DTE Energy Q3 2022 Earnings Results & Report

DTE Energy EPS Results

• Actual EPS: $1.60
• Consensus EPS: $1.58
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: $1.72
• EPS Beat Rate: 6 of last 8 quarters

DTE Energy Revenue Results

• Actual Revenue: $5.25 billion
• Expected Revenue: $4.00 billion
• Beat/Miss: Beat by +$1.25 billion
• YoY Revenue Growth: N/A

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

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

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

DTE Energy Q3 2022 Earnings Call Transcript

Key Takeaways

• DTE is on track to achieve its 2022 operating EPS guidance midpoint of $6 per share, representing over 8% growth from the 2021 original guidance midpoint.
• The upcoming Integrated Resource Plan (IRP) filing will detail the company’s decarbonization roadmap, updates to its five-year capital plan and expansion of the My Green Power voluntary renewables program to 2,100 MW.
• Provisions of the Inflation Reduction Act—including wind/solar PTCs, nuclear credits, RNG investment tax credits and enhanced carbon capture incentives—are expected to lower project costs, eliminate the need for tax-equity partners and help maintain customer affordability.
• DTE Vantage earnings declined by $47 million in Q3 due to the sunset of the REF business, and energy trading earnings fell $33 million year-over-year amid portfolio performance and timing reversals.
• The company improved its financing profile by remarketing senior notes and using proceeds from an equity conversion to prepay $1.25 billion of parent debt, reducing future interest costs.

Presentation

[Operator]

Good morning, and welcome to DTE Energy's Q3 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If you'd like to ask a question at that time, you'll need to press star followed by one on your telephone keypad. To withdraw your question, please press star one again. If you need operator assistance at any time, please press star zero. I would now like to turn the call over to Barbara Tuckfield, Director of Investor Relations. Ms. Tuckfield, please go ahead.

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

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

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

Thanks, Barb, and good morning, everyone, and thanks for joining us. Let me start by saying that three-quarters of the way through 2022, we are on track for a very successful year, and we continue to be well-positioned for the future. This morning, I will highlight some of the successes we have accomplished this year, and Dave will provide a financial update and wrap things up before we take your questions. We are very well-positioned to achieve our operating EPS guidance. The $6 guidance midpoint provides over 8% growth from our 2021 original guidance midpoint. As many of you know, we will be filing our integrated resource plan or IRP next week. This filing will provide updates on our path for decarbonization and our commitment to continuing to provide clean, reliable, and affordable energy to our customers.

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

Our team has been working hard on this filing, going through multiple scenarios and taking into account stakeholder feedback to develop a plan that works best for all of our customers, as well as incorporating the benefits of the Inflation Reduction Act or the IRA. I'm extremely proud of all of our team members who have put their energy into this filing. Naturally, the IRP will impact our five-year capital plan, and we are excited to provide further details in a couple of weeks at EEI. Along with our capital plan update, we will provide an update on our long-term growth strategy at this conference. We will also provide updates on our voluntary renewables program, MIGreenPower, which continues to show substantial growth. Just this week, we subscribed a new 400 MW customer, increasing the program to 2,100 MW of subscription.

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

As climate change remains our generation's defining public policy issue, DTE is committed to doing our part by continuing to invest for our customers and to ensure reliability. Our electric grid needs to be modernized to be resilient against extreme weather and also be able to accommodate significant new demand that will be coming in the future. Our electric grid will continue to see increased load as the pace of electric vehicle adoption accelerates. We are focusing on updating and improving our aging infrastructure for this additional demand while continuing to provide safe, reliable, and affordable energy. Recently, we saw the passage of the IRA. We see the IRA as a positive overall for our company, with benefits for both our utility and non-utility businesses. Dave will go into the specifics in a few minutes on the positive impacts of the IRA.

