Q1 2022 Chesapeake Utilities Corp Earnings Call
Okay.
Greetings and welcome to the Chesapeake Utilities Corporation results for first quarter 2022 earnings 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 foreign your telephone could you require operator assistance.
Since at any time, please press star Zero as a reminder, this call is being recorded today Wednesday may 4th 2022, and I'd now like to turn the conference over to Alex White Lim head of Investor Relations. Please go ahead Sir.
Thank you, Dave and good afternoon, everyone. We know it's late in the day and I appreciate everyone joining us.
We're excited to prevent Chesapeake utilities results for the first quarter 2022, and you saw in our press release issued yesterday the company reported solid financial performance to begin the year, demonstrating our continued ability to deliver long term sustainable growth for our stakeholders.
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, Treasurer, 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 and events and presentations subsection.
After our prepared remarks, we will open the call up for questions.
Moving to slide three I'd 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. The safe Harbor for forward looking statements section of the company's 2021 Form 10-K provides further information on the factors that could.
Cause such statements to differ from our actual results.
Additionally, the company evaluates its performance based on the metric adjusted gross margin and has provided the appropriate disclosures in accordance with the SEC's regulation G.
A reconciliation of GAAP gross margin to non-GAAP adjusted gross margin is provided in the appendix of this presentation and in our earnings release.
Now I'll turn the call over to Jeff to revive some opening remarks on the company's first quarter results and the key drivers of entrepreneurs Jeff.
Thank you Alex and good afternoon, and thank you for joining our call today I'd like to start by thanking all of my colleagues across the company for their continued hard work and dedication to our energy delivery mission.
Second consecutive year, we were recognized as a top workplace USA for midsized companies I think that recognition speaks to the effort by our entire team to sustain a work environment that reflects our core values of care integrity and excellence.
Interesting core despite an inflation excuse me, despite inflationary pressures variable weather conditions across our footprint and ongoing supply chain and market challenges. Our team produced another great quarter, just make utility has delivered solid financial results with both adjusted gross margin and earnings growth.
<unk> took significant steps to address important ESP considerations and remain focused on our business transformation continuous employment objectives as usual Beth will provide a more detailed review of our financial results in just a moment, but on slide four I wanted to highlight a couple of our recent.
Key accomplishments.
Earnings were $2 <unk> per share for the first quarter up six 1% over the same period in 2021. This resulted from an incremental $8 $8 million and adjusted gross margin for the quarter early solid topline and bottom line growth we remain on track to deploy our <unk>.
<unk> hundred $75 million to $200 million of new capital investment. This year, it's been something of a challenge to keep individual projects on schedule given the supply issues contractor manpower difficulties and protracted regulatory processes. Although we saw a reduction to our month by month capital deployment forecast in Q1.
The affected projects survival and remain in our investment queue.
And our ongoing robust business development process continues to bring us opportunities for future investment, we're confident in our long term capital guidance.
Pouring in vessels, we have already made we issued $50 million of senior notes in March.
Active rate of 295%.
We also completed a number of sustainable energy delivery projects during the quarter.
We opened our <unk> fueling station near the port of Savannah to supply the trucking and vehicle markets that serve the port we design the station to receive and distribute renewable natural gas to further help our customers achieve their emission reduction sustainability goals.
She will also serve as a logistics center for our Marlin gas services business, providing a refueling side for our expanding southeastern market we.
We hosted a ground breaking ceremony, where many local political corporate and utility officials came to see the capabilities of the new station firsthand.
We're excited about the future expected throughput of this facility.
This week, we also announced the North Ocean City connector pipeline project will dive into greater details on this in just a moment.
As we briefly introduced on our year end call. We also completed our first test of our hydrogen and natural gas blend in our eight flags combined heat and power plant in January .
In late February we received the positive results from this testing.
This was an important first step in introducing hydrogen blends and our power generation system, but also provides a hands on hydrogen demonstration for other industrial gas users.
We're going to continue to do further testing later this year building off our pilot test and results with eight flags completes its previously scheduled carbon replacement.
