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Edited Transcript of CPK earnings conference call or presentation 1-Mar-17 3:30pm GMT

Thomson Reuters StreetEvents

Q4 2016 Chesapeake Utilities Corp Earnings Call

DOVER Mar 1, 2017 (Thomson StreetEvents) -- Edited Transcript of Chesapeake Utilities Corp earnings conference call or presentation Wednesday, March 1, 2017 at 3:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Beth Cooper

Chesapeake Utilities Corporation - SVP, CFO & Assistant Secretary

* Michael McMasters

Chesapeake Utilities Corporation - President & CEO

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Conference Call Participants

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* Sarah Akers

Wells Fargo Securities, LLC - Analyst

* Michael Gaugler

Janney Capital Markets - Analyst

* Taylor James

Ladenburg Thalmann - Analyst

* Spencer Joyce

Hilliard Lyons - Analyst

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Presentation

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Operator [1]

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Good morning. My name is Nina and I'll be your conference operator today. At this time, I would like to welcome everyone to year-end 2016 conference call.

(Operator Instructions)

Miss Beth Cooper, you may begin your conference.

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Beth Cooper, Chesapeake Utilities Corporation - SVP, CFO & Assistant Secretary [2]

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Good morning, everybody. I would 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 are actually conducting the call in the Bank of America Building which is the Business School for Delaware State University. We are 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 would 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.

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Michael McMasters, Chesapeake Utilities Corporation - President & CEO [3]

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Thanks Beth. Welcome everyone. 2016 was a very good year for us for [performance] growth a little over 5% and that's 31% of our total capitalization we invest in the business.

Return of equity 11.3%, annualized dividend of 6.1%, shareholder returns 20.2%. I think that all of these metrics, you are looking at a very strong performance and not to mention the tenth consecutive year of record earnings.

Business highlights. We have had a lot of growth over the past year. We had growth of natural gas distribution and transmission businesses. [Both of them appear] in Delmarva, Florida and also in Ohio.

Eight Flags Energy combining power plants was completed this year, put into service just-in-time for hurricanes ahead. [Labeled to look for hurricanes] with great success.

High operating income from Aspire Energy, that's our Company up in Ohio just closed on it in 2015. The continued investment in Florida via the GRIP program. The GRIP program is reliability program, [safety] program that we have had in effect for several years and we're making great progress.

Positive outcomes from several regulatory proceedings showed great increases, et cetera. PESCO's natural gas marketing businesses had new services in Ohio and elsewhere in the Company. We are looking at growth from [common select], overall, a very good year.

Generating record results. If you look at the diluted earnings per share on the top left hand side on slide 4. You start a $1.91 in 2011 and have consistently grown through 2016 to $2.86, again 5.1% EPS growth.

Five-year compound annual growth rate [over 8%] and 10-year of over 9%. A strong performance no matter what period you are looking at. Record debt income of $44.7 million, we started with $27.6 million in 2011 and growing to $44.7 million in 2016.

Dividend growth. [Repeating] our dividend growth, when you think about this, our objective is to obviously provide superior shareholder returns to our investors and what we are doing here is basically identifying great opportunities to grow the business. [Big discipline with the professionals] and therefore getting return on capital that are adequate to generate earnings per share growth.

We predicted long term growth. You look at the numbers and you can see the five-year compound annual growth rate of 5.8%. That is a very strong dividend growth rate.

Shareholder return. This is just -- you take a broader look at our performance relative to the entire [state] we can compare ourselves utilities for years, we thought this might be where we looked at it broader. So we have done that for the last year, year and a half.

On slide 6, what you can see is that comparison. You can see that when you look at us on the left hand side, for one year we are 56.6% of outperformance, better than 56% of the other companies out there. Over a longer period of time, we're seeing 91.9%, 81%, 94%, 87% so we've been pretty [consistent] over time. If you look at annual compound shareholder returns, the same thing.

You will notice that in 2016, we were not -- we had a very strong year at 20%. But the broader market, 75th percentile had 33%, the 75th percentile but still over the 50% [of others].

So for financial results I'm going to turn over the floor to Beth.

