Q1 2025 Chesapeake Utilities Corp Earnings Call
[music]
Speaker Change: Please stand by. Your program is about to begin. If you need audio assistance during today's program, please press star zero.
Speaker Change: Welcome to Chesapeake Utilities Corporation's first quarter 2025 earnings conference call.
Speaker Change: At this time, all participants have been placed on 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.
Speaker Change: If at any point your question has been answered, you may remove yourself from the queue by pressing star two.
Speaker Change: So others can hear your questions clearly. We ask that you pick up your handset for best 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.
Lucia Dempsey: Thank you and good morning everyone. Today's presentation can be accessed on our website under the Investors page and events and presentation subsection.
Speaker Change: After I prepare remarks, we will open up a call for questions.
Speaker Change: On slide 2, we show our approval disclaimers, while I remind you that matters discussed on this conference call, may include forward-looking statements that involve risks and uncertainties.
Speaker Change: Ford-looking statements and projections could differ materially from our actual results. The Safe Harbor for Ford-looking statements section of our 2024 annual report on Form 10K and on our first quarter Form 10Q provides information on the factors 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 margins, adjusted income, and adjusted earnings per share. And the information presented today includes the appropriate disclosures in accordance with the FSC's regulation G.
Speaker Change: Reconciliation of these non-GET measures to the related GET measures has been provided in the appendix of this presentation, our earnings release, and our first quarter form to the end of this presentation.
Speaker Change: Here at Chesapeake Utilities, safety is your first priority. We start all meetings with a safety moment and we'll do so here with a moment on bicycle safety, as highlighted on slide three.
Speaker Change: Incidentally, former temperatures bring more cyclists on the road, whether for commuting or for fun. Beth Cooper is great for physical and mental health, so we must increase our awareness to ensure safety for all on the road.
Speaker Change: Cyclist should always wear a helmet, remain highly visible during the day and at night, and stay aware of traffic patterns.
Speaker Change: Drivers also need to remain alert and watch for cyclists, particularly at intersections and
Speaker Change: Sharing the road will ensure we all get to our definition safely.
Speaker Change: I'll now introduce our presenters. Jeff Householders, Chair of the Board, President and Chief Executive Officer will provide an update on our quarterly performance, our growing service areas, and our capital investment plan.
Speaker Change: Jim Moriarty, Executive Vice President, General Counsel, Corporate Secretary, and Chief Policy and Risk Officer, will review our active regulatory agenda, business transformation initiatives, and stakeholder engagement efforts.
Speaker Change: and Beth Cooper, executive vice president, chief financial officer, treasurer, and assistant corporate secretary will discuss our financial results, strong balance sheet, and dividend and earnings growth trajectory.
Speaker Change: With that, it is my pleasure to turn the call over to Jeff.
Jeff Householder: Thank you, Lucia. Good morning, and thank you for joining our call today. I'll be in the slide five.
Jeff Householder: Following our strong performance in 2024, we are pleased to announce continued growth in the first quarter of 2025.
Jeff Householder: from the adjusted earnings per share of $2.22, up to 6% from the first quarter of 2024.
Jeff Householder: This performance is in line with our expectations, enabling us to reaffirm our full year 2025 adjusted earnings for shared guidance.
of $6.15 to $6.35.
Jeff Householder: and as I'll discuss in more detail shortly, our 2025 Capital Growth Plan of $325 to $375 million is off to an excellent start, and $113 million already invested in the first three months of this year.
Jeff Householder: The show on slide 6 for the first quarter of 2025, we continue to see strong growth and increasing demand for natural gas across our service areas.
Jeff Householder: We operated in some of the fastest growing regions of the country and recorded another quarter of above-average customer growth. The El Marva customer growth was up nearly 4% and 4% increased by 3% relative to the same period last year.
Jeff Householder: This growth is driven by a number of factors, including population and migration to our service areas, construction of the residential communities, and system expansions to serve growing commercial industrial and industrial demand.
Jeff Householder: Customers continue to seek natural gas service to fuel their lives and businesses.
Jeff Householder: and will continue to provide them the safe, reliable, and cost-effective service they expect.
Jeff Householder: The opportunity to serve an increasing customer demand is the basis for overall birth strategy which in turn drives sustainable earnings.
Jeff Householder: To deliver consistent returns, we remain focused on the three pillars of our growth strategy, as shown on slide 7.
Jeff Householder: First, we work hard to identify and frequently deploy capital for projects that meet our increasing customer demand.
