Q4 2023 Chesapeake Utilities Corp Earnings Call
Good day, and welcome to the Chesapeake utilities fourth quarter and full year 2023 earnings conference call.
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I would now like to turn the call over to Beth Cooper Executive Vice President Chief Financial Officer, Treasurer, and assistant Corporate Secretary. Please go ahead.
Yeah.
Thank you and good morning, everyone I'm, Beth Cooper Executive Vice President and Chief Financial Officer, Treasurer, and assistant corporate Secretary of Chesapeake Utilities. We appreciate you joining us today for our fourth quarter and full year 2023 earnings call.
Today's presentation can be accessed on our website under the investor page and events and presentations subsection.
After our prepared remarks as we typically do we will open the call up for questions.
You saw in our press release, we delivered excellent performance in 2023 are incremental earnings from regulatory initiatives and growth in both months, including one month of results from Florida City gas more than offset lower energy consumption due to warmer temperatures across our service.
Territory, along with a year of significant increase in interest call.
These items are detailed within the financial results that we will cover in just a few minutes.
With me today are Jeff householder chairman of the board, President and Chief Executive Officer, and Jim Moriarty Executive Vice President General Counsel, corporate Secretary and Chief policy and risk officer as well as other members of our management team who are joining us remotely.
On slide three we have our typical disclaimer 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.
The safe Harbor for forward looking statements section of the company's 2023 annual report on Form 10-K provides further information on the factors that could cause such statements to differ from our actual results.
Additionally, the company evaluate its performance based on certain non-GAAP measures, including adjusted gross margin.
Adjusted net income.
And adjusted earnings per share and the accompanying information includes the appropriate disclosure in accordance with the Sec's regulation G.
A reconciliation of these non-GAAP measures to the related GAAP measures has been provided in the appendix a bit presentation, our earnings release, and our 2023 Form 10-K, now I'd like to turn the call to Jeff Yeah.
Thank you Bill good morning, and thank you for joining our call today.
I'll begin with slide four our financial highlights for the year.
In 2023, our team executed successfully on all fronts, leading to our 17th year of increased earnings excluding the Florida City gas transaction costs.
We also had a milestone 20th consecutive year of increased annual dividends.
Significantly warmer temperatures and rising interest rates, we generated adjusted EPS of $5 31 sales, representing five 4% growth over 2022, largely driven by incremental gross margins of $33 $9 million.
<unk> collective efforts drove this performance while successfully consummating the largest acquisition in our history closing a transaction in record time.
Our legacy businesses continued their impressive growth trajectory as we invested $211 million in capital projects advanced our regulatory initiatives and prudently managed expenses, we continued expanding our footprint with strong customer gains in our regulated natural gas distribution businesses.
With an impressive five for average residential customer growth rate for our combined Delmarva service territories and nearly 4% in Florida.
We also delivered on several opportunities to expand our natural gas transmission systems, and we're not slowing down.
Currently Peninsula pipeline has four projects before the Florida Public Service Commission for approval.
Hi, Techs include over 35 miles of transmission infrastructure designed to meet growing customer demand in our gas distribution systems.
Eastern shore natural gas is Worcester resiliency upgrade project is progressing well we will discuss these expansion projects in more detail later in the presentation.
Of course, our most significant growth for it in 2023 was the successful completion of a Florida city gas acquisition.
It was a strategic move for us more than doubling our footprint in a very attractive market, where we have already operate in for 40 years.
We expect the transaction to drive significant incremental earnings growth well into the future as we deploy our operational and regulatory expertise.
Much broader scale.
Late in the fourth quarter of 2023, we began the process of integrating our Florida natural gas businesses, which we'll discuss in a moment.
Like to note that we're already executing on projects that demonstrate the value of this strategic acquisition. For example, we are finishing the regulatory applications for new capital projects to connect three landfill orangey sites to Hep C. G. As distribution system. We expect these filings to be submitted before the end of the month.
In December we also once again expanded our propane footprint in North Carolina, adding 3000, new customers with the acquisition of J T League in SUNS propane assets. This acquisition allows us to expand within growth areas in North Carolina and capture synergies with our prior acquisitions in the state.
Our performance in 2023, along with our expectations for M. C. G contributions validates our strategic growth models and reinforces our commitment to achieving our earnings and capital guidance.
Today, we are reaffirming our outlook for $6.15 to $6 35 per share in 2025 and $7.75 to $8 in 2028 as well as our five year capital expenditure guidance of $1 5 billion to $1 8 billion.
