Earnings Call: Q2 2021

May 7, 2021

Good day, and welcome to the Spire Inc. 2nd Quarter Earnings Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Scott Dudley. Please go ahead. Good morning, and welcome to Spire's fiscal 2021 second quarter earnings call. We issued a news release this morning, and you may access it on our Web site at spireenergy.comundernewsroom. There's 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 and Presentations. Presenting on the call today are Suzanne Stitherwood, President and CEO Steve Lindsey, Executive Vice President and Chief Operating Officer and Steve Rasche, Executive Vice President and CFO. Also in the room with us is Adam Woodard, Vice President and Treasurer. 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 the news release and the slide presentation. With that, I'll turn the call over to Suzanne. Thank you, Scott, and good morning, everyone. We appreciate you joining us for our 2nd quarter earnings conference call. As a company, we're always stepping forward to deliver on our mission. A mission to answer every challenge, advance every community and enrich every life through the strength of our energy. We ground ourselves in this mission every day to reach our full potential in serving our customers, communities and shareholders. So, when challenging times came our way, we know the path to take. The past 12 months have been particularly challenging with the coronavirus pandemic followed by extreme weather in the Mid Continent that significantly disrupted the supply in pricing of natural gas across many areas of our country. Combined impact of these challenges tested our industry, our company and our employees in many ways. It tested our strategies, our operations, our technology systems and our agility. In that context, I'm pleased to report this fire performed exceptionally well across all our businesses. First, our utilities successfully delivered essential energy to our customers and communities throughout the weather event. Our ability to deliver was a result of our consistent approach to determine and plan for the best array of assets, including storage, transportation and gas supply. A shining example of our reliability planning process was our decision to construct a Spire SEL pipeline. This pipeline allowed us to connect to lower cost, reliable shale gas at a critical time. Another example across our utility footprint is our upgraded delivery system that has been fortified by multiyear investments and the resiliency of our distribution system. While gas utilities are our primary segment, our gas marketing business was also well positioned to serve customers. As you might recall, we increased buyer marketing storage position heading into the 2020 winter season. So when February's cold weather hit, Spire Marketing was able to meet customer needs by accessing gas supplies at a critical time, which also allowed us to realize incremental value due to market volatility. For all our business units, success has everything to do with solid planning, investment in resources and technology and decisive train action by the team. It's in moments like this that our Spire employees shine. We are committed to answering challenges and taking the best care of our customers. This shows up in our day to day work, but also in the late night hours of cold winter days when supply is short, the situation is fluid, obstacles are great and communication is key. Regardless of the circumstances, Spire employees don't quit until they get the job done. For this and so much more, I'm forever grateful. Moving to our financial performance, for the Q2, we reported strong net economic earnings of $3.71 per share, showing solid results from the utilities and exceptional earnings growth, thanks to the performance of Spire Marketing. Steve Rasche will provide more details in a moment and will also highlight our revised earnings guidance and financing plans for 2021 and beyond. While maintaining the resiliency of our operations, we've been advancing our ESG initiatives and commitment. So I'm pleased to share that next Monday, May 10, Bayer will issue its 2020 Corporate Social Responsibility Report or CSR report. This digital report will provide updates on our environmental, social and governance commitments, including our promise to be a carbon neutral company by mid century. Part of our environmental focus, we continue to make significant progress in reducing methane emissions. As the chart on this slide shows, we've achieved a 43% reduction in 15 years, which represents even more improvement from the 39% reduction reported in 2019. Based on this, we've also increased our reduction targets through 2,035. Other highlights in our CSR report include initiatives and programs that support the communities we serve, plus a deeper focus on inclusion and diversity. Starting Monday, you'll be able to access fire's CSR report on our website at fireenergy.com. Now, I'll turn the call to Steve Lindsey to discuss how we're continuing to deliver on our commitments to our customers and employees, while enhancing our operational resilience and driving growth through our investments. Steve? Thank you, Suzanne. I want to echo your acknowledgment of the efforts of our employees in maintaining safe and reliable gas delivery operations and outstanding service to our customers during the heart of the heating season, especially in the midst of the February cold weather events. We plan carefully to ensure we have the right resources to handle the coldest days of the year. Thanks to our thoughtful preparations, we came through the storm in great shape, keeping gas flowing to our customers and communities without interruption. In the prior summer, we took steps to secure the supply, transportation and storage resources to ensure we were well positioned from a gas availability perspective. STL Pipeline played a critical supply role for our Missouri customers, providing access to the Marcellus and Utica basins, which were largely unaffected by the cold weather The days leading up to the February storm, we activated our incident support team, which is made up of functional leaders throughout the company, including operations and gas supply. This team stayed extremely active prior to, during and after the event, ensuring that we were executing on our plans and making necessary adjustments when appropriate. A few examples of actions taken were