DTE Energy Q4 2021 Earnings Call Transcript

Quartr
Provided by Quartr
February 10, 2022

There are 16 speakers on the call.

Operator

Thank you for holding and welcome to the DTE 4th Quarter 2021 Earnings Conference Call. All lines have been placed on mute Thank you. I'd now like to turn the call over to Barbara Tuckfield, Director of Investor Relations. Ms. Tuckfield, please go ahead.

Speaker 1

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, President and CEO and Dave Rude, Senior Vice President and CFO.

Speaker 1

And now I'll turn it over to Jerry to start the call this morning.

Speaker 2

Well, thanks Barb, and good morning everyone and thanks for joining us. I hope everyone is having a healthy and safe year so far. This morning, I'll start by giving you a recap of our 2021 business performance, provide highlights on how we are well positioned for 2022 and give an overview on the robust opportunities in our long term plan. Dave Rood will close by providing a financial update and wrap things up before we take your questions. I'll begin on Slide 4.

Speaker 2

2021 was another great year for operational and financial results, continuing our incredible track record of creating shareholder value. We did all of this with a keen focus on our employees, customers and communities, continue to drive an organization To improve the health and well-being of our team, cultivating deeper employee engagement, which results in service excellence. I always say that employee engagement is the secret sauce that drives our success. And for the 16th consecutive year, DTE was named one of the best and brightest companies to work for in Metropolitan Detroit. Now I'll switch over and discuss our customer focus.

Speaker 2

As you know, heavy storms impacted our service territory in 2021. To further harden our system in preparation for similar weather events in the future. We are investing an additional $90,000,000 in our tree trimming program through 2023 and these investments will not impact our customer bills. Additionally, we have been making significant investments to further improve our reliability to ensure we are delivering for our customers now and into the future. Our strong focus on service excellence Positioned us to achieve high customer satisfaction rankings.

Speaker 2

Our gas company is ranked number 1 by J. D. Power for both residential and business customer satisfaction. Moving on to our communities. We are continuing our commitment to provide cleaner, more reliable energy through our decarbonization and voluntary renewable programs, which I'll discuss in more detail in a few minutes.

Speaker 2

Additionally, we were recognized as the 2021 Corporation of the Year by the National Minority Supplier Development Council. We also had tremendous success on the economic development front. We were actively involved in General Motors' decision to invest over $4,000,000,000 in EV technology in our service territory. On the investor front, we finished 2021 strong and are well positioned to deliver future growth. I am also very proud of how the team successfully completed the spin of DTM.

Speaker 2

This separation positioned DTE as a predominantly pure play utility and unlocks significant value for our investors. In addition, 2021 was the 13th consecutive year we exceeded our operating EPS original guidance midpoint. Now let's turn to Slide 5. Our 2021 operating EPS of $5.99 per share provides 17% growth from our original 2020 guidance. We are narrowing our 2022 operating EPS guidance range.

Speaker 2

Our increased midpoint of $5.90 per share provides 7% growth over the 2021 original guidance midpoint. We are reaffirming our 5% to 7% long term operating EPS growth rate through 2026 from 2022 original guidance. We also increased our dividend by 7%, which is in line with the top end of our operating EPS growth target. With the highly successful spin of DTM, Over 90% of our growth will come from our utility businesses. At DTE Electric, we are investing heavily And the modernization of the grid and cleaner generation.

Speaker 2

At DTE Gas, we continue our main renewal work as well as and the balance of our portfolio about 10% is made up mainly earnings from our DTE Vantage business. Earnings from this segment are primarily from cleaner energy focused projects. So on to Slide 6. At DTE Electric, we announced our plan to accelerate decarbonization by ceasing coal use at the Bell River Power Plant by 2028, 2 years earlier than previously planned. Our Bluewater Energy Center is in the late stages of completion.

Speaker 2

We introduced test gas at the facility last year and 2 turbines have been synchronized to the grid. This state of the art natural gas plant Is 96% complete and is on track to be in service this summer. These steps move us closer to our goal of net 0 Carbon emissions. In 2021, we continue to see great success with our voluntary renewables program. We reached over 1,000 megawatts of commitments from large business customers and over 48,000 residential customers.

Speaker 2

We have an additional 1300 Megawatts in advanced stages of discussion with future customers. As we highlighted last year, we are filing our integrated resource plan in October of this year. We continue to evaluate the opportunity to exit coal use at the Maro plant earlier than 2,040. We started hosting meetings in January for the public to participate in shaping our clean energy plan. Getting our stakeholders input early in the process Ensures that what matters most to them is taken into consideration as we work to achieve the right balance of energy sources that will provide cleaner, affordable and reliable power for decades to come.

