Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Chesapeake Utilities Second Quarter 2013 Financial Conference Call. [Operator Instructions] Thank you. Ms. Beth Cooper, Senior Vice President and Chief Financial Officer, you may begin your conference.

Good morning, and welcome to the Chesapeake Utilities Second Quarter 2013 Earnings Conference Call. Before we begin, I would like to mention that we have prepared a presentation to accompany our discussion today. You can access this presentation on our website under the Investors section. It is located under the Events & Webcasts subsection. Turning to Slide 2. Before we begin, let me remind you that matters discussed in this conference call may include forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those in the forward-looking statements. Please refer to the Safe Harbor for forward-looking statements in the company's 2012 annual report on Form 10-K. The 10-K includes further information on the risks and uncertainties related to these statements. On Friday, we announced results for the second quarter and first 6 months of 2013. Results for the second quarter compared to the second quarter of 2012 are shown on Slide 3. While second quarter reported results were down slightly from the same period last year, our year-to-date results reflect both the fundamental strength of our energy businesses, as well as the hard work and continued commitment of our employees. Absent several nonrecurring adjustments for the quarter, net income for the current quarter exceeded the second quarter of 2012. The company's second quarter 2013 net income was $4.4 million or $0.45 per share. This compares to second quarter 2012 results which were $5.1 million or $0.52 per share. The decrease in earnings of $0.07 per share for the second quarter of 2013 was due primarily to a onetime sales tax expense of $759,000 related to the acquisition of assets in Maryland and $568,000 in nonrecurring gross margin recorded in the second quarter of 2012. Absent these nonrecurring adjustments, net income for the current quarter would have…

Thanks, Beth, and good morning, everyone. Before I move on, I'd like to elaborate a little further on the relationship between our investment, earnings and dividend growth. We believe that our potential for earnings and dividend growth continues to make our company stand out as an attractive investment opportunity. The level of growth that we have delivered has enabled us to increase our earnings reinvestment rate, to generate future earnings and dividend growth, effective at making new investments in our existing operations, as well as in emerging opportunities that I'll discuss later, in further detail, just to increase shareholder value. On that note, let's look at the present and future opportunities we are pursuing. Turning to Slide 13. The service territories we operate in continue to offer significant growth opportunities. Over the last several years, we've been able to generate above average growth by extending service to large commercial and industrial customers. The expanded footprint provides follow-on opportunities for growth by converting other commercial and residential energy consumers to natural gas. These opportunities and our ability to transfer them into growth supplement our residential customer growth on Delmarva Natural Gas Distribution business, which is usually about 2%. We expect residential customer growth to continue about this pace for the next few years. In 2012, we completed 3 major expansion projects in the Delmarva Natural Gas Distribution and Transmission businesses, that together, are expected to generate approximately $1.9 million in annual gross margin in 2013 or $1.2 million in incremental margin over 2012. For 2013, we have 2 projects underway: the energy Dover power plant and the Delaware City Refinery expansion, which combined, are expected to generate between $2.9 million and $3.3 million in additional margin annually, beginning in 2014. In addition, Houston-based Calpine Corporation has also initiated construction of a…

[Operator Instructions] Your first question is from the line of Spencer Joyce from Hilliard Lyons.

Bear with me here, I may jump around a little bit on you, I guess, a lot of some [ph] kind of moving around this quarter. I first wanted to touch on the addition of Dr. Lewnard and the other -- couple of other Directors there. Mike, I think you sort of touched on it towards the end of the prepared remarks, but it seems like that's adding an awful lot of firepower to just kind of do LDC kind of blocking and tackling, distribution and expansions, stuff like that. Can you give us a little color on where exactly they can add value? Is it more on the CHP or renewable side, or are they really going to be kind of core regulated gas distribution folks?

