Earnings Call Transcript - DTE Q1 FY2022

Operator

today. At this time I would like to welcome everyone to the DTE Energy first quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer session. If you would like to ask a question at that time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press star one. Thank you. It's now my pleasure to turn today's call over to Ms. Barbara Tuckfield, Director of Investor Relations.

Matt Krupinski, Head 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 Save 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, and Dave Rood, Senior Vice President and CFO. And now I'll turn it over to Jerry to start the call this morning. Thanks, Barb, and good morning, everyone,

Jerry Norcia, CEO

and thanks for joining us. On today's call, I'll start off by discussing DT's strong start to 2022 and provide highlights on our transition to cleaner generation. Dave Rood will provide a financial update and wrap things up before we take your questions. As shown on slide four, the success that DT has achieved continues to be the result of our focus on employees, customers, and communities. We continue to focus on improving the health and well-being of our team and cultivating deeper employee engagement, which results in being able to deliver service excellence. Beginning with our team, for the 10th consecutive year, DTE earned a Gallup Great Workplace Award. When we won our first award, they told us the hardest thing to do would be to win it again. And now we have done it for a full decade. I'm proud of this recognition, which shows the dedication and engagement of our team. And as you know, we've said before, high engagement is the secret sauce that drives our success I've always said if we serve each other well we can deliver for our customers our communities and our investors and we're doing just that on the customer front one of our top priorities this year is to further harden our system and preparation for the upcoming storm season as you know we experienced extreme weather last year and we are working toward building an even more reliable grid of the future. DTE's reliability plan is focused on four strategic pillars, tree trimming, infrastructure resiliency and hardening, infrastructure redesign, and technology automation. And we are focusing these efforts on the areas that we know are most vulnerable. For tree trimming, we are enhancing our efforts and have greatly increased our investment with a particular focus on the most vulnerable circuits to improve reliability and customer satisfaction. And we know that circuits that have been trimmed have experienced a 70 percent improvement in interruptions and a 65 percent improvement in outage minutes. So we know this effort yields results. We are also converting existing electric circuits to a modern distribution system. Circuits which have been hardened experience an 80% improvement in the average number of sustained interruptions and a 43% reduction in wire-down events. We continue increasing our investment in remote monitoring and control devices, building an advanced distribution management system, modernizing our system operations center, which started operating in February, and enhanced cybersecurity. security. We remain committed to meeting our long-term reliability targets and improving our customers' experience. Moving on to our communities, we are making strides in providing support through our workforce investment priorities, which include increasing the number of jobs for those with barriers, enhancing job readiness, and attracting employers to Detroit and other areas in Michigan. One example of our efforts is the Tree Trim Academy we built right here in Detroit. This program trains individuals to become apprentices, and importantly, it teaches skills to prepare them for the responsibilities of a job. Tree-trim jobs bring prosperity to people who pursue them, and also offer a strong pipeline to longer-term opportunities, such as overhead line work. Upon completion of the Tree-trim Academy, graduates begin their apprenticeship, which takes about two and a half years to complete. During this time journeyman tree trimmers make a good wage with full union benefits for themselves and their

Jerry Norcia, CEO

families it's a great example of matching a business need with a community need and that's

