Good day, welcome to the DTE Energy Q3 2019 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Barbara Tuckfield. Please go ahead, madam.
Thank you, and good morning, everyone. Before we get started, I would like to remind everyone to read the Safe Harbor statement on page two of the presentation, including the reference to forward-looking statements. Our presentation also includes references to operating earnings, which is a non-GAAP financial measure. Please refer to the reconciliation of GAAP earnings to operating earnings provided in the appendix of today's presentation. With us this morning are Gerardo Norcia, President and CEO, and Peter Oleksiak, Senior Vice President and CFO. Now I'll turn it over to Gerry to start the call this morning.
Thanks, Barb, good morning, everyone, and thanks for joining us today. This morning, I'm going to give you a recap of our performance for the third quarter of 2019, a business unit update, and provide the overview for the 2020 early outlook and early thoughts on our long-term growth. At EEI, we'll provide a deeper review of our long-term growth plans and strategies. Finally, I'll turn it over to Peter, who will provide a financial review of the quarter, updates to cash, capital, and equity, and the details on our 2019 guidance and 2020 early outlook. I'll wrap things up before we take your questions. Let's start on slide four. We continue to make great progress on a number of key fronts. Our third quarter financial results are solidly on track with our plan.
Given the strength we have experienced the first three quarters of the year, I'm announcing an increase to our 2019 operating EPS guidance. We are increasing our 2019 guidance midpoint $0.03 to $6.23. This represents EPS growth from original guidance in 2018 to 2019 of 8%, which was quite impressive at this point. This increase is due to the strong performance at all of our business segments and the fact that we will have continued to build contingency that will carry us through the fourth quarter. Peter will provide more details on that front in a few minutes. Today, we're also providing the 2020 early outlook for operating EPS guidance with a range of $6.47 to $6.75. I'm pleased to say that this is a 7.5% increase over our 2019 original guidance and includes the impact of the recent midstream acquisition we announced earlier this month.
Longer term through 2024, we are using the higher 2020 early outlook as a new base for our 5%-7% operating EPS growth rate. I'm also pleased to announce a 7% dividend increase that was just approved by our board. The new analyzed dividend per share is $4.05, up from $3.78. This continues DTE Energy's consistent dividend history, having issued a cash dividend for more than 100 years. This increase reflects the company's strong performance and ability to consistently achieve our goals. The board's approval of the increase signals confidence in the company's performance and long-term strategic plan. Turn it over to the business update. All of our businesses have accomplishments to note this quarter. DTE Electric recently announced our goal to achieve net zero carbon emissions by 2050.
This bold new goal sets the framework to go beyond our existing commitment to reduce carbon emissions 50% by 2030 and 80% by 2040. DTE Electric's medium and long-term plans align with the scientific consensus around the importance of achieving carbon emission reductions. We are fully committed to dramatically reduce carbon emissions. This is the right thing to do for our customers, our business, and the environment. We are doing as much as we can, as fast as we can, to provide our customers and the state of Michigan with clean energy that is affordable and reliable. DTE Electric is progressing on its voluntary renewable energy program. Over 400 megawatts have been committed by commercial customers, including Ford, General Motors, University of Michigan, and most recently, the Detroit Zoo. Nearly 10,000 residential customers have committed to a portion of their monthly bills to renewable power.
Along with our carbon reduction plan, our natural gas plant, Blue Water Energy Center, is also progressing on plan. We broke ground last year and received all the necessary permits. The plant is a little over 30% complete, with the turbines already on site and an expected in-service date of the spring of 2022. Moving on to our gas company, we are continuing to progress with our accelerated main renewal program. We have already renewed a significant number of miles this year, and we will complete 180 miles by year-end. We are also continuing to develop plans to invest in additional system improvements, including a transmission renewal program to support the growth, integrity, and reliability of our system. This new program, along with our main renewal program, showcases DTE Gas's commitment to provide safe and reliable service to our customers.