I guess, what we're seeing happening is a lot of the opportunities that are presenting themselves are, I'm going to say, hard to color whether regulated or unregulated. I mean, I could use natural gas vehicles as an easy example. You're going to -- on a natural gas vehicle strategy, for example. It could either be a regulated strategy or an unregulated strategy. It really depends upon the market conditions that you're seeing and the regulatory framework in that particular state. And so it's -- I think when I -- so I'm looking at the opportunities, looking forward, all right? So you'd say, "Okay, well we've had -- what kind of things in the last 2 years?" And you could see that accelerating. Something as simple as the complexity of the refinery and its growth, having some insight into -- I guess I would say more insight because we do have people here that have worked at refineries. But having some more insight into the refining operations or competitive position of the refinery, that type of thing is valuable to us. You've mentioned the CHP. As you know, the expansion to the NRG facility here in Dover is a CHP opportunity. We are seeing other smaller and large-sized CHP opportunities that these gentlemen bring experience with. In addition, we've had pipeline expansions in Florida to new service territories. Also here on Delmarva, we've also expanded our pipeline up into Pennsylvania farther a couple of years ago. And so there could be -- and we've had inquiries from potential customers for expansions beyond -- pipeline-type of expansions beyond our current territory. And so we're seeing all of these, and you could add LNG to our conversation as well. We've had questions on LNG, those types of things. So we're seeing a variety of, I'm going to say, large, more complex, again, opportunities. But they're similar, they're all natural gas-based. Usually, the client [ph] is involved. It could be CNG or LNG, coupled with that or a CHP, or electric generation plant coupled with that. But again, we're just seeing all these opportunities. Again, it's that extended forecast or in recent experience, plus extended forecast of low natural gas prices opening up doors for us to expand.

Yes. Okay, yes, I think the idea of expanding the talent bench as, as you mentioned, more complex opportunities come about makes a lot of sense there. You mentioned the NRG power gen and the refinery expansions. I guess, I was a little bit surprised to see that they had some gross margin impact this quarter. I wasn't expecting that until later in the year. I think I got down in the appendix and saw there was a short-term contract down there. Is that something new or have we talked about that before? And is that short term going to be the same size as maybe that longer-term contract, or could we see some more incremental margin in the year out?

Actually, Spencer, those short-term contracts, we've introduced those in the first quarter. But you do actually see, in the case of the NRG, the short-term contract is for the same capacity as the long-term one, which kicks in, in November. And then, in the case of the refinery, actually, it's a higher amount that's coming on, but there's some interruptible capacity that's also occurring in the meantime as well. So maybe that provides a little bit more color.

Yes, I think that exactly answers my question there. One last, kind of to, tie up here, congrats on getting the Sandpiper acquisition completed there. But I think having the propane there in the regulated is somewhat of a new thing for us. Can you talk about how volatile that margin may be compared to the nat gas regulated distribution that you have currently? And then, maybe what would be sort of a run rate on annual margin from Sandpiper?

About the volatility in the margins. See, the margin itself on a per-unit basis or a per-customer basis, should not be any more volatile than our current utilities. Basically, what we're doing, we are -- with this, I'm going to say 11,000 customers, with our effort to convert these 11,000 customers from propane to natural gas, the objective, obviously, is to do 2 things. One, save the customer some money, but also generate some earnings growth. And so with all of that in mind, we said, "Okay, let's treat it as a regulated entity. And as we displace propane, we are actually going to blend the fuel rates so the prices to the customer should be coming down as we displace propane with natural gas." And so we also would be spending capital to make these conversions. And so while we have the fuel costs coming down, we would expect our base rates or our margins, if you will, to be expanding slightly based -- more of a cost to service-based approach. So you're going to see a couple of things happening. It will be a fairly complex process over an extended period of time. So again, relatively, I mean, relatively, I'm going to say, more of utility-type of stability in margins, those have a fuel cost recovery mechanism. So these utilities-type of stabilization in margins gradually expanding, while also, our fuel costs should be coming down. Trying to think, you had, I think, a further question as well.

Yes, what maybe a run rate for annual gross margin on Sandpiper might be? I was actually surprised the $0.5 million there, I thought, just from late May through the end of the quarter seemed pretty large there.

Yes, it's 11,000 customers. And so what we're seeing right now, we've got to get -- we made the acquisition, we had looked at the annual numbers, had done some forecast and we're trying to tune those in right now. So rather than giving you a number now, let us -- we just need to get through another quarter and then we'll have it tuned in pretty well. But we're -- the margins, we felt pretty good about them in the first couple of months, and we've got some -- it's going to be typical with the propane company, we would think the fourth quarter and the first quarter will be stronger than, clearly, the second quarter or the third quarter. But they are a little bit different in that they've got a lot of commercial load, primarily, in Ocean City and West Ocean City, so they might be a little bit not quite as volatile, I'll use that word -- or seasonal, as our other businesses.

[Operator Instructions] There are no further questions at this time. Mr. McMasters, I'll turn the call back over to you.

Well, thanks, everybody, for taking the time out to listen to us this morning. If you have any more questions, feel free to call us, and we will try to answer them. Thank you very much.

Thank you.

Bye.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.