DTE Energy Company (DTE) — Q3 2024 Earnings Call Transcript

Thank you and good morning everyone. Before we get started, I'd 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 and CEO; Joi Harris, President and COO; and Dave Ruud, Executive Vice President and CFO. And now I'll turn it over to Jerry to start our call this morning.

Thanks Matt. Good morning everyone and thanks for joining us. This morning, I'll discuss how we continue to deliver for our key stakeholders and highlight the successes we've had across all of our businesses this year. Joi will provide you with an update on our regulatory proceedings as we continue with our customer-focused investments to improve reliability and transition to cleaner generation while maintaining affordability for all our customers, and she will discuss the significant progress that we have made so far to further improve reliability and rebuild the grid of the future. And Dave will provide a financial update and wrap things up before we take your questions. So, let me start on Slide 4. We're having a very strong year so far in 2024, giving us confidence that we will deliver on our 2024 operating EPS guidance. As I said on our previous call, we are also positioning ourselves to deliver strong results in 2025 and beyond. We remain confident that our plan will deliver a long-term EPS growth rate of 6% to 8%, support a healthy balance sheet with strong cash flows and minimal equity issuances, and continue our commitment to deliver affordable energy to our customers. Our long-term growth is driven by the required capital investments in reliability and clean generation that we need to make for our customers. And these investments are supported by the recent independent audit of our electric distribution system, which I'll talk about more shortly; Michigan Energy legislation, which continues to push the pace of decarbonization and deployment of renewables; and by infrastructure recovery mechanisms at both of our utilities. As we continue to wrap up a solid 2024 and finalize multiple regulatory proceedings, we are updating our five-year plan, and we'll provide the details of that plan on our year-end call. This plan will continue to support these customer-focused investments in grid reliability and cleaner generation as we advance our capital investments to support these initiatives. I am excited about the opportunities we have in front of us and look forward to sharing the details of our long-term plan on the year-end call. As I said, we are having a successful year in 2024, and our success is the result of our team's focus on all of our stakeholders, including our customers, our communities, and our investors. Our team continues to consistently deliver as a result of our strong culture. We were recently informed by the Gallup organization that our employee engagement ranks in the 94th percentile globally among thousands of organizations. As I've said before, our high level of employee engagement is our secret sauce at DTE for continued success. DTE was also recognized as a Best Place to Work for disability inclusion, receiving a top score of 100 on the Disability Equality Index, the world's most comprehensive benchmarking tool for large companies to measure disability inclusion inside their organization. This award was a tremendous honor, complementing our recognition with the Best Employers Award for Excellence in Health and Well-being, which I mentioned last quarter. Our highly engaged team remains focused on delivering excellent service to our customers as we advance toward our goal of restoring service to all customers within 48 hours after a storm. In August, our service territory was impacted by an extreme weather event that included wind gusts that reached over 75 miles per hour. As a result of the extensive improvements we are making to our system and processes, we restored nearly 65% of our customers in 24 hours, which is the highest one-day restoration in company history for a storm of this size, and nearly 95% of our customers were restored within 48 hours. I extend our sincere gratitude to our teams who worked tirelessly to get the lights back on for our customers. We also faced extreme heat this summer as temperatures climbed to over 90 degrees for an extended period. Our system held up well in these conditions, but I'm very proud of our team's efforts to take care of those most vulnerable customers as they experienced the heat. Our energy efficiency program was able to assist low-income customers by installing nearly 1,000 free air conditioning units to those in most need across Metro Detroit to keep them cool. Moving on to our communities. We take pride in supporting the communities where we live and serve. While being best for the world is always part of our company's aspiration, every August, we lean in even more to give back to the communities. During this year's Month of Caring, DTE team members made a difference across the state as they helped out at food pantries, cleaned up parks, and participated in many other volunteer events. Our employees spent 5,000 hours giving back to our communities. I would also like to take a moment to commend and appreciate the 500 contract line workers and tree trimmers, along with 100 DTE line workers who went south to help with the hurricane relief. In the last few weeks, Hurricane Helene and Hurricane Milton hit the Florida Gulf Coast and then flooded several southern states with drenching rain. Millions were without power, and I'm glad our team was able to assist others in need. And as a matter of fact, I received 20 letters from elementary school students in Georgia that expressed their gratitude for the work that our team did there. So, thank you again to our team for doing something extraordinarily positive in Georgia. And for our investors, we are in a great position to deliver on our earnings target this year and are well-positioned for the future. Our long-term operating EPS growth rate remains at 6% to 8%, with 2023 original guidance as the base for this growth. And this solid financial strength in our constructive regulatory environment allows us to continue to invest above our generated cash flows for improved reliability and cleaner generation. As I mentioned, we will provide our typical forward-looking disclosures on the 2024 year-end earnings call. Our updated plan will reaffirm our commitment to deliver premium shareholder returns that our investors have come to expect. Let's turn to Slide 5 to highlight some of the achievements across our portfolio. We are achieving success and progressing on key initiatives across the company. We are progressing toward constructive outcomes for our rate cases at both DTE Gas and DTE Electric. While there is still work to do to ensure the outcomes do not put pressure on our near-term ability to complete our customer-focused investments, we believe these outcomes will ultimately support the investments in grid reliability and cleaner generation that we need to make on behalf of our customers. We expect these constructive outcomes in November for DTE Gas and January for DTE Electric. Additionally, we received the final report from the independent audit of our electric distribution system as directed by the Michigan Public Service Commission. We really appreciated working with the independent audit team over the last year, and we appreciate the insights and recommendations to further improve our system. Joi will go over some of the key items from the audit, but one key takeaway is the confirmation that our proposed investment plan is what is needed to achieve the significant reliability improvements that we have committed to over the next five years, which is to reduce power outages by 30% and cut outage time in half by 2029. We are continuing to progress on these investments and reliability improvements this year, and our customers are seeing the benefits of this work. As I mentioned, we had one of our most effective storm restorations in our company's history in August, demonstrating that our efforts to improve processes and automate the grid are working. Joi will provide some detail on our progress in this area. But I'll just say that we are making great progress on all aspects of our plan as we transition to a smarter grid, update existing infrastructure, rebuild the older sections of the grid, and continue our significant tree trimming efforts. We are also making significant progress in our renewables build-out at DTE Electric. Last month, we broke ground on three new solar parks and have three additional solar parks currently under construction. Together, these projects will add 800 megawatts to our renewable portfolio, which is enough to power more than 220,000 homes. Each project also supports our MIGreenPower voluntary renewable program, which continues to grow with 2,500 megawatts now subscribed and nearly 100,000 residential customer subscriptions. In DTE Gas, we continue to progress on our gas main renewal program this year as we modernize the gas transmission system and our distribution system. Finally, at DTE Vantage, we are advancing a number of custom energy solutions projects, including RNG and carbon capture and sequestration projects. We highlighted the project at Ford Motor Company earlier this year to support Ford's new plant in Tennessee. This project is underpinned by a long-term fixed fee contract and is scheduled to go into full operation in November. We also began construction on an RNG project that is expected to go into service by the end of the year. Now, I'll turn it over to Joi to give some highlights on our regulatory front and reliability improvements. Joi, over to you.

