Tag Archives: management

Southern Company: A Safe High-Yield Dividend Stock For Retirees

Yield-starved investors should familiarize themselves with Southern Company (NYSE: SO ), a highly dependable business that has paid dividends every quarter for more than 65 consecutive years. With a high yield of 4.4%, low stock price volatility, and a track record for outperforming the S&P 500 Index over the last 30 years, Southern Company is the type of business that we like to review for our Conservative Retirees and Top 20 Dividend Stocks portfolios. Business Overview The Southern Company is a major producer of electricity in the U.S. that has been in business for more than 100 years. The holding company’s four retail regulated utilities serve approximately 4.5 million customers across Georgia, Alabama, Florida, and Mississippi. Approximately 90% of Southern Company’s earnings are from regulated subsidiaries, and the company also has a small wholesale energy company. Industrial customers account for 28% of the company’s sales, followed by commercial (27%), residential (27%), and other retail and wholesale (17%). By power source, coal generated 33% of Southern Company’s total megawatt hours in 2015, gas accounted for 47%, nuclear was 16%, and hydro power was 3%. The company’s mix of business and geographies will significantly change in the second half of 2016 when it closes its acquisition of natural gas utility AGL Resources. Southern Company’s customer count will double to roughly 9 million, and its energy mix will shift from 100% electric to a 50/50 mix of electric and gas. Business Analysis Utility companies spend billions of dollars to build power plants and transmission lines and must comply with strict regulatory and environmental standards. As capital-intensive regulated entities, utility companies typically have a monopoly in the geographies they operate in. As a result, the government controls the rates that utilities can charge to ensure they are fair to customers while still allowing the utility company to earn a reasonable return on their investments to continue providing quality service. Each state’s regulatory body is different from the next, and some regions have been better to utilities than others. The Southeast region has been friendly to businesses, and Southern Company operates in four of the top eight most constructive state regulatory environments in the U.S. according to RRA: Click to enlarge Source: Southern Company Investor Presentation Southern also maintains strong relationships with regulators in part due to its reputation and the reasonable rates it currently charges, which are below the national average and perceived as being more customer-friendly. The South region is also one of the fastest-growing in the country, which makes Southern Company a relatively more attractive utility than many others. While regulation protects Southern Company’s monopoly business and helps it generate consistent earnings, it also makes growth more difficult. The company’s earnings have grown by about 3% per year historically, but its planned merger with AGL Resources is expected to boost earnings growth to a 4-5% annual clip. In late 2015, Southern Company announced plans to acquire AGL Resources for approximately $8 billion. AGL is the largest U.S. gas-only local distribution company, serving about 4.5 million customers in seven states and generating approximately 70% of its earnings from regulated operations. The combined company will now serve roughly 9 million customers and diversify Southern Company’s revenue mix from being 100% electric to a 50/50 mix of electric and gas customers. The deal also somewhat reduces the impact from the company’s large construction projects that have been delayed and provides a new array of growth projects to invest in. Furthermore, we like that AGL will provide some regulatory diversification for Southern Company by expanding its reach into several new states. Finally, it’s worth mentioning that Southern Company is the only electric utility in the country that is committed to a portfolio of nuclear, coal gasification, natural gas, solar, wind, and biomass. The company has committed $20 billion to developing a portfolio of low- and zero-carbon emission generating resources, including investments in natural gas, solar, wind, and integrated gasification combined cycle technology. As seen below, the company’s mix of resources is expected to become more diversified over the next five years, reducing its dependency on coal. A diverse generation fleet reduces the company’s risk of being overly dependent on any one source of energy. Click to enlarge Source: Southern Company Investor Presentation Southern Company’s Key Risks Utility companies generally have lower business risk than many other types of businesses. Their biggest risks are usually regulatory in nature – customer rates are decided at the state level and materially impact the return a utility company gets on its major capital expenditures. In Southern Company’s