Good day and thank you for standing by. Welcome to the DTE Energy First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Barbara Tuckfield.
Thank you. 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 GAAP earnings to operating earnings provided in the appendix. With us this morning are Jerry Norcia, President and CEO David Slater, President and CEO Elect of DTM and Dave Rude, Senior Vice President and CFO.
And now, I'll turn it over to Jerry to start the call this morning.
Thanks, Barb, and good morning, everyone, and thanks for joining us today. I I hope everyone is staying healthy and safe. This morning, I'll start off by discussing DTE's strong start to 2021, Then David Slater will give us some details on our midstream business and provide an update on the spin transaction. Dave Rood will provide a financial review of the quarter and wrap things up before we take your questions. So let's start on Slide 4.
As we have discussed before, Our priorities at DTE are to support our employees, customers and community, which then enables us to provide the strong, consistent growth investors have come to expect. Our focus this quarter was no different as we have delivered for all of our stakeholders. Our team at DTE has continued to perform at a very high level. We were recently recognized by Gallup as a great workplace. This is the 9th consecutive year We have received this award.
We're off to an extremely safe start in 2021, coming out for our safest year ever in 2020. As I have said, safety is our top priority at DTE and getting people home safely to their families every day helps drive our success and Employee Engagement. We are building on our diversity, equity and inclusion focus with employees fully dedicated to helping the company on this journey. DTE is committed to accelerating our progression towards a workplace where everyone feels valued, welcome and able to contribute their best energy. We do understand that all people thrive and succeed when they feel included, safe and welcome.
On the customer front, we continue to deliver safe and reliable energy. Just recently, DTE Electric received approval on its deferral request that delays next rate case filing until October 2021. This provides price stability for our customers, keeping base rates steady through 2021 and into 2022. As you recall, we previously received approval to delay a general rate case until May And this order extends the delay at least 5 additional months. This is another step towards stabilizing our customer affordability.
Additionally, DTE is ranked as one of the top 10 utilities in the nation for energy efficiency and customer savings. And JD Power has ranked both our electric and gas utility the top quartile for residential customer satisfaction. These initiatives and recognitions show our continued commitment to service excellence. Supporting the communities where we live and serve remains Critically important to us, BP helped thousands of vulnerable customers lower their energy bills in 2020, while significantly reducing natural gas and electricity usage through energy efficiency initiatives. Our Energy Efficiency This business program was recognized for keeping energy affordable for our most in need customers.
We recently contributed to Habitat for Humanity in support of their effort to weatherproof low income homes. DTE also led a fundraising effort to help small business in Detroit We are also offering personal protective equipment, technical assistance and opening resources to assist small businesses across the city. With engaged employees, Customers are satisfied with their service and communities that are resilient, we deliver value for our investors. We delivered a strong Q1 with earnings of $2.44 per share and solid performances across all our business lines. We are on track to deliver 7% operating EPS growth from our 2020 original guidance midpoint.
The midstream spin is on track for mid year completion. The spin positions DT Energy as a predominantly pure play best in class utility with significant capital investments of $19,000,000,000 over the next 5 years, 90% of that will go into our utilities. And we continue to target our 5% to 7% operating EPS growth rate with 2020 original guidance as the base for that growth. The spin also establishes DTM is an independent natural gas midstream company with assets in premium basins and accretive growth opportunities. On the next slide, I will discuss some of our major accomplishments from the Q1.
DTE is continuing to focus on our environmental initiatives. DTE Electric recently placed 3 wind parks in service, Isabella 12, which are the largest wind parks in Michigan, have a total of 136 turbines with 383 Megawatts of capacity. We also placed the Fairbanks Wind Park in service with a capacity of 72 Megawatts. DTE now has nearly 1800 Megawatts capacity from renewable energy sources, enough to power 670,000 Michigan homes. This is a significant step toward our goal of reducing carbon emissions by 50% by 2,030.
The electric company recently filed a settlement agreement for voluntary renewables. The settlement includes 800 megawatts of Renewable Power Additions with 420 of that being slated for 2022 and the remaining 380 Megawatts coming online in 2023 through 2025. These sources will support the voluntary renewable program, My Green Power, which continues to exceed our high expectations. We recently announced the commitment of a few new companies to the My Green Power program, Including the State of Michigan, Bedrock and Trinity Health, we have reached 900 Megawatts of voluntary renewable commitments with large business customers and approximately 30,000 residential customers. The program is the largest of its kind in the nation and helps advance our work towards a net zero carbon emissions goal.
The electric company also received approval from the Michigan Public Service Commission for Phase 2 of its charging forward initiative to strengthen electric vehicle Infrastructure in the State of Michigan. This includes customer education and outreach, fleet advisory services and charging infrastructure components to further support electrification, transition of fleet vehicles. At the end of March, the electric company completed its most recent offering of green bonds. The $1,000,000,000 bond offering will help fund The development and construction of solar and wind farms, including transmission infrastructure to support renewable energy facilities. The funding will also strengthen energy efficiency programs that help Michigan residents and businesses save energy and reduce their bills.
