Scott Dudley - Managing Director, Investor Relations Suzanne Sitherwood - President and Chief Executive Officer Steven Rasche - Executive Vice President and Chief Financial Officer Steve Lindsey - Executive Vice President and Chief Operating Officer of Distribution Operations Michael Geiselhart - Senior Vice President, Strategy and Corporate Development.

Christopher Turnure - JPMorgan Selman Akyol - Stifel, Nicolaus & Co. Rodney Rebello - Cannon Asset Management.

Good day, and welcome to the Year-End Fiscal 2018 Earnings Conference Call for Spire Incorporated. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Mr. Scott Dudley, Managing Director of Investor Relations. Please go ahead..

Thank you. Good afternoon and welcome to Spire’s year-end earnings call. We issued an earnings news release this morning and you may access it from our website at spireenergy.com, under Newsroom.

The slide presentation that accompanies our webcast today may be download from either the webcast site or from our website under Investors and then Events & 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 today is Mike Geiselhart, SVP of Strategy and Corporate Development.

Before we begin, let me cover our Safe Harbor statement and use of non-GAAP 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 risk factors are described in our periodic filings with the SEC.

In our comments, we will be discussing economic earnings and contribution margin, which are non-GAAP measures used by management when evaluating our financial performance and results of operations. Explanations of these non-GAAP measures to their GAAP counterparts are contained in our news release. With that, I will turn the call over to Suzanne..

growing organically, investing in infrastructure, acquiring and integrating, innovation and technology.

Over time, we purposely built the company we are today, a strong growing company that has articulated a clear vision, successfully acquired and integrated four utilities and two storage companies, expanded and moved our marketing company to Houston, navigated an interstate pipeline project and quadrupled the value of our company based on equity capitalization.

[To do] [ph] it all, we always [have is] [ph] a long view for our employees, customers and shareholders, and we will continue to do that well into the future. In that spirit about a year ago, we announced a new order for our four strategic imperatives, based on our larger scale, our broader geographic reach and current market conditions.

Now, our entire team is focused on growing organically. To grow organically, we must keep the customers we have, gain new customers by developing products and services and efficiently managing cost. That applies to our utility companies, but also to our gas-related businesses, including Spire Marketing, Spire STL Pipeline and Spire Storage.

The only way to do that is to be laser-focused and with leadership in place to lead the way. And so I’m pleased to announce that we’ve aligned our leadership team to create or solidify the role of President for each business unit. Let’s start with our utility president. The President of Spire for Alabama and Mississippi utilities is Joe Hampton.

Joe has been in the natural gas industry for more than two decades. He started as a University of Alabama Engineering intern at Alagasco, while completing a few degrees in electrical engineering and physics. Joe has an extensive experience in field operation and business development.

And since 2015, he has served as Spire’s Vice President of Operations from Missouri West. The President of Spire Missouri is Scott Carter. Scott came to the natural gas industry nearly 20 years ago following several years at Deloitte, where he was a Senior Auditor and Energy Industry Consultant.

Scott spent 15 years in operations and leadership roles at AGL Resources ultimately serving as Senior Vice President of Commercial Operations and the Chief Regulatory Officer. Scott came to Spire two years ago and has been serving in senior leadership roles with distribution operations. Both Joe and Scott report directly to Steve Lindsey.

Now moving to our gas-related businesses, I’m pleased to affirm and announce two presidents. The President of Spire Marketing is Pat Strange. Pat joined our accompany in early 2018, as we restructured our gas marketing business with a move to Houston.

Pat has spent nearly three decades in natural gas trading and marketing, serving in leadership positions for several major gas marketing firms, including utility affiliates. The President of Spire STL Pipeline as well as Spire Storage is Scott Jaskowiak.

Scott has been with our company for 33 years and has held leadership positions in engineering, gas supply and gas marketing, including nearly a decade of leading Spire Marketing. Both Pat and Scott report directly to our Head of Strategy and Corporate Development, Mike Geiselhart.

Exceptional leadership is vital for a growing company and these four leaders are just that strategic, collaborative and caring people who are committed to Spire’s mission.

As we evolve and position Spire for future growth, we’ll continue to follow our strategic imperative, and we’ll do it in a way that inspires the best in people, ourselves, our employees, our vendors, our customers and our investors. Because we believe that energy exists to help people and we believe that how we do our work matters.

I’m pleased to say that the distinction of how we do our work, Spire’s defining quality is the inspiration that continues to move us forward. And so in a challenging year with uncertainty and regulatory resets in all of our utilities, I’m very proud of how we did our jobs and how we continue to lay the foundation for future success.

In that spirit we would like to report on fiscal year 2018 results. While working through the complexity of multiple regulatory resets in 2018, we’re proud to report that we delivered net economic earnings of $3.72 per share. Let me pause for a moment to underscore that the year that we just completed fiscal 2018 was pivotal.

Never in my 38-year career have I experienced another time when every utility in a company’s portfolio had a regulatory reset. Only the best and brightest teams could manage that extremely well and that we did.

Now emerging from 2018, we have gained significant certainty for the long view to grow our business and build on our customer-focused initiatives. Steve Lindsey will provide more color on the particulars for each gas company in addition to operating results.

As a reminder, these outcomes included the impact of tax reform, which we took on early in order to quickly flow the benefits of tax reform to our customers, while we navigated the regulatory reset. Steve Rasche will cover the details of our 2018 financial performance and how that sets us up for 2019 and beyond.

