Good day and welcome to the Second Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Managing Director of Investor Relations, Mr. Scott Dudley. Please go ahead.

Good morning and welcome to our second quarter call. We issued an earnings release this morning and you may access it on our website at spireeneergy.com under News. There's also a slide presentation that accompanies our webcast today and you may download it either from the webcast site or from our spireeneergy.com under Events and Presentations. Our call today is scheduled for about an hour and we will include a question-and-answer session at the end. The operator will provide instructions on how to join the queue to ask a question. Our CEO Suzanne Sitherwood, who normally presents on our earnings call is not able to be here today as she is attending a family celebration. So, presenting on the call in her place will be Steve Lindsey, Executive Vice President and Chief Operating Officer of Distribution Operations and as usual Steve Rasche, Executive Vice President and CFO is on the call to provide a review of our results and an update on our outlook. Also in the room with us today is Scott Carter, Senior Vice President of Distribution and Operations and Mike Geiselhart, Senior Vice President of Strategy and Corporate Development. 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 more complete description of these uncertainties and risk factors, see our Form 10-Q for the second quarter ended March 31, which will plan to file later today. In our comments, we will be discussing financial results in terms of net economic earnings and contribution margin, which are non-GAAP measures. Net economic earnings exclude from net 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. Contribution margin adjust revenue to remove the costs that are directly passed on to customers and collected through revenues, which are the wholesale cost of natural gas and propane and 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 Steve Lindsey.

Thank you, Scott and let me add my welcome to everyone who has joined our call and webcast this morning. Before discussing our results I want to take a moment to say a few words about the tragic loss experienced of our Spire family on Thursday, April 20. On that day, two of our Laclede gas field employees were shot and killed while on the job site. It was a senseless random act of violence that took the lives of two very fine men that exemplified everything Spire stands for. They were caring, hard-working people. They were fathers, husbands, brothers, and sons and they were great employees that took pride in delivering safe and reliable natural gas to families and communities in St. Louis. We'll never forget these men and this moment on this day I want to ask you to join me in remembering them holding their families, loved ones, friends and coworkers in your hearts and prayers for a very long time to come. Thank you. Turning now to our financial and operating performance, we're continuing to deliver on our promises, which shows up in the solid results we've achieved in the second quarter and the first half of fiscal 2017. On the financial side, our gas utility earnings grew despite warm weather and we saw a further improvement in our already strong operational performance and are executing well on our plans and strategies. We continue to grow our gas utility business through investments in infrastructure upgrades as well as implementing organic growth initiatives that are delivering modest customer growth, especially in the Kansas City area. We're also on track with the integration of our acquisitions, most recently EnergySouth where we're now implementing our detailed integration plan and have completed the separation of the IT platform from their…

Thanks Steve and good morning, everyone. Let's start with a review of the key financial details of our Missouri rate cases on Slide 9. The filings are based on a test year ended December 31, 2016 and as a standard practice in Missouri, there will be an update period that we anticipate being the end of our fiscal year September 30, 2017. Laclede Gas filed rate base was just over $1.2 billion up from $944 million at September 2012 for a compound growth rate of 6.4%. Similarly, MGE's style rate base was $793 million a 9.6% CAGR from their last filed rate base of $565 million at April 2013. The reasons for the growth are two-fold. The significant investment in infrastructure upgrades that Steve just talked about a minute ago and to a lesser extent, the growth in net regulatory assets. I should also note that it is likely that the combined rate base will grow by roughly an additional $100 million based on our capital spend plan for the balance of this year. Back quickly to those net regulatory assets, which consists of items like prepaid retirement benefits, energy efficiency plans and integration costs. Our filings reflect cash recovery and amortization of many of these assets, representing roughly 40% of the overall net requested increase. Turning to capital structure, the two rate cases are filed based on the Laclede gas operating company long-term capital structure, consistent with the way in which we've operated the utilities for many years and clearly since our 2013 MGE acquisition. That capital structure at calendar year-end was 57.2% equity. We anticipate based on our forecast and planned borrowings during the balance of this year that the capital structure at update will be approximately 54% equity. The weighted average cost of capital in these filings…

We'll now begin the question-and-answer session [Operator instructions] Our first question comes from Mike Weinstein from Credit Suisse. Please go ahead.

