Q4 2020 Spire Inc Earnings Call
Good morning, and welcome to the spire year end conference call.
All participants will be on a within only mode.
Since placing on caucus specialist.
Our key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
Dr Pepper.
All right and then one to withdraw your question on pricing.
Sorry to.
Please also note todays event is recorded.
And it sounded like to turn the conference call over to Scott Dudley managing director of Investor Relations Sir.
Sure.
Please go ahead.
Good morning, and welcome to spire as fiscal 2020 year end earnings call.
We issued an earnings news release. This morning, and you May access line on our website at spire energy Dot com on her.
[music].
My presentation that accompanies our webcast and you may download it from either on the webcast site or from Harvey.
Site under investors and on events and presentations.
Presenting on the call today are Suzanne Sitherwood, President and CEO.
The Lindsey executive Vice President and Chief operating Officer.
Steve Rasche Executive Vice President and CFO.
For me and again, let me cover our Safe Harbor statement.
And use of non-GAAP earnings measures.
Todays 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.
The risks uncertainties and risk factors that may cause future performance or results to be different than those anticipated. These.
These risks and uncertainties are outlined in our quarterly and annual filings with the FCC.
In our comments, we will be discussing net economic earnings and contribution margin, which are both non-GAAP measures used by management.
Are you waiting on performance and results of operations.
Explanations and reconciliations of these measures to their GAAP counterparts are contained in both our news release and the slide presentation.
With that I will turn the call over to yeah.
Thank you Scott and good morning to everyone. Joining us on spark is called 2020 full year update I'm pleased to report that in 2020, all other challenges we were able to achieve progress on our strategic priority.
On growth and solid financial on operating results, while advancing our sustainability objectives.
He was able to provide update on our capital investment.
Regulatory matters and operating for format.
Rachi will cover our financial results and outlook.
But first I'd like to cover the highlights for 2020 and provide a glimpse into the future.
That's for the 2021 and be on.
As you know nearly all of our business is from our gas utility. So it wasn't it's important for us to help our customers manage through a challenging year, while remaining focused on upgrading our infrastructure.
We continued our robust capital expenditure program with the majority of our spend focused on pipeline or twice that.
That's important work as the primary path for producing our methane emissions for Pratt and advancing our company's goal carbon neutrality.
We continue to achieve organic growth supported by our investment on new business and our economic development initiatives.
And we also continue to advance innovation.
Moving to upgrade of our enterprise technology management systems and appointment of advanced metering technology.
The other initiatives.
He could not have achieved our collective success this year without a dedicated Africa for 3600 incredible spire employees.
Ethical right of ours pandemic unfold. It earlier this year spire employees for its still our resilient stepping up to make the adjustments necessary to ensure that our customers on community well served simple.
For it and kept safe and healthy as possible.
I'm, especially proud of our efforts to support our customers seem to have still a system and other initiatives to help people cope with the financial challenges created by the pandemic.
For that and for their continued diligence in care and compassion in a very challenging time I extend my gratitude to each and every spire on employee.
This year, we advanced on regulatory matters in Missouri, and greater clarity on infrastructure replacement recovery a three way.
The passage of new Isrs legislation the resolution of half the Barterization bad debt under appeal and.
An agreement on our 2020 Reclass.
For also preparing to follow next rate case, which will reflect our significant investment and the state that's 2018.
Overall, we achieved solid performance this year.
Earnings for up over last year, despite the impact of the credit virus.
We built on our strong performance on the operations side.
Based on our solid performance and future growth opportunities today for launching on expanded five year capital plan totaling $3 billion 2025, and we've increased our long term growth target range. We now expect our earnings per share to grow to five to seven for SAP.
This is driven by our gas utilities with the focus on infrastructure upgrade and.
Right based growth, while continuing to step for emission reductions.
Aspire, we have an excellent U.S.G. track record a strong performance in the area of social and governance for.
Example, and 2025 was recognized by news, we want a 300 companies across 14 industries to be included in the goodness.
One of the most responsible companies in the United States.
Yeah fire was recognized by the women's for I'm in New York for having a diverse board of directors 30 for SAP female representation.
In regard for environmental sustainability spire continues to reduce carbon footprint on the low end greenhouse gas emissions.
For example, we're targeting methane emission reductions from 2005 level and have already achieved a cumulative 39% reduction day 2019, and expect to see further reductions on our numbers are finalized for 2020.
Hi, 2025, we are targeting a cumulative 53% reduction.
As you know our long term goal is to achieve carbon neutrality by mid century, and we're busy developing plans to do so.
On the main driver of on our investment pipeline upgrades.
Also looking at other means to achieve our bar met on call me.
These include renewable natural gas are on Gi hydrogen carbon offsets and energy efficiency programs.
For evaluating R&D opportunities across our utilities are already contracted for our energy supply growth and our cash ACA Green in Missouri.
The Missouri Public Service Commission has recently opened a working case to study and address the quality standards for by a GAAP.
We are actively engaged in this process and plan to seek approval to offer our energy and our upcoming rate case filing.
There's more work to be done to fully understand the feasibility economics and methane reduction potential RMG on hydrogen.
Other key considerations on determining how our on Gi for hydrogen might fit with our gas system included there.
They'll ability of surplus renewable energy.
Art investment in commodity costs, and achievable environmental basket from replacing some portion of our natural gas.
Also operational considerations, including the impact of hydrogen on our infrastructure and end users, including their equipment and facilities.
