Q2 2021 Spire Inc Earnings Call
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Good day, and the bulk of the spire, Inc. Second quarter earnings Conference call. All participants will be of muscle all of my luck should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
For todays presentation, there will be and opportunity to ask questions.
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Please note. This event is being recorded I would now like to turn the conference over to Scott Dudley. Please go ahead.
Good morning, and welcome to the spire fiscal 2021 second quarter earnings call.
We issued a news release this morning, and you may access and on our website and aspire energy of Dot com under newsroom.
There's a slide presentation that accompanies our webcast and you may download it from either of the webcast site or from our website under investors and then the events and presentations.
Presenting on the call today are Suzanne <unk>, President and CEO.
Steve Lindsey Executive Vice President and Chief operating Officer.
And Steve Rasche, Executive Vice President and CFO.
Also in the room with US is Adam Winter, Vice President and Treasurer.
Before we begin let me cover of our Safe Harbor statement and use of non-GAAP earnings measures.
Today's call, including responses to your 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.
And our comments, we will be discussing 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 and their GAAP counterparts are contained and both the news release and the slide presentation.
That I will turn the call over to Suzanne.
Thank you Scott and good morning, everyone. We appreciate you joining us for our second quarter earnings Conference call.
As the company, we're always stepping forward to deliver on our mission and.
The answer every challenge and advance every community and enriched every life day, the strength of our energy Inc.
Ground ourselves and this mission every day to reach our full of the casual and serving our customers communities and shareholders share.
And challenging times came our way we know the path to take.
Past 12 market, and particularly challenging that the coronavirus pandemic Alibaba of extreme weather and the mid continent and.
And if it can really disrupted the supply and pricing of natural gas across many areas of our country.
Combined impact of these challenges tests and our industry.
Our company and our employees and many ways and tested our strategy our operations of our technology system and our agility.
And that context I'm pleased to report the fire performed exceptionally well across all our businesses.
First our utility of successfully delivered essential energy to our customers and communities throughout the weather of that.
Our ability to deliver what's the result of our consistent approach to determine and plan.
First the array of assets, including storage and transportation and gas supply.
The Shining example of our reliability planning process with our decision to construct the spire STL pipeline.
This pipeline allowed us to connect to lower cost reliable shale gas at a critical time.
Another example across the utility footprint as our upgraded delivery system that is and fortify and multi year investments and the resiliency of our distribution system.
Well gas utilities, our primary segment, our gas marketing business was off of our position to serve customers and you might recall, we increased spire marketing storage position heading into the 2020 winter season.
When February the cold weather hit spire marketing was able to meet customer needs are accessing gas supplies and a critical time, which also allowed us to realize the incremental value due to market volatility.
For all of our business units success has everything to do with solid planning and investment and resources and technology and the sites to try and action by the team.
In terms of moments like this and our spire and play sign we are committed to answering challenges and taking the best care of our customers.
And this shows up and our day to day work, but also in the late night hours of Cold Winter day when supply of short the situation is fluid obstacles are great and communication of the key.
Regardless of the circumstances.
By our employees don't quit until they get the job done for them and so much more I'm forever grateful.
Moving to our financial performance for the second quarter, we reported strong net economic earnings of $3 71 per share showing solid results from the utilities and exceptional earnings growth. Thanks to the performance of spire marketing.
The Rajeev will provide more details and a moment and I'll also highlight our revised earning guidance and financing plans for 2021 and beyond.
While maintaining the resiliency of our operations, we've been advancing our ESG initiatives and commitments.
And I'm pleased to share of the next Monday May 10, and firewall issue of 2020, corporate social responsibility or for our CSR report.
This digital report and will prefer.
The update on our environmental social and governance commitments, including our promise of being a carbon neutral company I'm and century.
And as part of our environmental focus we continue to make significant progress and reducing methane emissions.
As the chart on the slide shows we've achieved 43% reduction and 15 years, which represents even more improvement from the 39% reduction reported in 2019.
Based on the we've also increased our reduction targets through 2035.
Other highlights and Rcs are report include initiatives and programs and support the communities, we serve plus of a deeper focus on inclusion and diversity.
Starting Monday, you'll be able to access fires CSR report on our website aspire energy of Dot com.
Now I'll turn the call for Steve Lindsey to discuss how we're continuing to deliver on our commitments to our customers and employees, while enhancing our operational resilience and driving growth through our investment day.
Thank you Suzanne and I want to Echo your acknowledgment of the efforts of our employees and maintaining safe and reliable gas delivery operations and outstanding service for our customers during the heart of the heating season, especially in the most of the February of cold weather events.
And carefully to ensure we have the right resources to handle the coldest days of the year.
Certainly not unexpected the extent of the cold weather, we saw for the impact it had on supply prices for overall market conditions.
Thanks for our thoughtful preparations we came through the storm and great shape, keeping gas flow into our customers and communities without interruption.
And getting the prior summer, we took steps to secure the supply of transportation and storage resources to ensure we were well positioned from a gas availability perspective.
STL pipeline and played a critical supply role for our Missouri customers, providing access to the Marcellus and Utica basins, which were largely unaffected by the cold weather.
