Good morning. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to DTE Energy's Q2 2022 Earnings Conference 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. [Operator Instructions] Barbara Tuckfield, Director of Investor Relations, you may begin your conference.

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. With us this morning are Jerry Norcia, Chairman, President and CEO; and Dave Ruud, Senior Vice President and CFO. And now I'll turn it over to Jerry to start the call this morning.

Thanks, Barb, and good morning, everyone, and thanks for joining us. Let me start by saying that halfway through 2022, we are on track for another very successful year, and we continue to be well positioned for the future. This morning, I will highlight some of the successes we have accomplished this year, and Dave will provide a financial update and wrap things up before we take your questions. Slide 4 lays out the topics I will talk about this morning and all are very positive. As I said, we are on track for another successful year at DTE. And it always starts with our commitment to deliver for our team, customers, communities and investors. We continue our journey of transitioning to a clean energy future, highlighted by putting our new natural gas plant in service, on time and on budget. We have made great strides on strengthening our grid, in particular, to prepare for potential severe weather. On the financial front, we are delivering another strong year for investors. On our first quarter call, we told you we were ahead of plan and we continue track in that way through the second quarter. We are confident that we will achieve our financial goals for the remainder of the year. In fact, we are raising our 2022 operating EPS guidance mid-point from $5.90 per share of $6. This is the second guidance increase for 2022 and provides over 8% growth from our 2021 original guidance midpoint. So we are excited about delivering another successful year in 2022. Let's move to Slide 5 to discuss how we are delivering for all of our stakeholders. You're probably very familiar with this slide by now, which highlights the focus on our four key stakeholders. We know that with our engaged and talented team,…

Thanks, Jerry, and good morning, everyone. Let me start on Slide 8 to review our second quarter of financial results. Operating earnings for the quarter were $171 million. This translates into $0.88 per share. You can find a detailed breakdown of EPS by segment, including our reconciliation to GAAP reported earnings in the appendix. I’ll start the view at the top of the page with our utilities. DTE Electric earnings were $186 million for the quarter. The primary drivers of the variance of second quarter last year were higher rate based costs, cooler weather, O&M expense timing, and the expected movement toward pre COVID residential sales levels. This was partially offset by the acceleration of the deferred tax amortization in 2022 that was implemented to the delay the filing of our rate case and keep base rates flat during the pandemic. The sales level change was consistent with our forecast and including our full year guidance. The higher O&M was driven in part by additional investment in the acceleration of our Tree Trim program. And some of the O&M was also driven by plan investment to ensure we continue to be well positioned for future years. The O&M timing variance will reverse in the second half of the year. I’d also like to remind you that in Q4 of 2021, we voluntarily implemented a one time margin deferral of $90 million to be applied to the acceleration of Tree Trim expenses over the next few years to further our reliability improvements. This is an expense that is non-recurring for the second half of 2022. So with favorable weather and strong first half performance, DTE Electric is in a solid position to increase guidance for the full year. Moving on to DTE Gas, operating earnings were $6 million, $1 million lower…

[Operator Instructions] Our first question will come from Shar Pourreza from Guggenheim Partners. Please go ahead. Your line is open.

Hey, good morning, guys.

Good morning, Shar.

Hey, Shar.

How you doing? So Jerry, let me just, if it’s okay start with the IRP as we’re kind of getting closer to the date. Do you have any sort of incremental thoughts on the overall approach beyond just the acceleration of coal and renewable investments? I mean, do you see opportunities for some immediate step-ups like a purchase of an existing asset or more gradual capital over time and any changes to in financing in either scenario?

Well, we see, early in our plan as certainly incremental investments in renewables as well as batteries and also potential conversion of Belle River power plant to natural gas use. So we see those types of investments, Shar, coming into the plan and into view in the first five years of the plan. So those are the major areas that of opportunity that we see, and of course longer term we see significant investment in baseload generation potentially incremental renewables as well. So we’re getting pretty excited about how this plan is shaping up and we’re starting to get feedback from our stakeholders that is of course somewhat supportive. Some stakeholders want us to go faster. Some of them want us to go slower, but we’re feeling pretty good about how the plan is shaping up in order for it to be what I would say a resilient, reliable plan for our customers, as well as affordable and also valuable to our investors.

