DTE Energy Q2 2022 Earnings Results & Report

DTE Energy EPS Results

• Actual EPS: $0.88
• Consensus EPS: $1.02
• Beat/Miss: Missed by -$0.14
• One Year Ago EPS: $1.70
• EPS Beat Rate: 5 of last 8 quarters

DTE Energy Revenue Results

• Actual Revenue: $4.92 billion
• Expected Revenue: $3.07 billion
• Beat/Miss: Beat by +$1.85 billion
• YoY Revenue Growth: N/A

DTE Energy (NYSE:DTE) Co. is a Detroit-based energy holding company that operates through regulated utility businesses and other energy-related activities. Its principal subsidiaries are DTE Electric and DTE Gas, which provide electricity and natural gas to residential, commercial and industrial customers across southeastern Michigan.

DTE Electric generates, transmits and distributes electricity, while DTE Gas transports and distributes natural gas through an extensive pipeline network. The company is also involved in renewable energy, energy services, natural gas storage and pipeline operations, and other nonutility activities designed to support the broader energy system.

DTE Energy traces its roots to the Detroit Edison Company, which was established in 1903 to serve the Detroit area. Today, the company focuses primarily on communities throughout Michigan and has pursued investments in grid modernization, renewable generation, cleaner energy resources and improvements to the reliability and resilience of its infrastructure. Jerry Norcia has served as the company’s president and chief executive officer.

DTE Energy Q2 2022 Earnings Call Transcript

Key Takeaways

• Raised 2022 operating EPS guidance midpoint from $5.90 to $6.00 per share, marking the second boost this year and implying over 8% growth versus 2021 original guidance.
• Bluewater Energy Center, an 1,100 MW natural gas plant, was placed in service on time and on budget, replacing coal-fired capacity and advancing the clean energy transition.
• The My Green Power voluntary renewables program doubled its customer count for the third consecutive year, now serving over 60,000 residential and nearly 1,100 MW of large business subscriptions.
• DTE plans to invest more than $40 billion across its utilities over the next decade—over $35 billion for electric grid modernization and renewables and the balance for gas infrastructure upgrades.
• DTE Vantage reported a $6 million year-over-year drop in Q2 operating earnings, reflecting the sunset of the REF business at the end of 2021.

Presentation

[Operator]

Good morning. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to DTE Energy's Q2 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. Barbara Tuckfield, Director of Investor Relations, you may begin your conference.

[Barbara Tuckfield, Director of Investor Relations at DTE Energy]

Thank you, and good morning, everyone. Before we get started, I would like to remind you to read the safe harbor statement on page 2 of the presentation, including the reference to forward-looking statements. Our presentation also includes references to operating earnings, which is a non-GAAP financial measure. Please refer to the reconciliation of GAAP earnings to operating earnings provided in the appendix. With us this morning are Jerry Norcia, Chairman, President, and CEO, and Dave Ruud, Senior Vice President and CFO. Now I'll turn it over to Jerry to start the call this morning.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Thanks, Barb, and good morning, everyone, and thanks for joining us. Let me start by saying that halfway through 2022, we are on track for another very successful year, and we continue to be well-positioned for the future. This morning, I will highlight some of the successes we have accomplished this year, and Dave will provide a financial update and wrap things up before we take your questions. Slide 4 lays out the topics I will talk about this morning, and all are very positive. As I said, we are on track for another successful year at DTE. It always starts with our commitment to deliver for our team, customers, communities, and investors. We continue our journey of transitioning to a clean energy future, highlighted by putting our new natural gas plant in service on time and on budget.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

We have made great strides on strengthening our grid, in particular to prepare for potential severe weather. On a financial front, we are delivering another strong year for investors. On our first quarter call, we told you we were ahead of plan, and we continued tracking that way through the second quarter. We are confident that we will achieve our financial goals for the remainder of the year. In fact, we are raising our 2022 operating EPS guidance midpoint from $5.90 per share to $6. This is the second guidance increase for 2022 and provides over 8% growth from our 2021 original guidance midpoint. We are excited about delivering another successful year in 2022. Let's move to slide 5 to discuss how we are delivering for all of our stakeholders. You're probably very familiar with this slide by now.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

This highlights the focus on our four key stakeholders. We know that with our engaged and talented team, we will continue to deliver for our customers, communities, and investors. We are working hard on all of these fronts, and I am pleased to highlight some of the recognition we have received. We continue to focus on improving the health and well-being of our team. I'm proud to say we were recently recognized for our efforts in this area by receiving the Best Employers Award from the Business Group on Health for excellence in health and well-being with an additional notice for excellence in mental health. The award was given to companies that focus on health, equity, and the employee experience and demonstrate the principles of diversity, equity, and inclusion.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