Jeff Householder: Second, we proactively manage our regulatory agenda to support cost recovery of our capital projects and growing operations.
Jeff Householder: Third, we continually transform our business operations, which includes technology and organizational improvements that enable us to maintain operational excellence as we become a large organization.
Jeff Householder: Slide 8 highlights our fortunate position of having multiple channels of capital investment to drive overall long-term earnings growth.
Jeff Householder: The first is reliability infrastructure, which includes upgrades and replacements to improve system resiliency and safety.
Jeff Householder: These infrastructure growth investments are supported by regulatory programs, such as the Florida Guard and Safe programs, that provide effective and timely recovery in our capital investments.
Jeff Householder: The liability infrastructure investments generated $5.8 million of gross margin in the first quarter of 2025, and are expected to generate a total of $27 million of gross margin throughout the full year.
Jeff Householder: The second category of significant growth is occurring in our gas transmission businesses in Delaware and Florida. Many of our major capital projects are designed to extend transmission service and support of distribution expansion to serve new customers.
Jeff Householder: In the first quarter of this year, these projects generated $2.5 million of gross margin and are expected to contribute $22 million of gross margin for the full year, primarily in the third and fourth quarters of 2025.
Y-9 provides additional detail on these transmission projects.
Jeff Householder: The Eastern Shore Natural Gas Warwick Extension in Maryland and the Peninsula Pipeline Company Plant City Project in Florida replaced in service in the fourth quarter of 2024 and have driven over $3 million of gross margin in 2025.
Jeff Householder: In addition, our peninsula pipeline, Boynton Beach Project, was placed in service in the first quarter of this year, driving an additional $3 million of 2025 gross margin.
Jeff Householder: Construction continues for our remaining capital projects, many of which are expected to be in service in the second half of this year. The majority of our 2025 margins, resulting from these projects, will occur in the third and fourth quarters of 2025.
Jeff Householder: I'll now provide an update on our Worcester Resiliency Upgrade or WRU project that's shown on slide 10.
Jeff Householder: In January of this year, we received FERC approval for WRU, a liplified natural gas storage facility critical to support seasonal peaking services for interconnected gas distribution
Jeff Householder: The ONG Peking Service provides reliable and affordable system-peeking capacity service that ensures that we can meet the growing demand for natural gas in our Delaware and Marrow and distribution systems.
Jeff Householder: Following FERC approval, we receive final, updated, general contractor bids for site-related
Jeff Householder: The business was significantly higher than the indicative pricing and the timing of construction was longer than the indicative project timing we had received from contractors at the end of last year.
Jeff Householder: Two factors are principally contributing to the cost increases in the project timing.
Jeff Householder: Reviews of the Bids and Discussions with the participating contractors indicated availability constraints with certain skilled and licensed labor and at cost estimates were also being impacted by uncertainty around the current economic climate.
Jeff Householder: These factors have led to a $20 million increase in capital investment, resulting in a total expected project cost of approximately $100 million.
Jeff Householder: We will be making the necessary filings to ensure a rate recovery of this additional capital.
Jeff Householder: The expected in-service day of the project has shifted from October of 2025 to the second quarter of
Jeff Householder: which means that the WRU margin that was originally expected in the fourth quarter will begin in 2026.
Jeff Householder: This project remains critical to support increasing demand in this area and is still the lowest-cost project to address, speak with our loads, and protect against weather-related disruption.
Jeff Householder: We're executing contracts this week and anticipate starting full cycle structure upon receiving the notice to proceed from part.
Jeff Householder: WRU is just one of many projects that supports our 5-year capital investment plan, as shown in slide 11.
Jeff Householder: We've made significant progress today with $356 million invested in 2024, and $113 million already invested through the first quarter of 2025.
Jeff Householder: Cumulatively, we've also already identified and initiated at least $1.4 billion of our five-year capital investment plan of $1.5 to $1.8 billion.
Jeff Householder: of which approximately 70% requires no additional regulatory approval or support.
Thank you, Jeff, and good morning everyone.
Jeff Householder: As Jeff discussed earlier, a proactive regulatory agenda is the second pillar of our growth strategy.
Jeff Householder: So to start, I'll share several updates on our active rate cases.
as shown on slide 12.
Jeff Householder: for our Maryland jurisdiction in March 2025, a base rate increase.
of $3.5 million, what's approved.
Jeff Householder: which reflects a phase one revenue increase of $2.6 million and a subsequent phase two revenue increase of $0.9 million.
