Spire Inc. (SR) Earnings Call Transcript & Summary

Good day, and welcome to the Spire Sustainability Investor Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Scott Dudley, Managing Director of Investor Relations. Please go ahead.

Good morning, and thank you for joining us today for our very first investor call on sustainability. We published our sustainability report online last week, June 15, and we also simultaneously issued a news release highlighting the continued progress we made in fiscal 2021 on environmental, social and governance matters, and the expanded disclosures added to the report. You can view the report on our website at spireenergy.com/sustainability. The news release is available on our website as well under Newsroom. There's a slide presentation that accompanies today's call and you may access that either from the webcast site or our website under Investors, and then Events & Presentations. On the call today is Suzanne Sitherwood, President and Chief Executive Officer; Steve Lindsey, Executive Vice President and Chief Operating Officer; and Nick Popielski, Vice President of Business & Economic Development and also Head of Environmental Commitment. Also in the room with us today is Steve Rasche, our Executive Vice President and CFO; and Adam Woodard, who is our Treasurer and also CFO of our gas utilities. With that, I will turn the call over to Suzanne.

Thank you, Scott. Good morning, and thank you for joining us today for Spire's first investor call on sustainability. We are pleased to have this opportunity to update you on our environmental, social and governance commitments, initiatives and performance. We understand that natural gas plays a key role in creating a sustainable energy future and our efforts and focus on ESG reflect that. In fiscal 2021, we continue to make progress while expanding our disclosures and support of our commitment to becoming a carbon-neutral company by mid century. That commitment means that we'll reduce and offset greenhouse gas emissions from operations across our entire company. As Nick will discuss in a moment, we have broadened our sustainability reporting, particularly regarding environmental matters with more robust disclosures aligned with the leading platforms most recognized by our stakeholders. We're going to focus on 4 key priorities: the environment, safety, people and governance. Spire has a great story to tell in each of these areas, starting with how we care for the planet we all share. We are highly focused on operating in an environmentally-friendly manner for future generations and meeting our carbon neutral commitment. Our environmental focus up to now has been on reducing methane emissions from our gas utility operations. We have made significant strides in this area, as Steve will discuss, through a combination of infrastructure upgrades, improved leak detection and damage prevention. Building on our momentum, we established a dedicated team last year to lead our environmental commitments efforts company-wide, and appointed Nick to lead that team. Nick and his team are in the process of defining the strategy and roadmap we'll use to reduce and offset emissions in order to meet our commitments. As a first step, they made significant progress in collecting and analyzing data on our overall carbon footprint and established Scope 1 and Scope 2 emission baselines. Last year, we furthered our membership in the ONE Future Coalition, an organization focused on reducing methane emissions across the natural gas value chain. And we became a founding member of Energy Capital Ventures' new fund focused on innovation and research and clean energy solutions. We also continue to support environmental efforts in our communities through financial contributions and employee volunteerism. I'll have Steve speak to our efforts and achievements for methane emission reduction and safety in just a moment. But first, let me cover people and governance. At Spire, we strive to foster a safe and inclusive culture. That's why we created a demographic baseline to support improved workforce diversity. We also developed new means to ensure a diverse talent pipeline by formalizing our commitment to supplier diversity. At the same time, we continued our program to better understand customers' needs and to increase the awareness of energy efficiency and energy assistance program. Supporting our communities have always been an important part of who Spire is. Last year, we invested over $6.5 million to enrich the communities we serve, representing a 22% increase over the prior year. Corporate governance has consistently been one of Spire's strength, and we continue to make it even stronger. We formally assigned oversight of sustainability to committees of the Board to monitor strategy and plan and ensure progress is made on ESG commitments. We also regularly review and update our governance practices and policies in accordance with stakeholder expectations. All the while, we have maintained a well-qualified independent Board that's 50% female and 20% racially diverse. Before turning things over to Steve, I'd like to note that Spire's sustainability efforts have earned national recognition. For 3 years in a row, Newsweek has named Spire one of America's most responsible companies, citing our strong ESG performance. With that, I'd ask Steve. Please?