Hi guys.

Hi Mike.

Hey, I was wondering if maybe you could expand a little bit more about the rerouting of the STL pipeline the six miles that you talked about and what advantages that may have and just confirming it doesn't seem to change the cost estimate of the pipeline at all right?

Yeah thanks Mike. I'll start this and I may turn it over to Mike Geiselhart to add a little bit. Yeah, when we originally proposed the pipeline we proposed it the last six miles of the route included a piece of the current pipeline infrastructure owned by Laclede Gas called line 880 and as we evaluated the opportunity to use that pipe, including a significant amount of rework and upgrade to the pipe versus other alternatives it became clear that there was actually a proposed route that was a new build route for about the same length of pipe through a newly developed area mostly rural ground that would actually achieve a better long-term outcome. And so in April earlier late last month when we filed, we filed to include that route and as you think about it overall, it's really about mitigating risk and lowering the expected long-term cost of operating the pipe and it's really the benefits fall on those two buckets including minimizing the risk of cost that were yet to be firmed up and how much upgrade was going to be needed in order to get line 882, to where we needed to be for the interstate pipe versus where it's currently being operated to serve our residential customers and also the long-term integrity management costs. Mike did you want to add anything else besides that? Okay, there you go Michael.

And just to see if I can get an update on your view of M&A in the space in light of the recent rejection of the Great Planes Westar deal, what your view and your appetite for M&A going forward?

I'm not sure that Michael our view on M&A has changed at all. We remain in a consolidating industry and so over time we think there will be opportunities. Having said that and we've said this in the past the valuations in the industry have certainly run ahead of what we will consider to be the fundamental values for some of the deals especially the ones that have been announced in the public market. You're right, it's clear that there has been a little bit more regulatory pushback recently on a number of deals, the most recent of which was our friends on the Western side of the state in Kansas and we’ll continue to watch that closely. And I am not really sure how to think about the cost of capital in the near term and we talked about this in the past that with the uncertainty around income tax policy and the changes that might come from Washington and whatever one those will ultimately take right now it just adds another moving part of the evaluation of what the potential acquisition might deliver in terms of value to us. Ultimately, our long-term growth is predicated on the things that are already within our real house and that's essentially investments and things like the Spire STL pipeline and inorganic growth initiatives and accelerating our investment in infrastructure upgrades and we're very comfortable with our ability to achieve in that range with the things that are in our real house. If we were to move forward with another acquisition you can rest assure that it would be a deal that would add value as we look at it and value isn’t justified as earnings per share although that's one of the key components when we look at the overall system and how we create value in the medium and long-term.

Okay. Great. Thank you very much.

Our next question comes from Chris Turnure from JPMorgan. Please go ahead.

Good morning, Steve. I wanted to ask you about a comment you made in your prepared remarks on truing up the rate case task you mentioned it briefly, but I just wanted to understand the takes that that occurs and which items in the rate case are actually trued up?

Let me start and then I'll look to Scott Carter if he wants to adds anything. Yes, in Missouri the way the process works is we have to file -- we have to snap a line and we snapped the line at the end of the calendar year 12/31 and that includes establishing the 12-month run rate cost to operate the business and also the capital structure and rate base, all snapped at that line at that point. And that was the basis for our filing as I talked about in the prepared remarks. The typical process in Missouri allows for an update rate base capital structure and key components of run rate cost through an update period, which given our long history in doing this will likely fall at the end of our fiscal year or September 30. And so, what will happen, you'll see filings for the staff and any other interveners will file this summer than later on sometime after that will file a response to their filing. And then will low and behold will get to 930 and so a little bit after that 30 to 45 days we'll finalize all the numbers and then the update period will likely -- will be subject to prudence review and then all of those numbers including rate base and run rate cost and the actual capital structure will be finalized at that point. And then all of the other proposals that we have in the rate case are going to be -- will be subject to lots of discussion and ultimately negotiations during and after that time period especially as we get into the fall and winter of this year and going into the late winter, early spring because when we think about an 11-month process and we'll have to see how it plays out and what the procedural schedule actually says. An 11-month process would point to the second week in March as when the process would have to be completed based upon legislation and that the 11-month timeline, but we'll see how it all plays out as we walk down the path. Scott anything else

