Greetings, and welcome to the Chesapeake Utilities Corporation's 2021 Third Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Thursday, November 4, 2021. I would now like to turn the conference over to Alex Whitelam, Head of Investor Relations. Please go ahead.

Thank you, Grant, and good afternoon, everyone. It is a great honor to join all of you for the first time. I'm very excited to lead Chesapeake Utilities' Investor Relations team. We know it's late today, and we appreciate you joining us to review our third quarter and year-to-date performance through September 30, 2021. Yesterday, we announced our financial results, which demonstrated how we continue growing and operating effectively, serving our customers, identifying and executing on new investment projects and keeping our employees as safe as possible in this ever-changing but exciting marketplace. As shown on Slide 2, participating with me on the call today are Jeff Householder, President and Chief Executive Officer; Beth Cooper, Executive Vice President, Chief Financial Officer and Assistant Corporate Secretary; and Jim Moriarty, Executive Vice President, General Counsel, Corporate Secretary and Chief Policy and Risk Officer. We also have other members of our management team joining us virtually. Today's presentation can be accessed on our website under the Investors page in the Events & Presentation subsection. After our prepared remarks, we will open the call up for questions. Moving to Slide 3. I would like to remind you that matters discussed in this conference call may include forward-looking statements that involve risks and uncertainties. Forward-looking statements and projections could differ materially from our actual results. The safe harbor for forward-looking statements section of the company's 2020 annual report on Form 10-K and our first, second and third quarter Form 10-Qs provide further information on the factors that could cause such statements to differ from our actual results. Additionally, we continue to highlight some of our key environmental, social and governance initiatives in our quarterly reports. Now I'll turn the call over to Jeff to provide some opening remarks and company's third quarter and year-to-date results and the key drivers of our performance. Jeff?

Thank you, Alex, and good afternoon, and thank you for joining our call today. Let me start, as usual, with an update on COVID-19 and our continuing efforts to manage through the ongoing pandemic. The delta variant drove a surge in COVID cases throughout the third quarter, including in our service territories and our company. Over the past couple of weeks, we've seen reductions in our positive cases and the number of employees reporting exposure to the virus. We continue to encourage employee vaccination with time off for both the shots and downtime to deal with any vaccine side effects. As our most utilities, we're working to identify the applicability and potential impact that may result from vaccination mandates or COVID testing requirements under the President's executive order or the OSHA emergency rule. We're also following the various state legal challenges that could impact the application and timing of the federal vaccination mandate initiatives. Like many companies, we were hoping to return our remote workers to the office sometime this fall. However, we slowed that process as the delta variant cases increased. You may recall that well over 50% of our total team, those providing field operation services, have continued to report their office locations throughout the pandemic. Our entire team, both field services and those designed to work remotely, have performed well during the pandemic. We've substantially upgraded our technology capabilities to support our current work environment and have no reason to rush back to the office. In fact, we believe there will be significant future savings as we rebalance our long-term facility needs. As you would expect, we will approach any end of the pandemic organizational changes in a well-planned, disciplined manner with the goal of ensuring the safety of our employees and customers and the reliability of…

Thank you, Jeff, and good afternoon, everyone. Turning to Slide 5. Net income for the third quarter was $12.5 million compared to $9.3 million for the same quarter of last year. This represents a growth in net income of $3.2 million. Earnings per share for the third quarter was $0.71, up $0.15 or 26.8% compared to the same period last year. On a year-to-date basis, net income increased to $60.8 million compared to $49.1 million for the same period last year. Earnings per share for the same period compared to the first 9 months of 2020 grew by $0.48 to $3.45 per share, representing growth of 16.2%. The EPS growth rate compared to the net income growth rates for both the quarter and year-to-date reflect the large issuance of stock in the latter half of 2020 as we rebalanced our capital structure to achieve our target capitalization range. As shown on Slide 6, higher net income was the result of the gross margin drivers that Jeff highlighted earlier, coupled with continued expense management as well as business efficiency, standardization and collaboration as we continue to focus on business transformation across the enterprise. Exclusive of the first and second quarter 2020 timing difference associated with the Hurricane Michael regulatory settlement, gross margin increased 8.1% compared to the third quarter last year, while operating income grew by 30%. The next 2 slides provide the key drivers of gross margin and expenses for both the quarter and 9 months ended September 30. For the quarter, as highlighted on Slide 7, the key drivers of the $0.15 growth in earnings per share over last year's third quarter results are shown. Let me provide some additional color. As we mentioned, the absence of the timing difference associated with the Hurricane Michael regulatory settlement in the…

