Spire Inc.

Good day and welcome to the SPIRE first quarter earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Scott Dudley, Managing Director of Investor Relations. Please go ahead.

Good morning everyone and welcome to our first quarter earnings call. We issued our earnings news release this morning and you may access it on our website at spireenergy.com under newsroom. There's also a slide presentation that accompanies our webcast and you may download it either from the website site from the webcast site or from our website, and that would be under investors and then events and presentations. Presenting on the call today are Suzanne Sutherwood, President and CEO, and Steve Rasche, Executive Vice President and CFO. Also in the room with us today is Steve Lindsey, Executive Vice President and Chief Operating Officer. Before we begin, let me cover our safe harbor statement and use of non-GAAP earnings measures. Today's call, including responses to questions, may contain forward-looking statements within the meeting of the Private Securities Litigation Reform Act of 1995. Although our forward-looking statements are based on reasonable assumptions, there are various uncertainties and risk factors that may cause future performance or results to be different than those anticipated. These risks and uncertainties are outlined in our quarterly and annual filings with the SEC. In our comments, we will be discussing the economic earnings, contribution margin, adjusted EBITDA, and adjusted long-term capitalization, which are all non-GAAP measures used by management when evaluating our performance and results of operations. Explanations of these measures to their GAAP counterparts are contained in our news release and the slide presentation. With that, I will turn the call over to Suzanne.

