Chesapeake Utilities Corporation

Greetings and welcome to the Chesapeake Utilities Corporation results for first quarter 2022 earnings 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. Should you require operator assistance at any time, please press star 0. As a reminder, This call is being recorded today, Wednesday, May 4th, 2022. And I'd now like to turn the conference over to Alex Whitelum, head of investor relations. Please go ahead, sir.

Thank you, Dave, and good afternoon, everyone. We know it's late in the day. I appreciate everyone joining us. We're excited for you guys to see the results for the first quarter of 2022. As you saw in our press release issued yesterday, the company reported solid financial performance at the beginning of the year, demonstrating our continued ability to deliver long-term sustainable growth for our stakeholders. As shown on slide two, participating with me on the call today are Jeff Householder, President and Chief Executive Officer, Beth Cooper, Executive Vice President, Chief Financial Officer, Treasurer, and Assistant Corporate Secretary, and Jim Moriarty, Executive Vice President, Federal Chemical 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 and Events and Presentations subset. After our prepared remarks, we will open the call up for questions. Moving to slide three, I'd like to remind you that matters discussed in this conference call may include forward-looking statements that involve risks and uncertainties. Forward-looking statements and projections could differ materially from our actual results. The safe harbor for forward-looking statements section of the company's 2021 form 10-K provides further information on the factors that could cause such statements to differ from our actual results. Additionally, the company evaluates its performance based on the metric adjusted gross margin and has provided the appropriate disclosures in accordance with the FTC Regulation G. The reconciliation of GAAP gross margin to non-GAAP adjusted gross margin provided the appendix for this presentation in our earnings release. Now I'll turn the call over to Jeff to provide some opening remarks on the company's first quarter results and the key drivers of our performance. Jeff?

