管理層發言
Good morning and welcome to the DTE Energy Third Quarter 2024 Earnings Conference Call. All participants are in a listen-only mode. After the speakers' remarks, we will have a question-and-answer session. As a reminder, this conference call is being recorded. I would now like to turn the call over to Matt Krupinski, Director of Investor Relations. Thank you. Please go ahead.
Thank you and good morning everyone. Before we get started, I'd 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, Chairman and CEO; Joi Harris, President and COO; and Dave Ruud, Executive Vice President and CFO. And now I'll turn it over to Jerry to start our call this morning.
Thanks Matt. Good morning everyone and thanks for joining us. This morning, I'll discuss how we continue to deliver for our key stakeholders and highlight the successes we've had across all of our businesses this year. Joi will provide you with an update on our regulatory proceedings as we continue with our customer-focused investments to improve reliability and transition to cleaner generation while maintaining affordability for all our customers, and she will discuss the significant progress that we have made so far to further improve reliability as we build the grid of the future. And Dave will provide a financial update and wrap things up before we take your questions. So, let me start on Slide 4. We're having a very strong year so far in 2024, giving us confidence that we will deliver on our 2024 operating EPS guidance. As I said on our previous call, we are also positioning ourselves to deliver strong results in 2025 and beyond.
We remain confident that our plan will deliver a long-term EPS growth rate of 6% to 8%, support a healthy balance sheet with strong cash flows and minimal equity issuances and continue our commitment to deliver affordable energy to our customers. Our long-term growth is driven by the required capital investments in reliability and clean generation that we need to make for our customers. And these investments are supported by the recent independent audit of our electric distribution system, which I'll talk about more shortly; Michigan Energy legislation, which continues to push the pace of decarbonization and deployment of renewables; and by infrastructure recovery mechanisms at both of our utilities. As we continue to wrap up a solid 2024 and finalize multiple regulatory proceedings, we are updating our five-year plan, and we'll provide the details of that plan on our year-end call. This plan will continue to support these customer-focused investments in grid reliability and cleaner generation as we advance our capital investments to support these initiatives.
I am excited about the opportunities we have in front of us and look forward to sharing the details of our long-term plan on the year-end call. As I said, we are having a successful year in 2024, and our success is the result of our team's focus on all of our stakeholders, including our customers, our communities and our investors. Our team continues to consistently deliver as a result of our strong culture. We were recently informed by the Gallup organization that our employee engagement ranks in the 94th percentile globally among thousands of organizations. As I've said before, our high level of employee engagement is our secret sauce at DTE for continued success. DTE was also recognized as a Best Place to Work for disability inclusion, receiving a top score of 100 on the Disability Equality Index, the world's most comprehensive benchmarking tool for large companies to measure disability inclusion inside their organization.
This award was a tremendous honor, complementing our recognition with the Best Employers Award for Excellence in Health and Well-being, which I mentioned last quarter. Our highly engaged team remains focused on delivering excellent service to our customers as we advance toward our goal of restoring service to all customers within 48 hours after a storm. In August, our service territory was impacted by an extreme weather event that included wind gusts that reached over 75 miles per hour. As a result of the extensive improvements we are making to our system and processes, we restored nearly 65% of our customers in 24 hours, which is the highest one-day restoration in company history for a storm of this size, and nearly 95% of our customers were restored within 48 hours. I extend our sincere gratitude to our teams who worked tirelessly to get the lights back on for our customers. We also faced extreme heat this summer as temperatures climbed to over 90 degrees for an extended period.
Our system held up well in these conditions, but I'm very proud of our team's efforts to take care of those most vulnerable customers as they experience the heat. Our energy efficiency program was able to assist low-income customers by installing nearly 1,000 free air conditioning units to those in most need across Metro Detroit to keep them cool. Moving on to our communities. We take pride in supporting the communities where we live and serve. While being best for the world is always part of our company's aspiration, every August, we lean in even more to give back to the communities. During this year's Month of Caring, DTE team members made a difference across the state as they helped out at food pantries, cleaned up parks, and participated in many other volunteer events. Our employees spent 5,000 hours giving back to our communities. I would also like to take a moment to commend and appreciate the 500 contract line workers and tree trimmers, along with 100 DTE line workers who went south to help with hurricane relief.
