UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
or | |||
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF For the transition period from to
|
Commission File Number | Name of Registrant, Address of Principal Executive Offices and Telephone Number | State of Incorporation | I.R.S. Employer Identification Number | ||||
1-16681 | Spire Inc. 700 Market Street St. Louis, MO 63101 314-342-0500 | Missouri | 74-2976504 | ||||
1-1822 | Spire Missouri Inc. 700 Market Street St. Louis, MO 63101 314-342-0500 | Missouri | 43-0368139 | ||||
2-38960 | Spire Alabama Inc. 605 Richard Arrington Blvd N Birmingham, AL 35203 205-326-8100 | Alabama | 63-0022000 |
|
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (only applicable for Spire Inc.):
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | |||
Common Stock $1.00 par value | SR | New York Stock Exchange LLC | |||
Depositary Shares, each representing a 1/1,000th interest in a share of 5.90% Series A Cumulative Redeemable Perpetual Preferred Stock, par value $25.00 per share | SR.PRA | New York Stock Exchange LLC |
|
Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such report) and (2) has been subject to such filing requirements for the past 90 days.
Spire Inc. | Yes ☒ | No ☐ | ||
Spire Missouri Inc. | Yes ☒ | No ☐ | ||
Spire Alabama Inc. | Yes ☒ | No ☐ |
Indicate by check mark whether each registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Spire Inc. | Yes ☒ | No ☐ | ||
Spire Missouri Inc. | Yes ☒ | No ☐ | ||
Spire Alabama Inc. | Yes ☒ | No ☐ |
Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if each registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
The number of shares outstanding of each registrant’s common stock as of
Spire Missouri Inc. and Spire Alabama Inc. meet the conditions set forth in General Instructions H(1)(a) and (b) to Form 10-Q and are therefore filing this Form 10-Q with the reduced disclosure format specified in General Instructions H(2) to Form 10-Q.
This combined Form 10-Q represents separate filings by Spire Inc., Spire Missouri Inc., and Spire Alabama Inc. Information contained herein relating to an individual registrant is filed by that registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants, except that information relating to Spire Missouri Inc. and Spire Alabama Inc. are also attributed to Spire Inc.
GLOSSARY OF KEY TERMS AND ABBREVIATIONS
The interim financial statements included herein have been prepared by three separate registrants — Spire Inc. (“Spire” or the “Company”), Spire Missouri Inc. (“Spire Missouri”) and Spire Alabama Inc. (“Spire Alabama”) — without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC). These financial statements should be read in conjunction with the financial statements and the notes thereto included in the registrants’ combined Form 10-K for the fiscal year ended September 30, The Financial Information in this Part I includes separate financial statements (i.e., statements of income and comprehensive income, balance sheets, statements of shareholders’ equity and statements of cash flows) for Spire, Spire Missouri and Spire Alabama. The Notes to Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations are also included and presented herein on a combined basis for Spire, Spire Missouri and Spire Alabama. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
See the accompanying Notes to Financial Statements. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
See the accompanying Notes to Financial Statements. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SPIRE INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Continued) (UNAUDITED)
See the accompanying Notes to Financial Statements. CONDENSED CONSOLIDATED STATEMENTS OF (UNAUDITED)
SPIRE INC. CONDENSED CONSOLIDATED STATEMENTS OF (UNAUDITED)
* Accumulated other comprehensive income (loss) See the accompanying Notes to Financial Statements. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
See the accompanying Notes to Financial Statements. CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
See the accompanying Notes to Financial Statements. CONDENSED BALANCE SHEETS (UNAUDITED)
SPIRE MISSOURI INC. CONDENSED BALANCE SHEETS (Continued) (UNAUDITED)
See the accompanying Notes to Financial Statements.
CONDENSED STATEMENTS OF SHAREHOLDER’S EQUITY (UNAUDITED)
* Accumulated other comprehensive income (loss) See the accompanying Notes to Financial Statements. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
See the accompanying Notes to Financial Statements. CONDENSED STATEMENTS OF INCOME (UNAUDITED)
See the accompanying Notes to Financial Statements. CONDENSED BALANCE SHEETS (UNAUDITED)
SPIRE ALABAMA INC. CONDENSED BALANCE SHEETS (Continued) (UNAUDITED)
See the accompanying Notes to Financial Statements.
CONDENSED STATEMENTS OF SHAREHOLDER’S EQUITY (UNAUDITED)
See the accompanying Notes to Financial Statements. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
See the accompanying Notes to Financial Statements. SPIRE INC., SPIRE MISSOURI INC. AND SPIRE ALABAMA INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (Dollars in millions, except per share amounts) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION – These notes are an integral part of the accompanying unaudited financial statements of Spire Inc. (“Spire” or the “Company”) presented on a consolidated basis, Spire Missouri Inc. (“Spire Missouri”) and Spire Alabama Inc. (“Spire Alabama”). Spire Missouri, Spire Alabama and Spire EnergySouth Inc. (“Spire EnergySouth”) are wholly owned subsidiaries of Spire. Spire Missouri, Spire Alabama and the subsidiaries of Spire EnergySouth (Spire Gulf Inc. and Spire Mississippi Inc.) are collectively referred to as the “Utilities.” The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information with the instructions to Form The consolidated financial position, results of operations, and cash flows of Spire include the accounts of the Company and all its subsidiaries. Transactions and balances between consolidated entities have been eliminated from the consolidated financial statements of Spire. In compliance with GAAP, transactions between Spire Missouri and Spire Alabama and their affiliates, as well as intercompany balances on their balance sheets, have not been eliminated from their separate financial statements. Certain information is presented by reportable segment, as described below. Effective during the first quarter of fiscal 2023, the Company changed its reportable segments to reflect changes in the way its chief operating decision maker evaluates the performance of its operations, develops strategy and allocates capital resources. Specifically, Midstream, which was formerly included in Other, is now reported separately. The Company's historical segment disclosures have been recast to be consistent with the current presentation. NATURE OF OPERATIONS – Spire has
The Company’s earnings are derived primarily from its Gas Utility segment. Due to the seasonal nature of the Utilities’ business and the volumetric Spire Missouri rate design, earnings are typically concentrated during the heating season of November through April each fiscal year. As a result, the interim statements of income for Spire, Spire Missouri and Spire Alabama are not necessarily indicative of annual results or representative of succeeding quarters of the fiscal year. 21 REGULATED OPERATIONS –The Utilities account for their regulated operations in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 980,Regulated Operations. This topic sets forth the application of GAAP for those companies whose rates are established by or are subject to approval by an independent As authorized by the Missouri Public Service Commission (MoPSC), the Mississippi Public Service Commission (MSPSC) and the Alabama Public Service Commission (APSC), the Purchased Gas Adjustment (PGA) clauses and Gas Supply Adjustment (GSA) riders allow the Utilities to pass through to customers the cost of purchased gas supplies. Regulatory assets and liabilities related to the PGA clauses and the GSA riders are both labeled Unamortized Purchased Gas Adjustments herein. See additional information about regulatory assets and liabilities in Note DERIVATIVES – In the course of their business, certain subsidiaries of Spire enter into commitments associated with the purchase or sale of natural gas. Certain of their derivative natural gas contracts are designated as normal purchases or normal sales and, as such, are excluded from the scope of FASB ASC Topic 815,Derivatives and Hedging. Those contracts are accounted for as executory contracts and recorded on an accrual basis. Revenues and expenses from such contracts are recorded gross. Contracts not designated as normal purchases or normal sales are recorded as derivatives with changes in fair value recognized in earnings in the periods prior to physical delivery. Certain of Spire Marketing’s wholesale purchase and sale transactions are classified as trading activities for financial reporting purposes, with income and expenses presented on a net basis in natural gas expenses in the Condensed Consolidated Statements of Income. Spire also enters into cash flow hedges through execution of interest rate swap contracts to protect itself against adverse movements in interest rates. TRANSACTIONS WITH AFFILIATES –Transactions between affiliates of the Company have been eliminated from the consolidated financial statements of Spire. As reflected in their separate financial statements, Spire Missouri and Spire Alabama borrowed funds from the Company and incurred related
22 RESTRICTED CASH AND OTHER INVESTMENTS – In Spire’s statement of cash flows for the period ended March 31, A subsidiary of Spire Storage, in the Midstream segment, acquired a natural gas storage facility in northern Oklahoma formerly known as Salt Plains Storage on April 1, 2023. This will be reflected as a business combination in Spire’s third fiscal quarter ending June 30, 2023, with the assets acquired and liabilities assumed recorded based on their fair value at the acquisition date, and goodwill, if any, measured as the excess of the purchase price over the value of the net assets acquired. Because the closing date occurred on a weekend, Spire made a refundable payment of the $37.1 preliminary purchase price in advance on Friday, March 31, 2023, which is reflected in “Other Investments” in the consolidated balance sheet as of that date and as “Advance payment for business acquisition” on the related consolidated statement of cash flows. ACCRUED CAPITAL EXPENDITURES – Accrued capital expenditures, shown in the following table, are excluded from capital expenditures in the statements of cash flows until paid.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES – Trade accounts receivable are recorded at the amounts due from customers, including unbilled amounts. Accounts receivable are written off when they are deemed to be uncollectible. An allowance for expected credit losses is estimated and updated based on relevant data and trends such as accounts receivable aging, historical write-off experience, current write-off trends, economic conditions, and the impact of weather and availability of customer payment assistance on collection trends. For the Utilities, net write-offs as a percentage of revenue has historically been the best predictor of base net write-off experience over time. Management judgment is applied in the development of the allowance due to the complexity of variables and subjective nature of certain relevant factors.
23 The following tables show revenue disaggregated by source and customer type.
24
Gross receipts taxes associated with the Company’s natural gas utility services are imposed on the Company, Spire Missouri, and Spire Alabama and billed to its customers. The expense amounts (shown in the table below) are reported gross in the “Taxes, other than income taxes” line in the statements of income, and corresponding revenues are reported in “Operating Revenues.”
ATM Program On February 6, 2019, Spire entered into an “at-the-market” (ATM) equity distribution agreement, supplemented as of May 14, 2019, pursuant to which the Company may offer and sell, from time to time, shares of its common stock (including shares of common stock that may be sold pursuant to forward sale agreements entered into in connection with the ATM equity distribution agreement). On April 28, 2022, Spire's board approved a new authorization for the sale of additional shares with an aggregate offering price of up to $200.0 with a prospectus supplement dated May 9, 2022.
25 Settled sales under this ATM program are included in “Common stock issued” in the Condensed Consolidated Statements of Shareholders’ Equity. Also, in the second quarter of fiscal 2023, Spire executed forward sale agreements for 228,690 shares of its common stock, which must be settled on or before September 28, 2023. No shares of common stock have been settled under the forward sale agreements. Had all shares under the forward agreements been settled as of March 31, 2023, it would have generated net proceeds of $16.0.
As explained in Note 1, Summary of Significant Accounting Policies, the Utilities account for regulated operations in accordance with FASB ASC Topic 980,Regulated Operations. The following regulatory assets and regulatory liabilities were reflected in the balance sheets of the Company, Spire Missouri and Spire Alabama as of March 31, 2023, September 30, 2022, and March 31, 2022
26
27 A portion of the Company’s and Spire Missouri’s regulatory assets are not earning a return, as shown in the table below:
Like all the Company’s regulatory assets, these regulatory assets as of March 31, 2023 are expected to be recovered from customers in future rates. The recovery period for the future income taxes due from customers and pension and other postretirement benefit costs could be 20 years or longer, based on current Internal Revenue Service guidelines and average remaining service life of active participants, respectively. Spire Missouri
In 28 In the first quarter of fiscal 2022, the MoPSC approved Spire Missouri compliance tariffs with an effective date of December 23, 2021 consistent with its order in Spire Missouri's general rate case. These new tariffs were designed to increase Spire Missouri’s aggregate annual gross base rate revenues by $72.2, which includes $24.9 incremental and $47.3 already being collected through the Infrastructure System Replacement Surcharge (ISRS). The MoPSC required Spire Missouri to defer all non-operational overheads from December 23, 2021 through September 30, 2022 into a regulatory asset totaling $42.8. On April 1, 2022, Spire Missouri filed tariff sheets to initiate a new general rate case proceeding intended to address the deferred amounts, along with other matters. The parties reached a Full Unanimous Stipulation and Agreement (the “Stipulation”) to resolve all issues in the case, which was filed with the MoPSC on November 4, 2022. On November 18, 2022, the Stipulation was approved, including authorization of $78.0 in new base rate revenue (including $19.0 already being collected through ISRS) and recovery of deferred overheads through amortization of the related regulatory asset. New base rates became effective on December 26, 2022. The ISRS allows Spire Missouri expedited recovery for its investment to replace qualifying components of its infrastructure without the necessity of a formal rate case. As noted above, all prior ISRS revenues were reset to zero as of December 26, 2022 as a result of Spire Missouri's most recent base rate case. On April 20, 2023, the MoPSC approved an incremental annual ISRS revenue increase of $7.7, reflecting eligible pipe replacement from October 2022 through February 2023. This rate increase will be effective May 6, 2023. The Utilities purchase the natural gas to be delivered to their customers and typically defer the recovery of this expense thereby lessening the immediate impact on customers’ bills of higher realized commodity costs. These deferred gas balances are expected to be recovered over the next 12 months pursuant to tariff adjustments effective in Missouri (and Alabama). Spire Missouri filed Purchase Gas Adjustment (PGA) changes to its tariff in November and January which were approved and became effective November 29, 2022 and January 19, 2023, respectively. On May 27, 2022, the MoPSC staff filed an ACA Review Recommendation and Report for the ACA period that first includes transportation charges incurred by Spire Missouri for service on the Spire STL Pipeline. That report concluded that the transaction complied with Missouri affiliate transaction rules and was prudent, and it recommended no disallowance of any Spire STL Pipeline related costs from the ACA mechanism. On July 11, 2022, Spire Missouri filed its response comments in support of the The MoPSC has initiated their annual ACA dockets (GR-2022-0135 and GR-2022-0136) to audit gas commodity and transportation costs for the
29
Spire Alabama On October 26, Spire Alabama filed GSA rate increases effective December 1, Spire In addition to those discussed above for Spire Missouri and Spire Alabama, Spire is affected by the following regulatory matters.
