DTE Energy Company (DTE) — Q4 2018 Earnings Call Transcript

Thanks, Barb, and good morning, everyone. Thanks for joining us today. So this morning, I’m going to give you a recap of our 2018 performance and then I’ll turn it over to Peter. We will provide financial highlights and thoughts on our 2019 guidance, which we will reaffirm. And then finally, Jerry Norcia will provide an update on our long-term growth plan business unit by business unit, and he’ll wrap things up and open it up for Q&A. So turning to our 2018 accomplishments starting on Slide 4. We have a lot to be proud of as we look back on 2018 at DTE. We logged another strong financial year at DTE and made great progress on many other fronts as well. Our operating EPS was $6.30, that’s 13% higher than 2017, and it’s 9% higher than our original 2018 guidance. This is the 10th consecutive year that we’ve exceeded our earnings guidance. Our cash flow came in $500 million above our plan, which sets us up nicely for 2019, providing a lot of balance sheet flexibility. We also increased the dividend by 7% coming into this year, and we’ll target 7% dividend growth through 2020. We certainly recognize the importance of that sort of dividend growth in delivering premium shareholder returns to you. Our employee and customer and community initiatives also achieved strong results in 2018, and I’ll touch on those in a bit more detail in a few minutes. With the New Year under way, I’m also confident that we are set up well for success in 2019. I feel really good about the plan that we put together for the year. A month then, I feel good about how 2019 is starting for us. For example, NEXUS announced that it has signed an agreement to acquire the Generation Pipeline, which is a 355 million cubic feet a day pipeline that provides future growth opportunities for NEXUS in the area around Toledo in Northern Ohio. This is a great fit for our GSP business, and it’s representative of the bolt-on asset acquisitions that are available to NEXUS, and Jerry Norcia will provide more details on that transaction in a few minutes. Another accomplishment to kick off 2019 is the signing of definitive agreements for voluntary renewables with two large industrial customers, totaling 280 megawatts. And there’s likely a third large contract that will follow in the near future. At the last fall, we told you that voluntary renewables would become an important new area of investment for us, and these transactions are our first concrete moves in that direction. Another item I’d like to mention is the recent severe cold snap that we experienced here in Michigan. In January, we saw record-breaking temperatures in our state. Our gas and electric teams did a great job, and our assets performed well. Of course, the weather produced strong demand, which will give our two utilities a solid start to the year. So let’s move on to Slide 5 now to discuss some of the employee and customer and community successes from 2018. And I’m really proud of these accomplishments. So for those of you who’ve listened to our calls in the past, you know how strongly I believe that if you want to be a great company and continue to achieve great results for your customers, your communities, and your investors, your people need to bring great energy and focus to their work; it’s that simple. Based on the results of our Gallup engagement survey in the fall of 2018, I certainly feel good about our employees’ energy. We scored in the top 3% of all companies in Gallup’s worldwide database; it’s the highest level we’ve ever achieved at DTE, which is a great way to enter 2019. Earlier in 2018, we earned our 6th consecutive Gallup Great Workplace Award. We remain the only utility company ever to receive that award. We hope we are on track to our seventh consecutive award here in 2019. Now onto one of the most important areas we focus on at DTE, and that’s employee safety. I’m proud to say that 2018 was one of, maybe the safest years in our Company’s history. We placed in the top 2% of the National Safety Council’s safety culture survey, and we ranked at the top of our industry on key metrics. In fact, what’s known as our DART rate, which is a measure of injuries that have some severity, that rate was the lowest in our industry. Our Company had the best performance on that of all companies in our industry. Safety is a significant part of our culture, but it’s also a great indicator of the employees’ level of focus and discipline. Having highly engaged and safe employees usually translates into serving your customers well. Because of the customer focus, our gas company ranked highest in customer satisfaction with business customers in the Midwest in a J.D. Power study for 2018. Additionally, our electric and gas companies both ranked second in the Midwest for overall residential customer satisfaction. We continue to target improvements in customer satisfaction results. I think our biggest lever for achieving that goal remains the continued modernization of our grid and improvements in electric reliability that will come with that. Moving onto Slide 6. We’re also very explicit at DTE about our desire to be a force for good in the communities where we live and serve. We don’t take that as a slogan or something that we take lightly. Our work in this area receives the same focus and the same discipline that our other key priorities get. For example, we pushed our employee volunteerism to new heights in 2018 with over 50% of our employees involved in company volunteerism efforts. We also invested $1.7 billion in Michigan-based and Detroit-based businesses since last year. It’s been a huge initiative for us. Since we made our original pledge to this effort in 2010, we’ve increased our annual spend with Michigan companies from $450 million per year to $1.7 billion per year, and we’ve invested over $9 billion with state-owned companies over that timeframe, which has helped to create an estimated 16,000 sustainable jobs, more jobs than we have at DTE actually. The significant investments we’re making in Michigan businesses are paralleled by the investments we’re making in our communities. This work in our communities is getting noticed. Points of Light named DTE one of its Civic 50, the top 50 most civic-minded companies in the nation, recognizing the community- and customer-focused approach that we take to our work. DTE was the only Michigan Company to be named and was acknowledged as the leading energy company nationally. J.D. Power also has chosen DTE as the number one energy company in corporate citizenship. Now the work I’ve just described on behalf of our customers and our communities helps to shape the broader context in which we operate in Michigan. That’s really important work, and part of that context is our regulatory and political environment. You all know how crucial a constructive regulatory environment is for a company like ours, especially when you’re investing heavily in the transformation of your utility infrastructure, which we are. We’ve always said that if you serve your customers well, manage your costs and rates well, and if you’re a positive force in your communities, your odds of having effective regulation are a lot higher. Michigan currently earns a tier one ranking in regulatory environments. That regulatory construct in Michigan has an important feature as we work our way through a period of heavy investment, including a special recovery mechanism for renewables, which allows for timely recovery of those investments, and an infrastructure recovery mechanism at our gas utility, which leads to timely recovery of gas investments and decreases rate case frequency. There’s a similar mechanism under discussion for our electric business. Along with our constructive regulatory environment, we also have a new governor. She will have the opportunity to appoint two new commissioners this year. We congratulate Governor Gretchen Whitmer and look forward to working with her and the new commissioners. Finally, I’d like to highlight some of the 2018 accomplishments in the area of growth and value creation. The NEXUS pipeline was placed in service in the fourth quarter, on schedule and on budget. I don’t have to tell you that in the current environment, this is no small feat. We also completed expansions of both Link and Millennium in 2018. Last year, our P&I team acquired two new RNG projects and positioned us for further growth in this area this year. They also broke ground on the central energy plant at Ford Motor Company, which is a significant project for us. So along with the significant investments under way at our two utilities, these non-utility successes underpin our 5% to 7% long-term earnings per share growth rate. With that, I’ll turn it over to Peter to talk about our 2018 financial results and our guidance for 2019. Peter, over to you.

