Q2 2020 DTE Energy Co Earnings Call
At this time all participants are in the must and only mode.
So to speak or his presentation, there will be a question and answer session.
The question Jordan assess shouldn't you will need to press star one on your telephone please be advised that today's conference is being recorded.
I like to turn the conference over to your Speaker training Barbara Tuckfield Director Investor Relations. Please go ahead.
Thank you and good morning, everyone before we get started I would like to remind everyone to read the safe Harbor statement on page two of the presentation, including the reference to forward looking statements.
Presentation also includes references to operating earnings which is a non-GAAP financial measures.
Please refer to the reconciliation of GAAP earnings to operating earnings provided in the appendix of today's presentation.
Yes. This morning, our Jerry Norcia, President and CEO and Dave Route Senior Vice President and CFO.
And now I'll turn it over to Jerry to start the call. This morning.
Well, thanks, Barb and good morning, everyone. Thanks for joining us today.
Your your families healthy sales during the September.
To begin to stop they say they held very broad.
He because of the way we are working together I'm sure a killer safety and continue to serve our customers support our communities and deliberate blockbusters.
It is great to be part of such amazing team responded so well.
Cheap so hard to this crisis. This morning, I want to provide an update on a successful implementation of our cobot 19 response.
Discussed our first quarter earnings call, which puts us on track to achieve our 2040 financial targets.
[laughter] pledged to achieve our long term goals will also provide highlights I'm a strong progress at each of our business units.
Hey, Bruce will then provide a review of our financials and we'll wrap it up before we take your questions.
Before we start I'd like to take the opportunity to congratulate mischer, Dan scripts on a recent announcement.
Turning him to be at a New Commission chair.
Since joining the efficacy, yes taken a balanced approach, we look forward to competing for work with them.
I'd also like to say former care sally's caliber for her tireless work.
Positive contribution energy policy.
Right inquiry matters from state in Russia.
Well, let's start on slide four.
Yeah, the first quarter, we should or plan to respond to the pandemic. We also talked about what we were doing for voice customers communities and investors.
How we will achieve our financial targets.
We have progressed really well across each of these areas. So let's start with what we're doing for employees.
We continue to focus on or safety and well be.
And since March over 5000 employees have been working from home.
I tell you that is going really really well.
Our systems continue to work well in supporting our people and many of our metrics have never been better including safety and productivity.
Our plan and field employees, who do you need to deliver for our customers they adopted new procedures to ensure their personal safety.
And the safety of our customers.
This may be the new normal or a better at all.
We're looking at the possibilities of different that more flexible work arrangements that could continue to improve.
Employee engagement.
Our employees remain highly engaged in this environment.
We used to say that just about a month ago receive galaxy, great workplace award for the eighth consecutive year.
We're still you only affiliated received this award.
It really reflects our company's strong culture and highlights our commitment to service excellence.
Our boys are driving very low interest rates will safety focus work, putting us on track to have one of the best safety records in the industry.
Our boys have worked hard to recover loss Brown caused work are executing on the economic response.
I'm very thankful for all the great work that our employees have been doing and continue to do.
I'm very proud of RBC bandwidth.
On the customer from we continue to deliver safe and reliable energy.
Many of our customer service operational metrics have improved over the last few months.
We have also ranked nationally but prop worked out of JD power for residential service excellence.
Additionally, we are finding creative ways to help our customers. During this endemic beyond reliably delivering are essential energy.
For example, significantly streamlined payment plans for those who are impacted by corporate 19.
They continue to help connect our most vulnerable customers with energy assistance programs.
We did this with extensive cooperation with the MPSV and the department of Health and human services and are extremely thankful for that cooperation.
We realized that for some customers rolling and energy assistance programs like the state emergency relief fund can be very difficult.
Make sure no one is left behind.
BT trained over 60 employees the guide people through every step of the enrollment process.
Today, we have submitted nearly 5000 applications on behalf of our customers.
We also have received approval from efficacy for an innovative approach holding electric rates flat through 2021, while still delivering on our financial targets.
We also experienced a couple of significant storms in June and July in a normal DC fashion, our employees and contractors reacted very quickly and efficiently.
We're able to restore power safely as our team was working around the clock.
Thank all our employees involved in these incredible efforts.
We also continue to address the needs of our communities through land Furby volunteerism.
Due to our community focused work.
And our World class volunteerism.
We are recognized by points a light as one of the country's top corporate citizens.
With engaged employees customers, who are satisfied with their service.
Communities that are resilient.
We also continue to deliver value for our investors.
I'm pleased to say that we're in a position reaffirmed 2020 operating EPS guidance.
With the potential hit the higher end the guidance some of our business units.
We continue to target, our 5% to 7% operating EPS growth rate and our balance sheet strong.
Let's move to slide five were I'll talk more about our accomplishments this year.
Our second quarter results are strong and our year to date operating earnings across all business units our solar.
As we mentioned in the first quarter call develop the response plan to mitigate the significant weather included 19 challenges we were experiencing.
Now I could tell you that we are executing on this plan.
So far we've made great progress with cost savings across the company.
