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, 2017 and 2016. Unamortized Purchased Gas Adjustments are also included below, which are reported separately in the current assets and liabilities sections of each balance sheet.



	Spire				Spire Missouri				Spire Alabama
September 30	2017		2016		2017		2016		2017		2016
Regulatory Assets:
Current:
Pension and postretirement benefit costs	$	42.2	$	27.0	$	34.9	$	20.2	$	7.2	$	6.8
Unamortized purchased gas adjustments	102.6		49.7		57.4		43.1		45.2		5.6
Other	30.7		17.2		3.3		3.7		12.2		8.1
Total Current Regulatory Assets	175.5		93.9		95.6		67.0		64.6		20.5
Noncurrent:
Future income taxes due from customers	170.5		151.3		170.5		151.3		—		—
Pension and postretirement benefit costs	404.7		487.9		322.7		375.7		72.6		98.9
Cost of removal	123.3		130.6		—		—		123.3		130.6
Unamortized purchased gas adjustments	9.9		12.6		9.9		12.6		—		—
Energy efficiency	29.0		25.5		29.0		25.5		—		—
Other	53.7		30.1		25.7		24.7		1.1		1.2
Total Noncurrent Regulatory Assets	791.1		838.0		557.8		589.8		197.0		230.7
Total Regulatory Assets	$	966.6	$	931.9	$	653.4	$	656.8	$	261.6	$	251.2

Regulatory Liabilities:
Current:
RSE adjustment	$	1.4	$	7.5	$	—	$	—	$	1.4	$	5.0
Unbilled service margin	—		5.9		—		—		—		5.9
Refundable negative salvage	8.2		9.3		—		—		8.2		9.3
Unamortized purchased gas adjustments	1.0		1.7		—		—		—		—
Other	12.0		6.2		2.7		1.3		2.4		2.5
Total Current Regulatory Liabilities	22.6		30.6		2.7		1.3		12.0		22.7
Noncurrent:
Pension and postretirement benefit costs	32.2		28.9		—		—		32.2		28.9
Refundable negative salvage	4.1		9.4		—		—		4.1		9.4
Accrued cost of removal	83.8		74.8		54.5		55.1		—		—
Other	37.1		17.6		26.7		12.2		3.3		3.4
Total Noncurrent Regulatory Liabilities	157.2		130.7		81.2		67.3		39.6		41.7
Total Regulatory Liabilities	$	179.8	$	161.3	$	83.9	$	68.6	$	51.6	$	64.4

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



	Spire				Spire Missouri
September 30	2017		2016		2017		2016
Future income taxes due from customers	$	170.5	$	151.3	$	170.5	$	151.3
Pension and postretirement benefit costs	198.5		240.6		198.5		240.6
Other	11.3		12.9		11.3		12.9
Total Regulatory Assets Not Earning a Return	$	380.3	$	404.8	$	380.3	$	404.8

Like all the Company’s regulatory assets, these regulatory assets are expected to be recovered from customers in future rates. The recovery period for the future income taxes due from customers and pension and postretirement benefit costs could be as long as 20 years, based on current Internal Revenue Service guidelines and average remaining service life of active participants, respectively. 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. Spire Alabama does not have any regulatory assets that are not earning a return.

Spire Missouri

On September 30, 2016 Spire Missouri filed to increase its Infrastructure System Replacement Surcharge (ISRS) revenues by $5.0 for Spire Missouri East and $3.4 for Spire Missouri West, related to ISRS investments from March 2016 through October 2016. On November 29, 2016, MoPSC staff recommended $4.5 and $3.4 for Spire Missouri East and Spire Missouri West, respectively, based on updated filings. On January 3, 2017, the MoPSC held a hearing to decide two issues raised by the Missouri Office of the Public Counsel (OPC) pertaining to the ISRS eligibility of hydrostatic testing done by Spire Missouri West and of the replacement of cast iron main interspersed with portions of plastic pipe. On January 18, 2017, the MoPSC found in favor of the Missouri Utilities on the interspersed plastics issue, but against Spire Missouri West on hydrostatic testing, and issued an order setting the ISRS increases at $4.5 and $3.2 for Spire Missouri East and Spire Missouri West, respectively, bringing total annualized ISRS revenue to $29.5 and $13.4, respectively. Rates were effective January 28, 2017. On March 3, 2017, the OPC filed an appeal to Missouri’s Western District Court of Appeals of the MoPSC’s decision permitting Spire Missouri to include in the ISRS the replacement of cast iron main interspersed with plastic pipe. The appeal will be heard in November 2017.

On February 3, 2017, Spire Missouri filed to increase its ISRS revenues, by $3.3 for Spire Missouri East and $2.9 for Spire Missouri West, related to ISRS investments from November 2016 through February 2017. Following the submission of updated information, on April 4, 2017, MoPSC staff submitted its recommendation for an increase in rates of approximately $3.0 each, for a cumulative total of $32.6 and $16.4 for Spire Missouri East and Spire Missouri West, respectively. On that same date, the OPC again raised an objection to the ISRS eligibility of replacing cast iron main interspersed with portions of plastic. On April 18, 2017, the parties filed with the MoPSC a unanimous stipulation and agreement proposing to apply the judicial outcome of the OPC’s March 3, 2017 appeal on the plastics issue to both the ISRS cases on appeal and the current ISRS cases. The agreement was approved by the MoPSC on April 26, 2017. ISRS rates for each of the two service territories were increased by the MoPSC staff-recommended amounts, effective June 1, 2017.