Thank you, Scott, and hello to everyone joining us this morning for our first quarter update. On our year-end earnings call last November, we talked for a few minutes about how we advanced our growth strategy in fiscal 2019, creating enhanced value for our shareholders, our customers, and our communities. And at our annual shareholders meeting last week, our chairman and I had the chance to share more about last year's successes, stories about how we served our customers better than ever before. stories about safety, stories about innovation. We shared how we're pushing boundaries and doing all that we can to advance people, performance, and possibilities. I'm pleased to say that our collection of stories is now available online. I hope you take the time to go to rstory.fireenergy.com and see all the ways we've used our energy to answer challenges, advance communities, and enrich lives in 2019. Today, we are reporting that we're off to a strong start in the first fiscal 2020. As you know, our strategy for growth is grounded in our mission and focused on three imperatives, growing organically, investing in infrastructure, and advancing through innovation. With this focus, we continued our momentum of growth, delivering improved financial and operating performance in the first quarter. We posted higher first quarter net economic earnings of $1.33 per share, reflecting growth at our gas utilities, continued solid performance by SPIRE marketing, and increased earnings from SPIRE SEL pipeline. As Steve Lindsey highlighted on our year-end call, in fiscal 2019, we saw additional gains in our gas utility operating performance metrics, including safety, system integrity, and service. While we're still early in our current fiscal year, I'm pleased to say that our SPIRE employees are on track to deliver another strong operating performance this year, highlighted by exceptional performance and safety. Turning to our investment and growth, our capital spend was $192 million in the first quarter, reflecting an increase at our gas utilities and a decrease for our midstream operations. We increased the investment in our gas and our utilities by $15 million year over year with a continued focus on upgrading our pipelines in order to improve safety and reliability. A strong quarter considering last fiscal year our employees delivered record results. Needless to say, these investments also reduce methane emissions and support organic growth through new business initiatives. We invested $29.5 million in fire SEL pipeline to bring it into service, slightly more than we spent a year ago. And our capital spend on storage was $10 million. For the first fiscal year 2020, we increased our capital spend target to $610 million, including a $20 million increase for our gas utilities. This utility investment will drive rate-based growth that we now expect to be between 7% and 8%. Outside our utilities, we plan to invest $70 million, including $50 million on SPIRE STL pipeline and $20 million on storage and other. In regard to our midstream operations, Steve Lindsey will provide an operational update next quarter, but I'd like to report now that SPIRE STL pipeline, which went into service last November, has already proven to be a valuable winter asset for the St. Louis region, delivering reliable, low-cost natural gas off the rec lateral. As you know, I announced last November that Scott Smith, an energy industry veteran with 30 years of experience, joined our team as president of Fire Midstream. And I'm happy to say that Scott has hit the ground running. Scott is also fully engaged in further developing the long-term strategy for SDL Pipeline and Storage. Relative to storage, he and the team are providing service to our customers and evaluating his first full winter of operational data and results. All of this while assessing the capital plan. So, more to come relative to storage as Scott provides us his perspective and analysis of the business. Beyond our capital investment infrastructure, we continue to grow through several ongoing organic initiatives. From a capital perspective, we're increasing our spend on new business, including for our residential customers, but also commercial and industrial users. Along with new business development, we are more engaged in economic development. We are working closely with key organizations in our communities, bringing our expertise and solutions to help attract and grow businesses in our geographic areas. As you know, growing the number of homes and businesses we serve and recovering our investment through supportive regulatory outcomes continues to drive higher margins. The third pillar of our growth strategy is advancing through innovation. We're continuing to enhance the quality and efficiency of our service while reducing our costs. Technology, core to our business, is playing an important role in our innovation efforts, enabling new and better approaches to serving our customers and community. Now, let me turn now to regulatory matters and share an update on recent developments. I'll start with Missouri. First, a new commissioner has joined the Missouri Public Service Commission. State Senator Jason Holzman was appointed by the governor and confirmed effective January 16th. Mr. Holzman replaced Daniel Hall, whose term expired. Last quarter, we spent a good bit of time talking about the Missouri Court of Appeals ruling in our ISRS cases for 2016, 2017, and 2018. At the time of the ruling, we said we would pursue all options, regulatory, judicial, and legislative, to defend our position and resolve the issue over the Office of Public Counsel's challenge to ISRS. On January 2nd, we filed applications with the Missouri Supreme Court to review the appeals court ruling. We're hopeful that the state Supreme Court will take up the case and that we will know their decision, one way or the other, in the months to come. In the meantime, our application states the effectiveness of the appeals court ruling. The Missouri legislature began its 2020 session in early January. and bills have been filed in both the House and Senate to clarify the language in the ISRS statute. Specifically, the bills clarify that the purpose of pipeline replacement is to enhance safety and reliability in line with industry standards and that such replacement is to be done in the most cost-effective manner possible. Further, the legislation clarifies that ISRS eligibility should not be tied to the age or condition of the pipe being replaced. On Monday of this week, we filed for an additional $13.4 million in issuance revenue to recover new investments and pipeline upgrades. We also completed our annual rate setting filing under the RSE mechanism, and new rates for our Alabama utilities were effective December 1st. Our new rates for Spire Alabama include an off-system sales and capacity release program. The program is similar to the one we have in Missouri, in which 75% of the value creation benefits our customers, and the company retains the remaining 25%. You may also recall that the Alabama Commission established an incentive for the accelerated replacement of remaining cast iron and bare steel distribution lines. The Accelerated Infrastructure Modernization Rider, or AIM, provides an opportunity to earn a higher equity return if the target levels of replacement miles is met. We exceeded that target in 2019, so our ROE in fiscal 2020 will be 10 basis points higher. Before I turn the call over to Steve, let me say a quick word about our dividend. An important part of how we delivered value to our investors over the years has been through an increased dividend. We're proud of our track record. 75 years of uninterrupted dividend payments, including increases for 17 years in a row. This includes a 5.1% increase effective in January of this year to an annualized rate of $2.49 per share. Our Board has declared the quarterly dividend of 62.25 cents per share payable April 2nd. The Board also declared the quarterly preferred stock dividend, which is payable May 15, 2020. With that, let me turn the call to Steve Rasche to cover our financial performance and outlook.

