Q4 2020 DTE Energy Co Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the DTE energy.
Fourth quarter, two times from 'twenty earnings Conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one on your telephone.
Please be advised on today's.
Energy is being recorded.
If you require any further assistance please press star zero.
I would now like to hand, the conference over to your first speaker today.
<unk> field director of Investor Relations. Please go ahead.
Thank you and good morning, everyone.
His conference 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.
Non-GAAP earnings operating earnings provided in the appendix of today's presentation.
With us this morning are Jerry Norcia, President and CEO.
David Slater, President and CEO elect of midstream.
And Jim <unk>, Senior Vice President and CFO.
And as GAAP and now I'll turn it over to Gerry to start the call. This morning.
Well, thanks, Barb and good morning, everyone and thanks for joining us today.
I hope everyone is staying healthy and safe.
I will start off by giving you a recap that's moving.
On <unk>.
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Highlights.
Oh well positioned.
Great.
It's laid out will give some details on our midstream business and provide an update on the spin transaction.
Bruce will provide a financial review of the year to wrap things up before we take your questions.
Let's start on slide four.
Good morning.
Clearly.
There was an year for somebody.
With 19 pandemic disrupting everyone's lives.
As I reflected on this past year I think the best way to characterize my boss is free.
Right.
I cannot be prouder of our DTE family confronting these challenges.
Took them head on.
And create incredible success in every part of our company.
I am proud of our employees responded to ensure their own safety and the safety of our communities, while continuing to deliver for our best on this.
DTE also delivered very strong financial results continuing on.
Our incredible.
A track record of success.
In 2020, we achieved extraordinary engagement and safety performance, we achieved our safest year on record.
You all know the safety of our people and our customers has always been our top priority at DTE.
I am so incredibly proud of.
Our team for this achievement, while navigating through the pandemic.
Additionally, our team remains highly engaged throughout the year.
By Gallup among the top 5% globally.
All your engagement, earning.
Turning our eighth consecutive Gallup, Great Workplace Award.
First.
In class employee engagement is our secret sauce that defines our strong corporate culture.
The foundation for long term value creation and repeated success on the <unk>.
Delivery of our goals.
As I said, our DTE team stepped up and supported our customers and communities through these.
Times in 2020.
Our team significantly streamlined payment plans to customers impacted by COVID-19.
From found creative ways, which got a rate case filings, which were supported by the Michigan Public Service Commission effectively keeping rates unchanged for customers through.
Through 2020.
These tougher.
You can let on $23 million initiatives that promote.
I had a 51000 tablets as.
As well as Internet access the Detroit public schools students, ensuring that education would that be interrupted.
We also donated over 2 million mass from emergency managers first responders.
And hospitals on PPE supplies were low.
<unk> Foundation contributed to pandemic related relief efforts in unprecedented ways in 2020.
Finally, I'm incredibly proud of our team worked together to execute our economic response plan to ensure strong financial performance.
<unk> won't be quickly analyzed how the pandemic could affect our company customers and communities and put a plan in place to minimize the impacts.
We then follow through and executed on that plan.
Our workforce of over 10000 employees embraced our culture of continuous improvement and found opportunities to increase efficiency.
All of our businesses.
This work led to a successful year in 2020 and set DTE us well for the future.
I want to congratulate all of our DTE family, we delivered one of the best years on <unk>.
Many fronts.
I've been with the company.
I'll discuss our 2020 accomplishments on the next slide.
As I mentioned the success of 2020 was fueled by the execution of our economic response plan.
Which led to really strong earnings.
2020 was also a year of very strong cash flows for DTE.
Able to use some of.
The increase investment in our operations positioning us nicely from 'twenty to 'twenty one.
Our 2020 operating EPS of $7 on 19 reps.
It represents 14% growth over <unk> 2019 operating EPS. This is nearly 9%.
That strength.
Our regional 2020 guidance midpoint.
<unk> was the fourth consecutive year, we exceeded our original guidance midpoint.
This success demonstrates our team's commitment to delivering results and continuous improvement.
It also increased our dividend 7% from 2021.
On marketing the 12th consecutive year of a dividend increase.
In addition.
On a solid financials DTE achieved many regulatory and operational successes in 2020.
DTE electric received approval for an innovative one time voluntary refund to customers for unexpected.
Hi.
<unk> related sales.
This will help maintain our customer affordability.
DTE electric further deferred so next rate case filing.
We'll continue to work on innovative ways to believe rate cases, DTE gas reached a constructive rate case settlement, which was approved by the MTA.
In August <unk>.
As a result, both utilities achieved regulatory certainty in 2020.
Wows us to keep base rate study.
Customers through 'twenty and 'twenty one.
We are very proud of these accomplishments as we continue our commitment to provide reliable affordable energy to our customers.
I'll go into more detail on 2020 achievements for our utilities in a few minutes our non utility businesses also achieved operational successes in 2020.
DTE midstream place to lead pipeline in service ahead of schedule and under budget.
Began delivering for our customers not a small feat in today's environment.
We continue to focus on the development of RMG and cogeneration projects to backfill sunsetting <unk> business from.
In 2020.
We operationalized, our Wisconsin, RMG project and Ford Central Energy plant and also finalized an additional co generation project.
This continues.
P&I, our cadence on new project completion, accompanied by a strong pipeline.
Due to growth.
Turning to slide six on.
Discuss all these use position for future success.
Overall, our achievements in 2020 have set us up well for continued success in 2021.
