Good day and welcome to the Spire Year End 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 Scott Dudley, Managing Director, Investor Relations. Please go ahead.

Thank you. Good morning and welcome to Spire’s fiscal 2017 year end earnings call. We issued our earnings news release this morning and you may access that from our website at spireeneergy.com under the 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. Presenting on the call today are Suzanne Sitherwood, President and CEO; Steve Lindsey, Executive Vice President and Chief Operating Officer of Distribution Operations; and Steve Rasche, Executive Vice President and CFO. 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, there are various uncertainties and risk factors that may cause future performance or results to be different than those anticipated. For a more complete description of these uncertainties and risk factors, please see our Form 10-K for the year ended September 30, which we plan to file later today. In our comments, we will be discussing net economic earnings and contribution margin, which are non-GAAP measures used by management when evaluating our performance and results of operations. Net economic earnings exclude from net income the after-tax impacts of fair value accounting and timing adjustments associate with energy-related transactions. They also exclude the after-tax impacts related to acquisition, divestiture and restructuring activities. Contribution margin adjust revenue to remove cost that are directly passed on to customers and collected through revenues, which is a wholesale cost of natural gas and gross receipts taxes. A full explanation of the adjustments and a reconciliation of non-GAAP measures to their GAAP counterparts are contained in our news release today. So, with that, I will turn the call over to Suzanne.

Thank you very much, Scott, and welcome, everyone, joining us this morning for our fiscal 2017 performance recap. It was another year of achievements for Spire and a year in which we again delivered on our promises. I’ll hit the high points, then I’ve asked Steve Lindsey to provide a year-end operations report, reflecting our strong results. And of course, Steve Rasche will follow with more details on our solid financial performance. First, I want to begin my remarks by thanking the more than 3,300 Spire employees across Alabama, Mississippi and Missouri, and our many business partners for their hard work, commitment and focus. I also wanted to commend our employees and business partners for continually raising the bar on how we serve our customers and support our communities. Our success this year and in past years all comes down to how well we execute and deliver on our promise to grow while staying true to our vision of what it means to serve. With Spire now serving 1.7 million homes and businesses, our strategic priorities begin with organic growth. We are focused on bringing our energy to not only our existing customers but to even more homes and businesses. I’m pleased to say we achieved positive growth for the third straight year. This was accomplished through focusing on the combined strength of people, processes and technology. The other major way that we grow is through investing back into our business. And as planned, we once again increased our investment in pipeline and technology infrastructure to a record level. As Steve Lindsey will highlight, we posted another year of strong performance in modernizing our infrastructure across gas company operations. Of particular significance for us this year was the transitioning of gas companies to Spire. This transition was a historic milestone…

Thank you, Suzanne. I also want to acknowledge the outstanding efforts of our employees this year, and thank them for their dedication to serving our customers and operating safely. Our financial results this year were once again supported by a strong overall operational performance. Our results reflect that we have continued to grow our Gas Utilities through organic initiatives, investment focused on prudent infrastructure upgrades. We also benefited from efficiency gains through process improvements and investments, technology and the training of our employees, providing them the tools to do their jobs even better. As I’ll detail in a moment, our operating performance improved across the board, in safety, customer service and how our system performed overall. And all of this was, again, accomplished by prudently managing expenses at all of our utilities for the benefits of our customers. Our organic growth efforts continue to produce positive results in 2017. As Suzanne mentioned, we achieved customer growth across Missouri and Alabama for the third straight year. We installed 10,400 new meters, a 15% increase over the prior year. An area of increased focus for us is a multifamily housing market, where we successfully added over 1,300 units this past year. We see great potential in this market, and we plan to pursue further penetration in this segment. We also increased our investment in new business by 26%, including through strategic main extensions. The importance of this investment, beyond bringing the benefits of natural gas energy to more customers, is the future growth of our margin that it represents. Our success in business development reflects the investment we’ve made in technology-based tools and in processes for identifying, tracking and acting upon opportunities. In addition to giving our folks what they need to be successful, we’ve also strategically aligned our sales force to…