Thank you, Beth. As Beth noted, we remain well positioned for future growth with our capital capacity and the strength of our balance sheet. Ability to generate strong earnings growth on the capital investments we make speaks to the proven nature of our business model. Slide 11 highlights our 5 platforms for growth, which focus on optimizing our existing businesses through organic growth and business transformation, as well as investing in growth opportunities in gas transmission, propane, virtual pipeline solutions through Marlin and sustainable investments, including RNG and hydrogen. As I've already highlighted, we continue to experience significant demand for the energy services we provide, and we're excited with the opportunities we see on the horizon to drive our long-term sustainable growth. On Slide 12, we highlight a few of the major initiatives that we continue to work on. As shown on the slide, a significant portion of our projected capital investment is devoted to expanding our existing core businesses and capturing the growth in our service territories. Our latest margin table on Slide 13 highlights key projects and initiatives, including pipeline expansion, CNG and RNG transportation, acquisitions and regulatory initiatives. As we frequently remind you, this table does not include organic growth. Year-to-date, our total margin increase is approximately $28 million, of which $12.9 million is reflected on this table. Key projects are expected to generate approximately $60.5 million and $70.6 million in gross margin for the years 2021 and 2022, respectively. Pipeline expansions are expected to generate $12.1 million in incremental margin in 2021 and 2022 compared to 2020, including the new projects in Florida, where we have an expansion of beachside pipeline extension to serve [ NextEra ] Florida City gas distribution system. As we've said before, we are a beneficiary of our geography as populations grow…

Thank you, Jeff, and good afternoon, everyone. It is great to be with you again today. On Slide 16, we highlight some of the previously discussed legislative advancements we have made in both Florida and Ohio. I am proud of our government affairs team for leading and supporting these important matters within both states. We are focused on working with our elected representatives to ensure that natural gas is available to meet customer demand first and foremost and to provide a mechanism for renewable natural gas to be a viable part of our diversified energy portfolio. We are also working to ensure that we are effectively communicating with our customers and our stakeholders, and serve as a resource to them. We are at various stages in working on similar legislative initiatives in our other jurisdictions, and we will keep you apprised of future activities. Slide 17 and 18 were some of our recent regulatory initiatives, where we have proactively worked with our various public service commissions to secure recovery of key investments in our businesses while further supporting safe, reliable and economical energy to our customers. As shown on Slide 17, Florida Public Utilities continues to make significant progress in its Gas Reliability Infrastructure Program, or GRIP, that began in 2012. We have invested more than $183 million of capital expenditures to upgrade approximately 337 miles of distribution mains, increasing the safety and reliability of our systems for many Floridians. We expect to complete this program by the end of 2023 at the latest. The Hurricane Michael settlement impacting our FPU business allows for recovery of the investment we made to restore our electric distribution system in the Florida Panhandle. The settlement allows the company to amortize approximately $46 million in storm costs and interest over a 6-year period and…