Thanks Jerry and good morning everyone. I'm excited to discuss the progress we are making to continue to improve system reliability for our customers. As you know, an important part of this journey is the progression of our regulatory proceedings, which supports these investments and helps us gain alignment on the investments required to build the grid of the future and transition to cleaner generation. There are several regulatory proceedings we are currently working on, including general rate cases at both of our utilities. We continue to progress toward constructive outcomes in these cases. At DTE Gas, our rate case filing supports the important investments necessary to continue to renew our gas infrastructure, which will further minimize leaks, reduce carbon emissions, and lower costs. We are very close to finalizing this case, with an order expected in the coming weeks. Our electric rate case outlines the customer-focused investments we need to make to build a smarter, stronger, and more resilient electric grid and to further progress our transition to cleaner generation. This filing underpins the next important step in our long-term investment plan while maintaining affordability for our customers. The filing includes a request to extend and expand the infrastructure recovery mechanism that was approved in the previous rate order. Modeled after our DTE Gas IRM, the DTE Electric IRM allows us to recover the cost of investments in grid infrastructure between rate cases. Our objective is to work with the commission to grow the IRM over time to help stretch the time between electric rate cases as it does for DTE Gas. We expect the final order on the electric case in January. As Jerry mentioned, we did receive the report on our electric distribution system from the independent auditor that the commission appointed. From the start, we have appreciated the commission's decision to engage a consulting firm in this process to help all parties gain a further understanding of our electric distribution system and identify opportunities for improvement. We view the audit results as constructive and supportive of our capital plan to deliver on reliability commitments for our customers, highlighting the need for strategic investment in our distribution system to deliver on these improvements. The audit confirmed that our proposed investment plan will deliver the dramatic improvements and reliability that we have committed to our customers over the next five years to reduce power outages by 30% and cut outage time in half by 2029, which is also consistent with the customer service standards set for us by the PSC. We expect to file a formal response on the audit through the regulatory process in November and look forward to incorporating key findings from the audit into our investment strategy going forward. Let's move to Slide 7 to highlight the impact of our reliability improvement efforts on enhancing the customer experience. We continue to make strategic investments and process improvements to enhance our system and improve the customer experience. As Jerry mentioned, our response to the August storm resulted in the highest one-day restoration for a storm of this size, made possible by the investments we are making to fully automate and improve our grid. Through the implementation of smart grid technology, DTE has prevented more than 9,000 power interruptions and avoided over 3.6 million outage minutes through the third quarter of this year. We also remain focused on tree-trimming efforts as this has proven to be one of the most effective methods for improving reliability. Trees account for half the time our customers are without power, and in areas where tree trimming is up to date, customers experienced significant improvement in reliability. We have trimmed nearly 40,000 miles of trees since 2015 as we move to an enhanced more aggressive standard, and we expect to have our entire system on a five-year tree trim cycle by the end of next year. As you can see, we continue to make progress in improving reliability, which keeps us on the path to reduce power outages by 30% and cut outage time in half by 2029. Of course, as we continue to invest in our system, we remain very focused on maintaining customer affordability using our distinctive continuous improvement culture to drive cost management and savings for our customers. Including the recovery of capital costs in our current electric rate case and the estimated power supply cost savings for our customers in 2025. The projected average annual growth of our residential electric bill will be just over 1% from 2021 through 2025 compared to the national average annual increase of close to 6%. This is distinctive in our industry that we have been able to invest over $6 billion in our distribution system in the last five years and have one of the industry's lowest bill increases. Our performance versus other states over the last three years is highlighted on Slide 13. Affordability goals are also supported by our diverse energy mix, helping to reduce fuel costs and allowing us to maintain flexibility to adapt to future technology investments. Our long-standing continuous improvement culture continues to deliver for our customers in the form of lower bills. Finally, our transition to renewable energy is supported by federal tax credits included in the IRA. These tax credits are passed on to our customers, which helps us continue to achieve customer affordability goals. With that, I'll turn it over to Dave to give you a financial update.

