SR - NYSE

Good morning, and welcome to Spire's Fiscal 2024 Third Quarter Earnings Conference Call. Today, all participants will be in a listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that today's event is being recorded. I would now like to turn the conference over to Megan McPhail, Managing Director of Investor Relations. Please proceed.

Good morning, and welcome to Spire's fiscal 2024 third quarter earnings call. We issued an earnings release this morning you may access on our website at spireenergy.com. There is a slide presentation that accompanies our webcast, and you may download it from either the webcast site or from our website. 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 non-GAAP measures used by management when evaluating our performance and results of operations. Explanations and reconciliations of these measures to their GAAP counterparts are contained in both our news release and slide presentation. On the call today is Steve Lindsey, President and CEO; Scott Doyle, Executive Vice President and COO; and Steve Rasche, Executive Vice President and CFO. Also in the room today is Adam Woodard, Vice President and Treasurer. With that, I will turn the call over to Steve Lindsey. Steve?

Thanks, Megan, and good morning, everyone. We appreciate you joining us for Spire's fiscal third quarter earnings call for a review of our quarterly performance and an update on recent developments and outlook. Turning to Slide 3. Let's start with our quarterly results. This morning, we reported a net economic earnings or NEE basis, fiscal third quarter loss of $0.14 per share compared to an NEE loss of $0.42 per share a year ago. The improvement year-over-year reflected improved results across all of our business segments. Scott and Steve will provide a deeper dive into these results and an outlook in a moment. Throughout the year, we have maintained our focus on cost management and creating efficiencies across the organization. This is important as we strive to keep build as low as possible for our customers. This past quarter, we heightened these efforts and launched an initiative to improve long-term customer affordability. These efforts are targeted at lowering our overall cost structure and improving operational efficiency, securing the benefits of our investments in technology and infrastructure upgrades. Most of the benefits of this work will come in fiscal years 2025 and 2026. We're seeing some of these savings during the fiscal year, and we expect them to partially offset headwinds experienced at the gas utility during the year. As you'll recall, this winter, we saw lower-than-expected margins due to warm winter weather in Missouri and higher interest rates overall. While we are also seeing stronger performance in our Marketing and Midstream businesses with three quarters of this fiscal year behind us, it's not possible for us to claw back all of the shortfall. As a result, we now expect to earn between $4.15 and $4.25 per share this fiscal year. Our efforts set us up well for fiscal year '25 and beyond, and we remain confident in our long-term strategy to grow our businesses, invest in infrastructure and drive continuous improvement to deliver value over the long term with a steadfast commitment to safety. A key component of our long-term success is attracting new and growing businesses to our communities and states through economic development. We operate in states that serve as great partners to attract projects that bring significant jobs and investment in the communities we serve. Several factors come into play when a company looks for a location to build a facility with one of the biggest being access to reliable, affordable energy, energy like natural gas. This fiscal year in Missouri, we've seen 25 publicly announced economic wins since the beginning of FY '24. These projects represent an expected investment of nearly $3.5 billion in our state's economy, resulting in the creation of over 3,500 jobs. Further in Alabama, the latest state report for calendar year 2023 includes 184 wins in new and existing projects, creating more than 8,000 jobs and $6.4 billion of investment in the state. We're committed to our collaboration with key stakeholders on this important topic. Earlier this month, we hosted Missouri business and government leaders to discuss economic development and ways to drive new business going forward. In Alabama, we remain actively engaged in strategic planning for the state led by the Department of Commerce to support future growth. As natural gas remains the fuel of choice for economic development, we'll continue to collaborate and drive further investment in our communities. Before moving on, I'm pleased to say that in June, we published our sixth sustainability report covering our continued progress across four key priorities, the environment, safety, people and governance. This comprehensive report highlights our sustainability commitment to all key stakeholders, including reducing emissions and efforts to support our commitment to the communities we serve. I encourage you to learn more about our sustainability efforts in the report, which is available on our website at spireenergy.com. With that, I will now hand the call over to Scott to provide an update on the utilities.

