Good morning and welcome to the 2018 UGI AmeriGas Investor Day. Thank you so much for joining us this morning. Welcome to the folks in the room with us today and also welcome to those listening on the webcast. It's a pleasure to have you with us. Just before we get into the presentation, a couple of quick comments with respect to the presentation.
What you'll see today, our presentation materials contain certain forward looking statements. We certainly encourage you to look at our annual report on Form 10 ks, which provides a lot of information about all the elements of risk that impact the business, impact the performance of the business. And similarly, during this presentation, you'll see some charts and other use of non GAAP financial measures to help provide insight on UGI's performance. In the appendix to today's material, you'll see reconciliations for those any of those non GAAP financial measures that we use in the presentation. So with that, those 2 quick announcements out of the way, just like to briefly take you through the agenda for the day and then provide an overview and perspective on UGI and IMerge.
First, there's a number of members of our leadership team here with us this morning. Some of those folks will be presenting, others will be here and participating in the breakout session. So we certainly encourage you to ask any questions you have of any of us and use the time with the breakout sessions and certainly over lunch to ask any questions. With respect to anything you see today or any other question you have about the business, feel free to ask any of us. It's a great opportunity for us, our entire team to spend time with our investors.
So we want to make sure you get the most out of this meeting that you can. And as I said, it's a great opportunity for us to learn and gain insights from you. We got a busy agenda for you this morning right through lunch. I'll provide a brief overview and we'll focus in on our natural gas businesses. Bob and Joe will take you through those.
We'll then break and we'll go upstairs to the 2nd floor for 3 breakout sessions. And each of you have been assigned groups. You'll all go to the 3 breakout sessions. The Sequenced. We'll come back down here.
We'll then dive into our LPG businesses with Roger and Hugh. Then Ted will provide a financial outlook and overview for the company and I'll have some closing remarks. We do have time for questions after each session. That will be brief. We'll keep that relatively short.
We'll make sure to leave plenty of time in that last session for any questions that you have, again about anything we present and discuss today or anything else you'd like to ask about the company. Just at a high level, and I'll talk about UGI Corporation overall and then you'll hear from the rest of the team in great detail about the specific businesses. UGI has been around since 18/82. At the core, we're an energy distribution and marketing company. We've got a really well balanced portfolio of businesses, a diversified base for the company, roughly half natural gas, half LPG.
You see the percentages on this slide in terms of the contribution to earnings in 2018. That diversification is really critical in terms of our financial performance, but it's just as critical in of providing us with a range of investment opportunities, both capital projects and acquisitions, that allows us to be selective and drive and acquisitions that allows us to be selective and drive profitable growth. So the diversification is important financially, but also in terms of providing a great platform for growth. Strategic alignment across our businesses is critical. There's a lot of common DNA across all four businesses, but particularly strong foundations across our natural gas businesses and our LPG businesses.
So we made an announcement a couple of months ago that put Bob and Roger in new positions Bob overseeing the natural gas businesses, Roger overseeing the LPG businesses to help make sure we're on an accelerated basis pushing common strategic initiatives, looking for opportunities to accelerate growth, looking for opportunities to use common tools and processes to drive efficiencies and in general driving adoption of best practices across the company. In terms of very simple mission and vision for UGI. Our mission is to be the preeminent energy distribution company in our targeted markets. Markets. That evolves over time.
Those of you that have been investors in UGI for some time know that we push the boundaries of our businesses and those targeted markets evolve and have evolved significantly over time. Our vision is to be a safe, reliable and affordable provider of those energy services. It's a very straightforward mission, but it's a critical mission and it's a mission that's valued by our customers. So as we perform, as we execute in terms of those critical elements of safety, operations, innovative products and services, we have an opportunity to clearly differentiate ourselves from others in terms of our ability to deliver on those commitments. As we think about our strategy broadly and you'll hear a lot of detail about our strategy over the course of the morning, there's some common principles that we adhere to as we think about new businesses and growing our businesses and that are sort of within that foundation for UGI strategies and our business strategies.
We look for opportunities to minimize commodity exposure as a distribution company. We push the boundaries of our core business. We like to grow. We like to do new things. But we like to grow and innovate in areas where we bring certain set of skills to those new opportunities.
There's multiple examples of that. For example, the expansion into LPG in Europe is a great example of that, as is our expansion in the midstream natural gas business in the Marcellus. We work hard to maintain strong balance sheets because a strong balance sheet in each of our business, strong balance sheet overall for the corporation positions us well to invest and grow regardless of market conditions. And that's been one of the hallmarks of UGI over time. We can grow through periods of market challenge and obviously grow when markets are more accessible.
We've worked hard over time to reduce our weather dependence and have done so. We're a much less weather sensitive company than we were, say, 10 years ago and certainly dramatically less weather sensitive than we were 2 decades ago. And finally, as we've moved into Europe and Europe has become quite a significant portion of our business, we've looked for straightforward but effective ways of hedging our currency exposure and dampening the impact of currency movement on our business performance. Got a very simple set of strategies. I'll talk to them.
1st of all, be a preferred supplier in all our markets. Easy to say, hard to do. We do that by building businesses of scale and being focused, patient but diligent in doing so. We think our position is the last link in the energy distribution chain to roughly 3,500,000 customers across all the segments of residential, small commercial, large commercial industrial is critically important. And there's a lot of value in fulfilling that commitment that you have at that last link in the chain.
And finally and most critically, as we serve those customers to make sure we operate safely, reliably and responsibly to ensure that we protect and build the value of UGI, AmeriGas and the other brands we operate under both in the U. S. And Europe. We look and work hard at capitalizing on synergies. I mentioned the common DNA across our businesses.
That's crucially important. We look when we've been successful in one part of the company, we look elsewhere to see where we can take those same tools and processes and capabilities and apply them elsewhere. We also look where we can push the boundaries of our business to establish and launch strategic new activities. The midstream business in natural gas is a great example of that, as is our position in Europe. And those businesses today that are significant contributors to UGI's overall financial performance.
If you go back 10 years ago, were quite a bit smaller. You go back 20 years ago and those businesses that didn't exist. So that's been a crucial element of the evolution of UGI strategy, the ability to develop, assess and develop significant new markets and doing it in such a way that mitigates risk. And lastly, most critically for investors, looking over the long term to grow our earnings through a combination of acquisitions, capital projects and organic growth. Organic growth is critically important.
It sets the foundation. That's low single digit organic growth. But if you deliver low single digit organic growth year in and year out, that's really important. It also underpins the cash flow generation of the company, which Ted will talk to later, but is crucial in terms of our ability to execute our strategies. We'd like to invest in adjacent geographies and related segments or sectors where we can bring knowledge and capability and augment that in many cases with new skills and capabilities or partner to bring those capabilities to the company.
But we like to enter and many of those European LPG, Midstream Natural Gas are great examples of where we leveraged a lot of capabilities that existed within the company to launch what has become a material new business. And we have to maintain our focus. We focus a lot on cash flow. We limit our commodity exposure and we focus to a significant degree on execution and that execution has got a short term, mid term and long term focus. We don't lose focus on our investment programs over time.
We continue to intensely review our performance, look at how we can improve and then, in many cases, double down and accelerate our investment. So, some critical takeaways. We've worked hard in the company to consistently meet or exceed our commitments to shareholders. Those of you that are familiar with the company know that we are very specific in terms of the commitments we make, 6% to 10% earnings growth, 4% dividend growth. We also are committed to outperform our peers in terms of how we do.
This is a great slide that we like to show, looking at various intervals and the total shareholder return of UGI relative to various peer metrics, the S and P 500, our utility peers, our mid cap peers. And you can see we are not cherry picking here. You can see as we pick out different intervals, UGI has performed and outperformed relative to those critical metrics. One of the interesting elements or critical elements of this slide is, as you go from left to right, if you go back and this is a 20 year view of the company. You go back to the early years, the 1st decade of this relative performance, the growth was underpinned almost exclusively by acquisitions.
If you go back to the early 2000s, we're essentially taking our available cash and investing in acquisitions. As we entered the 2007, 2008 period and present till today, we have a much more balanced portfolio of investments. So a lot more capital projects. So as you go to the towards the right hand side of that slide, you see a lot of major capital projects in there in addition to continued M and A work. So that's been really critical for us as we think about redeploying the cash that we generate as a company and looking across our businesses.
We now have a portfolio of investment opportunities continuing with M and A, but also with capital projects that gives us the ability to be continue to be very proactive selective in terms of how we deploy that available capital. And that's been a key in terms of our performance over the last decade and you can see how our performance relative to peers has accelerated in that period. Earnings performance has been extremely strong over these same periods that drove that TSR performance relative to our peers. We've worked hard to be a cash generating engine. We talk a lot about our cash engine.
That's critically important to us. Put a lot of time and attention on our balance sheet and cash flow generation. I've mentioned the discipline when it comes to capital deployment. That continues. We can we have the, I would say, the luxury of being disciplined given the range of investment opportunities we have, which is great.
It's great to be able to be selective when we're redeploying our capital. And as we look forward, as we look across our businesses, we see a clear path to growth. Just a couple of quick slides on elements of this. You can see here free cash flow growth. We have significant free cash flow available for reinvestment.
It will vary a little bit each year, but you can see it's substantial. On average, if you look back over a 5 year period, roughly 2 thirds of the available free cash has been reinvested in the natural gas businesses and roughly a third, just over a third in the LPG businesses. The LPG businesses are really cash positive businesses, So they play a critical role in ensuring that we have very healthy free cash flow generation and contribute significantly to that $2,700,000,000 over the last 5 years. I talked about meeting our commitments. This is a view over the same period in terms of how we've done in our EPS growth in the company.
I mentioned the commitment we make in 6% to 10%. We made that same commitment since the inception of this slide, since the late 1990s and there is some folks in the room who have owned UGI for this period who recognize that earnings target. And we've over performed over that time. You can see just over 12% earnings growth over that 20 year period relative to the 6% to 10% target. Similarly, with dividend growth, we take the commitment we make to grow our dividend seriously.
We guide or we provide an estimate of 4% dividend growth. We tell you to plan on 4%. We've actually delivered just over 6% dividend growth over that period. And you can see at various points here, such as in 20102014 where our payout ratio was dropping, we significantly exceeded that 4% target in terms of dividend growth to kind of correct that payout ratio. So these commitments are really important.
They're important in the current year. They're important in the long term as well. And we're pleased that we've been able to perform and deliver on those commitments consistently over now a 2 decade period.
As we look forward, we see
a clear path to growth. I mentioned the importance of diversity of opportunities. We have that. You can see some of the examples on this slide. Increasingly, we're using technology to support our businesses to enhance our ability to take cost out of a very logistically intensive set of businesses and also to enhance the customer experience as well as we do that.
And we work really hard to maintain strong balance sheets to support ongoing growth. On that note, I just wanted to take a few minutes this morning to specifically talk about the importance of a strong and stable AmeriGas and AmeriGas balance sheet. A lot of discussions in recent months on the MLP structure. There's a significant set of discussions going on within UGI and AmeriGas with respect to our desire to ensure that we've got a plan for strong and stable AmeriGas for the long term. We saw AmeriGas' key balance sheet and cash flow metrics strengthened in 2018 after 2 pretty challenging weather years in 2016 2017 and with assuming normal weather in 2019 should strengthen again.
A thorough review of the IDR structure is underway as one element of a long term balance sheet strengthening process. There's lots of potential solutions and there's a full spectrum of issues and opportunities that are being looked at and discussed. We'll focus intently on this over the next 120 days. That corresponds to the winter season. So it gives us a great opportunity to assess progress and also take further operational actions within the business to ensure we are on really strong footing.
The Standby Equity Commitment Agreement that was put in place last year remains in place and is in place until next July. So there's plenty of opportunity if it's needed to utilize that. And certainly, we'll keep our investors completely apprised of developments as this process continues. And if any decisions or actions come out of that process, we'll certainly be advising you of that.
Lastly, just
to step back and talk about the high level strategy that I took you through, how have we done in terms of being the preferred provider in all of our markets? We're in really strong position essentially in all the markets where we're active and we do that on the back of superior operational performance and customer service. If we look at capitalizing on our synergies and leveraging our strengths, again, we've got some great examples of doing that. We think our new structure will enhance and accelerate that as we look to quickly move best practices across the company. So we look forward to an acceleration of what has been a key to UGI's success.