By 2028.
We're looking at 2020 form as a transition year as we continue the F C G integration and execute on the organic opportunities across our combined businesses.
For this reason, we're providing 2024 EPS guidance of $5.33 to $5.45 per share to give you more clarity on our pathway to 2028.
Turning now to slide five we provide details on the growth drivers behind the $33 $9 million I think for a little margin that we achieved you can see that we were able to more than offset the impact of the warmer weather and interest rate increases the key drivers of growth in 2023.
Our regulus it infrastructure replacement programs and improved cost recovery mechanisms.
Rate changes, resulting from the recent Florida natural gas base rate proceeding or pipeline expansions and natural gas distribution organic growth and increased fees and margins per gallon and our propane business.
In addition F C. G contributed $8 $7 million in December after the completion of the transaction on.
On slide six we break down our 2023 capital investments, which surpassed $211 million approximately 80% of the capital in basketball and our legacy business businesses, whereas in our regulated energy segment I'd like to take them I want to highlight just a couple of the capital projects we completed in.
2023.
That will contribute incremental margin in 2024.
Eastern shore natural gas completed its southern expansion project in the fourth quarter of 2023, which will produce adjusted gross margin of $2 $3 million in 2024 and beyond.
And peninsula pipeline completed its beside pipeline expansion early in the second quarter of 2023.
That project contributed $1.8 million to our gross margin in 2023 and will continue.
And to contribute approximately $2 $4 million in future years.
Our regulated investments in safety and reliability under our approved infrastructure programs will also continue including programs like guard and safe in Florida, where we're able to recognize timely cost recovery on these vessels.
Last year, we also launched the largest business transformation and technology improvement initiative in the company's history.
First step is a five year initiative is the implementation of our SAP be customer service application, which is intended to improve the customer experience in our regulated utilities standardized processes across our distribution systems and drive operational efficiencies.
We currently have regulatory approval to defer to the cost of the C&I as technology implementation and will seek permanent rate recovery of these technology improvements as appropriate.
Upcoming rate cases, or Olympia proceedings.
Slide seven shows the impressive customer growth in our regulated natural gas distribution utilities, our average annual residential customer additions far outpaces the national average and this trend is expected to continue you can also see the step change that the F. C. G acquisition brings in terms.
So their criminal customers.
Looking ahead, our customer base is projected to grow annually by approximately 3% in Florida and 4% on Delmarva over the next five years. Please.
These projections are driven by expected customer demand in our service territories, which have very attractive demographics as well as our backlog of open lots and existing communities.
We have continued to see strong residential customer growth, even with the increases in mortgage rates over the past year.
Our disciplined capital investments will drive earnings growth well into the future slide eight shows our major projects and initiatives that will drive incremental margin of approximately $15 million and $11 million in 2024 and 2025, respectively.
I'll take a brief moment to highlight a few of the new projects shown here.
Our worst of resiliency upgrade project, which Jim will speak about shortly is an $80 million capital investment currently pending before FERC.
We also recently filed for Peninsula pipeline projects with the Florida Public Service Commission. These transmission projects are designed to increase supply capacity and enhance system reliability, primarily for our distribution operations. We continue to expand our systems in Florida to meet customer demand once approved we will.
Begin construction immediately and expect to begin generating margins in late 2024 or early 2025.
As I mentioned earlier, we are also finalizing the regulatory filings for three RMG transmission projects that will provide pathways for produced R&D used to get the market via the Florida City gas distribution systems. These new projects are also expected to begin generating margin at the end of 2024 and into early 2002.
25.
As shown on slide nine on November 30 of 2023, we successfully completed the F. C. G at acquisition in record time.
Thanks to the dedication and enthusiasm of our team.
Any organization is only as good as its people and we were thrilled to officially welcome Florida City gas employees.
Chesapeake Utilities' families late last year.
We're lucky to have such a great group join our team culturally there's a strong fit which certainly helps keep our integration work with plans on track and on time.
Strategically, Florida city gas, all meshes, well with our legacy businesses with significant opportunities to drive growth identify operational synergies and begin to pursue recovery of the transaction premium.
We began the integration process with purpose in December.
Jeff will discuss our plans in more detail shortly I'll discuss a few of the broader areas now.
There are one time transaction synergies for example, several let's say management employees return to their former Nextera positions and we've been able to absorb these jobs within our existing management team.
