Note 15 - Regulatory Matters

12 Months Ended

Sep. 30, 2024

Notes to Financial Statements

Public Utilities Disclosure [Text Block]

15. REGULATORY MATTERS

As discussed below for Spire Missouri and Spire Alabama, 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 regulatory liabilities related to the PGA clauses and the GSA rider are both labeled Unamortized Purchased Gas Adjustments herein.

The following regulatory assets and regulatory liabilities were reflected in the balance sheets of the Company, Spire Missouri and Spire Alabama as of September 30, 2024 and 2023.

	Spire				Spire Missouri				Spire Alabama
September 30	2024		2023		2024		2023		2024		2023
Regulatory Assets:
Current:
Unamortized purchased gas adjustments	$	28.9	$	293.2	$	28.1	$	269.4	$	—	$	21.7
Other		86.5		55.1		55.9		23.7		19.2		19.9
Total Current Regulatory Assets		115.4		348.3		84.0		293.1		19.2		41.6
Noncurrent:
Future income taxes due from customers		150.7		144.5		142.7		136.2		1.8		2.0
Pension and postretirement benefit costs		237.5		261.0		166.5		189.1		68.2		67.8
Cost of removal		668.2		633.2		97.0		97.0		571.2		536.2
Unamortized purchased gas adjustments		1.2		23.0		1.2		23.0		—		—
Energy efficiency		61.0		56.3		61.0		56.3		—		—
Other		133.2		131.2		119.6		116.0		0.8		0.9
Total Noncurrent Regulatory Assets		1,251.8		1,249.2		588.0		617.6		642.0		606.9
Total Regulatory Assets	$	1,367.2	$	1,597.5	$	672.0	$	910.7	$	661.2	$	648.5
Regulatory Liabilities:
Current:
Unamortized purchased gas adjustments	$	42.3	$	—	$	10.2	$	—	$	30.9	$	—
Other		7.2		7.3		—		—		2.9		—
Total Current Regulatory Liabilities		49.5		7.3		10.2		—		33.8		—
Noncurrent:
Deferred taxes due to customers		114.2		128.0		101.8		114.8		—		—
Pension and postretirement benefit costs		232.9		185.2		196.6		156.5		25.1		17.9
Accrued cost of removal		133.6		126.6		94.5		90.4		—		—
Unamortized purchased gas adjustments		17.2		11.2		17.2		11.2		—		—
Other		37.6		21.4		33.2		16.5		3.2		3.3
Total Noncurrent Regulatory Liabilities		535.5		472.4		443.3		389.4		28.3		21.2
Total Regulatory Liabilities	$	585.0	$	479.7	$	453.5	$	389.4	$	62.1	$	21.2

A portion of the Company’s and Spire Missouri's regulatory assets are not earning a return, as shown in the table below:

	Spire				Spire Missouri
September 30	2024		2023		2024		2023
Pension and postretirement benefit costs	$	129.7	$	133.4	$	129.7	$	133.4
Future income taxes due from customers		148.9		142.5		142.7		136.2
Unamortized purchase gas adjustments		29.3		292.4		29.3		292.4
Other		132.5		104.2		132.5		104.2
Total Regulatory Assets Not Earning a Return	$	440.4	$	672.5	$	434.2	$	666.2

Like all the Company’s regulatory assets, these regulatory assets as of September 30, 2024 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. The recovery period for the PGA assets is about one year. The other items not earning a return are expected to be recovered over a period not to exceed 15 years, consistent with precedent set by the MoPSC, except for certain debt costs expected to be recovered over the related debt term (currently to 2051). Spire Alabama does not have any regulatory assets that are not earning a return.

Spire Missouri

As authorized by the MoPSC, the PGA clause allows Spire Missouri to flow through to customers, subject to prudence review by the MoPSC, the cost of purchased gas supplies. To better match customer billings with market natural gas prices, Spire Missouri is allowed to file to modify, on a periodic basis, the level of gas costs in its PGA. Some provisions of the PGA clause are:

•  Spire Missouri has a risk management policy that allows for the purchase of natural gas derivative instruments with the goal of managing price risk associated with purchasing natural gas on behalf of its customers. The MoPSC clarified that costs, cost reductions, and carrying costs associated with the Utility’s use of natural gas derivative instruments are gas costs recoverable through the PGA mechanism.

