Q2 2024 Chesapeake Utilities Corp Earnings Call

August 9, 2024

[music]

Please stand by, your program is about to begin.

Operator: Please stand by, your program is about to begin. Welcome to the Chesapeake Utilities Corporation's second quarter 2024 earnings conference call.

Speaker Change: Welcome to the Chesapeake Utilities Corporation's second quarter 2024 earnings conference call.

Operator: At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. To help others hear your questions clearly, we ask that you pick up your handset for optimal sound quality. Lastly, if you should require operator assistance, please press star 0. I would now like to turn the call over to Lucia Dempsey, Head of Investor Relations. Please go ahead.

Speaker Change: At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation.

Speaker Change: If you would like to ask a question at that time, please press star 1 on your telephone keypad.

Speaker Change: If at any point your question has been answered, you may remove yourself from the queue by pressing star 2.

Speaker Change: So others can hear your questions clearly, we ask that you pick up your handset for optimal sound quality. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to Lucia Dempsey, Head of Investor Relations. Please go ahead.

Lucia Dempsey: Thank you and good morning, everyone. This is Lucia Dempsey, Chesapeake's Head of Investor Relations, and I appreciate you joining us this morning. 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 for questions. On slide two, we show our typical disclaimers, while I remind you that matters discussed on this conference call may include forward-looking statements that involve risks and uncertainties.

Lucia Dempsey: Forward-looking statements and projections could differ materially from our actual results. The Safe Harbor for Forward-Looking Statements section of our 2023 Annual Report on Form 10-K provides further information on the facts that could cause such statements to differ from our actual results. Additionally, the company evaluates its performance based on certain non-GAAP measures, including adjusted growth margin, adjusted net income, and adjusted earnings per share. And the information presented today includes the appropriate disclosures 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 of this presentation, our earnings release, and our second quarter Form 10-Q.

Speaker Change: Thank you and good morning everyone. This is Lucia Dempsey, Chesapeake's Head of Investor Relations, and I appreciate you joining us this morning.

Speaker Change: 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 up the call for questions.

Speaker Change: On slide 2, we show our typical disclaimers, while I remind you that matters discussed on this conference call may include forward-looking statements that involve risks and uncertainties.

Speaker Change: Forward-looking statements and projections could differ materially from our actual results. The Safe Harbor for Forward-Looking Statements section of our 2023 Annual Report on Form 10-K provides further information on the facts that could cause such statements to differ from our actual results.

Speaker Change: Additionally, the company evaluates its performance based on certain non-GAAP measures, including adjusted growth margin, adjusted net income, and adjusted earnings per share, and the information presented today includes the appropriate disclosures in accordance with the SEC's Regulation G.

Speaker Change: A reconciliation of these non-GAAP measures to the related GAAP measures has been provided in the appendix of this presentation, our earnings release, and our second quarter Form 10-Q .

Lucia Dempsey: Here at Chesapeake Utilities, safety is our first priority. We start all meetings with a safety moment, and we'll do so here with a safety moment on emergency preparedness as we are already in the midst of hurricane season. Our subsidiary, Florida Public Utilities, recently completed its annual hurricane preparation drill, during which our team practiced our emergency response procedures. Lessons learned in this drill have already been put to the test during Hurricane Debbie earlier this week.

Speaker Change: Here at Chesapeake Utilities, safety is our first priority. We start all meetings with a safety moment and will do so here with a safety moment on emergency preparedness as we are already in the midst of hurricane season.

Speaker Change: Our subsidiary, Florida Public Utilities, recently completed its annual hurricane preparation drill, during which our team practiced our emergency response procedures.

Speaker Change: Lessons learned in this drill have already been put to the test during Hurricane Debbie earlier this week.

Lucia Dempsey: Our customers have experienced minimal disruptions in service, and we are grateful to team members across the organization who responded efficiently to keep us operating safely. FPU overall continues to show improved reliability metrics, which can be attributed to the system strengthening work the team has done as part of the storm protection plan. This work has improved the frequency and duration of electric outages by 11.3% and 9.7%, respectively, when compared with June 2023.

Speaker Change: Our customers have experienced minimal disruptions in service, and we are grateful to team members across the organization who responded efficiently to keep us operating safely.

Speaker Change: FPU overall continues to show improved reliability metrics, which can be attributed to the system strengthening work the team has done as part of the storm protection plan.

Speaker Change: This work has improved the frequency and duration of electric outages by 11.3% and 9.7% respectively, when compared with June 2023.

Lucia Dempsey: On an individual level, whether you live in an area impacted by hurricanes or not, being prepared for emergencies is critical. In fact, putting together a disaster supplies kit is one of the safety challenges for Chesapeake team members this quarter. FEMA recommends a personal emergency kit with food, water, and supplies to last for at least 72 hours. Ready.gov has helpful guides and checklists that you can use to prepare for yourself and your loved ones.

Speaker Change: On an individual level, whether you live in an area impacted by hurricanes or not, being prepared for emergencies is critical. In fact, putting together a disaster supplies kit is one of the safety challenges for Chesapeake team members this quarter.

Speaker Change: FEMA recommends a personal emergency kit with food, water, and supplies to last for at least 72 hours. Ready.gov has helpful guides and checklists that you can use to prepare for yourself and your loved ones.

Lucia Dempsey: I'll now introduce our presenters today. Jeff Householder, Chairman of the Board, President, and Chief Executive Officer, will provide an update on our high-growth service areas, capital investment plan, and business transformation efforts, including the Florida City Gas integration. Beth Cooper, Executive Vice President, Chief Financial Officer, Treasurer, and Assistant Corporate Secretary, will discuss our financial results, strong balance sheet, and dividend, as well as our earnings growth trajectory, and Jim Moriarty, Executive Vice President, General Counsel, Corporate Secretary, and Chief Policy and Risk Officer, will review our regulatory strategy, including key project approvals and recent company awards. With that, it's my pleasure to turn the call over to Jeff.

Speaker Change: I'll now introduce our presenters today. Jeff Householder, Chair of the Board, President, and Chief Executive Officer, will provide an update on our high-growth service areas, capital investment plan, and business transformation efforts, including the Florida City Gas integration.

Beth Cooper: Beth Cooper, Executive Vice President, Chief Financial Officer, Treasurer, and Assistant Corporate Secretary, will discuss our financial results, strong balance sheet, and dividend, as well as earnings growth trajectory.

Speaker Change: And Jim Moriarty, Executive Vice President, General Counsel, Corporate Secretary, and Chief Policy and Risk Officer, will review our regulatory strategy, including key project approvals and recent company awards.

Jeff Householder: Thank you, Lucia. Good morning, and thanks to all of you for joining our call today. I'll begin with slide 5. Adjusted earnings per share this quarter was $0.86, bringing our year-to-date 2024 EPS to $2.96. Our results are well aligned with our expectations, with strong contributions from our Florida City Gas and Legacy operations offset by FCG operating expenses and financing costs. We generated an adjusted gross margin of approximately $127 million this quarter, a 27% increase over the second quarter of last year, and adjusted net income of approximately $19 million, up 19% from the same period last year. Our year-to-date earnings performance, combined with our growth expectations for the remainder of 2024, enable us to reaffirm our full-year 2024 adjusted earnings-for-share guidance of $5.33 to $5.45.

Speaker Change: With that, it's my pleasure to turn the call over to Jeff.

Jeff: Thank you, Lucia. Good morning, and thanks to all of you for joining our call today. I'll begin with Slide 5.

Speaker Change: Adjusted earnings per share this quarter was 86 cents, bringing our year-to-date 2024 EPS to $2.96.

Speaker Change: Our results are well aligned with our expectations, with strong contributions from our Florida City Gas and Legacy operations offset by FCG operating expenses and financing costs.

Speaker Change: We generated an adjusted gross margin of approximately $127 million this quarter, a 27% increase over the second quarter of last year, and adjusted net income of approximately $19 million, up 19% from the same period last year.

Speaker Change: Our year-to-date earnings performance, combined with our growth expectations for the remainder of 2024, enable us to reaffirm our full-year 2024 adjusted earnings-for-share guidance of $5.33 to $5.45.

Jeff Householder: Our progress with integrating FCG, coupled with our increased level of capital projects and regulatory initiatives, also allows us to reaffirm our 2025 and 2028 EPS guidance. As I'll discuss in more detail shortly, our 2024 capital growth plan remains on track with $160 million invested in the first half of this year and 300 to 360 million expected for full year 2024. Turning to slide 6.

Speaker Change: Our progress with integrating FCG, coupled with our increased level of capital projects and regulatory initiatives, also enable us to reaffirm our 2025 and 2028 EPS guidance.

Speaker Change: As I'll discuss in more detail shortly, our 2024 Capital Growth Plan remains on track, with $160 million invested in the first half of this year and $300 to $360 million expected for full year 2024.

Jeff Householder: We operate in some of the fastest growing areas of the country, which enables us to deploy sustainable capital investments to meet the needs of growing customer demand. Customer growth remains strong in both Delmarva and Florida, with each area seeing a 3.7% increase in residential customers in the second quarter of this year relative to the same period last year. We expect strong population growth to continue in our service area. In spite of increased interest rates, we are regularly executing contracts with builders and developers for gas service to new residential developments.

Speaker Change: Turning to slide 6.

Speaker Change: We operate in some of the fastest growing areas of the country, which enable us to deploy sustainable capital investments to meet the needs of growing customer demand.

Speaker Change: Customer growth remains strong in both Delmarva and Florida with each area seeing a 3.7 percent increase in residential customers in the second quarter of this year relative to the same period last year.

Speaker Change: We expect strong population growth to continue in our service areas.

Speaker Change: In spite of increased interest rates, we are regularly executing contracts with builders and developers for gas service to new residential developments.

Jeff Householder: Customers are looking for gas service in their new homes, and we expect to continue to add customers at significantly higher rates than have been typical for our industry. Cecil County is one particular example of substantial growth in our Delmarva service area. In 2018, Chesapeake began constructing natural gas distribution infrastructure in a key commercial corridor in Cecil County, Maryland, which is strategically located between Baltimore and Philadelphia.

Speaker Change: Customers are looking for gas service in their new homes, and we expect to continue to add customers at significantly higher rates than have been typical for our industry.

Speaker Change: Cecil County is one particular example of substantial growth in our Delmarva service area.

Speaker Change: In 2018,

Chesapeake: Chesapeake began constructing natural gas distribution infrastructure in a key commercial corridor in Cecil County, Maryland, which is strategically located between Baltimore and Philadelphia.