DTE Electric has issued 3 green bonds over the past 4 years for a total of $2,000,000,000 These bonds help support our progress towards a cleaner, more sustainable energy future. GT Gas announced CleanVision Natural Gas Balance, the nation's first program to include both carbon offsets and Renewable Natural Gas for customers to reduce their carbon footprint. This program offers 4 levels of participation for customers ranging from $4 a month to offset 25 percent of an average home's gas use emissions to $16 a month offset 100 percent of our carbon footprint. The carbon reduction goals are achieved with Michigan Forest Preservation and Renewable Natural Gas. By helping to preserve Michigan's forests through this program, DTE customers not only support the removal of greenhouse gases, but also preserve one of Michigan's greatest natural assets.
Recently DTE Gas executed a 7 year agreement to secure forestry carbon offsets to be used for this program. As for RNG, landfill emissions and wastewater treatment plant byproducts are transformed into fuel that heats homes and powers businesses and cars. We're excited to invite customers to be part of our ambitious vision to create a cleaner energy future. The program is off to a strong start with over 2,400 customers Signed up to reduce their carbon footprint. Our midstream company also announced its own 2,050 net zero carbon emissions Just earlier this year, climate change is one of the defining public policy issues of our time.
And I'm proud that this business is joining our electric and gas utilities in the effort to deliver cleaner energy. Now moving on to Slide 6, I will discuss DT's solid start to 2021. Our Q1 financial results were strong, giving us even greater confidence in our 2021 financial plan, which could create invest opportunities later in the year. DTE earned $2.44 per share this quarter, up $0.78 from last year. And so with 1 quarter behind us, I am confident that DTE is well positioned Longer term, we will continue to target a 5% to 7% operating EPS growth rate with 2020 original guidance as the base.
We continue to focus on our balance sheet with strong cash flows and solid credit metrics. The spin off of the midstream business is on track for midyear execution. Our team is working diligently to make that happen and I thank them for their efforts. As you know, the spin positions DTE as a predominantly pure play utility with 90% of DTE's total operating earnings coming from our 2 regulated Businesses. The spin also establishes DPM as an independent, well financed gas midstream C Corp with accretive organic growth opportunities.
Just as DTE is well positioned to deliver for investors, This new independent midstream company will also be positioned for success with a strong asset base in 2 of the most prolific dry gas basins in the country. The spin is progressing very well with the Form 10 filing and its standard review process with the SEC and an investor roadshow planned for the Q2. Now, I'll turn it over to David Slater for updates on the Midstream business And the spin transaction progress.
Thanks, Jerry, and good morning, everyone. I'll start on Slide 7. Our Midstream business has had a solid Q1, executing well across all platforms and assets. We are on track to achieve our financial targets in 2021, which include an EBITDA range of $710,000,000 to $750,000,000 DTM is also committed to a world class ESG agenda. Earlier this We announced a net 0 emissions target by 2,050, making us one of the first companies in the midstream sector to announce such goal.
We intend to use every tool available to reach our sustainability targets, and we believe this will evolve to become a significant business opportunity over time for DTM. Additionally, DTM is establishing a Board of Directors committed to ensuring the company operates in an environmentally and socially responsible manner. As Jerry mentioned, we are on track for mid year spin execution. Our Midstream business has been transformed over the last decade and this solid, steady and strategic transformation has positioned this segment to become the industry leader it is today. The creation of an independent midstream C Corp will provide the opportunity to further advance the company and create value.
Now let's turn to Slide 8. The spin is on track for a mid year execution. We initiated the Form 10 process with the SEC back in February. Since then, we have been diligently working through the comment period, and this has been going smoothly as expected. In March, we held discussions with the rating agencies, which went very well.
We will be receiving a credit rating at the time of our debt raise. The Form 10 will be public in the Q2. We plan to hold an investor roadshow later in the Q2 as well. DTM shares are expected to start trading on a win issued basis 1 or 2 weeks before DTM shares begin regular way trading on the New York Stock Exchange upon closing. Finally, the spin transaction will be executed mid year.
As Jerry mentioned, Successfully executing the spin has been made possible by the commitment and dedication of all of our employees. Thank you to our team for bringing their best energy to work each day and keeping everything on track. Now I'll turn it over to Dave Rood to discuss DTE's financial
Thanks, David, and good morning, everyone. Let me start on Slide 9 to review our Q1 financial results. Total operating earnings for the quarter were $473,000,000 This translates into $2.44 per share. You can find a detailed breakdown of EPS by segment, including our reconciliation to GAAP reported earnings in the appendix. I'll start the review at the top of the page with our utilities.
DTE Electric earnings were $208,000,000 for the quarter. This was $114,000,000 higher than the Q1 of 2020, primarily due to new rate implementation and colder weather in 2021. DTE Electric also experienced non qualified benefit plan losses in the Q1 of 2020. We have since taken measures to reduce market variability in these plans, we will no longer see this variability after the Q2 of 2020. If you remember in the Q2 of 2020, the benefit plan losses reversed and were positive in that quarter.