These are 2021 operating EPS guidance midpoint of $7 seven.
Provides 7% growth over 2020 original guidance.
The vast majority of our growth comes from our utility businesses.
At DTE electric we are investing heavily in the modernization of the grid.
And cleaner generation.
At DTE gas to continue our main renewal work as well as infrastructure improvements.
We continue our steady growth on our non utility businesses through strategic and sustainable investments.
As you know we are executing the spin of our midstream business this year David.
Later, we will give you more details on.
Let me just say that the transaction is progressing as planned and we are on track for completion in mid year.
This separation positions DTE is that predominantly pure play utility and establishes midstream is an independent C Corp gas midstream company.
We truly believe this transit.
Transaction unlocks significant value for investors of both companies.
We are reaffirming our 5% to 7% long term operating EPS growth for DTE from our 2020 original guidance midpoint.
<unk> provides an attractive and growing dividend to investors.
DTE has a long track record of delivering premium shareholder returns consistently beating the S&P 500 utilities index and we plan to continue delivering for our investors.
As I said, we have exceeded the midpoint of our operating EPS guidance for 12 straight years.
And early in this year.
Feel.
Feel we are well positioned to continue that streak in 2021.
Turning to slide seven I'll highlight some of the successes at DTE electric.
Both utilities progress on key initiatives in 2020, while navigating the pandemic.
For DTE electric whereas.
Included clean energy investments.
As well as on vessels to accelerate the modernization of our electric grid.
From 2020, DTE electric commissioned the largest wind park in Michigan.
Which is the Polaris Wind Park was 68 turbines generating 168 megawatts of power.
Our voluntary renewables.
This program my Green power continues to exceed our high expectations.
The program is the largest of its kind in the nation with 850 megawatts of commitments to date and 25000 customers enrolled.
Rather than this program has doubled over the past year.
We continue to be excited about this program and see additional opportunity for expansion of the customer enrollments continue to grow.
These accomplishments help DTE electric work towards its net zero carbon emissions target by 2050.
DTE electric also announced its commitment to promote electric vehicles.
By joining forces with other companies to facilitate the construction of a network of fast charging stations across the Midwest.
Well assist our customers with affordability during the pandemic.
We filed an innovative plan to delay an electric rate case filing.
The Michigan Public Service Commission approved this plan.
Plan, allowing us to provide steady base rates for our customers and regulatory certainty for our company and investors.
The Commission also approved a onetime customer refunds per unexpected load increases from additional residential usage from customers working from home due to COVID-19.
This allows us to defer our nice free.
Rate case, even further.
Customer rates study longer.
Looking for the future is bright for DTE Electric's a day.
AI conference, we rolled forward, our five year capital plan, which included a 17% increase in capital at the electric company compared to our.
Our Pryor plant.
These investments will focus on cleaner energy as well as infrastructure investments reliability and growth.
We're also upgrading substations for current and future low growth and addressing aging infrastructure in a position to grid from the future.
Through the implementation of this.
DTE electric is targeting 7% to 8% long term operating earnings growth.
Moving to slide eight I'll describe the successes at DTE gas.
DTE gas progress on key initiatives in 2020 and is well positioned for future growth.
We announced an innovative program.
To achieve net zero greenhouse gas emissions by 2050.
Program is a first of its kind and incorporates emission reduction opportunities for suppliers and customers.
Recently, we also announced a voluntary program for customers to purchase carbon offsets and renewable natural gas to offset 105% to 100%.
Percent of the average homes gas use emissions.
We progressed on our major transmission renewal project in Northern Michigan.
This project includes the installation of new pipeline and facility modification work provide.
Provide redundancy and mitigate customer outages.
We have completed the first.
Of three phases of this project with the second phase scheduled to begin in June.
DTE gas also continued main real upgrades on operational improvements in 2020.
Including leading 206 main renewal miles.
Quite a pause on work during the height of the pandemic in the spring.
DTE gas achieved the rate case settlement in August that supports investment plans and provides regulatory certainty through 2021.
The current capital plan for DTE gas includes additional opportunities that could potentially be included.
We continue to find ways to create headroom and affordability.
City with continuous improvement.
Our five year investment plan on DTE gas purposes on main renewal.
One on transmission integrity and enhanced technology.
Upgrading our system.
Placing aging infrastructure continues our path to reducing costs improving customer satisfaction.
DTE gas recently filed our gas rate case with the PSC.
These investments in infrastructure and reliability for our customers.
With our usual 10 month rate case cycle.
New rates will be effective in 2022.
Before I turn it over to David Slater, who will walk you through this.
So Europe midstream head and give updates on a spin transaction progress.
And we congratulate him on being elected to serve on the income board as chairman of the industry group, representing Interstate gas pipelines.
David over to you.
Thanks, Jerry for the kind words next year will be a defining period.
Success in industry, and I look forward to ensuring that policymakers and regulators understand the importance of natural gas and lower carbon future.
I'll start on slide nine.
As Jerry mentioned earlier, our spin transaction is well underway and we recently initiated the form 10 process.
<unk> for this keeps us firmly on schedule for a mid year spin.
I'll now discuss the successes midstream achieved across all of our platforms last year and then go over the execution of our spin transaction.
We placed in service last summer ahead of schedule and under budget.
It is 155.
Well 36 inch pipeline that extends our gathering system to the Gulf Coast Interstate systems and LNG export markets. This asset is a great addition to our portfolio.
