Q4 2023 DTE Energy Co Earnings Call

Participants

Barbara Tuckfield; Director - IR; DTE Energy Company

David S. Ruud; Executive VP & CFO; DTE Energy Company

Gerardo Norcia; CEO & Chairman; DTE Energy Company

Andrew Marc Weisel; Analyst; Scotiabank Global Banking and Markets, Research Division

Anthony Christopher Crowdell; Executive Director; Mizuho Securities USA LLC, Research Division

David Keith Arcaro; Executive Director & Lead Analyst of Utilities; Morgan Stanley, Research Division

Durgesh Chopra; MD and Head of Power & Utilities Research; Evercore ISI Institutional Equities, Research Division

Gregg Gillander Orrill; Executive Director & Equity Research Analyst of Utilities; UBS Investment Bank, Research Division

Jeremy Bryan Tonet; Senior Analyst; JPMorgan Chase & Co, Research Division

Julien Patrick Dumoulin-Smith; Director and Head of the US Power, Utilities & Alternative Energy Equity Research; BofA Securities, Research Division

Michael P. Sullivan; VP of Equity Research; Wolfe Research, LLC

Nicholas Joseph Campanella; Research Analyst; Barclays Bank PLC, Research Division

Ryan Michael Levine; VP; Citigroup Inc., Research Division

Shahriar Pourreza; Senior MD & Equity Research Analyst; Guggenheim Securities, LLC, Research Division

Sophie Ksenia Karp; Director and Senior Analyst of Electric Utilities & Power; KeyBanc Capital Markets Inc., Research Division

Presentation

Operator

Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the DTE Energy Fourth Quarter 2023 Earnings Conference Call. (Operator Instructions)
I would now like to turn the call over to Barbara Tuckfield, Director of Investor Relations. Please go ahead.

Barbara Tuckfield

Thank you, and good morning, everyone. Before we get started, I would like to remind you to read the safe harbor statement on Page 2 of the presentation, including the reference to forward-looking statements. Our presentation also includes references to operating earnings, which is a non-GAAP financial measure. Please refer to the reconciliation of GAAP earnings to operating earnings provided in the appendix.
With us this morning are Jerry Norcia, Chairman and CEO; and Dave Ruud, Executive Vice President and CFO.
And now I'll turn it over to Jerry to start the call this morning.

