DTE Energy Company

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the DTE Energy Q4 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed with the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Matt Kropinski, Director of Investor Relations. Please go ahead.

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 gap earnings to operating earnings provided in the appendix. With us this morning are Jerry Norcia, Chairman and CEO, Joy Harris, President and COO, and Dave Rude, 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. We have a lot of positive updates to share with you today. including a recap of a very successful year in 2024, which has positioned us well for strong performance in 2025. We will also provide an overview of our long-term plan that includes significant utility investment increases that we need to execute for our customers as we continue to build the grid of the future and transition to cleaner generation. This plan also demonstrates our ongoing commitment to affordability for our customers. continuing our 6% to 8% operating EPS growth target through 2029 with bias to at least the upper end of the growth rate 2025 through 2027. Joy will provide additional details on our long-term plan, and Dave will provide updates on our financials, including our 2024 performance and guidance for 2025, and then we will open it up for your questions. Let me start on slide four. I'll start by saying again that we had a very successful year in 2024, and this success is driven by a team that consistently delivers as a result of our strong culture. Last year, we were recognized by the Gallup organization for the 12th consecutive year with a great workplace award, and our employee engagement ranks in the 94th percentile globally amongst thousands of organizations. As I've said before, our high level of employee engagement is our secret sauce for continued success. We achieved operating EPS of $6.83 per share, delivering at the high end of our guidance and providing over 9% growth over the 2023 original guidance midpoint. And we received a constructive rate order at DTE Electric last month. This all positions us well for another successful year in 2025. Our 2025 operating EPS guidance range is $709 to $7.23, with a midpoint of $7.16 per share, which provides 7% growth over the 2024 original guidance midpoint and will be the reference point for our long-term growth. And we are currently positioned to achieve the higher end of our EPS guidance range this year. As we have said, the 45Z tax credits give us additional strength in our plan, providing confidence we will reach the higher end of our growth rate, 25 through 27, and provide flexibility to exceed the high end or support future years. And today, I'm really excited to talk to you about our updated five-year plan. Our plan is supported by a significant investment of $30 billion over the next five years, a $5 billion increase from our previous plan, primarily driven by the investments we need to make to improve reliability and transition cleaner generation at our utilities. Additionally, we have the potential for incremental investment above this $30 billion as we continue to make progress working on data center opportunities. We will update you as we progress towards definitive agreements. This $5 billion increase is a significant increase to our capital plan and is driven by the need to build out renewables to meet the increased demand from the success of our My Green Power Voluntary Renewable Program, and to support Michigan's clean energy legislation, as well as the need to continue to invest to improve reliability for our customers as we continue our efforts to update and modernize our electric grid. And with this heavy customer-focused investment in our utilities that we have been contemplating since 2023 due to the IRP settlement and the clean energy legislation that passed in 2023, we are strategically shifting the focus of our DTE Vantage investments the projects that are more utility-like and deliver solid long-term contracted earnings. I'll go over our plan more on the next slide, but what I'll tell you is that altogether this plan delivers even higher quality long-term 68% operating EPS growth with the 2025 guidance midpoint as the base for this growth and provides flexibility and potential upside throughout the plan. DTE continues to be well-positioned to deliver the premium total shareholder return that our investors have come to expect with a strong balance sheet that supports our future capital investment plan and a solid dividend that grows consistent with operating EPS. Now let's turn to slide five to provide an overview of our updated long-term plan. Let me start by highlighting some of the opportunities that we have in front of us that have led to this plan. We've seen increased requirements for renewable generation investments above what was presented in our previous plan. This increase is driven by the continued success of our voluntary renewables program and our 2023 IRP settlement, which was supported by Michigan's clean energy legislation also enacted in 2023. Together, this drives a significant need for increased investment in our voluntary and legislated renewable programs requiring over $3 billion of incremental clean energy investment from our prior plan. And we are well positioned to execute these renewable investments with a solid long-term development pipeline in place, providing clear line of sight on panels, land positions, and permitting. And we've also been able to safe harbor investment tax credits for these investments through 2027. Along with this increased investment in cleaner generation, this plan also increases our five-year distribution infrastructure investment by $1 billion. We have made great progress in improving reliability for our customers. We saw a 70% reduction in the duration of outages last year due to our work on the grid and less storm activity, which Joy will talk about more. And these investments ensure that we continue this progress consistent with our communicated plan and customer expectations. It is important to note that this commitment to improve distribution reliability is supported by the electric rate order we received last month and the independent audit of our electric distribution system as directed by the Michigan Public Service Commission last year. As we saw this significant need to increase utility investment, we also saw an opportunity to strategically shift our advantage focus to more long-term fixed fee contracted projects. Vantage is a segment that has provided a solid earnings profile over the years and complements our utility businesses well. In recent years, we have had strong contributions from both our R&G and customer energy solutions business. With the increased customer focused investment at our utilities, we are aligning our project development at DTE Vantage to focus more on utility-like projects that provide a high quality earnings profile with fixed fee long-term contracts. And as I mentioned earlier, We have 45Z production tax credits for our RNG projects coming into the plan this year through 2027. Providing confidence, we will reach the higher end of our growth rate, 25 through 27, and also provide flexibility to exceed the high end of our guidance or support future years. And the increased need for customer focused investment on our utilities and utility-like growth advantage gives us confidence we are delivering a long-term plan that provides a higher quality, long-term 68% EPS growth rate. We also have potential upside to this updated investment plan and our 68% EPS growth rate, driven by potential demand growth at DT Electric to serve data center opportunities in our service area. Along with the switch in University of Michigan projects we recently announced for a total of 1,500 megawatts, we have signed another non-binding preliminary agreement with an additional party, bringing a total for the three agreements to approximately 2,100 megawatts of potential new load. We are also in discussions with multiple parties for additional opportunities beyond those that I just described. Our success in championing the data center legislation with the full support of the governor who has signed the bills into law and bipartisan support has helped intensify these discussions. We have some existing capacity to serve the incremental load from these data centers. but will likely need to build additional capacity in the near term. And we will look to our 2026 IRP to incorporate new baseload generation to support new data center load. Importantly, as we execute this plan, we will continue to focus on maintaining customer affordability. DTE has a top-tier track record in maintaining customer affordability, which Joy will highlight shortly, that will continue through our plan. And our strong cash flows, supportive energy policy, and a constructive regulatory environment continue to support our customer-focused investment plan. I'll close out my remarks by saying how proud I am of our team in delivering great results in 2024 for our customers and our investors. We are positioned to hit the higher end of our guidance this year with lots of dry powder in the plan. And I feel great about the opportunities we have in front of us to continue this success. with a higher quality annual operating EPS growth rate of 6-8% and with multiple opportunities to drive the growth beyond this 6-8% EPS growth rate. Now I'll turn it over to Joy to give an overview of our accomplishments and opportunities. Joy, over to you.