Thank you, Steve, and good morning, everyone. Let's turn to Slide 4 for an update on our gas utilities. During the quarter, our employees continued to deliver for our customers, providing them safe and reliable energy with a focus on excellent service and customer affordability. This important work is supported by the constructive regulatory mechanisms across our jurisdictions that allow us to make significant investments to deliver natural gas to our customers and receive timely recovery of associated costs. In Alabama, our rates are set on a forecasted budget and our annual RSE rate setting process will begin this fall. In Missouri, our semiannual infrastructure rider, ISRS, allows us to recover revenues for certain eligible projects in between rate cases. We currently are benefiting from revenues reflected in this rider with an annualized run rate of $36.9 million. And earlier this month, we filed a new ISRS request with the Missouri PSC for an additional $17.7 million, representing our fourth request since our last general rate case. This request covers investment in system upgrades through August of this calendar year. Looking ahead, we expect to file a general rate case in Missouri in the last calendar quarter of 2024. Our top priorities include updating our cost of service, rate base and rate of return. We will also look to improve our recovery of volumetric revenue, including the impacts of both weather and conservation. This could be through a modification to the existing weather normalization adjustment rider, WNAR, or through a newly proposed mechanism or rate design. We look forward to working with key stakeholders throughout the process. As Steve mentioned during the quarter, we launched a customer affordability initiative to lower our overall cost structure and improve operational efficiency across the organization. This initiative included expense reductions across shared services and utility business units, including a targeted reduction in workforce and a retirement incentive program. Other areas we are targeting include streamlining our leadership structure, standardizing our work processes and capturing the O&M benefits associated with our capital investments. Further impairment is incorporate alignment of our field workforce through optimization of available resources and efficient deployment of capital. I would like to highlight that earlier this week, ahead of schedule, we renewed our labor agreement with our largest union representing employees in our St. Louis market service territory. This three-year agreement is a win-win as it provides stability to our workforce and allows us to focus on operational excellence. Turning back to the broader customer affordability initiative, we expect to see these cost savings and improved efficiencies across the organization to support our long-term growth expectations. And let me reassure you, none of these actions will impact the safety and reliability of our natural gas system. Moving to our quarterly results. Utility earnings benefited from new rates in both Missouri and Alabama compared to the prior year. Utility run rate O&M was lower than last year, driven by lower operational expense, partially offset by higher bad debts. Slightly better interest expense was more than offset by lower gas carrying cost credits reflecting our successful conclusion of collecting deferred gas costs from Winter Storm Uri and the winter of 2022. We are seeing increased depreciation expense year-over-year as we continue to spend on infrastructure to provide safe and reliable energy. Turning now to Slide 5 for an update on our capital investment plan. We continue to invest significant amounts of capital focused on modernizing infrastructure at our gas utilities. For the first nine months of fiscal 2024, CapEx totaled $631 million, which was primarily at our gas utilities. Year-over-year, our gas utility CapEx increased 14% to $501 million with a focus on upgrading distribution infrastructure and connecting more homes and businesses. Investment in our Midstream segment totaled $130 million fiscal year-to-date, and we remain on track for completion of our Spire Storage West project in the last calendar quarter of 2024. We continue to install advanced meters for residential customers across our service territory. In fiscal year-to-date, we have installed approximately 265,000 advanced meters, bringing the total number of customers benefiting from this technology to 750,000. We've increased our total meter investment by $30 million this year, taking our expected FY '24 capital investment target to $830 million from $800 million. Our expected total capital expenditure plan remains $7.3 billion over the next 10 years. Our focus will continue to be on infrastructure upgrades to support the safety and reliability of the system. To sum it up, we are well positioned for success over the longer term as we execute on our robust capital investment plan to support the growth and performance of our utilities and our gas-related businesses. We believe in the ability of our experienced management team and employees to successfully lead us into the future. I will now hand the call over to Steve Rasche to provide a financial update.

