Spire Inc.

Good morning and welcome to the SPIRE second quarter fiscal year 2023 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 touch tone phone. To withdraw your question, please press star then two. Please also note this event is being recorded. I would now like to turn the conference over to Scott Dudley, Head of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to our fiscal 2023 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 also a slide presentation that accompanies our webcast And you may download that either from our website or from the webcast site. On our site, you'll find it 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 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. On the call today is Suzanne Sutherwood, President and CEO, Steve Lindsey, Executive Vice President and Chief Operating Officer, and Steve Rasche, Executive Vice President and CFO. Also in the room today are Scott Carter, President of SPIRE Missouri, and Adam Woodard, Vice President and Treasurer and CFO of our gas utilities. With that, I'll turn the call over to Suzanne.

Thank you, Scott, and good morning, everyone. It's a pleasure once again to provide our quarterly update on SPIRE's performance, recent developments, and our outlook. First, I'd like to begin with reflections on my plans to retire as President and CEO of SPIRE at the end of this calendar year. I have to say that leading SPIRE for the past 12 years has been the privilege of a lifetime. I am forever grateful for the opportunity to lead the Laclede Group starting in 2011 and begin what would become a decade of growth. I'm proud to say that, as a team, we successfully transformed our company into an industry leader. We started by establishing our company mission and culture, a foundation that keeps us centered and strong. This foundation allowed us to develop our growth strategy that ultimately increased the scale of our utility business by investing in organic growth and expanding our portfolio of gas-related businesses. As you know, SPIRE now includes successful gas utility companies in Alabama, Mississippi, and Missouri, along with expanding midstream businesses. As our second quarter results demonstrate, having a diverse portfolio of natural gas businesses and different geography enhances our ability to consistently create value. All in all, over the past decade, we grew the company through acquisitions and expansions, ultimately increasing Spire's enterprise value more than six-fold, and we continue to be diligent in executing our strategy and in bringing value to our shareholders, customers, and community. We've done this all this while staying focused on the safety and reliability of our systems, reducing emissions, advancing innovation to better serve our customers, and investing in our employees who are the heart and soul of our company. For me personally, my retirement represents the culmination of a wonderful career spanning more than 40 years in the natural gas industry. As you know, based on decades of experience and a global perspective, I believe that natural gas is a vital part of America's energy future, and I'm energized to continue leading SPIRE through December and continue to represent SPIRE and our national industry as the chair of the American Gas Association. In terms of what's next for Spire, our board has initiated a thorough and comprehensive search, including internal and external candidates. Candidates include those who will build upon our culture and position Spire to continue long-term growth and success. Spire is a strong and well-positioned company with a proven growth strategy. We have confidence in that strategy and in the ability of our experience management team and employees to successfully execute on our plans as well, to the future. Now, I'll pass the call to Steve Lindsay.