Two we are pursuing operating efficiencies across the Florida natural gas businesses as well as our entire enterprise again. That's an example, we will jointly administer both the F. B U S. C. G infrastructure replacement programs and find operational efficiencies as a result, three we are executing.
Active regulatory initiatives for example, we will begin the work to consolidate various tariff revisions as we did previously with our other gas utilities, along with the initial efforts to address the goodwill related to the F. C. G transaction and four we will make prudent capital investments on a much broader scale I've already mentioned.
Which shows the key drivers of our 2023 performance.
Our core businesses continued to generate strong performance delivering $1.50 of incremental E. P. S. This year and then within the faith of headwinds from significantly warmer weather that lowered customer consumption and impacted earning 554 cents.
Higher operating expenses link to growth and our core business resulted in a 47 cent impact representing only 48.1% of the incremental margin.
We were diligent about managing path to offset warmer temperatures. The company was not immune to the challenging economic environment and the impact that had on interest rates.
Those higher rates drove a 45 cent offset.
One month of incremental earnings from the Florida City gas acquisition generated and 18 cents uplift.
<unk> said these results are exclusive of the contribution from Florida City gas is 25 million dollar reserve surplus amortization mechanism or or Sam which was approved by the Florida Public Service Commission in June 2023.
B R. Sam is recorded as an increase or decrease to a crude remove volkov.
On the balance sheet with a corresponding increase or decrease to depreciation and amortization expense.
D. R. Sam provided a 5.1 million dollar pre tax or 20 cents per share reduction to depreciation expense in 2023.
On Slide 12, you can see that adjusted gross margin for 2023 inquiry $33.9 million and operating income increased $7.9 million or 5.5% for the year.
Excluding Florida City gas transaction related expenses are operating income increased $18.2 million or 12.8%.
Interest charges were over 50% higher this year as the effects of the ongoing rising rate environment continued throughout the end of the year and we incurred additional financing costs associated with Florida City gas.
Again, despite these impact adjusted E. P. S for the year improved by 27 cents per share representing 5.4% growth.
Moving to fly 13, adjusted gross margin for a regulated energy segment was up 10.4% over last year operating income also increased delivering 18.4% growth as adjusted driven primarily by first permanent.
Right changes associated with the Florida natural gas base rate proceeding.
Florida City Dashes earnings contribution for December 3rd continued strong customer growth and natural gas distribution operations, including propane C. G. F conversions fourth additional pipeline expansions and our natural gas transmission entity and finally <unk>.
No margin from our regulated infrastructure programs date.
The factors were partially offset by the weather related reductions in customer consumption as discussed earlier.
Adjusted gross margin.
For the unregulated energy segment increased 2.2% over last year as you can see on slide 14, while at the operating income level, our results were down by 10.7% versus last year.
Lower consumption largely from weather drove the performance, although we partially mitigated this through rate and fee management within propane and aspire energy.
515 shows our history of strong dividend growth and specifically the approximate 9% dividend compound annual growth rate that we have delivered over the last 10 years. This dividend growth has been a key component of the more than 12% compound annual shareholder return over.
The same period.
We are proud of this history and are committed to continuing our track record of driving value and returns for our shareholders.
Our philosophy remains grounded in the pursuit of top quartile earnings growth, which drive top tier dividend rose as well as continued reinvestment a 45 to 50 per cent of our earnings back into the business.
Port continued capital investment.
516 shows our earnings outlook, including are diluted EPS outlook for 2024, 2025 and 2028.
I do know, we typically provide a medium and longer term earnings outlook, which are lined with our longterm strategic plan and outlook as well as our investment plans and expected returns we.
We recognize that we are now a larger company with a markedly larger footprint and more significant growth opportunities. We're also integrating a company that was a subsidiary of a much larger entity, but which is complementary to our existing operations.
Therefore, this year, we are providing current your guidance as an exception.
Our outlook includes our expectations for integration synergy and efficiencies as well as some of the scale opportunities that come from deploying our expertise across a broader enterprise.
It also reflects the delay in March and ramp from new capital projects that we have identified given are expected timeline for the required approvals and construction.
On 517, we have outlined the pathway to our 2024 guidance <unk>.
Importantly, we continue to expect strong contributions from our legacy assets as well as Florida City gas.
Our legacy businesses are expected to generate approximately 40 to 50 cents per share of incremental earnings.
Florida City gas is projected to add about 35 to 45 cents of earnings per share, which includes the interest costs associated with financing the acquisition.
