Good day, and welcome to the Spire Inc. Third 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 Scott Dudley, Managing Director of Investor Relations. Please go ahead.

Good morning, and welcome to Spire's fiscal 2021 third quarter earnings call. We issued an earnings news release this morning, and you may access it on our website at spireenergy.com under Newsroom. There is a slide presentation that accompanies our webcast, and you may download it from either the webcast site or from our website under Investors and then Events & 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. In our comments, we will be discussing net economic earnings and contribution margin, which are both non-GAAP measures used by management when evaluating our performance and results of operations. Explanations and reconciliations of these measures to their GAAP counterparts are contained in both our news release and slide presentation. With that, I'll turn the call over to Spire's President and CEO, Suzanne Sitherwood. Suzanne?

Thank you, Scott, and good morning, everyone. We appreciate you joining us for our third quarter earnings call. Today, Steve Lindsey, Steve Rasche, and I are joined for the first time by Adam Woodard. Adam is Spire's Treasurer and CFO of our Gas Utilities. Welcome, Adam. As the year progresses, we continue stepping forward to deliver on our mission to answer every challenge, advance every community and enrich every life through the strength of our energy. And no matter how complicated the challenge, our 3,600 employees continue to deliver for our shareholders, while building on our performance record of delivering safe, reliable and affordable natural gas for our customers and communities. The ability to successfully execute reflects Spire's culture and the hard work and dedication of our team. And while I'm proud of what the team consistently does day in and day out, I'm always heartened when I see how our employees lean into challenges despite the coronavirus and Winter Storm Uri. Doing everything possible to ensure the continued operation of the STL Pipeline is no exception. More on that in a moment. Stepping forward always means we're helping lead the conversation about natural gas. As we look ahead, we know that natural gas is key to America's reliable, affordable and sustainable energy future. In that spirit, we continue to advance our commitment to be a carbon-neutral company by mid-century, including consistently reducing methane emissions and exploring sustainable operations like RNG. Turning to our third quarter results. This morning, we reported solid quarterly net economic earnings of $0.06 per share and delivered continued strong operating performance. Before turning to our operations report, I'd like to share our thoughts on the situation surrounding the STL Pipeline. Make no mistake, the STL Pipeline is critical to hundreds of thousands of homes and…

Thank you, Suzanne. I want to echo your acknowledgment of the efforts of our employees who continue their focus on maintaining safe and reliable gas delivery operations and outstanding service to our customers despite the challenges we faced. As Suzanne noted and as we are aggressively communicating, Spire STL Pipeline is critical energy infrastructure. It is absolutely essential for our ability to fully serve more than 650,000 homes and businesses in the St. Louis region that count on this reliable and affordable source of natural gas. As we discussed, the pipeline was essential during Winter Storm Uri in February, when Texas Mid-Continent encountered energy supply disruptions and skyrocketing prices. STL Pipeline provided Spire Missouri access to the Marcellus and Utica basins, which were largely unaffected by the cold weather event. To illustrate how important our pipeline was during Uri, we estimate that up to 133,000 premises in Eastern Missouri would have been without service had the pipeline not been in place. That's 20% of the homes and businesses we serve in the St. Louis region. On top of that, we estimate that Missouri East customers would have experienced hundreds of millions of dollars in higher natural gas costs. At that level, STL Pipeline more than paid for itself just during this single extreme weather event. Going forward, our ability to continue to provide reliable and affordable energy to our customers this winter without STL Pipeline is in jeopardy. That's because our ability to secure new pipeline capacity on other systems is extremely constrained. And given that regional gas flows and interconnections have changed since STL Pipeline went into service, we are simply not able to replace that supply based on current market and operating conditions. As a result, there would be potential service disruptions, up to 400,000 homes and businesses…

