Chesapeake Utilities (CPK)

Beth Cooper Chief Financial Officer
Mike McMasters President and Chief Executive Officer
Insoo Kim RBC Capital Markets
Tate Sullivan Sidoti
Spencer Joyce Hilliard Lyons
Call transcript
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Good morning. My name is Beth, and I will be your conference operator today. At this time, I would like to welcome everyone to the Chesapeake Utilities Third Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. you. Thank Instructions] [Operator turn over now Officer, Chief Beth Cooper. the will to call Financial I

your conference. begin may You

Beth Cooper

Good I our third morning for quarter you everyone. earnings am glad conference call. thank to joining

is for our call that It’s Salisbury actually today’s are here University. other here. Weer, Salisbury us a back appreciate at time faculty, members hosting We’re of been University. This the to that the be from we’ve Dr. the honor We great third is the students alma as here. members so joining today, actually important Mike board us This us management room well – to my here. of our very mater, members, and the team of one our several it’s to Dr. Also as we be have in


the the I’d also here. there call, are out to like many this that begin special coming thank on just Before day, up veterans we

to so results you’ve country. to our that we for to And over service we’re begin want all quarter. the given the to third look now, say Right thanks going for our

Form about Before I’d may to would everybody include where our like remind is, just today first, presentation from to our differ talk that forward-looking actual that forward-looking what do back our everybody the information. we And some that, refer those to I factors do we results XX-K, cause may information.

a President Now, turn with call the Mike of CEO, and our who results. I McMasters, to going Mike? to going begin discussion am over quarterly is to the

Mike McMasters

changes. Earnings $X.XX the for third expenses pretty feel broken operating you’ll per a maintenance What from very last and a lower all out our earnings strong We notice of these Thanks, as year, of the about us. I or up share, we’ve earnings substantial that. $X.XX Beth. you, earnings in have XX% share move at right release top, impact guess, increase. morning yesterday, per quarter, very for Good seen had $X.XX the of guess of everybody. quarter. the per – share share good We’ve I of

the you’ll some at notice cost. see also payroll benefits higher You’ll bottom,

have, we in on We’ve offsetting our our result to of save $X.XX, that. but last that, also what control. So a been we’re year really, able our the and addition as to work cost growth

new Natural for again, back As the margins, have again, at pretty higher the for you result, share, that Once of me, at for the third a the Gas $X.XX. pretty $X.XX volumes Eastern retail gas in effect for When a a $X.XX excuse of in a improved we the August. share. part as the Shore or August number. – we line incurred wholesale growth, transmission rates quarter, a next rates propane solid distribution, of look in Implementation filed strong and quarter, the increase rate and natural third contribution down,

on Moving down.

Energy and Higher volumes, depreciation $X.XX Aspire resulting share. to Ohio. margins a an taxes the growth It’s our a and as negative. share, in unregulated $X.XX well, company from

Eastern overall, accomplishments, mentioned When Shore August X Eastern Shore rate the expansion. rates Natural interim $X.XX share you at the per FERC I look XXXX just quarter for key So the on case. approved growth. Gas third

about while. pretty As big the is you being there We’ll lack that that of a – there with Expansion the a some for That’s a first, some finally, underway. may a recall, impact challenges Hurricane was minimizing Smyrna, serve little quorum Florida of project. Northwest to XX-mile have New project, new a in the talk on our a our Florida project. pipeline later. And a And another Florida then of little also, customers obviously, project, Irma bit operations. Florida, we Pipeline

the is hurricane with usual. accomplished risk and this be really did And really, biggest that is professionally. year, the team well managed and situations, on – they managing the very Florida as job single was side, with and a electric going Our well to very great

very that. pleased very, with We’re

the bit Reliability Slide little project. X What Shore talk rate I’ll to the System on up Gas. a Natural Eastern Next you’re case. side the on going left-hand about is see