Speaker 2

We announced during our Q3 call that we increased our 5 year capital program by $1,000,000,000 This increase in our electric 5 year plan is driven by distribution infrastructure investments, preparing our grid for electrification and hardening initiatives and we increased our investment in clean energy. Overall, this 5 year 15 Supports our plan to improve reliability and strengthen our system, while focusing on customer affordability. DT Electric filed a general rate case last month, which was the first filing in almost 3 years. I'm proud of the work that we have done with the commission to come up with innovative ways to maintain affordability, and we will continue to focus on keeping rates affordable as we invest in the system. And now let's turn to Slide 7.

Speaker 2

At The Electric Company, We are planning to invest $35,000,000,000 over the next 10 years to support reliability, Additionally, renewable resources and the increased pace of electric vehicle adoption. This provides a large inventory of potential capital investment pull forwards into the 5 year plans. As we plan for the cessation of coal use, we will need to invest in renewable resources, short and long duration storage, demand response and other dispatchable resources. Over the next 10 years, we also see an increased pace of VP adoption that drives grid investments. To support increased sales and a need for additional reliable generation.

Speaker 2

We believe EV adoption will increase our electric load by 5% 10% over the next 10 to 15 years. General Motors recently announced a $7,000,000,000 investment that will secure its commitment to accelerate an all electric future, along with 5,000 high paying new and retained manufacturing jobs in Michigan. This includes a $4,000,000,000 investment to convert GM's Orion Township assembly plant located in DTE's service territory, this plant will produce full size electric pickup trucks. Our collaboration with GM And the state of Michigan was fundamental in securing this investment. The GM projects Are the first to be approved utilizing the new critical industry program and strategic site readiness program signed into law by Governor Whitmer in December.

Speaker 2

These programs were created to ensure Michigan could effectively compete for 1,000,000,000 of dollars in investment and attract tens of thousands of jobs to ensure continued economic strength in the state. We are confident there will be more investment in EV Industry in our state. Even in our own operations, we are making strides in this area. We recently announced That we will be replacing up to 25 percent of our fleet with Green Fuel Technologies by 2,030. Now let's turn to Slide 8 to discuss Our gas business.

Speaker 2

We had significant accomplishments at DTE Gas in 2021. We announced our new natural gas balance program. This program provides the opportunity for customers to purchase both renewable natural gas and carbon offsets, allowing them to offset up to 100 percent of the carbon from their natural gas use. We are the 1st gas utility Introduce this innovative program and our customers really like it. We are proud of how fast the program is growing with over 5,000 customers already subscribed.

Speaker 2

Another major accomplishment in 2021 is that we finished the first phase of our major Transmission renewal project in Northern Michigan. This project includes the installation of new pipe and facility modification work To provide supply redundancy for a growing market, we are on track to complete this project in 2022. We continue to focus on upgrading our system and replacing aging infrastructure to reduce costs and improve customer satisfaction. We plan on completing 200 main renewal miles in 2022. At DTE Gas, we are planning on investing over $3,000,000,000 over the next 5 years to upgrade and replace aging infrastructure and to further reduce greenhouse gas emissions.

Speaker 2

Overall, We're looking forward to another strong year from our gas company and we see natural gas playing an important role Michigan's energy needs over the long term. Now let's turn to Slide 9. At DTE Vantage, We continue to see additional opportunities in RNG and Industrial Energy Services as the REF business sunset at the end of 2021. Last year, we told you about a new RNG project in South Dakota, which is now under construction and slated start up in the Q2 of this year. We commenced construction on another Wisconsin RNG project in the 3rd quarter and entered into an agreement for an additional one, which will be our first project in New York.

Speaker 2

Additionally, DTE Vantage, along with its 50% partner, will build a new RNG facility to take all of the available biogas from Riverview Energy, a Michigan based landfill and converted into pipeline quality renewable natural gas. The project adds to DTE Vantage's portfolio of RNG projects serving transportation and other end use markets. The RNG business contributes to our decarbonization efforts as we move to a cleaner energy economy. At DTE Vantage, we are planning to invest between $1,000,000,000 to $1,500,000,000 over the next 5 years. We are targeting Operating earnings of $90,000,000 to $95,000,000 in 2022, growing at $160,000,000 to $170,000,000 in 2026.

Speaker 2

So longer term, we are maintaining our earnings growth target of about $15,000,000 per year, Which we have been able to achieve over the past few years. And we continue to have a great pipeline of projects in both RNG and Industrial Energy Services to achieve future growth. With that, I'll turn it over to Dave to give you a financial update.

Speaker 3

Thanks, Jerry, and good morning, everyone. As Jerry said, we completed a successful financial year in 2021 and and we are well positioned for this year and for our future growth. Let me start on Slide 10 to review our 2021 financial results. Operating earnings for the year were $1,200,000,000 This translates into $5.99 per share. You can find a detailed breakdown of EPS by segment, including our reconciliation to GAAP reported earnings in the appendix.

