Q4 2019 Earnings Call
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If you require any further assistance. Please press star Zero I would now like to had the conference over to your speaker today, Ms. Beth Cooper Executive Vice President and Chief Financial Officer. Thank you. Please go ahead.
Thank you and good afternoon, everyone. We appreciate you joining us today to review, our fourth quarter and annual result.
Conducting today's call outside of Orlando, Florida, where we've just completed a series of board and leadership meeting.
With me on the call today, our cap household or President and Chief Executive Officer, Jim where you already executive Vice President General Counsel, corporate Secretary and Chief risk and compliance Officer. We also have other members of our management team here with us today.
Today's presentation can be accessed on our website under the Investor section any that's 10, webcasts subsection or via our IR Investor Relations.
Moving to fly to let me remind that matters discussed in this conference call May include forward looking statement that involve risks and uncertainties.
Looking statements and projections could differ materially from our actual results.
The safe Harbor for forward looking statements section of the company's 2019 annual report on form 10-K, which we filed late yesterday provide further information on the factors that could call such statements to differ from our actual result.
I'll now hand, the call over to Jeff to provide some opening remark and then discuss our strategic accomplishments and exciting outlook going forward.
Thank you booked and Hello, everyone. We appreciate you joining us today on the call.
Before I discuss our performance in future outlook I want to spend a few moments talking about already U.S.G. strikes. We always go hard grades on our social and governments are Joe's well well known as though we have made significant contributions to environmental sustainability. It's an issue that we take very seriously.
Recently, a this week, our board and management team engaged in discussions about our environmental commitments and the opportunities that are developing as the market a ball here a few notable examples of our environmental stewardship.
We have invested hundreds of millions of dollars expanding our transmission and distribution systems to convert customers that were using fuel coal kerosene and wood chips. These conversions for clean burning natural gas that's contributed to significant C O two emission reductions.
We were poised for almost 400 miles of older cast iron and bare steel my answer the service lines, reducing emissions improving system safety and reducing our maintenance cost. We're building work CHP one of the most efficient plants in the country displacing wholesale coal generation purchases, we restructured our.
Current electric wholesale purchase power agreements to displace significant coal based generation their new PB days before power and why why the country's largest renewable energy generators.
We purchased more oil and gas services CNG transport business, providing temporary in emergency gas delivery service and with expanded Marlins focus to include renewable natural gas transport, we're working with Orangeade project developers really across the country to ensure that green bar gas makes it into a pipeline system well.
Oh for engaged in conversations with several orangeade developers and our service territories or in a final phases are planning for a number of anaerobic digestion facilities on the Delmarva Peninsula were already positioned to accept RMG into our system, including having modified our tariffs to establish reasonable gas quality standard.
And completed a valuation of system interconnect requirements and additional are appropriate auto gas services labeling displacement of diesel fuel in numerous fleet vehicles in school buses, providing a cleaner safer transportation fuel.
In our service territories natural gas is a preferred fuel source.
Commonly displaces was sufficient at Lucky Queen energy sources.
It's interesting to note that at the same time, we fear of community is wanting to restrict gas service the demand for natural gas on our systems as an all time high and we are growing at twice the national average, we believe our businesses have a clear role to play in reducing emissions and supporting sustainable communities at Chesapeake We are proud.
Out of what we do we will continue to evolve our energy delivery businesses to better serve our customers and to meet our shareholder expectations.
I now want to turn to our result, 40 lighting was a another remarkable year for us once again, we produced record earnings and deliver on our commitment to cultivate superior growth that will provide details on our results for 2019 in a few minutes and the major projects and initiatives that will enable future growth.
The first I want to highlight the key strategic accomplishments that we are the foundation of our success in 2019 and will be fundamental drivers of our results going forward.
Turning to slide 320, IP as we said was a banner year for accomplishment in growth on the company well I stepped into this role at the beginning of 2019 I knew we had a great performance track record extremely talented and hard working employees and significant growth opportunities what struck me.
Over the course of this year is a tremendous effort and accomplishments of the Chesapeake team, they're driving commitment to efficiency collaboration and continuous improvement our energizing we achieved record gross margin on a continuing operations basis, while reducing our cost span relative to total margin.