Jerry Norcia, CEO

when we get magic we're proud that our tree trim academy was recently recognized by boston college with its innovation award in the category of transformative partnership with highly engaged employees customers are satisfied with their service and communities that are resilient and thriving we will continue to deliver value for our investors let's turn to slide five we delivered a strong first quarter with operating eps of two dollars and 31 cents fueled by solid performances across all of our business lines and we are on track to deliver seven percent operating eps growth from our 2021 original guidance midpoint at dt electric we filed our first general rate case in almost three years this rate filing is really about moving our infrastructure investments forward and we continue to focus on doing this in an affordable way i'm proud of the work we've done with the michigan public service commission to develop innovative ways to maintain affordability and we will continue to focus on keeping rates manageable as we invest in the system following a very successful 2021 from my green power our voluntary renewables program we hit an important milestone in early 2022 with over 50 000 residential customers now subscribing to the program at dt gas we're accelerating the 35 reduction target of scope 3 customer greenhouse gas emissions a full decade from 2050 to 2040. advancements in greener technologies like green hydrogen carbon capture and sequestration, renewable natural gas, and customer voluntary offset programs will enable the company to accelerate this goal. We also continue our important main renewal work with a target of completing another 200 miles in 2022, ensuring we can continue providing safe and reliable service to our customers. customers. Our natural gas balance program is also progressing, and we have over 6,500 customers subscribed to offset their greenhouse gas emissions. We are proud of how this first-of-its-kind program is growing. Additionally, DTE Gas launched another project that showcases our commitment to a clean energy future in Michigan. We partnered with the City of Grand Rapids to help supply renewable natural gas to fuel their vehicles. This RNG will supply DTE's natural gas fueling stations, as well as power buses and fleet vehicles. At DTE Vantage, we have multiple on-site energy projects and dairy RNG projects coming online in the second half of the year. This is in addition to the conversion project I mentioned on our year-end call that goes into service in 2023. With this new project, DTE and our 50% partner will build a new RNG facility to take biogas from a Michigan-based landfill and convert it into pipeline-quality renewable natural Additionally, we have a strong pipeline of projects that support growth in this business, including additional landfill to RNG conversions. We feel great about our strong start to the year, and we're confident in achieving our 2022 operating EPS guidance. Our robust utility capital investment plan of $18 billion over the next five years and $40 billion over the next 10 years supports our future growth. We have a history of achieving the high end of our operating EPS growth target, and as I've said, we continue to evaluate our long-term growth target and expect to provide an update on this later in the year as we update our five-year plan. We're also targeting dividend growth in line with our operating EPS growth. Now, on slide 6, we're more focused than ever on our environmental initiatives, including several significant milestones in 2022. The Blue Water Energy Center, our new natural gas plant, is on track to go into service later this quarter. This state-of-the-art facility has an 1,100 megawatt capacity and was constructed on time and on budget. Also this year, our Trenton Channel and St. Clair power plants will cease operations. After this transition, roughly 38% of DT's generation mix will be attributable to coal. And by 2028, after we cease coal use at our 1,000 megawatt Bell River power plant, coal will represent less than 30% of our generation mix. We are well on a path toward our net zero emissions goal. As we highlighted last year, we are filing our integrated resource plan in October of this year, continuing to evaluate the opportunity to exit coal use at the Monroe Power Plant earlier than 2040. We hosted meetings for the public to participate in shaping our clean energy plan. Getting our stakeholders input early in the process ensures that what matters most to them is taken into consideration. As we work to achieve the right balance of energy resources that will provide cleaner, affordable, and reliable power for decades to come. I'll just round out my comments by telling you how very excited I am about the position of our company. With the progress we have made and the opportunities we have in front of us, we are off to a strong start in 2022, and we are in a great position to deliver on our targets. We are seeing favorability at both utilities, and we are finding ways to use this favorability to create a highly successful year in 2023, as well as the years beyond that. In the longer term, I've highlighted a number of investment opportunities this morning, including the acceleration of coal retirements and transition to more renewable power, building the grid of the future to combat more severe weather and support the prospect of significant demand growth. And finally, the continued replacement of cast iron main and steel and a gas utility system, preparing that business for long-term success. As you can see, we have a great line of sight of customer-focused investment in our system for the next decade. This puts us in a strong position to deliver for our customers and investors in both the near term and the long term. With that, I'll turn it over to Dave to give you a

Dave Ruud, CFO

financial update. Thanks, Jerry, and good morning, everyone. Let me start on slide seven to review our first quarter of financial results. Operating earnings for the quarter were $448 million. This translates into $2.31 per share. You can find a detailed breakdown of EPS by segment, plan, including a reconciliation to GAAP reported earnings in the appendix. I'll start the review at the top of the page with our utilities. PT Electric earnings were $201 million for the quarter, ahead of our internal plan, but slightly lower than the first quarter last year. The drivers of the variance were higher rate-based costs and higher O&M, which included the additional investment in the acceleration of our vegetation management program. This was partially offset by cooler weather and the acceleration of the deferred tax amortization in 2022 that was implemented to delay the filing of a rate case and keep rates flat during the pandemic. Moving on to DT gas, operating earnings were $196 million, $27 million higher than the first quarter of 2021. The earnings increase was driven primarily by the implementation of base rates and cooler weather in 2022, partially offset by rate-based costs. Let's move to DTE Vantage on the third row. Operating earnings were $14 million in the first quarter of 2022. This is a $14 million decrease from the first quarter last year due to the sunset of the REF business at the end of 2021, partially offset by higher RNG earnings this quarter. We remain on track to achieve full-year guidance at DTE Vantage. On the next row, you can see Energy Trading had another strong quarter, mainly due to strong performance and also some timing in our physical gas portfolio. The accounting timing favorability was largely due to strategic long positions that support physical positions later in the year. Due to these timing-related gains, we're not changing our conservative full-year guidance as some of the favorability could reverse later in the year. Finally, corporate and other was favorable $22 million quarter over quarter, primarily due to the timing of taxes. Overall, DTE earned $2.31 per share in the first quarter, so a strong start to the year puts us in a great position for the remainder of 2022. Let's turn to slide 8. We continue to focus on maintaining solid balance sheet metrics. Due to our strong cash flows, DTE has minimal equity issuances in our plan beyond the equity units that we'll convert later this year. We have a strong investment-grade credit rating and target an FFO-to-debt ratio of 16%. We increased our 2022 dividend by 7%, continuing our track record of growing our dividend in line with the top end of our targeted EPS growth rate. In the first quarter of 2022, DTE completed a green bond issuance of $400 million. This is DTE's fourth green bond issuance in the past five years for a total of over $2.5 billion. DTE is Michigan's leading producer of and investor in renewable energy, and these funds support our net zero emissions goals. Let me wrap up on slide nine, and then we will open the line for questions. In summary, we feel great about the start to the year. Through the remainder of the year, DTE will continue to focus on our team, customers, communities, and investors. We are on track to achieve our 2022 operating EPS guidance midpoint of $5.90 per share, which provides 7% growth from our 2021 original guidance midpoint. Our robust capital plan supports our strong long-term operating EPS growth while delivering cleaner generation and increased reliability and focusing on customer affordability. DTE continues to be well positioned to deliver the premium total shareholder returns that our investors have come to expect with strong utility growth and a dividend growing in line with operating EPS. With that I thank you for joining us today and we can open up the line for questions.

