Welcome to Chesapeake Utilities Corp. Second Quarter 2020 Earnings Conference Call. This conference is being recorded on Thursday, August 6, 2020. I would now like to turn the conference over to Beth Cooper, EVP and CFO. Please go ahead.

Thank you, and good afternoon, everyone. It is great to be with all of you today. We appreciate you joining us today to review our second quarter and year-to-date results. We trust that you and your families are doing well and staying safe. As shown on Slide 2, participating with me on the call today are Jeff Householder, President and CEO; and Jim Moriarty, Executive Vice President, General Counsel, Corporate Secretary and Chief Risk and Compliance Officer. We also have other members of our management team joining us virtually. Today's presentation can be accessed on our website under the Investors section and Events and Webcast subsection or via our IR app. After our prepared remarks, we will be happy to take your questions. Our focus for the call is to provide insight into our second quarter and year-to-date results, the expected impact of COVID-19 on our business to date, our progress on numerous key strategic initiatives, and our outlook for the future. Moving to Slide 3, I would like to remind you that matters discussed in this conference call may include forward-looking statements that involve risks and uncertainties. Forward-looking statements and projections could differ materially from our actual results. The safe harbor for forward-looking statements section of the company's 2019 annual report on Form 10-K and our 2020 quarterly reports on Form 10-Q provide further information on the factors, including the risks and uncertainties related to the COVID-19 pandemic, that could cause such statements to differ from our actual results. Now I'll turn the call over to Jeff to provide opening remarks on our second quarter performance, more details on our COVID-19 response, and some insights again on our outlook going forward. Jeff?

Thank you, Beth. Good afternoon, and thank all of you for joining our call for the second quarter of 2020. We achieved solid second quarter results, with GAAP earnings per share of $0.66, $0.16 above our 2019 second quarter results. As you'll hear later in the call, we didn't escape the impacts of weather or COVID-19 over the first half of the year, but we did find ways to overcome those impacts. Our entire team of employees has worked hard to not only keep meeting customer expectations for reliable service but also to keep growing our energy delivery businesses. It's remarkable and a testament to the dedication and drive of our employees, contractors, and suppliers that in the face of the COVID-19 pandemic, our results remain strong, and we continue on target with growth projects that will contribute to future earnings. Let me spend a couple of minutes updating you on our company's COVID-19 experience, as highlighted on Slide 4. You may recall from our Q1 call, we began pandemic preparations in late February, with full activation of our response actions in March. By the end of March, we had about 500 of our 1,000 employees working remotely, with adjusted technology, procedures, and controls supporting our virtual office processes. We were also working hard to secure PPE for our field personnel and refining the protocols for various field service functions, such as how we would enter an occupied building where the occupants might be sick. We did not see significant expense increases or margin reductions in March as the virus began to spread. Our first quarter results were impacted more by the lack of weather than COVID-19. That has not been the case in the second quarter. Our coronavirus-related expenses have increased, and as businesses closed during the lockdown period, our margins have been negatively impacted. That's been especially true in our Florida gas distribution businesses, which serve numerous hotel, restaurant, and other hospitality industry customers that were, for the most part, closed during the second quarter. We saw it coming and responded accordingly. Given the weather impacts in the first quarter, we were already looking at more aggressive management of our expenses. COVID-19 elevated those cost reduction initiatives. And while we've achieved significant cost reductions, I assure you we have not cut $1 out of our safety and operational compliance programs. All of our inspection, maintenance, and replacement activities remain unchanged. In fact, we've been able to accelerate many of these activities, along with the construction of our new safety town gas operations training center in Dover. As I reflect on this quarter, I'm truly thankful for the contributions and the positive can-do attitude of our team to keep Chesapeake Utilities moving forward in these unprecedented times. I also want to acknowledge our employees' families, who provided unconditional support for the Chesapeake team as we continue to deliver essential energy services. We all know that this pandemic has not been easy, especially for parents or grandparents, where in addition to a day time job and the usual stress of running a home, we're also a teacher, a daycare worker, a recreational coordinator, and all the other childcare functions required when normal activities are suspended. As our economy begins to reopen and school districts contemplate what education looks like going forward, we're working to structure flexible work schedules for our employees with children to better accommodate their educational and childcare needs. I'm often asked, when will this end? And when will we get back to normal? We've been sending the message to our team that Chesapeake's normal has always been a little different than many of our peers. A little more entrepreneurial, we're interested in digging harder to find the opportunities that many overlook, while focused on starting with the customer's interest in mind, solving a customer's problem, and then finding a way to turn it to profit. I speak frequently to our employees about applying the same perspective to our pandemic response. So I don't know when this will end. We're planning on continuing our current work environment at least through the end of this year, and that will likely extend into 2021. I am fairly certain that Chesapeake will emerge from this pandemic as a stronger company operationally than we were before we ever heard of COVID-19. In fact, before the pandemic began, we had a business transformation initiative underway to consider the organizational structure, the process standardization needed, and business simplification required for us to continue to grow on pace with our historic rates and consistent with our recently updated capital and earnings guidance. In many ways, the COVID-19 pandemic has accelerated this process. We're moving forward on many fronts to improve our technology, our communications with employees, the collaboration across our business units, employee training and development, and working toward greater standardization of business and operational processes. We've also continued our enhanced focus on safety and are in the process of developing a formal safety management system across the company. A couple of years ago, we began a concerted effort to address gender diversity at Chesapeake, and our Women in Energy chapter is very active, and we have numerous female team members that have moved into leadership positions. We've expanded that effort to provide greater focus on addressing diversity of race and other issues that affect inclusion and equality in the workplace. We've also continued to support the communities where we live and work. Chesapeake Utilities was one of the first energy delivery companies to suspend customer service disconnects and late fees. We continue to work with customers to offer delayed payment options and budget payment plans as a result of their financial situation. And we'll continue to work with our state regulatory commissions on the timing and process to reinstitute more traditional disconnect procedures. We're also continuing to address the needs of our communities through philanthropy and volunteerism. We've made over $250,000 in contributions to local organizations to aid in the fight against the COVID-19 impact. Chesapeake has also established a matching program for employee donations to local community organizations. These contributions are above and beyond our normal giving level. As I noted earlier, in the midst of the pandemic, we've continued to execute our growth strategy, including pipeline and distribution system expansion projects as well as our business development activities. Slide 5 highlights several of the accomplishments that are contributing to both solid quarterly earnings and future growth. We recently completed the acquisition of Elkton Gas from South Jersey Industries, adding about 7,000 new customers and expanding the Chesapeake footprint in Cecil County, Maryland. Our Eastern Shore natural gas pipeline construction project in Maryland is underway. And we recently placed our Florida Callahan Pipeline in service, a month ahead of schedule. Our gas distribution systems continue to add customers at a rate that's significantly above the average growth rate across the country. We announced two new renewable natural gas projects that will support local communities in resolving the long-term challenge of poultry waste disposal and the impact on local waterways in Delmarva. Despite the unique operating circumstance created by COVID-19, all of our business units remain focused on growth. And at the same time, we're working to manage expenses as a partial offset to COVID-19 impacts. All these initiatives enabled us to generate strong second quarter performance and to reaffirm our commitment to our 2022 capital and EPS guidance.