changes in supply sources, receipt points and contractual modifications to ensure optimal outcomes for our customers from an operational perspective. We also did our very best to manage our cost of gas. Our estimate of the net gas cost during the weather event is approximately $110,000,000 which reflects projected offsets, including recovery of penalties assessed against a handful of non performing marketers. We are pursuing these marketers for tariff based gas costs and penalties not yet recovered. For all system sales, we were able to mitigate some of the higher cost of gas we incurred. We're fortunate to have diversification of supply to reach beyond the affected regions. Our conservative approach to gas storage also mitigated the impact of unprecedented gas prices we witnessed. On net, thanks to prudent planning and proactive management, we were able to manage through this weather event in a manner that will minimize the impact to our customers. Our ability to keep raising the bar and deliver it when it really matters the most, plus the investments we have continued to make strengthening our system and in deploying technology. This drives greater service levels, both in customer care and our field operations, greater system integrity and stronger resiliency, while supporting our environmental commitments, most notable, the methane emission reductions that Suzanne mentioned. Capital investment in our utilities is the foundation for serving our customers. We continued on pace with our CapEx plans through the 1st 6 months of our fiscal year. Total spend was $304,000,000 including just over $280,000,000 for our gas utilities. Ramp up our investment in new business, which totaled $75,000,000 and was up about 40% compared to last year. I would note that our non utility investment was down considerably due to the lower spend for Spire STL Pipeline. We remain on track for our full year CapEx target of $590,000,000 95 percent of which is focused on our gas utilities, which drives 7% to 8% rate base growth. Meanwhile, we're continuing to move forward with our Missouri rate review that we filed back in December. As a reminder, the rate review is really about recovering capital we've invested to make our system safer, more reliable and resilient and greener while implementing a number of service enhancements. Over the last several months, we've been working diligently to complete numerous data requests from the staff of the Missouri Public Service Commission and other interested parties as they prepare to file their testimony in the case. Keds recalls for their testimony on revenue requirements to be filed on May 12. This will include recommendations on return on equity, capital structure and other items used to set rates. 2 weeks later, they will file their testimony on class cost of service. In other words, rate design. Other milestones in the process include update to our test year through the end of May, followed by local public hearings in late June and formal hearings before the Missouri Public Service Commission in July August. We noted before, our goal and expectation is to reach agreement on key issues sooner than later and ultimately get to a timely settlement. Before I turn the call over to Steve Rasche, I wanted to note that in Alabama and Mississippi, laws have recently been signed that will ensure individuals and businesses in those states will continue to have the ability to select natural gas as their fuel of choice. With that, Steve Rysz, who will now provide financial review and update. Steve? Thanks, Steve, and good morning, everyone. And let me add my thanks to our team for their outstanding service to our customers during this historic period of weather. For the 2nd quarter, we delivered consolidated net economic earnings of nearly $196,000,000 or $3.71 per share, up from $144,000,000 or $2.75 per share last year. Our gas utilities earned $160,000,000 $15,000,000 on higher demand in ISVs revenues as well as some prior year headwinds that did not recur this year. Gas marketing successfully navigated the challenges from Winter Storm Eurey and the chaotic market conditions that resulted, earning nearly $40,000,000 All other businesses and corporate costs improved by just under $2,000,000 reflecting better performance by Spire Storage. Looking quickly at a few details. Not surprisingly, total operating revenues of $1,100,000,000 were up 54% from last year on higher demand and commodity prices. Likewise, contribution margin increased $63,000,000 or 17%. Gas utility margins were higher by $22,000,000 due to 1st, higher volumes. For the quarter, temperatures overall were slightly warmer than normal, but we were between 11% 32% colder than last year, depending upon geography. Secondly, more effective weather mitigation in Missouri and lastly, higher RSE and ISTRAS revenues, including a prior year ISTRAS provision that did not recur this year. The Spire marketing team rose to the occasion, working in a very challenging market to serve their customers. And our margins were enhanced by the withdrawal of gas from storage, including the incremental storage positions we added last summer. And like many other energy companies, our results for the quarter also reflect our current estimates of ongoing negotiations on commercial disputes arising from Yuri. Looking at a couple of other key variances, natural gas costs were up significantly consistent with higher revenues. Operations and maintenance expenses on a run rate basis were up $3,000,000 after removing the impact of 2 adjustments outlined here on Slide 11. First, the reclassification of pension costs, which we've discussed in prior quarters and has no bottom line impact. And second, the Missouri Supreme Court ruling on our 2018 rate case appeal. In February, the court ruled in our favor regarding $1,000,000 disallowed pension cost and rate base. This issue was remanded back to the Public Service Commission for reconsideration, and as a result, we recorded a reversal of the write off for GAAP purposes. This reversal is not included in net economic earnings. Excluding these two items, run rate O and M expenses reflect higher gas marketing and corporate costs, partially offset by lower operations and employee related costs utilities. Other income, net of the reclassification, reflects higher value investments associated with our non qualified plans. And finally, income tax expense was well