Thanks, Gerry, and good morning everyone. Before I get into financials, I always like to give an update on my Detroit Tigers. Even though it’s cold here in Michigan, it’s warmer in Florida. Spring training will be in full swing in less than two weeks, and I feel really good about the Tigers in 2019 and beyond. We’re rebuilding the right way; we have some of the best pitching prospects in the game, actually, four of our pitchers in the top 100 prospects of Major League Baseball. Back to the business at hand, turning on to the financial results, I will start on Slide 7. DTE had a great year in 2018 across all of our business lines. DTE had operating earnings of $1.14 billion. This translates to $6.30 per share, a new high for the Company. EPS performance is a strong beat to our original guidance, and you can find a detailed breakdown of EPS by segment, including our reconciliation to GAAP reported earnings in the appendix. Let me start my review at the top of the page with our utilities. Our utility's financial performance was driven by an extremely hot summer and a colder than normal winter. DTE Electric earnings were $669 million for the year, which is $52 million higher than 2017. This increase was driven largely by a hot summer as well as new rates implemented. We reinvested a good portion of this favorable weather back into the operations to improve customer reliability. A more detailed year-over-year earnings variance walk for DTE Electric can be found in the appendix. DTE Gas operating earnings were $159 million, and this is an increase of $10 million versus 2017. The earnings increase is driven primarily by cooler winter weather offset by increased O&M expenses. Now let’s move down the page to the third row to our Gas Storage and Pipeline business. GSP operating earnings were $233 million for the year, which is $73 million higher than the prior year. The increase is due to lower corporate tax rates and favorability across all platforms. In the next row, you can see that our Power and Industrial business operating earnings were $163 million. Earnings are $39 million higher than in 2017. This increase is due mainly to higher REF volumes and steel-related earnings. Our Energy Trading business also had a strong year, producing $40 million of operating earnings. Earnings are up $20 million versus 2017. Our Trading segment had a particularly strong economic year as Gas portfolio. The $40 million in operating earnings this year is consistent with our average economic income over the past five years and is also consistent with our EEI disclosures or expectations from the segment in our five-year outlook. Finally, our Corporate and Other was $53 million unfavorable compared to last year due to the lower tax rate, higher interest expense, and a significant one-time item in 2018. Inside the $122 million loss for the segment in 2018 is a sizeable contribution to our foundation and other charitable causes. This will enable us to continue to be a force for growth in communities for years to come. Overall, DTE had a great 2018, earning $6.30 per share. Let’s move to our 2019 guidance on Slide 8. Jerry mentioned in his opening remarks, we are reaffirming our 2019 operating earnings guidance from the early outlook we provided on the third quarter call. Our 2019 operating EPS guidance range is $5.97 to $6.33, with a midpoint of the range at $6.15. This is 6.4% higher than our 2018 original guidance. We’re also reiterating our 5% to 7% EPS growth rate from the 2019 guidance. We’re projecting another strong year for cash flows in 2019, which will help fund our robust capital investment plan. The details of our cash and capital guidance for 2019 are included in the appendix. Before I turn the presentation over to Jerry Norcia, I’d like to mention that our 1-and-3-year equity issuance plan has not changed from the one we provided you at EEI. This year we plan on issuing up to $250 million using internal mechanisms. We plan to issue $1 billion to $1.5 billion of equity from 2019 to 2021. Now, I’ll turn it over to Jerry Norcia to discuss the growth and investment opportunities and our business plan.