may of our disruptions, vortex, of you with upstream on recall, years ago, reduced extremities of issues, system. the us, customers, to deliver a which, are lot going our polar to gas the in system, I’m a of into especially coming As which of turn, couple service gas the to say, pressures there reduces our ability

the invested $XX And did reliability this so we improve reliability. million We project. to

the in able would event we those to of be service. of type So circumstances, maintain

has XXXX. and me. So December what Remainder the completed segment in X.X-mile quarter the in you’re was Kent fourth December seeing there, XX.X looping pipeline – project Castle of in been Counties, New or excuse already miles of completed XXXX,

forward moving we’re an of a the important case. the case, was with of part rate part that. So rate That

where Now we returns. our FERC to file? asked are of back be is why terms did what Typically, we monitor come can happen in in they submit will you’ll a that another filing that filing so and

had in up. in previous from the cost moving have we require we comeback filing, made Costs would – overall rate in that you have case investment, other forward. service, of the that to and of that we investments sense of then XXXX System an made and Also, filing. increase the Reliability expect, gone filing. XXXX And So with as were inclusion a filed included

also additional that just are now cetera, system and integrity, of all have the Some demand. of we our of complexity things that et like pipeline the

result Interim and return the So whole requested rate project, the third of case $X cetera, in XXXX XXXX service. that filing million the cost as in et margin August, XXXX recorded on case. January rates made a of quarter

ongoing. are discussions so And

Going expansion. to Shore’s XXXX Slide again, X, Eastern

$XXX I project – an million before, we approximately mentioned had we’ve guess there. mentioned we’ve As

dekatherms costs and compression initially our to now that a of do Annual and happening winter approve upgrades be a tall of project has quarter whole in starting it’s construction Now million. is increased Delaware squirm period, pipeline the time Maryland; pretty during order, we contribution it expect lot projects. Construction service season. October to pretty to that, XX done that in FERC’s as over or now just XX extensions; – to since excuse got getting XX quickly gone done of significant which miles and new – description: We’ve miles XXXX, second mainline of estimates. looping Pennsylvania, winter the Project to the the customer X. of me, our XX,XXX actually, earnings. the our gotten the compressor customers, control to to so on is be XXXX And an with TETCO million, [indiscernible], to That $XXX day. and the we of demand for are horsepower increase, compression project, the significant estimated approval over some on that’s a a new a going big $XX.X X,XXX that’s construction expansion. margin, in is Overall addition capacity new A which interconnect, per – XX,XXX there what’s pipeline residential but, basis, pretty contractors minor equivalent two stations. estimated

in natural You in first Northwest gas we’ll being We’ve project construction service projects. and talk Pipeline see projects can about, fourth got of that the XXXX. commencing quarter Florida two second quarter one Expansion. the

part, hand the to you – very see to to is You’ll that is when look this see down X, the you Pensacola. that close and side, project northern left Alabama, Slide top will runs then that

million. or this Northwest margin, up first expansion, with project million are already million profitable. we’ve project, Project, about contributing committed a see $XX.X generate second the Pipeline quarter service $X.X XXXX that, which to Smyrna XXXX; Smyrna a that the basically Overall, Construction and $XX making to expected capacity, earnings. you’ll to and of It’s are year New for is signed will customers coupled the also in have New affordable of We that in quarter XXXX. period, this be

So little play we miles. miles description: of Florida the XX miles a these bit projects Project. a distribution get transmission, commitments mentioned today, X substantial we’re are moment work capacity process trying hard to lot then in done that commitment. ago, And sell for and the of of saw board. We of Smyrna capacity Customer I in left so now. on Project XX,XXX a – New the that XX work Northwest project, pretty of the to a

these we’re for it And that lot to Beth I’m very more certainly over done, back turn are to as going good of there us, projects doing. So get this to with with that projects both are a work all