above last year on higher taxable income and earnings mix. We maintained a strong financial position. And in a challenging quarter, we further strengthened our balance sheet and liquidity and delivered good growth in adjusted EBITDA. Our long term capitalization remains balanced, including our highly successful $175,000,000 equity the middle of the winter storm. Our the middle of the winter storm. Our financial flexibility remains excellent with over $675,000,000 of liquidity and cash at quarter end, buoyed in part by a $250,000,000 term loan at Spire Missouri. Now turning to our guidance. With Spire Marketing's first half results, we are raising our fiscal 2021 earnings target to a range of $4.30 to $4.50 per share. We reaffirm our long term NEE per share growth target range of 5% to 7% as well as our 5 year capital expenditure target of $3,000,000,000 And as Steve mentioned, we are also on track with our current CapEx forecast of 5.90 $1,000,000 for this year, ensuring that we will continue to deliver safe, reliable and sustainable energy to our customers while continuing to reduce our methane emissions. Our plan is well diversified across the service territories, supported by upgrade programs with long lives and covered by recovery mechanisms that minimize regulatory lag. We have also updated our financing plan through 2023, reducing our equity needs in each of the next 2 years given our strong position at March 31. So I'll end where I started. In a most interesting and some would say historic quarter, we delivered our customers, our communities, our environment and our investors, and we are well positioned to sustain that momentum going forward. With that, let me turn it back over to you, Suzanne. Thank you. In closing, let me once again make the case for Spire as a compelling investment. As Steve Lindsey noted, we continue to drive operational resiliency and growth through investments in upgrading our gas utility infrastructure as well as new business. Our business mix is over 90% regulated, which supports long term earnings stability and consistent growth. We invest in our talented and focused workforce and management team as evidenced by our performance in the extreme winter weather. We have a robust CapEx plan and timely regulatory recovery that underpins long term annual growth and rate base and earnings per share. We also have a growing dividend that offers an attractive yield. I would note that our Board of Directors declared the regular quarterly dividend last week and we have strong ESG performance, including a focused effort to reduce greenhouse gas emissions in support of our commitment to becoming a carbon neutral company by mid century. As always, we appreciate the time you've spent with us today and your interest in Spire. In closing, we look forward to connecting with many of you at the upcoming virtual AGA Financial Forum in a few weeks. Until then, stay safe and healthy. Now, we're ready to take your questions. Our first question today will come from Shahriar Pourreza with Guggenheim Partners. Please go ahead. Hey, good morning, guys. Hi, can you hear me? Speakers, your line may be muted. Yes. Good morning, Shar. Hey, good morning, Shar. The wonders of technology. Exactly. I'd love to start maybe with the rate case. It's obviously a key moving piece for 2021. Any updates on sort of how the conversations are progressing so far, I mean, understanding it's kind of still early days? I mean, do you have a kind of a sense on maybe where some of the parties stand on the issues? And I'm really maybe also thinking about some of the other items proposed in the case, like combining East and West, the advanced metering, tech upgrades and RNG? Hey, Smedes. Thanks for the question. It's Steve Lindsey. I'll start. I think we just want to anchor back to the why for this rate case. Again, this is really about capital recovery. If you think we've invested over $850,000,000 We actually reached our cap relative to ISRIS in Missouri West. And the other part about this case is it's very consistent with the outcomes from the last case, from the commission's decision. We think we have very strong positions on this. The other parts, I think, are interesting because we are introducing some new programs, again, really focused on what customers want, whether it's around some RNG options, some other types of service technologies. So I think this is a, I would call it a customer first type of case. And that's the reason we're in here. Again, you yanker back to the whys, and I think that's why we're in. Now, really the part of your question around early discussions and things like that, that's what the next several weeks will bring about, as you know, the schedule in terms of the filing. So that's when a lot of the discussions will start after that. So I think it's probably early for us to speculate on that. But the same items are always relevant in cases such as ROE, cap structure, all those type of items. So I think this won't be a lot different. I think the last one that was litigated set us up with a pretty good framework as we go forward, and we're very comfortable as we move forward with this one. The other part I think you mentioned was about combining the 2 utilities. I think that's something we've really strived for since bringing in MGE years ago. And I think that helps us to be more efficient for the 1,200,000 customers across the state and really provide everybody the same opportunities, whether you're in Kansas City, St. Louis, Joplin, wherever you are, really to benefit from that. And when they're disconnected, some of those efficiency opportunities really aren't there. Got it. That's helpful. Thank you for that. And then obviously on the Q1 call, you guys announced joining one future that's obviously focused on reducing methane emissions from the wellhead to the burnertib. I'm wondering if you can maybe just outline the opportunity for RNG in your system. You have some RNG in the rate case. And then are you considering any I don't want to call it unregulated, but non utility investments in RNG, maybe similar to one of your LVC peers announced yesterday in New Jersey? Hey, Shar, this is Ann. I'll start with the non regulated piece and then Steve is our lead on that with that organization, so I'll pop it back to him. As far as non regulated interest, we're studying what's available in the market, but we're highly focused on our utilities