We see incremental opportunities to add an additional approximately 20 to 30 cents per share across the enterprise as we continue the integration.
And finally, the shared itching to finance, Florida City gas will result in an impact of about a dollar for sure as shown on this slide.
We are providing these incremental range is to give you an indication of the relative size of the contributing factors and we expect to be able to tighten the incremental ranges over the year as we implement our plan to get us to 533 to 545 for sure.
So let me touch on some of these initiatives and the levers we are pulling to achieve our targets.
First we have cost savings or cinergy. This is the broadest category with the largest expected impact for 2024.
<expletive> It includes an idiot opportunities from one off transactions synergies as Jeff mentioned as well as additional savings we have identified.
Already we have realized cost savings by eliminating some duplicative rove, including several leadership positions where F. C. G. T members remained with Nextera.
We also have cheese synergies from the absence of certain corporate and shared service cough that nextera had allocated to this business.
All setting a portion of the synergy though are some transition cause we are paying to nextera until we can burn over their system.
Definitely we will also incur some incremental corporate expenses in such areas as audit fees and insurance and.
In addition, as you know we have spent considerable time working to optimize our operations, while fostering a culture that has underscored our success.
We have work to eliminate operational silos by simplifying our organizational structure moving toward greater standardization of our processes, improving technology and increasing collaboration across our businesses. We are continuing these efforts recognizing we have additional opportunities.
These for these types of improvements across are now larger enterprise.
Finally, we will continue to be laser focused on managing our payroll and T. Any expenses and the same way and following the same approach we have exhibited over the last several years and managing a cough.
And you can stay on this slide in Green. We also have a number of <unk> that we are managing in order to achieve our near term guidance that provide a pathway to achieving our long term guidance.
We have <unk> some of them as equal pieces. The reality is is that some of these may contribute more to our earnings in 2024 as a percentage than in 2025 and some of these areas will have a longer ramp, but a more significant ongoing impact.
For example, we are evaluating a number of proactive regulatory initiatives, including considering the timing of a recovery of a portion of the goodwill and consolidating consolidating best practices. Among the two natural gas utilities in regards to many of the various recovery mechanisms.
These are just two of the many regulatory items. We are evaluating we do know that we will continue to utilize the 25 million dollar or Sam that we mentioned earlier to enable Florida city gas to achieve it's allowed return on.
On the technology front, we are already underway in the planning for the Florida City gas billing system to convert to our new billing system. We have begun dedicating some of the Florida City gas team members to this effort, which will continue to ramp throughout the year.
Also expect to generate savings as we more broadly integrate them to our various system.
The next area asset optimization or utilization has become another common phrase within the Chesapeake organization, we continuously look at our facilities and assets with an eye toward streamlining our operations as we look across our larger organization, we used the opportunity to.
Eliminate duplicative or underutilized facilities and assets.
We also have more strategic initiatives, which provide the greatest upsize when we think about the next five years.
The peak has consistently identified and executed upon opportunities across the value chain to generate incremental margin road.
Alrighty Marlin has contracted with Florida city gas to provide backup service and they're highly concentrated but growing market <unk>.
Additionally, we are considering multiple opportunities to utilize our interest rate pipeline operations.
Port growth opportunities across the system. These are just some of the many similar opportunities that we are pursuing.
And in terms of new capital investment our earnings growth has been driven by the execution of prudent capital investment plan.
We talked about similar plans for Florida City gas when we announced the deal and we are really excited about the expected capital investment opportunities created through these new service territories in the near term you will see us accelerate both a safe and guard replacement programs.
Jack mentioned earlier, we also expect to file very soon and and out the financial economics associated with three capital projects, where we will connect orangy to Florida City gas the system.
We are also well under way on multiple interesting pipeline projects that we hope to announce later this year again, while we will begin to see an impact from opportunities to accelerate infrastructure replacement program Ah new projects in 2024 people really pay off.
More over time and are a key driver of our 2025 and longer term 2028 outlook.
As I mentioned and is shown to the right. We've already recognized benefits from the transaction in just three short months, we are committed to achieving the guidance. We have established for 2024 2025 and the longer term and look forward to updating you on our progress throughout the year.
Turning to fly 19, we show our forecast in 2024 to 2028 capital investment and as you can see we are reaffirming our previous capital investment guidance of $1.5 billion to $1.8 billion by 2028, and we continue to expect.
An approximate run rate of $300 million to $360 million per year, including for 2024.
