Q3 2021 Chesapeake Utilities Corp Earnings Call
Greetings and thank you for standing by your conference will begin momentarily. We thank you for holding and please ask you. Please remain Aldo.
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Greetings and welcome to the Chesapeake Utilities Corporation, 2021 third quarter financial results Conference call.
During the presentation, all participants will be in a listen only mode.
Afterwards, we will conduct a question and answer session.
At that time, if you have a question. Please press the one followed by the four on your telephone if at any time during the conference you need to reach an operator, Please press star zero.
As a reminder, this conference is being recorded today Thursday November 4th 2021.
Now, let's turn the conference over to Alex <unk> head of Investor Relations. Please go ahead.
Thank you grant and good afternoon, everyone. It was a great honor to join all of you for the first time I'm very excited to lead Chesapeake Utilities' Investor Relations team.
We know it's late in the day and we appreciate you joining us to review, our third quarter and year to date performance through September 30 of 2021, yeah.
Yesterday, we announced our financial results, which demonstrated how we continue growing and operating effectively serving our customers identifying and executing on new investment projects and keeping our employees as safe as possible in this ever changing but exciting marketplace.
As shown on slide two participating with me on the call today are Jeff householder president and Chief Executive Officer.
Cooper Executive Vice President Chief Financial Officer, and assistant Corporate Secretary and Jim Moriarty Executive Vice President General Counsel, corporate Secretary and Chief policy and risk Officer.
We also have other members of our management team joining us virtually.
Today's presentation can be accessed on our website under the investors page in the Investor presentation subsection.
After our prepared remarks, we will open the call up for questions.
Moving to slide three I would like to remind you that matters discussed in this conference call May include forward looking statements that involve risks and uncertainties.
Forward looking statements and projections could differ materially from our actual results to safe Harbor for forward looking statements section of the company's 2020 annual report on Form 10-K, and our first second and third quarter form 10, Qs provide further information on the factors that could cause such statements to differ from our actual results.
Additionally, we continue to highlight some of our key environmental social and governance initiatives and our quarterly reports.
Now I'll turn the call over to Jeff to provide some opening remarks on the company's third quarter and year to date results and the key drivers of our performance Jeff.
Thank you Alex and good afternoon, and thank you for joining our call today.
Let me start as usual with an update on COVID-19, and our continuing efforts to manage through the ongoing pandemic.
The Delta area drove a surge in COVID-19 cases throughout the third quarter, including in our service territories and our company.
Over the past couple of weeks, we've seen reductions in our positive cases, and the number of employees reporting exposure to the virus.
We continue to encourage employee vaccination with time off for both shots and downtime to deal with any vaccine side effects.
As our most utilities, we're working to identify the applicability and potential impact that May result from vaccination mandates COVID-19 testing requirements under the presence executive order or the Osha emergency rule.
Also following the various state legal challenges that could impact the application of timing of the federal vaccination mandate initiatives.
Like many companies, we were hoping to return our remote workers to the office sometime this fall. However, we slowed that process as the adult of various cases increased you.
You may recall that well over 50% of our total team those providing field operation services have continued to report their office locations throughout the pandemic.
Our entire team both field services and those assigned to work remotely.
Well during the pandemic.
We have substantially upgraded our technology capabilities to support our current work environment and have no reason to rush back to their office.
In fact, we believe there'll be significant future savings as we rebalance our long term facility needs.
As you would expect we will approach any end of the pandemic organizational changes well plan disciplined manner with the goal of ensuring the safety of our employees and customers and the reliability of our services.
One of our objectives during the pandemic has been to ensure communications with our team members remains a high priority.
Prior to the pandemic one of the various ways, we communicated internally through carbon team meetings with all employees to review our performance discuss future plans and provide opportunities to exchange ideas.
We've been holding frequent virtual meetings and conducting an all employee call since the beginning of the pandemic.
Those calls were conducted weekly for the first 16 weeks and are now held each month.
And for the last two weeks and continuing this week myself and other members of the senior leadership team have been conducting in person Townhall meetings company locations across our service territories.
The first in person team meetings, we've held since 2020 early 2020.
In most locations, we've been leaving outside under a cap socially distance and wearing masks.
Re engaging with the team personally and having the ability to thank each and every one of them for their dedication and contribution to our continued success.
It's been rewarding for me.
As part of these meetings were introducing our recently refreshed mission vision and value statements our employees through various surveys and focus groups were instrumental in developing these statements and I think we've laid out simple declaratory statements that demonstrate our continuing interest in advancing our existing energy.
<unk> businesses.
As long as pursuing an active leadership role in developing sustainable energy opportunities that contribute to a lower carbon future.
I remain proud of our team members as they continue to operate in a remarkably effective way delivering high levels of customer care and executing our plans for sustainable growth.
We had a notably strong third quarter with high quality earnings as shown on slide four earnings per share was <unk> 71, an increase of 15 or 26, 8% compared to the 56 as reported in the third quarter of 2020 is.
As highlighted on slide four gross margin increased approximately half a million dollars over the third quarter of 2020, however, and as we reminded everyone. During our previous calls our results in last year's third quarter included a cumulative adjustment from the hurricane Michael regulatory settlement.