and what they can do on behalf of our customers, either in the rate structure itself or the PGA. And so, part of the reason we joined the organization that you mentioned, I will pass it to Steve, is between AGA and that organization and there are other organizations, we in the industry are collective learning and what those investments might look like in terms of benefit to our customers and our shareholders. But it's definitely part of the industry on a go forward basis. And Steve, if you want to get to Yes. And so I think as we've looked at the opportunities, this one felt right for us given the other companies that are part of that as well as the opportunities I think you get from scale. When you're looking at process changes, improvements, advanced technology, at least the initial benefits we see are really collective for our industry, not necessarily just for our company. I think that's where the focus is. And then even if you think down to the company level, obviously, we've been very proud of our methane emission reductions. If you go back to 2,005, we're well over 40% now. We continue to accelerate that number primarily through pipeline replacement, but I think a lot of that is through our advances in lead detection, some things relative to damage prevention, all those improvements. And then even if you think about such things as our ultrasonic meters that we're starting to deploy in the Southeast, we'll continue to do that across our footprint, that's going to reduce field trips. And that is vehicles going somewhere. And so I think that has a positive impact as well. And I think there's no one big home run on this. I think there's a lot of singles and doubles, but I think part of joining that organization was to give us access to some information opportunities that as an individual company we might not have. But again, I think collectively as an industry, we're moving in the right direction and it's time for us to really stand up and take a little credit for that. Got it. Got it. And then just lastly for me on the storage side, that obviously took a bit of a back seat in your messaging after you guys initiated the review of the segment and the market when you filed for multiple pass of FERC. Any updates on the review process so far? When should we expect additional visibility on that path forward for that segment? And has your viewpoints changed post sort of the weather event? Well, and again, this is Steve. So I think 1st and foremost, what I would like to say is we delivered on what we were committed to for our customers through this winter. And I think from a safety or liability and to be quite honest, we found some opportunities as you can imagine that emerge when these type of events occur. Really nothing to report right now in terms of the future. We're still in that developmental stage. We're looking at the markets. We're looking at the way things are changing in dynamics. But the thing that I would be most proud of is that literally over about the last year and a half, we've really stepped up and improved the operations of the storage facility. And then we'll continue to evaluate that as we move forward. Terrific. Thank you, guys. Congrats and I'll pass it to Our next question will come from Julien Dumoulin Smith Bank of America. Please go ahead. Excellent. Hey, good morning team. Thanks for the opportunity and congratulations on just holding it together this winter. Well done altogether. Thanks, Julien. Indeed, quite a time. So I want to pick up where Sharjah just left off, if you don't mind. Looking at the gas marketing, obviously, this last year, the performance is certainly something of an anomaly, one would hope. But given the amount of storage capacity carried into the season compounded with the winter weather events, can you give us your thoughts on the segment going forward and specifically around run rate guidance, if you will, like any hedges, any incremental ability, visibility relative to the $19,000,000 to $20,000,000 that you've talked about historically? Julien, good morning. It's a great question. And I think you hit on it. 1st and foremost, like the utility, the gas marketing team rose to the occasion in what sometimes since they're down in Houston was 3rd world conditions that many folks and customers in Houston were dealing with. And they did create a lot of value and you're right, going into that part of the heating season with extra molecules to release to the market actually allowed us to not only meet our year to date results, we're about 2x that run rate that you referenced. And I think that's a good way to think about what the extra value that we were able to create as a result of Winter Storm Yuri. We're still studying where the market is going to go. And you follow this pretty closely. We're watching rig counts and gas costs and we're looking at storage value and position as we go into the next winter. And it's going to set up as a pretty interesting summer. We're behind on overall storage as an industry from where we were against the norm and Henry Hub is hanging right in there just below $3 up and that BTU, which is kind of an interesting place to be in. So we're watching that pretty closely. In terms of overall expectations, low 20 range, that's a good place to think about the low 20 range, that's a good place to think about the base business, which is procuring, transporting and delivering molecules to our customers and a few other services. Now we would expect that to grow over time, but it will grow within the range of our overall growth guidance. And of course, this year, we'll have that outsized return based upon our ability to take advantage of the market conditions in the back half of February. And Jim, if I might sort of add on to what Steve said, because I think it's an extremely important point. The marketing fire marketing has a role and it's predominantly serving customers and its industrial customers and governments and those kinds of things, those sort of non utility firm customers, if you will. And year after year they grow organically. It could be either by geography or picking up some additional customers if you will on the footprint that we serve. They're not unlike the utility. However, I've been at this because most of you know about, well, 40 years now and every, I don't know, 5 to 7 years, there's a weather event. When there are those weather events, they take advantage