DTE Energy Q2 2024 Earnings Call Transcript

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Provided by AlphaStreet
July 25, 2024
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Operator

Good morning. 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 Second Quarter 2024 Earnings Conference Call. [Operator Instructions].

I would now like to turn the call over to Matt Krupinski, Director of Investor Relations. Please go ahead.

Matt Krupinski
Director of Investor Relations at DTE Energy

Thank you, and good morning, everyone. And before we get started, I'd like to remind you to read the Safe Harbor statement on page two 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. With us this morning are Jerry Norcia, Chairman and CEO. Joi Harris, President and COO, and David S. Ruud, Executive Vice President and CFO.

And now I'll turn it over to Jerry start the call this morning.

Jerry Norcia
Chairman and Chief Executive Officer at DTE Energy

Thanks, Matt, and good morning, everyone, and thanks for joining us. I hope everyone is enjoying the summer and staying healthy and safe. This morning I will discuss how DTE. is on track to achieve our targets this year and highlight the achievements we have made through the first half of the year as we continue to deliver for all of our key stakeholders. Joi will provide you with an update on our capital investment agenda and the great work we are doing to enhance reliability as we continue to build the grid of the future while continuing to focus on customer affordability. And Dave will provide a financial update and wrap things up before we take your questions. Let me start on slide four. We had a very strong first half of 2024, and we are in a great position to deliver on our targets across the company this year. Our success is a result of our commitment to deliver for our customers and our communities. And as I've said many times, this starts with the efforts of our highly engaged employees. As I mentioned earlier this year, the engagement of our team was recognized by receiving the Gallup Great Workplace Award for the 12th year in a row. We were also recognized with the best employers Award for Excellence in health and well-being. This award recognizes companies for their commitment to advancing employee well-being through innovative initiatives, identifying the importance of health equity and an effective culture of employee engagement. I am proud of our team for receiving these awards and being recognized for our outstanding engagement. This engagement is why I am confident that we will continue to deliver for our customers and our communities.

On the customer front, our team has done great work to support our customers through the few storms we face this year, providing our customers with safe and reliable service is paramount to our company's success, which is why one of our key focus areas in 2024 is improving our storm restoration process, and we have made great progress on that front as evidenced by achieving some of our fastest restorations for the storms that we have added this year. As we work towards restoring all customers within 48 hours after a storm. We also had a period of extreme heat where temperatures in our service territory hit 90 degrees for six consecutive days last month. This was one the longest heat ways that we have had at DTE. in the last 20 years. I'm very proud that our system held up extremely well under these conditions, but I'm even more proud of our team's efforts to take care of our customers in a number of ways during this time. We distributed one hundreds of fans to nonprofit agencies to keep customers cool and delivered nearly 100,000 bottles of water to 30 community partner agencies across Southeast Michigan. In addition, the DT Foundation partnered with United Way to provide 500 rides to cooling centers to help keep customers safe and to complete nearly 3,000 wellness checks for our most vulnerable customers. As the heat intensified. We take pride in supporting the communities where we live and serve.

And we are recognized for our service as DTE was honored to be named to the Civic 50 for the seventh consecutive year. This award presented by Points of Light recognizes the most community minded companies in the nation. And it is a testament to our team to receive this award. I'd also like to highlight the expansion of our energy efficiency economy, which is DTE's workforce development program that supports the growing demand for energy efficient home repairs in Detroit, while also building a local workforce, further benefits the community building any academies successful first year, we are expanding with more partners in Detroit as well as planning and advanced training program in the Grand Rapids area. This has been a great program to help those interested in working in a clean energy industry and a majority of the participants have secured full-time employment. Financially, we are in great position to deliver on our earnings targets this year. Our long-term operating EPS growth rate remains strong at 68% with 2023 original guidance as the base for this growth, and we will continue to have a strong balance sheet and credit ratings to support our customer-focused capital investment plan. We remain committed to deliver premium shareholder returns that our investors have come to expect. And importantly, our strong financial health, along with the constructive regulatory environment in which we operate, supports the significant investments we are making for our customers and allows us to invest more than the cash we generate from our operations to further improve reliability and transition to cleaner generation. Again, the ability to invest above our cash flows is only made possible by constructive regulatory outcomes.

Let's turn to slide five. This highlights so many achievements across our portfolio. As I mentioned, we are on track to achieve our full year guidance in 2024, and we are positioning ourselves to continue to deliver strong results in 2025 as well as throughout our long-term plan. On the regulatory front, we continue to progress toward constructive rate case outcomes for both DTE. Electric and DTE Gas. Our electric rate case outlines the customer-focused investments we need to make to build a smarter, stronger, more resilient electric grid of the future for our customers and to further our transition to cleaner generation. This filing underpins the next important step in our long-term investment plan to achieve grid reliability and transform to cleaner generation while maintaining affordability for our customers. We expect intervenor testimony in the electric case tomorrow and we look forward to working together with all the parties ahead of the scheduled final order in January. At DTE Gas, our rate case filing supports the important investments necessary to continue to renew our gas infrastructure, which will further minimize leaks and reduce costs. We are in discussions with intervening parties prior to a final order scheduled in November. We continue to make significant strides in our reliability efforts this year and our customers are seeing the benefits of this work. Joi will provide some detail our progress in this area, but I'll just mention the efforts we are making in automating our electric system. We installed a couple of hundred automated rig closers last year, and we are ramping up the effort this year.