Gerardo Norcia

Thanks, Barb, and good morning, everyone, and thanks for joining us. I hope everyone is having a healthy and safe year so far. This morning, I'll give you a recap on the accomplishments we achieved in 2023 and provide highlights on how we are well positioned for 2024 and beyond. Dave will provide a financial update and wrap things up before we take your questions.
As you know, 2023 was a challenging year for DTE as we faced significant headwinds from an unprecedented combination of weather and storm activity. I am very proud that our company came together to face these headwinds and execute on our plan that offset the majority of the challenges. We achieved operating earnings per share of $5.73 in 2023. This was a result of overcoming $300 million of the approximately $400 million of headwinds that we faced.
In the appendix, we included a summary of the headwinds and the onetime actions we took in 2023. As I said during the year, the fact that we were able to offset most of the challenges we faced while maintaining service excellence is a clear indication of our highly engaged team and our commitment to operating excellence. I couldn't be prouder of our team's effort in 2023 and our commitment to deliver for all of our stakeholders will continue into 2024 and beyond.
This engagement of our team at DTE was recognized with our 11th consecutive Gallup Great Workplace Award. DTE was also recognized as one of Metro Detroit's Best and Brightest companies to work for as well as one of Time Magazine's best companies for future leaders. We continue to address our customers' most vital needs by investing heavily in our utilities to rebuild our aging infrastructure, improve reliability and support the transition to cleaner generation. There have been a number of developments that support our customer-focused investment agenda, including the filing of our distribution grid plan that provides a road map to improve reliability and automation of our system and our integrated resource plan that outlines our investment in Michigan's cleaner energy future while remaining very focused on customer affordability.
In 2023, we made strides on our reliability improvement goals. I'll go over this in more detail on the next slide, but I can tell you that our efforts in this area are working. In circuits where upgrades were completed in the first half of 2023, customers experienced 33% fewer outages during the second half of the year compared to the second half of 2022. Also supporting our investment agenda is the constructive electric rate case order we received in December.
During the first half of this year, we expect to file our next electric rate case, which will underpin the continued investments in system reliability, grid modernization and cleaner generation. We also recently filed a rate case at DTE Gas to support important investments necessary to continue to renew our gas infrastructure, which will minimize leaks and reduce costs. So you can see that we continue to invest heavily in our utilities in 2023. DTE Electric invested $3.1 billion on continued improvements in reliability, and cleaner energy generation for our customers, while DTE Gas invested nearly $750 million on infrastructure and main renewal improvements.
Reinvesting in utility infrastructure, the drive reliability improvements, far exceeds cash generated from operations, demonstrating our commitment to improving reliability for our customers. Another significant event in 2023 was the passing of new clean energy legislation in Michigan that the Governor signed in November. This energy policy creates a very clear road map for the development of additional solar, wind and storage assets that is generally consistent with the accelerated renewables build and cleaner generation path that we laid out in our IRP filing. This investment is supported by the Inflation Reduction Act that includes provisions, which reduced the cost of investments in our system, and we pass all of these benefits along to our customers.
Our effort to maintain affordability for our customers has been demonstrated over the last 4 years. Based on the outcome of our last rate order, the average annual growth of our residential electric bill is just over 1% since 2020 compared to a national average annual increase of over 6%. This is supported by a $300 million reduction in our fuel and purchased power costs that went into effect last December to lower customer bills. Through this significant reduction, along with our long history of cost savings through continuous improvement, we will continue to effectively manage affordability for our customers.
On the community front, DTE was honored to be named to the Civic 50 for the sixth consecutive year. This award presented by points of light, recognizes the most community-minded companies in the nation. I am proud that our team continues to put the communities we serve at the forefront each and every day in our decision-making. We have a robust investment agenda of $25 billion over the next 5 years, which is a $2 billion increase over the prior plan, and we have a 10-year capital plan of over $50 billion. 95% of our capital will be invested at our 2 utilities. Investments in our nonutility businesses are strategically focused on our customers' needs and align with our clean energy initiatives.
Our 2024 operating EPS guidance midpoint provides 7% growth from our 2023 original guidance midpoint. Our long-term operating EPS growth remains at 6% to 8%, with 2023 original guidance as the base of that growth and our 2024 annualized dividend of $4.08 per share is consistent with our practice of growing dividends in line with our operating EPS.
Importantly, we will continue to have a strong balance sheet and investment-grade credit ratings to support this customer-focused capital investment plan.
Now let's turn to Slide 5. At DTE Electric, our significant capital investment plan is focused on building the grid of the future for our customers and supporting the transition to cleaner generation. Our recently filed distribution grid plan outlines our path to build the grid of the future. This plan includes the transition to a smart grid with full automation within 5 years, resulting in less frequent and shorter outages for our customers. We are also investing $9 billion on distribution infrastructure over the next 5 years, targeting reliability improvements of more than 60%.
During 2023, DTE Electric focused on improving the reliability of over 400 of our most challenging circuits, including trimming more than 5,000 miles of trees, installing more than 200 automated reclosers and maintaining our extensive network of electric infrastructure, including replacing pole top equipment in over 3,500 utility poles. We are continuing to accelerate our tree trimming program. We are also continuing our accelerated preventative maintenance by upgrading more than 10,000 miles of infrastructure with over 1,300 miles upgraded in 2023.
Finally, we are accelerating the rebuild of our 4.8 kV system and pursuing undergrounding. We did experience a large storm in January, and our team came together to achieve one of the fastest restorations for a storm of this size. The $2 billion increase in our DTE Electric 5-year plan is driven by investment and cleaner generation that is supported by the IRP, the recently passed energy legislation and our voluntary renewables program. Accelerating this investment provides more affordable energy for customers over the long term. Our voluntary renewables program is still exceeding our high expectations.
As I mentioned last year, the National Renewable Energy Laboratory recognized DTE as having the largest green tariff program in the country, fulfilling more load under contracted subscriptions than any other program.
Now let's turn to Slide 6. At DTE Gas, we are planning to invest $3.7 billion over the next 5 years to upgrade and replace our aging infrastructure. Over the years, we have made significant progress and recovered investment through our infrastructure recovery mechanism. Since the program began, we have renewed over 1,700 main miles and plan to complete over 200 more miles in 2024. Our natural gas balance program also continues to grow with over 13,000 customers currently subscribed. The program offers ways for customers to manage their carbon footprint through carbon offsets with our forestry partners in Northern Michigan as well as renewable natural gas.
And now let's discuss the opportunities at DTE Vantage on Slide 7. At DTE Vantage, we are planning to invest between $1 billion to $1.5 billion over the next 5 years. We continue to advance custom energy solutions, RNG and carbon capture and sequestration projects. One project that we'll highlight is the expansion of a long-term fixed fee custom energy solutions agreement with Ford Motor Company to build, own and operate and maintain the central utility plant and distribution infrastructure serving its facility in Tennessee.
In addition to the utility generation infrastructure, we will also provide distribution of hot and chilled water, steam, natural gas and electricity, domestic and sanitary water along with HVAC equipment and a wastewater treatment facility. Projects that are organic expansions like this one are attractive to us, given the long-term relationships, strong sites and a utility-like structure. This project, combined with other projects helps position us for future growth. Our development pipeline advantage remains strong. The IRA improves decarbonization opportunities as enhanced tax credits allow our projects to be more economic including carbon capture, RNG and combined heat and power projects.
The RNG market growth continues and is supported by the federal renewable fuel standard and California's low carbon fuel standard.
With that, I'll turn it over to Dave to give you a financial update. Dave, over to you.

