and if nothing else.
Involvement with I would hope significant scale ultimately.
Okay.
Our Angie is at least a way of deflecting the headwind of those proposed fossils development under any thesis.
But I'm not clear what opportunities there are.
Used to think of it chicken.
Hmm operations as being onsite power and so forth.
If you are talking about there being a real system supply resource.
Theres got to be a lot of scale.
What.
What's the gating.
How big an opportunity is the are part of your gas supply.
Well I'll give you just a couple of a general examples.
The potential chicken waste collection cleanup processing.
Methane extraction back into our pipeline system.
Based on discussions that we're in the middle of with.
Various parties.
Good run to the six to 7000 Dr. from a day range.
Which would not quite take care of all of our residential customers on delmarva, but it would be close.
And so you could envision assuming we can get green gas into our system.
So you could envision a time in the future when though a significant part of our at least our residential customer base.
Could be bearing renewable natural gas when we see the same opportunities.
In Florida with some of the landfill projects that we're pursuing.
There's a large cattle ranch down there that we're looking at.
We've looked at some wastewater treatment facilities. There are a significant number of methane sources that we believe that we can capture and frankly that was one of the reasons we bought Marlin.
As it were for perfectly positioned to take that gas at injected in the right place.
Our systems.
So that ultimately will have the right pipeline quality characteristics chemically.
We can understand the beat you content issues around that source of gas that are somewhat different than the upstream pipelines source and we can appropriately blend those two fuel types. So that we don't have any issues with customers downstream and their appliances and so we're working very.
Rick hard to figure all that out one of the things that we've done recently as I mentioned earlier, the FERC filing that begins to establish quality standards and other standards inside our eastern shore tariff.
We're working to do the same thing at DMG and in our Florida operational areas. So I would agree with you. We think this is a big deal. We think there are lots of opportunities here and we see it not only as you indicated doesn't need us G.
Issue, but we see it as a potential profit issue Berkshire by virtue of the fact that we own a.
Transportation company Marlin that could move that gas around pretty easily and so once you know one of the real stops to any R&D project is how do you get the gas from the generation point to the actual usage point.
Usually when you have to build pipeline, that's not a attractive economic considerations, but lumara, we can make that work fairly easily economically. So we see lots of opportunities from Marlins here not just on our system, but I'll systems across the country.
We certainly are highly focused on RMG coming into our.
Distribution systems.
Excellent answer.
And well done and I hope, you'll keep us posted on that from time to time in these calls.
We will.
Thank you.
Again, if you wish to ask a question. Please press star one on your telephone.
No further questions at this time I turn the call back over to Jeff householder.
Well. Thank you I appreciate all of you though.
Dial again, this morning, and though we look forward very much to talking whether you over the next a few weeks and months and I Hope you have a great holiday season, if we don't see you before.
Goodbye. Thank you.
Thank you ladies and.
Thank you presenters and ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.