Good morning, ladies and gentlemen, welcome to the Spire first quarter earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw from the question queue, please press star then 2. Please note this event is being recorded. At this time, I would like to turn the conference over to Scott Dudley, Managing Director of Investor Relations. Please go ahead, sir.
Good morning, welcome to Spire's earnings call for the first quarter of fiscal 2018. We issued our news release this morning. You may access it on our website at spireenergy.com under Newsroom. There's also a slide presentation that accompanies our webcast today. 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 Sitherwood, President and CEO, Steve Lindsey, Executive Vice President and Chief Operating Officer of Distribution Operations, and Steve Rasche, Executive Vice President and CFO. Also in the room with us is Mike Geiselhart, Senior Vice President of Strategy and Corporate Development. Before we begin, let me cover our safe harbor statement and use of non-GAAP earnings measures.
Today's call, including responses to questions, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although our forward-looking statements are based on reasonable assumptions, there are various uncertainties and risk factors described in our quarterly and annual filings with the SEC that may cause future performance or results to be different than those anticipated. In our comments, we will be discussing net economic earnings and contribution margin, which are non-GAAP measures used by management when evaluating our performance and results. Net economic earnings exclude from net income fair value accounting and timing adjustments associated with energy-related transactions, as well as acquisition, divestiture, and restructuring activities. Beginning the first quarter of fiscal 2018, we also exclude the earnings impact of the recently enacted federal Tax Cuts and Jobs Act.
A full explanation of the adjustments and a reconciliation of non-GAAP measures to their GAAP counterparts are contained in our news release. With that, I will turn the call over to Suzanne.
Thank you, Scott, and a warm welcome to all who are joining us this morning for our first-quarter update. As you know, we are on a journey to transform our company. Indeed, our continued transition over the past few months involved bringing all of our gas companies together under one name and one mission. Now, we are Spire, and we are redefining what it means to serve. While much has changed throughout our journey, one thing hasn't. We've stayed focused on consistently delivering on our promises. We have done this by staying true to our four strategic priorities and delivering the best service to our customers. We are growing organically by expanding our service to more homes and businesses while delivering that service even more efficiently.
We are investing in infrastructure to upgrade our technology platforms and distribution systems and to upgrade our supply options by bringing a strategic interstate pipeline to the St. Louis region. We are delivering on our long-term growth targets through the successful acquisition and integration of our gas utilities. We are leveraging our technology platforms by launching a whole new customer experience approach, including mobile options. Driven by technology and innovation, our new approach makes it easier for residential customers and business owners to connect with us and manage their needs on the go. We are delivering on our promises. I must begin by thanking our Spire employees for their dedication, teamwork, and commitment to safety and excellence. I am so proud of every single one of our 3,300 employees.
They are committed to doing their very best every day because they care deeply about people and believe in doing things right. They are the reason we're able to deliver on our promises and build momentum year-over-year. Thank you to our team. I'm proud to work beside you. Earlier today, we reported solid fiscal 2018 first quarter net economic earnings of $1.19 per share, which excludes the impact of tax reform. Steve Rasche, as he usually does, will review our first quarter results in more detail. Much like other CFOs around the country are doing as a result of the historic tax law changes, Steve will provide our current thinking as it relates to tax reform. I'd like to point out that our improved earnings reflect a return to more normal weather usage compared to last year's warmer-than-normal weather usage.
It also reflects our continuing commitment to organic growth and investment in our business. When it comes to this year's colder temperatures, our customers are feeling the impact. As we navigate through the winter, we are focused on utilizing our communication platforms to better educate our customers about what to expect in their bills, how to reduce energy consumption, and what payment options are available to balance spikes in usage. Also, we have been working to identify opportunities in natural gas pipelines and storage that bring long-term benefits to customers. That work led to our decision to pursue the Spire STL Pipeline project, which is still on target to be operational mid-fiscal year 2019. We made additional progress on our storage strategy with the recent acquisition of a facility. I'll share more about that in a moment.
Regarding the Spire STL Pipeline, we expect to receive a certificate of public convenience and necessity from FERC early this year. While FERC has recently asked a number of pipeline operators and project sponsors to update their cost of service and applicable rates to show the impact of tax reform, we don't believe this request will slow down the process. We provided our response to FERC late last week. Once we have FERC approval, we can complete the process of acquiring land rights and move into the construction phase. Our expected capital investment in the project remains $190 million-$210 million, including about $70 million this fiscal year. Meanwhile, we are continuing to evaluate opportunities on the western side of Missouri and Alabama. More to come as we continue to analyze prospects.
Regarding storage, Spire operates natural gas storage in Missouri East and liquefied natural gas storage in Alabama. I'm pleased to tell you that we recently expanded our storage opportunities and are leveraging our natural gas expertise to bring value to customers and shareholders. In December, we acquired a majority interest in Ryckman Creek Resources, a storage facility in Wyoming, with a certificated capacity of 35 BCF of working gas. We believe this gas storage facility has great growth potential based on its interconnection with five interstate pipelines serving multiple regions, its access directs, and its location near the liquid Opal hub. We see opportunity to serve multiple geographic regions and customer groups, including utilities, power generators, and pipeline. Our initial investment to purchase this facility was $26 million, and we plan to invest about $15 million over the next two years to enhance operating and financial performance.
We'll do this by upgrading its infrastructure and management team with support from our shared services organization. We expect this storage facility to be modestly accretive starting in fiscal 2019, after we complete our integration and upgrade work in 2018. For that reason, we will be excluding the storage facility results from our 2018 net economic earnings per share. Shifting to our dividend. Following our annual shareholders meeting last week, the Spire board declared the quarterly dividend of $0.5625 per share, which is payable April 3rd. As we noted last quarter, the Spire board raised the dividend by 7.1% again for 2018 to an annualized rate of $2.25 per share. We are proud of our long history of delivering value to our investors. This year marks 15 years of consecutive increases and 73 years of continuous payments.
