DTE Energy Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
April 28, 2022

There are 15 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the DTE Energy First Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Followed by the number 1 on your telephone keypad. Thank you. It's now my pleasure to turn today's call over to Ms. Barbara Tuckfield, Director of Investor Relations. Please go ahead.

Speaker 1

To the

Speaker 2

conference operator. 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.

Speaker 2

With us this morning are Jerry Norcia, President and CEO and Dave Rood, Senior Vice President and CFO. And now, I'll turn it over to Jerry to start the call this morning.

Speaker 1

Thanks, Barb, and good morning, everyone, and thanks for joining us. On today's call, I'll start off by discussing DTE's strong start to 2022 and provide highlights on our transition to cleaner generation. Dave Rood will provide a financial update and wrap things up before we take your questions. As shown on Slide 4, the success that BT has achieved continues to be the result of our focus on employees, customers and communities. To continue to focus on improving the health and well-being of our team and cultivating deeper employee engagement, which results in being able to deliver to Service Excellence.

Speaker 1

Beginning with our team. For the 10th consecutive year, DTE earned a Gallup Great Workplace Award. When we won our first award, they told us the hardest thing to do would be to win it again. And now we have done it for a full decade. I'm proud of this recognition, which shows the dedication and engagement of our team.

Speaker 1

And as you know, we've said before, high engagement is the secret sauce that drives our success. I've always said if we serve each other well, we can deliver for our customers, our communities and our investors, and we're doing just that. On the customer front, one of our top priorities this year is to further harden our system in preparation for the upcoming storm season. As you know, we experienced extreme weather last year, and we are working toward building an even more reliable grid of the future. DTE's reliability plan is focused on 4 strategic pillars: tree trimming, to the conference call.

Speaker 1

Infrastructure resiliency and hardening, infrastructure redesign and technology automation. And we are focusing these efforts on the areas that we know are most vulnerable. For tree trimming, we are enhancing our efforts and have greatly increased our investment with a particular focus on the most vulnerable circuits to improve reliability and customer satisfaction. And we know that circuits that have been trimmed have experienced a 70% improvement in interruptions and a 65% improvement in outage minutes. So we know this effort yields results.

Speaker 1

We are also converting existing electric circuits to a modern distribution system. To the conference operator. Circuits which have been hardened experienced an 80% improvement in the average number of sustained interruptions at a 43% reduction in Wire Down Events. We continue increasing our investment in remote monitoring and control devices, to building an advanced distribution management system, modernizing our system operations center, which started operating in February and enhance cybersecurity. We remain committed to meeting our long term reliability targets and improving our customers' experience.

Speaker 1

To our communities. We are making strides in providing support through our workforce investment priorities, which include increasing the number of jobs for those with barriers, enhancing job readiness and attracting employers to Detroit and other areas in Michigan. To the conference operator. One example of our efforts is the Tree Trim Academy we built right here in Detroit. This program trains individuals to become apprentices and importantly, it teaches skills that prepare them for the responsibilities of a job.

Speaker 1

Tree trim jobs bring prosperity to people who pursue them and also offer a strong pipeline to longer term opportunities such as overhead line work. Upon completion of the Tree Trim Academy, to graduates begin their apprenticeship, which takes about 2.5 years to complete. During this time, Journeyman Tree Tremors make a good wage with full union benefits for themselves and their families. It's a great example of matching a business need with a community need, and that's when we get magic. We're proud that our Tree Trim Academy was recently recognized by Boston College with its innovation award in the category of transformative partnership.

Speaker 1

With highly engaged employees, customers who are satisfied with their service and communities that are resilient and thriving, We will continue to deliver value for our investors. Let's turn to Slide 5. We delivered a strong Q1 with operating EPS of $2.31 fueled by solid performances across all of our business lines. And we are on track to deliver 7% operating EPS growth from our 2021 original guidance midpoint. At DTE Electric, we filed our 1st general rate case in almost 3 years.

Speaker 1

To this rate filing is really about moving our infrastructure investments forward, and we continue to focus on doing this in an affordable way. I'm proud of the work we've done with the Michigan Public Service Commission to develop innovative ways to maintain affordability. And we will continue to focus on keeping rates manageable as we invest in the system. Following a very successful 2021 from My Green Power, to our voluntary renewables program. We hit an important milestone in early 2022 with over 50,000 residential customers now subscribing to the program.

Speaker 1

At DTE Gas, we're accelerating the 35% reduction to the target of Scope 3 Customer Greenhouse Gas Emissions a full decade from 2,050 to 2,040. To the conference operator. Advancements in greener technologies like green hydrogen, carbon capture and sequestration, renewable natural gas and customer voluntary offset programs will enable the company to accelerate this goal. We also continue our important main renewal work with a target of completing another 200 miles in 2022, ensuring we can continue providing safe and reliable service to our customers. To our next question.

Speaker 1

Our natural gas balance program is also progressing, and we have over 6,500 customers to the operator to offset their greenhouse gas emissions. We are proud of how this first of its kind program is growing. Additionally, DTE Gas launched another project that showcases our commitment to a clean energy future in Michigan. We partnered with the City of Grand Rapids to help supply renewable natural gas to fuel their vehicles. This RNG will supply DTE's natural gas fueling stations as well as power our buses and fleet vehicles.

