Chesapeake Utilities Corporation

Good day, everyone, and welcome to the Chesapeake Utilities fourth quarter and four-year 2022 earnings conference call. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. so others can hear your questions clearly, we ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to Alex Whiteland, Head of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. We appreciate you joining today as we highlight Chesapeake Utilities' fourth quarter and four-year results for 2022. As we saw in our press release issued yesterday, the company finished the year with strong financial results, despite the sweeping changes in the macroeconomic environment. Given our 2022 results and positive outlook, we increased our EPS and capital expenditures guidance, which continues our long proven track record of delivering top level performance. 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, 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 and Invest in Presentation subsection. 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 2022 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 non-GAAP suggested gross margin and has provided the appropriate disclosures in accordance with the SBT Regulation G. A reconciliation of GAAP gross margin to non-GAAP adjusted gross margin is provided in the appendix of this presentation and in our earnings release. Now I'll turn the call over to Jeff to provide some opening remarks on the company's financial results, including the key drivers of our record performance. Jeff?

Thank you, Alex. Good morning, and thank you for joining our call today. We'll start on slide four. I'd like to thank and congratulate all of my colleagues for another record year at Chesapeake Utilities. The dedication and hard work of our employees is the backbone of our success. In 2022, we hit a number of important and impressive milestones, not the least of which was the achievement of our 16th consecutive year with increased earnings, an achievement that very few companies were fortunate enough to accomplish. For the year, we reported earnings per share of $5.04, which was an increase of 6.6% compared to 2021. This level of earnings growth was the result of more than 37 million of incremental adjusted gross margin and continued expense management throughout the year. Our margin growth was largely driven by our recent acquisitions, transmission service expansions, pipeline replacement programs, and strong natural gas distribution customer growth in both our Delmarva and Florida service territories. We also benefited from increased margins and demand for services in our unregulated businesses. We took important steps throughout the year to mitigate higher costs associated with increased interest rates and the inflationary environment. Beth will talk about this in a bit, but I'd like to again thank all our colleagues who worked hard to generate a record level of margin growth while managing expenses across our businesses. A great job by all. 2022 is our 62nd consecutive year of paying quarterly dividends. Our track record of paying increased dividends annually now stands at 19 consecutive years. Our strong conviction to support dividend growth through earnings growth continues to provide long-term return upside for our investors. Our 2022 capital investment level was lower than originally anticipated. For the year, we deployed $141 million in capital expenditures. As we mentioned in our second quarter call, regulatory and supply chain delays impacted our ability to complete projects during the year. That said, and let me reiterate this point, our project delays were simply timing issues. The delayed projects we expected to complete in 2022 are now scheduled for completion in 2023. And approximately $40 million of capital expenditures that were planned for last year will shift to 2023. As an example of one of these projects, we recently received FERC approval to install an additional compressor on our Eastern Shore natural gas transmission system in Delaware. The project was originally slated to go in service late in 2022. The final first approval was delayed until December of last year. The compressor will support additional base and peak load capacity to meet the growing customer base on our Delmarva gas distribution systems. And we expect to have the compressor in service by the end of this year. The Eastern Shore Compression Project is just one example of the investments we're making to serve customer growth across our service territory. I'll dig into the customer demand for gas service a bit more in a minute, but I'll note that for the year we saw residential natural gas customers increase by 8,400, a 5% increase over 2021. Our propane business continues to grow with the addition of over 20,000 new customers acquired in two propane acquisitions during the year in North Carolina and Florida. We also continue to advance our interest in sustainable energy through investments in renewable natural gas and the testing of a natural gas and hydrogen fuel blend in our Eight Flags CHP facility. We have a second phase hydrogen test at Eight Flags scheduled for May of this year. So as we look out over 2023, we have significant confidence in our ability to deploy growth capital. As Alex mentioned, we have increased our earnings and capital expenditure guidance, which speaks to the confidence we have in Chesapeake's growth over the long term. We'll talk about this in greater detail later in the presentation. With that, let me turn to slide five to cover some of our recently announced sustainable energy projects. Across our service territory, we continue to identify opportunities to increase our sustainable energy footprint, which is one of our five platforms for growth. Let me highlight a few of our recent projects. As we announced in our last call, we recently acquired PlanetFound Energy Development. PlanetFound provides an operable, poultry-based waste-to-energy test facility on Maryland's eastern shore. The employees' technology patents and operating expertise will prove valuable to Chesapeake