Q2 2021 DTE Energy Co Earnings Call
Ladies and gentlemen, this is.
As the operator todays conference is scheduled to begin momentarily until that time your lines will again be placed on music hold thank you for your patience.
[music].
Good day and thank you for standing by welcome to the DTE Energy second quarter 2021 earnings Conference call at this time all participants.
Are in a listen only mode. After the speaker's presentation day would be a question and answer session to ask a question. During this session you need to press star 1 on your telephone.
If you require any further assistance. Please press star zero I would now like to hand, the conference temperature. Your speakers today Barbara check me on <unk>. Please go ahead.
Thank you and good morning, everyone before we get started I would like to remind everyone to read the safe Harbor statement on page 2 of the presentation.
The reference to forward looking statements on.
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.
And Dave Ruud Senior Vice President and CFO.
And now I'll turn it over to Gerry to start the call. This morning.
Thanks, Barb and good morning, everyone and thanks for joining us today.
I hope everyone is staying healthy and safe.
Morning, I'll recap our performance for the second quarter, then Dave will provide a financial review of the quarter and wrap things up before we take your questions.
So let's start on slide 4.
We are making.
Making great progress this year DTE for our team our customers and our communities positioning us to deliver for our investors.
This progress has produced a strong second quarter and positions us well for continued growth.
Our distinctive team of 10000 plus employees continues to be recognized.
For our engagement by Dallas with on money consecutive Great Workplace Award.
Continue to build on this strength with our focus on diversity equity and inclusion to create an even better workplace for all our employees.
Where everyone feels valued welcome enable to contribute their best energy.
Our company celebrated June piece together last month with a series of virtual meetings, we paid tribute to this important day with local community partners.
A number of employees offered reflections on what the day means to them personally.
Overall, it was a great way to come together and honor this significant holiday.
We understand that all people thrive and succeed when they feel included and welcome.
We continue to focus on service excellence for our customers and delivering clean safe and reliable energy as we continue our clean energy transformation DTE.
DTE electric received approval from the PSC to further.
Spanned the voluntary renewable program my Green power while.
While also making it even more affordable including increased access for low income customers. Additionally.
Additionally, we partnered with Ford Motor company to install new rooftop solar and battery storage technology at the Ford Research and Engineering Center.
On the array includes an integrated battery storage system and will be used to power newly installed electric vehicle Chargers.
This can generate over 100 megawatt hours of clean energy.
We also continue to support the communities, where we live and serve we were also recognized by points of light for the fourth consecutive.
And here is 1 of the civic 50.
This award highlights DTE, that's 1 of the top 50 community minded companies nationwide and corporate citizenship.
We also launched the tree trimming academies to create 200 high paying jobs in Detroit.
DTE has a need.
<unk> tumors in the community has a need for good high quality jobs.
It will also help us continue to improve electric reliability as trees accounts for over 70% of our customer outages.
On the Investor front, we completed the spin of the midstream business.
Now DTE midstream.
<unk> as a Standalone company and DTE energy is a predominantly pure play utility with 90% of operating earnings coming from our utilities.
The transaction went very smoothly and was well received by all stakeholders.
We didn't Miss a beat on a very strategic transaction and many said.
Need for committed look easy.
Many thanks to the DTE team and our advisers that made this effort a great success for our employees and our investors.
We delivered a strong second quarter with earnings of $1.70 per.
Per share.
And we are raising our 2020.
<unk> operating earnings guidance and continue to pay a strong dividend.
Let's turn to slide 5.
DTE is continuing to deliver successful operating results at DTE electric we made another significant step toward our goal of reducing carbon emissions as we retire.
21 on the River Rouge power plant in the second quarter.
For over 60 years, the River Rouge power plant delivered safe reliable and affordable energy to communities throughout southeast Michigan.
<unk> is 1 of the 3 coal fired power plants DTE is retiring by the end of 2022.
