Q1 2021 DTE Energy Co Earnings Call
[music].
Good day and thank you for standing by welcome to the DTE Energy first quarter 2021 earnings conference call. At this time, all participants are in a listen only mode.
After the Speakers' presentation and will be a question and answer session.
Great question. During this session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded if.
If you require any further assistance. Please press star zero and would now like to hand, the conference over to your speaker today Robert Tuxedo. Thank you. Please go ahead.
Thank you and good morning, everyone before we get started I would like to remind you to read the safe Harbor statement on page.
And she loves the presentation.
Including the reference to forward looking statements.
Our presentation also includes references to operating earnings which is a non-GAAP financial measure.
Please refer to the reconciliation of GAAP earnings to operating earnings provided in the appendix.
With us this morning are Jerry Norcia, President and CEO, David Slater, President and CEO elect of D. T M and.
Deeper and senior Vice President and CFO.
And now I'll turn it over to Gerry to start the call. This morning. Thanks.
Thanks, Barb and good morning, everyone and thanks for joining us today and hope everyone is staying healthy and safe.
This morning, I'll start off by discussing DTE strong start 2021, and David Slater will give us some details on our midstream business and provide an update on the spin transaction.
And we'll provide a financial review of the quarter and wrap things up before we take your questions.
So let's start on slide four.
And as we have discussed before our priorities of DTE or to support our employees customers and community, which then enables us to provide the strong consistent growth and investors have come to expect.
Our focus this quarter was no different as.
As we have delivered for all of our stakeholders.
Our team of DTE has continued to perform at a very high level. We were recently recognized by Gallup is a great workplace.
This is the ninth consecutive year, we have received this award.
We're off to an extremely safe start in 2021.
And after our safest year ever and 2020.
As I have said safety is our top priority at DTE and getting people home safely to their families. Every day helps drive our success and employee engagement.
We are building and our diversity equity and inclusion and focus with employees fully dedicated to helping the company on this journey.
He is committed to accelerating our progression towards a workplace, where everyone feels valued welcome <unk>.
To contribute their best energy.
We do understand that all people thrive and succeed when they feel included sales.
And welcome.
On the customer front, we continued to deliver safe and reliable energy.
Just recently DTE electric received approval on its deferral request, but delays and next rate case filing until October 2021.
This provides price stability for our customers keep and base rates steady through 2020, one and into 2022.
As you recall, we previously received approval to delay a general rate case until may.
And this order extends the delay at least five additional months.
This is another step towards stabilizing our customer affordability.
Additionally, DTE is ranked as one of the top 10 utilities and the nation for energy efficiency and customer savings and J D. Power's rank bulk of our electric and gas utility the top quartile for residential customer satisfaction.
These initiatives and recognitions show our continued commitment to service excellence.
Supporting our communities, where we live and serve remains critically important to us.
He helped thousands of vulnerable customers lower their energy bills, and 2020, while significantly reducing natural gas and electricity usage through energy efficiency initiatives.
Our energy efficiency assistance on this program was recognized for keeping energy affordable for our most and need customers.
And recently contributed to habitat for humanity and supported their effort the weatherproof low income homes.
DTE also let our fund raising over to help small business and Detroit go past the pandemic.
We are also offering personal protective equipment and technical assistance and opening resources to assist small businesses across the city.
And with engaged employees and customers are satisfied with their service and communities that are resilient.
And we deliver value for our investors.
We delivered a strong first quarter with earnings of $2 and 44 per share and solid performances across all our business lines.
We are on track to deliver 7% operating EPS growth from our 2020 original guidance midpoint.
The midstream spend is on track from mid year completion.
Spin physicians DTE energy is a predominantly pure play best in class utility with.
And with significant capital investments of $19 billion over the next five years and <unk>.
90% of that will go into our utilities.
And we continue to target, our 5% to 7% operating EPS growth rate with 2020 original guidance as the base for that growth.
The spin also establishes <unk> as an independent and natural gas midstream company.
With assets and premium basins and accretive growth opportunities.
Our next slide I will discuss some of our major accomplishments from the first quarter.
DTE is continuing to focus on our environmental initiatives.
DTE Electric's recently placed three wind parks and service Isabella wanted to which are the largest wind parks and Michigan.
A total of 136 turbines with 383 megawatts of capacity.
We also placed the Fairbanks wind park and service with a capacity of 72 megawatts.
DTE now has nearly 800 megawatts of capacity from renewable energy sources enough to power 670000, Michigan homes.
This is a significant step toward our goal of reducing carbon emissions by 50% by 2030.
The electric company recently filed a settlement agreement for voluntary renewables.
The settlement includes 800 megawatts of renewable power additions with 420 of that being slated for 2022.
And the remaining 380 megawatts coming on line in 2023 through 2025.
These sources will support the voluntary renewable program migraine power.
Which continues to exceed our high expectations.
We recently announced the commitment of a few new companies to the migraine power program.
Including the state of Michigan.
Bedrock and Trinity Health.
We have reached 900 megawatts of voluntary renewable commitments with large business customers and approximately 30000 residential customers.
The program is the largest of its kind and a nation and helps advance our work towards a net zero carbon emissions goal.
The electric company also received approval from the Michigan Public Service Commission for Phase two of its charging forward initiatives to strengthen and electric vehicle infrastructure and the state of Michigan.
This includes customer education, and outreach lead advisory services and charging infrastructure components to further support electrification transition of fleet vehicles.
At the end of March the electric company completed its most recent offering of green bonds.
