Good day and thank you for standing by. Welcome to the DTE Energy First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Barbara Tuckfield. Thank you. 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 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, President and CEO; David Slater, President and CEO-Elect of DTM; and Dave Ruud, Senior Vice President and CFO. And now, I will turn it over to Jerry to start the call this morning.

Thanks, Barb, and good morning, everyone, and thanks for joining us today. I hope everyone is staying healthy and safe. This morning, I will start off by discussing DTE’s strong start to 2021. And David Slater will give some details on our Midstream business and provide an update on the spin transaction. Dave Ruud will provide a financial review of the quarter and wrap things up before we take your questions. So let’s start on slide four. As we have discussed before, our priorities at DTE are to support our employees, customers and community, which then enables us to provide the strong consistent growth the investors have come to expect. Our focus this quarter was no different, as we have delivered for all of our stakeholders. Our team at DTE has continued to perform at a very high level. We were recently recognized by Gallup as a great workplace. This is the ninth consecutive year we have received this award. We are off to an extremely safe start in 2021 after our safest year ever in 2020. As I have said, safety is our top priority at DTE and getting people home safely to their families every day helps drive our success and employee engagement. We are building on our diversity, equity and inclusion focus with employees fully dedicated to helping the company on its journey. DTE is committed to accelerating our progression towards a workplace where everyone feels valued, welcome and able to contribute their best energy. We do understand that our people thrive and succeed when they feel included, safe and welcome. On the customer front, we continue to deliver safe and reliable energy. Just recently DTE Electric received approval on its deferral request that delays the next rate case filing until October 2021. This provides price stability for our customers, keeping base rates steady through 2021 and into 2022. As you recall, we previously received approval to delay our general rate case until May and this order extends the delay at least five additional months. This is another step toward stabilizing our customer affordability. Additionally, DTE is ranked as one of the top 10 utilities in the nation for energy efficiency and customer savings, and J.D. Power has ranked both our electric and gas utility in the top quartile for residential customer satisfaction. These initiatives and recognition show our continued commitment to service excellence. Supporting the communities where we live and serve remains critically important to us. DTE helped thousands of our customers lower their energy bills in 2020, while significantly reducing natural gas and electricity usage through energy efficiency initiatives. Our Energy Efficiency Assistance Program was recognized for keeping energy affordable for our most in-need customers. We recently contributed to Habitat for Humanity and supported their effort to weather-proof low-income homes. DTE also led a fundraising effort to help small businesses in Detroit grow past the pandemic. We are also offering personal protective equipment, technical systems and opening resources to assist small businesses across the city. With engaged employees, satisfied customers and communities that are resilient, we deliver value for our investors. We delivered a strong first quarter with earnings of $2.44 per share and solid performances across all our business lines. We are on track to deliver 7% operating EPS growth from our 2020 original guidance midpoint. The Midstream spin is on track for midyear completion. The spin positions DTE Energy as a predominantly pure-play, best-in-class utility, with significant capital investments of $19 billion over the next five years; 90% of that will go into our utilities. And we continue to target our 5% to 7% operating EPS growth, with 2020 original guidance as the base for that growth. The spin also establishes DTM as an independent natural gas midstream company with assets in premium basins and accretive growth opportunities. On the next slide I will discuss some of our major accomplishments from the first quarter. DTE is continuing to focus on our environmental initiatives. DTE Electric recently placed three wind parks in service, Isabella I and II, which are the largest wind parks in Michigan. They have a total of 136 turbines with 383 megawatts of capacity. We also placed a Detroit-based wind park in service with a capacity of 72 megawatts. DTE now has nearly 1,800 megawatts of capacity from renewable energy sources, enough to power 670,000 Michigan homes. This is a significant step toward our goal of reducing carbon emissions by 50% by 2030. The electric company recently filed a settlement agreement for voluntary renewables. The settlement includes 800 megawatts of renewable power additions, with 420 megawatts of that being slated for 2022 and the remaining 380 megawatts coming online in 2023 through 2025. These sources will support the voluntary renewable program MIGreenPower, which continues to exceed our high expectations. We recently announced the commitment of a few new companies to the MIGreenPower program, including the State of Michigan, Bedrock and Trinity Health. We have reached 900 megawatts of voluntary renewable commitments with large business customers and approximately 30,000 residential customers. The program is the largest of its kind in the nation and helps advance our work towards the net zero carbon emissions goal. The electric company also received approval from the Michigan Public Service Commission for Phase 2 of its Charging Forward initiative to strengthen electric vehicle infrastructure in the State of Michigan. This includes customer education and outreach, fleet advisory services and charging infrastructure components that further support the electrification transition of fleet vehicles. At the end of March, the electric company completed its most recent offering of green bonds. The $1 billion bond offering will help fund the development and construction of solar and wind farms, including transmission infrastructure to support renewable energy facilities. The funding will also strengthen energy efficiency programs that help Michigan residents and businesses to save energy and reduce their bills. DTE Electric has issued three green bonds over the past four years for a total of $2 billion. These bonds help support our progress towards a cleaner, more sustainable energy future. DTE Gas has announced CleanVision Natural Gas Balance, the nation’s first program to include both carbon offsets and renewable natural gas for customers to reduce their carbon footprint. This program offers four levels of participation for customers ranging from $4 a month to offset 25% of an average home’s gas use emissions to $16 a month to offset 100% of a home’s carbon footprint. The carbon reduction goals are achieved with Michigan forest preservation and renewable natural gas. By helping to preserve Michigan’s forest through this program, DTE customers not only support the removal of greenhouse gases, but also preserve one of Michigan’s greatest natural assets. Recently, DTE Gas executed a seven-year agreement to secure forestry carbon offsets to be used for this program. As per RNG, landfill emissions and wastewater treatment plant byproducts are transformed into fuel that heats homes and powers businesses and cars. We are excited that customers will be part of our ambitious vision to create a cleaner energy future. The program is off to a strong start with over 2,400 customers signed up to reduce their carbon footprint. Our Midstream Company also announced its own 2050 net zero carbon emissions goal earlier this year. Climate change is one of the defining public policy issues of our time and I am proud that this business is driving our electric and gas utilities in the effort to deliver cleaner energy. Now moving on to slide six, I will discuss DTE’s solid start to 2021. Our first quarter financial results were strong, giving us even greater confidence in our 2021 financial plan, which could create the best opportunities later in the year. DTE earned $2.44 per share this quarter, up $0.78 from last year. With one quarter behind us, I am confident that DTE is well-positioned to deliver on a financial plan this year, setting us up well for success into 2022 and beyond. Longer term, we will continue to target a 5% to 7% operating EPS growth rate with 2020 original guidance as the base. We continue to focus on our balance sheet with strong cash flows and solid credit metrics. The spin-off of the Midstream business is on track for midyear execution. Our team is working diligently to make that happen and I thank them for their efforts. As you know, the spin positions DTE as a predominantly pure-play utility with 90% of DTE’s total operating earnings coming from our two regulated businesses. The spin also establishes DTM as an independent low-cost financed natural gas Midstream C-Corp with accretive organic growth opportunities. Just as DTE is well-positioned to deliver for investors, this new independent Midstream Company will also be positioned for success with a strong asset base in the most prolific dry gas basins in the country. The spin is progressing very well with the Form 10 filing and it’s in the review process with the SEC and we will have an investor roadshow plan for the second quarter. Now I will turn it over to David Slater for updates on the Midstream business and the spin transaction progress.