In the last few weeks, Hurricane Helene and Hurricane Milton hit the Florida Gulf Coast and then flooded several southern states with drenching rain. Millions were without power, and I'm glad our team was able to assist others in need. I received 20 letters from elementary school students in Georgia that were very grateful for the work that our team did in Georgia. So, thank you again to our team for doing something extraordinarily positive in Georgia. And for our investors, we are in a really great position to deliver on our earnings target this year and are well-positioned for the future. Our long-term operating EPS growth rate remains at 6% to 8%, with 2023 original guidance as the base for this growth. This solid financial strength in our constructive regulatory environment allows us to continue to invest above our generated cash flows for improved reliability and cleaner generation.
As I mentioned, we will provide our typical forward-looking disclosures on the 2024 year-end earnings call. Our updated plan will reaffirm our commitment to deliver premium shareholder returns that our investors have come to expect. Let's turn to Slide 5 to highlight some of the achievements across our portfolio. We are achieving success and progressing on key initiatives across the company. We are progressing toward constructive outcomes for our rate cases at both DTE Gas and DTE Electric. While there is still work to do to ensure the outcomes do not put pressure on our near-term ability to complete our customer-focused investments, we believe these outcomes will ultimately support the investments in grid reliability and cleaner generation that we need to make on behalf of our customers. We are expecting these constructive outcomes in November for DTE Gas and January for DTE Electric. Additionally, we received the final report from the independent audit of our electric distribution system as directed by the Michigan Public Service Commission.
We really appreciated working with the independent audit team over the last year, and we appreciate the insights and recommendations to further improve our system. Joi will go over some of the key items from the audit, but one key takeaway is the confirmation that our proposed investment plan is what is needed to achieve the significant reliability improvements that we have committed to over the next five years, which is reducing power outages by 30% and cutting outage time in half by 2029. We are continuing to progress on these investments and reliability improvements this year, and our customers are seeing the benefits of this work. As I mentioned, we had one of our most effective storm restorations in our company's history in August, demonstrating that our efforts to improve processes and automate the grid are working. Joi will provide some detail on our progress in this area. But I'll just say that we are making great progress on all aspects of our plan as we transition to a smarter grid, update existing infrastructure, rebuild the older sections of the grid, and continue our significant tree trimming efforts.
We are also making significant progress in our renewables build-out at DTE Electric. Last month, we broke ground on three new solar parks and have three additional solar parks currently under construction. Together, these projects will add 800 megawatts to our renewable portfolio, which is enough to power more than 220,000 homes. Each project is supporting our MIGreenPower voluntary renewable program, which continues to grow with 2,500 megawatts now subscribed and nearly 100,000 residential customer subscriptions. In our DTE Gas, we continue to progress on our gas main renewal program this year as we modernize the gas transmission system and our distribution system. Finally, at DTE Vantage, we are advancing a number of custom energy solutions, RNG and carbon capture and sequestration projects. We highlighted the project at Ford Motor Company earlier this year to support Ford's new plant in Tennessee.
This project is underpinned by a long-term fixed fee contract and is scheduled to go into full operation in November. We also began construction on an RNG project that is expected to go into service by the end of the year. Now, I'll turn it over to Joi to give some highlights on our regulatory front and reliability improvements. Joi, over to you.
Thanks Jerry and good morning everyone. I'm excited to discuss the progress we are making to continue to improve system reliability for our customers. As you know, an important part of this journey is the progression of our regulatory proceedings, which supports these investments and helps us gain alignment on the investments required to build the grid of the future and transition to cleaner generation. There are several regulatory proceedings we are currently working, including general rate cases at both of our utilities. We continue to progress toward constructive outcomes in these cases. At DTE Gas, our rate case filing supports the important investments necessary to continue to renew our gas infrastructure, which will further minimize leaks, reduce carbon emissions, and lower costs. We are very close to finalizing this case with an order expected in the coming weeks. Our electric rate case outlines the customer-focused investments we need to make to build a smarter, stronger, and more resilient electric grid and to further our transition to cleaner generation.
This filing underpins the next important step in our long-term investment plan while maintaining affordability for our customers. The filing includes a request to extend and expand the infrastructure recovery mechanism that was approved in the previous rate order. Modeled after our DTE Gas IRM, the DTE Electric IRM allows us to recover the cost of investments in the grid infrastructure between rate cases. Our objective is to work with the commission to grow the IRM over time to help stretch the time between electric rate cases as it does for DTE Gas. We expect the final order on the electric case in January. As Jerry mentioned, we did receive the report on our electric distribution system from the independent auditor that the commission appointed. From the start, we have appreciated the commission's decision to engage a consulting firm in this process to help all parties gain a further understanding of our electric distribution system and identify opportunities for improvement.