And $1 billion bond offering will help fund the development and construction of solar and wind farms, including transmission infrastructure to support renewable energy facilities.
Funding will also strength and energy efficiency programs that help Michigan residents and businesses save energy and reduce their bills.
DTE electric has issued three green bonds over the past four years for a total of $2 billion.
These bonds helped support our progress towards a cleaner more sustainable energy future.
DTE gas announced clean vision natural gas balance the nation's first program to include both carbon offsets and renewable natural gas for customers to reduce their carbon footprint.
This program offers for levels of participation for customers ranging from $4, a month to offset 25%, but average homes gas submissions.
The $16 a month to offset 100 per cent of our carbon footprint.
The carbon reduction goals are achieved with Michigan force preservation and renewable natural gas.
By helping to preserve Michigan's force through this program.
DTE customers not only support the removal of greenhouse gases.
And it also preserve what of Michigan's greatest natural assets.
Recently, DTE gas executed a seven year agreement to secure force III carbon offsets to be used for this program.
As for our and G landfill emissions and wastewater treatment plant and byproducts are transformed and a fuel that heats foams and power businesses and cars.
We're excited and invite customers to be part of our ambitious vision.
Create a cleaner energy future.
The program is off to a strong start with over 2400 customers signed up to reduce their carbon footprint.
Our midstream company.
And so announced its own 2050 net zero carbon emissions growth just earlier this year.
Climate change is one of the finding public policy issues of our time.
And I am proud that this business is joining our electric and gas utilities and the effort to deliver cleaner energy.
And I'm moving on to slide six I will discuss DTE solid start to 2021.
Our first quarter financial results were strong, giving us even greater confidence and our 2021 financial plan.
Which could create invest opportunities later in the year.
DTE earned $2 44 per share this quarter up 78 from last year.
And so with one quarter behind us I am confident that DTE is well positioned to deliver on our financial plans this year.
Setting up well for success and the 2020 two and beyond.
Longer term, we'll continue to target a 5% to 7% operating EPS growth rate.
And with Twenty-twenty original guidance as the base.
We continue to focus on our balance sheet with strong cash flows and solid credit metrics.
The spinoff and the midstream business is on track for midyear execution.
Our team is working diligently to make that happen and I thank them for their efforts.
As you know the spin positions DTE as a predominantly pure play utility with 90% of Bt's total operating earnings coming from our two regulated businesses.
The spin also establishes D T M as an independent.
We'll finance gas Midstream C Corp.
Accretive organic growth opportunities.
Just as D. T is well positioned to deliver for investors.
This new independent Midstream company, we will also be positioned for success.
And with a strong asset base and two of the most prolific dry gas basins and the country.
The spin is progressing very well with the form 10 filing and its standard review process with the SEC and and Investor Roadshow plan from the second quarter.
Now I'll turn it over to David Slater for updates on our midstream business.
And the spin transaction progress.
Thanks, Jerry and good morning, everyone I'll start on slide seven.
Our midstream businesses had a solid first quarter executing well across all platforms and assets. We are on track to achieve our financial targets and 2021, which include and EBIT range of 710 and $750 million.
<unk> is also committed to a world class ESG agenda earlier, this year, we announced and net zero emissions target by 2050, making US one on the first companies and the midstream sector to announce such a goal we intend to use every tool available to reach our sustainability targets.
And we believe this will evolve to become a significant business opportunity overtime for D. T M.
Additionally, TTM is establishing and board of directors committed to ensuring the company operates in an environmentally and socially responsible manner.
And as Jerry mentioned, we are on track for a midyear spin and execution.
Our midstream business has been transformed over the last decade and.
And this solid steady and strategic transformation has positioned this segment to become the industry leader and is today the creation of and independent Midstream C Corp will provide the opportunity and further advance the company and create value.
Now, let's turn to slide eight.
The spin is on track from mid year execution.
We initiated the form 10 process with the SEC back in February.
Since then we have been diligently working through the comment period.
And this has been going smoothly as expected.
In March we held discussions with the rating agencies, which went very well we will be receiving a credit rating at the time and for that race.
The form 10 will be public and the second quarter, we plan to hold an Investor Road show later in the second quarter as well.
And <unk> shares are expected to start trading on a when issued basis, one or two weeks before DTE M shares begin regular way trading on the New York stock exchange upon closing.
Finally, the spin transaction will be executed mid year.
As Jerry mentioned successfully executing the spin has been made possible by the commitment and dedication of all of our employees.
Thank you to our team for bringing their best energy to work each day and keeping everything on track.
Now I'll turn it over to Dave Ruud to discuss Dte's financial performance.
Thanks, David and good morning, everyone let.
Let me start on slide nine to review, our first quarter financial results.
Total operating earnings for the quarter were $473 million this translates into $2 44 per share.
You can find a detailed breakdown of EPS by segment, including our reconciliation to GAAP reported earnings and the appendix.
I'll start the review at the top of the page with our utilities.
DTE electric earnings were $208 million for the quarter.
And this was $114 million higher than the first quarter of 2020, primarily due to new rate implementation and colder weather in 2021.
DTE electric also experienced nonqualified benefit plan losses, and the first quarter 2020.
We have since taken measures to reduce market variability and these plans. So we'll no longer see this variability after the second quarter of 2020.
If you remember and the second quarter of 2020, the benefit plan losses reversed and we're positive and that quarter.
Moving on to DTE gas operating earnings were $169 million.
$48 million higher than first quarter last year.
The earnings increase was driven primarily by new rate implementation and colder weather in 2021.
