Spire Inc.

Good morning and welcome to the SPIRE year-end conference call. All participants will be in a 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 and then one. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. and at this time I'd like to turn the conference call over to Scott Dudley, Managing Director of Investor Relations. Sir, please go ahead.

Good morning and welcome to SPIRE's fiscal 2020 year-end earnings call. We issued an earnings news release this morning and you may access it on our website at spireenergy.com under newsroom. There is a slide presentation that accompanies our webcast and you may download it from either the webcast site or from our website under investors, and then events and presentations. Presenting on the call today are Suzanne Sutherwood, President and CEO, Steve Lindsey, Executive Vice President and Chief Operating Officer, and Steve Rasche, Executive Vice President and CFO. 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 meaning 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 net economic earnings and contribution margin which are both non-GAAP measures used by management when evaluating our performance and results of operations. Explanations and reconciliations of these measures to their GAAP counterparts are contained in both our news release and the slide presentation. With that, I will turn the call over to Suzanne.

Thank you, Scott, and good morning to everyone joining us for our fiscal 2020 full year update. I'm pleased to report that in 2020, with all of its challenges, we were able to achieve progress on our strategic priorities, delivering growth and solid financial and operating results while advancing our sustainability objectives. Steve Lindsey will provide an update on our capital investment, regulatory matters, and operating performance, and Steve Rasche will cover our financial results and outlook. But first, I'd like to cover the highlights for 2020 and provide a glimpse into the future as we step forward into 2021 and beyond. As you know, nearly all of our business is from our gas utilities, so it was and is important for us to help our customers manage through a challenging year while remaining focused on upgrading our infrastructure. We continued our robust capital expenditure program with the majority of our spend focused on pipeline replacement. This important work is the primary path toward reducing our methane emissions footprint and advancing our company's goal of carbon neutrality. We continue to achieve organic growth supported by our investment in new business and our economic development initiatives. And we also continue to advance in innovation, including the upgrade of our enterprise technology management systems and deployment of advanced metering technology, among other initiatives. We could not have achieved our collective success this year without the dedicated efforts of our 3,600 incredible Aspire employees. As the coronavirus pandemic unfolded earlier this year, Aspire employees were, and still are, resilient, stepping up to make the adjustments necessary to ensure that our customers and communities are well served, supported, and kept safe and healthy as possible. I'm especially proud of our efforts to support our customers through enhanced bill assistance and other initiatives to help people cope with the financial challenges created by the pandemic. For this, and for their continued diligence, care, and compassion in this very challenging time, I extend my gratitude to each and every Spire employee. This year, we advanced on regulatory matters in Missouri, gaining greater clarity on infrastructure replacement recovery in three ways. the passage of new ISRA legislation, the resolution of past authorizations that have been under appeal, and agreement on our 2020 request. We're also preparing to file our next rate case, which will reflect our significant investment in the state since 2018. Overall, we've achieved solid performance this year. Our earnings were up over last year, despite the impact of the coronavirus, and we built on our strong performance on the operations side. Based on our solid performance and future growth opportunities, today we're launching an expanded five-year capital spend plan totaling $3 billion through 2025. And we've increased our long-term growth target range. We now expect our earnings per share to grow to 5% to 7%. This is driven by our gas utilities with a focus on infrastructure upgrades and rate-based growth while continuing to step forward with emission reductions. As FHIR, we have an excellent ESG track record with strong performance in the areas of social and governance. For example, in 2020, FHIR was recognized by Newsweek as one of 300 companies across 14 industries to be included in the Good List as one of the most responsible companies in the United States. And FHIR was recognized by the Women's Forum of New York for having a diverse board of directors with 30% female representation. In regards to environmental sustainability, SPIRE continues to reduce its carbon footprint through lowering greenhouse gas emissions. For example, we're targeting methane emission reductions from 2005 levels and have already achieved a cumulative 39% reduction through 2019 and expect to see further reductions when our numbers are finalized for 2020. By 2025, we are targeting a cumulative 53% reduction. As you know, our long-term goal is to achieve carbon neutrality by mid-century, and we are busy developing plans to do so. While the main driver is in our investment in pipeline upgrades, we are also looking at other means to achieve our environmental goals. These include renewable natural gas, our RNG, hydrogen, carbon offsets, and energy efficiency programs. for evaluating RNG opportunities across our utilities and have already contracted for RNG supply through an intercontinental agreement in Missouri. The Missouri Public Service Commission has recently opened a working case to study and address quality standards for biogas. We are actively engaged in this process and plan to seek approval to offer RNG in our upcoming rate case filing. There is more work to be done to fully understand the feasibility, economics, and methane reduction potential of RNG and hydrogen. Some of the key considerations in determining how RNG as well as hydrogen might fit with our gas system include the availability of surplus renewable energy, the required investment and commodity cost and achievable environmental benefits from replacing some portion of our natural gas. There are also operational considerations including the impact of hydrogen on our infrastructure, and end users, including their equipment and facilities. As we endeavor to advance our environmental sustainability, we're engaging with and leveraging the work that AGA is doing. In fact, I have a leadership position on the AGA Board of Directors and I co-chair a task force to help shape AGA's leadership on climate change and greenhouse gas emission policy. With that, I'll turn the call over to Steve Lindsey. Steve?