We remain well within our conservative payout target while providing attractive dividend yield. Before I turn the call over to Steve Lindsey to review our gas company results, I'd like to share my thoughts regarding yesterday's deliberation by the Missouri Public Service Commission. While the case has not been decided, I am very disappointed and concerned over the tenure and direction of recent commission discussions. This includes the adoption of several positions that run contrary to good business practices and positions that serve to weaken customer protections. Spire has long been aware that Missouri has an unfavorable anti-growth regulatory environment. A recent national ranking of state regulatory environments places only four states below Missouri. In the current case before the Missouri Public Service Commission, Spire has made a number of proposals that would improve Missouri's ranking and bring significant benefits to our customers.
In the rate case, Spire has also detailed the extraordinary work that has gone into making the company with the aim of providing better, more cost-efficient service to our customers. As a result of this growth and more efficient operations, Spire's natural gas bills in Missouri are actually lower than they were a decade ago. Spire has not increased its base rates for Missouri customers in eight years for anything other than safety-related and mandate public improvements. Unfortunately, through deliberations in this case, the Commission has signaled that it will reject many of the company's proposals and develop positions that run contrary to fair and balanced outcome for our customers and shareholders. Steve and Steve will explain more about this in their remarks. I'd like to pass the call to Steve Lindsey.
Thank you, Suzanne. Good morning, everyone. I also want to acknowledge the outstanding efforts of our employees, who continue to demonstrate dedication to their jobs and a commitment to delivering great service to our customers while keeping themselves and our community safe. Especially proud of how our employees perform at a high level when it really counts during the winter heating season. As Suzanne noted, our financial results benefited from the return of more normal weather compared to the past two years. Our financial results were also supported by strong operational performance that built upon the positive momentum coming out of last year. Our results reflect that our gas utilities continue to grow in terms of customers and margins, driven by our organic growth initiatives and further investment in infrastructure upgrades, new business, and technology.
In the first quarter, our pipeline replacement spend was $55 million across our three-state footprint. We also increased the capital we put towards new business to over $22 million, which is 66% higher than the same period last year. In Missouri alone, new meter growth is 15% higher than last year. The importance of these investments are twofold. We get recovery of our pipeline upgrade spend with minimal regulatory lag. Second, our investments in our system and new business support customer additions that drive additional margin and earnings. Our pipeline upgrades also result in lower maintenance costs and improved reliability in the future. After the very strong year we had operationally in fiscal 2017, our goal for this year is to keep that performance going and improve even further.
I'm pleased to say that even with the demands placed on our system and our employees during a cold winter, we are tracking well against our performance targets for the year. At Spire, everything starts with safety. We never stop working to further reduce employee injuries and improve our driving performance. This quarter showed that continuous improvement. Another key area for us is the performance of our distribution system, particularly in managing the O&M activities across all of our companies. We continue to build on last year's success in both reducing the number of leaks on our system and responding to them quicker. Last year, we made significant investments in technology, systems, and processes that support our customer service. We are seeing the benefits of our efforts as we continue to raise the bar on how we care for the homes and businesses that we serve.
For example, in Alabama, Spire recently received the 2017 J.D. Power Business Award for Customer Service Excellence for Gas Utilities. In fact, they had the highest score in the entire nation, adding another national championship trophy to the state of Alabama. Let me turn now to the Missouri legislative and regulatory matters, starting with the legislative side. With the start of a new Missouri legislative session in January, we have once again filed to put forth legislation to improve the regulatory construct in the state. Senate Bill 730, the Rate Case Modernization Act, similar to a bill we helped get introduced last year, seeks to streamline and modernize the rate-setting process. The bill includes a rate stabilization mechanism to protect our customers from the impact of weather variations and other usage variables, such as conservation and energy efficiency. The bill also proposes annual reviews to support rate stability.
Not only is the approach more timely, it is also streamlined to ensure balanced outcomes can be achieved with less investment of time and money compared to the current process. It also endorses concepts such as performance-based incentives and accountability for cost management. The Senate bill was voted out of committee last week. Meanwhile, there is similar legislation in the House, HB 1878, that is currently in committee. In Alabama, we're supporting legislation aimed at damage prevention. The one-call legislation would establish a standard for locating utilities prior to excavation work. Alabama's currently deemed inadequate by the Pipeline and Hazardous Materials Safety Administration, or PHMSA, largely due to the lack of a standardized program that exists in other states. Now let me update you on regulatory matters.
As I'm sure most of you probably know, one of the members of the Missouri Public Service Commission had a term that ended in December. In early January, Governor Eric Greitens appointed Republican State Senator Ryan Silvey to fill the seat vacated by Democrat Stephen Stoll. In making the appointment, the Governor said that Senator Silvey understands the need for all Missourians to have access to reliable and affordable energy. He certainly brings an understanding of issues facing Spire and other utilities in the state, given his former role as chairman of the Senate committee dealing with energy and environment. Turning to our Missouri rate cases, they are close to being concluded. We filed last April seeking a modest increase of about $59 million, exclusive of the amounts we are currently collecting through the Infrastructure System Replacement Surcharge, or ISRS.
Our requests reflect the benefits of our growth, including the significant investments we have made in infrastructure and technology that have produced many benefits. Our requests also include cost savings and synergies for our Missouri customers totaling nearly $70 million, which would not have been possible had we not chosen to grow as a gas company in Missouri, as well as Alabama and Mississippi. The Missouri Commission is now deliberating the issues in the case, including yesterday's agenda meeting. As Suzanne mentioned, we are very concerned over the direction of those discussions. We strongly believe that an appropriate level of equity capitalization and fair and reasonable recovery of our costs are necessary to properly recognize the investments we have made to deliver cost savings and better service to our customers.
We also believe that the rate-setting process should provide the proper incentive to encourage us to continue our efforts that deliver benefits to our customers. Based on the 11-month schedule for cases to be adjudicated in Missouri, new rates should go into effect in March, 30 days after the final order. That would point to a Commission decision in mid-February. We are working with utility commissions across Alabama, Mississippi, and Missouri to determine how to return the benefit of tax reform to our customers. Within the last two weeks, at the request of the Missouri PSC, Spire and Commission staff filed their analysis and recommendation regarding the adjustment needed to reflect in rates and the benefits of the recently enacted Tax Cuts and Jobs Act. A hearing has been scheduled for February 5th.