Thanks Joi and good morning everyone. Let me start on Slide 8 to review our third quarter financial results. Operating earnings for the quarter were $460 million. This translates into $2.22 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 discussion with our utilities. DTE Electric earnings were $437 million for the quarter. This is $169 million higher than the third quarter of 2023. The main drivers of earnings variance were the implementation of base rates, warmer weather, lower storm expenses, and timing of taxes, partially offset by higher rate base costs. Moving on to DTE Gas, operating earnings were unfavorable $8 million versus the third quarter last year, driven by higher rate base costs and a return to a more normalized O&M level. This was partially offset by increased revenue from the IRM. Let's move to DTE Vantage on the third row. Operating earnings were $33 million for the third quarter of 2024. This is a $23 million decrease from 2023 due to a combination of some timing and one-time items in 2023, primarily in our RNG and steel-related businesses. We remain highly confident in our full-year guidance for Vantage as new projects continue to ramp up in the fourth quarter, providing both earnings and associated investment tax credits. On the next row, you can see Energy Trading finished the quarter with earnings of $25 million. We continue to see strong performance in our contract and hedged physical power and physical gas portfolios in this segment. Finally, corporate and other was favorable by $30 million quarter-over-quarter primarily due to the timing of taxes. This timing will reverse through the balance of the year, and we expect to land within the current full year guidance range for this segment. Overall, DTE earned $2.22 per share in the third quarter. When you look across our portfolio of businesses, we are in a great position to achieve our full year operating EPS guidance in 2024, which, at the midpoint, provides 7% growth over the 2023 original guidance midpoint. We continue to position ourselves to deliver strong results in 2025 and beyond. Let's move to Slide 9 to highlight our strong balance sheet and credit profile. Our significant customer-focused investment is supported by our strong cash from operations. Due to our strong cash flows, we have minimal equity issuances in our plan as we are targeting annual issuances of $0 to $100 million through 2026. Our long-term financial plan incorporates debt refinancing and new issuances to fund our capital investment plan and is consistent with our 6% to 8% operating EPS growth target. We have largely executed our 2024 financing plan at interest rates consistent with our plan, including reducing refinancing risk by successfully prefunding the fourth quarter debt maturities at the parent company. We continue to focus on maintaining our strong investment-grade credit rating and solid balance sheet metrics as we target an FFO to debt ratio of 15% to 16%. Let me wrap up on Slide 10, and then we will open up for questions. Our team remains focused on our commitment to deliver for all our stakeholders. We continue to invest heavily within our utilities to improve reliability and move toward cleaner generation. Our robust capital plan supports our customers as we execute on these critical investments while focusing on customer affordability. DTE is well-positioned to serve increased load as opportunities for new load continue to solidify in our service territory. The 2024 operating EPS guidance midpoint provides 7% growth over the 2023 original guidance midpoint, and we continue to target long-term operating EPS growth of 6% to 8%. As Jerry mentioned, we will provide the details of our long-term plan on our year-end earnings call. We remain well-positioned to deliver the premium total shareholder returns that our investors have come to expect, with a strong balance sheet that supports our future capital investment plan. We look forward to seeing many of you at EEI in a couple of weeks. And with that, I thank you for joining us today, and we can open the line for questions.

