SPIRE INC - Quarter Report: 2010 March (Form 10-Q)

form10-qmar2010.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

[ X ]

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 31, 2010

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number	Registrant	State of Incorporation	I.R.S. Employer Identification Number
1-16681	The Laclede Group, Inc.	Missouri	74-2976504
1-1822	Laclede Gas Company	Missouri	43-0368139

720 Olive Street

St. Louis, MO 63101

314-342-0500

Indicate by check mark if the registrant:

(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report) and (2) has been subject to such filing requirements for the past 90 days.

The Laclede Group, Inc.:	Yes	[ X ]	No	[ ]

Laclede Gas Company:	Yes	[ X ]	No	[ ]

has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

The Laclede Group, Inc.:	Yes	[ ]	No	[ ]

Laclede Gas Company:	Yes	[ ]	No	[ ]

is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

The Laclede Group, Inc.:

	Large accelerated filer	[ X ]	Accelerated filer	[ ]
	Non-accelerated filer	[ ]	Smaller reporting company	[ ]

Laclede Gas Company:

	Large accelerated filer	[ ]	Accelerated filer	[ ]
	Non-accelerated filer	[ X ]	Smaller reporting company	[ ]

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is a shell company (as defined in Rule 12b-2 of the Exchange Act):

The Laclede Group, Inc.:	Yes	[ ]	No	[ X ]

Laclede Gas Company:	Yes	[ ]	No	[ X ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

		Shares Outstanding At
Registrant	Description of Common Stock	April 29, 2010
The Laclede Group, Inc.:	Common Stock ($1.00 Par Value)	22,281,309
Laclede Gas Company:	Common Stock ($1.00 Par Value)	11,654 *

* 100% owned by The Laclede Group, Inc.

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TABLE OF CONTENTS			Page No.

PART 1. FINANCIAL INFORMATION

Item 1	Financial Statements

	The Laclede Group, Inc.:
		Statements of Consolidated Income	5
		Statements of Consolidated Comprehensive Income	6
		Consolidated Balance Sheets	7-8
		Statements of Consolidated Cash Flows	9
		Notes to Consolidated Financial Statements	10-27

	Laclede Gas Company:
		Statements of Income	Ex. 99.1, p. 1
		Statements of Comprehensive Income	Ex. 99.1, p. 2
		Balance Sheets	Ex. 99.1, p. 3-4
		Statements of Cash Flows	Ex. 99.1, p. 5
		Notes to Financial Statements	Ex. 99.1, p. 6-17

Item 2	Management’s Discussion and Analysis of Financial Condition and
		Results of Operations (The Laclede Group, Inc.)	28-42
	Management’s Discussion and Analysis of Financial Condition and
		Results of Operations (Laclede Gas Company)	Ex. 99.1, p. 18-28

Item 3	Quantitative and Qualitative Disclosures About Market Risk		43

Item 4	Controls and Procedures		43

PART II. OTHER INFORMATION

Item 1	Legal Proceedings		44

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		44

Item 4	Submission of Matters to a Vote of Security Holders		44

Item 6	Exhibits		44

SIGNATURES – The Laclede Group, Inc.			45

SIGNATURES – Laclede Gas Company			46

INDEX TO EXHIBITS			47

FILING FORMAT

This Quarterly Report on Form 10-Q is a combined report being filed by two separate registrants: The Laclede Group, Inc. (Laclede Group or the Company) and Laclede Gas Company (Laclede Gas or the Utility).

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PART I. FINANCIAL INFORMATION

The interim financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Form 10-K for the fiscal year ended September 30, 2009.

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Item 1. Financial Statements

THE LACLEDE GROUP, INC.

STATEMENTS OF CONSOLIDATED INCOME

(UNAUDITED)

	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands, Except Per Share Amounts)		2010		2009		2010		2009

Operating Revenues:
Regulated Gas Distribution	$	373,520	$	440,468	$	656,449	$	798,569
Non-Regulated Gas Marketing		261,473		217,589		458,998		532,629
Other		332		1,011		11,044		2,126
Total Operating Revenues		635,325		659,068		1,126,491		1,333,324
Operating Expenses:
Regulated Gas Distribution
Natural and propane gas		250,238		313,506		432,238		568,403
Other operation expenses		37,779		40,251		75,242		76,552
Maintenance		7,219		7,261		13,393		13,795
Depreciation and amortization		9,385		9,180		18,748		18,299
Taxes, other than income taxes		26,050		28,216		42,274		46,574
Total Regulated Gas Distribution Operating Expenses		330,671		398,414		581,895		723,623
Non-Regulated Gas Marketing		254,161		204,487		448,891		496,088
Other		223		927		4,771		1,685
Total Operating Expenses		585,055		603,828		1,035,557		1,221,396
Operating Income		50,270		55,240		90,934		111,928
Other Income and (Income Deductions) – Net		318		247		1,905		986
Interest Charges:
Interest on long-term debt		6,145		6,145		12,291		12,291
Other interest charges		526		1,168		1,089		3,814
Total Interest Charges		6,671		7,313		13,380		16,105
Income Before Income Taxes and Dividends
on Laclede Gas Redeemable Preferred Stock		43,917		48,174		79,459		96,809
Income Tax Expense		15,897		17,356		28,553		34,677
Dividends on Laclede Gas Redeemable Preferred Stock		—		7		—		15
Net Income	$	28,020	$	30,811	$	50,906	$	62,117

Average Number of Common Shares Outstanding:
Basic		21,980		21,891		21,968		21,874
Diluted		22,027		21,969		22,014		21,963

Basic Earnings Per Share of Common Stock	$	1.26	$	1.39	$	2.29	$	2.81

Diluted Earnings Per Share of Common Stock	$	1.26	$	1.39	$	2.29	$	2.80

Dividends Declared Per Share of Common Stock	$	0.395	$	0.385	$	0.790	$	0.770

See Notes to Consolidated Financial Statements.

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THE LACLEDE GROUP, INC.

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)		2010			2009			2010			2009

Net Income	$	28,020		$	30,811		$	50,906		$	62,117
Other Comprehensive Income (Loss), Before Tax:
Net gains (losses) on cash flow hedging derivative instruments:
Net hedging gain arising during the period		3,733			5,002			7,476			7,041
Reclassification adjustment for gains included in net income		(1,565	)		(2,295	)		(5,616	)		(10,567	)
Net unrealized gains (losses) on cash flow hedging
derivative instruments		2,168			2,707			1,860			(3,526	)
Amortization of actuarial loss included in net periodic
pension and postretirement benefit cost		99			50			197			100
Other Comprehensive Income (Loss), Before Tax		2,267			2,757			2,057			(3,426	)
Income Tax Expense (Benefit) Related to Items of Other
Comprehensive Income (Loss)		877			1,063			796			(1,317	)
Other Comprehensive Income (Loss), Net of Tax		1,390			1,694			1,261			(2,109	)
Comprehensive Income	$	29,410		$	32,505		$	52,167		$	60,008

See Notes to Consolidated Financial Statements.

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THE LACLEDE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	March 31,			Sept. 30,			March 31,
(Thousands)	2010			2009			2009

ASSETS
Utility Plant	$	1,301,013		$	1,280,238		$	1,247,921
Less: Accumulated depreciation and amortization		435,205			424,309			414,956
Net Utility Plant		865,808			855,929			832,965

Non-utility property		4,072			4,061			4,591
Other investments		49,193			44,973			43,805
Other Property and Investments		53,265			49,034			48,396

Current Assets:
Cash and cash equivalents		83,765			74,591			93,602
Accounts receivable:
Utility		130,460			81,262			166,854
Non-utility		78,857			42,382			64,505
Other		6,466			7,511			5,090
Allowance for doubtful accounts		(12,782	)		(11,160	)		(12,666	)
Delayed customer billings		38,955			—			35,213
Inventories:
Natural gas stored underground at LIFO cost		43,757			93,313			69,940
Propane gas at FIFO cost		15,625			19,847			19,861
Materials, supplies, and merchandise at average cost		4,338			4,158			5,501
Natural gas receivable		25,672			28,344			9,131
Derivative instrument assets		14,600			17,178			30,652
Unamortized purchased gas adjustments		—			—			8,891
Deferred income taxes		626			1,707			—
Prepayments and other		7,836			9,650			5,404
Total Current Assets		438,175			368,783			501,978

Deferred Charges:
Regulatory assets		467,078			482,999			395,869
Other		6,579			5,273			5,748
Total Deferred Charges		473,657			488,272			401,617
Total Assets	$	1,830,905		$	1,762,018		$	1,784,956

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THE LACLEDE GROUP, INC.

CONSOLIDATED BALANCE SHEETS (Continued)

(UNAUDITED)

	March 31,			Sept. 30,			March 31,
(Thousands, except share amounts)	2010			2009			2009

CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock (70,000,000 shares authorized, 22,271,064, 22,168,120, and 22,138,864 shares issued, respectively)	$	22,271		$	22,168		$	22,139
Paid-in capital		156,018			154,218			151,327
Retained earnings		376,142			342,810			357,887
Accumulated other comprehensive income (loss)		(905	)		(2,166	)		2,328
Total Common Stock Equity		553,526			517,030			533,681
Long-term debt (less current portion) – Laclede Gas		364,269			389,240			389,211
Total Capitalization		917,795			906,270			922,892

Current Liabilities:
Notes payable		114,950			129,800			238,800
Accounts payable		122,844			72,765			100,416
Advance customer billings		—			21,140			—
Current portion of long-term debt		25,000			—			—
Wages and compensation accrued		12,893			12,682			12,304
Dividends payable		8,962			8,687			8,675
Customer deposits		11,663			12,400			13,045
Interest accrued		9,865			9,943			10,333
Taxes accrued		42,830			15,951			34,078
Unamortized purchased gas adjustments		1,148			3,130			—
Deferred income taxes		—			—			1,959
Other		12,839			12,642			9,616
Total Current Liabilities		362,994			299,140			429,226

Deferred Credits and Other Liabilities:
Deferred income taxes		248,968			256,196			232,446
Unamortized investment tax credits		3,646			3,754			3,863
Pension and postretirement benefit costs		201,643			202,681			103,226
Asset retirement obligations		26,266			25,503			27,638
Regulatory liabilities		45,088			44,225			42,506
Other		24,505			24,249			23,159
Total Deferred Credits and Other Liabilities		550,116			556,608			432,838
Total Capitalization and Liabilities	$	1,830,905		$	1,762,018		$	1,784,956

See Notes to Consolidated Financial Statements.

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THE LACLEDE GROUP, INC.

STATEMENTS OF CONSOLIDATED CASH FLOWS

(UNAUDITED)

	Six Months Ended
	March 31,
(Thousands)	2010			2009

Operating Activities:
Net Income	$	50,906		$	62,117
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, amortization, and accretion		18,891			18,446
Deferred income taxes and investment tax credits		(15,953	)		(3,819	)
Other – net		1,375			3,412
Changes in assets and liabilities:
Accounts receivable – net		(83,006	)		(24,824	)
Unamortized purchased gas adjustments		(1,982	)		24,520
Deferred purchased gas costs		25,323			(54,990	)
Accounts payable		50,986			(57,281	)
Delayed customer billings – net		(60,095	)		(60,761	)
Taxes accrued		26,752			22,683
Natural gas stored underground		49,556			136,327
Other assets and liabilities		7,096			32,951
Net cash provided by operating activities		69,849			98,781

Investing Activities:
Capital expenditures		(24,850	)		(26,597	)
Other investments		(3,560	)		(1,446	)
Net cash used in investing activities		(28,410	)		(28,043	)

Financing Activities:
(Repayment) issuance of short-term debt – net		(14,850	)		22,900
Changes in book overdrafts		(207	)		419
Issuance of common stock		1,041			2,705
Non-employee directors’ restricted stock awards		(406	)		(570	)
Dividends paid		(17,297	)		(16,757	)
Preferred stock reacquired		—			(627	)
Employees’ taxes paid associated with restricted shares withheld upon vesting		(576	)		(675	)
Excess tax benefits from stock-based compensation		66			686
Other		(36	)		(116	)
Net cash (used in) provided by financing activities		(32,265	)		7,965

Net Increase in Cash and Cash Equivalents		9,174			78,703
Cash and Cash Equivalents at Beginning of Period		74,591			14,899
Cash and Cash Equivalents at End of Period	$	83,765		$	93,602


Supplemental Disclosure of Cash Paid During the Period for:
Interest	$	13,305		$	15,768
Income taxes		13,772			9,254

See Notes to Consolidated Financial Statements.

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THE LACLEDE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These notes are an integral part of the accompanying consolidated financial statements of The Laclede Group, Inc. (Laclede Group or the Company) and its subsidiaries. In the opinion of Laclede Group, this interim report includes all adjustments (consisting of only normal recurring accruals) necessary for the fair presentation of the results of operations for the periods presented. This Form 10-Q should be read in conjunction with the Notes to Consolidated Financial Statements contained in the Company’s Fiscal Year 2009 Form 10-K.

The consolidated financial position, results of operations, and cash flows of Laclede Group are comprised primarily from the financial position, results of operations, and cash flows of Laclede Gas Company (Laclede Gas or the Utility). Laclede Gas is a regulated natural gas distribution utility having a material seasonal cycle. As a result, these interim statements of income for Laclede Group are not necessarily indicative of annual results or representative of succeeding quarters of the fiscal year. Due to the seasonal nature of the business of Laclede Gas, earnings are typically concentrated in the November through April period, which generally corresponds with the heating season.