Operator

At this time if you would like to ask a question press star followed by the number one on your telephone keypad if you would like to withdraw your question again press star one your first question comes from the line of Char Perez with Guggenheim partners your line is open hi good morning Jerry and team it's actually

Char Perez, Analyst — Guggenheim Partners

how are you doing congrats on a great quarter and start to the year my first question is on the IRP Michigan had a strong recent data point for of IRP mechanisms like the regulatory acid treatment and the increasing administrative support for clean energy. How does that inform or change the outlook for the October IRP? Do you see a stronger case for some of the accelerated retirement that you've been talking about?

Jerry Norcia, CEO

We do, and we thought it was a really constructive outcome, which continues to be the case here in Michigan. We have constructive policies, energy policies, and a constructive commission to administer those energy policies so we're really encouraged by it we're also really encouraged by the fact that it's a balanced outcome between renewables and dispatchable resources to ensure both reliability and affordability for the state so as it relates to our IRP you know we continue to interact with various stakeholders and taking in their feedback and we are looking to retire Bell River as we mentioned off of coal use in 2028 and convert it to gas and and certainly are looking really hard at how aggressive we can pull forward the retirement schedule for the four units at Monroe, which is our largest coal plant. So much of that is in progress. So, Constantine, we're highly encouraged by the outcome and certainly will support what we plan to file.

Char Perez, Analyst — Guggenheim Partners

Thanks. That's helpful. And as we're thinking about the longer-term financing needs, you notably stand higher than some of the peers on metrics. and combined with the business mix improvement over the years, do you envision more flexibility from rating agencies on thresholds? And is there a range of scenarios where you could utilize some of that dry powder, like you talked about the opportunities on IRP resiliency, et cetera?

Dave Ruud, CFO

Yeah. Hi, Constantine. This is Dave Root. How are you? Yeah, we do still have that pretty conservative 16% FFO to debt number that's in there. And when you look across some of our peers and with rating agencies, that does give us some good headroom to any of the downgrade levels. So we like the position we're in now. We like having that strong position,

Barbara Tuckfield, Head of Investor Relations

but it's something that we'll continue to think about as we go forward. Excellent.

Char Perez, Analyst — Guggenheim Partners

And maybe just a quick aside on DTE Vantage. The focus is still on R&G growth, and we've kind of noted the market getting a little bit more competitive. But there have been some opportunities to include R&G into rate-based under a regulated construct. Is there a potential parallel path forward there?

Jerry Norcia, CEO

Right now we're concentrating on, you know, greenfield projects in the R&G space. And we've been able to find, you know, really nice projects that give us mid-teams type of unlevered returns after tax and, you know, cash paybacks in a three to five year time frame. And as you just saw, we found a project like that in Michigan where we're actually converting it from power generation to R&G. and the IRs are even stronger than the ones I mentioned for those types of projects. And we've got a good list of opportunities in that regard. And, you know, we're very selective because we're only looking for $7 million to $8 million a year to come from that space, and the other half of our growth is coming from on-site projects management of on-site energy infrastructure, and we've got some good prospects in that space as well. And those are typically underpinned by long-term fixed-fee type of arrangements with good IIRs.

Jerry Norcia, CEO

So good pipeline of opportunities there.

Jerry Norcia, CEO

We're still continuing to see a nice growth advantage. And in terms of rate-based, we do have an RNG project that we're doing with the City of Grand Rapids, but it's really their wastewater treatment facility that's producing the RNG. and then we're investing to make a pipeline quality and inject it into our system. So that's some opportunity, but I would say that's modest at this point in time.

Travis Miller, Analyst — Morningstar

Okay, understood. That's a very helpful update. Thanks so much. Thanks for taking the question. Thank you.

Operator

Your next question comes from the line of Jeremy Tenette with J.P. Morgan. Your line is open.

Ryan Carnish, Analyst — J.P. Morgan

Hi, good morning. This is actually Ryan Carnish on for Jeremy. Thanks for taking my question.

Jerry Norcia, CEO

Good morning, Ryan.

Ryan Carnish, Analyst — J.P. Morgan

Good morning. I guess I just wanted to follow up on DTE Vantage there. And I appreciate you guys keep kind of finding attractive projects, but just now thinking through the relative kind of competition in the RNG space, would you consider at any point maybe monetizing that asset or partial monetization, or do you still kind of see a good runway to kind of keep growing it organically?