Jeff Householder: The initial distribution capacity, extending from our eastern shore pipeline, attracted a number of key businesses and distribution centers to the area, including IKEA, FedEx, and Amazon, driving substantial demand for additional natural gas service and infrastructure. Since then, we've purchased the adjoining Elkton Gas Operation from SJI that gave us a more local field operation and have installed at least 28 miles of gas distribution along I-95 to serve incremental demand growth, and we used a state energy grant to extend natural gas infrastructure to support the Cecil County Library as well.

Chesapeake: The initial distribution capacity, extending from our eastern shore pipeline, attracted a number of key businesses and distribution centers to the area, including IKEA, FedEx, and Amazon, driving substantial demand for additional natural gas service and infrastructure.

Chesapeake: Since then, we've purchased the adjoining Elkton Gas operation.

Chesapeake: from SJI that gave us a more local field operation.

Chesapeake: and have installed at least 28 miles of gas distribution along I-95 to serve incremental demand growth, and we used a state energy grant to extend natural gas infrastructure to support the Cecil County Library as well.

Jeff Householder: Cecil County is a great example of the growth we're seeing throughout our service areas, as well as the critical role that Chesapeake's natural gas infrastructure investments play in our communities to drive critical economic development and job creation. The opportunity to serve significant customer growth and demand is the basis for our overall growth strategy, which in turn drives sustainable earnings growth. Over the past several years, we have been consistently focused on three fundamental drivers to support earnings growth, as shown on slide 7.

Chesapeake: Cecil County is a great example of the growth we're seeing throughout our service areas, as well as the critical role that Chesapeake's natural gas infrastructure investments play in our communities to drive critical economic development and job creation.

Chesapeake: The opportunity to serve significant customer growth and demand is the basis for our overall growth strategy, which in turn drives sustainable earnings growth.

Chesapeake: Over the past several years, we have been consistently focused on three fundamental drivers to support earnings growth as shown on slide 7.

Jeff Householder: First, we work hard to identify and prudently deploy capital investment in projects that align with customer demand and enable us to continue providing safe and reliable energy delivery services to support customer growth. Our capital investment plan is primarily comprised of system expansion investments to serve new customers as well as capital to support our multiple infrastructure programs that contribute to the reliability of our systems and investments in technology that support enhanced operational efficiency and customer service.

Chesapeake: First, we work hard to identify and prudently deploy capital investment in projects that align with customer demand and enable us to continue providing safe and reliable energy delivery services to support customer growth.

Chesapeake: Our capital investment plan is primarily comprised of system expansion investments to serve new customers.

Chesapeake: as well as capital to support our multiple infrastructure programs that contribute to the reliability of our systems and investments in technology that support enhanced operational efficiency and customer service.

Jeff Householder: Second, we proactively manage our regulatory agenda to support cost recovery of our capital projects. As the majority of our capital plan is aimed at serving new and existing customers in our regulated businesses, we're working closely with governmental agencies to secure permits for our capital construction projects and with federal and state regulators to ensure appropriate cost recovery for these investments, which bring safe, reliable, and affordable services to customers for years to come. And Jim will go into more detail on this shortly.

Chesapeake: Second, we proactively manage our regulatory agenda to support cost recovery of our capital projects.

Chesapeake: As the majority of our capital plan is aimed at serving new and existing customers in our regulated businesses,

Chesapeake: We're working closely with governmental agencies to secure permitting for our capital construction projects and with federal and state regulators to ensure appropriate cost recovery for these investments.

Chesapeake: which bring safe, reliable, and affordable services to customers for years to come. And Jim will go into more detail on this shortly.

Jeff Householder: The third and perhaps most important, given our recent overall enterprise growth, is continued business transformation, which focuses on our people, processes, systems, and organizational structures. Our continuous improvement initiatives enable us to ensure long-term success in an ever-changing environment. Not only do we need to be transforming the organization given our growth, but at the same time, considering and planning for where we're headed.

Jim: The third and perhaps most important, given our recent overall enterprise growth, is continued business transformation, which focuses on our people, processes, systems, and organizational structure.

Jim: Our continuous improvement initiatives enable us to ensure long-term success in an ever-changing environment. Not only do we need to be transforming the organization given our growth, but at the same time considering and planning for where we're headed.

Jeff Householder: Capital deployment is our primary growth driver, and on slide 8, you can see that we've already made significant progress toward identifying and initiating $1.3 billion of our five-year capital investment plan of $1.5 to $1.8 billion. This includes capital for a number of ongoing infrastructure initiatives and approved projects across our regulated businesses, as well as approximately $80 million in identified technology investments thus far. While we are fundamentally a regulated utility company, we look for opportunities to leverage our related businesses in ways that might not be possible for others.

Speaker Change: Capital deployment is our primary growth driver, and on slide 8, you can see that we've already made significant progress toward identifying and initiating $1.3 billion of our 5-year capital investment plan of $1.5 to $1.8 billion.

Speaker Change: This includes capital for a number of ongoing infrastructure initiatives and approved projects across our regulated businesses, as well as approximately $80 million in identified technology investments thus far.

Speaker Change: While we are fundamentally a regulated utility company, we look for opportunities to leverage our related businesses in ways that might not be possible for others. Our growth plan over the next several years includes multiple examples of our business units working together to meet the needs of customers.

Jeff Householder: Our growth plan over the next several years includes multiple examples of our business units working together to meet the needs of customers. Our transmission businesses will continue to expand so our distribution companies can meet increased customer supply needs. Our propane unit will grow and hold customers until our natural gas systems reach new areas. Marlin Gas Services will increase the transport of CNG, RNG, or LNG to provide market area supply to our systems, helping to meet both base load and peaking customer needs.

Speaker Change: Our transmission businesses will continue to expand so our distribution companies can meet increased customer supply needs.

Speaker Change: Our propane unit will grow and hold customers until our natural gas systems reach new areas. Marlin Gas Services will increase the transport of CNG, RNG, or LNG to provide market area supply to our systems, helping to meet both base load and peaking customer needs.

Jeff Householder: I would also note that all of the $1.3 billion of specifically identified projects on slide 8 are related to our regulated business. As we make additional progress achieving our five-year capital guidance, we will identify additional regulated and non-regulated investors. Slide 9 shows our progress toward our 2024 Capital Expenditure Guidance of $300 to $360 million with approximately 48% or $160 million invested in the first half of this year. Our team is focused on efficiently deploying the remaining capital in 2024 on growth opportunities and business transformation initiatives across the company, including advancing multiple growth projects that provide the basis for our FCG acquisition.

Speaker Change: I would also note that all of the $1.3 billion of specifically identified projects on slide 8 are related to our regulated businesses.

Speaker Change: As we make additional progress achieving our five-year capital guidance, we will identify additional regulated and non-regulated investments.

Speaker Change: Slide nine shows our progress toward our 2024 capital expenditure guidance of $300 to $360 million, with approximately 48% or $160 million invested in the first half of this year.

Speaker Change: Our team is focused on efficiently deploying the remaining capital in 2024 on growth opportunities and business transformation initiatives across the company, including advancing multiple growth projects that provide the basis for our FCG acquisition.

Jeff Householder: Slide 10 provides additional detail on the major projects that are driving nearly $300 million of capital investment and over $36 million of additional adjusted gross margin in 2024 and 2025 combined. This table now includes projects within both our Delmarva and Florida footprint. Since last quarter, we've added seven new projects representing nearly $11 million of incremental adjusted gross margin in 2025. The first three new projects are St. Cloud, Lake Maddie, and Plant City, which received PSC approval in May of this year.

Speaker Change: Slide 10 provides additional detail on the major projects that are driving nearly $300 million of capital investment and over $36 million of additional adjusted gross margin in 2024 and 2025 combined.

Speaker Change: This table now includes projects within both our Delmarva and Florida footprints.

Speaker Change: Since last quarter, we've added seven new projects, representing nearly $11 million of incremental adjusted gross margin in 2025.

Speaker Change: The first three new projects are St. Cloud, Lake Maddie, and Plant City.

Speaker Change: which received PSC approval in May of this year.

Jeff Householder: These Florida natural gas expansion projects represent $42 million in capital expenditures and will support the significant population growth in these Central Florida communities, including the second St. Cloud expansion in less than a year. The next three new projects provide Renewable Natural Gas, or RNG, transportation infrastructure in Florida's Indian River, Brevard, and Miami-Dade counties. Representing a combined $46 million of capital, these projects were approved by the Florida PSC last month and will benefit our customers by bringing R&G produced from local landfills into our system, while also reinforcing system reliability and sustainability. The latest addition is the Warwick Extension, a transmission expansion project with an estimated capital cost of $9 million.

Speaker Change: These Florida natural gas expansion projects represent $42 million in capital expenditures and will support the significant population growth in these Central Florida communities, including the second St. Cloud expansion in less than a year.

Speaker Change: The next three new projects provide Renewable Natural Gas, or RNG, transportation infrastructure in Florida's Indian River, Brevard, and Miami-Dade counties.

Speaker Change: representing a combined 46 million dollars of capital. These projects were approved by the Florida PSC last month and will benefit our customers by bringing RNG produced from local landfills into our system while also reinforcing system reliability and sustainability.

Speaker Change: The latest addition is the Warwick Extension, a transmission expansion project with an estimated capital cost of $9 million.

Jeff Householder: This project will reinforce supply in the growing Middletown, Delaware area and enhance capacity in the southern portion of Cecil County, Maryland, to meet customer demand and support future growth. The margin of these major projects reinforces our existing 2024 and 2025 EPS guidance ranges, and I am pleased with our team's continued execution on project development, including completing the necessary regulatory filings, obtaining regulatory approvals, and constructing projects on time and on budget. Turning to slide 11, our third fundamental growth driver is focused on continued business transformation.

Speaker Change: This project will reinforce supply in the growing Middletown, Delaware area, and enhance capacity in the southern portion of Cecil County, Maryland to meet customer demand and support future growth.

Speaker Change: The marginalization of these major projects reinforces our existing 2024 budget.

Speaker Change: and 2025 EPS Guidance Ranges.

Speaker Change: And I'm pleased with our team's continued execution on project development.

Speaker Change: including completing the necessary regulatory filings, obtaining regulatory approvals, and constructing projects on time and on budget.

Speaker Change: Turning to slide 11, our third fundamental growth driver is focused on continued business transformation.

Jeff Householder: The FCG integration is critical here, and we remain on track with bringing the remaining transitional services in-house, optimizing operations, identifying and realizing synergies, and most importantly, accelerating capital investment opportunities to serve customers. We continue to implement ways to operate seamlessly as one company, and our efforts to leverage our greater footprint, optimize efficiencies, and invest in growth are benefiting the whole enterprise. We are also continuing our journey to transform our customer care and field services functions to achieve world-class performance.

