Spire successfully makes case for Mo. revenue change; gas base rates to climb

Spire Inc. subsidiary Spire Missouri Inc.'s gas distribution rate case has come to an end, and the company is preparing to implement a base rate increase.

➤ The Missouri Public Service Commission adopted a settlement Sept. 3 that allows Spire Missouri to implement a $210 million base rate hike. The settlement and commission order are largely silent regarding traditional rate case parameters but state that a 7.05% overall return is to be used in the context of the company's infrastructure rider proceedings. The net impact to ratepayers, after considering the transfer of costs from the rider to base rates, is approximately $137 million.

➤ The company's weather normalization adjustment (WNA) rider is to prospectively apply to both residential and small general service customers. Previously, the rider charges only applied to residential customers.

➤ Spire Missouri initially proposed a $289.5 million base rate increase premised upon a 10.50% return on equity (ROE). The net impact to ratepayers at the time, after considering the transfer of costs from the infrastructure rider to base rates, would have been $235.9 million.

➤ Regulatory Research Associates accords Missouri energy utility regulation an Average/2 ranking and considers the jurisdiction to be generally balanced from an investor perspective.

In Case GR-2025-0107, the PSC adopted a unanimous settlement that provides for Spire Missouri to implement a $210 million (12.46%) base rate increase with an effective date no later than Oct. 24. Of this amount, $104.6 million is to be allocated to customers in the company's eastern territory and the remaining $105.4 million is to be allocated to customers in its western territory.

The settlement and PSC order are largely silent regarding traditional rate case parameters but specify that a 7.05% overall return will be used to calculate prospective rate changes under the company's infrastructure system replacement surcharge (ISRS) rider. The revenue amount for purposes of the statutory ISRS cap is to be $936.6 million. The utility would be allowed to track "interspersed plastic main retirements" associated with its cast iron and bare steel replacements under the rider.

It appears that ratepayers will experience a net rate increase of approximately $137 million after accounting for the transfer to base rates of amounts collected through the rider.

The parties said the stipulated revenue requirement includes capital additions through May 31, including the rebasing of ISRS-related amounts. The company's next ISRS filing is to include plant additions beginning June 1.

A modified and approved version of the company's existing WNA rider will subject small general service customers to the resulting rate changes. The rider does not appear to adjust for the impact of energy conservation on Spire Missouri's recovery of its fixed costs.

In addition, a regulatory asset is to be established to account for certain costs attributable to replacing legacy meters with newer, more advanced meters. A tracking mechanism will also be created for costs associated with complying with a federal leak detection and repair regulation.

Also, Spire Missouri is to continue to implement certain recommendations previously put forth by a third-party auditor. These include that the company provide a detailed road map of its process improvements related to meters, mains and service lines no later than three months from the effective date of new rates; file and implement new policies and procedures within six months; and identify any necessary tariff revisions within six months. Certain required customer service practices are also spelled out in the settlement.

Overview of proceeding

Spire Missouri proposed a $289.5 million (17.18%) base rate increase premised upon a 10.50% return on equity (55.00% of capital) and a 7.69% return on a year-end rate base valued at $4.386 billion for a test year ended Sept. 30, 2024. The test year was to be trued up through May 31, 2025.

After factoring in about $53.6 million that at the time was included in the company's ISRS rider that would be moved to base rates, the net impact of the requested rate change would have been a $235.9 million rate increase.

The company said a reduction in costs under a purchased gas adjustment (PGA) rider filing (primarily due to the completion of cost recovery from a 2021 winter storm) more than offset the proposed distribution rate increase.

The company cited infrastructure investments (including 680 miles of new main and about 500,000 new advanced meters) as the primary driver for the requested increase. It also acknowledged the impact of higher interest rates and increased operating costs (including line locating costs) on its ability to "earn a fair or market return."

Spire Missouri proposed consolidating the majority of rates for its Spire Missouri-East and Spire Missouri-West divisions. This consolidation aims to standardize fixed monthly charges, volumetric charges and both existing ISRS and proposed distribution service adjustment (DSA) rates across these divisions. Rates for transportation-only customers and the PGA clause would not have been consolidated.

The company requested permission to implement a modified version of its annually adjusted WNA mechanism that is currently in place for residential customers. The proposed rider, which was to be named the DSA, would have applied to residential and small general service customers and would have accounted for the impact of both weather and energy conservation on Spire Missouri's recovery of its fixed costs. The DSA rider was to "adjust for over or under-recoveries associated with the revenue requirement established in the company's most recent rate case," and would therefore have been considered a full revenue decoupling mechanism by the company. Rate adjustments under the DSA rider were to occur annually.

If the DSA approach was ultimately rejected, the company said it would support a modification to the WNA rider to recognize a revised definition of "normal weather."

The company said it failed to recover $6.6 million of its fixed costs through the WNA rider during its fiscal year that ended Sept. 30, 2024.

The PSC staff filed testimony on April 23 recommending a $204.6 million base rate hike premised upon a 9.63% return on equity (53.19% of capital) and a 7.09% return on a $3.940 billion rate base.

The settlement was filed Aug. 4 and was approved by the PSC without any modifications.

RRA perspective on Mo. regulation

Missouri regulation was historically somewhat more restrictive than average from an energy investor perspective. In recent years, most rate proceedings in the state have been resolved through settlements that did not specify ROEs. However, when equity returns were approved, they approximated prevailing industry averages at the time established. All large electric utilities have fuel adjustment clauses in place that allocate a portion of fuel and purchased-power-related cost variations to shareholders.

The state's gas utilities are permitted to adjust rates to reflect changes in gas commodity costs on a timely basis, and the commission has approved the use of surcharges to recover infrastructure improvement costs between base rate cases.

Senate Bill 4, which was signed into law April 9, includes provisions pertaining to rate case test years, construction work in progress, plant retirements and grid reliability, large-demand customer rates, securitization charge exemptions, advanced meter opt-out procedures and several other important matters that will impact the state's electric and gas utilities. The bill also aligns the regulation of sewer utilities with the existing regulatory framework for water utilities with respect to infrastructure surcharges and the asset valuation of acquisitions.

State law also allows utilities to use a deferral arrangement for certain investments that would otherwise not be immediately captured in rates, which is intended to reduce the impact of regulatory lag. In addition, state law permits electric utilities to securitize energy transition costs and qualified extraordinary costs, following the issuance of a financing order by the PSC.

RRA recently amended its ranking of Missouri regulation and now accords the jurisdiction an Average/2 ranking. The jurisdiction's regulatory climate is deemed to be generally balanced.

The other large utilities subject to the PSC's jurisdiction are Ameren Corp. subsidiary Union Electric Co.; Evergy Inc. subsidiaries Evergy Metro Inc. and Evergy Missouri West Inc.; Algonquin Power & Utilities Corp. subsidiaries The Empire District Electric Co., Liberty Utilities (Midstates Natural Gas) Corp. and Empire District Gas Co.; and Summit Natural Gas of Missouri Inc.

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