Thanks, Peter. As Gerry mentioned, we made a lot of progress in 2018, which gives us the positive momentum going into 2019 at our utilities as well as our non-utilities. I’ll start on Slide 9 with our utility businesses. And I’ll begin with the Electric Company. In 2019, we will continue to move along the path to deliver 50% clean energy by 2030 and reduce carbon emissions by more than 80% by 2015. We’re on track to achieve our interim goal of a 30% reduction by the early 2020s. Wind energy will be instrumental in achieving this interim goal. Our wind fleet wrapped up 2018 with its best operating year ever, generating 1.4 million megawatt-hours of clean energy. They’re finishing up in the top quartile for fleet availability in North America. When the fleet performs well, it plays a key role in providing cleaner energy to our customers while helping us maintain reliability and affordability. We expect our megawatt-hours to increase significantly in 2019, as we expect to commission Pine River Wind Park in the first quarter of this year. Pine River is the largest energy-producing wind park in Michigan and is the most cost-effective wind park in DTE's fleet. Our Electric Company also received Michigan Public Service Commission approval for our voluntary renewable energy plan. This plan includes adding 300 megawatts of new wind capacity to supply a voluntary renewable energy program for large industrial customers. We’re looking to reduce carbon emissions. As Gerry mentioned, we have already signed up two large industrial customers for 280 megawatts. Our third large contract is pending, and based on current levels of interest, we believe we can expand this voluntary renewable plan by an additional 300 megawatts in the future. Last year, we received a Certificate of Need to build a new gas combined cycle plant; we broke ground in August, and we expect operations to begin in 2022. Along with renewable energy, natural gas will be a critical part of our power generation capacity in the decades ahead. In March, we will be filing our Integrated Resource Plan or IRP with the MPSC, covering the next 20 years with very specific plans for the first five years. The IRP will help guide energy resource mix decisions that are necessary to meet future demand for clean, reliable, and affordable electricity. We use an integrated cost-based system planning process that accounts for demand, reliability, resource diversity, and our environmental goals. As markets and technology continue to evolve rapidly, we expect our IRP recommendations to be quite specific in the early years or present a range of options for the later years of our plan as we continue to retire coal plants and understand market dynamics more deeply. Moving on to our Gas utility, DTE Gas received a constructive rate order in September, accelerating over $450 million of main renewable capital over the next five years, allowing us to shorten the pace of this renewal program from 25 years to 18 years. I’m very pleased with the progress of this program. Additionally, we announced our plans to reduce methane emissions by more than 80% by 2040. Made good progress on these efforts so far, and our accelerated gas main replacement plan will help this initiative as well. Now I’d like to move on to our non-utility businesses. Turning to Slide 10, I’ll start with an update on the growth opportunities at our Gas Storage and Pipeline business. The left side of the slide lays out the core geography in which GSP is active in pursuing growth. We’re always on the lookout for potential organic build-outs or acquisitions that would support our position in this geography as our assets are strategically positioned to connect high-quality markets to world-class geology. In the third quarter call, we told you that NEXUS was placed in service; this was a huge milestone for our Company. The completion of NEXUS, along with the progress at our other platforms, is setting us up nicely for growth in this segment. I told you that NEXUS provides us with additional opportunities to expand our footprint, and one opportunity is the NEXUS acquisition of Generation Pipelines, owned in a 50-50 partnership with Enbridge. Generation Pipeline is in the core of the northern industrial route in Ohio and will likely present additional opportunities for supplying natural gas to power industrial customers in that area. The 23-mile, 24-inch pipe is fully contracted, has a purchase price between $150 million to $200 million, and is located four miles north of NEXUS, interconnecting with ANR and Panhandle Eastern pipelines as well. With potential future interconnections with NEXUS, this acquisition provides direct access to the Toledo industrial corridor. We expect both NEXUS and Link to respond in a range of organic and bolt-on acquisition opportunities of this sort. Growth plans in our other assets are on track. We completed expansions of our Link and Millennium assets, as Jerry mentioned, and our assets are performing extremely well. During this polar vortex, Vector was flowing in both directions to Canada and into Chicago. We expect Vector to see increasing opportunities serving markets in Chicago and Wisconsin. So I feel very good about the position we are in at GSP, giving me confidence that we’ll continue to execute on opportunities that support our growth targets. Now I’d like to move on to Slide 11 for a look at our Power & Industrial business. Our P&I business continues to see progress in the development of both industrial energy projects and renewable natural gas or RNG. As we discussed at EEI, the RNG market is one that we have done business in for over 15 years. But in recent years, demand for RNG has surged, and we feel the market is poised for a strong growth trajectory in the future. We now have five operating RNG sites and three under construction. We’re also finalizing agreements on two new RNG projects and we continue to advance discussions to secure additional RNG projects in 2019. On the industrial energy side, we’re focusing on our cogeneration business. Cogeneration projects enable our customers to improve their environmental footprint and lower their energy costs. We continue to construct our most recent project at Ford, and it will go into operations later this year. We expect to add a series of similar cogeneration projects over the next five years. I mentioned at EEI our P&I queue of development opportunities was very strong; that certainly continues to be the case. Now I’ll wrap up on Slide 12, then we’ll open it up for questions. All in all, I feel great about our 2018 results and our positioning for continued growth in the years to come. We exceeded our original operating EPS guidance for the fifth consecutive year in 2018. Additionally, our annualized total shareholder return has consistently beaten the S&P 500 Utility Index by a large margin over a decade. Our utilities continue to focus on necessary infrastructure investments tied to clean generation, improved reliability, and enhanced customer experience. NEXUS is now in service and flowing gas to customers and acquiring the Generation Pipeline. Our P&I business unit is working to secure additional RNG and cogeneration projects. This sets us up well to continue to deliver strong EPS and dividend growth. We increased our dividend by 7% for 2019 and anticipate the same increase in 2020. Our goal is to use our disciplined approach to operations and investment to continue to deliver premium total shareholder returns in the future. With that, I’d like to thank everyone for joining us this morning. And now, Tracy, you can open up the line for questions.

