Spire Inc

NYSE:SR

Earnings Call Transcript 2018-Q1

[Operator]

[Operator]

[Operator Instructions]. The first question will come from Michael Weinstein of Crédit Suisse.

[Michael Weinstein, Crédit Suisse AG]

Maybe you could talk a little bit about the legislation that's being proposed, Senate Bill 730. How that might improve things on the ground for you guys going forward and what the rate case schedule would look like under the new law, if passed and also, how things might be different this year from last year and the year before that?

[Suzanne Sitherwood, President & CEO]

It seems, Michael, what you've articulated is really 2 parallel path. We have our, obviously, current rate case and as we've talked about this morning, it's an 11-month process and it is meant -- it was mentioned that, that rate case most likely will get the order midmonth and then the rates go effect in March. If we are not satisfied with the outcome of the case just by matter of the process itself, we have the opportunity to seek reconsideration on specific aspects of the case and obviously, we would pursue that. And without a positive outcome from that step, then we have the opportunity to actually take the facts before judge. So that's the runway with this specific case. Relative to the legislation, Steve did mention some of that process of what our alternative even go back through...

[Steven Lindsey, EVP & COO of Distribution Operations]

Thanks for the question, Michael. Couple of pieces that would really be I would call transformational for our regulatory mechanisms here are that it would introduce rate stabilization, which would help protect the customers and the utility during big weather variations. The other part is that you would have annual reviews and so you would have a much more timely regulatory update period and process. And there are other things that are being introduced such as performance-based incentives and you can think of those as the company delivering on our expectations to our customers. And then some other measures relative to cost management, so we feel very good that this is a comprehensive way to think about regulation. And it's a lot of the same type approaches that we currently have in Alabama, which we feel is very fair to customers as well as the utility to create very balanced approach.

[Michael Weinstein, Crédit Suisse AG]

And it sounds like, the legislation passes that, that this would -- yes, we are having pretty tough time right now in this current rate case, but with the -- I mean, would it be fair to say that under the new legislation you have, I guess, an initial rate case of sets rates and then there was an annual review after that. But, I think, is that the end of rate cases as we know them under the new law?

[Steven Lindsey, EVP & COO of Distribution Operations]

Well, I think, what you do is exactly like you mentioned. You have a base case to establish things such as ROE and those type of things. And again they get reviewed on an annual basis, which is much more frequent in the current process. So I think in describing, would that be the end of rate cases as you know them, I wouldn't say that in totality, but you just have a different frequency of those and then again, you would have a much more frequent update period than you do in the current regulatory process.

[Suzanne Sitherwood, President & CEO]

And I think the cadence, Michael is, when you have that annual review, there's information that's filed throughout the year. And there's a timing and cadence aspect to reviewing toward that year-end information and all the input elements, if you will, versus us taking months preparing a filing, filing that and going through that 11-month adjudicated case, which just by its nature as everyone on the phone knows put's you in a more sort of litigious environment. Just by the nature of the way those cases are versus working together throughout the year, have the review and then moving into the following year.

[Steven Lindsey, EVP & COO of Distribution Operations]

And the last piece of that to kind of piggyback on Suzanne's comments there is, we would file quarterly updates and then have an annual true-up period. So there would be much more frequent review of just our ongoing business results as we move forward.

[Michael Weinstein, Crédit Suisse AG]

Okay, just one last question. On FFO-to-debt metrics and other metrics that Moody's and S&P might be looking at, after-tax reform, what -- I think you mentioned that you expect weaker credit metrics as a result of tax reform going forward. Is there any way to quantify any of that? Or how that might affect things?

[Steven Rasche, CFO & Executive VP]

Michael, this is Steve. The other Steve, since there are two of us in the room. There's still a lot of negotiations and decisions that have to be made, especially about how those -- how the benefits of tax reform overall and again overall it's a great benefit, how those get shared back to our customers. Our plan, if you look at our five-year plan and you look at our credit metrics, pretax reform showed improvement in all of our credit metrics and that's not just FFO-to-debt, that's also leverage and holdco and all the things that both Moody's and S&P look at. And all of that supported our current credit ratings and that's our goal overall.