Speaker 3

I'll start the review at the top of the page with our utilities. DTE Electric earnings were $864,000,000 for the year. This was $51,000,000 higher than 20.20, primarily due to the implementation of rates from the rate case we filed back in 2019, Higher commercial and industrial sales and additional renewable projects. This was partially offset by higher O and M, rate based costs and the tree trim deferral of $90,000,000 pre tax that we'll be using over the next 2 years to further accelerate our reliability improvements. Moving on to DTE Gas, operating earnings were $214,000,000 $18,000,000 higher than 20.20.

Speaker 3

The earnings increase was driven primarily by the implementation of rates partially offset by higher O and M and rate based costs. Let's move to DTE Vantage on the 3rd row. Operating earnings were $176,000,000 in 2021. This was $26,000,000 higher than 20.20 driven primarily by RNG earnings. On the next row, you can see Energy Trading had another solid year due to strong performance in the gas portfolio throughout the year.

Speaker 3

Finally, corporate and other was unfavorable $32,000,000 year over year. This was Driven by interest income in 2020 related to the CARES Act refund, which didn't repeat. And in 2021, we incurred expense to opportunistically retire higher priced at the holding company, which will provide interest savings going forward. Overall, DTE earned $5.99 per share from continuing operations in 21, representing 17% growth from our 2020 original guidance. So another strong year putting us in a great position for the future.

Speaker 3

Let's turn to Slide 11 to discuss our 2022 operating earnings guidance. We are well positioned to deliver another successful year in 2022. As Jerry mentioned, we are raising our 2022 operating EPS guidance and nearing the range to $5.80 to $6 per share. The increased midpoint of $5.90 per share provides 7% growth from the 2021 original guidance midpoint. In 2022, growth at DTE Electric will be driven by distribution and cleaner generation investments.

Speaker 3

DT Gas will see continued customer focused investments in main renewal and other infrastructure improvements. 2021 was the final year for our reduced emissions fuels business at DTE Vantage. Approximately $100,000,000 of REF Earnings net of associated costs rolled off last year. This is partially offset in 2022 by new RNG and Industrial Services projects will serve as a base for growth going forward. At Corporate and Other, the biggest driver in our year over year improvement is lower interest expense.

Speaker 3

This is a result of leveraging earnings and cash strength in 2021 to opportunistically remarket some higher priced debt. We also paid down parent debt proceeds from DTM's debt issuance. This will provide interest savings in 2022 and future years. Let's turn to Slide 12 to discuss our balance sheet strength. We continue to focus on maintaining solid balance sheet metrics.

Speaker 3

Due to our strong cash flows, DTE has minimal equity issuances in our plan beyond the convertible equity units that will convert later this year, While we also increased our 5 year capital investment plan by $1,000,000,000 We have a strong investment grade credit rating Targeted FFO to debt ratio of 16%. We increased our 2022 dividend by 7%, continuing our track record of growing our dividend in line with the up end of our targeted EPS growth rate. We completed our liability management plan following the spin of our mid business using the funds raised from DTM's debt issuance to repurchase a little over $2,600,000,000 of corporate debt. This liability management plan was NPV positive, EPS accretive and further supports our long term growth. Let me wrap up on Slide 13 and then we will open the line for questions.

Speaker 3

In summary, we achieved great success in 2021 across all of our business lines. We raised and narrowed our guidance range and are in great shape for 2022, targeting 7% operating EPS growth from our 2021 original guidance midpoint. A robust capital plan supports our 5% to 7% long term operating EPS growth, while delivering cleaner generation and increased reliability for our customer. DTE continues to be well positioned to deliver the premium total shareholder returns that our investors have come to expect with strong utility growth And dividend growing in line with operating EPS. With that, I thank you for joining us today and we can open the line for questions.

Speaker 4

All right. Now we're going to open up for questions. So our first question Go ahead. Your line is open.

Speaker 5

Hi, good morning. It's actually Constantine here for Shar. He sends his regards And congrats on a great quarter.

Speaker 3

Thank you. Thanks, Konstantin.

Speaker 5

Just as we're looking at the new guidance for 'twenty two and the Longer term EPS growth rate, you pointed as you're growing faster among peers on a trailing basis and Going forward, there's less volatility post spin obviously. Can you elaborate on what brings you down below the 7% Growth rate going forward and maybe some of the assumptions that are in plan surrounding load growth and O and M contingency?

Speaker 2

Sure, Constantine. Great question. So as you mentioned, we've raised our guidance this year to 7% growth, And we've had a long track record of having best in class EPS growth in our industry. We're also, for the first time in almost 3 years filed an electric rate case and are going to file an IRP in October. All of that We'll instruct our long term capital plans and also our long term growth rate.

Speaker 2

So more to come on that.

Speaker 4

Okay. Our next question comes from the line of Jeremy Tonet from JPMorgan. Your line is open. Please go ahead.

