Ladies and gentlemen, thank you for standing by, and welcome to the Chesapeake Utilities 2019 earnings conference call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Ms.

Beth Cooper, Executive Vice President and Chief Financial Officer. Thank you. Please go ahead. .

Thank you, and good afternoon, everyone. We appreciate you joining us today to review our fourth quarter and annual results. We're conducting today's call outside of Orlando, Florida, where we just completed a series of board and leadership meetings. .

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 here with us today. Today's presentation can be accessed on our website under the Investors section and Events & Webcast subsection or via our IR Investor Relations app. .

Moving to Slide 2, let me 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, which we filed late yesterday, provides further information on the factors that could cause such statements to differ from our actual results. .

I will now hand the call over to Jeff to provide some opening remarks and then discuss our strategic accomplishments and exciting outlook going forward. .

Thank you, Beth, and hello, everyone. We appreciate you joining us today on the call. Before I discuss our performance and future outlook, I wanted to spend a few moments talking about our ESG strengths. .

We always get high grades on our social and governance actions, what's well-known is that we have made significant contributions to environmental sustainability. .

It's an issue that we take very seriously. As recently as this week, our Board and management team engaged in discussions of both our environmental commitments and the opportunities that are developing as the market evolves. .

Here are a few notable examples of our environmental stewardship. We have invested hundreds of millions of dollars expanding our transmission and distribution systems to convert customers that were using fuel, oil, coal, kerosene and wood chips. .

These conversions to clean-burning natural gas have contributed to significant CO2 emission reductions. .

We've replaced almost 400 miles of older cast iron and bare steel mains and service lines, reducing emissions, improving system safety and reducing our maintenance cost. .

We built Eight Flags CHP, one of the most efficient plants in the country, displacing wholesale coal generation purchases. .

We restructured our long-term electric wholesale purchase power agreements to displace significant coal-based generation through new PPAs with firepower and light, one of the country's largest renewable energy generators. .

We purchased Marlin Gas Services, a CNG transport business, providing temporary and emergency gas delivery service. And we've expanded Marlin's focus to include renewable natural gas transport. .

We're working with RNG project developers really across the country to ensure that green biogas makes it into the pipeline system. We're also engaged in conversations with several RNG developers in our service territories who are in the final phases of planning for a number of anaerobic digestion facilities. .

On the Delmarva Peninsula, we're already positioned to accept RNG into our system, including having modified our tariffs to establish reasonable gas quality standards and completed an evaluation of system interconnect requirements. .

In addition, our propane auto gas service is enabling displacement of diesel fuel in numerous fleet vehicles and school buses, providing a cleaner, safer transportation fuel. .

In our service territories, natural gas is a preferred fuel source and commonly displaces less efficient and less clean energy sources.

It's interesting to note that at the same time, we hear of communities wanting to restrict gas service, the demand for natural gas on our systems is at an all-time high, and we are growing at twice the national average. .

We believe our businesses have a clear role to play in reducing emissions and supporting sustainable communities. .

At Chesapeake, we are proud of what we do. We will continue to evolve our energy delivery businesses to better serve our customers and to meet our shareholder expectations. .

I now want to turn to our results. 2019 was another remarkable year for us. Once again, we produced record earnings and delivered on our commitment to cultivate superior growth. .

Beth will provide detail on our results for 2019 in a few minutes and the major projects and initiatives that will enable future growth. .

But first, I want to highlight the key strategic accomplishments that were the foundation of our success in 2019 and will be fundamental drivers of our results going forward. .

Turning to Slide 3. 2019, as we said, was a banner year for accomplishment and growth in the company. .

When I stepped into this role at the beginning of 2019, I knew we had a great performance track record, extremely talented and hard-working employees and significant growth opportunities. .

What has struck me over the course of this year is the tremendous effort and accomplishments of the Chesapeake team. Their drive and commitment to efficiency, collaboration and continuous improvement are energizing. .

We achieved record gross margin on a continuing operations basis, while reducing our cost spend relative to total margin to the lowest level in more than 15 years. .

I'm particularly proud of the engagement of our team and their strategic execution during the year. One example of this is the PESCO divestiture.