Thanks, Jeff. Turning to Slide 7. Net income for the quarter was $11 million compared to $8.3 million for the same quarter of last year, representing 32% growth. The provisional tax rate was 16% this year as a result of the CARES Act for the quarter compared to 27% last year. Year-to-date earnings were $39.9 million compared to $37 million in 2019, representing growth of 7.9%. The CARES Act, as Jeff mentioned, allowed us to carry back net operating losses in years with higher federal income tax rates, resulting in a benefit of $1.7 million. Before the CARES Act, again, all tax NOLs generated primarily from bonus depreciation and tax versus book timing differences were required to be carried forward. In terms of continuing operations, our EPS for the quarter grew by $0.10 per share, while our year-to-date EPS grew by $0.11 per share. These increases in EPS included the negative impact from COVID-19 that we will discuss later on in the presentation. A lot of the same factors driving our quarterly increase also drove our year-to-date performance. Weather was one deviating factor. On a year-to-date basis, we've had overall warmer temperatures driven primarily by the first quarter. Colder temperatures in the second quarter helped to mitigate some of the volumetric reductions experienced in the first quarter, thereby reducing the negative impact on our year-to-date results. During the first quarter, we also recognized gains from several nonessential property sales that offset the weather impact. Slide 8 summarizes the key drivers of our performance for the quarter, as described in detail in our earnings release issued at the end of the day yesterday. Gross margin increased $5.1 million. Three pipeline expansions, the West Palm Beach County, Florida expansion project, the Callahan Intrastate Pipeline, and the Del-Mar Energy Pathway project primarily contributed $1.8 million. Demand for Marlin Gas Services increased gross margin by $1.1 million. Favorable retail propane margins, given local market conditions and as we manage propane supply costs, increased gross margin by $900,000. Natural gas growth from initiating service to new customers added $800,000. What's interesting is our organic customer growth rates remain significantly above the national average. Our incremental margin growth also for the second quarter closely approximated the incremental margin for the second quarter of 2019. Additional margin from the Boulden acquisition also finally added another $0.5 million. Expense management resulted in costs increasing just 57% of margin gains, while growing our businesses in this new normal. Increased customer consumption, due primarily to colder weather during the quarter, added $2 million. The estimated negative COVID impact for the quarter was $3.6 million on a pretax basis. However, the CARES Act tax adjustment allowed for a net operating loss carryback to earlier periods with higher statutory rates and thereby provided a $1.7 million benefit to net income this quarter.