Let's keep moving down the page to our gas storage and pipelines business on the third row.
Operating earnings for GSP were $86 million.
And this was $14 million higher than first quarter 2020.
Driven primarily by the leap pipeline going into service and the second half of 2020.
On the next row, you can see our power and industrial business segment operating earnings were $28 million.
This is a $2 million decrease from first quarter last year due to steel related earnings offset by new R&D projects.
On the next row, you can see our operating earnings and our energy trading business were $14 million, which is consistent with first quarter earnings last year.
This quarter strong performance and the gas portfolio was offset by performance and the power portfolio.
And <unk>, which occurred during the period of extremely cold weather in Texas and the first quarter.
Together this position to slightly positive to our expectation for the quarter.
Finally, corporate and other was unfavorable $21 million quarter over quarter, primarily due to the timing of taxes and that change and interest.
Overall, DTE earned $2 and <unk> 44 per share and the first quarter of 2020, one which is 78 cents per share higher than 2020.
I'd like to note that much of this favorability versus 2020 was anticipated and our plan.
There were some of the favorability is due to DTE electric GSP and energy trading performing better than plan.
This is positioning us well for 2020, one we should have the opportunity to further invest and O&M initiatives that can improve reliability for our customers.
Which will also further strengthen our financial plans for 2020, two and future years.
Now moving on to slide 10, I'll wrap up the call and then we can open up for Q&A.
In summary, we feel great about our first quarter results.
We are on track to continue to deliver on our long term, 5% to 7% operating EPS growth rate from our 2020 original guidance midpoint.
The spin of our midstream business is progressing as planned and we are on track for completion midyear.
The separation and physicians DTE as a predominantly pure play utility and establish TTM as an independent gas focused midstream company with accretive growth opportunities.
We believe this transaction unlocks significant value for investors and both companies.
Our utilities continue to focus on necessary customer focused infrastructure investments, specifically investments and clean generation and.
And investments to improve reliability and the customer experience.
Our team deployed many innovative strategies to provide regulatory certainty during what continues to be a challenging time for many of our customers.
This will enable DTE to maintain steady base rates through 2021.
We continue to focus on maintaining solid balance sheet metrics.
DTE is targeting minimal equity issuances in 2020, one and we continue with minimal equity needs and our plan. Besides the convertible equity units in 2020 two.
And we have maintained our solid dividend growth with a 7% dividend increase and 2021.
In closing as we approach the spin of our midstream business DTE is well positioned to deliver the premium total shareholder returns that our investors have come to expect over the past decade.
With that and 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.
Your question press, the pound or hash key please standby one please standby, while we compile the Q&A roster.
Your first question is from Michael Weinstein with credit Suisse.
Hi, good morning, guys.
Sorry, my phone and commute.
Hey.
With the delay and the electric rate case, how would you say that that affects what youre going to file for I mean is this going to result in a larger rate filing than would normally be the case or is it basically the same case, just just to wait six months.
I would say, it's generally the same case, Michael delayed six months.
And that'll be a forward test year.
Resolved as well and.
And we'll be filing for Hudson.
Yes.
And.
I'm wondering if you could provide a little bit more information on the RMG business.
R&D has been coming up a lot lately and talks about how gas utilities might be able to.
And reduce their carbon emissions.
Our exposure on a net basis.
As you know do you see this do you see LNG business ramping up significantly outside of the states you're already operating in is could you expand that nationally.
And anyways.
Sites are developed.
Sure. So maybe I'll just start by commenting on our own utility, where we are essentially offering.
On a voluntary offset program that'll be driven both by forestry products and R&D and we may be one of the first and and country to offer that type of package to our customers and it's a very interesting offering where for $4. A month, you can offset about 25% of your carbon footprint, that's a gas customer so it's a unique way.
Of packaging carbon offsets through R&D as well as.
Forestry products that deliver a lower carbon footprint for our customers I do see that expanding across the country. Michael right now most of our efforts and R&D at DTE energy and our P&I business are focused on theory gas growing into the California markets, which gives us very nice returns both from a renewable fuel standard as well.
And as the low low carbon fuel standard in California.
And as I've mentioned in prior calls returns, where we see our simple cash payback happened and three to four years.
Pretty modest investments.
Lots of projects and the pipeline as well going forward.
And is this has this come up at all and and if the Democrats and infrastructure spending plans to ramp up on RMG production or maybe even expand the day.
<unk> fuel credit to natural gas as well as biodiesel.
I have not seen those details yet Michael but we are we are looking for them.
Most of the credit seem to be targeted and wind and solar at this point in time as far as I can see and other clean sources of energy.
Gotcha.
And just one last question on guidance.
This is unchanged, even after a really nice quarter and.
And just curious if is that just part of the it's just early and a year at this point use and you're also looking at a possible lean or lean and.
Initiatives later in the year.
And we keep guidance what we're looking.
Yeah, what we're looking at is.
Using favorability.
To really build strength for 2022, that's our first goal as well as investing and customer centric projects and 'twenty, one and order to make that happen and as we get more visibility into the balance of the year and will continue to provide you updates on our next quarterly call.
Okay, great on anyway huh.
Good quarter, Thanks, a lot.
Thank you.
Your next question is from Andrew Weisel with Scotia Bank.
Hi, good morning, everyone.
Good morning, Andrew.
My first question is on midstream actually are you able to isolate any financial impact from the extreme weather and in mid February and Texas and the surrounding areas I don't know if that impacted your haynesville system or more broadly.
