Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the DTE Energy Q1 2024 Earnings Conference Call. [Operator Instructions]. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the call over to Barbara Tuckfield, Director of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Before we get started, I would like to remind you to read the safe harbor statement on Page 2 of the presentation, including the reference to forward-looking statements. Our presentation also includes references to operating earnings, which is a non-GAAP financial measure. Please refer to the reconciliation of GAAP earnings to operating earnings provided in the appendix. With us this morning are Jerry Norcia, Chairman and CEO; Joi Harris, President and CEO; and Dave Ruud, Executive 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. I hope everyone is having a healthy and safe year so far. This morning, I will discuss the achievements we have made so far this year as we continue to deliver for all of our key stakeholders, and we continue to achieve successes across all of our businesses. Given that Joi is in charge of operations, she will highlight our significant customer-focused investment agenda to build the grid of the future, maintain reliability and transition to cleaner generation while continuing to focus on customer affordability. And Dave will provide a financial update and wrap things up before we take your questions. Let me start on Slide 4. We are off to a strong start in 2024 and well positioned to deliver on our targets this year. The success that DTE has achieved continues to be the result of our focus and engaged team for our customers and communities. Our team continues to achieve improved health and well-being and cultivate deeper employee engagement, which results in being able to deliver service excellence for our customers and our communities. The engagement of our team at DTE was recognized with another Gallup Great Workplace Award. I am extremely proud of our team for receiving this award 12 years in a row. We continue to deliver for our customers. In fact, at DTE Gas, we have been delivering for our customers for nearly 2 centuries. Our gas company celebrates its 175th anniversary this year. We have been providing safe, reliable and affordable natural gas to customers in Michigan since 1849, 2 years before gas lights even appeared on Detroit city streets. We have come a long way over the years, but the focus on customers has never wavered. An important part of serving…

Thanks, Jerry, and good morning, everyone. I'm happy to be here today with all of you. I will provide more detail on our capital investment agenda and our reliability plans to improve our customers' experience. Our investment plan is focused on building the grid of the future, improving reliability and transitioning to cleaner generation. We have a robust agenda of $25 billion over the next 5 years with about 95% of the investments at our utilities. Our 5-year utility investment plan was increased by $2 billion over the previous plan, driven by investments in cleaner generation that is supported by the IRP, the energy legislation that passed last November and our voluntary renewables program. The distribution plan filed last year outlines our path to building this grid of the future and includes the transition to a smart grid with full automation within 5 years, resulting in less frequent and shorter outages for our customers. We are investing $9 billion in distribution infrastructure and targeting significant reliability improvements over the next 5 years. As Jerry mentioned, we filed an electric rate case last month that represents an important step in our customer-focused investment agenda. This filing addresses our continued infrastructure investments designed to improve reliability and generation investments to bring cleaner energy faster to the state. We will continue to invest in our infrastructure and are focused on improving reliability for our customers, reducing power outages by 30% and cutting outage time in half in the next 5 years. We have already made significant progress on this front, and we can see the work that we're doing is having tangible results. For example, an important part of our grid modernization plan is the replacement of our 4.8 kV system. We are making great strides on this front as the work is…

Thanks, Joi, and good morning, everyone. Let me start on Slide 8 to review our first quarter financial results. Operating earnings for the quarter were $346 million. This translates into $1.67 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 $194 million for the quarter. This is $93 million higher than the first quarter of 2023. The main drivers of the earnings variance were lower storm costs and rate implementation, partially offset by higher rate base costs and the onetime O&M cost reductions we implemented in 2023. Moving on to DTE Gas. Operating earnings were $160 million, $11 million lower than the first quarter of 2023. The earnings variance was driven by warmer winter weather, higher rate base costs and the onetime O&M cost reductions we implemented in 2023, partially offset by higher IRM revenue in 2024. If you remember, we had a very warm winter last year, and this year was even a little warmer than last year and was the fourth warmest on record. Let's move to DTE Vantage on the third row. Operating earnings were $8 million for the first quarter of 2024. This is a $19 million decrease from 2023 due to an outage at one of our renewable plants in 2024 as well as the timing of RNG project earnings and steel-related sales. We continue to be confident in our full year guidance for Vantage as the shape of earnings will be notably higher in the back half of the year, driven by the timing of earnings for some key projects in our custom energy solutions and renewable portfolios. On the next row, you can…

[Operator Instructions]. Your first question comes from the line of Shar Pourreza with Guggenheim Partners.

