REGULATORY MATTERS

The Utilities account for regulated operations in accordance with 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 third-party regulator. The provisions of this accounting guidance require, among other things, that financial statements of a regulated enterprise reflect the actions of regulators, where appropriate. These actions may result in the recognition of revenues and expenses in time periods that are different than non-regulated enterprises. When this occurs, costs are deferred as assets in the balance sheet (regulatory assets) and recorded as expenses when those amounts are reflected in rates. Also, regulators can impose liabilities upon a regulated company for amounts previously collected from customers and for recovery of costs that are expected to be incurred in the future (regulatory liabilities).

The following regulatory assets and regulatory liabilities were reflected in the Balance Sheets as of September 30, 2016 and 2015. Unamortized Purchased Gas Adjustments are also included below, which are reported separately in the current assets and liabilities sections of each balance sheet.



	Spire				Laclede Gas				Alagasco
	2016		2015		2016		2015		2016		2015
Regulatory Assets:
Current:
Pension and postretirement benefit costs	$	27.0	$	22.0	$	20.2	$	15.5	$	6.8	$	6.5
Unamortized purchased gas adjustments	49.7		12.9		43.1		12.9		5.6		—
Other	17.2		5.6		3.7		0.7		8.1		4.9
Total Current Regulatory Assets	93.9		40.5		67.0		29.1		20.5		11.4
Noncurrent:
Future income taxes due from customers	151.3		134.5		151.3		134.5		—		—
Pension and postretirement benefit costs	487.9		448.7		375.7		368.0		98.9		80.7
Cost of removal	130.6		78.9		—		—		130.6		78.9
Purchased gas costs	12.6		24.1		12.6		24.1		—		—
Energy efficiency	25.5		22.3		25.5		22.3		—		—
Other	30.1		29.1		24.7		24.7		1.2		4.0
Total Noncurrent Regulatory Assets	838.0		737.6		589.8		573.6		230.7		163.6
Total Regulatory Assets	$	931.9	$	778.1	$	656.8	$	602.7	$	251.2	$	175.0

Regulatory Liabilities:
Current:
RSE adjustment	$	7.5	$	12.2	$	—	$	—	$	5.0	$	12.2
Unbilled service margin	5.9		6.4		—		—		5.9		6.4
Refundable negative salvage	9.3		10.8		—		—		9.3		10.8
Unamortized purchased gas adjustments	1.7		28.2		—		—		—		28.2
Other	6.2		3.0		1.3		0.6		2.5		2.4
Total Current Regulatory Liabilities	30.6		60.6		1.3		0.6		22.7		60.0
Noncurrent:
Postretirement liabilities	28.9		28.9		—		—		28.9		28.9
Refundable negative salvage	9.4		16.2		—		—		9.4		16.2
Accrued cost of removal	74.8		58.7		55.1		58.7		—		—
Other	17.6		15.5		12.2		11.9		3.4		3.6
Total Noncurrent Regulatory Liabilities	130.7		119.3		67.3		70.6		41.7		48.7
Total Regulatory Liabilities	$	161.3	$	179.9	$	68.6	$	71.2	$	64.4	$	108.7

Regulatory assets are expected to be recovered in rates charged to customers.

A portion of the Company’s regulatory assets are not earning a return and are shown in the schedule below:



	Spire				Laclede Gas
	2016		2015		2016		2015
Future income taxes due from customers	$	151.3	$	134.5	$	151.3	$	134.5
Pension and postretirement benefit costs	240.6		223.7		240.6		223.7
Compensated absences	—		—		—		—
Other	12.9		14.2		12.9		14.2
Total Regulatory Assets Not Earning a Return	$	404.8	$	372.4	$	404.8	$	372.4

All of Alagasco’s regulatory assets currently earn a return.

These regulatory assets are expected to be recovered from customers in future rates. Excluding deferred income taxes and purchased gas adjustment items, as of September 30, 2016 and 2015, approximately $404.8 and $372.4, respectively, of regulatory assets were not earning a rate of return. The Company expects these items to be recovered over a period not to exceed 15 years consistent with precedent set by the MoPSC. The portion of the regulatory asset related to pensions and other postemployment benefits that relates to unfunded differences between the projected benefit obligation and plan assets also does not earn a rate of return.

Laclede Gas

On November 12, 2015, the MoPSC approved an incremental Infrastructure System Replacement Surcharge (ISRS) amount of $4.4 for Laclede Gas’ eastern Missouri service territory and $1.9 for MGE, effective December 1, 2015, bringing total annualized ISRS revenue to $19.6 for Laclede Gas’ eastern Missouri service territory and $6.7 for MGE’s service territory. On January 15, 2016, the Missouri Office of the Public Counsel (OPC) filed an appeal to Missouri’s Western District Court of Appeals of the MoPSC’s decision permitting Laclede Gas to update its ISRS applications during the pendency of the case. On September 27, 2016, the Western District affirmed the report and order of the MoPSC.

