Suzanne Sitherwood - President, Chief Executive Officer Steven Rasche - Executive Vice President, Chief Financial Officer Steven Lindsey - Executive Vice President, Chief Operating Officer Scott Dudley - Managing Director, Investor Relations.

Brian Russo - Ladenburg Thalmann Michael Weinstein - Credit Suisse Insoo Kim - RBC Capital Markets Tim Winter - Gabelli & Co. Shar Pourreza - Guggenheim Partners.

Good morning and welcome to the Spire Fiscal 2016 Year-End conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions.

To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Scott Dudley, Managing Director of Investor Relations. Please go ahead..

Good morning and welcome to our fiscal 2016 year-end earnings conference call. We issued our earnings release this morning, and you can access that on our website at spireeneergy.com under News.

There’s also a slide presentation that accompanies our webcast and you may download it either from the webcast site or from our website under Events and Presentations. Our call today is scheduled for about an hour and will include a question and answer session, as the operator indicated.

Presenting on the call today are Suzanne Sitherwood, President and CEO; Steve Rasche, Executive Vice President and CFO, and Steve Lindsey, Executive Vice President and Chief Operating Officer of Distribution Operations. Before we begin, let me cover our Safe Harbor statement and use of non-GAAP earnings measures.

Today’s call, including responses to questions, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our forward-looking statements speak only as of today and we assume no duty to update them.

Although our forward-looking statements are based on reasonable assumptions, various uncertainties and risk factors may cause future performance or results to be different than those anticipated.

For a complete description of these uncertainties and risk factors, see our Form 10-K for the fiscal year ended September 30, 2016 which will be filed later today.

In our comments, we will be discussing financial results in terms of net economic earnings and operating margin, which are non-GAAP measures used by management when evaluating our performance and results of operations.

Net economic earnings exclude from net income the after-tax impacts of fair value accounting and timing adjustments associated with energy-related transactions, as well as the after-tax impacts related to acquisition, divestiture, and restructuring activities.

Operating margin adjust operating income to include only those costs that are directly passed on to customers and collected through revenues, which is the wholesale cost of natural gas and propane and gross receipts taxes.

A full explanation of the adjustments and a reconciliation 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..

Thank you, Scott, and many thanks to everyone who has joined the call and webcast today. Earlier, we reported another banner year of growth and transformation for our company driven by the continued growth in our utilities and execution on our strategy. Let me review some of the highlights for fiscal 2016.

As part of our transformation, we became Spire in April to better reflect the company we are becoming. The name Spire stands for our vision to serve our communities and stands for the growth we want to achieve for our employees, customers and shareholders. It stands for the energy we deliver and what that energy makes possible.

We remain committed to providing safe, reliable and clean energy, but we are now redefining what it means to serve, including uniting all of our utilities and businesses under the Spire brand in late summer 2017. In the meantime, we remain focused on doing the work of integrating and expanding our businesses.

You see on Slide 5, during the past year we delivered growth and net economic earnings per share of more than 7%, meeting our expectations for the year. Our ability to achieve our earnings target was driven by further growth of our gas utility businesses through organic initiatives, investment in prudent infrastructure upgrades, and acquisitions.

Our solid financial results were also supported by strong operational performance, as Steve Lindsey will discuss in a moment. We also continued to invest in our communities.

In 2016, we gave close to $5 million to support our communities and economic development in the areas we serve with United Way being a foundational partner as we help move our communities forward.

As I was preparing for this earnings call, I stopped to reflect on where we were four years ago, back when we held our first conference call in November of 2012. At that time, we had just started to talk about our growth initiatives for The Laclede Group and its sole utility, Laclede Gas, which served about 630,000 customers in St. Louis.

What an amazing journey of growth we have been on. After successfully completing three acquisitions, one of the main pillars of our growth strategy, we now proudly serve nearly 1.7 million homes and businesses across three states and five utilities.

Over these four years, our enterprise value has quadrupled to $5.3 billion while the market value of our stock has tripled. Fast forward to 2016, where we continue the successful execution of our strategy, the same strategy we outlined in our first earnings call.

This year, we announced the Spire STL pipeline and the acquisition of EnergySouth, the parent of Mobile Gas in Alabama and Willmut Gas in Mississippi. Turning to Slide 6, the Spire STL pipeline will give us the opportunity to serve our community even better with a more diverse, reliable and resilient gas supply.

