Q3 2020 DTE Energy Co Earnings and Plan to Spin-Off the DTE Midstream Business Announcement Call
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Ladies and gentlemen, thank you for standing by and welcome to the TT Energy third quarter earnings Conference call.
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After the speaker's presentation, there will be a question and answer session.
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I would now like to hand, the conference over to your speaker for today, Barbara Tuckfield director of 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.
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 of today's presentation.
With us this morning are Jerry Norcia, President and CEO, who will discuss the transaction, we announced this morning that transitions DTC into a predominantly pure play utility.
We also have David Slater, President and COO of DTC midstream.
And president and CEO elect of the new Midstream company.
Who will take you through the benefits of an independent midstream company.
Bob Skaggs, a member of our board of Directors and executive Chairman elect of the New Midstream company will say a few words on the transaction.
Finally, Dave Rude senior Vice President and CFO will provide an update on the quarter. Our increased 2020 earnings guidance and our 2021 early outlook and now I'll turn it over to Gerry to start the call. This morning.
Well, thanks, Bob and good morning, everyone. Thanks for joining us today hope everyone is staying healthy sales.
So I'll start on slide four.
This morning, VP of sales, but our board of directors as Los Juarez management to pursue a plan for the spin off of midstream from BT energy.
On this call will discuss the spinoff and demonstrate Holly will unlock significant shareholder value.
Acquisition do you see is that predominantly pure play utility visible and superior growth and creating an independent well positioned midstream company.
Excellent growth potential.
Now we will provide you an update on our flight pointed results, which continue to be very strong given us confidence to increase operating EPS guidance for the year.
This positions us to exceed original guidance for the Twelveth year in a row.
I want to thank all leaders in our 10000 employees the BT precluding us tremendous success.
Sure great turmoil and uncertainty.
We are firing on all cylinders, keeping our people safe than delivering for our customers communities and investors. It is truly remarkable and certainly a reflection of the grit and determination of the great people of Viki a big thank you.
We're also providing an early outlook for 2021.
Announcing that our board approved a 7% dividend increase for 2021 continue our history of providing strong dividend growth.
Now on to slide six for an overview of the spin transaction.
This decision to separate the two companies falls, a thorough review with our board to identify opportunities to optimize our portfolio to maximize shareholder value and in the end.
The devaluation of various alternatives, we determined that our strategic spend or the midstream business, what's the best way to create value.
We recognize that this decision comes by long after a significant acquisition of assets in the Haynesville basin.
Our decision to spend midstream as a result of a series of discussions with our board that began in the summer of 2019 prior to the acquisition. When we started talking about a portfolio pivot predominantly pure play regulated utility.
Through 2019, while business mix discussions are still ongoing.
We continue to pursue an aggressive value creation agenda, but midstream, which yielded the haynesville acquisition.
This was a great acquisition for growth and value.
Because this acquisition and the balance of the midstream portfolio continues to perform exceedingly well provide better than expected growth opportunities and have scaled the thrive on its own.
It crystallized our path to pivot for high growth pure play utility with the spin of a well run midstream company.
We believe this strategy will unlock significant value for our shareholders spend is expected to unlock the full potential of our premier regulated utilities and premium natural gas midstream assets.
Align VTS business mix with investor preferences, and overall market trends and.
And create two entities each with experienced leadership and proven track records.
We expect the studies that they combine dividends higher than the current dividends with an 8% to 10% post spin increased from 21 to 22 versus 6% we had planned pre spin.
For well over a decade, our midstream business has created significant growth through Greenfield development and strategic acquisitions.
And has become an industry leader with solid cash flows and tremendous opportunities for continued growth. We believe the separation positions DCP midstream will enhance flexibility and provides shareholders an opportunity for investment in a high quality Midstream company would.
Good assets strategically located and premium basis and connect at the major demand markets.
As most of you know my background includes a substantial amount of time and the gas industry, including my involvement in the development of our midstream business.
And then I have dedicated a significant amount of time and energy, creating a midstream business a BT that is recognized as one of the best in the country.
So you can imagine how important this decision is through our team and me.
After careful consideration to review with our board I am confident that this separation is the best way to allow the midstream business and its team to achieve their full potential and to enhance overall value for our shareholders.
As I said.