We reviewed PESCO's prospects, decided to exit the business and then consummated multiple transactions that accomplished our strategic objective, protected our customers and produced a $5.4 million after-tax gain for our shareholders. .

The successful integration and acquisition of the Ohl and Boulden propane assets also stand out. These assets fit with our core strategy, immediately contributed to financial results and enhanced our ability to serve customers and generate growth in our propane business. .

While strategically we decided energy marketing did not fit, we believe that Marlin fits quite well. We acquired Marlin at the end of 2018, and we're able to fully integrate it into our operations. .

In 2019, we increased our margin forecast every quarter during the first year of operation. We are very excited about Marlin's capabilities and the value that they can provide to our customers and our shareholders. .

We previously announced the Callahan Pipeline, West Palm Beach expansion, Del-Mar Energy Pathway and Guernsey Pipeline projects, which combined represent approximately $108 million of new capital investment and are expected to generate $10.8 million in margin in 2020 and $17.1 million in margin in 2021. .

We also, of course, continue to look for new significant projects and initiatives. Financially, we invested $199 million in new capital investment, produced record earnings per share for the 13th straight year and achieved a 12% return on equity in 2019.

This growth supported a 9.5% dividend increase and our total return to shareholders in excess of 20%. .

We've been following a philosophy that dividend growth follows earnings growth.

Furthermore, it's important to note that record performance was also achieved in our continuing businesses, even if we exclude the onetime gain from the sale of PESCO and the regulatory lag associated with our restoration spend as a result of Hurricane Michael restoration efforts. .

Turning to Slide 4. We believe that one of the keys to our success is our ability to deploy significant amounts of capital with attractive returns on investment. .

As this chart shows, Chesapeake continues to rank in the upper quartile of natural gas distribution, electric and combination utility companies in terms of capital invested and return on equity over the past 3 years. .

Our decisions over the past year in regards to new acquisitions and the sale of PESCO are just 2 examples of executing our discipline, evaluating new opportunities for growth as well as the future prospects of our existing investments. .

Turning to Slide 5. We highlight the significant growth initiatives that will drive our capital investment and returns, consistent with our results in 2019 and our execution described on the previous 2 slides. .

We have a broad and deep series of strategic growth initiatives that our team has developed, which position us for continued success. Both will come from the completion of current and new expansion projects, integration and cultivation of our recent Marlin and propane acquisitions as well as completing new acquisitions such as Elkton Gas. .

We also see opportunities for new transmission, combine heat and power plants as well as renewable natural gas and liquefied natural gas, transportation and processing projects. .

Turning to Slide 6. The level and impact of our past capital investments have fostered the earnings dividend growth and shareholder returns that have consistently set us apart. .

In this regard, we are pleased to reaffirm our capital investment guidance based upon our confidence in the projects and initiatives we have identified. .

We are reaffirming our 5-year capital expenditure guidance of $750 million to $1 billion through 2022. .

During the first 2 years of this period already, we invested $482 million and expect to invest between $185 million and $215 million in 2020. .

Given current projects, we will likely hit the lower end of this revised guidance range next year in 2021. .

Turning to Slide 7. In recognition of our team's success in 2019 and the strong outlook for new projects and growth going forward, we are increasing our earnings guidance. .

Previously, we had forecast annual growth in the range of 7.75% to 9.5% through 2022 from a base of adjusted 2017 earnings, as shown on Slide 7. .

This produced an EPS forecast range of $4.20 to $4.55 per share in 2022. .

Based on our current strategic plan investments and growth prospects, we are comfortable increasing our 2022 guidance to a higher range of $4.70 to $4.90 per share. .

The company has historically achieved an average earnings growth rate at or above this rate and continues to view its long-term growth prospects as comparable to its historic growth. .

I'll now turn the call back over to Beth to discuss our 2019 financial results. .

Thank you, Jeff. Turning to Slide 8. Our GAAP net income for 2019 was a record high of $65.2 million or $3.96 per share, representing almost 14.8% EPS growth. .

As we reported in our earnings release yesterday, we substantially completed the divestiture of our natural gas marketing business, PESCO, during the fourth quarter of 2019 and recorded a gain of $5.4 million after tax. .