case, its main states in the Southeast have historically had generally favorable regulatory rulings. The acquisition of AGL Resources will also diversify the company’s regulatory risk. EPA regulations are another challenge. There is increased scrutiny around coal and nuclear power, which could result in higher spending to remain compliant with safety and emissions standards. If Southern Company cannot pass these costs through to customers, shareholders would take the hit. Project execution is another big risk facing the company. Southern Company has taken on several major capital projects in recent years. The company is building a coal-fired power plant in Kemper County, Mississippi, and two nuclear plants at Plant Vogtle in Georgia. The coal gasification project in Mississippi was originally expected to cost $5 billion and go into service in 2014, but it has been delayed by two years and experienced over $1 billion in additional costs. While the Kemper County facility is finally nearing completion, it’s uncertain how the project will be paid for. A Wall Street Journal article from May 22, 2015, cited that Southern informed state regulators that it might need to raise electricity rates by as much as 41% a month for households to pay for the project. The company was ultimately bailed out by an approved 18% rate increase in August 2015, although the increase was temporary and later revised to 15% . Southern Company is only about 26% finished with construction of its nuclear plants in Georgia. This project has seen its costs escalate from an estimated $14.1 billion in 2009 to over $20 billion today (Southern’s share of the project’s cost is less than $10 billion). It has also been delayed by more than three years. While the cost overruns and delays on these massive projects are certainly a black eye for the company and do not help its regulatory relationships in the effected states, we do not believe they impair Southern’s long-term earnings power. However, there is risk that these projects receive unfavorable rate treatment with regulators. Finally, Southern Company’s acquisition of AGL Resources creates some risk. This was a large deal that comes at a time when the management team is already facing challenges with the company’s large capital projects. AGL gets Southern into a new business (gas utility) and brings exposure to new states that have different regulatory bodies. Dividend Analysis: Southern Company We analyze 25+ years of dividend data and 10+ years of fundamental data to understand the safety and growth prospects of a dividend. Dividend Safety Score Our Safety Score answers the question, “Is the current dividend payment safe?” We look at factors such as current and historical EPS and FCF payout ratios, debt levels, free cash flow generation, industry cyclicality, ROIC trends, and more. Scores of 50 are average, 75 or higher is very good, and 25 or lower is considered weak. Southern Company’s dividend payment appears very safe with a Dividend Safety Score of 86. If we exclude charges related to increased cost estimates for the company’s large construction projects, Southern’s earnings payout ratio in 2015 was 75%. While we prefer to see a lower payout ratio for most businesses, we can see that Southern Company’s payout ratio has remained between 70% and 80% for most of the last decade. Source: Simply Safe Dividends Utility companies can also maintain relatively high payout ratios compared to most businesses because their financial results are so stable. Customers still need to use a certain amount of electricity and gas regardless of economic conditions, making utilities one of the best stock sectors for dividend income . As seen below, Southern Company’s sales only fell by 8% in fiscal year 2009, and its stock was flat in 2008, outperforming the S&P 500 by 37%. Utility companies are generally great investments to own during economic downturns. Source: Simply Safe Dividends We can also see that Southern Company’s reported earnings have remained remarkably stable over the last decade. The dip in recent years was caused by constructed-related charges. Otherwise, the steady earnings results look almost like interest payments coming in from a bond. Southern’s earnings growth isn’t exciting, but it’s dependable. Source: Simply Safe Dividends As a regulated utility company, Southern generates a moderate but predictable mid-single digit return on invested capital. The slight dip was due to write-offs on its capital projects, but the favorable regulatory environment in its key states has helped it earn somewhat higher returns than many other utility companies. We expect the company’s returns to improve as its large projects finally come on-line. Source: Simply Safe Dividends Utility companies maintain a lot of debt to maintain their capital-intensive businesses. Southern Company most recently reported $1.4 billion in cash compared to $27.4 billion in debt on its balance sheet. While this would be a concern for most companies, the stability of Southern’s