as we continue to assess opportunities to invest in poultry waste RNG projects. We also acquired the opportunity to continue development of an RNG facility in Maryland, partially supported by a $2 million grant from the state of Maryland. In Davenport, Florida, we're in the process of constructing a 2.2 mile pipeline that will connect our natural gas distribution system to a compressed natural gas vehicle fueling station owned and operated by Clean Energy Fuel. As a cleaner burning fuel, utilization of CNG-fueled fleet vehicles is helping customers achieve their sustainability goals. And this station also has the ability to receive renewable natural gas. In Uleaf Bar, not far from the office where we're sitting this morning, we recently completed construction of an alternative fuel ingestion point. It's the first interconnection point to accept RNG into our Florida distribution system and one of the first in the state. We now have the ability to efficiently receive C&G, LNG, and RNG into our Northeast Florida system. Turning to slide six, we were excited to announce this week the commencement of construction on our first full-scale RNG production facility at the Full Circle Dairy Farm in Madison County, Florida. The Full Circle Dairy Project is an important component of our growing set of solutions to bring renewable natural gas to market. Located in the Swanee River drainage basin in north central Florida, we'll build our facility adjacent to Full Circle Dairy's farm, which is home to more than 5,000 dairy cows. Manure from the farm will be transported to our anaerobic digester and converted to more than 100,000 decatherms of pipeline-quality renewable natural gas per year. Initially, our Marlin gas service compressed natural gas trailer will transport the RNG to our UE Florida RNG injection point, and we're evaluating several offtake options to market the green attributes of the dairy-produced RNG. The project is anticipated to capture and redirect more than 1,100 metric tons of methane per year, which is the equivalent of 27,900 metric tons of CO2 equivalent. Another way to look at it is the emission reduction is equivalent to powering 3,500 homes per year. As we've said in the past, these types of projects take quite a bit to get off the ground. And our team has done an excellent job developing expertise in both RNG production and marketing. We're pleased with the current progress on the dairy project, the acquisition of PlanetFound, as well as our first RNG pipeline project in Ohio. And we have a number of additional R&D projects in the pipeline. We're excited for what lies ahead for our sustainable energy platform. Beyond these sustainability initiatives, we have four other platforms for growth. And let me touch briefly on the other four as shown on slide seven. As we've stated all throughout the year, we continue to experience significant organic growth in our natural gas distribution businesses across both our Delmarva and Florida service territories. This high level of organic growth continued in the fourth quarter, where we saw an increase of 5.7% on Delmarva and 4.2% in Florida. These levels continue to be well above the national average. The consistency of our growth, despite rising mortgage rates, is a testament to the highly attractive nature of our service territory, especially along the Delaware beaches and across much of Florida. as well as our longstanding relationships with key developers. Our mortgage rates have settled a bit as of late. We remain cognizant that customer behavior could fluctuate in the future given the dynamic state of the housing market. That said, we see sustained demand over the long term as our builders continue to report strong backlogs. Additionally, we are constantly reassured that natural gas and propane, remain the energy sources of choice for homebuyers throughout our service area. As we've discussed, the high levels of customer growth we're experiencing in our distribution business also drives the need for additional capacity in our transmission systems. I mentioned earlier that we recently made headway with a number of projects, including the FERC approval for the Eastern Shore Southern Expansion Compressor Edition. We also recently announced the expansion of our Peninsula Pipeline Transmission System to support new phases of development in the wildlife community in Yulee, Florida. These projects and others will deliver significant market growth for 2023 and beyond. We'll also continue to drive significant growth in our propane business. During the quarter, we completed the acquisition of Hernando Gas, which expands our service territory in the Tampa, Florida area. Hernando was the sixth propane acquisition we've completed in the last five years. Propane continues to drive strong performance for the company and remains a core component of our growth strategy. We serve thousands of customers on propane that are beyond the reach of natural gas systems. In 2022, our recent acquisitions have diversified Davenport Energy's Fire City Propane Division and Hernando Gas, contributed more than $10 million in incremental adjusted gross margin. By expanding our service territory, we're also able to expand the use of autogas, a cleaner burning fuel used for local schools, public transportation, and commercial customers to achieve lower emissions and cost savings. Propane is a highly desirable energy source in the communities we serve. Marlin Gas Services also continues to drive solid performance for Chesapeake. 2022 is another record year of margin production at Marlin. Despite market challenges, including increased transportation costs and difficulties recruiting the additional school transport drivers and operators needed to serve our growing business, we increased adjusted gross margin for the year by $2.8 million at Marlin. We remain pleased with the opportunities we have on the horizon to expand Marlin's services, especially as it relates to supporting the sustainable energy market. With that, I'll turn the call over to Beth to discuss our results in more detail. Beth?