Any operational surprises or any counterparty risk share issues.
And if it's later and you want to take that.
Sure Andrew.
We really didn't see a significant impact to us from an economic perspective.
We did see operational challenges, probably three or four days into that cold snap.
It was primarily upstream of our facilities, where we were just seeing the producers struggling.
To maintain their production at the wellhead.
As soon as the weather broke.
Those volumes came back rather quickly so.
From an impact to the midstream business it was pretty modest.
Okay great.
And then financially.
You were pretty clear that youll have the IPO style roadshow for DTE M. In the coming months when can we expect and updated financial outlook for 'twenty, one and beyond for the remaining utility focused DTE will we see guidance before the DPM share start trading or would it come more like with the second quarter earnings in late July.
Hey, Bruce do you want to take that.
Consistent with the timing of when we're going to go out with a D. T. M. D. T. M Road show, we want to be.
Talking about DTE guidance at that point as well.
So we want them.
As we come forward into a post June will be it.
And will be coming from a third DTE guidance.
Post midstream.
For 'twenty for the remainder of 'twenty one.
Terrific. So before the DTE share start trading post spin will have a better sense of what the standalone outlook looks like.
Yes.
Great and then one last one if I may on the voluntary renewables program. It seems like Youre seeing really strong demand with the additional megawatts for middle of the decade are you thinking at all about a potential cap or ceiling from this business and.
And if so what would be the limiting factor I don't imagine it would be demand there.
Are there any physical constraints around land access or regulatory constraints of any sort or could this just continue the pace of growth through the end of the decade.
I don't see any limitation other than demand so we're.
Yes.
Followed our last settlement filing from where we are.
While free 800 megawatts of incremental renewables.
That makes us about 400 megawatts long, but I can tell you that we eat up those long positions pretty quickly. The demand is extremely strong right now for a voluntary renewables program. So I don't see any limitation other than customer demand.
Okay, great to hear thank you for all the details.
Your next question is from Joe cash Chopra Evercore ISI.
Hey, good morning team solid quarter. Thank you for taking my question and.
Good morning.
And good morning, I'm good on the quarter, just big picture, Gerry and maybe the rest of the team wanted to get your thoughts.
I believe it was yesterday I mean, I think there is there was some newest floating around.
Deep bite and administration and not pushing for essentially doubling the clean generation going from like currently 40% to 80% over the next decade.
Obviously this is less aggressive than sort of a zero net zero goal by 2035, just your thoughts on how it's DTE position.
How is this sector position is this even achievable.
Well I would say just to remind everyone of our goals of DTE, where we want to be net zero by 2050.
80% carbon reductions by 2040 50 per cent by 2030, and we're already at 30% hitting and the sort of the 2020 three time frame. So I would say, we're well advanced I would expect that the DTE plan will accelerate over time.
We are deep into conversations on and as an industry with the buy and the administration and I think there will be some consensus. We hope is the how do we all accelerate our plans, which we view as beneficial Dte's plan and I'm, certainly it'll be beneficial others as well so yet to be determined the plans that were <unk>.
Scribed during the election process are very aggressive.
But.
So I think we see a meeting and the minds here perhaps to.
And to compromise.
Overtime.
Excellent. Thank you overall book.
Yeah, but overall I would say certainly.
Aylwin for DTE as clients.
Just maybe just a quick follow up I mean, how high of a priority. This is for the bite and administration and just your sense talking to key leaders there as to when could we actually see something tangible.
On this front just open and it just thinking about timing and what to look for and over the next eight months.
Yeah based on our level of engagement with our industry.
[noise] Association I would say, it's very high on their priority list to move forward.
You know plan that the attacks climate change. So we're feeling positive that there is a possibility.
Possibility to get something done on the elements that are being discussed seem quite positive as well.
We're just going to need to see how this all plays out and the next several months I think we'll know probably heading into the summer and fall whether there is something to do here.
But it feels positive at this point.
Perfect I appreciate the time guys. Thank you.
Thank you.
Your next question is from Jonathan Arnold with vertical research partners Hi, Good morning, guys. Thanks for the morning.
Quick could you would you mind breaking down the kind of quarterly.
Upside at DTE electric and gas just a little more I mean, how much was with the rate cases, and then yeah maybe.
The benefit plan items, if you could remind us what that was and also curious if you are you continuing to see mix benefit and COVID-19 related sales factors and to what extent was that driving the upside.
And Babe Ruth.
Sure Hi, Jonathan.
Yes, we looked at as we look at the quarter. The majority of the upside we saw was from.
The new rates coming in.
We did see some weather differential versus last year.
Was it was still a little negative, but it was better than last year.
And also at DTE Electric that's where we had those benefit plans that you mentioned and.
And that was about the.
'twenty 2020 5 million dollar difference. So we had a loss last quarter of course that's.
Going to be a game and second quarter of 2020.
And then we've since taken on older.
Actions to make sure we don't see that market variability again.
Oh.
As far as cash.
Again, and the first quarter of 2020, we had a really negative whether that's what we were trying to come back from throughout the year, So and we had better weather. This year and then the rest of the rest of the upside that we would see would be from the new rates coming into effect.
Can you quantify how much the rate case helped the quarter on the electric side.
Oh.
And I think I think we can we can get back to you on that one can make sure that you have the right number okay and then any comment on that sort of the mix question.
Yeah.
On the loaded and electric and.
Overall.
Over quarter sales were down about 2%. So our residential was up versus Q1 was up about 3% commercial down two and industrial down seven.