Just to follow up on the slowing down. I mean, I know, I really want to just maybe focus on the coal assets, right? Because there seems to be a push in a few states to kind of maintain their viability longer for reliability purposes, et cetera. Any sense if your thoughts have changed in how to think about plants like Monroe, we’re still looking to accelerate those retirements, just given what we’ve seen in several states?

I’d say Shar, thinking has not changed. If you look at how we’ve handled this thus far, we’ve retired a significant amount of coal already. We retired Saint Clair Rouge [ph] Trenton, and we’ve basically replaced those baseload generation assets, one for one with natural gas assets that we purchased, as well as the new power plant gas plant that we just built. And so we feel real good about our position in terms of having reliable and dispatchable generation. And I think you’ll see that pattern continue where not only will we build out renewable resources into our plan, but we’ll also have battery systems and we’ll have baseball generation in our future. That’ll help achieve our resilience and reliability as we look to retire Monroe sooner than what we had expected or a forecast that I should say.

Yes, got it. Got it. And just last one for me just around the visibility of the Vantage growth and any kind of strategic updates. I mean, obviously there’s been some turbulence in RNG, which is one of the major drivers for that business, but at the same time, competitors are starting to merge more prominently focused on RNG. I guess, do you see that kind of complicating the development process, but more importantly as we’re thinking about strategically, does this kind of present even a better opportunity for you to recycle some or all of those assets?

Shar start by saying that we’re always looking for opportunities to maximize investor value. In that business today, we see a strong – we have a strong line of sight to growth, especially in the landfill to RNG conversions. We’ve got a good inventory of those projects and those are still giving us mid-teens type of unlevered IRRs. So we feel really good about the growth but then again constant evaluation as to what’s the best path forward for our investors.

Terrific. Thanks guys. Congrats on the results.

Thank you, Shar.

Our next question comes from Jeremy Tonet with JPMorgan. Please go ahead. Your line is open.

Hi, good morning.

Good morning, Jeremy.

Hi, Jeremy.

I just want to dive into low growth a little bit more, if you could share any more thoughts on your expectations for residential going forward here at this point in kind of the drivers, just thinking about how in post COVID world, if we are, things are kind of evolving at this point relative to prior expectations?

Dave, you want to take that?

Sure. Hey, Jeremy. Yes, I’d say things are going as we had planned or as we had thought it would. If you remember our residential sales were up about 7% to 8% over pre COVID levels, kind of at the heart of everybody working at home. And we’re seeing that trend down. We saw that a little bit in this quarter with about a 2% lower residential sales this quarter, and we think that’s going to continue to trend down a little more as people come back to work. And that’s what we’ve contemplated in our rate case and just assuming we get closer to those pre COVID levels. And we have seen commercial and industrial come back. And so we’re flat overall, but we’re seeing as people tend to go back to work. We’re seeing some of that expected reduction in our residential sales, still higher than pre COVID right now.

Got it. That’s very helpful. And hot off the press and maybe too fresh, but just wondering this recent report surrounding mansion supporting, certain legislation out there on a climate package. And just wondering if you had any preliminary thoughts there or how this might or might not impact your upcoming IRP?

Well, you’re right. It thought off the press. It’s interesting. And it was a good surprised last night. We’re not counting on any of this right now in our plan, but we think that there’s some good benefits and some good impacts to clean energy going forward. So we see the PTCs [ph] for solar actually PTCs for nuclear, and the increased value for carbon capture I’ll be on positive to help with this transition and really help with some of the things that we’d want to do in the IRP. So we’re going through and reviewing this. We had gone through it a year ago or whenever it first came out and kind of going back through and seeing what the impacts can be to our plan. But – so right now our plan didn’t contemplate at any of this, but this could all be good positive stuff for us.

Got it. That’s helpful. I’ll leave it there. Thanks.

Our next question comes from Insoo Kim from Goldman Sachs. Please go ahead. Your line is open.

Hey, thank you. First question going back to the IRP a little bit, and given, the recent experience by CMS or consumer’s energy and getting their IRP approved and the different items including still getting the recovery and return of the value of their coal points that they’re retiring early. Just I know it’s – we will just have to wait for the [indiscernible] but has that – how has that decision and the components of it impacted, I guess your planning a little bit, as you think about your fleet?