Thank you, Jeff, and good morning, everyone. I'd also like to congratulate and acknowledge the team for an outstanding year. Achieving our success would not be possible without the incredible work of our talented workforce. let me provide some additional details on our recent performance. As you'll see on slide 8, diluted earnings per share were $5.04 for the year, an increase of 6.6% over 2021. More specifically, some of the key margin drivers for the year included contributions from the acquisitions of Diversified Energy, Davenport, Fernando Gas, and the Escandia Meter Station. continued infrastructure expansions, and strong customer organic growth in our own natural gas distribution businesses. Also, additional growth from the various regulated infrastructure programs and recovery mechanisms in our Florida, Elston, and Eastern Shore business units. We achieved higher margins per gallon in our legacy protein businesses, and there was increased demand for Marlin's CNG, RNG, and LNG services. And finally, increased consumption in our natural gas distribution, protein, and Aspire Energy businesses. On slide 9, our financial summary shows adjusted gross margin increase $14.1 million and $37.2 million for the fourth quarter and full year, respectively. Operating income in the quarter increased an impressive 16.6% over last year's fourth quarter, and for the year, operating income was up 9% compared to 2021. While interest costs increased over 21% year over year, Chesapeake still delivered its 16th consecutive year of increased earnings and at a pace of 6.6%. On slide 10, let me walk through the key drivers of our approximate 15% earnings growth in the quarter. First, we recognize a penny gain from interest received from a federal income tax refund. Contributions from our recent acquisitions generated an incremental 13 cents in earnings for the quarter. Our core businesses delivered additional margin contributions that increased earnings by $0.39 per share. This includes higher adjusted growth margins from transmission expansion projects, natural gas distribution organic growth, increased margins from our CNG, RNG, and LNG services, higher performance from our protein and Aspire operations, along with additional income from our regulated infrastructure programs and recovery mechanisms. Operating expenses tied to the protein acquisitions represented 10 cents. As a reminder, we have been deliberate in our spending to align the operating protocols of these acquisitions closer to Chesapeake's operating and safety standards. In our core businesses, higher expenses drove a 12-cent impact, which speaks to our team's ability to manage costs across the business. Higher depreciation, amortization, and property tax costs associated with new capital investments were a 5-cent headwind. Finally, interest and other changes were a significant 7-cent negative impact to earnings for the quarter. On slide 11, we portray a similar bridge, so I won't walk through all the details, but would like to point out that non-recurring items in 2021 and 2022 netted to a 4-cent decline to EPS for the year. We would also like to remind everyone that these non-recurring items should be considered when evaluating the out-quarters through 2023. I'd also like to highlight that the incremental growth from our acquisitions and our core businesses continues to drive significant earnings growth while higher interest and other expenses weighed on the year's performance. Before we jump to our segment results, I'd also like to point our analysts and investors to a slide we added in the appendix that outlines the seasonality of our earnings from quarter to quarter over the last five years. Moving to the next two slides, let me touch on Pacific Utilities operating segments. On slide 12, you'll see adjusted gross margin for the regulated energy segment was up 8.1% for the quarter and 6.7% for 2022. Operating income increased an impressive 13.8% for the fourth quarter and 8.6% for the year. The full year 2021 operating income increase included a $2.5 million reduction in other operating expenses resulting from regulatory deferral of certain costs associated with the COVID-19 pandemic. Absent this benefit in 2021, 2022's operating income actually increased by $11.7 million, or over 11% compared to 2021. This growth was primarily driven by some of the same factors we've already talked about, those being pipeline expansions in our transmission business, organic growth in our natural gas distribution systems, incremental contributions from our various infrastructure programs, four months of interim rates associated with the Florida natural gas base rate proceeding, and finally contributions from the Escambia Meter Station acquisitions. Turning to slide 13, our unregulated energy segment drove exceptionally strong performance, with adjusted gross margin increasing by 26.6% in the fourth quarter and 18.1% for 2022. Additionally, our unregulated businesses delivered a 34% year-over-year increase in operating income for the fourth quarter and a 12% increase over 2021. This strong performance was driven primarily by contributions from those recently completed protein acquisitions, again, our increased margins for our protein distribution business, also increased demand for Marlin CNG, RNG, and LNG services, and again, finally, the improved performance at Aspire Energy. On slide 14, I'll provide some highlights of our strong balance sheet position. As we discussed on our last call, we announced our commitment to issue $80 million of 15-year senior notes to Prudential with an average life of 10 years and at a coupon of 5.43%. The notes will be issued in March. Additionally, we also entered into a three-year interest rate swap agreement for $50 million of our short-term debt at a fixed rate of 3.98%. With current surfer rates north of the fixed rate, the swap is mitigating the impact of rising interest rates. Additionally, in the fourth quarter, we funded our planet-found acquisition with the green sublimit of our short-term facility. For the year, interest expense was an incremental $4.2 million over 2021. Additionally, as we look at the forward curve, we expect interest rates to remain elevated throughout 2023, And like 2022, we'll manage these interest rate pressures and we'll continue to take appropriate steps to overcome these impacts through other mitigating strategies, including cost management, alternative financing options, and regulatory mechanisms. At year end, total capitalization totaled approximately $1.6 billion. This included 50.9% of stockholders' equity, which is now $833 million and within our target capital range, 35.4% of long-term debt at an average fixed rate of 3.38%, and short-term debt, which decreased from $222 million to $202 million from 2021 to 2022, again with $50 million attributable to the long-term debt financing completed in March of 2022. We also recently executed amendments for the two outstanding long-term debt shelf agreements, providing us with additional capacity to fund our future capital investments. As a result of the actions we took throughout the year and thus far into 2023, our balance sheet remains strong and Chesapeake remains well positioned to support our expanded capital expenditure guidance, which we'll discuss in just a moment. These capital investments are the drivers of our long-term earnings growth and our long track record of delivering increased shareholder value. Moving to slide 15, we highlight the pipeline expansions, CNG, LNG, and RNG transportation projects, acquisitions, and strategic regulatory initiatives that will drive our growth through 2023 and 2024. As always, we remind you that this table does not include organic growth, and it is not indicative of all the projects that we are evaluating and pursuing. As Jeff mentioned, our pipeline of growth opportunities continues to expand. These projects and others not announced yet are poised to deliver higher margin growth across our businesses. Additionally, opportunities like the Full Circle Dairy R&D Facility, Planet Sound, and other sustainable investments we continue to pursue support the energy transition and provide a path for long-term sustainable growth. We're excited with the opportunities we see on the horizon and look forward to bringing these projects to market. Jim will cover this in more detail, but given the level of visibility we have with the Florida rate case, we have included our associated adjusted gross margin expectations in 2023 and 2024, in addition to the adjusted gross margin contribution we recorded in 2022 from interim rates. Final approval is expected in mid-March, and again, Jim will discuss in just a few minutes. Combined, these initiatives added $25.4 million in 2022 and are expected to add more than $21 million in 2023 and approximately $7.7 million in additional margin in 2024. As a reminder, as new projects or initiatives are announced or finalized, we will add them to this table. Moving to slide 16, we highlight our key pipeline expansion projects, especially the increased level of activity planned for 2023. With an investment of approximately $151 million, these projects are expected to contribute more than $23 million in adjusted gross margin per year once complete. With that, I would like to finish by saying that we are pleased with our results for the fourth quarter, which cast off another record year for the company. We remain well-positioned to maintain our long-running track record of industry-leading performance, given our strong organic growth, our pipeline of opportunities to expand our business, our favorable regulatory relationships, and our talented workforce. We will continue to work hard, as we always do, to drive long-term sustainable success for our stakeholders. I'll now pass the call to Jim Moriarty to discuss our regulatory and ESG updates. Jim?