To the lowest level in more than 15 years, I'm, particularly proud of engagement of our team and their strategic execution. During the year. One example of this is the passcode divestiture. We reviewed past goes prospects decided to exit the business and then consummated multiple transactions that accomplished.
Strategic objective protected our customers and produced a $5.4 million after tax gain for our shareholders.
The successful integration on an acquisition of the old emboldened propane assets also stand out these assets fit with our core strategy immediately contributed to financial results and enhanced our ability to serve customers and generate growth in our propane business.
While strategically we decided energy marketing did not yet we believe that Marlin fits quite well we acquired more at the end of 2018 and were able to fully integrated into our operations. In 2019, we increased our margin forecast every quarter. During the first year of operation, We're very excited about Marlins cake.
Abilities on the value that they can provide to our customers and our shareholders.
We previously announced the Callahan pipeline West Palm Beach expansion, Delmore energy pathway, and Guernsey pipeline projects, which combined represent approximately $108 million of new capital investment and are expected to generate $10.8 million in margin in 2020 and 17.1.
$10 million in margin and 2021.
We also of course continue to look for new significant projects and initiatives.
Financially, we invested $199 million and new capital investment produced record earnings per share for the 13th straight year and achieved a 12% return on equity in 2019. This growth supported a 9.5 per cent dividend increase total return to shareholders an excess of 20.
So.
We've been following a philosophy that dividend growth follows our earnings growth.
Furthermore, it's important to note that record performance was also achieved in our continuing businesses, even if we exclude the onetime gain from the sale of Pascoe and the regulatory lag associated with our restoration spend as a result of hurricane Michael restoration efforts.
Turning to slide four.
We believe that one of the keys to our success is our ability to deploy a significant amounts of capital with attractive returns on investments as this chart shows Chesapeake continues to rank in the upper quartile of natural gas distribution electric and combination utility companies in terms of capital invested and return.
On equity over the past three years, our decisions over the past year in regards to new acquisitions and the sale of Pascoe are just two examples of executing our discipline evaluating new opportunities for growth as well as the future prospects of our existing investments turning to slide five.
We highlight the significant growth initiatives that will drive our capital investment I'm returns consistent with our results in 2019 at our execution described on a previous two slides.
We have a broad and deep series of strategic growth initiatives that our team has developed which position us for continued success.
Growth will come from the completion of current and new expansion projects integration and cultivation of our recent Marlin and propane acquisitions as well as completing new acquisitions, such as helping gas. We also see opportunities for new transmission combined heat and power plants as well as renewable natural gas and liquefied natural.
Gas transportation and processing projects.
Turning to slide six the level and the impact of our past capital investments are foster the earnings dividend growth and shareholder return that have consistently set us apart.
In this regard we're pleased to reaffirm our capital investment guidance based upon our confidence in the projects and initiatives we have identified.
We are reaffirming our five year capital expenditure guidance of 750 million to $1 billion through 2022.
During the first two years of this period already we invested $482 million and expect to invest between 185 in $215 million 2020.
Given current brought current projects, we will likely hit the lower end of this revised guidance range next year in 2021.
Turning to slide seven in recognition of our team's success in 2019 of the strong outlook for new projects and growth going forward. We are increasing our earnings guidance previously we had forecast annual growth in the range of 7.75% to 9.5% through 2022 from a base on that.
Adjusted 2017 earnings as shown on slide seven.
This produced an EPS forecast range of $4.20 to four hours and 55 cents per share and totaling 22 based on our current strategic plan investments and growth prospects, we're comfortable increasing our 2022 guidance to a higher range of four hours in 70 cents to $4, a 90 cents per se.
There.
The company has historically achieved an average earning growth right at or above this rate and continues to view its long term growth prospects as comparable to its historic growth.
I'll now turn the call back over to back to discuss our 2019 financial results. Thank you Jeff.
Turning to slide eight our GAAP net income for 2019 was a record high.
The 5.2 million or $3.96 per share representing almost 14.8% EPS growth.
As we reported in our earnings release yesterday, we substantially completed the divestiture of our natural gas marketing business Tesco during the fourth quarter of 2019 and recorded a gain of $5.4 million after tax.
