Spire Inc.

Good morning, and welcome to SPAR First Quarter Earnings Conference 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, Investor Relations. Please go ahead.

Good morning, and welcome to SPIRE's Fiscal 2021 First Quarter Earnings Call. We issued an earnings news release this morning, and you may access it on our website at spireenergy.com under Newsroom. There's 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 Sitherwood, 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 slide presentation. With that, I'll turn the call over to Suzanne.

Thank you, Scott, and good morning to everyone joining us today for our first quarter update. On our year-end call, we reported that in fiscal 2020, we continue to make strides towards our strategic priorities despite the challenges from the coronavirus pandemic. By year-end, we delivered growth and solid financial and operating results while advancing our sustainability objectives. As we step forward, I'm pleased to tell you that we're building on last year's momentum and are off to a good start in fiscal 2021. We reported higher first quarter earnings, largely driven by our gas utilities, but also thanks to solid results from gas marketing. Steve Rasche will cover first quarter financial updates in a moment. At the same time, our operating performance is strong with improvements in safety, system integrity, service, and environmental sustainability. As we step into the new year, we're committed to executing on our strategic priorities that drive our growth while building on our ESG record. In particular, we remain focused on our commitment to being a carbon-neutral company by mid-century and achieving our methane emissions reduction goals. As you know, currently the primary driver in emissions reduction is pipeline replacement. We are on track with our plans, including investments in infrastructure upgrades and other programs to identify and reduce leaks. At the same time, we continue to evaluate other ways to meet our environmental commitment because we believe that natural gas has an important role to play in the energy transition to a low carbon future. We're looking at RNG and carbon offsets in the near term, while setting hydrogen as a longer term solution. Keep in mind that these carbon reducing approaches represent investment opportunities that can support earnings growth. That's because natural gas is critical to ensuring Americans have access to energy choices that are clean and affordable. As we announced yesterday, SPIRE has joined One Future, a natural gas industry coalition focused on improving the management of methane emissions across the entire value chain. Steve Lindsey will have more to say on this, but we are pleased to join several of our LDC peers in combining efforts to reduce methane emissions and collectively report on our achievements. We have also taken an important step in naming one of our SPIRE executives to lead our environmental efforts. Earlier this week, We named Nick Poyelski as Head of Environmental Commitment. Nick currently leads FIRE's business and economic development efforts. He brings expertise in data and analytics to this new role as he works to develop new business processes and guides the company strategy behind our commitment to being a carbon neutral company by mid-century. Although the environment is the focus we're talking about today, It is only one area within our corporate social responsibility, our ESG strategy. And I'm pleased to note that our total ESG efforts are getting noticed. As one example, Spire was ranked by Newsweek as one of America's most responsible companies, recognizing for the second year in a row our strong performance as a corporate citizen. Specifically, we are recognized for our commitment to the environment, social issues, and corporate governance. For the start of our fiscal year, We've also progressed on several regulatory matters, including completing the annual rate setting for our two Alabama utilities, Inspire Mississippi, as well as filing a rate review in Missouri. Steve Lindsey will cover this in more detail. As we build on our momentum from last year, it is important to capture our success and look to the future. In that spirit, last week we launched Our Story, our online annual review that outlines where we are today and what we're focused on going forward. I encourage you to explore the site at ourstory.spireenergy.com and see all the ways we are stepping forward, advancing, and innovating for a better tomorrow. In the meantime, let me share a few quick highlights. You'll see that we begin our story by highlighting what we're doing to protect our environment. This includes our commitment to being a carbon neutral company. to infrastructure upgrades and methane emissions reduction. You'll also see that we're driving future growth and earnings through our investment in upgrading our infrastructure, new businesses, and innovation. We're advancing people and performance. This encompasses everything from our operating performance, including safety, system integrity, and service, to programs that help employees learn, grow, and feel included. And last, but certainly not least, we take good care of our communities, including providing support during the pandemic. Overall, our story is about being an essential energy provider, including what it means to have the privilege and responsibility of delivering affordable, reliable, and clean energy while working to create a sustainable energy future. As I noted last time, achieving our collective success is only possible through the efforts of our 3,600 amazing fire employees. Our employees continue to step up in the face of challenges. Whether it's the coronavirus or winter storms, fire employees dedicate themselves to getting the job done and ensuring our customers and communities are well served, supported, and kept safe and healthy. With that, I'll turn the call over to Steve Lindsey. Steve?