In October On In August 2018, the FERC approved an order issuing 30 Short-term Spire,
Spire utilizes a commercial paper program (“CP Program”) pursuant to which Spire may issue short-term, unsecured commercial paper notes. Amounts available under the CP Program may be borrowed, repaid and re-borrowed from time to time, with the aggregate face or principal amount of the notes outstanding under the CP Program at any time not to exceed
In March 2021, Spire Missouri entered into a loan agreement with several banks for a $250.0, 364-day unsecured term loan with an interest rate based on LIBOR plus 65 basis points. The loan was repaid in March 2022. On January 5, 2023, Spire Missouri entered into a loan agreement with several banks for a $250.0 unsecured term loan due October 5, 2023. Interest accrues at either, as selected by the Company, a base rate or an adjusted forward-looking secured overnight financing rate (“SOFR”). Adjusted SOFR is based on one- or three-month term SOFR, as selected by the Company, plus a SOFR adjustment of 0.10% per annum plus a margin of 0.80% per annum. Information about short-term borrowings, including Spire Missouri’s and Spire Alabama’s borrowings from Spire, is presented in the following table. As of March 31,
31 Long-term The long-term debt agreements of Spire, Spire Missouri and Spire Alabama contain customary financial covenants and default provisions. As of March 31, Interest expense shown on the statements of income is net of the capitalized interest amounts shown in the following table.
On On February 13, 2023, Spire Missouri issued On March 7, 2023, Spire issued $150.0 aggregate principal amount of its 5.80% Series 2023 Senior Notes due March 15, 2033. Interest is payable In the quarter ended March 31, 2023, the company settled interest rate
The carrying amounts of cash and cash equivalents, notes receivable, and short-term debt approximate fair value due to the short maturity of these instruments. The fair values of long-term debt are estimated based on market prices for similar issues. Refer to Note 32 The carrying amounts and estimated fair values of financial instruments not measured at fair value on a recurring basis are shown in the following tables, classified according to the fair value hierarchy. There were no such instruments classified as Level 3 (significant unobservable inputs) as of March 31, 2023, September 30, 2022, and March 31, 2022
33 The information presented The mutual funds included in Level 1 are valued based on exchange-quoted market prices of individual securities. Derivative instruments included in Level 1 are valued using quoted market prices on the New York Mercantile Exchange (NYMEX) or the Intercontinental Exchange (ICE) The mutual funds are included in “Other Investments” on the Company’s balance sheets and in “Other Property and Investments” on Spire Missouri’s balance sheets. Changes in their recurring valuations are recorded as unrealized gains or losses in the corresponding income statement. Derivative assets and liabilities, including receivables and payables associated with cash margin requirements, are presented net in the balance sheets when a legally enforceable netting agreement exists between the Company, Spire Missouri, or Spire Alabama and the counterparty to a derivative contract. Spire
34
35 Spire Missouri
36
Pension Plans Spire and the Utilities maintain pension plans for their employees. Spire Missouri and Spire Alabama have non-contributory, defined benefit, trusteed forms of pension plans covering the majority of their employees. Qualified plan assets are comprised of mutual and commingled funds consisting of U.S. equities with varying strategies, global equities, alternative investments, and fixed income investments. The net periodic pension cost includes components shown in the following tables. The components other than the service costs and regulatory adjustment are presented in “Other Income, Net” in the income statement, except for Spire Alabama’s losses on lump-sum settlements. Such losses are capitalized in regulatory balances and amortized over the remaining actuarial life of individuals in the plan, and that amortization is presented in “Other Income, Net.”
37 Pursuant to the provisions of Spire Missouri’s and Spire Alabama’s pension plans, pension obligations may be satisfied by monthly annuities, lump-sum cash payments, or special termination benefits. Lump-sum payments are recognized as settlements (which can result in gains or losses) only if the total of such payments exceeds the sum of service and interest costs in a specific year. Special termination benefits, when offered, are also recognized as settlements which can result ingains or losses. For the three and six months ended March 31, 2023, two Spire Alabama plans met the criteria for settlement recognition. The lump-sum payments recognized as settlements for the remeasurement were $27.5 for the Spire Alabama plans. The lump-sum settlement resulted in a loss of $8.6 for Spire Alabama. For the remeasurement, the discount rate for both of the Spire Alabama plans was updated to 5.6%, from 5.7% for one plan and 5.65% for the other plan, at September 30, 2022. The Spire Alabama regulatory tariff requires that settlement losses be amortized over the remaining actuarial life of the individuals in the plan — in this case, 13.4 years for one plan and 12.4 years for the other plan. Therefore, no lump sum settlement expense was recorded in the six months ended March 31, 2023. For the three and six months ended March 31, 2022, Effective December 23, 2021, the pension cost for Spire Missouri’s western territory (Missouri West) included in customer rates was reduced from $5.5 to $4.4 per year, the pension cost included in Spire Missouri’s eastern territory (Missouri East) customer rates was increased from $29.0 to $32.4 per year. The difference between these amounts and pension expense as calculated pursuant to the above and that otherwise would be included in the statements of income and statements of comprehensive income is deferred as a regulatory asset or regulatory liability. Also effective December 23, 2021, Missouri East prepaid pension assets and other postretirement benefits that were previously being included in rates at $21.6 per year for eight years were reduced to $11.0 per year, with the amortization period being reset for another eight years. Missouri West net liability for pension and other postretirement benefits that were previously reducing rates by $3.3 per year for eight years were reduced to a $1.1 reduction in rates per year, with the amortization period being reset for another eight years. The funding policy of the Utilities is to contribute an amount not less than the minimum required by government funding standards, nor more than the maximum deductible amount for federal income tax purposes. Fiscal 2023 were $0.8. Contributions to the qualified trusts of Spire Missouri’s pension plans for the remainder of fiscal 38 Other Postretirement Benefits Spire and the Utilities provide certain life insurance benefits at retirement. Spire Missouri plans provide for medical insurance after early retirement until age 65. For retirements prior to January 1, 2015, certain Spire Missouri plans provided medical insurance after retirement until death. The Spire Alabama plans provide medical insurance upon retirement until death for certain retirees depending on the type of employee and the date the employee was originally hired. The net periodic postretirement benefit cost includes components shown in the following tables. The components other than the service costs and regulatory adjustment are presented in “Other Income, Net” in the income statement, except in the event Spire Alabama incurs losses on lump-sum settlements. Any such losses are capitalized in regulatory balances and amortized over the remaining actuarial life of individuals in the plan, and that amortization is presented in “Other Income, Net.”
39 Missouri and Alabama state laws provide for the recovery in rates of costs accrued pursuant to GAAP provided that such costs are funded through an independent, external funding mechanism. The Utilities have established Voluntary Employees’ Beneficiary Association (VEBA) and Rabbi Trusts as external funding mechanisms. The assets of the VEBA and Rabbi Trusts consist primarily of money market securities and mutual funds invested in stocks and bonds. Effective December 23, 2021, the $8.6 allowance for recovery in rates for Spire Missouri’s postretirement benefit plans was discontinued. The difference between no recovery in rates and pension expense as calculated pursuant to the above and that otherwise would be included in the statements of income and statements of comprehensive income is deferred as a regulatory asset or regulatory liability. The Utilities’ funding policy is to contribute amounts to the trusts equal to the periodic benefit cost calculated pursuant to GAAP as recovered in rates. There have been
The Company has
Accounting policies are described in Note 1, Summary of Significant Accounting Policies. Intersegment transactions include sales of natural gas from Spire Marketing to Spire Missouri, Spire Alabama and Spire Storage, sales of natural gas from Spire Missouri to Spire Marketing, propane transportation services provided by Spire NGL Management evaluates the performance of the operating segments based on the computation of net economic earnings. Net economic earnings exclude from reported net income the after-tax impacts of fair value accounting and timing adjustments associated with energy-related transactions, the impacts of acquisition, divestiture and restructuring activities, and the largely non-cash impacts of impairments and other non-recurring or unusual items such as certain regulatory, legislative, or GAAP standard-setting actions.
40
41
42
The following table reconciles the Company’s net economic earnings to net income.
The Company’s total assets by segment were as follows:
Commitments The Company and the Utilities have entered into contracts with various counterparties, expiring on dates through calendar 2039, for the storage, transportation, and supply of natural gas. Minimum payments required under the contracts in place at March 31, A consolidated subsidiary of Spire is a limited partner in an unconsolidated partnership focusing on sustainability initiatives largely tied to the natural gas utility sector. Spire committed to contribute a total of $10.0 of capital to the partnership as and when requested by the general partner. As of March 31, 2023, the remaining unfunded commitment was $7.7. Contingencies The Company and the Utilities account for contingencies, including environmental liabilities, in accordance with accounting standards under the loss contingency guidance of ASC Topic 450,Contingencies, when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In addition to matters noted below, the Company and the Utilities are involved in other litigation, claims, and investigations arising in the normal course of business. Management, after discussion with counsel, believes the final outcome will not have a material effect on the statements of income, balance sheets, and statements of cash flows of the Company, Spire Missouri, or Spire Alabama. However, there is uncertainty in the valuation of pending claims and prediction of litigation results. 43 The Company and the Utilities own and operate natural gas distribution, transmission, and storage facilities, the operations of which are subject to various environmental laws, regulations, and interpretations. While environmental issues resulting from such operations arise in the ordinary course of business, such issues have not materially affected the Company’s or Utilities’ financial position and results of operations. As environmental laws, regulations, and their interpretations change, the Company or the Utilities may incur additional environmental liabilities that may result in additional costs, which may be material. In the natural gas industry, many gas distribution companies have incurred environmental liabilities associated with sites they or their predecessor companies formerly owned or operated where manufactured gas operations took place. The Utilities each have former manufactured gas plant (MGP) operations in their respective service territories, some of which are discussed under the Spire Missouri and Spire Alabama headings below. To the extent costs are incurred associated with environmental remediation activities, the Utilities would request authority from their respective regulators to defer such costs (less any amounts received from insurance proceeds or as contributions from other potentially responsible parties (PRPs)) and collect them through future rates. To date, costs incurred for all Spire MGP sites for investigation, remediation and monitoring have not been material. However, the amount of costs relative to future remedial actions at these and other sites is unknown and may be material. The actual future costs that Spire Missouri and Spire Alabama may incur could be materially higher or lower depending upon several factors, including whether remediation will be required, final selection and regulatory approval of any remedial actions, changing technologies and government regulations, the ultimate ability of other PRPs to pay, and any insurance recoveries. In 2020, Spire retained an outside consultant to conduct probabilistic cost modeling of its former MGP sites in Missouri and Alabama. The purpose of this analysis was to develop an estimated range of probabilistic future liability for each of their MGP sites. That analysis, completed in March 2021, provided a range of demonstrated possible future expenditures to investigate, monitor and remediate the former MGP sites. Spire Missouri and Spire Alabama have recorded their best estimates of the probable expenditures that relate to these matters. The amount remains immaterial, and Spire Missouri, Spire Alabama and the Company do not expect potential liabilities that may arise from remediating these sites to have a material impact on their future financial condition or results of operations. Spire Missouri Spire Missouri has identified In conjunction with redevelopment of the Carondelet Coke site, Spire Missouri and another former owner of the site entered into an agreement (the “Remediation Agreement”) with the City development agencies, the developer, and an environmental consultant that obligates one of the City agencies and the environmental consultant to remediate the site and obtain a No Further Action (NFA) letter from the MoDNR. The Remediation Agreement also provides for a release of Spire Missouri and the other former site owner from certain liabilities related to the past and current environmental condition of the site and requires the developer and the environmental consultant to maintain certain insurance coverage, including remediation cost containment, premises pollution liability, and professional liability. The operative provisions of the Remediation Agreement were triggered on December 20, 2010, on which date Spire Missouri and the other former site owner, as full consideration under the Remediation Agreement, paid a small percentage of the cost of remediation of the site. The property was divided into seven parcels, and MoDNR NFA letters have been received for six of the parcels. Remediation is ongoing on the last parcel. In a letter dated June 29,2011, the Attorney General for the State of Missouri informed Spire Missouri that the MoDNR had completed an investigation of the second site, Station A. The Attorney General requested that Spire Missouri participate in the follow up investigations of the site. In a letter dated January 10, 2012, Spire Missouri stated that it would participate in future environmental response activities at the site in conjunction with other PRPs. Accordingly, Spire Missouri entered into a cost sharing agreement for remedial investigation with other PRPs. MoDNR never approved the agreement, so no remedial investigation took place. 44 Additionally, in correspondence dated November 30, 2016, Region 7 of the EPA has asserted that Spire Missouri is liable under Section Spire Missouri has notified its insurers that it seeks reimbursement for costs incurred in the past and future potential liabilities associated with these MGP sites. While some of the insurers have denied coverage and reserved their rights, Spire Missouri retains the right to seek potential reimbursements from them. On March 10, 2015, Spire Missouri received a Section In its western service area, Spire Missouri has Spire Alabama Spire Alabama is in the chain of title of In 2011, a removal action was completed and an NFA letter was received at the Huntsville MGP site pursuant to an Administrative Settlement Agreement and Order on Consent among the EPA, Spire Alabama and the current site owner. In 2012, Spire Alabama responded to an EPA Request for Information Pursuant to Section 104 of CERCLA relating to the 35th Avenue Superfund Site located in North Birmingham, Jefferson County, Alabama. Spire Alabama was identified as a PRP under CERCLA for the cleanup of the site or costs the EPA incurs in cleaning up the site. At this point, Spire Alabama has not been provided information that would allow it to determine the extent, if any, of its potential liability with respect to the 35th Avenue Superfund Site and vigorously denies its inclusion as a PRP. Assessments were performed by the EPA of the former MGP sites in Gadsden and Anniston, and NFA letters were received after each assessment. Spire In addition to those discussed above for Spire Missouri and Spire Alabama, Spire is aware of the following contingent matters. Spire Marketing, along with many natural gas industry participants, faced the unprecedented effects of Winter Storm Uri in February 2021. Numerous natural gas producers and midstream operators were unable to deliver natural gas to market as they experienced wellhead freeze-offs, power outages and equipment failure due to the extreme weather. These events resulted in supply curtailments, and related notices of force majeure to excuse performance, from and to certain counterparties. Further, these events have made Spire Marketing subject to various commercial disputes (including regarding force majeure) 45 Item 2. (Dollars in millions, except per share amounts) This section analyzes the financial condition and results of operations of Spire Inc. (the “Company”), Spire Missouri Inc., and Spire Alabama Inc. Spire Missouri, Spire Alabama and Spire EnergySouth are wholly owned subsidiaries of the Company. Spire Missouri, Spire Alabama and the subsidiaries of Spire EnergySouth (Spire Gulf and Spire Mississippi) are collectively referred to as the “Utilities.” This section includes management’s view of factors that affect the respective businesses of the Company, Spire Missouri and Spire Alabama, explanations of financial results including changes in earnings and costs from the prior periods, and the effects of such factors on the Company’s, Spire Missouri’s and Spire Alabama’s overall financial condition and liquidity. Certain matters discussed in this report, excluding historical information, include forward-looking statements. Certain words, such as “may,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “seek,” “target,” and similar words and expressions identify forward-looking statements that involve uncertainties and risks. Future developments may not be in accordance with our current expectations or beliefs and the effect of future developments may not be those anticipated. Among the factors that may cause results or outcomes to differ materially from those contemplated in any forward-looking statement are:
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company’s Condensed Consolidated Financial Statements, Spire Missouri’s and Spire Alabama’s Condensed Financial Statements, and the notes thereto.