This positions DC into a nearly fully regulated utility.
With 90% of our operating earnings and an even higher percentage of future capital investments.
Going into our T. premium utilities.
Five year plan will hold this 90 10 mix.
About 10% of BDNA operating earnings will be from our remaining non utility businesses.
Separation of BT, and the midstream companies truly beneficial for both entities Brazil.
Positioning them well for the future.
Turning to slide seven I'll provide details on the structure of the transaction.
BT and the new midstream company will have distinct corporate structures.
Shareholders will retain their shares of stock and receive pro rata shares of the new Midstream company.
We expect to complete the spin by mid year 2021 subject to final board approval the.
The form 10 registration statement being declared effective by the FCC.
And other regulatory approvals.
I will remain as CEO of energy with Gerry Anderson, continuing as executive Chairman and Bruce Shaw as lead Independent Board director.
David Slater current president and COO of GSP.
The CEO elect of any midstream company.
Most of you are familiar with David well respected any industry.
Bob Skaggs is executive chairman elect of the New Midstream company and will continue to serve on BT is more.
As many of you know Bob served as chairman and CEO of Nisource, we executed the company's successful spin of the Columbia pipeline group and went on to become its CEO.
David and Bob each have 30 years of experience in the energy industry. The.
A midstream company extremely fortunate to have these two seasoned leaders along with a really strong team to support them, let's move on to discuss the strong growth profile of energy on slide nine.
This transaction positions DT predominantly pure play electric and gas utilities about 90% of BT will be regulated by the Michigan Public Service Commission.
We will invest significant capital over the next five years to support utility growth.
We are substantially growing our utility rate base with a five year capital investment plan of $17 billion.
The increase of $2 billion over our previous five year plan.
This capital plan is strategically aligned with our aggressive DSG targets.
EPS growth rate has been among the best in the industry over the past decade and is maintaining its long term, 5% to 7% growth target.
The electric we anticipate long term operating earnings growth of seven 8% at about 9% at DT gas.
Our post separation profile will better align DT with investors preferences for high performing regulated utilities.
We will continue our strong record of.
Providing clean safe reliable and affordable energy to our customers and being a force or growth in the communities, where we live and serve.
You will continue to offer competitive dividends, our investors expect we have paid a dividend for more than 100 consecutive years and have increased our dividend each year since 2010.
We will target dividend growth at a payout ratio that remains consistent with our pure play utility peers.
All in all this transaction offers greater appeal to investor focused on the strategic or financial characteristics of a pure play utility.
Move on to Slide then.
The separation will highlight the strength of our core electric and gas utility businesses.
Michigan has one of the best regulatory environments in the nation continue to work very closely with the Michigan Public Service Commission to support the people of Michigan, particularly this year during the pandemic.
BT continues to have a distinctive continuous improvement culture, enabling us to continue our superior track record of cash management.
We also have a strong commitment to service excellence.
Energy ranks in the top 10 of energy companies with energy efficiency programs and I'm proud to say both utilities are in the top quartile for residential customer satisfaction.
With DB gas recently, earning the top ranking in the Midwest by JD power.
Moving on to the next slide I will discuss our capital plan beginning with BT electric.
We expect to invest about $14 billion in electric company over the next five years.
This is 17% higher than our previous plan.
About $2 billion or the total electric investment will be in renewables.
That will support our plan to reduce.
80% of our carbon emissions by 2040 and be net zero by 2015.
We are also focusing our investment on modernizing aging distribution system.
With significant investments in.
In hardening automation and technology in our distribution business.
We are building a flawless grid of the future for our customers.
Our capital plan supports a robust near term outlook for DP electric so.
So 8% long term operating earnings growth rate.
On the next slide I will discuss capital investment opportunities that BT gas.
Over the next five years DT gas plants invest over $3 billion upgrade or replace aging infrastructure.
Central upside to the five year plan.
Along with our pipeline integrity and main replacement investment, we're investing in innovative technology and products that will reduce methane emissions and reduce the carbon footprint of our gas company.
Overall, our capital plan supports a strong near term outlook for BT gas and a 9% long term operating earnings growth rate.
Our next slide I will discuss our plans to achieve net zero greenhouse gas emissions to further strengthen our industry stewardship.