Our electric load recovery is tracking better than we forecasted across all customer classes.
Weather has provided a strong tailwind.
And our nonutility businesses, each continued to perform at or above the original plan.
With all of these extraordinary efforts and events, we are confident in achieving our financial targets for 2020.
And I have positioned ourselves well for 2021.
For our long term growth.
We have seen significant progress on our efforts at each of our business units.
And on the regulatory front.
We have solidified our position through most of 2021.
A DC electric we received a constructive general rate case order in May of this year.
And received approval recently for an innovative plan.
I will avoid increasing electric rates for our customers during these challenging economic times.
At BC gas, we filed the settlement agreement for our general rate case.
And announced the commitment to partner with our customers and suppliers, we achieved net zero greenhouse gas emissions by 2015.
Our gas storage and pipeline business.
Leap.
As long past gas this month will be fully in service on August Onest.
Yep pipe in the ground ahead of schedule and under budget.
This is a very significant accomplishment in today's environment or be able to construct the pipeline on time and on budget.
Hundred 50 miles in length.
36 inches in diameter.
Finally at our power and industrial business, we finalized an agreement on the industrial Energy services project, we mentioned last year.
Into more detail on these and other accomplishments over the next few slides.
But I will say that these efforts continue to position us for long term success do achieve our 5% to 7% operating EPS growth target.
20.4.
We are well on our way and meeting our 2020 goals, making this a wall consecutive year meet or exceed.
Our targets.
Let's move to slide six to discuss strong progress, we're making our economic response plan overall, we are doing well and the impact of these challenges is less than what we forecast.
During our first quarter call, we laid out two scenarios permission and going back to work.
They start scenario.
And then a slow start tomorrow or the most part.
We are tracking ahead of our may start scenario as Michigan as good returning to work at a really good pace.
Journeys unprecedented times, we're being surprised you the upside.
Walker, our electric sales data daily with the help of brand might technology.
Overall, we estimate that full year impact electric sales will be better than what we laid out for you on our first quarter earnings call with residential sales tracking ahead of the plan.
And commercial industrial sales tracking for the May start scenario.
Our forecast was based on the data that we were experiencing in the shoulder months.
And we are seeing that the summer sales response is even stronger.
To give you a sense of the rebound in sales our most recent am I data shows commercial sales regarding for approximately 90% of recall that budgeted levels.
And industrial sales returning to approximately 95% of pre cobot budget levels.
Residential clearer ability.
Moving to warm weather and people being at home during the day out adjusting air conditioning, when they would have normally been at work.
We're also seeing our Corbett 19 cost tracking closely to our plan.
Well, let's switch or what our response plan that we laid out in the first quarter.
We are tracking right on target and have identified and now implemented cost savings across all of our businesses.
Again, a lot of these savings will be onetime in nature, but we continue to look for opportunities for more permanent savings.
As I mentioned, we have had tailwinds from some warm weather. This quarter has continued into July.
As providing some favorability to our plan.
With this weather favorability in 2020, we'll refine our response plan going forward to develop ways put us on a strong position for 2021.
Going ahead future costs.
Positioning us to minimize future rate impacts on our customers.
We're also confident and signaling that we will be at the higher end of earnings guidance at the electric company.
Fights business and energy trading.
They will talk more about that in a few minutes.
With that let's move to slide seven the go over our business update.
At DC electric we reached regulatory agreements that continue to support key priorities for our customers.
We also achieved some operational milestones within the business, we received a constructive rate order in may and a few weeks ago. We received the mpcs approval for our alternative rate case strategy that avoids additional rate increases for our customers.
Innovative plan includes the acceleration of deferred tax amortization of the support earnings.
At our allowed our early.
In the securitization financing for our hands tree trimming work and the accelerator retirement of our river Bruce power plant.
The strategy allows us to keep raceland change through 2021.
Delaying a rate case filing while still maintaining our cash position.
Customer affordability, while solidifying regulatory certainty in the plan.
We also received approval for our amended renewable energy plant.
This plan will bring an additional 350 megawatts of wind and solar projects online.
And enables us to meet our 15% renewable standard goal for 2041.
The new solar projects will triple VP solar generation capacity went operational new projects for annually offset greenhouse gas emissions.
From the equivalent of 134000 cars.
We remain Michigan largest renewable energy producer.
I'm proud to say that we also commission the largest Wynn park in Michigan and the second quarter.
The Polaris Wynn Park has 60 turbines, which can power of 64000 homes.
This is a significant step toward our goal of reducing carbon emissions by 50% by 23.
We remain committed to delivering clean energy for our customers and to the community.
Additionally, our commitment to clean energy also benefits Michigan's economy.
2009, VP has been the largest investor renewables in Michigan, driving $3 billion in solar or wind energy infrastructure and investments.
Over the five year plan the company will invest an additional $2 billion.
Renewable energy assets and more than double as renewable energy faster.
By 2021.
15% of our customers power will be generated with renewable energy.
Well, let's talk about the gas company on the next slide.
DT gas, we recently announced our commitment to mid zero greenhouse gas emissions by 2050.
We will achieve this goal the combination of energy efficiency measures.