We'll move from the hundreds to the thousands at a very short time as we work to automate our entire system, put the impact of closures into perspective, the operation of the devices already installed have saved over 250,000 customer minutes of outages this year allowed. This demonstrates the significant impact these can make in improving reliability for our customers. To support our advancements in cleaner generation. Last month, we broke ground on the battery energy storage system. As we highlighted on the first quarter call. This project is a 220 megawatt system at the site of the former Triton channel power plant and is expected to be operational in 2026 and will be the largest standalone battery energy storage project in the Great Lakes region. The project supports our integrated resource plan and Michigan's new statewide energy storage targets, both of which align with DTE's net zero carbon reduction goals. We continue to see strong growth in our voluntary renewables program at DTE. electric. Our my green power program currently has nearly 2,500 megawatts subscribed and nearly 100,000 residential customer subscriptions. At DTE Gas, we are progressing on our gas main renewal program as we continue to modernize the gas transmission system. At DTE Vantage, we continue to advanced custom energy solutions, RNG and carbon capture and sequestration projects. We highlighted the Ford Motor Company customer of energy solutions projects earlier this year to support Ford's new plant in Tennessee. The project is underpinned by long-term fixed fee contracts and is scheduled to go into operation later this year.

We also began construction on a RNG project that is expected to go into service in the second half of the year. Let's move to slide six to highlight how DTE is well-positioned for growth. Southeastern Michigan continues to be a great region for economic development, attracting many large companies that contribute to the progress of our state and its residents. General Motors, Henry Ford health and the University of Michigan are among the large companies putting major investments into our service territory, providing significant economic development, including providing thousands of jobs. We continue to collaborate with partners throughout the state to target key business segments to drive further economic growth, particularly in the areas of battery manufacturing, hydrogen and data centers. As you all know, data center development and the impact of the potential load from these centers has been an important focus over the last year. DTE is very well positioned to serve data centers. We are in discussions with a number of potential customers on development opportunities and ensuring that these projects are good for all of our customers. Depending sales and use tax exemption. Legislation in Michigan would lower the cost of operating data centers and the governor has indicated a great willingness to sign these bills if they come to our desk, which we expect in the fall or subsequent periods. So to wrap up my comments, I'll just say I continue to be very excited about our start in 2024 and how we are well-positioned to continue to deliver now and into the future for our customers, our communities and our investors.

Now I'll turn it over to Joi to give some highlights on our investment agenda and reliability improvements. Joi, over to you.

Joi Harris
President and Chief Operating Officer at DTE Energy

Thanks, Jerry, and good morning, everyone. I'm happy to be here with all of you today and excited for the opportunities that we have in front of us as we continue to make significant investments in our system investments that are really making a difference for our customers in improving reliability and continuing our transition to cleaner generation. I'll start on slide seven to review our long-term capital plan. Then I will provide you with some examples of how our commitment to strengthen our grid is really having an impact on our customers' experience. Over the next five years. We are on track to make significant customer focus capital investments across our businesses. With about 95% of our $25 billion investment slated for our utilities. We are focused on modernizing our grid to ensure we can continue to provide safe, reliable and affordable energy. We are also making significant investments to transform the way we produce power as we shift towards renewables and natural gas and away from coal generation. An important part of our clean energy transition is our voluntary renewable program. My Green Power, which continues to be the largest Green Tariff program in the country. Additionally, at our gas utility, we continue our important Maine renewal work, which strengthens and improves our natural gas infrastructure and further reduces greenhouse gas emissions. DTE makes all of these investments with a sharp focus on customer affordability, using our distinctive continuous improvement culture to drive cost management and savings for our customers. The shift from coal to cleaner energy sources also helps to further reduce O&M costs.

And our diverse energy mix helps to reduce fuel costs as well and allows us to maintain flexibility to adapt to future technology advancements. And finally, our transition to renewable energy is supported by the IRA., helping us to continue to achieve customer affordability goals and further enhance opportunities for growth at DTE Vantage. Let's move to slide eight to highlight our reliability improvement work and how it's making an impact in improving the customer experience. We are making a lot of progress on building the grid of the future. We are progressing in four major areas as we work on improving reliability for our customers. First, we are quickly transitioning to a smarter grid as Jerry mentioned, we are adding significantly more technology to our system by installing 10,000 smart devices, effectively automating our entire system by 2029. These devices or automate reclose or has allowed us to pinpoint and isolate issues during an outage and reroute power so we can restore many of our customers within minutes while crews make repairs, and perhaps most important these devices will automatically de energize the line when it senses a fault such as a wire on the ground, helping to keep our customers safe. Secondly, we are aggressively updating our existing infrastructure, we are replacing and upgrading poles, cross arms, transformers and other pole top and substation equipment. We are making great progress in this area last year, along with the inspected and updated our pole top equipment across more than 1,700 miles. A hardening program in Detroit is a great example of this work on average customers experience an 80% improvement in reliability in the first year following hardening, the third focus is to rebuild significant portions of our grid.