Well, first of all, I'll say that the results in the CMS case were constructive and very positive and supportive of the plan that we're looking to file. I will also say that in terms of assets, we're looking in the first five years for a conversion of an asset. So we will not retire any coal facilities at this point in time, likely in the first three to four years, but it will start to fall into likely the tail end of our five year plan and beyond, where we'll pull forward the future retirements, where we have to address undepreciated amounts through either conversion to different beneficial use or perhaps accelerated depreciation or take the option that CMS took. So, lots of options available to us that we need to finalize as we look to pull forward retirements, especially the Monroe retirements, which there's four units there, and we'll do that in a likely in a staggered way. Hopefully, that answers your question.

No, that's good additional color. Okay. And then secondly, impressive guidance raise and that's almost a 9% EPS growth year-over-year off of the original. As we just think about the cost inflationary environment right now and I think you're doing your part every year to manage O&M or pull forward any extra levers you have to get ready for the following year. Is – how are you set up, I guess, for 2023, just given – I think this environment is a little bit more challenging than normal years that you've been experiencing?

I'll start and then I'll turn it over to Dave, but I would say we're really well positioned for 2023. I would say that our 2022 raised guidance still has, what I would call, very adequate contingency in the plan to address the balance of the summer and the fall. And we're also looking at opportunities to pull forward maintenance expenses that help build contingency into 2023, lots of work in that regard. In terms of the inflationary pressures, I'll ask Dave to comment on those and how we're handling those in the 2023 planning and beyond.

Yes. We continue to – we see the impacts of inflation, but we continue to really work it hard to manage it to make sure it doesn't impact our plan going forward. We've had a really good success in the past of lowering our costs or keeping our costs down compared to our peers. And one of the things that we see is 85% of our spend is services and we haven't seen as much inflation there. So we're trying to manage that. And what we're doing really is looking at all of our long-term contracts, watching the market closely, extending some of those contracts, doing some bundling and some other bidding to help mitigate any of the impacts we see there. So we know the – we see the inflation. We feel it in – with the wages, but within our planning process, we've – we don't see it impacting our capital plans or our O&M going forward as we continue to find offsets for it.

Got it. That's good color. Thanks, Jerry. Thanks, Dave.

Our next question comes from Nicholas Campanella from Credit Suisse. Please go ahead. Your line is open.

Hi. Good morning team. Thanks for taking the question.

Good morning.

I wanted to ask – hi, good morning, good morning. I wanted to ask about the new federal clean energy package just I imagine there's a lot of stuff in here that's similar to the prior. And on the point of just nuclear tax credits, you do have the exposure at Fermi. And what type of headroom does the PTC kind of create for customers there? And do you have capital opportunities that could backfill that bill headroom if needed? Any color there would be great.

You're asking how the nuclear PTC can play in for us, Nick?

Yes, exactly, exactly.

Yes, we're still looking through that. We looked at it in the last plan, too. And thought that it could be an advantage for even our plants in a regulated environment because of how it is still selling into the MISO market. So we're looking at that. It does have a phase out when the market price is high, but we think that it can be a nice backstop and really help with our customer affordability and as that comes in.

Got it. All right. All right. And then I guess just on the electric rate case, you do have a history of constructive outcomes there, but just how do you feel about ultimately being able to settle this case at this point?

Nicholas, we're very interested in settling and we're having those conversations now. I would say that whether we settle or it goes to a final order without settlement, we're feeling good about a constructive outcome. Yes, this rate case is primarily about capital investment, and that capital investment is very well understood. It's not about increasing operating expenses, it's really about deploying capital that if we feel the commission, the staff as well as the administration is very supportive of this infrastructure build out as it relates to renewables and baseload generation as well as significant investment in our electric grid. So I believe that, that capital investment is very well understood and valued by the interested stakeholders. So we expect a good constructive outcome, but would love to settle this, certainly.

Got it. Thanks a lot.

Our next question comes from David Arcaro from Morgan Stanley. Please go ahead. Your line is open.

Hi, good morning. Thanks so much for taking my question. Just wondering on the…

Hi, David. Good morning.

Good morning – on the O&M pull-forward side of things, I was just wondering, is there a certain level of O&M that you've been able to pull forward so far into 2022 from 2023, just given the strength that you've had thus far in the first half?

Dave?

Yes, we have been able to do some of that. Some of it was natural pull forward. We accelerated some of our tree trim expense, and we were able to do that because we – frankly, we had less storms. We were able to work through some of our tree trim that we've been able to pull forward. And then some of our outages or planned outages we were able to do a little bit earlier as well. So there is some of that, and that's what we're seeing play through in the second quarter.