Thank you, Beth, and good morning. It is good to be with you all. On slides 17 and 18, we list our ongoing regulatory initiatives, including details on the natural gas-based rate case proceeding in Florida. On January 21 of 2023, the Florida PSB approved an annual rate increase of approximately $17.2 million for our four Florida gas units, which will now be consolidated. This approval included a common equity return of 10.25%. In addition to the incremental $17.2 million, Approximately $19.9 million of adjusted gross margin, formerly recovered through the Gas Reliability Infrastructure Program surcharge, will be incorporated into base rates. The new rates are expected to be finalized in mid-March, following the PSB's vote on Tuesday, and will be implemented for all meter readings beginning March 1 of 2023. Additionally, Florida Public Utilities storm protection plan and storm protection plan cost recovery mechanisms were approved in the fourth quarter of 2022. These plans allow for the recovery of investments to further protect our electric system in the event of a storm and prevent loss of service. We expect approximately $1.1 million in adjusted gross margins associated with these plans for 2023, $2.1 million in 2024, and continued investment going forward. As mentioned, SPU was nearing completion of its gas reliability infrastructure program, which began in 2012. Through the end of 2022, we have invested more than $200 million to replace approximately 353 miles of qualified distribution mains, increasing the safety and reliability of our systems for many Floridians. In Elkin, Maryland, we continue to invest in the system's integrity by upgrading the Adelaide pipeline. The program went into service towards the end of 2021, and going forward, we expect the project will generate $400,000 in adjusted gross margin for 2023 and beyond. Finally, our Eastern Shore Natural Gas Interstate Transmission Unit has authority to recover capital costs associated with mandated highway and railroad relocation projects, along with PHMSA-required safety upgrades. We expect that this program will generate $2.8 million in additional adjusted gross margin in 2023 and 2024. Turning to slide 19, I too would like to express my sincere appreciation and gratitude to the Chesapeake team. Our performance in 2022 clearly exemplifies the strong culture here at Chesapeake. Throughout the year, we took numerous steps to enhance our employee engagement. One example of these initiatives was the implementation of our new learning management system called The Grove. With this new LMS, we have streamlined our professional development and training platforms. The system includes virtual training, leadership curriculum, and elective course offerings all on one platform. Additionally, we unveiled our Chesapeake Total Wellness Program. which provides employees with a resource for their health and well-being. The voluntary program encourages employees to engage in fitness challenges and access wellness content that is available anytime at their fingertips. These efforts and more are driving continued high levels of employee engagement, which empowers our award-winning company culture. Most recently, Chesapeake was recognized and named a 2023 Top Workplaces USA Award recipient for midsize companies. This represents the third consecutive year we have received this high honor. The Top Workplaces USA celebrates organizations that prioritize a people-centered culture and giving employees a voice. More than 42,000 organizations were invited to participate in the Top Workplaces USA survey. Being based on employee feedback, this recognition is very meaningful to each and every leader within the company. Receiving this award speaks to our strong culture, which is carried by each of our employees, and I'd like to thank everyone across the organization who make us so successful. Referring to slide 20, I'd also like to highlight our commitment to the communities we serve. We made significant strides in 2022 to advance our community engagement strategy. With a focus on safety and health, community development, education, and environmental stewardship, we made approximately $850,000 in charitable contributions and community sponsorships. Thank you to all Chesapeake employees for their generosity and their commitment to making our communities a better place to work and live. With that, it was great to be with you all today. I will now turn the call back to Jeff for some closing comments. Thank you, Jeff.