We view the audit results as constructive and supportive of our capital plan to deliver on reliability commitments for our customers, highlighting the need for strategic investment in our distribution system to deliver on these improvements. The audit confirmed that our proposed investment plan will deliver the dramatic improvements and reliability that we have committed to our customers over the next five years to reduce power outages by 30% and cut in outage time in half by 2029, which is also consistent with the customer service standards set for us by the PSC. We expect to file a formal response on the audit through the regulatory process in November and look forward to incorporating key findings from the audit into our investment strategy going forward. Let's move to Slide 7 to highlight the impact of our reliability improvement efforts on enhancing the customer experience. We continue to make strategic investments and process improvements to enhance our system and improve the customer experience.
Jerry mentioned our response to the August storm resulted in the highest one-day restoration for a storm of this size, made possible by the investments we are making to fully automate and improve our grid. Through the implementation of smart grid technology, DTE has prevented more than 9,000 power interruptions and avoided over 3.6 million outage minutes through the third quarter of this year. We also remain focused on tree-trimming efforts as this has been one of the most effective methods for improving reliability. Trees account for half the time our customers are without power, and in areas where tree trimming is up to date, customers experienced significant improvement in reliability. We have trimmed nearly 40,000 miles of trees since 2015 as we move to an enhanced more aggressive standard, and we expect to have our entire system on a five-year tree trim cycle by the end of next year.
So, as you can see, we continue to make progress in improving reliability, which keeps us on the path to reduce power outages by 30% and cut outage time in half by 2029. Of course, as we continue to invest in our system, we remain very focused on maintaining customer affordability using our distinctive continuous improvement culture to drive cost management and savings for our customers. Including the recovery of capital costs in our current electric rate case and the estimated power supply cost savings for our customers in 2025. The projected average annual growth of our residential electric bill will be just over 1% from 2021 through 2025 compared to the national average annual increase of close to 6%. This is distinctive in our industry that we have been able to invest over $6 billion in our distribution system in the last five years and have one of the industry's lowest bill increases.
Our performance versus other states over the last three years is highlighted on Slide 13. Affordability goals are also supported by our diverse energy mix, helping to reduce fuel costs and allowing us to maintain flexibility to adapt to future technology investments. Our long-standing continuous improvement culture also continues to deliver for our customers in the form of lower bills. Finally, our transition to renewable energy is supported by federal tax credits included in the IRA. These tax credits are passed on to our customers, which helps us continue to achieve customer affordability goals. With that, I'll turn it over to Dave to give you a financial update.
Thanks Joi and good morning everyone. Let me start on Slide 8 to review our third quarter financial results. Operating earnings for the quarter were $460 million. This translates into $2.22 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 discussion with our utilities. DTE Electric earnings were $437 million for the quarter. This is $169 million higher than the third quarter of 2023. The main drivers of earnings variance were implementation of base rates, warmer weather, lower storm expenses, and timing of taxes, partially offset by higher rate base costs. Moving on to DTE Gas, operating earnings were unfavorable $8 million versus the third quarter last year, driven by higher rate base costs and a return to a more normalized O&M level. This was partially offset by increased revenue from the IRM.
Let's move to DTE Vantage on the third row. Operating earnings were $33 million for the third quarter of 2024. This is a $23 million decrease from 2023 due to a combination of some timing and one-time items in 2023 and primarily in our RNG and steel-related businesses. We remain highly confident in our full year guidance for Vantage as new projects continue to ramp-up in the fourth quarter, and provide both earnings and associated investment tax credits. On the next row, you can see Energy Trading finished the quarter with earnings of $25 million. We continue to see strong performance in our contracted and hedged physical power and physical gas portfolios at this segment. Finally, corporate and other was favorable by $30 million quarter-over-quarter primarily due to the timing of taxes. This timing will reverse through the balance of the year, and we expect to land within the current full-year guidance range for this segment.
Overall, DTE earned $2.22 per share in the third quarter. When you look across our portfolio of businesses, we are in a great position to achieve our full-year operating EPS guidance in 2024, which, at the midpoint, provides 7% growth over the 2023 original guidance midpoint. We continue to position ourselves to deliver strong results in 2025 and beyond. Let's move to Slide 9 to highlight our strong balance sheet and credit profile. Our significant customer-focused investment is supported by our strong cash from operations. Due to our strong cash flows, we have minimal equity issuances in our plan as we are targeting annual issuances of $0 to $100 million through 2026. Our long-term financial plan incorporates debt refinancing and new issuances to fund our capital investment plan and is consistent with our 6% to 8% operating EPS growth target. We have largely executed our 2024 financing plan at interest rates consistent with our plan, including reducing refinancing risk by successfully prefunding the fourth-quarter debt maturities at the parent company.