Turning to Slide 6. Second quarter earnings per share, as I mentioned, $0.66 per share, a $0.16 increase compared to the same period last year. On a year-to-date basis, EPS increased $0.17 a share. Despite COVID-19, we've grown the company while managing costs associated with COVID-19 and seeking cost efficiencies on an ongoing basis. Further, as a cause of COVID-19 and the Federal CARES Act, Chesapeake was able to generate a favorable $1.7 million net income tax benefit due to the carryback of tax NOLs to years pre TCJA. Before the CARES Act, all tax NOLs generated primarily from bonus depreciation and tax versus book timing differences required were to be carried forward. As my colleague Beth Cooper likes to say, we are pushing buttons and pulling levers, by which she means we are working to manage our cost, taking advantage of favorable tax and regulatory opportunities, restructuring debt to find lower interest rates, closing sales on unneeded property, driving margins where possible, and taking many other actions to continue to deliver both short and long-term shareholder value. Let me turn the call back to Beth now to discuss in more detail our second quarter results.

Thanks, Jeff. Turning to Slide 7. Net income for the quarter was $11 million compared to $8.3 million for the same quarter of last year, representing 32% growth. The provisional tax rate was 16% this year as a result of the CARES Act for the quarter compared to 27% last year. Year-to-date earnings were $39.9 million compared to $37 million in 2019, representing growth of 7.9%. The CARES Act, as Jeff mentioned, allowed us to carry back net operating losses in years with higher federal income tax rates, resulting in a benefit of $1.7 million. Before the CARES Act, again, all tax NOLs generated primarily from bonus depreciation and tax versus book timing differences were required to be carried forward. In terms of continuing operations, our EPS for the quarter grew by $0.10 per share, while our year-to-date EPS grew by $0.11 per share. These increases in EPS included the negative impact from COVID-19 that we will discuss later on in the presentation. A lot of the same factors driving our quarterly increase also drove our year-to-date performance. Weather was one deviating factor. On a year-to-date basis, we've had overall warmer temperatures driven primarily by the first quarter. Colder temperatures in the second quarter helped to mitigate some of the volumetric reductions experienced in the first quarter, thereby reducing the negative impact on our year-to-date results. During the first quarter, we also recognized gains from several nonessential property sales that offset the weather impact. Slide 8 summarizes the key drivers of our performance for the quarter, as described in detail in our earnings release issued at the end of the day yesterday. Gross margin increased $5.1 million. Three pipeline expansions, the West Palm Beach County, Florida expansion project, the Callahan Intrastate Pipeline, and the Del-Mar Energy Pathway project primarily contributed $1.8 million. Demand for Marlin Gas Services increased gross margin by $1.1 million. Favorable retail propane margins given local market conditions and as we manage propane supply costs increased gross margin by $900,000. Natural gas growth from initiating service to new customers added $800,000. What's interesting is our organic customer growth rates remain significantly above the national average. Our incremental margin growth also for the second quarter closely approximated the incremental margin for the second quarter of 2019. Additional margin from the Boulden acquisition also finally added another $0.5 million. Expense management resulted in costs increasing just 57% of margin gains while growing our businesses in this new normal. Increased customer consumption due primarily to colder weather during the quarter added $2 million. The estimated negative COVID impact for the quarter was $3.6 million on a pretax basis. However, the CARES Act tax adjustment allowed for a net operating loss carryback to earlier periods with higher statutory rates and thereby provided a $1.7 million benefit to net income this quarter.

Turning to Slide 10. Gross margin decreased $2.5 million during the second quarter due to COVID-19 reduced consumption, largely in the commercial and industrial sectors as businesses had to shut down or scale back operations in each of our service territories. Operating expenses increased $1.8 million in the quarter due to costs for personal protective equipment and a pay premium of up to 25% of wages through the end of June for our field teams that were essential and front-facing with our customers. To date, we have not recorded any regulatory assets for the net COVID-19 expense impacts for our Delaware or Maryland-regulated operations, nor have we approached the Florida Public Service Commission regarding a similar request. We are evaluating the fluidity of the situation, the current estimates, and projected impact to determine the best path forward.

Moving to Slide 10, the timing of the virus and subsequent slowdown in economic activity and business operations were largely felt in this quarter. As mentioned on the previous slide, our gross margin declined $2.5 million, with $2.2 million of the decline coming from our regulated energy segment. The impact on natural gas transmission and electric distribution operations was minimal. In our natural gas distribution businesses, we saw volume declines of 6% to 8% for Delmarva natural gas distribution, commercial and industrial customers and 10% to 12% for Florida natural gas distribution, commercial and industrial customers. On a net basis, after the benefit of the CARES Act and lower rates on our short-term borrowings driven by the Federal Reserve's actions, we have estimated the COVID-19 impact for the quarter was $0.05 per share, and on a year-to-date basis, approximately $0.07 per share. As we've continued to analyze the COVID-19 impact, weather impacts, and consumption changes for the first and second quarter, we did identify some declines in margin for the first quarter that we now associate with COVID-19. We are continuing to look at our projections as to what the COVID-19 impact could represent in the upcoming 6 months in regards to reduced consumption as well as reduced expenses. We will provide refined estimates and future updates as we move through the year. We know that there will be no future impact on the tax side from the CARES Act, and any financing implications will ultimately depend on the transactions. Like all Americans, we are hoping a vaccine can be developed to prevent the spread of COVID-19 and allow the people of this country to return to a more normal way of life. We thought the new normal would last through the end of the first quarter and warmer weather would diminish the virus. Now we are planning on continuing as we are, just as Jeff mentioned, at least through the end of 2020. Safety and security for our employees and customers is a driving factor in how we run the business and will result in higher operating expenses in delivering our essential services. For the better, we found out that most of our staff can telework efficiently, and we can delay bringing folks back to the office, reducing travel costs and conference costs. This remote work phenomenon may continue for some teams into 2021, either part-time, some of the time, or full-time. On Slide 11, we highlight those expenses that we see increasing through the remainder of the year and those that we expect to decline year-over-year. To date, we have done a great job of managing our expenses, and that will continue. As Jeff mentioned, we were already underway in terms of looking at our business processes and how we could collaborate across the organization to become more efficient and scalable overall. COVID-19 has allowed us to accelerate our efforts in this regard. The forecast for 2020 capital expenditures remains on target for approximately $200 million, and that's really just the average of the range that's shown on Slide 12 of $185 million to $215 million. The majority of investment will be in regulated natural gas transmission and distribution projects. On a year-to-date basis, we have invested $88.4 million. We will continue to monitor our investment progress and update our year-end projection after the third quarter, but we believe we are well on track and any variations would be largely attributable to construction timing and be carried over to next year.