At this time, it has not been determined how or if the impact of tax reform will be addressed within our pending rate case, which examines all of our cost of service factors. With that, let me turn the call over to Steve Rasche for a financial update.
Thanks, Steve, and good morning, everyone. Before we dive into the financial results, let me make a quick observation on tax reform. Our GAAP financials for the quarter, like almost every company in the U.S., will include impacts from the legislation that was passed just 41 days ago. I will touch on those impacts for our company and our plan going forward in just a minute. We'll focus our time this morning and going forward on the net economic earnings of our businesses, which excludes the generally non-cash, pardon the term, noise caused by the GAAP treatment of this significant legislation. With that said, let's start with a review of our operating results for the first quarter of our fiscal 2018. Starting on slide 12, I believe the headline tells it all.
Without the impacts of tax reform, the return of near normal weather patterns is the real driver of our performance this quarter. Net economic earnings were just under $58 million, reflecting heating degree days so far this fiscal year that were just below normal across all utilities, a stark contrast to the warmer weather over the last two years. Gas utility posted net economic earnings of $59.5 million, up $7.7 million from last year. Gas marketing earnings were $3.6 million, up $2.2 million from last year. Other corporate expenses were down slightly at $5.2 million. Net economic earnings were $1.19 per diluted share, which reflects the higher earnings, offset in part by a 6% increase in shares from our April 2017 equity unit conversion. Let's look at the income statement on the next slide.
Total operating revenues of $562 million were 13% higher than last year on a combination of higher weather-related demand and higher utility commodity costs. Contribution margin was up as well, consistent with the colder weather this quarter. Our gas utilities margins grew 12%, or $12 million, or 5%, driven by demand in Missouri, where we do have some weather sensitivity of roughly $8 million, higher ISRS revenues of $3.4 million, and customer growth in other revenues. All continuing the positive trends we saw last year and the tangible results of the commitments to investing in our communities and strengthening our relationship with customers. I should also note that the margin gains in our Southeast utilities were modest, given the regulatory mechanisms in place in Alabama. As you know, we prefer this rate design because it protects our customers and the utility from weather volatility.
Turning to gas marketing, margins increased by $6.4 million, as weather-driven volatility returned to the natural gas market, and we were able to use our storage resources and expertise to create value. Looking at operating expenses, utility fuel costs were up $47 million, reflecting higher demand. Other operation and maintenance expenses were down $1.5 million, as higher weather-sensitive employee and bad debt expenses were more than offset by lower maintenance costs. Depreciation and amortization was higher, consistent with our higher capital investments over the last year, and taxes other than income were driven by higher volumes. Gas marketing operating expenses were down marginally as average commodity costs declined while volumes rose. Finally, interest expense was higher by $2.3 million, largely due to the $170 million in Spire Missouri debt issued in September, as well as higher short-term interest rates.
We continue to grow our cash flow and maintain a strong financial position, as outlined here on slide 15. First quarter EBITDA was up 16% from last year to $148 million. Short-term liquidity was also very solid, with roughly 40% of our credit facilities unused and available in what is generally the high watermark for our working capital levels. Our long-term equity capitalization also strengthened this quarter, and we stand at just under 50% equity capitalization, up nearly 70 basis points from last quarter. That capitalization includes the first tranche of our Alabama senior notes, shown here on this slide. By the way, we completed the second tranche in mid-January. Let's turn back to tax reform. As most of you know, tax reform is a truly significant piece of legislation.
It puts the U.S. in a more competitively strong position globally. We are very bullish on its beneficial impacts to our commercial, industrial, and residential customers. There's been a lot of press about companies increasing their investment in the U.S., increasing wages, and paying bonuses as they figure out how to share the benefit of lower taxes. It's true. All companies will benefit from lower taxes. Beginning in 2018, that reduction is from 35% to 21%. Regulated entities are a bit of a different animal, since income tax expense, like all costs we incur to serve our customers, are recovered as part of our customer bill. That's why the tax reform legislation includes protections for regulated businesses like utilities, to ensure that we can keep our rates low, continue to invest, and have access to low-cost capital.
As a result, we expect to pass the benefits of tax reform to our customers. Looking quickly at the impacts in the first quarter of our financial results, as I mentioned at the outset, our GAAP results included an initial assessment of our tax reform impacts, principally changes in our effective tax rate and the remeasurement of legacy deferred tax assets and liabilities. Our GAAP income statement for the quarter includes a nearly $60 million benefit, as in lower GAAP tax expense, reflecting the remeasurement of our non-utility deferred tax liabilities. Essentially, a reduction in the future tax payments, lower tax rate going forward. This is a largely non-cash adjustment, and as I noted earlier, we have removed it from net economic earnings to provide clarity into the true run rate earnings of our business and to provide better comparability with last year.
We are also evaluating the business impacts of tax reform. At this point, we don't see any changes to our operating or capital plans for 2018, assuming we receive fair and balanced regulatory treatment for tax reform, as has been the traditional approach across our footprint. To that point, as Steve mentioned, we are already working with the commissions on how to get tax reform benefits to our customers. A couple of other key points based upon our initial assessment. While tax reform did not have a material impact on our cash flows for this quarter, we do anticipate it will reduce our cash flows in the future as we lower our customers' bills, thus impacting our credit metrics. This is part of our discussion with the regulators on how to share benefits back to our customers.
Secondly, while interest is fully deductible inside our regulated operations, the new legislation does impose limits on other interest expense. Based on our initial investment, we do not anticipate this to have a material impact on our go-forward earnings, given our largely regulated business mix and our strong and growing non-regulated earnings. Looking beyond 2018, we are assessing the impacts and opportunities provided by tax reform. First and foremost, we see an environment of growth, both from the economic boost and higher business investment, as well as the elimination of bonus depreciation, which should help us grow rate base. We are evaluating those opportunities while striking the right balance in terms of capital structure, debt and equity financing activities, and credit metrics.
