Q2 2022 Chesapeake Utilities Corp Earnings Call
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Greetings and welcome to the Chesapeake Utilities Corporation, 2022 second 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.
At any time during the conference you need to reach an operator, Please press star zero.
A reminder, this conference is being recorded Thursday August 4th 2022.
I'd now like to turn the conference over to Alex while I'm head of Investor Relations. Please go ahead.
Thank you Kevin Good afternoon, everyone. We know it's late in the day and we appreciate everyone. Joining us we're excited to present Chesapeake utilities results for the second quarter and first half of 2022.
You saw in our press release issued yesterday the company reported solid financial performance in both periods, which is a testament to our continued ability to deliver long term sustainable growth for our stakeholders, even in the midst of this ever changing marketplace.
Shown on slide two participating with me on the call today are Jeff householder President and Chief Executive Officer, Beth 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 in the events and presentation 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.
We're 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 evaluated its performance based on non-GAAP 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 margins is provided in the appendix in this presentation and in our earnings release now I'll turn the call over to Jeff to provide some opening remarks on the company's financial.
Our results and the key drivers of our performance Jeff. Thank you Alex Good afternoon, and thank you for joining our call today.
Turning to slide four we're pleased to welcome Stephanie Gary Sheree Petrone to the Chesapeake Utilities Board of directors, Jim will speak to this in a moment, but stefan industry bring skills expertise and outstanding leadership to our organization and we're happy to have them on board.
On slide five I'd like to thank all of my colleagues across the company through their hard work and continued dedication to providing essential central energy services to our customers, we were able to deliver solid results in the second quarter.
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Our team overcame challenges in the quarter as inflation and supply chain constraints pressure our businesses. Despite these challenges we continue to grow earnings per share again, both in the quarter and year to date through June .
For the second quarter adjusted gross margins grew by $8 million compared to the same period last year, which was largely driven by several recent acquisitions, including diversified energy transmission service expansions and strong natural gas distribution customer growth in both our Delmarva and Florida service territories.
We also took another step with our real estate rationalization, which resulted in a $1 $9 million gain and contributed <unk> <unk>.
And EPS for the quarter.
And finally, our team continued to do an excellent job mitigating higher expenses as we continue our business transformation efforts.
While we've done a good job managing costs and accelerating margins where possible the inflationary environment. We're all experiencing will likely result in additional significant impacts in the third and fourth quarter of 2022, and then into 2023.
We're seeing cost increases in virtually every corner of our business from materials to gasoline to employee costs and the biggest potential future impact of course is the feds probable continued action to control inflation with additional adjustments to interest rates.
In addition to the expense interest cost increases are.
We're also experiencing supply chain and regulatory delays and other issues that are impacting the timing of some of our capital expansion projects I will discuss this in greater detail later in the call, but suffice it to say that the in service dates of several projects have shifted into 2023, Fortunately, it's a timing issue.
We have delayed but certainly not canceled a number of projects. So we are adjusting our capital expenditure expectations for this year.
And just to reemphasize the point, we're simply seeing a timing issue of these projects and expect that that'll be completed in 2023 and beyond.
I would also reinforce that these timing shifts are not affecting our current five year guidance. We remain on track with both our long term capital expenditure and EPS guidance for 2025, we continue to see significant opportunities for investment and earnings growth given the capital projects in our pipeline.
The higher levels of organic customer growth, we are experiencing across our service territories.
I'll discuss this further on the next slide, but our natural gas distribution businesses continue to see customer growth at levels well above the national average in our Delmarva territory recently surpassed the 100000 customer connections and we're close to reaching that customer number and our Florida natural gas operations, which speaks again to the great work.
By our growth and operations teams.
All that said it was another great quarter with solid financial results in a number of exciting announcements that will positively impact the future. While we see near term challenges ahead, given the current inflationary environment future investment opportunities in both our foundational businesses and the sustainable energy projects, we're pursuing are substantial.
And we're excited for what lies ahead.
On slide six let me touch on our five growth platforms.