Thank you, Suzanne. I want to begin by acknowledging the outstanding work of our employees who continue their focus on maintaining safe and reliable gas delivery operations and excellent service to our customers. Their efforts and dedication are especially important and greatly appreciated during the winter heating season. Let me start with an update on capital investment. The first half of fiscal 2023, our total capex was $308 million, with 95% going toward our gas utilities. Over a year, our utility spend increased 9%, with more than $200 million going towards upgrading our distribution pipeline infrastructure and to connect more homes and businesses to safe, reliable, and affordable natural gas service. Based on our spend for the first half of the year, we reaffirm our FY23 capital investment target of $700 million. Our expected capex over the next 10 years remains $7 billion, with a focus on investment in our infrastructure to support system safety and reliability, customer additions that drive growth, and in innovation and technology to enhance customer service and experience, including advanced meters. We have upgraded 375,000 meters across our footprint since we began the program. Turning to the performance of our gas utilities in the second quarter, First and foremost, we delivered for our customers. We continued solid operating performance as we worked toward our targets and key metrics for the year. Our gas utilities also delivered improved earnings and cash flow as new rates went into effect both Missouri and Alabama around the end of last calendar year, offset combined headwinds of warm weather and higher costs. We experienced a very warm winter across our gas utilities, which resulted in lower volumes and that impacted markets. Temperatures were approximately 21% warmer than normal and last year. While we do have weather mitigation in our rate designs and largely worked in Missouri, it was much less effective in Alabama to experience one of the warmest winters on record. In fact, temperatures were 26% warmer than normal for Spire, Alabama and 12% warmer than last year. The weather mitigation mechanism uses actual degree days compared to a normal formula that does not capture all the usage variation from weather, especially during very warm periods. A reminder that weather mitigation also does not cover commercial and industrial customer usage, so we had some exposure there as well. Last quarter, we discussed the higher interest and O&M expenses, so let me provide an update on these costs. Interest costs increased in the second quarter, reflecting higher short-term rates combined with higher balances. In fact, short-term rates averaged more than 5% last quarter, up over 450 basis points in the second quarter of last year. Regarding the short-term debt balances, carrying are tied to gas costs. We expect to recover current gas costs by the end of the calendar year, and we made progress toward this goal last quarter. On the cost side, we continue to control our O&M expenses to help offset the headwind we experienced in margins. We believe that moderating O&M increases and fully recovering our working capital balances will enable our utility financial performance to further improve fiscal 2020. Let me provide one additional update on our utilities. until the last quarter, Aspire Missouri filed for recovery of system upgrade investments for the October to February period. Missouri Public Service Commission approved $7.7 million in new interest revenues effective May 6th of 2023. Now let me provide a quick update on our midstream segment. First half of the year, we invested $17 million, reflecting the spend in the first quarter expansion of Aspire Storage. Preparations are underway this month to resume construction as spring begins in Wyoming. The project remains on schedule and on budget. I would note that there has already been strong commercial interest in the first phase of this additional capacity that speaks to the increasing demand and market value of storage services. We also recently acquired Salt Plains, a small storage facility in northern Oklahoma with 10 BTF of working gas capacity. The facility is valuable in addition to our midstream portfolio. We expect its operations to be accretive to net economic earnings. Next month, FHIR will publish its fifth annual report on sustainability, reflecting continued progress in measuring our performance and impact as we work to become even more sustainable. Let me cover a few highlights for calendar 2022, starting with protecting the environment. The top chart on this slide shows, based on our initial assessment, 2022, our gas utilities achieved a 50% reduction in methane emissions since 2005, and a 4 percentage point improvement over 2021. This reflects the cumulative investments that we made to upgrade our distribution network focus on leak reductions. The metric we tracked regarding methane emissions reduction is leaks per 1,000 system miles. Please note that in fiscal 2022, we saw another significant reduction. Our sustainability efforts also focus on how we care for people. This includes further strengthening our safety culture for the benefit of our employees and those they serve. Employee safety, as measured by the OSHA DART rate, continued to improve in fiscal 2022, with the rate of employee injuries decreasing 55% since 2018. Over the years, Spires built a reputation for having a strong corporate governance, which was enhanced last year with our board assuming oversight for sustainability efforts and disclosures. I'll turn it over to Steve Rasche for a financial review and update. Steve? Thanks, Steve.