Our ability to hit the mark on our earnings reflect execution on our strategic priorities, including growing Spire Marketing, progressing on our Spire STL Pipeline and investing in our Spire Storage facilities. So let’s turn to those updates now.

Our future growth is driven by our core business, gas utilities, but we expect all our gas-related businesses to grow organically and we continue to invest in these businesses. I’m pleased to note that we are further progressing on our Spire STL Pipeline.

Immediately following our third quarter earnings call back the day after, FERC approved the project. On November 5, FERC issued a notice to proceed, giving us the authority to begin construction. Working with our contractor, we have completed our construction schedule and are ready to mobilize.

We’re targeting an in-service date in the second-half of calendar 2019, pending the timely completion of land acquisition. The estimated total project cost remains $210 million to $225 million. We’re continuing to advance our other gas-related businesses too. We’re positioning Spire Marketing for continued growth and success.

As the market – marketing team settles into the new business center in Houston, they are hard at work, building the team and expanding the geographic reach to increase our customer base. Thanks to the strategic pivot to Houston and favorable market conditions, Spire Marketing had a very strong year in fiscal 2018.

At Spire Storage, we completed the acquisition of two adjacent facilities in Wyoming, including a minority interest in the first facility. We continue to invest in operational and physical improvements as we integrate the two facilities to expand capacity and improve our service offerings.

We started to introduce these offerings to a broad range of customers. Our facilities integration efforts and investments, which now total $56 million are larger in scope and will take more time since we have two facilities to bring together. As a result, we expect a small contribution from Storage this year.

More to come as we refine our development and commercial plans. As I discussed a few minutes ago, the good news from the regulatory resets of all of our utilities is that, we have the certainty to grow our utility businesses for years to come. With that in mind, we can affirm our long-term earnings per share growth target of 47%.

And today, we are establishing guidance for fiscal 2019, net economic earnings per share of $3.70 to $3.80, which is consistent with those targets.

Also, reflecting our combined strong performance and future growth prospects, our Board of Directors has raised the common stock dividend by 5.3% to an annual rate of $2.37, that is effective with the January 3 payments.

We are proud of our track record spanning 16 years of consecutive increases and 74 years of continuous payment, all while maintaining our conservative, but competitive payout ratio of 55% to 67%. With that, let me turn the call over to Steve Rasche to cover our financial performance and our outlook.

Steve?.

Thanks, Suzanne, and good morning, everyone. Spire is putting the wraps on another year of strong company-wide performance. Let’s take a quick look at our financial results for fiscal 2018 and then look forward into 2019 and beyond. Starting on Slide 12, full-year net economic earnings were nearly $184 million, up roughly 10% from last year.

We saw growth in both of our business segments, with Gas Marketing delivering outstanding earnings this year due in part to very favorable market conditions that were aided by cold winter weather.

Gas utilities saw earnings grow by $1.6 million, as we were able to offset the impacts of Missouri regulatory resets with higher contribution margin and lower tax rates. Earnings per share of $3.72 was higher by 4.5%, reflecting the impact of our successful May equity offering.

Taking a quick look at the details beginning here on the next slide, revenues were up 13%, driven by higher demand and commodity costs. Contribution margin was up 4%, with the growth in gas utilities driven by demand and customer growth, which more than offset customer rate reductions during the year and changes in the Missouri rate design.

Gas Marketing margins benefited from increased trading, transportation and storage optimization. Moving on to Slide 14. Our expense trends have been pretty consistent this year. Utility fuel cost and taxes other than income reflect higher demand.

Utility operating and maintenance expenses, as reported, were nearly $51 million higher than last year, with most of that delta reflective of two Missouri rate case-related expenses.

First, the one-off largely non-cash write-offs of $36.6 million, as we discussed earlier this year; and secondly, roughly $7 million of new amortization cost coming out of those rate cases.

After removing these items, our run rate O&M, so to speak, increased by $7 million, or less than 2% due primarily to hire employee and bad debt expenses typical from colder weather. Depreciation and amortization was higher, reflecting higher capital spend.

Gas Marketing operating expenses were down nearly $32 million, but that includes just over $20 million of derivative gains that were mark-to-market. Excluding that fair value adjustment, expenses were down modestly due to lower commodity costs.

Other expenses were higher, reflecting Spire Storage operating transaction and restructuring costs, as well as higher corporate expenses.

And interest expense was higher, reflecting long-term debt issued over the last 12 months at both Spire Missouri and Spire Alabama, as well as higher short-term rates that were offset in part by lower average short-term borrowing levels. And finally, on the next slide, income taxes.

Income taxes has had a lot of focus around the industry and in our prior calls. And hopefully, this summary helps us to illustrate the components of our gap expense, especially the $60 million non-cash benefit from the revaluation of our net deferred tax liabilities due to tax reform.

Stripping out that adjustment, as we have done for our net economic earnings calculations, I might add, our pro forma full-year effective tax rate for 2018 was 18.6%, reflecting lower federal rates, as well as a partial year amortization of ADIT or excess accumulated deferred income taxes that are being returned to customers in the form of lower rates.

For 2019, we expect our effective tax rate to be between 17% and 18%, with the reduction from the 2018 run rate essentially being a full-year impact of ADIT amortization. Taking a quick look at the fourth quarter, we reported a loss of $0.52 per share, as losses in our gas utilities were offset in part by continued strong results from Gas Marketing.