Speaker 6

Good morning.

Speaker 3

Good morning. Hey, Jeremy.

Speaker 6

Just wanted to start with thinking about the rate case coming up here. We're seeing some inflation concerns throughout much of the economy. And just Just how do you think about customer bill impacts in this type of environment and also in light of, I guess, recent rate case filing?

Speaker 2

Sure. Good question. What I'll say is that we've stayed out of an electric rate case for almost 3 years The electric company and that was really in response to the pandemic, making sure that we maintained affordable bills for our customers. This rate case that we filed is primarily about capital infrastructure and that's investing in our grid And preparing our grid for continued climate change as well as preparing it for demand growth from our EV adoption For the first time in my memory, we filed for lower operating expense, which will make us distinctive continue to make us distinctive in the industry.

Speaker 6

Got it. Thanks. Thanks for that there. And then Just want to pivot towards the coal plants. And just wondering how realistically, how Mark and DTE pull forward some of these retirements over time, especially Monroe here.

Speaker 6

And I guess, how do you think about the replacement capacity needs in conjunction with that.

Speaker 2

We're certainly going to accelerate Monroe From 2,040. How far we accelerated from 2,040 is something we're having doing a lot of analysis on and having a lot of conversation with Stakeholders on, but I think you can expect to see a significant acceleration. What limits it is really how do we Ensure that there's good affordability and also reliability. I mean, those are the Premises that we really need to nail here as we complete our acceleration plan to exit coal.

Speaker 6

Got it. Thanks for that. And then last one if I could real quick. Just with Vantage here, it seems like RNG opportunities, you highlighted growth

Speaker 7

Just wondering if you could update us,

Speaker 6

I guess, on hitting targeted returns in light of it seems like a highly competitive environment on the RNG side. And then just taking a step back on Vantage overall, just how core that business is, having spun the midstream business recently, just want to see if Vantage is It's still fully core, I guess, in your mind.

Speaker 2

So Jeremy, the projects we're pursuing, we're still seeing high IRRs, unlevered IRRs in the mid teens after tax and simple cash paybacks of 3 to 5 years. Going forward, and that's all organic development. Our latest projects actually are taking some of our biomass and biogas projects that we're Feeding small power units and converting them to RNG, that's providing us a significant runway for future development as well. So we're limiting that business, As you noted, 10% of our earnings growth as well as 10% of our overall portfolio, and it's really pointed at Complimenting our ESG agenda. From an investor perspective, 90% of our focus is really on utility growth.

Speaker 2

So I would say that's the cake and the high cash flows and high returns from Vantage is sort of the frosting on the cake, if you will, for our investors. So major focus on our utilities and obviously growing this business slowly and attracting really high returns. Got it. That's Really high returns.

Speaker 6

Got it. That's helpful. I'll leave it there. Thank you.

Speaker 2

Thank you, Jeremy.

Speaker 8

Okay.

Speaker 4

Our next question comes from the line of Insoo Kim from Goldman Sachs. Your line is open. Please go ahead.

Speaker 9

Yes. Thank you. My first question is on related to the upcoming or the current rate case in Michigan and then thinking about the growth rate beyond 'twenty two, obviously, I think your peer in the recent case had some rate base or capital items that were At least defer to the next case. So when you think about the potential range of outcomes that could play out in your case and combined with The converts happening later this year, should we still think that with the contingency that you guys have in place that 5% to 7% is A pretty good benchmark for 'twenty three on a year over year basis.

Speaker 2

So I'll just start that by saying that 5% to 7% is rock solid for us as a guidance for 2023. We're working on those plans now and fine tuning those plans for 2023, and That will start to shape up, and I think you could expect us to deliver similar results next year that we've been delivering in the past. In terms of the rate case, again, it's the capital plan. We've spent a lot of time with commission staff And the commissioners themselves before we filed to really create a strong understanding of the investment that we are making in the grid, Why we were making the investment in the grids that we are making and also the impact on reliability. So there's a strong understanding of what we plan to do.

Speaker 2

And if You'll recall, last year we filed a 5 year plan, 10 year plan and 15 year plan for the grid. So we spend a lot of time socializing our plans with The commission staff and the commissioners. So we believe there's strong understanding on the grid investments. And then with our renewable plans, Much of it is voluntary at this point in time. So again, that's well understood.

Speaker 2

So That in combination with the fact that we've been out for almost 3 years, we're feeling pretty good about delivering A constructive rate case outcome.

Speaker 9

Understood. Thanks for the color there. My only other question is on for this year and maybe just going forward. What's the right level of whether normal electric or gas demand growth that we should be embedding?

Speaker 2

Dave Rood, do you want to take that one?