Thank you, Suzanne. I also want to acknowledge the outstanding efforts of our employees during a challenging year to deliver great operating performance while caring for and supporting our customers and communities. I'll begin my remarks by discussing how we continue to invest to drive growth while achieving further improvement in operating performance including safety, reliability, and sustainability. I'll also discuss the great clarity we have in Missouri regarding regulatory recovery of our investment through ISRS and through a rate case we plan to file before calendar year end. Starting with our capital program, we invested a total of $638 million in fiscal year 20, including $548 million in our gas utilities. Of that amount, we spent over $300 million on infrastructure upgrades and replaced 318 miles of pipeline. We invested $97 million in new business. Our new business spend has been growing every year over the last five years, and we continue to add new meters at a growing rate. We have record new meter growth this last year with new premise activations including conversions of 7% over last year. We also invested $90 million in non-utility businesses, mostly for the completion of our SPIRE STL pipeline which went into service last November. Our continued focus on upgrading our distribution infrastructure drives rate-based growth across our utilities in Missouri, Alabama, and Mississippi. As you can see, our combined rate-based growth has grown from $2.6 billion in 2017 to $3.5 billion in 2020. Suzanne noted our capital spending focused on infrastructure upgrades drives sustainability and also supports our mid-century carbon neutrality commitment. The investments we make in our system, technology, and people lead to better operating performance in the areas of safety, system integrity, and sustainability as we further reduce our methane emissions. On this slide are performance measures that show an improving trend over the last five years. At SPIRE, everything starts with safety, and I'm pleased to note that our employee injury rate once again fell. Our OSHA DART rate was 1.56, 17% better than in fiscal 2019. Our damages per thousand locates, an important measure of how we prevent accidental methane releases, held steady with last year's level. At the same time, our leaks per thousand system miles fell below 50, reflecting we've reduced this measure by two-thirds over the last five years. Lastly, we continue to have outstanding average leak response time for our customers while showing improvement in many other operational metrics. Now let me turn to the progress we've made in clarifying the regulatory recovery of our investment in Missouri, starting with the resolution of ISRS matters. I would note that ISRS has been a successful program for more than 15 years. and that has produced very good outcomes. Not only do our customers and communities benefit from a safer, more reliable natural gas system, but SPIRE benefits from timely recovery of our investment in its important upgrade work with minimal impact on customer rates. At the same time, our pipeline replacement work helps support employment in the state, which aligns with the governor's priorities of workforce development and investing in infrastructure. As we noted last quarter, legislation was passed in Missouri, effective August 28th, that clarified the eligibility of pipeline upgrade spend to be recovered under ISRS. We also settled our two ISRS cases that were under appeal at the Missouri Court of Appeals. No change in the amount of ISRS revenues that we can collect. Under a settlement with the Missouri Public Service Commission in our 2018 case, we agreed to make a one-time $15 million refund to customers in August. In addition, we reached agreements with all parties in both of our 2020 ISRS filings. Missouri Public Service Commission approved these agreements for a total of $18 million in incremental annualized ISRS revenue. For the latest approval, our annual ISRS run rate is $47.3 million. Now let me turn to our upcoming Missouri rate case, which we expect to file before the end of this calendar year. Last month, we provided the required 60-day advance notice of our intention to file a rate case. Even though we weren't required to file a case until October of next year, We believe that filing now is the right approach given our rate-based growth, we need to recover, and other developments. To make our system greener, safer, and more reliable for our customers and communities, we've invested more than $850 million in infrastructure upgrades to modernize our system. We will propose new programs and options that our customers want and expect, including RNG that will support our commitment to carbon neutrality by mid-century. We've also implemented a number of customer service enhancements, including an online customer portal, technology platform enhancements, and advanced metering technology. An important consideration in the timing of filing our rate case is that Spire Missouri West reached its cap and is therefore not able to seek any further recovery of ISRS-eligible amounts. We must reset the cap in order to continue the timely recovery of our important infrastructure work. Lastly, we want to combine Missouri East and Missouri West under a single tariff to reflect the integrated utility that we operate today to serve our 1.2 million customers in the state. This will also ensure that all Missouri customers will be treated consistently. In terms of timing, a reminder that rate cases in Missouri can take up to 11 months to be decided. Under that timeline, new rates would be implemented in late calendar 2021. Although our last rate case, completed in April of 2018, extended to the full timeframe, in prior cases, we've worked to achieve settlements in less than the maximum time. With that, I'll turn it over to Steve Rasche for a financial review and update. Steve?