Emoting more efficient natural gas usage within our customers' homes, we will require our natural gas suppliers, a couple emissions by reducing methane losses that happen, while they drill for gas.
Within our operations, we will reduce our emissions through operational improvements such as replacing older pipes.
Upgrading engines that are compressor stations they increase their efficiency.
And developing renewable gas options through carbon offsets.
Bio sequestration.
So our gas utility.
We will be reducing greenhouse gas emissions by more than 60 million metric tons a year.
2015.
On the regulatory front, we reached a constructive reiki settlement of $110 million of rate relief.
Which supports our investment plan and includes a 9.9% ROI.
With a 48 could be too.
Percent debt to equity capital structure.
This settlement of course is subject to FTC approval.
After a brief pause we resumed our main renewal work and are tracking to complete our plan 200 miles in 2020.
We also began construction on our transmission system renewable project.
Our goal is to mitigate the noticed central for our customers and ensure the integrity of our lines can be accessed through inline inspection.
Overall these projects will help us we continue to deliver safe and reliable service to our customers.
Transition when emission free environment.
Well, let's move their next slide and talk about our pipeline business.
DSP continues to perform well as we continue to see favorability across all platforms and the second quarter.
Conditions for natural gas focus midstream business, particularly in the basins that were in seeming to be favorable for the supply and demand dynamics caused by low oil prices.
As I mentioned earlier construction of our lead pipeline is complete.
Flowing pest gas to small and will be fully in service on August onest.
Despite will be a great addition to our portfolio transporting gas for the Gulf markets.
All of our assets are located in strategic well positioned locations, bringing great opportunity for future growth.
Our counterparties continue to perform on plan and remain in solid positions are highly hedged over the next couple of years and have minimal near term maturities.
Our contract structures are robust and include demand fees.
No volume commitments and credit provisions.
GSP business is producing strong adjusted EBITDA of about $700 million or 2.4 times, our operating earnings.
And it has a 2020.
Allocated debt to adjusted EBITDA of approximately four times, which will decrease after the first full year of leap being a service.
The new to focus on organic growth and value creation from are well positioned platforms, while providing visibility.
Yes, these financial strength and make it up premier midstream business.
Now I'll review our progress.
The next slide.
Hi, Peter to focus on the development of R&D and industrial energy.
This is project to backfill the sunsetting area projects.
We finalize a new cogeneration agreement this quarter.
And construction activities have begun work with estimated 22 in service date.
As we mentioned on our first quarter earnings call, Wisconsin, internal R&D and Ford CV projects are fully operational.
These projects drive long term growth.
Focus on a cleaner of our oldest progress puts us in a very good position, we reaffirm our guidance for the year before I turn it over to Dave talked about our financial performance.
Let me summarize by saying that 2020.
Getting up to be a really strong year.
The regulatory settlement, but our credit facilities.
And the early in service date of the leap pipeline.
Ever lose significant uncertainty for 20.1, and we are deepened the planning for a successful point 21.
Rob Dave over to you.
Thanks, Jerry good morning, everyone.
First of all I want to thank everyone for though well wishes I've received since taking on my new role as CFO.
It's been a pleasure meeting in many of you over the past few months at least virtually and I look forward to having more conversations and hopefully meeting in person at some point.
Let's move onto our financial update on slide 11.
Total operating earnings for the quarter were $295 million.
This translates into $1.53 per share for the quarter.
You can find a detailed breakdown of EPS by segment, including our reconciliation to GAAP reported earnings in the appendix.
I will start to review at the top of the page with our utilities.
CP electric earnings were $290 million for the quarter, which was $85 million higher than 29 team.
Additionally, due to the implementation of new rates.
Warmer weather.
Nonqualified benefit plan investment gains and a onetime tax item.
Offset by rate base growth cuts.
As you remember from the first quarter call, we had incurred investment losses related to our nonqualified benefit plans, which are recognized immediately rather than smoothed over time.
Now.
In Q2, we saw gains from those investments at the plant experienced the same positive results the overall market in the quarter.
We've now taken steps to reduce the volatility of the investments going forward. So we won't experiences market driven movements in the future.
Moving onto DC Jones.
Operating earnings were $11 million for the quarter.
$7 billion higher than last year.
The earnings increase is driven primarily by cooler weather at the beginning of the quarter.
And the infrastructure recovery mechanism, partially offset by rate base growth costs.
Let's keep moving down the page to our gas storage and pipeline business on the third row.
Operating earnings for our GSP segments were $70 million the quarter up 20 million versus second quarter of 2019, driven primarily by the Blue Union acquisition.
As Jerry mentioned, our GSP business continues perform well in 2020, we told you on the first quarter call. Their GSP business was performing ahead of plan and that trend continued through the second quarter.
On the next role you can see our power and industrial business segment operating earnings were $25 million.
$4 million lower than the second quarter of 2019.
This decrease is due to a lower steel related sales and our yet volumes.
Partially offset by new cogeneration R&D projects.
Penile continues to be on track to achieve its operating earnings targets for the year.
I am an extra you can see our operating earnings at our energy trading business were $5 million for the quarter.
