Q3 2021 DTE Energy Co Earnings Call
Good morning, My name is Brent and I will be your conference operator today.
At this time I would like to welcome everyone to DTE energy third quarter 2021 earnings call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
I'd like to ask a question at that time simply press star followed by the number one on your telephone keypad.
I would like to withdraw your question press the pound key thank you Barbara Tuck field you may begin your call.
Thank you and good morning, everyone before we get started I would like to remind everyone to read the safe Harbor statement on page two of the presentation.
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 operating earnings provided in the appendix with.
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.
Well, thanks, Barb and good morning, everyone and thanks for joining us.
A lot of positive updates to share with you today.
I'll be giving you an update on our 2021 performance and an overview of our long term plan.
Dave will then provide details on our financials.
We'll take your questions.
So let's start on slide four.
On our second quarter call I said that we were having a strong start to the year.
With three quarters of 2021 behind us.
That description still under Mark as we continue to deliver for our customers communities and investors.
This progress in 2021 positions us well for our future growth.
D. C continues to be recognized for our engagement by Gallup, what's our ninth consecutive great Workplace Award.
In addition, we remain committed to our focus on diversity equity and inclusion.
So once you go over to our customers as you know our service territory experienced a major storms.
This summer we had 12 storms with five having over 100000 outages. It is something we have never seen a D C 's history.
I would like to thank our entire team for really responding in incredible ways. These historic events.
Our crews worked countless hours to restore power to our customers and for that I am very grateful.
We understand how important it is to provide reliable power and are committed to making continuous improvements as part of our service excellence efforts for our customers now and into the future.
We have accelerated our efforts in the most impacted communities, including Wayne Oakland and Washington Counties.
In an effort to accelerate our preventative maintenance, we are increasing our teacher and workforce from 1200, it's almost 500 people.
And our overhead line workforce leight hundred 50 over a thousand.
We made the decision to invest an additional $70 million and our tree trimming program.
'twenty, one 'twenty two 'twenty three.
As over two thirds of our outages tree related <unk>.
Additionally, we have been making significant investments and increasing our focus on grid reliability.
We are advancing our efforts to get three off the wires and deliberate clean safe and reliable energy all while focusing on service excellence for our customers.
We filed the distribution grid plan with the Michigan Public Service Commission in September.
The plan addresses the long term investment strategy that prepares our grid.
For the eventual electrification of transportation.
And addresses the increasingly severe weather patterns that we have seen in our service territory.
Moving on to our communities, we are continuing our commitment to provide cleaner more reliable energy.
We have partnered with Washington County to build our first my Green power community solar projects.
The megawatt facility will be the largest of its kind in the area.
On the Investor front.
We continue to have a strong financial year and are well positioned to deliver growth.
As you'll see in our 2022 outlook and our five year plan.
We are on track to deliver 5% to 7% EPS growth through 2026.
And dividend growth in line with our EPS growth.
Now, let's turn to slide five.
2021.
Keep it up to be a very successful year, we are raising the midpoint of our operating EPS guidance from $5 77 five.
$5.84 per share this is 14% growth in EPS from our original 2020 guidance.
And I feel very confident that youll see a final 2021 number but it was at the higher end of our new operating EPS guidance range.
I am proud that we're able to deliver these results while we continue to keep our electric base rates flat throughout most of 2022.
We have not increased our electric base rates since may of 2020.
And we don't plan to file our next electric rate case until early next year.
For 2022.
We're providing an operating EPS early outlook range of 570 <unk>.
<unk> 97 per share.
Even with the ARIA earnings Rolling off at the end of this year we.
We continue to deliver 6% growth from the 2021 original guidance midpoint.
We won't work towards hitting the higher end of that range, because we have done in the past.
Today, we're also announcing a 7% increase to our 2022 annualized dividend in line with the top end of our operating EPS growth target.
As I mentioned on the last quarter call.
We retired the river Rouge power plant this year.
Plan to retire Trenton channel and St. Clair power plants in 2022.
This is nearly 2000 megawatts of coal retirements or 30%.
Where our coal generation fleet.
And this quarter, we made another significant step toward our goal of reducing carbon emissions.
We announced that will be ceasing coal use our Belle river by 2028.
Two years earlier than originally planned.
Preparing also to file an updated integrated resource plan in the fall of 2022, almost one year earlier than planned.
We look forward to working with all stakeholders to address ways to further accelerate deeper organization.
While always maintaining affordability and reliability for our customers.
In order to ensure we continue to have clean reliable affordable power for our customers.
We have built or contracted for 2500 megawatts of wind and solar energy.
Purchased 200 megawatts of natural gas plants, and expect our new state of the art 1100 megawatt combined cycle gas turbine plant be up and running in 2022.