The days, leading up to the February storm, we activated our incident support team, which is made up of functional leaders throughout the company, including operations and gas supply.
And this team stayed extremely active prior to during and after the event and ensuring that we were executing on our plans and making necessary adjustments when appropriate.
The examples of actions taken were changes and supply sources receipt points and control.
And actual modifications to ensure optimal outcomes for our customers from an operational perspective.
We also did our very best manage our cost of gas our estimate of the net net gas costs are and the weather event is approximately $110 million, which reflects projected offsets include and recovery of penalties assessed against the handful of nonperforming marketers.
And are pursuing these marketers for tariff based gas costs and penalties not yet recovered.
For all system sales, we were able to mitigate some of the higher cost of the gas we incurred for.
<unk> fortunate to have diversification of supply of that reach beyond the effect of regions. Our conservative approach. The gas stores also mitigated the impact of unprecedented gas prices we witnessed.
Our net thanks to prudent planning and proactive management, we're able to manage through this weather event and a manner that will minimize the impact to our customers.
Our ability to keep raising the bar and deliberate when it really matters the most price.
Investments, we've continued to make and upgraded strengthening our system and and deploying technology.
This drives greater service levels, both in customer care, and our field operations greater system integrity and stronger resiliency, while supporting our environmental commitments. Most notable the methane emission reductions that Suzanne mentioned.
Capital investment and our utilities of the foundation for serving our customers. We continued on pace with our Capex plans for the first six months of our fiscal year.
Total spend was $304 million, including just over $280 million for our gas utilities.
Pipeline upgrades have been the lion's share of our spin for nearly $150 million year to date.
At the same time, we continued to ramp up our investment and new business, which totaled $75 million and was up about 40% compared to last year.
I would note that our non utility investment was down considerably due to the lower spend for spire STL pipeline.
We remain on track for our full year Capex target of $590 million, 95% of which is focused on our gas utilities, which drives 7% to 8% rate base growth.
Meanwhile, we're continuing to move forward with our Missouri rate review, we filed back in December.
As a reminder of the rate reviews really about recovery and the significant capital we've invested to make our system safer more reliable and resilient and greener, while implementing a number of service enhancements.
Over the last several months, we've been working diligently to complete numerous data request and the staff of the Missouri Public Service Commission and other interested parties as they prepare to file their testimony and the case.
The other calls for their testimony on revenue requirements to be filed on May 12, and this will include recommendations on return on equity capital structure and other items used to set rates.
Two weeks later, they will file their testimony on class cost of service.
Words rate design.
The other milestones and the process include update to our test year through the end of May followed by local public hearings in late June and formal hearings before the Missouri Public Service Commission in July and August.
The noted before our goal and expectation is to reach agreement on key issues sooner than later and ultimately get to the timely settlement.
Before I turn the call over to Steve for ISG I wanted to note that in Alabama, and Mississippi laws have recently been signed that will ensure individuals and businesses and those states will continue and the ability to flow natural gas as their fuel of choice with that the ratio will now provide a financial review and update Steve.
Thanks, Steve and good morning, everyone and let me add my thanks to our team for their outstanding service to our customers. During this historic period of weather.
For the second quarter, we delivered consolidated net economic earnings of nearly $196 million from $3 71 per share up from $144 million or $2 75 per share last year.
Our gas utilities earned a $160 million of $15 million on higher demand and this was revenues as well as some prior year headwinds that did not recur this year.
Gas marketing successfully navigated the challenges from winter storm, Yuri and the chaotic market conditions that resulting earnings nearly $40 million.
And all other businesses and corporate costs improved by just under $2 million, reflecting better performance by spire storage.
Looking quickly at a few details.
Not surprisingly total operating revenues of $1 1 billion and were up 54% from last year on higher demand and commodity prices.
Likewise, the contribution margin increased $63 million and 17%.
Gas utility margins were higher by $22 million due to first higher volumes for the quarter temperatures overall were slightly warmer than normal, but we were between 11% and 32% colder than last year, depending upon geography.
And secondly, more effects of weather mitigation and Missouri.
And lastly, higher RSC and interest revenues, including a prior year of interest provision that did not recur this year.
Gas marketing margins were up by $49 million on and any basis.
Spire marketing team rose to the occasion, marking and a very challenging market to serve their customers and.
And our margins were enhanced by the withdrawal of gas from storage, including the incremental storage and physicians we added last summer.
And like many other energy companies our results for the quarter also reflect our current estimates of ongoing negotiations on commercial disputes of rising from here.
Looking at a couple of other key variances and natural gas costs were up significantly consistent with higher revenues.
Operations and maintenance expenses on a run rate basis were up $3 million after removing the impact of two adjustments outlined here on slide 11.
First the reclassification of pension costs, which we've discussed in prior quarters and has no bottom line impact and.
And second the Missouri Supreme Court ruling on our 2018 rate case of appeal.
In February the court ruled in our favor regarding $9 million.
This allowed pension cost and rate base.
And since <unk> was remanded back to the public service Commission for reconsideration and as a result, we recorded a reversal of the write off for GAAP purposes.