Thank you, Jim. Our fundamental strategy for the past 20 years has been to build on a solid, stable foundation of regulated businesses and invest in related nonregulated businesses that offer the opportunity to generate returns above our cap regulated returns. We've been pretty successful over a long period of time executing the strategy. Slide 22 shows our consolidated return on equity growth performance for the last 15 years. As you see, we've exceeded 11% each year for that entire period. Our ROE performance is driven by continued prudent investments that enable customer and margin growth, prudent acquisitions, solid regulatory strategies and the contribution and growth of our unregulated businesses, such as propane, Marlin and Aspire Energy that complement our regulated businesses. On Slide 23, we continue to reaffirm our 5-year capital guidance for the period 2021 to 2025 of $750 million to $1 billion. As we discussed earlier, we narrowed our 2021 CapEx guidance to $185 million to $200 million. In finalizing our last strategic plan update, which we actually just discussed with our Board of Directors yesterday, we're confident that we have significant investment opportunities ahead of us to continue driving future growth. Moving to the next slide. We also continue to support our 2025 EPS guidance range of $6.05 to $6.25 per share, representing an average EPS growth of approximately 10% from our initiation and guidance from the end of 2017. Before I close today's presentation, I'd like to take just a moment to recognize and express my sincere condolences for the family of Eugene Bayard. Eugene has passed on Sunday, October 31, having been a long time Board member for over 15 years. Eugene was extremely forward-thinking, well connected throughout the state of Delaware. He provided valuable counsel to our Board and management team. He was…

Thanks, Jeff. Grant, please open the line for any questions we may have.

[Operator Instructions] We have a first question from Tate Sullivan with the Maxim Group.

Jeff, I heard you mention in your press release of fleet conversions to propane and CNG, and you mentioned in your prepared remarks as well. I have not looked at that before as a large driver in your businesses. But is fleet conversion increasing, would you say? And is that leading to more business for auto gas? Or is there a regulated distribution business on the CNG side?

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

And then on the incremental gross margin table that separate the CNG transportation and RNG transportation. Is Marlin going to be, can you tell right now, a small -- a very small part of the RNG transportation side? I mean, particularly in the next 2 years, it looks like it's mostly the pipeline project in Ohio, Noble RNG. Is that correct to look at it that way?

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

Okay. And last from me before turning over. Our CNG transportation gross margin going to $7.3 million next year from $7.2 million roughly, has the fleet growth or your capacity with Marlin been high -- or can it be higher than that growth that you see?

Yes, we have -- we've been growing Marlin's fleet capacity and capabilities over the last 2 years. We've added a number of cab vehicles and we've added a number of trailers. I mentioned that we converted 4 of our existing tube trailers to be able to transport hydrogen, which we see, frankly as an emerging opportunity for Marlin. And so we've been carefully adding to Marlin's fleet and trying to ensure that we don't overburden them with more vehicles and more capital than they could absorb as they continue to grow their margins. But I think we'll continue to carefully grow that business over time as we've typically carefully grown all of our businesses to make sure that the investment in the business doesn't outstrip our ability to produce margins that support it.

And the next question comes from the line of Brian Russo with Sidoti.

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

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

Sure. Brian, what I would add just to what Jeff was mentioning, we also have several programs where customers sign up in advance and basically walk in what they're going to be paying through the upcoming season. And so when those customers are walking in under those programs, we are also locking in the supply behind those programs. So customers that have signed up months ago under those programs, the supply was locked in for that. In addition, as Jeff mentioned, beyond us having diversity of supply across the peninsula, we also have diversity of supply in regards to the contracts that we've entered in 2 months ago for our supply coming into the winter season. So we spend a lot of time as a risk management committee, looking at what contracts we're going to enter into, a diversity of suppliers that we're going to get the propane from. And so when you look at our weighted cost of gas relative to some of the other players that are in our local markets, what you will see is a greater diversity of supply. And so we've done -- we've taken those actions. And then as you come into the heating [ themes ] unlike we are, the way the market is going to price typically where retail prices are going to go, we're going to be based more on more localized supply points. And so that's where, to your point, we may have a little bit more opportunity in regards to our supply. It's coming from multiple sources. If retail prices go up in response to where supply costs are, we've already locked our supply cost in, but we can certainly look at what the retail market is doing in terms of pricing. So there's multiple things that come into play. But as Jeff indicated, we have certainly -- we've planned well in advance for the upcoming season. And a lot of times, we find ourselves being or having an opportunity to actually provide part of the supply to some of the local competition.