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

Let's move to slide five to discuss how we are delivering for all of our stakeholders. We know that with our engaged and talented team, we will continue to deliver for our customers, communities, and investors. We are working hard on all these fronts, and I'm pleased to highlight some of the recognition we have received. DTE was recently named a top 10 employer in the state of Michigan by Forbes magazine. Additionally, after our most recent engagement survey with Gallup, DTE ranks in the top 4% of companies worldwide in employee engagement, which continues to give me confidence that our team will deliver for our stakeholders. We also continue our efforts to support our customers. As I mentioned earlier, we will be filing our IRP next week. This will provide detail on our plans to generate safe, clean, reliable, affordable energy as we accelerate our decarbonization efforts.

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

We continue to be an integral part of the community. We recently joined the City of Detroit and the White House to form the Detroit Tree Equity Partnership. This ambitious program aims to build Detroit's tree canopy by planting tens of thousands of trees over the next five years, cooling urban areas while providing beauty and air quality improvements. The program will also hire and train workers to plant and maintain the trees in the city, bringing jobs to our community. We are also partnering to drive economic development in the state of Michigan. Our Next Energy recently announced that they will be bringing 2,000 jobs to Michigan with a $1.6 billion investment in new battery operations. We are helping the state transition to a new automotive future with electric vehicles.

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

Given all of this positive momentum, we also feel great about our financial position as we head into the final months of 2022 and are on track to achieve our 2022 operating EPS guidance. Let's turn to slide six. With the opportunities we have in front of us. DTE is on track to make significant customer-focused capital investments across our businesses. These investments are transforming the way we produce power as we shift toward renewables and natural gas and away from coal generation. Two important factors affecting our grid are climate change and emerging electrification technologies. We need to build the grid of the future to ensure we can continue to provide clean, safe, reliable, and affordable energy. Additionally, at our gas utility, we continue our important main renewal work, which further reduces greenhouse gas emissions.

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

I'm happy to say we are on target to complete another 200 miles this year. Finally, at DTE Vantage, we continue to add new RNG projects and other energy solution projects for our customers, which enables growth with a focus on decarbonization. We execute on all this investment with a sharp focus on customer affordability and ensuring that we continue to manage our business to achieve that. Our distinctive continuous improvement culture drives cost management. The shift from coal to natural gas and renewables also helps to further reduce operating costs. Our diverse energy mix helps reduce fuel costs as well, and it allows us to maintain flexibility to adapt to future technology advancements. The IRA supports this transition to renewable energy while achieving customer affordability goals and further enhances opportunities for growth at DTE Vantage. With that, let me turn it over to Dave.

[David Ruud, EVP and CFO at DTE Energy]

Thanks, Jerry, and good morning, everyone. Let me start on slide seven to discuss how the Inflation Reduction Act helps accelerate DTE's clean energy transition while also helping customer affordability. As Jerry mentioned, the IRA has a lot of positive elements for DTE that benefit both our utility and non-utility businesses. Jerry discussed the significant capital investment that we need to make for our customers to provide cleaner generation and to improve and prepare the grid for electrification. The IRA really helps maintain our customer affordability goals while we execute this plan. The wind and solar production tax credits support a more affordable acceleration of our clean energy transition as we build our renewable portfolio. The ability to transfer tax credits will eliminate the need for tax equity partners, which allows us to retain an additional 40% of the investment for our projects.

[David Ruud, EVP and CFO at DTE Energy]

The PTCs for nuclear generation support affordability by providing credits for our production based on the market price environment. The IRA provides new investment tax credits for RNG, making some of the projects that we are working on at DTE Vantage even more attractive and allowing potential RNG projects to be more economic for our utilities. The increased tax credit for carbon capture and sequestration can benefit both our non-utility and utility operations. The credits make more projects economically attractive, which enhances our business development opportunities and enables us to better help our industrial customers achieve their environmental goals. The tax credits can also support future baseload generation with carbon capture and storage for our utilities. Lastly, we don't see a material income or cash impact from the corporate minimum tax, given our current tax carry-forward position and accelerated depreciation provision in the IRA.