These projects will be described in more detail in our rate case filings later this fall. I'll turn over to our non-utilities. At our gas storage and pipeline business, we recently announced the acquisition of midstream assets in the Haynesville Basin. These assets include an existing gathering system and 150-mile gather pipeline that is currently under construction. This set of assets complements our GSP portfolio and provides a new platform for value creation, which will enable strong growth opportunities for years to come. It has a strong strategic and financial rationale, delivering compelling value to our shareholders. It is underpinned by high-quality resource, is well-positioned on a North American gas supply stack. We believe that natural gas will play an increasingly important role in meeting energy demand as we all seek to mitigate climate change in the coming years.
The economics are sound, the transaction is EPS accretive, accelerating achievement of our 5-year growth plan while maintaining a strong balance sheet and credit profile. This transaction is one of the drivers of the 7.5% increase in our 2020 outlook. As we mentioned on the call, we are committed to maintaining a 70%-75% utility mix. At EEI, we will provide the details on how this fits into our 5-year plan. Let me turn over to Power and Industrial. We also had some major milestones this quarter. In September, our P&I business announced the opening of its first combined dairy RNG processing and interstate injection facility. The site processes raw biogas from nearby partner farms into renewable natural gas. Pipeline quality is injected directly into an interstate pipeline. Converting raw biogas to RNG is a win-win both for dairy farms and the environment.
Capturing this gas reduces the overall greenhouse gas footprint, provides the farms with another revenue stream, and helps create a clean, sustainable vehicle fuel that displaces fossil-based gasoline or diesel fuel. We've made great progress in the RNG space over the past few years, which will enable P&I to achieve its long-term goals. I'm feeling really good about the progress we're making in all of our business lines. Moving on to slide five, I will discuss our 2020 early outlook and long-term plan. Today, we are providing the 2020 early outlook for operating EPS guidance with a range of $6.47-$6.75. This is a 7.5% increase over our 2019 original guidance and includes, as I mentioned, the impact of the recent midstream acquisition we announced earlier this month. Longer term, we are increasing our base and growing from the higher 2020 early outlook through 2024.
This will be the new base for our 5%-7% operating EPS growth rate. We believe growing off the new base provides shareholders with incremental near and long-term value. We'll provide additional details by segment when we see you at EEI. With that, I'm going to turn it over to Peter to share our financial results and give you more details on the 2020 early outlook.
Thanks, Gerardo. Good morning, everyone. Before I get into the financials, I always like to give an update on my Detroit Tigers. My Tigers did come into last place this year. The good news with that last place finish is they get a first draft pick next year. I'm hoping they find another Justin Verlander. Overall, I'm looking to the future and feeling pretty good about it. Unlike my Tigers, the financials are consistently strong here for DTE. Let me turn your attention to the financial results. I will start the review on slide six. Total earnings for the third quarter were $351 million. This translates into $1.91 per share for the quarter. You can find a detailed breakdown of EPS by segment, including our reconciliation to GAAP-reported earnings in the appendix.
Let me start my review at the top of the page with our utilities. DTE Electric earnings were $307 million for the quarter. This was $3 million higher than 2018, largely due to the impact of new rates implemented in May, offset by rate-based growth cost and cooler weather in 2019. As a reminder, the third quarter of 2018 was one of the hottest quarters on record in our region. DTE Gas operating earnings were $10 million lower than last year. The earnings change is driven primarily by rate-based growth and higher O&M expenses. This was partially offset by rate implementation. Keep in mind, only a small portion of this new rate was attributed to the third quarter as a result of typically low volumes in the third quarter. Let's move down the page to our Gas Storage and Pipelines business on the third row.
Operating earnings for our GSP segment were $60 million for the quarter. Last year, GSP experienced higher earnings related to AFUDC at NEXUS and higher-than-planned volumes across the portfolio. This year, we have normalized earnings at NEXUS, and volumes are around plan. This quarter is $4 million lower versus the third quarter of 2018. GSP is performing according to plan through the third quarter, and we will continue to see the benefit in the remainder of the year from the volumes on Link that continue to ramp up and the impact of the recent expansions and acquisitions. On the next row, you can see our Power and Industrial business segment operating earnings were $49 million. Earnings are $14 million lower than the third quarter of 2018, and this decrease is due mainly to the REF tax equity transactions that occurred in the fourth quarter of last year.