•  The tariffs allow Spire Missouri flexibility to make up to three discretionary PGA changes during each year, in addition to its mandatory November PGA change, so long as such changes are separated by at least two months.

•  Spire Missouri is authorized to apply carrying costs to all over- or under-recoveries of gas costs, including cost increases and cost reductions associated with the use of derivative instruments, including cash payments for margin deposits.

•  Pre-tax income from off-system sales and capacity release revenues is shared with customers such that customers receive 75% and Spire Missouri receives 25% (after the first $2.2 of annual value from capacity release goes entirely to customers through fiscal 2029).

Pursuant to the provisions of the PGA clause, the difference between actual costs incurred and costs recovered through the application of the PGA clause, as well as the actual amount of off-system sales and capacity release revenues allocated to customers, are reflected as a regulatory asset or liability at the end of the fiscal year. At that time, the balance is classified as a current asset or current liability and recovered from, or credited to, customers over an annual period commencing in the subsequent November. The balance in the current account is amortized as amounts are reflected in customer billings. In fiscal 2023, Spire Missouri filed two changes to its tariff, which were approved and became effective in November 2022 and January 2023. In fiscal 2024, the MoPSC approved slight decreases in the PGA in Spire Missouri’s western service territory tariff effective in November 2023 and June 2024 (and no change in the eastern service territory). On November 12, 2024, based on a recent Spire Missouri filing, the MoPSC approved a PGA decrease of approximately 30% for both service territories effective  November 15, 2024.

In mid- February 2021, the central U.S. experienced a period of unusually severe cold weather (“Winter Storm Uri”), and Spire Missouri implemented an Operational Flow Order (OFO) to preserve the integrity of its distribution system. During this time, Spire Missouri was required to purchase additional natural gas supply, both to ensure adequate supply for its firm utility customers, and to cover the shortfall created when third-party marketers failed to deliver natural gas supply to its city gates on behalf of their customers. In accordance with its MoPSC-approved OFO tariff, Spire Missouri invoiced the cost of gas and associated penalties totaling $195.8 to non-compliant marketers and recorded accounts receivable. Recoveries collected are an offset to cost of natural gas for firm utility customers through the PGA and Actual Cost Adjustment (ACA) so are net income neutral to Spire Missouri. The three largest counterparties did not remit payment when due, so Spire Missouri filed suit against them in federal court to recover the invoiced amounts. In late February 2022, the parties to the OFO waiver suits agreed to a settlement in principle, pursuant to which marketers will reimburse Spire Missouri for the actual cost of its incremental gas purchases to serve marketers’ customers during Winter Storm Uri, so Spire Missouri reduced revenue, accounts receivable, cost of gas and regulatory liabilities by approximately $150 in the second quarter of fiscal 2022. The settlement, which reduced the total amount due from the three marketers to approximately $42, was approved by the MoPSC in late May 2022. The marketers are making timely payments to Spire Missouri, and the remaining total balance was less than $20 as of September 30, 2024.

In 2022, the MoPSC initiated its annual ACA dockets (GR-2022-0135 and GR-2022-0136) to audit gas commodity and transportation costs for the 2020-2021 heating season, which included the impact of Winter Storm Uri in mid- February 2021 on Spire Missouri’s natural gas portfolio. In December 2022, the MoPSC Staff proposed disallowances relating to imbalance cash-outs and an off-system sale. In fiscal 2024, all outstanding issues were resolved with no impact on historically reported results.

The Infrastructure System Replacement Surcharge (ISRS) allows Spire Missouri expedited recovery for its investment to replace qualifying components of its infrastructure without the necessity of a formal rate case. 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. Since then, the MoPSC has approved cumulative annual ISRS revenue increases of $53.6 (with the latest increase of $16.7 effective on  November 16, 2024), reflecting eligible pipe replacement from September 2022 through August 2024. 