Excluding Tesco, which has been classified as a discontinued operation. We reported net income of 61.1 million or $3.72 per share an increase of $4.3 million or 25 cents per share compared to the prior year.
As Jeff mentioned 2019 was our 13th consecutive year of record earnings.
Year over year 2019 earnings per share from continuing operations grew by 7.2%.
Based on 2019 results from continuing operations the compound annual rate of growth and earnings over the past three five and 10 years has exceeded 8.5%.
Detailed discussions about results for the quarter and year ended December 31, 2019 are provided our press release and annual report on form 10-K, again, both of which were filed yesterday.
The key variances and net income and earnings per share between 2019, and wanting 18 are highlighted on slide nine and 10 and I'm going to talk about a few of the key items and changes.
And for just a few minutes as previously noted earnings from continuing operations for 2019 were $3.72 per share compared to 2018 earnings of $3.47 per share.
And our annual report on form 10, K., we've updated our previous quarterly results for this year as well as the prior year to breakout or discontinued operation.
In total unusual items reduced 2019 earnings by 14 cents per share compared to 2018 as the impact of warmer weather. During 2018 was partially offset by tax savings in Florida, and lower net nonrecurring expenses.
The largest key growth drivers increased gross margin in 2019 by $30.8 million over 2018 and contributed an additional $1.39 cents per share to earnings per share.
The substantial increase in gross margin was partially offset by higher depreciation amortization and property tax expenses of $5.7 million or 26 cents per share.
And then $4.6 million or 21 cents per share in cost associated with our new unregulated energy acquisition, and then higher other operating expenses of $5.6 million or 24 cents per share, which primarily reflects increased operating costs to support the growth and margin.
Other factors impacting the variance between 2018 and 2019 earnings per share include income tax effect, which added five cents per share and higher interest costs associated with permanent financing and additional short term debt used to finance growth on an interim basis, which cumulative.
Currently reduced earnings by 27 cents per share.
Lastly, there were some small other changes, which reduced earnings by seven cents per share.
Slide 11 provides a breakdown of our actual 2019 capital expenditures and a range of expected investment for 2020 by major business.
Major business unit total capital expenditures for 2019 were $199 million, including 24, and a half million dollars for the acquisition of modems assets.
Our initial guidance for 2020 capital spending is in the range of $185 million to $215 million. We will continue to refine this range as we progress through 21.
The majority of our capital has been and we'll continue to be invested in our regulated natural gas and electric businesses.
Turning to support growth in our propane unregulated transmission and other unregulated projects will remain fairly stable, excluding the potential impact of acquisitions, such as the purchases purchase of the Golden assets in 2019 or expansion of Marlin us new areas, such as R&D or.
We are continuing to that various opportunities and again, we'll provide updates on our spending throughout the year.
Slide 12 highlights the companys commitment to maintaining a strong balance sheet, which should facilitate access to adequate competitively priced capital to fund our growth initiatives.
We completed several actions in 2019 and already year to date in 2020 that will increase our permanent capitalization relative to our total capitalization.
End of 2019, our equity to permanent capitalization was 56.1% in equity to total capitalization, including short term borrowings was 43.4%.
As of December 31st 2019, our short term debt, including current portion of long term debt was approximately $293 million.
We have $120 million available through our existing lines of credit $160 million in available private placement shelf facilities. After securing 90 million and long term debt commitments in quarter, 120, 20, which will be funded in July and August of this year.
After this long term debt is funded our long term debt as a percentage of permanent capitalization increases from 43.9% to 48.6% as shown by the pro forma capital structure on this slide.
Chesapeake seeks to align permanent financing with the in service dates of capital projects, we target as we've mentioned before a ratio of equity to total capitalization, including short term borrowings of 50% or higher.
Our comprehensive list of major projects and initiatives recently completed an underway is provided on slide 13.
Risa pipeline projects, such as the eastern shore 2017 system expansion, which was fully placed into service in 2019.
Northwest, Florida expansion, which was completed in mid 2018, and the West Palm Beach expansion project, which is partially in service accounted for the majority of the $12.6 million an additional margin during 2019.
Marlin, all embolden acquisitions contributed $6.8 million and additional margin during the year and regulatory initiatives in Florida added $3.2 million.
Looking to 21, several pipeline expansion projects, including the completion of the West Palm Beach expansions the del Mar Energy pathway project.
