Good morning. My name is Nina, and I will be your conference operator today. At this time, I would like to welcome everyone to Year-End 2016 Conference Call. [Operator Instructions] Thank you. Ms. Beth Cooper, you may begin your conference.

Good morning, everybody. I'd like to welcome those that are on the phone call today. Today's conference call is being held at Delaware State University in Dover, Delaware. We're actually conducting a call in the Bank of America Building, which is the business school for Delaware State University. We're thrilled to be here, and a special thanks to the dean, Dean Covington, the faculty and the students that are joining us, and thank you to all that are joining us on the phone. We're excited to talk today about our year-end results and to talk about our path forward for 2017. Turning to Slide 2. As usual, I just have to briefly mention that today's presentation may include a discussion of some forward-looking information, particularly as we talk about our gross margin growth. I will refer everybody to our Form 10-K, where we talk about the risk factors related to those forward-looking statements. Now I'm going to turn the call over to Mike to talk a little bit about 2016 and our results for the year. There you go, Mike.

Thanks, Beth. Well, welcome, everyone. 2016 was a very good year for us. We had an earnings growth, a little over 5%. We had less than 31% of our total capitalization we reinvested in the business. We got return on equity of 11.3%, annualized dividend up 6.1% and shareholder return of 20.2%. Taking all of these metrics, you're looking at a very strong performance and not to mention 10th consecutive year of record earnings. Business highlights. We've got a lot of growth in the past year. We've got growth in natural gas distribution and transmission businesses, both up here on Delmarva, Florida and also in Ohio. Eight Flags Energy combined heat power plant was completed -- construction was completed this year and placed in service, just in time for hurricanes ahead [indiscernible] with great success. Higher operating income contribution from Aspire Energy. That's our company up in Ohio that's been [indiscernible] 2015. Continued investment in Florida and our GRIP program. The GRIP program is a reliability program [indiscernible] we've had in effect for several years, and we're making great progress. Positive outcomes from several regulatory proceedings. I think we've [indiscernible]. And then PESCO's natural gas marketing business has started up new services in Ohio and elsewhere in the country [indiscernible]. So that's overall a very good year. Generating record results. Diluted earnings per share on the top left-hand side on Slide 4. You'll see we've started at $1.91 in 2011 and have consistently grown through 2016 to $2.86. Again, 5.1% EPS growth; 5-year compound annual growth rate of over 8%; and 10-year, over 9%. It's a strong performance no matter what period you're looking at. And then record net income of $44.7 million. We started at $27.6 million in 2011 and growing to $44.7 million in 2016. Dividend growth. [indiscernible]…

So just digging into 2016 a little bit further. I talked about that we had record net income of $44.7 million. And what you'll see is that represents about $3.5 million of an increase in net income for the year. The biggest part of that coming in the fourth quarter. Notice in the fourth quarter, we had net income growth there of about $3.2 million. From an EPS standpoint, Mike talked about our EPS is up 5.1%. You'll see that was a $0.14 increase for the year. $0.17, in effect, came through in the fourth quarter, and so overall, once again, a very positive year. It was growth both in terms of our regulated businesses as well as our unregulated businesses. We had growth in gross margins for both, which we'll talk about in just a minute. So in terms of our Regulated Energy segment, we had an increase of $17 million in regards to gross margins for the year that ultimately resulted in about $8.9 million because of expenses to support that growth hitting the operating income line. There were various different avenues that this growth came in across the board. The first thing -- service expansion. From a service expansion standpoint, we increased there about $7.2 million in terms of gross margins, principally a large result of the interim services that we provided to a power plant here in Delaware. Secondly, we added $4 million from a gas reliability replacement program. That's been in place for several years under Jeff's leadership. And that particular program, we've invested over $100 million in capital expenditures, $26 million this last year, and we've replaced about -- over 210 miles of pipes in the state of Florida. We added another $2.7 million from what we call organic growth. On the Delmarva Peninsula,…