Beth Cooper

what have also, we’re with XXXX, estimated the $XX margins, associated X. summarizes, that in just table many Slide this about, $XX.X them, to he look to those total. those, margins seeking key here so identify our And and is projects in if million three look we’re XXXX you adding projects in Mike we over and about you that this XXXX talked and are note, add press future to communicate going that What seen add along also of that to and large What’s expansions to in million an opportunities undertaking. significant. talked out beyond. XXXX Moving further very about our these want and larger those to as next expected XXXX, is But year, are interesting going then we see, also releases, you’ll are margin at

Moving was the income, line to way that happened result which about about made good million $X.XX. and little a up more its earnings the of, which also mentioned a our a was share operating that few And a by That’s quarter and up of a back a increase That’s the basically, really, represented which for of going the to was XX% quarter. quarter, quarter. detail our minutes increase $X.X up talk come Slide income margin, for XX% about that, the for net of XX% our quarter. what X. the quarter. I’m for million per and $X.X for the Mike Overall, for gross was just that to the result part

on side What’s Mike well $XX.X the It’s to on segments. margin was equivalent. of our about, operating X, the regulated in is So you income gross Slide strong, at both when as as be growth in segments, is interesting about million unregulated briefly side. continued the talked growth, It pretty look both strong. both our as

gross side, on coupled regulated with a lower $X.X of margin about However, about was the increase, expenses. that of $XXX,XXX result million

the that the into we business, $X saw side, about unregulated a Mike margins, in mentioned the increase third drivers the slightly of the on in million offset of by of effect $X.X side regulated rate increase terms million put we quarter. The million expenses. key On $X

gross also million. In that, gas distribution $X margin represented our growth and as in GRIP. natural about result a transmission growth had to we of addition another That

from the margin biggest, that regulated on equally the were So two gross the drivers from and the growth we energy coming largest increase rate side experienced. growth

On the were across the our growth unregulated businesses. there spectrum, in side,

growth or the retail, gas our our in whether be propane in the wholesale we First, margins auto on the it in side, had board, the across also business.

they’ve incremental So And And margin amount added that same gross income-wise, margin quarter. both of under can this Xeron also the also see, had in you’ll With million. by also overall, $X terms exceptionally that loss last margin amount year as is as They but about volume things $X.XX. since on equal to that about Slide $XXX,XXX a see margin that in out on new holds I from contract. But of in growth our operations, an that that down gross increased well new repeat standpoint. they’ve minutes margin that were X% seen be gross quarter, look basically, position. also Slide third XX And Energy, then experiencing that Flags asset compared growth, the found a the We true whether just Delaware that coming quarter. had some a LDCs, growth full volumes areas had you growth, both want year, here. last Operating then an that’s increase slide slightly reaching moving management we addition, for place down wound the just Aspire one Aspire supplier some of resulted the at as operations of in per an of increasing Aspire from mentioned a in had also I as basis, able those as side, I’ve of to strong, as being on they $XXX,XXX. equal, with growth, from here opportunities few was talk talked of aggressive a about result – significant even about just each, new recognized growth about well of as we their as their days. earnings unregulated margin, other didn’t share that renew to been This experienced been growth whether they all for XX, it well have above and $X.XX lastly, side in the the In to be operation just about. but very talked $XXX,XXX quarter-over-quarter. Eight Basically, the in year, this propane couple the year-to-date for the quarter PESCO they’ve contracts, the margin arrangements we standpoint in expand about, services, while where we’re And we to of a to pursuing it or growth. our of in strong

Moving to Slide XX.

As we about things growth. sheet the is balance have of that a we this us talk positions to for continue growth, one having consistently that future

September, was we so And our around capitalization ended book as right million. $XXX

recognize with into ground We total XX% of undertake short-term we’re some to We’re capitalization we’re debt to capitalization financing. long-term sitting at expenditures of terms likely put we equity and carrying debt today, permanent – to and XX%. capital the amount debt the the about around in that that equities

