Note 15 - Regulatory Matters

12 Months Ended

Sep. 30, 2023

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, 2023 and 2022.

	Spire				Spire Missouri				Spire Alabama
September 30	2023		2022		2023		2022		2023		2022
Regulatory Assets:
Current:
Unamortized purchased gas adjustments	$	293.2	$	322.2	$	269.4	$	275.1	$	21.7	$	43.8
Other		55.1		33.2		23.7		13.0		19.9		13.1
Total Current Regulatory Assets		348.3		355.4		293.1		288.1		41.6		56.9
Noncurrent:
Future income taxes due from customers		144.5		137.8		136.2		129.2		2.0		2.2
Pension and postretirement benefit costs		261.0		294.5		189.1		222.9		67.8		66.5
Cost of removal		633.2		493.7		97.0		25.2		536.2		468.5
Unamortized purchased gas adjustments		23.0		—		23.0		—		—		—
Energy efficiency		56.3		57.2		56.3		57.2		—		—
Other		131.2		129.2		116.0		113.1		0.9		1.0
Total Noncurrent Regulatory Assets		1,249.2		1,112.4		617.6		547.6		606.9		538.2
Total Regulatory Assets	$	1,597.5	$	1,467.8	$	910.7	$	835.7	$	648.5	$	595.1
Regulatory Liabilities:
Current:
Other	$	7.3	$	3.7	$	—	$	—	$	—	$	—
Total Current Regulatory Liabilities		7.3		3.7		—		—		—		—
Noncurrent:
Deferred taxes due to customers		128.0		145.3		114.8		127.9		—		—
Pension and postretirement benefit costs		185.2		172.6		156.5		143.6		17.9		19.4
Accrued cost of removal		126.6		32.9		90.4		—		—		—
Unamortized purchased gas adjustments		11.2		53.0		11.2		53.0		—		—
Other		21.4		14.4		16.5		7.3		3.3		3.6
Total Noncurrent Regulatory Liabilities		472.4		418.2		389.4		331.8		21.2		23.0
Total Regulatory Liabilities	$	479.7	$	421.9	$	389.4	$	331.8	$	21.2	$	23.0

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	2023		2022		2023		2022
Pension and postretirement benefit costs	$	133.4	$	152.9	$	133.4	$	152.9
Future income taxes due from customers		142.5		135.6		136.2		129.2
Unamortized purchase gas adjustments		292.4		275.1		292.4		275.1
Other		104.2		122.7		104.2		122.7
Total Regulatory Assets Not Earning a Return	$	672.5	$	686.3	$	666.2	$	679.9

Like all the Company’s regulatory assets, these regulatory assets as of September 30, 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. The recovery period for the PGA assets is less than two years. 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, up to 35 years. 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. Certain provisions of the PGA clause are included below:

•  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%).

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 November 29, 2022 and January 19, 2023. 

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, and the marketers are making timely payments to Spire Missouri.

As a result of the significant net deferred gas costs and average inventory cost in the second quarter of fiscal 2021, primarily due to Winter Storm Uri, Spire Missouri filed for and received MoPSC approval for an adjustment to the PGA tariff to increase a Filing Adjustment Factor (FAF) credit on customers' bills for three years. This lowered the net PGA rate to mitigate the impact of Winter Storm Uri costs on customers. All gas costs will eventually be recovered by Spire Missouri through the PGA or ACA mechanisms and carrying costs will be applied per the terms of the tariff.

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.

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, effective May 6, 2023, reflecting eligible pipe replacement from October 2022 through February 2023. On October 4, 2023, the MoPSC approved an incremental annual ISRS revenue increase of $12.4, effective October 23, 2023, reflecting eligible pipe replacement from March 2023 through August 2023.

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 recommendation. The Missouri Office of the Public Counsel and Environmental Defense Fund (EDF) filed comments on July 29 and August 1, 2022, respectively, raising concerns about the Spire STL Pipeline transaction, the ACA process itself, and other matters. On January 6, 2023, Spire Missouri filed a Partial Stipulation and Agreement resolving all other issues raised by the MoPSC staff in its Recommendation and Report. The partial stipulation was approved by the MoPSC on January 25, 2023, resulting in a $0.6 credit to the ACA balance, but issues relating to Spire STL Pipeline costs remained contested. An evidentiary hearing on this matter was scheduled to be held  July 25-26, 2023; however, on July 21, 2023, MoPSC suspended the procedural schedule in recognition that the parties had reached an agreement in principle to resolve the matter via settlement stipulation. The stipulation and agreement was approved by the Commission on August 23, 2023 and included an increase in customer assistance program funding among other non-monetary commitments.

In 2022, the MoPSC initiated their 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 on Spire Missouri's natural gas portfolio. On December 15, 2022, the MoPSC staff filed its Reports and Recommendations in these cases proposing various disallowances relating to imbalance cash-outs and an off-system sale. On January 19, 2023, Spire Missouri filed its response to this proposal setting forth its position that there is no basis in law or fact for either disallowance. On July 12, 2023, the MoPSC entered a scheduling order in this matter which includes several rounds of pre-filed testimony prior to an evidentiary hearing to be held in early May 2024. On November 2, 2023, Spire Missouri filed an unopposed settlement stipulation by which the MoPSC Staff agreed to withdraw its recommendation of a proposed disallowance relating to imbalance cash-outs. The proposed disallowance relating to an off-system sale remains pending in the case. Management believes the likelihood of an unfavorable outcome is remote.