Speaker 1

To the operator. At DTE Vantage, we have multiple on-site energy projects and dairy RNG projects coming online in the second half of the year. This is in addition to the conversion project I mentioned on our year end call that goes into service in 2023. With this new project, DTE and our 50% partner will build a new RNG facility to take biogas from a Michigan based landfill and convert it into pipeline quality renewable natural gas. Additionally, we have a strong pipeline of projects that support growth in this business, including additional landfill to RNG conversions.

Speaker 1

To the conference operator. We feel great about our strong start to the year, and we're confident in achieving our 2022 operating EPS guidance. To our robust utility capital investment plan of $18,000,000,000 over the next 5 years and $40,000,000,000 over the next 10 years supports our future growth. We have a history of achieving the high end of our operating EPS growth target. And as I've said, we continue to evaluate our long term growth target and expect to provide an update on this later in the year as we update our 5 year plan.

Speaker 1

We're also targeting dividend growth in line with our operating EPS growth. To our next call. Now on Slide 6, we're more focused than ever on our environmental initiatives, including several significant milestones in 2022. The Bluewater Energy Center, our new natural gas plant, is on track to go into service later this quarter. To the operator.

Speaker 1

This state of the art facility has an 1100 megawatt capacity and was constructed on time and on budget. Also this year, our Trenton Channel and St. Clair power plants will cease operations. To the operator. After this transition, roughly 38% of DT's generation mix will be attributable to coal.

Speaker 1

And by 2028, after we cease coal use at our 1,000 Megawatt Bell River Power Plant, coal will represent less than 30% of our generation mix. We are well on a path toward our net zero emissions goal. As we highlighted last year, we are filing our integrated resource plan in October this year, to continue to evaluate the opportunity to exit coal use at the Monroe Power Plant earlier than 2,040. We hosted meetings 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 who has taken into consideration as we work to achieve the right balance of energy resources that will provide cleaner, to the company's financial performance for decades to come.

Speaker 1

I'll just round out my comments to telling you how very excited I am about the position of our company, with the progress we have made and the opportunities we have in front of us. We are off to a strong start in 2022, and we are in a great position to deliver on our targets. We are seeing favorability at both utilities. We are finding ways to use this favorability to create a highly successful year in 2023 as well as the years beyond that. In the longer term, I've highlighted a number of investment opportunities this morning, including the acceleration of coal retirements and transition to more renewable power, building the grid of the future to combat more severe weather and support the prospect of significant demand growth.

Speaker 1

And finally the continued replacement of cast iron main and steel on our gas utility system, preparing that business for long term success. To the operator. As you can see, we have a great line of sight of customer focused investment in our system for the next decade. This puts us in a strong position to deliver for our customers and investors in both the near term and the long term. To the operator.

Speaker 1

With that, I'll turn it over to Dave to give you a financial update.

Speaker 3

Thanks, Jerry, and good morning, everyone. Let me start on Slide 7 to review our Q1 financial results. Operating earnings for the quarter were $448,000,000 to the conference operator. This translates into $2.31 per share. You can find a detailed breakdown of EPS by segment, including a reconciliation to GAAP reported earnings in the appendix.

Speaker 3

To the conference operator. I'll start the review at the top of the page with our utilities. UP Electric earnings were $201,000,000 for the quarter, ahead of our internal plan, but slightly lower than the Q1 last year. The drivers of the variance were higher rate based costs and higher O and M, which included the additional investment in the acceleration of our vegetation management program. This was partially offset by cooler weather and the acceleration of the deferred tax amortization in 2022 that was implemented to delay the filing of our rate case and keep rates flat during the pandemic.

Speaker 3

To the operator. Moving on to DTE Gas, operating earnings were $196,000,000 $27,000,000 higher than the Q1 of 2021. The earnings increase was driven primarily by the implementation of base rates and cooler weather in 2022, partially offset by rate based costs. To the operator. Let's move to DP Vantage on the 3rd row.

Speaker 3

Operating earnings were $14,000,000 in the Q1 of 2022. To the Q1 of 2019. This is a $14,000,000 decrease from the Q1 last year due to the sunset of the REF business at the end of 2021, partially offset by higher RNG earnings this quarter. We remain on track to achieve full year guidance at DTE Vantage. To the operator.

Speaker 3

On the next row, you can see Energy Trading had another strong quarter, mainly due to strong performance and also some timing in our fiscal gas portfolio. The accounting timing favorability was largely due to strategic long positions that support physical positions later in the year. Due to these timing related gains, we're not changing our conservative full year guidance as some of the favorability could reverse later in the year. To the conference operator. Finally, corporate and other was favorable $22,000,000 quarter over quarter, primarily due to the timing of taxes.

Speaker 3

To the conference operator. Overall, DTE earned $2.31 per share in the Q1, so a strong start to the year puts us in a great position for the remainder of 2022. Let's turn to Slide 8. We continue to focus on maintaining solid balance sheet metrics. To our strong cash flows, DTE has minimal equity issuances in our plan beyond the equity units that will convert later this year.