And our year. we to outlining part plans the so into look the and we’re toughest this financing [ph] actually next year part of of as latter

so that forward. move start – that will as we see And to you undertake us

$XXX company. slides. still that remarks this a about where phone year, going now some we’ve mentioned, million forecast when as we last current basis, to is that year-to-date September, I back so and us amount spent know finishing are for given about I’m very Year-to-date, balance these sheet through at a look having winding for on I to important our is we’re million. for $XXX As Mike we on capital significant down, And a

Mike McMasters

guess I everything to graph on through quadrant Thanks XX, see the Beth. going we much pretty do. Slide you’ll present that we

long-term here, basically our As will, you our both capital above-median at on is investments our of you to can one levels. objectives returns if see, and keep

are are still spent ROE then to the still sitting higher most see, ROE. maintaining top than we’re side, strong As being the only that you close quadrant. we’re CapEx peers, us. right-hand with And level of Significantly can at of two very a on

objectives. And primary so again, that’s one our of

this will quartile, to that is for per a be it. maintain growth to close think that, we will are to indicator we we have I committed top if and maintaining earnings can key share that, very us. If continue not

we’ve Next slide. doing been been everyone there’s a and of to what we’re guess – ��� performing time. sense get over just I these how how

you down expenditures. same where capital in higher top Then higher in You can see still also actually, were XXXX moved top still slightly, ROE. peer then see XXXX, CapEx and probably We graph, XXXX, and see more total that more XXXX, in terms the very again, of And with you up that we can capital falling of group. very expenditures. something similar. third XXXX a ROE, also maintaining can quartile, slightly

capital capital, and again, growth So on returns of strong also spending very terms strong guess, very in effectively. I

XX. slide, Looking next at Slide the

against the also also ourselves group. and measuring We’re both our NYSE peer

three-year, five-year, twenty, three, can years, the performance. then when when five ten see you time, above the most you’re one-year, And the you percentile ten-year, get XXth you of five, [ph] percentile NYSE top-quartile guess, percentile. at XXth to I and in twenty-year, so comparisons, look talking And XXth

So we’re the of And again, the at group, very high the our NYSE to results, performance. very you’re ourself when peer you comparing kind seeing high it then performance companies. a for when same – look

We that. we’re know – lot do. we’ve think of proud of I a work to So got

to the I do and necessary has kinds things. And key. time. I accomplishing say mean, this of with the work it approach our that’s engaged bit to talk really We’re what a starts – the going our want I to all really numbers. employees. It – these how continue about get these little to been

stations, than more then engaged. They can because that’s we there incredible. foundation doing And get of project thing. of quality a for pretty they’re top of York across of work is complaints. on thing. type those award amazing graph. awards, are They’re do proud this quality They – the long-term top the the are engaged. that with on sees substantial. of community top-quartile our are even pipeline compliments other corporate I get lines. And want that – quality time growth what meets along us I hard. as grow. quality they’re New sustainable of – employees organization, development. governance about critical just working more that something that the foundation, I employees comments night, the Our say was And service our doing, for get be it I highly awards, employees, employees are and of fact providing, return. to governance corporate our people are Jim X:X, doing. shareholder excited they’re They’re working I guess the at that that They to the team. I to the recognition because a anyone of really, in and the The team. that green much They’re on again, safety maybe guess, the the about at think the earnings team work of pretty with or awards, M&R deal result, last folks They’re helping business a whether company the able workplace the and won, It’s the

the could be office. in – people So or the the that it’s just outside, across It there the working board. people working are be can out it

see to doing top high-quality going people You’re work.

guess up open we’ll for it So that, I questions. with


Kim, question the comes of from line [Operator Your RBC first Insoo Instructions] Capital Markets.

open. line is Your

Insoo Kim

everyone. morning Good

Mike McMasters

Good morning.

Beth Cooper

Good morning Insoo.