DTE is one of only two utilities to receive this award, which shows our commitment to improve the lives of our team and their families. On a customer front, we received the ENERGY STAR Excellence in Energy Efficiency Award from the EPA and the Department of Energy, recognizing energy programs that demonstrate organization-wide energy savings and best practices. We also continue our efforts to support our communities. DTE was recognized by Points of Light for the fifth consecutive year as one of the Civic 50. This award highlights DTE as one of the top 50 community-minded companies nationwide in corporate citizenship. We will continue our efforts in helping to build stronger communities with the many programs we have in place. I'm glad our team gets acknowledged for the great work they are doing.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Equally as important is that DTE continues its journey to deliver for our customers and to be a force for good in our communities. What does that all mean? Well, I've always said that having highly engaged employees, customers who are satisfied with their service, and communities that are resilient and thriving enables us to deliver distinctive value for our investors. As I mentioned, we are raising the midpoint of our 2022 operating EPS guidance given the strength we have seen in the first half of the year and the opportunities we have in the second half. Dave will provide the details on the guidance in a few minutes. Let's turn to slide 6. Some of you have recently heard me say that right now is one of the most exciting times in our industry.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

I recently told a group of new employees that they are joining our company and industry at one of the most interesting times in our history. There is so much opportunity in front of us in transforming the way we produce power, shifting generation from coal to gas and renewables, in modernizing our grid to prepare for worsening weather patterns, and preparing for increased demand from emerging technologies like vehicle electrification. The level of investment in our company and our industry over the next five and 10 years will rival the original build-outs of power generation and the electric grid. We have made great strides in preparing for these opportunities in a number of key areas. The Blue Water Energy Center, our new natural gas plant, went into service in June. This state-of-the-art facility has a 1,100 MW capacity and was constructed on time and on budget.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

The in-service of this plant was timed with the retirement of our St. Clair and Trenton power plants. Today, less than 40% of DTE's generation mix is attributable to coal. By 2028, after we cease coal use at our 1,000 MW Belle River power plant, coal will represent less than 30% of our generation mix. We are ahead of our previous plan and well on a path toward our net zero emissions goal. Our voluntary renewables program, MIGreenPower, continues to show substantial growth. In fact, we have doubled the number of customers enrolled in the program for the third year in a row. Recently, new contracts with the Ann Arbor school system and Comcast were added to the program. We have nearly 1,100 MW subscribed with large business customers and over 60,000 residential customers.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

We are also finalizing agreements for over $1 billion of new MIGreenPower investments with additional large customers. We also continue our important main renewal work with the target of completing another 200 mi in 2022, ensuring we can continue providing safe and reliable service to our customers. At DTE Vantage, we have multiple on-site energy projects and dairy RNG projects coming online in the second half of the year. Additionally, we have a strong pipeline of projects that support growth in this business, including potential additional landfill to RNG conversions. DTE Electric's rate case proceedings are going well, and we are on track to file our integrated resource plan in October of this year. We continue to evaluate the opportunity to exit coal use at the Monroe Power Plant earlier than 2040, and this filing will begin to address our opportunities on that front.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

As I mentioned on our first quarter call, we have been extremely focused on further hardening our grid. As you know, we experienced extreme weather last year, and we have an aging system. We need to replace and upgrade poles, insulators, and transformers. As a team, we are committed to building a flawless grid for our customers, and we need to invest to move towards that aspiration. With a level of investment and energy inside DTE, we will get there. We continue to make progress on further improving the reliability of our system with significant investments in Tree Trimming. Around 70% of our outages are the result of trees, and we have a very aggressive tree trimming program. We have gone from investing $60 million in 2013 to well over $200 million this year to push trees away from our wires.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

As we do this successfully and continue to replace and rebuild our challenged circuits, our customers are experiencing the reliability that they expect. We are definitely making great progress across all of our businesses in 2022 and continue to be ahead of plan. As I mentioned, we are increasing our 2022 operating EPS guidance midpoint to $6 per share, providing over 8% growth from the original guidance. Let's move to slide 7. We are planning to invest over $40 billion in our utilities over the next 10 years. At DTE Electric, we are investing over $35 billion over this time period to support reliability by building the grid of the future while adding renewable resources.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

As we plan for a cessation of coal use, we will need to invest in renewable resources, short and long duration storage, demand response, and other dispatchable carbon-free resources. We also see the increased pace of EV adoption that is driving grid investments to support increased sales and a need for additional reliable generation. At DTE Gas, we are deploying significant capital over the next 10 years to upgrade and replace our aging infrastructure and to further reduce greenhouse gas emissions. This large inventory of utility investment provides the opportunity to pull capital forward into future five-year plans and positions us for sustainable long-term growth. We continue to evaluate our long-term EPS growth target as we update our five-year plan and work through various milestones in our electric rate case while actively engaging stakeholders as it relates to our integrated resource plan filing.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Our total return, which continues to outpace the industry, is supported by a dividend that is growing in line with our operating EPS growth. With that, I will turn it over to Dave to provide a financial update. Dave, over to you.