So just real quick on the Generation Pipeline. Could we talk a little bit on returns, even in general terms, and what sort of accretion we can expect sort of from the steel? How should we think about it relative to your plan, and kind of more important, when do you sort of expect to decide on the lateral off of NEXUS? And could this sort of change your current assumption on the mix of short-term versus long-term contracts?

We’ll have Jerry Norcia dive into that one for you, Shar.

So we expect NEXUS certainly to be accretive; it does meet our returns thresholds for this business. So we’re happy with the returns. In terms of strategic value, it is four miles off to NEXUS pipeline, and our plan is to interconnect NEXUS to this pipeline. That will provide significant market access for the NEXUS pipeline of over $350 million a day and growing as we attach new customers on that line. We’ll create value for our shippers in the future.

I’d say $350 million, with the potential to expand that is a really nice interconnection of market area load for this pipe. We’ve always said that that route across Northern Ohio, with a line we had interconnection points all along that pipe, we expected those to play out over time with load addition opportunities. We struck a couple of those earlier, but this is one we really like; instead of the deal itself, which is fully contracted and accretive, we think there is upside opportunity to this as we pursue growth in that area. It also adds opportunity for NEXUS clearly as we interconnect it.

Do you think you’ll be in a position to sort of update around that incremental growth opportunities as we head into EEI?

In the fall?

Yes.

Yes, I think we could - we’ll probably have the acquisition obviously clearly in hand, and we will probably have our thinking advanced about potential timing of interconnection and things like that. So we’ll give you what we can additional at EEI.

