Welcome to Chesapeake Utilities Corp Third Quarter 2020 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, November 5th, 2020. I would now like to turn the conference over to Beth Cooper, Chief Financial Officer. Please go ahead.

Thank you and good afternoon everyone. We appreciate you joining us today to review our third quarter and year-to-date results. We hope that you, your families and coworkers are doing well and staying safe. We at Chesapeake Utilities continue to operate effectively in this new normal, serving our customer and keeping our employees as safe as possible. As shown on Slide 2, participating with me on the call today are Jeff Householder, President and Chief Executive Officer; and Jim Moriarty, Executive Vice President, General Counsel, Corporate Secretary and Chief Risk and Compliance 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 section and Events and Webcasts subsection or via our IR app. After our prepared remarks, we will open the call up for questions. Our objective for the call today is to provide insight into our third quarter and year-to-date results, the estimated impact of COVID-19 on our business to-date as well as an update on our progress on numerous strategic initiatives and our outlook for the future. 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 2019 Annual Report on Form 10-K and our 2020 quarterly reports on Form 10-Q provide further information on the factors that could cause such statements to differ from our actual results. Now I'll turn the call over to Jeff to provide opening remarks on our third quarter performance, more details on our COVID-19 response and some highlights on several strategic growth initiatives and some insights into our outlook going forward. Jeff?

Thank you, Beth. Good afternoon and thank you all for joining our third quarter call. As we prepared for this call, we reflected on the significant accomplishments that the Company achieved during the third quarter. Let me start by highlighting some of our business development initiatives and several key accomplishments that occurred this quarter. I think this list exemplifies the Chesapeake entrepreneurial spirit along with the collaborative teamwork and drive for results that have long characterized our success. Now, that's especially true as we continue to find ways in the middle of a viral pandemic to keep growing our business. As you all know, the investments and accomplishments we outlined today are the catalysts from which we generate future earnings growth. Slides 4 and 5 include details on the execution of our growth strategy and feature several of our significant projects. The Del-Mar Energy Pathway pipeline construction project in Maryland is under way and we placed our Callahan Pipeline in Nassau County, Florida in service in late June. So the third quarter was our first full quarter of operations for that pipeline. Our gas distribution systems continue to add customers at a rate that is significantly above the average growth rate for other utilities. We're partnering with several commercial, agricultural and landfill waste bioenergy development firms on renewable natural gas projects in Delaware, Maryland, and Ohio. These projects will support local communities in mitigating the long-term challenge of agricultural waste disposal and landfill methane emissions. Most recently we partnered with CleanBay Renewables in support of developing a renewable biogas plant in Westover, Maryland. The facility will produce pipeline quality renewable natural gas, which we will take into our pipeline system for distribution and organic fertilizer both produced from chicken waste. We finalized agreements for the purchase of gas from the…

Thanks, Jeff. Turning to Slide 6, net income for the quarter was $9.3 million compared to $5.6 million for the same quarter of last year. Year-to-date earnings were $49.1 million compared to $42.6 million in 2019. The tax rate was 24% this year as a result of the CARES Act compared to 26% last year. The CARES Act enabled us to carry back net operating losses in years with higher federal income tax rates resulting in a year-to-date benefit of $1.7 million recorded in the second quarter. In terms of continuing operations, our EPS for the third quarter compared to the third quarter last year grew by $0.18 to $0.56 per share from $0.38 while year-to-date EPS compared to the same period last year grew by $0.29 to $2.96 per share. Slide 7 summarizes the key drivers of our performance for the third quarter as described in detail in our earnings release issued yesterday after the market close. Gross margin increased $8.2 million. We recognized $2.8 million from the Hurricane Michael proceeding settlement that happened shortly after the end of the third quarter. Pipeline expansions contributed $2.7 million. We generated additional gross margin of $2 million from Peninsula Pipeline, Western Palm Beach County, Auburndale and Callahan projects and $700,000 from Eastern Shore's Del-Mar Energy Pathway project. Natural gas growth from initiating service to new customers added $800,000 again this quarter. Our organic customer growth rates remain significantly above the national average. And for example, our Delmarva residential customer growth reached 4.9% for the quarter. Our Florida GRIP or Gas Reliability and Infrastructure Program, generated $700,000 in additional gross margin this quarter and has contributed over $11 million since inception. Boulden and Elkton Gas acquisitions contributed $700,000 in gross margin as well. And lastly Marlin Gas Services increased gross margin by…