[Dave Ruud, SVP and CFO at DTE Energy]

Thanks, Jerry, and good morning, everyone. Let me start on slide 8 to review our second quarter financial results. Operating earnings for the quarter were $171 million. This translates into $0.88 per share. You can find a detailed breakdown of EPS by segment, including a reconciliation to GAAP reported earnings in the appendix. I'll start the review at the top of the page with our utilities. DTE Electric earnings were $186 million for the quarter. The primary drivers of the variance versus second quarter last year were higher rate base costs, cooler weather, O&M expense timing, and the expected movement toward pre-COVID residential sales levels.

[Dave Ruud, SVP and CFO at DTE Energy]

This was partially offset by the acceleration of the deferred tax amortization in 2022 that was implemented to delay the filing of our rate case and keep base rates flat during the pandemic. The sales level change was consistent with our forecast and included in our full-year guidance. The higher O&M was driven in part by additional investment in the acceleration of our tree trim program, and some of the O&M was also driven by planned investment to ensure we continue to be well positioned for future years. The O&M timing variance will reverse in the second half of the year. I'd also like to remind you that in Q4 of 2021, we voluntarily implemented a one-time margin deferral of $90 million to be applied to the acceleration of tree trim expenses over the next few years to further our reliability improvements.

[Dave Ruud, SVP and CFO at DTE Energy]

This is an expense that is non-recurring for the second half of 2022. With favorable weather and strong first half performance, DTE Electric is in a solid position to increase guidance for the full year. Moving on to DTE Gas. Operating earnings were $6 million, $1 million lower than the second quarter of 2021. The earnings variance was due to higher rate base and O&M costs, partially offset by the implementation of base rates. Given the solid position year to date at the gas company, we'll be raising the full year guidance for this business. Let's move to DTE Vantage on the third row. Operating earnings were $28 million in the second quarter of 2022.

[Dave Ruud, SVP and CFO at DTE Energy]

This is a $6 million decrease from the second quarter last year due to the sunset of the REF business at the end of 2021, partially offset by higher earnings from the remainder of the portfolio. On the next row, you can see Energy Trading earnings are $7 million for the quarter. This is a decrease of $14 million from the second quarter of 2021, mainly due to the strong performance in the power portfolio that we had in 2021, offset by favorable performance and timing in our physical gas portfolio this year. Year to date, Energy Trading is at $52 million of operating earnings, which is favorable to our full year guidance.

[Dave Ruud, SVP and CFO at DTE Energy]

As I mentioned on our first quarter call, some of this favorability is driven by strong performance, and some is timing related due to strategic long positions that support physical positions that will occur in future months. While we do expect a reversal of the timing portion of this favorability as we deliver on these positions, we are confident in increasing our guidance in Energy Trading to reflect the strong performance in the first half of the year. Finally, Corporate and Other was favorable $9 million quarter-over-quarter, which is primarily due to expenses we incurred in 2021 to opportunistically retire higher-priced debt at the holding company. In the second quarter, we also saw the reversal of the favorable tax timing from the first quarter. Overall, DTE earned $0.88 per share in the second quarter. Let's turn to slide 9.

[Dave Ruud, SVP and CFO at DTE Energy]

As Jerry mentioned, we are ahead of plan year-to-date, and we are increasing our 2022 operating EPS guidance at both DTE Electric and DTE Gas, primarily due to favorable weather. We are increasing guidance at Energy Trading due to the strong performance through the first half of the year. Overall, we are increasing 2022 operating EPS guidance from a midpoint of $5.90 per share to $6 per share. We feel we are in great position to achieve this, as well as continue to invest in our system to support performance in future years. Let me wrap up on slide 10, and then we'll take your questions. In summary, we feel great about our year-to-date financial results.

[Dave Ruud, SVP and CFO at DTE Energy]

We're having a strong operational and financial start to 2022 and are increasing our operating EPS guidance midpoint to $6 per share, which provides over 8% growth from our 2021 original guidance midpoint. A robust capital plan supports our strong long-term operating EPS growth while providing cleaner generation and increased reliability with a focus on customer affordability. DTE continues to be well-positioned to deliver the premium total shareholder returns that our investors have come to expect, with strong operating EPS growth of 5%-7% and a dividend growing in line with operating EPS. With that, I thank you for joining us today, and we can open the line for questions.

[Operator]

As a reminder, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Our first question will come from Shar Pourreza from Guggenheim Partners. Please go ahead. Your line is open.

[Shar Pourreza, Senior Managing Director - Energy/Power/Utilities at Guggenheim Partners]

Hey, good morning, guys.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Morning, Shar.

[Dave Ruud, SVP and CFO at DTE Energy]

Hey, Shar.

[Shar Pourreza, Senior Managing Director - Energy/Power/Utilities at Guggenheim Partners]

How you doing? Jerry, let me just, if it's okay, start with the IRP as we're kind of getting closer to the date. Do you have any sort of incremental thoughts on the overall approach beyond just the acceleration of coal and renewable investments? I mean, do you see opportunities for some immediate step-ups, like a purchase of an existing asset or more gradual capital over time, and any changes in financing in either scenario?