The pipeline will provide our eastern Missouri customers in the region access to lower cost shale gas from Marcellus and Utica. The project includes about 70 miles of pipeline with a capacity of 400 million cubic feet per day, and Laclede Gas continues to expect to be a foundation shipper with a commitment of 350 million cubic feet per day.

As I noted last quarter, the Spire STL pipeline was accepted by FERC into their pre-filing process in late July. In August, we completed both our open season to solicit commercial interest in the pipeline capacity and open houses with communities and landowners.

Work is well underway on environmental assessment, route refinements and other requirements for the January 2017 filing of our certificate application with FERC seeking approval of the project. As a result of this work, we have revised the cost estimates for the project to a range of $190 million to $210 million.

We continue to expect that the pipeline will be in service during fiscal 2019. To keep up with the latest on the pipeline project, I encourage you to visit our website, spireenergy.com. In the section called Our Projects, you’ll find a schedule and other information and updates as they occur.

Now turning to our recent acquisition, I’m pleased to note that we’ve completed the transaction for EnergySouth for $344 million on September 12, just five months after announcing it.

We are pleased to welcome to the Spire family the 103,000 homes and businesses served by Mobile Gas and Willmut Gas, as well as the dedicated employees who connect these customers with our energy every day. Similar to our other acquisitions, we’ll also add opportunities for capital investment and organic growth.

We expect the acquisition to add to earnings starting in fiscal 2018. Now before turning the call over to Steve Lindsey, let me update you on the legislative and regulatory initiatives in Missouri. As I mentioned last quarter, a number of initiatives were introduced last legislative session that centered on utility regulatory reform in Missouri.

None of the initiatives passed both legislative chambers and found their way to the Governor’s office, but they did lead to further deliberations about reform. This includes the Missouri Senate establishing an interim committee on utility regulation.

In late August, we actively participated in the interim study committee session along with national experts and consultants to discuss alternative ratemaking mechanisms.

Meanwhile, the Missouri Public Service Commission established a working session this summer to look at changes in the regulatory process, changes that include performance-based ratemaking. Laclede Gas, industry and consumer groups, and the commission staff have all submitted comments or provided input to the discussion.

The discussions have centered largely on how to address regulatory lag. We expect the Missouri Commission to issue a report on December 1. The Senate committee held a follow-up session in late October to review commission staff filings.

Support appears to be emerging for developing a more modern regulatory structure, one that addresses infrastructure needs and regulatory lag and is responsive to industry changes. We are hopeful that the Missouri legislature will continue its effort to bring all parties together to find a progressive solution for this state.

Thus far, we are encouraged by these efforts. We will continue to stay involved and look forward to working with Missouri’s leadership, including Governor-elect, Eric Greitens. With that, I’ll turn the call over to Steve Lindsey to review our operational performance for the year.

Steve?.

Thank you, Suzanne, and good morning everyone. As Suzanne noted, our business results for the year were supported by strong operational performance. Our results reflect that we have continued to grow our gas utilities through organic initiatives and investment focused on prudent infrastructure upgrades.

We also benefited from efficiency gains through technology investments and process improvements.

The weather was warm this year during the heating season, and this obviously impacts usage and margin; but given our operating model and process improvements we’ve made, we are better able to respond to challenges and opportunities, including when weather isn’t normal. At Spire, everything we do begins with safety.

Across our utilities, we continue to see improvement in reducing our employee injury rate. We accomplished this through a consistent focus on training and constant emphasis on adhering to our principles that are the foundation of our safety culture. At the same time, we saw a 17% reduction in our at-fault motor vehicle accidents.

Again, training and reinforcing the importance of operating safely and what that means in practice led to a lower accident rate. We also achieved many record performances in our metrics relative to the operation of our system. These include average leak response times, leaks per mile of main, and damage prevention rates.

One of the ways we ensure that our system operates reliably and safely is through the capital investments we make for the upgrading of our infrastructure. In FY2016, Spire invested $293 million, almost all of which was for the gas utilities.

That’s up from a total of $290 million the year before; however, I would note that 2015 included about $37 million of non-recurring or non-run rate spend for IT and facilities. In 2016, we replaced those dollars with increased infrastructure investment in line with our plans.

In addition, we increased by 36% year-over-year the amount we invested in new business, which further adds to margin. As importantly, 76% of our investments are recoverable with minimal regulatory lag.