Thanks, Jerry, and good morning, everyone. I will start on slide seven. Our Midstream business has had a solid first quarter, executing well across all platforms and assets. We are on track to achieve our financial targets in 2021, which include an EBITDA range of $710 million to $750 million. DTM is also committed to a world-class ESG agenda. Earlier this year we announced a net zero emissions target by 2050, making us one of the first companies in the Midstream sector to announce such a goal. We intend to use every tool available to reach our sustainability targets and we believe this will evolve to become a significant business opportunity over time for DTM. Additionally, DTM is establishing a Board of Directors committed to ensuring the company operates in an environmentally and socially responsible manner. As Jerry mentioned, we are on track for midyear spin execution. Our Midstream business has been transformed over the last decade and the solid, steady and strategic transformation has positioned this segment to become the industry leader it is today. The creation of an independent Midstream C-Corp will provide the opportunity to further advance the company and create value. Now let’s turn to slide eight. The spin is on track for midyear execution. We initiated the Form 10 process with the SEC back in February. Since then we have been diligently working through the comment period and this has been going smoothly as expected. In March we held discussions with the rating agencies which went very well. We will be receiving a credit rating at the time of debt raise. The Form 10 will be public in the second quarter. We plan to hold an investor roadshow later in the second quarter as well. DTM shares are expected to start trading on a when-issued basis one week or two weeks before DTM shares begin regular way trading on the New York Stock Exchange upon closing. Finally the spin transaction will be executed midyear. As Jerry mentioned, successfully executing the spin has been made possible by the commitment and dedication of all of our employees. Thank you to our team for bringing their best energy to work each day and keeping everything on track. Now, I will turn it over to Dave Ruud to discuss DTE’s financial performance.

