Good day, and welcome to the DTE Energy 2018 Q1 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Barbara Techfield. Please go ahead, ma'am.
Thank you, Mindy, and good morning, everyone. Before we get started, I would like to remind everyone to read the Safe Harbor statement on Page 2 of the presentation, including the reference to forward looking statements. Our presentation 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 Gerry Anderson, Chairman and CEO Gerry Norcia, President and COO and Peter Oleksiak, Senior Vice President and CFO.
We also have members of the management team to call upon during the Q and A session. And now I'll turn it over to Jerry to start the call.
All right. Well, thank you, Barb, and good morning, everyone. Thanks for joining us today. So this morning, I'm going to give you a recap of our performance for the Q1 of 2018, including an update on a couple of key developments and initiatives at the company. Then I'll hand it over to Peter, who will provide a detailed financial review of the quarter.
And Jerry Norcia then will provide some more in-depth business updates. So let me turn you to Slide 5. To top line, we are off to a very good start to 2018. And with 1 quarter behind us, I am very confident that we will deliver on our financial plans this year. Longer term, we continue to target the 5% to 7% operating earnings per share growth rate through 2022 that we have discussed with you in recent years.
And just as a reminder, 2018 guidance is the base for this growth rate. On the renewable energy front, we recently filed a plan with the Michigan Public Service Commission to significantly increase our renewable energy capacity over the next few years. And if approved, this will drive increased investment in new wind and solar projects and will double our current renewable energy capacity. I'll provide you with some more details on that plan in a few minutes. DTE Electric received its final rate order last week, and that order set our ROE at 10% versus 10.1% previously and it maintained our debt equity mix at fifty-fifty versus our request, which was at 49.51.
So those two items combined with the O and M increase defined in the case mean that we're going to maintain our earnings guidance range for DTE Electric of $648,000,000 to 662,000,000 dollars but we'll be biased to the lower end of that range given the changes. That said, we continue to work very constructively with the Michigan Public Service Commission on a number of important issues. So after months of collaborative work with the MPSC staff, in January, we filed a comprehensive 5 year plan for our distribution system. Additionally, we recently submitted our updated renewable energy plan for the next 5 years, and I feel we're well aligned with the MPSC in this area. And then 3rd, our certificate of necessity or CON filing for our gas combined cycle plant will be finalized later this week, on Friday actually, and we expect a constructive outcome in that proceeding.
We also have a rate case in motion for our gas utility. In this filing, we requested that the MPSC approve an increase to the number of miles of Maine that we renew on an annual basis, and we've had productive discussions with the staff on that issue. We expect to receive a final order in that case in September. Moving to the non utility businesses. Our gas storage and pipeline business is off to a very strong start to 2018.
Our earnings in this business line are running hot, and we expect to be biased to the high end of our earnings projections here. We're making significant progress on the NEXUS pipeline with several construction milestones achieved, and we do remain on track for in service late in Q3 of the year. Construction on both our Millennium CPV Lateral and the Eastside expansion are also going well, and we're still focused on in service dates for those projects in the second half of the year. We also continue to be encouraged by the financial performance of our 2016 Link acquisition, and we can talk a bit more about that later. At our Power and Industrial business, earnings are also running hot this year.
And as at GSP, we expect to be biased to the high end of our earnings range in that business. P and I also continues to make really encouraging progress on its growth plan. We have several very promising development initiatives underway that Jerry Norcia will describe in greater detail a little later. So moving on now to Slide 6. I think you'll recall that just about a year ago, we laid out our plan to transition to cleaner energy sources and to reduce our carbon emissions by over 80% by 2,050.
As I briefly mentioned earlier, we recently submitted our 2018 renewable energy plan to the Michigan Public Service Commission. This plan proposes 1,000 megawatts of carbon free electricity from new wind and solar projects in Michigan that would be completed by 2022. A portion of that capital investment is a pull ahead of capital that we had later in our long term or 10 year plan. Michigan, as you know, is in the process of implementing the bipartisan legislation that was passed in 2016 to address the state's energy transition. And this renewable plan that we've submitted enables us to achieve the 15% renewable standard by 2021 that is laid out in that legislation.
Also, this plan is another significant step toward our carbon emission reduction goals, And those goals can be met in a way that continue to deliver reliable and affordable power for our customers as well. If approved, these renewable energy projects would drive an investment of more than $1,700,000,000 in Michigan and would double DTE Energy's renewable energy capacity. So to give you some specifics, we plan to bring the Pine River Wind Park online later this year and the Polaris Wind Park online in 2020. And together, these two parks will total 3 30 megawatts of new capacity and will be DTE's largest and most efficient wind parks to date. We'll also be adding an additional 300 megawatts of new wind capacity in 2020 to supply a new voluntary renewable energy program targeted at our large business customers who are seeking to reduce carbon emissions.