Which is an integral part of our company's clean energy transformation.
We continue to look at ways to accelerate our coal fleet retirements and potentially file our updated ERP before September of 2023.
We continue to expand on our voluntary renewable program, which is exceeding.
Tired or high expectations on the first quarter, we announced the commitment of new customers to migraine power <unk>.
Including the state of Michigan, bedrock and Trinity Health.
During the second quarter, we signed up a number of new large customers, including Detroit diesel.
Which is now 1 of our largest.
Leading our renewable customers.
The program.
To grow on an impressive rate.
So far we've reached 950 megawatts of voluntary renewable commitments with large business customers from approximately 35000 residential customers.
We have an additional 400 megawatts in very advanced stages of discussion with future customers.
My Green power is 1 of the largest voluntary renewable programs in the nation and helps advance our work toward our net zero carbon emission globe, while helping our customers meet their de carbonization goals.
So while we have made progress with our expedited tree trimming program, which is greatly improving reliability for our customers.
And have received Michigan Public service Commission approval to securitize, the tree trimming costs, along with costs associated with the River Rouge power plant retirement.
At DTE gas we are on track.
To achieve net zero greenhouse gas emissions by 2050.
We began the second phase of construction on our major transmission renewable project in Northern Michigan in June.
The project includes the installation of a new pipeline as well as facility modification work, which will reduce the risk of significant customer outages.
Project is on track to be in service by the first quarter of next year.
Last quarter.
We announced our new clean vision natural gas balanced program.
This program provides the opportunity for customers to purchase both carbon offsets that renewable natural gas.
To enable them to reduce their carbon footprint.
We are proud.
How fast the program is growing early we have over 3000 customers subscribed.
And we are looking forward to seeing it become as successful as our voluntary renewable program at DTE electric.
On our power and industrial business, we continue to add new projects.
As we began.
<unk> construction on a new R&D facility on a large dairy farm in South Dakota.
This will be <unk> largest theory RMG project debate.
Project will directly inject RMG into the northern natural gas system for sale into the California transportation fuels market.
Facility is expected to be on service and the third quarter of 2022.
We are also in advanced discussions on several new industrial energy and R&D projects and will provide updates on these as they progress.
P&I and was also recognized by the association of Union.
Indian contractors with the 2020 product of the year Award for the Ford Dearborn Cogeneration project.
Overall I am extremely proud of the team's accomplishments year to date and I'm looking forward to more successes in 2021 and beyond.
Now moving on to slide 6.
As I said, we've had a very strong start to 2021.
We are raising our operating earnings guidance midpoint from $5.51 per share to $5.77 per share.
Moving on a year over year growth in operating EPS guidance from 7.4%.
Through a robust 12, 5%.
We are able to use some of this favorability to position the company to continue to deliver in future years.
We mentioned in Q1, we were deep into planning for 2022 and that great level of detail with all of this work, we feel great about achieving a smooth 5% to.
Bank growth trajectory into 2022 and through the 5 year plan.
You are not going to see any surprises from us in our growth rate in 2022 in spite of the area roll off and the converts coming due.
90% of our future operating earnings will be from our 2 regulated utilities.
These where we have a large investment agenda.
$17 billion of capital investment in our 5 year plan.
Focused on clean energy and customer reliability.
Overall, we feel very confident with our performance in 2021, and our future operational and financial performance.
Now I'll turn it over to Dave to discuss <unk> financial performance, Dave over to you.
Thanks, Gerry and good morning, everyone.
Let me start on slide 7 to review, our second quarter financial results.
Total operating earnings for the quarter were $329 million.
This translates into a $1.
<unk> 70 per share.
You can find a detailed breakdown of EPS by segment, including a reconciliation to GAAP reported earnings in the appendix.
I'll start the review at the top of the page with our utilities.
Second quarter was a really warm quarter for us here in Michigan in fact, it was the seventh warmest on record.