Spire Alabama

In September 2022, the APSC approved the renewal of Rate Stabilization and Equalization (RSE) through September 30, 2025, with certain modifications to the previous terms. Under RSE, the APSC conducts reviews in March, June and September to determine whether Spire Alabama’s return on average common equity (RCE) at the end of the rate year will be within the allowed range of return. Reductions in rates can be made quarterly to bring the projected RCE within the allowed range; increases, however, are allowed only once each rate year, effective December 1, and cannot exceed 4% of prior-year revenues. Effective October 1, 2022, Spire Alabama's allowed range of RCE is 9.50% to 9.90% with an adjusting point of 9.70%. Previously, the allowed range was 10.15% to 10.65% with an adjusting point of 10.40%. Spire Alabama is subject to a performance-based adjustment of plus or minus 10 basis points to the RCE adjusting point, based upon the terms of the previously approved Accelerated Infrastructure Modernization (AIM) Program tariff; however, Spire applied for and received approval to suspend the operation of the AIM performance-based adjustment for 2022, 2023, 2024 and 2025, impacting fiscal years 2023 through 2026. Spire Alabama’s equity as a percent of total capitalization is limited to 55.5%, and Average Common Equity growth is limited to 6.00% each year.

In the first quarter of fiscal 2023, Spire Alabama made its annual RSE rate filing with the APSC, presenting the utility’s budget for the fiscal year ended September 30, 2023, and new rates designed to provide an annual revenue increase of $15.0 became effective January 1, 2023. On October 26, 2023, Spire Alabama made its annual RSE rate filing, presenting the utility’s budget for the fiscal year ending September 30, 2024. After an amended filing on December 27, 2023, new rates designed to provide an annual revenue increase of $14.3 became effective January 1, 2024. At the September 30, 2024 point of test, the RCE was above the allowed range, resulting in a reduction in rates totaling $4.0 annually effective in December 2024. On October 24, 2024, Spire Alabama made its annual RSE rate filing (based on its budget for fiscal 2025) including proposed rates designed to provide an annual revenue increase of $3.6, subject to review by the APSC staff and the Office of the Attorney General.

The inflation-based Cost Control Measure (CCM) established by the APSC allows for annual changes in operation and maintenance (“O&M”) expense relative to an index range. Effective October 1, 2022, the Base Year O&M expense was computed by averaging the actual O&M expenses for 2020, 2021, and 2022. The Base CPI-U was computed by averaging the August CPI-U for 2020, 2021, 2022. The “Index” is computed by measuring the change from the Base CPI-U to the August CPI-U of the most recently completed fiscal year, less a factor of 1.50%. The index range will be computed by adjusting the Index plus or minus 1.50%. If rate year O&M expense falls within the index range, no adjustment is required. If rate year O&M expense exceeds the index range, three-quarters of the difference is returned to customers through future rate adjustments. To the extent rate year O&M is less than the index range, Spire Alabama benefits by one-half of the difference through future rate adjustments. If a benefit is achieved, the Base Year and the Base CPI-U for the following year will each be reset to an average of the three preceding completed years. If a benefit is not achieved, the Base Year and Base CPI-U will not be updated. Certain items that fluctuate based on situations demonstrated to be beyond Spire Alabama’s control may be excluded from the CCM calculation. Spire Alabama recorded a CCM benefit for rate year 2022 of $17.2. To mitigate the impact on ratepayers, Spire requested and received approval to recover the rate year 2022 CCM benefit over five years (with recognition of revenue only up to 24 months in advance of recovery). Spire Alabama recorded CCM benefits for rate years 2023 and 2024 of $4.4 and $2.5, respectively.

Spire Alabama’s rate schedules for natural gas distribution charges contain a GSA rider which permits the pass-through to customers of changes in the cost of gas supply. Spire Alabama’s tariff provides a temperature adjustment mechanism, also included in the GSA rider, which is designed to moderate the impact of departures from normal temperatures on Spire Alabama’s earnings. The temperature adjustment applies primarily to residential, small commercial and small industrial customers. Other non-temperature weather-related conditions that may affect customer usage are not included in the temperature adjustment. There is also a mechanism under Spire Alabama's GSA rider allowing the utility to create value through off-system sales of excess natural gas supply and capacity and to give 75% of the value created to customers while retaining 25% (after the first $1.6 of value from capacity release goes entirely to customers). In fiscal 2023, GSA rate increases were effective December 1, 2022 and  January 1, 2023, and in fiscal 2024, GSA rate decreases were effective October 1, 2023,  January 1, 2024, and April 1, 2024, primarily attributable to changes in natural gas commodity prices.