Hey guys. Good morning.

Morning Shar.

Hey Shar.

Good morning Jerry, good morning everyone. Congratulations on the quarter. I appreciate that the financial update is being moved to the fourth quarter, but I noticed the reference to the $25 billion capital expenditure plan has been removed. Can you discuss what you're observing regarding system needs that might lead to a reconsideration, as well as any generation needs going forward at this point? I don't want to preempt the Q4 update, but having a sense of that would be very helpful. Thank you.

That's a good question, Shar. And what we're seeing, I'll take it by the two major components, generation, we are seeing opportunity there for incremental investment. And that's primarily driven by the fact that we had forecasted to subscribe 2,500 megawatts of voluntary renewables over the next four years, and we've already filled the queue. So, we're seeing continued investment opportunity with our voluntary program. And also as we update the generation plan for the clean energy legislation that was passed last year, we're also seeing opportunity there as well. And with the report from the independent audit of our distribution system, we do see some opportunity there. When you bring that all together, I think there will be an overall incremental opportunity to invest, and we'll update that at our year-end earnings call.

Got it. And Jerry, just on the storm and residency audits, it sounded like the plan is to meet that sort of target of cutting the outages in half by 2029, but it sounds like you still need some additional spending there as well as a result of the storm and resiliency audit. Is that correct?

We do have the incremental opportunity. But Joi, you may want to add that.

Yes, yes. Yes, Shar, the results really serve as confirmation of our five-year plan to deliver on those reliability commitments, and those commitments align with the service quality standards by the PSC. So, the plan noted that our DGP, or our distribution grid plan, is really aggressive and ambitious, and we accept that challenge. We've demonstrated that we have the execution capability just given our track record over the last couple of years of ramping up our investment. You've mentioned some of the key takeaways. Yes, that could help us reprioritize some of our capital plans. But generally, the findings support our overall levels that we've laid out, but there were some noted increases in certain areas like pull-top maintenance that we're taking into account. But we're really being mindful of affordability, and we've chosen to highlight that in the presentation. When you look on Page 13, it just shows that we have been able to stay below the national average in terms of overall bills and bill growth. So that's what we are using as our guide, and we've proven that we've done it in an effective manner.

Got it. Perfect. And then just lastly, on just the funding needs. I mean it sounds like there's some upside bias to that $25 billion. And obviously, you've got a very strong balance sheet. You talked about minimal equity needs between $0 to the $100 billion range. Do you envision that changing when you roll forward your plan? Do you have the balance sheet capacity to take on the incremental CapEx? Or could there be some incremental funding needs?

Hey Shar, this is Dave. We do plan to update all that on the fourth quarter call, and we'll get into that more. In our current plan, you saw we have $0 to $100 million of equity through these next three years, and we don't anticipate that changing through that period. But we'll update more on the out years. Again, we have great cash flow generation. The IRA continues to support our capital investments. So, we're confident we'll have the capital plan that can support that, too.