In Missouri, we recovered our infrastructure upgrade spend primarily associated with pipeline replacement on a more timely basis through the infrastructure system replacement surcharge, or ISRS. On September 30, Laclede Gas and MGE each filed to increase their ISRS revenues. Laclede requested $5 million and MGE’s request was for $3.4 million.

If approved by the Missouri Public Service Commission, the combined annual run rate for ISRS will increase to $43.7 million. As a final point on capital, this past year we replaced 270 miles of pipeline across Laclede Gas, MGE and Alagasco. That’s over three times the amount of pipe these utilities replaced five years ago.

Our organic growth efforts continued to produce positive results. For the second straight year, we achieved customer growth across all of our utilities. This slide shows our continued customer growth as a result of our acquisitions.

In addition, we finished fiscal 2016 with the highest number of customers, the homes and businesses that rely on our energy in over five years. For clarity, this represents our highest customer totals for the combined three utilities going back to 2012.

A big part of our recent success has been our focus on our industrial and commercial customers, including conversion activities in all of our customer segments. Once we connect a new customer, we work very hard to ensure that their experience with us is memorable and that it’s the best it can be.

I’m proud to report that we saw strong improvement in our call center metrics, including average speed of answer, reduction in the number of estimated bills, and increased appointment attainment, and for the second straight year we’re very proud to report that Alagasco received the JD Power Business Customer Satisfaction Award for the south region.

It was truly a great year of performance across the board, and we achieved this in the midst of what was a very busy year. We had ongoing integration work at Alagasco, two major IT system implementations at MGE, and multiple labor negotiations.

I want to acknowledge the outstanding efforts of all of our employees this year and thank them for their dedication to serving our customers and communities. In addition, we also had numerous employees who proudly served in leadership roles at AGA, SGA, and other industry and state associations.

Finally, I’d like to take this opportunity to recognize and congratulate our teams who competed at this year’s National Gas Rodeo. The gas rodeo is a technical skills challenge for field workers, whose job it is to construct and maintain the vital distribution systems that keeps natural gas flowing to our homes and businesses.

This year, we had numerous teams from our Alabama and Missouri operations that placed in the top 10, including national championships in both the two-person and four-person categories. Also, for the first time in our company’s history, a team of women competed in the rodeo, placing 18th among the 32 two-person teams.

With that review of our operations, let me now turn the call over to Steve Rasche for a financial update. .

Thanks Steve, and good morning everyone. Let’s take a quick look at our operating results for fiscal ’16 and then discuss our 2017 earnings guidance and other key metrics. Starting on Slide 13, 2016 net economic earnings were $149 million or $3.42 per share, up $0.23 or 7.2% from last year.

That year-over-year growth was driven by improvements in both of our business segments. Gas utility delivered NEE of $160 million, up $10 million as lower weather-driven demand was more than offset by higher ISRS revenues and lower RSC adjustments, as well as lower expenses that also benefited from the warm winter.

Gas marketing earnings were up $2.2 million, reflecting increased volumes and storage optimization, and other corporate expenses were $1.3 million higher, reflecting principally higher interest costs. Let’s look at the key drivers of our improved performance on Slide 14.

Total 2016 operating revenues were $1.54 billion, down 22% from last year with that decline due primarily to lower commodity costs and lower weather-driven demand.

Operating margin was stronger by just over $7 million and gas utility margin increased by just over $2 million, with the increase in gas utility largely attributed the half-month impact of adding the EnergySouth utilities in September; otherwise, gas utility margins for the year were essentially flat as we experienced an estimated $18 million headwind due to the warm winter weather, actually roughly about 20% warmer than normal.

This shortfall was essentially offset by a $13.8 million increase in ISRS revenues in Missouri, a $4.5 million margin uplift in Alabama due to weather mitigation and higher revenues from cost sharing. Margins for the quarter also reflect a $6 million settlement received from one of our contractors.

This reduction in margin is offset in its entirety by a $6 million increase in other income, and as a result there is no impact to our earnings for either period, it just impacts the variance in a couple lines of our income statement.

Turning to gas marketing, operating margins increased by $5 million, driven by favorable volumes and storage optimization.

Looking at operating expenses, gas utility operations and maintenance expenses showed a year-over-year decrease of $13.1 million or an effective decrease of $20.7 million after removing the $7.6 million non-recurring gain that lowered reported expenses last year.