But.
As we discussed before we were seeing some some upside from a.
COVID-19 related sales and residential and we're still seeing that right now so on.
Our residential load and the first quarter versus what we would've thought it would've been pre COVID-19 was up.
And about 5% to 7% still and then our commercial and industrial we're basically back to where we would've expected pre COVID-19, maybe and between 95 and 100% on the way back so.
Residential usage continues to come in and marginally better than expected with more people continuing to work from home and and.
And we're seeing that trend continue a little longer than we thought or until people go back to work.
Okay great.
Thank you and then just maybe if I may on.
Looking at the Capex disclosure and the slides.
It seems to be a little bit of a slow start relative to annual guidance even adjusting.
Adjusting for the on normal seasonality, just any kind of anything you can offer there.
In terms of what Youre thinking about the full year plan and just when we ramp up to it.
Yeah, I think I think the main thing that was a little slower there was one of our wind parks was scheduled to come on and the and the first quarter and that'll be coming on now and the second quarter and that's we'll be catching.
Catching up on the capital there.
And then you also and about 100 odd million down on base and alike.
Rick.
Dave it's accurate and us.
Is there anything driving that.
It's timing of just timing of projects and when they when they come in for the year, There's no and.
And when you look at our annual plan for capital, we're still right on target, but the.
And the timing for a few of our projects was a little slower on the first quarter, but ramping up now great. Thank you very much.
Your next question is from Steve Fleishman with Wolfe Research.
Okay.
Yes, hi, good morning, guys.
Good morning, and launch dates.
Hey, Jerry.
You mentioned that I think GSM P is tracking ahead of plan could you maybe say what's driving that.
Sure David do you want to take that.
Sure, Ken and Steve I think the big driver quarter over quarter is as leap being in service. This this first quarter and then I would say generally across the platforms.
And just running.
Running modestly ahead of plan across all the platforms there isn't any one item that I would call out.
Just a little.
On a little modest blush crossed all the assets.
Okay.
And then also for J S and P, which I guess will be.
Obviously DTE midstream.
<unk>.
When you look beyond 'twenty, one and kind of growth.
Could you maybe give a little color on what drives growth beyond 'twenty one there.
Yes, Steve its really no different than I think what we've shared in the past.
And we're looking at.
You know what I'll call on our Appalachia footprint and that our haynesville footprint.
And we're sitting and really good locations and both of those basins, you don't want to sitting on in and around some of the best resource and the country.
And with.
Pipeline connections to really the best markets and the country and.
And we're just seeing incremental activity.
Around all of those assets right now and as you know some of the assets have some runway on that.
And that gives us opportunity to do incremental business.
So I would expect and continue to expect to see that that organic accretive growth.
As we fill in and around those assets.
Okay, and just for the form 10.
Just so we know is that.
Primarily going to be just historical information actuals for DTE midstream are there any projections and there.
Steve what Youll see and there is youre going to see the past three years audited standalone financials.
And you'll also see the first quarter.
This year.
Kind of Standalone financials.
And you'll also see a pro forma.
For the full year.
And it's kind of a standalone. So that's what will be in the package when it becomes public.
And you'll have an opportunity and look at it.
Okay.
I have one last quick question just the R&D business do you.
Have a handy.
What that business expects within your guide for 'twenty, one in terms of.
Earnings are or whatever other measure.
We you know, Steve we haven't broken it out between our co Gen and our LNG business from a new development perspective, but if you recall we've been landing.
<unk> million dollars or more each year of new income generation and at the Eni and I'd say the way to think about that as about half of it.
It's been R&D and the other half spin co Gen.
And we've been progressing over the last three or four years.
Okay.
Great. Thanks, so much.
Thank you.
Your next question is from Shar <unk> with Guggenheim partners.
Good morning team, it's actually a conferencing here are telling and for Shar and congratulations on quarter.
Thank you.
A quick follow up on PSTN and kind of appreciate the.
Color and that was provided on.
And thinking about the standard of the business and kind of unlocking the value potential in growing the platform careful and both organically.
Just curious to get an update on kind of growth opportunities and you're kind of looking at a 10% CAGR through 'twenty four and before the announcement and just curious to know how that view has evolved and kind of in light of the improving commodity conditions. Some of the re contracting on and excess and potentially some updated strategy on GST or post spin.
David.
Yes, sure I can take that.
So as we've talked in the past.
In terms of what I'll call our capital investment agenda is for this segment.
And really not seeing that changing at all and thank.
And I guess, we approached the spin will be able to provide a little more granularity and visibility on the what I'll call. The DTF standalone kind of view going forward.
But if I just look at this year is it just is.
As a proxy where we're going to deliver strong growth this year year over year, and if you compare us to what I'll call the midstream sector.
We got sector, leading growth rate this year year over year. So.
On the portfolio and strong and healthy.
And.
I look forward to talking to you and more detail about the TTM specific forward view.
Shortly and as soon as we can.
Yes.
Excellent.
And kind of have a follow up on maybe a two part of on kind of a post spin unregulated exposure just given the scale on the commodity and packaged businesses. That's shrinking within the remain co and does that kind of mean mean the need for DTE energy trading have remains or does some of that business activity.
Move away post spin.
So just as a reminder, 90% of our earnings going forward it'll be utility based with book 10%.
King.
Non utility and any growth that comes from our non utility sector will come from our two business lines of cogeneration and on.
R&D.
Don't expect any growth from our trading company, it's a quite a small operation.