Thanks, Jerry, and good morning, everyone. 2024 was a very successful year across many areas of DTE. In particular, one area where we demonstrated significant improvement was enhancing reliability for our customers as a result of our distribution investments. And all of our businesses are in a strong position to deliver superior performance in 2025 and beyond. Let me start with DTE Electric. I am very proud of the progress we have made to improve reliability for our customers. In 2024, we installed more than 450 smart technology reclosers, upgraded existing infrastructure, including 850 miles of power lines and 3,400 utility poles, and trimmed more than 4,300 miles of trees. These efforts to create a smarter, stronger, and more resilient grid combined with less extreme weather in 2024 made a significant impact, resulting in customers experiencing a nearly 70% improvement in time spent without power. We also continued our significant investment in clean energy generation, placing multiple projects in service and initiating construction on our 220 megawatt battery energy storage center. We currently have 2,300 megawatts of renewable generation in service with additional projects totaling over 1,000 megawatts coming online as we are building to meet increased demand for clean energy. We are investing $24 billion over the next five years at DTE Electric which is $4 billion higher than our prior plan, a significant increase to further support cleaner generation and improve reliability for our customers. Required investments in cleaner generation continue to grow, with $10 billion of investments planned over the next five years, an increase of $3 billion from last year's plan. This is driven by the continued success of our voluntary renewables program, and the requirements under Michigan's legislated clean energy law. It's important to note that we have been able to build an extensive development pipeline to support this growth in renewable investments. Solid land positions combined with our ability to successfully move these projects through the interconnection and permitting processes provide confidence that we can execute these investments. We have panels secured through mid-2027 land positions that should take us into the 2030s and beyond, and permits secured for a majority of our projects through 2027. We also have been able to safe harbor investment tax credits for these renewable projects through 2027. Investments in distribution infrastructure increases by $1 billion in this plan as we focus on continuing to improve reliability for our customers. Recent regulatory outcomes support this investment plan. The constructive rate order we received last month supports the customer-focused investments we are making to build the grid of the future. And the electric distribution audit report that was completed last year confirmed that our proposed investment plan will deliver the dramatic improvements in reliability that we have committed to our customers. Over the next five years, we expect to reduce power outages by 30% and cut outage time in half as a result of these investments in our improved operations. As Jerry mentioned, there is potential upside to the five-year capital plan driven largely by data center opportunities in our service territory, as well as further economic development in Michigan. Let me move to slide seven to highlight some of these opportunities. Southeast Michigan continues to be a great region for economic development, attracting many large companies that contribute to the progress of our state and its residents. General Motors, Henry Ford Health, and the University of Michigan are among the large companies with major investments in our service territory, providing significant economic development and providing thousands of jobs. We continue to collaborate with economic development partners throughout the state to target key business segments to drive further economic growth. And as you know, data center development and the impact of the potential load from the data centers have been an important focus over the last year. We're making great progress with data centers. Our success in championing the data center legislation for the sales and use tax exemption has helped us further progress discussion. We continue to work with a number of hyperscalers and co-locators on opportunities within our service territory. We recently announced that we have advanced one of those discussions to a non-binding term sheet that is moving toward a definitive agreement. SWITCH, a leading co-locator, plans to build this 1.4 gigawatt site using some of our land from an existing site with a project expected to ramp up through 2032. As Jerry mentioned, we have signed another non-binding preliminary agreement with an additional party. Together with the switch agreement, along with the University of Michigan project we announced recently, these projects bring a total of approximately 2,100 megawatts of potential new load onto our system, which represents approximately 40% overall load growth when it all comes online. and we continue to have discussions with multiple other major data center companies. As we said before, we can begin to serve this demand quickly because we have some excess capacity. In addition, these projects will require additional build of new generation to support the early load ramp in the near term and could provide longer term investment opportunities in new base load generation, which would be supported by our 2026 IRP. Of course, as we continue to invest in our system and as these incremental opportunities come into our plan, we remain very focused on maintaining customer affordability. These data center additions, along with our distinctive continuous improvement culture to drive cost management, will continue to support affordability for our customers. We are delivering top tier affordability through continued superior cost management. operational excellence with our power plants and one of the larger energy efficiency programs in the country. As a matter of fact, our historical average annual bill increase demonstrates the extraordinary results in the affordability arena. Even after including the electric rate order we received last month, our annual bill increase since 2021 is well below the utility Great Lakes average and national average through 2024. and also well below the general rate of inflation. Let's move to slide eight to discuss DTE gas. Our gas business had another great year in 2024 as we continue to deliver our customers with top quartile cost and operating performance. I'm proud to highlight that DTE gas ranked number one in the Midwest for customer satisfaction for business natural gas service by J.D. Power last year. We are incredibly proud of this recognition. It shows our team is truly committed to providing service excellence to our customers. We continue to progress our gas main renewal program as we modernize the gas transmission system and our distribution system. Over the years, we have made significant investments into this program and recovered this investment through our infrastructure recovery mechanism. Since the program began and through 2024, we have renewed nearly 1900 miles. Over the next five years, we are planning to invest $4 billion to upgrade and replace aging infrastructure. I'll just close out my comments by saying how excited I am about the opportunities ahead of us. Our updated five-year plan supports the investments we need to make for our customers. It includes significant increased utility investments focused on enhancing our systems to further improve reliability and to support our growing renewable programs. This updated utility plan also provides the opportunity for us to focus on more utility-like investments at DTE Vantage, which is expected to drive annual base earnings growth of about $20 million per year. Overall, our plan provides an earnings profile that is high quality, continues to target 6% to 8% operating EPS growth with confidence we can reach the high end of our growth rate 2025 through 2027 as 45Z production tax credits come into the plan with flexibility to exceed the high end or support future years. And the opportunity and data center development provides potential upside to the plan. And with that, I'll turn it over to Dave to give you a financial update.