I guess, first off is, I guess, how are you sort of thinking about the cadence of maybe CapEx updates in light of the kind of the new legislation? Could we see some adjustments to generation plant CapEx kind of in the near term to align closer to the new construct? Or is this kind of further out? And is 3Q or maybe EEI kind of the right cadence for any updates as we're thinking about this new construct?

So I'll start and maybe Dave can add to it, Shar, but we did update our capital plan that reflected our IRP settlement from last summer and also the legislation that passed in the fall. So when we updated our 5-year plan, much of that capital was included, and that created a $2 billion increase that we rolled out. Now I will say that as we get to the last part of that plan, and we roll things up for the next 5-year period, we do anticipate that the IRP and legislation will create an incremental investment opportunity. Dave, do you want to add to that?

Actually, I think that's exactly right. We'll -- our 5-year plan was consistent with the IRP. The legislation, the IRP, we're really close to each other in this 5-year period, but there will give us some additional opportunities as we look beyond that.

Yes. And that was actually more referencing the -- as you kind of roll forward, right? Okay. And then just on -- I guess on just funding that incremental CapEx as we're thinking about rolling forward. You have that up to $100 million figure through '26. I guess, how do we -- Dave, how do we think about the incremental equity on every dollar that you could increase, should we be assuming kind of a 50:50 cap structure -- or is there still some avenues to monetize assets like maybe DTE Vantage projects, RNG or is that kind of off the table at this point?

Well, I'll say that our strong cash flow generation and our strong balance sheet allow us to do this capital investment with that minimal equity. And we've said that 0 to 100 kind of fits throughout our 5-year plan that you're at 100 on equity. And a lot of that was because of the IRA and we have a lot of cash coming in from the IRA and the tax credits from the IRA. So we're confident in the capital we have in the plan that we're going to be able to stay within in the equity that we've talked about as well as keep our FFO to debt at that 15% to 16%.

I'm sorry, Shar, go ahead.

No, you go, Jerry. Sorry about that.

I was going to say in terms of Vantage, certainly, we like that business, but if the opportunity presented itself where we could deploy some recycling of capital and create incremental shareholder value, then we're always looking for those opportunities share. So if equity needs were to change and may make it more impactful, if you will -- but we don't see that right now.

Your next question comes from the line of Nick Campanella with Barclays.

So I guess you're kind of back to your normal course business plan now that we moved past '23. I know you have some execution items out there on the rate case side, but just how do you kind of feel about being able to kind of derisk '25 and beyond here with O&M and otherwise?

Maybe I'll start again, and my team can add to it. But we've started in a much stronger position this year with the absence of $200 million of headwinds -- incremental headwinds that we experienced last year. And we are deep into planning for 2025. And what we're looking to do is really try to create opportunities to improve the levels of headroom for 2025. I mean this is our typical planning process. When we start to feel really good about the current year, we go deep into the prompt year. And I can tell you, we're deep into it. We're starting to feel real good about '25 and putting that together. As far as key milestones, both the gas rate case and electric rate case that come late this year and early next year, these rate cases are pretty straightforward in the sense that they're all about capital, capital deployment and really continuing to rebuild and enhance both the gas infrastructure in our electric infrastructure to be more reliable and cleaner. So much of what we're requesting from our customers is to support those investments and we've seen support for that in the past. So we feel pretty confident about our 2025 year plan coming together nicely.

Appreciate that. And then I guess, I know Vantage, you kind of have this $15 million a year growth cadence in the plan, but it does seem that there are some tailwinds to that business from tax credits and then just stronger cash returns in general. Can you just any way to isolate how large that strength is relative to that assumption that you had in there? And I guess how would you kind of describe where it puts you overall in the business at the midpoint of that 6% to 8% range. Can you get above that range in these certain years? And how should we kind of think about that?

