Q3 2022 Spire Inc Earnings Call
Good day and welcome to the spire, Inc. Third quarter earnings Conference call all.
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Please note. This event is being recorded I would now like to turn the conference over to Mr. Scott Dudley head of Investor Relations. Please go ahead.
Good afternoon, and welcome to spire fiscal 2022 third quarter earnings call we.
We issued an earnings news release this morning, and you may access it on our website at aspire energy Dot com under newsroom.
There's a slide presentation that accompanies our webcast and you may download it 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.
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.
And our comments, we will be discussing net economic earnings which is a non-GAAP measure used by management when evaluating our performance and results of operations.
An explanation and reconciliation of this measure to its GAAP counterpart is contained in both our news release and slide presentation.
On our call today and as Suzanne said, he was president and Chief Executive Officer.
Steve Lindsey Executive Vice President and Chief operating Officer, and Steve Rasche, Executive Vice President and CFO .
Also in the room with US is Scott Carter President of spire, Missouri.
And Adam Woodard, Vice President and Treasurer, and CFO of gas utilities.
With that I will turn the call over to Suzanne.
Thank you Scott and good afternoon, everyone.
We all know the U S energy industry is changing as.
As customer expectations and the energy technologies that serve that continue to evolve there are different philosophies on the future of our industry.
Our philosophy is whatever part of the energy transition ultimately.
Natural gas is vital to a sustainable energy future.
And that spirit, our mission has got enough to build a strong resilient natural gas company, that's grounded in serving people they're changing time.
Answer every challenge and Bath every community and Enbridge every life is the strength of our energy.
That strength showed up in a big way over the last 10 years, and we built a solid foundation and successfully executed on our strategy to grow and transform our company.
We did it through acquisition and organic growth as well as infrastructure investment and innovation that has enabled us to continually raise the bar for how we serve our customers and communities.
The next 10 years calls upon the strength of our energy to continue that growth while balancing the needs of our best people and the planet.
So we are increasingly focused on environmental sustainability and elevated customer experience for millions of people and one 7 million homes and businesses.
In addition, the next 10 years requires our industry as a whole to think differently about service.
As you know I've been in the natural gas business more than 40 years, and if there's something I'm committed to you above all else, it's changing the paradigm around the concept of a ratepayer.
Right. There is a word and a mindset that's a relic of an industry that believed it was in the regulated utility business. We are not we.
We're in the business of providing essential energy to people.
While the businesses, we operate works inside of regulated structure. The service we provide some people it's not meant to be encumbered with broad and respective customer classes like residential or commercial and industrial.
We don't survey pairs, we enrich the lives of people people, who have different needs and interests and needs.
That's why we're focused on leveraging technology and innovation to create more personalized services and experiences for our customers and to rethink and differentiate how people pay for their services.
Technology has provided a good starting point for the changes we envision.
We've already enhanced our billing and overall customer experience, while deploying ultrasonic meters that will provide real time information is beneficial to the spire and more importantly, our customers.
We'll have more to say about all of this in the months and years ahead and I'm excited for what the future holds as we work to advance energy installations and deliver on our promise of being energy that champions people.
Although natural gas businesses are a vital part of America's energy future. We remain squarely focused on our long term strategic priorities and commitment as we address some near term regulatory matters.
We continue to invest significant amounts of capital to upgrade our system driving businesses and advance our technology.
All of which keeps us moving toward an innovative resilient and sustainable energy future.
As we announced this morning, our operating results and capital deployment through the first three quarters of the year keep us on pace with the expectations, we set for the full year.
I know you've been closely following our rate case in Missouri, and the reman proceedings at FERC regarding the spire STL pipeline certificate.
We continue to progress in each of these matters as Steve Lindsey will discuss.
In early June we issued our 2021 and sustainability report and held a conference call. A few weeks later, which many of you attended.
We described the significant progress we've made in measuring and reporting on our overall sustainability performance.
Based on the questions. We received we know you are especially interested in our environmental sustainability, particularly reducing methane emissions and how renewable and alternative energy and can support our long term carbon neutral commitment.
So let me take a moment to recap how we are advancing our environmental sustainability.
Becoming a carbon neutral company by mid century means that we have committed to reducing and offsetting greenhouse gas emissions from our operations to neutralize our impact on the planet We love.
I'm happy to report that we're on target to reduce gas utility methane emissions, 59% by 2025, and 73% by 2035 as compared to 2005.
To make sure that we have very clear goals and measurements around this we have a dedicated team leading our company wide environmental efforts, including defining the strategy and the road map.