Speaker 3

To our Investor Relations Officer. We have a strong investment grade credit rating and target an 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 top end of our targeted EPS growth rate. In the Q1 of 2022 DTE completed a green bond to the issuance of $400,000,000 This is DTE's 4th green bond issuance in the past 5 years for a total of over $2,500,000,000 to DTE is Michigan's leading producer of and investor in renewable energy, and these funds support our net zero emissions goals. To the call.

Speaker 3

Let me wrap up on Slide 9, and then we will open the line for questions. In summary, we feel great about the start to the year. Through the remainder of the year, DTE will continue to focus on our team, customers, communities and investors. We are on track to achieve our 2022 operating EPS to guidance midpoint of $5.90 per share, which provides 7% growth from our 2021 original guidance midpoint. To our Investor Relations.

Speaker 3

Our robust capital plan supports our strong long term operating EPS growth, while delivering cleaner generation and increased reliability and focusing on customer affordability. GT continues to be well positioned to deliver the premium total shareholder returns that our investors have come to expect with strong utility growth and a dividend growing in line with operating EPS. With that, I thank you for joining us today, and we can open up the line for questions.

Operator

Followed by the number one on your telephone keypad. Your first question comes from the line of Shar Pourreza with Guggenheim Partners. Your line is open.

Speaker 4

Hi, good morning, Darren and team. It's actually

Speaker 3

to our next question.

Speaker 5

Hi, how are you doing? Congrats on

Speaker 4

a great quarter and start to the year. My first question is on the IRP. Michigan had a strong recent data point for IRP mechanisms like the regulatory asset treatment and the increasing administrative support for clean energy.

Speaker 6

How does that inform

Speaker 4

or change the outlook for the October IRP? Do you see a stronger case for some of the accelerated retirements that you've been talking about?

Speaker 1

We do. And we thought it was a really constructive outcome, which continues to be the case here in Michigan. We have constructive policies, energy policies and constructive commission to administer those energy policies. So we're really encouraged by it. We're also really encouraged by the fact that it's a balanced outcome between renewables and dispatchable resources to ensure both reliability and affordability for the state.

Speaker 1

So as it relates to our IRP, we continue to interact with various stakeholders and taking in their feedback and we are looking to to retire Bell River, as we mentioned, off of coal use in 2028 and convert it to gas and certainly are looking really hard at how aggressive we can pull forward the retirement schedule for the 4 units at Monroe, which is our largest coal plant. So much of that is in progress. So we're Constantine, we're highly encouraged by the outcome and certainly will support what we plan to file.

Speaker 4

Thanks. That's helpful. And as we're thinking about the longer term financing needs, you notably stand higher than from the peers on metrics and combined with the business mix improvement over the years. Do you envision more flexibility from rating agencies on thresholds and is there a range of scenarios where you could utilize some of that dry powder like you talked about the opportunities on IRP resiliency, etcetera?

Speaker 3

Yes. Hi, Constantine. This is Dave Root. How are you? Yes, we do still have that pretty conservative 16% FFO to debt number that's in there.

Speaker 3

And when you look across some of our peers and with the rating agencies, that does give us some good headroom to any of the downgrade levels. So we like the position we're in now. We like having that strong position, but it's something that we'll continue to think about as we go forward.

Speaker 6

Excellent. And maybe just a

Speaker 4

quick aside on DTE Vantage. Is the focus still on RNG growth and we I've noted the market getting a little bit more competitive, but there have been some opportunities to include RNG into rate base under a regulated construct.

Speaker 6

Is there

Speaker 4

a potential parallel path forward there?

Speaker 1

Right now, we're concentrating on greenfield projects in the RNG space, and we've been able to find really nice projects that give us mid teens type of unlevered returns after tax and to cash payback in a 3 to 5 year timeframe. And as you just saw, we found a project like that in Michigan where we're actually converting it from power generation to RNG and the IRRs are even stronger than the ones I mentioned for those types of projects. And we've got a to a good list of opportunities in that regard. And we're very selective because we're only looking for $7,000,000 to $8,000,000 a year to come from that space and the other half of our growth is coming from on-site projects management of on-site energy to the structure and that we've got a good some good prospects in that space as well. And those are typically underpinned by long term fixed fee type of arrangements with good IRs.

Speaker 1

So good pipeline of opportunities there. We're still continuing to see nice growth advantage. And in terms of rate base, we do have an RNG project that we're doing with the City of Grand Rapids, but it's really their to wastewater treatment facility that's producing the RNG and then we're investing to make a pipeline quality and inject it into our system. So that's some opportunity, but I would say that's modest at this point in time.

Speaker 6

Okay, understood. That's a very helpful update. Thanks so much. Thanks for taking the question.

Speaker 1

Thank you.

Operator

Your next question comes from the line of Jeremy Tonet with JPMorgan. Your line is open.

Speaker 7

Hi, good morning. This is actually Ryan Karnish on for Jeremy. Thanks for taking my question.

Speaker 8

Good morning, Ryan.