We continue to focus on maintaining our strong investment-grade credit rating and solid balance sheet metrics as we target an FFO to debt ratio of 15% to 16%. Let me wrap up on Slide 10, and then we will open up for questions. Our team remains focused on our commitment to deliver for all our stakeholders. We continue to invest heavily within our utilities to improve reliability and move toward cleaner generation. Our robust capital plan supports our customers as we execute these critical investments while focusing on customer affordability. DTE is well-positioned to serve increased load as opportunities for new load continue to solidify in our service territory. The 2024 operating EPS guidance midpoint provides 7% growth over the 2023 original guidance midpoint, and we continue to target long-term operating EPS growth of 6% to 8%. As Jerry mentioned, we will provide the details of our long-term plan on our year-end earnings call.
We remain well-positioned to deliver the premium total shareholder returns that our investors have come to expect with a strong balance sheet that supports our future capital investment plan. We look forward to seeing many of you at EEI in a couple of weeks. And with that, I thank you for joining us today, and we can open the line for questions.
分析師問答
Our first question comes from Shar Pourreza from Guggenheim Partners. Please go ahead, your line is open.
Hey guys. Good morning.
Morning Shar.
Hey Shar.
Good morning, Jerry and everyone. Congratulations on the quarter. I appreciate the financial update being moved to the fourth-quarter report, but I noticed the mention of the $25 billion capital expenditure plan was removed. Could you discuss what you're observing in terms of system needs that might lead to a reevaluation, particularly regarding generation needs moving forward? I don't want to preempt the fourth-quarter update, but any insights would be really helpful. Thank you.
That's a good question, Shar. And what we're seeing, I'll take it by the two major components, generation, we are seeing opportunity there for incremental investment. And that's primarily driven by the fact that we had forecasted to subscribe 2,500 megawatts of voluntary renewables over the next four years, and we've already filled the queue. So, we're seeing continued investment opportunity with our voluntary program. As we update the plan generation plan for the clean energy legislation that was passed last year, we're also seeing opportunity there as well. And with the report of the independent audit report on our distribution system, we do see some opportunity there. And when you bring that all together, I think there will be an overall incremental opportunity to invest, and we'll update that at our year-end earnings call.
Got it. And Jerry, just on the storm and residency audits, it sounded like the plan is to meet that sort of target of cutting the outages in half by 2029, but it sounds like you still need some additional spending there as well as a result of the storm and resiliency audit. Is that correct?
We do the incremental opportunity. But Joi, you may want to add that.
Yes, yes. Yes, Shar, the results really serve as confirmation of our five-year plan to deliver on those reliability commitments, and those commitments align with the service quality standards set by the PSC. So, the plan noted that our DGP, or our distribution grid plan, is really aggressive and ambitious and we accept that challenge. We've demonstrated that we have the execution capability just given our track record over the last couple of years of ramping up our investment. You've mentioned some of the key takeaways. And yes, that could help us reprioritize some of our capital plans. But generally, the findings support our overall levels that we've laid out, but there were some noted increases in certain areas like pull-top maintenance that we're taking into account. But we're really being mindful of affordability and we've chosen to highlight that in the presentation. When you look on Page 13, it just shows that we have been able to stay below the national average in terms of overall bills and build growth. So that's what we are using as our governor, and we've proven that we've done it in an effective manner.
Got it. Perfect. And then just lastly, on just the funding needs. I mean it sounds like there's some upside bias to that $25 billion. And obviously, you've got a very strong balance sheet. You talked about minimal equity needs between $0 to the $100 million range. Do you envision that changes when you roll forward your plan? Do you have the balance sheet capacity to take on the incremental CapEx? Or could there be some incremental funding needs?
Hey Shar, this is Dave. We do plan to update all that on the fourth quarter call, and we'll get into that more. In our current plan, you saw we have $0 to $100 million of equity through these next three years, and we don't anticipate that changing through that period. But we'll update more on the out years. Again, we have great cash flow generation. The IRAs continue to support our capital investments. So, we're confident we'll have the capital plan that can support that too.
Okay. I think that sort of answered it. Appreciate it guys. See you in a couple of weeks.
Thank you.
Our next question comes from Durgesh Chopra from Evercore ISI. Please go ahead, your line is open.
Hey team. Good morning. Thank you for taking my question.
Good morning.
Morning.
