Spire Inc.

Good morning, and welcome to SPIRE's second quarter earnings 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, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Scott Dudley, Managing Director of Investor Relations. Please go ahead.

Good morning and welcome to SPIRE's fiscal 2022 second 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. 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, which is a non-GAAP measure used by management when evaluating our performance and results of operations. An explanation and reconciliation of this measure to its GAAP counterpart is contained in both our news release and slide presentation. On the call today is Steve Lindsey, Executive Vice President and Chief Operating Officer, Steve Rasche, Executive Vice President and CFO, and Scott Carter, President of Spire, Missouri. Also in the room with us is Adam Woodard, Vice President and Treasurer, and also CFO of our gas utilities. With that, I'll turn the call over to Steve Lindsey.

Thank you, Scott, and good morning to those participating on the call. I know many of you are wondering why Suzanne Sutherwood isn't kicking off the call today. Due to a scheduling conflict, she simply wasn't able to join us. Rest assured, she's very much looking forward to connecting with all of you at the AGA Financial Forum in less than two weeks. I want to start by acknowledging our employees who continue their focus on maintaining safe and reliable gas delivery operations and outstanding service to our customers. Your efforts and dedication are especially important during the winter heating season that just concluded. Also, we're extremely proud that earlier this week, a group of our employees received the Meritorious Service Award at the AGA Operations Conference. This annual award is in recognition of their brave actions in saving two infants and a young mother trapped in an apartment fire. We cannot be more proud of these team members. As you know, it's fire. Everything begins and ends with our mission. Answer every challenge, advance every community, and enrich every life through the strength of our energy. We are using that energy to make a positive, measurable impact on the world around us. Our energy keeps us stepping forward, advancing and innovating, and energizing the future. Despite the near-term regulatory matters that we are working to address, we remain steadfast in delivering our long-term strategic priorities and commitments that support our growth while working toward an innovative, resilient, and sustainable energy future. We continue to invest significant amounts of capital into our utilities for upgrading infrastructure, gaining new business by adding customer connections, furthering our innovation through technology. We're doing this while enhancing all aspects of our operating performance, from customer service to safety and system reliability, including reductions in methane emissions as we move forward on our commitment to be a carbon-neutral company by mid-century. As we announced this morning, we delivered solid financial results for our fiscal second quarter, including higher earnings for our gas utilities. Steve Rasch will cover our results in more detail. I know a good many of you have been following closely our regulatory matters in Missouri after our most recent rate order. Scott Carter will discuss the steps we are taking as we continue pursuing a fair and reasonable regulatory outcome. Lastly, I have a few comments on the operating certificate for SPIRE STL pipeline. With that, I'll let Scott Carter hit on the Missouri regulatory matters. Thank you, Steve. As you all know, our last Missouri rate case order left open significant issues that the Commission noted could only be addressed in context of another general rate case. Particularly those issues were the rate of return and the return of non-operational overhead costs. While we never intended to file another case immediately after the conclusion of the most recent one, it is essential that our rates reflect the full actual cost of service and that allow us to earn a reasonable rate of return. On April 1st, we filed a new case to address these matters. requesting $152 million in additional revenue. The pie chart on this slide breaks down the major pieces of our ask. The largest pieces are related to the two items I just mentioned, rate of return and recovery of overheads. Those two items combined represent 55 percent of the requested revenue increase. We have filed for what we believe to be a fair and reasonable overall return on rate base of 7.5 percent, based on the ROE and equity layer shown on this slide. The other 45% of the request is tied to cost of service, including a return on a $3.4 billion rate base, as well as higher depreciation and cost of service updates, including the impact of inflation. The test period for this case is calendar year 2021. And as a reminder, the test period is generally updated during the case to a point closer to the decision. We've included an estimate for that TRUA in our overall request. We've been working with other parties in the case to develop a procedural schedule for consideration by the Missouri PSC. The company continues to advocate for an accelerated schedule given the recency of our last fully litigated case. We should know that schedule by mid-May. Turning to overheads, the Missouri PSC originally ordered that capitalization of non-operational overheads cease starting with the effective date of the order, which was December 23rd, pending a study and audit by the Commission staff to determine our compliance with the FERC's Uniform System of Accounts. I would note that the prudency of these overhead costs were never questioned or challenged. The study has been completed, and staff submitted its report on March 18th. The report recommended that SPIRE Missouri be allowed to defer the overheads in question into a regulatory asset to be recovered in a future rate proceeding. On April 13th, the Commission issued an order authorizing accounting treatment for those costs. As I just described, recovery of overheads is a major part of the revenue request in our 2022 