While updating equipment is certainly important. We are also completely rebuilding the oldest portions of our grid. I'll give you a few examples of where this work is happening and there's significant impact to having. We are investing over $100 million in two projects on Detroit sea side, these projects involve constructing two substations and replacing approximately 300 miles of overhead and underground infrastructure with new more durable equipment. We also have an undergrounding pilot in Detroit that continues to move forward. These pilots are critical as we gain experience on ways to improve our processes and bring down the cost of undergrounding. In this pilot, we're doing both gas upgrades and Electro undergrounding at the same time to achieve meaningful cost savings and reduced inconvenience for our customers. We also have a number of projects outside of Detroit across our service territory. This work on rebuilding these areas of our grid is having a significant impact. Customers' experience and 90% increase in reliability where we've executed on this rebuilding work. And finally, we remain heavily focused on our tree trimming efforts as this remains one of the most effective methods to improve reliability. Trees account for half of the time, our customers are without power and in areas where tree-trimming is up to date, customers experienced significant improvements in reliability. We have trimmed nearly 40,000 miles of trees since 2015 and we expect to have our entire system on a five year term cycle by the end of next year. So as you can see, we are doing intense, focused work to improve our system for our customers and our distribution grid plan lays out our journey to building the grid of the future through our necessary customer-focused investments.

With that, I'll turn it over to Dave to give you a financial update.

David Ruud
Executive Vice President and Chief Financial Officer at DTE Energy

Thanks, Joi, and good morning, everyone. Let me start on slide nine to review our second quarter financial results. Operating earnings for the quarter were $296 million. This translates into $1.43 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 $279 million for the quarter. Was $101 million higher than the second quarter of 2023. The main drivers of the earnings variance were implementation of base rates and warmer weather, partially offset by higher rate base costs. Moving on to DTE Gas operating earnings were $12 million lower than the second quarter of 2023, driven by warmer weather and higher rate base costs, partially offset by increased revenue from the IRM. Let's move to DTE advantage on the third row. Operating earnings were $14 million for the second quarter of 2024 this is a $12 million decrease from 2023 due to a combination of some timing and one-time items, primarily in our custom energy solutions and steel related businesses. We continue to be highly confident in our full year guidance for Vantage compared to the first half of 2024. Earnings in the second half will be notably higher, driven by the shape of earnings for projects at our customer energy solutions and RNG portfolios and some new projects that come online in the second half of the year. On the next row, you can see energy trading finished the quarter with earnings of $31 million. This is a $5 million decrease from last year, primarily due to lower performance of the physical gas portfolio.

We are continuing to experience really strong results through the first half of the year as we realized strong contracted margins in our physical power portfolio and stronger performance in our gas portfolio. With these stronger contracted margins, we should experience some upside at Energy Trading for the year. However, for now, we are maintaining our conservative guidance for this business. Finally, Corporate and Other was favorable by $18 million quarter over quarter due to the timing of taxes, which will reverse through the balance of the year, bringing us within the current full year guidance range for our corporate and other segments. Overall, DTE earned $1.43 per share in the second quarter. As Jerry said, we had a great first half of the year, and we are well positioned to achieve our targets in 2024. Additionally, we are continuing to work to position ourselves to deliver strong results in 2025 and through our long-term plan. Let's move to slide 10, highlight our strong balance sheet and credit profile. As Joi discussed, we need to continue to invest heavily into our utilities to improve reliability and move toward cleaner generation. This customer-focused investment is supported by our robust cash from operations, which is shown on our cash and capital guidance. Slide in the appendix due to the strong cash flows. We still have minimal equity issuances in our plan as we are targeting annual issuances of 0 to $100 million through 2026. Our long term financial plan incorporates debt refinancing and new issuances to fund our capital investment plan and is consistent with our 6% to 8% long-term operating EPS growth target. We have eliminated the interest rate risk of our 2024 debt issuances at all in rates that are better than what we had in our plan. And we continue to manage future issuances beyond 2024 through an active hedging program and other opportunities that mitigate interest rate variability.

So for example, we have eliminated interest rate risk on nearly half of the debt refinancing needs at the parent company in 2025. We continue to focus on maintaining our strong investment grade credit rating and solid balance sheet metrics as we target an FFO-to-debt ratio of 15% to 16%. Let me wrap up on slide 11 and then we'll open the line for questions. Our team continues our commitment to deliver for all of our stakeholders. Our robust capital plan supports our customers as we execute on the critical investments we need to make to improve reliability and transition to cleaner generation while focusing on customer affordability. DTE is well positioned to serve increased load as opportunities for development continue in our service territory. For 2024, operating EPS guidance midpoint provide 7% growth over the 2023 original guidance midpoint, and we continue to target long-term operating EPS growth of 6% to 8%. We are well positioned to deliver the premium total shareholder returns that our investors have come to expect with a strong balance sheet that supports our future capital investment plan.

With that, I thank you for joining us today, and we can now open the line for questions.

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Operator

Your first question comes from the line of Jeremy Tonet with JPMorgan. Please go ahead.

Jeremy Tonet
Analyst at JPMorgan Chase & Co.

