Barbara Tuckfield - IR Gerry Anderson - Chairman and CEO Jerry Norcia - President and COO Peter Oleksiak - SVP and CFO.

Richie Ciciarelli - Guggenheim Partners Julien Dumoulin-Smith - Bank of America Merrill Lynch Greg Gordon - Evercore ISI Paul Ridzon - KeyBanc Capital Markets Jonathan Arnold - Deutsche Bank Andrew Weisel - Scotia Howard Weil.

Good day, and welcome to the DTE Energy 2018 Q2 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Barbara Tuckfield. Please go ahead..

Thank you, April, and good morning everyone. Before I get started, I would like to remind everyone to read the Safe Harbor statement on page two of the presentation, including the reference to forward-looking statements. Our presentation also includes references to operating earnings, which is a non-GAAP financial measure.

Please refer to the reconciliation of GAAP earnings to operating earnings provided in the appendix of today's presentation. With us this morning are Gerry Anderson, Chairman and CEO; Jerry Norcia, President and COO; and Peter Oleksiak, Senior Vice President and CFO. We also have members of management to call upon during the Q&A session.

And now I will turn it over to Gerry to start the call..

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 second quarter and also share some thoughts on our long-term growth plan.

And then I'll hand it over to Peter, who will provide a financial review and some additional color around our increased earnings guidance. And then, Jerry Norcia will wrap things up by providing more detail on the progress of both our utility and non-utility growth plans. And then, we will take your Q&A. So, I'm going to start on slide five.

I told you on the first quarter call that I feel good about our financial performance, and halfway through the year, I feel even better. To be honest, financially we are crushing it this year. And so, both utilities are right on track, and both GSP and P&I are having an exceptional year.

And so, given this, we are increasing our 2018 EPS guidance midpoint by $0.35, or a full 6% to $6.13. And this new guidance implies growth of nearly 10% versus our actual in 2017. Cash flows are also very strong. So we are increasing our cash flow guidance for the year by 200 million.

And as Peter will discuss later, we expect this cash flow strength to reduce our equity issuances over the three-year period. On the regulatory front, I'm encouraged as well. So, on the first quarter call we told you that our recent electric rate case was a bit low.

Since then, on rehearing, the MPSC increased the case outcome by just a little more than 10 million. And that outcome also had important benefits for one of our local community. So, their decision was appreciated.

MPSC also recently approved our plan to move forward with a 1,100 megawatt combined cycle plant to help backfill some of the coal plant retirements that we have coming.

We also recently filed a 1.7 billion renewal energy plant with the Public Service Commission, an investment that will help backfill the retiring coal plants and meet the 2021 RPS requirement that we have here in Michigan.

In July, we filed an electric rate case, and importantly that case includes an IRM provision, or an infrastructure recovery mechanism that we discussed extensively with the MPS in a series of meetings before the filing. And Jerry Norcia is going to give you more detail on that provision in a bit.

And finally, our gas rate case will be finalized in September, and we expect the outcome in that case to be without surprises. So moving on to slide six, I want to transition to a discussion of our future growth. So, both of our utilities are evaluating investments that would be additional to those in our current plan.

So, in the electric utility, those investments are tied to voluntary renewable projects with large customers, and those discussions are progressing well with the customers. In the gas business, we filed a plan to further accelerate our gas main replacement program, and Jerry will give you additional color on both of these areas in a few minutes.

There is a lot going on at GSP related to future growth. So NEXUS construction is now 80% complete and progressing well. In fact, a group of us along with some board members flew to the pipeline route yesterday, and saw mostly dirt covering pipe, so that's a good sign.

On our Link asset, the DTE Board recently approved a $250 million gathering expansion investment for a key customer. And overall, the Link asset just continues to surprise to the upside. We also have four other laterals or expansion projects that are either under construction or have recently been completed.

And Jerry will give you some further color on those in a little bit. Finally, we are evaluating acquisitions that are of a scale analogous to Link. And as we look at those, we will keep you abreast of the work in that area. So P&I also has a lot on its plate relative to future growth.

So, the Ford central energy plant that we recently closed is now in full-bore construction. We've also begun construction on an RNG or Renewable Natural Gas project in Wisconsin, and we sense that there are more projects like these two that I just mentioned that will be coming.

So we expect to close an additional one to two cogen or RNG projects this year. And the development queue behind those projects continues to be very strong. And so given all of that, we now expect P&I's 2022 earnings to be materially above the $70 million that we have previously disclosed.

We also remain committed to our 5% to 7% EPS growth rate target over the five-year plan. So there's been some discussion about whether we can hit those targets out in 2022, so I want to spend a minute on that topic. And I'll address the topic from two vantage points; looking forward and looking back. So let me start with the forward look.

So there are a range of long-term EPS forecasts out there for us, and in our eyes a few of them are light. And for those who are light we see a few key themes. These forecasts tend to be light on future utility earnings, heavy on future holding company expenses, and heavy on future equity issuances versus our plan.

And the combination of these factors account for the perceived shortfall. I'll also say that our portfolio of growth opportunities feels better than it did even six or nine months ago. We continue to look for and find good investment opportunities, which has been a pattern for the company over the years.

So that brings me to the second vantage point I mentioned earlier, and I'm moving on to slide seven now. The five-year forward growth targets that we have provided you over the years versus what we have actually achieved are shown on this slide.

So, for example, if you look at the second set of bars from the left, seven years ago, in 2011, our targeted EPS growth rate implied an EPS level in 2016 of $4.64. We actually delivered five years later, in 2016, $5.28. Similarly, in 2012 our five-year forward growth estimate for 2017 was $4.97. We ended up beating that last year by $0.62 or 12.5%.