[David Ruud, EVP and CFO at DTE Energy]

Overall, we view the IRA as beneficial for customers and supportive of the transition to cleaner energy while maintaining affordability. Let's turn to slide eight to review our third quarter financial results. Operating earnings for the quarter were $311 million. This translates into $1.60 per share. You can find a detailed breakdown of EPS by segment, including our reconciliation to GAAP reported earnings in the appendix. I'll start the review at the top of the page with our utilities. DTE Electric earnings were $363 million for the quarter. This was $21 million higher than the third quarter last year, driven by accelerated deferred tax amortization in 2022 that was implemented to delay our rate case filings and keep us out of rate cases over the last three years, along with lower O&M costs this year.

[David Ruud, EVP and CFO at DTE Energy]

These were partially offset by higher rate-based costs and cooler weather. Moving on to DTE Gas. Operating earnings were $7 million higher than the third quarter last year. The earnings variance was due to the implementation of base rates, partially offset by higher rate-based costs. Let's move to DTE Vantage on the third row. Operating earnings were $26 million. This is a $47 million decrease from the third quarter last year due to the sunset of the REF business at the end of 2021, partially offset by higher earnings from industrial energy services. On the next row, you can see energy trading earnings had a decrease of $33 million from the third quarter of 2021, mainly due to the performance of the power portfolio compared to last year.

[David Ruud, EVP and CFO at DTE Energy]

As I mentioned on the second quarter call, there is also a reversal of the timing favorability in our physical gas portfolio as our strategic long positions used to support physical positions were transacted this quarter. This reversal may continue in the fourth quarter. Year to date, energy trading earnings are $32 million. We are on track to achieve full year guidance of $20 million-$35 million. Finally, corporate and other was favorable $29 million quarter-over-quarter, which is primarily due to the timing of taxes and a one-time tax true-up in 2021 that we mentioned in the third quarter call last year. Regarding the balance sheet for corporate and other, we have already successfully remarketed the senior note associated with the equity converts this quarter.

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

We'll pay down the $1.25 billion of parent debt coming due in November with the proceeds from the equity conversion. The pay down of these notes and the early remarketing of convertible debt are good examples of measures taken to reduce interest costs. Our planning process contemplated inflationary pressures and rising interest rates, and we are confident that we will offset increased costs with no impact to our long-term growth. Overall, DTE earned $1.60 per share in the third quarter. Let me wrap up on slide nine, and then we'll take your questions. In summary, through three quarters, we're having a strong operational and financial year, and we're on track to achieve our operating EPS guidance midpoint of $6 per share, which provides over 8% growth from our 2021 original guidance midpoint.

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

As Jerry mentioned, we'll be filing our IRP in early November, which will lay out our plan to support cleaner energy and the modernization of our electric grid while focusing on affordability and reliability. We believe the IRA supports affordability for our customers and positions DTE to continue to grow in the near and long term. We look forward to seeing you at EEI, where we'll lay out our 2023 early outlook and our five-year plan as we incorporate the details of the IRP. With that, I thank you for joining us today, and we can open the line for questions.

[Operator]

As a reminder to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, please press star one again. Our first question comes from Nicholas Campanella from Credit Suisse. Please go ahead. Your line is open.

[Nicholas Campanella, Director at Credit Suisse]

Hey, good morning, team. Thanks for taking my questions here. I just wanted to-

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

Morning, Nicholas Campanella.

[David Ruud, EVP and CFO at DTE Energy]

Hi, Nick.

[Nicholas Campanella, Director at Credit Suisse]

Morning. Just wanted to ask on the IRP, and you know, I know it's pending and coming soon, but you know, you could potentially see a you know, a meaningful kind of CapEx opportunity out of this. You know, how should we think about funding any kind of incremental CapEx to the base five-year plan today, you know, especially when we kind of think about common equity funding? Any thoughts there?

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

Dave, you want to take that?

[David Ruud, EVP and CFO at DTE Energy]

Sure. Yeah. You know, we are, as you mentioned, Nick, we're going to give more guidance on our capital plans at EEI. You're right, we have a good opportunity with the IRP and the IRA to invest some additional capital. You know, we do have a strong balance sheet, and rating agencies are comfortable with where we're at in our position, so we have a little flexibility there with our capital structure that we can support these investments, you know, before we have to use additional equity too. We'll give more detail at EEI, but I think you're right. We do see some additional capital opportunity due to the IRP and what the IRA allowed us to do.