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Beth Cooper, Chesapeake Utilities Corporation - SVP, CFO & Assistant Secretary [4]

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Just kicking into 2016 a little bit further. Mike talked about that we had record net income of $44.7 million. What you 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 see that was a $0.14 increase for the year. [$0.17] came through in the fourth quarter.

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 margin for both, which we will talk about in just a minute.

In terms of our regulated energy segment. We had an increase of $17 million in regards to gross margin 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 being service expansions. From a service expansion standpoint, we increased there about $7.2 million in terms of gross margin.

Principally, a large result of the interim services that we provided to our power plant here in Delaware. Secondly, we added $4 million from the gas reliability replacement program that has 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. We've replaced about over 210 miles of pipe in the state of Florida.

We added another $2.7 million from what we call organic growth. On the Delmarva Peninsula, that was about $1.5 million of that $2.7 million. And that came primarily from both residential and commercial growth, with residential being more than 50% and that growth rate being about 3.4%.

In Florida, we added $1.2 million primarily from commercial customers, [both] representing that $2.7 million that I mentioned. We had a Delaware division rate case during the year. Rates went into effect on an interim basis in February.

We have 10.5 months of rate relief from Delaware from the new rates in the year. That represented $1.5 million of partial year in total, on an annualized basis that will be $2.25 million.

We generated $1.4 million in terms of services related to Eight Flags, our natural gas transmission, our intrastate pipeline in Florida and also our distribution system at FPU. Both of those delivered natural gas that enabled our CHP plant to operate beginning in June.

Lastly, we have been in a conversion process both in Ocean City -- excuse me, Ocean Pines and West Ocean City and we have done quite a few conversions to date and that added about $736,000. Just over a week ago, we announced that we had finally gotten natural gas to Ocean City itself, so we will be getting a conversion process there.

On the unregulated side, what you will see is that basically we had gross margin growth at the top of $4.6 million. Ultimately because of the weather and the expected -- we had expected lower retail margins per gallon on the propane side.

Ultimately that growth was masked by those two factors. On the unregulated side, the results were down slightly for the year.

The positive gross margin aspects that we experienced, first in our Aspire Energy of Ohio business, our gross margin was up by about $5.9 million. Really as a result of two things. One, 2015 only included nine months of results because we acquired the business on April 1.

Then second, as a result of some amendments to some contracts we made in terms of pricing, customer growth that was in excess of 10% and then also, some additional fees that were placed into service. Ultimately, $5.9 million from Aspire, in addition our Eight Flags CHP plant went into service in June. That added $3.6 million, coupled with, I talked earlier about on the regulated side, another $1.4 million, so in total $5 million for a partial year from that plant.

Our PESCO operation, which is our natural gas marketing operation, also added $1 million because of new contracts and new services that they provided in their current areas as well as they have expanded also into Ohio. Also in the increases, I talked earlier, were anticipated lower retail propane margins; the weather, which we'll talk about a few more minutes.

Lastly, lower gross margins from Xeron. When we look at it on an EPS basis and reconcile it year-over-year. Turning to slide 10, what you will see is that the gross margin I talked about was about an $0.83 increase year-over-year. Which was offset by expenses to support that growth of about $0.44.

Weather represented $0.15, so it negatively impacted the years results by $0.15. We will talk a little bit about Aspire. It added $0.09 and we did an equity issuance in September and that represented basically about $0.05.

Moving onto slide 11, this just actually lays out those gross margin components that I talked about earlier. Those projects in effect, added in total about $24 million for the year.

Those projects are also going to have an incremental effect in 2017 that we've laid out here. They are going to add approximately $5.2 million additionally above what they've contributed this year. There is also some projects that are in the pipeline so to speak, for completion that will add slightly to 2017 but on a larger basis in terms of 2018.

Those include the system reliability project which we're in the process of constructing and we will have complete by April 1. Our assumption here, in the projects and initiatives underway, is that project, we will get rate recovery as part of the rate case that we are currently involved in. So we have got a partial year of almost $2.3 million.

The other project that is being factored into here, is our 2017 [expansion] project. Which when completed, you will see, will add an incremental $17 million coupled with the system reliability project next year.

