Good morning, and welcome to the Spire First Quarter Fiscal Year 2019 Earnings Conference Call. [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 Scott Dudley, Managing Director of Investor Relations. Sir, please go ahead..

Good morning and welcome to our earnings call for the first quarter of fiscal 2019. We issued our earnings news release this morning, and you may access it on our website at spireenergy.com under News room.

There’s also a slide presentation that accompanies our webcast today, and you may download that either from our webcast site or from our website, that’s under Investors and then Events and Presentations. Presenting on the call today are Suzanne Sitherwood, President and CEO and Steve Rasche, Executive Vice President and CFO.

Also in the room with us today are Steve Lindsey, Executive Vice President and Chief Operating Officer of Distribution operations and Mike Geiselhart, Senior Vice President of Strategic Planning and Corporate Development. Before we begin today, let me cover our Safe Harbor statement and use of non-GAAP earnings measures.

Today’s call including responses to questions, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Although our forward-looking statements are based on reasonable assumptions, there are various uncertainties and risk factors that may cause future performance or results to be different than those anticipated. These risks and uncertainties are outlined in our quarterly and annual filings with the SEC.

In our comments, we will be discussing net economic earnings and contribution margin, which are both non-GAAP measures used by management when evaluating our performance and results of operations. Explanations and reconciliations of these non-GAAP measures to their GAAP counterparts are contained in our news release today.

With that, let me turn the call over to Suzanne..

Thank you, Scott, and hello to everyone joining us this morning in St. Louis for our first quarter update. I hope everyone made it safely through the last week’s bitter cold as the polar vortex descended upon the Midwest.

Across Spire’s footprint, our gas control experts and field employees were working round-the-clock to make sure everyone we serve have the energy needed to stay safe and warm. We delivered, thanks to the people who manage our system and our ability to operate in the most severe weather conditions.

Service delivery is directly correlated with the significant investments we’ve made in the last five years to modernize infrastructure and technology. If time like this when we are keenly aware of our vital role in taking care of our communities. To all our Spire employees, I’d like to say thank you for answering the challenge.

On our year-end earnings call in November, I took some time to outline Spire’s journey of transformation and how that set us up for another successful year in fiscal 2018. This transformation also positions us for further success in 2019 and beyond.

Today, I’m happy to report that we’re off to a strong starting again, this year as we continue to put our energy in motion, guided by our mission and our consistent set of strategic priorities for delivering long-term growth.

We remain laser-focused on organic growth for our gas utilities and our gas-related businesses by our marketing, Spire STL Pipeline and Spire Storage, and we continue to make significant investments in organic growth, infrastructure modernization and innovation and technology, all of which combine to drive our overall performance.

Coming off a strong year and fiscal 2018, when we wrapped up regulatory resets in every area we served, we continued the momentum and delivered improved financial and operating performance in first quarter 2019.

I’m pleased to tell you that we posted first quarter net economic earnings of $1.30 per share, up 9% from a year ago, reflecting growth at our Gas Utilities and continued solid performance by Spire Marketing.

In fact, our Gas Utilities posted a 7% increase in earnings per share in the first quarter, thanks to regulatory outcomes and growth in our core business, which I’ll describe in a moment.

We remain focused on raising the bar on the operations side too, and I’m proud of how our dedicated employees are continuing to deliver improved performance across our five Gas Utilities. At the same time, we are progressing with the development of our gas-related businesses. Construction is under way on our Spire STL Pipeline and at Spire storage.

Indeed, we recently received approval from the FERC to consolidate the operating certificate for our storage facility. More on this in a moment. We also continue to successfully implement technology solutions and innovation to achieve the targeted growth of our Gas Utility.

It starts with organic growth initiatives to increase customers and margin and lower operating costs. These initiatives include enhancements to our new business processes and the technologies we use to track and successfully pursue opportunities. We’re also seeing further success for our increased focus on economic development.

In fact, we are extensively engaged and reimagining the economic development landscape in Missouri. While we’ve always had an active voice in early conversations on projects, for the past year we’ve been working with top business and government leaders to restructure and coordinate economic development efforts across the St. Louis region.

In fact, last week, the leading business organizations publicly announced the St. Louis Regional Economic Development Alliance. And the Alliance creates a world-class private sector initiative to attract and retain businesses, jobs and top talents for the St. Louis region.

I have personally been involved in this effort for quite some time and I have the honor of serving as the first Board Chair for the Alliance. I’m proud to say that with this new coordinated approach to economic development, we now have an incredible opportunity to retain, expand and attract large regional projects to the region.

Now, turning to the current business development, our investment in new business continues to ramp up. This quarter, we invested $27 million, up 19% over last year’s record pace. We achieved growth of 9% in new meters, again, an increase on top of last year’s record level, which also was supported by an increase of conversion activity.

In addition, we are increasing our overall utility investments focused on infrastructure, modernization. In the first quarter, utility CapEx was up 40%, primarily driven by infrastructure upgrades and increased new business capital. This was accomplished in spite of the challenging construction conditions this winter.

