10-K: Spire Inc. Acquires Piedmont Natural Gas Tennessee Business

Spire Inc. announces the acquisition of Piedmont Natural Gas's Tennessee natural gas business for $2.48 billion, aiming to expand its regulated utility footprint and drive growth.

Summary

• Spire Inc. entered an agreement on July 27, 2025, to acquire Piedmont Natural Gas Company, Inc.'s Tennessee natural gas business for $2.48 billion in cash, subject to customary adjustments.
• The acquisition is expected to close in Q1 calendar 2026, pending approval by the Tennessee Public Utility Commission (TPUC) and other customary closing conditions.
• The transaction is supported by a fully committed senior unsecured bridge facility of up to $2.48 billion from BMO Capital Markets Corp. and a syndicate of banks.
• Spire is considering selling its natural gas storage facilities (Spire Storage West LLC and Spire Storage Salt Plains LLC) to help fund the acquisition, subject to board and regulatory approval.
• For the fiscal year ended September 30, 2025, Spire reported net income of $271.7 million ($4.37 diluted EPS) and adjusted earnings of $275.5 million ($4.44 diluted EPS).
• Operating revenues for Spire decreased to $2,476.4 million in FY2025 from $2,593.0 million in FY2024, primarily due to lower gas cost recoveries.
• Contribution margin for Spire increased to $1,455.2 million in FY2025 from $1,361.5 million in FY2024.
• Capital expenditures for Spire totaled $922.4 million in FY2025, up from $861.3 million in FY2024.
• Spire Missouri's net income increased to $128.3 million in FY2025 from $118.4 million in FY2024.
• Spire Alabama's net income increased to $84.9 million in FY2025 from $80.1 million in FY2024.
• The Midstream segment's net income and adjusted earnings significantly increased by $24.6 million and $22.8 million, respectively, driven by higher storage earnings and the acquisition of MoGas.
• Spire's total long-term debt principal was $3,879.1 million as of September 30, 2025.

Sentiment

Score: 8

Explanation: The filing presents a strong strategic acquisition with clear financial benefits and positive year-over-year earnings growth. While revenues declined due to pass-through gas costs, the underlying contribution margin increased. The company is actively managing its capital structure and regulatory environment. The negative outlook from S&P is a minor concern but overall, the outlook is positive.

Positives

• Strategic acquisition of Piedmont Natural Gas's Tennessee business expands Spire's regulated utility footprint in a high-growth region.
• The acquisition is expected to drive robust growth through customer additions and infrastructure investments, supported by Tennessee's constructive regulatory environment.
• The transaction is anticipated to support Spire's long-term adjusted earnings per share growth and provide meaningful investment opportunities and dividend growth.
• Spire's net income increased to $271.7 million in FY2025 from $250.9 million in FY2024.
• Adjusted earnings increased to $275.5 million in FY2025 from $247.4 million in FY2024.
• Contribution margin increased by $93.7 million year-over-year, driven by Spire Missouri's ISRS growth and Spire Alabama's RSE adjustments.
• Midstream segment net income and adjusted earnings increased significantly by $24.6 million and $22.8 million, respectively, primarily due to higher storage earnings, asset optimization, additional capacity, and contract renewals at higher rates.
• Spire Missouri's base rate increase of $210.0 million was approved by the MoPSC, effective October 24, 2025.
• FERC approved the transfer of gas supply contracts to Spire on October 31, 2025, for the Tennessee acquisition.
• The Hart-Scott-Rodino Antitrust Improvements Act waiting period expired without objection, satisfying a key regulatory requirement for the Tennessee acquisition.
• Spire has maintained investment-grade credit ratings with a stable outlook from Moody's and a negative outlook from S&P.
• Spire has paid common stock dividends continuously since 1946, with 2025 marking the 22nd consecutive year of increasing dividends on an annualized basis.