As a reminder, seasonal losses are typical this quarter for gas utilities due to lower summer demand. Our loss this year was magnified by the change in our Missouri rate design that pushed more of our earnings out of the summer months that includes this quarter and into the winter heating season. Over a 12-month cycle, it all evens out.

But this year with rates that went into effect in April, we bear the headwinds of the lower recovery first. But as a reminder, we also now benefit from weather normalization across Missouri, which reduces overall recovery risk.

Turning to Slide 17, we continue to strengthen our financial position with adjusted EBITDA of $493 million and long-term capitalization that now stands at just over 52% equity, up 350 basis points from last year.

Our current liquidity is in good shape heading into the winter season, and we just completed an extension of our credit facility to a full five years. We also have long-term debt offerings planned at both Spire Missouri and Spire Alabama over the next few months, which will provide additional seasonal borrowing capacity, so we’re in great shape.

And finally, Spire Missouri received this new $500 million three-year financing authority from the Missouri Public Service Commission this quarter as requested. Now stepping back for a moment. We’re in solid financial shape. As we noted earlier this year, we’re in a strong capital position as a result of our May offering.

And any equity needs beyond that, whether through our current drip program or other means are already factored into our guidance and growth rate targets and I’ll get to those in just a minute. Before we turn to our outlook, let me review the progress we made this quarter to gain regulatory certainty as Suzanne mentioned.

And as we discussed, remember, coming into 2018 in addition to the two Missouri rate cases, we were also due to reset the rate stabilization and equalization or RSE mechanism in Alabama. We completed a similar reset for Spire Gulf earlier this year.

And last month, we reached agreement on changes to the RSE parameters for Spire Alabama, as you can see on this table here on Slide 18. Overall, the changes were consistent with our expectations and directionally, what we saw at Spire Gulf.

Specifically, return on equity was set at an adjusting point of 10.4%, down 40 basis points from the prior margin. Our capital structure was harmonized across the state at 55.5%. Our cost-sharing mechanism or CCM was updated to our current expense run rate, with a three-year phase-in beginning in 2019.

Remember CCM is an incentive where we and our customers share equally to the extent we can control cost. We have a great track record of doing just that and keeping our customer bills low as a result. It’s natural for the cost base line to be reset and the three-year play-in period allows us time to benefit from cost control going forward.

In total, these changes do create a bit of a headwind as we move into 2019, but that’s largely consistent with our expectations and still supportive of the best-in-class regulatory rating for the State of Alabama. Steve Lindsey will touch on the growth opportunities we have going forward in a few minutes.

With increased regulatory certainty, we’ve updated our capital investment forecast. Our five-year plan through 2022 is now $2.6 billion, up approximately $100 million from the last update. For 2019, our capital spend target is $650 million, up from an actual spend in 2018, up $499 million.

The increase in both targets are driven by higher utility spend for upgrades and new business, as well as recognizing the progress we’ve made in both Spire STL Pipeline and Storage. I would also note, our utility spend is well diversified across our footprint and supported by long-term upgrade programs of up to 20 years.

More importantly, 85% of that spend is recovered with minimal regulatory lag or driving higher margins. Turning to our earnings outlook. We reaffirm our long-term net economic earnings per share growth target rate of 4% to 7%.

We measure that growth from a base run rate of 2018 earnings that removes $0.17 of Spire Marketing performance in 2018 tied to weather and market conditions that we do not expect to recur this year.

This growth is supported by greater regulatory certainty, as I discussed, as well as our strong rate base and organic growth initiatives across the utilities. It also reflects growth in our other natural gas-related businesses. Consistent with that long-term growth target, we are initiating 2019 earnings guidance of $3.70 to $3.80 per share.

And as you can see here on Slide 21, starting with our run rate 2018 earnings, here’s how we build to the midpoint of that range. First, we have the headwinds of our regulatory resets of roughly $0.14.

Remember, we set rates in Missouri at the end of April this year 2018 and the incremental full-year impact of that change for full-year 2019 is roughly $0.03. The remaining $0.11 is our best estimate of the impacts of the Spire Alabama RSE reset that will go into effect next month.

From that baseline, we expect our utilities to grow organically and through capital investments, more than overcoming the regulatory headwinds, delivering an estimated $0.24 in 2019.

Now, we expect all of businesses to grow and the additional contribution from Spire STL Pipeline, a small contribution from Spire Storage and growth in Spire Marketing are anticipated to deliver roughly $0.12 of earnings.

And finally, the full-year impact of the equity dilution from our May offering is largely offset by lower corporate cost, interest expense and tax rates.

As you can see, we have many levers to get us to our guidance range of $3.70 to $3.80 per share, and we can now look confidently into the future with a strong financial position, more regulatory certainty and definitive growth plans across our businesses. We’re also in a strong position operationally.

Let me hand it over to Steve Lindsey, who’ll give you an update on our progress in our gas utilities and speak a bit more about our growth expectations going forward.

Steve?.

Thank you, Suzanne and Steve. I want to acknowledge the outstanding efforts of our employees this year, continue to demonstrate the highest levels of commitment to serving our customers while delivering on our system performance and growth goals.

Thanks to their efforts, we achieved strong and improved operating performance across our system, including safety, which is the foundational core value for our company. After our roll out of new technology last spring to better connect with and serve our customers, we made further enhancements to improve the overall customer experience.