Moving on to DTE Gas. Operating earnings were $169,000,000 $48,000,000 higher than Q1 last year. The earnings increase was driven primarily by new rate implementation and colder weather in 2021. Let's keep moving down the page to our Gas Storage and Pipelines business on the 3rd row. Operating earnings for GSP were $86,000,000 This was $14,000,000 higher than Q1 2020, driven primarily by the LEAP pipeline going into service in the second half of twenty twenty.
On the next row, you can see our Power and Industrial Business segment operating earnings were $28,000,000 This is a $2,000,000 decrease from Q1 last year due to Strong performance in the gas portfolio was offset by performance in the power portfolio, both which occurred during the period of extremely cold weather in Texas in the Q1. Together, this positioned us slightly positive to our expectation for the quarter. Finally, Corporate and Other was unfavorable $21,000,000 Quarter over quarter, primarily due to the timing of taxes and net change in interest. Overall, DTE earned $2.44 per in the Q1 of 2021, which is $0.78 per share higher than 2020. I'd like to note that much of this favorability versus 2020 was anticipated in our plan.
However, some of the favorability is due to DTE Electric, GSP and Energy Trading performing better than planned. This is positioning us well for 2021. We should have the opportunity to further invest in O and M initiatives that can improve reliability for our customers, which will also further strengthen our financial plans for 2022 and future years. Now moving on to Slide 10, I'll wrap up the call and We are on track to continue to deliver on our long term 5% to 7% operating EPS growth rate from our 2020 original guidance midpoint. The spin of our midstream business is progressing as planned and we are on track for completion mid year.
This separation positions DTE as We believe this transaction unlocks significant value for investors of both companies. Our utilities continue to focus on necessary Our team deployed many innovative strategies to provide regulatory certainty during what continues to be a challenging time for many of our customers. This will enable DTE to maintain steady base rates through 2021. We continue to focus on maintaining solid balance sheet metrics. DTE is targeting minimal equity issuances in 2021 and we continue to have minimal equity needs in our plan The convertible equity units in 2022 and we have maintained our solid dividend growth with a 7% dividend increase in 2021.
In closing, as we approach the spin of our midstream business, GT is well positioned to deliver the premium total shareholder returns that our investors
With that, I thank you
for joining us today, and we can open up the line for questions.
Your first question is from Michael Weinstein with Credit Suisse.
Hi, good morning guys. Sorry if I had to
take myself off mute. Hey,
With the delay in the electric rate case, how would you say that that affects what you're going to file for? I mean, is this going to result in a larger rate filing Then would normally be the case or is it basically the same case, just delayed 6 months?
I would say it's generally the same case, Michael, delayed 6 months. That will be a forward test year result as well That we'll be filing for. Got you.
And I'm wondering if you could provide a little bit more information on the RNG business. RNG has been coming up a lot lately and talks about how gas utilities might be able to reduce their carbon emissions Exposure on a net basis, do you see this do you see RNG business ramping up Significantly outside of the states you're already operating in, could you expand that nationally as sites are developed?
Sure. So maybe I'll just start by commenting on our own utility where we are essentially offering voluntary Offset program that will be driven both by forestry products and RNG. And we may be one of the first in the country to offer that type of package to our customers. And it's a very interesting offering where for $4 a month, you can offset about 25% of your carbon footprint as a gas customer. So it's a unique way of packaging carbon offsets through RNG as well as forestry products to deliver A lower carbon footprint for our customers.
I do see that expanding across the country, Michael. Right now, most of our efforts RNG at DT Energy and our P and I business are focused on dairy gas going into the California markets, which gives us Very nice returns both from our renewable fuel standard as well as the low carbon fuel standard in California. We get, As I've mentioned in prior calls, returns where we see our simple cash payback happen in 3 to 4 years with pretty modest investments. Lots of projects in the pipeline as well going forward.
Has this come up at all in any of the Democrats' infrastructure spending plans to ramp up RNG production or maybe even expand the fuel credit To natural gas as well as biodiesel?
I have not seen those details yet, Michael, but we are looking for them. Most of the credits seem to be targeted at wind and solar at this point in time, as far as I can see, and other clean sources of energy.
Got you. And just one last question on guidance. Guidance is unchanged even after a really nice quarter. And Just curious if is that just part of the it's just early in the year at this point, you're also looking at possible Lean or lean in initiatives later in the year that we keep on seeing?
Yes, what we're looking at is Using favorability to really build strength for 2022, that's our first goal, as well as investing in in order to make that happen. And as we get more visibility into the balance of the year, then we'll Continue to provide you updates at our next quarterly call.
Okay, great. Anyway, good quarter. Thanks a lot.
Thank you.
Your next question is from Andrew Weisel with Scotiabank.
Hi, good morning everyone.
Good morning, Andrew.
My first question is on midstream actually. Are you able to isolate any financial impacts from the Cream weathered in mid February in Texas and the surrounding areas. I don't know if that impacted your Haynesville system or more broadly. Any operational surprises or any counterparty risks or issues?
David Slater, you want to take that?
Sure, Andrew. We really didn't see a significant impact to us from an economic perspective. We did see operational challenges probably 3 or 4 days into that cold snap. It was primarily upstream of our facilities Where we were just seeing the producers struggling to maintain their production at the wellhead. But as soon as the weather broke, Those volumes came back rather quickly.