Thanks, David. Good morning, everyone. Let me start on slide nine to review our first quarter financial results. Total operating earnings for the quarter were $473 million. This translates into $2.44 per share. You can find a detailed breakdown of EPS by segment including our reconciliation to the GAAP reported earnings in the Appendix. I will start the review at the top of the page with our utilities. DTE Electric earnings were $208 million for the quarter. This was $114 million higher than the first quarter of 2020, primarily due to new rate implementation and colder weather in 2021. DTE Electric also experienced non-qualified benefit plan losses in the first quarter of 2020. We have since taken measures to reduce market variability in these plans so we no longer see this variability after the second quarter of 2020. If you remember in the second quarter of 2020, the benefit plan losses reversed and were positive in that quarter. Moving on to DTE Gas, operating earnings were $169 million, $48 million higher than the first quarter last year. The earnings increase was driven primarily by new rate implementation and colder weather in 2021. Let’s keep moving down the page to our Gas Storage and Pipelines business on the third row. Operating earnings for GSP were $86 million. This was $14 million higher than the first quarter of 2020, driven primarily by the LEAP pipeline going into service in the second half of 2020. On the next row you can see our Power and Industrial business segment operating earnings were $28 million. This is a $2 million decrease from the first quarter of last year due to steel-related earnings offset by new RNG projects. On the next row you can see our operating earnings at our Energy Trading business were $14 million, which is consistent with first quarter earnings last year. This quarter strong performance in the Gas portfolio was offset by performance in the Power portfolio, both of which occurred during the period of extremely cold weather in Texas in the first quarter. Together this positioned us slightly positive to our expectation for the quarter. Finally, Corporate and Other was unfavorable $21 million quarter-over-quarter, primarily due to the timing of taxes and net change in interest. Overall, DTE earned $2.44 per share in the first quarter of 2021, which is $0.78 per share higher than 2020. I’d like to note that much of this favorability versus 2020 was anticipated in our plan. However, some of the favorability is due to DTE Electric, GSP and Energy Trading performing better than planned. This is positioning us well for 2021 and we should have the opportunity to further invest in O&M initiatives that can improve reliability for our customers, which will also further strengthen our financial plans for 2022 and future years. Now moving on to slide 10, I will wrap up the call and then we can open up the line for questions. In summary we feel great about our first quarter results. We are on track to continue to deliver on our long-term 5% to 7% operating EPS growth rate from our 2020 original guidance midpoint. The spin of our Midstream business is progressing as planned and we are on track for completion midyear. This separation positions DTE as a predominantly pure-play utility and establishes DTM as an independent gas-focused Midstream Company with accretive growth opportunities. We believe this transaction unlocks significant value for investors of both companies. Our utilities continue to focus on necessary customer-focused infrastructure investments, specifically investments in clean generation and investments to improve reliability and the customer experience. The team deployed many innovative strategies to provide regulatory certainty during what continues to be a challenging time for many of our customers. This will enable DTE to maintain steady base rates through 2021. We continue to focus on maintaining solid balance sheet metrics. DTE is targeting minimal equity issuances in 2021 and we continue to have minimal equity needs in our plan besides the convertible equity units in 2022. And we have maintained our solid dividend growth with a 7% dividend increase in 2021. In closing, as we approach the spin of our Midstream business, DTE is well-positioned to deliver the premium total shareholder returns that our investors have come to expect over the past decade. With that, I thank you for joining us today and we can open up the line for questions.

