DTE Energy Company (DTE) — Q2 2025 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. I hope everyone is having a healthy and safe year so far. This morning, we will discuss the achievements we've made this year as we continue to deliver for all of our key stakeholders. Joi will provide an update on our business strategy, highlighting the significant improvements we are making to enhance reliability for our customers and the progress we are making on renewable energy investments supporting our path to cleaner generation. Joi will also provide an update on data center opportunities that provide potential upside to the plan. And Dave will provide a financial update and wrap things up before we take your questions. So to start, I'm sure you're all aware that I will be turning over the CEO role to Joi Harris effective September 8 of this year. We have been preparing for this structured transition for some time. I have worked with Joi for over 20 years, and I've watched her continue to deliver and really overdeliver in every role and challenge that she has taken on at DTE. It has become obvious to me, our Board, and our entire company that Joi is ready for this role and ready to lead our company to continued excellence. It has been a real honor to be DTE's CEO for the last 6 years, and I'm extremely proud of what we have accomplished over that time. As Joi transitions to the CEO role, I will be serving as Executive Chairman, supporting Joi and the company, helping to ensure the continued success of DTE for all of our stakeholders. I am confident that we will continue to deliver and are well-positioned for long-term growth with solid opportunities across all of our business units. We've had a strong first half of 2025 and are well-positioned to meet our targets this year. Our success is a testament to our dedicated and engaged team committed to serving our customers and communities. As I mentioned last quarter, we were recognized by the Gallup organization for the 13th consecutive year with a Great Workplace Award. Our employee engagement ranks in the 94th percentile globally among thousands of organizations. Our high level of employee engagement is our secret sauce for continued success. We remain committed to making significant investments to enhance the grid and improve reliability for our customers. We saw a nearly 70% improvement in reliability in 2024 when compared to 2023. We continue to successfully execute significant investments in cleaner generation, which will continue over the next 5 years and into the next decade, significantly increasing our solar and wind investments as well as battery storage. Our 2025 operating EPS guidance is $7.09 to $7.23, and we remain well-positioned to achieve the higher end of this range this year. Our long-term operating EPS growth rate remains at 6% to 8% with 2025 original guidance as the basis for this growth. With the production tax credits from our renewable natural gas projects coming into the plan this year, we have confidence we will reach the higher end of our targeted range 2025 through 2027. The budget bill that passed recently did extend these tax credits through 2029, which is definitely a positive for DTE. This gives us greater confidence that we will be able to deliver on our targets over the next 5 years and beyond. Data center opportunities will provide upside to our current 5-year plan. We are in late-stage discussions with multiple data centers for significant new load, which Joi will provide more details on shortly. We continue to maintain a strong balance sheet and investment-grade credit rating to support our customer-focused capital investment plan. We remain committed to delivering premium shareholder returns that our investors have come to expect, and our 2025 annualized dividend of $4.36 per share aligns with our practice of providing a growing dividend consistent with EPS growth. Now I'll turn it over to Joi. Joi, over to you.