Thank you, Alex. Good afternoon, and thank you for joining our call today. I'd like to start by thanking all of my colleagues across the company for their continued hard work and dedication to our energy delivery mission. For the second consecutive year, we were recognized as a top workplace USA for midsize companies. I think that recognition speaks to the effort by our entire team to sustain a work environment that reflects our core values of care, integrity, and excellence. But an interesting quarter. Despite inflationary pressures, variable weather conditions across our footprint, and ongoing supply chain and market challenges, our team produced another great quarter. Chesapeake Utilities delivered solid financial results with both adjusted gross margin and earnings growth in the quarter, took significant steps to address important ESP considerations, and remain focused on our business transformation continuous improvement objectives. As usual, Beth will provide a more detailed overview of our financial results in just a moment, but on slide four, I wanted to highlight a couple of our recent key accomplishments. First, earnings were $2.08 per share for the first quarter, up 6.1% over the same period in 2021. This resulted from an incremental $8.8 million in adjusted gross margin for the quarter, really solid top-line and bottom-line growth. We remain on track to deploy $175 to $200 million in new capital investment this year. It's been something of a challenge to keep individual projects on schedule given supply issues, contractor manpower difficulties, and protracted regulatory processes. Although we saw a reduction to our month-by-month capital deployment forecast in Q1, the effective projects are viable and remain in our investment queue. And our ongoing robust business development process continues to bring us opportunities for future investments. We're confident in our long-term capital guidance. Supporting the investments we have already made, we issued $15 million of senior notes in March at an attractive rate of 2.95%. We also completed a number of sustainable energy delivery projects during the quarter. We opened our CNG fueling station near the port of Savannah to supply the trucking and vehicle markets that serve the port. We designed the station to receive and distribute renewable natural gas to further help our customers achieve their emission reduction sustainability goals. The station will also serve as a logistics center for our Marlin gas services business, providing a refueling site for our expanding southeastern market. We hosted a groundbreaking ceremony where many local, political, corporate, and utility officials came to see the capabilities of the new station firsthand. We're excited about the future expected throughput of this facility. This week, we also announced the North Ocean City Connector Pipeline Project. We'll dive into greater details on this in just a moment. As we briefly introduced in our year-end call, we also completed our first test of a hydrogen and natural gas blend in our Eight Flags combined heat and power plant in January. And in late February, we received the positive results from this testing. This was an important first step in introducing hydrogen blends in our power generation system, but also provides a hands-on hydrogen demonstration for other industrial gas users. We're going to Continue to do further testing later this year, building off our pilot tests and results when AFLAG completes its previously scheduled turbine replacement. Finally today, the board announced an 11.5% increase to our annualized dividend per share. This level of dividend growth aligns with our recent earnings growth. Our plan over time to migrate through a 45% dividend payout ratio and speak to the long-term growth pathway we continue to see for the company. All that said, it was another great quarter with solid financial results, a number of exciting announcements that will positively impact the future. I can also say that we have several projects that we are finalizing and look forward to announcing those in the near term as the details are finalized. As we have in the past, I wanted to touch briefly on our five growth platforms on slide five. Our natural gas distribution businesses continue to grow organically. a level significantly above the national average. In the first quarter, our Delmarva and Florida service territories generated 5.3% and 4.0% residential customer growth, respectively. This growth continues to present investment opportunities, and we are partnering with developers to attract new customers, either from new developments or build-outs of existing projects. Given the inflationary environment and rising interest rates, we also continue to closely monitor market factors impacting new home builds. But at this time, we're not seeing a slowdown on Delmarva or in Florida. We continue to invest in our pipeline systems, primarily to support the growth I just spoke of in our distribution system. As I mentioned and we'll discuss further in just a moment, earlier this week we announced the North Ocean City Connector Project, reaching new customers along the Delaware-Maryland coastal border and adding capacity to support the customer growth we're seeing in Ocean City and the surrounding areas. We continue to find attractive propane expansion opportunities in the Mid-Atlantic and Southeast. Propane is an important non-regulated contributor to our earnings and long-term ability to achieve overall Chesapeake Return on Equity above 11%. The diversified energy acquisition in North Carolina and Pennsylvania made a significant contribution in its first full quarter as part of the Chesapeake Utilities family, adding approximately $4 million of incremental adjusted gross margin. The integration of this business into our company has gone well, and we are excited about the opportunities that this platform provides. in regards to expanding our services and programs like Autogas, ProCat, Smart Club, and many others in the Carolinas. Marlin Gas Services and their virtual pipeline systems continue to provide growth opportunities, and we're seeing solid margin growth as a result, and Marlin began providing temporary renewable natural gas transport services this quarter to a customer in Florida. Finally, I'd like to remind our stakeholders of the sustainability report we published in late February. It's been quite a discussion nationally over the past few weeks on furthering ESG disclosure. We believe the efforts we've taken thus far are great first steps, but we have much more to do. We will continue to take additional steps that will help reduce our emissions even further and will continue to enhance our disclosures around important ESG initiatives. Slide six reaffirms our efforts to expand our service territory with our sustainable energy delivery solutions. And with that, I'll turn it over to Beth to discuss our results and more depth. Beth?