I'm pleased to note that the team is now established scope, one and scope two emissions setting a baseline on our overall carbon footprint covering both direct and indirect emissions.
Today, our efforts to reduce emissions I've been focused on pipeline replacement to lower the methane emissions from gas utility operations.
But we know over the longer term it will take more than infrastructure upgrades to achieve our greenhouse gas targets. That's why we are evaluating renewable energy resources.
<unk> renewable natural gas, our R&D as well as alternative resources like hydrogen.
And considering our LNG opportunities, we're exploring methane capture from a variety of sources, including landfill and animal waves from agricultural operations.
However in the near term, we are primarily focused on wastewater treatment plant or we see the most promise.
As we noted previously we supported the passage of Legislative bills in Missouri to allow the recovery of RMG procurement and investment costs and are working with the Missouri Commission on rulemaking to implement the RMG, enabling law.
As far as marketing marketing, we recently announced that we completed a multi year agreement to purchase responsibly sourced out R. R. S. G from us that resources, one of the largest private producers natural gas with operations located in the Utica shale.
The agreement allows buyer marketing to meet the demands from customers seeking gas certified for low emission attribute and has produced an environmentally responsible manner.
Now I'll pass the call to Steve Harvey.
Thank you Suzanne let.
Let me begin with an update on the progress we continue to make on regulatory matters, Missouri ended the FERC level regarding the spire STL pipeline and spire storage.
Turning to our Missouri rate case as you know we filed a new general rate case on April 1st seeking full recovery of the updated cost of service, including our overhead cost as well as higher capital investment and a reasonable rate of return.
We've talked many times about what we file for your reference. This information is included in the appendix slide presentation.
On May 18th, Missouri Public Service Commission issued a procedural schedule in the case.
The upcoming days include the following the testimony by third parties to the case, including the Missouri Public Service Commission staff office of public Counsel and others on August 31 and September nine.
Oh, the hearings are scheduled to take place in mid October followed by Missouri Public Service Commission hearings right after Thanksgiving and into the first week or so of December .
We believe there will be an opportunity to have substantive settlement discussions once intervenor testimony is fine.
As reported last quarter, we received an $8 $5 million annual increase in interest effective myself.
Following that we filed a new business request on June 3rd seeking $11 $9 million for recovery of infrastructure upgrade spend.
January one through June 30 period this year.
Regarding as far as your pipeline as you know the pipeline continues to operate under a temporary certificate offer considers approval of a new permanent certificate under a court order freedman.
Part of the remand FERC staff issued a draft environmental impact statement.
On June 16, finding and operation of the pipeline.
A significant impact on the environment.
The final EIS is expected to be issued in October in first time is not certain we expect to remain to conclude in early 2023.
Part of the annual Prudency review of utility gas supply cost the staff of the Missouri Public Service Commission issued its report on May 27.
The decision to build spire STL pipeline was reasonable and prudent.
We have filed this report with Bart and support their ongoing certificate review.
As far as storage is also recently received favorable outcomes.
Regarding the proposed expansion and development of facility.
You may not see as far as storage clear Creek facility received approval of its <unk> application on June 21 was granted a notice to proceed we continue to evaluate our development plans.
Let me turn to an update on our capital expenditure program.
For the first nine months of fiscal 2022, our Capex was just over $400 million with almost all of that invested in our gas utilities, including $196 million for pipeline replacement and nearly $90 million on new business.
We also continued our investment in technology, including the further rollout of ultrasonic meters.
Our five year capital plan through 2026 remains $3 1 billion.
With more than 98% to be invested in our utilities.
Again, the focus is on our long term infrastructure upgrade program, which have good recovery mechanisms plus new business technology and innovation.
This investment drives annual rate base growth, 7% to 8%, while also supporting system reliability and our commitment to environmental sustainability.
With that I will turn it over to Steve Rashid for financial review and update Steve.
Thanks, Steve and good afternoon, everyone. Let me touch on a few highlights for the third quarter.
We delivered consolidated net economic earnings of $4 1 million or one set of share down to $48 million or <unk> from last year.
Our gas utilities earned just over $4 million down $8 million from the prior year.
As we discussed last quarter with the last Missouri rate case, the cadence of our recovery change shifting a greater share to our first and second fiscal quarters.
For our fiscal third quarter this shift reduced earnings by roughly $6 million.
What are the results also reflect higher margins from rate increases in Alabama and Missouri.
By higher cost tied to our pipeline upgrades investments, which I'll touch on more in a second.
Gas marketing posted earnings of $400000 compared to a loss last year.
This quarter, we were well positioned to capture some of the price volatility we've seen in the market over the last several months as a reminder, last year's results were also weighed down by some cost we incurred post winter storm Yuri.