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Well, we see you know early in our plan is certainly incremental investments in renewables as well as batteries and also potential conversion of Belle River Power Plant to natural gas use. We see those types of investments, Shar, coming into the plan and into view in the first five years of the plan. Those are the major areas of opportunity that we see. Of course longer term, we see significant investment in baseload generation, potentially incremental renewables as well. We're getting pretty excited about how this plan is shaping up, and we're starting to get feedback from our stakeholders that is of course somewhat supportive. Some stakeholders want us to go faster, some of them want us to go slower.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

We're feeling pretty good about how the plan is shaping up in order for it to be what I would say a resilient, reliable plan for our customers, as well as affordable, and also valuable to our investors.

[Shar Pourreza, Senior Managing Director - Energy/Power/Utilities at Guggenheim Partners]

Just to follow up on the slowing down, I mean, I know, you know, I really wanna just maybe focus on the coal assets, right? Because there seems to be a push in a few states to kinda maintain their viability longer, for reliability purposes, et cetera. Any sense if your thoughts have changed in how to think about plants like Monroe? We're still looking to accelerate those retirements, just given what we've seen in several states.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

I'd say, Shar, our thinking has not changed. If you looked at how we've handled this thus far, you know, we've retired a significant amount of coal already. You know, we retired St. Clair, River Rouge, Trenton, and we basically replaced those base load generation assets one for one with natural gas assets that we purchased, as well as the new power plant, gas plant that we just built. We feel real good about our position in terms of having reliable and dispatchable generation. I think you'll see that pattern continue where not only will we build out renewable resources into our plan, but we'll also have battery systems, and we'll have base load generation in our future that'll help you know, achieve our resilience and reliability as we look to retire Monroe sooner than what we had expected.

[Shar Pourreza, Senior Managing Director - Energy/Power/Utilities at Guggenheim Partners]

Got it.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Forecasted, I should say. Yep.

[Shar Pourreza, Senior Managing Director - Energy/Power/Utilities at Guggenheim Partners]

Got it. Just last one for me, just around the visibility of the Vantage growth and any kind of strategic updates. I mean, obviously, there's been some turbulence in RNG, which is one of the major drivers for that business. At the same time, competitors are starting to emerge more prominently focused on RNG. I guess, do you see that kinda complicating the development process? More importantly, as we're thinking about strategically, does this kinda present even a better opportunity for you to recycle some or all of those assets?

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

You know, Shar, I'll start by saying that we're always looking for opportunities to maximize investor value. In that business today, we have a strong line of sight to growth, especially in the landfill to RNG conversions. Got a good inventory of those projects, and those are still giving us mid-teens type of unlevered IRRs. Yeah, so we feel really good about the growth. A constant evaluation as to what's the best path forward for our investors.

[Shar Pourreza, Senior Managing Director - Energy/Power/Utilities at Guggenheim Partners]

Terrific. Thanks, guys. Congrats on the results.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Thank you, Shar.

[Operator]

Our next question comes from Jeremy Tonet from J.P. Morgan. Please go ahead, your line is open.

[Jeremy Tonet, Research Analyst and Managing Director at J.P. Morgan]

Hi, good morning.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Good morning, Jeremy.

[Dave Ruud, SVP and CFO at DTE Energy]

Hi, Jeremy.

[Jeremy Tonet, Research Analyst and Managing Director at J.P. Morgan]

Just want to dive into load growth a little bit more. If you could share any more thoughts on your expectations for residential going forward here at this point and kind of the drivers. Just thinking about how, you know, in a post-COVID world, if we are things are kind of evolving at this point relative to prior expectations.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Dave, you wanna take that?

[Dave Ruud, SVP and CFO at DTE Energy]

Sure. Hi, Jeremy. Yeah. I'd say things are going as we had planned or as we had thought it would. If you remember, our residential sales were up about 7%-8% over pre-COVID levels, kinda at the height of everybody working at home. We're seeing that trend down. We saw that a little bit in this quarter with about a 2% lower residential sales this quarter. We think that's gonna continue to trend down a little more as people come back to work. That's what we've contemplated in our rate case and just assuming we get closer to those pre-COVID levels. We have seen commercial and industrial come back, and so we're flat overall.

[Dave Ruud, SVP and CFO at DTE Energy]

We're seeing as people tend to go back to work, we're seeing some of that expected reduction in our residential sales. Still higher than pre-COVID right now, though.

[Jeremy Tonet, Research Analyst and Managing Director at J.P. Morgan]

Got it. That's very helpful. Hot off the press and maybe too fresh, but just wondering this recent report surrounding MANCHIN supporting, you know, certain legislation out there on a climate package. Just wondering if you had any preliminary thoughts there or how this might or might not impact your upcoming IRP?