David S. Ruud

Thanks, Jerry. Good morning, everyone. Let me start on Slide 8 to review our 2023 financial results. Operating earnings for the year were $1.2 billion. As Jerry mentioned, we achieved operating earnings per share of $5.73 in 2023. This was achieved after experiencing and overcoming additional headwinds with December being one of the warmest on record. You can find a detailed breakdown of EPS by segment, including our reconciliation to GAAP reported earnings in the appendix. I'll start the review at the top of the page with our utilities. DTE Electric earnings were $791 million for the year. This is $170 million lower than 2022. The main drivers of the earnings variance was warmer winter weather, cooler summer weather and higher storm expenses. There are also higher rate base costs, lower residential sales relative to '22 with the continuation of people returning to work and accelerated deferred tax amortization in 2022. This was all offset by the onetime O&M cost reductions that we implemented in 2023.
Moving on to DTE Gas. Operating earnings were $22 million higher than 2022. The earnings variance was driven by onetime O&M cost reductions and IRM revenue in 2023, which was offset by warmer weather and higher rate base costs.
Let's move to DT Vantage on the third row. Operating earnings were $153 million for 2023. This is a $60 million increase from 2022 primarily due to new RNG projects and steel-related earnings that were mainly a result of opportunistic byproduct sales. On the next row, you can see Energy Trading finished the year with earnings of $105 million. As I discussed through the year, we experienced favorability in 2023 due to the robust contracted premiums in our physical power portfolio. A portion of this favorability from these contracted positions is expected to continue into 2024.
Finally, Corporate and Other was unfavorable by $15 million year-over-year, primarily due to interest expense. Again, I'm extremely proud of our team. We overcame the majority of the unprecedented headwinds that we faced in 2023, and we did this without sacrificing reliability and our deep commitment to customer service. Overall, DTE earned $5.73 per share in 2023.
Let's turn to Slide 9. Our 2024 operating EPS guidance midpoint is $6.69 per share, which provides 7% growth over our 2023 original guidance midpoint. And we continue to target 6% to 8% long-term growth from our 2023 original guidance. In 2024, DTE Electric growth will be driven by the investments in grid reliability and cleaner generation. DTE Gas will see continued customer-focused investments in main renewal and other infrastructure improvements that enhance performance of our transmission, compression, distribution and storage assets and support decarbonization. At DTE Vantage, 2024 earnings are largely driven by RNG projects and new custom energy solutions projects that serve as a base for growth going forward.
At Energy Trading, you can see we are guiding to an earnings level that is slightly higher than the 2023 original guidance. This is due to the sustained robust margins that we have contracted and hedged in our structured physical power portfolio that are continuing into 2024. At Corporate and Other, the change is driven by higher interest expense and onetime tax items. Our long-term EPS growth rate of 6% to 8% from the original 2023 midpoint of guidance demonstrates our confidence in maintaining the growth trajectory we have achieved over many years.
Let's move to Slide 10 to highlight our strong balance sheet and credit profile. Going forward, we will continue to invest heavily into our utilities. The majority of this investment is funded by our strong cash from operations, which is shown on our cash and capital guidance slide in the appendix. Due to these strong cash flows, DTE has minimal equity issuances in our plan, targeting annual issuances of $0 to $100 million through 2026. Our 6% to 8% long-term growth plan includes debt refinancings and new issuances, and we continue to manage these future issuances through hedging and other opportunities. In 2023, we also extended our revolving credit facility with all 21 banks out to 2028. We continue to focus on maintaining our strong investment-grade credit rating and strong balance sheet metrics. We targeted FFO to debt ratio of 15% to 16%.
Let me wrap up on Slide 11, and then we'll open the line for questions. Our team continues our commitment to deliver for all of our stakeholders. Our robust capital plan supports our customers as we execute on the critical investments that we need to make to improve reliability and transition to cleaner generation while focusing on customer affordability. The 2024 operating EPS midpoint provides 7% growth over the 2023 original guidance midpoint, and we continue to target long-term operating EPS growth of 6% to 8%. Our dividend growth remains strong as we continue to target dividend increases in line with operating EPS growth. DTE continues to be well positioned to deliver the premium total shareholder returns that our investors have come to expect with a strong balance sheet that supports our future capital investment plan.
With that, I thank you for joining us today, and we can open the line for questions.

