Q4 2021 Spire Inc Earnings Call

November 22, 2021

Good morning, and welcome to the Spire year-end earnings call. All participants will be in listen-only mode. Should you need assistance please signal a conference specialist by pressing the star key followed by zero.

After today's presentation, there will be an opportunity to ask questions. To ask a question you may press star then one on your touchtone phone. To withdraw your question please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Scott Dudley. Please go ahead.

Your question. Please press Star then two please note. This event is being recorded I would now.

I'd like to turn the conference over to Scott Dudley. Please go ahead.

Thank you. Good morning, and welcome to our fiscal 2021 year-end earnings call. We issued an earnings news release this morning, and you may find that on our website at SpireEnergy.com under the newsroom.

We issued an earnings news release. This morning, and you may find that on our website at aspire energy Dot com under newsroom.

There's also a slide presentation that accompanies our webcast today and you may download that either from the webcast site or from our website under investors and then events and presentations. Before we begin, let me cover our safe Harbor statement and use of non-GAAP earnings measures.

Before we begin let me cover our safe Harbor statement and use of non-GAAP earnings measures.

Today's call, including responses to questions, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although our forward-looking statements are based on reasonable assumptions, there are various uncertainties and risk factors that may cause future performance or results to be different than those anticipated. These risks and uncertainties are outlined in our quarterly and annual filings with the SEC. In our comments, we will be discussing net economic earnings and contribution margin, which are both non-GAAP measures used by management when evaluating our performance and results of operations.

Although our forward looking statements are based on reasonable assumptions there are various uncertainties and risk factors that may cause future performance or results to be different than those anticipated.

These risks and uncertainties are outlined in our quarterly and annual filings with the SEC.

In our comments, we will be discussing net economic earnings and contribution margin, which are both non-GAAP measures used by management when evaluating our performance and results of operations.

Explanations and reconciliations of these measures to their GAAP counterparts are contained in both our news release and slide presentation. On the call today is Suzanne Sitherwood, Spire's president and CEO; Steve Lindsey, Executive Vice President and Chief operating Officer, Steve. Steve Rasche Executive Vice President and CFO; Steve Rashe, Executive VP and CFO; and Scott Carter President of Spire Missouri. Also in the room is Mark Darrell, our chief legal and compliance officer, who brings over 30 years of experience in legal matters involving FERC and utilities. And also [inaudible], Vice President Treasurer, and CFO of our gas utilities. With that, I will turn the call over to Suzanne.

Yeah.

On the call today is Suzanne wood fires president and CEO.

Steve Lindsey Executive Vice President and Chief operating Officer, Steve.

Steve Rasche Executive Vice President and CFO.

And Scott Carter President spire, Missouri.

Also in the room is Marc Carroll, our chief legal and compliance officer, who brings over 30 years of experience in legal matters involving FERC and utilities.

And also out of waters, Vice President Treasurer, and CFO of our gas utilities.

With that I will turn the call over to Suzanne.

Thank you, Scott, and good morning, everyone and thank you for joining us. As we begin today's earnings call, I'd like to remind our investors and analyst why our talented employees and leaders for Spire. At Spire everything begins and ends with our mission, answer every challenge, advance every community and enrich every life through the strength of our energy.

As we begin today's earnings call I'd like to remind our investors and analyst why our talented employees and leaders for spire.

At fire everything begins and ends with our mission answer every challenge.

Every community and enrich every life through the strength of our energy.

This mission is rooted in the belief that the greatest energy in the world comes from one source: people. So we need the people of Spire go to work every day with the intention, and using our energy for good and having a positive measurable impact on the world around us we.

Using our energy for good and having a positive measurable impact on the world around us we.

We do this day in and day out boldly answering the challenges before us and holding firm to our promise of keeping safe and warm and knowing that the strength of our energy keeps us stepping forward advancing and innovating for a better tomorrow. Grounded in who we are and our commitment to answer challenges, this past year offer several including the severe weather and Winter Storm Uri, modified operations due to the coronavirus pandemic, challenges to the continued operation of the spire STL pipeline and most recently an unprecedented rate order and our Missouri rate review. Through it all, by our employees rise to the challenge and again achieved solid year-end results operationally and financially.

It and who we are and our commitment to answer challenges. This past year offer several including the severe weather and winter storm Yuri modified operations due to the coronavirus pandemic challenges to the continued operation of the spire STL pipeline and most recently an unprecedented rate order and our <unk>.

Missouri rate review.

Through it all by our employees rise to the challenge and again achieved solid year end results operationally and financially.

For this and the collective energy that makes us strong, I extend my gratitude and admiration for our employees, the people to deliver great service to our customers, significant contributions to our community and consistent growth for our shareholders.

That includes the posting strong financial and operational performance, our utilities further strengthening the safety integrity and service level of our natural gas distribution system and enhancing our sustainability. Steve Lindsey and Scott Carter will cover these topics in more detail, but I'd like to share my thoughts on the spire STL pipeline situation and the order we received for our Missouri rate review.

Steve Lindsey Scott Carter will cover these topics in more detail, but I'd like to share my thoughts on the spire STL pipeline situation and the order. We received department is there a rate review.

Regarding our pipeline, we continue doing everything possible to ensure that this critical infrastructure remains in service this winter and permanently. As a utility operator for more than 40 years, I understand the physical criticality of the spire STL pipeline to the St. Louis region. A pipeline serving hundreds of thousands of hall and several million people in eastern Missouri. People of every social-economic level.

As a utility operator for more than 40 years I understand that physical criticality of the spire STL pipeline to the St. Louis region.