OVERVIEW
Certain information is presented by reportable segment, as described below. Effective during the first quarter of fiscal 2023, the Company changed its reportable segments to reflect changes in the way its chief operating decision maker evaluates the performance of its operations, develops strategy and allocates capital resources. Specifically, Midstream, which was formerly included in Other is now reported separately. The Company's historical segment disclosures have been recast to be consistent with the current presentation.
The Company has twothree reportable segments: Gas Utility, Gas Marketing, and Gas Marketing. Nearly all ofMidstream. Spire’s earnings are derived primarily from its Gas Utility segment, which reflects the regulated activities of the Utilities. Due to the seasonal nature of the Utilities’ business and the volumetric Spire Missouri rate design, earnings of Spire and each of the Utilities are typically concentrated during the heating season of November through April each fiscal year.
Gas Utility -– Spire Missouri
Spire Missouri is Missouri’s largest natural gas distribution utility and is regulated by the MoPSC. Spire Missouri serves St. Louis, Kansas City, and other areas throughout the state. Spire Missouri purchases natural gas in the wholesale market from producers and marketers and ships the gas through interstate pipelines into its own distribution facilities for sale to residential, commercial and industrial customers. Spire Missouri also transports gas through its distribution system for certain larger customers who buy their own gas on the wholesale market. Spire Missouri delivers natural gas to customers at rates and in accordance with tariffs authorized by the MoPSC. The earnings of Spire Missouri are primarily generated by the sale of heating energy.
Gas Utility -– Spire Alabama
Spire Alabama is the largest natural gas distribution utility in the state of Alabama and is regulated by the APSC. Spire Alabama’s service territory is located in central and northern Alabama. Among the cities served by Spire Alabama are Birmingham, the center of the largest metropolitan area in the state, and Montgomery, the state capital. Spire Alabama purchases natural gas through interstate and intrastate suppliers and distributes the purchased gas through its distribution facilities for sale to residential, commercial, and industrial customers, and other end users of natural gas. Spire Alabama also transports gas through its distribution system for certain large commercial and industrial customers for a transportation fee. Effective December 1, 2020, for most of these transportation service customers, Spire Alabama also purchases gas on the wholesale market for sale to the customer upon delivery to the Spire Alabama distribution system. All Spire Alabama services are provided to customers at rates and in accordance with tariffs authorized by the APSC.
Gas Utility -– Spire EnergySouth
Spire Gulf and Spire Mississippi are utilities engaged in the purchase, retail distribution and sale of natural gas to approximately 100,000 customers in southern Alabama and south-central Mississippi. Spire Gulf is regulated by the APSC, and Spire Mississippi is regulated by the MSPSC.
Gas Marketing
Spire Marketing is engaged in the marketing of natural gas and related activities on a non-regulated basis and is reported in the Gas Marketing segment. Spire Marketing markets natural gas throughoutto customers across the U.S. (and into Canada), including customers inside and outside of the Utilities’ service areas. It holds firm transportation and storage contracts in order to effectively manage its transactions with counterparties, which primarily include producers, municipalities, electric and gas utility companies, and large commercial and industrial customers.
OtherMidstream
Other components
Spire's midstream operations consist of the Company’s consolidated information include:
|
|
|
|
|
|
Spire Storage West LLC, Spire Storage Salt Plains LLC (jointly, “Spire Storage”) and Spire STL Pipeline LLC (“Spire STL Pipeline”). Spire STL Pipeline is a wholly owned subsidiary of Spire which owns and operates a FERC-regulated 65-mile pipeline connecting the Rockies Express Pipeline in Scott County, Illinois, to delivery points in St. Louis County, Missouri, including Spire Missouri’s storage facility. The pipeline is under the jurisdiction of the FERC and is currently permitted to deliver natural gas supply into eastern Missouri under a temporary certificate authorization. Spire STL Pipeline’s operating revenue is derived primarily from Spire Missouri as its foundation shipper.
Spire Storage is engaged in the storage of natural gas in both the western regionand midcontinent regions of the United States. The storage facility located in Wyoming consists of two storage fields operating under one FERC market-based rate tariff.tariff, while the storage facility located in Oklahoma, acquired on April 1, 2023, operates under intrastate jurisdiction with authorizations from FERC under Section 311 of the Natural Gas Policy Act to provide certain interstate storage, transportation, and hub services.
COVID-19
The outbreak of coronavirus disease 2019 (COVID-19) has adversely impacted economic activity and conditions worldwide. We are continuing to assess the developments involving our workforce, customers and suppliers, as well as the response of federal and state authorities, our regulators and other business and community leaders. The Company has implemented what we believe to be appropriate procedures and protocols to ensure the safety of our customers, suppliers and employees. Impacts on our results of operations from COVID-19 have been minimal, partly as a result of regulatory recovery mechanisms and approvals.Other
The Company is participating in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provisions allowing for a payroll tax deferral which did not have an impact on our results of operations but deferred the payment
Other components of the Company’s portionconsolidated information include Spire’s subsidiaries engaged in the operation of a propane pipeline and risk management, among other activities, and unallocated corporate items, including certain payroll taxes until late in fiscal 2021debt and 2022. Although the Company does not currently expect to seek relief under any other CARES Act provisions, we will continue to monitor all pending and future federal, state and local efforts related to the COVID-19 health crisis and assess our need and, as applicable, eligibility for any such relief.associated interest costs.
NON-GAAP MEASURES
Net income, earnings per share and operating income reported by Spire, Spire Missouri and Spire Alabama are determined in accordance with accounting principles generally accepted in the United States of America (GAAP). Spire, Spire Missouri and Spire Alabama also provide the non-GAAP financial measures of net economic earnings, net economic earnings per share and contribution margin. Management and the Board of Directors use non-GAAP financial measures, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting, to determine incentive compensation and to evaluate financial performance. These non-GAAP operating metrics should not be considered as alternatives to, or more meaningful than, the related GAAP measures. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are provided on the following pages.
Net Economic Earnings and Net Economic Earnings Per Share
Net economic earnings and net economic earnings per share are non-GAAP measures that exclude from net income, as applicable, the impacts of fair value accounting and timing adjustments associated with energy-related transactions, the impacts of acquisition, divestiture and restructuring activities, and the largely non-cash impacts of impairments, and other non-recurring or unusual items such as certain regulatory, legislative or GAAP standard-setting actions. In addition, net economic earnings per share would exclude the impact, in the fiscal year of issuance, of any shares issued to finance acquisitionssuch activities that have yet to be included in net economic earnings.
The fair value and timing adjustments are made in instances where the accounting treatment differs from what management considers the economic substance of the underlying transaction, including the following:
• |
| Net unrealized gains and losses on energy-related derivatives that are required by GAAP fair value accounting associated with current changes in the fair value of financial and physical transactions prior to their completion and settlement. These unrealized gains and losses result primarily from two sources: |
1) |
| changes in the fair values of physical and/or financial derivatives prior to the period of settlement; and |
2) |
| ineffective portions of accounting hedges, required to be recorded in earnings prior to settlement, due to differences in commodity price changes between the locations of the forecasted physical purchase or sale transactions and the locations of the underlying hedge instruments; |
• |
| Lower of cost or market adjustments to the carrying value of commodity inventories resulting when the net realizable value of the commodity falls below its original cost, to the extent that those commodities are economically hedged; and |
• |
| Realized gains and losses resulting from the settlement of economic hedges prior to the sale of the physical commodity. |
These adjustments eliminate the impact of timing differences and the impact of current changes in the fair value of financial and physical transactions prior to their completion and settlement. Unrealized gains or losses are recorded in each period until being replaced with the actual gains or losses realized when the associated physical transactions occur. Management believes that excluding the earnings volatility caused by recognizing changes in fair value prior to settlement and other timing differences associated with related purchase and sale transactions provides a useful representation of the economic effects of only the actual settled transactions and their effects on results of operations. While management uses these non-GAAP measures to evaluate all of its businesses, the net effect of these fair value and timing adjustments on the Utilities’ earnings is minimal because gains or losses on their natural gas derivative instruments are deferred pursuant to state regulation.
Contribution Margin
In addition to operating revenues and operating expenses, management also uses the non-GAAP measure of contribution margin when evaluating results of operations. Contribution margin is defined as operating revenues less natural gas costs and gross receipts tax expense. The Utilities pass to their customers (subject to prudence review by, as applicable, the MoPSC, APSC or MSPSC) increases and decreases in the wholesale cost of natural gas in accordance with their PGA clauses or GSA riders. The volatility of the wholesale natural gas market results in fluctuations from period to period in the recorded levels of, among other items, revenues and natural gas cost expense. Nevertheless, increases and decreases in the cost of gas associated with system gas sales volumes and gross receipts tax expense (which are calculated as a percentage of revenues), with the same amount (excluding immaterial timing differences) included in revenues, have no direct effect on operating income. Therefore, management believes that contribution margin is a useful supplemental measure, along with the remaining operating expenses, for assessing the Company’s and the Utilities’ performance.
Spire
Net Income and Net Economic Earnings
The Company reported net income growth of $5.6 and net economic earnings growth of $18.2, reflecting improved results across all segments in the quarter.
The following tables reconcile the Company’s net economic earnings to the most comparable GAAP number, net income.
|
| Gas Utility |
|
| Gas Marketing |
|
| Other |
|
| Total |
|
| Per Diluted Common Share** |
| |||||
Three Months Ended March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) [GAAP] |
| $ | 169.2 |
|
| $ | 7.0 |
|
| $ | (2.6 | ) |
| $ | 173.6 |
|
| $ | 3.27 |
|
Adjustments, pre-tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value and timing adjustments |
|
| — |
|
|
| 9.9 |
|
|
| — |
|
|
| 9.9 |
|
|
| 0.20 |
|
Income tax adjustments* |
|
| — |
|
|
| (2.5 | ) |
|
| — |
|
|
| (2.5 | ) |
|
| (0.05 | ) |
Net Economic Earnings (Loss) [Non-GAAP] |
| $ | 169.2 |
|
| $ | 14.4 |
|
| $ | (2.6 | ) |
| $ | 181.0 |
|
| $ | 3.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) [GAAP] |
| $ | 166.4 |
|
| $ | 24.9 |
|
| $ | (3.9 | ) |
| $ | 187.4 |
|
| $ | 3.55 |
|
Adjustments, pre-tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Missouri regulatory adjustment |
|
| (9.0 | ) |
|
| — |
|
|
| — |
|
|
| (9.0 | ) |
|
| (0.17 | ) |
Fair value and timing adjustments |
|
| 0.2 |
|
|
| 19.9 |
|
|
| — |
|
|
| 20.1 |
|
|
| 0.39 |
|
Income tax adjustments* |
|
| 2.1 |
|
|
| (5.0 | ) |
|
| — |
|
|
| (2.9 | ) |
|
| (0.06 | ) |
Net Economic Earnings (Loss) [Non-GAAP] |
| $ | 159.7 |
|
| $ | 39.8 |
|
| $ | (3.9 | ) |
| $ | 195.6 |
|
| $ | 3.71 |
|
|
* Income tax adjustments include amounts calculated by applying federal, state, and local income tax rates applicable to ordinary income to | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
Note: In the following discussion, all references to earnings (loss) per share and netamounts of the pre-tax reconciling items.
** Net economic earnings per share refer to earnings (loss) per diluted common share andis calculated by replacing consolidated net income with consolidated net economic earnings (loss) per diluted common share.
Consolidated
Spire had net income of $173.6 for the three months ended March 31, 2022, compared with net income of $187.4 for the three months ended March 31, 2021. Income per diluted share was $3.27 for the current quarter compared to income of $3.55 per diluted share for the prior-year quarter. The net income decline of $13.8 was primarily driven by a $17.9 reduction in the Gas Marketing segment, partly offset by $2.8 improved performance in the Gas Utility segmentGAAP diluted earnings per share calculation, which includes reductions for cumulative preferred dividends and a $1.3 increase in Other.participating shares.
Spire’s net economic earnings for the second quarter were $181.0 ($3.42 per diluted share), compared to $195.6 ($3.71 per diluted share) in the prior year, reflecting lower earnings at Gas Marketing, partly offset by stronger performance in Gas Utility and Other. These impacts are described in further detail below.
Gas Utility
Net economic earnings for the Gas Utility segment increased $9.5 from the second quarter
Gas Marketing
Fiscal 2022 second quarter net economic earnings for the Gas Marketing segment were $14.4, compared to $39.8 last year, reflecting less favorable market conditions that are described in further detail below.