The regulatory mechanisms we have, which included incentives to accelerate pipeline upgrades in both Missouri and Alabama and the real-time rate making in Alabama, our key to timely recovery that helps drive our ability to holistically modernize our infrastructure system and return earnings to our shareholders.

In Missouri, we just filed for an additional $19 million in annual revenues under the Infrastructure System Replacement Surcharge or ISRS. We expect new rates to go into effect in May. In Alabama, you may recall that the Commission established a rider to incent the accelerated replacement of remaining cast iron and bare steel distribution line.

The Accelerated Infrastructure, Modernization rider or AIM, provides an opportunity to earn an additional 10 basis points of equity return if target levels of replacement are met. I’m pleased to share that our infrastructure upgrade spend is on track for us to earn the increased ROE next year.

And finally, we support growth through the day in, day out, rigor of managing our costs to efficiently deliver safe and reliable natural gas, while delivering exceptional service for our 1.7 million homes and businesses.

On the operations side of our Gas Utilities, we continue to see improving performance driven by the investments we’ve made in infrastructure, technology and our people. At Spire, everything begins with safety and we’re seeing lower employee injury rate and better safety overall continuing the momentum from last year.

Our strategic priority and invest in modernizing our pipeline system is leading to enhanced system integrity with overall reductions in leak and better leak response times. This investment is driving lower maintenance cost across our system. And finally, our service levels and performance in the field continue to build on last year’s success.

Our customer satisfaction scores for our field technicians are higher and appointment attainment rates continue to go up, building on the record levels we achieved last year.

In addition to the important work we do in the field to operate a safe and reliable system, we are also investing in technology to help us better connect and serve our customers.

About 15 months ago, we launched a technology-enabled platform called My Account, that provides customers with more options for easily connecting and contacting us and manage their account on the go. I’m pleased to report that more than 680,000 Spire homes and businesses have signed up for My Account.

And as a result, we’re seeing increasing enrollment and programs such as paperless billing, budget billing and Autopay. Plus, our new automated start service and transfer service options are quickly becoming favorites among our customers. By offering people more options and greater convenience, we are seeing higher satisfaction overall.

Let me now turn to Spire STL Pipeline. Following receipt of approval from FERC to proceed with our project, we have secured land rights and have begun construction on the 65-mile route.

Our contractor, Michael, is highly regarded in terms of the quality and safety and based on our current construction schedule, we expect the pipeline to be in service by September 30. Our estimated total spend on the project remains $210 million to $225 million. We have also been working to further advance Spire Marketing and Spire storage.

At Spire Marketing, we’ve devoted significant effort over the last year to build an even stronger team positioning us for long-term growth and success. The team has expanded its long standing business model of managing the complicated logistics and moving gas for customers, including utilities, power generators and producers.

By creating a larger geographic footprint, growing its customer base and increasing its volumes. As a reminder, our marketing growth strategy is focused on contracting directly with producers and end users.

We’re doing this while serving our growing customer base and leveraging our expertise to optimize our portfolio of supply, transportation and storage assets based on market conditions, including weather, regional basis and price volatility.

Spire Marketing continues to be a valuable resource in our portfolio of business and once again posted strong performance, reflecting its expansion and continuing favorable market conditions. First quarter net economic earnings doubled over the last year to $0.16 per share. Turning to Spire Storage.

The FERC approved our application to strategically combine the operation of our two gas storage facilities into one certificate. This positions us to offer new valuable services and enhance reliability to a broader and more diverse mix of customers from utilities and power generators to producers.

As we continue to integrate these facilities, we’re now finalizing our development plan to reflect the combined operations and take advantage of the expanded market opportunities.

We’re focused on unlocking long-term value by investing in infrastructure and resources, thereby increasing injection and withdrawal capabilities, expanding working gas capacity and building on our service offerings. As a result, we expect Spire Storage to contribute to earnings in fiscal 2020.

Rest assured that we’ve assembled a very talented team to support this strategy. An important part of how we deliver value to our investors is through our dividend. Very proud of our track record, 74 years of uninterrupted dividend payments, including increases for 16 years in a row.

This includes a 5.3% increase effective in January of this year to an annualized rate of $2.37 per share. I’m pleased to report that our Board has declared a quarterly dividend of $0.5925 per share, payable April 2nd. With that, let me turn the call over to Steve Rasche to cover the financial performance and outlook.

Steve?.

Thanks, Suzanne, and good morning, everyone. Let’s review our results starting here on slide 12. We delivered strong growth this quarter with consolidated net economic earnings of nearly $66 million, up 14% from last year with growth in both our businesses. Gas Utility posted earnings of $66.4 million, up $6.9 million or nearly 12% from last year.

Gas marketing earnings of $8.3 million were $4.7 million higher or over double last year’s results. These were offset in part by $3.6 million and higher corporate expenses and Spire Storage losses included in net economic earnings for the first time this year.