As I mentioned at the electric we are committed to achieving net zero carbon emissions by 2050 with a 50% reduction by 2033.
To meet these targets, we plan to double our renewable energy by 2024 and quadruple it by 2040.
We're also progressing on our voluntary renewables program. This program enables customers to invest in renewable energy and drive Michigan to a cleaner energy future we.
We have more than 17000 business and residential customers enrolled with large industrial customers, including GM Ford and University of Michigan.
We are one of the largest voluntary renewable programs in the country with 750 megawatts of demand commitment from our customers.
DT gas announced its unique and comprehensive plan to achieve net zero greenhouse gas emissions by 2015.
This plan includes working with our suppliers and customers to enable further reductions across the value chain.
So as you can see our strong utility investment profile positions DCP for continued growth and a strong environmental leadership role.
Now I'll turn it over to David Slater to discuss the new and exciting opportunity with a midstream company David over to you.
Thanks, Gerry and good morning, everyone.
I know I met most of your past few years and we've had many discussions on our midstream business.
Let me just say that I am excited about the opportunity this transaction provides.
We achieved solid growth for over a decade.
And establishing a business as an independent midstream company will really benefit shareholders by unlocking significant value.
We will also continue our commitment to provide excellent service to our customers develop growth opportunities and reaffirm our strong relationships with our partners as.
As you know we have been expanding the midstream business through Greenfield projects and strategic acquisitions to become the Premier company. We are today.
This combination of success has enabled the creation of an independent gas focus midstream company and the most prolific natural gas basins connected the key demand centers.
The midstream company has and experienced leadership team.
They will continue to focus on organic growth and value creation from our well position platforms.
We had a strong long term contracted asset portfolio with a diverse customer base.
Excluding electric and gas utilities power generators, industrials national marketers and producers.
Portfolio generates significant cash flow and as well positioned to create value and growth for our shareholders.
The new midstream company will enable better investor alignment.
And offer the only independent mid cap gas focus C Corp investment in the Marcellus Utica and Haynesville basins.
We will have a strong capital structure and attractive dividend policy associated with high quality midstream companies.
With initial balance sheet target of four times debt to EBITDA and two times dividend coverage ratio, our balance sheet will support the ability to make value accretive investments and pay a competitive dividend.
Now, let's turn to slide 16, and talk about Midstreams platforms.
As many of you know the midstream business is comprised of three platforms regulated pipelines regulated storage and gathering.
Our footprint is extensive.
And has been developed through highly accretive organic growth and strategic acquisitions also our assets connect the most economic basins with key demand centers in the us alone.
Along with our footprint the business is underpinned by the strength of our contracts and our counterparts.
Which I will go over in more detail in next few slides.
Future growth is driven by platforms in the early development phase, which includes Blue Union lead Nexus link and generation pipeline additional opportunities include economic compression expansions of pipeline systems additional market laterals.
Continued gathering build outs.
Our other platforms like bluestone millennium vector and gas storage or in a more advanced development pace.
Still provide a stable and high quality stream of cash flows.
So midstreams platforms position us nicely going forward to deploy organic development capital.
And pay a competitive and growing dividend together, adding value for shareholders focused on gas midstream businesses.
Now, let's turn to slide 17, and discuss midstream his track record.
The midstream business has consistently achieved strong financial results delivering 18% average annual operating earnings growth since 2008 and.
20% annual growth in adjusted EBITDA over that same time period.
Businesses contributed significant cash flow overtime.
Over 3 billion since 2008.
Midstream is producing strong adjusted EBITDA in 2020, which is expected to be about $700 million.
You can see that these are a unique set of assets for investors, who are looking for superior value creation from the midstream company.
Let's move to slide 18.
As we have highlighted midstreams assets are located in the most attractive dry gas basins are sellers Utica and the Haynesville and our connected the key demand centers, which provide a great opportunity to continue dgs history of success.
Midstreams Counterparties continued to perform according to the plans they have shared with us earlier in the year our.
Our pipeline and storage portfolios or wall contracted.
On average for 10 years.
Our major producers are in solid positions.
Hedged over 70% in 2021.
At $2.70 connect.
Connected to premium markets and have minimal near term maturities.
Over 90% of our revenue is from demand based contracts nbcs and flowing gas.