We once again achieved growth in customers and improved margins at our gas utilities, collecting organic growth efforts and increased investment in infrastructure upgrades, new business and technology.

In addition to driving growth and improving our customer service, investment in our gas utilities drives improved safety, system integrity and field service for our customers. We saw improved employee safety metrics this year with an 18% year-over-year reduction in our employee injury rate.

We also achieved historic records across all our utilities and other areas related to safety and system integrity. We further decreased our leak response times at all of our utilities. We reduced leaks per thousands system miles with every company achieving double-digit percentage improvements over last year.

Our focus on damage prevention led to an 11% company-wide reduction in damage rates over the previous year. And while we are working to make our system even safer and more reliable, we also continue to raise the bar when it comes to taking care of our customer’s needs, including keeping our promises on will we arrive to perform work.

We’re very pleased to note that we achieved an appointment attainment rates of over 98% across our utilities in 2018. As Suzanne noted, gaining regulatory certainty has been important as we move forward with our growth plans.

We were successful not only addressing the impacts of tax reform, but in completing rate setting matters in Missouri and Alabama. I’m proud to note that Spire was one of the first utilities in the country to address tax reform through the regulatory process, lowering customer rates across all of our utilities.

As you know, we completed our two Missouri rate cases back in March. Important parameters were set in these cases, including ROE, cap structure, rate base and allowed expenses. Of note, we got a higher return and improved equity capitalization, both of which will support our ISRS investment.

We were also able to gain full weather normalization residential customers, which will mitigate our margin exposure. And we recently received approval to increase our ISRS revenues by $8 million annually effective October 8. This is our first ISRS filing increase since completing the Missouri rate cases.

In Alabama, we reached agreement with the Public Service Commission on the rate setting parameters under the rate stabilization and equalization mechanism, or RSE. We’re pleased to have these regulatory resets completed, which on balance a reasonable, reflecting the generally constructive regulatory jurisdictions in which we operate.

We now have the certainty we need to move forward confidently in pursuit of long-term growth. We’re also able to gain some additional regulatory outcomes that we believe will help support growth in all of our companies.

In Missouri, we now have an economic development rider and a negotiated gas service rider that will allow us to be more responsive and competitive for commercial and industrial opportunities. We also enhanced our ability to expand natural gas service into underserved areas.

In addition, we’re able to establish improved customer programs for energy assistance and energy efficiency. In Alabama, we work with the commission to develop a reasonable and comprehensive program known as AIM, to encourage the prioritized and strategic replacement of cast iron and bare steel pipes.

In Mississippi, we extended our supplemental growth rider, which supports economic development by allowing us to provide attractive rates for industrial growth.

As Suzanne mentioned, we recently named utility presidents to remain laser-focused on our efforts regarding organic growth, infrastructure investments and continued customer experience enhancements by improving processes and investing in technology. We believe these regulatory enhancements will support these efforts. Turning to organic growth.

I’m pleased to report, we once again increased the number of homes and businesses we serve marking the fourth-year in a row of overall customer growth. This growth reflects that we increased our new business capital investment by 44% to $85 million in 2018. That investment will lead to new meter growth in future years.

In 2018, we had more than 11,000 new meters, a 2% increase over the prior year’s record pace. In addition, we contracted over $4,600 multifamily units, more than three times last year’s levels. This is largely the result of our strong focus on this market segment, which has traditionally been a challenge in our service territories.

Our investment in new business to drive customer growth contributed to another year of higher contribution in margin for our utilities. And while our efforts have been successful in driving top line growth, we’ve also been focused on controlling our operating costs.

As you can see, our O&M costs for customer have been trending down over the last several years. The completion of the Missouri rate cases or cost per customer risen reflecting the increase in amortization for certain regulatory assets, as Steve noted earlier.

Going forward, we will continue to leverage our investment in technology and our shared services model to drive cost efficiencies. Our achievements this year set up for further growth in 2019. We’ve been building our business and economic development teams and equipping them with the tools and technology they need to be successful.

In particular, we’re using tool like Salesforce.com, Tableau and data analytics to identify and track opportunities and measure our performance. We’re also further ramping up our capital investment plan coding for new business, as I’ll discuss next. Fiscal 2018, our utility capital spend was $456 million, which was up 10% over the prior year.

As Steve noted in his remarks, this capital is distributed rather evenly across our companies. We invested nearly $280 million in infrastructure upgrades, including the replacement of 382 miles of pipelines across our five utilities, which is a 7% increase over last year.

As I mentioned, our investment in new business increased by 44%, and is also fairly evenly distributed. This year, our utility capital expenditures will increase again by about 4% to $475 million, approximately 85% of that will be recovered with minimal regulatory lag or reflected in our earnings.

As we shared last quarter, our investment is driving long-term growth in our rate base of 6%, increasing our rate base serves as the foundation of our utility earnings growth. With that review of operations, let me turn the call back over to Suzanne..

Thank you, Steve and Steve. In closing, I’d like to touch on our fourth and final strategic imperative, innovation and technology. This is an important part of our investment strategy one that we are actively deploying across our company. It’s one that goes beyond integrating and modernizing our technology platform.

It’s about how we’re able to reimagine our work when we stand on the shoulders of a completely integrated enterprise infrastructure. Here are a few highlights. We’ve made important investments in technology that help us connect with and serve our customers say that it’s easier and faster to do business with us.