As you can see on Slide 13, as of June 30, 2020, total capitalization was $1.3 billion, comprised of 45% stockholders' equity, 32% long-term debt at fixed rates, and 23% short-term debt, including bank lines of credit and the current portion of long-term debt. Chesapeake has $465 million in bank lines of credit and will have funded $90 million of new long-term debt this summer at an average rate of 2.98%. The company has $300 million of availability under recently renewed private placement shelf facilities for the next 3 years. We have utilized our traditional equity plans this year to issue stock and increase our equity beyond our retained earnings through our incentive plans, the 401(k) Supplemental Retirement Plan contribution, and the dividend reinvestment and stock purchase plans. Over time, we have indicated we will move back closer to our target capital structure. Our actions year-to-date are in line with this. I would now like to turn the call back to Jeff to discuss our current and future growth opportunities. Thank you, Beth. Turning to Slide 14. Our strategic planning process has long been integral for our growth. In many ways, our current plan for the 2020 through 2022 period mirrors the plans we've executed over the past decade. Of course, the level of our growth expectations is somewhat greater these days than they were in 2010, but we have the same confidence that we can execute on investments that are consistent with our long-term strategy. That strategy is fairly straightforward. Our regulated businesses provide stable, predictable earnings if we manage them correctly, and we've been able to do that over a long period of time. We look for nonregulated investments to augment our regulated earnings that meet 3 fundamental criteria: We're interested in investments that are related to our core energy businesses, that meet our return targets and that exhibit risk profiles consistent with our existing nonregulated businesses. We're disciplined in our approach. We walk past more deals than we execute. One of the ways we've mitigated our nonregulated risk over the years is to link the nonregulated operations to a regulated business. Aspire Energy is a good example. Aspire is a nonregulated gathering system, but its primary customers are natural gas distribution operations that we serve under long-term supply agreements that significantly lower Aspire's risk profile. Over the past couple of years, we've also considered how future investments may contribute to our overall sustainability and ESG objectives. You've seen us acquire Marlin, a company that's working, among other things, to move renewable natural gas from biogas production sources to a pipeline or distribution system. And our recent RNG announcements on Delmarva signal our interest in investing in biogas production and processing, in addition to Marlin fuel transportation opportunities. We've long sought to provide total shareholder value in the upper quartile of our peers in both short- and long-term performance, the product of earnings, dividend growth, driven by capital projects that can achieve an adequate return on investment and our prescribed targets. As Beth noted, our 2020 capital forecast indicates we're still primarily investing in regulated businesses, most notably transmission pipelines and distribution means to add services to new customers in existing or expanding geographic areas. We're also comfortable with strategic investments in our unregulated businesses, propane distribution, oil and gas services, CHP business and Aspire that have many similar characteristics, as I said, to a regulated utility, but that can and have consistently generated increased returns above allowed regulated utility returns. I know there is considerable dialogue by several utility companies about the divestiture of their nonregulated or midstream regulated assets. But for us, our nonregulated businesses are core to who we are and what we do. They are the means for achieving our higher-than-regulated ROEs and also our EPS growth track record, and frankly, our projected EPS growth profile. Our largest investment dollars have been dedicated to new pipeline infrastructure in Florida and Delaware. On Slide 15, we highlight both recent pipeline expansions completed and those in flight. The projects recently completed include Eastern Shore's largest transmission project and the Northwest Florida Expansion, which expanded Chesapeake's natural gas transmission business to the Florida Panhandle for the first time. Projects underway are progressing nicely. As I mentioned earlier, we initiated service in June for the Callahan project, a joint venture in Florida with Emera Energy, to serve gas needs in Nassau and Duval counties. The Del-Mar Energy Pathway project will expand services in Delaware and Maryland, most importantly bringing natural gas to Somerset County for the first time. Last year, we announced the Guernsey power plant pipeline expansion. Both the power plant and our pipeline, the first major expansion of pipeline services in Ohio, are proceeding on schedule. Turning to Slide 17. Let me highlight a couple of our recent regulatory initiatives. The Delaware Public Service Commission has approved the sale of our Sharp propane community gas systems to our VNG natural gas distribution unit at the asset's current replacement value as opposed to book value. The replacement value will become the basis for VNG's rate base additions. And we continue to work with the Florida Public Service Commission on the Hurricane Michael limited proceeding. We requested a change in base rates to earn a return on the storm-related planned investments we made. We're also seeking a return on and/or recovery of other regulated costs incurred as a result of the hurricane. We expect this proceeding to be finalized by the end of the year and potentially as early as the third quarter of this year, given the current proceeding timeline. Interim rates were established in January, but we fully reserve all revenue until final resolution of the proceeding. Slide 18 includes a table of our current key projects and initiatives. For this quarterly presentation, the team has identified key projects for pipeline expansions, virtual pipeline growth via Marlin, acquisitions, and regulatory initiatives. The estimated key projects are expected to generate $38.2 million and $52 million for the years 2020 and 2021, respectively. The estimated margin represents an increase of $1.6 million in 2020 and $7.9 million in 2021 compared to the estimate we provided at the end of the first quarter. In total, the incremental margin growth from these key projects and initiatives represents $15.5 million for 2020 and $13.7 million for 2021. We note the additional margin estimates of $1 million in 2021 for renewable natural gas transportation and a margin of $1.2 million in 2020 and $4 million for 2021 now included for Elkton gas. We've not yet provided margin estimates for the Hurricane Michael regulatory proceeding, which will increase these margin amounts once that proceeding has been finalized. Now I'd like to spend just a couple of minutes talking about our latest project announcements, both of which are in the renewable natural gas space. Slide 19 outlines the relationship between Chesapeake Utilities and Bioenergy DevCo, a leading global developer of anaerobic digestion facilities that create renewable energy and healthy soil products from organic material. The project involved removing excess organics from poultry waste and converting it into renewable natural gas. The resources generated from organic waste to Bio DevCo's anaerobic digestion facilities in Delaware will become utility quality RNG once it's processed by a $6 million gas processing plant Chesapeake Utilities Corporation will build. Eastern Shore Natural Gas Company and Marlin Gas Services will also make incremental investments associated with the transport and receipt of RNG for multiple suppliers, totaling approximately $7 million. These investments include an interconnect facility and additional transport equipment. The RNG will ultimately be delivered through Chesapeake Utilities distribution systems to its natural gas customers. The second project we announced is a new relationship with CleanBay Renewables, an enviro-tech company focused on the production of sustainable renewable natural gas, which will generate greenhouse gas credits aimed at the vehicle fuel market and provide Chesapeake Utilities the opportunity to bring additional renewable natural gas to its Delmarva operations. Under the arrangement, Chesapeake Utilities Corporation will transport the renewable natural gas produced at CleanBay's plant west of the Maryland biorefinery to Chesapeake Utilities natural gas infrastructure in Delmarva. I'm always encouraged when we identify projects that include opportunities for multiple Chesapeake business units, in this case, Marlin Gas Services, Eastern Shore Natural Gas Transmission, and our Delmarva LDC, as we show on Slide 20. It's great to see these units collaborate to serve customers’ needs. And further, we're excited to support the critical agribusiness industry, poultry production, poultry processing, and green farmers on Delmarva while enhancing the environmental sustainability of the Chesapeake Bay, our namesake and origin of service. We believe these types of projects have further growth opportunities on Delmarva as well as potentially being replicated in other service territories as we move to become one of the industry early leaders in transporting renewable natural gas. These projects are also supportive of our commitment to environmental sustainability.

