DTE Energy Company — 2024 Q1
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the DTE Energy Q1 2024 Earnings Conference Call. [Operator Instructions]. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the call over to Barbara Tuckfield, Director of Investor Relations. 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 2 of the presentation, including the reference to forward-looking statements. Our presentation also includes references to operating earnings, which is a non-GAAP financial measure. Please refer to the reconciliation of GAAP earnings to operating earnings provided in the appendix.
Thanks, Barb, and good morning, everyone, and thanks for joining us. I hope everyone is having a healthy and safe year so far. This morning, I will discuss the achievements we have made so far this year as we continue to deliver for all of our key stakeholders, and we continue to achieve successes across all of our businesses. Given that Joi is in charge of operations, she will highlight our significant customer-focused investment agenda to build the grid of the future, maintain reliability and transition to cleaner generation while continuing to focus on customer affordability. And Dave will provide a financial update and wrap things up before we take your questions.
Thanks, Jerry, and good morning, everyone. I'm happy to be here today with all of you. I will provide more detail on our capital investment agenda and our reliability plans to improve our customers' experience. Our investment plan is focused on building the grid of the future, improving reliability and transitioning to cleaner generation. We have a robust agenda of $25 billion over the next 5 years with about 95% of the investments at our utilities. Our 5-year utility investment plan was increased by $2 billion over the previous plan, driven by investments in cleaner generation that is supported by the IRP, the energy legislation that passed last November and our voluntary renewables program.
Thanks, Joi, and good morning, everyone. Let me start on Slide 8 to review our first quarter financial results.
[Operator Instructions]. Your first question comes from the line of Shar Pourreza with Guggenheim Partners.
I guess, first off is, I guess, how are you sort of thinking about the cadence of maybe CapEx updates in light of the kind of the new legislation? Could we see some adjustments to generation plant CapEx kind of in the near term to align closer to the new construct? Or is this kind of further out? And is 3Q or maybe EEI kind of the right cadence for any updates as we're thinking about this new construct?
So I'll start and maybe Dave can add to it, Shar, but we did update our capital plan that reflected our IRP settlement from last summer and also the legislation that passed in the fall. So when we updated our 5-year plan, much of that capital was included, and that created a $2 billion increase that we rolled out. Now I will say that as we get to the last part of that plan, and we roll things up for the next 5-year period, we do anticipate that the IRP and legislation will create an incremental investment opportunity. Dave, do you want to add to that?
Actually, I think that's exactly right. We'll -- our 5-year plan was consistent with the IRP. The legislation, the IRP, we're really close to each other in this 5-year period, but there will give us some additional opportunities as we look beyond that.
Yes. And that was actually more referencing the -- as you kind of roll forward, right? Okay. And then just on -- I guess on just funding that incremental CapEx as we're thinking about rolling forward. You have that up to $100 million figure through '26.
50 cap structure -- or is there still some avenues to monetize assets like maybe DTE Vantage projects, RNG or is that kind of off the table at this point?
Well, I'll say that our strong cash flow generation and our strong balance sheet allow us to do this capital investment with that minimal equity. And we've said that 0 to 100 kind of fits throughout our 5-year plan that you're at 100 on equity. And a lot of that was because of the IRA and we have a lot of cash coming in from the IRA and the tax credits from the IRA. So we're confident in the capital we have in the plan that we're going to be able to stay within in the equity that we've talked about as well as keep our FFO to debt at that 15% to 16%.
I'm sorry, Shar, go ahead.
No, you go, Jerry. Sorry about that.
I was going to say in terms of Vantage, certainly, we like that business, but if the opportunity presented itself where we could deploy some recycling of capital and create incremental shareholder value, then we're always looking for those opportunities share. So if equity needs were to change and may make it more impactful, if you will -- but we don't see that right now.
Your next question comes from the line of Nick Campanella with Barclays.
So I guess you're kind of back to your normal course business plan now that we moved past '23. I know you have some execution items out there on the rate case side, but just how do you kind of feel about being able to kind of derisk '25 and beyond here with O&M and otherwise?
Maybe I'll start again, and my team can add to it. But we've started in a much stronger position this year with the absence of $200 million of headwinds -- incremental headwinds that we experienced last year. And we are deep into planning for 2025. And what we're looking to do is really try to create opportunities to improve the levels of headroom for 2025.
Appreciate that. And then I guess, I know Vantage, you kind of have this $15 million a year growth cadence in the plan, but it does seem that there are some tailwinds to that business from tax credits and then just stronger cash returns in general. Can you just any way to isolate how large that strength is relative to that assumption that you had in there? And I guess how would you kind of describe where it puts you overall in the business at the midpoint of that 6% to 8% range. Can you get above that range in these certain years? And how should we kind of think about that?
