Good day and welcome to The Acquisition of Piedmont Natural Gas Tennessee LDC Business 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 zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ms. Megan McPhail, Managing Director of Investor Relations. Please go ahead.
Good morning and thank you for joining us. On the call with me today is Scott Doyle, President and CEO, and Adam Woodard, Executive Vice President and CFO. We issued a news release this morning and you may access it on our website at spireenergy.com under newsroom. There's a slide presentation that accompanies our webcast, which can be downloaded from our website. Before we begin today, I would like to remind you that matters discussed on this conference call may include forward-looking statements that are intended for protection of the safe harbor provisions under federal securities laws, including management's guidance regarding the impact of this proposed transaction on the company.
Actual outcomes or results could differ materially from the forward-looking statements because of changes in circumstances, functions not being realized, or other risks, uncertainties, and other factors such as required regulatory clearance, timing of the closing of the transaction, and the occurrence of any event or other changes or circumstances beyond the control of the company. Although the statements made on this call are based upon assumptions management believes are reasonable, various uncertainties and risk factors may cause future performance or results to be different. We encourage you to review a more complete company risk factors and explanations concerning non-GAAP measures in our SEC filings. I will now turn the call over to Scott.
Good morning and thank you for joining us early today on short notice. We're excited to share with you details of the transformative milestone announced earlier this morning: our agreement to acquire the Piedmont Natural Gas Tennessee LDC business from Duke Energy for $2.48 billion on a cash-free, debt-free basis. Let me walk you through the highlights on page three. This transaction represents a tremendous step forward in our strategy to grow our utilities. It is not only a strong strategic fit, but it also meaningfully enhances our scale, diversifies our portfolio, and reinforces our commitment to long-term sustainable growth. It strengthens our position as a leading natural gas utility, adding a business in one of the fastest-growing regions in the U.S., the Nashville metro area. This is a strategic acquisition that diversifies and de-risks our growth profile.
Tennessee offers a constructive regulatory environment, and Piedmont Natural Gas has a strong track record of operational excellence and customer service. Importantly, the acquisition will be accretive to adjusted earnings per share and supportive of our long-term 5–7% adjusted earnings per share growth. On page four, we have laid out key reasons this acquisition makes sense for Spire. First, it significantly expands our regulated utility footprint into a high-quality jurisdiction. The addition of Tennessee increases our customer base and scale of regulated businesses. It also positions us for continued growth given the strong economic fundamentals in the region. With the acquisition, we'll be adding nearly 3,800 miles of distribution and transmission pipelines, approximately 205,000 customers, and $1.6 billion in rate base to our existing utility segment. Second, it further diversifies our regulated business mix and complements our existing capital plan.
We expect growth within the business to be driven by new customer additions and system modernization investment, areas where we already have deep experience. Third, our proven shared services platform is well positioned to integrate the business efficiently. Importantly, Duke Energy and Piedmont Natural Gas align with Spire's values and our commitment to operational excellence while maintaining a strong focus on safety, reliability, and community engagement. Finally, the financial benefits are compelling. We expect the acquisition to increase our five-year capital plan by more than 25% and produce meaningful cost efficiencies across the enterprise. Cash flow from the acquisition will support continued investment, dividend growth, and drive long-term shareholder value. Turning to page five for the terms of the transaction, we're acquiring 100% of the Piedmont Natural Gas Tennessee business for an enterprise value of $2.48 billion, representing a multiple of 1.5 times 2026 estimated rate base.
We've secured a bridge facility for the entire purchase price to support the transaction and are pursuing a permanent financing plan that aligns with our current credit ratings. This will include a balanced mix of debt, equity, and hybrid securities. We're also evaluating the sale of non-utility assets such as natural gas storage facilities as a potential source of funds. Maintaining the strength of our balance sheet remains a key priority. We expect to file for regulatory approval with the Tennessee Public Utility Commission within 45 days and anticipate closing in the first quarter of calendar 2026. Page six lays out a map of our expanded utility footprint, including the Tennessee Piedmont Natural Gas business, which will become Spire Tennessee. As you can see, this is a natural fit within our existing utility footprint.
Moving to page seven, Piedmont Natural Gas is the largest investor-owned natural gas utility in Tennessee with a strong presence, primarily serving Nashville and the surrounding areas. The utility operates nearly 3,800 miles of pipeline and serves 205,000 customers, of which 91% is residential. It has delivered an above-average historical rate base CAGR of approximately 11% from 2013 to 2024, and its most recent rate case supports a 9.8% return on equity and a 49.3% equity layer. As you can see on page eight, adding the Tennessee natural gas business to the Spire portfolio of regulated utilities significantly enhances our scale. On a pro forma basis, this acquisition increases our total rate base by 25% to $7.9 billion and our five-year capital plan by 26% to $4.4 billion. Our customer base will grow by 12% and our pipeline network will expand by 6%.
