DTE Energy Company (DTE) — Q4 2022 Earnings Call Transcript

Thank you, and good morning, everyone. Before we get started, I would like to remind you to read the safe harbor statement on Page 2 of the presentation, including the reference to forward-looking statements. Our presentation also includes references to operating earnings, which is a non-GAAP financial measure. Please refer to the reconciliation of GAAP earnings to operating earnings provided in the appendix. With us this morning are Jerry Norcia, Chairman, President and CEO; and Dave Ruud, 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, and thanks for joining us. I hope everyone is having a healthy and safe year so far. This morning, I'll start by giving you a recap on our outstanding 2022 business performance, provide highlights on how we are well positioned for 2023, and give an overview on the robust opportunities in our long-term plan. Dave Ruud will provide a financial update and wrap things up before we take your questions. I'll begin on Slide 4. We delivered another solid year for all our stakeholders in 2022, which included delivering strong financial results, continuing our excellent track record of creating shareholder value for our investors. I continue to be impressed by our amazing team that delivers exceptional service to our customers and to each other. I always say that employee engagement is the secret sauce that drives our success at DTE. And our team continues to operate at top decile engagement levels as measured by the Gallup organization. This engagement was recognized by earning the Gallup Great Workplace Award for the 10th consecutive year, and is evidenced in the way our team shows up every day. Our team continued to deliver for our customers in 2022. I am very proud that DTE Gas is ranked first in residential customer satisfaction as measured by J.D. Power. This recognition signifies our strong commitment to our customers. We also undertook a number of initiatives to continue to improve electric reliability and we see that paying dividends for our customers. We invested more than $1 billion in our electric grid last year to help improve reliability for our customers. In 2022, the electric grid operated without incidence 99.9% of the time. Across DTE's electric service territory, customers experienced 21% fewer power interruptions in 2022 versus 2021, and the average outage duration time was down more than 40%. In communities where DTE completed some of our most focused work on a grid's more challenged infrastructure, customers experienced up to a 70% improvement in reliability. 2022 was a record year for investment in our grid and the result was stronger reliability. In addition, our field crews continued their focus on grid resilience, and trimmed more than 6,500 miles of trees as we continue on our accelerated tree trim program. It's clear that as we invest in a grid, our customers benefit with improved performance and more reliable power. For our broader community, we continue to be the largest producer of an investor in renewable energy in the state of Michigan. We also added significant additional MIGreenPower customers through our voluntary renewable energy program continuing on our path to decarbonization. In 2022, we invested $2.5 billion with Michigan businesses, creating and sustaining more than 11,000 jobs across the state. And on the investor front, 2022 was another strong financial year. We delivered operating EPS growth of over 10% from our 2021 original guidance midpoint. And we are well positioned to continue to deliver the strong performance and premium growth that DTE is known for. As you know, we received an order from the Michigan Public Service Commission on our electric rate case last November. Although there were a lot of positive aspects to the outcome for which we are very grateful, we were disappointed by the projected residential sales volume in the final order. Accordingly, we have implemented a series of one-time O&M actions to address this challenge that will support us delivering the midpoint of our operating EPS guidance range, consistent with the early outlook we provided in November. Dave will go into a lot more detail on the O&M actions that we are taking. DTE and the MPSC share a mutual system, bringing affordable, reliable, and cleaner energy to our state and our customers. The residential sales volume will be reviewed in our recently filed rate case. For 2023, our operating EPS guidance delivered 7% growth from the original 2022 guidance midpoint, and our long-term EPS growth target is 6% to 8%. We are confident in our ability to deliver that growth for our investors. Let's turn to Slide 5. We are making significant customer-focused investments to build the grid of the future and invest in cleaner generation, while modernizing the gas transmission and distribution system. We increased our 5-year utility capital plan by 20% or $3.5 billion over last year's plan. And over the next 10 years, we plan to invest $45 billion in our 2 utilities. The focus of these investments continues to be infrastructure renewal and cleaner generation at DTE Electric. While at DTE Gas, our plan includes main renewal and base infrastructure investments, as we accelerate the modernization of the gas transmission and distribution system. Now I will highlight some of the successes at our electric company and go through the details of our electric capital plan on the next slide. In 2022, we made significant progress on our path to cleaner generation and a more reliable grid. We continued the strong growth in our MIGreenPower power program, signing 2 of the