With the position of our assets and the strength of our Counterparties and contracts. The company has highly visible cash flows and solid long term growth outlook.
The creation of an independent midstream company provides the opportunity to continue our record of success and.
And create value for our shareholders.
Before I turn it over to Dave Rood, who will discuss these financial performance, Bob Skaggs I'd like to say it's yours.
Thanks, David I am grateful I am honored to be working with you and the team also thanks to everyone for joining us today I'm glad to reconnect with investment community.
To say the least we are very excited about this morning's announcement is Gerry and David mentioned this spin creates a compelling opportunity for further details.
Energy, New midstream company to unlock the full potential benefiting customers and employees of both companies and delivering immediate and long term value for investors.
As I said I'm thrilled to be part of this new independent Midstream company and.
Excited to partner with David Slater in his great team with that I'll now turn it over to Dave Rood, who will discuss Teepees financial performance for the quarter.
Thanks, Bob and good morning, everyone.
Third quarter DT delivered solid performances across all of our businesses.
As you remember at the end of the second quarter, we expect it to be at the higher end of our earnings guidance.
Electric GSP and energy trading.
We've accomplished that and more so we are now raising our 2020 operating EPS guidance midpoint from $6.61 per share to $7 per share.
We are confident this increase based on the strong progress, we're making on our economic response plan and the solid.
Solid performance, we are seeing this year and our utility businesses Anadarko.
Canada, our non utilities, which are continuing to perform ahead of plan.
We've made great progress in our utilities working with the Michigan Public Service Commission continue supporting our customers earlier this year due to electric received approval in a rate plan that would delay the effective date, our next rate case until 2022.
We keep rates steady during these challenging economic times for our customers.
Yesterday, Teekay electricals filed an innovative onetime plan with the MPSV to refund or non weather related sales increases.
This increase was the result of the unprecedented residential electricity usage patterns driven by the COVID-19 pandemic.
If approved the onetime accounting treatment will not impact customer rates and will position DP electric further deferreds next rate case filing and keep customer rates steady even longer.
In the third quarter. We also received approval for our amended renewable energy plan and.
And we recently filed for the approval of additional voluntary renewables.
At DT gas.
Feed them PSC approval for a rate case settlement in August.
The rate increase of $110 million supports our capital investment plan includes in RMB, 9.9%.
And as Jerry mentioned DT gas ranked first in the Midwest residential gas customer satisfaction.
You want a few times in recent history, we have no major regulatory outcomes that are forward year.
And these regulatory successes have help solidify our 2021 plan.
Our GSP team placed leap into service in the quarter ahead of schedule and under budget.
With the favorability that we're experiencing this year. We're also positioning 2021 for a strong year by pulling some onem work forward that's.
This increases our confidence in achieving our results next year.
For 2021, we're providing an operating EPS early outlook midpoint $7.07 per share that deliver 7% growth from the 2020 original guidance midpoint.
And as we mentioned we.
We are increasing our 2021 dividend by 7%.
This outlook is supported by strong growth in each segment, which I will explain in more detail in a few minutes.
But first let's move to our third quarter financial results on slide 21.
Overall, we had a great third quarter.
Again. This is supported by our economic responded planned savings and strong performance across our businesses.
Total operating earnings for the quarter were $504 million.
This translates into $2.61 per share for the quarter.
You can find a detailed breakdown of EPS by segment, including a reconciliation to GAAP reported earnings in the appendix.
I will start the review at the top of the page with our utilities.
Electric earnings were $91 million higher than 2019, primarily due to higher residential sales the implementation of new rates and warmer weather in the corner.
Moving on to DT gas operating earnings were $18 million higher than last year.
The earnings increase is driven primarily by the infrastructure recovery mechanism and lower aluminum costs.
Let's keep moving down the page to our gas storage and pipeline business on the third row.
Operating earnings were up 29 million versus the third quarter by 2019.
Driven primarily by the first year of operation of the Blue Union system, and the pipeline, which went into service on August Onest.
I am an extra you can see our power and industrial business segment operating earnings were $2 million lower than the third quarter of 2019.
This decrease is due to lower steel related sales, partially offset by new RMG and on site energy projects.
On the next road you can see our operating earnings and our energy trading business were $3 million lower compared to last year.
