Good day, and welcome to the Spire Second Quarter Earnings Conference Call and Webcast. All participants will be in listen-only mode. [Operator instructions] Please note this event is being recorded. I would now like to turn the conference call over to Mr. Scott Dudley, Managing Director, Investor Relations, please go ahead.

Good morning, and welcome to the second quarter earnings conference call for Spire. We issued an earnings release this morning and you may access the release on our website at spireenergy.com under News. There's also a slide presentation that accompanies our call this morning and you can download that either from the webcast site or from our website. Our call today is scheduled for about an hour and it will include a question-and-answer session at the end and the operator will provide instructions again on how to join the queue so that you can ask a question. Presenting on our call today are Suzanne Sitherwood, President and CEO and Steve Rasche, Executive Vice President and CFO. Also in the room is Steve Lindsey, Executive Vice President and Chief Operating Officer of Distribution Operations. 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. Our forward-looking statements speak only as of today and we assume no duty to update them. Although our forward-looking statements are based on reasonable assumptions, various uncertainties and risk factors may cause future performance or results to be different than those anticipated. For a complete description of these uncertainties and risk factors, see our Form 10-K for the fiscal year ended September 30, 2015 and our Form 10-Q for the second quarter ended March 31 which we will file later today. In our comments, we will be discussing financial results in terms of net economic earnings and operating margin which are both non-GAAP measures used by management when evaluating our performance and results of operations. Net economic earnings exclude from that income the after tax impacts of fair value accounting and timing adjustments associated with energy related transactions as well as the after tax impacts related to acquisition, divestiture and restructuring activities. Operating margin adjusts operating income to include only those costs that are directly passed on to customers and collected through revenues which are the wholesale costs of natural gas and propane and related gross receipts taxes. A full explanation of the adjustments and a reconciliation of these non-GAAP measures to their GAAP counterparts are contained in our news release. So with that, I will turn the call over to Suzanne.

Thank you, Scott, and welcome everyone to our first earnings call as Spire. This is a very exciting time for us as last week our shareholders overwhelmingly approved our name change and we launched our new contemporary website, spireenergy.com where our customers and shareholders will experience Spire at their fingertips and our stock began trading under the symbol SR. All of this has been met with great enthusiasm. In 2017, you can expect Spire to launch as a master brand with all of our family of companies becoming Spire, bringing all of our employees together for one common mission. We believe in a world where energy enriches people's lives. Our mission is to make that idea a reality. Spire is not only a name but unites our natural gas companies but it also better reflects the growing company we have become. Spire is about bringing people and energy together which is reflected in our logo that represents a handshake. We've been on a journey to transform our company and response to unprecedented change in the energy industry. We're well on our way and Spire is consistent with that transformation. Our journey began over four years ago with a well articulated growth strategy. Our story is the same today and we continue to execute on that promise sharing our results with you every step of the way. Over the last several years we have expanded our geographic footprint, added nearly 1 million customers through two transformative acquisitions and quadrupled our enterprise value. Our team has stayed focused, worked hard and is highly committed. We have been successful growing our gas utility business organically including through investment and infrastructure upgrades, increasing the scale of our business through acquiring and effectively integrating other gas utilities, modernizing our gas assets and investing in innovation…

Thanks, Suzanne, and good morning everyone. Let me review our operating results for our second quarter ended March 31 and review our outlook for the rest of the year. Starting on slide 10, second quarter net economic earnings were $103.5 million or $2.37 per share, up 5.3% from the nearly $98 million or $2.25 per share a year ago. The increase was driven by our gas utility segment which posted net economic earnings of just over $102 million, up just over 6%. Gas marketing earnings were also up by just under $1 million. With that as a backdrop, let's walk down the income statement turning to slide 11. Weather was really the consistent theme when looking at the results for the quarter in the half year. As we've discussed in the past, weather is just a normal part of operating a gas utility because it's never normal and to the extent to which the winter is colder, remember 2014, margins and off-system sales rise and operating expenses are higher due to the additional stress on the system and on our team. In a warmer winter, the opposite occurs, lower margins and lower cost, in many ways an automatic hedge. This winter the second warmest on record in Missouri and 20% warmer than last year across our footprint, fits the latter category. For the quarter, total operating revenues were $609 million, down 31% from last year. With the decline due to lower commodity costs which represents a majority of the customer bill and lower sales volumes. Operating margin on the surface was up 1% overall and for the gas utilities segment, up 1%. Remember, however, all quarterly rate adjustments in Alabama flow through the margin line in order to true-up actual and authorized return on equity and this quarter that adjustment…