Okay. I think that sort of answered it. Appreciate it guys. See you in a couple of weeks.

Thank you.

Hey team. Good morning. Thank you for taking my question.

Good morning.

Good morning, Jerry, Dave, Joi. Could you provide some insights on your year-to-date performance? It appears you are significantly ahead of your plan, particularly when I consider Q3 of last year and look ahead from Q4 of 2023 to Q4 of 2024. Can you walk us through the factors affecting Q4, especially in relation to reaching the midpoint of your guidance? Are you reallocating some expenses from 2025 to 2024? I'm interested in understanding how much progress you've made compared to your guidance range.

Yes, Durgesh, I'll address that. First off, you're correct that it's been a strong quarter, and we're performing better compared to last year. The main contributor to this success is our electric division, especially since last year was affected by storms and adverse weather conditions. Additionally, we expect increased margins next year, so our electric performance is improving. Trading is also exceeding expectations, with year-to-date results at $61 million compared to our guidance of $35 million for the year, which is beneficial for us. I should note that we discussed the timing of corporate taxes, which will reverse by year-end, along with some minor impacts from electric. Overall, we anticipate a successful year ahead, and as you pointed out, we're positioning ourselves to maintain this success into 2025. I hope that answers your question.

It does. That's helpful. Thank you. Thank you, David. Maybe just a quick follow-up. Can you update us on the performance-based rule-making docket? What do the discussions look like there? Thank you.

Yes. Durgesh, the commission has prepared their final proposal, which includes the seven metrics. We're satisfied with these metrics as they align with our internal measurements. We continue to advocate for consistency in the application of incentives and disincentives. Currently, we've submitted our feedback, and while there is no official deadline for this matter, we understand it will not be included in the ongoing rate case. Therefore, we are waiting for a response from the commission and will keep collaborating with them to finalize the performance-based regulation.

That’s helpful. Thank you for the time.

Hi, good morning.

Good morning. Hey, Jeremy.

Hi. Just wanted to start with the Vantage side, if I could. Just wondering if you might be able to talk a bit more on the RNG custom solutions there. And I guess, maybe a bit more on the carbon capture side as well, I guess, how you see the timeline of that progressing?

We continue to have a strong pipeline in all those areas. We have several projects in the works, including an RNG project that is set to launch this year. We are also exploring conversion opportunities and have found some good prospects through custom energy solutions supported by the IRA. We previously mentioned the Ford project that's coming online, and we are optimistic about the pipeline with other industrial partners as well. Regarding carbon capture, we are advancing some smaller projects, including on-site CCS, and we hope to provide more updates on these developments in the coming year.

Got it. That's helpful. Thanks. And as you think about potential upside to utility CapEx over time, given some of the items you talked about before. How do you think about portfolio rotation in this segment to help fund some of that, if needed?

Yes, we certainly see potential for increased investments in utility capital, and we will carefully manage both our investments and the earnings we anticipate from Vantage. Therefore, we expect to place a greater focus on utility capital in the future.

Got it. That makes sense. That’s it from me. Thanks.

Hey, good morning. Hope everyone's doing well.

Hey Nick.

Hey, how are you? I just wanted to ask, as we think about the roll forward, how are you thinking about your load growth? I know it's kind of been roughly flattish, but we are seeing a lot of peers kind of take up their load ambitions. And then maybe you could also talk about the status of the data center bill and the ability to get that passed this year. Thank you.

Well, our plan at this point, Nick, forecast is essentially flat demand growth in our five-year plan, and we haven't closed any arrangements with data centers, but we have a lot of interest. In terms of legislation, what we're seeing and what we did see before the summer recess is that the sales and use tax, the used tax portion of the bill passed the House. As you recall, it's already through the Senate. We're just waiting for the House to finish its work. We do have some commitment that it will be taken up in the lame duck session here after the election. The governor has continued to indicate that if it gets to his desk, he'll sign it. So we feel pretty good about that. This is something that the hyperscalers need, like the very large data center operators that we're talking to. The aggregators already have a sales and use tax exemption and we're also talking to them. Our perspective is that at some point, we will start to connect data center load. We do have some capacity to offer, which will be extremely beneficial to our customers and affordability, helping us drive more affordability into the plan.

Hey, that's helpful. I appreciate that. And then I guess just to check in on the electric case quickly. Is it still kind of the base case here that you take this the full distance and we shouldn't be expecting a settlement? I just wanted to get a quick update there. And that's it for me. Thanks.

