Chesapeake Utilities Corp (CPK) 2017 Q1 法說會逐字稿

Good morning.

My name is Elisa, and I will be your conference operator today.

At this time, I would like to welcome everyone to the First Quarter Earnings Conference Call.

(Operator Instructions).

Thank you.

Ms. Beth Cooper, you may begin your conference.

Good morning, everyone.

I'd like to welcome you to Chesapeake Utilities First Quarter 2017 Earnings Conference Call.

We're thankful today to be hosting the call live from Wesley College in Dover, Delaware, where we have several of our officers as well as our employees that graduated from this college in attendance.

And we typically recruit from this college and have new employees joining the organization all the time.

We're especially thankful to Dr. Gibson, Provost and Vice President of Academic Affairs, for enabling us to conduct this call here at Wesley College as well as members of the faculty and students that are in attendance.

So good morning, everybody.

Turning to Slide 2. You all are accustomed to our normal disclosure regarding forward-looking statements.

We actually refer you to our Form 10-Q, where we describe the reasons for why the forward-looking information may actually differ from our actual results.

I'm now going to turn the call over to Mike McMasters, our President and CEO.

He's going to make some introductory opening remarks.

Thanks, Beth.

I guess first, I'll talk just very briefly about the first quarter.

Margin growth in the first quarter was coming from both Regulated and Unregulated operations of $6.8 million, a very strong performance in that regard.

Additional margin of $2.3 million came from Eight Flags, our Combined Heat & Power Plant down in Florida.

$2.2 million came from Peninsula Energy Services Company, our natural gas marketing operations.

$1.6 million came from our natural gas transmission and distribution and customer growth.

Our Florida Reliability Infrastructure Program also generated $680,000.

So overall, again, a very strong quarter and margin.

We also had higher operating expenses, depreciation and taxes due to growth, primarily; cost increases in our Regulated and Unregulated operations; multiple system expansions and growth in our Unregulated Energy business, Eight Flags, Aspire and PESCO; due diligence costs associated with an investment that we were reviewing that we decided to not pursue; higher depreciation and taxes associated with capital spending for Florida GRIP, Eastern Shore, Aspire and Eight Flags; and several other factors that are impacting our earnings growth this year.

The third one is the weather on Delmarva Peninsula during its last 50 years, negatively impacted us by $0.12 when compared to normal weather.

The shutdown of Xeron, our wholesale marketing company in Houston, cost $0.02.

Common stock issuance in September of 2016 to finance recent capital expenditures cost $0.07, and higher interest and increased debt from other -- and other expenses cost $0.02 more.

Overall, again, it's a very strong quarter.

We're committed to long-term sustainable growth, and you're seeing that in terms of the margin growth.

And we'll talk about some of the operating costs in a moment.

Thanks.

I'll turn it back to Beth.

Turning to Slide 4. What you'll see are -- the factors that Mike described resulted in our earnings per share being down for the quarter by $0.16 per share.

Recall that Mike talked about the strong gross margin growth of $6.8 million.

We had operating expenses that increased by $8.5 million for many of the reasons that Mike talked about.

The overall EPS for the quarter was $1.17 compared to $1.33 last year.

On slide -- turning to Slide 5. What we've tried to do is lay out some of the -- the impact of some of those nonrecurring unusual items.

And so when you begin looking at 2017, the first thing you add back is the variance in terms of the weather quarter-over-quarter, and that represents $0.04 per share.

Xeron, as Mike talked about, was wound down in the quarter as we made the decision that we were going to exit that business.

As a result of making that decision, we recorded expenses that translated into $0.02 per share.

So on an adjusted EPS basis, we are basically sitting at $1.23, pretty much the same as last year when you look at it also on an adjusted basis.

The factors that we adjusted for in 2016 on this slide includes, first, the fact that we have been providing OPT 90 service last year on an interim basis before the physical facilities have actually been constructed.

So factoring that in, the construction of those facilities are now in place in 2017.

But putting the 2 on an apples-to-apples comparison, we would deduct that $0.08 per share.

And then also, this year, we continued to have a further decline in our retail propane margins per gallon that represented $0.02.

So last year, it was $0.02 higher.