As I mentioned, we continue to see strong organic growth in our natural gas distribution businesses, both in Delmarva and Florida service territories in the second quarter del Mar of our customer growth was five 7% in Florida saw four 1% year over year growth, which are well above the national averages while inflationary.
The pressures in a rising interest rate environment appears to be slowing the national demand for housing homebuilders in our service territories continue to see significant population growth and a solid demand for.
For housing for the foreseeable future.
<unk> will solve our builders have confirmed that they are pre sold units out for 24 months, we continue to see high builder and customer demand for natural gas and propane throughout our service territories.
The growth continues to present investment opportunities not only for our distribution businesses, but it also drives the need for greater capacity on our transmission systems as well and we're continuing with projects that further expand our natural gas systems, including for example, the beach side in Winter Haven expansions in Florida.
The eastern shore southern expansion compressor upgrades and nor of Ocean City connector projects on Delmarva.
All of those are projects that we've discussed in the past. We also submitted a petition for an expansion project that will bring additional capacity needed to support customer growth in the St Cloud, Florida area, specifically in the twin Lakes development. These projects are poised to deliver significant margin growth once completed.
Our propane business also continues to drive strong results for the company. The diversified acquisition has driven an incremental $5 $5 million of adjusted gross margin through the first half of the year given its service locations across the Carolinas diversified is opening the door for other opportunities in the region one of those opportunities.
Youre fruition in June when we acquired the propane assets of Devon for energy Solar City Propane Division in North Carolina with the acquisition, we added to our footprint in North Carolina with approximately 850 additional customers propane continues to be an important contributor to our overall portfolio as a higher.
Complementary nonregulated business and we see additional opportunities for expansion in the mid Atlantic and southeast.
Marlin gas services also continues to add value for the organization, adding half a million dollars and adjusted gross margin in the quarter like many mobile transport company's Marlin is working to overcome higher transportation costs and labor shortages, especially with respect to our highly trained transport driver operators.
Fight. This challenge Marlin continues to open doors for our R&D efforts and we're excited for some of those opportunities to come closer to completion.
Finally, we have been pursuing a number of R&D investments along the east coast.
Let me dual objectives, delivering natural gas to meet customer demand and allowing us to continue our sustainability efforts and our local communities, while generating renewable natural gas from agricultural as well as landfill waste. We're excited to have again finalization of these projects and further build our portfolio of renewable projects.
Yes.
With that I'll turn it over to Beth to discuss our results in more depth.
Thank you, Jeff and good afternoon, everyone. I'd also like to thank our team for all they continue to do is to ensure the company 16, especially in the face of the challenges Jeff mentioned previously.
I'm proud of what we continue to accomplish together as a team with that said, let me dive into the details of the quarter and the first six months of 2022.
As you'll see on slide seven diluted earnings per share were <unk> 96 in the quarter and $3.04 year to date through June 30th.
Our 10, 5% growth on a year to date basis is a direct result of our team continuing to provide safe reliable service, while executing on our growth plan and delivering solid financial performance.
The key margin drivers for the year, thus far included.
Contributions from diversified energy, which we acquired in December 2021, which Jeff Jeff spoke to continued pipeline expansions and strong organic customer growth in our natural gas distribution businesses.
Additional growth from the various regulated infrastructure program, and our Florida, Elkton and eastern shore business units.
Higher margins per gallon and our legacy propane businesses.
Increased margins at our aspire energy business in Ohio, and finally increased demand for <unk> services within our Marlin gas services business.
On slide eight our financial summary shows adjusted gross margin, increasing by approximately $8 million for the quarter and $16 $8 million for the first half of the year.
Our team did an outstanding job managing expenses higher interest charges as a result of rising rates negatively impacted earnings in the quarter and we will have a more significant impact throughout the second half of the year.
That said net income for the second quarter was $17 1 million and earnings per share were <unk> 96.
This included that one time, one 9 million dollar gain on a building sale as we continue to rationalize our real estate. This generated <unk> of additional EPS as we mentioned earlier for the year to date period net income increased by $5 7 million over the same period last year.