Thanks, Beth. Slide 12 shows the growth platforms associated with our strategic plan that we update every year. Our growth strategy is fairly straightforward. We manage our regulated businesses to provide stable, predictable solid foundation over the long-term and continually seek opportunities to expand our footprint. We look for non-regulated investments to meet three fundamental criteria. Investments that are; one, strategically relevant and related to our core energy businesses; two, that meet our return targets; and three, that exhibit risk profiles that are consistent with our existing non-regulated businesses. We seek to provide total shareholder return in the upper quartile of our peers and build short and long-term performance, a product of our earnings and dividend growth driven by capital projects that can achieve an adequate return on investment at our prescribed targets. On this slide we've identified the primary drivers of growth that we are constantly pursuing. I can envision us expanding this diagram further next year as we pursue opportunities across the value chain for CNG, RNG and eventually LNG. Projects completed or under way are highlighted on Slide 13. As Beth noted in regards to our capital forecast for 2020, we still primarily invest in regulated businesses, most notably transmission pipelines and distribution mains to add services to new customers and existing or expanding geographic areas. We're also comfortable with strategic investments in our unregulated businesses, propane distribution acquisitions like Boulden and Western Natural Gas at the Marlin Gas Services, Eight Flags, Aspire all have similar characteristics to a regulated utility but have consistently generated increased returns above the allowed regulated utility returns. For us, our non-regulated businesses are core to who we are and to what we do. They are the means for achieving our higher than regulated ROEs and also support our EPS growth track…

Hi. Thank you, Jeff and good afternoon everyone. We are excited to be ushering in an era here at Chesapeake Utilities where several RNG projects are being readied for launch. These projects are indicative of our commitment to sustainability. We are working to reduce the carbon footprint of the communities we serve by lowering greenhouse gas emissions. First opportunity I would like to discuss is our relationship with Bioenergy DevCo, a leading global developer of anaerobic digestion facilities that produces renewable energy and healthy soil products from organic material. The project involves removing excess organics from poultry waste and converting it into RNG. The resources generated from organic waste at this digestion facility in Delaware will become utility quality RNG once it is processed by a $6 million gas processing plant. This new plant will be built, owned and operated by Chesapeake Utilities. Eastern Shore Natural Gas Company and Marlin Gas Services will also make incremental investments associated with the transport and receipt of RNG, totaling $7 million. The RNG will ultimately be delivered through Chesapeake Utilities' distribution system for use by our natural gas customers. The second project includes our partnership with CleanBay Renewables, and enviro-tech Company focused on the production of sustainable renewable natural gas, which will generate greenhouse gas credits associated with vehicular usage and provide Chesapeake Utilities a second opportunity to bring additional renewable natural gas to our Delmarva operations. Our newest RNG project represents a partnership with Fortistar and Rumpke Waste & Recycling to generate renewable natural gas in Ohio. This project will extract and capture waste methane from the landfill in Ohio and transform it into renewable natural gas. The RNG will be distributed through our Aspire Energy pipelines. The fuel will be dispensed in fueling stations for natural gas vehicles via the Trustar…