Thank you, Jeff, and good afternoon, everyone. It is a pleasure to be with you again today. As shown on Slide 21, Chesapeake Utilities is strongly committed to sound governance principles and the highest standards of ethical conduct by all our team members. This is how we work every day. Our responsibility to operate in a safe and environmentally friendly manner that furthers our stewardship and facilitates sustainable practices is at the center of who we are. Active and informed engagement, which is embedded in our people, beginning with our Board of Directors and extending throughout the company, could not be more important as we together chart the road ahead. Our diverse cross-functional teams closely collaborate on advancing our increasingly vibrant ESG platform, as highlighted on Slide 22. In continuing our bedrock commitment to equity, diversity, and inclusion, we have formed the Equity, Diversity, and Inclusion, or EDI Council. Our vision for the EDI Council is for all our employees to embrace and share their diverse experiences and backgrounds with the mission to help improve the communities we serve and to make us a better company. The EDI Council is central to who we are and who we want to be and will further enhance the collaboration around our workplace culture that is the engine driving our business. In keeping with our commitments, during the second quarter, Chesapeake Utilities presented a virtual webinar entitled 'Women in Utilities: Be Extraordinary Everyday by Demonstrating Diversity,' which was hosted by CS Week, the largest utility customer service conference in the United States. We support and take pride in recognizing the significant and important contributions of each of our team members. As another example, on July 10th, we had the special opportunity to virtually join together to celebrate National Lineworker Appreciation Day, and to say thank you to those who respond around the clock and in some of the most challenging conditions to provide essential energy services to our communities. We work hard every day to ensure that the communities we serve continue receiving the value and benefits of clean, plentiful, and affordable energy delivery services so that no one is left behind. As Jeff mentioned earlier, our teams are building several environmentally responsible projects, including extending our system to deliver energy for the first time to Somerset County, Maryland. The FERC-approved infrastructure project will displace wood chips and fuel oil now being used and extend the environmental benefits and proven economic potential to a new county in Maryland. We are also pursuing our partnerships with CleanBay Renewables and Bioenergy DevCo on various RNG projects. We were gratified by a recent study issued by the University of Delaware that explored additional policy considerations for the promotion of RNG development. We are pursuing several other RNG opportunities and look forward to unveiling several new projects as the terms and conditions are finalized. We are excited about the projects underway via our diverse and engaged teams to reduce the carbon footprint of the communities we serve. Our commitment remains steadfast to take the steps necessary to deliver energy where and when it is needed while continuing to advance our environmental stewardship. I appreciate being with you all today and turn the call back to Jeff for some closing comments.