A pipeline serving hundreds of thousands of hall and several million people on eastern Missouri.

People of every social economic level.

It's a pipeline that sort of hundreds of thousands of businesses, businesses that provide millions of jobs from startups to large industrials. For every person, every home in every business and it's our responsibility to make sure that this region has safe reliable natural gas service.

For every person every home in every business and it's our responsibility to make sure that this region has safe reliable natural gas service.

This honor bestowed upon us by the state of Missouri, and we take them off responsibility very seriously as evidenced by our operating results. Last Thursday, the Federal Energy Regulatory Commission FERC held the monthly public hearing and spire STL pipeline was on the agenda. While the continued operation of the pipeline has not yet to be approved, we are encouraged by the commissioner statement committing to act before the temporary approval expires on December 13th.

Last Thursday, the federal Energy regulatory Commission arc Berke, how the monthly public hearing and spire STL pipeline was on the agenda.

While the continued operation of the pipeline has not yet to be improved we are encouraged by the commissioner statement committing to act before the temporary approval expires on December 13th.

Until we have certainty regarding continued operation will keep being honest and open with our customers and communities that hope that everyone is prepared for winter.

Now turning to our Missouri rate review, the Missouri Public Service Commission orders issued in this case have been highly inconsistent with precedent that in prior rate cases, and with how we operated based on those precedents.

Considerable concern still exists even asked the Missouri Public Service Commission issued a minute or on November 12th providing some clarification on two important issues. Capital structure and the treatment of overhead costs.

Capital structure and the treatment of overhead costs.

If you missed initial and amended order lack clarity as to exactly what the commission had order and what their intentions were. In response last Friday, we filed for reconsideration. Our objective in making this filing is to achieve a fair and reasonable outcome for our customers, community and shareholders.

In response last Friday, we filed for reconsideration our objective in making this filing is to achieve a fair and reasonable outcome for our customers community and shareholders.

As we answered these challenges, we are poised to step forward in fiscal 2022 remaining focused on our mission, our strategy and are meeting our commitments to our stakeholders. With that, I will turn the call over to Steve Lindsey for additional comments on Spire STL pipeline, our capital investment program, and Spire's operational performance. Steve.

That I will turn the call over to Steve Lindsey for additional comments on spire STL pipeline, our capital investment program.

Our operational performance. Yes.

Yes.

Thank you, Suzanne. I want to echo your acknowledgement of the efforts of our employees, who continue their focus on maintaining safe and reliable gas delivery operations and outstanding service to our customers despite challenges, including the current challenge we're facing to ensure the Spire STL pipeline is available this winter and beyond.

Echo your acknowledgment of the efforts of our employees, who continue their focus on maintaining safe and reliable gas delivery operations and outstanding service to our customers despite challenges, including the current challenge we're facing to ensure the spire STL pipeline is available this winter and beyond.

As we've consistently stated, the Spire STL pipeline is critical energy infrastructure. It is absolutely essential to our ability to fully serve more than 650000 homes and businesses in the St. Louis region account on this reliable and affordable source natural gas, especially during cold winter periods.

The need for these important energy resources clearly demonstrated during winter storm here last February. We were able to fully serve our customers while avoiding the service disruptions and skyrocketing gas prices experienced in Texas and other parts of the southwest.

As you know, the pipeline has a temporary certificate from FERC to operate through December 13th and the commission is considering our application to extend that all they address the issue on reman the DC Circuit Court. FERC open meeting on Thursday, the commission issued an order clarifying Spire STL pipeline and the ability to add new shippers consistent with other open access pipelines.

FERC open meeting on Thursday, The commission issued an order clarifying spire STL pipeline and the ability to add new shippers consistent with other open access pipelines.

And as Suzanne noted earlier, while the commission did not issue an order extending Spire STL Pipeline's authority to operate, they did state our commitment to act before December 13, when the temporary approval expires. Sopire Missouri is doing everything possible to ensure our customers have access to safe reliable natural gas this winter when they need it most and beyond.

So far in Missouri is doing everything possible to ensure our customers have access to safe reliable natural gas this winter when they need it most and beyond.

We have been assessing the near term risk great about the pipeline not being available throughout the entire water followed operational contingency plans that we hope we will not have to be implemented. At the same time, we communicated with our customers and communities to make them aware of possible disruption in gas service. We have strong broad support for keeping our pipeline in operation, including from government and elected officials, community leaders, customers and the Missouri Public Service Commission. Even ETFs the party, but suite over parks' approval for the pipeline is in support of the pipeline's operation during the winter.

Same time, we communicated with our customers and communities to make them aware of possible disruption in gas service.

We have strong broad support for keeping our pipeline in operation, including from government and elected officials community leaders customers and the Missouri Public Service Commission.

Even etfs the party, but suite over parks' approval for the pipeline is in support of the pipelines operation during the winter.

Finally, as far STL pipeline is asked FERC for resolution of this matter in 2022 earlier this month requested expedited reinsurance other certificate-based on additional information pointing to the need for the pipeline.

While we're working to preserve critical energy infrastructure, we continue to increase our investment in our utility infrastructure, new business technology and innovation. These investments drive growth enhanced operating performance and service to customers.

These investments drive growth enhanced operating performance and service to customers.

Last year, our CAPEX totaled $625 million, including increased spend for our gas utilities of $591 million with over half of our utility investment breath restructure upgrades. We also spent nearly $140 million on new business, about a 30% increase over last year and had record number of new premise activations.