Excluding PESCO, which has been classified as a discontinued operation, we reported net income of $61.1 million or $3.72 per share, an increase of $4.3 million or $0.25 per share compared to the prior year. .

As Jeff mentioned, 2019 was our 13th consecutive year of record earnings. .

Year-over-year 2019 earnings per share from continuing operations grew by 7.2%. .

Based on 2019 results from continuing operations, the compound annual rate of growth in earnings over the past 3, 5 and 10 years has exceeded 8.5%. .

Detailed discussions of our results for the quarter and year ended December 31, 2019, are provided in our press release and annual report on Form 10-K, again, both of which were filed yesterday. .

The key variances in net income and earnings per share between 2019 and 2018 are highlighted on Slides 9 and 10, and I'm going to talk about a few of the key items and changes for just a few minutes. .

As previously noted, earnings from continuing operations for 2019 were $3.72 per share compared to 2018 earnings of $3.47 per share. .

In our annual report on Form 10-K, we have updated our previous quarterly results for this year as well as the prior year to break out our discontinued operations. .

In total, unusual items reduced 2019 earnings by $0.14 per share compared to 2018, as the impact of warmer weather during 2019 was partially offset by tax savings in Florida and lower net nonrecurring expenses. .

The largest key growth drivers increased gross margin in 2019 by $30.8 million over 2018 and contributed an additional $1.39 per share to earnings per share. .

The substantial increase in gross margin was partially offset by higher depreciation, amortization and property tax expenses of $5.7 million or $0.26 per share and then $4.6 million or $0.21 per share in costs associated with our new Unregulated Energy acquisitions and then higher other operating expenses of $5.6 million or $0.24 per share, which primarily reflect increased operating cost to support the growth in margin.

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Other factors impacting the variance between 2018 and 2019 earnings per share include income tax effects, which added $0.05 per share, and higher interest costs associated with permanent financing and additional short-term debt used to finance growth on an interim basis, which cumulatively reduced earnings by $0.27 per share. .

Lastly, there were some small other changes, which reduced earnings by $0.07 per share. .

Slide 11 provides a breakdown of our actual 2019 capital expenditures and a range of expected investment for 2020 by major business unit. .

Total capital expenditures for 2019 were $199 million, including $24.5 million for the acquisition of Boulden's assets. .

Our initial guidance for 2020 capital spending is in the range of $185 million to $215 million. .

We will continue to refine this range as we progress through 2020. The majority of our capital has been and will continue to be invested in our regulated natural gas and electric businesses. .

Spending to support growth in our propane, unregulated transmission and other unregulated projects will remain fairly stable, excluding the potential impact of acquisitions, such as the purchase of the Boulden assets in 2019 or the expansion of Marlin into new areas, such as RNG or LNG. .

We are continuing to vet various opportunities, and again, we'll provide updates on our spending throughout the year. .

Slide 12 highlights the company's commitment to maintaining a strong balance sheet which should facilitate access to adequate, competitively priced capital to fund our growth initiatives. .

We completed several actions in 2019 and already year-to-date in 2020 that will increase our permanent capitalization relative to our total capitalization. .

At the end of 2019, our equity to permanent capitalization was 56.1% and equity to total capitalization, including short-term borrowings, was 43.4%. .

As of December 31, 2019, our short-term debt, including current portion of long-term debt, was approximately $293 million.

We have $120 million available through our existing lines of credit, $160 million in available private placement shelf facilities after securing $90 million in long-term debt commitments in quarter 1 2020, which will be funded in July and August of this year. .

After this long-term debt is funded, our long-term debt as a percentage of permanent capitalization increases from 43.9% to 48.6%, as shown by the pro forma capital structure on this slide. .

Chesapeake seeks to align permanent financing with the in-service dates of capital projects. We target, as we've mentioned before, a ratio of equity to total capitalization, including short-term borrowings of 50% or higher. .

Our comprehensive list of major projects and initiatives recently completed and underway is provided on Slide 13. .

Recent pipeline projects, such as the Eastern Shore 2017 System expansion, which was fully placed into service in 2019; the Northwest Florida Expansion, which was completed in mid-2018; and the West Palm Beach expansion project, which is partially in service accounted for the majority of the $12.6 million in additional margin during 2019. .

