Welcome to the Chesapeake Utilities First Quarter 2023 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and the floor will be open for your questions following the presentation. [Operator Instructions] I would now like to turn the call over to Alex Whitelam, Head of Investor Relations..

Thank you, and good morning, everyone. We appreciate you joining today for Chesapeake Utilities' first quarter earnings call. As you saw in our press release issued yesterday, the Company delivered solid performance in the quarter despite extraordinarily warmer temperatures across our operating footprint.

Chesapeake Utilities continues to execute on its growth strategy and is committed to driving long-term increased shareholder value.

As shown on Slide 2, participating with me on the call today are Jeff Householder, Chairman of the Board, President and Chief Executive Officer; Beth Cooper, Executive Vice President, Chief Financial Officer, Treasurer and Assistant Corporate Secretary; and Jim Moriarty, Executive Vice President, General Counsel, Corporate Secretary and Chief Policy and Risk 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 Page and Events and Presentation subsection. After our prepared remarks, we will open the call up for questions. 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 2022 Form 10-K provides further information on the factors that could cause such statements to differ from our actual results.

Additionally, the Company evaluates its performance based on non-GAAP adjusted gross margin and has provided the appropriate disclosure in accordance with the SEC's Regulation G. A reconciliation of GAAP gross margin to non-GAAP adjusted gross margin is provided in the appendix of this presentation and in our earnings release.

Now I'll turn the call over to Jeff to provide some opening remarks on the Company's first quarter results, including the key drivers of our continued growth.

Jeff?.

Thank you, Alex. Good morning, and thank you for joining our call today. I'd like to start by recognizing the entire Chesapeake Utilities team for their continued dedication to our mission. I am appreciative of their collective efforts as we managed well through what turned out to be a tricky quarter.

I can't stress enough how impressed I am with the talent of our team and what we continue to accomplish together. Jim will touch on this in a moment, but we were recently recognized as a top workplace in the United States for the third year in a row.

This award is one we're very proud of because it highlights the great work of our team and our special culture, which we remain focused on preserving as we continue to grow. Getting this recognition three years in a row is not something the team takes lightly. Now on to our results, beginning on Slide 4.

In the first quarter, the Company continued to realize incremental contributions from our expansion initiatives, organic growth and regulatory actions. However, in the first quarter, we also experienced record mild temperatures, which reduced customer volumes and partially offset the meaningful contributions from growth and cost management.

I'll touch on this in a moment, but temperatures relative to normal weather were 20% warmer or greater in all of our service territories. From an earnings perspective, weather had a $0.29 per share negative impact. But even with the exceptionally warm weather, adjusted gross margin increased by $3.8 million over last year's first quarter.

The Chesapeake team continues to execute our long-term growth plan. We achieved first quarter earnings that overcame much of the weather impact on our volumetric sales.

This performance reflects the diverse nature of our operations, our ability to manage costs, and regulatory actions to establish weather normalization mechanisms and increase fixed charges in our regulated distribution systems.

We'll continue to drive growth and manage costs throughout the year to work back toward our internal earnings targets, but the weather certainly created a gap. Despite this challenge, we remain committed to our long-standing track record of delivering year-over-year EPS growth.

During the quarter, we invested approximately $42 million in capital for system expansion, organic customer growth and technology improvements. With this level of investment in the larger projects planned over the balance of the year, we reiterate our 2023 capital expenditure guidance range of $200 million to $230 million.

On the regulatory front, we completed our Florida natural gas base rate case with a fair and favorable outcome. Jim will provide more details on this in a few minutes, but I'd like to extend a special thank you to everyone who worked on the rate case. It was a significant effort and, in fact, the largest rate case in the Company's history.

In March, we issued $80 million in competitively priced long-term debt, which reduced our exposure to the continued rising interest rate environment. And finally, yesterday, the Board announced a 10.3% increase to our annualized dividend rate. This marked the 20th year in a row with increased dividends.