Thanks, Beth. I'm grabbing the microphone here [indiscernible]. I guess I want to talk about this platform for growth, and really, the key here is how and why are we growing so fast, how we're able to do that, and it starts from the bottom up. This is a pyramid of various engagement strategies [indiscernible]. There's engaging employees. They're engaging with customers, engaging with the communities. We have a brand strategy to support that, and we have strategic [ph] thinking to support that. In addition, when you think about this [indiscernible] for reliability, high quality of service to customers, high levels of safety. And once we do all of these things right, then we're in a position where we can grow the company. Without these things, we don't have the credibility or the time spending on the growth side. So if you look at the next layer in the blue, we're developing new lines of business, executing business growth, et cetera. And again, it's all being [indiscernible] by the availability of our time created by getting the foundation correct. And at the top of the pyramid, you'll see the results. And that's where we're given safety awards, top workplace awards, leadership awards, et cetera. So the model is working for us, and we're working it very hard, and we're investing in the bottom of that foundation continuously. The performance quadrant on Slide 16. You'll notice that we are staying in top right-hand quadrant of that graph. What you'll see looking at the left-hand side, clearly, the average return on equity. The line, the dark line is marking the 10%. Over to the right-hand side is the peer group [indiscernible], and you'll see that we are significantly higher at 12%. [indiscernible] 11%, still 10% higher than the median. And if you…

So Nina, if you would open it up for questions?

[Operator Instructions] Your first question comes from the line of Sarah Akers from Wells Fargo.

So first, on propane margins. As you expected, there were some pressure in 2016. Are we still at above normal margin levels? And if so, do you expect any additional pressure into '17?

I think we're getting pretty close to normal levels. There may be some more or slightly more pressure in '17, but we're pretty close to normal.

Great. And then of the $65 million of Unregulated gross margin in '16, how much of that was the propane business?

In terms of the propane business itself, the propane business, there was basically about $2.4 million, Sarah, in terms of the retail margins, in terms of the decline or from the retail margin side. And then on the consumption side, we actually -- there was a positive impact there on the consumption side of just under $2 million. So those were the 2 biggest drivers that impacted that business.

But on an absolute basis, can you give us a sense of what the propane business is contributing to the overall Unregulated gross margin?

Overall, when you look at it on a normal basis, now with Aspire being factored in, it's probably going to be somewhere in the -- and I'm thinking off the top of my head, it's somewhere probably in about the 60% range of the overall on a normal basis.

Got it. And then on the system expansion project, are you concerned that the current situation at the FERC with just 2 members might slow down the approval there?

I think at this point, we've not -- I mean, we're not, I wouldn't say, at a worried state. I mean, we're just moving forward with the project and our interactions with them. And right now, I think we're still optimistic that, hopefully, they'll review it in May, and we will be in a place to complete it by the very end of the year. And so the margin impact will happen in 2018.

Are you booking AFUDC on that in the meantime?

Yes. I would just say, Sarah, the only thing to keep in mind, if you look at our balance sheet, which I know you have, we have -- we're carrying a lot of short-term debt right now. So it's very -- we are booking AFUDC, but it's being done at a short-term rate.

Got it. And then last question. Beth, you mentioned the balance sheet strength. When we look at the $260 million CapEx plan for '17, it's quite a big step-up. Are you able to finance that with long- and short-term debt without going below that 50% equity ratio threshold? Or do you expect to need additional equity?

I would -- Sarah, what we've historically done is we're going to try to think of that long-term financing as close as possible with the in-service date of the project. As we look at it right now, I think we have the capacity with our debt facilities to be able to handle that project. At the same time, there's other projects that are included in that $260 million. And so I think on the back end, once we see -- if everything gets expended, then we'll see if some minor equity issuance might be necessary in 2018 or so.

Your next question comes from the line of Michael Gaugler from Janney Montgomery.

Just wondering, given the positive environment for the midstream projects in the Mid-Atlantic, been very favorable recently from a regulatory perspective, if you're seeing any additional new opportunities for ESNG. And also, kind of a secondary question, given the investments being made currently in ESNG, what kind of capacity in terms of percentages would be left after the upgrades are completed?

I guess as it goes to the Pennsylvania stuff, yes, we are seeing a lot of activity there, and things are changing. You still also have some local -- or appearance of local protesters are involved. But we've got opportunities in mind in Pennsylvania and Ohio that we're looking at right now. And so we're cautiously optimistic that we'll get some of those done. We also have opportunities down in Florida that are maybe a little bit more -- a little further along, again, pipeline opportunities. I'm thinking this next question was -- I forgot what the second question was.

I think he mentioned that -- Michael, I think you asked about the Eastern Shore capacity?

Oh, the capacity of Eastern Shore. Typically, Michael, what the FERC's looking for is all that capacity fully subscribed. And so what we're doing is when we get firm contracts, we build the facilities to serve those firm contracts. So there's not really any vacant capacity on the system that we'll get occasionally. Somebody will turn back capacity. They may have a little bit of capacity, but there's not a lot there, Mike.

