DTE Energy Company (DTE) — Q1 2023 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, Barbara, and good morning, everyone. And thanks for joining us. This morning I'll discuss the achievements we have made so far this year, provide an update on our plans to achieve our 2023 targets and give an overview of the robust opportunities in our long-term plan. Dave will provide a financial update and wrap things up before we take your questions. Let me start on Slide 4 to discuss the storms we experienced in the first quarter, starting with the worst ice storm in nearly 50 years which was immediately followed by a major snowstorm. We understand the impact to customers during power outages, and our team worked around the clock to get the power back on safely. I want to express my appreciation to all of our DTE employees for their tireless efforts, along with our labor and community partners and the many others who supported our restoration efforts. It was all hands on deck at DTE for these two large storms. We had our front line working through dangerous ice and snowstorm conditions, restoring power and conducting damage assessments. We also had our office staff in the field ensuring public safety from downed wires. Our Gas team was going door-to-door, checking on thousands of seniors and vulnerable customers to make sure they were okay. Our call center agents worked tirelessly to provide customers with the latest information and escalate emergency matters. I am really proud and grateful for how our team showed up for our customers by keeping each other and our communities safe. Our foundation also showed up in a big way by contributing $3 million to replenish food pantries and reaching out through United Way to provide low-income customers with food vouchers at local grocery stores. We remain committed to supporting and delivering for all of our stakeholders, including employees, customers, communities and shareholders. I always say that employee engagement drives our success and is the secret sauce of DTE. And our team continues to operate at top decile engagement levels as measured by the Gallup organization. I'm excited to say we were recently recognized for this top engagement by earning the Gallup Great Workplace Award for the 11th consecutive year. In our effort to continue supporting our communities, we partnered with one of the country's largest African-American and women-owned energy efficiency companies to launch the Energy Efficiency Academy. The academy provides training and placement for good paying jobs, building a pipeline of talent that will help make our customers' homes more energy efficient. And on the investor front, we are executing on our plan to achieve our 2023 guidance and our long-term financial growth. As you know, we are facing additional headwinds with the warm weather and the severe storms that I mentioned. The team has made excellent progress on the cost management work, and we continue to find savings with our continuous improvement efforts and one-time initiatives across our portfolio of businesses. We are well positioned to continue to deliver the strong performance and premium growth that DTE is known for with long-term operating EPS growth of 6% to 8%. Let's turn to Slide 5 and discuss the extreme weather events that continue to increase in frequency. As you are aware, Michigan's weather has dramatically changed in recent years with storms that were once considered historic seemingly becoming the new normal. Earlier this year, we experienced the most challenging two-week storm period we have ever faced as a company. The first storm that rolled through was the largest ice storm in our area in 50 years. It was followed by a heavy wet snow event the following week. As I mentioned, the ice storm was a very significant event, and having 80% to 90% or the vast majority of our system hold up extremely well through the storm is really a tribute to the investments we have made in the grid so far. We've invested $5.5 billion over the last five years to rebuild poles, wires, transformers and substations. We have also invested over $800 million in tree trimming over the last five years, and we see great results from these investments. It is important that we continue to implement our learnings from these storms, and we are implementing a plan that will be bolder in our approach to reducing the impact of these more intense weather events. We need to provide safe, reliable, affordable energy. Our customers expect this from us, and we have the same expectation. And this can only be achieved through infrastructure investments. We agree with all of our stakeholders that we must work together to do more, and we must do it faster. Having a resilient grid is critical to providing safe and reliable electricity, as well as enabling transportation electrification and achieving statewide decarbonization, as well as promoting economic development. We have been ramping up our strategic investments to prepare the system for the challenges and opportunities ahead. We know that the investments are having a positive impact, and we are looking at ways to accelerate our efforts while maintaining customer affordability. In communities where DTE completed some of our most focused work on the grid's more challenged infrastructure, customers experienced up to a 70% improvement in