Hi, good morning. I just wanted to pick up, I guess on prior conversations with regards to any updates you might be able to share with conversations with hyperscaler negotiations and how you see the, I guess, the time line of these negotiations developing given the background of the Michigan sales news and a tax legislation and I guess, lack of clarity on coming to fruition at that at this point.

Jerry Norcia
Chairman and Chief Executive Officer at DTE Energy

Jeremy, I would say that our conversations and engagement with the hyperscalers continue. And I would say that there's still very strong interest by multiple parties and they are awaiting the results of the legislative effort. We were targeting if there was a target for the legislature to get that done in the spring. But I think the budget deliberations kind of overtook that process, but there's still very strong bipartisan support, both the House and the Senate. And the governor are still indicating strong willingness to sign it. If it comes to our desk, which we expect to happen sometime this fall and for the balance of this year. So I think as soon as that happens, I think we'll start to see get a little more serious traction on landing some data centers.

Jeremy Tonet
Analyst at JPMorgan Chase & Co.

Got it. That's very helpful there. And then just turning to the quarter and some of the results there was curious in the corporate and other, the timing of taxes that you might be able to, I guess, quantify a bit more of the impact there issue expect that to kind of reverse in future quarters?

David Ruud
Executive Vice President and Chief Financial Officer at DTE Energy

Yes, Jeremy, this is Dave. Yes, that's the timing of taxes will reverse as we go. This is really a effective tax rate adjustment. So it adjusts the consolidated year to date income tax expense for what we think will be the annual tax rate at the end of the year, and it does come to zero at the end. So we did see some favorability from that of about $0.1 in the quarter. That will it will adjust again as we go through the year.

Jeremy Tonet
Analyst at JPMorgan Chase & Co.

Got it. That's very helpful. And just one last quick one for me. If you might be able to share any color on for the second quarter earnings, how much came from tax equity at Vantage and how we should think about, I guess, trajectory here?

David Ruud
Executive Vice President and Chief Financial Officer at DTE Energy

Yes, there was there really wasn't anything that was tax related, ITC. or PTC. at Vantage in the second quarter, we are I will say we're you can see that we have a lot back-loaded advantage through the year. We're really confident our full year guidance. There are a lot of it is project related that comes through the second half and a little bit will be a tax as well in the second half as we go through the as we go through the year. But we're really confident in our guidance of one 125 to 135 there.

Jeremy Tonet
Analyst at JPMorgan Chase & Co.

Got it. That's really helpful. And just actually one last one, if I could. Energy Trading, is there any other incremental color you can provide with regards to the type of activities happening there in US on the outside and how to kind of a model or think about how that will it ebbs and flow over time?

Jerry Norcia
Chairman and Chief Executive Officer at DTE Energy

Yes, you saw in the quarter and for that for the year so far, we're off to a really strong start there, and that's driven by really two areas. One is our power FRS portfolio. So these are contracted and hedged positions that we do. And there is a shape to those through the year, and we expect that that shape will should increase through the year through the end of the year. And then our gas portfolio, we have some structured contracts there as well, and we're able to take advantage of some of those are contracted and hedged also. So we had a good first half. We're really about on our guidance for the year right now, but we want to go through the summer, see how that plays out with the weather and then see how it how it works for the rest of the year. But as you saw, we did have a very good first half of the year in energy trading and these are multiyear contracts. So we expect some of the some of those high margin, high margins that are contracted continue to provide benefits so sometime into the future beyond this year as well.

Jeremy Tonet
Analyst at JPMorgan Chase & Co.

Got it. That's very helpful. Thank you for taking my questions.

Operator

Your next question comes from the line of Shahriar Pourreza with Guggenheim partners. Please go ahead.

Shahriar Pourreza
Analyst at Guggenheim partners

Hey, guys. Good morning.

Joi Harris
President and Chief Operating Officer at DTE Energy

Hi, shar. Good morning.

Shahriar Pourreza
Analyst at Guggenheim partners

I just real quick on the rate case filing, I'd say obviously it's in early innings testimonies tomorrow, the provisions and kind of the mechanisms remain unchanged? Or do you feel I guess there will be an opportunity for a settlement after testimony? What are the parties once again, kind of want to litigate a path. I guess, how are you overall thinking about a settlement at this juncture, whether it's partial or non-unanimous to help take issues off the table.

Joi Harris
President and Chief Operating Officer at DTE Energy

Sure. Yes. So we are anticipating testimony tomorrow. And if we can get to a contested settlement, our chances of settlement are increased. But if not there are a lot of interveners in the case. Obviously, we'd like to settle. But if we don't settle, we feel pretty confident in our ability to receive a constructive outcome regardless. So it's a pretty straightforward case is all about the capital we need to invest to improve the reliability for our customers. And we hope that the commission is seeing that in our testimony, and it's pretty strong testimony in that regard.

Shahriar Pourreza
Analyst at Guggenheim partners

Got it, did you it in the rate design proposals in the case causing any kind of contention as we're thinking about that settlement path.

Jerry Norcia
Chairman and Chief Executive Officer at DTE Energy

Not really. Most of the intervenes are picking up on what at least we've seen in the past. There's some interest in just our path forward on our retirement of our plant and then also some I know another environmental pieces. But generally speaking, there isn't much rate design that is contested in the case.