Thanks Steve. As you can see, our transformational journey now as Spire is continuing, driven by organic growth, further integration and refinement of our organization and the additional investment we are making in acquiring other gas utilities and modernizing our gas assets. We look forward to continuing our conversation and sharing results with you including at the AGA Financial Forum in about a week and a half. Operator, we are now ready to take questions.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Gabe Moreen of Bank of America Merrill Lynch. Please go ahead.

Good morning everyone. Couple of questions on the STL Pipeline proposal. I think initially maybe Suzanne you had talked about partnering with someone. I'm just wondering in terms of doing out that alone versus partnering and then also in regards to, I guess, the evaluation of sort of infrastructure needs around the Missouri utility. Is it fair to say that this sort of -- this is the project you came up with, are you still working on? I guess other initiatives around that.

Yeah, so Gabe maybe I'll start it a little higher and then I'll narrow it down to the pipeline itself. As you mentioned, and we started a process that we looked at and evaluated all of the gas assets both transportation supply and storage for the St. Louise region and that's traditionally all of those purchase GAAP adjustments or the gas cost, as a lot of utilities call them, and evaluated those based on reliability and diversity in the region and we made a determination of we needed to create more diversity in terms of supply and to access the Marcellus and Utica basin. And so to that end, we announced this pipeline. But let me get back to that in a second. I'm going to mention the other areas. We are conducting the same analysis both on the western side of the state of Missouri as well and Alabama and those evaluations, in terms of creating diversity on a short-term basis and a long-term basis, they create an opportunity for either pipeline or supply option. So coming back to St. Louise, the St. Louise lateral is really a project to bring that supply from that shale gas up in those basins into the region. It creates diversity of supply, again, especially with shale base, we do not have that available today. The REX lateral exists, as you know, and so this really is an incremental piece of pie coming off that REX lateral into the St. Louise region. It's a 24-inch pipeline, it's about $400,000 a day, the preponderance of that capacity will be used by Laclede gas which is the foundation shipper and as a result of that evaluation and the result of the valuation of need from the gas company itself, it's not that we won't during open season welcome any other customers, we will, but as a result of that we think it makes sense for us in terms of that investment of, as we mentioned, $170 million to $200 million that it makes sense for us to move forward with the project. And if you recall, back about three, four years ago, when we were setting out this transformation, I used to initially talk about first mile, last mile pipelines and this is just that; it's a last mile pipeline for the gas company and it's not unusual for gas companies to have some of this incremental larger diameter higher pressure pipe. I've managed a lot of that over my career. It's not interstate pipelines per se going across multiple markets with multiple shippers.

Got it. Thanks, Suzanne. And then regarding the OPC compliant, maybe if you can just talk to the timetable there in terms of a resolution and also, is that something where they're charging anything but your returns, are they looking at anything structural like the ISRS tariff itself?