Jeff Householder: We then received the final order last month with Raid's defective April 19, 2025.
Jeff Householder: We are pleased that have come to a final resolution on this case.
Jeff Householder: and are excited that we will now serve all of our Maryland communities under one Consolidated Entity.
Chesapeake Utilities of Maryland Incorporated
Jeff Householder: on to our Delaware rate case, which was initially filed in August of 2024.
Jeff Householder: In March of this year, we reached a settlement agreement in principle with an approved cumulative interim rate increase of $6.1 million.
effective May 1, 2025.
Jeff Householder: We expect to reach a final order on the settlement agreement in the second quarter of this year.
Our Florida rate case was also filed in August 2024.
Jeff Householder: Following an initial revenue increase voted on by commissioners in March of this year, we worked with interested parties and yesterday reached a settlement agreement for $8.6 million of a revenue requirement increase.
Jeff Householder: We anticipate this agreement to be on the Florida PSC hearing agenda.
in June .
Slide 13 summarizes our other key active regulatory filing.
and updated the Appreciation Study for Florida City Guests.
Jeff Householder: In February of this year, we requested a reduction in annual depreciation expense.
Jeff Householder: of approximately $1 million in the form of revised annual depreciation rates and a two-year compensation of an excess depreciation reserve of $27.3 million.
Jeff Householder: This filing reflects a return to our standard way of recovering excess depreciation going forward.
Jeff Householder: The procedural schedule set by the Florida PSC projects a staff recommendation in August 2025.
Jeff Householder: and in order in September 2025, leading to updated annual depreciation rates being implemented no earlier than the third or fourth quarter of this year, effective back to January 1, 2025.
Jeff Householder: I'll now turn to slide 14 which provides an update on our Business Transformation Initiatives.
which is the third pillar of our fundamental growth strategy.
Jeff Householder: In April 2025, we fully completed the implementation of our one CX project by transitioning our Florida city gas operations.
Jeff Householder: to the SAP system that we rolled out to our Del Marva and FPU operations in August of last year.
Jeff Householder: The team capitalized on their experience with the initial system launch and refined the processes around training and implementation.
Jeff Householder: which led to a highly successful rollout and seamless transition, thus far.
Jeff Householder: We are also in initial stages of launching a company-wide, multi-year enterprise resource plan for ERP to coordinate and improve functions across the organization.
Jeff Householder: including human resources, supply chain, asset management and finance, among others.
Jeff Householder: These technology transformations alongside additional operational and security upgrades within our technology roadmap will create a strong foundation to support our overall growth trajectory.
Jeff Householder: Turning to slide 15, I would like to highlight a couple of ways we've been highly engaged with our stakeholders.
including our investors and our broader communities.
Jeff Householder: In March, we published our 2024 annual report, which highlights many of our accomplishments throughout last year.
Jeff Householder: This report, alongside our 2025 investor day, held a Cape Canaveral in March, launched our theme for this year, delivering with purpose, reaching new heights.
Jeff Householder: We were excited to host over 35 financial community members at our investor day.
where we highlighted our growth opportunities across the enterprise.
Jeff Householder: The key accomplishments and objectives related to our regulatory and business transformation pillars and the depth and breadth of leaders from across the company.
Jeff Householder: Yesterday, we were gratified that our investors supported all six proposals on the ballot this year at our annual meeting, including the Declassification Amendment and an increase in the authorized shares from 50 to 75 million.
Jeff Householder: We also continue to invest in our communities and support local organization based on our four focus areas of giving.
Safety and Health, Community Development, Education and Environmental Stewardship.
Jeff Householder: We understand that active engagement with all of our stakeholders is a core responsibility as we grow, and we look forward to publishing the third installment of our sustainability microreports.
Jeff Householder: which will focus on engagement with our employees, communities, and customers.
Beth Cooper: With that, I will turn the call to Beth for a more detailed discussion of a financial result.
Beth Cooper: Thanks, Jim, and good morning, everyone. Our financial results, as shown on slide 16, demonstrate strong growth in the first quarter of 2025.
Beth Cooper: With adjusted growth margin of approximately $182 million, up 11% from the first quarter of 2024 driven by higher consumption and margin growth from investments in transmission, distribution, and infrastructure.
Beth Cooper: Our margin grows coupled with operational efficiencies through significant improvements in adjusted net income, up 9% to approximately $51 million for the quarter.
