Chesapeake Utilities Corporation

2021 Third Quarter Financial Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, this conference is being recorded today, Thursday, November 4th, 2021. I would now like to turn the conference over to Alex Whitelum, Head of Investor Relations. Please go ahead.

Thank you, Grant. Good afternoon, everyone. It is a great honor to join all of you for the first time. I'm very excited to lead Chesapeake Utilities' Investor Relations team. We know it's late in the day and we appreciate you joining us to review our third quarter and year-to-date performance through September 30th, 2021. Yesterday, we announced our financial results, which demonstrated how we continue growing and operating effectively, serving our customers, identifying and executing our new investment projects, and keeping our employees as safe as possible in this ever-changing but exciting marketplace. As shown on slide two, participating with me on the call today are Jeff Householder, President and Chief Executive Officer, Seth Hooper, Executive Vice President, Chief Financial Officer, and Assistant Corporate Secretary, and Jim Moriarty, Executive Vice President, General Counsel, Corporate Secretary, and Chief Policy and Risk Officer. We also have other members of our management team joining us virtually. Today's presentation can be accessed on our website under the Investors page in the Advanced Presentation subsection. After our prepared remarks, we will open the call up for questions. Moving to slide three, I would like to remind you that matters discussed in this conference call may include forward-looking statements that involve risks and uncertainties. forward-looking statements and projections could differ materially from our actual results. The safe harbor for forward-looking statements section of the company's 2020 annual report on Form 10-K and our first, second, and third quarter Form 10-Q provide further information on the factors that could cause such statements to differ from our actual results. Additionally, we continue to highlight some of our key environmental, social, and governance initiatives in our quarterly reports. Now I'll turn the call over to Jeff to provide some opening remarks on the company's third quarter and year-to-date results, and the key drivers of our performance. Jeff?

Thank you, Alex, and good afternoon, and thank you for joining our call today. Let me start, as usual, with an update on COVID-19 and our continuing efforts to manage through the ongoing pandemic. The Delta variant drove a surge in COVID cases throughout the third quarter, including in our service territories and our company. Over the past couple of weeks, we've seen reductions in our positive cases and the number of employees reporting exposure to the virus. We continue to encourage employee vaccination with time off for both the shots and downtime to deal with any vaccine side effects. As are most utilities, we're working to identify the applicability and potential impact that may result from vaccination mandates or COVID testing requirements. under the President's Executive Order or the OSHA Emergency Rule. We're also following the various state legal challenges that could impact the application and timing of the federal vaccination mandate initiatives. On many companies, we were hoping to return our remote workers to the office sometime this fall. However, we slowed that process as the delta variant cases increased. You may recall that well over 50% of our total team, those providing field operations services, have continued to report to their office locations throughout the pandemic. Our entire team, both field services and those assigned to work remotely, have performed well during the pandemic. We've substantially upgraded our technology capabilities to support our current work environment and have no reason to rush back to the office. In fact, we believe there will be significant future savings as we rebalance our long-term facility needs. As you would expect, we will approach any end of the pandemic organizational changes in a well-planned, disciplined manner with the goal of ensuring the safety of our employees and customers and the reliability of our services. One of our objectives during the pandemic has been to ensure communications with our team members remained a high priority. Prior to the pandemic, one of the various ways we communicated internally was through quarterly team meetings with all employees to review our performance, discuss future plans, and provide opportunities to exchange ideas. We've been holding frequent virtual meetings and conducting an all-employee call since the beginning of the pandemic. Those calls were conducted weekly for the first 16 weeks and are now held each month. And for the last two weeks and continuing this week, myself and other members of the senior leadership team have been conducting in-person town hall meetings accompanying locations across our service territories. These are the first in-person team meetings we've held since 2020, early 2020. In most locations, we've been meeting outside under a tent, socially distanced, and wearing masks. Re-engaging with the team personally and having the ability to thank each and every one of them for their dedication and contribution to our continued success has been rewarding for me. As part of these meetings, we're introducing our recently refreshed mission, vision, and value statements. employees through various surveys and focus groups for instrumental in developing these statements. And I think we've laid out simple declaratory statements that demonstrate our continuing interest in advancing our existing energy delivery businesses, as well as pursuing an active leadership role in developing sustainable energy opportunities that contribute to a lower carbon future. I remain proud of our team members as they continue to operate in a remarkably effective way, delivering high levels of customer care and executing our plans for sustainable growth. We had a notably strong third quarter with high quality earnings. As shown on slide four, earnings per share were 71 cents, an increase of 15 cents or 26.8% compared to the 56 cents reported in the third quarter of 2020. As highlighted on slide four, gross margin increased approximately half a million dollars over the third quarter of 2020. However, and as we reminded everyone during our previous calls, our results in last year's third quarter included a cumulative adjustment from the Hurricane Michael regulatory settlement. The rates from Q1 and Q2 were recognized in the third quarter. After the Hurricane Michael timing difference, gross margin increased by 6 million, or 8.1% year-over-year. Some of the key margin drivers for the quarter included pipeline expansion projects, organic growth in our natural gas distribution systems, the pipeline replacement program in Florida, contributions from the acquisitions of Elkton Gas, Electric Natural Gas, and the Escambia Meter Station, and increased margins for our propane businesses as well as Aspire Energy. We also rely on the net reduction expenses related to the COVID-19 pandemic and established regulatory assets for COVID-19 expenses as authorized by the various public service commissions. Year-to-date 2021 earnings per share were $3.45, an increase of 48 cents, or 16.2%, compared to $2.97 for the first nine months of 2020. This growth was driven by all the factors mentioned previously, in addition to a return to more normal weather and growth for Marlin Gas Services. Net income year to date was $60.8 million. Our net income for the first nine months of 2021 exceeds our total annual net income in 2018, just three years ago. Over that time, our growth has been largely achieved in expansion of our transmission pipelines into new territories, organic growth within our natural gas distribution systems, and successfully integrating acquisitions into our portfolio. We're fortunate to provide energy delivery services to communities that are experiencing significant growth. Since 2018, we've added more than 26,000 natural gas distribution residential and commercial customers. and approximately 9,000 propane customers. This customer growth is a real testament to our business development and operation teams executing our growth strategy. I'm happy to report that in all of our service areas, the demand for natural gas, propane, and electricity remains high. Those opportunities to serve new customers was the primary driver of our capital investment of $151 million through the first nine months of the year. driven by our residential customer growth rates of 5% in Florida and 4.1% on the Delmarva Peninsula. Our projected capital investment range for 2021 is now $185 million to $200 million. We continue to be fortunate to serve communities that appreciate and value the energy we deliver. I'll add more about our continued growth initiatives and capital investment projects across our business units in just a few minutes. But let me turn the call over to Beth for further discussion regarding our performance. Beth?