Thanks, Scott, and good morning, everyone. We reported a fiscal third quarter loss on a net economic earnings basis of $4.3 million or $0.14 per share, compared to a loss of just under $19 million or $0.42 per share last year. We saw a year-over-year improvement across all of our segments. Our gas utilities improved to a loss of $11 million, $1.3 million better than last year, reflecting new rates offset by higher depreciation and bad debt expense. Gas marketing results were $3.5 million higher due to improved transportation margins. Our midstream business posted higher results driven by additional storage capacity at Spire Storage West, and new rates across both of our storage businesses. As a reminder, new rates kicked in effective April 1, the beginning of injection season, and we are benefiting from higher demand and rates for both our new capacity as well as our recontracted existing capacity. Midstream results also benefited from the acquisition of MoGas and the inclusion of Salt Plains in net economics earnings this year. Other reflects higher interest expense, partially offset by lower corporate costs. Slide 7 provides detail on key variances, and we'll focus on the net variance column, which removes the cost of our customer affordability initiatives principally employee severance and other related restructuring costs. Hitting on a couple of the highlights. Contribution margins overall were higher across the gas utilities, marketing and midstream for the reasons that I just touched on. Looking at operations and maintenance expenses. For the gas utility, O&M expenses decreased by $1.7 million as a $4.4 million increase in bad debt expense offset a $6.1 million reduction in other expenses. For the nine months of our fiscal year, our run rate utility costs are down $7 million, excluding bad debts for a year-over-year decline of 2%. Finishing up our O&M expenses, marketing is in line with last year and midstream was higher due to the addition of Salt Plains and MoGas. And interest expense was higher by $2 million, driven mostly by higher interest rates and short-term debt balances this quarter. Our three-year financing plan is largely unchanged from last quarter. Our ATM program has placed roughly $33 million in forward settlements so far this year. This leaves very modest equity needs through 2026. I would also note that we repaid our $200 million term loan in May. And we continue to target FFO to debt at 15% to 16% on a consolidated basis. Now turning to our outlook. As we look at our year-to-date results and our forecast for the final quarter, including the pull-through of our customer affordability initiatives, here's how we think about fiscal year '24 and more importantly, fiscal year '25. As Steve mentioned, we certainly had headwinds coming out of the winter, essentially in two areas. First, lower-than-expected margins at our Missouri Utility due to warm unmitigated weather; second, higher-than-expected interest expense at both the gas utilities and corporate. We did have one strong tailwind, O&M cost control. This is not a new trend as we have worked for over many years to keep our discretionary costs low, taking advantage of our investments in technology, innovation and infrastructure upgrades. And we continue to show good trends this year. However, the timing of those savings, higher bad debt expenses and the realization that the added benefits of our customer affordability efforts will only partially offset the shortfall of margins and interest we carried into this quarter. So we've adjusted our earnings guidance for the remainder of this year as follows. We are lowering our gas utility range to $213 million to $221 million, down $8 million from last quarter's update and down $18 million at the midpoint from our initial guidance for the reasons I just mentioned. We raised the ranges for gas marketing and midstream to reflect the strong performance this year, with each up $8 million at the midpoint compared to our initial guidance. Corporate cost estimates moved up $6 million at the midpoint to between $24 million and $28 million, reflecting the impact of higher interest expense and the timing of cost savings. Putting it all together, we've lowered and narrowed our earnings target range for fiscal year '24, $4.15 to $4.25 per share. Now despite the lower finish this year, we are well positioned heading into fiscal year '25. We expect to get back to normal margins in Missouri. We've also collected the deferred gas cost as Scott mentioned, which should relieve some pressure on our short-term borrowings going forward, and the benefit from a lower cost structure, and we expect to return to the planned growth trajectory that we introduced at the beginning of this fiscal year. As a result, we remain confident in our long-term net economic earnings per share growth target of 5% to 7%. Thanks again for your confidence and trust to place in us, and we look forward to speaking more about 2025 and beyond in our year-end earnings call in November. Steve, let me turn it back over to you for some final comments.

Thank you, Steve. Spire has delivered a solid third quarter, and we are laser-focused on finishing our fiscal year well positioned for success and growth over the long term. Thank you all for joining us today. We will now take your questions.

[Operator Instructions] And today's first question comes from Richard Sunderland with JPMorgan. Please proceed.

Hi, good morning. Thanks for the time today.

Good morning, Rich.

Starting with the cost efforts, what is the potential magnitude of benefits here? And is this directly in response to the 2024 headwinds. I guess I'm trying to understand how much is embedded in 2024 for cost savings versus what you can realize in '25 and '26?