Negatives

• Operating revenues for Spire decreased by $116.6 million in FY2025, primarily due to lower PGA/GSA gas cost recoveries ($285.5 million impact).
• Other income decreased by $10.8 million year-over-year, excluding the Postretirement Non-Service Costs Transfer, mainly due to a one-time $8.2 million pre-tax hedging gain in the prior year not repeating and a $9.4 million decline in gas-carrying cost credits at Spire Missouri.
• The 'Other' segment (unallocated corporate items) generated a $49.7 million loss in FY2025, an increase of $19.2 million from the prior year, largely due to acquisition and restructuring activities related to the Piedmont Tennessee acquisition and the non-repeat of a prior-year interest rate swap gain.
• Spire Missouri's degree days were 8.7% warmer than normal in FY2025, potentially impacting heating energy sales.
• Spire Alabama's temperatures were 4.2% warmer than normal in FY2025.
• The S&P credit rating for Spire Inc. senior unsecured long-term debt is BBB, and for preferred stock is BBB-, with a negative outlook.
• The company suspended activity under its ATM equity program starting August 7, 2025, until two business days after its 10-K filing.

Risks

• New legislation or regulations related to climate change, greenhouse gas emissions, or energy efficiency could increase compliance costs, restrict fossil fuel use, or adversely affect natural gas demand and midstream services.
• State public service commissions may not approve full recovery of utility service costs or a reasonable return on investment, potentially leading to material disallowances of deferred costs.
• Federal safety and integrity regulations for pipelines and storage facilities may impose significant costs and liabilities for compliance, integrity management, and cybersecurity.
• Changes in environmental laws, discovery of unknown environmental conditions (e.g., former manufactured gas plant sites), or adverse claims could result in material expenditures and liabilities not fully covered by insurance or rates.
• Modifications to income tax policy, certain tax elections, or lower-than-expected future taxable income could reduce the value of Net Operating Losses (NOLs) and result in material charges to earnings.
• Involvement in litigation or administrative proceedings (general claims, rates, environmental issues, gas cost prudence reviews) could result in substantial monetary judgments, fines, penalties, or business interruption.
• New developments in federal regulation of commodity markets and derivative instruments (FERC, CFTC) may adversely impact Spire Marketing's results by increasing transaction costs, limiting hedging, or exposing it to unhedged commercial risks.
• Inability to obtain sufficient contracted gas supplies, interstate pipeline, and/or storage services in a timely manner, especially during peak demand, could impair the ability to meet customer requirements and adversely impact financial results.
• Natural gas transportation, distribution, and storage involve inherent integrity issues, hazards, and operational risks (leaks, explosions, third-party damage) that could cause substantial financial losses, injuries, property damage, or environmental pollution.
• Competition from alternative energy sources (electricity, fuel oil, coal, propane, renewables), direct connections to interstate pipelines by large customers, and other gas distributors could lead to loss of customers or inability to acquire new ones on favorable terms.
• Significantly warmer-than-normal weather or more frequent/severe weather events (wind, floods) could reduce heating energy sales, increase costs to repair facilities, or disrupt gas supplies, adversely affecting financial results.
• Damage to storage facilities or pipelines, or lack of integrity in storage fields, could have a material adverse effect if not covered by insurance or rates.
• Increased reliance on technology (IT systems, automated meter reading) creates risks of disruption, failure, or malfunction, including due to cyberattacks, potentially hindering operations and leading to financial losses or misuse of confidential information.
• Breaches of security for sensitive customer, employee, and vendor information, or technology managing operations, could affect reputation, disrupt operations, and lead to financial liability. Inadvertent sharing of confidential data through AI tools is also a risk.
• Business activities are concentrated in a few states (Alabama, Mississippi, Missouri, and soon Tennessee), making the company vulnerable to regional economic, political, regulatory, and weather changes.
• Spire Inc. depends on its operating subsidiaries' ability to generate sufficient net income and cash flows to pay upstream dividends and make loan repayments.
• A downgrade in credit ratings could negatively affect the cost of capital or limit access to credit and capital markets.
• Regional supply/demand imbalances, natural gas commodity price fluctuations, and changes in midstream facility terms/rates may adversely impact Spire Marketing's profitability.
• Pension and postretirement benefit plans are subject to investment and interest rate risk, and poor investment returns or lower interest rates may necessitate accelerated funding, negatively impacting financial condition.
• Goodwill and long-lived assets could become impaired, leading to material impairment charges, especially with rises in interest rates.
• The pending acquisition of Piedmont Natural Gas's Tennessee business involves risks such as failure to obtain approvals, delays, difficult/costly integration, unrealized benefits, unexpected liabilities, significant transaction costs, and diversion of management attention.
• Inability to attract/retain qualified personnel, transfer knowledge from an aging workforce, or reach collective bargaining agreements could result in work stoppages.
• Recessions or economic downturns could decrease energy consumption, lead to customer loss, and increase bad debt expense.
• New GAAP or SEC regulations could significantly impact financial condition and results, especially for rate-regulated accounting.