Shahriar Pourreza
Analyst at Guggenheim partners

Got it. Okay, great. And then maybe just a question on Vantage. I mean, obviously, the business mix has changed over the years. Do you kind of anticipate growing the existing platform for services in RNG? Would you lean on one or the other. And as the opportunities sort of for carbon capture potentially, you know, load services for industrial data centers increases. And I guess, how do you how do you find Vantage repositioning, is there even a need to look for some optimization there?

Jerry Norcia
Chairman and Chief Executive Officer at DTE Energy

The two most significant opportunities that we continue to pursue our greenfield RNG and we've got a good backlog of those projects. And then secondly, our customer energy solutions, which is sort of behind defense industrial installation, where we're providing co-gen services, water services, compressed air services. Those are nice long-term contracts, fixed fee without commodity risk. Those are the two primary areas of focus. CDCS still as an emerging opportunity for us. We've got a number of parties that have committed to working with us contractually to test the yes, the feasibility of carbon capture and storage. And we're at and we're in the middle of a handful of those opportunities right now. So more and more to come on that before it becomes and in our business line, that starts to create value. But we feel feel good about it but we're also very focused on the first two business lines that I mentioned.

Shahriar Pourreza
Analyst at Guggenheim partners

Okay, got it. And sorry, Jerry, just the optimization, is there any need to do some portfolio optimization there.

Jerry Norcia
Chairman and Chief Executive Officer at DTE Energy

If we see two things. One is the business growing beyond our 10%. We're very committed to the 90 10 mix between utility and non-utility. That would be one potential trigger. And secondly, if there were significant equity needs at DTE., that would be a second trigger to perhaps look at asset optimization and rotation. And right now, we don't in our current forecast. We don't see that need, but so it doesn't really create incremental value for us to rotate assets.

Shahriar Pourreza
Analyst at Guggenheim partners

Got it. Okay. That's pretty consistent. Thanks, guys. Appreciate it.

Jerry Norcia
Chairman and Chief Executive Officer at DTE Energy

Thanks, shar.

Operator

Your next question comes from the line of Durgesh Chopra with Evercore ISI. Please go ahead.

Durgesh Chopra
Analyst at Evercore ISI

Good morning. Thank you for taking my questions. J just want to start off on '24 expectations for '24. Maybe just can you remind us where do you said year to date in terms of weather impacts. I think it was $0.28 the negative in 1Q. And here it's slightly positive. So maybe just is it the $0.2, $0.27 net number where we've seen in the first half and you have mitigation underway. Maybe just reconcile that for us.

Jerry Norcia
Chairman and Chief Executive Officer at DTE Energy

Yes, we saw the weather impact slide in the deck on Page 14, you can see at the year to date and electric were still negative for and I guess negative $0.23. But as you know, we build in some contingency for weather throughout the year. And so we're really confident that we're going to be able to meet what we need to do for the second half of the year and does hopefully see some good weather there, which will allow us to invest some more for our customers and '24. You've pulled forward some of the investment we need to do for our customers from from later years into '24 and help out even more.

Durgesh Chopra
Analyst at Evercore ISI

Got it. That's helpful. Sort of basically slight offset to 1Q weather and still on track for 2024. But with your sort of contingency measures in place. Okay, George, thanks for sharing all the details of the operational things you're doing, vegetation management, etc. Just wondering and how is the Liberty consulting review going. And as you made these operational changes, how is that getting factored into their review study and what to expect there as we await a report in full year?

Joi Harris
President and Chief Operating Officer at DTE Energy

Yes, thanks. Just to add, as I say that the the audit is wrapping up, the auditors have completed their interviews and they've done field visit and we've gotten positive feedback on our interaction with them has been a very collaborative process up to now, and we anticipate that will continue as we get the report in September. And the initial feedback is very much in line with the agenda that we set forward in our plans. We may see some shifts in programming slightly, but generally speaking, we've seen nothing to indicate that will be there will be any surprises in September.

Durgesh Chopra
Analyst at Evercore ISI

Perfect. Thanks again for the time.

Operator

Next question comes from the line of David Arcaro with Morgan Stanley. Please go ahead.

David Arcaro
Analyst at Morgan Stanley

Hey, good morning. Thanks so much for taking the questions. Fine. David may have, but see, I guess wondering if you could give an update on how you're seeing the performance based rates and that potentially shape up from here. Any progress in that direction of that new structure?

Jerry Norcia
Chairman and Chief Executive Officer at DTE Energy

Sure. So there's been a lot of interaction and collaboration with the what the staff on this on us PBR process. And I would say we're planning on metrics that we feel are really valuable to our customers. So I think we've got strong alignment on the metrics, and I think the process we're in now, David has to make sure that we've got strong consensus on the initial targets and also on making sure that their cemeteries in the target's still sort of to remaining things that we're working with the staff and the Commission staff on. So we feel like it's progressing well. The fact that it's lining up quite nicely things that we think are very important to move for our customers.

David Arcaro
Analyst at Morgan Stanley

Got it. Thanks. That's helpful. And then maybe on the data center side, wondering if you could just provide any color or context in terms of how much demand that you're seeing in terms of and the data center pipeline, any quantification that you might be able to offer? And do you think there are characteristics of your service territory of Michigan that could attract those customers even without the legislation?