Thank you, Suzanne. I also want to acknowledge the continuing efforts of our employees, especially in the midst of the pandemic, in caring for, supporting, and serving our customers and communities. The work you do every day helps us keep advancing as a company, enabling us to raise the bar on our performance and stay on track with our plans and commitments. Thanks to your efforts, we are stepping forward with confidence in our ability to achieve another year of success and growth. As you know, the key drivers of our growth continue to be the investments we make in our infrastructure upgrades and in adding customers through our organic growth efforts. We've had a strong start to fiscal 2021 with our capital expenditures plan. In the first quarter, our capital spend totaled $164 million, including $150 million for our gas utilities, on pace with our spend a year ago. Over half of our utility capex went towards pipeline replacement. And our new business spend was nearly $38 million, which reflects more than 30% growth over what we invested in the first quarter a year ago. You will note that our spend for pipeline, storage, and other is down significantly. The biggest driver is lower investment for Spire SEL pipeline, which was completed and placed into service in mid-November of 2019. We are on track with our full-year planned spend of $590 million, 95% of that which is earmarked for our gas utilities. Our pipeline and storage investment is on track with our plan for the year as well. Our robust five-year CapEx plan totaling $3 billion will drive 7% to 8% utility rate-based growth. As Suzanne said, we're building on our momentum from last year, and this is certainly true of our performance on the operating side. We're seeing improvements in key areas that impact safety, system integrity, service, and sustainability. For example, our OSHA DART rate continues to improve with the lower level of employee injuries. We're also seeing consistent year-over-year performance in damage rates and average leak response time. And as was the case last year, the leaks per thousand system miles is down significantly, resulting in enhanced safety and reliability, lower operating costs, and reduced methane emissions. To support our efforts in this area, as Suzanne noted earlier, SPIRE has joined OneFuture, a coalition leading companies across the natural gas supply chain, focused on an innovative performance and science-based approach to the management of methane emissions. Spire is one of 37 member companies that include LDCs, producers, and midstream operators across the U.S. The goal is to achieve an average rate of methane emissions across the entire natural gas value chain that is 1% or less of the total natural gas production delivery. As a member company, Spire will report to methane intensity for 2020. We're excited to be partnering with like-minded companies to develop and implement innovative ways to reduce our industry's environmental footprint and create a more sustainable energy future for generations to come. The aim of One Future aligns with our strategic priority to advance through innovation. Now let me turn to a regulatory update, starting with our Missouri rate review that we filed in mid-December of last year. This is a normal course filing designed to recover and reflect in base rates the significant investment that we have made, more than $850 million, in fact, since our last rate reset in 2018. This filing is focused on the benefits created for our customers and communities, including making our systems safer, more reliable, and cleaner, implementing customer service enhancements, including an online customer portal, technology platform enhancements, and advanced metering technology, proposing new programs and options, including a voluntary carbon neutral program and RNG, ensuring our customers have equal access to our beneficial programs and services, regardless of which side of the state they're on, by combining our Missouri utilities. Our request is for a $64 million increase in base rates, which is net of $47 million already being collected through ISRIS. For a typical residential customer, this represents an increase of about 5.6% on their monthly bill. Our filing reflects a rate base at the end of fiscal 2020 of nearly $2.8 billion, an equity ratio of 54.25% and return on equity of 9.95%. In terms of the rate review process, we're currently in the midst of discovery, during which we're responding to data requests from the Missouri Public Service Commission staff. Based on discussions with the commission and staff, the procedural schedule includes direct testimony from staff and other interested parties in May, a likely update period for the test year of May 31st, 2021, and hearings that will likely start in June and continue through August. While the rate review process in Missouri is 11 months of fully litigated, our history and preference is to reach an agreement sooner than that, such that key elements in the case can be settled and a constructive outcome for all can be achieved. Turning to our southeast utilities, the annual rate setting process has been completed for our Alabama utilities, with new rates effective on December 1, 2020. These rates are based on allowed ROEs established under the RSE mechanism including 10.5% for Spire Alabama and 10.7% for Spire Gulf. We also completed the annual rate reset for Spire Mississippi, with new rates effective January 12th, reflecting an ROE of 10% and a 50% equity ratio. In addition to working with regulators on rate matters, we are increasingly engaging with public service commissions on initiatives to expand our natural gas service to rural parts of our service territories, including agricultural areas. We're working to sustain and grow critically important industries and advance rural economic development. We were pleased to receive unanimous support from the Alabama Public Service Commission for a multi-phase project to expand natural gas service to poultry farmers in Ranburn, Alabama. Shown in the photo on this slide is the groundbreaking ceremony for the project featuring Twinkle Cavanaugh, president of the Alabama Public Service Commission, who was the driving force in working with us to bring this program to reality. Before turning the call over to Steve Rasche, I want to comment on initiatives across the states our utilities operate in to prohibit local natural gas bans. Legislation has been filed or is expected in Missouri, Alabama, and Mississippi to address this issue. We're supportive of these legislative efforts because we strongly believe customers should have the right to energy choice and to enjoy the benefit of reliable, affordable, and clean natural gas. With that, I'll turn it over to Steve Rasche for a financial review and update. Steve?