REVENUE RECOGNITION - Laclede Gas reads meters and bills its customers on monthly cycles. The Utility records its regulated gas distribution revenues from gas sales and transportation services on an accrual basis that includes estimated amounts for gas delivered, but not yet billed. The accruals for unbilled revenues are reversed in the subsequent accounting period when meters are actually read and customers are billed. The amounts of accrued unbilled revenues at March 31, 2010 and 2009, for the Utility, were $22.6 million and $26.2 million, respectively. The amount of accrued unbilled revenue at September 30, 2009 was $12.7 million.

EARNINGS PER COMMON SHARE - As discussed in the New Accounting Pronouncements section below, the Company adopted certain changes to the computation of earnings per share effective October 1, 2009. Generally accepted accounting principles in the United States of America (GAAP) require dual presentation of basic and diluted earnings per share (EPS). EPS is computed using the two-class method, which is an earnings allocation method for computing EPS that treats a participating security as having rights to earnings that would otherwise have been available to common shareholders. Certain of the Company’s stock-based compensation awards pay nonforfeitable dividends to the participants during the vesting period and, as such, are deemed participating securities. Basic EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding that are increased for additional shares that would be outstanding if potentially dilutive non-participating securities were converted to common shares, pursuant to the treasury stock method. Shares attributable to non-participating stock options and time-vested restricted stock/units are excluded from the calculation of diluted earnings per share if the effect would be antidilutive. Shares attributable to non-participating performance-contingent restricted stock awards are only included in the calculation of diluted earnings per share to the extent the underlying performance and/or market conditions are satisfied (a) prior to the end of the reporting period or (b) would be satisfied if the end of the reporting period were the end of the related contingency period and the result would be dilutive. The Company’s EPS computations are set forth in Note 2, Earnings Per Common Share.

GROSS RECEIPTS TAXES - Gross receipts taxes associated with Laclede Gas’ natural gas utility service are imposed on the Utility and billed to its customers. These amounts are recorded gross in the Statements of Consolidated Income. Amounts recorded in Regulated Gas Distribution Operating Revenues for the quarters ended March 31, 2010 and 2009 were $21.5 million, and $23.8 million, respectively. Amounts recorded in Regulated Gas Distribution Operating Revenues for the six months ended March 31, 2010 and 2009 were $33.5 million and $38.6 million, respectively. Gross receipts taxes are expensed by the Utility and included in the Taxes, other than income taxes line.

STOCK-BASED COMPENSATION - Awards of stock-based compensation are made pursuant to The Laclede Group 2006 Equity Incentive Plan and the Restricted Stock Plan for Non-Employee Directors. Refer to Note 1 of the Consolidated Financial Statements included in the Company’s Form 10-K for the fiscal year ended September 30, 2009 for descriptions of these plans.

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Restricted Stock Awards

During the six months ended March 31, 2010, the Company granted 95,400 performance-contingent restricted shares and share units to executive officers and key employees at a weighted average grant date fair value of $25.41 per share. This number represents the maximum shares that can be earned pursuant to the terms of the awards. The shares and share units have a performance period ending September 30, 2012, during which participants are entitled to voting rights on the target level, or 63,600 shares. Dividends on these target level of shares accrue during the performance period and will be paid to the participants up to the target level upon vesting, but are subject to forfeiture if the underlying shares do not vest. The number of shares and share units that will ultimately vest is dependent upon the attainment of certain levels of earnings growth and portfolio development performance goals; further, under the terms of the award, the Compensation Committee of the Board of Directors has the discretion to reduce by up to 25% the number that vest if the Company’s total shareholder return (TSR) during the performance period ranks below the median relative to a comparator group of companies. This TSR provision is considered a market condition under generally accepted accounting principles.

During the six months ended March 31, 2010, 58,250 shares of performance-contingent restricted stock, awarded on November 2, 2006 and December 5, 2007, vested. The Company withheld 18,899 of the vested shares at a weighted average price of $30.49 per share pursuant to elections by employees to satisfy tax withholding obligations.

Performance-contingent restricted stock and performance-contingent restricted stock unit activity for the six months ended March 31, 2010 is presented below:

			Weighted
			Average
	Shares/		Grant Date
	Units		Fair Value

Nonvested at September 30, 2009	225,950			$	37.85

Granted (maximum shares that can be earned)	95,400			$	25.41
Vested	(58,250	)		$	34.75
Forfeited	(7,800	)		$	32.67

Nonvested at March 31, 2010	255,300			$	34.07

During the six months ended March 31, 2010, the Company granted 28,300 shares of time-vested restricted stock to executive officers and key employees at a weighted average grant date fair value of $30.42 per share. These shares were awarded on November 4, 2009, December 1, 2009, and January 4, 2010 and vest November 4, 2012, December 1, 2012, and January 4, 2013, respectively. In the interim, participants receive full voting rights and dividends, which are not subject to forfeiture.

During the six months ended March 31, 2010, the Company granted 12,500 shares of time-vested restricted stock to non-employee directors at a weighted average grant date fair value of $32.32 per share. These shares vest depending on the participant’s age upon entering the plan and years of service as a director. The plan’s trustee acquires the shares for the awards in the open market and holds the shares as trustee for the benefit of the non-employee directors until the restrictions expire. In the interim, the participants receive full dividends and voting rights.

Time-vested restricted stock and time-vested restricted stock unit activity for six months ended March 31, 2010 is presented below:

			Weighted
			Average
	Shares/		Grant Date
	Units		Fair Value

Nonvested at September 30, 2009	90,150			$	39.08

Granted	40,800			$	31.00
Vested	(7,000	)		$	34.18
Forfeited	(900	)		$	38.49

Nonvested at March 31, 2010	123,050			$	36.69

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Stock Option Awards

Stock option activity for the six months ended March 31, 2010 is presented below:

					Weighted
					Average
			Weighted		Remaining	Aggregate
			Average		Contractual	Intrinsic
	Stock		Exercise		Term	Value
	Options		Price		(Years)	($000)

Outstanding at September 30, 2009	356,225		$	30.84

Granted	—		$	—
Exercised	(11,000	)	$	30.71
Forfeited	(1,375	)	$	34.95
Expired	(4,125	)	$	34.95

Outstanding at March 31, 2010	339,725		$	30.78	4.8	$	1,093

Fully Vested and Expected to Vest at March 31, 2010	338,045		$	30.76	4.8	$	1,093

Exercisable at March 31, 2010	315,725		$	30.46	4.7	$	1,093

The closing price of the Company’s common stock was $33.72 at March 31, 2010.

Equity Compensation Costs

The amounts of compensation cost recognized for share-based compensation arrangements are presented below:

	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2010			2009			2010			2009

Total equity compensation cost	$	1,041		$	1,257		$	1,909		$	2,099
Compensation cost capitalized		(219	)		(253	)		(357	)		(433	)
Compensation cost recognized in net income		822			1,004			1,552			1,666
Income tax benefit recognized in net income		(316	)		(386	)		(598	)		(642	)
Compensation cost recognized in net income,
net of income tax	$	506		$	618		$	954		$	1,024

As of March 31, 2010, there was $5.8 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of 2.2 years.

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NEW ACCOUNTING STANDARDS – In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements,” as codified in Accounting Standards Codification (ASC) Topic 820, “Fair Value Measurements and Disclosures.” This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The Statement applies to fair value measurements required under other accounting guidance that require or permit fair value measurements. Accordingly, this Statement does not require any new fair value measurements. The guidance in this Statement does not apply to the Company’s stock-based compensation plans accounted for in accordance with ASC Topic 718, “Compensation-Stock Compensation.” The Company partially adopted SFAS No. 157 on October 1, 2008 and elected the one-year deferral allowed by FASB Staff Position (FSP) No. FAS 157-2, which permits delayed application of this Statement for nonfinancial assets and nonfinancial liabilities, except for those recognized or disclosed at fair value on a recurring basis. The partial adoption of this Statement had no impact on the Company’s financial position or results of operations. For disclosures required pursuant to ASC Topic 820, see Note 5, Fair Value Measurements. The Company adopted SFAS No. 157 for certain nonfinancial assets and nonfinancial liabilities as of October 1, 2009. Such adoption had no impact on the Company’s financial position or results of operations.

In June 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities,” as codified is ASC Topic 260, “Earnings per Share.” This FSP addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing EPS under the two-class method described in ASC Topic 260. The guidance in this FSP states that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of EPS pursuant to the two-class method. The FSP requires that the guidance be applied retrospectively to all prior-period EPS data presented. Certain of the Company’s stock-based compensation awards pay nonforfeitable dividends to the participants during the vesting period and, as such, are deemed participating securities under this FSP. The Company adopted this FSP effective October 1, 2009. EPS and diluted shares outstanding amounts for the quarter and six months ended March 31, 2009 have been restated to reflect the retrospective application of the FSP. The effect of adoption reduced basic EPS by $0.02 and $0.03 for quarter and six months ended March 31, 2009, respectively, and reduced diluted EPS by $0.01 and $0.02 for the quarter and six months ended March 31, 2009, respectively, compared to originally reported amounts. On an annual basis, reductions to previously reported EPS will not be more than $0.03 per share. Reported net income and cash flows were not affected by the adoption of the FSP. The Company’s EPS computations are set forth in Note 2, Earnings Per Common Share.

In December 2008, the FASB issued FSP No. FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets,” as codified in ASC Topic 715, “Compensation–Retirement Benefits.” This FSP provides guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The FSP requires disclosure of information regarding investment policies and strategies, the categories of plan assets, fair value measurements of plan assets, and significant concentrations of risk. The Company will be required to provide the additional disclosures with its annual financial statements for fiscal year 2010. The Company is currently evaluating the provisions of this FSP.

In August 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-05, “Measuring Liabilities at Fair Value,” to update ASC Topic 820. The guidance provides clarification on measuring liabilities at fair value when a quoted price in an active market is not available. In such circumstances, the ASU specifies that a valuation technique should be applied that uses either the quote of the identical liability when traded as an asset, the quoted prices for similar liabilities or similar liabilities when traded as assets, or another valuation technique consistent with existing fair value measurement guidance. Laclede Group’s adoption of this ASU in the first quarter of fiscal year 2010 had no impact on the Company’s financial position or results of operations.

In January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements,” which amends ASC Topic 820, “Fair Value Measurements and Disclosures.” The ASU requires separate disclosure of significant transfers in and out of level 1 and level 2 fair value measurements. It also requires disclosure of the policy for when transfers are recognized. Additionally, the ASU clarifies certain areas of the guidance, including the level of disaggregation required in fair value measurement disclosures. While the adoption of these updates during the quarter ended March 31, 2010 had no effect on the consolidated financial statements, the Company modified its disclosures in Note 5, Fair Value Measurements, accordingly. The ASU also requires that certain activity in the level 3 fair value measurements reconciliation be presented on a gross basis (instead of net). This change is effective for the Company’s disclosures in the first quarter of fiscal year 2012.

In February 2010, the FASB issued ASU No. 2010-09, “Amendments to Certain Recognition and Disclosure Requirements.” The ASU amends ASC Topic 855, “Subsequent Events.” Subsequent events or transactions occur after the balance sheet date, but prior to the financial statements being issued, and are required to be assessed by management for possible financial statement recognition and/or disclosure. For entities that are Securities and Exchange Commission (SEC) filers, this ASU removes the requirement to disclose the date through which subsequent events have been evaluated to alleviate potential conflicts with SEC guidance. Laclede Group adopted this ASU during the quarter ended March 31, 2010. While the adoption of the ASU did not impact the consolidated financial statements or management’s process for assessing subsequent events, the Company did modify its disclosures accordingly.

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2.	EARNINGS PER COMMON SHARE

As mentioned in the New Accounting Pronouncements section of Note 1, the Company adopted the provisions of FSP No. EITF 03-6-1 effective October 1, 2009. EPS and diluted shares outstanding amounts for the quarter and six months ended March 31, 2009 have been restated to reflect the retrospective application of the FSP. The effect of adoption reduced basic EPS by $0.02 and $0.03 for quarter and six months ended March 31, 2009, respectively, and reduced diluted EPS by $0.01 and $0.02 for the quarter and six months ended March 31, 2009, respectively, compared to originally reported amounts. Reported net income and cash flows were not affected by the adoption of the FSP. For details on the methodology used to compute EPS, see the Earnings Per Common Share section of Note 1.

	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands, Except Per Share Amounts)		2010		2009		2010		2009

Basic EPS:
Net Income	$	28,020	$	30,811	$	50,906	$	62,117
Less: Income allocated to participating securities		280		340		508		660
Net Income Available to Common Shareholders	$	27,740	$	30,471	$	50,398	$	61,457

Weighted Average Shares Outstanding		21,980		21,891		21,968		21,874
Earnings Per Share of Common Stock	$	1.26	$	1.39	$	2.29	$	2.81

Diluted EPS:
Net Income	$	28,020	$	30,811	$	50,906	$	62,117
Less: Income allocated to participating securities		279		339		508		658
Net Income Available to Common Shareholders	$	27,741	$	30,472	$	50,398	$	61,459

Weighted Average Shares Outstanding		21,980		21,891		21,968		21,874
Dilutive Effect of Stock Options
and Restricted Stock		47		78		46		89
Weighted Average Diluted Shares		22,027		21,969		22,014		21,963

Earnings Per Share of Common Stock	$	1.26	$	1.39	$	2.29	$	2.80

Outstanding Shares Excluded from the
Calculation of Diluted EPS Attributable to:
Antidilutive stock options		77		—		77		—
Performance-contingent restricted stock		145		60		145		60
Total		222		60		222		60

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3.	PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

Pension Plans

Laclede Gas has non-contributory, defined benefit, trusteed forms of pension plans covering substantially all employees. Effective January 1, 2009, the Utility modified the calculation of future benefits under Laclede Gas’ primary plan from a years of service and final average compensation formula to a cash balance formula, which accrues benefits based on a percentage of compensation. Benefits attributable to plan participation prior to January 1, 2009 will be based on final average compensation at the date of termination of employment and years of service earned at January 1, 2009. Effective January 1, 2010, the Utility modified the calculation of future benefits under its Missouri Natural Gas division plan from a career average formula to a cash balance formula, which accrues benefits based on a percentage of compensation and provides interest credits on the balance. Benefits attributable to plan participation prior to January 1, 2010 will be based on career average compensation earned as a participant prior to January 1, 2010. Plan assets consist primarily of corporate and U.S. government obligations and equity investments.