As we endeavor to advance our environmental sustainability, we're engaging with and leveraging the work that AJ. It's doing in fact I have a leadership position on the AG a board of directors and I can share a task force to help shape AG leadership on climate change and greenhouse gas emission policy.
With that I'll turn the call other Steve Lindsey Inc.
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Thank you Suzanne I also want to acknowledge the outstanding efforts for employees during a challenging year to deliver great operating performance for caring for and supporting our customers and communities.
Oh I get my remarks by discussing how we continue to invest to drive growth on achieving further improvement in operating performance, including safety reliability and sustainability on.
Also discuss the great clarity, we haven't Missouri regarding regulatory recovery of our investment for <unk> and from a rate case, we plan to file before calendar year end.
Starting on other capital program, we invested a total of $638 million in fiscal year, 20, including $548 million that our gas utilities.
From out we spent over $300 million on infrastructure upgrades for placed 318 miles of pipeline.
We invested $97 million and new business or new business and it's been growing every year over the last five years, we continue to add new meters are growing right back we have record new meter growth. This last year with new promise activations, including conversions on 7% over last year.
We also invested $90 million and non utility businesses, mostly for the completion of horsepower STL pipeline, which went into service last November.
Our continued focus on upgrading our distribution infrastructure drives rate base growth across our utilities in Missouri, Alabama, and Mississippi as.
As you can see our combined rate base growth grown from $2.6 billion in 2000 $17 billion to $3.5 billion in 2020.
Suzanne noted our capital spending focused on infrastructure upgrades Strauss sustainability also supports our mid century carbon neutrality commitment.
The investments, we make on our system technology and people lead to better operating performance in the areas of safety system integrity and sustainability as we further reduced for methane emissions.
On this water performance measures the show on improving trend over the last five years.
Aspire everything starts with safety I'm pleased to note that on point injury rate once again fell on our Osha dark rate was 1.56, 17% better in fiscal 2019.
Our damages per thousand locates an important measure how we prevent accidental methane Lisa held steady with last year's level.
For the same time or leaks per barrel from system miles fell below 50, reflecting what we produce as measured by two thirds over the last five years.
Lastly, we continue to have outstanding average leak response time for our customers, while showing improvement in many other operational metrics.
Now, let me turn to the progress we made in clarifying the regulatory recovery on investment in Missouri, starting with the resolution that's what matters I.
I would note that Israel has been a successful program for more than 15 years and that's produced very good outcomes.
Only to our customers and communities benefit from a safer more reliable natural gas system, that's fire benefits from timely recovery of our investment and it's important to upgrade work with minimal impact on customer rates.
At the same time or pipeline replacement work help support employment in the state, which aligns with the governor's priorities from workforce development and investing in infrastructure.
As we noted last quarter legislation was passed in Missouri effective August 28, the corner for the eligibility apart from one of great spend to be recovered on reserves.
So settled or two interest cases that were under appeal for Missouri Court of Appeals no.
No change in the amount of interest revenues, we can collect.
For a settlement with the Missouri Public Service Commission on our 2018 case, we agreed to make a onetime $15 million refund to customers in August.
In addition, we reached agreements with all parties in both of our 2020 is responding.
It was very public service Commission approved these agreements for a total of $18 million an incremental annualized.
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Why disapprove or annual interest run rate is $47.3 million.
Now, let me turn to our upcoming Missouri rate case, which we expect to file before the end of this calendar year.
Last month, we provided the required 60 day advance notice of our intention default rate case.
Even though we weren't required to file a case until October of next year. We believe that falling now is the right approach given our rate base growth, we need to recover and other developments.
Make our system greener safer and more reliable for our customers on communities, we've invested more than $850 million and infrastructure upgrade modernize our system.
Well propose new programs on options on our customers want ex back, including Orangeade that will support our commitment to carbon neutrality by mid century.
We also implemented a number of customer service enhancements, including an online customer portal technology platform enhancements and advanced metering technology.
An important consideration and the timing of filing our rate case is that spire, Missouri was reached its cap is there for not able to see any further recovery of interest eligible amount for the most receptor cap in order to continue the timely recovery are important infrastructure work.
Lastly, we want to combine Missouri, eastern Missouri, where spend or single tear up to reflect the integrated utility that we operate today to serve our 1.2 million customers from the state.
This will also ensure that all Missouri customers will be treated consistently.
From some timing a reminder, that rate cases in Missouri can take up to 11 months to be decided under.
That time line, new rates would be implemented late calendar 2021.
Although our last rate case completed in April of 2018 extended to the full time frame. Prior cases, we've worked to achieve settlements and left from the Maxim on time.
I'll turn it over to Steve Rasche, who for a financial review on up they see.
Thanks, Dave and good morning, everyone and let me add my wishes for good health and safety and thanks to our team for a job well done this year.
Now, let's take a quick look back at fiscal 2020, and then step forward and into 2020 wanted me on.
For fiscal 2020 net income includes the impairment charge from last quarter, So I'm going to focus on our net economic earnings which for the year were up nearly $13 million or 6.5%.
On a per share basis.
Net economic earnings was $3.76 per share up three cents from last year.
Looking at the results by business, yes.
Gas utility posted earnings of $213 million up nearly $14 million from last year. This.
This increase reflects a higher contribution margin due to Missouri esters, and the Alabama, RSC and our new off system sales program.
As well as lower overall I went on costs, partially offset by higher depreciation.
Other businesses from corporate expenses were $9 million lower than last year.
This reflects the earnings from the spire STL pipeline, which as Steve mentioned went into service last November standard.