Steve? Thanks, Suzanne, and good morning, everyone. Before we get started with our results, I have to give a shout-out to the Super Bowl champion Kansas City Chiefs. Let's dwell on this picture for just a second. This picture is the Power & Light District in downtown Kansas City during the game on Sunday, and I understand that about a million fans from Chiefs Kingdom are gathered downtown right now for the parade and one big celebration. Have fun. Now, back to business. Turning to our results for the quarter, we delivered consolidated net economic earnings of nearly $72 million, or $1.33 per share, up from $66 million, or $1.30 per share, last year. Our gas utilities posted earnings of $69 million, up 4% from last year, driven by margin growth. Marketing posted solid results as we continue to get traction from our geographic expansion. But the economic earnings were down $2.2 million compared to last year's strong performance. And other corporate costs, including midstream, posted a $5.4 million improvement over the prior year. Results for the quarter include the SPIRE STL Pipeline's contribution, which is up $2.3 million from last year. including real cash earnings this quarter as opposed to AFUDC last year. In addition, we saw a smaller loss from SPIRE storage and lower corporate interest costs. As reflected here, net economic earnings continues to include all ISRAS revenues or saying it another way, continues to exclude the provision we booked for GAAP purposes related to our ISRAS rulings. For this quarter, the ISRAS rulings and the interest revenues that are subject to the rulings were $2.1 million bringing the cumulative revenue provision to $14.3 million. This quarter we also booked an additional expense provision of $500,000 representing the potential interest due on cumulative revenues in the event that a refund is required. Now let's look at the business starting with revenues and margins. Total operating revenues of $567 million were down $35 million due to a decline at the gas utilities reflecting lower gas costs and lower usage from the milder weather that we've experienced this quarter compared to last year. Gas marketing revenues grew due to increased volumes that were only partially offset by lower commodity prices. Overall contribution margin was up $5 million or 2%. Gas utility margins grew $7 million as lower uses was more than offset by a prior year $3.9 million RSE giveback or charge at Spire Alabama that did not recur this year. Additionally, we billed higher net interest revenues of $2.2 million and saw continued modest customer growth. Gas marketing margins, as reported, were down $7.5 million. but that variance includes $5.9 million of adverse fair value accounting adjustments. Excluding that, margins declined by $1.6 million due to the higher cost of our expanding transportation portfolio and narrower basis differentials in the market that were largely offset but not completely offset by higher volumes. Looking at our operating expenses on slide 13, Utility fuel costs were down $37 million due to lower demand and commodity costs. O&M expenses were up $3.5 million due to higher field operations and bad debt expenses. Appreciation and amortization expense was higher, consistent with our higher capital spend profile, and other taxes were down due to lower demand. The last marketing costs, as reported, were down $1.1 million. However, this variance includes intercompany eliminations of $15.7 million. Excluding those adjustments, marketing's run rate costs were higher by $14.6 million. Again, not surprising given our expansion. Other income was more than double last year's results and reflects investment returns this quarter compared to the market collapse of 2018. We call that an easy comp. as well as higher AFUDC from the SPIRE SDL pipeline. And interest expense was up slightly on higher borrowings at the operating companies as holding company debt continues to decline. We continue to grow our cash flow and maintain a strong financial position. First quarter EBITDA was up 4% from last year to $158 million. Our long-term equity capitalization remained fairly balanced, although down from last quarter as we took advantage of very favorable debt market conditions by issuing long-term debt at our operating companies. Those offerings are listed here on the slide and essentially allow us to reduce our overall interest rate risk and average cost of borrowing while matching our long-term investments in utility infrastructure and the SPIRE STL pipeline once it came into service with long-term financing. As a result, our short-term liquidity improved this quarter, just as we hit the peak of our seasonal working capital needs. Turning to our guidance. As we've highlighted this morning, we're encouraged by our progress so far this year, both in moving our businesses forward to serve all of our stakeholders and also hitting our milestones as we seek clarity on the ISRAS rulings. There's still work to be done on the ISRAS front, and as a result, will delay issuing our annual earnings per share guidance for 2020 until the picture becomes clearer. We do reaffirm our annual long-term net economic earnings per share growth target range of 4% to 7%, recognizing that the key question from ISRIS remains the qualification for ISRIS early recovery, not the prudence of the spend and resulting long-term rate-based growth. Our long-term capital expenditure plans are also unchanged, with a target spend of $3 billion for the five years through 2023. This includes more than a half million dollars per year for our gas utilities, where we'll continue to focus on upgrades to our infrastructure and new business. And as Suzanne just mentioned, our CapEx forecast for 2020 increased to $610 million, reflecting the benefit of milder weather so far this winter. Included in that target is $10 million in storage investment during their second fiscal quarter. And we expect storage to achieve positive EBITDA contribution by the end of the fiscal year. Our financing plan is largely unchanged and includes the first quarter debt capital markets activity I just pointed out on the previous slide. We remain committed to a balanced and strong capital structure to support our growth and investment plans going forward, including long-term targets for both FFO to debt and holding company debt levels shown here on the slide that support our strong credit ratings. So in summary, we're off to a strong start and we continue to invest for long-term success across our businesses. With that, let me turn it back over to you, Suzanne.