Net economic earnings were $1.30 per fully diluted share or over 9% higher than last year, reflecting the higher share count from our equity offering last spring.

Now, I normally don’t comment on GAAP earnings, but we’ve included it here in the slides since our comparables like those of many other companies are impacted by tax reform adjustments last year.

For us, a non-cash benefit of nearly $60 million or $1.24 per share, which frankly makes the GAAP earnings comparison and the significant drop in headline earnings misleading at best.

As a reminder, we excluded these non-cash benefits from our net economic earnings last year and we believe that the comparison of NEE and the resulting year-over-year growth to be a fair review into our performance. With that, let’s take a look at the key drivers starting on the next slide.

Total operating revenues of $602 million or 7% higher than last year on the combination of higher weather-related demand and higher commodity cost. Contribution margin was up as well consistent with colder weather this quarter.

Our gas utility margins grew $2 million but that measure includes a $14 million customer rate reduction related to tax reform that is offset by lower income tax expense further down the income statement. Excluding that rate reduction, margins were up $16 million or over 6% driven by first, colder weather.

Temperatures in our service territory were about 20% colder than last year and roughly 10% colder than normal. This colder weather helped us to grow our off-system sales and capacity release in Missouri, which benefits both our customers and utility.

Secondly, rate design changes in Missouri, including weather normalization, which on balance pushed more of our margin into this quarter compared to a year ago. And finally, continued modest customer growth. Turning to Gas Marketing.

Margins increased by $8.7 million, as our geographic expansion and continued favorable market conditions allowed us to create value by optimizing our supply, transportation and storage portfolio. Looking at operating expenses, utility fuel cost and volume-based taxes were higher as we would expect from higher revenues and commodity cost.

Operation and maintenance expenses were up by $3.5 million, but that increase was driven by higher benefit and energy efficiency cost that were defined by our Missouri rate cases last year. Outside of those increases, our run rate or controllable expenses were actually lower than last year.

Not surprisingly, depreciation and amortization was higher consistent with our higher capital investments. Gas Marketing and other has two moving parts, Gas Marketing and storage. First. Gas Marketing expenses increased due to higher commodity costs and volumes, offset in part by a higher mix of trading business.

Remember the transactions are recorded net as trading margins if we don’t physically procure and deliver the same molecules, which is not uncommon if we can trade at origin or destination to lower our delivered gas costs while meeting our customers needs.

Secondly, this expense line also includes Spire Storage expenses, totaling $4 million this quarter. And finishing up the slide, Interest expense was higher by $1.5 million, largely due to higher short-term interest rates and debt levels.

Turning to slide 15, capital spend for the first quarter was $207 million, reflecting our continued focus on infrastructure upgrades and new business investment in our utilities as well as higher spend in our other gas-related businesses.

We are tracking against our 2019 full-year CapEx target of $650 million with a note that we anticipate updating this target once we finalize our Spire Storage development plan as Suzanne mentioned a few minutes ago.

Our five-year capital spending plan through 2022 remains $2.6 billion focused on utility infrastructure investments that are 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.

We also continue to grow our cash flow and maintain a strong financial position. First quarter EBITDA was up 3% from last year to $152 million. Short-term liquidity was also very solid as we hit the peak of our seasonal working capital needs.

Our long-term equity capitalization also strengthen year-over-year and we now stand at just above 51% equity capitalization, up nearly 190 basis points from last year. And we continue to execute on planned financings. At Spire Missouri, we funded $100 million term loan in December.

At Spire Alabama, we completed a $90 million private placement of senior notes in January. On the equity side of our capital structure, today we announced the establishment of $150 million at the market or ATM program that will help us meet our incremental equity needs over the next couple of years.

And ATM is a great tool and fits our situation well, the need for incremental equity capital over time to ensure that we maintain a balanced capital structure and strong credit metrics as we continue to grow and invest. I should note here that we do not expect to activate the ATM program this quarter and we’ll update you as our plans change.

Our sales agents on the program will be RBC and Bank of America Merrill Lynch. Turning to our earnings outlook, we reaffirm our long-term net economic earnings per share growth target range of 4% to 7% as well as our 2019 guidance range of $3.70 to $3.80 per share.

Earnings growth is supported by greater regulatory certainty and our strong rate base growth and our organic growth across our utilities. It also reflects the updates that we’ve shared today. Strong first quarter performance in our Gas Utility and Marketing businesses.

The progress we’ve made with Spire STL pipeline and our targeted in-service date as well as the continued investment in our storage business. So in summary, we’re off to a great start and we continue to invest for long-term success across our businesses. With that, let me turn it back over to you to Suzanne for some closing comments..

Thank you, Steve. In closing, I’d like to thank all of our Spire employees for their hard work and personal commitment to serving our customers and community. And especially during the winter heating season when our customer count want us to safely and reliably keep their homes and businesses warm.

We’re off to a fine start this fiscal year keeping pace with our plans to invest in and grow our businesses and drive increasing value for our shareholders. We appreciate your interest and investment in Spire, and look forward to updating you on the progress and achievements as we continue to move forward.