To coincide with our coal retirements.
Now moving over to the non utility side, we are renaming our power and industrial segment to DTE vintage.
And more efficient.
But named D. T E vantage better reflects our position and bringing innovative cleaner energy solutions to our customers.
Now, let's turn to slide six to review, our five year capital plan.
Over the five year plan, our utilities continue to focus on our infrastructure investment agenda.
Especially investments in cleaner generation and investments to improve reliability and the customer experience.
Our updated five year utility plan is $18 billion.
Which is $1 billion higher than the prior plan.
Over 90% of our five year investment plan will be at our two utilities.
Investments in our non utility business are strategically focused on our customers' needs and aligns with our aggressive ESG initiatives.
Overall, we have a robust global investment agenda of 19, and a half billion dollars over the next five years and as always we continue to look for ways to bring more capital into the plan to advance our clean vision plan and further improve reliability for our customers while maintaining.
<unk>.
Now, let's turn to slide seven.
At DTE electric we announced our plan to accelerate de carbonization by ceasing coal use.
Mulder for power plant by 2028.
Reducing carbon emissions by 50% two years earlier than originally planned.
This is another step toward our goal of net zero carbon emissions.
Additionally, we expect to file our integrated resource plan in the fall of 2022, one year earlier than planned.
By making this important generation decision now ETE continues to accelerate our journey toward cleaner energy generation that is affordable and reliable for the customers and communities we serve.
The $1 billion increase in our DTE Electric's five year plan is driven by distribution infrastructure investments preparing our grid for electrification and hardening initiatives and increased cleaner energy investment due to our voluntary renewable program, which is still exceeding our.
High expectations.
This quarter, we have partnered with Washington County.
To build our first my Green power Solar project.
Overall, my Green power program, which is one of the largest in the nation continues to grow at an impressive rate.
So far we have reached over 950 megawatts of voluntary renewable commitments with large business customers and over 40000 residential customers.
We have an additional 400 megawatts in advanced stages of discussion with future customers.
For our distribution infrastructure renewal, we are supporting the electrification and load growth with infrastructure redesign.
Proving circuit reliability, and reducing restoration times, what system hardening and enabling a smarter grid with advanced technology and automation.
This $15 billion investment over the next five years supports our long term operating earnings growth of 7% to 8% Electric company.
And now let's discuss the opportunities at our gas utility on slide eight.
At DTE gas, we are on track to achieve net zero greenhouse gas emissions by 2050.
Earlier this year, we announced our new natural gas balanced program.
This program provides the opportunity for customers to purchase both carbon offsets and renewable natural gas to enable them to offset up to 100% of the carbon from their natural gas usage.
We are proud of how fast this program is growing.
Earlier, we have over 4000 customers subscribed and we look forward seeing it become as successful as our voluntary renewable program at DTE electric.
Overall DTE gas, we are planning on investing $3 billion over the next five years to upgrade and replace aging infrastructure.
With potential upside to the plan of $500 million.
Along with our pipeline integrity and main replacement investments.
We are investing in innovative technology and products that will reduce methane emissions and the carbon footprint for our company.
Overall, we expect our long term operating is growth to be 9% at DTE gas.
Now, let's turn to slide nine.
As I mentioned earlier.
We renamed our P&I business the DTE vantage.
We are planning on investing between one to one 5 billion.
Over the next five years.
We are targeting the operating earnings of <unk> $85 million to $95 million in 2022.
<unk> $260 million to $170 million in 2026 with approximately 80% of the operating earnings in this business coming from de carbonization related projects.
As the RF business sunsets at the end of this year.
We continue to see additional opportunities in the renewable natural gas and industrial energy services.
Earlier this year, we told you about our new R&D project in South Dakota, which is now under construction and slated to start up in the second quarter of next year.
We commenced construction on another Wisconsin RMG project in the third quarter.
<unk> entered into an agreement for an additional LNG project, which will be our first project in New York.
In aggregate.
These three projects will serve the vehicle fuel market producing over 500000 million btu's of RMG per year.
With 100% of the production offtake contracted long term.
There has been strong <unk> market growth supported by the federal renewable fuel standard and California's low carbon fuel standard.
We are uniquely position to capitalize on a growing preference for efficient energy.
With the opportunity to implement cogeneration systems, especially as manufacturing plants continue to open up nationwide.
This also puts us in a very good position to explore additional decarbonization opportunities.
Including carbon capture and storage.
And with that I'll turn it over to Dave to give you a financial update Dave over to you.
Thanks, Gerry and good morning, everyone.
Let me start on slide 10 to review, our third quarter financial results.
Total operating earnings for the quarter were $334 million.