Good morning, everyone, and thank you for joining us today. For our fiscal second quarter, we reported net economic earnings of $199 million, a 10% increase from last year, driven by improved results from all our businesses, offset in part by higher corporate costs. Economic earnings per share of $3.70 were 8% above last year. Walk through the segments. Gas utility had earnings of $184 million, nearly 9% ahead of last year. As Steve just mentioned, we saw growth from new rates in Missouri and Alabama, which more than offset the headwinds of lower usage and higher interest expenses. Gas marketing was well-positioned to take advantage of market conditions to optimize its storage and transportation positions this quarter, hosting earnings of nearly $22 million, up 50% last year. Similarly, our midstream earnings were ahead of last year, as storage was able to optimize its operations and withdrawal commitments. As I just mentioned, corporate costs were higher, primarily due to higher interest expense, a portion of which was incurred to finance our non-utility businesses. Slide 9 provides an overview of key variances for the quarter. We've already touched on contribution margin drivers, so here are a couple other highlights. Gas utility O&M expenses were up Net of pension reclassification by $12 million due to, first, the roughly $6 million of Missouri overhead cost deferred in the prior year at expense this year. Secondly, higher bad debt expenses, $3 million, reflecting principally higher commodity costs. And lastly, higher non-employee costs, especially third-party contractor expenses as we continue to focus on high customer service levels. Overall gas utility O&M costs, net of bad debts, and Missouri overhead treatment are expected to trend a bit lower than our 4 percent inflation marker as we focus on opportunities to control costs for the rest of our fiscal year. Fire marketing costs were also higher, representing mostly costs driven by higher margins. Another income was a turnaround from last year, up $8 million after reclassification, driven by unrealized investment returns, as well as interest-carrying cost credits. We'll take a closer look at our liquidity and interest expense. We have made substantial progress in paying down our short-term debt, with the quarter end balances down $665 million from December 31st. This has been one of our focus areas, and we achieved this reduction through a combination of, first, improved operating cash flow, including reduction in deferred gas cost balances. Second, terming out some of our debt needs, including $400 million in Missouri mortgage bonds, Essentially, advanced funding are pending $250 million maturity later this year, and $150 million holding company, private placement, remembering that we had a $25 million maturity that we paid off last December. I would note that both offerings were at net interest rates below current short-term rates due to our favorable hedging position coming into the year. I would also note that in April, we paid down $150 million of our term loan, and we anticipate retiring the remaining balance later this quarter. Looking forward, our interest expense run rate at the utilities will continue to decline as we collect gas costs in the balance of this calendar year. As a reminder, we do get recovery on most of the utility interest expense, either in rates in Alabama or through the Missouri carry cost credits I just noted and other income. From a holding company standpoint, The financing plan I just outlined supports our marketing and midstream businesses, and the plan matures at the SPIRE Inc. level in 2024. Now, turning to our outlook, we remain confident in our long-term net economic earnings per share growth target of 5% to 7%, starting from the midpoint of our initial fiscal year 23 guidance. Our growth is driven by utility rate-based investments, and as Steve mentioned, we also reaffirmed both our current year our 10-year CapEx targets. We have narrowed our 23 net economics earnings guidance range to $4.20 to $4.30 per share. As Suzanne mentioned, the benefit of a portfolio of natural gas businesses is the opportunity to create value and offset headwinds across our platform. So while the midpoint of our range remains the same, how we're getting there has shifted a bit due in large part to the results from winter. Going by segment, We are lowering our gas utility range to reflect the headwinds we discussed earlier, offset in part by cost discipline and a lower effective tax rate, reflecting principally earnings mix and the timing of tax credits. We've raised the ranges for both gas marketing and midstream due to strong year-to-date results. Corporate costs moved up $5 million to reflect principally higher holding company interest costs. And a couple quick observations on financing. With new rates and a clear path of recovery of utility gas costs, we expect continued cash flow growth, supportive of our FFO to debt target of 15 percent to 16 percent. We've also updated our long-term financing forecast to reflect actual capital issued this year, as well as reduced equity needs overall as a result of recycling the strong earnings from the gas market. So, in summary, we're on track with this year's plans perhaps in a little bit different way than we anticipated six months ago. We've pivoted to ensure that we offset the headwinds this year and are well positioned to rebound in 2024 and beyond. With that, let me turn it back over to you, Suzanne.

Thank you, Steve and Steve. In closing, we're well positioned to continue growing and delivering stronger overall performance for our customers, communities, and investors. We look forward to seeing many of you at the upcoming AGA Financial Forum in a few weeks. Until then, thank you for your continued interest and investment in SPIRE. We're now ready to take your questions.

Thank you. We will now begin our question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To remove your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. And the first question will be from David Arcaro from Morgan Stanley. Please go ahead.

Hey, good morning. Thanks so much for taking my question. And Suzanne, congratulations on your upcoming retirement.

Thank you very much, David. Appreciate it.

Maybe starting there, on the CEO search process, could you give just a sense of what the timing would be for a potential decision when you would anticipate

um concluding that and any thoughts on just the likelihood of an internal versus an external candidate i guess as you know uh the announcement was clear that i i retire at the end of the year and the board has started a process but i certainly don't want to get over my fees in terms of the timing of all that but work the process in a very methodical way they obviously you know know the vision and strategy of the company, and they'll be consistent in their search for what is best for the company. So, again, I don't want to get ahead of them, but just know that I'm retiring at the end of the year.