[Nicholas Campanella, Director at Credit Suisse]

Got it. Thanks. I guess as it just relates to the electric rate order, or not order, but you got an ALJ, you know, rec. I think you filed some exceptions as well. Just when do you see that kind of coming to fruition and, you know, do you still kind of feel comfortable in kind of giving this outlook if you know, my understanding is that proceeding comes after when you'd give the outlook. Thanks.

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

Yes. We feel comfortable with where we're headed. Both the ALJ positions and staff positions, if you take various components of that, are quite supportive of our plan. We view it as supportive of our long-term plan. Certainly, there's strong alignment to make the investments in the grid, as well as clean generation. There's strong alignment there as well.

[Nicholas Campanella, Director at Credit Suisse]

All right. See you at EEI. Thanks so much.

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

Thank you.

[David Ruud, EVP and CFO at DTE Energy]

Thanks.

[Operator]

Our next question comes from Shar Pourreza from Guggenheim Partners. Please go ahead. Your line is open.

[Shar Pourreza, Senior Managing Director at Guggenheim Partners]

Hey, guys. Good morning.

[David Ruud, EVP and CFO at DTE Energy]

Hey, Shar.

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

Morning, Shar.

[Shar Pourreza, Senior Managing Director at Guggenheim Partners]

To Jerry, just starting off with the IRA and how that has impacted your thoughts, I guess, around the IRP. I mean, obviously there's clearly customer benefits and lower cost, but does that trigger kind of any sort of a revision to your planning inputs versus prior to the enactment, right? Because we've been talking about this IRP for some time, you know, so we've got a bit of a sense there. Did the IRA change, I guess, the calculus and what we've discussed before in prior slides? Then just remind us, do you have any sort of tax equity embedded in renewable spending where we could see an opportunity to avoid that tax equity and increase rate base? Thanks.

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

Great question. The IRA had a very positive impact on IRP from two perspectives. One, certainly lowered the cost of all of our investments in renewables, as well as long term, it improved the outlook for carbon capture and storage in our IRP. Very positive benefit to affordability, which allowed us to accelerate our transition. I think you'll see that when we roll that out next week. Very positive impact from the IRA. Of course, you know what the tax credits are, $26 per megawatt hour on solar and wind and PTCs on nuclear. All of those are gonna have a beneficial impact to our plan.

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

In terms of tax equity, with the IRA and the provisions in that IRA making tax credits transferable, we no longer need a tax equity structure which significantly simplifies our plan, but also removes an investment partner. We have now the opportunity to invest a greater amount in our renewables build-out. Very positive impact overall.

[Shar Pourreza, Senior Managing Director at Guggenheim Partners]

Got it. Perfect. Just, it sounds like, I mean, you guys are even more constructive on the Vantage segment post IRA. Simultaneously, there's obviously been some really high premiums paid for RNG assets. Did IRA kind of change your thoughts or even internal debates on whether you would ever put Vantage under a strategic review? Conversely, since IRA potentially accelerates Vantage's growth, does it even make sense in terms of the business mix for DTE you guys target as we're thinking about, you know, regulated utility exposure?

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

The way we're looking at Vantage right now, Char, is that, you know, it'll be our non-utility business will be 10% of our portfolio. The IRA, you know, the investment tax credit for RNG of 30%, just made the projects we were looking at even more economic, you know, significantly lifted the IRRs of many of the projects that we were looking at. Then the Cogen investment tax credit of 30%, that also helps projects that we've got in the pipeline become much more economic. We're excited about that. That 10% that we're looking to create and continue to create at Vantage has just become much more economic.

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

The last one is carbon capture and storage, which we've started to explore and have some interesting small opportunities in that arena as well, which not only will be beneficial to Vantage, but it'll also be beneficial to our electric utility as we think about carbon capture and storage as it relates to our generation assets. Really starting to understand that business in a deeper way. Overall, I would say the impact on Vantage from the IRA, again, was quite positive. This IRA has had significant impact in our thinking as it relates to our electric utility as well as Vantage in terms of creating more opportunity in both business segments.