<unk> increased by 29 over the same time, which represents a 10, 5% increase absent the onetime gain EPS was up seven 6% through the first six months of 2022 compared to the prior year.
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.
As I, just mentioned that real estate rationalization and subsequent building sale generated an 8% gain in the quarter.
Contributions from the acquisitions of diversified NRG and the Escambia meter station generated an incremental seven cents in earnings for the quarter.
Our core businesses delivered additional margin contributions that increased earnings by 24 per share.
This includes higher operating income from transmission expansion projects natural gas distribution organic growth higher performance from propane and our aspire operations along with additional income from our regulated infrastructure program.
Operating expenses tied to the acquisitions largely associated with diversified energy were nine.
As we frequently have to remind ourselves and want to remind those on the call we generate significantly more margin in the protein business during the first and fourth quarters, while the business has a normalized level of operating expenses that occur more evenly over the year. This may translate into operating losses during the second and third.
Quarters, largely dependent upon whether we get colder weather in some of the shoulder months.
Higher depreciation and amortization and property tax costs associated with new capital investments were an eight headwind again, our teams did an excellent job mitigating cross cost this quarter. So operating expenses tied to growth in our core business were flat finally interest and other expenses were <unk>.
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On slide 10, we follow a similar and portray a similar bridge so I wont walk through all the details, but as you can see we generated solid growth from our acquisitions in our core businesses.
Let me touch now on Chesapeake utilities operating segments on the next two slides.
On slide 11, Youll see adjusted gross margin was up six 3% for the quarter and five 8% year over year for our regulated energy segment.
Operating income was higher in both periods up 13, five and nine 1%, respectively, and driven primarily by pipeline expansions from our transmission pipeline organic growth in our natural gas distribution system incremental contributions from our various infrastructure program.
<unk> and contributions from the <unk> meter station acquisition and as Jeff spoke to in his opening comments our business transformation efforts continued to drive operational improvements to enable our businesses to scale and capture efficiencies within our regulated operations. This has been extremely beneficial.
Initial in light of several projects delayed.
Turning to our unregulated segment on slide 12, adjusted gross margin increased an impressive 21, 2% compared to last year's second quarter and 14, 7% for the first six months of the year compared to the same period last year.
This margin growth was driven primarily by contributions from diversified energy and increased margins for our propane distribution business Marlin gas services and aspire energy, while higher costs from transportation fuel labor and other rising costs impacted the unregulated segment more.
<unk> operating income increased by more than $1 million in the quarter and $2 million through the first half of the year.
On slide 13, I'll mention just a few updates on the balance sheet.
In March we issued $50 million in senior notes at a coupon rate of 295% with a 15 year average life something to note is that while we were pleased to secure capital at attractive rates, our new long term debt placement will increase Chesapeake utilities annual interest expense by approximately.
<unk> $1 million annually.
Also with the fed's actions to date, including the most recent hike based on our current short term borrowing short term interest expense will increase over $3 million year over year on an annual basis. This does not include other potential future fed actions, we continue to evaluate potential means.
The mitigate these impacts through hedging strategies alternative financing options and regulatory mechanisms.
At the end of the second quarter total capitalization totaled approximately $1 $6 billion. This included 52% stockholders equity, which is now $816 million and within our target capital range 37, 6% long term debt at an average fixed rate of.
338% and a short term debt decreased from $222 million at year end to $137 million with $50 million attributable to the long term debt financing I just mentioned our balance sheet remains strong and well positioned to support our capital.
Estimates, which will drive our earnings growth and enhance shareholder value.
Moving to slide 14, we highlight the pipeline expansions PNG LNG and LNG transportation projects acquisitions, and 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 that we are evaluating and pursuing.
We continue to be bullish on the projects we have in our pipeline of growth opportunities. These initiatives are driving higher margin growth and provide a runway for long term value. We're also excited with some of the renewable energy projects maturing in the market and look forward to bringing many of them to fruition, but as we've stated.
These types of projects take longer to get across the finish line, we'll continue to share details as they become available.