Jerry Norcia, CEO

Well, we'd certainly see a good runway to continue to grow organically, and we've been really focused on organic development. You know, when you're looking at existing operations, they are attracting a very high premium. So when you asked about, you know, would we consider selling that business, you know, we're always looking for ways to optimize and maximize shareholder value. I think you can see that in our TSR, you know, in the 10, 5, 3-year, and 1-year, we're at the top of our peer set. And that's because we always look for ways to maximize value. So if we do see an opportunity where it could be valued more than how it's currently valued in our portfolio, we would seriously consider that. So always on the lookout for those opportunities.

Ryan Carnish, Analyst — J.P. Morgan

Understood. I appreciate the color. And then just one for me on what you're kind of seeing at this point on the supply chain side. I know solar in particular has been a big focus across the sector. I don't know if there's anything that you kind of note that you're seeing across your supply chain or any concerns you have kind of over the remainder of the year, either on the O&M side or the capital side.

Jerry Norcia, CEO

Yeah, I would say on the solar piece, obviously that's a big topic in the industry with a recent Department of Commerce matter that's evolved that I'm sure many of you are familiar with. And, you know, for 2022, there's no impact. We have what we need. We did have a build in 2023 of about 300 megawatts that we're looking to build to support our voluntary program. If that was delayed into 2024 because of the Department of Commerce actions, they're really of no impact on our 22, 23 earnings, and we can manage through that quite easily. If it persists longer term, certainly we have a deep portfolio of capital investment opportunities at our utilities that we could deploy, as we've mentioned before. But we're still really excited about our voluntary program. We've got about 1,000 megawatts signed up already, another 1,200 in what I would say late stages of negotiation. So it's still a very active program, and our customers love the product. So we're hoping that this issue with the Department of Commerce resolves itself quickly.

Barbara Tuckfield, Head of Investor Relations

Sounds good. Thank you. Your next question is from the line of Julian Dumoulin-Smith with Bank of America.

Operator

Your line is open.

Darius, Analyst — Bank of America

Hey, good morning. This is Darius on for Julian.

Operator

Thank you for taking the question.

Darius, Analyst — Bank of America

Good morning. I just wanted to touch on briefly about, I think you mentioned in the opening remarks, later in the year, expecting an update on the long-term cadence. Just curious, are you waiting on any specific inputs or developments between now and that expected update, or is it more just a preference to maintain your historical cadence of giving that update, usually in the November timeframe?

Jerry Norcia, CEO

Well, I would say that one of the key things that we're looking to finalize is our integrated resource plan, which we will file in October. And that will provide significant instruction, if you will, in terms of what our long-term capital plans will be. And so that's why we're timing it with sort of a fall period in terms of updating our long-term five-year plan. And that's pretty traditional how we do it. So I think two reasons. One is the IRP really will shed light on our long-term capital plans as we look to transform our generation fleet. And secondly, it's usually the time that we do update our five-year plan.

Darius, Analyst — Bank of America

Great. Thank you. That's very helpful. One more, if I could, just on how things are shaping up here in 22. It looks like, once again, the energy trading segment did quite well in Q1. Just curious, are you expecting now, given that strong result in Q1, to be trending to the upper end of your guidance range for the year? or perhaps are there other items that you're seeing coming up later on in the year that might mitigate that?

Jerry Norcia, CEO

So I'll start by saying that Dave and I both mentioned in our opening remarks that all of our BUs are building contingency, our electric company, our gas company, primarily due to weather, and certainly Vantage is tracking ahead of plan as well. And, of course, you've seen the results at trading, which are also tracking significantly ahead of plan. So we will likely provide enough after the second quarter as to where we expect our EPS to trend towards, as we have a good feel for the summer weather shaping up. But I can tell you that we are building contingency above our midpoint at this point in time. Okay, great. Thank you. That's very helpful. I'll pass it along here.

Operator

Thank you. Your next question is from the line of Angie Storazinski with Seaport. Your line is open.

Angie Storazinski, Analyst — Seaport

Thank you. I was just wondering, given what we saw in the MISA capacity auction, that the region Clarity is struggling to manage the load with generation resources, and granted that it's just one year forward, but is there any thought that maybe you might be rethinking the timing of your

Jerry Norcia, CEO

co-planned retirement? Well, thanks for the question, Angie. You know, the retirements that we've made have been essentially replaced almost completely by two acquisitions, gas plant acquisitions that we made about five or six years ago, and also the construction of the new Blue Water Energy Center, which is an 1,100 megawatt combined cycle plant. So we've brought online into our portfolio over 2,000 megawatts of dispatchable generation to replace the 2,300 megawatts of coal retirements. In addition to that, we've built wind as well, which also provides energy, not necessarily a lot of capacity during the summer months, but certainly provides energy supply. The state is running tight on capacity, and there is concerns about how the state moves forward in that regard. But we feel like, from our perspective, we've got adequate supply to supply our demand. Now, we do have coal plants that have been retired and will retire, like the St. Clair Power Plant, for example, is 1,100-megawatt coal plant that, if necessary,

Jerry Norcia, CEO

we could bring back online if there was an emergency situation. But that's certainly