Earnings were $7 million higher in Q2, 2020 compared to Q2 29 team.
Primarily due to the performance in our gas portfolio.
Our trading business has had a very strong first half of 2020.
And then the appendix that contains our standard energy trading reconciliation, showing both economic and accounting performance.
Finally, corporate another was unfavorable $3 million quarter over quarter.
Primarily due to timing of taxes.
Overall DP earned a $1.53 per share in the second quarter 2020, which is 54 cents higher than the second quarter of 2019.
Achieving our economic response plan savings this quarter supported our favorable results across all of our business units.
Now, let's move to slide 12.
As Jerry mentioned, we're on track to achieve our operating earnings guidance for this year.
In the high end of guidance for Geeky electric GSP.
And energy trading as illustrated by the Green arrows.
Starting at the top with the electric we've been experiencing some very warm weather so far in July.
Along with that favorability, we expect to offset cobot 19 economic impacts for the response plan that we are executing.
Our GSP businesses performed very well across each of its platform this year.
And this gives us confidence will reach the higher end of our GSP guidance.
For the energy trading business.
We are keeping in line with our conservative planning for the balance of the year.
We are comfortable with the 2020 guidance range you see on the page and are targeting the higher into that guidance range because of the strong performance for the first half of the year.
Moving on to the next slide I will briefly touch on our balance sheet.
Our leverage and cash flow metrics are within targeted ranges.
For equity issuances, we're still targeting the 100 million to 300 million dollar range for 2020.
We remain on track for equity plan through 2022.
We're maintaining solid investment grade credit ratings continue to focus on top tier cash management as we took bass action to ensure strong liquidity at the onset of the crisis.
Now I'll wrap things up on slide 14.
Our DTA team is continuing to focus on our safety health engagement as we deliver for our customers and focus on the well being of our communities.
We remain well positioned to achieve our 2020 financial targets as well as our long term, 5% to 7% operating EPS growth target.
This growth is underpinned by our five year capital investment plan.
80% of it being invested in utility infrastructure and cleaner energy.
This growth is also supported by the continuation of our strategic and sustainable growth in our nonutility businesses.
We will continue our track record of delivering for our investors, while maintaining strong credit metrics the strong balance sheet.
During a healthy 7% dividend increase.
With that.
I'd like to thank everyone for joining us this morning.
And we can open up the lines for questions.
Thank you as a reminder, if you like to ask the question Press Star one on your telephone to withdraw your question pressed upon please wait probably come from other question.
Your first question comes from the line ups are Parisa Guggenheim Partners. Please go ahead.
Hey, good morning, guys.
Good morning sharp good morning, Sharp couple of wanting a couple of questions here.
First on the first quarter call you rolled out the lean actions to offset headwinds and.
Establish a contingency plan measures were around 120 versus the 60 million in Kobe cost, you're tracking well versus your one Q plan covance better sales or better.
Do you envision still needing the full amount to achieve the 20 targets. Obviously, you know you're planning to keep electric rates flat and 21, so trying to kind of figure out how much of the lean initiatives or the incremental cost cuts you need given some of the moving pieces or should we just assume you'll utilized the full extent to help over achieve.
The yet to be determined 20, Twond 2021 guidance, maybe when you launch on 21, we could assume you'll have enough contingencies or levers to initiate on a range that could maybe point to the top end of 5% to 7%. So just curious on sort of those moving pieces.
Sure Great question share. So at this point in time, we're we're continuing with the full size of the economic response plan of $120 million that we talked about in Q1.
And we're doing that for several reasons one as you know the.
How this pandemic will play out for the balance of the year still is not a certainty so we want to pull down the contingencies.
To accommodate any possible eventuality is there so thats one and two as you mentioned, we are deep into the planning process for 2021 and feeling pretty good about 2021.
With the results, we're seeing now and our abilities to pull forward expenses and create contingencies and 2021 across all of our.
Business units.
Got it that's helpful. So we'll look for that and then just on the equity need to know prior language seem to allude to equity needs coming maybe little bit closer to the bottom end of your ranges and that language may have been removed.
Is there any change there or is the prior language still kind of applicable for you.
Just one follow up.
Hi today.
Well.
We are consistent with our 20 to 22 equity plan still.
And look to balance session issuances over that period.
This year, we've already issued about 70 million through some internal mechanisms and we're we're actually expect can be closer to the midpoint of that range for the year now.
Got it okay. Thank you and then just on share just maybe strategically.
Just wanted to maybe get a little bit more reinforcement on your commitment to the midstream assets. Obviously, we saw within a very similar appear essentially exit the business you called gas midstream thoughts on these trends and how you're thinking about the overall non utility portfolio I mean do you see these assets.
More in the hands of private ownership at some point, especially as we get close or you know and deepen concerns, yes, she and de carbonization trends in the sector, which is I guess one of the reasons why one of your peers exited that business. Some kind of curious on how you're thinking about this in light of your the move around DSG.
Garbin Decarbonization trends you clearly highlighted.
Sure. Thanks for the question sure we let me start by.
The distinctive features that this business offers to us and our investors.
We'd like to businesses create a lot of value for us over many years.