Jerry Norcia
Chairman and Chief Executive Officer at DTE Energy

Yes, I would say that two things, several things that make Michigan attractive one is natural disasters are not a part of that Michigan's repertoire. So I think that makes it attractive to the access to water, freshwater, cool water and also our climate being cooler are all attractive. And of course, our energy rates and the fact that we've got capacity available that we can offer immediately, I think, makes us attractive. So those are the attractive features. I think what will make us even more attractive is the sales and use tax exemption. But there are some aggregators that already have a sales and use tax exemption that got passed in 2015. So I think we're seeing some action. We will see some action from them regardless of the sales and use tax. It really targeting the hyperscalers if you will. So more to come on this that you asked about how much demand are we seeing? Obviously, there's a lot of big numbers floating around in the industry. We're seeing demand numbers in the thousands of megawatts. And so that seems encouraging. And we want to work to landing the very first ones. Hopefully, I believe that the sales and use tax exemption is kind of holding some of that momentum back once I get past, I think that'll break loose a bit.

David Arcaro
Analyst at Morgan Stanley

Great. Okay. Thanks. Appreciate it.

Operator

Your next question comes from the line of Michael Sullivan with Wolfe Research. Please go ahead.

Michael Sullivan
Analyst at Wolfe Research

Hey, everyone. Good morning. Hey, guys just picking up on some of these earlier questions. So it sounds like the trading businesses tracking better than expected or maybe just being conservative for now, but is there any offset year to date at the other segments? Like is that weather at the utilities or is that an offset? And it's really kind of net-net the entire range is biased higher because of trading? Or is there an offset somewhat?

Jerry Norcia
Chairman and Chief Executive Officer at DTE Energy

I'd say we're in a good place across our businesses right now. We did see some challenging weather in gas. We had really cool winter so far and for a very warm winter so far, gas so we saw some challenge there, but we're working through that. But overall, we feel good about about all of our businesses right now. And we feel good about the opportunity that's going to give us to invest for our for our customers here in 2024 as we can pull forward some expenses and do some of them some additional maintenance on our projects are in our in our lines for our customers.

David Ruud
Executive Vice President and Chief Financial Officer at DTE Energy

And Michael, I'd just add to that, I would say that we're feeling we're going to have a really strong year and we deferred a lot of noncritical maintenance last year, but we'd like to pull back into the plan for the benefit of our customers and also for the benefit of creating success in 2025. So I would say in this moment, we're back to our traditional planning process where we feel really good about 2024 and we're looking at what opportunities do we have to eliminate some of the sort of noncritical maintenance backlog that eventually becomes critical if you don't get it done. So we're looking to pull that forward, which will not only benefit this year, but and benefit our customers. But it will also benefit our planning for 2025, which we are deep into at this point in time.

Michael Sullivan
Analyst at Wolfe Research

Okay. That makes a lot of sense. Appreciate the color on. I think also in the quarter, this was adjusted out of earnings, but the gain on sale on equity investment and advantage. Can you give any more color on what that was?

Jerry Norcia
Chairman and Chief Executive Officer at DTE Energy

So yes, there was a sale of one of our landfill gas projects, and we had a gain on that on that sale as we were, exiting one of those projects where we saw value and exiting it was a partnership that we were exiting and we saw good value there. So we took advantage of it.

Michael Sullivan
Analyst at Wolfe Research

Okay, great. And then just last one for me is just how you're thinking about them the election and what that means for your future planning, mainly with respect to resource planning and maybe some of the tax credits that you're realizing, if anything could change some on the margin there in a Trump presidency Republican sweep scenario?

Jerry Norcia
Chairman and Chief Executive Officer at DTE Energy

So great question. You all are aware that last year we had some mandates as it relates to a clean energy standards and also an RPS standard that was passed by the state. Any type of federal, a change in politics, I don't think will affect that. We will be mandated and required to achieve the RPS standard as well as the clean energy standard, which drives a significant amount of investment for us. The other fact also is that will require an act of Congress to change the IRA and it would have to be a very significant majority in order to overcome the fact that a lot of these investments are going into in our service territory, republican dominated territories there will be significant interest and we see significant interest from those legislators to get the economic development, get the property taxes and the jobs that come with have billions of dollars of investments. So we're still seeing at a local level, really strong support for our solar developments. We are getting permitting is moving quite nicely for us, a lot of community support. So even though the politics could change would happen,the political landscape would have changed drastically in order to I'll make it make a difference. So just to summarize the RPS standard and the state mandates will drive the investment. And if the IRA was to change, it would make it the perhaps less affordable. But we will be looking for assets but we view that as a low probability event.

Michael Sullivan
Analyst at Wolfe Research

Thanks so much. Appreciate all the color.

Operator

Your next question comes from the line of Andrew Weisel with Scotiabank, please go ahead.

Andrew Weisel
Analyst at Scotiabank

Thank you. Good morning, Two operational questions for you. First, on the tree-trimming side, you're targeting a five year cycle by the end of 2025 where do you currently stand? Where have you been historically? And is there any challenge to getting to that target or should it be pretty straightforward to get there?