Yes. Okay, got it. Thanks.

But we are – we do feel like it's putting us in a nice position for 2023, the more of that we can do as well. So we try to manage a few years at a time here.

Understood. And then thinking around the rate case, do you have any line of sight as to how long you might be able to stay out from rate cases again after the conclusion of this one? And would strategically your preference be to have it be several years between rate cases going forward?

That's something we'll have to assess once we get the final results. Obviously, our desire is always to stay out as long as possible. But once we finalize, we'll have a better view on that. We are looking at in future rate cases, potential mechanisms, for example, trackers on capital that I would say is very transparent and very well understood, and that there seems to be renewed interest in that thought. So that's something that we may pursue in our next rate case.

Got you. Thanks. And then last quick one. I was just wondering is there any commentary you'd provide on how the trading environment is looking thus far in 3Q, just in terms of the market volatility? Is there prospects for continued strength in that business?

Well, I'd say, yes, you've seen there still is a lot of volatility in that area. We continue to manage things really tightly and have strict controls in there. But we're generally long in our physical position. We've had – frankly, we've had a really good year there. As we mentioned, we're at $52 million year-to-date in the business. But some of that is timing that we know will play out over the second half. But even with the volatility, there should be some additional opportunity there as well.

Great. That makes sense. Thanks so much.

Our next question comes from Andrew Weisel from Scotiabank. Please go ahead. Your line is open.

Hi. Good morning everyone. Just…

Good morning.

A lot of my questions have been asked and answered. I just wanted to ask two on the gas side. Can you give us any update on the clean energy natural gas program, the voluntary clean gas program? Where does that stand?

Andrew, that we're getting subscriptions weekly. I would say that we're roughly around 5,000 to 6,000 customers that have signed up. So it's following a similar track as when we offered the MIGreenPower program on the electric side, so good interest. We're evolving the product, if you will, to try and attract commercial customers and industrial customers to the programs. So that will be the next evolution of that program. And when we do that, we will – we expect larger volumes. Right now, we're getting small volumes from residential customers and it's primarily a residential program, which is the way we started MIGreenPower. So we're going to continue to evolve that product as we've seen interest from some of our institutional customers and corporate customers that would like to enroll, so more to come on that.

Do you think that business could be as big as the electric one relative to the proportionally?

Too early to tell Andrew, but we're certainly seeing an interest in the product and as if you recall the product as really bio sequestration products, which are forestry products that we use as carbon offsets, as well as a small component of RNG. And so we'll have to look to be acquiring more assets to support what I would say, larger volumes, right? At this point in time, we've acquired assets in Michigan through third-parties that are in the forestry business that offer us those carbon assets and we're well supplied. And we're looking to see what the opportunities are for larger institutional corporate clients that would like to have this product. So more to come. It's hard to say if it'll be as big as the electric business, but I think it's three or four years to get that voluntary program on the electric side that really start humming and get significant interest in commitment.

Okay. That's helpful. The other one is just on the gas rate case, any sense of when the next filing might come?

We're looking either fourth quarter or first quarter, fourth quarter of this year or first quarter of next year.

Okay. That would have rates in place for not this upcoming heating season, but the following one, right?

That's correct.

Okay. Thank you very much.

Thank you, Andrew.

Our next question comes from Ryan Levine from Citi. Please go ahead. Your line is open.

Good morning. Looks like about 40% of the EPS increase guidance was from energy trading. Would you be able to talk about how much of the year-to-date performance is expected to be reversed and then given the volatility of the last few weeks, does this guidance seem conservative from your perspective when you look for the remaining portion the year?

Ryan, that's a good question. You're right. We had another good quarter in trading and had a really good start to the year. So like I mentioned, we're at $52 million year-to-date in that business, and that's why we're confident raising the guidance from like you said, 15 to 25 up to 20 to 35. The timing impact is probably about half of that and the performance is another half. So we're seeing half of it that's really come out in performance. The timing could play out in two ways either with if we see prices come back or some of it just plays out as we deliver on the physical position. So if pricing doesn't come down as much, then there could be some favorability in that timing piece for the second half of the year too. But we're confident in the guidance right now.

How is that guidance set then, given the comment you just made, what are the book ends of the range that was provided?