Thank you, Jeff, and good afternoon, everyone. Turning to slide five, net income for the third quarter was $12.5 million compared to $9.3 million for the same quarter of last year. This represents a growth in net income of $3.2 million. Earnings per share for the third quarter was 71 cents, up 15 cents, or 26.8%, compared to the same period last year. On a year-to-date basis, net income increased to $60.8 million, compared to $49.1 million for the same period last year. Earnings per share for the same period compared to the first nine months of 2020 grew by $0.48 to $3.45 per share, representing growth of 16.2%. The EPS growth rate compared to the net income growth rate for both the quarter and year-to-date reflects a large influence of stock in the latter half of 2020 as we rebalanced our capital structure to achieve our target capitalization range. As shown on slide 6, higher net income was the result of the gross margin drivers that Jeff highlighted earlier, coupled with continued expense management as well as business efficiency, standardization, and collaboration as we continue to focus on business transformation across the enterprise. Exclusive of the first and second quarter 2020 timing difference associated with the Hurricane Michael regulatory settlement, gross margin increased 8.1% compared to the third quarter last year, while operating income grew by 30%. The next two slides provide the key drivers of gross margin and expenses for both the quarter and nine months ended September 30th. For the quarter, as highlighted on slide 7, the key drivers of the $0.15 growth in earnings per share over last year's third quarter results are shown. Let me provide some additional color. As we mentioned, the absence of the timing difference associated with the Hurricane Michael regulatory settlement in the third quarter of 2020 generated an $0.08 negative impact for the quarter-over-quarter results. Simulatively, through the third quarter, both years now have nine months of regulatory recovery from the Hurricane Michael settlement. Ten cents in the quarter was driven by the regulatory deferral of pandemic-related expenses as authorized by the respective public service commissions. In the quarter, we recognized an additional five cents in earnings per share tied to the favorable income tax impact associated with the CARES Act, which allowed us to carry back net operating losses into prior year periods where the federal income tax rate was higher. Contributions from the acquisitions of Elkton Gas and Western Natural Gas generated an incremental four cents in earnings for the quarter. Our core businesses delivered additional margin contributions that increased earnings by 17 cents per share over the prior year's third quarter. This includes higher gross margins driven by pipeline expansion projects, higher natural gas and protein consumption, higher performance in our protein and electric operations, organic growth in our natural gas divisions, the Florida GRIT program that we've spoken to you previously, and higher consumption with customers returning to pre-pandemic demand levels. Offsetting this growth was $0.07 in higher depreciation, amortization, and property taxes associated with new capital investments. Operating expenses tied to the acquisitions I mentioned previously were $0.02 per share. Operating expenses tied to growth in our core business were a net $0.03 higher. And finally, changes in our shares outstanding due to equity offerings that helped us, again, realign our capital structure for a 3-cent headwind, followed by other items of 2 cents per share. On slide 8, you can see the same bridge for the year-to-date results, representing an increase of 48 cents in ETFs. The key drivers for this growth were as follows. Unusual items, including the gains from the sale of assets booked in 2020 and the net impact of the CARES Act in 2020, as well as this year, were a combined $0.13 headwind. The year-to-date impact of the regulatory deferral of COVID-19 expenses was $0.14 per share. Gross margins from the acquisitions generated $0.15 in ETFs during the nine months. Growth margins generated by our core business amounted to $1 more in ETFs. Depreciation, amortization, and property taxes associated with new capital investments offset the growth by 24 cents. Additional operating expenses tied to the acquisitions were an incremental 10 cents of expenses, and higher operating expenses in our core businesses due to growth were a 26 cent impact. Again, the increase in shares outstanding resulted in an 18-cent impact for the year-to-date period. And finally, other items added 10 cents per share. Moving to slide 9, we have narrowed our 2021 forecasted capital expenditures guidance. Given our year-to-date cap ex of more than $151 million, we now expect our investments to be in the range of $185 to $200 million, increasing the lower end of the range from the $175 million previously reported. Again, the investment is concentrated with approximately 80% forecasted in new regulated energy assets With the largest projects, including our recently completed pipeline in Ohio, which we announced, which is built to transport RNG from the Noble Road landfill. Secondly, Eastern Shore's recently completed Delmar Energy Pathway project and Delmarva Natural Gas Distribution's associated expansion into Somerset County, Maryland. Florida's Western Palm Beach County expansion, our Florida GRIT programs, Various other natural gas distribution system expansion projects to meet customer demand in our service areas, certainly our natural gas and electric system infrastructure improvement activities, and the additional newly announced projects, the Winter Haven expansion, the Beachside Pipeline extension, the acquisition of the Sandhya meter station from Florida Power & Light, along with our expansion of Marlin's fleet to support growth in CNG, LNG, and RNG transport. We maintain a strong balance sheet with access to sufficient competitively priced capital to support the growth we have experienced and ensure we have the capital capacity to fuel our future growth. As you can see on slide 10, as of September 30th, total capitalization was $1.5 billion, comprised of approximately 51% stockholder equity, which is now $751 million, 35% long-term debt at an average fixed rate of 3.55%, and $192 million in short-term debt under our revolver at an average interest rate of less than 1%. During the third quarter, we executed on three financing strategies, which continues to facilitate both our short-term and long-term capital needs. And let me spend just a few minutes here. In order to continue meeting our short-term capital needs, we replaced our $375 million in 364-day syndicated revolving credit facility with a new multi-franc 400 million syndicated revolving line of credit with multiple participating lenders. There are two tranches of the facility consisting of a 200 million 364-day short-term debt tranche and a 200 million five-year debt tranche, both of which have three one-year extension options. In regards to long-term debt capital, on August 25th, the company entered into a note purchase agreement with multiple lenders to issue $50 million in uncollateralized senior notes. Under the note agreement, the company will issue the senior notes in January at a rate of 2.49% for a 15-year term. We also secured $9.6 million of sustainability-linked financing in the third quarter. This new facility was used to support continued investments in our Marlin Gas Services business, which is one of the country's leading providers of virtual pipeline services. In addition to providing its customers with highly specific, complex, compressed, and soon to be liquefied natural gas solutions, the company is poised to help its customers achieve their sustainability goals through the transport of renewable natural gas. This lending was financed through Bank of America as part of their broader sustainability financing efforts. In terms of new equity, we have continued to utilize our traditional equity plans this year to issue $9.3 million of new stocks and increase equity beyond our earnings retained and reinvested in the business. Chesapeake Utilities' market capitalization certainly continues to grow. as we remain focused on increasing shareholder value by making strategic investments that drive our earnings while further enhancing our efforts to drive the sustainability of our local community. Thank you for the opportunity to speak with you about our strong financial performance. We continue to remain on track for achieving another year of very solid record results. I would now like to turn the call back to Jeff to talk about our future prospects for growth, along with a review of our capex and earnings guidance. Jeff?