earnings and strength of its moat alleviate much of this risk. The company also has over $4 billion available in its credit facility and maintains investment grade credit ratings with the major agencies. Click to enlarge Source: Simply Safe Dividends Despite the challenges Southern Company is facing with its major construction projects, the safety of its dividend still looks great. The company maintains a reasonable payout ratio for a utility company, earnings are predictable each year, and its key operating states have provided a historically favorable regulatory environment. Dividend Growth Score Our Growth Score answers the question, “How fast is the dividend likely to grow?” It considers many of the same fundamental factors as the Safety Score but places more weight on growth-centric metrics like sales and earnings growth and payout ratios. Scores of 50 are average, 75 or higher is very good, and 25 or lower is considered weak. The dependability of utility companies’ dividends comes at the price of growth. Southern Company’s dividend has grown at a 3.9% annualized rate over the past decade, and the business has a very low Dividend Growth Score of 9. The company most recently increased its dividend by about 2% in April 2015, marking its 14th consecutive raise. Source: Simply Safe Dividends While Southern Company is 11 years away from joining the dividend aristocrats list , we believe it has a good chance of getting there. The company’s dividend growth rate could even increase in coming years. Management believes the AGL Resources merger could increase Southern’s long-term earnings per share growth from 3% to 4-5%, which would allow for slightly greater dividend raises. Valuation SO’s stock trades at 17.4x forward earnings estimates and has a dividend yield of 4.36%, which is below its five-year average dividend yield of 4.46%. If the AGL merger increases the company’s long-term earnings growth rate to 4-5% as management expects, the stock appears to offer total return potential of 8-9% per year. We think the stock looks to be about fairly valued today, and it’s worth noting how the predictability of Southern’s business has resulted in very low stock price volatility. The chart below shows the volatility of each of the 20 utilities in the Philadelphia Electric Utility Index (UTY). Southern Company had the lowest level of volatility through the five-year period ending on 12/31/2014. Source: Southern Company Annual Report Conclusion Southern Company is a blue chip dividend payer in the utilities sector. The last few years have been disappointing due to delays and cost overruns with some of the company’s major construction projects, but the long-term outlook appears to be intact. Southern Company’s stock appears to be reasonably priced and offers a dependable income stream for those living off dividends in retirement. It’s hard not to like a business as sturdy and reliable as this one. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

2 More Multialternative Funds Decide To Liquidate

A recent article in the Economist magazine predicted that 2016 could be the first year since “the worst of the financial crisis” that more hedge funds are closed than are launched. Mutual funds and ETFs that pursue hedge-fund strategies – so-called “liquid alts” – have also been shuttering at an accelerated pace, and two more recently announced plans to liquidate: the Collins Alternative Solutions Fund (MUTF: CLLIX ) and the Lazard Master Alternative Portfolio (MUTF: LALTX ). Collins Alternative Solutions Fund According to a February 19 filing with the Securities and Exchange Commission (“SEC”), Collins Capital Management advised the Board of Trustees governing the Collins Alternative Solutions Fund to close and liquidate the fund. New investments were halted immediately, and the fund was planned to be liquidated entirely by February 26. The fund was managed by a number of external sub-advisors. Based on data from Morningstar, the fund had assets of $21.7 million as of the end of January, and returned -14.26% for the 1-year period ending January 31, 2016. Lazard Master Alternative Portfolio On February 24, Lazard announced plans to liquidate its Lazard Master Alternative Portfolio. The fund was closed to new investors as of that date, and it was expected to liquidate on or around March 1. According to Fund Action , Lazard has joined “a long list of providers who have seen funds fall by the wayside after failing to garner enough assets in their alternatives portfolios.” The fund, which debuted on the first day of 2015, generated returns of +0.30% in its first year of operation, but then lost 4.09% in the first two months of 2016. These year-to-date returns through February 29 ranked LALTX in the bottom 15% of funds in its Morningstar category, and undoubtedly sealed its fate. As of the end of February, the fund’s assets under management had dwindled to just $16.9 million. Past performance is not an indicator of future performance. Jason Seagraves contributed to this article.