Thank you, Steve. In closing, I'd like to thank all our Spire employees for their hard work and caring hearts. Thank you for your personal commitment to serving our customers and communities, especially during the winter heating season when customers and people count on us to safely and reliably keep their homes and businesses warm. We're off to a fine start this fiscal year, keeping pace with our plans to invest in and grow our businesses and drive increasing value for our shareholders. We very much appreciate your interest in Investment Inspire and look forward to updating you on our progress and achievements as we continue to move forward. Now, we're ready to take your questions.

To ask a question, you may press star then one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. The first question comes from Richard Ciccarelli from Bank of America. Please go ahead.

Hey, good morning. Can you hear me? Yeah, we can. All right, good to hear. Just had a quick question on Idris. in regards to your earlier comments on the call. Can you just clarify, did you say that you're booking the accruals and net economic earnings currently? And if you don't have to issue a refund, I guess, what would that mean to your EPS outlook?

Yeah, Richie, this is Steve. Let me take a shot at that, and then I'm sure the other ones on the call will weigh in. Yeah, we feel strongly that we're doing the right thing for our customers and the same thing we've been doing, upgrading our system for the last 15 years. You take a look at what we're doing regulatorily, legislatively, and judicially. We're doing this in order to solve the issue because it's the right program that you're used to seeing across all of your investing universe. In terms of how we're handling it from a net economic earnings standpoint, we continue to record it as if we were receiving the revenue and therefore earning the margin on that. And that total through the life of the ISRA's rulings issue is now $14.8 million. And we will continue, if you look at underneath the collections this quarter, we collected about $2 million, maybe a little bit more, $2.1 million on that. on the layer of ISRS that we're continuing to get collections on. So that's really the revenues that we will continue to collect, and we will continue to collect those until there's a final resolution on the ISRS issue, and we've still got a couple steps to go. In terms of the impact on earnings per share, frankly, the reason why we haven't issued guidance for this year is because we don't know how to think about where ISRS is going to land. Again, we're confident we're doing the right thing. but should it trade away from us or let's say the Supreme Court decides not to take the case because that's the next step in front of us, then the lower court appellate ruling would be remanded to the Public Service Commission who will then open up a docket and review the ruling from the appellate court and decide whether they need additional evidence and reach a conclusion whether whether the interest in full or in part was legitimate or whether they need to make an adjustment and therefore issue a refund. So as you can see there are a number of steps that need yet to happen before we'd ever be at a point where there may be a refund. Under the abundance of caution this quarter we did accrue interest due on the totality of what we've reserved because we think that's the right conservative way to do it from a GAAP perspective. and that all of that really ignores what's happening on the legislative side and again we're pushing all the buttons across all the different avenues that we have and should we get a change in the legislation that would obviously change the tenor of the evaluation that the Public Service Commission and the courts would take on NISRA's qualification going forward.

I just want to, Steve explained it well, I just want to emphasize a couple points to put it in perspective and he said it. This program's been in place for 15 years and has been reviewed by the Commission in its regular course as the statute was established. Also, there's 42 other states that have such programs, so it's not something unique, as you all probably know that are on the phone for Missouri. It's really the OPC that has raised this issue, as I said in my opening remarks, even though the Commission has approved the replacement. and if Steve wants to talk about it a bit, he can't see Lindsay, he can. But we followed basically a DEMP plan, which is a distribution integrity management plan that are common course in our industry. And so that plan is set out and it has multiple years that are embedded in it, which is why we're able to, in a strong way, produce our capital budgets over multiple years for you. And so it really is, like Steve said, tracking the regulatory, legislative, and Judicial Process to put this to bed, so to speak, so there's no ambiguity going forward. I think the accounting that we've done, as Steve's described, is most appropriate and we'll keep moving down the path and all three of these branches will be resolved at some point.

Okay, that's very helpful. Just in terms of, I guess, key dates to monitor in the Supreme Court case, have they given more like a precise date of when they might potentially make a ruling on whether they'll hear the case. And then separately on the legislative route, it looks like I guess there's hearings that start tomorrow in the House. I guess what key date should we be monitoring on that front? And does the legislation only address future interest spending or is it prior as well?