And as I mentioned, we've got 2 business units that essentially came out of capitalizing on synergies and leveraging core strengths in our midstream business and our European propane businesses. And at the highest level, if you look at how we've done, obviously, I've shared with you some of the performance metrics. We've generated a significant amount of free cash over that 20 year period. We've successfully invested over $10,000,000,000 to build the company and delivered that compound annual growth of just over 12% on the back of selective disciplined, but proactive investment in the company. So with that, before I turn it over to Bob, I'll just open it up to see if there are any questions you'd like to ask before Bob takes you through utilities and we start the focus on the natural gas businesses?
No? Okay. Thank you.
Bob?
Good morning, everyone. As John said, I'm Bob Beard, and I will walk you through the utility segment of our presentation today, which I'm really happy to do as UGI Utilities continues to have a very good story to tell. I'll jump right into the slides. An overview of our business. We are the 2nd largest natural gas utility in Pennsylvania.
We serve over 700 state, which means that most of our distribution mains are constructed of either coated cathodically protected steel or plastic. And the final point that I'll make on this slide that you'll hear as a recurring theme during my presentation and certainly through Joe's as well is that our service territories lie within or adjacent to the Marcellus Shale, which is really important to us these days. So what have we been up to since the last time we met here in New York? Well, we've added 30,000 new customers. We've installed a significant pipeline to a new generating station in Northeastern Pennsylvania, a 1400 Megawatt plant, significant plant, significant project for us and well executed by our team.
We've successfully executed $675,000,000 of CapEx, and that includes the retirement of about 130 miles of aged infrastructure. On the regulatory front, we've completed a rate case at P and G. We've completed a rate case at our electric company and we've completed the merger of our 3 natural gas utilities into 1 company. So what we believe as a utility are our strategic advantages. And on one of John's slide, he indicated execution is really important to UGI.
And at the top of that pyramid for us is always safety. Safety and reliability is something we never lose focus on. So safety is important, and we are pleased to report that we continue to improve our safety performance over the last handful of years. And to continue along that path, we've partnered with DuPont Sustainable Solutions. We're working with them now actually to continue moving us forward.
Another theme for my presentation, and it's really important, is that in Pennsylvania, from a macro sense, we have a really constructive regulatory environment. We individually, as a company, have a constructive regulatory environment that we work really hard to be transparent and have open honest communications with the commission. Some of the items that make us realize that we have a constructive regulatory environment is that we use the fully projected future test year. We have DISC distribution system improvement charge. And as of late, legislature in Pennsylvania has enacted Act 58, which is an alternative rate making mechanism.
We continue to have record capital investment. We continue to retire aged infrastructure and build out our system to accommodate growth, which we see significantly going forward. Again, proximity to the Marcellus Shale means really two things for our customers: plentiful natural gas at reasonable low cost. And then when you're utility customer service is of utmost importance. So we remain in the top decile among our peers for customer service.
So 2018 has been a very busy year on the regulatory front. We received approval for the merger of our 3 natural gas companies, which was important for us moving forward. We began to collect disk revenue from the natural gas utility. So now both the gas utility and the electric utility are eligible for distribution system improvement charge revenue. And then we've completed the electric rate case, which was the first since 1996, which in and of itself is an event.
62,000 customers is what we have in our electric company. So the revenue requirement the revenue increase that we got was around $3,000,000 and we got an ROE of 9.85%. But the most important point on this slide is that we successfully litigated the use of the fully projected future test year. We believe that we our rate case was used as the test case to challenge the fully projected future test year. We feel very strongly that that's important as a mechanism to continue to help utility companies employ capital and we were successful in that argument.
So, we're happy about that. Key messages. If you leave here today, you'll fully understand at least one thing and that's proximity to the Marcellus Shale is really important for UGI Utilities and our energy services company. We have planned record capital. Our rate base growth continues at a very robust pace and I have a chart that shows that.
And that's one thing to have regulatory procedures such as DISC and rate cases to build your balance sheet, to continue to build rate base. That's important. But our job is to minimize the regulatory lag, so that the time between when we put a facility in service and the time that we earn on that is minimized. Unite is our IT project. It's a multi year project through which we will basically replace all of our IT systems.
Phase 1 finished last September and we went live with a new customer service system on time, within budget and I think it was a really successful implementation. Phase 2 is underway right now. That is our new ERP system. That project kicked off in April, and we expect successful conclusion next April. And then Phase 3, which we're starting to plan for now, will be the replacement of all of our operating systems, which will be very critical to us.
As we continue to grow as a company, expand our footprint, it's really important that we have good IT systems to support that. We continue to see good customer growth, which means peak day volume growth is at record levels. And again, we continue to focus on improving the customer experience. Once again, the Marcellus advantage, what does it mean for us? Over 90% of the natural gas that UGI Utilities sources comes from the Marcellus Shale.
That means that our customers this year paid on average 29%, almost 30% less than they would have paid if they used NYMEX strip. I've been in the energy business in Pennsylvania for almost 30 years. And I can say over the last handful of years, the first time in my career that I've seen economic prosperity to the extent that we're seeing it today as we see plants expand operations in Pennsylvania and we see some companies basically moving into Pennsylvania where they never would have thought of that before. And it really is because of the availability of cheap energy.
So what does
it mean to our customers? We took a data point looking 10 years back. Our customers this year will pay more than $600,000,000 less than they did 10 years ago, simply because we're sourcing gas locally from the Marcellus. And what does that mean? Because we'll talk a little bit about conversions.
That means customers who have converted to UGI Utilities from oil will save in excess of $1,000 this year. So the Marcellus is really an opportunity for us. The next two charts show graphically what I just said. I don't know if you can see the x axis, but it starts in 2,003. And the chart on the left shows total natural gas delivered to customers in Pennsylvania between 2,003 and 2017.
You'll note that the left side of that line is relatively flat. And then we see an inflection point and then we see yet another inflection point. That's a result of the Marcellus shale production coming on in Pennsylvania. So what we see is that between 2,006 2017, a 4.6% CAGR in the amount of natural gas delivered to customers in Pennsylvania. And Pennsylvania is a net exporter of population.
So it's really indicative of the value of the Marcellus and the fact that we can source this gas. The chart on the right shows natural gas delivered to Pennsylvania electric producers. It starts again in 2,003 at about 40 Bcf per year. And in 2016, we crested at about 500 Bcf. And then we saw a small tailing off in 20 17 primarily due to weather.
We, in the last 4 years, 5 years, have run significant pipeline projects, the both UGI companies to 5 significant electric generating projects in the state. So it's a really good opportunity again for us and for the electric generating companies. Compressed natural gas, the more we talk about the environment, the more important it is for us to really start to tuck the advantages of compressed natural gas. Compressed natural gas is about 90% cleaner than competing fuels. We completed our own, our first CNG station in 2018.
We'll build another in 2019. By the end of 2019, 12% of our fleet will be fueled by CNG. And then beyond that, we expect that percentage to increase exponentially because we think it's important if we're touting the value of CNG as a vehicle fuel for us to use it as a vehicle fuel. And then we also partner with municipalities and governmental agencies as well as NGU's customers Slide 31, capital investment driving rate base growth. The chart on the left shows the CapEx that we had in 2013 at about $150,000,000 In 2019, we expect to approach $400,000,000 total CapEx.
And throughout the plan years, which run through 2022, we expect to keep robust levels of about, on average, dollars 400,000,000 of CapEx a year. When you look at the components of those bars, the largest component, the darker blue is replacement and betterment. That is our focus on replacing aged infrastructure and making our systems safer and more reliable. The red component of that bar is growth capital. So you see we continue to have strong growth and we plan for significant growth capital throughout the plan years.
Other, in this case, happens to be buildings, tools, equipment and such. Electric, small, but important now because, as I mentioned, we are eligible for DISC and that is now an opportunity for us to grow. And then the orange tips of those last four bars represent our spend on our Unite project. So really a good story to tell when you understand what drives the value of a utility company building rate base. So shifting to the right side of the chart, we see rate base growth from 2013 to 2022.
Through 2017, we had a CAGR of about 7%, which in and of itself is a pretty strong CAGR for rate based growth. What we expect to see throughout the plan year starting in 2018 is a CAGR of 13%. And again, really important for us, again, I'll harken back to one of the first slides, execution is really important. You've got $400,000,000 of capital that you're deploying every year, that is probably 5000 or 6000 individual projects. And it's really important that we're focused on execution, safety and reliability.
So I think that's a great story to tell. But spending capital and building rate base only adds value if you can monetize that. And we do that through rate cases. Fully projected future test year, I talked about we use that. Distribution system improvement charge is really important for us.
And additional programs, we've got a very creative rates and regulatory group. We're always looking for opportunities to provide our customers with creative ways to use natural gas and save money in the process. So the technology and economic development rider, our EE and C plans and our growth extension tariff are really 3 really good examples of that. And when you're spending and you see the slope of that line, when you start at $150,000,000 and you end at $400,000,000 you can expect to go in for more frequent rate cases. Financing the plan.
So our credit ratings allow us to access debt without a problem. We're happy that earlier this year, we visited with Fitch and with Moody's and we told them essentially the same story that we tell everybody that we really think we have a positive environment in Pennsylvania. We think that the company is in good position to continue to grow. So Fitch reaffirmed us at an A- rating and a stable outlook. Moody's affirmed us at an A2 rating and a stable outlook, which is really important to us.
And it tells us that we did get our good story across. We have no plans to issue equity. And again, the constructive regulatory environment in Pennsylvania is really important to us. Okay. Switching gears to customer growth.
Slide 34 shows total customer additions over the last 20 years and it's really impressive. When you look at the fact that we've added nearly 260,000 customers, and this is organic growth, this does not include the 2 acquisitions that were made. We see really significant movement here. What I'd like to point out on this chart is in 2004, the darker blue component of the graph, which represents new housing construction, was the driver of customer additions. And then at the end of the 2000s, 2011, 2012, when we see or when we saw fewer housing starts in Pennsylvania, that's when we started to see a widening spread between the price of oil and the price of natural gas.
And that's when the light blue portion of the bar started to take over as the primary driver. So we look to a day, hopefully, that we see more robust housing starts and we see continued growth. But we're really happy with this chart. The other thing I'll point out is that upgrades, we always get the question, what is an upgrade? An upgrade is an existing customer who uses gas for something other than central heat.
So we love upgrades. It's 0 capital spend and we get the largest appliance. And then commercial, the tips, the green tips of those bars are commercial. Commercial customers yield somewhere between 4 and 7 times the revenue, the margin of residential customers. So we always focus very intently on commercial accounts.
Okay. When you add customers, you need to make sure that you've got the gas supply that they need. So the next chart shows our peak day growth starting in 2010 and going through 2028. The dark blue portion of the chart of the bars are our PGC customers.
Those are
the customers for which we secure we procure natural gas and we pass that cost directly back to them through a regulatory filing. The light blue portion of the bar are transportation customers. Those are larger typically larger customers who secure their gas themselves or through a third party and they have third party marketers arrange for the supply to get their gas onto our system. So, very impressive uptick. And the large uptick in transportation customer volume really over the last few years is driven by electric generation.
Okay. Again, purchase gas cost customers, going back to the chart, those are the dark blue customers. They purchase their gas directly from us, primarily residential and small commercial customers, distributed throughout our system, represents about 60% of our peak day, and they benefit as a utility, we are charged with finding the least cost, most reliable source of gas for our customers. And we do that and we do that successfully. And we do that in part by contracting for LNG peaking services on system.
We like that because the source of the natural gas is literally right on or very near our system. So it takes variability for deliverability out of the equation. Transportation customers, again, their commodity is purchased for them by a third party, distributed throughout our system, and that's about 40% of our peak day. Okay. So we believe strongly that we're positioned for continued growth.
Since 2,008, we have added 82,000 households and businesses who converted from another fuel to natural gas. Included in that are over 80 large commercial and industrial customers, some significant. And there's some really good stories that won't share now, but we can talk about maybe during the break room, where the availability of natural gas, low cost and significant volumes to businesses have made the difference. It's really in some cases has made the difference between a company staying in Pennsylvania and closing a plant and moving out of state. And we've been involved specifically in some of those projects.
And it's a really good feeling to know that you're helping those customers as well. Growth opportunities. We still have about 300,000 customers within close proximity to our existing Maine. We have 12,000 miles of Maine throughout the state, so we have an expansive system. And along those mains, we have about 300,000 customers or potential customers.
Our GET Gas program enables us to extend that 12,000 miles into areas that are unserved or underserved. So that's a great, great growth mechanism for us. In fiscal 2019, our growth capital budget is $64,000,000 So we continue to have significant capital allotted to growth. And if you look and contrast that with 2015 and before, we had about $40,000,000 a year. So part of our story is that we continue to see opportunities to grow the company.
