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Edited Transcript of DTE earnings conference call or presentation 24-Jul-19 1:00pm GMT

Q2 2019 DTE Energy Co Earnings Call

DETROIT Jul 26, 2019 (Thomson StreetEvents) -- Edited Transcript of DTE Energy Co earnings conference call or presentation Wednesday, July 24, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Barbara Tuckfield

DTE Energy Company - Director - IR

* Gerard M. Anderson

DTE Energy Company - Executive Chairman & Advisor To CEO

* Gerardo Norcia

DTE Energy Company - President & CEO

* Peter B. Oleksiak

DTE Energy Company - Senior VP & CFO

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Conference Call Participants

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* Andrew Marc Weisel

Scotia Howard Weil, Research Division - Analyst

* Constantine Lednev

Guggenheim Securities, LLC, Research Division - Associate

* David Neil Fishman

Goldman Sachs Group Inc., Research Division - Equity Research Associate

* Gregg Gillander Orrill

UBS Investment Bank, Research Division - Executive Director & Equity Research Analyst of Utilities

* Michael Weinstein

Crédit Suisse AG, Research Division - United States Utilities Analyst

* Paul Patterson

Glenrock Associates LLC - Analyst

* Praful Mehta

Citigroup Inc, Research Division - Director

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Presentation

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Operator [1]

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Good day, and welcome to the Q2 2019 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Barbara Tuckfield. Please go ahead.

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Barbara Tuckfield, DTE Energy Company - Director - IR [2]

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Thank you, Christian, and good morning, everyone. Before we get started, I would like to remind everyone to read the safe harbor statement on Page 2 of the presentation, including the reference to forward-looking statements.

Our presentation 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, Executive Chairman; Jerry Norcia, President and CEO; and Peter Oleksiak, Senior Vice President and CFO. We also have members of our management team to call on during the Q&A.

And now, I'll turn it over to Gerry Anderson to start our call.

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Gerard M. Anderson, DTE Energy Company - Executive Chairman & Advisor To CEO [3]

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Well, thank you, Barb, and good morning, everyone. So I think you're all aware that I turned over the CEO role to Jerry Norcia effective July 1. So I have long believed that one of the most important responsibilities that I had as CEO was to, at some point, hand off the job to a great successor at the right time and I'm fully confident that I am doing that.

One of the characteristics of strong healthy companies is that they execute seamless leadership transitions, transitions that don't involve a lot of drama or sharp shifts in strategy. We've been preparing for this transition for years, literally, almost since the day I took over. And back in December of 2018, I told the Board that July 1st of this year felt right to me.

So it's been a real honor to be DTE's CEO for the last 9 years. I'm extremely proud of what the company accomplished for you during my tenure. But DTE now has a great new CEO, and I am confident that he'll do great work for you and continue our pattern of outperformance. Jerry and I have worked closely together for more than 15 years. He's a great business leader, he also has a big heart for the people of DTE and for the communities we serve. He brings great experience to the role, he led our Gas Storage and Pipeline business as its President and then was President of our gas utility, our electric utility, and then eventually played the role of President and COO of DTE. He's a strong businessman. I think those of you who've met him know that. He also has the right values to lead this company, and so the CEO role will be in good hands as Jerry continues executing the vision that we share together for DTE. That said, I'm not leaving DTE Energy.

Moving forward, I'm going to serve as the company's Executive Chairman. And in that position, I'll act as an adviser to Jerry on business and strategic issues, so he and I will remain in close contact. But I'll bring a particular focus to DTE's community, state, federal and broader industry roles. One of the most important things an energy company can have for its success is a positive context within which to operate, a context within which your community leaders and state legislators and regulators and federal players view you as a good company trying to do the right things, and understand that you actually are doing that and therefore want to see you succeed. And I continue to focus on that, I'll continue to be a strong advocate for DTE's success, but I'm going to step back from many of the day to day roles I played as CEO. That's Jerry's work now and I am fully confident that he will do it very well. It's been a pleasure working with and for all of you over the years, and I look forward to continuing to see many of you from time to time on the road at IR events.

And with that, I am going to turn things over to Jerry Norcia.

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Gerardo Norcia, DTE Energy Company - President & CEO [4]

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Well, thanks, Gerry, and good morning, everyone. I'm very grateful for the confidence that Gerry and the Board have in me to lead this company through what I believe is such an exciting and transformative time in the energy industry.

DTE's top priorities remain the same, to be a great energy company, continue to foster a world-class employee engagement culture, to drive customer service to excellence, to be a force for good in our communities and to deliver distinctive shareholder returns.