We delivered strong financial results this year across all of our platforms producing strong adjusted EBITDA of 713 million.
<unk>, which was above plan, we also executed a three year contract on Nexus without having utility.
And we continue to see strong interest in excess capacity.
Overall.
Wholesale continues to be well contracted our major customers are on solid positions connected to premium markets and have.
More near term debt maturities.
I also wanted to mention that midstream recently announced and net zero emissions target by 2050, making US one of the first companies in the midstream sector to announce such a goal we intend to use every tool available to reach our sustainability targets and believe this will.
Will evolve to become a significant opportunity over time from midstream.
With the position of our assets and the strength of our Counterparties and contracts.
It's from company has highly visible cash flows and a stable long term outlook, we remain focused on disciplined capital deployment to fuel our growth.
And are supported by a flexible well capitalized balance sheet.
The creation of an independent midstream C Corp will provide the opportunity to leverage these positive attributes to further advance the company and create value.
Now, let's turn to slide 10.
The midstream business.
Transformed over the last decade, and the solid steady strategic transformation disposition midstream to become the industry leader it is today.
We felt that naming the company DTE midstream will allow us to build on DTE is legacy of success as we progress on our new journey.
As I said earlier, the spin is well underway with expected completion by mid year, we began the SEC form 10 initial registration process earlier this month.
We will be meeting with the rating agencies and initiating a debt raise in the second quarter.
Throughout this process.
We will be hosting events with analysts and investors and are planning to hold our roadshow in June.
I am feeling very optimistic about our leadership team as we mentioned on the last earnings call. Bob Skaggs will be the executive chairman of the board I am pleased to announce that Jeff Jewel, who is currently vice president.
<unk> Treasurer, and Chief risk officer of DTE energy will become the CFO of DTE midstream.
I have worked with Jeff for years, and I can tell you that both Bob and I are delighted to have them join our leadership team. He is a highly qualified expert and has a solid track record of delivering results.
I am confident the midstream is well positioned for the future our seasoned leadership team proven track record of success and a unique set of assets.
Allow us to deliver strong financial results year after year.
2021, we'll continue this track record with a targeted EBITDA range.
710, $750 million and a strong capital structure with initial four times debt to EBITDA ratio and a two times dividend coverage ratio that will provide financial flexibility to portfolio generates significant cash flow and is well positioned to create value for investors.
Spin will provide midstream.
<unk> strategic opportunities and Optionality to continue this record of success and I'm looking forward to talking to many of you between now and the spin completion.
Now I'll turn it over to Dave <unk> to discuss Dte's financial performance.
Thanks, David and good morning, everyone.
On the 20th year that brought its share of opportunity.
Susan challenges.
Hard work of our employees allow for us to continue to deliver for our stakeholders, including delivering strong operational and financial results, while providing great service for our customers.
As Jerry mentioned, we executed on our economic response plan to offset the impacts of the pandemic and the warm winter weather.
With our quick action.
Action and the incredible performance from the whole team.
Able to achieve solid financial performance across all of our business units. Let me start on slide 11 to review our year end financial results.
Total operating earnings for the year were $1 4 billion.
This translates into $7 19 per share for.
<unk>.
You can find a detailed breakdown of EPS by segment, including a reconciliation to GAAP reported earnings in the appendix I'll start to review at the top of the page with our utilities.
DTE electric earnings were $813 million per the year. This.
This was $97 million higher than 2019, primarily due to higher residential sales from.
The year people working from home during the year and new rate implementation offset by rate base growth cost.
Moving on to DTE gas.
Operating earnings were $196 million $15 million higher than last year.
The earnings increase was driven primarily by onetime O&M cost savings.
For a more implementation and the infrastructure recovery mechanism revenue is offset by warmer than normal weather and rate base growth cost.
Let's keep moving down the page to our gas storage and pipelines business on the third row operating.
Operating earnings for GSP were $303 million.
This was $90 million higher than last year with strong.
New radar on that each of our platforms and driven primarily by a full year of Blue Union earnings and placing our lead pipeline in service last summer on the next row, you can see our power and industrial business segment operating earnings were $150 million.
This is a $17 million increase from 2019 due to new industrial energy services and R&D projects offset.
<unk> per price steel related sales.
On an X Ray you can see our operating earnings our energy trading business were $39 million. This was $9 million higher than last year, mainly due to performance in the gas portfolio.
Finally, corporate and other was unfavorable by $4 million year over year, primarily due to higher interest expense.
Offset overall DTE earned $7 19 per share in 2020, which is 89 cents per share higher than 2019.
Let's move to slide 12.
As Jerry mentioned, we are reaffirming our 'twenty 'twenty, one operating earnings guidance.
We'd like to remind you that this guidance does not reflect the strategic separation impacts.
The post transaction guidance will be provided later on the process as we approach the spin day.
Our 'twenty 'twenty, one operating EPS guidance range at $6 88 to $7 26 per share.
The midpoint to $7 seven per share, which is 7% growth from our 2020 original.
And Indians midpoint.
We are comparing our 'twenty 'twenty, one guidance to the 2020 original guidance midpoint.
<unk> is the one time items included in the 'twenty 'twenty actual results given the 'twenty 'twenty was such a unique year.
Our 2020 results included a number of nonrecurring items, you would experienced higher COVID-19 related.
Residential electric sales, which are projected to begin to normalize in 2021.
These sales were in part offset by the voluntary refund to customers.
We also had one time interest and investment returns higher energy trading earnings.