[Shar Pourreza, Senior Managing Director at Guggenheim Partners]

Got it. Terrific. Thanks, guys. Jerry, congrats on the latest addition to your family. See you guys soon at EEI.

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

Oh, thank you. Thank you, Shar.

[Operator]

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

[Jeremy Tonet, Research Analyst and Managing Director at JPMorgan]

Hi. Good morning.

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

Good morning, Jeremy.

[David Ruud, EVP and CFO at DTE Energy]

Good morning.

[Jeremy Tonet, Research Analyst and Managing Director at JPMorgan]

Good morning. Just wanted to start off on the RNG landscape, if I could, given the Archaea sale here and what looks on the surface to be quite a robust valuation paid there. Just wondering, any thoughts from your side on that transaction and whether that impacts your go-forward RNG strategy?

[David Ruud, EVP and CFO at DTE Energy]

Yeah. Hi, Jeremy. This is Dave. I mean, as we said, you know, we're always looking at our portfolio, considering options. We did see the Archaea sale, and I think it really highlights the value that others see for RNG and really the growth potential for RNG. So first gives us confidence that, you know, we're gonna find more high-growth potential projects, but also, you know, will make us continue to look to make sure that we're doing what's best for the long-term value of our shareholders. Right now, we're just really confident in our business development pipeline. We continue to grow that and continue to find really accretive projects for us.

[Jeremy Tonet, Research Analyst and Managing Director at JPMorgan]

Got it. Even with this level, I guess, of interest in this space and, you know, strong valuations, you still see new projects clearing your hurdle rate. There's not too much competition out there to drive down expected rates of return on these projects?

[David Ruud, EVP and CFO at DTE Energy]

Yeah, we have some really good projects that are in our pipeline right now. Some of these are conversions and some with the IRA, you know, some of them become even more attractive. We still have a really strong business development pipeline that we see in the Vantage business.

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

Yeah, it looks.

[Jeremy Tonet, Research Analyst and Managing Director at JPMorgan]

Got it.

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

You know, our business development pipeline, you know, as we look out a few years is well-stocked with high-return projects in the RNG space. We've also got a few industrial projects, Cogen projects that we're pursuing that will bring value, long-term value to the Vantage business unit. It feels like the pipeline to us is very strong in terms of growth with high quality investments.

[Jeremy Tonet, Research Analyst and Managing Director at JPMorgan]

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

[Operator]

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

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

Morning. Thanks so much for taking my question.

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

Morning.

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

I was wondering if you could give a perspective on the commission's audit that they recently kicked off, related to outages and safety. I'm wondering what you think should come out of this, in terms of potential policies or penalties or anything like that.

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

Sure. As we look at the commission order, our discussions with the commission continue to be really collaborative, and I would say the relationship is in a good place. Ultimately, I think the result of this order is that, it will create even stronger alignment as it relates to our investment agenda. Just to give you a feel for it, our system on average operates at about 99.9% availability. Our best in class is 99.97% availability of the grid. You can see that, this is a highly reliable industry when it comes to providing power to our customers. All of our investment plans are really pointed at how do we get to that 99.97% availability for our grid.

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

I feel that this process with the commission will create stronger alignment. There's a lot of value for our customers to go even from 99.9%-99.97%. We'll start to lay all that out and it'll be, I believe it'll be a good process, and it will come to a good conclusion.

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

Got it. Thanks. Does that sound like more operational changes or CapEx investments, or how could that improvement play out?

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

Well, when I look at our circuitry, you know, we've got systems that need to be replaced and modernized and automated. As we rebuild new circuits and upgrade those circuits and modernize them, it's gonna require a significant amount of capital investment. I think you'll see that in our planning as we roll out our new plan at EEI. We continue to accelerate this strategic capital that we're investing in the grid in addition to our maintenance capital. It'll be primarily a capital-driven process.

