DTE Energy Company

Ladies and gentlemen, thank you for standing by and welcome to the DTE Energy third quarter earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to put a star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker for today, Barbara Tuckfield, Director of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Before we get started, I would like to remind everyone to read the Safe Harbor Statement on page two 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 of today's presentation. With us this morning are Jerry Norcia, President and CEO, who will discuss the transaction we announced this morning that transitions DTE into a predominantly pure play utility. We also have David Slater, President and COO of DTE Midstream, and President and CEO-elect of the new Midstream Company, who will take you through the benefits of an independent Midstream Company. Bob Skaggs, a member of our Board of Directors and Executive Chairman-elect of the new Midstream Company, will say a few words on the transaction. And finally, Dave Rude, Senior Vice President and CFO, will provide an update on the quarter, our increased 2020 earnings guidance, and our 2021 early outlook. And now I'll turn it over to Jerry to start the call this morning.

Well, thanks, Barb, and good morning, everyone, and thanks for joining us today. I hope everyone is staying healthy and safe. So I'll start on slide four. This morning, DTE announced that our Board of Directors has authorized management to pursue a plan for the spin-off of Midstream from DTE Energy. On this call, we'll discuss the spin-off and demonstrate how it will unlock significant shareholder value. By positioning DTE as a predominantly pure-play utility with visible and superior growth, and creating an independent, well-positioned midstream company with excellent growth potential. Then we will provide you with an update on our 2020 results, which continue to be very strong, giving us confidence to increase operating EPS guidance for the year. This positions us to exceed original guidance for the 12th year in a row. I want to thank all the leaders and our 10,000 employees at DTE for creating this tremendous success in a year of great turmoil and uncertainty. We are firing on all cylinders, keeping our people safe and delivering for our customers, communities, and investors. it is truly remarkable and certainly a reflection of the grit and determination of the great people of bte a big thank you we're also providing an early outlook for 2021 and announcing that our board approved a seven percent dividend increase for 2021 continuing our history of providing strong dividend growth now on to slide six for an overview of the spin transaction This decision to separate the two companies follows a thorough review with our board to identify opportunities to optimize our portfolio and maximize shareholder value. And in the end, after the evaluation of various alternatives, we determined that a strategic spin of the midstream business was the best way to create value. We recognize that this decision comes not long after our significant acquisition of assets in the Hainesville basin. Our decision to spend midstream is a result of a series of discussions with our board that began in the summer of 2019, prior to the acquisition, when we started talking about a portfolio pivot to a predominantly pure play regulated utility. Through 2019, while business mix discussions were still ongoing, we continued to pursue an aggressive value creation agenda for midstream, which yielded the Hainesville acquisition. This was a great acquisition that pulled forward growth and value. Because this acquisition and the balance of the midstream portfolio continues to perform exceedingly well, provide better than expected growth opportunities, and has scale to thrive on its own, it crystallized our path to pivot to a high-growth, pure-play utility with the spin of a well-run midstream company. We believe this strategy will unlock significant value for our shareholders. The spin is expected to unlock the full potential of our premier regulated utilities and premium natural gas midstream assets, align DTE's business mix with investor preferences and overall market trends, and create two entities, each with experienced leadership and proven track records. We expect the entities to pay combined dividends higher than the current dividend with an 8% to 10% full spin increase from 21 to 22 versus 6% we had planned pre-spin. For well over a decade, our midstream business has created significant growth through greenfield development and strategic acquisitions. and has become an industry leader with solid cash flows and tremendous opportunities for continued growth. We believe this separation positions DT Midstream with enhanced flexibility and provides shareholders an opportunity for investment in a high-quality midstream company with assets strategically located in premium basins and connected to major demand markets. As most of you know, my background includes a substantial amount of time in the gas industry, including my involvement in the development of our midstream business. The team and I have dedicated a significant amount of time and energy creating a midstream business at DTE that is recognized as one of the best in the country. So you can imagine how important this decision is to our team and me. After careful consideration and review with our board, I am confident that this separation is the best way to allow the midstream business and its team to achieve their full potential and to enhance overall value for our shareholders. As I said, This positions DTE into a nearly fully regulated utility with 90% of our operating earnings and an even higher percentage of future capital investments going into our two premium utilities. Our five-year plan will hold this 90-10 mix. About 10% of DTE's operating earnings will be from our remaining non-utility businesses. The separation of DTE and the midstream company is truly beneficial for both entities, positioning them well for the future. In slide seven, I'll provide details on