All right, Richie, you threw out several things there. So what I would point out, and it's in the presentation that we uploaded, but it's not part of the presentation we went through, is there's a lot more detail on all the ushers layers and also a timeline that kind of walks through the waterfall of the various decisions. We don't have a deadline or a particular timeline for the Supreme Court. Our best guess is that they will make a decision whether to accept the appeals from both us and the Missouri Public Service Commission during the next month, a month and a half, so sometime between now and the end of March, but that is not a hard deadline. They make their decisions when they make them. So that's really the first step in the judicial review process, and depending on what happens there, I think I chatted about what the various options are on that going forward. in terms of the legislation. Steve, you want to give everybody an update on the legislation? Sure.

And thanks for the question. And so the legislation, just to kind of reframe it, is basically just to clarify in essence what we've just said, a program that's been in place for over 15 years. But it's reinforced that this will address the material issue that's under question as well as really the most efficient way to do these replacements. And that would address the plastics issue that we've had ongoing. So I think this is really not to do anything new. It's just to clarify and put in place on a go-forward basis what we've been operating under for the past 15 years. And that's been heard in both the House and the Senate subcommittees, and then from there we'll hopefully get it moved to the floor. But the status on that and the calendar is still a little in flux, much as Steve mentioned with the Supreme Court opportunity to hear this as well.

Yeah, and then Richie, the last part of the question you had was on how do we think about that in terms of the various layers of ISRAS that are in question. Clearly a legislative solution would solve any questions going forward on the black and white of the final legislation. I think it would also clearly form legislative intent of what the intent of the ISRAS regulations were and we have to believe that that's going to help to resolve any open questions on the current layers of vicarious that we're collecting, including those that are before the appellate quarter that they've already ruled on.

Okay, thanks. That's very helpful. I'll jump to the back of the queue, let other people get in. Thanks, Richard.

Thanks.

The next question comes from Sarah Ackers from Wells Fargo. Please go ahead.

Hey, good morning.

Good morning, Sarah.

Can you just expand on the increase in the rate-based growth to seven to eight from six? Just curious what's driving that as the CapEx plan seems to be intact.

Yes, sir. This is Steve Lindsey. Thank you. Good to hear from you. I think it's a couple things. It's the way we've been building the CapEx plan really across all of our jurisdictions. And if you think we're fairly well equally distributed in terms of infrastructure upgrades, we're also continuing to see strong investment in our organic growth and that's the new business capital. And really we're seeing that in all of our areas. And then to even layer onto that, we're starting to see some opportunities to expand our service territories. And so on the west side of the state, even on previous calls I think we've talked about expanding into some areas where we don't currently serve to pick up some agriculture and poultry customers and then in Alabama we're looking at some opportunities to expand into some rural excuse me some rural areas where we don't currently serve as well as some industrial opportunities down in the Gulf area so I think when you add all those pieces up I think we're pretty comfortable that from a rate-based growth perspective we're going to be able to move into that range

Great. And then on the FSO to debt target, the 15 to 16%, where are you currently on that metric? Are you in that range or is that something that is you're targeting a few years from now?

Yes, Sarah, this is Steve. We're targeting that a few years from now. If you look back, and that's an S&P metric, if you look back over the last couple of years, we were 14.4%. in 2018. That dropped to just above 13, I think 13.1 last year and that was really attributed to the delay in the SPAR-STL pipeline and some investments that we made in storage. We expect as we look at our plan going forward and the plan that we're operating against this year that we would get the FFO to debt back up to the level it was in 2018 this year and then clearly start moving forward. Having the SPAR-STL pipeline come online, helps, because you know FFO to debt is about cash earnings, not AFUDC. It's great when you can get it, but it's not real cash earnings. So that was the log, and frankly, that wasn't a surprise to us, nor was it a surprise to the rating agencies who we just met with in January. Boy, time flies when you're having fun. And they were very comfortable with where we are, very comfortable with where we're driving the bus, so to speak. and not surprisingly you know we're still squarely at that the ratings we are with a stable outlook going forward.