Thanks, Steve, and good morning, everyone. You know, it was one year ago in this call that I shared a live picture of the celebration of the Super Bowl champion Kansas City Chiefs. What a difference a year makes in many ways. Except, of course, that the Chiefs are competing again for the championship this Sunday, and all of us will be cheering them on. Go, Chiefs. Okay, now back to business. Turning to our results for the quarter. We delivered consolidated net economic earnings of nearly $77 million, or $1.42 per share, up from $72 million, or $1.33 per share last year. Our gas utilities posted earnings of $76 million, up $7 million from last year, reflecting higher margins and lower operating costs. Gas marketing posted solid results, with earnings that were down $2.8 million compared to last year's strong first quarter. And all other businesses and corporate costs improved to $2.8 million, reflecting a full quarter of Spire STL Pipeline's operating contribution, as well as earnings from Spire Storage compared to a loss last year. Looking quickly at a few details, total operating revenues of $513 million were down 10%, as lower demand due to milder weather combined with lower commodity prices. Contribution margin, on the other hand, was up $29 million, or 10%. Gas utility margin grew $7.6 million, as lower usage was more than offset by higher Missouri interest, new Alabama and Gulf rates, and modest customer growth. Gas marketing's margins, excluding fair value adjustments that we removed for net economic earnings purposes, was down $3.3 million from a year ago. This decline reflects both less favorable market conditions and, as we discussed last quarter, the net cost associated with our storage positions. We did begin to monetize some of these positions in December, as planned, and we remain on track to unlock that value in the remainder of the winter heating season. Other business margins were $13 million, well above last year, and reflecting improved performance at both the SDL pipeline and SPIRE storage. Looking at a couple other key variances here on slide 12, Operation and maintenance expenses were down $4 million after considering the reclassification of pension costs and regulatory deferral. Big driver here was lower O&M costs at the gas utilities, reflecting both fundamentally lower operations and employee-related costs, and some favorable timing of expenses. Other income reflects higher investment returns, offset by prior year AFUDC for the SDL pipeline. And finally, income tax, which reflects higher taxable income and a change in our effective tax rate from the mid-17% range last year to roughly 20% this year, consistent with our expectations. We remain in a strong financial position, and our long-term capitalization remains balanced. During the quarter, we took advantage of very favorable market conditions by issuing $150 million of long-term debt at Spire, Alabama to help fund our infrastructure upgrades. And as we hit the peak of our seasonal working capital needs, we retained significant capacity and liquidity. We also continued to grow our cash flow, with first quarter EBITDA up 19% to $188 million. That cash flow funds both our investments and rate base, as Steve just talked about, as well as our dividends. In fact, our board just declared a quarterly dividend of 65 cents per common share, payable on April 2nd. At Spire, we have a long history of rewarding shareholders with prudent, consistent, and growing dividends. In fact, we have paid a dividend each year for the past 76 years, and it increased our dividend for the past 18 years running. Turning to our guidance. We reaffirm our long-term net economic earnings per share growth target range of 5% to 7%. We also reaffirm our fiscal 21 earnings target range of $4 to $4.20 per share. As Steve mentioned, our long-term capital expenditure plans are also unchanged with a targeted spend of $3 billion for the five years through 2025 and a current year forecast of $598 million. This plan ensures that we will continue to deliver safe, reliable, and sustainable energy to our customers, continue to reduce our methane emissions, and drives rate-based growth of between 7% and 8%. And as a reminder, our capital investment plan is well-diversified across our service territories, supported by upgrade programs with long lines, and covered by regulatory mechanisms that ensure minimal regulatory lag for most of our staff. Our financing plan is largely unchanged and reflects our commitment to a balanced and strong capital structure to support our growth and investment plans going forward, including our targets for both FFO to debt and holding company debt that support our strong credit ratings. So in summary, we're off to a solid start to the fiscal year and are investing for the long-term success across our businesses. With that, let me turn it back over to you, Suzanne.