rate case. Overheads are split into two buckets, if you will. There are amounts that are to be capitalized to plant in accordance with the study, and there are amounts that are expected to be expensed. Based on the orders we have received from the Missouri PSC related to both buckets, these amounts are deferred into a regulatory asset starting December 23rd of last year. As this table shows, the study-based capitalized amounts to be deferred in fiscal year 2022 are expected to total $21 million, including $6.6 million deferred in our second quarter. For overheads that will no longer be capitalized based on the study, The costs are expected to total $15 million for FY22, with $5.9 million already booked in Q2. I'd like to also highlight that the Missouri Public Service Commission recently approved an interest revenue increase of $8.5 million effective May 7th. Including in this order is $5 million of overheads that were deferred as part of that settlement. So we have these overhead costs identified. and compartmentalized, with the last step remaining to receive final clarification from the Commission on how and when these costs will be recovered from customers. That will be addressed in the context of this rate case. With these actions, we are taking positive steps toward gaining momentum in Missouri. Now, I'll pass the call back to Steve Lindsey. Thank you, Scott. Let me turn to an update on our capital expenditures program. Aspire's planned spend continues to be focused on our gas utilities, with most of the dollars earmarked for upgrades to our distribution network through pipeline replacement as well as new business. For the first half of fiscal 2022, our capex totaled $276 million, with $265 million dedicated to our gas utilities. We invested nearly $130 million in infrastructure upgrades and $67 million for new business. Another important aspect of our spend, as we've noted, is for technology. We've invested tens of millions of dollars for the purchase and installation of advanced meters this year, continuing our program that's been underway for several years. In fact, at the end of April, we've installed more than 193,000 ultrasonic meters across our utilities since the program began. There are many benefits associated with newer meter technology for both our customers and our utilities. For example, the new meters provide auto shutoff to enhance safety. and they are more reliable, more accurate, and provide enhanced data that can be used to better serve our customers. Our forecast for this year has been revised to $540 million from $570 million previously. The reduction largely reflects that about $21 million of overhead costs will be deferred into a regulatory asset, as Scott Carter noted earlier. Our five-year capital plan through 2026 remains $3.1 billion, with more than 98 percent to be invested in our utilities. Again, the focus is on our long-term pipeline replacement programs, which have good recovery mechanisms, plus new business, technology, and innovation. This investment drives annual rate-based growth at 7% to 8%. Next month, SPIRE will publish its fourth annual report on sustainability, reflecting our continued progress in measuring performance and impact as we strive to become more sustainable. In that regard, I'm pleased to note that with our 2021 report, we will be nearly 100% compliant the Global Reporting Initiative, or GRI, disclosures and will be including full reporting on the metrics related to our industry subcategory for the Sustainability Accounting Standards Board, or SASB, reporting framework. Let me cover a few highlights of the report, starting with protecting the environment. As the top chart in this slide shows, in 2021, our gas utilities achieved a 46 percent reduction in methane emissions since 2005, meeting our target for the year. Much of the credit for achieving the reduction goes to our pipeline upgrade program, but we also have other initiatives such as damage prevention programs, pipeline safety management systems, distribution integrity management programs that specifically target leak production. Over the last five years, we've reduced our leaks per thousand system miles by over two-thirds. To enhance our environmental focus, establish an internal team to oversee our commitments. The team has already successfully created a baseline for Scope 1 and 2 emissions. Our sustainability report also highlights how we care for people. This includes further strengthening our safety culture for the benefit of our employees and those they serve. Our employee safety, as measured by the OSHA DART rate, continued to improve in 2021, representing a more than 50% decline in the rate of employee injuries over the past five years. At the same time, we're focused on building a greater diversity across our company, including our workers, as well as suppliers. We continue to expand our outreach activities to support our customers and our communities. Over the years, Spire has built a reputation for strong corporate governance. We further enhance our governance by formally assigning oversight for sustainability to committees of our board of directors. I would note that the Spire board continues to be independent, diverse, and highly qualified. Let me conclude my remarks with a status update on the SPIRE STL pipeline. As you'll recall, early last December, the pipeline was issued a new open-ended temporary operating certificate by the FERC. This was a timely and important action that provided certainty of gas supply for the St. Louis region during the winter. It also allowed the pipeline to stay in operation indefinitely while the FERC continues to address a new permanent certificate as part of the remand process that's underway. RE-MAN will include an Environmental Impact Statement, or EIS, to be prepared by the FERC. The EIS is supplemental to the environmental assessment completed as part of the original certification for the project. Based on expected issuance of the EIS late this fall, we expect RE-MAN to conclude in early 2023. With that, I'll turn it over to Steve Rasche for a financial review and update. Steve? Thanks, Steve, and good morning, everyone.