Then in 2021 2022, we will be adding 2 additional wind parks that will provide a combined 3 75 megawatts of capacity. Along with the increased wind capacity, we're also planning on adding 15 megawatts of solar power. So wind today is clearly lower cost than solar in Michigan, and thus we're really wind capacity in the near term. But solar costs are improving and we expect that by the mid-twenty 20s, solar will be ready to play a more prominent role in our mix. Of course, we will continue to add more renewable energy beyond the dates defined in the plan that we've submitted.
DTE has already reduced its carbon emissions by over 25% over the last 10 years, and in the process has driven investments of about $2,500,000,000 in Michigan's renewable sector and has added 1,000 megawatts of wind and solar capacity. By 2023, when we play out the plan I just described, we expect our carbon emissions to be down 30% to 35%. It's interesting that that was the range that was laid out for us for 2,030 in the clean power plant. So we're going to be down significantly by the early 2020s. Then we plan to be down 45% by 2,030 and 75% by 2,040 as we continue to play out our transformation.
As I've said before, these goals are achievable and achievable in a way that will maintain both reliability and customer affordability. And the 2,050 time frame and the 80% reduction, that we're targeting align with what scientists broadly have identified as necessary to address climate change. So reducing our company's carbon emissions and developing cleaner sources of energy is, I think, you can pick up is a key strategic focus for us, and it will continue to be an important area of investment as we transition our generation fleet. So with that, I'm going to turn things over to Peter Alexiak to talk a bit more about our financial results.
Thanks, Jerry, and good morning, everyone. First, I'd like to give a quick update on my rebuilding Detroit Tigers as we're finalizing the 1st full month of the season. Our Tigers are off to a slow start as anticipated, but I saw it within striking distance of 1st place and actually there are some pretty young prospects that look promising. But unlike our Detroit Tigers, actually we got up to a really strong Q1 as you can see on Slide 8. We got an operating earnings of 3 $42,000,000 or $1.91 per share.
For reference, our reported earnings were $361,000,000 or $2 per share. And you can find a breakdown of the EPS by segment, including our reconciliation to GAAP reported earnings in the appendix. I'll touch on each segment in detail, starting at the top with our electric utility. DTE Electric earnings for the quarter $142,000,000 or $36,000,000 higher than the Q1 of last year. This was driven by lower storm expense, a return to normal weather and the implementation of new rates.
There's a more detailed year over year earnings variance for DTE Electric, which can be found in the appendix. For DTE Gas segment, operating earnings were $111,000,000 and were $4,000,000 higher than last year. This increase was driven primarily by return to normal weather offset by higher O and M. And for our Gas Storage and Pipeline business, operating earnings were $62,000,000 for the 1st quarter or $17,000,000 higher than last year. This increase was due to the lower tax rate as well as increased gathering and transport volumes, mainly in the Bluestone area.
Operating earnings for the Power and Industrial businesses were $42,000,000 or $12,000,000 higher than 2017, and this is primarily due to higher REF volumes and higher steel related earnings, as well as the lower tax rate. As you know on our year end call, we increased our EPS guidance by $0.10 per share due to tax reform, which is wholly tied to the non utility businesses. And you're starting to see that play out here in the Q1. Rounding out our gross segments in the Q1 is corporate and other, which is $32,000,000 unfavorable compared to last year due to a smaller benefit of a stock compensation, a lower tax rate as well as timing of taxes. Remember last year the Q1 was impacted favorably due to an accounting change related to the simplifying GAAP accounting for taxes on stock based compensation, which is why we saw that large positive earnings number in the Q1 last year.
We saw the benefit this year for accounting change, but it's much lower than last year. So for the Q1 results are for Corporate and Other are more in line with historical results. Energy Trading had operating earnings of $1,000,000 in the Q1, which is down $17,000,000 from last year, driven by lower performance and accounting flow through in our power portfolio. During the quarter, we disclosed that earnings for energy trading were coming in lower than the Q1 last year, and we mentioned the potential for a modest accounting loss in the quarter. But after a solid performance in the Power and Gas portfolio in March, we finished the quarter strong with slightly positive earnings.
And for the quarter, energy trading contributed $8,000,000 of economic income to a good quarter economically. The appendix contains our standard energy trading reconciliation showing both economic and accounting performance. Overall, TTE earned 1 point 9 18 or $0.12 more than last year. Let's move to our 2018 guidance slide, which is on Page 9. I'll start with the top of the slide with DTE Electric.
As Jerry mentioned, we did receive a rate order at our electric company and earnings for this segment will be biased to the lower end of the range based on the factors he described earlier. We still have a lot of the year to play out including the summer weather and we'll continue to update you on electric earnings as the year progresses. For DTE Gas, we feel comfortable that we're on plan this year. We'll receive a decision in our current rate case at the end of Q3. And we feel good about the earnings projections for this segment.