And based on the guidance update that we've given you this morning on this call, the 2018 EPS growth target that we provided to you back in 2013 looks pretty conservative now given that we expect to come in $0.90 higher or over 17% above what we told you we were targeting for this year five years back.

So what's the point of this backward look? Well I have to tell you every one of those five-year projections that we gave you over the years felt challenging at the time. I can vouch for that.

And every one of those five-year plans had some level of go-get in them, that is growth that we expected to play out and we're committed to finding but hadn't yet fully pinned down. And our pattern shows that we've been able to more than fill those future growth goals. So as I look forward five years to 2022, things feel much the same.

There are challenges in the plan. It wouldn't be a decent five-year plan if there weren't some challenges in it. But the challenges feel very analogous to those that we have not only met in the past but have materially beaten over the past decade. So I hope that's some hopeful perspective on our future growth.

And of course we'll provide you a more detailed update on all of that later this year. And with that, I'm going to turn things over to Peter for the financial update. Peter, over to you..

Thanks, Gerry, and good morning everyone. I'm going to start on slide nine. Before I get into the quarter I always like to give an update on my Detroit Tigers.

While the Yankees, Red Sox, and Astros battle for the best record in the American League, after last night's loss to Kansas City, my Tigers are now 17 games below 500 and deep into the rebuilding process.

On the positive side, my minor league prospects are looking good, including the number one draft pick, so there is a bright future ahead for my team. But it really can't come soon enough for me. Now turning to our financial results, as some of them were positive, DTE is off to a great start this year.

As Gerry mentioned, the first half-year came in very strong. We had operating earnings of $247 million or $1.36 per share. And for reference our reported earnings were $234 million or $1.29 per share. And you can find a detailed breakdown of EPS by segment including a reconciliation to GAAP-reported earnings in the appendix.

Let's touch on each of the segments in detail starting with our utilities. We had very interesting weather during the quarter that provided some favorability of both utilities. Our Gas utility experienced a very cold April, actually the second coldest April on record. And our Electric utility experienced warm weather in both May and June.

In fact, May was the second warmest on record here in 2018. This weather was positive for both utilities, so a perfect utility quarter for us. To review the quarter-over-quarter earnings variance I will start with Electric utility.

The DTE Electric earnings for the second quarter were $163 million, $15 million higher than the second quarter of last year, driven by new rate implementation and the warmer weather I just mentioned, partially offset by higher O&M expense and rate-based growth.

A more detailed year-over-year earnings variance walks for DTE Electric to be found in the appendix. DTE Gas operating earnings were $14 million, or $13 million higher than last year, driven primarily by the cooler April weather.

The Gas Storage and Pipeline business, operating earnings were $60 in the second quarter, $20 million higher than last year. This increase is due to lower corporate tax rates, as well as increased gathering and transport volumes across the platforms, mainly at Bluestone.

Future growth that we anticipate at GSP is showing up earlier than we thought, and we're essentially seeing growth that we expected to play out next year roll into this year, which really solidifies earnings across this year and 2019. And the strong cash flows that go along with the earnings are going to help reduce equity needs for us.

Operating earnings for Power & Industrial business was 43 million to 13 million higher in the second quarter of last year. This increase is due in part to higher REF volumes, and our waste wood renewable plans performed better than last year. We have been saying that we continue to optimize our REF assets until they begin to sunset in 2020 and 2022.

And then, we expect to see some earnings upside from these assets in the near-term. While these earnings upsides we are seeing results of first higher throughput at some our existing REF sites. We also moved some of our units to larger sites where they can handle higher volumes.

Now these incremental earnings can now be for monetized for accelerated cash flow. You will see these earnings for cash trade play out next year as we get tax equity partners for some of these projects. There is a strong growth in our non-utility this year. We have increased guidance at GSP and P&I which I will discuss on the next slide in a minute.

Rounding out our growth segments in the second quarter is Corporate & Other, which is at 9 million unfavorable compared to last year due to tax reform and higher interest expense. The Energy Trading had operating earnings of 8 million in the second quarter, up 4 million from last year driven by stronger performance of gas portfolio.

So overall, TT is $1.37 per share in the second quarter of 2018 or $0.29 over the last year. Let me turn to the next slide. Let me start with the -- at the top of the slide, the DTE Electric, it is why our guidance increased. You may remember in the first quarter we guided towards the lower end of the range.

Now with the favorable weather we experienced this quarter, we now expect to land firmly in the middle of the range for this year. The DTE Gas, we feel comfortable with the current guidance range for 2018. As I mentioned, both GSP and P&I we are having a very strong year.

We are increasing the guidance range of GSP to 225 million to 235 million due to the growth in gathering and transport volume. At P&I we are increasing guidance range to 150 million to 170 million due to the higher earnings from the area of assets and strong results from our steel projects.

Our non-utility businesses differentiate DTE from our peers and continue to provide some very good long-term growth opportunities for the company. We are decreasing guidance for Corporate & Other due to taxes and other items that should be considered onetime in nature.

As I mentioned, DTE Energy had earnings of 8 million in the second quarter and is on track to have another solid year. Year-to-date trading had earnings of 9 million. So we are comfortable with the 5 million to 20 million guidance range we have been putting in the trading business.

Overall, we feel very good of achieving our new operating EPS guidance this year. And with this, we provide stronger cash flows and will allow us to reduce equity issuances, which I addressed already. The earnings strength we are seeing this year is continuation of a decade-plus pattern. Let's turn to slide 11. You can see this.