Thanks, Joy. Good morning, everyone. Let me start on slide nine to review our 2024 financial results. Operating earnings for the year were $1.4 billion, which translates to operating earnings of $6.83 per share, putting us at the high end of our 2024 guidance with 9% growth over the 2023 original guidance midpoint. 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. DT electric earnings were $1.1 billion for the year, $314 million higher than 2023. The main drivers of the earnings variance were implementation of base rates, warmer weather, and lower storm expenses, partially offset by higher rate-based costs. Moving on to DT gas. Operating earnings were $263 million, $31 million lower than 2023. 2024 was the warmest winter in over 60 years, and this is coming off the fourth warmest year in 2023. Along with the impact of warmer weather, the earnings variance was driven by higher rate base and O&M costs, partially offset by higher IRM revenue and implementation of base rates. Let's move to DT Advantage on the third row. Vantage had another strong year in 2024 with $133 million of earnings. The variance from 2023 was due to a combination of some timing and one-time items in 2023, primarily in our steel-related business. This was partially offset by higher investment tax credits that primarily occurred in the fourth quarter of 2024. On the next row, you can see energy trading finished the year with earnings of $100 million. This strong performance in our contracted and hedged physical power and physical gas portfolios that we experienced in 2023 continued into 2024. And we expect to see some of this strength continue this year, which is reflected in our 2025 guidance on the next slide. Finally, corporate and other was unfavorable by $26 million year over year, partially due to higher interest expense. Overall, DTE earned $6.83 per share in 2024, delivering at the high end of our 2024 original guidance. Let's turn to slide 10 to review our 2025 earnings guidance. Our 2025 operating EPS guidance midpoint is $7.16 per share, which provides 7% growth over our 2024 original guidance midpoint. And we continue to target 6% to 8% long-term growth with 2025 original guidance midpoint as the base of this growth. And as Jerry mentioned, we are currently positioned to achieve the high end of our 2025 EPS guidance range as the RNG tax credits come into the plan. In 2025, DTE electric growth will be driven by investments in grid reliability and cleaner generation. DTE gas will see continued customer-focused investments in main renewal and other infrastructure improvements that enhance operational performance and support decarbonization. At DTE Vantage, 2025 earnings are driven by the development of new custom energy solutions projects that serve as a base for growth going forward, And we do expect to recognize 45Z tax credits from 2025 through 2027. We expect these credits on average to contribute about 50 to $60 million in earnings during these years, providing confidence we'll reach the high end of our growth rate in 25 through 27 and provide flexibility to exceed the high end or support future years. We expect continued consistent growth at DT Advantage with a strong pipeline of long-term contracted fixed-fee projects, which will drive about $20 million in average annual base earnings growth, giving us confidence in our longer-term earnings targets in this segment. You can find additional detail on DTE's Vantage long-term earnings growth plan in the appendix of this presentation. At Energy Trading, as I mentioned, we expect to see continued strength in both our structured physical power and physical gas portfolios. as we continue to see favorability from these contracted and hedged positions, giving us confidence in our guidance range. And at corporate and other, the change is driven by higher interest expense. Let's move to slide 11 to highlight our strong balance sheet and credit profile. We continue to focus on maintaining solid balance sheet metrics. Due to our strong cash flows, DT has minimal equity issuances in our plan targeting annual issuances of $0 to $100 million through 2027. We do see some modest increases to equity issuances beginning in 2028 to support our significant capital investment plan. Our long-term plan includes debt refinancing and new issuances, and we continue to manage these future issuances through interest rate hedging and other opportunities. We continue to focus on maintaining our strong investment-grade credit rating and solid balance sheet metrics We target an FFO to debt ratio of 15 to 16%. Let me wrap up on slide 12, and then we open the line for questions. Our team continues our commitment to deliver for all of our stakeholders. We delivered solid growth in 2024, achieving earnings per share of $6.83, delivering at the high end of our guidance range. The 2025 operating EPS guidance midpoint provides 7% growth over the 2024 original guidance midpoint, and we are currently positioned to achieve the high end of our EPS guidance range this year. Our updated five-year plan provides higher quality long-term 6% to 8% EPS growth through increased customer-focused utility investments and shifting to more utility-like investments that are non-utility. This plan increases our five-year capital investment by $5 billion over the previous plan, primarily to support the needs in our cleaner energy and reliability-focused investment areas. Data center opportunities provide potential upside to this five-year capital investment and EPS growth plan. We continue to target 6% to 8% operating EPS growth and are well-positioned to deliver at the high end of this growth rate in 2025 through 2027 with flexibility to exceed the high end and support future years. and we continue to target dividend increases in line with operating EPS growth. Overall, we are well positioned to deliver the premium total shareholder returns that our investors have come to expect with a strong balance sheet that supports our capital investment plan. With that, I thank you for joining us today, and we can open the line for questions.