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

Got it. That makes sense. I was just wondering if you could comment on results so far for the year and whether you've been able to or just what level of kind of expense you might have been able to pull into 2022 so far. What are you thinking for the rest of the year here, just as you set up into 2023, earnings guidance? Can you pull forward more expenses into 2022 given the strong results?

[David Ruud, EVP and CFO at DTE Energy]

Yeah. We have had a strong year in 2022. You know, as we look at our portfolio over the few years, we do try to balance what we can do in 2022 and 2023 across all our businesses. We have been able to find some opportunity to help 2023 as we go through this year too, because as you've seen, 2022 has been a nice strong year for us.

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

Okay, thanks. I appreciate the color.

[Operator]

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

[Insoo Kim, Equity Research Analyst at Goldman Sachs]

Yeah, thank you. I think just one for me remaining. Just as we think about, I guess, the updates that you guys will give at EEI, especially the long-term growth rate, a lot of positives here that you mentioned. What are some of the, I guess, offsetting factors that we should consider? And on a net basis, do you still see overall developments as a positive? I guess on the netting out basis, I would think of, you know, whether it's cost inflation or maybe holding company leverage, refinancing, those type of items. Thanks.

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

I'll start, and I'll turn it over to Dave, Insoo. Overall, net positive. You know, we view, you know, our ability to invest on behalf of our customers to really transform our generation fleet, to a cleaner, more reliable fleet, as a significant opportunity, and that'll be the basis of our IRP. Also the investment in the grid to drive increased resiliency and reliability of the grid will be a significant opportunity for us. This is gonna create a, you know, a transformative opportunity in how we deliver power and produce power for our customers, but also create a very significant investment opportunity for our investors to invest against all of this. You know, many of our investments, you know, are pointed at, areas that will reduce operating costs as well.

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

For example, our generation transformation will be a net positive to our customers. Investing in our grid ultimately would be a net positive to our customers. We're pretty excited at this historic really transformation that we're undertaking at DTE for our electric company.

[Insoo Kim, Equity Research Analyst at Goldman Sachs]

Got it. Maybe I will throw in one more. As we think about the updated growth plan coming out of EEI, what is the base, I guess, year or you know, EPS that we should be contemplating when you give your roll forward? Thanks.

[David Ruud, EVP and CFO at DTE Energy]

When we do our Q4, we always go back to original guidance, so this will be on 2022 original guidance.

[Insoo Kim, Equity Research Analyst at Goldman Sachs]

Got it. Thank you so much.

[David Ruud, EVP and CFO at DTE Energy]

Okay. Thanks.

[Operator]

Our next question comes from Paul Zimbardo from Bank of America. Please go ahead, your line is open.

[Paul Zimbardo, Managing Director and Equity Research at Bank of America]

Hi. Good morning, and thank you.

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

Good morning.

[Paul Zimbardo, Managing Director and Equity Research at Bank of America]

Just wanted to follow up on a comment you made about interest rates. You said, if I heard it right, you contemplated higher rates in the plan, so no impact on long-term growth. Just to clarify, is it that you assumed kind of rates up here, or is it that you have other offsets, whether cost or elsewhere in the plan to dampen that impact and fully offset?

[David Ruud, EVP and CFO at DTE Energy]

Yeah, we have a tendency to plan conservatively and, you know, we look at a lot of risk and opportunities in our plan. We look at that every week and look at the challenges. We are confident that, you know, regardless of how rates move, we will be able to offset those with other things within our plan.

[Paul Zimbardo, Managing Director and Equity Research at Bank of America]

Okay, great. Then broadly, could you discuss kinda how demand has been on voluntary renewables throughout 2022? I know it's been a very eventful year. You had the large automaker announcement on solar this summer. Just if you could discuss kind of incremental partnerships using that model from Ford that you're contemplating. Thank you.

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

Well, it's been an extraordinary year for our voluntary renewables program. Actually, as a matter of fact, this week, we executed or are in the process of executing an agreement for another 400 MW of sales, long-term commitments. This takes us now to a total of 2,100 MW sold, which is well above our expectations as to where we would be at this point in time. We'll provide an update at EEI as to how do we see this progress and this success impacting our long-term plan. We'll update you on that, but it's been an extraordinary success story.