This translates into $1 72 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.
DTE electric earnings were $342 million for the quarter. This was lower than the third quarter of 2020, primarily due to cooler weather in 2021, and higher storm costs, partially offset by higher commercial sales.
Moving on to DTE gas.
Operating earnings were $10 million lower than the third quarter last year.
The earnings decrease was driven primarily by higher O&M expenses and rate base growth cost.
Partially offset by the rate implementation.
Let's keep moving down the page the DT vantage on the third row.
Operating earnings were $73 million.
This was $26 million higher than the third quarter of 2020, driven primarily by earnings and new R&D projects.
On the next row, you can see energy trading had another solid quarter with operating earnings relatively flat quarter over quarter.
Finally, corporate and other was unfavorable $39 million quarter over quarter.
There are a couple of main drivers for this variance the largest driver is the timing of taxes, which will reverse in the fourth quarter.
We also had a onetime tax item true up subsequent to the spin of <unk> midstream.
As we look forward to the balance of the year the tax timing adjustments for the first three quarters were resolved approximately a $50 million favorable reversal in the fourth quarter.
So our full year 2021 results at corporate and other is expected to fall within our guidance for that segment.
Overall DTE earned $1 72 per share from continuing operations in the third quarter of 2021.
This represents a very strong third quarter and our year to date results put us in a great position for the year.
Let's turn to slide 11.
As Jerry mentioned, we are raising the midpoint of our 2021 operating EPS guidance from $5 77.
$5 84 per share.
Our revised operating EPS guidance range for 2021 is $5 70.
The $5 98 per share.
And with strong year to date performance, we expect our full year operating EPS to be biased towards the higher end of this range.
This bias to the higher end also reflects the additional investment in reliability.
We're investing $70 million to combat extreme weather related power outages with no impact to our customer bills.
Additionally, we've contemplated some further invest opportunities in our businesses during 2021.
Which positions <unk> well for success in future years.
Let's move on to slide 12 to discuss our 2022 outlook.
We are continuing strong 5% to 7% long term operating EPS growth through some significant milestones.
We are converting $1 $3 billion of mandatory equity in 'twenty two.
And the RF business will sunset at the end of 2021.
Through this we achieved 6% growth from 2021 original guidance.
Our 2022 operating EPS early outlook midpoint is $5 84 per share.
And we will work toward hitting the higher end of our range of $5 70 to $5 97 per share.
In 2022 at DTE electric growth will be driven by distribution and cleaner generation investments.
DTE gas, we'll see continued customer focus investments in main renewal and other infrastructure improvements to support our capital plan.
As we discussed 2021 is the final year of earnings for a reduced emission fuels business at DTE vantage.
Approximately $90 million of RF earnings net of associated cost rolls off at the end of the year.
This was offset by new project earnings in 2022.
2022 earnings at this segment are largely driven by continued R&D and industrial energy services projects that will serve as a base for growth going forward.
Our corporate and other the biggest driver in our year over year improvement as lower interest expense.
This is the result of leveraging earnings and cash strength in 2021 to Opportunistically remarket, some higher price debt.
This will provide interest savings in 2022 and future years.
Let's turn to slide 13 to discuss our balance sheet and equity issuance planned and wrap up before taking your questions.
We continue to focus on maintaining solid balance sheet metrics.
Due to our strong cash flows DT is minimal equity issuances and our plan beyond the convertible equity units in 2022, while also increasing our five year capital investment plan by $1 billion.
We have a strong investment grade credit rating and targeted <unk> to debt 16%.
Additionally, we are increasing our 2022 dividend by 7% to $3 54 per share.
In the third quarter, we completed our liability management plan following the spin of our midstream business.
Using the funds raised from Dcm's debt issuance, we repurchased a little over $2 $6 billion of corporate debt.
And incurred approximately $400 million of debt breakage fees associated with the early retirement of this debt.
Census that was allocated to the midstream business and our previous financial statements you wont see a large decrease in the debt level at corporate and other.
This liability management plan is NPV positive EPS accretive and further supports our long term growth.
So in summary, we feel great about our success. So far this year and are confident in achieving our increased 2021 guidance.
<unk> 2022 is looking good with 6% EPS growth from 2021 original guidance and our increased five year capital plan supports our 5% to 7% long term growth, while delivering cleaner generation and increase reliability for our customers.
<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 in the dividend growing in line with EPS.
With that I. Thank you for joining us today, and we can open up the line for questions.
At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Your first question comes from Shar <unk> with Guggenheim Partners. Your line is open.
Hey, good morning, guys.
Good morning Shar.
Yeah.
Just on the Capex plan.