Other
For the three months ended March 31, 2022, net economic loss decreased $1.3 compared with last year, primarily reflecting improved results at Spire Storage.
Operating Revenues and Expenses and Contribution Margin
Reconciliations of the Company’s contribution margin to the most directly comparable GAAP measure are shown below.
Gas Utility | Gas Marketing | Midstream | Other | Eliminations | Consolidated | |||||||||||||||||||
Three Months Ended March 31, 2023 | ||||||||||||||||||||||||
Operating Income (Loss) [GAAP] | $ | 251.3 | $ | 2.4 | $ | 7.5 | $ | (0.9 | ) | $ | — | $ | 260.3 | |||||||||||
Operation and maintenance expenses | 119.3 | 5.7 | 6.2 | 4.9 | (4.0 | ) | 132.1 | |||||||||||||||||
Depreciation and amortization | 60.2 | 0.4 | 2.0 | — | — | 62.6 | ||||||||||||||||||
Taxes, other than income taxes | 80.4 | 0.6 | 0.8 | 0.1 | — | 81.9 | ||||||||||||||||||
Less: Gross receipts tax expense | (60.0 | ) | (0.2 | ) | — | — | — | (60.2 | ) | |||||||||||||||
Contribution Margin [Non-GAAP] | 451.2 | 8.9 | 16.5 | 4.1 | (4.0 | ) | 476.7 | |||||||||||||||||
Natural gas costs | 543.3 | 51.5 | — | — | (8.3 | ) | 586.5 | |||||||||||||||||
Gross receipts tax expense | 60.0 | 0.2 | — | — | — | 60.2 | ||||||||||||||||||
Operating Revenues | $ | 1,054.5 | $ | 60.6 | $ | 16.5 | $ | 4.1 | $ | (12.3 | ) | $ | 1,123.4 | |||||||||||
Three Months Ended March 31, 2022 | ||||||||||||||||||||||||
Operating Income [GAAP] | $ | 230.4 | $ | 9.6 | $ | 5.2 | $ | — | $ | — | $ | 245.2 | ||||||||||||
Operation and maintenance expenses | 104.2 | 3.2 | 5.8 | 4.2 | (4.2 | ) | 113.2 | |||||||||||||||||
Depreciation and amortization | 56.5 | 0.4 | 1.9 | 0.1 | — | 58.9 | ||||||||||||||||||
Taxes, other than income taxes | 70.3 | 0.4 | 0.9 | — | — | 71.6 | ||||||||||||||||||
Less: Gross receipts tax expense | (51.9 | ) | — | — | — | — | (51.9 | ) | ||||||||||||||||
Contribution Margin [Non-GAAP] | 409.5 | 13.6 | 13.8 | 4.3 | (4.2 | ) | 437.0 | |||||||||||||||||
Natural gas costs | 356.0 | 45.8 | — | — | (9.8 | ) | 392.0 | |||||||||||||||||
Gross receipts tax expense | 51.9 | — | — | — | — | 51.9 | ||||||||||||||||||
Operating Revenues | $ | 817.4 | $ | 59.4 | $ | 13.8 | $ | 4.3 | $ | (14.0 | ) | $ | 880.9 | |||||||||||
|
| Gas Utility |
|
| Gas Marketing |
|
| Other |
|
| Eliminations |
|
| Consolidated |
| |||||
Three Months Ended March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income [GAAP] |
| $ | 230.4 |
|
| $ | 9.6 |
|
| $ | 5.2 |
|
| $ | — |
|
| $ | 245.2 |
|
Operation and maintenance expenses |
|
| 104.2 |
|
|
| 3.2 |
|
|
| 10.0 |
|
|
| (4.2 | ) |
|
| 113.2 |
|
Depreciation and amortization |
|
| 56.5 |
|
|
| 0.4 |
|
|
| 2.0 |
|
|
| — |
|
|
| 58.9 |
|
Taxes, other than income taxes |
|
| 70.3 |
|
|
| 0.4 |
|
|
| 0.9 |
|
|
| — |
|
|
| 71.6 |
|
Less: Gross receipts tax expense |
|
| (51.9 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (51.9 | ) |
Contribution Margin [Non-GAAP] |
|
| 409.5 |
|
|
| 13.6 |
|
|
| 18.1 |
|
|
| (4.2 | ) |
|
| 437.0 |
|
Natural gas costs |
|
| 356.0 |
|
|
| 45.8 |
|
|
| — |
|
|
| (9.8 | ) |
|
| 392.0 |
|
Gross receipts tax expense |
|
| 51.9 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 51.9 |
|
Operating Revenues |
| $ | 817.4 |
|
| $ | 59.4 |
|
| $ | 18.1 |
|
| $ | (14.0 | ) |
| $ | 880.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income [GAAP] |
| $ | 224.0 |
|
| $ | 31.7 |
|
| $ | 1.7 |
|
| $ | — |
|
| $ | 257.4 |
|
Operation and maintenance expenses |
|
| 104.0 |
|
|
| 7.1 |
|
|
| 11.1 |
|
|
| (3.2 | ) |
|
| 119.0 |
|
Depreciation and amortization |
|
| 49.5 |
|
|
| 0.3 |
|
|
| 1.7 |
|
|
| — |
|
|
| 51.5 |
|
Taxes, other than income taxes |
|
| 56.4 |
|
|
| 0.5 |
|
|
| 1.0 |
|
|
| — |
|
|
| 57.9 |
|
Less: Gross receipts tax expense |
|
| (42.1 | ) |
|
| (0.1 | ) |
|
| — |
|
|
| — |
|
|
| (42.2 | ) |
Contribution Margin [Non-GAAP] |
|
| 391.8 |
|
|
| 39.5 |
|
|
| 15.5 |
|
|
| (3.2 | ) |
|
| 443.6 |
|
Natural gas costs |
|
| 619.2 |
|
|
| (6.2 | ) |
|
| 0.1 |
|
|
| 6.0 |
|
|
| 619.1 |
|
Gross receipts tax expense |
|
| 42.1 |
|
|
| 0.1 |
|
|
| — |
|
|
| — |
|
|
| 42.2 |
|
Operating Revenues |
| $ | 1,053.1 |
|
| $ | 33.4 |
|
| $ | 15.6 |
|
| $ | 2.8 |
|
| $ | 1,104.9 |
|
Consolidated
Spire reported operating revenues of $880.9Select variances for the three monthsquarter ended March 31, 2023 compared to the quarter ended March 31, 2022 a $224.0 decreaseare summarized in the following table and discussed below.
Gas | Gas | Other, Net of | ||||||||||||||||||
Variances: Fiscal 2023 Versus Fiscal 2022 | Utility | Marketing | Midstream | Eliminations | Consolidated | |||||||||||||||
Net Income | $ | 14.3 | $ | (4.8 | ) | $ | 1.2 | $ | (5.1 | ) | $ | 5.6 | ||||||||
Net Economic Earnings [Non-GAAP] | 14.7 | 7.4 | 1.2 | (5.1 | ) | 18.2 | ||||||||||||||
Operating Revenues | 237.1 | 1.2 | 2.7 | 1.5 | 242.5 | |||||||||||||||
Contribution Margin [Non-GAAP] | 41.7 | (4.7 | ) | 2.7 | (0.0 | ) | 39.7 | |||||||||||||
Operation and Maintenance Expenses | 15.1 | 2.5 | 0.4 | 0.9 | 18.9 | |||||||||||||||
Interest Expense | 19.7 | |||||||||||||||||||
Other Income | 10.4 | |||||||||||||||||||
Income Tax | 0.2 | |||||||||||||||||||
The increase in interest expense reflects the significant increase in short-term interest rates and higher debt levels versus the prior year. Current year weighted-average short-term debt increased, driven by timing of gas cost recoveries, and weighted-average short-term interest rates were 5.03% in the current-year quarter, versus 0.56% in the prior-year quarter.
After removing the impact of the Non-Service Cost Postretirement Benefit Transfer (“NSC Transfer”) of $2.8, other income increased $7.6. This increase was primarily the result of favorable inventory carrying cost credits and mark-to-market valuations on unqualified retirement trusts at Spire Missouri.
The change in income taxes reflects slightly favorable income mix. Removing this impact, the change in income taxes is in line with the change in pre-tax book income.
Gas Utility
For the quarter ended March 31, 2023, Gas Utility segment experienced a quarter-over-quarter decrease of $235.7 in operating revenues. This reductionnet income was only partly offset$14.3 higher than the prior-year period, driven by the $26.0 increase reported by the Gas Marketing segment. Spire’s contribution margin decreased $6.6 compared with last year, as a decrease of $25.9$13.9 growth at Spire Missouri. Net economic earnings in the Gas Marketing segmentcurrent year was only partly offset by the increase experienced by the Gas Utility segment and Other. Depreciation and amortization expenses were up $7.4 due to continuing Gas Utility capital investments. Gas Utility operation and maintenance (O&M) expenses of $104.2 for the quarter were $0.2$14.7 higher than last year. Gas Utility O&M was $4.7 lower after adjusting for the $9.0 benefit recorded lastprior year, of previously disallowed pension expenses relating towhich tracks the 2018 rate case due to a Missouri Supreme Court ruling, the $3.1 transfer of quarter-over-quarter nonservice postretirement benefit costs to other expense below the operatingnet income line (the “Nonservice Cost Transfer”) and the reversal of $1.0 of Spire Missouri non-operational overheads charged to O&M during the first quarter of 2022 that are now deferred.trend. These impactsresults are described in further detail below.
Gas Utility
Operating Revenues – Gas Utility operating revenues for the three months ended March 31, 2022, were $817.4, or $235.7 lower than the same period in the prior year. The decreaseincrease in Gas Utility operating revenues was attributable to the following factors:
Spire Missouri – OFO charges |
| $ | (195.8 | ) |
Spire Missouri and Spire Alabama – Off-system sales and capacity release |
|
| (93.5 | ) |
Spire Missouri and Spire Alabama – Volumetric usage (net of weather mitigation) |
|
| (17.2 | ) |
Spire Missouri and Spire Alabama – Higher PGA/GSA costs (gas cost recovery) |
|
| 34.3 |
|
Spire Missouri – 2021 rate case outcomes |
|
| 24.7 |
|
Spire Missouri – Higher gross receipts taxes |
|
| 10.4 |
|
Spire Alabama – RSE adjustments, net |
|
| 2.5 |
|
All other factors |
|
| (1.1 | ) |
Total Variation |
| $ | (235.7 | ) |
Spire Missouri and Spire Alabama – Higher PGA/GSA rates (gas cost recovery) | $ | 219.2 | ||
Spire Missouri – 2022 rate order | 36.2 | |||
Spire Alabama – RSE adjustments, net | 7.9 | |||
Spire EnergySouth | 3.1 | |||
Spire Missouri and Spire Alabama – Volumetric usage (net of weather mitigation) | (32.6 | ) | ||
All other factors | 3.3 | |||
Total Variation | $ | 237.1 |
The prior year Gas Utility results included benefits that resulted from the February 2021 cold weather event (“Winter Storm Uri”). As a result, current year second quarter revenues were $235.7 below the prior-year quarter. Key drivers included $195.8 in cover charges and Operational Flow Order (OFO) penalties to certain wholesale customers at Spire Missouri in the prior year. Off-system sales in the current-year quarter were $93.5 lower than the prior year, with the prior year benefiting from historically high off-system sales relating primarily to Winter Storm Uri. Weather patterns in the prior year drove higher volumetric usage, contributing to a $17.2 quarter-over-quarterprimary driver of revenue decline. These negative impacts were only partly offset by $34.3growth was $219.2 in higher gas cost recoveries in the current year reflecting the higher average gas costs being passed through to customers, and a $24.7$36.2 increase from Spire Missouri resulting from the impact of implementing the 2022 rate order. The current-year quarter also benefited from Spire Missouri’s 2021 rate order that went into effect late in the first quarterAlabama's favorable RSE adjustments of this year, $10.4$7.9 and an increase of higher gross-receipt taxes$3.1 at Spire EnergySouth. These favorable impacts were partly offset by lower volumetric usage (net of weather mitigation) totaling $32.6 across Spire Missouri and $2.5 in net rate adjustments under the RSE mechanism at Spire Alabama.
Contribution Margin –
The year-over-year increase in Gas Utility contribution margin was $409.5 for the three months ended March 31, 2022, a $17.7 increase over the same period in the prior year. The increase was attributable to the following factors:
Spire Missouri – 2021 rate case outcomes |
| $ | 24.7 |
| ||||
Spire Alabama – Rate adjustment under RSE mechanism, net |
|
| 2.3 |
| ||||
Spire Missouri – 2022 rate order | $ | 36.2 | ||||||
Spire Alabama – RSE adjustments, net | 6.4 | |||||||
Spire EnergySouth | 3.2 | |||||||
Spire Missouri and Spire Alabama – Volumetric usage (net of weather mitigation) |
|
| (4.3 | ) | (5.0 | ) | ||
Spire Missouri and Spire Alabama – Off-system sales and capacity release |
|
| (2.2 | ) | ||||
All other factors |
|
| (2.8 | ) | 0.9 | |||
Total Variation |
| $ | 17.7 |
| $ | 41.7 | ||
Quarter-over-quarter contribution
Contribution margin growth versus the prior year was primarily driven by the $24.7previously mentioned $36.2 increase from the previously mentioned rate increases atimpact of the Spire Missouri and $2.3 net2022 rate order, $6.4 from favorable rate adjustments underwithin the RSE mechanismframework at Spire Alabama. These positive impacts were only partly offset by decreases resulting from volumetric usageAlabama, and lower off-system salesgains of $4.3 and $2.2, respectively.$3.2 at Spire EnergySouth.
Operating Expenses –
O&M expenses for the three months ended March 31, 2022,2023, were $0.2$15.1 higher than the prior year. AfterRun-rate expenses increased $12.4 after removing the $3.1$2.7 impact of the Nonservice Cost Transfer, $1.0NSC Transfer. The Gas Utility segment O&M increase reflects approximately $6.0 due to the change in treatment of non-operationalSpire Missouri general overheads mentioned earlier,that were being deferred in the prior-year period, higher non-employee operations expense of $5.8 and last year’s $9.0 rate case refund rulinghigher bad debts expense of $2.9. These unfavorable impacts were only partly offset by the Missouri Supreme Court, expenses decreased $4.7. The decrease was largely due to lower employee-related expenses and lower bad debtfavorable insurance expense.
