Spire Inc (SR) 2013 Q3 法說會逐字稿

Good morning and welcome to The Laclede Group 2013 third-quarter earnings conference call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Scott Dudley. Please go ahead, sir.

Good morning and welcome to our earnings conference call for the third-quarter of fiscal 2013. We issued a news release this morning announcing our financial results and you may access the release on our website at thelacledegroup.com under the News Releases tab.

Today's call is scheduled for about an hour and will include a discussion of our results and a question-and-answer session. Prior to opening up the call for questions, the Operator will provide instructions on how to join the queue to ask a question.

On the call are Suzanne Sitherwood, President and CEO of The Laclede Group; Mark Waltermire, Executive Vice President and Chief Financial Officer; Steve Rasche, Senior Vice President of Finance and Accounting.

Also in the room with us are Steve Lindsey, Executive Vice President and Chief Operating Officer of Distribution Operations; Mike Spotanski, Senior Vice President and Chief Integration and Innovation Officer; and Mike Pendergast, Vice President of External Affairs.

Before we begin, let me cover our safe harbor statement and use of non-GAAP earnings measures.

Today's earnings conference call, including responses during the Q&A session, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our forward-looking statements speak only as of today and we assume no duty to update them. Although our forward-looking statements are based on reasonable assumptions, various uncertainties and risk factors may cause future performance or results to be different than those anticipated. A description of the uncertainties and risk factors can be found in our Annual Report on Form 10-K, and our Quarterly Report on Form 10-Q, which will be filed later today.

In our comments we will be discussing financial results in terms of net economic earnings, which is a non-GAAP measure used by Management when evaluating the Company's performance. Net economic earnings exclude from net income the after-tax impacts of fair value accounting and timing adjustments associated with energy-related transactions as well as the impacts related to our pending acquisition. A full explanation of the adjustments and a reconciliation of net income to net economic earnings are contained in the news release we issued this morning.

So with that, let me turn the call over to Suzanne.

Thank you, Scott, and let me also add my welcome to those who have joined us this morning.

As usual, on our call today we will be discussing our results and other financial matters, which Mark and Steve will cover in more detail in a few minutes. But now, I would like to review the headlines for the quarter.

We reported strong earnings improvement for our Gas Utility segment, thanks largely to colder weather and the benefits from our increased investment in upgrades to our distribution system. However, higher Utility earnings were offset by lower earnings from Gas Marketing, due to market conditions. Overall, our operating results were good and our net economic earnings for the year are on track to show solid growth.

In addition to earnings, there have been a number of other significant developments, mainly in the regulatory arena where we have settled several matters. First, about two weeks ago Laclede Gas received approval from the Missouri Public Service Commission to purchase the assets of MGE from Southern Union. This is a major milestone that brings us closer to completing the MGE transaction as we continue to work on integration.

Second, we reached agreement in our Laclede Gas rate case in late June. Concluding the case in a timely way allows the staff of the Missouri Commission to focus their resources on our request for approval of the MGE acquisition.

Meanwhile, we continue to make progress in the regulatory approval process for NAGASCO in Massachusetts.

Regarding the MGE approval, the Missouri Public Service Commission approved an agreement on July 17 that was reached by Laclede Gas and other parties to the proceeding. The agreement contains a number of important provisions and conditions that I'd like to highlight.

The approval is effective July 31 and includes authorization for Laclede Gas to complete the financing of the acquisition. This is another important milestone in completing the purchase, and Steve will update you on our financing efforts overall.

Laclede Gas is permitted to close on this $975 million transaction on or after September 1. This timing is consistent with our goals of closing by the end of our fiscal year. As we've noted all along, the closing is subject to the purchase and sales agreement, which includes a simultaneous closing condition for MGE and NAGASCO. ETE has the right to waive the simultaneous closing condition so that MGE can close before, and independently of, NAGASCO. At this point, we anticipate a timely closing on MGE.

The Massachusetts regulatory authority approval process for NAGASCO is on track, but the schedule is obviously later than the one we just finished in Missouri. We are very engaged and working with all parties to get the approval completed so that Liberty Utilities can close on the purchase of NAGASCO.