Thanks, Steve, and good morning, everyone. And let me add my wishes for good health and safety. And thanks to our team for a job well done this year. Now let's take a quick look back at fiscal 2020 and then step forward into 2021 and beyond. Our fiscal 2020 net income includes the impairment charge from last quarter. So I'm going to focus on our net economic earnings, which for the year were up nearly $13 million, or 6.5%. On a per share basis, net economic earnings was $3.76 per share, up 3 cents from last year. Looking at the results by business, Bass Utility posted earnings of $213 million, up nearly $14 million from last year. This increase reflects a higher contribution margin due to Missouri's risk, and the Alabama RSE and our new off-system sales program, as well as lower overall O&M costs, partially offset by higher depreciation. Other businesses and corporate expenses were $9 million lower than last year. This reflects the earnings from the SPIRE STO pipeline, which as Steve mentioned, went into service last November, and improved operating performance at SPIRE Storage. Gas marketing's earnings of $9.1 million were down $10 million from a year ago, reflecting both less favorable market conditions and, as we discussed last quarter, our pivot towards storage positions to take advantage of that situation. As a reminder, this spring we saw a significant drop in natural gas demand and commodity prices due to COVID. While this reduced volatility and near-term asset optimization opportunities, It also created significant seasonal price differentials as the market forecasted a drop in natural gas production just as demand returns this winter heating season. To take advantage of that situation, we almost doubled our storage commitments, locking in the seasonal price differentials. This put us in a strong position for 2021, but in 2020 and through the first quarter of our fiscal 2021, we are incurring the cost to procure, inject and store gas each month. The significant value will be unlocked upon withdrawal, generally in our second fiscal quarter. Our base business and marketing remains intact and profitable. In fact, from an order of magnitude standpoint, roughly half of our annual shortfall the prior year can be tied to incremental storage. Let me touch for a second on several other key variances. Natural gas costs were down 17%, reflecting lower commodity costs at the gas utilities. Operations and maintenance expenses were down over $6 million for the year after considering the reclassification of pension costs and regulatory deferral as outlined here on the summary. Looking at O&M by business, gas utility O&M was lowered by $11 million, reflecting both lower operational and employee-related costs. These costs also reflect the net impact of COVID-19, which I'll come back to in just a second. Gas marketing O&M was essentially flat to last year, and all other O&M expenses recognized that SPIRE STO pipeline was placed into service, whereas the prior year operating results were included in other income. And lastly, other income showed a run rate decrease of $12 million, composed of two items. First, as I just mentioned, the movement of SPIRE STL pipeline operating results above the line, so to speak, compared to the roughly $8 million of AFUDC recorded here last year. And secondly, lower investment earnings. Overall, we've largely offset the financial headwinds created by COVID-19 as outlined here on slide 13. Lower fee revenue and higher bad debt costs have remained fairly consistent with our view last quarter. We have been able to offset these adverse impacts with higher margins and cost reductions. And we now have regulatory clarity in both Missouri and Alabama. Last month, the Missouri Public Service Commission approved our COVID AAO that first and foremost allowed us to roll out new customer relief programs. It also allowed us to defer net costs totaling $3.8 million, essentially higher bad debts and the cost of COVID response less cost reductions achieved. Finally, the AAO allowed us to track lost fee revenues. Note that both cost and revenue amounts will be considered for recovery in our next rate case. In Alabama, the RSE by design includes all costs of operations, including COVID impact. Our year-end give back position ensures that we hit our authorized ROE, including those impacts. Now let's step forward into 2021. As Suzanne mentioned, we've raised our long-term net economic earnings per share growth target range, now 5% to 7%, reflecting the continued and consistent growth of our utilities and improved contributions from SPIRE marketing. That growth rate uses 2019 as a base year to remove any impacts of coronavirus in the year just ended. Consistent with that growth target, our net economic earnings for fiscal 2021 is expected to be between $4 and $4.20 per share. This range assumes continued reasonable economic conditions consistent with what we've seen in the back half of this calendar year. We have also rolled forward our capital investment target to 2025 and increased the total to $3 billion. Our forecast for 2021 was also increased to $590 million, up $60 million from our last forecast. This plan ensures that we will continue to deliver safe, reliable, and sustainable energy to our customers and drives rate-based growth of between 7% and 8%. As a reminder, our capital investment plan is well diversified across our service territories. and supported by upgrade programs with long lives and regulatory mechanisms that ensure minimal regulatory lag for over 80% of our spend. Finally, we've updated our long-term financing plans over the next three years that includes a steady level of equity paired with operating company long-term debt in 2021 tied to our capital investments. Those plans support our targeted credit metrics as noted here. So in summary, We've stepped into 2021 and beyond in solid shape, and we're accelerating our growth targets and our capital investment plans. With that, let me turn it back to you, Suzanne.

Thank you, Steve and Steve. I want to first highlight that our Board of Directors has increased the common stock dividend for 2021. Effectively, the January 5th payment, SPIRE's annual dividend is $2.60 per share, Marking the 18th year in a row that we have increased the dividend. Increase reflects the Board's confidence in our growth strategy and plans going forward. They realize that a growing dividend combined with increasing earnings are compelling reasons to invest in SPIRE. In closing, let me recap the key points we discussed today and why SPIRE is a compelling investment. As you heard, we continue to pursue growth through further investments in upgrading our gas utility infrastructure. We believe a focus on our regulated business is the key to what makes SPIRE an attractive investment. Our business mix is over 90% regulated, ensuring earning stability and value. We have a robust CapEx plan through 2025, totaling $3 billion, with 98% of that spent to our gas utilities. and we get timely regulatory recovery on that spend. Our capital plan drives 7-8% annual rate-based growth, which supports our updated long-term annual EPS growth target of 5-7%. As I just discussed, SPIRE pays a growing dividend that offers an attractive yield in excess of 4% based on our most recent stock price. and we have strong ESG performance with a focused effort to further advance our environmental sustainability through reduced greenhouse gas emissions on the way to achieving carbon neutrality by mid-century. We look forward to updating you on our progress and success in achieving our goals in fiscal 2021. As always, we appreciate your interest and investment in SPIRE. Stay safe and healthy. Now we're ready to take your questions.