DTE electric earnings were $238 million for the quarter. This.
This was $19 million higher than the second quarter of 'twenty 'twenty.
Primarily due to higher commercial sales rate implementation and warmer weather offset by nonqualified benefit plan gains that we had in 'twenty 'twenty.
As we mentioned in our first quarter call, we've taken steps to reduce.
The variability of these investments going forward.
Moving on to DTE gas operating earnings were $7 million.
$4 million lower than the second quarter last year.
The earnings decrease was driven primarily by the warmer weather in 2021 offset by new rates.
Let's keep moving the gas storage and pipelines business on the third row.
Operating earnings for GSP were $86 million this was $60 million higher than the second quarter of 2020.
Driven primarily by the leap pipeline going into service and strong earnings across the pipeline segment.
On the next row, you can see our power and industrial segment operating earnings were $34 million.
This was a $9 million increase.
Second quarter last year due to new RMG projects beginning operation.
On an extra you can see our operating earnings at our energy trading business were $21 million, which is $60 million higher than the second quarter earnings last year due primarily to strong performance on the gas portfolio.
Year to date through the second quarter.
This positions us positive to our expectation and our original guidance for the year.
Finally, corporate and other was unfavorable $22 million quarter over quarter, primarily due to the timing of taxes and higher interest expense.
Overall DTE earned $1.70 per share in the second quarter of 2021, which is <unk> 17 per share higher than 2020.
Kris from moving on to slide 8.
Given the strong start to the year, we were able to use this favorability to position ourselves to continue to deliver for our customers and investors in future years, and we are also increasing our 2021 operating EPS guidance midpoint, $5.51 per share to $5.77 per share.
The increase in guidance is due primarily to warmer than normal weather sustained continuous improvement and uncollectible expense favorability at DTE electric higher RF volumes at P&I.
And stronger performance energy trading due to the realization of gains from a small long physical storage position during.
The extreme cold weather event in Texas on the first quarter.
In the third quarter, we're seeing additional sales upside for electric compared to our plan and higher than planned our F volumes at P&I.
We're continuing to explore opportunities to support future years through our invest strategy and to support future customer affordability.
As you can see on the slide there is no gas storage and pipeline segment and our operating guidance for this year.
The GSP segment will be classified as discontinued operations starting in the third quarter.
Let's turn to slide 9 to briefly discuss our balance sheet and equity issuance plan.
We continue to focus on maintaining solid.
Cheap metrics.
Due to our continued strong cash flows DTE is targeting no equity issuances in 2021, and it's minimal equity needs on our plan b on the convertible equity units in 2022.
We have a strong investment grade rating and target on an episode of debt ratio of 16%.
In balance with the proceeds from the spin off of D. T M.
We are retiring long term parent debt of approximately $2.6 billion after debt breakage costs.
These were NPV positive transaction and immediately EPS accretive.
As we were able to retire a higher interest rate debt to support our current plan and to deliver a 5 to 7.
Per cent operating EPS growth rate.
Now I'll wrap up on slide 10 that we open the line for questions.
We feel great about our second quarter accomplishments and we are confident in achieving our increased 'twenty 'twenty 1 guidance.
And continuing to deliver on our long term, 5% to 7% operating EPS growth rate.
<unk> continue to focus on our infrastructure investment agenda, specifically investments in clean generation and investments to improve reliability on the customer experience.
We continue to focus on maintaining solid balance sheet metrics and are targeting new equity issuances in 2021.
In closing after.
Are you turning a successful spin of our midstream business DTE.
<unk> continues to be well positioned to deliver the premium total shareholder returns that our investors have come to expect over the past decade with strong utility growth.
On a growing dividend.
With that I. Thank you for joining us today, and we can open the line for questions.
Execute at this time, if you would like to ask a question press Star 1 on your telephone keypad again that is star on the number 1. Your first question comes from the line of Shar <unk> with Guggenheim.