Turning back to the MGE approval, the other provisions in the agreement center largely on the approval standard in Missouri, which requires that there be no net detriment to customers or the public as a result of Laclede Gas acquiring MGE. Based on this standard, our plan from the beginning has been not to seek recovery of the acquisition premium or the transaction costs we've been occurring prior to closing. The agreement confirms that approach. And we have fully committed to continue meeting safety, customer service, and other operating performance levels, while maintaining existing energy efficiency programs. Under the agreement we will enhance our ongoing communications with the Missouri Public Service Commission, through regular updates to keep them apprised of our integration progress.

There are provisions in the agreement that address two important issues that I want to mention in particular. The first is the integration process and costs. I am pleased to report that our integration planning work is on track and on schedule. The integration process is led by Mike Spotanski and a seasoned internal team with assistance from Booz & Company.

The process involves a dozen integration teams comprised of employees of both Laclede and MGE. Over the last six months they have validated our due diligence synergy estimates. They have also worked to understand both companies' operations and cultures, and to use that to plan for the integration and operations of the combined company going forward. The teams are working to finalize their recommendations for the design of the new Laclede. We stand ready to hit the ground running as soon as the acquisition closes.

The agreement includes provisions concerning the recovery of certain costs to integrate the acquisition, including costs incurred to achieve synergies. Steve will talk about the specifics of the recovery mechanism, but I would just like to note that we believe the Commission took a very construction approach in addressing these costs.

The second issue is the timing and parameters for general rate case filings for both MGE and Laclede Gas. We anticipate that MGE will file its next case by September 18 of this year. They have already submitted the required Notice of Intent to do so. The MGE filing deadline is tied to the statute covering the infrastructure system replacement surcharge, or ISRS. The statute requires that gas utilities file a general rate case roughly every three years after a new ISRS is established following a rate case.

As we shared with many of you, the last legislative session in Missouri produced a bill that would have extended the mandatory general rate case filing period to five years from three years. Unfortunately, Governor Nixon vetoed this bill on July 10. We were deeply disappointed in his decision because the bill would have helped maintain important regulatory oversight, while improving gas safety, creating jobs, and lowering costs for customers associated with rate proceedings.

I would note that the veto of the bill does not change our ability or opportunity to file for ISRS going forward, nor does it impact the economics of our acquisition.

Under the approval agreement, Laclede Gas has agreed not to file a general rate case prior to October 1, 2015 unless there are unusual circumstances. This timing is consistent with Laclede's past practice of filing a general rate case roughly every three years, as required by the ISRS statute.

On June 26, Laclede Gas reached agreement on its general rate case that was filed back in December of 2012. I would note that a significant majority of our prior rate cases have also been concluded through agreements. Assuming agreements are financially and operationally acceptable, we have found this approach to be preferable because it allows issues to be resolved satisfactorily without going through the full 11-month process, which costs both time and money.

The current rate case agreement calls for $14.8 million in annualized ISRS revenues we have already been collecting to be placed into the base rate, resulting in no increase to customer bills. We believe this is a fair and reasonable outcome that allows us to continue to earn a solid return, as we have been successful in reducing our costs. That, to a large degree, is what allows us to forego a general rate case increase right now.

With that review of regulatory matters, I will turn the call over to Mark. But, before I do so, I want to acknowledge Mark's recently announced decision to retire as Chief Financial Officer of The Laclede Group at the end of our fiscal year on September 30. I know this was a tough decision for him. Mark has spent 23 years at Laclede, providing our company strategic expertise and business guidance that has helped build the outstanding financial position and reputation that we all enjoy today. On behalf of the entire Laclede family, I want to thank Mark for his years of committed service and wish him well in his future endeavors.

We are fortunate at Laclede to have a very good succession planning process. And, as a result, we were able to move quickly in naming a capable successor in Steve Rasche. Effective October 1, Steve will assume the role of Senior Vice President and CFO of The Laclede Group, reporting to me. I'm sure almost everyone on the call has met or spoken with Steve in his current role, and we expect a smooth and seamless transition. Steve has nearly 30 years of financial management and executive leadership experience, including four years here at Laclede, and has served in CFO roles previously. We look forward to his contributions to Laclede in the months and years ahead.

