DTE Energy Company (DTE) — Q1 2015 Earnings Call Transcript

Thank you, Dana and good morning everyone. Welcome to our first quarter 2015 earnings call. Before we get started, I would like to remind you to read the Safe Harbor statement on page two including the reference to forward-looking statements. Our presentation also includes reference to operating earnings, which is a non-GAAP financial measure. Please refer to the reconciliation of GAAP net income to operating earnings provided in the appendix of today’s presentation. With us this morning is Peter Oleksiak, our Senior Vice President and CFO; Jeff Jewell, our Vice President and Controller, and Mark Rolling, our Vice President and Treasurer. We also have members of our management team with us to call on during the Q&A session. I would like to turn it over to Peter to start our call this morning.

Thanks Anastasia and good morning everyone and thank you for joining us today. Hope everyone is enjoying the start of the spring season; this is definitely my favorite time of year. Like how the weather is gradually getting warmer, especially after going through another cold winter, but as many of you know the real reason I like this time of year is that it brings another baseball season for my Detroit Tigers. As on year-end call, I’ll provide an update and excited to report that the Tigers are starting out the season with one of the better records in baseball. We just came off a pretty tough series with the New York Yankees, so hats-off to the Yankees. There is a saying in baseball that you can’t win the pennant in April but you can lose it in April. The Tigers have set themselves up nicely the first month of this season. Sitting here in the middle of Hockeytown; I also have to mention that Detroit Red Wings are making their 24th consecutive playoff appearance. We are hoping for a deep run in the playoffs. Now, I’d like to transition from talking about the hot sports teams in Detroit to DTE. Let me start first by saying that DTE is certainly positioned to have a good year as well. Jeff and Mark will be going through first quarter results in more detail but I’ll just say that we had a very successful quarter and are on track to achieve our earnings and balance sheet targets in 2015. Before we move to quarter results, I would like to do a quick overview of our business strategy as well as some highlights of what’s happening at DTE and in Michigan. Our growth plans for the next 10 years at both utilities are highly visible. Our electric utility growth is driven by environmental spend in the near-term and renewal of our generation fleet in the longer term, which will involve the natural replacement of our aging coal fleet. Our gas utility growth is driven by infrastructure investment and the mainline pipe replacement. Complementing our utility growth are meaningful growth opportunities in our non-utility businesses, which provide diversity in earnings and geography. Our two utilities are deploying capital in a very constructive regulatory environment. And we’re working hard to earn this constructive environment every day. Our efforts begin with a highly engaged workforce. We found out last week that we won the Gallup Great Workplace Award. We’re the only utility to win that award and actually won it three years in a row. We also have a continued focus on continuous improvement. The combination of these two, employee engagement and continuous improvement enables us to continue our cost savings track record and our utilities’ ability to consistently earn their authorized returns. We continue to focus on operational excellence and customer satisfaction that we believe are distinctive in our industry. We have certainly seen positive results on this front as currently DTE Gas is ranked highest by J.D. Power among our peers for residential and business customer satisfaction. Our dividend continues to grow as we grow earnings and our goal is to maintain a strong BBB credit rating. This strategy provides for a consistent 5% to 6% annual EPS growth. Let me start first with Michigan’s energy policy. This is a major area of focus this year and I know that the people on this call are very interested in its status update. I feel there is positive momentum for constructive legislation. We expect this to occur by the end of the year and quite possibly by mid-year. This is the priority of the Governor and he called out publicly the need to get legislation done this year. The House lead, Aric Nesbitt has introduced legislation and the Senate lead, Mike Nofs is about to. The process is in slow motion. I’ll touch more on Energy Policy in a few minutes. Quick update on the various rate filings for our two utilities. We expect a rate order for our electric cost of service filing by June. This filing will deliver refined cost of service rates to our customers and our business customers will see sizable rate reductions. The rate case process is ongoing for electric general rate case filing that we put in December last year. This is the first rate case we have filed in four years and it’s predominantly a recovery of the $3 billion of capital investment deployed since our last filing. We expect to submit rates in early July and receive a final order by the end of the year. For DTE Gas, we expect to receive an order this year for our expanded infrastructure recovery mechanism application that if approved will allow us to double the annual miles of our mainline replacement program. As you know, DTE Electric completed the acquisition of a 700-megawatt gas-fired peaking plant earlier this year. We also received the results of our recent RFP for up to 350 megawatts of additional peaking generation and are currently in late stage negotiations. We look to announce the transaction next month and close this transaction later this year. With this purchase, full service customers’ capacity requirements will be covered during the summer timeframe. We felt it was very important to secure