We’re using machine learning and iterative forecasting to identify and target future areas of growth. Technology is inspiring innovation across our company is fine, as we find ways to bring people and energy together to make us better than we were before.

And yesterday, to further support our innovation imperative, our Board of Directors elected Steve Schwartz as Spire’s newest Board Member. Steve brings an extensive leadership experience as Chief Executive Officer of Brooks Automation, a public company driving innovation and technology and the manufacturing space.

As you’ve heard today, fiscal 2018 was another year of answering a challenge, advancing communities and enriching people’s lives by delivering strong results for all of our stakeholders. It was a successful year with improved overall performance. And importantly, it was a year that brought us the certainty that positioned us well for future growth.

I’d like to join Steve and Steve and thanking our more than 3,300 employees across Alabama, Mississippi, Missouri, Texas and Wyoming for their hard work and commitment to serving our customers and communities. Now, we’re ready to take your questions..

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Michael Weinstein with Credit Suisse. Please go ahead..

Hi. Actually, it’s Khan [ph] for Michael. Thanks for taking our question.

So first of all, just wanted to ask, can you remind us around the financing assumption for the increased CapEx plan?.

Yes. Hey, [Khan] [ph], this is Steven. Thanks for joining us today. I think, the way in which we’ve approached it in the last year or two is a pretty good indication of how we think about the financing going forward.

As we talked about on the call, we have fairly strong cash flow, including growing EBITDA, which is clearly going to be the primary way in which we finance the CapEx.

I did mention that over the next three months or so that we will be taking out some medium-term or longer-term debt at both Spire Alabama and Spire Missouri, and that’s really part of our long-term process of making sure that we have our borrowing at the operating-company level, where we’re making most of our investments, as Steve Lindsey mentioned.

From an equity standpoint, when we look at the capital structures, the opco, we’re managing each of those to get to the right level, that makes sense from a rate structure standpoint. And we manage that pretty closely mostly by growing the earnings of those companies over the years.

So I think, at that level, you continue to watch us manage those for the individual utilities in concert with the rate structures.

And then when you bubble that up overall when we did the the equity offering in May, we stated with confidence that the equity proceeds, which was about $153 million net, was sufficient proceeds to meet our needs for the next 12 months.

And the capital spend that we’re laying out now is not inconsistent with what our views were back when we talked about that at that point. And as I mentioned, when we get beyond that point, we clearly expect that over time that will have additional equity raises. We have a DRIP program. In my past life, I’ve used ATMs, we don’t have one currently here.

But those are all options that are available and pretty standard in the marketplace. And I think, you’ll find that over time, we will find the right way over a period of time to get to that cap structure that makes sense, because we just went through our reset with the rating agencies.

We’re A-, BBB+ depending on which level you want to look at and which type of debt, which is the right place to be for the utility. We’re in the middle of our swim lanes, where we need to be and all the appropriate metrics. So we’re really doing that from a position of strength..

Yes. Thank you. So just another follow-up on – now Spire STL Pipeline is under construction.

What are your thoughts about the next kind of big projects along that line?.

This is Suzanne. I’m – we’re actually very happy with our position right now. As I mentioned in my remarks, we were able to acquire two adjacent facilities. So we are now very much involved in bringing those two facilities together and also talk about how we go into the market, which is a little bit of what I talked about earlier in my opening remarks.

So – and that’s relative to Storage. I thought you asked about Storage.

Did you ask about Storage or the Pipeline?.

Yes, the pipeline?.

Okay. Yes. So the pipeline, as you know and we’ve talked about before, we went to great analysis on the eastern side of the State of Missouri and in terms of our upstream supply portfolio, which includes transportation, storage and supply. And we came to the conclusion, one of the best options for the St.

Louis region, given how it’s grown over the last 100 years and how we see its growth into the future that the Spire STL Pipeline bringing shale gas direct into the region was very good for our customers from a service and reliability perspective. And so we’re very focused on completing the execution of that pipeline.

And as I’ve mentioned before, we’re also looking at the western side of the State and Alabama to see if there are similar types of projects as we evaluate all the upstream assets.

We’re happy to report that we did get FERC approval, as I mentioned in my remarks, unfortunately, like I said, it was a day after the last earnings call [indiscernible] report it to you then. And so we’re well on our way with Spire STL Pipeline and feel good about the timing, as well as the cost structure of that facility..

Okay, great. Thank you so much..

Thanks, [Khan] [ph]..

Our next question comes from Christopher Turnure with JPMorgan. Please go ahead..

Good morning, guys..

Good morning..

Good morning, Chris..

If I’m doing my calculations correctly and I look at $2.8 billion of rate base for 2018 on a 54, 55 equity layer, it looks like you earned close to 12% at your utilities on an ROE basis.

Am I doing my math correct for 2018? And then what’s your assumption for 2019? And is there any tax noise within there?.

Yes. Chris, let me take a shot, not having the numbers in front of me that you’re looking at. I point out a couple of things. First and let’s do it by jurisdiction, because it probably makes more sense that way, the major jurisdictions.

In Missouri, we definitely have tax noise in the numbers for the year because of – especially the non-cash benefit that we – we’re able to take and most every utility took as a result of the revaluation of deferred tax assets.

And also the small portion of the benefit that we retained up to the point in which we changed the customer rates, which Missouri was in late April of this year. That’s non-recurring. I tend to kind of think about that with a different part of the brain than our return on investment.