On slide 20, we show more detail on this projected capital expenditure spend for the five year period.
You can see with Florida City desk, we are more heavily weighted toward a regulated energy segment with almost 90% of our capital expenditure plan dedicated to a regulated asset base Ethan.
These investments will drive continued regulated customer grows bolster the safety and reliability of our system and by investing in pipelines and interconnect create additional pathways to market for sustainable fuels.
More specifically, we expect to invest between 600 and $645 million and regulated distribution grows 435 to 590 million and regulated transmission growth 300 to 340 million and regulated infrastructure program.
<unk>.
140 million to 165 million and investments and are unregulated businesses and $70 million to $90 million in support of our five year technology roadmap.
Turning to fly 21.
With R. F C. G financing plan, our top priority was to maintain a strong balance sheet and we executed a financing plan consistent with an investment grade ratings profile at this slide shows we accomplished our financing objective achieving an equity to total capitalization ratio.
47 per cent at the end of 2023.
On October 31st we Pride <unk> 550 million dollar private placement with a weighted coupon rate of 6.54%.
In early November we raised about $380 million in gross proceeds post screen shoe and an equity offerings.
As a result, we issued 4.4 million shares, resulting in 22.2 million shares outstanding at year end.
40 years stockholders equity increased by 413 million or approximately 50 per cent, primarily driven by your equity financing for the Florida City gas acquisition are strong net income performance and issuance is through our dividend reinvestment in stock compensation plan.
This was partially offset by dividend payments of approximately $44 million.
We are also reinvest thing about 55% or greater of our earnings back into our business to fund future capital investment.
Directly we have also troubled out smaller amounts of equity over time, you managed to our target capital structure. We will continue to follow this strategy as we carry out our five year capital plans as.
As you can see on slide 22, we have a long term that profile the minimal maturity there for the next two years.
The flexibility to execute on a robust capital plan will making progress on the integration and navigating through the uncertain economic environment.
Now I would like to touch on our financing capacity and requirements, which are highlighted on slide 23.
The strength of our balance sheet and our liquidity position supports our investment plans, we have remaining capacity on our sharp agreements and revolving credit facility, which provide more immediate access to <unk> capital from 2024 through 2028, we anticipate securing additional payment.
Financing to support our capital projections, which we will do it for an appropriate mix of equity and debt with a target to achieve an equity the total capitalization ratio of 50 per cent by 2028.
Finally, a promise last quarter post acquisition, we will be pursuing a credit rating with that I will now turn the call over to Jim Jim.
Thank you Beth.
Good morning, it's great to be would you Walter.
Moving to fly 24, we provide an overview G regulatory initiatives.
Recently completed for our world.
<unk>.
In Florida, we have three full quarters of <unk> associated with the permanent changes from a recent Florida Richard.
We expect to recognize close to $17.2 million 2024.
Florida City gas rates became effective on my 120 23.
Incremental 14.1 million dollar rent increase.
Perfect, 0.5% 10.4 for sure.
On January 30th 2024, we filed a rate case for Merrill Lynch Division.
<unk>.
Which I will cover it in more detail on the next large.
Our proposal to consolidate three entities field.
Process that we followed them floor.
Will reach jurisdictions different we are.
I'm looking forward to a similarly constructed proffers Paramount.
On the infrastructure side, we have a number of programs and initiatives underway.
Including the guard.
Programs in Florida.
These programs or contributing to our ability.
Stay safe and reliable service.
Which will also contribute to more drink roof.
10 years.
Let me spend a few minutes highlighting available <unk> shown on slide 24.
As I mentioned, we proposed consolidating or three Maryland distribution companies into one legal entity.
Required to come back pursuant to a previous regulatory filing for sandpiper energy.
Proposing 6.9 million dollar rate increase which is but first grade increase we'd have soared 16 years.
<unk> or other tariff changes, including a new technology cost recovery Roger.
A proposed underserved area right.
Which will enable expansions to meet the moon.
<unk> was a program for evaluating extensions multifamily project.
On July 26, we highlight another significant project well underway.
Mr Resiliency upgrade.
<unk> 80 million dollar project for liquefied natural gas storage project.
Maryland.
This facility, which consists of five low profile horizontal stores charge.
Eastern shore natural gas.
Provide critical energy service during the peak winter heating season.
<unk> two are growing distribution utilities.
More of a neutral.
<unk> held a public scoping session for the local community in December.
And it was rewarding trendy.