So from an impact to the midstream business, it was pretty modest.
Okay, great. Then financially, You were pretty clear that you'll have the IPO style roadshow for DTM in the coming months. When can we expect an updated financial outlook for 'twenty one and beyond for the remaining utility Will we see guidance before the DTM shares start trading or would it come more like with 2nd quarter earnings in late July?
Dave Rood, do you want to take that?
Yes. Consistent with the timing Of when we're going to go out with the DTE and DTM roadshow, we want to be talking about DTE guidance at that point as well. So we will as we come forward into post June, we'll be coming forward with our DTE guidance Post midstream for 'twenty one, to the remainder of 'twenty one.
Terrific. So before the DTE shares start trading Post spin, we'll have a better sense of what the standalone outlook looks like?
Yes.
Great. Then one last one, if I may, on the voluntary renewables program. It seems like you're seeing really strong demand with the additional megawatts for middle of the decade. Are you thinking at all about a potential cap or ceiling from this business? And if so, what would be the limiting factor?
I don't imagine it would be demand. Are there any physical constraints around land access or regulatory constraints of any sort? Or could this just continue the pace of growth through the end of the decade?
I don't see any limitation other than demand. So we're if you followed our last The settlement filing where we filed for 800 megawatts of incremental renewables, That makes us about 400 megawatts long, but I can tell you that we eat up those long positions pretty quickly. The demand is extremely strong right now for our voluntary Renewables program. So I don't see any limitation other than the customer demand.
Okay, great to hear. Thank you for all the details.
Your next question is from Durgesh Chopra with Evercore ISI.
Hey, good morning team. Solid quarter. Thank you for taking my question.
Good morning.
Good morning. I'm good on the quarter. Big picture, Jerry, and maybe the rest of the team, wanted to get your thoughts. So I believe it was yesterday, I mean, I think there's some news floating around That the Biden administration is now pushing for essentially doubling the clean generation going from like currently 40% to 80% over the next decade. Obviously, this is less aggressive than sort of the 0 net 0 goal by 2,035.
Just your thoughts on how is DTE positioned? How is the sector positioned? Is this even achievable?
Well, I would say, just to remind everyone of our goals at DTE, Where we want to be net 0 by 2,050, 80% carbon reductions by 2,040, 50% by 2,030, We're already at 30% heading into sort of the 2023 timeframe. So I would say we're well advanced. I would expect that the DTE plan will accelerate over time. We are deep into conversations as an industry with Biden administration and I think there will be some consensus we hope as to how do we all accelerate our plans, which we view as beneficial to DTE's plan and certainly it will be beneficial to others as well. So yet to be determined, The plans that were described during the election process are very aggressive.
But we also so I think we see A meeting of the minds here perhaps to compromise over time.
Excellent. Thank you
for that, Jack.
Yes. But overall, I would say certainly a tailwind for DTE's plans.
Just maybe just A quick follow-up, I mean, how high of a priority this is for the Biden administration? And just your sense talking to Key leaders there as to when could we actually see something tangible on this front? Just open ended, just thinking about timing and what to look for Over the next couple of months?
Yes. Based on the level of engagement with our industry association, I would say it's very high on their priority list to move forward, plan that attacks climate change. So we're feeling positive that there's A possibility to get something done. The elements that are being discussed seem quite positive as well. We're just going to need to see how this all plays out in the next several months.
I think we'll know probably heading into the summer and fall whether there is something to do here, but it feels positive at this point.
Perfect. I appreciate the time guys. Thank you.
Thank you.
Your next question is from Jonathan Arnold with Vertical Research Partners.
Good morning, guys. Thanks for the Quick, would you mind breaking down the kind of quarterly upside at DTE Chicken Gas, just a little more. I mean, how much was were the rate cases? And then maybe The benefit plan items, you could remind us what that was. And also curious if are you continuing to see mix benefit and COVID related sales Yes.
To what extent was that driving the upside?
Dave Root?
Sure. Hi, Jonathan. Yes. As we look at the quarter, the majority of the upside we saw was from the new rates coming in. We did see some weather differential versus last year.
It was still a little negative, but it was better than last year. And also at DTE Electric, that's where we had those benefit plans that you mentioned. And that was about The $20,000,000 to $25,000,000 difference, so we had a loss last quarter. Of course, that's going to be a gain in Q2 of 2020. And then we've since taken all the actions to make sure we don't see that market variability again.
As far as gas, again, in the Q1 of 2020, we had Really negative weather. That's what we were trying to come back from throughout the year. So we had better weather this year and then the rest of the upside that we would see would be from the new rates
So can you quantify how much the rate case helped the quarter on the electric side?
I think we can get back to you on that one to make sure that you have the right number.
Okay. And then any comments on the sort of the mix question?
Yes. On the load at electric, Overall, quarter over quarter sales were down about 2%. So our residential was up versus Q1 was up about 3%, commercial down 2% and industrial down 7%. But as we discussed before, we were seeing Some upside from COVID related sales at residential, and we're still seeing that right now. So Our residential load in the Q1 versus what we would have thought it would have been pre COVID was up about 5% to 7% still.