We've got some high value organic growth locked in for the next three years, approximately 10% earnings growth per year.
For position in two basins that will experience significant supply growth.
And for the 10th year in a row. This business is exceeding our expectations. So we have a really top notch commercial operations team there.
In terms of selling.
The market valuation, that's really an all time low when you look back even before.
The share <unk> shale Revolution.
So really doesn't feel like the right time to sell to us. Although we're always look for ways to optimize our portfolio and create value for investors and for another investor puts and definitely agree to value on this business than our current investors, we would definitely consider it.
In terms of BSG.
We have initiatives to drive towards net zero for a lot of these businesses and.
Continuing to add value to our investors.
In that way both in our gas LDC business as well as are our bikes business.
Terrific. Thanks, so much on catch up on the quarter with touch based show.
Thank you thanks.
Your next question comes from Michael Weinstein with Credit Suisse. Please go ahead.
Hi, good morning, guys.
Good morning, Michael Good morning pace.
I'm not sure that you just answered this question for Shire that I'm, just wondering why DP gas is also not at the high end of the range.
I think you said DT electric and GMP would be there but.
Notice DG gas is not part of that.
Hey, guys start.
Sure Yes.
PT gas, we experienced some some really warm weather in the first quarter that we're still trying to overcome so we did have some cooler weather in the second quarter that started to offset that.
But we're really working on they are our ERP planned they're trying to make that come in as good as again this year.
Got you had that.
RP is our cost reduction plans that will will bring us back in line there.
Right.
Also how has the cancellation of the Atlantic Coast pipeline affected demand for Nexus and link and your other assets.
Directly as had been noticeable shift.
It certainly, creating a positive environment Michael for both link.
And for Nexus.
You'll recall the Atlantic coast pipeline kind of draped over our link assets.
Some of our shippers, we're counting on HCP to move their volumes east, while I think that link certainly becomes a fundamental outlet for some of those customers in that region and also getting that.
Yes, the market physicians nexus quite well for that so we're starting to see continued to see more and more activity on Nexus, which is positive.
You think the remaining from one third of.
To be contracted long term do you think that could be happening sooner rather than later as a result of the cancellation.
Well it certainly will help there was no question about that I think we mentioned in our last quarterly call that we're starting to see some of our customers transition from seasonal contracts the contracts that pushed beyond one year.
And we're seeing more and more of that activity, we've actually seen some favorability in pricing as well in the first and second quarter and lock that in so the asset as a performing.
Right on top of our pro forma at this point in time and all of these positive developments will only help us going forward.
Right have also just one final question could you describe what youre seeing in terms of demand in the Haynesville in Marcellus.
Versus other basins.
So as.
You know supply has come off of fundamentally and some other basins like for example, the Permian Basin, which is.
On oil driven based on what associated gas.
The the replacement of those supplies as we start to see temperature.
Normal weather in winter will have to come from two basins that can grow which is the Appalachian basin, which were well positioned been with our assets as well as the Haynesville third a two most attractive basins.
Increase dry gas supplies, so I think really well positioned for those assets now as you know were contracted long term.
So as.
Those basins continue to grow it should create some nice upside of course and the plan going forward.
Great. Thank you very much.
Thank you.
And your next question comes on line that she can simulate Smith with Bank of America. Please go ahead.
Thank you Steve I appreciate it.
This morning to follow up on I'm. Good morning. Thank you.
I wanted to follow up on.
Yeah, the highest level.
Can you comment on sales are trending better than you thought but it sounds like koby costs that are still in line. What's the discrepancy there. If there is and if you see one right I E bad debt cost or whatever whatever that is isn't quite keeping up with improvement trends and then the second related would be how do you think about sales.
Trajectory now in light of the better than forecast trend in just the last few months, how does that position you think about that sales.
Initially in the 21, if I can if I dare asked.
Sure. So let's start with the expenses those are very much in line with what we expect that and just give you example of a couple of those are TB protective protection equipment for our employees that will have significant incremental expense that we had forecast that would be there for the balance for the year that's tracking on plan.
Of course significant cleaning operations that are required for both vehicles and facilities. How that's tracking on plan. So those are two examples as to why.
Corporate expenses are tracking to plan and as you mentioned sales.
Our tracking better than planned.
Especially in the residential sector, where we see us and at the amount of margin.
Generation compared to industrials, but even or industrial load and commercial loan with a slight tracking slightly better than planned.
So all of those.
The fact that were on plan with our costs and ahead of plan with our sales.
[music].
On the tundra normal basis just creates.
The strong tailwinds for our financials this year.
But the 21 any specific commentary as far as you see it.
21.
As I mentioned, we're deep into the planning process for 2021 and using the strength, there, we're seeing or utilities and our nonutility businesses. The Cray contingencies for 2021, so I would say.
We're very well along on our planning for 2021 and feeling.
Very good about the long term guidance we provided.
As it relates to 2021 and and to clarify that even further it sounds as if in your response to the prior question that you are largely still contemplating realizing the cost savings articulated from last call. In this current year such that if I can draw that conclusion your confidence in 21.
It does not include.