I also want to thank Gerry for his mentorship and support since I joined DTE Energy. In his tenure leading DTE, Gerry led the transformation of our culture, drove a highly successful growth agenda and put us on a path to reduce carbon emissions more than 80% in a way that also supports customer reliability and affordability. He readied DTE for long-term success, and I look forward to building on a strong foundation that he set. I'm very optimistic and excited about the future of DTE because of our best-in-class team of employees as well as the historic opportunity to reinvent the way we produce and deliver energy for our customers. I'm honored to be leading this great family we call DTE now and into the future.

This morning I'm going to give you a recap of our performance for the second quarter of 2019 as well as an update on our long-term growth plan, then I'll turn it over to Peter who'll provide a financial review of the quarter and wrap things up.

So let me start on Slide 4. We continue to make great progress on several key fronts. Our second quarter financial results are solidly on track with our plan. With 1/2 of 2019 behind us, I'm confident that DTE is well positioned to raise our EPS guidance midpoint by $0.05. This guidance raise is mainly based on colder winter weather at the gas company and warmer late June and July weather at the electric company.

This increase takes into consideration the significant storms we expected -- experienced this past weekend and in total 600,000 customers were impacted, and all should be restored by the end of [the day.] We've made really good progress on this front. I want to express my gratitude to our employees, contractors and nearly 900 workers from as far as Georgia New York for aiding our restoration efforts.

In total, we have well over 2,000 people deployed in the field and many more in our operation centers working around the clock to get service restored to our customers.

Longer term, we continue to target a 5% to 7% operating EPS growth rate through 2023, with 2019 original guidance as a starting point for this growth. All of our business have accomplishments to note this quarter, and I will give you a brief overview when we go into more detail in the following slides.

So back in May, DTE Electric received a constructive rate order from the Michigan Public Service Commission that supports the modernization and automation of our grid. It also supports an aggressive tree trim program, both of which will result in significant improvements in the service reliability to our customers. Included in this order was approval for Charging Forward, which is our new program for electric vehicles. This program will bring the benefits of EVs for more Michigan residents and businesses through incentives, customer education and [charging] infrastructure growth.

We also filed a new rate case in July at the electric company, and we recently received approval for the purchase of 3 new Michigan wind parks.

At DTE Gas, we have a number of projects that are progressing nicely, including our accelerated main renewal program and additional transmission system improvements.

At our Gas Storage and Pipeline business, we acquired an additional 30% of Link, bringing our total ownership to 85%. This additional stake in Link complements our existing midstream business that's supported by solid underlying resources. This acquisition is organic in nature and stems from assets that we are already very familiar with. Link's performance has been better than pro forma since we acquired in 2016, and we expect it to continue to perform well into the future.

Moving on to our Power and Industrial business. We are pleased to announce 3 new cogeneration projects. These are in addition to the RNG projects mentioned on the first quarter call. We are very excited about our development within the Industrial Energy Services space. As you all know, our REF earnings will sunset in 2020 and 2022. The long-term plan for P&I is to replace these earnings as we move forward toward our 2023 earnings target range of $125 million to $135 million.

We are ahead of plan to originate approximately $15 million of earnings per year to reach this target. As you know, we successfully originated projects that achieved that growth target in 2017 with the Ford Motor Company project and 2 RNG projects in 2017, and in 2018, with 2 additional RNG projects.

We feel great that halfway through 2019, we have secured 3 cogeneration and 2 RNG projects, which gets us to our origination target for 2019. I'll provide more details on these P&I developments on the following slides. But first, I want to highlight several significant achievements of both utilities on Slide 5. As I mentioned earlier, the electric company received a constructive rate case order in May. We continue to have very constructive working relationships with the Michigan Public Service Commission and look forward to working with the newly-appointed Commissioner, Tremaine Phillips.

We're approved for a total rate base of $17 billion to continue to harden our system and make necessary improvements for our customers. We were also given the opportunity to surge our tree trim efforts which will serve our customers well. Most of our damage over the past weekend was related to trees, so I believe that this surge will certainly drive significant improvement in the performance of our system, and we're grateful for that.

In early July, DTE Electric filed a new rate case. In this filing, we requested that the MPSC approve a $1.3 billion rate base increase driven by continued infrastructure investments to ensure generation availability and improved distributional reliability. This continued reliability will be achieved through upgrading our circuits. The filing also requested the redesigning of substations to avoid system overload and adding more remote operating capabilities to detect and restore outages more quickly.

The rate case filing includes a 50-50 debt equity capital structure and a low income renewable pilot program that will better enable low-income customers to participate in our MIGreenPower voluntary renewables program. We expect a final order on this case next May.