Spire Alabama

In September 2022, the APSC approved the renewal of 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 (ROE) 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 ROE 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 ROE 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 ROE 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, and 2024, impacting fiscal years 2023 through 2025. 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.

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.

The RSE reduction for September 30, 2021 following the year-end point of test was $2.2 to bring the expected rate of return on average common equity to within the allowed rate of return. The CCM benefit for rate year 2021 was $8.8. To mitigate the impact on ratepayers, Spire Alabama requested and received approval from the APSC to recover the 2021 CCM benefit over five years (with recognition of revenue only up to 24 months in advance of recovery). As a part of the annual update for RSE, on December 29, 2021, Spire Alabama filed an increase for rate year 2022 of $5.3. The 2021 RSE reduction of $2.2, the five-year recovery of the 2021 CCM benefit of $8.8 and the annual RSE increase of $5.3 were all effective on January 1, 2022. There was no RSE reduction in 2022 for the January 31, April 30, July 31 or September 30 quarterly points of test. Spire Alabama recorded a CCM benefit for rate year 2022 of $17.2. Similar to the rate year 2021 CCM benefit, Spire requested and received approval to recover the rate year 2022 CCM benefit over five years. On October 26, 2022, Spire Alabama made its annual RSE rate filing with the APSC, presenting the utility’s budget for the fiscal year ended September 30, 2023, including net income and a calculation of allowed ROE. The budget reflected the start of amortization of the accumulated deferred income tax (ADIT) adjustment related to the Tax Cuts and Jobs Act of 2017 (TCJA). New rates designed to provide an annual revenue increase of $15.0 became effective January 1, 2023. There was no RSE reduction in 2023 for the March 31, June 30 or September 30 points of test. Spire Alabama recorded a CCM benefit for rate year 2023 of $4.4. 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, including net income and a calculation of allowed ROE. New rates designed to provide an annual revenue increase of $15.8 are anticipated to become effective December 1, 2023.

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%. As of April 2022, the first $1.6 of value from capacity release goes entirely to customers before Spire Alabama retains 25%. In the past year, Spire Alabama filed GSA rate increases effective December 1, 2022 and  January 1, 2023, and GSA rate decreases effective October 1, 2023 and anticipated to become effective December 1, 2023, primarily attributable to changes in natural gas prices.

The APSC approved an Enhanced Stability Reserve (ESR) in 1998, which was subsequently modified and expanded in 2010. As currently approved, the ESR provides deferred treatment and recovery for the following: (1) extraordinary O&M expenses related to environmental response costs; (2) extraordinary O&M expenses related to self-insurance costs that exceed $1.0 per occurrence; (3) extraordinary O&M expenses, other than environmental response costs and self-insurance costs, resulting from a single force majeure event or multiple force majeure events greater than $0.3 and $0.4, respectively, during a rate year; and (4) negative individual large commercial and industrial customer budget revenue variances that exceed $0.4 during a rate year. Charges to the ESR are subject to certain limitations which may disallow deferred treatment and which prescribe the timing of recovery. Subject to APSC authorization, Spire Alabama expects to be able to recover underfunded ESR balances over a five-year amortization period with an annual limitation of $0.7. Amounts in excess of this limitation are deferred for recovery in future years.

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 ROE range was 10.45% to 10.95% with an adjusting point of 10.70% in fiscal 2021, while the ROE 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 an allowed ROE of 9.95%, 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. The fiscal 2023 budget reflected the start of amortization of the excess ADIT from the TCJA. Spire Gulf filed its RSE point of test as of April 30, 2023 with the APSC reflecting that its projected ROE exceeded the allowed ROE resulting in an annualized refund of $1.8 that became effective July 1, 2023. Spire Gulf filed its RSE point of test as of September 30, 2023, reflecting that its actual ROE exceeded the allowed ROE resulting in an additional annualized refund of $2.0 that are anticipated to become effective December 1, 2023. The CCM has similar 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 2017 for fiscal 2021 and 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. Spire Gulf recorded a CCM benefit for rate year 2021 of $2.3 to revenues, resulting in a net income benefit of $1.6. 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 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 through rates effective on February 1, 2022 and an additional $0.8 effective on January 1, 2023. Spire Mississippi’s RSA filing made on September 1, 2023 reflected a rate increase of $1.3 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.

In August 2018, the FERC approved an order issuing Certificates of Public Convenience and Necessity (“FERC Certificates”) for the Spire STL Pipeline ( “August 2018 Order”). In  June 2021, the U.S. Court of Appeals for the District of Columbia Circuit issued an order vacating the FERC Certificates and remanding the matter back to the FERC for further action. In  September and December 2021, the FERC issued temporary certificates for the continued authorized operation of the Spire STL Pipeline pending the outcome of its determination on remand. On December 15, 2022, the FERC issued its order on remand reissuing permanent FERC Certificates for the continued operation of the Spire STL Pipeline, and that order is final and no longer appealable.