We have many tools to consider. We'll update you as we learn more and get additional guidance, both at the federal level and we reach agreement on regulatory treatment at the state level. Turning to slide 18. As Steve mentioned, capital spend for the quarter was higher by 24%, with growth coming from infrastructure upgrades, new business, and the Spire STL Pipeline. We remain on track with our current plan, and our fiscal year 2018 CapEx target of $490 million is up $5 million, reflecting the additional spend anticipated from our storage acquisition. Our five-year capital spending plan remains at $2.3 billion, focused on infrastructure investments at our utility level across our footprint and backed by upgrade programs of roughly 20 years in length. As a reminder, fully 80% of our spend is expected to be covered with minimal regulatory lag or contribute to earnings.
Also a quick follow-up comment about our Missouri rate cases. We agreed upfront to ring-fence each of our utilities to protect our customers and to make sure that their bill reflects only the cost and capital required to operate inside their state, and at the same time, to ensure that everybody benefits from our growth. In all areas, we have and continue to operate in a responsible way as we transform our business to serve our customers better, including how we manage the capital needs and cost of our Missouri customers. It is very disappointing for the Missouri Commission to not only ignore much of what we've done so far, but then to adopt positions that are not fair, reasonable, or sustainable.
As Suzanne mentioned, Missouri is currently ranked as one of the most challenging regulatory environments by RRA, and positions like those taken yesterday just reinforce the view that Missouri is a difficult place to operate. As the CFO, I expect the commission's positions, if carried through, to put significant pressure on the credit ratings for our Missouri utilities, which could increase our financing cost to customers. Obviously, we disagree with that direction and outcome. Needless to say, we have a lot of complex moving parts in our outlook going forward. We continue to evaluate the opportunities and the challenges of tax reform and our Missouri rate proceedings. Rest assured, all of us at Spire remain committed to growing our business, investing back in our communities, and doing so in a fair and balanced way for the benefit of all of our stakeholders.
We'll update you on our progress, including our investment targets and guidance in our second quarter earnings call. Let me turn it back over to you, Suzanne.
Thank you, Steve and Steve. I'd like to close with this thought. Several years ago, we made the decision to remake this company with the aim of providing better, more cost-effective service to our customers. The results of those efforts have been nothing short of transformational. It's a testament to the 3,300 dedicated employees that we've been able to deliver and even exceed those ambitious goals. On behalf of our employees, customers, communities, and shareholders, rest assured that Spire will continue to pursue all means at its disposal to ensure the final resolution in the Missouri rate case balances interest and that Spire remains positioned to bring savings and quality of service to our customers. Now, we're ready to take your questions.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If your question has been addressed, you may withdraw from the queue by pressing star then two. The first question will come from Michael Weinstein of Credit Suisse. Please go ahead.
Hi, good morning.
Hey, good morning, Michael.
Hi, Michael.
Hey. Maybe you could talk a little bit about the legislation that's being proposed, Senate Bill 730, how that might improve things on the ground for you guys going forward, what the rate case schedule would look like under the new law if passed, how things might be different this year from last year and the year before that.
Thanks, Michael. What you've articulated is really two parallel paths. We have our, obviously, current rate case. As we've talked about this morning, it's an 11-month process. It was mentioned that that rate case most likely will get the order mid-month, then the rates go into effect in March. If we're not satisfied with the outcome of the case, just by matter of the process itself, we have the opportunity to seek reconsideration on specific aspects of the case. Obviously, we would pursue that. Without a positive outcome from that step, we have the opportunity to actually take the facts before a judge. That's the runway with this specific case. Relative to the legislation, Steve Lindsey had mentioned some of that process, why don't I turn it over to you and go back through the timing of that?
Sure. Thanks. Thanks for the question, Michael. Couple pieces that would really be, I would call transformational for our regulatory mechanisms here are that it would introduce rate stabilization, which would help protect the customers and the utility during big weather variations. The other part is that you would have annual reviews, you would have a much more timely regulatory update period and process. There are other things that are being introduced, such as performance-based incentives, you can think of those as the company delivering on our expectations to our customers. Some other measures relative to cost management.
We feel very good that this is a comprehensive way to think about regulation. It's a lot of the same type approaches that we currently have in Alabama, which we feel is very fair to customers as well as the utility to create a very balanced approach.
It sounds like, if the legislation passes, that this would, yes, you're having a pretty tough time right now in this current rate case, would it be fair to say that under the new legislation you'd have, I guess, an initial rate case that sets rates, then there's an annual review after that, I think, is that the end of rate cases as we know them under the new law?
I think what you would do is exactly like you mentioned. You have to have a base case to establish things such as ROE and those type of things. Again, they get reviewed on an annual basis, which is much more frequent than the current process. I think in describing would that be the end of rate cases as you know them, I wouldn't say that in totality, but you just have a different frequency of those. Then again, you'd have a much more frequent update period than you do in the current regulatory process.
I think the cadence-
Got you.
Michael, is that when you have that quote annual review, there's information that's filed throughout the year, and there's a timing and cadence aspect to reviewing sort of that year-end information and all the input elements, if you will, versus us taking months preparing a filing that, and going through that 11-month adjudicated case, which just by its nature, as everyone on the phone knows, puts you in a more sort of litigious environment, just by the nature of the way those cases are, versus working together throughout the year, have the review, and then moving into the following year.
Yeah, the last piece to kind of piggyback on Suzanne's comments there is we would file quarterly updates, then have an annual true-up period. There would be much more frequent review of just our ongoing business results as we move forward.
Okay. Just one last question. On FFO to debt metrics and other metrics that Moody's and S&P might be looking at after tax reform, I think you mentioned that you expect weaker credit metrics as a result of tax reform going forward. Is there any way to quantify any of that or how that might affect things?
Hey, Michael, this is Steve.
Yep.