Joi Harris
President and Chief Operating Officer at DTE Energy

It should be pretty straightforward to get there. And we may have some trailing areas that may have to revisit. We are right now we've got about 80% on that five-year cycle. So we're cleaning up some of the areas we've revised our true term standard. We found that we had to go back to certain areas because of the true growth happened a lot quicker than we anticipated. So I think that, Andrew, we can anticipate that the five year cycle will get us back on track, and then we'll go back and revisit again and make sure that those areas that we did trim that the true growth stays as we anticipate, we may even expand it even further because we're seeing certain areas of the growth is much higher and more quickly returning than what we had initially anticipated.

Jerry Norcia
Chairman and Chief Executive Officer at DTE Energy

You'll recall that we have data through term served, which approved by the Commission where are we in terms of our investment in future and from $65 million a year to $200 million a year, but a handful of years ago, six years ago, six years and that excess Tritium surge is being securitized, which is helping us move the impact for our customers while it provides that benefit to our customers over a longer period of time. So we do have the financial resources to complete the search. And as Joi said, we're actually fine tune it and keep it going for a while as we go back and I'll take them even mortgage division and seven, really positive impact on reliability where we've done it.

Andrew Weisel
Analyst at Scotiabank

Great to hear. And then more broadly doing on slide eight, you outlined a lot of those reliability efforts in the four categories, are all of those efforts and related spending fully embedded in the five year capex plan or would achieving some of those require incremental spending above and beyond the $25 billion five year plan. And how much of that relies on the rate case outcome, both the current one and obviously future cases between now and then?

Joi Harris
President and Chief Operating Officer at DTE Energy

It was all embedded in the plan and it is contingent on the rate case outcome. And you hear tomorrow, you know, staff position. We also have the audit and we hope that, you know, just based on the feedback that we've gotten from the audit that that the auditors were supportive of at least the way we've laid out the plan now there may be some movement between the programs based on their feedback. But generally speaking, the feedback we've gotten from the auditors supports our agenda.

Andrew Weisel
Analyst at Scotiabank

And great. Thank you so much.

Operator

Next question comes from the line of Julien Dumoulin-Smith with Jefferies. Please go ahead.

Julien Dumoulin-Smith
Analyst at Jefferies Financial Group

Good morning and thank you guys, very much. Congratulations, gentlemen. Nice job. You guys get paid. Just to come back to you on what is next? And just to come back to the nexus of affordability and growing tension between accelerating low growth and obviously the need to prioritize reliability and affordability. How do you think about as you look at the expanding pie of opportunities, this balance between PPA and self-build, especially in light of the Latitude afforded under the energy law. And even in light of what you know today, how do you think about that balance just as you're trying to ensure ongoing affordability and a palatable capex budget.

Jerry Norcia
Chairman and Chief Executive Officer at DTE Energy

So I'll start and Dave can add. So one we sell build, we find that we're more competitive, which means we are end up being more affordable for our customers, you know, PPAs with the the financial compensation mechanism makes our product more expensive to our customers. So they choose up affordability, right? So that's part number one. But number two from an investor sets from a customer perspective, self-build is much more compelling than PPAs with with an adder. Secondly, for investors, owning assets provides more value. And I think the EPS value is two to three times and for owning versus PPA. And that's fundamentally driven by the fact that these intermittent resources out of the FCM only applies to the output of the products. So that's what fundamentally reduces the value of an SCM for our investors. So that I'm not sure if that answers your question, Julien, but those are the two thoughts I can offer. Dave, did you want to ask to add to that?

David Ruud
Executive Vice President and Chief Financial Officer at DTE Energy

We do have PPA that's built into our plan. We do have some PPAs built into our plan but when it comes to our balance sheet can handle the amount of capital that we're investing in, as Jerry says, better for our customers and better for our shareholders to do that.

Julien Dumoulin-Smith
Analyst at Jefferies Financial Group

It actually sounds like self-build remains the priority here for sure. And then really, you're just a small nuance. I'm can you talk a little bit more about the customer energy solutions and steel related businesses, just them and any dynamics there on an ongoing basis as it pertains to advantage of I know you've talked a little bit about it, but just to go back on that.

Jerry Norcia
Chairman and Chief Executive Officer at DTE Energy

So we see good opportunities across the custom Energy Solutions business, in particular, as we're doing the central plant services for so more and more projects within within the country. We have a good pipeline of projects there that we feel we can continue to grow and continue to drive. We have the project we talked about last quarter with Ford that is coming online in two stages this year. Some has come online and more will come online. The second half will come online at the end of the year. So we feel really good about that about that business and then our steel-related businesses. So it's a solid performer for us.

Julien Dumoulin-Smith
Analyst at Jefferies Financial Group

Wonderful, guys. We'll speak to you soon or at all the best.

Operator

Your next question comes from line of Anthony Crowdell with Mizuho. Please go ahead.

Anthony Crowdell
Analyst at Mizuho

Hey, Good Morning team. I have two questions. One of them for Dave had previously tell me gets upset without a lot of questions. Just Dave, I'm just curious when you think about levels of spending have been maybe at all-time highs, not just DTE course industry more severe or spending more severe storms. Do you think about the company has a very healthy credit cushion right now? Probably 200, 300 basis points on your FFO-to-debt metrics. You know what, if that's enough given where we are right now in this cycle of spend?