This scale increases our ability to invest in infrastructure and serve our customers more efficiently. Turning to page nine, the acquisition improves our geographic diversity with a more balanced presence across Missouri, Alabama, Mississippi, and now Tennessee. It further strengthens our regulated business mix, increasing the percentage of earnings now coming from our regulated operations. On page 10, we take a closer look at what makes Nashville an attractive premier service territory. The Nashville metro area is one of the fastest growing regions in the country with support for continued economic development. It's home to major employers like HCA Healthcare, Nissan North America, Bridgestone Americas, and Oracle, which recently announced plans to relocate its headquarters there, all making for a stable and diverse economy. The region benefits from a strong housing market and a robust pipeline of new residential customers.
These dynamics support long-term growth and align well with our strategy of investing in high-quality, high-growth markets. Turning to page 11, Tennessee offers a highly supportive political and regulatory environment for our business. It's consistently ranked among the most business-friendly states and has enacted legislation that reinforces the role of natural gas in the energy mix. The state's regulatory framework is both constructive and stable. The Annual Rate Review Mechanism, or ARM, supports timely recovery of capital investment with annual true-ups and regular rate updates. This strong foundation, along with a strong track record of operational excellence and customer satisfaction, positions us well for continued growth and value creation. Moving to page 12, this acquisition adds to our existing portfolio of constructive regulatory jurisdictions in which we currently operate.
Tennessee joins Missouri, Alabama, and Mississippi in our footprint, each with rate-making environments that encourage investment in infrastructure through mechanisms that allow for timely recovery of costs. We believe this regulatory diversity enhances our resilience and positions us well for long-term success. Turning to page 13, in summary, this is a transformative acquisition for Spire. It increases our scale, expands our regulated utility footprint, and enhances our financial profile. It supports our long-term adjusted EPS growth of 5 to 7% and our commitment to growing the dividend. We're confident in our ability to achieve a successful integration and to deliver meaningful value to our customers, communities, and shareholders. I'd like to take a moment to recognize the hard work of our entire team at Spire. Their dedication and focus have allowed us to seize this opportunity to expand into Tennessee and strengthen our business overall.
We look forward to building on a long history of solid operating performance by Duke Energy and Piedmont Natural Gas. Thank you for your time today. We're excited about the opportunities ahead and now we'll 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 touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from the line of Gabe Morin with Mizuho. Please go ahead.
Hey, good morning everyone and congrats on the transaction announcement. Just wanted to ask, I guess in the context of the 5–7% growth rate and this transaction being supportive of that growth rate over the, I guess, medium to long term, how are you feeling about hitting that growth rate sort of in the near term, particularly with the Missouri rate case and the like? Just wanted to kind of triangulate your thoughts around that.
Hi Gabe, this is Adam again. We feel this acquisition is very supportive, and we feel very confident of hitting that growth rate both near term and long term.
Great.
Thanks, Adam. The regulatory environment in Tennessee seems pretty supportive. Is there anything that you kind of feel you need to check off, whether it's an infrastructure tracker? Am I correct in maybe understanding that there really aren't full-blown rate cases here per se within the jurisdictions? If you maybe can address that.
Hey Gabe, this is Scott. Yeah, thank you.
Our process, we're going to file.
In the next 45 days for approval with Tennessee. They have a very constructive paradigm in Tennessee. As we mentioned in the prepared remarks, they have an Annual Rate Review Mechanism that allows for timely recovery of rates. We'll work through that process and work through approval and look to have approval completed within the first quarter of 2026.
Great, thanks, Scott. Maybe just one last one for me. Just in terms of, I guess your balance sheet and where you, you know, can you just speak to where you are kind of going to be versus your targets, how quickly you think you can get there. Also, have you spoken to the rating agencies about this transaction? I guess is their comfort level with it? Finally, I guess the cap ratio at Tennessee, is that something where the holdco and the cap ratio at the utility need to be aligned or can you separate the two out?
Hey Gabe, it's Adam again. I know we have reviewed with the rating agencies. I think they'll probably put out their comments a little bit later today or tomorrow. I think we feel good about where we sit with them from a credit profile perspective, and we are very cognizant of how we re-lever the utility assets at Tennessee and we'll be looking at that carefully through our permanent financing process.
Great, thanks again.
Thanks.
Thanks, Gabe.
Thank you. Next question comes from the line of David Arcaro with Morgan Stanley. Please go ahead.
Hey, thanks so much. Good morning.
Morning.
Hey David.
Hey.
When does it become accretive? Maybe I missed it, but when does it become accretive? Do you expect it to be accretive in the first year post close?
Hey David, it's Adam.
We're confident in near-term accretion.