We agree and I think it's been -- we've been clear from the start, the tax reform does impact our FFO. As I look at our numbers and again we still have some fairly big questions that if it impacts our FFO-to-debt on the order of magnitude of about 100 basis points that and we still show improvement going through the period. I'm confident that we are going to find the right combination of both regulatory relief and also the other tools that we and every public company has in our toolbox to make sure that we can get inside the metrics that make sense to support our current credit metrics. That's really our plan going forward and there's a lot of to be done in that assessment and a lot of it has to do with the negotiations that we need to undertake on the regulatory front, so we'll continue to monitor it and you can rest assure, we've had discussions with our rating agencies. They understand the process and we need to get through the rate case and then understand that and then we'll figure out, where are the other steps are moving forward.

[Operator]

The next question will come from Sarah Akers of Wells Fargo.

[Sarah Akers, Wells Fargo Securities]

I had a question on tax reform, outside of the regulated utility. Do you see an EPS hit from the lower tax shield on your unrecoverable interest expense from just going from the 35% to the 21%?

[Steven Rasche, CFO & Executive VP]

The short answer, Sarah, is no. Our perspective, as you know, the utilities broadly and regulated industries worked hard, while the legislation was being crafted to make sure that there would be protection for interest deductibility for regulated entities and we were successful in getting that in the final legislation. That's important, because of the amount that we're investing back into our communities and then the capital we need to do that. One of the outstanding questions in which we're waiting for guidance from the Treasury Department is to firm up the allocation methodology that will be used for interest, specifically holdco interest because that's really the question for us and a number of our peers.

If you use the long-standing allocations that have been in place for many years, which really focus on asset investments in our business or you look at the true nature of why we, and how we incurred our holdco debt, it all points to an location largely to our regulated entities where we'd get whole deductibility. The other point that I would make and I mentioned it on the call in the prepared remarks, our nonregulated business continues to grow in terms of EBIT or EBITDA contribution and that limit changes over the life of the legislation. We are very comfortable that, that we'll be able to the extent that interest gets allocated outside of the regulated entity, that we'll be able to cover it with the earnings power of those businesses. So we don't really see an impact from the interest deductibility question from where we stand today.

[Sarah Akers, Wells Fargo Securities]

Even if it remains deductible, is there not a -- the lower tax shield on the loss? Does that not hit the bottom line?

[Steven Rasche, CFO & Executive VP]

There is a whole bunch of noncash items that do impact us and that's really the essence of the noncash charge that you saw. That's basically taking all of the tax benefits historically that we would have recorded, timing differences between what we pay currently and what we would have booked and writing those down. As we look at our cash flow overall and the metrics I just shared on the earlier question, really looked at it on an all-in basis. So we tend to look at the entire thing and its entire impact on cash flow. I don't see it as being a deterrent at all.

[Sarah Akers, Wells Fargo Securities]

Okay. And then on the gas storage acquisition, is that facility tied to your utility operations at all? And are there long-term contracts in place to provide earnings stability? Or what's the nature of that facility?

[Suzanne Sitherwood, President & CEO]

Yes, so the first part of your question, Sarah, no it is not part of the utility company. In terms of the second part, yes there is an existing customer base. And obviously, we've just taken the asset and we are working through meeting those customers and understanding those contracts and so forth. We also have Michael Geiselhart in the room and that was intentional, because this is the first time we've introduced this topic. So I thought he might be able to provide some color to everybody on the phone.

[Michael Geiselhart, SVP of Strategy & Corporate Development]

Yes, the facility will have a mix of customers it has historically. But we are in the process of kind of rebuilding some of those relationships given the financial difficulties that the asset had over the last couple of years. But we anticipate, it will have a pretty robust mix of different customer types. Obviously, marketers, but also LDC's and pipelines as well as, ultimately, some power customers as well.

[Operator]

The next question will come from Insoo Kim of RBC Capital Markets.

[Insoo Kim, RBC Capital Markets]

Just piggybacking off of the questions in tax reform, I think, early last year you guys had talked about a potential $0.05 to $0.10 fixed earnings -- as the different items were being talked about and discussed in the legislature. With the final tax reform having been passed, how does that earnings if at all change at all? And was that mostly due to the -- your assumption on nondeductibility at this point, which is now assumed to be nonimpact?

