Earnings Call: Q4 2019

Nov 26, 2019

Good morning, and welcome to the Spire Year End Earnings 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, Managing Director of Investor Relations. Please go ahead. Good morning, and welcome to Spire's fiscal 2019 year end earnings call. Issued our earnings news release last night and you may access it on our website at spireenergy.com under Newsroom. There's also a slide presentation that accompanies our webcast and you may download that from either 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 Executive Officer of Gas Utilities and 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. 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, contribution margin, adjusted EBITDA and adjusted long term capitalization, which are non GAAP measures used by management when evaluating our performance and results of operations. Explanations and reconciliations of these non GAAP measures to their GAAP counterparts are contained in our news release. So with that, I will turn the call over to Suzanne. Thank you, Scott, and good morning to everyone joining us for our year end update on our performance and outlook. As we begin our fiscal 2020, we're pleased to have this opportunity to share how we're continuing to execute on our growth strategy. A strategy focused on growing organically, investing in infrastructure and advancing through innovation. For fiscal 2019, Bayer once again achieved consistent growth and higher levels of financial and operating performance for 1 point 7,000,000 homes and businesses across Alabama, Mississippi and Missouri. Before we share the details, I'd like to address 2 items. First and foremost, I'd like to give thanks to every one of our Spire employees who work hard every day to deliver on our promises customers, communities and shareholders. Spire employees know that we are responsible for safety, providing energy, energy that families use to cook Thanksgiving dinner and stay warm when it's cold outside. There's great pride in taking care of our customers and communities doing the right thing. To every employee, I extend my heartfelt gratitude and wishes for a happy Thanksgiving with family and friends. Second thing I'd like to address is a matter I'm sure our investors and analysts are interested in and that's the recent ruling from Missouri Western District Court of Appeals regarding our infrastructure system replacement surcharge or ISRS. As we outlined in a separate news release last evening, the court upheld appeals made by the Office of Public Counsel that disallowed recovery of portions of fires from Missouri's ISRS. Additionally, the court overturned 3 prior Missouri Public Service Commission issuance orders along with ordering refunds to customers. These rulings were made on November 19, the day before we had originally scheduled this earnings call. We appreciate your patience and understanding as we work to assess their impact on our financial disclosures and our immediate next steps. Steve Lindsey and Steve Rasche will have additional commentary about our issuance program and the financial impact of these rulings. However, I would like to take a moment to share my perspective. In short, the court's premise is baffling. The court ruled on something that was not in question by the Missouri Commission, the U. S. Department of Transportation, the National Association of Regulatory Utility Commissioners or any U. S. State that has or have had cast iron and bare steel pipelines. The Missouri Western District Court appears to have second guess incremental funding is dependent on proving the cast iron and bare steel or worn out or deteriorated. In fact, the Missouri BSE has a long standing program which we wholeheartedly support that accelerates replacement of cast iron and bare steel pipe. Reality is that the Missouri ISRA statute was intended to promote safety related investments and it's been working effectively for more than 15 years. Not only have we upgraded more than 2,000 100 miles in Missouri pipeline in that time, some of which has been in the ground since the 1800s, we're also making a significant positive environmental impact by reducing emissions that come from leaks and aging pipes. We believe wholeheartedly that we have consistently done the right thing and followed the rules for system upgrades under ISRS and the Missouri PSC consistently approved these actions. With the PSC's oversight, we have executed the program while keeping customer bills in Missouri nearly 20% lower than they were 15 years ago. Therefore, we strongly disagree with the court's ruling and will vigorously defend the timing, efficient and effective modernization of pipeline infrastructure. With that, I'll turn to the purpose of this call, which is to report on our strong financial year end results. Fiscal 2019 we delivered net economic earnings per share of $3.73 which grew by 5.1% as compared to run rate earnings for fiscal 2018. The increase was driven by our gas utilities which as you know account for most of our earnings. We've been able to consistently grow our gas utilities adding to the number of customers we serve by investing in our distribution system, new business, technology and innovation. Steve Lindsey will provide year end highlights around how our investments are driving performance across all of our operating metrics. While our gas utilities are the main driver of growth, we expect all of our businesses to grow. In fiscal 2019, we continue to advance our gas marketing and midstream operations. Steve Rasche will talk about gas marketing and I will update you on our midstream operations, fire SGL pipeline and fire storage. For midstream businesses, I'm pleased to announce that Scott Smith, an industry veteran with 30 years of experience has joined our team. As President, Scott has the executive responsibility for the operations of Spire STL Pipeline as well as the development and operations of Spire Storage. It is a great pride that I'm able to announce that we completed our Spire FPL pipeline and have officially placed it into service. As you'll remember, on our last call, we