At this time, I would like to remind everyone, in order to ask a question, please use your handset and press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Char Parisa with Guggenheim Partners. Please go ahead.

Hi. Good morning, team. Congrats on a great quarter. It's actually a awesome team here for Char.

Good morning. Hey. Steve.

Good morning. Just starting off maybe on the CapEx plan updates, maybe to clarify the data center upsides. You noted the 2100 megawatts and current agreements. Are those included in the current plan, or is that still all upside? And as these agreements get converted into CapEx, how should we be thinking about the future cadence of CapEx and financial updates?

Yeah, great question. As you heard, we see a lot of great opportunity with these data centers. But we haven't put any of the benefits of this into the five-year plan or a capex plan yet. So as we move towards these definitive agreements, we do see upside to our plan from this. So we have some excess capacity, as we've said in the past. And that will support some of the data center load and gets us in a good position to get this to come on early. And then as we move to definitive agreements and understand their load ramp a little more, work through our IRP process, we'll understand better the generation mix needed. But I'll say in the near term, as we're supporting that up to 1,000 megawatts, we're expecting incremental renewables and storage within our plan, probably towards the backside of our five-year plan, because that supports their desire for cleaner power. And so that is something we do expect to come in within our five-year plan as we move towards definitive agreements. So as we said, we're kind of in the term sheet stage right now. working towards definitive agreement. And then when we get there, we'll update our capital plan.

Is there any specific cadence to that between the third and fourth quarter that we've seen in these cycles?

Yeah, that's probably when we'll be able to give a deeper update. We'll update throughout the year as we make progress. And then as we see when the capital would flow into our plan, it would probably come out again in the fourth quarter with that.

Okay, perfect. And then, you know, the RNG credits push you towards the top end and there's some flexibility to exceed the six to eight. Is that tail end kind of strength driven by the 20% CapEx plan increase, or is there an assumption on 45Z extension above the six to eight? Do you envision any changes in the cash flow profile advantage just based on some of these assumptions and shifting to more utility-like contracts?

we've kept a similar capital investment overall at advantage and it is more utility-like so the returns on those projects you know aren't as high as what we saw with rng so you know we put in a really solid plan for um vantage that kind of gets us our 20 million dollars a year and gets us to the you know long-term plan we need there we we don't assume any um production tax credits or really investment tax credits as as we get past 27. so When you look at our overall plan, that stronger 6% to 8% long-term EPS growth is really driven by our utility investment that we're making to support a cleaner generation and build out reliability for our customers.

And as Constantine just gave you a little bit of context on the development of this plan, we started to see some really significant positive tailwinds in 2023 in our utility CapEx plans. And that was really driven by several events. One was the IRP that we settled in 23. Then on the heels of that, we got clean energy legislation done here in the state in late 23. And then we had tremendous success with the voluntary renewables program. Then further to that, in 2024, we got a very supportive audit report for our wires business. So when we packaged all that together, we saw this significant lift of $4 billion in our electric capex plan and the new five-year plan that we just rolled out. And, uh, this really did give us the opportunity to start thinking about a shift advantage, uh, to higher quality earnings with long-term fixed fee contracts. And, um, and overall, um, I think as you've seen, uh, 25 through 27, uh, we're positioned to be at the higher end and also gives us flexibility to exceed the higher end of guidance and, uh, and prepare for future years when the credits roll off at the end of 2027. So I would say overall, we feel very confident in achieving all of this and that we got a much higher quality plan on the table.

Excellent. I think we can leave it at that. Thanks for taking the questions.

Your next question comes from the line of Nick Campanella with Barclays. Please go ahead.

Hi, good morning team. Hey, this is actually Faye for Nick today. And thanks for taking my questions and congrats on strong 2024. Hey, good morning. Um, Hey, um, so I just, uh, just first on data center demand, uh, I guess as, as it rolls into the plan, just generally, how do you think about the impact to your low growth CAGR? Obviously you've been pretty, uh, conservative, uh, uh, you've been planning conservatively with only the specific projects you announced. but just trying to have a more holistic understanding on this matter.