Just as margins declined as a result of warmer weather, O&M expenses benefited from the warmer weather in 2016, leading to lower bad debt expenses and lower employee-related costs.

Other expense variations followed some trends we’ve seen all year, with depreciation and amortization expense reflecting higher capital spend and lower taxes, other than income, due to reduced volumes.

Gas marketing operating expenses showed a big decline, consistent with the trend we’ve seen all year, as higher volume [indiscernible] against revenues. Other income includes the other side of that $6 million fourth quarter benefit I noted just a second ago plus marginally higher investment income.

Finally, interest expense was up marginally as lower average debt balances during the year were more than offset by higher interest rates on our floating rate debt and expense associated with the EnergySouth acquisition.

Looking quickly at the results for the quarter in the gas utility, given the highly seasonal nature of our revenue stream and the generally fixed cost of operation, the lower loss reflects improved utility results at both Alagasco and the Missouri utilities, totaling $2.2 million aided by higher investment income.

Gas marketing earnings improved by $700,000 offset by a $900,000 increase in other expenses. Drivers for both these variations were consistent with the full-year results. The quality of our earnings remains very high. EBITDA - earnings before interest, income tax, depreciation and amortization - was up 6% from last year to $428 million.

Operating cash flow and liquidity also remain very strong, and our long-term capitalization now stands at just under 50% equity, comparable to last year after considering the de-leveraging we were able to deliver in 2016, offset by the debt and equity for the EnergySouth acquisition in September.

Turning to dividends, we announced today that our board of directors declared a quarterly dividend of $0.525 per share beginning in January for an annualized rate of $2.10 per share.

This 7.1% increase will mark the 14th consecutive year of increasing dividends and the 72nd continuous year of dividend payment, a record of delivering shareholder value that we’re very proud of.

Our stock continues to provide an attractive dividend yield at 3.4% currently, and we remain conservatively postured in the lower half of our target range for payout ratio. Turning to Slide 19, let me cover our earnings guidance for fiscal 2017 and also touch on our updated capital expenditure forecast and regulatory calendar.

Today, we are launching our target range for 2017 NEE of $3.50 to $3.60 per share. This guidance is consistent with our longer term growth target range of 4% to 6%, which remains our long-term view of growth in earnings per share and also forms the boundaries of our annual expectations.

Clearly, our 2017 guidance includes a number of assumptions and expectations on performance for the year that’s just started.

A few of these key factors include reasonably normal weather in our gas utility service areas, achievement of our capital spending plan, which I’ll touch on in just a second, continued traction in our integration plans which remain on track with our expectations.

Remember that we just completed the Mobile Gas and Willmut Gas acquisitions in mid-September and we have now started the integration. We anticipate the 2017 margin contribution from Mobile and Willmut to be offset by added cost, and we do expect a positive earnings contribution beginning in 2018.

We also anticipate a consistent mix of business with our non-utility businesses, including a modest contribution from the Spire STL pipeline, to fall between 3% and 4% of our 2017 earnings mix. We also continue to expect our effective income tax rate to stay in the range of 32% to 34%, consistent with 2016.

It’s also important to point out that in April 2017, we will convert the unit mandatories used as part of the Alagasco acquisition. We anticipate remarketing the host security, a junior subordinated note with a face value of just under $144 million, and effective April 1 we anticipate issuing common shares as we settle the equity forward component.

At current trading levels, we expect to issue approximately 2.5 million shares, the top end or most favorable point of our conversion range. This issuance is factored into our earnings per share assumptions and guidance for the full fiscal year.

Finally, I would also note that we have already hedged a good portion of our interest rate risk for both the remarketed note as well as the $250 million Spire floating rate note that will mature next year.

Turning to our outlook for capital expenditures on Slide 20, we are targeting a total spend of $410 million in fiscal ’17, an increase of $117 million from where we landed last year.

Outside of the increase in spending for the Spire STL pipeline of $35 million, the vast majority of the increase is tied to our gas utilities, including the new run rate of infrastructure upgrades at our Missouri utilities and Alagasco as well as the addition of Mobile Gas and Willmut Gas.

It is important to note that over 70% of our gas utility spend is recoverable in rates with minimal regulatory lag. We have also updated our capital spend forecast for the five-year period through 2020, raising that target from $1.8 billion to at least $2 billion.