We also spent nearly a $140 million on new business about a 30% increase over last year and had record number of new premise activations.

As we look out over the next five years through fiscal 2026, we're expecting our CAPEX to total $3 1 billion. Up about $100 million from our previous five-year forecast through fiscal 2025. I would note that more than 95% of our capital spend supports our gas utilities focused on our long term pipeline replacement programs and new business. Plus innovation and technology, including ultrasonic meters.

About $100 million from our previous five year forecast through fiscal 2025.

I would note that more than 95% of our capital spend supports our gas utilities focused on our long term pipeline replacement programs and new business.

Innovation and technology, including ultrasonic meters.

As you know, the majority of our utility spend is recovered with minimal regulatory lag or reflected in earnings as in the case of new business. Our investments continue to drive further advancements in operating performance and sustainability. As you can see, our key metrics for resilience safety and system integrity continue to show an improving trend over the last five years. Employee injury, rates damage rates and leaks on our system all hit record lows. At the same time, we're tracking toward our methane emission reduction goals. We expect to hit our target for fiscal 2021 reduce emissions by 46% from 2005 levels in support of our commitment to be in a carbon-neutral company by mid-century. With that, let me turn the call over to Scott Carter for a review of our Missouri rate review order. Scott.

Our investments continue to drive further advancements in operating performance and sustainability as you can see our key metrics for resilience safety and system integrity continue to show an improving trend over the last five years.

Employee injury rates damage rates and leaks on our system all hit record lows.

The same time, we're tracking toward our methane emission reduction goals, we expect to hit our target for fiscal 2021 reduce emissions by 46% from 2005 levels in support of our commitment to be in a carbon neutral company by mid century.

With that let me turn the call over to Scott Carter for a review of our Missouri rate review order Scott.

Thanks, Steve and good morning. As Suzanne mentioned and we've previously discussed in past calls, we filed a general rate case for our Missouri utility last year. Recently, the Missouri Commission issued an order in this case with you later amendment. The final amended ordered rentals rate relief of approximately $72 million. This includes rolling in of $47 million already being collected through distress and the recovery of approximately $20 million in increased depreciation and amortization rates expense through higher rates. It also includes expansion of energy assistance programs for our customers in need.

Recently, the Missouri Commission issued an order in this case with you later amendment.

Unlamented ordered rentals rate relief of approximately $72 million. This includes rolling out of $47 million already being collected through distress and the recovery of approximately $20 million and increased depreciation and amortization rates.

Through higher rates. It also includes expansion of energy assistance programs for our customers in need.

It also came with challenges. The commission issued several concerning decisions this week. To begin and includes short term debt and our permanent financing structure. The first time for any Missouri utility in recent history if ever.

To begin and includes short term debt and our permanent financing structure.

The first time for Indian Missouri utility in recent history.

This one decision reduced our revenue requirement by approximately $19 million. At this point and as confirmed in our last fully litigated case, just three years ago, the Commission had previously decided it was not appropriate to include short term debt and adopted the actual capital structure at the end of our test period. Both the company and the Commission staff recommendation in this case were consistent with that precedent. The commission elected to include short term debts and calculated in a way that penalizes us for the cost incurred last winter. The order also adopts staff recommendation, Roe of 9.37% comparing that to the current national average Roe for gas companies of 9.62%, which was the approach the commission use in our last rate case. This lowered our revenue requirement by approximately $3 million annually. The total impact of short term debt decision and the below average Roe results in the lowest rate of return for a regulated utility in Missouri.

The company and the Commission staff recommendation in this case, we're consistent with that precedent.

The commission elected to include short term debts and calculated in a way that penalizes us for the cost incurred last winter.

The order also adopt staff recommendation Roe.

937% comparing that to the current national average early for gas companies of $9 six 2%, which was the approach. The commission use our last rate case. This lowered our revenue requirement by approximately $3 million and.

The total impact of short term debt decision and the below average Roe.

Results in the lowest rate of return for a regulated utility in Missouri.

Finally, due to the suspension of capitalization of overheads pending any staff. Despite our consistent methodology, we're capitalizing overhead for many years, our metrics consistent with all authoritative guidance. The commission set aside these prudently incurred costs going forward pending the completion of an audit by the Commission staff. While revised order attempts to clarify the treatment of those costs, which totaled between 20 and $30 million annually. Our best estimates are that it leaves in the question how roughly 14% to $22 million for fiscal year '22 will be recouped.

Despite our consistent methodology, we're capitalizing overhead for many years, our metrics consistent with all authoritative guidance. The commission set aside these prudently incurred costs going forward pending the completion of an audit by the Commission staff.

<unk> revised order attempts to clarify the treatment of those costs, which totaled between 20 and $30 million annually. Our best estimates are that it leaves in question Hal roughly 14% to $22 million for fiscal year 'twenty two will be recouped.

We've already begun the process for expedited review of the capitalization methodology and won't have the resolution in the first quarter of calendar '22. On Friday, November 19th we asked the Commission to reconsider its amended order.

On Friday November 19th we eschew mission to reconsider its amended.

We hope they will consider the overall implications of these shifts for longstanding commission practice and the impacts on our customers as well as the regulatory certainty the Spire and other utilities in the state need to continue to invest and provide excellent service.

So clearly we have work to do on the regulatory front, we were committed to working through these issues and continuing to deliver for our customers and all stakeholders. I'll now turn this over to Steve Rasche for a financial update.

I'll now turn this over to Steve Rashid for financial update.