updated everyone on our progress, letting you know that we were facing delays in completing construction due to historic flooding. Well, thanks to cooperation from Mother Nature and the hard work and dedication of our internal team and external partners, we were able to finish construction, nearly complete land restoration and complete required testing of the pipeline. Making history for our company, this final work allowed us to flow gas last week, six weeks earlier than our end of calendar year target, a significant accomplishment that follows the FERC approval of final rates and authorization to begin service. This 65 mile pipeline is now delivering a reliable and more diverse supply of shale gas from the prolific Marcellus and Utica producing regions to fire customers in Eastern Missouri, including the Greater St. Louis region. The pipeline also enhances the resiliency of our natural gas supply and we've noted before, Fire Missouri East is the anchor shipper having contracted for approximately 88% of the pipeline's capacity. Final cost to construct Spire STL Pipeline is approximately $265,000,000 with a few $1,000,000 of our last estimate. Turning to Spire Storage, our near term focus is on ensuring we're able to provide the needed services for our customers throughout the winter. While overseeing current operations, Scott Smith is leading the development efforts and commercial strategy for the facility. He and his team are advancing the work that we've done to date to assess the operating capabilities of the facility relative to longer term market needs and opportunities. Regarding development, we've taken a disciplined approach including specific projects to enhance the draw capacity and winter preparedness. In fiscal 2019, we spent $35,000,000 on the physical plant at Spire Storage and $56,000,000 for base gas to support the facility's operational capacity. Now, I'd like to turn the call over to Steve Lindsey who will talk about the growth and strong performance of our gas utilities. As Steve will describe, thanks to innovation and technology combined with investments in infrastructures and upgrades and organic growth, we're driving higher margins and earnings, all while continuing a trend of strong and improving performance in safety, system integrity and customer service. Steve? Thank you, Suzanne. I also want to acknowledge the outstanding efforts of our employees in delivering another strong performance this year, including providing great service to our customers while keeping themselves and our communities safe. As you know, we've been focused consistently growing our gas utilities through a robust capital program centered on pipeline replacement modernization as well as new business. In fiscal 2019, Spire's total capital expenditures were $823,000,000 driven by $575,000,000 of investment in our gas utilities. About half of our utility spend was dedicated to infrastructure upgrades which helped us have another strong year which we replaced over 3.50 miles of distribution pipelines. We also invested $91,000,000 in new business which represents a growth in spend of about 10 percent over last year's record pace. I would point out that our utility CapEx for fiscal 2019 came in about $45,000,000 higher than we originally forecasted. Thanks in part to favorable weather, we were able to complete more infrastructure upgrade work than originally planned. Turning quickly to the non utility capital, our investment this year was right in line with our forecast, including $150,000,000 for construction of our now completed STL pipeline that serves Spire, Missouri East. While we quickly see the benefits from our infrastructure upgrade investments in terms of improved safety, service, system integrity and operating costs, we also continue to focus on the regulatory recovery of those investments. Regulatory mechanisms we have, including incentives to accelerate system upgrades in Missouri and Alabama, are key to supporting both infrastructure modernization and earnings growth. In Alabama, we recover our investment in a nearly real time fashion under the rate stabilization and equalization or RSE mechanism via annual filings. In late October, we made filings for both our Alabama utilities with new rates expected to be effective by December 1. For Spire Alabama, we also have the Accelerated Infrastructure Modernization Rider or AIM, which incentivizes the accelerated replacement of the remaining cast iron and bare steel distribution pipelines through a 10 basis point return on equity adder. I'm pleased to report that Spire Alabama exceeded the threshold number of replacement miles in fiscal 2019 required to earn the incentive and has included the additional ROA in its rate filing to be effective for 2020. In Missouri, we received approval from the Missouri PSC to increase our ISRS revenues by $8,800,000 effective November 16. On more to say in regard to ISRS and the recent appellate court rulings in a moment. Growing organically is the other way is the other important way in which we grow our gas utilities. We're focused on new business and economic development initiatives. And as you know, we are seeing ramping up our commitment and efforts in both of these areas. Our investment in new business continues to increase and as I noted earlier was a record in fiscal 2019. As a result, we are seeing further growth in new premise activations which totaled 11,645 this past year. I would point out that new premise activations are not the same as customer growth as we also have some attrition, but it is important that we continue to add burner tips to our system to offset normal customer losses. As we noted last quarter, we've also had success in extending our service to reach new customers beyond our current franchise area in Missouri, including poultry and agricultural customers in the Southwest part of the state. Similarly, we are also looking to extend our facilities in Alabama to currently underserved areas. The benefit of this type of new business is that many of these customers are conversion opportunities that translate into immediate margin. As you can see, we