Chesapeake Utilities’ (CPK) CEO Mike McMasters on Q4 2015 Results – Earnings Call Transcript

Operator Good morning. My name is Nicole and I will be your conference operator today. At this time, I would like to welcome everyone to the Chesapeake Utilities 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Beth Cooper, Senior Vice President and Chief Financial Officer, you may begin your conference. Beth Cooper Thank you, Nicole, and good morning, everyone. We appreciate you joining us today to review our fourth quarter and 2015 annual results. Joining me on the call today is Mike McMasters, President and CEO. In addition to Mike, we also have several members of our management team here with us to answer questions. The presentation to accompany our discussion can be accessed on our website under the Investor section and Events and Webcasts subsection or via our IR app. Moving to Slide 2, before we begin, let me remind you that matters discussed in this conference call may include forward-looking statements that involve risks and uncertainties. These forward-looking statements and projections could differ materially from our actual results. The safe harbor for forward-looking statements section of the company’s 2015 Annual Report on Form 10-K will provide further information on the factors that could cause of such statements to differ from our actual results. I would like to begin today’s presentation by highlighting the company’s record performance. As shown on Slide 3, the year 2015 culminated in the ninth consecutive year of record earnings generated by the company, both in terms of net income and earnings per share. In addition, as the slide highlights, Chesapeake has generated very strong returns on equity ranging from 11% to 12.2% over this nine-year period. These results have been driven by our successful capital investments in organic growth opportunities and acquisitions like FPU, Sandpiper Energy, and Aspire Energy of Ohio. The returns that we have generated on these investments have resulted in a compound annual growth rate of 9.8% in earnings-per-share over the nine-year period. Moving to Slide 4, yesterday, we reported results for both the year and the fourth quarter ended December 31, 2015. Net income for the year was $41.1 million, or $2.72 per share, which represents an increase of $5 million, or $0.25 per share, compared to 2014. Year-over-year earnings per share grew by 10.1%. For the fourth quarter of 2015, the company reported net income of $8.6 million, or $0.56 per share. This represents a decrease of $1.5 million, or $0.13 per share, compared to the same quarter in 2014. The decline in the quarter-over-quarter results was caused by lower energy consumption due to warmer temperatures that reduced earnings by $2.5 million, or $0.17 per share. The fourth quarter of 2015 was the warmest fourth quarter in the past 30 years in our operating territories. As you know, gas consumption is impacted by the variability in heating degree days in the winter months. I will now highlight the accomplishments and results for the two business segments for the year. Detailed discussions of our results for the quarter and year ended December 31, 2015 are provided in our press release, which was filed yesterday and will be included in our Annual Report on Form 10-K, which will be filed Monday. Turning to Slide 5, Chesapeake’s regulated energy businesses, which include our natural gas distribution and transmission and electric distribution operations generated operating income of $61 million in 2015, compared to $50.5 million for 2014. The increase in regulated energy operating income was generated from strong growth in the regulated energy businesses. The impact of several nonrecurring items also enhanced 2015’s results. Gross margin increased by $13.2 million as a result of service expansions, the Florida Gas Reliability Infrastructure Program, or GRIP, as we refer to it, natural gas customer growth and the Florida electric rate case. The higher gross margin was partially offset by lower margin as a result of warmer weather and an increase in other operating expenses reflecting the incremental cost of service, ultimately resulting in an increase of $2.6 million in 2015 operating income. The nonrecurring items included non-cash pretax impairment charges recorded in 2014 in the aggregate amount of $6.4 million and a gain from a customer billing system settlement of $1.5 million recorded in 2015. The impact of these nonrecurring items resulted in additional operating income of $7.9 million in 2015, compared to 2014. As shown on Slide 6, the unregulated energy segment reported operating income of $16.4 million, compared to $11.7 million for 2014. Operating income excluding a $432,000 nonrecurring charge in 2014 increased by $4.2 million. Higher retail propane margins and margin generated by Aspire Energy were the largest drivers of the $12.4 million increase in gross margin generated by the segment. The increased gross margin was partially offset by the warmer weather, lower results for Xeron, operating expenses from the addition of Aspire Energy and