[Paul Zimbardo, Managing Director and Equity Research at Bank of America]

Okay, great. To follow up on that super quickly, do you think you can replicate the kind of success you've had in 2022 in 2023?

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

Well, we've got significant opportunities in front of us. The pipeline is strong, and we'll continue to grow that program. Then as we look at transformation of our generation fleet, that'll also bring new opportunity to the renewables fleet. Renewables will be a big part of our agenda going forward here at DTE.

[Paul Zimbardo, Managing Director and Equity Research at Bank of America]

Okay, great. Thank you very much.

[Operator]

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

[Michael Sullivan, Director of Equity Research at Wolfe Research]

Hey there. Good morning.

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

Good morning.

[Michael Sullivan, Director of Equity Research at Wolfe Research]

Hey, Jerry. Dave, this one's actually for you. Just following on the AMT impact, can you just let us know what you're assuming for the repairs tax deduction on your kind of end result there?

[David Ruud, EVP and CFO at DTE Energy]

Yeah. Thanks, Michael. Yeah, right now, you know, we're looking at as written, so we think that, you know, the way it's written, it does apply to things like storm repairs and doesn't get the favorable treatment under the AMT. You know, even with that, we don't see that this is gonna have a big income or cash impact on our plan. We do know that EEI is advocating to have this included and, you know, that we would benefit from that also. You know, we've already modeled that we can mitigate any cash or income impact from the AMT for the most part.

[Michael Sullivan, Director of Equity Research at Wolfe Research]

Okay. That's super helpful. Just sticking with that, I think you mentioned some cushion versus credit metrics. Can you just refresh us on where you're at on FFO to debt and what the thresholds are?

[David Ruud, EVP and CFO at DTE Energy]

You know, that's a little different across the agencies. Right now, you know, we're around 16% FFO to debt. You can see the thresholds by rating agencies are in the 13%-14% range. We do have some cushion there to those levels.

[Michael Sullivan, Director of Equity Research at Wolfe Research]

Great. Thanks a lot.

[Operator]

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

[Travis Miller, Senior Equity Analyst at Morningstar]

Good morning. Thank you.

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

Good morning, Travis.

[David Ruud, EVP and CFO at DTE Energy]

Morning.

[Travis Miller, Senior Equity Analyst at Morningstar]

Hi. With respect to the IRA, was enough detail out on that such that the full IRA impact would be included in the IRP, or is there essentially more to come? I know you'd be able to incorporate it into your own forecast, but is it 100% of it incorporated in the IRP.

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

It is. It is incorporated. Dave, do you want to add any thoughts to that?

[David Ruud, EVP and CFO at DTE Energy]

Well, we'll see the details as they get specified, you know, over the next year. You know, understanding what's going to happen at the high level for our generation can all be incorporated in the IRP and then how it goes into our plan. You know, we feel like we can model that. How it plays out specifically is still yet to be decided, as you know.

[Travis Miller, Senior Equity Analyst at Morningstar]

Okay, great. Thanks. Just real quick, any election issues in Michigan that would have a material impact on either short-term or long-term outlook?

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

Well, certainly we've worked well with, you know, various administrations over our history. You know, Republican-dominated administrations, Democrat-dominated administrations. You know, we, you know, we'll see what happens in November, but it feels like the compact that exists today will likely remain intact in terms of the political structure. We'll know more after election day. Whatever the results, we feel that we have productive relationships and that there's clear understanding by Republicans and Democrats what our investment agenda is and what the purpose of our agenda is, and strong support for that.

[Travis Miller, Senior Equity Analyst at Morningstar]

Okay, great. Appreciate it.

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

Thank you.

[Operator]

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

[Anthony Crowdell, Managing Director at Mizuho]

Jerry, Dave, good morning. Congrats on a good quarter.

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

Good morning, Anthony.

[David Ruud, EVP and CFO at DTE Energy]

Hey, Anthony.