Good morning, Jerry, Dave, Joi. Can you help us understand year-to-date? It appears you're significantly ahead of your plan, particularly when I consider Q3 of last year and look ahead to Q4 of 2023 through Q4 of 2024. Could you walk us through the factors at play in Q4 as you aim to meet the midpoint of your guidance? Are you shifting some costs from 2025 into 2024? I'm interested in how the progress you've made relates to solidifying your guidance range.
Yes, Durgesh, I’ll address that. You’re correct; it was a strong quarter, and we are performing well compared to last year. A significant factor in this improvement is our electric segment, which faced challenges last year due to storms and weather conditions. This year, we anticipate additional margins in that area. Additionally, our trading segment is exceeding expectations, with $61 million year-to-date against our guidance of $35 million for the year, which is favorable. We did mention the timing of corporate taxes, which will reverse at year-end, along with some minor adjustments in the electric segment. Overall, we expect a solid year and are positioning ourselves for continued success in 2025. Does that answer your question?
That's helpful. Thank you, David. Could you provide an update on the performance-based rule-making docket? What are the discussions looking like there? Thank you.
Yes. Durgesh, the commission has prepared their final proposal, which includes the seven metrics we find satisfactory. These are metrics we already use for self-evaluation. We are continuing to advocate for balance in the application of incentives and disincentives. Currently, we've shared our comments, and there's no set end date for this docket. However, we understand that it will not be included in the ongoing rate case. We are awaiting a response from the commission and will keep working with them to finalize the performance-based regulation.
That’s helpful. Thank you for the time.
Our next question comes from Jeremy Tonet from JPMorgan. Please go ahead, your line is open.
Hi, good morning.
Good morning. Hey Jeremy.
Hi. Just wanted to start with Vantage side, if I could. Just wondering if you might be able to talk a bit more on the RNG custom solutions there. And I guess, maybe a bit more on the carbon capture side as well, I guess, how you see the time line of that progressing?
We have a strong pipeline in various areas. There are several projects lined up, including an RNG project that is set to launch this year. We are also exploring conversion opportunities in the custom energy solutions market, which have been positively influenced by the IRA. Furthermore, we have mentioned the Ford project that is coming online, and we observe a promising pipeline with other industrial partners as well. Regarding carbon capture solutions, we are working on smaller projects and advancing on-site CCS initiatives, with plans to provide more updates throughout next year.
Got it. That's helpful. Thanks. And as you think about potential upside to utility CapEx over time, given some of the items you talked about before. How do you think about portfolio rotation in this segment to help fund some of that, if needed?
Yes, we definitely see potential for growth in utility capital, and we will continue to carefully manage our investments and earnings expectations from Vantage. Therefore, we anticipate placing a greater focus on utility capital in the future.
Got it. That makes sense. That’s it from me. Thanks.
Our next question comes from Nick Campanella from Barclays. Please go ahead, your line is open.
Hey good morning. Hope everyone's doing well.
Hey Nick.
Hey, how are you? I just wanted to ask, as we kind of think about the roll forward, how are you kind of thinking about your load growth? I know it's kind of been roughly flattish, but we are seeing a lot of peers kind of take up their load ambitions. And then maybe you could also kind of talk about the status of the data center bill and the ability to get that passed this year. Thank you.
Our plan currently anticipates essentially flat demand growth in our five-year outlook. While we haven't finalized any deals with data centers, there is significant interest. Regarding legislation, we noted that before the summer break, the sales and use tax element of the bill passed the House, having already cleared the Senate. We expect the House to address it in the lame duck session following the election. The governor has shown willingness to sign it if it reaches his desk, which gives us confidence. This legislation is important for the large data center operators we're engaging with. The aggregators already benefit from a sales and use tax exemption, and we are also in discussions with them. We believe that at some point, we'll start connecting data center loads and we do have capacity available to offer. This will greatly benefit our customers and enhance affordability, which will help us incorporate more affordability into our planning.
Hey, that's helpful. I appreciate that. And then I guess just to check in on the electric case quickly. Is it still kind of the base case here that you take this the full distance and we shouldn't be expecting a settlement? I just wanted to get a quick update there. And that's it for me. Thanks.
Yes. Staff's position is constructive. It will put some pressure on our near-term capital plans that we'll work through. But just given the sheer number of interveners, I think we're up to intervenors. There's really a low probability of settlement at this point, but we believe we can still get a constructive outcome, and we'll know definitively in January.
All right. Thank you.
Thank you.