additional expenses as a result of the year’s strong performance. The key variances in terms of net income and earnings per share contribution between 2015 and 2014 are highlighted on Slide 7. This table is a summarized version of what is included in our filings and provided in the appendix. For 2015, as mentioned previously, earnings per share increased $0.25, or 10.1%, to $2.72 per share. Gross margin increased $0.95 per share, higher operating expenses largely to support growth offset the gross margin increase by $0.48 per share. Unusual items resulted in a $0.13 decrease in earnings per share for 2015, the largest component of which was the warmer weather in 2015, compared to 2014. While approximating normal weather, 2015 was significantly warmer than 2014, which impacted results year-over-year by $0.18 per share. In our regulated energy segment, an increase in gross margin of $0.65 per share was generated from natural gas customer growth, service expansions in the natural gas transmission businesses, continued investment in the Florida GRIP to enhance infrastructure reliability and safety and the full-year impact of the 2014 electric rate case. In the unregulated energy segment, gross margin increased $0.30 per share largely due to higher retail propane margins, which added $0.37 per share partially offset by lower contribution from propane wholesale marketing and sales. The inclusion of nine months for Aspire Energy lowered Chesapeake’s earnings per share by $0.06, including the impact of issuing approximately 593,000 shares for the acquisition. Finally, interest and other changes reduced year-to-date net earnings per share by $0.03. Slide 8 shows our history of capital expenditures as a percentage of total capitalization. For 2015, we invested 28.3% of total capitalization, 20.7% of which came from organic growth capital investments and 7.6%, which related to the purchase of Aspire Energy. Since 2011, we have made capital investments of $545 million, including acquisitions, which equates to an average 21% of capital expenditures to total capitalization annually. In terms of the dollars invested during 2015, we invested $142.7 million in our existing businesses, including $98 million in our regulated energy segment. Adding in the Gatherco acquisition that was completed in 2015 for $52.5 million, this increases our total capital expenditures for the year to a record of $195.2 million. The execution of our strategic plan continues to generate significant opportunities for profitable capital investment. The current capital budget for 2016 projects investments of $179 million to support and grow our existing businesses. We are pursuing several other projects, which could further increase our level of capital spending. Of the total capital budget for 2016, approximately $30 million represents capital expenditures that are in early project development stage. We are excited about these investments, but recognize that the review and approval process by the regulatory bodies may take longer then we experienced in our previous applications. Slide 10 highlights the company’s commitment to maintaining a strong balance sheet, which should facilitate access to competitively priced capital to fund our growth initiatives. Our equity to permanent capitalization and equity to total capitalization, including short-term borrowings, was 70.6%, and 51.9%, respectively, as of December 31, 2015. We target to maintain a ratio of equity to total capitalization, including short-term borrowings of 50% to 60%. As of December 31, 2015, our short-term debt, including the current portion of long-term debt, was $183 million, which also includes $35 million borrowed under our $150 million revolving credit agreement. Available for five years, we can utilize this facility to bridge financing to long-term debt. Given the level of capital expenditures in 2015 along with the 2016 capital budget, we anticipate securing longer-term permanent capital to maintain our targeted equity to total capitalization ratio and will seek to align such financing with the earnings generated from the larger projects. In this regard, on Slide 10, we have highlighted one possible means of securing new long-term debt capital, a Shelf Facility with executed with Prudential Investment Management in late 2015 also for $150 million. In May of 2015, the Board of Directors increased our annualized dividend by $0.07, or 6.5%, to result in an annualized dividend of $1.15 per share as shown on slide 11. We are firmly committed to dividend growth supported by earnings growth. Chesapeake Utilities has paid a dividend continuously for 55 years. Our Board of Directors will be revisiting the dividend level again in May 2016. Given broad market uncertainty and investors current expectations for income and security, we understand the desire for reliable dividends. We expect a significant growth potential in our businesses to continue to provide potential for superior dividend growth in the future, just as it has in the past. Before I dig into the details regarding the gross margin growth we achieved in 2015 as well as