Yes, Nick, we -- as you said, there are some good tailwinds in our Vantage business that we're seeing from tax credits related to both RNG and to our Custom Energy Solutions business and also, we have some good growth in that area as well. When we get to the end of the year, we'll talk more about '25 and beyond and how those tax credits will come into our plan.
Your next question comes from the line of Jeremy Tonet with JPMorgan.
Just want to come back to the comments as you laid out with regards to Vantage and the RNG assets and the potential for portfolio rotation there should the opportunity present itself. And just curious, I guess, the driver to these comments, have others approached you on these assets? Or just trying to get a sense for what you see or how that -- the market is for those type of assets right now?
Sure. So Jeremy, I'll just start by saying, look, we like those assets, they've created extraordinary returns for us and great cash flows, and we still see a strong pipeline of growth. And as we -- we're in the market all the time talking about value. And I can tell you that at this point in time, based on our long-term plan for value creation, we don't see the opportunity to create incremental value above what we could expect now the assets are extremely accretive, but we always look to create incremental value over our long-term plan. And we don't see that opportunity just yet. But if it presents itself, we will exercise that opportunity, I assure you. And again, we're in conversations all the time with the market. There's obviously lots of dialogue that happens in this type of marketplace.
Got it. That's very helpful there. And then I just want to come back and kind of on the back of some of your earlier comments here, talking about the renewable energy plan. Just wondering if you might be able to peel back a little bit more of the details here, what we should be expecting, what you're focused on for the upcoming renewable energy plan?
Well, what I would say that is our voluntary plan continues. I'll just replay this that we have one of the largest voluntary renewable development plans in the country based on the size of our company and that continues to exceed our expectations. We currently have about 2,400 megawatts signed and a 2,500 megawatt goal for the next 5 years. So you can see that we're getting very close to having to update that plan.
Next question comes from the line of David Arcaro with Morgan Stanley.
One more Vantage question here. I was curious, are data centers or customer class that you go after? I'm thinking with custom energy solutions. Just wondering if there's any emerging growth opportunities there.
So the short answer is yes, but maybe I'll describe this in sort of more global perspective for DTE. I would say both our utility, electric utility and Vantage are well positioned to pursue these opportunities with data centers here just right here in our backyard and also with Vantage beyond our backyard.
Great. That's helpful color. Then I was wondering if -- let's see, pivoting to the rate case -- the electric rate case. I was wondering if you could maybe help contextualize some of the Attorney General's comments that were out there on the size of the request. And maybe any early indications or early thoughts on whether you think a settlement could be something that you go after and could be acceptable in this rate case?
Yes. I think the Attorney General, pretty much is on par, things that we expected. We are really -- this rate case, as you know, is really all about our capital. And the capital we're deploying is targeting the distribution infrastructure, and we're looking to improve reliability and certainly continue our journey to transition to cleaner energy sources faster to the state.
In terms of prospects for settlement, David, we've got a lot of interveners in this case, and we will do all we can to settle. But again, as Joi said, since this case is really primarily about capital deployment and well understood and well known agendas for capital deployment. We're confident that even if it goes to its full course in terms of litigation that we will get supportive outcome.
The next question comes from the line of Durgesh Chopra with Evercore ISI.
Jerry, Joi, just on the discussion on the electric rate case settlement. You guys have discussed or in the past have talked about potentially a partial settlement with some parties and not unanimously. Is that something that you could pursue with this electric rate case?
We could, Durgesh. And certainly, we will. Again, I don't want to hinge too many hopes on a settlement. We will do all we can to settle. I think -- but as we saw in our last rate case, we weren't able to bring all the parties together for various reasons and sometimes that happens. But our opening position and our desire is to settle, but we're also confident that we will get supportive outcomes in the event that there is not a settlement.
Understood. And then maybe just 1 question on 2024. Obviously, you expressed a lot of confidence here in [indiscernible] numbers. Maybe can you just frame for us what level of contingency, if any, you might have used? I know you go into the year with a healthy level of contingency but you had milder weather in 1Q. So maybe just frame for us how much of that contingency bucket is still left?
Durgesh, this is Dave. As we came into the year, we did have some contingency for weather. And then we did see weather in the first quarter, as you can see. But as we see that weather, we work right away to rebuild what we can to make sure we're in a good position for the summer.
Excellent. I appreciate it. High confidence in 2024 as well...
Your next question comes from the line of Andrew Weisel with Scotiabank.
If I could first ask that O&M question a little bit differently. You were pretty aggressive last year as soon as the year started, given the rate case and the mild winter weather, and obviously, some of that is partly reversed in the first quarter. I guess the way I would word it is, would you say you're back to normal O&M levels? Or are you still sort of catching up from last year? Or again, the last question I asked, are you in lean mode already given the mild winter 2024?