Rolling forward these cost benefits is that right.
I would say first of all we are on track with the.
[music].
Cost reduction plans that we talked about the first quarter of the $120 million of net income that we are seeking well unplanned tracking every month every week, we tracked the plan on that.
We are in fact, using some of the strength that we're seeing in sales both due to weather.
And some of our residential load to help build contingencies for 2021.
So I would summarize by saying this way we are shaping up to have a really strong 2020 and more to come on that in the third quarter as we start to see to spend dumping unfold, a little more and and also shaping up to build a strong 20 to 21.
I'll leave it thank you very much in time.
Your next question comes on line of Jeremy Tonet with JP Morgan. Please go ahead.
Good morning.
Good morning, just wanted to follow up with die GSP little bit here and it seems you know year to date, you guys as you sort of tracking quite well versus guidance.
And this is even before leap comes into service, which seems very.
Very eminent here just wondering is there anything kind of in the back half of the or that we should be thinking about seasonality or any type of offsets or headwinds because it seems like your position to do well within the guide or even kind of beat the guide here. So just trying to figure out gives and takes with with the business.
2021.
Feels like its might come in quite strong for GSP. The leap pipeline was built into our original planning to come into service.
And the third quarter. So it's come at a lower early which is which is well in August 1st of August started the third quarter.
So that feels good so we feel very confident 2020 plans and our actually working.
You some of that strength to build a successful 2021.
Got it that makes sense and just kind of curious with the slacking oil and gas industry right. Now if you guys see much of an ability to kind of.
Cut costs or you know as far as Pete the budget for building.
Extension or other pieces, if you're able to kind of get better.
Efficiencies or cost there just given where the industry is right now.
Certainly a week views the other pandemic as a reason to the pursuit cost reductions in the pipeline business as well and all of those cost reductions are benefiting 2020.
Certainly and we will look at what of that we can roll into 2021 as well so that we can create greater strength in contingencies for 2021, so feeling really good about the two years 2020, and 21 minute in that business line.
We've also seen some incremental activity.
Both volumes and price in our FERC pipelines as well as our storage assets.
Been.
Very good as well for 2020.
Got it. Thank you and then one last one if I could sneak it in just with your net zero emission goal.
Do you see hydrogen playing a role for GTT over the next several decades as you look to achieve that.
We are certainly we are really starting pro been hydrogen as a as the possibility you know what's her very large network of pipelines and storage assets.
And can become a very interesting way.
Store renewable energy and our pipeline system the storage assets as we as you can blend so thats going amounts of hydrogen and natural gas stream. So it's something we start we're starting to think seriously about and also thinking about some early opportunities to commercialize.
Central.
Got it Thats very helpful. Thank you.
And your next question comes on line up Jonathan Arnold with vertical research. Please go ahead.
Quick question, Dave you mentioned some of the drivers.
Electric.
Yeah, because you could quantify the benefit you had on.
The nonqualified plans and maybe the tax item.
Yes sure.
And then on qualified plan again that was made up most of what we lost in the first quarter there and so.
When you look at that versus 2019 that was it was around a $10 million.
Difference upside for us.
And then the onetime item that was.
Related to a property tax settlement from prior years with the local municipality and that was.
Around 15 million after tax net benefit some of that benefit will continue for us into the future as well.
Okay.
Great and then just I noticed that you guys pulled out 15 million also.
Sequestration costs operating earnings, which gets a little surprise, given how well you you're doing on bringing in the savings in the top line is being coming in ahead.
Is that.
Is that because youre expecting.
Actual deferral treatment or some other what's the thinking.
No.
Well there is really just to give investors a clear view with the quarter.
So we do have some cobot costs that are ongoing and we know that will continue in Jerry talked about those things like pp enhance cleaning.
However, we did have some costs that were very onetime nonrecurring so.
In the very early stages of the breakout in southeast, Michigan, we really trying to ensure that we kept our employees ship and safe as we were trying to learn more. So this was things like hotel stays to keep our team safe.
So we realize those would be things that wouldn't be recurring so we wanted to break those out separately.
When they were just not not cost either that we were.
Discussing is deferrals with commission on those and those costs either.
Okay. So did that says was in Q2 discrete item.
Yes, yes, very very discrete.
On the subject of deferrals I know that commission approved.
Bad debt deferral.
When you stand on.
Other items.
Yes.
Well I am.
There was an order of different MPSV the other day.
Left it opened that we could we could look at tracking some of these costs and I think that was a great example of how the MPS. She is willing to collaborate with us.
To ensure just a constructive environment here.
So they have an approved the deferral of any additional cost for kobin, but they left that opportunity open for us to make informational filing if that's necessary.
But I think has your as you are hearing with the warm weather and the Tailwinds from economic response plan I think they realize we maybe able to to avoid dumb. These additional deferral cost as well.
Sure, Okay, and I can I, just one I know youre getting to defer the bad debt.
Can you are there any data points you can share with us on non payment just.
To I guess same same time of prior year to south seasonality.
And just any thoughts about.
Whether to what extent thats being mitigated by.
Some of this enhanced unemployment benefit and just what your thoughts.