For GSP and P and I segments, we increased the earnings guidance on our year end call and it was mentioned earlier, these segments are seeing positive impacts of volume favorability. And as you see by the indicating arrows, we expect to land at the higher end of guidance for both these segments, due mainly to these increased volumes. Energy trading had $1,000,000 of earnings in the Q1 and we're comfortable with the $5,000,000 to $20,000,000 guidance range we have for this business. So overall, we feel confident about achieving our operating EPS guidance of $5.57 to $5.99 this year. Now I'd like to turn it over to Jerry Norcia to discuss our long term growth.
Thank you, Peter. I'll begin on Slide 11. We continue to see growth in our utilities fueled by our investment in infrastructure and generation. As Jerry mentioned, we received our electric rate order. This rate increase is more than offset by future rate reductions driven by tax reform.
SOTA allows DTE Electric to recover necessary investments to continue to increase reliability and improve customer satisfaction. Early this month, we had one of the worst ice storms the company has experienced in the last decade. The ice storm unfortunately left over 400,000 of our customers without power. That's nearly 20% of our electric customers, which tells you how significant this ice storm was. The utility community came together with 1600 workers from DTE and 5 other states, and we worked around the clock to restore service to our customers.
Restoration crews put up approximately 250 miles of new power lines, enough wire to reach from Detroit to Traverse City. This term reinforced the need to harden our aging infrastructure. We're facing the same aging infrastructure challenges that many other utilities are experiencing. And in that regard, in January, we filed an updated 5 year distribution plan. This plan provides a comprehensive description of our distribution investment and maintenance programs for the 5 year period from 2018 to 2022.
It includes details on the condition of the distribution system, cost benefit analysis concerning both capital and O and M, system maintenance and investment strategies that improve resiliency, mitigate the costs associated with increment weather and, of course, all the associated performance metrics that come with those investments. We have focused on maintaining the existing distribution assets in a cost effective manner for decades and only expanding the system when it was needed to meet demand. However, many of these assets are reaching an age and condition that require them to be replaced in the coming years. The rebound in Michigan's economy and the revitalization of many of its businesses require that the infrastructure be upgraded and to serve customers in a reliable manner. In addition, as new technologies come to the energy sector, the grid must be upgraded and automated in a way that will enable us to operate more efficiently and reliably.
Our distribution plan lays out the strategy of investing in a grid that will serve Michigan's residents and businesses for the 4 years to come. Now let's move on to our generation system. We filed a certificate of necessity last year to build a natural gas fired power plant. We expect an order from the Michigan Public Service Commission at the end of this week on Friday, as a matter of fact. The almost $1,000,000,000 project is scheduled to break ground in 2019, creating hundreds of Michigan jobs during construction.
In this filing, DTE determined that building a natural gas fire plant is the best solution for our customers due to many factors, including the environment, reliability and affordability. The new plant will be a highly efficient plant, consuming less than 50% of the fuel per megawatt hour produced in coal plants. We are retiring and emitting nearly 70% less carbon, which is the equivalent of taking 1,000,000 cars off the road. It also enables the build out of renewables, providing 20 fourseven power when renewable energy is not available. Natural gas fire plants will be a critical part of our power capacity in decades ahead.
Long term, DT plants produce over 3 quarters of its power from renewable energy and highly efficient natural gas fire plants. New plant is scheduled to begin operation in 2022, offsetting some of the capacity that falls off when 3 of our coal fired plants retire from service in 2020 to 2023 timeframe. Let me turn to DTE Gas. Our system has held up well with the coal staff here in April, but similar to the electric system, we continue to need system hardening. As many of you know, we filed a general rate case in November of 2017, which included a proposal to increase the annual number of miles of main replacement.
This proposal will allow the system to be hardened at a quicker pace and will significantly decrease O and M cost. As always, when considering the investment in system hardening, we are very focused on rate affordability for our customers. With the reduced rates from tax reform, we filed a plan with the MPSC to return the tax benefit to our customers. This will go a long way in mitigating the effects of the rate case and allows us to continue our focus on achieving our affordability goals. Now let's move on to Slide 12, where I'll talk about our non utility businesses.
Our non utility businesses continue to focus on growth projects. At GSP, we're making significant progress on Nexus and are continuing to work with producers and end use customers on contracting the open capacity on the pipe. We have invested over $700,000,000 through March. Much of the grading at the compressor stations work is done and we've started grading on the right of way as well at all four spreads. Main line of facilities construction is underway in Michigan and Ohio and our goal remains to be at full capacity as the pipe goes in service later this year.