The Marlin, Ohl and Boulden acquisitions contributed $6.8 million in additional margin during the year and regulatory initiatives in Florida added $3.2 million. .

Looking to 2020, several pipeline expansion projects, including the completion of the West Palm Beach expansion, the Del-Mar Energy Pathway project, the Auburndale Pipeline and the Callahan Pipeline are expected to produce $7.6 million in additional margin versus 2019. .

Recent acquisitions will add $4.7 million in additional margin. The table does not presently include margin for the Elkton Gas acquisition or the Hurricane Michael regulatory proceedings, which are both expected to generate additional margin for 2020. .

We continue to pursue projects that should further enhance our margin in 2020 and beyond, and we'll update this table as projects are finalized and margin contributions become predictable. .

Finally, it is important to note the magnitude of the increase in margin for 2019 that was generated from organic growth across our natural gas distribution territories. .

2019 was the highest year in history in terms of the dollars generated from this margin driver. .

For the year, organic growth represented $4.7 million in additional margin, with $1.8 million generated from growth on Delmarva and $2.9 million generated from growth in Florida. .

Our customer growth continues to represent more than double the industry run rate. Our propane operations complement our natural gas distribution operations and allow us to provide clean and lower-cost energy solutions, even when they are not located on or near a natural gas distribution main. .

In addition to cultivating growth in the traditional propane bulk delivery business, as discussed on Slide 14, we have implemented several key initiatives that have produced meaningful contributions to growth and also hold out promise for continued growth in the future. .

Two large drivers of growth in 2019, again, were the acquisitions of the assets of Ohl and Boulden. Both have been seamlessly integrated into our Sharp Energy propane operation and are expected to contribute additional margin in 2020 and beyond. .

We have included some slides on the Boulden acquisition in the appendix. We will continue to look for accretive strategic acquisitions like these to enhance our core growth in the propane business. .

Another key initiative is our Community Gas Systems, where we effectively create a mini-distribution system served by large propane tanks. .

These systems have been the perfect solution for those portions of our service territory without natural gas. .

Customers on these systems do not have to manage and monitor their own propane tank, but rather receive propane through a metered underground system, just like our natural gas distribution customers. .

Finally, we continue to see increased use of propane for fleet, such as the school buses we highlighted during our last Investor Day. Switching buses to propane from diesel reduces emissions, as Jeff touched on earlier. .

As shown on Slide 15, Marlin Gas Services generated gross margin of $5.4 million for the year. The company estimates that Marlin Gas Services will generate annual gross margin of approximately $6.4 million in 2020 and $7 million in 2021 and beyond. .

Marlin Gas Services continues to actively expand the territories it serves across multiple states and is refining and positioning to expand its patented technology to serve liquefied natural gas transportation needs and to aid in the transportation of renewable natural gas from various supply sources to various pipeline interconnection points, including our own.

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I would now like to turn the call over to Jim to speak further about the attributes of natural gas and the role we are playing utilizing this energy source to create a more sustainable future. .

Thank you, Beth. As stated earlier by Jeff, we are very proud to be part of the natural gas industry that provides a viable and reliable energy choice for Americans as we enter a new decade. .

The comfort and affordability that natural gas provides is important to all of us. Natural gas is contributing every day to reducing greenhouse gas emissions, while helping to ensure that our economy continues to thrive. .

Turning to Slide 16. The environmental and economic advantages of natural gas and propane provide opportunities for their expanded use in our service territories and across the United States. .

Natural gas is an abundant, clean, efficient and affordable fuel. The significant reserves we have in the United States provide security of supply, reliability and price. .

As shown on Slide 16, which is an EIA slide, you can see that natural gas has been the primary driver of the significant reduction in greenhouse gas emissions from electric production in the U.S. .

Over the past 10 years, natural gas has eliminated 2.6 billion metric tons of CO2 emissions or 60% of total reductions over this period. .

It is important to note that these emission reductions have been accomplished while reducing the cost of electric production, sparing customers from the financial burden and the rate spikes that have complicated efforts in European countries, which have attempted to achieve emission reduction without natural gas. .