Since our last call, we announced the filing of our rate case in the state of Florida, Jim will provide additional details on this in just a moment, but we added it to our table with placeholders for now.
Interim rates from the Florida rate case, we expect the projects that are already underway will add more than $20 million in 2022.
And approximately 6 million additional margin in 2023 cumulatively. The major projects included in this table are expected to add more than $41 million and adjusted gross margin over 2020 levels.
Moving to slide 15, we highlight our key pipeline expansion projects with an investment of approximately $140 million. These projects are expected to contribute close to $21 million and adjusted gross margin now with that I'll pass the call off to Jim Moriarty to discuss our <unk>.
Inventory and ESG updates Jim well, Thank you Beth and good afternoon to you all.
On slides 16, and 17, we list some of our new and ongoing regulatory initiatives, including details on the base rate case proceeding filed in Florida.
May 24th.
The company is seeking approval for an approximate $24 $1 million permanent increase.
The Florida PSC has recently approved interim rates of approximately $7 $7 million on an annualized basis effective for all meter readings in September of this year.
The interim rates are subject to refund pending the final outcome.
This rate case proceeding.
Florida public utilities electric business recently filed its storm protection plan and storm protection plan cost recovery mechanisms with the PSC.
These allow for the recovery of investments to further protect our electric system in the event of a storm and prevent loss of service.
Hearings for the storm protection plan are in progress now.
And hearings for the storm protection plan cost recovery are scheduled for November .
With rates to go into effect starting in January 2023.
Additionally, Florida public utilities continues to make significant progress with the gas reliability infrastructure program.
Again in 2012.
To me the end of the first quarter, we have invested nearly $200 million to upgrade approximately 351 miles of distribution mains, increasing the safety and reliability of our systems for many many floridians.
It helped in Maryland, we continue to invest in the systems integrity by upgrading out of line pipeline.
The program went into service towards the end of 2021 and going forward. We expect the project will generate 200000 and $400000 in adjusted gross margin in 2022 and 2023 respectfully.
Finally, our eastern shore natural gas Interstate transmission unit has authority to recover capital costs associated with mandated highway and railroad relocation project projects along with finished the required safety upgrades.
We expect that this program will generate $2 million in additional adjusted gross margin in 2022, and $1 9 million in 2023.
Turning to slide 18, I'd like to describe just a few advancements we have made to enhance our already strong company culture at Chesapeake.
We recently established a new employee resource group called hope.
Which stands for heartfelt open prayer and encouraged.
<unk> was established to support our employees spirituality.
Their mission is to provide prayer positive affirmations and knowledge of our employees personal experiences.
Hope and other <unk> are already making significant strides in driving awareness of their emissions and making meaningful impact within the company and the communities we serve.
We are very grateful for all our colleagues who participate in these important employee resource groups and health carrier culture, both inside and outside of our organization.
I'd also like to highlight two recent awards. We have received first our corporate governance team led by Stacy Roberts was awarded best corporate governance in the U S for 2022.
World News media, which will be published in their World Finance magazine.
This award recognizes our continuing and unwavering commitment to ethical business practices and the great work of our team and those across the company congratulations to all.
Additionally, our aspire energy and eastern shore natural gas businesses were recently recognized by the American Gas Association as top safety performers. This.
This outstanding recognition highlights our unrelenting focus on the safety of our employees and those in the communities we serve a great job by both of those teams.
As Jeff mentioned earlier, we are very pleased to welcome Stephanie Gary and Sheree Petrone to our board of directors.
Our thoughtful experienced and accomplished leaders, who bring valuable perspective and insights as we navigate the opportunities on the road ahead.
Stephanie is currently vice President of finance of title Health.
Maryland based health system of hospitals and specialty offices headquartered on the eastern shore.
Her role Stephanie leads the organizations finance functions, including strategic financial planning and analysis forecasting and decision support prior.
Prior to joining title health, Stephanie held various financial management roles at hospital networks across the country.
Shari. Most recently served as executive Vice President and head of <unk> retail electricity business.
Prior to Dynegy Sharif served as vice President of Exelon commercial and retail divisions tree has also held leadership positions at <unk> energy and Westinghouse.