And we experienced higher than planned non utility earnings due to conservative planning and cost control during COVID-19.
Okay.
We're projecting another strong year in 'twenty and 'twenty, one with growth in each segment.
At DTE electric growth will be driven by distribution and cleaner generation investments.
We said before we have worked and continue to work to hold electric base rates flat for our customers.
DTE gas, we'll see continued.
Covid and main renewal and other infrastructure improvements that provide enhanced reliability for our customers.
GSP will continue organic growth across all its pipeline and gathering platforms.
And continued R&D and cogeneration project development will drive growth at P&I.
Let's move to slide 13 to talk about our long term growth.
Investments spin transaction unlocks the full potential of our premier regulated utilities and premium natural gas midstream business.
DTE becomes a high growth predominantly pure play regulated Michigan based utility.
If you look at our post spin business, we're growing at seven 4% from our 2020 pro forma operating EPS.
Original guidance midpoint, excluding the midstream impacts.
In addition, we are maintaining our 5% to 7% operating EPS growth through 2025 from the 20th 20 original guidance. Despite significant milestones during that time, which includes the conversion of $1 3 billion of mandatory equity units in 2022 and.
And the sunsetting of the Ari.
For goodness at the end of this year.
Over 90% of our operating earnings will come from our two utilities, which will deliver operating earnings growth in the earlier is that the plan that are higher than their average operating earnings growth over the five years.
Overall, we feel optimistic about our outlook and our operational and financial performance.
Let's turn to slide 14 to briefly discuss our balance sheet and equity issuance plan.
We continue to focus on maintaining strong cash flows and solid balance sheet metrics.
Due to the strong cash flows in 2020 DTE is targeting the low end of our planned equity issuances in 2021 and continues to have minimal.
But he needs in our plan b on the convertible equity units in 2022.
We are maintaining our focus on our leverage and cash flow metrics.
As we've mentioned before the spin transaction will be credit enhancing allowing us to lower our <unk> to debt target from 18% to approximately 16% while maintaining a solid.
Credit position.
We continue to focus on top tier cash management.
Fast action to ensure strong liquidity at the onset of the pandemic that resulted in having $3 1 billion of available liquidity at the end of last year.
Now I'll wrap up the call and then we can open it up for Q&A.
As we have demonstrated.
<unk> equity today DTE had a very strong year in 2020 and clearly this is a result of the incredibly hard work on every member of our DTE family.
Throughout a year impacted so greatly by the pandemic, we were able to continue to deliver clean safe reliable and affordable energy to our customers.
The D T team achieved remarkable engagement and safety.
Performance.
We also were able to assist our customers and communities during the pandemic in unprecedented ways.
Our D T team delivered our 12 consecutive year of exceeding our original guidance midpoint.
We're also increasing our dividend and positioning DTE for success in 'twenty, 'twenty, one and into the future.
With that I. Thank you for joining us today, and we can open up the line for questions.
As a reminder to ask a question you will need to press star one on your telephone.
Thank you Victor on your question, please press the pound or cash.
Your first question. This morning comes from Michael.
Okay.
Please go ahead.
Hi, good morning, guys.
Good morning, Michael.
Maybe you could go through.
Some of the highest priorities are going to have with the electric filing as it comes up eventually.
You know what.
What would be the focus of that that rate filing.
Sure. The primary focus will be a capital investment plan continuing to build out.
Modernize our electric grid, so our investments in the wires business will be front and center in our filing along with continued investment in clean generation.
Generation.
And of course.
Typical capital investments to maintain the system in good working order so those would be the key priorities.
Right and you know and I'm on the same lines, yes, you maintain the 5% to 7% growth rate a growth.
Target going forward.
What is the where do you think on most of that backfill will come from a and from the elimination of the <unk>.
U S segment, considering that that was a pretty high growth segment.
Contributing.
Yeah, I think as we've shown in our.
And our and our growth plans that we have a very.
Backlog of capital infrastructure that needs to be deployed bolt on on our electric business and gas business.
And then our P&I segment is obviously focused on.
Renewable natural gas and cogeneration.
That will drive a nice growth profile there. So overall based on our large inventory of capital.
Although we need to deploy on behalf of our customers. We are we see a very good strong growth rate for DTE post spin of five to seven per cent EPS growth.
Right and the low end of equity needs is that through the entire plan or just the early.
Right just the first year.
A lot of land.
So it.
Want to take that.
Yeah sure yeah over the three year period, you see the $1 3 billion of converts come in in 2022.
Besides that we do we do think we'll be at the low end of our equity plan during that period.
For the entire period right.
The entire three year Sir.
Okay and is that driven just by a better results.
Cash flow.
Yeah, we had really strong cash flow in 2020 that positions us even better.
It's not it's not a reflection of a rating agency.
More lax nest I guess on your credit rating targets.
Well thank you.
You can also see that we have on one of the slides that we were targeting a 18.
<unk> 18 per cent episode of debt prior to the spin.
But we are we have talked to the rating agencies from the spin will be credit enhancing for the company.
And so we are able to reposition that 18% to 60 per cent F out of debt.
We can still be in a consistent place on our on our ratings on our positions there.
Is that a driver of being at the low end of equity needs or is it mostly just about having more cash flow than you expected.
Yeah, when we talk to the I. This was part of how we were able to be to be at the lower end of.
Needs or to lower equities.
Now this additional cash pushed us down to the lower end of that even lower industrial okay.
Okay.
Alright, that's all I've got thank you.