[Steven Rasche, CFO & Executive VP]

Yes, Insoo, this is Steve and you're spot on. A year ago, when we were on this call a year ago actually, when we were talking about tax reform and looking at a couple plans, which were really, one of them was an accumulation of tweets as I recall. We were looking at essentially the deductibility of interest and nickel-to-dime drag, was assuming the worst case scenario, which is no interest deductibility, holdco interest, no mitigation efforts -- it was the absolute worst case scenario. And one thing that we worked hard on along with our peer utilities, and there was a group of us, is we made sure, as the legislation was being formed and, ultimately, being voted on that we addressed a lot of the concerns, not only that we had about interest deductibility, but as an industry overall that we had. So now with the legislation in place and looking at, again, historic -- traditional methods of allocation interest across businesses, we think we've been shielding completely from an interest deductibility standpoint. So that nickel-to-dime really was appropriate last year. We worked hard as you expect that we would to try offset that and I think we've been successful in doing that.

[Insoo Kim, RBC Capital Markets]

Got it. And then in terms of the, of course, in our industry people have been talking about whether there would be more equity in the industry as a result of tax reform for you guys ahead of your -- the adjustments that you'll make on the CapEx plan everything. Does any potential equity depend on how the loss of bonus appreciation impact your rate base? And how you adjust CapEx going forward?

[Steven Rasche, CFO & Executive VP]

Yes, great question. And I know that this is an industry wide question that we are getting. And I think from an industry perspective, the expectations of additional equity over time versus the baseline before tax reform is fair and reasonable. We have been very clear. First of all bonus depreciation was going to sunset in the next couple of years anyway. So when we think about our capital spend program going out, think about our 5-year projection right now, we were already factoring in the sunset of bonus depreciation because that was the horizon that we had to deal with. We and gas utilities in particular, and that is where I draw a distinction between my electorate in integrated brethren, we have good regulatory recovery mechanisms.

So bonus depreciation was never as big an issue for us as it would be for an integrated where the capital spend would have another digit so to speak and how they think about investing every year. So bonus depreciation not an issue whatsoever. And we have been also very clear that we do have plans over our horizon looking out over the next 4 to 5 years to issue equity. A lot of that was tied to the Spire STL Pipeline and so clearly, we conditioned ourselves and we've had very specific discussions as you would imagine with our rating agencies so they understand how we view our capital structure going forward, and we've always said and that has not changed that we believe that a balanced capital structure, a bit more equitized than levered, is the right spot for us to be, and we have a long history of being able to improve that capital structure over time and look at the movement that we were able to put in place this quarter.

So we'll continue to work it, but I would agree with you that as we firm up our plan, the equity is part of that mix, tied specifically to Spire STL Pipeline and then as we look at our capital plan and we look at the opportunities perhaps to grow rate base at a little bit faster pace, because the bonus depreciation isn't going to be taking out especially in Missouri, which is a flow-through state. How that increasing growth pairs up against the cash flows that come from that growth versus the needs for financing both on the equity and debt side.

[Operator]

The next question will be from Shar Pourreza of Guggenheim Partners.

[Shar Pourreza, Guggenheim Partners]

Steve, just real quick, when do you expect to give visibility or guidelines from the ISRS on the holdco allocation process?

[Steven Rasche, CFO & Executive VP]

Great question, Shar. If I had that crystal ball, I'd probably use and get to predict interest rates or the market. I say that with a smile on the face. We referenced and I know that as an industry, we've been very clear about the guidance that we are looking forward from the Treasury Department and one of those is to confirm that the way in which we have allocated interest over many years is still the method that is appropriate and acceptable for income tax positions going forward. So I can't predict the pace at which the Treasury Department will get to the task of giving us the guidance. In the absence of guidance, we have to go back to past precedent and practice, which would be exactly where we landed right now. But it was one issue that we as an industry tried to get addressed in the legislation.