Mainly due to the power portfolio performance.
Finally, corporate and other was favorable by $20 million quarter over quarter, primarily due to timing of taxes.
Overall PT around $2.61 per share in the third quarter of 2020, which is 70 cents higher than third quarter 2019.
Now, let's move to slide 22 to review, our 2020 operating earnings guidance.
As we said the key is having a very strong 2020, so far and we are raising our operating EPS guidance midpoint from $6.61 per share to $7 per share.
We are very proud of how our DTC team is working through the pandemic. This year, we continue to deliver for our customers.
We created and very effectively executed an economic response plan. Our team has consistently achieved against that plan.
We've also had favorability from warm summer weather.
Finally, our non utilities continued to perform ahead of plan.
All of these factors have led us to increase 2020 operating EPS guidance.
Favorability, we are seeing this year is also allowing us to pull ahead future own them work from 2021 in the 2020.
Which positions us well to achieve our future plans.
Let's move on to slide 23, and discuss our 2021 early outlook.
For 2021 operating EPS early outlook midpoint $7.07 per share provide 7% growth from 2020 original guidance.
This outlook does not reflect the strategic separation impacts and any post transaction guidance will be provided later in the process.
In 2021, you're expecting growth in each of our businesses.
And PPL electric growth will be driven by distribution and cleaner generation investments.
Gas, we'll see continued main renewals and other infrastructure improvement investments.
GSP will continue growth across its pipeline and gathering platforms.
Continued RMG cogeneration project development will drive growth in Pmnine.
We anticipate a portion of our economic respond planned savings will continue through 2021 in each of our business areas.
Additionally, we expect Cts equity needs to remain consistent with our previous plan, even with the spinoff of midstream.
Now I will wrap things up before we take your questions.
The transaction. We described today DTV comes predominantly pure play utility company with over 90% of our operating earnings coming from our two utilities.
Our company will continue a solid track record of providing safe and reliable energy and excellent customer service, while also being a force for growth in the communities, where we live and serve.
Michigan has one of the best regulatory environments in the nation, and we're committed to continuing to deliver for our customers communities and investors.
Additionally, we believe today's announcement puts midstream and its talented team in a position to grow with enhanced flexibility provides shareholders an opportunity for investment in the premier gas focus midstream company.
The new Midstream company, we'll be building on its history of success with the leadership of an experienced in respect of management team.
In 2020 BP is on track to exceed our original guidance midpoint for the twelveth consecutive year.
And is positioned for a strong 2021 as evidenced by our 7% dividend increase for next year.
With that I. Thank you for joining us today, and we can open up the line for questions.
Thank you.
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Try your question. Please press the pound hash key.
Our first question. This morning comes from Shire Pourreza from Guggenheim Partners. Please go ahead.
Hey, good morning, guys.
Sure.
So congrats on the quarter and the news coming out of GSP today.
Couple of questions. Here can you first can you comment on sort of the forward growth expectations post the spin of five to seven consolidated versus a seven to eight electric 9% for gas is that is that kind of explained by some dilution from equity issuances, especially in light of the higher capex outlook alternative rate.
Is there some dis synergies.
Splitting the GSP segment I could put some near term pressure and just the 5% to 7%. It's off the original guidance range. This can you just remind us how you are reiterating and replacing sort of midstream earnings what's the key drivers there.
Well I'll start Char and then I'll have stayed group to add but the.
5% to 7% EPS growth is off our 2020 base and it's pretty consistent with our growth pattern that we've described for our investors over many years and certainly we always end up on the high end of that as we've seen this year and other years, but.
But it's driven.
I'll spend it will be driven by our capital programs at both our utilities, which are quite robust and very visible.
C five plus years of really strong.
Investment opportunities our two utilities, so that's fundamentally what's driving the 5% to 7% EPS growth.
For the company post spin.
Do you want to add to that.
Hi, Jerry and I am sorry.
I think that I think you actually going very well from the difference between what you see at the utility for the five to seven it is due to some of the equity coming in but we are very confident in the in the 5% to 7% growth going forward.
Is there any charges of interval here.
Oh, yes, sorry, I was at the ASCO sales share. In addition to that we're not seeing any incremental equity needs as part of the.
The spin.
So as it will be equity as we had forecasted prior.