Finally today, the board announced an 11, 5% increase to our annualized dividend per share this level of dividend growth aligns with our recent earnings growth our plan over time to migrate to a 45% dividend payout ratio and speaks to the long term growth pathway. We continue to see for the company.
All that said it was another great quarter with solid financial results a number of exciting announcements that will positively impact the future I.
I can also say that we have several projects that we're finalizing and look forward to announcing those in the near term as the details are finalized.
Now what we have in the past I wanted to touch briefly on our five growth platforms on slide five.
Natural gas distribution businesses continue to grow organically at a level significantly above the national average in the first quarter, our Delmarva and Florida service territories generated five three and 4.0% residential customer growth respectively. This growth continues to present investment opportunities.
And we are partnering with developers to attract new customers.
Either from new developments or build outs of existing projects given the inflationary environment and rising interest rates. We also continue to closely monitor market factors impacting new home builds but at this time, we're not seeing a slowdown on Delmarva and Florida.
We continue to invest in our pipeline systems, primarily to support the growth I just spoke of on our distribution system as I mentioned and we will discuss further in just a moment earlier. This week, we announced the North Ocean City connector project, reaching new customers, along the Delaware, Maryland, coastal more and adding capacity to support the customer.
Growth, we're seeing in Ocean city and the surrounding areas. We continue to find attractive propane expansion opportunities in the mid Atlantic and southeast propane is unimportant nonregulated contributor to our earnings and long term ability to achieve overall Chesapeake return on equity above 11% the diverse.
<unk> energy acquisition in North Carolina, and Pennsylvania made a significant contribution in its first full quarter as part of the Chesapeake Utilities' family, adding approximately $4 million of incremental adjusted gross margin. The integration of this business under our company has gone well and we are excited about the opportunities that this platform.
<unk> provides in regards to expanding our services and programs like auto gas per cap Smart club and many others in the Carolinas.
Borrowing gas services in their virtual pipeline system continued to provide growth opportunities and we're seeing solid margin growth as a result, and Marlin began providing temporary renewable natural gas transport services this quarter to a customer in Florida.
Finally, I would like to remind our stakeholders of the sustainability report we published in late February So inquired discussion nationally over the past few weeks on furthering ESG disclosures. We believe the efforts we have taken thus far are great first steps, but we have much more to do we will continue to take additional steps that will help.
Reduce our emissions, even further and we will continue to enhance our disclosures around important ESG initiatives.
Slide six reaffirms our efforts to expand our service territory with our sustainable energy delivery solutions and with that I'll turn it over to Beth to discuss our results in more depth Beth.
Thank you Beth and good afternoon, everyone I'd like to Echo Jeff's comments on the work and dedication of our team.
Continue to step up and deliver increased performance and find ways to continually better our great company with that said, let me dive into the details of the quarter as you'll see on slide seven diluted earnings per share grew to $2 eight.
The increase of six 1% over the first quarter 2021, EPS of $1 96, some of the key gross margin drivers for the quarter included the contributions from diversified energy, which we acquired in December of 2021 that was really near the midpoint of <unk>.
Sure.
<unk> pipeline expansions as Jeff mentioned strong customer growth in our natural gas distribution businesses as well.
So there was additional growth from the various regulated infrastructure programs established in our service territory.
<unk> margins at our aspire energy business in Ohio, higher performance through higher retail margins per gallon and fees and our legacy propane businesses and finally weather contributed a slight headwind to our consolidated results as we saw variable weather conditions in our different service territory and across.
The different months in the quarter for instance, we experienced stakeholder January and each of our northern territory, but warmer temperatures in February and much of March in the regions, where our protein businesses Sir.
On slide eight our financial summary shows that adjusted gross margin increased by $8 8 million or seven 5% during the quarter driven by the initiatives I just mentioned.
Net income for the quarter was $36 9 million and earnings per share were $2 eight.
Increases of seven 2% and six 1% respectively.
We remind everyone that earnings per share growth rates compared to the net income growth rates for the quarter reflect the issuance of stock to it.
To continue to achieve our target capitalization range due to the issuance of equity.
In summary, despite weather volatility Chesapeake utilities executed well during the quarter and delivered solid adjusted gross margins and earnings growth.