Thank you, Steve. And yes, we've been hard at work making our distribution system safer, while continuing to minimize our environmental footprint. Spire Missouri has deployed nearly $1 billion of capital since the last rate case. It is now requesting recovery for this investment. We filed the rate review last December and have been constructively engaged with interested parties in the month since then. Last Friday, the parties to the review filed a partial stipulation with the Missouri Public Service Commission that settled many of the items at issues in the case. Notably, agreement was reached on recovery of COVID-19 costs deferred under our Accounting Authorization Order or AAO, the creation of a combined cap for our infrastructure system replacement surcharge rider, and we have made strides towards unifying the tariffs and purchase gas recovery mechanisms. We remain focused on working through the remaining issues in the coming weeks. The true-up period ended May 31st and the parties have exchanged rebuttal testimony. Evidentiary hearings conclude tomorrow. Next steps include true-up testimony, hearings and financial update later in August. The process remains on a positive trajectory, and we look forward to a constructive conclusion to the review for Spire and its customers. Spire takes its sustainability commitments seriously. We are fortunate to enjoy terrific support in our communities for these endeavors. Last quarter, the Missouri General Assembly passed new RNG-enabling legislation by an overwhelming margin and the governor recently signed it into law. This new law, which contemplates hydrogen as well as RNG, allows for the investment in renewable gas infrastructure within rate base, with procurement of biofuels for our gas supply portfolio and the implementation of RNG-based customer programs. The next step is rule making at Missouri Commission. We will certainly keep you informed of developments on how we will use this opportunity to enhance the sustainability of our distribution system. Following a similar theme, we joined the ONE Future coalition earlier this year. And this quarter, Spire is pleased to announce that it is a founding limited partner in Energy Capital Ventures. We are initially joined by several peers in investment in this first of its kind fund, with a focus on sustainability, reliability and resiliency with the natural gas utility sector. We are excited about this opportunity to accelerate innovation and transformation and push the boundaries of what's possible in delivering the affordable, reliable and clean natural gas customers depend on. I will now pass things over to Steve for a financial update.

Thanks, Adam, and welcome, everyone. Let me touch on a few highlights for the third quarter. We delivered consolidated net economic earnings of $6.9 million or $0.06 per share, down $400,000, or $0.01 per share from last year. Our gas utilities are just over $12 million, up almost $4 million from the prior year. Key drivers include higher contribution margin due to higher rates in both Missouri and Alabama, customer growth and higher depreciation costs tied to our infrastructure investments. Gas marketing posted a loss of just over $5 million, reflecting less favorable market conditions and slightly lower wholesale demand, especially power generation demand due to the cooler than normal weather this spring in the Mid-Continent in Southeast, combined with higher demand charges and marginally higher costs as we positioned for the upcoming winter. I would also note that we continue to make progress on a handful of commercial disputes from Winter Storm Uri. Lastly, all other businesses and corporate costs improved by $1 million, reflecting better performance by Spire storage. Looking at a few key other variances on Slide 12. Gas cost increased due to higher commodity prices. O&M expenses on a run rate basis were up 1%, or $1.3 million, reflecting marginally higher operating and employee cost at the gas utilities and slightly higher cost at gas marketing. Other income, net of the reclassification, was essentially equal to last year. Finally, turning to our guidance. We reaffirm our long-term economics earnings per share growth target range of 5% to 7%, our fiscal 2021 earnings target of $4.30 to $4.50 per share, and our 5-year capital expenditure target of $3 billion. Our financing plan now includes the Spire Missouri successfully issued First Mortgage Bonds totaling $305 million, as well as retired $55 million of higher coupon debt, both in support of our ongoing rate proceedings. So in closing, we continue to execute on our plan, delivering for our customers, our communities and our investors. We are well positioned in our Missouri rate proceeding and will continue to emphatically support the Spire STL Pipeline. We look forward to updating you on those and other initiatives later this year. And as always, we appreciate the time you spent with us today and your continued interest in Spire. Now, we're ready to take your questions.

[Operator Instructions] The first question will be from Richard Sunderland of JPMorgan.

Maybe starting on the STL Pipeline. Could you outline what to watch for procedurally and timing wise with regards to the two filings, the one from last week and today's filing as well?

Yes. I'll start, Rich, and then others obviously can chime in. In terms of the certificate, the emergency certificate, there is no specific timeline in terms of the commission making that determination. They obviously are very familiar with the situation. And I mentioned in my opening remarks, there's been a lot of voices that have weighed in to the significance of the pipeline. Of course, here we are in August, very hot weather, but the fall is not that far away. And so we are hopeful that the commission will be deliberative and act with some pace to provide that temporary certificate. That is the primary focus. Obviously, we went through a very rigorous process, regulatory process for that approval, met all the requirements and so they have that record. And so, again, we're hopeful that it will be an expedited process to get that temporary certificate.

Rich, I would also say on the rehearing filing that is going on today, the same kind of thing. There is no definitive timeline. We've asked for expedited processing on these as we need to move obviously with the winter coming. So I think both those -- the answer is somewhat the same and that there is no definitive timeline.