Yeah, another great question. So if you think about regulatory or commissions and pay commissions and their regulatory authority, generally they have authority over the price and also rate design and so the process is, and if any other party has a compliant, especially specific to those two items, they file that complaint at the commission. So that is the body that takes that up. So, yes the OPC did file, I think it was April 26, and they wanted to know whether or not our gas rates at the Missouri utility, sorry, are just and reasonable. As we reflect on this, we look at our rates. They're lower than they've been in over a decade. Also, as you know, we've made purchase gas adjustment filings and reduced the price to customers as well so both components of the bill we've driven down price. We've invested literally hundreds of millions of dollars into pipeline replacement to improve the safety and reliability of our system and as you also know, we've driven down the cost from an O&M perspective. So it just helps managing bills for customers. So the complaint really doesn't use the detailed analysis that is required by the PSE to determine if utility is over earning. And even if the incorrect 10.45% that they've asserted was – we believe it's unfounded, but it's still within the allowed range for return. So, when we make the normal adjustments, typically what you see in a rate case we're well within the range and there's been a lot of legal action over the years at a national level and at the Missouri state level that supports our current range. So we're comfortable, in fact we're more than comfortable, we're proud of what we've done on behalf of customers in terms of lowering the cost and at the same time improving services and our safety record and on and on. So, I guess time will tell which was part of your question, at this point in time we don't really have a schedule in terms of how the commission will decide whether or not to take that up.

Understood, thanks for the color.

The next question comes from Chris Turnure of JPMorgan. Please go ahead.

Good morning guys. My understanding is the legislation in Missouri is looking less and less likely now. Could you give us an update on that and maybe just an updated assessment on the probability of something happening at this point if any?

Yes, I'll take it on and Steve Lindsey may have a little bit more color that I'm not aware of from this morning, but the bill currently is in the Senate and the Senate is taking it up, trying to move it out of the Senate. As you know, there's only a week and a half remaining in the session. In the bill that the Senate is trying to take up, it's really three parts. It includes water, gas and electric which creates a little bit more on complexity. And so, you know, I've never -- I learned a long time ago I never had legislative process use because anytime I do I'm always wrong. We still believe the bill makes sense and is going, again, from three years to five years to avoid the distraction from management and the rate making process and also the cost for customers because they do bear the cost, makes sense. That being said, if it doesn't prevail we'll file our cases as scheduled. That's what's built into our plan, so there's no surprise to us. In terms of our plan, all of that is built in. And so we'll just stay on schedule and continue to work with a legislative audience as well as the commission. And I don't know, Steve if you've got any additional updates?

Thanks, Suzanne, this is Steve Lindsey. I think the only additional point I would add is that the recent filing of the complaint by the OPC shows that the process can work as in place now which says that if somebody feels that we're over-earning then they can bring that forward and we'll go through that process. So I think that even more reinforces our position that these arbitrary rate case filings, you know, from a timing perspective, shouldn't be at a three-year period and should be moved to five, and ultimately, like most states, not even have a requirement. So we feel very confident that the process will play out. Thank you.

And Chris, I'd like to add just sort of one point there, and I'm sure most everybody on the call knows this, but when you look across the US, its more than 35, I think it's 36 states, have pipeline replacement programs and only five of them require rate filings within some interval and only two of them require a rate interval less than five years. So, we're not asking for anything unusual here, it's just to try to move us more into what you see across the US. But, again, all of that being said, we're very comfortable with our plan and the way that we're managing it and we, again, we'll continue to work with the legislative and state commission.

Okay, so as you understand it, it's still in the Senate right now, it's still tough to call and it is tied in with at least one piece of electric legislation proposals or proposal and awarded one [ph] as well?

Yes, I wouldn't say tied in, I would say that the Senate is taking up at the same time three distinct pieces so it's not the same language for all three. There are three distinct pieces that the Senate prefer to take those three distinct pieces up at one time instead of separating them and taking them up in different times.

Okay. And then my next question is on the pipeline. I just wanted to follow-up to get more detail there. You mentioned supply diversity is kind of the big driver here. Would you say that that is the main one and that there's very little incremental volume needs that are driving this thing?

Yes, the predominant reason, as you said, is supply diversity. For the St. Louise region, mostly the gas comes out of East Texas as well as the Gulf of Mexico and it really isn't accessing in a prominent way the shale gas. So my guys are hard, who several of you may know, in fact, went over to the commission and had a discussion around those supply basins and providing that opportunity to the St. Louise region. So it really is just placing current supply and adding in this new supply option and also looking at what our growth numbers look like for the region on the short-term and long-term basis and from a customer side, when you look at what the purchase gas adjustment costs are. And then you look at this pipeline and the shale opportunity, it's really our objective overtime to keep those costs neutral or better for customers, but at the same time creating more reliability and more options in terms of access to supply. The other benefit for St. Louise as a region and Missouri as a state is having that diversity of supply and bringing in the shale gas. From the economic development perspective with manufacturing both light and heavy manufacturing, it's an attraction, as you're trying to recruit or expand your existing manufacturing. So it's also important from a public policy position for the state.