reliability. Significant long-term investment is needed to prepare our infrastructure for extreme weather and for increased demand from electrification and economic development. Our focus is to continue to make strategic investments in our grid. Let's turn to slide six to discuss some of these opportunities. We have invested heavily in our electric grid over the years, focusing on hardening infrastructure, replacing aging equipment and completely rebuilding parts of the grid that originated back in the early 1900s. You can see from the data that in areas where we make these investments, we see reliability improvements. But to see the type of dramatic improvement we all want across our entire system, we must do more. We will invest $9 billion in the grid over the next five years to further harden the system through a focused strategy. First, we'll continue to invest and enhance tree trimming. We know that the majority of customer outages are due to trees contacting wires. We also know that areas where trees are trimmed perform significantly better than those not trimmed. Second, we will continue preventive maintenance and hardening on the existing infrastructure and continue updating the electric grid, specifically poles, wires and other equipment that makes the system more reliable and more resilient. Third, we will accelerate the complete rebuild of the older sections of our infrastructure. In some instances, it will make sense to pursue the undergrounding of our distribution system. In our most recent rate case, we requested two undergrounding pilots. Since the early 1970s, new construction has been developed with underground wires with a third of our system now underground. There is a significant opportunity to continue this important work on our electrical system and drive down the cost of undergrounding. Lastly, we will accelerate our work to achieve the full automation of the electric grid, which will fundamentally reduce the duration of outages. Our distribution plan filed with the MPSC in 2021 envisioned this happening on the same timeline as the grid rebuild, but the automation work must be accelerated to improve the performance of the grid for our customers in the near term. With our recent investments in the advanced distribution management system and our new system operations center being complete, we can now bring smart grid technologies into the field, which will enable us to more quickly and efficiently isolate outages on a circuit, so the impact of an outage can be minimized. Our goal is to fully automate the grid within five to six years. Increasing investment in our system is something we have done consistently over the years. We know how important these investments are to provide clean and reliable power to our customers. And we will continue to evaluate opportunities to accelerate investments while maintaining affordability. Now let's turn to slide 7. We are making great progress at each of our business units this year. At DTE Electric, the IRP and rate case proceedings continue to progress. We began settlement discussions on the IRP, which are very constructive, and we continue with the audit and discovery process in the rate case. We recently announced that Meridian Wind Park is now operational. This is Michigan's largest wind park, spanning three townships. The 225-megawatt wind park has 77 wind turbines and generates enough clean energy to power more than 70,000 homes. DTE Electric continued its progress on the highly successful voluntary renewables program with the recent addition of a 20-year contract with Toyota. We are seeing some promising ongoing economic development in the state that will continue to drive growth in our service territory. Henry Ford Health System is planning a $2.5 billion investment in Detroit for a hospital expansion, research facility and neighborhood redevelopment in Detroit's New Center area. The University of Michigan and the Ilitch organization announced a commitment for a $1.5 billion investment for an innovation campus that will bring research and innovation firms together. These developments will take place across downtown Detroit, including a development adjacent to our headquarters. We also expect to see a meaningful pickup in the potential domestic manufacturing within critical supply chain areas, including solar manufacturing and battery storage in order to comply with and benefit from domestic content requirements under the IRA. Such energy-intensive manufacturing businesses should translate into higher load growth in our service territory. A recent example of this is our next energy EV battery maker that is located in our service territory. GM is investing $4 billion to convert its Orion Township assembly plant to produce full-size electric pickup trucks. These developments will directly support our ability to deploy more capital while mitigating customer rate impacts by bringing a potential increase of 50 megawatts of new demand on our system. More broadly, this is also a positive for our Vantage business, which has expertise in providing customized energy solutions for commercial and industrial customers. We are seeing increased activity and potential in this business line. Moving to DTE Gas, we completed over 70 miles of main renewal with a target of completing over 200 miles by the end of the year, continuing progress on accelerating the modernization of the gas transmission system. Another major accomplishment for our gas company is the completion of the final phase of a major transmission renewal project in Northern Michigan. This project included the installation of new pipe and facilities, modification work to provide supply redundancy for a growing market. DTE Vantage with a new RNG project and a custom energy solutions project in service, and we continue to progress on our growth plan driven by a strong development pipeline in both RNG conversions and large custom energy solutions projects. 