I think you’d find overall that our ROE in the State of Missouri is probably close to the authorized ROE that we got out of the rate case. And we don’t really deal with a lot of regulatory lag in Missouri, because the ISRS mechanism really does its job of keeping us pretty current and getting return on and return of those investments.

When you get down to Alabama, our – there’s really two different calculations. There is the calculation of our return on rate base, which we just filed with the Alabama Public Service Commission as we do annually for our rate reset. And our actual rate of return in Alabama for last year was 10.54%, that’s a fact that’s out in the market.

And that calculation is included in that calculation. Now in addition to that, and this is the beauty of the CCM mechanism is, we get to share in the benefits of maintaining or managing the cost over a long period of time.

That would add this last year and that adds to the financial return that we would see in Alabama, but it’s separate and distinct from the ROE. But that would generally get us from a percentage return basis when you do the financial calculation into the 12% range..

Okay. And then on the deferred tax revaluation, I think, that would not impact your net economic earnings. So that 12% earned ROE number that, that I was calculating would exclude that.

How much was the other piece of the benefit in Missouri last year? And what is that impact if anything this year?.

$10 million, yes. Give or take, I’d say, off the top of my head, I’d say, it’s about $10 million, and so that’s clearly not going to recur next year.

As you might recall, when we chatted about this quarter or two ago and you took really all of the noise that – for a lack of a better term, that’s a technical term for the Missouri rate reset, which includes the change in the rate design, which we saw come back in spades this quarter exactly as we told everybody that it would.

They really did kind of net away to nothing. And the reason why we built the waterfall that you saw in our slide deck and in my prepared remarks was to really get everybody reset for, if we take ‘18 of where it is and then we look at what our headwinds and what our tailwinds are as we go into ‘19 to build up our earnings guidance.

That really does factor in all of those views, including the one-off items that aren’t largely going to recur, which include tax reform, write-offs of rate base from – in Missouri, and then the change in the cost structure, which Steve Lindsey mentioned, especially the amortization of employee benefit cost, which is the reason primarily why you saw the O&M customer tick up a little bit.

But that’s okay, that gives us a new base to start from..

Okay. And then I calculate nearly 5% more shares on average in 2019 versus before you did the equity issuance. So if I just take that 5% and I apply it to 2018 EPS, that’s almost $0.17. But on Slide 21, it shows share dilution and other of only $0.02.

So I’m wondering what else is in that category that’s offsetting all the dilution?.

Yes. You might go back and look at your equity dilution calculation, I think, the straight up calculation, because we did do it in May. So we had 5-ish months of the dilution in 2018. So the net impact of that for the full-year 2019 is in the order of magnitude of about $0.13, so there’s $0.04 right there..

Yes..

And that is offset largely, as I mentioned in my prepared remarks, by lower corporate cost. And all the other things none of them material enough to talk about, but generally in the corporate category, including a little bit lower interest cost and the benefit of lower tax rates.

All of that does net to that net $0.03 haircut that we showed as the last piece of the waterfall in that slide..

Okay.

So just on a recurring basis, you have a cost center at corporate, that’s not allocated down to the utilities or down to the other marketing opco?.

Yes, we do. And that’s that other category or the all other category that you see in our breakdown of our business segments. And it encompasses not only interest expense for the holding company debt, but also some corporate cost, including corporate development cost and things like that that would normally be allocated to utility.

And then also some of our insurance programs and our insurance cap that there’s a number of cost and other businesses that all fall in that category..

Okay. And I – just real quick last one for me.

Other than interest expense, do you have that corporate cost drag for 2019?.

We will. Although we saw some unusual expenses this year, especially in some developments and insurance costs that we don’t expect to recur and a few other things. So we did have some headwinds that we took in 2018 that we don’t expect to recur in 2019. So on balance, those are trading in our favor.

And also we’ve taken a hard look at our corporate expenses and we’re trying to manage those knowing full well as we were starting to look at 2019 that we had to offset the equity dilution from the offering in May that I think we’ve done a good job of balancing those two out..

Okay, got it. Thanks, Steve..

[Operator Instructions] Our next question comes from Selman Akyol with Stifel. Please go ahead..

Thank you. Good morning..

Good morning..

Very much appreciate the bridge on Slide 21. Just wanted to ask you a couple of quick questions along the Marketing, Pipelines and Storage.

So can you break out that $0.12 at all among the three?.

Selman, this is Steve. Of course, I could. Will I do it? No. To be honest with you, I think...

Okay..

...at this point, it’s a small piece of our overall puzzle. If you think about the percentage of overall earnings, it’s going to be sub 10%. And as Suzanne mentioned, we’re still in the process of building up Spire Marketing now that we’ve relocated down to Houston and we’re still in the process of standing up Storage.

So I think this year, it makes – keep the focus on the main part of our business, which is the gas utilities. But I take on your question and we know that at the right point as these businesses mature that we’ll start splitting them out..

Okay. And then….

And you could also – the other thing I would point out Selman is, given the cost expectations for the Spire STL Pipeline, you can do the calculation of AFUDC. And you’ll find that that’s a chunk of that $0.12, which makes sense, because we expect that spend to largely be spent during our fiscal year, given our targeted in-service date..

Okay. And then just one more question around that area. So you had expenses associated with Storage that you excluded from your net economic earnings and given that you’re still sort of rolling it out.

Should we still expect more expenses in Storage that will be excluded from net economic earnings in 2019?.