Thanks, Jerry, and good morning, everyone. I'll start by saying how grateful and excited I am for this opportunity to serve DTE as its next CEO. I would like to express my appreciation to Jerry for his mentorship and friendship over the past 20 years. Jerry has been an exceptional leader for DTE, driving the company to success year after year. Our core priorities, long-term vision, and strategic goals remain unchanged. We are committed to building on the strong foundation and momentum we've established over the years and will continue to deliver exceptional results for our customers, communities, and investors. We continue to see strong growth in our utility operations, driven by customer-focused investments aimed at improving reliability and transitioning to cleaner energy. Our solid regulatory framework provides a stable environment for these infrastructure investments, enabling us to move forward with confidence as we modernize our distribution system and continue our transition to cleaner energy. We have a strong project development pipeline in place at DTE Vantage with multiple custom energy solutions projects underway, supported by long-term fixed fee contracts, providing solid low-risk growth opportunities in this space. Overall, we have a robust 5-year plan in place, anchored by $30 billion of customer-focused capital investments, with more than 90% of that investment directed towards strengthening and modernizing our utility operations. We are well-positioned to meet the potential surge in demand from data centers. This represents significant upside to our plan, offering opportunities for additional investments in new generation capacity while supporting our commitment to customer affordability. Our investments in our grid and the process improvements we are making are driving improved reliability for our customers, with a continued emphasis on maintaining affordability. We installed more than 220 smart grid devices, conducted over 230 miles of pole top maintenance, and upgraded and replaced over 1,560 utility poles. During the heat wave at the end of June, our generation fleet performed exceptionally well, meeting high customer demand with reliability and resilience. I am grateful for the dedication of our teams. We have plans for significant investments in cleaner generation over the next 5 years and into the next decade, supported by the recent settlement of our 2024 renewable energy plan filing. We are building roughly 900 megawatts of renewables per year on average over the next 5 years. We are in advanced discussions with multiple data center operators for over 3 gigawatts of new loads, and we are having ongoing discussions for an additional 4 gigawatts. Customers currently in advanced discussions have secured land positions and have earned the backing of local communities. We continue to target closing our first large data center deal by the end of this year, which we expect will ramp to at least 1 gigawatt of new load. These data center opportunities are all upside to our current 5-year plan. And 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 second quarter financial results. Operating earnings for the quarter were $283 million, translating into $1.36 per share. I'll start the review at the top of the page with our utilities. DTE Electric earnings were $318 million for the quarter. Earnings were $39 million higher than the second quarter of 2024. The main drivers were rate implementation and timing of taxes, partially offset by higher O&M and rate base costs. On the timing of taxes, this was fairly significant in the first quarter, related to investment tax credits on solar projects that went into service in the first quarter. Moving on to DTE Gas, operating earnings were $6 million, which was $6 million lower than the second quarter of 2024. The earnings variance was driven by higher O&M and rate base costs, partially offset by cooler weather. DTE Vantage's operating earnings were $31 million for the second quarter of 2025, a $17 million increase from 2024, driven by RNG production tax credits. We are on track for the full year guidance at DTE Vantage. On a year-to-date basis, we are near the high end of operating earnings guidance for this segment. Overall, DTE earned $1.36 per share in the second quarter of 2025, positioning us well to achieve the high end of our guidance range this year. Emerging data center opportunities provide potential upside to our 5-year capital investment and EPS growth plan. We remain confident in our long-term operating EPS growth rate target of 6% to 8% through 2029, with RNG tax credits providing additional confidence. We will update our 5-year plan this fall, and we can open the line for questions.

Congratulations on all the announcements. I wanted to confirm that it seems like there is a line of sight to 3 gigawatts of conversations, with an additional 4 gigawatts behind that. What is the current capacity of the system to handle that 3 gigawatts? Also, what is the tipping point for you to advance the 2026 Integrated Resource Plan with the need for more capacity?

Hi, Nick. Thanks for the question. We are having exciting discussions with data center providers. Early on, we announced 2.1 gigawatts frame agreements with them. We’ve been conservative about building out our pipeline and allowing companies to enter. We have to understand their land positions and zoning requirements, and we’re seeing good activation on the part of Hyperscalers.

That's really clear. So, thinking about the long-term CAGR, load is a tailwind. It seems like some CapEx and storage is coming into the plan as soon as 2026. How are you thinking about it beyond that through 2029?

The RNG tax credit gives us flexibility in our plan and additional confidence that we can hit the high end. We intend to update our plan towards the end of this year, and as we build out the plan, we will not go beyond the 6% to 8%. This extension allows us to have that confidence.

Congrats, Jerry. Could you just frame any impacts on the renewable plans, any risk that you see from the executive order and continued uncertainty there?

The final bill supports our 5-year plan. The IRA provisions make renewable investments more affordable. Safe harboring our renewable investments through 2029 is a positive development. We feel confident about our plans given these supportive elements.

Where do you stand in terms of how much flex you have to absorb any volatility in weather for the rest of 2025?

We're feeling positive on the year and our ability to hit the upper end of guidance while exploring investment opportunities for the future.

Just curious to see if you could offer any confidence level for the 3 gigawatts of hyperscaler load. What is the kind of tipping point for you to have to pull forward CapEx for new generation?

Our goal is to get at least 1 gigawatt signed before the end of the year. We are in active discussions and feel good about progress. We are negotiating terms and gauging the ramp-up of data center loads. Storage will need to be constructed by 2026 to match the demand.

How do you think about the visibility on the gas opportunity and the potential to have that CapEx ramp in the tail end, '27 through '29 period?

A combined cycle plant would be toward the tail end of our 5-year plan. We're preparing to bring on additional capital for that and discussing long-term opportunities.

How are you thinking about your underpromising and overdelivering philosophy? Are you still sticking to the 6% to 8%?

We have a solid plan and intend to stay within the 6% to 8% but will examine all opportunities moving forward.

Thank you, everyone, for joining us today. I'm proud of our accomplishments this year, especially in our employee engagement, which is our secret sauce. Our investments are working and making a difference. I've had the honor of serving as DTE's CEO, and I believe we’re in great hands with Joi. DTE is firing on all cylinders.