And improved operating performance as bar storage.
Gas marketings earnings of $9.1 million were down $10 million on for from a year ago.
Reflecting both less favorable market conditions, and as we discussed last quarter, our pivot towards storage positions to take advantage of that situation.
As a reminder, this spring we saw a significant drop in natural gas demand on commodity prices due to cold it Bob.
This reduced volatility on near term asset optimization opportunities it on.
Also created significant seasonal price differentials as the market more cash than your growth I drop in natural gas production just as demand returns this winter heating season.
Take advantage of that situation, we almost doubled our storage commitments locking in the seasonal price differentials.
Put us on a strong position for 2020, 120, 20 and through the first quarter of our fiscal 2021, we are incurring the cost to procure and Jack and store gas each month.
Significant value will be unlocked on withdrawal generally in our second fiscal quarter.
Our base business and marketing remains intact and profitable.
In fact from an order of magnitude standpoint, roughly half of our annual shortfall from prior year and can be tied to incremental storage.
Let me touch for a second on several other key variances.
Natural gas costs were down, 17%, reflecting lower commodity cost and the gas utilities.
Operations and maintenance expenses were down over $6 million for the year after considering the reclassification of pension costs.
On went towards furloughs that line here on the summary.
Let me get on M. by business.
Cash utility Yamana was lower by $11 million, reflecting for lower operational and employee related costs.
These costs also reflect the net impact of cobot, non gene, which I'll come back to on just a second.
Yes, Mark any momentum was essentially flat from last year and.
And all other on M. expenses recognized the spire STL pipeline was placed into service, whereas the prior year operating results were included in other income.
And lastly, other income showed a run rate decrease of $12 million composed of two items first.
First as I just mentioned the movements on spire STL pipeline operating results above the line so to speak compared to the roughly $8 million on after you do see recorded here last year.
And secondly, lower investment earnings.
Overall, we partially offset the financial headwinds created by COVID-19 as outlined here on slide 13.
Lower fee revenue and higher bad debt costs have remained fairly consistent with our view last quarter we.
We have been able to offset these adverse impacts with higher margins and cost reductions.
And we now have regulatory clarity in both Missouri and Alabama.
Last month, the Missouri Public Service Commission approved our Cobra ill that first and foremost allowed us to roll out new customer weighted programs.
It also allows us to defer net cost totaling $3.8 million essentially higher bad debt and the cost of cobot response less cost reductions achieved.
Finally, the A.O.L. allowed us to attract lost fee revenues.
Oh that both cost and revenue amounts will be considered for recovery in our next rate case.
In Alabama, the RSC by design includes all cost of operations, including Coca impact.
Our yearend get back position ensures that we get our authorized or are we including those impacts.
Now, let's step forward into 2021.
As Suzanne mentioned, we've raised our long term net economic earnings per share growth target range, our 5% to 7%.
Reflecting the continued and consistent growth of our utilities and improved contributions from spire marketing.
That growth rate uses 2019, as a base year to remove any impacts of corona virus in the year just standard.
Let's start with that growth target, our net economic earnings for fiscal 2021 is expected to be between $4 and for dollars and 20 cents per share.
This range assumes continued reasonable economic conditions consistent with what we've seen in the back half of this calendar year.
We have also roll forward, our capital investment targets for 2025 and increased the total debt at $3 billion.
Our forecast for 2021 was also increased to $590 million up $60 million from our last forecast.
This plan ensures that we will continue to deliver safe.
Viable and sustainable energy to our customers and drives rate base growth of between seven and 8%.
As a reminder, our capital investment plan is well diversified across our service territories.
Reported might upgrade programs with long lives and regulatory mechanisms venture minimal regulatory lag for over 80% of our spend.
Finally, we updated for a long term financing plans over the next three years that includes a steady level level of equity paired with operating company long term debt in 2021 tied to our capital investments.
That was planned support our targeted credit metrics as noted here.
So in summary, we've stepped into 2021 and be on in solid shape, and we're accelerating our growth targets and our capital investment plans.
With that let me turn it back to you Suzanne.
Thank you, Steve and Steve.
I want to first highlight that our board of directors has increased the common stock dividend for 2021.
I think for the January can pay Matt fires annual dividends $2.60 per share on.
In the 18th year on a road that Weve increased the dividend.
Increase reflects the board's confidence that our growth strategy on plans going for it.
They realized that a growing dividend combined with increasing earnings are compelling reasons to invest on fire.
In closing, let me recap the key points, we discussed a day and wildfires can telling him back from them.
As you heard we continue to pursue growth through further investments on upgrading our gas utility infrastructure.
We believe a focus on our regulated business is the key to what makes spire an attractive investment.
Our business mix is ever 90% regulated insurance earnings stability on value.
Had a robust Capex plan day, 2025 totaling $3 billion at 98% that's bad for our gas utility.
And we get timely regulatory recovery on that now.
Our capital plan drive, 7% to 8% annual rate base growth, which supports our updated long term annual EPS growth target of 5% to 7%.
As I just discussed spire pays a growing dividend that offers an attractive yield and access on 4% based on our most recent stock price.
And we have strong U.S.G. performance for the focused effort to further advance our environmental sustainability.
Reduce greenhouse gas emissions on the way to achieving carbon neutrality by mid century.
See like for it to updating you on our progress on success on achieving our goals on fiscal 2021.
As always we appreciate your interest on investment in fire.
They safe and healthy now we're ready to take your questions.
[laughter] and ladies and gentlemen, with that we will be in our question and answer session to ask a question on the press Star then one on I touched on itself.