And ladies and gentlemen, with that, we'll begin our question and answer session. To ask a question, you may press star and then one on a touchdown phone. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys. To withdraw your questions, you may press star and two. At this time, we will pause momentarily to assemble the roster. and our first question today comes from Richard Ciccarelli from Bank of America. Please go ahead with your question.

Hey, good morning. Thanks for taking my question here.

Good morning.

Hey, just curious on the increase in the 5% to 7% growth rate, do you provide a breakdown of the utility versus non-regulated earnings in that outlook?

Richie, this is Steve. I'll take a shot at it. And first, before I go any further, I also wanted to let everybody know that Adam Woodard, our treasurer, has joined the call. So if you stop me, or more importantly, if I say something incorrect, he'll jump in and correct it to make sure I stay on track. You know, if you look at our mix of business, Richie, even if you were to put a run rate, SPIRE earnings, we're still 91% to 92% utility. and we've opted not to break out the two clearly and we talked about it in our prepared remarks that SPAR marketing's performance for the year, if you look just at the numbers, reflect the drag of the storage positions which was the right thing to do given the market opportunity and that will clearly come back. I think you can expect that we would like to see SPAR marketing get back to kind of the run rate earnings that you saw in last year and prior years. So that should give you some guidelines into how to think about the growth between SPAR marketing and the utilities. And frankly, the pipeline is just going to crank along under a reasonable and steady level of earnings for years and years to come.

Got it. That's very helpful. And then just separately, I mean, I see you have a pretty robust CapEx program here. but just curious how you're thinking about the strategic landscape. I know there's a few utility peers that have some gas LDC assets for sale. Just curious on your thoughts on that overall.

Hey Richard, this is Suzanne. I'll take that and I'm sure my colleagues will add some color as well. So as most on the call know that we have had a few acquisitions since my tenure here and so yes, we know how to approach those transactions and every one that we've done has been I would say highly successful on many levels including operational levels. That being said, we are aware of certain companies that have certain interests in selling certain assets but we take a deep evaluation of any of those assets and we don't even think about moving forward unless we can create value not immediately but also over the long term which you have seen exhibited from us from the other utilities that we've acquired.

Yeah, and Richie, I would add that our growth target range is not predicated on any acquisitions, but we'll remain tuned into what's going on in the market. And I think we have some long track record of anything we do, there's a clear path to creating value, excess value, as a result of increasing scale.

Yeah, and Richie, this is Steve Lindsey. Just to kind of reinforce the $3 billion, I think we're very confident in that relative to our level of spend relative to infrastructure upgrades, which is very diversified across all of our companies. I think that's great, and getting all the ISPRS things cleared in Missouri really gives us some clarity. I think, secondly, we have some other opportunities for investment, such as new technology, AMI, and some programs like that. And then, third, even with our new business that we've continued to see strong growth with, in Missouri, whether it's the west side of the state or Alabama and Mississippi, we're starting to expand relative to our service territory. So I think when you add all those pieces together, just like Suzanne and Steve mentioned, other opportunities may emerge, but we're very confident in the plan that we have really for the next five years.

All right. Got it. That's very helpful. Thanks a lot.

Our next question comes from Char, is that Perezza from Guggenheim Partners. Please go ahead with your question. Hey, good morning, guys.

Just a couple questions here. You know, just honing in on sort of the year-over-year growth into 21, so a little bit more short-term versus the 5 to 7. How much of the sort of that increase year-over-year is kind of driven by the utilities versus marketing versus maybe the large storage position you built going into this winter season? I'm just trying to get a little bit of a sense on the year-over-year drivers.

Yeah, Char, this is Steve. I'll take a shot at it. If you look at the marketing clearly underperformed this year based upon its historic average contribution, which is it contributed just over $19 million two years ago. And we would expect it to get back to that run rate contribution. And clearly, the storage positions will help us regain that. So I think that's one of the biggest movers that you can think about. We clearly expect our utilities to grow and we, as we've already talked about, we have significant investments in rate base. We'll continue to see rate base growth. We are in recovery of land. We are going to see that slow down just a little bit only because, as we mentioned in the prepared remarks, we're capped out in the western side of the state in terms of additional interest. that would be a little bit of a headwind in terms of the additional capex and getting recovery on that, but that's okay. That was part of our plan and one of the reasons why we opted to file the next rape case in Missouri here later this calendar year. And the other thing I'd point out is when you think about the cadence of earnings quarter to quarter, and I did mention this in the prepared remarks, the cost for storage principally at this point that we're seeing in SPIRE marketing in the back half of the year. We're going to see that in Q1 also. So from a seasonality perspective, if I can use that term, you're going to see more of the value for SPIRE marketing concentrated in the second fiscal quarter, which is the winter, because that's when we will deliver the gas that we've positioned with our storage investments earlier in the year.

Got it. But so Steve, just maybe just honing in a little bit more exact that nine percent growth that you've got year over year from base 2020 to the midpoint of the 21 guidance is that predominantly coming from storage or is it regulated just trying to get a little bit more of a sense on that driver yeah the marketing will have an outsized piece of it this year just because of the storage position we expect all of our businesses to grow and and you know we're it will clearly

As with everybody in the industry, we're still living through coronavirus times. I think we've done a good job of offsetting the impact there, and we look at that going forward. And remember, in 2020, we did have the headwinds of our ISRA settlement. Isn't it nice? We're one year forward from where we were a year ago with the first appeals court ruling. Isn't that a 180-degree change? but remember, 2020 results, there were a handful of cents, I think four cents worth of drag in the 2020 results as a result of that settlement. So that clearly comes back in addition to just organic growth in the utility.