You can see as we have met and/or in most case exceeded our annual earnings guidance that was provided to you for the last 11 years which is over a decade. Over the front-half of the period, we got 4% to 6% annual EPS growth. In most recent years, we have guided to a 5% to 7% growth.

But as you see from green ovals on the top of the slide, our EPS growth over the last decade has been closer to 8% and our growth over the last five years approaches 8.5%. So, it has beaten our 5% to 7% EPS growth rate of over a decade which is a great track record.

Now prior to turning it over to Jerry Norcia, I would like to give you a brief update on our cash flow on the next slide, slide 12. This year's strong earnings and cash performance not only demonstrates for the 11th year in a row our ability to deliver results but also immediately helps our EPS growth in the future.

We are upping our cash forecast this year by 200 million and reducing our expected equity issuance by 100 million across 2018 to 2020. This year's total issuances are reduced from a previously disclosed 300 million to 250 million. Our goal is to minimize equity issuances next year outside of the Link converts.

And we are targeting 100 million to 200 million. Now I would like to turn to Jerry Norcia to discuss our long-term growth..

Thank you, Peter. I'll begin on slide 14. We continue to see growth in our utilities fueled by our investment in infrastructure and generation due to lot of positive things going on in our electric utility that will help secure our generation reliability and improved customer satisfaction.

As Gerry mentioned, the Public Service Commission approved the need for new natural gas plant earlier this year. This is a 1,100 megawatt natural gas plant combined cycle that we are building at a cost just under $1 billion. Along with renewable energy, natural gas will be a critical part of our power generation capacity in the decades ahead.

New plant is scheduled to break ground in August of this year, with full construction underway in mid 2019. We expect the plant go in service in 2022 which fits with the timing of three coal-fired power plants being retired in 2020-2023 timeframe. Earlier this year, we submitted our renewable plan to the Public Service Commission.

We are planning to double our renewable capacity to 2,000 megawatts by 2022, investing approximately $1.7 billion on renewable energy over this timeframe. We're also adding 300 megawatts of new wind capacity, supply voluntary renewable energy program for large industrial customers who are looking to reduce property measures.

In July, DTE Electric filed a general rate case, which included a three-year infrastructure recovery mechanism, which we call the IRM, designed to reduce rate case frequency. This proposed IRM would recover our distribution investments, our new natural gas bio power plant and certain fossil generation, and nuclear investments.

These investments total approximately $1 billion per year, and are critical to modernizing our distribution system and improving our liability for our customers. This current rate case is the fourth and the last five years for DTE Electric.

The company's need for rate increases has been, and is expected to be largely driven by the needs to replace critical infrastructure to safely and reliably serve our customers. For the proper IRM and Electric Company in place to address this critical infrastructure, we believe that maybe held to defer filing rate cases on an annual basis.

IRM creates alignment, certainty, and continuity for our investment strategies as it relates to modernizing renewing our infrastructure. And it also creates tremendous efficiencies and our ability to engineer, procure and construct the infrastructure when we know years in advance what our work will be.

All of this accrues as a benefit to our customers, and reduces the frequency of highly repetitive regulatory proceedings. As you know, we have a recovery mechanism for our main renewal capital at our gas utility, and this has worked very well helping our efforts to improve safety and reliability in our gas main infrastructure.

Recent rate filing also included a request for electric vehicle program, which we call Charging Force. This program will help customers realize the benefits of EVs and reduce barriers to EV adoption through communication, residential charging support, and charging infrastructure. Filing also incorporates the customer benefit of Tax Reform.

We have a legislative 10-month rate case cycle in Michigan, so we expect these new rates in the electric to be effective in May of 2019. Now moving to DTE Gas, we began reducing customer rates for Tax Reform in July. Our general rate case is progressing.

The rate case includes a proposal to increase the annual number of miles of main replacement, increasing the base from a 25-year base through a 15-year cycle. This proposal will allow the system to be hardened at equipment pace and will significantly decrease O&M cost over time.

As always, when considering the investment in system herding, we are very focused on rate affordability for our customers. We filed the plan with the Public Service Commission; returned the balance of benefits from the tax rate decrease to customers.

This rate reduction will go a long way towards mitigating the effects of the gas rate case, and will allow us to achieve our new affordability goal, achieve our affordability goals. Now let's move to slide 15 to provide an update on our Gas Storage and Pipeline business. I'd like to start with an update on the NEXUS pipeline.

Before I highlight some of the progress we have made on construction, I want to take a step back and talk about project as we see it. It is a long-term project that will help grow this business segment for many years to come. We're very encouraged by forecasts of future production in the Basin served by NEXUS.

The pipe is located over the most prolific, one of the most prolific dry gas basins in the country. Basin's production capacity is expected to grow significantly from 28 BCF a day to 40 BCF a day by the end of next decade. Forecasters are also predicting that basin will be short in capacity in the very near future.

And our ongoing discussion with producers of the seas and industrials reflect this sentiment. We have enough volume under discussion to fill the pipe, so this pipe is clearly needed and well-positioned. Given this, we are focused on getting long-term deals to provide a strong base for NEXUS for years to come.

We expect these that play out after the construction is complete and the pipe goes into service. This is something that is counted to play in our financial plan. Speaking of construction, we have made significant progress in all aspects of construction, and we are approximately 80% complete.

100% of mainline walling on the pipe is completed, leading this walling as a key milestone in any pipeline project, and we are in very good shape with this phase.