Thank you, Suzanne. Safety is a core value at Spire. We continue to emphasize a strong safety culture across our company. One of the important employee safety metrics we focus on is injuries. We track safety using an industry standard measure, injuries that require workers to be away from work, known as the OSHA DART rate. It measures the number of recordable injuries and illnesses per 100 employees that result in days away from work, restricted duty or transfer of duties. As you can see, the rate has been more than cut in half over the last 5 years that reached a record low for Spire last year. As we go about our daily work of serving our customers with affordable, reliable and clean energy, we continue to implement programs to keep our employees and communities safe. An area of particular focus is driving safety. Improving our asphalt motor vehicle accident rate is an ongoing goal. So in fiscal 2021, we deployed new technology, including the installation of safety cameras and GPS systems to help our employees become safer drivers. As Suzanne noted, we are highly focused on operating our businesses in an environmentally-friendly manner and meeting our carbon-neutral commitment. The core of our efforts to date has been reducing methane emissions from our gas utility operations. We have shared previously, in 2021, we achieved a reduction in methane emissions, specifically leaks from mains and services on our distribution system by 46% from 2005 levels, meeting our target for the year. We've done this primarily through our continuing program, investing in infrastructure upgrades to replace pipelines constructed older or leak-prone materials. As you can see, over the last 5 years, we've averaged well over 300 miles of pipe replaced annually. I would note that while our capital expenditures on pipeline upgrades continue to grow. Miles replaced naturally decline as we work in more urban areas and upgrade other parts of our distribution system. Infrastructure upgrades have helped tighten our system. We've also taken steps, including technology deployment, to improve both our leak detection methods and our ability to prioritize the repair of the most impactful leaks. Over the last 5 years, we've reduced the number of leaks per 1,000 system miles by over 2/3. Another way we've been able to cut our methane emissions is through reducing third-party damage to our system. Typically, damage occurs when excavation or digging takes place near our lines. We continue to engage in awareness campaigns along with other utilities to promote call before you dig programs, including Missouri One Call and state Dial 811 programs. Reducing leaks and damage to our system not only helps cut methane emissions, it is also important from a safety perspective. In fact, we've been able to reduce pipeline damage over 21% over the last 5 years, a testament to how focused we are on safety, both for our employees and our communities. With that, let me turn it over to Nick Popielski to discuss the establishment of our carbon footprint baselines, our initiatives to reduce greenhouse gas emissions through alternative and renewable energy sources and the expansion of reporting and disclosures on our sustainability. Nick?

Thanks, Steve. As Suzanne noted, my team and I have been busy working to define the strategy and road map for reducing and offsetting emissions in support of our carbon neutral commitment. Our initial work has been in measuring baseline statistics, and I'm pleased to note we've made significant progress in collecting and analyzing data on our overall carbon footprint. That work allowed us to establish Scope 1 and Scope 2 emissions baselines. Now the carbon emissions classified as Scope 1 are direct greenhouse gas emissions released from owned or controlled assets, which in our case would be primarily distribution, transmission, storage facilities, as well as buildings and vehicles. Scope 2 emissions are indirect emissions from purchased electricity and steam. We've not yet established metrics for our Scope 3 emissions, which include all the sources not defined by Scopes 1 and 2, but indirectly impact our natural gas value chain. Like many others in our industry, we're evaluating how to best measure Scope 3 emissions, and we are working to develop a baseline to inform our reporting going forward. As this chart shows, we've been able to establish a company-wide baseline for reduction of carbon dioxide equivalent or CO2e. We reported a 21,800 metric ton reduction in fiscal '21 compared to fiscal 2020, representing a decrease of 5.3%. We achieved that primarily through gas utility pipeline upgrades and lower gas usage. Now as we look further down the road, we know that it's going to take more than infrastructure upgrades to achieve our greenhouse gas emissions target. That's why we're evaluating alternatives and renewable energy sources, like renewable natural gas or RNG as well as hydrogen. The addition of renewables to our portfolio will not only allow us to reduce emissions from our operations, but also allow our customers to meet their environmental goals. We're currently exploring RNG opportunities, including methane capture from landfills, wastewater treatment plants and agricultural sites across our service areas. Now as we think about RNG strategically, we're focused on identifying and meeting customer demand for renewable energy sources as they look to meet their environmental goals. And last year, we supported the passage of bills in Missouri that allows Spire and others to recover procurement and investment costs for RNG. Since then, we've been working with the Missouri Commission as they undertake rulemaking to implement that RNG-enabling legislation, the other hat I wear at Spire's business and economic development and we are looking at RNG from that perspective as well. We're also in the process of studying hydrogen as an alternative fuel and its uses in our natural gas distribution system. There are many issues to consider, which makes the use of hydrogen something that's quite a bit further out in the future. Among a number of things we're studying are the availability of surplus renewable energy; costs, both for the commodity and investment in facilities; technical, safety, equipment issues; and the achievable benefits of blending hydrogen in our gas supply. We have built upon our reporting and disclosures as we continue to gather and analyze information on sustainability. We've been using the Global Reporting Initiative, or GRI Index, for capturing our sustainability performance for the last 4 years. And I'm pleased to note that we have essentially completed the GRI disclosure requirements as they pertain to us. We continue to fully report on transmission and distribution data to PHMSA, and at the same time, we continue to disclose methane and CO2 equivalent emissions information via the AGA voluntary reporting tool. This year, we expanded our reporting, including disclosures aligned with ONE Futures framework, and for the first time, disclosures in accordance with SASB, the Sustainability Accounting Standards Board, as well as TCFD, the Task Force on Climate-Related Financial Disclosures, and I encourage you all to look at our disclosures and let us know how we're doing. We are committed to fulsome and transparent reporting, and we welcome input from our stakeholders. I believe we are now ready for questions.

[Operator Instructions] Our first question today comes from Christopher Jeffrey of Mizuho Securities.

Thanks for the thorough report here. I'm just curious how the most recent announcement about the PAYS program with Ameren fits into things. Maybe how much interest there has been from customers so far, impact on emissions as far as you see it. And then lastly, maybe any return profile from that spend, if there is any.