As Michigan's leading producer of renewable energy, we received approval for the purchase of 3 new Michigan wind parks, which qualify for 100% federal tax credit, resulting in savings that will benefit our customers. Two of the projects, totaling 383 megawatts, are located in Mid Michigan and will be the largest clean energy projects in the state as well as the largest renewable energy projects in DTE's portfolio. The third project is a 72-megawatt park in Michigan's Upper Peninsula, which may alternatively be used to support additional sales under the Michigan -- under our MIGreenPower program, which is our voluntary renewables program. These parks will increase the company's renewable energy portfolio nearly 50%, furthering DTE's commitment to providing clean, affordable and reliable power to its customers.

Investing in new renewable energy is a key part of our commitment to reduce carbon emissions by at least 80% by 2040. Adding these new wind parks to our portfolio will help us meet the clean energy needs of our largest customers who have chosen MIGreenPower. We have aggressive plans to expand our voluntary renewable energy programs, enabling more customers to reduce their carbon footprint and meet personal or business sustainability goals. We are proud of the environmental and economic benefits these projects will bring to Michigan.

DTE's renewable projects not only benefit the environment, they are also helping drive Michigan's economy. DTE has driven investment of more than $2.8 billion in renewables since 2009, and will invest, in addition, $2 billion over the next 5 years. DTE's renewable energy projects have created or sustained more than 4,000 Michigan jobs while powering the equivalent of more than 500,000 homes with clean energy.

As I mentioned earlier, DTE Electric also launched our Charging Forward program, which is our new initiative for electric vehicles. We will provide a rebate of up to $500 to a residential customer who purchases or leases a new or used EV, installs a qualified charger and enrolls in a special rate beneficial for EV charging. DTE's business customers can also receive incentives on our EV charging equipment. We are thankful for the support of both the Michigan Public Service Commission as well as our auto industry partners and environmental advocacy groups in supporting our EV program.

Also late June, along with CMS, we renewed the license for our Ludington hydroelectric plant. The pump storage plant is the second largest in the U.S. with a capacity of over 2,000 megawatts and takes advantage of the unique geography we enjoy here in Michigan. We're investing $800 million dollars to upgrade Ludington, which will add 300 megawatts of capacity and prepare it for a long-term future. The upgrades are all -- are on schedule to be completed in 2020. The plant generates hydroelectric power and supports our renewables generation because it acts like a giant battery that can be tapped when renewable output drops.

The plant pumps water from Lake Michigan uphill through a 27 billion-gallon reservoir at low demand times and releases the stored water and energy downhill through the turbines to generate electricity when energy demand is higher.

Ludington can ramp up to peak output in just 30 minutes and provides a sustainable clean, reliable energy source. It also helps keep energy bills lower because it allows DTE Energy to avoid having to buy expensive out-of-state electricity when demand peaks.

Our new Blue Water Energy Center is also progressing on plan. We broke ground last year and received all the necessary permits. The plant is a little over 20% complete with an expected spring 2022 in-service date. A significant amount of civil work has been completed, and we expect the turbines to arrive on site later this year. Six days a week, workers representing numerous trades are on-site to support the $950 million project.

Moving on to our gas company. I mentioned we are progressing on several fronts. Our accelerated distribution main renewal program is on track. We have completed 48 miles this year. We'll complete 178 miles by year-end. Over the past several years, we have replaced over 650 miles with plans to replace an additional 3,500 miles by 2035.

We're also developing plans to invest in additional system improvements, including a transmission renewal program following a risk-based approach to support the growth, integrity and reliability of our gas transmission system inside our utility.

We are utilizing our risk model to prioritize upgrading or replacing approximately 100 miles of transmission lines by 2037, and compression in the range of 81,000-horsepower by 2035. We'll be working with our regulators to demonstrate reasonableness and prudency of these programs. Together these programs showcase the great things that are going on here in Michigan.

Now I'll turn to our nonutilities on Slide 6. Starting with our Gas Storage and Pipeline business, we feel great about the progress year-to-date as well as the outlook for the rest of 2019 and beyond. The second half of the year, GSP earnings will increase from the first half of the year for a number of reasons, including the acquisition of an additional 30% of Link. Also as you remember, we are acquiring the Generation Pipeline, which is consistent with the strategic growth plans DTE and Enbridge have for NEXUS. The acquisition is progressing through regulatory proceeding as it is on track to close in the second half of this year. Additionally, we placed Millennium's eastern system lateral upgrade in service late in the first quarter this year. Finally, the Link expansion is progressing quite well, we're expanding the system and connecting new gathering resources. Due to all these factors, we expect GSP to have

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2019.

Next I'll walk through our Power and Industrial business. This quarter, a number of deals we've had in the works came to fruition. We are finalizing 3 new cogeneration projects. First, we finalized the development agreement with Stelco to develop a strategic cogeneration project at their Lake Erie steel facility in Ontario. DTE's experience in the cogeneration space will enable Stelco to reduce its energy cost by utilizing excess industrial gases and reducing exposure to peak electricity pricing.