On slide nine we highlight the key contributors to earnings growth for the first quarter as measured on a per share basis. Let me provide some additional detail for just a minute first the contributions from the acquisitions of the Escambia meter station and diversified NRG generated an incremental 17.
<unk>.
Earnings for the quarter.
Our core businesses delivered additional margin contributions that increased earnings by <unk> 19 per share. This includes higher operating income from organic growth projects higher performance and our aspire energy and protein operation along with additional income from our regulated infrastructure.
Pro brands operating.
<unk> expenses tied to the acquisitions largely with diversified energy were <unk> <unk> per share.
Higher depreciation and amortization and property tax costs associated with new capital investment grade seven headwind.
Operating expenses tied to growth in our core business. We are a net five cent increase higher.
And changes in shares outstanding lastly, due to equity offerings that helped us align our target capital structure, where would choose that headwind.
Let me touch a minute on Chesapeake utilities operating segments on the next two slides.
On slide 10, Youll see adjusted gross margin was up five 5% year over year for our regulated energy segment operating income was slightly higher up six 3% and driven primarily by those pipeline expansions with eastern shore natural gas and asphalt pipeline.
And also aspire NRG expressed in Ohio are incremental contributions from our various infrastructure program organic growth in our natural gas distribution operations and contributions from the Escambia meter station acquisition.
Additionally, our business transformation efforts continued to drive operational improvements to allow or to enable our businesses to scale and capture efficiencies within our regulated operations.
Next on Slide 11, our unregulated energy segment also achieved solid performance in the quarter.
Adjusted gross margin increased an impressive 11, 6% compared to the last year's first quarter. This margin growth was driven primarily by contributions from diversified energy and increased margins for our propane distribution businesses and aspire energy.
Setting that growth. However were increased operating expenses, specifically tied to the inflationary environment, We're all seeing with transportation fuel labor cost supply chain impacts and other rising costs.
Despite these challenges our unregulated energy segment delivered operating income growth of five 6%.
On slide 12, I'll mention a few updates on the balance sheet in March we issued $50 million in senior notes at 295% with a 15 year average life.
Something to note is that while we were pleased to secure capital at this attractive rate our new long term debt facility will increase Chesapeake utilities interest expense by approximately $1 million annually at.
At quarter end total capitalization totaled approximately $1 6 billion.
This included 51, 5% of stockholders equity, which is now $806 million and within our target capital range 38, 2% long term debt at an average fixed rate of 341% and short term debt, which decreased from 222 million.
And at year end to 141 million at March 31, with $50 million tied to that long term debt financing I just mentioned.
During the quarter, we continued to utilize our traditional equity plans to issue new equity totaling approximately $2 $6 million, we retain capacity under these plans as well as our ATM program to provide additional equity is needed for permanent financing.
Our balance sheet remains strong and well positioned to support our capital investment, which will drive our earnings growth and enhance shareholder value.
Moving to slide 13, we highlight the pipeline expansion PNG, LNG and LNG transportation projects, the acquisitions and the strategic regulatory initiatives that will drive our growth through 2023 as always we remind you that this table does not include organic growth and it is.
Not indicative of all the projects like Jeff referenced that we are evaluating at pursuing.
We are continually encouraged by the opportunities being introduced and evaluated by our business development team. As you know in addition to looking at value enhancing utility deals we have widened our our appetite on renewable energy projects and we're excited with the level of activity we're seeing.
That said and as we have mentioned in the past. These types of projects are taking longer to come to fruition. We'll continue to provide updates on our projects underway as they become available.
For the year, though we expect the projects that are already underway and they will add more than $20 million in 2022, and another $7 million in 2023 cumulatively. The major projects included in this table presently are expected to add more than $43 5 million.
Of adjusted gross margin over our 2020 levels.
Moving to slide 14, we highlight our key expansion pipeline expansion project with an investment of 136 million. These projects are expected to contribute more than $19 million and adjusted gross margin.
Let me touch on our newest project the North Ocean City connector on the next slide on Slide 15, you'll see that we are planning to construct an approximate six mile pipeline, along the coastal Delaware, Maryland, Stateline to connect our sandpiper energy system in Ocean City, Maryland.