Future Outlook

The acquisition of Piedmont Natural Gas's Tennessee business is expected to significantly expand Spire's regulated utility footprint in a high-growth region, enhance regulatory diversity, and provide accretive earnings, supporting long-term adjusted EPS growth and dividend growth. Spire is considering selling its natural gas storage facilities (Spire Storage West LLC and Spire Storage Salt Plains LLC) to help fund the acquisition. Total Company capital expenditures are planned to be $809 million for fiscal 2026. Management expects a growing need for marketing services across the country as customers manage seasonal variability and marketplace volatility. The company will continue to implement Advanced Mobile Leak Detection in its service territories over the next three years. The RSE terms for Spire Alabama are expected to continue beyond September 30, 2025, absent a Commission order modifying the tariff. Spire Alabama's annual RSE filing for fiscal 2026 projects a return on average common equity of 8.24%, below the approved range, leading to rate adjustments effective December 1, 2025. Spire Gulf's annual RSE filing for fiscal 2026 reflects a proposed increase in annual revenues of $3.5 million, pending regulatory review. Spire Mississippi's RSA filing on September 12, 2025, reflected a further rate increase of approximately $0.8 million, pending review.

Management Comments

• Spire is committed to transforming its business and pursuing growth through growing organically, investing in infrastructure, and advancing through innovation.
• The Transaction is expected to allow Spire to significantly expand its regulated utility footprint in high-quality jurisdictions and significantly increase the scale of its regulated business while delivering on Spire's commitment to growth and creating long-term shareholder value.
• The Transaction is expected to provide robust growth driven by customer additions and system integrity and reliability investments, aligned with Spire's investment strategy. These long-term investments are expected to be supported by Tennessee's constructive regulatory environment support of natural gas.
• The Transaction is expected to support Spire's long-term adjusted earnings per share growth expectations and provide meaningful investment opportunities. The acquisition is expected to generate incremental cash flow to support investment in the business, shareholder returns and dividend growth.
• Spire Marketing's management expects a growing need for marketing services across the country as customers manage seasonal variability and marketplace volatility.
• It is management's view that the Company, Spire Missouri and Spire Alabama have adequate access to credit and capital markets and will have sufficient liquidity and capital resources, both internal and external, to meet anticipated requirements.
• Management focuses on maintaining a strong balance sheet and believes the Company, Spire Missouri and Spire Alabama have adequate access to credit and capital markets and will have sufficient liquidity and capital resources, both internal and external, to meet anticipated requirements.

Industry Context

The natural gas utility industry is subject to significant regulatory oversight at federal, state, and local levels, impacting rates, costs, and profitability. Competition comes from local electric companies, suppliers of fuel oil, coal, propane, and increasingly, distributed renewable energy sources. Environmental regulations and decarbonization objectives are shifting economic advantages towards natural gas over coal for large boiler plant loads. The industry faces evolving cybersecurity threats, requiring continuous monitoring and investment in preventive and detective measures. The acquisition of Piedmont Natural Gas's Tennessee business aligns with a strategy to expand regulated utility operations in growing regions, a common trend for utilities seeking stable, predictable returns. The FERC approval of the Spire STL Pipeline and Spire MoGas Pipeline merger indicates a trend towards consolidation and operational efficiency in midstream assets.

Comparison to Industry Standards

• Spire's credit ratings (S&P: BBB/BBB-, Moody's: Baa2/Ba1) are investment grade, which is a standard for utilities to maintain access to capital markets.
• The S&P 500 Utilities Index is heavily weighted to large capitalization electric utilities, and stocks of smalland mid-cap electric utilities and gas utility companies (like Spire) have generally traded lower relative to the large-cap electric sector.
• Spire's pension and postretirement benefit plans' investment approach aims for above-average risk-adjusted returns with mid-range risk exposure compared to comparable funds, reflecting industry best practices for managing long-term liabilities.
• The company's cybersecurity program leverages the National Institute of Standards and Technology ('NIST') Cybersecurity Framework 2.0, a widely recognized industry standard for managing cybersecurity risks.