I'll bring Dale pipelines and the Callahan pipelines are expected to produce $7.6 million, an additional margin versus 2019.
Recent acquisitions, well at $4.7 million, an additional mark.
The table does not presently include margin for the often gas acquisition for the Hurricane Michael regulatory proceedings, which are both expected to generate additional margin for 2020.
We continue to pursue projects that should further enhance our margin in 2020 MBS.
Okay. This table as projects are finalized and margin contributions become predictable.
Finally, it is important to note the magnitude of the increase in margin for 2019 that was generated from organic growth across our natural gas distribution territory.
2019 was the highest hearing history in terms of the dollar generated from from this margin driver for the year organic growth represented $4.7 million, an additional margin with $1.8 million generated from growth on Delmarva and $2.9 million generated from growth.
In Florida.
Our customer growth continues to represent more than doubled this three run rate.
Our propane operations compliment, our natural gas distribution operations and allow us to provide clean and lower cost energy solutions, even when they are not located on or near our natural gas distribution, mainly in addition to cultivating growth and the traditional protein bulk delivery business.
As discussed on slide 14, we have implemented several key initiatives that have produced meaningful contributions to growth and also hold out product for continued growth in the future.
Two large drivers of growth in 2019, again, where the acquisitions of the assets of all embolden, both have been seamlessly integrated into our sharp energy propane operations and are expected to contribute additional margin in 2020 on beyond we've included some slides on the boat in acquisition and the.
Appendix, we will continue to look for accretive strategic acquisitions like the to enhance our core growth in the protein business.
Another key initiative is community gas system, where we effectively create a mini distribution system served by large propane tank. These systems have been the perfect solution for the portions of our service territory without.
Customers on systems do not have to manage and monitor their own propane tanks, but rather receive propane ray meter underground system, just like our natural gas distribution customers. Finally, we continue to see increased use of propane for fleet such as the school buses, we highlighted during our last.
Investor Day switching buses to propane from diesel reduces emissions as Jeff touched on earlier.
As shown on slide 15, Marlin gas services generated gross margin of 5.4 million for the year. The company estimate that Marlin gas services will generate annual gross margin of approximately 6.4 million in 2020.
$7 million 2021 beyond modeling gas services continues to actively expand the territories. It serves across multiple state and as refining and positioning to expand its patented technology to serve liquefied natural gas transportation needs and to aid in the transfer.
Station of renewable natural gas from various supply support sources to various pipeline interconnection points, including our own.
I'd now like to turn the call over to Jim to speak further about the attributes of natural gas and the role we are playing utilizing this energy source to create a more sustainable future.
Thank you Beth.
As stated earlier by Jeff, we're very proud to be part of the natural gas industry.
That provides a viable and reliable energy choice for Americans as we enter a new decade.
The comfort and affordability that natural gas provides is important to all of us.
Natural gas is contributing everyday to reducing greenhouse gas emissions.
Helping to ensure that our economy continues to thrive.
Turning to slide 16, environmental and economic advantages of natural gas and propane.
Provide opportunities for their expanded use in our service territories.
And across the United States.
Natural gas is an abundant clean efficient and affordable fuel.
The significant reserves, we have in the United States.
Provide security of supply reliability and price.
As shown on slide 16, which is in AI.
Hey, slide.
You can see that natural gas has been the primary driver of the significant reduction in greenhouse gas emissions.
From electric production in the us.
Over the past 10 years natural gas has eliminated 2.6 billion metric tons of C O two emissions.
Or 60% of total reductions over this period.
It is important to note that these emission reductions have been accomplished.
While reducing the cost of electric production.
Bearing customers from the financial burden and the rates by.
That have complicated efforts in European countries, which have attempted to achieve emission reduction without natural gas.
The environmental and price advantages of natural gas have created significant growth opportunities for us in the past.
And we'll continue to create future opportunities.
Given its critical role and balancing the youth and integration of renewable energy sources.
Recently I heard a few statistics on CNBC squat box.
And while I am not promoting that venue there were a couple of interesting and extremely relevant facts.
Presented that bear repeating.
Number one us admissions are at 25 year lows.
Number two you ask leads the world in carbon emission reduction.