The other Steve, since there's two of us here in the room. There's still a lot of negotiations and decisions that have to be made, especially about how the benefits of tax reform overall, and again, overall, it's a great benefit, how those get shared back to our customers. Our plan, if you look at our five-year plan and you look at our credit metrics pre-tax reform, showed improvement in all of our credit metrics, and that's not just FFO to debt, that's also leverage and holdco debt and all the things that both Moody's and S&P look at. All of that supported our current credit ratings, and that's our goal overall. We agree, and I think we've been clear from the start that tax reform does impact our FFO.
As I look at our numbers, and again, we still have some fairly big questions that if it impacts our FFO to debt on the order of magnitude of about 100 basis points, and we still show improvement going through the period. I'm confident that we're going to find the right combination of both regulatory relief and also the other tools that we and every public company has in our toolbox to make sure that we can get inside the metrics that make sense, that support our current credit metrics. That's really our plan going forward, and there's a lot to be done in that assessment, and a lot of it has to do with the negotiations that we need to undertake on the regulatory front. We'll continue to monitor it, and you can rest assured, we've had discussions with our rating agencies.
They understand the process, and we need to get through the rate case and then understand that, and then we'll figure out where the other steps are moving forward.
Okay, thank you very much.
Thanks, Michael.
The next question will come from Sarah Akers of Wells Fargo. Please go ahead.
Good morning, Sarah.
Good morning.
Hi, how are you?
Hey, Sarah.
Just had a question on tax reform. Outside of the regulated utility, do you see an EPS hit from the lower tax shield on your unrecoverable interest expense from just going from the 35% to the 21%?
The short answer, Sarah, is no. A perspective, as you know, the utilities broadly and regulated industries worked hard while the legislation was being crafted to make sure that there would be protection for interest deductibility for regulated entities, and we were successful in getting that in the final legislation. That's important because of the amount that we're investing back into our communities and then the capital we need to do that. If one of the outstanding questions on which we're waiting for guidance from the Treasury Department is to firm up the allocation methodology that will be used for interest, specifically holdco interest, because that's really the question for us and a number of our peers.
If you use the long-standing allocations that have been in place for many years, which really focus on asset investments in our business, or you look at the true nature of why we, and how we incurred our holdco debt, it all points to an allocation largely to our regulated entities, where it would get full deductibility. The other point that I would make, I mentioned it on the call in the prepared remarks, our non-regulated business continues to grow in terms of EBIT or EBITDA contribution, and that limit changes over the life of the legislation. We're very comfortable that we'll be able to the extent that interest gets allocated outside of the regulated entity, that we'll be able to cover it with the earnings power of those businesses. We don't really see an impact from the interest deductibility question from where we stand today.
Even if it remains deductible, is there not the lower tax shield on the loss? Does that not hit the bottom line?
There's a whole bunch of non-cash items that do impact us, and that's really the essence of the non-cash charge that you saw. That's basically taking all of the tax benefits historically that we would have recorded, timing differences between what we pay currently and what we would have booked, and writing those down. As we look at our cash flow overall, the metrics I just shared on the earlier question really looked at it on an all-in basis. We tend to look at the entire thing and its entire impact on cash flow. I don't see it as being a detriment at all.
Okay. Then on the gas storage acquisition, is that facility tied to your utility operations at all? Are there long-term contracts in place to provide earning stability, or what's the nature of that facility?
The first part of your question, Sarah, no, it is not part of the utility company. In terms of the second part, yes, there is an existing customer base, and obviously, we've just taken the asset. We're working through meeting those customers and understanding those contracts and so forth. I also have Mike Geiselhart in the room, and that was intentional because it's the first time we've introduced this topic, so I thought he might be able to provide some color to everybody on the phone.
The facility will have a mix of customers. It has historically, but we're in the process of kind of rebuilding some of those relationships, given the financial difficulties that the asset had over the last couple of years. We anticipate it'll have a pretty robust mix of different customer types, obviously marketers, also LDCs, and pipelines, as well as ultimately some power customers as well.
Okay, thank you.
Thanks.
The next question will come from Insoo Kim of RBC Capital Markets. Please go ahead.
Hey, good morning, guys.
Hey, good morning.
Morning, Insoo.
Just piggybacking off of the questions on tax reform. I think early last year, you guys had talked about a potential $0.05-$0.10 hit to earnings, as the different items were being talked about and discussed in the legislature. With the final tax reform having been passed, how does that earnings hit change at all? Was that mostly due to your assumption on non-deductibility at this point, which is now assumed to be a non-impact?
Yeah. Insoo, this is Steve, you're spot on. A year ago, on this call a year ago, actually, when we were talking about tax reform and looking at a couple plans, which were really, one of them was an accumulation of tweets, as I recall. We were looking at essentially the deductibility of interest, the nickel-to-dime drag was assuming the worst-case scenario, which is no interest deductibility, holdco interest, no mitigation efforts. It was the absolute worst-case scenario. One thing that we worked hard on along with our peer utilities, and there was a big group of us, is we made sure as the legislation was being formed and ultimately being voted on, that we addressed a lot of the concerns, not only that we had about interest deductibility, but as an industry overall that we had.
Now with the legislation in place and looking at, again, historic traditional methods of allocation interest across businesses, we think we've been shielded completely from an interest deductibility standpoint. That nickel to dime really was appropriate last year. We worked hard as you expect that we would to try to offset that, I think we've been successful in doing that.
Got it. Then in terms of the, of course, in our industry, people have been talking about whether there would be more equity needs in the industry as a result of tax reform. For you guys, ahead of your adjustments that you'll make on the CapEx plan, everything, does any potential equity depend on how the loss of bonus depreciation impact your rate base and how you adjust CapEx going forward?
Yeah. Great question. I know that this is an industry ride question that we're getting, I think that from an industry perspective, the expectations of additional equity over time versus a baseline before tax reform is fair and reasonable. We've been very clear. First of all, bonus depreciation was going to sunset in the next couple of years anyway. When we think about Our capital spend program going out, think about our 5-year projection right now. We were already factoring in the sunset bonus depreciation because that was the horizon that we had to deal with.