Got it. Understood. And maybe a related question here in terms of the filings and the fact record laid out, particularly the FERC application. Curious if you could speak more to the system changes and maybe broadly in the states that have occurred on the back of the STL Pipeline being put in service and the ramifications this upcoming winter without the pipeline. It sounds like there would be issues with pressure in certain parts. I'm just trying to get a feeling for existing customers who you service immediately or is this about the risk in very cold conditions?

Yes, that's a great question. And there are quite a few configuration changes that have occurred since the pipeline has been in place now for two winters. So if you think about interconnections, and those can be on our system or even with other pipelines. And for example, with the MoGas interconnection, that gives us the ability to move gas to the western side of our system, where over the years we've experienced a lot of growth and that was needed. There are some other system configurations within our distribution system that because of this pipeline, we've not had to do, that if this pipeline were there, we would have to do, in order to continue to keep pressure off across the entire system. Another thing that I don't think a lot of you really understand is where the pipeline comes in, which is on the northern side of our service territory is where underground storage facility is. This gives us the ability because of the elevated pressure that STL Pipeline brings in to really accommodate that storage facility and to be able to replenish it in a way that we weren't able to do before. And so there's a lot of inner weavings to all these things that are going on. But really, if you go back to the two main reasons this pipeline is in place is for supply and operational diversity. Operational, obviously, is on being able to keep customers on during the most critical time and that's what we talked about. The supply piece is what we experienced just during the 9-day period of February, where hundreds of millions of dollars were saved on gas cost for our customers on the East side of the state because of that supply diversification. So I think this is almost a one plus one equals three, if you really add up the benefits from the supply as well as the operational stability. And so if that pipeline weren't in place, obviously, the critical temperature in parts of our modeling systems, say, when we would start to lose customers, if you combine that with one storage is depleted, then it really compounds. And so I think there is a whole lot of variables. But the bottom line is, this pipeline has exceeded expectations and is very critical to the customers on Missouri East.

Rich, I only want to add one point. I think Steve summarized all of it really. But I do want to add one other point. The capital that we've deployed in, say, the last handful of years, we rebuilt the backbone system of the utility and the diameter and the pressures and the flows of our backbone system contemplates exactly what Steve just described. So it's not just stopping at a point where we receive, but when we design -- our engineering team designing our backbone systems and the arteries of the systems to meet the demand, where the growth is located versus communities where there is no growth or maybe even moving out of areas to other areas. It's important how all this works together because it is a physical system and it does vary at temperatures and demand. So I just want to connect those two points as well.

Maybe just turning real quick to the rate case. The remaining items outside of the stipulation, do you have any sense on the ability to settle all of those items? Or if there are any issues in particular, that would be kind of best foot put in front of the commission for a ruling?

Rich, it's Adam. I don't know -- I don't think we want to predict outcomes at this point. But again, I think we're -- feel like it's been a constructive process and we feel optimistic we can get to a positive conclusion.

The next question comes from Julien Dumoulin-Smith of Bank of America.

Perhaps if I could just go back to the STL angle here. Have you received any feedback at all with respect to the -- from FERC? I mean, more so in sort of digesting the initial dissent from Glick here. I just want to break that down and perhaps just understand today, if you've received any of the feedback therein? And how you might seek to mitigate some of those concerns, at least raised by Glick? I understand certainly the comments you provided thus far and the critical role the pipe played thus far. But curious if you can kind of frame it slightly differently and indirectly tackling assuaging the concerns that came up earlier and/or any of the other feedback that you've received thus far as we think about the next steps here.

So I'll start and some of my colleagues may want to add some more color. But I'll start regarding Chairman Glick. It's been some years, of course, since the pipeline was approved. And since that time, we have actual data, information how the pipeline will operate. So there has been enough time and he's got more information and he's serving his Chair. So I certainly would not want to get in front of Chairman Glick and speak about what he may or may not be thinking. But I do know that he's got new information in front of him and that information is true operation of the pipe and what it's performance has been and so forth and so on.

Okay. All right. Fair enough. And then maybe you can speak a little bit to the RNG strategy here. I think in your prepared remarks, you spoke to the Missouri process sort of kicking off, now that you've gotten legislation in hand. But maybe you can speak to your thought process and how you might want to participate and scale up therein? And what opportunities could be afforded to you from the legislation as best you understand early in the implementation phase?