Pension costs for the quarters ending March 31, 2010 and 2009 were $1.6 million and $1.5 million, respectively, including amounts charged to construction. Pension costs for the six months ended March 31, 2010 and 2009 were $3.2 million and $3.1 million, respectively, including amounts charged to construction.

The net periodic pension costs include the following components:

	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2010			2009			2010			2009

Service cost – benefits earned
during the period	$	2,189		$	1,817		$	4,463		$	5,302
Interest cost on projected
benefit obligation		4,924			5,229			9,881			10,497
Expected return on plan assets		(5,075	)		(5,234	)		(10,107	)		(10,469	)
Amortization of prior service cost		172			259			411			518
Amortization of actuarial loss		2,025			774			4,059			1,548
Sub-total		4,235			2,845			8,707			7,396
Regulatory adjustment		(2,657	)		(1,296	)		(5,550	)		(4,298	)
Net pension cost	$	1,578		$	1,549		$	3,157		$	3,098

Pursuant to the provisions of the Laclede Gas pension plans, pension obligations may be satisfied by lump-sum cash payments. Pursuant to a Missouri Public Service Commission (MoPSC or Commission) Order, lump-sum payments are recognized as settlements (which can result in gains or losses) only if the total of such payments exceeds 100% of the sum of service and interest costs. No lump-sum payments were recognized as settlements during the six months ended March 31, 2010 and March 31, 2009.

Pursuant to a MoPSC Order, the return on plan assets is based on the market-related value of plan assets implemented prospectively over a four-year period. Gains or losses not yet includible in pension cost are amortized only to the extent that such gain or loss exceeds 10% of the greater of the projected benefit obligation or the market-related value of plan assets. Such excess is amortized over the average remaining service life of active participants. The recovery in rates for the Utility’s qualified pension plans is based on an allowance of $4.8 million annually. The difference between this amount and pension expense as calculated pursuant to the above and that otherwise would be included in the Statements of Consolidated Income and Statements of Consolidated Comprehensive Income is deferred as a regulatory asset or regulatory liability.

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Postretirement Benefits

Laclede Gas provides certain life insurance benefits at retirement. Medical insurance is available after early retirement until age 65. The transition obligation not yet includible in postretirement benefit cost is being amortized over 20 years. Postretirement benefit costs for both the quarters ended March 31, 2010 and 2009 were $1.9 million, including amounts charged to construction. Postretirement benefit costs for both the six months ended March 31, 2010 and 2009 were $3.8 million, including amounts charged to construction.

Net periodic postretirement benefit costs consisted of the following components:

	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2010			2009			2010			2009

Service cost – benefits earned
during the period	$	1,611		$	1,283		$	3,221		$	2,566
Interest cost on accumulated
postretirement benefit obligation		1,129			1,170			2,258			2,340
Expected return on plan assets		(758	)		(594	)		(1,516	)		(1,188	)
Amortization of transition obligation		34			34			68			68
Amortization of prior service credit		(582	)		(582	)		(1,164	)		(1,164	)
Amortization of actuarial loss		995			877			1,990			1,754
Sub-total		2,429			2,188			4,857			4,376
Regulatory adjustment		(518	)		(277	)		(1,036	)		(555	)
Net postretirement benefit cost	$	1,911		$	1,911		$	3,821		$	3,821

Missouri state law provides for the recovery in rates of costs accrued pursuant to GAAP provided that such costs are funded through an independent, external funding mechanism. Laclede Gas established Voluntary Employees’ Beneficiary Association (VEBA) and Rabbi trusts as its external funding mechanisms. VEBA and Rabbi trusts’ assets consist primarily of money market securities and mutual funds invested in stocks and bonds.

Pursuant to a MoPSC Order, the return on plan assets is based on the market-related value of plan assets implemented prospectively over a four-year period. Gains and losses not yet includible in postretirement benefit cost are amortized only to the extent that such gain or loss exceeds 10% of the greater of the accumulated postretirement benefit obligation or the market-related value of plan assets. Such excess is amortized over the average remaining service life of active participants. The Commission ordered that the recovery in rates be based on an annual allowance of $7.6 million. The difference between this amount and postretirement benefit cost based on the above and that otherwise would be included in the Statements of Consolidated Income and Statements of Consolidated Comprehensive Income is deferred as a regulatory asset or regulatory liability.

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4.	FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values of financial instruments are as follows:

(Thousands)	Carrying Amount		Fair Value
As of March 31, 2010
Cash and cash equivalents	$	83,765	$	83,765
Marketable securities		12,083		12,083
Derivative instrument assets		14,600		14,600
Derivative instrument liabilities		436		436
Short-term debt		114,950		114,950
Long-term debt, including current portion		389,269		408,429

As of September 30, 2009
Cash and cash equivalents	$	74,591	$	74,591
Marketable securities		11,110		11,110
Derivative instrument assets		17,178		17,178
Derivative instrument liabilities		976		976
Short-term debt		129,800		129,800
Long-term debt		389,240		423,375

The carrying amounts for cash and cash equivalents and short-term debt approximate fair value due to the short maturity of these instruments. The fair value of long-term debt is based on market prices for similar issues. The fair values of marketable securities, derivative instrument assets, and derivative instrument liabilities are valued as described in Note 5, Fair Value Measurements.

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5.	FAIR VALUE MEASUREMENTS

The following table categorizes the assets and liabilities in the Consolidated Balance Sheets that are accounted for at fair value on a recurring basis in periods subsequent to initial recognition.

(Thousands)		Quoted Prices in Active Markets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Effects of Netting and Cash Margin Receivables /Payables			Total
As of March 31, 2010
Assets
U. S. Stock/Bond Mutual Funds	$	12,083	$	—	$	—	$	—		$	12,083
NYMEX natural gas contracts		10,953		—		—		3,303			14,256
NYMEX gasoline and heating oil contracts		233		—		—		(6	)		227
Natural gas commodity contracts		—		303		40		(226	)		117
Total	$	23,269	$	303	$	40	$	3,071		$	26,683

Liabilities
NYMEX natural gas contracts	$	79,677	$	—	$	—	$	(79,677	)	$	—
Natural gas commodity contracts		—		607		55		(226	)		436
Total	$	79,677	$	607	$	55	$	(79,903	)	$	436

As of September 30, 2009
Assets
U. S. Stock/Bond Mutual Funds	$	11,110	$	—	$	—	$	—		$	11,110
NYMEX natural gas contracts		10,803		—		—		4,057			14,860
NYMEX gasoline and heating oil contracts		278		—		—		(1	)		277
Natural gas commodity contracts		—		1,688		558		(205	)		2,041
Total	$	22,191	$	1,688	$	558	$	3,851		$	28,288

Liabilities
NYMEX natural gas contracts	$	55,170	$	—	$	—	$	(55,170	)	$	—
Natural gas commodity contracts		—		522		659		(205	)		976
Total	$	55,170	$	522	$	659	$	(55,375	)	$	976

As of March 31, 2009
Assets
U. S. Stock/Bond Mutual Funds	$	8,325	$	—	$	—	$	—		$	8,325
NYMEX natural gas contracts		10,377		—		—		19,812			30,189
NYMEX gasoline and heating oil contracts		144		—		—		163			307
Natural gas commodity contracts		—		156		—		—			156
Total	$	18,846	$	156	$	—	$	19,975		$	38,977

Liabilities
NYMEX natural gas contracts	$	112,929	$	—	$	—	$	(112,929	)	$	—

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The mutual funds included in Level 1 are valued based on quoted market prices of identical securities that are provided by the trustees of these securities. Derivative instruments included in Level 1 are valued using quoted market prices on the New York Mercantile Exchange. Derivative instruments included in Level 2 are valued using broker or dealer quotation services or by using observable market inputs. Derivative instruments included in Level 3 are valued using generally unobservable inputs that are based upon the best information available and reflect management’s assumptions about how market participants would price the asset or liability. During the quarter and six months ended March 31, 2010 and 2009, there were no transfers between the levels of the fair value hierarchy. The Company’s policy is to recognize such transfers, if any, as of the beginning of the interim reporting period in which circumstances change or events occur to cause the transfer. At October 1, 2009, the beginning net balance of derivatives measured using Level 3 inputs was $(101,000). During the six months ended March 31, 2010, the balance increased by $37,000 due to settlements and increased $49,000 due to net gains included in earnings, leaving a net balance of $(15,000) at March 31, 2010.

The mutual funds are included in the Other investments line of the Consolidated Balance Sheets. Liabilities for derivative instruments, if any, are included in the Other line of the Current Liabilities section of the Consolidated Balance Sheets. Derivative assets and liabilities, including receivables and payables associated with cash margin requirements, are presented net in the Consolidated Balance Sheets when a legally enforceable netting agreement exists between the Company and the counterparty to a derivative contract.

6.	DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Laclede Gas has a risk management policy that allows for the purchase of natural gas derivative instruments with the goal of managing price risk associated with purchasing natural gas on behalf of its customers. This policy prohibits speculation and permits the Utility to hedge up to 70% of its normal volumes purchased for up to a 36-month period. Costs and cost reductions, including carrying costs, associated with the Utility’s use of natural gas derivative instruments are allowed to be passed on to the Utility’s customers through the operation of its Purchased Gas Adjustment (PGA) Clause, through which the MoPSC allows the Utility to recover gas supply costs, subject to prudence review. Accordingly, Laclede Gas does not expect any adverse earnings impact as a result of the use of these derivative instruments. The Utility does not designate these instruments as hedging instruments for financial reporting purposes because gains or losses associated with the use of these derivative instruments are deferred and recorded as regulatory assets or regulatory liabilities pursuant to ASC Topic 980, “Regulated Operations,” and, as a result, have no direct impact on the Statements of Consolidated Income. The timing of the operation of the PGA clause may cause interim variations in short-term cash flows because the Utility is subject to cash margin requirements associated with changes in the values of these instruments. Nevertheless, carrying costs associated with such requirements are recovered through the PGA Clause.

From time to time, Laclede Gas purchases NYMEX futures contracts to help stabilize operating costs associated with forecasted purchases of gasoline and diesel fuels used to power vehicles and equipment used in the course of its business. At March 31, 2010, Laclede Gas held 0.4 million gallons of gasoline futures contracts at an average price of $1.71 per gallon and 0.1 million gallons of heating oil futures contracts (to hedge diesel fuel purchases) at an average price of $2.22 per gallon. Most of these futures contracts, the longest of which extends to June 2011, are designated as cash flow hedges of forecasted transactions pursuant to ASC Topic 815, “Derivatives and Hedging.” The gains or losses on these derivative instruments are not subject to the Utility’s PGA Clause.

In the course of its business, Laclede Group’s non-regulated gas marketing affiliate, Laclede Energy Resources, Inc. (LER), enters into commitments associated with the purchase or sale of natural gas. Many of LER’s derivative natural gas contracts are designated as normal purchases or normal sales and, as such, are excluded from the scope of ASC Topic 815 and are accounted for as executory contracts on an accrual basis. Any of LER’s derivative natural gas contracts that are not designated as normal purchases or normal sales are accounted for at fair value. At March 31, 2010, LER had 18.8 million MMBtu of non-exchange traded natural gas commodity contracts for which the normal purchases and normal sales scope exception was not elected. Of these contracts, 17.1 million MMBtu will settle during fiscal year 2010, while the remaining 1.7 million MMBtu will settle during fiscal year 2011. These contracts have not been designated as hedges; therefore, changes in the fair value of these contracts are reported in earnings each period. Furthermore, LER manages the price risk associated with its fixed-priced commitments by either closely matching the offsetting physical purchase or sale of natural gas at fixed prices or through the use of NYMEX futures contracts to lock in margins. At March 31, 2010, LER’s unmatched fixed-price positions were not material to Laclede Group’s financial position or results of operations. LER’s NYMEX natural gas futures contracts used to lock in margins are generally designated as cash flow hedges of forecasted transactions for financial reporting purposes.

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Derivative instruments designated as cash flow hedges of forecasted transactions are recognized on the Consolidated Balance Sheets at fair value and the change in the fair value of the effective portion of these hedge instruments is recorded, net of tax, in other comprehensive income (OCI). Accumulated other comprehensive income (AOCI) is a component of Total Common Stock Equity. Amounts are reclassified from AOCI into earnings when the hedged items affect net income, using the same revenue or expense category that the hedged item impacts. Based on market prices at March 31, 2010, it is expected that approximately $8.6 million of pre-tax unrealized gains will be reclassified into the Statements of Consolidated Income during the next twelve months. The net amount of pre-tax gains recognized in earnings for the ineffective portion of cash flow hedges was $0.9 million and $0.3 million for the quarters ended March 31, 2010 and 2009, respectively. The net amount of pre-tax gains (losses) recognized in earnings for the ineffective portion of cash flow hedges was $(0.9) million and $2.5 million for the six months ended March 31, 2010 and 2009, respectively. Cash flows from hedging transactions are classified in the same category as the cash flows from the items that are being hedged in the Statements of Consolidated Cash Flows.