Got it and then lastly just on the new ISRS filing are you confident that the PSC is comfortable ruling on new proposals while the legal case is outstanding or is there a risk that they just freeze everything and wait for clarity?

You know Sarah I I won't pretend to know the view of the Public Service Commission, although, as you know, they've been right alongside us the whole way as we've been going through the ISRS rulings issue that surfaced in November. We felt it was important to continue to file ISRS because we've made significant investments and I would not want to think about how we would be handling this winter or other winters had we not been upgrading the system and making it more resilient. We're continuing to believe it's the right approach, and the Public Service Commission will take our filing and address it in their appropriate way, which generally involves a bunch of DRs and then some hearings, so I suspect it will go along the normal course, but obviously they haven't yet had time to digest the filing and come forward with what their response is because we just filed it on Monday so we need to give them a little bit of time.

Yeah and we're going through really the exact same process that we go through every six months which is we provide all the information and I think Steve mentioned earlier in his comments this isn't about the prudency of these investments this is more about the timing of this so I think we're going back to the basics of we're doing it for the right reasons whether it's around safety, reliability, reduce costs going forward, even methane emissions. We're doing this for the right reasons and we're going to hold firm to that and I think the Commission has shown over the years to really support the positions that we've taken on that.

Great, thank you.

Thanks, sir.

Do we have another question? Operator?

The next question comes from Michael Weinstein from Credit Suisse. Please go ahead.

Hey guys. Hey Michael. Just to be clear, there aren't any further appeals from the OPC on the newest ISRIS filings, just from beyond what they've already filed with the district courts, right?

Michael, this is Steve. If you go to page 20 of the presentation, again, in the appendix for reference for you and for the rest of our investors, that shows kind of where all of the different layers of viscerous stand. And the appeals court has, there are two other viscerous layers in January 19 and July 19 that are early in the review process. Those will take months and months in order to get to some conclusion. And at this point with the request for the Supreme Court to consider the initial rulings. We believe that the appellate court has stayed any further review of those other cases. I think it's fair to assume that without some determination from the Supreme Court or on the legislative side, OPC's view on ISRAS and their appeal will continue to follow. So I think that's where we stand and... So let me stop there and answer your question.

Yeah, so the reserves that you're taking only apply to the amounts that were prior to January 2019, the filings before that. And those are being, those reserves are excluded from net economic earnings but are still being included in GAAP earnings, correct?

That is correct. And if you, again, if you look on slide 20, the only layer of interest that is subject to the rulings and therefore we are providing the provision for is that June 18 layer. Got it. Which we're still collecting, but for gap purposes, we are setting it off to the side as a regulatory liability.

Right, and you're not doing that for the January and July 2019 filings because the other ruling, because the Supreme Court case stayed the prior need to reserve, is it?

Well, no, there's a number of reasons. First and foremost, the appellate court ruling was on very specific filings, and those are the top three on that on slide 20. They did not apply to any other ISRAS filings. which are much earlier in the process. Secondly, this is an ongoing discussion with the OPC that's been going on for years and the record that proves essentially, and I have to do this without chuckling, worn out or deteriorated cast iron and bare steel, that record, We and the Public Service Commission made sure that the record was reinforced as we went through the later filings. So each of those filings would have to stand on their own in terms of appellate court review if we get to that point, but they were not part of the initial review or the initial rulings that came out in November.

I get it, I get it. So basically there are no reserves that are being taken because you haven't had a ruling from the court yet. That's exactly right. Yeah, okay. On the legislation, I think this was asked before, but maybe you just clarify, you know, once legislation is passed, let's assume it's passed, that doesn't necessarily make the court cases moot, right? You would still need to maybe get another ruling from the commission to go back and reaffirm that those revenues are allowed under prior recess rulings?

Yeah, you know, Michael, it's a great question. I think that you're thinking about it right, but we'll have to see how the discussion and the legislation, and I like your assumption, we'll run with that one for a while. It clearly solves the legislative intent, and one of the things that the Public Service Commission even highlighted, and Daniel Hall was very clear about this before he turned out and left the commission, that the commission staff and the commissioners are looking to understand the legislative intent. So it's our belief that any legislation will answer that question and therefore in many ways arm the Public Service Commission to reevaluate all of their findings and their ISRS approvals to date and probably find that they were appropriate and should continue.