And then new technologies, we really work hard to stay on top of new technologies, not only how they can benefit us as a utility, but certainly how they can benefit our customers, combined heat and power, natural gas vehicles. There's just distributed generation. There's a lot of new technologies and better technologies that have surfaced over the last handful of years. So in summary, strong and profitable growth due to customer additions and rate base growth. I think we're in an enviable position in that we do not rely solely on rate cases to increase net income through the plan years.
We do have a great opportunity to add additional customers. If you think back to the chart where we added 260,000 customers over the last 20 years, really a significant accomplishment. We're fortunate to have the service territory that we do. Operational excellence and safety, the name of the game when you're in the utility business, execution is extremely important and we will continue to focus on that. Again, if you leave here with one thought today, it will be that the Marcellus shale is really important to UGI Utilities and you'll learn that again from Joe.
So if there's a quiz in the breakout session, that's going to be the answer. And then the constructive regulatory environment that we have, We are fortunate to have a very good working relationship. We have people in Harrisburg who are very measured and fair, and we prize our relationship with those folks. It's constructive. And we have a strong balance sheet.
So with that, I'll open it up for any questions. Yes, why don't I get her microphone?
Where are you with the replacement pipeline? How much is completed?
Okay. So of 12,000 miles total Maine, we have about 200 miles remaining that is cast iron and about 1,000 miles that is bare steel. So we have about 87%, 88% of our Maine is contemporary. Other questions?
Okay.
Thank you very much.
Hi, I'm Joe Hartz. I'm the President of UGI Energy Services. I'll be talking to you about our midstream marketing and generation business. You can see from the map on the screen of where we operate. We run from South Carolina up to New England and from Ohio to New Jersey.
This is really driven by our customers. Our commodity marketing business is the roots of the company, and that has driven a lot of our midstream strategy. The pipelines, storage, LNG investments that are in our midstream group were all initially part of service to our retail customers. Our electric generation business is small by generating company standards. You heard Bob mention a 1045 Megawatt Power Plant that they connected this summer.
Our overall generation is 300 1,000 megawatts. So it's very small as generation goes, but it is all in Pennsylvania, and it's all things that we can supply and manage properly. The significance of the Marcellus Shale is very important. It's really been a driver of a lot of our midstream strategy. So we'll talk about that as we move through the slides and our investment opportunities.
When we were last together in 2016, we've invested quite a bit of money since that time. Sunbury Pipeline was an investment that moved gas to a power plant owned by Hummel Panda in the Shamokin Dam area of Pennsylvania. We've invested in liquefaction at our Manning station in Susquehanna County and also in peak shaving in Steelton near Harrisburg. We acquired 2 gathering companies, Texas Creek and Ponderosa. They're located in the North Central part of Pennsylvania.
We've announced a further expansion of our Auburn system. Part of that was completed this fall. The second and bigger part will be built out over the next year and online for November 1, 2019. We've announced another LNG plant that we're going to be building in the Bethlehem, Pennsylvania area, about the same size as what we completed in Steelton. We'll be looking at portable LNG expansion.
I'll talk about that a little bit later. We did receive our PennEast certificate from FERC in January of this year. There was a bit of a delay with some of the quorum issues at FERC, and I will spend some time on that also in a later slide. And we acquired a small gas turbine on the same site as our Hunlock plant this summer from LS Power. For those of you that have held the stock for a while, you may remember that this was part of a partnership that UGI had with Allegheny Power at one point in time.
That partnership disbanded 10 years ago or so. They kept this turbine. We kept the coal plant, which we then converted to natural gas. When they decided that this wasn't strategic for them, we bought this back to them. Our strategic advantages.
We have a strong and stable commodity marketing business. We've been at this for over 30 years. In this world, that's almost like the dinosaurs, back to the beginning of the first round of deregulation. We have an experienced sales team. They manage our customer relationships, and we are not a speculative trader.
We're not trying to make money off trading contracts. We want to make money off serving customers. Our unique asset portfolio has many things that we use throughout our businesses. So it includes natural gas storage. It includes various forms of liquefied natural gas and pipeline capacity.
We own and manage over 800,000 dekatherms a day of pipeline capacity, about half owned and half managed. That's a significant amount of gas that we can move using those assets to various parts of the service area you saw in the first slide. Long time in this business, a lot of experience moving gas into those areas. And a continuing theme for UGI is execution. It's very important to us when we build the projects that we're developing that we build them correctly, we execute them on time and on budget.
When we build these projects, it's with the intent that we're going to be operating them for the next 50 years. So they're not built cheaply and they're not built in a way that would threaten reliability in the long term. We spend a long time making sure that they're built right. And being positioned where we are, we're fortunate with geography to have had a lot of opportunities that come out of the development of the Pennsylvania resource and natural gas. This is an evolution of money that's been invested over the last 10 years.
If you look at 2010, we boldly committed to $300,000,000 of capital projects and somehow over that decade actually spent like 1,200,000,000 dollars It was quite a step forward there. But that was the initial thought of trying to develop the resource that's out there. And we weren't quite sure at that time how far it would go and how quickly, but it has done both. If you look at the 11/12 area, you see a picture of our Temple LNG facility, the storage tank there, which expanded our capacity four times. The next picture shows our Auburn compressor station, which was the first part of our expansion in Auburn, which allowed us to take gas that's being produced in that general area and get it to a pipeline interconnection.
So it was able to monetize for producers the ability to get to a market. As part of the development of Auburn, we also have a lateral that was built. We call it Uniondale. It's in the Uniondale, Pennsylvania area and allows a producer access into a pipeline market. We expanded liquefaction, the ability to take gas, make it liquid for LNG at our Temple facility.
And as we move forward, some of these other projects came into play. We concluded a contract with Hummel Panda to build the Sunbury pipeline. We announced our Manning and Steelton LNG facilities. There's several years of permitting and construction to actually get them built out. When they're first announced, it takes a couple of years till you actually get them operational.
And then this most recent year, we announced the purchase of the Texas Creek and Ponderosa Gathering Systems, Our second LNG peak shaving plant at Bethlehem was announced and our PERC certificate for pennies, the partnership in January of this year. If you look over this period, our margin has grown from 167,000,000 dollars to over $330,000,000 a significant amount of investment that has driven that and a 9% compound annual growth rate. Our key messages, which I'll get into individually, LNG and peaking is a big part of our company. We have a lot of expertise in that, and we will continue to make investments in those businesses. The pipeline build out of Marcellus is a great opportunity for this company to invest in a Pennsylvania resource.
You see 3 projects listed there, our Auburn expansion, our Texas Creek gathering assets and our PennEast project. We've also expanded our commodity marketing business in North and South Carolina and up into New England. And yesterday, there was an announcement that we purchased the energy marketing company that was owned by South Jersey Energy, which I'll talk a little bit about later. So there's a broad range of investment opportunities for us, both in pipelines, LNG development and in our commodity marketing business. And certainly, as part of this, there's been an effort to grow fee based income to take some of the swings of our earnings out to have a more stable cash flow.
This is a list of all of our peaking and pipeline and storage assets with the map of where you can see some of the locations. This is all in Pennsylvania, so all in Central and Eastern Pennsylvania. The Temple LNG facility and all of the other facilities listed, Manning, Steelton, Bethlehem Projected, Portable LNG, they fit into a portfolio of services that we can offer to our customers. And they allow us a lot of flexibility on a daily basis in how we serve them. The pipeline capacity expansion that you see is significant for us.
This is where a lot of the capital has gone over the last 10 years. So we've built out our 4th Auburn expansion now. So it's been quite a good place for us, 1, with the significant amount of natural gas assets that are being developed in that part of the country and then 2, with the ability to move that gas into markets that can burn it. The gas gathering that you see in the bottom there, both Texas Creek and Ponderosa, are natural expansions of that business. And we were able to get some synergies out of our employees by having them cover that area a lot more efficiently.
And at the very top part of the map, you'll see our natural gas storage, about 15,000,000 dekatherms, and that is deliverable through both the Tennessee pipeline and the Dominion pipeline, which gives us access to Eastern Pennsylvania and into New York State. The 2 LNG projects that we've referenced here, the first one is the Bethlehem LNG plant. On Friday of last week, we actually received our final Pennsylvania DEP permit to construct this asset and a lot of the civil work started this week. This will be a year and a half or so construction project to build this. It will be a 2,000,000 gallon tank and vaporization system.
We expect to have this online for the winter of 2020. It will be about 70,000 dekatherms a day of vaporization capacity. And the picture that you see there is actually a picture of our Steelton project, but the tank at Bethlehem will be exactly the same size as the one that's shown. I'd like to spend a minute on the right hand side of this slide and talk a little bit about portable LNG. Portable LNG has a very similar operating style as we have with our larger projects.
So it's a vaporizer that feeds a pipeline that delivers gas into a distribution system or to a customer. It's just a very small operation. The vaporizer is skid mounted. So, it's on a trailer. We can move it into a facility quickly and set it up there.
The LNG supply is then fed by 2 storage units, and the storage units hold about 1.5 trucks of LNG. And we would take a trailer of LNG, we would unload it into the storage and from there, run it through the vaporizer. You could think of the vaporizer as being almost like a heater in your car, runs a water bath of ethylene glycol, which basically heats up the LNG and turns it from a cold liquid into a vapor. It will then go through a regulator station, where it will get odorized and measured and then a connection back into a pipeline, again, either to a customer directly or into a utility system. What this provides us is the ability to deploy these on a very quick basis to provide either spot peak shaving for pressure issues that our customers may run into or also during maintenance outages where someone wants to maintain natural gas, but work has to be done on the pipelines.
A relatively small investment per system, but it does give us the ability to deploy them in unique and critical areas. It's a picture of our Auburn expansion. And you can see the different colors on the map. The green line there was the 1st Auburn Pipeline and then the red line was the expansion that took us down to a connection with the Transco Williams pipeline that runs across Northeastern Pennsylvania. And since then, we've done 2 other expansions to those pipes, either with pipeline looping and compression.
We have the capability of moving 470,000 dekatherms a day to both Tennessee and to Transco. There is a very large end user on this pipe, it's Procter and Gamble. They also benefit from having the ability to take gas off this pipeline. A lot of the acreage they own is also being developed for supply that we move on behalf of their producer. The expansion that we announced in the spring of this year we'll add 150,000 dekatherms a day of capacity to this pipeline.
It will be about a $50,000,000 project. And as I mentioned, part of that came on in November 1 this year, but the bulk of it will be in November 1, 2019. This will also provide a significant upgrade to this system and allow further natural gas to be delivered to markets. At the bottom, you'll see a circle that says PennEast in it. When that pipeline is built and connected, it will feed into and connect to the bottom of our Auburn system at what is called by Transco Williams as the top of the diamond in Pennsylvania.
Their system looks like a diamond as it comes across Eastern PA. It's a very prolific source of natural gas. So there'll be a lot of production that can find its way into the PennEast line. Texas Creek was our first expansion into what we would call true gathering, where there are lines connected to wellheads. It's about 60 miles of gathering that hits Tioga, Bradford and Lycoming County.
We picked up the compressor stations that come with it and some of the pipeline that was built out. This is a great opportunity for us to continue and invest with our partners in this area as they drill and develop their natural gas acreage to add pipelines and compressions to help them get their gas to market. There are 2 connections that provide a market access. It's north to Tennessee and south through a Regency pipeline that connects into the Transco Williams line. So it does give the producers optionality of what market they want to go to through the 2 different pipes.
There are several very large producers that are adjacent to our acreage here. So there are opportunities hopefully in the future to expand these lines. If you look also to the north, you'll see an acreage block called Mainsburg. It's a partnership that we have currently with Repsol that we're looking to develop production in those areas. And a little bit off the map, but not too far to the left is our storage fields, where we can store the 15,000,000 dekatherms of underground storage.
So for us, this was a good fit geographically, not only business wise, to enhance our assets in an area where we currently operate. The PennEast Pipeline is a partnership with 4 other companies, where we are looking to take natural gas again from this very prolific area and move it into markets in Southeastern Pennsylvania and New Jersey. 120 miles, 36 inches line, over $1,000,000,000 to construct. We are the project manager. We received our FERC Certificate of Public Necessity and Convenience in January of 2018.
We were delayed, we think, about 6 months in that process due to the lack of quorum at FERC. We had thought we'd get that in 2017 due to their issues of having commissioners sworn in under the Trump administration. It kind of moved that back. And those delays also prohibited us from reaching final survey access, so it's kind of pushed the schedule forward a little bit. We did get some good news yesterday.