Our rates from Q1, and Q2 were recognized in the third quarter.
Absent the hurricane Michael timing difference gross margin increased by $6 million or eight 1% year over year.
Some of the key margin drivers for the quarter included pipeline expansion projects organic growth in our natural gas distribution systems the pipeline replacement program in Florida.
Contributions from the acquisitions of Elkton gas electric natural gas and the Escambia meter station and increased margins for our propane businesses as well as aspire energy.
We also realized a net reduction in expenses related to the COVID-19, pandemic and established regulatory assets for COVID-19 expenses as authorized by the various public service commissions.
Year to date 2021 earnings per share were $3 45.
An increase of 48 cents or 16, 2% compared to $2 97 for the first nine months of 2020.
This growth was driven by all of the factors mentioned previously in addition to a return to more normal weather and growth for Marlin gas services.
Net income year to date was $68 million, our net income for the first nine months of 2021 exceeds our total annual net income in 2018, just three years ago.
At that time, our growth has been largely achieved through expansion of our transmission pipelines into new territories.
<unk> growth was in our natural gas distribution systems and successfully integrating acquisitions into our portfolio.
We're fortunate to provide energy delivery services to communities that are experiencing significant growth since.
Since 2018, we've added more than 26000 natural gas distribution residential and commercial customers and approximately 9000 propane customers.
This customer growth is a real testament to our business development and operation teams executing our growth strategy.
I'm happy to report that all of our service areas the demand for natural gas propane on electricity remains high.
Growth opportunities to serve new customers was the primary driver of our capital investment.
Hundred $51 million through the first nine months of the year driven by our residential customer growth rates of 5% in Florida, and four 1% on the Delmarva Peninsula.
Our projected capital investment range for 2021 is now a 185 million to $200 million.
We continue to be fortunate to serve communities that appreciate and value the energy we deliver.
I'll talk more about our continued growth initiatives and capital investment projects across our business units in just a few minutes, but let me turn the call over to Beth for further discussion regarding our performance Beth.
Thank you, Jeff and good afternoon, everyone turning to slide five net income for the third quarter was $12 5 million compared to $9 $3 million for the same quarter of last year. This represents a gross and net income of $3 2 million.
Earnings per share for the third quarter was 71 step up 15, or 26, 8% compared to the same period last year on a year to date basis net income increased to $68 8 million compared to 49.
$1 million for the same period last year.
Earnings per share for the same period compared to the first nine months of 2020 grew by 48 to $3 45 per share representing growth of 16, 2%.
Yes growth rate compared to the net income growth rates for both the quarter and year to date reflect the large issuers.
In the latter half of 2020, as we rebalance our capital structure to achieve our target capitalization rates.
As shown on slide six higher net income was the result of the gross margin drivers that Jeff highlighted earlier, coupled with continued expense management as well as business efficiency standardization and collaboration as we continue to focus on business transformation across the enterprise.
Exclusive of the first and second quarter 2020 timing difference associated with the Hurricane Michael regulatory settlement gross margin increased eight 1% compared to the third quarter last year, while operating income grew by 30%.
The next two slides provide the key drivers of gross margin and expenses for both the quarter and nine months ended September 30th.
For the quarter as highlighted on slide seven the key drivers of the 15% growth in earnings per share over last year's third quarter results are.
Let me provide some additional color.
As we mentioned the absence of the timing difference associated with the Hurricane Michael regulatory settlement in the third quarter of 2020 generated an eight negative impact for the quarter over quarter results cumulatively three in the third quarter. Both years now have nine months of Regulus.
Tori recovery from the Hurricane Michael settlement.
During the quarter was driven by the regulatory deferral of pandemic related expenses as authorized by the respective public Service Commission.
In the quarter, we recognized an additional five cents in earnings per share tied to the favorable income tax impact associated with the cares Act, which allowed us to carry back net operating losses into prior year periods, where the federal income tax rate was higher.
Contribution from the acquisitions of Elkton gas and western natural gas generated an incremental four cents in earnings for the quarter.
Core businesses delivered additional margin contributions that increased earnings by <unk> 17 per share over the prior year's third quarter. This includes higher gross margins driven by pipeline expansion project higher natural gas and propane consumption.
Performance in our protein in electric operations organic growth and our natural gas division the Florida grip program that we've spoken to you previously and higher consumption with customers returning to pre pandemic demand level.
Offsetting this growth was seven and higher depreciation amortization and property taxes associated with new capital investment.
Operating expenses tied to the acquisitions I mentioned previously were two cents per share.
Operating expenses tied to growth in our core business, we're a net three higher.
And finally changes in our shares outstanding due to equity offerings that helped US again realign our capital structure, whereas recent headwinds followed by other items of <unk> <unk> per share.
On slide eight you can see the same bridge for the year to date results, representing an increase of 48 and.
Yeah.
Key drivers for this growth were as follows.
Unusual items, including the gains from the sale of assets booked in 2020, and the net impact of the cares Act in 2020 as well as this year were a combined 13 headwind.
Year to date impact of the regulatory deferral of COVID-19 expenses, plus 14 cents per share.
Margins from the acquisitions generated 15000 ACF during the nine months.