In fact, we were successful on having it in the house version of the legislation. It did not make it on to the senate version and we weren't able to get it into the final version, which is probably the only thing of the list of about 15 things as an industry that we needed to get in the legislation that we didn't. And if I -- frankly if I had to choose one not to get in, that would be the one would be at the bottom of the list, because we got interest deductibility, and we got ability not to expense CapEx, we got the favorable treatment of individual dividends at the individual taxation level. Those are the key drivers for value on our business. So that -- if you have a better view, when the treasury will get to the task of what they need to get done, I'm all ears. Otherwise we'll continue to work it and I can tell you there's call later on this morning. There is a fairly large working group of folks in the industry that are working with the treasury to try to get them to issue those rules because each of our -- us have the same concern or issue about how we assess the impacts now in the absence of that final guidance.

[Shar Pourreza, Guggenheim Partners]

Got it and then lastly on your capital program and I do appreciate that you'll update us in the next quarter. But, obviously, from various meetings we've had with commissioners, there is a viewpoint that maybe the immediate tax savings aren't necessarily needed to give back immediately, right? So there's an opportunity to sort of keep some of the tax savings and potentially go ahead and subsidize some of your forward capital needs or spending programs within the state. So there's an opportunity to pull forward some CapEx and subsidize some of the spending. But on the other end, you are dealing with somewhat of a restrictive state in Missouri. So how are you sort of thinking about some of the pushes it takes, as you formulate your capital program? And then secondary, are you getting to the point, because Missouri has been restricted for some time? Are you getting the point where you may deploy capital elsewhere or withhold CapEx similar to what we've seen in states like Oklahoma?

[Steven Rasche, CFO & Executive VP]

You threw a couple of things out. Let me talk about the capital plan and then we'll address the second question about long-term deployment of capital. We look at our capital plan from a number of aspects and I think first and foremost, you have to remember, we've got to focus on hardening and making our system more reliable, more resilient and more cost-effective, and that is, by far, in a way the biggest reason for and the driver behind us with our infrastructure upgrade investments. And those programs have long tails.

Again, we are at about the 20-year mark, when you look at them all in, that clearly we have the opportunity option to modify those programs in whole or on the edges, but I got to tell you that our first charter is to make sure that we are doing the right thing for our customers and I would be very surprised if we would to do anything in the heart of our plan, maybe on the margins we would, but that's part of what we have to manage every day and that's where you get into some of the other items that you've talked about how the benefits of tax reform are shared. I know you're right in some other jurisdictions, there are some discussions about using some of those benefits to create other incentives or other programs or to pay for capital spend. Those discussions are yet to be had in some of our jurisdictions. We'll have to cross that bridges. We come to it and really in reality, it's a Missouri discussion because in Alabama, we are in realtime ratemaking. So we choose to expand our [Technical Difficulty] in Alabama, as part of our plan, as part of our rates, and we adjust on a quarterly basis, which is why we like that progressive rate approach. With regard to deployment of capital, Steve?

[Steven Lindsey, EVP & COO of Distribution Operations]

Sure and thanks for the question. As Steve mentioned, these are 15 to 20-year programs we have relative to infrastructure upgrades and clearly safety and reliability are great focus on those. And reliability, I think, was a big part of why we had such a successful winter. If we would not have done the upgrades that we've been doing literally over the last 4 or 5 years, I think we would have some system challenges in terms of being able to hold up. So clearly a benefit there and I think the piece that doesn't often get as much credit is this reduces our ongoing and future O&M on our system, in terms of just maintaining the system. So I think all those benefits are there and the other piece I will touch on and that I mentioned is for this first quarter, for example, we had over $22 million in new business capital and that's really a direct result of our organic growth initiatives that we got going on in every part of our jurisdictions.

So I think we're seeing the benefit of that and just to give you a scale for this first quarter, that amount of dollars that we dedicated to new business made up over 25% of our total capital plans. So again, that grows the business as additional customers and meters. And that really helps from a long-term perspective, because you're spreading cost over a broader population. So I think, between those 2, we've got a long line of sight for many years in terms of the capital that Steve has characterized.

[Suzanne Sitherwood, President & CEO]

And I guess, my final point on this topic would be this and Steve and Steve are right. We're always going to do the right thing, always by our customers. And even the tax conversation, for example, on front of the Missouri's commission to tie that back in to that part of your question. We were outside the timing to file any adjustments into this case. We did not have to pay the tax conversation to the commission staff and the commissioners. Again, we'll do the right thing in terms of our customer and what the impacts are going to be on their bill. So and from a formality standpoint, it is not part of the true-up in terms of what we filed in this case. But again wanting to do the right thing, we are running those calculations, cause in fact the customers and bringing that before the commission.