Our dividend strategy remains focused on aligning our earnings growth with dividend growth and working towards a 45% payout ratio. On Slide 5, we wanted to provide some additional color on weather, given its significant impact on volumes for the quarter.

As you can see, each of our primary service territories experienced temperatures that were notably higher, not just compared to last year but were unseasonably warmer compared to the last 10 years.

To put things into perspective, we looked at historical weather data over the last 30 years, and we found that January and February were some of the warmest months on record both in Delmarva and Ohio.

In our Delmarva and Ohio service areas, where heat load drives much of our consumption for the year, heating-degree days were 19% lower compared to the prior year's first quarter and more than 20% lower compared to normal levels.

And while we're not as dependent on heat load in Florida, heating degree days were down by over 30% in the year-over-year and 10-year normal comparisons. Again, the team did an excellent job to overcome significantly warmer temperature impacts by remaining focused on our growth initiatives and cost mitigation efforts.

These efforts will continue through the remainder of the year. But it's important to note that this margin won't entirely be reclaimed without significantly colder temperatures later in the year. Turning to Slide 6. Let me provide some updates on our five platforms for growth.

First, we continue to experience organic growth in our natural gas distribution businesses that far outpaces the national average. Across both our Delmarva and Florida service territories, customers continue to select natural gas as their preferred energy choice.

For the quarter, we saw a 5.8% increase for our Delmarva service territories and a 4.4% increase in Florida. This continues to highlight the attractive growth opportunities in our distribution system service territories.

As we've discussed, the customer growth in our distribution businesses continues to drive the need for additional investment in our transmission systems. I'll provide additional detail on the next slide, but we are pleased to announce the completion of our Beachside expansion project in the first quarter.

This project was completed early and under budget. We also continue to make headway with other projects, including two Peninsula pipeline expansions, the Wildlight project in Florida, and we added the PPC Lake Wales pipeline project, also in Florida, to our major projects table this quarter.

These projects and others will deliver significant margin growth. Our propane business is more weather-sensitive than our regulated natural gas distribution and transmission systems.

And while the warmer temperatures had a significant impact on our propane business, the Sharp team did an excellent job managing margins and service fees, especially in our northern service territories. We also continued to expand Sharp's pricing programs to customers added to our recent acquisitions, adding margin and delivering greater returns.

As a highly desirable energy source for our customers where natural gas is not available, propane continues to drive strong performance for the Company and remains a core component of our growth strategy.

Marlin Gas Services continues to drive solid growth for the Company as well, generating an incremental $1.2 million in adjusted gross margin during the quarter. As our virtual pipeline solution, Marlin serves our customers with gas transportation services that solve unique and complex challenges.

As an example, and one we highlighted on our last call, Marin is currently providing interim service for clean energy, delivering compressed natural gas to their fueling station in Florida. We continue to seek opportunities like these to leverage the integration of our businesses and play a more meaningful role in the nation's energy transition.

Finally, our sustainable investments platform continues to mature nicely. Following our last call, we broke ground on our first full-scale renewable natural gas facility at the Full Circle Dairy Farm in Madison County, Florida. Construction is underway, and we remain on track for that unit to go in service in mid-2024.

More recently, we participated with a group of commercial, governmental and educational institutions that submitted a proposal to the U.S. Department of Energy seeking almost $1 billion in funding support to develop a hydrogen hub in the Delaware, Philadelphia and Southern New Jersey region.

We believe the Delaware-based hub offers many opportunities for Chesapeake to expand our hydrogen capabilities and identify multiple end-use applications. We will provide additional updates as decisions are made and more details come together.

Before I turn it over to Beth, on Slide 7, I wanted to provide some additional detail on the Beachside pipeline expansion project, which we recently completed on time and within budget. The 11-mile pipeline connects from an existing Peninsula pipeline interconnect and brings service to multiple communities in the growing Vero Beach area.

Peninsula Pipeline invested approximately $10.5 million in the project, and it is expected to generate additional adjusted gross margin of $1.8 million in 2023 and $2.5 million in 2024 and going forward. This project highlights the growth and opportunity we continue to see in Florida.