largest utility renewable contracts in the country with Ford Motor Company and Stellantis. We currently have 2,250 megawatts subscribed to this program, supported by 900 businesses and 85,000 residential customers, and it continues to grow daily and exceed expectations. In 2022, we retired 2 coal plants. The shift from coal to natural gas and renewables supports cleaner energy and helps further reduce O&M costs. Our diverse energy mix helps us reduce fuel costs as well and allows us to maintain flexibility to adapt to future technological advancements. Our 5-year plan for cleaner generation is $2 billion higher than the previous plan, including $1 billion for voluntary renewables and $1 billion for solar related to our integrated resource plan. We increased our distribution infrastructure investments by $1 billion. We continue to modernize our electric grid to prepare for increased extreme weather and load growth that we're anticipating from EV adoption. Let's turn to Slide 7 and go into additional details on what supports this plan. Supporting our 5-year utility capital plan is the integrated resource plan we filed in November with the commission. The IRP accelerates our generation transformation to achieve carbon emission reductions at DTE Electric of 85% by 2035, 90% by 2040, and net zero by 2050. This is a significant acceleration from our prior plan. This filing provides updates on our path for decarbonization and our commitment to continue providing cleaner, more reliable, affordable energy to our customers. The IRP supports the mission economy and tax base with power generated in our home state, investing $9 billion over the next 10 years into Michigan's economy, and reduces the cost of our clean energy transition by $1.4 billion from our prior plan. We will pursue a settlement in this case, and we will have an outcome in the second half of this year. The IRP and our investments in cleaner generation are supported by the Inflation Reduction Act or the IRA. The IRA includes a lot of positive elements for DTE that benefit both our utility and non-utility businesses. We continue to focus on customer affordability as we go forward with our robust investment plan. Our commitment to a continuous improvement culture gives us confidence we will maintain our affordability goals, and the IRA will help enable affordability throughout our plan. Just a couple of weeks ago, we filed a rate case that underpins investments in system reliability, grid modernization and cleaner generation investments. We intentionally did not request a base rate increase during the COVID pandemic to assist customers with affordability. Since 2020, we invested more than $8 billion in DTE Electric system while keeping base rates nearly flat. In order to continue to make progress that our customers expect and account for the significant investments we have made in the grid and cleaner generation, the electric company needed to file a rate case. After 4 years of essentially no base rate increases, we are requesting an increase that would go into effect at the end of 2023. This request supports investments in Michigan to improve reliability and deliver clean energy while maintaining affordable rates. The majority of the request in this filing is attributable to capital investments, sales reductions and the cost of debt. We are committed to working with all interested parties to pursue a settlement that strikes the right balance between continuing to increase reliability and providing cleaner energy for our customers, all the while maintaining affordability. We also filed for an infrastructure recovery mechanism, or an IRM, in the case. Modeled after our DTE Gas IRM, the electric IRM would allow us to recover the cost of grid infrastructure investments between rate cases. It is our objective that as the IRM grows over time, it would help stretch the time between rate cases as it does for DTE Gas. Let's move to Slide 8 and discuss DTE Gas. At DTE Gas, we are continuing main renewal for reliability improvements and further greenhouse gas emission reductions as well as replacing aging transmission equipment. We successfully completed 220 miles in 2022 and have a target of 200 miles in 2023. We are targeting a reduction of 65% of our greenhouse gas emissions by 2030 and net zero by 2050. As I mentioned earlier, DTE Gas is ranked #1 in residential customer satisfaction, of which we are very proud and thank our DTE team for this tremendous accomplishment. Let's move to Slide 9 to discuss DTE Vantage. We continue to make significant progress in project development. In 2022, we placed an RNG project and another customer energy solutions project in service. In 2023, we are placing 3 new RNG projects and 1 custom energy solutions project in service. We also recently executed a new long-term fixed fee agreement with Ford Motor Company for its new electric vehicle and battery manufacturing complex. This complex, which is expected to be in service in 2024, will be Ford's largest EV manufacturing facility in North America. DTE will invest over $200 million, providing steam, hot and chilled water to Ford, and electricity to Tennessee Valley Authority. We are consistently growing earnings by over $15 million annually with capital investments of $1 billion to $1.5 billion in the 5-year plan. This is underpinned by federal and California low carbon fuel standards and the IRA, which supports a very robust pipeline of projects in both the RNG and custom energy solutions areas. We remain confident in continued growth at this segment. With that, I'll turn it over to Dave to give you a financial update. Dave, over to you.