The Company’s exchange-traded/cleared derivative instruments consist primarily of NYMEX positions. The NYMEX is the primary national commodities exchange on which natural gas derivatives are traded. NYMEX-traded contracts are supported by the financial and credit quality of the clearing members of the NYMEX and have nominal credit risk. Open NYMEX natural gas futures positions at March 31, 2010 were as follows:

	Laclede Gas Company			Laclede Energy Resources, Inc.
	MMBtu (millions)	Avg. Price Per MMBtu		MMBtu (millions)	Avg. Price Per MMBtu
Open short futures positions
Fiscal 2010	—	$	—	4.13	$	5.56
Fiscal 2011	—		—	2.54		5.19

Open long futures positions
Fiscal 2010	7.58	$	8.65	2.58	$	4.76
Fiscal 2011	8.83		7.68	4.14		6.46
Fiscal 2012	0.80		7.55	1.37		7.19

At March 31, 2010, Laclede Gas also had 20.2 million MMBtu of other price mitigation in place through the use of NYMEX natural gas option-based strategies.

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The Effect of Derivative Instruments on the Statements of Consolidated Income and Statements of Consolidated Comprehensive Income

		Three Months Ended						Six Months Ended
	Location of Gain (Loss)	March 31,						March 31,
(Thousands)	Recorded in Income		2010			2009			2010			2009 (a)

Derivatives in ASC Topic 815 Cash Flow Hedging Relationships

Effective portion of gain (loss) recognized in OCI on derivatives:
NYMEX natural gas contracts		$	3,673		$	4,896		$	7,250		$	4,896
NYMEX gasoline and heating oil contracts			60			106			226			106
Total		$	3,733		$	5,002		$	7,476		$	5,002

Effective portion of gain (loss) reclassified from accumulated OCI to income:
NYMEX natural gas contracts	Non-Regulated Gas Marketing Operating Revenues	$	1,726		$	4,410		$	6,251		$	4,410
	Non-Regulated Gas Marketing Operating Expenses		(235	)		(2,115	)		(771	)		(2,115	)
Sub-total			1,491			2,295			5,480			2,295

NYMEX gasoline and heating oil contracts	Other Regulated Gas Distribution Operating Expenses		74			—			136			—
Total		$	1,565		$	2,295		$	5,616		$	2,295

Ineffective portion of gain (loss) on derivatives recognized in income
NYMEX natural gas contracts	Non-Regulated Gas Marketing Operating Revenues	$	864		$	182		$	1,389		$	182
	Non-Regulated Gas Marketing Operating Expenses		105			67			(2,244	)		67
Sub-total			969			249			(855	)		249

NYMEX gasoline and heating oil contracts	Other Regulated Gas Distribution Operating Expenses		(23	)		31			(79	)		31
Total		$	946		$	280		$	(934	)	$	280

Derivatives Not Designated as Hedging Instruments Under ASC Topic 815 (b)

Gain (loss) recognized in income on derivatives:

Natural gas commodity contracts	Non-Regulated Gas Marketing Operating Revenues	$	121		$	164		$	4,115		$	164
	Non-Regulated Gas Marketing Operating Expenses		(194	)		—			(3,708	)		—
NYMEX natural gas contracts	Non-Regulated Gas Marketing Operating Revenues		42			—			42			—
	Non-Regulated Gas Marketing Operating Expenses		2			—			(552	)		—
NYMEX gasoline and heating oil contracts	Other Income and (Income Deductions) - Net		2			7			2			7
Total		$	(27	)	$	171		$	(101	)	$	171

(a)

The Company prospectively adopted SFAS No. 161, as codified in ASC Topic 815, in the second quarter of fiscal year 2009. Accordingly, amounts disclosed in this column exclude activity prior to January 1, 2009.

(b)

Gains and losses on Laclede Gas’ NYMEX natural gas derivative instruments, which are not designated as hedging instruments for financial reporting purposes, are deferred pursuant to the Utility’s PGA Clause and recorded as regulatory assets or regulatory liabilities. These gains and losses are excluded from the table above because they have no direct impact on the Statements of Consolidated Income.

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Fair Value of Derivative Instruments in the Consolidated Balance Sheet at March 31, 2010

	Asset Derivatives				Liability Derivatives
(Thousands)	Balance Sheet Location		Fair Value	*	Balance Sheet Location		Fair Value	*
Derivatives designated as hedging instruments under ASC Topic 815

NYMEX natural gas contracts	Derivative Instrument Assets	$	8,068		Derivative Instrument Assets	$	9,508
NYMEX gasoline and heating oil contracts	Derivative Instrument Assets		231		Derivative Instrument Assets		—
Sub-total			8,299				9,508

Derivatives not designated as hedging instruments under ASC Topic 815

NYMEX natural gas contracts	Derivative Instrument Assets		2,885		Derivative Instrument Assets		70,170
Natural gas commodity contracts	Derivative Instrument Assets		268		Other Current Liabilities		511
	Other Current Liabilities		75		Derivative Instrument Assets		151
NYMEX gasoline and heating oil contracts	Derivative Instrument Assets		2		Derivative Instrument Assets		—
Sub-total			3,230				70,832
Total derivatives		$	11,529			$	80,340

Fair Value of Derivative Instruments in the Consolidated Balance Sheet at September 30, 2009

	Asset Derivatives				Liability Derivatives
(Thousands)	Balance Sheet Location		Fair Value	*	Balance Sheet Location		Fair Value	*
Derivatives designated as hedging instruments under ASC Topic 815

NYMEX natural gas contracts	Derivative Instrument Assets	$	3,001		Derivative Instrument Assets	$	2,019
NYMEX gasoline and heating oil contracts	Derivative Instrument Assets		278		Derivative Instrument Assets		—
Sub-total			3,279				2,019

Derivatives not designated as hedging instruments under ASC Topic 815

NYMEX natural gas contracts	Derivative Instrument Assets		7,802		Derivative Instrument Assets		53,151
Natural gas commodity contracts	Derivative Instrument Assets		2,062		Other Current Liabilities		1,160
	Other Current Liabilities		184		Derivative Instrument Assets		21
Sub-total			10,048				54,332
Total derivatives		$	13,327			$	56,351

Fair Value of Derivative Instruments in the Consolidated Balance Sheet at March 31, 2009

	Asset Derivatives				Liability Derivatives
(Thousands)	Balance Sheet Location		Fair Value	*	Balance Sheet Location		Fair Value	*
Derivatives designated as hedging instruments under ASC Topic 815

NYMEX natural gas contracts	Derivative Instrument Assets	$	5,278		Derivative Instrument Assets	$	714
NYMEX gasoline and heating oil contracts	Derivative Instrument Assets		137		Derivative Instrument Assets		—
Sub-total			5,415				714

Derivatives not designated as hedging instruments under ASC Topic 815

NYMEX natural gas contracts	Derivative Instrument Assets		5,099		Derivative Instrument Assets		112,215
Natural gas commodity contracts	Derivative Instrument Assets		156		Other Current Liabilities		—
NYMEX gasoline and heating oil contracts	Derivative Instrument Assets		7		Derivative Instrument Assets		—
Sub-total			5,262				112,215
Total derivatives		$	10,677			$	112,929

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The fair values of Asset Derivatives and Liability Derivatives exclude the fair value of cash margin receivables or payables with counterparties subject to netting arrangements. The amounts of receivables excluded at March 31, 2010, September 30, 2009, and March 31, 2009 were $83.0 million, $59.2 million, and $135.9 million, respectively, which were associated with NYMEX contracts. At March 31, 2009, the amounts excluded $3.0 million in payables, associated with NYMEX contracts. Fair value amounts of derivative contracts (including the fair value amounts of cash margin receivables and payables) for which there is a legal right to set off are presented net on the Consolidated Balance Sheets. As such, the gross balances presented in the table above are not indicative of the Company’s net economic exposure. Refer to Note 5, Fair Value Measurements, for information on the valuation of derivative instruments.

Following is a reconciliation of the amounts in the tables above to the amounts presented in the Consolidated Balance Sheets:

		March 31,			Sept. 30,			March 31,
	(Thousands)	2010			2009			2009

	Fair value of asset derivatives presented above	$	11,529		$	13,327		$	10,677
	Fair value of cash margin receivables		82,981			59,226			135,874
	Netting of assets and liabilities with the same counterparty		(79,910	)		(55,375	)		(115,899	)
	Derivative instrument assets, per Consolidated Balance Sheet	$	14,600		$	17,178		$	30,652

	Fair value of liability derivatives presented above	$	80,340		$	56,351		$	112,929
	Fair value of cash margin payables		6			—			2,970
	Netting of assets and liabilities with the same counterparty		(79,910	)		(55,375	)		(115,899	)
	Derivative instruments liabilities, per Consolidated Balance Sheet*	$	436		$	976		$	—

*	Included in the Other line of the Current Liabilities section

7.	CONCENTRATIONS OF CREDIT RISK

A significant portion of LER’s transactions are with (or are associated with) energy producers, utility companies, and pipelines. These concentrations of transactions with these counterparties have the potential to affect the Company’s overall exposure to credit risk, either positively or negatively, in that each of these three groups may be affected similarly by changes in economic, industry, or other conditions. To manage this risk, as well as credit risk from large counterparties in other industries, LER has established procedures to determine the creditworthiness of its counterparties. These procedures include obtaining credit ratings and credit reports, analyzing counterparty financial statements to assess financial condition, and considering the industry environment in which the counterparty operates. This information is monitored on an ongoing basis. In some instances, LER may require credit assurances such as prepayments, letters of credit, or parental guarantees. In addition, LER may enter into netting arrangements to mitigate credit risk with counterparties in the energy industry from which LER both sells and purchases natural gas. Sales are typically made on an unsecured credit basis with payment due the month following delivery. Accounts receivable amounts are closely monitored, and provisions for uncollectible amounts are accrued when losses are probable. To date, losses have not been significant. LER records accounts receivable, accounts payable, and prepayments for physical sales and purchases of natural gas on a gross basis. The amount included in accounts receivable attributable to energy producers and their marketing affiliates amounted to $32.5 million, or 41.8% of LER’s total accounts receivable at March 31, 2010. Net receivable amounts from these customers on the same date, reflecting netting arrangements, were $12.2 million. Accounts receivable attributable to utility companies and their marketing affiliates comprised $20.7 million of LER’s total accounts receivable, or 26.6% at March 31, 2010 and net receivable amounts from these customers, reflecting netting arrangements, were $17.6 million. Additionally, LER has concentrations of credit risk with pipeline companies associated with its natural gas receivable amounts.

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8.	OTHER INCOME AND (INCOME DEDUCTIONS) – NET

	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2010			2009			2010		2009

Interest income	$	361		$	663		$	896	$	1,802
Net investment gain (loss)		196			(205	)		670		(1,574	)
Other income		25			28			25		305
Other income deductions		(264	)		(239	)		314		453
Other Income and (Income Deductions) – Net	$	318		$	247		$	1,905	$	986

The increase in Other Income and (Income Deductions) – Net for the six months ended March 31, 2010, compared with the six months ended March 31, 2009, was primarily due to higher net investment gains, partially offset by lower income associated with carrying costs applied to under-recoveries of gas costs and lower interest income. Carrying costs on under-recoveries of gas costs are recovered through the Utility’s PGA Clause.

9.	INFORMATION BY OPERATING SEGMENT

All of Laclede Group’s subsidiaries are wholly owned. The Regulated Gas Distribution segment consists of the regulated operations of Laclede Gas and is the core business segment of Laclede Group. Laclede Gas is a public utility engaged in the retail distribution and sale of natural gas serving an area in eastern Missouri, with a population of approximately 2.1 million, including the City of St. Louis and parts of ten counties in eastern Missouri. The Non-Regulated Gas Marketing segment includes the results of LER, a subsidiary engaged in the non-regulated marketing of natural gas and related activities. Other includes Laclede Pipeline Company’s transportation of liquid propane regulated by the Federal Energy Regulatory Commission (FERC) as well as non-regulated activities, including real estate development, the compression of natural gas, and financial investments in other enterprises. These operations are conducted through five subsidiaries. Other also includes Laclede Gas’ non-regulated merchandise sales business, which was not material, and its non-regulated sale of propane. The merchandise sales business ceased operations on September 30, 2009. Certain intersegment revenues with Laclede Gas are not eliminated in accordance with the provisions of ASC Topic 980. Those types of transactions include sales of natural gas from Laclede Gas to LER, sales of natural gas from LER to Laclede Gas, and transportation services provided by Laclede Pipeline Company to Laclede Gas. These revenues are shown on the Intersegment revenues lines in the table under Regulated Gas Distribution, Non-Regulated Gas Marketing, and Other columns, respectively.

As Laclede Group’s non-regulated subsidiary, LER, continues to expand its business, the number of transactions accounted for through fair value measurements has increased. Beginning this fiscal year, management evaluates the performance of the operating segments based on the computation of net economic earnings. Net economic earnings exclude from reported net income the after-tax impact of net unrealized gains and losses on energy-related derivative contracts. For comparative purposes, the measurement of segment performance has been presented to conform to the current-period presentation.