Thanks, Jim. I'm pleased to report that we continue to reaffirm our five-year capital expenditure guidance of up to $1 billion for the years 2018 through 2022, as depicted on Slide 22. We also reaffirm our 2022 earnings guidance of $4.70 to $4.90 shown on Slide 23, which is in line with our EPS growth expectation of 7.75% to 9.5%. We are poised to achieve our 2022 financial targets. Growth that represents that is underpinned by our five-year capital investment plan to invest in utility infrastructure, complementary opportunities in regulated businesses and sustainable energy solutions like RNG. We'll continue our long-standing track record of delivering top returns to our investors and we will maintain a strong balance sheet that ensures access to capital for growth. On Slide 24, our annual shareholder return for the periods ending October 31, 2020 is compared to our peers. As you can see, we've generated top quartile shareholder return. Chesapeake Utilities, like other gas LDCs, was not immune to the recent market volatility. Fortunately, our stock prices rebounded nicely, particularly since we joined the S&P SmallCap 600 Index. We're currently trading near our all-time high. We believe this recent price appreciation reflects investors' understanding of our strategy that we have a strong utility foundation that we consistently stay true to investments in unregulated businesses that are complementary to our regulated business and that it enable us to consistently generate above utility returns. We believe natural gas is a key component to the country's long-term energy strategy. We also believe that the markets we serve value the energy services we deliver whether those are natural gas or propane. Our customers have spoken quite loudly in this regard. At the same time, we have opportunities given our business mix, expertise and strategic approach to capitalize on new…

Thank you. [Operator Instructions] Our first question comes from the line of Brian Russo with Sidoti. Please proceed with your questions.

Hi. Good afternoon.

Good afternoon, Brian.

Hey. Just with the – curious with the, it looks like $65 million out of the $75 million of the ATM program accomplished, are you just going to opportunistically possibly look to issue that remaining $10 million or is it really not even necessary given where you are on the equity capitalization?

Sure. So maybe just to highlight, so we did issue $62.5 million under the ATM program. In total for September and October we issued a total though closer to about $75 million and that's inclusive of shares that were issued under our dividend reinvestment and direct stock purchase plan. You're right, Brian. As I mentioned in my comments, it enabled us to move back closer to the low end of our target range. So I think you will continue to see us try to make sure that we stay close to our target. And as we continue to undertake new opportunities from time-to-time as appropriate, we'll adjust our capital structure so that we can stay around that target range. So we're there right now, but that doesn't mean from time-to-time, we may not consider issuing both debt and equity capital to make sure that our capital structure stays balanced.

Okay. Great. And then just a follow-up on the – it seems that now you have a little bit of flexibility to pursue growth opportunities in 2021. The flexibility is from a size perspective relative to what you've done recently and maybe you could just talk more specifically on regulated expansion projects versus unregulated opportunities in RNG maybe with your existing relationships you discussed earlier.

I'll begin and then I would just ask Jeff to jump in, if there's anything he wants to add. But what I would say is when you look at us consistently year after year we continue to have opportunities to grow our regulated businesses and I think with some of the projects that we've included in our margin table, you'll see that there is regulated and unregulated growth that's going to continue to happen throughout the Company. And we're fortunate in that regard. I don't see Brian, when you look out over time; I think you can expect we're going to continue to have organic growth. We're going to continue to have distribution system expansion, we've got some pipeline projects that are going to finish up, there is new pipeline projects that we're looking at. But that doesn't mean that there is not going to be opportunities simultaneously on the propane side, potentially acquisitions, there is also core growth that's going on in that business because of the start-ups we've done. We're also expanding Marlin services. But at the end of all of that, you get to a mix that you're not going to see. Because of our utility foundation and because of the opportunities that we have, you're going to continue to see kind of the same level of mix from a capital investment, similar to what we've experienced over time. We've been anywhere from 70% to 90% regulated investments every year. So that's not going to be changing. Jeff, I don't know if there is anything you want to add.

No, that covered it pretty effectively.

Great. Great. Thanks. And then just on the Fortistar RNG announcement made earlier in month. You touched on that. Are there any financial implications or impacts that you could discuss at this time? You mentioned GHG, but I'm not sure if that was related to Fortistar or something else.

That was actually the comments that Jim made around that were related to the Fortistar, Rumpke project where Aspire is participating. Yes, we will have additional financial information forthcoming as we come out with our year-end result. We've not at this point put any of that information out in the public domain. But you'll see us add them to our gross margin table at the end of the year.

Okay. Great. Thank you very much.

Sure.

There are no further questions registered at this time. [Operator Instructions] Our next question comes from the line of Tate Sullivan with Maxim Group. Please proceed with your question.