Insoo Kim

everyone. morning, Good

a I regulated the did lowering year-over-year on good the for job know pretty guys good O&M you – basis. had a side, a On quarter

how year, was expenses the more offset the thing about off impact basis do for finishing year-to-date the expenses months, of couple from next timing a XQ a year-over-year weather? to the we And of on towards look O&M that? we think As

Mike McMasters

No, there. quarter. you’ll you third the the in weather and ramp there primarily cost if our growth really reference, fourth go a as of up look result – a the back see started in wasn’t that Actually, measures the and of impact started to we structure, we probably at most and

of we’ve And what our things costs those hard to, so down. cases, have or those things at a us been an doing And – in is into consultant costs addressing employee. looking in out of addition moving some those all get to contractor trying helping cost been a

a along as this see anything wouldn’t I yes, so seasonal lines. or thing And those

I a adjustments always down be you up and to I we’re the that wouldn’t that think think last to so position – every if in there expect it’s in. fourth – in was think but of that quarter, and look ramp-up a pretty quarter you’ll see There’s should – going is at it quarter, I big you I year, recur.

Insoo Kim

just switching propane increased and customer volumes. to increase – the the wholesale just healthy Could customer? or per demand the And more whether that, you increase base driving in retail was explain more that factors Understood.

Beth Cooper

had both was and for Florida have the things significant the added side. the wholesale – given have on I a that you and And so we increase – You happen. the hurricane. then additional it were see quarter did be you customers two where in that timing-related, mean, was will

two-thirds the in is the in going used, And terms use consumption. third good that going you’re in so could of be that we part a been we could consumption, be total terms up those to to propane movement believe saw to consumption, there Unless big is have end part having providing the that, the somewhere of higher timing-related. was quarter in about increase customers would we a of But quarter. gallons of fourth the what a of in that of that,

Mike McMasters

to is up not what obvious, of up. the can’t basically, there to generators, gas their I everybody may event customers lot outages. in say a filled Yes, I wanted get of believe get it on but filled the everybody, but wanted be happened generators power

Insoo Kim

what is on ongoing quantify out of a with guys lot the you But the the then Senate. reform finally could stands, exactly now consolidated House And just basis? for have perhaps, will That and me, it. come tried mean makes in really package a Got of sense. it tax to for what We as bill, know don’t your that company it. House the

Beth Cooper

don’t Insoo, our from I out expense say, we’ve done show those an is still the gate, that see it the response what being, some initial fine-tuning it calculations. us. initial see deductibility preliminary But of really we year, the in EPS was calculations would But are earlier don’t an we – calculations. certainly, interest exposure detrimental. our on standpoint, not side we And for

that above it will everything that. far, be slightly so the neutral or it either components, else looked will be other seems at, And like we’ve

I our don’t more point, this a So calculations. time at but refine we a see downside to need little

Mike McMasters

all the regulated roll on taxes. of unless When earnings regulated business, changes front. cut tax regulatory you those side rates, think the not They so the the something about we deferred the on business will into

not So that guess, I potential, will occur on the windfall regulated side.

recognize. that’s think probably important I So to

Insoo Kim

Understood. you much. very Thank


Your next Sidoti. question comes from the line of Tate Sullivan,

is line open. Your

Tate Sullivan

from operations, you Thank more I the that my margin. are Flags really or on income Eight Eight of at you’ll generate of – I taking Flags? that question your had growth is mean, additional Or there is a rate from run question. $XXX,XXX you that? gross

Mike McMasters

some Without the we run Maybe… we’re going to rate construction, at about are be. more

Tate Sullivan

you most in you would – earned in would from – what in where me, the what recent Flags cause what And Eight pardon fluctuations quarter?