Thanks, Scott. Good morning, everyone and thank you for joining us today. Let's start with a brief review of our fourth quarter and financial position and then let me try to bring together all the moving parts we covered on the call as we look at our outlook for 2022 and beyond.

Let's start with a brief review of our fourth quarter and financial position and then let me try to bring together all the moving parts we covered on the call as we look at our outlook for 2022 and beyond.

For our fiscal fourth quarter, we narrowed or an economic loss of $13 million. Better than last year by more than $2 million or 5 cents a share. Looking at the businesses, our gas utilities typically have a seasonal loss this quarter due to the reduced heating loads in the warmer days of summer. For the quarter, the segment was $17.8 million, just over $9 million more than last year as slightly higher margins were more than offset by higher depreciation and interest expenses. More on expense trends in a second. Gas marketing posted earnings of just over $9 million. Recall that our prior year results included the cost of storage positions, we established going into last winter. That ultimately created a lot of value.

Better than last year by more than $2 million of five cents a share looking at businesses, our gas utilities typically have a seasonal loss this quarter due to the reduced heating loads in the warmer days of summer.

Quarter, the segment was $17 $8 million, just over $9 million more than last year as slightly higher margins were more than offset by higher depreciation and interest expenses.

On expense trends for the segment.

Gas marketing posted earnings of just over $9 million.

Call that our prior year results included the cost of storage positions, we established going into last winter that ultimately created a lot of value.

Looking at this quarter, we were able to resolve a number of convert outstanding commercial disputes arising from Winter Storm Uri. The net impact of those settlements increased quarterly earnings by $13.5 million as noted here on slide 12. While unexpected, this benefit was the primary driver and results are exceeding our expectations.

Net impact of those settlements increased quarterly earnings by $13 $5 million as noted here on slide 12.

While unexpected this benefit was the primary driver and results are exceeding our expectations.

I would also point out several items that moved individual expense and income categories at our gas utility but did not really impact the bottom line. First, true-ups from the Missouri rate order, including regulatory deferrals, depreciation and taxes. Secondly, the benefit of an off system sale from this winter. And the funding of customer programs and initiatives. Drilling down a bit on operations and maintenance expenses. The net variance of $4.4 million is largely due to a $3.8 million expense reduction last year related to a COVID deferral. Excluding that run rate O&M expenses increased by less than 1%.

True ups from the Missouri rate order, including regulatory deferrals depreciation and taxes.

Secondly, the benefit of an off system sale from this winter.

And the funding.

Customer programs and initiatives.

Drilling down a bit on operations and maintenance expenses. The net variance of $4 $4 million is largely due to a $3 8 million expense reduction last year related to Covid deferral.

Excluding that run rate O&M expenses increased by less than 1%.

We have a strong financial position with growing cash flow, our adjusted EBITDA was up roughly 18% over last year. Our long term capitalization is balanced and we have ample liquidity heading into this winter.

As a result, we have seen significant strengthening of our credit metrics with our [FFO] to debt metrics in the middle of its target range and holding company debt trending close to our 20% target.

Finally, let's turn to our outlook. We remain confident in our long term per share growth target range, which as always is predicated on strong rate base growth paired with fair and reasonable regulatory treatment.

We remain confident in our long term per share growth target range, which as always is predicated on strong rate base growth paired with fair and reasonable regulatory treatment.

Steve has already outlined a robust five year capital plan, which moved up $3.1 billion and as Scott Carter mentioned, we are seeking fair and reasonable regulatory treatment and near term clarity in Missouri. Given what we know today based on the radar. It appears that 2022 will be a reset year and we fully expect to regain momentum in 2023 and beyond.

Given what we know today based on the radar. It appears that 2022 will be a reset year and we fully expect to regain momentum in 2023 and beyond.

Now looking specifically at fiscal '22. Let me walk you through how we arrived at our expected earnings range of $3.70 to $4 per share. Starting with our results from 2021. Looking at the year just ended, we estimate nonrecurring benefits largely at our marketing business due to winter storm Uri to be between 65, and 70 cents per share. Using the middle of that range, we arrive at a 2021 economics earnings run rate of approximately $4.18 per share.

Let me walk you through how we arrived at our expected earnings range of $3 70 to $4 per share.

<unk> with our results from 2021.

Looking at the year just ended.

We estimate nonrecurring benefits largely at our marketing business due to winter storm Yuri to be between 65, and <unk> 70 per share.

Usually in the middle of that range, we arrive at a 2021 economics earnings run rate of approximately $4 18 per share.

From that starting point, we apply the net difference between our end market expectations of using opco long term cap structure. And an average market our OEM, Missouri. That delta, as Scott discussed, is a reduction in earnings for fiscal '22 of roughly 30 cents per share.

Opco long term cap structure.

And an average market our OEM, Missouri.

That delta as Scott discussed as a reduction in earnings for fiscal 'twenty two of roughly <unk> 30 per share.

And while we are working toward a fair an expedited resolution we're staffing the Missouri Public service Commission on what overheads can be capitalized where deferred based on a plain reading of the order itself. We have to assume that we will only receive a limited deferral of otherwise prudent non-operational overhead cost. The impact from fiscal '22 is significant. A further discount ranging from 20 cents 35 cents per share.

The impact from fiscal 'twenty, two as significant a further discount ranging from 20.

To <unk> 35 per share.

After adding in the benefits of our organic and rate base growth initiatives, we arrive at a range of $3.70 to $4 per share. Again, based on what we know today and admittedly a wide range, given the uncertainty specifically on the overhead issue. And we do believe that there is an upside to this range with a favorable clarification from the Missouri Public Service Commission.