Also we are purchasing a CHP plant to serve as a commercial customer. This project provides hot and chilled water to the facility. It's well within our growth strategy to provide on-site energy for large commercial and industrial customers. Both of these investments are underpinned by long-term offtake agreements.

Finally, we will also operate a CHP plant here in Detroit at the Wayne County Criminal Justice Center. P&I will design, build and operate county-owned central utility plant and provide hot and chilled water and backup power. The justice center is on track to begin operations in 2022.

On the RNG front, we've closed on 2 greenfield projects we mentioned on the first quarter call. Both projects are located in Wisconsin where we have built a strong energy presence based on our [expansive] experience there. For competitive reasons, we don't discuss the returns on these nonutility assets but I can tell you that they get better than utility returns and the capital investment of all the projects I just discussed is in excess of $200 million.

As I mentioned earlier, we feel great about our recent project developments and how they fit into our plan to replace REF earnings, which will sunset in the near future.

And with that, I'm going to turn it over to Peter to share our financial results.

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Peter B. Oleksiak, DTE Energy Company - Senior VP & CFO [5]

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Thanks, Jerry, and good morning, everyone. Before I get into the financials, I would like to give an update on my Detroit Tigers. At this point in our rebuild process, the eye is definitely on the future and the farm system. At this one point, Casey Mize, who was our #1 pick last year did pitch a no-hitter this year in the minors. The present is currently dark but the future is looking bright. And the financials are consistently bright here at DTE, so let me turn your attention to the financial results. Now let's start the review on Slide 7. Total earnings for the second quarter were $183 million. This translates into $0.99 per share for the quarter. You can find a detailed breakdown of EPS by segment, including a reconciliation to GAAP reported earnings in the appendix. Earnings for the quarter are lower than the second quarter last year primarily due to unfavorable weather this year.

Let me start my review at the top of the page with our utilities. DTE Electric earnings were $134 million for the quarter. This is lower than 2018, largely due to cooler weather and rate base growth cost, offset by the impact of new rates implemented in May.

DTE Gas has second quarter 2019 operating earnings of $4 million. This is $10 million lower than the second quarter of 2018. The earnings decrease is driven by primarily by the $10 million tax-timing item I mentioned on the first quarter call that is reversing this quarter as well as less weather favorability in 2019. This was offset by the impact of new rates implemented late last year.

Let's move down the page to the third row to our Gas Storage and Pipeline business. Operating earnings for our GSP segment were $50 million for the quarter. Last year, we had one-time positive earnings related to AFUDC at NEXUS and higher than planned volumes across the portfolio. This year, we have normalized earnings at NEXUS and volumes are on plan. As a result, this quarter is down $10 million versus the second quarter of 2018.

GSP is performing according to plan through the second quarter, and we will see the benefit in the second half of the year from the volumes on Link that continue to ramp up, and we'll also see the full impact of the Millennium expansion and recent acquisitions.

On the next row, you can see our Power and Industrial business segment operating earnings were $29 million. Earnings are $14 million lower than the second quarter of 2018. This decrease is due mainly to the REF tax equity transactions that occurred in the fourth quarter of 2018.

And as we communicated previously, we entered into equity partnerships in our [REF] units to accelerate cash flows around $100 million per year for the next 3 years to support growth projects. This lowers earnings this year around $40 million versus 2018. Also I would like to note that most of the new projects originated over the last few years will start adding to earnings later this year and early next year.

Our Energy Trading business had an accounting operating loss of $2 million, earnings are lower this quarter compared to the second quarter last year due to the lower gas portfolio earnings and timing of realized economic earnings. Our trading company is having another solid year. Year-to-date, economic earnings are on plan and in line with guidance. The appendix contains our standard energy trading reconciliation showing both economic and accounting performance.

And finally, Corporate and Other was favorable $9 million this year compared to the second quarter last year, and this was due primarily to the timing of taxes.

So overall, DTE earned $0.99 per share in the second quarter of 2019.

Now on to Slide 8. Given the strong start to the year for both our utilities driven by favorable winter weather at our gas company and favorable July weather at our electric company, we are increasing the 2019 operating EPS guidance midpoint by $0.05 to $6.20. The earnings were lower than the first half of last year, this was contemplated in our original guidance. As you know, DTE enters each year with contingency, and this year was no exception. We mentioned on the first quarter call, we built additional contingency with the winter weather at our gas utility. Now electric company has had a strong first half of the year with additional weather-related earnings coming here in July. The weather favorability over and above our increased guidance will be held for reinvestment and storm expenses associated with this warmer-than-normal weather. This sort of planning has been one of the keys to our success in providing predictable results every year.