Hey, good morning, guys.
Good morning, Shar I share.
So just on the ERP that.
Jerry you kind of referenced in your prepared.
Peter obviously has an aggressive de carbonization plan out there probably 1 of the more aggressive plans can we maybe just get a sense on how you're thinking about your upcoming IR P and sort of not to front run the process, but can you get out of all your coal price.
Prior to the 2030.
Well, we're looking at share we're looking at how we can accelerate our coal retirements.
We've started with a larger position.
In our coal fleet in their self generation fleet, So where we are looking very closely at how we can accelerate all of these retirements.
Prior to 2040, so you'll recall that our prior ERP.
We were retiring all of our coal by 2040, so were looking at acceleration scenarios to pull that forward.
As I've mentioned in past discussions we will update you likely at the end of the year or early next year as per what those plans may.
And we're spending a lot of time with various stakeholders through the summer, including our board having those conversations.
Trying to balance the interest of acceleration.
And of course affordability and reliability.
Got.
Sure it can be the right coding them to disclose it to disclose.
It looked like a plan.
It'll either be their share or early in the new year.
It's sort of too that's the range of timing that we're looking at right now we'll get a little tighter on that as we go forward.
Got it got it and then just as a follow up sort of between you know kind of already strong rate base growth debt do.
Electric and gas, which obviously exceeds your earnings guidance growth rate.
And you have the potential to accelerate you know decarbonization with the updated IR, becoming.
And then I guess, how does all of this kind of play into your 5% to 7% growth rate.
I understand you're taking a conservative bend here, but could we see.
The updated comments on upside here on time, especially if you decarbonize faster than whats on your current internal planning assumptions.
But we're looking obviously, we're in the middle of all of that analysis and that was it.
As you've mentioned share typically we update our capital forecast study.
For 4 or 5 year outlook.
See some as.
As we start to build on these earlier retirements there could be impact on the back end of that plan.
As you recall the back end of our plan.
Returned more to the average in terms of.
Rate base growth on earnings growth on the 2 utility solar.
Likely it'll be impactful on the back end.
And of that plan, so more to come on that share but.
What we're working through all those details now.
Alright terrific. Thanks, guys. That's all I had I appreciate it thank you.
Your next question is from Jeremy Tonet with J P. Morgan.
Hi, good morning.
Good morning, Hi, Jeremy.
Hi.
And no debt Gsp's now discontinued so obviously not a focus going forward in the same way.
But just wanted to better understand I guess, what was happening here if I if I look at the results. So far it seems like GSP had put up 56% of the high end of the guidance already in sales.
So was just wondering if you could expand a bit more on what specifically.
Pete did you kind of exceed expectations from the first half of this.
There was something baked into later in the year that was going to weight down just trying to understand a bit better what was happening there.
All we can comment on the first half.
I know.
The pipeline company will have their or their earnings call. Here later on I think early next month, so I'm sure they'll comment on that but what we can talk about it as the first half of the year and we just saw favorability on all the platforms.
Across the board.
Southern platforms at our northern platforms.
Got it I mean were those sustained or was there anything kind of onetime in nature that was a positive benefit.
Again, it was I'll pick up on activity.
On value across all our platforms both on the Appalachia platforms on the in the Haynesville platform.
Think in terms of forward looking that.
That'll be more appropriate for DPM to describe.
Got it and maybe just kind of pivoting over to the electric utility some really strong results there and just wondering if you could provide a bit more color with regards to a low trend recoveries. There. It seems like commercial sales were coming better but just wondering.
If you could provide a little bit more detail on how things materialize versus your expectations.
You know versus your guidance for the segment and how you see that kind of trending.
Dave do you want to take debt.
Sure Yeah.
First if you look at our quarter over quarter that we had been there you can see that was way up but that was.
Especially in commercial industrial and that was really because we were comparing back to the worst period of the pandemic so quarter over quarter, we saw commercial industrial way up.