Regarding our horizontal threshold drilling, we have completed 16 of the 18 HDDs we need to drill, which is another key phase in construction and the two remaining HDDs are pretty minor in terms of size. So all-in-all, we are pleased with how the NEXUS project is coming together.

We look forward to growing this platform much like we have done with our other existing pipeline assets, and we expect the pipe to be a strong contributor within GSP for many years to come. Our Link collateral and gathering asset continues to perform well and they progress towards future growth.

Jerry mentioned the $250 million expansion Link that our Board of Directors recently approved. This is the third expansion of Link. This investment is really coming along well. Volumes and investments are coming in faster than a pro-forma plan we have shared with you.

Additionally, we are currently evaluating a number of acquisition opportunities roughly the size of Link. We have multiple assets under consideration, and we are in detail evaluation base of one asset in particular.

As I've said before, when talking to investors of potential acquisitions, they are very disciplined in our approach, we are focused on assets that fits strategically in our GSP portfolio and keep our business mix where we like it. We will continue to update you on our progress in this area.

As far as some of our other GSP projects, they are progressing well. Millennium's Valley Lateral was recently placed in-service after receiving approval from the FERC. This is an 8-mile lateral that moves natural gas to a 720 megawatt power plant in New York. This is a good size lateral that can deliver for 130 million cubic feet of natural gas.

Also in Millennium, we have the Eastern System Upgrade on track and in-service in the fourth quarter this year. This expansion will provide 220 million a day of additional capacity under the Northeast markets. On our Bluestone pipeline, we will complete ongoing construction a 100 million a day expansion by the third quarter of this year.

Finally, on the Birdsboro Lateral, we are in full construction mode. This 14-mile lateral is expected in service in the fourth quarter. So as you can see, we have a lot of positive momentum in our GSP business and we will continue to update you as these are progressed. Now I'd like to move on to the Power & Industrial business on slide 16.

Our P&I business continue to see progress on the development of both industrial energy projects and renewable natural gas projects. We began construction in the Ford motor company central energy plant that we have discussed with you in the past.

We are also finalizing agreement on other cogeneration project for the large industrial customer in the Midwest. We expect to close the project this year. In our RNG business, we have made progress since our last call. We finalized the agreement on one of the gas capture projects we told you about, and have started construction.

This project is in Wisconsin, and we expect it to be on service on early 2019. Between these two business lines, we have been evaluating about 10 projects as a result we have closed one RNG deal this year and expect to close one or two deals on the cogen RNG's base later this year.

So we are feeling really good about the progress for current P&I projects. We believe we have a good pipeline of future projects with a secured growth in this business. We previously told you that our 2022 earnings goal is $70 million, and that we need a $45 million in income to new projects developed between 2017, and 2022 to hit that target.

By the end of this year, we expect over two-thirds of the $45 million to be in hand, only three years into the five-year period. So given this, as Jerry said earlier, we expect P&I's earnings by 2022 to be materially above $70 million level. Now, I will wrap up on slide 17, and then we will open it up for questions.

All-in-all, I feel great about position we are in both our utilities and non-utilities to deliver another strong year-end 2018. We delivered strong second quarter results and significantly increased our 2018 operating EPS and cash flow guidance.

Our utilities continue to focus on necessary infrastructure investments to improve the liability and the customer experience. With additional expansions in business development, we continue sustainable growth with the non-utility businesses.

Given this, I'm confident that we are on track to deliver strong EPS and dividend growth will drive premium total shareholder returns, and we are confident our plans to reach our 5% to 7% long-term EPS growth target over the five-year plan. With that, I'd like to thank everyone for joining us this morning.

And April, you can open the line for questions..

Thank you. [Operator Instructions] And we'll take our first question from Shar Pourreza with Guggenheim Partners. Please go ahead..

Hey, this is actually Richie Ciciarelli here for Shar.

How are you guys doing today?.

Doing fine, thanks..

All right, good to hear.

Just wanted to touch a little bit on your Midstream growth strategy, can you just provide a little bit more color on your evaluation process for acquisitions, like how much is it from gathering and processing versus transportation assets? And can you just maybe touch on the long-term strategy, how much is fueled by acquisitions versus organic growth opportunities?.

Well, the assets that we're looking right now are gathering and transportation, so there's some high pressure transmission as well gathering assets that we're looking at.

In terms of mix into the five-year future, there is a balance that we try to maintain between what I would call purely demand-charged style projects and what I would call demand-and-variable charged projects. So that mix there, we try to maintain. We try to maintain a good balance.

So there's a balance of both gathering investments through acquisition as well as organic development..

The other thing I would say is that we have had a pattern of building a platform and then expanding organically from the platform. In many cases our best growth comes from those organic expansions. So if you look at Millennium, Millennium led to Bluestone, which was an organic expansion.

Bluestone led to some gathering, which has turned out to be a nice business line for us. And that whole area continues to produce growth opportunities. So for example, we recently reached an agreement with Cabot there which we think will be a good relationship, a positive relationship for us in that area.

And we see Link playing out analogously where we made an acquisition but we expect that acquisition to lead to a host of agreements like the one we just mentioned where we've got Board approval and are ready to anchor $250 million-ish investment with one of our counterparties there. So that's the thought process that's worked out well for us.

And these acquisitions we're looking out are meant to repeat the same pattern..

Got you, guys. That's very helpful. That's all I had. Thank you..

Thank you. Appreciate it..

And we'll take our next question from Julien Dumoulin-Smith from Bank of America Merrill Lynch..

Good morning, Julien..

Hey, good morning everyone..