Now I'll wrap up on Slide 9, and then we'll open it up for the questions. In summary, I feel confident in achieving our increased 2019 guidance, keeping on track to beat our original guidance for the 11th consecutive year. For the past 10 years, we beat original guidance by an average of $0.25 per share. We are also well positioned to continue our 5% to 7% operating EPS growth in the years to come. Our utilities continue to focus on necessary infrastructure investments, specifically for investments to improve reliability and the customer experience.

Our nonutilities continue to position us for long-term growth. Finally, I feel very good about our ability to continue to deliver the premium total shareholder returns that we have delivered over the past decade.

And with that, I would like to thank everyone this morning for joining us. And Christian, you can open up the line now for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will now take our first question from Praful Mehta from Citigroup.

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Praful Mehta, Citigroup Inc, Research Division - Director [2]

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Congratulations, Jerry.

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Gerardo Norcia, DTE Energy Company - President & CEO [3]

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Thank you very much, Praful.

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Praful Mehta, Citigroup Inc, Research Division - Director [4]

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All right. So maybe the first question on the quarter, the weather clearly impacted the electric side. Just wanted to understand, when you highlighted the lower performance of Q2 '19 versus '18, you highlighted weather and rate base growth cost. Could you clarify a little bit of exactly how much was weather and what exactly is rate base growth cost and what was the impact of that part of it?

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Gerardo Norcia, DTE Energy Company - President & CEO [5]

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Yes. The weather [favorability] that we have in the appendix as well the actual amount -- we did have a cooler $44 million for the quarter. So it's been relatively significant from a weather perspective. We had a hot weather last year in the second quarter. First part of June started actually relatively cold for us. So a good portion of that decline that you're seeing there is weather related. Now the term rate base related costs, that is the depreciation, interest expense, property tax related to rate base. Now that is more than offset by the new rates that were deployed in our last rate case.

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Praful Mehta, Citigroup Inc, Research Division - Director [6]

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I got you. Great. Helpful. And then in terms of the increased guidance for 2019, it sounds like the benefit from what you saw in July is flowing in there as well. How much is that benefit as a part of like the $0.05 increase that you had for the 2019 guidance?

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Peter B. Oleksiak, DTE Energy Company - Senior VP & CFO [7]

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Yes. We can't really -- I can't really give exactly the number yet for July but I can tell you that July is one of the hotter Julys we've had here in recent history. So I'd say a good portion of that say it relates to that. Now we did hold back some of that weather favorability here in July. Some of that is for the storm that we've experienced, [Gerard] mentioned that. We do traditionally give back a portion and when you have extreme weather we had in July, 2 storms. So we're going to be funding that as well as holding back for reinvestment. We'd like to do that as well especially with customer-centric and facing projects.

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Gerardo Norcia, DTE Energy Company - President & CEO [8]

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Yes, one of the things I'll add is that the contingency levels that we have in all our business units feels quite strong at this point in time, and that's why we felt comfortable with raising guidance at this point. So we still continue to hold significant amount of contingency in our plans for the balance of the year.

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Praful Mehta, Citigroup Inc, Research Division - Director [9]

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Great. That's super helpful. And then just finally, in terms of the equity issuance, any clarity on timing of how we should think about the equity between '19 and '21?

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Peter B. Oleksiak, DTE Energy Company - Senior VP & CFO [10]

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Well, we did mention that we wanted $1 billion to $1.5 billion over the next 3 years, $250 million of that this year. We've done already $165 million for this year. So $250 million target this year. We'll give an update at EEI for our plan for next year. [But like you] know, our goal would be at the lower end of that $1 billion range. And if we do that with continued strong performance like we're seeing this year and we do hold contingency, we don't need that contingency, we'll be at the lower end of the range. But we'll give a fuller update here in the fall.

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Operator [11]

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We will now take our next question from Shar Pourreza from Guggenheim Partners.

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Constantine Lednev, Guggenheim Securities, LLC, Research Division - Associate [12]

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Sorry, it's actually Constantine here. I was on mute for a second. Just a quick question on the expectations for future acquisitions and kind of capital that's getting deployed in the GS&P segment. How is that tracking versus the prior guidance that you provided? I think it was roughly $4 billion to $5 billion over the course of the plan. And just curious to see how kind of -- what the current acquisitions [are] and the expansion that's going?

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Gerardo Norcia, DTE Energy Company - President & CEO [13]

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Sure. So we mentioned the 4 organic investments that were -- are progressing quite nicely this year. The Link expansion, the Millennium expansion which is complete. The Link expansion will be complete later this year. We completed the Link acquisition, the bolt-on acquisition, and we're also looking to complete the Generation Pipeline acquisition. All of that feeds quite nicely into our '19 plans and 2020 plans. So we feel like we're lining up growth quite nicely for that platform over the next 2 years. We are looking at acquisitions, we always do. The markets actually become -- starting to bring a lot of opportunities forward as we see some midstream companies under severe stress from a balance sheet perspective as well as we see producers redirecting capital towards our drill bit. We're starting to see opportunities kind of float our way, and we're being very selective and very disciplined about how we look at those. So feeling pretty good about the prospects of that business line right now.