Michigan space generation for our full service customers, given the projected capacity shortfall in the state of Michigan next summer. On the non-utility front, we’re definitely moving on all cylinders; the progress on a number of projects in our gas storage and pipeline business, we’re working through the details of a successful open season for the Millennium Pipeline. We’ve talked about this potential expansion, given the needs of the East Coast LDCs and the critical role the Millennium Pipeline plays in delivering Marcellus gas to market. This is another major milestone for our gas pipeline business and helps firm up future year growth. Let’s share the details of the expansion once we’re through finalizing commercial terms of the contracts. For our NEXUS Pipeline, we have enough commitments and additional prospects to move forward with a 1.5 BCF pipe. Currently, we’re progressing through the pre-filing process quite nicely. The most recent activity is around finalizing right of ways and the final path for the pipe. Our goal is to follow the FERC application early in the fourth quarter of this year. We also expect the fourth quarter to be an in-service date for both the NEXUS Pipeline as well as the Millennium expansion, I touched on earlier. In our power and industrial segment, we have a number of projects moving along including an 8-megawatt on-site cogeneration project that went into service this quarter. For our REF business, we’ve signed a contract to operate a third party REF facility that begins operations in the second quarter of this year. This operating agreement will run through 2020 and has already been included in the guidance we provided. Regarding REF locations, we’re continuing to work on the relocation of our ninth unit and expect this later this year as well as potential optimization opportunities with our other units. We are off to a strong start across our portfolio of businesses and we’re optimistic on having another successful year in 2015. Let me now move to update the Michigan economy and the updates on energy policy legislation. On the road we get asked quite a bit about how the economy is progressing in Michigan and with the city of Detroit; on slide seven is a positive commercial update for both. We continue to see economic momentum in our state. Michigan’s unemployment rate in March was 5.6%, which is the lowest since September 2001. Year-over-year, Michigan’s unemployment rate has dropped a full 2 percentage points. This is the second largest improvement in the country. We continue to see improvement in other economic indicators including increases in residential customer and business customer accounts and our forecasts show this trend continuing. You can see on the page that Michigan is showing growth by moving up 8 spots in the state ranking of Real Gross Domestic Product. Michigan now is in the upper 50% of all states in terms of growth. I also want to highlight the city of Detroit’s economic rebirth. I believe the city has come a long way since the bankruptcy filing on many fronts. One indicator that we show on this slide is that the Detroit metro area ranks number eight in the U.S. for the number of new expansion projects. The city’s rebirth is largely due to the strong leadership we have in this city. DTE as well as other city partners are working with them to help continue this momentum. Moving on to slide eight, I am now going to turn to an update on energy policy. As I mentioned earlier, Governor Snyder has made it clear that energy policy is an important legislative priority for him this year. He called out the need for new legislation in a state of the state address and provided more detailed goals in his energy message in March, highlighting this significant transformation in the generation sources that our state will undertake over the next 10 to 15 years. Michigan also has strong leadership in both the House and the Senate regarding Energy Policy. Representative Aric Nesbitt, Chair of the House Energy Policy Committee, thoroughly understands the future energy policy needs of our state. Senator Mike Nofs, Chair of the Energy and Technology Committee, is very seasoned when it comes to Energy Policy. He is one of the principal architects of Michigan’s 2008 energy legislation and will be introducing legislation shortly. In recent interviews he has indicated that he will include design changes to the retail access program to make it fairer and that it will also contain a longer-term generation integrated resource planning process, which will give us upfront review and approval of our coal plant retirement and replacement. We expect legislation to be completed this year and are confident that Michigan has the strong leaders in place that understand energy and utility dynamics and will provide constructive legislation for Michigan’s future this year. In a minute I’ll turn the call over to Jeff and Mark to review the quarter results, but before that I just want to highlight that we’re on track to achieve our earnings guidance. So on slide nine, this slide shows our EPS history and our target of 5% to 6% growth. As I mentioned before, we expect to grow our dividend with earnings. The chart shows our current 2015 guidance midpoint of $4.60 with the next page showing our earnings guidance by segment. So, you can see on slide 10 that we are holding our EPS guidance range of $4.48 to $4.72 for 2015. This slide shows 2015 year-to-date actuals compared to the full year guidance. Just like last year, weather favorability helped provide a strong quarter for utilities, particularly on the gas side as we again hit one of the coldest winters on record. Our non-utilities also had a strong first quarter. Jeff will take you through the details of our quarter results shortly. Like last year, we will reserve this first quarter favorability as contingency for summer weather variability. The bottom line is there are no changes in guidance at this time, but we’re off to a strong start.