We extend a very warm welcome to both Stephanie <unk> and we look forward to continuing to work with our board and those across our company on driving sustainable growth.
With that it was great to be with you all today I will now turn the call back to Geoff for some closing comments.
Thanks, Jim turning now to slide 19, as I mentioned in my opening comments as a result of ongoing short term supply chain constraints and regulatory delays, we've adjusted our capital expenditures expectations in 2000 $22 million to $140 million to $175 million.
The temporary shift from our original guidance range of 175 million to $200 million.
Reiterate again this adjustment does not reflect the negative outlook on the actual projects whether it highlights the challenges that we and many companies are experiencing with securing raw materials permitting regulatory approval timing.
The logistics to complete the work most of which were unforeseen at the beginning of the year, we look forward to bringing these projects to completion in 2023.
We're also projecting that the mix of capital expenditures may shift slightly as some projects accelerating timing, while others are delayed for the aforementioned reasons. As an example are southern expansion project was expected to begin construction in the second or third quarter of 2022.
ERC approval has been delayed to accommodate an expanded public comment and review period, we expect to conclude the regulatory proceedings. Later this year and proceed with construction of the eastern shore compressor revision.
The project provides additional pipeline capacity critical to meeting the growing demand for gas service on our Delmarva distribution systems, and we're targeting the project will be fully in service.
In 2023.
<unk> been pleased with some of the recent activities we've been engaged in on the renewable front and now feel comfortable enough with a few projects to add them to our expected mix of investments. This year, so you'll likely see our capital deployment of regulated transmission projects come in lower for the year with our investments in other unregulated projects somewhat higher than what we earn.
We expected that.
The net result is that we have a strong mix of opportunities that we will continue to drive the long term sustainability of the company.
And that's why 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.
And despite the lowered expectations for capital expenditures in 2022, we maintain our expectations for $750 million to $1 billion in capital expenditures during the same period.
To conclude I just finished our board meeting today, where we discuss the current market environment and our strategic growth plan.
We discussed the many opportunities we see within our current platforms for growth.
See no shortage of opportunities to pursue and for us It becomes frankly, a matter of prioritizing. Some of these opportunities we are well positioned to serve our communities increasing demand for natural gas and at the same time, we recognize our responsibility to do our part to support the transition to a cleaner more sustainable energy future we will remain.
Focus to deliver on both of these important objectives, while continuing our track record of top quartile financial performance.
While there certainly are challenges on the horizon, we continue to see a bright future for Chesapeake utilities and we appreciate your support.
That Alex why don't we open it up for questions.
Kevin Please open the line for questions.
So everyone to register a question you can press the one followed by the four on your keypad Youll hear a three zone prompt that acknowledges your request. If your question has been answered and you would like to withdraw your registration Crystal one followed by the three so again for questions. It's one four.
First question is from Tate Sullivan with Maxim Group. Please go ahead.
Oh, Thank you good afternoon.
First for the propane distribution business you mentioned in some of your remarks to higher margins.
That business can you go into background.
Is that what are the service fees and is it related partly to your lower priced inventory as well.
Okay.
Okay.
Thank you good afternoon, Kate it's really it's a combination of several things that's an expansion of our fees certainly across.
Some of the newer customers that have joined us.
Oce aided with the diversified acquisition. It also because it's also a part of as you mentioned you know our ability to have a diversified supply portfolio and so you know at times based on you know what the market does that may translate for us into additional margin just given.
You know the fact that we have that diversified supply portfolio and then lastly, you know some of the programs. We just continue to market to our existing customer base. Some of those programs and so on you know as.
As we get more customers on board, there's some incremental margin as they join the program. So it's it's several different things not just one thing.
What are the new programs that are just.
New distribution agreements for customers, whether it's some of the programs that we make available to our customers. So you know as you have new customer sign up they may sign up for those programs that we have available and so you know theres additional fees and margins that we earn on some of those and then again as I mentioned as we roll some of those pro.
Bramson services out as a result of acquisitions, we get incremental margin from that as well in addition to margin from the supply portfolio.