Hi. Thank you. And then, Jeff, just on the propane acquisition, can you talk about your total propane customer mix now after the acquisition of the company in Florida? Why is operating a propane business in Florida meaningfully different than the Mid-Atlantic and how did you identify that opportunity to expand into Florida, please?

Well, sure. It's really fairly straightforward. This business is closely aligned with our other Florida opportunities or other Florida operations. We're serving somewhere in the neighborhood of 17,000 or so propane customers in Florida. That's in addition to the customers that we serve in our Sharp operations. And so, we're actually folding this 4,000 customers into Sharp and we're branded as such. It serves a different kind of discrete market area around Jacksonville, in the Duval and St. Johns County areas from what we're doing as our full gas operation in Nassau County. And so, we see that as a really nice market area. I mean, there's a lot of new growth there at Jacksonville and that county is one of the high-growth areas in the State of Florida. There is a lot of areas that are not reached by a natural gas distribution. We're actually a little heat load up here in the northern part of Florida and so we see it as a very attractive opportunity. We had a deep relationship with this company going back for a number of years. And so it was – when they decided that the family was finished, they – it's a fairly obvious opportunity for us. They called and we answered and it looks like we will fold that in quite nicely.

Okay. Thank you for that background. And then last for me is, the RNG projects, and it sounds like you have many other – others that you're evaluating. What is the timeline to inject or are you already injecting RNG into your pipelines from any of those projects?

The Delmarva projects, probably in the first quarter of 2022 we might see something come online, a little before that in one of them. But we're looking in that kind of – that general direction before we see gas coming into the system and that's not too far different for the project in Ohio, the landfill project that we talked about. We can firm that up. I am sure Beth will – as she provides additional information on those capital opportunities.

Okay. Thank you, all. Have a good rest of the night.

Thank you.

Our next question comes from the line of Roger Liddell with Clear Harbor Asset Management. Please proceed with your question.

Yes. Good afternoon. I wanted to continue with the RNG project discussion. It's obviously commendable. There is no question about that. But the company is at some risk of greenwashing – being viewed as greenwashing. If it's not of sufficient scale to make a difference, however that is defined, I mean, a real difference. Can you lay out your strategic thinking in terms of what percent of intake of gas supply could you foresee looking out over whatever time period you choose? But what is your view on the renewable green gas as a percent?

Well, let me back up two steps, Roger, and answer that in this way. We became interested in RNG projects, especially on the Delmarva Peninsula but also in Ohio, and we're looking at a few in Florida as well as you might imagine, primarily because of the waste cleanup environmental benefit. It wasn't really the production of RNG that drove us down this path initially. The RNG was a nice thing to get out of the back end of these projects, but we thought the real environmental benefit was on protecting the watersheds in the Delmarva, for example, and collecting and cumulating chicken waste and processing it so that the methane was not released and that it wasn't running off of being used as fertilizer and running into some of the waterbodies. And so that was our first interest. And frankly it was kind of the states, the Maryland and Delaware as first interest. The second thing we looked at and not to be crass here, I guess, but the second thing we looked at was the opportunity for profit taking on those facilities. Was it an investment that would meet our criteria. However, we ultimately decided to invest in these projects. Right now we've looked at and announced things like Marlin hauling gas from the projects into our distribution facility through Eastern Shore. We've announced an Eastern Shore interconnect that will be dedicated to the receipt of RNG and LNG from any source. And so those are all profitable ventures for us. We've also looked at the gas coming into our distribution system, to get to your question specifically, and there is a couple of ways to look at that. Now, first of all, in some of these instances the green attributes of the fuel are being sold into…

That's very interesting. Yeah, appreciate the texture in that answer and I'm sure I'll have other questions in future calls.

Sure. Sure.

There are no further questions registered at this time. [Operator Instructions] Mr. Householder there do not appear to be any further questions at this time. I will now turn the call back to you.

Okay. Well, thank you very much for attending our third quarter call. We appreciate the interest as always in Chesapeake. If you have additional questions, myself or Beth or Jim or her team are certainly standing by to answer them. So just give us a call. Thank you very much. Good evening.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.