Taxes, other than income taxes, increased $10.1, and were driven by $8.1 in higher pass-through gross receipts taxes, along with higher property taxes resulting from the continued infrastructure build-out by the Utilities. Depreciation and amortization expenses for the fiscal 2022 second quarter ended March 31, 2023 were $7.0$3.7 higher than the same period in the prior year primarily driven by continued infrastructure capital expenditures across all the Utilities.
Gas Marketing
Operating Revenues
Net economic earnings reflect the strong operating results experienced in the current-year quarter, driven by favorable market conditions that allowed the business to take advantage of regional basis differentials to optimize storage and transportation positions, only slightly offset by higher O&M costs from associated higher employee-related costs. Net income reflected these same variance drivers, as well as the unfavorable quarter-over-quarter mark-to-market activity on open derivative contracts.
– Operating revenuesMidstream
Net income and net economic earnings for the Company’s Midstream segment increased $26.0 versus the prior-year period as higher commodity prices and a lower proportion of total current year sales attributable to trading activities (trading revenues are netted against trading costs) all contributed to the growth over prior-year quarter.
Contribution Margin – Gas Marketing contribution margin during$1.2 for the quarter ended March 31, 2022, decreased $25.9 from the same period in the prior year, due principally to the benefit from2023 versus the prior-year quarter, that resulted from Winter Storm Uri totaling $23.8 (net of 2021 commercial claims thatprimarily attributable to Spire Storage, reflecting optimized operational and withdrawal commitments. The $2.7 increase in revenues and contribution margin reflect the optimization activity at Spire Storage. Operating expenses across the segment were resolved in line with the second quarter of fiscal 2022). Current year margin was negatively impacted by lower storage and wholesale/retail margins, driven by tighter spreads, higher demand charges and tighter geographic location spreads. These impacts were only partly offset by $10.0 favorable mark-to-market adjustments on open derivative positions.prior-year quarter.
Interest Charges
Consolidated interest charges increased by $1.7, principally due to higher Gas Utilities long-term debt and higher average short-term borrowings and interest ratesOther
The Company’s other activities generated a $10.7 loss in the current-year quarter. For the three months ended March 31, 20222023, $5.1 higher than the prior-year quarter. The larger current-year loss was driven by $3.8 higher interest expense in the current year, reflecting both higher borrowings and 2021, average short-term borrowings were $789.4 and $626.7, respectively, and the average interest rate on these borrowings was 0.56% and 0.28%, respectively.rates, combined with higher corporate costs.
Income Taxes
Consolidated income taxSpire Missouri
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Operating Income [GAAP] | $ | 147.5 | $ | 130.2 | ||||
Operation and maintenance expenses | 77.4 | 64.3 | ||||||
Depreciation and amortization | 39.2 | 35.9 | ||||||
Taxes, other than income taxes | 61.2 | 53.0 | ||||||
Less: Gross receipts tax expense | (45.6 | ) | (39.0 | ) | ||||
Contribution Margin [Non-GAAP] | 279.7 | 244.4 | ||||||
Natural gas costs | 465.7 | 287.8 | ||||||
Gross receipts tax expense | 45.6 | 39.0 | ||||||
Operating Revenues | $ | 791.0 | $ | 571.2 | ||||
Net Income | $ | 112.1 | $ | 98.2 | ||||
Revenues for the three monthsquarter ended March 31, 2022, decreased $5.3 versus2023 were $219.8 higher than the same period in the prior year. The variance is due principally to the lower pre-tax book income and a slightly favorable effective tax rate resulting from income mix.
Spire Missouri
|
| Three Months Ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Operating Income [GAAP] |
| $ | 130.2 |
|
| $ | 120.8 |
|
Operation and maintenance expenses |
|
| 64.3 |
|
|
| 62.8 |
|
Depreciation and amortization |
|
| 35.9 |
|
|
| 31.0 |
|
Taxes, other than income taxes |
|
| 53.0 |
|
|
| 38.9 |
|
Less: Gross receipts tax expense |
|
| (39.0 | ) |
|
| (28.6 | ) |
Contribution Margin [Non-GAAP] |
|
| 244.4 |
|
|
| 224.9 |
|
Natural gas costs |
|
| 287.8 |
|
|
| 537.4 |
|
Gross receipts tax expense |
|
| 39.0 |
|
|
| 28.6 |
|
Operating Revenues |
| $ | 571.2 |
|
| $ | 790.9 |
|
Net Income |
| $ | 98.2 |
|
| $ | 93.1 |
|
Prior year operating revenues results included benefits derived from Winter Storm Uri. As a result, revenues for the three months ended March 31, 2022 were $219.7 below thecomparable prior-year quarter. Key drivers were a reductionperiod. A key driver was an increase in gas recovery costs totaling $165.1, primarily$184.0. Further, $36.2 of the resultincrease was attributable to fiscal 2023 results including the impact of $195.8 in cover charges and OFO penalties to certain wholesale customers in the prior year. Off-system sales inimplementation of the current-year quarter2022 rate order. Higher gross receipts taxes contributed a $6.6 increase. These revenue growth drivers were $92.2only partially offset by lower than the prior year, with the second quarter of 2021 benefiting from historically high off-system sales relating primarily to Winter Storm Uri. These negative impacts were only partly offset by the $24.7 increase resulting from the rate increases that went into effect late in the first quarter of this year, $10.4 of higher gross-receipt taxes, and a $5.6 increase due to volume (driven by a combination of higher costs and volume).$6.8.
Contribution margin for the three months ended March 31, 2022,2023, increased $19.5$35.3 from the same period in the prior year, largely theas a result of the $24.7 increase attributable to the previously mentioned timing of the 2022 rate changes more than offsetting $2.0 lower off-system sales and a $1.9 decrease due volumetric impacts (including weather mitigation).case implementation generating $36.2 incremental contribution.
Reported O&M expenses for the secondcurrent-year quarter increased $1.5$13.1 versus the prior year. AfterRun-rate expenses increased $10.8 after removing the $2.5$2.3 impact of the Nonservice Cost Transfer, $1.0 of non-operational overheads mentioned earlier, and last year’s $9.0 rate case refund ruling by the Missouri Supreme Court, expenses decreased $4.0.NSC Transfer. The decreaseincrease was largely due to $6.0 of general overheads that were previously deferred and were not reflected in rates collected during the current year. The increase also reflects higher non-employee operations expense of $4.8 and higher bad debts expense of $2.7, partly offset by lower employee-related expenses and lower bad debt expenses. favorable insurance expense.
Depreciation and amortization expenses increased $4.9$3.3 versus the prior-year quarter due to ongoing capital investments. Taxes, other than income taxes, increased $8.2, driven by the higher pass-through gross receipts taxes of $6.6, combined with higher property taxes resulting from the continued infrastructure build-out.
Other expense was higherincome improved by $3.2, with $2.5$6.0 after removing the $2.3 impact due to the Nonservice Cost TransferNSC Transfer. This variance is primarily attributable to increased inventory carrying cost credits and, most ofto a lesser extent, mark-to-market valuations on unqualified retirement trusts. Interest expense increased $10.4, reflecting higher short-term interest rates in the remaining variance due to unfavorable fair market value adjustments to unqualified pension trusts.current year and the $400 in long-term debt that was issued early in the current-year second quarter.
Resulting net income for the quarter ended March 31, 2022, increased $5.12023 represents a $13.9 increase in results versus the prior-year quarter.
Degree days in Spire Missouri’s service areas during the three months ended March 31, 2022,2023, were 0.9% colder13.7% warmer than normal, and 1.9% colder14.4% warmer than the same period last year. Spire Missouri’s total system thermsvolume sold and transported were 781.3657.8 millioncentum (Latin for “hundred”) cubic feet (CCF) for the quarter, compared with 772.9765.5 million CCF for the same period in the prior year. Total off-system thermsvolume sold and transported were 14.71.2 million CCF for the currentcurrent-year quarter, compared with 12.814.4 million CCF a year ago.
Spire Alabama
|
| Three Months Ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Operating Income [GAAP] |
| $ | 87.9 |
|
| $ | 89.2 |
|
Operation and maintenance expenses |
|
| 32.9 |
|
|
| 33.7 |
|
Depreciation and amortization |
|
| 16.7 |
|
|
| 15.2 |
|
Taxes, other than income taxes |
|
| 14.5 |
|
|
| 14.7 |
|
Less: Gross receipts tax expense |
|
| (11.3 | ) |
|
| (11.8 | ) |
Contribution Margin [Non-GAAP] |
|
| 140.7 |
|
|
| 141.0 |
|
Natural gas costs |
|
| 52.1 |
|
|
| 69.8 |
|
Gross receipts tax expense |
|
| 11.3 |
|
|
| 11.8 |
|
Operating Revenues |
| $ | 204.1 |
|
| $ | 222.6 |
|
Net Income |
| $ | 62.4 |
|
| $ | 63.3 |
|
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Operating Income [GAAP] | $ | 88.9 | $ | 87.9 | ||||
Operation and maintenance expenses | 34.5 | 32.9 | ||||||
Depreciation and amortization | 17.0 | 16.7 | ||||||
Taxes, other than income taxes | 16.1 | 14.5 | ||||||
Less: Gross receipts tax expense | (12.6 | ) | (11.3 | ) | ||||
Contribution Margin [Non-GAAP] | 143.9 | 140.7 | ||||||
Natural gas costs | 61.8 | 52.1 | ||||||
Gross receipts tax expense | 12.6 | 11.3 | ||||||
Operating Revenues | $ | 218.3 | $ | 204.1 | ||||
Net Income | $ | 60.0 | $ | 62.4 | ||||
Operating revenues for the three months ended March 31, 2022, decreased $18.52023 increased $14.2 from the same period in the prior year. The change in operating revenue was principally due to $22.8 attributable to unfavorable weather usage impacts, a decrease$35.2 higher gas recovery costs, and net favorable regulatory adjustments of $7.9 under the RSE framework, and an increase in off-system sales totaling $1.3,$1.1. These favorable impacts were only partly offset by higher gas cost recoveries of $3.6 and net favorable rate adjustments under the RSE mechanism of $2.5.$31.0 decrease attributable to unfavorable weather/usage impacts.
Contribution margin was $0.3 lower$3.2 higher versus the prior-year quarter, primarily driven by $2.4 unfavorable weather/usage and $0.2 lower off-system sales, mostly offset by$6.4 favorable net rate adjustments under the RSE mechanism, of $2.3.slightly offset by $3.4 unfavorable weather/usage variance after weather mitigation.
O&M expenses for the three months ended March 31, 2022, decreased $0.82023 increased $1.6 versus the prior-year quarter, or $0.5$1.4 after removing the impact ofNSC Transfer variance versus the Nonservice Cost Transfer. Lower bad debt expense more thanprior-year quarter. The increase was primarily due to higher non-employee operating expenses that were only partly offset modest increases in administrativeby lower employee-related expenses.
Depreciation and amortization expenses were up $1.5,$0.3, the result of continued investment in infrastructure upgrades. Interest expense for the current-year quarter increased $4.3 versus the prior-year quarter, the result of significantly higher short-term interest rates and to a lesser extent, higher levels of long-term debt.
For the quarter ended March 31, 2022,2023, resulting net income decreased $0.9$2.4 versus the prior-year quarter.
As measured in degree days, temperatures in Spire Alabama’s service area during the three months ended March 31, 2022,2023, were 16.2%26.3% warmer than normal and 15.3%12.4% warmer than a year ago. Spire Alabama’s total system thermsvolume sold and transported were 326.1295.6 million CCF for the three months ended March 31, 2022,2023, compared with 340.3319.7 million CCF for the same period in the prior year. Total off-system thermsvolume sold and transported were 0.113.4 million CCF for the quarter, compared with 16.1 million a year ago.nominal off-system volume sold and transported in last year's second quarter.
MARCHMarch 31, 2023,
Gas Utility | Gas Marketing | Midstream | Other | Total | Per Diluted Common Share** | |||||||||||||||||||
Six Months Ended March 31, 2023 | ||||||||||||||||||||||||
Net Income (Loss) [GAAP] | $ | 246.4 | $ | 33.8 | $ | 8.0 | $ | (18.0 | ) | $ | 270.2 | $ | 4.99 | |||||||||||
Adjustments, pre-tax: | ||||||||||||||||||||||||
Fair value and timing adjustments | 0.5 | 18.3 | — | — | 18.8 | 0.36 | ||||||||||||||||||
Income tax effect of adjustments* | (0.1 | ) | (4.6 | ) | — | — | (4.7 | ) | (0.09 | ) | ||||||||||||||
Net Economic Earnings (Loss) [Non-GAAP] | $ | 246.8 | $ | 47.5 | $ | 8.0 | $ | (18.0 | ) | $ | 284.3 | $ | 5.26 | |||||||||||
Six Months Ended March 31, 2022 | ||||||||||||||||||||||||
Net Income (Loss) [GAAP] | $ | 232.3 | $ | 4.7 | $ | 5.5 | $ | (13.2 | ) | $ | 229.3 | $ | 4.28 | |||||||||||
Adjustments, pre-tax: | ||||||||||||||||||||||||
Fair value and timing adjustments | — | 13.6 | — | — | 13.6 | 0.27 | ||||||||||||||||||
Income tax effect of adjustments* | 4.1 | (3.4 | ) | — | — | 0.7 | 0.01 | |||||||||||||||||
Net Economic Earnings (Loss) [Non-GAAP] | $ | 236.4 | $ | 14.9 | $ | 5.5 | $ | (13.2 | ) | $ | 243.6 | $ | 4.56 | |||||||||||
|
| Gas Utility |
|
| Gas Marketing |
|
| Other |
|
| Total |
|
| Per Diluted Common Share** |
| |||||
Six Months Ended March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) [GAAP] |
| $ | 232.3 |
|
| $ | 4.7 |
|
| $ | (7.7 | ) |
| $ | 229.3 |
|
| $ | 4.28 |
|
Adjustments, pre-tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value and timing adjustments |
|
| — |
|
|
| 13.6 |
|
|
| — |
|
|
| 13.6 |
|
|
| 0.27 |
|
Income tax effect of adjustments* |
|
| 4.1 |
|
|
| (3.4 | ) |
|
| — |
|
|
| 0.7 |
|
|
| 0.01 |
|
Net Economic Earnings (Loss) [Non-GAAP] |
| $ | 236.4 |
|
| $ | 14.9 |
|
| $ | (7.7 | ) |
| $ | 243.6 |
|
| $ | 4.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) [GAAP] |
| $ | 242.9 |
|
| $ | 40.1 |
|
| $ | (6.7 | ) |
| $ | 276.3 |
|
| $ | 5.20 |
|
Adjustments, pre-tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Missouri regulatory adjustment |
|
| (9.0 | ) |
|
| — |
|
|
| — |
|
|
| (9.0 | ) |
|
| (0.18 | ) |
Fair value and timing adjustments |
|
| 0.1 |
|
|
| 4.0 |
|
|
| — |
|
|
| 4.1 |
|
|
| 0.08 |
|
Income tax effect of adjustments* |
|
| 2.1 |
|
|
| (1.0 | ) |
|
| — |
|
|
| 1.1 |
|
|
| 0.02 |
|
Net Economic Earnings (Loss) [Non-GAAP] |
| $ | 236.1 |
|
| $ | 43.1 |
|
| $ | (6.7 | ) |
| $ | 272.5 |
|
| $ | 5.12 |
|
|
|
|
|
Note: In the following discussion, all references to earnings (loss) per share and net** Net economic earnings per share refer to earnings (loss) per diluted common share andis calculated by replacing consolidated net income with consolidated net economic earnings per diluted common share.