Again based on what we know today and admittedly a wide range given the uncertainty specifically on the overhead issue and we do believe that there is upside to this range with a favorable clarification from the Missouri Public Service Commission.

Turning briefly to our financing guidance, our long term financing plan over the next three years includes a steady but low level of equity paired with Missouri bonds this year to finance our Uri excess gas cost. As well as operating company debt, including some refinancing through the forecast period.

As well as operating company debt, including some refinancing through the forecast period.

And recognizing our strong position in results for '21 as well as the confidence we have in our long term growth prospects. Our board of directors recently increased our common dividend by 5.4% to an annualized rate of $2.74 per share. This is the 19th consecutive year of dividend increases.

In summary. We finished our fiscal year in solid shape, we will continue to remain laser-focused on ensuring the availability spire STL pipeline for this winter and many winners to come. As well as addressing the change in regulatory approach in Missouri. Our goal is clear. Delivering safe and reliable service to our customers and communities and investing for the future for the benefit of all stakeholders. Let me turn it back over to you, Suzanne.

We finished our fiscal year in solid shape, we will continue to remain laser focused on ensuring the availability spire STL pipeline for this winter and many winners to come.

As well as addressing the change in regulatory approach in Missouri.

Our goal is clear dilip.

Delivering safe and reliable service to our customers and communities and investing for the future for the benefit of all stakeholders.

Let me turn it back over to you Suzanne.

Thank you, Steve. In summary, inspire continues to execute and deliver solid operating and financial results, we're able to do that regardless of the challenges because the people aspire are strong, resilient and focused on delivering natural gas service to the 1.7 million homes and businesses that rely on us for safe, reliable energy.

And the strength of our energy keeps a stepping forward advancing and innovating for a better tomorrow. We look forward to updating you on our progress as the year unfolds and we wish you and your family a nice Thanksgiving holiday. Thank you for your continued interest and investment in Spire, we're now ready to take your questions.

We will now begin the question and answer session. To ask a question you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question today comes from Julien Dumoulin Smith with Bank of America. Please go ahead.

Okay.

Our first question today comes from Julien Dumoulin Smith with Bank of America. Please go ahead.

Hey, its actually Coty Clark on for Julien. Good morning. Good morning. So first can you give some color on the 20 cents to 35 cents impact of the capitalized overhead. Is the range is just really timing related or are there other mitigating factors IE regulatory asset that we should be thinking about? And also I know you mentioned it in your prepared remarks, but I'm wondering what the breakdown of gas utility earnings versus the other is in the new '22 guidance.

Good morning, Thank you Eddie.

So first can you give some color on the 20 <unk> 35 impact of the capitalized overhead as the range is just really timing related or are there other mitigating factors I E regulatory asset that we should be thinking about and also I know you mentioned it in your prepared remarks, but I'm wondering what the breakdown of gas utility earnings versus.

The other is in the new 'twenty two guidance.

Yes. Let me give it a shot, this is Steve. Adam's here, so if I miss something I'm sure that he will help me out. You are right that the range is extremely wide on the overhead issue because there is still a lack of clarity on exactly what the bucket of overheads is that is subject to capitalization or lack of capitalization, our deferral. And that is that there is quite a bit of discourse. The amended order and even in our filing for reconsideration trying to identify exactly what the bucket is and that is why, unfortunately, we have such a wide range and we're hopeful working with the staff that will be able in the near term to clarify what that bucket is as opposed to a range that ultimately is I think $25 million from the low end to the high end.

Let me give it a shot this is Steve.

Adam's here, so if I Miss something I'm sure that he will he will help me out.

You are right that the range is extremely wide on the overhead issue because there is still a lack of clarity on exactly what the bucket of overheads are that is subject to <unk>.

Capitalization or lack of capitalization, our deferral and that is that there is quite a bit of discourse.

The amended order and even in our filings.

<unk> filing for reconsideration trying to identify exactly what the bucket is and that is why unfortunately, we have such a wide range and we're hopeful working with the staff that will be able in the near term to clarify what that bucket is as opposed to a range that ultimately is I think $25 million from the low end to the high end.

But given what we know today, that's where it is and just as an example, some of the things that it would be included on the low end or the worst end and not the best and are things like supervision to field staff and things of that nature, which we believe have a pretty clear line of sight to capitalization successful, what most of our team does. But we have to work through that with the staff and then ultimately with the commission. And that's why that range is so wide. And hopefully, we'll get clarity in the near term.

On the low end or the worst end and not the best and are things like supervision to field staff and things of that nature, which we believe have a pretty clear line of sight to capitalization successful what most of our team does but we have to work through that with the staff and then ultimately with the commission and Thats why that range is so wide.

And hopefully we'll get clarity in the near term.

On your second question, we're still looking at that business is going to be 90 plus percent gas utility and all of these impacts that we're talking about are really in Missouri as opposed to anywhere else. We still expect for Spire marketing to grow obviously at a run rate basis from where they ended up '21, and we continue to like the results and the progress we're making on the pipeline and also on the story business.

Gas utility and all of these impacts that we're talking about are really in Missouri as opposed to anywhere else. We still expect for spire marketing to grow obviously at a run rate basis from where they ended up 21, and we continue to like the results and the progress we're making on the pipeline and also on the story.

Business.

Okay. That's helpful. Thank you and then how should we be thinking about capitalized overhead going forward. If the commission is directing you to file for recovery in subsequent rate cases? Is it incremental lag each year or do you see it as really just isolated to '22 and more just a clarification are you rebasing the 5% to 7% growth off of the offer the new '22 range?