Some of those are just the what you would describe as hedging programs to allow customers to lock in pricing and there are opportunities for us along the way for those types of services.
Great. Thank you and then a big picture and you pointed out your above average retail natural gas customer growth, which remains impressive are you seeing slower conversions from community gas systems to natural gas, maybe because of where natural gas prices have gone or has that not impacted your organic growth.
Its relative and propane versus natural gas.
Yes, there is I don't think we've seen much of an impact at this point relative to that issue.
We we find those conversions are challenging more from just getting homeowners association agreements to come in and make the conversions.
And ensuring that we have the the customers.
Understanding what the responsibilities are relative to that actually changing appliances out of making modifications to those appliances.
Not a.
Semi intrusive process I mean, we have to go into homes, we have to to adjust appliances or convert them in some cases or change them out in some cases.
So there is all of that to be considered there is seasonality.
Issue here, where many communities are not interested in you.
Being in their neighborhoods doing that kind of war certain times of the year. So it's all of those things that kind of impacts of the timing and scheduling of those conversions.
Okay.
And then just drilled was another one for me. Please as your auto gas or LPG business is that not a project based business that you would include in your major projects and initiatives table and or maybe I'm mistaken is that in your combined line item of the PNG LNG LNG transportation.
Thanks to you it is not in the major projects table, because it is extending our service offerings to.
A customer or set of customers and you know those can be you know one customer a single commercial enterprise it can be a fleet.
And so we don't typically aggregate that together.
It is something we can take a look at but to date because it varies so much.
Again, the fleet size can be so very different we have not.
We've not historically included in there.
Okay understood. Okay. Thank you very much.
Okay.
So again for questions. It's the one followed by the four on your keypad.
The next question is from Brian Russo.
With Sidoti. Please go ahead.
Yeah.
Hi, good afternoon.
Hi, Brian .
Hey, just on.
On the Capex reduction for the for the year.
Acknowledging the understanding that it is timing related could you break that down between.
Regulated and unregulated.
The most significant shifts that you're seeing are related to Brian the pipeline. So the largest declines if you were to go back.
First quarter to where where we have four currently providing guidance.
You would see you know as a class.
A larger larger decline in the transmission side and that has to do with some of the things that Jeff mentioned.
Previously with the southern expansion.
There is some slight shift on a couple of other projects that are pipeline projects. Theres also some projects that we're working on that are likely and have not been announced that are likely to be things that impact future periods and just you know as we prepare our forecast at the beginning of the year.
Some of those can come in later than what we anticipated.
I would also see a little bit on the distribution side, because what can happen as a result of the transit transmission side is that we will have kind of you know aspire rolling impact in some cases on the distribution side and then as Jeff mentioned, no kind of offsetting that if you look on the other unregulated buying what you will.
C is actually an increase there with the expectation with where certain projects are at that there will likely be some investments that come out on that line that we had initially forecasted or projected at the beginning of the year. So again some shifts.
Fortunate thing is that you know our upper end is at the lower end of the old guidance and what we're trying to do Brian is just take a look at where things are what we're seeing in the market and trying to make sure that you know.
We factor in what truly might happen just given where these projects are at right now in the queue.
Okay got it to the adjustments in.
And capex temporary a temporary.
Is that reflected in the adjusted gross margin.
The chart on slide 14.
They are we have factored those in so you will see several projects. If you will from the first quarter to the second quarter Q you will see some shifts.
Again in the southern expansion Theres, a couple of others, where there is some slight shifts.
At the same time, you'll see the addition of things like Twin Lakes, you'll see the addition of the Florida rate proceeding although with.
With a little bit more information hopefully coming in the next quarter regarding interim rates et cetera.
That'll be forthcoming so there's there's some there's some pullback in the project table to reflect those project delays.
There's also no adjustment in the major project table, because some of those new projects that are coming into Q will not have a real big impact. This year right. It takes a while for them to be constructed so you'll see them as they get announced youll see us out of them in 2023, and then 2024 as we introduced so again just the shifts.