Thanks, Jerry, and good morning, everyone. As Jerry said, we completed another very successful year in 2022, and we are well positioned for 2023 and future growth. I'll start on Slide 10 to review our 2022 financial results. Operating earnings for the year were $1.2 billion. This translates into $6.10 per share, placing us at the high end of the guidance range that we had increased during the year. You can find a detailed breakdown of EPS by segment, including a reconciliation to GAAP reported earnings in the appendix. I'll start the review at the top of the page with our utilities. DTE Electric earnings were $961 million for the year. This was $97 million higher than 2021, driven by the non-recurring $90 million pre-tax tree trim deferral that we did in 2021 to further accelerate our reliability improvement. We also had the accelerated deferred tax amortization in 2022 that was implemented to delay our rate case filings and avoid increasing customer base rates. These earnings increases were partially offset by higher rate base costs and residential sales that were lower in 2022. Moving on to DTE Gas. Operating earnings were $272 million, $58 million higher than 2021. The earnings variance was due to the implementation of base rates and cooler weather, partially offset by higher rate base costs. Let's move to DT Vantage on the third row. Operating earnings were $93 million in 2022. This is an $83 million decrease from last year due to the sunset of the REF business at the end of 2021, partially offset by higher custom energy solutions and RNG earnings in 2022. On the next row, you can see energy trading earnings were lower year-over-year, primarily due to the performance of the power portfolio. This was partially offset by strong physical gas performance. Energy trading earnings were $14 million for 2022. Finally, corporate and other was favorable $1 million year-over-year. Overall, DTE earned $6.10 per share in 2022, representing 10% growth from our 2021 original guidance midpoint. So another strong year, putting us in a great position for the future. As we have stated in the past, we attribute this continued success to our proven planning process, which includes a detailed 5-year plan that is constructed with lean and invest plans across the portfolio. Let's move to Slide 11 to discuss this process before we review 2023 guidance. As we have discussed before, our most senior executives meet weekly to review our financial plan for the current year and the following year. In this robust planning process, we develop a base plan plus lean and invest plans that we can implement if we realize risks or opportunities throughout the year. Before we received the rate case order in November, we had a base plan that achieved our growth targets, taking into account all the macroeconomic headwinds we were seeing, including increased interest rates and inflation. Since receiving the order on the rate case, we've enhanced our plan to address the additional challenge and we are implementing actions from our lean plan, including a number of one-time cost reductions that are not sustainable over the long term. These initiatives are all in areas where we have achieved success in the past like during the start of the pandemic, and during the last recession. These actions include delaying hiring, reducing our contractor workforce, deferring maintenance work in the short term and limiting overtime accordingly. Through taking these actions, we remain confident that we will achieve our financial goals for the year without sacrificing safety, reliability or customer service. Let's turn to Slide 12 to discuss our 2023 operating earnings guidance. We are well positioned to deliver another successful year in 2023. Our operating EPS guidance midpoint of $6.25 per share provides 7% growth from our 2022 original guidance midpoint. Growth at DTE Electric will be driven by distribution and cleaner generation investments and supported by the O&M reductions I just described. DTE Gas will see continued customer focused investment in main renewal and other infrastructure improvements. DTE Vantage growth will be driven by a strong development pipeline in RNG and custom energy solutions projects. At Vantage, as we go through 2023, we will see the timings for the earnings back-end loaded towards the third and fourth quarters as new already secured projects come online. At Energy Trading, earnings guidance is $20 million to $30 million for the year. I do want to point out that forecasted earnings are expected to be negative in the first quarter and reversing through the year. This is primarily due to the accounting recognition of contracts in our power physical business that have revenue based on fixed prices over the term of the transaction and then these transactions are hedged on execution. The recognition of the fixed price revenue we received for energy in these contracts does not vary month-to-month, while the recognized cost of energy is variable based on the energy curve that is highest in January and February. This timing variance in Q1 could be a loss of $20 million to $30 million, but will unwind through the remainder of the year. Overall, we continue to feel confident about our 2023 guidance across our businesses and we are well positioned for future growth. Let's turn to Slide 13 to discuss our balance sheet strength. We continue to focus on maintaining solid balance sheet metrics. Due to our strong cash flows, DTE has little to no equity issuances in the plan. We have a strong investment-grade credit rating and target an FFO to debt ratio of 15% to 16%. We increased our 2023 dividend by 7.6%, continuing our track record of over 100 consecutive years of paying cash dividends. Let me wrap up on Slide 14, and then we'll open the line for questions. In summary, we achieved great success in 2022 across all of our business lines. We have a solid plan for 2023, targeting 7% operating EPS growth from our 2022 original guidance midpoint. Our robust capital plan supports our 6% to 8% long-term operating EPS growth while delivering cleaner generation and increased reliability for our customers. 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.

