Good morning, everyone. My name is Laila, and I will be your conference operator for today. At this time, I would like to welcome everyone to the fourth quarter and 2018 earnings conference call. [Operator Instructions]. Ms. Beth Cooper, you may begin the call.

Thank you, and good morning, everyone. Thank you for joining us on today's earnings conference call. Joining me on the phone today is Jeff Householder, President and CEO. There are also other members of the management team in the room today. Our presentation this morning will focus on 2018 results and opportunities looking forward. Turning to Slide 2. Our normal disclosures are listed related to forward-looking statements concerning the company's future performance. We have provided additional information as it relates to these forward-looking statements in our 2018 Annual Report on Form 10-K and earnings press release, which were filed Tuesday. Today's discussion will include certain non-GAAP measures such as gross margin and adjusted EPS. I would now like to turn the call over to Jeff Householder.

Thanks, Beth. And good morning, everyone. Before we get into our Q4 and year-end 2018 report, I'd like to just say a few words about our recent leadership transition. As you know, the Chesapeake Board elected me to succeed Mike McMasters when he retired in January. I think the fact that the Board selected an internal candidate to take over for Mike signals several important points that are worth mentioning. One, the Board and the management team are committed to continuing the legacy of growth and performance that really began when Mike's predecessor, John Schimkaitis, acquired Florida Public Utilities, passed along to Mike the FPU acquisition for integration. And Mike led a $1 billion transformation of our company over his time as CEO, and has passed that along to me and our leadership team. Two, the Chesapeake culture, someone described it to me recently as the secret sauce that makes our company go. Really drives an entrepreneurial and customer focus, safety-first approach to the market, and we'll certainly continue that. Three, our disciplined, highly selective capital investment strategy will remain intact. The Board has been very clear on that. We've never chased growth for growth's sake. We're always looking for growth that comes with earnings and long-term strategic and growth opportunities. So our strategy continues to be grow the core businesses. We have a long way to go before we exhaust those core growth opportunities. Two, we're always looking to identify and execute on expansion projects, similar to Eight Flags CHP and our propane AutoGas businesses that complement or leverage our core units. And three, from time-to-time, we want to acquire related businesses that we understand and that offer strategic and growth opportunities. We think Chesapeake's long-term strategies will work well for our investors, our customers and the communities we…

Thank you, Jeff. Turning to Slide 11. Just a little bit more color and detail regarding some of the numbers that Jeff talked about earlier. As you can see on Slide 11, our net income was $56.6 million for the year and $17.8 million for the quarter. Overall, our results were favorable compared to 2017, which, again, included that onetime income tax ding of $0.87 in the fourth quarter of last year. Operating income increased $7.2 million for 2018, and $5.3 million for the fourth quarter. Excluding the TCJA impact for the year, operating income actually increased $16.8 million or 19.2% overall. Diluted earnings per share increased to $3.45, or 19% growth, given higher income in our Regulated and our Unregulated Energy segments when compared to the 2017 adjusted results. Moving to Slide 12. We've provided a snapshot of our adjusted earnings for both the year and the fourth quarter. And this information kind of piggybacks on what we included in our earnings release. As you can see, the company's reported EPS was $3.45 again, compared to $3.55 last year. Looking at adjusted non-GAAP EPS for 2018 that totaled $3.31 as compared to $2.89, representing a 14.5% growth rate. Looking at just the quarter. Our adjusted EPS for the quarter was $1.10, an 18.3% growth rate over the fourth quarter adjusted EPS of $0.93 last year. Moving on to Slide 13. This highlights some of the key gross margin drivers, which are identified here and which added about $1.17 per share in 2018 compared to 2017. This compares favorably when you look at our operating expense in -- with $0.82. Margin increases in our natural gas transmission and distribution businesses from new projects being put into service as well as organic customer growth in Delmarva and Florida were huge drivers.…

Thanks, Beth. We've spent a fairly significant amount of time and effort over the last couple of years on our natural gas transmission businesses, both on Delmarva and in Florida. On Slide 22, we talk a little bit about the current Eastern Shore Natural Gas projects, and we've highlighted a couple of them here. One is the 2017 project that you've heard a fair amount about into the last year or so. We are virtually complete with that project. We have a handful of things remaining to do, but most of it is -- is up and running at this point. It's about $117 million investment, 23 miles of pipeline looping, 17 miles of new mainline extension, some new compression. We increased the total capacity on the Eastern Shore system by about 26%. It is a project that really transforms, in many respects, our Eastern Shore delivery capabilities, and will allow both continued growth of our distribution systems at the end of the Peninsula, but also will allow for significant industrial growth as it develops on the Delmarva Peninsula. We're also in the process of looking at what we're calling the Del-Mar Energy Pathway Project, which, again, pushes -- or will push additional gas farther south into the Peninsula, allowing us to serve emerging growth in Southern Delaware, and on the Eastern Shore of Maryland. That project is at FERC right now, and we are hoping for a speedy transition through FERC if we -- if that's possible to be that anymore. But we're hoping for that. We think we're -- we'll be successful there. So those combined projects with an estimated capital investment of about $166 million through years '20, '21, and combined incremental margin that's close to $21 million a year. On Slide 23. In our Florida Peninsula…

[Operator Instructions] There are no further questions at this time. Presenters, you may continue.