And this reversal is not included in net economic earnings.
Excluding these two items run rate O&M expenses reflect higher gas marketing and corporate costs, partially offset by lower operations and employee related costs of the gas utilities.
Other income net of the reclassification reflects higher value of investments associated with our non qualified plans.
And finally income tax expense and was well above last year on higher taxable income and earnings mix.
We maintain a strong financial position and and a challenging quarter. We further strengthened our balance sheet and liquidity and delivered good growth and adjusted EBITDA.
Long term capitalization remains balanced and including our highly successful $175 million equity offering in mid February at very attractive yields and conversion premium.
And the proceeds of this offering could not have arrived at a better time and the middle of the winter storm.
Our financial flexibility remains excellent with over $675 million of liquidity and cash at quarter and buoyed in part by of $250 million term loan and spire, Missouri.
Now turning to our guidance.
Marketing's first half results, we are raising our fiscal 2021 earnings target to a range of $4 30.
Two $4 70 per share.
And we reaffirm our long term earnings per share growth target range of 5% to 7% as well as our five year capital expenditure target of $3 billion.
And as Steve mentioned, we are also on track with our current Capex forecast of $590 million for this year and ensuring that we will continue to deliver safe reliable and sustainable energy to our customers, while continuing to reduce our methane emissions.
Our plan is well diversified across the service territories supported by upgrade programs with long lives and covered by recovery mechanisms that minimize regulatory lag.
We have also updated our financing plan through 2023, reducing our equity needs and each of the next two years given our strong position at March 31.
So all of that's where I started.
And the most interesting and somewhat say historic quarter, we delivered.
For our customers our communities, our environment and our investors and we are well positioned to sustain that momentum going forward.
With that let me turn it back already of Suzanne and thank you.
Closing, let me once again make the case for spire is a compelling investment.
And Steve Lindsey noted, we continued to drive operational resiliency and growth and investments and upgrading our gas utility infrastructure as well as new business. Our business mix is over 90% regulated which support long term earnings stability and consistent growth we have.
Invest and our talented and focused workforce and management team and.
Evidenced by our performance and the extreme winter weather.
And we Havent robot the Capex plan and timely regulatory recovery that underpins the long term annual growth and rate base and the earnings per share.
We also have a growing dividend and the offers an attractive yield I would note that our board of directors declared the regular quarterly dividend last week and.
And we have strong ESG performance, including a focused effort to reduce greenhouse gas emissions and support of our commitment to becoming and carbon neutral company by mid century.
As always we appreciate the time you spent with US today and your interest in spire and closing we look forward to connecting with many of you at the upcoming virtual <unk> financial Forum and a few weeks until then stay safe and healthy now we're ready to take your questions.
Yeah.
We will now begin the question and answer session.
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At this time of a pause momentarily to assemble our roster.
Our first question today will come from Shar <unk> with Guggenheim Partners. Please go ahead.
Hey, good morning, guys.
Hi can you hear me.
Speakers your line may be muted.
Yes, alright.
Hey, good morning Shar.
And the wonders of technology.
Thanks.
First of all of the button.
Love to start maybe with the rate case, it's obviously, a key moving pieces for 'twenty one and.
Any updates on sort of how the conversations are progressing so far I mean understanding it's kind of still early days I mean do you have the kind of sense on maybe where some of the parties stand on the issues and I'm really maybe also thinking about some of the other items proposed and the case like combining east and west the advanced metering.
Tech upgrades and R&D.
Thanks, John and thanks for the question and Steve Lindsey.
Start.
I think we just want to anchor back to the wire for this rate case.
And this is really about capital recovery, if you think the <unk>.
And over $850 million of actually reached our cap relative to interest and Missouri West.
And the other part about this case is very consistent with the outcomes from the last case from the Commission's decision and we think we have very strong positions on this and the other parts I think are interesting because we are introducing some new programs again really focused on what customers want whether it's around some LNG options from other types of service technology.
So I think this is a I would call. It a customer first type of case and that's the reason we're in here again yanker back to the wise and I think that.
That's why we're in now the really the part of your question around early discussions and things like that that's what the next several weeks will bring about as you know the schedule in terms of the filings. So so that's one of a lot of the discussions will start after that so I think it's probably the early for us to speculate on that but the same the same items are always relevant and cases, such as ROE cap.
Structure all of those type of items. So I think this won't be a lot different I think the last one that was litigated set us up with a pretty good framework as we go forward and we're very comfortable.
We move forward with this one the other part of it. Thank you mentioned was about combining the two utilities I think thats something we really strive for bringing in <unk> years ago, and I think that helps us to be more efficient for the $1 2 million customers across the state and really provide everybody the same opportunities whether youre in Kansas City St. Louis Joplin wherever you are.
Really the benefit from that and when they are disconnected, sometimes some of the efficiency opportunities really arent there.
Got it got it that's helpful. Thank you for that and then obviously on the first quarter call you guys announced joining <unk> future and Thats, obviously focused on reducing methane emissions from the wellhead to the burner tip and I'm wondering if you can maybe just outline the opportunity for RMG and your system you have some R&D and the <unk>.