Thanks, Steve, and good morning, everyone. As we’ve just touched on, Spire is putting the wrap on another year of strong, broad-based performance. Financial performance is another part of that picture, so let’s take a quick look at our operating results for fiscal 2017. Starting on Slide 12. Full year net economic earnings were $168 million, up 12% or over $18 million from last year, reflecting improved earnings across our businesses. Gas Utility posted NEE of $182 million, up $21 million, as lower weather-driven demand was offset by higher ISRS revenues, the addition of EnergySouth and a – and favorable regulatory adjustments in Alabama. Gas Marketing earnings grew 6% to $6.8 million, reflecting favorable trading volumes and storage optimization. And finally, other corporate expenses were up slightly at $21 million, reflecting interest on debt from the acquisition of EnergySouth as well as higher rates and short-term borrowings. Earnings per share for the fiscal year were $3.56 per share, up $0.14 or 4.1% from last year. This year-over-year growth reflects a 6% increase in shares from equity issued for both the EnergySouth acquisition and also the conversion of the equity units associated with our 2014 Alagasco acquisition. Let’s look at the key drivers of performance, turning to Slide 13. Total operating revenues were just over $1.7 billion, up 13% from last year, reflecting the addition of EnergySouth, higher commodity costs and growth in the Gas Utilities. Similarly, contribution margin was up 10% over last year, with growth in both of our businesses. Gas Utility margins grew 11% or $95 million, that’s $28 million on top of the addition of EnergySouth. This growth shows the benefit of scale and our growth strategies, since it came despite the headwinds of warm winter weather, $8.6 million of headwind compared to last year and nearly…

Thanks, Steve. As you heard during our remarks today, we are very pleased and proud of the year we had. Not only did we accomplish our goals across the company and keep our promises to our stakeholders, but we also have positioned ourselves for further success in fiscal 2018 and beyond. By raising the bar for performance each year and then achieving what we've put up to do, we build confidence in our ability to deliver for our shareholders, our customers, our regulators and our communities. I'm excited for what's ahead this year and look forward to sharing updates on our journey of growth and transformation. Thank you for your time today and, as always, for your continued interest and investment in Spire. Operator, we are now ready to take questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Michael Weinstein with Credit Suisse. Please go ahead.

Hi, guys. I was wondering, could you talk a little bit about some of the progress you've been making on evaluating opportunities in Kansas City, Alabama, going beyond the STL Pipeline into further midstream investments or further upgrades?

Yes. Sure, I'd be happy to. As you said, we've talked about Spire St. Louis Pipeline, but we've also talked about as part of our evaluations in the various geographies across Missouri and Alabama. After St. Louis, we started investigating, more definitively, the Kansas City region. We are making progress in terms of what some of those projects may look like. We've got it narrowed down to a shorter list that we haven't yet announced or specifically identified, which projects we want to move forward with. You'll see and hear more color around that as we work through next year. And in all of that work that we've done in that area as well as some of the other strategic areas we've talked about is consistent with what Steve Rasche did, which is validate our 4% to 6% CAGR over time.

Michael, this is Steve Lindsey. I would add that we're also looking at the upgrades needed within our distribution infrastructure system on the western side of the state to move gas around as we think about some of this. So I think the long-term strategy supports both the way we bring gas into that area as well as the way we move it through the distribution system.

Okay. On tax reform potential impacts, I think last year, you mentioned that there might have been about $0.05 or $0.10 of dilution under the old House version. But now that – it looks like interest expense is going to be deductible. What are your thoughts now around the potential impacts?

Yes, Michael, this is Steve. I think I can take this one. First, I have to point out that we, working with the AGA and the EEI, have been involved in tax reform since the subject first came up as a potential policy initiative with the current administration. And I think that what we've seen so far now from the House version and the Senate version, including some Chairman's markups for each one, is that the utility industry, overall, is fairly well positioned. We are specifically named in both sets of legislation as an industry group that needs some exceptional treatment, essentially because the deductibility of interest, the expensing of CapEx impact the bills that ultimately our customers pay. And we've been very successful as a group in making sure that our leaders in DC understand that and they've given us the appropriate ways to treat that. So as it stands today, it's fairly early, because as you know, there's still a lot of sausage to be made for we get to a final position. But you are right, when we look at the main components which are important to us and to the industry, which is deductibility of interest, the expensing of CapEx and the equal treatment of dividends at the individual taxation level with capital gains, and then some tax normalization, which is a mechanical thing that utilities have to worry about, we are in green category in all four of those, and we'll continue to watch those. Given what we understand about the capital spending and the interest deductibility, we don't believe there'll be any particular impact for us, but that's an early top-of-head assessment that once we have a little bit more granularity on where the actual rules will fall out, we, and I'm sure all the rest of our peers who go through that calculation, will advice the market. But I think we're in good position right now.

I mean, is it your understanding that the holding company interest expense would fall under the 30% rule that's being proposed?