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. Let me start on slide 8 to review our first quarter financial results. Operating earnings for the quarter were $274 million. This translates into $1.33 per share. You can find a detailed breakdown of EPS by segment, including our 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 $101 million for the quarter. This is $100 million lower than the first quarter of 2022. The main driver of the earnings variance is the storm restoration expense that we experienced from the significant events that Jerry described. We're also impacted by warmer weather and we experienced lower sales relative to 2022 with the continuation of people returning to work. The sales were consistent with our forecast. We also had higher rate base costs in the quarter and accelerated deferred tax amortization in 2022. This was all partially offset by the implementation of the one-time O&M cost reductions that we discussed on our year-end call. Moving on to DTE Gas, operating earnings were $171 million, $25 million lower than the first quarter of 2022. Warm weather also had a significant impact on earnings at the gas company resulting in a variance of over $40 million quarter-over-quarter due to weather. The earnings decrease was also driven by higher rate base costs and was partially offset by lower O&M expenses. Let's move to DTE Vantage on the third row. Operating earnings were $27 million in the first quarter of 2023. This is a $13 million increase from the first quarter last year, primarily due to higher earnings from our renewables plants. On the next row, you can see Energy Trading finished the quarter with a $26 million loss. The first quarter result is consistent with the estimate we provided on the year-end call. As I mentioned then, this is primarily due to the contracts in our power physical business that included revenue based on fixed prices over the term of the transaction, and then these transactions are hedged upon 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 based on the energy curve, which is higher in January and February. This timing variance will unwind through the remainder of the year. We continue to feel confident about the performance in this segment this year. Finally, corporate and other was favorable $9 million quarter-over-quarter primarily due to the timing of taxes offset by higher interest expense. Overall, DTE earned $1.33 per share in the first quarter. Let's turn to slide 9 to discuss our 2023 guidance. As you can see from the slide, we added a red arrow to show that DTE Electric is experiencing headwinds this year and green arrows to show that we are seeing incremental opportunities in the other business units. Given our strong portfolio of businesses, we have plans in place to achieve our total operating EPS guidance midpoint of $6.25 per share, which provides 7% growth from the 2022 original guidance midpoint. I'll discuss the drivers for each business unit starting with DTE Electric. The weather and storms from the first quarter are a headwind to our outlook at DTE Electric. We did have contingency for one standard deviation of weather and we do budget for a certain level of storm activity. Earnings are also supported by the one-time O&M reductions I described during our year-end call. As I mentioned, we budget for storm restoration costs and weather variance for the year. The catastrophic storms we've experienced combined with the warmer than normal weather have consumed the budgeted levels at the electric company for storm restoration and unfavorable weather. For the remainder of the year, we're assuming historical averages for weather and storms. Offsetting the headwinds to DTE Electric, the stronger performance at DTE Gas, Vantage, and Energy Trading. DTE Gas was impacted by the warm weather as well, but we anticipate stronger earnings at this segment for the year given focused one-time initiatives, weather contingency and we're also seeing higher customer sales. For DTE Vantage, we mentioned on the year-end call, we'll likely see slightly stronger earnings in the back half of the year as new already secured projects come online. Additionally, the projected favorability of our projects is supporting stronger performance for this business unit. In Energy Trading, the timing variance experienced in the first quarter will unwind through the remainder of the year as we see favorability in our contracted, highly hedged power portfolio that provides additional upside to this business. Overall, we have plans in place to achieve our 2023 guidance as we find opportunities across our portfolio to overcome the weather and storm impacts that we experienced in the first quarter, and we remain well-positioned to achieve our long-term growth.