[Dave Ruud, SVP and CFO at DTE Energy]

Well, you're right. It's hot off the press. It's interesting, and it was a good surprise last night. You know, we're not counting on any of this right now in our plan, but we think that there's some good benefits and some good impacts to clean energy going forward. We see the PTCs for Solar, actually PTCs for Nuclear and the increased value for carbon capture all being positive to help with this transition and really help with some of the things that we'd wanna do in the IRP. We're going through and reviewing this. We had gone through it, you know, a year ago or whenever it first came out and kinda going back through and seeing what the impacts could be to our plan.

[Dave Ruud, SVP and CFO at DTE Energy]

You know, as of right now, our plan didn't contemplate any of this, but this could all be good positive stuff for us.

[Jeremy Tonet, Research Analyst and Managing Director at J.P. Morgan]

Got it. That's helpful. I'll leave it there. Thanks.

[Dave Ruud, SVP and CFO at DTE Energy]

Yeah.

[Operator]

Our next question comes from Insoo Kim from Goldman Sachs. Please go ahead, your line is open.

[Insoo Kim, Equity Research Analyst at Goldman Sachs]

Hey, thank you. First question, going back to the upcoming IRP a little bit. Given, you know, the recent experience by CMS or Consumers Energy in getting their IRP approved, and the different items, including, you know, still getting the recovery and return of the value of their coal plants that they're retiring early. Just, you know, I know we'll just have to wait for the filing and all, but how has that decision and the components of it impacted, I guess, your planning a little bit as you think about your fleet?

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Well, first of all, I'll say that the results in the CMS case were instructive and very positive and supportive of the plan that we're looking to file. I will also say that in terms of assets, we're looking in the first five years for a conversion of an asset. We'll not retire any coal facilities at this point in time, likely in the first three to four years, but it'll start to fall into you know, likely the tail end of our five-year plan and beyond, where we'll pull forward the future retirements where we have to address undepreciated amounts through either conversion to a different beneficial use or perhaps accelerated depreciation or take the option that CMS took.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Lots of options available to us that we need to finalize as we look to pull forward retirements, especially the Monroe retirements, which there's four units there, and we'll do that likely in a staggered way.

[Insoo Kim, Equity Research Analyst at Goldman Sachs]

Okay.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Hopefully that answers your question. Yeah.

[Insoo Kim, Equity Research Analyst at Goldman Sachs]

No, that's good additional color. Okay. Then secondly, you know, impressive, you know, guidance raise, and that's almost a 9% EPS growth year-over-year off of the original. As we just think about, you know, the cost inflationary environment right now, and, you know, I think you're doing your part every year to manage O&M or pull forward any extra levers you have to get ready for the following year. How are you set up, I guess, for 2023? You know, just given, I think this environment's a little bit more challenging than the normal years that you've been experiencing.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

I'll start, and then I'll turn it over to Dave. I would say we're really well-positioned for 2023. I would say that, you know, our 2022 raised guidance still has what I would call very adequate contingency in the plan to address the balance of the summer and the fall. We're also looking at opportunities to pull forward maintenance expenses that help build contingency into 2023. Lots of work in that regard. In terms of the inflationary pressures, I'll ask Dave to comment on those and how we're handling those in the 2023 planning and beyond.

[Dave Ruud, SVP and CFO at DTE Energy]

Yeah, we continue to see the impacts of inflation, but we continue to really work it hard to manage it to make sure it doesn't impact our plan going forward. You know, we've had a really good success in the past of lowering our costs or keeping our costs down compared to our peers. One of the things that we see is, you know, 85% of our spend is services, and we haven't seen as much inflation there. We're trying to manage that. What we're doing really is looking at all of our long-term contracts, you know, watching the market closely, extending some of those contracts, doing some bundling and some other bidding to help mitigate any of the impacts we see there.

[Dave Ruud, SVP and CFO at DTE Energy]

You know, we know we see the inflation, we feel it in with the wages, but within our planning process, we don't see it impacting our capital plans or our O&M going forward as we continue to find offsets for it.

[Insoo Kim, Equity Research Analyst at Goldman Sachs]

Got it. That's a good color. Thanks, Jerry. Thanks, Dave.

[Operator]

Our next question comes from Nicholas Campanella from Credit Suisse. Please go ahead. Your line is open.

[Nicholas Campanella, VP at Credit Suisse]

Hey, good morning, team. Thanks for taking the question.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Good morning.

[Nicholas Campanella, VP at Credit Suisse]

I wanted to ask. Good morning. I wanted to ask about the new federal clean energy package. Just, you know, I imagine there's a lot of stuff in here that's similar to the prior and, you know, on the point of just nuclear tax credits, you know, you do have the exposure at Fermi and, you know, what type of headroom does a PTC kinda create for customers there? You know, do you have capital opportunities that could backfill that bill headroom if needed? Any color there would be great.