Gross margins generated by our core business amounted to $1 more in EPS.
Depreciation and amortization and property taxes associated with new capital investments offset the growth by 'twenty four.
Additional operating expenses tied to the acquisitions were an incremental 10 sets of <unk>.
Spencer and higher operating expenses in our core businesses due to growth, we're at 26% and that again the increase in shares outstanding resulted in an 18 that impact for the year to date period and finally other items added <unk> 10 per share.
Moving to slide nine we have narrowed our 2021 forecasted capital expenditure guidance, given our year to date capex of more than $151 million. We now expect our investments to be in the range of $185 million to $200 million.
Increasing the lower end of the range from $175 million previously reported.
Again, the investment is concentrated with approximately 80% forecasted in new regulated energy assets with the largest projects, including our recently completed pipeline in Ohio, which we are now which is built to transport R&D from the noble Road landfill.
Secondly, eastern Shore's recently completed del Mar Energy pathway project, and Delmarva natural gas distributions associated expansion into Somerset County, Maryland.
Florida, Western Palm Beach County expansion, our Florida grip program various other natural gas distribution system expansion projects to meet customer demand in our service areas, certainly our natural gas and electric system infrastructure improvement activities.
The additional newly announced project the Winter Haven expansion the beachside pipeline extension the acquisition of the <unk> meter station from Florida power and light along with our expansion of Marlin fleet to support growth and Sanjay LNG and R&D transport.
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We maintain a strong balance sheet with access to sufficient competitively priced capital to support the growth we have experienced and ensure we have the capital capacity to fuel our future growth as you can see on slide 10.
Timber 30th total capitalization was $1 5 billion.
Comprised of approximately 51% stockholders equity, which is now $751 million, 35% long term debt at an average fixed rate of 355% and $192 million in short term debt under our revolver.
At an average interest rate of less than 1%.
During the third quarter, we executed on three financing strategies, which continue to facilitate both our short term and long term capital needs and let me spend just a few minutes here.
In order to continue meeting our short term capital needs. We replaced our 375 million 364 days syndicated revolving credit facility with a new multi tranche 400 million syndicated revolving line of credit with multiple participating lender.
There are two tranches of the facility consisting of a 200 million 364 day short term debt tranche and a 200 million five year debt tranche, both of which have three one year extension option.
In regards to long term debt capital on August 25th the company entered into a note purchase agreement with multiple lenders to issue $15 million and Uncollateralized senior notes.
Under the note agreement the company will issue the senior notes in January at a rate of Q4, 9% or 15 year term.
We also secured $9 $6 million of sustainability linked financing in the third quarter.
This new facility was used to support continued investments in our Marlin gas services business, which is one of the country's leading provider of virtual pipeline services.
In addition to providing its customers with highly specific complex compressed and soon to be liquefied natural gas solutions. The company is poised to help its customers achieve their sustainability goals through the transport of renewable natural gas.
This lending was financed from bank of America as part of their broader sustainability financing efforts.
In terms of new equity, we have continued to utilize our traditional equity plans. This year to issue $9 $3 million of new staff and increased equity beyond our earnings retained and reinvested in the business.
Chesapeake Chesapeake utilities market capitalization, certainly continues to grow as we remain focused on increasing shareholder value by making strategic investments that drive our earnings while further enhancing our efforts to drive the sustainability of our local community.
Thank you for the opportunity to speak with you about our strong financial performance. We continue to remain on track for achieving another year of very solid record results I would now like to turn the call back to Jeff to talk about our future prospects for growth along with a review of our Capex and earnings guidance Jeff.
Thank you Beth.
Beth.
We remain well positioned for future growth with our capital capacity and the strength of our balance sheet, our ability to generate strong earnings growth on the capital investments, we make speaks to the proven nature of our business model.
Slide 11 highlights our five platforms for growth, which focus on optimizing our existing businesses through organic growth and business transformation as well as investing in growth opportunities in gas transmission propane virtual pipeline solutions through Marlin, and sustainable investments, including R&D and hydrogen.
As I've already highlighted we continue to experience significant demand for the energy services, we provide and we're excited with the opportunities we see in the horizon to drive our long term sustainable growth.
On slide 12, we highlight a few of the major initiatives that we continue to work on.
On the slide a significant portion of our projected capital investment there is devoted to expanding our existing core businesses and capturing the growth in our service territory.
Our latest margin table on slide 13.
<unk> key projects and initiatives, including pipeline expansion <unk> transportation.
Acquisitions and regulatory initiatives as we frequently remind you. This table does not include organic growth year to date. Our total margin increase is approximately $28 million of which $12 9 million as reflected on this table.
Key projects are expected to generate approximately $65 million and 76 million and gross margin for the years 2021 and 2022, respectively.
Pipeline expansions excuse me are expected to generate $12 1 million in incremental margin in 2021, and 2022 compared to 2020, including the new projects in Florida Winter Haven expansion, the beachside pipeline extension to serve the Nextera, Florida City gas distribution system.
As we've said before we are a beneficiary of our geography as populations grow and consumer demand for natural gas remains hot.
One significant example of the demand for gas as our transmission and distribution projects to bring natural gas for the first time to Somerset County in Maryland.