Given our strong performance in 2022, The projects in our pipeline of opportunities and our overall outlook for growth, we've increased our capital investment and earnings expectations. Let me begin with capital expenditures on slide 21, where we show our historical capital expenditures going back to the acquisition of Florida Public Utilities. As you can see, our base capital investment steadily increased through 2021. As I mentioned earlier, the regulatory and supply chain delays experienced in 2022 impacted our ability to deploy capital. However, we see $40 million of investments shifting into 2023. Therefore, we expect approximately $200 to $230 million of total capital investment this year. You may also recall that we do not include any acquisitions in this guidance range, so any potential deals closed in 2023 would be additive, and we would adjust our guidance accordingly. On slide 22, given the $369 million we have invested in 2021 and 2022, we've updated our long-term capital expenditures range to $900 million to $1.1 billion for the 2021 through 2025 period. This new range indicates a $125 million increase at midpoint compared to our previous range of $750 million to $1 billion. Turning to slide 23, let me provide our updated EPS guidance. In 2025, we now expect to deliver diluted earnings per share in the range of $6.15 to $6.35. This is an increase from our previous guidance range of $6.05 to $6.25. Our new range represents a compound annual growth rate of 9.9% to 10.3% over the eight-year period from 2017 through 2025. To close on slide 24, 2022 is another record year for Chesapeake Utilities. We're pleased with our performance and we remain well positioned to deliver a strong financial performance in 2023 and beyond. Our proven strategies and business model, along with the strength of our balance sheet, paved the way for a bright future, one that allows us to expand our regulated utilities and our highly complementary unregulated businesses. We're also excited with the opportunities we see to advance the sustainability of the communities we serve and continue our track record of top quartile financial performance.

And with that, Alex, why don't we open it up for questions? Thanks, Jeff. Todd, please open the line. Thank you.

At this time, if you have a question or comment, please press star 1 on your telephone keypad. If at any point your question is answered, you may remove yourself from the queue by pressing star two. Again, we ask that you pick up your handset when posing your questions to provide optimal sound quality. Thank you. Our first question will come from Chris Ellinghouse with Siebert Williams and Schenck.

Hey, everybody. How are you?

Good morning. How are you?

What can we expect from, you know, RNG efforts you know, in the next 12 months or so, given your acquisition and your new project? You know, should we be expecting additional news out of that area?

