Laclede Rate Case Agreement Filed

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News Item: Laclede Gas (LG) filed a rate case agreement on May 31, 2013 with the Missouri Public Service Commission (MoPSC) this morning, incorporating into Laclede Gas' general rates $14.8 million in annual revenue that is already included in customer bills for costs supporting pipeline safety upgrades. Laclede Gas had requested a revenue increase of $58.4 million, an amount that included the $14.8 million noted above.

Ahead of the Tape: For the first half of fiscal 2013, LG reported earnings of $2.69 per share, compared to $2.38 per share last year. The gas utility contribution rose to $2.46 per share, from $2.09 per share last year, driven by higher sales margins from colder weather, higher ISRS revenue, lower employee benefit costs, and reduced bad debt expenses. LER contributed earnings of $0.25 per share compared to $0.27 per share in 2012. Lower results were due to reduced margins, offset by higher volumes

Comments: While the settlement agreement does not specify a base ROE, future ISRS revenues would be premised on a 9.7% allowed ROE. We expect a decision by mid-July 2013, with an effective date shortly thereafter. While the settled revenue amount is considerably below that requested, LG had earned nearly a 10% ROE over the past several periods primarily driven by the ISRS. We believe that LG can continue to earn near a 10% ROE going forward, considering that the settlement allows continued use of ISRS recovery. A final rate order would allow the MPSC to focus on the timely review of LG's acquisition of Missouri Gas Energy.

Earnings Outlook: Median consensus analyst EPS estimates from Thomson Reuters predict modest growth over the coming annual periods. As demonstrated in the chart below, EPS are expected to increase by 9.5% over the FY2013 to FY2015 periods.

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Relevant Competitors: The base rate case could have an effect on LG's competitors: National Fuel and Gas (NYSE:NFG) and Piedmont Natural Gas Company (NYSE:PNY).

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