Dave and Brent, before we open it up for questions, I would just like to let the investment community know that we had one of our largest ice storms roll through our service territory yesterday and across the whole state of Michigan. We have over 400,000 customer outages at this point in time. I want to give a shout out to our people. Over 2,000 people were in the field today, first thing this morning, dealing with this and trying to restore our customers safely and as quickly as possible. We understand certainly the inconvenience that this causes our customers, but again, our goal with several thousand people in the field this morning is to restore our customers as quickly and as safely as possible. So with that, let's open up for the first question, Brent.

It's actually Constantine here for Shar. Congrats on a great quarter. Certainly appreciate the disclosures around the lower revenue approval. Can you maybe just talk about the changes that are now embedded in that reiterated '23 guidance? And maybe just contrasting with prior years, I think you called out around $100 million of kind of contingency flex. So what would be a good proxy for '23, specifically as we think about lean actions? And what portion was built up in '22, like weather and reinvestment versus more recurring and prospective reductions?

So as Dave mentioned when we had prepared our plans in the fall, prior to the rate case, we had adequate contingency in our plans and had anticipated some of the headwinds from interest expense and inflation. When we received the rate order, it created an incremental approximately $120 million challenge to our plan. So we go deep into our lean plans and started to exercise our main plans immediately, which is a practice that many of you are familiar with, that we undertake. The areas that basically we pursued were delaying hiring, reducing contractor workforce and placing our employees into those roles, reducing overtime significantly, and deferring maintenance work without sacrificing safety or quality of service. As you know, when we have years where we experienced favorable outcomes like last year, we start to invest heavily in our maintenance practices. So this year, we'll be drawing on those banks, if you will.

And I'll just add to that. As soon as we knew that this rehearing was a possibility or that we saw the sales, we went into action building our plans. We are tracking this daily and a lot of times weekly, and we're executing on our plans really well so far this year.

Excellent. And following up on the parent guidance and wholesale debt, as you mentioned, it looks like '23 is relatively flat to '22. Can you talk about the interest rate assumptions and refinancing needs that you're embedding at this point, utility bonds continue to hover in the high 5s range? And is that fully embedded in both the '23 guidance and the reiterated 6% to 8%?

Yes, it is. At the highest level, we've incorporated increasing interest rates in our plans for our 5-year plan. At the holding company, we don't have any retirements in '23 other than this $800 million of outstanding term loan. For that, we've entered into some floating defects to make sure we reduce any exposure to interest rate volatility in '23. In '24 and '25 and beyond, we've conservatively modeled rates in our plan and look for opportunities to bring that in even more favorably as we go forward.

Excellent. And last quick one, just housekeeping on the DTE Vantage side. Have you seen any shifts in economics and valuation in the business as it relates to specifically the non-solutions businesses like RNG? We've seen a lot of new entrants and private equity engagement on that front. So kind of does that make it more or less attractive versus development like carbon capture or any other emerging solutions?

I can start, and Dave can add. Certainly, we're seeing very aggressive values for RNG transactions. That's encouraging in terms of value for our assets. We are starting to look at a handful of opportunities in carbon cash in storage, especially with the IRA providing significant tax credit uplift in that business. We are looking at very small projects to sort of get our feet wet, if you will, in that process with our expertise in storage and pipeline work as well as processing. Dave, do you want to add to that?

I agree. I think all I was going to add is that the IRA has made some of these projects more attractive. We are seeing additional competition, but we also have our own landfill gas projects that we can work on for conversions, which can be very appealing for us in the future as well.