our estimates for future margin growth, I would like to spend just a few moments highlighting the overall key financial accomplishments for the year. We have highlighted many of these accomplishments on Slide 12. First, as we mentioned earlier, we increased earnings per share by 10.1%, achieving record earnings for the ninth consecutive year. Our capital expenditures, including the Gatherco acquisition, were $195.2 million, the largest level of annual capital expenditures in our history. This level of investment fostered growth in our overall asset base, which surpassed $1 billion for the first time in 2015. Achieving record earnings enabled us to generate a solid return on equity of 12.1%. We are proud of the growth in our businesses and the returns we have generated for shareholders, which Mike will elaborate on later including a 16.7% total shareholder return for 2015 that included a 6.5% dividend increase. Finally, at year-end, our market capitalization had grown to approximately $867 million. As recently as yesterday, this had escalated further as we closed at a market capitalization of approximately $975 million. Slide 13 shows a snapshot of the consolidated gross margin impact of major projects and initiatives completed since 2014, as well as major projects and initiatives announced and underway. As you can see, these projects and initiatives add a gross margin of $18.2 million in 2015 and are expected to add incremental gross margins of $19.1 million in 2016 and $10.3 million in 2017. We have included a slide in the appendix that provides the detail for the completed projects and their margin contribution for 2014, to 2017. We have a number of other projects and initiatives in place to expand margins in 2017 and beyond and as their timing related to in service is solidify, we will update our projections accordingly. Slide 14 provides detail on projects and initiatives underway as referenced on the previous slide. These investments will be completed over the next year and are expected to produce gross margin of approximately $7.2 million, in 2016 and $18.2 million, in 2017. As our results over the past nine years demonstrate, our team is relentless in identifying and pursuing opportunities to enhance our growth and further increase our gross margin. As always, thank you for your support and interest in our growing company. These continue to be very exciting times for Chesapeake Utilities, as exemplified through our strong financial results. Now I will turn the call over to Mike, who will expand on our strategic growth initiatives, long-term performance results and commitment to continued growth for shareholders. Mike McMasters Thanks, Beth. Good morning everyone. Slide 15 illustrates how we approach achieving sustainable growth. Chesapeake Utilities’ success story starts with engaged, dedicated, and capable employees who are committed to expanding our infrastructure, to meet the energy needs of our customers and communities. Our employees continually seek opportunities to further engagement with the local communities. They construct and operate safe, reliable energy delivery systems whether they are pipelines, wires or trucks. Our employees do a remarkable job of identifying, developing, and transforming opportunities into profitable earnings growth. Finally, we employ a disciplined capital allocation process to produce superior returns to shareholders. Turning to Slide 16, our success in delivering returns is due to the hard work of our employees, our strategic planning process, and discipline in executing our strategic plan. Strategic planning is a continuous process for our company. We update our strategic plan every year and we ask our business unit leaders and our strategic business develop team, to take a new look at market conditions and the new opportunities are evolving in the market. Then we challenge our teams to identify ways to grow at rates faster than they could if they simply continue doing what they are doing today. This keeps our thinking fresh and our focus on generating sustainable long-term growth. Turning to Slide 17, the performance quadrant is one of the ways that we monitor the results of our strategic plan and its execution. We believe that one of the keys to our success is our ability to deploy significant amounts of capital with attractive returns on investment. Chesapeake continues to rank in the upper quartile of gas distribution, electric, and combination utility companies in terms of capital invested and return on capital over the past three years. Our ability to achieve higher than industry average returns, while investing higher levels of capital relative to our size is result of our ability to identify and develop profitable growth opportunities, maintain our disciplined capital investment decision-making process, execute on our growth opportunities and achieve our targeted financial results. Turning to Slide 18, the environmental and economic advantages of natural gas and propane provide opportunities for expanded use in our service territories and across the United States. Natural gas is abundant, clean, efficient, domestic