Thank you, Steve, and thank you, Steve. In closing, let me underscore why SPIRE is a compelling investment. As you've heard, we continue to pursue growth through further investments in upgrading our gas utility infrastructure. We believe a focus on our growing regulated business is the key to what makes SPIRE attractive. 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 spend for our gas utility and timely regulatory recovery. Our capital plan drives 7% to 8% annual rate-based growth, which supports a long-term annual earnings per share growth target of 5% to 7%. We pay a growing dividend that offers an attractive yield in excess of 4%, and we have strong ESG performance with a focused effort to further reduce greenhouse gas emissions on the way to achieving carbon neutrality. We look forward to updating you on our progress and success in achieving our goals as 2021 continues to unfold. As always, we appreciate your interest and investment inspire. Stay safe, stay healthy, and now we're ready to take your questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. And the first question will be from Michael Weinstein with Credit Suisse. Please go ahead. Michael, your line is open. Perhaps you're muted on your end.

Hi, sorry about that. Good morning. Hey, could you discuss the prospects for, I know you briefly mentioned that you might, that rate settlements have been a historic target for you guys in Missouri. Could you discuss the prospects for rate settlement in Missouri, given the resolution of some of the more controversial issues? It's just resolved by legislation. Prior rate case focal points surrounding tax reform, capital structure, prepaid interest expense, you know, have been resolved as well in the last case. You know, are things going to be substantially easier this time around?

Hey, Michael, this is Suzanne. I'll provide some color, and Steve Lindsey may want to add something to it. But as you know, the cadence of rate cases in Missouri are 11-months process, and there's a cadence of us following the case and then interveners following their case. Generally, what happens after the interveners file their case, between that period of time and then through the hearing process is when the parties get together and try to land a settlement. If you go back to multiple decades, in fact, with Missouri, most of the time it results in a settlement, or at least a partial settlement, and then the commissioners may decide the hanging chaff for the last few items, if you will. That is just by normal course, the cadence. We always believe it's better to get around a table and see if, for all parties, if we can reach a settlement in whole or part. So that would be our objective this time as well.

And Michael, this is Steve Lindsay. I would just kind of always go back to the why. And really the reason we're in there is a couple pretty big pieces. You know, the capital investment we've made, and there's just a natural cadence to that from an ISRA's perspective. But really, if you go back to what we're trying to do for customers, this is the right time as well. Lots of programs, options, enhancements to customer service, investments in technology that provide customers with more options, even some R&G options. So I think if you really kind of go back to the why we're doing this right now, I would anchor back to that. And then as Suzanne said, obviously we would like to have the process not go the full length of term. And we think we're in a position that makes a lot of sense with some of the resolutions we've got on the recent interest issues, some of the legislation that got passed. So we think, again, the reason we're in there is for the right reasons, and we'll work with all parties to make this as expedited as possible.

Gotcha. Hey, we weren't expecting you to monetize those storage purchases in the marketing segment until a little bit later, more like second quarter. Can you comment on market conditions that allowed earlier monetization in this quarter? And then also, do you expect similarly strong results in the second quarter, or is it? Did you front load most of those gains?

Yeah. Hey, Michael. This is Steve. I'll take a shot at that. Yeah, there was a small amount of storage that we expected to get tugged on in December, which is really the beginning of the heating season for the geographies that we serve. So that wasn't surprising. Overall market conditions were flattish, not particularly flattish. supportive through the first quarter, and actually even through January, as everybody knows on the call because we all watch it. We've now seen a whole lot of snow. In fact, most of you all are probably looking at a lot of snow and a lot of cold, and the markets have ejected more volatility and the commodity price is up. So we lived through the entire heating season, and I think we see some opportunities going forward. So I wouldn't read anything into the early withdrawal. It was planned. Clearly, we look at daily markets, and if we see an opportunity to optimize the position a little bit earlier, a little bit late, we use that flexibility in order to maximize the value. So from that standpoint, I'm not particularly concerned. The most important point is we're on track to unlock that value that we essentially locked in last summer when we laid in the positions. In terms of seasonality or focus, Most of that realization is going to happen in the quarter we're physically in right now. So I would expect to see good, strong numbers coming out of SPAR marketing when we chat with you all three months from now.