Okay, great. Thank you.

Thanks Chris.

The next question comes from Sarah Akers of Wells Fargo. Please go ahead.

Hey, good morning Sarah.

Good morning, Sarah.

Good morning. Just a few questions on the pipeline. First Suzanne you just touched on this but can you just confirm, does Missouri have to approve the agreement for the utility to enter the contract with the pipeline?

Yes, that's a great question. From a purchase gas adjustment perspective, Missouri doesn't approve those contracts upfront. We have filings that we make with the staff, we also meet with the staff with some regulatory, but it's both from the eastern side of the state and the western side of the state. It is a FERC regulated pipeline from the pipeline perspective and so the commission has the authority – the commission staff has the authority to intervene, if you will, in that case and follow that process and provide us feedback. We're really making an effort to go into the formal commission meetings and along the path, just like we do with you of educating and sharing what we know along the path, so the commissioners as well as the commission staff can stay current with us as we work through the process. And once we get to open season, we feel like it's a 30 to 36-month process, and so that's really the beginning of the clock ticking.

I'm sorry if I missed it, when is the open season planned for?

We haven't made that determination of the dates for the open season, we wanted to announce the transaction and us owning 100% of the pipeline and how we see the project in terms of the range of cost. We're working now on completing the build-out of our team, as well as the timing to follow open season. So we should know that, whether on short order and we'll get back with you on that time as soon as we know it.

Got it, and I think Steve mentioned the earnings impact is in 2019, is that the presumed in-service date and would you book AFUDC during construction?

Hey Sarah, this is Steve. The answer is yes it would be in 2019, and yes, we will take advantage of capitalizing the cost essentially for those of you not familiar with that mechanism during the construction period.

Got it. And then one more, with the higher CapEx, do you see any need to issue equity to finance the five-year plan beyond the acquisition financing that you outlined?

Sarah, we talked about this when the pipeline was originally announced. At some point, especially if we're at the high end of the range of the total cost so at the $200 million, at the $170 to $200 million, there's likely a small capital raise, equity capital raise that we required. Now, remember, that's a three-year build so – and a vast majority of the capital comes in year two and year three. So at some point during that process maybe it would make sense for us to go out and access the equity markets in a small way in order to make sure that our overall cap structure, again, I'm thinking about it from the Spire top level, stays kind of where we'd like it to be which is balanced if not a little bit more equitized. But we would clearly time any equity raises to coincide with when the earnings are actually being pulled through for the pipeline and that was all factored into our long-range plan as we evaluated the deal. Short of that, we have plenty of capacity in our debt facilities at both a group level and at the operating companies when we think about the acquisitions to cover our needs for not only working capital, but also for our capital spend in our plan.

Got it, thank you.

Thank you, Sarah.

The next question comes from Selman Akyol of Stifel. Please go ahead.

Thank you. Most everything has been asked, but just one clarification on the pipeline. I know you talked about diversity of supply and you also mentioned displacing current supply, so just to be clear, would you be letting go capacity on existing pipelines coming up out of the Gulf?

The short answer is yes, overtime we will release capacity on other pipelines and bring those pipelines, the lateral that we just talked about, the STL Pipeline into the system and so, which is not uncommon to do that and release some of those other shorter and longer-term supply arrangements.

Got you. And then just taking a different look over gas marketing, you commented there on favorable natural gas storage results. From what you're seeing going forward, does that still impact this quarter?

Hi, Selman, this is Steve. Impact this quarter is in the third quarter that we're in right now, I mean, it clearly benefited the second quarter to a certain extent and that's why you have storage, you can take advantage of the daily opportunities. So, if you can clarify your question I'll try to answer it.