Management Changes

Corporate Governance

Legal Proceedings

• Spire Missouri has identified three former manufactured gas plant (MGP) sites in St. Louis, Missouri, where costs have been incurred and claims asserted. Two sites are enrolled in the MoDNR Brownfields/Voluntary Cleanup Program (BVCP), and the third is subject to an EPA assertion. Remediation is ongoing at one parcel of the Carondelet Coke site.
• Spire Missouri is involved in a remedial investigation cost-sharing agreement with other PRPs for the Station A site.
• The EPA asserted liability against Spire Missouri under CERCLA for alleged coal gas waste contamination at the Station B site, which Spire Missouri denies.
• Spire Missouri has six owned MGP sites in its western service area enrolled in the BVCP, with remediation efforts at various stages.
• Spire Alabama is in the chain of title of nine former MGP sites and five former manufactured gas distribution sites. An NFA letter was received for the Huntsville MGP site.
• Spire Alabama was identified as a PRP under CERCLA for the 35th Avenue Superfund Site in North Birmingham, which it vigorously denies.
• Spire Marketing is subject to a complaint filed in January 2025 by the State of Oklahoma related to its transactions with various counterparties during Winter Storm Uri in February 2021. Management does not believe this will have a material impact.

Stakeholder Impact

• Shareholders: The acquisition is expected to support long-term adjusted EPS growth and dividend growth, enhancing shareholder value. However, the potential sale of storage facilities and the financing mix could impact future returns and risk profile.
• Employees: The company focuses on safety, development, education, and advancement. Labor relations are good, but disputes could impact operations. The acquisition will involve employment offers to Business Employees, with specific provisions for Transferred Employees and Transferred CBA Employees.
• Customers: The Utilities aim to provide reliable natural gas services at a reasonable cost. Rate adjustments (PGA, GSA, ISRS, RSE) are designed to balance cost recovery for the utility with reasonable rates for customers. The acquisition will expand service to new customers in Tennessee.
• Suppliers/Creditors: The company's investment-grade credit ratings and access to capital markets are crucial for meeting debt obligations and funding operations. The bridge facility and permanent financing plans for the acquisition are significant for creditors.
• Communities: The company's commitment to safety and well-being extends to communities. Environmental compliance and remediation efforts at MGP sites address community concerns.

Next Steps

• Close the acquisition of Piedmont Natural Gas's Tennessee business in Q1 calendar 2026, pending TPUC approval.
• Finalize permanent financing for the acquisition through a balanced mix of debt, equity, and hybrid securities.
• Potentially sell natural gas storage facilities (Spire Storage West LLC and Spire Storage Salt Plains LLC) to help fund the acquisition, subject to board and regulatory approval.
• Continue implementing Advanced Mobile Leak Detection in service territories over the next three years.
• Spire Missouri's PGA adjustment increase is proposed to become effective November 26, 2025, pending MoPSC approval.
• Spire Alabama's RSE rate adjustments are scheduled to take effect on December 1, 2025.
• Spire Gulf's annual RSE filing for fiscal 2026 is pending regulatory review.
• Spire Mississippi's RSA filing reflecting a rate increase is pending review by the MPUS.
• Evaluate the impact of new accounting standards ASU 2024-03 (Expense Disaggregation Disclosures) and ASU 2023-09 (Income Taxes Disclosures).

Key Dates

Recommendation

Spire Inc. is undertaking a significant strategic acquisition that promises long-term growth and enhanced shareholder value by expanding its regulated utility footprint in a growing region. The company's core utility business shows stable performance with positive net income and contribution margin growth, supported by favorable regulatory mechanisms. However, the acquisition introduces integration risks and requires substantial financing, including a potential sale of existing assets. While the long-term outlook is positive, the immediate period involves execution risk related to financing and integration. The negative outlook from S&P also warrants caution. A 'hold' recommendation allows investors to monitor the successful execution of the acquisition and its financing, as well as the integration of the new business, before making further investment decisions.

Keywords

Natural Gas Utility, Acquisition, Spire Inc., Piedmont Natural Gas, Tennessee, Energy Distribution, Financial Performance, Regulatory Approval, Debt Financing, Capital Expenditures, Midstream, Gas Marketing, Risk Management, Corporate Governance, Cybersecurity, Shareholder Value, Dividends