Thanks, Jim. Just a couple of final comments. Our team is continuing to focus on safety, employee engagement and growth as we deliver potential services to customers and the communities where we work and live with. We reaffirm our five-year capital expenditure guidance of $750 million to $1 billion for the years 2018 through 2022 as our strategic planning initiatives come into view for us and as we've outlined on Slide 23. We also reaffirm our 2022 earnings guidance of $4.70 to $4.90 as we show on Slide 24. The compound average growth rate of 8.1% to 9.6% from earnings from continuing operations for the three years. We believe those growth rates can be achieved in the near-term annual results based on our key projects coming online, continued customer growth, and operational efficiencies. As you can see, we remain well positioned to achieve our 2022 financial targets. This growth is underpinned by our five-year capital investment plan with approximately 80% of our investments in utility infrastructure and cleaner energy solutions like RNG. This growth is also supported by the continuation of our strategic and sustainable growth in our nonutility businesses. We will continue our track record of delivering for our investors while maintaining a strong balance sheet, ensuring access to capital for growth, and our financial discipline. While the future through 2022 looks bright, we're staying focused on achieving strong results for this year despite the unique circumstances we find ourselves in. So in closing, let me just thank all of you for participating in our call. And I want to thank all of our Chesapeake Utilities' employees for their ongoing commitment to serving our customers and growing our company. We will be happy now to address any questions you may have.

Our first question comes from Tate Sullivan with Maxim.

Great. Thank you all, and thank you for all the details, and I thought I'd start with the gross margin contribution that you discussed in Slide 18. And besides the RNG opportunity and you introduced the gross, incremental gross margin for '21 of $1 million, what changed with Marlin since we last heard from you? I mean it looks like the gross margin, if I looked at it correctly, you might have doubled from the year ago. So there are more states here, or am I looking at that correctly?

So in terms of, Tate, in terms of how you're looking at that, the second quarter, when you look at Marlin's results year-over-year, the second quarter of this year tended to be a higher quarter than the second quarter of last year and that's driven really from several things. One is Marlin, since we've acquired that business, we've been moving down a path to convert more of their services to where it's aligned with a contract. We're still providing emergency services, but a greater part of that business has shifted to where we're contracted to provide service, and there's a retainer type level of fee that's being charged. And so that's one of the things that happened for Marlin as well as just an uptick in the emergency-type services. If you look at it kind of on a year-to-date basis, what you can see from Marlin's business is that last year, the first quarter was strong coming in, and that's because we had a lot of emergency services in the first quarter of last year. Marlin is continuing to look for new opportunities in the existing CNG space that it operates in. It's also, as Jeff and Jim both talked about, we've announced these new contracts where Marlin's margin is going to be expanding in the RNG space, and those are two of the projects. We also have some other projects that we're working on in both CNG and also in RNG. And we've also mentioned in the past that we'll be looking for Marlin to expand into the LNG arena, hopefully, at some point here. And so we're really kicking on all cylinders. We're kicking within our own footprint as well as a little bit beyond. And you'll see that Marlin has the capacity to continue to expand into all of those areas. Jeff, I don't know if there's anything you'd like to add.

Well, I think that covered it pretty well. I would say that we certainly, as you indicated, have an interest in focusing on long-term commitments with pipelines and utilities principally engaged in the pipeline integrity work and then maintenance work. And so that provides an opportunity for us to have a more stable revenue stream in this business. And we're seeing some pretty significant opportunities come our way. And I think some of the margin increase that you're seeing here is reflective of the marketing work that we've been doing, especially in the Southeast and the Mid-Atlantic with utilities that we know quite well.

Okay, great. Yes, that was one notable aspect among many others, especially Marlin's strength considering everything else happening. In both the second quarter and the operating income margin in unregulated outside of Marlin, was propane a positive contributor? Were there other factors? I believe this was your highest second quarter operating income margin in unregulated in quite some time.