The first question is from Michael Weinstein with Credit Suisse.

Hi. Good morning, guys. Sorry about that, I was on mute.

Good morning, Michael.

Hey. With the delay in the electric rate case, how would you say that affects what you are going to file for? I mean is it going to result in a larger rate filing than would normally be the case or is it basically the same case just delayed six months?

I would say it’s generally the same case, Michael, delayed six months. It will be a forward test year result as well. We will be filing for…

Okay. Yeah. And I am wondering if you could provide a little bit more information on the RNG business. RNG has been coming up a lot lately and talks about how gas utilities might be able to reduce their carbon emissions exposure on a net basis. Do you see this RNG business ramping up significantly outside of the states you are already operating in as you expand that nationally as sites are developed?

Sure. So maybe I will just start by commenting on our own utility, where we are essentially offering a voluntary offset program that will be driven both by forestry products and RNG. We may be one of the first in the country to offer that type of package to our customers and it’s a very interesting offering where for $4 a month, we can offset about 25% of your carbon footprint as a gas customer. So it’s a unique way of packaging carbon offsets through RNG, as well as forestry products to deliver a lower carbon footprint for our customers. I do see that expanding across the country, Michael. Right now most of our efforts in RNG of DTE Energy and our P&I business are focused on selling gas into the California markets, which gives us very nice returns both from the Renewable Fuel Standard, as well as the Low Carbon Fuel Standard in California. We get, as we have mentioned in prior calls, returns where we see our simple cash payback happen in three years to four years with pretty modest investments, and we have lots of projects in the pipeline going forward.

Yeah. Is this come up at all in any of the Democrats' infrastructure spending plans to ramp up RNG production or maybe even expand the fuel credit to natural gas, as well as biodiesel?

I have not seen those details yet, Michael. But we are looking for them. Most of the credits seem to be targeted at wind and solar at this point, from what I can see, and other clean sources of energy.

Got you. And just one last question on guidance, guidance is unchanged even after a really nice quarter. And I am just curious if is that just part of the—it's just early in the year at this point is you are also looking at the possible lean in initiatives later in the year to keep guidance…

What we are looking at is using favorability to really build strength for 2022. That’s our first goal, as well as investing in customer-centric projects in 2021 in order to make that happen. And as we get more visibility into the balance of the year then we will continue to provide you updates at our next quarterly call.

Okay. Great. Anyway good quarter. Thanks a lot. Good.

Thank you.

Your next question is from Andrew Weisel with Scotiabank.

Hi. Good morning, everyone.

Good morning, Andrew.

My first question is on Midstream actually, are you able to isolate any financial impact from the extreme weather in mid-February in Texas and the surrounding areas, I don’t know if that impacted your Haynesville system or more broadly any operational surprises or any counterparty risks or issues?

Sure, Andrew. We really didn’t see a significant impact to us from an economic perspective. We did see some operational challenges probably three or four days into that cold snap. It was primarily upstream of our facilities where we were just seeing the producers struggle to maintain their production at the wellhead. But as soon as the weather broke those volumes came back rather quickly. So from an impact to the Midstream business it was pretty modest.

Okay. Great. Then financially, you were pretty clear that you will have the IPO-style roadshow for DTM in the coming months. When can we expect an updated financial outlook for 2021 and beyond for the remaining utility-focused DTE? Will we see guidance before the DTM shares start trading or would it come more like with second quarter earnings in late July?

Dave Ruud, do you want to take that?

Yes. Consistent with the timing of when we are going to go out with the DTM roadshow we want to be talking about DTE guidance at that point as well. So as we come forward into a post-June period, we will be coming forward with our DTE guidance post-Midstream for 2021 for the remainder of 2021.

Terrific. So before the DTE shares start trading post-spin we will have a better sense of what the standalone outlook looks like?

Yes.

Great. Then one last one if I may on the voluntary renewables program, seems like you are seeing really strong demand with the additional megawatts for the middle of the decade. Are you thinking at all about a potential cap or ceiling from this business, and if so, what would be the limiting factor? I don’t imagine it would be demand. Are there any physical constraints around land access or regulatory constraints of any sort or could this just continue the pace of growth through the end of the decade?