Let me wrap up on slide 10 and then we'll open the line for questions. In summary, through the remainder of the year, DTE will continue to focus on our team, customers, communities, and investors. Although we experienced warmer than normal weather and severe storms in the first quarter, we are executing on our plan to achieve full year guidance without jeopardizing safety and reliability. Our robust capital plan supports our strong long-term operating EPS growth as we execute on the critical investment that we need to make for our customers to deliver cleaner generation and increase reliability while focusing on customer affordability. Our near and long-term plan supports our 6% to 8% operating EPS growth rate through 2027 and provides a dividend growing in line with operating EPS. With that, I thank you for joining us today and we can open the line for questions.

Hey, team, good morning, and thank you for taking my question.

Good morning.

Hey, good morning Jerry. Dave, the weather EPS impact is very clearly broken out on the slides. Maybe just can you give us a sense of how much of a headwind storm expenses were this year in the first quarter?

Sure. As we mentioned, we experienced challenges in our electric business during the first quarter due to both weather and storms, which amounted to $20 million. This particular storm caused significant damage to our infrastructure, resulting in higher operating and maintenance expenses. After accounting for taxes, the total impact was around $70 million. However, we believe there are strong opportunities in our other business sectors throughout the year to help us counter these challenges. Additionally, the cost reduction initiatives we have implemented are proving to be effective. While we faced some difficulties at the start of the year, we remain optimistic about our ability to navigate through them. With normal weather patterns and absent severe storms for the rest of the year, we are confident we can meet our guidance.

Got it. Can you comment on how much contingency you may have used and how much flexibility you might have as the year progresses?

Yes. The first quarter, the weather and storm we just talked about were pretty impactful. We came into the year with some challenges. So through the end of the year we need normal weather and storm along with some management actions to offset some of that. But we'll need normal weather and storm developments to hit our guidance.

Perfect. That's very helpful. And maybe just one last one. Can you sort of compare and contrast the weather-normalized residential sales trends that you're showing on slide 13? How does that compare in contrast to your rate case filing? I mean that's a pretty steep 4.5% decline quarter over last quarter on the residential sales front. And I know this was an issue in the last rate case.

Yes. Our sales that we're forecasting that have just come in they're in line with what we had in our budget, and they're really close to what we had in the current rate case as well. We did see people returning to work a little quicker in the first quarter than we had expected, but we think that will balance off through the end of the year. So it's very consistent with what we saw what is filed in this rate case and a little below what we had in our previous rate case even.

Appreciate it, guys. Thanks so much, again.

Hi. Good morning.

Good morning, Jeremy.

Hi, Jeremy.

I just want to bring maybe a little bit of a finer point to the question on contingencies here. As you see the balance of the year, you talked about the midpoint target for the year for EPS. Does that assume kind of you've exhausted contingencies across segments, or are there still contingencies in place should something go adverse to plan?

At our electric business, we have addressed the weather and storm-related contingencies. However, in our other businesses, we are still experiencing favorable conditions that may continue to compensate for that as we progress through the year.

The other thing we're seeing Jeremy, as well, is that as we initiated our continuous improvement efforts and cost reduction efforts we are seeing some favorability there as well, which will also be helpful. And just to be clear for everybody on the line, as we embarked on these cost reduction efforts, which most of them are one-time efforts to move through this year, we are investing at record levels in our distribution grid. This year we'll invest about $1.5 billion in our grid. And also, we have not touched our tree trimming budgets, which both of those two combined are the most impactful things that we will do to make our grid more resilient and more reliable.

Got it. That's helpful. So just to be clear there, outside of Electric in the other segments, there are still contingencies that are not in plan yet that could be used should something move adverse to plan at this point?

Yes. So yes, that's what we've signaled is that there's favorability within those businesses that they can offset other things.

Got it. That's very helpful there. And then just kind of pivoting away, I guess, to the RNG business within Vantage. Just wondering if you could talk a bit about how you see the opportunity set there, kind of if you see higher competition. Just wondering how you think about returns and opportunity set at this point.

Yes. Primarily our investment opportunities in RNG are driven by assets that are already under our control, where we're converting existing landfills to produce RNG. And so that's where we're seeing opportunities. And those are still really nice returns, IRRs that are north of 10% and into the teens in some instances unlevered after-tax. So those feel real good to us. We're also seeing a resurgence in our Energy Solutions area, where a lot of the repatriation of industrial activity in the United States has given us opportunity to look at incremental investments with some of our large industrial partners. So we're also excited about that line of business.

That’s very helpful. I’ll leave it there. Thank you.

Good morning. Thanks so much for taking my question.

Good morning.

Hey, David.

I wanted to see if there's any appetite from your end or just within the state to pursue decoupling going forward either through a rate case or just overall is that a strategy or a regulatory structure that would be appealing?