Thank you.
Your next question comes from Jeremy Tonet from Jpmorgan. Please go ahead.
Hi.
Good morning.
Good morning on Hello, just wanted to book.
Start off on the midstream side, if I could here and just wanted to see if.
On the frigid temperatures tied up on commentary.
No from a fat kind of.
The impact from your operations there as far as flows that you might be seeing.
Or even if on I guess, maybe.
Higher gas prices might influence cookies from kidney just trying to think through the different different ramifications on what we've seen this past week.
So I'll start by saying that our assets operated quite well across all of our platforms some of our customers and our southern platform had issues, but perhaps I'll, let David.
If it's later on.
Describe that a little more detail.
Sure. Thanks, Jeremy for the question and that's very topical.
It's on the news every night.
Yeah first off our midstream assets performed really well I'm proud of the operating team in the field. They they saw that when they're coming in and started to take actions in advance of that.
Our system on.
Operating reliably so it has.
We have seen from a customer or producer perspective, well freeze offs, and it's really driven by an extended period of <unk>.
Very frigid weather in the Louisiana, Texas area and that over time.
To make a production.
That said it looks like the weather's breaking out today and tomorrow and we expect that those are those volumes will come back online over the weekend and into the beginning of next week.
So there has been a on.
A short term production.
From a reduction that occurred.
But it's gonna be bouncing.
On a fairly quickly.
Got it that's helpful. And then just thinking about the volatility in the market share wondering if that could create opportunities on the energy trading side that could benefit you in the first quarter.
Well I'll say this debt.
Our energy trading operations.
We've got very small positions in typically where long. So we have seen some favorability that will work through the energy trading business for sure.
Got it that's helpful. Thanks, and just from midstream as we think about the shape of earnings across the year, you talked about growth in that business I'm just wondering.
Back from D C kind of a ramp across the year here or any other color you can provide as far as well.
Shape admits from earnings across the year as you see it now.
David do you want to take that.
Sure I can take that I think it should be fairly steady across the year, Jeremy I I don't see any.
On a significant lumpiness over the year.
So it should be fairly steady.
Yeah.
Got it maybe a last one on midstream if I could here and I'm not sure if you're on a position to discuss it much at this point, but just when you think about your midstream book when you think about you know what other.
Publicly traded comps out there or are you able to kind of provide any thoughts on how you think on your business from.
That's versus others. What you think is the closest comps.
David.
Yeah, Jeremy when we've when we've talked about this in the past the two that I reference would be echoed trans and Williams.
Transit similar size they focused in the Appalachia, we are more diversified than they are but in terms of size and portfolio composition, where similar to them.
And then Williams there were larger than we are but again in terms of focus primarily on gas and the portfolio composition. So the.
Equity on the two that we kind of point to as proxies.
I believe that we're going to have a pretty strong portfolio and a.
With a strong clean.
Future in front of us so we expect to trade and to have a strong multiple on our EBITDA.
Got it that's very helpful. I'll stop there. Thank you.
Your next question comes from Julien Dumoulin Smith from Bank of America. Please go ahead.
Hey, good morning team thanks for the time.
Julian this is.
Good morning, a couple of clarification.
It seems if you don't mind number one on.
With respect to what's happening here in Texas.
Do you think about the energy trading impact I just wanted to clarify the last response that indeed your book across its various exposures intact and then on and then I've got a more substantive question.
So.
If I gave the highest level Julien.
As I mentioned, we have small positions, but we find ourselves typically long and those positions. So the impact on commodity prices has actually provided.
<unk>.
Trends for our trading business certainly in the last several.
No.
Okay excellent sorry, I, just wanted to clarify about trading specifically.
Then separately if I can.
Let me see just very successful 2020, how do you think about taking some of those tailwind and putting them into 'twenty. One here I get that there are a number of one time items.
Including cost savings in 'twenty, but how do you think about that moving forward in 'twenty one here.
As it goes and then if you can speak to it.
Well I just noticed the cash flow steps down probably again off from some one time items into 'twenty. One if you can speak that all debt.
So Julien I would say that the 20th 20.
Based on us extremely well for 2021.
As the year begins and progresses here.
We are seeing you.
You know favorability.
Favorability.
And also likely trending towards the higher end or beyond the midpoint of our guidance, but still inside our.
Guidance, so I feel very positive about the year is it starting to progress, but Marvel will speak more about that as the quarters progress here, but.
But feeling really strong about how 2021 is shaping up.
Dave Ruud do you want to add some thoughts on the cash flows earnings for this year.
Yes sure.
You're exactly.
Alright, Julian 'twenty 'twenty 'twenty was a really good year for cash for us.
Primarily driven by strong performance from the business, but we also did have some onetime impacts from particularly from the cares Act, which gave us some really good favorability. So 2021 cash is lower than 2020, as we adjust for those one time things.
That won't repeat.
But it's still we would be with good solid cashier for 2021 too.
Excellent guys. Thank you very much right.
Thanks.
Your next question comes from Jonathan Arnold from vertical Research partners. Please go ahead.
Yeah, Good morning, guys.
Good morning, Justin.
It went back on equity interest for a second.
Isn't the low end of the range, excluding the unit zero I, just maybe I'm being slow on that.
Yeah on the low it is the low end yeah. The low end there is zero and we're just.
In case, there are some internal equity issuances are something we're just saying near the low end, but we.
We don't see a need for much equity issuance at all beyond the converts over the next three years, Yeah. That's what I was hearing on it.