It was a significant accomplishment during the third quarter to place the summer so that section of our del Mar energy pathway gas transmission project and the service, we're already building distribution systems and accounting to extend natural gas service to customers and local communities.
<unk> carbon intensive fuel sources like oil and wood chips.
We're particularly pleased with the full integration and margin estimates of 6 million and $6 4 million for 2021, and 2022, respectively from the acquisitions of Elkton gas and Western natural gas, we expect acquisitions to contribute further with the million dollar margin income.
Greece from our recent acquisition of the Escambia meter station and the Florida Panhandle.
Near RFP piping pipeline, serving the Pensacola area.
On the regulatory front, we also made significant advances on several fronts in July our settlement with the office of public counsel regarding our COVID-19 regulatory asset was finalized.
Under the settlement, we established regulatory assets totaling two point million $2 $1 million during the third quarter, which will be amortized over two years, beginning January one 2022 and recovered through the respective rate mechanisms for natural gas and electric operations.
There'll be an increase in margin that offsets the amortization associated with these regulatory assets.
We also reached an agreement with the Maryland Public Service Commission staff and the Maryland office of People's Counsel related to health and gas.
I don't want a pipeline replacement program under this program, we are accelerating the replacement of the pipe and recovering the cost in the form of a fixed charge rider.
Proposed five year surcharge.
Let me dive into more detail on some of these projects moving now to slide 14 in terms of renewables. We were excited to announce the completion of our first R&D transportation project during the third quarter, our aspire energy business completed a $33 one mile pipeline, which will transport RMG generated at the Nomura.
<unk> landfill in Charlotte, Ohio to aspire has existing infrastructure in the region.
<unk> will be used to displace conventionally produced natural gas.
In addition to serving residential and commercial customers. The R&D will be dispensed in the fueling stations for fuel CMG vehicles.
Road landfill RMG project is expected to capture and transport quantities of R&D that are equivalent to $6 9 million gasoline gas equivalents per year.
We remain focused on investing in additional R&D projects for 2022, we estimate $1 million in additional gross margin for R&D related transportation projects.
As we've discussed in prior calls these projects take considerable time to develop as the renewable waste to energy biogas market matures, we expect to see significant opportunities to serve the facilities and participate in their development to RMG offtake agreements the provision of various services for example conventional gas.
Fertilizing fertilizer, drawing in solar electric generation as well as equity investments. These investments will also create new financing opportunities as Beth mentioned, we recently entered into our first sustainable linked financing facility and we will look to use that type of funding going forward.
Continue to provide additional information as the projects beginning construction and then get closer to completion.
Two waste to energy projects that continue to be developed on the Delmarva peninsula or the bioenergy Dev co and clean day projects.
Following completion of both projects will process significant quantities of poultry waste and produce renewable natural gas organic fertilizer and various other soil amendment products, our Marlin gas services subsidiary will transport the RMG to the interconnect point, we're constructing on our eastern shore natural gas pipeline system, we can.
To focus on projects that provide opportunities to solve fundamental environmental waste management issues and our service territories.
Adding our solution to an underlying environmental waste management situations as the foremost benefit of the projects. We're targeting as an example processing poultry waste into biogas helped strengthen in an industry that is critically important to the delmarva job market and economy.
The production of valuable and marketable renewable natural gas is certainly important to the economic viability of these projects, but it is not the sole reason we're pursuing these deals.
We're nearing the end of construction CMG filling station at the port of Savannah, and partnership with southern gas.
The station is designed to serve local CMG fleets, including important vehicles as well as providing a logistics and refueling 0.4.
Marlin CMG for Ya <unk>.
Station aligns with the company's ongoing commitment for environmental responsibility by providing supply clean burning natural gas to fuel vehicles, and making it available to customers with limited access to natural gas <unk>.
CMG powered vehicles produce lower emissions in gasoline and diesel vehicles, reducing greenhouse gas emissions by up to 30% and nitrogen oxide emissions by 85%.
Our intention is to provide opportunities for fleets to elect renewable CMV is an option and we're working currently with an upstream gas marketing company to provide renewable supply options for our <unk> customers.
Slide 15 shows the investment of approximately $153 million and recent and planned expansion projects through 2023, the annual cumulative gross margin contribution is estimated to be.
$24 2 million when these projects are fully in service.
As a last note our work to introduce a hydrogen and natural gas fuel blend at the eight flags.
<unk> CHP turbines side on Amelia Island, Florida is nearing completion.
Interconnect facility is complete and we are days away from completing the modifications to the fuel system turbine another mechanical equipment.
Our revised their programs has been approved and we've converted four of our Marlin <unk> tankers to transport hydrogen SaaS.
Beth project will begin with a 4% hydrogen blend, but we anticipate increasing that percentage up to 20% next year. When we complete the scheduled replacement of our turbine.
As mentioned in our prior conference calls that we were supporting a hydrogen research project proposed by solar turbines to the U S Department of energy.
From our eight flags CHP turbine on Amelia Island, as a test site and we'll be monitoring as usual emission levels from the plant to gather data on reduced carbon levels. The project gives us a unique opportunity to discover the attributes of hydrogen blends in the distribution system, particularly in the areas of safety operational requirements measured.