Two our Sussex County, Delaware system, the expansion will support growth in the Fenwick Island, Delaware area and provide ocean city with a second connection to support its growth.
Pending applicable approvals, we expect to invest $6 3 million on construction of the infrastructure, which is projected to generate 400000 and adjusted gross margin for 2023 with an opportunity for additional margin growth in 2024 and beyond with that I'll pass the <unk>.
Call off to Jim to discuss our regulatory and ESG update Jim.
Well, thank you Beth and good afternoon to you all.
Slide 16 lists certain of our ongoing regulatory initiatives, including the announcement of our intention to file a joint base rate proceeding in Florida for our various natural gas distribution businesses.
We submitted this notification on March 24th.
We intend to file the preceding as soon as practicable following the notification period expiring on may 24th.
The filing will include an estimated $18 million to $20 million increase in the revenue requirement.
We look forward to working with all the stakeholders throughout Florida on this important proceeding.
Additionally, Florida public utilities continues to make significant progress with the gas reliability infrastructure program that began in 2012.
Through the end of the first quarter, we have invested nearly $190 million to upgrade approximately 348 miles of distribution mains, increasing the safety and reliability of our systems for many floridians we.
We expect to complete this program by the end of 2023 at the latest.
And also in Maryland, we continue to invest in the integrity of this system.
By upgrading a pipeline.
The program went into service towards the end of 2021 and going forward. We expect the project will generate 200000 400000, and adjusted gross margin in 2022 and 2023, respectively.
Finally, our eastern shore natural gas Interstate unit has authority to recover capital costs associated with mandated highway for railroad relocation projects.
We expect that this program will generate $2 million in additional adjusted gross margin in 2022 and 2023.
Sure.
Moving to slide 17, we are proud of our inaugural sustainability report, which we published in February and appreciate very much the positive feedback we have received.
Our newly created environmental sustainability office.
Our internal ESG committee are well underway with our emission reduction initiatives and efforts to build upon the success of our inaugural report.
In the report we outline our ESG commitments.
<unk>, a pique utilities will be a leader in the transition to a lower carbon future.
The company will continue to promote a diverse and inclusive workplace and further the sustainability of the communities we serve.
The company's businesses will be operating with integrity and the highest ethical standards.
These clear commitments guide our mission to deliver energy that makes life better for the people and the communities we serve.
Within that context, I'd like to highlight some of our recent ESG accomplishments.
From an environmental perspective, as Jeff mentioned earlier, we successfully completed the first test of hydrogen and natural gas to fuel the company's eight flags CHP facility.
We also opened the company's first CMG fueling station near the Port of Savannah capable of distributing RMG for fleet vehicles.
On the social side, we were excited to have been named a 2022 top workplace USA award recipient for mid sized companies for the second consecutive year.
We also initiated two new employee resource groups within the company, which I'll cover in more detail on the next slide.
And from a governance perspective, we enhanced our transparency with our directors' skills matrix and our latest proxy statement distributed to shareholders in March.
And in April we joined governance leaders as a member of the Advisory Board for the John Weinberg Center for corporate governance.
All great efforts on the ESG front.
Additionally, we are evaluating the FCC's recent proposal on climate related disclosures.
While the proposal is quite broad in scope and timing, we are working to enhance our ESG and climate related disclosures.
We are proud of our ESG initiatives and look forward to discussing them in greater detail in our next sustainability report.
Turning to slide 18 highlighted in our sustainability report is our strong company culture and the recognitions that we have recently received.
As discussed we started two new employee resource groups in the quarter.
Diverse abilities.
Eric or epi.
Our diverse abilities Arg aims to increase awareness empathy.
<unk> and advocacy of those with different abilities within our work family and in the communities we serve.
Our epic DRG aims to create an inclusive environment among members, where all can broaden the understanding of forge a community network around and celebrate the diverse cultural groups within the company.
These are <unk> and other initiatives focused on employee engagement equity diversity inclusion have led to awards recognizing our positive.
And unique.
Culture.