Traditionally in our area, even in the Midwest, that's not been a practice that's been widely adopted or endorsed. So we don't see that as a high probability outcome. We have not asked for it because it's not something that there seems to be appetite for at this point in time.

Got it understood. And thinking – I was curious to your view on as you pursue one-time savings initiatives this year. The one-time being you obviously get them reversing going forward, are you thinking about 2024? Is there a certain kind of level of headwind or natural offset into 2024 such that there's any risk going forward if you dig too deep on the one-time cuts this year?

The one-time reductions will definitely be reversed. To clarify, these one-time reductions do not significantly impact reliability or safety. We will evaluate our continuous improvement initiatives to determine how many of those can be maintained. We consistently seek opportunities to enhance our operations through these initiatives. As you are aware, whenever we undertake such initiatives, we uncover opportunities. We will aim to make some of these continuous improvement initiatives permanent, though many of them will likely be reversed eventually.

Yes. Got it understood. I was wondering, how are you thinking kind of strategically about how to manage the more extreme weather that you've been facing in Michigan? I'm wondering if – you've obviously laid out a number of CapEx pursuits in O&M targeting. Is this something that you could bring as kind of a separate initiative to the commission, whether it's some kind of undergrounding plan or just whether resiliency type of a plan, or would you expect it to go through the more traditional rate case process over time?

We have two processes to consider. First, we need to update our distribution grid plan for the commission this year, which we are currently working on. As you've pointed out, we face several realities regarding our grid investments. Historically rare storms have become more frequent, now occurring every three to five years. Additionally, we have significant growth opportunities due to the electrification of the transportation fleet, along with high levels of economic development in our state, especially as the auto industry shifts to electric vehicle production. Considering all of this in our five-year, ten-year, and fifteen-year plans, we anticipate approximately $9 billion in investments for the grid. There are three primary focus areas. First, we'll continue to harden the grid. Second, we need to fully rebuild our lower voltage 4.8 kV system, which spans about 16,000 miles and is the oldest part of our grid. The need for this rebuild arises from its age, the need for modernization, and the demand from electrification and economic growth. Third, we're aiming to achieve full automation within five to six years, instead of the previous 15 to 20-year plan, due to the increased frequency of storms. This shift is essential to reduce outage durations, which is a critical area for improvement. We also have a robust tree-trimming program; we've invested $800 million over the past five years, continuing this aggressive approach for two more years before returning to a normalized pace. These elements will form the basis of our distribution grid plan, and as we gain support and endorsement, they will also guide our future rate cases. We focus on aligning our distribution grid plan to effectively manage these challenges.

Okay. Great. Thanks so much for all the color.

Hey, guys, good morning. Jerry, so maybe just picking up on that last one. Is there any way some of the things you're thinking about on reliability spend can be factored into the currently pending electric rate case, or do you kind of have to wait till this distribution grid plan gets filed and then fold it into future cases?

Some aspects of grid hardening are already included in our current rate case. Tree trimming is also part of the current case under review by the commission. We are initiating a 4.8 kV rebuild as part of this rate case. Additionally, we are proposing a tracker mechanism for capital investments related to this rebuild, which we believe has strong support. Although full automation and acceleration of the rebuild are not included in the current rate case, we are proceeding with this investment, as we see it as essential. We anticipate some regulatory delays, but not significant ones. Regarding the 4.8 kV rebuild, we aim to explore how much of this project can be placed underground. We plan to rebuild 16,000 miles of our older grid, and we should strive to put as much of it underground as economically viable. We will start experimenting with this approach. Several pilot projects are included in the current rate case, and we are hopeful for commission approval, which will allow us to begin. I recently met with Detroit's Mayor Mike Duggan to discuss starting this initiative in Detroit, aligning our efforts with the replacement of water mains and gas pipes in the city to create synergies with infrastructure renewal.

Okay. That's really helpful. And maybe just like with all this incremental spend, how we should just be thinking about the CapEx budget and customer rate impacts? Are there other things that get shifted out, or do you see incremental headroom to absorb some of this additional spend on the grid?