You are using a speaker phone we do ask you. Please pick up your handset before pressing the keys.
So withdraw your question you May press star on too.
At this time, we will pause momentarily to assemble the roster.
And our first question today comes from Richard thoroughly from Bank of America. Please go ahead with your question.
Hey, good morning, Thanks for taking my question here.
Hey, Good morning day Richard.
Hey, just curious on line.
Increase from the 5% to 7% growth rate you provide a breakdown on the utility of hers nonregulated earnings are in that outlook.
Hi, Ritu. This stayed on I'll take a shot at it and first before I go any further I also wanted to let everybody know that on Adam wanted our treasurer is joining the call center for you. If you stop me or more importantly, if I say something not incorrect the I'll jump in and correct that make sure I stay on track.
We are if you look at if you look on our mix of business Ritchie <unk>. Even if you were to put a run rate spire earnings were still 91 day and 92% utility and we we've opted not to break out the true clearly and we talked about it in our prepared remarks that spire marketing <unk> performance for the year for.
Look just at the numbers reflect the drag up on the storage positions, which was the right thing to do given the market opportunity and that will clearly come back I think you can expect that we would we would like to see items are getting get back to kind of the run rate earnings that you saw again last year in prior years. So that's.
She gave you some guidelines on how to think about the growth between spire marketing and utilities and frankly, the pipeline is just going to crank along under yeah, a reasonable at a steady level of earnings for years and years to GAAP.
Got it that's that's very helpful. And then just separately I may I see a pretty robust capex program here, but just curious how you're thinking about the strategic landscape I know there's a few.
Utility peer that had some gas LDC assets for sale.
I'm just curious on your thoughts on that overall.
Hey, Richard This is Alan I'll take that I'm sure my colleagues will add some color as well too as noted on the call no debt. We have had a few opposition since my tenure here and there yes, we know how to approach. These transactions at every one of these guys Ben I would say highly successful on many levels, including operational levels.
That being said, we are aware of certain companies at certain interest in selling certain assets that we take a deep evaluation on any of those assets and we don't even think about moving forward and lastly can create value not immediately but I've also for the long term, which you have seen exhibit from us and from the other utility.
He is that we've acquired.
Yeah, and Richard I'm going to add that our growth target range is not predicated on any acquisitions, but we'll we'll remain.
Turning on what's going on in the market and.
And I think we'd have to come on track record of anything we do there is a clear path to creating value excess value.
As a result of increasing scale and rich. This is Steve Lindsey just to kind of reinforce the 3 billion I think we're very confident that relative to our level of spend relative to infrastructure upgrades, which is very diversified across all of our companies I think that's great and getting all the interest things cleared in Missouri. So it gives us some clarity.
I think secondly, we have other opportunities for investments such as new technology I am I in some programs like that and then third or even with our new business that we've continued to see strong growth with a in Missouri, whether it's the west side of the state or Alabama, and Mississippi, We're starting to expand relative to our service territory. So I think when you add all those pieces together I'd just like to.
Good day, and as Steve mentioned other opportunities might emerge, but we're very confident in the plan that we have really for the next five years.
All right got it that's very helpful. Thanks, a lot.
Thank you [laughter]. Our next question comes from Charlotte.
Does that for rather from Guggenheim Partners. Please go ahead with your question.
Hey, good morning, guys.
Our.
Just a couple of questions here, you know just honing in on sort of the year over year growth into 21, so a little bit more short term versus the five to seven how much of the sort of debt increase year over year is kind of driven by the utilities versus marketing versus maybe the large storage position you build going into this winter season.
I'm, just trying to get a little bit of a sense on the year over year drivers.
Yeah sure. This is Steve I'll take a shot at it.
If you look at that.
Yep.
Marketing clearly underperformed this year based on its historic.
Average contribution which is it contributed just over $19 million two years ago and that we would expect it to get back to that run rate contribution clearly about for storage positions will help us regain Matt so that I think that's the one of the biggest movers that that you can think about we clearly expect our utilities.
Growth and we as we've already talked about we have significant investments yen and rate base will continue to see rate base growth.
We are in and recovery of way on.
We are going to see that slowed down just a little bit only because as we mentioned in the prepared remarks were capped out in the western side of the state in terms of additional interest so that wouldn't be a little bit of a headwind in terms of the additional capex on getting recovery on that but that's on that's okay that was part of our plan and one of the reasons why we.
We opted to file on the next rate case in Missouri. Here later this calendar year and the other thing I'd I'd point out is when you think about the cadence of earnings quarter to quarter and I did mentioned this in the prepared remarks Bob.
The cost per storage principally at this point that we're seeing and spire marketing on the back half of the year, we're going to see that in Q1 also so from a seasonality perspective, if I can use that term you're going to see more on the value for spire marketing concentrated in the second fiscal quarter, which is the winter because that's when we will.
For the gas that weve positioned with our storage on investments earlier in the year.
Okay got it but just can you just maybe just honing in on a little bit more exact that 9% growth that you've got year over year from base 2020 to the mid point of the 21 guidance is that predominantly coming from storage or is it regulated just trying to get a little bit more of a sense on that driver.
Yeah, I'm not marketing will have an outsized GAAP piece of it this year, just because of the storage position.
Back on our businesses to grow and and you know where they were clearly as with with everybody in the industry. We're still working through Corona virus times I think we've done a good job of offsetting the impact there on we look at that going forward and remember and 2020 did have.
Headwinds as far as for settlement isn't it nice for one deal for.