As we communicated previously, we entered into equity partnerships in our REF units and accelerated cash flows of around $100 million per year for three years to support our growth projects. This lowers earnings this year around $40 million versus 2018. Our energy trading business had a strong quarter with operating earnings of $18 million. Earnings are higher this quarter compared to the third quarter last year due to the higher power portfolio earnings. Our trading company is having another solid year. Year-to-date economic earnings are on plan and in line with guidance. The appendix contains our standard energy trading reconciliation, showing both economic and accounting performance. Finally, corporate and other was unfavorable $15 million this year compared to the third quarter last year, and this was due primarily to the timing of taxes.
Overall, DTE earned $1.91 per share in the third quarter of 2019. Let's move on to slide seven. Gerry mentioned we are increasing our 2019 earnings guidance. As you remember, we increased guidance at both DTE Electric and DTE Gas on our second quarter call. This is the second increase we've provided this year. We are experiencing favorability in all the segments, with particular strength in the electric segment, Power and Industrial, and energy trading. DTE Electric is benefiting from warmer than normal weather. P&I is favorable due to the optimization of RF units. Energy trading earnings came in strong in the third quarter. We feel really good about how strong 2019 is coming in, so we are confident in achieving the increased guidance range. I'll transition to 2020 to discuss our early outlook.
On the right side of that slide, we are providing 2020 EPS early outlook midpoint of $6.61 per share. The midpoint of this early outlook provides 7.5% EPS growth from the 2019 original guidance. On the next two slides, I'll be going over the early outlook for our four largest business units. Before I move on to those slides to discuss the year-over-year drivers, I'll mention that energy trading's 2020 operating earnings range of $15 million-$25 million, which is the economic contribution range we typically target for this business. Our corporate and other segment grows in 2020 with the interest on the equity converts. This returns to a lower steady state when they are converted to equity. Now let me move on to slide nine. I'll start on the left-hand side of the page.
Our 2020 early outlook midpoint for DTE Electric segment is $766 million. This provides earnings growth of 8.7% over 2019 original guidance. The early outlook includes distribution and generation investment growth. Longer term, the electric segment will continue to grow by 7%-8%. Moving to the right-hand side of the page at our DTE Gas segment, the 2020 early outlook midpoint is $189 million. The 2019 original guidance midpoint was $175 million. The early outlook provides earnings growth of 8% over the 2019 original guidance. This year-over-year increase is in line with our long-term growth target for DTE Gas and is driven by the continuation of our accelerated main renewal program. Longer term, we expect the gas segment to grow at the higher end of our 8%-9% growth rate. I'll move on to slide 10 to review our early outlook for our non-utilities.
Starting on the left-hand side of the page, with our Gas Storage and Pipelines business, original guidance for 2019 for this segment was $213 million and increases to $285 million in 2020. This represents an increase of 34%. That increase is mainly due to the acquisition of the midstream asset in the prolific Haynesville Basin. Previously, we said the annual increase to our GSP segment earnings would be approximately 12%, so we've essentially accelerated growth into 2020. GSP had an active year in 2019, acquiring Generation Pipeline, an additional 30% stake in the Link SGG, and of course, the Blue Union and LEAP assets. All these will contribute to what we expect to be another strong year at GSP in 2020.
We have been planning carefully in 2020 given the market conditions we're seeing, and these new platforms will allow us to fuel growth objectives and rebase the whole company at a higher growth rate. Now moving to the right side of the page, our P&I segment is $14 million higher in 2020 versus 2019. This segment continues to drive earnings and value for the company. This earnings increase is from the work we've been doing over the last few years as we originate new projects and income to replace REF when it fully sunsets. We have secured additional REF units that will generate strong cash flows for the next two years, reducing equity needs. As we look out to when REF sunsets at the end of 2021, we remain confident that the backfill of REF will occur between these two non-utility segments and the total portfolio.