Question and Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Shar Pourreza with Guggenheim Partners.

Shahriar Pourreza

Obviously, just real quick. CapEx is moving higher in the credit metrics just strong and obviously, you're highlighting that you have minimum equity needs in the current plan. I guess, can you just touch on funding sort of incremental spending opportunities maybe using some rule of thumb as we think about the percentage of equity needed to fund every new dollar of CapEx above this base plan. Maybe the answer is 0. And there's been obviously some mentions of an RNG sale in the media. Just given sort of the cash versus earnings attributes to that business, is that an accretive recycling opportunity?

David S. Ruud

This is Dave. I'll take the first part of that. Yes, as you saw in our plan, we have really strong cash flow generation that allows us to maintain our FFO to debt at the rate of 15% to 16%, while issuing minimal equity. And it does give us some headroom to the downgrade thresholds, too. So we haven't given a rule of thumb for how much new equity we would have to use for any new CapEx, but we still have some flexibility within our plan that would allow us to kind of work around any new equity that we'd have to do. But our plan, as you saw, has $2 billion of new capital in it, which we were able to bring in really due to the cash flow generation and then some of the favorability that we're seeing from the IRA tax credit as well.

Gerardo Norcia

I'll take the nonutility assets. Certainly, we're happy with all our assets there, but we're always looking for opportunities to -- there was an opportunity to create incremental value for our investors. We would take that opportunity in terms of optimizing the portfolio. But I would say at this moment, certainly, we don't have any incremental cash needs in our plan. And so there really isn't anything imminent at this time.

Shahriar Pourreza

Perfect. And then just lastly on just the regulatory, maybe just expectations for '24. You have a notice of a potential filing with the MPSC for March 1. I guess can you just elaborate on that filing? I guess what do you see different from the prior case, which wasn't easy to get through especially as we're kind of thinking about the IRM sales forecast, rate design, et cetera.

Gerardo Norcia

Sure. So if you're referring to a potential electric rate case, we're looking to make a filing late in the first quarter, early second quarter. I would say that most of that filing will be about the capital investments we're making to upgrade the grid and transition to cleaner energy. So again, it will be a CapEx-driven filing is what we expect at this point.

Operator

Your next question comes from the line of Nick Campanella with Barclays.

Nicholas Joseph Campanella

I guess just a follow-up on the Vantage portfolio optimization comments. Just if you don't have cash needs in the current plan and there is an opportunity to do something, just how do we think about those use of proceeds?

Gerardo Norcia

If we did pursue some form of optimization, obviously, the cash proceeds would go to offsetting debt issuances and even potentially the repurchase of some equity. But as I said, there's really nothing imminent at this point in time.

Nicholas Joseph Campanella

And then I guess, just as you kind of wrap in the Michigan legislation to your outlook, you're probably looking at changes to the supply portfolio. Can you just remind us what your philosophy is in terms of owning these assets versus doing PPAs. Are you going to target to do a mix? Or do you want to do all renewable ownership? That would be helpful.

Gerardo Norcia

So we certainly like to own assets because we think it's much more accretive both for our customers in terms of providing lower cost. I think we've been able to show over and over is that ownership provides lower cost to our customers. And also, it provides a greater benefit to our investors in terms of EPS growth. So we prefer to own. I think you'll see in the IRP. In the IRP settlement, we did agree to share some ownership, and it breaks out somewhere between 2/3 and 1/3 ownership between us owning 2/3 and others only 1/3 in IRP piece. I think the legislation also did not talk about ownership, which we -- and was neutral on that point. So we are pleased with that. And in addition to that, it also provided for compensation mechanism for PPAs that will give us some upside as we sign PPAs.

Operator

Next question comes from the line of Jeremy Tonet with JPMorgan.