The environmental and price advantages of natural gas have created significant growth opportunities for us in the past and will continue to create future opportunities, given its critical role in balancing the use and integration of renewable energy sources. .

number one, U.S. emissions are at 25-year lows; number two, the U.S. leads the world in carbon emission reductions;.

number three, the production and usage of natural gas is continuing to displace coal for power generation; number four, 60% of the U.S. carbon emission reductions are being driven by the increased use of natural gas as the primary U.S. energy supply; and five, clean, reliable natural gas is leading the way for the U.S.

in terms of economic growth and environmental sustainability. .

In our service territories, natural gas is a preferred fuel source and commonly displaces less efficient and less clean energy sources. .

Turning to Slide 18. We embrace our culture of sustainability here at Chesapeake Utilities. This culture is embedded in our DNA and promotes new ideas for energy efficiencies through practical and cost-effective solutions for our customers. .

We strive to bring service, value and high reliability each and every day. .

On Page 18, we have listed just a few of the exciting steps we have already taken and those under active review and development. .

The future is bright. Our culture of sustainability informs our path forward, as we continue to be an innovative and trusted energy delivery company that more than meets the needs of our customers and the communities we serve by ensuring that no one is left behind. .

We recognized Chesapeake Utilities' success starts with dedicated and capable employees who are committed to diversity and inclusion as well as expanding and safely maintaining our infrastructure to meet the needs of our customers and communities. .

Our employees continually seek opportunities to further their engagement with local communities by playing key roles in charitable and other organizations. .

They operate safe, reliable energy delivery systems, whether they are pipelines, wires or trucks. .

Our employees also do a remarkable job of identifying, developing and transforming opportunities into profitable earnings. .

Finally, we engage actively with our regulators and employ a disciplined capital allocation process to produce superior returns to shareholders. .

I will now turn the call back over to Jeff for some closing remarks. .

Thank you, Jim, and thank you for your support and interest in our company. We see numerous opportunities for continued growth in the businesses that we operate today. .

We also see new opportunities in areas like renewable and natural gas, LNG and other energy delivery services. .

2019 was an exceptional year for Chesapeake. We are committed to continuing our long-term track record of superior performance and delivering value to our shareholders. .

These are exciting times in our company, and we look forward to providing regular updates on our progress. .

We'd now be happy to take any questions you may have. .

[Operator Instructions] Our first question comes from the line of Tate Sullivan of Maxim Group. .

The first -- to get to bridge to 2022, and I apologize if I missed it, the guidance for $470 million to $490 million, would you indicate a higher -- I mean -- and looking -- referring to your gross margin table, too.

I mean, does that imply a higher rate of growth in the early years? Or will it be spread out between '20 and '21 and '22? Or how can we look at that -- the progress getting to the '22 bridge?.

I think, Tate, what you can do is you can look at, certainly, as you indicated, the projects that are included in the table. And then also, we've talked a lot about other areas of growth within our earnings release.

And so looking at the growth that's been achieved in the organic growth area, the growth has been achieved through other ways, such as some of the rate mechanisms that have been in place. .

And I think if you look at all of those and kind of extrapolate that out, there may be some new projects that come on over time and continue to add that, but that's really the best page from which to look at it over the next 3 years. .

Okay, okay. And I'll review the gross margin table, too. And then the organic customer growth, the incremental net margin in '19, I think you said in your remarks and in your press release was $4.7 million.

Now should that incremental gross margin grow at the rate of your customer growth? Or will it -- could it accelerate based on existing projects? Or is $4.7 million plus of 3% growth, the best way to look at that?.

Well, that is a record level of growth. If you look back over time, the last several years, it's been at a very high level.

It's not quite been that high, but that really depends on the amount of growth that's happening in the areas where we operate for the amount of growth that's coming into the state of Florida and to the extent that we're adding and building out new developments.

And similarly, on the shore to the extent that we're building out our existing systems at the beach area and the growth areas in the northern portion of our territory. .

So I think, as you look back and look at other years, I mean, I think that level of growth that we're experiencing, we feel comfortable about that level of growth being sustained, as we're looking out into the future at this time. .