Okay. Sorry, I didn't mean…

No, I think I covered most of it Chris.

Okay, so you mentioned basically all of the items or the majority items in terms of data points in the filing would be updated and that would be as of September 30 and you would actually make the filing shortly thereafter or the update shortly thereafter?

Yes, we would have to get the books closed for the fiscal year and it's clear, the rate base and capital structure are absolutely updated. Run rate cost it really a lot of the review and the data request that the staff and other parties will be looking at now, we'll be firming up a lot of those cost. So, we really tend to look at the larger cost that moved the needle and those are the ones that would be updated. I can't say that every single piece of runway cost is updated otherwise it would just extend the entire process to a timeline that would be acceptable to us or to the regulators.

Got you. Okay. And then if memory serves, you guys had a settlements three and half years ago or so around the time of the MGE deal for both rate cases in Missouri and I just wanted to get a sense as to kind of when that occurred in the process and some of the key puts and takes around that settlement what went into it, what was the outcome and any read through is obviously that you think might be relevant to this go-round.

A couple comments first of all, we typically do settle our rate cases, our long history for Laclede is to get to a black box settlement after we run a lot of the issues in a case down, but not trying to negotiate the final nouns and verbs of the last few, if we can get to an outcome that make sense both for us and for the folks on the other side. So, settlement is not an unusual outcome although we'll see how these two cases play out over time. Both of those cases that you reference, in fact both of the last two Laclede rate cases in 2010 in 2014 when they were settled, and also the MGE case, which was filed in '13 I think settled in '14 and the case may have been '13 were are ISRS-only rate cases, which essentially meant although we initially proposed a full filing, which including amortizing, net regulatory assets, changing rates and all of that. We ultimately agreed with the staff and the commission to roll ISRS into base rates, reset ISRS to zero and move on and we did that especially in the last set, because in the Laclede rate case, we were in the middle of the MGE negotiation before closing and we really wanted to get the rate case behind us and frankly we didn't need to be in a rate case. We actually were compelled or had to file in order to keep our ISRS rider active as Steve mentioned in his prepared remarks and MGE was filed literally within two or three months after we closed the deal. And so, we really wanted to get that case closed so we could begin the integration process and unlock everything that we've now seen over the ensuing three years. So, we were motivated in both times to really just get the rate case done and to move on. You would actually have to go back quite a ways to a black box settlement that was a full rate case settlements and I believe that would be the Laclede gas case that was filed in 2010 at that point and off the top of my head, I don't remember what the settlement was, but there was roughly half of what we ultimately filed for.

And Chris, one other point to add to that, as part of that as we've mentioned earlier with the acquisition approval, we agreed to file these cases concurrently. So that's why we have both the Laclede Gas as well as the MGE rate cases filed at the same time right now. And to give you just a little flavor the gross increase that has been requested in this case for Laclede is $58 million about $30 million of that is in ISRS which will move over just as Steve mentioned in the previous case. So that's why you're net ask in this case is about $29 million and in for MGE its about $50 million gross and about $13 million of that is ISRS. So, if you just take the ISRS piece of that, that gets you really to where we're filing this case and those previous cases it was basically just moving the ISRS into the new rights.

Okay. Got it. That’s a very helpful color and context. Thanks guys.

[Operator instructions] Our next question comes from Brian Russo from Ladenburg Thalmann. Please go ahead.

Hi, good morning…

Good morning, Brian.