Okay. Okay, so then that leads to my next question. So if something comes along beyond these planned expansions, are you getting to a point with Eastern Shore that you just can't increase compression anymore, and you basically have to upsize the line in certain areas? I'm trying to get a feel of what the line can still do because you had a lot of capacity expansions on that line the last couple of years. And just wondering what it can take at this point.

Well, we're even, in '17, going to be doing some looping and also some compression. So that looping and compression strategy will continue. And we'll look at the economics every time we have an expansion to make a determination as to what's -- which is the most economic. And we'll think about not just the economic impact on that particular project but also longer term with the economics. So right now, again, we've got about 2 different projects going on, the reliability project and also that expansion. So we're not concerned about not being able to expand once this project is done. We'll be the same place we were before this project.

Your next question comes from the line of Tanner James from Ladenburg Thalmann.

Just a question about your 2017 capital expenditures budget. I'm just curious. Could you, perhaps, elaborate as to what extent those expenditures will be captured in rates? I know they're pretty heavily tilted towards your Regulated operations.

So you have -- I mean, you have quite a few of the projects that are in there, like the Eastern Shore 2017 expansion project. There's been contracts there that have been entered into with the customers. There's a couple of other projects that are finishing up, so like the White Oak and the system reliability that are going to be captured in Eastern Shore's existing, so to speak, rate case. And then you have some projects that -- what I would like to call projects in development that we need to bring to fruition and close out. But there may be new contracts that are executed with customers on a one-on-one basis, for example, if we had additional pipeline expansions in Florida or up here that aren't announced and aren't finalized at this time.

All right, great. And most of my other questions have been asked and answered, but I just wanted to hear your thoughts on the potential for a tax reform and how that might impact your business given your mix of Regulated and Unregulated businesses.

Sure. I mean, I'll probably make just 5 just bullet points in that regard. So the first one is when I think about the tax reform, certainly, the first thing that's going to happen is the reevaluation of our existing deferred taxes. And that's going to happen at the effective date of the new tax rate. And so in my mind, on the utility side, what's going to happen there is that impact's going to be -- that's going to be, basically, we set up a reg liability, and ultimately, that's going to be amounts due to the customer. On the nonutility side, certainly, there's going to be a favorable impact at implementation there. So that's the first part of that, reevaluation of the deferred taxes. The second part of it is that I would expect that the utility rates would adjust to reflect any reduction in the tax rate, and we just have to see how quickly and the time period that those go back to the customer. The other thing on the nonutility side, if we just look at the impact, there is a slight positive impact. But I don't know if the market -- and those are competitive products and services that we're providing. The markets may adjust for that, so our competitors may adjust for that. But I would say there is a potential slight favorable opportunity there. The third thing is certainly, there would be a cash flow benefit from the full expensing of the CapEx that we've seen already. And I've looked at it from the perspective of -- I'm responding to, assuming a loss of interest deductibility, full expensing of CapEx, and I'm kind of looking at that 20% corporate tax rate. The next thing I would comment on is that I think that our current cost of debt, coupled with if we're able to sustain the level of investments like we're talking about, to me, limits the exposure that's out there as it relates to the loss of interest deductibility. So preliminarily, at the end of the day, I don't see it as being a negative. I think -- could it be a neutral to slightly positive? I think we have to see. So I don't know, Mike.

Your next question comes from the line of Spencer Joyce from Hilliard Lyons.

Just a quick one for me, and I apologize for kind of beating the dead horse here as far as the capital budget goes past 2017. But I have an older note here in my model, a base level for you all, excluding any major expansions, is somewhere in the $60 million to $80 million range. And I guess my question is, is that still a fair point for us to build up from? Or with the company having grown so substantially over the past couple of years, including the Aspire purchase and even the Eight Flags plant, are we looking at, perhaps, $80 million to $100 million on a go-forward basis and then add up from there? Or how should we be thinking about maybe just that base level of CapEx?

I think, Spencer, at this time, I mean, I would use as a base still that $60 million, kind of that $60 million, I would say $60 million to $70 million base. I think what Chesapeake has tried to do and has done successfully is to continue to look for additional opportunities that can add to that. But if you strip out growth projects and not knowing when they're all going to fall into place, if you want to a base level of CapEx, you're really talking that $60 million to $70 million level.

[Operator Instructions] There are no further questions at this time. Please continue.

Well, thanks, everyone, for your interest in the company. We do -- or continue to do and dedicated to generating shareholder value. That pledge will continue, and that requires that we invest capital prudently and stay on the course. Thank you very much.

Thank you.

Ladies and gentlemen, this does conclude our conference for today. Thank you all for participating. You may now disconnect.