Consolidated
Spire’s net income was $229.3 forin the six months ended March 31, 2022, compared with $276.3 for the six months ended March 31, 2021. Basic andGAAP diluted earnings per share calculation, which includes reductions for the six months ended March 31, 2022, were both $4.28, compared with basiccumulative preferred dividends and diluted earnings per share of $5.21 and $5.20, respectively, for the six months ended March 31, 2021.participating shares.
The decrease in net income of $47.0 primarily reflects a $35.4 decrease in net income from the Gas Marketing segment and a $10.6 decrease in net income from the Gas Utility segment.
The Gas Marketing segment was negatively impacted by the more favorable market conditions experienced in the prior year, particularly in the month of February that drove volume, higher local/regional basis differentials and higher realized value from storage withdrawals. Results in the current year reflected more normalized market conditions. Gas Marketing net income in the current year was also negatively impacted by unfavorable unrealized fair value mark-to-market adjustments. The Gas Utility segment was lower due to a $6.2 decrease at Spire Missouri, a $2.4 decrease at Spire Alabama, and a $2.0 decrease attributable to the utilities of Spire EnergySouth.
Net economic earnings were $243.6 ($4.56 per diluted share) for the six months ended March 31, 2022, compared to $272.5 ($5.12 per diluted share) for the same period last year, primarily reflecting lower earnings in the Gas Marketing segment that was only partly offset by small increases in the Gas Utility segment. These variances are discussed in greater detail below.
Gas Utility
Gas Utility net income decreased by $10.6 from the first half of the prior year. This decrease was driven primarily by the $6.2 reduction at Spire Missouri. Spire Missouri’s results for the current year were negatively impacted by timing of ISRS filings, $8.7 higher depreciation expense, $5.3 higher interest expense resulting from higher levels of long-term debt and higher short-term interest rates, the fact that the prior year included a $9.0 ($6.8 after-tax) benefit from the Missouri Supreme Court ruling that partially reversed 2018 rate case pension cost disallowances, combined with the current year being burdened with a $4.1 income tax expense resulting from the 2021 rate order. These negative impacts more than offset the $24.8 increase in contribution margin resulting from the new rates implemented late in the first quarter of 2022. Spire Alabama’s net income declined by $2.4, as $5.5 in net favorable RSE adjustments were offset by a $3.6 reduction in contribution relating to volume/usage and lower off-system sales, $3.0 in higher depreciation expense, higher property taxes and lower miscellaneous income.
Net economic earnings in the first six months of fiscal 2022 were $236.4, an increase of $0.3 over the corresponding period in the prior year. The $4.7 increase at Spire Missouri was mostly offset by the $4.4 decline experienced by the Southeast Utilities. These impacts are described in further detail below.
Gas Marketing
The Gas Marketing segment reported net income of $4.7 for the six months ended March 31, 2022, versus $40.1 during the same period last year, principally reflecting strong second quarter operating results in the prior year due to Winter Storm Uri. Fiscal 2022 results also reflect less favorable market conditions and basis differentials despite price volatility, offset by favorable resolution of certain customer claims. Gas Marketing also experienced $7.2 in after-tax unfavorable year-over-year derivative fair value mark-to-market valuations. Net economic earnings for the current-year period were $14.9, a decrease of $28.2 from the same period last year, as net income variance is reduced by adding back the unrealized derivative fair value impact.
Other
For the six months ended March 31, 2022, net economic loss for Other was $7.7, versus $6.7 in the prior-year period. Included in those results were slightly higher corporate costs in the current year.
Operating Revenues and Expenses and Contribution Margin
Reconciliations of the Company’s contribution margin to the most directly comparable GAAP measure are shown in the table below:below.
Gas Utility | Gas Marketing | Midstream | Other | Eliminations | Consolidated | |||||||||||||||||||
Six Months Ended March 31, 2023 | ||||||||||||||||||||||||
Operating Income (Loss) [GAAP] | $ | 353.2 | $ | 43.8 | $ | 14.6 | $ | (1.1 | ) | $ | — | $ | 410.5 | |||||||||||
Operation and maintenance expenses | 239.2 | 12.0 | 12.0 | 8.9 | (7.9 | ) | 264.2 | |||||||||||||||||
Depreciation and amortization | 119.9 | 0.7 | 3.9 | 0.2 | — | 124.7 | ||||||||||||||||||
Taxes, other than income taxes | 130.3 | 0.7 | 1.2 | 0.1 | — | 132.3 | ||||||||||||||||||
Less: Gross receipts tax expense | (90.4 | ) | (0.2 | ) | — | — | — | (90.6 | ) | |||||||||||||||
Contribution Margin [Non-GAAP] | 752.2 | 57.0 | 31.7 | 8.1 | (7.9 | ) | 841.1 | |||||||||||||||||
Natural gas costs | 944.9 | 77.5 | — | — | (16.7 | ) | 1,005.7 | |||||||||||||||||
Gross receipts tax expense | 90.4 | 0.2 | — | — | — | 90.6 | ||||||||||||||||||
Operating Revenues | $ | 1,787.5 | $ | 134.7 | $ | 31.7 | $ | 8.1 | $ | (24.6 | ) | $ | 1,937.4 | |||||||||||
Six Months Ended March 31, 2022 | ||||||||||||||||||||||||
Operating Income (Loss) [GAAP] | $ | 324.8 | $ | 6.5 | $ | 9.8 | $ | (0.6 | ) | $ | — | $ | 340.5 | |||||||||||
Operation and maintenance expenses | 211.5 | 5.9 | 11.6 | 8.4 | (7.8 | ) | 229.6 | |||||||||||||||||
Depreciation and amortization | 111.1 | 0.7 | 3.8 | 0.2 | — | 115.8 | ||||||||||||||||||
Taxes, other than income taxes | 107.3 | 0.4 | 1.5 | — | — | 109.2 | ||||||||||||||||||
Less: Gross receipts tax expense | (73.6 | ) | (0.2 | ) | — | — | — | (73.8 | ) | |||||||||||||||
Contribution Margin [Non-GAAP] | 681.1 | 13.3 | 26.7 | 8.0 | (7.8 | ) | 721.3 | |||||||||||||||||
Natural gas costs | 566.2 | 93.8 | — | — | (18.8 | ) | 641.2 | |||||||||||||||||
Gross receipts tax expense | 73.6 | 0.2 | — | — | — | 73.8 | ||||||||||||||||||
Operating Revenues | $ | 1,320.9 | $ | 107.3 | $ | 26.7 | $ | 8.0 | $ | (26.6 | ) | $ | 1,436.3 | |||||||||||
|
| Gas Utility |
|
| Gas Marketing |
|
| Other |
|
| Eliminations |
|
| Consolidated |
| |||||
Six Months Ended March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income [GAAP] |
| $ | 324.8 |
|
| $ | 6.5 |
|
| $ | 9.2 |
|
| $ | — |
|
| $ | 340.5 |
|
Operation and maintenance expenses |
|
| 211.5 |
|
|
| 5.9 |
|
|
| 20.0 |
|
|
| (7.8 | ) |
|
| 229.6 |
|
Depreciation and amortization |
|
| 111.1 |
|
|
| 0.7 |
|
|
| 4.0 |
|
|
| — |
|
|
| 115.8 |
|
Taxes, other than income taxes |
|
| 107.3 |
|
|
| 0.4 |
|
|
| 1.5 |
|
|
| — |
|
|
| 109.2 |
|
Less: Gross receipts tax expense |
|
| (73.6 | ) |
|
| (0.2 | ) |
|
| — |
|
|
| — |
|
|
| (73.8 | ) |
Contribution Margin [Non-GAAP] |
|
| 681.1 |
|
|
| 13.3 |
|
|
| 34.7 |
|
|
| (7.8 | ) |
|
| 721.3 |
|
Natural gas costs |
|
| 566.2 |
|
|
| 93.8 |
|
|
| — |
|
|
| (18.8 | ) |
|
| 641.2 |
|
Gross receipts tax expense |
|
| 73.6 | �� |
|
| 0.2 |
|
|
| — |
|
|
| — |
|
|
| 73.8 |
|
Operating Revenues |
| $ | 1,320.9 |
|
| $ | 107.3 |
|
| $ | 34.7 |
|
| $ | (26.6 | ) |
| $ | 1,436.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income [GAAP] |
| $ | 330.8 |
|
| $ | 52.0 |
|
| $ | 7.5 |
|
| $ | — |
|
| $ | 390.3 |
|
Operation and maintenance expenses |
|
| 207.0 |
|
|
| 10.4 |
|
|
| 19.7 |
|
|
| (6.5 | ) |
|
| 230.6 |
|
Depreciation and amortization |
|
| 98.1 |
|
|
| 0.6 |
|
|
| 3.6 |
|
|
| — |
|
|
| 102.3 |
|
Taxes, other than income taxes |
|
| 91.9 |
|
|
| 0.7 |
|
|
| 1.4 |
|
|
| — |
|
|
| 94.0 |
|
Less: Gross receipts tax expense |
|
| (63.8 | ) |
|
| (0.1 | ) |
|
| — |
|
|
| — |
|
|
| (63.9 | ) |
Contribution Margin [Non-GAAP] |
|
| 664.0 |
|
|
| 63.6 |
|
|
| 32.2 |
|
|
| (6.5 | ) |
|
| 753.3 |
|
Natural gas costs |
|
| 823.5 |
|
|
| (5.5 | ) |
|
| 0.1 |
|
|
| (17.8 | ) |
|
| 800.3 |
|
Gross receipts tax expense |
|
| 63.8 |
|
|
| 0.1 |
|
|
| — |
|
|
| — |
|
|
| 63.9 |
|
Operating Revenues |
| $ | 1,551.3 |
|
| $ | 58.2 |
|
| $ | 32.3 |
|
| $ | (24.3 | ) |
| $ | 1,617.5 |
|
Consolidated
Spire’s operating revenues decreased by $230.4 at the Gas Utility segment, which more than offset the $49.1 increase in the Gas Marketing segment and the $2.4 increase in Other. The Gas Utility variance was largely due to the prior year results including the benefits that resulted from Winter Storm Uri. The Gas Marketing increase was due to lower trading activity (trading activities are recorded as revenues net of costs) and higher volumes and pricing, while Other primarily reflects higher revenues at Spire Storage.
Spire’s contribution margin decreased $32.0 compared with the same six-month period last year, as the $17.1 increase in the Gas Utility segment was more than offset by the $50.3 reduction at Gas Marketing. The Gas Utility contribution margin increase was primarily driven by the $17.5 increase from Spire Missouri and the $1.9 increase at Spire Alabama, offset slightly by a decline at the utilities of Spire EnergySouth. The decrease in Gas Marketing reflects very favorable market conditions in the prior year second quarter, combined with unfavorable fair value mark-to-market adjustments in the current year. Higher contribution margins in Other are primarily due to Spire Storage improvement resulting from higher utilization of its storage capacity.
Depreciation and amortization expenses were higher in the Gas Utility segment, due to higher capital investments in both Spire Missouri and Spire Alabama. Gas Utility O&M expenses were $4.5 higher in the current year. Removing the prior year impact of the Missouri Supreme Court ruling that partially reversed 2018 rate case pension cost disallowances totaling $9.0, and the year-to-date postretirement Nonservice Cost Transfer of $1.4, run-rate O&M expenses in the current year are lower by $3.1. These fluctuations are described in more detail below.
Gas Utility
Operating Revenues – Gas Utility operating revenuesSelect variances for the six months ended March 31, 2023 compared to the six months ended March 31, 2022 are summarized in the following table and discussed below.