of those events in the geographies that we serve with the contracts that they have. And predominantly, they're either providing those services in those weather events to other industrial customers or heavy commercial customers or potential marketers. So they take advantage of those market conditions based on the contracts, positions, assets they hold. But their year to year work, Inspire Marketing, is serving customers much like our utilities do. So I just thought I'd like to emphasize that point. Got it. Excellent. And I wanted to close the loop on a couple of other things super quick, if I can. On the STL pipeline, obviously challenges to FERC certificate hearings in March. Just comment altogether on the outcome of this. Obviously, we saw the February events. I think they speak for themselves, but any comments on your side about derisking, if you will, on the scale here? Yes. I'll make one comment and then I want to pass it to Lindsey. I think Lindsey, because there's 2 Steve's in the room with me. So my one comment I want to make is we were extremely proud of the operations of that pipeline during this weather event. And when we produced all of our modeling and to look at the path, the size, the pressures, how we were going to operate that, how it interconnects into St. Louis system, holds that system in and around all the areas in this region, in supporting our gas supply and distribution plans. It operated precisely as we expected it to operate and it was high value to this region. It has been since we started operating it, but with the weather event we just had, it operated exactly as we expected it to. And it really between that investment and the investment in upgrading our infrastructure, our backbone system in and around St. Louis, the combination of those investments were powerful in terms of serving our customers during this winter event. And I could go on about this a bit, but it's highly significant. So the data that we provided both the commission and the FERC initially when we were designing the pipeline completely held during this winter event. And we did it at a low cost structure relatively speaking, if you will, for our customers. And Steve, I don't know if there's anything you would like to add? Yes. And it's probably not the best career move to even challenge the CEO, but I would say it even performed better than we thought. And what I mean by that is I was being honest. Yes, I know you are. But if you think about what occurred and the opportunities with the additional interconnect that we did with MoGas, the ability to move gas around our system operationally and then the supply diversity to get gas from the Northeast is going to be an unbelievable benefit for our customers in a very, very short period of time. This is obviously a long, long lived pipeline and we were very, very comfortable even coming into this before this event that the reasons we did this were strongly supported. I would say if we went through this even now, you have a whole lot more reasons that this pipeline makes sense. And to be quite honest, this gives us the opportunity to look at other opportunities, for example, on the west side of the state in terms of what we have over there and even in the southeast. So I think this was a great opportunity for us to enter into this and everything that's come out of this is even better I think than we originally thought. Yes. And so just one more follow-up because I think it's so important. The criticality of the annual planning that we do around we sit down our gas control and our distribution employees sit down and look at all of our supply, our interstate pipelines, our storage facilities and how that gas flows in these different basins into the market and then how the distribution systems themselves work. And we do that from a design day perspective, the coldest winters on a daily basis and a durational basis. And that's really what Steve is getting to. And then we design these projects and redesign utilities based on that data for supply, storage, interstate pipelines and our distribution system. And it proved this planning and long term investments proved highly effective as fire entered this winter storm. And I can't say enough about the planning that our employees have done as well as the operation of the system during that event. Excellent. Thank you, guys. Just a slight, if you don't mind, just with respect to the wider efforts to bring savings to customers or reduce the total bill, I'll frame it holistically. What are your thoughts about negotiating those costs lower? Obviously, you commented earlier with respect to some of the litigation and efforts you have underway. One of your peers disclosed yesterday that they'd made headway already with respect to some of these savings. Just curious on timeline and status around any of the pending efforts here? Yes. Julien, this is Steve Rasche. I think you're referencing the lawsuits that we filed as far as Missouri filed on the 3 marketers. And that situation is unique and we don't really have any update. We felt compelled to make that move legally because the counterparties hadn't paid anything, the cost of gas, much less the penalties that are defined and prescribed in the tariffs, which we have no control over. That's the Missouri Public Service Commission activity. So we feel strongly that we're in a good position. We will continue to pursue those. Actually, if you look at our overall impact to gas cost, it's fairly small when compared to everybody else in the industry and that was clearly the because we want to make sure that we're not only investing in upgrading the system, but that we're also managing our operating cost and the cost of gas so that our customers continue to benefit from not only reliable and resilient service, but also a good economic value. And the part I'll add on to that is sometimes I think it gets just taken for granted that gas costs get passed along to customers. I think we own that personally as a company because we view that the entire bill, anything we can do to positively effectuate that for our customers is a good thing. And so in this instance, no different than when we go out and negotiate gas contracts. In this case, we're the ones who can step up on behalf of our customers and say, in this instance, we think there are some things that should be adjusted and brought back to really reduce those gas costs. So I