Thanks, Peter and good morning, everyone. Let’s turn to slide 12 to review the quarterly earnings performance. For the quarter, DTE Energy’s operating earnings were $1.65 per share and for reference our reported earnings were $1.53 per share. You can find a reconciliation of the first quarter reported to operating earnings on slide 24. As you know, Michigan and the rest of the Northeast had significantly below-normal temperatures in the first quarter of both 2014 and 2015, including setting a couple of records. For us, the majority of the weather fluctuations can be seen in our gas segment. Here are a couple of data points: The first quarter of 2014 set the record for the coldest quarter in over 60 years. The first quarter of 2015 was the third coldest, and February itself set the record for that month. Now for the quarter-over-quarter results, our growth segments first quarter operating earnings in 2015 were lower by $10 million or $0.06 per share. The electric segment was equal to the first quarter of 2014. This was primarily due to fewer storms year-over-year which drove lower operating and maintenance expenses offset by increased rate base growth cost driven by increased capital investments. The gas segment was lower by $18 million, driven by the extreme weather experienced in the first quarter of 2014. The major contributors to the quarter-over-quarter decline were the weather of $11 million and weather-related storage and transport of $7 million. Gas storage and pipelines earnings were $6 million above the prior year. This increase was primarily due to volume growth in the Bluestone Pipeline and Susquehanna gathering assets, partially offset by weather-driven storage earnings in 2014. Our Power and industrial projects segment was up $18 million versus 2014. A good portion of this variance was due to our REF business. As we saw last year, performance in REF can vary depending on the underlying volumes and the timing of new relocations. As a result, we expect much of the REF favorability to reverse out over the balance of the year, more than offsetting underlying growth from new relocations and projects. In addition, we do expect some of the $18 million of favorability to flow through from growth in our renewables and on-site businesses related to new investments that came on line in 2014 and early 2015. Our corporate and other segment came in unfavorable by $16 million versus last year. This variance is primarily due to an effective tax rate adjustment which will reverse within the year. As a result, we remain comfortable with our earnings guidance range for this segment. Again, the overall growth segments’ results for the quarter were $282 million or $1.58 per share. On the energy trading side, operating results for the quarter came in at $12 million with economic net income of $20 million, both the power and the gas business lines contributed to these results. Please refer to page 23 of the appendix to review the energy trading standard reconciliation page, which shows both economic and accounting performance. That concludes the update on our earnings for the quarter. I’d like to now turn the discussion over to Mark, who will cover cash flow and balance sheet metrics.

Thanks, Jeff and good morning to everyone on the call. Let me open by saying that our cash flow and balance sheet remain strong and continue to support our long-term growth plans. I’m going to begin on slide 14 with a look at our cash flows for the first quarter of the year. Cash from operations in the first quarter is $800 million which is up from the first quarter last year. The favorability we’re seeing is spread across several business units and most of it is timing related. So, we’re sticking with our guidance of $1.7 million of cash from operations for the full year. Capital spending was also higher in the first quarter due to increased investments at the electric utility, partially offset by lower capital spending at our non-utility businesses. We achieved $500 million of long-term debt in the first quarter which drove a reduction in our commercial paper balance. And somewhat unceremoniously, in the first quarter, we made a final payment on the securitization bonds. Back in 2001, we issued $1.8 billion of securitization bonds to recover the costs of our Fermi 2 nuclear plant and those bonds are now paid off. Moving to slide 15, which lays out our capital investments in a little more detail. DTE Electric CapEx is higher due to our $240 million investment in a 700-megawatt gas peaker in January of this year. And compared to last year, CapEx for our non-utility business was down in the first quarter, but that’s just a result of how the investments show up across the quarters; we refer to that as the lumpy nature of our non-utility projects. For the first quarter, our capital spending is on track to our plan and in line with your full year guidance of $2.5 billion to $2.6 billion. Let me wrap up on slide 16 with a look at our balance sheet metrics. Our plan for 2015 is to maintain our strong balance sheet and end the year within our targeted range for both leverage and FFO to debt. In the first quarter, we issued nearly $200 million of equity to our internal mechanisms and that fulfills the equity needs for this year. We continue to plan for $800 million to $900 million of equity through 2017. To fund the growth at DTE Electric, we issued $500 million of 30-year debt at a very attractive rate. In fact, it’s the lowest rate 30-year debt we’ve issued since the Eisenhower administration. As of the end of March, we had a healthy $1.9 billion of available liquidity and earlier this month, we successfully amended and extended our credit facilities, increasing the size to $1.9 billion and extending the term to April 2020. And now, I’ll hand the discussion back over to Peter to wrap up.