Well, I would hope so. We are fairly focused right now, as you might imagine, on the full circle dairy project that we've announced. And I think later this afternoon, in fact, we're having a groundbreaking over on that site. And so we'll be working, Pretty hard to get that under construction and up and running the early part of next year. And along with that, we continue to look for opportunities to engage our Marlin Gas Services business in transporting RNG, including deliveries from that dairy into our new interconnection point in Yulee, Florida. And beyond that, we obviously bought the climate found assets last year with the notion that we would bring in additional technical expertise for poultry waste, and so we're continuing to pursue that. So there are, I think, a number of opportunities for pipeline development that would support delivery of RNG into the market area, opportunities for Marlin to transport RNG. We're certainly going to build the – anaerobic digester and gas processor at Full Circle Dairy. And then we continue down the path to take a very hard look at poultry-related waste energy projects on the Delmarva in Florida and a couple of other states, certainly in Ohio. So I think you'll see us actively look for projects. We're not running out trying to buy the first thing that we see. Obviously, that hasn't That hasn't been our course of action. We're pretty deliberate about this stuff. We are fairly conservative in our view of these projects, and we're looking for things that not only support an environmental objective, but they also are profitable for our shareholders. So we're carefully exploring a lot of opportunities.

Okay, great. The increase in the guidance, is there anything specific related to that? Or is that just increasing confidence overall?

It, Chris, is both, really. I mean, there's multiple projects that were underway. And then, as you're familiar, we have a strategic planning process that we undertake every year looking at the various projects across our enterprise. And so... As we've recently come out of our kind of last strategic planning session looking at projects, we head right into the next one. And so it gave us an opportunity to evaluate where we felt the projects that are underway and those that are going to start to go into the queue, where those would likely land in regards to capex and earnings. And that was really the impetus to raise it 10 cents both at the low and high end.

Okay. And as far as the supply chain goes, do you feel like the issues that affected 2022 are behind you and aren't likely to affect the next few years of capital?

I like to think that. I hope that that's the case. You know, it was interesting. A lot of the supply chain issues that ultimately impacted some of our projects weren't our supply chain issues. It wasn't that we couldn't get pipe or meters or fittings or anything like that. We were seeing our customers or potential customers having difficulties, you know, accessing C&G vehicles, for example. So the same type of chip issues and other supply chain issues that were affecting vehicles across the globe were also affecting the delivery of vehicles that we were poised to fuel. And so some of the margins, for example, that we were presuming would show up didn't show up because they couldn't get the vehicles. And so you're beginning to see that clear up as we're seeing it throughout the vehicle markets outside of CNG. We also had a number of customers, you know, large-scale customers that were contemplating fuel conversions to natural gas. And obviously when you saw the market changes in the supply areas, you know, moving the natural gas prices around and creating some volatility, you know, that caused some customers to take a step back and think about, you know, what they were doing with their fuel choice. And so most all of that has now cleared up because that market has dropped back to where we'd like to see it, but the volatility seems to be moving out of it. So we had those kinds of issues that were affecting us, and it wasn't so much us as it was a lot of issues for our customers trying to make choices. and access, you know, vehicle parts. That makes a lot of sense.

Oh, I'm sorry, Chris. The only other thing I was going to add, and Jeff, if you want to add to this, would be, you know, one of the things that we hope we will not see as many delays in would be in some of the regulatory reviews that our projects undertake. And so, Chris, we've tried to think about that and look at that very carefully as we've set, you know, our CapEx guidance for this year, but You know, our southern expansion project, for example, took a lot longer than we originally expected. So, you know, we're hoping in 2023 we don't experience some of those regulatory and permitting delays that we did experience in 2022. But that's, to me, something that there could be uncertainty around.

Yeah, that's an excellent point, Beth. And I think what you've seen us – well, you haven't seen it, but I'll tell you what we are doing now – is actually contemplating regulatory processes, especially at PERC and also at the state level in many cases, that are just going to take longer than traditionally we've seen in the past. And so we're beginning to build that in, obviously, through our forecasts and projections of the timing on these projects and especially the timing of margins coming on.

You guys have continued to have, you know, very strong customer growth, but... With inflation, has this put you any closer to regulatory schedule changes in the northern territories?

You know, Chris, we're continuing, again, to see very strong customer growth in our northern service territories. But we are going to be required in Maryland as part of an acquisition that we did to actually go back into Maryland. And we'll be approaching that on a consolidated basis similar to what we did in Florida. In Delaware, certainly, you know, we'll monitor as we always do our earnings, our returns, where they're coming in. But, you know, to date so far, you've seen us have strong, you know, customer growth that's been able to, sustain us without having to go in for rape cases on a, you know, on a routine basis. So we continue to evaluate it. So far growth is strong, but, you know, we'll keep monitoring it, and there always is the opportunity for us to go in at the appropriate time.