How are you currently looking at the generation spending plan I mean, you announced Belle River would cease coal operations ahead of schedule. So there sort of incremental spending opportunities for generation, especially in light of the <unk> filing.
What kind of specific construct that you may be looking for Jerry we've seen some.
More aggressive proposals from your Michigan peer in.
I guess I'm asking can you get out of all coal by 2030, 35 timeframe and do you sort of for.
Is there an opportunity to provide.
An early look into the IRB at the end of next year's violent.
A couple of embedded questions.
Sure So shar.
As you've seen with accelerated above river power plant conversion from coal to other fuel sources like natural gas are R&D and potentially a hydrogen. So that's that's certainly in the works by 2028 as you mentioned and we're going to file the ERP in the fall of next year and we're going to really use the next year to get a lot of.
Feedback from interested stakeholders like the commission and other parties that will have an interest on our acceleration of coal retirements as you know that Monroe coal plant is slated to retire in 2040, but we are looking at many scenarios start to pull that forward shares so that will be become much more transparent.
When we file the ERP the details of exactly how we're going to do that and also replace that Baseload generation that's.
Over 3000 megawatts of Baseload generation, so wrap to think through very carefully how do we maintain reliability.
And affordability and get good feedback from our stakeholders. So what you see in our current five year outlook is an increase of about $1 billion in cleaner generation and that's really driven primarily by our investments in <unk>.
Voluntary renewables as well as some investments that we have are pumped hydro facility and a small hydrogen pilot, perhaps at our blue water Energy Center.
Got it.
And then sorry, just a question on 'twenty, one guidance and sort of how you plan to offset some of the storm and other headwinds from <unk> that were not in plan right.
What sorts of kind of maybe discretionary spending flex do you have and does that kind of defer anything into 'twenty. Two so I guess I'm asking about contingency and flag some of youre using in your that up out of 'twenty two.
We're going to we're going to deliver 2020 one all of those storm costs are already reflected in our results and in our current guidance for 2021. So I can tell you I'm extremely confident of delivering 2021 level as Dave and I mentioned that our speaker.
A description that well.
We will likely deliver at the high end of that so we're feeling really strong about 'twenty. One I have no concerns about delivering 2021 out of 2022 just to speak about that for a moment.
As usual we spent all of the year building levels continues to be to ensure the delivery of 2022.
And as you've seen in the past if we don't consume that contingency that will trend towards the higher end of guidance. So again 21 is locked in.
And in the trailing towards the higher end of that guidance and 22.
Feeling really good and really strong at this point in time, where it's a matter of fact, we're busy working on 'twenty three to build.
Strong plan for 2023.
Perfect. That's what I was trying to get at and just lastly for me on the energy trading side.
Obviously, we're seeing a step running on commodities right and gas is now.
Over $6 for the winter.
I guess Gerry has the portfolio positioned in terms of volatility with gas and are there any kind of risks to counterparties as we saw with taxes. This year or Conversely is there a kind of an opportunity to exceed their.
We are our portfolio is slightly long as it relates to natural gas shar. So if anything.
You know there is bias for upside as commodity prices and the gas business have gone up.
So I would say certainly biased for some level of upside.
Perfect Congrats guys on the results great execution. Thank you. Thank you.
Thank you.
Your next question comes from the line of Jeremy Tonet with Jpmorgan. Your line is open.
Hi, Good morning, this is actually Ryan on for Jeremy.
Just kind of wanted Morningstar. Good morning, It's Mike I'll start with the PPE vantage and that 161 70 laid out in quite many thanks, just wanted to kind of talk to the line of sight you have to that number and then you know I know you guys have been very successful with the R&D projects and you know that as it had been.
Trending well, but thinking through the carbon capture side, you know how much kind of a growth capital you think you could deploy there in the near term and how much the kind of current legislative environment with 45, Q support that or how much you might need support on that side to make those projects kind of more economic.
So I'll start by saying that.
The.
The way, we get to our guidance five year guidance for DTE advantages, we continue to deliver $15 million and net income growth per year, and that's really underpinned by us being very selective about what R&D projects, we do and whats cogeneration projects. We do those are our two major business lines. So just to give you a feel for it.
Complete construction of the Dakota Plains project in 2022, and then we've got to Wisconsin project that will go in service in 2022, as well and we've got a third one in New York that will likely be placed into service in 'twenty two early 'twenty three.
In addition, we have a co gen facility that goes online in 2022 all of that Bill.
Builds for our growth into 2023 and beyond as well as we've got a.
A handful of really strong opportunities in the pipeline in the energy space and co Gen space that will keep marching along again $15 million in your net income is something that we feel is reasonable to achieve each and every year and that's how we got to our $90 million for 2022 by knocking off $50 million a year for five years. So we're just going to continue on.