It is my understanding that it would. And there are some differences between House and the Senate version of how that would work, and we are working as an industry to help craft some language that would make the allocation and the calculation of the 30% more transparent. And I can assure you that we and the rest of the utilities that sit at the table are all of the same mind that we want to make sure that we have as wide a swim lane as possible. And given what I know so far, I think we're in a good position.

Great. And just one last question. On the rate case, I don't know what you can say about the possibility of the settlements in this case, does it look better or worse than in previous times? Or is there any comment you can make on that?

Well, it's a fair question. And it's early on in those negotiations. And generally, the way those process works, when you get in, both parties have filed their positions and you get into the negotiation. Usually the parties take up the bigger matters first and – to see if they can reach some agreement on these bigger matters. And we're in that process now, and then we we'll work down to the smaller items. But I certainly wouldn't get ahead of the process. And of course, when in negotiations, that's confidential so I can't really speak to that. But I will say that the process has begun, we're in it. And so by January, February, we'll have, obviously, better information.

Yes. And Michael, I would add that everything that we kind of talked about when we originally filed this case way back in April, seven months ago, has really kind of come to pass exactly as we kind of played it out. So I think that we're obviously engaging the rest of the parties in discussions as we go forward, and once we know more, we'll make sure to communicate that to the market at the appropriate time.

And since – yes, and there's nothing peculiar about the process. As Steve is pointing out, for decades, the way that the Missouri law is structured, for those that aren't familiar. And it's two cases at one time, two on the east side of the state, one on the West. As most of you will recall that when we acquired MGE, we decided to file contemporary rate cases. I think it's easier for the regulators to see everything, and it's certainly for – easier for us to put all the data on the table. But the structure itself and the process is consistent with the legal structure in the state, and it's been that way for decades, and completely consistent. And as Steve said, the items are consistent with what we expected.

Okay, great. Thank you very much.

Thank you, Michael.

Our next question comes from Insoo Kim with RBC Capital Markets. Please go ahead.

Good morning, everyone. First, on the rate case, how much concern do you have in regards to statutes of the consolidated equity ratio? I know they filed that a few months ago. I think, Steve, you said that you believe that the utility ratio will win out, but is there a precedent for a consolidated ratio being adopted by the commission in a rate case?

Insoo, this is Steve. Actually, there – our precedent for both in the state of Missouri. As you know, the last time that we filed rate cases when we were single utility holding company, we used a consolidated group capital structure. But we've been operating along – within the spirit and letter of the MGE stipulation, which required us to ring fence Spire Missouri, which was the Laclede Gas Company, which was the entity that acquired and owned both Laclede Gas and MGE prior to the Spire transition. And our position has been and continues to be that looking at the utility capital structure is the right way to evaluate the capital needed to invest back in the state of Missouri and it takes away the noise of our utilities in Alabama and Mississippi, and our non-regulated businesses, which now includes the development of a FERC-regulated pipeline. So I think we continue to put forth the argument and the facts and support what we've actually been doing and how we've actually been operating utility since 2013. And we'll continue to work through the process until we get to a conclusion. I think the important thing is and it was a little – you had it worked through the math in our original filing, their equity content at the Laclede Gas, now Spire Missouri, entity was at 57%, which we knew wasn't either sustainable, or really, frankly, balanced when we think about our customers paying the bill. But I believe that where we ended up at the end of the year with the update period of 54% is really the spot to be.

Understood. And then kind of tagging along to Mike's tax reform question. If something were to pass by the end of the year, would the current rate case reflect the changes at the utility level as it relates to tax reform?

Well, that's a great question. What – assuming that we get agreement in Washington, and we actually have something filed, a couple of things will happen. We will then immediately – we will already – we're already starting to have those discussions, we'll immediately go to all of our state jurisdictions and work with the staff to figure out what the adjustments to the customer bills would be, since, ultimately, a good bit of that flows through into the rates that the customers ultimately pay. I can't say whether the timing of that would fit within our rate case or whether that would be a subsequent adjustment. My gut feel is that it's going to take a little bit of time for us all to get comfortable with how the rates would be adjusted. And there is significant question if you follow the Daily News from Washington or the tweets, depending on which you follow with more authoritative confidence, that even if we were to bode on something and get it passed by the end of the year, there's going to be a transition period. And I think we're ready, we stand ready, and we'll work with our regulators in the various jurisdictions to make sure we do the right thing. If you look back to 1986, it's the last time we had a big change in tax policy. There was a period of time, it was several months, where the utility and the regulators worked through how the rates were going to be adjusted and everybody ended up neither being harmed or benefited, which is ultimately what we would expect to happen.