We and gas utilities in particular, this is where I draw a distinction between my electric and integrated brethren, we have good regulatory recovery mechanisms, so bonus depreciation was never as big an issue for us as it would be for an integrated, where their capital spend would have another digit, so to speak, in how they think about investing every year. Bonus depreciation, not an issue whatsoever. We've been also very clear that we do have plans over our horizon looking out over the next four to five years to issue equity. A lot of that was tied to the Spire STL Pipeline. Clearly we've conditioned ourselves, and we've had very specific discussions, as you would imagine, with our rating agencies, so they understand how we view our capital structure going forward.
We've always said, and that has not changed, that we believe that a balanced capital structure, a bit more equitized than levered, is the right spot for us to be. We have a long history of being able to improve that capital structure over time. Look at the movement that we were able to put in place this quarter. We'll continue to work it, but I would agree with you that as we firm up our plan, equity is part of that mix tied specifically to Spire STL Pipeline. As we look at our capital plan, and we look at the opportunities perhaps to grow rate base at a little bit faster pace because the bonus depreciation isn't going to be taking out, especially in Missouri, which is a flow-through state.
How that increase in growth pairs up against the cash flows that come from that growth versus the needs for financing both on the equity and debt side.
Great. Thank you very much.
The next question will be from Shar Pourreza of Guggenheim Partners. Please go ahead.
Morning, guys.
Morning, Shar.
Steve, just real quick, when do you expect to get visibility or guidelines from the IRS on the holdco-allocation process?
Great question, Shar. If I had that crystal ball, I'd probably be using it to predict interest rates or the market. I say that with a smile on my face. We referenced, and I know that as an industry, we've been very clear about the guidance that we're looking for from the Treasury Department, and one of those is to confirm that the way in which we have allocated interest over many years is still the method that is appropriate and acceptable for income tax positions going forward. I can't predict the pace at which the Treasury Department will get to the task of giving us the guidance. In the absence of guidance, we have to go back to past precedent and practice, which would be exactly where we landed right now. It was one issue that we as an industry tried to get addressed in the legislation.
In fact, we were successful in having it in the House version of the legislation. It did not make it onto the Senate version, and we weren't able to get it into the final version, which is probably the only thing of the list of about 15 things as an industry that we needed to get in the legislation that we didn't. Frankly, if I had to choose one not to get in, that would be the one would be at the bottom of the list because we got interest deductibility. We got ability not to expense CapEx. We got the favorable treatment of individual dividends at the individual taxation level. Those are the key drivers for value in our business. If you have a better view of when the Treasury will get to the task of what they need to get done, I'm all ears.
Otherwise, we'll continue to work it. I can tell you there's a call later on this morning. There's a fairly large working group of folks in the industry that are working with the Treasury to try to get them to issue those rules because each of us have the same concern or issue about how we assess the impacts now in the absence of that final guidance.
Got it. Just last thing on your capital program, and I do appreciate that you'll update us in the next quarter. Obviously, from various meetings we've had with commissioners, there's a viewpoint that maybe the immediate tax savings aren't necessarily needed to give back immediately, right? There's an opportunity to sort of keep some of the tax savings and potentially go ahead and subsidize some of your forward capital needs or spending programs within the state. There's an opportunity to pull forward some CapEx and subsidize some of the spending. On the other end, you are dealing with somewhat of a restrictive state in Missouri. How are you sort of thinking about some of the pushes it takes as you formulate your capital program? Secondary, are you getting to the point, because Missouri has been restricted for some time.
Are you getting to the point where you may deploy capital elsewhere or withhold CapEx similar to what we've seen in states like Oklahoma?
You threw a couple things out. Let me talk about the capital plan. Then we'll address the second question about long-term deployment of capital. We look at our capital plan from a number of aspects. I think first and foremost, you have to remember we've got to focus on hardening and making our system more reliable, more resilient, and more cost-effective. That is by far and away the biggest reason for and the driver behind us with our infrastructure upgrade investments. Those programs have long tails. Again, we're at about the 20-year mark when you look at them all in. Clearly, we have the opportunity option to modify those programs in whole or on the edges.
I got to tell you that our first charter is to make sure that we're doing the right thing for our customers, and I would be very surprised if we would do anything in the heart of our plan. Maybe on the margins we would. That's part of what we have to manage every day. That's where you get into some of the other items that you talked about how the benefits of tax reform are shared. I know you're right in some other jurisdictions. There are some discussions about using some of those benefits to create other incentives or other programs or to pay for capital spend. Those discussions are yet to be had in some of our jurisdictions. We'll have to cross that bridge as we come to it. Really, in reality, it's a Missouri discussion because in Alabama, we're in real-time rate making.
If we choose to expand our cap in Alabama, it's part of our plan, it's part of our rates. We adjust on a quarterly basis, which is why we like that progressive rate approach. With regard to deployment of capital, Steve, you have thoughts?
Sure. Yeah, thanks for the question. As Steve mentioned, these are 15- to 20-year programs we have relative to infrastructure upgrades. Clearly, safety and reliability are a great focus on those. Reliability, I think, was a big part of why we had such a successful winter. If we would not have done the upgrades that we've been doing literally over the last four or five years, I think we would have had some system challenges in terms of being able to hold up. Clearly a benefit there. I think a piece that doesn't often get as much credit is this reduces our ongoing and future O&M on our system in terms of just maintaining the system. I think all those benefits are there.
The other piece I will touch on that I mentioned is for this first quarter, for example, we had over $22 million in new business capital. That's really a direct result of our organic growth initiatives that we've got going on in every part of our jurisdictions. I think we're seeing the benefit of that. Just to give you a scale, for this first quarter, that amount of dollars that we dedicated to new business made up over 25% of our total capital plan. Again, that grows the business, adds additional customers and meters, and that really helps from a long-term perspective because you're spreading costs over a broader population. I think between those two, we've got a long line of sight for many years in terms of the capital that Steve's characterized.