Thank you, Jeff, and good afternoon, everyone. I'd like to echo Jeff's comments on the work and dedication of our team. They continue to step up and deliver increased performance and find ways to continually better our great company. With that said, let me dive into the details of the quarter. As you'll see on slide 7, diluted earnings per share grew to $2.08, an increase of 6.1% over the first quarter 2021 EPS of $1.96. Some of the key gross margin drivers for the quarter included the contribution from diversified energy, which we acquired in December of 2021. That was really near the midpoint of December. Continued pipeline expansions, as Jeff mentioned. Strong customer growth in our national gas distribution businesses as well. Also, there was additional growth from the various regulated infrastructure programs established in our service territories, increased margins at our Aspire Energy business in Ohio, higher performance through higher retail margins per gallon in fees in our legacy protein businesses, and finally, weather contributed a slight headwind to our consolidated results as we saw variable weather conditions in our different service territories and across the different months in the quarter. For instance, we experienced a colder January in each of our northern territories, but warmer temperatures in February and much of March in the regions where our protein businesses serve. On slide 8, our financial summary shows that adjusted growth margin increased by $8.8 million, or 7.5% during the quarter, driven by the initiatives I just mentioned. Net income for the quarter was $36.9 million, and earnings per share were $2.08, increases of 7.2% and 6.1% respectively. We remind everyone that earnings per share growth rates compared to the net income growth rates for the quarter reflect the issuance of stock to continue to achieve our target capitalization range through the issuance of equities. In summary, despite weather volatility, Chesapeake Utilities executed well during the quarter and delivered solid adjusted gross margins and earnings growth. On slide 9, we highlight the key contributors to earnings growth for the first quarter as measured on a per share basis. Let me provide some additional detail for just a minute. First, the contributions from the acquisitions of the Astandia Meter Station and Diversified Energy generated an incremental 17 cents in earnings for the quarter. Our core businesses delivered additional margin contributions that increased earnings by 19 cents per share. This includes higher operating income from organic growth projects, higher performance in our Aspire Energy and protein operations, along with additional income from our regulated infrastructure programs. Operating expenses tied to the acquisitions, largely with diversified energy, were 10 cents per share. Higher depreciation, amortization, and property tax costs associated with new capital investments were a $0.07 headwind. Operating expenses tied to growth in our core business were a net $0.05 increase higher. And changes in shares outstanding lastly due to equity offerings that helped us align our tech target capital structure were a $0.02 headwind. Let me touch a minute on Check the Peaks Utilities operating segments on the next two slides. On slide 10, you'll see adjusted gross margin was up 5.5% year-over-year for our regulated energy segment. Operating income was slightly higher, up 6.3%, and driven primarily by those pipeline expansions with Eastern Shore Natural Gas, Peninsula Pipeline, and also with Fire Energy Express in Ohio. our incremental contributions from our various infrastructure programs, organic growth in our natural gas distribution, operations, and contributions from the Escambia meter station acquisition. Additionally, our business transformation efforts continue to drive operational improvement to allow or to enable our businesses to scale and capture efficiencies within our regulated operations. Next on slide 11, our unregulated energy segment also achieved solid performance in the quarter. Adjusted gross margin increased an impressive 11.6% compared to last year's first quarter. This margin growth was driven primarily by contributions from diversified energy and increased margins for our protein distribution businesses and Aspire Energy. Offsetting that growth, however, were increased operating expenses specifically tied to the inflationary environment we're all seeing with transportation, fuel, labor costs, supply chain impacts, and other rising costs. Despite these challenges, though, our unregulated energy segment delivered operating income growth of 5.6%. On slide 12, I'll mention a few updates on the balance sheet. In March, we achieved $50 million in senior notes at 2.95% with a 15-year average life. Something to note is that while we were pleased to secure capital at this attractive rate, our new long-term debt facility will increase Chesapeake Utilities' interest expense by approximately $1 million annually. At quarter end, total capitalization totaled approximately $1.6 billion. This included 51.5% of stockholders' equity, which is now $806 million, and within our target capital range. 38.2% long-term debt at an average fixed rate of 3.41%, and short-term debt, which decreased from $222 million at year-end to $141 million at March 31st, with $50 million tied to that long-term debt financing I just mentioned. During the quarter, we continued to utilize our traditional equity plan to issue new equity, totaling approximately $2.6 million. We retain capacity under these plans as well as our ATM programs to provide additional equity if needed for permanent financing. Our balance sheet remains strong and well-positioned to support our capital investments, which will drive our earnings growth and enhance shareholder value. Moving to slide 13, we highlight the pipeline expansion, CNG, LNG, and RNG transportation projects, the acquisitions, and the strategic regulatory initiatives that will drive our growth through 2023. As always, we remind you that this table does not include organic growth, and it is not indicative of all the projects, like Jeff referenced, that we are evaluating and pursuing. We are continually encouraged by the opportunities being introduced and evaluated by our business development team. As you know, in addition to looking at value-enhancing utility deals, we have widened our appetite on renewable energy projects, and we're excited with the level of activity we're seeing. That said, and as we have mentioned in the past, these types of projects are taking longer to come to fruition. We'll continue to provide updates on the projects underway as they become available. For the year, though, we expect the projects that are already underway, that they'll add more than $20 million in 2022 and another $7 million in 2023. Relatively, the major projects included in this table presently are expected to add more than $43.5 million of adjusted gross margin over our 2020 levels. Moving to slide 14, we highlight our key pipeline expansion project. With an investment of $136 million, these projects are expected to contribute more than $19 million in adjusted gross margins. Let me touch on our newest project, the North Ocean City Connector, on the next slide. On slide 15, you'll see that we are planning to construct an approximate six-mile pipeline along the coastal Delaware-Maryland state line to connect our sandpaper energy system in Ocean City, Maryland, to our Sussex County, Delaware system. The expansion will support growth in the Fenwick Island, Delaware area and provide Ocean City with a second connection to support its growth. Pending applicable approvals, we expect to invest $6.3 million on construction of the infrastructure, which is projected to generate $400,000 in adjusted gross margin for 2023 with an opportunity for additional margin growth in 2024 and beyond. With that, I'll pass the call off to Jim to discuss our regulatory and ESG updates. Jim?