Got it, got it. And then obviously you guys highlighted some additional programs that you plan to file in the Missouri rate case, right? So RNG, AMI, et cetera. Have you sort of had any kind of initial conversations with stakeholders on these items? Any feedback so far? And are any of these sort of items potentially incremental to your current capital outlook?

Well, this is Steve. I think it's early to really talk about the programs and the discussions because we haven't even filed the case yet. But I think what I can say is Since the last case, we've been engaging with all of the constituents and stakeholders on the programs that we look to embark on, whether it's for customers, whether it's for infrastructure, whether it's technology, to really kind of put the why out there. Here's why we're doing this. Here's what we expect to come from this. So I think we've set a pretty good stage. And I think, as you can see, even recently in some of the settlements that we've come to, I think all the parties involved are starting to work a little better together, if you think about it that way. And then your second question relative to capital, again, I think if you think about the capital that we're really looking at for our plan going forward, it's still focused on infrastructure, new business, AMI, other types of technology, a lot of the things that we've either been doing or we're going to look to do. So I don't think there's anything new and shiny that we haven't done. Again, if other opportunities emerge, we'll always consider those, but I think we're really sticking to our plan and that's where we have our highest level of confidence.

Got it, super helpful. And just lastly, I know you guys stated in the past that you expected storage to be EBITDA positive in the quarter. Can we just get an update on that?

Yeah, sure. We achieved our goal. It was above the line EBITDA for the quarter. Still underwater for the year, and our expectation going forward is it's going to be largely breakeven until and if we move forward, and we're going to use the next period of time, which could stretch for the next two to three years. to evaluate the market opportunity and to seek regulatory approval, as you know.

Terrific. Congrats on the results, guys.

Thank you. Thank you.

Our next question comes from Richard Sunderland from JP Morgan. Please go ahead with your question.

Hi. Good morning. Thanks for taking my questions here. Maybe just starting real quick on a follow-up around storage. Are there – Any changes around storage as part of that evaluation process baked into the growth rate or anything beyond that sort of break even going forward expectation incorporated?

Richard, this is Steve. Not at this point. We're early in our evaluation. And again, we expect that to take a bit of time. It's clearly not factored in to our are long-term growth prospects. And once we make a decision on how we want to move forward, which will likely be well out in the future, we'll make sure to come back to the market and explain what our rationale is for whatever decision we make.

Got it. Thank you. That was very clear. And then I just want to return to the CapEx briefly. If you can provide any color around the changes in the program, you know, now versus prior, and in particular some of the drivers behind the increased regulated CapEx as you move through the plan period, which I think is a little unusual where you often see declines over time.

Sure. And again, I'll kind of go back to the anchors of really our program. And so if you think about the infrastructure programs that we have, those are anywhere between seven to 15 years in all of our jurisdictions. Again, I think having the clarity relative to ISRAS provides us a lot more certainty going forward on that. We were going to do the work anyway, but I think that really helps us from the level of return on that. The other pieces, again, I think you go back to, like, for example, this year, $90 million relative to new business, that's sizable, and that's good because that's delivering longer-term earnings opportunities from new growth in our system. We're expanding our system on the west side and in Alabama and Mississippi. We just had a big kickoff yesterday in Mississippi around an expansion into an area that we don't serve. and then the other types of programs, AMI, other technology. I think those are the big buckets I would put these in. Everything else kind of comes to you with just the normal operations of a business such as fleet facilities, those type things. But those are the areas that we are focused on and that we think we'll have an opportunity to continue to grow for the next five years.

Great. And just to follow up on the new business spend, so that's been an area of strength for you over the past few years. Thinking about that going forward, I can appreciate, you know, you have more line of sight to say this year versus two years from now. But to the extent those trends continue, is that fair to consider as additive to your capital program or would that potentially offset other investments you have in the plan?

I don't know that I would look at it as additive. We've had five straight years of growth of new business year over year as well as five straight years of higher new meters than the previous year. So that's a great trend. Again, some of it is we're a little bit at the mercy of the economy and we don't know what's coming going forward, especially when you think about small commercial, small business. So what I will say is we've had an emphasis on conversions. And so this year was our strongest year of converting customers that were, for example, on propane to natural gas that were already on our system. That's a great opportunity for us. The other parts, again, are the expansion of our service territory. So I don't know that I would necessarily say it's a trend that would continue for five years, but I think we're very comfortable with the increased emphasis and efforts that we have that if there's opportunity, we're going to take advantage of it and we're going to deliver on it.

Great, thanks. And one final one for me, just looking at the financing plan and thinking about the equity component, any update you're thinking around kind of the common versus hybrid options and maybe what headroom you have there around the hybrids?