And then our Commercial and Industrial were basically back to where we would have expected pre COVID, maybe between 95% 100% of the way back. So Residential usage continues to come in marginally better than expected with more people continuing to work from home. And we're seeing that trend continue a little longer than we thought until people go back to work.
Okay, great. Thank you. And then just maybe if I may, Looking at the CapEx disclosure in the slides, it seems to be a little bit of a slow start relative to annual Guidance, even adjusting for your normal seasonality, just anything you can offer there In terms of what you're thinking about the full year plan and just how when we ramp up to it?
I think the main thing that was a little slower there was one of our wind parks was scheduled to come on in the Q1 and that will be coming on now in the Q2 and We'll be catching up with capital there.
You're also seeing about $100,000,000 down on base Electric, Dave. So I'm curious, is there anything driving that?
It's Timing of just timing of projects and when they come in for the year. There's no when we look at our annual plan for capital, we're still right on target, but The timing for a few of our projects was a little slower in the Q1, but ramping up now.
Great. Thank you very much.
Your next question is from Steve Fleishman with Wolfe Research.
Yes. Hi, good morning. Got a couple of questions. Good morning, Steve. Hey, Jerry.
Just you mentioned that I think GS and P is Tracking ahead of plan. Could you maybe say what's driving that?
Sure. David, do you want to take that?
Sure, Ken. Steve, I think the big driver quarter over quarter is leaping in service This Q1. Then I'd say generally across the platforms, just Running modestly ahead of plan across all the platforms. There isn't any one item that I would call out. It's just A little modest blush across all the assets.
Okay. And then also for GS and P, which I guess will be Obviously, TT Midstream. When you look beyond 'twenty one at kind of growth, Could you maybe give a little color of what drives growth beyond 'twenty one there?
Yes. Steve, it's really no different than I think what we've shared in the past. I mean, we're looking at What I'll call in our Appalachia footprint and then our Haynesville footprint, we're sitting in really good locations in both of those basins, Sitting in and around some of the best resource in the country and with pipeline connections to really the best Markets in the country. And we're just seeing incremental activity around all those assets right now. And as you know, some of the assets have some runway on them that give us opportunity to do incremental business.
So I would expect and continue to expect to see that organic accretive growth As we fill in around those assets.
Okay. And just For the Form 10, just so we know, is that primarily going to be just historical information, Actuals for DTE Midstream, are there any projections in there?
Steve, what you'll see in there is you're going to see the past 3 years audited Standalone financials and you'll also see the Q1 of this year Kind of standalone financials. And you'll also see a pro form a for the full year as kind of a standalone. So that's what will be in the package when it becomes public that you'll have an opportunity to look at.
Okay, great. I have one last quick question. Just the RNG business, do you have handy What that business expects within your guide for 'twenty one in terms of earnings or whatever other measure?
We Steve, we haven't broken it out between our cogen and RNG business from a new development But if you recall, we've been landing this $15,000,000 or more each year of new income generation FD and I. And I'd say the way to think about that is about half of it has been RNG and the other half has been cogen. Thank you.
Your next question is from Shah Pourreza with Guggenheim Partners.
Good morning, team. It's actually Constantine here filling in for Shar. And congratulations on the quarter. Good morning. Good morning.
A quick follow-up on GSP and kind of appreciate the kind of color that was provided. And just thinking about the End of the business and kind of unlocking the value potentially growing the platform kind of both organically. Just curious to get an update on kind of growth opportunities. You're Looking at a 10% CAGR through 24% before the announcement and just curious to know how that view has evolved In light of the improving commodity conditions, some of the recontract things like on Nexus and potentially some updated strategy on GSD for post spin.
David?
Yes, sure. I can take that. So as we've talked in the past, In terms of what I'll call our capital investment agenda is for this segment, Really not seeing that changing at all. And I think as we approach the spin, we'll be able to provide a little more granularity and visibility on the, I'll call the DTM standalone kind of view going forward. But if I just look at this year as a just as a proxy, We're going to deliver strong growth this year year over year.
And if you compare us to what I'll call the midstream sector, We got sector leading growth rate this year year over year. So the portfolio is strong and healthy, And I look forward to talking to you in more detail about the DTM specific forward view shortly as soon as we can.
Excellent. And I kind of have a follow-up on maybe a 2 part on kind of the post Spend on regulated exposure, just given the scale of the commodity impacted businesses that's shrinking within the RemainCo, Does that kind of mean the need for DTE Energy Trading kind of remains or does some of that business activity move away post
Sven? So just as a reminder, 90% of our earnings going forward will be utility based with about 10% Being non utility, any growth that comes from our non utility sector will come from our two business lines of cogeneration At RNG, we don't expect any growth from our trading company. It's quite a small operation. It generates anywhere from $30,000,000 to $40,000,000 Cash flow for us, but also provides us great market insights into some of the non utility businesses that we're in And cogen as well as RNG where they help us manage some of our market positions there as well as manage risk In and around some of our utility portfolios. So it's a small business.
We don't expect it to grow and we'll continue to run it that way. And
a short follow-up on the RNG piece and kind of the T and I segment, just with the local and kind of federal decarbonization efforts ramping up Efforts ramping up. Are you strictly looking at kind of RNG opportunities or potentially expand the offering, maybe Hydrogen value chain, carbon capture, etcetera?