The book ends are, if – well, we said it based on what we know we can achieve and what we think we can achieve. And so we see the performance part is right within the middle of that guidance. And then if some of the timing or the pricing doesn't play out in the downward way, then we can reach the high-end of that guidance.

Okay. And then as in the release, looks like you reaffirmed your longer-term EPS growth guidance. Should we view that to be off of a rebates 2022 number that reflects the higher 2022 guidance?

That's off the original 2022 guidance is where we go from.

Of the original. Okay, appreciate that. Thank you.

Our next question comes from Steve Fleishman from Wolfe Research. Please go ahead. Your line is open.

Hi, good morning.

Good morning, Steve.

Hey Jerry, I'm just curious going back to a question before on the RNG business, there was this recent transaction for Vanguard Renewables, and I'd be curious, just any thought on kind of the pricing valuation of that and how it impacts, how you're thinking about the value advantage?

Yeah, we saw that as well Steve. It was – there are different business than us and that they don't have as many operating projects, but it did look like a really good opportunity and shows great interest still and great confidence in the RNG market going forward and the opportunity for additional development of projects. So it started to do a direct comparison of pricing, but was viewed as a positive in the market that there's still some strong in – still a lot of strong interest in RNG.

Okay. And then – and I apologize, this is also kind of breaking news questions, but just in past, when I think late last year when BBB was first likely you talked about interest and you've talked about interest in carbon capture and storage and opportunities there long-term, could you maybe just talk a little bit about how you're thinking about that business opportunity?

Sure. Steve, we – certainly we're encouraged by the tax benefits that the current plan could offer. We need to understand it clearly, but we've got a handful of projects that we're looking at early feasibility stage and in our service territory, as well as outside service territory. And these could be quite interesting with enhanced tax credits, especially the 45Q that we believe is being proposed to change in that. So more to come on that but could be quite interesting in terms of evolving potential investment opportunity.

Okay. My last unfair question is just, I guess, Dave, just in terms of thinking about this 15% minimum tax, could you just give a sense of whether that would be an issue for you at all?

Yeah, Steve, we looked at this before and we got to revisit it again just to go through how it could all work. When we spend time with it a year ago, we understood that we could – we think it could work on earnings basis. We can find ways to offset the earnings. It may have a little bit of a cash hit, but it wasn't that strong. Also want to look at how that plays into some of the renewable development projects and the accelerated depreciation. There is the other piece of that, but we were able to – as we were doing some of our analysis mitigate most of the impacts of what that seems like it could do.

Okay, great. Thank you. Appreciate it.

Thank you, Steve.

Our last question will come from Anthony Crowdell from Mizuho. Please go ahead. Your line is open.

Good morning, Jerry. Good morning, Dave

Good morning, Anthony.

Hey Anthony.

Hopefully just two quick ones just related to, I'm just looking at 516 on the convertible equity units. When I think of the dilution you get hit with I think it's November or fourth quarter of this year, the tailwinds that you guys have going into 2023 to kind of offset this, I'm thinking of the electric rate case and maybe more earnings for Vantage. Are there any other tailwinds that maybe potentially offset the dilution?

I would say Anthony, the entire capital plan at both utilities is a fundamental tailwind that will move us through 2023. And we're pretty confident we're going to achieve our growth targets in 2023 because of the primarily driven by the capital plan at the two utilities. I think you'll see that our growth of both utilities is very healthy in 2023. And that's what will move us through. And also Vantage of course, will make its contribution in its growth. We're adding $15 million a year there. So all three entities are really going to drive us through 2023. And that dilution that you talked about.

And I actually don't think you want to answer this, but would you be able to give us – would, the company be willing to give us guidance on net income? Like right now we have, I think 5% to 7% EPS growth. I mean, I'm thinking for net income from 2022 to 2023 or base year, it's more, much higher above the 5% to 7%, is that something that company would provide?

Oh, that's something we can look to provide Anthony, show the growth that our underlying utilities maybe is the something we've shown in the past. So that's something that we can look at also.

Great. Thanks so much for taking my questions.

Yep. Thanks Anthony.

Thank you, Anthony.

We have no further questions. I'd like to turn a call back over to Jerry Norcia for any closing remarks.

Well thank you everyone for joining us today. I'll just close by saying that DTE had a very successful second quarter and we'll – and we're feeling great about the remainder of 2022 and also our long-term plan. I hope everyone has a great morning and stays healthy and safe. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.