Interestingly, we saw residential stay pretty flat quarter over quarter.
That's interesting because last year with people working from home, we saw residential load running.
Average about 8% higher than we would've expected pre pandemic.
And this year so far we're seeing that continue even though there has been some returned to work.
And we still see that we're seeing this favorability on residential and that's what's driving some of the <unk>.
Some of the favorability so yeah, we would expect.
<unk> to reduce more but at this point is pretty sticky. So we're gonna be watching this closely to see how it plays out.
How it can impact really customer affordability going forward, if it's if it remains sticky.
Got it on.
Yeah, I'd say on commercial load I mean, that's come pretty much all the way back.
<unk> co.
What we would've expected.
We are at the kind of the height of the pandemic, we thought we'd see some more bankruptcies and closures.
In commercial and we really haven't seen that so we've seen our commercial load really come back to as expected.
Industrial load was.
Coming back in and pretty much came back but that has.
Some variability on it due to some of the.
Some of the.
On the instability really or the or.
What are the challenges at the auto plants right now with the with the chip shortage is there.
Running a little more sporadically.
But really it's been a great return to load and then the residential remains really sticky for us.
Got it that's very helpful day, if I could slip in 1 more on R&D, just wondering if you could expand a little bit on.
How large do you see this business kind of growing over time. It seems like there is more of a focus there and how do you see the growth rate of that business kind of comparing to the rest of the of DTE.
While the non utility.
The business will make up no more than 10 per cent of overall operating earnings for the company. So the growth will be modest compared to the growth that we're seeing at our 2 utilities, we're planning to put $17 billion to work over the next 5 years on our 2 utilities and.
Somewhere between a 1 on a half from $2 billion.
We're working on non utility businesses, so it'll be modest levels of investment.
We don't need a lot of income growth from that business. So we're being really picky and discerning about the type of projects that we invest in R&D on where were seeing 3 to 4 year paybacks simple cash paybacks and Unlevered IRR is.
Tax on the teens. So that's what we're that's what we're going after so not a lot of pressure to grow there and so we're being very discerning about our growth projects.
Got it I'll leave it there thank you.
Your next question is from Julien Dumoulin Smith with Bank of America.
Hey, good morning team congratulations on the results.
Julien good morning Julien.
Absolutely quick question I think you alluded to it a couple of times and I think Jeremy might've been trying to get at this but.
You you've alluded to a smooth trajectory here are 5% to 7% to 22 I just wanted to make sure that you know sort of on balance net of all these.
After it but that's the ballpark.
Should still be it didn't right.
Just wanted class correct Julien we're gonna be typically we target the mid point of our growth rates right. That's how we plan for our business. That's how we built contingency plans in the us.
So we're going to deliver next year.
Excellent and then perhaps even more importantly here and.
Do you think about layering in these incremental items be it the IRB at some point or frankly, some of the the the renewable opportunities that are more on voluntary side.
And or some additional debt.
You say, perhaps late stage your advanced stage conversations on on the industrial and arent on R&D side, what's that what's that.
Items on the timeline here some of the I R. P updates maybe beyond the 5 year or do you think that some of that actually a cruise the near term I would presume the voluntary renewables and the non utility businesses to be more on that 5 year period.
Yeah, the voluntary renewables update and that will provide on a fall.
<unk>.
We will certainly play into the 5 year plan I would say the IRB.
Yeah.
Work that we're doing could come into the 5 year plan on late latter part of the 5 year plan, but certainly there'll be a good story beyond the 5 year plan as well.
Got it and maybe to clarify your.
Outlook comment about sort of showing a normalization in the rate base growth trajectory. When you commented to Shar is that would be on the 5 years that you were talking about or is that even within the 5 years that you're kind of alluding to potentially seeing a more sustained current level of rate base growth rather than net rather than that normalization trend.
Well.
But what we are seeing Julian is.