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Constantine Lednev, Guggenheim Securities, LLC, Research Division - Associate [14]

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Okay. Perfect. And just one quick follow-up, just a housekeeping item on kind of the -- [to go] for the rest of the year, the raise in the utilities guidance, the earnings contributions there is mostly going to be driven by rate cases and reinvestments, is that correct?

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Gerardo Norcia, DTE Energy Company - President & CEO [15]

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That's correct.

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Peter B. Oleksiak, DTE Energy Company - Senior VP & CFO [16]

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That's correct.

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Operator [17]

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We will now take our next question that comes from Michael Weinstein from Credit Suisse.

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Michael Weinstein, Crédit Suisse AG, Research Division - United States Utilities Analyst [18]

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Congratulations to both Gerrys.

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Gerardo Norcia, DTE Energy Company - President & CEO [19]

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Thank you, Michael.

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Gerard M. Anderson, DTE Energy Company - Executive Chairman & Advisor To CEO [20]

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Thank you.

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Michael Weinstein, Crédit Suisse AG, Research Division - United States Utilities Analyst [21]

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And first question I had is about the delays in other pipelines throughout the country, such as Atlantic Coast Pipeline and Mountain Valley Pipeline. I'm wondering if that's -- what kind of opportunities that may be giving you guys for long-term contract with NEXUS, if any? Are you seeing any difference there?

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Gerardo Norcia, DTE Energy Company - President & CEO [22]

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We're starting to feel that for sure. I mean with these projects being delayed and uncertainty developing in those projects, certainly there's a lot more interest in some of our pipeline platforms to move. The growing Appalachian basin, just to give you a feel for, the basin grew about 13% year-over-year from a production volume perspective. So we're still of the view that this basin will go short pipe capacity over the next year or 2. And that's going to play, in our opinion, very favorably into how our assets are positioned to take advantage of that, especially NEXUS.

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Michael Weinstein, Crédit Suisse AG, Research Division - United States Utilities Analyst [23]

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And also the company has a history with the fuel cell industry long time ago. I'm just wondering if there is any potential opportunity at P&I to maybe pursue that once again at some point in the future as the technology starts to improve?

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Gerardo Norcia, DTE Energy Company - President & CEO [24]

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We haven't looked at that lately. I mean we're really focused on cogeneration and renewable natural gas. Those are our 2 primary business lines, but we have not looked at that in some time.

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Operator [25]

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We will now take our next question from Andrew Weisel from Scotia Howard Weil.

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Andrew Marc Weisel, Scotia Howard Weil, Research Division - Analyst [26]

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And again, just want to echo congratulations to both Gerrys. Outstanding work and looking forward to the next chapter.

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Gerardo Norcia, DTE Energy Company - President & CEO [27]

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Thank you, Andrew.

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Gerard M. Anderson, DTE Energy Company - Executive Chairman & Advisor To CEO [28]

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Thank you, sir.

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Andrew Marc Weisel, Scotia Howard Weil, Research Division - Analyst [29]

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My first question is on the wind farm acquisitions. You gave the IRP out in March and talked about the plans to grow your renewables. My question is does this change simply the timing as far as accelerating when the wind capacity will grow or would this be more incremental renewables in the mix, and might that impact the timing of coal plant retirements?

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Gerardo Norcia, DTE Energy Company - President & CEO [30]

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Well, the renewables that we -- renewable parks that we're acquiring and building out are part of our plan and included in our current forecast, and I think that's really it. Does that answer your question?

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Andrew Marc Weisel, Scotia Howard Weil, Research Division - Analyst [31]

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Yes, I guess. So in other words, this doesn't change the outlook for the mix, it just gives better visibility. Is that a fair way to look at it?

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Gerardo Norcia, DTE Energy Company - President & CEO [32]

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Yes. And Andrew -- yes, we have filed this some time ago as part of our renewables build-out program to meet the 2016 energy legislation goals of being at 15% by 2021. So this 455 megawatts accomplishes that, plus also gives us the opportunity to sell into the voluntary renewables markets.

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Peter B. Oleksiak, DTE Energy Company - Senior VP & CFO [33]

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Yes. And Andrew, this is Peter. Just to further add to Jerry. At EEI, we mentioned, we had 600 megawatts of voluntary renewable, so this helps support that as well as our compliance with our state, state plan.