As we touched on previously Chesapeake was named the top workplace in the United States for a second year in a row.
The award is based solely on employee feedback, which speaks to our people focused culture.
Foundation of our success.
It's great to be with you all and I will now turn the call back to Geoff for some closing comments. Thanks, Jim on Slide 19, I want to spotlight again, the board's decision today to increase the company's quarterly dividend by 11, 5% to an annualized rate of $2 14 per share this level of dividend.
Growth was supported by a strong double digit earnings growth in 2021, and our positive outlook for the future. We are proud to have consistently paid dividends over the last 61 years and increased our annual dividend each of the last 19 years moving.
Moving to slide 20, we continue to reaffirm our long term earnings and capital expenditure guidance and 2025, we expect to deliver diluted earnings per share in the range of $6 five to $6 25.
This represents a compounded annual growth rate of nine 1% to nine 5% over the five year period. We also continue to expect to deploy $750 million to $1 billion in capital expenditures. During the same period 2021 provided a strong start to achieving that.
<unk> with $228 million deployed during the year.
Despite a few timing delays on a select number of projects in the first quarter. We continue to expect another 175 million to $200 million deployed in 2022.
To finish on slide 21, we remain bullish on the future of that natural gas has in driving our country's long term energy strategy. We're also excited with the opportunities we see to help drive the transition to our future with cleaner more sustainable energy, our senior management team and the board are committed to executing upon each of our five.
Growth platforms, and delivering top quartile financial performance over the long term.
And while there are certainly challenges on the horizon with continued inflation rising rates in the ever changing market environment, we see a bright future for Chesapeake utilities and we appreciate your continued support.
And with that Alex why don't we open it up for questions.
Thanks, Jeff Please open the line for the Q&A session.
Certainly as thank you if you would like to register a question. Please press. The one followed by the four on your telephone you will hear a <unk> probe to acknowledge that request. If your question has been answered and you would like to withdraw your registration. Please press. The one followed by the <unk> III once again to register for a question. It is one four.
On your telephone keypad and our first question comes from the line of Keith Sullivan with Maxim Group. Your line is open.
Hi, Thank you good afternoon.
You gave a lot of good detail on your North Ocean City connector project.
Is it right now and in the first year for capacity expansion to serve existing customers and is that the reason for the level of incremental gross margin from that project of about 400000 in year one.
And how can that increase.
As my question as well too. Please yes, it's actually pay it followed that supporting growth. It's also increasing the reliability of the system that we have in place given a lot of the growth that we've already experienced.
Provides a second fee paid into Ocean city. So there is a significant amount of reliability increase that we're anticipating once we get this feed employees.
And are there.
Still many unconverted homes from propane to natural gas or is this.
<unk> setting in terms of future customer growth in that area.
Well you have several things that are happening within ocean city and the surrounding area. So within Ocean City, our sandpiper conversions captured a lot of our customers at that time.
That could be converted but what's happening you are seeing a lot of older buildings older homes.
Actually being demolished and larger condominiums and apartments larger homes et cetera. So while there may have been gas you could actually see in certain locations multifamily buildings being constructed that would actually increase the capacity within ocean city outside of <unk>.
<unk> city, both in southern Delaware and also I would say on the outskirts in Western Bhushan City Western Ocean City side, Youre confident youre, continuing to see new development build out and being constructed.
It's a combination of both that we're seeing and so growth is happening and it's continuing to happen not only along the beach areas, but even as you move a little bit in one and there's actual expansion.
Construction project will really hit a great part of that.
Where it connects Jeff I don't know if there's anything no I think thats right. Beth I mean, we're running those pipeline pass a number of emerging developments, especially in southern Delaware.
And then also as Beth indicated interconnecting it into.
Into the system that ultimately serve Ocean city, where there is a significant amount of redevelopment going on.
Great. Thank you and that could some background for my next question.
Organic customer growth rates, I mean, delmarva natural gas distribution about or four 9% growth in the first quarter can you just talk about the natural gas distribution customer growth rates in Florida.
You break it into two separate regions and the smaller one Florida.