How about those trends going forward as well.
Sure So Jonathan I'll take that one at the highest level work we're watching.
Bad debt expense in arrears on a daily basis.
Interestingly, we're preparing for a much more significant impact you're in a day, but that has not happened.
We're not seeing a significant movement in bad debt expense in arrears right now, we're seeing modest movements I, even on a seasonal basis and we attribute that much to what you described which is theres been some significant amount of government stimulus that's been.
Brought into People's hands.
An order so that they can pay their bills and continue with their business operations even.
So that's been quite helpful. That's been very different than the last time, we went through an economic crisis, where we saw a residential customers and small businesses deeply impacted and that turn and bad debt expense in arrears.
Now going forward, we obviously.
Remain in a conservative posture as well as we have a deferral account that'll help accommodate protections for our customers going forward as if that was the change.
In future.
Okay. Thanks, very much guys.
And your next question comes on line of Durgesh Chopra with Evercore. Please go ahead.
Hey, good morning, guys. Thanks for taking my question.
Good morning.
So I have to just quickly on the quarter and sorry, if I missed this but can you quantify for US one how how much benefit the weather was what's the plan and then what of that 120 million target you achieved in Q2.
Sure I can take the weather part yeah, we do break out weather impact on and the deck. So fuel on slide 21.
So you can see electric we saw 18 million of operating earnings favorability in the quarter and it got a pretty much flat on weather for the year and relative to 2019 I was about 31 million favorable.
We also saw some favorability oh gosh, because it was.
Cooler to first part of the quarter that was about 10 million, but for them for gas. We're still we're still down for the year on whether overall, because we had a really warm first quarter.
Got it and I'm, sorry, I missed that and any sort of color in terms of one of the 120 million to be get in the into Q2.
We're tracking right on plan.
Each and every week is something that we track so we.
We're delivering the 1.8.
On a ratable basis for for the whole year at this point in time.
Perfect. Thanks, and just one quick follow up.
In terms of upstream bankruptcies I'm not sure if Chesapeake is actually a customer of yours or not but any implications on existing pipeline contracts.
Or any implications on just a future growth plans as a result of those.
So Chesapeake is not a customer of ours. So that will have no impact on our plans because as far as or other counterparties. They all appear to be in really good shape and are delivering on there on our commitments to us contractually. So we feel pretty good about the posture that our shippers are in at this point in time.
Excellent. Thank you guys congratulation on a very solid quarter. Thank you again.
Thank you. Thank you.
And your next question comes from the line up Sophie Karp quick Keybanc. Please go ahead.
But taking my question.
Hi, good morning.
Hi.
Thank you actually.
Hi.
But I think on the path was cited you end up and you had gains due to weather.
Yes Hello.
First to kind of shape.
Or not one of them spend with weather.
No because all of the contingent is due to call. The you effectively banking the weather benefits to protect the earnings again, probably than would that create.
Great.
Yes, I guess, that's a long way of asking that.
So I think it's a great question, we have not.
Walked away from our invest in lean plans as you described.
So in times of favorability, we move to invest mode, where we start to invest and.
Maintenance that would otherwise have been done in subsequent years or we go lean. So initially here we went lean in a significant ways sort of a deeply and if you will have a $120 million target that we have and we're holding on to that right now.
Also starting to think about how we can use some of the weather favorability.
Great pull forwards for 2021, great contingencies for 2021 so.
There's a lot of pieces here that are coming together sort of our current lean actions that are tracking to plan as well as whether favorability that we're seeing that we will likely use.
Two.
Create headroom and contingencies and 2021.
Got it thank you.
My.
A question is.
Could you maybe walk us a little bit the cash flow impacts of the.
Great strategy May electric when you skip enough the rate case and you have some accounting you had an accountant order that allows you to.
Net earnings, which I think I guess, but.
How you supporting your cash flows and one of the mitigating factors there during that time.
Sure I can I can take that you're right as we accelerate the amortization of that.
Maybe I T regulatory liability about 108 million now that that will give us the earnings without the cash but part of the offset of that was.
Our notification that we're going to file for securitization filings early in 2021.
That would include.
Some of the some of the securitization for our tree trimming surge and the net book balance and I remember huge.
So that'll help us remain roughly in the same cash position overall as we get that securitization.
So same patch position versus 20 Atlanta.
As we would have been in in a 21 with stuff.
Okay equivalent increasing rates.
Thanks.
Thank you that's all ahead.
And your next question comes the line of chain soccer would be Annaly capital market. Please go ahead.
Oh, Thanks for the time guys and good morning.
Good morning.
I don't want to beat a dead horse here, because I think shower and.
And Julian I asked the question, but just it's you're talking about the $120 million contingency Jerre I thought you said that you're looking at that sort of on a ratable basis, even though you probably started putting that you know really into full can full mode, probably starting in March is that correct.
We started in March that's correct, we started a deep way in March.
Build that $120 million.
So we think about through the rest of the year you still think that that 120 is gonna be sort of ratable.
From that point through the ended the year in terms, how we're thinking about Allentown offset I guess partially by.
Probably some advance spending as long as the weather stay sort of a.