Rebase in the 5% to 7% growth off of the offer the new 22 range.

Yes, Greg why don't I'll take your first question. I'll turn it back over to Steve. This is Scott Carter again. Again, none of the costs incurred were question from a prudency standpoint. So those we consider costs should be recovered other capital audible are recoverable through rate and so our anticipation is to the extent the commission funds.

Again, none of the costs incurred were question from a prudency standpoint. So those we consider costs should be recovered other capital audible are recoverable through rate and so our anticipation is to the extent the commission funds.

Some of those calls should not be capitalized going forward that we will be able to recover those in future rates through an O&M cost out, just like the other O&M element so.

Working through the transition and the time period of getting that back into rates is something we're still working through but ultimately our expectation is all those costs are recoverable because all of those are prudently incurred.

And on your second question about the long term growth. It's a great question and you know there is so much noise and uncertainty on '22, and we have the unusual benefit in '21 and then we have COVID-19 in '20. So it's been an unusual three year period. So we kind of looked at it two ways. One, we went back again to 19 and you know us, we don't like to go that far back, but we had to go back to kind of a steady a year and then look out forward over the next three to five years as you know we're always kind of looking into the mirror that far out. And based on that we're confident on the growth rate of 5% to 7%. But I take on your comments and as we get more clarity on what '22 is going to look like, we will clearly bring that base forward I think the only thing I can say is I believe that that growth is going to accelerate dramatically, especially as we get some certainty on the overhead issue and then ultimately we'll figure out on the cap structure and army what our next step will be. But that's it's kind of an uncertain place to be right now. I think you can rest assure that based upon what we're doing organically and a rate base growth of 7% to 8% that we've got the engine is to continue to grow the business for long term.

There is so much noise and and.

Uncertainty on 22, and we have the unusual benefit in 'twenty, one and then we have COVID-19 in 'twenty. So it's been an unusual a three year period. So we kind of looked at it two ways. One we went back again to 19 and you know US we don't like to go that far back, but we had to go back to kind of a steady a year and then look out forward over the next three to five years as you know we're always kind of.

looking into the mirror that far out. And based on that we're confident on the growth rate of 5% to 7%. But I take on your comments and as we get more clarity on what '22 is going to look like we will clearly bring that base forward I think the only thing I can say is I believe that that growth is going to accelerate dramatically, especially as we get some

We get some certainty on the overhead issue and then ultimately we'll figure out on the cap structure and army what our next step will be but that's it's kind of an uncertain place to be right. Now I think you can rest assure that based upon what we're doing organically and a rate base growth of 7% to 8% that we've got the engine is to continue to grow the business for long.

Sure.

Okay. Thanks so much for the time, I'll jump back in the queue. Our next question comes from Gabe Moreen with Mizuho. Please go ahead.

Okay.

Our next question comes from Gabe Moreen with Mizuho. Please go ahead.

Hey, good morning, everyone I, just wanted to ask maybe a little bit more clarifying sort of on the cap structure outcome here basically. Just wondering kind of in your future financing plan, let's say that the short term debt kind of is the thing that's here to stay. Are you looking to purposely push the equity cap structure back higher to where it was prior to that? So I'm just curious how the long term financings pellet plants fit into sort of your targeted cap structure at this stage and I recognize there's a lot of uncertainty out there at the moment.

Prior to that so I'm just curious how the long term financings pellet plants fit into sort of your targeted cap structure at this stage and I recognize there's a lot of uncertainty out there at the moment.

Yeah, David is a great question. Let me take a shot it back because you had several questions buried in there. We are clearly re-evaluating what our capital structure strategy is going to be going forward. We operate against the rules of the road based upon the last rate case, and, unfortunately, we did have a more short term debt a lot of that tied to winter storm Uri that we then financed with long term debt near the end of the update period, which would be exactly what you would do it under an appointed time tested for the cap structure, but now the game has changed. We are clearly looking at how going forward we manage the short term debt and really our entire cap structure on 13 month rolling average if that's going to be the new game, and frankly, where we're able to do that as a reminder, in Alabama it's real-time rate, making and we have to manage the cap structure every month and we can do that so in terms of the equity content in the utility.

Let me, let me take a shot it back because you had several questions buried in there.

We are clearly reevaluating, what our capital structure strategy is going to be going forward. We operate against the rules of the road based upon the last rate case, and Unfortunately, we did have a more short term debt a lot of that tied to winter storm here that we then financed with long term debt near the end of the update period, which would be <unk>.

what you would do it under an appointed time tested for the cap structure, but now the game has changed. We are clearly looking at how going forward we manage the short term debt and really our entire cap structure on 13 month rolling average if that's going to be the new game, and frankly, where we're able to do that as a reminder, in Alabama

it's real-time rate, making and we have to manage the cap structure every month and we can do that so in terms of the equity content in the utility.

Yes, absolutely, we will rebuild that to the level that makes sense based upon both the risk and returns that we would expect to get in the business and clearly that risk has increased from where we were before the rate order. And that's been echoed by Moody's and a few other folks who have started to take a look at this. But go with us along for the ride. I did mention on the call that we will be going into that long term market in order to finance think of it as securitization, but we're not really securitizing. It in the pure sense of the word for the excess gas cost in Missouri, as we look to recover that through customer rates over the next several years and or pending decision from the Missouri Public Service Commission on a few disputes we have with some marketers who didn't perform.

The rise I did mentioned on the call that we will be going into that.