Growth rates on our operating earnings for our 2 utilities higher than our average debt we've advertised right the 9% at the gas company in the 7 to 8 at the electric company in the first couple of years of our 5 year plan.
And that's helping us deliver that smooth.
Moving EPS growth rate that we've described in our net returns more to.
The average in the out years of the plan as.
As we have.
As we've described.
Right. So despite the the long term nature of some of the RFP on balance we could see some of that really accruing to the back half of this 5 year plan regarding.
Regardless, that's Boston early too early to tell but certainly possible.
Excellent alright, and just again to come back to Jeremy's quick quick clarification, there on the <unk> side.
Again, you're you're 10% you're sticking with it right. So we should really be thinking about scaling it and sizing it within that bucket right.
It's correct.
Excellent. Thank you so much for the clarifications here all the best Thank you Julian Thank you.
Your next question is from Ann Soo, Kim with Goldman Sachs.
Thank you my first question on the financing side of things.
When you think about the 5 year growth plan.
And beyond 2023, how should we think about potential equity needs.
In the back half of that plan and what's embedded in your in your guidance.
Okay.
Yeah right right now we are.
You've seen we've given the guidance through the 3 years, which only has the only equity issuances of those convert to come in 'twenty 2.
You know as we look out over the 5 year plan you know our goals can be to continue to minimize the equity issuance, we need and that's that's how it fits within the plan, but we're looking at right now.
Got it.
So based on the base.
Current Capex plan.
You're looking at more moderate level of EBITDA.
And what Youre seeing on the 'twenty 'twenty 3 front.
Right.
Got it.
And then just going back to R&D a little bit.
Appreciate the the earnings mix, that's going to have in the overall portfolio. When you talk about the strong returns that you're talking.
Talking about are you seeing increased comps.
Kind of like now with a lot of other players focused on debt and.
As you look out at potential new projects are you seeing those trends.
Translating into a tougher returns on a comp basis.
You know what we're seeing.
As with the level of investment that we have to make which is a couple of <unk>.
<unk>.
Projects a year couple of dairy farms here, there's another way to think about it not really having trouble originating greenfield, where we've seen things get a little more frothy is when assets are up and running.
People are paying a lot of money for these assets that are up and running private equity and other types of <unk>.
Investment.
Competition goes so but on the origination front on a greenfield, where we're able to get the returns we want just the projects that we want.
Understood. Thank you so much.
Yes.
Your next question is from Jonathan Arnold with vertical research.
Okay.
Good morning, guys.
Morning, Jonathan Hi, Jonathan.
On the trading in the quarter.
<unk> said was gas portfolio is that.
Or was that really the sale of the storage out of them.
Related to the.
Winter storm event or what was that favorability.
Moving over in the first quarter and this was just continued good performance just curious what's driving that.
This.
It was just continued good performance of the trading group and the gas portfolio.
But I can say the.
You know what gave us the confidence to raise the guidance was the favorability we had from that.
Small physical storage position that gave us the game during the first quarter during that cold weather in Texas.
So our expectation going forward in future years as debt will be more in line with our original guidance. When we don't have those kind of unexpected 1 time things.
Okay, and then just on back to the growth rate on the comments about smoothed.
<unk>.
Jerry just to be clear you you were talking off of the original 2020 midpoint right which was.
I think 513, I just want to be sure the and that is that the number off which you are intending to show smoothed, 5% to 7% growth or we should think of some of this.
'twenty 1 favorability as it was kind of puts you above.
Above that range.
But you're still using that as the base I just wanted to be clear about that.
We're using the Youre correct were using the original 2021 guidance that we provided the basis for our growth rate.
Okay.
'twenty, 1 or 2020.
'twenty 'twenty.
Okay, but it would be similarly, smoothed for 'twenty, 1 because we've targeted mid point for each of the each of the years in terms of original guidance as a starting point.
Okay. So we should just be calibrating off of original guidance in both cases.