Okay, great. Thanks for your call. I appreciate it.

Thank you.

Thank you. Again, as a reminder, to ask a question, please press star 1. We'll take our next question from Brian Russo with Sidoti and Company.

Yeah, hi, good morning.

Good morning.

Hey, just to follow up on the regulatory strategy, you're obviously pending the final order from the Florida PSA. It seems like all of the items that were approved back in January, you know, specifically on cost of service, and I believe it's a 13-month average forward 2023 test year, it seems as if you're able to capture quite a bit of the inflationary pressures and the rising interest rates at your regulated segment. Can you just remind me what percentage of the overall rate base or the overall regulated segment Florida contributes?

And then just to follow up, when do you expect to file in Maryland?

So in regards to the overall business, when you look at just investment in Florida overall, and I can get you more specific numbers, Brian, but You know, Florida is about 45% of our total investment as a company. And when you look at it on a regulated, it's about a 50-50 split. And that includes all regulated investments throughout the company. So, you know, Florida is a very big piece of our regulated portfolio. It's actually the largest single by itself. state in which we operate and are regulated. And so this, as you know, this whole rate case initiative that we run in to consolidate all of our various businesses was very significant. It was also significant in that we had not been in since prior to the FPU rate case. Your second question, which was around Maryland, our requirement to come back in Maryland is early 2024, so we'll be preparing and getting ready for that this year.

Okay, great.

And, yeah, just on the RNG opportunities, is it fair to say that you now have platforms for growth, you know, both in Delmarva and in northern Florida, you know, to kind of grow off of. And when I look at the project, large project margin contribution, it seems, you know, it's only about a million dollars or so of incremental margin through 2024. So I was just curious, you know, are we going to see more contribution in 2025, you know, maybe as – these projects that have been announced kind of, you know, maybe ramp up in terms of, you know, scale and margin contribution?

You know, currently the plan is, you know, we're anticipating that full circle dairy will come on about halfway through 2024. And so the full benefit of that particular project, the full year impact that you would see would be in 2025. In the case of Planet Sound, as we, you know, have indicated on that particular project, there's some scaling up that we're looking to do in that facility. Right now they're taking the gas, you know, so to speak, that's being generated out of the facility that's being used to generate electricity and And so we're looking at some opportunities to actually transfer that or actually process it to be pipeline quality natural gas, a small part of that. And there's also some potential opportunities to expand beyond that. But, you know, again, Brian, we haven't set a lot of that into motion yet. So I think realistically you're talking 2025 or beyond for that. There could be some other projects, as Jeff indicated, that, you know, that we announced. But, again, they take several years from the time that you start. You get all of the, you know, permits, et cetera, and you actually can construct the facility. Jeff, I don't know if you want to add anything.

No, I think that's well said. You know, one of the things that we are looking at, and you guys may have been looking at this as well, are the ERAMs. And while the federal program that supported the credits for renewable attributes or green attributes coming out of these projects were originally directed toward vehicles and toward displacing gasoline and diesel, emission issues, that appears to be expanding into electricity. And so, some of the projects that were on our list to convert to renewable gas, pipeline quality gas, as Seth mentioned, and move into a pipeline, potentially you could see them as electric generation projects with a cogeneration or some other generation at site and still be eligible for fairly significant credits. And so that's beginning to change the view of many of us that are looking at these renewable energy projects and thinking about the economics of trying to introduce the green attributes into a pathway to market into California or to other states that have opportunities to pay us for delivering those green attributes. as opposed to keeping them home and generating renewable electricity from them. So it's an interesting shift and one that we're just starting to evaluate as well. It actually opens up a number of very interesting possibilities for us, especially some of these smaller-scale projects.

Okay, great. And then lastly, just to clarify on the increased 2025 guidance and benefits, it triangulates with the CAPACs. But is all the CAPACs accounted for? Meaning, you know, it's in your project, projects that have been announced on the unregulated side as well as the regulated projects that are, you know, embedded, you know, currently in the base case. I'm trying to get a sense for, you know, how do we track your progress in, you know, you know, with choosing that guidance, you know, and at what point after new projects might be awarded do projects become incremental?