Well, thank you, Beth, and good afternoon to you all. Slide 16 lists certain of our ongoing regulatory initiatives, including the announcement of our intention to file a joint-based rate proceeding in Florida for our various natural gas distribution businesses. We submitted this notification on March 24th. We intend to file the proceeding as soon as practicable following the notification period expiring on May 24th. The filing will include an estimated $18 to $20 million increase in the revenue requirements. We look forward to working with all the stakeholders throughout Florida on this important procedure. Additionally, Florida Public Utilities continues to make significant progress with the Gas Reliability Infrastructure Program that began in 2012. Through the end of the first quarter, we have invested nearly $190 million to upgrade approximately 348 miles of distribution mains increasing the safety and reliability of our system for many Floridians. We expect to complete this program by the end of 2023 at the latest. In Austin, Maryland, we continue to invest in the integrity of this system by upgrading Adelaide A pipeline. The program went into service towards the end of 2021, and going forward, we expect the project will generate $200,000 and $400,000 in adjusted gross margin in 2022 and 2023, respectively. Finally, our Eastern Shore Natural Gas Interstate Unit has authority to recover capital costs associated with mandated highways for railroad relocation projects. We expect that this program will generate $2 million in additional adjusted gross margin in 2022 and 2023. Moving to slide 17, we are proud of our inaugural sustainability report, which we published in February, and appreciate very much the positive feedback we have received. Our newly created Environmental Sustainability Office and our internal ESG committees are well underway with our emission reduction initiatives and efforts to build upon the success of our inaugural report. In the report, we outline our ESG commitments. Chesapeake Utilities will be a leader in the transition to a lower carbon future. The company will continue to promote a diverse and inclusive workplace and further the sustainability of the communities we serve. The company's businesses will be operating with integrity and the highest ethical standards. These clear commitments guide our mission to deliver energy that makes life better for the people and the communities we serve. Within that context, I'd like to highlight some of our recent ESG accomplishments. From an environmental perspective, as Jeff mentioned earlier, we successfully completed the first test of hydrogen and their natural gas blends to fuel the company's H-Wag CHP facility. We also opened the company's first CNG fueling station near the Port of Savannah. capable of distributing RNG for fleet vehicles. On the social side, we were excited to have been named a 2022 Top Workplace USA award recipient for midsize companies for the second consecutive year. We also initiated two new employee resources within the company, which I'll cover in more detail on the next slide. And from a governance perspective, we enhanced our transparency with our director skills matrix and our latest proxy statement distributed to shareholders in March. And in April, we joined governance leaders as a member of the advisory board for the John L. Weinberg Center for Corporate Governance. All great efforts on the ESG front. Additionally, we are evaluating the SBC's recent proposal on climate-related disclosures. While the proposal is quite broad in scope and timing, we are working to enhance our ESG and climate-related disclosures. We are proud of our ESG initiatives and look forward to discussing them in greater detail in our next sustainability report. Turning to slide 18, highlighted in our sustainability report, is our strong company culture and the recognitions that we have recently received. As discussed, we started two new employee resource groups in the quarters. Diverse Abilities and EPIC, or EPIC. Our Diverse Abilities ERG aims to increase awareness, empathy, inclusion, and advocacy of those with different abilities within our work family and in the communities we serve. Our EPIC ERG aims to create an inclusive environment among members where all can broaden the understanding of, forge a community network around, and celebrate a diverse cultural group within the company. These ERGs and other initiatives focused on employee engagement, equity, diversity, and inclusion have led to awards recognizing our positive and unique culture. As we touched on previously, Chesapeake was named the top workplace in the United States for a second year in a row. The award is based solely on employee feedback which speaks for our people-focused culture, the foundation of our success. It's great to be with you all, and I will now turn the call back to Jeff for some closing comments. Thanks, Jim.