Yeah, I think the real point is that this is intended to clarify, which we really didn't think needed to be clarified, the original legislation. And so it will be on a go forward, but I think it will provide some valuable context for the way that these are being looked at that we're currently involved with.

That makes sense. And that 7% rate-based growth, that's really just for 2020, correct? That's not a new long-term growth rate?

Yeah, you know, as you know, Michael, we generally plan out for five years. We're actually one year, so we got another four years going out. So we believe that our rate-based growth has clearly moved to a different level. So I would say it's clearly for 2020. But, you know, the level of spend that we have, if you look at the run rate spend in the utilities, has been pretty consistent. We've actually increased it from our initial view both last year and now going into this year. So I think we feel confident that with the support of our field employees and our contractors and a little bit of break from weather, which does impact us at various times of the year, that we should be able to work in that range.

And I would add that we mentioned the infrastructure, which we clearly have 10 to 15 years, depending upon the jurisdiction, the new business we've already talked about. We also have other things on the horizon, such as AMI, which are fixed network metering opportunities. We have whatever's going to come out of the transmission rule that came down from PHMSA. So there's a lot of investment opportunity for quite a long period of time.

Right. And the reason that the earnings growth projection is not changing, though, is that's because of equity dilution expected or is it ISTRS recovery lag? You know, what's driving that?

Yeah, well, you know, we clearly have the ISRS question, which is driving not only our inability to give earnings guidance this year, but, you know, over the long term, we'll get it. It's maybe more severe steps in rate cases. We clearly, and I think you've seen, and we will finance our investments in long-term capital on a balanced basis, so there's clearly equity dilution going forward, and you see that in our forward financing guidance that we have a reasonable level of equity that we would expect to issue every year in order to make sure that we've got good strong investment grade credit ratings.

And this will be my last question but I mean what I'm really trying to get at is if legislation is passed to fix the interest problem does the earnings growth rate improve to a little bit because you know to more match up with the rate based growth profile?

Yeah, let's take that question and put it in the parking lot and once we know what the answer is in this verse, we'll come back and answer the question.

Okay, I'll stay in park.

Again, if you have a question, please press star, then one. The next question comes from Solomon Ackle from Stifel. Please go ahead.

Thank you. So just one more, just going back to the legislative front real quick. Did I understand you to say that you're already out of committee and headed to the floor?

No, we've gone, we've had in the subcommittees in both the House and Senate, so ultimately our goal obviously is to get to the floor for those discussions. So no, it's not been, unless there's something come up even today that I'm aware of, but that would be the next steps is to get it moved.

Got it, okay, so that was then my misunderstanding. Just real quickly, just taking a look at the capital front and just sort of thinking about the non-regulated side of the business. So capital's coming down pretty meaningful. I'm sure you guys have a whole host of projects that you sort of consider that, you know, other potential areas you may be thinking about. Can you share some of those and, you know, maybe ways we could see capital for non-reg increase?

Yes, Solomon, this is Steve. You're right, especially if you look at the comparison of the non-utility spend in 2019 versus 2020, it's coming down quite a bit, and that is by far and away the biggest factor in there is the SPIRE STL pipeline, which we still have some investment. You saw some this quarter, and there'll be some other investment as we go through this year to complete that. that construction, do an interconnect. A couple other things that we need to get done that weren't required in order to put the pipe in service but are part of completing the whole project. And then also there's some investment in storage. And as we go forward, we I think we've been very clear that our strategic focus is in the natural gas space and I think we're good at looking across the strategic landscape to see where opportunities might be. The Spire SDL pipeline is a great example of identifying something that's in our sweet spot that we do that would allow us to drive additional investment and therefore additional return to our equity investors. and we continue to look at those opportunities like that or our bigger supply investments that might be inside the utility across our landscape because clearly as we look out into the future we see growing demand across our jurisdictions which is driven as much by commercial and industrial loan as it is by residential formation. and we want to make sure that we stay ahead of that and that we're going to meet our customers' needs. So that may be one of the biggest areas where we have an investment opportunity.