With that, let me turn the call over to Mark.

Good morning, everyone, and thank you, Suzanne, for your kind words. It's been my privilege to work for such a great company with so many talented and dedicated people. I'm proud to have contributed to the success and strong reputation of Laclede and I leave knowing that the Company is in very good hands under Suzanne's leadership. I look forward to watching Laclede's continued growth and achievements for many years to come.

In our news release this morning we announced third-quarter net income of $6.6 million, down from $8.4 million last year. These results reflect the impacts of activities associated with the acquisition of MGE.

As is our normal practice, we'll focus today's discussion on net economic earnings, which removes from net income the impact of fair value accounting and costs we've incurred in connection with the pending MGE acquisition. This quarter's presentation also adjusts for the additional dilutive impact of the shares we issued in May to support the acquisition.

Our earnings news release includes a table that reconciles net income to net economic earnings. This quarter we expanded the table to break out net economic earnings by segment. We believe this additional detail is helpful to understanding the relative performances of our Gas Utility and Gas Marketing businesses.

For the third quarter we posted consolidated net economic earnings of $8.2 million, or $0.36 a share, which is down about 8% from last year. Our Gas Utility segment posted a healthy increase in earnings of about 45%, which was largely offset by lower results from Gas Marketing.

Pretax acquisition costs for the quarter totaled $2.2 million, which lowered net income by $0.05 a share. Fiscal year to date through June 30, total pretax acquisition costs were $8.5 million, or $0.23 a share. These costs are reported in our Other segment in the news release and in our Form 10-Q which will be filed later today.

Over the course of this year we have previously indicated that we expected total pretax acquisition costs for fiscal 2013 to be in a range of $18 million to $23 million, exclusive of direct financing costs. Since we are now a little more than a month away from closing on the transaction, we are able to update that expectation. We now believe that total acquisition costs will come in closer to the bottom of our range, meaning that costs in the fourth quarter will be approximately $9 million to $10 million.

Looking specifically at Gas Utility results, net economic earnings for the quarter improved to $6.8 million, up more than $2 million over the prior year. Earnings benefited from higher sales driven by weather. Temperatures in our service area were much cooler than the record warm weather we experienced last year. In addition, earnings were up due to higher interest revenues. As we have mentioned before, interest is a monthly customer surcharge that allows us to begin recovering a return on and the return of those investments we make in between rate cases to upgrade our distribution system.

I would note earnings for the quarter were also favorable impacted by a tax benefit due to lower pretax income and provision to return adjustments that are typically made in this quarter. On a year-to-date basis, our effective tax rate was just under 30%, which is slightly higher than where we expected to be for the full year.

On the cost side, net economic earnings were impacted by higher salaries and benefit costs, as well as higher depreciation and amortization expense due to our increased capital investments in pipeline replacement and the upgrade to our information technology platforms.

Turning to Gas Marketing, gas volumes purchased and sold in the third quarter were essentially the same year over year. However, reported revenues and expenses for gas marketing were again lower than a year ago. As we have discussed for the last several quarters a greater percentage of LER's transactions are now being reported as trading activities, where the margin on the sale is recorded on a net basis in revenues rather than as gross revenues and gross costs. While this has no impact on earnings, it does affect the comparability of LER's revenues and expenses across periods.

Third-quarter net economic earnings for Gas Marketing were $1.6 million, down from $3.6 million a year ago. LER remains profitable, but its results are continuing to trend lower as reduced sales margins are reflective of low natural gas price volatility and narrowed basis differentials that exist in the natural gas markets today. And, as we noted in the second quarter, margins were also impacted by the expiration of a favorable gas supply contract in December 2012.

Last quarter we also indicated that we expected full-year fiscal 2013 net economic earnings for Gas Marketing to be about $0.40 a share, comparable to what they were in fiscal 2011. However, with nine-month net economic earnings of $0.32 per share and what we have seen so far in the natural gas marketplace in the fiscal fourth quarter, we now believe full-year net economic earnings for Gas Marketing will be more in the range of $0.35 to $0.40 a share.