continue to grow our margins at our gas utilities, driven by modest customer growth, higher commercial and industrial margins and supported by constructive regulatory outcomes. For example, we recently received approval for Spire Alabama to establish a mechanism allowing the utility to create value through off system sales of excess natural gas supply. This is similar to the successful program we have in Missouri, where about 75% of the value created will be used to lower customer rates, while the remainder will be retained by the company. Our 3rd strategic growth priority is advancing through innovation. For Spire, innovation is about continually finding ways to better serve our customers, delivering high quality, cost effective, safe and reliable natural gas service to homes and businesses. Innovation is not new to Spire. We've been pursuing continuous improvement and adopting best practices across our utilities for many years. Harness the power of innovation, we have formalized our approach with an organizational structure and processes to guide our efforts, including hiring an executive leader with more than 25 years experience in innovation and technology. We've worked to instill a culture of innovation at Spire and open an innovation center where employees can meet, collaborate and pursue creative ideas for advancing our company. Technology has and continues to be an important enabler of innovation. More than a year, we've been in the process of modernizing and standardizing our enterprise information technology platform. In the field, we're using leading edge leak detection technology and robotic techniques to make pipeline repairs in less time for less cost and with less disruption to customers and communities. We're also working to streamline and standardize our processes for planning, scheduling, executing our work to drive greater efficiency, improve service and higher customer satisfaction. Finally, we support growth through innovation and the day in and day out rigor of controlling our costs. As a result of our efforts, we continue to drive ever stronger operating performance supported by the investments we make in infrastructure, technology, innovation and our people. In fact, we have record or improved performance this year across all the metrics that we track. As far everything begins with safety and we're seeing lower employee injury rates and better safety overall. We're continuing to have success in reducing third party damages to our systems, thanks to a number of programs that promote safe excavation practices across our entire footprint. In fact, Spire took the lead in facilitating the enactment of legislation in Alabama that will help promote increased damage prevention programs for all excavators. Modernizing our pipeline system is leading to enhanced system integrity. We've reduced leaks by 2 thirds since 2015, and as we continue to reduce leaks, we are driving better environmental performance through lower methane emissions. And finally, our service levels and performance in the field continue to build on last year's successes. Our customer satisfaction scores for our field technicians continue to trend upward. Meanwhile, our appointment attainment rates were at a record 98.5%, all while continuing to lower our average response times. As you can see, our investments in our system, technology, innovation and people are paying off from better safety, reliability and customer service while allowing us to achieve lower methane emissions. That's why the recent appeals court rulings on ISRS represent decisions that don't support our efforts to do what's right. On November 19, Missouri Court of Appeals, the Western District, issued rulings addressing 2 primary areas of the ISRS program. These are intermittent plastics and the evidentiary standard of cast iron and bare steel meeting the requirement of worn out or deteriorated. The debate here is not on the prudence of these investments, but rather on the qualification of interest recovery versus a general rate case. We fully intend to appeal these rulings and defend our positions, which we wholeheartedly believe are right. We've been implementing the ISRS program for well over a decade following the process laid out in the original statute. These types of programs are currently being deployed around the United States to provide incentive for gas utilities to accelerate the infrastructure upgrades and in some cases would have taken over 100 years to complete. Suzanne noted we have made tremendous strides in upgrading our distribution network over the past 15 years. Our system and our service delivery is better, safer and more reliable. We've invested over $1,000,000,000 and replaced over 2,500 miles of pipelines as a result of this ISRS program. And even with the significant investment, the natural gas bills for our Missouri customers are nearly 20% lower than they were 15 years ago at the start of the program. Our upgrade projects is part of our distribution integrity management plan or DIMM. This is the accepted methodology in our industry that relies on understanding system risks and taking appropriate action. I'm very proud of the accomplishments achieved for more than a decade relative to upgrading our infrastructure. We've made these investments and gotten recovery under the long standing ISRS mechanism through semiannual filings with the Missouri Public Service Commission, which has worked well and balanced the interest of our utilities, our customers and our investors. With that review of the gas utilities, let me turn the call over to Steve Rasche to talk more about the ISRS filing, including the financial implications and to cover our financial performance and outlook. Steve? Thanks, Steve, and good morning, everyone. Even with the great progress we've made this year, of course, I need to start with our efficient manner and with the support of the Missouri Public Service Commission. But at this point we are required to record the impact of interest revenues in accordance with the court ruling even though we remain confident in our ability to prevail. Here on Slide 10, you will see the details supporting our current interest revenues by authorization date. A couple of things to point out. First, we are not currently recovering any IFRS revenues from intermittent plastics. In fact, we have roughly $6,000,000 related to this issue on appeal right now and that represents upside to our ISFRIS recoveries if we are successful. 