Thank you, Beth. As Beth noted, we remain well positioned for future growth with our capital capacity and the strength of our balance sheet. Our ability to generate strong earnings growth on the capital investments we make speaks to the proven nature of our business model. Slot 11 highlights our five platforms for growth, which focus on optimizing our existing businesses through organic growth and business transformation, as well as investing in growth opportunities in gas transmission, propane, virtual pipeline solutions through Marlin, and sustainable investments including RNG and hydrogen. As I've already highlighted, we continue to experience significant demand for the energy services we provide, and we're excited with the opportunities we see on the horizon to drive our long-term sustainable growth. On slide 12, we highlight a few of the major initiatives that we continue to work on. As shown on the slide, a significant portion of our projected capital investment is devoted to expanding our existing core businesses and capturing the growth in our service territories. Our latest margin table on slide 13 highlights key projects and initiatives, including pipeline expansion, CNG and RNG, transportation, acquisitions, and regulatory initiatives. As we frequently remind you, this table does not include organic growth. Year-to-date, our total margin increase is approximately $28 million, of which $12.9 million is reflected on this table. Key projects are expected to generate approximately $60.5 million and $70.6 million in gross margin for the years 2021 and 2022, respectively. Pipeline expansions are expected to generate $12.1 million in incremental margin in 2021 and 2022 compared to 2020. including the new projects in Florida, Winter Haven expansion, the beachside pipeline extension to serve the next era Florida city gas distribution system. As we've said before, we are a beneficiary of our geography as populations grow and consumer demand for natural gas remains high. One significant example of the demand for gas is our transmission and distribution project to bring natural gas for the first time to Somerset County, Maryland. It was a significant accomplishment during the third quarter to place the Somerset section of our Del Mar Energy Pathway gas transmission project into service. We're already building distribution systems in the county to extend natural gas service to customers and local communities, displacing carbon-intensive fuel sources like oil and wind chips. We're particularly pleased with the full integration and margin estimates of $6 million and $6.4 million for 2021 and 2022, respectively, from the acquisitions of Elkin Gas and Western Natural Gas. We expect acquisitions to contribute further with the million-dollar margin increase from our recent acquisition of the Escandia Meter Station in the Florida Panhandle near our STU Pipeline serving the Pensacola area. On the regulatory front, we also made significant advances on several fronts. In July, our settlement with the Office of Public Counsel regarding our COVID-19 regulatory asset was finalized. Under the settlement, we established regulatory assets totaling $2.1 million during the third quarter, which will be amortized over two years, beginning January 1, 2022, and recovered through the respective rate mechanisms for natural gas and electric operations. There will be an increase in margin that offsets the amortization associated with these regulatory assets. We also reached an agreement with the Maryland Public Service Commission staff and the Maryland Office of People's Counsel related to our Elking Gas out-of-way pipeline replacement program. Under this program, we are accelerating the replacement of the pipe and recovering the cost in the form of a fixed-charge riser to a proposed five-year surcharge. Let me dive into more detail on some of these projects. Moving now to slide 14, in terms of renewables, we were excited to announce the completion of our first RNG transportation project. During the third quarter, our Aspire Energy business completed a 33.1-mile pipeline, which will transport RNG generated at the Noble Road landfill in Shire, Ohio, to Aspire's existing infrastructure in the region. The RNG will be used to displace conventionally produced natural gas. In addition to serving residential and commercial customers, the RNG will be dispensed from the fueling stations to fuel CNG vehicles. The Noble Road landfill RNG project is expected to capture and transport quantities of RNG that are equivalent to 6.9 million gasoline gas equivalents per year. We remain focused on investing in additional RNG projects. For 2022, we estimate $1 million in additional gross margin for RNG-related transportation projects. As we've discussed in prior calls, these projects take considerable time to develop. As the renewable waste and energy biogas market matures, we expect to see significant opportunities to service facilities and participate in their development through RNG offtake agreements, the provision of various services, for example, conventional gas or fertilizer growing and solar electric generation, as well as equity investments. These investments will also create new financing opportunities. As Beth mentioned, we recently entered into our first sustainable link financing facility, and we'll look to use that type of funding going forward. We'll continue to provide additional information as the projects begin construction and get closer to completion. Two waste and energy projects that continue to be developed on the Delmarva Peninsula are the Bioenergy Desco and Clean Bay projects. Following completion, both projects will process significant quantities of poultry waste and produce renewable natural gas, organic fertilizer, and various other soil amendment products. Our Marlin Gas Services subsidiary will transport the RNG to the interconnect point we're constructing on our eastern shore natural gas pipeline system. We continue to focus on projects that provide opportunities to solve fundamental environmental waste management issues in our service territory. Providing a solution to an underlying environmental waste management situation is the foremost benefit of the project we're targeting. As an example, processing culture waste into biogas helps strengthen an industry that is critically important to the Delmarva job market and economy. The production of valuable and marketable renewable natural gas is certainly important to the economic viability of these projects, but it's not the sole reason we're pursuing these deals. We're nearing the end of construction on a CNG filling station at the Port of Savannah in partnership with Southern Gas. The station is designed to serve local C&G fleets, including port vehicles, as well as providing a logistics and refueling plant for our Marlin C&G fleet. The station aligns with the company's ongoing commitment for environmental responsibility by providing, supplying clean burning natural gas to fuel vehicles and making it available to customers with limited access to natural gas. CNG-powered vehicles produce lower emissions than gasoline and diesel vehicles, reducing greenhouse gas emissions by up to 30%, and nitrogen oxide emissions by 85%. Our intention is to provide opportunities for fleets to elect renewable CNG as an option, and we're working currently with an upstream gas marketing company to provide renewable supply options for our CNG customers. Slide 15 shows the investment of approximately $153 million in recent and planned expansion projects through 2023. The annual cumulative gross margin contribution is estimated to be $24.2 million when these projects are fully in service. As a last note, our work to introduce the hydrogen natural gas fuel blend at the East Flag CHP turbine site on Amelia Island, Florida, is nearing completion. The interconnect facility is complete, and we are days away from completing the modifications to the fuel system, turbine, and other mechanical equipment. A revised air program has been approved, and we've converted four of our Marlin C&G tankers to transport hydrogen. This project will begin with a 4% hydrogen blend, but we anticipate increasing the percentage up to 20% next year and we complete the scheduled replacement of our turbine. I mentioned in our prior conference call that we were supporting a hydrogen research project proposed by Solar Turbines through the U.S. Department of Energy. We've offered our eight-flag CHP turbine on Amelia Island as a test site, and we'll be monitoring, as usual, emission levels from the plant to generate data on reduced carbon levels. The project gives us a unique opportunity to discover the attributes of hydrogen blends in a distribution system, particularly in the areas of safety, operational requirements, measurement, availability, and effects on downstream customer equipment. We're also working with several of our existing industrial customers to identify opportunities for hydrogen blends at their facilities. I'm now turning the call over to Jim Moriarty to discuss some of our more recent regulatory initiatives and our commitment to ESG as part of our corporate culture. Jim?