Yes. The staff's position is constructive. It will put some pressure on our near-term capital plans that we'll work through. Given the number of interveners, I think we're up to a dozen intervenors. There's really a low probability of settlement at this point, but we believe we can still get a constructive outcome, and we'll know definitively in January.

All right. Thank you.

Thank you.

Hey good morning. Thanks for taking my questions.

Morning.

Morning.

Let me see, maybe on the gas rate case side of things, reflecting on the ALJ recommendation in that case, ROE was lower than we would have thought. Just wondering, has there been any change from your perspective in the backdrop in terms of the commission's perspective on gas rates and affordability and returns?

Yes, if you look at the staff position after the ALJ's testimony, their exceptions aligned with their initial testimony, which we find constructive. We feel very positive about our standing in the gas rate case and will have a definitive update in the next couple of weeks. We previously mentioned this was a new ALJ, and for the electric rate case, there is no ALJ involved. So, David, we'll know where we stand in about two weeks, and staff was very supportive of all the capital we have in the gas rate case as well.

Yes, got you. Absolutely. That makes sense. Thanks. And then maybe just on voluntary renewables. How has the momentum been in that program? Where could you see that going maybe from the 2,500 megawatts that you have currently subscribed?

We'll update that at the year-end call, but certainly, it will be higher than 2,500 megawatts. I always say that I can't seem to put a high enough target on that team. They've always exceeded expectations. We had 2,500 megawatts forecasted for the next four years, and that order book has been filled, and we still see significant opportunity, so more to come on that.

Okay, great. Sounds good. We'll wait for that in 4Q. Appreciate it. Thanks so much.

Excellent. Hey, good morning team. Thank you guys very much.

Morning.

I'd like to quickly follow up on Nick's question. In terms of implications, how significant do you think the impact of the recent success with the sales use tax will be? Is this more of a long-term opportunity? Going back to what you mentioned earlier, Jerry, you have near-term capacity available. I’d like to understand the timing and the progress you’re making in those discussions simultaneously.

Sure. So, available capacity, as I mentioned in the past, is less than 1,000 megawatts, so it's in the hundreds of megawatts. We would look to secure that in the near term, near term being over the next 12 months. Some of that will be independent of the sales and use tax exemption passing, while large hyperscalers will need that sales and use tax exemption; we expect it to be dealt with this fall. By the way, that was all very bipartisan, which is also encouraging that the bill passed the Senate in a bipartisan way, and half the bill passed in a high bipartisan way as well. We expect the other half of this bill in the House to move along before the end of the year. We expect hundreds of megawatts to be placed in the relatively near term.

Thank you. Regarding the IRM, it represents a significant part of the overall request. How do you view the timing of rate cases, particularly if you don't receive the complete infrastructure recovery request? Clearly, there was a strong request in the last session, considering the audit report and the need to enhance metrics. I understand this is a challenging situation, but how do you approach that discussion and the possibility of consecutive cases?

Well, I think it's staff testimony. They essentially held the current levels. For the IRM, going forward, they will rely on the audit results, which we have already said are positive and support our capital plan. I believe we would have to grow the IRM to significant levels. It would have to be, call it, $1 billion before we would be able to stay out of a rate case for a period of time. That's what we are campaigning for, and I think the audit results help us make the case that an IRM would be helpful for us and helpful for customers.

Yes. I think, Julien, we may see probably not significant movement in this rate case, but we're getting signals that as this audit lands and gets incorporated into our planning process, along with the commission's understanding of how we should move forward, we do see a willingness to grow the IRM so that we can reduce the frequency of rate cases. I think it will take several more rate cases before we get to a level where we could put some time between these rate cases, which I think everybody wants.

Yes, indeed. It's good to hear that you've got some line of sight and conversations there. All right. Excellent. Thank you very much. We'll see you soon.

Hey everyone. Good morning.

Morning.

Just picking up on that last question in terms of rate case cadence and obviously, you made the decision to hold off on the long-term refresh with two cases pending. I guess how should we think about that going forward since you're going to continually be in rate cases? Or will you ultimately get back to your prior timeline of Q3? Is it going to shift to more Q4 going forward? Or is this kind of a moving target depending on cases being pending at any given time?