2nd, the plastics revenue in 2016 2017 totaling $4,200,000 were collected prior to the completion of our 2018 rate cases. The appropriate revenues were included as they should be in the new rates set in those cases and only the potential refund of the $4,200,000 is in question. 3rd, revenues collected from the disburse effective October 8, 2018 totaling $8,000,000 last year were also subject to the court ruling questioning, as Steve discussed, whether cast iron and bare steel are worn out or deteriorated. As outlined here, the ISRS provision we recorded this quarter reduces revenue by $12,200,000 and establishes a regulatory liability amounts due to customers pending the final determination. The earnings impact of that adjustment is $9,300,000 or $0.18 a share. The Istrace rulings also impact how we record the customer billings under the October 8 rider in 2020 and those amounts will also be recorded as a regulatory liability and not as revenue or margin. Now this is a fluid situation and over time we expect to get more clarity not only on the potential refunds or additional ISRS revenues, but also on how we think about ISRS recovery in 2020 beyond. For your reference, we have included a more detailed summary on our Ichthys layers and current status in the appendix to the earnings call deck. Given the timing of this situation and the uncertain nature of the final outcome, the issuance provision is not included in our net economic earnings for 2019. With that said, now let's turn to the business and our results for the year. Our fiscal 2019 net income was down from 2018 due primarily to the noise associated with our regulatory resets and the benefit of tax reform last year as well as the ESSRIS provision this year. A more meaningful comparison is our net economic earnings and which removes these adjustments. NEE was $195,000,000 up just over $11,000,000 from a year ago. Recall that our 2018 run rate was $0.17 or just over $8,000,000 lower than reported results due to the weather driven market conditions in the winter of 2017 2018. Taking that into account, our net economic earnings grew by just over or just under $20,000,000 or 11.2%. NEE was also $3.73 per share, up 5.1% from last year's run rate. Per share results reflect the preferred stock dividends as well as the common shares issued under our ATM program this year and our offering in mid-twenty 18. Looking at the results by segment, gas utility posted earnings of $200,000,000 up $17,000,000 from last year. This increase reflects a higher contribution margin and the benefit of more favorable weather. Gas Marketing's earnings of 19 $400,000 were down $3,500,000 from a year ago as the benefits of expansion were largely they did largely offset the return of more normal market conditions that we alluded to earlier. Other business and corporate expenses were just over $24,000,000 slightly higher than last year. This includes the negative EBITDA from Spire Storage of $13,200,000 which was excluded from net economic earnings last year, partially offset by higher AFUDC from the Spire STL Pipeline. Turning to the details starting on the next slide. Total operating revenues of just under $2,000,000,000 were down 1% from last year as slightly lower utility earnings were partially offset by growth in gas marketing. Utility contribution margins of $967,000,000 were up nearly $20,000,000 reflecting the combined benefits of rate resets and higher net interest revenues. Gas marketing revenues reflect higher volumes that averaged 2.2 Bcf per day during the Q4, up from 1.5 Bcf per day for the same period a year ago. Margins, as reported, were down $5,700,000 or after removing fair value adjustments of nearly $5,500,000 were essentially equal to last year. Again, the benefits of geographic expansion, building our team and customer growth almost completely offset the return of more normal market conditions. Kudos to Pat Strange and his team for an outstanding performance this year. Looking at our operating expenses, starting with the gas utilities. Utility fuel costs were lower on the timing of gas cost recoveries and lower overall commodity costs. O and M expenses as reported were down substantially for last year, but there's a lot of noise in those numbers as outlined here on the slide. After removing the 2018 rate case write offs and the 2019 reclassification of post retirement benefit costs, run rate O and M expenses were up 9.9 run rate O and M expenses were up $9,900,000 with fully $9,000,000 of that increase due to higher amortization award in our Missouri rate cases in 2018, meaning that all other costs were essentially flat to last year. Depreciation expense was also higher, not surprising given our capital spend. Gas marketing expenses after removing fair value adjustments of just under $15,000,000 for the year were higher by $30,000,000 reflecting higher volume and transportation charges not surprising given the business expansion. Miscellaneous income was higher by $29,000,000 reflecting the other side of the O and M reclassification and higher AFUDC earnings. Interest expense was up on higher short term rates and borrowing levels. And finally, everybody's favorite income taxes, expense for this year of just over $34,000,000 was down marginally from last year after removing the 2018 tax reform driven revaluation. Our 2019 effective tax rate was 15.8% which reflects a full year amortization of excess accumulated deferred income tax and the impact of AFUDC which is non taxable by the way and the ISRS provision. For fiscal 2020, we expect our effective tax rate to be roughly 18%. Our 4th quarter performance is summarized here on Slide 15. In the interest of time, I will just point out that our net economic loss the quarter was $2,900,000 lower than last