Yes, you are correct in your assessment. It was indeed a strong quarter. If we consider the COVID impact on that specific segment compared to the overall gross margin effect, the unregulated segment experienced a $300,000 negative impact out of the total $2.5 million from COVID. If you take a closer look at the unregulated businesses, namely Sharp, our Florida propane operation, and Aspire, you'll find that they were largely able to mitigate the COVID-19 effects. In fact, Sharp and our Florida propane operation maintained strong retail margins, aided by favorable weather conditions and effective supply management. Additionally, our acquisition of Boulden at the end of last year contributed significantly during the quarter. Overall, unregulated performed very well, and the weather in April played a positive role, with many people staying at home and continuing to use gas. Thus, the unregulated sector had a successful quarter.

Yes. Before I return to the queue, I want to address the regulated side and customer growth figures. While there shouldn't be any concerns, the 5% year-over-year growth for Delmarva's natural gas distribution seems very high. Does this figure include some of the converted propane customers or is it strictly organic growth?

There is some customer conversion activity, but it's not a significant part of it. We continue to see a lot of expansion as new developments are aligned with our distribution system, especially in the beach areas and north of Dover, Delaware. The bedroom communities of Wilmington, like Middletown, continue to grow and expand. There's strong growth in our Delaware area, mainly in those two markets, driven more by this growth than by customer conversions. While there are some conversions, they aren't the main driver.

We're also continuing to see significant growth on the systems in Florida. There's a lot of activity in the Palm Beach area. We've extended, as you may recall, four small pipeline segments, the Peninsula pipeline out to reach the emerging growth. It's west of the existing city limits, west of I-95. So things are hopping in Florida as well. I might also just take a second and point out, we mentioned the regulatory action on the propane side, that we are converting the community gas systems, the underground propane systems over to natural gas. That's not going to all happen at once. But we have a number of those systems scattered across Delmarva serving almost 10,000 accounts at this point. So you're looking at multiple years before we will get gas, natural gas service in front of all of those developments and start converting them. So you'll see some propane margin erosion as we convert those and natural gas increases. And we are working very hard to obviously replace that propane loss with additional community gas systems on Delmarva as well as propane growth in other places. And part of that was the Boulden acquisition that Beth mentioned a moment ago.

Our next question comes from the line of Brian Russo with Sidoti.

Just on the RNG $1 million gross margin contribution, what specific investment or project is that tied to with Bioenergy or CleanBay?

That right now is associated with, is partially associated with the first project that we announced, but all contracts for both projects are not completely done. And so that is a preliminary estimate of the margin impact that will likely, we will come out with a more refined, higher estimates for all of those contracts once everything is finalized.

I'll just add one thing. It's a combination of things, as Beth said, and we're, as she said, working to refine these contract agreements. We've made, as we mentioned earlier, and we're making an investment in the gas processing equipment at that Bioenergy DevCo facility. And so there are margins associated with that. And we're also transporting the gas through Marlin Gas Services. There will be some investment for new equipment there and again associated margins to support those transportation activities.

Okay. So just back into the envelope, should we just assume kind of an 11.5% or 12% ROE to back into what type of, what dollar investment amount using...

I would answer that question, but Beth always gets mad at me when I do. So Beth, why don't you.

Well, what I would say at this point, Brian, is you, as always, should know that, yes, I mean, we're going to be targeting a return that's above a regulated LDC return for that business. But what we've not done yet, because as I mentioned and Jeff also mentioned it, some of the contracts are still underway. So we've included some estimates out on some of the investment dollars. And so what I would do is look at what information is out there, make a return assumption like you are at above a utility return. And then as we continue to disclose additional investment dollars that are associated with these projects, you can adjust from there.

Okay. Great. Understood. And in terms of Marlin Gas, has that, have those services been dispatched in response to the tropical storm?

I don't believe that we have discussed anything directly as a result of that, but I know we had zero, I shouldn't say zero, but virtually no impact on any gas system in Florida. And then obviously, if that storm went further north in Delmarva, we've had no issues that we know of on the Delmarva Peninsula and certainly not in our distribution or transmission systems. And to my knowledge, we've not dispatched Marlin for any repair or hold purposes to any utilities either.

Okay. Understood. And I'm curious, why haven't you filed for deferral of the COVID expenses? Is it because you've done such a good job of offsetting that with the CARES tax benefits and elsewhere? Is it kind of a you file a net expense impact, so you're offsetting that? Just curious.

From our standpoint right now, Brian, the situation, as we talked about, has continued to evolve. I think everybody initially thought, okay, this pandemic, it's going to be this amount of time and then everybody will be back to normal. And so what we don't, what we want to do is really be able to evaluate the magnitude. We're continuing to work on our projections. We are looking at the organization overall. We're considering the other regulatory filings that are already underway as well as other potential changes that might come about as a result of future stimulus packages. And so we don't want to be quick to the gate. We want to make sure that we're deliberate, evaluate what we think the impact is going to be, and then we'll make the necessary filings. And so again, it's just evaluation, analysis, and looking at the situation overall and as it continues to evolve.