Understood. And finally from me, are – publicly, are there any candidates that have been potentially identified to replace Commissioner Saul after his term ends out in December?

Yes, there is not a particular candidate that has been identified. There's an acknowledgment that, that replacement will take place. There's been a request of the chambers and the energy group and the energy companies to share with the Governor staff what characteristics, attributes that we think are best in terms of sitting with a Commissioner. And so we – different organizations across the state have provided that information but not specific requests for candidates, nor have there been any candidates that has been shared with. I think it's important that the Governor staff has asked key groups that are impacted by the work of the Commission as to what attributes, again, that's the Commissioner.

Got it. Thank you very much.

[Operator Instructions] Our next question comes from Andy Levi with Avon capital. Please go ahead.

Hi, good morning. How are you guys?

Hi, Andy. Good morning.

Just a follow-up on Mike Weinstein's question on taxes to make sure I understand it correctly. So if I'm not mistaken, you have about, what? $700 million or so of parent debt that's not allocated to the utilities? Or is some of that allocated to the utilities?

None of it is allocated to the utilities, and it's $800 million of holdco debt.

Oh, $800 million. And that's what? About $27 million of interest expense or something like that out of the capital?

Yes, if you look at an average interest rate in the 4% range, they're a little bit less, that's about right.

So I guess the math I do, if you kind of look at where your different coupons are and all that of that, it ends up being – if you assume a 20% tax rate versus, let's say, the 35% or so that you're paying now, it ends being like a $4 million delta, or maybe about $0.08 a share. And then if I'm not mistaken, would that – so that's the negative. But then aren't there some positives, too, just like in the Gas Marketing business. Would that benefit on the tax side or any of your other non-regulated businesses benefit from the lower tax rate or not?

You're absolutely right that to the extent that any tax changes are flowing through to our customer rates then the company either benefits or detriments from depending on what side you're on. So you're right that when we think about it broadly that a non-regulated business would see some benefit. That's we have to get into the details of the legislation in terms of what the gives and takes are, because they're – if you look underneath, at least the two pieces of legislation that are out there, the effective rate isn't 20% because there are number of deductions that are eliminated, which is actually bring the effective rate up. So we – again, we looked at this a year ago, and we felt that with reasonable deductibility of interest and it really comes down to how that is allocated to the business units, which has less to do where the debt is located and more with how it's allocated using normal, standard allocation methodologies that we've used for many years with the IRS, which is really the point that the industry is trying to clarify in the markups to the legislation, so that we can take that holdco debt and allocate it down to the utilities for deductibility purposes. I think we're going to be – again, I think we're going to be in a good position. But we have not, to this stage, gone through a recalculation of the impacts and until we're just a little bit further along in terms of how the legislation between the House and the Senate are coming together. I think it's a bit premature for us to be spending time on it. But I like where we are and this is the result of a lot of hard work over many, many months with a lot of folks.

I'm just – it's just a lower tax rate that creates the delta. So assuming that it is deductible, it is deductible at a lower tax rate. So what businesses would it be that would not be considered regulated and so would it be a pass-through, I guess, for no better way to put it?

Principally, it's going to be our Gas Marketing business. I sit here today, I couldn't tell you because there was a little beyond the radar screen when we did our analysis a year ago and how that would work through the final rates for our Spire STL Pipeline. But I believe that, that would flush through and the rates deferred would approve. So I'm going to put that in the regulated bucket. So it's primarily Spire marketing.

Okay. So you have – again, these are my numbers, not yours. So you have, like, negative $0.08, $0.09 from just a lower tax rate, but you're still to deduct the parent debt. And then the Gas Marketing earned about $6.8 million, which is kind of in the run rate over the last couple of years, so there'll be a little bit of a benefit there. And then cash-wise, I don't think you pay cash taxes, but the cash difference from what you're collecting from ratepayers to what you'd actually be paying, I guess, is not that much money. It's not going to – not a lot of…

That then – yes, we've – we modeled that out a year ago. So that's how we're that to be…

Okay. And those are really the three kind of pieces to look at, at this stage, right? There's nothing else, right? That I can think of, right? Or that you guys can think of, right?

Yes.

Okay. I understand it. Thank you very much.

Thanks, Andy.

[Operator Instructions] I’m seeing no further questions at this time. I would like to turn the conference back over to Scott Dudley for any closing remarks.

Okay. Thank you all for joining us, and we'll be around today for any follow-ups that you have. Thanks for joining us.