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Andrew Marc Weisel, Scotia Howard Weil, Research Division - Analyst [34]

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All right. Great. That's what I thought. Then my other question on midstream. You briefly talked about the Appalachian growth -- gas production. Recently though, the activity has really been moving down with the commodity. The rig count is down about 25% or so since April and probably continuing to fall. Does this change your outlook at all as far as activity in the basin or utilization of your system?

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Gerardo Norcia, DTE Energy Company - President & CEO [35]

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We watch activity in and around our pipelines very closely, producer activity that is. And what the producers said they were going to do this year they are doing in terms of drilling and connecting wells to our system. So we're seeing volumes right on top of our forecast. Actually, that also plays well into next year as they drill wells this year also feeds our growth for next year. So we're seeing them do what they said they're going to do. I think the one thing we are seeing is more companies coming forward and looking to sell some of their midstream assets, which I think will make it pretty interesting for us going forward to look at some of those. So I -- we feel real good about where we sit right now. Now, I did mention that the basin grew about 13% year-over-year in terms of production volumes. We're forecasting about a 5% to 6% growth rate going forward. So we are forecasting what we will call a slight slowdown, but that's built into our forward-looking view for this business line.

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Andrew Marc Weisel, Scotia Howard Weil, Research Division - Analyst [36]

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Okay. Very good. And then lastly, you did just mention some midstream M&A. We've seen some activity recently with the assets that are passed, where there any specific characteristics you didn't like or is it more a function of price discipline?

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Gerardo Norcia, DTE Energy Company - President & CEO [37]

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We look at assets that, one, create value for us, obviously; and secondly, that are either early or mid-cycle growth. We don't like buying assets that are very mature and don't provide us with upside opportunity. And then we also look at the resource base. That's the third thing we look at, if they're gathering related type assets, and we do a pretty hard scrub on the resource base, because that's really what drives the opportunity for growth and value in the future. So that's the criteria that we use. So if we pass on assets, it likely doesn't meet one of those 3 criterias.

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Operator [38]

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We will now take our next question from David Fishman from Goldman Sachs.

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David Neil Fishman, Goldman Sachs Group Inc., Research Division - Equity Research Associate [39]

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Congrats to both Gerrys again.

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Gerardo Norcia, DTE Energy Company - President & CEO [40]

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Thank you, David.

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David Neil Fishman, Goldman Sachs Group Inc., Research Division - Equity Research Associate [41]

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So just kind of continuing on that theme, I think you did a good job of outlining those 3 points, but do you guys -- when you think about adding value for your system, does this -- do you usually focus more on opportunities that would connect to an existing portfolio and kind of smaller bolt-on? Or is this really going to be more just opportunistic for somewhere that you see growth kind of in this future, so if I'm thinking about Generation Pipeline or SGG, those have the potential to connect to your system and grow from there?

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Gerardo Norcia, DTE Energy Company - President & CEO [42]

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All of our growth in this business line has been in the Great Lakes region. So we'll continue -- that will be our primary focus to continue focusing on the Great Lakes region. If an asset opportunity, if it presented itself outside of the region -- that we understood would create value, we would be open to that. But our primary focus is in the Great Lakes region.

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David Neil Fishman, Goldman Sachs Group Inc., Research Division - Equity Research Associate [43]

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Okay. That makes sense. And then just one quick follow-up on the regulated guidance. I know you mentioned very favorable weather in July so far, have you guys gotten a bit of a sense of what the storm impact might look like over the past weekend? And just curious if you guys have insurance or how you guys think about some of the levers there?

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Gerardo Norcia, DTE Energy Company - President & CEO [44]

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So these kind of storms usually come with really, really hot weather. And I can tell you that the hot weather far outstrips the expense for the storm, so we're net ahead, and that's why we feel comfortable that we're actually building contingency in the electric business line, even with the guidance raise. And the answer on the insurance is, no, we don't carry insurance for storms.

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David Neil Fishman, Goldman Sachs Group Inc., Research Division - Equity Research Associate [45]

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Okay. That makes sense. And then one last question. Just on cogeneration and kind of how you think about the opportunity set there? And how maybe, from our standpoint, we should think about where the opportunities might lie. Do you typically -- is this something where you'd contract with more newer facilities? Or those going through kind of transformative investment plans, kind of like Ford in Dearborn put out a 10-year plan. Stelco, they have 2 facilities but naturally you went with like the -- kind of the newer one. As we just think of the new exposure to Toledo corridor, we -- should we be looking for new facilities, specifically as potential opportunity sets?