And with that, I'll turn the call over to Beth to discuss our results in more depth.

Beth?.

Thank you, Jeff, and good morning, everyone. I'd also like to share my gratitude for the hard work and dedication of our team. As Jeff mentioned, our team did an incredible job in the face of a challenging backdrop during the quarter, with uncooperative weather and an ongoing inflationary environment.

Let me provide some additional details on the quarter on Slide 8. EPS for the first quarter of 2023 was $2.04, again slightly below last year's results. From a top-line perspective, regulated infrastructure programs and recovery mechanisms, including the Florida rate case, were the greatest contributor to our adjusted gross margin growth.

Higher fees and margins per gallon in our propane business, along with pipeline expansions, organic growth and increased demand for our virtual pipeline services contributed a combined $6.4 million in incremental adjusted gross margin. Offsetting this growth, lower consumption tied to warmer weather conditions was the main driver.

On Slide 9, our financial summary shows adjusted gross margin increased $3.8 million and operating income increased slightly. As expected, interest expense was notably higher in quarter one compared to the same period last year as higher interest rates didn't fully materialize until later in 2022.

Despite these challenges, earnings per share came in just $0.04 lower than the last year's first quarter, where weather was significantly colder. From our perspective, these results were truly a testament to our team's continued ability to navigate well through unprecedented weather while continuing to drive our long-term growth initiatives forward.

On Slide 10, let me go through our EPS walk for the quarter. First, we recognized a $0.07 gain from the reset of deferred income taxes associated with the reduction in Pennsylvania state income tax. This is a one-time nonrecurring item and should be considered as such, going forward.

Our core businesses, absent the weather impact, delivered additional margin contributions that increased earnings by $0.45 per share, again, really nice growth in our core business.

This includes higher adjusted gross margin from regulatory initiatives, transmission expansion projects, natural gas distribution organic customer growth, increased margins from our CNG, RNG and LNG services, and higher fees and margins per gallon from our propane operations.

Partially offsetting this growth was reduced volumes driven primarily by warmer weather, which came in as a $0.29 negative impact. Higher operating expenses tied to our core business drove a $0.10 impact. Keep in mind, had weather been less of a headwind, operating expenses would have been higher.

As an example of this, Sharp would have paid additional drivers to deliver more propane. I just want to be clear that, had normal weather occurred, incremental volumes would have resulted in higher expenses. So the $0.29 reduction in earnings doesn't translate to a one-for-one increase should temperatures normalize.

Higher depreciation, amortization and property tax costs associated with new capital investments were a $0.05 expense impact. Finally, interest and other changes were a $0.12 negative impact compared to last year's first quarter. Moving to the next two slides. Let me touch on Chesapeake Utilities' operating segments.

On Slide 11, you'll see adjusted gross margin for the regulated energy segment was up 5.5% for the quarter. Operating income increased 8.5%, again, an impressive level given the backdrop we've been discussing. Turning to Slide 12.

Adjusted gross margin for the unregulated segment was down just 1.6%, with warmer temperatures impacting margins more in a meaningful way for our Sharp and Aspire businesses. Fortunately, organic growth initiatives helped counteract the weather impact.

For example, Marlin drove nice margin growth with increased demand for their virtual pipeline solutions. Despite all the positive margin drivers, overall, operating income for the segment was down 14%. On Slide 13, I'll provide some highlights of our strong balance sheet position.

In March, we issued the previously announced $80 million of 15-year senior notes to Prudential, with a 10-year average life and at a coupon of 5.43%. This is the primary driver that reduced our short-term debt to $94 million, mitigating our exposure to continued rising interest rates.

We will continue to take appropriate steps to manage interest expense. At the end of the quarter, total capitalization represented approximately $1.63 billion.

This included 52.7% stockholders' equity, which is now $859 million and within our target capital range, 40.3% of long-term debt at an average fixed rate of 3.89% and only 7% short-term debt given the long-term debt financing I just mentioned.