We'll be well within our target of 70%-75% utility mix. As you can see, these two non-utilities are bringing a good lift of earnings here in 2020. We will be providing a detailed update at EEI in a few weeks. On to slide 11 to cover the balance sheet. We expect to issue a total of $500 million in equity here in 2019, including $300 million of acquisition equity financing and $200 million that has already been issued through internal mechanisms. For the three years 2020-2022, we'll be issuing $1.5 billion-$2 billion of equity, including convertible equity units related to the acquisition. In 2020, we'll be issuing $300 million of equity using internal mechanism.
For 2019, we are increasing our cash and capital guidance for the year due to the investment in our new midstream assets. You can find the updated cash and capital guidance in the appendix. We have a strong credit rating at all three agencies, which is very important to us. S&P is a strong triple B with an excellent business risk profile. Moody's and Fitch are one notch above S&P. We have reviewed our recent midstream transaction with all agencies. We expect to maintain a strong credit rating. S&P has indicated that we will hold our strong triple B and also our excellent business risk profile. A great outcome there. Fitch and Moody's did take some action on their current rating. Moody's has revised the rating to a Baa2, which falls in line with S&P.
We will have plenty of balance sheet cushion with the ratings of both agencies. Our goal is to continue to maintain a strong investment-grade credit rating. That wraps up my section on 2019 earnings guidance and the 2020 early outlook. I'm going to turn it back over to Gerry to wrap things up.
Thanks, Peter. I'll wrap up on slide 12 and then open up the line for questions. 2019 is shaping up to be a strong year, as evidenced by our guidance increase. We expect and continue our pattern of exceeding original guidance for over a decade. You can tell from our 2020 early outlook that we are planning for another strong year next year. The 2020 operating EPS midpoint of $6.61 provides 7.5% growth from our 2019 original guidance. This size growth rate is driven by strong performance at all of our business units with healthy growth at our two utilities, continued business development at P&I, and a near-term EPS accretion from our recent GSP midstream acquisition. The 2020 GSP's growth is more than double what we had anticipated. Going forward, we'll continue to target a 5%-7% EPS growth with 2020 outlook as the base of that growth.
Our 7% dividend increase for 2020 demonstrates our confidence in the company's performance and long-term strategic plan. Our utilities continue to focus on necessary infrastructure investments, specifically for investments to improve reliability and the customer experience. Our non-utilities continue to position us for long-term growth. Finally, I feel great about our ability to continue to deliver the premium total shareholder returns we have delivered over the past decade. With that, I'd like to thank everyone for joining us this morning. Operator, you can open up the line for questions.
Thank you, sir. Ladies and gentlemen, if you wish to ask a question at this time, please press star one on your telephone keypad. Please make sure the mute function on your phone is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. Again, please press star one to ask a question. Our first question comes from the line of Ryan Levine of Citi. Please go ahead.
Thanks so much. Hi, guys.
Good morning.
Good morning.
Morning. Maybe just first starting with the equity that you pointed out on slide 11, the $1.5 billion-$2 billion, 2020-2022, I'm assuming in 2022 you're including the approximately, what, 825 of mandatory converts?
They do include the mandatory converts. It'll be approximately $1 billion related to the acquisition. The $1.5 billion-$2 billion does include those converts.
Okay, gotcha. That's helpful. The 2020 guidance that you provide, all that includes is an additional $300 million of equity in 2020. Just wanted to understand the share count that you're using for that 2020 guide.
Yes. We have $300 million that we will be issuing next year in 2020. Here in 2019, we will be issuing the $500 million that we previously disclosed.
Gotcha. Just finally, just wanted to stay on the credit theme, I guess. You mentioned that a couple of the agencies clearly expressed some concern. Do you see any scenario where there is additional need to issue equity in a particular business? I guess how the business kind of moves forward from here. Do you expect any need to issue additional equity to kind of satisfy the rating agency concerns?