No, we’re not. And if you look at and I touched on it briefly in the prepared remarks. If you look at the other expenses in the expense line, it’s up fairly significantly, I think, $19.5. A good chunk of that is the normal operating expenses of the Storage operation, which you’re right is not included in that economic earnings.

But it is showing up on our GAAP financials and we always want to tie back to the GAAP financials. As we go into next year, all of that is in our net economic earnings calculation, because we own that business now and expect to drive it to profitability as we get late into the calendar year.

Order of magnitude, the operating expenses were in the mid-teens all in. And we would expect as we now will own it for a full-year and we’re driving toward operation that we’d expect those expenses to go up a little bit when you look at that individual line item, but it will all be included in that economic earnings..

All right. Thank you very much..

Our next call comes from Rodney Rebello with Cannon Asset Management. Please go ahead..

Hey, guys, thanks for taking the question. I guess sort of building up the prior question and I appreciate you given the waterfall chart on Slide 21. But just given the strength of the contribution in Gas Marketing so far this year, $0.46, you talk about $0.17 of weather you moved for the base year.

But it seems like the third quarter and fourth quarter were also higher year-over-year. So just as we build, like sort of a normal run rate from 2019 onwards, I know you’re making – you’ve been making investments in Gas Marketing and expanding that business.

But is – I guess sort of the year-over-year help 3Q and 4Q, is that representative of something more ongoing, or is that something – or how should we think about Gas Marketing going forward? And then I guess, as a ties into that $0.12 which is sort of now I guess, three categories of things representing a $0.12 marketing, which is – could be a big year-over-year variance in Pipeline and Storage to better shape – to shape our estimates and modeling assumptions?.

Hey, Rodney, this Suzanne. Just more broadly, the way that we think about the business and moving it to Houston, as I mentioned, we’ve hired a very talented team, we believe in the business long-term.

I’ve also talked about the customers are generally power generators, utilities, the type of customers we serve to our utility companies and it really is an extension, and that’s why we call it a gas-related business. That being said, by moving it there in this new complimented employees and we do acknowledge the $0.17 of whether.

We’re really building that base business and we’ll be paying special attention to that over the next three years. But as far as to tell you what that base business looks like, we’re actually developing that. We feel really good about the business and how it’s performed and the quality of the customers that we have.

And as I said, it’s under the leadership of Mike Geiselhart. And he’s at the table as well. But we’ll be providing you, as Steven Rasche mentioned, more information as we learn more about that base business.

But let me assure you that the customers, like I said, are those much like we do in our utility customers, their industrial customers, there’s some pipeline and again, power generators and other utilities. So we feel good about the customer complement..

Yes, and Rodney, I would add that. You’re right, in terms of volatility, generally on the positive side, because we do manage that business to control it pretty closely that the marketing business is a bit harder to put a pin in the wall, so to speak, than some of our other businesses. And that’s the – worked very comfortable with that.

And if market conditions remain strong and give us the opportunity to create value, you can expect that we’ll do it in a responsible way. And as we know that, we’ll talk to the market about it. I – in the final analysis when I look at the marketing business, we are investing more. We’re building that team moving into Houston.

So the cost to operate that business would go up a little. They’ve got a little bit of a headwind that we fully expect that they’re going to be able to create value from. That’s the reason why we’ve done the things that we’re doing.

But as we go forward, think about the marketing business if market conditions remain strong, again, for the full-year, because we have to think about this in more than just a one-month timeframe. That’s a great opportunity for us to create the opportunity for capital to invest across our entire business..

Got it. Okay. Thanks, guys. And then just on the Storage side. So in your release, you cite the $56 million of investment so far in that business. When you first acquired the business, I guess, you were looking through some things and it seems as if I still sort of holding off on talking about the explicit contribution.

But is it sort of rate base math type approach to looking at that? I know those filing made at FERC to change sort of the rate structure, so I’m just trying to better understand, because I guess, for most of us, it’s fairly news.

So just – and you talk about some contribution in 2019? So I’m just try to get a sense for the magnitude of the contribution and then how to shape back going forward?.

Let me give you a little bit around the strategy with the facility, and then Steve or even Mike for that matter would like to add something. As Steve mentioned, strategically, we brought those two facilities together, they’re adjacent. So we brought them together physically.

As a result of that, the filing acknowledges that bringing together and moving our requests is to move it to market base rate.

And market base rates enables us to be able to provide different services to be a utility companies in the region all the way over to the West Coast, some of the connecting pipelines, power generations and also because of the changing in the the way that power is generated in the – on the West Coast with things like wind and solar, there’s more intermittent need.

And so market-based rate enables different types of services to these different types of customers. And again, we can only effectuate that by bringing it together and then having market-based rate helps us serve those customers and their needs. We – as Steven Rasche just spoke through, obviously, we’re very early again.

We’re physically doing the work onsite, like I mentioned, bringing facilities together. We feel very good about where we are. We’ve had conversations on the commercial side with the types of customers that I’ve mentioned. So there will absolutely be more to come.

But we operate storage currently either by way of contract or physically on our systems in Alabama and here. So we’re very comfortable with the team that we have from an operational perspective at Spire, and as well as Spire Storage actually fully itself..

Yes. And Rodney, you’re right, and we wanted to make sure to be transparent and let everybody know what our investment is so far in Spire Storage. And that includes the buyout of the minority interest, which we were able to complete right after the end of our fiscal year. So all will fit into that number.