The federal judge in Pennsylvania ruled that we could have final survey access for our 2 parcels remaining that needed to be surveyed in PA. So we will be getting out to survey those properties over the next few weeks and that will give us 100% survey access for all of the pipeline route in Pennsylvania, which will allow us to file our final Pennsylvania Department of Environmental Protection permits. We are still awaiting the judge in New Jersey to rule on the 100 plus parcels there that we need to get survey access on. So another milestone for us in trying to move this forward to construction. Our commodity marketing business.
As I mentioned, we often think of this as the roots of the company. This is where we started in 1995, and it really drives a lot of what we do in our investment going forward. We're serving over 36,000 locations throughout the operating area that you saw on our chart that runs from the Carolinas to New England. Some have asked why we would be serving customers in the Carolinas. But if you think about pipeline capacity, originally, a lot of the pipes started in the Gulf Coast area.
So Texas, Louisiana, Mississippi, Alabama, and they were built to move gas to the Northeast. We still hold pipeline capacity that sources gas in those areas. What the Marcellus has enabled us to do is actually source gas in the South, move it into the Carolinas and then refill that gas before we move it into our Northeast markets. So it's been a great opportunity to use pipeline capacity that we have to reach an area that we weren't previously serving. And if you're familiar with a lot of the pipeline projects that are being built, they're taking gas from the Marcellus area and now trying to move it south.
Atlantic Sunrise was the latest one that came on this fall, a Williams project that's moving gas back down into that North South Carolina area. So there's a lot of gas that's finding its way into those markets. New England has been a great opportunity. They are very infrastructure challenged there. So, they're not able to build things, and therefore, their natural gas expansion for customers has been limited.
You saw on some of the charts that Bob had a lot of the growth that we've seen through our Pennsylvania utilities. If you look at the New Jersey companies as well, they've seen significant growth. You go up into New England, you're not seeing that because they don't have the capacity to expand. So in looking at an area that we would like to be, we think that there are opportunities for us to grow our business through investments in LNG and adding those customers that need gaps in those areas. We do focus on long term customer contracts.
We do not churn customers. Our retention rate is over 90%. When we initiate a relationship with a customer, we want to keep it. I think that provides an ability for us to have a stable cash flow because we're really not churning those customers. We don't speculative trade.
We hedge everything that we can. When customers commit to a fixed price contract, we commit to a supply behind it. For us, this is a very disciplined and low risk business. As I mentioned earlier, you may have seen yesterday, there was an announcement in 6,000 locations, in 6,000 locations, over 12 utilities and it's a complete overlay of where we already operate. Most of the customers are on the South Jersey system and then also throughout Pennsylvania, UGI, PECO and out into National Fuel in the northwestern part of the state.
So it was a great opportunity for us to get a good business with good margin and again to have it completely overlay where we are. A picture of our capital investment, cumulative from 2,009, so about a 10 year look. You can see that our generation business, which is in the light blue, reflects the conversion of our Hunlock coal plant to natural gas that was done 20 10, 2011, 2012 in that range and has been online since then. It's located in a great place south of Wilkes Barre, Pennsylvania, which has really good access to a lot of this Marcellus natural gas. Other than that, most of the investment that we've done has been in our midstream business, which is LNG and pipelines, and that investment has been significant.
Looking at the same period on a margin basis, you can see some of the challenges that we've had with weather through the years. Our polar vortex year, where it was really cold and our 2016 year where it was really warm and some in between. And yet, you see some of the investment that we've made and the effect that that's had on our business as we successfully converted to fee based income, which gives us a much more stable margin position as we move forward. The other part you'll notice in here on the yellow part of the bar is our generation. And through that time, it has been very steady.
We talk about fee based income and we move from a commodity business only to a very midstream driven company with other assets. You can see that we're taking 2013, our fee based earnings of 39% and moving that to what's anticipated in 2022 with the completion of PennEast of about 56% fee based income. The other thing that you'll notice in information that we provided, our overall margin from 2013 to 2018 on actual results, I believe it's one of the charts in the back of your handout, shows that the income during that period of time has also substantially grown. So it's not just that there's a change in fee based income, but the pie has gotten bigger. We think about strategies.
It's important for us to think about these three parts of it. Again, our commodity marketing business, because of customer commitments that they look at, can really drive a lot of the investment we make. So midstream part of our business would build and operate pipelines or LNG processing plants, peaking plants and a lot of that supports our commodity marketing business. The supply group that we've built and developed adds credibility to our midstream business by providing opportunities for producers, where we can buy their gas, we can do hedging for them. So it's a nice fit in helping out the midstream side.
They also provide all the supply for our retail business. So they manage on a day to day basis the pipeline capacity, the peaking assets, the underground storage that supports our commodity marketing business. So we think this fits very well in a strategy of having these three pieces work together and has really driven the growth in earnings that we've seen over this period of time. So thinking about a conclusion, we have really built a diverse and complementary portfolio of assets. It gives us flexibility in varying market conditions.
One thing we don't know is where this business is going as we look forward. If you think of the problems that New England is having, will infrastructure be allowed to be built out? Will New York let anything go through their state? We don't know that. But what we do know is that we have a very good LNG business, and we can build and deploy LNG assets that can solve some of the peak problems for those businesses.
So if there's an opportunity to build out pipelines and infrastructure, we'll certainly participate in that. If that opportunity isn't robust or isn't there at all, we think there are other opportunities with our pipeline capacity and our peaking assets to be able to serve those markets. We're looking to expand our Midstream business. We talked about a few of those opportunities, another Auburn expansion, completion of PennEast and then our gathering assets with Texas Creek and Ponderosa. Our fee based margin continues to grow, and that's important to us as we stabilize the cash flow that's associated with our business.
LNG is a core competency, and I would say that very strongly. Our engineering and operating staff has been working with LNG since the 70s, some of them. So it's a very strong knowledge base that we use to run those
assets. It will have
a lot of investment opportunities. 2 of them are in front of us, Bethlehem and our portable LNG opportunities. And then lastly, our expansion of our commodity marketing. New England and the Carolinas, We've seen good growth in both of those areas. And then most recently, with the acquisition of South Jersey's energy marketing business.
So with that, I will conclude and ask if there are any questions that anyone has.
Okay.
The next part of our presentation today will be our breakout sessions. They're going to be located on the 2nd floor. The easiest and fastest way is to take the stairs. So if you head to the back of the room and you go to the right and out that door, there's a stairway there. We will have personnel there to guide you up to the 2nd floor into the rooms.
If you'd like to take the elevators, they are out the back exit, straight through the back of the room and then to the right. On your information that you were given today, it should tell you which session you will be attending first. So if you would please proceed to the first session, We're hoping to get started at 9:55, and there will be coffee and snacks available on the 2nd floor for refreshments before you attend those sessions.
Thank you.
What
Okay. If I can ask everybody to take the seat. Welcome back. All right. So I hope you enjoyed the breakout sessions.
First of all, I'm Roger Perron. I'm the Executive Vice President of Global LPG. And for the next hour, Hugh and I will spend some time talking about the 2 businesses. I'll start the first 30 minutes with UGI International and share some insights on how that business is going and some of the strategic levers we're working on going forward. And then Hugh will take over and finish the LPG session with the next 30 minutes after that.
So, just a quick overview of UGI International. First of all, we are a company that now operates in 17 countries, spanning from France all the way through to the East of Romania and Poland, as far north into the Scandinavian countries, and then as far south as Northern Italy. We have substantial assets in circulation today with over 18,000,000 cylinders that are circulating and over 500,000 bulk customers. With these assets and this customer base, we've been able to supply over 1,000,000,000 gallons of product in 2018. We also have a unique attribute at UGI International is that we have an energy marketing business and we heard Joe talk a lot about energy marketing here in the U.
S. This is a business that we also carried over into Europe some several years ago and we continue to expand. So today, in 2018, we finished with about 5% of our margin coming from an energy marketing business and 28,000,000,000 cubic feet of natural gas that was marketed. Back a couple of years ago, I sat here and spoke about the strategy that we have at UGI International and we talked about some specific items and I would like to give you some updates on some of those. First of all, we were talking a lot about the acquisition of Total.
So, we had acquired this big business in France. We essentially doubled the size of our business in France. And at the time, we were just starting with that integration process. Now, we're very pleased to announce that the integration is complete. We have now did all of the one off costs that we needed to integrate that business successfully and we were able to do so without any work stoppages and with a seamless transition for our customers.
We also were able to achieve the synergies of around €50,000,000 much more rapidly than we had anticipated when we bought the business. So, really a great success story for us. Back in 2016, I also talked about the fact that UGI International grew via acquisition and we were going to continue to do so and we're pleased with our last couple of years, where we did buy a business in Italy, which is our first time we entered Northern Italy with a LPG distribution business that really serves a bulk type customer profile. And we also acquired a company in Sweden that gave us access to bio LPG and now we can add that to the product line that we serve, especially in the Scandinavian countries. We also, at the time, talked about energy marketing and we talked a lot about wanting to acquire energy marketing businesses in Europe to continue to bolt on what we had successfully started in France and Belgium.
And in the UK, in particular, we found the multiples to be quite high. Not only were the multiples high, but the target markets that the companies were looking at were not really segmenting the area that we appreciate or that we like to build on. So, we decided to do a scratch start and we're pleased to announce that that scratch start is going very much as planned. But in our quest to look for acquisitions, we also came across a company in the Netherlands called DVEP and we announced that acquisition just over a year ago, where we bought an energy marketing company that did 2 things. First of all, they market natural gas in the Netherlands and they marketed 2 small medium enterprises, which is really our target market.
But in addition to that, they came with a very interesting electricity market and market electricity and renewables in particular. And I'll talk a little bit more about that in some future slides. And then we also talked about the discipline of operating our business well and managing margins and continuing to look for efficiencies. So to that end, we have now reached a size that we found it necessary to look at how we are aligned to continue to drive the strategies forward and to continue to push for operational efficiencies. And we appointed a Chief Operating Officer, which many of you have met today.
Mr. Paul Ladner was appointed to that role at International. And we've realigned the company now into 4 key regions and with the mindset that we can now start centralizing critical functions, such as supply, which has now been centralized and we talked a lot during the breakout session on how we want to connect supply between the U. S. And Europe.
We've centralized industrial management, so looking for those best practices to drive safety and operational effectiveness. We continue with a very central view on business development and we are in the process of looking at other back office functions like finance and others where we can really harmonize, apply best practices, but continue with the customer facing activities as being very local. When we think of UGI International, we're operating across 17 countries, many languages, many cultures, and we do find that that customer interface has to be a very local field. In the last year, we also were successful at refinancing the UGI International business, both the long term debt, short term revolver and we were, for the first time, issued a high yield bond, €350,000,000 at €3,250,000,000 So, very good success story for us, which now positions us to continue to build on the strategy that we have been employing and that we're going to continue to deploy over the coming years. A few weeks ago, somebody asked me, said, what makes UGI International different?
What's special about UGI International? And I'd like to answer it in the following way. I think there are 4 key elements. The first one is that we are market leaders in many of the markets we operate in. And if we're not the market leader, we're certainly a very solid second.
That enables us to drive the business model. And we talk about how we want to be a back to back business model, what kind of offers we can bring customers. So being a market leader, we can define those types of relationships. We also now have size across Europe, which enables us to seek more efficiencies and find and improve our operating capabilities across all 17 countries. We are global.
We are global in the sense that we have a leading market position here in the U. S. With AmeriGas. We UGI LPG is a critical business for UGI and as such, we invest in LPG. So, we are able to invest in technologies.
We're able to invest in continuing to share best practices. In addition to that, we have supply assets that are very well positioned across Europe to help us cope with the changing landscape of supply. So, as we briefly talked about in the breakout session, we talked about how more and more product is finding its way into Europe from the U. S. And other seaborne avenues, while we have a supply infrastructure that enables us to cope with that change and monetize that change.
And of course, the 4th key element is we also do energy marketing. So we are able to serve a key segment of our market in those countries where we do energy marketing, which is in France, Netherlands, the UK and Belgium and we are able to offer those customers some unique solutions. We can offer them natural gas. We can offer them their electricity needs and of course we can offer them their LPG needs if they're not on the grid. We've had quite a story.
When you just go back 10 years ago, in 2,008, we were at that point in 8 countries. We only did LPG distribution. We were selling at the time 365,000,000 gallons for 473,000,000 of margin. And you can see on the map which countries we were covering during that time. A short 5 years later, we were in 15 countries distributing LPG in all of those countries, but also added natural gas marketing to the portfolio of product that we serve.