The case and then are you considering any I don't want to call it unregulated, but non utility investments and R&D, maybe similar to one of your LDC peers announced yesterday and New Jersey.
Hey, Charlotte Suzanne I'll start with the Nonregulated piece and then Steve is our lead on that with that organization and I'll pass it back to him and as.
And as far as nonregulated interest and we're studying what's available and the market that we're highly focused on our utilities and what day. They can do on behalf of our customers either and the rate structure itself or the PGA and sue.
Part of the reason, we joined the organization that you mentioned and I'll pass it and Steve and between EBITDA and that organization and there are other organizations, we and the industry our collective learning and one of those investments might look like in terms of the benefit to our customers and our shareholders and but it's definitely and part of.
And the industry on a go forward basis, and and Steve If you want to get too.
And so I think as we've looked at the opportunities. This one belt right for us given the other companies that are part of that as well.
All of the opportunities I think you get from scale, whether youre looking at process changes process improvements and advanced technology.
At least the initial benefits we see are really collected for our industry not necessarily just for our company and I think thats, where the focus of.
And then even if you back down to the company level, obviously, we've been very proud of our methane and.
Emission reductions if you go back for 2005 were well over 40% now we continue to accelerate that number primarily through pipeline replacement, but I think of lot of that is through our advances and leak detection of some things relative to damage prevention all of those improvements and and even if you think about such things as our ultrasonic.
And at meters that we're starting to deploy and the southeast will continue to do that across our footprint, that's going to reduce field trips and that is vehicles going somewhere and so I think that has the positive impact as well and I think there's no one big homerun on there. So I think theres a lot of singles and doubles, but I think part of joining the organization was to give us access to some information opportunities that.
As an individual company, we might not have but again I think collectively as an industry, we're moving and the right direction and the same for us to really stand up and take all the credit for that.
Got it got it and then just lastly for me on the storage side that obviously it took a bit of a back seat and your and your messaging. After you guys initiated the review of the segment and the market when you.
And final for multiple paths of FERC.
The updates on the review process. So far when should we expect addition of visibility on that path forward for that segment and has your viewpoint changed.
Post sort of the weather event.
Well and again this is Steve So I think first and foremost what I would like to say is we delivered on what we we're committed to for our customers through this winter and.
From a safety reliability and to be quite honest, we bounce from opportunities as you can imagine that emerge. When these types of events occur really nothing to report right now in terms of the future, we're still and that the developmental stage. We're looking at the markets. We're looking at the way things are changing and dynamics, but the thing that I would be most proud of is that literally all of them are about the last.
Year, and a half we've really stepped up and improve the operations of the storage facility and then we'll continue to evaluate that as we move forward.
Terrific. Thank you guys, congrats and I'll pass it to someone else. Thank you Charles Thank you.
Our next question will come from Julien Dumoulin Smith with Bank of America. Please go ahead.
Excellent and hey, good morning team. Thanks, Thanks for the opportunity and the congratulations on just the holding it together this winter well done altogether.
Thanks Julien.
And indeed quite of time.
So I want to pick up where charges left off if you don't mind I'm looking at the gas marketing. Obviously this last year. The performance is certainly something of an anomaly one would hope.
But given the amount of storage capacity of carried into the season compounded with the winter weather events can you give us your thoughts from the segment going forward and specifically around run rate guidance. If you will.
Any hedges any incremental ability.
The visibility relative to the $19 million to $20 million that you've talked about historically.
Yeah, Julian and good morning, it's of Great question, and and I think you hit on it.
The first and foremost like the utility of the gas marketing team rose to the occasion and what sometimes since theyre down in Houston was the.
Third world conditions that many folks and customers and Houston were dealing with and the did create a lot of value and you're right going into the.
That's part of the heating season with extra molecules too.
And at least for the market actually allowed us to not only meet our customers' needs, but create a lot of value. This is the one time event and it's.
And it's interesting if you look at our year to date results were about <unk> that run rate that you that you referenced and I think that's a good way to think about what the what the the.
Extra value of that we're able to create as a result of winter storm Yuri.
We're still studying where the market is going to go and you know you filed this pretty closely we're watching rig counts and and gas costs and we're looking at storage value and positioning as we go into the next winter and it's.
And just kind of set up as a pretty interesting summer we're behind on the overall storage is in the industry from where we were against the norm and and Henry hub is hanging right and they're just below $3.
And that Btu of which is kind of and interesting place to be and so we're watching that pretty closely and in terms of overall expectations I think we stand with the.
The comments that we made earlier that we expect that business to be of solid contributor and if you look at that range. The you referenced in the debt.
But low 20 range. That's a good place to think about the base business, which is preparing and transporting and delivering molecules to our customers and a few other services now we would expect that to grow over time, but it'll grow within the range of our overall growth guidance and of course of this year, we will have that outsized return based upon our ability to.
And take advantage of the market conditions and and.
The back half of February and Joanna for Mike.
And sort of to add onto what Steve thing because that means and extremely important points and the marketing spire marketing has a role and it was predominantly serving customers and industrial customers and governments and those kinds of things and then sort of non utility firm customers. If you will and year after year, they grow organically it can be either by geography or picking.