On April 15, 2015, Spire Missouri applied to the MoPSC for a new authorization of long-term financing in the amount of $550.0. On February 10, 2016, the MoPSC issued an order, by a 3-2 vote, authorizing Spire Missouri financing authority of $300.0 for long-term financings placed any time before September 30, 2018. Spire Missouri filed an application for rehearing, which was denied on March 9, 2016. On March 31, 2016, Spire Missouri filed an appeal with Missouri’s Western District Court of Appeals concerning this matter. The parties filed briefs and oral arguments were heard on November 17, 2016. On May 30, 2017, Missouri’s Western District Court of Appeals issued a decision upholding the MoPSC’s February 10, 2016 Order granting Spire Missouri $300.0 in long-term financing authority. On July 5, 2017, the Court denied Spire Missouri’s request to transfer the case to the Missouri Supreme Court, and on October 5, 2017, the Missouri Supreme Court declined to hear Spire Missouri’s direct appeal. On March 20, 2017, Spire Missouri entered into a bond purchase agreement for $170.0 that was funded on September 15, 2017, and applied against the $300.0 authorization.

On April 11, 2017, both Spire Missouri East and Spire Missouri West filed for a general rate case, and did so concurrently as agreed to in GM-2013-0254, as part of the acquisition of Spire Missouri West by Spire Missouri in fiscal 2013. The request for Spire Missouri East represents a net rate increase of $25.5. With the $32.6 already being billed in ISRS, the total base rate increase request was $58.1. Spire Missouri West’s request represents a net rate increase of $34.0. With the $16.4 already being billed in ISRS, the total base rate increase request was $50.4. The rates were premised upon a 10.35% return on equity and the details of the filing can be found in GR-2017-0215 and GR-2017-0216 for Spire Missouri East and Spire Missouri West, respectively. An evidentiary hearing has been set for December 4 through 15, 2017, with a MoPSC decision expected by February 2018. Missouri statutes require new rates to be effective within 11 months of the filing, or by March 8, 2018.

Spire Alabama

Spire Alabama is subject to regulation by the APSC which established the Rate Stabilization and Equalization (RSE) rate-setting process in 1983. Spire Alabama’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 Spire Alabama will consult in good faith with respect to modifications, if any. Effective January 1, 2014, Spire Alabama’s allowed range of return on average common equity is 10.5% to 10.95% with an adjusting point of 10.8%. Spire Alabama 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 Spire Alabama’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. The RSE reduction for the July 31, 2016 quarterly point of test was $4.8 and went into effect October 1, 2016, and for the quarterly point of test at September 30, 2016, Spire Alabama recorded a $2.7 RSE reduction effective December 1, 2016. As part of the annual update for RSE, on November 30, 2016, Spire Alabama filed a reduction for rate year 2017 of $2.5 that also became effective December 1, 2016. There was no RSE reduction for the January 31, 2017, April 30, 2017 and July 31, 2017 points of test. As of September 30, 2017, Spire Alabama 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 inflation-based Cost Control Measure (CCM), established by the APSC, allows for annual increases to operation and maintenance (O&M) expense. The CCM range is Spire Alabama’s 2007 actual rate year O&M expense 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 rate year O&M is less than the Index Range, Spire Alabama benefits by one-half of the difference through future rate adjustments. Certain items that fluctuate based on situations demonstrated to be beyond Spire Alabama’s control may be excluded from the CCM calculation. As of September 30, 2017, Spire Alabama recorded a CCM benefit of $10.7 for rate year 2017, which will be reflected in rates effective December 1, 2017. The CCM benefit was $7.8 for rate year 2016 and $4.7 for rate year 2015.

On June 28, 2010, the APSC approved a reduction in depreciation rates, effective June 1, 2010, and a regulatory liability recorded for Spire Alabama. Refunds from such negative salvage liability will be passed back to eligible customers on a declining basis through lower tariff rates through rate year 2019 pursuant to the terms of the Negative Salvage Rebalancing (NSR) rider. The total amount refundable to customers is subject to adjustments over the remaining period for charges made to the Enhanced Stability Reserve (ESR) and other APSC-approved charges. The refunds are due to a re-estimation of future removal costs provided for through the prior depreciation rates. For fiscal 2017, approximately $6.3 of the customer refund was returned to customers. As of September 30, 2017, $12.3 is remaining to be refunded to customers. The NSR pass back for fiscal 2018 is $8.2 and will be reflected in rates effective December 1, 2017 through March 31, 2018.

Spire Alabama has APSC approval for an intercompany revolving credit agreement allowing Spire Alabama to borrow from Spire in a principal amount not to exceed $200.0 at any time outstanding in combination with its bank line of credit, and to loan to Spire in a principal amount not to exceed $25.0 at any time outstanding. Borrowings may be used for the following purposes: (a) meeting increased working capital requirements; (b) financing construction requirements related to additions, extensions, and replacements of the distribution systems; and (c) financing other expenditures that may arise from time to time in the normal course of business.

On September 18, 2017, Spire Alabama filed an application with the APSC for authorization to issue and sell $75.0 principal amount of debt and to purchase interest rate derivative instruments for the purpose of locking in favorable interest rates and to include the associated interest charges, issuance costs, fees and any gain or loss resulting from the settlement of such interest rate derivative instruments through rates. The application was approved by the APSC October 3, 2017.