Our next question comes from David Arcaro from Morgan Stanley. Please go ahead, your line is open.
Hey good morning. Thanks for taking my questions.
Morning.
Morning.
Let me see, maybe on the gas rate case side of things. Reflecting on the ALJ recommendation in that case, ROE was lower than we would have thought. And just wondering, has there been any change from your perspective in the backdrop in terms of maybe the commission's perspective on gas rates and affordability and returns?
Yes, if you look at the staff position after the ALJ's testimony, their exceptions were consistent with their initial testimony, which we find constructive. We feel quite positive about our standing in the gas rate case. We will have a definitive answer in the next couple of weeks. As we mentioned earlier, this is a new ALJ. In the electric rate case, there is no ALJ involved. So, David, we will know in about two weeks where we stand, and the staff was very supportive of all the capital we have in the gas rate case as well.
Yes. Got you. Absolutely. That makes sense. Thanks. And then maybe just on voluntary renewables. How has the momentum been in that program? Where could you see that going maybe from the 2,500 megawatts that you have currently subscribed?
We'll update that at the year-end call, but certainly, it will be higher than 2,500 megawatts. I always say that I can't seem to put a high enough target on that team. They've always exceeded expectations. So, we had 2,500 megawatts forecasted for the next four years. That order book has been filled, I should say. We still see significant opportunity, so more to come on that.
Okay, great. Sounds good. We'll wait for that in 4Q. Appreciate it. Thanks so much.
Our next question comes from Julien Dumoulin-Smith from Jefferies. Please go ahead, your line is open.
Excellent. Hey, good morning team. Thank you guys very much.
Morning.
Following up on Nick's question briefly, could you elaborate on the implications of the success with the sales use tax? Do you see it as a significant change, or is it more of a long-term opportunity? Also, regarding what you mentioned earlier, Jerry, you have near-term capacity available. I would like to get a clearer picture of the timing and progress of those discussions.
Sure. So, available capacity, as I mentioned in the past, is less than 1,000 megawatts, so it's in the hundreds of megawatts. We would look to secure that in the near term, near term being over the next 12 months, some of that will be independent of sales and use tax exemption passing. Somewhat with the large hyperscalers will need that sales and use tax exemption, which we expect to be dealt with this fall. By the way, that was all very bipartisan, which is also encouraging that, that bill passes Senate in a bipartisan way, and half the bill passed in a high bipartisan way as well. We expect the other half of this bill in the House to move along before the end of the year. We expect the hundreds of megawatts to be placed, what I would say, in the relatively near term.
Thank you. Moving to the IRM, it's a significant portion of the overall request. How do you see the timing of rate cases, especially if you don't receive the full amount for infrastructure recovery? There’s a clear request based on the audit report and the need to improve metrics. I understand it's a challenging situation, but how do you approach that discussion and the possibility of multiple cases?
I believe it's important to consider staff feedback. They have essentially contributed to the current levels. For the Infrastructure Resilience Mechanism, moving forward, we will depend on the audit results, which we've already noted are positive and support our capital strategy. We need to significantly increase the Infrastructure Resilience Mechanism, aiming for about $1 billion, before we can avoid a rate case for some time. This is what we are advocating for, and I think the audit findings support our argument that an Infrastructure Resilience Mechanism would benefit both us and our customers.
Yes. I think we may see probably not significant movement in this rate case, but we're getting signals that as this audit lands and gets sort of adopted and finalized in our planning process, along with the commission's understanding of how we should move forward, we do see a willingness to grow the IRM so that we can reduce the frequency of rate cases. I think it will take, like we mentioned, this past year, it will take several more rate cases before we get to a level where we could put some time between these rate cases, which I think everybody wants.
Yes, indeed. And it's good to hear that you've got some line of sight and conversations there. All right. Excellent. Thank you very much. We'll see you soon.
Our next question comes from Michael Sullivan from Wolfe Research. Please go ahead, your line is open.
Hey everyone. Good morning.
Morning.
Just picking up on that last question in terms of rate case cadence and obviously, you made the decision to hold off on the long-term refresh with two cases pending. I guess how should we think about that going forward since you're going to continually be in rate cases? Or will you ultimately get back to your prior timeline of Q3? Is it going to shift to more Q4 going forward? Or is this kind of a moving target depending on cases being pending at any given time?
Hey Michael, it's David. We'll see how things develop in the future and make decisions as we move forward. We understand that we need to continue pursuing rate cases. However, we remain optimistic about securing the necessary capital investment from these rate cases to support our growth. We'll provide updates as we progress.