On May 19, 2016, the MoPSC approved an incremental ISRS amount of $5.4 for Laclede Gas’ eastern Missouri service territory and $3.6 for MGE, effective May 31, 2016, bringing total annualized ISRS revenue to $25.0 for Laclede Gas’ eastern Missouri service territory and $10.3 for MGE’s service territory. On June 30, 2016, the OPC again filed an appeal to Missouri’s Western District Court of Appeals of the MoPSC’s decision permitting Laclede Gas to update its ISRS applications during the pendency of the case. Laclede Gas believes the MoPSC’s decision was lawful and reasonable, and believes the updating process will again be upheld by the Western District and intends to vigorously oppose the appeal.

On September 30, 2016 Laclede Gas filed to increase its ISRS revenues by $5.0 for Laclede Gas’ eastern Missouri service territory and $3.4 for MGE, related to ISRS investments from March 2016 through October 2016. The MoPSC suspended the tariff until January 28, 2017 and directed the MoPSC Staff (Staff) to file a recommendation no later than November 29, 2016.

Laclede Gas previously had authority from the MoPSC to issue debt securities and preferred stock, including on a private placement basis, as well as to issue common stock, receive paid-in capital, and enter into capital lease agreements, all for a total of up to $518.0. This authority was scheduled to expire June 30, 2015. On April 15, 2015, Laclede Gas applied to the MoPSC for a new financing authorization in the amount of $550.0, and on June 24, 2015, the MoPSC granted an extension of the current authorization until the pending application was resolved. On February 10, 2016, the MoPSC issued an order, by a 3-2 vote, authorizing Laclede financing authority for $300.0 for financings placed any time before September 30, 2018. Laclede Gas filed an application for rehearing, which was denied on March 9, 2016. On March 31, 2016, Laclede Gas filed an appeal with the Western District Court of Appeals concerning this matter. On July 20, 2016, Laclede Gas filed its initial brief before the Court. The MoPSC filed its reply brief on September 19, 2016. Laclede Gas filed its final brief on October 4, 2016. Oral arguments are scheduled for November 17, 2016. Laclede Gas issued no securities under this authorization since the decision and $300.0 remained available for issuance as of November 11, 2016.

Alagasco

Alagasco is subject to regulation by the APSC which established the Rate Stabilization and Equalization (RSE) rate-setting process in 1983. Alagasco’s current RSE order has a term extending beyond September 30, 2018, unless the APSC enters an order to the contrary in a manner consistent with law. In the event of unforeseen circumstances, whether physical or economic, of the nature of force majeure and including a change in control, the APSC and Alagasco will consult in good faith with respect to modifications, if any. Effective January 1, 2014, Alagasco’s allowed range of return on average common equity is 10.5% to 10.95% with an adjusting point of 10.8%. Alagasco is eligible to receive a performance-based adjustment of 5 basis points to the return on equity adjusting point, based on meeting certain customer satisfaction criteria. Under RSE, the APSC conducts quarterly reviews to determine whether Alagasco’s return on average common equity 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 return within the allowed range; increases, however, are allowed only once each rate year, effective December 1, and cannot exceed 4% of prior-year revenues. There was no RSE reduction for the January 31, 2016 quarterly point of test. Related to the April 30, 2016 quarterly point of test, Alagasco recorded a $5.8 RSE reduction to operating revenues, which the APSC directed, by order dated June 20, 2016, be applied to the Gas Supply Adjustment (GSA) balance. The RSE reduction for the July 31, 2016 quarterly point of test was $4.8. As of September 30, 2016, Alagasco recorded a $2.7 RSE reduction to operating revenues to bring the expected rate of return on average common equity at the end of the year to within the allowed range of return. The quarterly point of test reductions from rate year 2016 went into effect October 1, 2016 for $4.8 and will go into effect December 1, 2016 for $2.7. On October 26, 2016, as part of their annual update for RSE, Alagasco filed a $1.3 reduction for rate year 2017, which is subject to review by APSC Staff and becomes effective December 1, 2016 unless otherwise ordered by the APSC.

The inflation-based Cost Control Mechanism (CCM), established by the APSC, allows for annual increases to operations and maintenance (O&M) expense. The CCM range is Alagasco’s 2007 actual rate year O&M expense (Base Year) inflation-adjusted using the June Consumer Price Index For All Urban Consumers each rate year plus or minus 1.75% (Index Range). 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 that rate year O&M is less than the Index Range, Alagasco benefits by one-half of the difference through future rate adjustments. Certain items that fluctuate based on situations demonstrated to be beyond Alagasco’s control may be excluded from the CCM calculation. A CCM benefit to the company for such cost saving of $7.8 related to 2016 will be reflected in rates effective December 1, 2016. The CCM benefit was $4.7 for 2015.