Generates anywhere from $30 million to $40 million of cash flow for us, but also provides us great market insights and to some of the the non utility businesses that we're in.
And co Gen as well as R&D or they help us manage some of our market positions, there as well as manage risk and and around some of our utility portfolio. So it's.
It's a small business, we don't expect it to grow and will continue to run it that way.
And on a short follow up on on the R&D piece and kind of the P&I segment, just with the local and federal de Carbonization and efforts lumping up efforts ramping up.
And are you strictly looking at kind of R&D opportunities or potentially expand the offering maybe hydrogen value chain carbon capture and et cetera.
We're primarily focused on LNG at this point and time, that's where the investment opportunities are and I would say really nice returns.
Well from a business line.
As we start to understand more and we are starting to understand a lot more about carbon capture.
We will look at that as an opportunity.
But that seems to be somewhat into the future at this point and time.
Hydrogen again, it's very early but certainly.
Promising so more to come and we will see how our utilities and perhaps our non utility business can play and the both of those opportunities.
Excellent.
For your time and.
And I'll jump back on queue. Thanks.
Your next question is from Sophie Karp with Keybanc.
Sure.
Hi, Good morning, Thank you for taking my question morning.
A lot has been discussed already but I just wanted to double check with you guys about the qualified plans and the electric business.
And when you say that you took measures to reduce volatility in that segment going forward and can you clarify what that means and ways that does that mean that he and diversified the assets and those plants differently or is it and accounting measure like how should we think about that.
And paper.
Sure Yes.
The main thing we did there is.
We matched up our assets and our liabilities. So any movement on one side will be matched on the other and so that will take away any of the market variability that we're seeing there and in the past and we limited the size of the plan a little bit too so.
We're confident that we're not going to see these market movements.
Past, the second quarter of 2020, where youll see that.
The losses that were in the first quarter of 2020 come back and the second quarter.
Alright.
And that's very helpful. Thank you and then my other question was on the and GSP business and.
I'm, sorry, P&I business and it looks like it might have a little bit of a catching up to do too.
For the full year guidance and then.
The quarters of the year.
Parents, and what they would think of them distribution.
And throughout the year.
Is that something that you envision or is it something and split between the projects there on how should they think about that one.
Maybe I'll start and then I'll, let David give a little more of the details, but we fully expect the United and if its targets this year.
And I can tell you we're not concerned about that at all so feeling real good about the targets and the progress for the balance of the year.
Dave do you want to shed a little more a little more light on that day.
And the and the next few quarters, what we see as some of the LNG projects and the benefit of some of those new LNG projects come in a little bit better for us and so we're we're confident and and that.
Coming back and and meeting the full year guidance.
Terrific. Thank you and that's all I had.
Your next question is from and so Kim with Goldman Sachs.
Thank you.
And two couple of questions one on.
On the when we think about the remain co and going over and.
The growth on both a utility businesses I apologize the P&I with R&D.
On the balance should we still expect.
And 90 plus.
Percentage of the business over the next five years to to be at the utility level.
Yes, we do absolutely.
Understood.
And then just.
This might be a little bit early but obviously part of.
And the payment for the infrastructure final bite and <unk>.
<unk> is the potential increase in tax rates and what he thought.
Through the cycle and industry of the past a few years ago and just assuming.
The plant that's in place.
And it goes into effect just any initial thoughts on on your end and especially in terms of cash for our rate base and rate base growth.
I'll start and certainly we don't expect their growth.
Trajectory to be impacted by the new plan.
It will put some pressure on rates and affordability at the utilities that will have to manage but we think all of that at this point and time will be manageable.
Dave Ruud do you want to add to that at all.
Yes.
Hey, Jerry I think that's the right.
High level when we when we saw the.
Tax rate reduction and 2017 and weekend.
That was <unk> 14 per cent reduction now it's looking like.
What I'm, saying, it's about a 7% increase.
And that could come off is about a one 5% increase we'd see and rates also.
Would improve our cash position a little bit because cash taxes would lag the book taxes. So it would improve our <unk> to debt by.
Half a percent too low of 4%, but.
And as Jerry said that the key we'd have to do there is continue to work on cost structure to offset the increase in rates. So it wouldn't impact our capital plan since we continue to improve on our customer reliability and clean energy transition.
Okay.
Got it and ribeye.
Apologies, if you've already guided to this were right on.
Just missing it but from the O&M perspective over a multiyear period is there a general guidance that we should be using or potentially opportunity for from more.
Okay.
Yeah, we are continuing to manage our O&M and trying to keep it well below inflation and so on one of our plans going forward we haven't given.
Long term O&M guidance on that but it's definitely an area. We're working to make sure that we can continue to have opportunity for increased capital and infrastructure that's needed for our customers.
I think you'll also see that if you look at our O&M performance over the last decade, we've been quite distinctive and the industry with our continuous improvement plans, where we've had.
A very low to no O&M increases.
On an absolute basis.
Understood. Thank you so much.
Your next question is from Anthony <unk>.
And with Mizuho.
So.
Hey, good morning, Jerry Good morning gauge more of it more and Anthony Hey, Anthony.
Jerry.
Great move on swap it out.
Multiple jerry's on a call with multiple dates.
Yeah.
Two quick questions. One is I think you talked about 1800 megawatts of renewables.
I believe that's mostly if not all in the regulated utility is there any thoughts to growing renewables or what's the thought process for renewables either in a regulated utility or the P&I business.
Well certainly.
And we've got a significant effort to continue to increase our renewables position on our regulated businesses and again as I mentioned.