I don’t see any limitation other than demand. If you followed our last settlement filing, we operate 800 megawatts of incremental renewables, that makes us about 400 megawatts long. But I can tell you that we fill those long positions pretty quickly. The demand is extremely strong right now for our voluntary renewables program. So I don’t see any limitations other than customer demand.

Okay. Great to hear. Thank you for all the details.

Your next question is from Durgesh Chopra with Evercore ISI.

Hey. Good morning, team. Solid quarter. Thank you for taking my question.

Good morning.

On the quarter, big picture, Jerry, and maybe the rest of the team, I want to get your thoughts. I believe just yesterday there was some news that the Biden administration is now pushing for essentially doubling the clean generation going from like currently 40% to 80% over the next decade. Obviously, this is less aggressive than a net zero goal by 2035. Just your thoughts on how DTE is positioned, how the sector is positioned, is this even achievable?

Well, I would say, just to remind everyone of our goals at DTE: we want to be net zero by 2050, 80% carbon reduction by 2040, 50% by 2030 and we are already at 30% heading into the 2023 timeframe. So I would say we are well advanced. I would expect that the DTE plan will accelerate over time. We are deep into conversations as an industry with the Biden administration and I think there will be some consensus, we hope, as to how we all accelerate our plans, which we view as beneficial to DTE’s plan and certainly it will be beneficial to others as well. The plans that were described during the election process are very aggressive, but I think we will see a meeting of minds and perhaps a compromise over time.

Just a quick follow-up, how high up a priority is this for the Biden administration? And just your sense talking to key leaders as to when could we actually see something tangible on this front? Thinking about timing and what to look for over the next couple months?

Based on the level of engagement with our industry association, I would say it’s very high on their priority list to move forward a plan that addresses climate change. So we are feeling positive that there’s a possibility to get something done. The elements that are being discussed seem quite positive as well. We are going to have to see how this all plays out in the next several months. I think we will be heading into the summer and fall before there is something concrete to act on. But it feels positive at this point.

Perfect. Appreciate the time guys. Thank you.

Your next question is from Jonathan Arnold with Vertical Research Partners.

Good morning, guys. Thanks for taking my questions.

Good morning.

Could you break down just kind of the quarterly upside at DTE Electric and Gas a little more? How much were the rate cases? And then maybe the benefit plan item, could you remind us what that was and are you continuing to see mix benefit and COVID-related sales factors and to what extent was that driving the upside?

Hi, Jonathan. As we look at the quarter, the majority of the upside we saw was from the new rates coming in. We did see a weather differential versus last year. It was still a little negative but better than last year. And at DTE Electric that’s where we had those benefit plans you mentioned and that was about a $20 million to $25 million difference. We had a loss in the first quarter of 2020 which reversed in the second quarter of 2020, and we have since taken actions to avoid that market volatility. As far as Gas, again in the first quarter of 2020 we had really negative weather. We had better weather this year and then the rest of the upside we would see was from the new rates coming into effect.

So can you quantify how much the rate case helped the quarter on the Electric side?

I think we can get back to you on that one to make sure that you have the right number.

Okay. And then any comments on the sort of the mix question?

On load at Electric overall quarter-over-quarter sales were down about 2%. Residential was up about 3%, commercial down 2% and industrial down 7%. Residential was still coming in better versus pre-COVID—we were seeing residential up about 5% to 7% versus pre-COVID expectations. Commercial and industrial were between 95% and 100% of pre-COVID levels. So residential usage continues to be marginally better than expected with more people working from home and that trend has continued longer than we thought.

Okay. Great. Thank you. And maybe on CapEx, it seems a bit of a slow start relative to annual guidance even adjusting for normal seasonality. Anything you can offer about the full year plan and when you ramp up?

The main thing that was a little slower was one of the wind parks scheduled to come on in the first quarter that will now come on in the second quarter and we will be catching up with that capital. When we look at our annual plan for capital, we are still right on target, but the timing for a few of our projects was a little slower in the first quarter and we are ramping up now.

Great. Thank you very much.