From additional customers, if you will and the footprint that we serve and not unlike the utility however, and I've been at.
Because most of the genome.
Well 40 years now and every I don't know of five to seven years, they've had a weather impact.
And there are the weather events and they take advantage of those events and the geographies that we serve with the contracts that they have and predominantly they're providing the services and those weather events to other industrial customers are our heavy commercial customers or potential market or sue and take advantage of those market conditions based on the contract position.
Assets that they hold and.
And their ear to ear work and spire marketing and serving the customers much like our utilities do that and just thought I'd like to emphasize the point.
Got it excellent and I wanted to close the loop on a couple of other things Super quick if I can on the STL pipeline, obviously challenges to the FERC certificate here hearings in March.
And just comment altogether and the outcome of this.
Obviously, we saw the February events, I think they speak for themselves but.
Any comments on your side about Derisking, if you will.
On the steel here yeah.
I'll make one comment and then I'm going to pass it to Lindsay and <unk>.
Lindsay because of this Steve Steve and the room with me and so.
And it and I won't comment I want to make is we were extremely proud of the operations of that pipeline. During this weather event and when we produce all of our modeling and.
Looked at the past the size the pressures how we were kind of operate that Howard interconnect and to our St. Louis system holds that system and and around all the areas and this region and <unk>.
Supporting our gas supply and distribution plan.
And it operate of precisely as we expected it to operate and it with high value to this region. It has been since we started operating at but with the weather about we just had.
And it operated and exactly as we expected it to and it really between that investment and the investment and upgrading our infrastructure. Our back then and system in and around the St. Louis The combination of that is investment for powerful in terms of serving our customers during the winter event and I could go on.
And about this a bit but it's highly significant and so the data that we provided at the commission and the FERC. Initially when we were designing the pipeline completely held during the winter of that and we did it at a low cost structure relatively speaking if you will.
For our customers and Dave I don't know, if there's any and you and.
It's probably not the best career move to even the challenge the CEO, but I would say and even perform better than we thought and then what.
What I mean by that is the amount.
But if you think about what occurred and the opportunities with the the additional interconnect that we did with Mo gas the ability to move gas around our system operationally and then the supply diversity to get gas from the northeast is going to be an unbelievable benefit for our customers and a very very short period of time. This is the obviously long all of the pipeline and we were very.
The comfortable even coming into this before this event that the reasons. We did this we're strongly supported I would say if we went through this even now you have a whole lot more reasons that the pipeline makes sense and the big one on this gives us the opportunity to look at other opportunities for example on the west side of the state and in terms of what we have over there and even in the South East. So I think this was the <unk>.
Right opportunity for us to enter into this and and everything Thats come out of this is even better I think than we originally thought yeah, and so just one more follow up because of that two important the crew.
Okay.
The annual plan.
And that we do around and sit down our gas control and our distribution employees sit down and look at all of our supply our Interstate pipelines, our storage facility and how that gas flow from these different basins and to the market and then how the distribution systems and software and we do that and from a design day perspective.
And its coldest winters on a daily basis, and a duration of basis, and that's really what Steve of getting to and then we design these projects and redesign of our infrastructure even on our utility based on that data for supply storage and Interstate pipelines and our distribution system.
And it proved the.
Planning and long term investments proved highly effective and fire entered this winter storm and I can't say enough about the planning that our employees have done as well as the operation of the system during that event.
Excellent. Thank you guys.
Just the slate.
If you don't mind.
With respect to the the.
And the wider efforts too.
Bring savings to customers and reduced the total bill of up I'll frame it holistically.
What are your thoughts about negotiating those costs lower obviously.
You commented earlier with respect to some of the litigation and efforts you have underway one of your peers disclosed yesterday that they've made headwind.
Headway already with respect of some of the savings just curious on timeline and status around any of the the pending.
For us here.
Yeah. Julien this is Steve Rasche, I think youre referencing the the lawsuits that we filed spire Mark from spire, Missouri filed on the three marketers and.
Situations and unique and we don't really have any update.
We felt compelled to make that move legally because.
The other counterparties hadn't paid anything not the cost of gas much less of the penalties that are defined and prescribed and and.
And the tariffs, which we have no control over that the Missouri Public Service Commission activity. So we feel strongly that that we're in a good position we will continue to pursue those.
Actually if you look at our overall impact of gas cost its fairly small when compared to everybody else and the industry and that was clearly benefited by the spire STL pipeline and Steve Lindsey just talked about.
So we are always looking for ways to reduce our cost because we want to make sure that we're not only investing in and upgrading the system, but we're also managing our operating cost and the cost of gas so that our customers continue to benefit from not only reliable and resilient service, but also of good economic value and the part of ill add onto the.
That is sometimes I think it gets just taken for granted the gas cost gets passed along the customers I think we own that personally as the company because we view that the entire bill anything we can do to the positively effectuate that for our customers of the good thing and so and this sense, there's no different than when we go out and negotiate gas supply contracts. In this case, we're the ones who can step up.
On behalf of our customers and say and this incident. We think there are some things that should be adjusted and brought back to really reduce those gas costs. So I think sometimes again when you think about pega terms.