year, better than last year, and on a per share basis was $0.02 higher, pretty much in line with our expectations in a quarter where we typically have the seasonal loss. The trends by business are consistent with the comments a few minutes ago on a year to date basis. We have a strong financial position with growing cash flow and solid capitalization. Our adjusted EBITDA was up 5% over last year. We also reduced parent company debt with a maturity of $125,000,000 in August. Our year end long term equity capitalization was just under 52%, reflecting not only that maturity, but also our preferred stock offering and issuing roughly $15,000,000 worth of shares under our ATM program which we launched last year. At year end, our short term borrowings were $743,000,000 a bit higher than normal and reflecting the timing of planned long term debt offerings that slipped from late fiscal 2019 to early fiscal 2020, including Spire Missouri's $275,000,000 in first mortgage bonds that we issued in early November. As a result, we have ample liquidity as we enter the winter heating season. Finally, let's turn to our outlook. Our long term annual per share growth target remains 4% to 7%, with the caveat that the growth in Missouri may be more closely tied to rate case outcomes if our interest recovery becomes constrained. Despite that uncertainty, we are increasing our 5 year capital spend plan through 2023 $1,000,000,000 up from $2,900,000,000 to $1,000,000,000 previously. Our forecast for fiscal 2020 is $590,000,000 and you can see here the breakout by business on the slide. We will continue to evaluate the timing and pace of our utility spend in Missouri as we get more clarity on ISRA's recovery and the impact it may have on regulatory lag and the timing of our next Missouri rate cases. At this point in the year, we would also normally launch our earnings guidance range for fiscal 2020. However, given the uncertainty around this risk, we will delay that launch until the picture becomes clearer. Lastly, our long term financing plans over the next 3 years includes a steady level of equity as shown here on the slide paired with the Missouri Spire Missouri First Mortgage Bonds and other planned operating company debt in early 2020. In summary, despite the surprise finish this year, we remain focused on investing for the future, delivering safe and reliable service to our customers and earnings growth. With that, let me turn it back over to you, Suzanne. Thank you, Steve, and thank you, Steve. As you heard, we're in a strong financial position. We've used our growing earnings and cash flow to support consistent dividend increases. So in closing, I'm pleased to say that our Board of Directors voted to raise the common stock dividend by 5.1% to an annualized $2.49 per share for 20.20 or $2.49 sorry. The increase reflects our strong performance in 2019 and the Board's confidence in our ability to drive continued earnings growth. The latest increase continues our 75 year track record of paying the dividend and marks 17 consecutive years of increases, while allowing us to maintain a conservative payout ratio in the range of 55% to 65%. In summary, our performance in fiscal 2019 was strong higher and in many cases record levels of operating performance at our gas utilities. This includes further reductions in methane emissions, thanks to our robust pipeline upgrade program and other system integrity initiatives. And we continued our passionate involvement in the communities we serve. Heading into fiscal 2020, we're poised to continue our track record of advancing our business driven by organic growth, investments and innovation. We look forward to updating you on our performance as the year unfolds and as always we appreciate your continued interest and investment in Spire. Now we're ready to take your questions. Our first question comes from Christopher Turnure with JPMorgan. Good morning. Could you maybe walk us through the next steps in the appellate process here? I guess you have 3 separate orders that you need to appeal and kind of how that will play out depending on whether you succeed in those steps or have to go further or not? Sure, Chris. This is Steve Lindsey. I think initially we'll go through the normal appeals process, which would be filing for reconsideration. Obviously, there are other opportunities such as taking it to the State Supreme Court. And then I think ultimately there are legislative fixes that we could look forward to provide some clarification. So and even potential regulatory fixes. So I think there's multiple opportunities, but in the immediate from the legal perspective, it will be reconsideration and then we'll go from there. There's a bit of, as Steve explained, there's the commission could create a cure on their own, but the way everything is written today, we would have to exhaust the judicial process to remand it back to the commission unless the commission takes some other action to cure it on their own. So it's a process and we're still outlining the timing and so forth of all of that with our counsel. Okay. So then just I guess a little bit more specifically on the rehearing process at the court. When do you make that filing and then how long do they have to accept it or reject it and how long would that process take? Our General Counsel, Mark Darryl is in the room. So to give you a little bit more color on that process, I'll turn it over to a smarter legal mind than mine. How about that? Thank you, Suzanne. Yes, so Christopher, basically what would happen is that we have to file an application for rehearing by December 4. And then after that the Western District would have to make a decision on that application for rehearing and that's we don't know exactly how long the Western District will take to do that, but that's what the next process would be. And if it turns out that they deny our application for rehearing, then we either have an opportunity either by the court order to go to the Missouri Supreme Court or we would ask that we would ask the Missouri Supreme Court directly to take the case. Okay. And then I guess in those various