This increase reflects the items I just noted and fully reflects the midpoint of our cost estimate for the Spire STL pipeline that Suzanne discussed a few minutes ago. Turning to our regulatory calendar, let me update a few activities that are included in our plan for the next year or two.

Some of this is normal course activity, including the annual RSC update filings for Alagasco and Mobile Gas that are currently in review at the Alabama Public Service Commission. We anticipate a timely resolution and agreement on rates effective December 1.

Similarly, the Missouri Public Service Commission staff is reviewing our latest ISRS filing that Steve Lindsey just mentioned. We anticipate resolution in early calendar 2017. Moving forward through the year, we expect to file our next general rate cases in Missouri in April.

The filing of concurrent but separate rate cases in this cycle for Laclede Gas and MGE is consistent with the 2013 MGE acquisition stipulation and the timing of the filing is designed to align with current ISRS legislation. As a reminder, rate cases in Missouri use a historic test year which will be updated during the process.

They generally take up to 11 months, and that would point to a conclusion of the process near the end of the 2018 heating season. We are already well underway in preparing for this filing and will update you as we progress through 2017 and 2018.

In summary, we have delivered another strong year strategically, operationally and financially, and we stand ready to focus our energy on the opportunities in 2017 and beyond. Suzanne, let me turn it back to you for a few final comments..

Thanks Steve and Steve. As you can see, our transformational journey continues, now as Spire. We are driven by organic and acquisitive growth. We continue to leverage technology to increase efficiency and best serve our customers. We’re moving full speed ahead with modernizing our gas assets and we are focused on innovating.

In short, we are delivering on our promises, including moving into our mission as Spire, changing the conversation around energy, and redefining what it means to serve. Thank you for your time today and for your continued interest and investment. Operator, we are now ready to take questions..

[Operator instructions] The first question comes from Brian Russo with Ladenburg Thalmann. Please go ahead..

Hi, good morning. .

Hi, good morning, Brian. .

Just on the STL pipeline development, can you just share your thoughts on--well, let me back up.

We’ve seen challenges faced by other pipeline projects, and I just wanted to get your thoughts on what differentiates STL from some of the other issues pipeline projects are facing, and how confident are you in a 2019 commercial operation date?.

I guess I’ll start with the latter. We’re working a process that’s very well defined, both from a community engagement perspective and a FERC process.

So inside that FERC process, there are timelines, so if you go onto our site and look at that timeline, you’ll see that all that is driven by that FERC process, and I mentioned our next filing is in January.

The first part of your question was really what differentiates us and which drives the confidence, is we’ve been very active in the communities in terms of the path that we are taking off the REX lateral into the St. Louis region.

We’ve had multiple community meetings, we’re highly engaged with those communities, not just the landowners themselves but the Farm Bureau and others that have an interest in this pipeline path.

We were very transparent with them and, like I said, had a lot of good conversations, and that doesn’t just include them but as well as the regulators in the State of Missouri.

We’ve had multiple visits to FERC, so we are confident that this pipeline will be built and we’re confident from the timeline that we’ve laid out, and again all those details you’ll find on our website. We’ve got a couple of river crossings around the St.

Louis region, so that’s some of what we’re studying more and understanding the path around that and, like I said, into the region. But the path through the State of Illinois is mostly agricultural farming region, and we are staying very close to them as landowners. .

I think the past, you mentioned the possible need for some external equity to finance the project. Now it seems that the project cost estimate is even higher. Just wanted to get your thoughts on that..

Yes, let me hit the range, and then I’ll talk to you about--Steve will talk to you about the financing.

So I am an engineer in terms of my undergrad, and on constructions projects, and I’ve done many over the years, as you get - and you know this - as you get closer and closer to the launch of the project, you start refining your engineering estimates, you start refining your material costs, your labor costs, those sorts of things.

So again, we’re very transparent with everyone along the path and we’re just getting closer to refining the cost estimate, so that’s what that slight shift is in the range itself.

Steve, you want to hit the financing and equity piece?.

Yes. Brian, our view on the financing for the pipeline has changed, and the costs are well within the sphere, of the range that we expected.

I’ve said in the past, and I think it still stands true that we can--any individual investment in the $100 million to $150 million range, we could generally do that with operating cash flow or by tugging on some of our current facilities.

Once we get above that as we look at the total overall capital structure of the business, we want to make sure we stay in that balanced range.