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			Non-
	Regulated		Regulated
	Gas		Gas
(Thousands)	Distribution		Marketing		Other		Eliminations			Consolidated
Three Months Ended
March 31, 2010
Revenues from external customers	$	373,198	$	252,321	$	73	$	—		$	625,592
Intersegment revenues		322		9,152		259		—			9,733
Total Operating Revenues		373,520		261,473		332		—			635,325
Net Economic Earnings		23,440		3,787		96		—			27,323
Total assets		1,630,495		193,967		117,820		(111,377	)		1,830,905

Six Months Ended
March 31, 2010
Revenues from external customers	$	654,309	$	442,208	$	10,525	$	—		$	1,107,042
Intersegment revenues		2,140		16,790		519		—			19,449
Total Operating Revenues		656,449		458,998		11,044		—			1,126,491
Net Economic Earnings		40,872		8,399		3,849		—			53,120
Total assets		1,630,495		193,967		117,820		(111,377	)		1,830,905

Three Months Ended
March 31, 2009
Revenues from external customers	$	440,173	$	210,069	$	752	$	—		$	650,994
Intersegment revenues		295		7,520		259		—			8,074
Total Operating Revenues		440,468		217,589		1,011		—			659,068
Net Economic Earnings		22,146		8,509		142		—			30,797
Total assets		1,609,714		170,656		131,667		(127,081	)		1,784,956

Six Months Ended
March 31, 2009
Revenues from external customers	$	796,796	$	515,202	$	1,607	$	—		$	1,313,605
Intersegment revenues		1,773		17,427		519		—			19,719
Total Operating Revenues		798,569		532,629		2,126		—			1,333,324
Net Economic Earnings		38,294		21,037		599		—			59,930
Total assets		1,609,714		170,656		131,667		(127,081	)		1,784,956

Reconciliation of Consolidated Net Economic Earnings to Consolidated Net Income

	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2010		2009		2010			2009

Total Net Economic Earnings above	$	27,323	$	30,797	$	53,120		$	59,930
Add: Unrealized gain (loss) on energy-related
derivative contracts, net of tax		697		14		(2,214	)		2,187
Net Income	$	28,020	$	30,811	$	50,906		$	62,117

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10.	COMMITMENTS AND CONTINGENCIES

Commitments

Laclede Gas and LER have entered into various contracts, expiring on dates through 2017, for the storage, transportation, and supply of natural gas. Minimum payments required under the contracts in place at March 31, 2010 are estimated at approximately $1.0 billion. Additional contracts are generally entered into prior to or during the heating season. Laclede Gas recovers its costs from customers in accordance with the PGA Clause.

Leases and Guarantees

Laclede Gas has several operating leases for the rental of vehicles that contain provisions requiring Laclede Gas to guarantee certain amounts related to the residual value of the leased property. These leases have various terms, the longest of which extends into 2015. At March 31, 2010, the maximum guarantees under these leases are $1.5 million. However, the Utility believes it is unlikely that it will be subject to the maximum payment amount because it estimates that the residual value of the leased vehicles will be adequate to satisfy most of the guaranteed amounts. At March 31, 2010, the carrying value of the liability recognized for these guarantees was $0.4 million.

Laclede Group had guarantees totaling $98.3 million for performance and payment of certain wholesale gas supply purchases by LER, as of March 31, 2010. Since that date, guarantees issued by Laclede Group on behalf of LER increased by $4.0 million, bringing the total to $102.3 million in guarantees at April 30, 2010. No amounts have been recorded for these guarantees in the financial statements. As of March 31, 2010, management believes the probability is low that Laclede Group will be required to make payments under these guarantees.

Contingencies and Indemnifications

Laclede Gas owns and operates natural gas distribution, transmission, and storage facilities, the operations of which are subject to various environmental laws, regulations, and interpretations. While environmental issues resulting from such operations arise in the ordinary course of business, such issues have not materially affected the Company’s or Laclede Gas’ financial position and results of operations. As environmental laws, regulations, and their interpretations change, however, Laclede Gas may be required to incur additional costs.

As with other companies, Laclede Gas faces the risk of environmental liabilities. In the natural gas industry, these are typically associated with sites formerly owned or operated by gas distribution companies like Laclede Gas and/or its predecessor companies at which manufactured gas operations took place. At this time, Laclede Gas has identified three former manufactured gas plant (MGP) sites located in Missouri: one in Shrewsbury and two in the City of St. Louis.

To date, amounts required for remediation at these sites have not been material. However, the amount of costs relative to future remedial actions at these and other sites is unknown and may be material. In 2005, the Utility’s outside consultant completed an analysis of the MGP sites to determine cost estimates for a one-time contractual transfer of risk from each of the Utility’s insurers of environmental coverage for the MGP sites. That analysis demonstrated a range of possible future expenditures to investigate, monitor, and remediate these MGP sites from $5.8 million to $36.3 million based upon then currently available facts, technology, and laws and regulations. The actual costs that Laclede Gas may incur could be materially higher or lower depending upon several factors, including whether remedial actions will be required, final selection and regulatory approval of any remedial actions, changing technologies and governmental regulations, the ultimate ability of other potentially responsible parties to pay, and any insurance recoveries. Costs associated with environmental remediation activities are accrued when such costs are probable and reasonably estimable.

Laclede Gas anticipates that any costs it may incur in the future to remediate these sites, less any amounts received as insurance proceeds or as contributions from other potentially responsible parties, would be deferred and recovered in rates through periodic adjustments approved by the MoPSC. Accordingly, potential liabilities associated with remediating these sites are not expected to have a material impact on the future financial position and results of operations of Laclede Gas or the Company.

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On December 28, 2006, the MoPSC Staff proposed a disallowance of $7.2 million related to Laclede Gas’ recovery of its purchased gas costs applicable to fiscal year 2005. On September 14, 2007, the Staff withdrew its pursuit of $5.5 million of the disallowance it had originally proposed. The remaining $1.7 million pertains to Laclede Gas’ purchase of gas from a marketing affiliate, LER. The MoPSC Staff has also proposed disallowances of gas costs relating to Laclede Gas purchases of gas supply from LER for fiscal years 2006 and 2007. On December 31, 2007, the MoPSC Staff proposed a disallowance of $2.8 million applicable to fiscal year 2006, and on December 31, 2008, the MoPSC Staff proposed a disallowance of $1.5 million applicable to fiscal year 2007. On December 31, 2009, the MoPSC Staff proposed a number of non-monetary recommendations only, based on its review of gas costs for fiscal year 2008. Laclede Gas believes that the proposed disallowances lack merit and is vigorously opposing these adjustments in proceedings before the MoPSC. As such, no amount has been recorded in the financial statements for these proposed disallowances.

In the December 31, 2007 filing mentioned above, the MoPSC Staff also raised questions regarding whether certain sales and capacity release transactions subject to the FERC’s oversight were consistent with the FERC’s regulations and policies regarding capacity release. The Company commenced an internal review of the questions raised by the MoPSC Staff and notified the FERC Staff that it took this action. In June 2008, as a result of the internal review, the Company provided the FERC Staff with a self report regarding compliance of sales and capacity release activities with the FERC’s regulations and policies. On February 9, 2010, the FERC Staff informed the Company that it has closed its investigation of the Company’s self report without taking further action.

Laclede Group is involved in other litigation, claims, and investigations arising in the normal course of business. While the results of such litigation cannot be predicted with certainty, management, after discussion with counsel, believes that the final outcome will not have a material adverse effect on the consolidated financial position, results of operations, or cash flows of the Company.

Laclede Gas Company’s Financial Statements and Notes to Financial Statements are included in Exhibit 99.1 to this report.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE LACLEDE GROUP, INC.

This management’s discussion analyzes the financial condition and results of operations of The Laclede Group, Inc. (Laclede Group or the Company) and its subsidiaries. It includes management’s view of factors that affect its business, explanations of past financial results including changes in earnings and costs from the prior year periods, and their effects on overall financial condition and liquidity.

Certain matters discussed in this report, excluding historical information, include forward-looking statements. Certain words, such as “may,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “seek,” and similar words and expressions identify forward-looking statements that involve uncertainties and risks. Future developments may not be in accordance with our expectations or beliefs and the effect of future developments may not be those anticipated. Among the factors that may cause results to differ materially from those contemplated in any forward-looking statement are:

•	weather conditions and catastrophic events, particularly severe weather in the natural gas producing areas of the country;
•	volatility in gas prices, particularly sudden and sustained changes in natural gas prices, including the related impact on margin deposits associated with the use of natural gas derivative instruments;
•	the impact of higher natural gas prices on our competitive position in relation to suppliers of alternative heating sources, such as electricity;
•	changes in gas supply and pipeline availability, particularly those changes that impact supply for and access to our market area;
•	legislative, regulatory and judicial mandates and decisions, some of which may be retroactive, including those affecting
	•	allowed rates of return
	•	incentive regulation
	•	industry structure
	•	purchased gas adjustment provisions
	•	rate design structure and implementation
	•	regulatory assets
	•	franchise renewals
	•	environmental or safety matters
	•	taxes
	•	pension and other postretirement benefit liabilities and funding obligations
	•	accounting standards;
•	the results of litigation;
•	retention of, ability to attract, ability to collect from, and conservation efforts of, customers;
•	capital and energy commodity market conditions, including the ability to obtain funds with reasonable terms for necessary capital expenditures and general operations and the terms and conditions imposed for obtaining sufficient gas supply;
•	discovery of material weakness in internal controls; and
•	employee workforce issues.

Readers are urged to consider the risks, uncertainties, and other factors that could affect our business as described in this report. All forward-looking statements made in this report rely upon the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995. We do not, by including this statement, assume any obligation to review or revise any particular forward-looking statement in light of future events.

The Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company’s Consolidated Financial Statements and the Notes thereto.

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THE LACLEDE GROUP, INC.

RESULTS OF OPERATIONS

Overview

Laclede Group’s earnings are primarily derived from the regulated activities of its largest subsidiary, Laclede Gas Company (Laclede Gas or the Utility), Missouri’s largest natural gas distribution company. Laclede Gas is regulated by the Missouri Public Service Commission (MoPSC or Commission) and serves the City of St. Louis and parts of ten counties in eastern Missouri. Laclede Gas delivers natural gas to retail customers at rates and in accordance with tariffs authorized by the MoPSC. The Utility’s earnings are primarily generated by the sale of heating energy. The Utility’s weather mitigation rate design lessens the impact of weather volatility on Laclede Gas customers during cold winters and stabilizes the Utility’s earnings by recovering fixed costs more evenly during the heating season. Due to the seasonal nature of the business of Laclede Gas, Laclede Group’s earnings are seasonal in nature and are typically concentrated in the November through April period, which generally corresponds with the heating season.

Laclede Energy Resources, Inc. (LER) is engaged in the marketing of natural gas and related activities on a non-regulated basis. LER markets natural gas to both on-system Utility transportation customers and customers outside of Laclede Gas’ traditional service territory, including large retail and wholesale customers. LER’s operations and customer base are more subject to fluctuations in market conditions than the Utility.

Other subsidiaries provide less than 10% of consolidated revenues.

Based on the nature of the business of the Company and its subsidiaries, as well as current economic conditions, management focuses on the following key variables in evaluating the financial condition and results of operations and managing the business:

Regulated Gas Distribution Segment:

•	the Utility’s ability to recover the costs of distribution of natural gas from its customers;
•	the impact of weather and other factors, such as customer conservation, on revenues and expenses;
•	changes in the regulatory environment at the federal, state, and local levels, as well as decisions by regulators, that impact the Utility’s ability to earn its authorized rate of return;
•	the Utility’s ability to access credit markets and maintain working capital sufficient to meet operating requirements; and,
•	the effect of natural gas price volatility on the business.

Non-Regulated Gas Marketing Segment:

•	the risks of competition;
•	regional fluctuations in natural gas prices;
•	new national pipeline infrastructure projects;
•	credit and/or capital market access;
•	counterparty risks; and,
•	the effect of natural gas price volatility on the business.

Further information regarding how management seeks to manage these key variables is discussed below.

Laclede Group’s strategy is to improve the performance of its core Utility, while developing non-regulated businesses and taking a measured approach in the pursuit of additional growth opportunities that complement the Utility business.

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The Utility’s strategy focuses on improving performance and mitigating the impact of weather fluctuations on Laclede Gas’ customers while improving the ability to recover its authorized distribution costs and return. The Utility’s distribution costs are the essential, primarily fixed expenditures it must incur to operate and maintain more than 16,000 miles of mains and services comprising its natural gas distribution system and related storage facilities. The Utility’s distribution costs include wages and employee benefit costs, depreciation and maintenance expenses, and other regulated utility operating expenses, excluding natural and propane gas expense. Distribution costs are considered in the ratemaking process, and recovery of these types of costs is included in revenues generated through the Utility’s tariff rates, as approved by the MoPSC. As previously reported, Laclede Gas had undertaken an evaluation of the Utility’s natural gas storage field, which was developed more than 50 years ago, to assess the field’s current and future capabilities. Based on the initial assessment and management’s expectations regarding the future operation of the storage field, inventory balances included in the Consolidated Balance Sheet at June 30, 2009, were reclassified. The assessment is now complete and information derived should result in improved efficiencies in managing the operation of the field. The completion of the assessment did not result in any further adjustment to the classification of inventory balances. In addition, Laclede Gas is working to improve its ability to provide reliable natural gas service at a reasonable cost, while maintaining and building a secure and dependable infrastructure. The settlement of the Utility’s 2007 rate case resulted in enhancements to the Utility’s weather mitigation rate design that better ensure the recovery of its fixed costs and margins despite variations in sales volumes due to the impacts of weather and other factors that affect customer usage.

The Utility’s income from off-system sales and capacity release remains subject to fluctuations in market conditions. The Utility is allowed to retain 15% to 25% of the first $6 million in annual income earned (depending on the level of income earned) and 30% of income exceeding $6 million annually. Some of the factors impacting the level of off-system sales include the availability and cost of the Utility’s natural gas supply, the weather in its service area, and the weather in other markets. When Laclede Gas’ service area experiences warmer-than-normal weather while other markets experience colder weather or supply constraints, some of the Utility’s natural gas supply is available for off-system sales and there may be a demand for such supply in other markets. See the Regulatory Matters section on page 37 of this report for additional information on regulatory issues relative to the Utility.