Got it. Thanks. That makes sense. And then also just curious at a higher level, you know, there have been media articles about several gas utilities potentially coming to the market. I was just wondering what your latest thoughts are on M&A and consolidation more strategically.

I guess it's great that there's so much interest in, I guess I would say, gas assets. But I hate to be the person this morning to say we're not commenting. But as you all know that are on the call, we don't comment on these types of activities in the market. But from someone who's been in the industry for 42 years, it's always great to see the ebbs and flows across those decades. I've seen a lot of change in this industry, from consolidation to deployment of technology to sustainability. And I think it's very healthy for our industry to... have these changes as decades go by. After 42 years, I have the ability to reflect, and I think that's a useful tool that, again, we don't comment directly on these types of activities.

Yeah, understood. Thanks. And then maybe one more. On the full-year guide, economic earnings was down $15 million or so at the gas utility segment. I was wondering how much of an impact was the lower margin at the gas utilities during the winter versus the prior guidance expectation, and then how much was an incremental interest expense drag?

David, this is Steve. I'll take a shot at that. We had a fairly full view of the interest rate and interest cost exposure coming into the quarter, so I don't think it was much of a surprise, although with the warmer winter, there's always a little bit less pull-through in terms of paying down deferred gas costs, so the balances are riding a little bit higher than we had anticipated. expected, so I would put that as a secondary consideration. It's really the margins, and as Steve mentioned in the prepared remarks, it's really the margins down in Alabama. Both of our utilities are large utilities. We earn a majority of our earnings during the winter heating season. And weather mitigation is designed to offset that. And in Missouri, it largely worked. In Alabama, because of the way in which the weather pulled through, it did not. So that was the primary driver behind the re-rate that you saw on the utility range. But again, we've got plans in place to offset that. Weather always reverts back to normal and still in a good spot from a cost standpoint. So I think we're positioned well as we head into 2024 and beyond.

The only part I would add to that, as I mentioned, is that even with weather mitigation, that does not apply to commercial and industrial markets. So when you have winter, it not only affects the residential, but also the others.

Yeah. Okay, great. Thanks so much. Thank you.

And our next question is from Richard Sunderland from J.P. Morgan. Please go ahead.

Hi, good morning. Thanks for the time today. Circling back on that last question, the O&M, I guess really let's say the 23 efforts and how you frame that for 24, could you parse that a little bit more in terms of what you're focusing on and how much of that is in reaction to the weather headwinds this year versus longer-term efforts really targeted around 24 performance?

Well, I can take the second part because you know we have a long history of investing in technology, process improvement, et cetera, to offset normal inflation and create headroom in our customer bill because we also acknowledge that we're investing in rate-based growth and we want to be always cognizant of the impact on our customer bill. All of those macro... plans continue at pace. We've actually looked to push the accelerator to a few of those, given the warmer weather. But in the longer term, that's always our goal, is to offset as much of that discretionary cost, if you want to use that term, as we can, just because we want to make sure that we're being fair to our customer. In terms of this year, we're continuing to look in every place that we possibly can. through offset cost, and that isn't unusual. Across the space, as the winter started to unfold, it's been record warm in many areas, including Alabama for us.

To your point, Steve, when the weather's warmer, it gives the operational teams more opportunity to look at some of those efficiencies versus when it's unusually cold weather. The way that Steve Lindsay and the team operate the company under those conditions is different, and like you said, it's sort of the natural heads there, if you will. Thank you.

And the last piece I'll add is a little bit following up on Steve's comments. We are on common platforms across all of our companies right now, which will allow us to really start to leverage some standardization around workload planning, around supply chain, around logistics. So I think we're in a good situation now as we move forward to really drive some strong cost management throughout all of our companies.

Okay, got it. That's helpful color there. Salt Plains, the $37 million investment, could you outline a little bit more about what's attractive there, how you think about that asset relative to the Spire storage expansion efforts, and is this indicative of a platform you're looking to grow even further through additional acquisitions?

Well, I'll start. As we mentioned, it's a very small asset, but we think it is well positioned, and we think it's going to help some of our other gas businesses in terms of what they can do going forward. I don't think it's directly connected at all with Fire Storage West, their independent facilities. Relative to the platform, I think as Suzanne, Steve, and even myself have mentioned, we think having diverse gas businesses, as evidenced this year, create a little bit of a natural hedging effect. So, again, I don't know that I would necessarily say it's a platform enabler, but we looked at that opportunity as being something that, at least from our business perspective, made a lot of sense in the near term. And we do expect it to be a creative going forward.