Thank you, Jeff, and good afternoon, everyone. It is great to be with you again today. On slide 16, we highlight some of the previously discussed legislative advancements we have made in both Florida and Ohio. I am proud of our government affairs team for leading and supporting these important matters within both states. We are focused on working with our elected representatives to ensure that natural gas is available to meet customer demand first and foremost, and to provide a mechanism for renewable natural gas to be a viable part of our diversified energy portfolio. We are also working to ensure that we are effectively communicating with our customers and our stakeholders and serve as a resource to them. We are at various stages in working on similar legislative initiatives in our other jurisdictions and we will keep you apprised of future activities. Slide 17 and 18 list some of our recent regulatory initiatives where we have proactively worked with our various public service commissions to secure recovery of key investments in our businesses. while further supporting safe, reliable, and economical energy to our customers. As shown on slide 17, Florida Public Utilities continues to make significant progress in its gas reliability infrastructure program, or GRIP, that began in 2012. We have invested more than $183 million of capital expenditures to operate approximately 337 miles of distribution mains, increasing the safety and reliability of our systems for many Floridians. We expect to complete this program by the end of 2023 at the latest. The Hurricane Michael settlement impacting our FPU business allows for recovery of the investment we made to restore our electric distribution system in the Florida Panhandle. The settlement allows the company to amortize approximately $46 million in storm costs and interest over a six-year period and recover a total of $11 million annually from 2020 through 2026 and $3.3 million per year thereafter. Our Eastern Shore Natural Gap Interstate Transmission Unit has authority to recover capital costs associated with mandated highways or railroad relocation projects. Gross margin is expected to be $1.2 million in 2021 and $2 million in 2022, associated with these relocation projects. Moving to slide 18, in September, we implemented our Strategic Infrastructure Development and Enhancement, or STRIVE, plan. Under this plan, we anticipate the replacement of approximately six miles of pipe in Elkton, Maryland by the end of 2023. This upgrade will continue to enhance the integrity and reliability of our systems for our employees and our customers in the Elkton, Maryland community. In July, we reached a settlement with the Maryland TSC and Maryland's Office of Public Counsel, enabling us to accelerate this project while earning an appropriate return on the investment. Also in July this year, the Florida TSC issued a final order allowing Florida Public Utilities to establish a regulatory asset of $2.1 million. The amount includes COVID-19 related incremental expenses for bad debts, personal protective equipment, cleaning, and business information services to expand our remote work capabilities. The amount will be amortized over two years, beginning in 2022, and recovered through the purchase gas adjustment and swing service mechanisms for the natural gas businesses and through the fuel and purchase power cost recovery clause mechanism for FPU's electric divisions. As provided on slides 19 and 20, Chesapeake Utilities understands the importance of our commitment and leadership role in environmental, social, and governance matters, a commitment that we have fostered over decades of listening to our customers, leading change, and serving each other and our communities. We look forward to releasing our inaugural Corporate Responsibility and Sustainability Report before the end of the year, highlighting our continued sustainable growth while also decreasing our emissions and our dedication to social justice and our sound governance principles. Turning to slide 21, we wanted to highlight our unique corporate culture, which is the foundation of our success and our way of doing business. During the quarter, Chesapeake Utilities was recognized with a number of awards. As we discussed on our last call, the company was named the top workplace in the U.S. by the News Journal earlier this year. We were also recognized as the top workplace in Delaware for the tenth year in a row. Across our business units, we received several additional awards in 2021. We were recognized with the Stars of Delaware Award, which celebrates those companies regarded as the best Delaware has to offer. We were recognized for Best Company over 50 people, reflecting our dedication to playing an active role and being a constant resource for our customers and communities. Additionally, our propane operations were recognized as the Best Propane Company for their commitment to safety and exceptional customer service across our service territories. These awards speak to our employee engagement. which is a constant focus for management and the board. Since the beginning of the pandemic, we have worked to increase employee engagement by expanding our employee resource groups to the six you see on this slide. These ERGs are the next steps in elevating our culture of equity, diversity, and inclusion, or EDI. As we have mentioned numerous times, we believe that a combination of diverse team members and an inclusive culture contributes to the success of our company and to enhance societal advancement. Most recently, we welcomed William Houston to our team as Vice President and Chief Human Resources Officer and a key member of our senior leadership team. William brings tremendous EDI experience to the team, including drawing from his previous experiences and prior role as Chief Diversity Officer. Additionally, in October, we announced the appointment of our third female director to our board of directors, Lisa Vastashi. Lisa's addition continues our steady progress of gender and ethnic diversity that represents the communities we serve. In September, we announced the receipt of Ethical Boardroom's prestigious award for best in corporate governance in the utility sector in North America. This award recognizes outstanding leadership worldwide for companies that have raised the bar to ensure that strong corporate governance contributes daily to enhancing long-term value for all stakeholders. Our success is the direct result of the dedication of our board and our employee-centric culture that promotes equity, diversity, and inclusion and supports our strong commitment to our customers, communities, and each other. Finally, we most recently learned that four of our businesses were recognized by the American Gap Association for their commitment to safety. Safety remains our primary focus, and we have invested heavily to continue building our safety governance and culture. Engagement in our local communities continues to remain strong. Over the last three years, we have contributed more than $1.3 million in support of our local communities. Additionally, through our Chesapeake Sharing Program, employees support local communities and organizations of their choice. As a highlight, our propane business, Sharp Energy, annually supports the Nemours Children's Hospital and their Child Life Program. I appreciate being with you all today and walking through a few highlights of our company. I will now turn the call back to Jeff for some closing comments. Jeff?