But we did start to see last year if you recall, the beginning of the decline in those margins.

So once again, flat year-over-year, quarter-over-quarter on a year-to-date basis.

The other 2 things to point out is that there's nothing that's showing on this slide related to the revenue requirement for the system reliability projects that we're in the process of completing this month.

And then there's nothing at this point that's been factored in as it relates to the Eastern Shore Natural Gas rate case.

Digging into the segments and first looking at our Regulated Energy segment, talk a little bit about the margin growth.

So margin growth wasn't -- basically 50% in each of the 2 segments, but it was pretty close.

When you take a look at the Regulated segment, our gross margin was up by $3.1 million.

There are a lot of factors, a lot of things happening within our business.

Those included that our natural gas distribution businesses continued to have organic growth.

They represented right around $800,000.

An equal amount was also as a result of the service expansions that we've put into place the last couple of years.

Above and beyond that, our Florida GRIP program, which has been in place for several years, added $680,000 of additional margin for the quarter.

Our Delaware division rate case that was filed with the new rates that were placed into service in January of this year added an incremental just under $550,000 of margin.

And then lastly, we were able to provide natural gas services to Eight Flags plant that contributed an additional Regulated margin of just under $500,000.

So those were the key gross margin increases for the quarter, very significant overall.

Once again, we talked about we did have higher operating expenses.

So turning to Slide 7, you'll see where those expenses were largely incurred.

The first being as a result of the growth that we've experienced on the pipeline side.

We had increased outside services, maintenance, facilities, those types of costs related to Eastern Shore that represented about $1.2 million; higher staffing costs associated with being able to serve growth that were about $800,000; and then some various other costs.

In total, those represent $2.1 million of the $3.5 million that the segment had in terms of increased operating expenses.

You'll recall I mentioned on the previous slide 2 things that are underway that have not been factored in when you think about the quarter.

On the distribution side, both in Florida and Delmarva, we also had increased costs to support our growth and then lastly, about $200,000 just in other operating expenses.

On the Unregulated side, I mentioned that our margin pretty much was about -- a little more than $3 million, both in the Regulated and Unregulated segment.

Here, you'll see that our gross margin was $3.7 million, with the key drivers being our natural gas marketing operation, PESCO, added about $2.2 million in margin as a result of one key cost (inaudible) executed as well as additional customers have been added.

They're delivering both to the profit and to serve those customers as well as to the utility that they deliver natural gas to.

In addition, Eight Flags added $1.8 million.

Recall Mike talked about, in total, the plant generated $2.3 million of gross margin, $500 million coming from the utility side as we're providing services to the plant.

And then the plant is generating that steam that is being sold to an industrial customer.

That generated $1.8 million.

Aspire Energy, our natural gas infrastructure company located in Ohio, added about $0.5 million.

And then the weather and also the pressure on retail margins that I talked about earlier resulted in a decline in gross margin of about $1 million.

O&M expenses there increased by $3 million.

And we'll turn to the next slide, Slide 9. You'll see there were several very large factors that contributed to that increase.

First, about $0.5 million is related to the shutdown of Xeron.

In addition to that, about $800,000 were expenses associated with the operation of Eight Flags.

Eight Flags was not in operation last year.

This year, they are.

So the $800,000 is corresponding to the $1.8 million of margin that I talked about on the previous page.

We also had higher staffing costs to support growth in PESCO, in our propane distribution operations as we continue to expand some of our initiatives there.

And then lastly, some outside services and facilities cost related to integrity management and other programs that we're implementing in those entities.

So overall, a $3 million increase.

Further this week, our Board of Directors considered our dividend recommendation and ultimately approved a dividend increase that represented $0.08 per share.

That's a 6.6% dividend growth for the company.

And the key point about this is that it demonstrates our commitment to ensuring that we have long-term dividend growth that's supported by earnings growth.

That's been underlying to our decisions that we've had in the company and the financial discipline that we've executed, and this decision supports that and continues to support that philosophy.

As you look at our balance sheet, we've been doing a lot over the last year and continue to do a lot to ensure that we have the capacity to support the growth that Mike's going to talk about that's on the horizon for us.