[Dave Ruud, SVP and CFO at DTE Energy]

You're asking how the Nuclear PTC can play in for us, Nick?

[Nicholas Campanella, VP at Credit Suisse]

Yeah, exactly. Exactly.

[Dave Ruud, SVP and CFO at DTE Energy]

Yeah, we're still looking through that. We looked at it in the last plan too and thought that it could be an advantage for even our plants in a regulated environment because of how it is still selling into the MISO market. We're looking at that. It does have a phase-out when the market price is high, but we think that it can be a nice backstop and really help with our customer affordability in as that comes in.

[Nicholas Campanella, VP at Credit Suisse]

Got it. All right. I guess just on the electric rate case, you know, you do have a history of constructive outcomes there, but just, you know, how you feel about ultimately being able to settle this case at this point?

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Nicholas, we're very interested in settling, and we're having those conversations now. I would say that whether we settle or it goes to a final order without settlement, we're feeling good about a constructive outcome. You know, this rate case is primarily about capital investment, and that capital investment is very well understood. It's not about increasing operating expenses, it's really about deploying capital that we feel the commission, the staff, as well as the administration is very supportive of this infrastructure build-out as it relates to renewables and base load generation, as well as significant investment in our electric grid. I believe that capital investment is very well understood and valued by the interested stakeholders.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

We expect a good constructive outcome, but would love to settle this certainly.

[Nicholas Campanella, VP at Credit Suisse]

Got it. Thanks a lot.

[Operator]

Our next question comes from David Arcaro from Morgan Stanley. Please go ahead, your line is open.

[David Arcaro, Executive Director of Equity Research at Morgan Stanley]

Oh, hey, good morning. Thanks so much for taking my question.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Hey, Dave. Morning.

[David Arcaro, Executive Director of Equity Research at Morgan Stanley]

I was wondering just on the O&M pull forward side of things, I was just wondering, is there a certain level of O&M that you've been able to pull forward so far into 2022 from 2023, just given the strength that you've had thus far in the first half?

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Dave?

[Dave Ruud, SVP and CFO at DTE Energy]

Yeah, we have been able to do some of that. Some of it was natural pull forward. We accelerated some of our tree trim expense, and we were able to do that because we frankly had less storms. We were able to work through some of our tree trim that we've been able to pull forward. Some of our outages are planned outages, we were able to do a little bit earlier as well. There is some of that, and that's what we're seeing play through in the second quarter.

[David Arcaro, Executive Director of Equity Research at Morgan Stanley]

Yeah. Okay. Got it. Thanks.

[Dave Ruud, SVP and CFO at DTE Energy]

We do feel like it's putting us in a nice position for 2023, the more of that we can do as well. We try to manage a few years at a time here.

[David Arcaro, Executive Director of Equity Research at Morgan Stanley]

Understood. Thinking around the rate case, do you have any line of sight as to how long you might be able to stay out from rate cases again after the conclusion of this one? Would strategically your preference be to have it be several years between rate cases going forward?

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

You know, that's something we'll have to assess once we get the final results. Obviously, our desire is always to stay out as long as possible. Once we finalize, we'll have a better view on that. We are looking at, in future rate cases, potential mechanisms, for example, trackers on, you know, capital that I would say is very transparent and very well understood. That there seems to be renewed interest in that thought. That's something that we may pursue in our next rate case.

[David Arcaro, Executive Director of Equity Research at Morgan Stanley]

Gotcha. Thanks. Last quick one, I was just wondering, is there any commentary you'd provide on how the trading environment is looking thus far in 3Q, just in terms of the market volatility? Are there prospects for continued strength in that business?

[Dave Ruud, SVP and CFO at DTE Energy]

Well, I'd say, yeah, you've seen there still is a lot of volatility in that area. You know, we continue to manage things really tightly and have, you know, strict controls in there. But we're generally long in our physical position. We've had, you know, frankly, a really good year there. As we mentioned, you know, we're at $52 million year to date in the business. Some of that is timing that we know will play out over the second half. You know, even with the volatility, there should be some additional opportunity there as well.

[David Arcaro, Executive Director of Equity Research at Morgan Stanley]

Great. That makes sense. Thanks so much.

[Operator]

Our next question comes from Andrew Weisel from Scotiabank. Please go ahead. Your line is open.

[Andrew Weisel, Director at Scotiabank]

Hey, good morning, everyone.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Good morning.

[Andrew Weisel, Director at Scotiabank]

Just, a lot of my questions have been asked and answered. I just wanted to ask two on the Gas side. Can you give us any update on the CleanVision Natural Gas Program, the Voluntary Clean Gas Program? Where does that stand?

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Andrew, that we're getting subscriptions weekly. I would say that we're roughly around 5,000-6,000 customers that have signed up. It's following a similar track as when we offered the MIGreenPower program on the electric side. Good interest. We're evolving the product, if you will, to try and attract commercial customers and industrial customers to the program. That'll be the next evolution of that program. When we do that, we expect larger volumes. Right now, we're getting small volumes from residential customers, and it's primarily a residential program, which is the way we started MIGreenPower. We're gonna continue to evolve that product as we've seen interest from some of our institutional customers and corporate customers that would like to enroll.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

More to come on that.