think sometimes again, when you think about PGA terms, there's the cost of doing business as the utility and then the PGA. We really take ownership of the entire thing and try to do everything we can for our customers. Excellent. Thank you all for the time. Our next question will come from Richard Sunderland with JPMorgan. Please go ahead. Good morning. Thanks for taking my questions. Good morning. Good morning. Good morning. Maybe starting off with the revised financial forecast, just curious if you could provide more color around the changes there or I guess things differently presumably the delta between the marketing 2023. Is that attributable to the equity units done this year? Yes. Well, and as we referenced in our prepared remarks, we were highly successful in issuing the equity units right before the storm Yuri, as a matter of fact. Rich, if you look at where we stand at the end of the quarter in terms of total liquidity, clearly the extra earnings from Spire Marketing, that's really what drove our ability to reduce our equity needs for 2022 and 2023 essentially taking, I believe, about $50,000,000 out of each year if you look at the midpoint of the guided range. And you can draw a direct line there to really the results from Spire Marketing, which is we've said in the past, is a low capital intensive business that when we do have these events, once every 5 years or so, actually it's once every 4 because it happened in 2017, it does give us the opportunity to take those funds and plow them back in principally into the CapEx in the utility. So that's kind of how you can draw the line between the operating results and where we stand so far. Again, with an eye toward our liquidity, which became something of great value during the February March timeframe, we were never in a bad situation. And as we mentioned, we're in a phenomenal position at the end of March and going forward. Got it. That's helpful. And then separately, I'm curious if you could provide more color on the claims surrounding marketing that you referenced. Presumably, these aren't material to the results. Just curious what's going on there, as you referenced in the prepared remarks? Yes. I chuckle because this is the same situation that almost everybody in the energy space, especially anybody who operates in the Mid Continent going down to the Southwest in Texas is dealing with. And it has different flavors depending upon who you're talking about in the food chain. Ours are really commercial disputes. There's a handful of them. And they deal with principally with contract language and interpretation, which gas price to apply, what were the extra costs associated with meeting the supply when we were curtailed from some of our suppliers at the other end of the pipe? How do you allocate cuts because we didn't have to cut some of our customers when the supply became tight. And it really are think about them as commercial negotiations. Now, we as we stand today, we make our best estimate based on where we are in those negotiations and those discussions continue. To the extent that when we resolve those and we're confident that we'll resolve those at the right time and at the right value, we'll take a look at our estimates and we will update our view of the performance for Spire Marketing. I can't really speak to the nouns and numbers. Clearly, we're in those negotiations. But as we get more information, we will clearly let you and the rest of the market know. Got it. Appreciate the color there. And then one last one. Just curious if there are any expense opportunities with extra financial cushion this year and any programs you can advance to de risk points and beyond? I'll start. If you look underneath our expense management during this time period, and you can look at the last quarter as a great example, where the expenses in the utility were actually down over last year for the reasons noted. And for the 1st 6 months, they're up slightly, but they're trending well below inflation. We're we just continue that it's always a focus of us to manage those discretionary costs because we clearly acknowledge and understand that customer bill. And we want to make sure that we're balancing the 2 of those out. We do a lot of that with the things that Steve mentioned a bit earlier. We're looking at technology process improvement. All the things that find ways to fundamentally change how we interact with our customers to give them better service at a better value. Yes. I think the only part I would add is that I think we have evolved as a company as we brought these utilities together to think not just managing to the quarter, but managing to the year, managing to 3 years. And so our plan really as we think holistically about our business is sometimes when you have those opportunities and sometimes it's weather created in terms of what you could or couldn't do because of a warmer winter or colder winter, we'll pull things forward or in some cases have to defer a little bit. Obviously, we'll keep everything from a compliance perspective where it needs to be. But I think we have insight and transparency in the technology and process to do some of that much better now than we could have perhaps just even 5 years ago. The only other point I'll raise after listening and Steve Lindsey actually says this a lot internally at a company, as we modernize our infrastructure system and new modernized higher pressures, the maintenance costs on those facilities are lower. So as we continue to invest capital to replace our systems, you will continue to see a downward curve on the maintenance cost of those facilities. And as we deploy new meters, which we're investing in and Steve can talk a bit about that if you like, but as we make those investments all the way to the meter, including the meter, you'll see the same decline in the maintenance cost of those facilities because they're modern and they're constructed different and they're new. Great. Thanks for the time today. Thank you, Rich. Our next question will come from Gabe Moreen with Mizuho. Please go ahead. Good morning, everyone. I just, I guess, want to ask explicitly and following up on the last question, I think, on sort of setting up 'twenty two and 'twenty three. The back half guidance for the year looks like it may come in somewhat lower than last year. I'm just wondering what's behind that? Is that some O and M catch up that you maybe didn't