We're primarily focused on RNG at this point in time. That's where the investment Opportunities are and I would say really nice returns as well from that business line. As we start to understand more and we are Starting to understand a lot more about carbon capture. We will look at that as an opportunity, but that seems to be Somewhat into the future at this point in time. Hydrogen again is very early, but certainly promising.
So More to come and we'll see how our utilities and perhaps our non utility business can play into both those opportunities.
Excellent. Thank you for your time and I'll jump back in queue. Thanks.
Your next question is from Sophie Karp with KeyBanc.
Hi, good morning. Thank you for taking my question.
Good morning.
A lot has been discussed already, but I just wanted to double check with you guys about the qualified plans in the electric business. So when you say that you took measures to reduce volatility in that segment going forward, can you clarify what that means? Is that Does it mean that you diversified the assets in those plants differently? Or is it an accounting measure? Like how should we think about that?
David?
Sure. Yes. The main thing we did there is we matched up our assets and our liabilities. So any movement on one side will be matched on the other. And so that will take away any of the market variability that we were seeing there in the past.
And we limited the size of the plan a little bit too. So We're confident that we're not going to see these market movements past the Q2 of 2020 where you'll see that Yes, the losses that were in the Q1 of 2020 come back in the Q2.
Right. Very helpful. Thank you. And then my other question was on the GSP business I'm sorry, P and IT business. It looks like it might have a little bit of what we would think is a ratable distribution of your guidance throughout the year.
Is that something that you envisioned? Or is it something that's causing Projects there or how should they think about that one?
Maybe I'll start and then I'll let Dave give a little more details, but we fully expect DNI to hit its targets this year. I can tell you we're not concerned about that at all. So feeling real good about the targets and the progress for the balance of the year. Dave, do you want to shed a little more light on this?
Yes, you're right. In the next few quarters, what we see is some of the RNG Projects and the benefit of some of those new RNG projects come in a little bit better for us. And so we're confident And that coming back and meeting the full year guidance.
Terrific. Thank you. That's all I had.
Your next question is from Insoo Kim with Goldman Sachs.
Thank you. Two couple of questions. One, when we think about the RemainCo going Forward and the growth in both the utility businesses as well as the P and I with RNG, on the balance, should we still That's a 90 plus percent of the business over the next 5 years to be at the utility level?
Yes, we do. Absolutely.
Understood. And then just this might be a little bit early, but obviously part of The payment for the infrastructure plan that Biden proposed is the potential increase in tax rates. We've gone through the cycle as an industry in the past a few years ago. And just assuming the plan that's in place goes into effect, Just any initial thoughts on year end, especially in terms of cash or rate base and rate base growth?
I'll start. Certainly, we don't expect our growth trajectory to be impacted by the new plan. It will put some pressure On rates and affordability at the utilities that we'll have to manage, but we think all of that at this point in time will be manageable. Dave, Rude, do you want to add to that at all?
Jerry, I think that's the right high level. When we saw the Tax rate reduction in 2017, that was a 14% reduction. Now it's looking like, what Biden is saying is about a 7% increase. And that could come off as about a 1.5% increase we'd see in rates. Also, it would improve our cash position a little bit Because cash taxes would lag the book taxes, so it would improve our FFO to debt by 0.5% to a 4%.
But As Sherry said, the key we'd have to do there is continue to work on cost structure to offset the increase in rates. So It wouldn't impact our capital plans as we continue to improve on our customer liability and clean energy transition.
Got it. And my apologies if you've already guided to this or and I'm just missing it. But From an O and M perspective over a multiyear period, is there a general guidance that we should be using or potentially opportunity for more?
Yes, we are continuing to manage our O and M and trying to keep it Well below inflation and it's one of our plans going forward. We haven't given long term O and M guidance On that, but it's definitely an area we're working to make sure that we can continue to have opportunity for increased capital and infrastructure that's needed for our customers.
I think you'll also see that if you look at our O and M performance over the last decade, we've been quite distinctive in the industry with our continuous Improvement plans where we've had very low to no O and M increases on an absolute basis.
Understood. Thank you so much.
Your next question is from Anthony Craddell Kumansuho.
Hey, good morning, Jerry. Good morning, Gabe.
Good morning. Good morning, Anthony.
Hey, Anthony. Jerry, great
move on swapping out the multiple Jerry's on a call with multiple days.
Just I
guess two quick questions. One is, I think you talked about 1800 megawatts of renewables. I believe that's mostly, if not all, in the regulated utility. Is there any thoughts to growing renewables? Or What's the thought process for renewables either in the regulated utility or the P and I business?
Well, certainly, We've got a significant effort to continue to increase our renewables position in our regulated businesses. I think As I mentioned, we've got 900 megawatts of voluntary renewables lined up, and we expect over the next 5 years to invest about $2,000,000,000 And regulated renewables inside our electric utility. As far as the non utility business, our niche play has really become RNG, where we see That is a very lucrative renewable resource and we were a first mover in that space and Continue to originate really nice projects with unlevered IRRs after tax in the teens. And as I mentioned, simple cash paybacks So, 3 to 4 years and we see nothing but demand growth for that product. So, we're pretty excited about Our position there and how it continues to grow.