Hey Michael, it's David. I think we'll see how things develop in the future and make decisions from there. We know that we will need to continue entering rate cases. However, we are confident that we will secure the capital investment necessary from these rate cases to support our growth moving forward. We will provide updates as we progress.

Okay. And then just shifting over to the year-to-date strength in the trading, Dave, I think you mentioned you already have the full year guide. Is there some reversal that you're expecting in Q4? Or is that strength going to continue? And maybe just looking out into next year, what are you seeing for that segment?

Yes, you're right. We are off to a really good start this year. As I mentioned, we're at $61 million compared to our guidance of $35 million. This performance is driven by contracted and hedge positions in our physical gas portfolio. We don't anticipate a significant reversal in the fourth quarter or anything that should cause a dramatic change. Looking ahead, we will provide more updates during the fourth quarter call. In terms of our power contracts, they are three-year contracts that we've established through this FRS, and they offer higher margins than we had previously experienced. We do have reasons for optimism about this business moving forward.

Okay, great. And then last one, just quickly, I think someone did mention just trying to think about the drivers upcoming for Q4. So, if trading is going to remain strong or at least there's no reversal coming. Can you just remind us in terms of the kind of one-time cost cutting that you did a year ago whether any of that showed up in Q4 and would be potentially reversing this year?

Yes, we did see some costs return this year compared to last year, particularly related to our operations and maintenance. Excluding the storm-related expenses from last year, some of those costs are resurfacing. It has been tough for gas this year due to challenging weather conditions, which you can see reflected in nearly $50 million attributed to weather impacts. We have managed to recover some of that, but it will be difficult to keep things within the expected range. We are having a strong performance this year and anticipate continued success, finding ways to support our initiatives in 2025 as well.

Great. Thanks a lot, Dave.

Great. Thanks. When I look at the 45, the tax credits that are expected next year, would you expect that, that would put your nonregulated business contribution above your targeted range at least over the course of the next several years?

Yes, I'll reiterate what I've mentioned before. When we provide our update on the fourth quarter, we will cover this in detail. The 45Z tax credits for our RNG business are beneficial and will extend from 2025 through 2027. When we discussed our growth for 2028, we anticipated that these credits would not be included, and we still adjusted our estimates to a range of six to eight. However, the credits give us greater confidence and flexibility in achieving our earnings during those years. We will offer more updates on this in the fourth quarter call as well, Paul.

And in terms of those percentage targets, would you be willing to sort of allow that to be higher than the targeted range because of the temporary nature of the 45Z contributions?

Yes, we will update all on that in the fourth quarter call. We're trying not to give guidance piecemeal through the year and try to give it all at once when we give our full year guidance across all of our businesses. So, we'll update that fully on the fourth quarter call.

Great. Thank you very much.

Hi, good morning. Just a couple of questions on the year-end numbers here, too. Can you quantify the impact of the tax timing items?

Yes, there's a little bit at electric and corporate. Together, they are about $40 million.

Okay. And then on Vantage, year-to-date, that $55 million, it looks like there's implying about an $80 million step-up in Q4. Is that still on track?

Yes, that's still on track.

Okay. So, the development of those projects going into service and so forth, there's no issues there?

No, the big one going in is the Ford one that Jerry was talking about in the call, where we're doing the central energy plant for the Blue City project at Ford and their Tennessee facility. Some of that already is in service, and there are three large systems that will come into service within the fourth quarter that will drive both the income and the associated investment tax credits in the quarter.

Okay. And then on the potential for an increase in large load, is there any kind of sensitivity you can provide if we think about if you're assuming relatively flat, but the potential for upside on that, as the legislation comes through or additional economic development starts to materialize? Is there a sensitivity we can think about for large C&I from an earnings perspective?

We'll use the incremental margin to support our affordability initiatives. There will be an opportunity as we land this load to accelerate our capital plans without putting bill pressure on our customers. So, I think that's how we will use the incremental margin. We're probably not in a position to size it yet as it's early in the contract discussions with some of the potential data centers looking to locate here in Michigan, but that's how it would be deployed; it will be deployed as an affordability play, and in turn, that would create headroom for us to invest against. We've got a massive backlog in our distribution business. We are looking to invest $9 billion over the next five years, but we could easily accelerate that.

Okay. And then lastly, do you have an existing tariff structure in place that you think is adequate? Or would that need to be reviewed in context of additional large loads?

