INCOME TAXES

Spire

The Company’s provision for income taxes charged during the fiscal years ended September 30, 2016, 2015, and 2014 are as follows:



	2016			2015			2014
Federal
Current	$	0.1		$	(3.3	)	$	0.3
Deferred	62.0			58.8			30.6
Investment tax credits	(0.2		)	(0.2		)	(0.2		)
State and local
Current	0.6			—			0.6
Deferred	7.0			6.9			1.0
Total income tax expense	$	69.5		$	62.2		$	32.3

The Company’s effective income tax rate varied from the federal statutory income tax rate for each year due to the following:



	2016		2015		2014
Federal income tax statutory rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal income tax benefits	2.8		3.0		1.8
Certain expenses capitalized on books and deducted on tax return	(3.4	)	(3.7	)	(4.9	)
Taxes related to prior years	(0.2	)	(0.6	)	(0.7	)
Other items – net *	(1.7	)	(2.5	)	(3.6	)
Effective income tax rate	32.5	%	31.2	%	27.6	%

* Other consists primarily of property adjustments.

The Company’s significant items comprising the net deferred tax liability recorded in the Consolidated Balance Sheets as of September 30 are as follows:



	2016		2015
Deferred tax assets:
Reserves not currently deductible	$	21.3	$	14.8
Pension and other postretirement benefits	68.3		62.5
Operating losses	102.3		47.3
Other	—		1.5
Deferred tax assets	191.9		126.1
Less: valuation allowance	0.9		—
Total deferred tax assets	191.0		126.1
Deferred tax liabilities:
Relating to property	623.1		472.1
Regulatory pension and other postretirement benefits	106.8		110.6
Deferred gas costs	20.0		8.1
Other	48.4		11.6
Total deferred tax liabilities	798.3		602.4
Net deferred tax liability	607.3		476.3
Net deferred tax asset – current	—		5.8
Net deferred tax liability – noncurrent	$	607.3	$	482.1

In assessing whether deferred tax assets are realizable, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management considers all significant available positive and negative evidence, including the existence of losses in recent years, the timing of deferred tax liability reversals, projected future taxable income, taxable income in carryback years, and tax planning strategies to assess the need for a valuation allowance. Based upon this evidence, management believes it is more likely than not the Company will realize the benefits of these deferred tax assets.

The Company has federal and state loss carryforwards of approximately $297.0 at September 30, 2016. The Company also has contribution carryforwards of approximately $12.2 at September 30, 2016. The loss carryforwards begin to expire in the fiscal year ending 2030 for certain state purposes and 2035 for federal and other states purposes. The contribution carryforwards begin to expire in fiscal year 2017. The Company has established a valuation allowance of $0.9 during the fiscal year as a portion of the charitable contribution carryforward will not be realized prior to its expiration. The Company also has various tax credit carryforwards of approximately $3.5 that begin to expire in 2017.

The Company recognizes the tax benefit from a tax position only if it is at least more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company records potential interest and penalties related to its uncertain tax positions as interest expense and other income deductions, respectively. Unrecognized tax benefits, accrued interest payable, and accrued penalties payable are reported as a reduction of a deferred tax asset for an operating loss carryforward.

The following table presents a reconciliation of the beginning and ending balances of the Company’s unrecognized tax benefits:



	2016			2015			2014
Unrecognized tax benefits, beginning of year	$	7.1		$	4.6		$	2.4
Increases related to tax positions taken in current year	3.4			2.9			2.6
Reductions due to lapse of applicable statute of limitations	(0.5		)	(0.4		)	(0.4		)
Unrecognized tax benefits, end of year	$	10.0		$	7.1		$	4.6

The amount of unrecognized tax benefits which, if recognized, would affect the Company’s effective tax rate were $3.3 and $3.1 as of September 30, 2016 and 2015, respectively. It is reasonably possible that events will occur in the next 12 months that could increase or decrease the amount of the Company’s unrecognized tax benefits. The Company does not expect that any such change will be significant to the Consolidated Balance Sheets.

As of September 30, 2016 and 2015, interest accrued associated with the Company’s uncertain tax positions was de minimis, and no penalties were accrued as of September 30, 2016.

The Company is subject to US federal income tax as well as income tax in various state and local jurisdictions. The Company is no longer subject to examination for fiscal years prior to 2013.