Hey, good morning. This is Joy. Thanks for the question. Yeah, exciting times with data centers, and it would be great for our customers if you think about what that can do for affordability and allow us to invest behind it in our wires business. But we are looking at modeling what we know of the potential for data center growth, and it equates to something in the range of 4% to 5% increase on a CAGR basis for our load growth over that time horizon, which is excellent for customers. And we're making sure that we're working these agreements and bringing home this data center growth in our plan.

Great. That's super helpful. And I guess just quickly on 2025 execution, could you just discuss on your rate filing cadence and how those different rate case outcomes Or just different scenarios could drive 2025 execution? And to what extent would they affect your confidence to achieve the high end of the range during the year? Thanks.

I think how we're feeling about 2025, we're feeling very, very confident on 2025. We're going to at least hit the higher end of guidance. I mean, the start to the year is actually building contingency in our plan. So we're feeling really, really good. And I always judge how we're doing in a year by what we're working on in a moment. And I can tell you we're deep into 2026 planning and the details of that. So that always is a measure for me is how confident we are in 2025. So 2025 looks rock solid in terms of performance. Joanie, on the rate case?

Yeah, on the rate case, yeah. So the order we received last month, the constructive order within our planning scenario. So we're going to work on, you know, just, dispatching the capital as we had intended in terms of our filing cadence. Your question around one electric is probably going to be in the second quarter. We'll file another case given the level of investments that we're making and our desire to incorporate the findings for the liberty audit. We want to make sure that we are in a position to expand the IRM using that as the basis. And we've gotten some positive feedback from the commissioners from the bench and also in our discussions with the staff. And then for gas, we'll likely file another case toward the back end, I should say, the fourth quarter of 2025. Again, to continue our investments in distribution and transmission, and then also to look to continue our IRM, which has worked really, really well for the gas company.

Got it. Great. That's super helpful. Thanks again.

Thanks, Faith.

Your next question comes from the line of Jeremy Tenet with J.P. Morgan. Please go ahead.

Hi, good morning. This is actually Rich on for Jeremy. Hi, Rich. Hey, Rich. Starting with some of the near-term and long-term financing considerations, can you walk through those and maybe the cash flow drivers behind sizing minimal equity in 2025 versus the kind of uptick in equity beginning in 2028?

Yeah, let me just start by saying, you know, we're confident in our existing plan with this zero to 100 million in 25 through 27. And it's really driven by strong base cash flows. And then some of the monetization, some of the tax credits we'll be getting. So it puts us in a great position to continue our 15% to 16% FFO to debt with that minimal equity. And what we did say is that as you see some more of this capital come into our plan in the outer years, and we could see some increased equity needs past then, We're going to keep working that. Right now, it feels like a modest increase, but we'll keep trying to manage cash and what we can do in the meantime to minimize that as much as possible. We do see some equity that would come in in 2028 and beyond to support the growth capital we have.

Great. Thank you for that. And then I know we hit on Vantage a little bit earlier in Q&A, but just wanted to revisit this. Could you speak a little bit more to the opportunities that you're now most focused on? And just curious how you expect this high grading to play out over the next few years.

Yeah, I think as Dave mentioned, we're looking at about $20 million a year of income growth. And if you look at the history of this business, we've done about $20 to $30 million a year. So we think we've got a good conservative plan. And the type of projects that we're pursuing, you've seen some recent announcements of projects that are coming on this year as well as next year. where there are long-term fixed fee behind the fence utility services. So things like co-gen, water treatment, compressed air, those type of utility services that we've been able to do with very large industrial partners. And we got more of that in the hopper, and we've got a pretty strong pipeline. We're also starting to dip our toe in carbon capture and storage with large ethanol producers. And we've got several agreements, and we're working to prove out some of the geology there. But those are all also small in nature, like, you know, $60 to $100 million CapEx to get our toes in the water, if you will, dip our toes in the water on that one, with IRRs that are, you know, north of 10% on leverage after tax, and they're long-term fixed fee type contracts with no commodity risk. So, Again, you know, early there, but we're feeling pretty good about the pipeline, the strength of the pipeline advantage to generate that $20 million per year. So that once these tax credits all roll off, you know, in 28, 29, we're sitting right on top of where we want to be.

Great. Very helpful.

Thank you.

Your next question comes from the line of Julian John Lynn Smith with Jefferies. Please go ahead.

Hey, good morning team. Thank you guys very much. Julian is on the line. So with that said, Hey, good morning. Hey, just coming back to a couple of things that maybe this helps tie things together, right? First off on the, the look beyond 27, how are you thinking about 45 Zed and just the ongoing ability to tap some kind of credits, you know, as far as it goes to sustain or continue to grow that, that vantage piece, this one, obviously you're making very strong comments here on the front end of the plan. I just want to understand the cadence of the back end of the plan. And then related, I know Rich just got at this a little bit, but how do you think about the potential less contribution from Advantage? And I don't know if you're insinuating more equity beyond 27 as you see an uptick in electric spend, but I just want to understand maybe some of the moving pieces because it seems like the plan on the front end seems very locked in. There's a little bit more ambiguity here between the equity and the R&G contributions in the back half that I wanted to try to understand.