In that spirit, I hope you’re able to join us for Spire’s first ever Investor Day on April 4 in New York. That’s where we will have the chance to meet with you face-to-face and engage in a deeper conversation.

Conversations around organic growth, infrastructure modernization, Spire’s marketing business model and growth plans, the progress on constructing Spire STL Pipeline and how we’re developing an integrated platform for Spire Storage. Now, we are ready to take your questions..

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

Hi, guys..

Hey, good morning, Michael..

Good morning.

Could you talk a little bit about the ATM and I guess more about the reasons why it was filed? And what you’re seeing over the next couple of years in terms of higher CapEx spend that might justify or it might require it? And I guess mainly what I’m asking for is a kind of a preview of what you might be talking about in April for and how you are going to change the plan?.

Yes, a good question, Michael. I think, we’ve been talking for a while that ATM programs are great tools to have in your tool box. In fact, I know I’ve spoken in the past about the fact that I’ve had these in prior lives in other companies.

And it’s a great way to keep fine tune the capital structure and make sure that we support our strong credit metrics.

And I don’t think it should be a surprise to anybody on the call that we want to make sure to be prepared as we continue invest somewhere in the next two years, $1.1 million to $1.2 million in investments in our businesses that we can’t reasonably finance only through debt capital and cash flow.

So from that standpoint, I view an ATM as a tool that makes sense for us. It’s a three-year program, 150 million, fairly low in terms of size compared to our capitalization. I think it’s a reasonable program for us to put in place.

We – as when we did our equity offering and May of last year, we did that in anticipation of the Spire STL Pipeline, and clearly, it met our equity needs for the next year. That’s what we’ve talked about it on the call, which is why we are not activating the program right now.

But I think you can expect as we get later on into the year end and into fiscal 2020 that we’ll activate the program at the right time and do it at a measured way, so that we maintain those strong credit metrics over time because our expectations, we’re going to continue would invest in our business and we have to keep an eye on the capital structure while we’re keeping an eye on the accelerator to continue to grow..

Got it. And on the storage business, I think you said that you expected a contribution from that next year. And I think on the last call, we talked about a small contribution in 2018, with kind of serve as the indication that maybe it would be earning money in 2019.

So maybe you could just talk more about the timing of how that investment is coming along?.

Yes, Michael, so, you are right. That is how we spoke about it. We – at that time, we had not secured the second facility and so now we are in the process of refining those development plans to integrate the two facilities.

And we’ve gotten approval from the FERC as I mentioned to do just that which helps us in terms of our service offerings and the types of services they can offer us on a long-term basis, the combination of integrating these two facilities there obviously in the same territory geographically, it provides us much more flexibility, and again, the ability to enhance our service offerings.

So it’s a little bit of go slow now to go fast because we’re in a much better position with that storage facility – Spire Storage combined. And we’ll speak in greater detail too at the Analyst Day. So hopefully, you can join us to run – we’re working on those plans and we’ll spend some time running through what exactly that looks like for you..

Okay, thank you. Thanks a lot. And now I’ll give it up to other people at this point..

Yes. Thanks, Michael..

And our next question comes from Shahriar Pourreza with Guggenheim Partners. Please go ahead with your question..

Hey, good morning, guys..

Hey, Shar..

Good morning..

Just two quick ones for you. So, on – first on the FTL approvals, so given the fact that it’s kind of behind us and construction is already commenced.

Is there any sort of demand there to modestly upsize the pipe through other laterals of compression? And the way we’re thinking about it is there any incremental growth opportunities that you can get from this project?.

I’ll give you a high flyby, and Mike then here, if you may want to expand on it in a little bit, more of it. As you said, the pipeline itself is under construction and the anchor customer, obviously, is our Spire East utility. And which we’ve talked a lot about what flexibility that brings us in the region and it is the shipper on that pipeline.

But that being said, there is some small amount of capacity remaining. And we can add compression to it over time. We’ve talked about that. But as I mentioned earlier, we are laser-focused right now in getting that pipeline up and operating. And we’re very satisfied with where we are in terms of schedule and costs.

And Mike, you may want to add a little more color. And that’s another item we’ll give you greater details on in the Analyst Day..

Yes, I mean, we’ll continue to focus on longer-term opportunities to add.. add shippers to that system. Part of it really depends on interconnected pipelines and where we end up with our Chain of Rocks, interconnect with MRT, for example, as to whether their – our pipeline could potentially be part of a longer path that other shippers might buy.

So we’ll continue to work on that very much in the long term. As of right now, we expect to go in service with really just the one contract with the affiliate..

And then – that’s helpful.

And then if you take the upsizing the route, the filing process I would have to assume, is going to be much more rapid than what we’ve seen in the past with the current pipe?.

Yes, we certainly have the ability to add compression to the project. There is no compression on it in its current form, and that would require another filing to add compression in the future.