Thanks Mark. Let me give you a quick summary on slide 18 and open it up for questions. You just heard, we had a very strong first quarter. We remain on track to achieve our earnings guidance for 2015; we anticipate successful outcomes this year for both our utility regulatory filings as well as Michigan’s energy policy reform. Our balance sheet and cash flow metrics remain strong and our investments in our utility and non-utility businesses support our target of 5% to 6% EPS growth going forward. I’d like to thank you all for joining our call this morning. And now I’d like to open it up for any questions that you have. Dina, if you want to open up the line, I would appreciate it.

The first question I have is how does this positive quarter affect your future lean initiatives later on in the year? I’m just wondering and I know it’s kind of early that you may have to get through the summer, but just wondering how you expect that to impact mix?

As we’ve mentioned on this call and in the past, when we’re on the road, we’re going into every year with three plans: the base plan; the lean plan; and the invest plan. For each of those, we wait for the different additions to see which one we strike; weather normal would be the base plan. Where we’re right now with the weather favorability is we’re actually looking at investing potentially but we’re going through the process right now of in our gas utility in particular, going through the list to understand what the potential investments we can make there with the idea of making those investments to help the long-term assets in operational excellence and consistently earning our authorized returns there. So, the short answer is, at least at this moment, we don’t see lean plans having to strike that. Our lean plans more than anything will involve some investment, particularly in our gas utility.

And I just had one other question on NEXUS, and I am wondering how you’re seeing shipper demand and also just LDC demand and other demand shaping up in the region, given the low gas prices and oil prices, lower rig counts?

We’re continuing to see strong interest as that region is continuing to get drilled up and evolve. There is increased capital allocation; the shippers overall have dropped their level of capital that they are spending. But most of them, if they have investments in this area, have reallocated more capital to this region. So, we are seeing that. So we’re continuing to see interest coming through from both the shippers and the LDCs.

Is that a reflection of the regions you’re in or more dry versus wet; is there an advantage that you have?

It is. We are positioned in the Marcellus with our Bluestone Pipeline and Millennium; that’s definitely a prolific shale play, low on the dispatch curve and then our NEXUS pipeline is going to Utica Shale which again is very prolific and low on the dispatch curve. There is a lot of interest from shippers as they can drill and the capital is getting allocated there because there is gas to market.

And actually one final question would be, do you guys expect that legislation could be finished by June or you think it’s more of an August project?

There is some probability that it gets done by mid-year; the Governor has been pretty public and that is his goal. We’re planning on it getting done by the end of the year. We want to make sure it kind of goes through the normal process; it is progressing nicely and it’s moving along like other legislative processes with many different proposals out there that need to work through and reconcile. So, I would say there is some chance here but most likely it will be done later this year.

Just on the last question about the legislation, I guess the Governor is talking about this fair choice concept. When you guys look at the House and Senate bills, do you see interest on those two? Are you seeing them converging toward what the Governor’s laying out and the prospects we could see some new version of legislation coming sometime soon?

It’s tough to say where this is going to end, one thing that we’re actually happy to see is that the legislation is getting the most momentum and support as some sort of fix to this broken retail access program we have in Michigan. And then, there are various ways you can fix this program. Aric Nesbitt has put out there how do we just maybe completely eliminate the flawed retail access program. His focus is on angling the liability and capacity needs for the state. We support that plan but we’re also happy to see that both the Governor and Senators are also focused on making the retail access more equitable. But at this point, it’s tough to say where we’re going to end up; we’re just happy that the retail access program is getting some attention.