On slide 19, I want to spotlight again the boards pursuing today to increase the company's quarterly dividend by 11.5%, to an annualized rate of $2.14 per share. This level of dividend growth is supported by our strong double-digit earnings growth in 2021 and our positive outlook for the future. We are proud to have consistently paid dividends over the last 61 years and increased our annual dividend each of the last 19 years. Moving to slide 20, we continue to reaffirm our long-term earnings and capital expenditure guidance. In 2025, we expect to deliver diluted earnings per share in the range of $6.05 to $6.25. This represents a compounded annual growth rate of 9.1% to 9.5% over the five-year period. We also continue to expect to deploy $750 million to $1 billion in capital expenditures during the same period. 2021 provides a strong start to achieving that goal. with 228 million deployed during the year. Despite a few timing delays on a select number of projects in the first quarter, we continue to expect another 175 million to 200 million deployed in 2022. To finish on slide 21, we remain bullish on the future that natural gas has in driving our country's long-term energy strategy. We're also excited with the opportunities we see to help drive the transition to a future with cleaner, more sustainable energy. Our senior management team and the board are committed to executing upon each of our five growth platforms and delivering top quartile financial performance over the long term. And while there are certainly challenges on the horizon with continued inflation, rising rates, and the ever-changing market environment, We see a bright future for Chesapeake Utilities, and we appreciate your continued support. And with that, Alex, why don't we open it up for questions?

Thanks, Jeff. Dave, please open the line for the Q&A section.

Certainly, and thank you. If you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge that request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3. Once again, to register for a question, it is 1-4 on your telephone keypad. And our first question comes from Lauren of Pink Sullivan with Maxim Group. Your line is open.

Hi. Thank you. Good afternoon. You gave a lot of good detail on your North Ocean City Connector project. Is it right now and in the first year for capacity expansion to serve existing customers? And is that the reason for the level of incremental gross margin from that project of about $400,000 in year one? And how can that increase? This is my question as well, too, please.

Yeah. It's actually paid in both. It's supporting growth. It's also, you know, increasing the reliability of the system that we have in place, given a lot of the growth that we've already experienced.

It provides a second fee paid into Ocean City, so there's a significant amount of reliability increase that we're anticipating once we get this fee in place.

And are there still many unconverted homes from propane to natural gas, or is this left in Ocean City in terms of future customer growth in that area?

Well, you have several things that are happening within Ocean City and the surrounding areas. So within Ocean City, you know, our sandpaper conversion captured a lot of the customers at that time that could be converted. But what's happening, you're seeing a lot of older buildings, older homes, actually being demolished and larger condominiums, apartments, larger homes, et cetera. So while there may have been gas, you could actually see in certain locations, you know, multi-family buildings being constructed that would actually increase the capacity within Ocean City. Outside of Ocean City, both in southern Delaware and also, I would say, on the outskirts in western Ocean City, on western Ocean City side, you're continuing to see new developments build out and be constructed. So it's a combination of both. that we're seeing. And so, you know, growth is happening, and it's continuing to happen, not only along those kind of deep areas, but even as you move a little bit inland. And this actual expansion or, you know, construction project will really achieve a great part of that, you know, where it connects. Jeff, I don't know if there's anything else.

No, I think that's right, Beth. I mean, we're running this pipeline past a number of emerging developments, especially in southern Delaware. and then also, as Beth indicated, interconnecting it into the system that ultimately serves Ocean City, where there's a significant amount of redevelopment going on.

Great. Thank you. And some background for my next question. Organic customer growth rates in Delmarva, NASA gas distribution, about 4.9% growth. In the first quarter, can you just talk about the natural gas distribution customer growth rates in Florida? You break it into two separate regions. In the smaller one, Florida energy division had low growth this quarter, 1.2%. Is that, as long as I'm reading that correctly, can you just talk about why some areas in Florida have lower natural gas customer growth than others?