Your next question is from Steve Fleishman with Wolfe Research.

Hi. Good morning. I have got a couple of quick ones.

Good morning, Steve.

You mentioned that GSP is tracking ahead of plan. Could you maybe say what’s driving that?

Steve, the big driver quarter-over-quarter is the LEAP pipeline going into service in the first half of last year. Generally across the platforms, we're running modestly ahead of plan across all the platforms; there isn’t any one item I would call out. It’s a modest positive across all the assets.

And then for GSP—when you look beyond 2021 as kind of growth, could you give a little color on what drives growth beyond 2021 there?

It’s no different than what we have shared in the past. We are focused on our Appalachian footprints and our Haynesville footprint. We are sitting in very good locations in both basins around some of the best resources in the country with pipeline connections to the best markets. We are seeing incremental activity around those assets right now. Some assets have capacity that gives us opportunity to do incremental business. I would expect continued organic accretive growth as we fill in around those assets.

For the Form 10, will it primarily be historical audited financials or are there projections included?

You will see the past three years of audited standalone financials and the first quarter of this year standalone financials. You will also see a pro forma for the full year as a standalone. That’s what will be in the package when it becomes public.

Do you have a handy figure for what the RNG business expects within your guide for 2021 in terms of earnings or another measure?

We haven’t broken out cogen and RNG new development separately. But if you recall, we have been landing about $15 million or more each year of new income generation at P&I. About half of that has been RNG and the other half has been cogen over the last three to four years.

Okay. Great. Thanks so much.

Your next question is from Shar Pourreza with Guggenheim Partners.

Good morning, team. It’s actually Constantine here calling in for Shar and congratulations for the quarter. Good morning.

Good morning. Thank you.

A quick follow-up on GSP and kind of appreciating the color provided. Thinking about the spin of the business and unlocking value by potentially growing the platform both organically: can you update on growth opportunities? You were looking at a 10% CAGR through 2024 before—how has that view evolved in light of improving commodity conditions, some re-contracting like on NEXUS, and updated strategy on GSP post-spin?

As we have talked about in the past, our capital investment agenda for this segment will not be changing. As we approach the spin, we will provide more granularity on the DTM standalone outlook. This year in comparison to the Midstream sector we are delivering a sector-leading year-over-year growth rate. The portfolio is strong and healthy and I look forward to discussing the DTM specific forward view shortly as soon as we can.

A follow-up on post-spin unregulated exposure: given the scale of commodity impacts on businesses that will be shrinking within the RemainCo, does that mean you still need Energy Trading, or will that activity move away post-spin?

Ninety percent of our earnings going forward will be utility-based with about 10% being non-utility. Any growth from our non-utility sector will come from two business lines: cogeneration and RNG. We don’t expect growth from our Trading company. It’s a quite small operation generating anywhere from $30 million to $40 million of cash flow for us, but it provides great market insights and supports our non-utility businesses like cogen and RNG by helping manage market positions and risk around our utility portfolios. It’s a small business, we don’t expect it to grow and we will continue to run it that way.

Short follow-up on P&I and RNG: with local and federal decarbonization efforts ramping up, are you strictly looking at RNG opportunities or potentially expanding into hydrogen value chain, carbon capture, etc.?

We are primarily focused on RNG at this point. That’s where the investment opportunities are and where we see very attractive returns. We are learning more about carbon capture and will look at it as an opportunity, but it seems somewhat more long-term at this point. Hydrogen is very early but promising. We will evaluate how our utilities and non-utility businesses can play into both of those opportunities over time.

Excellent. Thank you for your time and I will jump back in queue. Thanks.

Your next question is from Sophie Karp with KeyBanc.

Hi. Good morning. Thank you for taking my question.

Good morning.

A lot has been discussed already, but I wanted to double check about the qualified plans in the Electric business. When you say you took measures to reduce volatility, does that mean you diversified the assets in those plans differently or is it an accounting measure? How should we think about that?

The main thing we did was match up our assets and liabilities. So, any market movement on one side will be matched on the other, and that will remove much of the market variability we saw in the past. We also limited the size of the plan a little bit. We are confident we will not see those market movements again after the second quarter of 2020, where the losses in the first quarter of 2020 reversed in the second quarter.