And then just lastly on the RNG deals that were just announced. Can you just, what’s the structure of the deals, sort of the tenor of the contracts, the returns? And should we just for modeling purposes assume they start to contribute in the second half of this year?

Yes. The deals that we closed just recently will be tied to—we use various contracting methods to secure revenues. There is ability to hedge the product; there’s also the ability to have long-term contracts. So we’re in the process of making all that happen right now.

So, without getting into non-disclosure agreements that we have, I’d say that we always have the offtake of these locked up. You can do fixed-price contracts; sometimes fixed-price contracts if you do or may not have the return you get when you hedge them. So we’ve got some that are fixed-price, some that are hedged, and you could take some of these open in the short term too if you feel like the short-term price dynamics and then hedge them later. I think what we’ll end up with, Shar, is a portfolio that we manage in that way with offtakes clearly locked down and then prices managed through contracts and in hedging to make sure that we like the predictability of it.

So just to follow up a little bit on Shar’s question, if you can, obviously $150 million to $200 million for this first transaction; can you elaborate a little bit further on how you’re thinking about filling up the remainder of potential whitespace for acquisitions here on the GSP side? I suppose that there is ample latitude in the capital budget for further such deals. And to the extent which you are looking at them, are we looking at sort of more platforms or are we looking at more simple bolt-ons in Link and NEXUS more narrowly?

So Julien, I would say our first-order dispatch, we have a series of organic development opportunities that we’re pursuing. That will be our first-order dispatch for capital. Yes, we do have additional flexibility in our capital plan to accommodate the organic developments. In addition, we’re always surveying the market for potential bolt-ons in and around our platform. We’d like for them to be contiguous, just like the most recent one will become contiguous over time. So the order of dispatch is organic development, which we see the highest return potential from. Acquisitions that have growth potential are our secondary focus.

Got it. But you aren’t necessarily saying whether you’d be more bolt-ons versus larger platform acquisition at this point?

We judge all of it by the merits of the returns in economics. So I think we told investors last year that we were looking hard at an acquisition and eventually concluded that it didn’t meet our return requirements, didn’t create value for us. So we walked away from it. This one we like; we like the future growth potential. So this will probably turn out to be an acquisition that’s been followed by organic growth, which usually yields a really good result, and dollars spent on acquisitions is not nearly as good a measure as value created through organic upside, which is sort of high value EPS growth. We love that sort of stuff. So we can do more like the one we just did, we’d love to. There are good opportunities. The scale is comfortable with upside. Those produce really good value.

And then if I can just quickly complimenting that, speaking of organic growth, what is reflected in your current plan with respect to the voluntary renewable expansion? So you talked about 280 megawatts being signed up, a third one on the way, and then an additional 300 megawatt in total. So out of that almost 600 megawatts, what’s reflected in your outlook in advance?

Yes, we have 300 in the plan that we laid out for EEI. But we did talk at that time about the potential to go up. So I think with 280 signed up and with another contract waiting in the queue, we’re sort of through the first 300 and working our way into the next 300. This is an area we like; it’s obviously fulfilling a need for our customers—they want it. But it also is a way to move the state forward in terms of additions of renewable capacity, but do it in a way that isn’t rate-based. It doesn’t work its way through rate cases; it works its way through this approved tariff. We really like this area, and we’re going to continue to work with customers who have the goal to help accelerate things here in Michigan. There’s obvious value for these customers in terms of their own profile and what they can communicate to their customer bases. So it’s a good area for us to work and we’re into the second 300 now. As we look forward, I think there might even be upside to that as we continue to—we’re working with our very largest customers, but we have a lot of customers. So we’re thinking now about how to make more of this.

I just wanted to find out about the equity issuance. Recently, the $250 million of internal funding at what point do you think you’ll have to complete the complete plan with block issuance at some point?

We’re in the early stages of looking at that right now. We still do have some room in our pension plan. To get equity we’re at about an 85% funded level in our pension plan. I’d say within the three-year window, probably the back half of the year. We’re finally looking at more ATMs attributable versus a big block equity issuance.

And you know, on the Generation Pipeline, one question I had is are you anticipating expansion through compression in addition to the lateral as part of the value proposition to that?

Right now our first order of business is to look to connect that pipeline to NEXUS. It does have the fact that NEXUS carries a very high pressure, which helps create some potential.

So that’s one of the values NEXUS can bring to this pipe; is that it itself is very high pressure, and that can create expansion capability and growth capability for this pipe alone.