scenarios, what would be the soonest that we could see EPS guidance for fiscal 2020? I won't answer that specifically, but with respect to the court obviously there's nothing, there's no timetable for the court to make any of either court, either the Western District or the Supreme Court to make a decision. So obviously we would have to kind of wait and see how that process plays out before we're able to give any further color on guidance. And then just to follow-up on that a little bit more color going back to Steve Lindsey's comments, and your question was specific to the judicial process. I just want to remind that there's a regulatory process as well as Steve mentioned a legislative process. And even in that regulatory process, there's rate case processes and those sorts of things that we've got to work through the I'll just call it the critical path for all these paths that we have and make sure we understand what's best in terms of supporting this program that's been around for more than 15 years and the commission is reaffirmed time and time again. And so there'll be more to come as we start mapping all this out. Okay. Yes, I actually wanted to come back to that, Suzanne, just on the PSC itself. It sounds like when it does get back to them, they have pretty wide latitude on how they can interpret the court order in terms of giving you pretty full recovery of your ISRS requests or giving you a very small amount of them. Is that a fair interpretation? It would be fair to me to say that I will not speak for the commission, but what I can say is based on prior ISRIS filings and we have like Steve has talked to up to 15 years of this program. So we have a long history with this program and the commission is reaffirmed and we have frequent meetings with them. So again, I don't want to speak for them, certainly not prospectively, but this is the OPC that filed in the Western District Court, not the commission. And the OPC has a responsibility too to protect consumers not just from a cost perspective, but also from a safety and reliability perspective. And just again as a reminder that if you look at what customers are paying today, it's up to 20% less than they were paying 15 years ago, which is really a win win for the state of Missouri, our communities and our customers to have a modernized system and be paying less than what they were paying years ago. Okay. Yes, I know I appreciate that you can't speak for the commission, but I guess just in having read the court order, it sounds like there's a little bit of subjectivity or confusion in there, at least on my part as to the recoverability of plastics or the recoverability of cast iron and bare steel itself. So it's just, I guess, a pretty uncertain process here. I guess I'm sorry. I was just going to say, I think to just reinforce the point, on this particular issue, the commission is aligned with our position. Again, for 15 years, we've been filing this really twice a year from the perspective of the bare steel and cast iron. If you go back to the original statute, I think the intent of this has been accomplished, which is accelerating the infrastructure upgrade program. And I go back to this is, I believe, the right thing to do regardless, but this mechanism was put in place to help us accelerate that. That's what's been going on. So again, like Suzanne said, we can't speak for the commission, but I think their actions in the past has supported our position on what we've been going through relative to this program. And I think that's the direction we should take going forward. Okay. And then just remind me on what your rate case filing plan was in terms of timing before the court order? Hey, Chris, this is Steve. We are required by the ISRS legislation that underlies all the discussion we had to file a rate case no later than 3 years after the first ISRS rider hits a customer bill. And so that happened in early October of 2018. So if we play it by the tips, to use a golf term, we would have to file our next ISRS by the beginning of October of 2021. There is nothing in the legislation or anything else that's come out that precludes us from filing a rate case whenever we choose to based upon our assessment of regulatory line. Okay. That's extremely clear. Thank you all. Thank you, Chris. Our next question will come from Sarah Akers with Wells Fargo. Hey, good morning. Good morning, Sara. Can you repeat the comments about how you're going to be treating this going forward? Did you say that you will not be booking any interest revenue or margin until this is resolved? Sarah, this is Steve. I can take care of that. If you would, there's a detailed slide in the deck. It's Page 22, which outlines all the different layers. It was also one of the slides that supported their prepared remarks. We have to as we go through the process that Steve and Suzanne and Mark just talked about, We have to record the revenues based upon the appellate court ruling until it is overturned, remanded or we get more guidance. So there are 2 pieces. The one piece is plastics that's history issue from 2016, 20 17. You're asking about the 2nd piece which I believe was the 3rd of the 3 rulings which dealt with the October 8, 2018 ISRS that the court remanded back to the Public Service Commission because they didn't believe we had met the standards of worn out or deteriorated for cast iron and bare steel. I'll refrain from any other comment at that point. So we have reversed the earnings that we result of that, which it was authorized at $8,000,000 You can assume on an annual run rate basis, it's about that much. We would record that in that same regulatory liability. So, we would not get the revenue margin or earnings benefit of those RISIS collections, but we will continue to collect those until we have better determination on how the overall versus rider is going to be handled. Got it. And so then when will you normally make your next ISRS filing and is that still planned? Well, that's a great question and I think that falls in the same category as we've got a few things that we need to do. Mark alluded to a couple of those in