Beth Cooper: We also reported strong growth in adjusted earnings per share of this quarter, up 12 cents to $2.22, a 6% increase over the first quarter of 2024.
Beth Cooper: We are proud of this continued growth, particularly as this quarter did not benefit from a $3.4 million depreciation expense that was recognized under the Florida City Guest R-Sam mechanism in the first quarter of last year.
Beth Cooper: I'll now turn to slide 17 and highlight some of the key drivers of our first quarter 2025 adjusted EPS.
Beth Cooper: Colder weather across our service areas contributed an 18 cent increase in adjusted EPS, particularly driven by increased consumption in Delaware and across our propane operations.
Beth Cooper: continue to demand for natural gas through 14 cents of incremental adjusted EPS, including seven cents related to transmission capital projects, and seven cents of distribution grows across our service areas.
Beth Cooper: Our unregulated business generated an additional 12 cents of adjusted EPS this quarter, driven by increased margins in our propane operations and incremental demand for our Marlin virtual pipeline services relative to the first quarter of last year.
Regulatory Initiatives also drove additional adjusted EPS growth as quarter.
Beth Cooper: Infrastructure Reliability Investment Through Our Prove Regulatory Programs, Contributed 11 Census Quarter, and Interim Rates related to our in-process rate cases added $5 in the first quarter of 2025.
Beth Cooper: These gains were partially offset by a few factors, including $0.17 per share of increased depreciation and amortization expense, as this quarter had no RSTAM depreciation expense reduction.
Beth Cooper: compared with an 11 cent benefit in the first quarter of last year.
Beth Cooper: We also incurred additional operations and maintenance expense of 20 cents per share this quarter as a combination of business growth and higher prices led to increases and expenses associated with employees, customers, facilities, and insurance.
Beth Cooper: Lastly, financing activity, including our debt issuance in November 2024 and additional equity issuances in the first quarter of 2025 reduced adjusted EPS by 11 cents per share.
Beth Cooper: Moving to slide 18, adjusted gross margin for a regulated segment was approximately $128 million this quarter, up 8% from the first quarter of last year.
Beth Cooper: As just discussed, this improvement was driven by increased consumption due to colder weather, organic transmission and distribution growth in our natural gas distribution operations, and growth in regulatory-related initiatives.
Beth Cooper: As shown on slide 19, our unregulated energy segment demonstrated substantial growth relative to the first quarter of last year, with adjusted growth margin of 18% to approximately $54 million in the first quarter of 2025.
Beth Cooper: Even admits an elevated demand environment which typically compresses margins due to higher cost protein purchases in the spot market.
Beth Cooper: Our protein operations and gas supply teams did a fantastic job managing supply, enabling us to avoid costly spot market purchases and sustain our margins during high demand periods in January and February of this year.
Beth Cooper: Our Marlin Gas Services business continued to grow as incremental demand for virtual pipeline deliveries drove $3.6 million of additional gross margin in the first quarter of 2025.
Beth Cooper: In addition to RNG, we have seen increased CNG demand, particularly from manufacturing businesses in North Carolina and Ohio.
Beth Cooper: I'll now shift to slide 20 to review our capital structure and financing activities.
Beth Cooper: Maintaining a strong balance sheet and implementing a strategic financing plan is becoming even more critical as we accelerate our growth strategy amidst a volatile market backdrop.
Beth Cooper: In March, ditch ratings issued are an overall investment grade credit rating, including a long-term issuer default rating of triple B plus.
Beth Cooper: An A minus instrument rating for our senior unsecured debt and a stable outlook. We are proud of this assessment as it reflects our longstanding commitment to prudent investment and discipline balance sheet management.
Beth Cooper: and will continue to implement a strategy consistent with maintaining an investment-grade credit profile.
Beth Cooper: We ended the first quarter of 2025 with an equity to total capitalization ratio of 49% up from 48% at the end of 2024 and on the cuts of our target equity to total capitalization ratio range of 50%.
Beth Cooper: We were able to take advantage of market performance during the last few months, issuing approximately $22 million within the first quarter of 2025.
Beth Cooper: via our ATM program and the waiver component of our direct dot purchase and dividend reinvestment plan.
Beth Cooper: and issuing nearly an additional 238,000 shares subsequent to the quarter, bringing our total shares outstanding to $23.3 million as of May 2nd, 2025.
Beth Cooper: This puts us ahead of our equity issuance plan for the full year.
Beth Cooper: On the death side, minimum churities in 2025 reduce our interest rate exposure and provide optionality for any issuances this year.