Just a quick clarification, you mentioned $9.7 million negative impact due to weather in the second quarter, that's margin correct, pre-tax and then also is that relative to normal or year-over-year?

Yes, Brian, you're absolutely right. The $9.7 million for the quarter, and the $19.8 million for the year is the margin shortfall versus normal, which is essentially how we plan our business every year as you would expect.

Okay. Got it. And remind me, do you guys have any weather normalization mechanisms at any of your utilities?

Well, we do have some weather sensitivity and some of that is particularly on the MGE side. One of the things we're proposing in both our legislation and in this rate proceeding is a revenue stabilization, which takes away some of that volatility on both warmer as well as colder winters. So, there is some of that sensitivity as you can expect and so having these two -- really two years in a row of warmer winters, we have seen the margin impact and to give you a little bit of color, last year during the same six-month period it was roughly about a $17 million impact and this year it was a little bit more. So, again we do a lot of things to help mitigate that through managing expenses and through our increased capital, which gives us the opportunity to do as well as you have some lower cost such as bad debt expense. So, while we do have some exposure there, we're working on some opportunities going forward to limit that risk and primarily that's to help limit that risk for customers. And so, that if you do have that weather extreme conditions their exposure is limited as well.

And Brian. I've got one more thing on that, the exposure in Missouri on both sides of the state because we do have different rate structures right now is really the variable component of our rates, which is somewhere between 15% and 25% of the overall recoveries that we expect. The rest is absolutely mitigated and what you're seeing is the adjustments on the margin so to speak. In Alabama, it wasn't just the temperatures. It was the volatility of the temperatures, their temperature rate adjustment mechanism, which has worked splendidly for many years. This year because of the sheer change in the temperatures on a daily basis, which could have been 20 or 30 degrees wasn't contemplated in that temperature adjustment mechanism. And so, that's why we saw a little bit more weather exposure down at Alagasco that we haven't seen in the past. And again, as Steve mentioned, we'll work to improve our life there, but again whether is part of operating utility and we do have a natural hedge in our operating expenses and what is continued to operate the business and move forward.

Got it. Okay. So, if I just tax effect the $9.7 million it's maybe roughly $0.12 and if I adjust the midpoint of your guidance of 355, that gets you to around the 345, is it safe to assume that the lower bed debt and some of the O&M expense controls bring you back up to that lower half of the guidance range, which is as we look at it?

Yes, that's exactly the way you need to look at it. If I think about the year and I tend to think about the first six months of the year, we were $19.8 million a margin headwind, ROI expenses were lower by in the range of $6 million and that as Steve mentioned, our capital plan for the rest of the year will actually help that keep our expenses in line when you go through the rest of the year. It's really the combination of those plus operating smarter that allow us to get to the point that we guided to in our overall earnings for the year.

And I think one other piece that we touched on earlier is every six months, we will have ISRS filings in Missouri and those go into effect again shortly after that filing period. So, you can layer all the pieces together and I think again given the challenges of the winter throughout O&M, through an increased margin relative investments that's how we really focused.

Okay. That’s helpful. And then what is your current actual shares outstanding versus the average share count with the April conversion?

You know hold on a second. I have a piece on that, give me just a second to go to it, because you're right I live in the world of average shares, the actual shares outstanding at 03/31/17 are 45.7 million shares.

Okay. So is that the run rate to or the base to grow off of on a drip or dribble or that excludes the conversion.

Yes, that excludes the convert. So if I add that we were at 48.2 million shares and that would be the actual outstanding shares in my mind I tend to lump four or three and 331 together and that is how you should think about it going forward and when you think about it in terms of the earnings per share calculation and we included that in one of the slides in our presentation because of the way that that works through, half of that 2.5 million shares will hit our earnings per share estimate this year and the full amount 2.5 will hit the earnings estimate for fiscal 2018.

Got it and then just on CapEx it look like you've increased '17, '18 and '19, $30 million, $40 million yet you reaffirm the 4% to 6% CAGR. Can I assume you're kind of growing into that 4% to 6% CAGR with the incremental CapEx? Is that one way to look at it?