Good morning..

Hey.

So wanted to follow-up a little bit here on the comments on the long-term guidance, perhaps just to kick it off, can you comment a little bit on how you think about the Link-sized acquisition and the context of the 5% to 7%, and how that might position you within that guidance range? And then separately, let me also just throw these other questions in there while you talk about the 5% to 7%.

How do you think about the P&I segment, specifically you talk about being materially above that. Certainly in an '18 context you're certainly tracking very well.

How much of that is REF-related versus some of these other elements like RNG? And when you say materially can you maybe expand a little bit more on that?.

Sure. So maybe I'll start with P&I. So yes, we're having a very strong year in 2018. And as Peter told you, we had focused on optimizing these projects and positioning them to get as much as we could out of them, which is going better than we thought. But we're also moving toward the phase where we're going to be doing tax equity transactions.

And the goal there is to accelerate cash flows and then redeploy those cash flows into other growth projects, debt reduction, and equity reduction.

So I think what we're going to see out of the P&I projects is higher earnings in the short-term, and then the long-term benefit will come from the higher cash flows that the projects will generate versus what was in our plan even a handful of months ago. Concerning the Link-style acquisitions, we are looking at those.

We're disciplined about how we go about those. So we'll do it if it's right for us to do. But if it is I think it would be one of the things that really helps us shore up our 5% to 7% growth targets. So we aren't saying if we do one of those we're going to raise the 5% to 7%. It's really meant to achieve that.

It'd say in general those platform investments, as I've described them, have surprised us to the upside. So the whole Bluestone platform certainly did. So far the Link platform is. So we're seeing things come at us faster on Link than we had anticipated.

And we're ahead of the pro forma that we shared with you when we invested in the project back in 2016. And so our take for Link is everything we've seen there is positive.

So if we think we can do another of those, and we like the investment then our history would suggest that they're fruitful places to firm up and fill out the growth plan that we shared with you..

Other area that we're seeing strength in at P&I is our steel business. With the surge in steel production we're seeing the value for coke that we produce go up this year. And we expect that that will provide some value next year as well..

And then long-term with P&I, I think Jerry mentioned this, that we continue to add cogeneration projects. And I think in part that's a reflection of the positive natural gas environment in the United States and the confidence that industrial producers have in that fuel.

On top of that, there's a real push nationally to bring some renewable into natural gas, that's true both at the federal level through the EPA and in various states. So for example, California has a renewable natural gas push in the transportation sector. And currently there the sector is short supply, so it's providing favorable dynamics.

And so in this renewable natural gas space, which as an area we haven't been doing it as renewable, but we've been doing waste methane capture for decades. It's an area we have the skills for, but it's one of these niches that I think we've stepped into that has some very favorable growth wind behind it.

So we think that's going to be a attractive area for us to grow, and is one of the things that's convinced us that the $70 million number that we've been communicating for the last couple of years feels conservative now. And then we think we're going to materially beat that..

Got it, excellent. Can you comment a little bit on the utilities then, I mean you obviously alluded some incremental capital spend specifically to the renewables program, et cetera. You delineated a capital plan through '22 for electric and gas of 10-4 and 2-1 respectively previously.

Can you elaborate just where you stand relative to those perhaps as well just to kind of give me some….

We'll give you a full-capital kind of re-stack later this year. But I can say that the voluntary renewables has added about $450 million of renewable investment to the plan that we communicated previously. And we also have the item Jerry mentioned, which is the acceleration of the gas main replacement as additional to the gas plan.

And that's a program that as we further look at both operating impacts, environmental impacts of an old system, we just think we've got to move and get that system fixed and modernized. So that's an acceleration as well..

Got it, excellent. And then lastly on the GSP segment, just to make sure I'm understanding what you're saying. Obviously the Link would be incremental.

How far above plan are you when you talk about your original Link investment that you talked about and/or anything else? I mean is there anything new that we should be considering in the context of the 2022 CapEx plan and earnings growth target range?.

Well, I guess I would say that we're multiple years ahead of plan. So in 2018 we kind of sit where we thought we might be in terms of volumes and so a couple of years from now. And I'd say we've more than locked in our base case and are now working on upside to that.

So we got to continue to produce good results there, but it's a lot better than being behind, I'll say that, to be well ahead of plan. And the dynamics there continue to be positive. I mean we bet on the asset because the reserves are such high quality, and that's what's playing out.

The nation continues to deplete and needs to drill to replace production. And this is a very good place to do that. So, one of the producers there substantially increased plans versus what we thought they would do in our pro forma and it's accruing to our benefit..

Excellent. All right, guys, thank you so much..

Thanks, Julien..

And we'll take our next question from Greg Gordon from Evercore ISI. Please go ahead..

Thanks, guys; really impressive results all the way around the horn..

Thank you..

Not to beat a dead horse, but I know that you guys are very comfortable with the long-term plan.

But when we think about the base of earnings that you're using for your 5% to 7% earnings growth target through 2022, I mean I just want to -- given that the steel business can be cyclical and that the REF business obviously has a tail how should we think about the, despite the fact you're crushing it in those businesses today, like what base you're using off to set that 5% to 7% earnings growth target.

Because I just fear that investors will get ahead or you or dip behind you in terms of the long-term view on where you're going to be given the cyclicality in the steel business, the falling away of the REF stuff. And there is some natural cyclicality too potentially in Midstream.

So I just wanted to get a sense of how you think about the endpoint versus the beginning point, and so we can right-size our expectations..