At that point, we reached 692,000,000 gallons and 681,000,000 of margin. And then a short 5 years later to today, we're now in 17 countries. We distribute LPG and we market natural gas, but we also market electricity. We've now reached over 1,000,000,000 gallons of LPG distribution and over 1,000,000,000 in margin for an 8.4% compounded annual growth rate. So that leads us to today and a few key messages I'd like to share with you.
First of all, we are now the largest contributor to the UGI earnings per share. We are the largest contributor to their earnings per share overall at 31%. We now have size and that sets us apart in the sense that we can now really look for the additional layers of synergies. When we think of these 17 countries and we think of the multiple businesses we have, we are now perfectly positioned to go and find another layer of synergies and efficiencies going forward. We have very strong skill sets at doing acquisitions and integrating acquisitions.
And I think that's been demonstrated over time and that's a skill set that we continue to build upon. We have a very strong execution mindset. We focus on LPG. We focus on the energy marketing and we do it where it makes sense for us and we continue to grow through acquisitions and execute on acquisitions. We are a company that generates a lot of cash.
We generate a couple of $100,000,000 of cash. We're not capital intensive, but when we do invest capital, we do it with a lot of discipline. We are also a company that doesn't deviate from the business model. And we have a business model that is really focused on being back to back, where we do not like to take any commodity exposure. So, we don't deviate from it and we have built over time some real interesting capabilities visavisour customers, so that we can supply them their needs, but at the same time manage that commodity volatility that is the reality of LPG.
And I think we are now positioned for another wave of tremendous opportunities for growth. We have a very solid footing now in Europe. There are some countries we do not have a solid footing in. We do not have presence, for example, in Germany. We do not have we have a small position in Italy.
So, we're now perfectly positioned to continue to grow and leverage the skills that we have across the company. We're a company that grew through acquisitions. So starting back in 1999 where we entered Austria and Czech Republic and Slovakia, small business at the time at 44,000,000 gallons. We have now reached 20 times that volume at 886,000,000 gallons and contributed $0.87 per share to the UGI Group. We have a very clear vision for the future and it's one for us that we just want to stay extremely focused on and that is focus on core LPG, continue to build capabilities to improve the way we distribute that product and improve the customer experience.
Number 2 is we will continue to develop energy marketing, both natural gas and electricity. And at the same time, we're going to continue to explore LNG. LNG will find its way into Europe. It's already finding its way into Europe, but we want to be positioned where at the right time we'll be able to be the distributor of choice for LNG across the European countries we operate in. And then, we're going to continue to expand through acquisitions within the countries we're in and also evaluate LPG in emerging countries and other geographies that are neighboring to those that we operate in today.
So, when we think of focusing on LPG, what are we really talking about? Well, we are talking about the 2 key products and I just want to shed a little bit of color on these two elements. First of all, we want to continue to grow in the cylinder business. There are some important distinctions when you think of the cylinder business in Europe. One of them is that cylinders are used in everyday cooking.
So this is a product that is a utility that families need every day. So for us, it's critical that we continue to improve our relationship with those retailers. But when a family goes to a grocery store and they're buying their groceries from a retailer, we want to be in the position that when they exit that store, they're picking up our LPG bottle. And the reality is, across Europe, when a family selects a specific product, if they like the red bottle and they like the way it feels, it's easy to lift, it's easy to manipulate, it's convenient, they will stick to it. They won't easily change products as they know that cylinder is going to fit where they need to put it.
They know the connection is going to work. So, they become extremely loyal to that product. So, the other area that we want to continue to invest in, we've already made substantial investments, is increasing the number of points of sale and increasing the convenience for getting those cylinders, which means increasing the number of vending machines that we have deployed currently in France, in Denmark and some Eastern European countries. We will continue with that strategy to improve that point of sale. When we think of the bulk business, we have a very special relationship with our customers.
We own the bulk tank. We maintain the bulk tank. We have the obligation to ensure that there is always product in that bulk tank to serve that customer need. So with that, customer experience and superior service is critical. And to achieve that, we continue to look at ways to invest.
So invest in telemetry, invest in scheduling programs to improve efficiencies and just invest in that interaction with the customer, digitize that experience for the customer when they are doing their acquisition of LPG to heat their homes and heat their water. And the third point is focus on efficiencies. We are a business that has some structural decline because of energy conservation. So it's imperative for us to continue to invest in efficiencies and find a way to offset that structural decline by just being better at delivering every gallon to either a bulk tank or every cylinder that we supply. We absolutely now are positioned in the energy marketing space.
And for us, as these markets continue to become more deregulated, easier to deal with, we have the opportunity to continue to either build scratch start businesses like we did in the UK or acquire companies in the energy marketing space. But for us, we are extremely focused on the small, medium enterprise. And the reason for that is that's a segment where we know we can add value. Those customers are looking for some special needs. They may either want to lock in some pricing for a year, which we can do by hedging that volume.
They have low profiles that they would like us to match. They may need some renewable energies, which we now have when we think of our Netherlands DVEB business that now has a renewable portfolio. So we are really able to add value to that smallmediumenterprise. And of course, we can always supply them LPG if they are not on the grid. And with the DVEP acquisition and that electricity marketing piece, we now have the ability to leverage that know how.
We bought a lot of skill sets, a lot of very bright people that we can now leverage and bring into the neighboring countries as we continue to grow our energy marketing business. And then, 3rd, remain extremely focused on acquisitions. This has been our growth engine. We grew via acquisitions. We have a real inherent know how on how to select the right targets, pay the right price, identify the right synergies and then integrate them and we'll get those synergies so that they're quickly accretive to UGI.
And when we think of the acquisitions, we're looking at acquisitions within our current countries. So, many of the countries, we still have a lot of runway ahead of us where we continue to do acquisitions, but we also have neighboring countries where we don't have a presence today. So that's clearly a strategic focus for us. All of this has led to an impressive earnings growth. If you look from 2013 to now, we have now reached $223,000,000 of operating income for an 8.7% CAGR.
So, how did we do this? A couple of key elements that I'd like to achieve and one
of them
is discipline around the business model. And this is a slide that shows a few things. This shows at a big picture level how we contract with customers. So we have 3 types of customer relations contractually. We have one of them which is a fixed price.
We have customers that absolutely want a fixed price. They want to lock in their bill every year. When we sign up those kinds of contracts, which represent about 9% of our volume today, we hedge it and we absolutely lock in the margin. We have another type of customer that really wants a formula base. They want transparency.
They understand that LPG is a commodity and there's an index that will either go up and down. And in that instance, we have contractual arrangements where that index flows through to the end price. So again, we lock in that margin, because we just obviously modify the price as the commodity changes. And then we have a 3rd category of customers that we call stated price. That's essentially a posted price.
So, as the commodity price commodity cost changes, we're able to change the price and therefore maintain that margin for that category of customers, which today represents 34% of our volumes. When you apply this business model, it leads to a margin management story that is a very attractive one. You can see here, this goes back to 2,008. This is in particular, it's in France. And you can see the lines at the bottom, the bluish gray lines is one of the indexes.
So that's the Platts cost. You can see from 2,008 through to 2011, there was quite a volatility in the commodity. Back from 2011 to 2014, it was relatively high and then it dropped in 2015 and now it's raising again in 2018. The white line is the unit margin. So you can see that with the philosophy of this back to back business model and tremendous discipline to maintain it, we are able to control that margin over time and with the volatility of commodity.
We also serve a very large customer base. Today, we have about 62% of our volume is served via bulk. And again, these are customers where we have that special relationship. We own the tank. We maintain the tank and essentially have the obligation to serve those customers extremely well where they don't have to worry about their energy needs.
They know there is product in the tank at all times. And then we have 17% of our volume that is that cylinder segment that I talked about, which is in Europe used every day. And when we looked at the customer base, 38% of the volume is a commercial and industrial type application and 24% is residential, with a small part, 8%, which is agriculture, which is really a business that takes place essentially in the fall. It's once per year to dry crops, etcetera, during that short season. We have assets that are very well positioned to help us cope with the change in landscape that we have today with LPG supply to Europe.
You can see here across France, you see some black diamonds. These are 8 import terminals that enable us to receive product IC. You see all the yellow dots, these are depots where we can transfer product to and then hub and spoke it to our customers in an efficient manner. And then there are some import terminals that are railcars. So, we are able today to receive product from former Soviet Union countries.
We are able to receive product of course from local refineries in the central part of Europe and we're able to receive product from either Northern Africa or from the U. S. And what we're finding is over time, the amount of product coming in from the U. S. Has been increasing tremendously over the last 5 years.
And overall, imports into Europe have increased to now 43%. So we have the obligation to continue to adapt to this changing landscape and we are really, really well positioned to do so and to monetize and to continue to invest in assets that help us deal with this change. We have an energy marketing business and a strategy to remain really focused. The first piece is, they focused on the small, medium enterprise. You can see on this chart on the right hand side that only approximately 1% of the volume is sold to residentials, because we don't add value to the residential segment.
It's really a price taker. However, when we look at the smallmedium enterprises, there we can add value. We can really help them select the right profile for their energy needs. We, in addition to that, serve government institutions. So, we really like the small medium enterprise and government institutions.
And when we look at the balance overall today, it's primarily a natural gas business at 68%, but with 32% being electricity. And with the acquisition of DVEP, we were we essentially acquired a business that was already playing in the renewable space. We found that to be very attractive. In many European countries, there is a premium on renewables. So, customers are willing to pay for product that is generated either by wind turbines or by solar.
And we're pleased to say that today, around 40% of the volume of electricity that we are marketing is from either wind turbines, which is about 400 megawatts or solar, which is 70 megawatts. In addition to that, we positioned ourselves to be able to help our small, medium enterprise customers install solar panels. So we do have a business where we actually are able to do the engineering and help them with the installation of solar and then we're able to bring that into our portfolio as we continue the marketing campaign of selling electricity. So to summarize, I would like to bring it back to what really differentiates us as a business in Europe. First of all, we stay extremely focused on the 3 growth vectors.
We stay focused on the core LPG business, finding efficiencies, improving the customer experience. We stay focused on energy marketing in those segments that are attractive to us and attractive for our customers and we stay focused on acquisitions. We also focus on finding that next layer of efficiencies. We recognize that there is some structural decline in the LPG business and it's on us to continue to find ways to operate more efficiently to drive some cost out of the business as we continue to serve that customer portfolio. We also have tremendous scale.
So, we have more opportunities to find these efficiencies and we have tremendous operating discipline. We do not deviate from the business plan. We are a business that generates a lot of cash and we are really disciplined on how we invest that cash, either for growth maintenance or for normal maintenance to maintain our facilities. And we remain really disciplined with acquisitions. We say no to many more acquisitions than we say yes to.
We find the right fit. We find the right multiple. We find the right leadership team. We find the right customer base and ensure that we identify all of the risks and make sure we know how to mitigate those risks and most importantly, the synergies that we are then able to bring in to continue to grow the UGI International business. So with that, I'd like to turn it over to some questions if you have any.
Yes?
You briefly touched upon connecting U. S. LPG supply to Europe. I was just hoping maybe you could expand the mechanics behind that, how exactly it would work? Would you be effectively displacing LPG that you're currently procuring locally in Europe?
Yes. So today, we buy product and you can look at it
from both sides. You can look
at it in the US and of course in Europe as well. We buy products from traders and other retailers of LPG. In the US, the AmeriGas business has moved a little bit more up into the value chain. So, really, with some strategic investments, have been able to position themselves to get access to molecules at a different place in that value chain. In Europe, we remain very much with a mentality that today we acquire from retailers and traders.
So, when we think about this going forward, we know there is an opportunity either through strategic investments in other terminals or connecting with the US and contracting differently with potential producers and potentially buying product for index minus something. So that's really the mindset. So we are really thinking about how do we move into that value chain, always keeping the back to back model that we have or business model that we have in mind, but obviously wanting to go grab more of that value in value chain, if we are able to find those right investments and obviously different contractual arrangements.
And then just with regards to IMO 2020, do you expect any impact on consumption volumes of LPG just given the expected movements in the relative commodity prices between fuel oil and LPG?
Yeah, it's a good
question. And for us, it's an opportunity. One thing that always surprises me is the amount of families today in Europe that still burn oil. And even in the Scandinavian countries, we still see a high level of oil being consumed for energy. So, we believe that there is continued opportunity here to continue to convert those customers to us.
With respect to pricing, I can't comment on how these are going to connect or disconnect, but I can certainly say that we see it as an opportunity as more and more regulation goes in place for climate change. And we see LPG as a perfect bridge, either the LPG as a bridge towards those new ambitions and of course natural gas and electricity as the bridge towards those new ambitions. Other questions? Okay. Thank you.
So I'll turn it over to Hugh.