<unk> speech in favor of the project.
To ensure it continues to execute its robust public outrage kind of green.
Mmm engagement program.
Most recently holding update meetings with officials representing the project area.
And also conducting an emergency response training with first responders.
<unk> environmental assessment, because the next major milestone, which is anticipated to be issued in April 2024.
I would like to spend a moment to review the hydrogen initiatives underway to help advance hydrogens potential.
Common fuel source.
In the near term is shown on slide 27.
We're helping to foster a productive and supportive landscape.
With dedicated initiatives related to safety awareness training education and community involvement.
As well as conducting real world.
The work is laying the foundation for eventual hydrogen production and delivery the end users for for industrial processes true service contract.
As a partner on the mark to hydrogen pump rodrick.
We are working to bring affordable and environmentally responsible solutions customers in Delaware Southern New Jersey.
Eastern Pennsylvania.
Beyond Mark too, we have made moreland sleep embarrassments.
And has conducted tests.
To demonstrate hydrogens potential as a viable option for industrial gas users.
We are also working on another sustainable energy initiatives and look forward to updating you at the appropriate time.
Cause we have highlighted many times our company culture is firmly rooted in the safety of our change contributed.
In line with our culture, we implemented our safety data management system in 2023.
Then unveiled the system to our employees at the beginning of 2024.
In addition, we broke ground on our second safety town.
Located in Dubarry, Florida on January 31st 2024.
We will share more detail on our dedicated safety programs can earn all girls safety and reliability report, which will be published soon.
We are transitioning this year from a single large sustainability report.
Three smaller focus topical reports as well as through Investor focus tables.
This enhanced reporting approach will drive more routine reporting that ensures a steady release of fresh information throughout the year through these reports and we will share the data wirelessly through our <unk> micro site press releases and social media.
Finally, I would like to showcase a recent achievement that really demonstrates the entrepreneurial innovative and competitive market mindset embedded throughout her entire enterprise.
Recently at our first dairy manure Orangy facility at full circle dairy in Florida.
We introduced a groundbreaking new technology.
Fully self contained C N G orangy fueled farm irrigation and waste pumping unit.
This unit, which will be delivered in March of 2024 open future opportunities reforms to convert equipment to C. N G orangy fuel.
I would like to congratulate this team and all of our teams that work hard everyday equally impressive projects.
With that terrible turn to call back to <unk>.
Thank you Jim <unk>.
In February we remain committed to delivering only attractive opportunities a cough sore throat.
That includes executing all the incremental opportunities provided by the F. C. G a physician.
<unk> returns deliver value to our stakeholders.
We believe that our discipline investments will continue to dry cough sore throat earnings performance.
The future.
In addition to the transformative projects, we initiated and completed in 2023, we continue to take a customer centric view of our energy delivery mission.
Started about our initiatives to enhance the customer experience.
Oh.
Chesapeake utilities is an attractive investment opportunity.
Sure.
I'm going to energize team is focused on customers that's supposed to serve those customers and growing service areas.
Committed to continuing our long term history.
Your performance.
With that we'll take your questions. Thank.
<unk> <unk>.
[noise] four is now open for questions.
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Our first question comes from Paul Fremont with <unk>. Please go ahead.
Thank you very much and congratulations on a great quarter.
I guess my first question is do you have a sense of when you would file a fee, Germany right case in Florida.
Well I can start that off and then Jack and Jill feel free to add any additional comments you know Paul both of the Florida natural gas units, both our own F P U and Florida City gas.
Or just in last year and received rate increases and so you know as we talked about on the phone and particularly in the case of Florida City gas B R. Sam mechanism that they have available to them you know enables them to achieve the approved.
<unk> that you know the PSC authorized and that they're allowed to earn and so really for us our focus on right. Now is trying to evaluate when will be the appropriate time that we may seek to go in and actually tried to get a portion of the goodwill as.
An acquisition premium for recovery, there and so that's really the focus right now and integrating the operations. So we've not really focused on the requirement for a rate increase at this point and as we've talked about a lot on the call one of the things that we are really excited about <unk>.
This transaction or the opportunities that we see in terms of new investment so out of the gate. That's our focus and those are the areas on the regulatory side that that we're really focused on as well I don't know if you want to add anything or gym.
That would add a comment that we are taking.
Taking a look at the race on our electric co operation in Florida.
It's been awhile since we've been here, we've made some fairly significant.
System.
And so that might be the most likely candidate.