Moving to Slide 14, we highlight our major projects, including the pipeline expansions, CNG, LNG and RNG transportation projects and strategic regulatory initiatives, which will drive our adjusted gross margin growth this year and next.

As always, we remind you that this table does not include organic growth, and it is not indicative of all the projects that we are evaluating and pursuing. We continue to be encouraged with the opportunities that are presented by our business development team and look forward to announcing other projects in the future.

Combined, these initiatives are expected to add more than $21 million in 2023 and approximately $7.2 million in additional margin for 2024. As new projects or initiatives are announced or finalized, we will add them to this table.

As you can see, we have placeholders to add the incremental margin estimates for the Lake Wales expansion and the latest Florida infrastructure program, which we have now labeled as GUARD. Moving to Slide 15, we highlight our key pipeline expansion projects and the increased level of activity in 2023.

With an investment of approximately $65 million, these projects are expected to contribute more than $10 million in adjusted gross margin per year once completed.

With that, I would like to finish by reiterating my opening comments about the effort of our team to remain focused on our organizational imperatives during the first quarter, which includes safety, team, service, improve and grow.

While the weather prevented us from delivering EPS growth compared to the first quarter of last year, we remain committed to achieving our long-running track record of year-over-year earnings per share growth and delivering industry-leading performance.

The diversity of our operations, strong organic growth, a pipeline of investment growth opportunities, regulatory innovation and our talented workforce will continue to drive long-term earnings performance for our stakeholders. I will now pass the call to Jim Moriarty to discuss our regulatory and company culture updates.

Jim?.

Thank you, Beth, and good morning. It's good to be with you all. On Slide 16, we wanted to take a moment to recognize John Schimkaitis, Cal Morgan, and Diana Morgan, who retired from our Board yesterday. Collectively, they have helped to lead the Company's strategic direction and strong corporate governance.

Their contributions to Chesapeake's growth and success are immeasurable. We thank them for their long-standing dedication to our mission, which has enabled us to deliver peer-leading shareholder value over the long-term. I know John, Cal and Diana are listening in. So on behalf of our entire organization and your many friends and colleagues, thank you.

You will be missed, and we wish you a happy and healthy next chapter. On the next two slides, we list our ongoing regulatory initiatives, including details on the natural gas base rate case proceeding in Florida on Slide 17.

During the quarter, the Florida PSC approved an annual rate increase of approximately $17.2 million for our four Florida gas units, which are now consolidated. This approval included a common equity return of 10.25%. As part of the case, the PSC approved and allowed equity percentage of total capitalization at 55%.

In addition, the ruling authorized retention of the acquisition adjustment recorded at the time of the FPU merger. To add perspective and hopefully help with modeling, we have provided a timeline of events associated with this case. Interim rates went into effect in September 2022, and permanent rates went into effect beginning March 1, 2023.

The second quarter of 2023 will be the first full quarter with permanent rates in effect. I'd like to echo Jeff's comments on the team's efforts around this rate case. It was truly a collaborative initiative that brought together members of multiple teams internally and also a strong partnership with our regulatory constituents.

Thanks to all who came together to get the rate case across the finish line. Turning to Slide 18, during the quarter, we filed a petition with the Florida PSC for our Gas Utilities Access and Replacement Directive, or our GUARD program, as we call it.

As a continuation of our previously completed GRIP program, to ensure safety and reliability of our system, GUARD will allow us to enhance parts of our Florida distribution system by relocating mains that are in the rear of certain properties to the front of the Street.

It will also allow us to replace problematic distribution mains and service lines and repair necessary equipment. This projected 10-year program is currently under review by the Florida PSC, and we will provide updates in the future as they become available.

Additionally, Florida Public Utilities storm protection plan and storm protection plan cost recovery mechanisms were approved in the fourth quarter of 2022. These plans allow for the recovery of investments to further protect our electric system in the event of a storm and prevent loss of service.