Beth Cooper: In addition, our liquidity remains strong with 58% of our revolving credit facility and private placement shelf facilities available at the end of March 2025.
Beth Cooper: Alongside our equity and debt plans, our dividend policy continues to be a key component of our capital allocation strategy, as we fund growth capital investment to drive earnings growth and overall shareholder return.
Beth Cooper: Yesterday, our Board of Directors approved an 18-cent increase in our annualized dividend reflecting 7% growth or moving from $2.56 per share to $2.74 per share.
Beth Cooper: Since the Florida City gas acquisition, we have strived to align our dividend growth with our earnings growth. Both of these metrics are expected to generate a compounded annual growth rate just under 8% over the two-year period from 2023 to 2025.
Beth Cooper: This dividend strategy is not an either or, but a both-and proposition.
Beth Cooper: We support continued dividend growth while reinvesting significant earnings back into the company, enabling our investors to benefit from both long-term top quartile earnings and dividend growth.
Beth Cooper: Turning now to that earnings growth, fly 22 demonstrates not only our consistent track record of earnings per share growth, but also our 2025 adjusted EPS guidance.
Beth Cooper: which reflects an increase of 14 to 18% over full year 2024, or growth rates twice as high as the overall utility industry.
Beth Cooper: Our first quarter 2025 performance is in line with our expectations, enabling us to reaffirm our full-year 2025 adjusted EPS guidance.
Beth Cooper: of $6.15 to $6.35 per share even without WRU's margin this year.
Beth Cooper: Given the continuously evolving macroeconomic environment, we will continue to monitor any potential impacts to our investment plans and operations as we proceed through the year.
Beth Cooper: As shown on slide 23, our first quarter EPS represents 35 to 36% of our 20-25 EPS guidance.
Beth Cooper: There are a couple of factors that will shift a higher than normal percentage of our 20-25 incremental gross margins to the third and fourth quarters of the year, which alter the cadence we've typically seen over the last approximate five years.
Beth Cooper: The first factor is the timing of our interim and final revenue rate increases that Jim just highlighted, which primarily began in the second quarter of this year.
Jeff Householder: Second, as Jeff mentioned earlier, most of our major capital projects are expected to come into service in the third and fourth quarters of 2025, leading to back-end weighted incremental margin.
Jeff Householder: The third factor is depreciation expense, as each quarter throughout 2024 benefited from an R-Stand Adjustment.
Jeff Householder: While the full-year result of the Florida city gas depreciation study may not be recognized until the third and-or-fourth quarters of 2025, based on the current procedural schedule for that filing.
Jeff Householder: Before we shift to Q&A, I'd like to highlight a couple differentiators on Slide 24 that will enable us to drive shareholder value in 2025 and for years to come.
Jeff Householder: As Jim mentioned earlier, our theme for this year is delivering with purpose, reaching new heights.
Jeff Householder: This starts with our mission to deliver energy that makes life better for the people and communities who serve and is reinforced by our track record of delivering consistent financial results and top core tile return over the last 20 years or more.
Jeff Householder: We are uniquely positioned in two regions that benefit from above-average customer growth and infrastructure expansion opportunities, enabling us to implement a growth strategy supported by our three pillars.
Prudent Capital's Appointment, Proactive Regulatory Strategy, and Continuous Business Transformation.
Jeff Householder: This growth plan is made possible through our relentless focus on financial discipline, balance sheep strength, and our three-prong financing strategy.
Jeff Householder: We remain intent on maintaining an investment-grade profile and returning to our target capital structure so that we are well positioned to fund our long-term capital growth plan.
Jeff Householder: All of these elements drive our ability to reach new heights, both in 2025 and beyond.
Jeff Householder: We're not only targeting significantly above average adjusted earnings per share of growth this year.
Jeff Householder: but reaching new heights with capital investment projects, regulatory activity, and large scale technological transformations, enabling us to become a much larger organization over the next few years.
Jeff Householder: Staying committed to our goals and excelling at these differentiators will enable us to continue to drive industry leading growth, total shareholder return, and long-term value for all our stakeholders.
With that, we'll take your questions. Operator?
Jeff Householder: The floor is now open for questions. At this time, if you have a question or comment, please press star one on your telephone keypad. If at any point your question is answered, you may remove yourself from the queue by pressing star two.
Speaker Change: Again, we ask that you pick up your handset when posing your question to provide optimal sound quality. Thank you. Our first question is coming from Tate Sullivan with Maxim Group. Please go ahead.