Okay, got it. Is there any further investment with Salt Plains, particularly that you're anticipating at this point?

At this point, no. Again, we're looking to go in and take advantage of some early opportunities in terms of the way it's being operated and, again, looking for some leverage opportunities with our other businesses.

And, Richard, I would add that and put our power storage facility in the same position in 2025. Once we invest the capital, this becomes much more utility-like in terms of dealing with customers. In fact, many of the customers are utilities and pipelines and and folks who serve those. And they're on contracts that range in the industry from three to five years, and this facility is no different. So since we're buying an existing operating facility without a lot of CapEx needs for expansion, it really is just plugging it in and giving our midstream team the opportunity to optimize the operations in that facility just like they are and will as far as storage is concerned. Got it. Very clear.

Thank you for the time today.

Thank you.

And the next question will be from Char Peressa from Guggenheim. Please go ahead. Hey, good morning, guys. Good morning.

Just a quick one on just inflation and O&M. I guess about a half of your O&M increase in the quarter came from the overhead costs. which you were, of course, deferring last year, which is separate from just inflation in general. I guess, how should we think about this $6 million on a go-forward basis? Any sort of special considerations, or should we just treat it the same as all the O&M going forward?

Thanks. Yeah, it's really cost that we'd already incurred that shifted back into O&M. So, we kind of take that out of the inflation calculus for what it's worth.

Okay, perfect. That's helpful. And just real quick, lastly, just on the higher interest costs, you know, corporate drag was, you know, nearly $5 million in the quarter year over year. Obviously, you guys have been very clear about your planned equity issuances. You've done mortgage bonds. You've managed short-term debt needs really well, done some private placements. But any thoughts around sort of the cash payment convert market that's formed in Could you still see a benefit there? Thanks.

Yeah, Sharj, this is Adam. We're always interested in different interesting financing techniques. I wouldn't say there's anything on the horizon there, but it's certainly an interesting trend that we've seen here so far this year.

Yeah, and Sharj, you know, there's been a flurry of activity, including this week. and we do watch that closely. We, perhaps to our benefit and the credit of Adam and the team, we entered this year in an extremely strong hedge position from an interest rate perspective. So we all understand, those in the industry, that a convert actually does buy down the current interest rate versus just doing straight debt. I think we got every bit of that benefit. We did it in the hedge market in prior periods, so we were taking advantage of that this year. The convert wasn't really as attractive for us, given that we already had a built-in advantage that we wanted to take advantage of.

Perfect. I appreciate it. And congrats on phase two. Appreciate it, guys.

Thank you, sir.

And the next question is from Paul Zimbardo from Bank of America. Please go ahead. Hey, good morning. Can you hear me?

Yes, we can.

Excellent. Hey, good morning, team. Thanks so much for the time. Appreciate it. Hey, look, I suppose a couple questions here. First off, just coming back to the guidance this year, obviously re-racking things a tad in the composition, just looking forward to 24 here and some of the knock-on effects, you guys coming off confident and kind of getting chewed up here, and specifically also reaffirming the 5-7 off 23. Can you talk about maybe some of the puts and takes as you look forward in terms of some of the pressures you're experiencing right now?

Yeah, and Julian, this is Steve. We talked about a lot of those in our prepared remarks in terms of getting back on top of interest rates and especially on the deferred gas balances, which is a phenomenon that we and many in the industry are dealing with, and I think we have a clear line of sight to doing that. We continue to manage O&M costs, as we mentioned a bit earlier, so I think that's another one of the places where I think we're very confident as we go into next year. And the beauty of where we stand right now is, is that we're not in any regulatory proceedings within our gas utilities, so we don't need a go-get. There's no rate change that's built into our thoughts as we think about 24 because we have nothing on the horizon at this juncture. So those would be some of the clear things in my mind that position us well, and the capital markets activity that we completed this quarter in many ways actually takes some of the interest rate risk off the table going forward.

I think we're relatively defensively postured on interest rates going forward from here. You know, bringing those balances down is certainly key. I think that's no different than most of our peers as well. And so, you know, feel pretty good about that 5 to 7 on a go-forward basis.