Yeah, I guess my final point on this topic would be this. Steve and Steve are right. We're always going to do the right thing, always, by our customers. Even this tax conversation, for example, in front of the Missouri Commission, to tie that back in to that part of your question. We were outside the timing to file any adjustments in this case. We did not have to take the tax conversation to the commission staff and the commissioners. Again, we want to do the right thing in terms of our customer and what the impacts are going to be on their bill. From a formality standpoint, it is not part of the true-up in terms of what we filed in this case.
Again, wanting to do the right thing, we're running those calculations, cost impact to customers, and bringing that before the commission.
Excellent. Thanks so much, guys.
Thanks, Shar.
Thanks, Shar.
As a reminder, if you would like to ask a question, please press star then one. The next question will come from Selman Akyol of Stifel. Please go ahead.
Thank you. Good morning.
Hey.
As it relates to sort of the non-regulated side of the business, you've now undertaken a pipeline, you've undertaken some storage. As you look out over the next five years, what sort of additional projects are you seeing you guys wanting to invest in?
Yeah. We won't be able to quantify it mathematically beyond the things that we've talked to you guys about. From a pipeline perspective, like the Spire STL Pipeline and our conversation with you about we're evaluating a pipeline on the west side of the state or some alternative to bring supply into that community as well. Of course, the pipelines are FERC-regulated, so we would consider them regulated. Obviously, they're not state-regulated like the utilities are. In terms of storage, obviously that is unregulated but supported by companies, as Mike mentioned, for a large part are regulated. From an expansion on the storage side, they, like all things that we do, have to make sense economically, have good, strong customer bases, as was asked in an earlier question. We do see opportunities there.
We will evaluate it consistent with bringing shareholder value as well as growth over the long haul. Mike, is there anything particular you want to add? I know I've got you sitting with me.
The only thing I would add is that we've really developed a lot of capabilities internally in terms of evaluating potential projects moving forward. Suzanne mentioned Missouri and Alabama. We've definitely made a lot of progress in evaluating potential projects there and may have something that will become public in the not-too-distant future. With regard to storage, we're in the process of building what I think is a pretty capable team with the Ryckman asset, and we would look to do more storage assets in the future if that makes sense.
Great. I appreciate the color. Just a little bit follow-up on the previous item. You noted $22 million in new capital. How much of that was dedicated to Missouri?
It's actually been fairly evenly distributed amongst our three largest utilities. I would roughly say well above half, probably upwards of two-thirds or pretty close to dedicated to the two Missouri utilities. One other thing that we're experiencing, which has been a positive, is we characterize them as strategic main extensions. They're going into underserved areas, and in some cases, going to serve industrial customers that are demonstrating a need for natural gas. That's another benefit that we're seeing, particularly in the west side of the state here in Missouri and in Alabama.
All right. Thank you very much.
Thanks, Selman.
You're welcome.
The next question will come from Chris Turnure of JP Morgan. Please go ahead.
Good morning, everyone.
Hey, Chris.
The potential decision that we could hear in the next three weeks from the Missouri Public Service Commission on capital structure could have some pretty major implications for a company with your strategy. Could you maybe elaborate on those, not just for 2018, but for a longer term? I know that you're pivoting away from adding more holdco debt now to fund acquisitions, but if you're funding midstream projects, you have a lot of holdco debt to start. You're building the pipeline. How do you think about that? Also on top of that, were there any other elements of the verbal decisions yesterday outside of capital structure that concerned you versus your ask?
Yeah. Let me start on the capital structure side. Ultimately, Chris, we want to do what's right for our customers, and I think we've been for, well, for my tenure, and especially since the time that we agreed to the MGE stipulation back in 2013, we've been operating each utility in a ring-fence fashion, which is the fair way to think about each utility. The capital that they need, they pay for, and they have their own credit ratings, and we manage those businesses and appropriately allocate the cost to service so the customers are paying only the costs that are associated with operating that utility and the capital needed in order to invest and upgrade the systems because we're doing that across our footprint. That base philosophy, which we believe is good, prudent practice, is not going to change.
At the same time, we have consistently, and I think you've seen that, been able to draw down our holdco debt as we operate our businesses well and as the non-regulated business grows. You had mentioned a couple of our investments on the non-regulated side. We clearly, on the non-utility side, I'm going to draw that distinction. I think about pipelines a little bit differently than I think about purely non-regulated businesses because we are FERC-regulated, as Suzanne mentioned just a second ago. I tend to think about those with a little different view. At the right time, which is generally when we get closer to the pipeline going into service, we will establish a capital structure and debt at that entity so that we can ring-fence that entity just as we do the utilities, we have to do that.
I think from that standpoint, if you look at some of the discussions that were had in the meeting yesterday, the look-through to the corporate capital structure really violates what we think are very basic, prudent, and sustainable operating principles for our utilities and all of our entities. The last thing we want to do is have our Missouri customers have their cost of service change because of some activity that we decide to do down in Alabama. That is exactly where looking at the corporate capital structure puts our customers in Missouri. We think it's fundamentally flawed.
To that point, Chris, and to your question, what are we concerned about? I mentioned it in some of my earlier comments. We're concerned about the tenor, and we're also concerned about the ex parte rule, where we don't have an opportunity to educate the commissioners on these very complex matters in the interdependency. We're also concerned, we believe strongly in the regulatory environment, that there needs to be fair and balanced outcomes. It's part of the responsibility of the commissioners, and truthfully, it's the responsibility of the staff as they look at these cases and they think about the cause and effect. Those things need to be considered.
For a state to thrive and for customers to get the best outcomes, we must have a commission and a commission staff that understands fair and balanced outcomes over time, and the reason and the need for ex parte rules that allow an education process for commissioners as commissions come and go. Because these, again, are very complex items. Just think about the series of calls or questions that we've had on this call today. They're not easy. Without an informed commission, it's very difficult to get, again, fair and balanced outcomes. The tenor, again, we're concerned about. That being said, we've been in this business collectively around the table decades and decades. If I add it up real quick, probably a century. It's our responsibility as a company to manage these processes, and we will.
As I mentioned earlier, there's still sort of a long timeline to finish out this case. We're going to remain working on this and doing our best job to make sure that we get a proper outcome for our customers as well as our shareholders.