And I’ve gotten a lot of questions about the Link asset and what is the contracted status there and then also what are the expansion opportunities you’re looking at, what’s the plan for expansion down there?

We had planned expansions, and those are progressing as scheduled. Those will continue into this year for one of our large clients on that pipeline. The status of the pipe is that it’s performing better than a performer that we had described to our investors. We’re feeling really good about that asset and its dynamics.

Just finishing the M&A topic and the GSP sector. Last year you guys were preparing us in a sense for some acquisitions seemingly in that sector. At least for 2019, do you think that you’re done with this Generation Pipeline deal?

You know, Angie, it’s—I think in M&A to say you’re done or not done probably wouldn’t be smart on our part because it totally depends upon whether there’s an opportunity with really good value. And if we look at a handful of them this year and there’s no value, we don’t do any. If we look at them, which we do continue to scan the environment and we find one that we really like, we could do one this year. So it’s completely I’d say market and opportunity dependent.

And changing topics on your regulated electric utility, so last year we were hoping to see a CapEx rider on the electric side; we saw the CMS rate case; they didn’t get the rider. Could you give us an update on what your thoughts are about that and when such a rider would be achievable?

In our case, it’s in our rate case that that discussion is playing out. Last year we did introduce the idea of it because we were filing the case. If you look at the staff reactions to our case, I think you’ll find the commentary around the infrastructure recovery mechanism is positive, although they suggest that perhaps finalizing it should be done outside of a rate case. The opportunity for more definition of the details—I guess I should say that that could be the case. It’s possible that the commissioners will feel they have enough information on record to establish it, and that really—we will see through the finalization of the case. If you’re asking how do we feel about the continued quality of discussions around this at the commission, we feel good. We feel that there’s been constructive engagement with the staff and prior to the case with the commissioners on this, and that it’s set up for continued discussion. I think they just want to get it right. We have one at our Gas company; it’s operated very well. That shows that a well-designed mechanism can work well here in Michigan. I think the process we’re in now is getting the design right and getting both sides comfortable that we’re ready to move forward with this.

So just following up on Angie’s question on the regulation and the rate case. Given the new governor and new commissioners, how do you see that playing out? Do you see that impacting the process and what kind of regulatory sentiment or mood do you see going forward with the environment in Michigan?

So we have two sitting commissioners that we’ve worked with for quite some time now. They obviously can keep the commission flowing and active in the near term. That said, we do expect one appointment to play out shorter term and then the other would come after July when—a commissioner will retire. It wouldn’t make any sense to be speculating or commenting on specific commissioners; I’d just say that we’ve had inflow and outflow of commissioners and governors across many years here at DTE, including the 10 that we mentioned earlier, where our financial performance has been strong and steady since then. Our job is to work really well with the commissioners that the governor appoints. We know the governor well; we’ve worked with her through her long career in the Michigan legislature, and since then, we work closely with her on the agenda that she has for the state moving forward. I think she understands that the appointments to this sector are significant, given the heavy investment in the state; I think she understands how important these appointments are. I’m confident we’ll get a competent person.

And then maybe just a specific question on the results and on the Corporate and Other segment, the 122 negative versus the 100 to 110 range; you said there was a specific one-time item that drove that. Could you provide any little bit more color around what kind of drove that Corporate and Other segment impact?

We had a contribution to our DTE foundation and other charitable causes. This is part of our strategy to be a force for growth and good in our communities that really sets us up nicely. As we have strong results for the year, we like to do that. In 2018, we did roughly $20 million after tax.

And that was incremental to the plan, so that was something you planned to—you hadn’t planned for but then kind of did it at the very end in 2018?

It was incremental to plans; if you adjust 2018 results for that, you’ll see it’s in line with our 2019 guidance for that segment.

And then finally, quickly just back to the Generation Pipeline acquisition; just wanted to understand why the range of 150 to 200? If you have a deal, is that range to kind of not provide more specifics so that you kind of keep the economic a little vague, or is there anything specific around the price range?

We’re—the deal is finalized, and we do have confidentiality agreements in place, and this is what our counterparty is comfortable with at this point in time.

But there’s no specific term in the contract that would change the price. The price is fixed; there isn’t an earn out or anything else that drives any change in the price going forward?

The price is fixed.

The price is fixed; we still want to be clear about it. We’re happy to be clear, but they weren’t. So it is what it is.