So as you sit and look at it from a pro forma standpoint at the end of April, we completed the equity issuance last year that we talked with dilution of the -- the results of the shares that were issued.

The other thing that we did in April of this year was we completed our long-term debt placement for $70 million.

So we're sitting with book capitalization just over $800 million.

Our equity-to-total capitalization is about 57%.

So we've got the capacity to support the growth that we're undertaking.

We've also initiated and have in place some additional debt capacity that's needed to support our future growth.

And with that, I'm going to turn it over to Mike.

He's going to talk about our strategy for growth.

Thanks, Beth.

I guess when you look at this slide, you can see 5 different points of the focus that we have.

First, promoting growth and development of our team.

Obviously, our team is critically important to our growth.

This includes strategic thinking and creative energy.

When you think about a strategic plan, you work on a plan.

You set it down.

You work.

You start initiating that plan.

Invariably, something's going to change.

So the creative thinking part is about reacting to that change in a manner that's constructive.

And then creative energy just goes to speak to our employees again about how they approach a project and approach functions both day-in and day-out jobs.

Expanding our energy delivery services both organically and to new geographic markets by employing our expertise in serving natural gas transmission and distribution customers.

So we're looking both, one, where are we currently serving and what opportunities do we have there but also some adjacent territories.

How can we expand our footprint through this organic growth mechanism.

Next, we'll expand our footprint to new growth markets through strategic initiatives.

So if you look a couple of years ago, we were looking for opportunities, and we were looking in Ohio, actually.

We were able to identify a pipeline, a gathering company at the time, and they're going to make that project work for us.

That's an example of getting beyond the current footprint or even the current territory.

The fourth bullet, develop new unregulated energy services and products that complement our existing businesses and growth strategy.

When you think about Eight Flags, Eight Flags is a combined heat and power plant.

This is our first power plant that we ever constructed in the company or ever operated in the company.

And what was happening there is the customer, the host company, if you will, came to us and expressed the desire to get off of the grid, if you will.

We have the electric system there.

And so we always, in Florida, looked for ways to solve what they believed was their concerns.

And at that time, it was only steam.

And so by building a combined heat and power plant, we're able to solve the customer's concern, save more money and also generate earnings for us.

And so that's just an example of one of the new products and services.

Our OPT 90 that was mentioned a moment ago was also a good example.

We remain focused and determined to grow our company with an unwavering commitment to service, safety, the environment and financial discipline that's fostered our success throughout our 70-year history.

And we're going to continue to do that.

Capital expenditures.

The key thing for us as a primary utility of heating -- 90% of our customers are utility, which effectively requires -- because we're regulated, requires that we invest capital effectively to grow the company.

So when you're looking at Slide 13, the cumulative expenditures as acquisitions for $910 million, you can see the magnitude of change that's occurred since 2012.

In 2017, we're looking at $241 million.

Those are very big numbers.

Over to capital expenditures and to average capitalization.

As you can see, the target range, if you will, is basically the amount that we need to grow at a, let's just say, a typical utility rate.

And you can see the level of capital expenditures that we're getting every year.

And the numbers are in the 20s and 30s, which simply means you should get higher growth.

Continuing to build for the future.

You can see $241 million.

We're breaking it down by each of the businesses.

You see 50% of that's going to be in natural gas transmission, that's Eastern Shore, 33% in some of our public utilities.

Natural gas operations, to a large degree, is going to be the interstate pipeline and then also the Florida natural gas operations.

Delmarva natural gas is also a big contributor.

Propane distribution, less so.

Florida Electric, a little less.

This performance quadrant is pretty important for us.

It's really a key indicator, if you will, of what our growth rate will be.

And so you can see we have -- I guess the cross there if you look at the vertical axis, weighted average ROE.

And you can see the median running slightly below 10%.

If you look at the capital expenditures, total capitalization, how much capital are we deploying as a percent of our current size, the median is somewhere around 13.5%.

And you can see where Chesapeake is, right around 12%, slightly lower than 12% on the ROE.

At the same time, on the capital expenditures, up over 25%.

And so what that means is we can deploy a lot of capital.

And then we can earn returns on that capital higher than our peers, and you would expect our growth rate to be higher than our peers.

And we see our averages for this to take out some of the lumpiness.