And just any thoughts on capital rotation within that business or more kind of toe-in-the-water approach?

At this point in time, there's no definitive plans for capital rotation, but we're constantly looking at those types of opportunities. We've got a track record of rotating capital out of our non-utility businesses and helping to fund some of our utility work. At this point, you would notice that we have very little equity needs. We're trying to certainly match up financing needs with potential rotations in the future. We'll see more to come on that as we go, but certainly always open to anything that creates accretion opportunities for our investors.

This is Steve for Nick today. Yes. The first question is about the regulatory strategy. As you mentioned, we're continuing our practice of pursuing a settlement with all stakeholders. Can you provide us with an update on this front? Additionally, how should we interpret this new rate case filing compared to the previous one submitted last year? I also recognize the PSC's comments regarding the rehearing process. Although the request was denied, the commissioners seem to believe that DTE has a constructive approach and is willing to negotiate. On the electric side, it seems most rate cases have been handled through litigation. Can you help us better understand the electric rate case filing strategy given these circumstances?

Sure. Our intent is to address two major regulatory initiatives this year. One is the integrated resource plan, which will be completed in the second half of the year, and the other is our electric general rate case, set to conclude in December. We are keen on reaching settlements for both. With the integrated resource plan, many involved parties are interested in discussions aimed at a settlement. We have already held initial discussions that are promising, and we aim to settle this case. Towards the end of the year, we will begin settlement discussions for the electric rate case. We have a track record of successfully settling gas cases, along with various renewable regulatory filings and cost recovery factor filings. We are experienced in this process and plan to pursue similar outcomes in these two significant regulatory initiatives this year.

This is really helpful. Regarding the 2023 guidance, you have provisioned from the midpoint. Considering all the mitigation strategies, could you comment on how we should view the impact of storm costs or any weather conditions that might affect this midpoint? Have you made provisions for that?

Certainly, the contingency that we walk into the year with is exactly for these purposes, whether it's deviations in weather or we do carry a storm budget as part of our base plan. If storm costs exceed plan, that contingency may be used for weather variations. I would say that we have adequate contingency at this point in time based on what we've seen so far in the year. As we consume contingency, we go into deeper lean actions to try and restore contingency, especially as we head into the summer season, which is really our biggest opportunity to create value for our shareholders. That's when we really want to make sure that most of our contingency is intact.

This is for Julien. And congrats on today's results. Just the first question, kind of coming back to the 2023 O&M cuts. You mentioned historic success in executing on these cuts with COVID in the last recession. Do you perceive any risk, I guess, at this time around, once again executing on O&M costs, given, A, the inflationary cost backdrop we've seen; and then B, a bit higher scrutiny from Michigan regulators across Michigan utilities on vegetation management efforts, particularly with the 2022 storm docket?

Yes. Let me start with vegetation management first. We've got our largest vegetation management program that we've ever had historically in our company. Back in 2013, we were investing about $65 million a year in vegetation management. Several years ago, we came up with a creative solution with the commission to basically more than triple the investment in vegetation management. This year, for example, we will invest over $200 million in vegetation management. We actually agreed to amortize those costs over time in order to smooth out the impact to our customers, but still give our customers the benefit of reliability improvements. As I mentioned in my comments, I think the commission would agree that we've had significant impact on reliability where we have taken on a very aggressive tree trimming as well as hardening of the system by replacing poles and wires and transformers. So very significant investments in the grid. While we've completed that work, we've had significant improvements in reliability. So we feel good about the work that we're doing. We are always looking for opportunities to do even better. We believe that, that's what the process that the commission has initiated is really about, is really finding joint opportunities to accelerate and improve processes to make our investments even more effective than they have been. So I'm excited about that. In terms of cost reductions, your first question, we are undertaking many of these one-time actions in order to accommodate the challenge that we received late last year. We feel pretty confident in executing those. We know they are one-time; they are not sustainable. Things like not hiring people or suspending hiring. We do need to replace critical positions in our company over time. Not to say that there's not potential efficiency opportunities that we will pursue. Some of this could stick. I mean, that's the opportunity that we're faced with. But a lot of these actions are one-time and not sustainable in nature and also deferring maintenance work. We can do that for short periods of time, but certainly cannot do that for a long period of time. Hopefully, that helps.