I think that really is more just a matter of customer coming on. What I can tell you is, You know, in Florida, equally to what's on Delmarva, if not even more, you know, we have a lot of opportunities for continued expansion. We're actually in the development where our Florida corporate headquarters is. You know, there's planned development within where our corporate facility is. We're ultimately there to be like 20,000 homes, residences, and businesses over time. So some of what you're seeing is really less about the quarter. It's more about the long term. And you may see one quarter go up or down a little bit, but I really look at the longer term and not so much just the particular quarter because, again, we see a lot of opportunity and there's still a lot of developments that are underway.

Okay, great. Thank you, Deb.

Thank you.

And our next question comes from the line of Shar Paretza with Guggenheim Partners. Your line.

Hi, good afternoon. It's actually Constantine here for Shar. Thanks for taking my question. Sure. Can you talk about what moves you beyond your range of a CapEx investment to cost the regulated and unregulated businesses? Is it kind of more leverage to customer growth expectations or traction on R&D, hydrogens, new technologies? And maybe as pivoting, as we think about potential opportunistic kind of bolt-ons or acquisitions, what parameters would you focus on, geography, IRR, et cetera?

Sure. So, Constantine, if you look at the capital guidance that we have out currently, you'll see the biggest proportion of capital investments are centered around our national gas distribution business. So, you know, an example is, you know, just the Ocean City Connector project that we talked about. There's lots of other, you know, expansions that are underway or that are coming to our, you know, coming to our internal capital committee for review. There's also developments where we're already in where there's additional build-out. There's also some projects of capital dollars that are in there for some of the pipeline projects that we are in midstream that are included in our major projects table, some of which will come to fruition this year. One, you know, a couple will come to full completion next year. We even have one that kind of hits in more in 2024. So you've got capital dollars associated with those. And in some cases, we may have projects that we are evaluating that haven't been fully announced in both of those buckets. And then in addition to that, we have our ongoing infrastructure programs that are underway. So GRIP in Florida has continued to be a lot of capital investment for us. The ANA pipeline program that you heard Jim talk about in Elston, and then also the Eastern Shore capital surcharge program where we're making required replacements because of, you know, government relocates in some of our facilities. So all of those are impacting our capital. And then we have the normal growth tactics that may be occurring with our fire energy system as well as our protein system. Now, because of what we've done in diversified, we're looking to stand up some increased programs in North Carolina that will require some incremental capital down there for autogas and for some other things that we're looking to do. And so when, you know, and then I guess I would also say from the Marlin side, you know, Marlin has had some investments to ready itself for, you know, first the CNG fueling station was something that we completed. We believe that will be, you know, very instrumental to a lot of growth that we expect to see on the CNG side, particularly over the next couple of years. But Marlin, you know, did some things in that to help foster that particular project to get to complete them. They also readied some of their capabilities internally to handle RNG. They also did some things to ready their tanks for carrying hydrogen. which occurred with our eight slides facility. So, again, a lot of projects across our portfolio that are underway. You won't see a lot of dollars that are being factored in for acquisitions. There may be some small dollars if we think there's an acquisition or two out there that we're looking at that align with what we have currently. But that's generally speaking what's in that bucket of $175 to $200 million. Okay.