Current growth initiatives.

In 2017, right now, we've got filing before the FERC to get the authority to construct a pipeline on the Delmarva Peninsula.

It's a pipeline project that's almost $100 million to significantly increase the capacity of our system.

61,162 Dts/d is pretty specific, but basically, if they are residential customers, that would be the equivalent of 60,000 residential customers.

We also have a project, the Northwest Florida Expansion Project.

That project is going to be serving the Pensacola area.

This is a new project.

We're connecting Florida Gas Transmission to the Western Panhandle.

So that project, again, 33 miles, a very great opportunity for us.

Continued investment in the Florida Gas Reliability Infrastructure System and the completion of the Eastern Shore Natural Gas System Reliability Project.

We're constantly looking at service reliability.

And periodically, you need to do something to improve that.

And on the Eastern Shore case, you may remember the public vortex 2 years ago with the extreme weather that we saw.

We saw the need to increase our capacity -- or increase our ability to serve during those difficult situations.

Ocean City, Maryland.

We have a bay crossing we've just completed to run natural gas into Ocean City, Maryland.

That was a pretty significant accomplishment.

We're working on the continuing conversion of Sandpiper customers in the Ocean Pines and also Ocean City.

Limited filing to be completed.

Well, technical terms here.

Basically, what we have is an electric system in Florida, and we're also improving the (inaudible) of that, and we're putting together -- or finally put together a filing to make in Florida to get approval to recover this cost on a time-limited basis.

Our expansion of PESCO's natural gas marketing operations in 3 primary markets.

Also, PESCO is -- assumed the asset manager role for our Delmarva natural gas operations.

This is a lot of just basic natural gas marketing helping with the scheduling of gas, et cetera.

Turning to Slide 17.

When you look at gross margin for the period, this is basically we're isolating key large projects.

And so we're getting a feel for what this growth (inaudible) on these key large projects are.

So you'll see in 2016, we've got about $31.3 million of cap of (inaudible) being generated by 3 to 4 different areas: natural gas transmission, Florida GRIP, Eight Flags CHP and the Delaware division rate case.

When you look at '17, you'll see that that $31.3 million, the same things plus new things that we're doing, generates $39.5 million.

And then in '18, climbing to $54.42 million and then '19, $60 million.

'19, sometimes, when you get that far out, the numbers might be a little bit lower than what we end up with as we keep working on these projects.

Slide 18.

This is the Eastern Shore expansion project.

It's an expansion of 23 miles of looping in Pennsylvania, Maryland and Delaware, 17 miles of mainline extension.

It's a pretty significant project.

Actually, it's the largest project -- single project we've ever had since the initial construction of our pipeline.

So it is substantial.

Expect it to be in service in the second quarter of 2018.

Right now, we've got filing with the FERC, Federal Energy Regulatory Commission, and we're waiting for them to approve the project.

This could be -- we've experienced delays already.

Hopefully, we can get that thing moving.

Year-end pipeline capacity.

You can see, all the way back from 1998, it increased.

And you can see what's happening in 2018 once that project is complete.

Florida Natural Gas Project.

You'll see this project really starts just about at the western-most point in Florida, again, running down to Pensacola, a 33-mile pipeline.

We're looking at capital investment of close to $36 million, and $5.1 million is the estimated margin on the first full year of operation.

So again, we've ordered the pipe.

We're going to be initiating that construction here (inaudible).

Regulatory updates.

This is -- there's always something going on with the regulatory side.

We're heavily regulated.

Natural gas distribution is regulated by the states.

Our interstate pipeline is regulated by the Federal Energy Regulatory Commission.

So you go through here -- and it starts with the FERC, the federal stuff.

White Oak Expansion placed into service in March of 2017.

We got approval for that last year and have constructed that.

The system reliability project, largely complete.

That project is, I must say, within almost weeks from being complete.

The 2017 system expansion project is that large project we just discussed.

So we're looking to get approval in August of 2017, which is not too far away.

And that rate case filing in January 2017, those rates will go into effect in August of 2017, and then it will be subject to refund.

And that's a pretty big rate case.

It takes up the costs associated with the system expansion project and several other (inaudible).