Yes, Nick, we -- as you said, there are some good tailwinds in our Vantage business that we're seeing from tax credits related to both RNG and to our Custom Energy Solutions business and also, we have some good growth in that area as well. When we get to the end of the year, we'll talk more about '25 and beyond and how those tax credits will come into our plan. But what we do see is that it does give us some more flexibility and some additional confidence in the 6% to 8% as we go through these years. And -- and then as we get beyond some -- still some really good confidence in the long-term 6% to 8%.

Your next question comes from the line of Jeremy Tonet with JPMorgan.

Just want to come back to the comments as you laid out with regards to Vantage and the RNG assets and the potential for portfolio rotation there should the opportunity present itself. And just curious, I guess, the driver to these comments, have others approached you on these assets? Or just trying to get a sense for what you see or how that -- the market is for those type of assets right now?

Sure. So Jeremy, I'll just start by saying, look, we like those assets, they've created extraordinary returns for us and great cash flows, and we still see a strong pipeline of growth. And as we -- we're in the market all the time talking about value. And I can tell you that at this point in time, based on our long-term plan for value creation, we don't see the opportunity to create incremental value above what we could expect now the assets are extremely accretive, but we always look to create incremental value over our long-term plan. And we don't see that opportunity just yet. But if it presents itself, we will exercise that opportunity, I assure you. And again, we're in conversations all the time with the market. There's obviously lots of dialogue that happens in this type of marketplace.

Got it. That's very helpful there. And then I just want to come back and kind of on the back of some of your earlier comments here, talking about the renewable energy plan. Just wondering if you might be able to peel back a little bit more of the details here, what we should be expecting, what you're focused on for the upcoming renewable energy plan?

Well, what I would say that is our voluntary plan continues. I'll just replay this that we have one of the largest voluntary renewable development plans in the country based on the size of our company and that continues to exceed our expectations. We currently have about 2,400 megawatts signed and a 2,500 megawatt goal for the next 5 years. So you can see that we're getting very close to having to update that plan. So I would say that's one update that we will provide as we roll forward the next 5-year plan. In addition to that, if the IRP becomes more aggressive as we move forward beyond the current 5-year plan, so I think we'll see some tailwinds from that in the plan as well as we roll it together. So those are the opportunities that we see longer term and near term in renewable energy development plan.

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

One more Vantage question here. I was curious, are data centers or customer class that you go after? I'm thinking with custom energy solutions. Just wondering if there's any emerging growth opportunities there.

So the short answer is yes, but maybe I'll describe this in sort of more global perspective for DTE. I would say both our utility, electric utility and Vantage are well positioned to pursue these opportunities with data centers here just right here in our backyard and also with Vantage beyond our backyard. But in Michigan, let me focus on Michigan for a minute. We have great access to water, favorable climate conditions and power plant sites with large land positions and grid access that I think will be very attractive and is very attractive to the [ centers ] that we are having conversations with -- we're seeing significant interest, and we're engaged in discussions. And I will say this much changes on the legislation that exempts the sales and use tax. And as you know, you may recall that the house here in Michigan proved the bills in a bipartisan way, they're awaiting approval by the Senate. And the governor has indicated a great willingness to sign those bills if they come to her desk. So I believe that we're well positioned in Michigan with both the electric utility and Vantage that could provide on-site energy services. So we're -- we're having those conversations, they're early, but the opportunity is sizable.

Great. That's helpful color. Then I was wondering if -- let's see, pivoting to the rate case -- the electric rate case. I was wondering if you could maybe help contextualize some of the Attorney General's comments that were out there on the size of the request. And maybe any early indications or early thoughts on whether you think a settlement could be something that you go after and could be acceptable in this rate case?