Yeah, Richard, yeah, the financing plan is largely consistent with what we've seen in prior years. And as you know, we're not Along the bottom, we actually are in the range on our credit metrics, so we're really trying to make sure that we have a balanced capital structure. That's our commitment to us and to our rating agencies and to our investors. We, as you know, are pretty nimble and we stay pretty close to where the market is and we will evaluate where the market opportunities are when it's time for us to go out to market. It's great to have the ATM program. and you know you can expect as you saw last year that we'll continue to use that to our advantage but as you mentioned we're also looking at other vehicles that might achieve our goal and a lot of that will be predicated upon how the market continues to value not only us but it's really our sector and really it's the Schmidt utilities and we've been on a pretty good run here for the last say week and a half you know if you ask us any of us that question and I'm sure you did and EEI a week or two ago, the answer may have been a little bit differently because we were all valued, I would say undervalued by the market. So we're going to continue to watch it. And, you know, as you've seen in the past, we've used whatever vehicle makes the most sense to get cost effective capital to continue to have a strong financial position to support essentially the capital that we're investing in the utilities.

Great, thank you for the caller there and appreciate the update.

Thank you.

Our next question comes from Michael Weinstein from Credit Suisse. Please go ahead with your question.

Hey, good morning guys. Hey, just to follow up on that last question, do you think you'll need any block equity to top off for the rate case or is the ATM probably going to be sufficient for any common equity need going forward?

Mike, the bandwidth that we have in our forecast, we could clearly handle with the ATM. And, you know, with regard to the Missouri rate case, we manage the capital structures of each of our companies at all levels, whether it be the operating company or the holding company. And, you know, we want to make sure that we have the right level of cash structure that supports the rates at each of those levels. and we'll continue to refine that as we normally do when we enter a rate case in Missouri since that's a historic rate case, rate-based state. You can expect that we will tweak the capital structure in order to get it to the right level that makes sense for us and ultimately for our customers in terms of the weighted average cost of capital. But I don't see it being a big driver one way or another.

Gotcha. and does the current capital plan already include the higher interest caps that you're hoping to achieve or is that, could we expect to see a higher, an even higher capital forecast after the rate case is filed or decided I guess?

Yeah, no, I think, Mike, this is Adam, the current CapEx plan I think is really status quo on that front. We're not planning on additional cap room there.

I don't think that's a real driver for us. Yeah, and really the cap is just, it's formulaically driven based on the outcome of the revenue requirements. So I don't think we plan for anything like that. Again, and the other part is, again, our diversification on both sides of the state is a full robust plan for a long period of time. So it's not like it's contingent on one side or the other. So I don't think relative to the cap, if that's a limiter for us, I think obviously in this case, Thank you for joining us. I think two things. One is that we're doing it for the right reasons which is safety or liability and the reason that we're out there doing this but obviously there is a regulatory construct that we want to operate within and in this case this is the first time that we've in essence hit the cap prior to the three-year period so this is a different world that we're kind of operating in now but that's a good thing because we've really ramped this up on both sides of the state.

The only thing I would add, and Lindsey may add more color, is we do plan on, when we make this filing, is combine both sides of the state to create basically, in essence, one utility. So these conversations in the future, after assuming the Commission would approve such, we'll quit talking about east and west and basically talk about one number. So I think that'll be helpful to the audience.

Yeah, that is a good point. you know really we're trying to approach Missouri in its entirety as we have 1.2 million customers let's treat everybody fairly the same consistently regardless of if you're in Kansas City or St. Louis and I think this was one opportunity for us to take a step towards that in this in this rate filing.

And the political audience would also appreciate that, be it governor, legislative audience, as well as the Commission. It removes some complications for them as well.

In fact, maybe just remind me, I remember in the last rate case, one of the issues that had come up was the allocation of shared services across jurisdictions. Like, you know, there was a call center that was physically located in Alabama. Missouri regulators didn't necessarily want to pay for their share of it or whatever. Are those issues resolved across border and cross jurisdictional issues? Are those resolved at this point or are those going to have to be addressed again in this rate case?

I was going to say, I think they'll always be something that's discussed, but I think we've provided a lot more transparency and clarity around what the shared service model is, and that comes with growth through acquisitions and expansion. And again, our shared service model, we think, is very effective, it's very efficient, and if you're thinking about operating in multiple jurisdictions, it's the best approach. But as you go through the initial cases, sometimes there are some challenges on that and presentation and yes, the who's paying for what and where is it coming from. But I think really, we've done a good job of establishing a very efficient process, whether it's on call centers or engineering or the finance functions or IT. And I think we're in a much better position in all of our regulatory proceedings going forward to justify the rationale behind how we set up our shared service organization.

And more recently, I would say that the Commission was very focused on the customer experience and what our metrics were. And we spent a lot of time with the Commission staff on that very topic. And they're very pleased, so it's not as much about the location as it is that entire customer experience and what our metrics look like. what has enabled us to perform, and see if Lindsay could tell you more about those performance levels, what has enabled us to perform is just not the people but the technology that we've deployed. For example, having my account where our customers can go online and see their bills and be interactive online and do it at their convenience, those kinds of things that we all enjoy, and that's really been their area of focus, which is good news because, again, our metrics, we've improved year over year. and we're in a good space actually.

Steve, you said before that you were hoping to get to the old run rate for Spire Storage and Marketing or Spire Marketing. What is that run rate that you're hoping to get to? And I guess that's the after 2021, right? Because 2021 is going to be a good year.

They were just over $19 million in 2019. That's probably a good neighborhood.

That's a good run rate. It'll be higher than that probably next year, right? Because of the opportunities.

We're starting at 9 million, so if we can get back to the neighborhood, that would be a pretty big step up.