Tate Sullivan: I thank you and I'm Jeff. You held your most recent analyst day event in Cape Canaveral, Florida. Can you talk about the natural gas infrastructure there on the regulatory side first for the space industry or has there been any regulatory developments?
Speaker Change: since then or upcoming in terms of regulatory natural gas infrastructure in that area please.
Hi, good morning, Tate. Nothing substantive to report.
Speaker Change: In that particular area, although I think as we mentioned we've had some good news in Virginia thinking about moving down to the launch facility there on Wallops Island with a $6.5 million grant that the state of Virginia has...
Speaker Change: provided to look at infrastructure expansion there. We continue to work with a number of parties on the Florida Space Launch Effort. There are continuing...
Speaker Change: meetings that indicate substantial interest both at the state level and at NASA and the other launch.
Speaker Change: Company is interactive there, and I think that before this is over with, as I've said many times there is certainly a need for a liquefied natural gas to
Speaker Change: Supplement the fuels that are used to launch those rockets and we'll find a way to participate.
Speaker Change: in that as the area is now in our service territory with the FCG.
Speaker Change: Acquisition. So we'll keep poking at that and I think we'll find a way to serve those facilities at some point.
Speaker Change: Thank you. And then the unregulated margin, another, at least, unregulated operating come rather. Another good core there, both from Marlin and it looked from propane as well. Is Marlin, are you, are you still expanding Marlin? You, you commented a couple years ago about building more trailers, I believe in a such, or can you talk on Marlin's footprint? And if you have, it discloses any expansion, ongoing expansion efforts at Marlin.
Speaker Change: I don't believe that we've talked specifically about moral and expansion. We continue to capitalize that business appropriately and as we find additional opportunities for growth.
Speaker Change: We're looking at a couple of things that I don't know how, right now as a matter of fact, where we will need to position additional equipment. We've made the appropriate capital advances there, and as you indicate, mostly in the cabs and trailers and mobile compressors and those sorts of things.
Speaker Change: and so and we'll continue to do that. There's no, you know,
Speaker Change: Big announcement of a large capital expansion program there. This is kind of business as usual as we continue to execute agreements for longer term service contracts with entities across the Mid-Atlantic and the Southeast.
Thank you very much, that's a good day all.
Thanks.
Speaker Change: We'll take our next question from Chris Ellinghaus with Fiebert Williams-Chank. Please go ahead.
Speaker Change: Hey everybody, good morning. Jeff, if you got any thoughts on tariffs and how you think about how it might affect your business or what you might be doing with supply chains.
Speaker Change: Sure. We've been, as has everyone else in this industry, been looking pretty hard at that. We have experienced very few issues related to those tariffs at this point.
Speaker Change: across our supply chain. We're in pretty good shape. We've been communicating.
Speaker Change: Expansively with the vendors and suppliers of various parts and pieces of our business, just haven't seen anything yet. There is a general view that
Speaker Change: The price of everything is going to continue to go up. We'll see if that holds true as the federal government continues to try and negotiate its way through these.
Speaker Change: Tariff Issues. We saw and we reported here on the WRU project that there is an impact, I think that's at least partially directed toward the uncertainty in the marketplace that the tariffs are creating.
and so with the fixed price contracts.
Speaker Change: You can see and we did see with WRU the indicative pricing we were getting before the tariffs went into effect.
Speaker Change: followed by the final pricing we've got after the tariffs went into effect and the vendors that we're going to construct that facility began to think about what their pricing might look like we're seeing at least in that particular project an increase in the cost. [inaudible]
Speaker Change: Some of that, I might add, was also related to the fact that it's pretty tricky to hire an electrical contractor in the state of Maryland. Maryland requires that every electrician on a job of that type hold a Maryland electrician's license.
Speaker Change: and many of those folks have gone looking for work as the data centers have blossomed around the country. There is a lot of work for electrical contractors on the industrial side.
Speaker Change: So I think we're seeing that kind of impact in the general marketplace. If you look at our other projects, I can't think of any many many millions of dollars of projects that we have under way that are being impacted by those tariffs at this point.
Okay, that's helpful.
Speaker Change: Views of the WRU, given the delay there, what have you done to adjust to make up for that margin late in the year for this year?
Thank you.
Beth Cooper: Drop in this year, you know, that converts, Beth could probably spit this number out directly, but probably a little over two million dollars I would
Speaker Change: I imagine an operating income impact. We can certainly manage that we have.