Thank you, Jeremy. You know, our fundamental strategy for the past 20 years has been to build on a solid, stable foundation of regulated businesses and invest in related non-regulated businesses that offer the opportunity to generate returns above our capped regulated returns. We've been pretty successful over a long period of time executing this strategy. Slide 22 shows our consolidated return on equity performance for the last 15 years. As you see, we've exceeded 11% each year for that entire period. Our high E performance is driven by continued prudent investments that enable customer and margin growth, prudent acquisitions, solid regulatory strategies, and the contributions and growth of our unregulated businesses, such as Propane, Marlin, and Aspire Energy, that complement our regulated businesses. On slide 23, we continue to reaffirm our five-year capital guidance for the period 2021 to 2025 of $750 million to $1 billion. As we discussed earlier, we narrowed our 2021 CapEx guidance to $185 million to $200 million. We're finalizing our last strategic plan update, which we actually just discussed with our board of directors yesterday. We're confident that we have significant investment opportunities ahead of us to continue driving future growth. Moving to the next slide, we also continue to support our 2025 EPS guidance range of $6.05 to $6.25 per share, representing an average EPS growth of approximately 10% from our initiation of guidance from the end of 2017. Before I close today's presentation, I'd like to take just a moment to recognize and express my sincere condolences to the family of Gene Bayard. Gene, who passed on Sunday, October 31st, had been a longtime board member for over 15 years. Gene was extremely forward-thinking, well-connected throughout the state of Delaware. He provided valuable counsel to our board and management team. He was also a wonderful person, always optimistic about our company's future. Gene's shoes will be hard to fill and we will miss him. To finish up on slide 25, we believe that natural gas will remain a key component of the country's long-term energy strategy. The markets we serve value the energy services we deliver. Our customer growth rates and the customer and political support to bring natural gas to new communities like Somerset County, Maryland, with what the continued interest in natural gas. At the same time, we have opportunities given our business mix expertise and strategic approach to capitalize on new energy delivery investments that contribute both to a lower carbon future and to increase earnings for the company. We're committed to our growth strategy. We're focused on continuing to deliver top performance, including shareholder return, which has exceeded 16% compound annual growth for each period 1, 3, 5, 10, and 20 years through October 31, 2021. Our investment proposition is based upon our commitment to superior performance, our strategy, our financial objectives and targets, as well as our ongoing focus on execution and operational efforts to support our continued pursuit of top quartile performance. Thank you. Alex, with that, we can now address any questions.