To talk a little bit about the 2017 expansion project. It is the biggest project that we have done in our history, in terms of a project from the ground up. With that project, we are meeting our customers demand to bring low cost, reliable clean energy, more of that to the Delmarva Peninsula.

What it will do for us as a whole, is increase our firm transportation deliverability by about 25% and we are meeting the needs of customers. There is about five customers, one of those being our self, our distribution entities, our three distribution entities.

We made our initial filing, which is a pre-filing in of May of last year. We filed our CP application in December. It is currently, right now, sitting before the FERC.

Our goal, moving to slide 13, is that the project would be hopefully be approved by the FERC in May. We will begin construction shortly thereafter and complete by the end of the year.

With the margin most likely beginning in 2018. The margin is $15.7 million from this project and it will represent an additional 61,162 dekatherms. Which is about equal to 60,000 customers.

Normal residential customers that we serve today -- on the Delmarva Peninsula, we currently serve about 74,000 customers. So this is a pretty significant project when you look at it from that vantage point. It is just shy of being $100 million project, very significant, once again, overall.

To be able to finance that project and to also support the other projects that we are looking at right now, and be able to finance those on a go forward basis; it has been very important to us to have a balance sheet that can support that growth. If you look at our balance sheet today, our total capitalization is about $805 million. Comparing back to 2012, we were about $428 million.

On an enterprise value as a Company today, we are just shy of $1.5 billion over all. We have had access to the equity markets, this last year we did an equity offering in September. We have capacity under some of our existing debt agreements.

Right now, we utilize lines of credit, we have a revolver. In total there, we still have another $180 million that we can access there to support our growth.

We also have a shell facility with Prudential. We are accessing part of that in April to do a long-term debt placement of $70 million but that leaves another $80 million. We are constantly looking at what way can we continue to add additional access to capital for our growth.

In addition, I mentioned the equity. Our current equity to total capitalization is about 55% at the end of the year. Very important to us.

Now I'm going to turn it over to Mike, who is going to talk about our strategic platform for growth.

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Michael McMasters, Chesapeake Utilities Corporation - President & CEO [5]

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Thanks. I'm grabbing the microphone, I'm too far away from the podium.

I guess I want to talk about this platform for growth and really the key here is how -- why are we growing so fast, how we are able to do that. It starts from the bottom up.

This is a pyramid [of engagement strategies] symmetry, several involved with that. There are engaging employees, engaging with customers and engaging with the communities. We have a [great strategy] to support that, we have our [chief thinking] to support that.

In addition, when you think about this [metric-wise] reliability, high quality of service to customers, high levels of safety. Once we can do all of these things right, then we are in a position where we can grow the Company. Without these things, we do not have credibility or the time to spend it on the growth side.

We developed the next layer in the blue level. We are developing new lines of business, executing business growth, et cetera.

Again, it is paid for through [funding by the reliability] of our time created by carrying the foundation cracks and the top of the pyramid, you will see the results and that is where we are giving safety awards, top workplace awards, leadership awards, et cetera. The model is working for us and we are working very hard and we are investing in the bottom of that foundation continuously.

The performance part on slide 16, you will notice we are staying on top reigning quadrant of the graph. You will see, looking at the left-hand side, the weighted average return on equity. The line -- the dark line is going 10%, over to the right-hand side is the peer group.

You will see that we are significantly a higher net of 12% even the more recent number [add up to] 11%, still 10% higher than the median. Then if you look at the capital expenditures, which is on the horizontal line at the bottom, capital expenditures/total capitalization. You can see we are deploying a lot more capital than most of our peers -- more capital than all but one of our peers.

The combination of the high returns on equity and deployment of capital is [great] in that earnings group. Capital expenditures, basically are investments in growth in the last few years. The bottom right-hand side is probably the easiest way to explain this thing.

If you look at the two green lines running left to right, one says target and one says range. Essentially, we know that if we can invest capital over the next two targets, we can grow earnings around 5%. If we just maintain a ROA somewhere in the 10.5% to 11% range.

You can see that we are exceeding those levels. Which is enabling us to grow at higher rates.

Slide 18, looking forward, you will notice 2017, $260 million capital budget. To go with that $169 million, 2016, so you can see, there is a significant increase on capital expenditures. We have to keep those returns as strong as we can.