We have $9 billion allocated in our five-year plan, with $1.5 billion dedicated to grid investments this year. Our main focus to accelerate progress will be on automation. We aim to identify opportunities within that $9 billion by improving our capital deployment efficiency. While it’s possible that we may need to modestly increase this amount over the next five years, we will provide an update on that likely in November at the EEI conference.

Okay. Great. And then last thing I just wanted to circle back to the quarter results and the guide. So, I guess just to confirm if we do get more storms or mild weather at the electric business over the summer, how much more can be absorbed there, or should we think about that as it starts to become too much to offset?

Well, we have storm budget left obviously, as we try to move forward in our plan here for the summer. We have assumed normal weather. If we get cooler-than-normal weather it will put pressure on the plan and we'll have to look for other opportunities. But Dave, do you want to add any color to that?

I think that's correct. If we experience typical storms and weather, we are in a strong position to meet our guidance. However, we would need to identify additional offsets if conditions deviate from what is expected.

Thank you. Good morning, everyone.

Good morning, Andrew.

Good morning, Andrew.

First question on the reliability spending and automation in particular. Should we expect structural day-to-day O&M savings from these investments? I think the primary goal is to reduce outages, but would these come with mitigated customer volume pressure?

Yes. It's a great question. As you think about automation, just to describe it quickly, you have interruption caused by a tree falling on a wire and taking wires out between two poles, for example. And what automation gives you the opportunity to do is to isolate that outage and restore customers on both sides of that outage. So instead of having 1,000 customers waiting 24 or 48 for restoration, you can reduce that impact to perhaps 100 or 150 customers waiting until that damage is repaired. So that one makes the restoration faster so it starts to reduce the duration, if you will, of outages, which is where we need to make the most improvement to be best-in-class, if you will, in the industry. And then secondly, Andrew, in terms of efficiencies, it points you to the location of the outage so that you can properly go there more quickly. Like right now, we have to patrol the circuit and look for the outage, and that could be in the middle of the night, which consumes hours. And that just means it's more hours that people are patrolling and more costs of restoration. So it will make the restoration efforts more efficient and lower cost.

Okay. Great. Then the follow-up to that one is you mentioned a few different buckets of reliability spending. In terms of dollars and potential impacts, where do you see the most opportunity or the most value?

The most significant investment will be in two key areas. The first priority is the 4.8 kV rebuild, where we plan to rebuild 16,000 miles over the next 15 to 20 years, marking our largest investment in the grid to date. This section of the grid was constructed between the 1940s and early 1960s. The second focus is on grid hardening. We have a total of 46,000 circuit miles, with 16,000 being the 4.8 kV system, and around another 15,000 to 16,000 miles comprising the newer 13.2 kV system, built from the early 1970s onward. It’s essential to harden this newer system since some equipment is aging as well. We need to replace poles, pole-top equipment, wires, transformers, and similar components, and implement automation. These will be the two primary areas of investment in the grid. While automation will also require substantial funding, it will be less than what is needed for the rebuild and hardening efforts.

Okay. That's really helpful. And just one last one, if I may. Deferred fuel balances can you talk about where that stands versus year-end levels?

Yeah. On our PSCR, we are collecting some this year. We were down we were about $400 million cash last year that we're going to be collecting this year and over next year. And then our GCR has come way down. Our gas balances have come way down in price. So that was at around $5 last year and it's now come down into like $3 without a balance there.

Hi. Good morning. Thanks for the time.

Hi, Alex.

Good morning.

I was hoping you could provide some insight on how the one-time O&M cuts are progressing so far. I believe you mentioned during the fourth quarter call that there were about $120 million in cuts planned. Can you clarify where you currently stand with that figure, especially considering the challenging weather and storm activity in the first quarter?

We faced the challenge at the beginning of the year and followed our usual process to set targets and budgets for our teams, and we are making good progress towards those goals. In fact, we are slightly surpassing our expectations as the year has begun. We have been utilizing attrition, reducing some of our contractor workforce, limiting overtime, and reallocating some of our less urgent work. Overall, things are going very well for us. We are meeting our targets without affecting our customers or reliability. In fact, we are continuing to invest significantly in areas that enhance reliability. Throughout our business, we are seeing these reductions take effect.