I think incrementally, beyond that, we are doing what many companies are doing and looking, as Beth indicated in the presentation, at the renewable energy opportunities that exist. And we're finding many, many, many things to consider. And, of course, the issue is what parts of those projects are we actually going to build Are we going to build them in partnership with others? And what's the timing of all that? And what we're finding, as we indicated in the presentation, I think Beth said it, is that the timing of those, the development timing of those projects, especially the ultimate financing of the larger projects where we might actually take minority interest in a service area where we have other synergies that surround those plants, whether we're building solar energy facilities to serve the electric needs of the plant, or we're transporting the RNG with Marlin, or we're providing thermal gas to dry fertilizer, or whatever those other things are that we typically look for that enhance our financial prospects. We're seeing, again, fairly lengthy development and financing times. on some of these larger, more what I would describe as utility-scale projects. This is not the one dairy farm and go in and put it in the anaerobic digester. This is looking at consolidating, aggregating waste across a large regional area and bringing it to a centralized processing plant producing RNG and then producing the soil amendments or the organic fertilizers out the other side of the plant. So those are of interest to us, frankly, because they drive RNG production. That's a very nice thing to have on one side of the plant. But they're of interest to us because they help address a fundamental environmental requirement or need in an industry that's important to us, like the poultry industry in Delmarva, the poultry industry in Georgia or Florida. And so we believe that there's a business opportunity for us assisting these other industries in meeting their ESG and sustainability needs, generating renewable natural gas and producing economic returns for our shareholders. And those are the projects that I think are significantly implementable to the several hundred million dollars worth of traditional projects that Beth has been describing over the last several months.

Thanks. I think that's a very comprehensive answer to a multiple question, so definitely appreciate that. And Newt, can you touch on the inflationary environment and commodities and what impacts do you anticipate on the unregulated businesses in the near term? Is there an opportunity to increase market share potentially, just given the fragmented nature of the businesses? organic and organic?

Well, so, you know, on the protein side, you know, that's, you know, from a pricing standpoint, you know, we evaluate our pricing all the time relative to the markets in which we operate. And so, you know, in serious, Constantine, where you can have, you know, higher commodity prices, You know, generally, you know, you're going to look at what the market is doing, and sometimes the market will respond immediately, and sometimes the market may be delayed. But certainly, you know, we will try to, as much as possible, maximize the margin opportunities we have. But, you know, we want to make sure, first and foremost, we're providing the needed service, and then secondarily, you know, we want to remain competitive in those markets. On the Aspire side, you're absolutely right. In times like this, from a commodity standpoint, there can be opportunities on the Aspire side, particularly in the small component of their business that's associated with NGOs. You saw that come through in our first quarter when you look at what they were able to do from a higher margin perspective. You know, these types of, I would say in the unregulated business, you know, the market, it depends, but they can present opportunities, but sometimes it can be challenging if the market doesn't move immediately, particularly in the protein area with the rising commodity prices.

Jeff? If your question, I interpreted it probably incorrectly, but I'll answer it this way anyway. If your question was, are the inflationary environment that we're in, as well as the inflationary environment that we're in, and the commodity price, let's call it the volatility in the market, especially in propane, does that pressure some companies to look at exiting the market and give us an opportunity for acquisition? That's an interesting question. We've seen that sort of thing happen before, whether it will happen again we'll see. I mean, we're always pretty opportunistic in those market opportunities. And, you know, we've done enough lately, especially over the last four or five years, that we typically get a look at most anything that does come on the market. And so, you know, we think there are opportunities there, and we'll continue to opportunistically to look at them throughout the Mid-Atlantic and the Southeast. I doubt you'll see us you know, going to Missouri or any place like that looking for program acquisitions. But if it's in our backyard, we have an interest.

I think that was a little bit embedded in there, so definitely appreciate it. Thank you guys for your time, and congrats on your core.

Thank you.

And as a brief reminder to register a question, please press the 1 followed by the 4 on your telephone keypad. Our next question comes from the line of Brian Russo with Sadati. Your line is open. Hi. Good afternoon.

Good afternoon, Brian.

Hello. I'm just curious, you know, what are the primary drivers of the Florida base rate filing that you notified the commission about?

Well, probably the primary driver is we haven't been in to the commission since I believe it was 2009 and 2010 where the Florida Public Utilities filed one year and our existing Central Florida Gas filed the next year. And then we executed a merger between those two companies. And so it's been a long time since we've actually been before the commission. We've been working for the last several years to consolidate the tariffs as much as possible in the existing four utilities that we operate in Florida. And now we're taking, you know, yet another set of steps to try to consolidate as much of the remaining pieces of those tariffs as we can. And so we'll get the rules and regulations pieces consolidated fairly well. We'll see ultimately where the rates end up. We may end up with some phase-ins on rates between those four units before we get to consolidated rates. The other thing that I would tell you is that we need to go in and actually move the GRIP investments into rate-based. And it's just the way the accounting kind of works on those investments. Other utilities have been doing that. We'll do the same thing. And so it's a series of those issues. And then finally, obviously, we've seen some fairly significant investment in those systems in Florida over the last decade. And so we just need to make sure that we're getting a solid recovery on the investments that we've made and the forecast investments and the projected test year. And we look out in Florida a year. through 2023, and we'll be recovering costs for some of the investments that we see in the near-term future.