Negotiations are continuing with large industrial customers, producers and LDCs. And as we finalize these deals, we will announce them. Along with Nexus, Link is continuing to progress with its plan. In other areas of the GSP business, Millennium CPV Lateral and Eastside expansion are under construction. And as Jerry mentioned, they'll come in come online in the second half of the year.
On the year end call, we told you that our non utility businesses are clear winners with tax reform and we would update the 2022 targets for these businesses. We are increasing the 2022 operating earnings at GSP by $35,000,000 for a range of $280,000,000 to $290,000,000 Our capital investment has not changed and remains at $2,800,000,000 to $3,400,000,000 for the 2018 to 2022 time period. Now switching over to our P and I business. Since our year end call, things have heated up in our discussions with 1 of the CHP deals, combined heat and power deals that we are working on. And we are in the beginning stages of construction for the combined heat power plant at the Ford Motor Company complex.
We're also finalizing one of the RNG project agreements we mentioned on the year end call. These projects are progressing, but due to competitive reasons, we will not be sharing details on these until the ink is dry on these agreements. These longer term agreements will replace a portion of EREF earnings that roll off in 2020 and 2022. Our 2022 plan calls for P and I to produce earnings of $70,000,000 To achieve that, they need to originate $45,000,000 of new growth by 2022. Dollars 15,000,000 or 1 third of that growth was originated last year.
We feel like we have a very strong line of sight on the next $15,000,000 this year with the projects that I mentioned that are in late stage discussions. So we could be at 2 thirds done by year end with 4 years to go. We're also making meaningful progress on additional combined heat and power and RNG projects. We mentioned we have an experienced business development group focused on driving these projects to completion as well as pursuing additional projects that we see as good opportunities for us. Like GSP, P and I will continue will also benefit from tax reform.
We are increasing the operating earnings by $5,000,000 with a target of $65,000,000 to $75,000,000 by 20 22 and capital investment in 2018 to 2022 will remain unchanged at the range of $800,000,000 to $1,200,000,000 Now I'll wrap up on Slide 13. We delivered solid first quarter results and remain confident we will achieve our 2018 operating EPS guidance. Our utilities continue to focus on necessary infrastructure investments to improve reliability and the customer experience. With additional expansions in business development, we continue to sustainable growth at the non utilities. Finally, I'm confident that we are on track to deliver strong EPS and dividend growth to drive premium total shareholder return.
And with that, I'd like to thank everyone for joining us this morning. So Mindy, can you open the line for questions?
Thank you. We'll go first to Michael Weinstein with Credit Suisse.
Hi, good morning.
Good morning, Michael.
Hey, could you discuss the contracting for the remaining 1 third of NEXUS? And what specifically, I understand it's going to be mostly producer push at this point. And I'm wondering what is the demand from producers that you're seeing out there and for capacity and also what your expectations are for length of term and that kind of thing?
We're targeting producers. The discussions are underway in negotiations with producers, LDCs and industrial customers. And we are targeting long term agreements, 15 year agreements.
Are you seeing any are you seeing adequate demand out there to fill the pipe by the completion of construction?
Yes, we are. We just need to get income paper at this point.
Got you. And how are those negotiations progressing? Is there any constraint around them?
They're progressing well. Of course, lots of negotiations back and forth, as you can imagine. And we are positioned as one of the pipes that does have capacity to bring to the market quickly. So we feel confident that we'll start closing deals here.
Great. And what do you what kind of a timeline do you see for maybe introducing solar into the mix for the at the utility?
So we already have introduced solar. In fact, last year, we brought online a 50 megawatt, 250 Acresolar Project. So that was a relatively big one for us. We did it to push ourselves down that path. But when we do the numbers, it's pretty clear that wind today is a superior resource in terms of pricing.
So as I said on the call, we're going to lean on wind as long as that difference is there. But we continue like a lot of people to see solar cost trend down. And I do think probably by the mid-2020s or so, it's going to be ready for a larger share of our renewable mix. So as we think about renewable energy plans beyond the one we just filed, we'll probably see some of that mix begin to shift. Does that hit the answer on that one?
Yes. I'm just wondering what kind of timing you're seeing on when those prices actually cross the threshold and become competitive with the wins that you already have in there?
Mid-2020s is what it looks like.
Okay.
So and by that time, we will have a pretty large installed base of wind in Michigan. So I think some diversification will be helpful as well. So one other
thing, we want
a diverse mix of renewables, but we also want to strike where the price is right. So we're going to wait a bit on large scale investments in solar. So we'll continue to add at sites like the one we described earlier, the 15 megawatts and the 50 megawatt site that we did. But we're investing in wind in the 1,000 megawatt sort of scale. That will come for solar a bit later.
And just one last question on this. When you could you like maybe break out the percentage of how much you expect to add through the C and I offerings that you're giving and then how much will be utility scale going forward?
You're talking about the voluntary offering.
Right.