Number three the production and usage of natural gas is continuing to displace coal for power generation.
Number 460% of the U.S. carbon emission reductions are being driven by the increased use of natural gas as the primary us energy supply.
And five clean reliable natural gas is leading the way for the us in terms of economic growth and environmental sustainability.
And our service territories natural gas is a preferred fuel source and commonly displaces less efficient and less clean energy sources.
Turning to slide 18, we embrace our culture of sustainability here at Chesapeake utilities.
This culture is embedded in our DNA.
And promotes new ideas for energy efficiencies through practical and cost effective solutions for our customers.
We strive to bring service value and high reliability, each and every day.
On page 18, we have listed just a few of the exciting steps we have already taken.
And those under active review and development.
Future is bright.
Our culture of sustainability informs our path forward as we continue to be an innovative and trusted energy delivery company.
That more than meets the needs of our customers and the communities we serve buying shoring that no one is left behind.
We recognize Chesapeake Chesapeake utilities success starts with dedicated and capable employees, who are committed to diversity and inclusion.
As well as expanding and safely maintaining our infrastructure.
To meet the needs of our customers and communities.
Our employees continually seek opportunities.
To further their engagement with local communities.
I played key roles in charitable and other organizations.
They operate safe reliable energy delivery systems.
Whether their pipelines wires or trucks.
Our employees also do are remarkable job of identifying developing and transforming operates opportunities.
Into profitable earnings.
Finally, we engage actively with our regulators and employ a disciplined capital allocation process to produce superior returns to shareholders.
I will now turn the call back over to Jeff for some closing remarks. Thank.
Thanks, Jim and thank you for your support and interest on our company.
We see numerous opportunities for continued growth in the businesses that we operate today, we also see new opportunities in areas like renewable natural gas LNG and other energy delivery services.
2019 was an exceptional year for Chesapeake, we're committed to continuing our long term track record of superior performance and delivering value to our shareholders. These are exciting times at our company and we look forward to providing regular updates on our progress.
We'd now be happy to take any questions you may have.
As a reminder to ask your question you will need to press Star then the number one on your telephone keypad.
Lisa biological barbecue any roster.
Our first question comes from the line of States Sullivan of Maxim Group. Your line is now open.
Hi, Thank you good afternoon.
Good afternoon.
For the two to two to bridge to 2022, and I apologize if I missed it the guidance for 470 to 490.
Would you indicate a higher I mean and look you're referring to your gross margin table too.
Does that imply a higher rate of gross in the early years or will it be spread out between 20, and 21 and 22 or how can we look at that crop progress getting to the 22.
Mitch.
I think hey, what like you can do is you can look at certainly as you indicated the projects that are included in the table and then also we've talked a lot about other areas of growth within our earnings release and so looking at the growth. It's been achieved in the organic growth area the growth.
Thats been achieved through.
Other ways such as some of the rate mechanisms that have been in place and I think if you look at all of those.
And kind of extrapolate that.
There may be some new projects that come on over time continue to add that but that's really the best base from which to to look out over the next three years.
Okay, Okay, and I'll review the gross margin table, two and then the organic customer growth the incremental net margin in 19, I think you said in your remarks in your press release as Jeff were point 7 million now should that incremental gross margin grew at the rate your customer growth or will it could accelerate based on.
Existing projects or is 4.7, plus 3% growth the best way to look at that.
Well that has a record level of growth. If you look back over time, it's the last several years. It's been had a very high level not quite been is that that high but that's really depends on the amount of growth it's happening in the areas, where we operate for the amount of growth that's coming into the state of Florida Anthony.
That we're adding and building out new developments and similarly on the shore to the extent that we're building out our existing systems at the beach area and the growth areas in the northern portion of our territory. So you know I think as you look back and look at other years I mean I think.
That level of growth that we're experiencing we feel comfortable about that level of growth being sustained as work and looking out into the future at this time.
Okay, great and not just on the propane results and I. It's helpful. In the 10-K, you breakout the revenue and the volume and not and I can get too and the customer growth of course, too, but it's getting to the 2022 EPS guidance range I think are there any propane assumptions besides a normal kit.
Customer growth that you would point to or.