Speaker Change: The FCG integration is critical here, and we remain on track with bringing the remaining transitional services in-house, optimizing operations, identifying and realizing synergies, and most importantly, accelerating capital investment opportunities to serve customers.

Speaker Change: We continue to implement ways to operate seamlessly as one company and our efforts to leverage our greater footprint, optimize efficiencies, and invest in growth are benefiting the whole enterprise.

Speaker Change: We also are continuing our journey to transform our customer care and field services functions to achieve world-class performance.

Jeff Householder: Our goal is to streamline processes and drive efficiencies within many functional areas, including customer service, billing, and invoicing, and operational field services, in an effort to provide a better overall experience for our customers. Later this month, we will go live with our SAP system implementation. The technology system is a major step to support the operational transformation we've been working toward for the last few years. We have had a number of internal cross-functional teams highly engaged with SAP, IBM, and others to ensure a successful launch. We'll also continue to implement technology upgrades across the enterprise, including transitioning FCG onto the SAP system next spring. And with that, I'll turn to Beth to discuss our financial results in more detail.

Speaker Change: Our goal is to streamline processes and drive efficiency within many functional areas, including customer service, billing and invoicing, and operational field services, in an effort to provide a better overall experience for our customers.

Speaker Change: Later this month we will go live with

Speaker Change: The technology system is a major step to support the operational transformation we've been working toward for the last few years. We've had a number of internal cross-functional teams highly engaged with SAP, IBM, and others to ensure a successful launch.

Speaker Change: We'll also continue to implement technology upgrades across the enterprise, including transitioning FCG onto the SAP system next spring.

Speaker Change: And with that, I'll turn to Beth to discuss our financial results in more detail.

Beth Cooper: Thanks, Jeff, and good morning, everyone. It is great to be with you today.

Beth Cooper: Thanks, Jeff, and good morning, everyone. It is great to be with you today. Our financial results, as shown on slide 12, demonstrate another successful quarter with adjusted gross margin of approximately $127 million.

Beth Cooper: Our financial results, as shown on slide 12, demonstrate another successful quarter with an adjusted gross margin of approximately $127 million, up 27% from the second quarter of last year. This was driven by the addition of Florida City Gas, as well as solid performance across all of our businesses. Operating income for the quarter increased 44% to approximately $41 million, reflecting effective cost management initiatives that added to the strong adjusted gross margin growth. Excluding transaction and transition-related expenses, operating income was up approximately $14 million, or 49 percent, when compared with the second quarter of last year.

Beth Cooper: up 27% from the second quarter of last year.

Beth Cooper: driven by the addition of Florida City Gas, as well as solid performance across all of our businesses.

Beth Cooper: Operating income for the quarter increased 44% to approximately $41 million, reflecting effective cost management initiatives that added to the strong adjusted gross margin growth.

Beth Cooper: Excluding transaction and transition-related expenses, operating income was up approximately $14 million, or 49 percent, when compared with the second quarter of last year.

Beth Cooper: As a result of our continued business integration, optimization, and collaboration efforts, we drove much of this operating income to the bottom line, with adjusted net income up 19% to approximately $19 million for the quarter and up 26% to approximately $66 million for the first half of 2024, compared with the same period in 2023. I'll now turn to slide 13 and highlight some of the key drivers of our second quarter adjusted earnings per share of 86 cents.

Beth Cooper: As a result of our continued business integration, optimization, and collaboration efforts,

Beth Cooper: We drove much of this operating income to the bottom line.

Beth Cooper: with adjusted net income up 19% to approximately $19 million for the quarter and up 26% to approximately $66 million for the first half of 2024 compared with the same period in 2023.

Beth Cooper: I'll now turn to slide 13 and highlight some of the key drivers of our second quarter adjusted earnings per share of 86 cents.

Beth Cooper: Our Florida City Gas operations contributed 77 cents in adjusted EPS, reflecting strong customer growth and seasonally consistent natural gas demand. Our legacy natural gas growth, infrastructure, and transmission operations generated $0.13 of incremental EPS this quarter as we continue to see consistently strong customer demand for natural gas and incremental earnings from our capital investments placed into service in the last year. These gains were offset by a few factors, including $0.32 of operating expenses related to Florida CityGas, $0.11 of increased expenses related to payroll and related costs, insurance, depreciation, and amortization, and property taxes, and approximately $0.50 related to financing the Florida CityGas acquisition.

Beth Cooper: Our Florida City Gas operations contributed $0.77 in adjusted EPS, reflecting strong customer growth and seasonally consistent natural gas demand.

Speaker: . Our subsidiary, Florida Public Utilities, recently completed its annual Hurricane Preparation drill, during which our team practiced our emergency response procedures. Lessons learned in this drill have already been put to the test during Hurricane Debbie earlier this week. Our customers have experienced minimal disruptions in service, and we are grateful to team members across the organization who responded efficiently to keep us operating safely. SPU overall continues to show improved reliability metrics, which can be attributed to the system strengthening work the team has done as part of the storm protection plan. This work has improved the frequency and duration of electric outages by 11.3% and 9.7% respectively, when compared with June 2023.

Beth Cooper: Our legacy natural gas growth, infrastructure, and transmission operations generated $0.13 of incremental EPS this quarter.

Beth Cooper: as we continue to see consistently strong customer demand for natural gas and incremental earnings from our capital investments placed into service in the last year.

Beth Cooper: These gains were offset by a few factors.

Beth Cooper: including $0.32 of operating expenses related to Florida City Gas.

Beth Cooper: $0.11 of increased expenses related to payroll and related costs, insurance, depreciation and amortization and property taxes, and approximately $0.50 related to financing the Florida City Gas Acquisition.

Speaker: On an individual level, whether you live in an area impacted by hurricanes or not, being prepared for emergencies is critical. In fact, putting together a disaster supplies kit is one of the safety challenges for Chesapeake team members this quarter. FEMA recommends a personal emergency kit with food, water, and supplies to last for at least 72 hours. Ready.gov has helpful guides and checklists that you can use to prepare for yourself and your loved ones.

Beth Cooper: Moving to slide 14, adjusted gross margin for our regulated energy segment was approximately $103 million this quarter, up 34% from the second quarter of last year. Operating income also significantly improved, up 38% to $41 million, excluding non-recurring transaction and transition costs. This improvement was primarily driven by strong earnings contribution from Florida City Gas, organic growth in our natural gas distribution operations, and incremental margins from our transmission service expansions and regulated infrastructure programs.

Beth Cooper: Moving to slide 14, adjusted gross margin for our regulated energy segment was approximately $103 million this quarter, up 34% from the second quarter of last year.

Lucille Dempsey: I'll now introduce our presenters today.

Beth Cooper: Operating income also significantly improved, up 38% to $41 million excluding non-recurring transaction and transition costs.

Jeffry Householder: Jeff Householder, Chair of the Board, President and Chief Executive Officer, will provide an update on our high growth service areas, capital investment plan, and business transformation efforts, including the Florida city gas integration.

Beth Cooper: This improvement was primarily driven by

Beth Cooper: Best Cooper, Executive Vice President, Chief Financial Officer, Treasurer, and Assistant Corporate Secretary will discuss our financial results, strong balance sheet, and dividend, as well as earning the school's trajectory.

Beth Cooper: Strong Earnings Contribution from Florida City Gas

Beth Cooper: organic growth in our natural gas distribution operations and incremental margins from our transmission service expansions and regulated infrastructure programs.

James Moriarty: And Jim Moriarty, Executive Vice President, General Counsel, Corporate Secretary, and Chief Policy and Risk Officer, will review our regulatory strategy, including keep project approval and recent company awards.

Beth Cooper: As shown on slide 15, our unregulated energy segment also delivered solid improvements relative to the second quarter of last year, with adjusted gross margin up 3% to $23 million and operating income improving to $238,000 for the second quarter of 2024. As we've discussed in the past, volumes for these businesses are typically lower in the second quarter due to warmer temperatures.

Beth Cooper: As shown on slide 15, our unregulated energy segment also delivered solid improvements relative to the second quarter of last year.

Jeffry Householder: With that, it's my pleasure to turn the call over to Jeff. Thank you, Lucille. Good morning, and thanks to all of you for joining our call today.

Beth Cooper: with adjusted growth margin up 3% to $23 million and operating income improving to $238,000 for the second quarter of 2024.

Jeffry Householder: I'll begin with slide five. Adjusted earnings per share of this quarter was 86 cents, bringing our year-to-date $2,024 EPS to $2.96. Our results are well aligned with our expectations with strong contributions from our Florida city gas and legacy operations offset by FCG operating expenses and financing costs. We generated adjusted gross margin of approximately $127 million this quarter, a 27% increase over the second quarter of last year, and adjusted net income of approximately $19 million, up 19% from the same period last year.

Beth Cooper: As we've discussed in the past, volumes for these businesses are typically lower in the second quarter due to warmer temperatures.

Beth Cooper: I'll now shift to slide 16 to review our capital, structure, and finances. Maintaining a strong balance sheet, adequate liquidity, and access to competitively priced capital is critical to support our fundamental growth driver of prudent capital deployment. To this end, we continue to execute on a financing plan consistent with an investment-grade credit profile.

Beth Cooper: I will now shift to slide 16 to review our Capital Structure and Financing.

Beth Cooper: plan.

Beth Cooper: Maintaining a strong balance sheet, adequate liquidity, and access to competitively priced capital is critical to support our fundamental growth driver of prudent capital deployment.

Beth Cooper: To this end, we continue to execute on a financing plan consistent with an investment-grade credit profile.

Beth Cooper: We ended the second quarter of 2024 with an equity to total capitalization ratio of 48%, up from 47% at the end of the year 2023. We continue to target an equity-to-total capitalization ratio of 50% and will issue small amounts of equity over time through our existing direct stock purchase and dividend reinvestment, retirement savings, and other standard equity programs, and will look to reestablish an ATM program at the appropriate time to move closer to that target.

Beth Cooper: We ended the second quarter of 2024 with an equity-to-total capitalization ratio of 48%, up from 47% at the end of the year 2023.

Jeffry Householder: Our year-to-date earnings performance combined with our growth expectations for the remainder of $2,024 enable us to reaffirm our full year 2024 adjusted earnings per share guidance of $5.33 to $5.45. Our progress with integrating FCG coupled with our increased level of capital projects and regulatory initiatives also enable us to reaffirm our 2025 and 2028 EPS guidance.

Beth Cooper: We continue to target an equity to total capitalization ratio of 50% and will issue small amounts of equity over time through our existing direct stock purchase and dividend reinvestment.