Yes. I think the Attorney General, pretty much is on par, things that we expected. We are really -- this rate case, as you know, is really all about our capital. And the capital we're deploying is targeting the distribution infrastructure, and we're looking to improve reliability and certainly continue our journey to transition to cleaner energy sources faster to the state. And with respect to the distribution infrastructure, we're looking to reduce power outages by 30% and cut our outage time in half over the next 5 years. So the case is going as we had planned, we just filed it. We do know the prehearing is scheduled for tomorrow, and we'll start to know this and understand the schedule and then start to get feedback from the interveners and from the staff. So I guess what's in the case, in general, aside from the investment that we have in our infrastructure, there's also a storm tracker. The storm tracker is about $65 million. It's based on the 5-year average. And it's a 2-way tracker with a 50-50 sharing of anything above and below rates. So that's really what's in the case, investments that we have in our infrastructure to drive reliability improvement and certainly cleaner generation. You know that the revenue requirement is about $456 million, and we're targeting an ROE of 10.5% with a 50-50 cap structure.

In terms of prospects for settlement, David, we've got a lot of interveners in this case, and we will do all we can to settle. But again, as Joi said, since this case is really primarily about capital deployment and well understood and well known agendas for capital deployment. We're confident that even if it goes to its full course in terms of litigation that we will get supportive outcome. I think the commission has a strong track record in that way and also the administration supports these investments and knows that they're extremely important for the state to pursue economic development and also provide more value to our customers and our citizens here in the state of Michigan. So we're feeling pretty good about how it's progressing.

The next question comes from the line of Durgesh Chopra with Evercore ISI.

Jerry, Joi, just on the discussion on the electric rate case settlement. You guys have discussed or in the past have talked about potentially a partial settlement with some parties and not unanimously. Is that something that you could pursue with this electric rate case?

We could, Durgesh. And certainly, we will. Again, I don't want to hinge too many hopes on a settlement. We will do all we can to settle. I think -- but as we saw in our last rate case, we weren't able to bring all the parties together for various reasons and sometimes that happens. But our opening position and our desire is to settle, but we're also confident that we will get supportive outcomes in the event that there is not a settlement.

Understood. And then maybe just 1 question on 2024. Obviously, you expressed a lot of confidence here in [indiscernible] numbers. Maybe can you just frame for us what level of contingency, if any, you might have used? I know you go into the year with a healthy level of contingency but you had milder weather in 1Q. So maybe just frame for us how much of that contingency bucket is still left?

Durgesh, this is Dave. As we came into the year, we did have some contingency for weather. And then we did see weather in the first quarter, as you can see. But as we see that weather, we work right away to rebuild what we can to make sure we're in a good position for the summer. And then -- so we've done that -- and then we also have our lean and invest where we saw last year, we can go deeper if we need to and doing things that we will need to do to make it. So we're in a fine position going into the summer, and that's when the real weather will happen for us.

Excellent. I appreciate it. High confidence in 2024 as well...

Your next question comes from the line of Andrew Weisel with Scotiabank.

If I could first ask that O&M question a little bit differently. You were pretty aggressive last year as soon as the year started, given the rate case and the mild winter weather, and obviously, some of that is partly reversed in the first quarter. I guess the way I would word it is, would you say you're back to normal O&M levels? Or are you still sort of catching up from last year? Or again, the last question I asked, are you in lean mode already given the mild winter 2024?

Andrew, I'll start by saying this year feels a lot different than last year. We had weather last year, too, but we also had the storm in the first quarter in the rate case. So we were in a very different position this year. And we did a lot across the company to achieve what we needed to do last year. Some of those reductions continue naturally into this year, but for the most part, those were all onetime savings from last year. So we're back into what I would say is our normal efforts on productivity and efficiency improvement, putting into place our lean and invest as needed as we continue to manage affordability and ensure we're going to deliver for our customers. So I'd say it's more into the normal DTE mode of productivity and efficiency improvements.

Okay. Great. Good to hear. And then one very small one. The negative earnings at Corporate and Other, and you have a note that there's -- it's related to the timing of taxes. Was that in line with your expectations when you gave the full year guidance? And should that fully offset as the year goes on? Or is that trending a little differently than you had budgeted?

That is all consistent with what we budgeted it, and it will all reverse by the end of the year too.