Yeah, Julian, let me take the – the income profile, and then Dave can talk about the financing of it. Um, look at, I, you know, this $20 million a year advantage, um, it certainly will support our 28 and 29 guidance. And I think that's how we're positioned to do it. We're not counting on any Z's or any tax credits in 28 and 29. So that's how we've built the plan. So that gives us great confidence that we'll, we'll achieve our goals. But I got to tell you the, Utility, the quality of our plan has significantly increased with the amount of CapEx that we got coming in from the utilities to drive, you know, the superior growth. Certainly, you know, at the higher end of our guidance, 25 through 27, and with good potential to exceed it. And I view our prospects in the utility business as even having more potential upside as data centers start to roll in. You know, we've got about 1,000 megawatts of, you know, capacity that we can deploy early on. And we also have very large land positions that these data centers are very interested in. And so we're getting a lot of action. Now we just got to turn that action into definitive agreements this year. And I think that starts to line up future potential upside to our plan in those outer years, Julian. So that's how we're feeling about it. So we're feeling very positive. about the long-term outlook of our growth plans.

Julian, we wanted to put a more conservative plan out there for Vantage long-term that doesn't have any of those tax credits. But as you know, in our history, we've found opportunities for those. So there could be some upside with what would go on. And then as far as the equity, we usually just give a three-year plan. And so our three-year plan is zero to 100 million from 25 to 27. But as we're bringing in this capital, we just wanted to start to signal that there would be some additional equity within a plan. We'll work to minimize that, but I think there's some modest increased equity that would come in in the 28-29 period into the plan.

Excellent. Thank you guys for clarifying that. Maybe it's a nice follow-up here. Can you speak a little bit on the data center front, just to how the timeline here? I know that there's kind of MOUs out there. But given the nascency of the legislation itself, I imagine that this could still take some degree of time to come to fruition in a more firm sense. Do you want to just give some sense of expectation on that? And then also, in parallel, we've seen some of your adjacent states talk about data center tariffs as they've become more serious about this opportunity as well, between Ohio and Indiana. Could we see you guys elect to pursue some kind of novel data center-specific tariff structure at this point and put that forward?

Hey there, Julian. Yeah, the conversations are progressing. We have a shared goal to get something done more definitively this year. And the arrangement that we have, the agreement that we have with SWITCH, the term sheet, really is we're trying to line out the ramp, right, the ramp of the generation over the next several years. And then we also have a signed agreement with University of Michigan for 110 megawatts. And Jerry spoke about another agreement that we've already moved toward, I'd say, a term sheet with, and that's with an undisclosed party. But all of this is coming together with, you know, a potential for 21 megawatt, 2100 megawatts of added load for data centers, which is phenomenal. And we're continuing those conversations. We've got the right land positions. We've got the right climate. We've got the legislation now behind us. So that's increased the interest, I would say, in Michigan overall. So really feeling positive about the opportunity that's before us. And the team is hard at work at making those agreements more definitive in nature. When it comes to figuring out long-term what the generation needs might be, near-term we can serve the demand based on the ramp that we understand right now with what we have on hand. So we have some excess capacity that we can put to work. Think of it as we may have to bring on some renewables and battery storage to support this load. But Generally speaking, near term, this is really a great affordability play for our customers because we can bring on the load and not make really huge investments. As the load ramps, we'll have to look to expansion of renewables, more batteries, and potentially something firmer or fixed in terms of generation. So think of a combined cycle with carbon capture for an example. But that will be longer in range, and we would probably look to – use a different tariff structure. We can use our existing tariffs now, but if we have to build something significant, we'd have to bring on a different tariff structure and think of it as more of, you know, fixed volumes and certainly demand response incorporated with that as well. So that's kind of where we're sitting with data centers right now.

And Julian, that new tariff that we would need to say build a combined cycle plant or something, you know, surrounded with More renewables and battery storage would be long-term in nature as well as fixed fee type arrangements so that we don't put any kind of risk on our customers. And the commission and the governor is very supportive of that. The legislation actually points to it and requires it. So I think we're in good shape from a legislative perspective and strong support from the commission.

Hey, excellent, guys. Nicely done today. Seriously, thank you for the time. All the best. All right, we'll connect soon.

Thank you, Julian.

Your next question comes from the line of David Okaru with Morgan Stanley. Thank you. Please go ahead.

Hey, thanks. Good morning.

Morning, David.

Hey, wondering if you could touch on maybe learnings from the recent electric rate case in terms of what the commission you think wants to see in terms of affordability, ROE, storm tracker, IRM, et cetera. I'd be curious your thoughts.

Yeah. Good morning, David. Again, this was a constructive order and it supports our investment agenda. There was no change to ROE or the equity layer, so that was all positive. The commission extended the IRM, which was really a positive move, signaling that we can continue to build on that and expand it using the Liberty Audit. We are going to work now on just understanding how we incorporate the audit findings into our plan, and we look to incorporate that in our next proceedings. The commission was really positive about what these investments are yielding in terms of benefits to customers. If you listen to the call, you could hear the positive tone, and they spoke about the improvement that we experienced last year and how they're proud of the progress we're making on improving reliability for customers. So that's the work ahead of us is to work on getting aligned on how we expand the IRM and then looking to bring these investments online over the next several years. We've got the distribution grid plan that lays out our plan that aligns to our 30-50 goals. So this is to reduce the frequency of outages by 30% and cut duration in half by 50. And we've proven that, you know, when we invest, it works. So I think the commission wants to continue down that path, as do we. And we're looking to, you know, get that all incorporated in our next

regulatory case hey david i uh you asked about affordability as well so just add to joy's comments if you could take a minute and look at page 16 of our package i mean our performance on bill growth is extraordinary when you compare it to the industry and even when you compare it to our neighbors in the great lakes region and we're sitting at 2.4 absolute bill growth since 2021 including the most recent uh ray case So I, you know, when I talk to the commissioners, I mean, affordability is really not on their screen. I mean, I, they see this data, they know about this data. We actually have it in our filings. We talk about it. So I, uh, I feel really good about our affordability posture.