the structure of the transaction. DTE and the new midstream company will have distinct corporate structures. DTE shareholders will retain their shares of DTE stock and receive pro-rad shares of the new midstream company. We expect to complete the spin by mid-year 2021, subject to final board approval, the Form 10 registration statement being declared effective by the SEC, and other regulatory approvals. I will remain the CEO of DT Energy, with Jerry Anderson continuing as Executive Chairman and Bruce Shaw as Lead Independent Board Director. David Slater, current President and COO of GSP, is the CEO-elect of the new midstream company. Most of you are familiar with David, who is well-respected in the industry. Bob Skaggs is the executive chairman elect of the new midstream company and will continue to serve on DT's board. As many of you know, Bob served as chairman and CEO of NYSource, where he executed the company's successful spin of the Columbia Pipeline Group and went on to become its CEO. David and Bob each have 30 years of experience in the energy industry. The midstream company is extremely fortunate to have these two seasoned leaders along with a really strong team to support them. Let's move on and discuss the strong growth profile of DTE on slide nine. This transaction positions DTE in a predominantly pure play electric and gas utility. About 90% of DTE will be regulated by the Michigan Public Service Commission. We will invest significant capital over the next five years to support utility growth. We are substantially growing our utility rate base with a five-year capital investment plan of $17 billion and an increase of $2 billion over our previous five-year plan. This capital plan is strategically aligned with our aggressive ESG targets. DTE's EPS growth rate has been among the best in the industry over the past decade and is maintaining its long-term 5% to 7% growth target. DT Electric, we anticipate long-term operating earnest growth of 7% to 8% and about 9% at DT Gas. Our post-separation profile will better align DT with investors' preferences for high-performing regulated utilities. We will continue our strong record of providing clean, safe, reliable, and affordable energy to our customers and being a force for growth in the communities where we live and serve. DP will continue to offer competitive dividends our investors expect. We have paid a dividend for more than 100 consecutive years and have increased our dividend each year since 2010. We will target dividend growth in a payout ratio that remains consistent with our pure play utility peers. All in all, this transaction offers greater appeal to investor focus on the strategic and financial characteristics of a pure play utility. Let's move on to slide 10. Separation will highlight the strengths of our core electric and gas utility businesses. Michigan has one of the best regulatory environments in the nation. We continue to work very closely with the Michigan Public Service Commission to support the people of Michigan, particularly this year during the pandemic. DTE continues to have a distinctive continuous improvement culture, enabling us to continue our superior track record of cost management. We also have a strong commitment to service excellence. DTE Energy ranks in the top 10 of energy companies with energy efficiency programs, and I'm proud to say both utilities are in the top quartile for residential customer satisfaction, with DTE Gas recently earning a top ranking in the Midwest by J.D. Power. Moving on to the next slide, I'll discuss our capital plan, beginning with DTE Electric. We expect to invest about $14 billion in the electric company over the next five years. This is 17% higher than our previous plan. About $2 billion of the total electric investment will be in renewables. That will support our plan to reduce 80% of our carbon emissions by 2040 and be net zero by 2050. We are also focusing our investment on modernizing an aging distribution system with significant investments in hardening, automation, and technology in our distribution business. We are building a flawless grid of the future for our customers. Our capital plan supports a robust near-term outlook for DT Electric and a 78% long-term operating earnings growth rate. On the next slide, I will discuss capital investment opportunities at DT Gas. Over the next five years, DT Gas plans to invest over $3 billion to upgrade and replace aging infrastructure, a potential upside to the five-year plan. Along with our pipeline integrity and main replacement investment, we're investing in innovative technology and products that will reduce methane emissions and reduce the carbon footprint of our gas company. Overall, our capital plan supports a strong near-term outlook for DT gas and a 9% long-term operating earnings growth rate. On the next slide, I'll discuss our plans to achieve net-zero greenhouse gas emissions to further strengthen our ESG stewardship. As I mentioned, at DTElectric, we are committed to achieving net zero carbon emissions by 2050 with a 50% reduction by 2030. To meet these targets, we plan to double our renewable energy by 2024 and quadruple it by 2040. We are also progressing on our voluntary renewables program. This program enables customers to invest in renewable energy and drive Michigan to a cleaner energy future. We have more than 17,000 business and residential customers enrolled with large industrial customers, including GM, Ford, and University of Michigan. We have one of the largest voluntary renewable programs in the country with 750 megawatts of demand commitment from our customers. DTE Gas announced its unique and comprehensive plan to achieve net zero greenhouse gas emissions by 2050. This plan includes working with our suppliers and customers to enable further reductions across the value chain. So as you can see, our strong utility investment profile positions DTE for continued growth and a strong environmental leadership role. Now I'll turn it over to David Slater to discuss the new and exciting opportunity with the midstream company. David, over to you.