Good morning, ladies and gentlemen. Welcome to the DTE Energy Second Quarter 2023 Earnings Conference Call. [Operator Instructions] And now at this time, I would like to turn things over to Ms. Barbara Tuckfield, Director of Investor Relations. Please go ahead, ma'am.

Thank you, and good morning, everyone. Before we get started, I would 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 Gerry Norcia, Chairman and CEO; and Dave Ruud, Executive Vice President and CFO. And now I'll turn it over to Gerry to start the call this morning.

Well, thanks, Barb, and good morning, everyone, and thanks for joining us. This morning, I will be discussing the achievements we've made so far this year and provide a general business update. I'll discuss the progress of our regulatory proceedings including the details of our IRP settlement. Dave will provide a financial update and wrap things up before we take your questions. Before we dive in, I want to take this opportunity to touch on some recent appointments to our regulatory commission here in Michigan. Governor Whitmer extended Chair Dan Scripps term an additional six years to 2029. The reappointment of Chair Scripps provides consistency and regulatory leadership and we appreciate the balance he has always brought to the commission. We congratulate Chair Scripps and look forward to continuing to work with them. Governor Whitmer also appointed Alessandra Carillon as a new commissioner to the MPSC, filling the vacant role left by Germain Phillips. We look forward to working with her as she comes to his position with a strong background in electrification. Moving on to Slide 4. We remain committed to supporting and delivering for all our stakeholders, including employees, customers, communities and shareholders. I always say that employee engagement drives our success, and our team continues to operate at top decile engagement levels as measured by the Gallup organization. I'm proud that our team's excellence in this area was recognized by earning the Gallup Exceptional Workplace Award for the 11th consecutive year. We also received great news that DTE was named one of Metro Detroit's best and brightest companies to work for. The best and brightest program recognizes companies that have a commitment to excellence in their human resource practices and employee enrichment based on categories, including work life balance, employee education and diversity. I'm happy to say…

Thanks, Gerry, and good morning, everyone. Let me start on Slide eight to review our second quarter financial results. Operating earnings for the quarter were $206 million. This translates into $0.99 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 review at the top of the page with our utilities. DTE Electric earnings were $178 million for the quarter. This is $8 million lower than the second quarter of 2022. The main driver of the earnings variance was cooler weather. There's also lower residential sales relative to 2022 with the continuation of people returning to work, higher rate base costs and accelerated deferred tax amortization in 2022. This was partially offset by the onetime O&M cost reductions that we have implemented in 2023. Moving on to DTE Gas. Operating earnings were $24 million, $18 million higher than the second quarter of 2022. The earnings variance was driven by onetime O&M cost reductions and IRM revenue in 2023, partially offset by higher rate base costs. Let's move to DTE Vantage on the third row. Operating earnings were $26 million in the second quarter of 2023. This is a $2 million decrease from the second quarter last year primarily due to planned outage timing at our renewables plans. On the next row, you can see Energy Trading finished the quarter with earnings of $36 million, which is $29 million higher than the second quarter last year. As I mentioned in Q1, there is some timing variability this year that is now positive in the second quarter. This is primarily due to contracts in our power physical business that include revenue based on fixed prices over the term of the transaction, and then these contracts are hedged…

[Operator Instructions] We'll go first this morning to Jeremy Tonet at JPMorgan.

Just wanted to start with the electric rate case proceeding, if I could here. And appreciate where we are at the process only so much could be said. But are you able to expand at all on how this has been progressing? And I guess, hopes for settlement at this point when that might materialize? Or just any other color in general would be helpful.

Our target, Jeremy, to settled the rate case is mid-October, and before the PFD is issued. So we have started some conversations and those conversations, obviously, will become a lot more intense through the summer. But I believe we have the ingredients for settlement, and we'll continue to update you on that as we progress.

Got it. That's helpful. Just wondering, I guess, to the ability you're able to comment for weather for the third quarter. Obviously, the big swing quarter for the year. How do things look so far in your jurisdictions and kind of like what you can see over the next couple of weeks. Just wondering if weather help in 3Q could materialize relative to what we saw earlier in the year?