That trend and deliver for you all.
Yeah.
Got it that makes sense and that relates to carbon.
Sure.
Yes, I was going to speak the carbon capture that's early for us.
A 45 Q is very good but the low carbon fuel standard in California makes it even more interesting. So we are looking at a potential carbon capture opportunities, but I would tell you. It is extremely early at this point in time, but we'll continue to update you as we make progress in that arena.
Got it that makes sense.
To follow up a little bit on the electric Capex and.
Thinking through the voluntary renewables when he said 93 megawatts and another 400 is kind of in advanced negotiation Jim.
Should we be thinking about like what is currently embedded in the current capital plan and then how much is kind of.
Further upside opportunity is it fair to assume that that 400 megawatts of just further opportunity at DTE electric do the voluntary program.
While the 400 megawatts will go a long way to fill it up to $3 billion, we got in our five year plan.
That gives us great confidence that we'll deliver on a $3 billion of clean clean generation.
<unk> see on slide seven and is there upside yes, potentially you know every year, we continue to update that that line item and cleaner generation as we think about coal retirements and as we think about increased voluntary renewables all of that points towards a future future growth and our investments in cleaner generation.
That's good I'll leave it there thanks for my question.
Your next question comes from the line of Julien Dumoulin Smith with Bank of America. Your line is open.
Hey, good morning team. Thank you so much for the opportunity.
Well do another round here.
Hey, Jack Lazar.
Indeed, a quick quick question here I know you guys are talking about planning already all the way up to 23.
Are you thinking about just responding to the storms from this last summer and obviously resiliency and reliability are of Paramount importance are there incremental capital opportunities here I mean, we've heard some of your peers contemplating expanding for instance, under grounding and other sort of reinforcement.
The opportunities around some of these latest surrounds the storms as well as potentially banking in any incremental opex into your you know for instance, 'twenty two plan as you think about responding to the PSC here.
Well so.
So let me take those one at a time Julien. So you will have seen that we've made the regulatory filings. It takes some of the favorability in 2022, 2021 that were experiencing and rolling it into $70 million at least $70 million of incremental III tremor. So that's the immediate response and that's going to fund two to 300.
People incremental treat schirmer is coming to the state the trim trees and get the get the trees up our wires.
That's immediately immediate response and so that'll run through.
Tree trimming.
Tracker that we have.
That'll be a good thing for our customers to get to improve reliability.
Liability from the next summer and a subsequent summer. So we're really looking at accelerating our tutoring program with that incremental investment and again that'll be sized somewhere between $70 million to $90 million of a pull forward and that'll be the source of that it'll be a favorability in 'twenty one that we're experiencing.
The second thing Youll see is in our capital plan, we raised our distribution infrastructure investment from $7 billion to $8 billion.
In response to our detailed planning that we've put in front of the commission as it relates to resiliency to accommodate worsening weather patterns and also to accommodate the eventuality of the electrification of the transportation fleet, that's going be a big deal for us in the second half of this decade.
Currently we're starting to see over 1000 connections to our grid from Evs and that's growing from a couple of hundred last year. So.
All of that is pointed towards creating that $8 billion towards creating a more resilient.
Liable and more efficient more efficient grid.
Excellent alrighty and if I can just to come back to that 15 million if I remember right I think.
The 90 million baseline you talked about here was off 22, if I remember almost seems like the 165 is even a little bit better than the 15 cadence, but I could have my numbers up slightly there but.
Seems like that's a that's a good trend and if you can again not to react too much to that last question, but you know.
The line of sight.
Fix versus today.
Certainly it seems like at least at a minimum a good placeholder.
With an accelerating backdrop relative to what you've already picked off at $50 million. A year you would think that there is potentially even more opportunity there. So.
You may have spoken to this a second ago mentioning the increments of co gens, but I'm just trying to push you a little bit further on how much clarity you already have against that 165 versus incremental.
Yeah, I'd say like like Jerry said, we are have a really good pipeline of projects within our D. T advantaged business right now.
And so getting that $50 million a year.
And so right within our sight.
One of the keys Julian as we've gone through this before as staying within 10% of our of our business being non utility. So that's also one of the drivers that kind of keeps us from.
From pushing that too much you know theres always other ways that we could look at that if we did find some more growth, but that's also one of the limiters for our growth as well.
And Julian that gives us the opportunity to be really selective.
Right now, we're still seeing R&D projects that work originated and they're all greenfield.
How we're creating the greatest amount of value we're seeing at three.
Three to five year simple cash paybacks.
And in the teens Unlevered IRR is in the teens. So we like the approach that we have in it and it also meets with our strategic goals of like Dave said, keeping a 90 10 split between utility and nonutility.