We now expect approximately $1.7 million in adjusted gross margin associated with these plans for 2023, $3 million in 2024 and continued investment, going forward.

Finally, our Eastern Shore natural gas interstate transmission unit has authority to recover capital costs associated with mandated highway and railroad relocation projects along with FIMSA required safety upgrades. We expect that this program will generate $2.8 million in adjusted gross margin in 2023 and $3.6 million in 2024. Turning to Slide 19.

I'd like to provide a few updates that highlight Chesapeake's strong culture. First, we're very excited to unveil our 2022 sustainability report, which will be available shortly.

Here, we've provided a snapshot of the cover; but, in the report, you will find enhanced disclosures and highlights across the organization that speak to Chesapeake's long-standing focus on sustainability. Second, during the first quarter, we welcomed our ninth employee resource group, the Green ERG.

Green's mission is to unite and empower employees around a sustainable future by building on a culture of caring, integrity and excellence. The ERG strives to enhance a community that is passionate about the environment and committed to reducing our collective impact on the planet.

Green's goal is to provide resources, education and opportunities for employees to make a positive impact on the environment, both in their personal lives and within our organization. Again, our ERGs are an important part of our strong culture, and we continue to add ERGs that reflect the passion of our employees.

Finally, as Jeff mentioned and we announced on our latest call, we were recently named a 2023 Top Workplace USA award recipient for midsized companies, which marked the third consecutive year that we have received this high honor. The Top Workplaces USA celebrates organizations that prioritize a people-centered culture and giving employees a voice.

More than 42,000 organizations were invited to participate in the survey. Being based on employee feedback, this recognition is very meaningful to each and every leader within our company.

Receiving this award speaks to our strong culture, which is carried by each of our employees, and I'd like to thank everyone across the organization who makes us so successful. With that, it was great to be with you all today. I will now turn the call back to Jeff for some closing comments..

Thanks, Jim. Turning to Slide 20, let me reaffirm our long-term earnings and capital guidance. Despite the quarter's warm weather, we remain on track to achieve our earnings guidance of $6.15 to $6.35 in 2025. Also as a reminder, we increased our earnings guidance coming out of 2022.

We also remain on track with both our long-term capital expenditure guidance of $900 million to $1.1 billion for the 2021 to 2025 period and this year's expectations for $200 million to $230 million.

On Slide 21, I'd like to again highlight that, yesterday, our Board increased Chesapeake Utilities' annualized dividend rate to $2.36, a 10.3% increase from our previous rate of $2.14.

This double-digit increase reflects the Board's commitment to appropriately returning capital to our shareholders while investing in the Company's growth to achieve top quartile total shareholder returns.

As you can see on this slide, our dividend growth nicely aligns with our earnings growth over the last five years, and we're focused on moving closer to our targeted payout ratio of 45%. To close on Slide 22, our foundation for sustainable growth remains strong.

I'm proud of our company for remaining focus on our core imperatives of safety, team, service, improve and grow, all of which are vital to achieving our long-term objectives. We will navigate through the current temporary weather and inflationary challenges.

With our diversified operations, our talented team, a strong financial position and a robust pipeline of opportunities on the horizon, we remain well-positioned to deliver long-term record performance well into the future.

And with that, Alex, why don't we open it up for questions?.

Operator, please open the call for Q&A..

Our first question is going to come from Brian Russo with Sidoti..

Just clearly, weather was a factor this quarter, but you guys did an excellent job of cost management outside of just your general organic growth.

Can you just discuss some more detail what those cost management initiatives were? And is any of that sustainable as we move through the end of the year, following up on Beth's comment earlier about weather relative to costs?.

Sure. Good morning, Brian. It's good to talk with you. So while we've, as you know, been facing a pretty competitive labor market, some of what we've been able to do is look at the timing of hiring. And so that's one of the key factors. We also can take a look at some of our planned expenses.

And so, while you can see an increase for some expenses that are ramping back given pandemic situations, we take a look at the timing of when some of our future planned expenses are occurring. We will certainly do a cost-benefit analysis on those expenses. But those are some of the things that we're trying to take a look at.