So that's we've set aside 300 megawatts for that. I'd say that's hopefully a starting investment because we are seeing some of our large customers come to us and request the ability to increase the renewable mix in their portfolio. So you've seen customers like GM, for example, say that they want to be 100% renewables by 2,050. Well, they're getting started on those sorts of things as our other large industrial and commercial customers. So we're going to set aside 300.
So that would be 300 out of a total of 2,000 by the time we're done with this round. So you can get a sense for how much that is. But our expectation would be that, we'll continue to see demand for that. And as we do, we'll push that into our mix.
All right. Thank you.
Thank you.
We'll go next to Julien Dumoulin Smith with Bank of America Merrill Lynch.
Hey, good morning. Hi, Julien. So I was wondering, can we get a little bit more clarity on the tax reform benefits of the two segments here, just the 35 and the 5 at GSP and P and I? I suppose maybe naively, how has tax reform discussion evolved such that you get such material benefit from these 2 in 2022? And I've got a follow-up.
Yeah. We disclosed on the year end call that the existing contracts, we will get the benefits of what you are seeing there and the increase of the existing contracts we have in place today. What we've assumed is that new contracts we will pass that on, but we may potentially share in that and that could potentially help close some of that white space, place gap. But mainly it's the new contracts that you're seeing the increase from.
Got it. And so actually that plays right into the follow-up here. With respect to NEXUS, not to harp on that too much, but does this reflect higher structural expectations on that project? I presume that's probably the bulk of the new contracts that you're contemplating in GSP.
On Nexus, the tax reform doesn't have any impact on our ability to capture the value that we forecasted because our recourse rates will be well above our negotiated rates.
Right. Okay. So that's not impacting those negotiations at all. Right. And again, so just to say it even more bluntly, the impact from the FERC ruling altogether is very material?
Very modest, because most of our pipes are operating with negotiated rates and we on our last call, we said the impact is about $1,000,000 to $2,000,000 from the FERC actions.
Right, exactly. But if I can go back to this producer push subject because if you could elaborate a little bit about the incremental investment maybe on the gathering side and the other midstream investments to bring the product to NEXUS. How do you think about that in the context of the statement about continuing to add investments in LINK? Are there other pipe systems that you're looking at whether organically or inorganically to complement the NEXUS expansion?
Well, we're seeing most of our action right now is on Bluestone and Link, the 2 gathering assets that we own today. And as it relates to NEXUS, there are many, I would say, late stage discussions about it continuing to expand that system with our producers on that system. So it's a very attractive system and it's got a very attractive resource. So more to come there, but we're feeling really confident right now about meeting and exceeding our pro form a on that asset. And as you know, that asset is pointed right at NEXUS.
So we expect that in the future, those will help support the fill and expansion of NEXUS.
When you say that, Ashut, he's talking about Link, which the activity about Link around Link has been really encouraging. And so we bought that, I guess, late 2016. So we're 1.5 years in. And 1.5 years in, we continue to be very encouraged by the economics there and by our investment opportunities. So it's been a good asset.
Are you still on track with the targets you laid out for Link at the time of the acquisition though?
Yes, indeed. Yes.
Excellent. All
right, guys. I'll leave it there. Thank you.
Thanks, Julien.
We'll go next to Shahriar Pourreza with Guggenheim Partners.
Good morning, guys.
Good morning. Good morning, Shahriar.
Just let me just follow-up real quick one
more time on Michael's question on Nexus. Thought we would have an update on this call with at least 1 of the 2 industrial customers that you were working with. I thought one was nearly finalized. So what's the status on those two customers that you flagged before in the past? And then just curious, can these two customers provide enough end market demand to finally fill this pipe with E and P signing on to these supposedly two markets, new markets?
Well, the 1 industrial customer is essentially done. The second, we're still negotiating with to complete producer agreements. Again, we're continuing to exchange proposals. So those discussions continue and we also have several LDC discussions well underway. And so that's the current status.
Curious why you're not disclosing the 1 industrial customer that's been finalized?
I think we have the ability at this
point to disclose, but No, it's a kid's under confidentiality agreement. Okay.
That's helpful.
We can't disclose that.
Okay. That's helpful.
And then just looking at additional link type investments and sticking with midstream here, the recent sort of what the meltdown you've seen with MLPs, I know you guys vetted NetLinX for a long time before purchasing that investment. Have you seen additional link type opportunities, especially given the recent, I guess, Q3 and what you've seen in the MLP markets? Are you seeing more willing sellers of assets that you would, I guess, want to vet?
I think
the short answer is yes, we are seeing more of those. Like Link, we'll take a long hard look. I think the more we hear, the more we believe that there will this isn't going to be a short term phenomenon that some of these companies are going to need to work through this over the foreseeable future. So we will look at and evaluate opportunities analogous to Link. And if we think we find one that's a good strategic fit, makes sense economically, we'd be open to that.