Okay.
Right No I was I didn't mean to nitpick I was just suggesting that they are the only 26 seems like it's even better than 15, a year and I was just coming back to that sorry. Thank you guys very much I appreciate it I'll leave it there.
Thanks Sheila.
Your next question comes from the line of into Canada from Goldman Sachs. Your line is open.
Yes. Thank you a lot of my questions have been answered, but just on the financing side of things you know you've.
I laid out through 2024, now minimal equity needs and when we think about this additional billion dollars over the roll forward five year plan any insight into that 25, and six period weather at least in this base plan for.
For now and whether youll need any more equity in terms of a back half for fire.
Okay.
Hi.
Yes, we see a we see really good cash flow generation through our five year plan.
So that minimal equity needs like that that's consistent right now within our plan, even bringing in this additional $1 billion of capital into the plan.
Okay understood.
And then my follow up question is you know Jerry.
Company has had a track record of being pretty conservative on your annual guidance and always exceeding are outperforming that and this whether it's 2022 and whatnot the 6% that you've highlighted it does makes sense.
The question is given.
For this year at this kind of the second time that you're raising guidance. What are you know are there.
Not as many opportunities just from like an operational constraint pieces to pull for more cost into the next year. So that from a year over year cadence perspective for our earnings growth at its a bit smoother just wondering I think given some of the investors and people on the street are.
I used to or looking for more stability and predictability of annual earnings growth. Despite you guys always having that track record of outperforming our guidance. So just any color there.
Sure.
I'll start by saying that if you look at our track record over the last decade, you would see that our.
EPS.
Growth on a CAGR basis is one of the highest in the industry.
And I think it's tracking probably well over 8% at this point in time if were to include this year. So we're pretty proud of our EPS growth track record we are conservative in our planning in the sense that we do put contingencies in.
Do you anticipate any potential variations in either load or weather.
On our two biggest the income producers which are utilities.
Again as I mentioned for 2022.
I feel really good about the level of planning that's gone and got into 2022, and if we do not consume our contingency will be tracking towards the higher end of that guidance for 2023, where we're putting that year together and I expect that that'll come together, just those nicely as 'twenty, one and 'twenty two and in the <unk>.
Last decade here.
Got it thank you very much.
Your next question comes from the line of Travis Miller with Morningstar. Your line is open.
Good morning, Thanks for taking my question.
Good morning.
Wonder if you could give some thoughts on the latest developments in the gas rate case.
Various filings there.
Sure. So we've had.
Multiple intervenors, including the staff in the AG and now the.
Administrative law judge judge file their positions when we take all of that.
The consideration we feel pretty good about the outcome that we expect from the from the gas rate case, we really believe we will get a productive outcome and.
That will meet our needs and our investors' needs.
Okay is the sensitivity around that 2022.
Guidance is that is there a sensitivity in there in terms of what the final outcome might be.
On that gas case.
Well certainly a part of our contingency planning is to try and accommodate various scenarios, but I would say that.
Youll see a productive outcome on Roe.
Which is really important to our investors. The commission has taken a past practice, though.
Gradual approaches at the Aro and has also taken a pretty fair stance.
On our capital deployment plans and any investments that we've made in the gas business. So I think we're going to get a really productive outcome.
Help us deliver our 2022 targets.
Okay, Great. That's all supportive of the Capex numbers it.
You were putting out there for the for the next few years right.
That's correct and we've got strong support from the commissioners and staff on our Capex program at the gas company. It really is about.
About infrastructure renewal, we're replacing about 200 miles of gas me every year from replacing a replacement of cast iron with the new PVC piping.
They're also moving about 30000 meters from inside the home outside of the home. So all of that is pointed at.
Future safe and reliable operation of our gas infrastructure. So lots of support for that strong support not only from the commission, but also from the administration, who is broke infrastructure renewal and the state.
Sure sure. Okay. That's all I had thanks a lot.
Thank you.
Your next question comes from Jonathan Arnold with vertical research your line is open.
Good morning, guys.
Hi, Good morning, Jonathan Hi, just a question on the gas utility Capex plan.
You said I think there is.
This half billion of incremental opportunity.
Sitting on top of the base plan.
As to the similar to how that looks.
Last year profitability.
Hopefully the year before I was just checking but Gary can you give us a sense as well.
And what the timing and sort of forum.
Getting some of that into the plan would be.
Sure. So we've brought.
Brought in about an extra $100 million into this current five year outlook incremental and.
We are always looking for opportunities to bring more because you've got a very large inventory of infrastructure, where they all needs of the gas company.
Primarily starting to point towards some of our transmission assets like aging compressor stations and also aging pipelines that are going to start to need some level of replacement and transmission portion of our operation. So what stands in the way of getting incremental capital into the plan is really us finding affordability.