So you’re right - at some point, likely as we’re getting close to the pipeline going into service, we will find some equity in order to balance out the overall capital structure of our investment, which is different than the capital structure inside the pipeline entity itself, which will likely be a 50/50 debt and equity for ratemaking purposes.

As you think about it, I would kind of look at that in that fiscal ’19 time frame, and we really do have options on how we raise that capital.

We could do it the old fashioned way - issue some more Spire shares, which is clearly our option as a public company, but we could also sell participation in the pipe, and we like having those options and optionality in our holster right now.

We’ll wait for the market over the next couple years to figure out where the right way for us to raise that equity is, so that we don’t put all of our eggs in one basket versus having opportunities to invest organically and acquisitively and other investments in the business. .

Brian, this is Steve Lindsey. Relative to the justification as well, I think with Laclede Gas being the anticipated foundation shipper, this really provides strong supply and operational diversity as well as helps with our ongoing peaking needs.

So from the utility perspective, this is a great opportunity to really do the right things for our customers in the long term. .

Got it.

How should we look--think about any opportunities for parent debt de-leveraging during this five-year period?.

We will continue to de-lever at the parent level. In fact, I mentioned it or I referenced it in the prepared remarks to the call, we actually de-leveraged the parent company through the first six months of the year. It was almost $40 million of de-leveraging.

We leaned a little bit into the debt side of the financing for the Mobile and Willmut acquisition, but again that’s an evaluation of the market at the time in which we need to go into the market.

So if you look at it at the end of the year, we end up at about the same place from an overall leverage perspective and about the same place from a holdco debt, but we continue to have the benefit of the strong cash flows that come out of the utilities and go up to the parent company, so you can expect from just an operating cash flow basis that we will continue to de-lever the parent.

At the same time, and I did mention it, with the unit mandatory settling and unwinding in the mid part of this year, we’re going to get around $140 million of proceeds from the equity forward being settled, and we anticipate most, if not all of that going to de-lever at the holding company level.

We had kind of engineered that, that the timing for that transaction matches up very well with the maturity of the $250 million floater that we have at the holding company too, so it is clearly within our sights to continue to meet our commitment to our investors to de-lever at the top level. .

Okay, great.

Then just lastly, just remind us, did the OPC withdraw its complaint on the over-earning and decide to revisit that in the context of the upcoming rate case?.

I think that’s a fair summary, yes it is. Of course, we are filing our contemporaneous cases, as I call them, for MGE and Laclede Gas no later than April..

Okay, thank you very much..

Thank you, Brian..

Again if you have a question, please press star then one. The next question comes from Michael Weinstein with Credit Suisse. Please go ahead..

Hi, good morning. .

How are you, Michael?.

Good. For the 2017 guidance, it’s a little bit--you know, if you just do the math, it’s a little bit less than the 4% to 6% growth rate, and I’m just wondering if--you know, at some point you obviously expect it to pick up.

I don’t think there’s any change in the expectation that Willmut and Mobile will start to contribute in 2018, so I’m just wondering what factors will cause an acceleration of growth after 2017 to meet that 4% to 6%?.

Yes, I think our guidance is squarely in the range of 4% to 6%. I think if you look last year, given that we’re a utility and we always debate, as do many of our peers, what range should you put out when you start the year, and I’m always a nickel and dime guy, so we think a $0.10 range early in the year is the right way to think about it.

You’re right - it’s at the lower half of the range, but you have to remember that we have regulatory reasons and we’re managing a lot of headwinds, including the unit mandatory this year, which is not a new challenge for us. We signed up for this when we did the Alagasco deal, and I think we’ll earn right through it.

In terms of what drives the earnings as we get beyond 2017, a lot of that is driven by the continued investments that Steve alluded to that we’re making in the utility business.

We continue to see strong growth there, and once we get beyond especially the Missouri rate case, which will likely impact rates in the second half of fiscal ’18 if you want to think about it that way, then that gives us some opportunity to think about how we can drive further earnings growth in the utilities.

And then the Spire STL pipeline, if you think about the investment, at the end of 2017 we’ll have between $35 million and $40 million invested, so it will drive a little bit in terms of AFUDC as we get into the second year of that plan and that investment really ramps up.

That does help to drive some of the earnings, and then of course when we get to fiscal ’19, that helps to drive even more.

You already mentioned Mobile and Willmut, which will be a positive contributor when we get to fiscal year ’18 and ’19, and I think the other thing you have to remember is, and Suzanne alluded to it on the call, is we’re not resting on the laurels of the things that we’ve talked to you about already.