Speaker 7

Good morning. I guess I just wanted to follow-up on DTE Vantage there. And I appreciate you guys keep kind of finding attractive projects, but just Now thinking through the relative kind of competition in the RNG space, would you consider at any point maybe monetizing that asset or partial monetization or do you still kind of see a good runway to kind of keep growing it organically?

Speaker 1

Well, we certainly see a good runway to continue to grow organically, and we've been really focused on organic development. When you're looking at existing operations, they are attracting a very high premium. So when you asked about would we consider selling that business. We're always looking for ways to optimize and maximize shareholder value. I think you can see that in our TSR, in the 10, 5, 3 year and 1 year, we're at to the top of our peer set and that's because we always look for ways to maximize value.

Speaker 1

So if we do see an opportunity where it could be valued more than how it's currently valued in our portfolio, we would seriously consider that. So always on the lookout for those opportunities.

Speaker 7

Understood. I appreciate the color. And then just one for me on what you're kind of seeing at this point on the supply chain side. I know solar in particular has been a big focus across the sector. I don't know if there's anything that you kind of note that you're seeing across to your supply chain or any concerns you have kind of over the remainder of the year either on the O and M side or the capital side?

Speaker 1

Yes, I would say on the solar piece, obviously, that's a big topic in the industry with the recent Department of Commerce matter that's evolved that I'm sure many of you are familiar with. And for 2022, there's no impact. We have what we need. We did have a build in 2023, about 300 megawatts that we're looking to build to support our voluntary program. If that was delayed into 2024 because of the Department of Commerce actions, there really have no impact on our 2022, 2023 earnings, and we can manage through that quite easily.

Speaker 1

As if it persists longer term, certainly we have a deep portfolio of capital investment opportunities at our utilities that we could deploy as we've mentioned before. But we're still really excited about our voluntary program. We've got about 1,000 megawatts signed up already, to another 1200 and what I would say late stage of the negotiation. So it's still a very active program and our customers love the product. So we're hoping that this to issue with the Department of Commerce resolves itself quickly.

Speaker 1

Sounds good. Thank you. To

Operator

the operator. Your next question is from the line of Julien Dumoulin Smith with Bank of America. Your line is open.

Speaker 9

Hey, good morning. This is Darius on for Julian. Thank you for taking the question. I just wanted to touch on briefly about, I think you mentioned in the opening remarks, later in the year, expecting and update on the long term cadence. Just curious, are you waiting on any specific inputs or developments between now and that expected update or is it more just a preference to maintain your historical cadence of giving that update usually in the November timeframe?

Speaker 1

Well, I would say that one of the key things that we're looking to finalize is our integrated resource plan, which we will file in October. And that will provide significant instruction, if you will, in terms of what our long term capital plans will be. And so that's why we're timing it with sort of a fall period in terms of updating our long term 5 year plan. And that's pretty traditional how we do it. So I think two reasons.

Speaker 1

One is the IRP is really will shed light on our long term capital plans as we who look to transform our generation fleet. And secondly, it's usually the time that we do update our 5 year plan. To

Speaker 9

the operator. Great. Thank you. That's very helpful. One more if I could just on how things are shaping up here in 2022.

Speaker 9

It looks like once again the Energy Trading segment did quite well in Q1. Just curious, I mean, are you expecting now, given that strong results in Q1 to be trending to the upper end of your guidance range for the year or perhaps are there other items that you're seeing coming up in later on

Speaker 5

in the year that might mitigate that?

Speaker 1

So I'll start by saying that Dave and I both mentioned in our opening remarks that all of our BUs are building contingency, our electric company, to our gas company, primarily due to weather and certainly Vantage is tracking ahead of plan as well. And of course, you've seen the results at trading, which are also tracking significantly ahead of plan. So we will likely provide an update after the second quarter as to where we are where we expect our EPS to trend towards, so we have a good feel for how the summer weather is shaping up. So, but I can tell you that we are building contingency above our midpoint at this point in time.

Speaker 9

Okay, great. Thank you. That's very helpful. I'll pass it along here.

Speaker 1

Thank you.

Operator

Your next question is from the line of Angie Storozynski with Seaport. Your line is open.

Speaker 10

Thank you. I was just wondering, given what we saw in the MISO capacity auction that the region clarity is struggling to to manage the load with Generation Resources and granted that it's just 1 year forward. But is there any thoughts that maybe You might be rethinking the timing of your co plan retirement?

Speaker 1

Well, thanks for the question, Angie. To the retirement that we've made have been essentially replaced almost completely by 2 acquisitions, to gas plant acquisitions that we made about 5 or 6 years ago and also the construction of the new Blue Water Energy Center, which is an 1100 Megawatt combined cycle plant. To the call. So we've brought online into our portfolio over 2,000 megawatts of dispatchable generation to replace the 2,300 megawatts of coal retirements. In addition to that, we've built wind as well, which Also provides energy, not necessarily a lot of capacity during the summer months, but certainly provides energy supply.

Speaker 1

The state is running tight on capacity and there is concerns about how we how the state to move forward in that regard. But we feel like from our perspective, we've got adequate supply to supply our demand. Now we do have coal plants that have been retired and will retire like the Sinclair Power Plant, for example, 1100 Megawatt Coal Plant that if necessary, We could bring back a hunt line if there was an emergency situation, but that's certainly something we'll rely on MISO to make a determination.