<unk>, we're in very recently.
Alright, and then if I look at 517, he identified additional opportunities.
The 20 to 30 cents does that.
Primarily represent cost savings synergies.
Or is that something else.
That really Paul that really unconscious is when you look at slide 18, and you look at all call. It the donuts things that we see across the enterprise. It is some combination of those six areas with the biggest portion that we have identified in 20th.
24 will certainly come out of that cost an operating synergies inefficiencies as we move forward, that's where I talked a little bit about right as you get into next year and the year. After certainly those pieces of the pie that are focused on you know new you know new capital investment and.
Restructure programs margin from the value chain as well as regulatory strategies will be a bigger piece, but all of them will play some peace in achieving that 20 to 30 cents. That's included on 517.
Last question for me can you just give us.
Update on where the propane business stand so far in 2024.
Well, we have you know we haven't really put any information out on that I know you know certainly with some of the reports that have been out on temperatures you know temperatures. This year relative to last year were certainly colder relative to the longterm normal.
I think you know the reports that you see and I don't think it's inconsistent and our service areas overall, I'm still not going back to some of those 10 year normal temperatures that we expect but again year over year coming out of the gate colder than the prior year.
Alright, Thank you very much.
Thank you Paul appreciate your feedback and questions.
Thank you as a reminder, if you would like to ask a question. Please press star one at this time.
Next question comes from Brian Russo with Sidoti. Please go ahead.
Good morning.
Thanks for all the the additional.
Due to.
Just to follow up on.
Focus on the acquisition premium adjustment and recovery of Florida.
<unk>, what's the next step and I assume that's not included in your 2025 and 2020th earnings guidance.
So you know Brian as we mentioned you know we're we're about three you know right now about three months into the acquisition and I think certainly in the near term as we think about you know 2024 and 2025.
You know we are evaluating an appropriate time to go back for a portion of that I would not you know at this point, we've not heavily factor that in at least in the near term, but it is something if we have that opportunity I think certainly Jeff Cheryl <unk> German the team we would certainly pursue at the right time.
But right now again, we're focused on getting the business integrated we've got the synergies that we've talked about we've got the capital investments that just spoke to you're gonna hear about three of those coming here in the near future getting those off and running and then you know there are some things on the regulatory side, particularly from our best.
Practices perspective that we're gonna be focused on out of the gate, Jack and Jim feel free any additional comments you both might want to add.
No I think that covers it.
I would remind fix it took us a little while to gather the savings data.
Really necessary in Florida give me <unk> for demonstrating that we can recover for some pieces of the premium without adversely affecting me.
Right for you. So that's that's usually.
Process, and then we would likely.
Cover something you'll be getting a following for our first vacation next year.
Some other small scale things, we can do a lot of the word.
But our primary focus frankly is is going through all that looks like we've got a pretty good plan in place to do it.
Capex multiyear table that you've laid out.
That all accounted for in terms of investments and projects you know that triangular each with the longer term.
Guidance. So for example, if you were to announce another propane acquisition is that incremental.
To the existing.
Capital budget that you've laid out.
That's a great question, Brian what I would say is you know given sharp history. They will do some you know they've done some small acquisitions and then on the propane side. Our you know our five year projection that we've given you on the capital would in.
<unk> some potential very very small small propane type transactions certainly not the larger the larger one that we did a couple of years ago, We don't factor those types of things, but our track record and knowing the service territories and the small opportunities that may be out there now with our expanded footprint.
That would be something that we might be you know comfortable including because they're very small beyond that the project that we have it in here you know you're familiar with our strategic planning process that we've talked about many times in the past, but we take a look at all the different projects that we're working on some.
Some of them certainly five years out you haven't locked in but what you look at our the opportunities that are out there you look at the run rate of the projects that you've achieved you look at what you know capacity knees are gonna be in each of our service territory. Then you know we have a good handle on that now you know certainly with Delmarva and up to you, but now with Florida.
<unk> and so that gives us real comfort into some of the dollars that we're putting out there and the things that we're thinking about particularly on the regulated side.
Okay, Great and then just lastly.
Your outlook for.
We're in Florida.
It seems as if it's.
Below what the trailing 12 months was it looks like your purchase three per cent in Florida versus three per cent, Florida.
<unk> <unk>.
2023, and the same with Delmarva, 4% over the next five years versus five per cent.
You reported in 2023, <unk> give a little bit more insight, while still well above the national average and clearly you know.