Angie Storazinski, Analyst — Seaport

something will rely on my soul to make a determination okay and then um moving on to vantage um i heard your comments about um you know looking at ways to extract value from this business but um you know we would it would be great if you guys could provide us with some additional disclosures especially around that and segmentally for that business now um when you look at public comps for RNG company and some for district energy do you I mean do you see the differences between the assets that you have and develop and those that have been changing hands or we think that those public comps are just you know good good indicators of the value of these assets of your assets

Jerry Norcia, CEO

yeah we're looking at those pretty hard Angie and watching them and then comparing them to how we feel it's valued in our portfolio. So we're constantly looking at those, but it's something that we're looking at very hard always to see are we the better owners or are others better owners of these assets. I can tell you that provide nice cash flows and nice returns for our current investors, but, Andrew, we remain very open to creating value always. If there's an opportunity to create incremental value, we will pursue it. okay thank you could you repeat angie could you repeat that question on the disclosures i

Angie Storazinski, Analyst — Seaport

yeah i was just because you guys showed us i i don't see any slide on on on vintage in today's presentation i think i didn't at least um in the past you guys showed us a breakdown of net income um i was hoping that we could see a breakdown of ebitda because of those peers and other you know private transactions that have happened with like SIWA and Oveolia were done on EDT, the dam multiples, and I was just hoping that we could get some insight into that.

Jerry Norcia, CEO

Great. We'll note that, and thanks for that feedback.

Angie Storazinski, Analyst — Seaport

Awesome. Thank you.

Jerry Norcia, CEO

Thank you.

Operator

Your next question is from the line of Insoo Kim with Goldman Sachs. Your line is open.

Insoo Kim, Analyst — Goldman Sachs

Hey, guys. Thank you. First question, going back to Advantage and just more on a fundamental basis, is how do we think about in a higher-priced gas environment that we're in currently how the, I guess, the demand for RNG projects in that realm gets impacted at all by that? I'm just curious on your thoughts on whether you've seen any changes there.

Jerry Norcia, CEO

We haven't seen any fundamental changes, certainly in demand. You know, most of this product goes into the transportation markets, especially the dairy gas, really goes into the California transportation markets. And so we have not seen a change in demand. We have seen some changes in the federal pricing for the product as well as the California pricing for the product. But overall, the pricing is right on top of our Performa. I don't know, Dave, if you want to add anything to that.

Dave Ruud, CFO

I think that's right. And I think as we're seeing more LDCs put RNG goals into their system, We're actually seeing the demand for R&G over time. It still feels like it's going to be rising. So I think demand for the product is going to be going up.

Insoo Kim, Analyst — Goldman Sachs

Understood. That's what I was thinking. I just wanted to give clarification on there. And then my second question, I guess, you know, obviously, whether it's labor or materials, inflation on the cost side, you know, impacting, you know, the entire world. But, you know, I did see on the electric utility segment, you pointing out O&M a little bit, but just broadly, you know, given the contingencies that you have, I think you're relatively comfortable to manage that. But just with the trends you've seen, have the increase in whether it's labor costs or materials costs been, you know, more pronounced than you would have expected, I guess, when you just a few months ago when you gave guidance?

Dave Ruud, CFO

Well, this is something we're watching very closely, and we are planning accordingly to ensure no negative impacts to our plans. First, I'll say we've demonstrated a long history of being able to manage costs effectively, including inflation. And so far, we're not seeing the impacts of inflation here, and I think it's really how we're structured now. About 85% of our spend is through services, and we just haven't seen as much inflation there. And then we also have a lot of long-term contracts that serve us well through these periods so overall not seeing any negative impacts to our plans for the year, our longer-term plans. The O&M at electric was a little higher but that was mainly due to accelerating some of our tree trim spend that we wanted to get through quickly to help our reliability as we came through for the summer but not an inflation impact there okay that's a good color thank you so much

Operator

your next question is from Jonathan Arnold with vertical research partners

Jonathan Arnold, Analyst — Vertical Research Partners

your line is open hi good morning guys just on vantage you obviously said here that it's the head of plan and I think you raised the plan last quarter when we look at the where the quarter came in relative to annual guidance it looks you a good bit below what just the average run rate would be. So can you maybe talk a little bit about seasonality in that business post-ref and also just to what extent that catch-up is going to come from new projects, et cetera?

Dave Ruud, CFO

Yeah, that's a good question. I think you nailed most of the answer in your question. First, we do feel really good about this segment and where we are relative to our year-end guidance and being able to come in at that. So this quarter is lower than the expected annualized number, but it's primarily due to some known plant outages that we had. So it's going to be made up through the year as that happens. And then we do have some projects that come online, some RNG and some industrial energy service projects that come online later in the year. So I still feel really good about our guidance for this segment.

Jonathan Arnold, Analyst — Vertical Research Partners

Great. Thanks for that, Dave. And then just on trading, you talked about operating and then also some of it was timing. Maybe unpack for us a little bit how much is timing that you think may reverse and how much is sort of just straight out performance.

Dave Ruud, CFO

Yeah, we had a great quarter in trading.

Travis Miller, Analyst — Morningstar

And it's primarily all came in our gas physical business where we're serving LDCs and producers.