Very helpful. Thank you. My other question was on the P&I business. It looks like it might have a little catching up to do to meet full year guidance in the last three quarters versus a ratable distribution. Is that something you envisioned or is it related to electric projects? How should we think about that?

We fully expect P&I to hit its targets this year. We are not concerned about that at all. Feeling real good about the targets and the progress for the balance of the year.

In the next few quarters we see some RNG projects and the benefit of those new RNG projects coming in stronger for us. We are confident those will help us meet the full year guidance.

Terrific. Thank you.

Your next question is from Insoo Kim with Goldman Sachs.

Thank you. A couple of questions. One, when we think about the RemainCo after the spin and the growth in both the utility businesses and P&I with RNG, should we still expect 90% plus of the business over the next five years to be at the utility level?

Yes. We do. Absolutely.

Understood. And then on taxes, part of the Biden infrastructure plan is potential increases in tax rates. Any initial thoughts on impact to cash or rate base growth assuming such changes go into effect?

We don’t expect our growth trajectory to be impacted by the new plan. It may put some pressure on rates and affordability at utilities that we will have to manage, but we believe that will be manageable.

When we saw the tax rate reduction in 2017 that was a 14% reduction. Now the Biden proposal is closer to a 7% increase which could translate to about a 1.5% impact on rates. It would improve our cash position somewhat because cash taxes would lag book taxes, improving our FFO to debt by roughly 0.5% to 4%. The key is continuing to work on cost structure to offset any increase, and that’s manageable without impacting our capital plans.

Got it. And from an O&M perspective over a multiyear period, is there general guidance we should use or opportunities for more improvement?

We are continuing to manage our O&M to keep it well below inflation and it’s an area where we expect to find opportunities. We haven’t given long-term O&M guidance, but it’s a focus to ensure we can continue to fund capital for our customers.

If you look at our O&M performance over the last decade, we’ve been distinctive in the industry with continuous improvement and very low to no increases on an absolute basis.

Understood. Thank you so much.

Your next question is from Anthony Crowdell with Mizuho.

Hey. Good morning, Jerry. Good morning, Dave.

Good morning.

Hey, Anthony.

You mentioned 1,800 megawatts of renewables mostly in the regulated utility. Is there any thought to growing renewables in the P&I business or what's the thought process for renewables in both regulated utility and P&I?

We have a significant effort to increase renewables in the regulated utility. We have 900 megawatts of voluntary renewables lined up and we expect over the next five years to invest about $2 billion in regulated renewables inside our electric utility. In the non-utility business, our niche has become RNG where we see lucrative opportunities and attractive returns, and we were an early mover in that space. We continue to originate strong projects with simple cash paybacks of three to four years and see continued demand growth for that product.

How do you balance returns in renewable projects with the impact on net zero targets? Is there a threshold for accepting lower returns for greener projects, or how do you handle that balancing act?

All of our regulated renewable investments inside our electric utility attract the regulated rate of return with a standard capital structure, so these are accretive projects and we see lots of opportunity to finance these renewables in that manner. With the voluntary program, customers pay a slight premium so there is no impact on base customer rates—a win-win for customers and investors. In the unregulated business, we see nice returns and as long as we continue to see those returns we will deploy capital. Unlevered after-tax returns are in the teens and simple cash paybacks are three to four years, so we will continue to invest in those projects.

Great. Thanks for taking my questions and great job on the quarter.

Thank you, Anthony.

Your next question is from Julien Dumoulin-Smith with Bank of America.

Hey. Good morning, team. Thanks for the time.

Good morning.

I want to come back to RNG and understand the assumptions reflected in guidance versus your comments about looking at other states. You mentioned $24 million baked into RNG earlier and $15 million per year—can you clarify what's reflected in guidance and future expectations?

At our last IR meeting we provided guidance for P&I overall. Dave, if I recall correctly, we are targeting about $130 million to $135 million of operating earnings for that business by 2024.

That’s right. It continues our historical development of about $15 million of new net income a year, much of that within RNG but also continuing to look at cogen and other opportunities in the ESG space to grow the business.

When you think about emerging opportunities outside of California, do you intend to keep RNG small within your overall mix or are you willing to grow it organically into larger scale?