Good morning, everyone. I'm Hugh Gallagher, our President and CEO at AmeriGas. Just a quick overview of our company. Most of you are very familiar with this. AmeriGas is the largest retail propane distributor in the U.
S, over 1,000,000,000 gallons sold annually to 1,700,000 customers across the entire chain. We do cylinder exchange. We do national accounts, bulk distribution and wholesale. We're both very geographically diverse, which we're in a very highly competitive, highly weather sensitive business. Some of the ways you try to offset that is by is through diversity.
So not only do we have geographic diversification, we also have a pretty good balance of end use diversification. And as Roger was up here presenting, it dawned on me, you will see very similar themes here. And these are not coincidences. This is the way UGI runs its businesses. So lots of customers across very different segments of the business.
So when you look at our overview, we're pretty well balanced. About a third of our business is residential. The rest of it is primarily commercial and agriculture applications. And when you think of, just as Roger has in Europe, structural decline in the business, that's inherent in the U. S.
Propane industry. It's probably about 2% a year. Where you see the highest declines would be in the residential segment. So our strong footprint in commercial segments helps differentiate us from many of the mom and pops that we compete with. So update since last Investor Day, a couple of things that are top of mind here.
We had another warm winter, and our balance sheet suffered from that. We're we've recovered, and we'll talk a little bit about that, but we're not where we want to be. However, we continue to run the business tightly deploying technology to take costs out of our business and also to more recently to start to differentiate ourselves from the pack. We completed the refinancing of our balance sheet, which we started in fiscal 2016 since our last Investor Day. We also put the supplement the CICA in place with UGI last year and we refinanced our revolver.
Some of the strategic advantages of the company. We always talk about our scale and our geographic and end use diversity. That's always core of the company. Margin management, we have a long track record of strong tight margin management in various operating and weather climates. Couple of things more recently that we focused on is employing technology in an effort to continue to drive out cost, but at the same time, give our customers give customers capabilities that we otherwise don't have and that many of our competitors don't have, and we'll touch on that.
And another important aspect underpinning our business is our supply and distribution network. We bring a lot of assets to bear and we're very flexible. In any winter, you're going to have issues somewhere with supply disruptions. And our supply chain is deep and it's pretty nimble and we're able to bring that to bear and that's something that we can do that the vast majority of our competitors cannot. I mentioned earlier, our financial metrics are recovering after the 2 really warm years, but they are not where we want it to be, getting better and expect it to strengthen a little bit more this coming year.
But as John said, we're actively working on long term permanent solutions to the balance sheet. And I wanted to point out here that we have a long track record of taking care of the balance sheet. We always do. We've always run the business fairly conservatively. And I think what's important is if you look on this slide, what's not on this slide is the important thing that I wanted to point out to you.
If we had standing here 3 years ago, you would have seen a $1,200,000,000 tower in the next 2 years, '19 2020, to be refinanced and then another $1,200,000,000 in 'twenty one and 'twenty two. But because we're always looking forward in trying to take care of the balance sheet, we refinanced the entire balance sheet in fiscal 2016 and fiscal 2017, pushing out the maturities, lowering our debt costs. So just another concrete example of how we're always mindful of the balance sheet and what risks the business that are inherent in our business that we're willing to take and those risks that we're not so willing to take and we try to mitigate. Our key messages over at AmeriGas haven't really changed that much. I think our focus most recently has been on deploying technology to drive cost out of the business.
When you're in a structurally declining business with a lot of competitors, you have got to be efficient, you've got to drive cost out and you've got to drive innovation. That's our focus more recently is And that's a common And that's a common theme across all the UGI businesses. It's a common theme that you've heard here today. Operational excellence, driving out structural cost, I'll talk about that in a few minutes. And where can we play where we can win?
Where can we differentiate ourselves from the vast majority of our competitors? Areas like national accounts, areas like ACE, even technology deployment. If you're a 1 or 2 location competitor, you get the benefit of any technology you implement over 1 or 2 locations. We get it 100 of times over. And we have a long and successful track record of integrating acquisitions.
And part of the reason for that is, again, that discipline where we will look for deals that make sense to us. We will look for deals that fit our long term strategy. And as Roger alluded to, we pass up on many, many, many more transactions than we will ever do. Unlike Europe, the U. S.
Industry is very highly, highly fragmented. So unlikely to see AmeriGas do an oil company deal. That's already been played out. But these smaller transactions, although they may not be transformative to AmeriGas as a whole, can be transformative to our location, any location, any geographic area in which we operate. And the risk profile of these transactions, they're very predictable.
It's a very low risk opportunity that we have traditionally taken great advantage of and we will continue to do so. I mentioned earlier our supply and logistics network. This is something that's a core competency at AmeriGas and it really sets us apart. As Roger showed you in Europe, we have a lot of assets in a lot of places and we can move them around. This comes into this really sets us apart in 2 specific areas.
1 is during the winter, even though it's most mild of winters, there is always a supply issue somewhere and we can flex our supply chain. We can move trucks into the area. We can actually move, trans flow units, which are basically portable rail terminals into an area if we need to. We also deploy what we call AmeriGas Airborne, both with our long haul trucking fleet and specifically with our Bobtail drivers. If it's warm in the West and it's really cold in the East and the economics make sense, we will send drivers East.
That's in the winter. The other area where this comes into play is we are in 50 states. We're a key part of many of the communities in which we operate. And when you have a hurricane or a tornado or wildfires, and we've had all of them in the past few months, getting back up getting the community back up on its feet is key and getting our customers back up on their feet is key. And that's another area where we have excelled in recovery after these catastrophic events in different areas.
I talked a little bit about technology. How do we drive efficiencies in our business? We have focused relentlessly the last few years, and it was the highlight of our Analyst Day 2 years ago, on technology to reduce our distribution cost, and that's working. I mean, our distribution metrics are clearly better. We are using that we rolled out our Ameri Mobile platform first to our bulk driving fleet, then to our cylinder fleet.
And this year, we're in the process of lot of flexibility, a lot the ability to change on the fly and move assets and be as nimble as you can possibly be. And it also enables you to take out significant costs, which we've done, while actually making the customer experience a little bit more reliable and better for the customer. One of the areas we're pivoting to more as this continues to mature is where are the areas that we can invest in technology to also provide additional customer capabilities, and I'll touch on that at the end of the presentation. This is an example of how deploying the technology has enabled us to take cost out. Fiscal 2015 and fiscal 2018 were both normal years weather wise.
If you look at wage inflation and vehicle here is primarily vehicle lease costs, There's some repair and maintenance and there's some fuel costs involved there, but it's primarily vehicle lease costs. Our expenses would have jumped from about $950,000,000 to about $1,020,000,000 Having deployed Ameri Mobile and more efficiencies throughout the business, which is core to what we have to do, we've been able to take significant cost out of the business, both from an R and M standpoint and from a personnel standpoint. Other expenses, our insurance costs have gone down. Our liability claims have gone down. And as a result of that, net net, we've been able to take $30,000,000 of cost out in those 3 years.
Pivoting a little bit to the areas where we can separate ourselves from the 3,000 competitors, and again, highly competitive business. And even when I talk about national accounts and ACE and acquisitions, these are all highly competitive businesses. There's plenty of retailers in all of these businesses. These are areas where we can really use our scale to set ourselves apart from the field. National accounts, we've delivered over 50,000 locations.
We're everywhere. Volume has gone up 20% in the last few years. And what we give a REIT to any one of our national accounts customers is a team that takes care of their needs. This is back office that knows them, that knows how to deal with them, that knows how they like to be built, that has a relationship with these customers installations where we can do a complete turnkey operation for someone. And if you have multiple installations, that's a great way of having peace of mind.
And our footprint, we can serve just about anywhere in the U. S. And we leverage our scale. And this is National Accounts has been one of the big winners of our added scale from the Heritage acquisition in 2012. On the commercial side, which again was one of the segments that is not in decline, you have auto gas.
Propane auto gas is becoming more popular, particularly with school bus fleets,
displacing diesel. And this is
an area that's expected to actually grow at about a 4% CAGR over the next 10 years. Again, given our footprint, given our presence, unmatched sales force, significant presence in national accounts, significant footprint across the country. We are really well positioned to take advantage of this, whether it be as just added commercial business in any specific area. Cylinder Exchange, we talked about this a little bit at the breakout sessions. It is a product of convenience.
We continue this business is maturing a little bit for us, but we continue to push the boundaries of what this business can be, even in its mature state. And I think in John's early slide, so we started the cylinder exchange business in the mid to late 90s. So we've been at it quite a long time. And this is a business where it's for us as a propane distributor, it's our most capital intensive business. So you need to be big and you need to be efficient.
We've added 5,000 locations in the last few years. Our volume has grown 12%. We're continuing to look at how outdoor living, patio heat, how these things we can take advantage of them in our cylinder exchange business. And we're also deploying technology here. This is the vending machine, the next gen vending machine we talked about.
We've had vending for a long time. This is our newest vending machine that's operational in 400 locations, I believe, across the country. I think we're currently in 5 or 6 states right now. We're also in fiscal 2019, we are developing a home delivery certain markets. This will not be something that will be that we'll likely do in all markets, but we know there are markets where this has demand.
We did a small acquisition of a business at the end of last year that does this very thing. We're incorporating that into our ACE platform and rolling it out in 4 or 5 locations, 4 or 5 locales this year. So that's a developing market. It's small, but it's another example of how we look at our business and kind of push the boundaries and see how where this thing may go. And there's I'm sure there's plenty of people who would love to have a cylinder delivered as opposed to having to lug a cylinder off to a retailer.
And again, this is again a business where you have to be big. It's capital intensive and you have to do things well and coordinated. That's why we have 35 cylinder processing locations all across the country. Again, this is a sort of a well oiled machine to make these cylinders turn up when they need to be. And this is another area where I mentioned earlier about our airborne.
This is another area where AmeriGas can bring assets to bear when there's a problem, because one of the things that's really in demand when there's some kind of an emergency situation, whether it be a hurricane or a tornado, is portable gas that can be used quickly and in these emergency situations. And we can bring all of these things to bear when those situations arise. Acquisitions are one of the keys to our business. In one of our breakout sessions, Paul said we've done dozens of acquisitions, and I said 100. And the 100 was actually only since the 1980s.
So again, unlike Europe, these are very this is we're in a fragmented industry. This is a these are small businesses for the most part that would be rolled up. There are a few larger regional players, but on average, you'll see an acquisition candidate that will sell 2,000,000 gallons a year, okay? So to give you an idea of the fragmentation, AmeriGas will sell 2,000,000 gallons on July 15 in the middle of summer. So this is quite a bit of a difference between the U.
S. Market and Europe. However, it's important to point out that a 2,000,000 gallon acquisition to 1 of our 2,000,000 gallon stores is transformational for that location from an efficiency, from a density of route standpoint. So this is a low risk to the investor, but a high return overall to the company that you can just replicate over and over again. We've done 7 acquisitions in the last 2 years.
I'd say going forward, you should continue to look at us. We'll always be in the mix for acquisitions. What we will focus on, however, is those acquisitions that more closely fit AmeriGas and where we want to be, where we think we can play, where we think we can win, where we have priority locations that are high value and a lot of high value customers. And again, our corporate development we have a dedicated corporate development team that's well known within the industry. And it's another one of those areas, Roger mentioned it, where core competency of just about all of the UGI groups in business development, whether it be acquisitions or whether it be investments, it's a solid standard process that we follow that's very fundamental.
The weighted average cost of capital hurdles may be different business to business than they are, but the basic processes are very familiar to all of us. Moving on to sort of the new deployment way we're deploying technology, and this is our exceptional customer experience. So when you're in a highly competitive propane industry, you need to always focus on deploying technology to take cost out, but also to differentiate yourself. Where can you set yourself apart from the playing field? Where can you win or give yourself a more of a competitive advantage to win in certain segments?
And where can you create markets that give you a competitive advantage. Along those lines, we're really looking at where can the technology benefit the customer. And these are things like a new website, online capabilities to sign up as a new customer easily, text messaging, so that we can we call it keeping promises and making good promises. Automated orders, we what we have found is as we've rolled out these capabilities, customers find them without us even telling them they're there. It's just the nature of the business we're in.
It's the nature of the consumer today. They want quick. They want easy. And they want to know they don't necessarily want to have a deep relationship with their propane supplier. They just want to know their needs are being taken care of.
And our goal is to enable customers to interact with us however they want to. If they want to call us on the phone, we can answer the phone. But many people don't want to do that. We need to give them other avenues and we need to give them we talked in the breakout session about how our AmeriGuard program provides peace of mind. These are other ways you can provide peace of mind.