Slide nine summarizes other key variances for the quarter.
A few of the highlights operation and maintenance expenses net of pension re class were lower by $5 million or 4% driven by lower employee related costs.
These cost savings were more than offset by higher depreciation and property tax expenses consistent with our utility rate base growth.
Interest expense was also higher reflecting higher debt levels and higher short term interest rates.
And other income was also lower reflecting losses on investments of nonqualified employee benefit plans.
Note that these are all unrealized losses and all plans are adequately funded.
Turning to our outlook, we remain confident in our long term growth prospects driven by our $3 $1 billion capital spending plan over the next five years.
Our per share earnings growth target remains 5% to 7% and.
In our fiscal 'twenty two earnings target remains $3 75 to $3 95 per share.
We anticipate growth to accelerate next year with a reasonable outcome in the Missouri rate case.
Our financing guidance remains unchanged and our capital ratios for this fiscal year are now complete reflecting the equity raised on our ATM program and the net operating company debt, including financing for your excess gas cost in Missouri.
Our liquidity remains strong and I would note that we just closed on an expanded and extended credit facility in July which provides us access to $1 $3 billion through 2027.
So in closing we are on track operationally and financially and we look forward to updating you later this year and as always we appreciate the time you spent with US today and your continued interest in inspire.
Let me turn it back over to Houston.
Thank you Steve.
Clothing, we're on track with our plans for the year, including our capital investment that supports rate base growth and drive 5% to 7% earnings per share growth over the long term, we continue to progress on our Missouri rate case, and the FERC remap process to secure a new permanent certificates for spire STL pipeline and as always.
We're thankful for our 30000 employees to make sure that people have safe and reliable natural gas every day.
For your continued interest and investments in spire.
Now ready to take your questions. Thank you.
Okay.
Thank you we will now begin the question and answer session to ask a question you'll meet press Star then one on your Touchtone phone you start using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you'd like to withdraw. Your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Yeah.
Yeah.
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Okay.
Okay.
Yes.
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Please hold while we gather the query pests.
The first question comes from Julien Dumoulin Smith with Bank of America.
Hey, its actually Coty Clark on for Julian Thanks for the thought.
Okay go ahead.
Okay.
First wondering if you could talk through your expectations within the guidance range for the remainder of 'twenty. Two results have been helped by gas marketing. So just wondering how we're thinking about the the main drivers of that $3 75 to 395 into the final quarter and also curious if the impact of the Mark to market is the nonqualified benefit plans were.
Considered in that guidance.
Let me take a shot at back how are you good afternoon.
Yeah.
Our our guidance for the year is unchanged and as you know is driven by the performance of the utility and the fourth quarter as it is in.
In our service territories.
As a loss given the lack of demand. So you can do the math, but everything we've seen squarely points to that.
Higher marketing work in the wheelhouse of where we expected.
The business to be we have clearly seen an uptick in price volatility and we were well positioned to take advantage of some of that in the market and if that continues that might that might provide a little bit of.
Tailwind.
Help us push further into the range although.
At this time of the year given the demand is not nearly anywhere close to the demand we see during the winter time, that's when spire marketing based most of this money.
Moves by a penny or two that would be a good thing and I think we're well positioned going into the end of the year.
With regard to be the mark to market.
Unrealized losses in our Nonqualified plans, we don't plan for plus or minus in those and clearly you've seen it with some of our peers.
This quarter, both fixed income and the equity markets through June 30 traded against a lot of us and so we're all reporting losses on that line I will tell you we've seen a rebound in both of those markets as we've gone into this quarter, but it doesn't really change our view of how we think about the full year and should we have.
Any unusual moves one way or another we'll highlight it as we go forward, but frankly, we focus our our guidance on the operating results of the utilities first and then some of our marketing spend.
Yeah.
Yeah understood. Thanks for that I'm wondering if you can talk about.
Financing here as we look out the next couple of years I'm wondering how you're thinking about the impact of higher interest rates and also if you have any swaps or hedges locked in at this point.
Hey, Cody, it's Adam Yeah, as we've as we've chatted we do.
We do go out.
Forecast expected financing and we do have a pretty significant hedge position that was locked in at much lower markets.
Long term.
So yes.
Yes, I think we will.
We will stick to the guidance that we provided thus far will probably step it up a year next quarter as we look out another an extra year, but.
Plenty to planning ahead, and we do regularly hedge those.
So it's those those debt offerings.
Got it thanks for that and the average rate on those hedges.
Hi.
I would say, they're quite a bit below where current market is.