For weren't from where we were a year ago with the on the first Appeals court ruling isn't that a 180 degree change if I remember right that 2020 results. There were there were a handful a sense I think four cents worth of Bob on drag again, the 2020 results as a result of that settlement. So that clearly comes back in addition to just organ.
Net growth in the utility.
Got it got it and then.
Obviously, you guys highlighted some additional programs that you plan to file a in the Missouri rate case rights Archie I am I, except for have you sort of had any kind of initial conversations with stakeholders on these items any feedback so far and are any of these sort of items potentially incremental.
To your current capital outlook.
Well this is Steve on the I think it's early to really talk about the programs on the discussions because we haven't even file the case, yet, but I think what I can say is since the last case weve been engaging with all of the all of the constituents and stakeholders on the programs that we look to embark on whether it's for customers, whether it's for infrastructure whether it's.
Technology to really kind of put the why other here's why we're doing those here's what we expect to come from those so it's something we've got a pretty good stage and I think as you can see even recently in some of the settlements that we've come to I think all the parties involved are starting to work a little better together. If you think about it that way. So and then your second question relative to capital again, I think if you like.
About the capital that we're really looking out for our plan going forward is still focused on infrastructure new business.
My other types of technology, a lot of the things that we've either been doing or we're going to look to do so I don't think there's anything new and shiny that debt that we haven't done again of other opportunities emerge, we'll always consider those but I think we're really sticking to our plan and that's where we have for household competence.
Got it Super helpful and just lastly.
I know you guys stated in the past that you expected storage to be EBITDA positive in the quarter can we just get an update on that.
Yeah on.
We achieved our goal.
It was above the line for EBITDA.
EBITDA for the quarter I'm still under water for the year and our expectation going forward is it's going to be largely breakeven until and if we move forward and and we're going to use. The next day period of time, which can stretch for the next two to three years to evaluate the market opportunity and to seek regulatory from Malaysia.
Terrific congrats on the results guys.
Thank you.
Our next question comes from Richard Sunderland from JP Morgan. Please go ahead with your question.
Hi, good morning, Thanks for taking my questions here, maybe just starting real quick on a follow up around storage are there any changes around storage as part of that evaluation process baked into the growth rate or anything.
Anything beyond that sort of breakeven going forward expectation on incorporated.
Richard This is not at this point, it's we're early in our evaluation and again, we expect that take a bit of time its its clearly not factored in to our our long term growth prospects and and once we make a decision on how we want to move forward, which will likely be well on the future will make sure to come back.
On the market and explain what our rationale is for whatever decision we make.
Got it. Thank you that was very clear and then I just want to return to the Capex briefly if you can provide any color around the changes in the program now versus prior and in particular on some of the drivers behind the increased regulated capex as you move through.
The plan period, which I think is a little unusual where you often see declines overtime.
Sure and again on kind of go back to the for the anchors are really on program and so if you think about the infrastructure programs that we have those are anywhere between seven to 15 years and all of our jurisdictions again, I think having the clarity relative to Isrs provides us a lot more certainty going forward on that we were going to do the work anyway, but I think that really helps us from the from the.
Level of.
Return on it the other piece is again I think you go back to what for example, this year a $90 million relative to new business that sizable and that's good because that's delivering a longer term earnings opportunities from new growth in our system, we're expanding our system on the west side and in Alabama, and Mississippi, We just had a big kick off yesterday in Mississippi around.
On expansion into an area that we don't serve and then the other types of programs and my other technology I think those are the big buckets I would put these then everything else kind of common share with just the normal operations of a business such as you know fleet facility those type things, but those are the areas that we are focused on and that we think will have an opportunity to continue to grow for the next five years.
Yeah.
Great and just a follow up on the new business sense. So that's been an area of strength for you over the past few years I'm thinking about that going forward I can appreciate you have more line of sight to see this year versus two years from now but to the extent those trends continue is that fair to consider is additive to your capital program or would that potentially offset.
Other investments you have in the plan.
I don't know that I'm looking at is additive we've had five straight years of growth of new business year over year as well as five straight years of higher new meters other than the previous year. So that's a great trend I don't again some of it is we're a little bit at the mercy of the economy.
We don't know whats coming going forward, especially when you think about small commercial small business.
So what I will say is we've had an emphasis on conversions and so this year was our strongest year of converting customers. For example on propane to natural gas or already on our system. That's a great opportunity for us. The other parts again are the expansion of our service territory. So I don't know that I would necessarily say, it's a trend that will continue for us.
Five years, but I think we're very comfortable with the increased emphasis on efforts that we have that if there's opportunity we're going to take advantage of it and we're going to deliver on it.
Great. Thanks for that and one final one for me just looking for financing plan and thinking about the equity component on and they got to thinking around kind of about the common versus hybrid options and maybe what headroom you have there around the hybrids.
Yeah, Richard Yeah, Yeah that Bob on the financing plan is largely consistent with what we've seen in prior years and and as you know as you know we're we're up we're not along the bottom we actually are in the range on our credit metrics. So we're really trying to make sure that we have a balance capital structure. That's.
Our commitment to us and to our our rating agencies and to our investors and up we we as you know are pretty nimble and we stay pretty close to where the market is and we will evaluate where the market opportunities are when it's time for us to go out to market. It's great to have the ATM program.
And you can expect as you saw last year that we will continue to use that to our advantage, but as you mentioned, we're also looking at other vehicles that might achieve our goal and a lot of that will be predicated on how the market continues to value not only us, but it's really our sector on really it's the schmid utilities and we've been.