Gotcha. Hey, one last question on OneFuture. How much of the plan – I guess it seems like it's focused mostly on methane leak reduction, but – Could you talk about plans to maybe blend renewable natural gas into the system as part of the methane emissions, global methane emissions reduction strategy? And, you know, is this a way to achieve carbon negative results for gas utilities if you are actually helping to flare, essentially flare gas coming off landfills and dairy farms?

I'll start with that and then pass it again to Steve to provide more color that he'd like to provide. I'll start with there's many organizations, and One Gas is one of them, but there's also the American Gas Association and many others that are looking at from wellhead to burner tip what we can do to eliminate emissions. And the beauty about One Gas, it is from wellhead to burner tip. As far as us, fire is an example. We're working with our commissions in terms of what we can introduce is or using our pipeline replacement program and those kinds of things. So I think you'll see as time moves on, there'll be several organizations doing multiple things. And natural gas, as you know, is abundant and expensive. We want consumer choices as we navigate through this process. But these associations that bring us together, again, be it American Gas Association and One Gas, we have layout plans for carbon neutrality by a time certain. It's very important for us to be involved and included, and that's one of the reasons for One Gas, One Future.

Yeah, and I clearly think there's some strong alignment for us with One Future because what I like about the organization is it's not just, for example, a segment in the natural gas value chain, for example, like LDCs or storage. It's literally from wellhead to burner tip, and I think that's the way we ought to approach this as an industry is we need to address it on the entirety of that value chain. And secondly, other things that come from that, for example, are the technical committees that are a part of OneFuture are going to allow us to potentially have access to better leak detection technology, to, you know, things that help us that predict artificial intelligence around damage prevention. All the pieces that, you know, if we had to do this independently as companies, may take a longer period of time. I think that helps us accelerate that. And then if you think about just the service areas that we are in right now, There's opportunity with agricultural landfill to do some things with RNG. That's why we're proposing some programs with the commission. We think we're in a good spot to be able to do that. Obviously, there's gas quality and all the things that we would have to address, but we really feel this is a piece of the puzzle. I don't think there's any one big thing that's going to get anybody there. I think there's a lot of pieces, and this is helping us solve a few of those pieces early.

Got you. Thank you very much. That's all I have.

The next question will be from Richard Siccarelli with Bank of America. Please go ahead.

Hey, good morning. Thanks for taking my question. Hey, just back on the Missouri rape case. I know there are a couple of peers that, you know, one's in the midst of one right now. One just recently went through one. Just curious if you can, you know, draw any comparisons to you know, those outcomes and what's currently going on. And any, I know you discussed settlements, but any early indication from the Commission thus far on how things are progressing?

Okay, Richie, this is Steve. I'll take a shot and the team will jump in as we need to. Yeah, of course, we're watching not only what's going on in Missouri, but we're watching everything that's going on in our space across North America, and I think we're pretty optimistic about getting to a reasonable outcome. Yeah, the rate proceeding that you referenced did have – every company has their own unusual items that they have to deal with. with the staff and the commission, and that one in particular had a bunch of issues around cap structure, especially around cap structure at the holding company versus the operating company, which are things that we've addressed a long time ago. I think we got to the right spot from a customer perspective and from a business operating perspective in the last rate case, and I think we're in a pretty good spot to be there. And your D.C., you do see those complications do reflect themselves in not only the cap structure, where they choose the cap structure in the ROE, but I think we're in a good, strong position. And frankly, we've been operating as we said we would, leaving the last rate case, which is operating Spire, Missouri, for the benefit of the customers in Missouri, ring-fencing it and doing all the right things so that the commission, the staff, and our customers can be confident in our ability to lead going forward.

Hey, Rich, thanks for the question. This is Steve Lindsey. The one piece that I would add that's a little different about this one than maybe some of our prior cases is one of the things we're looking to do is to combine the two utilities, Missouri East and Missouri West, under one tariff. We think, obviously, that provides consistency across the state for our 1.2 million customers. We think there's efficiency opportunities, and so that's something that's a little different about this one, but for the most part, again, we're in there for a lot of the same reasons that you typically are in Missouri around capital recovery, but in this case, enhanced customer programs, and combining the two utilities. So I think that's a little bit of the difference, but otherwise, we're very comfortable that the positions that we have are benefiting for the customers. And really, from the Commission's perspective, we think it'll help them from an efficiency perspective going forward as well.