And the only point I'd like to add to what Steve just went through is the way we look at this, the utilities are state regulated with some federal oversight, obviously with safety and so forth, but from a storage perspective and pipeline perspective, they're also regulated. There's a commercial market aspect to it, absolutely, regional, national, depending. and so marketing is really our only business that's, quote, unregulated. The preponderance of our business is regulated. It's just a question of which jurisdictions and which authorities, either at a federal or state level, for different purposes, either rate making or safety or installation of infrastructure, those sorts of things.

And then, Solomon, the last piece of that would be storage and we continue to give you all a forward view for the next quarter as we continue to evaluate what our Okay, thank you. Again, if you have a question, please press star, then one. The next question is from Brian Russo from Sidoti. Please go ahead. Hi, good morning.

The O&M expense increase that you reported in fiscal first quarter 20, what trends should we see in the remaining three quarters? If it's my recollection, you guys were kind of guiding or looking to keep O&M flat year over year?

Yeah, Brian, this is Steve. I think that we still stand by our view of and how we're going to trend it over time. Quarter to quarter, you're going to see variations, and clearly you saw a little bit of a bump this quarter, which is field operations, and that will tend to move a little bit quarter to quarter, depending upon weather, because we do do, to the extent that our field operations team is not doing construction and we do a lot of training during the cold winter months, then a lot more of that falls into expense, but it tends to even out over the year, as does band-aid expense, which is really the two big drivers that we saw this quarter.

understood, and the lower usage due to warmer weather. Is there any margin impact there, or is that captured in any weather normalization mechanisms you have?

We do have weather normalization across all of our utilities, which generally covers the residential side of our business. So we do, as most utilities do, have some exposure on the commercial and industrial side. We found that our weather mitigation mechanisms across both Alabama and Missouri functioned really well for the first quarter of this year, but we did see a little bit of gravity on the commercial and industrial side because we do run that, we're at risk of the weather there, but again, that generally over time has traded to our benefit rather than to our detriment.

Okay, and then on storage, are you still expecting to break even beginning in mid- fiscal 2020?

Actually, our guidance is that we will be EBITDA contributors by the end of the fiscal year.

Okay, so right, so it looks like the small loss, we should see continued improvement as we move through the year.

Yes, I think that's a fair assessment.

All right, and then just lastly, the Alabama off-system sales agreement, I mean, how meaningful is that, you know, with the 75-25 sharing? If you just kind of put it in context, that would be great.

Yeah, I'll take a shot at it. And first of all, we're very pleased to be able to have that in place down there. I think what we've shown over the years, really on both sides of the state here in Missouri, is that it truly does benefit customers. And it is a 75-25 sharing, I think, as we've articulated. I don't know that I would say it's meaningful, at least early on. I think we're going to learn the system, but we're going to go into it with an open perspective of this is an opportunity for us to do the right thing for our customers. And then to the degree that we have success there, obviously look at other opportunities, perhaps even in Gulf. But I don't think I would look at it as a meaningful opportunity. But again, I think it's an attribute to the commission that they are looking for opportunities for the company to do something to benefit customers and be open to those type of mechanisms, as you've seen in some of the other things that are part of the RSE.

Okay, great. And then STL, the remaining 50 MMCF a day that's uncontracted right now of capacity. Any movement there that you could discuss?

Yeah, that's one of the items I was lightly referencing, I would say, earlier. But in terms of Scott, the new midstream president, and now we've activated the pipeline. It's performing very well, by the way, as I mentioned. as they get more comfortable with the operations, everything from pressure to measurement to delivery and so forth. Certainly, they're going to be considering other markets and we have had some expressions of interest, but right now we're highly focused on the winter months and deliverability into the St. Louis region. Again, if you stand in gas control where I have with those guys and they're looking at the flows and what they're giving in terms of pressure and delivery, they're very pleased with how it's performing and they're I'm glad they're using it, and as we move forward, we'll think about other market opportunities.

Okay, thanks. My answers to questions were asked and answered. Thank you very much.

Yeah, thanks. Appreciate it, Brian.

Again, if you have a question, please press star, then 1. There are no more questions in the queue. This concludes our question and answer session. I'd like to turn the conference back over to Scott Dudley for any closing remarks.

Okay, thank you all for joining us. We will be around throughout the day for any follow-ups. Look forward to catching up then. Bye-bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.