For the existing capacity, we've got an existing tariff that we think will work quite well. For long-dated capacity additions that could come from this opportunity, we would have to design a tailored tariff that would ensure we brought in enough margin and also for a long enough term that we wouldn't create any type of stranded asset situation for existing customers.

Okay, great. That’s it from me. Thank you.

Hi, good morning. Thank you for taking my question.

Morning.

A lot of my questions have been answered. I just wanted to ask you on the potential five year's capital that's going to come from incorporating the results of the storm audit into your future capital plan. And I think when we read the report, one of the concerns that the consultants had was the ambitiousness of your goals, right, and the potential impact on customer bills. I was wondering if you see any need for other mechanisms offsetting these potential increases right to moderate those customer bill increases? Maybe it's a storm securitization costs that's needed or something else that you might need to kind of go ahead with that plan and keep the customer rate growth slow. Or do you think you can accomplish that within the existing rate structure? Thank you.

Our five-year capital plan anticipates the capital that we need to achieve this ambitious plan of reducing the frequency by 30% and the duration by 50%. Obviously, the audit didn't really get deep into how our affordability plans and our financials will work through all of this—it was more of a physical condition audit and recommendations. Interestingly enough, on the face value, the audit would put pressure to increase the capital overall into our distribution business. We feel very confident in achieving our affordability goals, and as Joi pointed out, on Page 13 of our presentation, you'll see that we've managed our costs and fuel portfolio, and the renewable assets put downward pressure on bills. We're extraordinary in how we're performing in that regard. We continue to remain confident that we can continue to deliver that extraordinary performance on affordability.

Okay. So, no need for any new structural mechanisms in your view right now?

We don't anticipate any at this point in time.

Okay. And then maybe if I can ask you on Vantage, are there opportunities in that business to take advantage of the kind of growth in the large load of customers? I'm not sure if that's the right fit for that business. But are you seeing any potential strategic opportunities there?

We are having those conversations. If you think about the business line that—in the custom energy solutions business line, where we provide cogeneration assets, generation assets, as well as other central plant energy services like air and water cooling and heating, there are opportunities for that. We're having those conversations with potential data center customers.

Good morning everyone. Thank you.

Morning.

Morning.

Just to wrap-up a couple of things. On the audit, after you file your response, what do you see as the pathway for this? Is this something that closes? Or is this something that is going to perhaps last long, maybe even come up with some metrics you have to meet over years? What's your view on the pathway there?

Yes, we'll file our responses in mid-November. We are continuing to have conversations with the staff on the findings and looking at how we incorporate the findings into our plans. There really is no formal end to the process. I think the docket essentially closes with everyone providing their comments. On a go-forward basis, anything that results from either discussions with staff, I would anticipate, will be incorporated in future regulatory proceedings.

The vehicle for that with the staff that works really well for us is the distribution grid plan, which gets updated. We're meeting multiple times a week right now with staff to digest the audit and start building it into our distribution grid plan, which will be a really good process supported by the independent audit to formulate and secure our investments for the future, making them more secure in terms of predictability. We're excited about the level of engagement and effort that staff and our team are putting into fine-tuning the plan to achieve the goals and address some of the opportunities that the audit pointed out.

Yes, really collaborative process.

High-quality products.

And would you say just kind of on that whole idea of performance-based rates, bringing in that docket, is that something that metrics you're talking about that could be an outcome of the audit kind of tying those together?

There's no pre-specification in this docket to address performance-based rates, and that was not in scope. As you've heard already from Joi, there is a separate docket that deals with performance-based rates that will not be incorporated in this rate case, but there could be some potential that it gets incorporated in the next rate case. We feel really good about the metrics in there, and we're striving for a little more symmetry. The amount that's in there is reasonable. It really goes to the heart of what we should be delivering for our customers, and I think it will be supported by investment. So, we're comfortable with the direction it's sitting in.

Okay, great. And then real quick, any supply chain issues seen in the renewable energy growth that you got?

We're lined up pretty good for the next three years in terms of solar panels, and we've got that nailed down. We don't see any issues. Our battery plant project is well underway, and those systems are being fabricated as we speak. We feel like we've got a good runway there from a supply chain perspective.

Okay, perfect. That’s all I got. Thanks.

Thank you.

Well, thank you, everyone, for joining us today. I'll just close by saying we're feeling really good about 2024 as well as our position for future years. We look forward to seeing you at EEI in a few weeks and have a great morning. Stay healthy and safe.