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

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

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

Well, I'll start this and then I want Jeff to certainly add to this. I mean, what I would say, Brian, is, certainly, we're seeking the 2 projects that we've announced on Delmarva. We are certainly very engaged on those projects. But there are other projects, including with those particular, what I would call, investors as well as with lots of other potential parties for projects across our service areas. And so even like this first project that we announced in Ohio that's been completed, we're aggressively looking across our footprint. And I think we've got a very -- I think, a very robust pipeline. What I can tell you is that no one project is the same. So each project is different, both in terms of the inputs and in terms of how the outputs are viewed and how they're basically coming to market. So we've learned a lot. We continue to learn a lot, but I think we're well positioned with a partnership that we've made already and the ones that we're continuing to develop. And Jeff, I'll turn it to you for more thoughts.

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

And the next question comes from the line of Michael Gaugler with Janney Montgomery Scott.

Jeff, on Slide 15, where you detailed the pipeline projects, a wide range of capital investments, about $3.5 million up to just north of $63 million. I'm wondering, at this point in time, how are you thinking about pipeline projects going forward? Are you still going to be heavy in Florida? Do you see anything that's larger in size or does the changing landscape provide different areas for new project growth?

Yes, I think that's exactly it. We still have expansion interest on the Delmarva Peninsula. They're not anywhere near as large as the expansions that we've seen over the last 4, 5, 6 years in the peninsula, but we'll still find projects that are meaningful to each [indiscernible] over there over the next few years. We see serious opportunities remaining in Florida for projects of the potential pipeline that's been engaged in for the last 5 or 6 years. So they're relatively small-scale projects of $5 million to $15 million. We also see a couple of opportunities potentially, and we'll see how this works for larger-scale projects in Florida that actually could connect the dots between areas that need additional gas supply that are a little bit outside of the existing interstate projects. And so we think there's still some intrastate activity in Florida that makes some sense for us. And we're looking at projects like the one we just finished in Ohio, especially related to some of the renewable natural gas facilities that are coming out of the ground, primarily the eastern side of the Mississippi. And so we think there is still some opportunities in various states for us to look hard at some of those types of projects.

Okay. On the Eastern Shore expansion, would that be -- are you looking within where you currently operate? Or would you be pushing further south or the west?

Yes. And those are -- you know where the [ holes ] are, they're exactly [ holes ]. So they're to the south and to the west. And I think we're always looking for expansion opportunities, and I think we'll continue to find some. Again, I don't think, Michael, we're going to see the kind of investments that we've made at Eastern Shore over the last few years, but I do believe there are some meaningful projects there. We're seeing peak capacity issues in our distribution systems on Delmarva that we're going to have to address over the next few years. And so I think there will be some compressor projects at Eastern Shore. I think there'll be some other things there that can help us meet those peak requirements that are continuing to grow as we add more and more customers up and down the peninsula. So again, no -- I don't think you'll see any very large projects on the Delmarva, but I think there will be some meaningful smaller projects as we continue to go through the next several years.

[Operator Instructions] And the next question is from the line of Roger Liddell with Clear Harbor Asset Management.

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

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

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

Yes, sure. There is some data, and we do track the pipeline model replacements with service line maintenance -- service line replacements. We track methane information based on line breaks on the pipe, I mean those sorts of things. And we have significant efforts underway as we just described in one instance of our pipeline replacement project in Florida to try to improve all of those measurements. And we will be reporting that data fairly soon. We have a first inaugural ESG report that we're putting the final touches on right now, and we've been running through the company compiling information like that, and we'll be providing that over the next few months. And so yes, that data is out there. It's not perfect, but I think it's pretty good. I'll tell you the other thing that we're doing, Roger, is we have initiated a pretty significant damage prevention program. We're staffing that. We're actually providing the resources to work with local contractors that are typically damaging our facilities. We actually -- we're kind of in the middle of the pack and the number of times per day that one of our facilities get fit when you compare us to other utilities. And I think there's room for improvement there. Most of the methane leakage that occurs from our system and really any distribution system generally occurs when the lines are hit by somebody doing construction. And so we're going to tighten that up considerably. So you'll still begin to see some data coming from us over the next 2 or 3 months.

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

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

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

[Operator Instructions] There are no questions on the phone at this time.

Jeff, with that, can you give some closing remarks?

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

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