Okay. Thank you very much. I'm sorry?

Excuse me, presenter, we do have one question here. Do you want to entertain it or answer the question?

Okay, sure.

Okay. It comes from the line of [ Sean Machiavelli ].

So I just have a quick question on the target capital structure. Do you think that's going to happen via just natural cash flows in the business? Or do you -- are you expecting some external financing needs?

I think, given where the capital structure is sitting, and given the capital expenditures that we have identified even thus far for this year, and again, that doesn't include some of the other things that we're looking at, I think we're going to be in a position at some point that we're going to have to be accessing the external markets. I think we're just trying to make sure that we align it with the project, some of the project determination and also, kind of, getting behind some of the projects that are already under construction today. But yes, I think, at some point, we will be accessing the market. We've done that on the debt side repeatedly over the last several years. And I think, given the balance of our short-term debt, coupled with where our equity ratio is, you have to see us at some point access the markets again.

Okay. And then as far as -- perfect -- sort of the Hurricane Michael, have you guys quantified how much debt you guys have issued? And how do you guys expect to recoup that cash from customers?

So 2 comments. One is we've expended a little more than $60 million, and so, Sean, because we knew there's going to be a gap between when the restoration efforts occur and when you get the filing and then it's ruled on by the PSC. What we've done there is we entered into those 2 loans for $30 million each. They're specifically targeted for the hurricane, and so we've assigned those directly to the electric operations. And so that's debt that's been set aside for that. And then we will be filing to seek recovery of the dollars that we've expended, which include dollars that have been allocated to the storm reserve as well as dollars that we're looking to include in plant. But at this point, the regulatory filing isn't done. And it will take some time for them to finalize an issue and order on the PSC side.

Your next question comes from the line of Roger Liddell.

My question involves the -- truly, it's broad scale, the Florida opportunities -- I'm fully aware of what you were just speaking of minutes ago on the number of initiatives and the growth rate seen in Western Palm, et cetera. But turning to the hurricane aspect, Irma, what, 1.5 year ago now, spawned a number of regulatory and governmental initiatives, some of which are of great interest to the company and to the gas industry. In the aftermath of Hurricane Michael, which was, well, an electric event in essence, do you expect any meaningful response that accelerates or expands what was in place post-Irma?

And then Roger, are you speaking more from the PSC side? Or are you speaking overall from, like, a governmental landscape?

Well, I think, the -- there was some governmental initiatives directly, like that for healthcare facilities. But, let's say, the PSC is effectively driving your life, so -- PSC itself?

Well, I think -- we -- I mean, we are -- and I don't want to say fortunately in the wrong way here, but I mean, there were multiple utilities that were impacted. I mean, we had a severe impact on our Northwest Florida operations. But I think, we have a great -- we feel like a great regulatory relationship with the regulatory staff at the PSC. And I think -- I don't know to some degree there could be some outcomes in regards to how they do this. I mean, in particular, when you look at it for us, we've got a very small number of customers in that area that -- and so could there be outcomes that try to look at something broader? I don't think we know that yet. I think we'll be bundled with the other utilities that are trying to seek relief for this. Jeff, any message?

Yes, I think, that's right. There's a long history, as you all know, in Florida of hurricane damage, especially on the electric side being recovered through the mechanisms that are decades old in Florida. So I don't think that we believe that we have any significant risk that these costs will not be recoverable in one way or another. I think we will have a debate with the regulator as to what goes into capital versus what flows through the storm reserve, and over what period we would recover that storm reserve. And so those are the issues that we are anticipating debating here. But as to actually recovering in one way or another, the entirety of the expenses that we incurred, I don't think that there's much concern there.

Well, I wasn't really challenging that part to your point. If the mechanisms have been in place for decades, even if the storm reserve was, if I read it correctly, paltry relative to the damage you've already incurred. But it's much more looking forward, the lessons, the vulnerabilities of the aboveground electric structure and how gas flowing. That -- so it's the forward look that is my concern, not the recovery mechanism, however precisely it plays out.

I see. And you're right. There is a fairly robust discussion about undergrounding systems, and how we storm-harden these systems. And in fact, one of the real success stories that most of us experienced in Hurricane Michael is that very few of our storm-hardened facilities, especially the larger sized poles that we had installed in the last several years, were negatively impacted. So there's a nice track record of success for the work that we've done in storm-hardening these systems that I think will continue. But you're right, we've had a continuing discussion with regulators and others about undergrounding systems, about distributed generation, about substituting gas for electricity and all of the things, I think, that you're describing there. I have no idea where that conversation will ultimately go. There's even been some discussion about a universal fund that would provide restoration recovery cost and charge that across all electric utilities in Florida, which would require some legislative action. So I don't know where that goes either.

Interesting. That's parallel to what at least several states have done on pipeline replacement, whether it's a water or natural gas, and spreading those costs across the state. That's a very creative way of looking at things.

Yes.

[Operator Instructions] There are no further questions at this time. Presenters, you may continue.

All right. Thank you very much for your continued support of the company. It's a very exciting time for all of us here to be with Chesapeake. And we look forward to great success as we move forward. Have a wonderful weekend. Goodbye.

Thank you.

This concludes today's current conference call. Thank you for your participation. You may now disconnect.