Beth Cooper: retirement savings and other standard equity programs and will look to re-establish an ATM program at the appropriate time to move closer toward that target.

Beth Cooper: We also took several steps in July and August of this year to support our growth investment plan and manage our overall debt cost. First, we amended our revolving credit facility, upsizing it by $75 million to a total of $450 million and extending the maturity by several years. Second, we entered into an interest rate swap on $50 million for five years at a rate of 3.97 percent.

Jeffry Householder: As I'll discuss in more detail shortly, our 2024 capital growth plan remains on track with $160 million invested in the first half of this year and $300 to $360 million expected for a full year 2024. Starting to slide six, we operate in some of the fastest growing areas of the country, which enable us to deploy sustainable capital investments to meet the needs of growing customer demand. Customer growth remains strong in both Del Marabang and Florida, with each area seeing a 3.7 percent increase in residential customers in the second quarter of this year relative to the same period last year.

Beth Cooper: We also took several steps in July and August of this year to support our growth investment plan and manage our overall debt costs.

Beth Cooper: First, we amended our revolving credit facility, upsizing it by $75 million to a total of $450 million and extending the maturity by several years.

Beth Cooper: Second, we have entered into an interest rate swap on $50 million for five years at a rate of 3.97%.

Beth Cooper: Our liquidity also remains strong, with 70%, or nearly $500 million, of liquidity available under our revolving credit facility and private placement shelf facility. We will continue to evaluate and advance our equity to total capital ratio towards our target capital structure to ensure we remain well positioned to execute on our growth strategy over the next several years. Slide 17 shows our strong history of consistent dividend growth. Our 10-year dividend CAGR through 2024 is approximately 9%.

Beth Cooper: Our liquidity also remains strong, with 70% or nearly $500 million of liquidity available under our revolving credit facility and private placement shelf facility.

Jeffry Householder: We expect strong population growth to continue in our service areas. In spite of increased interest rates, we are regularly executing contracts with builders and developers for gas service to new residential developments. Customers are looking for gas service in their new homes, and we expect to continue to add customers at significantly higher rates than have been typical for our industry.

Beth Cooper: Slide 17 shows our strong history of consistent dividend growth. Our 10-year dividend CAGR through 2024 is approximately 9%.

Beth Cooper: Last quarter, we announced a significant dividend increase of $0.05 per share, representing 8.5% year-over-year growth. Yesterday, our board approved a second quarter dividend of $0.64 per share, payable on October 7, 2024, to shareholders of record as of September 16, 2024. Our dividend is a key component of our balanced capital allocation strategy, and our target payout ratio of 45 to 50 percent is designed to return value to shareholders while also allowing for earnings reinvestment to fund future growth capital investments.

Jeffry Householder: Cecil County is one particular example of substantial growth in our Del Marabang service area. In 2018, Chesapeake began constructing natural gas distribution infrastructure in a key commercial quarter in Cecil County, Maryland, which is strategically located between Baltimore and Philadelphia. The initial distribution capacity, extending from our Eastern Shore Pipeline, attracted a number of key businesses and distribution centers to the area, including Ikea, FedEx, and Amazon, driving substantial demand for additional natural gas service and infrastructure.

Beth Cooper: Last quarter, we announced a significant dividend increase of $0.05 per share, representing 8.5% year-over-year growth.

Beth Cooper: Yesterday, our board approved a second quarter dividend of $0.64 per share, payable on October 7, 2024, to shareholders of record as of September 16, 2024.

Beth Cooper: Our dividend is a key component of our balanced capital allocation strategy, and our target payout ratio of 45% to 50% is designed to return value to shareholders.

Beth Cooper: while also allowing for earnings reinvestment to fund future growth capital investments.

Jeffry Householder: Since then, we purchased the adjoining Elkton gas operation from SJI that gave us a more local field operation and have installed at least 28 miles of gas distribution along I-95 to serve incremental demand growth, and we use the state energy grant to extend natural gas infrastructure to support the Cecil County Library as well. Cecil County is a great example of the growth we're seeing throughout our service areas, as well as a critical role at Chesapeake's natural gas infrastructure investments play in our communities to drive critical economic development and job creation.

Beth Cooper: We believe this strategy enables our investors to benefit from long-term top quartile earnings growth, which in turn facilitates top quartile dividend growth. Speaking of earnings growth, slide 18 demonstrates our consistent earnings per share performance, with our 2028 EPS guidance range reflecting a 10-year EPS CAGR of approximately 8.5%. This growth is driven by our relentless pursuit of top-quartile earnings performance, led by our fundamental growth pillars of prudent capital investment, proactive regulatory initiatives, and continuous operational improvement.

Beth Cooper: We believe this strategy enables our investors to benefit from long-term, top-quartile earnings growth, which in turn facilitates top-quartile dividend growth.

Beth Cooper: Speaking of earnings growth, Slide 18 demonstrates our consistent Earnings Per Share performance with our 2028 EPS Guidance Range reflecting a 10-year EPS CAGR of approximately 8.5%.

Beth Cooper: This growth is driven by our tireless pursuit of top quartile earnings performance, led by our fundamental growth pillars of prudent capital investment, proactive regulatory initiatives, and continuous operational improvement.

Jeffry Householder: The opportunity to serve significant customer growth and demand is the basis for our overall growth strategy, which in turn drives sustainable earnings growth.

Beth Cooper: Our year-to-date 2024 performance is in line with our expectations, and I am proud of our team's hard work thus far. We have a long-standing record of meeting our targets and will continue that trajectory. So we are reaffirming our 2024 adjusted EPS guidance of $5.33 to $5.45 per share, our 2025 guidance of $6.15 to $6.35 per share, and our 2028 guidance of $7.75 to $8 Before I turn the call over to Jim, I'd like to review our path to our 2024 ETS guidance, as shown on slide 19.

Beth Cooper: Our year-to-date 2024 performance is in line with our expectations, and I am proud of our team's hard work thus far in the year.

Jeffry Householder: Over the past several years, we have been consistently focused on three fundamental drivers to support earnings growth as shown on slide 7. First, we work hard to identify and prudently deploy capital investment in projects that align with customer demand and enable us to continue providing safe and reliable energy delivery services to support customer growth. Our capital investment plan is primarily comprised of system expansion investments to serve new customers, as well as capital to support our multiple infrastructure programs that contribute to reliability of our systems and investments in technology that support enhanced operational efficiency and customer service.

Beth Cooper: We have a long-standing record of meeting our targets and will continue that trajectory. So we are reaffirming our 2024 Adjusted EPS Guidance of $533 to $545 per share.

Beth Cooper: Our 2025 guidance of $6.15 to $6.35 per share, and our 2028 guidance of $7.75 to $8 per share.

Beth Cooper: Before I turn the call to Jim, I'd like to review our path to our 2024 ETS guidance as shown on slide 19. Our confidence in achieving this guidance is driven by several key factors.

Beth Cooper: Our confidence in achieving this guidance is driven by several key factors. First, we expect incremental contributions from our legacy businesses to drive approximately $0.40 to $0.50 of incremental earnings per share. Second, a full year of SDG operations net of interest expense related to the acquisition financing should add roughly $0.35 to $0.45 per share. And third, we anticipate incremental opportunities of approximately $0.20 to $0.30 per share from our business transformation, regulatory, and cost management initiatives across the enterprise. These factors are partially offset by dilution of about $1 per share due to the equity issuance completed to finance the Florida City Gas Acquisition.

Jim: First, we expect incremental contributions from our legacy businesses to drive approximately $0.40 to $0.50 of incremental earnings per share.

Jeffry Householder: Second, we proactively manage our regulatory agenda to support cost recovery of our capital projects. As the majority of our capital plan is aimed at serving new and existing customers in our regulated businesses, we're working closely with governmental agencies to secure permitting for our capital construction projects and with federal and state regulators to ensure appropriate cost recovery for these investments, which brings safe reliable and affordable services to customers for years to come and generally go into more detail on this shortly.

Jim: Second, a full year of SBG operations net of interest expense related to the acquisition financing.

Jim: should add roughly $0.35 to $0.45 per share.

Jim: And third, we anticipate incremental opportunities of approximately $0.20-$0.30 per share from our business transformation, regulatory, and cost management initiatives across the enterprise.

Jeffry Householder: The third and perhaps most important given our recent overall enterprise growth is continued business transformation, which focuses on our people, processes, systems, and organizational Our continuous improvement initiatives enable us to ensure long-term success in an ever-changing environment. Not only do we need to be transforming the organization given our growth, but at the same time, considering and planning for where we're headed.

Jim: These factors are partially offset by dilution of about a dollar per share due to the equity issuance completed to finance the Florida City Gas acquisition.

Beth Cooper: The ranges provided on this slide are consistent with the ranges we communicated last quarter, and I'd like to reiterate our focus on driving shareholder value by delivering on the attractive opportunities throughout our enterprise. With that, it's my pleasure to turn the call over to Jim.

Jim: The ranges provided here on this slide are consistent with the ranges we communicated last quarter, and I'd like to reiterate our focus on driving shareholder value by delivering on the attractive opportunities throughout our enterprise. With that, it's my pleasure to turn the call over to Jim. Jim?

Jeffry Householder: Capital deployment is our primary growth driver, and on slate, you can see that we've already made significant progress toward identifying and initiating $1.3 billion of our five-year capital investment plan of $1.5 to $1.8 billion. This includes capital for a number of ongoing infrastructure initiatives and approved projects across our regulated businesses, as well as approximately $80 million in identified technology investments thus far. While we are fundamentally a regulated utility company, we look for opportunities to leverage our related businesses in ways that might not be possible for others.

Jim Moriarty: Thank you, Beth, and good morning, everyone. As Jeff discussed earlier, a proactive regulatory agenda is our second fundamental growth driver, and I would like to share several updates in this area. Starting with slide 20, we now have 11 projects representing over $150 million of capital that have been approved since the fourth quarter of last year, demonstrating strong regulatory support for meeting customer needs through natural gas infrastructure expansion. Last month, the Florida PSC approved three new renewable gas transmission projects in Florida's Indian River, Brevard, and Miami-Dade counties.

Jim: Thank you, Beth, and good morning, everyone.

Jim: As Jeff discussed earlier, a proactive regulatory agenda is our second fundamental growth driver, and I would like to share several updates in this area.

Jim: Starting with slide 20, we now have 11 projects representing over $150 million of capital that have been approved since the fourth quarter of last year.

Jim: demonstrating strong regulatory support for meeting customer needs through natural gas infrastructure expansions.