Yes, Jeremy. So far, we're seeing things start out pretty close to what we had expected. And so as you know, though, August and September can be really big months for us or really big swing months. So continue to watch that closely as the weather plays out.

Got it. That's helpful. And just last one, if I could. I think for DTE Vantage, there was some opportunistic steel sales, and just wondering if you could expand a bit more on what that was in other -- are there other items like that, that we should look for to kind of service offsets?

Yes. We're looking across our portfolio for offsets. And with the ones we have within our steel portfolio, represent that. We have some byproducts that we sell as a process of what we're doing within our steel business and our cope making. And we just got some opportunistic pricing and some really good pricing for that through the year that we've been able to take advantage of this year. And I'll say, Jeremy, across our whole portfolio, we continue to look for these onetime cost reductions and some of these opportunities like this to ensure that we can deliver for the year.

Got it. Thank you for that.

So just to add to that, we're also seeing some lift in RNG pricing, which is also creating some favorability at Vantage.

Got it. Understood. I’ll leave it there. Thank you.

Thank you. We'll go next now to Shahr Pourreza at Guggenheim.

Hi, good morning. Good morning, David. [indiscernible]. Congrats on good quarter. So just kind of appreciating the challenging weather as Jeremy mentioned, and it looks like there was another $0.12 versus normal. How should we think about the flex O&M for the remainder of the year? And is there a need to kind of shift anything from what you embedded at the end of the first quarter?

Yes. As we play out the year, we're looking for the opportunities across the business, again, to ensure that we can offset the challenges that we've seen through storm and weather as we go through the year. And so we're doing that across our portfolio. We as an extended leadership team, we're meeting weekly to ensure that we're finding all the opportunities we can and extinguishing all the risks. And through the year, we've been able to find some additional opportunities that have been able to offset the challenges that we've seen through weather and through the storm we saw in the first quarter. So we'll continue to look for that flex throughout the year.

Yes. And just to add color to some of the areas where we're diving into to look for these opportunities. We're taking full advantage of attrition. So we're only hiring critical operating roles to make sure that we have safe and reliable operations. Some of the other onetime initiatives are happening across all the staffs groups as well in terms of attrition. A significant reduction in overtime. We've deferred noncritical maintenance and pulling out some of the bank maintenance that we did when we had surpluses in prior years. We've had contractor workforce reductions. And then, of course, as Dave mentioned, we're seeing favorability, market favorability in our gas business as well as at Advantage and trading for that matter. In addition, we've also started to renegotiate supply chain contracts with long-term relationships to give us some value. So we we're hitting all the buttons and we're learning a lot about our company. And some of these will stick, but by far and large, most of them are one time, but I'm really proud of the team because we're hitting all the targets that we've given them to offset these significant headwinds.

So I guess it would be fair to say kind of no big changes just executing on the plan from 1Q?

That's correct.

Excellent. And then maybe shifting to efficient financing. Just how are you thinking about supporting credit metrics on a tighter capital market environment, especially as we continue to see high levels of investment in rate base growth? And just any thoughts on internal versus external balance sheet support? As you mentioned the Vantage assets are potentially helping. But maybe how are those -- the value of those assets stacking up against any future equity needs?

Well, yes, if you look at our overall financing plan, we have some good headroom to our FFO to debt levels with the rating agencies. So we have some room there. And as we've said in our equity plan, our plan on equity is zero to $100 million over the next few years. So very low equity needs that we would do through internal methods. So we're seeing that we're still in a really good place on our balance sheet from both a debt and equity standpoint.

Excellent. And maybe last one, housekeeping call out, following up on Jeremy's question on the rate case. There's been some data points on kind of higher ROEs that potentially the ranges that kind of have been recommended and that shows some recognition from stakeholders. Do you anticipate that, that will start to make an impact, whether in the '24 time frame or just in settlement negotiations?

Well, we've filed for high ROE. I mean it will be part of the settlement negotiations. The pattern, I think that we've seen from the commission in the past that it's slow up and a slow down. So it will be -- whatever happens, it will be extremely gradual. But certainly, we've asked for higher ROEs and that will be part of our settlement discussions.

Excellent. I appreciate it. Thanks for taking my questions.