Okay. Great. And just on the propane results, and it's helpful in the 10-K, you break out the revenue and the volume and the -- and -- I can get to and the customer growth, of course, too. But in the -- getting to the 2022 EPS guidance range, I mean, are there any propane assumptions besides normal customer growth that you would point to? Or... .

We typically will -- because you -- when we come in, we are typically with an acquisition adding to our CapEx guidance. Similarly, there might be an adjustment to the earnings guidance. But when we build our range in terms of the forecasted guidance that we put out there, we are not layering in perspective opportunities that we don't see today. .

We are looking at projects that we see on a horizon that have a high probability of occurring. .

[Operator Instructions] Our next question comes from the line of Brian Russo from Sidoti & Company. .

When we look at the 2020 CapEx range, the midpoint is relatively consistent with your 2019 actual. But it looks like the Reg Energy CapEx is meaningfully higher, whereas the Unreg CapEx is down.

I was just wondering if you could just add a little color as to what are the big drivers there in terms of specific Regulated utility versus some Unregulated Energy projects or whatever?.

Sure. So included, the big drivers, when you look at what's included in the Regulated part of the business and that CapEx guidance range are going to be the two large projects that really are already underway. .

You've got the Callahan Pipeline project, and you've got the Del-Mar Energy pathway. So those are both significant projects. .

The Unregulated Energy side, the reason why those dollars are down is largely because of the Boulden acquisition that we completed in 2019. And what we won't do, certainly, Brian, coming out of the gate in terms of our capital guidance, we're not factoring in potential acquisitions.

When an acquisition gets done to the extent that it's done, if there's one that's done on the Unregulated side, we would update our capital guidance for those prospective type of opportunities. .

And so that's the biggest difference that you see when you look at 2019 versus our estimates for 2020. .

Okay. Understood. And then correct me, if I'm wrong, the comments earlier on the -- to reach the $1 billion -- or $750 million to $1 billion range over the next 2 years.

Are you guys targeting the lower end of that, which would imply a drop in CapEx on average in 2021 and 2022?.

Not in any way. What we were trying to point out is that with already 2 years into the 5-year period, we are sitting just under $500 million. We're around $468 million, my recollection is. And then with the guidance out that we have in regards to -- $482 million, I apologize. .

But when you look at that coupled with the guidance that we have out there for 2020, our comment was really that we could be -- based on our historical run rate, we could be approaching the low end of that in 2021.

That's all we were saying, not in any way that we're looking for our CapEx to ramp down, but rather, we could be hitting the low end of that range as early as next year. .

Okay, got it.

So at the low end of the CapEx range, you guys are -- that still triangulates with your updated and increased 2020 EPS guidance range?.

That's correct. .

Okay. Great.

And then not to doubt your ability to hit your targets because you've got an incredible track record of doing so, but when we look at the growth from, say, 2019 actuals and layer in the incremental project contributions in 2021, and we look at the '22 guidance range, how much of that is considered organic growth or expansion of existing businesses or in this CapEx or CapEx over the next 2 years versus incremental strategic acquisitions?.

Well, when we try to lay out the guidance, we look at what we feel are 80% probable projects or higher. And so those are typically going to be those things that we feel are -- that we feel comfort that they're going to happen. .

So factoring in a prospective acquisition, again, is not something that's included in the capital, nor is it included in the earnings guidance. .

So those things are going to be, Brian, if we were to add those are likely -- they're going to be incremental to what we've put out in regards to our estimates. .

So we build this based upon what we think organic growth is where we see our expansion projects coming in when we look at the regulatory proceedings that we have out there and the contributions from those, there are things that, again, we feel with a high probability.

But we do not -- we don't speculate on things that have not reached an 80% probability. .

Okay. Great. That's helpful. And just on the project margin contributions, especially with Boulden Brothers and I know Elkton is excluded from that because you're still awaiting Maryland PUC approval.

But I would imagine there's upside to the 2021 or maybe beyond 2021 gross margin in some of these projects just on synergies?.

Well, and that's correct. I mean, right now, with the Elkton acquisition, for example, we're in the middle of the regulatory proceeding. And if that acquisition is approved, it will be approved in the third -- most likely the third quarter of this year. So you're going to end up with anywhere from 4 to 6 months.