Julien, yes, it's probably on the regulatory front, we're excited about the opportunity that comes with the legislation. I think it's -- and we're definitely strategizing around it, but probably a little premature at this point prior to going through rulemaking. We, as you might expect, have had some preliminary discussions with staff. But again, I would just stress it's very preliminary at this point from a regulated approach. And as we've mentioned before, we are certainly exploring some non-regulated approaches as well to RNG, but again nothing to announce at this point.

Sorry, and if I can squeeze in one more, very brief here. As we think about the partial step in the case and certainly surprised. Can you speak to any thoughts with respective to hearings [indiscernible] any further observations perhaps? And then in turn for that, sort of the timeline on ultimately resolving the case itself given that step.

Yes. Again, we don't want to speculate on a specific timeline. But I think the hearings have been constructive as well. I don't think our tone or our view of the rate review has really changed and we continue to, I think, engage with parties, as demonstrated by the stipulation which took, gosh, I think 75% of the items that we had identified off the table. So it's a lot of reminder items. But again, it's just taking those issues off the table. We feel it is a positive step to get to the right conclusions.

And Julien, this is Steve. I think if you watch, the hearings will conclude -- the formal hearings with the commission will conclude tomorrow. And then after that, that's when various parties will put together their summaries, including their financial analysis. And I think that's a good time to look at, will there be other partial stipulations or will wholesome settlement come forward? But we need to get through the rest of the hearings this week. So that would point to later in the month of August is when those substantial discussions would really be able to happen. But again, if you kind of step back and look at it overall, this is playing out kind of as we all had hoped, that we have now taken a number of smaller issues off the table and you may see other partial stipulations coming forward as you really honed in on just a few things that will ultimately be part of the final settlement.

Got it. Sounds like some good progress.

The next question is from Gabe Moreen of Mizuho.

I just had a question, I guess as a follow-up to sort of the RNG investment. I'm just -- I want to clarify on the investment in Energy Capital Ventures, whether that was really RNG directed or is it broader? I was wondering if you can quantify that initial investment as well. Just more color on that if you don't mind.

Yes, Gabe, we'll certainly have more information on that in the near term. But it's not strictly an RNG investment. It's really looking at investments in innovation across the spectrum that would affect us as a natural gas utility.

Got it. And I don't know, Adam, if you can talk about the discussions with the PSC thus far in terms of that rider that you're seeking in terms of how you're looking at this investment within the framework of your overall utility spend. Do you think this will be additive to that? Do you think this may be replaced with some of your pipeline spend? Or is it just too early to know at this point?

Too early to know. It did -- I think you may have noted, too, that -- the RNG portions of the -- of our case, our review, we're in a stipulation. We agreed to move those into the future docket that would address the legislation. So again, more to come on that, but I would expect it most likely to be additive. I don't think we would take anything away from our capital spend on pipeline replacement.

Got it. And maybe if I can ask just two minor follow-ups. One is just kind of progress on winter storm working capital recovery. How that's been going? And then last year, you had the benefit, I think, of a pretty steep winter, summer spread on gas storage and acted accordingly to your benefit this past year. Can you maybe just talk about how marketing is positioning itself, given that there has been a bit of narrowing in that spread?

Gabe, this is Steve. Let me take a shot. On the first point, no real substantial progress that you're speaking to that legal action with the three marketers for Spire Missouri regarding their inability or lack of willingness to pay for the cover charges and the damages as a result of us supplying gas. We'll have to watch that going forward. They have positioned the Missouri Public Service Commission to consider waiving a portion or all of the current regulations that would direct them to pay those fines. I don't believe that that is going to be considered by the Public Service Commission until early in calendar 2022. So that may stick around for a while. But as we know more, we'll update you there. And on marketing business, you're right. A year ago, I think, gas was at 50% of the cost that it is trading at today in Henry Hub. And what a difference a year makes? We're about $4 at Henry Hub and there is a lot of latent nervousness in the market. We aren't seeing quite the seasonal spreads between the cost to inject and the cost to deliver to customers in the winter heating season. But what we are seeing is not only higher prices, we're seeing higher volatility. Actually, in the last couple of weeks or few weeks, we're seeing some increased demand not only for gas-fired generation. A lot of that due to the heat that we're now all seeing, if you look at the newspapers. But two, the customers, as they are now really indeed planning for the winter heating season are really making sure that they have an extremely resilient supply flow and storage in order to meet worst-case scenario for serving their customers. So we think that there is clearly going to be some more moves in the market as we go through the year and we're positioning ourselves as best we can, given those market dynamics to make sure that we can take advantage of the market opportunities, but also serve the customers that we have now where we will gain between now and the next winter heating season.