And above the cost of capital and we will get the earnings-per-share growth [return expenditures that we are hoping to]. [As far as packaging], there are several here on -- executing on capital investments. [They're generating] returns higher than our cost of capital, imagine that.

Expanding our energy distribution and transmission businesses organically and includes expanding some new geographic areas. Expanding our footprint and growth markets through strategic acquisitions. We are always focusing on the position in the process. (technical difficulty)

It takes us a long time to get that done. We have been very successful with those but it's because of that discipline. Enter new unregulated energy businesses that complement our existing operations units and growth strategy, so we all grow in new opportunities, different services, from the unregulated side.

Again, this is about figuring out how to grow our company. Differentiate Chesapeake as a full-service energy supplier, partner provider through a customer centric model. [I guess we need practice]. The project is a good example of that where, the customer who is thinking about putting up their own power plant.

We figure out how they could do that more cost-effectively and provide our professional services as opposed to just another (technical difficulty) power plant. Seek to leverage our pipeline capabilities, skill sets, and assets and be a preferred owner and operator of pipeline systems.

We work pretty hard to try to figure out certain customers needs and being that we're relatively small company, I think that gives us a competitive advantage. Keep business growth and we talked about these, for what we have done in the past.

I know utility customer growth for reliability projects and service expansion is the big projects. [Waiting] project completed. 2017 expansion is underway, [probably] be completed (technical difficulties) the last couple months of this year or probably 2018. Expansion [to early to say pipeline] expansion in the ground.

Rate cases, et cetera. There's a whole variety of things. You go to the FY18, new things start popping up, we've highlighted acquisitions are opportunistic, midstream opportunities, which are [great] opportunities [frequently].

Combined heat, power plants, gas pipelines for power generators acquisitions again [on the other end of this one] And that is the highlights.

We have diversified a base that includes utilities, our regulating, also our unregulated operations, our propane business, Aspire Energy of Ohio, a [professional] services company. (technical difficulty) Strong financial performance and consistent track record, we talked about that. Attractive five year annual income 21%.

Balance sheet that supports growth. We have maintained a small balance sheet. We know that we have to maintain returns at this level to be able to access capital.

If you have access to capital, we deploy it effectively and we should keep growing. The last [month] $260 million in budget capital spending 2017 is a very big number for us. We are at the point where we are going to take questions.

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Beth Cooper, Chesapeake Utilities Corporation - SVP, CFO & Assistant Secretary [6]

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Nina, if you would open it up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Sarah Akers, Wells Fargo.

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Sarah Akers, Wells Fargo Securities, LLC - Analyst [2]

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Good morning.

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Beth Cooper, Chesapeake Utilities Corporation - SVP, CFO & Assistant Secretary [3]

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Good morning, Sarah.

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Sarah Akers, Wells Fargo Securities, LLC - Analyst [4]

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First on propane margins, as you expected, there was pressure in 2016. Are we still at above normal margin levels and, if so, do you expect any additional pressure into 2017?

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Michael McMasters, Chesapeake Utilities Corporation - President & CEO [5]

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I think we are getting pretty close to normal levels. There may be a slightly bit more pressure in 2017, but we are pretty close to normal.

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Sarah Akers, Wells Fargo Securities, LLC - Analyst [6]

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Great. Of the $65 million of unregulated gross margin in 2016, how much of that was the propane business?

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Beth Cooper, Chesapeake Utilities Corporation - SVP, CFO & Assistant Secretary [7]

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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. Then on the consumption side, there was a positive impact there on the consumption side of just under $2 million. Those were the two biggest drivers that impacted that business.

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Sarah Akers, Wells Fargo Securities, LLC - Analyst [8]

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

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Beth Cooper, Chesapeake Utilities Corporation - SVP, CFO & Assistant Secretary [9]

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

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Sarah Akers, Wells Fargo Securities, LLC - Analyst [10]

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Got it. Thank you.

On the system expansion project. Are you concerned that the current situation at the FERC with just two members might slow down the approval there?