Jeremy Bryan Tonet

Just wanted to dive into the capital program a little bit more if we could. Looking at the $25 billion 5-year plan as you laid out there. Just wondering if you could peel back in a little bit more on the $2 billion increase in cleaner generation at DTE Electric. Just wondering what specific project opportunities, how you think about that new capital?

Gerardo Norcia

Yes. Jeremy, if you'll recall, we updated -- we didn't provide an update at EEI as we're awaiting the outcome of a rate case to make sure that our capital plans were supported in which that happened. And so when we updated in December, it really reflected the IRP settlement and the new legislation were both in flight. And so I would say the combination of those 2 events, significant events created incremental opportunity in our clean generation space. It accelerated our journey in terms of building out renewables as well as a battery system. So that's really what drove the increase.

Jeremy Bryan Tonet

And then just thinking about the capital program, I guess, broader and if you think about the Vantage, the nonregulated side. Just wondering what you think about, I guess, run rate expectations for CapEx there? did some capital move from Vantage into regulated? Just trying to get a sense for how much capital could go there over time, how that could potentially shift depending on what regulated opportunities you see in front of you?

Gerardo Norcia

Yes. Right now, we're showing a $1 billion to $1.5 billion investment over the next 5 years and -- which is pretty consistent with our prior 5-year forecast. So we really haven't made any significant change there just yet.

David S. Ruud

We will see that can be a little lumpy depending on the projects that come in to. So the project that Jerry was talking about on the -- in the prepared remarks, that one will have a little more capital associated with it in '24. So can be a little bit lumpy as it comes in.

Jeremy Bryan Tonet

And then I just wanted to see, I guess, as it relates to CCS, if you could dive in a little bit more in, I guess, how you think about time line for when that could become more real, I guess, as far as capital is moving in there. And as far as the, I guess, the regulatory environment being supportive enough where you feel comfortable to kind of move forward there?

Gerardo Norcia

I would say that in terms of carbon capture and storage, we're well advanced on 3 projects, and we're finalizing our arrangements with counterparties and some conditions precedent there to make sure that we got a viable transaction. But I would say it's feeling better than 50-50 that we're going to start executing on some capital there in that new business line. So pretty exciting. They're small projects. Each of them are -- each of the 3 are anywhere between $50 million to $100 million, pretty simple projects that doesn't require a lot of pipeline, pretty short pipelines. Most of the pipelines are right on the property of the customer. So as the wealth. So we're deep into it and we'll continue to give you updates on that. But it's a nice synergy with our utility -- electric utility because we're -- as we think about future power plants and using natural gas, we're going to need to capture the carbon and store it. So I think dipping our toes into this new business line creates value for investors, but also creates value for future utility investments that we'll need to make.

Jeremy Bryan Tonet

And one last quick one, if I could, just as far as refinancing new bonds. How much of the I guess the open rate exposure on refinancings has been hedged at this point in derisked?

David S. Ruud

So as you saw, we have about $2 billion of refinancings coming up at the end of the year this year. And the majority of that is hedged. It's $1.7 billion has been hedged of that at rates that are a little bit better than what we're seeing out there in the market now. So we just -- we continue to like our overall debt portfolio, like -- and with the rates we're getting that that's all included within our 5-year plan and consistent with our strong investment-grade credit rating and our 15% to 16% FFO to debt that allows us to issue minimal equity within our plan. I know it's a little more of an answer than you were asking, but we're in a good place with that.

Operator

Your next question comes from the line of Durgesh Chopra with Evercore ISI.

Durgesh Chopra

Just maybe can you comment on the financial implications of the January storm. That's part one. And then part 2, as we think about the rest of the year, what level of contingency you have in the plan as it relates to worse-than-expected storms, bad weather similar to what we had last year. So those 2 things, please.

Gerardo Norcia

We've -- just let me take the storm expense. We've certainly have increased our storm expense in our planning process as we've seen storms increase over time and the cost that, that brings. So we feel pretty comfortable about the plan that we're carrying right now. And as you know, we also carry one standard deviation of weather, for example, in the winter, warmer than normal weather and/or in the summer, one standard deviation of cooler than normal weather. So that's how we're planning. And at this point in time, we feel pretty good about our plan. We're moving along and right on track. I think the storm that came in January consumed some of the storm expense budget. But of course, as you would expect, we're working to replenish some of that so that we can carry a full summer storm budget. So that's really where we're at with that.

Operator

Next question comes from the line of David Arcaro with Morgan Stanley.

David Keith Arcaro

Let's say, you've got a renewable energy plan filing coming later this year, I think. Wondering if that could be an opportunity to reassess again and potentially increase the renewables in your outlook?