Thanks for the question, Christopher. This is Nick. Great question. I think it's a little early to tell exactly where some of those -- some of that information from the PAYS program is. However, we strongly support the program, it's a certain upgrade over what we currently offer in energy efficiency. And we do think that long term, it has the opportunity to contribute to reductions in emissions at the residential level. It's something that we know that our customers have asked for. We benefit, of course, from that as well because that's going to allow us to show a reduction in Scope 3 emissions over time. But right now, I think it's a little too early to tell on what the net results are. And we'll be happy to take it offline and get you some more information if you'd like to discuss it further.

Great. And maybe just also, so it seems like you have a clear strategy about reduction. And then as far as the offsets, you've mentioned RNG. Is there any other type of offset strategies that are kind of in the discussions?

I think we're still looking at it. One of the real components on this is, for starters, RNG actually right out of the gate will contribute to a reduction in emissions because that's just how the accounting is working these days. But as it pertains to offsets from other opportunities, we're still looking at it because it's really a cost-benefit issue. There is undoubtedly some expense that goes along with it. And we want to make sure that we're taking a good hard look at what we can get for that. Price is a little bit all over the place. So I think we want to take a mature view on it and look at it a little more closely before we can commit to anything at this time.

[Operator Instructions] Our next question today comes from Kody Clark of Bank of America.

So just on RNG, just if you could give a little bit more detail on where you stand on the rulemaking for that legislation and those passed there in Missouri last year, that would be very helpful.

Sure. I think we -- there was some language written last year that was initially shared as part of last year's rate case. And we got some really good feedback from staff as well as outside intervenors on ways to improve that. So we took a step back and are taking another look at that. And I think the intent is to start looking at working with commission more closely on those comments sometime in '23. I'll have to defer back some of our regulatory folks for the exact schedule. But last conversation I had with them, that was essentially the time frame.

And Kody, it hasn't really stopped us from investigating different projects in the state. We're still moving forward with that, but more to come.

Great. And if you could just remind us on your appetite for regulated RNG. It seems like that process is -- you have the ball rolling there. Would you explore unregulated RNG as another investment opportunity?

I think we've looked at that. I don't think, right now, that's something that some -- that we're pursuing. But we'll continue to look at opportunities as they arise. Right now, it's primarily in the regulated sphere.

Kody, I would add -- this is Steve, that our marketing arm is actually looking at and trying to make customer demand on the nonregulated side, both for RNG and then also for responsibly sourced gas. So we think there are going to be some opportunities there outside the utility.

Great. And just last one for me. Can you talk a little bit more about the technology that you're deploying to lower that LDC fugitive emissions number there? What sort of technology are you implementing?

Sure. This is Steve. Thanks for the question. It's really kind of a mix across the board. And so in some instances, it's the analysis of the levels of leaks that we have and which ones we focus on first. There's some technology regarding advanced leak detection that we're deploying as well as even -- we're in the early stages of looking at some, in essence, artificial intelligence that helps you predict where damages may occur based on activity. So I think it's a look across all those. And then even what we're doing, for example, on our infrastructure upgrades, low down, we're capturing that gas as opposed to venting it to the atmosphere. So I think it's a lot of small pieces that over time will add up to some impacts in terms of reducing emissions.

Our next question today comes from Selman Akyol of Stifel.

Just quickly. Looking at Slide 10, you outlined the methane emissions reduction, damages, leaks and pipeline replaced. Is there any way to quantify what kind of return you're seeing from less methane emissions? And any way to quantify each damage that's avoided or that has come down? How much that actually equates to in terms of having to go out and fix or savings?

Yes. Selman, that's a great question. This is Adam. I think it's -- I don't think we have a specific metric for -- that would express that. But I think as you are pointing out, it certainly takes some -- takes down some of our O&M certainly as we're looking -- we have fewer leaks that we're having to handle over time. But that's -- it's a good question. I don't know if I could offer a specific metric though that -- to give you an idea of what the actual return is on that.

Okay. And then just longer term, and I know you guys prefaced this in the outset that hydrogen is a further out opportunity. But as you think about your system and, it's certainly an older system or parts of it are, is there any way to talk about whether you think it's -- 5% blend is feasible? Can it be 10% to 15%? Is there any way just maybe you could talk a little bit about what you're seeing or what you're thinking about?

Well, I think that the blend really is going to depend on a couple of things. First, where you inject it in the system and the customers that you're targeting with it. They're going to have different needs, especially some of the industrials that show more of an appetite for this. They're going to have different needs and different tolerances based on the equipment that they intend to use. And I know a lot of testing is taking place in various industry activities to make sure we understand that. But I think that also means where you inject it in the system really does matter because the -- typically, that industrial is not the only taker of gas on our system. And you can't just inject a single slug of hydrogen and expect it to blend properly. So there's a lot of technical questions that we need to work on from an engineering point of view to really give you a firm number there. But everything that I've seen, probably the same that you have, is in the range that you just cited. That's a responsible blend that you possibly can get on a system as long as you have customers and correct operations to support it. So I think that's about where we are today.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference over to Scott Dudley for any closing remarks.

Well, first of all, thank you all for spending time with us as we discuss our progress on sustainability. And if you have any other follow-up questions, we're always available. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.