There is the cost of doing business is the utility and and the PGA, we really take ownership of the entire thing and try and do everything we can for our customers.
Excellent. Thank you all for the time.
Good luck.
The next question will come from Richard Sunderland J P. Morgan. Please go ahead.
Good morning, Thanks for taking my questions.
Good morning, Good morning Lynn.
George.
Maybe starting off for the revised planning to forecast just curious if you could provide more color around the changes there or I guess stated differently, presumably the.
The delta between the marketing benefits and the <unk>.
Equity offsets and 'twenty, two and 'twenty three is that attributable to the equity units done this year.
Yeah well.
As we referenced in our prepared remarks, we were the highly successful and issuing the equity units right before the storm areas of matter of fact and Ritchie of it.
And you look at the the where.
And where we stand at the end of the quarter in terms of the total liquidity clearly the extra earnings from from spire marketing, that's really what drove our ability to reduce our equity needs for 'twenty, two and 'twenty three essentially taking the I believe of about $50 million out of each year. If you look at the midpoint of the of the guided range.
And you can draw a direct line there to really the results from spire marketing, which as we've said in the past.
It's a low capital intensive business that when we do have these events.
And once every five years or so actually it's once every four because of that happened and 17.
It does give us the opportunity to take those funds and plough them back and principally into the capex and the and the utility.
So that's that's kind of how you can draw the line between the operating results and where we stand so far again with an eye toward our liquidity, which became something of great value. During the February and March timeframe, we were never in a and a bad situation and as we mentioned and a phenomenal position at the end of March and going for.
Yeah.
Got it thats helpful and.
And then separately and cash.
And we'll provide more color on the.
The claims surrounding marketing.
Referenced.
And presumably these aren't materials for the results and just curious what's going on there.
And as you referenced in the prepared remarks.
Yeah.
And I chuckle because this is the same situation that almost everybody in the.
And the energy space, especially anybody who operates and the mid continent going down to the southwest and Texas is dealing with and and it.
It has different flavors, depending upon who who youre talking about in the in the food chain and ours are really commercial disputes theres, a handful of them and they deal with principally with contract language and interpretation, which the gas price to apply.
What were the extra cost associated with the meeting the supply when when we were curtailed from some of our suppliers at the other end of the pipe.
How do you allocate cuts because we didn't have to cut some of our customers when the supply of became tight and it really are and think about them as commercial negotiations now.
As we stand today, we make our best estimate based on where we are and those negotiations and those those discussions continue to the extent that when we resolve those and we're confident that we'll resolve those at the right time and at the right value. We will we'll take a look at our estimates and we will update our view of the performance of our spire Mark.
And I can't really speak to the announced the numbers clearly we are in those negotiations, but as we get more information and we will clearly view.
And the rest of the market now.
Got it and I appreciate the color there and then one last one just curious is there any expense opportunities with the extra financial question. This year.
And the propylene and you can advance to Derisk twice and beyond.
Well I'll start and if you look underneath our our expense management. During this time period and you can look and the last quarter is of Great example, where the the.
<unk> expenses and the utility of we're actually down over last year for the reasons noted and for the first six months they are up slightly but they are trending well below inflation.
And we just continue that it's always the focus of us to manage those discretionary costs, because we clearly acknowledge and understand that investments and rate base and infrastructure is kind of AD cost and other parts of of the customer Bill and we want to make sure that we're balancing the two of those out and we do a lot of that with the things that Steve mentioned a bit earlier.
And we're looking at technology process improvement all of the things that that that companies do and we do including innovation to find ways to fundamentally change how we interact with our customers to give them better service at a better value.
Yes, I think the only part of it would add is that I think we've evolved as the company as we brought these utilities together to think not just.
Managing for the quarter, but managing for the year managing to the three years and so our plan really is we think holistically about our business is sometimes when you have those opportunities and sometimes it's weather great in terms of what you could or couldn't do because of a warmer winter of colder winter will pull things forward or in some cases have the deferred a little bit obviously, we will keep everything from a compliance perspective.
And it needs to be but I think we have insight and transparency and the technology and process to do some of that much better now than we could have perhaps just even five years ago and.
The only other play out range after listening and Steve Lindsey actually says its a lot internally internally at the company as we modernize our infrastructure system.
And new modernized higher pressures and the the maintenance costs on the facilities are lower so as we continue to invest capital to replace our systems. You will continue to see of downward curve on the maintenance cost of this facility and as we deploy the meters, which were investing and and you can talk a bit about that if you like the.
And as we make those investments all the way to the meter including the meter you'll see the same and decline and the maintenance cost of the facilities because of their and their modern and they're constructed of different and they're now.
Great. Thanks for the plan for that.
Thank you for your expert.
Our next question will come from Gabe Moreen with Mizuho. Please go ahead.
Good morning, everyone.
And just I guess wanted to asked explicitly and following up on the last question I think from sort of setting up of 2002 and 23 of the back half guidance for the year. It looks like it may come in.
Somewhat lower than last year I'm just wondering.
What's behind that is similar.