We've got 900 megawatts of voluntary renewables lined up.
And we expect that over the next five years to invest about $2 billion and regulated renewables et cetera electric utility as.
As far as the non utility business, our niche play has really become R&D, where we see that as a.
And I'm very lucrative a lucrative renewable resource and we were a first mover in that space and <unk>.
Continued originate really nice projects with on liberate hours after tax and in the teens and.
And as I mentioned, a simple cash paybacks of.
And now three to four years, and we see nothing but demand growth for that product. So we're pretty excited about our position there and how it continues to grow.
Okay, and then last and.
It kind of touches on your response I guess.
How do you balance the returns and the renewable project with how it would impact the company.
Net net zero targets, such as Hey, this really contributes to the net zero target, but the returns on lower is there a threshold on whats the balancing act and hates isn't really really green project and maybe less of an economic benefit or how do you handle that.
Well right now all of our regulated regulated renewable investments and center electric utility attract the regulated rate of return of nine 9% and a 50 50 debt equity structure. So these are very accretive projects for us and we can see.
You need to see lots of opportunity to finance these renewable projects in that manner.
What we are trying to manage through the voluntary program as our customers pay a slight premium and.
In order to make sure that Theres no impact on customer rates, so sort of a win win for both our customers and our investors.
But what about on the unregulated business.
And the unregulated business.
We're seeing nice returns and as long as we continue to see those returns will deploy the capital.
As I mentioned the Unlevered returns after tax are around are in the teens and they're simple cash paybacks of three to four years. So as long as we get that steady stream of projects with those types of parameters, we'll continue to invest and the investments are can.
It can be or are modest and other small projects like I mentioned, we're generating anywhere from $7 million to $8 million a year of new net income from R&D and that's building a nice little business line for us.
Great. Thanks for taking my questions and great job on the quarter.
Thank you Anthony.
Your next question is from Julien.
Smith with Bank of America.
Hey, good morning team thanks for the time day.
Morning, if I can play.
If I can do a little cleanup here I just want to go back to this orange and San Francisco and it's come up a few different times.
I wanted to press a little bit on targets here as you think about the forward guidance that you guys have what kind of assumptions have you reflected there.
Just to rehash that on against your 24 baked into the Orange you I heard the $15 million per year.
And then earlier, but I wanted to come back to assist and understand what's reflected against your earlier comments about looking at other states and other.
Haps opportunity and stay there.
We have I think at our last meeting we provided guidance for the P&I business overall.
And Dave Ruud, if you if I recall correctly, we are and the 130 to $1 35 and in terms of income targets.
For that business and the 'twenty 'twenty four time frame.
Yes, that's right and and it's continued to two.
And our historical.
Development of $15 million and new net income a year a lot of that within R&D, but also.
Continuing to look at co Gen and other opportunities within the ESG space to to grow that business.
Yes.
But let me, perhaps let me phrase it slightly differently when you think about.
Emerging opportunities.
Side of California shall we say.
How do you think about that reconciling against that is this something that you want to keep small you know Ala and <unk>.
Your comments earlier about keeping energy trading small for instance, do you want to keep R&D small within those parameters or is this something that youre willing to organically grow into whatever opportunities may exist behind it.
Well you know I'll start this way Julien we're trying to keep our mix at 90 10.
Well, we will pursue as we watch both our utilities and non utilities girl will will continue to pursue R&D and do great projects and those spaces, we have Ben could it become.
For a more dominant and and the P&I play, perhaps but I think it's something that we'll have to watch right now we're seeing okay.
And I mentioned, a pretty even split between co gen and and and R&D and that feels good to us.
Co Gen projects come with 15, and 20 year agreements.
And it feels more like a utility utility like type of investments and capital deployment with.
And with higher returns on our utilities and and R&D comes with.
Really hot returns right and.
Sort of a shorter timeframe commitments in terms of price fixing.
Right, but maybe the point is.
If you strip out the DSP side of the business you still have latitude within that 90 10 mix even in the forward years.
You know I think the 90 10 that we put out there took into account.
And the spend the D T M or midstream midstream so as we deploy capital the mix and we're looking at Julian is about $17 billion going into our utilities and about $2 billion going into P&I.
That kind of gives you a feel how were planning that's our base plan on how we plan to allocate capital right now.
Oh, Okay, alright, excellent I'll leave it there thanks guys.
Your next question is from Angie.
And since Keith with Seaport Global.
Thank you so I realize that it goes on but we weren't the mid stream and all.
But I was just and then suddenly you have plenty of.
Growth opportunities lots of on utilities.
And just looking beyond the scale now and so it looks to me that your credit metrics, all look very strong and give them the improvement.
Carbo profile or the risk profile for both smartphone and about 16, 16% ever flow to that.
So typically.
That strong credit metrics.
<unk> from M&A transactions.
Regulated utility side and I was just wondering.
What's your take on this.
You know Angie and good morning.
And <unk>.
Our base plan is really to grow our company organically, we see that being the most accretive way to create value for our shareholders.
And we've got a $17 billion plan in front of us, which we are always looking for opportunities to accelerate.
And one of the reasons, we're primarily focused on the organic growth around our platform current platforms is that you get in our book value and.
And your shareholders get a multiple on that book value from a value perspective. So it's the most accretive thing we can do.
Having said all that if there's assets.
That could become available to us and create.
Value for our investors, we're always open to that but it certainly.
And you're not our primary focus at this point in time.
But do you have any preference as to electric versus gas and how's that electric transmission assets and I mean and.