Delaware rate case settlement increased its base rates effective January 1, 2017.

We also have approximately $1.5 million of the $2.25 million rate increase recognized in 2016.

So we've got things going on at Delaware as well.

Maryland, we had a little regulatory issue there, with $136,000 (inaudible) to reverse their decision there while the commissioners reversed their decision.

So we're pleased with that.

And then Florida, first off, we mentioned they were working on a, I guess, an ESTAR, which is similar to the GRIP, and then withdrawing that filing for maybe another filing that will be for the restructuring of some of that, and so we're pleased with that.

Anyway, I think that will hit it for the regulatory stuff.

Shareholder returns, Slide 22.

If you look at on the left-hand side, it shows our (inaudible) against all NYSE companies for the periods ending March 31, 2017, and you can see their percentile performance.

Over 1 year, it's 39%.

When you look at 3-year -- over the longer term, 3-year, 91%; 5-year, 90%; 95% and 86%.

So what that exactly means is that we have outperformed 90%, 89%, 95%, 86% of the companies on the NYSE.

Annualized shareholder returns for periods ending March 31, it's got an interesting dynamic.

We've had about a 20% return.

Fair return in the next several years.

And you can see how that has changed.

I was going to say -- when you look at the peer groups, at least it improves our performance significantly.

The period -- the medians have changed.

Moving on to Slide 23.

We're already there.

I guess with that, we'll open it up to questions.

(Operator Instructions) You have a question from Insoo Kim of RBC Capital Markets.

Just starting with the Pensacola project announcement.

Around what time can we expect the decision by the Florida PSC?

And then maybe a follow-up to that.

It says that your negotiations with other third parties for potential further expansion in territories like -- could you kind of describe at what stage you guys are with those third parties?

And could that maybe be an 2018 event as well?

I'm sorry.

To make sure I heard your question properly, I think on the approval process, I think we're fully approved.

There may be a couple of little things out there, but we've got the pipe on order which typically would mean that we've gotten all the approvals that we need.

There might be a permit here or there, but there's -- that's been -- we've been working on that projects for, I want to say, 1.5 years, maybe 2 years.

So we're good to go there on that project in terms of getting started and bringing it to completion.

I think -- I'm trying to think what you were asking -- thinking about how much -- how many -- what kind of load we have to support the project.

Is that...

I think it was more regarding the comment that -- regarding your negotiations with other third parties for potential further expansion of the current project base that you have on tap and whether that could be a 2018 event as well.

There is some potential that we would have additional customers on the system in 2018, beyond what we've already focused on.

There are several opportunities that we're talking to right now.

And so we feel -- we know it's a solid investment with what we've got, and so anything we do will enhance that.

But this is most of the project where we stand right now.

Got it.

And then maybe speaking to, I think, Florida, in the -- for the electric distribution system proposal, the ESTAR proposal that you guys withdrew and will do a limited filing, are you able to give kind of the magnitude of how much less the asset would be versus the original amount of the $59.8 million?

I think it's probably premature to say what the expectation is.

But I think what we did was we restructured the filing and included pretty much the same thing.

But we're just -- the way we're getting recovery is going to be changing.

Got it.

And then given the extreme mild weather there, you have recorded -- you guys recorded this year -- I know last year was also mild, but this current year was even milder.

How much leverage do you guys have on the O&M side to mitigate some of that impact?

Yes.

So you figure that's -- $0.12 a share can go back to normal.

That's a pretty big lever.

And on the O&M side, it's a single year.

It's pretty tough to do that.

But we are looking at things that we can do to bring our numbers up.

There may be some things we're looking around to see if we could do some revenue enhancements in addition to cost containment to improve '17.

We look at '18, and we know we're in a good position with those big projects that we have coming on board.

'17 is a bit challenging.

And again, we're pretty focused on what we have to do there.

We're trying to make '17 as strong as we can get it.

Your next question comes from the line of Spencer Joyce of Hilliard Lyons.

Congrats on the Florida announcement.

We always like to see you guys knock out those big projects.

Mike, I kind of want to ask you from a high level.

I know a year or 2 ago, we saw you guys kind of wind down breakpoint and then seeing similar actions with Xeron here this quarter.