Speaker 10

Okay. And then moving on to Vantage, I heard your comments about looking at ways to extract value from this business. But we would it would be great if you guys could provide us with some additional disclosures, especially around to the segmental EPS for that business. Now when you look at public comps for RNG Company and some for District Manager. Do you I mean, do you see big differences between the assets that you have and developed and those that have been changing hands?

Speaker 10

Or you think that Those public comps are just good indicators of the value of these assets of your assets.

Speaker 1

Yes, we're looking at those pretty hard, Angie, and watching them and then comparing them to how we feel is valued in our portfolio. So we're constantly looking at those and but it's something that we're looking at very hard always to see are we better are we the better owners or others better owners to these assets. I can tell you that provide nice cash flows and nice returns for our current investors. But, Angie, we remain very open creating value always. If there's an opportunity to create incremental value, we will pursue it.

Speaker 1

Okay. Thank you. Angie, could you repeat the question on the disclosures? To the

Speaker 10

operator. Yes. I was just because you guys showed us I don't see any slide on Vantage in today's presentation. I think I did at least. In the past, you guys showed us a breakdown of net income.

Speaker 10

I was hoping that we could see a breakdown of EBITDA because of those to peers and other private transactions that have happened with like C1 or Veolia were done on EBITDA multiples, and I was just hoping that we could get some insight into that.

Speaker 1

Great. We'll note that and thanks for that feedback.

Speaker 10

And welcome. Thank you.

Speaker 1

Thank you.

Operator

Your next question is from the line of Insoo Kim with Goldman Sachs. Your line is

Speaker 8

open.

Speaker 5

Hey, guys. Thank you. First question, going back to Vantage and just more on a fundamental basis, how do we to think about in a higher price gas environment that we're in currently, how the, I guess, the demand for RNG projects or in that realm gets impacted at all by that. Just curious on your thoughts and whether you've seen any changes there?

Speaker 1

We haven't seen any fundamental changes certainly in demand. Most of this product goes into the transportation markets, especially the dairy gas really goes into the California transportation markets. And so we have not seen a change in demand. We have seen some changes in the federal pricing for the product as well as the California pricing for the product. But overall, the pricing is right on top of our pro form a.

Speaker 1

I don't know, Dave, if you want to add anything to that.

Speaker 3

I think that's right. And I think, as we're seeing more LDCs put RNG of GOLs into their system. We're actually seeing the demand for RNG over time. It feels like it's So I think demand for the product is going to be going up.

Speaker 5

Understood. Yes. That's what I was thinking. Just wanted to get clarification on there. And then my second question, I guess, obviously, whether it's labor or materials inflation on the cost side and impacting the entire world.

Speaker 5

But I did see on the electric utility segment, You pointing out O and M a little bit, but just broadly, given the contingencies that you have, I think you're relatively comfortable to manage that. But just with the trends you've seen, have the increase in whether it's labor costs or materials costs been more pronounced than you would have expected, I guess, when you just a few months ago when you gave guidance.

Speaker 3

Well, this is something we're watching very closely and we are planning accordingly to share no negative impacts to our plans. First, I'll say we've demonstrated a long history of being able to manage costs effectively, including inflation. And so far we're not seeing the impacts of inflation here and I think it's really how we're structured now. About 85% of our spend is through services and We just haven't seen as much inflation there. And then we also have a lot of long term contracts that serve us well through these periods.

Speaker 3

So overall not seeing any negative impacts to our plans for the year, our longer term plans. The O and M at electric was a little higher, but that was mainly due to accelerating some of our tree trim spend that we wanted to get through quickly to help our reliability as we came through for the summer, but not an inflation impact there. Okay.

Speaker 5

That's a good color. Thank you so much.

Operator

Your next question is from Jonathan Arnold with Vertical Research Partners. Your line is open.

Speaker 11

Hi, good morning, guys.

Speaker 6

Good morning. Hi.

Speaker 11

Just on Vantage, you obviously have said here that it's ahead of plan and I think you raised the plan last quarter. When we look at the where the quarter came in relative to annual guidance, it looks a good bit below what just the average run rate would be. So can you maybe talk a little bit about seasonality in that business post Raf, and also just to what extent that catch up is going to come from new projects, etcetera.

Speaker 3

Yes, that's a good question. I think you nailed most of the answer in your question. First, we do feel really good about this segment and where we are relative to our year end guidance and being able to come in at that. This quarter is lower than the expected annualized number, but it's primarily due to some known plant outages that we had. And so it's going to be made up through the year as that happens.

Speaker 3

And then we do have some projects that come online, some RNG and some Industrial Energy Service Projects to come online later in

Speaker 5

the year. So

Speaker 3

still feel really good about our guidance for this segment.

Speaker 11

Great. Thanks for that, Dave. And then just on trading, you talked about operating and then also some of it was timing. Can you maybe unpack for us a little bit how much is timing that you think may reverse and how much is sort of just to trade outperformance.