And you commented on that.
Sure.
Our views probably hasnt been changed from the last couple of years and we.
We are really focused on electric investments. So I think if you look at our capital plans is very heavy electric.
Both on the renewable space as well as and wires and renewables and wires are primarily our electric investment focus right now so if we were to do more with.
We had the opportunity to deploy more capital and we would deploy it and those two spaces.
And renewables regulated renewables.
And just as.
A follow up given that the underground is renewables program seems to be.
Ahead of your expectations.
Is that.
And.
And in some and increasing your expectations about the earnings growth at DTE electric versus what you had stated before or is it just that the golf.
Offset some of the other rate base growth that you were.
And you would.
And you have contemplated.
And certainly what we're seeing and we updated it last fall is that we put our renewables growth at $2 billion over the next five years from a capital deployment.
As we move forward, we will continue to update that number AMG, but I will tell you I've been pleasantly surprised with this program as soon as we have supply available. It just flies off the shelf with our large industrials and and commercial customers have a very strong appetite for this and even on our residential customers were.
Signing up.
Thousands of customers every month.
And we're sitting at about 30000 customers right now on a residential level. So it seems to be a very appealing product so more to come on that but I do expect.
And he is the investments that continue to grow but right now, we've got $2 billion and and the plan as we see it.
Okay. Thank you.
Your next question is from Ryan Levine with Citi.
Good morning.
Good morning.
And the commercial development opportunities and the Haynesville progressed and the last few months and are you seeing any more meaningful developments there.
Sure I'll answer this question, because David Slater as having some phone problems otherwise you would take this but.
You know, we're seeing lots of.
And these in and around the Haynesville assets and actually are doing some nice small projects that are highly accretive and.
So David and his team have been quite successful.
Nothing very large yet, but I think as we evolve that platform.
Got a very significant opportunity with the fact that we were a first mover and building up to 150 mile 36 inch pipeline that takes volumes and the northern part of the Haynesville two markets and the Gulf coast as well as the LNG export markets.
So we are and in discussions with various shippers to see if we can get a project off the ground. There. So it's early but.
I would say encouraging because as you know expanding new pipelines can be.
Very economic and and also accretive.
Great and then maybe just one on Orange E post spin and realize the 10% threshold that you had highlighted that in terms of deal structuring is there any change in appetite around taking else DFS or other credit risks and.
And is there any day.
And approach that you may take pro forma for the spin given the changing tax position.
So I would say this that you asked about R&D markets certainly and hopefully this is answering your question we are using.
Financial instruments to hedge those markets and that's what our trading company is doing for us so.
So we're taking a portfolio approach, where we hedged we also have fixed price contracts per term and then we leave some of it open to the market. So that's the portfolio approach, we're taking with RMG both on the L CFS markets and the RFS markets.
Okay, but the pro forma for the deal would you look to take any more duration risk or less and.
And then.
And more utility focused company and that you would be energy.
Certainly we always look for land.
And our contracts. So that's what we that's how we approach it.
I'll give up a bit of return, we get length and our contracts, but we also look for a portfolio approach.
Okay. Appreciate it. Thank you. Thank you.
Your next question is from Jeremy Tonet with J P. Morgan.
Hi, good morning.
Morning.
Just wanted to come back to GSP, if I couldnt kind of slice it a little bit differently maybe.
For the first quarter. The pace you landed that handily beat guidance and was the strength due to seasonality and how should we think about seasonality for the business overall at this point.
While the primary strength as David mentioned in his comments.
And it was driven by the fact that the leap pipeline, which was a brand new pipeline and that came into service last August.
We are starting to see the full impact of that on our financials year over year, because and the first quarter of last year.
It wasn't in the was not in the portfolio. It was under construction. So that's the primary lift that we got year over year and then as you mentioned, we got moderate favorability from all of our platforms and that's what created the first quarter favorability year over year, those two factors, but predominantly.
The in service of.
The 150 mile 36 inch pipeline that we put into service.
Got it so no seasonality to think of and the business overall for GSP.
You know typically we don't get seasonality and that business we have.
Are getting a little extra juice from the all the platforms flowing a little higher than we expected that's likely due to we do as you know we plan conservatively and have contingency and our plans.
And that's starting to play out and that platform somewhat and.
In addition to the pipeline, which is a big <unk>.
Investment that came on line.
Got it.
And separately from midstream could you discuss how advanced the carbon capture initiatives that I think you were alluding to before were and do you see the 45 Qs is written is sufficient to make these projects economic just trying to see how the pace of what could develop for carbon capture with the midstream side.
You know 45 Q is helpful.
But if you think about 45, Q and L CFS and California.
That starts to create a little more interesting returns.
And.
So I would say, that's what we're going to need to see across the country low more juice.
Juice for these types of projects or otherwise that will create.
A significant burden for customers that are looking to sign on and so at all.
Really depends on <unk>.
And do customers have to do this and and secondly will the tax credit regimes.
Federal and state support it certainly and California.
There's more.
I guess it looks more positive than other states.
Got it that's helpful. Thank you.
At this time there are no further questions I would like to turn the call over to Jerry Norcia for any closing remarks.
Well, thank you and I want to thank everyone for joining us today I'll, just close by saying that the BT has had a very successful first quarter and what we're really feeling strong about the remainder of 2021 and we're busy working on putting a really successful 2022 together and be on so I hope everyone has a great morning and.
Stay healthy and safe.
This concludes today's conference call. Thank you for participating you may now disconnect.