Zone 7 wasn’t a big capacity prices option, obviously the price in Illinois was a pretty dramatic change. How is that affecting you? A, how are you looking at resource adequacy and adding capacity to be owned by DTE versus contracted and what level of attention has that gotten at the commission or down in Lansing?

The recent option on MISO, I know there was a bit of confusion on that or at least in terms of where the prices came in. It came in as expected. The planning cycle that they are planning for when it goes up, leading up to the summer of next year, the capacity shortfall that we’re anticipating will be in the summer of next year '16 and that’s the '16 and '17 planning cycle for MISO. So those results came in as expected. What we saw down in Zone 4 is what we’re going to anticipate; we’re going to see in Zone 7 where year-over-year you saw a pretty dramatic change, I think in zone factor 10 of capacity prices with the shortfall that occurred there. So, there could be options here, and we’re expecting a significant increase.

I think I am seeing Peter with the potential for a very meaningful increase in capacity prices for next year; are you guys using that or having those conversations with the Commissioner and others to say we need to be doing even more to get this from an owned and new build resource perspective?

The conversations we’re having with them is really highlighting the need for new generation in the eight choice program where that has not been built for them, but it’s really helping us highlight its retail access issue. That’s more than anything. The results of that retail access program, I know we’ve talked about this in the call, we’ll see if we get some load coming back to us; if we do, you’ll have to figure out in the short-term basis how we satisfy that low demand; and longer term, we’ll roll it into our integrated resource planning process.

And last one I guess when we look at the P&I results, obviously was a really good quarter relative to plan. How much of the upside in the quarter were things period specific, whether it be better trading opportunities and how much of it is a recalibration of operators? Are you guys seeing better performance than maybe you thought when you put out guidance earlier?

The main difference was and Jeff was highlighting this in his talking points, is our REF business. That is tied to coal plant production and the variability around that coal plant production. The variability in that coal plant production is tied to when outages are taken at the coal plants and when they’re dispatched and depending on where they’re at on the dispatch curve. So, you do see variability that occurs during the year on those coal plants. So, we did see quarter-over-quarter basis more coal plant production. We are anticipating relatively normalized production for the balance of the year. So, we will see that variability bleed off for the balance of the year. Underlying that, there is some growth. We do have growth in our renewal projects; we have some wood waste projects came online; we’re going to get a full year’s annual growth out of them, some landfill gas projects online, as well as I was mentioning the 8-megawatt cogeneration plant as well.

With respect to the intact guidance, it sounds like you had some timing issues in the quarter with corporate and the REF units and that sort of offset. So, assuming normal weather for the rest of the year; is it fair to say you’re at least on pace to beat the midpoint of guidance with the weather benefit you have or are there some other offsets that we should be thinking about?

At one quarter end, one thing as you know what we like to do especially with the summer ahead of us in our electric business and the variability with the summer timeframe, we like to hold on reserve any type of contingency around that. We are starting off strong in our gas utility there in particular; we make the judgment call on how much do we want to reinvest that into the gas utility. And we are in a stay-out period right now in terms of rate filings. One of the ways that we help stay out of rate filing is reinvesting, going lean when we can with a gas utility. And then for our non-utilities, we mentioned the P&I segment; most of that was timing; we’re expecting that to come back in from a guidance perspective. Our gas storage and pipeline business, we do have additional incremental volume that we did see in the quarter. So, they are off to a strong start but there is volume variability that still could remain in the balance of the year. So, we’re kind of holding that favorability right now for that potential variability. So, I guess it’s a long-winded answer. We feel positive about the quarter. And right now we’re just reserving that favorability for the balance of the year.

And then, it looks like your electric weather-normal sales were down about 1% in the quarter year-over-year. Can you just give us a little color on what you think is going there, in particular given what sounds like a pretty healthy and improving economy in your territory?

I’ll ask Jeff Jewell to answer that question.

Overall view of the forecast is about 0.5% for the full year and that’s kind of what our long-term is. So what we’re seeing in the quarter is sort of one-time outages on retooling in the auto sector and also the steel. So again, we sort of characterize the timing just from when they were planning on doing those and sort of what their balance of the year production is going to be. So again, we’re looking at it about 0.5% growth.

And given how weak gas prices have been so far this year and look likely to remain obviously this summer; just update us on the Bluestone system, what you’re seeing there and if there is any change to your growth plans, your expectations?