The next question will be from Brian Russo of Sidoti.

Just a quick clarification on the STL Pipeline. In the event, hypothetically speaking, that the D.C. Court denies your rehearing request, does that spark a timeline in which the FERC would need to issue the emergency certificate to technically avoid having to vacate the pipeline? Is there some sort of 7-day period after the D.C. Court potentially denies?

It does. I would say a 7-day period before that order would be effective and we would -- you're correct.

Okay. Got it. And then also just to clarify. Can the D.C. Court actually review new information or only information and data that was on record at the time of the EDF appeal of the FERC certificate?

They will be provided with new information and they can certainly choose to review it at that point.

Okay. So legally, they can review the new information?

Correct. Correct.

Okay. And then the same with the FERC. Would the FERC, if they hypothetically look to recertify and then they can take the new information, i.e., the Winter Storm Uri performance? Or do they have to fall back on what was on record at the time that the certificate was issued to you?

We would hope that they would review the updated information.

Okay. And then in terms of support from the governor, I would imagine the commission, what can they actually do? Can they be witnesses in any new Court of Appeal rehearing and/or a FERC recertification? I'm just curious.

Yes. And I think there are varying levels of what different parties could do. But in the instance perhaps as a Governor, the Department of Economic Development, different chambers, even local non-profit organizations, I think basically what they are following in support of the critical need of this infrastructure for the St. Louis region. And so that's really what we're looking for is trying to have a very collaborative engagement from all third parties. So whether that's elected officials, whether it's businesses, we have a large contingency of industries that are going to file for support of this. And so, I think it depends on what that party is relative to what they can do, but in some cases, you could have potential intervention as you go through the procedure. So not only it's any one-size-fits-all, but I think what we have seen is overwhelming support again from the political community, from the business community, from non-profits. And really, it's one that once we've educated people on what this is, it's been a very easy position for them to provide support for.

Right. Got it. And then is Spire Missouri still the only shipper on the pipeline? I recall, you had some excess capacity. Was that ever contracted to someone outside of the Spire utilities?

Yes. Brian, this is Steve. Yes, we've actually -- on a short-term basis, we have customers who are tugging on the pipeline, including Spire marketing, taking some of that volume because they see the opportunity to take the flowing natural gas and create some value with it. And there are a few other small customers we haven't contracted out on a long-term basis for that remaining 50 a day.

Okay. And then lastly on the rate case. Is it customary to leave cap structure and ROE, et cetera, up for the commission to decide? Or is that something that you could possibly reach partial settlements on as you move the procedural schedule?

We certainly expected it to go through hearing. It's something that the commissioners, I think, would like to hear the party's positions on. So that's not a -- not something that we were surprised by at all, but really anything is possible in a settlement.

Yes. And Brian, I agree wholeheartedly with that observation, that every case we've been in, the commissioners want to hear that because, let's face it, those are two of the big dials that move the rates more than just about anything else. And then whether or not they actually settle on and announce a cap structure or ROE or whether they black box, settle those and any other open issues, that will be one of the many things that all the parties will evaluate as they move forward after the hearings are over and reached their file.

And the only point I would add on that is, it's not uncommon for commissions who want to build a record around those two bigger pieces, and that's not uncommon at all. And so I kind of consider it a more normal course.

The next question will come from Selman Akyol of Stifel.

Just trying to put some dates on the calendar. And if there is no action taken by either the FERC or the courts, is -- pipeline has to be shut down by August 12? Or is there a date you could give us when time runs out?

No, any time line would start moving once the court responded to us.

And then it's seven days from that response?

If the response was negative, yes.

[Operator Instructions] Seeing no further questions, this concludes our question-and-answer session. I would now like to turn the conference back over to Scott Dudley for any closing remarks.

Well, thank you all for joining us today. We know it's a very busy earnings season for all of you. Thank you for your interest in Spire and we'll talk soon. Thank you.

Thank you. The conference is now concluded. Thank you all for attending today's presentation. You may now disconnect. Have a great day.