Favorable is there has been so far.
That's the right way to think about it yes, okay and just the last question on that I mean, obviously.
Adapting to Cove, it's created a lot of different ways for work processes and people working at home and I know that you're feeling comfortable I guess into 21 on the OEM side, but if we think about that 120 outside of any sort of pull forward from weather.
From the you know sort of a new practice or a co but you know adaptation how much of a 120 do you think is kind of ongoing as we look out to 21 22, just from changing the way that you sort of run your business.
James we've put a team sort of dedicated to exact topic and or were in the middle of trying to understand how much of that 120 I've been parlay on the 21 and beyond in the long term basis. So we're definitely.
Going to try and.
Capture as much of that as possible.
Definitive answer for you today, but I think as the year wears on we will have more and more answers on that as to how much that we've built in.
To our future plans that will help.
Customer affordability as well as help advance so some of our capital plans that are that are necessary for our customers.
Got it.
Do you think you'll have a little more around I guess I know you. The early look at he tends to be a little bit higher level, but do you think that de <unk>, you'll have a little bit more on that or is this can be more of a for Q. When you sort of roll out the full plant.
I would say Eddie we will have more more information on this.
Okay, great. Thank you for all the time.
Thank you.
And your next question comes the line of David Fischer with Goldman Sachs. Please go ahead.
Good morning, Thank you for take morning, Hi.
Just a question on the functionality of the 30 to 40 million Bill relief. During June July is that primarily I went on kind of margin decrease in third and 2020, and then that kind of reverts back in 2021 or is that mostly just pass through of lower fuel costs.
That was a pass through David having those fundamentally that's what it was for July and August we were seeing favorability in our power supply recovery factor and so we try to decided to pass that onto our customers during the.
Peak usage months, so that was very well received by the commission as well as our customers.
Okay that makes sense and then.
Regarding leap just could you just remind us the initial expectation for the commercial operation date was that the ended the third quarter versus kind of August 1st now and then just also if you're able to disclose about how much under budget to calm.
It's coming we were expecting that to come in online sometime in September So you know.
Middle to late September and we've been able to pull that forward. The August 1st and the benefits of that will flow through our financial plants.
Capital was under budget we.
I haven't disclosed that just yet.
As we work through with our partners.
To make that a understood and and address all of that.
Okay. So is that Dan factored into the final payments that occurs and is that do on kind of cod.
It is there some.
Benefits that are crude to both parties depending on the final cost results. So we are working through all of that but I can say this is certainly beneficial to us and beneficial to our customer.
Okay, that's great.
And then it will just the last thing for me I just wanted to clarify prior comment that I think I heard so just talking about a clean hydrogen I know obviously extremely early but is it fair to say that or you are indicating that GSK and maybe its existing infrastructure might have a logical trends.
Addition to using some clean hydrogen versa, all natural gas at some point in the future.
I would say a all of our pipes business. Both utility pipes, you know the utility has significant transmission and storage assets as those GSP or non utility entity in that business.
And I think clean hydrogen like you said that is quite some time away.
But we're starting to look at ways that perhaps we could start introducing products and services into both those entities.
And then as it relates the P and I you know we're already into renewables natural gas business. So we are.
Developing a great understanding of that product as we move forward with with projects as well as we're looking at the potential opportunities for carbon sequestration.
So I would say over the last two hydrogen and sequestration or early.
But we are starting to.
Work more deeply to understand what potential market opportunities there could be in the near term and near and medium term.
Perfect and makes less sense. Thank you for taking my questions and congrats on a great.
Thank you.
And your next question comes from a lot of Andrew Weisel, Let Scotiabank. Please go ahead.
Thanks, Good morning, everyone I'm going to get all the detail appreciate all the details you've given so far I've only got one quick one here.
What are your latest thoughts on wind versus solar in Michigan, I think you said the incremental 350 megawatts include both.
In the past you've been talking more about solar being where you'd see the <unk>. The majority of additional megawatts added so how how do you think it generally speaking about the opportunity for wind going forward.
While we see a our opportunities Andhra Gulfport I think you'll see in our leader filings. This summer as it relates to our voluntary renewables program.
You'll see that will be dominated by solar we don't see much wind.
In the future at this point in time, just for economic reasons solar cost will come down significantly.
Tax credits associated with that business also provide significant competitive advantage as it relates to the wind. So we see most of our renewable development in the future being solar.
We've sold about 700 megawatts, a voluntary renewables, which is well above what we were forecasting.
So you'll see our next filing later this summer try to address some of those supply needs that we have.
Which will be approximately 400 megawatts.
I'm sorry, that's in addition to two to 350 megawatts that just got approved.
That's correct will be seeking approvals for another 400 megawatts of renewables later this summer.
Excellent. Thank you very much.
Thank you and thus conclude actually many session for today I will turn the call back over to Jerry Norcia for closing remarks.
Well. Thank you everyone for attending this morning as you can see weve.
Had a great first six months of the year and setting up quite nicely for our results in 2020 and starting to build for our 2021 plan. So thank you again and I hope to see you soon.
This concludes today's conference call you may now disconnect.
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