But we have a fairly long lead time in terms of what customers would be driving that expansion, so we wouldn’t anticipate any delay between getting that approval versus when the revenue would start to flow from any additional customers and larger capacity..

Excellent. And then just lastly, it’s good to see that there’s obviously some pretty good growth in the marketing business. Is there sort of a mix you’re targeting as you think about the consolidated business mix like the marketing business is becoming more and more material.

I guess, in the end, how large do you want this segment to be? Is there’s sort of a target that you’re aiming for?.

I wouldn’t say, per se, that we have a target.

But we also – what we’re mostly focused on is geography, and the quality of our customer, like I mentioned earlier, with utilities, which obviously we have five utility companies, power generation and producers, which is much like our utility operations, we serve the same type of customer mix, so from a earnings mix, we obviously, will only grow that so much based on those geography and the type of customers that we’re serving.

And we’re predominantly utility today, over 90% of our earnings is utility today. So we’re very comfortable with where we are, and we are very comfortable with the quality of team that we’ve placed in our Houston office and the technology and so forth that we have to support that business..

Yes, and remember also Shahriar that we’ll – when the pipeline comes online, that adds to our regulated side of our mix. And we continue to expect every business to grow and the utility continues to show strong growth. So our goal is to grow every part of the pie. But we are always cognizant of how the pieces play out. That’s where we get….

And here again, and we’re getting – yes, I was just going to add and Mike will give more color on this at the Analyst Day. It is the logistics business, and it’s logistics for to serve those customers, which again is what we do everyday in the utility business..

Got it, got it. So just to summarize, the growth in the marketing business would commensurate with the regulated growth that you’re seeing..

That’s right..

Excellent. Thanks guys..

And our next question comes from Dennis Coleman with Bank of America Merrill Lynch. Please go ahead with your question..

Hi, this is Jason standing in for Dennis. Good morning. Doing well. Thanks. Regarding the gas marketing, again, I guess, when you look at it from the other view, earnings are definitely up.

Can you give maybe a little bit more granularity about what drove it? You indicated geographic coverage and favorable market conditions, can you maybe talk about how each contributed?.

Yes, I think maybe what might be helpful is Mike’s in here to – Mike, provide a little bit color – more color as I stated earlier..

Yes, over the last couple of years, we’ve been pretty methodical about putting in place a plan to kind of expand the current business model, if you will, into a broader geography.

And so a part of – part of that vision and moving the business to Houston was to add folks to the team that could bring existing relationships with high quality customers that would essentially fit into our existing business model. And so really the way I would describe the growth, it’s been pretty gradual and – and pretty steady and incremental.

And it’s essentially adding new customers and new regions, particularly in the Gulf Coast and the Southeast that kind of have expanded our geographic footprint. So we’re just doing more of the same kind of business with the same kinds of customers and volumes are up in a lot of cases across the board as well with existing customers.

And so you combine that with a relatively supportive market conditions in location basis and that sort of explains the large part of the growth today..

Okay, thanks for speaking to that a little bit. My next question is sort of around STL and – and flows coming off of REX. You mentioned that STL is going to receive gas most likely from Marcellus and Utica. We’ve heard from some industry guys that – and girls that they’ve indicated there might be cheaper gas out of the West.

Is there any discussion around East versus West flows?.

Yes, that’s an interesting point and it certainly has evolved somewhat over time. I think when we originally created the project there was a clear expectation that we would use primarily REX Zone 3 gas, which is Marcellus, Utica gas for the most part.

That we still believe that gas will be extremely cheap long-term, but, part of the reason we really liked the project is upon completion our interconnect point, which will be a new interconnect point on REX will be essentially the null point in terms of physical flows between westbound gas and eastbound gas.

And so we expect to have in the neighborhood of 4 Bcf of total physical flows kind of meeting on the pipeline in that area. And so at least for the foreseeable future, we expect that to remain the null point on REX.

And so we would have optionality – conceptually any way, we’d – we would have optionality between both eastbound flows and westbound flows, which is a pretty interesting place to be..

Definitely. All right, thanks for the – thanks for those insights. I’ll – I’ll jump off..

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

Thank you. Good morning. Can you talk a little bit about your 9% meter growth? And I think, I thought I heard you say that was supported by conversion activity as well.

So could you talk about that too?.

Sure. Good morning. This is Steve Lindsey. I’ll speak a little bit on behalf of utilities. And so the 9% is a year-over-year comparison for first quarter and if you think back last year when we referenced a record year for us, we had over 11,000 new meters across all of our jurisdictions.

And that was primarily in the residential and commercial markets as you can imagine. We’ve had some increased activity on conversions. When we say conversions, those could be propane customers on our existing system.

And in some areas in the – in the South – southwestern part of Missouri, we’re actually looking to expand into some poultry applications where our infrastructure just isn’t there now. And so those would be poultry and chicken houses and those type applications that will be converting from propane to natural gas.

I think it’s really to build up of what we’ve been putting in place over the last three years, we’ve become very focused, we’ve been really focusing our relationships with builders and developers and being there when they’re making decisions as well as architects and engineers. So I don’t think it’s any one big thing.