I'm wondering if there's been any kind of internal, kind of broad, strategic review of some of the legacy businesses.

Or are each of these just kind of one-offs that eventually kind of presented themselves?

Just kind of moving forward, I guess is it possible that we see some other items like this?

Or should we just kind of take these as kind of one-offs as they come?

Spencer, we have a strategic planning process.

We do plan every year.

And so that kind of creates the forum to talk about these kinds of things.

And in this particular case, similar to the breakpoint case, where performance wasn't meeting our expectations, then it requires us to take action.

And this breakpoint was a little bit unique because it was a technology company as opposed to an energy company.

So it was purely -- this Xeron situation is purely a performance concern that we had and our future view of what those earnings were going to be.

So at some point in time, I guess every year, there's the opportunity to discuss that.

And the board is very engaged in the performance of each of these individual companies (inaudible).

And we're certainly aware of that.

And we don't want to have sustained losses in any of our businesses and we'll do what we can do to fix it.

And if we can't fix it, then we'll have to do something else.

And that's kind of where we got on Xeron.

That's very helpful.

That's exactly what I was looking for.

Beth, maybe on the -- sticking with Xeron here for a second.

On the profitability side, as we look out over kind of the balance of this year, remind us what Xeron contributed kind of Q2, 3, 4 in 2016 just from either a margin or an EPS type standpoint.

If you've look at Xeron -- and I can get some more detailed numbers -- I'm sorry, I'm going to talk off the top of my head.

But my recollection is that Xeron contributions from an operating income standpoint was a little less than a negative $1 million downfall last year.

So when you look at the year, it's about $1 million negative.

It declined operating income.

Okay, great.

So not a huge swing either way.

No, no.

I guess, Beth, sticking with you here for a second as well.

Obviously, a big jump up in the O&M, which is totally understandable given what you all are doing on the growth side.

But I just want to ask kind of -- everything listed Slide 7 and then kind of everything listed Slide 9, is there anything that we can parse out that is arguably either nonrecurring or extraordinary in some sense?

I mean, maybe you had to pay overtime, where you expect to have kind of regular labor next year.

I mean, is there any kind of nuance?

Just given kind of the magnitude, I just want to -- I mean, it seems like there could be a piece or 2 that we should at least maybe adjust for kind of modeling Q1 '18.

But any thoughts there?

Sure.

And actually, Spencer, that's a great question.

And we actually had, I would say, the opposite happen when you look at last year that really had a negative impact this year.

And what I mean by that is, for example, Aspire Energy.

We completed that acquisition in 2015.

We had a final valuation that was done on that business to where we could record the purchase price and allocate the assets.

And then as a result of that allocation, we actually had a credit in depreciation expense in Aspire in our 2016 numbers in the 1st quarter of about $300,000.

This year, our depreciation is up by $300,000, but really, last year was understated because of that valuation.

Similarly to that, when you look through every quarter we've got on the health care spend, we've got about $700,000 higher of health care spend this year than what we had last year.

We came out of last year -- at the end of 2015, looked at our claims, looked at our run rate, we do a lot of different analysis there and had an opportunity to write in some health care reserves that, unfortunately, did not repeat itself this year.

That really, though, is something -- we don't see a lot of information out there of such a recurrence from 1 year, from 1 quarter to the next.

It's really a matter of what our health claims experiences, we're self-insured.

But there is a huge volatility there that I would point out.

And then lastly, if we go through and look at our operations, I would say we have between $500,000 to $750,000 of nonrecurring expenses just in terms of things that we're seeing within the business units.

So those, I would say, are the 3 key things, when you look at it year-over-year, that I would keep in mind.

Okay.

So if we think about those 3 items, obviously, the depreciation from 2016, were kind of a clear or a plain comparison here in 2017.

The final item, the $500,000 to $750,000 of items within the business units, is that kind of a special but could be a recurring theme into next year?

Or are some of those a little less likely to repeat next year?

Well, I mean, those costs can include anything if we have like special initiatives that we're undertaking in terms of projects that we're doing, so much from a project standpoint.

It does get a little bit challenging in terms of trying to say they won't be occurring again.