Speaker Change: Last month, the Florida PSC approved three new renewable gas transmission projects in Florida's Indian River, Brevard, and Miami-Dade counties.

Jeffry Householder: Our growth plan over the next several years includes multiple examples of our business units working together to meet the needs of customers. Our transmission businesses will continue to expand, so our distribution companies can meet increased customer supply needs. Our propane unit will grow and hold customers into our natural gas systems reach new areas. Marlin gas services will increase the transport of CNG, RNG, or LNG to provide market area supply to our systems, helping to meet both base load and peaking customer needs.

Jim Moriarty: In addition to supporting energy sustainability, these R&G projects increase gas supply and strengthen system reliability and flexibility for these growing communities. Construction also continues on schedule for our other recently approved transmission expansion projects, including buildouts for new and growing Florida communities in Wildlife, Boynton Beach, New Smyrna Beach, Lake Maddie, Plant City, and St. Cloud.

Speaker Change: In addition to supporting energy sustainability, these R&G projects increase gas supply and strengthen system reliability and flexibility for these growing communities.

Speaker Change: [inaudible]

Speaker Change: Construction also continues on schedule for our other recently approved transmission expansion projects, including buildouts for new and growing Florida communities in Wildlife, Boynton Beach, New Smyrna Beach, Lake Maddie, Plant City, and St. Cloud.

Jeffry Householder: I would also note that all of the $1.3 billion of specifically identified projects on slide A are related to our regulated businesses, as we make additional progress achieving our five capital guidance, we will identify additional regulated and non-regulated investments.

Jim Moriarty: Slide 21 provides an update on a project designed to support growth and resiliency in the Delmarva region, our Eastern Shore Worcester Resiliency Upgrade, or WRU, which is a liquefied natural gas storage project in Maryland. This $80 million project consists of five low-profile storage tanks that can hold up to 500,000 gallons of LNG. WRU will provide critical energy service to customers during the peak winter heating season and will protect against weather-related disruptions, keeping energy prices affordable so that no one is left behind.

Speaker Change: July 21 provides an update on a project designed to support growth and resiliency in the Delmarva region, our Eastern Shore Worcester Resiliency Upgrade or WRU, which is a liquefied natural gas storage project in Maryland.

Jeffry Householder: Slide 9 shows our progress toward our 2024 capital expenditure guidance of $300 to $360 million, with approximately 48% or $160 million invested in the first half of this year. Our team is focused on efficiently deploying the remaining capital in 2024 on growth opportunities and business transformation initiatives across the company, including advancing multiple growth projects that provide the basis for our FCG acquisition.

Speaker Change: This $80 million project consists of five low-profile storage tanks that can hold up to 500,000 gallons of LNG.

Speaker Change: WRU will provide critical energy service to customers during the peak winter heating season and will protect against weather-related disruptions, keeping energy prices affordable so that no one is left behind.

Jeffry Householder: Slide 10 provides additional detail on the major projects that are driving nearly $300 million of capital investment and over $36 million of additional adjusted growth margin in 2024 and 2025 combined. This table now includes projects within both our Del Marva and Florida footprints. Since last quarter we've added seven new projects representing nearly $11 million of incremental adjusted growth margin in 2025. The first three new projects are St. Cloud, Lake Matty, and Plant City, which received PSC approval in May of this year.

Jim Moriarty: We are anticipating FERC approval by the end of 2024 and remain on track for construction to begin in the first quarter of 2025 for an in-service date in the third quarter of 2025. Our infrastructure programs, detailed on slide 22, are an important part of our service offering. Growth Strategy, particularly as they are supported by regulatory mechanisms that ensure timely cost recovery. These programs include the Capital Cost Surcharge Program for the Eastern Shore System, the Safe and Guard Programs for Natural Gas Infrastructure in Florida, and the Storm Protection Plan for our Florida Electric Operations. In total, these programs represent over $350 million of capital expenditures over the next five years and approximately $12 million and $19 million of adjusted gross margin in 2024 and 2025, respectively.

Speaker Change: We are anticipating FERC approval by the end of 2024 and remain on track for construction to begin in the first quarter of 2025 for an in-service date in the third quarter of 2025.

Speaker Change: Our infrastructure programs, detailed on slide 22, are an important part of our service offerings and growth strategy.

Speaker Change: particularly as they are supported by regulatory mechanisms that ensure timely cost recovery.

Jeffry Householder: These Florida natural gas expansion projects represent $42 million in capital expenditures and will support the significant population growth in these central Florida communities, including the second St. Cloud expansion in less than a year. The next three new projects provide renewable natural gas or RNG transportation infrastructure in Florida, Indian River, Ravard, and Miami-Dade counties. Representing a combined 46 million dollars of capital, these projects were approved by the Florida PSC last month and will benefit our customers by bringing RNG produced from local landfills into our system while also reinforcing system reliability and sustainability.

Speaker Change: These programs include the Capital Cost Surcharge Program for the Eastern Shore System, the Safe and Guard Programs for Natural Gas Infrastructure in Florida, and the Storm Protection Plan for our Florida Electric Operations.

Speaker Change: In total, these programs represent over $350 million of capital expenditures in the next five years.

Speaker Change: and approximately $12 million and $19 million of adjusted gross margin in 2024 and 2025, respectively.

Jim Moriarty: Turning to slide 23, our rate case strategy is also a key driver of effective cost recovery and return on investment. 2024 is our first full year with increased rates in Florida's natural gas operation, where we operate with allowed ROEs of 10.25% for Florida Public Utilities and between 8.5 and 10.5% for Florida City. At the start of this year, we filed for a rate increase and an updated depreciation study for our combined natural gas entities in Maryland.

Speaker Change: Turning to slide 23, our rate case strategy is also a key driver of effective cost recovery and return on investment.

Jeffry Householder: The latest addition is the Warwick Extension, a transmission expansion project with an estimated capital cost of $9 million. This project will reinforce supply in the growing Middletown Delaware area and enhance capacity in the southern portion of Cecil County, Maryland to meet customer demand and support future growth.

Speaker Change: 2024 is our first full year with increased rates in Florida's natural gas operations.

Speaker Change: where we operate with allowed ROEs of 10.25% for Florida Public Utilities and between 8.5% and 10.5% for Florida City Gas.

Jeffry Householder: The Marches Major Projects reinforces our existing 2024 and 2025 EPS guidance ranges and I'm pleased with our team's continued execution on project development, including completing the necessary regulatory filings, obtaining regulatory approvals, and constructing projects on time and on budget.

Speaker Change: At the start of this year, we filed for a rate increase and updated depreciation study for our combined natural gas entities in Maryland.

Jim Moriarty: We are pleased with the progress thus far in the case, which includes an approved depreciation study settlement for $1.2 million in annual depreciation expense savings, retroactive to January of 2023. We recently have been participating in productive settlement discussions on the remainder of the case and appreciates the constructive conversations we've had with regulators thus far. We are also moving forward with two additional rate cases.

Speaker Change: We are pleased with the progress thus far in the case, which includes an approved depreciation study settlement for $1.2 million in annual depreciation expense savings, retroactive to January of 2023.

Jeffry Householder: Turning to slide 11, our third fundamental growth driver is focused on continued business transformation. The FCG integration is critical here and we remain on track with bringing the remaining transitional services in-house, optimizing operations, identifying and realizing synergies, and most importantly accelerating capital investment opportunities to serve customers. We continue to implement ways to operate seamlessly as one company and our efforts to leverage our greater footprint, optimize efficiencies, and invest in growth are benefiting the whole enterprise.

Speaker Change: We recently have been participating in productive settlement discussions on the remainder of the case and appreciate the constructive conversations we've had with regulators thus far.

Speaker Change: We are also moving forward with two additional rate cases.

Jim Moriarty: In May, we submitted an intent to file with the Delaware PSC for our Delaware LDCs, and in June, we completed a similar filing with the Florida PSC for adjusted rates for FPU electricity. We expect to file both of those rate cases later this month.

Speaker Change: In May, we submitted an intent to file with the Delaware PSC for our Delaware LDCs, and in June , we completed a similar filing with the Florida PSC for adjusted rates for FPU Electric.

Jeffry Householder: We also are continuing our journey to transform our customer care and field services functions to achieve world-class performance. Our goal is to streamline processes and drive efficiency within many functional areas, including customer service, billing and invoicing, and operational field services in an effort to provide a better overall experience for our customers.

Speaker Change: We expect to file both of those rate cases later this month.

Jim Moriarty: We also continue to move forward with innovative and sustainable investment, including our full-circle dairy R&G facility, as shown on slide 24. The facility is now in the commissioning phase and has been producing milk for the last two months. We successfully completed initial injections of RNG into our system, beginning in Yulee, Florida, in June, using the virtual pipeline capabilities of our Marlin Gas Services subsidiary. Our RNG strategy continues to evolve as the market matures.

Speaker Change: We also continue to move forward with innovative and sustainable investments.

Speaker Change: including our full-circle dairy RNG facility as shown on slide 24.

Speaker Change: The facility is now in the commissioning phase and has been producing R&G for the last two months.

Beth Cooper: Later this month, we will go live with our SAP system implementation. The technology system is a major step to support the operational transformation we've been working toward for the last few years. We've had a number of internal cross-functional teams highly engaged with SAP, IBM, and others to ensure a successful launch. We'll also continue to implement technology upgrades across the enterprise, including transitioning FCG onto the SAP system next spring.

Speaker Change: We successfully completed initial injections of RNG into our system, beginning in Yulee, Florida in June , using the virtual pipeline capabilities of our Marlin Gas Services subsidiary.

Speaker Change: Our RNG strategy continues to evolve as the market matures.

Jim Moriarty: Looking ahead, we are poised to execute on opportunities that enable us to use our existing transportation services and construction expertise to provide pathways to market for RNG producers. Turning now to slide 25, I would like to discuss our sustainability initiatives and recent recognition. We look forward to publishing our second micro-sustainability report during the third quarter, which will focus on our environmental stewardship. We are proud to share that two of our subsidiaries received accolades this quarter. Florida City Gas was named the easiest to do business with by Escalant, a data analytics and advisory firm.

Speaker Change: Looking ahead, we are poised to execute on opportunities that enable us to use our existing transportation services and construction expertise to provide pathways to market for R&G producers.

Beth Cooper: And with that, I'll turn to Beth to discuss our financial results in more detail. Thanks, Jeff, and good morning, everyone. It is great to be with you today. Our financial results, as shown on slide 12, demonstrate another successful quarter with adjusted growth margin of approximately $127 million, up 27% from the second quarter of last year, driven by the addition of Florida City Gas, as well as solid performance across all of our businesses.