That makes sense. When you guys look at the Wyoming investment, I think you've indicated that there's a lot of potential upside there. Wondering kind of how we can think about what you bring to the table here, given the geographic kind of distance. Is it a balance sheet where others were not willing to step in or some other market knowledge that you draw from your non-regulated business that you can bring to the table?
Yeah, this is Mike. It's definitely an intellectual capital business. I think we were able to see some value in the opportunity that was overlooked by some other participants. It was also sort of a flawed process in many respects that I think caused a number of likely strategic acquirers to sort of pass over the assets. We saw it as sort of a diamond in the rough, if you will. We feel like we understand the issues that have occurred in the past, how to correct them moving forward, and we're able to buy the asset at a very attractive price, which gives us a lot of upside in the future.
Our execution plan is very diversified from the standpoint of we believe the asset can serve multiple customer types in the Rocky Mountain Region, but has very interesting possibilities in terms of providing Sort of out-of-state storage capability for the West Coast, in particular, California and Southern California. We have some of those customer discussions already underway and have laid out a plan that we think is pretty interesting long term.
Okay. Sorry, did you say that was a flawed process?
Yeah, I think the sale process and the bankruptcy process in particular, were very poorly run. I think more importantly, we understand kind of the operational history of the facility, sort of where the initial development of the geology went astray, if you will, and how to really turn that around with a really relatively modest CapEx, given all the equipment and all the facilities that are already in place.
Got you. All right. Thank you very much.
The final question this morning will come from Joe Zhou of Avon Capital Advisors. Please go ahead.
Hi, good morning. It's Andy Levy and Joe Zhou. How you guys doing?
Good, Joe.
Good morning. Go on, Andy.
Just a couple of questions. First, just an update on the Enable pipeline, that you guys are leaving their system and the FERC procedures. Can you just give us an update of exactly where we are and what Enable is trying to do to stop this at this point, or has that train left and there's nothing they can do?
Yeah, this is Mike again. We've had sort of an interesting debate, you might say, with Enable through the course of this development of the record in this case. The way we perceive it, frankly, is that Enable through the Mississippi River Transmission asset has really had almost a monopoly hold on our market for some period of time. As we looked at our ability to access, in particular, low-cost Marcellus supply, there really wasn't a good avenue through the existing pipeline connections into St. Louis to access that supply. We also had a concern with regard to earthquake resiliency with the MRT system coming up and crossing New Madrid Fault. Both from a resiliency standpoint, physically as well as kind of a diversity into the market, we really needed a new pipeline build.
The project that we developed is certainly the most economic alternative to provide access to that gas. We've actually gone ahead and executed a long-term supply agreement and capacity agreement in REX Zone 3 to support that new pipeline. We're pretty excited about the benefits it can bring to customers in St. Louis and believe it's a very economical alternative to access those supplies. MRT, understandably, would certainly like to have us remain with the same amount of capacity on their system, but that's frankly not in our customers' interest.
No, I'm just trying to understand the regulatory process around this. Basically-
Yeah
where do we stand in the regulatory process? I assume they're trying still at FERC to prevent you from getting approval. Is that the case, or is that passed already?
Well, they are still making efforts to make their case, if you will, in front of FERC. The process is very near completion as we understand it right now. Things tend to go pretty silent once projects are with the certificate staff at FERC. Our understanding is that the environmental process is done and that portion of the order is written. I think there's still some discussion that needs to occur. Frankly, a lot of the delay, I think, is really a function of having new commissioners that are still playing catch up on projects, including ours. We're still optimistic and expect that we will have an order in the relatively near future.
Okay, that's great. Two other questions I have, we'll let everybody go back to work. Just as far as the regulatory process yesterday, I guess, the punchline was really around the equity ratio and, I guess, kind of using the parent equity ratio going forward first, I guess the 53.5% that you've been using for the ISRSs and things like that. Is that around 48% that we should be assuming if as far as the parent equity ratio, is that the way they're kind of looking at it? I know there was some adjustment for short-term debt.
Joe, this is Steve. It was a little unclear from the discussions because there were a number of commissioners who were voicing their opinion. The indication was to go to the parent capital structure, I believe without short-term debt. I think we've already talked about how we feel about that versus going with the opco cap structure. I think we feel very strongly about that. I don't want to get out in front of the regulatory process and start talking nouns and numbers. I focus more on what's sound and sustainable business practice, and I don't believe that staying at the corporate capital structure is in the interest of our customers. We'll leave it at that. There is no number put forward. They're still in the process of going through the case, the deliberations.
I understand. Right. Okay. Just to follow up on that issue. Is there any type of sensitivity that you can give us as 1% decline in your equity ratio, how we should kind of look at that earnings-wise?
As you can appreciate, we know that in spades, I think it would be inappropriate for us to have that discussion in public market until we're further in the process.
I understand. My last question is, I just noticed on your press release, I saw it in the fourth quarter release, but I didn't see it in the first quarter release. Just the reiteration of your 4%-6% growth rate.
You're right. We omitted it from this quarter because we're going to give a wholesome update looking five years out as we do every year in the April earnings call. I don't see anything right now that would cause us to move from that over the long term. There are both pluses and minuses. I talked about a couple of them in the prepared remarks on the call. Tax Reform, in many ways, actually hits the accelerator a little bit when you think about rate-based growth. We really have to get our arms around inside our utilities once we're a little bit further along in our discussions with our regulators on how that impacts our growth going forward on the rate-based side. That's why we felt it was appropriate to step away from that this quarter.
We're not walking away from our view that we need to grow, and we need to grow at a good rate. We'll update that and have very specific discussions on that when we get to our April earnings call.
Great. Thank you very much.
Thank you.
Ladies and gentlemen, this will conclude our question and answer session. I would like to hand the conference back to Scott Dudley for his closing remarks.
Well, thank you again, everyone, for joining us this morning. We will be around throughout the rest of the day for any follow-up questions. Look forward to speaking with you then. Take care.
Thank you. Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. At this time, you may disconnect your lines.