[Anthony Crowdell, Managing Director at Mizuho]

I just have one quick one, and I appreciate if you want to hold an answer until you make the filing for the IRP. Just if I understand correctly, there's a lot of consensus building prior to the actual filing. Just looking for some insight into that. Is that still accurate? Any particular topic or issue that you've got some, you know, more feedback than others?

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

Well, I would say, Anthony, we did an extensive amount of stakeholder engagement throughout this process, more than I believe we've ever done. That's been quite valuable to us. What I would say most revealing for us was when we tested our customer opinions across broad demographics, what we saw was strong alignment with our IRP, and that'll certainly be very evident when we file the IRP. Engagement with other stakeholders, regulators, and legislators, I would say support. Of course, as we get into the details, we'll have to work out those details, and I'm sure that some stakeholders will have different opinions.

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

I'm pretty confident we're going to work through all of that and end up with a really strong IRP that supports a fundamental transformation of our generation fleet.

[Anthony Crowdell, Managing Director at Mizuho]

Great. That's all I had. Looking forward to seeing you guys down in Hollywood.

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

Thank you, Anthony. See you soon.

[Operator]

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

[Ryan Levine, Equity Analyst at Citi]

Good morning.

[David Ruud, EVP and CFO at DTE Energy]

Hey, Ryan.

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

Morning, Ryan.

[Ryan Levine, Equity Analyst at Citi]

Good morning. Given the tax incentives for RNG and your comments around higher IRRs, what are the constraints to accelerate these growth projects in your portfolio and for your outlook?

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

I would say the constraint is the keeping that portfolio at 10% of our overall enterprise in terms of earnings and EPS. What I do see with high IRRs is greater contributions to, you know, sort of more efficient capital deployment, if you will, as we see higher IRRs. Very juicy projects. That means we'll invest less capital and get the same EPS.

[Ryan Levine, Equity Analyst at Citi]

Given the large changes to LCFS prices, are you looking to evolve your hedging strategy with these projects?

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

We've had a pretty strong hedging program with LCFS and also how we place some of our federal products. You know, we've got a combination of what I would call financial hedges against these sales, as well as fixed long-term sales price that are priced. That's helping to balance any sort of fluctuations that we may get. We build contingency into that plan to accommodate any positions that might remain open.

[Ryan Levine, Equity Analyst at Citi]

Given your constraint or your stated constraint around 10% of your portfolio contribution to these assets, do you view DTE as a long-term holder of this portfolio? As that suggests that the growth prospects may be higher for somebody else.

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

Well, look, if we saw an opportunity to harvest and get more value than we see, we're always open to that. I think we've got a long track record of doing that in non-utility businesses. We've you know, reinvented ourselves in this space three and four times since I've been at DTE. We've always been very successful in building these businesses. If the time presents itself and the opportunity presents itself to harvest and create incremental value for our investors, we're up for that. We're looking at that all the time.

[Ryan Levine, Equity Analyst at Citi]

Appreciate the color. Thank you.

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

Thank you.

[Operator]

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

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

Well, thank you everyone for joining us today. I'll close by saying that DTE has had a very successful third quarter, and we're feeling great about the remainder of the year, as well as our position for future years. I'll look forward to seeing many of you at EEI in a couple of weeks. Have a great morning, stay healthy, and stay safe.

[Operator]

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

Participants

Executives

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

Analysts

• Nicholas Campanella, Director at Credit Suisse
• Shar Pourreza, Senior Managing Director at Guggenheim Partners
• Jeremy Tonet, Research Analyst and Managing Director at JPMorgan
• David Arcaro, Executive Director and Equity Research at Morgan Stanley
• Insoo Kim, Equity Research Analyst at Goldman Sachs
• Paul Zimbardo, Managing Director and Equity Research at Bank of America
• Michael Sullivan, Director of Equity Research at Wolfe Research
• Travis Miller, Senior Equity Analyst at Morningstar
• Anthony Crowdell, Managing Director at Mizuho
• Ryan Levine, Equity Analyst at Citi