Timing, starting with the project and the Capex, but also being reflected in that major projects table.
Okay got it and.
Obviously customer growth as a differentiating characteristic of.
Both of them Agra and Florida.
If its territories.
<unk> I appreciate the commentary earlier about the homebuilders et cetera.
Is there any sort of way to breakdown.
What is that five plus percent year over year customer growth what is conversions.
Versus new.
New connections.
Try to get them started with where the sensitivity to.
Homebuilding I guess.
Sure I would say you know we can we can certainly try to think about that for the for the third quarter, but.
Significantly greater than 15% comes from new home construction.
Brian it's not a large part coming from conversions as Jeff mentioned, we're down that path and that is occurring but there is a lot of organic growth and new developments and developments that are still building out. So we'll try to provide a little bit more on that going forward.
What you will see is if it is a significant amount we actually within our disclosures will then note conversions that are declining on the propane side and so youll see us recognizing in organic growth and there will be an offset a decline in propane and so because there is not a substantial amount of that.
In the quarter rest assured a larger portion is coming from new growth.
Okay, Great and then obviously.
I was going to say, obviously, the Florida numbers goes without saying don't reflect any of those conversions those roles.
Homes.
Additions.
Got it and just.
To be clear on the Florida base rate case.
The $7 7 million of interim rates that youll start collecting in September just from accounting perspective, I wanted to just be clear.
You book the earnings.
Well the final.
Reed is pending.
Just I know there was some unique accounting with your with the storm costs from a few years ago and I just wanted to.
Understand that better from an income statement perspective.
Sure and that's a great question, Brian that is something that we will certainly be evaluating and we do each time.
Historically, when we've done those assessments, if we could not ascertain or was a high probability of the permanent rates at least being or exceeding what the interim rates were you know.
We took the position that we were going to fully reserve any interim rates that were put into effect as we come into the third quarter and we work with our regulatory team under Jim and Cheryl leadership, we will make an assessment if we deem that we have a high probability than you've may likely see some.
Part of interim rates in our third quarter results. If again, we should find that you know we don't see that high probability than we would handle it the same way we have historically so.
We're making that assessment, we're working with the regulatory team and I would say stay tuned as we get here further into the third quarter.
Okay and one last question.
Do does a lot of these.
The rider revenues in terms of the.
The Florida grip and.
The <unk> stride.
Does that capture a lot of the raw material.
Material and other inflationary pressures that you see and it is.
If not does the.
Macro environment at all change your regular regulatory strategy.
Going forward.
Well I think you know Brian we are certainly again working with our regulatory team, where if you know as you know we're in the middle of a rate case already and certainly as we could foresee what the fed was planning from a rate hike.
We took that into consideration and worked with our regulatory team and our test year projections to incorporate as many of those types of inflationary pressures as we could whether it was fed hikes, whether it was other costs that we saw and then you know what I would say is that the regulatory team is very proactive in so.
To the extent that we feel like there are opportunities for us to consider mechanisms for some of these inflationary pressures, we'll certainly look at trying to.
The approach that from a regulatory standpoint, but you know you know certainly you know we are seeing things as it relates to two two interest we're hearing things as it relates to insurance and other kind of you know employee related costs that most employers are being challenged right now in terms of wage increases et cetera.
So we're looking at opportunities and we will continue to monitor that relative to our performance.
You May you may recall, the grip program the pipeline replacement program in Florida.
Self adjusting and so as those cost change.
We have the opportunity to recover them through the cost recovery mechanism that's been in place for a number of yourself.
It doesn't require an additional rate filings.
Okay, great. Thank you very much.
Mhm.
No further questions from the phone I'll turn it back to Jeff for closing remarks.
Well, we appreciate your time today and we certainly look forward to speaking with you soon to continue discussing Chesapeake progress and growth. Thank.
Thank you very much and goodbye.
And that does conclude our call for today, we thank everyone for participating and you can now disconnect.
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Okay.
Okay.
[music].
Okay.
[music].
Hum.
Okay.
Okay.
Uh huh.
[music].
Okay.
[music].