To clarify that.
Thank you and then just.
Just to follow up on the question of sort of the seasonality.
He around.
Midstream.
Yeah. It looked like the fourth quarter after the step back to the $72 million range, which is kind of where it was in Q1 and Q2 and then just habits really big.
Third quarter over 100 I mean.
Are we saying that that that was an anomaly in 2020.
'twenty and then we should just have much more of a pause.
Your guidance would seem to point to the 75 ish each each quarter that cause ratably. So I just wanted to maybe get reminded what happened in Q3.
David later.
Yeah.
I'm thinking out loud here on Q3, there may have been a few one time items that rolled through the portfolio on Q3.
But again I think as I look forward.
I don't see any large pumps a quarter by quarter right now.
So I think a ratable view is probably appropriate good enough.
And then just one final thing on them.
Your corporate segment.
Numbers in the fourth quarter it looked like they came in better than guidance.
Yeah for the.
The year, what was going on there.
Did you have some conservatism or.
Well, it's a one time or maybe a little more color.
Okay.
Yep Yep.
Nailed it there when we when we did our revised guidance on the third quarter call. We did still have some conservative.
Conservatism in there too.
To protect ourselves from any other.
The variability that would come up and then as things played out we did see some upside as well from.
One time interest expense interest income and some investment returns that caused that to go higher.
Can you quantify what those were.
On time as might've seen.
Although there was.
Interest expense was down there they're on they're all you know kind of not small number on a really big but then when they add them together they kind of give us net.
Increase so it was interest expense down.
There was some interest income again related to the cares act that came that came through.
And then we had.
Six on investment returns that were that were slightly up also so theres kind of three together that came to came on right. Thank you and if I may just to Jerry most of the Big picture. This is Sarah.
Could you potentially look at accelerating your 2015 net zero for the electric side.
So you know how.
Some about it.
Or is that.
Something youre starting to think about.
We are thinking about or Jonathan and I are we're running many scenarios right now internally understand is there an opportunity to accelerate our retirement schedule for for our coal assets as you know we still have a very.
Large cooperation on currently were forecasted to retire our Belle River power plant, which was about 1200 megawatts from 2030. So we're looking at ways to accelerate that which is our first retirement.
In our lens this decade.
And then our Monroe power plant, which is a very large.
How would you go on facility almost 3000 megawatts.
We're looking at ways to potentially accelerate the retirement of that up from 2040, so much more to come on net but we are deep into that analysis right now and we're required to file on IRB in 2023 and.
We will do.
They'll all of that.
Yeah.
Okay, so but.
You didn't you can be there might be some sort of interim updates along the way. So it's kind of a long way out.
Yes, there will be an earn them updates along the way we expect that.
Okay. Thank you for your time.
Thank you.
Yes.
Your next question comes from Andrew cash Chappell from Evercore ISI. Please go ahead.
18, good morning, Jim.
Good morning, once again getting from me good morning, everything else you guys can answer.
Maybe just give us any color to the extent that you can as to what to expect when you start doing.
Flow chose like should we expect a from the midstream business should we expect a sort of a five year look you know or just in terms of how many years' worth of projections.
And part two of that question, how should we think about dividends, you're saying the post spin off the dividends are going to be higher.
Then pre spin that sort of suggests a materially higher growth rate for the worst as the peers on the midstream.
Business right am I thinking about that the right way.
David do you want to take that.
Yeah, I'll I'll take it and Dave Ruud you can you can fill in.
So maybe I'll start with the road show and what to expect on the Roadshow, so that'll be the opportunity for the.
For D T midstream to provide GAAP guidance basically for the first time as a Standalone company.
So as we worked through the on the debt raise an answer.
Sort of locked down a lot of variables that I think we'll be in a position to provide more clarity and color.
Our goal is to provide.
Best in class guidance in the midstream space as you know the midstream space, what's normal there is different than what's normal on the utility space.
So our.
We'll be to provide as much visibility into the company and really be distinctive in that regard.
In terms of.
Some of the details around the dividend.
We're publicly communicating will have a two times dividend coverage ratio, we've not provided.
Provided the exact number on the dividend and again you should expect that in the on the road show but.
Rudy I don't know if you wanted to add any more color to the dividend.
Question I can I can explain why that looks higher in 'twenty 'twenty two than what it would've been.
Together in 'twenty one.
Goal the goal for each company is have a dividend that's consistent with the best peers that we have in that industry and so for DTE will cover dividend consistent with the highest performing peers and consistent with where we've been in a payout ratio that is around 60%.
And then midstream as David mentioned, we will have a a dividend that's sent.
Two.
A dividend coverage ratio of approximately two times the distributable cash flow.
When you put those together it does result in a higher dividend and it's it's really a result of that two times distributable cash flow equating to a.
What would have been a higher payout ratio. So that's what makes 2020 to look higher than what it would've been.
It would've been otherwise how the company has been together.
Understood. Thanks for that color guys I appreciate it.
Yes.
Your next question comes from Steve Fleishman from Wolfe Research. Please go ahead.
Hey, good morning. Thanks.
So all day update Steve.
Yeah.
Good morning, Jerry So I was actually interested question I guess per day just on both.
The net zero target from midstream and also as.
Incoming head of anger.
Could you maybe.
Give more of your.
Your high level view of how natural gas fits in de carbonization and energy transition.
You know you don't have to go that long, but just high level. Thank you.