Yes. As we developed these plans, we were careful to ensure that we wouldn't compromise safety or affect reliability or our ability to serve our customers. These plans are designed with those factors in mind. They should align well with our ongoing efforts to support our customers, even if they are not sustainable in the long term.

Understood. That's helpful. And then just kind of switching gears a bit here. I know we've seen some recent headlines detailing, for example, plans for large-scale battery manufacturing facilities in Michigan to service electric vehicles. So just kind of wondering what you're seeing in terms of new industrial load and if any of that will accrue favorably to DTE in terms of higher electric load.

Certainly, last year, General Motors announced the battery plant and battery assembly operations in our service territory. We are really excited about that. In the past year, we also saw One Energy announced a new battery plant in our service territory. In addition to that, the University of Michigan announced a multibillion-dollar investment program right next door to our headquarters for an innovation center, which will drive economic growth and development in the city of Detroit. Most recently, the Henry Ford Hospital system is rebuilding their hospital campus in downtown Detroit with a multibillion-dollar investment as well, which will create new jobs, new economic development activity. Those are some of the big ones that I mentioned, but there are so many others. In my time at DTE, this has probably been the most active economic development period that I've seen. We're pretty excited about growth both in the industrial and commercial sector, which ultimately, as you know, will drive growth in residential investment as well and commercial investment to support those industries.

So just going back to the rate case strategy. And I know that we are maybe overanalyzing this. But, I mean, you have another rate case filing, a big one, this time. Are there any lessons learned from the previous case then that you've embedded in this filing? Any changes in the strategy? Some, I don't know, outreach to the commission and the staff ahead of it? So that's one. Number 2 is, how are the residential sales trending vis-a-vis the past rate case and the current rate case? I mean, are you seeing any deterioration in sales versus what you had expected? And then lastly, you mentioned, I think, as far as the gas rate cases that you might elongate the time in between the rate cases. I'm just debating with myself if that's the right strategy given that, that maybe increases the amount of the ask in the next rate case, if you stay out. Again, just trying to have some lessons learned from the outcome of the last rate case on the electric side.

Sure. Let me start with the lessons learned, and I'll have Dave talk about sales. We reflect on the outcome; certainly, the major issue there was sales volume forecast. They're essentially tracking as we had expected. This will be resolved in the next rate case. Sales will not be a mystery. That was the biggest fundamental deviation in this last rate case. But again, we dug deeper than that and said, how can we improve the filing? We've taken another really deep inspection and review of all of our filings to make sure that they're well supported and well understood to get a better understanding with the staff, the commission, and other interveners as to what we're trying to accomplish with this significant investment profile that we have with directed at our grid as well as our renewable assets. A lot of work went into what I would say, continue to improve and continuously improve the quality of our submission. We've spent a lot of time ahead of the rate case, creating context, not only for the commission but also for some of our interveners about the investments and why this is fundamental. If you look at the ice storm that rolled through our territory today, it certainly reinforces the need to invest in our grid as we see these climate changes start to take shape. We've had 3 or 4 major events in our service territory and across the state of Michigan over the last 5 years, pointing to whether becoming more violent in our service territory, and we have to have a grid and investments that will stand up to all of that. Secondly, we are seeing significant electrification. We've got EV attachments increasing rapidly in our state, and we need to have a grid that is prepared for that. We spent a lot of time creating context with our regulator, intervenors, and legislators to ensure a deep understanding. We'll continue that process all year. The capital part of our program has never been a significant question. The administration and legislators are very supportive. I believe that the work that we do throughout the year to create context at all levels of government and with our regulator will be very helpful and we seek to settle.

Sure. Yes, Jerry. Yes. As Jerry mentioned, our sales are tracking pretty well to our forecast. I think we have a lot more stability because our sales and residential sales from 2022 versus 2021 were down about 3% with people returning to work. As we look to our forecast in our test year, it's down a little under 2% from that level. So far in the early months, we're seeing that we're tracking right on that level. So we think we'll come in at a forecast that will be a lot more agreeable as we go forward. Overall, from pre-pandemic levels to where we are in our test year, it's about 1.5% to 2% up too. So I think it's all triangulating really well.

In terms of the gas rate case, Angie, we're looking to file late this year is the current plan.