I think you pretty much just answered my question. So at some point in the future we’ll get more specific purchase price financing and expected EBITDA contribution occupied, but for now you’re just limited in what you can say, fair?

Yes, I think certainly we’re limited in what we can say, and we may find that the seller is okay with us down the road being more specific. If that’s the case, we will be.

I see that the owner, this Generation Pipeline LLC; do we know—can you disclose to us who owns Generation Pipeline LLC?

No, it’s under confidentiality.

But you did say that going in day one the investment hits your traditional cost to capital hurdles for a pipeline investment and that over time as you integrated into the NEXUS system you expect that to expand?

Yes, I mean, I’ll be honest with you. If we never improve the pipe a bit, we’re happy with the returns, but the value we always say, the value in these sorts of investments is what you can do with them once they become part of your portfolio. So, yes, we’re happy with the returns from the contracts that are in place for the pipe, and we believe there is good value to create beyond that.

I was able to find a detailed map of the pipeline's route online, and it does look like it goes through some pretty dense industrial areas. So the assumption being once you build that lateral that you’ll be able to goose the volumes and maybe goose the contracted volumes on NEXUS by serving those customers. Is that the obvious synergy from this?

Yes, absolutely. I think that’s exactly our plan. That part of the system is where every industry plays out. It’s an area where I think there’s an opportunity for our producers tied to NEXUS to be able to deliver into that base over time through this pipeline. It will be good for that industrial community and good for us too.

One final question, and maybe it’s semantics. But in the EEI deck you said very specifically you’re targeting a 5% to 7% operating EPS growth through 2023. I think your language was slightly different in your script today, but is that still your commitment?

Yes, it was slightly different; it wasn’t meant to be. It’s exactly what we said at EEI.

Okay, I just wanted to make sure that that was on the record, guys. Thanks.

Just on the returns on the Generation Pipeline; how do we think about your hurdle rates for that segment, kind of a little bit north of utility hurdle rates?

Yes. That’s where we like to start. But you know I think what’s proved out over time is if you can buy and start there either construct and start there or buy and start there, the value comes from the options that it presents down the road.

I think you’ve already said this, but you’re already there, correct?

Yes, correct.

And what kind of capital structure should we assume on that accretive analysis?

It’s 50-50.

That’s correct.

First question is also similar to Greg’s, might just be semantics, but I want to clarify. The EEI slide deck said you were targeting strong investment-grade credit ratings. Now it looks like targeting has changed to maintaining; is there anything to that? I mean, are the metrics where you want them to be, particularly after this acquisition?

Yes, there’s nothing meant through that. Peter, if you want to say more?

No, we definitely are committed to our ratings and we’re targeting to maintain the strong credit ratings that we have today. It gives us a lot of flexibility to have a strong balance sheet, and it’s been proven out over the years.

Our FFO results for last year played out stronger because of the cash flow and earnings. We have a good strong FFO to debt, and when you do that, it builds in some strength and flexibility forward. So we’re probably in a better position than we were when we talked to you at EEI.

I just wanted to make sure you weren’t changing the messaging. Next question is relative to last week’s cold snap; how would you describe the utility natural gas supplies going into the snap and how are you positioned for the rest of the winter?

Well, we are positioned really well going into it. I just described the day for you. We did hit design commissions during those peak conditions and we moved about 4.5 billion cubic feet of gas through the gas utility that day, of which 2.5 billion cubic feet was destined for our franchise customers and 2 billion cubic feet we’re exporting to other interstate pipelines that serve markets as far as New York, Wisconsin, Chicago. We were extremely well positioned to move gas on that day.

Does that answer the question or...?

Yes. Just wondering how you’re positioned going forward; if we have another cold stretch, is that going to be trouble?

We welcome it. We’re well positioned for it.

Next question on the electric side. The weather-normalized sales were flat for the year, obviously, given the extreme weather this past summer; it’s hard to do math on that. But my question is, what’s your estimate of the impact of energy efficiency these days, and what’s embedded in your guidance for 2019 and beyond?

Andrew, we did have flat sales in 2018 versus 2017 when you look at the residential side, in particular. We had flat usage, but we had customer count at a very healthy 0.7% increase in our customer counts. Energy efficiency is definitely helping our customers. We do have targeted energy efficiency programs there.