Okay. Understood. And then that $120 million is to hit the midpoint of guidance, correct?

Yes, that was putting us on target to hit the midpoint.

Okay. Thank you. And then just kind of quickly flipping to the rate case side. It seems like the two big issues in the last electric rate case were kind of a lack of precedent for your forecasting methodology and then a lack of extensive back testing. It looks like you revised your forecasting methodology slightly in this new case in a direction that seems more aligned with what you've traditionally used in the past. But if you could provide any color on how you believe you've addressed commission intervenor concerns sort of as we work through this current case, it would be appreciated.

Particularly on sales forecasting. And what we had in the last rate case, we are actually seeing the sales come in kind of similarly to what we had forecasted, in fact a little below that. The methodology change you're talking about is we're using some Google mobility data that would help us determine the percentage of people coming back to work. That's not available anymore. So we use what's this badge-like data which is from Kastle. And it's really just as accurate or more accurate. But I would say about our forecasting we're doing a good job. We're right on with what we submitted in the rate case, but there's also a lot less variability in how the forecasting will be done now because we are kind of working through this return to work. And so we don't really expect there to be the big variations in forecast across groups as we go through this next rate case.

Understood. Yeah, definitely coming out of a challenging time makes it more simpler, more straightforward I'd imagine. And then just finally on the rate case front. With Commissioner Phillips leaving the MPUC in the coming months, can you give any clarity on what the process looks like if one of the commissioners leaves sort of halfway through your case? Does his replacement get to rule on this current case, or sort of how we should think about this development playing out?

Yeah. What will happen is that the governor and her staff will appoint a new commissioner to replace Commissioner Phillips, and of course we wish Commissioner Phillips all the best in his future endeavors. So that's what will happen. If one is not appointed, two can rule on the rate case and the IRP that's in front of the commission for our company. And I guess the last question you had, yes, the new commissioner would have the opportunity to weigh in depending on timing of course. If it's late in the process of one or both proceedings, then typically they may not choose to participate. But if they have enough time to spend with the case then they typically do rule on it.

Okay. Thanks so much. That's all for me. Congrats on a good quarter.

Thank you.

Good morning.

Good morning, Ross.

Dave, you've talked about sort of these one-time O&M cuts this year to get back in the range and mitigate some of the storms. Obviously, Jerry you talked about reviewing that as you move forward to what's permanent and what sticks and what's sort of one-time as you look through all of it. I imagine you're going to have to have that conversation with the commission as well. Just maybe give us some color and context as we look forward into that conversation of how that conversation has gone in the past, right? There's going to be a debate about what's one-time and what's more permanent?

Absolutely. Those conversations are ongoing with the commission staff to clarify what is one-time and what is permanent. It is a work in progress, and we hope to reach a settlement that will address not just operations and maintenance, but also other aspects of our capital investment plans and our capital structure and returns. We are optimistic about securing a settlement in this case and will put in the necessary effort to achieve that. We are encouraged by the progress in the Integrated Resource Plan and aim to apply the same approach to the rate case.

Thank you for that. Following up on Commissioner Phillips, I know that each situation is unique, but is there a general timeframe for replacing a commissioner based on past experiences, or should we not use that as a reference for this particular process?

I understand that the process is moving forward and there is already a list of candidates being considered. We are encouraged by the Governor's Office acting quickly on this. I would expect that in a few months we will have a new commissioner, unless they face challenges in finding the right person. It seems they are being very selective about who they appoint to the commission, especially given that this is a significant moment for utilities in Michigan regarding investment and the transformation of energy delivery and production. It's a historic time for the state as it transitions to a cleaner and more reliable future.

Yes, it’s great color, Jerry. Thank you.

Thank you. Well, thank you everyone for joining us today. I'll just close by saying I'm excited about the opportunities that we have ahead of us to further strengthen our electric grid, and prepare for increased demand for electrification of our system, as well as really transforming the way we produce power, and the way we deliver gas. We are in a historic period at DTE and in our state. So we will also continue executing on our plan to achieve our goals in 2023 and remain well positioned for future growth. I hope everybody has a great morning, and I look forward to seeing all of you at AGA in a few weeks. Thank you.