Speaker 3

Yes, we had a great quarter in trading and it's primarily all came in our gas to physical business where we're serving LDCs and producers. And what we saw is a lot of it to the conference operator today. At this time, I would like

Speaker 6

to welcome everyone. It's just great performance,

Speaker 3

but about half of it could be timing that will play out later in the year. So that's why we're not raising guidance on this right now is because we want to see how that timing plays out, but it's a little over half of it was performance. And then there's some that is timing that we have hedge positions that can change or that can come down as we flow the gas later in the year.

Speaker 11

So it sounds like you're saying it may reverse, but you're not committed you don't necessarily see that.

Speaker 3

There are some that some we know will reverse and some that may reverse.

Speaker 11

Okay. And then maybe if I could just squeeze in one other just a high level on some of our latest thoughts on just where you see customer bill trajectory shaping up relative to to inflation out there. You've obviously got the rate case. We've got fuel costs on the ARP. You've been pretty good at finding ways to mitigate the spill pressure.

Speaker 11

So maybe to some thoughts around that too.

Speaker 1

Sure, Jonathan. Maybe I'll start and Dave can add to it. But let's start with the to the electric generation portfolio. One of the values of having a diversified portfolio where we've got wind, nuclear, to gas and coal in the portfolio. It allows us to sort of weather some of the to the company's commodity pressures as well as the fact that with our coal purchases were purchased through 2023 from a price perspective.

Speaker 1

So we feel really good about our coal purchase, which is the bulk of our generation assets at this point in time. And of course, nuclear is also were purchased through 2028, so we feel good about that as well. So I feel on the generation side, the fact that we have a diversified portfolio and that we're somewhat hedged for some time, help soften the commodity price pressures that the industry is seeing. On the natural gas business of RFL DC. We've got north of our more than 75% of our to gas purchased for the winter of 2022, 2023 and about 25% purchased from a price perspective for the 'twenty three-twenty four winner.

Speaker 1

And that's just normally how we bought gas at the LDC for over a decade and then it helps to smooth the ups and the downs in the gas pricing for our customers. But if these prices persist for multiple years, then I think we will start to see pressure and we're starting to look at ways on how we can offset those pressures through cost reduction initiatives as well as revenue initiatives that we see opportunities developing in our business. So I hope that helps. That helps, Jonathan.

Speaker 11

Yes. It's great. Lots of good context there. Thank you, Jerry.

Speaker 6

Yes.

Operator

To the operator. Your next question is from Andrew Weisel with Scotiabank. Your line is open.

Speaker 12

Hi, thank you. Good morning, everyone.

Speaker 4

Good morning, everyone.

Speaker 6

Good morning.

Speaker 3

How's it going?

Speaker 12

Good, thanks. My first question is I want to follow-up on renewables. I appreciate your comments on the DOC and supply chain concerns, but what about the more local issues? How big of a challenge are NIMBY issues in Michigan or the debate around rooftop solar and cross subsidization? And just sort of how do you think about those risks potentially impacting your near term plans?

Speaker 1

So I would say, We've got a really Andrew, we've got a really strong land position for solar, and we're working really closely with municipalities to ensure that there is a productive outcome when we go for permitting. That's usually where as you mentioned, there can be pressure points. And we certainly secure more acres than we will likely need because we know that there's always going to be problems for some of the acreage that we've optioned for the solar developments, but I can tell you that we've optioned tens of thousands of acres and we feel pretty confident that we can execute the plan that we have in front of us over the next handful of years and beyond. So that that feels good. In terms of rooftop solar, certainly customers are open to put rooftop solar at any time and I think we've got to legislation that limits how much can be highly subsidized.

Speaker 1

And there is always a continuing debate as to how much rooftop solar should be subsidized. Now what I will also say is that we're offering solar products to our residential customers. And as I mentioned, we're over 50,000. I think we're around 55,000 customers signed up already and we're signing up customers every week because the cost of utility scale solar is about a third of the cost of rooftop solar and you don't have to to drill thousands of holes in your roof. So it seems to be a desirable product that we're offering.

Speaker 1

So not only as customers can do it if they like and they can do as much of it as they like, but without subsidy and We can also offer them an alternative, but it is a continuing debate.

Speaker 12

Great. Thank you. That's helpful. And my follow-up is forgive me, I'm going to ask about the IRP even though it's still months away. But my question is almost more philosophical.

Speaker 12

To whatever degree generation CapEx might exceed what's in the current plan for the next few years, would you scale down spending in other categories like to distribution in light of either affordability concerns or balance sheet pressures or would that just be upside?

Speaker 1

We obviously, in order to inject more capital into the plan, we have to find ways to create room for it from an affordability perspective. Overall, we've got very large inventories of capital that we could deploy on the distribution side and certainly even on the generation side as we start to build out our renewables portfolio first and then eventually build baseload plants to support the retirement of large coal infrastructure. The limiting factor for us is always affordability. So as we introduce more capital into the plan, we have to find ways to offset it with to affordability initiatives and some of those affordability initiatives are enabled by our renewables investments. So for example, this year we filed for the first time in my memory a to reduction in O and M expense on an absolute basis in our rate case because of the conversion from coal to gas and to renewables.