Okay. And then just shifting over to the year-to-date strength in the trading, Dave, I think you mentioned you already have the full year guide. Is there some reversal that you're expecting in Q4? Or is that strength going to continue? And maybe just looking out into next year, what are you seeing for that segment?
Yes, you're right. We are off to a really good start this year. We're at $61 million compared to our guidance of $35 million. This performance is based on contracted and hedge positions in our physical gas portfolio. We don't expect a significant reversal in the fourth quarter or anything that should change dramatically. Looking ahead, we will provide more updates during the fourth quarter call. Some of our power contracts are three years long and have higher margins than we've seen before, which gives us reason for optimism in this business moving forward.
Okay, great. And then last one, just quickly, I think someone did mention just trying to think about the drivers upcoming for Q4. So, if trading is going to remain strong, or at least there's no reversal coming. Can you just remind us in terms of the kind of one-time cost cutting that you did a year ago whether any of that showed up in Q4 and would be potentially reversing this year?
Yes, we did experience some costs returning this year compared to last year, particularly due to our operational and maintenance approach last year. If you exclude the storm costs from last year, some of those expenses are coming back. I should mention that the gas sector has faced challenging weather conditions this year, resulting in nearly $50 million in weather-related impacts. We have mitigated some of this, but it will be difficult to keep everything within the expected range. This will definitely affect the fourth quarter. Nevertheless, we are having a strong year and anticipate continuing positive progress into 2025 as well.
Our next question comes from Paul Fremont from Ladenburg. Please go ahead, your line is open.
Great. Thanks. When I look at the 45, the tax credits that are expected next year, would you expect that, that would put your nonregulated business contribution above your targeted range at least over the course of the next several years?
Yes, I'll refer back to my previous answer. When we provide our update for the fourth quarter, we'll discuss this in detail. The 45Zs, which refer to the production tax credits for our RNG business, will be beneficial from 2025 through 2027. I should mention that when we forecasted our growth for 2028, we were aware these credits wouldn't be included. Despite this, we maintained our growth projection of six to eight, and having these credits will enhance our confidence and provide some flexibility in achieving our earnings and EPS growth over those years. We'll share more information on this in our fourth quarter call as well, Paul.
And I mean in terms of those percentage targets, I mean, would you be willing to sort of allow that to be higher than the targeted range because of the temporary nature of the 45Z contributions?
Yes, we will update on all that on the fourth quarter call. We're trying not to give guidance piecemeal through the year and try to give it all at once when we give our full year guidance across all of our businesses. So, we'll update that fully on the fourth quarter call.
Great. Thank you very much.
Our next question comes from Bill Appicelli from UBS. Please go ahead, your line is open.
Hi, good morning. Just a couple of questions on the year-end numbers here, too. Can you quantify the impact of the tax timing items?
Yes, there's a little bit at electric and corporate. Together, they are about $40 million.
Okay. And then on Vantage, year-to-date, that $55 million, it looks like there's implying about an $80 million step-up in Q4. Is that still on track?
Yes, that's still on track.
Okay. So, the development of those projects going into service and so forth, there's no issues there?
No, the big one going in is the Ford one that Jerry was talking about in the call, where we're doing the central energy plant for the Blue City project at Ford and their Tennessee facility. Some of that already is in service, and there are three large systems that will come into service within the fourth quarter that will drive both the income and the associated investment tax credits in the quarter.
Okay. And then on the potential for increase in large load, I mean, is there any kind of sensitivity you can provide if we think about if you're assuming relatively flat, but the potential for upside on that, it's the legislation comes through or additional economic development starts to materialize. Is there a sensitivity we can think about for large C&I from an earnings perspective?
Well, I think we'll use the incremental margin to support our affordability initiatives. I think there will be an opportunity as we land this load to accelerate our capital plans without putting bill pressure on our customers. So, I think that's how we will use the incremental margin. We're probably not in a position to size it yet because it's very early in the contract discussions with some of the potential data centers that they're looking to locate here in Michigan, but that's how it would be deployed.
Okay, great. And then lastly, I mean, do you have an existing tariff structure in place that you think is adequate? Or would that need to be reviewed in context of additional large loads?
So, for the existing capacity, we've got an existing tariff that we think will work quite well. For the long-dated capacity additions that could come from this opportunity, we would have to design a tailored tariff that would look at ensuring that we brought in enough margin and also for a long enough term that we wouldn't create any type of stranded asset situation for existing customers.
Okay, great. That’s it from me. Thank you.
Our next question comes from Sophie Karp from KeyBanc. Please go ahead, your line is open.