We typically will because when we come in we are typically with an acquisition, adding to our capex guidance. Similarly, there might be an adjustment to the earnings guidance, but when we build our range in terms of the forecast the guidance that we put out there we are not layer.
Being in perspective opportunities that we don't see today, we're looking at projects that we see on the horizon that have a high probability of occur.
Okay understood. Okay. Thanks. Thank you for all that have have addressed the day.
Thank you to take good talking with you.
Thank you.
Before we proceed to the next question, let me just remind everyone debt. If you would like to ask a question. Please press Star then the number one on your telephone keypad.
Again to ask a question. Please press Star then the number one on your telephone keypad.
Our next question comes from the line as Brian Russo from Sidoti and company.
Your line is now open.
Hi, good afternoon.
Good afternoon, Brian how are you feel.
Good thank you.
We look at the 2020 Capex range.
The midpoint is relatively consistent with.
2019 tool.
But it looks like you know that.
Reg energy Capex is meaningfully higher whereas the on rigs.
Capex is down I was just wondering if you could just add a little color as to what are the big drivers there in terms of specific.
Regulated utilities versus some unregulated energy projects or whatever.
Sure. So included the the big drivers when you look at what's included in the regulated part of the business in that Capex guidance range, you're going to be the two large projects that.
Really are already underway, you've got the Callahan pipeline project and you've got the del Mar NRG pathway. So those are both significant fraud.
The unregulated energy side. The reason why those dollars are down is largely because of the Bolton acquisition that we completed in 2019, and what well do you know certainly Brian coming out of the date in terms of our capital guidance, we're not factoring in potential.
Acquisition, when an acquisition yet gone to the extent that it's done it if there's one that's done on the unregulated side, we will update our capital guidance for those prospective type of opportunities and so thats. The biggest difference that you see when you look at a 2019 versus our estimates for 2000.
Hi.
Okay understood and then it correctly if I'm wrong.
Comments earlier on.
The two to reach the billion or some 50 to 1 billion range.
Over the next two years or are you guys targeting the lower end.
[music].
Over that which would imply a drop in capex on average in 2021 and 2022.
Not in any way, what we were trying to point out is that with already two years into the five year period. We are setting you know just under $500 million were around 468 million. My recollection is and then with the guidance out that we have in regard to 400.
The 2 million I apologize, but when you look at that coupled with the guidance that we have out there for 20 Twond. Our comment was really that we it could be based on our historical run rate, we could be approaching the low end of that in 2021, that's all we were saying.
Not in any way that we're looking for our capex to ramp down, but rather we could be heading the low end of that range as early as next year.
Okay got it so so at the low end of the Capex range you guys are.
Still triangulation with your.
Updated and increased Twentytwenty Dps guidance range.
That's correct.
Okay, Great and then not to doubt your ability to hit your targets because you've got to an incredible track record.
Of doing so, but when we when we looked at the growth from say 2019, actuals and layer in the breadth of project contributions in 2021.
And we look at the 22 guidance range, how much of that is considered organic growth or expansion of existing businesses or in that capex or capex over the next two years versus.
Incremental strategic acquisitions.
Well, what we tried to lay out the guidance, we look at what we feel our 80% probable projects are higher and so those are typically going to be those things that we feel are that we feel confident that they're going to happen. So factoring in a prospective acquisition.
Again, it's not something Thats included in the capital nor is it included in the earnings guidance. So those things are going to be Brian. If we if we were to add those are likely they're going to be incremental to what we put out in regard to our estimates. So we build this based upon what we think organic growth.
Where we see our expansion project coming in when we look at the regulatory proceedings that we have out there and the contributions from both they are things that again, we feel with a high probability, but we do not we don't speculate on things that have not had.
I have not reached an 80% probability.
Okay, Great. That's helpful in interest on the project margin contributions, especially with.
Bolton brothers, and I know Elk and is excluded from that because you still.
Yes.
Awaiting Merrill Lynch, you see approval, but I would imagine there's upside.
The.
2021, or or maybe beyond 2021.
Gross margin in some of these projects just on synergies.
Well and that and Thats correct, I mean, right now with the often acquisition for example, we're in the middle of the regulatory proceeding.
And that Aquas, if that acquisition is approved it will be approved in the third most likely the third quarter of this year, so you're going to end up with anywhere from four to six month.