I see, I see. Okay, and one last question for me, and this is more of a long-term strategy question, but can you comment on your view of long-term load growth as the country itself just moves forward towards increasing electrification of load currently served with natural gas, oil, and coal? There's been an argument that I guess not an argument, but there's been some concern among some investors out there that gas utilities have a secular decline in their opportunities to grow if you look out far enough, like 20 years, and that they deserve to trade at a discount because of this. I don't necessarily agree with that, but I'd love to hear your point of view on that just in general.

I'm glad to hear that you don't agree with it, because obviously we don't agree with it either. And part of the reason we don't agree with it is, first of all, natural gas is only 4%, if you will, of the total greenhouse gas emissions. And Steve Lindsey went through a lot of pipeline replacement stats and the amount of methane reductions because of the infrastructure. But more importantly, it's a domestic fuel. It's green. It's abundant. It's safe. It's economical. It's efficient. is all of those things. And then if you go to electrification side of the house to, quote, electrify the entire energy sector in the United States and not take advantage of having that natural benefit of natural gas, the amount of cost that would be shoved onto customers at a residential and small business and, yes, industry level would make us uncompetitive in the world. And plus our customers at residential and small business levels could not afford. I mean, I've heard estimates from $590 billion to $1.2 trillion through 2035. That's staggering when you think about it as an individual customer. And if you think about just us filing rate cases and the process we go through and trying to contain our costs and seek these recoveries through commission, it's just, for someone that's been in this industry for 40 years, I find it very hard to believe that our customers and our regulators are going to have a tolerance for putting that kind of cost structure where the science doesn't support it, especially again given as a country we have an abundance of natural gas. We have the infrastructure in place. Most gas companies have modernized those facilities and we're deploying technology in a way that customers are engaging with us in a way that really benefits them. I could sort of go on and on about this topic, but I'll just sort of stop there.

Well, I think the one thing that I would add to what Suzanne talked about is we're taking an active role, whether it's at the federal level, state level, or local level, with trying to educate policymakers, whether it's legislative, whether it's regulatory, whether it's local mayors. But before you make decisions, let's understand the consequences. And all the points that Suzanne hit on, I think it's incumbent on us as a company and as an industry to make sure that people that are making decisions really understand the long-term benefits or impacts or consequences of those decisions. You know, whether it's around economic development or affordable energy, reliable energy, environmentally friendly energy, we've got a great story and we need to continue to do a good job telling that.

Yeah, and that's why, I am going to say more, but that's one of the reasons that we came out early and said we would be carbon neutral by mid-century. We wanted to not only capture the reliability, resiliency, and safety of our pipeline replacement program, but we also want to educate our customers and our investors on the benefits of those investments from a carbon neutrality perspective. as well. And that doesn't mean that we're not looking at other opportunities like RNG, hydrogen, those kinds of things. We are. We're doing it as a company, and as mentioned earlier, with my role with the American Gas Association as an industry looking at these types of technologies. So we're focused, but we also believe our products will exist 20 years from now, in fact, in a very good way serving our customers.

All right. Thanks a lot, guys, and have a great week.

Again, our next question comes from Brian Russo from Sedoti. Please go ahead with your question.

Hi, good morning. Good morning, Brian. Just to clarify, with the understanding that you won't be filing an ISRIS for the Missouri West in 2021 due to the cap, what about east? I know you're still under the cap, but are you going to postpone that considering you'll be involved in a rate case?

So Brian, our history is that we'll file this risk about every six months, even if we're in a rate proceeding. And you would expect that we would do that because we're continuing to invest in infrastructure upgrades across the state. So we'll take advantage of this risk the best possible. It will likely be involved in the adjudication of the rate case, but we want to make sure to stay on the case.

Okay, got it. And just remind me, what are the mechanics of the ISRIS? Is it a percent of revenue? Just trying to get a feel for what kind of increase in total spend you can recover, you know, over the next three years to potentially avoid having to file a case sooner than that.

Yeah, the ISRS cap is set at 10% of the awarded revenues from a rate case. So once we get, we're sitting here a year from now and we'll be talking about hopefully the rate case in our rear view mirror, you can look at the total award in terms of customer rates, gross rates, and 10% of that would become the cap that would apply to ISRS.

Okay, got it. And then just lastly, on the dividend, the dividend increase that was announced to 4% versus for 2021 versus the increase in the EPS CAGR to five to seven. I guess my first question is, what's your target payout ratio? And how should we kind of look at the dividend growth outlook versus the increased any EPS outlook?

Yeah, it's a great question, Ryan. You are right. When we think about our dividend, we do focus on the payout ratio. Our target range is 55% to 65%. And we're right about at the top of that range. And that clearly was one of the considerations in raising our dividend to $2.60, an 11% increase. Second biggest in our history, so it's not that it isn't a good-sized increase. you know that puts us within our range and then I think as you go forward you can think about the growth that you would expect from our earnings would drive to the same level of growth expectation in our dividend. Remember we've been paying a dividend for 76 years and 18 years of increases and we understand that and we believe that a portion of our earnings that will continue to grow we should be sharing back with our equity investors as part of their total return.

Okay, also the RNG landfill agreement that you disclosed in the presentation, could you just add a little bit more detail? What exactly service are you providing, just transporting RNG through your pipes? Is it margin positive or getting a fee? Just curious.

Yeah, Brian, that's just an interconnected agreement for now. We're, you know, more to come on that.