Dave Ruud, CFO

And what we saw is a lot of it is just great performance, but about half of it could be timing that will play out later in the year. So that's why we're not raising guidance on this right now is because we want to see how that timing plays out. But it's a little over half of it was performance. it was performance. And then there's some that is timing that we have hedge positions that can change or that can come down as we flow the gas later in the year. So it sounds like you're saying

Jonathan Arnold, Analyst — Vertical Research Partners

it may reverse, but you're not committed. You don't necessarily see that. Right. There is some

Dave Ruud, CFO

that some we know will reverse and some that may reverse. Okay. And then maybe if I could squeeze

Jonathan Arnold, Analyst — Vertical Research Partners

in one other, just a high level on some updated thoughts on just where you see customer bill trajectory shaping up relative to inflation out there. You've obviously got the rate case. We've got fuel costs on the ARP. You've been pretty good at finding ways to mitigate the bill pressure, so maybe just some thoughts around that too. Sure. Jonathan, maybe I'll start and Dave can

Jerry Norcia, CEO

add to it but let's start with the electric generation portfolio you know one of the values of having a diversified portfolio where we've got wind nuclear gas and coal in a portfolio it allows us to sort of weather some of the commodity pressures as well as the fact that with our coal purchases were purchased through 2023 from a price perspective so we feel really good about our coal purchases which is the bulk of our generation assets at this point in time and of course nuclear is also we're purchased through 2028 so we feel good about that as well so i feel on the generation side the fact that we have a diversified portfolio and that we're somewhat hedged for some time helps soften the commodity price pressures that the industry is seeing. On the natural gas business at LDC, we've got north of more than 75 percent of our gas purchased for the winter of 22-23, and about 25 percent purchased from a price perspective for the 23-24 winter. And that's just normally how we've bought gas at the LDC for over a decade, and it helps smooth the ups and the downs in gas pricing for our customers. But if these prices persist for multiple years, then I think we will start to see pressure and we're starting to look at ways on how we can offset those pressures through cost reduction initiatives as well as revenue initiatives that we see opportunities developing in our business. So I don't know if that helps, Jonathan.

Jonathan Arnold, Analyst — Vertical Research Partners

Yeah, it's great.

Barbara Tuckfield, Head of Investor Relations

A little sort of good context there. Thank you, Jerry. Your next question is from Andrew Weisel with Scotiabank. Your line is open. Hi, thank you. Good morning, everyone.

Andrew Weisel, Analyst — Scotiabank

Good morning. How's it going? Good, thanks. My first question is I want to follow up on renewables. I appreciate your comments on the DOC and supply chain concerns, but what about the more local issues? How big of a challenge are NIMBY issues in Michigan or the debate around rooftop solar and cross-subsidization? And just sort of how do you think about those risks potentially impacting your near-term plans?

Jerry Norcia, CEO

So I would say, you know, we've got a really, Andrew, we've got a really strong land position for solar, and we're working really closely with municipalities to ensure that there's a productive outcome when we go for permitting. And that's usually where, you know, as you mentioned, there can be pressure points. And we certainly secure more acres than we will likely need because we know that there's always going to be problems with some of the acreage that we've optioned for the solar developments, but I can tell you that we've optioned tens of thousands of acres, and we feel pretty confident that we can execute the plan that we have in front of us over the next handful of years and beyond. So that feels good. In terms of rooftop solar, certainly customers are open to put rooftop solar at any time, and I think we've got legislation that limits how much can be highly subsidized and there is always a continuing debate as to how much rooftop solar should be subsidized. Now, what I will also say is that we're offering solar products to our residential customers and, as I mentioned, we're over 50,000, I think we're around 55,000 customers signed up already and we're signing up customers every week because the cost of utility scale solar is about a third of the cost of rooftop solar and you don't have to drill thousands of holes in your roof. so it seems to be a desirable product that we're offering so not only is it customers can do it if they like and they can do as much of it as they like but without subsidy and we can also offer them an alternative

Jerry Norcia, CEO

but it is a continuing debate

Andrew Weisel, Analyst — Scotiabank

Great, thank you, that's helpful and my follow-up is, forgive me I'm going to ask about the IRP even though it's still months away but my question is almost more philosophical To whatever degree Generation CapEx might exceed what's in the current plan for the next few years, would you scale down spending in other categories like distribution in light of either affordability concerns or balance sheet pressures, or would that just be upside?

Jerry Norcia, CEO

We obviously, in order to inject more capital into the plan, we have to find ways to create room for it from an affordability perspective. You know, overall, we've got, you know, very large inventories of capital that we could deploy on the distribution side and certainly even on the generation side as we start to build out our renewables portfolio first and then eventually build baseload plants to support the retirement of large coal infrastructure. You know, the limiting factor for us is always affordability. So as we introduce more capital into the plan, we have to find ways to offset it with affordability initiatives. And some of those affordability initiatives are enabled by our renewables investments. So, for example, this year we filed for the first time in my memory a reduction in O&M expense on an absolute basis in our rate case because of the conversion from coal to gas and to renewables. The operating expense is much lower. And so there is an offset that our capital programs do create, but our capital programs also do create pressure. So a long way of saying is that we will manage affordability and we will drive distinctive growth.