the legal realm and then we will figure out when the right time to file this risk is. We generally have 2 per year and so we would be coming up on the time period where we would normally under normal circumstances and normal recovery would be filing our next ISRS which would include the construction that happened during the summer period. While we have not decided if we're going to file that is risk and start the process or engage in more discussions with the various parties. And frankly, we'll need to have those discussions before we decide what to do next. Yes. And Sarah, the point that Steve made, I think, is critical in that it's not exactly every 6 months. We have 2 within a year and so we do have some flexibility relative to the timing of the next filing. Got it, thank you. Yes, thank you sir. Our next question comes from Selman Akyol with Stifel. Thank you. Good morning. I guess in your prepared comments, you stated the commission could create its own cure and then further along it was mentioned that the commission has been aligned with Spire's position. So I guess just my first question is still too early for any of those conversations or have you spoke to the commission about this pathway at all? Our focus has been obviously, it's been a very short period, is focused on ending our year and getting us on this call. So we have not had those conversations. And my reference to the commission in the 15 years is there's a legal structure. There was a legislative action that created this ISRS that went to the commission. The commission has authority over that and they've been regulating this program for 15 years for now fire. Fire Missouri East, Fire Missouri West and so there's a history in terms of the implementation of this program. And so my comment again was based on the historical aspect. And when you have a regulatory program and it's been in existence that long, it's really been legally tested in my view, again not being a lawyer. So again trying to figure out what they may or may do going forward, we're simply sharing that there are multiple avenues to take and even in the regulatory environment, they may take some action as Steve Lindsey talked about where there's ISRS filing and Steve Rasche talked about there's rate case filing. So we have a lot of options and directions that we can make this. Okay. And then just thinking about STL Pipeline, it looked like there was still $50,000,000 to be spent. And I'm just kind of curious what was with being placed in service, what's still outstanding for the pipe? Tom, this is Steve. We just put the pipe in service literally last week. So all the spend that we've incurred since ninethirty to get it put in place would clearly fall into fiscal 2020. And then there's still some restoration work to be done and other things that we need to do in order to finish up the construction project. It is not unusual to go into service and still have some of that ancillary stuff that needs to be done. But that's our best estimate is the $50,000,000 and a good chunk of that has already been spent. And as a reminder, when we talk about capital spend, we generally go to the capital spend that is on the cash flow statement, which is cash. So I can assure you that Michaels and the other contractors have incurred work that will show up once we pay them in October November as we finish up the work. So the key thing to remember is the total cost of the pipeline is 2 $65,000,000 which is really right on top of the $262,000,000 number we talked about 3 or 4 months ago once we knew that we were going to get the pipeline in before the end of the year. And as Suzanne mentioned, we were able to do that about 6 weeks earlier than the end of the period we had thought. Very good. And then I guess, you'd also been looking around for maybe some additional pipeline opportunities on the west side of the state. Is there anything that has developed since last quarter? Yes, we continue to study that, but this past year, of course, we've stayed very focused on moving our marketing team to Houston and expanding that business, as well as what I've mentioned around storage and completing the pipeline here to this region. But yes, we are evaluating those options and also continue to study what is working in Alabama and other options we might have there as well. It's a continual program. All right. Thank you. Yes. Thanks, Noah. Our next question comes from Michael Weinstein with Credit Suisse. Hi, good morning. Good morning, Michael. Good morning. Hey, so how much of the interest work going forward is going to be covered under that worn out and deteriorated standard now being enforced by the Court of Appeals? And more to the point, how much work going forward is going to be for intermittent plastics and cast iron and steel replacement that could be disputed? Or is the entire amount of the spending going to be in that regulatory liability going forward, all spending? The test that you referenced that was taken up by the court, any bare steel and cast iron pipe and at least based on that court decision would apply. The question is, in our view, the commission again has proven that it's worn out and deteriorated just by the very nature of the age of it. And so therefore, the commission has approved our filings repeatedly. And so in our view, it speaks for itself. Not to mention and Steve Lindsey can talk about this, but we have what is called a DIMP plan. And I'll let Steve talk to that in terms of the planning and what that does. And again, that DIMP plan is something that's used across the United States for all gas companies that have fair steel and cast iron pipe. Hey, Michael, this is Steve. And so again, if you think about kind of the intent or the spirit of the interest legislation and ultimate statute, it was to accelerate the replacement of bare steel and cast iron. Now the criteria, it was been in place in the original language, but we've been operating for 15 years under if it's bare steel and cast iron and we prioritize, like Suzanne mentioned based on our damp plan which takes in consideration leak history, ongoing maintenance things