Okay, thank you.

and our next question comes from Salman Akhil from Stiefel. Please go ahead with your question.

Thank you. Good morning. I just want to go back to SPIRE marketing for a moment. In your opening comments, you talked about taking on additional storage as you saw the volatility increase and clearly have guided to, you know, recognizing earnings in Q1, Q2. But that said, as I think about it longer term, do those storage contracts roll off fairly quickly or should I think about those having 10 or three to five years and therefore need volatility to continue in order to drive a return overall for SPIRE marketing?

Yeah, hey, Solomon, it's a great question. For SPIRE marketing, with a few exceptions, our storage positions are seasonal, so they are less than a year. And so just as we ramped up and doubled our position in the springtime of last year. You know, we'll go through the same assessment once we see what the market looks like as we're exiting the winter season. There's a level of storage, think about it as the base level of storage that we would have in our business that we need to have in order to serve our customers because remember it's a logistics business. We're procuring gas, transporting it, storing it when necessary. and selling it to our customers when they need it and that is a seasonal demand generally during the winter heating season.

Understood. Thank you for that. And then a number of times you talked about cost savings and I'm just wondering is there more of that to come as we go forward?

You know, we've got a history of keeping our O&M costs down and this year you can look at the numbers for gas, for the gas utilities and again we've been able to control those. We use a combination of investing in technology and other things that make us more efficient. But at the same time, we are investing where we need to in order to drive, especially things, as Suzanne mentioned, like customer experience and making sure that they have the right availability and experience with our customer service team. So we do try to balance that. We're always looking for ways to, at a minimum, offset on inflation so that we're keeping that component of our customer's bill under control so that when we add in the rate-based growth, we're not foisting our growth on the backs of our customers.

And I think if you think about in the utilities specifically, I think one of the comments we mentioned earlier is that over the last five years, we've seen a 66% reduction in leaks per thousand miles. That goes to O&M. Obviously, all the safety, environmental, all the other things that we talk about. but over a period of time leveraging the technology, using some things such as workload planning to really become more efficient and to go forward. I think a lot of those things are setting up well. So when you think about the capital investments, all the benefits that we always talk about are there but ultimately they should translate to O&M cost savings as well.

All right, thank you very much.

And our next question comes from Andrew Levy from IDEDGE. Please go ahead with your question.

Hey, good morning. How are you? I'm doing well, thank you. Just, if I'm not mistaken, is there a core challenge going on with the STL pipeline from some environmental groups?

Yeah, and so, Andy, that's relative. It's basically a challenge of FERC. and that's with the Environmental Defense Fund. And so we continue to feel very positive about the pipe that's in service, that's doing a great job. And so, yes, that is a process that's moving forward and that will ultimately, I think, have some court challenges, but I don't think that's any different than most of the others, but that's not specifically with us. That's more of FERC's approval of the process.

Okay, so, because I'm not that familiar with it, so could you just explain what court it's in What's the status of that case? And for the Environmental Defense Fund, what are they specifically challenging? If I remember correctly, I think it has to do maybe like a used and useful versus, you know, the enable pipe existing or something like that. And certain rules weren't followed or am I mistaken or maybe you just could explain it because I'm really not that familiar with it.

This is Ann, obviously, I guess. Yeah, so FERC approved our pipeline. We obviously did not build nor activate a pipeline without FERC approval. We went through the tried and true for decades FERC process and, again, have approval of that pipeline. EDF did file, I guess I would call it a challenge to that FERC certificate in the D.C. courts. There's a legal path to the extent that we have to. Most likely, they will probably remand it back to FERC would be my guess, but I don't know that for a fact. Either way, the D.C. court or FERC themselves will have to deal with the matter. Again, we followed the FERC process and have FERC approval. The other piece that's interesting to me, this Pipeline's been functioning now for over a year, and it's created great benefits for the region of St. Louis in terms of the gas supplies that's being brought into the region. But we'll also be able to show that from an operational perspective, it's created great operational benefits because of where that gas is delivered in the region, upholding pressures and systems, and allowing economic development that wasn't able to really happen with the support of natural gas. before. So my point is there that we have great operating information that we can also provide. But again, to me, the punchline is FERC approved the pipeline. We went through, you know, decades-old process, if you will, for FERC approval. We have that approval, and we built the pipeline, and it is in service.

When may we hear from the courts? Or from the court, I should say, not courts, court.

Yeah, I don't think I'd get ahead of the court. Yeah, I don't want to.

No, no, just timing wise.

And has all like kind of oral arguments and all that been made and we're just waiting for a final decision?

Or is there still like a legal process going on beyond the final decision?

You know, Andy, it's so low on our radar screen given the precedence of other EDF challenges of other pipelines and strong precedent that the FERC isn't going to allow it and the VC court isn't going to hear the argument. We'll take a look. We can get back with you individually.

Okay, great. Scott will get back to you. Thank you. Thank you very much.

Yeah, thank you.

And ladies and gentlemen, with that, we'll end today's question and answer session. I'd like to pass the conference back over to the management team for any closing remarks.

Great. Well, thank you all for joining us. We had a lot of things to say today. We appreciate all your interest and your questions. We'll be around the rest of the day for any follow-ups. Take care. Be well. Be safe. Thanks, everybody. Thank you. Thank you.

And ladies and gentlemen, with that, we'll conclude today's conference. We do thank you for attending. You may now disconnect your lines.