Initiate or just just curious what you're seeing there for sure.
Sure Great question Bryan we.
We we came up with those estimates based upon what is in our current backlog and what we've signed up so what we've not included in our numbers are for example potential development that might utilize natural gas that we're talking with but they're not under contract so you're absolutely.
<unk> going to a place of could there'll be a higher growth rate absolutely. If we sign up additional development and they become part of our backlog, but we don't you know what we don't want to do is come out and speculate on things that are not under contract. The other thing that I would point out as in particular, if you look at that information you know that we.
Have around natural gas distribution margin wrote that core grows, particularly in Florida. What you see is there's a very significant portion that's also being driven by commercial and industrial growth and so you know that's another key component here that should stay strong as well, but we you know.
What we tried to do was build our range is based on what we've sign and what we know is out there in terms of development, where you know service can still be connected.
We have been trying to be relatively conservative in some of these <unk>.
Unusual for us I'm thinking about the mortgage interest rate increases that have occurred but I haven't really dampen construction activity on our service of your roof, but we keep expecting that it might it might.
We haven't seen much of that yet, but I think you know from our perspective for caching on the conservative side.
Where to go we we may 5th construction continues at the levels that we've seen over the last year.
Well see those numbers.
Okay, great. Thank you very much.
Thank you.
Thank you. Our next question comes from Chris Spelling House with a fever Williams Shake. Please go ahead.
How are you.
Good morning.
Good morning.
In the margin uplift slide the uplift for the Florida right case kinda seems on the small side relative to.
The way I would typically think about seasonality for you can you just sort of talk about what lead to to your merging expectation for the first quarter.
And it turns out from from Florida City gas or.
From the rate case for the stub part in the first quarter.
Well keep in mind that for US we did not have a full year of you know permanent right at that at the rate increase level. So that's why we have that incremental amount that factoring in and actually moving up from 14 million to over 17 million and 22.
G for so that that's the additional pieces that you're seeing come through.
Okay.
Following up on your customer growth questions.
It looks like in the fourth quarter.
There was a little bit of a slowing in customer Grove is that an economic you know.
Slow down that you're seeing at all.
I think that you know that goes to what Jeff mentioned is that we've continued to expect just given where mortgage rates have been that you know there might be more of a dampening I know when we look at our backlogs and the number you know customers that are in there.
You know it it it certainly seems like growth is going to continue but there could be some of that that causes it to back off a little bit if that does pick up Jeff I don't know if there's anything else you might want to add to that but.
Nah I mean, we have a general downturn.
Many of the service territory.
Come into the world of any way.
So there are some limitations correctly some of the towns that we serve them only able to operate.
Stripped service lines and those sorts of things during the winter boots other huge with a little bit.
Little bit of a downturn, but I think they call me he said something to do with that as well.
Okay.
On page 14 of the press release you identify.
No that actually had to do Chris with you know on it if you look at the year. So to speak the year was pretty flat, but there was certain quarters year over year or higher than others. So there's not really a change from a demand perspective, it's more of the timing of some of the car.
Contract that Marlon had entered into and so you know Marlon continue to have high utilization that hasn't changed again, it's just the timing of when some of the contract you know.
Basically came to an end.
Okay.
Mention that Marlin has acquired some hydrogen trailers you know as you to some of these projects like the Boynton Beach project or whatever on the distribution side.
Is there any capital included in those projects for anything in preparation of hydrogen or is it too early for that.
<unk>, Yeah, it's probably a little early although we are in fact thinking about one.
One of the issues that will be fun, our systems, especially those on Delmarva certainly on the new construction activity.
Lola mentioned, Florida, most of that's perfect and so we're in decent shape. There should we find ourselves doing on the road and situational blundering.
Into a natural gas dreams, you know some of the middle.
Steele facilities that we we're gonna have to think a little bit about what that looks like a week ago.
Okay, great. Thanks for the details I appreciate it.
Thank you.
Once again, if you would like to ask a question. Please press star one at this time.
We'll pause just a moment to allow any further questions to Q.
Well. Thank you. We appreciate very much your participation or a call. This morning, we believe we have a solid plan in place to achieve or 2024 guns.
It also lays the groundwork for 2025 and beyond.
Always thank you for your interest in Chesapeake utilities.
Goodbye.
Thank you. This does conclude today's Chesapeake utilities fourth quarter and full year 2023 earnings Conference call. Please disconnect. Your line at this time and have a wonderful day.
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