Thanks, Jeff. Grant, please open the line for any questions you might have.

Thank you. If you would like to register a question, please press the 1 followed by the 4 on your telephone keypad right now. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3. One moment, please, for the first question. And we have a first question from Kate Sullivan with the Maxim Group. Please proceed with your question.

Hi. Thank you. Good afternoon. Jeff, I heard you mention in your press release sleep conversions to protein and CNG, and you mentioned it in your prepared remarks as well. I have not looked at that before as a large driver in your businesses, but is sleep conversion – increasing, would you say, and is that leading to more business for autogas or is there a regulated distribution business on the energy side?

Well, I think it's a combination of things. I think certainly we're focused on the propane autogas, heat conversions, and we've done a significant number of those over the last few years and have now expanded that focus into Florida and several other places. And so we see that as a significant portion of our propane business going forward and a growing proportion of our propane business. On the natural gas side, I mentioned the CNG station that we're going to bring that into service, I believe, sometime in mid-February of next year. And we're focused now on contracting with various fleets that go past that station in Savannah. There are some I think it's 5,000 or 6,000 fleet vehicles that actually move past that station every day into Georgia, and also working with the Port of Savannah on a variety of the vehicles that they actually use inside the port. Beyond that, we're going to use, as I mentioned, that facility as a staging ground for our C&G efforts with Marlin to move into Georgia and the Carolinas. I don't know that C&G's fueling is a major part of our future. I think it's an interesting opportunistic opportunity, if I can use that phrase. And where we see the opportunities, like you do in Savannah, to actually advance Marlin's ability to more easily and cheaply, more cheaply, access the markets in Georgia and the Carolinas. And we also happen to find the facility where so many vehicles are moving past in a day, then we'll take advantage of that. Hopefully that answered your question.

Thank you very much for that additional detail. And then on the incremental gross margin table, separating the CMG transportation and RNG transportation, is Marlin going to be, or can you tell right now, a very small part of the RNG transportation? side. I mean, particularly in the next few years, it looks like it's mostly the pipeline project in Ohio, noble energy. Is that correct to look at it that way?

It's correct to look at it that way based on what we've disclosed at this point. So we're working on a variety of opportunities that we just aren't able to publicly describe today. I would tell you that we see Marlin's growth opportunities in the future as largely focused on R&G transport. And we believe that there are a number of opportunities to provide that sort of service really across the country. And so we're highly focused on marketing Marlin as an R&G transport operation. We certainly will find other services that Marlin can provide along the lines that it currently provides. But I think R&G is the real focus for us with Marlin going forward.

Okay, thank you. And last for me before turning it over, CNG transportation gross margin going to 7.3 next year from 7.2 roughly. Has the fleet growth figure capacity with Marlin been high or can it be higher than that growth that you see?

Yeah, we've been growing Marlin's fleet capacity and capabilities over the last two years. We've added a number of cab vehicles and we've added a number of trailers. I mentioned that we converted four of our existing tube trailers to be able to transport hydrogen, which we see, frankly, as an emerging opportunity for Marlin. And so we've been carefully adding to Marlin's fleet and trying to ensure that we don't overburden them with more vehicles and more capital than they can absorb as they continue to grow their margins. But I think we'll continue to carefully grow that business over time as we've typically carefully grown all of our businesses. to make sure that the investment in the business doesn't outstrip our ability to produce margins that support it.

Thank you very much, sir. Sure.

And the next question comes from the line of Brian Russo with SIDOTI. Please proceed with your question.

Hi, good afternoon. Hey, I was wondering if we could talk about the propane business with, you know, rising commodity prices, in particular propane. How is Sharp or the overall propane business position going, you know, into this winter? It's my understanding that you kind of have the capabilities of propane. generating more margin in a rising propane price environment. So can you elaborate on that dynamic?

A couple of things and then I'll turn that over to Beth and she can weigh in. We have significant storage assets, especially on the Delmarva Peninsula, but down in the Florida as well with total millions of gallons. And so we are well positioned. We also have a very active fuel management group that's been quite successful in hedging our propane products over the years. And we feel like we're in pretty good shape going into the winter. And I think that's perfectly recognized that the prices are increasing. But I think we'll be able to move through this winter in pretty good shape. Beth, you might want to add something to that.

Sure. Thank you. Brian, what I would add just to what Jeff was mentioning, we also have several programs where customers sign up in advance and basically walk in. what they're going to be paying through the upcoming season. And so when those customers are locking in under those programs, we are also locking in the supply behind those programs. So customers that have signed up months ago under those programs, the supply was locked in for that. In addition, as Jeff mentioned, beyond us having diversity of supply across the peninsula, We also have diversity of supply in regards to the contracts that we've entered into months ago for our supply coming into the winter season. So we spend a lot of time as a risk management committee looking at what contracts we're going to enter into, a diversity of suppliers that we're going to get the protein from. And so when you look at our weighted cost of gas relative to some of the other players that are in our local markets, what you will see is a greater diversity of supply. And so, you know, we've taken those actions, and then as you come into the heating season like we are, the way the market is going to price typically where retail prices are going to go are going to be based more on more localized supply points. And so that's where, to your point, You know, we may have a little bit more opportunity in regards to our supplies coming from multiple sources. If retail prices go up in response to where supply costs are, we've already locked our supply costs in, but we can certainly look at what the retail market is doing in terms of pricing. There's multiple things that come into play, but as Jeff indicated, we have certainly, you know, we've planned well in advance for the upcoming season, and a lot of times we find ourselves being or having an opportunity to actually provide part of the supply to some of the local competition.