Speaker 3

Sure. Hi. Yes, we continue to see really good trends across our customer classes. And so if you look from 'twenty one to 'twenty, we were up overall about 3%. And what we saw is our commercial load And our industrial load really coming back to kind of mitigate any of the decreased activity we saw to COVID.

Speaker 3

We see that A little more growth continuing across commercial and industrial. Residential was still high relative to pre COVID. You saw 21 had no real change from 2020 at those higher levels. We've seen that come down a little bit recently, but we're still seeing right now residential load Somewhere around 5% higher than what we would have expected pre COVID. We do expect that to come down and taper off this year as more people go back to work and Closer to how they did before.

Speaker 9

So for 2022, should we assume that something like 1% That overall growth is the right number or is it even more conservative than that just relative to what you're baking into your assumptions?

Speaker 3

Probably a little more conservative due to the residential load coming down and tapering off as the year goes on. We've had really high residential in 2021, so.

Speaker 4

Okay. Our next question comes from the line of Durgesh Chopra from Evercore. Go ahead, sir. Your line is open.

Speaker 7

Hey, good morning, team. Thank you for taking my question.

Speaker 2

Good morning.

Speaker 7

Good morning, Jeff. Just Jerry sorry, just In previous slides, you've had this, Dave, this disclosure on earnings growth for segments, 7% to 8% for Electric and then 9% for gas. Just for a model, is that still sort of how you're thinking about the growth through 2026 in those in the segments?

Speaker 3

What we see is we see higher growth in these early years, so 2022 and 2023 at electric and gas That allow us to grow at 5% to 7% through the converts that come in this year, the $1,300,000,000 of convert. And then it comes down to where EPS and our growth in our utilities kind of match. So we have a little bit higher in these early years, but then As we get to the out years, you'll see EPS and our earnings of our utilities closer to each other.

Speaker 7

Got it. So higher in the early years and then Basically in line with the rate base and the outlook. Yes. Okay. And then just on the CapEx upside opportunity, Jerry, just can you clarify one thing for me?

Speaker 7

The $35,000,000,000 is some of that already baked into your plan or is that truly all upside on the electric side?

Speaker 2

Well, yes, the $35,000,000,000 certainly the 1st 5 years Are in our plan. The reason we put that out there is to show that there we have a very large inventory of investment opportunity, and that does Give us the opportunity to pull forward our investments. So that's really the opportunity. And I think you've seen we've got a pattern of Increasing investments in our 5 year outlook every year that we update.

Speaker 7

Got it. And just quick follow-up on that and I'll jump back in the queue. Is the EV's Load increased 5% to 10%, obviously very robust. Is that incorporated in the $35,000,000,000 number or will that be Will that drive further additional CapEx and rate base investment opportunities?

Speaker 2

That could potentially drive Incremental investment, we've assumed some level of investment obviously to harden our grid and prepare our grid for the future. But depending on how Quickly that EV load comes on in the out years beyond our 5 year plan, it could certainly drive acceleration Of investment in the grid as well as investments in generation. I mean, we're seeing the placement of EV manufacturing facilities in the state of Michigan. They are highly energy intensive facilities, more so than traditional assembly plants. So to give you an example, Traditional assembly plant can consume anywhere from 20 to 25 megawatts of power.

Speaker 2

An EV assembly and battery You're talking north of 70 megawatts. So it's these are significant loads that will come to the state in addition to the demand just from the vehicles themselves.

Speaker 7

Excellent. Thank you, guys. Congratulations on a great quarter.

Speaker 3

Thank you. Thank

Speaker 4

you. Our next question comes from the line of Angie Storozynski from Seaport. Your line is open. Please go ahead.

Speaker 8

Thank you. So I wanted to follow-up on Vantage. I think if you look at your stock, there seems to be an imputed discount to your closest peer, which I think we all associate with that business. And so, you keep adding new projects. The market for RNG product projects, like resale of RNG product projects seems Pretty hot still.

Speaker 8

So if you could tell us if there is any plan to have a strategic review regarding Vantage? And if yes,

Speaker 2

With that, right now, we're seeing our RNG business grow nicely, quite modestly in terms of the overall DTE portfolio. Mute. We're generating anywhere from $7,000,000 to $8,000,000 a year of new net income from that business and the returns are really, really high. And As you said, the market valuation for RNG assets right now is pretty hot, right? And so we're constantly looking at Are there opportunities to continue to optimize our portfolio?

Speaker 2

And so that's really the work that we constantly do to evaluate Who values that the most, our current slate of investors or other investors? And I think you've seen we have a reputation of if we see Significant opportunity to optimize value, we will take that move. But no plans at this current state to do that as we see continued growth and at high returns and high cash flows.

Speaker 8

Okay. And then just going back to that notion of maintaining the 5% to 7% EPS CAGR and I understand the some deceleration of growth in operating earnings for utilities beyond 23%. But do you really see yourself below 7% for in this sort of a steady state utility growth given all of the Given the IRP and voluntary renewables and additional growth drivers that you've talked about?