So getting the full 100% ownership of the entity was important for our medium and long-term strategic plans. We see some great opportunities. We’re going to invest a bit more as we go forward this year and we’re starting to go to market now to attract those kind of customers that you want to contract with overall.

We still expect it to be an adder in terms of earnings clearly, in terms of EBITDA as we go through the year. But I think it’s going to be a little bit slower ramp this year, but that’s okay, because we’re doing it the right way.

And ultimately, we have our eye on that asset and what it’s going to deliver in value over the three-year to five-year horizon, which we’re always focused on. And Mike and his team are laser-focused on making sure that we can achieve both the near-term targets and the longer-term realization of the benefits..

Got it. Okay, thanks. And then last one for me and I’ll let someone else jump on. But – so STL Pipeline you guys obviously get the FERC certificate. And then just a couple days ago, couple of weeks ago, you got the notice to proceed. In the release you talked about, I guess, how the pending time and completion of land acquisitions.

Could just talk about what’s remaining at this point given that you have the notes to proceed, yes?.

Yes. I’m going to – I was wondering if we have Mike in the room, because we thought we might answer this question. So we’re going to ask Mike to just walk you though or everyone that’s listening a bit of the timeline..

Sure. Good morning, everyone. Yes, where we are with respect to land acquisition is, unfortunately, we had a couple of groups and landowners that were represented by parties that really sought an amount in terms of an easement payment that was completely unreasonable and would have effectively kind of blown our budget, if you will, on the project.

So we were forced to condemn those parties. Once we received the first certificate in August, we started those condemnation proceedings. We don’t not – we don’t necessarily need all of that land to commence construction, but we need a good bit of it. And so right now we have condemnation proceedings underway in three federal jurisdictions.

And within the next 30 days, we’re optimistic that we’ll – that we’ll get the so-called quick take and be able to commence construction immediately. But standing here today, that’s not assured, it’s likely, but not assured..

Okay. So….

And the only thing I would add to that is, when you think about pipelines and pipeline construction, this is all part of the process. It’s very standard fare.

And we’ve done, in my view, maybe done an excellent job in terms of our critical path of getting the primary steps like the firsts – like the other FERC approval that I mentioned permission to proceed.

And so the land acquisitions traditionally follow except for those independent landowners that want to come in early and go ahead and negotiate their arrangement. So it’s a standard fare for these collective groups represented by attorneys to wait till after those commissions – FERC Commission decisions are made for them to start this work.

So it’s not out of the norm at all. In fact, we expected it, so we’re in process and which is why, in my opening remarks, we kept the timeline as we stated with you before in the range of cost..

Yep..

Okay And then so just a little bit more on that. So when do you expect to begin major construction activities just as we shift our modeling some things from 2019, you talked about the Marketing side, Storage and the Pipeline side, as you build the construction work-in-progress balance as you accrue it through the quarters.

When – do you expect to begin construction, I guess, sometime later, I mean, in November, December or safe to say that you just wait until, I mean, maybe early spring we’ve talked about sort of the construction issues that you have or the potential issues that you have, which you start construction in the winter with the ground and everything like that? [Multiple Speakers].

Rodney, it’s a great question. I think you positioned it right. If you think about, step back and think about the entire – entirety of the construction project there are competing forces that we have to manage along with our contractor in terms of the cost and the cost differential at various times of the year.

And the other risk that any construction project, has which starts with access to land and I think we’ve been pretty clear about that’s the next step in the process that every pipeline has to go through.

And then when is the right time to start construction to mitigate other risks, which could include things like rainy spring, and all those things that, that you have to manage for every construction project.

Where we stand ready to begin the construction and there’s every logic to accelerating certain pieces of the construction during the wintertime and that would include the drills underneath the rivers that are part of the project and have been all along, because that actually derisks the project overall, because it takes away some or mitigate some of the risk of there being an extended flooding season or unusual flooding season.

I think, we have a good handle on all of those. And really, if you think about the hurdle rates, the next hurdle that we need to get over is to get the access to the key parcels of land that Mike talked about.

And then we can begin construction in an orderly fashion in order to make sure we can meet our in-service target, which is the back-half of 2019. And as time goes on in the balance of this month and this year, we’ll have other marks that we will hit to know whether or not we need to hit the accelerator or we need to pause for a little bit longer.

We’ve built those contingencies into our construction at this point, but again, this is real-time. We want to give you the updates when it’s appropriate.

I think from your standpoint as you’re thinking about the modeling, as we stand today, we generally have between a four to six-week timeline from the time we had go until the time we’re actually starting to write big track sand and move.

So from that standpoint, if we stand here today, if we were to get an answer today or tomorrow, six weeks from now puts us near the end of the year. So you need to think about it as probably Q1 would be the earliest that we would start construction in some of those key pieces.

But you can expect that, that will ramp up as we get clearly through the winter and into the spring and the summer.

Does that help a little bit?.

Yes, it does. I appreciate the transparency on these things and might save me a few calls to Scott. So I appreciate that and thanks guys for hoping in the queue..

Yes. Thanks Rod. I appreciate it..

[Operator Instructions] And this now concludes the question-and-answer session. I would like to turn the conference back over to Scott Dudley for any closing remarks..

Thank you, all, for joining us this morning and we’ll be available throughout the day for any follow-ups Thank you..

The conference has now concluded. Thank you for attending today’s presentation, and you may now disconnect..