spend up spend in the first half of the year? I mean, regardless, I realize you're going to have a great NEE year, but I'm just wondering about, I guess, the implied guidance for the back half of this year. Yes, I think you circled, gave some of the items. I think there's a little bit of expense in the back half of the year in the number in our guidance range. Steve, anything else to add on that? Yes. And again, a lot of that is based on the cadence of the work that we're doing out in the field. And as you can imagine, Gabe, we were focused on the here and now during February and even going into March. So we'll ramp up our activity, both our capital and our O and M activity. If you look at the expense run rate for this quarter, it's pretty standard on what you should think going forward. Now I say that we continue to be in work from home mode and I can tell you assuredly so that we would love to and as the year goes on, we'll start having our folks show up in the office on probably on some flights and schedules. But we would love the opportunity to maybe travel a little bit and actually start seeing some of our customers face to face, especially on the marketing side. And I think we all look forward to doing a little bit more of that, but I think we'll be able to handle any cost load that that would bring us. Totally agree that a non virtual AGI would be nice. Our next question will come from Michael Weinstein with Credit Suisse. Please go ahead. Hey, good morning guys. Good morning. Good morning, Michael. Hey, I was just thinking about your comment about 3rd World down in Texas and just thinking about those guys sitting in the dark in Houston making $40,000,000 or $50,000,000 without even having the lights on. Yes. No, not even having heat. Is there any chance you just very recently wrote down the value of Spire Storage. Is there any chance that there might be a write up in the future? I mean, based on the obvious value that is now present in all storage and gas capacity? Yes. Michael, it's an interesting question. And I think the larger strategic question, which Steve addressed earlier is, we have to get through our assessment of what the next step in storage is. And then once we make that decision, we'll obviously come to the market and give the rationale for whatever move we make. Now we get down into the arcane accounting of everything. And you know what, an accountant, that's how I was trained, we always look at the downside and you never look at the upside. So write downs have to happen immediately, write ups can't happen. And so unfortunately, I would agree with you that the intrinsic value of storage has increased as a result of winter storm Yuri. And we've actually seen re contract rates move up really across the nation. We've seen strong demand in our storage field out in the Rockies. But that doesn't translate into any GAAP adjustment of the write up we took last July. Right. But as you mentioned, there are new opportunities now, especially at the utility, right, in terms of especially at West Missouri, I would think. Well, I think it is clear that not only for us, but everyone in the energy space is taking the things that we've all learned from Winter Storm, Yuri, and we're assessing where the opportunities would present themselves. And we've been pretty clear that we do see some opportunities, especially on the west side of Missouri and down in Alabama. And we're putting a finer point to those analyses now with actually a pretty good new data point that's fresh within our minds that I think over time will give us the opportunity to find some incremental investment in CapEx either in the utility or outside. We'll figure that out after we the opportunity. Yes. And Michael, just as an additional point, I guess I would say. So I think what the market has reminded itself is when and I mentioned it earlier, the planning episode, if you will, that we go through annually, there's a sort of financial flow of all that and what it means to customers, but also there's a physical flow. And the physical aspects of your planning around supply, including storage as an example, is a physical ability to get those molecules to you at the coldest times, either on a peak day or a durational basis. And so when you start looking at your systems physically versus the financial flow, storage matters. And storage matters in terms of its ability to get to the right time. And what Yuri has done, I think as Steve said, is a reminder of the significance, the importance of storage in these market basins. And so we've got a very strong executive leading that organization that's got decades of experience in Spire Storage. He's built a very strong team. They operated that facility this winter in a different way than they have the last few years because of this weather storm, even though it didn't directly hit in that geography. And so back to Steve, I'm not going to repeat everything Steve said, I just wanted to point out the significance of the physical locations of these facilities during these peak periods, which is really what there are lots designed for. Got you. You may have covered this earlier, but the $110,000,000 of gas costs from the storm at the utility, is that going to be is that part of the updated test year in the rate and the rate case? Is that going to be dealt with through that process or something separate? Well, I think we need to separate these. That's part of, in essence, what will be the PGA and those are handled outside of the rate review that we're in right now. So they're separate items. So I think we just need to clarify that while I spoke to we take and own the entire customer's bill, these are separate pieces. That's actually through the PGA portion. Right. And what are you anticipating to kind of is any securitization even needed? I mean, this is a more mild effect versus your neighbors, so wondering. Yes. Michael, that's still to be determined. We've had the on camera review with the commission and staff and we continue to have discussions. I think every utility is looking at the options available to them. We're not looking to securitization as the option that we need. Again, our number is a lot smaller than some others in the industry, and we think that using the PGA as it is currently configured works best for us. Now I know that there is some securitization legislation or drive from some of the other utilities in the