[Operator]

[Operator Instructions]. The next question will come from Selman Akyol of Stifel.

[Selman Akyol, Stifel, Nicolaus & Company]

As it relates to sort of the nonregulated side of the business, you've now undertaken a pipeline, you undertaken some storage. So as you look at over the next 5 years, what sort of additional projects you are seeing you guys wanting to invest in?

[Suzanne Sitherwood, President & CEO]

Yes, so won't be able to quantify it mathematically beyond the things that we've talked to you guys about. From a pipeline perspective like the Spire STL Pipeline and our conversation with you about we are evaluating a pipeline on the west side of the state or some alternative to bring supply and to that community as well. Of course the pipelines are FERC regulated, so we would consider them regulated. Obviously, they're not state regulated, but the utilities are. In terms of storage, obviously, that is unregulated, but supported by companies, as Mike mentioned, for a large part are regulated. So from an expansion on the storage side they like all things that we do have to make sense economically, have good strong customer base, as was asked in a earlier question. So we do see opportunities there and we will evaluate it consistent with bringing shareholder value as well as growth over the long haul. Mike, is there anything particular you want to add?

[Michael Geiselhart, SVP of Strategy & Corporate Development]

The only thing I would add is that we really developed a lot of capabilities internally in terms of evaluating potential projects, moving forward, Suzanne mentioned Missouri and Alabama. We've definitely made a lot of progress in evaluating potential projects there and may have something that will become public in the not-too-distant future. And then with regard to storage, we're in the process of building, what I think is, a pretty capable team with the Ryckman asset and we'd look to do more storage assets in the future if they make sense.

[Selman Akyol, Stifel, Nicolaus & Company]

Great, I appreciate the color. And then just a little bit follow-up on the previous item. You noted $22 million in new capital, how much of that was dedicated to Missouri?

[Steven Lindsey, EVP & COO of Distribution Operations]

It's actually been fairly evenly distributed amongst our 3 largest utilities. So I would roughly say, well above 1/2, probably upwards of 2/3 are pretty close to -- dedicated to the two Missouri utilities. And one other thing that we are experiencing, which is -- has been a positive is, we characterize them as strategic main extensions. They're going into underserved areas and in some cases going to serve industrial customers that are demonstrating a need for natural gas. So that's another benefit that we're seeing, particularly in the west side of the state here in Missouri and in Alabama.

[Operator]

The next question will come from Chris Turnure of J.P. Morgan.

[Christopher Turnure, JPMorgan Chase & Co.]

The potential decision that we could hear in the next 3 weeks from the Missouri Commission on capital structure could have some pretty major implications for a company with your strategy. Could you maybe elaborate on those not just for 2018, but for a longer-term, I know that your pivoting away from adding more holdco debt now to fund acquisitions, but if you're funding midstream projects, you have a lot of holdco debt to start building the pipeline. How do you think about that? And then also on top of that were there any other elements of the verbal decisions yesterday, outside of capital structure that concerns you versus your ask?

[Steven Rasche, CFO & Executive VP]

Yes, let me start on the capital structure side. Ultimately, Chris, we want to do is right for our customers. And I think we've been for -- well for my tenure and specially since the time that we agreed to the MGE stipulation back in 2013, we've been operating each utility in a ring-fenced fashion, which is the fairway to think about each utility, the capital that they need, they pay for and they have their own credit ratings and we manage those businesses and appropriately allocate the cost of service, so the customers are paying only the costs that are associated with operating that utility and the capital needed in order to invest and upgrade the systems, because we are doing that across our footprint. That base philosophy, which we believe is good, prudent practice is not going to change. And at the same time, we have consistently and I think you've seen that been able to draw down our holdco debt as we operate our business as well and as the nonregulated business grows.