No, I do not. The S&P rating in particular, a strong BBB and excellent business risk profile, we were really targeting that. We were very happy with that outcome. Actually, we have a lot of cushion even within that current rating and profile. Moody's did fall in line with S&P. A part of the issue with Moody's is they do not recognize the converts as equity. That was one of the reasons behind the action they took. With their new rating, we have a lot of cushion as well. We feel really good where we're at with the rating agencies at this point.
All right, great. Thanks so much, guys.
Our next question comes from Julien Dumoulin-Smith of Bank of America Merrill Lynch. Please go ahead.
Hey, good morning, team.
Hey, Julien. Morning.
Hey. Howdy. Perhaps if I could come back to just the transaction last week, help clarify just a quick follow-up here. As you think about that $0.45 and the organic growth of that business, just again, to come back to off of the run rate, 2021, 2022, 10 times multiple, how do you think about that? How do you think about the growth to the five-year outlook, first off, just to reconcile that, I got a follow-up.
Well, I think Julien, the first thing is that the transaction supports the 7.5% growth, 2019 over 2020. As we've mentioned, we reestablished 2020 as the base for the 5%-7% growth going forward long term. We view the transaction not only as providing a lift 2019 over 2020, but certainly provided an uplift long term as well in the plan, and filled all the growth needs that we have at GSP.
I think just to add on as well as this segment in particular, we're feeling really good with the growth rate going forward. We will be talking more in detail at EEI about this. I can tell you though that we have a previous disclosure out there of 2023, and we're going to be more than achieving that.
Got it. Okay. Just from a planning perspective, as you think about the other investments that had been talked about before, the NEXUS laterals, Link expansion capital, perhaps generator and connections, what are you thinking about? I know we're getting ahead of the GSP disclosures perhaps coming up here in a couple of weeks, but I just want to clarify, what else are you thinking about out there on GSP?
Well, Julien, again, I'll repeat that it certainly supports the 7.5% growth, 2019 over 2020. If you lock in that growth and then grow 5%-7% from there, this transaction as well as the other investments in GSP, and let's not forget that the bulk of our investment is going into our two utilities. Those high growth rates from our utilities, high growth rate from GSP, as well as the strong growth off the P&I base will support that 5%-7% growth over the new 2020 base.
Yeah.
We'll provide a lot more detail by business segment at EEI.
Yeah, we will. In this segment in particular, we have some great growth platforms now. We're not looking for any big new acquisitions. We have a lot of opportunities. You mentioned a few just in your question there. Between Link and NEXUS and now this new Blue Union and LEAP asset, we're going to have a lot of organic growth opportunities. We'll give more updates here at EEI.
Got it. If I can clarify quickly the early 2020 outlook, it looks like it implies even ex the latest transaction, a pretty healthy degree of growth off the 2019 base for GSP. Can you talk about what's driving that? As you say, it seems like a 12%-type growth number.
Well, two things. The transaction, as we mentioned, is providing significant accretion next year. It is filling a portion of the growth objective of GSP. I can tell you we're also planning very carefully for the balance of the platform at GSP in light of market conditions.
Nothing specific, though. Net for next year.
Yeah, for next year.
That's for next year, correct.
We're working very closely with all the producers. Our plans reflect that. We'll be very careful going forward.
Got it. All right. Well, I look forward to seeing you guys and hearing more in a couple of weeks. Cheers.
We'll now take our next question from Michael Sullivan of Wolfe Research. Please go ahead.
Hey, good morning.
Morning.
Good morning.
Yeah. First, I just wanted to follow up on that last question. Is there any more detail that you can give us as to how the base midstream business is growing, sort of ex the transaction you just did, and then I think also the upping the stake in Link and the Generation Pipeline, just kind of what the base business is doing and how that stacks up to what you were previously anticipating?