We have many things in the pipeline across the entire natural gas space to help us invest and grow the utilities organically, acquisitively, and also through other investments.

It’s really a great place for us to be with a lot of opportunities, and we will continue to look at those and no doubt some of those will tumble into the realm of actuality and we’ll be talking about them in future quarters..

All right, thank you very much..

Thank you, Michael..

Once again, if you have a question, please press star, one. The next question comes from Insoo Kim with RBC Capital Markets. Please go ahead..

Hey, good morning everyone. .

Hey Insoo..

First of all, what’s the level of backlog related to the main lines that need to be replaced at the utilities? I know there’s been quite a growth in the amount of mains replaced over the past few years.

Do you expect the annual amount to continue to increase for the foreseeable future?.

This is Steve Lindsey, thanks for the question. Relative to our different utilities, we still have anywhere from 10 to probably 18 years of work at the normal run rate, so there’s plenty ahead of us. I think what we’re doing right now is working our way to a pretty good annual run rate at some of the utilities.

Just as an example this year at MGE on the western side of the state, they replaced over 100 miles this year, which is up dramatically from last year.

So again, at each of the three main utilities that we talked about this year, we’ve seen some continued progress up, and I think even with Mobile and Willmut, there’s an opportunity to increase our capital spend there.

But this is a long-term plan for us, and we’re prioritizing the work on a risk-based perspective, but I think you’ll continue to see our increased capital spend at these utilities as well as some other type of opportunities, such as AMR and those type opportunities to invest in the utilities that hasn’t been done in the past. .

Understood.

Then regarding O&M, how much of the decrease in O&M this year was more weather related? I’m just trying to get to a more weather normal run rate for O&M, and also, how do you see the weather normal O&M trending in ’17 versus ’16?.

Great question. This is Steve. If you look back through the quarters, the weather absolutely provided the uplift and the benefit through the first half of the year, because that’s really when the weather does impact our margins and impact our expenses.

As we get to the back half of the year, I think we’re getting to a more normalized run rate, so although I can’t give you the split between the two, it was largely weather driven but we also continued to see the cost efficiencies that we expected and that we talked about through the integration of our now-three utilities that are integrated, and five as we begin the integration planning for Mobile and Willmut.

So I think you can continue to expect as you think forward about our costs going up at less than the inflation rate. We believe that’s a good way to think about how the expenses will trend, and once you normalize this year, I think it gives you a good base of operations.

The last point I would offer is if you would look at our success in Alabama, the one thing that we love about Alabama, and we love many things about the regulatory environment, the business environment down in Alabama, is that the regulatory recovery mechanisms are clear.

There’s not a lot of risk, all the incentives are aligned, and if you look at the CCM, which is the sharing of cost savings that is buried inside the Alagasco recovery mechanisms, we’ve been in the bonus territory, meaning we’re sharing with our customers on a 50/50 basis the cost savings every month we’ve owned the utility since the day we closed, and that’s is a good indication of how we’re able to consistently manage our costs.

But at the same time, Steve Lindsey brought it up, we’re not doing it at the expense of either investment back in the system or the operating results, safety, reliability of the system..

Yes, I think a couple points I would add to Steve’s message is obviously during these type of winter conditions, or lack of winter, you have positive impact on your bad debt, those type things.

Just the overall maintenance of the system is less strenuous during a winter like we just had, and it also gives us the opportunity to do some O&M investment, so as I mentioned with our leaks per mile main and some of those type of metrics, we’re really able to focus on some of those when we have more opportunity to work during the winter.

So I think getting back to a normal, obviously we get the pick-up on the margin side, but we’re very well positioned going into 2017 because we put our plans in place with process improvements and efficiencies, and so we don’t wait for things to happen. We take advantage of whatever opportunities are in front of us..

Yes, it’s been interesting, so I’m glad Steve Lindsey spoke up because I was going to throw him a softball there. In the last four years relative to winter and the models, we’ve had the warmest winter on record and we’ve had the coldest winter on record for the State of Missouri.

Obviously in Alabama with the RSC, as Steve Rasche said, and the degree days there, they’re minimal compared to Missouri and especially Kansas City, so you almost have the bookends in the last four years, then as Steve Lindsey mentioned, the ability to manage different levers in the business to optimize either the coldest or the warmest winter. .

Understood, thank you very much..