Gerardo Norcia

Well, certainly, our voluntary renewable plan is progressing really well, David. I'll just tell you that we've got 2,500 megawatts described in our voluntary program and 2,600 in our 5-year plan. So we're -- it's likely that over time, it will increase. We'll -- obviously, our next filing will address the next couple of years of in-service requirements for our large industrial customers that we signed up and commercial customers. So it could potentially be upside to our plan in the future as we continue to update our plan. So hopefully, that helps.

David Keith Arcaro

And I was wondering, does your current plan kind of fully embed the opportunities arising from the legislation as you're thinking about maybe beyond the renewable energy targets, but also considering energy efficiency and the FCM and the potential upside on PPA contracts?

Gerardo Norcia

I would say that our current plan does anticipate incremental build-outs for the IRP in legislation. So I told you our 5-year plan for voluntary is 2,600 megawatts. We have an additional 1,800 megawatts that comes in as part of the IRP and a 5-year plan. So that's all built in to the $7 billion clean generation number that you see on our slides. In terms of PPAs, we're going to have to continue to assess what value -- the incremental value that will bring as we go along here. But it could bring incremental value.

David S. Ruud

And then as we look out past that, we're going to be having to file a new IRP that will take into account this legislation even more. And so that will give us an opportunity to bring some more capital in maybe near the end of the 5-year plan, but really probably a little bit past that, just more opportunity to do this clean energy generation.

Operator

Your next question comes from the line of Andrew Weisel with Scotiabank.

Andrew Marc Weisel

First question is on the $300 million of lower fuel cost savings. Very impressive number. Can you just give a little more detail, first of all, is that a year-over-year reduction? And how much of that relates to the fuel cost itself, the natural gas prices being lower than 2022 levels. Maybe as a follow-up, just quickly, do you have an early read in 2024 in terms of forward curves?

David S. Ruud

Yes, the $300 million reduction in '23, that was really the recovery of the over-collection that was in 2022. So in 2023, we were kind of on our plan and just recovering what we needed to recover into -- recovering from '22 and 2023 and then comes off our books for 2024. So far for this year, there's a little bit under recovery left, but we're forecasting things to be pretty flat with our plan for this year.

Gerardo Norcia

And in the gas business, we're fully recovered there. We're in a good position there.

Andrew Marc Weisel

Then one more, if I could just sort of ask you to elaborate on the nonutility CapEx. So I'm going to ask similar questions in a different way. Last year, the CapEx was $167 million. That was well below guidance of $300 million to $400 million and now you're guiding to $550 million to $650 million for 2024. Can you just walk us through that a little bit? I heard you mentioned there's some lumpiness, maybe certain investments were deferred. I'm guessing some of the high spending this year is related to that Ford announcement. I guess just overall, how confident are you in that 2024 number, given how high it is?

David S. Ruud

Good question, Andrew. It's the capital investment really follows the development projects that we do within that business. And last year, we did 3 RNG projects and one custom energy solutions projects, but a smaller one and that allows us to continue with the growth we need in that business and meet our targets. This year, you're right, the Ford project that we're doing that we talked about in the prepared remarks, makes us confident that we're going to invest this. We talked about this a year or so ago. We had about $200 million of investment planned for this year from that. We've expanded that deal with them, and that's going to make up a good portion of the capital investment or nonutility this year. Still working other projects as well. But it's really that custom energy solutions project with Ford that's going to take up a big chunk of that capital investment in '24.

Operator

Your next question comes from the line of Michael Sullivan with Wolfe Research.

Michael P. Sullivan

Maybe just wanted to ask on the trading business that did really well in '23. And I think, Dave, you mentioned some of that flows through in the '24, but just how conservative do you feel that range is for '24? And is this like a new normal that could extend even beyond '24 based on what you're seeing?

David S. Ruud

Yes, Michael, you're right. We did have some really nice favorability in 2023. And again, this is due to the premiums we get on the structured physical power portfolio. So it's all contracted and hedged, just had really nice premiums in '23. As we said, we expect some of that to continue on into '24, probably not to the same extent as '23. But some of those contracts, they're one and 2 years. So we see some of them coming into '24 as well. Going forward, we'll have to see what happens. We're not guiding to anything higher than that. We hit the same level of contracts as a business we've been in for a long time. We get the same level of contracts. We've just seen really good premiums in '23, and we're seeing those come back down. So it's probably not something we're going to guide to going forward, but it is good favorability and the exact same risk profile that we've always had, too.