[Andrew Weisel, Director at Scotiabank]

Do you think that business could be as big as the electric one, you know, relative to the, proportionally?

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Too early to tell, Andrew, but we're certainly seeing an interest in the product. You know, if you recall, the product is really biosequestration products, which are forestry products that we use as carbon offsets, as well as a small component of RNG. We'll have to look to you know be acquiring more assets to support what I would say larger volumes. Right at this point in time, we've acquired assets in Michigan through third parties that are in the forestry business that offer us those carbon offsets. We're well supplied, and we're looking to see what the opportunities are for larger institutional corporate clients that would like to have this product. More to come.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

It's hard to say if it'll be as big as the electric business, but it took us three to four years to get that voluntary program on the electric side to really start humming and get significant interest and commitment.

[Andrew Weisel, Director at Scotiabank]

Okay. That's helpful. The other one is just on the gas rate case. Any sense of when the next filing might come?

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

We're looking at either fourth quarter or first quarter. Fourth quarter of this year or first quarter of next year.

[Andrew Weisel, Director at Scotiabank]

Okay. That would have rates in place for not this upcoming heating season, but the following one, right?

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

That's correct.

[Andrew Weisel, Director at Scotiabank]

Okay. Thank you very much.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Thank you, Andrew.

[Operator]

Our next question comes from Ryan Levine from Citi. Please go ahead. Your line is open.

[Ryan Levine, Equity Analyst at Citi]

Good morning.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Good morning, Ryan.

[Ryan Levine, Equity Analyst at Citi]

Good morning. Looks like about 40% of the EPS increase guidance was from energy trading. Would you be able to talk about how much of the year-to-date performance is expected to be reversed? And then given the volatility of the last few weeks, does this guidance seem conservative from your perspective when you look for the remaining portion of the year?

[Dave Ruud, SVP and CFO at DTE Energy]

Ryan, that's a good question. You know, you're right. We had another good quarter in trading and had a really good start to the year. Like I mentioned, you know, we're at $52 million year to date in that business. And that's why we're confident raising the guidance from, like you said, $15-$25 million up to $20-$35 million. The timing impact is probably about half of that, and the performance is another half.

[Dave Ruud, SVP and CFO at DTE Energy]

We're seeing, you know, half of it that's really come out in performance. The timing, you know, could play out in two ways, either with, you know, if we see prices come back or if some of it just plays out as we deliver on the physical position. If pricing doesn't come down as much, then there could be some favorability in that timing piece for the second half of the year too. We're

[Ryan Levine, Equity Analyst at Citi]

Maybe another-

[Dave Ruud, SVP and CFO at DTE Energy]

You know, we're confident in the guidance right now.

[Ryan Levine, Equity Analyst at Citi]

How is that guidance set then, given the comment you just made? What are the bookends of the range that was provided?

[Dave Ruud, SVP and CFO at DTE Energy]

The bookends are, you know, Well, we set it based on, you know, what we know we can achieve and what we think we can achieve. We see the performance part is, you know, right within the middle of that guidance. If some of the timing, or the pricing doesn't play out in the, you know, kind of in the downward way, then we can reach the high end of that guidance.

[Ryan Levine, Equity Analyst at Citi]

Okay. As in the release, looks like you reaffirmed your longer term EPS growth guidance. Should we view that to be off of a rebased 2022 number that reflects the higher 2022 guidance?

[Dave Ruud, SVP and CFO at DTE Energy]

That's off the original 2022 guidance is where we go from.

[Ryan Levine, Equity Analyst at Citi]

Off the original.

[Dave Ruud, SVP and CFO at DTE Energy]

Yeah.

[Ryan Levine, Equity Analyst at Citi]

Okay, appreciate that. Thank you.

[Operator]

Our next question comes from Steve Fleishman from Wolfe Research. Please go ahead, your line is open.

[Steve Fleishman, Managing Director and Senior Analyst at Wolfe Research]

Hi, good morning.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Good morning, Steve.

[Steve Fleishman, Managing Director and Senior Analyst at Wolfe Research]

Hey, Jerry. I'm just curious, going back to a question before on the RNG business. There was this recent transaction for Vanguard Renewables, and I'd be curious just any thought on kind of the pricing valuation of that and how it impacts how you're thinking about the value advantage.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Yeah, we saw that as well, Steve. You know, they're a different business than us in that they don't have as many operating projects. It did look like a really good opportunity and shows great interest still and great confidence in the RNG market going forward and the opportunity for additional development of projects. It's hard to do a direct comparison of pricing, but was viewed as a positive in the market that there was still a lot of strong interest in RNG.