Jim Moriarty: We're proud to have our FCG colleagues as part of our family, and we celebrate this achievement. Our propane distribution subsidiary, Sharp Energy, received the 2024 award for best gas company by Metropolitan Magazine. This recognition reflects the reader's choice for the finest businesses in the Delmarva region and underscores our long-standing commitment to providing our customers with high-quality products and excellent service. In addition, we were honored to be named Best for Corporate Governance in the U.S. by World Finance this quarter.

Speaker Change: Turning now to slide 25, I would like to cover our sustainability initiatives and recent recognitions.

Speaker Change: We look forward to publishing our second microsustainability report during the third quarter, which will focus on our environmental stewardship efforts.

Beth Cooper: Operating income for the quarter increased 44% to approximately $41 million, reflecting effective cost management initiatives that added to the strong, adjusted growth margin growth. Excluding transaction and transition-related expenses, operating income was up approximately $14 million or 49% when compared with the second quarter of last year. As a result of our continued business integration, optimization and collaboration efforts, we drove much of this operating income to the bottom line with adjusted net income of 19% to approximately $19 million for the quarter and up 26% to approximately $66 million for the first half of 2024 compared with the same period in 2023.

Speaker Change: We are proud to share that two of our subsidiaries received accolades this quarter.

Speaker Change: Florida City Gas was named easiest to do business with by Escalant, a data analytics and advisory firm.

Speaker Change: We're proud to have our FCG colleagues as part of our family and we celebrate this achievement.

Speaker Change: Our propane distribution subsidiary, Sharp Energy, received the 2024 award for best gas company by Metropolitan Magazine.

Speaker Change: This recognition reflects the reader's choice for the finest business in the Delmarva region and underscores our long-standing commitment to providing our customers with high-quality products and excellent service.

Speaker Change: In addition, we were honored to be named Best for Corporate Governance in the U.S. by World Finance this quarter.

Jim Moriarty: This marks our second time being recognized with this prestigious award and is a credit to our team, as well as the strong corporate governance principles and standards embedded throughout our organization. All these recognitions confirm our significant efforts to deliver excellence and create value for our stakeholders. Making life better for our employees, customers, and the communities we serve remains paramount in everything we do. With that, I will turn the call over to Jeff for his concluding remarks.

Speaker Change: This marks our second time being recognized with this prestigious award and is a credit to our team as well as the strong corporate governance principles and standards embedded throughout our organization.

Beth Cooper: I'll now turn to slide 13 and highlight some of the key drivers of our second quarter adjusted earnings per share of 86 cents. Our Florida City Gas Operations contributed 77 cents and adjusted EPS reflecting strong customer growth and seasonally consistent natural gas demands. Our legacy natural gas growth infrastructure and transmission operations generated 13 cents of incremental EPS with quarter as we continue to see consistently strong customer demand for natural gas and incremental earnings from our capital investment placed into service in the last year.

Speaker Change: All of these recognitions confirm our significant efforts to deliver excellence.

Speaker Change: and create value for our stakeholders.

Speaker Change: Making life better for our employees, customers, and the communities we serve remains paramount in everything we do.

Speaker Change: With that, I will turn the call to Jeff for concluding remarks.

Jeff Householder: Thanks, Jim. This year is a critical transition for us as we execute on integrating FCG and achieving our 2024 EPS and capital guidance. Advancing the organization forward on multiple fronts to achieve the significant growth embedded in our 2025 EPS guidance and making significant customer-focused capital investments to support our long-term growth plan. I'm very pleased with our progress in these areas, including delivering financial results that remain in line with our full-year expectations and represent top quartile earnings performance. Recently, we've been described as small but mighty by the financial community, and I think that description is accurate.

Jeff: Thanks, Jim. This year is a critical transition for us as we execute on integrating FCG.

Jeff: achieving our 2024 EPS and capital guidance.

Beth Cooper: These gains were offset by a few factors including 32 cents of operating expenses related to Florida City Gas, 11 cents of increased expenses related to payroll and related costs, insurance, depreciation, and amortization and property taxes, and approximately 50 cents related to financing the Florida City Gas acquisition. Moving to slide 14, adjusted growth margin for our regulated energy segment was approximately $103 million this quarter, up 34% from the second quarter of last year.

Jeff: advancing the organization forward on multiple fronts to achieve the significant growth embedded in our 2025 EPS guidance.

Jeff: and making significant customer-focused capital investments to support our long-term growth plan.

Speaker Change: I'm very pleased with our progress in these areas, including delivering financial results that remain in line with our full year expectations and represent top quartile earnings performance.

Speaker Change: Recently, we've been described as small but mighty by the financial community and I think that description is accurate. Whether we are executing on and integrating acquisitions, achieving top quartile financial results, or advancing customer focused investments,

Operator: Whether we are executing on and integrating acquisitions, achieving top quartile financial results, or advancing customer-focused investments, we're proud of our track record of delivering results and are focused on maintaining that record in the future. Chesapeake continues to be a special place to work and remains a unique investment opportunity, marked by a significant track record of superior performance, strong opportunities for growth, and top-quartile long-term shareholder returns. With that, we'll take your questions, Operator.

Beth Cooper: Operating income also significantly improved, up 38% to $41 million, excluding non-recurring transaction and transition costs. This improvement was primarily driven by strong earnings contribution from Florida City Gas, organic growth in our natural gas distribution operations and incremental margins from our transmission service expansions and regulated infrastructure programs. As shown on slide 15, our unregulated energy segment also delivered solid improvements relative to the second quarter of last year with adjusted growth margin up 3% to $23 million and operating income improving to $238,000 for the second quarter of 2024.

Speaker Change: We're proud of our track record of delivering results and are focused on maintaining that record in the future.

Speaker Change: Chesapeake continues to be a special place to work and remains a unique investment opportunity marked by a significant track record of superior performance, strong opportunities for growth, and top quartile long-term shareholder returns.

Operator: Thank you. The floor is now open for questions. At this time, if you have a question or comment, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. Again, we ask that you pick up your handset when asking your question to provide optimal sound quality. Thank you. Our first question will come from Paul Fremont with Leidenberg. Please go ahead.

Speaker Change: With that, we'll take your questions. Operator?

Speaker Change: Thank you. The floor is now open for questions. At this time, if you have a question or comment, please press star 1 on your telephone keypad.

Speaker Change: If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. Again, we ask that you pick up your handset when posing your question to provide optimal sound quality. Thank you. Our first question will come from Paul Fremont with Leidenberg. Please go ahead.

Beth Cooper: As we discussed in the past, volumes for these businesses are typically lower in the second quarter due to warmer temperatures. I'll now shift to slide 16 to review our capital structure and financing plan. Maintaining a strong balance sheet, adequate liquidity, and access to competitively priced capital is critical to support our fundamental growth driver of prudent capital deployment, to this end, we continue to execute on a financing plan consistent with an investment grade credit profile.

Paul Fremont: Great, thanks, and congratulations on a good quarter. I guess my first question relates to sort of the RNG investments, including maybe starting with the full circle dairy. Is the RNG project itself owned by Chesapeake, or who is that owned by?

Paul Fremont: Great, thanks, and congratulations on a good quarter.

Paul Fremont: I guess my first question relates to sort of the RNG investments, including maybe starting with the full-circle dairy. Is the RNG project itself owned by Chesapeake, or who is that owned by?

Jeff Householder: Good morning. This is Jeff. Yes, we are owning and operating through contract the Full Circle Dairy Facility.

Paul Fremont: Good morning, this is Jeff. Yes, we are owning and operating through contract the Full Circle Dairy Facility.

Jeff Householder: Okay, and is that a regulated investment, or does that fall under some sort of non-regulated category?

Beth Cooper: We ended the second quarter of 2024 with an equity to total capitalization ratio of 48% up from 47% at the end of the year 2023. We continue to target an equity to total capitalization ratio of 50% and will issue small amounts of equity over time through our existing direct stock purchase and dividend reinvestment, retirement savings, and other standard equity programs and will look to reestablish an ATM program at the appropriate time to move closer toward that target.

Speaker Change: Okay, and is that a regulated investment or does that fall under sort of a non-regulated category?

Jeff Householder: It's a non-regulated investment at this point, and we actually own that facility through a subsidiary of one of our regulated utilities in Florida. And we are pursuing, as you may know, a variety of tariff adjustments and, potentially, at some point, some legislative action that would allow us to move that facility into the regulated utility. And so we'll see. We don't, obviously, we don't own the dairy farm or the cows, but we just have the digester and the lagoon and the operating facility that's processing the biogas into our utility.

Speaker Change: It's a non-regulated investment at this point. We actually own that facility through a subsidiary of one of our regulated utilities in Florida. And we are pursuing, as you may know, a variety of tariff...

Speaker Change: adjustments and potentially at some point some legislative action that would allow us to move that facility into the regulated utility.

Speaker Change: And so, we'll see. Obviously, we don't own the dairy farm or the cows, but we just have the digester and the lagoon and the operating facility that's processing the biogas and RNG.

Beth Cooper: We also took several steps in July and August of this year to support our growth investment plan and manage our overall debt cost. First, we amended our revolving credit facility, up sizing it by $75 million to a total of $450 million and extending the maturity by several years. Second, we have entered into an interest rate swap on $50 million for five years at a rate of 3.97%. Our liquidity also remains strong with 70% or nearly $500 million of liquidity available under our revolving credit facility and private placement shell facility.

Jeff Householder: So I would assume that this project is going to be eligible for a 45Z tax credit. Is that something that you would expect to realize over the course of the next three years?

Speaker Change: So I would assume that project is going to be eligible for a 45Z tax credit. Is that something that you would expect to realize over the course of the next three years?

Beth Cooper: We would. Beth, do you want to jump in on that one? Yes.

Beth Cooper: That's correct, Paul. We would, that's something by us getting it constructed in the time frame that we did. We would have that tax. Yeah,

Speaker Change: We would. Beth, do you want to jump in on that one? Yes.

Beth Cooper: That's correct, Paul, we would, that's something, by us getting it constructed in the timeframe that we did, we would have that tax benefit, yeah.

Beth Cooper: And is there any estimate on the sort of contribution that you would expect from those tax credits?

Speaker Change: And is there sort of any estimate on sort of the contribution that you would expect from those tax credits?

Jeff Householder: We can put that out. We've not disclosed that to date. This isn't, you know, a huge project overall, but we can we can come back to you, Paul, with that information.