Beth Cooper

where We days didn’t year Tate. the plant had several operate, last

having full last to So of – quarter days difference. or compared the having operation third year as the a was quarter in more incremental

Mike McMasters

year. That’s – last service

right? I was last June Is that think year. it

Beth Cooper

of end June. Very

Mike McMasters

of end June. very Yes,

So fine-tuning you system the in the on third had quarter. some in year going last

Tate Sullivan

you. missed Thank this. Okay. maybe I And then

I was the misunderstand comment heard related did pipelines. it a think tight about for compression purchased? some that? to you I Or I unit Or that contracting

Mike McMasters

pipelines. It was comment the on – was

there’s some imagine saw know much. would if well, as pressure we I but there don’t that probably as compressors, I the On

Tate Sullivan

issues? it costs it is increased has more And for Or you? timing

Mike McMasters

normal at. so and stay to the then the capitalized costs And We onetime it’s XXXX go to incurred cost, a project. level thing. these it’s not It’s a the at market, capitalize will hopefully,

the abnormal now were hold So approved expect would the there on a we waited quorum. that getting we’ll magnitude And it’s have back but of you just some from projects things, go to of normal. – little for hopefully, anyway other while been so kind a that,

Tate Sullivan

Okay. very Have of day. a good you Thank the much. rest

Mike McMasters

you, Tate. Thank


[Operator Instructions] Joyce, Spencer from Next question Hilliard comes Lyons.

open. Your is line

Spencer Joyce

congrats great quarter for and morning, thanks the Good here.

Mike McMasters

Thanks, Spencer.

Spencer Joyce

on little quick ones in of from I’m of perhaps, basis, net comparison of couple a that maybe that, there We’ve if the look kind – negative the a bring kind the we mean, out XXXX a a just perhaps, positive for really volumes into bit. say side, a we can that we wasn’t discussed items impact at wondering we hurricanes much me. Just is non-issue kind point. hurricane impact net the of the XXXX? as discernible it I period, EPS propane ahead as when is to some fair And Beth, there Florida? to with, model is electric QX on

Beth Cooper

the would propane That’s case. fourth that need that in a – look getting quarter. I the propane thing of the delivery. Yes, only be how that mean, at we and to earlier an is moving the really to sense, the forward much customer the extent,

have against reserve. guidance As be some contractor storm utilize contractors, to the costs quarter, we But the the fourth from year. end we’ll a storm we the a extent standpoint, get To that that are the see able additional reserve. – in of at those those we

So there’s of impact the terms no acceleration this really of propane in delivery. beyond other

Spencer Joyce

of we Florida kind the year, evenly is months? approximate quarters? Northwest the cadence New online of next the Smyrna coming what at winter see Or margin Okay. from That’s as across other look pretty that and very the the split? seasonality will Project Will relatively be good in helpful. there that we Only piece question me,

Beth Cooper

I off we’ll top know – if if further completely on What He would out want joining in. is you Jeff, don’t know – the line. I not to recall lay Spencer, that. us my be even. head, that on we’ll Householder must it’s comment like right do, of I Jeff the don’t

Mike McMasters

he Yes, not to able in. get may be

Beth Cooper

we’ll – how change quarter next But significant Well, to to that’s clarity try there’s we’ll get Spencer, huge But bit quarter-over-quarter. back we’ll provide within not out do recollection going fourth to year. my more our little about lay a a is report, you.

Spencer Joyce

follow that if I see versus Yes, the say with closer to be going standard great. safe up, to we be mean, you’re good. quarters even to the would that’s But Okay, it barbell that residential across margins? would

Mike McMasters

be employ to capacity a of function design, to the be That’s be volumetrically function to is correct? to was right. or rate going through going charge. – number going going That’s It’s

Spencer Joyce

all Thanks. understood. had. I That’s Okay,


There are no questions. for the remarks. I turn to Mike further will back closing call McMasters

Mike McMasters

that our access other you. all, that first of that I use It’s for capital, the interest capital seriously. we’re We everybody us. their Thank guess, to know we to we that deal want a in just be thank custodians company. big I’ll getting And is and that of earnings doing. drive again, to people’s to and good take of to employees to growth. great shareholders unwavering. genuinely enjoy and I just And also communities And our we’re reliability our safety, what remain to remind want to engaged and make service the sure customers to service and everybody, they’re we our commitment are serving. committed

a So your much for have weekend. time, thank you and very good


call. conference today’s concludes This

You you. may Thank disconnect. now