Only one quarter of which will have any.
Any weather impact and then so really you're going to see the impact first off from an often on the often acquisition really benefiting 2021.
Adding it in and then you're right to the extent, we can gain synergies by combining it with how we're operating in an adjacent territories today that will provide upside in 2021 that has not been reflected here, but again because we're in the middle of that proceeding we're not done we didnt want to come out with any you know any.
In regards to the latter part of this year and or what.
Expectations are for 2020 want those will be forthcoming and then similarly, we have the hurricane Michael for seating, which has certainly had a regulatory lag impact when you want to think about 2019 and the amount of investment that we need any amount of earnings that we had on and so once again, we will.
Add those dollars to our table once we have a final final approval and agreement on that proceeding.
Okay and correct me from Robert was 60 million how much was spent on the hurricanes that you're experiencing on hurricane recovery that you're experiencing way Don.
It's just above $65 million right.
Okay got it.
And just on Marlin.
Clearly it looks like it's number three on the project list in terms of gross margin, which.
I just want to get a sense of what's driving the growth is it just.
Spending markets or is there any inclusion for RMG or or anything else or is that longer term upside.
What it would include expansion of the existing business today into new certainly into new areas and you know we would like to say you know it touches on maybe entering into those markets that you mentioned on our preliminary basis part of what we're doing right now is looking at the strategy of that business and.
Where we can take and it's real exciting with all the different opportunities, we can see not only within our existing service territories, but as we look at markets, even beyond and so I think you'll continue to see us have an evolving strategy that goes beyond certainly what we're doing in CNG, but LNG R&D.
Okay and one more question if I can just on the.
The pro forma.
Capitalization chart you have in the presentation.
It looks like 200 million of short term debt would remain under that pro forma.
Scenario, which still these your equity.
Total cost.
Below your target.
Are you pressured by rating agencies or on the regulatory side to improve that or are you comfortable maintaining that 202 billion level of.
Debt.
In the near or intermediate term, while you you know you share shareholder equity grows through retained earnings.
Well just just a couple of comments fell off in that pro forma on what you're seeing is after the long term debt financings that have been planned for later this year.
You see short term debt at the top of about $200 million is the short term debt piece of that and so.
What we stated though is that we do see to align our capital structure closer to our target and so what we what we work through over the last year. Two years is the fact that we have the 2017 system expansion that didn't finish until the end of 2019 and then we also have.
The hurricane expenditure and so what we started to do for.
The debt placement that we've lined up is to align some of the long term permanent debt financing, but again overtime, we will seek to move back closer to our target structure.
Okay, Great. That's helpful. One last question.
Jump out just weather year to date.
The appears to be mild in the northeast and I'm just wondering how it affects your regulated.
Businesses in in the to more region, and then as well as your propane businesses.
Sure. So I want a couple of things there. So as you look at our distribution businesses all Delmarva one of the things that right is the fact that in our Maryland operations, we have weather or revenue normalization. So when you think about the weather impact it really is really the Delaware impact.
And certainly weather has been warmer than normal, but there's a lot going on as we've talked about in terms of growth and expansion.
And then on the propane side, what's happened over the last 10 years is we've migrated from being a protein company that was really dependent upon the weather to of propane company that has other levers of growth that helped offset the weather impacts. So you look at the auto gas if you look.
The community gas system, you look at what we've done in the wholesale side and frankly look at how we've added new start up and more weather areas like Pennsylvania, where we have startups that are expanding and theres more weather in those areas a lot of those lover have helped to offset any sense.
The ties up from a weather impact is still there I'm not saying, it's not what those factors have lessen the impact and so we actually have some natural whether hedges with our portfolio of businesses today.
Okay, great. Thanks, so much.
Again.
A reminder, participant if you would like to ask a question.
CMT Press Star then to number one on your telephone keypad.
Presenters, we don't have any questions on Q. Please continue.
Thank you very much for joining our call today and for your interest in Chesapeake utilities.
We're very proud of what our team has accomplished for our shareholders and we remain committed to working hard to deliver superior shareholder returns in the future.
I wish you a very good day goodbye.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect for centers. Please stay on the line for the post conference.
[music].
Mhm.
[music].