What we can say is that if you look at all those investments, and that drives the 30%, 34% growth year-over-year in the GSP segment, and overall allowed us to lift our corporate growth to 7.5% year-over-year and sets us up really nicely long term to meet our 5%-7% growth corporately, along with our growth at our utility. We typically don't describe each platform. What I can tell you, I'll repeat, is that the balance of our platforms, we are planning for it very carefully next year in light of the market conditions. The 34% reflects that and supports our 7.5% growth year-over-year.
Okay, thanks. Switching over to P&I, can you just give any color around the recently acquired REF units that you mentioned, how much of a contribution that was towards 2020 and when those will roll off?
Yeah, we did acquire some new units here in the late summer, and we deploy those at existing sites where some units were sunsetting. Our ref is flat. The way to think about it is our ref is flat year-over-year. The growth we're seeing is really around the origination that we've been doing over the last few years. These additional units in our ref will contribute about $30 million over the next couple of years, which is a really nice chunk of cash, and it really helps reduce equity needs over the next three years.
Okay, when do those roll off? The new ones that you just acquired?
Yeah, the new ones, as well as all the existing, at the end of 2021. They all sunset at that point in time.
Great. Okay. Thank you very much.
Our next question comes from Andrew Weisel of Scotiabank . Please go ahead.
Hey, good morning, everybody.
Good morning.
Good morning, Andrew.
Just one quick one. Obviously a nice dividend increase today. My question is going forward, is there any change to the dividend policy given the mix shift with about 35% of next year's earnings coming from the non-utilities and all the credit updates that you talked about earlier? How do we think about the dividend policy going forward?
Well, typically, we have said and continue to maintain that we'll grow dividends in line with our earnings growth, but we'll be able to provide a little more color and detail on that at EEI as to how will it look going forward. Certainly, it'll be in line.
With earnings growth. Yeah, we haven't really changed that philosophy, Andrew.
Okay. The same policy will continue going forward then?
Yes, that's correct.
That's correct.
Okay, great. That's all I had. Thank you.
Our next question comes from Shar Pourreza of Guggenheim Partners. Please go ahead.
Hey, guys.
Hey. Good morning, Shar.
Morning.
Apologize, I jumped on a second late. The comment that you made just around planning in light of market conditions, like the 33.8% includes that. Can you just elaborate what you mean by that? Is that tied to a specific asset and a producer? I'm kind of curious if you can just touch a little bit on what you mean by that.
Well, we're looking at all our platforms, Shar, and certainly we're operating in a low-price environment. As we continue our conversations and discussions with our partners, we are forecasting earnings growth of 34% in this business line in light of these market conditions. If the market conditions improve, things could change, but certainly, we're planning carefully for this business segment at this point in time. In addition to the balance of our portfolio, which we feel very comfortable will help us deliver a 7.5% growth year-over-year.
This isn't really tied to credit quality or financial conditions of the actual producers, but more of a pricing environment.
Pricing and production. Yeah, that's correct.
Okay, got it. Just as you guys look at the contracts, what remains with NEXUS, there's a portion of it, obviously, that's still under short-term contracts. Are these market conditions, do they continue to dictate that you'll remain within that kind of a tenor of these contracts? Or is there an opportunity to actually contract longer term?
Sure. We have started to see interest in terming out longer than we've seen in the past. We find that as an encouraging signal from the market that there is desire to contract somewhat slightly longer term. We continue to move our contract portfolio on NEXUS in that direction. We are seeing some positive signals there.
Got it. Let me just ask you one last one. Is the signals that you're seeing, as far as longer term contracts, is that predicated on the delay of two existing pipe projects?
Certainly, we think that could be having an impact.
Okay.
Of course, production continues to grow in the Appalachia at this point in time. We believe that it's a combination of those factors that's creating more interest.
Perfect. Thanks, guys. Congrats.
Thank you. Our next question comes from the line of Angie Storozynski of Macquarie. Please go ahead.