like that. That's the way we prioritize it. So from that perspective, we view that everything that we've been replacing is eligible under that statute. Now the plastic piece is different. Again, we contend that it's better and more efficient for us to replace entire segments, which interspersed small pieces of plastic within the system. We still think that's a better approach. And really from the OPC's perspective, you would think they would support that because it is a lower cost ultimate outcome, which should benefit consumers. So again, on both those pieces. And on the plastic, I'll say that's a very, very small amount. So I wouldn't get overly concerned about that. The bigger piece for us is, again, the Bairstill and cast Iron, which is everything really that falls under the ISRS program. And I hate to get too much in the weeds here, but I've mentioned this on calls before. It gives the backdrop what Steve just described. Our engineering team does a holistic planning for the entire region because pressures are changed, receipt points are changed and so forth. So this DENT plan is a master plan. It's not just simply removing one small piece of pipe and throwing in another piece in the ditch. It's holistic planning against the backdrop that Steve mentioned and a very structured approach consistent with what 42 other states are doing across our region and again the 8 that aren't because they don't have bare steel and cast iron pipe. So we absolutely believe that we're at the high standard and doing all this work correctly on behalf of our customers and at the same time keeping their bills like I've mentioned a few times on this call 20% lower. Yes, that all makes sense. I wouldn't question the safety aspects of it. Because of the experts. But I'm wondering, so how much earnings are being essentially deferred by booking the regulatory liability going forward? And what is your assumption in the 4% to 7% growth rate that you have reiterated? Yes. Michael, this is Steve. I think I can handle that. The amount that was deferred as of ninethirty was $8,000,000 and that is the estimated run rate for the only active ISRS layer that is subject to the appeal court ruling. So, you can if all things were to play out and we got no determination for the entire year then $8,000,000 of top line revenue and something less than that given the tax benefit would be at risk. That is kind of where we stand today and we'll have to keep watching and see what happens as we go forward. We would hope that before the end of the fiscal year we have some determination on what's going on, but we'll have to wait and play that out. A couple of other points, we're not talking about prudent rate based investment. In fact, there's no debate and the court was clear that they're not debating the prudence of the investment. It's really about qualification for ISRS. So, if in the worst case scenario where we don't get favorable forward view or comfort about what's happening with this risk, then we would go back to the earlier question and look at our rate case timing and we could accelerate our rate case timing if we needed to do that in order to minimize regulatory lag. The 4% to 7% is a 5 year forward view. You know, we are pretty manic about having a long range plan, managing that and managing it with greater specificity, we've done so far, including and notwithstanding the Court of Appeals ruling that dissuades us from our ability to continue to grow rate base at about percent per year given the capital spend that we have and driving growth over time. Now that growth could be lumpier and tied closer to rate case outcomes if we don't get the recovery on SRS that we would expect and that we've historically had for the last 15 years. That's the scratchy kind of uncertain part that we're dealing with right now, which is the singular reason why we're reticent to issue 2020 guidance until we have a bit more clarity into what's going on. Got you. Thank you very much. And one last question about STL Pipeline. You've got the ability to raise rates at Spire Missouri by $0.02 in MMBTU. Is that going to cover the full 2.65 dollars So he already went to FERC and enacted that process. So that's already been accomplished, raising of the $0.02 Yes. Michael, that was de facto with the increase in the maximum rate and that was pre negotiated in the press agreement, which is now 3 years old. We've talked about this in the past and our cost estimates haven't really changed too much. We're able to offset some, but not all of the additional total costs that are $265,000,000 So by definition, at the beginning of the pipeline, the ROEs will go down a little bit, but we still feel they're within the range of what we're seeing in terms of FERC rates right now assuming a fifty-fifty cap structure which is pretty standard in these projects. Our rate of return will be in the low 12% range which is still the right place to be and it's actually if you read the tea leaves and what's happening in Washington D. C, ROEs tend to be coming down a little bit based upon some of the discussions of the commissioners. So it's clearly an ROE which is above what we're seeing in our regulated utilities and there is Or over the much longer period, if or over the much longer period if we find a customer who wants to take more than that to do a new construction project, which would include increase the capacity probably at compression to the pipe that would increase the capacity above its MAO its current capacity of 400 a day. That's a much longer term project. We don't have anything to discuss at this point, because frankly, we just got the pipe in service and those customers generally wouldn't be coming forward until what they saw the pipeline was operating as it was intended. Got you. Thank you very much. As I'm showing no further questions, 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, thank you everyone for joining us. We will be around the rest of the day for any follow-up questions. We look forward to talking to you then. Have a great Thanksgiving. Talk to you soon. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.