[Steve Fleishman, Managing Director and Senior Analyst at Wolfe Research]

Okay. Then I apologize, this is also, you know, kind of breaking news questions. But just in the past when, you know, I think late last year when BBB was first likely, you talked about interest, and you've talked about interest in carbon capture and storage and opportunities there long-term. Could you maybe just talk a little bit about how you're thinking about that business opportunity?

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Sure. Steve, we certainly were encouraged by you know the tax benefits that the current plan could offer. You know, we need to understand it more clearly, but we've got a handful of projects that we're looking at early feasibility stage and in our service territory as well as outside our service territory. These could be quite interesting with enhanced tax credits, especially the 45Q that we believe is being proposed to change in that. More to come on that, but could be quite interesting in terms of evolving potential investment opportunity.

[Steve Fleishman, Managing Director and Senior Analyst at Wolfe Research]

Okay, my last unfair question is just I guess to Dave. Just in terms of thinking about this 15% minimum tax, could you just give a sense of whether that would be an issue for you at all?

[Dave Ruud, SVP and CFO at DTE Energy]

Yeah, Steve. We looked at this before and we got to revisit it again just to go through how it could all work. You know, when we spent time with it a year ago, we understood that we think it could work on an earnings basis, and we can find ways to offset the earnings. It may have a little bit of a cash hit, but it wasn't that strong. We also want to look at how that plays into some of the renewable development projects and, you know, the accelerated depreciation there is the other piece of that. We were able to, as we were doing some of our analysis, mitigate most of the impacts of what that seems like it could do.

[Steve Fleishman, Managing Director and Senior Analyst at Wolfe Research]

Okay, great. Thank you. Appreciate it.

[Dave Ruud, SVP and CFO at DTE Energy]

Thank you, Steve.

[Operator]

Our last question will come from Anthony Crowdell from Mizuho. Please go ahead, your line is open.

[Anthony Crowdell, Managing Director at Mizuho]

Good morning, Jerry. Good morning, Dave.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Morning, Anthony.

[Dave Ruud, SVP and CFO at DTE Energy]

Hey, Anthony.

[Anthony Crowdell, Managing Director at Mizuho]

Hopefully just two quick ones just related to just looking at slide 16 on the convertible equity units. When I think of the dilution you get hit with, I think it's November or fourth quarter of this year, the tailwinds that you guys have going into 2023 to kind of offset this, I'm thinking of the electric rate case and maybe more earnings from Vantage. Are there any other tailwinds that maybe could potentially offset the dilution?

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

I would say, Anthony, the entire capital plan at both utilities is a fundamental tailwind that will move us through 2023. We're pretty confident we're gonna achieve our growth targets in 2023 because it'll be primarily driven by the capital plan at the two utilities. I think you'll see that our growth at both utilities is very healthy in 2023, and that's what will move us through. Also Vantage, of course, will make its contribution in its growth. You know, we're adding $15 million a year there. All three entities are really gonna drive us through 2023 and that dilution that you're talking about.

[Anthony Crowdell, Managing Director at Mizuho]

I actually don't think you're gonna answer this, but would the company be willing to give its guidance on net income? Like right now we have, I think, 5%-7% EPS growth. I mean, I'm thinking for net income from 2022 to 2023 or base year, it's more, you know, much higher above the 5%-7%. Is that something the company would provide?

[Dave Ruud, SVP and CFO at DTE Energy]

Well, that's something we can look to provide, Anthony. Show the growth that our underlying utilities something we've shown in the past. That's something we can look at also.

[Anthony Crowdell, Managing Director at Mizuho]

Great. Thanks so much for taking my questions.

[Dave Ruud, SVP and CFO at DTE Energy]

Yeah. Thanks, Anthony.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Thank you, Anthony.

[Operator]

We have no further questions. I'd like to turn the call back over to Jerry Norcia for any closing remarks.

[Jerry Norcia, Chairman, President, and CEO at DTE Energy]

Well, thank you everyone for joining us today. I'll just close by saying that DTE had a very successful second quarter, and we're feeling great about the remainder of 2022 and also our long-term plan. I hope everyone has a great morning and stays healthy and safe. Thank you.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Participants

Executives

• Barbara Tuckfield, Director of Investor Relations
• Dave Ruud, SVP and CFO
• Jerry Norcia, Chairman, President, and CEO

Analysts

• Andrew Weisel, Director at Scotiabank
• Anthony Crowdell, Managing Director at Mizuho
• David Arcaro, Executive Director of Equity Research at Morgan Stanley
• Insoo Kim, Equity Research Analyst at Goldman Sachs
• Jeremy Tonet, Research Analyst and Managing Director at J.P. Morgan
• Nicholas Campanella, VP at Credit Suisse
• Ryan Levine, Equity Analyst at Citi
• Shar Pourreza, Senior Managing Director - Energy/Power/Utilities at Guggenheim Partners
• Steve Fleishman, Managing Director and Senior Analyst at Wolfe Research