Oh, I see. So the $18 to $21 million, you know, that's a forward test year calculation.

It is. It looks like that.

I'm sorry. Yeah, I'm just wondering, you know, are you under-earnings? And, you know, part of the 18 to 20 million is to, you know, close kind of a, you know, an ROE gap, you know, and it's kind of clear. And it's very incremental large going forward. Mm-hmm.

Yes, and it is a projected under-earnings that looks at the return of some of the expenses that we've been able to avoid during this COVID period for many, many things. Travel, for example, those sorts of things. It's a reflection of continued increases in expenses related to compensation for employees. I mean, we're looking at that all the time. As you all know, this is an interesting employment market these days. It reflects those kinds of cost increases and the additional capital that we will invest over the next, you know, year or so.

Right. And also the accumulation of the GRIP investments, you know, you know, while it's added to base rates, it's not necessarily an incremental rate increase to the customer? Is that also positive?

That's correct. That's correct. The mechanism that we have in place for recovering those pipeline replacement investments is virtually immediate. And so we have adjusted rates, you know, many times over the years to recover those growth investments. But this brings it all in the rate base and moves those recovery mechanism kind of adjustments, if you will, in the base rate. No impact on customers.

Yeah, got it. Understood. And I think, you know, when you have the open gas acquisition approved, I think the settlement also agreed upon a stay out. Is there any expectation for a rate change soon, or can you stay out past whatever that settlement date was agreed upon?

Well, actually, Ryan, we had, I think before that, we actually had something associated. We had a a mechanism for sandpaper energy. We had something with Elston Gas. And so we're kind of looking at all of those in conjunction with each other. Not unlike Florida, we're actually looking at Maryland together. And so I think you'll see us pursue an opportunity to actually come in as a consolidated group in Maryland. Most likely not this year, but in the future, bringing those three kind of businesses together, similar to what Jeff talked about in Florida.

Okay, and then is it fair to say that your organic customer growth is accelerating in Delmarva? And if that's the case, do you see kind of an acceleration of your capex, you know, for infrastructure in that region?

You know, I think it kind of goes back to the question I think Kate had earlier on Florida. You know, I think we're running at, you know, a great pace of growth. You know, and if you look at us over the last several years, you know, we've kind of been, you know, in the 3.9 all the way to about 5%. And that's been in Delaware, you know, on Del Fargo, as well as it's gotten as high as over 5. Florida's been very high as well in the upper fourth. But a couple of points about that. One is, you know, as we're expanding our system, there's really the build-out. of those developments that we reach. In some cases, what's also happening on Delmarva is we're converting some of our CVS systems, and so you may see kind of a pop there on the distribution side. But keep in mind, Brian, it's kind of taking it out of the pocket on the protein side and we're moving it over to the natural gas side. So that can also make the growth rate at some point look a little bit higher. And so we kind of point, we brought that out this particular quarter in our earnings release because you're going to see that happen as our natural gas distribution system expands further along the beach. And, you know, and the other thing that I would tell you is, you know, over time as you've looked at Florida, you know, Florida has a lot of and that's not captured in the growth percentage. And so, you know, I would just say growth remains strong. Some quarters, again, will be up depending on how quick we're adding customers along the way, but we haven't seen a sign, you know, that's demonstrated there's any decline in either of those territories, but you could see spikes because of things like CPS conversions.

Okay, great. Thank you very much.

And, Mr. Householder, there are no further questions. I'll turn the call back to yourself. Thank you very much.

All right. Well, thank you very much for joining us today. We appreciate your time and look forward to catching up with many of you in person at the upcoming AGA conference in Miami. Goodbye.

And I will conclude the conference call for today. We thank you very much for your participation. You may now disconnect.