We'll go next now to Julian Dumoulin-Smith at Bank of America.

This is Heidi Hauchon for Julian. Thank you for taking my question.

Good morning.

Hi, Heidi.

Good morning. Hi. Just my first question and kind of a follow-up to the rate case, what has been the ongoing stakeholder feedback to some of your proposals in the electric rate case like the IRM? And then following intervener testimony, are you exploring any incremental mechanisms such as, for example, ring-fencing of vegetation management spend or something similar?

Sure. So there's been certainly a positive support from the staff for the IRM and we're getting all the right signals that this is something that will be really valuable to our customers. And can help secure the investments that's necessary to move towards a more resilient and reliable grid. That one feels encouraging. In terms of ring-fencing tree, we've essentially done that already through past proceedings where a good portion of it is ring fenced. And we're executing against that plan. And actually in good years when we've had surpluses, we've even put more against tree trimming because we see it as a significant labor in terms of reducing customer outages. So I feel that our positions are productive, positions that we've seen in the various parties, and we're going to work hard to get towards a settlement before the middle of October.

Great. Thank you. And then also, can you comment on weather adjusted sales trends year-to-date, and how this factors into low growth forecast or whether this is consistent with your expectations?

Yes. Our sales have come in exactly as we expected on a weather-adjusted basis this year. If we look back to last year, residential sales are down about 3.5% to 4%. And that's really what we have predicted with people returning to work. Our commercial is down a little bit due to energy efficiency and some other things and our industrial is up as our plants in Michigan are experiencing a lot less downtime. So I think now we've seen that our sales are kind of at the right level or where they are with people return to work and kind of very consistent with what we have forecasted through the year.

Thank you. That's helpful. And then just really quick last one from me. We've seen some reports this morning of storm causing outages in your service jurisdiction. Just wondering, I know it's early but can you comment on restoration efforts this morning and kind of severity of these storms relative to expected storm activity or normal storm activity? And then finally, on your level of confidence in achieving guidance in light of storms. I know we've touched on weather, but specifically on storms? Thank you.

So we did have some storm weather moved in last night. Approximately 92% to 93% of our customers have power at this moment. And we've mobilized about almost 3,000 of our team members to address the storm conditions. So we'll ramp most of it up in the next couple of days. These types of storms are pretty typical in July and August. So nothing out of the ordinary at this point in time. In terms of achieving guidance, as I mentioned and Dave has mentioned, we have seen about $200 million of headwinds, and we have a plan that addresses these headwinds. And those headwinds included some of the firestorm activity and cooler weather that we experienced and warmer weather in the winter. Many of the initiatives will be onetime in nature, but we're learning, as I mentioned, a lot more about our company and which is good for us and good for our customers. And the team is achieving the plan right on top of the plant. We've asked them for some significant delivery on initiatives and they're delivering on that plan. So I'm proud of their accomplishments, and that will land us at the midpoint of our guidance.

Great. Congrats on the results.

We go next now to Michael Sullivan at Wolfe Research. Q – Michael Sullivan : I just had a quick one on the IRP. I was just wondering if we could get a little more color on -- you mentioned like studying technology to replace Monroe and kind of what that could look like? I think originally, in the plan, you may have had a gas plant with carbon capture in there. Did that end up making it into the official plan? Or what sort of other solutions are on the table there? A – Gerry Norcia : Yes. What we have settled on, Michael, was that we'd file another IRP in several years, and that would really be the, what I would say, the key topic for the last two units of Monroe, retiring those two in 2032. So the agreement between the parties and us, of course, was that look a lot could change in two or three years. But we will need a dispatchable resource there. We have proposed a combined cycle plan with carbon capture. And so we'll have to study that as an option amongst many other options, more batteries, more renewables. But definitely, very large resource that we count on from that part of the service territory to feed our industrial base in Detroit. And so we'll need a dispatchable resource that's going to be high quality and a 24/7 resource. So it will look like that. It would be maybe a mixture of -- it's just hard to tell right now where those studies will take us, but we agreed to study that together as a stakeholder group. So we've got time to do that one. Q – Michael Sullivan : Okay. Great. And then another one on the IRP. I think somewhere…