Similar O&M catch up that you maybe didn't spend up some of the first half of the year, regardless of some of those are going to of a great any year, but I'm just wondering about I guess the implied guidance for the back half of this year.
Yes. Thank you I think you circle the gave some of the items.
I think theres, a little a little bit of the expense in the back half of the year.
And the numbers and our guidance range.
And Steve anything else to add on the App and again a lot of that is based on the cadence of the work that we're doing out in the field and as you can imagine Gabe we were focused on the here and now during February and even going into March so.
We will wrap up our activity both of our capital and our O&M activity.
If you look at the expense run rate for <unk>.
This quarter, it's pretty pretty standard on what you would you should think going forward now I say that we continue to be and and work from home mode and I can tell you assure Italy, so that we would love to and as the year goes on we'll we'll start having our folks show up in the office of it'd probably on some flights and sketch.
But we would love the opportunity to maybe travel a little bit and actually start seeing some of our customers face to face, especially on the on the marketing side and I think we all look forward to doing a little bit more of that but I think we'll be able to handle any cost load that that would bring us.
Totally agree that a non virtual agent here it would be would be nice growth.
Okay.
[laughter]. Thanks for everyone. That's all of that.
Thank you.
And.
Our next question will come from Michael Weinstein with Credit Suisse. Please go ahead.
Hey, good morning, guys.
Alright.
And Michael.
And I was just thinking about your comment about third world down in Texas, and just thinking about those guys sitting in and the dark and Houston, making 40 or $50 million.
But have you been having the lights on.
<unk> is now not even having.
Yeah.
Yes.
Hey is there any chance you just read and.
And we very recently wrote down the value of spire storage.
Is there any chance that there might be a write up and the future I mean based on.
The.
Obvious value that is no.
And all storage and and.
And I guess asset classes.
Yeah, Michael It's an interesting question, Dan and I think the larger strategic question, which Steve addressed earlier is what we.
We have to get through our assessment of what the next step and storage is and then once we make that decision and we'll obviously come to the market and.
And give the rationale for whatever move we make.
Now, we get that into the arcane accounting of everything and you know what and.
And accountant and that's how I was trained we always look at the downside and you'd never look at the upside so write downs have to happen immediately write ups can't happen and.
So unfortunately I would agree with you that the intrinsic value of storage has.
Increased as a result of winter storm, Yuri and we've actually seen re contract rates move up really across the nation, we've seen strong demand and our storage field out and in the Rockies, but that doesn't translate into any.
GAAP adjustment of the write off we took last.
July.
Alright, but as you mentioned there are new opportunities now, especially at the utility right in terms of especially the west, Missouri I would think.
Well I think of it is clear that not only for us, but everyone and the energy space is taking the things that we've all learned from from winter storm, Yuri and we're assessing where the opportunities would present themselves and we've been pretty clear that we do see some opportunities, especially on the west.
<unk> of Missouri, and down in Alabama, and we're putting a finer point to those analysis now with the actually pretty good new data point, that's fresh within our mines that I think over time will give us the opportunity to find some incremental investment and and capex either in the utility of our outside and we'll figure that out after we identify the the opportunity yeah.
And Michael just said the additional point I guess I would say too I think with the market and is reminding itself and.
And when and I mentioned that earlier and the planning.
Episode, If you will that we go through annually.
The sort of financial flow of all of that and what it means the customers, but also there's a physical flow and the physical aspect of your planning around the supply including storage as an example, and physical ability to get the molecules do you and the coldest times either on the peak day or duration of basis and so when you start looking at your systems physics.
<unk> versus the financial flow and.
Storage matters and storage matters in terms of it the ability to get to the right location at the right time, and what <unk> done and I think as Steve said as a reminder of the significance of the importance of storage and these market based and and so we've got a very strong.
<unk>, leading that organization and that's got decades of experience and spire storage and you felt the very strong team and the.
The operating that facility this winter and and.
And I and a different way than they have the last few years because of this weather storm, even though it didn't miss directly hit in that geography.
And I'm sure that.
And you know back to the I'm not going to repeat everything Steve said I just wanted to point out the significance of the physical locations of these facilities during the peak periods, which is really what they are a lot of design for.
Got you and you may have kind of this earlier, but the $110 million of gas costs from the storm at the utility is that going to be is that part of the updated test year of the rate base.
And the rate case is that going to be dealt with through that.
Process for Slingshot.
And we need to separate the.
That's part of of analysis of what will be the PGA and and those are handled outside of the rate review that we're in right now so so theyre separate.
For the items. So I think we just need to clarify that.
I spoke to we take and own the entire customers build these are separate pieces.
Through the PGA portion.
Right and what are what are you anticipating any kind of the is any securitization even needed I mean this is the more mild effect versus your neighbors. So.
Just wondering yeah, Michael debt still to be determined we've had the <unk>.
Had the on camera.
And with the Commission and staff and we continue to have discussions I think every utility is looking at the options available to them.
Not looking to securitization as as the option that we need again, our number is a lot smaller.
That and some others and the industry and we think that using the pega as it is currently configured works best for US now I know that there are some securitization legislation of drive.