Spire

In addition to those discussed above for Spire Missouri and Spire Alabama, Spire is affected by the following regulatory matters.

Spire Gulf has similar rate regulation to Spire Alabama. Its RSE rate-setting mechanism was renewed in September 2021 for a four-year term through September 2025. The RSE allowed RCE range is 9.70% to 10.30% with an adjusting point of 9.95% for fiscal 2022 through fiscal 2025. In October 2021 and 2022, Spire Gulf made its annual RSE rate filings with the APSC based on its budget for the new fiscal year, and new rates designed to provide increased annual revenues of $1.0 and $2.5 became effective at the beginning of January 2022 and 2023, respectively. Spire Gulf filed its RSE point of test as of April 30, 2023 with the APSC reflecting that its projected RCE exceeded the allowed RCE resulting in an annualized refund of $1.8 that became effective July 1, 2023. Spire Gulf’s September 30, 2023 RSE point of test reflected that its actual RCE still exceeded the allowed RCE, resulting in an additional annualized refund of $2.0 that became effective December 13, 2023. In the first quarter of fiscal 2024, Spire Gulf made its annual RSE filing (based on its budget for fiscal 2024) reflecting a further increase in annual revenues of $2.7 which also became effective December 13, 2023. On October 25, 2024, Spire Gulf made its annual RSE filing (based on its budget for fiscal 2025) reflecting a further increase in annual revenues of $1.9, pending regulatory review. Spire Gulf’s CCM has evaluation and recovery provisions when expenses exceed or are under a band of plus or minus 1.50% around the CPI-U inflated O&M per customer expense level from the base year, excluding expenses for pensions and gas bad debt. The base year for the O&M index was 2021 for fiscal 2022. Since a CCM benefit was recorded in fiscal 2022, the base year O&M index for fiscal 2023 through fiscal 2025 will be the 2022 O&M level. A CCM benefit of $1.7 was recorded for fiscal 2022 to an economic development fund that can be used for economic development purposes subject to APSC approval. Spire Gulf’s O&M for fiscal 2023 and 2024 was within the O&M per customer inflation adjusted band. Spire Gulf has a Cast Iron Main Replacement Factor (CIF) that provides an enhanced return on the pro-rata costs associated with cast iron main replacement exceeding 10 miles per year based on a 75% weighting for the equity content. Capital expenditures recovered under the CIF have not increased since fiscal 2019 pursuant to applicable tariff provisions although the Company is continuing to recover costs of service associated with accumulated expenditures under the CIF. Spire Gulf also has an ESR for negative revenue variances over $0.1 or a force majeure event expense of $0.1 (or two events that exceed $0.15) and an Environmental Cost Recovery Factor that recovers 90% of prudently incurred costs for compliance with environmental laws, rules and regulations. Spire Gulf has an APSC-approved intercompany revolving credit agreement with Spire to borrow in a principal amount not to exceed $75.0 and to loan up to $25.0.

Spire Mississippi utilizes a formula rate-making process under the Rate Stabilization Adjustment Rider (RSA). An allowed return on equity (currently 10.04%) is computed annually and compared to the actual return on equity based on a rate year ending June 30. If the actual equity return on an end of period rate base is beyond the allowed return on equity by 1.0%, then 75% of any shortfall is recovered through a rate increase and 50% of any excess results in a rate decrease. Updates may include known and measurable adjustments to historic costs from the 12 months ended June 30, submitted September 15 for an effective date of November 1, unless disputed by the Mississippi Public Utilities Staff (MPUS), with any disputes to be resolved by the Mississippi Public Service Commission (MSPSC) by January 15 of the following year. The MSPSC approved stipulation agreements between the MPUS and Spire Mississippi that provided for increased annual revenues of $0.8, $0.8 and $1.0 through rates effective on February 1, 2022, January 1, 2023 and January 1, 2024, respectively. Spire Mississippi’s RSA filing made on September 4, 2024 reflected a further rate increase of $0.8 and is pending review by the MPUS. Additionally, a Supplemental Growth Rider provides recovery of certain Spire Mississippi system expansion projects to serve qualified economic development projects.