Hi, good morning. Thank you for taking my question.
Morning.
A lot of my questions have been answered. I just wanted to ask you on the potential five years' capital that's going to come from incorporating the results of the storm audit into your future capital plan. I think when we read the report, one of the concerns that the consultants had in that case was the ambitiousness of your goals, if you will, and the potential impact on customer bills. I was wondering if you see any need for sort of other mechanisms offsetting this potential increases to moderate those customer bill increases? Maybe it's a storm securitization costs that's needed or something else that you might need to kind of go ahead with that plan and keep the customer rate growth sort of slow. Or do you think you can accomplish that within the existing rate structure? Thank you.
Our five-year capital plan anticipates the capital that we need to achieve this ambitious plan of reducing frequency by 30% and the duration by 50%. Obviously, the audit didn't really get deep into how our affordability plans and our financials will work through all of this. It was more of a physical condition audit and recommendations. Interestingly enough, on the face value, the audit would put pressure to increase the capital overall into our distribution business. We feel very confident in achieving our affordability goals. As Joi pointed out, on Page 13 of our presentation, you'll see that we've managed our costs and managed our fuel portfolio, and also the renewable assets are putting downward pressure on bills, and we're extraordinary in how we're performing in that regard. We remain confident that we can continue to deliver that extraordinary performance on affordability.
Okay. So, no need for any new structural mechanisms in your view right now?
We don't anticipate any at this point in time.
Okay. And then maybe if I can ask you on Vantage, are there opportunities in that business to take advantage of the kind of growth in the large load of customers? I'm not sure if that's kind of like the right fit for that business. But are you seeing any potential strategic opportunities there?
We are having those conversations. In the custom energy solutions business line, where we provide cogeneration and generation assets, as well as central plant energy services like air, water, cooling, and heating, there are opportunities. We’re discussing these with potential data center customers.
Our last question will come from Travis Miller from Morningstar. Please go ahead, your line is open.
Good morning everyone. Thank you.
Morning.
Morning.
Just to wrap-up a couple of things. On the audit, after you file your response, what do you see as the pathway for this? Is this something that closes? Or is this something that is going to perhaps last long, maybe even come up with some metrics you have to meet over years? What's your view on the pathway there?
Yes, we'll file our responses in mid-November, and we are continuing to have conversations with the staff on the findings and looking at how we incorporate the findings into our plans. There really is no formal end to the process. I think the docket essentially closes with everyone providing their comments. On a go-forward basis, I would anticipate that any discussions that result from the audit will be incorporated in future regulatory proceedings.
The vehicle for that with the staff that works really well for us is the distribution grid plan, which gets updated. We're meeting multiple times a week right now with staff to digest the audit and start kind of building it into our distribution grid plan. This will be a really good process supported by the independent audit to formulate and secure our investments for the future, making them more secure in terms of predictability. We're excited about the work and the level of engagement and effort that staff and our team is putting into fine-tuning the plan if well to achieve the goals and also address some of the opportunities that the audit pointed out.
Yes, really collaborative process.
High-quality products.
And would you say just kind of on that whole idea of performance-based rates, bringing in that docket, is that something the metrics you're talking about that could be an outcome of the audit kind of tying those together?
There's no pre-specification in this docket to address performance-based rates, and that was not in scope. But as you've heard already from Joi, there is a separate docket that deals with performance-based rates that will not be incorporated in this rate case, but there could be some potential that it gets incorporated in the next rate case. We feel really good about the metrics in there, and we're striving for a little more symmetry. The amount that's in there is also reasonable. It goes to the heart of what we should be delivering for our customers, and I think it's going to be supported by investment. We feel like PVR will be highly supported by the investments that we're making. So, we're comfortable with the direction it's sitting in.
Okay, great. And then real quick, any supply chain issues seen in the renewable energy growth that you got?
We're lined up pretty good for the next three years in terms of solar panels, and we've got that nailed down. So, we don't see any issues. Our battery plant project is well underway, and those systems are being fabricated as we speak. We feel like we've got a good runway there from a supply chain perspective.
Okay, perfect. That’s all I got. Thanks.
Thank you.
We have no further questions. I would like to turn the call back over to Jerry Norcia for closing remarks.
Well, thank you, everyone, for joining us today. I'll just close by saying we're feeling really good about 2024 as well as our position for future years. We look forward to seeing you at EEI in a few weeks and have a great morning. Stay healthy and safe.
This concludes today's conference call. Thank you for your participation. You may now disconnect.