As we look forward to next year, LER will have another favorable gas supply contract expire at the end of this September. This is the last of its supply contracts that were negotiated during more favorable market conditions. The impact of this contract expiration will be somewhat offset by the reduction of other fixed costs, including pipeline transportation charges.

As the result of these changes to LER's portfolio and assuming no significant improvement in current market conditions, we anticipate that LER's earnings for fiscal 2014 will be approximately 40% lower than fiscal 2013. While LER's earnings for 2014 will be lower, they will continue to be a meaningful contributor to overall group performance and we will continue to evaluate its business model so that it remains competitive and profitable in the current market.

Looking at cash flow for The Laclede Group, we continue to generate strong levels of cash. For the nine months ended June 30, net cash provided by operating activities was $167 million, up from $128 million a year ago. This increase is primarily due to the timing of gas cost recoveries under our purchased gas adjustment clause and lower cash payments for pension funding.

Strong cash generation continues to support our capital expenditures, which totaled nearly $97 million for the first nine months of this fiscal year. That's up about $20 million compared to the same period a year ago. This increase reflects higher year-over-year interest-related spending for our ongoing pipeline replacement program that I mentioned a few moments ago, and for upgrading our technology platforms. Based on capital expenditures to date, we now expect full-year fiscal 2013 capital spending to be approximately $120 million, or about $5 million higher than originally planned.

Regarding our information technology upgrade, I'm pleased to report that in early July we went live with the last components of this project for our customer care, billing, and work management functions, essentially completing our three-year project. This new technology provides us with a strong platform that we can scale to support our current and future business requirements. And we are excited to be able to bring it to MGE once the acquisition is completed. I congratulate and thank all of our employees for their dedication and efforts in bringing this important work to a successful conclusion.

Turning to the balance sheet, at June 30 our equity capitalization stood at 70%. This is up from around 63% a year ago due to the very successful equity issuance we completed in late May. And I would note that it's prior to our planned debt offering that we will complete to finance the MGE acquisition later this year and Steve will be talking about in a few minutes.

I would also note that our current capitalization reflects $25 million of long-term debt issued by Laclede Group and $100 million of long-term debt issued by Laclede Gas earlier this year. We had no short-term debt outstanding at the end of the third quarter this year or last, which is typical for this time of year.

So as we enter the fourth quarter, the Company continues to perform well. Our financial position remains strong and we remain well positioned to add MGE to our family.

And, finally, before I hand the call over to Steve to provide an update on a few other MGE-related activities and some thoughts on fiscal 2014, I would like to congratulate him on being named my successor. I have enjoyed working with Steve for a number of years now. He is a talented and experienced leader. He is a good friend. And I know he will do a great job. Steve?

Thanks, Mark, and good morning everyone.

Let me give you a quick status update on our permanent financing and then let's take a quick view into 2014.

First, looking at our financing for the MGE acquisition, we've made great progress and are targeting to have all the permanent financing in place by the time we close the transaction. First, as most of you know, we successfully issued just over 10 million shares of Laclede Group common stock in late May, with cash proceeds of approximately $428 million. Those proceeds are in addition to our normal seasonal accumulation of cash and investments of approximately $128 million, putting the Company in a very strong cash position at the end of the quarter.

We've also made great progress on our expanded credit facilities with our syndicate of financial institutions. We are targeting new five-year facilities at both the utility and the group level, sized to meet the needs of our new, larger business. We anticipate completing the process and closing these facilities concurrent with the closing of the MGE acquisition.

And then, finally, long-term debt -- our goal is to issue approximately $450 million in first mortgage bonds at the gas company level. As Suzanne mentioned earlier, the Commission's agreement granted Laclede Gas the authority to issue these bonds to support the acquisition. And, subject to market conditions, we hope to have them in place by the close of the MGE deal.

And, as a reminder, we have already largely hedged our interest rate exposure for these bonds so that we've been insulated from the recent run-up in interest rates. Based on current market, we anticipate the weighted average interest rate of our new debt to be approximately 3.25%.