Thank you..

The next question comes from Tim Winter with Gabelli & Company. Please go ahead..

Good morning, guys, and congratulations on the earnings. .

Thanks Tim..

Thank you..

I was wondering if you have the updated--the year-end ROEs for the Missouri utilities, the earned ROEs on a weather-normalized basis..

No Tim, at this point we don’t have that.

What I can point out, and it’s probably the best fact point that’s out there in the market right now, is through the discussions that we’ve been having with the OPC and the staff, both we and the Missouri Public Service Commission staff have separately done the calculation for the last year, which would be fiscal ’15, and they both squarely came within a very narrow range of between 9.6 and 9.7 ROE.

I think that’s probably the best way to think about where we’re earning in the State of Missouri, and I think that consistently this year because, again, we were able to offset the margin impact with cost reductions, so I think we’re pretty close to that point..

Okay, and with the filings that you make in April, will that be a calendar test year?.

Given the timing, which will be an April filing, it will likely be a calendar year ’16 historic test year, and then if you think about an 11-month cycle, so that extends to the latter part of the winter in early calendar 2018, we could expect that the update period will likely extend through probably fiscal ’17 is the most likely point to think about.

So ultimately when rates are finally negotiated, they’ll be looking at the actual results for the fiscal year that we’re just starting..

Okay, and then one last question. I know you might not have the answer, and I’m not trying to be too optimistic, but let’s just say that we have some sort of positive development in Missouri legislation that we had a forward-looking test year.

Would you be in a position to file for such a thing come April?.

one, will the legislative body move and the Governor support it? We’ve had a lot of conversations with both parties over the last handful of months, so we remain optimistic on that.

Then the question is, when does it go into effect? Generally speaking in the State of Missouri, the Governor codifies the piece of legislation around July by signing that legislation, so it would be July of this summer. So based on that timeline that Steve Rasche just laid out, it sort of gives you an idea.

Then again, depending on how it’s written, whether or not we can enable that legislation for us, given that we’re already in a case and that’s yet to be known [indiscernible]. But we’ll definitely keep all parties updated as we learn more.

There will always on our calls be a section related to this matter, and Steve Rasche mentioned it as well, going into a rate case year, we’re very focused on the math and how it works and how it works together both with MGE and Laclede Gas as we’re working our way through these regulatory filings.

I’ll point out, Tim, I know you know this, that for years where there’s ISRS filings, we have settled those filings, and we would always work to do that. We always have the right to take the 11-month process to litigate those, but if history is an indicator, if we’re in a traditional case, the parties work to settle those cases.

Again, I can’t speak to whether or not that will or won’t happen; I just want to reiterate that’s what’s happened historically..

Once again, if you have a question, please press star then one. The next question comes from Shar Pourreza with Guggenheim Partners. Please go ahead..

Good morning..

Hey Shar, good morning..

So any--just on the STL pipeline, is there any opportunities to look to upsize that through laterals and compressors above Laclede being the main offtaker?.

Currently, like I said earlier, it’s a 350,000 pipeline and is built to 400,000, so we did go to open season and there is some additional capacity, and there is some light interest from some of the municipals along the route.

To your point, there is not compression on the pipeline currently, so by adding compression or looping, there’s certainly more optionality around that pipeline down the road. So yes, it gives us more options depending on the growth in the region and other shippers that would like to take service from the pipeline..

Okay, got it.

Suzanne, do you anticipate any more fine tuning of the costs of the pipeline as we go through the process?.

Yes, we’ll continue to fine tune. It’s just a product, like I mentioned earlier, it’s just the way the engineering design works. As you get closer and you enter into contracts on your steel price as well as your labor sources, it will continue to refine.

Generally what happens is the band narrows, which is why we pointed you to the midpoint of the range.

So generally, you don’t see the range widen, you see the range narrow and it gets more refined, because material costs as well as labor costs are the two big drivers, and as we get closer those get nailed down by way of contracts, and we’re better able to again bring that range into [indiscernible].

But we’ve got a pretty tight range on it, so that alone tells you something..

Excellent, that was it. Congrats. .

Great, thanks Shar. Appreciate it..

This concludes our question and answer session. I would like to turn the conference back over to Scott Dudley for any closing remarks..

Well thank you everyone for spending time with us today on our call. We will be around throughout the day if you have any follow-ups, and we look forward to catching up with you then. Thank you..

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