We are not seeing any impact on the gas prices with our Bluestone Pipeline or gathering. We did sign a new agreement with Southwestern; we mentioned that last year and really some northern acreage around Bluestone Pipeline; we’re doing the gathering for them there. That part of the Marcellus Shale in particular is very prolific. And so they are very bullish around getting the drilling done there; volumes are coming strong as well, no impact.

First question on the Governor’s energy speech. For retail open access, you didn’t talk about re-regulation but talked about sort of this five-year commitment. And I don’t know if there are other options that would be somewhere in between, like potentially an interruptible tariff or customers switching back. If the final ends up kind of in line with the Governor’s suggestions, how much of the load that has switched do you think might return over the next few years?

Andrew, I’d say it’s a good question, but I just don’t want to answer at this point in time. We’ll get into the details, but it ends up being more of a design change with the capacity commitment as well as return provisions that are more fair to uphold customers; it will be a choice-by-choice basis in terms of the customers currently in the program. So, I would anticipate some of that load coming back for people trying to bottom-line of that new type of structure; some could remain. So, you kind of get into the details, and the economics and the decision-making process with individual customers will be tough to predict.

Then on the Governor’s proposals for energy efficiency, pretty ambitious target. How do you think that might affect your weather normalized load growth outlook? And would your expectation be that you would continue to get revenue recovery and incentives or is that something being debated?

The energy, where energy efficiency is going is one area of focus within this legislative progress. I know we talk a lot about the retail access piece of it, but the energy efficiency will be discussed just this week. Some of the Democrats introduced some bills around energy efficiencies and wanted to increase energy efficiencies. The Governor has mentioned a big part of his focus is on energy efficiency. We like energy efficiency; it’s good for customers; it lowers customers’ bills. And as we’re putting new generation in place, replacing fully depreciated generation, it helps from a bill and total rates perspective. From a weather load perspective, Jeff was mentioning the 0.5% growth. We’re assuming some element of energy efficiency in at 0.5% growth, probably up to 1%. So, it really would depend on the outcome of this energy efficiency program with the requirements of that and a bit more and above what we already have embedded in our long-range forecast for sales growth.

Can you provide an update on the ownership structure and when Enbridge might make their decision regarding the first quarter?

The update is Enbridge is still considering ownership of the pipe. They have expressed—obviously—they like the pipe itself; they expressed it in their recent year-end call as well. So, they are still considering; it’s going through this normal decision-making process for them. If they are not in the pipe, we get 50% ownership of a great project. So, we’re okay with either outcome.

Then in terms of NEXUS, it pretty much seems like it’s a go at this point pending all the FERC approvals and filings. How do you think about that NEXUS system holistically and what it might mean for longer-term growth once it’s in service?

The NEXUS pipeline, when I think about the NEXUS Pipeline, I would like to refer back to the Millennium Pipeline that’s a Bluestone for that. So, the NEXUS Pipeline will grow and will become a variable asset for us as the Utica Shale production grows and develops and as gas needs to get to market by those shippers. So, we’re anticipating at some point, maybe in the future we can set up for future expansions on NEXUS that’s going to help NEXUS as well as Vector which NEXUS ties into. We also have skills and knowledge in developing laterals and gatherings. So, we’re hoping to find opportunities around NEXUS as well on the laterals and gathering projects. And the great thing about those projects is that the gathering project makes money on that; it goes on to a lateral which helps us make money on that; it goes on the NEXUS, helps us make money on that; it goes in the Vector, helps make money on that. So it’s an amplification of value along that value chain. So that’s how we’re seeing NEXUS will progress over the next few years after it’s in service.

Then very quickly just a modeling question, the corporate taxes; there were some timing issues; any sense of over the next few quarters when those would reverse?

The effective tax rate, the way to think about that is we had strong income in the first quarter; we’re holding our total year forecast the same. So, you’re really seeing a flush of taxes; the timing of taxes on a profile in the first quarter. If you hold your total year forecast, the taxes will balance out in the second, third, and fourth quarters.

Evenly distributed or do you have any sense of when that might happen if it’s lumpy?

It will follow the income profile for those quarters. So, my sense is it will probably be a little bit back-ended, given our gas utility and low earnings in the second and third quarters.

Let me ask you on ultimately what gets approved, what choice, whether it’s the House, Senate, or what the Governor is proposing? Is there any update on when we could potentially get some guidance around how much generation you could potentially build as a result of the 3 gigawatts of shortage?