And a final comment on permanent financing -- at this point we retain $525 million of our bridge facility, down from the original $1 billion commitment from last December. This lower level reflects our strong cash position and successful equity offering. And, if we complete the long-term debt financing prior to close, we expect to terminate the bridge commitment in its entirety without ever drawing upon it.

Turning next to our integration planning, as Suzanne mentioned, we remain on track to have our plan in place by closing. Our work continues to confirm both the synergy target levels that we expect to obtain from the combination of Laclede and MGE, as well as the timing of those net synergies.

Regarding the synergies, up to this point we've been referencing a range from our due diligence work, mainly a Year 3 run rate of 6% to 12% of our nonfuel operating and maintenance costs of the combined entity. That range is consistent with the guidance we received from Booz & Company, our integration partner who brings a long history of helping companies plan and achieve synergies.

As we finalize our integration plan, we now anticipate that the synergies will fall in the upper portion of that range, or between $25 million and $34 million annually. As a reminder, this is a Year 3 run rate and we anticipate significant one-time costs to achieve in the first two years of integration.

Speaking of integration costs, we did clarify the treatment of certain of those costs in the Commission's acquisition approval. As noted in that agreement, we will be allowed to defer and recover 50% of one-time costs to achieve that Laclede Gas incurs during the integration of MGE. Those balances will be available for recovery over a five-year amortization period beginning with the effective date of the next Laclede and MGE general rate cases filed after October 1, 2015. To be eligible for recovery, synergies must exceed the cost to achieve. And as part of our ongoing communications with the Commission, we will provide them regular updates.

The agreement also clarifies that one-time capital spend associated with the integration may be handled under our normal capitalization and recovery mechanisms.

These deferral mechanisms do help to accelerate some of the benefits of the acquisition into fiscal 2014 and 2015 in our Gas Utility segment, which I'll touch on in just a second.

As we turn to 2014, there are a lot of moving parts in our operating results due to the MGE acquisition. And, while we're still finalizing our targets for next year, let me provide you with a couple of thoughts on how the new Laclede Group will look post acquisition.

Let's start with our base line for 2013. It will be net economic earnings per share. And, as Mark mentioned a few minutes ago, that EPS metric will exclude all impacts of the MGE transaction. We believe that this provides the best and most comparable starting point on which to evaluate our future results and our commitment to our stakeholders.

And, as you would expect, in 2014 our net economic earnings will include MGE in its entirety, including both operating results as well as the new capital structure. We anticipate share counts to increase from a base line of approximately 22.6 million shares in 2013 -- that's our pre-equity raise number -- to approximately 32.6 million shares in 2014.

Looking at our business segments in fiscal 2014, we continue to see a challenging environment in Gas Marketing, as Mark touched on just a couple of minutes ago. As a result, we have lowered our expectations for this segment going into 2014, with earnings per share, before any dilutions associated with the new higher share counts, declining approximately 40% from the 2013 earnings estimate of $0.35 to $0.45 per share.

More importantly, in the Gas Utility segment, we now anticipate the MGE acquisition to be earnings accretive in 2014. In fact, we now expect that the Gas Utility segment will deliver earnings growth to fully offset LER's shortfall in net economic earnings per share. As a result, while our all-in group consolidated net economic earnings per share in '14 may be equal to 2013, earnings will reflect a higher earnings contribution, on a percentage basis, from the regulated businesses and our new capital structure.

Further, we continue to expect to see earnings accretion in fiscal 2015 and 2016 as the level of one-time costs to achieve declines. And we also remain confident that the deal will be cash flow accretive throughout the entire three-year integration period.

And, finally, one further comment on income taxes. As Mark mentioned, we expect our effective tax rate for 2013 to be slightly less than the current year-to-date rate, or in the high 20% range. Looking into 2014 we anticipate that percentage to rise into the low 30% range, reflecting both the change in the mix of pretax earnings and recognizing the fact that MGE historically has paid an effective tax rate that's closer to the full marginal rate.

So, in summary, we continue to meet or exceed our commitments to our stakeholders regarding both the financing of the MGE transaction and its uplift on operating results. And we look forward to providing further updates as we go forward.