Beth Cooper: We will continue to evaluate and advance our equity to total capital ratio towards our target capital structure to ensure we remain well positioned to execute on our growth strategy over the next several years. July 17 shows our strong history of consistent dividend growth. Our 10-year dividend cager through 2024 is approximately 9%. Last quarter, we announced a significant dividend increase of five cents per share representing 8.5% year-over-year growth. Yesterday, our board approved the second quarter dividend of 64 cents per share payable on October 7, 2024 to shareholders of record as of September 16, 2024.

Speaker Change: We can put that out. We've not disclosed that to date. This isn't, you know, a huge project overall, but we can come back to you, Paul, with that information.

Jeff Householder: And then the other three that you talked about, which I think are landfill projects in Florida, those are within the regulated utility.

Speaker Change: And then the other three that you talked about, which I think are landfill projects in Florida, those are within the regulated utility?

Jeff Householder: Those are, and again, we don't own the landfill, obviously, and we don't own the gas processing equipment, even in these particular examples. What we are doing is providing the pipeline connection between the RNG processor and our distribution facilities. And in this particular case, these particular cases, all that's being done through our Peninsula Pipeline transmission business, the intrastate pipe business that we own in Florida. But we are moving that gas from the processor through Peninsula Pipeline into our distribution facilities.

Speaker Change: Those are, and again, we don't own the landfill, obviously, and we don't own the gas processing equipment, even in these particular examples. What we are doing is providing the pipeline connection between the RNG processor.

Speaker Change: and our distribution facilities, and in this particular case, these particular cases, all of that's being done through our peninsula pipeline transmission business, the intrastate pipe business that we own in Florida.

Beth Cooper: Our dividend is a key component of our balance capital allocation strategy and our target payout ratio of 45 to 50% is designed to return value to shareholders while also allowing for earnings reinvestment to fund future growth capital investments. We believe this strategy enables our investors to benefit from long-term top portal earnings growth which in turn facilitates top portal dividend growth. Speaking of earnings growth, slide 18 demonstrates our consistent earnings per share performance with our 2028 EPS guidance range reflecting a 10-year EPS cager of approximately 8.5%.

Speaker Change: But we are moving that gas from the processor through Peninsula Pipeline into our distribution facilities.

Beth Cooper: And so, Paul, what Jeff said, you can think about this not dissimilarly to what we did with the project in Ohio with the fire, where we picked up gas at a landfill and we actually moved it through a fire system. That's the same thing Peninsula Pipeline is going to do with these three projects.

Speaker Change: And so Paul, what Jeff said, you can think about this not dissimilarly to what we did with the project in Ohio with the fire, where we picked up gas at a landfill and we actually moved it through a fire system. That's the same thing Peninsula Pipeline is going to do with these three projects.

Beth Cooper: And then my last question, I think it has to do with you being at a 48% equity ratio now. How should we think about the timing to get to your targeted 50%?

Speaker Change: Great. And then my last question I think has to do with, you're at a 48% equity ratio now. How should we think about the timing to get to your target at 50%?

Beth Cooper: This growth is driven by our tireless pursuit of top portal earnings performance led by our fundamental growth pillars of prudent capital investment, proactive regulatory initiatives and continuous operational improvement. Our year-to-date 2024 performance is in line with our expectations and I am proud of our team's hard work thus far in in a year. We have a longstanding record of meeting our targets and will continue that trajectory. So we are reaffirming our 2024 adjusted EPS guidance of 533-545 per share, our 2025 guidance of 615-635 per share, and our 2028 guidance of $775-8 per share.

Beth Cooper: We are looking to do that, you know, over the next year to a year and a half to move back there. Certainly, we will look at the market. We've been monitoring that relative to interest rates and where, you know, our equity is in regards to kind of the market valuation. So, you could see us move a little quicker, a little slower, but certainly we're making strides. coming out of the transaction. We didn't expect to be moving as, you know, quickly as we have already been at 48 percent six months after the transaction. So, you'll consider, you know, you'll still see us move pretty quickly as long as the market cooperates. Great, thank you so much.

Speaker Change: We are looking to do that, you know, over the next year to year and a half to move back there. Certainly we will look at the market. We've been monitoring that relative to interest rates and where, you know, our equity is in regards to kind of the market valuation. So you could see us move a little quicker, a little slower, but certainly we're making

Speaker Change: and Stride.

Speaker Change: Our initial forecast coming out of the transaction, we didn't expect to be moving as quickly as we have, already being at 48% six months after the transaction. So you'll still see us move pretty quickly as long as the market cooperates.

Speaker Change: Great, thank you so much.

Speaker Change: Thank you.

Beth Cooper: Before I turn the call to Jim, I'd like to review our path to our 2024 EPS guidance, as shown on slide 19. Our confidence in achieving this guidance is driven by several key factors. First, we expect incremental contributions from our legacy businesses to drive approximately 40-50 cents of incremental earnings per share. Second, a full year of STG operations met of interest expense related to the acquisition financing should add roughly 35-45 cents per share, and third, we anticipate incremental opportunities of approximately 20-30 cents per share from our business transformation, regulatory and cost management initiatives across the enterprise.

Operator: And again, as a reminder, that is the star and one for any questions. We will take our next question from Tate Sullivan with Maxim Group. Please go ahead.

Speaker Change: And again, as a reminder, that is star and one for any questions. We will take our next question from Tate Sullivan with Maxim Group. Please go ahead.

Beth Cooper: These factors are partially offset by dilution of about a dollar per share due to the equity issuance completed to finance the Florida city gas acquisition. The ranges provided here on this slide are consistent with the ranges we communicated last quarter, and I'd like to reiterate our focus on driving shareholder value by delivering on the attractive opportunities throughout our enterprise.

Tate Sullivan: Hi, thanks, Jeff. Following up on the renewable natural gas supply projects in the adjusted gross margin table for 2025, estimating $5.5 million in incremental contribution. So, are all three of those projects in Florida City gas territory, and are these the first RNG projects in those service territories, in FSCG's service territory?

Tate Sullivan: Hi, thanks. I'm Jeff, following up on the Renewable Natural Gas Supply Projects in the Adjusted Gross Margin Table.

Speaker Change: for $25, estimating $5.5 million incremental.

Tate Sullivan: contribution. So are all three of those projects in Florida City gas territory and are these the first RNG projects in those service territories, in FSCG's service territory?

Jeff Householder: They are all in Florida City Gas' service territory, and I believe they are the first renewable natural gas connections that FCG is doing.

Speaker Change: They all are in Florida City Gas's service territory and I believe they are the first renewable natural gas connections that that FCG is doing.

Jeff Householder: and there's no existing processing equipment at the landfills, and the project timeline for all three is roughly a year or so based on that.

Speaker Change: and there's no existing processing equipment at the landfills and is the project timeline for all three roughly a year or so based on the table?

Jeff Householder: There are no processing facilities that would convert the biogas into renewable natural gas with a standard that would meet our requirements for pipeline injection at this point. But they're in the process. You know, these are three independent processing companies that are engaged in this, and they are in the process of building those facilities. And they probably do come on; I can get you the exact dates, but they are give or take about a year out. We'll probably have some of the pipeline facilities in place a little before then.

Speaker Change: There are no processing facilities that would convert the biogas into renewable natural gas with a standard that would meet our requirements for pipeline injection at this point. They're in the process, you know, these are three independent.

Speaker Change: You know, processing companies that are engaged in this and they are in the process of building those facilities. And they probably do come on, I can't get you the exact dates, but they are give or take about a year out.

James Moriarty: With that, it's my pleasure to turn the call over to Jim. Jim? Thank you, Beth, and good morning everyone.

James Moriarty: As Jeff discussed earlier, a proactive regulatory agenda is our second fundamental growth driver, and I would like to share several updates in this area. Starting with slide 20, we now have 11 projects representing over $150 million of capital that have been approved since the fourth quarter of last year, demonstrating strong regulatory support for meeting customer needs through natural gas infrastructure expansions. Last month, the Florida PSE approved three new renewable gas transmission projects in Florida's Indian River, Brevard and Miami-Dade counties.

Speaker Change: We'll probably have some of the pipeline facilities in place a little before then.

Jeff Householder: And also, all three involve supply pipeline extensions to the landfills themselves. Is that correct? Yes, it is correct.

Speaker Change: And then also all three involve supply.

Jeff Householder: We're building those, as I mentioned, through our Peninsula Pipeline intrastate transmission business in Florida. And they'll interconnect from the processor at the landfill back into the FCG distribution. Is this quite a scalable opportunity in Florida? I mean, was the regulator, the regulatory body, receptive to these projects? And I mean, it seems like it could be duplicated across land.

Speaker Change: pipeline extensions to the landfills themselves, is that correct? That's correct. We're building those, as I mentioned, through our peninsula pipeline intrastate transmission business in Florida, and they'll interconnect from the processor at the landfill back into the FCG distribution system.

James Moriarty: In addition to supporting energy sustainability, these R&G projects increase gas supply and strengthen system reliability and flexibility for these growing communities. Construction also continues on schedule for our other recently approved transmission expansion projects, including buildouts for new and growing Florida communities in wildlife, Boyton Beach, New Smyrna Beach, Lake Matty, Plant City, and St. Cloud.

Speaker Change: Is this quite a scalable opportunity in Florida? I mean, was the regulator, regulating body receptive to these projects? I mean, it seems like it could be duplicated across landfills.

Jeff Householder: Yes, I mean, we will certainly look at that. The regulator did approve the three pipeline expansions on PPC serving into our affiliate FCG, and anytime we can find that kind of a situation and the economics make sense for the pipeline expansion, then we're certainly up for that. And we have other opportunities, I think, to engage our Marlin C&G business in transporting that gas if it doesn't make economic sense to build a pipeline.

Speaker Change: Yes, I mean, we will certainly look at that. The regulator did approve the three pipeline expansions on PPC serving into our affiliate FCG, and any time we can find that kind of a situation and the economics make sense on the pipeline expansion, then we're certainly up for that.

Speaker Change: And we have other opportunities, I think, to engage our Marlin C&G business in transporting that gas if it doesn't make economic sense to build a pipeline.

Tate Sullivan: Great. Very impressive. Okay. Thank you very much.

Speaker Change: Great. Very impressive. Okay. Thank you very much.

James Moriarty: Slide 21 provides an update on a project designed to support growth and resiliency in the Delmarva region. Our eastern shore Worcester Resiliency Upgrade, or WRU, which is a liquefied natural gas storage project in Maryland. This $80 million project consists of five low-profile storage tanks that can hold up to 500,000 gallons of LNG. WRU will provide critical energy service to customers during the peak winter heating season and will protect against weather-related disruptions, keeping energy prices affordable so that no one is left behind. We are anticipating FERC approval by the end of 2024 and remain on track for construction to begin in the first quarter of 2025 for an in-service date in the third quarter of 2025.