So we're still guiding off of where we always have, off the initial guidance we gave you for 2018. And we're clearly seeing a very strong earnings performance this year. So if you look at GSP, for example, I mean our guidance year-over-year is up over 40%. And that business is not going to be up 40% every year. So we're not guiding to that.

But it's great to see your long-term plans evolve at the front-end of your investment period because it brings certainty, and allows you to move on and focus on adding to that rather than trying to peruse what you hoped you could. So yes, we're still guiding to 5% to 7% off of our initial guidance from this year and 2022.

And we know that, for example, in GSP, there may be times when we bring a lot to the table in a particular year. And some year down the road may be slower. But that's fine as long as the overall growth rate is good. And P&I, yes, we've talked about REF and the sunset there, and harvesting cash flows from that business.

We've been talking about that for five years or more. So that's not news. But you mentioned steel. That is a business where I think the breezes are generally good, so people talk a lot about tariffs where the prices for domestic steel are up some 20%, and we are seeing increased production.

Probably gives us an opportunity here as we see that strength to bring some contract term to some of our positions, so we'll be looking to do that. And then some of the other businesses, cogen and REF, those are all businesses where we see longer-term trends..

Yes, I was going to add that the steel business is going to give us some favorability, of course, and already is. But the fundamental growth in P&I is driven by asset investment of long-term contracts. And that's going to revolve around the cogen deals that we're pursuing. And we're very close to closing on another one this year.

And the RNG deals, I mean these are all asset investments with long-lived deals. So that's really the -- if you were to model where is the growth going to come from in P&I it will come primarily from those two types of investments..

Yes, but that's what I thought. I just wanted to get a sense. You're actually replacing over time some of these more cyclical revenue streams with longer-lived assets with more predictable revenue streams.

Is that your summary?.

We said last year, maybe even earlier, that what we needed to hit our longer-term growth plan out of P&I was $70 million of recurring earnings, and that we needed $45 million of incremental earnings to achieve that. Last year we got $15 million of those incremental earnings. This year we're projecting to get the next $15 million.

So we're two years into the five-year plan and we're two-thirds done. And the fundamentals are more favorable than we saw a year or two ago. So when we put all that together we think P&I is going to be an incremental arrow up to brining our 5% to 7% growth -- bringing certainty to all of that. It feels better than it did a year ago..

Okay, thank you guys. I appreciate it. Have a good day..

You as well..

And we'll take our next question from Michael Weinstein from Credit Suisse. Please go ahead..

Hi, actually it's [indiscernible] for Michael..

All right, good morning..

Good morning. Just to go back on the pipeline segment.

So good performance this quarter, and this first-half, but what should we think about -- it seems to be implying the lower second-half versus the first-half?.

Well, we've raised guidance in this sector, as Peter and Gerry had mentioned for the balance of the year, so we're not predicting a lower second-half..

Yes, the second half is going to be strong just like the first half, which is why the guidance is up so strongly. And I mentioned the 40% growth rate year-over-year, some of that's taxes, but some of it is just fundamental volumes on our various platforms. So we expect a strong second half of the year as well..

So, so far is any one-time non-repeating items in this first-half?.

No..

Yes, not in the Gas Storage & Pipelines there is no….

Okay..

No, I would say the only one-time non-repeating item that I've mentioned is 40% growth. And I don't expect to see that repeat here..

Yes, I mean as Gerry mentioned, yes, there was the tax change that you'll see, the one-year bump around the tax reform, a lower corporate rate..

Yes, okay. Thank you very much..

Thank you..

And we'll take our next question from Paul Ridzon with KeyBanc. Please go ahead..

Good morning. Congratulations on the quarter, not so much the Tigers..

Cleveland is going well, so….

Just to follow-up on that, I mean the first quarter you said the unregulated business were coming swinging and you pointed to the top end. And now with the second quarter under your belt you're actually raising guidance.

Is there any conservatism built-in there for the second-half of the year?.

You mean do we have any contingency left?.

Yes..

Yes, we have some room left if were to run into unfavorable weather or storms, et cetera, we could cover those..

I was just -- at the unregulated businesses, I mean is there -- kind of how much more strength are you baking into the second-half of the year, and is there upside to that?.

Yes, Paul, this is Peter. In terms of the guidance for non-utility, no, we're feeling really good where we're at right now with our non-utilities segments.

As Gerry mentioned, that we do have contingency still in our Utilities segment, depending on how weather plays out, we may have upside overall to guidance whether it'll be coming from out utilities segments..

We mentioned the mix of weather in the second quarter, cold April you know, hot May, and so forth. But June was warm and so was July. July is playing out warm too. So from a weather standpoint it's been favorable.

And that gives us some strength through weather in the utilities which covers some of the -- provides some of the contingency we're talking about. And then could be conceivably see a little more out of the non-utilities, we will just have to see how the year plays out possibly, but we're giving you the best guidance we can..

Jerry, you mentioned as you look at some forecasts for the out years that some people are light. And of those issues is the utility forecast.

Is there any aspect of that that you think might be missing? What are they missing?.

In regards to the utility forecast, we despite the point of clarification post tax reform we think people may be a little bit light; earnings will be growing 1% faster than the rate base for both utilities. So that utility rate-based growth is 6% to 7% and earnings growth would be 7% to 8%.

And for Gas Utilities our rate-based growth is 7% to 8%, so our earnings growth of about 8% to 9%. And that is because as we're giving back cash -- deferred cash to our customers we're replacing that with equity over this timeframe.

So we believe that some people are missing the nuanced post-tax reforms as an increase of equity that's coming to both utilities which just provides earnings growth over and above rate base..