Okay. I have a follow-up question. You mentioned a lot of outreach. I'm trying to understand how you can incorporate the lessons learned from the previous rate case into the next electric rate case, which is happening so soon after the last one. Also, historically, you have provided early earnings guidance that tends to increase throughout the year. From our perspective, we're curious if a conservative sales forecast has been a factor in your ability to exceed expectations in the past. Should we assume that your current guidance is also conservative, given the outcome of this electric rate case?

Let me begin with the first question regarding the lessons we've learned. We initiated this process early in the summer, as we consistently gather feedback from our staff through their inquiries and comments. We focused on enhancing the quality of our submissions for the rate case. In fact, we were preparing for this rate case well in advance, approximately six months before receiving the results in November. Our efforts intensified after we obtained those results, particularly because we needed to provide context regarding our absence from a rate case for four years alongside our $8 billion investment. The feedback indicates strong support for this investment. While we encountered an issue with the sales forecast in the last rate case, I believe that will be addressed and there will be continued backing for our investments. That summarizes our position on the rate case. Regarding the forecast, as Dave mentioned, we are currently on track to meet the midpoint, which is our target. We review all cost initiatives weekly and our team monitors them daily. We are confident about our progress and are also working to restore contingency funds as they can deplete due to weather-related impacts. Overall, we are optimistic about reaching our midpoint as we assess our outlook.

I was wondering how the IRM you are proposing in the electric rate case could influence your decision to stay out of rate cases if you are successful in implementing it here.

The positive aspect of the IRM is that we have been in discussions with the commission about it for several years. As you witnessed in the last rate case, they encouraged us to submit one. There is a strong alignment regarding the creation of the IRM. We believe that, as you know, our gas company has significantly streamlined the regulatory process for undisputed capital investments, which will be directed toward the grid. The IRM will accumulate over time, so it will take a few years before it begins to influence the timing of rate cases. For instance, as we developed it in the gas business, it allowed us to avoid rate cases for two to three years at a time. This is certainly relevant now, as we have already stayed out for several years with the gas company. We anticipate a similar outcome with the electric business. We will start with modest contributions to the IRM, as indicated in our rate case filings, and that will increase over a three-year period. It will take some time to build confidence in executing and managing the IRM, and we will follow a similar approach as we did with the gas business to develop this IRM and meet our goals of making necessary investments while extending the interval between rate cases. A significant impact on the timing of rate cases will take a few years to materialize.

Okay, that makes sense. I appreciate that context. I was curious about the decline in natural gas prices, which is beneficial for customer bills. Based on storage levels and seasonal gas usage, when might customers start to see these lower prices reflected in their rates?

They're seeing it right now. As a matter of fact, I was talking to the President of the gas company the last couple of days. We're going to lower the factor by about $1 here in the next little while, so we're seeing the prices come down quite nicely from their peak.

Got it. And could that lead to a year-over-year decline overall in the fuel portion of gas? Or is that going to take still some time to kind of flow through the higher-priced gas that might have been collected late last year?

I think we have already seen a year-over-year decline, and it will continue to decline. We've made a series of reductions already in the last several months in our gas prices. Our gas recovery, that's a factor. The most significant one is coming here very shortly. It's about a $1 decline in price.

I wanted to shift the focus to the IRP. We have intervenor testimony expected in the next couple of weeks. What should we anticipate from that? Additionally, regarding settlement timing, which should we expect to occur first: the IRP or the electric case?

I'll start by saying that the expectations we see is there will be challenges to the timing of some of our retirements, especially the Monroe Power Plant. I think you'll see that. We won't be surprised by that. We will also perhaps see some desire to increase energy efficiency. Some parties will challenge natural gas as a future reliability source. Of course, we've got strong views on that, that the natural gas enables a large build-out of renewables as technology continues to improve around providing baseload generation. I think those are the issues. But there's strong support for a large portion, I believe, of our IRP. At least that's our early indication of that it's received favorable reviews informally. We look forward to the testimony that will be filed. In terms of timing of settlements, we expect that the IRP will be settled first just because it was filed before the rate case and just the timing of testimony and process puts the rate case a little behind the IRP in terms of the opportunity for settlement discussions.

Yes. That's a good question. Yes. '22 ended up right around 15%. As you mentioned, the big driver of that being a little lower was the fuel cost recovery. We had our power supply cost recovery was a use of cash for us in '22 but will be more of a source of cash as we're recovering the majority of that in 2023.