Is.
That's correct.
Great. Thank you.
Your next question comes from the line after cash <unk> Chopra with Evercore.
Hey, good morning team. Thanks for taking my question. Good morning, I answered that you've entered the most good morning, maybe just update us on.
The recent you know what's the most latest on the gastric is front and then the timing of the electric rate cases is that still sort of a late this year.
So the on our electric rate case, yes. Its still late this year no earlier than October of the share that we will file and.
On this case, we are engaged in conversations with interested parties to try and move on.
The case towards some form of settlement, but we're feeling pretty good about that.
In terms of how that case is progressing and it's a final outcome.
Yeah.
Excellent and then just real quick clarification, I know you sort of address the demand.
Non trends pretty strong quarter.
Q2, 'twenty, 1 versus Q2, 'twenty, obviously, a ton of concerns around this delta variant anything sort of that is striking or or sort of material for us to sort of.
Talk about anything that youre seeing in your territory or any any cause of concern as it relates to the delta variant.
We are not.
On a go at this point certainly the large manufacturing outfits are starting to take actions to make sure that the developer doesn't impact our operations things like masking and social distancing.
Starting to be reintroduce somewhat.
In preparation for a potential delta variance surge here in Michigan, but.
It's not being any thing that puts any of our margin at risk at this point, though.
Excellent. Thank you guys great quarter.
Yeah.
Your next question is from Andrew Weisel with Scotiabank.
Hey, good morning, everyone.
On the Outlander lovely.
A lot of my questions were answered are appreciating the conservatism given that you're growing 12, 5%. This year and you grew 9% or you're beaten up by 9% in 2020, but we'll we'll stick with 5 to 7 for now just 2 clarifying ones on 2020.1 outlook first of all day.
We're not see guidance reflect July weather.
Yeah, we do take into account weather into account, but.
There hasn't been too much too much weather in July yet.
Okay then.
On cash flow excuse me.
See you updated the outlook from cash from ops.
Operations to reflect the midstream spin off what about the underlying DTE business. It looks like cash has been stronger than expected since youre pointing to no equity need this year of that $300 million reduction can you talk about how much was midstream and if there was any change to the base business.
Yeah in the AR and the guidance update that was on.
Updating on the second half of midstream.
And you're right we have seen some strength to on our end.
We are coming in a little bit above our plan and cash so far this year, mainly due to strength in operating cash flows from electric.
From some of the other businesses too.
Okay, but that strength is not reflected in net.
The updated guidance range, so there might be some upside.
There, yes, there might be some upside in the guidance. It was really just taken out the midstream part.
Okay, great. Thank you for clarifying.
Okay.
Your next question is from the line of Ryan Levine with Citi.
Good morning.
Can you go wrong can you update us on longer term O&M.
Look in line and now that we're emerging from a COVID-19 environment, if you're seeing any more structural changes to your cost profile.
We are constantly work to maintain our O&M is flat.
As possible and I think you'll see from our history that we're 1 of the better performing utilities in terms of being able to keep our O&M costs relatively flat I think over the last several years moving about 1 per cent.
CAGR on what.
On M. We do.
Have.
Significant opportunities to continue to do that.
Looking forward and that certainly is built into our growth plans as well as our affordability go gets for our 2 utilities.
Are you seeing any inflationary pressure for labor or any other component of your cost structure.
You know we've been looking at debt pretty hard as we are starting to build their plans for.
For 'twenty, 2 and beyond and.
We've got long term contracts for some of our key commodities on the material side. So we're not seeing pressure there and with our contractors I didn't do a good portion of our work you know those are obviously negotiated prices.
Again, I'm not seeing anything that.
It would give us.
A great concern at this point in time.
Okay, and then on energy trading you had highlighted the increase in guidance range debt largely reflecting the year over year increase for the second quarter.
Is there embedded conservatism for the second half outlook.