Availability and effects on downstream customer equivalent.
We're also working with several of our existing industrial customers to identify opportunities for hydrogen blends at their facilities.
I'll now turn the call over to Jim Moriarty to discuss some of our more recent regulatory initiatives and our commitment to ESG is part of our corporate culture Jim.
Thank you, Jeff and good afternoon, everyone. It is great to be with you again today.
On slide 16, we highlight some of the previously discussed legislative advancements, we have made in both Florida and Ohio.
I am proud of our government affairs team for leading and supporting these important matters within both states.
We are focused on working with our elected representatives to ensure that natural gas is available to meet customer demand first and foremost.
To provide a mechanism for renewable natural gas to be a viable part of our diversified energy portfolio.
We are also working to ensure that we are effectively communicating with our customers and our stakeholders and serve as a resource to them.
We are at various stages and working on similar legislative initiatives in our other jurisdictions and we will keep you apprised of future activities.
Slide 17, and 18 lists some of our recent regulatory initiatives, where we have proactively worked with our various public service commissions to secure recovery of key investments in our businesses.
Further supporting safe reliable and economical energy to our customers.
As shown on Slide 17, Florida public utilities continues to make significant progress and its gas reliability infrastructure program or grip.
That began in 2012.
We have invested more than $183 million of capital expenditures to upgrade approximately 337 miles of distribution mains, increasing the safety and reliability of our systems for many floridians.
We expect to complete this program by the end of 2023 at the latest.
The hurricane Michael settlement impacting Rguest pay <unk> business allows for recovery of the investment we made to restore our electric distribution system and the Florida Panhandle.
Settlement allows the company to amortize approximately $46 million in storm costs and interest over a six year period.
And recover a total of $11 million annually from 2020 through 2026 and $3 $3 million per year thereafter.
Our eastern shore natural gas Interstate transmission unit has authority to recover capital costs associated with mandated highway our railroad relocation projects.
Gross margin is expected to be $1 2 million in 2021 and $2 million in 2022 associated with these relocation projects.
Moving to slide 18 in September we implemented our strategic infrastructure development and enhancement or stride plan.
Under this plan, we anticipate the replacement of approximately six miles of pipe and Elkton, Maryland by the end of 2023.
This upgrade will continue to enhance the integrity and reliability of our systems for our employees and our customers and the Elkton Marilyn community.
In July we reached a settlement with the Maryland, PSC and Maryland's office of public counsel.
Enabling us to accelerate this project, while earning an appropriate return on the investment.
Also in July this year, the Florida, PSC issued a final order, allowing Florida public utilities to establish a regulatory asset of $2 $1 million.
The amount includes COVID-19 related incremental expenses for bad debts personal protective equipment clean.
Cleaning and business information services to expand our remote work capabilities.
The amount will be amortized over two years, beginning in 2022 and recovered through the purchase gas adjustment.
And swing service mechanisms, so the natural gas businesses.
And through the fuel and purchase power cost recovery clause mechanism for FTE use electric division.
As provided on slides 19 and 20.
Chesapeake utilities understands the importance of our commitment and leadership role in environmental social and governance matters.
Our commitment that we have fostered over decades of listening to our customers, leading change and serving each other and our communities.
We look forward to releasing our inaugural corporate responsibility and sustainability report before the end of the year highlighting our continued sustainable growth, while also decreasing our ambitions and our dedication to social justice and our sound governance principles.
Turning to slide 21, we wanted to highlight our unique corporate culture, which is the foundation of our success and our way of doing business.
During the quarter Chesapeake utilities was recognized with a number of awards.
As we discussed on our last call. The company was named a top workplace in the U S. By the news Journal earlier this year.
We were also recognized as a top workplace in Delaware for the 10th year in a row.
Across our business units, we received several additional awards in 2021.
We were recognized with the stars of Delaware Award, which celebrates those companies regarded as the best Delaware has to offer.
We were recognized for best company over 50 people, reflecting our dedication to playing an active role in being a constant resource for our customers and communities.
Additionally, our propane operations were recognized as the best propane company for their commitment to safety and exceptional customer service across our service territories.
These awards speak to our employee engagement.
Which is a constant focus for management and the board.
Since the beginning of the pandemic, we have worked to increase employee engagement by expanding our employee resource groups to the six you see on this slide.
These <unk> are the next steps and elevating our culture of equity diversity and inclusion or Adi.
As we've mentioned numerous times, we believe that a combination of diapers team members and an inclusive culture contributes to the success of our company and to enhance societal advancement.
Recently, we welcome William Houston to our team as Vice President and Chief Human Resources Officer, and a key member of our senior leadership team.
William brings tremendous experience to the team, including drawing from his previous experiences and prior role as Chief diversity Officer. Additionally.
Additionally, in October we announced the appointment of our third female director to our board of Directors Lisa Versace.
Leases edition continues our steady progress of gender and ethnic diversity that represents the communities we serve.
In September we announced the receipt of ethical boardrooms prestigious award for best in corporate governance in the utility sector in North America.
This award recognizes outstanding leadership worldwide for companies that have raised the bar to ensure that strong corporate governance contributes daily to enhancing long term value for all stakeholders.