and affordable. The abundance of clean natural gas in the United States continues to provide security of supply, energy reliability, and stable prices to Americans every day. As shown on Slide 18, natural gas and propane continue to have price stability, compared to oil and are expected to maintain this advantage for the foreseeable future. This price stability creates opportunities to satisfy new customer demand at affordable prices. And has helped to create opportunities that our team has developed to drive growth in margins, earnings, and ultimately dividends. Turning to Slide 19, one such opportunity is the White Oak expansion project to increase mainline capacity to serve Calpine’s new power plant in Dover, Delaware. Eastern Shore plans to invest between $32 million and $35 million, which could be used to build 7.2 miles of pipeline looping an additional compression facilities to provide natural gas to the power plant. The estimated annual gross margin resulting from this project, under the 20 year service agreement will be approximately $5.8 million. In 2016, we expect to generate approximately $5 million of incremental margin. As part of our ongoing commitment and efforts to provide reliable service to our customers, Eastern Shore has proposed a $32 million reliability project that is highlighted on Slide 20. The project includes the installation of one compressor and 10.1 miles of 16-inch pipeline looping. These facilities are necessary to provide optimal system reliability and design. FERC issued a scheduling notice to establish a deadline of April, 2016 for the environmental assessment and July 2016 for all other federal agency decisions. The project will be included in the Eastern Shore’s upcoming 2017 rate chase filing. Once the cost is included in our rates, the estimated annual margin associated with this project will be approximately $4.5 million. As a company, we are committed to offering our customers supply, diversification opportunities and access to the lowest cost of natural gas. One such example is highlighted on Slide 21. Eastern Shore is moving forward with making certain modifications to its interconnect with Texas Eastern transmission, TETCO, that will increase the availability of natural gas at the interconnect point by 53,000 dekatherms a day. FERC’s approval to move forward with these modifications was granted in December 2015. These modifications, which are scheduled to be completed and in service during March 2016, will allow customers to have access to additional TETCO supply and the opportunity to secure lower cost natural gas. This 53,000 dekatherms equates to $2.8 million, in incremental annual margin for Eastern Shore. Turning to Slide 22, safety is a top priority for our company. Our Florida GRIP pipeline replacement program is an example of one of our initiatives designed to increase service reliability and operation safety for the communities we serve. The GRIP program enables the company to accelerate the replacement of cast-iron and bare steel mains, and service lines. GRIP also authorizes a company to accelerate the recovery of pipeline replacement investments including a return on those investments, as well as the recovery of certain program related costs. Our GRIP investments totaled $32.8 million, in 2015, and are approaching $80 million, since the program’s inception. To date, we have replaced 162 miles of pipeline and over 4,300 service lines. The gross margin generated from these investments was $7.5 million at 2015 and is projected to be $11.4 million, in 2016. Turning to Slide 23, our Eight Flags Energy subsidiary is constructing a combined heat and power plant located in our electric and natural gas distribution territory on Amelia Island, Florida. The plant will produce approximately 20 megawatts of base load power to be sold to our electric distribution system on the island. Steam from the plant will be sold to Rayonier’s Advanced Materials paper mill. The combined heat and power plant and the related facilities will cost approximately $40 million to construct. Site construction is moving forward on schedule. In terms of timing, the project is expected to be online in the third quarter of 2016. In addition to generating approximately $7.3 million in incremental annual gross margin, the electric output from the plant is excited to generate savings for our electric customers of approximately $3 million to $4 million annually. As shown on slide 24, the Eight Flags project is an example of the diverse capabilities that we have to provide value-added service to our customers and the communities we serve. In this case, our financial pipeline company transports the natural gas to FPU’s natural gas distribution system. FPU in turn delivers that gas to the Eight Flags CHP plant. Eight Flags then generates the power for delivery to FPU’s electric distribution system and the steam for delivery to Rayonier Advanced Materials plans. When all of this is said and done, we save Rayonier Advanced Materials money, save our electric customers on the island money and returns on capital for investors. Slide 