Long term market in order to finance think of it as securitization, but we're not really securitizing. It in the pure sense of the word for the excess gas cost in Missouri, as we look to recover that through through customer rates over the next several years and or Penn.

Pending decision from the Missouri Public Service Commission on a few disputes we have with some marketers who didn't perform.

Thanks, Steve and then maybe because I ask as a follow up sort of as a larger conceptual. Sort of question. This rate case outcome change your capex ambitions in Missouri, how you want to do business in the state I noticed your Capex didn't really change and also a quarter of as a corollary. How does this rate case at all change efforts around R&D new business pursue things with you I think had been putting at the forefront. <unk>.

Sort of question.

This rate case outcome change your capex ambitions in Missouri, how you want to do business in the state I noticed your Capex didn't really change and also a quarter of as a corollary. How does this rate case at all change efforts around R&D new business pursue things with you I think had been putting at the forefront.

<unk>.

Hey, guys, it's Steve I'll take the first part of the question relative to the to the capital plan and as you see we have reaffirmed or actually added to our five year plan.

Think about it up at $3 1 billion and that includes some increases in Missouri. So if you want to think about our strategy I don't think this is changing anything relative to that but we have a lot of long long line opportunities in both sides of the state we're going to unify this and.

Really for issuers across the state, which I think will be beneficial to help us make some some good decisions on that and really across all of our footprint. We're very evenly spread almost if you think about the capital that we deploy in each side of the state here as well as Alabama, whether it's on infrastructure.

Infrastructure upgrades, new business technology. So so I think nothing has really changed on that strategy going forward.

And gave them Scott on your second question.

Our intention was solid stable rate case outcome. In this case, then turning attention to things like renewable natural gas we have a proposal in the.

In our rate case that kind of got tonnage.

We said, we would breathing on it separately.

In the regulatory process banks consume oxygen so to the extent that fixing this have a longer lead time to it is obviously going to affect our ability to make progress on things that our customers want which is renewable natural gas and other customer programs as we try to move towards them.

System of rate, making that better suits their needs. So.

Louis we get this solved in the short run get our attention back on those things of of delivering customers what they want but obviously this is going to be fixed before we can make real good progress on any of those fronts.

Dave I'll just add one further comment the time, our capital deployment plan that we've discussed too.

Environmental impact and our carbon neutrality gold is modernizing our system is one of the best things, we can do about the pipe and the meters in terms of our neutrality goal and it does tie back into <unk>.

Natural gas is Scott Carter.

<unk> described in it at all actually hangs together so I appreciated that you asked the question two questions together almost since line.

For that.

Of course, thanks, everyone.

Okay.

Our next question will come from Shar <unk> with Guggenheim. Please go ahead.

Hey, guys good morning.

Good morning.

Sorry to kind of ask this question again, but it's still a little bit complex and I'm not sure. If you addressed it directly just just given the pointed commentary in the Commission's order I guess, how are you how do you anticipate changing the ruling on cap structure on reconsideration and I'm still trying to get a sense do you see chi.

<unk> is in equity needs to align with the cap structure ruling or not.

Well, Sean let me take a shot.

We've asked for reconsideration and ask the commission to essentially step back and look at the order in its totality because you can.

This is human nature, you make decisions based on individual things that are in front of you, but it's also the commission's duty to step back and look at the fairness overall.

I wont handicap, whether or not that will actually engender any change, but we felt it was important to point it out as you step back and look at the totality of the order and what is essentially the lowest Roe.

Missouri for agility of this otherwise operating and phenomenal fashion as Steve Lindsey and Scott Carter talked about so that that is that's the reason why we decided to pursue it going forward. It is clear that there is a lot more uncertainty on the overhead issue and we would hope to get clarification on that absolutely.

Okay, got it again. Just on the equity. At this point, we're sitting in pretty good shape. You look at our forward financing and it's a very low level in order to tweak the overall cap structure, which at the consolidated group level is fine now we will as we think about our overall capital structure strategy in Missouri.

Just on the equity.

Oh.

At this point, we're sitting in pretty good shape, you look at our forward financing and it's a very low level in order to tweak.

The overall cap structure, which at the consolidated group level is as fine now we will as we think about our overall capital structure strategy in Missouri.

We will look at that those equity raises in may more closely tie them to actually bolstering the capital structure data, Missouri, but we still have to wait for for the commission and staff to weigh in so that we know what the new rules of the road, but I think we're in good shape and we tested that with ourselves and that was part of our discussion when we looked at our capital plan.

For the forward five years and I think we're in great shape and remember we're coming off a year with extremely strong earnings, which really helped us move forward in a big way and our credit metrics, which we referenced on the call and also building the equity layer the old fashioned way, which is earning it.

Got it. One more thing to add to that just a way to think about it some of the capital structure issue is self-correcting. It was largely driven by some of the short term debt buildup and so what they did when they put in the short term structure and they pull it out of debt and equity by the inclusion of that. So as we refinanced short term and that level works off over time. Our next case will inherently have less short term equity in it our short term debt.

Yep, sorry, one more thing to add to that just a way to think about it some of the capital structure issue is self correcting.

It was largely driven by some of the short term debt buildup and so what they did when they put in the short term structure and they pull it out of debt and equity by the inclusion of that so as we refinanced short term and that level works off over time. Our next case will inherently have less short term equity in it our short term debt.

And therefore, it would push it back to both the long term debt and the equity component. So I think our overall capital structure works in the regulatory context is just some of the issues we dealt with changing the rules about. 13 month look at that as a short term balance okay. So just to summarize no new equity as a result of the of the order correct.