It's a series of hedges it would be tough to get to the specifically to the average rate in there across there across multiple planned offerings.
Okay understood. Thanks for that I'll jump back in the queue.
Thanks Cody.
Yeah.
The next question comes from Rick Sunderland with J P. Morgan.
Hi, good afternoon, thanks for the time today.
Starting on the Orange side curious what the timeline is for the PSC rulemaking process.
Or is that more of just a technical matter in terms of laying out how utilities will functionally take advantage of that legislation or are there any kind of key items to watch on that.
Yeah, Rich Scott Carter.
When you think about that legislation passed the PSC typically goes through a rulemaking.
Put more definition to it.
Idea is certainly never to change legislation that legislation very enabling and we see a great opportunity out of that rather just to make sure that the rules are set in a way. So we're working through that now with the.
With the commission staff, putting together the kind of the primary rulemaking on that and we will certainly participate in a process to make sure. It matches up with the opportunities that we see to bring that R&D opportunity to our customers.
And just any sense on how long the process takes.
Hi, Richard it's Adam.
I think we expect that process to extend into 'twenty three although at the same time, it's not holding us up from developing some of those opportunities that Suzanne mentioned as Scott just mentioned.
Well so.
More to come on that but.
The finer points of the rulemaking will probably extend into 'twenty three.
Okay got it very helpful color.
Just another broad one for me the.
Next heating season, the bill outlook. There can you just speak a little bit to your expectations at this point and maybe what your positioning is relative to supply at this point you know how much that could change into the fall.
Yeah Rich this is Scott I'll start it and that EMEA onto it but.
What were we.
This is especially in Missouri, we had to.
We stretched out the you'll recall so were still amortizing that over like a three year time frame and we're monitoring gas cost. The good thing is we have a significant hedge position between physical volumes in storage as well as our financial hedges in place. So that should help mitigate and then we are watching obviously the forward movement in that in that <unk>.
And while it's been a little persistently high right now the market does prove or showed there is going to mitigate in the future. So we're looking at how we can take advantage of that Alabama has less hedging to it but it typically looks at 24 months was looking into that forward market and pricing. It accordingly so.
We're seeing we're seeing bill impacts, but there they seem to be in the manageable range.
And we're looking to take advantage of the market make sure we're appropriately positioned in this.
More volatile than usual market and making sure our hedges are working effectively in that case, yes. The only thing I would add rich is we also are smoothly through and deferring some of those costs in Alabama, as well, which is kind of a rate a regular thing for for the.
Understood.
Once again, if you have a question. Please press Star then one.
The next question comes from Christopher Jeffrey with Mizuho Securities LLC.
Hi, everyone. Good afternoon.
Actually just picking up in Alabama in the South is it kind of I'm wondering if there's any.
Updates on our regulatory milestones coming that we should be aware of maybe in particular about incremental weather adjustment or combining the jurisdictions, if that's still a desire.
Yes.
Mr <unk>.
Nothing specific to report yet.
Coming into the year, and we will we'll be working through.
<unk> laid out a new budget.
Both Alabama and golf R for ratemaking jurisdictions, and so that will have a reset there are four budget. So I think we'll.
Speak speak to forward expectations more.
Specifically on the next call.
Because the other part I think the second part of your question is to combine in euro so that would be the ultimate goal. So that we can have one.
<unk> operating platform across the entire state I think that gets to scale the customers. It helps us do some things again for both parts of the state that would be a little more consistent than perhaps we have been operating the best.
Great. Thanks.
And then maybe just on storage. So it seems like you've got some more regulatory green lights could you just remind us what the capex attributable to that would be and.
If it's in the plan right now and if it was to be put in the plan what kind of timeline, we'd be looking at.
Yes, Chris there is nothing in the plan right now.
Yeah, you can go back to the solvency for what the total absolute maximum that could be spent.
If we pursued the expansion as outlined in the CNS.
And as a reminder, that is a long process you ask firmed everything in the kitchen sink.
Because you only get that bad that consideration and approval one time, but I've got to step back there's nothing in the plan because we're still in the process of evaluating what our go forward plan and development is gonna be and once we made that call.
We will make sure to update the market I would expect to be a good update and our year end earnings call late this calendar year.
Great. Thank you.
Yeah.
Once again, if you wish to ask a question. Please press Star then one.
Yeah.
Ladies and gentlemen, this concludes our question and answer session.
I would like to turn the conference back over to Mr. Scott Dudley for any closing remarks.
Thank you all for joining us I know this is an extremely busy earnings day and week.
We will be here throughout the rest of the day for any follow ups. Thanks again for your interest have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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