Regarding the Company’s recent EnergySouth acquisition, tax returns for the calendar years 2013 through 2015 remain open and subject to examination by the Internal Revenue Service and state taxing jurisdictions. These returns cover periods during which EnergySouth was owned by Sempra Global. The impact of any adjustments made to these returns by the relevant taxing authorities would be addressed by the indemnification provisions of the stock purchase agreement with Sempra Global.

Laclede Gas

Laclede Gas’ provision for income taxes charged during the fiscal years ended September 30, 2016, 2015, and 2014 are as follows:



	2016			2015			2014
Federal
Current	$	—		$	(2.1	)	$	(0.1	)
Deferred	37.5			40.9			34.3
Investment tax credits	(0.2		)	(0.2		)	(0.2		)
State and local
Current	0.1			(0.1		)	—
Deferred	8.0			4.7			1.5
Total income tax expense	$	45.4		$	43.2		$	35.5

Laclede Gas’ effective income tax rate varied from the federal statutory income tax rate for each year due to the following:



	2016		2015		2014
Federal income tax statutory rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal income tax benefits	2.8		2.8		1.8
Certain expenses capitalized on books and deducted on tax return	(4.8	)	(4.9	)	(4.5	)
Taxes related to prior years	(0.2	)	(0.8	)	(0.7	)
Other items – net *	(2.8	)	(3.0	)	(3.3	)
Effective income tax rate	30.0	%	29.1	%	28.3	%

* Other consists primarily of property adjustments.

Laclede Gas’ significant items comprising the net deferred tax liability reported in the Balance Sheets as of September 30 are as follows:



	2016		2015
Deferred tax assets:
Reserves not currently deductible	$	14.9	$	15.4
Pension and other postretirement benefits	56.9		62.5
Operating losses	29.9		3.7
Other	—		1.5
Deferred tax assets	101.7		83.1
Less: valuation allowance	0.9		—
Total deferred tax assets	100.8		83.1
Deferred tax liabilities:
Relating to utility property	497.0		425.0
Regulatory pension and other postretirement benefits	106.8		120.2
Deferred gas costs	20.0		8.2
Other	33.9		14.5
Total deferred tax liabilities	657.7		567.9
Net deferred tax liability	556.9		484.8
Net deferred tax asset – current	—		0.4
Net deferred tax liability – noncurrent	$	556.9	$	485.2

Spire files a consolidated federal return and various state income tax returns and allocates income taxes to Laclede Gas and its other subsidiaries as if each entity were a separate taxpayer.

In assessing whether deferred tax assets are realizable, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management considers all significant available positive and negative evidence, including the existence of losses in recent years, the timing of deferred tax liability reversals, projected future taxable income, taxable income in carryback years, and tax planning strategies to assess the need for a valuation allowance. Based upon this evidence, management believes it is more likely than not that Laclede Gas will realize the benefits of these deferred tax assets.

Laclede Gas has state and federal loss carryforwards of approximately $105.0, at September 30, 2016, based on a separate company basis. For federal tax purposes, these loss carryforwards may be utilized against income from another member of the consolidated group. Laclede Gas also has contribution carryforwards of approximately $12.0 at September 30, 2016. The loss carryforwards begin to expire in the fiscal year ending 2035 for federal and state purposes. The contribution carryforwards begin to expire in fiscal year ending 2017. Laclede Gas has established a valuation allowance of $0.9 during the fiscal year as a portion of the charitable contribution carryforward will not be realized prior to its expiration. Laclede Gas also has approximately $2.0 of various tax credit carryforwards with expiration dates which begin to expire in 2017.

Laclede Gas recognizes the tax benefit from a tax position only if it is at least more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Laclede Gas records potential interest and penalties related to its uncertain tax positions as interest expense and other income deductions, respectively. Unrecognized tax benefits, accrued interest payable, and accrued penalties payable are reported as a reduction of a deferred tax asset for an operating loss carryforward.

The following table presents a reconciliation of the beginning and ending balances of Laclede Gas unrecognized tax benefits:



	2016			2015			2014
Unrecognized tax benefits, beginning of year	$	6.9		$	4.2		$	2.0
Increases related to tax positions taken in current year	3.3			2.9			2.5
Reductions due to lapse of applicable statute of limitations	(0.5		)	(0.2		)	(0.3		)
Unrecognized tax benefits, end of year	$	9.7		$	6.9		$	4.2

The amount of unrecognized tax benefits, which, if recognized, would affect Laclede Gas’ effective tax rate were $3.1 and $2.9 as of September 30, 2016 and 2015, respectively. It is reasonably possible that events will occur in the next 12 months that could increase or decrease the amount of Laclede Gas’ unrecognized tax benefits. Laclede Gas does not expect that any such change will be significant to Laclede Gas’ Balance Sheets.