Speaker 2

Angie, again, I what I'll point to is that, and I think you've said it, we've been delivering Extraordinary EPS growth results over the last decade, including last year and even this year, where we're forecasting 7%. Looking forward, this is something we're examining really closely because we're getting a lot of feedback from analysts and investors What will your growth rate look like beyond 2022? And we're doing a lot of work on that. We feel that the filing of the IRP in October as well as we would be moving very close to the conclusion of our first rate case at the electric company in 3 years. That will be very instructive in us laying out our long term growth plans as well as our long term CapEx plans for this for the company.

Speaker 2

So more and more to come on that, Angie.

Speaker 8

And then lastly, the last remaining Coal plants, so the I understand the IRP filing is only in October, but is the assumption that At least some of this capacity would be replaced by a gas fired plant?

Speaker 2

I would say that, yes, Is the short answer. We will need dispatchable generation. And so you will see gas in our plant. You'll also see an extraordinary amount of renewables. You'll see battery storage in that plant and you'll also see demand response initiatives.

Speaker 2

So you'll see many initiatives to replace that coal fired generation. So gas will be part of it. We're also looking very closely at enabling Any new gas facilities that we install or propose that will have carbon capture and storage capability As well as the ability to burn hydrogen.

Speaker 8

Very good. Thank you.

Speaker 4

Okay. Our next question comes from the line Julien Dumoulin Smith from the Bank of America. Please go ahead.

Speaker 10

Hey, Mike. Good morning. It's Derry.

Speaker 9

It's on for Julian here. Thank you for taking my call. Good morning.

Speaker 3

Most of them have been answered already. Just if you don't mind Just reminding us how you're tracking against the 16% FFO to debt target and when do you expect to achieve that? Yes, good question. In 2021, we were a little Higher than that because we still have the cash flows from DTM in there for part of the year, but we will be getting to that 16% in 2022 and going forward.

Speaker 9

Okay. Thank you. Like I said, you've answered all my other questions. So thanks again.

Speaker 4

Our next question comes from the line of Michael Sullivan from Wolfe Research. Your line is open. Please go ahead.

Speaker 11

Hey, everyone. Good morning.

Speaker 2

Good morning, Michael.

Speaker 11

Hey, Jerry. So just wanted to Quickly circle back to the discussion on potentially point forward some of these coal plant shutdowns. Is there a possibility for fuel switching as well for replacement?

Speaker 2

There is actually at the Bell River Power Plant, which we pull forward to 2028 in our filings there with the EPA and other We indicated that we would be using the Bell River power plant, which is about 1200 megawatts of coal right now as a gas peaker. So there is that opportunity, and we view that as favorable for our customers because one, it provides a reliability source and secondly, it allows The continued depreciation of that plant for longer than well beyond 2028. And I think at Monro, we're examining Similar opportunities for either fuel switching or voltage support on the grid as well as using some of the existing infrastructure. We have to put some baseload gas down there.

Speaker 11

That's great. Thanks. And then my other question was, so you guys continue to add to this voluntary renewables program. Just Just wanted to get a sense of how you're doing on some of the projects associated with that demand. What's embedded in

Speaker 2

So we have 1,000 Megawatts that's signed and underway from mute. And then we have another 1300 megawatts that are in advanced stages of negotiation. And so we're in really good shape on On the supply side, we've got all of our 2022 and 2023 resources, physical Resources lined up for that, whether it's solar panels or wind turbines. So we're in really good shape there. We have seen some supply chain Stress, if you will, but that's beyond the time frame that we're securing assets for right now.

Speaker 2

Dave Root, I don't know if you had other Thomas, you want to add?

Speaker 3

Yes. And even for our future builds, we're seeing the supply chain It's trying to ease up now, so we're going to be fine getting those too. Pricing may be a little higher than what it was a few years ago, but it's going to be consistent with the rest to the market and also good for customers still too.

Speaker 11

That's great. Really appreciate the color. Thanks.

Speaker 7

Thank

Speaker 4

you. All right. Our next question comes from the line of Andrew Weisel from Scotiabank. Your line is open. Please go ahead.

Speaker 10

Thank you. Good morning, everyone, and congrats on another strong year.

Speaker 2

Thank you, Andrew.

Speaker 10

First question is on the 2022 guidance. I see that you've upped the forecast for each of the 3 major segments. What's driving that? Is it individual business specific factors or general cost controls or maybe simply removing some conservatism?

Speaker 3

Yes, really it was the latter. As we ended the year and we looked at our plans, We just gained even more confidence in each of the businesses and where we could come out and we're able to bring up the bottom end of those.