Speaker 1

The operating expense is much lower. And so there is an offset that our capital programs do create, but our capital programs also do create pressure. So long way of saying is that that we will manage affordability and we will drive distinctive growth for our investors.

Speaker 12

Thank you. That's very helpful.

Operator

Your next question is from the line of Ryan Levine with Citi. Your line is

Speaker 8

open. Thank you for taking my question. What's your current outlook for volumetric trends for residential and industrial customer load for the remaining portion of the year.

Speaker 3

Yes. We're you probably saw our quarter over quarter results and our residential versus last year was down about 1% and our commercial was back up 2% and our industrial was overall to the floor. Overall, our load was flat versus last year. What we are still seeing is some increased residential usage from what we would have thought where we'd be pre COVID. We expect that to start coming down.

Speaker 3

We're starting to see that come down as more people are returning to work. So we expect that to trend back down, but we're still seeing some upside there, but overall, low pretty flat according or versus last year.

Speaker 8

Okay. And then on energy trading, just want to make sure I heard this correctly. So you're saying about 50% of The contribution for the Q1 is cemented and the other half is more volumetric. They're exposed to events later in the year. That kind of puts you at the high end of the range just from the Q1 contribution.

Speaker 8

Is there any reason to believe that you won't to continue to earn from that segment for the remaining portion of the year that it wouldn't push you above your range?

Speaker 3

Well, we just we like to manage that business really, really conservatively and have some contingency built in there. So we tend to do well in the second half of the year as we have some of these things flow, but We just want to remain conservative right now in this area, so we're not moving our guidance at this point.

Speaker 8

Okay. And what role is to the next question. Do green bonds have for the future financing plans for DTE? And what are the drivers of

Speaker 1

the recent financing decision? To the

Speaker 3

call. We see the green bonds as supporting our renewable and our green initiatives and to the company's opportunity bond investors an opportunity to participate in that. So as we continue to grow our renewable portfolio, We expect to have more of that and be able to utilize more of that in the future to help support that.

Speaker 8

Is there any contingencies around certain renewable generation content within your portfolio?

Speaker 3

These go to specific projects and assets and so they have to be they have to go towards those assets that So it's not to the overall portfolio, but they're aimed at particular renewable assets.

Speaker 8

Okay. Appreciate it. Thank you.

Operator

Your next question is from the line of Michael Sullivan with Wolfe Research. Your line is open.

Speaker 13

Hey, everyone. Good morning.

Speaker 1

Hey, good morning, Michael.

Speaker 8

Hey, Jerry. Just wanted to follow-up quick

Speaker 13

on the sales commentary there. In Q1 maybe just for Dave actually, looks like industrial actually ticked down a little bit, whereas the recent trend has been kind of upward. So is that just like a 1 quarter thing or any additional color around that?

Speaker 6

Yes, it's more of a

Speaker 3

quarter thing. It's because of the chip shortage that we're seeing across some of the autos and some of the areas that we just had to have a dip there. I don't think it's it's not a long term. There's not been any additional shutdowns or closings. It's just the chip shortage manufacturer for the manufacturing sector.

Speaker 13

Okay, great. Yes, that makes a lot of sense. And then also just wanted to clarify on to DOC impact on solar. Maybe you could just give me like what the current plan is for solar additions? Like I think you said you're all good on 2022, but How much solar are you adding this year and then next year, the 300 megawatts that's impacted?

Speaker 13

Is that all the solar or do you have some additional that is unimpacted? Maybe just a little more on that.

Speaker 1

Yes, this year we're good. We're sitting at about 500 megawatts built for our voluntary program through this year. And then next year, we're planning to build about 300 that we would build and then 200 we would expect in PPAs. So right now our vendors are telling us they're going to furnish, but with the DOC, we're thinking that in the worst case that it gets pushed a year into 2024. And certainly we can manage that in our plan for next year.

Speaker 1

And if it was to push beyond 2024, which we highly doubt, but then we have started to think about what other contingencies we could pull in terms of capital deployments. We've got a as you know, a deep pool of potential investments we could bring forward and pull forward. So we're that's how we're thinking about it right now.

Speaker 13

Okay, great. How much is planned for 2024 as is right now?

Speaker 1

I don't think we've put that out there yet, Dave or Barb. I mean, 2,500 megawatts is what we got over 5 years. So I could give you a feel as to how big the program is over a 5 year period.

Speaker 13

Awesome. Okay. Thanks, Jerry. Appreciate it.

Speaker 1

Thank you.

Operator

Your next question is from the line of Anthony Krowdell with Mizuho. Your line is open.

Speaker 14

Hey, good morning, Jerry. Good morning, Dave.

Speaker 1

Good morning, Anthony. How are you?

Speaker 12

Good. You guys seem to have

Speaker 14

a high class problem like less than 10% of your business generates all the questions. I guess that's a good thing versus everybody questioning 90% of your business.

Speaker 1

We think we have a high class company, the answer is for sure.

Speaker 14

Just most of my questions are answered. Just a quick one I have. I think a nice data point with the IRP filing with CMS reaching a settlement. You guys have a pending electric case. You haven't settled in the electric rate environment since I think 2,006.