On on a pretty good run here for the last day week and a half.
As any of US that question is I'm sure you did on maybe he died a week or two ago. They said the answer may have been a little bit differently. Because we were on value driver I would say undervalued by the market. So we're going to continue to watch it and as you've seen on the past. We've we've years whenever vehicle makes the most sense to get cost.
Vector capital to continue to have strong financial position to support essentially the capital that were investing in the utility.
Great. Thank you for the color there and appreciate the update.
Thanks Rich.
Our next question comes from Michael Weinstein from Credit Suisse. Please go ahead with your question.
Hey, good morning, guys.
Hi, Mike.
Hey, just a follow up on that last question Hi, do you think you'll need any block equity to top off for the rate case or is it or is the ATM probably going to be sufficient for any common equity need going forward.
Yeah I.
They don't.
Bandwidth there that we have on our forecast we could clearly handle with the ATM and you know with regard to the Missouri rate case, we manage the capital structures of each our company is at all levels, whether it be the operating company on the holding company and you know we want to make sure that we have the right level of cash structure. That's.
For just the range at each of those levels and we'll continue to refine that as we normally do when we enter a rate case in Missouri since that's a on a range the historic range.
Case rate base day, you know.
Unexpected we will tweak the capital structure in order to get it to the right level that makes sense for us and ultimately from our customers in terms of the weighted average cost to capital.
I don't see it being a big driver one way hammered on it.
Gotcha and just the current capital plan, Inc. Already include the higher interest caps that you're hoping to achieve or is that no could we expect to see a higher and even higher for capital forecast out for the rate case is filed for.
So I decided I guess.
Yes.
Mike This is Adam the the current GAAP capex.
Capex plan I think is really status quo on that on that front, we're not planning on.
Additional cash cap room, there I don't I don't think that's the real driver for US yeah. It and really the cap is formulaically driven based on on the outcome of the revenue requirement. So I don't think we plan for anything like that again and the other part is again our diversification on both sides of the state do they are they for robust plan for a long period of time.
So it's not like it's contingent on one side or the other so I don't think relative to the to the cap if that's the limit or for US I think obviously go interest case, that's one of the drivers for why we're coming in a little bit earlier, just on and so again I think we've had some really good run rates that were comfortable with moving forward over the next several years.
Understood understood in other words, you you would you would build no matter regardless of whether there was an interest or do you just wait until the next day rate case, so that's not really dependent on that.
Well done.
I think two things one is that we are doing it for the right reasons, which is safety reliability and and the reason that we're out there doing this but obviously there is a right regulatory construct that we want to operate within and in this case isn't the first time that we have in essence hit the cap prior to the three year period. So this is a different world. We're kinda operating now, but that's a good thing because we really ramp.
So on both sides of the state and the only thing I would add and see maximizing mad more color as we do plan on let me make this filing its combined that's tied to this day to create basically on essence line utilities have these conversations in the future after that assuming the commission, let approved sites well quit talking about using last and basically talking about what net.
Yeah, I think that'd be helpful. That's yeah that that it was a good point I think.
Really we're trying to approach, Missouri in its entirety is we have 1.2 million customers was pretty everybody fairly the same consistently regardless of if you're in Kansas City or St. Louis and I think this was a one off day for us to take a step towards that in this interest rate volume.
On the political I went on I appreciate that it got on our legislative audience as well for Commission, Inc. I made some complications for them as well.
Right. So maybe just remind me I remember the last rate case, the us from one of the issues that had come up with the allocation of shared services across all day.
For institutions like in other words, a call center that was less physically located in Alabama, Missouri regulators didn't necessarily want to pay for their share of it or whatever you know I I are those issues resolved a cross border cross border and cross jurisdictional issues are those resolved at this point are those going to have to be addressed again on this rate case.
Yes, I guess I I think they'll always be something that that does discuss but I think we've provided a lot more transparent transparency and clarity around share service model is the net that comes with growth through acquisitions on expansion and again our share of service model. We think is very effective it's very efficient and if you're thinking about operating in multiple jurisdictions.
The best approach and so but as you go through the initial cases, sometimes there are some some challenges on that and presentation on any of the who's paying for water Where's that coming from but I think really weve done a good job of establishing a very efficient process, whether it's on call centers or engineering or the finance functions or I see and I think we're in a much better position in all on.
For regulatory proceedings going forward.
To justify the rationale behind how we set up our shared service organization and more recently I would say day. The commission was very focused on the customer experience him on our metrics for and we spent a lot of time for the commission staff on that very topic and they're very pleased so it's not as much about the location as it is that entire customer experience on what our metrics.
Like and what has enabled us to perform and see whether we can tell you more about this performance levels. What has enabled us to perform its just not the people, but the technology day that we've deployed for example, having on my account, where our customers can go on line and see their bills and be interactive online and do it in their convenience those kinds of.
Things that we all enjoy and that's really been there very focused which is good news because again our metrics on.
<unk>.
Year over year, we're on a good space actually.
Yeah, Steve you said before that you were hoping to get to the old run rate for spire storage on marketing her spire marketing what's that what is that run rate that you are hoping to get to and I guess, that's the after 2021 right because for women is going to be a good year.
Just over $19 million and on and 2019, but that's probably a good non neighborhoods good run rate.
It will be higher than that probably next year right because because of the opportunities.
Now for we're starting at 9 million. So if we can get Batman relative.
For a pretty big step up.
I see I see so [laughter], Okay and one last question for me on this is more of a long term strategy question, but.