<unk> Division had had low growth this quarter, one 2% is that as long as I'm reading that correctly can you just talk about why some areas in Florida had lower natural gas customer growth and others.
I would say that really is more just a matter of customers coming on what I can tell you is.
In Florida.
<unk>.
Delmarva, if not even more we have a lot of opportunities for continued expansion.
We're actually in the development, where our Florida corporate headquarters is Theres planned development within where our corporate facility is for ultimately there to be like 20000 homes residences and businesses over time. So some of what you're seeing it's really less about the quarter. It's more about the long term and you may have.
One quarter go up or down a little bit, but I would really look at the longer term.
Not so much just the particular quarter because again, we see a lot of opportunity and there is still a lot of developments that are underway.
Okay, great. Thank you Beth Thank you sure.
Yeah.
And our next question comes from the line of Sean <unk> with Guggenheim Partners Your line.
Hi, good afternoon, it's actually Constantine here for Shar.
Thanks for taking my question.
Sure.
Can you talk about what moves you beyond your range of Capex investment across the regulated and unregulated businesses kind of more levered, the customer growth expectations or traction in R&D hydrogen new technologies, and maybe pivoting as we think about potential opportunistic kind of bolt ons or <unk>.
Positions, what parameters, we should focus on geography, IRR et cetera.
Sure so.
Constantly and if you look at the capital guidance that we have out currently you will see the biggest proportion of capital investments are centered around our natural gas distribution business. So.
An example is justice Ocean City connector project that we talked about there's lots of other expansions that are underway or that are coming through our <unk>.
Coming to our internal capital Committee four for a review there's also developments, where we're already in where there's additional build out there.
There is also some project capital dollars that are in there for some of the pipeline projects that we are in midstream that are included in our major projects table, some of which will come to fruition. This year.
One a couple will comment come to full completion next year and we even have one that kind of hits in more in 2024. So you've got capital dollars are associated with those and in some cases, we may have projects that we are evaluating that haven't been fully announced in both of those buckets.
Then in addition to that we have our ongoing infrastructure programs that are underway. So Griffin, Florida has continued to be a lot of capital investment for us.
<unk> pipeline that your program that you heard Jim talk about an open.
And then also the eastern shore capital surcharge program, where we're making required replacements because of.
Government relocate in some of our facilities. So all of those are impacting our capital and then we have the normal growth capex that may be occurring with our aspire energy system as well as our propane system now because of what we've done in diversified we're looking to stand up some increased programs in North Carolina that will require some inc.
<unk> capital down there for auto gas and for some other things that we're looking to do.
And so when you and then I guess I would also say from the Marlin side Marlin has had some investments to ready itself.
For <unk> fueling station was something that we completed.
We believe that'll be very instrumental to a lot of growth that we expect to see them on the CMG side, particularly over the next couple of years, but <unk> did some things in that to help foster that particular project to get to completion, they've also readied some of their capabilities internally to <unk>.
Handle RMG. They also did some things to ready their tanks for carrying hydrogen which occurred with our eight flags facility. So again a lot of projects across our portfolio that are underway you won't see a lot of dollars that are being factored in for acquisitions.
There may be some small dollars. If we think there is an acquisition or two out there that we're looking at that align with what we what we have currently but that's generally speaking what's in that bucket of $175 million to $200 million.
I think incrementally.
Beyond that we are doing.
Many companies are doing and looking as Beth <unk>.
<unk> indicated in the presentation.
Renewable energy opportunities that exist and we're finding many many many things to consider.
Course the.
The.
The issue is what parts of those projects are we actually going to be.
Build or.
Or are we going to build them in partnership with others.
What's the timing on that and what we're finding as we indicated in the presentation I think Beth.
Is that the timing of those the development timing of those projects, especially the ultimate financing of the larger projects, where we might actually take a minority interest.
The service area, where we would have other synergies that surround those plants, whether we're building solar energy facility is to serve the electric needs of the pointed out or we're transporting LNG with marlin that we're providing thermal gas to dry fertilizer or whatever those other things are that we typically look for that to enhance our financial prosper.
<unk>.