Speaker 2

Also, we're seeing the contingency build we're starting to see the contingency build in each of our big business lines as well as we've had some really nice weather And

Speaker 10

Detroit. Right. Very good. Then my other question is, can you elaborate on your commitment to helping the Vulnerable customers in the winter months, what exactly is that and what how are these programs, maybe different from your typical low income assistance programs?

Speaker 2

The most impactful program that we have, Andrew, is our Low Income Self Sufficiency Plan, something that we developed through legislation a little over a decade ago, and it's pretty unique in the sense that the way it works is that we look at a customer's income levels and then apply a credit to their bills using federal funding and also some No, value that comes from our rate making. And what that does is it buys down the bill for low income customers so that they're paying $75 a month $30 a month depending on what they can afford and the balance of that payment comes from federal or state assistance, Which we're always bringing in for our customers at least about $160,000,000 a year in terms of federal and state assistance to our customers. So that Helps our customers keep their heat on and their lights on through the winter months, and it also creates a sense of dignity for our customers because they're also paying in for a portion of the bill. So that's the most unique program that we have.

Speaker 10

Okay, great. Thank you so much.

Speaker 2

Thank you.

Speaker 4

Our next question comes from the line of Sophie Karp from KeyBanc. Your line is open. Please go ahead.

Speaker 12

Hi, good morning. Thank you for taking my question. I have a couple of questions actually. Yes, hi. So on the RNG technology, I'm just curious if this technology at this point is Pretty, I guess, mature or are you still seeing potential for price improvements there that will potentially drive The cost of RNG down over time or is it you're pretty much going to be stable at the level where we have

Speaker 2

Sophie, we saw some technology improvements over the last couple of years that drove costs So significantly down in this arena, and we've adopted that technology for several of our projects in Wisconsin and even in we're considering it in the Dakotas. So we have seen technology price movement. We have not seen anything recently, but it has with boosting our returns beyond our expectations by adopting some of this technology.

Speaker 12

Got it. And then I also have a question on the EVs and this is I think one of the first times when you start Talking about the potential impacts of the EVs on mode and we begin hearing more about the EV penetration in general. I'm just curious if how do you see your particular territory adopting how do you see the speed of adoption in your particular territory, I guess, I get it that the all the manufacturers are there, but the territory is not particularly affluent or So should we expect Michigan to be at the forefront of the adoption of EVs or maybe a

Speaker 2

We see Significant adoption potential here in the state of Michigan. I think as you mentioned with our voluntary renewables, there is a strong desire to green the environment, and we're seeing that with many customers, large institutional customers as well as also residential customers. So EV adoption is something we've also started to see ramp up in the state of Michigan. It's still quite small. Last year, actually in 2020, we were seeing maybe several 100 a month.

Speaker 2

Now we're getting close to 500 to 1000 a month Of the VV attachments to our system and that's significant. So we see a continued ramp there as new models are introduced. So There is the ability to see the adoption and we expect it to happen.

Speaker 12

And thank you.

Speaker 4

Our next question comes from the line of Jonathan Arnold from Vertical Research Partners. Your line is open. Please go ahead.

Speaker 13

Good morning, guys.

Speaker 2

Hey, Jonathan. Good morning, Jonathan.

Speaker 13

Just a quick follow-up on the EV topic. You talk about the 5% to 7%. I understand that to be kind of a volume load. I'm just Checking that's correct, but any can you comment on what you think it might do to peak load as you start to sort of think about rate design and Yes, holding this demand in.

Speaker 2

Sure. That's a good consideration. What we're seeing right now is that most of the EV adoption, people are charging at home. And all of the feedback that we're getting from the OEMs, from The large autos here in Detroit is that the customer preference, 80% of the customer preference at this mute. There's a lot of convenience in being able to do that.

Speaker 2

And most of that will happen in the evening. So that's beneficial to our grid. So we see the early adoption of EVs as being very beneficial to us because it won't require a lot of So the early years, the EV adoption will be quite good for our load and our margins and also help support Much of the grid investments we need to make for the future. As you get deeper into EV adoption, I think you'll start to see a significant amount of Investment required on the grid to support usage throughout the day. Great.

Speaker 13

And what's your assumption on penetration, Jerry, just behind that number you've shared with us today.

Speaker 2

Dave, do you have any thoughts on that?

Speaker 3

I don't have the penetration number, but we can get back to you guys on that.

Speaker 2

Okay. Perfect. Thank you, guys. Yes. I would say, Jonathan, In order of magnitude, what's being predicted is that in the 2030s early 2030s, about half The vehicle sales will be EV sales.

Speaker 2

That's how we're building our forecast that you see.

Speaker 13

Great. Thank you.

Speaker 4

Our next question comes from the line of Anthony Crowdell from Mizuho. Your line is open. Please go ahead.

Speaker 14

Hey, good morning, Jerry. Good morning, Dave. Good morning, Anthony. Hopefully, just a couple quick ones. I think in one of the earlier questions you talked about maybe the growth rate and I don't know if you use the word review, you're looking at it.