We are trying to keep our mix at roughly 90% utility and 10% non-utility. We will pursue RNG where economics are attractive and deploy capital accordingly. Could it become more dominant within P&I? Possibly, but right now we see a fairly even split between cogen and RNG and that balance feels appropriate given the long-term agreements in cogen versus the shorter-term market characteristics in RNG.

If you strip out GSP, you still have latitude within that 90%-10% mix over the forward years?

Yes. The 90%-10% view we put out takes into account the spin. We plan about $17 billion going into utilities and about $2 billion going into P&I over the five-year plan.

Okay. Excellent. I will leave it there. Thanks, guys.

Your next question is from Angie Storozynski with Seaport Global.

Thank you. Given the RemainCo will have very strong credit metrics post-spin, that typically supports M&A on the regulated utility side. What’s your take on potential M&A opportunities post-spin?

Our base plan is to grow organically. We see that as the most accretive way to create value for shareholders. We have a $17 billion plan, which we are always looking to accelerate. Organic growth is generally most accretive because of book-value treatment and share valuation. Having said that, we are open to buying assets that create value, but it’s not our primary focus.

Do you have a preference for electric versus gas or for electric transmission assets specifically?

Our focus has shifted more toward electric investments in the last couple years. The capital plan is heavy on electric—both renewables and wires. So if we were to deploy more capital on acquisitions, we would prefer regulated renewables and electric transmission and distribution.

Given the voluntary renewables program is ahead of expectations, does that increase your expectations about DTE Electric earnings growth versus prior statements or does it offset some other rate-based growth?

We put $2 billion for regulated renewables in our five-year plan. As we move forward we will update that number. I have been pleasantly surprised by demand. Supply moves quickly into customers and both large industrials and residential customers have strong appetite. We currently have about 30,000 residential customers in the program. I expect investments to continue to grow, but right now $2 billion is our current plan.

Okay. Thank you.

Your next question is from Ryan Levine with Citi.

Good morning.

Good morning.

How have commercial development opportunities in the Haynesville progressed in the last few months? Are you seeing meaningful developments there?

David Slater would normally take this, but I will say we are seeing lots of opportunities around Haynesville and doing some very accretive small projects. David and his team have been successful. We built a 150-mile, 36-inch pipeline that moves volumes from northern Haynesville to Gulf Coast and LNG export markets. We are in discussions with shippers to get projects off the ground. It’s early but encouraging.

On RNG deal structuring, post-spin, would you look to take more duration risk or less given a more utility-focused company?

We use financial instruments to hedge markets and our trading company helps with that. We take a portfolio approach: we hedge, have fixed-price term contracts and leave some open to the market. We generally look for length in contracts and will give up some return to get longer-term agreements. We maintain a portfolio approach.

Appreciate it. Thank you.

Your next question is from Jeremy Tonet with JPMorgan.

Hi. Good morning.

Good morning.

Just coming back to GSP: the LEAP pipeline landing drove the year-over-year improvement—any seasonality we should think about for the business overall?

The primary strength was the LEAP pipeline coming into service last August. In the first quarter of 2020 LEAP was under construction, so this is the main driver of the year-over-year lift. Typically we don’t see strong seasonality in this business. The modest outperformance was due to all platforms running slightly ahead of plan and the LEAP in-service contribution.

Separately, for Midstream, how advanced are carbon capture initiatives you were alluding to? Do you see 45Q as sufficient to make these projects economic and what's the pace you might expect?

45Q is helpful. Combined with state programs like LCFS in California, the economics become more interesting. We will need more support to make larger-scale carbon capture broadly economic; otherwise the cost burden on customers would be significant. California looks more positive than many other states right now.

Got it. That's helpful. Thank you.

At this time, there are no further questions. I would like to turn the call over to Jerry Norcia for any closing remarks.

Well, thank you, and I want to thank everyone for joining us today. I will just close by saying that DTE had a very successful first quarter and we are really feeling strong about the remainder of 2021 and we are busy working on putting a really successful 2022 together and beyond. So I hope everyone has a great morning and stay healthy and safe.

This concludes today’s conference call. Thank you for participating. You may now disconnect.