And I was going to raise, actually, a point that Steve, Lindsay, Steve here, raised, and so I'm glad you brought that up. The only other point I would add to it, the Commission and the Commission staff is fully aware since that acquisition It was our plan to do that at the right time and in the right way for our customers. There's nothing really new about that.

Okay, that's very helpful. I'm just switching gears a little bit to the STL pipeline. I know there's some challenges there by an environmental group, one at FERC and I guess the other in Missouri on the PGA filing. Just curious how those are progressing and What's your kind of comfort level with the potential outcome there?

Hey, Rich. This is Steve Lundy. I'll start. Yeah, and basically the process right now is it was brought forward by the Environmental Defense Fund, and it's really addressing the FERC process. It's not the STL pipeline per se, but it was their process in approving that. That pipeline has been operating since November of 2019, so we're well over a year. It's been operating very efficiently. We're accessing supply from parts of the country for our customers here that we didn't have before. And the one thing that I will say is with some of the interconnects that we've recently made and some of the other operational benefits that are coming, the benefits from the pipeline are even better and larger than we thought originally. And so that even, to me, makes the case even stronger. From a timing perspective right now, I believe oral arguments are due to be in March relative to the case right now. And then we'll just have to go from there. But we feel very confident in the rationale behind the original certificate that was received. And in the event that we have to go through that process again, we think, if anything, additional benefits have been added to the original case.

All right. Got it. That was very helpful. That's all I had. Thanks again.

Thank you.

The next question will be from Richard Sunderland with JP Morgan. Please go ahead.

Hi, good morning. Thanks for taking my questions. Maybe starting off with the utility results on the quarter, just curious if you could speak to the O&M timing, particularly how you see that coming in throughout the balance of the year and maybe any other considerations you know, specific to this quarter in particular with, you know, COVID-related savings and whatnot?

Well, Richard, let me take a shot at that. There was clearly some timing in O&M, and part of that gets back to the weather. And again, we did comment that the demand because of milder weather was a little bit down, and that does actually allow us to do a better job and be more effective and efficient in our capital program than we would normally expect had we had normal weather. So that clearly is something that may or may not come back. It depends how we calibrate the capital spend plan for the rest of the year. And again, we tend to think of life in 12-month increments, so we do adjust the cadence of spend accordingly. So from that perspective, that clearly was a timing benefit. And then it is not unusual. in our history here to start the year a little bit better on the O&M side than we had expected, because some of those expenses usually start ramping up when we get into the season after the heating season, and we take a good hard look at what we want to get done during the summertime period. We have, as we've talked about in past calls, done a good job of working with our team internally to keep a lid on cost, and as with most companies, we're still in COVID phase with limited or no travel and meetings and all that stuff. And frankly, we look forward to the time when we can actually start going out and interacting with our customers, potential customers, and with our team members across the U.S. But that isn't going to happen until the second half of this calendar year, the rate things are going, and we'll have to see how the vaccine rollout and everything else progresses. In terms of absolute impact, on COVID. As we mentioned last quarter, it really isn't impacting us that much. We're seeing some benefit on the O&M side. Our largely residential customer base demand is holding up, so we're not seeing a lot of headwind right now as we enter the first part of the heating season in COVID, because remember last year, we weren't really dealing with this until March of 2020.

Yeah, and the one part that I would add that Steve talked about, he kind of ended with it, was we are now in a new part of operating in this environment that we didn't have before. We started in March of last year, so we've gone through the quote light-up season. We're now into the more extreme parts of winter. And really, even going back three, four, five years, we have done, I think, a very good job of being able to balance what weather gives us. Some of it is positive, some of it isn't. How we manage our construction process versus our O&M, and we balance things really for the year, not for the quarter. And so I think we've done a good job of really having a historical ability to manage that. And so I wouldn't look at things by the quarter per se. I really think we try to take a longer-term perspective on that. And even with the environment we're in right now, we're doing a very good job. If you go back to our operational metrics that we discussed earlier, we're exactly where we need to be right now as we're in the middle of winter.