Good morning. Most of my questions have been asked and answered, but I have a question about your renewable natural gas type of plans and investments. We've seen this sharp decline in the RIN prices, and I'm just wondering if you guys have a view where those prices will go and how it's being depicted in your 2020 guidance.
Thank you for that question. The bulk of our returns from RNG asset investments are in the dairy sector. Most of the value from that comes from the Low Carbon Fuel Standard that exists in California that displace essentially diesel and gasoline in the CNG markets. We have seen a decline in the RIN pricings, but we have seen it also start to recover recently. It forms a small portion of our forecast for these assets and these investments, which with the LCFS, they still remain very attractive assets and very attractive returns. Our outlook, you asked how do we feel about how it's looking? We feel that the EPA will issue a volume obligation that'll be more in line with the supply that's available. I believe that's why we're starting to see somewhat of a recovery in the pricing for the RINs.
Great. Thank you.
Our next question comes from Sophie Karp of KeyBanc. Please go ahead.
Hi. Good morning.
Good morning, Sophie.
Question. Just wanted to come back real quick to the Midstream Segment and the $0.15 accretion that you talked about on the call earlier when you announced the deal. Is this fair to think about that 2020 as $0.15 for the growth comes from that and the rest from other organic opportunities at this time?
Yeah, actually, that's a good way of thinking about it. Yeah, the 15%. Part of that 7.5% includes that 15%, for sure.
$0.15, you mean?
Yeah, $0.15. Yeah.
Okay. Thank you. I wanted to dig a little more into the utility earnings. Being roughly flat year-over-year in the DTE Electric, right? I understand there's been weather volatility last year and this year, but sort of the way you describe it, if we strip away the weather impact completely, would that have grown in line with your kind of long-term rate that you're projecting? Is there something within the rate implementation growth cost that is unusual this year?
Yeah, that's correct. Last year was one of the hottest we've had here on record here in Michigan in the region. You take that away and normalize weather this year. We had positive weather this year of $27 million, last year was much higher than that. It was over $60 million. When you take that away, kind of look at the rate base growth, it'll be in line with the 7%-8% that we expect from this segment.
All right. Thank you.
Our next question comes from David Fishman of Goldman Sachs. Please go ahead.
Hey, good morning.
Morning.
Just going back to the Haynesville acquisition and thinking about the $600 million of growth CapEx. I was just wondering, I apologize if you said this on the call a couple weeks ago, but when you think about the $600 million, I know part of it's related to the LEAP growth, but is there something that effectively guarantees that growth happening? Or is that just based on your expectation for expansions based on Blue Union and where you think demand will be?
Actually, all of the growth is fully contracted with Indigo, and so the $600 million plus the other $400 million that we talked about, approximately about $1 billion, is fully contracted growth over the next 18 to 24 months.
Okay, that's something you already have the contracts in place for and that will be achieved.
Yes, that's correct.
Going back to the equity guidance. I think you discussed this a little bit, but it's $1.5 billion-$2 billion, $1 billion of that is the convert. It says you can do about $300 million internally. Are you able to do that kind of level every year of $200 million-$300 million of equity internally to getting you to around the midpoint or higher end?
Yes, David, for the next few years, we should be able to do $200 million-$300 million. A lot of that is going into funding our pension, which we're a few years away from doing that.
Okay. My last question, I think you were alluding a little bit to, in Nexus, maybe there's some other parties who are looking to potentially term out those contracts, which is good. Just thinking about the Generation Pipeline and connecting there, could you remind us what those contracts look like? Are they five years or are they in the double digits? If you were to contract with them, would it likely be the offtaker side or would it be a producer looking to contract on Nexus?
Well, the Generation Pipeline, just to remind everyone, is very proximal to the Nexus pipeline and stands on its own with its own long-term contracts. It gives us a nice return and nice accretion. The plan is to connect that asset with several miles of pipe to Nexus, that'll provide approximately $400 million to $500 million a day outlet for that pipeline. Again, just to repeat, we do have long-term contracts. They are about 13 years in length, very nicely contracted piece of pipe with demand charges.