We're seeing again fairly lengthy development and financing time on some of these larger more what I would describe as utility scale projects. This is not the one dairy farm and go in to put it the anaerobic digestion ran this is looking at consolidating.
Regaining waste across our large regional area and bringing it to a centralized processing plant producing RMG and then producing the soil amendments or the fertilizer or the organic fertilizers out the other side of the plant. So those are of interest to us because not because frankly, because they drive RMG production that's a very.
The nice thing to have about one side of the plant, but they are of interest to us because they help address a fundamental environmental requirement or need in an industry. That's important to us like the poultry industry in Delmarva, the poultry industry in Georgia, Florida, and so we believe that there is a business opportunity for us.
Yes.
Assisting these other industries and meeting their ESG and sustainability.
Needs.
<unk> generated renewable natural gas.
And producing economic returns for our shareholders.
And those are the projects that I think are are significantly incremental to the several hundred million dollars' worth of sort of traditional projects that Beth has been describing over the last several months.
Thanks.
Very comprehensive answer to a multi pronged question so definitely appreciate that.
And maybe can you touch on the inflationary environment in commodities and what impact do you anticipate on the unregulated businesses in the near term and there is some opportunity to increase market share potentially just given the fragmented nature of the businesses organic.
Inorganic.
Well.
So on the propane side.
Matt.
From a from a pricing standpoint.
Evaluate our pricing all the time relative to the markets in which we operate and so you know in periods Constantine are where you can have you know.
Higher commodity prices.
Generally you know.
Youre going to Youre going to look at what the market is doing and sometimes the market will respond immediately and sometimes the market may be delayed, but certainly you know we will try to as much as possible maximize the margin opportunities. We have but you know we want to make sure first and foremost we're providing the needed service.
And then secondarily, we want to remain competitive in those markets on the aspire side, you're absolutely right in times like this from a commodity standpoint, there can be opportunities on the aspire side, particularly unique in the small component of their business that's associated with Ngls.
There may be and you saw that come through in our first quarter. When you look at what they were able to do from a higher margin perspective. So.
These types of I would say in the unregulated business.
Market it depends.
But they can present opportunities, but sometimes it can be challenging if the market doesn't move immediately particularly in the protein area with the rising commodity prices Jeff.
If your question.
I interpreted incorrectly, but I'll answer it this way anyway. If your question was.
The inflationary.
Environment that we're in or does the inflationary environment that we're in and the commodity price.
Let's call it the volatility in the market, especially in propane does that pressure. Some company has to look at exiting the market and give us an opportunity for acquisition.
That's an interesting question.
We've seen that sort of thing happened before whether it will happen again.
We'll see I mean, we're always pretty opportunistic.
Those.
And those market opportunities.
We've done enough lately, especially over the last four or five years that we typically get a look at most anything that does come on the market.
So we think there are opportunities there and we will continue to opportunistically look at them throughout the mid Atlantic and the southeast I doubt you'll see us.
Going to Missouri, or any places like that looking for propane acquisitions, but if it's in our backyard we have an interest.
I think that was a little bit embedded in there.
David.
Thank you guys for your time and congrats on a good quarter.
Alright, thank you.
And as a brief reminder to register a question. Please press the one followed by the four on your telephone keypad.
Next question comes from the line of Brian Russo with Sidoti Your line is open.
Hi, good afternoon.
Good afternoon, Brian just to.
Hello, I'm just curious.
What are the primary drivers of the Florida.
Base rate filing that.
Defied the commission about.
Well, probably the primary driver as we haven't been in.
So the commission.
So I believe it was 2009 and 2010, where the Florida public utilities filed one year and our existing central Florida gas filed.
Next year and then we.
We executed a merger between those two companies and so it's been a long time since we've actually been before the commission we've been working for the last several years to consolidate the tariffs as much as possible and the existing four utilities that we operate in Florida.
Now we're taking.
Another set of steps to try to consolidate as much of the remaining pieces of those tariffs as we can and so we will get the sort of the rules and regulations pieces.
<unk> had fairly well, we'll see where the ultimately where the rates and we may have.
