DTE Energy Co. Q1 FY2024 earnings call

Management Statement and Operational Highlights

• Received the Gallup Great Workplace Award for the 12th consecutive year.
• DTE Gas celebrated its 175th anniversary; DTE Energy marked the 158th year of continuous listing on the NYSE.
• Awarded the ENERGY STAR Partner of the Year Award for the 3rd consecutive year.
• Invested $2.7 billion in Michigan businesses in 2023, creating/sustaining over 12,000 jobs.
• DTE Electric received approval for a $0.5 billion 220-megawatt battery energy storage system at the former Trenton Channel power plant.
• Filed an electric rate case to build a smarter, stronger, more resilient electric grid and transition to cleaner generation.
• DTE Gas targeted over 200 miles of main renewal in 2024.
• DTE Vantage advanced custom energy solutions, RG projects, and carbon capture projects.
• Focused on building the grid of the future with a $25 billion investment over 5 years, aiming to reduce power outages by 30% and outage time by 50% in the next 5 years.
• Ceasing coal use at the Belle River power plant in 2026 and Monroe coal plant by 2032; repurposed Trenton Channel power plant into a battery energy storage system operational in 2026.

Segment Performance

• DTE Electric: Q1 2024 earnings were $194 million, $93 million higher than Q1 2023. Drivers included lower storm costs and rate implementation, offset by higher rate base costs and 2023 O&M cost reductions.
• DTE Gas: Operating earnings were $160 million, $11 million lower than Q1 2023. Driven by warmer winter weather, higher rate base costs, and 2023 O&M cost reductions, partially offset by higher IRM revenue in 2024.
• DTE Vantage: Q1 2024 operating earnings were $8 million, a $19 million decrease from 2023 due to a renewable plant outage and timing of RNG project earnings.
• Energy Trading: Q1 2024 earnings were $5 million, favorable due to performance of the physical gas and power portfolios.
• Corporate and Other: Unfavorable by $22 million quarter-over-quarter due to the timing of taxes.

Guidance

• Long-term EPS growth rate remains 6% to 8% based on 2023 original guidance.
• 2024 annualized dividend is $4.08 per share, growing with operating EPS.
• Confident in achieving annual operating EPS guidance range, not facing $200 million headwinds from the 2023 ice storm.
• Target annual equity issuances $0 to $100 million through 2026.
• 2024 operating EPS guidance midpoint provides 7% growth over 2023 original guidance midpoint.

Risks

• Weather-related impacts on earnings, such as warmer winters affecting DTE Gas earnings.
• Regulatory outcomes affecting rate cases and potential headwinds.
• Unplanned outages at renewable plants impacting DTE Vantage earnings.

Question and Answer

Q: How are you thinking about the cadence of CapEx updates in light of new legislation?

A: Gerardo Norcia and Dave Ruud discussed updating the capital plan to reflect the IRP and legislation, with a $2 billion increase, and incremental opportunities beyond the 5-year plan.

Q: On funding incremental CapEx, how about equity?

A: David Ruud stated strong cash flow and balance sheet allow minimal equity issuances, with a target of $0 to $100 million in annual issuances through 2026, benefiting from IRA tax credits.

Q: Thoughts on derisking 2025 and beyond with O&M?

A: Gerardo Norcia mentioned starting strong in 2024 with the absence of $200 million headwinds, deep into 2025 planning, confident in the 2025 plan with rate cases supporting capital deployment.

Q: Vantage growth and tax credits?

A: David Ruud noted tailwinds from RNG and Custom Energy Solutions tax credits, adding flexibility to the 6% to 8% EPS growth.

Q: Vantage assets and portfolio rotation?

A: Gerardo Norcia said Vantage assets are liked, but no immediate plans for rotation, always looking for value creation opportunities.

Q: Renewable energy plan details?

A: Gerardo Norcia mentioned a voluntary renewable development plan with 2,400 MW signed, a 2,500 MW goal, and potential tailwinds from the IRP beyond the 5-year plan.

Q: Data centers and custom energy solutions?

A: Gerardo Norcia talked about Michigan's attractiveness for data centers with favorable conditions, noting legislation needed for sales and use tax exemption.

Q: Electric rate case and Attorney General comments?

A: Joi Harris said the rate case is about capital deployment for reliability and cleaner energy, with prehearing scheduled, a storm tracker of $65 million, ROE 10.5%, and 50-50 cap structure; Gerardo Norcia was confident in a supportive outcome, whether through settlement or litigation.

Q: Vantage renewable plant outage?

A: David Ruud said the unplanned outage started last year, was resolved, and is back online for the rest of the year.

Q: Offset to customer bill increases?

A: Gerardo Norcia talked about investments reducing costs (reliability, transition to clean energy), data centers, EVs, with legislation needed for data centers and EV growth helping finance investments.

Q: Incremental load and earnings impact?

A: Gerardo Norcia said conversations about incremental load are early, with legislation needed for data centers, and timing uncertain but potential win-win for customers and investors.

Q: Residential/commercial demand?

A: David Ruud said residential demand was up quarter-over-quarter, expecting the year to be on plan, with energy efficiency and growth working together.