Yeah can you comment on the on your view of long term load growth.
As the country itself just moves forward towards increasing electrification of load day no currently serve with natural gas oil and coal you know just up there has been an argument that yeah, I I guess net argument, but there's been some some concern among some investors out there right that gas utilities have a secular decline in their opportunities.
Growth if you look out far enough for 20 years, and you know me and that they deserve to trade at a discount because of this.
I don't necessarily agree with that but I am I would I'd love to hear your your point of view on that just in general.
I'm glad to hear that you don't agree with it because obviously, we don't agree with that either and part of the reason we don't agree with it is first of all natural gas is only 4% if you well the total greenhouse gas emissions and Steve Lindsey went live on pipeline replacement stats on the yeah the amount of time.
Methane reductions because on the infrastructure, but more importantly on the domestic fuel its green at the bond debt and say, that's economical and efficient. It's all those things and then if you go to electrification side of the house to add.
To quote electrify the entire energy sector in the United States and not take advantage on having that natural on benefit of natural gas and the amount of cost that wed be shopped onto customers and a residential and small business and EPS industry level I would make us on competitive in the world and last our customers that resident.
So from a business levels could not for it I mean I've heard estimates from nine to 590 billion to 1.2 trillion 2035, that's staggering when you think about it on the individual customer and if you think about just on filing rate cases in the process. We go through and trying to contain our cost and seek these recoveries to commission.
It's just for somebody that's been in this industry for 40 years I find it very hard to believe that our customers on our regulators are going to have a tolerance for putting that kind of cost structure, where the science doesn't support it, especially again given as a country have an abundance of natural gas we have the infrastructure in place nice GAAP company to modernize.
Hi, its facility and we're deploying technology in a way that customers are engaging with us in a way that really benefits I can sort of go on and on about this topic, but I'll I'll just sort of stopped there well I think the one thing that I would add to what Suzanne talked about is we're taking an active role whether it's at the federal level state.
Level or local level with trying to educate policymakers, whether it's legislative whether it's regulatory whether it's local mayors, but.
Before you make decisions, let's understand the consequences on all the points that Suzanne hit on I think it's incumbent on us as a company and as an industry to make sure that people that are making decisions really understand the long term benefits or impacts or consequences of those decisions and I think you know or other front economic development or affordable energy reliable energy environmentally friendly.
Energy, we've got a great story, and we need to continue to do a good job telling them and that's why I've got I'm Gonna say more [laughter]. That's one other reasons that we came out early on said, we would be carbon neutral by mid century, we wanted day not only capture the reliability resiliency and safety on our pipeline replacement program that we want to educate our customer on that our investors on on the back.
On a fit those investments from on carbon neutrality basis, as well and that doesn't mean that we're not looking at other opportunities like Orange County on hydrogen those kinds of things. We are we're doing it as a company on as mentioned earlier on my role with the American GAAP Association as an industry looking at these types of technologies.
So we're focused on that we also believe our product well that's 20 years from now on packed in a very good way serving our customers.
Hi, Thanks, a lot guys and I have pretty weak.
Bye.
And our next question comes from Brian Russo from Sidoti. Please go on with your question with your line.
Hi, good morning.
Correct.
Just to clarify with the understanding that you won't be falling.
Interest for Us and Missouri, West 2021, due to the cap what about Easter I know you're still under the cash but are you going to postpone that considering you'll be involved on a rate case.
No Brian our history is that we will file for this for US about every six months, even if we're in a range of receding and you would expect that we would do that because we're continuing to invest in infrastructure upgrades across the state. So we'll take advantage of Miss for us the best possible it will likely be involved in.
The adjudication of other rate case, but we want to make sure to stay on the case.
Okay got it and just remind me what are the mechanics of the various for US is it a percent.
Of revenue just trying to get a feel for what kind of increase in total.
Spend you can recover over the next three years to potentially avoid having to file a rate case sooner than that.
Yes.
Yes risk cash is set at 10% of the awarded.
Revenues from a rate case, so once we get from we're sitting here a year from now and we'll be talking about.
Hopefully the rate case in our in our rearview mirror or you can look at for total award.
In terms of customer rates of growth rates and 10% of NAV would become the on the cap NAV would apply to us.
Okay got it and then just lastly on the dividend the dividend increase that was announced a 4% versus for 2021 versus.
The increase in EPS CAGR for five to seven.
I guess my first question is whats your target payout ratio and how should we try to.
Look at the dividend growth outlook versus the increased.
Any yes.
Outlook.
Yeah, It's a great question for.
Yes, Steve you are right when we think about our our.
Our dividend, we do focus on the payout ratio our target range is 55% to 65% and we're right about at the top of that range and that clearly was one of the considerations and raising our dividend.
Two to $3.60 on the website increased second biggest in our in our history. So it's not that it isn't.
Just a good size increase.
Yeah that puts us within our range and then I think as you go forward and you can think about.
The growth that you would expect from our earnings would drive to the same level of growth expectation that our dividend remember we've been paying a dividend for 76 years at 18 years of increases and we understand that and we believe that portion of our earnings that will continue to grow we should be sharing back with our.
With our equity investors as part of their total return.
Okay also the DRG landfill agreement that you disclosed in the presentation could you just add a little bit more detail, what exactly or service or are you provide interest transporting R&D through through your pipes is it margin positive for getting a fee just curious.
[music] Yeah Bryce.
That's it that's just the interconnect agreements for now we're.
On a more to come on that.
Okay. Thank you.