Okay, got it. And then just lastly on distribution, so far, can you maybe just update how the dialog is going? And then just more importantly, with the tracker or rider request, how should we sort of think about what the podium would be for that ask?
Well, the I can tell you that the engagement level between our team and the Michigan Public Service Commission team, staff team is very high. We've got multiple discussions that are scheduled and happening between now and the time of our next rate case filing. And the goal is to get alignment on investment and distribution as well as other items other commission staff and our team. And we're hopeful that we can get to a strong alignment that we can file in our next rate case.
Excellent. Thanks so much, guys.
Thank you.
We'll go next to Praful Mehta with Citibank.
Hi. Thanks so much. So the first question just on the utility side, it was helpful to get your tax reform impact for the GSP and P and I, but on the utility side, wanted to understand from a tax reform perspective, especially given post the rate case, do you see the growth rates at those two businesses individually play out through that 'twenty one, 'twenty two and how does that fit with the overall growth rate for the business?
Yes, this is Peter. The growth rate, we will be funding at the end of the year, we're going to have a case around the deferred tax. It's approximately $1,700,000,000 We're going to be giving that over 25 years, about $70,000,000 a year. So as we're funding that piece, in particular, we're going to be replacing the half of that with equity. So we are going to be seeing equity levels increase in both utilities and it's worth about a 1% over and above rate base.
So we are anticipating earnings growth happening on utilities from tax reform.
Got you. So that should be all just to be clear, that should be all and above just the rate base impact because the deferred tax refund effectively flows through as higher equity in your calculation?
That is correct. It's about 1% adder on the rate base growth.
Got you. Perfect. And then secondly, just strategically, given most of tax reform impacts are now kind of built in and you're looking at, I guess, enough questions on the nexus and the midstream side, but just strategically for your business, is there more discussion ongoing in the industry in general now on M and A, both corporate M and A, both on the buy and sell side? How do you see that playing out? And is that dialogue increasing given tax reforms now kind of in the rear view?
Oh, geez. That's so we like everybody has have investment bankers who come through. And I don't know that I've had too many times when I haven't been told that the interest in the industry and M and A was high. But I do think there are parties out there looking around. We saw one play out just the other day with Vectren.
And I think there's ongoing interest. But I don't sense that tax reform has unleashed a wave that's fundamentally different, if that's what you're asking. We continue to see the sort of ongoing interest that the consolidation of this industry has witnessed for a long time now.
Fair enough. I totally get the investment banker point. But just to clarify, it's not like credit weakness on some for some companies would be an opportunity for others in terms of M and A as you see it?
Well, actually one of the folks I talked to recently, I think stated it well, was an investor, not a banker. And he said, look, strengthen your balance sheet is really option value. It gives you the opportunity when good opportunities arise to strike. And when you spend that balance sheet flexibility, you've lost your option value. I think there were companies who spent their option value on what we view as some not so accretive transactions.
And so I think there are companies who didn't do that, who probably have greater flexibility if they see something come along that they really like. And we continue to look to the earlier question at potential GSP sorts of acquisitions. But if we've always said if the right corporate transaction came along that we really thought added value, we'd be open to it. But we aren't going to be involved in a high premium sort of transaction. We just don't see the value in super high premium deals.
That don't make sense to us. So open, but we'd do them at the right price with the right counterparty.
We'll go next to Jonathan Arnold with Deutsche Bank.
Good morning, guys.
Good morning. Good morning.
Just one on the wind projects. Could you give us a flavor of the nature of the projects you have in the plan? Are they sites that you've been developing yourselves? Are they coming early or late stage from developers? Are you going to do BOT or can build them yourselves?
Just a little more sense of how that plays out.
They're a mix of both, Julien. So in some cases, people had lined up lease rights and we have entered the build out and transfer. In other cases, we did that ourselves and will simply sign a construction agreement and do the build out by DT.
So would you say it's sort of an even split or?
Probably I'd probably I probably had to go back and get the numbers before I answer, Jonathan, to give you a split. Maybe Barb could do that with you after the Yes.
Okay. That's fine. And then looking further out in the utility, you obviously get close to the decision on the gas plant. How far out would you see your next gas plant being given some of the comments around renewables and gas in the longer term future?
So we don't see a need for another gas plant until the end of the 2020s. We'd have our next major coal retirement in the late 2020s. That's when we'd evaluate the need for the next gas plant. I think one of the things we'll watch over the next decade is how the overall system around us evolves as we add more and more renewables and our neighboring companies do the same. We have to watch how the MISO grid evolves and we may find we need the new gas plant out in the 2030 time frame.
We may find that investments in renewables will cover us and provide the reliability. So I think the answer is we will see. But in the meantime, we're between now and the late 2020s, the real focus will be on renewable additions.