I mean, so it's just rolling off this quarter so you wouldn't anticipate another quarter of it?

Yeah, no, it was very much taking advantage of market opportunities and as you know, since you're also in our service territory, the second quarter is where you generally have those opportunities depending upon how the weather patterns work out.

All right, that's it for me. Thanks.

Thanks.

The next question comes from Joe Zhou of Avon Capital Advisors, please go ahead.

Hi, it's Andy Levi, how are you guys doing?

Hey Andy.

Hey Andy.

Actually Sarah asked all of my questions so I think I'm all set. Just there was one thing I just missed, I was reading something else I apologize. Just on the Missouri legislation so how are you guys handicapping that as far as it getting done?

You didn't miss it, I didn't handicap it.

Oh didn't, okay, okay.

I talked about that's one thing I've learned after 36 years in this business and doing political work that you don't handicap legislative action. So you work it hard and you stay close to it and you never handicap it. That's at least my view.

Okay, fair enough. Thank you.

Thank you Andy, appreciate it.

Thanks Andy.

The next question comes from [indiscernible] of Castleton Investment Management, please go ahead.

Hi guys, how are you?

Hey good morning.

Good, how are you Steve?

Just a quick question, two quick questions, can you bucket the $9.5 million O&M decrease into the drivers you mentioned whether expense timing, I can't remember what the other one was but --

Yeah, the biggest impact was weather and that's probably 60% of the overall benefit we saw for the quarter and then it steps down from there, cost efficiencies is probably more than half of the rest of the difference and then some timing of expenses which is really headcount as we replace some folks we got through the integration or the next stage of the integration down in Alabama and so there are a number of positions that we're filling right now in the operations side and getting ready for the heavy-duty construction season. Steve any --

Yeah, and the one part I would add, a little bit of a clarification is when we talk about weather, what it does, the lack of winter weather, is it enables us to increase our construction activity into more parts of the winter that we typically wouldn't. So it's not just the fact that the stress on our system is less but it actually gives us more opportunity and that's evidenced by our strong capital performance in the quarter.

Yeah, and the last point I would make Steve is if you think about the run rate for O&M, you know, for the first half of the year and then look at the second half of the year, you know, we would expect the run-rate for O&M to tick up a little bit and it traditionally does tick up in the second half of the year a little bit and it's like a million or $2 more on average per quarter in the second half of the year than the first half but that's not unusual. That's kind of how the pacing and timing of our expenses run when you look at a 12-month cycle.

Okay, great. And then the next thing, I -- you know, the permanent financing ranges that you gave for the equity and the debt, it looked like at the midpoint it was about $300 million but then when you take the purchase price of $344 and back out the assumed debt, it's like $275 million. So can you just bridge why, I guess, you're raising the additional $30 million?

Yeah, Steve, the actual cash at close is $323 million and that recognizes the fact that we're assuming the $67 million in existing debt at the two utilities but also we're purchasing working capital really kind of non-operating working capital of $46 million. So if you take the $344 plus $46 minus the $67 assumed debt you get to that $323 million number and that's really the number you should think about when we go for permanent financing. So, you're right, at the midpoint of the range that would say that we're looking at a permanent financing raise in the $300 million category which would make sense because to the extent we're buying working capital, which is part of this deal, we would clearly want to finance that with a working capital borrowings rather than something longer-term or more permanent.

Right, so that's the part that I was confused on. Like I know that the cash out is $323 but if issued finance that working capital with short-term debt, right, that you can pay down when that capital comes in. Can you talk about what that working capital is and how you expect that to get kind of recovered, I guess?