We want to be mindful not to get ahead of the regulatory approvals and process, but we do view this and are confident that it will be accretive in the near term.
Okay, got it, thanks. What would be the timing that you would be planning to get the permanent capital structure in place just post this kind of temporary financing?
Yeah David, we expect to establish the permanent financing prior to receiving regulatory approval.
Okay, got it, thanks. In terms of the accretion, anything that you would offer in terms of does it push you kind of above the EPS growth midpoint, get you toward the high- end or any kind of way that you would frame how accretive it might be over time?
Yeah, great question. More to come on that, but we definitely feel that it is supportive of our 5% to 7% long-term CAGR.
Yeah, okay, great. I'll leave it there. I'll get back in the queue. Thanks so much.
Thanks David.
Thank you. Next question comes from the line of Ross Fowler with Bank of America. Please go ahead.
Morning and congratulations on the transaction this morning. Just a couple questions for me. First, can you talk about the shared services cost model and sort of the success you've had with that in other jurisdictions and how do you think about positioning that for Tennessee? As you know, we've historically seen state regulators occasionally have issues with shared services and cost allocation. How do you position that with the regulator?
Yeah, Ross.
Hey, thank you and good morning. Appreciate the question. We have a very mature, well-developed shared services model and platform that we've used for a number of years here, and it's been well accepted within the jurisdictions that we serve. Stepping into Tennessee, it's similar to the approach that Duke took in running these assets as well. We think our model will be familiar, and as we look to this, we do believe that's a cost-effective way in serving our customers and look forward to having that dialogue with the regulators in the future as well. We don't see that as problematic at this stage.
On financing, I guess two questions there, right? One, should I just sort of think about the same capital structure you have now at Spire, overlaying everything as the likely target as to how you structure the financing of this piece of the company as you bring this in?
Yeah, Ross, it's Adam.
After relevering the assets, as I mentioned earlier, we do expect permanent financing to.
Include a balanced mix of equity and equity-linked securities, hybrids. As Scott mentioned, we are.
Evaluating the sale of our storage business.
I think you can expect a relatively similar capital structure for the enterprise.
Right. The holding, the $4,933 at the equity layer at the utility company, and then some overlay on top of that, if I heard you correctly.
Yeah,
yeah.
On the storage business, you front run my next question. That seems like, how should I interpret it? Interpret your view of selling that as part of financing this. Is this a shift in strategy away from sort of those unregulated businesses towards more regulated businesses? Do you still think about the midstream assets as part of the core? How do you think about your regulated to unregulated mix here as you approach that 90%+ regulated?
Yeah.
Hey Ross, this is Scott. Just to be clear, we're evaluating the sale. We haven't made a decision on that. Clearly, in particular, the storage assets are assets that have great value in the marketplace. As we look to the permanent financing for this acquisition, that's one of the levers that we're considering pulling at this point. As you can tell by nature of us growing into a gas utility, clearly that's part of our core strategy, serving the utilities and serving our customers in that space.
Fantastic. Again, congratulations guys. Thank you.
Thanks a lot. Appreciate that.
Thank you. Next question comes from the line of Paul Fremont, Ladenburg . Please go ahead.
Thank you.
Really, two questions. One having to do with the potential sale of gas storage. Is plan A to basically try and fund with the sale of gas storage, or.
Is that.
Not the primary sort of vehicle that you have in mind to fund the acquisition?
Yeah, Paul, this is Adam. Thanks for the question. We're evaluating the sale of gas stores. I would say that we don't need to do that to establish our permanent capital structure here. It's an option. It's not the only option. We've got a couple of different paths in mind.
The second question is, assuming you don't sell any gas storage, can you give us a sense of what percent of the funding would be, either equity or equity-like securities? Would that be 50% or something less than 50%?
I would say we expect a limited amount of straight common shares to be issued as a percentage of total permanent financing here.
Does that mean MIPS or what? In terms of what all, how should we think of alternatives to issuing straight shares?
We're evaluating equity-linked securities, which is relatively common from an acquisition financing standpoint, and hybrids as well.
Got it.
In terms of the percent that you would want that to comprise of the acquisition funding, is there any help you can give us on that? Not at this time.
Not at this time. More to come.
Good question, though, Paul.
Okay, great. Thank you so much.
Appreciate it. Thank you, Paul.
Thank you. A reminder to all the participants that you may press star and one to ask a question. This concludes our question and answer session. I would like to turn the conference back over to Mr. Scott Doyle for closing remarks.
Yeah, just very quickly. Thank you everyone for joining us again this morning on such short notice. This is a transformative opportunity for us and we're super excited about the opportunity to step into Tennessee and serve customers well in that environment. Look forward to seeing all of you next week on our earnings call. Have a great day.
Thank you.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.