Sure. Thanks, Steve Yeah, that's a very good question on topical on the country right now so first off in January we announced.
Our stated net zero by 2050 target for the midstream business without milestone outside.
Getting 30 per cent of the way there by the end of this decade.
So there's there'll be lots of actions that will take around that but I'd say at the very highest level Steve.
These there there is a significant opportunity to decarbonize the.
The energy infrastructure that carries curious natural gas.
To frame it up it carries about a third of the energy we can see them every day in North America. So it's a massive energy distribution system.
And.
Says DTE has successfully decarbonize and isn't on a pathway to decarbonize the electric grid.
I believe the same opportunity exists for the natural gas energy distribution system.
So that I expect that over time, that's going to take capital investments and.
Creating.
Chelsea framework to enable those capital investments.
It's important so I'm kind of pivoting now to the ingot conversation.
And as Ingo I announced two weeks ago.
A statement on behalf of the industry that the industry is committed to a net zero aspiration by 2050.
On the pulp.
So theres definitely a.
A desire to move in this direction amongst all the industry participants and and work closely with the.
The new administration, and just societal requirements to move to a lower carbon footprint.
So again.
Again, I think over time this is going to create investment opportunities in the infrastructure.
And I think the <unk>.
Task before US right now is to we have a lot of great technology that can be deployed quickly that's what I'll call on the shelf technology.
Working with the regulators to create the framework.
<unk> work to allow that to happen across the industry broadly.
Okay, Great I've got.
A lot of follow ups to that but I'll save that for another time. Thank you.
Your next question comes from Andrew Weisel from Scotia Bank. Please go ahead.
Hey, guys good morning, everybody.
Good morning first.
My first question I wanted to follow up on the cost cuts you did a tremendous job in 'twenty and 'twenty offsetting the headwinds from the pandemic in your usual course of constant improvement you mentioned that it positions you well for 2021. My question is what's your latest.
Thinking on how much of those savings are permanent or sustainable as opposed to being onetime in nature.
Well I'll start and then I'll turn it over to Dave Ruud, but certainly.
You know the success that we expect in 'twenty and 'twenty, one that's driven by some of the work that we did in 2020 as it relates to the cost reductions.
And it also.
Strengthens our planned long term as you saw we pulled forward $2 billion from investments.
Into the into the electric business in order to accelerate our modernization program for the electric grid.
That was a result of a lot of the learnings that we experienced in 'twenty.
'twenty 'twenty.
Now some of those cost reductions are onetime in nature and I'll, let Dave Ruud describe some of those as well.
Yeah, Youre right Sherri, we as we as we look at the.
Initiatives, we implemented in 2020, our goal is going to be to keep as much of that going forward as we can we consistently.
Yeah.
Through our normal processes always looking at cost, but in in 'twenty 'twenty, we did see some additional reductions some of those of course are one time.
And we had more people working capital and we had some delays in some of our some of our work due to due to COVID-19.
What are some of the things will.
We have will be real and will stay with US you know I'm confident that we're going to find some real efficiencies by how we learned to work this year and having more people work remotely and so we're going to be able to take a lot of what we learned and roll that forward.
You know from somewhere in the probably half of what we saw were going to be able to look at trying to find.
B is to continue that that on in 'twenty 'twenty, one and then continue cost savings again as Jerry said, so that we can have.
More room for additional capital that we need to help serve our customers.
Okay terrific, so about half I think I heard.
And then on the regulatory front, you've historically been an annual filer now youre staying.
Find ways of rate cases for both electric and gas could this be something of a paradigm shift or is it a unique onetime thing given the economic challenges. So many of your customers are facing.
Well certainly.
You know we will target the delay rate cases is low.
Long as we possibly can when you think that.
Hang out benefits where customers on we'll continue to look for creative ways to do that.
We are exploring ways to do that right now with the with the Commission staff.
So we'll report more on that as the year progresses, and that's related to our electric rate case right now we're targeting a may filing, but we're looking at creative ways.
That's a delay that even further so more to come on that but always working on ways to reduce the impact of our investments.
On our customers.
Great one last one a bit of a curve ball here I'm, well aware that auto isn't a huge exposure for you in terms of volume or margin, but with all.
All the headlines around chip shortages impacting manufacturing for the automakers and their supply chain are you seeing any disruptions or reduced operations from those customers.
We've not seen anything that is impactful to our through our earnings this year our guidance this year, but Dave Ruud any further thoughts on net.
Perhaps I agree Jamie at this point, we haven't seen a haven't seen the impacts are.
Overall, our industrial load.
Outside of a few key customers just come back really well from from where it was at the low points in a pandemic and so we.
We have not seen those impacts yet.
Okay terrific.
Pretty much.
Your next question comes from South day Count from Keybanc. Please go ahead.
Hi, Good morning, Thank you for taking my question.
I have two on.
Last quick question.
First just can you discuss if.
Thank you Betsy from trade if approaches to get gas rate case.
Litigation measures similar to what you have done recently in electric or should we expect the gas case to be fairly straightforward.
Yeah at this point in time, we expect our gas rate case to be pretty straightforward, it's really about our main.
We've only spent program and our meter move out program. So it's really all about infrastructure renewal. So we expect it to be pretty straightforward.
Got it thank you insight on.
On me a little bit of a high level question with the situation in Texas right then the failure of basically electric heating.
So.
It wasn't electricity.
And that's a greenfield or a generator sales and people couldn't day keep their homes do you see that dynamic.
Affecting the conversation around building electrification.