Hey, Rich, it's Steve Lindsey. I'll start with kind of the overarching themes here. So first of all, cost management is not new to us. I think we've got a very strong record of doing this. I think what we did say is that we need to ramp this up a little bit. So we're going to get a little bit here at the end of '24, but really the focus is on '25 and '26, and that this is not one and done. And so this is comprehensive. So it involves looking at really through the lens of what is adding value for the company. And then in some cases, what can we stop doing that's really not adding value. So it could be optimizing workforce. It could be process improvement that we continue to focus on. It could be really leveraging the investments that we've made in infrastructure and technology, even things like logistics, where you start to pair workforce with fleet and supply chain. So I think it's comprehensive, and it's intended to be long term. So I'm going to turn it over to Scott and Steve to follow up a little more, but I just want to give kind of the overarching theme of -- this isn't something that we just started in terms of we've been managing costs. This is an initiative that has accelerated and it's bigger than we've done in the past. But we think, again, it's not a one and done. It's really a change as we move forward into the future.

Hey, good morning, Rich, this is Scott. And maybe just to give you a few categories of things that have come out of this initiative that we're working on. And then I'll hand it over to Steve to give a little more color on the financial implications. But as Steve Lindsey was mentioning, one of the things we targeted was leadership consolidation, particularly in our shared services and in our operating units as well. So that we're -- to a common model and have some consolidated leadership in places where we didn't have it before. Some other places we've looked are in our corporate facilities, we have both in Birmingham and in St. Louis plans to consolidate facilities in those locations where we will reduce maintenance expense, reduce lease expense associated with operating two facilities and bringing them into one, for instance, here in the St. Louis Downtown area. As we talked about our reduction in force in our early retirement incentive, both those programs have concluded. And so we have -- are now experiencing the benefit associated with those reductions in force. Those are '24 impacts, but those will continue into '25 and beyond. And then beyond that, there's some of these -- other things such as software licensing or conclusion of certain IT projects for which either the workforce or the effort of the consulting expense has been brought to a conclusion that we're able to eliminate at this time as well. So I'll hand it over to Steve Rasche for some additional color on the financial implications.

Hey, Rich. Good morning. To answer your question directly, we were in the process of going through this initiative at the time of our last call. If anybody who’s been through it knows it’s not fun. You want to do it in a thoughtful way, and I think we did. Our focus is on bending down the cost curve for our cost structure. Think about it as long term, here are the things that we need to do in order to create headroom in our bill and continue to see those cost savings. In terms of what -- we didn't really see a lot this quarter. In fact, as Scott mentioned, the bulk of the savings actually landed at the beginning of July. So we'll -- we should see some benefit in the fourth quarter. We'll talk about that when we get to November, but I wouldn't want to oversell that because when you're trying to carve out some of your cost structure, those are generally one to two-year initiatives. We clearly see a lot more benefit going into and through '25 because these kind of cascade out as time goes on. And we'll speak a bit more to that when we get to the year-end call. And I would say that if you look at our results for our cost management and the gas utility, this quarter or for the first three quarters, that's a pretty clean analysis without a lot of benefit of the things we've done to add on top of it.

No, that's very helpful. Thanks for laying out all of that. And I guess a follow-up here, digging into that 5% to 7% growth language from the script versus the lower 2024 guidance, do you expect 2025 to be at the midpoint of the 5% to 7% range? Or are you trending lower in the range as cost efforts ramp?

It's a great question, Rich. And again, we'll get to year-end and talk about '25 at that point, specifically for '25. But you're right. If you think about the pushes and pulls, and we spoke to them on the call, so I won't repeat them here. I mean we've got a lot of tailwinds and there are a couple of headwinds that we're going to have to deal with. We clearly are targeting as we always would in the middle of the range. And the real question that we'll debate as we go through the next three months or four months because it would be November is what's the timing of the cost savings? And how does that impact '25? And then as you know, we'll be in a rate case in Missouri. So we'll have to deal with that. But clearly, being two years plus out in Missouri, we should have a little bit of regulatory lag in Missouri. We've done a pretty good job of offsetting that. And as Scott highlighted in his comments, we're getting good pull through with a lot of cooperation in Missouri. So that does a pretty good job of offsetting a lot of the regulatory lag in Missouri. So short answer is we always target the middle of the range. The long answer is we've got some work to do between now and then, and we'll speak more to it when we get to the year-end call.

Understood. Thanks for the time today.

Thanks, Rich.

The next question is from David Arcaro with Morgan Stanley. Please proceed.

Hey, good morning. Thanks so much for taking my questions. I'm wondering if you could just elaborate maybe on some of those puts and takes into 2025. Just thinking about like you'll get a recovery, hopefully, in terms of weather normal sales. But then what persists, I guess, into next year? Like does the interest rate headwind potentially persist? Could you see some of the strength that you had in the marketing and midstream segments, could that continue into next year? So yeah, we'd just love to unpack a few of those drivers?