Laclede Gas works actively to reduce the impact of wholesale natural gas prices on its costs by strategically structuring its natural gas supply portfolio to increase its gas supply availability and pricing alternatives and through the use of derivative instruments to protect its customers from significant changes in the commodity price of natural gas. Nevertheless, the overall cost of purchased gas remains subject to fluctuations in market conditions. The Utility’s Purchased Gas Adjustment (PGA) Clause allows Laclede Gas to flow through to customers, subject to prudence review, the cost of purchased gas supplies, including costs, cost reductions, and related carrying costs associated with the use of derivative instruments to hedge the purchase price of natural gas, as well as gas inventory carrying costs. The Utility believes it will continue to be able to obtain sufficient gas supply. The price of natural gas supplies and other economic conditions may affect sales volumes, due to the conservation efforts of customers, and cash flows associated with the timing of collection of gas costs and related accounts receivable from customers. Long-term increases in the wholesale cost of natural gas supplies may adversely impact the Utility’s competitive position compared with alternative energy sources.

The Utility relies on both short-term credit and long-term capital markets, as well as cash flows from operations, to satisfy its seasonal cash requirements and fund its cost of capital expenditures. Laclede Gas’ ability to issue commercial paper supported by lines of credit, to issue long-term bonds, or to obtain new lines of credit is dependent on current conditions in the credit and capital markets. Management focuses on maintaining a strong balance sheet and believes it currently has adequate access to credit and capital markets and will have sufficient capital resources to meet its foreseeable obligations. See the Liquidity and Capital Resources section on page 39 for additional information.

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LER focuses on growing its markets on a long-term and sustainable basis by providing both on-system Utility transportation customers and customers outside of Laclede Gas’ traditional service area with another choice in non-regulated natural gas suppliers. LER is working to assemble the team, technology, and resources necessary to expand its geographic service area and the range of services that it now provides. Nevertheless, income from LER’s operations is more subject to fluctuations in market conditions than the Utility’s operations. LER’s business is directly impacted by the effects of competition in the marketplace and the impact of new pipeline infrastructure on regional commodity prices of natural gas.

In the course of its business, LER enters into commitments associated with the purchase or sale of natural gas. Many of LER’s physical purchase and sale transactions are recognized in earnings when the natural gas is delivered. However, generally accepted accounting principles (GAAP) require that some of LER’s energy-related transactions be accounted for as derivatives, with the changes in their fair value (representing unrealized gains or losses) recorded in earnings in periods prior to physical delivery. Because related transactions of a purchase and sale strategy may be accounted for differently, there may be timing differences in the recognition of earnings under GAAP and economic earnings realized upon settlement.

In addition to its operating cash flows, LER relies on parental guarantees to secure its purchase and sales obligations of natural gas. A large portion of LER’s receivables are from customers in the energy industry. LER also enters into netting arrangements with many of its energy counterparties to reduce overall credit and collateral exposure. Although LER’s uncollectible amounts are closely monitored and have not been significant, increases in uncollectible amounts from customers are possible and could adversely affect LER’s liquidity and results.

LER carefully monitors the creditworthiness of counterparties to its transactions. LER performs in-house credit reviews of potential customers and requires prepayments or letters of credit from non-investment grade customers. Credit limits for customers are established and monitored.

EARNINGS

The Laclede Group reports net income and earnings per share determined in accordance with GAAP. As Laclede Group’s non-regulated subsidiary, LER, continues to expand its business, the number of transactions accounted for through fair value measurements has increased. As a result, management also uses the non-GAAP measures of net economic earnings and net economic earnings per share when internally evaluating results of operations. Net economic earnings exclude from net income the after-tax impacts of net unrealized gains and losses on energy-related derivatives that are required by GAAP fair value accounting. This adjustment eliminates the impact of timing differences related to current changes in the fair value of financial and physical transactions prior to their completion and settlement. Management believes that excluding the earnings volatility caused by recognizing changes in fair value prior to settlement provides a useful representation of the economic impact of only the actual settled transactions and their effects on results of operations. These internal non-GAAP operating metrics should not be considered as an alternative to, or more meaningful than, GAAP measures such as net income. While management uses these non-GAAP measures to evaluate both Laclede Gas and LER, the net effect of unrealized gains and losses on the Utility’s earnings is minimal because gains or losses on its natural gas derivative instruments are deferred pursuant to its PGA Clause, as authorized by the MoPSC. These unrealized gains and losses result primarily from two sources:

1)	Changes in fair values of physical and/or financial derivatives prior to the period of settlement
2)	Ineffective portions of accounting hedges, required to be recorded in earnings prior to settlement, due to differences in commodity price changes between the locations of the forecasted physical purchase or sale transactions and the locations of the underlying hedge instruments

Unrealized gains or losses are recorded in each period until being replaced with the actual gains or losses realized when the associated physical transaction(s) occur.

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Reconciliations of net economic earnings and net economic earnings per share to the Company’s most directly comparable GAAP measures are provided below.

Quarter Ended March 31, 2010

(Millions, except per share amounts)		Net Economic Earnings (Non-GAAP)			Add: Unrealized gain (loss) on energy-related derivative contracts*			Net Income (GAAP)
Quarter Ended March 31, 2010
	Regulated Gas Distribution		$	23.4		$	—		$	23.4
	Non-Regulated Gas Marketing			3.8			0.7			4.5
	Other			0.1			—			0.1
	Total		$	27.3		$	0.7		$	28.0
	Per Share Amounts **		$	1.23		$	0.03		$	1.26

Quarter Ended March 31, 2009
	Regulated Gas Distribution		$	22.2		$	—		$	22.2
	Non-Regulated Gas Marketing			8.5			—			8.5
	Other			0.1			—			0.1
	Total		$	30.8		$	—		$	30.8
	Per Share Amounts **		$	1.39		$	—		$	1.39

*	Amounts presented net of income taxes. Income taxes are calculated by applying federal, state, and local income tax rates applicable to ordinary income to the amounts of unrealized gain (loss) on energy-related derivative contracts. For the quarter ended March 31, 2010 the amount of income tax expense included in the total reconciling item above is $0.4 million.

**	Net economic earnings per share is calculated by replacing consolidated net income with consolidated net economic earnings in the GAAP diluted earnings per share calculation.

Laclede Group’s net income was $28.0 million for the quarter ended March 31, 2010, compared with $30.8 million for the quarter ended March 31, 2009. Basic and diluted earnings per share for the quarter ended March 31, 2010 were $1.26 compared with basic and diluted earnings per share of $1.39 for the quarter ended March 31, 2009. Net economic earnings were $27.3 million for the quarter ended March 31, 2010 compared with $30.8 million for the same quarter last year. Net economic earnings per share were $1.23 for the quarter ended March 31, 2010 compared with $1.39 for the quarter ended March 31, 2009. Earnings decreased compared to last year primarily due to lower income reported by Laclede Group’s Non-Regulated Gas Marketing segment, partially offset by improved results reported by Laclede Group’s Regulated Gas Distribution segment.

Both Regulated Gas Distribution net income and Regulated Gas Distribution net economic earnings increased by $1.2 million for the quarter ended March 31, 2010, compared with the quarter ended March 31, 2009. The increase was primarily due to the following factors, quantified on a pre-tax basis:

•	a lower provision for uncollectible accounts totaling $1.6 million;
•	decreases in operation and maintenance expenses, excluding the provision for uncollectible accounts, totaling $0.9 million; and,
•	higher Infrastructure System Replacement Surcharge (ISRS) revenues totaling $0.9 million.

These factors were partially offset by lower income from off-system sales and capacity release totaling $2.0 million.

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The Non-Regulated Gas Marketing segment reported a decrease in GAAP earnings of $4.0 million compared with the same quarter last year. Net economic earnings for the quarter ended March 31, 2010 decreased $4.7 million from the quarter ended March 31, 2009. These decreases were primarily due to LER’s significantly reduced margins on sales of natural gas, partially offset by the effect of 5.9% higher sales volumes (mainly attributable to new customer growth and higher wholesale sales volumes). The reduced sales margins were driven primarily by narrower regional price differentials that have recently prevailed in the marketplace, as compared to the favorable market conditions that existed a year ago. On a GAAP basis, sales margins this year included the effect of after-tax net unrealized gains from certain of LER’s energy-related derivative contracts, totaling $0.7 million, recognized in earnings during the quarter ended March 31, 2010. There were essentially no net unrealized amounts recognized during the quarter ended March 31, 2009.

Regulated Gas Distribution Operating Revenues

Laclede Gas passes on to Utility customers (subject to prudence review) increases and decreases in the wholesale cost of natural gas in accordance with its PGA Clause. The volatility of the wholesale natural gas market results in fluctuations from period to period in the recorded levels of, among other items, revenues and natural gas cost expense. Nevertheless, increases and decreases in the cost of gas associated with system gas sales volumes have no direct effect on net revenues and net income.

Regulated Gas Distribution Operating Revenues for the quarter ended March 31, 2010 were $373.5 million, or $66.9 million less than the same period last year. Temperatures experienced in the Utility’s service area during the quarter were 12.5% colder than the same quarter last year and 6.9% colder than normal. Total system therms sold and transported were 430.7 million for the quarter ended March 31, 2010 compared with 397.3 million for the same period last year. Total off-system therms sold and transported were 10.7 million for the quarter ended March 31, 2010 compared with 82.9 million for the same period last year. The decrease in Regulated Gas Distribution Operating Revenues was primarily attributable to the following factors:


(Millions)
Lower wholesale gas costs passed on to Utility customers (subject to prudence review by the MoPSC)	$	(67.3	)
Lower off-system sales volumes		(31.0	)
Higher system sales volumes and other variations		29.9
Higher ISRS revenues		0.9
Higher prices charged for off-system sales		0.6
Total Variation	$	(66.9	)

Regulated Gas Distribution Operating Expenses

Regulated Gas Distribution Operating Expenses for the quarter ended March 31, 2010 decreased $67.7 million from the same quarter last year. Natural and propane gas expense decreased $63.3 million, or 20.2%, from last year’s level, primarily attributable to lower rates charged by our suppliers and lower off-system gas expense, partially offset by increased system volumes purchased for sendout. Other operation and maintenance expenses decreased $2.5 million, or 5.3%, primarily due to a lower provision for uncollectible accounts, reduced group insurance charges, and lower distribution expenses. Taxes, other than income taxes, decreased $2.2 million, or 7.7%, primarily due to decreased gross receipts taxes (attributable to the decreased revenues).

Non-Regulated Gas Marketing Operating Revenues and Operating Expenses

Non-Regulated Gas Marketing Operating Revenues increased $43.9 million primarily due to higher per unit gas prices charged by LER and, to a lesser extent, the effect of 5.9% higher sales volumes. The increase in Non-Regulated Gas Marketing Operating Expenses totaling $49.7 million was primarily associated with higher prices charged by suppliers and increased volumes purchased.

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Interest Charges

The $0.6 million decrease in interest charges was primarily due to lower interest on short-term debt. Average short-term interest rates were 0.3% for the quarter ended March 31, 2010 compared with 1.0% for the quarter ended March 31, 2009. Average short-term borrowings were $90.9 million for the quarter ended March 31, 2010 compared with $256.7 million for the quarter ended March 31, 2009.

Income Taxes

The $1.5 million decrease in income taxes was primarily due to lower pre-tax income.

Six Months Ended March 31, 2010

(Millions, except per share amounts)		Net Economic Earnings (Non-GAAP)			Add: Unrealized gain (loss) on energy-related derivative contracts*				Net Income (GAAP)
Six Months Ended March 31, 2010
	Regulated Gas Distribution		$	40.9		$	(0.1	)		$	40.8
	Non-Regulated Gas Marketing			8.4			(2.1	)			6.3
	Other			3.8			—				3.8
	Total		$	53.1		$	(2.2	)		$	50.9
	Per Share Amounts **		$	2.39		$	(0.10	)		$	2.29

Six Months Ended March 31, 2009
	Regulated Gas Distribution		$	38.4		$	—			$	38.4
	Non-Regulated Gas Marketing			21.0			2.2				23.2
	Other			0.5			—				0.5
	Total		$	59.9		$	2.2			$	62.1
	Per Share Amounts **		$	2.70		$	0.10			$	2.80

*	Amounts presented net of income taxes. Income taxes are calculated by applying federal, state, and local income tax rates applicable to ordinary income to the amounts of unrealized gain (loss) on energy-related derivative contracts. For the six months ended March 31, 2010 and 2009, the amount of income tax expense (benefit) included in the total reconciling items above are $(1.4) million and $1.4 million, respectively.

**	Net economic earnings per share is calculated by replacing consolidated net income with consolidated net economic earnings in the GAAP diluted earnings per share calculation.

Laclede Group’s net income was $50.9 million for the six months ended March 31, 2010, compared with $62.1 million for the six months ended March 31, 2009. Basic and diluted earnings per share were $2.29 for the six months ended March 31, 2010, compared with basic and diluted earnings per share of $2.81 and $2.80, respectively for the same period last year. Net economic earnings were $53.1 million for the six months ended March 31, 2010 compared with $59.9 million for the same period last year. Net economic earnings per share were $2.39 for the six months ended March 31, 2010 compared with $2.70 for the six months ended March 31, 2009. Earnings decreased compared to last year primarily due to lower income reported by Laclede Group’s Non-Regulated Gas Marketing segment, partially offset by increased Other income and improved results reported by Laclede Group’s Regulated Gas Distribution segment.