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Gerardo Norcia, DTE Energy Company - President & CEO [46]

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Yes. So the criteria that we use is, of course, we examine the site that we're investing against and the business that we're investing against very carefully. So we look at the long-term viability, the prosperity of the site that we're going to invest against as a cogeneration investor. And so that analysis is something that we're doing in a great level of detail. And once we're comfortable with that, then it's really about negotiating a return that is more attractive than our utility returns before we deploy capital. So that's how we look at those types of investments, so the site and the business on the site is really important. In terms of the Toledo corridor, we are seeing a lot of action, mostly combined cycle plants that are building up in and around the NEXUS pipeline. So we're excited about that, and we're actively pursuing, connecting some of those assets for the NEXUS pipeline. So that's what we're seeing in the Ohio corridor that we're most -- that we can most influence results in.

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Operator [47]

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Our next question comes from Gregg Orrill from UBS.

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Gregg Gillander Orrill, UBS Investment Bank, Research Division - Executive Director & Equity Research Analyst of Utilities [48]

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So the 15 -- just to maybe reconfirm on the origination goal at P&I business of [$15 million] a year, you said you would reach the...

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Gerardo Norcia, DTE Energy Company - President & CEO [49]

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$15 million.

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Gregg Gillander Orrill, UBS Investment Bank, Research Division - Executive Director & Equity Research Analyst of Utilities [50]

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Sorry?

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Gerardo Norcia, DTE Energy Company - President & CEO [51]

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I'm sorry, I just said it -- $15 million a year, that's correct.

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Gregg Gillander Orrill, UBS Investment Bank, Research Division - Executive Director & Equity Research Analyst of Utilities [52]

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Okay. And you reached the goal for '19 is what you were saying?

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Gerardo Norcia, DTE Energy Company - President & CEO [53]

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That's correct. We feel actually we may have exceeded it somewhat as well.

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Gregg Gillander Orrill, UBS Investment Bank, Research Division - Executive Director & Equity Research Analyst of Utilities [54]

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Okay.

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Gerardo Norcia, DTE Energy Company - President & CEO [55]

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With the 5 projects.

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Gregg Gillander Orrill, UBS Investment Bank, Research Division - Executive Director & Equity Research Analyst of Utilities [56]

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How much do you think a project [does] contribute?

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Gerardo Norcia, DTE Energy Company - President & CEO [57]

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We really don't disclose how much each project contributes, but I can tell you that the -- were we -- the 5 projects that we're talking about will generate about $200 million of capital investment and that those returns are in excess of our utility returns so that might give you a feel for what kind of income is being generated.

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Operator [58]

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Our next question comes from Paul Patterson from Glenrock Associates.

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Paul Patterson, Glenrock Associates LLC - Analyst [59]

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Congratulations, guys.

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Gerardo Norcia, DTE Energy Company - President & CEO [60]

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Thank you, Paul.

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Paul Patterson, Glenrock Associates LLC - Analyst [61]

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It's been quite a road and well, congratulations. And I guess the question I sort of have for you is, I noticed there was a special inspection for Fermi. I think we're going to get a report like in 30 days or something like that...

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Gerardo Norcia, DTE Energy Company - President & CEO [62]

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Yes.

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Paul Patterson, Glenrock Associates LLC - Analyst [63]

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But I'm just sort of wondering given how nuclear economics are challenged around the country and of course, the special inspection just made me think generically, what is the long-term plan for Fermi, and are there any other opportunities maybe to replace it or just how are you guys thinking about that?

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Gerardo Norcia, DTE Energy Company - President & CEO [64]

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Well, Paul, that's a great question. I -- we view Fermi in a very positive light and let me explain why. One, it is a regulated asset, so we don't operate in the merchant market where everything trades towards variable cost and the price that we can produce carbon-free energy from that plant and the amount of power that we can produce from -- in a carbon-free way, I don't think any other renewable resource can touch it. So I feel like it's a bit of a jewel in terms of our future and provides us great options into the future to produce highly economic and carbon-free power. So we see a long future for Fermi.

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Paul Patterson, Glenrock Associates LLC - Analyst [65]

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Okay. Great.

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Gerardo Norcia, DTE Energy Company - President & CEO [66]

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And I think the torus issue that you referred to is something that's existed at the plant for 30 years. We've managed it well with the regulator, and we're working with the regulator to move that issue to a good conclusion. And of course, as you know, we'll always do the right thing on a nuclear plant.

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Operator [67]

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As there are no further questions in the phone queue at this time, I would like to hand the call back over to you, Mr. Norcia, for any additional or closing remarks.

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Gerardo Norcia, DTE Energy Company - President & CEO [68]

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Well, thank you, Christian. And with that, I'll wrap up by thanking everyone for joining the call. We've had a great first half of the year as evidenced by our increased guidance, and I feel really good about the position we are in to continue our solid track record of delivering premium results. I look forward to providing you with updates as we move through the year. Thanks, again, for joining us. We appreciate the questions, and we'll talk to you all soon. Have a great day.

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Operator [69]

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This will conclude today's conference. Thank you all for your participation. You may now disconnect.