Yeah, it's a great question. Let me start on the last part, the marketing and midstream and then we can come back to the other -- to the utilities. Clearly, we're seeing the step-up in the midstream business that you would have expected given the amount of capital that we've invested both in the expansion of Spire Storage West and adding Salt Plains and MoGas over the last two years, and the guidance that we talked about last quarter and stepping that up in a material way is what you should expect. Now when we get to next year, we're getting closer to a run rate for that business. And so we'll step into the range that we would expect, and you would expect us then to attain given the returns on investment that we should get from deploying that capital. And so what you see now is just kind of stepping in a lot closer to where that terminal value or run rate is going to be clearly for the existing facilities, and I would put Salt Plains in that category along with the pipelines. Spire Storage West will continue to play into the remaining capacity as we get into '25, as we've talked about before. Marketing, we view the business the same in terms of where the baseline earnings are for the business and the guidance that we launched this year reflected where we believe the earnings power for that business is, given normal market conditions. We did have the ability, as we talked about earlier this year to create value, especially early in the winter season, and we're seeing a little bit of opportunity now, and we adjust real time our expectations there, generally on the upside. We will rebase. I know folks don't like that word, but our expectations for that business are it should grow in its base business, but we're not expecting outsized growth that you would expect if you were to look at the guidance raise that we saw this year. But it's clearly a very valuable component of our overall business, and we like the earnings that it drives because it helps us to get some capital that we can redeploy and invest in utility rate base. With that, let me turn it over to the team on the utility side.

Yeah. And thanks, David. This is Steve. I would say, yes. I mean our assumption would be around more normal weather, not as warm as we had. But in addition to that, we're going to get a full year of the O&M impacts that we're talking about. And so I think even if we do have some weather issues that we're going to look to be able to overcome that by having a full year of the O&M benefit. So that's from the utility perspective, I will think about it and then Adam, you want to talk a little bit about our thoughts relative to the interest.

Right. We're not trying to play interest forward at all, but I feel like there's certainly some -- we are seeing balances start to move down, which would give us some mitigation there as well relative to this year. I would add too, as Scott Doyle mentioned earlier that we would also see some bolstering of revenue in the utility around new ISRS coming in.

Got it. Thanks. Yeah, that's clear. That makes sense. And then I was wondering if there's any early indications that you might offer in terms of how much of a rate increase you might be expecting to request in Missouri with the rate case coming up? Any important dynamics to consider there, whether there's a lot of lag to catch up on or if it could be a smaller ask overall?

No, more to come on that, David. We're clearly -- would look to -- as we've talked about, look to address the weather normalization mechanism and then just really looking to recover the capital that we've deployed and true up cost of service.

Got you. Okay, thanks. Appreciate all the color.

Thanks, David.

[Operator Instructions] The next question comes from Gabe Moreen with Mizuho. Please proceed.

Hey, good morning everyone. I know the cost savings stuff has been addressed quite a bit, but I just had one more, which is on, I think, some of the restructuring charges that showed up this quarter. I think the $4.4 million. Just wondering to the extent you expect those to show up in '25 or just ongoing basis? And whether you'd care to quantify what those may be kind of going forward?

Yeah. Hey, Gabe, this is Steve, let me take a shot at that. And as I mentioned, anybody who's been through these know that they're not fun and you want to try to get them done and get them in the rearview mirror just for the benefit of the team and culture, and that's exactly what we did. We made our best [indiscernible] on the costs associated with that and as you alluded to, and I think I spoke to on the call, most of those are related to employee separation costs, a few restructuring costs. Now having said that, we have a lot of initiatives that are in flight, and we continue to work them. At this juncture, I couldn't tell you whether there will be additional costs associated with those. We try our best to estimate those. Should there be any, we would highlight those at the end of the year. And I think you could rest assured that if we're incurring any of those, there are great benefits associated with the lower cost associated with them going forward into '25.

Thanks, Steve. And then maybe if I can ask a bigger question kind of on the dividend and the payout ratio here. And I know you talked about the 5% to 7% and your confidence in that longer term, but it sounds like between the cost savings as well as the rate case, there's some work to do. Any thoughts to maybe slowing the dividend growth as you kind of work through that over the next 12 to 24 months?