Speaker 14

Is it likely that you settle here or the company continues on the track of maybe going fully litigated?

Speaker 1

Well, we're going to certainly engage all the stakeholders in a potential settlement and because it's a pretty straightforward case. I mean, really, we're not asking for more O and M to the conference operator today. At this time, I would like to welcome everyone. We're actually asking for less, and it's really all about infrastructure that's very necessary for the state, primarily pointed at to our electric grid and also the continued transformation of our generation fleet. So pretty straightforward case.

Speaker 1

To our strategy is that we'd like to settle. We'll know more in the middle of May, Anthony, when we see the staff filings and intervener filings, and then we'll engage and try to close it out before the end of the summer if we can. But whether we settle or to litigate. We've had very constructive outcomes as you've seen in the State of Michigan.

Speaker 14

Great. And I guess just lastly on, I think your potential IRP with maybe one difference between yours and the other IRP as I think your plan also includes new generation being built. And as you did mention earlier, the state is maybe running tight in capacity. Do You think that maybe draws any additional scrutiny or just the capacity needs in the state are really outweighing or dispatch will need for generation really outweighs anything else?

Speaker 1

Certainly, we have a very pragmatic commission and administration. And there is an understanding that, look at, we want to decarbonize the economy, but we have to do it in a way that still make sure the lights come on and that our industrial base continues to function properly and reliably and that it's affordable. So we will file for new baseload generation assets in the IRP. I expect to do so just because We've got over 3,000 megawatts down at Monroe that will come offline over a period of time and we have to have to dispatchable generation in that part of our system in order to make the system work, to make the grid work. And I think that's understood.

Speaker 1

I think there will be people that won't like that, but there are people that will love the fact that we're going to build 5000 to 7000 megawatts of renewables. So it is a balanced portfolio and that will achieve all of the objectives, reliability and decarbonization and affordability.

Speaker 14

Great. Thanks for taking my question. I really

Speaker 12

appreciate it. Congratulations on the quarter. Thank you, Anthony.

Operator

Your next question is from the line of Travis Miller with Morningstar. Your line is open.

Speaker 8

Good morning, everyone. Thank you.

Speaker 1

Hey, Trent. Good

Speaker 11

morning. You answered most of my

Speaker 3

questions, in particular, I had

Speaker 6

a question about the customer bill affordability. But just to follow-up a little bit on that, What about in the rate case? Are there any levers that you can pull or adjustments you could make for HAP's earnings neutral adjustments in the right case that would mitigate some of the potential customer bill impact either later this year or next year. To

Speaker 1

the operator. Dave, do you want to take that?

Speaker 3

Yes. I think What we do focus on to mitigate the customer bill impact is really focusing on our own O and M and what we can flow through there. So we continue to focus on our to continuous improvement efforts, our productivity and efficiency improvement and playing that through. I think as As far as individual things within the rate case, I think we're in the active filing there. So I think all that's probably already in there.

Speaker 3

For future affordability. That's really where our focus is, is ensuring that we have the best cost structure that can allow the to capital focused investment that customer focused investment we need to do for reliability and clean generation.

Speaker 1

To And I would say, Travis, in addition to that, we've stayed out of a rate case for 2.5 years by being really creative. And we did that intentionally because of the pressure our customers were under during COVID. And I think So we've gotten creative in the past and as Dave said, we will be creative in the future and I think our continuous improvement culture also continues to find unique and Creative ways to keep driving our cost structure down. And so we expect more of that. And plus our capital investments are pointed in many instances at structurally removing costs to operate our system.

Speaker 6

Sure. Okay, great. Thanks. And then just real quick, any updates In terms of electric vehicle initiatives or anything this quarter that or last quarter rather, is that worth mentioning?

Speaker 1

Well, we can Yes, we continue to deploy our electrification program where we've that we're in our second tranche of $14,000,000 We had $14,000,000 That's been approved in the past and now we're in the middle of the next $14,000,000 And I could tell you this that number of EVs connecting to our system is going up. We're seeing at well north of 500 EV Attachments. Actually, if I got there, I bought 1,000 attachments a month. So it's a good program and it's moving attachments forward. And that's up from a couple of 100 just a couple of years ago.

Speaker 1

So we're seeing significant growth. It's still pretty small, pretty modest, not going to move the needle just yet. But there is a ramp. And I was talking to some of the senior people at Ford Motor Company and General Motors. I mean, their factories got huge backlogs for to EV orders and they're trying to figure out how they're going to build all this, build for all this demand.

Speaker 1

So tremendous demand. So we expect to the pattern of significant growth to continue over the next several years.

Speaker 6

Great. Thanks so much. That's all I had. To

Speaker 1

the operator.

Operator

As there are no further questions at this time, I will now turn the call back over to Mr. Jerry Norcia.

Speaker 1

Thank you, Brent, and thank you all for joining us today. I'll just close-up by saying that, PT had a very successful Q1, and we're feeling really good about the remainder of 2022 as well as our position for future years. I hope everyone has a great morning and we look forward to seeing many of you at AGA in a few weeks. Have a good day.

Operator

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

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Earnings Conference Call
DTE Energy Q1 2022
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