Great. Thank you, Gary. And could I just on your comments about the rate case order and skewing you towards the lower end. Is that do you see that as a 2018 guidance factor and you'd hope to sort of get back on trajectory given that's your largest segment beyond or?
I think the easy way to say it is that we're not modifying our 5% to 7% growth target for the company. So I think in that sense, yes, we expect our plan to be on track.
And is okay. I know
that's said enough, Jerry. Thank you.
Thank you.
And we'll go next to Paul Ridzon with KeyBanc.
Thank you. Jerry, could you just I think there might be
some confusion based on some things I've seen. You did not lower consolidated guidance to the lower end of the range, just the electric segment. And then, can you give us your commentary on the other segment?
Yes, exactly. The electric segment, we biased toward the low end of the guidance range. The gas utility is doing fine, I think, in a lot of places. The weather started a little mixed, but has actually finished strong here in April. So the gas utility from a weather perspective is in good shape.
And as I said, the 2 large non utility segments are running hot to their plans. So the year looks in really good shape. So unless we get surprised by something we don't see, should be a good year. I think we're in good shape.
Thanks again.
Yes.
We'll go next to Steve Fleishman with Wolfe Research.
Yes. Hi. Good morning. So just on the rate order, as you mentioned, you'll be back on track after this year maybe. But just what are the types of costs being disallowed?
And just is this something that we need to worry about in future cases?
Yes, Steve, this is Peter. One of the comps that was disallowed was a part of our incentive plans with some financial measures. We've had this in the past. So that wasn't completely unanticipated. The other was inflation.
We had some inflation in the plan and then they modified the level of inflation that we had in the plan.
Okay. And so is that but okay. So basically, the reason you might get to lower end is just that inflation may end up being higher than what they allowed?
Yes. We had a little bit more
of that. We had the 10.1% and more inflation.
And then a little on the ROE. Okay.
The ROE and that were built into our numbers for the year. So it backed us up a bit, but as we said, the overall plan looks fine.
Okay. And then the renewables program that you announced, more specifics, is that how much of that is additive to your capital plan, if at all? Or is it all already in there?
So the 300 megawatts that I mentioned pulling, that was the pull forward. And that's a nice investment, but I guess I'd say that we aren't modifying our 2022 guidance due to that pull ahead. So it's additional investment, but when you look at it in the total scheme of the company, I think the guidance we put out there for 2022, we will just stand with.
Okay. And then just on the midstream side, more high level again, the someone asked before about just the unrest in the sector and maybe creating more opportunities. Could you talk a little bit about how size wise you're willing to kind of make this business as a mix of the whole company? And would we assume if you do acquisitions, they'd be more kind of asset by asset as opposed to larger kind of company sized acquisitions?
Yes. I think that's a fair characterization, Steve, that they'd be asset by asset. We often find that we're able to get a better strategic fit and therefore create economics we like when we do it that way. But I'd also say that we stay in very active discussions with our investors on mix and the mix that they like. And I think the feel we have from our investors is that this GSP segment provides the company a nice earnings growth profile, but we also know that it could become too large if we pursued investments too fast.
So we're trying to walk the mix line in a way that really works well for investors and for rating agencies, by the way. We're well within the boundaries for them, too. But I think if you did a large corporate acquisition, it could shift that equation for our investors and potentially for the agency. So does that get added, Steve, or give you a sense of things?
No, that's very helpful. One last very quick clarification. The 2022 guidance updates for the GSP and REF, is that just for the tax changes, no other changes in the outlook out there?
Yes, that's what that was for.
Okay. Thank you.
Thank you. Appreciate it, Steve.
We'll go next to Charles Fishman with Morningstar Securities.
Just one question I had. On the doubling of the renewable and specifically the wind, I would assume there may be some transmission involved in that. I realize you sold your transmission, gosh, a long time ago. Are you depending on is there a significant amount of transmission involved? Are you depending on somebody else to build that?
Is there any risk to that 2022 target date or non issue?
No. We had a significant transmission build out in what they call the thumb part of Michigan where most of our early wind investments came. But in Central Michigan where we are moving now with many of these investments, there doesn't appear to need to be material transmission build out. So we don't see that as a factor in timing.
Okay. That's all I had, Jerry. Thank you.
All right. Thank you.
We'll go next to Andy levy with Avon Capital Advisors.
Hi, good morning guys. Good morning, Andy.
Just a couple of quick questions. Just on the electric side, was there a refund in the Q1, to the true up for the rate case because you were collecting I guess since November 1?
Yes, there was not a refund. How we're going to get this back to customers will come in 3 parts. The current rates will be adjusted most likely for both utilities by early fall. Stuck in the rate case refund I think?
Yes, the rate case, yes.