Opportunities to offset the rate pressure that.
So that these investments would create so that's what would bring it in Jonathan and so we'll continue to update that plan each and every year.
And try to bring more more capex another plan to accelerate our work as it relates to infrastructure rail.
Okay. So we should should we think of it as a.
Out of the next yes.
Future rate case cycle as opposed to the other.
Regulatory value.
That's where you'll see it that's or it'll be amongst the most transparent great. Yes. Thank you Gary and then just done.
The tax items in the quarter.
Chris I think you mentioned.
There was this item that's going to reverse 50 million.
True up in third quarter I was just wondering if Dave could unpack that how.
How much the two different items.
Impacted the quarter.
Which direction the true outwear et cetera.
Dave do you want to take that.
Sure.
Yes, as you said there were two big drivers for the variance in the quarter at corporate and other there were tax related.
We do still expect to hit our guidance for corporate and other for the quarter and our increased guidance for the year, but.
On the the tax.
The one time true up.
That was a valuation allowance that was it.
Against the tax deduction that we were carrying forward.
And so when we had a lower pretax earnings as a result of the spin.
Looked at this differently and realized that we had to reduce that a little bit and then there will be a.
It's about an $18 million.
Alta for that that was negative but then on the.
The tax timing the effective tax rate, that's an adjustment that we do for GAAP.
It's just because as our pre tax earnings and credits aren't earned ratably over the year, we have an entry at corporate and other that choose that up to the effective tax rate.
And so that was about the same amount for the quarter and then we had some of that from the first three quarters that al will reverse in the fourth quarter and that will be the $50 million that we discussed that we will see favorable in the fourth quarter.
Combined about 36 million in the third quarter, yes, right around that.
A little less than that actually relative to last year.
But yes, it's about it's about that.
Great. Thank you and then just one other.
Thank you you mentioned in talking about 'twenty two Dave the conversion.
But if I'm not wrong that really hits really at the end of the year.
Wouldn't that be more of a 'twenty three headwind and is that just sort of how should we think about that.
Youre trying to set up for that.
Smooth growth et cetera.
Yeah. It's it comes in November of 'twenty, two so we see a little bit in the 'twenty two we see a fixed in 'twenty.
In 'twenty two but then 23 is when.
It does have a little more of a headwind for us that will be growing through that too.
Okay, Alright, thats all its checkout remembered that correctly. Thank you.
Thank you.
Your next question is from Ryan <unk> with Citigroup. Your line is open.
Hi, Thank you for taking my question.
What's the current gas hedge position for DTE gas heading into the winter.
So the current hedge position for gas is 90% heading into this winter and about 65% heading into the following winter of 'twenty.
'twenty two 'twenty three.
Thank you do you have a sense of what the.
That customer Bill impact will be this winter as a result of that hedge profile in the current gas prices.
It'll be pretty minimal since we have secured about 90% of our gas supply.
At fixed prices and in other words the prices are fixed for about 90% of the portfolio. So we see a very minimal impact.
I appreciate that and then switching to the storm impacts there has been I guess, the governor letter and the commission.
And requests for information on some of the worst performing circuits.
Okay.
<unk> is what have you.
What's the incremental cost for on their grounding.
That would make that option more viable and is there any developments that could switch your current plan away from tree trimming to some others.
Alternative formats of mitigation.
So I'll start by saying that about.
Little over 30% of our system is underground now and assemblies. We started two underground all new subdivisions and all new developments so.
So we have been on the ground it for quite a few years, what remains above ground and residential neighborhoods primarily is infrastructure that's older than that.
We've looked at excuse me I looked at and continue to look at ways to strategically underground.
But it is very expensive so you have to be.
Very strategic about how you do it so just to give you an idea about seven or eight years ago. I was asked by a mere one of the communities that we serve whether we can underground the whole system.
And it was a community of 14000 residents and the cost underground.
It was in the hundreds of millions of dollars.
Cost to trim, those circuits was two or $300000 and which would give us about 95% of the same reliability impact.
Again under grounding is great I think we have to approach it in a strategic manner.
That is a question that we're addressing and.
Distributions.
Planned five year plan that we've put in front of the commission.
And we will continue to work to find ways strategic waste underground.
But it is very cost prohibitive to take existing systems and underground and also disruptive to our customers a sense that the locations where you have to underground you have to remove the trees.
Our upfront lawns, and driveways as well as our backyard potentially when the when the systems are in People's Backyards.
I appreciate it and maybe one last follow up in terms of the potential penalties that could be ascribed for future storm outages.
Any color you can provide around how you're.
You're approaching that.
Potential issue.