Okay. And then last, and it kind of touches on your response, I guess. How do you balance the returns in a renewable project with how it would impact the company's Net 0 targets or such as, hey, this really contributes to the net 0 target, but the returns are lower. Is there a threshold or what's the balancing act of, hey, this is a really, really green project or maybe less of an economic benefit or how do you handle that?
Well, right now, all of our regulated renewable investments inside our electric utility attract The regulated rate of return, 9.9 percent of the fifty-fifty debt equity structure. So it's These are very accretive projects for us and we continue to see lots of opportunity to finance these renewable projects in that manner. What we are trying to manage through the voluntary program is our customers pay a slight premium in order to make sure that there's no impact On customer rates, so sort of a win win for both our customers and our investors.
What about in the unregulated business,
In the unregulated business, we're seeing nice returns. And as long as we continue to see those returns, we'll deploy the capital. As I mentioned, the unlevered returns after tax are around are in the teens and our simple cash paybacks are 3 to 4 years. So as long as we get that steady stream of projects with those types of parameters, we'll continue to invest. And the investments are Can be modest.
They're small projects. Like I mentioned, we're generating anywhere from $7,000,000 to $8,000,000 a year of new net income from RNG. And that's building a nice little business line for us.
Great. Thanks for taking my questions and great job on the quarter.
Thank you, Anthony.
Your next question is from Julien Dumoulin Smith with Bank of America.
Hey, good morning team. Thanks for the time.
Good morning.
If I
can play a little hey, if I can do a little cleanup here. I just want to go back to this RNG conversation. I know it's come up a few different times here, but I want to press a little bit on targets here as think about the forward guidance that you guys have, what kind of assumptions have you reflected there, just to rehire set against your 24 baked into the R and D. I heard the $15,000,000 per year comment earlier, but I want to come back to this just to understand what's reflected Against your earlier comments about looking at other states and other perhaps opportunities therein?
We have I think at our last DEI meeting, we provide Guidance for the P and I business overall. And Dave Rood, if you if I recall correctly, we're in the 130 to 135 In terms of income targets for that business in the 2024 timeframe?
Yes, that's right. And it's Continued to our historical development of $15,000,000 of new net income a year, A lot of that within RNG, but also continuing to look at cogen and other opportunities within the kind of ESG space to grow that business.
But let me perhaps let me phrase this slightly differently. When you think about The emerging opportunities outside of California, should we say, how do you think about that reconciling again Is this something that you want to keep small? Your comments earlier about keeping energy trading small, for instance. Do you want to keep RNG small within those parameters? Or is this something that you're willing to organically grow into whatever opportunity may exist behind it?
I'll start this way, Julian. We're trying to keep our mix at 90.10. So we'll pursue as we watch both Our utilities and our non utilities, Carol, we'll continue to pursue RNG and do great projects in that space as we have been. Could it become So we're more dominant in the P and I play perhaps, but I think it's something that we'll have to watch. Right now, we're seeing, Like I mentioned, a pretty even split between cogen and RNG and that feels good to us.
The cogen projects come with 15 20 year agreements, which feels more like utility like type investments in capital deployment with higher returns than our utilities. And RNG comes with really hot returns, right? And sort of shorter timeframe commitments in terms of price Fixing.
Right. But maybe the point is, if you strip out the GSP side of the business, You still have latitude within that ninety-ten mix even in the forward years?
I think the ninety-ten that we put out there took into account The spend of DTM or midstream. So as we deploy capital, The mix that we're looking at, Julien, is about $17,000,000,000 going into our utilities and about $2,000,000,000 going into P and I. So that kind of gives you a feel how we're planning. That's our base plan on how we plan to allocate capital right now.
Okay. All right. Excellent. I'll leave it there. Thanks, guys.
Your next question is from Angie Storozynski with Seaport Global.
Thank you. So I realize that you guys are busy with the midstream spin off. But I was just and then seemingly you have plenty of Growth opportunities at your own utilities, but just looking beyond the spin off, it looks to me that Your credit metrics will look very strong given the improvement in the credit profile or the risk profile of the business at around, what, 16% FFO to debt. So typically, that strong credit metrics would support some M and A transactions on the regulated utility side. And I was just wondering, what's your take on this?
Angie, good morning. We our base plan is really to grow our company organically. We see that being the most accretive way to create value for our shareholders. And we've got a $17,000,000,000 plan in front of us, which we are always looking for opportunities to accelerate. And one of the reasons we're primarily focused on the organic growth around our platform, current platforms is that you get in at book value And your shareholders get a multiple of that book value from a value perspective.
So it's the most accretive thing we can do. Having said all that, if there's assets that could become available to us and create value for our investors. We're always open to that, but it's certainly Energy is not our primary focus at this point in time.
But do you have any preference as to electric versus gas? How about electric transmission assets? I mean, any comments to that effect? Sure.