Right, Janet. Thank you for that. That's what I figured to have. On Marlin, the $9.6 million of sustainable financing program, You know, that's the first of its kind for you, and specifically for Marlins. I'm wondering, it seems like there's a lot of growth opportunity. Is that $9.6 million, you know, designated for anything in particular? You know, you mentioned trailers or trucks, or I think last quarter you mentioned possible acquisitions. Just get your thoughts on that.

Sure. So this particular tranche of financing that we entered to is specifically related to the investments that Marlin is making around, as we talked about, the concept and the thought that Marlin is going to begin transporting renewable natural gas. We have opportunities like this one that we entered into with Bank of America as well as with for some other sustainability-linked financing. So you're absolutely right, Brian, that we can consider other sustainability-linked financing as we take on incremental projects. But this 9.6 is totally high to those Marlin investments.

Okay, thanks. And lastly, just on R&G, can you just talk a little bit about the project pipeline that you might have in R&G? You know, I know in particular your relationship with Clean Bay. Clean Bay, I think, is very active in U.S. markets in various projects. And I'm just curious, you know, how do you leverage your existing relationships into, you know, new future projects?

Go ahead. Go ahead.

Well, I'll start this, and then I want to certainly add to this. I mean, what I would say, Brian, is, you know, certainly we're seeking the two projects that we've announced on Delmarva. You know, we are certainly very engaged on those projects, but there are other projects, including with those particular what I would call investors, as well as with lots of other potential parties for projects across our service areas. And so, you know, even like this first project that we announced in Ohio that's been, you know, been completed, you know, we're aggressively looking across our footprint. And I think, you know, we've got a very, I think a very robust pipeline. What I can tell you is that, you know, no one project is the same. So each project is different, both in terms of the inputs and in terms of how the outputs are viewed. And how they're basically coming to market. We've learned a lot. We continue to learn a lot, but I think we're well positioned with the partnerships that we've made already and the ones that we're continuing to develop. Jeff, I'll turn it to you for more thoughts.

I'll just add a couple of things to that. I mentioned this in passing in the discussion we just had earlier. Our view of waste-to-energy projects is to find projects that really have a fundamental environmental waste management issue in the service territories that we serve. You know, we're not specifically out hunting renewable natural gas quantities. We are hunting projects that, as I said, that deal with a fundamental waste issue that A good example of that are the couple that you mentioned a moment ago, Clean Bay and Bioenergy Desco on the Delmarva Peninsula, looking to provide some assistance to the poultry industry in managing waste products that come off of that industry. And there is such an interest politically, environmentally, and from people that live and work on the Delmarva Peninsula to manage that waste in a little bit different way, that we think that's the real driver behind those projects. And when we look at the projects from an economic perspective and we look at the profit potential of a company to participate in those projects, we're looking first at those fundamental underpinning underlying waste issues And then we're looking at the renewable natural gas that comes out the other side of the plant. And primarily, the RNG that's being produced is making the facilities to fundamentally clean up the waste issue economically viable. And it's great to have marketable and valuable RNG coming out of those projects, but that's not really the driver for us. We think that fundamentally... cleaning up and helping to manage waste products in our service territory, whether it's poultry or cattle or landfill or whatever it may be. You know, those are the real drivers for these projects.

Okay, great. Thank you very much.

And the next question comes from the line of Michael Gossler with... Janie Montgomery Scott, please proceed with your question.

Hey, good afternoon, everyone. Welcome, Alex. Thank you, Michael. Jeff, on slide 15, where you detail the pipeline projects, a wide range of capital investments, $3.5 million up to just north of $63 million. I'm wondering at this point in time, How are you thinking about pipeline projects going forward? Are you still going to be heavy in Florida? Do you see anything that's larger in size? Or does the changing landscape provide different areas for new project growth?

Yeah, I think that's exactly it. We still have expansion interest on the Delmarva Peninsula. They're not anywhere near as large as the expansions that we've seen over the last four or five, six years on the peninsula. But we'll still find projects that are meaningful to each consumer there over the next few years. We see serious opportunities remaining in Florida for projects of the type that Peninsula Pipeline has been engaged in for the last five or six years. So they're relatively small-scale projects. So, you know, $5 million to $15 million. We also see a couple of opportunities potentially, and we'll see how this works, for larger scale projects in Florida that actually sort of connect the dots between areas that need additional gas supply that are a little bit outside of the existing interstate projects scope. And so we think there's still some intrastate activity in Florida that makes some sense for us. And we're looking at projects like the one we just finished in Ohio, especially related to some of the renewable natural gas facilities that are coming out of the ground, primarily the eastern side of the Mississippi. And so we think there's still some opportunities in various states for us to look hard at some of those types of projects.

Okay. On the eastern shore expansions, would that be – are you looking within where you currently operate, or would you be pushing further south, further west? Well, we're – Where are the holes on? This is what I'm asking.

Yeah. Yeah. And those are – you know where the holes are. They're exactly those. They're to the south and to the west. And I think, you know, we're always looking for expansion opportunities. And I think we'll continue to find some. Again, I don't think, Michael, that we're going to see the kind of investment that was made at Eastern Shore over the last few years. But I do believe there are some meaningful projects there. We're seeing peak capacity issues in our distribution systems on Delmarva that we're going to have to address over the next few years. And so I think there will be some compressor projects at Eastern Shore. I think there will be some other things there that can help us meet those peak requirements that are continuing to grow as we add more and more customers up and down at the North Fork. So, again, I don't think you'll see any very large projects on the Delmarva, but I think there will be some meaningful smaller projects as we continue to go through the next several years.

All right. That's all I had. I also wanted to say congrats on what was a really strong quarter.

Thank you.

And as a reminder to register for questions, press the 1 followed by the 4 on your telephone keypad right now. And the next question is from the line of Roger Little with Clear Harbor Asset Management. Please proceed with your call.