You had mention a couple of our investments in the nonregulated side. We clearly -- on the nonutility side, I think, you can draw that distinction. I think about pipelines a little bit differently than I think about purely nonregulated businesses because we are FERC regulated as Suzanne mentioned just a second ago. So I tend to think about those with a little different view and at the right time, which is generally when we get closer to the pipeline going into service. We will establish a capital structure at that entity so that we can ring-fence that entity at just as we do the utilities, we have to do that. So I think from that standpoint, if you look at some of the discussions that we've had in the meeting yesterday, we look through the corporate capital structure really violates what we think our very basic, prudent and sustainable operating principles for our utilities and all of our entities and the last thing we want to do is have our Missouri customers have their cost of service change because of some activity that we decided to do down in Alabama. And that is exactly where looking at the corporate capital structure puts our customers in Missouri. We think it's fundamentally flawed.

[Suzanne Sitherwood, President & CEO]

And to that point, Chris, and to your question what are we concerned about, and I mentioned that in some of my earlier comments, we are concerned about the tenure and we are also concerned about the ex parte. We don't have an opportunity to educate the commissioners on the very complex matters and the interdependency. We are also concerned, and we believe strongly in the regulatory environment that there needs to be fair and balanced outcome. It's part of the responsibility of the commissioners and truthfully it's the responsibility of the staff as they look at these cases and they think about the cause-and-effect. Those things need to be considered and for a state to thrive and for customers to get the best outcomes, we must have a commission and the commission staff that understands fair and balanced outcomes over time and the reason and the need for ex parte rule, it'll allow an education process for commissioners as commissioners come and go. So these again are very complex items.

Just think about the series of calls or questions that we've had on this call today, they are not easy. And without an informed commission, it's very difficult to get again, fair and balanced outcomes. And so the tenure, again, we're concerned about. But that being said, we've been in this business collectively around the table decades and decades, [indiscernible] probably a century. It's our responsibility as a company to manage these processes. And we will, and as I mentioned earlier, they're still -- through the long timeline, to finish out this case and we're going remain working on this and doing our best job to make sure that we get a proper outcome for our customers as well as our shareholders.

[Christopher Turnure, JPMorgan Chase & Co.]

That makes sense. And then when you guys look at the Wyoming investment, I think you indicated that there is a lot of potential upside there. Wondering kind of how we can think about what you bring to the table here given the geographic kind of distance? Is it a balance sheet where others were not willing to step in? Or some other market knowledge that you draw from your non-regulated business that you can bring to the table?

[Michael Geiselhart, SVP of Strategy & Corporate Development]

Yes, this is Mike. It's definitely an intellectual capital business. I think we were able to see some value and the opportunity that was overlooked by some other participants. It was also sort of a flawed process in many respects that I think caused the number of likely strategic acquirers to sort of pass over the assets. So we saw it as sort of a diamond in the rough, if you will. We feel like we understand the issues that have occurred in the past. How to correct them moving forward and we are able to buy the asset at a very attractive price, which gives us a lot of upside in the future. Our execution plan is very diversified from the standpoint. We believe the asset can serve multiple customer types in the Rocky Mountain region. But has very interesting possibilities in terms of providing sort of out of state storage capability for the West Coast in particular California and Southern California. So we have some of those customer discussions already underway and have laid out a plan that we think is pretty interesting long-term.

[Christopher Turnure, JPMorgan Chase & Co.]

Did you say that was a flawed process?

[Michael Geiselhart, SVP of Strategy & Corporate Development]

Yes, I think the process itself -- the sale process and the bankruptcy process in particular were very poorly run. But I think more importantly, we understand kind of the operational history of the facility, sort of where the initial development of the geology went astray, if you will, and how to really turn that around with that really relatively modest CapEx given all the equipment and all the facilities that are already in place.

[Operator]

And the final question this morning will come from Joe Zhou of Avon Capital Advisers.

[Andrew Levi, Avon Capital Advisers]

It's Andy Levi for Joe Zhou. Just a couple of questions. First, just an update on the enabled pipeline. You guys are leaving the system and the FERC procedures. Can you just give us an update of exactly where we are? And what Enable is trying to do to stop this at this point? Or is that trade left and there's nothing they can do?

[Michael Geiselhart, SVP of Strategy & Corporate Development]

Yes, this is Mike again. Yes, we had a sort of an interesting debate, you might say with Enable through the course of this development of the record in this case. The way we perceive it, frankly, is that Enable through the Mississippi River Transmission asset, it's really had sort of almost a monopoly hold on our market for some period of time. And as we looked at our ability to access, in particular low-cost Marcellus supply. There really wasn't a good avenues through the existing pipeline connections into St. Louis to access that supply. And then we also had a concern with regard to earthquake resiliency, with the MRT system coming up and the crossing the New Madrid Fault. So both from a resiliency standpoint, physically as well as kind of a diversity into the market, we really needed a new pipeline build. And the project that we developed is certainly the most economic alternative to provide access to that gas.