If any of these mitigation efforts could weigh into that decision.
While many of the mitigation efforts that we're deploying increased III term and of course, an $8 billion investment agenda in the grid I think will go a long ways to fundamentally improving the reliability of the grid in terms of customer credits that we provide we are revisiting that with the commission and we expect to resolve them.
Over the next 12 to 18 months.
We think that the $25 credit for extended periods about insurer is outdated and we agree that it needs to be increased and we just need to arrive at a.
At a level that makes a lot of sense because all of the money that you put towards credits, but also be used to improve the infrastructure. So there is a balance there, but also a recognition of some of the.
Difficult situations that say for example that are low income customers find themselves in when we have outages that may last three or four days.
Great. Thank you.
Your next question comes from Andrew Weisel with Scotiabank. Your line is open.
Thanks, Good morning, everyone.
Good morning, Andrew.
Just to elaborate on the winter gas prices can you just talk about the hedge position for gas what about the electric side can you remind us what tools do you have I think you had some hedging programs and access to storage is that right.
Well for the.
The electric side, our primarily burning coal as a primary fuel source at this point in time and also nuclear fuel.
Those are well hedged at this point in time.
We burn a minimal amount of natural gas at this point now when we bring on our <unk>.
Combined cycle plant, we will be burning a significant amount more natural gas and we'll look to hedge those those products as well as we are as that plant comes into service late 2022.
Okay. Good so also minimal risk to customer bills. This winter.
Yes next question is on the electric rate case filing coming up I believe you're planning to file by year end.
This will be $70 million tree trimming initiative be part of that or will that be resolved before you file and beyond that should it be a pretty plain vanilla case or are there any other unusual items to focus on.
So Andrew we're planning to file the first quarter of next year. So it won't be the end of this year.
And.
The tree trimming matter will be resolved before that filing we again as we will use a special.
Counting order to take.
What I would say favorability from 2021 to roll into our tree trimming program and that'll be size anywhere from $70 million to $90 million.
And then of course the.
The filing that we will make in the first quarter early first quarter.
Primarily driven by.
The capital investment agenda that we have for the electric company, both our renewables agenda and are a great agenda.
Great. Thank you for clarifying and then just one quick bookkeeping question. The 70 million dollar tree trimming program I believe that will be expense and included in operating results not stripped out rate and if so would that be a fourth quarter item.
Okay.
Yes, it would yeah, we'd be setting up a regulatory liability and it would be it would impact the fourth quarter.
As well.
Okay. So that's included in the updated 2021 guidance. Yes. It is included in our guidance right now and even with that $70 million still really confident we're going to hit the number and in the upper end of that.
Perfect. Thank you very much.
Your next question comes from Anthony <unk> with Mizuho. Your line is open.
Good morning, Jerry Good morning, Dave Hey, Good morning, Anthony.
It just seems like yesterday, when everyone was questioning Nexus and now we're at $6 gas.
[laughter], yes, DPM is doing quite well in this environment as we expected.
I just have one question on kind of a follow up from one of the earlier questions. I mean, I think you talked about bill impact is minimal it seemed that BT has a strategy with nuclear plants coal plant gas plant and the bill impact is minimal.
So that.
Showing the strength of having that diversified portfolio there may be a change in.
And regulators supporting retiring coal earlier, given its really mitigated the bill impact.
We haven't seen that yet Anthony but I would say one of the things that I hear a lot in the industry that we are also considering is to keep all our options open right. We've seen some significant reliability impacts by retiring baseload generation and replacing it with intermittent resources now we'd.
Love Renewables, we obviously are a big investor the largest investor in renewables in our state, but we also feel that reliability is paramount. So when we think about our coal plants and the conversion of those or retirement of those we really need to think carefully how and when we do it because the first thing our customers want as reliable power and affordable.
Power and cleaner power so all of those have to be balanced.
I would say.
Keeping our options open to ensure that we have reliable power.
We make this transition there is going to be extremely important and youll see that in our ERP, we will accelerate our coal retirements and our ERP that Youll see next fall, but you'll also see careful consideration on how that's done to ensure reliable power and affordable power and clean power to go with it.
Great. Thanks for taking my question looking forward, new senior guys down in <unk>.
Yes look forward to seeing you too.
There are no further questions at this time, Mr. North Sea I turn the call back over to you.
Well, thank you and thank you everyone for joining us today I'll, just close by saying that we're feeling really good about the remainder of 2021 and as you've heard and also have developed a very strong position for 2022, I hope everyone has a great morning stays healthy and safe and I look forward to seeing all of you live at.
In November.
Thank you.
Ladies and gentlemen, thank you for your participation. This concludes today's conference call you may now disconnect.
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