Great. Thank you. Appreciate the color. And maybe one final one for me, just circling back to the red casing. We've gone through the kind of the settlement prospects a lot, but just curious on the kind of jurisdictional consolidation in particular, you know, how you see that impacting the settlement process, you know, versus prior experiences. And, you know, if there are any kind of sticky issues or particular items around kind of that aspect in particular that could impact the rate case.

I'll start, sort of pass along. I said at the beginning that from day one it's been our expectation and we've been transparent with the Commission as we've navigated different rate cases along the way that the goal would be to combine the two on a statewide basis to have one utility serving customers at the same rates and the same structure and the same service levels and continuing to improve year over year as beneficial to the state. We don't see customers as just one big group. When it gets down to the work that Steve Lindsey and his team does day in and day out, we really do see those customers as individuals. What are the residential customers experiencing? What are the residential customers that are lower on the socioeconomic level versus higher on the socioeconomic level? What about small commercial businesses, restaurants? What about light industry? We do, through technology and our people, we're able to look into our customers and how they're taking their experiences with us, not just on a cost basis, but on a service basis. And to the extent that we're customer-centric in this way and doing it the same way across our great state of Missouri, as well as Alabama, for that matter, we grow off those platforms and we're able to provide better service for our customers. And that's important. It's also important... From an economic development perspective, you know, if you're the governor and the economic development team, energy is vital to how you attract industry and businesses. And when your utilities are strong in terms of the services they provide and the cost structures and the ability to use technology to help them do what they need to do every day, that is high value. And so, again, this path was charted at the beginning. We're SPIRE, and SPIRE has the preponderance of the gas industry. services in the state. So I see this as a strategic move for the state as well as for our customers.

Yeah, and the only thing I would add to really Suzanne's comments were if you think about it, multiple companies operate within a state, there's an inherent inefficiency in doing that. And when you combine those companies, for example, you get opportunities for improved service efficiency. I think that's really the case with us as well. We're the same owner per se, but we're having to operate a little bit differently right now just because of tariffs. And I think, again, the consolidation of that just makes a lot of sense.

Got it. Thank you.

Once again, if you'd like to ask a question, please press star then one. The next question will come from Salman Akyol with Stifel. Please go ahead.

Thank you. Good morning, all. So just going back to OneFuture real quick, a couple quick questions there. First of all, since you talked about it from the wellhead all the way through, will you guys have any input then, say, on who the producers are who actually provide your natural gas?

Well, I don't know that I would anchor that back to one future. I think that's more of our business model and the way we're looking at it from that perspective. But I think what it does is it provides some transparency with, again, people all along the value chain. And I think that's what we're really looking at as an industry is we want to get better collectively, not as single companies. And so the way the structure works there is we collectively report. And so If you think about all the different pieces on the value chain, we'll be reporting on our LDCs, which would be the distribution side, and even midstream with the pipeline and storage. There's other pieces that will be reported. We don't, in essence, have access to that specific information about companies. It's the aggregation of the companies. What we will see is kind of where we land amongst the group, amongst the 37, but we won't have any insider information, if you will, relative to those companies, but again, I think if If we're all signing up and committing to make that outcome that the goal for OneFuture has put out there, I think what that says to me is those are the kind of companies that you would want to align with.

The other piece, and Steve's been more active in this, so you may want to add on, is the goal, as Steve described, in the value chain, there's a desire to set targets and keep moving those targets so that there's a clearer message in terms of, again, from production area to burner tips. in terms of what those carbon reductions are. So that is one of the benefits of this organization as well, more transparency in the reductions and what those targets are.

Understood. And then just along those lines, I think you said you'll say where you were for 2020, I guess, at the end of that. I guess my question is, are you going to provide also where you started out, I guess, for 2019?

Again, we will use the definitions that One Future is looking relative to methane intensity and report for that. If you go back to what we have been reporting, we went back to 2005. From that point, we have seen a 39% reduction in our methane emissions. This is on our distribution system. We're projecting that number to go up to 53% by 2025. We've been reporting really in the methane challenge, the methane challenge. So all that information is out there. We'll continue to report that. The additional information that we'll provide to OneFuture will be based on the calculation relative to methane intensity. So everything that we have, to be quite honest, is going to be transparent, is going to be public. This is part of a coalition that we think goes above and beyond just what SPIRE does and really reflects the efforts of the entire industry.

Understood. And then last question here. Anything on the ATM this quarter?