It’ll be—once we understand the final design—then we’ll have to begin a period to understand what customers under the total elimination of the broken program; it will be apparent that we have 900 megawatts out there on choice. There will be some contracts that they will have to work through, so they will all come back over a period or probably a three-year timeframe. Any other design detail will be a case-by-case basis and will really require understanding what customers stay on choice and what customers come back to us. It would be some period of time after the legislation is passed and maybe a few months of it getting absorbed for us to determine that. As soon as we know that, we will give you guys an update in terms of what this means in terms of additional megawatts that we are going to have to serve.

And then just one housekeeping on the stronger than expected results of energy trading, should we assume that’s going to invert the rest of the year or should we assume stronger results the rest or some of the economic hedges that unwind?

They are off to a strong start, I can say that. When we look at them, we do target $20 million to $25 million of economic net income. So what you’re seeing on the accounting results is some of that stronger performance falling through. Typically there is seasonality in that business. We do have a good physical portfolio of businesses that serve and deliver gas and electricity. In the first quarter, the gas was flowing which helped out the earnings there, we’re going to see that again in the fourth quarter. So, there is some seasonality in that business, so the next few quarters may be a little bit quieter. So, I can tell you that we are off to a good start there; three quarters ago that’s one of the reasons why we’re holding the guidance.

And then just one last question, Michigan State in the implementation plan under 111(d); is there any status there?

They’ve been holding some hearings in Lansing around that. So, some early work is being done around that. There is a new agency that’s more going to be a policy court agency that’s going to be involved in that working with environmental agencies as well as the MPSC. So, there’s early work that’s being done around coordinating and setting an overall Michigan policy that’s also aligning with the EPA requirements and having the states file individual plans within that. The good thing is that there are discussions happening and some really early thinking around what is going to be the structure of the state compliance process.

Most of my questions have actually been answered. But if you don’t mind me asking and perhaps this should be offline. If I go back to your year-end/Q4 slide deck and look at the $70 million of operating earnings that you expect to come from your pipeline platform in 2019, this was noted that you include a 33% ownership of NEXUS. What percentage of that $70 million of operating earnings is the placeholder for the NEXUS contribution?

We have not disclosed that level of detail. But we have disclosed that this could be a $700 million investment assuming the 33% ownership interest and we have given some parameters around returns that we target.

Most of my questions have actually been answered, but just may be a little additional color on your sales growth and outlook there. It looks like it was down from a weather normalized basis just for the quarter but may be some additional color on that?

So, what we’re seeing is with the 1% that’s related to timing, mainly in the auto and the steel sectors; as they were doing some retooling there was also a plant in Canada that’s down due to retooling. So obviously there was a little bit of a flow on during the quarter. But for the balance of the year, all those plants, the anticipation is that they’re going to be growing for a lot of stuff. So that’s what sort of brings our growth back up to our anticipated 0.5% for the full year.

And on the residential, we saw this last year as well. When you got this extreme weather, you have additional conservation that happens and people tend to be a bit more conservative, a little lower in their house. So we did see some additional conservation that played through in the residential segment.

And some off topic but to your comments on the Red Wings, it was great to see the tradition maintain with octopus. I think it was enormous too.

We lost in overtime last night that was always, but it’s two to two.

The first question I have is how does this positive quarter affect your future lean initiatives later on in the year? I’m just wondering and I know it’s kind of early that you may have to get through the summer, but just wondering how you expect that to impact mix?

As we’ve mentioned on this call and in the past, when we’re on the road, we’re going into every year with three plans: the base plan; the lean plan; and the invest plan. For each of those, we wait for the different additions to see which one we strike; weather normal would be the base plan. Where we’re right now with the weather favorability is we’re actually looking at investing potentially but we’re going through the process right now of in our gas utility in particular, going through the list to understand what the potential investments we can make there with the idea of making those investments to help the long-term assets in operational excellence and consistently earning our authorized returns there. So, the short answer is, at least at this moment, we don’t see lean plans having to strike that. Our lean plans more than anything will involve some investment, particularly in our gas utility.

And I just had one other question on NEXUS, and I am wondering how you’re seeing shipper demand and also just LDC demand and other demand shaping up in the region, given the low gas prices and oil prices, lower rig counts?