Just telling a customer, hey, we're on our way, hey, we delivered, those kind of interactions, we found a great deal of value in.
So I went from
sort of a new thing to this is an oldie but a goodie, right? This is one that we've done year over year over year, and it's tight margin management. We've gotten much better at our pricing mechanisms. We talked about the pricing algorithms we now use. That's all well and good.
But at the end of the day, this is staying rolling up your sleeves every day and getting to work. And what's important about this, this shows you high cost and low cost environments, but you could superimpose on here cold winter, warm winter. You could superimpose on here economic downturn, including 2,000 yes, you can see it from 2,008 to 2,009, that was the financial meltdown of 2,000 from 2,008 to 2,009, steady as you go, because it's something that's just ingrained into us. It's something we do every day. It's something everyone knows is top of mind every day.
And as you are working and investing to make the business better over the long term, you cannot take your eye off the ball in the short term. This is a highly competitive market, thousands of competitors vying for a very small portion of the total U. S. Energy consumption. Our financial performance over the long term has been strong.
Even if you updated this for the last month, it wouldn't be much different than this. Not quite the record of UGI, but compared to the Elerian, which we compare ourselves to, strong in all periods. And just summarizing, I think the key thing for you to take away from this is that the AmeriGas balance sheet remains a priority for us. What should give you comfort is your those of you who know UGI and AmeriGas well, you know that we take care of the balance sheet. You know that we're mindful of this, and we're very thoughtful on how we handle things.
And that long term balance sheet process is underway. And comforting to everyone is that in the short term, we have demonstrated we've refinanced the balance sheet, we've refinanced the revolver, we put the SEAC in place, we will take care of the balance sheet. But that doesn't excuse us from constantly focusing on how do we drive value from our operations, how do we get operational excellence, ACE, national accounts, acquisitions. But the it continues to be ace national accounts acquisitions. But the technology thread is there and it's real, because that's something that we can deploy over such a large scale that it really has the ability to put AmeriGas in a position where we're providing customers with capabilities, just basic capabilities that the vast majority of our competitors could never do.
So that's where we are, and I think that is it for my part of the presentation. Before I I think we'll be in the homestretch pretty soon with Ted and John. This is the last one of the business unit financial reviews. But before I go, are there any questions on AmeriGas?
Yes. Quick question.
Regarding the transportation infrastructure, are those Americas drivers? Or are they outsourced or They're both actually. So when you look at the network, we have a hauling our supply and logistics group is known as PTI, Propane Transport International. We have dedicated AmeriGas employees delivering and dedicated AmeriGas assets. We also use 3rd party haulers as well because you have this is the classic peak shaving exercise, right?
This is not steady demand across the year. So what you have to do is use a combination of both. We do a significant amount of business with those 3rd party haulers though that we manage that pretty tightly. And have you been seeing cost inflation there or is that The competition for drivers continues, but the underlying fundamentals of driving structural cost out of the business apply everywhere. No one gets a holiday from that.
So we continue to look at that. How do we optimize how do you balance majority of supply with cost? Because you can't build the cost structure such that you guarantee 100% on every day of the year or you're going to have a massively inefficient fleet. That's where having assets across the country really benefit you because you can flex them and move them however
you need to. Okay.
And is that a similar structure for UGI International in terms of the driver between stores and I have to let Roger speak to that one.
Yes. The international front, it's similar, but a much larger percentage of the drivers are outsourced. So we do have some insource drivers. But when you think of international, it's an outsourced activity and that's something that we contract with these contractors to help us deal with peaks and valleys and however, we are responsible for the routing of those trucks. So where we go and get the efficiencies is through tools and digital investments to help us make sure that we build efficiencies on how those outsourced drivers are making their deliveries every day.
And that's one of the big differences too, because what Roger was referring to there is including the local drivers. Our local drivers are all AmeriGas employees. But in Europe, the market's a little bit different and it's outsourced there.
Yes, Lorena?
Ramirozka, UBS. I have a question on IDRs. You mentioned before that we should expect a decision in 120 days. How are you thinking about the coverage after the transaction or the metric that you're looking at?
Yes. I don't want to get into the details of any transaction. But I think long term, when you look at AmeriGas, we've always said our long term goal is distribution coverage of 1, 2 around that area and leverage in the range of 4. Now we're clearly not there, but our plan is that's where we want to work to over the long term. Any other?
Quick question. In terms of heating degree days since fiscal year end September 3, I mean, how does it have been tracking versus your expectations? I think heating degree days in October November have probably been colder than the 15 year norm. What I always worry about when talking about that is there is a big ramp up in December January. So I would say, so far so good.
And I don't know the exact numbers yet for November, but October was colder than the 15 year norm. November will likely be colder than the 15 year norm. But there's key point is there's almost as many degree days in December as there are in October, November combined. So we're just heading into the season. But I will say this, way better than the other way, right?
When you're coming into December like last year, we came into December, it had been relatively warm right up until that 3rd week of December, and then it got really, really cold. Sustained kind of normal cold is just better for everyone. It's better for it eliminates a lot of the noise in the system and eliminates those regional or local supply disruptions. And then so just a follow-up question as far as the CICA is concerned, I know it expires I think July 2019. Right.
Is there a expectation that if this winter works out okay that would be sort of an evergreen type solution? Or would there be The way I'm looking at the way I look at it, we're our boards are in discussion on the balance sheet right now. I look at the Sika as a really nice thing to have for the short term while that work is underway. So I'm not really worrying too much about what happens on the long term. I think we'll come up with a solid solution.
There's one more in the back. As you think about the coverage ratio and improving that, is one element to improve that under consideration by the Board a distribution cut? I'm not going to comment on any. I think what we've said today is we're going to come up with a permanent long term solution to the balance sheet, and we will consider a wide range of options. But I don't want to make any comment on any one of those specifics because that work is underway.
Thank you. One more.
Hi. I was wondering if you could comment on consolidation in the industry. Are you focused mostly on the small scale bolt on acquisitions? Or would you ever consider one of your sort of like larger regional competitors?
We would do any transaction that made sense. But the thing to underscore with us is we're not going to acquire for the sense of acquiring. We're going to be disciplined. It's going to have to make sense. If prices get crazy and someone's willing to pay an extremely high multiple, that's probably not something we'd be interested in doing.
But I will say, we will look at any transaction. When I talk about the small deals, it's just because they are the most common. They're the ones that are sort of that pipeline that always turns over. But we would look at any transaction of any size that we thought would be beneficial to our investors long term. They're just much less likely to happen, and they tend to have a well, they certainly do have a completely different risk profile.
However, there is a space in the middle and that's larger kind of regional competitors or large or even larger local competitors. There's plenty of those out there too in that mix of 3,000. So we'd be interested in any one of those. Okay. Thank you.
I'll turn it over to Ted for the financial review.
Good morning. Can you hear me okay? Very good. My name is Ted Yastrzebski. I joined UGI about 6 months ago as the Chief Financial Officer.
And I'm very pleased to be here with you today to talk about our financial model and the outlook that we're looking at over the next couple of years. I'm going to start with where I'd like you to walk away from this presentation and walk away from this day. We believe we are a great investment. We use an approach that is both balanced and growth. We feel extremely good about the position we're in today to deliver on what has been a pretty amazing history of growth, both in EPS and in cash flow.
You've heard
many of
the ideas as we've gone through the business unit presentations. We're looking at utilities, record deployment of capital, continued customer growth. In the energy services business, we continue to have huge opportunities to build out our footprint in the Marcellus. In AmeriGas, we're leaning into those segments that are the growth segments. So, the ACE Facilitar Exchange, the national accounts, we have technology opportunities that continue to build efficiency and improve customer service.
We have opportunities in the fragmented business to continue to do bolt on acquisitions. And in international, we have continued opportunity to build out our footprint in Europe. And as Roger shared with you today, we are growing pretty rapidly in our ability to market energy in Europe. Our capital expenditures will be leaning a little bit more into the natural gas areas. That's where we have particularly strong opportunities for investments.
We've recently done a number of different financings that have built up our balance sheet. We're looking at about $1,600,000,000 in liquidity that's available to us to invest in strategic opportunities that we are aware of and are planning today as well as those that might come up that we don't necessarily have right in our radar and right in our scope as of today. And finally, what I'd love you to take away is that we're very proud of the track record that we have created as stewards of capital. We have an extremely rigorous process for how we evaluate our investment opportunities and have consistently over time seen those opportunities deliver at or above our expectations for those investments. And that's what's allowing us to continue to make new, bigger, faster investments on infrastructure, on regulatory capital, on M and A.
And importantly, those opportunities are really coming at us in a pretty balanced way across all of the business units. So that's what I would love for you to take away from today's discussions. I'm going to start with sharing a chart that you saw a version of earlier. This is our earnings per share over a 20 year period of time. I think most of you are aware, we provide guidance that we expect earnings per share long term growth to be in that 6% to 10% range.
And we've showed those two lines, the 6% and the 10% growth lines as perspective. Over these last 20 years, we have consistently and fairly dramatically over delivered against that. We have a 12.1% CAGR in our EPS growth over these 20 years. And think about that, that's over a 20 year period where we have seen huge volatility in commodity prices and regulatory environments and economic downturns and all sorts of weather. And in spite of that volatility, we've been consistently over delivering against this guidance of 6 percent to 10% over this period.
What underlies this kind of consistent strong growth in our earnings is really keeps coming back to our cash flow generation. You heard John refer to our cash flow engine. I'm going to take a couple of cuts at sharing with you some of some different views on cash flow. And I will say that if you've seen some of our presentations in the past, this is going to look a little bit different. I wanted to treat AmeriGas in operational cash generation as a consolidated business.
And in the past, sometimes we share what's dispersed from AmeriGas into UGI as our available cash. I really thought it was more relevant to be showing all of the cash generation that's coming out of these four businesses, regardless then of how that money has been chosen to be dispersed, whether in dividends, whether in reinvestment. And I think this better illustrates this engine that we talked about for cash creation. So, this is 20 years of free cash flow generation. This would be cash flow after capital expenditures across all four businesses consolidated.
And as you could see, just the nature of cash flow and the way we account for it, a lot more volatility than what we saw in the EPS. And yet it's consistently growing, strongly growing upward trend, CAGR of almost 11% over these 20 years, okay? And you're also seeing dividends grow along with it. We talk about a 4% dividend growth rate. We've actually been delivering higher than that over this 20 year period.
Dividends from UGI Corp. Have been closer to 6%. We provide guidance that we like for that payout ratio for dividends to be in that 35% to 45%. If you saw our earnings announcements and did some math with the close of our 2018 fiscal year, you'd see that we're at the lower end of that 35% to 45% range. Historically, that is signaled that we would be taking a step up in dividends.
That's certainly something that we will be reviewing on our normal cadence. So, in April, after the heating season, that's when we sit down and review our dividend approach. And it's at that time that we'll decide what our dividends are going to look like going forward. So, it will be in April that we talk about dividends. Here's our attempt at modeling for you this cash engine that we work with.
And I'll say that the numbers you see on this chart, the actual dollar amounts that are on this chart, we took an average an annual amount that's an average of our projections over the next 3 years looking outward for what we're capturing here. So, we have organic growth as a business generating 3% to 4%. We have the return that we get on our project investments, our initiatives, our M and A generating 3% to 6% growth. Together, those 2 generators of cash bring us to the 6% to 10% EPS range that we set as guidance for long term growth. That creates a total amount of cash flow from operations of $1,100,000,000 to $1,400,000,000 It's pretty evenly split across the propane business and the natural gas business.
It's supplemented by financing to the tune of about $150,000,000 to 200,000,000 dollars And the way we use that cash is in 2 ways, dollars 450,000,000 to $500,000,000 is expected to be used as disbursements, AmeriGas Public Units. It's used as dividends from UGI Corp and it's used to do share repurchases that we do to basically manage our number of shares outstanding in the market to be fairly flat. Then about $800,000,000 to $1,100,000,000 is used to reinvest in the business, either in capital expenditures or in M and A, and that cycles back through the return on those investments. And as I can show you over this last 20 years, this has been a cycle that's worked extremely well for our business. And as we look at the opportunities moving forward over the next 3 years, we don't see any slowdown in this pace or in how this model is going to continue to work for us.
Another view of cash flow, this is over the last 10 year period. The top blue line that you see on this chart is our cash flow from operations, again, over all of the business units. And that's been growing at a CAGR over these last 10 years at a 9% rate. If you look at the investments we make in CapEx, both in LPG, the CapEx we spend in natural gas, and in this case, we're seeing that increase by 4 times over the course of this period as we've built out our capabilities in the Marcellus. And we cover our distribution to the public unitholders for AmeriGas, we're left with what we're calling our UGI free cash flow.