No, some of the ATM wasn't active.

All right, thank you.

Yeah, thanks.

And again, if you have a question, please press star then one. The next question is from Brian Russo with Sedoti. Please go ahead.

Hi, good morning. You mentioned some customer growth opportunities in some rural parts of Alabama and also possibly on the ag side with poultry-type customers. Could you just deliberate on that? What's the size of the opportunity, and can that kind of be synergistic to some of the RNG opportunities that's ongoing? Sure.

The expansions that we're referencing and that we even had a picture about in the presentation are in the southern parts of Alabama. It's to primarily poultry and agricultural areas. For the most part, those will result in conversions. Typically, those are conversions from propane, things like that. These are customers that have been raising their hand and wanting natural gas available to them for a period of time. We went in and put some programs together, worked with the Commission, and as you can see, President Kavanaugh was obviously part of that. I think that is viewed as economic development. It's rural expansion. There's a lot of different ways you can talk about it, but it's providing gas to parts of the state that didn't have it. Even down, if you go all the way to the coast in our Gulf operating area, there's some opportunity down there with expansion of industry and things like that coming to the state. And then if you come back here to Missouri, on the western side of the state, We're doing a lot of that expansion as well, and that's through a process in Missouri known as CCNs, which are Certificate of Convenience and Necessity. Previously, we had to kind of do those one at a time, customer by customer. We've recently had a good success in actually getting a CCN for an entire county, which makes it much more efficient. So I don't want to put a number out there because we really don't know because the opportunities will come as as we get out and canvass the areas. But it's clearly something customers want, and I think what we're seeing in both of our jurisdictions is it's being supported by those commissions, which I think is a win-win for both the company, the customers, and really the state from an economic development perspective.

Okay, thank you for that. And, you know, you mentioned that you seem to not issue much equity in this fiscal first quarter under the ATM, and you alluded to earlier that the financing – needs remain unchanged? Should we just assume what was not issued in the first quarter, just extrapolate that over the rest of the year? How should we just view any incremental equity and increase in average share count?

Yeah, Brian, this is Steve. You're spot on. We've used the ATM in that way since its life, since we introduced it two years ago, as I recall. And I think you can think about it that way. Clearly, we also look at the tape and make sure that we're trading at fair value. I think, hopefully, we would all agree, I think most of you all do, on the call, that we and many of our peers are trading below fair value. So it felt appropriate to hang tight right now and wait for the market to settle out a little bit. And again, we're delivering good first quarter earnings, so that hopefully will be another impetus for folks to re-look at the value for us and for a few of our peers.

And were there any COVID-related deferrals made in this fiscal first quarter? I think you had a little over $3 million as of September. Just curious.

Brian, I don't have the number off the top of my head, which would answer the question. I think it was small, a couple hundred thousand dollars. It was $100,000 now that I found the answer. So no, we had largely assessed our position at the end of the year. Remember, since we're a 930 year end, we were assessing up until mid-November, so we were well into the quarter we're reporting on now and had good visibility. So I'm not surprised that the number hasn't moved very much.

And any update on filtering the excess capacity at the STL pipeline?

Yeah, so the team is always working on what those opportunities might be. Nothing that we've announced. Like Steve Lindsay said earlier, we're highly satisfied with the operation of that pipeline. I'm an old operator, believe it or not, and I know what it's like to be in gas control and operate pipelines. And the pressure volumes that we're bringing in, the design in terms of into our system and around to different parts where we have difficulty holding pressures and so forth, like Steve Lindsey said, that pipeline has outperformed our expectations. And we are more than delighted to have that pipeline as part of our system and serving our customers. It also, like I mentioned earlier, because of the volumes and pressure it brings into the St. Louis region in terms of economic and development growth, we're able to now be able to invite those industries in because we do have those volumes of gas and the pressure needed to support those kinds of industries.

Great. And just one last question, just a clarification. The rate adjustment in Alabama of 1.3 million, what was that attributable to?

We reset rates in Alabama, both of the utilities in Alabama, on an annual basis, and those rates go into effect on or about December 1 of each year based upon the budget that we're operating in. So that's kind of the normal cadence, Brian, of how rates are adjusted.

Okay, thank you.

Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Scott Dudley for any closing remarks.

Thank you, everyone, for joining us today. We will be around the rest of the day for any follow-ups, and we look forward to catching up with you in the future. Have a great day.

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