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

I wanted to maybe dig a little deeper on the rate case and some of the kind of nontraditional aspects of it. I guess on the storm cost tracker, what do you think chances are that, that goes through? Or does this need to iterate through a couple more cases? If you had that in place last year, would that have been enough to put you in a position to have hit the original guide? And then on the IRM, how much is that ramping up from the last case? And do you think that can help space out cases in the future? Sorry, that was a bunch there, but any color would help.

Yes. So you're first question around the storm tracker, the $65 million. If that were in place last year, yes, that would have been helpful. Certainly, given the cost that we experienced in the first quarter and then throughout the balance of the year. Do I think that we'll get some support for it? I think there's a lot of conversation that happened early on. There is a good chance that we'll get the support. I think we're aligned with consumers and pursuing this type of tracker. And more will come in by way of testimony, we'll know here shortly once the schedule is set and we start to see the intervenor and staff testimony how much support we actually get. In terms of the IRM, what's in the IRM? For 2026, the IRM includes $530 million worth of capital. And then for 2027, it's $720 million worth of capital. Previously, we had filed for $62 million in 2024 and $290 million in 2025 and we're well positioned to execute on our '24 plan, and we certainly have plans for '26 and '27. Do I think that it will keep us out of future rate cases? I think it will have to continue to grow in order for us to achieve, I think, a delay in the rate case cadence that we have right now. And that will take us several years to arrive at, I think, that ramp.

Okay. Great. You hit all of them. And then just one quick one. The renewable plant outage at Vantage in Q1, was that planned or unplanned? And is it -- if it was unplanned, is it resolved?

It was unplanned. It actually started last year and it is resolved. So it's coming -- it's back online for the rest of the year.

Your next question comes from the line of Sophie Karp with KeyBanc.

I was just wondering if you could maybe talk a little bit big picture rate with a pretty impressive investment plan that you have over the next few years, right? And I'm sure there's going to be more rate cases come into an account for that. Longer term, what do you see as an offsetting factor, I guess, to customer bill increases here? Is that maybe industrial load that's growing and including data centers? Or some of the current automation you put in would cut on OpEx? Like if you could give us some sense on kind of like big picture, how would you, I guess, offset customer build pressures with that?

Well, I would say, Sophie, thanks for the question. I mean we are undertaking a historic transformation here at DTE. As we think about the way we deliver energy, our wires business, the way we're transforming the way we produce power over the next 5 years. And as you can see in our capital plan, we have $25 billion in our 5-year capital plan with more than 90% of it directed at our 2 utilities, and we also continue to transform the way we deliver natural gas, and that's well underway. Now in terms of affordability perspective, you can see we're extremely well positioned with our bills to our residential customers being well below the national average. Our goal is to maintain that position. And the way we maintain that position is, as you described, a lot of these investments are pointed at assets that will reduce cost, for example, as we continue to improve reliability in the electric wires business. We'll start to see our trouble costs and storm costs that fundamentally will start to decline. And that will help finance this as well. And that's just one example. Even the transition from coal to natural gas and renewables, that's creating significant cost reductions, operating cost reduction. So a lot of our CapEx will yield lower operating costs, which will obviously be transferred to the benefit of our customers. In terms of revenue growth, we see several of opportunities as we look forward, a lot of discussion in the industry about data centers. Certainly, that will help as we start to land those and we need enabling legislation to get that done. We also see EVs even though they've slowed down a bit, we're still connecting 1,000 EVs a month or more which is encouraging. And we see that growing, and we see the big 3 here working heavily to bring new models to bear. And as a matter of fact, just quickly here, I was on a video call with the President of General Motors. And he was testing a new EV on their track here at Milford. So lots of development activity still on new EVs and bringing those to market. So I think we'll see that help finance some of these investments. So I would say 2 things, just to summarize, very significant capital agenda, $25 billion over the next 5 years, $50 billion over the next 10 years. So if you're an investor of DTE, you should be really excited about long-term investment opportunities and the fact that a lot of this investment will help moderate bills over time.

That's very helpful. I also wanted to ask you a quick question on Vantage, right? So I guess to the extent you keep in this business, how should we think about the size of it relative to the utility businesses that you have? Is there a certain kind of like contribution to earnings that you want to keep it under like not let them go beyond? Like what is your thinking there?