Speaker Change: You know, a large enough company at this point that we can maneuver some things.
Speaker Change: especially on the expense side. I would remind you as I have reminded many of our folks that we've overcome many times.
Speaker Change: Greater Impacts with simply weather adjustments that we've had over the last few years been able to move fairly effectively through those impacts. And so I think it's unfortunate that WRU has delayed.
but we have the operational-
Speaker Change: Capabilities to certainly provide the peaking service on a temporary basis that we were contemplating for this coming winter out of W.R.U. and we'll shift that into next year in the next winter. So I think operationally we're in good shape. I think that we will be able without...
Speaker Change: You know, too much difficulty to manage through the margin loss at WRU this year Lots of projects underway. There's a lot going on in this company that are generating
Speaker Change: Increases in projects and it's just the way that the fork has typically worked.
Speaker Change: You end up before you finalize even the contractor selection, going to FERT.
Speaker Change: with an estimated cost, those change over time, and I think it would not be surprising to fork that we would come back in and request an adjustment on the margin.
Speaker Change: So, what you'll end up with, I believe, is an increase in our capital program, followed by our ability, I believe, to find full recovery on this cost. So, there is a delay, it does have an impact, but we'll be able to manage through that.
Okay, great. You know, there's a lot of...
Speaker Change: sort of trickled down, related to the tariff regime and the economy, economic outlook in general. Have you got any concerns for...
Speaker Change: Say, foreign travel or foreign tourism or maybe housing starts in the second half of the year. Do you have any general thoughts on those things because they could certainly affect Del Marva in Florida?
Speaker Change: They certainly can, and we've actually been looking at a number of the projections.
Speaker Change: and theme parks and others that restaurant associations and a variety of folks that kind of track that sort of...
Speaker Change: Projected Data. There probably are some impacts there. We haven't seen anything on the tourism side that specifically impacts our business at this point.
Speaker Change: We also continue to see home builders on the single family residential side of the business continuing to develop very large communities. We have a fairly substantial backlog of
Contracted
Speaker Change: Housing Starts over the next three or four years.
Speaker Change: So I don't see anything there that's particularly concerning the multi-family market, certainly in Florida, has undergone some...
Speaker Change: Some issues with building failures and a couple of other things insurance costs that are I think affecting and impacting that market. We don't serve a lot of those so again it just hasn't moved down to us at this point at all.
Okay, one last question for Beth.
Obviously with
Speaker Change: You know, some of the capital and W.R.U. delays, things like that, there's going to be some...
movement in the seasonality. So, when you look at...
Speaker Change: and funky periods there, but you sort of think you revert to that pattern.
Speaker Change: That's a great question, Kristen. And I definitely think you move back towards that, you know, in that direction. What that?
Speaker Change: What that doesn't contemplate though, right, is our steady stream of capital projects and how the implementation of future projects might weigh into that.
so
Speaker Change: You know, next year, if you indicated in 2026, like this year, we'll look different.
Speaker Change: But really, you know, that seasonality in 27 and really in any year is going to be driven by whatever regulatory activity and any large substantial incremental capital projects that come on.
Speaker Change: that will come about in the future. But I think for now that's the best path to look at when you look at our longer term plan.
Beth, that all makes sense. Thanks. Appreciate the details.
Speaker Change: Thank you. We'll take our next question from Paul Fremont with Layden Burke, please go ahead.
Paul Fremont: Thanks and congratulations on a good quarter. I guess my first question is if you were to settle in the FGC gas depreciation case.
Paul Fremont: What would be sort of the optimal time? Would it be after staff testimony, or would it be after the staff issues its report?
Paul Fremont: It's likely to be the former. I mean, I think this is probably going to run out into the late third quarter or early fourth quarter. It's kind of indicated by that schedule.
Paul Fremont: You know, one of the things that I think all of us are still looking toward, it doesn't have a direct
Paul Fremont: Bearing per se on the depreciation study that we file, but everyone's still looking at that R-SAM Supreme Court.
Paul Fremont: Decision as at least an indicator of what the courts view might be of the original R. Sam. This is not that, but I think it all plays in that general context, and so I think it'll probably be...
Paul Fremont: You know, a summer where we work with staff and work with the Office of Public Council, as we work through the data request that have already started on the depreciation study, likely heading toward the schedule that you referred to. And I would imagine we would get pretty close to that.
before we began significant settlement discussions.