Our success is the direct result of the dedication of our board and our employee centric culture that promotes equity diversity and inclusion.
And supports our strong commitment to our customers communities and each other.
Finally, we most recently learned that four of our businesses were recognized by the American gas Association for their commitment to safety.
50 remains our primary focus and we have invested heavily to continue building our safety governance and culture.
Engagement in our local communities continues to remain strong over.
Over the last three years, we've contributed more than $1 $3 billion in support of our local communities. Additionally.
Additionally, through our Chesapeake sharing program employees support local communities and organizations of their choice.
As a highlight our propane business sharp energy annually supports the Moore's children's hospital and their child's life program.
I appreciate being with you all today and walking through a few highlights our company.
I will now turn the call back to Jeff for some closing comments Jeff.
Thank you Jim.
Our fundamental strategy for the past 20 years has been to build on our solid stable foundation of regulated businesses and invest in related nonregulated businesses that offer the opportunity to generate returns above our capped regulated returns.
Been pretty successful over a long period of time executing the strategy Slide 22 shows our consolidated return on equity performance over the last 15 years as you see we've exceeded 11% each year for that entire period.
Our ROE performance is driven by continued prudent investments that enable customer and margin growth.
Prudent acquisitions solid regulatory strategies.
Contribution and growth of our unregulated businesses, such as propane Marlin aspire energy.
That complement our regulated businesses.
On slide 23, we continue to reaffirm our five year capital guidance for the period, 2021% to 2025 of 750 million to $1 billion.
We discussed earlier, we narrowed our 2021 capex guidance to 195 million to $200 million.
Finalizing our last strategic plan update, which we actually just discussed with our board of directors yesterday.
We're confident that we have significant investment opportunities ahead of us to continue driving future growth.
Moving to the next slide we also continue to support our 2025 EPS guidance range of $6 five to $6 25 per share representing an average EPS growth of approximately 10% from our initiation of guidance from the end of 2017.
Before I close today's presentation I would like to take just a moment to recognize and express my sincere condolences to the family of Gene Byrd Dean who passed on Sunday October 31, I've been a longtime board member for over 15 years, Jim was extremely forward thinking well.
Throughout the state of Delaware, He provided valuable counsel to our board and management team.
He was also a wonderful person always optimistic about our company's future.
<unk> shoes will be hard to fill and we will miss him.
To finish up on slide 25, we believe that natural gas will remain a key component of the country's long term energy strategy.
Markets, we serve by the energy services, we deliver.
Our customer growth rates, and the customer and political support to bring natural gas to new communities like Somerset County, Maryland reflect the continued interest in natural gas.
At the same time, we have opportunities given our business mix expertise and strategic approach to capitalize on new energy delivery investments that contribute both to a lower carbon future and to increased earnings for the company.
We're committed to our growth strategy, we're focused on continuing to deliver top quartile performance, including shareholder return, which is exceeded 16% compound annual growth for each period 135, 10, and 20 years through October 31, 2021 or.
Our investment proposition is based upon our commitment to superior performance, our strategy, our financial objectives and targets as well as our ongoing focus on execution and operational excellence to support our continued pursuit of top quartile performance.
Thank you Alex with that we can now address any questions.
Thanks, Jeff Greg. Please open the lines for any questions you may have.
Thank you if you'd like to register a question. Please press the one followed by the four on your telephone keypad right now you'll hear whats retailing prompt to acknowledge her request. If your question has been answered and you would like to withdraw your registration. Please press the one followed by the three <unk>.
One moment please for the first question.
And we have our first question from Tate Sullivan with the Maxim Group. Please proceed with your question.
Hi, Thank you good afternoon.
Jeff If I heard you mentioned in your press release saw fleet conversions to propane and CMG and you mentioned in your prepared remarks, as well I have not looked at that before.
As a large driver in your businesses, but but as fleet conversion increasing would you say.
Is that leading to more business for auto gas or as a regulated distribution business on that side.
Yeah.
Well I think it's a combination of things I think certainly we're focused on the propane auto gas lead conversions and we've done so.
A number of those over the last few years.
Now expanded that focus into Florida and several other places.
And so we see that as a significant portion of our of our propane business going forward.
And a growing proportion of our propane business on the natural gas side I mentioned the <unk> station.
Paul will bring that into service I believe sometime in mid February of next year, and we're focused now on contracting with various fleets that go past that station in Savannah, and there are some I think it's five or 6000 fleet vehicles that actually move past that station every day.
Georgia and also working with supportive Savannah on a variety of the vehicles that they actually use inside the port.
Beyond that we're going to use as I mentioned that facility as a staging ground for our CMG.
Efforts with Marlin to move into Georgia, and the Carolinas I don't know that that C. N G fueling.
As a major part of our future I think it's an interesting opportunistic opportunity is like if I can use that phrase.
And where we see the opportunities like we do in Savannah to actually advance Marlins.
The ability to more easily and cheaply more cheaply access the markets in Georgia, and the Carolinas and we also happen to find the facility.
Where so many vehicles are moving past day, then we will take advantage of that.
Hopefully that answered your question too.
Yes.
You very much for that additional detail and then.
On the incremental gross margin table that separating the CMG transportation and R&D transportation.