On top of that, if you look at this last, uh, rate order, uh, last year, if you recall, we reduced the, the, uh, power supply costs, recovery costs by $300 million. And so this last rate order, there was really no increase for customers because it's being offset by the PSER reduction. So that's just an example of how we continue to go to work on behalf of our customers to keep our bills affordable.

Yeah, absolutely. I appreciate that, Collar. Very strong position to be coming from, given that track record. And then I was curious, maybe one more question here on data center activity, but would you be able to, let's see, quantify how much of a pipeline, you know, in terms of gigawatts of data centers you might be seeing out there as opportunities in Michigan? And just on the capacity, you know, available capacity you have on your system, do you think of that as being fully exhausted at this point, or there's still near-term capacity that's left to allocate to some of these potential incremental new customers beyond the ones that you've mentioned?

Yeah, we're seeing about 3,000 gigawatts in our pipeline. 3,000 gigawatts. I mean, 3,000. I want to say 3,000 megawatts or 3 gigawatts in our pipeline. I wish it was 3 billion gigawatts. And we aren't at a point where we've used the total excess capacity as yet. We've got up to a gigawatt of excess capacity near term. And as I mentioned before, as we understand the ramps from the data center providers, we'll look to add generation along the way. So that's where we're sitting right now, David.

Perfect. Super helpful. Thanks so much. Great update.

Your next question comes from the line of Michael Sullivan with Wolf Research. Please go ahead.

Hey, good morning. Hey, Jerry, just over the duration of the plan, can you give us what rate-based growth looks like?

Yeah, rate-based growth is in 8% range for the plan.

Okay, thanks. And then, sorry, just another one on some of the mechanics with the 45 Z's. I guess if you strip that out of 2025, can you just talk about what's driving Vantage lower year over year off of 24?

Yeah, well, let me start by saying the 45 Z's are great and they are providing us some flexibility. But what you see in Vantage is some lumpiness as some of these new projects come online and they're associated investment tax credits. So in 24, you look, we had some big new projects come on and investment tax credits with that. We don't foresee those projects coming on at the same level in 25. However, we've been talking about some of these projects that will be coming on again in 26 and 27. They kind of give us some of that favorability and investment tax credits in those years too. And then again, Michael, like we said, when you look past 27, our Vantage forecast doesn't assume any of the 45Cs or investment tax credits in the plan past that.

Okay, that was going to be my next question. And then last one, just real quick, Dave, where did you all finish up on FFO to debt for 24?

We were right at that 15% number. Okay, perfect.

Thank you very much.

Thank you.

Your next question comes from the line of Andrew Wiesel with Scotiabank. Please go ahead.

Hey, good morning, everybody. Good morning, Andrew. First question, I want to follow up a little on the commentary about potential new generation builds. Can you remind us the timing of the 2026 IRP, when it would be filed, approved, and implemented? And, Joy, I think you talked about some changes in tariff structure, adding things like fixed volume contracts. Would that be changed through rate cases or some other regulatory or legislative vehicle? And how would those processes work together or independently?

Yeah, so let me start with your first question and good morning. So we plan to file our next IRP toward the end of 2026 and that process will play out over, you know, 2027. We'll get a result either we settle or we go to a fully contested IRP. And that would put us at the end of 2027 and right in the beginning of 2028. You also asked about, you know, the tariffs. So a tariff structure would have to be something that we work with the commission on, and it can be done outside of a rate case. But certainly, as we learn more about the demand for data centers, We'll keep the commissioners apprised as the progress we're making and try to do some of the pre-work. I think we're aligned that we want to make sure that anything that we bring on in terms of new generation, we protect the existing customer base. So we would want to have fixed fee, long-term contracts in place. And we've got some models here to look to to make sure we're incorporating best practices from other geographies.

Okay, great. That's helpful. Then second, I want to clarify the commentary about the earnings growth in the R&D tax credit. This has come up a few times, but I just want to understand. You talked about the high end in 25 through 27. I understand that. But then you talked about exceeding the high end and supporting future years. I'm almost certain I heard all three of you, Jerry, Joey, and Dave say or support future years rather than and support future years. Maybe I'm getting too specific here, but what exactly does that mean? Are you talking about pulling forward expenses from 28, 29? Are you talking about maybe earnings growth of 9% or something like we saw in 2024? Can you just elaborate about that?