I think we're trying to -- some of those could be regulatory-related expenses given the fact that we have multiple rate cases that we're really have been through a lot of our jurisdictions.

So those types of things might not repeat itself.

So I think there're about $500,000 that we could say we don't see recurring.

The other thing I would add, Spencer, is that we also had, as Mike mentioned in the very beginning on Slide 3, we had transaction costs.

And we've talked internally about are those costs going to -- are you going to have those year-over-year-over-year?

We don't know.

It really depends on the opportunities and which opportunities come to fruition.

But for now, we haven't included those as an (inaudible) or an adjustment just because we are pursuing growth.

We've had success in that area.

And despite the fact that we had some costs that we didn't end up moving forward with the transaction, we don't want to say those aren't going to be incurred in the future.

So Mike, I don't know if there's anything else you want to add.

Yes.

You might want to also think, Spencer, about the Eastern Shore rate case.

Rates will go into effect subject the refund in August.

And so the things that are -- I'm just trying to think here.

You're going to get some sort of revenue pickup.

We've disclosed the revenue requirement on the reliability project.

We had, at least, talked about the additional revenue requirements.

But that's another factor that could be fairly large in the second half of the year or from August through December and, clearly, in 2018.

Yes, yes.

That's very helpful.

And again, not trying to be overly critical on the expenses at all.

I mean, we understand there are things that have to happen for growth, absolutely.

Just want to make sure we kind of understand everything.

But your comment is very helpful there.

That's all I had.

Hopefully, we'll see you in Florida.

That sounds great.

Thank you, Spencer.

Your next question comes from the line of Tanner James of Ladenburg Thalmann.

The weather impact was pretty significant for you guys for the quarter.

Just asking again, do you see any opportunities to pursue the implementation of a weather-normalized mechanism with any of your regulatory authorities?

Yes.

We've had -- weather normalization in Maryland currently exists.

Delaware has looked -- not looked upon that favorably or has for discounts on the returns that we thought were more than we wanted to accept.

And in Florida, we've not -- did not file for that.

It's a little bit more difficult in Florida just with the form of weather, generally speaking, so if we ever could get that kind of stuff, hopefully.

That's something, again -- I don't think Florida's was that big.

But anyway, so yes, we do look at that and do make conversations -- have conversation and discussed filing stuff, particularly in Delaware, but have elected not to move forward with that in the past.

We may feel differently given 2 years in a row of warm weather.

And if (inaudible) we may feel differently as well.

That's something to explore.

(Operator Instructions) Our next question comes from the line of Michael Gaugler of Janney Montgomery.

Just wondering, where do you see the sizable opportunities like the Florida Natural Gas in terms of larger investments?

Is it in Delmarva?

Does it stay in Florida or somewhere else?

And then as a follow-up, what's the pipeline look like for those larger-type projects?

Mike, I think it's fair to say that we've been getting growth, strong growth in both Delmarva and Florida.

Florida does have a significant -- it's a significantly larger state than Delaware, so you would think that, over time, (inaudible) pipeline projects like Delmarva.

That's a fantastic place to be.

But you would think that over time, Florida will have significant opportunities down there, and we are actually -- we're executing on those now, and I think -- so we do like the state of Florida.

You would also think that Ohio and Pennsylvania may also present opportunities for us.

And in terms of the pipeline, we do that process, that strategic planning process every year.

And typically, what we see is -- with a pretty clear view of the next 3 years.

But the fourth and fifth year get a little bit more sketchy just because it's so far away in the game.

But every year, it seems like we go back over the next year, and we still win that fourth year and we keep doing that.

So I think that we're pretty confident in the future.

We're pretty confident in the next 3 years and how we get a little bit weak on that back end.

We don't disclose where that pipeline is at this part of the cycle.

So I'm sorry I don't have that information for you.

There are no further questions.

Presenters, you may continue.

Well, thanks, everyone.

I just want to assure you, our commitment to the communities we serve, our customers and our investors is steadfast.

When you look at our brand values, they include we do not rest on our laurels.

We are results-oriented.

We are relentless in our efforts to drive value.

We're going to stay on that path.

We appreciate your interest in our company.

And thank you, and have a great weekend.

Bye.

This concludes today's conference call.

You may now disconnect.