And our next question comes from Selman Appeal from Stifel. Please go ahead with your question.
Thank you good morning, I'm I just wanted to go back to spire marketing for a moment in your opening comments you talked about taking on additional sales.
Storage as you saw the volatility increase it clearly has guided to recognize earnings in Q.
Q on Q2.
But that said as I think about it longer term debt.
On the storage contracts roll off fairly quickly or should I think about those having tenor to three to five years and therefore, you know the volatility to continue in order to try for return overall for spire marketing.
Yeah, Hi, Selman, it's great question for spar marketing with a few exceptions.
Our our storage positions are seasonal so they are less than a year and so just as we ramped up.
And doubled our position in the spring time of last year will go for the same assessment once we see what the market looks like as we're exiting the on the winter season, there's a level of stories thinking about as the base level of stories that we would have in our business that we need to have in order to serve our customers because remember remembers for logistics business.
As for recurring gas transporting it storing it when necessary and selling it to our customers when they need it in it and that is a seasonal demand generally during the winter heating season.
Understood. Thank you for that and then.
A number of times you talked about the cost savings that I'm. Just wondering is there more of that to come as we go forward.
You know, we've got a history of on keeping our on I'm costs down and this year you can look at the numbers from for gas for that gas utilities and again, we've been able to control. Those you have we we use a combination of investing in technology and other things that make us more efficient, but at the same time we on.
Our investing where we need to in order to drive, especially things as Suzanne mentioned like customer experience and making sure that they have the right availability add experienced with our with our customer service team. So we do try to balance that we're always looking for ways to at a minimum offset inflation.
Inflation, so that we're keeping that component of our customer's bill under control, so that and when we add in the rate base growth, we're not wasting our growth on that back from our customers debt and other give you think about in the utilities specifically on that.
One of the comments, we mentioned earlier is that over the last five years, we've seen a 66% reduction in links per thousand miles that goes to over now obviously, all the safety environmental all the other things that we talk about but over a period of time leveraging the technology a union some things such as as workload planning to really become more efficient and the go forward.
I think a lot of those things are studying on wells. When you think about the capital investments all the benefits that we always talk about are there, but ultimately they should trend line, so when im cost savings as well.
All right. Thank you very much.
Uh huh.
And our next question comes from Andrew Levy from items. Please go ahead with your question.
Hey, good morning, how are you.
[laughter].
I'm doing well thank you.
Just to from not mistaken, it's very for challenges going on with the as to how the pipeline comes from environmental groups.
Yeah, and so any that's relative it's basically a challenge of FERC, a and that's where the environmental Defense fund and so we continue to feel very positive about the pipe in service that's doing a great job and so yes. They are the profit this moving for.
For it and that will ultimately I think you'll have some steps from for challenges, but all they got any different than most of the others, but that's not specifically with us that's more of a FERC approval of the process.
Okay, so could it because I'm not that familiar with it. So could you just explain what court bits and what's the status of that case.
And for the Environmental Defense Fund.
What are they specifically challenging if I, if I remember correctly I think it has to do.
Maybe like a news the news flow versus you.
You know that enable pipe existing or something like that and.
Certain rules weren't bothered or am I mistaken or maybe just could explain et cetera, I'm really not that familiar with.
Hey, <unk> this.
This is an obvious I guess [laughter] yeah. The FERC approved our pipeline, we obviously on the not filled nor acadiana pipeline without FERC approval. We went to the tried and true for decades for process and again have approval on that pipeline on EPS did file on I guess I would say.
<unk> same challenge to that FERC certificate for the DC Court on.
There's a legal path for <unk> to the extent that we have to most likely.
And they will remain on it back to for would be my guess, but I I don't know that for a fact, but either way that DC court are PERC themselves well have to deal with a matter of fact again, we filed the FERC process and have FERC approval and [laughter].
[laughter] give me on the other piece on that it's interesting to me that I find been functioning now for every year and it's created great benefits for other region on St. Louis in terms of the gas supply that's being brought into the region the loss and be able to show that from an operational perspective, it's created great.
Operational benefits because of where that gas is delivered in the region on upholding pressures insist on and allowing economic development that wasn't able to really happen with the support of natural gas for Sarah My point is there that we have great operating information that we can offer for both <unk> and again for me. The punch line is FERC approach.
And is it a pipeline we went to you know decade. The old process. If you will for FERC approval, we have that approval and we built the pipeline and it isn't survey that.
Well when it when we.
Well, maybe we hear from the courts.
Well from the court I should say NAV courts court.
Yeah, I think I get ahead of it for yeah, I don't Wanna.
No not on timing wise and that has has all like kinda oral arguments and all that been made on we're just waiting for a for.
Final decision or is there still a gary on a legal process going out beyond the final.
Yeah.
You know on to get so it's so low on our radar screen given the precedence of other D up challenges about pipelines and strong precedent that the FERC isn't going to allowing and VC corridors and good I'm here the argument and well we'll take on what we can get back on.
Okay, Great Scott of Scott, Okay, Scott will get back. Thank you. Thank you very much.
Thank you.
And ladies and gentlemen, without well on today's question and answer session I'd like to pass the conference back over to the management team for any closing remarks.
Great well. Thank you all for joining US we had a lot of things to say today. We appreciate all your interest and your questions.
We'll be around the rest of the day for any follow ups take care be wealthy say thanks, everybody. Thank you.
And ladies and gentlemen that will conclude today's conference. We do thank you for attending.
Now disconnect your lines.
Oh God anyway.