Michael P. Sullivan

And then I just wanted to pivot to the PBR proceeding at the Michigan PSC. And just what are your guys thoughts on kind of where that stands and how that ultimately plays out?

Gerardo Norcia

Michael, it's moving in the right direction in terms of sort of narrowing the variables that we'd be looking at for PBR. So we felt that, that was quite constructive in the latest release from the commission on that process. We still feel it'll be a symmetrical sort of benefit and incentive to perform. So we feel good about that. That's still holding together. And we expect that there's really no time line stipulated for the conclusion of the process. So we're thinking sometime between the middle of the year to early next year is when this process will conclude. But we're feeling that it will -- it will be a productive process and a well-balanced process.

Operator

Next question comes from the line of Sophie Karp with KeyBanc.

Sophie Ksenia Karp

A couple of questions here. I guess staying on the Energy Trading business topic, right. Could you elaborate a little more on what market conditions are enabling this relative strength and like what should we watch for in terms of this potentially reversing in the future or continuing for longer, if you will?

David S. Ruud

These are markets where we bid into utilities within PJM and New England mainly and to serve their load. And as we bid in, we get contracts and those contracts will have premiums associated with them. We just saw really nice premiums in '23 some of which carry on into '24. So we'll be able to -- as we go through '24, we'll be able to let you know more about what we see for future years on those premiums. And then the rest of that business is really gas physical business, which again is contracted and hedged. So it's really just kind of success of our trading group and setting up the structured physical and hedge positions that is making it have these successful years.

Sophie Ksenia Karp

And how much visibility do you have in that? It sounds like maybe less than 12 months out because you would be updating us as you go?

David S. Ruud

That's right. It is most of these contracts are one year, some go a little longer, but most of them work for one year and then kind of see where they come in again the next year. That's why we continue to guide usually the $25 million. We went to $35 million because we see that, but we're not pushing to something higher than that in the future years.

Sophie Ksenia Karp

And then I just wanted to be clear on what you're saying about your capital plan. How much of the new energy law opportunities is reflected in it? It sounds like what you're saying is that you have reflected opportunities that would be presented by the new energy law in Michigan in your plan already. So the incremental opportunities stemming from this legislation should be fairly limited. Am I hearing this correctly?

Gerardo Norcia

I would say, in the first 5 years, that's correct, Sophie. We've -- the IRP and the legislation is reflected in the 5-year plan. And we'll continue to update that as we go forward. Now beyond the 5-year plan, there is some further acceleration that we could see, but we'll continue to update that each and every year and hopefully, in November between November and the end of the year.

Operator

Your next question comes from the line of Julien Dumoulin-Smith with Bank of America.

Julien Patrick Dumoulin-Smith

Just with respect to the last question there on the -- what's reflected in the plan. Just -- I just want to clarify on the PPA ownership piece or the PPA earnings piece, the compensation mechanism there, that is reflected for the 1/3 piece in the IRP settlement and therefore, in your outlook, right? So again, as you talk about this, the different pieces, the substantive upside from the legislation really moves beyond the 5-year period at this point, just on the compensation specifically.

Gerardo Norcia

So again, the ownership component is reflected in our capital plan, the $7 billion component of clean energy generation that's in our plan. The financial compensation mechanism, we'll have to see what levels we sign the PPAs, obviously, as you know, it's a (inaudible) the price that we signed the PPAs for. So as we sign those, we'll continue to update our plan, but it will provide some incremental value in our plan as we go forward, if that's what you're asking?

Julien Patrick Dumoulin-Smith

Yes, right. So the FCM is included at least preliminary to the extent to which that might need to be updated later.

David S. Ruud

There's thoughts. We have something in there for now. But as we sign PPAs, there should be some upside in the plan to that what we have in there now.

Julien Patrick Dumoulin-Smith

I know it was back and forth here a little bit. All right. Excellent. And then just coming back to the top of the roster on the Q&A. Real quickly on the RNG conversation briefly. Sounds like that was noncommittal and frankly, but seems like opportunistic to these that's what you might see something of interest to you given where your balance sheet sits. Is there something about like resolution and IRS regs on RNG and how that's treated under IRA that's driving some decision [spree] here for you guys? Or I just want to make sure I heard that right, that it doesn't seem like that's a particularly pressing subject for you guys?