I think it's all of the above. I think you hit on it. We're really using the Zs to commit to the higher end of guidance 25 through 27. We got dry powder potentially in the plan that could take us beyond that high end. But we also want the flexibility to do the things you said, like, hey, maybe we find it's hard to predict where we'll find ourselves at a highly detailed level in, you know, 27 or 26. And so we want to make sure we have some flexibility in the plan that deliver, you know, really high quality growth for our shareholders, you know, at the top end or higher. or make sure that we start to secure the future as well as we move into 28 and beyond. We don't need to do that, but I think we want to retain the flexibility to do that. Maybe that's a better way to clarify. We don't need tax credits to make our numbers in 28 and 29. We're not saying, hey, we need some of the rollover or anything like that, but we do want to retain the flexibility that, hey, if we find ourselves in a position to you know, this high-quality position in 2027 where we can pull forward expenses from 28 and produce an even higher-quality 28 than what we're talking about right now, we're going to do that. So that's the flexibility we're talking about.

So I guess maybe to bring it together, is there anything besides conservatism keeping you at 6% to 8% rather than increasing it?

I would say we like to under-promise and over-deliver. That's been our pattern.

We like that, too. Keep it up. Thank you very much.

Thank you.

Your next question comes from the line of Bill Epicelli with UBS. Please go ahead.

Hi, good morning. Thanks for taking the question here. Yeah, I mean, I think Andrew hit on the question there that I was going at, which is, you know, it sounds like putting this all together, right, you guys would be comfortable, you know, targeting or, you know, being disappointed if you're not sort of at the high end of the range over this forecast period, even extending beyond the roll off the tax credits. Is that fair?

I think what we've said is, you know, it helps us a lot in 25 through 27. And when you look at long term based off of 25 original guidance, you know, we're comfortable with our six to eight long term EPS growth rate in the long term.

Yeah, and the upside to that would be we start getting incremental capex that comes into the plan from data centers or other demand. But right now, the most glaring opportunity where we actually have paper signed and we're trying to work towards firm agreements is data center load. So as we look out, we've got some heat in the plan, 25 through 27. As we get beyond that, we're saying, hey, six to eight until we can tell you more about these data centers.

TAB, Mark McIntyre, Okay now that's clear Thank you and then just remind us the cadence of the rate case filings over the next few years, so you have the DT gas case that you're going to file here later this year, but. TAB, Mark McIntyre, Is the assumption that will be to serve the continuing regular cadence of filings over the next few years.

For electric, yeah, I think you can assume based on the level of investments that we're making. The only thing that would extend the time between filings would be an expansion of the IRM in electric.

And gas, if we get more traditional outcomes, we would like to be back to the two- or three-year time frame between rate cases, but we'll have to play out the next one and see how it plays out.

And then as far as expansion of the IRM, How do you guys evaluate that? Does that have to be proceeding now that the electric case is over?

Yes. I mean, that's the work ahead of us is getting alignment with the NPSC staff and commissioners on what should go into the IRM. And I think the Liberty Audit will serve as that foundation. And the good news is that the audit findings generally point to the plan that we have in place is a good plan and will deliver the reliability improvements that we're targeting over the next five years. So we'll go to work with the staff and the commissioners and just make sure that, you know, the units that we want to incorporate and the types of work that we want to incorporate in the plan are well understood.

All right, great. Congrats on a great call here. Thank you very much. Thank you.

Your next question comes from the line of Travis Miller with Morningstar. Please go ahead.

Thank you. Good morning, everyone. You've answered my questions on the IRM several times here, but just a quick follow-up. One, how much capex is in your plan that you would hope to flow through the IRM, assuming that the regulators continue to approve that in the future rate cases? And then is there upside that you could flow through the IRM in terms of capex from the audit, depending on how that comes out? So just those two quick follow-ups.

Yeah, in our last case, we filed for an expansion of like up to like $590 million. and then growing to like $720 million, right? So think of it, that's just order of magnitude if you want to use that as a gauge. And then how do we see that growing over time and what kind of units and if there's upside to the plan? What we know in the audit, the auditors called out pull-top maintenance. as being an area where they want to see increased investment, and we see that as an opportunity to add some upside to our plan. So we're reconciling all of that right now and certainly trying to get alignment before we file anything in terms of our next rate case.

Okay, perfect. That's all I got. Appreciate it.

Thank you. Your next question comes from the line of Paul Primont with Lattenburg. Please go ahead.

thank you very much and congratulations on a on a strong quarter um just wanted to sort of follow up on uh on vantage uh you talked about uh having significant tax credit contribution in 24 was that associated with ford and can you quantify what what that tax benefit was the itc i assume yeah

Hi, Paul. This is Dave. Yeah, it was associated with the Ford project, and it was a little over $50 million was the ITC associated with the Ford project.

Great. That's it in terms of questions for me. Thank you.

Thanks, Paul.

Your next question comes from the line of Ryan Levine with Citi. Please go ahead.

Good morning. Good question. In terms of the potential tariff for data centers, would you look to file something soon? And should we look for it to be somewhat similar to your peer utilities filing from the last week?

Yeah, I think, good morning first, Ryan. I think as we learn more about the ramp, we'll determine whether or not we need to file a new tariff. I think those discussions are underway. But you can anticipate that as the load grows, we'll eventually get to a point where we'll have to build something to support that load incremental to the generation we have on hand. And we'll look to incorporate, as I said before, best practices from other geographies and certainly learnings that we gain here within the state.

Okay. Thanks. That was my question.

I will turn the call back over to Jeremy and Urcia for closing remarks.

Well, thank you everyone for joining us today. I'll just close by saying we're feeling great about 2025 and our long-term future plans. Have a great morning. Stay healthy and safe.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.