Yeah, the working capital is, unusual working capital, it's actually receivables that Sempra invested in the business that will turn to cash over the next 12 to 18 months and so when we look at the overall need for the business and how that's going to turn to cash over a period of time, that 12 to 18 months clearly falls into the working capital side of the financing as I think about it, as I split my brain into short-term and long-term financing buckets. And that waiting also reflects the fact that they'll be additional working capitals because depending on when you would assume we close the deal later in 2017 there may be minimal working capital, there may actually be some working capital because in our business working capital tends to start ramping up in the calendar third quarter of the year and usually reaches as APEX in the fourth calendar quarter which would make sense because we're investing in storage and getting ready for the heating season and then we hit the low point generally about this time or in the calendar quarter that we're currently in physically right now which is the second calendar quarter. So we factored all of that in, in coming up with the financing plan and we think it's the right one that matches the short-term and long-term nature of the assets we're buying.

Okay, so is it just customer receivables or seasonal gas receivables or --

They are not customer receivables. They are receivables on claims, insurance claims, and other items that Sempra has invested cash in that we will ultimately take over and then get the cash once those claims are settled.

Okay, all right, great. Thanks guys, that's all I had, thank you very much.

Thanks Steve.

Thank you.

The next question comes from Tim Winter of Gabelli & Company, please go ahead.

Good morning guys and congrats on the quarter.

Thanks Tim.

Thank you.

If my memory is right, you guys had an over-earnings complaint a couple of years ago. Could you remind me how that played out and what's different, if anything, this time?

We're all kind of looking at each other Tim. We don't remember over-earnings complaint. As you know, we have to file a rate case at least every three years and we've done that with Laclede Gas and settled those cases and then with the MGE transaction, of course we closed that and we agreed to file the next case that's driven by interest, if you will, contemporaneously. So, the next two are to be filed at the same time but I don't recall, nor does anyone else around the room --.

Not in the last six or seven years that I can recall Tim. Now, the our SC mechanism was reset back in 2014 down in Alabama to what is now 10.8 or 10.85 at Alagasco, that's about the only ROE change that I can recall in my six and a half years here.

Exactly where I am and Steve Lindsey is the same and Scott Dudley so --

Okay, maybe I stayed up --

Yeah, I was just going to say we'll do a little homework to make sure.

I'll follow-up.

That so -- okay.

Okay, thanks guys.

All right, thanks Tim.

The next question comes from Paul Hamilton of H.I.G. Capital, please go ahead.

Hey good morning everyone. Quick -- most of my questions have been answered already but the one, little one, I had outstanding was out of the current volumes that you guys currently transport, gone through third-parties in the Missouri area, about how much of those volumes will be displaced by the new pipeline do you anticipate?

It will be a small volume in comparison to the entirety of the system and all volumes, if you will, aren't created equal and not to get too technical on you but if you think of the coldest day as being Day 0 and the warmest day being Day 365, some of those days are peak volume so there's shorter duration, transportation and supply contracts. Some are seasonal and some are across the year. So they're not all created equal, so it's just throwing a percentage out I think would be a little misguided. But, that being said, it will be a relatively small percentage in terms of the entirety of the portfolio.

All right, thank you.

And we have a follow-up from Joe Zhou from Avon Capital Advisors, please go ahead.

Hey, it's me again I think I also missed one other thing. Sorry.

We're here.

Just on the equity issuance, did you say you were going to do that at the market is that what the plan is or you didn't say that or --

Andy, this is Steve. I didn't really say anything except for the range of $130 to $150 million and as you know from our previous deals, we have to have a line of sight and a level of comfort with the regulatory approval process before we would want to access the market.

Okay, so -- and then again, did you say how long this regulatory approval process would take?

Yeah, I don't know that we said in our comments and it's really, as you know, it's not for us to determine. We look at precedent transactions if you will. So, for example, in Alabama we clearly have an experience from our Alagasco acquisition and then if you look in Mississippi then you'll get precedent transactions. We've seen everything form four to 11 months and so after we get in and understand a little bit more and understand the desires of the Mississippi commission we'll be able to give you more color around that.

Okay, great. Thank you.

All right, thanks Andy.

Thanks, appreciate it.

This concludes our question and answer session. I would like to turn the conference back over to Scott Dudley for any closing remarks.

Thank you and thank you all for joining us this morning. We'll be around throughout the day for any follow-up's. Take care, bye-bye.