And that's a significant amount. It's what we have available to cover our dividends for UGI Corp. It's what we have available to do M and A work. And that's before any kind of supplement that we would get from the financing that we have readily available to us. So, I'm just hoping that this conveys to you the kind of cash we generate and the capability we have in cash in our business and you couple that with what you've been hearing from the business unit reviews, the opportunities that we see only increasing, we feel pretty good about the opportunities for the business.
One last view on cash flow that I wanted to share is some sense of how we compare to other companies in our space. And I have to say, we struggled in creating this chart. It was almost any period that we chose to use. It was almost like a sandbagging on this chart because we were so outstripping the conversion rate of anybody else who works in our space. We ended up using a 10 year look at what our conversion from EBITDA is into our free cash flow, this UGI free cash flow.
And even over a 10 year period, we're dramatically better than the next best company in our peer group set at 18% conversion with the next company being at 11%. This 10 year chart at least shows a little bit of balance. Really, any other period we looked at it under 10 years, it just becomes so lopsided in our favor in any kind of comparison with other companies that work in this space. I wanted to confirm with you today that the guidance that we provided when we announced our earnings for 2018 continues to be sound, Assuming normal weather in this next year and we still have a lot of winter ahead of us, we feel very comfortable about delivering in that $275,000,000 to $295,000,000 range. Again, this reflects record capital deployment in the utility business.
It reflects really bringing online some of these new assets we have in the Marcellus for gathering that come online and start to produce for us dramatically in this next year. It includes continued growth in international, creating that footprint throughout Europe, increasing fairly rapidly in the marketing that we're doing in Europe for energy. And then the investments that Hugh described in cylinder exchange and national accounts and technology in the business. If we look at our EPS projections through 2022, we're looking at fairly balanced growth across both the LPG business and the natural gas business. In fact, this would suggest that the growth for natural gas is a little bit less than it is for LPG.
I will say that from an operational growth standpoint, the LPG is actually a little bit lower than natural gas. These numbers reflect some help from 2 non operating sources. So, one is the French are taking their tax rates down. That's the location of our single biggest business in Europe. So, we are disproportionately benefiting from the tax reductions that we're going to see in France over the next several years as well as our forward curves on currency are projecting strengthening over the next 3 years in the European currencies.
And so those 2 together are lifting the LPG growth rates by several percentage points. Otherwise, we're really looking at a pretty balanced picture across our 2 business sectors. In spite of our increased spending in capital, we're continuing to see ROIs ROICs increase. We're expecting $770,000,000 in capital spending next year. That's a record.
That's over $100,000,000 more than we had spent in the previous year. And with that spending, ROIC is only projected to move upward. Just one other thing I'd point out on this chart, and it just, again, kind of underscores the resiliency of this business model. And in spite of the 2 years that were coming out of before 2018, where we were pretty challenged by warm weather for those 2 years, you really see the ROIC just barely take a dip and we see the spread with our WACC just come together of just a really small bit and it recovers immediately as we start to move into a more normalized weather and pattern. I just wanted to point that out to you.
We're expecting to take yet another significant step up in capital spending as we look at the opportunities we're going to be leaning into in 2020, spending at a rate of $900,000,000 from the $700,000,000 that I just showed you. Spending, again, consistent with the discussions we've been going through today and the Energy Services business continue just opportunities that continue to present themselves to build out that infrastructure on this hugely opportunistic situation we have sitting on the Marcellus Shale and Utilities. Betterment spending is taking a lot of that capital. And as was shared earlier by Bob, we are building out our ERP capability to be able to do better decision support across every part of our business. In international, we'll be improving our logistics for cylinder management, vending machines we talked about and expanding in our bulk customer base business where the margins are stronger for us.
In AmeriGas, Hugh talked about the areas we're leaning into where the growth is highest in cylinder exchange, national accounts, technology opportunities that improve our efficiency in the business and create for a much better customer experience. And then at the corporate level, we're managing the platform that will facilitate the growth we're seeing across the business. So a lot of time spent on how to have the right infrastructure and platform from an IT standpoint, how to manage security, how to look at certain shared services across the business and allow that to be a facilitator for the growth that we see in the various businesses. I mentioned that we're disproportionately investing in the opportunities that are presenting themselves as we expand our footprint in the Marcellus shale. Not only are we seeing the pie get significantly bigger if we look at the forward looking 5 years versus the last 5 years.
We're moving from $2,600,000,000 in cap spending to $3,700,000,000 in spending. But we're also disproportionately seeing the portion of that pie that moves against the natural gas infrastructure going from 64% to 70%. We also and we talked about this as we've created the new construct with Executive Vice Presidents over the two businesses, the natural gas and the LPG. We're also looking at a variety of different opportunities to really start to lean into where can we have shared services, again, that facilitates the business, picking one best practice, one best approach, one point of control for the business, where you're leaning into creating one really good way of supporting the business. And these are just some of the areas we're doing that this we are instituting a single HR information system across the company.
We're looking at how to design the platform, IT infrastructure, security management centrally across the business. We have a number of shared services that we continue to beef up, IR, treasury, how we do reporting for the total company across the business units and we've touched on some of these, supply management, the ERP infrastructure we're putting in on both sides of the business, our ability to really beef up customer service through the digital interface we have with customers, this is best practice technology that's expensive. We can do it at scale. We could share it across the businesses, same with logistics and service efficiency. Another area that we're looking at working across the whole business to really tell a better story externally is in the environment, social and governance space.
And this next fiscal year, we'll be making our first publication for ESG. These are just a couple of areas that you can see up here that we'll be focused on, our ability to do conversions, reduce greenhouse gases, better recovery, better efficiency, moving into renewables, the work we're doing in solar and the marketing that we're doing in Europe and renewable areas. We're also and this is especially true of the natural gas side of the business, Our footprint is very localized around the Marcellus Shale. And so, we are a local company on the natural gas side of the business. And so, we lean into making a commitment to supporting the communities in which we work.
This is just one example of that as we've redid our long term financing for the utilities business. We made sure that we worked with our partner who is leading this financing PNC to make sure that they were bringing in local banks to take part in this loan structure that we were creating. Again, just one example of how we give back in the community and there's many more. We hope to capture those and share them in our publication later this year. I'm going to shift over to the balance sheet.
I mentioned in the opening that we have through a series of refinancing, we have $1,600,000,000 in in liquidity available to us to invest against what we see as forthcoming great opportunities for investment as well as what we might get surprised by opportunities that come along that we haven't necessarily seen. We have the capacity to lean into the strategic I think you're probably aware if you've done any kind of review of our business, we tend to manage the business units from a balance sheet standpoint fairly independently. We like for them over time to be self sufficient businesses from a cash flow standpoint. It doesn't mean we won't lean into certain areas at certain times, but over time, we expect to see the kind of health and robust growth in each one of our business units such that we look for them to be pretty self funding over time. And we, to date, have not had debt at the UGI Corp level.
We don't expect and don't foresee to see that change anytime soon. And we don't expect to need to lean into equity as a source of capital anytime soon. We've not done that since 2004. Couple of recent financings that we've done, you may have heard that we went out in Europe and raised almost €1,000,000,000 in cash, €350,000,000 in high yield bonds where we locked into 3.25 rate, really pleased with the way that financing turned out as well as long term financing to the tune of $300,000,000 and a revolver available for $300,000,000 Importantly, what we did with our financing in Europe is took it up from the subsidiary level where we were financing individual businesses. We've now structured that financing at a pan European basis such that we can be very agile to move wherever the best opportunities are, wherever they might present themselves in Europe.
And working through this entire process, it was really great to be able to introduce our brands, our business model to a whole new set of investors in Europe that we've now become acquainted with. Very productive process. We've mentioned this, Hugh mentioned this, we've also taken advantage in the AmeriGas business to restructure our credit and lock into low interest rates. We've really pushed out the maturity curve for the financing we have in the AmeriGas business. We've locked into an average of 5.7% in interest rate.
In June of this last year, Moody's took us off of a negative watch list and shifted us to stable performance and stable outlook. Here's a picture of our maturity curve. As you can see, it's pushed out to 2023 and we have access to sizable revolvers. Again, liquidity and financing is not going to be a barrier to great ideas as they come along in our business. We have the financing to be able to deal with that.
So, I'm going to close out here. We want to reiterate, for our business in this next year. That does assume something approaching normal weather in this year. We're very excited about the opportunities we have for increased investment. I think we've talked about these initiatives, continued build out in the Marcellus Shale Infrastructure, record capital deployment in the utilities business, continued focus on the growth segments of the AmeriGas business and leaning into technology that we could afford at our kind of scale to drive efficiencies, to drive better customer service and potentially reapply that across the international and the domestic businesses, continue to expand the footprint for our European business.
And we're just starting to explore the opportunities that come with thinking about the business as we have historically across 4 different business units. But then when we start to combine the thinking across LPG and natural gas, new ideas are coming up on how we can share best approaches, share financing, share services across the businesses. And so, we're just starting to scratch the surface, we believe, on the strategic opportunities that will help present themselves as we think about the business more holistically and more strategically. Thank you for your time and attention. I'm happy to take any questions you might have.
Would you expect any IDR solution to have an impact on your either fiscal 2019 or fiscal 2022 EPS guidance?
Yeah. I'm not going to comment on that. I think I'm just going to repeat that what we said earlier is we're going to use these next 120 days to really think about what the best approach is to make sure that we're creating a balance sheet for AmeriGas that is lasting, powerful, capable of delivering on what we think the business opportunities are for the future. We'll share with you immediately once we've decided what that approach looks like. Thank you.
And with that, I will hand it over to John for summary and conclusion.
Thanks, Ted. Well, this is the holiday season and I bring good tidings. Good news is we have food here, so we are going to feed you after the last 4 hours of work that we've taken you through. And in terms of slides, I have 2 slides left I'm going to use to just make some final comments. You've seen both of the slides before, so you're reaching the end of the slides for this morning.
And we do have time. Lastly, in terms of good times, we have time for any questions you have, any issues you'd like to explore based on the discussions we've had this morning or any other questions or issues you'd like to discuss with respect to both UGI and AmeriGas. So in summary, and I'll just touch briefly on a couple of key points. Obviously, we've talked a lot about our track record. That's a great thing.
It provides us with a foundation, but it doesn't guarantee us anything. Today is a new day. Tomorrow is a new day. We have decisions to make. We have a lot of execution in front of us.
The good news is that that track record provides us with certain perspectives, disciplines and Ted, from a finance standpoint, we've got a great array and portfolio of growth and investment opportunities. That's fantastic. We continue to broaden and push our boundaries and move into areas that provide us with new growth opportunities where we bring capability and understanding that enables us to succeed, to push those boundaries successfully. Ted just took you through the balance sheet strength that's fundamental has been for the last 2 decades plus for UGI. We continue to see that as a significant source of strength for the company.
As Ted indicated, we have no plans to issue equity. We have a lot of balance sheet capacity and we're excited about the opportunities and the array of opportunities we have in front of us. And it gives us, as I mentioned earlier this morning, it provides us with the luxury and opportunity to continue to be very selective in terms of where we invest and making sure we invest in growth opportunities, be they capital projects or acquisitions, where we have a high degree of confidence in terms of our ability to execute and deliver on the commitments we make. And cash, we always talk about cash when we speak with investors. It is crucial as we've grown the business and we've talked a lot about growth here, as we've grown the business, we've continued to find opportunities to invest in opportunities that are cash positive.
So in some cases, where companies grow significantly, it really changes that balance. As we have grown over the last 5 to 10 years, we maintain that portfolio, that breadth of activities and the fundamental cash generation capability of our businesses as we've grown. So we have that scale now of cash generation that's appropriate to a company of our size. I showed you that slide before. We love this slide, obviously, when we benchmark ourselves against various relevant benchmarks.
And that's really key. That's all history. That ends in September 2018. We're now in fiscal year 'nineteen. So it's a new day with a new set of challenges, but most critically, a new set of opportunities for us.
We're excited about those opportunities. We're excited about the leadership team we have to go out and identify, secure and deliver on those commitments. And at this point, I'd like to conclude and open it up for any further questions you have for us. The food is obviously calling you. Any other questions you'd like to ask in the session here?
If not, the folks here in the room, we've got lunch outside. For those of you who have joined us on the webcast, thanks so much for your time. We wish you a good lunch and lunch is right outside and we've got tables at the back of the room. So we look forward to continuing the discussion over lunch. Thank you.