Andrew, I'll start by saying this year feels a lot different than last year. We had weather last year, too, but we also had the storm in the first quarter in the rate case. So we were in a very different position this year. And we did a lot across the company to achieve what we needed to do last year. Some of those reductions continue naturally into this year, but for the most part, those were all onetime savings from last year.
Okay. Great. Good to hear. And then one very small one. The negative earnings at Corporate and Other, and you have a note that there's -- it's related to the timing of taxes. Was that in line with your expectations when you gave the full year guidance? And should that fully offset as the year goes on? Or is that trending a little differently than you had budgeted?
That is all consistent with what we budgeted it, and it will all reverse by the end of the year too.
Your next question comes from the line of Michael Sullivan with Wolfe Research.
I wanted to maybe dig a little deeper on the rate case and some of the kind of nontraditional aspects of it. I guess on the storm cost tracker, what do you think chances are that, that goes through? Or does this need to iterate through a couple more cases?
Yes. So you're first question around the storm tracker, the $65 million. If that were in place last year, yes, that would have been helpful. Certainly, given the cost that we experienced in the first quarter and then throughout the balance of the year. Do I think that we'll get some support for it? I think there's a lot of conversation that happened early on. There is a good chance that we'll get the support. I think we're aligned with consumers and pursuing this type of tracker.
Okay. Great. You hit all of them. And then just one quick one. The renewable plant outage at Vantage in Q1, was that planned or unplanned? And is it -- if it was unplanned, is it resolved?
It was unplanned. It actually started last year and it is resolved. So it's coming -- it's back online for the rest of the year.
Your next question comes from the line of Sophie Karp with KeyBanc.
I was just wondering if you could maybe talk a little bit big picture rate with a pretty impressive investment plan that you have over the next few years, right? And I'm sure there's going to be more rate cases come into an account for that. Longer term, what do you see as an offsetting factor, I guess, to customer bill increases here? Is that maybe industrial load that's growing and including data centers? Or some of the current automation you put in would cut on OpEx? Like if you could give us some sense on kind of like big picture, how would you, I guess, offset customer build pressures with that?
Well, I would say, Sophie, thanks for the question. I mean we are undertaking a historic transformation here at DTE. As we think about the way we deliver energy, our wires business, the way we're transforming the way we produce power over the next 5 years.
That's very helpful. I also wanted to ask you a quick question on Vantage, right? So I guess to the extent you keep in this business, how should we think about the size of it relative to the utility businesses that you have? Is there a certain kind of like contribution to earnings that you want to keep it under like not let them go beyond? Like what is your thinking there?
Yes, our investment thesis there is that we want to pursue high-quality investments with low risk and high returns. And we've been doing that, and that's working out quite well. But we want to keep it at less than 10% -- at 10% or less of earnings contribution as we look forward. And our utilities are growing so quickly that it does give us the opportunity to continue to grow Vantage as well.
Your next question comes from the line of Angie Storozynski with Seaport.
So just wondering, in the past, I remember there was always this discussion about your approach to coal plant retirements and reliance on the grid versus self-generation. It was always of an impression that you guys were long power. I hope that's still the case.
Great question, Angie, I'll take them one at a time. So in terms of reserve margins, DTE, when we filed our last IRP, we filed that with adequate reserve margins as we move through our coal plant retirements. And as you know, we've built a state-of-the-air combined cycle facility that's up in operation as part of our coal plant retirement plan.
And based on your discussions, when would this incremental load potentially materialize? Are we talking like 2028 and beyond? I'm just wondering how soon we could see the earnings impact?
Angie, it's too early to tell. These conversations, as I mentioned earlier are very early. They are sizable conversations in terms of the load that we're talking about. And again, we're really well positioned. But in terms of timing, we haven't gotten that far just yet. But I think that will come. I think the key catalyst here in Michigan will be this legislation that needs to pass on the sales and use tax.
Your next question comes from the line of Travis Miller with Morningstar.
You answered most of my questions and discuss most of the topics I was hoping to hit. So just real quick, I saw residential commercial demand looked like it was up. I know this is a small -- relatively small quarter for that. But anything there either relative to plan or notable where you're seeing residential commercial demand pick up a little bit?
Yes, we did see residential up quarter-over-quarter. I would say that for the year, we're expecting it to come in on plan and probably pretty well consistent with last year. We have a lot of energy efficiency we do and that and the growth kind of work together and will be fairly flat to last year.
I will now turn the call back over to Jerry Norcia for closing remarks. Please go ahead.
Well, thank you, everyone, for joining us today. And I'll close by saying that we're feeling really confident about 2024 and of course, our long-term plan beyond that in terms of providing value for our customers and for our investors. Have a great morning. Stay healthy, and stay safe.
Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect your lines.