Speaker 14

When does the when do you believe you'll be done with that review? Is it you're going to wait for the rate case and IRP to play out? Or is that something that you think may conclude sooner?

Speaker 2

At this point, Anthony, we're thinking it's going to be at the time that we in and around the time that we file our IRP. We'll have a lot of our long term growth plans, especially as we think about replacing our generation fleet laid out. And that's the current timing that we're thinking about.

Speaker 14

Great. And then on the IRP, I believe in Michigan when you file it and you talked about maybe on your rate You had a lot of before the filing, you met with a lot of policymakers and maybe get support. On the IRP, have you begun that dialogue and has there been any particular issues that maybe require more discussion than others?

Speaker 2

We have begun that dialogue with many stakeholders as it relates to IRP. And the Dialogue ranges from strong support around what we're planning to do as well as, as you would expect, people asking us to accelerate. So we view that as all positive and And it will help us build a really solid IRP that we'll file in October.

Speaker 14

Great. And then my last question, I think Some of the earlier questions really are focused on maybe on the 5% to 7% growth rate you've given out maybe on the higher end. But if I could flip the question like What do you see that would cause you to be at the lower end of that range? Like what not that I'm hoping that happens, but just what do you have to see operationally or something that Maybe where we should be focused on that 5% of the range.

Speaker 2

Well, as you know, Anthony, we've never even come close to delivering on the lower end of that range. I think if you look at our track record, we've been at the top end of our range pretty consistently. And We strive to accomplish that each and every year. And if we don't, we would be very disappointed. So that's our plan going forward.

Speaker 2

We aim for the midpoint, but Certainly, we try to do all we can with our plans to deliver the top end of that range. And I think you're seeing that again this year. And if you look at the last decade, we've done that pretty consistently. So it'd be pretty remote possibility. I mean, we've weathered economic collapses.

Speaker 2

We've weathered pandemics And have delivered well above that 5% as you know.

Speaker 14

Yes, absolutely. Thanks again and a solid quarter. Thanks so much for taking my questions.

Speaker 2

Thank

Speaker 4

you. Okay. Our next question comes from the line of Travis Miller from Morningstar. Your line is open. Please go ahead.

Speaker 15

Good morning, everyone.

Speaker 2

Good morning, Travis.

Speaker 15

Thank you. Two follow ups to some of the comments you made on the 10 year plan. 1, if you start to invest in the fuel switching at Some of the one or more of the coal plants, does that eliminate the need for a new gas plants or Some other new nonrenewable source of generation?

Speaker 2

Well, the switching coal boilers to natural gas It is a good peaking resource, Travis, but not necessarily a good baseload resource because of efficiencies. The new Gas turbines, for example, they've got very low heat rates around 7,000 whereas an old Coal boiler might be up around 10,000 meaning just it just means they burn a lot more fuel to produce the same energy output. So they're good peaking resources, but they would be very expensive as a baseload resource. So we do see, At least at this point, more gas turbines in our future that would have carbon capture and hydrogen consumption capability.

Speaker 15

Okay. That makes sense. And then you just mentioned it, but as you look out those 10 years, Jerry, you had mentioned long term storage. How does that play into in terms of hydrogen, if not directly into the plants like you said right now, but some other way.

Speaker 2

Yes. Hydrogen, I think it's a great question. And you've seen in our rate case that we filed for a hydrogen pilot. So we're going to start experimenting with using hydrogen small scale hydrogen storage as well as hydrogen consumption in our New gas turbine, which is the Bluewater Energy Center in St. Clair County that will go into service this summer.

Speaker 2

So we're going to start experimenting with the use of hydrogen to see how mute. And also start to understand how to handle and move and store hydrogen. Longer term, Hydrogen is a good fuel to store electric energy because it has high energy density. And also it's It can be blended with natural gas and stored in natural gas facilities to some extent. So we're going to start experimenting with all of that so that we can understand it more deeply.

Speaker 2

And I know some of our peers are also doing that as well.

Speaker 15

Yes. Great. Thanks so much. I really appreciate

Speaker 2

it. Thank you.

Speaker 4

There are no further questions at this time. I will now turn the call back Over to Jerry Norcia for closing remarks.

Speaker 2

Well, thank you everyone for joining us today. And I'll just close by saying that We had another strong year in 2021, as you've seen, and I'm feeling really good about delivering a strong 2022, Which will position us for the future and deliver premium returns for our investors both from an EPS Growth perspective as well as a dividend growth perspective. So hope everyone has a great morning and stay healthy and safe.

Speaker 4

That concludes today's conference call. Thank you for your participation. You may now disconnect.

Powered by Quartr
Earnings Conference Call
DTE Energy Q4 2021
00:00 / 00:00