Gas | Gas | Other, Net of | ||||||||||||||||||
Variances: Fiscal 2023 Versus Fiscal 2022 | Utility | Marketing | Midstream | Eliminations | Consolidated | |||||||||||||||
Net Income | $ | 14.1 | $ | 29.1 | $ | 2.5 | $ | (4.8 | ) | $ | 40.9 | |||||||||
Net Economic Earnings [Non-GAAP] | 10.4 | 32.6 | 2.5 | (4.8 | ) | 40.7 | ||||||||||||||
Operating Revenues | 466.6 | 27.4 | 5.0 | 2.1 | 501.1 | |||||||||||||||
Contribution Margin [Non-GAAP] | 71.1 | 43.7 | 5.0 | — | 119.8 | |||||||||||||||
Operation and Maintenance Expenses | 27.7 | 6.1 | 0.4 | 0.4 | 34.6 | |||||||||||||||
Interest Expense | 34.7 | |||||||||||||||||||
Other Income | 9.0 | |||||||||||||||||||
Income Tax | 3.4 | |||||||||||||||||||
Spire Missouri and Spire Alabama – Higher PGA/GSA rates (gas cost recovery) | $ | 394.3 | ||
Spire Missouri – 2021 and 2022 rate case outcomes | 54.6 | |||
Spire Missouri and Spire Alabama – Higher gross receipts taxes | 16.2 | |||
Spire EnergySouth | 13.5 | |||
Spire Alabama – RSE adjustments, net | 9.4 | |||
Spire Alabama – Volumetric usage (net of weather mitigation) | (25.3 | ) | ||
All other factors | 3.9 | |||
Total Variation | $ | 466.6 |
Spire Missouri – OFO charges |
| $ | (195.8 | ) |
Spire Missouri and Spire Alabama – Off-system sales and capacity release |
|
| (97.9 | ) |
Spire Missouri and Spire Alabama – Volumetric usage (net of weather mitigation) |
|
| (22.7 | ) |
Spire Missouri and Spire Alabama – Higher PGA/GSA costs (gas cost recovery) |
|
| 46.4 |
|
Spire Missouri – 2021 rate case outcomes |
|
| 24.8 |
|
Spire Alabama – RSE adjustments, net |
|
| 6.0 |
|
All other factors |
|
| 8.8 |
|
Total Variation |
| $ | (230.4 | ) |
Contribution Margin –
Spire Missouri – 2021 and 2022 rate case outcomes | $ | 54.6 | ||
Spire Alabama – Rate adjustment under RSE mechanism, net | 7.8 | |||
Spire EnergySouth | 6.1 | |||
All other factors | 2.6 | |||
Total Variation | $ | 71.1 |
Spire Missouri – 2021 rate case outcomes |
| $ | 24.8 |
|
Spire Alabama – Rate adjustment under RSE mechanism, net |
|
| 5.5 |
|
Spire Missouri and Spire Alabama – Volumetric usage (net of weather mitigation) |
|
| (6.1 | ) |
Spire Missouri and Spire Alabama – Off-system sales and capacity release |
|
| (3.0 | ) |
All other factors |
|
| (4.1 | ) |
Total Variation |
| $ | 17.1 |
|
The
Operating Expenses – Gas Utility a $6.1 increase at Spire EnergySouth.
Midstream
Operating Revenues – Gas Marketing operating
Net income and net economic earnings for the Company’s Midstream segment increased $2.5 for the year-to-date ended March 31, 2023 versus the prior-year period. Of this increase, $2.4 was attributable to Spire Storage, reflecting optimized operational and withdrawal commitments. The $5.0 increase in revenues increased $49.1 from the same period last year, primarily due to trading activity making up a lower proportion of total sales (trading activities are recorded as revenues net of costs) and higher volumes and pricing.
Contribution Margin – Gas Marketing contribution margin duringreflect the optimization activity at Spire Storage. Operating expenses across the segment were in-line with the prior-year-to-date period.
Other
The Company’s other activities generated a $18.0 loss in the six months ended March 31, 2022, decreased $50.3 from2023, $4.8 higher than the same period last year,prior-year corresponding period. The larger current-year loss was driven principally by strong second quarter results in the prior year. During that quarter, particularly the month$7.2 higher interest expense, reflecting both higher borrowings and interest rates, and higher corporate costs, offset partly by lower income tax expense.
Interest Charges
Six Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Operating Income [GAAP] | $ | 219.9 | $ | 195.6 | ||||
Operation and maintenance expenses | 154.5 | 130.6 | ||||||
Depreciation and amortization | 77.8 | 70.1 | ||||||
Taxes, other than income taxes | 97.6 | 78.7 | ||||||
Less: Gross receipts tax expense | (67.7 | ) | (53.9 | ) | ||||
Contribution Margin [Non-GAAP] | 482.1 | 421.1 | ||||||
Natural gas costs | 782.4 | 444.1 | ||||||
Gross receipts tax expense | 67.7 | 53.9 | ||||||
Operating Revenues | $ | 1,332.2 | $ | 919.1 | ||||
Net Income | $ | 159.4 | $ | 143.5 | ||||
Consolidated interest charges during
Revenues for the six months ended March 31, 2022,2023 were $4.6$413.1 higher than the same period last year. Thecomparable prior-year period. A key driver was an increase in gas recovery costs totaling $343.9. Further, $54.6 of the increase was primarily drivenattributable to fiscal 2023 results including the cumulative impacts of the implementation of the 2022 and 2021 rate orders. Higher gross receipts taxes contributed a $13.8 increase, and volume (net of weather mitigation) contributing $5.0 growth. These revenues growth drivers were only partially offset by higher average short-term interest rates in the current year period, combined with the impactlower off-system sales of net long-term debt issuances and higher levels of short-term borrowings. For$6.3.
Contribution margin for the six months ended March 31, 2022 and 2021, average short-term borrowings were $799.1 and $681.4, respectively, and the average interest rates on these borrowings were 0.5% and 0.4%, respectively.
Income Taxes
Consolidated income tax expense during the six months ended March 31, 2022 decreased $9.5 versus the prior year. The variance is the result of the lower pre-tax book income in the current year, offset by a $4.1 charge resulting from Tax Cuts and Jobs Act reconciliations from the recently completed Spire Missouri rate case.
Spire Missouri
|
| Six Months Ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Operating Income [GAAP] |
| $ | 195.6 |
|
| $ | 196.3 |
|
Operation and maintenance expenses |
|
| 130.6 |
|
|
| 125.7 |
|
Depreciation and amortization |
|
| 70.1 |
|
|
| 61.4 |
|
Taxes, other than income taxes |
|
| 78.7 |
|
|
| 64.0 |
|
Less: Gross receipts tax expense |
|
| (53.9 | ) |
|
| (43.8 | ) |
Contribution Margin [Non-GAAP] |
|
| 421.1 |
|
|
| 403.6 |
|
Natural gas costs |
|
| 444.1 |
|
|
| 699.0 |
|
Gross receipts tax expense |
|
| 53.9 |
|
|
| 43.8 |
|
Operating Revenues |
| $ | 919.1 |
|
| $ | 1,146.4 |
|
Net Income |
| $ | 143.5 |
|
| $ | 149.7 |
|
Prior year operating revenues results included benefits derived from Winter Storm Uri. As a result, current year revenues were $227.3 below the prior-year quarter. Key drivers were a reduction in gas recovery costs totaling $154.5, primarily the result of $195.8 in cover charges and OFO penalties to certain wholesale customers in the prior year only being partly offset by higher commodity costs in the current year. Off-system sales and capacity release in the current-year quarter were $95.0 lower than the prior year, with the second quarter of 2021 benefiting from historically high off-system sales relating primarily to Winter Storm Uri. Revenues were also negatively impacted by a $9.1 reduction due to lower volume and usage. These negative impacts were only partly offset by the $24.8 increase resulting from the rate increases as a result of the 2021 rate order, and $10.1 of higher gross-receipt taxes.
Contribution margin for the three months ended March 31, 2022,2023 increased $17.5$61.0 from the same period in the prior year, largely theas a result of the $24.8 increase attributable topreviously mentioned timing of the 2022 and 2021 rate case changes outlined above more than offsetting a $2.9 decrease dueimplementations generating $54.6 incremental contribution, combined with favorable volumetric impacts (including weather mitigation) and $2.6 lower off-system sales.of $5.0.
Reported O&M expenses for the current year-to-date period increased $4.9$23.9 versus the prior year. AfterRun-rate expenses increased $23.5 after removing the $0.8$0.4 impact of the year-to-date Nonservice Cost Transfer and last year’s $9.0 rate case refund ruling by the Missouri Supreme Court, expenses decreased $3.3.NSC Transfer. The decreaseincrease was largely due to approximately $12 of general overheads that were previously deferred and were not reflected in rates collected during the current year. The increase also reflects higher non-employee operations expense of $10.4 and higher bad debts expense of $4.3, partly offset by lower employee-related expenses and lower bad debt expenses. Depreciation and amortization increased $8.7 versusfavorable insurance expense in the prior-year quartercurrent year.
the NSC Transfer. This variance is primarily attributable to increased inventory carrying cost credits, combined with favorable mark-to-market valuations on unqualified retirement trusts. Interest expense for the six months ended March 31, 2022 increased $5.3 versus the same period in the prior year, the result of net long term debt issuances and significantly$17.9, primarily reflecting higher short-term interest rates.rates and net long-term debt issuances in the current year.
Temperatures2021,2023 were 6.7%8.5% warmer than normal, but 1.7% colder than the same period last year and 10.3% warmer than normal. Theyear. Spire MissouriMissouri’s total system thermsvolume sold and transported were 1,220.81,215.9 million CCF for the first half of this year, compared with 1,196.5 million CCF for the same period in the prior year. Total off-system volume sold and transported were 3.9 million CCF for the current year, compared with 16.5 million CCF a year ago.
Six Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Operating Income [GAAP] | $ | 109.2 | $ | 109.0 | ||||
Operation and maintenance expenses | 69.6 | 67.4 | ||||||
Depreciation and amortization | 34.0 | 33.2 | ||||||
Taxes, other than income taxes | 26.7 | 23.5 | ||||||
Less: Gross receipts tax expense | (19.4 | ) | (17.0 | ) | ||||
Contribution Margin [Non-GAAP] | 220.1 | 216.1 | ||||||
Natural gas costs | 131.2 | 97.6 | ||||||
Gross receipts tax expense | 19.4 | 17.0 | ||||||
Operating Revenues | $ | 370.7 | $ | 330.7 | ||||
Net Income | $ | 69.2 | $ | 74.6 | ||||
Revenues for the six months ended March 31, 2022, compared with 1,295.7 million for2023 were $40.0 higher than the same period last year. Totalcomparable prior-year period. A key driver was an increase in gas recovery costs totaling $50.4. Further, $9.4 of the increase was attributable to fiscal 2023 results including favorable adjustments under the RSE framework. Revenue in the current year also benefited $5.5 due to the combination of higher off-system therms soldsales and transportedgross receipts taxes. These growth drivers were 16.8 milliononly partially offset by $25.3 unfavorable volume impacts (net of weather mitigation).
Contribution margin for the six months ended March 31, 2022, compared with 21.3 million for2023, increased $4.0 from the same period last year.in the prior year, as favorable RSE adjustments of $7.8 more than offset unfavorable volumetric impacts of $4.1.
Spire Alabama
Reported O&M expenses for the first half of fiscal 2023 increased $2.2 versus the comparable prior-year period. Run-rate expenses increased $2.0 after removing the $0.2 impact of the NSC Transfer. The increase was largely due to higher non-employee operations expense, a $0.7 increase in bad debts expense, partly offset by lower employee-related expenses.
|
| Six Months Ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Operating Income [GAAP] |
| $ | 109.0 |
|
| $ | 111.7 |
|
Operation and maintenance expenses |
|
| 67.4 |
|
|
| 66.5 |
|
Depreciation and amortization |
|
| 33.2 |
|
|
| 30.2 |
|
Taxes, other than income taxes |
|
| 23.5 |
|
|
| 22.9 |
|
Less: Gross receipts tax expense |
|
| (17.0 | ) |
|
| (17.1 | ) |
Contribution Margin [Non-GAAP] |
|
| 216.1 |
|
|
| 214.2 |
|
Natural gas costs |
|
| 97.6 |
|
|
| 104.9 |
|
Gross receipts tax expense |
|
| 17.0 |
|
|
| 17.1 |
|
Operating Revenues |
| $ | 330.7 |
|
| $ | 336.2 |
|
Net Income |
| $ | 74.6 |
|
| $ | 77.0 |
|
Operating revenues
Contribution margin increased $1.9, principally as athe result of the RSE adjustmentssignificantly higher short-term interest rates and, to a lesser extent, higher levels of $5.5 (mentioned above), mostly offset by $3.4 lower volume usage impacts and $0.4 related to lower off-system sales. O&M expenses forlong-term debt.
Temperatures
LIQUIDITY AND CAPITAL RESOURCES
Recent Cash Flows
Six Months Ended March 31, | ||||||||
Cash Flow Summary | 2023 | 2022 | ||||||
Net cash provided by operating activities | $ | 179.9 | $ | 155.1 | ||||
Net cash used in investing activities | (340.7 | ) | (273.2 | ) | ||||
Net cash provided by financing activities | 161.5 | 122.0 | ||||||
|
| Six Months Ended March 31, |
| |||||
Cash Flow Summary |
| 2022 |
|
| 2021 |
| ||
Net cash provided by operating activities |
| $ | 155.1 |
|
| $ | 159.2 |
|
Net cash used in investing activities |
|
| (273.2 | ) |
|
| (304.3 | ) |
Net cash provided by financing activities |
|
| 122.0 |
|
|
| 245.0 |
|
For the six months ended March 31, 2022,2023, net cash from operating activities decreased $4.1improved $24.8 from the corresponding period of fiscal 2021. Offsetting a decline2022. The key drivers to the favorable change are the $40.9 increase in net income of $47.0 (discussed above) were, coupled with changes due principallyrelated to high recovery of deferred gas costs this yearregulatory timing and fluctuationsfluctuation in working capital items as(as discussed below in the Future Cash Requirements section. Those typical variance drivers have been impacted by Spire Missouri’s Operational Flow Order and Filing Adjustment Factor put into place last year, assection).
For the six months ended March 31, 2023, net cash used in investing activities was $67.5 greater than for the same period in the prior year. As discussed in Note 41, Regulatory Matters, of the Notes to Financial Statements in Item 1.
For the six months ended1, on March 31, 2022, net cash used in investing activities was $31.1 less than2023, Spire made an advance payment of the $37.1 preliminary purchase price for the same period in the prior year, primarily driven bysubsequent acquisition of a $27.6 decrease in capital expenditures. The primary drivers of the lowernatural gas storage facility. Total capital expenditures were $31.9 higher than last year, with a $14.9$24.1 spending decline at Gas Utility,increase in the Utilities, and a $11.8 decline related principally to$11.7 increase for Spire Storage, as well aspartially offset by a slight$5.3 spending decline at Spire STL Pipeline.