I think it’s a lot of pieces that are starting to come together. And as we also mentioned on our new business capital, which is infrastructure that we’re putting for really, meters that are to come over the next three years. We’re up significantly over last year, which was a big year for us as well.

So our focus on organic growth, I think is really starting to pay off in the utilities as we continue to grow our base business..

Okay, if I can just ask a little or dig a little deeper on that. So, if I asked you, I guess, I don’t know, five, seven years ago about organic growth, I think you probably would have said maybe 1%, maybe 1.5%, 2%.

So do you think that organic growth number would be higher now? I mean, if we move to a plateau or higher level say 3%, what do you think about it?.

Yes, so let me start and then pass it to Steve. I want – I’m harkening back, I’m thinking back reflecting back based on your question.

Five to six years ago, we started talking about organic growth on these calls and our investment in people and technology like salesforce.com, like the way we serve our customers, like the way that we think about conversions and started implementing programs that we’re seeing the fruits of that work today.

And we – so we took the long view, again on organic growth and the types of customers coupled with economic development, which I talked about earlier. And we’re continuing to invest in organic growth for – for our future and think about it – and there’s a whole lot more of commercial acumen.

And again, that started five years ago, we brought in an executive and outside the industry to run that area for us and he reports to Steve. And Steve, you may want to add a little bit more color than that..

Yes, I think when you’re talking about overall net growth, and so what we were referencing earlier on new meters and new business capital is on the new side, obviously, you’ve got to keep all the customers that you have.

So from a retention standpoint that’s an issue that, really as recently as – as two or three years ago, in some of our jurisdictions, we were seeing negative overall growth if you think about it on – on an annual basis.

And so the fact that we’re positive in all of our jurisdictions and continue to trend up I think is – is a result of a lot of things, some of the data and analytics that we’re putting together, we now know on a daily basis by zip code, our customer either increases or decreases, so that we can put together very focused programs to address that, whether it’s around rebates, energy efficiency programs.

And so again, I think we’ve been building for the last three years, a lot of data, a lot of tools, and now we’re really starting to use those tools and data to make decisions and effectuate outcomes..

And Selman, I would add that, we view our organic growth including the commercial and industrial sector, which especially when you get down to the southern parts of our service territory is a much bigger part of the overall pie.

So it’s hard to look at net customer or residence or business growth and really equate that to an impact in our earnings because one business can be thousands of residential customers.

Now, I’d also add, then we think about organic growth we think about it holistically and it is about managing cost and making sure that we’re managing to get to the right margin and dropping the right earnings through the cost line.

And I think we’ve shown that we consistently have been able to keep our cost in line and you saw that again this quarter. It’s all part of that puzzle to make sure that we’re doing the right thing growing, but also doing the right thing for our customer and they’re – they’re seeing the benefits in their bill in term of growing..

I think the last piece that Suzanne mentioned in her remarks is we really have put a strong emphasis on economic development. And this is in all of our jurisdictions. And we – we’ve been seeing some strong things go on in the state of Missouri as we focus on economic development across the state. So I think more – more good is to come on that as well..

Very good, thanks. I appreciate all that. If – just going over to storage, you referenced sort of 39 Bcf now. And you’re looking to expand.

Can you say what size you’re looking to take storage to?.

Yes, this is Mike. We haven’t – what I can tell you is that, that number is comprised the two pieces, right. The 35 is the certificated capacity at Ryckman and the four is the second facility at Clear Creek.

Right now we’re – we’re involved in very extensive kind of reservoir engineering work and geology work to really understand the potential size of the storage facility at Clear Creek, we have only owned it since May and – and have really kind of dug in to try and understand it.

It’s part of the same formation as the Ryckman facility, so we think it has comparable size. But until we finished that analysis, we’re really not in a position to say, how much larger that Clear Creek facility can – can be made beyond its current 4 Bcf certificated capacity.

Now, when we look over on the Ryckman side, at this point, we don’t anticipate a large change in that capacity sitting here today. But again, that’s still subject to the same kind of ongoing analysis.

So part of the development plan will be to refine that number and to come up with a number that is in fact going to be the certificated capacity of the two facilities on a combined basis and that will be filed with FERC at the appropriate point of time..

Okay. And then you guys commented that storage ran loss at this quarter.

Do you anticipate storage run losses every quarter this year, or do you expect that to moderate as we approach 2020?.

Yes, it’s fair question Selman. We expect as we start ramping up the development plan that we should start moving closer and closer to earnings contribution. We’ll get into more detail. We still have to finish the development plan.

And I think the important point to take away is we’re looking, we always try to make the right decision for the medium and long-term and we see a great opportunity for even more value in the medium and long-term.

And we think it’s the right thing to do to make sure we’re driving for the sort of right balance of investment and return, which is why to the question earlier, we’re willing to accept no earnings contribution and some subsidy this year because we think in the medium to long term that’s the best place to be for our customers and also for our investors..