David Ruud
Executive Vice President and Chief Financial Officer at DTE Energy

It's a good question, Andrew. Yes, we do have target 15% to 16% FFO-to-debt. We think it gives us some it does give us some good headroom to downgrade thresholds, and we met with all the rating agencies over the last quarter, and I think they're pretty confident in the level that we're at to. So we feel we feel good about where we are with our with our balance sheet. Our balance sheet metrics on that.

Anthony Crowdell
Analyst at Mizuho

Great. And then just one follow-up on this kind of to an earlier question. You mentioned a lot of the economic growth on slide six. A lot of opportunity. And then when I look at slide 14, as you highlighted earlier, we look at the demand growth or the customer growth or low growth, though, year, it's trending about 1% when you get all those economic activities in serviced, what are you seeing as long term sales growth?

David Ruud
Executive Vice President and Chief Financial Officer at DTE Energy

We do see it about in that range for, I think our based economic sales growth, what the data centers and how that comes in could could play it a little differently. And then when we look out a little bit further on EV load is another thing that could drive drive some of our residential load up a little more kind of in the long term as well. But kind of it's pretty consistent with what we're seeing right now is what our longer term forecast is.

Anthony Crowdell
Analyst at Mizuho

Great. Thanks for taking my question.

Operator

Your next question comes from the line of Travis Miller with Morningstar. Please go ahead.

Travis Miller
Analyst at Morningstar

Good morning, everyone. You answered my question, but so just got a couple of little things here with respect for the with respect to the rate case, are there any new interveners that either you're seeing file or you expect we'll file here versus the last rate case or rate cases?

Joi Harris
President and Chief Operating Officer at DTE Energy

Yes, there are there are new interveners in the gas case for sure and new interveners in the electric case. But as I said before, and even with the level of intervention, we're seeing now that the MPSC would have to move to likely a contested settlement and that would increase our chances of settlement. Aside from that, we still feel confident that we can get a constructive outcome regardless. But yes, a lot of activity in the rate case space more than we've seen in recent history.

Travis Miller
Analyst at Morningstar

Sure any way to bucket what those new interveners want or their agenda with their contesting are not contesting?

Joi Harris
President and Chief Operating Officer at DTE Energy

Well, we'll know with certainty tomorrow, for sure like what we've seen in the gas cases, some environmental groups, more environmental interest in natural gas.

Jerry Norcia
Chairman and Chief Executive Officer at DTE Energy

That's generally what we're seeing the what happened in legislation last year, there was an increase in intervener funding, and that has spurred more interveners because there's more money so I think that's part of the part of the challenge that we have and why there's been so much more activity is that funding allowed by legislation that's created much more activity and very interesting how that works.

Travis Miller
Analyst at Morningstar

I have one other question here. All the discussion about reliability, which obviously make it into the rate cases also is that the more of a positive in terms of giving you support to get more investment and get more and more spending approved? Or are you seeing more as a negative right now in terms of pushback on potential rate increases. If you could characterize off?

Joi Harris
President and Chief Operating Officer at DTE Energy

I would say I think we're all aligned in that. We want to improve the reliability of the grid. The question becomes how what's the best way to do that. And we believe that you know that what the purpose of the audit is to examine and get everyone aligned on how we go forward in improving the reliability near term and then into the future. So I think the audit results will go a long way in building, I'd say, alignment and consensus on what the path forward should be.

Jerry Norcia
Chairman and Chief Executive Officer at DTE Energy

And I would say that the audit was was really came as a result of the commission wanting to make sure that we are doing all we could to drive reliability improvements. And so I would expect I don't believe that this off, I will say, which has been less on reliability improvements. I think it will like Joy, I said a few times today. I think it may shift things between different buckets. But overall, I think there will be a strong endorsement to continue to invest heavily in reliability, especially driven by the age of our system. I think that does become pretty evident in the audit that today requires significant investment as we are proposing to improve the quality of that system over time have a great.

Travis Miller
Analyst at Morningstar

And will those audit results be able to make it into this rate case or will it be future rate cases?

Joi Harris
President and Chief Operating Officer at DTE Energy

Not well, the audit comes out in September, and I can't be a part of the record necessarily. So it probably won't make it into formally into this rate case. It may influence demand flow, I would say, yes, because the buckets of investment, perhaps.

Travis Miller
Analyst at Morningstar

Okay. Okay, great. Thanks so much. Appreciate the time.

Operator

I will now turn the call back over to Jerry Norcia for closing remarks. Please go ahead.

Jerry Norcia
Chairman and Chief Executive Officer at DTE Energy

Well, thank you, everyone, for joining us today. And I'll just close by saying we're feeling really positive about 2024 as well as our position for future years. And I hope you have a great morning and stay healthy and safe.

Operator

[Operator Closing Remarks]

Corporate Executives
  • Matt Krupinski
    Director of Investor Relations
  • Jerry Norcia
    Chairman and Chief Executive Officer
  • Joi Harris
    President and Chief Operating Officer
  • David Ruud
    Executive Vice President and Chief Financial Officer
Analysts

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