Got it and get synergies from the sport.
Dave.
Although there will be some initial cost that the corporate that we will have to work through but theres no long term dis synergies after the first year.
Okay perfect.
So when we're thinking about the spin contemplated at four times debt to EBITDA sort of implies about a $2 billion of debt attributed to GSP on the spend how should we sort of think about post spin leverage on the holdco right seems like it could be a sizable amount of debt that renewals are the credit metrics kind of stay intact, what sort of.
I've been feedback with the agencies and any sort of guidance on pro forma credit metrics for DTV, New car that you can kind of guide to it today.
Okay.
Great.
Sure.
We're committed to maintaining a strong balance sheet as DT and committed to maintaining our ratings.
We do expect with the separation will be credit enhancing torrance, and so thats going to allow some flexibility for our metrics while Phil.
Maintaining our solid investment grade rating.
We buy them, we had initial conversations with the agencies yesterday and those were positive.
Yeah, we'll be providing more detail in the coming months, but.
But you're right show the way the way it will work is that.
As weve been midstream and they develop their own capital structure at that four times debt to EBITDA.
That will require them raising debt the proceeds will come to DP our plan.
At BP will be to use those proceeds to pay down our parent debt and the same amount.
Okay perfect.
Just lastly improves give.
Given today's announcement curious maybe Jerry to get your thoughts on sort of the remaining non regulated businesses really just pmnine is there sort of any value to having that segment now that majority of the non Reg is slated for spend just curious on your thoughts here on and on the remaining next.
Sure the way, we're going to be an item, that's actually complementary to our yesterday agenda as we invest in R&D projects.
And also invest on behalf of some of our industrial customers to reduce their carbon footprints with cogeneration projects. So.
We view it as a small part of our business overall.
We'll be 90% utility, 10% non utility but complementary.
Terrific Congrats guys.
Thank you.
Okay.
Our next question comes from Andrew Weisel from Scotiabank. Please go ahead.
Hey, good morning, everyone. Congrats Mark morning, Andrew Thank you.
First question I want to go about the long term EPS guidance, a little bit differently. So you're continuing to guide to five to seven that's where you pointed in the past you've consistently delivered better than that more like seven or 8% notes.
It seems that a lot of that upside came from midstream. So looking forward should we think about.
Actual EPS growth rate of 6% or might there be some good old fashioned DT Conservatives and still in there that could take it more towards the higher end.
Andrew My my sense is that you'll continue to see the DT better.
Under promising and over delivering so our five to seven those the target but of.
Of course, we target a bit, but we've always done better than that.
[music].
So some contingencies built for each year.
And as I look at 2021 as look at are really strong and we're also starting to work on 2022 and Thats looking really good. So I am confident that you'll continue to see became better.
In the past.
Perfect Thats great to hear.
Next on dividends, you mentioned a lot of comments.
Comments about peer group.
Your average growth rate than payout ratios can you maybe put some numbers on that I mean, we've all got our own comps sheets, but what do you consider to be a utility peer average dividend payout ratio or growth rate.
Barry do you want to take that.
Sure Yes.
We'll we'll remain about where we are for payout ratio, which is the right around in that 60% range, which is kind of consistent with the.
Thats pure play peers, and then on dividend growth that is going to be consistent with our earnings growth going forward.
Okay great helpful.
And my last question is you've invested a ton of capital into midstream in recent years, including the Haynesville acquisition for over $3 billion about a year ago. My question is how do you think about regulated utility M&A now that hasn't really been much heavier focus historically, but.
You see yourselves as being potentially acquisitive in the regulated world that if sales kind of targets might look the most appealing to you.
You know Andrew we we have a $17 billion utility capital plan right now, which is a very large.
Organic capital program that will create tremendous value for our investors for our utility investors and I'll mention again that that's $2 billion higher than our prior five year plan. So I.
We're going to remain highly focused on our organic growth opportunities. So we really have no.
Well Thats our intention at this point in time in terms of M&A.
Okay.
And can you comment is all about the potential for a sale of the utility business. If one were to if you were to be approach given the two pure play look.
We've got a great growth agenda inorganic.
Growth at our utilities ahead that we're happy to pursue that.
It sounds good thank you very much and congrats again.
Thanks, Andrew.