And now, before I turn it back over to Suzanne, let me also echo her comments about Mark. It's been an honor working with my good friend over the last nearly four years, and I wish him all the best in the next phase of his career. We're going to miss you, buddy.

Suzanne?

Thank you, Steve.

So, to summarize, our core Gas Utility segment delivered another good quarter with higher earnings. Overall, The Laclede Group remains in a strong position financially, with excellent cash flow and solid balance sheet.

We have satisfactorily concluded a number of regulatory matters, most notably the approval of the MGE acquisition. The financing, closing, and integration planning for the transaction are all tracking according to plan, and we look forward to completing the purchase of MGE around the 1st of September.

And so with that, I'd like to turn it back over to operator Chad and we'll take your questions.

Certainly. We will now begin the question-and-answer session. (Operator Instructions) Dan Fidell; US Capital Advisors.

First, my congrats to Mark as well on just a fine career. All the best to you as you go forward, sir. Very much enjoyed working with you over the years.

Same here. Appreciated working with you as well, and hopefully we'll stay in touch.

Absolutely. Just a few questions on my side for the quarter, I guess. First, you'd mentioned that you continue to kind of evaluate the Marketing model. With the pull-in I guess it's looking like closer to $0.15 to $0.20 per share on a run rate into next year after the pull-down and with the dilution. Should we take that to infer on a go-forward basis that the Marketing might not necessarily be a core asset going forward? Or you're just sort of content to kind of let it be modestly profitable going forward?

Up to this point, Dan, I would say we're fairly content. As I've tried, when I've made the rounds to speak to everyone -- they provide a niche in that the way that they serve customers is inconsistent with the regulatory tariff structure. And there's customers out there like power generation and others that would like to take natural gas service but we're not able to do it through our conventional tariff. So as of now we'd like to continue to provide those services. And we'll continue to watch the business model and continue to challenge them.

Got you. And then, just shifting gears here quickly, question I guess for Mark or Steve. Just assuming the expected interest rate you assume on the debt yet to be issued around 3.25%, is that about in line with what your previous expectations were heading into the merger in terms of where you thought you'd issue?

Hey, Dan, this is Steve. Yes, it's spot on. It maybe a few basis points higher because, as you know, we originally announced the deal in a different debt environment. But we made sure to hedge most of our interest rate exposure in late January and early February. So that's paid tremendous dividends. So I think we're spot on.

Great. And then, just a separate question on the pipeline replacement kind of program at MGE. Can you just sort of talk about what they're spending now and your expectations going forward and what you need to be able to do that? Can you do that on your own or is asking for an upsized kind of spending plan required as part of a rate case?

Dan, let me talk about the first part of the question, which is their spend from a capital standpoint. Their forecast for 2013 is about $17 million of issuer's qualified capital. And that's fairly consistent with what we've seen over the last two years. Let me turn it to Steve to talk about our thoughts going forward.

Sure. Hey, Dan, this is the other Steve, Steve Lindsey. And what we've seen at MGE is about a three-year consistent replacement program, about 18 miles. As you know, here at Laclede we've consistently accelerated for the past four years. I don't know that we have enough right now to give guidance in terms of how much, but we do plan to continue an accelerated program at MGE.

And, Dan, I would just add we can, based on what we looked with our cash flows and the like, we can support that program readily as we upgrade, or as we increase the amount of mileage we put in the ground.

That's great. And you don't require any preapproval to kind of move that program up? You already have essentially approval to do pipe replacement. You can just sort of accelerate then on your own. Is that correct?

Yes. Basically they're operating under the same ISRS mechanism that we are here in the State of Missouri, which basically provides that you can work up to a percentage cap based on a three-year run rate. So they have some definite upside and headroom for accelerated replacement.

Great. Thanks. Very helpful. And then, just a quick question if you could. Maybe just clarify a little bit of the recovery of the roughly 50% cost to achieve beginning in 2015. Can you just talk about how that recovery's going to work, or just as you see it as part of the agreement?