Yes, we're growing in or moving to the higher end of the range and it is something that we look at and you are absolutely right that capital spend is one of the ways in which we can deliver growth by growing rate base over a period of time. So, I tend to think of it as more insurance that we can get to the middle or higher part of our guidance range.

Okay. Great. Thank you very much.

Thanks Brian.

[Operator instructions] Our next question comes from Selman Akyol from Stifel. Please go ahead.

Thank you. Just a couple quick ones, if I could and a little bit of follow-up from the last set of questions. So, when you guys you've done year-to-date $29 million for new business is that a good run rate for the full year?

Yeah, thank you for the question. It actually is and it's a fairly sizable increase relative to their past two or three years. Couple of the areas we're getting a lot of pick up as I mentioned on the Western side of the state and the MG territory, we had a lot of success there. We're starting to see some nice entries into the multifamily area, which prior to these past couple years we had some struggles and in Alabama we've run some pipe into an area in East Montgomery, which has proven to be very successful for. So, a lot of that spend is like we said versus last year it's an increase and we're about 14% ahead in terms of where our projections were on actual new meter set. So, while our growth is we characterize as modest, I think we're positioning ourselves very well for the go-forward as we make this capital investment right now with the subdivisions and commercial development that should come with that. We're also seeing some fairly good conversion opportunity on the Western side of the state from propane and things like that. So overall, I think we're well positioned going forward and we really view this an opportunity to continue organically grow these utilities that we have.

Got you. So, you look like you're seeing some low hanging fruit or some opportunities and then I guess longer-term as you think about your capital budget, you've got $2.3 billion out there and you say 10% of that was for new business, so that works at roughly $46 million a year. So, you're expecting it to moderate going back the further you look out?

Well I think you have to look at the other side of that is continued increase in the infrastructure upgrades that we're doing. For example, this year in the first six months MGE on the Western side of the state actually had about the same capital spend level and Laclede Gas was and if you think back to three years ago or when we brought them into our company, they were replacing anywhere from 18 to 20 miles a year. This year they will replace about 120 miles. So, I think it's the continuous build and we're doing the same things in Alabama at Alagasco and we'll even do some with Mobile and Willmut in terms of our increase. So, I think what you're seeing is that the new business then on a go-forward basis while increasing is having to really compare to the upgrades that we're doing and increase in all those utilities. So, I think you're seeing a good trajectory on both, but you're probably going to be outpaced a little bit by just the infrastructure upgrades.

Okay. And then last one for me and I appreciate that you guys said you have a history of settling. So, I guess what would be the earliest if it's an 11-month clock, when would be the earlier you guys could think of settling the case?

I hate -- I hate to project out especially since we don't have a procedural schedule. If you think about the fact that we need to get to our update period and we need to get our books closed and get those numbers finalized that our puts us late in this calendar year under the very, very earliest and there will be a lot of work including committee meetings and public testimony that has yet to be scheduled. So, I think once the procedural schedule comes out, it'll come out in the not-too-distant future. It will then probably better define where the early settlement period might happen, but we have to get through the community meetings. We have to get through the public hearings and those have yet to be stapled on the calendar so to speak.

And I think the one other piece is keep in mind these are two separate rate cases that are going on at the same time even though we're filing them again together. So, there's still some different complexities around different tariffs and rate structures and some other things that are being presented in this case that aren’t in a traditional case. So, I think it might take -- the normal process will work its way through, but in this instance, there's a few more things that we're going to be dealing with as we go through the process.

All right. Thanks very much.

Thanks Selman.

This concludes our question-and-answer session. I would like to turn the conference back over to Managing Director of Investor Relations Mr. Scott Dudley for closing remarks.

Well, thank you all for joining us. I know it's a busy earnings week. We appreciate you spending time with us. Steve Rasche and I will be around the day for any follow-ups and we look forward to catching up then and we'll see you at AGA. Thank you.

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