Right. So maybe more specifically here, with respect to the O&M, you feel like that's pretty much entirely offset. And when you think about the composition, you know, 23 might have shifted a little bit. The 24 composition, if you think about it that way, you're able to get a lot of the O&M such that we should get back to the typical earned ROE trends that we've seen in the utilities.

You broke up a little bit there at the end. But, yeah, I mean, we feel like we really, you know, we definitely are focused on O&M and the pull through there. And, you know, as we kind of guided in that 4% range coming in, you know, I think we have seen ability to get after that. We have a historical ability to get after that as well and feel good about staying going into next year.

Got it. Excellent. And then just coming back to the balance sheet side of the equation super quickly, I noticed the Alabama point yesterday from Moody's here. Can you talk a little bit more about just your commentary and the prepared remarks at least alluded to in intact metrics, and you talk about it in the slides, but can you talk a little bit about some of the plan here with respect to the subsidiary and overall financing plan?

Yeah, no, thanks for noting the Moody's report. We were very pleased to have Missouri come off of negative outlook and affirmation of our ratings. They did, as you mentioned, go to a negative outlook on Alabama. It's something that we had discussed with them before. That was not a surprise. But I think you could take that report also as an affirmation of what our execution on our plan and towards our targets. And it's something that we certainly stay close to both agencies on that topic. And again, we continue, I think you hear us continually restate those targets and progress towards those targets. And that does get wrapped up into our progress around our equity plans as well. which we continue with, but, again, still see that pathway towards our credit metric targets and feel pretty good about it.

All right, excellent. We'll leave it there. Suzanne, best of luck. It's been a pleasure.

And, again, if you have a question, please press star, then one. The next question is from Christopher Jeffrey from Mizuho Securities. Please go ahead.

Hi, everyone. Thanks. Maybe just two quick ones on Salt Plains. Just curious as far as the funding mix. I know it's not a huge acquisition, but whether that changed from maybe your typical funding for the expansion, for example, and then also just how much that's contributing to the guidance change for the midstream business for 23.

I can take that, and good morning, Christopher. We typically guide, and I think it's a good benchmark, that you can expect a 50-50 cap structure underneath the acquisition, and that was factored in to our updated financing guidance for this year. That's really the strength of SPIRE marketing and the ability to recycle that capital. So that offset that headwind and then some as we look at the balance of this year and, as Adam mentioned, to stay on track to get our credit metrics to our targets. You expect self-planes to be accretive. It's a small deal, so it does add a little bit to our accretion. But it's typically the case in the SPIRE world is in the stub year of acquisition, we do not include the earnings for any newly acquired entity, including any transition cost in net economic earnings, and then it's fully reflected in the first full-year operations. And we'll deploy the same thought this year. The short answer is no, it wasn't factored into the range for midstream this year, but you would fully expect it to be reflected in the update when we launch 24 days.

Great, thanks. And then maybe just more generally as far as lower natural gas prices, just kind of wondering a timeline of when and how you expect to see the benefits coming through either on working capital or debt expense or even if it could maybe shorten the the timeline on the deferred costs, deferred gas costs from last year. I don't know if that's possible, but if you could kind of just speak to that.

Yeah, this is Scott Carter. I'll take a first stab at that. But we're already seeing the benefits of that as it works through the dollar cost averaging for inventory and then our gas costs. Obviously, we're working through some of the backlog of that with winter storm purity costs that we're recovering over the years. and then kind of the higher gas costs we saw last year. But it's now in our plan. We're seeing it. Obviously, you're already seeing the impacts of it bringing down some of our working capital. But going forward, as we work off those balances, again, we think we'll get most of that done this year. You'll start seeing that then translate into lower bills. We'll assume the market holds up. We'll start to lower our gas cost rates to customers, and then that translates into the bad debt. So you've got the complete lineage correct, And we'll see that coming through pretty strongly, we believe, as we head into next calendar.

Great. Thanks, everyone. See you at AGA, and congratulations to Zach.

And, 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 all again for joining us. We'll be around the rest of the day for any follow-ups. We look forward to seeing many of you at AGA in a couple weeks. Thanks for joining.

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