Yes, Dan. This is Steve. Yes, the approval's pretty fresh and so we're working through it right now. The way that the mechanism will work is that, first of all, we have to evaluate the costs that we plan that we'll ultimately incur up to the time of the next rate case. Actually we have a five-year window, but we anticipate getting it done before then. Evaluate those costs as costs driven solely by the transaction, and then those that would drive synergies going forward.

The agreement allows us to defer half of those costs. And then, in the next general rate case after the moratorium period, for both MGE and for Laclede, we would certainly propose and the agreement allows us to propose, a five-year amortization of those costs in the ensuing five years with the effective date of that rate case once it has been concluded.

That's what we consider to be the O&M costs, or the operations and maintenance cost component of integration. There will certainly be a level of capital costs, probably more likely targeted to integration of the information technology platforms. And we have the option, and will likely take the option, of just treating those as normal capital costs going forward as we implement those enhancements to our system to bring MGE fully into our system.

Great. Thanks. I have a few more questions but I'll step back and let someone else ask some questions here. But certainly congrats to you guys on a great acquisition and approval process. Thanks.

Sarah Akers; Wells Fargo.

Good morning, everyone, and congrats to Mark and Steve. Just looking at the Utility O&M, it looks like it was up almost 11% year over year for the quarter. Assuming there's acquisition-related costs in there. But can you give us a sense of the underlying O&M trend that you saw in the quarter for the Utility?

Yes. Sarah, if you look at the quarter, the O&M cost is about $5.5 million higher than the prior year. Of that, $1.5 million is transaction cost in the quarter. And so the rest, as Mark mentioned in his prepared remarks, are driven by slightly higher employee- and benefit-related costs and a few extra outside services costs. If you were to look at the full year, the entire increase in operating and maintenance costs is driven by the transaction costs. In fact, they stand within a couple hundred thousand dollars on a base of $130 million of being flat to last year. So there is a little bit of timing associated with the third quarter versus the earlier two quarters. And, especially when we get to this time of the year, we tend to look at the run rates on the year. And we're very satisfied that we've been able to keep our operations and maintenance costs in line.

Okay. So we should look at the year to date as more representative as to what you're seeing and what you expect in the future?

Yes, I'd say that's a fair way to look at it.

Great. And then, just one follow-up to Dan's question on Gas Marketing. After the 40% decline in '14 versus '13, can we expect that to level off there? Or might we see continued pressure post '14?

Sarah, at this point in time I'd say that -- and this is Mark -- yes, I think we can see it leveling off right about there barring any other changes in the marketplace. We will continue to pursue other business as we go forward. And obviously, MGE will offer us some other opportunities to go and try to grow that business as well, so.

Great. Thanks, everyone.

(Operator Instructions) Selman Akyol; Stifel.

I would also like to add my congratulations both to Mark and Steve. Real quickly, in the quarter you talked about weather and ISRS. And I was just wondering, can you specify which was larger the benefit within the quarter?

Weather was a significantly higher contributor than ISRS. As you know, Selman -- you live in the service territory -- we had a significantly cooler quarter this quarter than we did with the 100-plus-degree temperatures a year ago.

And then, the other is just is there any update on the other initiatives, refueling stations, et cetera? Anything -- development during the quarter on that?

Yes. From a Spire perspective on the fueling station, I've got Mike Spotanski here. And so I'll give him a moment to share his little success a bit here.

I think -- Selman, thank you for asking. I appreciate it. Good to talk with you. We are in construction mode on the Lambert fueling facility. We're targeting for a late fall/early winter opening there and we're continuing to build a customer base out there.

We're also continuing to talk with the customers that we've identified before in the areas of trucking, transit and waste. We've got a number of customers that we're talking with. As you know, our model is that end-to-end model. And those stations can be very complicated as you custom design for an individual customer. So there's a lot of pre-work that we're doing with those. But we've got two or three that are pursuing -- that are progressing very well and we'll have some news soon hopefully.

All right. Thank you very much.

(Operator Instructions) There appears to be no further questions at this time, so I'd like to hand the call back over to Management for any closing remarks.

Well, great. Thank you all for joining us today. And we'll be around throughout the day for follow-up questions as needed. Thanks for joining us today.

Thank you. The conference is now concluded. Thank you for attending. You may now disconnect.