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Beth Cooper, Chesapeake Utilities Corporation - SVP, CFO & Assistant Secretary [11]

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I think at this point, we are not, I would say, at a worried state. We are just moving forward with the project and our interactions with them. Right now, I think we are still optimistic that hopefully they will review it in May, and we will be in a place to complete it by the very end of the year. So the margin impact will happen in 2018.

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Sarah Akers, Wells Fargo Securities, LLC - Analyst [12]

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Are you booking AFUDC on that in the meantime?

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Beth Cooper, Chesapeake Utilities Corporation - SVP, CFO & Assistant Secretary [13]

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Yes.

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Sarah Akers, Wells Fargo Securities, LLC - Analyst [14]

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Okay.

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Beth Cooper, Chesapeake Utilities Corporation - SVP, CFO & Assistant Secretary [15]

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

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Sarah Akers, Wells Fargo Securities, LLC - Analyst [16]

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Last question, Beth. You mentioned the balance sheet strength. When we look at the $260 million CapEx plan for 2017, it is 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?

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Beth Cooper, Chesapeake Utilities Corporation - SVP, CFO & Assistant Secretary [17]

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Sarah, what we have historically done is we're going to try to sync up that long-term financing as close as possible with the in-service date of the project. If 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 are other projects that are included in that $260 million. I think on the backend, once we see if everything gets expended, then we will see if some minor equity issuance might be necessary in 2018 or so.

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Sarah Akers, Wells Fargo Securities, LLC - Analyst [18]

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Got it, thanks a lot.

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Beth Cooper, Chesapeake Utilities Corporation - SVP, CFO & Assistant Secretary [19]

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Thank you.

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Operator [20]

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Michael Gaugler, Janney Montgomery.

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Michael Gaugler, Janney Capital Markets - Analyst [21]

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Good morning, everyone.

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Beth Cooper, Chesapeake Utilities Corporation - SVP, CFO & Assistant Secretary [22]

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Good morning.

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Michael Gaugler, Janney Capital Markets - Analyst [23]

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Just wondering, given the positive environment for the midstream projects in the Mid-Atlantic. It has been favorable recently from a regulatory perspective. If you are seeing any additional new opportunities for ESNG?

Also, a secondary question. Given the investments being made currently in the ESNG, what kind of capacity in terms of percentages would be left after the upgrades are completed?

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Michael McMasters, Chesapeake Utilities Corporation - President & CEO [24]

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I guess, Mike, as it goes to the Pennsylvania stuff, we are seeing a lot of activity there. Things there are changing. We still also have some local or appearance of local protesters are involved.

We have got opportunities in mind in Pennsylvania and Ohio that we are looking at right now. We are cautiously optimistic that we will get some of this done. We also have opportunities down in Florida that are maybe a little further along. Again, pipeline opportunities.

I am thinking the next question was -- I forgot what the second question was.

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Beth Cooper, Chesapeake Utilities Corporation - SVP, CFO & Assistant Secretary [25]

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I think you mentioned it.

Michael, I think you asked about the Eastern Shore capacity?

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Michael McMasters, Chesapeake Utilities Corporation - President & CEO [26]

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Oh, the capacity of Eastern Shore. Typically, Michael, what the FERC's looking for is all that capacity fully subscribed. So what we are doing is when we get firm contracts, we build the facilities to serve those firm contracts. There is not really any vacant capacity on the system.

Now, we'll get occasionally, somebody will turn back capacity. They may have a little bit of capacity. But there is not a lot there, Mike.

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Michael Gaugler, Janney Capital Markets - Analyst [27]

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Okay, then that leads to my next question. 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 in the last couple of years. I'm just wondering what it can take at this point?

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Michael McMasters, Chesapeake Utilities Corporation - President & CEO [28]

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Well, we are even in 2017 going to be doing some looping and also some compression. That looping and compression strategy will continue. We will look at the economics every time we have an expansion to make a determination as to which is the most economic. We will think about not just the economic impact on that particular project but also longer term, what are the economics.

Again, we have two different projects going on, the reliability project, and also we've got the expansions. We are not concerned about not being able to expand once this project is done. It will be the same place we were before this project.

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Michael Gaugler, Janney Capital Markets - Analyst [29]

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Okay. Thanks.

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Operator [30]

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[Taylor James], Ladenburg Thalmann.