It's reasonable to expect that regulatory agencies will be looking for a net number. Therefore, we need to determine, along with many of our colleagues across the country, what that net number is. We need to understand what changes are specifically due to COVID compared to the impacts from weather or other factors.

On the Hurricane Michael proceedings in Florida, is it on schedule? And what gives you confidence that the conclusion can occur by the third quarter?

Well, we have, it is on schedule. We have a September hearing date that the commission has established. And so there's a conversation going on now between our staff, the Public Service Commission staff and the Office of Public Counsel to see if we can reach any sort of settlement agreement that would eliminate the need for that hearing. I don't know that we will get there, but we're getting close to the point where we'll begin to prepare for the hearing and just move down the usual track to deal with this issue.

Okay. Great. And then just taking a quick look at the balance sheet or the cash flow statement, are you retiring long-term debt with lower interest rate, short-term debt? Is that part of the balance sheet management plan that you mentioned briefly earlier?

To some extent, as long-term debt is being retired, it is being funded through the current short-term borrowings that are increasing. At the same time, we are using stock through our usual channels to also support our funding. Ultimately, what I would say is that there are several different factors at play. We are retiring long-term debt, utilizing short-term debt, issuing $90 million of long-term debt this year, and issuing some equity that has increased our equity to total capitalization since the start of the year. So it's all of that.

Great. And then one last question. When you look at the updated gross margin charts, the projects under development and near completion, and the pipeline of potential RNG projects, it seems as if you're already pushing towards the high end of that EPS CAGR through 2022. So I'm curious about your thoughts on that and when you might roll over to 2023.

I will begin, and then Jeff and Jim can provide additional insights. We are currently in our strategic planning process as we approach the fall, which includes reviewing our capital investment plan for the next five years and our earnings growth trajectory for the same period. At some point, we will likely release new guidance, but I do not anticipate Chesapeake moving towards annual guidance. Instead, we prefer to take a longer-term view. We have not yet determined when this will occur, but it will be a focus during our upcoming strategic planning cycle this fall.

Our next question is a follow-up from the line of Tate Sullivan with Maxim. Please proceed with your question.

Hi. Thank you for taking my follow-up. Regarding renewable natural gas, with the two announcements of Bioenergy and CleanBay, do those deals with a gross margin of $1 million represent multiple biodigester facilities or just one biodigester? Can you clarify the nature of these current agreements?

Sure. We are in the process of finalizing the contract agreements with Bioenergy DevCo for the facility at Seaford. We have a signed letter of intent outlining most of the terms, but we're still addressing some details. The $1 million figure is a placeholder representing the margins we anticipate from various sources. We are investing $6 million in gas processing equipment at the Bioenergy DevCo facility. Additionally, we plan to build an interconnect on Eastern Shore for $7 million, which will bring gas into Eastern Shore, although those margins are not included in the $1 million. Marlin is also investing in equipment to facilitate the transport of biomethane from the processing equipment to that interconnect and ultimately into our distribution systems on Delmarva. The deal with Clean Energy, or CleanBay, is a significant operation involving Marlin’s transport capabilities, but we will also invest in equipment to transport that gas. These margins are not reflected in the $1 million either. We are working to finalize various agreements and wanted to provide a sense of the magnitude of our plans. This encompasses the Bioenergy DevCo facility, the CleanBay facility in western Maryland, and potentially several other facilities CleanBay and Bioenergy DevCo are looking to finalize across the Delmarva peninsula. We see an exciting opportunity ahead with investments in gas processing equipment and transportation, either via fuel trucks with Marlin or pipelines that will handle natural gas at multiple facilities over several years. We're not ready to provide more definitive margin numbers yet, but I expect that will clarify soon, and within the next couple of months, we should have more concrete information.

Okay. No. All the detail is great. And just one follow-up on the community gas systems. Jeff, what was the regulatory, was it something that happened the last month that you received regulatory approval to put that in?

Yes. We, the Delaware Public Service Commission, one of the issues when you have an underground, well, when any asset that's being acquired by utility is, how do you actually bring that asset value into rate base into the utility? And one of the things that's always been a point of contention, everywhere I've ever worked, frankly, and every state I've ever worked in, is the purchase of an underground propane asset by a regulated natural gas utility and the conversion of those customers. And it's been sort of a long-standing position that those assets would come in at the depreciated book value of the propane system. And you basically enter those into natural gas rate base and you begin earning on that level of rate base. And of course, what actually happens is if you're buying those assets, acquiring it from a propane company, you're going to pay something closer to a market value for the assets. So you want to be able to bring those assets forward into rate base at that market value if you possibly can. And what we were able to negotiate, get approved in Delaware is it would bring that asset in at the replacement value if we were building a new natural gas distribution system. So it significantly increases the value of the assets that we're able to put into rate base and ultimately earn on. It's a pretty significant accomplishment, frankly.

Mr. Householder, there are no further questions at this time. I will now turn the call back to you; please continue with your closing remarks.

Thank you. And just thank you again for joining us this afternoon and hanging in there all this time. We appreciate your interest in Chesapeake Utilities as always, and we look forward to speaking with you again soon. Goodbye.

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