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Regulated Gas Distribution net income and Regulated Gas Distribution net economic earnings increased by $2.4 million and $2.5 million, respectively, for the six months ended March 31, 2010, compared with the six months ended March 31, 2009. The increase was primarily due to the following factors, quantified on a pre-tax basis:

•	increased net investment gains totaling $2.4 million;
•	higher ISRS revenues totaling $2.0 million; and,
•	a lower provision for uncollectible accounts totaling $1.7 million.

These factors were partially offset by lower income from off-system sales and capacity release totaling $2.6 million.

The Non-Regulated Gas Marketing segment reported a decrease in GAAP earnings of $16.9 million compared with the same period last year. Net economic earnings for the six months ended March 31, 2010 decreased $12.6 million from the six months ended March 31, 2009. These decreases were primarily due to LER’s significantly reduced margins on sales of natural gas. The reduced sales margins were driven primarily by narrower regional price differentials that have recently prevailed in the marketplace, as compared to the favorable market conditions that existed during the six months ended March 31, 2009. On a GAAP basis, the reduced sales margins this year also included the effect of after-tax net unrealized losses from certain of LER’s energy-related derivative contracts, totaling $2.1 million, recognized in earnings during the six months ended March 31, 2010, compared with after-tax net unrealized gains, totaling $2.2 million, recognized during the six months ended March 31, 2009.

Both Other net income and Other net economic earnings increased $3.3 million compared with the same period last year primarily due to a sale of propane in the wholesale market by Laclede Gas during the quarter ended December 31, 2009. This non-regulated sale resulted from an inventory exchange that the counterparty settled in cash instead of through a return of inventory, and resulted in income, net of income taxes, totaling $3.7 million, contributing $0.16 to diluted earnings per share.

Regulated Gas Distribution Operating Revenues

Regulated Gas Distribution Operating Revenues for the six months ended March 31, 2010 were $656.4 million, or $142.1 million less than the same period last year. Temperatures experienced in the Utility’s service area during the six months ended March 31, 2010 were 3.8% colder than the same period last year and 2.6% colder than normal. Total system therms sold and transported were 718.7 million for the six months ended March 31, 2010 compared with 706.1 million for the same period last year. Total off-system therms sold and transported were 39.2 million for the six months ended March 31, 2010 compared with 122.3 million for the same period last year. The decrease in Regulated Gas Distribution Operating Revenues was primarily attributable to the following factors:


(Millions)
Lower wholesale gas costs passed on to Utility customers (subject to prudence review by the MoPSC)	$	(119.2	)
Lower off-system sales volumes		(41.3	)
Higher system sales volumes and other variations		17.4
Higher ISRS revenues		2.0
Lower prices charged for off-system sales		(1.0	)
Total Variation	$	(142.1	)

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Regulated Gas Distribution Operating Expenses

Regulated Gas Distribution Operating Expenses for the six months ended March 31, 2010 decreased $141.7 million from the same period last year. Natural and propane gas expense decreased $136.2 million, or 24.0%, from last year’s level, primarily attributable to lower rates charged by our suppliers and lower off-system gas expense, partially offset by increased system volumes purchased for sendout. Other operation and maintenance expenses decreased $1.7 million, or 1.9%, primarily due to a lower provision for uncollectible accounts and decreased maintenance and distribution charges, partially offset by a lower rate of overheads capitalized. Depreciation and amortization expense increased $0.4 million, or 2.5%, primarily due to additional depreciable property. Taxes, other than income taxes, decreased $4.3 million, or 9.2%, primarily due to decreased gross receipts taxes (attributable to the decreased revenues).

Non-Regulated Gas Marketing Operating Revenues and Operating Expenses

Non-Regulated Gas Marketing Operating Revenues decreased $73.6 million primarily due to lower per unit gas prices charged by LER. The decrease in Non-Regulated Gas Marketing Operating Expenses totaling $47.2 million was primarily associated with lower prices charged by suppliers. LER’s sales volumes decreased 1% compared to the same period last year.

Other Operating Revenues and Operating Expenses

Other Operating Revenues increased $8.9 million primarily due to a sale of propane in the wholesale market by Laclede Gas during the quarter ended December 31, 2009. This non-regulated sale resulted from an inventory exchange that the counterparty settled in cash instead of through a return of inventory. The increase in Other Operating Expenses, totaling $3.1 million, was primarily due to expenses associated with this sale of propane.

Other Income and (Income Deductions) - Net

Other Income and (Income Deductions) – Net increased $0.9 million primarily due to higher net investment gains, partially offset by lower income associated with carrying costs applied to under-recoveries of gas costs and lower interest income. Carrying costs on under-recoveries of gas costs are recovered through the Utility’s PGA Clause.

Interest Charges

The $2.7 million decrease in interest charges was primarily due to lower interest on short-term debt. Average short-term interest rates were 0.2% for the six months ended March 31, 2010 compared with 2.1% for the six months ended March 31, 2009. Average short-term borrowings were $118.8 million for the six months ended March 31, 2010 compared with $259.7 million for the six months ended March 31, 2009.

Income Taxes

The $6.1 million decrease in income taxes was primarily due to lower pre-tax income.

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REGULATORY MATTERS

During fiscal year 2006, the MoPSC approved permanent modifications to the Cold Weather Rule affecting the disconnection and reconnection practices of utilities during the winter heating season. Those modifications included provisions to allow the Utility to obtain accounting authorizations and defer for future recovery certain costs incurred with the modifications. During fiscal year 2007, the Utility deferred for future recovery $2.7 million of costs associated with the fiscal year 2007 heating season. On October 31, 2007, the Utility filed for determination and subsequent recovery of the deferred amount. On November 16, 2007, the MoPSC directed the MoPSC Staff and the Missouri Office of Public Counsel (Public Counsel) to submit their positions regarding the Utility’s filing and on February 28, 2008, the Utility and the MoPSC Staff filed a Non-Unanimous Stipulation & Agreement in which these parties agreed to a recovery of $2.5 million of costs. Public Counsel opposed the Non-Unanimous Stipulation & Agreement and a hearing in this matter was held before the Commission. On April 17, 2008, the Commission issued its Report and Order approving the $2.5 million cost recovery recommended by the Utility and the MoPSC Staff. Consistent with the approved amount, the Utility recorded a reduction in its deferral totaling $0.2 million during the quarter ended March 31, 2008. On May 29, 2008, Public Counsel appealed the MoPSC’s Order to the Cole County, Missouri Circuit Court and on January 6, 2009, the Court issued its judgment affirming the Commission’s Order approving the Cold Weather Rule compliance cost amount that the Utility and Staff had recommended over Public Counsel’s objection. On February 9, 2009, Public Counsel appealed the Circuit Court’s affirmation of the MoPSC’s April 17, 2008 Order to the Court of Appeals for the Western District of Missouri. On December 22, 2009, the Court of Appeals also issued a judgment affirming the Commission’s Order. On January 5, 2010, Public Counsel sought rehearing of the decision or transfer to the Missouri Supreme Court. The Court has not yet acted on this request.

In the December 31, 2007 filing mentioned above, the MoPSC Staff also raised questions regarding whether certain sales and capacity release transactions subject to the Federal Energy Regulatory Commission (FERC)’s oversight were consistent with the FERC’s regulations and policies regarding capacity release. The Company commenced an internal review of the questions raised by the MoPSC Staff and notified the FERC Staff that it took this action. In June 2008, as a result of the internal review, the Company provided the FERC Staff with a self report regarding compliance of sales and capacity release activities with the FERC’s regulations and policies. On February 9, 2010, the FERC Staff informed the Company that it has closed its investigation of the Company’s self report without taking further action.

On July 9, 2008, Laclede Gas made a tariff filing with the MoPSC that would make the payment provisions for the restoration of gas service under the Utility’s Cold Weather Rule available to customers in the summer of 2008 and enable the Utility to increase or decrease its PGA rates to correct for any shortfall or surplus created by the difference between the gas cost portion of the Utility’s actual net bad debt write-offs and the amount of such cost that is embedded in its existing rates. As a result of the ensuing procedural schedule, the Cold Weather Rule portion of the filing became moot. On April 15, 2009, the Commission issued its Order rejecting the Utility’s tariffs on the grounds that it did not have the legal authority to approve them. On May 28, 2009, Laclede Gas filed for a petition with the Circuit Court of Cole County seeking judicial review of the Commission’s decision. On January 11, 2010, the Court issued a judgment that the Commission did have the legal authority to approve such tariffs. The Commission has appealed this determination to the Missouri Court of Appeals, Western District.

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On December 4, 2009, Laclede Gas filed tariff sheets in a new general rate case proceeding that are designed to increase revenues by approximately $52.6 million annually, or 6.9%. The Utility also proposed several alternatives to better ensure its recovery of its fixed costs of doing business. On December 10, 2009, the MoPSC suspended implementation of the Utility’s proposed rates and set the case for hearing during the summer of 2010.

On January 15, 2010, the Utility made an ISRS filing with the Commission designed to increase revenues by $3.2 million annually. On March 24, 2010, the MoPSC approved a $2.8 million annual increase that became effective March 31, 2010.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition, results of operations, liquidity, and capital resources is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. Generally accepted accounting principles require that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Our critical accounting policies used in the preparation of our Consolidated Financial Statements are described in Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2009 and include the following:

	•	Allowances for doubtful accounts
	•	Employee benefits and postretirement obligations
	•	Regulated operations

There were no significant changes to these critical accounting policies during the six months ended March 31, 2010. For discussion of other significant accounting policies, see Note 1 of the Notes to Consolidated Financial Statements included in the Company’s Form 10-K for the fiscal year ended September 30, 2009. As Laclede Group’s non-regulated subsidiary, LER, continues to expand its business, the number of transactions accounted for through fair value measurements has increased. Therefore, this fiscal year, the Company has included a critical accounting policy regarding certain energy contracts:

Non-Regulated Gas Marketing Energy Contracts – LER routinely enters into contracts for the physical purchase or sale of natural gas in a future period. To the extent LER’s contracts qualify for the normal purchases or normal sales election under GAAP, they are accounted for in the period the natural gas is delivered. Many of LER’s contracts are accounted for in this manner. However, pursuant to GAAP, certain contracts are required to be accounted for as derivatives with changes in fair value (representing unrealized gains or losses) recognized in earnings in the periods prior to physical delivery. Unrealized gains or losses on these contracts are recognized as either Non-Regulated Gas Marketing operating revenues or Non-Regulated Gas Marketing operating expenses in the Statements of Consolidated Income. In addition to these physical contracts, LER also utilizes exchange-traded/cleared New York Mercantile Exchange (NYMEX) natural gas futures and swap contracts to manage the price risk associated with certain of its fixed-price commitments. These contracts are generally designated for hedge accounting treatment, as discussed in Note 6 of the Notes to Consolidated Financial Statements.

ACCOUNTING PRONOUNCEMENTS

The Company has evaluated or is in the process of evaluating the impact that recently issued accounting standards will have on the Company’s financial position or results of operations upon adoption. For disclosures related to the adoption of new accounting standards, see the New Accounting Standards section of Note 1 of the Notes to Consolidated Financial Statements.

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FINANCIAL CONDITION

CREDIT RATINGS

As of March 31, 2010, credit ratings for outstanding securities for Laclede Group and Laclede Gas issues were as follows:

Type of Facility	S&P	Moody’s	Fitch
Laclede Group Issuer Rating	A		A-
Laclede Gas First Mortgage Bonds	A	A2	A+
Laclede Gas Commercial Paper	A-1	P-2	F1

The Company has investment grade ratings, and believes that it will have adequate access to the financial markets to meet its capital requirements. These ratings remain subject to review and change by the rating agencies.

CASH FLOWS

The Company’s short-term borrowing requirements typically peak during colder months when Laclede Gas borrows money to cover the lag between when it purchases its natural gas and when its customers pay for that gas. Changes in the wholesale cost of natural gas (including cash payments for margin deposits associated with the Utility’s use of natural gas derivative instruments), variations in the timing of collections of gas cost under the Utility’s PGA Clause, and the utilization of storage gas inventories cause short-term cash requirements to vary during the year and from year to year, and can cause significant variations in the Utility’s cash provided by or used in operating activities.

Net cash provided by operating activities for the six months ended March 31, 2010 was $69.8 million, compared with $98.8 million for the same period last year. The variation is primarily attributable to changes in the cost of natural gas storage inventories and a reduction in LER’s operating income. These factors were partially offset by a year-over-year reduction in cash paid for margin deposits associated with the Utility’s use of natural gas derivative instruments and other variations associated with the timing of the collections of gas cost under the Utility’s PGA Clause.

Net cash used in investing activities for the six months ended March 31, 2010 was $28.4 million compared with $28.0 million for the six months ended March 31, 2009. Cash used in investing activities primarily reflected capital expenditures in both periods.

Net cash used in financing activities was $32.3 million for the six months ended March 31, 2010 compared with net cash provided by financing activities of $8.0 million for the six months ended March 31, 2009. The variation primarily reflects the net repayment of short-term debt this year, compared with the net issuance of additional short-term debt last year.

LIQUIDITY AND CAPITAL RESOURCES

Short-term Debt

As indicated above, the Company’s short-term borrowing requirements typically peak during the colder months. These short-term cash requirements can be met through the sale of commercial paper supported by lines of credit with banks or through direct use of the lines of credit. Laclede Gas has a syndicated line of credit in place of $320 million from 10 banks, with the largest portion provided by a single bank being 17.5%. This line expires in December 2011. During the six months ending March 31, 2010, Laclede Gas utilized only commercial paper for external short-term funding. Commercial paper outstanding at March 31, 2010 was $115.0 million. The weighted average interest rate on the short-term borrowings was 0.25% per annum at March 31, 2010. Based on total short-term borrowings at March 31, 2010, an increase in interest rate of 100 basis points would decrease pre-tax earnings and cash flows by approximately $1.1 million on an annual basis. Portions of such increases or decreases may be offset through the application of PGA carrying costs. The Utility had short-term borrowings aggregating to a maximum of $178.0 million at any one time during the six months ended March 31, 2010.