And so that's the gas utilities in their roles in our in the infrastructure makes them moving forward.
Oh.
Replay I expect that conversation to be around and making sure that there's enough baseload generation and a.
A well functioning capacity market and certain deregulated markets.
I will say about Michigan is that we're a highly regulated.
Market here and such that you.
Well certainly allow for good planning good long term planning and making sure that we have reliable sources of generation. So I feel really good about our position in Michigan I think in deregulated states there'll probably be a pretty robust conversation about the.
On the suitability of capacity markets.
Thank you.
Your next question comes from Anthony <unk> from Mizuho. Please go ahead.
Hey, good morning, Gary Good morning, Dave.
Good morning, Anthony.
Anthony.
Jeff Congratulations on the new position on.
You can all that well deserved.
I guess my first question really follows a little off of some of the previous questions. I guess just related to your gas utility and I don't know from Michigan has experienced volatility in natural gas price at that other parks had made about that but I just wanted to know.
Got it.
With that volatility or if you've experienced it how does it impact customer bills. I mean is there a chance customer bills could really ramp up because of the high cost of gas or just ETE have storage or is that kind of sit on your balance sheet and you have heard for a future rate case, and then I have a follow up.
Sure Great question Anthony.
So first I'll say that.
The the volatility in Michigan was much more muted than it was on the rest of the country. So that's one two on our gas utility when it enters the winter is usually 95% fixed already in terms of price and then for the prompt year its about 50%.
Per cent and on the third year, 25%. So we have a good hedging program. If you will for commodity prices. So this volatility even though it was muted in Michigan.
We will have I would say negligible impact on our on our customers.
Great and I guess the follow up is a little off on South East question earlier.
I think we've talked about natural gas is maybe a bridge fuel or we view this as different things to describe it.
<unk> talked about maybe cold weather LD.
<unk> get treated differently, but I guess, that's all through the investing community I'm just curious when you talk to regulators policymakers in your state.
Do they share the same view as how.
How do they view gas I guess I'll leave it at that.
Well I'll say this when we speak of legislators and regulators on the state of Michigan debut gas is fundamental to our energy future and to our current status.
It was.
Minus five degrees here.
I had a couple of days ago, and I got to tell you. When it's minus five degrees I think theres, a very strong appreciation for our ability to deliver natural gas to homes and businesses to make sure that Oh.
They stay warm and comfortable.
So I in cold climates.
Natural gas is highly valued by our customers and.
And by our legislators on by our regulators.
Yes.
Great great. Thanks, so much looking forward to catching on wings game with you guys.
Thank you look forward to it as well.
Your next question comes from David Fishman from Goldman Sachs. Please go ahead.
Okay.
In Detroit.
Good morning.
Just a question on R&D day here I think the call from pretty thorough so far but on.
I was just wondering on your guys' perspective on how you've seen the economics kind of evolved for Orange day over the past couple of years, we've seen a range of kind of companies start to announce.
Projects, especially is that also your best market tightened. So I was just wondering if competition could start to impact returns or just overall demand for low carbon technology likely outweighs this over time.
So David we're still seeing a strong pipeline of growth opportunities and I have not seen.
Our unlevered IRR is being impacted by new entrants.
We're still able to originate and find really strong.
Returning R&D projects that I would say the simple cash paybacks are still on the order of three to five years.
Okay.
Thank you and then just also thinking about what's in your guidance both on the five year on kind of a one year basis. When you think about P&I.
It tends to Mike similar to most of your businesses end up being a little bit conservative, but I'm just wondering how you kind of.
Died around kind of the Lcs and.
On the RFS kind of prices do you take more of a conservative approach or is it kind of where they currently trade.
While we're seeing.
The L. CFS has been a very stable market and.
Well defined by the California regulators and they continue to advance.
Yeah.
Interest in the requirements on that space to make that market very attractive.
RFS market at a little bit of volatility on the last several years. So we took a pretty conservative view of that market and continue to do so but we are starting to see last year. We saw more stabilization there and it was really around volume requirements, where we need a.
To see things stabilize on we have started to see that.
And what the new administration on leadership by the EPA I think that that will that trend will continue the stabilization uncertainty of the federal markets. So it.
R&D projects are quite attractive to have a.
Strong stable L CFS market as well as the stabilizing.
Things are federal market.
That makes sense and then just a last question on that I know you've talked about in the past energy trading can provide a little bit of a hedge but.
Have you guys or do you have much interest in potentially.
Or are you even able to enter into kind of longer term contracts, maybe five to 10.
Or something like that.
With some of these projects.
Right now were.
Go ahead.
No.
We're seeing our trading company has actually been able to take contracts out as far as three years.
And so we have a pretty robust hedging program.
In years, we also have some longer term fixed price contracts that are bilateral in nature and then of course, we leave a little bit open. So that's the way we're approaching that market right now.
Okay.
Awesome.
Great all the insights.
Congrats on good here.
Thank you.
Yeah.
This concludes the time that we have for the Q&A portion of our call and I would like to turn it back to Jerry Norcia for final comments.
Well look thank you everyone for joining us today I'll, just close by saying again that I'm extremely proud of our team on how we've delivered during 2020.
We are well positioned to achieve our five to seven per.
Sent operating earnings growth target in the future and I hope everyone has a great morning, and stay healthy and safe.
Ladies and gentlemen, this concludes today's conference call. Thank you once again for participating you may now disconnect.
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Okay.
Okay.
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