Our next question comes from Julian turned on Smith from Bank of America. Please go ahead.
Hey, good morning. Thank you for your time and once again once more congratulations I appreciate the opportunity to.
Hey, how are you.
Perhaps just to follow up a little bit more of the cleanup on the credit side I think a lot of folks ask me here.
Just the extra clear about this you said I think the quote you credit enhancing do you know what your new thoughts would be around our.
Our debt target, specifically here and you might have been indirectly assets earlier I just want to try to come back on that because your 18% now should we think about this being closer to some of your peers it call it 15%.
The group.
We are we're working through that and we're in discussions obviously with the agencies. We do we do think it is credit enhancing and so we do think we can have the opportunity to move our preferred debt down to something that's more in line with peers, but that's yet to be defined as we work through the details here.
Got it well when do you think you'll provide an updated view and maybe this is a leading question into the five to seven as well when do you think you'll be in a position right an updated view.
On the credit as well as how you're thinking about that baseline moving off of your.
Your current base rate when you think you'll roll that forward once you close or more on a pro forma sort of 22 basis and I ask this specifically.
Because you obviously have the Pmnine segment.
Perhaps holding back that five to seven at least given the rest step downs coming up yes.
Yes.
Basically if you want to take that.
Yes, our plan is to roll things forward.
Sometime in the beginning of 2021 is when we'll give some more detail on on how that from all play out but it will be both for you on a pro forma level before the <unk>.
Got it so do you think that Wouldnt yet include the step down in the RAF for the baseline right.
When you think about it.
While our 2022 projections when we put those board and our 5% to 7% EPS growth rate. Julien does include the Stepdown area. After the replacement that we've been working on IP and I.
We will our fiber so yes.
Sure absolutely I only I only stress it because that earlier question at Didnt fixated on the discrepancy between utility and your consolidated growth for.
So thats why im fixated on when you could potentially move beyond that that big that big item that okay excellent.
Well. Thank you all very much I think I'll leave it there.
Our next question comes from Michael Weinstein from Credit Suisse. Please go ahead.
Hi, guys good morning.
Morning, Michael.
Could you talk little bit about why why not sell the midstream business to another buyer like Berkshire Hathaway similar to where I guess.
While we might examine.
Yes go ahead please.
Yeah, why extent, yes, yes, yes.
Yes, we examined a series of alternatives as we are looking to make this pivot through a more of a pure play utility model and we when we looked at all those alternatives. We found that the spin in our opinion created the greatest amount of.
Shareholder value.
For for our investors going forward.
Are there any tax consequences and also is the is a four times debt to EBITDA level is that low enough to compete with.
Secular that's publicly traded midstream sector, that's already kind of under stress.
While there are no tax consequences of the designed to be a tax free spin and certainly the debt level at the new.
New Midstream company, who will be very competitive it provides tremendous flexibility to provide a strong dividends a strong dividend growth as well as pursue their capital growth programs.
Okay and on that dividend.
Issue just to follow up on Sean's question.
Our.
How is it how would the equity needs remain unchanged at DTC energy.
After you've lost the cash flow from this but.
I know you're.
Set its credit enhancing but I'm just wondering if that is that enough to not change any equity needs going forward so cash.
Cash flow.
They really do want to take that.
The pace you mentioned there the credit enhancing both helps support the.
The additional or the lack of additional equity that will need that.
We still do have the equity converts that come in in 2022, but we see our plan our equity plan being very consistent with my previous plan.
And one last question when do you think you'll file the next electric rate case, Thats coming up probably early next year.
We we are looking at first quarter next year, but.
We're going to remain flexible on that we're going to try to obviously have delay as much as possible, but thats our base plan right now.
Okay, all right. Thank you very much.
Our next question comes from Angie Storozynski from.
Correct Weber. Please go ahead.
Okay.
Hi.
Thank you.
Actually just a couple of questions the first.
I remember that the previous IAI contractor.
Yes.
Now how the affordability issue.
Sort of a detector.
Pete characterize the growth of our utility Capex now we're showing us.
Sizeable.
On the electric side and this potential increase selling the gas side.
James since is.
Yes.
Well Angie your question.
You know the pandemic revealed some significant opportunities for us from a cost structure perspective of both our utilities.