Lastly, for the six months ended March 31, 2022,2023, net cash provided by financing activities was down $123.0increased $39.5 versus net cash provided for the six months ended March 31, 2021. Current year2022. Current-year long-term debt issuances were $300.0,$755.0, or $25.0 lower$455.0 higher than a year ago, net short-term debt repayments were higher by $70.4 in the current period, and repayments of long-term debt rose $50.4 overin the prior yearcurrent period declined $24.6 compared to the prior-year period. Partially offsetting these fluctuationsOffsetting a substantial portion of the higher net long-term debt issuances was a $23.3$411.6 net increase in issuancesrepayments of short-term debt. Cash from the issuance of common stock duringin the current-year period was $3.6, a decline of $20.4 from the comparative period; see the discussion regarding Spire's forward sales of stock under its ATM program in Note 4 of the Notes to Financial Statements in Item 1. Finally, dividends paid on common stock rose $4.4 in the first six monthshalf of fiscal 2022 versus2023 compared to the same prior year period.first half of fiscal 2022.
Future Cash Requirements
The Company’s short-term borrowing requirements typically peak during colder months when the Utilities borrow money to cover the lag between when they purchase natural gas and when their customers pay for that gas. Changes in the wholesale cost of natural gas (including cash payments for margin deposits associated with Spire Missouri’s use of natural gas derivative instruments), variations in the timing of collections of gas cost under the Utilities’ PGA clauses and GSA riders, the seasonality of accounts receivable balances, and the utilization of storage gas inventories cause short-term cash requirements to vary during the year and from year to year, and may cause significant variations in the Company’s cash provided by or used in operating activities.
Spire’s material cash requirements as of March 31, 2022,2023, are related to capital expenditures, principal and interest payments on long-term debt, natural gas purchase obligations, and dividends. Except for Spire Missouri’s December 2021the issuance of $300.0debt described in Note 6 of floating rate bonds duethe Notes to Financial Statements in December 2024,Item 1, there were no material changes outside the ordinary course of business from the future cash requirements discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021.2022. Total Company capital expenditures are planned to be $540$700 for fiscal 2022.2023.
Source of Funds
It is management’s view that the Company, Spire Missouri and Spire Alabama have adequate access to capital markets and will have sufficient capital resources, both internal and external, to meet anticipated requirements. Their debt is rated by two rating agencies: Standard & Poor’s Corporation (“S&P”) and Moody’s Investors Service (“Moody’s”). As of March 31, 2022,2023, the debt ratings of the Company, Spire Missouri and Spire Alabama (shown in the following table) remain at investment grade with a stable outlook (other than Moody’s negative outlook for Spire Missouri debt).
|
| S&P |
|
|
Spire Inc. senior unsecured long-term debt | BBB+ | Baa2 | ||
Spire Inc. preferred stock | BBB | Ba1 | ||
Spire Inc. short-term debt | A-2 | P-2 | ||
Spire Missouri senior secured long-term debt | A | A1 | ||
Spire Alabama senior unsecured long-term debt |
|
|
|
|
|
|
| ||
|
|
| ||
|
|
| ||
|
|
|
Cash and Cash Equivalents
Bank deposits were used to support working capital needs of the business. Spire had no temporary cash investments as of March 31, 2022.2023.
Short-term Debt
The Company’s short-term cash requirements can be met through the sale of up to $975.0$1,300.0 of commercial paper or through the use of Spire’s $975.0$1,300.0 revolving credit facility. For information about short-term borrowings, see Note 56 of the Notes to Financial Statements in Item 1.
Long-term Debt and Equity
At March 31, 2022,2023, including the current portion but excluding unamortized discounts and debt issuance costs, Spire had long-term debt totaling $3,258.9,$3,982.7, of which $1,648.0$2,048.0 was issued by Spire Missouri, $575.0$750.0 was issued by Spire Alabama, and $205.9$229.7 was issued by other subsidiaries. For information about long-term debt issued this fiscal year, see Note 56 of the Notes to Financial Statements in Item 1.
Effective March 5, 2022, Spire Missouri was authorized by the MoPSC to issue conventional term loans, first mortgage bonds, unsecured debt, preferred stock and common stock in an aggregate amount of up to $800.0 for financings placed any time before December 31, 2024. AsUnder this authorization through April 2023, Spire Missouri has issued $40.4 of March 31, 2022, the entire amount remained available under this authorization.common stock, a $250.0 term loan, and $400.0 of first mortgage bonds. Spire Alabama has no standing authority to issue long-term debt and must petition the APSC for each planned issuance.
Spire has a shelf registration statement on Form S-3 on file with the U.S. Securities and Exchange Commission (SEC) for the issuance and sale of up to 250,000 shares of common stock under its Dividend Reinvestment and Direct Stock Purchase Plan. There were 169,420147,414 and 164,624 142,290 shares at March 31, 20222023 and May 1, 2022,April 30, 2023, respectively, remaining available for issuance under this Form S-3. Spire and Spire Missouri also have a universal shelf registration statement on Form S-3 on file with the SEC for the issuance of various equity and debt securities, which expires on May 14, 2022. A new universal shelf registration statement on Form S-3 will be filed before the expiration of the current one.9, 2025.
On February 6, 2019,
Spire entered intohas an “at-the-market” (ATM) equity distribution agreement, supplemented as of May 14, 2019, pursuant to which the Company may offer and sell, from time to time, shares of its common stock (including shares of common stock that may be sold pursuant to Spire’s universal shelf registration statement referenced above and a prospectus supplement dated May 14, 2019. Underforward sale agreements entered into in connection with the ATM equity distribution agreement). As of March 31, 2023, under this ATM program, a total of 626,249 shares with an aggregate offering price of $47.8 were issued in fiscal 2019 and 2020, and 354,000 shares with an aggregate offering price of $23.5 have been issued to date in fiscal 2022. On April 28, 2022, Spire’s board approved a new authorization for the sale ofSpire may sell additional shares with an aggregate offering price of up to $200.0 before$152.8 under the current Board of Directors authorization expiring May 2025 expiration. For additional information about the ATM program, see Note 4 of the new universal shelf registration statement on Form S-3Notes to be filedFinancial Statements in May 2022.Item 1.
Including
Taking into account the current portion of long-term debt, the Company’s long-term consolidated capitalization consisted of 47% 43% and 46% equity at both March 31, 20222023 and September 30, 2021.2022, respectively.
ENVIRONMENTAL MATTERS
The Utilities and other Spire subsidiaries own and operate natural gas distribution, transmission and storage facilities, the operations of which are subject to various environmental laws, regulations, and interpretations. While environmental issues resulting from such operations arise in the ordinary course of business, such issues have not materially affected the Company’s, Spire Missouri’s, or Spire Alabama’s financial position and results of operations. As environmental laws, regulations, and interpretations change, however, the Company and the Utilities may be required to incur additional costs. For information relative to environmental matters, see Contingencies in Note 1011 of the Notes to Financial Statements in Item 1.
REGULATORY MATTERS
For discussions of regulatory matters for Spire, Spire Missouri, and Spire Alabama, see Note 45, Regulatory Matters, of the Notes to Financial Statements in Item 1.
ACCOUNTING PRONOUNCEMENTS
The Company, Spire Missouri and Spire Alabama have evaluated or are in the process of evaluating the effects that recently issued accounting standards will have on the companies’ financial position or results of operations upon adoption, but none are currently expected to have a significant impact.
CRITICAL ACCOUNTING ESTIMATES
Our discussion and analysis of our financial condition, results of operations, liquidity and capital resources are based upon our financial statements, which have been prepared in accordance with GAAP, which requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Our critical accounting estimates used in the preparation of our financial statements are described in Item 7 of Spire, Spire Missouri, and Spire Alabama’s combined Annual Report on Form 10-K for the fiscal year ended September 30, 2021,2022, and include regulatory accounting, employee benefits and postretirement obligations, impairment of long-lived assets, and income taxes. There were no significant changes to critical accounting estimates during the six months ended March 31, 2022.2023.
For discussion of other significant accounting policies, see Note 1 of the Notes to Financial Statements included in this Form 10-Q as well as Note 1 of the Notes to Financial Statements included in Spire, Spire Missouri, and Spire Alabama’s combined Annual Report on Form 10-K for the fiscal year ended September 30, 2021.2022.
There were no material changes in the Company’s commodity price risk or counterparty credit risk as of March 31, 2022,2023, relative to the corresponding information provided in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021. In2022.
At March 31, 2023, the second fiscalfollowing swaps were outstanding:
• From the first quarter of 2020, the Company entered into multiplefiscal 2021, one swap contract remains outstanding. The remaining outstanding contract is a ten-year interest rate swaps with fixed interest rates ranging from 0.934% to 1.2975% for a total notional amount of $75.0 to protect itself against adverse movements in interest rates on future interest rate payments. The Company recorded a $2.4 mark-to-market gain in accumulated other comprehensive income on these swaps for six months ended March 31, 2022. In the third quarter of 2021 the Company entered into multiple ten-year interest rate swaps with fixed interest rates ranging from 2.008% to 2.1075% for a total notional amount of $150.0 to protect itself against adverse movements in interest rates on future interest rate payments. The Company recorded a $4.6 mark-to-market gain in accumulated other comprehensive income on these swaps for the six months ended March 31, 2022.
In the fourth quarter of 2021, the Company entered into two swap contracts. Both contracts are ten-year interest rate swaps; the first swapthat has a notional amount of $50.0 with a fixed interest rate of 1.597%1.49180%. The Company recorded a $1.0 mark-to-market loss to accumulated other comprehensive income on the swap for the six months ended March 31, 2023.
• From the second quarter of 2022, two swap contracts remain outstanding. Both contracts are ten-year interest rate swap contracts; the first swap has a notional amount of $75.o with a fixed interest rate of 1.6475%, while the second swap has a notional amount of $50.0$25.0 with a fixed interest rate of 1.821%1.746%. The Company recorded a $0.6$2.1 mark-to-market gainloss to accumulated other comprehensive income on these swaps for the six months ended March 31, 2022.2023.
In
• From the first quarter of fiscal 2022, the Company entered into2023, one swap contract is outstanding. The remaining outstanding contract is a ten-year interest rate swap contract withthat has a notional amount of $50.0 with a fixed interest rate of 1.4918%3.4480%. The Company recorded a $2.3$1.7 mark-to-market gainloss to accumulated other comprehensive income on this swap for the six months ended March 31, 2022.2023.
• In the second quarter of fiscal 2022,2023, the Company entered into multiple ten-yeartwo-year interest rate swap contracts with a cumulative total notional amount of $150.0$100.0 with fixed interest rates ranging from 1.64750%3.385% to 1.7460%3.685%. The Company recorded a $3.9an $0.5 mark-to-market gainloss to accumulated other comprehensive income on these swaps for the six months ended March 31, 2022.2023.
As of March 31, 2022,2023, the Company has recorded through accumulated other comprehensive income a cumulative mark-to-market net assetgain of $20.8$14.3 on open swaps for the current fiscal year.swaps.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For this discussion, see Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market Risk.
Item 4. Controls and Procedures
Spire
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.
Change in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2022,2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Spire Missouri
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2022,2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Spire Alabama
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures pursuant to Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2022,2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
For a description of legal proceedings, environmental matters and regulatory matters, see Note 1011, Commitments and Contingencies, and Note 45, Regulatory Matters, of the Notes to Financial Statements in Item 1 of Part I.
There were no material changes in the Company’s risk factors from those disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021.2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The only repurchases of Spire’s common stock in the quarter were pursuant to elections by employees to have shares of stock withheld to cover employee tax withholding obligations upon the vesting of performance-based and time-vested restricted stock and stock units. The following table provides information on those repurchases.
Period |
| (a) Total Number of Shares Purchased |
|
| (b) Average Price Paid Per Share |
|
| (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| (d) Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs |
| ||||
January 1, 2022 – January 31, 2022 |
|
| 116 |
|
| $ | 65.23 |
|
|
| — |
|
|
| — |
|
February 1, 2022 – February 28, 2022 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
March 1, 2022 – March 31, 2022 |
|
| 186 |
|
|
| 66.01 |
|
|
| — |
|
|
| — |
|
Total |
|
| 302 |
|
|
| 65.71 |
|
|
| — |
|
|
| — |
|
Period | (a) Total Number of Shares Purchased | (b) Average Price Paid Per Share | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs | ||||||||||||
January 1, 2023 – January 31, 2023 | 63 | $ | 72.11 | — | — | |||||||||||
February 1, 2023 – February 28, 2023 | — | — | — | — | ||||||||||||
March 1, 2023 – March 31, 2023 | 129 | 69.71 | — | — | ||||||||||||
Total | 192 | 70.50 | — | — | ||||||||||||
Spire Missouri’s outstanding first mortgage bonds contain restrictions on its ability to pay cash dividends on its common stock. As of March 31, 2022,2023, all of Spire Missouri’s retained earnings were free from such restrictions.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
None.
* Incorporated herein by reference and made a part hereof. Spire Inc. File No. 1-16681. Spire Missouri Inc. File No. 1-1822. Laclede Gas Company changed its name to Spire Missouri Inc. effective August 30, 2017.
Pursuant to the requirements of the Securities Exchange Act of 1934, each of the registrants has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Spire Inc. | ||||
Date: | May | By: | /s/ Steven P. Rasche | |
Steven P. Rasche | ||||
Executive Vice President and Chief Financial Officer | ||||
(Authorized Signatory and Principal Financial Officer) | ||||
|
Spire Missouri Inc. | ||||
Date: | May | By: | /s/ Timothy W. Krick | |
Timothy W. Krick | ||||
Controller and Chief Accounting Officer | ||||
(Authorized Signatory and Chief Accounting Officer) | ||||
|
Spire Alabama Inc. | |||||||
Date: | May | By: | /s/ Timothy W. Krick | ||||
Timothy W. Krick | |||||||
Chief Accounting Officer | |||||||
(Authorized Signatory and Chief Accounting Officer) |
| ||||||
66