As of September 30, 2016 and 2015, interest accrued associated with Laclede Gas’ uncertain tax positions was de minimis, and no penalties were accrued.

Laclede Gas is subject to US federal income tax as well as income tax in various state and local jurisdictions, and is no longer subject to examination for fiscal years prior to 2013.

Alagasco

Alagasco’s provision for income taxes charged during the fiscal years ended September 30, 2016 and 2015, and the nine months ended September 30, 2014, are as follows:



	Year Ended September 30,			Year Ended September 30,		Nine Months Ended September 30,
	2016			2015		2014
Federal
Current	$	(0.8	)	$	—	$	14.1
Deferred	29.4			25.9		3.5
State and local
Current	—			0.1		1.8
Deferred	3.8			3.3		0.5
Total income tax expense	$	32.4		$	29.3	$	19.9

Alagasco’s effective income tax rate varied from the federal statutory income tax rate for each year due to the following:



	Year Ended September 30,		Year Ended September 30,		Nine Months Ended September 30,
	2016		2015		2014
Federal income tax statutory rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal income tax benefits	2.8		2.8		2.8
Other items – net	0.1		0.1		(0.2	)
Effective income tax rate	37.9	%	37.9	%	37.6	%

Alagasco’s significant items comprising the net deferred tax asset reported in the Balance Sheets as of September 30 are as follows:



	2016		2015
Deferred tax assets:
Reserves not currently deductible	$	6.3	$	7.0
Pension and other postretirement benefits	11.4		9.6
Goodwill	233.4		251.5
Operating losses	60.2		32.4
Other	—		1.4
Total deferred tax assets	311.3		301.9
Deferred tax liabilities:
Relating to utility property	87.6		45.1
Other	2.3		2.2
Total deferred tax liabilities	89.9		47.3
Net deferred tax asset	221.4		254.6
Net deferred tax asset – current	—		6.2
Net deferred tax asset – noncurrent	$	221.4	$	248.4

Spire files a consolidated federal return and various state income tax returns and allocates income taxes to Alagasco and its other subsidiaries as if each entity were a separate taxpayer.

In assessing whether deferred tax assets are realizable, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management considers all significant available positive and negative evidence, including the existence of losses in recent years, the timing of deferred tax liability reversals, projected future taxable income, taxable income in carryback years, and tax planning strategies to assess the need for a valuation allowance. Based upon this evidence, management believes it is more likely than not that Alagasco will realize the benefits of these deferred tax assets.

On a separate company basis, Alagasco has state and federal loss carryforwards of approximately $159.0, at September 30, 2016 generated since the acquisition. The loss carryforwards begin to expire in the fiscal year ending 2030 for state purposes and 2035 for federal purposes. For federal tax purposes, these loss carryforwards may be utilized against income from another member of the consolidated group.

Alagasco recognizes the tax benefit from a tax position only if it is at least more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Alagasco records potential interest and penalties related to its uncertain tax positions as interest expense and other income deductions, respectively. Alagasco has reported no unrecognized tax benefits since the acquisition by Spire in August 2014.

The following table presents a reconciliation of the beginning and ending balances of Alagasco’s unrecognized tax benefits:



	Year Ended September 30,		Year Ended September 30,		Nine Months Ended September 30,
	2016		2015		2014
Unrecognized tax benefits, beginning of period	$	—	$	—	$	0.3
Reduction for transfer of balance to Energen	—		—		(0.3		)
Unrecognized tax benefits, end of period	$	—	$	—	$	—

Alagasco is subject to US federal income tax as well as income tax in various state and local jurisdictions. Alagasco’s tax returns for the periods after 2012 remain open and subject to examination by the Internal Revenue Service and state taxing jurisdictions. The returns covering 2013 and 2014 include periods during which Alagasco was owned by Energen. The impact of any adjustments made to those returns by the relevant taxing authorities would be addressed by the indemnification provisions of the stock purchase agreement with Energen.