Thank you, and good afternoon, guys. Hello. Yes, hello.

Go ahead, Roger.

Oh, yeah, I'm sorry. I didn't know you could hear. Hi. It was obviously a great quarter. Others congratulated you on it. But I just want to note before getting to my major question that the shareholder information that has been made available, this call and all the other ones before it, is remarkably complete and good. So Alex has got some tough shoes to fill. to improve on what you all have been doing. Now, Jeff, that comes with a risk. So I want you to be on the alert for Alex's, in an attempt to drive visibility for the company, making sure people understand it's not a partially owned subsidiary of Chesapeake Energy, that stuff. He may hatch a plot to go cut-off gas service to a prominent customer of yours up in Wilmington, and if he does that, it certainly would bring attention to the company, but the board might get a little piqued.

I'll keep a close eye on him, Roger, I assure you.

Okay. I was off put by a particular exhibit on the on page 16 you don't have to go there to it it's the ohio activity and the state energy preemption legislation preventing natural gas bans that to me is an example of where there's tone deafness in the gas industry Because you can win in the court of law, but if you lose in the court of public opinion, then that's not a good game. So you're not to blame for this. You didn't write this legislation, I'm assuming. But to me, it's like a hand grenade. You just never know when people look at... that kind of thing and just say this industry, you know, doesn't have a future because their interests are not aligned with ours. And I want to leave that right there and now move on to my actual question. Methane emissions are a big deal, need I tell you. But I hear what could be construed as greenwashing in the absence of data. And so I'm asking if the company currently has any data on, for example, the grip investments in Florida, and I think the figure was 337 miles, anyway, some large number of miles. What is the delta in methane losses? I don't mean unaccounted for gas. That's a whole separate issue. It's related, but it's not the issue. I would love to have data where you can say the emissions are down, pick a number, 25%, 50% from where they work. Can you respond to that?

Yeah, sure. There is some data, and we do track the pipeline mile replacements, the service line maintenance, the service line replacements. We track methane information based on line breaks on the pipe, I mean, those sorts of things. And we have... Significant efforts underway, as you just described, in one instance of our Python replacement project in Florida to try to improve all of those measurements. And we will be reporting that data fairly soon. We have a post-inaugural ESG report that we're putting the final touches on right now, and we've been running through the company compiling information like that and we'll be providing that over the next few months. And so, yeah, that data is out there. It's not perfect, but I think it's pretty good. I'll tell you the other thing that we're doing, Roger, is we have initiated a pretty significant damage prevention program. We're staffing that. We're actually, you know, providing the resources to work with local contractors that are typically damaging our facilities. We actually were kind of in the middle of the pack in the number of times per day that one of our facilities gets hit when you compare us to other utilities. And I think there's room for improvement there. Most of the methane leakage that occurs from our system and really any distribution system generally occurs when the lines are hit by somebody doing construction. And so we're going to tighten that up considerably. So you'll begin to see some data coming from us over the next two or three months.

You may have seen publicity. The New York Times carried a big story on several reporters of theirs using infrared camera technology and actually going to locations roadside usually, but Environmental Defense Fund has flown aircraft over areas in West Texas, for example, and the whole Permian operations. And there is incontrovertible data about leaks and even some of the articles in the Times talked about producers who flatly denied that there were methane leaks coming from their compressor station or from whatever the dickens it was and so suddenly they get confronted with satellite or aircraft or roadside data And, you know, they have a slightly awkward problem saying, oh, well, we didn't really need that. We'll go see if we can hunt down these leafs. Those are producers. They are not regulated utilities, particularly ones who... are running the store properly. You guys are supreme examples of that. But I just love the city industry as much as for Chesapeake Utility just having preliminary, like overflights, looking for things on your system so that you're never caught unaware of something. You can always say, on such and such a date, we were aware of that and we started corrective action. Anyway, do you want to comment on that?

Well, we do very extensive leak surveys of our entire system, and we really never stop. They go on continuously to identify exactly the kinds of leaks that you're talking about. Now, we're running small-scale on a distribution side, lower pressure leaks. mains, obviously, and so we don't have the types of leak issues that you're describing. But we're out there all the time looking for them. We also operate some very new vintage systems. Most of our pipes in the Delmarva, in our distribution businesses, is plastic. And so we have a very low level of leak issues there. We've replaced, as you mentioned moments ago, 358 miles or whatever it is now, of our older vintage unprotected steel mains in Florida. So we're getting toward the end of that along with many thousands of service lines. And so it's truly tightened the system up significantly. And a lot of those replacements were with plastic pipes as well. And so we are, I think, doing a pretty good job of looking at those leaks, identifying them, fixing them. We've got folks that are dedicated to repairing those leaks when we find them. And I think we're doing a pretty good job with that. I think you'll see some of the data that we report. in our inaugural ESG document will indicate that, you know, we're in pretty good shape there.

Okay. Well, I applaud, heartily applaud the efforts that you're taking and how you are emphasizing them in this call, for example. Keep up the good work, and thank you.

Thank you. And as a reminder to register for a question, press the 1 followed by the 4 on your telephone keypad right now. There are no questions on the phone at this time.

Jeff, with that, thank you for some closing remarks.

Yes, I appreciate you guys joining us this afternoon. I know this is at the end of a long day. I also want to thank all of my colleagues at Chesapeake for their longstanding dedication to serving our customers and providing exceptional returns for shareholders. It was great over the past couple of weeks to personally reconnect with our team and be reminded of how talented our workforce really is. More than ever, I'm confident about the future of our great company. So please stay safe, and we look forward to talking with you again very soon. Goodbye.

And that does conclude today's conference. We thank you for your participation and ask that you please disconnect your line.