We've actually gone ahead and executed a long-term supply agreement and capacity agreement in REX zone 3 to support that new pipeline. So we're pretty excited about the benefits it can bring to customers in St. Louis and believe it's a very economical alternative to access those supplies. MRT, understandably would certainly like to have us remain with the same amount of capacity on their system, but that's frankly not in our customers interest.

[Andrew Levi, Avon Capital Advisers]

But I'm just trying to understand the regulatory process around this. So basically, where do we stand in the regulatory process? And I assume they're trying still at FERC to prevent you from getting approval, is that the case? Or is that passed already?

[Michael Geiselhart, SVP of Strategy & Corporate Development]

Well, they are still making efforts to make their case, if you will, in front of FERC. The process is very near completion as we understand it right now, things tend to go pretty silent once projects are with the certificate staff at FERC. Our understanding is that the environmental process is done and that portion of the order is written. I think there's still some discussion that needs to occur. And frankly, a lot of the delay I think is really a function of having new commissioners that are still playing catch up on projects, including ours. So we're still optimistic and expect that we'll have an order in the relatively near future.

[Andrew Levi, Avon Capital Advisers]

Okay, that's a great. And then two other questions I have and then I'll let everybody go back to work. So just as far as the regulatory process yesterday, I guess, one of the punchline was really around the equity ratio and I guess, kind of, using the parent equity ratio going forward, versus, I guess, the 53.5% that you've been using for like the ISRS and things like that. So is that around 48% that we should be assuming if -- as far as the parent equity ratio, is that the way they're kind of looking at it? I know there was some adjustment for short-term debt?

[Steven Rasche, CFO & Executive VP]

Yes, Joe, this is Steve. It was a little unclear from the discussions because there were a number of commissioners who were voicing their opinion. That the indication was to go to the parent capital structure, I believe without short-term debt. I think we've already talked about how we feel about that versus going with the OpCo cap structure. I think we feel strongly about that. I don't want to get out in front of the regulatory process and start talking nouns and numbers. I am focused more on what's sound and sustainable business practice and I don't believe that staying at the corporate capital structure is in the interest of our customers. So we leave it at that and no number put forward. They're still in the process of going through that case with deliberations.

[Andrew Levi, Avon Capital Advisers]

I understand. Right, okay. And then just a follow-up on that issue. So is there any type of sensitivity that you can give us as 1% decline in your equity ratio? How we should kind of look at that earnings wise?

[Steven Rasche, CFO & Executive VP]

As you can appreciate, we know that in spades, but I think it would be inappropriate for us to have that discussion in public market until we are further in the process.

[Andrew Levi, Avon Capital Advisers]

I understand. And then my last question is, I just noticed on your press release, you had -- I saw it in the fourth quarter release, but I didn't see it in the first quarter release. Just reiteration of your 4% to 6% growth rate?

[Steven Rasche, CFO & Executive VP]

You're right. We omitted it from this quarter, because we are going to give a wholesome update looking five years out as we do every year in the April earnings call. I don't see anything right now that would cause us to move from that over the long-term. They are both pluses and minuses. I talk about a couple of them in my prepared remarks on the call. Tax reform, in many ways, actually hits the accelerator a little bit when you think about rate base growth. So we really have to get our arms around inside our utilities. Once we are little bit further along in the discussions with our regulators on the how that impacts our growth going forward on the rate base side and that's why we felt it was appropriate to step away from that this quarter. We are not walking away from our view that we need to grow, and we need to grow at a good rate and we'll update that and have very specific discussions on that when we get to our April earnings call.

[Operator]

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to hand the conference back to Scott Dudley for his closing remarks.

[Scott Dudley, IR]

Well, thank you again everyone for joining us this morning. We will be around throughout the rest of the day for any follow-up questions. Look forward to speaking with you then. Take care.

[Operator]

Thank you. Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. At this time, you may disconnect your lines.