Barbara Tuckfield, Head of Investor Relations

for our investors. Thank you. That's very helpful. Your next question is from the line

Ryan Levine, Analyst — Citi

of Ryan Levine with Citi. Your line is open. Thank you for taking my question. What's your current outlook for volumetric trends for residential and industrial customer load for the remaining portion of the year? Yeah, you probably saw our quarter over quarter results

Dave Ruud, CFO

and our residential versus last year was down about a percent and our commercial was back up two percent and our industrial you know was overall pretty flat so overall our load was flat versus last year what we are still seeing is um you know some increased residential usage you know from what we would have thought where we'd be pre-covid we expect that to start coming down and we're starting to see that come down as more people are returning to work so we're we expect that to trend trend back down but we're still seeing some upside there but overall load pretty flat according or versus last year okay and then on energy trading just want to make sure i heard

Ryan Levine, Analyst — Citi

this correctly if you're saying about 50 of the contribution for the first quarter is is cemented and the other half is more volumetric or exposed to events and later in the year that kind of puts you at the high end of the range just from the first quarter contribution um is there any reason to believe that you wouldn't continue to return from that segment for the remaining portion of the year that wouldn't push you above your range? Well, we like to manage that business really

Dave Ruud, CFO

conservatively and have some contingency built in there. So we tend to do well in the second half of the year as we have some of these things flow, but we just want to remain conservative right now in this area, so we're not moving our guidance at this point.

Ryan Levine, Analyst — Citi

And what role do green bonds have for the future financing plans for D.C., and what are the drivers of the recent financing decisions?

Dave Ruud, CFO

We see the green bonds as supporting our renewable and our green initiatives and gives bond investors an opportunity to participate in that. So as we continue to grow our renewable portfolio, We expect to have more of that and be able to utilize more of that in the future to help support that.

Ryan Levine, Analyst — Citi

Is there any contingencies around certain renewable generation content within your portfolio?

Dave Ruud, CFO

These go to specific projects and assets, and so they have to go towards those assets that they work. So it's not to the overall portfolio, but they're aimed at particular renewable assets.

Ryan Levine, Analyst — Citi

Okay, appreciate it.

Operator

Your next question is from the line of Michael Sullivan with Wolf Research. Your line is open.

Michael Sullivan, Analyst — Wolfe Research

Hey, everyone.

Jerry Norcia, CEO

Hey, good morning, Michael.

Michael Sullivan, Analyst — Wolfe Research

Hey, Jerry. Just wanted to follow up quick on the sales commentary there. In Q1, maybe just for Dave, actually, it looked like industrial actually ticked down a little bit, whereas the recent trend has been kind of upward. So is that just like a one-quarter thing or any additional color around that?

Dave Ruud, CFO

Yeah, it's more of a quarter thing. It's because of the chip shortage that we're seeing across some of the autos and some of the areas that we just had to have a dip there. I don't think it's – it's not a long-term. There's not been any additional shutdowns or closing. It's just the chip shortage for the manufacturing sector.

Michael Sullivan, Analyst — Wolfe Research

Okay, great. Yeah, that makes a lot of sense. And then also just wanted to clarify on the DOC impact on solar. Maybe you could just give me, like, what the current plan is for solar additions. Like, I think you said you're all good on 22, but how much solar are you adding this year? And then next year, the 300 megawatts that's impacted, is that all the solar? Or do you have some additional that is unimpacted? Maybe just a little more on that.

Jerry Norcia, CEO

Yeah, this year we're good. You know, we're sitting at about 500 megawatts built, you know, for our voluntary program through this year. And next year, we're planning to build about 300 that we would build, and then 200 we would expect in PPAs. So right now, our vendors are telling us they're going to furnish. But, you know, with the DOC, you know, we're thinking in the worst case that it gets pushed a year into 2024. and certainly we can manage that in our plan for next year and if it was to push beyond 24 which we highly doubt but then we we have started to think about what other contingencies we could pull in terms of capital deployments we've got a you know as you know a deep pool of potential investments we could bring forward and pull forward so we're that's how we're thinking

Michael Sullivan, Analyst — Wolfe Research

about it right now okay great how much is planned for 2024 as is right now i don't think we've put

Jerry Norcia, CEO

that out there yet um dave or barb i mean 2500 megawatts is what we got over five years so i could give you a feel as to how big the program is over over a five-year period

Operator

awesome okay thanks jerry appreciate it thank you your next question is from the line of anthony cradle with mizuho your line is open hey good morning jerry good morning dave morning anthony

Anthony Cradle, Analyst — Mizuho

how are you? Good. You guys seem to have a high class problem, like less than 10% of your business generates all the questions. I guess that's a good thing versus everybody questioning 90% of

Jerry Norcia, CEO

your business. We think we have a high class company, Anthony, for sure. Most of my questions

Anthony Cradle, Analyst — Mizuho

answered just a quick one I have. I think a nice data point with the IRP filing with CMS reaching a settlement you guys have a pending electric case you haven't settled in the electric you know rate environment since i think 2006 um is it likely that you settle here or the company