All right. Thank you very much..

[Operator Instructions] And our next question comes from Richard Sunderland with JPMorgan. Please go ahead with your question..

Hi, good morning. Just wanted to follow-up on some of the marketing commentary earlier. It seems like the performance and the strength year-over-year might be putting you a little bit ahead of plan.

Could you frame sort of the performance in Q1? And maybe you can revisit the expectations from last year, the $0.17 non-recurring outperformance there?.

Yes. Rich, this is Steve. Clearly, there are two components. If you think about the marketing business at the 5,000 foot level, there are two components to think about. One is the building the base business, additional relationships, additional contracts, more storage transport that we can optimize.

That’s the fundamental way in which we grow the business over the long term and Mike Geiselhart spoke to that in a few minutes ago.

The second part is the icing on the cake and what’s going on with the market and are the market opportunity is creating unusual or opportunities that marketing businesses deal with everyday to optimize those investments is specifically in the assets. And clearly, through the first three months this year, we’ve seen some strong market conditions.

Let’s face it, price volatility we saw in the early part of our year right as we were getting into the fall in the early winter with a four handle plus on gas and volatility and the early cold didn’t give us some opportunities in the marketing business and that’s what marketing businesses do.

They take advantage of opportunities that may be intra day much less over a longer period of time. But as we know, markets change relatively quickly. Henry Hub traded at $2.54 last night. So the price volatility that we saw early in the season, now that we’re through the polar vortex and we really didn’t see price spikes except for a single day.

We have to look at this business over the long term.

And I’m – we’re not willing at this point to speak to what it looks like for the full year because as we look at the rest of the year, especially going into the last part of the winter and into spring, the market fundamentals are easing off a little bit for all the reasons that we talked about and it really starts with weather.

What we will do and we do this every year is, we’ll take a look at our performance after we get through the winter heating season and then make an assessment on how do we think about that in totality and how do we think about that going forward. So that you all can understand the baseline for the business. But I think Mike’s comments earlier stand.

We expect every business to grow and we’re investing in a great team and relationships and everything else associated with that to grow that business in the right way, doing what we do now, which is physically procure and deliver gas. And over time, we expect that business to grow.

That’s the fundamental part that you all should come to expect every year..

Great. Thanks, Steve. And just a few mechanical ones here.

The storage investment balance as of the quarter, I’m curious as to where that stands? And then also if there are agency thresholds that you guys monitor for sort of the non-regulated business versus total business mix?.

The second – the second piece gets back to the question that was asked earlier about mix of business. And we obviously take a look at all of our businesses, we expect them to grow. It’d be financed in a conservative fashion. And ultimately we will and continue to be a largely regulated business.

But you have to look underneath the businesses, because that’s a surfacing comment. Right now as we stand today, roughly 40% of the customers that we serve in marketing are utilities and power generation.

So under deals that can extend over a period of time, which is a clearly different customer base than what you see with a pure marketer who might be selling into other places or to other marketers.

And the same as we develop the storage business, our goal is to make that facility attractive to utilities, power generators, LNG providers, the kind of folks who need long-term reliable storage services. And in that vein, the complexion of that business and how we think about that business changes. So that’s how we think about the mix of business.

We’re clearly aware of where the guidelines are. We know our peers really well, and we understand how to think about that and actively exercise that internally to make sure that we are comfortable with where we are, where we are driving. But again, we expect every one of our businesses to grow. That’s one of the tenants of our underlying business.

In terms of overall investment, we’re not quite at the 100 million mark, this quarter – if you look at the capital spend that we had this year or this quarter of $207 million, about two-thirds of that investment was in the utility and the other third was between the pipeline and the storage business and I think it was probably nearly $40 million in the storage business, maybe it’s 45 million, in fact it is 45 million.

And the rest was in the pipeline as we now we’ll see that ramp up fairly significantly going through the rest of the year. So that’s kind of where we stand right now.

And as Suzanne mentioned on the – in the prepared remarks, we’ll – we’ll update that not only the development plan for storage but how that impacts our go-forward view on investment and capital and base gas and other things you need in order to adequately operate the storage facility once we have finalized that plan..

Great. Thank you for the update..

And our next question comes from Andrew Levi with ExodusPoint. Please go ahead with your question..

Hi, good morning, guys. Great pictures in the hand-out of you two..

Thanks. We’ll get perfect communication and a little credit on that one..

Just two very simple questions.

Just on the ATM, just for modeling purposes, how much should we kind of put into our earnings model a year? Like should it be 50 million? 75 million? Any type of guidance you can give us on that?.

Yes, Andy, I can’t give you any more guidance at this point. It’s a three-year program. I did mention that we expected to meet our needs for the next couple of years and we clearly have an activated the program at this point. And we’ll update you all in the next call where – where we stand on that.

I think you’ll have to figure out a reasonable way to a trip that over time as you – because I know you will. You’ll put yourself in our shoes and look at our capital structure and our credit metrics to make sure that we keep everything in balance..