So, you know, Brian, I guess what I would say, and I don't know if this answers your question, so if it doesn't, please feel free to ask me again, but what I would say is in Looking at, you know, our capital forecast and then trying to identify what we wanted to announce as our CapEx guidance for 2023, we looked at those projects that were in motion. We looked at those projects that are about to be filed or were pretty, you know, were pretty far along and expect a filing to be undertaken this year and for us to begin constructing facilities. On the unregulated side, that would include dollars that are related to investments that we've announced, like the Full Circle Dairy Project. And then finally, what the number does not include, and we try to separate this out to provide more transparency, is it does not include acquisitions. Because, you know, for us, those are opportunistic. And so that was the reason, actually, in the CapEx chart that was now included, you know, within the deck, that we broke out the acquisitions. And we actually included the base level of organic CapEx that we've experienced going all the way back to the SPU acquisitions. And so you can see that this year, with the dollars that rolled over, coupled with, again, the projects that are either announced very far along, soon to be announced, or we expect to undertake a little later this year, we feel like that 200 to 230 really should be the level that we land for the year. If I missed it, please just feel free to ask it again.

No, that helps. Thank you very much.

Mm-hmm.

Thank you. Our next question comes from Tate Sullivan with Maxim Group.

Hi.

Thank you. On the Wild Lake expansion, I mean, such a big housing development project, and you put detail in the press release about the phases of that project. So does the pipeline injection point probably use your Marlin vehicles through completion of the entire project? into 2025, or is that almost permanent, that pipeline injection point?

Actually, it's a permanent installation that we made. It's actually a few miles down the pipeline from the actual wildlife development project that you referenced. We've actually delivered over 1,000 trailer loads of RNG into that injection point already from a landfill that's was waiting on a pipeline expansion from another utility to serve it. So it's a fairly active injection point serving really our entire Nassau County, and right now you can actually get the gas out of the Duval County from the replacement at that point. So it will remain, and we will be moving RNG from the full purple dairy into that point, I'm fairly certain of, before it's over with. and it will serve not just wildlife but potentially other customers, including our eight flags CHP plant located on Amelia Island. So it's in service. It will remain in service. It's capable of receiving not just RNG but obviously CNG and LNG as well. So we could use it as an emergency service point.

We could use it as a peaking facility or to provide obvious RNG deliveries. Do you think in your entire service territory this is the first kind of injection that's used that actively?

Or do you have others?

Yes, it is. We're building a couple of other points like that in our northern service areas. And I suspect before it's over with, and we're already looking at engineering design, we'll have two or three more in Florida scattered across the peninsula.

I mean, with that comment.

I mean, a thousand trailer loads with Marlin. Are you operating, and if you can't comment, are you operating at full capacity with Marlin, or do you continue to order and build more tanks for Marlin, please?

Well, we order and build as the market allows us to, and so I don't mean to be particularly vague there, but I mean, obviously as we encounter opportunities in the marketplace and we increase our capital assets accordingly. You know, the 1,000 tanker loads, or more than 1,000 actually, from the landfill in North Florida, again, was a nice opportunity for us to provide services for the landfill operator and the developer of the R&D project, which was not us and one of our sister utilities here in Florida. And so, you know, we look for those types of longer-term contracted opportunities from Marlin to move R&G. I mean, that's exactly why we bought that company and what we're trying to do with it.

So, you know, we're looking for those opportunities all the time, not just in Florida. And then is wildlife housing, I remember a bit of what your analyst says.

I mean, you pointed to many housing development projects. Is wildlife much larger than any of the housing developments going on in Delaware for forecasts for housing developments?

Yeah, I wouldn't say that they're, you know, I would say, you know, there are large housing developments on the peninsula, but I wouldn't say take to your question. I mean, wildlife is enormous and huge, as we've talked about. And, you know, so 20,000 homes, I cannot recall any developments that up north are that large. by themselves. You know, you may have a group of developments. You know, certainly Shell Brothers and others have built substantial developments, much smaller, but there are multiple developments up there. So similar type of opportunity, but I would say smaller scale overall, individually.

And you mentioned clean energy fuels in the release, and is this the first project that you've had with that company, and I imagine given that company's growth, it can represent more projects going forward. Is that the case?

I think this is – I believe that that's accurate. We may have done something somewhere along the way for them before, but it wasn't significant, at least not as significant as this is. And so, you know, we built the pipeline to serve their facility down in central Florida.

And we, yeah, we'd love to do as many projects as we could with those guys. Okay.

Thank you. Thank you.

Thank you. There are no further questions in queue at this time. I will turn the floor back over to Jeff Householder for any additional or closing remarks.

Okay, thank you. And thanks to all of you for joining us this morning. We appreciate your time and your continued interest in the company, and we'll talk to you soon.

Goodbye. Thank you. Thank you. This concludes today's Chesapeake Utilities fourth quarter and full year 2022 earnings conference call.

Have a wonderful day.