Appreciate the detailed answers to the previous questions. You covered a lot of what I wanted. Just 2 follow-ups maybe for me then. First, in terms of the sales forecast, obviously, that was a big difference of opinion in the last rate case. Does that change have any impact on the IRP and the long-term outlook for capacity resource needs?

We had built that into IRP forecast. Now of course, what we do in an IRP is we provide for scenarios for demand increases; both the largest demand increase opportunity is really EV attachments and some of the economic development activity that we expect in the near term. We try to build an IRP that addresses not only point estimates but also a range and scenarios and forecast. That is something that is required by the IRP filing guidelines, and I think we think it's a very wise thing to do because, obviously, over a period of 20 years, there can be a significant amount of variability in demand forecast. We provide low, medium, and high types of forecast.

Okay. And you're still in that range essentially?

Yes.

Great. Then lastly, on equity, the sources and uses of cash page, Slide 17, shows zero or a little dash, I suppose, for new equity. But in one of your earlier slides, you talked about up to $100 million per year. How likely is that to remain zero? Is that a function of the timing of CapEx or the $1.3 billion convertible last year? Just trying to understand why that's 0 and not something greater than zero.

Our goal there will be to keep that as low as possible, and how we generate cash and how we get cash through our plan will be one of the big drivers of that and how we use it in CapEx. We see in our plan minimal equity issuances, hopefully around 0, but it could be in the 0 to 100 range as we go forward.

Okay. So it's zero for the entire 3-year period is a realistic possibility?

It's a possibility. I would expect some internal equity issuances that we have through our internal sources though.

Well, again, I hope the restoration efforts go quickly. I'm sure it's a grind for all the workers out there. So fingers crossed.

We're really proud of our people out there. They're braving these elements, and we just hope for their safety and good health, and certainly the same for our customers.

Just 2 quick ones. One on the IRM filing or request. And I apologize if I had this wrong, has DTE requested that for the Electric segment before? And just what gives you this optimism that this time, maybe it gets approved?

The last time we did it, Anthony, we requested a really large IRM amount, and I felt at that time the feedback we got that maybe it was too big of a request. We were trying to make it large enough to stay out of rate cases immediately, so there would be immediate benefits. This time, we've taken a different approach. We've made it smaller in the early years, which may create more work as you're in for both rate cases and reconciliations in the early years on the IRM. Over time, it will start to put distance between rate cases as we grow it. I think it will give the parties confidence that we're executing well on the IRM. We socialized it ahead of time before we filed and got very strong positive feedback, so we feel good about it this time.

Do you guys ever estimate or provide what the cost is to file a rate case if I think of all the DTE personnel that have to go around aggregating data, all the test running, you add all that up? Is there a value that you guys have put out on that, that maybe an IRM, and again, you guys have been very clear and very modest in the beginning, it will take years before you start seeing ever delay rate filings. But what's the potential savings that a customer sees if you're able to lay a rate filing?

There are, of course, costs for prosecuting a case, if you will, for us and for our interveners and the commission. So we'll reduce that, and I think that will be significant. But I think the more significant piece, Anthony, will be the fact that once we have certainty of an investment profile, from a supply chain perspective, we can start preordering materials and working out supply arrangements that are much more efficient over the long term. When you can commit to somebody for 5 years, there's a huge incentive for them to respond to our efficiency initiatives. I would say millions of dollars of potential savings in capital and the ability to accelerate our work.

Great. And just lastly, DTE Vantage, I love the guidance you've given out, I believe, till 2027. Can I think of the growth from '23 to '27 as linear? Or is it more back-end loaded? Just any clarity on the growth in earnings at DTE Vantage?

Typically, we're targeting that $15 million to $18 million, Anthony, of growth advantage to support that forecast. That's what the team passed with each and every year, and sometimes they beat it, sometimes it's lower. Overall, it averages out to about $15 million to $18 million a year of income growth. A lot of it is – we can look into it because we've got these landfill projects that we're under our current control that we can convert to RNG. We've got a nice line of sight at least over the next 2 or 3 years into project development.

Well, thank you, everyone, for joining us today. I’ll just close by saying we had another strong year in 2022, and I'm feeling really good about 2023 and our position for the long-term future. So I hope everyone has a great morning, and stay healthy. Thank you.