And we'll go now to David Arcaro at Morgan Stanley. Q – David Arcaro : I was wondering, just in your arsenal of cost-cutting measures or offset measures. I was wondering if there are financial tools that you might have at your disposal that you've considered? Just thinking that CMS, did a tender offer recently on one of their outstanding bonds, things like that? Are those things that you would consider for offsetting weather headwinds this year? A – Dave Ruud: We always look across the portfolio for opportunities. We've looked at convertible debt. We don't have much more corporate debt we need to do this year. And we'll look for other opportunities like that. But right now, we don't see a similar opportunity or what they brought up. And of course, anything we do, we want to make sure that we maximize the overall value for shareholders, too. Q – David Arcaro : Got it. And then separately, could you just give an update on what we could expect to see in the updated distribution grid plan this year and what the timing might be for that? A – Gerry Norcia : We will file that before the end of the year as required by the commission. And it will really address four major buckets. The continued surge of tree trim, which we expect to end in two years, but then we'll be more of a maintenance cycle. So that will be a key feature. What we call pull-top maintenance, which is replacement of press arms, insulators equipment that pulls themselves. That will be a big part of the plan on our aging system. Third is automation, trying to accomplish full automation of the grid in five years, that will be a major component of the plan. As we've seen more frequent storms and more sizable storms over the years, automation will be a big lever for us to restoration of outages. And then lastly, as I've mentioned before, 1/3 of our grid is quite old. It's a 4,800 volt system, and that was installed in the early 1900s through the '60s and we need to replace that, and that's about 16,000 miles. So that will be also a part of this updated plan to really accelerate our journey to try and get that done over the next 15 or 20 years. So those are the major components that you'll see. There'll be other things there, but those will be the four big hitters in the distribution grade plan.

We go next to now to Alex Mortimer at Mizuho. Q – Alex Mortimer: With the new commissioners focused on electric vehicles, how do you think about the upside for low CapEx and rate base above what you might currently have included in your plan? A – Gerry Norcia : Well, look, we're a big proponent of transportation electrification for several reasons. One is it's great for the environment. I mean the transportation sector I believe now the largest emitter of carbon in the economy. So I believe it's going to be very valuable for that. But secondly, obviously, we get nice investment opportunity from that in the sense that it creates headroom for our investments as we see more load coming on. It is not fundamental just yet, but we expect that near the end of our 5-year plan, we'll start to see it be pretty significant contribution to margin growth. And that will help finance a lot of these large investments that we're making now to prepare ourselves for the electrification and transportation fleet as well as the deal with the inclement weather that we continue to see. So we're pretty excited about it. We're happy that obviously, our new commissioner is very supportive of that agenda, but the other two commissioners are as well. So lots to do there. And we also have an administration that's quite supportive of electrification. So we're pretty excited about the prospects in the future. But like I said, it will start to become more impactful in our plan from a margin creation perspective later in the 5-year period. From an investment perspective, we're already investing against this opportunity. Q – Alex Mortimer: Okay. Understood. And then just given the additional headwinds present this quarter, should we essentially understand that all contingency has been exhausted at this point, and you now need normal weather for the balance of the year to achieve the stated goal midpoint of guidance? A – Gerry Norcia : I would say that contingency in the electric company has been exhausted, but some of our other BUs still have a bit of contingency, but we are relying on normal weather both from a temperature perspective and storm activity perspective. Q – Alex Mortimer: Okay. And then other than weather in a more kind of "normal year" kind of what would get you to the high middle and low point of your guidance? And is the bias still towards the middle in a more normal year? A – Gerry Norcia : I would say the bias is the -- our target and the bias is towards the midpoint at this point in time.

Thank you. And it appears we have no further questions this morning. Mr. Norcia, I'd like to turn things back to you for any closing comments.

Well, thank you, everyone, for joining us today. I'll just close by saying I hope everyone has a great morning and a safe day.

Thank you, Mr. Norcia. Ladies and gentlemen, that will conclude the DTE Energy Second Quarter 2023 Earnings Conference Call. Again, I would like to thank you all so much for joining us and wish you all a great remainder of your day. Goodbye.