Speaker Change: Great. And then with Fitch initiating ratings, did they indicate a downgrade threshold for
Speaker Change: They have the FFO leverage calculation is the predominant calculation that they're looking at.
Speaker Change: and Paul, from their perspective, they start to view a downgrade when you're thinking about a 4.8 is when there's consideration of a potential downgrade.
and Ben Stemler.
similarly on the other side.
on Upgrade, indicated around 3.8. [inaudible]
Speaker Change: and then do you have sort of your own target relative to their thresholds?
Speaker Change: We do actually great question. We have actually spent time with our board and we have constructed a framework that actually looks at seven different metrics along the kind of a credit spectrum.
Speaker Change: including that one and two others that they, you know, they actually monitor as well but to a lesser degree, but we have those, we have this dashboard in place, we've established internal targets that our board has reviewed and that we monitor and we'll be showing them on a quarterly basis. So that's pretty front and center and something that we're looking at on a regular basis.
Speaker Change: Right, but are you, do you plan on sort of sharing any of those metrics with investors or are they really?
Whoop!
Speaker Change: We are still looking at that, Mike, Noah, myself. We're looking at that and evaluating whether or not we'll come out with that.
Speaker Change: So stay tuned but right now we haven't but you know we feel comfortable with you know our forecast and what we've shown them and you know certainly we're looking to sustain the ratings that we have out there.
Great. Thank you so much.
Thank you.
Speaker Change: Once again, if you do have a question, you may press star one on your telephone keypad. We'll go next to Nicholas Campanello with Barclays. Please go ahead.
Oh.
Michael Beckhoff: Hello Jeff, I listen to Michael Dempsey, Nicholas Cameron.
Hi.
Speaker Change: Do you think Chesapeake can hit the midpoint of guidance without the W.R.U. project margin?
for 2020. Well.
Speaker Change: I think certainly, you know, we intend to be in the guidance range. I mean, I think that's what we reaffirmed today.
Speaker Change: You know, where we fall within that range I think is yet to be seen.
Speaker Change: You know, it's hard to predict the future in some ways in an economic climate like this.
Speaker Change: as I've indicated we haven't seen other than WRU any substantive
Speaker Change: impacts to us and our business relative to what's going on in the economy at this point.
Speaker Change: and in fact we're pretty bullish on our capital program and you've seen that from I think a number of
Speaker Change: of companies reporting here lately. There's a lot to do out there and there's a significant demand for gas and...
Speaker Change: You know, the WRU margins are, it's unfortunate to see them move and I hate to even say that, you know, it's only three million dollars, you know, three million, three million, but it's...
Speaker Change: It's a it's a number that we I think can manage pretty effectively. Now whether that takes us to the midpoint of the range or the end of the range or the beginning of the range I think is something we'll continue to look at. Beth, have you got anything to add there?
Beth Cooper: Sure, any of the other things I would have at the first one is, you know, I think you've seen
Beth Cooper: First, we're going to relate to capital, and there's a lot that we're investing in, and you know that, you know, we have a lot going on from a capital perspective, and I think, you know, we'll come back later in the year and revisit whether or not we need to consider any change in our capital guidance in the future. And then, second off, I would just add, you know, a lot of those dollars are being spent on projects that you can
the Intermajor Project Table.
Beth Cooper: that will have more of a full-year impact in 2026. That's number one. The second thing is,
I would say you've seen us also commit [inaudible]
Beth Cooper: to getting back to that target capital structure. And so, you know, our decision to do that can weigh into where you actually land within, you know, that EPS guidance range. So I think, you know, that's really, those couple of things would just be the additional comments that I would have. So...
Speaker Change: I think you know we're pleased as Jeff said when he started off the call and I ended it with the first quarter I think it was a strong quarter I think you saw that in our results across our businesses and so again we're reaffirming for the year despite WRU
Speaker Change: and so maybe Jeff, I'm not sure we have any more questions so maybe we can turn it to you for some closing remarks.
Operator of any other questions?
We have no further questions at this time.
All right, well thank you guys very much for
Speaker Change: Connecting with us this morning, we appreciate your continued interest in the business, so we're pretty happy with the first quarter results.
Speaker Change: is not ultimately going to be a significant impact to us this year. We can manage through that. And we look forward to reporting on how that's going next quarter. And with that, goodbye.
Speaker Change: Thank you. This concludes Chesapeake's Utilities Corporation's first quarter 2025 earnings conference call. Please disconnect your line at this time and have a wonderful day.