Okay. Great. Thank you. Appreciate it, and congrats again.
Our next question comes from Paul Fremont of Mizuho. Please go ahead.
Hey, good morning, guys. It's Anthony Crowdell.
Hey, Anthony. Morning, Anthony.
Hi. You may have addressed this on the actual call maybe two weeks ago, one is just what makes you confident on the competitiveness of the Haynesville? Second, just if you could help me understand the difference between minimum volume commitment charges and also a demand charge.
Let's start with the competitiveness of the Haynesville. We had the opportunity through this transaction to review all 1,700 of their proposed drilling locations. We did that ourselves along with two reserve consultants. We can tell you after that analysis, we felt that the resource was extremely strong, whereby there are at least 10 years of drilling available at sub-$2 prices. That's one. Number two, the pipeline that's being constructed creates great interconnectivity with the Gulf Coast markets, including the industrial power and the emerging LNG markets. The proximity to those markets provides a very large basis advantage that other resource basins don't enjoy.
We felt that the quality of the resource, the interconnectivity of the resource with growing markets, and three, the positioning of the resource, which provides it with basis advantage created a really nice package of high returns and strong cash flows. In terms of MVCs and demand charges, they're essentially the same thing. MVCs are monthly demand charges, just that in the gathering business, they call it a minimum volume commitment. In our pipeline businesses, including the pipeline that we're building for this asset, they call it a demand charge. They are essentially equivalent in nature.
Oh, great. Thanks for taking my question.
Thank you.
Our next question comes from Gregg Orrill of UBS. Please go ahead.
Yes, thank you. Apologize if you've said this already, how much are you issuing in new convertibles related to the acquisition and when?
Yeah, we'll be issuing approximately $1 billion, and we're going to finalize the exact dollar amount here shortly, but it'll be about $1 billion.
When would that be?
It'll be here in the fourth quarter. We want to close this transaction early December, so we're going to be looking at the market and market conditions, but it'll be between now and then.
Thank you, Peter.
Yep.
Our next question comes from Charles Fishman of Morningstar Research. Please go ahead.
Good morning. I only had one last. On the P&I segment, I didn't hear you talk or give any update on any industrial projects. I think the last one you had was the Ford complex, or is that something you want to wait to EI for or anything you can talk about now?
We essentially have secured three cogens this year. Two, we were public about. Stelco in Ontario with their Lake Erie Works facility, we signed a long-term arrangement with them to develop a cogen facility. We also have a commercial customer that we haven't yet disclosed, that we signed a purchase agreement with to purchase a cogen facility. Lastly, we signed an operating agreement with Wayne County for their correctional facility to operate their industrial services assets. In addition to that, we also closed two RNG projects in Wisconsin this year. Three cogens and two RNG projects, which gives us approximately the $15 million origination target that we are pursuing this year.
The, I guess, gas price somewhat bearish outlook that people have, that is a little bit of a tailwind for these cogen projects, correct?
Yeah. There's really two factors. One is the fact that gas prices continue to be at low levels. Secondly, electric rates continue to rise. The spread between gas and electric to produce power continues to widen, and that creates an attractive opportunity for customers that have, one, a large electric need, and two, are usually typically a steam host as well.
It's when a customer has that thermal need is where you see the opportunities?
Yes.
Got it. Okay.
There's a high thermal need and a large electricity need. Those two factors make cogens very attractive.
Okay, got it. Thank you.
Thank you. Now I would like to turn the call back over to Gerardo Norcia for any additional or closing remarks.
Well, I'll wrap up by thanking everyone for joining the call. 2019, again, is shaping up to be another very successful year. We look forward to seeing many of you at EEI in a few weeks, where we will describe in more detail our growth strategies and our five-year outlook for each business line. We'll also describe our financing and dividend strategies in more detail. DTE's story will continue to be a strong one into the future that will deliver premium shareholder returns. Thanks again for joining us, and have a great day.
Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.