state, but that's really targeted more toward the coal fleet and retirement of coal than it is recovering gas costs. But I can't speak for the other utilities in the state and where their plans are. Yes, Michael, the one piece I will add, while typically the PGA is an annual type event, think in this case, what we're looking to do to work with the commission to see if we can spread this out over perhaps 2 or 3 years to try to minimize that rate impact on the customers from the gas perspective. Right. And that is with carrying costs, right? Yes. I'm not sure if we follow what you're saying, Mike. In other words, if you spread it out over 3 years and you're not securitizing it, you would, in theory, get a return on equity during that time? No. I Was it only short term debt? I don't know. Yes. This is excess gas costs and it is in the customer bill. Our philosophy, it goes back to Suzanne, how she started the earnings call, it's about focus on the customer. And in this scenario, recovering the actual cost that we incur, to finance that, unusual cost is the best way to go. And frankly, it was one of the reasons why we took out the short term loan in Missouri was to give some cost separation to the cost associated with that. I got you. It's just relatively small amount anyway, so not really going make a big impact. Anyway, thank you very much and good work this last quarter. Our next question will come from Selman Akyol with Stifel. Please go ahead. Thank you. Most have been asked and answered, but I got 2 quick ones if I may. So from your comments, it doesn't sound like you're planning on increasing capital to gas marketing. Is that correct, Humphrey? Yes. Actually, Selman, and good morning. Yes, we marketing is a low capital business. We did invest in technology a year ago, actually implemented that technology during COVID last year and thank God we did because it gave us the visibility to actually make it through Yuri and Fine Fashion. There's always a little bit of capital, but it's really a low capital intensive business. And so I don't believe that there's a lot that needs to happen there in order for us to continue to support and grow that business. Okay. And then the second thing, you guys talked about customer growth, up 40%, I guess, on the commercial and industrial side. Could you expand a little bit on that? It would be higher than I would have thought. Yes. And so the reference was actually to new business capital. And that's a year over year, if you think about 6 months this year versus 6 months last year. But it is translating into new meter growth, new premise activation, whatever the right term is. And the one thing that I will share is that much like our infrastructure investment programs, which are spread evenly across our 3 large utilities, Missouri East, West and Alabama, it's kind of the same way with our new business. We're seeing opportunities, for example, on the west side to move into areas that we haven't served and those are through CCMs, which are certificate of convenience and necessity. And so if we want to go into a county, for example, to serve some poultry farms that we don't serve, then we'll go to the commission, we'll file that and then expand. And the good news on that is customers are coming to us. They're saying we want to convert from propane. We've seen a couple of large opportunities in Alabama to extend to do some similar type things into areas that we don't serve. And then a big piece of what we're really seeing a lot of in the past year is increase in conversion activity. So if you kind of add all the pieces up, we're really seeing an evenly divided, if you think about it, capital deployment relative to new business across all of our footprint as well as translating into new meters. Now the second piece of that is don't correlate that necessarily to net growth because there's always some attrition and things like that. And then, of course, as we're coming, not necessarily out of, but after a year of COVID, we've worked very hard with our customers to try to do some things to keep them on our system. And so there's a lot of moving pieces when you think about net growth, but from a new business capital, and that's roughly 30 plus percent of our capital plan. And so as we think about the way we're deploying our capital, it is high quality capital. If you think about the infrastructure programs, if you think about the new business, which creates additional revenue and even some of the advanced metering technology, which we think will have a lot of customer benefits going down the road, We think it's a very high quality capital that we're deploying and very comfortable that our 5 year plan, we're going to be directly on track for. Simon, just one point I'd like to add. I think Steve hit 99% of it, but I know you probably hear a lot about housing starts and growth across the United States in certain regions. And I think it's also a testament to our states, our region getting a portion of that growth in new housing starts. But more importantly, their selection of natural gas. And as Steve mentioned, there are conversions that are taking place. People want natural gas. We're also seeing it in the new housing starts. So, we have a strong team that's out in the field and working with our business builders and developers. And again, I know you've looked nationally probably at these housing starts in our states are, like I said, getting their fair share of that. Yes. And I think the last point now that I thought about it is, as I mentioned in my remarks, 2 of our 3 states in Alabama and Mississippi actually have laws that have recently been signed to support fuel choice, which we think is the right approach. We think customers should have the opportunity to choose which fuel. And for us, obviously, we know which one we like them to choose. And there's progress being made in Missouri. So I think in the areas that we operate, we have good conditions for us to continue to see opportunity really across our entire footprint. Ladies and gentlemen, this will conclude our question and answer session. I would like to turn the conference back over to Scott Dudley for any closing remarks. Well, first of all, thank you all for joining us today. I know it's a very busy earnings week, on Friday especially. We will be around later today for any follow ups, and we look forward to chatting with many of you at AGA. So thanks again.