Laclede Gas’ lines of credit include covenants limiting total debt, including short-term debt, to no more than 70% of total capitalization and requiring earnings before interest, taxes, depreciation and amortization (EBITDA) to be at least 2.25 times interest expense. On March 31, 2010, total debt was 54% of total capitalization. For the twelve months ended March 31, 2010, EBITDA was 4.49 times interest expense.

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Short-term cash requirements outside of Laclede Gas have generally been met with internally-generated funds. However, Laclede Group has $50 million in working capital lines of credit which expire in October 2010, to meet short-term liquidity needs of its subsidiaries. These lines of credit have covenants limiting the total debt of the consolidated Laclede Group to no more than 70% of the Company’s total capitalization. This ratio stood at 48% on March 31, 2010. These lines have been used to provide for seasonal funding needs of various subsidiaries from time to time. There were no borrowings under Laclede Group’s lines during the six months ended March 31, 2010.

Long-term Debt and Equity

The Utility had authority from the MoPSC until February 15, 2010 to issue up to $500 million in First Mortgage Bonds, unsecured debt, and equity securities, of which $370.1 million remained available under this authorization at the time it was scheduled to expire. On June 30, 2009, the Utility filed an application with the MoPSC requesting authority to issue debt securities and preferred stock, including on a private placement basis, as well as to issue common stock, receive paid-in capital, and enter into capital lease agreements, all for a total of up to $600 million over the next three years. This application is still under review, but the Commission has extended Laclede’s current authorization to June 30, 2010, subject to a limit of $100 million in new debt issuance during this extension period. The amount, timing, and type of additional financing to be issued will depend on cash requirements and market conditions, as well as future MoPSC authorizations.

At March 31, 2010, Laclede Gas had fixed-rate long-term debt, including current obligations, totaling $390 million. While these long-term debt issues are fixed-rate, they are subject to changes in fair value as market interest rates change. However, increases or decreases in fair value would impact earnings and cash flows only if Laclede Gas were to reacquire any of these issues in the open market prior to maturity.

Guarantees

Laclede Gas has several operating leases for the rental of vehicles that contain provisions requiring Laclede Gas to guarantee certain amounts related to the residual value of the leased property. These leases have various terms, the longest of which extends into 2015. At March 31, 2010, the maximum guarantees under these leases were $1.5 million. However, the Utility believes it is unlikely that it will be subject to the maximum payment amount because it estimates that the residual value of the leased vehicles will be adequate to satisfy most of the guaranteed amounts. At March 31, 2010, the carrying value of the liability recognized for these guarantees was $0.4 million.

Laclede Group had guarantees totaling $98.3 million for performance and payment of certain wholesale gas supply purchases by LER, as of March 31, 2010. Since that date, guarantees issued by Laclede Group on behalf of LER increased by $4.0 million, bringing the total to $102.3 million in guarantees outstanding at April 30, 2010. No amounts have been recorded for these guarantees in the financial statements.

Other

Utility capital expenditures were $24.7 million for the six months ended March 31, 2010, compared with $25.7 million for the same period last year. Non-utility capital expenditures were $0.2 million for the six months ended March 31, 2010, compared with $0.9 million for the six months ended March 31, 2009.

Consolidated capitalization at March 31, 2010 consisted of 60.3% Laclede Group common stock equity and 39.7% Laclede Gas long-term debt.

It is management’s view that the Company has adequate access to capital markets and will have sufficient capital resources, both internal and external, to meet anticipated capital requirements, which primarily include capital expenditures, scheduled maturities of long-term debt, short-term seasonal needs, and dividends.

The seasonal nature of Laclede Gas’ sales affects the comparison of certain balance sheet items at March 31, 2010 and at September 30, 2009, such as Accounts receivable - net, Gas stored underground, Notes payable, Accounts payable, Regulatory assets and Regulatory liabilities, and Advance and Delayed customer billings. The Consolidated Balance Sheet at March 31, 2009 is presented to facilitate comparison of these items with the corresponding interim period of the preceding fiscal year.

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CONTRACTUAL OBLIGATIONS

As of March 31, 2010, Laclede Group had contractual obligations with payments due as summarized below (in millions):

			Payments due by period
			Remaining						Fiscal Years
Contractual Obligations	Total		Fiscal Year 2010		Fiscal Years 2011-2012		Fiscal Years 2013-2014		2015 and thereafter
Principal Payments on Long-Term Debt	$	390.0	$	—	$	25.0	$	25.0	$	340.0
Interest Payments on Long-Term Debt		497.2		12.3		46.7		43.5		394.7
Operating Leases (a)		14.0		2.7		7.3		3.6		0.4
Purchase Obligations – Natural Gas (b)		969.9		284.6		529.1		134.7		21.5
Purchase Obligations – Other (c)		95.2		10.1		22.8		17.2		45.1
Total (d)	$	1,966.3	$	309.7	$	630.9	$	224.0	$	801.7

(a)	Operating lease obligations are primarily for office space, vehicles, and power operated equipment in the Regulated Gas Distribution segment. Additional payments will be incurred if renewal options are exercised under the provisions of certain agreements.
(b)	These purchase obligations represent the minimum payments required under existing natural gas transportation and storage contracts and natural gas supply agreements in the Regulated Gas Distribution and Non-Regulated Gas Marketing segments. These amounts reflect fixed obligations as well as obligations to purchase natural gas at future market prices, calculated using March 31, 2010 forward market prices. Laclede Gas recovers the costs related to its purchases, transportation, and storage of natural gas through the operation of its PGA Clause, subject to prudence review; however, variations in the timing of collections of gas costs from customers affect short-term cash requirements. Additional contractual commitments are generally entered into prior to or during the heating season.
(c)	These purchase obligations reflect miscellaneous agreements for the purchase of materials and the procurement of services necessary for normal operations.
(d)	The categories of Capital Leases and Other Long-Term Liabilities have been excluded from the table above because there are no material amounts of contractual obligations under these categories. Long-term liabilities associated with unrecognized tax benefits, totaling $1.8 million, have been excluded from the table above because the timing of future cash outflows, if any, cannot be reasonably estimated. Also, commitments related to pension and postretirement benefit plans have been excluded from the table above. The Company expects to make contributions to its qualified, trusteed pension plans totaling $0.8 million during the remainder of fiscal year 2010. Laclede Gas anticipates a $0.2 million contribution relative to its non-qualified pension plans during the remainder of fiscal year 2010. With regard to the postretirement benefits, the Company anticipates Laclede Gas will contribute $8.5 million to the qualified trusts and $0.2 million directly to participants from Laclede Gas’ funds during the remainder of fiscal year 2010. For further discussion of the Company’s pension and postretirement benefit plans, refer to Note 3, Pension Plans and Other Postretirement Benefits, of the Notes to Consolidated Financial Statements.

MARKET RISK

Laclede Gas’ commodity price risk, which arises from market fluctuations in the price of natural gas, is primarily managed through the operation of its PGA Clause. The PGA Clause allows Laclede Gas to flow through to customers, subject to prudence review, the cost of purchased gas supplies. The Utility is allowed the flexibility to make up to three discretionary PGA changes during each year, in addition to its mandatory November PGA change, so long as such changes are separated by at least two months. The Utility is able to mitigate, to some extent, changes in commodity prices through the use of physical storage supplies and regional supply diversity. Laclede Gas also has a risk management policy that allows for the purchase of natural gas derivative instruments with the goal of managing its price risk associated with purchasing natural gas on behalf of its customers. This policy prohibits speculation. Costs and cost reductions, including carrying costs, associated with the Utility’s use of natural gas derivative instruments are allowed to be passed on to the Utility’s customers through the operation of its PGA Clause. Accordingly, Laclede Gas does not expect any adverse earnings impact as a result of the use of these derivative instruments. However, the timing of recovery for cash payments related to margin requirements may cause short-term cash requirements to vary. Nevertheless, carrying costs associated with such requirements, as well as other variations in the timing of collections of gas costs, are recovered through the PGA Clause. For more information about the Utility’s natural gas derivative instruments, see Note 6, Derivative Instruments and Hedging Activities, of the Notes to Consolidated Financial Statements.

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In the course of its business, Laclede Group’s non-regulated gas marketing affiliate, LER, enters into fixed-price commitments associated with the purchase or sale of natural gas. As part of its risk management policy, LER manages the price risk associated with these commitments by either closely matching the offsetting physical purchase or sale of natural gas at fixed-prices or through the use of exchange-traded/cleared futures contracts and swap contracts to lock in margins. At March 31, 2010, LER’s unmatched positions were not material to Laclede Group’s financial position or results of operations. For details related to LER’s derivatives and hedging activities, see Note 6, Derivative Instruments and Hedging Activities, of the Notes to Consolidated Financial Statements.

LER has concentrations of counterparty credit risk in that a significant portion of its transactions are with (or are associated with) energy producers, utility companies, and pipelines. These concentrations of counterparties have the potential to affect the Company’s overall exposure to credit risk, either positively or negatively, in that each of these three groups may be affected similarly by changes in economic, industry, or other conditions. LER closely monitors its credit exposure and, although uncollectible amounts have not been significant, increased counterparty defaults are possible and may result in financial losses and/or capital limitations. For more information on these concentrations of credit risk, including how LER manages these risks, see Note 7, Concentrations of Credit Risk, of the Notes to Consolidated Financial Statements.

The Company is also subject to interest rate risk associated with its long-term and short-term debt issuances. Refer to the Liquidity and Capital Resources section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations for information about the effect of changes in interest rates.

ENVIRONMENTAL MATTERS

Laclede Gas owns and operates natural gas distribution, transmission and storage facilities, the operations of which are subject to various environmental laws, regulations, and interpretations. While environmental issues resulting from such operations arise in the ordinary course of business, such issues have not materially affected the Company’s or Laclede Gas’ financial position and results of operations. As environmental laws, regulations, and their interpretations change, however, Laclede Gas may be required to incur additional costs. For information relative to environmental matters, see Note 17, Commitments and Contingencies, of the Notes to Consolidated Financial Statements included in the Company’s Form 10-K for the fiscal year ended September 30, 2009. For changes during the six months ended March 31, 2010, see Note 10, Commitments and Contingencies, of the Notes to Consolidated Financial Statements.

OFF-BALANCE SHEET ARRANGEMENTS

Laclede Group has no off-balance sheet arrangements.

Laclede Gas Company’s Management’s Discussion and Analysis of Financial Condition is included in Exhibit 99.1 of this report.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

For this discussion, see Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market Risk, on page 41 of this report.

Item 4. Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15e and Rule 15d-15e under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.

There have been no changes in our internal control over financial reporting that occurred during our second fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For a description of environmental matters and legal proceedings, see Note 17, Commitments and Contingencies, of the Notes to Consolidated Financial Statements included in the Company’s Form 10-K for the fiscal year ended September 30, 2009. For changes during the six months ended March 31, 2010, see Note 10, Commitments and Contingencies, of the Notes to Financial Statements. For a description of pending regulatory matters of Laclede Gas, see Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Regulatory Matters, on page 37 of this report.

Laclede Group and its subsidiaries are involved in litigation, claims and investigations arising in the normal course of business. While the results of such litigation cannot be predicted with certainty, management, after discussion with counsel, believes that the final outcome will not have a material adverse effect on the consolidated financial position or results of operations of the Company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On February 8, 2010, the Board of Directors of Laclede Gas approved the sale of 10 shares of Laclede Gas common stock to Laclede Group. The proceeds from the sale, totaling $0.4 million were used to reduce short-term borrowings. Exemption from registration was claimed under Section 4(2) of the Securities Act of 1933.

Item 4. Submission of Matters to a Vote of Security Holders

The annual meeting of shareholders of The Laclede Group, Inc. was held on January 28, 2010. Below are the matters voted upon at the meeting.

The following individuals were elected to the Board of Directors of The Laclede Group:

Director	Votes in Favor	Votes Withheld	Broker Non-Votes
B. Newberry	14,691,536	253,798	3,872,826
M. Van Lokeren	14,691,299	254,035	3,872,826
D. Yaeger	14,539,988	405,346	3,872,826

The other matter received the following votes:

Proposal	Votes In Favor	Votes Against		Abstain
Ratification of appointment of Deloitte & Touche LLP as independent registered public accountant for fiscal year 2010	18,493,426	246,535		78,119

Item 6. Exhibits

(a)	See Exhibit Index

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.

		The Laclede Group, Inc.

Dated:	April 30, 2010	By:	/s/ Mark D. Waltermire
			Mark D. Waltermire
			Chief Financial Officer
			(Authorized Signatory and Chief Financial Officer)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.

		Laclede Gas Company

Dated:	April 30, 2010	By:	/s/ Mark D. Waltermire
			Mark D. Waltermire
			Senior Vice President and
			Chief Financial Officer
			(Authorized Signatory and Chief Financial Officer)

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INDEX TO EXHIBITS

Exhibit No.

3.1*	-	Amended Article III-A to Laclede Gas Company Articles of Incorporation, filed as exhibit 3.1 to Form 8-K filed on March 15, 2010.

12	-	Ratio of Earnings to Fixed Charges.

31	-	CEO and CFO Certifications under Exchange Act Rule 13a – 14(a).

32	-	CEO and CFO Section 1350 Certifications.

99.1	-	Laclede Gas Company - Financial Statements, Notes to Financial Statements, and Management’s Discussion and Analysis of Financial Condition and Results of Operations.


*	Incorporated by reference; Laclede File No. 1-1822.

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