And from some of the other utilities and the state, but that's really targeted more toward.
The coal fleet and retirement of coal than it is recovering and gas costs, but I can't speak for the other utilities and the state and where they or their plans are and Michael the one piece of that will add while typically the PGA is an annual type of event and I think in this case, what we're looking to do to work with the commission to see if we can spread this out over perhaps two or three.
Years to try to minimize the rate impact on the customers from the gas cost perspective.
Right and the others with carrying costs.
That sounds right.
Yeah, I'm not sure if we file of what Youre, saying.
Oh, you mean in other words, if you spread it out over three years and you're not securitizing. It you would in theory, you get a return on equity during that time.
I was the only short term debt and I don't know yeah.
Yeah. This is excess cash cost and.
It has and the customer bill or our philosophy. It goes back to the Suzanne how should you start of the earnings call. It's about focus on the customer and in this scenario recovering the actual cost and we incur.
To finance that debt.
Unusual cost is the best way to go and frankly was one of the reasons why we took out the.
Short term loan and Missouri was to give some cost separation to the costs associated with that.
I guess, it's a relatively small amount anyway. So it's not really kind of make a big impact.
Anyway. Thank you very much and the good good work could work with the seller.
As of quarter.
Okay.
Alright.
Okay.
Hey, Ken if you'd like to ask the question that is Star then one star then one to ask the question.
Our next question will come from Selman <unk> with Stifel. Please go ahead.
Thank you.
Most of have been asked and answered, but I got two quick ones. If I may so from your comments. It doesn't sound like you are planning on increasing capital to gas marketing.
Okay.
Correct.
Yeah, actually salmon and good morning.
Yes.
Marketing is the low capital business, we did invest and technology.
Year ago actually implemented that technology during the during COVID-19 last year and thank God, we did because it gave us the visibility to actually make it through urea and fine fashion Theres always a little bit of capital, but it's really of low capital intensive business and so I.
I don't believe that there is a lot that needs to happen there in order for us to continue to support and grow that business.
Okay, and then the second thing.
And you guys talked about customer growth up 40% and I guess on the commercial and industrial side.
Could you expand a little bit of on that would be higher than I would've thought, yes, and so the reference was actually to new business capital.
And and that's a year over year. If you think about six months this year versus six months last year, but it is translating into new meter growth new premise activations of whatever the right term is.
And the one thing that I will share is that much like our infrastructure investment programs, which are spread fairly evenly across our three large utilities in Missouri East West and Alabama.
It's kind of the same way with our new business, we're seeing opportunities for example on the west side to move into areas that we haven't served and those are through Ccm's, which are of a certificate of convenience and necessity and so we want to go into a county for example to serve some poultry farms that we don't served and will go to the commission will file that and then expand and the good.
The news on that as customers are coming to us they are saying, we want to convert from propane.
We've seen a couple of large opportunities and Alabama to extend the due some similar type things into areas that we don't serve and then a big piece of what we're really seeing a lot of and the past year is increase in conversion activity and so if you kind of add all the pieces up and we're really seeing a evenly divided if you think about capital deployment relative.
The new business across all of our footprint as well as translating into new leaders now the second piece of that is don't correlate that necessarily to net growth because theres always some attrition and things like that and then of course, as we're come and not necessarily out of but after a year of COVID-19, we've worked very hard with our customers.
Try to do some things to keep them on our system and so there's a lot of moving pieces. When you think about net growth, but from a new business capital and.
And that's roughly the 30 plus percent of our capital plan and so as we think about the way we're deploying our capital. It is high quality capital. If you think about the infrastructure programs. If you think about the new business, which creates additional revenue and even some of the advanced metering technology, which we think will have a lot of customer benefits going down. The road. We think it's a very high quality of capital that we're deploying and <unk>.
Very comfortable that our five year plan, we're going to be directly on track for.
Just one point I'd like to and I think Steve hit 99% of it and say I know you probably hear a lot about housing starts and growth across the United States and certain regions and I think it's out there of a testament to.
Our states or regions and getting a portion of that growth and new housing starts and more importantly, their selection of natural gas and as Steve mentioned and they are conversions that are taking place and people want natural gas. We're also seeing it and the new housing starts and we.
We have a strong team that's out in the field and working with our business are builders and developers and you know again I know you like the naphthalene probably of these housing starts and our states are like I said getting their fair share of that and I think the last point that now that I've thought about it as I mentioned and my remarks, two of our three states and Alabama, and Mississippi actually have.
All of it of recently been signed to support the fuel choice, which we think is the right approach, we think customers should have the opportunity to choose which fuel and for US obviously, we know which one we locked into juice.
And the progress being made and Missouri, So I think in the areas that we operate.
Have good conditions for us to continue to see opportunity really across our entire footprint.
Awesome. Thank you so much.
Thanks.
Ladies and gentlemen, this will conclude our question and answer session I would like to turn the conference back over to Scott Dudley for any closing remarks.
Well first of all thank you all for Joy.
Joining us today I know, it's a very busy earnings week.
On the Friday, especially.
We will be around later today for any follow ups and we look forward to.
And with many of you and AGN and thanks again.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.