No thought of it right now. We'll engage in that discussion with our Board as we go to the year-end, that -- which is when we change our dividend going forward into the next year. We've been at or near 5% increases for the last couple of years. So at the low end of our growth range, to your point, we want to make sure to watch that payout ratio, but we would clearly -- there's no indication that we wouldn't continue to grow the dividend. It might be at the lower end of a range of our growth for the factors that you talked about.

Okay. Great. Thanks, guys.

Thanks.

The next question comes from Selman Akyol with Stifel. Please proceed.

Thank you. Two quick ones for me. Given the success that you've seen in midstream, just curious, as you think about capital allocation on a go-forward basis in CapEx spending, do you -- would you anticipate putting more in that area?

Well, great to hear from you this morning. So I think right now, our focus on completing the project and delivering our expectations on that. I think any other investments in that facility or anything else are down the road, but right now our focus is really delivering on our commitments. And so -- that's where we're looking at right now. So the additional capital that's been deployed, we're very comfortable that the returns are going to exceed our initial expectations. And so we think this investment continues to be the right approach for that facility.

Yeah. And, Selman, if you look at our long-term capital forecast, which was included in the material, you'll see that, that investment drops off to maintenance CapEx. So there'll be a little bit in the first fiscal quarter of '25 because the construction will continue in Spire Storage West through the beginning of heating season, so fourth calendar quarter of this year. But after that, it's really more maintenance CapEx. And then if there are some small organic investments that make sense, we would clearly take advantage of those. And that's, I think, where we'll sit for a loan.

Understood. And then I know there's a number of adds and subtracts in your FFO to debt in your targeting 15% to 16%. But can you say where it's at now?

Sure. S&P had put out a report in early June that have laid out approximately 11% on their calculation. Based on that equivalent, we're above 12% now, and we look at it a little bit differently as far as the construction of that metric and would cite something a little closer to 13%.

Understood. Thank you so much.

And the next question comes from Paul Fremont with Ladenburg. Please proceed.

Great. I guess my first question is, if you could elaborate a little bit on your assumptions for growth longer term in the marketing business. What is driving sort of that growth?

Hey, Paul, this is Steve Rasche. Let me take a shot at that, and good morning. We've tended to see our marketing business, the base business. Again, remember the base business for the marketing group is to gain customers, gain penetration into what is a large market and procure transport, store and deliver natural gas to those customers, which are commercial, industrial, other utilities and the like. And the growth in that business is generally through adding to the team, adding to the relationships, adding to the contracts. And we would expect that growth to be in the growth range that supports our overall growth for the business. When you see outsized growth in terms of actual reported numbers, that's generally additional volatility or market opportunity to optimize the assets that we have to invest in and have in our portfolio to meet our customer needs. But we continue to think about that base business as we did at the beginning of the year and as was asked earlier, and we'll think about it again as we go to '25. And we didn't want to get too far out over our skis because although the market has been more volatile and there's been opportunities for three of the last four years, we've been through markets where the opportunities are less, and we don't want to bank on that or plan for that, but we'll clearly take the opportunity if it presents some.

And the only piece I would add to that is that part of our business line is very asset light. And in terms of -- it doesn't require a lot of investments similar to midstream. And so Pat and his team have done a great job over the years of developing the relationships that Steve has mentioned, delivering on the commitments that we make. And I think reputationally, they're in a very good spot. They operate on a lot of pipelines, and they're continuing to grow from a geographic perspective. So we think that's a good business to continue to be in.

Great. And then I guess my second question is, you mentioned interest rates as part of the revision and this year guidance. Were you anticipating lower interest costs in your original guidance? Or how did the interest -- how is the interest sort of a variable?

Paul, great question. This is Adam. No, we weren't expecting lower interest rates. It really was and we had mentioned this a little bit earlier in the year, we had a bit of -- given the warmer weather or some of our deferred gas costs hung around longer and it's stuck around longer and those balances were a little bit more than what we had expected. So I think we were not too far off of where interest rates are from our internal forecast, it was really the balances that didn't meet our expectations.

Great. Thank you very much.

You’re welcome.

At this time, we are showing no further questioners in the queue, and this does conclude our question-and-answer session. I would now like to turn the conference back over to Megan McPhail for any closing remarks.

Thank you for joining us this morning. We look forward to speaking with many of you in the coming weeks. Have a great day.