In addition, I would say, on the interest expense side, maybe let me just talk about that for a minute. While interest expense was up for the quarter, keep in mind that's really, when you look back to last year, that gives us a full 12-month cycle of the higher interest rates.

And as you know, we have locked in $50 million of the $94 million of short-termed assets outstanding. We have an interest rate swap that's in place for three years. So what we've also done is try to hedge our risk there. So we really have right now about $44 million of our short-term debt that is still outstanding and variable today.

We continue to look at alternatives for that debt as well, and that will be an opportunity, I would also say as you look out over the next part of the year, something that you may see us undertake there also..

And remind me, what jurisdictions do you have weather normalization in and which do you not? And how effectively did those mechanisms work in this first quarter?.

Great question. So we're in Delaware, Maryland and Florida. In Maryland, we have weather normalization. What I can tell you in Florida, given the outcome of our rate case, we now have a very large percentage of our customer charges being more fixed versus variable.

So while there is probably about less than 15% of a customer's bill that's variable, there is still a small piece. Delaware is the biggest jurisdiction where we do not have, so to speak, any weather normalization mechanism in place.

And I know, Brian, you will recall, in the past we have pursued that, but the decline that we would have to take in regards to ROE did not justify going down a weather normalization path. I know our regulatory group continues to look at that at all times. But at that point in time, the last time that we looked at that, it was not favorable..

And then on propane, just remind us how you're able to manage such a big weather variance with the fees and margins, and then also what your growth strategy is there in terms of M&A criteria..

Sure. So there's lots of ways that our propane business takes a look at the competitive market in which it operates. One of the things that happens is, certainly, we evaluate the markets that we operate in, and we look at our rates relative to competitors.

Particularly in this type of season that we've just come through, ourselves as well as the other propane providers are sitting on a lot of inventory, and that can tend to have an impact on retail pricing, some of which you saw in our margin numbers for the quarter.

In addition to that, as you recall, with our acquisition of Diversified, one of the things that we were looking to do was certainly to be able to extend the program that Sharp has had in place for [indiscernible], Delmarva, then in Florida. We've also been able to implement some of those customer programs, new services, those types of things.

And so you saw some of that happen as well, and you will continue to see that happen as we introduce new services like AutoGas. You heard in 2022 we announced our first AutoGasfueling station in North Carolina.

We'll continue to add those services and expand those in those areas where we've recently acquired, as well as we continue to be aggressive and organically adding customers in our legacy business as well as in our most recently acquired businesses. And we're also pursuing at all times new community gas systems.

And so the business is a growth engine for us, whether it be in terms of its programs, its AutoGas fuel offerings, its PGS offerings. And I would lastly say as well as, in certain seasons, the wholesale business also for us is a very favorable business and division..

And then just any criteria for expanding propane business inorganically through acquisitions like you've done in the past?.

Yes, I can take that one, Brian. This is Jeff. I think, as you well know, we're always opportunistic about looking at propane acquisition opportunities. We've certainly targeted the Mid-Atlantic and Southeast kind of running up and down the coast. We continue to look for opportunities in the States that make up those two regional areas.

Any time that we can find something close to one of our native service territories, it certainly bodes well for us when we look at synergies and the ability to just incorporate a new unit into our existing business. So I think we'll continue to be active. We'll see what comes up over the balance of this year and the next.

There are certainly things moving around a little bit in the propane industry these days. And so we'll see what happens. But I think you should look for us to at least be interested in doing things in these service areas that we currently serve. Let me make one last, or just one more comment on the expense management issue that you raised.

As you well know, there are a number of expense items in our businesses that can move around from a timing perspective, various maintenance items, other types of expenses. As Beth mentioned, some of the hirings shifting into later months, those sorts of things.

I want to make sure that we say very clearly that nothing that we're doing would impact any of our safety programs or would in any way inhibit our ability to provide service to customers. And so the things that we look at on the expense side are things that we can move around.