Jeff Householder: Thank you. There are no further questions at this time. I'll turn the call back over to Jeff Householder for any closing remarks.

Speaker Change: Thank you. Thank you.

Speaker Change: Thank you. There are no further questions at this time. I'll turn the call back over to Jeff Householder for any closing remarks.

Jeff Householder: Thank you. We appreciate you joining us this morning, and we certainly appreciate your continued interest in Chesapeake Utilities. We'll speak with you soon. Goodbye.

Jeff Householder: Thank you. We appreciate you joining us this morning, and we certainly appreciate your continued interest in Chesapeake Utilities, and we'll speak with you soon. Goodbye.

Operator: Thank you, and this concludes Chesapeake Utilities Corporation's 2nd Quarter 2024 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.

Jeff Householder: Thank you, and this concludes Chesapeake Utilities Corporation's second quarter 2024 earnings conference call. Please disconnect your line at this time and have a wonderful day.

Operator: [music]

Jeff Householder: it

Jeff Householder: Music

Gregory Fuller: and Gregory Fuller

James Moriarty: Our infrastructure programs, detailed on slide 22, are an important part of our service offerings and growth strategy, particularly as they are supported by regulatory mechanisms that ensure timely cost recovery. These programs include the Capital Costs Search Charge program for the Eastern Shore System, the Safe and Guard programs for natural gas infrastructure in Florida and the Storm Protection Plan for our Florida Electric Operations. In total, these programs represent over $350 million of capital expenditures in the next five years and approximately $12 million and $19 million of adjusted gross margin in 2024 and 2025 respectively.

James Moriarty: Turning to slide 23, our rate case strategy is also a key driver of effective cost recovery and return on investment. 2024 is our first full year with increased rates in Florida's natural gas operations, where we operate with a loud ROE's of 10.25% for Florida Public Utilities and between 8.5 and 10.5% for Florida City Gas. At the start of this year, we filed for a rate increase and updated depreciation study for our combined natural gas entities in Maryland.

James Moriarty: We are pleased with the progress thus far in the case which includes an approved depreciation study settlement for $1.2 million in annual depreciation expense savings retroactive to January of 2023. We recently have been participating in productive settlement discussions on the remainder of the case and appreciate constructive conversations we've had with regulators thus far.

James Moriarty: We are also moving forward with two additional rate cases. In May, we submitted an intent to file with a Delaware PSC for our Delaware LDCs and in June, we completed a similar filing with a Florida PSC for adjusted rates for FPU Electric. We expect to file both of those rate cases later this month.

James Moriarty: We also continue to move forward with innovative and sustainable investments. Department, including our full-circle dairy R&G facility has shown on slide 24. The facility is now in the commissioning phase and has been producing R&G for the last two months. We successfully completed initial injections of R&G into our system, beginning in Yuley, Florida in June, using the virtual pipeline capabilities of a Marlin gas services subsidiary. Our R&G strategy continues to evolve as the market matures. Looking ahead, we are poised to execute and unopportunities that enable us to use our existing transportation services and construction expertise to provide pathways to market for R&G producers.

James Moriarty: Turning now to slide 25, I would like to cover our sustainability initiatives and recent recognitions. We look forward to publishing our second micro-sustainability report during the third quarter, which will focus on our environmental stewardship efforts. We are proud to share that two of our subsidiaries received accolades this quarter. Florida City Gas was named easiest to do business with by Escalant, a data analytics, and advisory firm. We're proud to have our FCG colleagues as part of our family and we celebrate this achievement.

James Moriarty: Our propane distribution subsidiary Sharp Energy received the 2024 award for Best Gas Company by Metropolitan Magazine. This recognition reflects the reader's choice for the finest business in the Delmarva region and underscores our long-standing commitment to providing our customers with high-quality products and excellent service.

James Moriarty: In addition, we were honored to be named Best for Corporate Governance in the US by World Finance this quarter. This marks our second time being recognized with this prestigious award and is a credit to our team as well as the strong corporate governance principles and standards embedded throughout our organization. All of these recognitions confirm our significant efforts to deliver excellence and create value for our stakeholders, making life better for our employees, customers, and the communities we serve remains paramount in everything we do.

Jeffry Householder: With that, I will turn the call to Jeff for concluding remarks. Thanks, Jim. This year is a critical transition for us as we execute on integrating FCG achieving our 2024 EPS and capital guidance, advancing the organization forward on multiple fronts to achieve the significant growth embedded in our 2025 EPS guidance and making significant customer-focused capital investments to support our long-term growth plan. I'm very pleased with our progress in these areas, including delivering financial results that remain in line with our full-year expectations and represent top-portile earnings performance.

Jeffry Householder: Recently, we've been described as small but mighty by the financial community, and I think that description is accurate. Whether we are executing on and integrating acquisitions, achieving top core tile financial results, or advancing customer focused investments, we're proud of our track record of delivering results, and are focused on maintaining that record in the future. Chesapeake continues to be a special place to work, and remains a unique investment opportunity marked by a significant track record of superior performance, strong opportunities for growth, and top core tile long-term shareholder returns.

Operator: With that, we'll take your questions. Operator. Thank you. The floor is now open for questions. At this time, if you have a question or a comment, please press star one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. Again, we ask that you pick up your handset when posing your question to provide optimal sound quality. Thank you.

Paul Fremont: Our first question will come from Paul Fremont with Leidenberg. Please go ahead. Great. Thanks, and congratulations on a good quarter. I guess my first question relates to sort of the RNG investment, including maybe starting with the full circle dairy. Is the RNG project itself owned by Chesapeake, or who is that owned by? Good morning. This is Jeff. Yes, we are owning and operating through contract, the full circle dairy facility. Okay. Is that a regulated investment, or does that fall under sort of a non-regulated category?

Paul Fremont: It's a non-regulated investment at this point. We actually own that facility through a subsidiary of one of our regulated utilities in Florida. And we are pursuing, as you may know, a variety of tariff adjustments and potentially, at some point, some legislative action that would allow us to move that facility into the regulated utility. And so we'll see. We don't obviously, we don't own the dairy farm or the cows, but we just have the digester and the lagoon and the operating facility that's processing the biogas and RNG.

Paul Fremont: So I would assume that project is going to be eligible for 40 fund Z tax credits. Is that something that you would expect to realize over the course of the next three years? We would. Beth, do you want to jump in on that one? Yes. That's correct. We would. That's something by the, by us getting it constructed in the timeframe that we did. We would have that tax. Yeah. And is there sort of any estimate on sort of the contribution that you would expect from the, from those tax credits? And we can, we can put that out. We've not disclosed that to date.

Jeffry Householder: This isn't, you know, a huge project overall, but we can, we can come back to you Paul without information. And then the other is three that you talked about, which I think are landfill projects in Florida. Those are within the regulated utility. Those are, and again we don't own the landfill obviously and we don't own the gas processing equipment even in these particular examples. What we are doing is providing the pipeline connection between the RNG processor and our distribution facilities and in this particular case these particular cases all that's being done through our peninsula pipeline transmission business, the interest state pipe business that we own in Florida, but we are moving that gas from the processor through peninsula pipeline into our distribution facilities.

Jeffry Householder: And so Paul, I asked for what Jeff said, you can think about this not dissimilarly to what we did with the project in Ohio with the sponsor where we picked up gas at a landfill and we actually moved it through a fire system. That's the same thing. Peninsula pipeline is going to do with these three projects. Great. And then my last question I think has to do with you're at a 48 percent equity ratio now.

Jeffry Householder: How should we think about the timing to get to your targeted 50 percent? We are looking to do that over the next year to year and a half to move back there. Certainly we will look at the market. We've been monitoring that relative to interest rates and where our equity is in regards to kind of the market valuation. So you could see us move a little quicker, a little slower, but certainly we're making strides.

Jeffry Householder: Our initial forecast coming out of the transaction. We didn't expect to be moving as quickly as we have already being at 48 percent six months after the transaction. So you'll consider, you know, you'll still see us move pretty, you know, move pretty quickly as long as the market cooperates. Great.

Speaker: Thank you so much.

Speaker: Thank you.

Tate Sullivan: And again as a reminder that is star and one for any questions, we will take our next question from Tate Sullivan with Maxim Group. Please go ahead. Hi, thanks.

Jeffry Householder: I'm Jeff following up on the Renewable Natural Gas Supply Projects. I mean, in the adjusted gross margin table for 25 estimating 5.5 million incremental contributions. So are all three of those projects in Florida City gas territory and are these the first RNG projects in those services in FSCG service territory? They all are in Florida City gas service territory and I believe they are the first Renewable Natural Gas connections that FSCG is doing.

Jeffry Householder: And there's no existing processing equipment at the landfills and is the project timeline for all three roughly a year or so based on the table. There are no processing facilities that would convert the bio gas into Renewable Natural Gas with a standard that would meet our requirements for pipeline injection. At this point, they're in the process, you know, these are three independent processing companies that are engaged in this and they are in the process of building those facilities.

Jeffry Householder: And they probably do come on. I can get you the exact dates, but they are, they are give or take about a year out. We'll probably have some of the pipeline facilities in place a little before then. And then also all three involve supply, pipeline extensions to the landfills themselves. Is that correct? That's correct. We're building those. As I mentioned, through our Peninsula Pipeline Interest State transmission business in Florida. And they'll interconnect from the processor at the landfill back into the FCG distribution system.

Jeffry Householder: Is this quite a scalable opportunity in Florida? I mean, was the regulator regulating body receptive to these projects? And I mean, it seemed like it could be duplicated them across landfills. Yes. I mean, we will certainly look at that. The regulator did approve the three pipeline expansions on PPC serving into our affiliate FCG. And any time we can find that kind of a situation and the economics make sense on the pipeline expansion, then we're certainly up for that. And we have other opportunities, I think, to engage our Marlons, C&G business in transporting that gas if it doesn't make economic sense to build a pipeline.

Speaker: Great. Okay. Thank you very much. Thank you. There are no further questions at this time.

Jeffry Householder: I'll turn the call back over to Jeff Houtholder for any closing remarks. Thank you. We appreciate you joining us this morning, and we certainly appreciate your continued interest in Chesapeake utilities. And we'll speak with you soon. Goodbye. Thank you.

Operator: And this concludes Chesapeake Utilities Corporation's second quarter of 2024 earnings conference call. Please disconnect your line at this time and have a wonderful day. Thank you.

Q2 2024 Chesapeake Utilities Corp Earnings Call

Request a DemoDemo

CPK

Chesapeake Utilities

Earnings