Marlin going to be or can you tolerate a small a very small part of the R&D transportation.
Syed I mean, particularly in the next two years it looks like its mostly the pipeline project in Ohio Noble R&D is that correct to look at it that way.
It's correct to look at that way based on what we've disclosed at this point.
We're working on a variety of opportunities that we just aren't able to publicly describe today I would tell you that we see marlins growth opportunities in the future.
Is largely focused on R&D transport.
We believe that there are a number of of opportunities to provide that sort of serve us really across the country and so we're highly focused on marketing Marlin as an R&D transport operation.
Certainly we will find other services that Marlin can provide along the lines that it currently provides.
But I think R&D is a real focus for us with Marlin going forward.
Okay. Thank you and last for me before I turn it over our CNC CMG transportation gross margin going to 7.3 next year from seven to roughly has.
<unk> growth for your capacity with Marlin.
Hi.
Can it be higher than that growth that you see.
Yes.
One is that 'twenty, one sorry, yeah, we've been growing Marlins fleet capacity and capabilities.
Yes.
Over the last two years, we've added a number of our Caf vehicles and we've added a number of trailers that I've mentioned that we converted four of our existing.
Tube trailers to be able to transport hydrogen, which we see frankly is as an emerging opportunity for marlin and so we've been carefully adding to Marlins fleet and trying to ensure that we don't over burden them with with them.
More vehicles and more capital than they could absorb.
We continue to grow their margins.
I think we will continue to carefully grow that business over time as we've typically carefully grown all of our businesses.
To make sure that the investment in the business doesn't outstrip our ability to produce margins that support it.
Thank you very much.
Sure.
And the next question comes from the line of Brian Russo with Sidoti. Please proceed with your question.
Hi, good afternoon.
Hey, I was wondering if we could talk about the protein.
Business with.
Rising commodity prices in particular propane.
How was sharp or the overall propane business position going into this winter. It's my understanding that you kind of have the capabilities.
Generating more margin rising.
Propane price environment I was hoping you could elaborate on that dynamic.
A couple of things and then ill turn that over to Beth and she can weigh in.
Have significant storage assets, especially on the Delmarva peninsula, but down into Florida, as well with total millions of gallons and so we are we are well positioned we also have.
A very active fuel management group.
That's been quite successful in hedging our propane products over the years and we feel like we're in pretty good shape going into the winter.
I think that certainly recognize that the prices are increasing.
But I think we will be able to move through this winter in pretty good shape, Beth you might want to add something to that.
Sure. Thank you.
Brian what I would add.
Just to what Jeff was mentioning we also have several programs where customers sign up in advance and basically walk in what theyre going to be paying through the upcoming season and so when those customers are walking in under those programs. We are also locking in the supply.
Those programs so customers that have signed up months ago under those programs the supply with with locked in for that in addition, as Jeff mentioned.
And does having diversity of supply across the peninsula. We also have diversity of supply in regards to the contracts that we've entered into months ago for <unk>.
Our supply coming into the winter season.
We spend a lot of time as our risk management committee looking at what contracts, we're going to enter into a diversity of suppliers that we're going to get the propane from and so when you look at our weighted cost of gas relative to some of the other players that are in our local markets.
You will see is a greater diversity of supply and so we've done we've taken those actions and then as you come into the heating season like we are the way the market is going to price typically where retail prices are going to go we're going to be based more on more localized supply.
And so that's where to your point.
May have a little bit more opportunity in regards to our supply is coming from multiple sources. If retail prices go up in response to where supply costs are we've already locked our supply cost in but we can certainly look at what the retail market is doing in terms of pricing. So there.
There is multiple things that come into play, but as Jeff indicated we are certainly.
Planned well in advance for the upcoming season, and a lot of times, we find ourselves being or having an opportunity to actually provide part of the supply to some of the local competition.
Right got it. Thank you for that that's what I figured that.
On Marlin, the $9 6 million of sustainable financing.
Sure.
That's the first of its kind for you and it's specifically for Marlin I'm wondering it seems that there is a lot of growth opportunity is that.
$9 6 million designated for anything in particular.
You mentioned trailers or trucks or so.
I think last quarter, you mentioned possible acquisitions.
Get your thoughts on that.
Sure. So this particular tranche of financing that we enter two is specifically related to the investments that Marlin is making around as we talked about that concept.
That marlin is going to begin transporting renewable natural gas we have opportunities like this one that we entered into with bank of America as well as with some other financial institution for some other sustainability linked financing so youre absolutely right, Brian that we can consider other.
The sustainability linked financing as we take on incremental projects, but this $9 six its solely tied to those marlin.
Yeah.
Okay. Thanks, and lastly, just on Orangey.
Could you just talk a little bit about the.
The project pipeline that you might have in R&D.
In particular.
Your relationship with clean Bay Clean Bay, I think is very active in the U S markets.
In various projects and.
I'm just curious you know how do you leverage your existing relationships.
Future projects.
It happened with the partnership that we've made already in the one that we're continuing to balance to develop and Jeff I'll turn it to you for more thoughts.
Well, let me just add a couple of things to that and I mentioned this in passing ugly.
Discussion, we just had earlier you know our view of.