25 illustrates the aspired energy of Ohio business model, which operates over 2500 miles of pipelines pipeline in the areas in and around the Utica Shale, and Eastern and Central Ohio. We operate 16 gathering systems for conventional producers in the area. Over 80% of Aspire’s margin is derived from the sale of natural gas, to two local distribution companies that are connected to our gathering system and serve more than 20,000 end use customers. The addition of new producers to our system presents an opportunity for increased reliability for our local distribution customers and increased margins for the company. Finally, we also own rights-of-way that we expect will present additional opportunities for growth over the long-term. Over the last 10 months, since April 1, there has been a significant progress and success with integrating Aspire Energy into the Chesapeake family of companies. Our management team lead with focus and drive to strategically develop, Aspire Energy organization and align the business with the vision, strategies and cultural of our parent company. The team has maintained the momentum of operating the existing business and customer needs, while also focusing on the future growth of the business. Our Aspire Energy employees are actively engaged in developing a strategic growth plan and have already begun to successfully identify and develop new growth opportunities. As a result of our team’s efforts, Aspire energy generated $6.3 million in gross margins since April 1 and is expected to generate approximately $13 million in gross margin in 2016. We continue to be excited about the opportunities presented by the latest addition to the Chesapeake family and continue to expect the Aspire Energy to be accretive to earnings in the first full year of operations. Turning to Slide 26, in 2014, we found a rate increase for our electric operations in Florida which increased rates by approximately $3.7 million annually. As the rate case was approved last year, 2015’s results include a full-year impact of the new rates. On December 1, 2015, we found a rate increase application for $1 million, to increase our Sandpiper subsidiaries operating – returns in Worcester County, Maryland. The following was required as part of the Maryland PSC’s approval of the Sandpiper acquisition and regulatory plan. A decision on the application is expected during the second quarter of this year. We found a $4.7 million rate case in Delaware in December 21, 2015 included in our application, our new service offerings to promote growth and a revenue decoupling mechanism for residential and small commercial customers. The decision on the application is expected during the third quarter of 2016. Pending the decision, the Delaware division implemented an interim rate increase of $2.5 million, on February 19, 2016. Our last rate case in Delaware dates back to 2007. Finally, our Eastern Shore natural gas subsidiary will follow a rate case with the FERC new rates effective February 1, 2017. The filing is required as part of a settlement of our last rate case. Our application will be submitted by the end of 2016. As the chart on Slide 27 shows, Chesapeake provide a total shareholder return of 17%, for 2015. For each of the five periods shown, Chesapeake shareholders have earned more than 14% returns on a compound annual basis. In addition, before the five periods shown, the Chesapeake’s performance exceeded the 75th percentile of the peer group. Slide 28 shows our financial performance of the past one, three, and five years. I am proud to say that our employees have delivered top quartile performance in 18 of the 20 categories. Further, our 10 and 20 year compound annual total shareholder returns of 14.4% and 14% respectively, ranked first amongst our peers. In fact, when you compare our the shareholder returns to the broader market, you could evaluate our performance relative to this larger group. As Slide 29 shows, when you compare us to more than 2,200 companies listed on the New York Stock Exchange, our performance exceeds 84th percentile. Similarly, as shown on Slide 30, when we compare performance to the company’s comprising S&P 500, for all periods shown, our returns range from the 703rd, to the 81st percentile. We are very pleased with our strong performance after the broad market as measured by either of these two larger groups. In closing, our employees’ determination for excellence and consistently high performance, enables us to deliver clean, liable, low-cost energy solutions to our customers while achieving strong growth and earnings and return to shareholders equity, and therefore delivering superior shareholder value. We will now be happy to take questions. Question-and-Answer Session Operator Mike McMasters Well I just want to thank everyone for joining us on our call today and for your interest in Chesapeake Utilities. We’re proud of what our team has accomplished for shareholders in the past and remain committed to working hard to deliver superior shareholder returns in the future. Thank you. 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