Our views Probably hasn't changed in the last couple of years, and we are really focused on electric investments. I think if you look at our capital plans, it's very Heavy electric, both in the renewable space as well as in wires and, renewables and wires are primarily our electric investment Focus right now. So if we were to do more, we had the opportunity to deploy more capital and we would deploy it in those two spaces, Wires and Renewables, regulated Renewables.
And just as a follow-up, given that The Van Der renewables program seems to be ahead of your expectations. Is that In a sense, increasing your expectations about the earnings growth at DTE Electric Versus what you have stated before? Or is it just that it offsets some of the other rate base growth that you would you have contemplated?
Yes. Certainly, what we're seeing and we updated it last fall is That we put our renewables growth at $2,000,000,000 over the next 5 years of capital deployment. As we move forward, we'll continue to update that number, Angie. But I will tell you, I've been pleasantly surprised with this program. As soon as we have Supply available, it just flies off the shelf with our large industrials and commercial customers have a very strong appetite for this.
And even our residential customers were Signing up thousands of customers every month and we're sitting at about 30,000 customers right now on a residential level. So It seems to be a very appealing product. So more to come on that, but I do expect these investments to continue to grow, but right now we've got $2,000,000,000 in the plan as we
see it.
Great. Thank you.
Your next question is from Ryan Levine with Citi.
How have the commercial development opportunities in the Haynesville progressed in the last few months? And are you seeing any more meaningful developments there?
Sure. I'll answer this question because David Slater is having some phone problems, otherwise he would take this. But We're seeing lots of opportunities in and around the Haynesville assets and actually doing some nice small projects That are highly accretive. So David and his team have been quite successful. Nothing very large yet, But I think as we evolve that platform, we've got a very significant opportunity with the fact that we were a first mover and building a 150 mile 36 inches pipeline that takes volumes in the northern part of the Haynesville to markets in the Gulf Coast as well as the LNG export markets.
So we are in discussions with various shippers to see if we can get a project off the ground there. So it's early, but I would say encouraging because as you know, expanding new pipelines can be very economic and also accretive.
Great. And then maybe just one on RNG. Post spin, I realized the 10% threshold that you had highlighted. But in terms of steel structuring, is there any change in appetite around taking LCFS or other credit risk? And is there any different approach that you may take pro form a for the spin given the changing tax position?
So I would say this that you asked about RNG markets. Certainly, and hopefully this is answering your question, we are Using financial instruments to hedge those markets and that's what our trading company is doing for us. So we're taking a portfolio approach where we hedge. We also have price contracts for term and then we leave some of it open to the market. So that's the portfolio approach we're taking with RNG, both in the LCFS Markets and the RFS Markets.
Okay. But the pro form a for the deal, would you Look to take any more duration risk or less in light of the more utility focused company that you'd be Energy?
Certainly, we always look for length in our contracts. So that's what we that's how we approach it. We'll give up a bit of return to get length in our contracts, but we also do look for a portfolio approach.
Okay. Appreciate it. Thank you.
Thank you.
Your next question is from Jeremy Tonet with JPMorgan.
Hi, good morning.
Good morning.
Just wanted to come back to GSP, if I could, and kind of slice it a little bit differently maybe. For the Q1, the pace you landed there would handily beat guidance. And was the strength due to Seasonality and how should we think about seasonality for the business overall at this point?
Well, the primary strength, as David mentioned in his comments, Was driven by the fact that the LEAP pipeline, which was a brand new pipeline that came into service last August, We are starting to see the full impact of that on our financials year over year because in the Q1 of last year, LEAP wasn't in the Was not in the portfolio. It was under construction. So that's the primary lift that we got year over year. And then as you mentioned, we got moderate Favorability from all of our platforms, and that's what created the Q1 favorability year over year, those two factors. But predominantly, The in service of the 150 mile 36 inches pipeline that we put into service.
Got it. So no seasonality to think of in the business overall for GSP?
Typically, we don't get seasonality in that business. We are getting A little extra juice from the all the platforms flowing a little higher than we expected. That's likely due to We do as you know, we plan conservatively and have contingency in our plans. And that's starting to play out in that platform somewhat. In addition to the LEAP pipeline, which is a big investment that came online.
Got it. Separately from Midstream, could you discuss how advanced the carbon capture initiatives that I think you were alluding to before were? And Do you see the 45Qs as written as sufficient to make these projects economic? Just trying to see how the pace of what could develop for carbon capture with the mid
45Q is helpful, but if you think about 45Q and LCFS in California, That starts to create a little more interesting returns. And so I would say that's what we're going to need to see across the country is a little more juice for these types of projects. Otherwise, it will create A significant burden for customers that are looking to sign on. So it all really depends on do customers have to do this? And secondly, will the tax credit regimes, both federal and state support it?
Certainly, in California, There's more. I guess it looks more positive than other states.
At this time, there are no further questions. I would like to turn the call over to Jerry Norcia for any closing remarks.
Well, thank you. And I want to thank everyone for joining us today. I'll just close by saying that DTE has had a very successful Q1, And we're really feeling strong about the remainder of 2021, and we're busy working on putting a really successful 2022 together and beyond. So I hope everyone has a great morning and stay healthy and safe.
This concludes today's conference call. Thank you for participating. You may now