Jerry Norcia, CEO

continues on the track maybe going fully litigated well we're going to uh certainly engage all the stakeholders in a in a potential settlement and uh because it's a pretty straightforward case i mean really we're not asking for more o&m expense we're actually asking for less and it's really all about infrastructure that's very necessary for the state uh primarily pointed at our electric grid and also the continued uh transformation of uh of our generation fleet so um pretty straightforward case um you know our strategy is that we'd like to settle uh we'll know more in the middle of may anthony when we see the uh staff filings and intervener filings and and then we'll engage and uh try to close it out before the end of the summer if we can but uh whether we settle or litigate we've had very very constructive outcomes as you've seen in

Anthony Cradle, Analyst — Mizuho

the state of Michigan great and I guess just lastly on I think your potential IRP with maybe one difference between yours and the other IRP is I think your your plan also includes new generation being built and as you did mention earlier this state is maybe running tight in capacity do you think that maybe draws any additional scrutiny or just the capacity needs of the state are really outweighing, you know, or dispatchable need for generation really outweighs anything else?

Jerry Norcia, CEO

You know, certainly, you know, we have a very pragmatic commission and administration, and there is an understanding that, okay, you know, we want to decarbonize the economy, but we have to do it in a way that still makes sure the lights come on and that our industrial base continues to function properly and reliably and that it's affordable. So we will file for new baseload generation assets in the IRP. I expect to do so just because we've got over 3,000 megawatts down in Monroe that will come offline over a period of time, and we have to have dispatchable generation in that part of our system in order to make the system work, to make the grid work. And I think that's understood. I think there will be people that won't like that, but there are people that will love the fact that we're going to build 5,000 to 7,000 megawatts of renewables. So it is a balanced portfolio, and that will achieve all of the objectives, reliability and decarbonization and affordability.

Anthony Cradle, Analyst — Mizuho

Great. Thanks for taking my question. I really appreciate it. Congratulations on the quarter. Thank you, Anthony.

Operator

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

Travis Miller, Analyst — Morningstar

Good morning, everyone. Thank you. You answered most of my questions. In particular, I had a question about the customer bill affordability. But just to follow up a little bit on that, what about in the rate case? Are there any levers that you could pull or adjustments you could make for perhaps earnings neutral adjustments in the rate case that would mitigate some of the potential customer bill impact

Barbara Tuckfield, Head of Investor Relations

either later this year or next year? Dave, do you want to take that?

Dave Ruud, CFO

Yeah, I think what we do focus on to mitigate the customer bill impact is really focusing on our own O&M and what we can flow through there. So we continue to focus on our continuous improvement efforts, our productivity and efficiency improvement, and playing that through. I think as far as individual things within the rate case, I think we're in the active filing there. So I think all that's probably already in there. But for future affordability, that's really where our focus is, is ensuring that we have the best cost structure that can allow the capital-focused investment, the customer-focused investment we need to do for reliability and clean generation.

Jerry Norcia, CEO

and i would say travis in addition to that that we've uh you know we've stayed out of a rain case for two and a half years by being really creative and we did that intentionally because the pressure our customers were under during covid and um i think um so we've gotten creative in the past and as dave said we will be creative in the future and i think our continuous improvement culture also continues to find unique and creative ways to uh keep driving our cost structure down And so we expect more of that. And plus, our capital investments are pointed in many instances at structurally removing costs to operate our system.

Travis Miller, Analyst — Morningstar

Sure. Okay. Great. Thanks. And then just real quick, any updates in terms of electric vehicle initiatives or anything this quarter, or last quarter rather, that's worth mentioning?

Jerry Norcia, CEO

Yeah, we continue to deploy our electrification program where we're in our second tranche of $14 million. We had $14 million of investment approved in the past, and now we're in the middle of the next $14 million. And I can tell you this, that the number of EVs connecting to our system is going up.

Jerry Norcia, CEO

We're seeing it well north of 500 EV attachments.

Jerry Norcia, CEO

It's, actually, if I got there, about 1,000 attachments a month. So it's a good program, and it's moving attachments forward. And that's up from a couple of hundred just a couple of years ago. So we're seeing significant growth. It's still pretty small, pretty modest. It's not going to move the needle just yet. But there is a ramp. And, you know, I was talking to some of the senior people at Ford Motor Company and General Motors. I mean, their factory's got huge backlogs for EV orders, and they're trying to figure out how they're going to build all this. built through all this demand. So, tremendous demand. So, we expect the pattern of significant growth to continue over the next several years. Oh, great. Thanks so much. Let's all ahead.

Barbara Tuckfield, Head of Investor Relations

Your questions at this time. I will now turn the call back over to Mr. Jerry Norcia.

Jerry Norcia, CEO

Thank you, Brent. And thank you all for joining us today. I'll just close up by saying that DTE had a very successful first quarter. And we're feeling really good about the remainder of 2022, too, as well as our position for future years. I hope everyone has a great morning, and we look forward to seeing many of you at AGA in a few weeks. Have a good day. Ladies and gentlemen,

Operator

thank you for your participation. This concludes today's conference call. You now disconnect.