13 month look at that as a short term balance okay. So just to summarize no new equity as a result of the of the order correct.

Alright. Thank you and then just on STL, when do you expect FERC to issue you a certificate to operate I guess over the winter months just given your current temporary certificate that does expire in a couple of weeks? Do you expect another temporary certificate or something more permanent than if you don't expect a permanent solution in the near term when do you expect to have that clarity?

A permanent solution in the near term when do you expect to have that clarity.

Thanks, sure I asked Mark Darrell to join US today, just because he's got extensive experience than spark and I thought there might be. Austin around this topic. Sure happy to respond to that. It's hard to predict exactly what that will. We will do whether it's on a temporary basis on a permanent basis. And.

Austin around this topic.

Sure happy to respond to that.

It's hard to predict exactly what that will.

We will do whether it's on a temporary basis on a permanent basis.

And.

They did indicate at the meeting last Thursday that they expect to have a decision before. December 13, so I think. And then number of the. Conditioners. Indicated that that they were supportive of.

December 13, so I think.

And then number of the.

Conditioners.

Indicated that that they were supportive of.

So making a decision before December 13th so that's pretty much all we know exactly what the form or scope of that decision will be right now I can't really predict.

That's all I had thanks guys.

Thanks, Sean.

Yeah.

Again, if you'd like to ask a question today. It is star then one star then one to ask a question.

Our next question comes from the tool merging with Hudson Bay Capital. Please go ahead.

Good morning.

Good morning, good morning, good morning.

Can you help me in terms of it looks like with the <unk>.

Asking for consideration here.

Given that where you are in the holiday season, when do you expect the commission to.

To respond to.

First.

Yes.

So the commission has.

Previously looked at some of the reconsideration request in his case, an exit fairly quickly. So we're hopeful that with what's pending and the scope of the issues out there they'll do the same in this case. So they have the information they need to act on our request for rehearing. So we'll look for that as soon as they can pick it up.

And I'm wondering in terms of the changes.

It's one thing to kind of do an audit.

That kind of thing.

Can you explain to me the rationale for acquiring the change of treatment during the audit period as opposed to.

Subsequent to subsequent to the audit.

Yes that was one of the points we made in our request for reconsideration was the fairly unprecedented nature of that of that change and the transition normally whenever you have a fairly substantial change in the regulatory construct recoverability of cost.

There are studies that are required and there is a process put in place think about changing depreciation rates and other things and the regulatory context. So we felt like it was certainly unprecedented to be that radical or a shift without some ability to work through it.

Keep in mind that we had 11 month process and parties did come out with a number the number is not zero on capitalization of overheads, but that's effectively where we are working through this process, but no party put out what.

An alternative appropriate number is so just a question opened up this issue where again, we would be seeing is more consistent with regulatory construct to to say that if you don't have an answer of that.

Trigger a study in a process not an immediate change in the rate, making associated with that issue.

And it certainly sounds like that.

Almost it's almost inevitable that you're going to be filing is.

Soon as practical.

This is practical so what should we be what should we be expecting there and can you remind me in terms of.

What type of a test here and how much.

Pro forma or similar types of adjustments you'll be.

Mike over to promise. This once you start to skin.

Yeah. So again, we've asked for reconsideration on these issues that the commission can still address these these issues and get more where it needs to be so again gets us back on path of delivering the other customer benefits, we're looking to kind of roll out and get in front of the commission.

Should they not worked through this process and come to that place. We would have saw a 60 day notice and then file a rate case after that point in time rate cases are historic and in Missouri, but then they're crewed up through so we would look at truing that up through a later date.

As we were updating that test year and a case so to the extent we can get relief in this.

Current case, all this issue goes away to the extent, we can get to a place that.

Build us a construct that is sustainable and then we'll be looking to do something fairly quickly on a new case, a new consideration.

So based on your answers it sounds like.

On reconsideration.

It was an unsatisfactory I will come with a 60 day notice given that we're going into holiday season.

It sounds like the kidney.

Filing come March April of this year.

That would then be adjudicated over.

Yes.

Again, we're hopeful that the commission will take up this issue and we can solve it in the current instance.

To the extent they don't just think about it in this terms and we haven't decided on the exact date, but we would file a 60 day notice sometime after the commission final determination in this case filed.

File the case, roughly 60 days thereafter, or maybe a little bit more that takes up to 11 must prosecute the commission can do it quicker than that.

They usually just suspended for 11 months, so theres a lot of variables in there that we haven't fully worked through but our focus right. Now is getting the commission to come to a resolution of this case is more consistent with our previous fragrance.

Okay, So I'm clear.

You know with the longest duration.

To your point of view, we would have 60 days notice and then 60 days.

Ben period filings, because that's basically effectively four months so call that.

Bound April give or take.

He started at the beginning of the year and then 11 months. So then it would.

Please <unk>.

Too early 'twenty two.

Yeah.

But at this point.

Today knows an 11 month case Youre looking at 13 to 14 months from whatever date, we filed that case at the outside again, given the fact that we just had a case.

If these are the only issues out there we would certainly look for expedited treatment on that so.

It's hard to give you an exact date because again, we haven't set the starting date and we havent discussed the process, but again all of that can be avoided with the commission a termination and consistent with prior practices.

Okay. Thank you very much.

There being no further questions. 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. Thank you all for joining us on this Thanksgiving week, we will be around the rest of the day for any follow ups, we look forward to that.

And have a safe and healthy.

Thanks Kenny.

Talk to you soon.

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

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