So, capital is financed with more equity and less deferred tax in our base, so that's the effect Peter just mentioned. And then on top of that there are -- the renewables is an area where we're seeing customers reach out and working with large customers, and just wanting a higher percentage in their mix.

So that's, I mentioned that is short of $500 million we think in the five-year plan for that and then the Gas main replacement program. So the combination of some additional important investments along with this shift in how the utility is financed is where we think the difference is..

Where do you see the 2022 equity layers at the Electric & Gas utilities?.

They are currently around 38% if you look at overall capital structure. So it will start bleeding in. We don't have to –- I don't really disclose the precise numbers, but I think it's really about $70 million a year that providing the fact the customers across both utilities. About 35 of that will be going at the both utilities.

But there is a technique that probably gets into the more low 40s by the end of the year of the five-year period..

Thank you very much..

Thank you..

We'll take our next question from Jonathan Arnold with Deutsche Bank. Please go ahead..

Hey, good morning guys..

Good morning..

Good morning, Jonathan..

Quick question on -- so you talked about the IRM that you filed in the electric rate case and that it would help you to defer having to file annual cases.

Can you go –- I mean how long do you think you would potentially go to stay out with that mechanism?.

Well, we are targeting –- I think you'll see in our filings, we are targeting multiple years as an approach. But that's something to worked out with the commission staff and the commissioners over time here as to how long we could stay out.

But we are looking for at least two years, and if things play out well, beyond that, but that's what in our current filings..

So we have got in the IRM our new –- look if I step back in the IRM what we have been talking to the commission and commission staff about is elements of our capital that are driving rate increases that are totally predictable and agreed upon. So this gas plant, for example, we know the schedule.

We know the gas, what the gas flow is going to be look like. So covering that in an IRM is something that could make sense. We have also been talking a lot about our long term distribution investment plan and trying to reach agreement with the commission and staff and what that should look like for customers.

Once agreed upon, that's not something that needs to be a ongoing basis of re-discussion and rate cases, it just needs to be executed and reconciled. And so, we are trying to bring those sorts of items into the plan to focus rate cases on things that really are extraordinary. How are sales changing, how are cost changing and so forth.

That needs to be done less frequently than every year. And so, I think the commission recognizes that and we do too. We have been clear with the commission that we think this IRM can reduce rate case frequency and that is our goal. We have also been clear that we can't promise some stay out period because you never know what happens in the world.

So I think the understanding on our side and theirs is that the goal is reduce frequency without a specific locked in target is to what that means..

Okay, great.

And if I heard you correctly, you have been able to have sufficient dialog with the commission and staff that what you filed is it is likely to be aligned with something they would find acceptable?.

We had many rounds of dialog with them. So I can never kind of prejudge where the commissioner will land. That's their call. But we did try to take a process where we had many rounds of detailed discussion about what would make sense to them and what made sense to us and where our needs lie and so forth..

Great. Okay, and then just quickly on NEXUS you announced saying you expected to fill terms of contracts after it and just services, are you still saying the same as you were saying last quarter -- effectively or is –- yes, I think you were saying around the time it enters service.

So I am just curious if that is a shift or not a shift?.

Jonathan, I would say that last quarter we were saying that we are holding on to capacity that we feel is really valuable in this basin as capacity becomes short in this basin -- in a growing –- very quickly growing basin. So we've got –- continue to have discussions with producers, detailed discussion for capacity commitments.

And we are trying to maximize volume and term. And that we think this will play out once the pipe goes into construction and/or is in construction and goes in the service. So we have seen intensity of the discussions heat up as we predicted as we went into construction.

And we look forward to concluding deals here as we go into service that gives us the pricing that we are looking for..

So would you expect that to happen in this calendar year?.

So Jonathan, let me just add, not only answer that one is that I think we have been saying it for probably a couple years that the way these things play out is serious discussions happen once your pipe is in construction. And people believe that the know it's going to be there and it absolutely has played out.

Our team is in deep discussions with multiple producers at a scale that is very significant. So that's promising. For a variety reasons, these deals are going to close after the pipe is in operation. And that's probably all I can say on that.

But I think we will see deals closed not over a multiple years, but I think it's going to take months for what Gerry talked play outs will considerably see late 2018 into 2019 for these discussions to play out. And the reason is that people see the basin going short takeaway capacity in a couple of years. The writing is on the wall for that.

And so as producers try to set up capital plans in 2019 and beyond, they can't –- that capital plans until they have got takeaway. And so that's what people are talking to us about.

And as Gerry said we are going to make sure that we use what we think is really valuable resource in a basin that's going to go short in the best way for DTE and its partner..

Great, okay. Thank you.

And then just quick your comments on equity, are those sort of –- do those encompass doing a linked sized acquisition? Or would that presumably change your comments on equity?.

That would change the comments that we did in the acquisition some of the link we will be issuing shares just for that project in itself. That project will support additional equity that we would be issuing..

Okay. And then just one other thing on the RNG projects, you talked quite a lot about that business here. If I am not wrong, that business kind of keys off of the RIN values in the RFS program. And I am just curious how you have long term visibility on the value on those contracts given that the program sunsets in 2022.

And just if any further insight you can just sort of give us on how much term visibility you have on what the earnings are likely to be on these deals in the longer term? And maybe I am incorrect about some of that..

Well some of the first deals that we did have long term up ticks. So that was very valuable to us. And there is an ability in the market to hedge some of these products that we are producing so that is one of the ways that we are going to manage cash flows going forward.