The rate case refund. Yes. The rate case refunded, there will be supplementation proceeding, which is normal course. So we'll be probably having that over the next probably few months.
Was that in the Q1? Did you adjust the Q1 for the refund?
Yes, we did. We adjusted for the level of the rate case, the rate order.
Is that what like $0.11 a share or something like that or?
We did have a certain amount of the self implementation plus a little bit of a reserve on top of that. So it wasn't that material.
Can you tell us what the number was?
We did total impact or the reserve because the reserve we had in
the quarter.
No, no, because
the total impact of so in the Q1, the total impact of the rate refunds, it's kind of like a one time item, right?
Yes. So we were I'm getting No, it's part of your operating earnings.
I understand that, but I'm just also guessing that's maybe part of the reason why you're estimating that.
The full Q1 trued up. So it really wasn't a refund in the Q1, the full refund was trued up to the level than the rate case. We did have some supplementation late last year that was trued up as well in the Q1, which was very immaterial.
Okay. I understand.
Just put a number on it, net of reserve was $10,000,000 after tax is a rate case impact? Yes, positive.
Okay. And then, I guess, yes, maybe $0.11 versus the $1.25 if you had it. Okay. And then, is that part of the reason why you're at the low end because of the refund or is it just a lower revenue amount from the rate case in general?
Look, it's all taken together, all impacts. So we have the earnings range for electric that we had communicated and not unexpectedly if our ROE gets pushed down a 10th and a couple of the other things that were pushed back in the range a little bit.
Okay. And then I'm sorry, go ahead.
I said I don't want to over blow it. We have rate cases play out over time through the years and we got a lot of other things in the mix. But that is as described. And that said, we're going to play out in the earnings range that we laid out there. And for the company, I think it's going to be a very positive year.
Yes, as it is always for you guys. And then just on Nexus, can you give us on an annual basis once it's in service, any type of guidance or high level thinking on what coming the 1st year out, what the annual earnings may be from NEXUS? And then and also whether you project financed it at all?
No, we haven't project financed it. That's always an option down the road if we wanted to do that and our partners wanted to. And I think we've generally concluded it's not in our interest to break out earnings kind of line by line, project by project just because we have lots of counterparties to each project and lots of interest in when a deal is signed, what did that do to your profitability on this project. And so we're trying to balance our need to interact with counterparties with our need to give you good information, but that's led us to give you guidance at the segment level, but not do it in detail, pipe by pipe.
Okay. I mean, that's $1,300,000,000 is the investment. And I guess maybe at the very least, we can assume kind of a utility return and then kind of go from there once it's full? I
think our history with these sorts of pipes is at minimum we want to get in at our cost of capital, right? And then we push from there. And our history has been that the pipes end up with returns well above utility returns as you expand them and add compression and so on and so forth, which is why we like these investments. They've proven to be really good value creators.
Okay. And I assume Nexus will be similar.
I think NEXUS has that same feel. So let me I'll just go to LINQ. LINQ is a little further along because it was constructed when we bought it, but it was still a young pipe. But we went to it fundamentally because the geology that it accessed was superb. That's playing out.
We've had a couple of the producers. And to be honest, it's always hard when you're dealing with really good geography to figure out who it is that's going to be pushing it hard, but we've got a couple of producers there that are just going after it and it is accruing to our benefits. Somebody asked earlier how you're feeling about length. We're feeling really good there. And we're at and beyond pro form a and have got that firming up now years out ahead of us.
So that's been a real positive. NEXUS is earlier, but it also accesses superb geology. And I think we're going to see drillers go after that hard. In a gas environment that's long generally in the country, meaning we aren't going to be short gas. As far as anybody can tell, drillers double down on their best geology.
And that's what we're seeing at Link, that's what we're seeing at Bluestone, and I think it's what we're going to see around Nexus. They're going to concentrate their drilling in those really good geologies. And so that's happening around Nexus, but obviously, it's earlier. But we are hearing chatter now that you get out a few years and the drillers are worried about pipe takeaway in the region that NEXUS access being constrained because their own drill plans there and what they perceive other people's drill plans to be. So it feels like the dynamics are set up in a similar way.
We're just earlier with NEXUS than we are with certainly with Bluestone and also with Link.
Okay. And no MLP, right, Jerry? Not at this time.
I think we'll hold on that one.
Yes. See, that was a good decision years ago. So anyway, thank you very much. Have a great rest of your day.
Thank you. Appreciate it. Yes.
And that is all the time we have for questions today. I'll turn the conference back to Gerry Anderson for any additional or closing remarks.
No, I'll just wrap up by thanking you all for being on the call. I do feel that, as I said at the outset, we're off 1 quarter into a really good start on the year, and we look forward to being able to update you again down the road here. So appreciate it. We'll talk soon.
This does conclude today's call. Thank you for your participation. You may now disconnect.