And should we be more focused on the FFO-to-debt or your equity ratio?.

Actually we look at all of those and a few others. Our FFO-to-debt, we’re in the swim lane that would support our current credit ratings, but it’s something over time that we have a commitment to continue to improve..

And then the equity ratio at 51% at the end of the quarter, is that kind of where you want to be as well?.

Yes, we’ve worked really hard to get to about more equity than leverage on our long-term capital structure. We would like to keep that powder dry, because we think that’s the right place to be for us and that our investors actually appreciate that. What you will see and continue to see Andy, is a continuing shift of the leverage and where it sets.

We continue to draw down the leverage at the holding company, which is shareholder debt as we continue to borrow at the right times and we talked about a couple of those in the prepared remarks at the operating company, the utilities, where we get regulatory recovery.

I think you’ll continue to see that and that’s another component of that of the overall mix and that’s at hold co debt as a percentage of total debt. We’ve been very successful and continue to driving that down and it’s one of our commitments to ourselves to our Board and to our investors..

Got it. And then just separately, just on the weather. Just in Missouri and Alabama kind of interested as kind of overall growth companies within your area. How could you – can you categorize the weather in the fourth quarter than maybe what – I mean, not the fourth quarter, your first quarter.

And then kind of what you’re seeing in the second quarter to just kind of hot, cold, hot, cold. So kind of where we stand weather wise, whether it’s in your southern service territory or your American service territory? And then I have one more follow-up to that..

I’ll take a shot, this is Steve, I’m not a weather expert. But relative to just norms, worried about this – Steve, I think you mentioned this. About 12% colder on average for the quarter than last year and about 10% from normal, but as we all know, there’s variability.

So you might have, as you described, some very, very cold periods followed by some warm, so you have some cyclical periods. And the one thing I will say too is, as we talked about our capital, we were able to have an essence of 40% increase in the utility capital spend first quarter year-over-year.

And that was in spite of some of the more challenging weather conditions. So I think it clearly helps from a margin perspective as you’ve seen. And we went through those examples, as well as we’ve been able to manage it from a construction perspective. In the South, I think it’s been, again, it’s been up and down quite a bit.

We’ve had some very warm periods followed by some very cold. So I think when you get into averaging, it might be pretty close to average there, but we’ve had some rain, some snow and then some warm period.

So it was a little bit of a mix and for the quarter that we’re in right now, obviously, this week we saw extreme conditions and the one thing I will say is that our systems across the board held up very well. And I think a lot of that goes to a lot of the reinforcement and infrastructure upgrades that we put in place over the last five years.

So, I think if you put all these things together, we’ve operated very well. We continue to grow our system. And from a margin perspective, I think we’re doing about as well as we could expect at this point in the year..

And the flow through of that, here as you think about it, the way that we read meters and the way we cycle those meters through the month. And then the way that data cycles through the rate design in those areas is how it flows to the bottom line.

It all arrives eventually, but the timing from a quarter-by-quarter perspective is driven obviously by the way – those meters. Some are read at first of the month on cycles, some at the middle, some at the end. Everyday we’re reading meters. And then that’s where technology on a longer-term basis.

And again we’ll speak more about that at the Analyst Day. How we’re deploying meter-reading technology and how we think about designing those rates? Even in these last rate resets that was very much tropical. Again it’s – the math shows up, the calendarization of those meter-reads and also there’s rate design have impact.

But again, over time it all flows to the bottom line. It’s more of a timing perspective. And I think you have one more question. I didn’t want to cut you off..

Yes, that’s fine. And then just guidance wise, just to understand kind of where you started kind of where you are today? And just focusing on the gas storage and on the marketing.

So are you kind of where you expect it to be when you gave guidance in both of those areas? Or a little better or little worse? Maybe you can tell us on that?.

Yes. So I look at it this way. So our gas companies, we have five gas companies and how they collectively come in. And then our gas-related businesses, marketing, storage and pipeline. And from a gas-related businesses perspective, we’re actually where we expect it to come in. In fact, feeling a little better.

Same thing with the gas company, the utilities, there’s five of them and they’re doing well on all performance metrics. And I know we’ve had a lot of conversations so far about gas-related businesses as well as the utilities. And when I think of them collectively and when we think of them collectively, we are physically moving gas for customers.

Be it residential customers or in a utility or small businesses, large industrial or power generators. And our gas-related businesses as well as our utilities are every day physically moving gas for those customers.

The difference obviously with the utility side regulated by the state, other regulation FERC or other criteria for gas-related businesses that fundamentally, which is what I’ve been doing for 38 years.

We’re physically moving gas for these customers to use it to keep their homes warm, heat hot water, improve their business processes or generate power. And so we pull those together and we manage it collectively..

Okay. Thank you..

And this concludes our 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 today. We will be around throughout the day for any follow-up questions. And we look forward to seeing you on at some upcoming industry conferences in March, and of course, we very much look forward to continuing the conversation at our Investor Day in New York on April 4th. Thanks and have a great day..

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect your lines..