Waste to energy projects is to find projects that really have a fundamental environmental waste management issue in the service territories, what we sir.
We're not specifically out hunting renewable natural gas quantities.
We are hunting projects that but as I said the deal with a fundamental waste issue. A good example of that are the couple that you mentioned I'm Gonna go clean Bay and bioenergy desk on the Delmarva Peninsula looking to provide some assistance to the poultry industry and managing.
[noise] waste products that come off of that industry and there is there's such an interest politically environmentally.
We see serious opportunities remaining in Florida.
Or no projects of the type, but peninsula pipeline has been engaged in for the last five or six years. So they're relatively small scale projects of 5 million to $15 million will also see a couple of opportunities potentially and we'll see how this works for larger scale projects.
In Florida.
That actually it should connect the dots between areas that need additional gas supply.
That are a little bit outside of the existing Interstate projects. So and so we think there are still some intrastate activity in Florida that make some sense for us.
And we're looking at projects like the one we just finished in Ohio, especially related to some of the renewable natural gas facilities or that are coming out of the ground.
Primarily the eastern side of the Mississippi.
So we think there are still some opportunities in various states for us to to look a little car that some of those types of projects.
Okay on the on the eastern shore expansions would that be.
And you're looking within where are you currently operate or would you be pushing further south.
West.
Well, we're asking.
Hold on.
Yeah.
Yes, and then those are you know where the holes are there exactly those farther to the south into the west and I think we're always looking for expansion opportunities.
And I think we'll continue to find some again I don't think Michael that we're going to see the kind of investments that we've made it eastern shore over the last few years.
But I do believe there are some meaningful projects there.
We're seeing peak capacity issues in our distribution systems on Delmarva that we're going to have to address over the next few years and so I think there'll be some compressor projects that eastern shore I think there'll be some other things that.
That can help us meet those.
Those pique requirements that are continuing to grow as we add more and more customers up and down the peninsula.
Again, no I don't think you'll see any very large projects on the delmarva, but I think there will be some meaningful smaller projects as we continue to go through the next several years.
Alright, that's all I had I can I also wanted to say congrats on what was a really strong quarter.
Thank you.
I assure you.
Okay.
I.
I was.
Off put by a particular.
ZIP, but the on page 16, you're going to have to go there to it it's the Ohio activity.
And the state energy preemption legislation.
Preventing natural gas bands.
Mhm.
That to me is an example of where there's tone deafness.
And the gas industry.
<unk>.
Because.
Yeah.
You you you can win in the court of law, but if you lose in the court of public opinion [laughter], then that's not a good game.
So you're not to blame for this <unk> white this legislation I'm assuming.
But it it to me, it's like a hamburger and aid.
You just never know when people look at.
That kind of thing and just say this industry.
You know it doesn't have a future because their interests are not aligned with hours and I I want to.
Leave that right there and now move on to my actual question.
<unk>.
Methane emissions.
Are a big deal need I tell you.
But I I I hear what.
It could be construed as greenwashing in the absence of data.
And so I'm asking if the company currently has any data on for example, the the grip investments.
In Florida, and I think the figure was 337 mile anyway, some large number of miles.
Per day that one of our facilities gets hit when you compare us to other utilities and I think there's room for improvement there.
Most of the methane leakage that occurs from our system in early any any distribution system generally occurs when the lines are hit by somebody doing construction and so we're going to tighten that up considerably.
So you'll you'll begin to see some data coming from us.
Over the next two or three months.
Mhm.
Uh huh.
Preliminary like overflights looking for things on your system. So that you are never caught unaware of something you can always say on such a such a date.
We started we were aware of that and we started corrective action.
Do you want to.
Want to comment on that.
Well, we do very extensive leak surveys of our entire system and we really never stop.
They go on continuously.
To identify exactly the kinds of week that you're talking about now we're running small scale on the distribution side lower pressure.
<unk>, obviously and so we don't have the types of leak issues that you're describing but we're out there all the time looking for them. We also operate some very new vintage systems, most of our pipe in the Delmarva and our distribution businesses as plastic and.
And so we've had a very low level of leak issues. There. We've replaced as you mentioned moments ago 358 miles or whatever it is now of our older vintage unprotected steel mains in Florida. So we're getting toward the end of that along with many thousands of.
Service lines and so it's truly tightened the system up significantly.
Out of those replacements were with plastic pipe as well and so we are I think doing a pre.
Good job of looking at those leaks identifying them fixing them. We've got folks that are dedicated to repairing those leaks when we find them.
And I think we're doing a pretty good job of that I think you'll see some of the data that we report.
In our inaugural ESG document.
We will indicate that we.
We're in pretty good shape there.
Okay, well I applaud.
Hardly applaud the efforts that you're taking and how you are emphasizing them in this call for example, keep up the good work and thank you.
Thank you.
Yeah.
And as a reminder to register for a question press. The one followed by the four on your telephone keypad right now.
There are no questions on the phone at this time.
Jeff with that.
Are you for some closing remarks.
Yes, I appreciate you guys joining us this afternoon and I know this is at the at the end of a long day I also want to thank all of my colleagues at Chesapeake for their long standing dedication to serving our customers and providing exceptional.
Returns for shareholders.
[music].