Some of the volatility in the gas prices and higher prices.
Or is there any color you can share on on what's driving the relatively no change to the second half.
Oh, Yeah, there's conservatism in that as you can see we put on.
In line from a 25% to 35 and you know we're.
Pretty much within that range at the top line in that range already so.
So we do have some conservative as tourism in that number.
Well.
We'll just have to watch how it plays out throughout the year.
Okay. Appreciate it thank you.
The next question is from James Thalacker with BMO capital markets.
Good morning can you guys hear me.
Yes, good morning, good morning.
1 real quick question and I know, it's early in the ERP is sort of the end of next year, but as you're approaching.
The acceleration.
And essentially have more coal how are you thinking about I guess the.
Regulatory recovery mechanisms.
We're accelerating debt that coal retirement or are you thinking more a regulatory asset model or a securitization potentially.
And what we're looking at.
Various techniques that we ever disposal on 1 of accelerated depreciation.
We're also looking at.
Ways to make the assets asset lives longer in terms of being remaining used and useful there's all kinds of physical options for the that we're considering and we're also looking at some.
<unk> tax strategies that could help smooth affordability as well so multiple ways that we're looking at making the financing on the retirement of coal earlier more.
Portable to our customers and also making sure that our investors get their value out of these assets.
Alright, thanks, so much guys.
Yeah.
You have a follow on from Jonathan Arnold with vertical research.
Thank you guys just 1 quick 1 on the convert.
Post the spin.
The numbers may change in terms of share as it will convert.
Well have you will that be disclosed in the Q or was it can you give us some guidance here is to.
Well the implications of the spin with conversion.
Yeah. There is a there will be an adjustment to the settlement rates to ensure consistency of the economics. So it'll change the convert price kind of in proportion with.
With the equity price so debt equity holders remained remain Colin.
<unk> are concerned those are.
Mechanics to your contact Barbara and get the actual mechanics of that if you want after the call but those are now set David is really my question or other or are they still pending on trading levels.
I think with.
To him levels seeing where the stock price will be at the time that would be convert still.
Will affect that.
Okay, great. Thank you.
Yes.
And your final question comes from the line of Anthony <unk> with Mizuho.
Hey, good morning, Jerry Good morning, Dave.
Good morning, Anthony if you go on.
The trading day, hopefully 2 easy ones I guess, the first 1 a Jerry earlier in the call you are highlighting how you know the true.
Transaction team worked you got to the spin of DTE midstream seemed very seamless I mean, you seem like Youre transaction team is in mid season form right now any sort of keeping them in shape.
With other transactions.
Well right now we're yeah free we're really focused on per 17 billion dollar growth agenda at the utilities, which is the lion's share of our Capex and of course, having a nice modest growth for our non utility business P&I and on.
RMG and cogent.
Co Gen, primarily so that's really our play right now you know for the next 5 years.
Great and then just lastly.
Post spin.
I just don't know the process Keith.
Do you know if you if your ESG score is under evaluation now that the company.
<unk> or move the ESP business and.
Looking at your new I guess environmental footprint.
DTE Classic I mean, how often is that review happened on any inside you gave on the potential for a change in your ESG score.
So I would venture to say that our ESG metrics will improve.
On the span of TTM, but barb, maybe I'll get barb to provide some insights.
As to when that might happen 1 might we get the next door.
Yeah.
Yeah.
He has.
Barbara.
Sorry about that.
Yes, those happen annually typically and right now we're sitting above average on quite a few of those metrics.
Great. Thanks, so much.
Thank you Anthony.
I will now turn the call back over to Jerry Norcia for closing remarks.
Thank you everyone for joining us today I'll, just close by saying that DTE had a very successful first half of the year and we're feeling really good about the remainder of 2021 and also how well we're setting up for 2022.
I hope.
Everyone have a great morning, and stay healthy and safe.
This concludes today's conference call you may now disconnect.
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