End up with some phase ins on rates between those four units before we get to two consolidated rates. The other thing that I would tell you is that we need to we need to go in and actually move the grip invest months into rate base and there is just the way the accounting works on those investments other.
Utilities have been doing that we will do the same thing.
And so it's a series of those issues and then finally, obviously we've seen.
Some fairly significant investment in those systems in Florida over the last decade.
And so we just need to make sure that we're getting solid recovery on the investments that we've made.
<unk> forecast investments and the projected test year, and we look out in Florida a year.
Through 2023, and we will be recovering cost for some of the investments that we see in the near term future.
Oh, I see so the 18% to $21 million.
That's.
Forward test year.
Couch it in it.
Yeah.
I'm sorry.
Yeah I'm just wondering are you under earning.
And part of the $18 million to $20 million is too close kind of.
And Roe.
GAAP.
And it's yes.
Okay.
Rental margin going forward.
Yes. It is.
As a projected under earnings that looks at the return of some of the expenses that we've been able to avoid during this COVID-19 period for many many things travel for example, those sorts of things. It's a reflection of continued increases in expenses related to comp.
Inflation for employees I mean, we're looking at that all the time as you. All know this is an interesting.
Employment market these days.
Reflects those kinds of cost increases.
The additional capital that we will invest over the next.
Year or so.
Right and also the accumulation of the grip investments.
Well, if you add it to phase III, just not necessarily an incremental rate increase to the customer and then also if that's correct.
Correct. The mechanism that we have in place for recovering those pipeline replacement investments.
Is virtually immediate and so we have adjusted rates many times over the years to recover those growth investments.
This brings it all into rate base and moves that those recovery mechanism kind of adjustments if you will into base rates.
No impact on customers.
Got it got it understood and I think.
When you got the Elkton gas acquisition approved I think you just settlement also.
You agreed upon a stay out.
Is there any expectation for a rate case soon or can you stay out past whenever that.
Settlement date was agreed upon.
Well actually Brian we had I think before that we actually had something associated with the up we had a.
And there's some firsthand paper energy, we had something with all syngas and so we're kind of looking at all of those in conjunction with each other not unlike Florida, we're actually looking at Maryland, together and so I think you'll see us pursue an opportunity to actually come in as a consolidated group and Marilyn most likely.
This year, but in.
In the future in bringing those three kind of businesses together similar to what Jeff talked about in Florida.
Okay and then.
Is it fair to say that your organic customer growth is accelerating in Delmarva and if thats the case.
Do you see kind of an acceleration of your capex for infrastructure in that region.
Okay.
You know I think.
And it goes back to the question I think Kate had earlier on Florida.
Think we're running at a great pace of growth.
If you look at it over the last several years, we've kind of been in the $3 nine all the way to above 5% and thats been in Delaware.
<unk> as well as its gotten as high as over five Florida has been very high as well in the upper fours, but a couple of points about that one is you know as we're expanding our system and that's really the build out of those developments that we reach in some cases, what's also happening on Delmarva.
We're converting some of our Ccs systems, and so you may see kind of a pop there on the distribution side, but keep in mind, Brian . It is kind of taking it out of the pocket on the propane side and we're moving it over to the natural gas side. So that can also make the growth rate at some point to look a little bit.
Higher and so we kind of point, we brought that out this particular quarter in our earnings release, because youre going to see that happen as our natural gas distribution system expands further along the along the beach and in the us.
Other thing that I would tell you is you know over time as you've looked at Florida.
Or to have a lot of commercial and industrial growth in terms of dollars and that's not captured in the growth percentage and so you know I would just say growth remains strong some quarters again will be up depending on how quick we're adding customers along the way, but we haven't seen a sign that demonstrate.
If there is any decline in either of those territories, but you could see spikes because of things like Cts conversions.
Yes.
Okay, great. Thank you very much.
Yeah.
And Mr household or there are no further questions I'll turn the call back to yourself. Thank you very much.
Alright, well. Thank you very much for joining us today. We appreciate your time and look forward to catching up with many of you in person.
Upcoming PGA conference in Miami.
Bye.
And all of that will conclude the conference call for today. We thank you very much for your participation you may now disconnect.
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