Only one quarter which will have some -- any weather impact. And then -- so really, you're going to see the impact, first off, from an Elkton -- I mean Elkton acquisition really benefiting 2021 and just adding it in.

And then you're right to the extent we can gain synergies by combining it with how we're operating in an adjacent territory today that will provide upside in 2021 that has not been reflected here. .

But again, because we're in the middle of that proceeding, we're not done, we didn't want to come out with any estimates in regards to the latter part of this year and/or what our expectations are for 2021. Those will be forthcoming. .

And then similarly, we have the Hurricane Michael proceeding, which had -- certainly had a regulatory lag impact when you want to think about 2019 and the amount of investment that we made and the amount of earnings that we had. .

And so once again, we will add those dollars to our table once we have a final approval and agreement on that proceeding. .

Okay.

And correct me, if I'm wrong, was it $60 million -- how much was spent on the hurricanes that you're experiencing -- or on hurricane recovery that you're experiencing lag on?.

It's just above $65 million. .

Right. Okay. Got it. And just on Marlin, clearly, it looks like it's #3 on the project list in terms of gross margin.

What's -- I just want to get a sense of what's driving the growth? Is it just expanding markets? Or is there any inclusion for RNG or anything else? Or is that longer-term upside?.

It would include expansion of the existing business today into new -- certainly into new areas. And we would like to say, it touches on maybe entering into those markets that you mentioned on a preliminary basis. Part of what we're doing right now is looking at the strategy of that business and where we can take it. .

And it's really exciting with all the different opportunities we can see, not only within our existing service territories, but as we look at markets even beyond. .

And so I think you'll continue to see us have an evolving strategy that goes beyond certainly what we're doing in CNG, but to LNG and RNG. .

Okay. And one more question, if I can, just on the pro forma capitalization chart you have in the presentation. It looks like $200 million of short-term debt would remain under that pro forma scenario, which still leaves your equity to total cap below your target.

Are you pressured by rating agencies or on the regulatory side to improve that? Or are you comfortable maintaining that $202 million level of debt in the near or intermediate term, while your shareholder equity grows through retained earnings?.

Well, just a couple of comments. So in that pro forma, what you're seeing is after the long-term debt financings that have been planned for later this year, you do see short-term debt at the top of about $200 million. It's the short-term debt piece of that. .

And so what we've stated, though, is that we do seek to align our capital structure closer to our target. And so what we've worked through over the last year -- 2 years is the fact that we have the 2017 system expansion that didn't finish until the end of 2019. .

And then we also have the hurricane expenditures. And so what we started to do first with the debt placements that we've lined up is to align some of the long-term permanent debt financing. But again, over time, we will seek to move that closer to our target structure. .

Okay. Great. That's helpful. And one last question, and then I'll jump out. Just weather year-to-date appears to be mild in the Northeast.

I'm just wondering how it affects your regulated businesses in the Del-Mar region and then as well as your propane businesses?.

Sure. So I would -- a couple of things there. So as you look at our distribution businesses on Delmarva, one of the things that's great is the fact that in our Maryland operation, we have weather or revenue normalization. .

So when you think about the weather impact, it really -- it's really the Delaware impact and certainly, weather has been warmer than normal. But there's a lot going on, as we've talked about in terms of growth and expansion.

And then on the propane side, what happened over the last 10 years is, we've migrated from being a propane company that was really dependent upon the weather to a propane company that has other levers of growth that helped to offset the weather impact. .

So if you look at the auto gas, if you look at the community gas systems, you look at what we've done in the wholesale side, and frankly, you look at how we've added new start-ups in more weather areas like Pennsylvania where we have start-ups that are expanding, and there's more weather in those areas. .

A lot of those levers have helped to offset and desensitize us from the weather impact. It's still there. I'm not saying it's not, but those factors have lessened the impact. And so we actually have some natural weather hedges with our portfolio of businesses today. .

[Operator Instructions] Presenters, we don't have any questions on queue. Please continue. .

Thank you very much for joining our call today and for your interest in Chesapeake Utilities. We are very proud of what our team has accomplished for our shareholders, and we remain committed to working hard to deliver superior shareholder returns in the future. I wish you a very good day. Goodbye. .

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Presenters, please stay on the line for the post conference..