Usually, they come back in later months in the year when we find ourselves in a better position from a margin perspective. So anyway, I just felt compelled to say that. We're not shifting costs that, in any way, affect our ability to deliver service and deliver it safely..

We'll go next to Tate Sullivan with Maxim Group..

Just following up, just something you just mentioned.

What did you mean when you said that things are moving around a bit in the propane industry? Are some smaller competitors having problems in this environment? Or what were you referring to?.

I think any time you see interest rate hikes like this, an inflationary environment, it puts cost management pressures on companies of all sizes. And you tend to see smaller, especially family-owned propane companies, struggling in that environment. And it often accelerates an interest in selling those assets.

And so we're seeing signs of that occur today. There are also certainly some regulatory issues on safety and other types of compliance issues that are more expansive than they have been in the past in the propane industry.

And so those are the kinds of things that typically move people to sell assets if they're at a time in their life and they want to do that. And so that's certainly not a new phenomenon. It occurs frequently, and we're just seeing another cycle of it right now..

And then on customer growth, great rates of customer growth in Florida and Delmarva in the first quarter. I mean, it seemed a bit a bit lumpy, if that's a fair word, into the last years even when you're backing out the acquisitions.

Was there a meaningful amount of community gas systems converting in the first quarter? Or is this a sustainable level of customer growth?.

In terms of propane, I mean, we've had a steady -- from the organic standpoint, not talking about the acquisitions -- we have a steady level of customer growth that we're achieving in Florida and on Delmarva. And North Carolina is a little new with only one year in, but certainly organic customer growth there.

From a CGS standpoint, that really depends, Tate, on the timing of the homeowners associations that seek to convert from propane to natural gas. And so there can be lumpiness in terms of how quickly developments may decide that they're ready for natural gas and then the conversion process is moving through the development..

Tate, I think your question was probably more focused on the natural gas customer growth and where we're moving lots of customers off of CGS systems into natural gas. We certainly have a steady string of that going on, less so during the winter months than you would see us obviously in the spring and summer and fall.

And so most of the customer growth that you're seeing in those percentages, both in Florida and on Delmarva, are not CGS customers moving from propane to natural gas.

It's strictly an organic growth in the natural gas systems reflective of very significant building activity in both of those or all three of those service areas, Delaware, Maryland and Florida..

We actually went back, Tate, and took a look, and what we could see was going back at least as far as 2018 on Delmarva, that's the highest level of margin contribution that we've had in the first quarter from customer growth..

And just to finish that out, we have a couple of large, reasonably large, at least, CGS systems that we do anticipate converting over the next several months, will probably even drift into potentially into next year, and then followed again by a number that will occur over the next several years..

And then on that, Jeff, on CGS, have you already duplicated the community gas systems strategy in Florida? Or does a regulatory change need to take place for that to occur in terms of having the community gas systems with propane and transitioning to natural gas in Florida?.

We haven't done as much of it by any stretch in Florida. We have a couple of systems that we're planning to convert over time. But most of what we see in Florida is the ability to actually get a pipeline in front of developments.

We've done a lot of work over the years, especially with Peninsula Pipeline, constructing small segment transmission systems to actually reach the developing areas. We have a regulatory capability to do that in Florida that we simply don't have in Delaware and Maryland right now.

And so you've seen us invest heavily in the small-scale Peninsula pipeline expansions. We just described one for another utility, the Beachside project, that gets the city gas, Florida City gas out, gets natural gas out to John's Island off of Vero Beach so that they can continue to develop their system. And so we've done that for other utilities.

We've done it for ourselves in many, many places around the state and just haven't seen the need to develop those propane underground systems and [coal] customers..

It does appear that we have no further questions in queue at this time. I would now like to hand the program back over to Jeff Householder for any additional or closing remarks..

Thank you, and thanks for joining us this morning. We appreciate your time and continued interest in the Company. Goodbye..

This does conclude today's program. Thank you for your participation. You may disconnect at any time..