So we’re building in forward plans; it’s very flat, and it just isn’t growth we are counting out frankly. We don’t want to sell the wrong label; we don’t want it. We want these energy efficiency programs to really benefit our customers because it helps manage their bills and their affordability during a time when we’re making significant investments in capital. The whole trick is to help customers keep their energy costs affordable while we fundamentally reinvest in the assets and in our businesses. We’re driving the efficiency side hard. Now there are things that are growing, and as Peter said, we’re getting customer count additions; we’ve got a lot of construction in the city of Detroit, and so on and so forth. They’re healthy signs, but we’re working on the efficiency side of it hard.

I like the strategy. Maybe one last one if I could squeeze it in here. An update on the volumes flowing to NEXUS, and if NEXUS does connect to Generation, how much capacity is there on NEXUS to add that 355 and potentially more?

First, I’ll say that NEXUS is flowing at its current capacity, and that will also increase over time as we bring more assets online in relation to the upstream portion of NEXUS. Connecting to the generation pipeline will provide a significant market outlet and demand source for the pipeline. We expect that as we make those connections, two things will happen: one is, it will make the pipeline much more attractive for current shippers and also for our future shippers. The question of could we accept all of that on the NEXUS, the answer is yes.

So just first, I’m curious about your view on Northeast Gas. We had some of the producers come out, and I think the production expectations for this year come in a little bit lower than people expected. How are they coming in with kind of what you’re planning for this year on your system?

Good question, Steve. We’ve been watching that very closely on our platforms, and all of the projections of the producers that we do business with are in line with our current guidance and our current forecast, so we’re feeling really good about it at this point. Also, I think we kind of see this discipline entering the market as positive for the long term with producers. In addition to that, we see there is a short-term phenomenon because the demand for the product is there. I think as producers get healthier, it will help to improve the price complex for the producers as this sets in.

So, Steve, just to add to that as Jerry mentioned, producers are being encouraged by investors to show capital discipline. There has been this shift in the market from investors prioritizing growth in production to seeking healthy cash flow. They’re all being directed to demonstrate capital discipline. That can wiggle things in the short run, as Jerry just said, but we don’t see it for us. It’s in line with our plan. In the medium and long term, it’s dictated by the realities of supply and demand. We continue to see the region that we are serving to be very well-positioned to continue to meet and grow as that plays out.

We’ve assumed we have into the segments we provided this disclosure around the level of capital spend. So it does summarize capital plans on each of those platforms and subsidiaries. Jerry mentioned our first order of business is Greenfield, but in many cases instead of greenfield we will do acquisitions occasionally.

Okay.

So it supports that acquisition plan.

Thank you.

Thank you.

Hi, guys. Good morning.

Good morning, David.

Thanks. On the Generation Pipeline, this was some quick research, I apologize. Let me know if I’m wrong here. But it looks like they filed for an Ironville Lateral already that could begin construction as early as February 25th; is this something that was anticipated and expected as part of the purchase price?

Yes.

Okay. And then with those sort of opportunities, especially because this is a little more exposed to high industrials, do you see this representing a competitive advantage for P&I as well, and maybe the combined heat and gas opportunities in the future?

We are having some of those conversations, but I wouldn’t say any of them are well advanced, but there are potential synergies between the two businesses for sure.

Okay. Thanks, guys. Congrats on a good year.

Thank you.

Thank you.

Hey, guys. Just a quick follow-up. I was noticing that the sequential earnings at the GSP business declined in the fourth quarter versus the first three quarters of the year. Just wondering if you could explain that and what drives the seasonality of that, whatever it is?

Maybe, Peter, Dave, you want to…

We can probably get back with you Michael. My sense is, I know we had a strong kind of mid-year with a summer, and then some of the flows of gases on that may have had some volume with some of our pipelines.

Peter, this is Dave. Yeah, I think this just may be the timing of how each platform plays out over the course of the year.

Yeah.

We can have somebody get back to you; there was nothing material or anything really that we took notice of. So if you’re seeing that, we can do a tick and tact for you and just tell you what it was…

Got you.

We see some fluctuation, obviously, because our pipes flow hot and heavy and hard during certain times of the year, like they have been this past month. In other parts of the year, less so, so that produces some variation.

All right. Thanks a lot, guys. Have a great day.

Thank you.

I want to say thanks again to all of you for joining the call and for the good questions. As I said at the beginning of the call, I feel great about the year that we had in 2018, not only financially but on a lot of other fronts that goes such a long way to keeping the context here in Michigan positive. I feel really good about the position we’re in heading into 2019, both the start of the year and the plan that we have for the balance of the year. I think we’re in a really good position to deliver another good year and strong results for you all. We look forward to providing you updates on all of that as we move forward. Thanks again for joining. We will talk to all of you soon.