Yes, our investment thesis there is that we want to pursue high-quality investments with low risk and high returns. And we've been doing that, and that's working out quite well. But we want to keep it at less than 10% -- at 10% or less of earnings contribution as we look forward. And our utilities are growing so quickly that it does give us the opportunity to continue to grow Vantage as well.

Your next question comes from the line of Angie Storozynski with Seaport.

So just wondering, in the past, I remember there was always this discussion about your approach to coal plant retirements and reliance on the grid versus self-generation. It was always of an impression that you guys were long power. I hope that's still the case. So just 2 things. As the long growth accelerates and as we are more cognizant of the importance of dispatchable resources, is there a chance that you're going to make any changes to generate? And number two, as I said, I'm assuming your long power and that could sort of attract data centers, would that simply improve affordability of electric bills for existing customers? Or would it be actually incremental to earnings? Again, I feel like we're seeing this pickup in the [ long ] growth that [ other ] utilities without any necessarily comment an increase in earnings. And so I'm just wondering how you envision it given your generation footprint.

Great question, Angie, I'll take them one at a time. So in terms of reserve margins, DTE, when we filed our last IRP, we filed that with adequate reserve margins as we move through our coal plant retirements. And as you know, we've built a state-of-the-air combined cycle facility that's up in operation as part of our coal plant retirement plan. We are converting the Belle River power plant from coal to natural gas, which will be a dispatchable -- continue to be a dispatchable plant. That will happen in the '25 and '26 time frame. In addition to that, we've embarked on battery storage, which will provide us short-term dispatchability. So all of that fits into the portfolio between now and 2028. That works extremely well. As we near the end of that -- near the next phase of the IRP plan when we want to exit coal completed by 2032, we will need to build more dispatchable generation. And what we're pursuing there is current technology where we can use natural gas with carbon capture and storage, and we highlighted that in our IRP. So we do see more dispatchable generation in our future as we continue our exit from coal. That plant will also be available to burn hydrogen should hydrogen present itself as a viable resource and fuel resource. In terms of growth, very good question. What we see there is if some of this growth accelerates, we will need to build -- and the growth that we're looking at, like data centers, for example, are 24/7 operations. That will need generation that cannot be -- and power that cannot be interrupted. And so we will need 24/7 dispatchable -- more 24/7 dispatchable generation and renewable resources. So again, it will be a mix. It does have the potential for accelerating our next IRP should such demand present itself. In terms of impact to customers, we expect that those investments will pay for themselves and actually provide a benefit to customer bills to some degree. So that's our going-in position and we see that as very possible. It will also add value for our investors because those investments will be in rate base, and they'll attract the typical returns. So I think it's a win-win all around.

And based on your discussions, when would this incremental load potentially materialize? Are we talking like 2028 and beyond? I'm just wondering how soon we could see the earnings impact?

Angie, it's too early to tell. These conversations, as I mentioned earlier are very early. They are sizable conversations in terms of the load that we're talking about. And again, we're really well positioned. But in terms of timing, we haven't gotten that far just yet. But I think that will come. I think the key catalyst here in Michigan will be this legislation that needs to pass on the sales and use tax. That's a big deal for the data centers that are considering Michigan and considering investing at some of the sites that we put in front of them. That should happen. We expect that to happen hopefully this summer. But with an election year, it is a volatile year, as you know.

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

You answered most of my questions and discuss most of the topics I was hoping to hit. So just real quick, I saw residential commercial demand looked like it was up. I know this is a small -- relatively small quarter for that. But anything there either relative to plan or notable where you're seeing residential commercial demand pick up a little bit?

Yes, we did see residential up quarter-over-quarter. I would say that for the year, we're expecting it to come in on plan and probably pretty well consistent with last year. We have a lot of energy efficiency we do and that and the growth kind of work together and will be fairly flat to last year.

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

Well, thank you, everyone, for joining us today. And I'll close by saying that we're feeling really confident about 2024 and of course, our long-term plan beyond that in terms of providing value for our customers and for our investors. Have a great morning. Stay healthy, and stay safe.

Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect your lines.