But based on what we see and sort of the requirements that's been established by Congress for provision to provide these fuels, we see the market remaining short on supply and long on demand which we think will continue to put a lot of pressure on –- upward pressure on pricing, so again multiple strategies.

One is long term upticks with counter parties, bilateral arrangements as well as hedging program that help secure cash flows in the future..

The other thing I would say is that the RIN program is one source. And the way that's not short. It's way short supply demand and has been consistently supported through congresses of every stripe and EPAs by the way of every stripe as well.

So it seems we are durable program that has a provision that's just got a supply-demand gap that's not going to be closed anytime soon. But actually some of the deals are not driven by that market. That could be support market that is actually driven by state market.

So for example, California has a market that wants to pull renewable gas in the transportation sector. And some our deals are directed at that market and its dynamics. And again, there are producers there who need to fulfill those obligations and where we are supplying gas to those counter parties..

One of the added features that makes this market attractive for us is that as we look at IRRs and cash flows, the simple pay back is very fast. So exposure to market fluctuations has lessened the concern from an IRR perspective..

Sort of filing in the REF fall off perspective, I mean what is your visibility on the sort of post 2022 pricing on these deals?.

I think -- first of all I think there are actually really good dynamics in terms of filing in those earnings because they are strong earnings and good returns. And I think that as Gerry has been implying we have got visibility through that period. Now could Congress change out in the late 2020s? I suppose, that's possible.

But there is we have seen no sign of that. There's been very durable support in Congress for these sorts of provisions. But beyond that, I guess I would point you away from Congress to more some of the local markets that were supplying which have been if anything had the stronger and deeper into these sorts of provisions..

Okay.

So how long are the deals you have signed so far? Can you disclose that?.

Actually, we don't disclose deal-specific terms because we are negotiating other deals. So will probably keep those propriety. But we can give you a feel for how we view this business long term as we shed more light on it down the road..

Great. Thank you very much guys..

You bet..

And we'll take our next question from Andrew Weisel with Scotia Howard Weil. Please go ahead..

Thank you. Thanks for squeezing me in.

Just a couple of quick ones on the utilities, first question as far as generation with the increased renewable spend, the new gas plant, is there any change you are thinking from a supply/demand perspective as far as generation needs over the next say five to 10 years, or with the incremental renewable come as a replacement for something else you have been thinking about whether existing or new?.

Well, I don't know if you noticed the discussion in the state on long term renewable that happened. So we had a ballot initiative emerged in the state. It was kind of push Michigan to a 30% renewable standard. I actually wasn't crazy about it because it was from someone outside the state. The state was very well aligned behind what was happening here.

We actually had Republicans and Democrats and environmentalist and utilities on a common sheet, but what happened interestingly out of that whole discussion about the ballot initiative was an agreement that came out that targeted a 50% clean energy standard which is when you dig behind what that means it implied for us 25% renewable by 2030.

And when you look beyond this current renewable plan that we said has some upside for customers that are requesting voluntary increases, we think it implies in the 2022 to 2030 period incremental investments in renewable to what we would add to some measure.

And I think that one thing I would say is that as we continue to see renewable cost go down, I think those go hand in hand. So I would expect that renewable investments in the 2022 to 2030 period will probably surprise to the upside given trends and technologies and on the agreement that was just reached..

Okay, thanks. Then on the IRP scheduling, you guys are going to be going next year whereas your neighbors are going this year.

What in particular will be watching for to see how that process unfolds? And what you might be able to learn from them being the guinea pig so to speak?.

Well, I think we will certainly watch it very closely I mean their proceeding. And we are looking to file in March and we filed a version of IRP under the old legislation as part of our CON filing. You know, it's a need filing for the new power plant that we are going to build. So we'll be updating it.

I don't think they are -- we don't expect fundamental shifts in our plan. So I think you can rely on the current IRP that we filed as a projection into the future. We may update the renewable investments as we –- as Jerry mentioned as we start to think about how the next decade may evolve.

But that will only likely mean a higher renewable content or business..

And one of the things that I think people need to realize about us versus our neighbors is their starting points are different. So they have a much higher gas currently than we do. I think their mix is in the order of 30%, ours is much lower. So, our gas plant needs sense from that perspective.

And then I think one of the things we will be watching is technologies above is the need for another gas plant in the late 2020s versus the ability to handle that via renewables, and time will tell on that, we will just have to see how both our load and technologies evolve, but that will be one of the things I'm sure that we evaluate in the IRP next year scenarios that evaluate both potential outcomes..

That's helpful, and that certainly ties back to my first question as well.

Lastly, just a quick one on NEXUS, you previous talked about waiting for talking on some of the expansions whether it's compression, looping, all the other good things that you have done at Bluestone and Millennium, should we still be thinking of those types of announcements is coming only after U.S.

commitments in excess of the initial capacity?.

Yes, that's correct..

Okay, thank you..

Thank you..

And this concludes today's question-and-answer session. At this time, I would like to turn the conference back to today's speakers for any closing or additional remarks..

Well, again I want to thank everybody for joining the call. As I said at the beginning of the call, we had a great first-half of the year. And our increased guidance shows that. Second-half of the year as I mentioned, I think we are really well-positioned also. So I think you will see some really surprises, 2018 will be a strong year.

I also feel really good about the position that we are in to continue the track record of delivering premium results that we have shown over the last 11 years. So we look forward to providing you with updates as we move through the year and as we move through our longer term plan. Thanks for joining. We look forward to talking to all of you soon..

This concludes today's presentation. We thank you for your participation. You may now disconnect..