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Taylor James, Ladenburg Thalmann - Analyst [31]

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Good morning.

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Beth Cooper, Chesapeake Utilities Corporation - SVP, CFO & Assistant Secretary [32]

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Good morning.

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Taylor James, Ladenburg Thalmann - Analyst [33]

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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 are pretty heavily tilted toward your regulated operation.

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Beth Cooper, Chesapeake Utilities Corporation - SVP, CFO & Assistant Secretary [34]

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You have quite a few of the projects that are in there, like the Eastern Shore 2017 expansion project. There have been contracts there that have been entered into with the customers. There are a couple of other projects that are finishing up, like the White Oak and system reliability, that are going to be captured in Eastern Shore's existing, so to speak, gray case. Then you have some projects that -- what I would like to call projects in development that we need to bring to fruition and closeout.

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.

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Taylor James, Ladenburg Thalmann - Analyst [35]

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All right, great, thanks. Most of my other questions have been asked and answered.

I just wanted to hear your thoughts on the potential for tax reform and how that might impact your business? Given your mix of regulated and unregulated businesses.

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Beth Cooper, Chesapeake Utilities Corporation - SVP, CFO & Assistant Secretary [36]

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Sure. I will probably make just five bullet points in that regard. The first one is when I think about the tax reform, there is certainly the first thing that is going to happen is the reevaluation of our existing deferred taxes. That going to happen at the effective date of the new tax rate. So in my mind, on the utility side, what is going to happen there is that's going to be basically we set up a reg liability. Ultimately, that's going to be amounts due to the customer.

On the non-utility side, certainly there is going to be a favorable impact at implementation there. That is 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 rates. We just have to see how quickly and the time period that those go back to the customer.

The other thing on the non-utility side, if we just look at the impact, there is a slight positive impact. Those are competitive products and services that we are 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 have seen already. I've looked at it from the perspective of -- and I am responding to, assuming a loss of interest deductibility, full expensing of CapEx. I am 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 are able to sustain the level of investments like we are talking about -- to me, limits the exposure that is out there as it relates to the loss of interest deductibility. So preliminarily, at the end of the day, I do not see it as being a negative. Could it be a neutral to slightly positive, I think we have to see.

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Taylor James, Ladenburg Thalmann - Analyst [37]

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Great. Thank you, that is all I had.

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Operator [38]

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Spencer Joyce, Hilliard Lyons.

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Spencer Joyce, Hilliard Lyons - Analyst [39]

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Beth, Mike, good morning. Congratulations on a nice Q4 and good full year.

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Michael McMasters, Chesapeake Utilities Corporation - President & CEO [40]

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Thanks.

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Beth Cooper, Chesapeake Utilities Corporation - SVP, CFO & Assistant Secretary [41]

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Thank you.

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Spencer Joyce, Hilliard Lyons - Analyst [42]

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Just a quick one for me. I apologize for beating the dead horse here as far as the capital budget goes past 2017. But I have an older note here in my model that a base level for you all, excluding any major expansions, is somewhere in the $60 million to $80 million range.

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?

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Beth Cooper, Chesapeake Utilities Corporation - SVP, CFO & Assistant Secretary [43]

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I think, Spencer, at this time, I would use as the base kind of that $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 gross projects and not knowing when they are all going to fall into place, if you want a base level of CapEx, you are really talking that $60 million to $70 million level.

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Taylor James, Ladenburg Thalmann - Analyst [44]

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Okay. That is all I had. Congrats.

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Beth Cooper, Chesapeake Utilities Corporation - SVP, CFO & Assistant Secretary [45]

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Thank you.

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Michael McMasters, Chesapeake Utilities Corporation - President & CEO [46]

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Thanks.

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Operator [47]

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(Operator Instructions)

There are no further questions at this time.

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Michael McMasters, Chesapeake Utilities Corporation - President & CEO [48]

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Thanks, everyone, for your interest in the Company. We are continuing to do and dedicated to generating shareholder value. That pledge will continue, and that requires that we invest capital prudently. I think we are staying the course. Thank you very much.

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Beth Cooper, Chesapeake Utilities Corporation - SVP, CFO & Assistant Secretary [49]

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Thank you.

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Operator [50]

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