Gerardo Norcia

Yes. I would say that it's not imminent, some sort of optimization of our Vantage portfolio. We like the returns. We like the cash flows from it. And actually, the IRA Inflation Reduction Act has been quite beneficial to that business from an ITC, investment tax credit perspective. It's made projects more attractive and higher return. And we're also seeing positive movement in some of the markets, like the federal market moved in a very positive direction and our renewable fuel standard that is. And in California, the California Air Resources Board is looking to tighten up the carbon intensity targets. So I think as that plays out, that will provide even more upside in those markets as we see them today.

Julien Patrick Dumoulin-Smith

So it doesn't sound like you're too worried about the way the IRS [strikes] came amount in terms of being..

David S. Ruud

We are monitoring that, and we are commenting, but we're not overly concerned. We don't think that it's really consistent with what the congressional intent was there either. So we're just continuing -- we're continuing to watch and monitoring comment, but not overly concerned.

Operator

Next question comes from the line of Gregg Orrill with UBS.

Gregg Gillander Orrill

Just following up on the RNG, are you able to provide how much that contributed in 2023? and also the steel business?

David S. Ruud

Yes. We saw -- we did see some good upside from the RNG because we brought in 3 new projects in '22 and in '23 and associated with some of that, there's some tax credits that come with that, that helped out in '23. The steel business was the other part that gave us the favorability that we saw in 2023. And probably a little over half of what we saw there. And that was due to some opportunistic sales of some of our byproducts, some of the other products we're making within that business and some other kind of onetime things that we've done there. So it's yes, some good onetime opportunity that we saw in the steel business and the RNG development.

Gregg Gillander Orrill

And how are you thinking about the returns in the RNG business, just how they're trending?

David S. Ruud

We have noticed it's gotten a little more competitive as more people have come in. We used to say we got high double-digit unlevered after-tax returns. We're still seeing good returns, particularly what we see it is in our conversion projects, we have projects that now make power that we can convert to make in RNG. And so in those projects, we continue to see wjat we would say a very strong returns. And then there's still a good development pipeline that has strong returns as well.

Gerardo Norcia

Yes, we're still seeing unlevered returns and I would say, north of 10% unlevered after tax, so in the teens, low teens.

Operator

Your next question comes from the line of Anthony Crowdell with Mizuho.

Anthony Christopher Crowdell

Just 2 quick ones. Most of them have been already answered my questions, but just I think you talked about a potential rate filing late first quarter, early second quarter electric filing. Just do you expand the undergrounding program in that filing or as much as you'd like to disclose thoughts on expanding the undergrounding and the filing?

Gerardo Norcia

Anthony, we put 5 miles underground in last year in 2023, and it went really well. And what we're doing is proposing that we continue to do more. This is going to take a few years to ramp, Anthony, as we kind of work with our commission. We actually had the commission staff out looking at some of the undergrounding that we did in the last few days. And so they -- I think there's a process here to make sure that we're working together with our commission, come up with a reasonable plan. I would say the key part of it is we need to ensure that on an NPV basis, undergrounding is going to be least equivalent or better than putting it up in the air. We've got 19,000 miles of infrastructure to replace that's very old. It's a 4.8 kV system. So a huge opportunity from a customer perspective to improve infrastructure for the future. And we'd like to put as much of that underground as we can, but we're going to have to prove out the concept. So we're in the early stages of proving it out and to ourselves and then secondly, to our commission. So that's where we're at with it. I think it's going to take a few years before we can ramp it, but we feel pretty good about how smoothly the first 5 miles went. It's all directional bore through very highly congested urban areas. So a very cool project. More to come on that.

Anthony Christopher Crowdell

And then just a quick follow-up. I guess, I'll throw it to you, Dave or Jerry, if you want to take this, it's fine. Just I guess on a credit metric basis, where did you end 2023, and I think your target range is 15% to 16%. When do you believe you'll hit that target range?

David S. Ruud

Yes. We did end '23 right around 15%, Anthony. And as we look through the 5-year plan, we stay within that range throughout the 5-year plan that we talked about, even with the minimal equity that we're issuing.

Operator

Your next question comes from the line of Ryan Levine with Citi.

Ryan Michael Levine

Hoping to follow up on the utility ownership versus PPA and some of the generation assets. Is your plan largely solidified at that point? Or is there opportunity to convert some of the owned assets into PPAs given the incentives that the law provides.

Gerardo Norcia

I'll let -- Ryan, thanks for the question. I'll let Dave sort of elaborate, but I'll start by saying that we prefer to own the assets for really 2 reasons. One is if you look at the value to our customers, it's much more affordable for our customers for us to own the assets. And then secondly, for investors, it provides a much greater significant EPS growth opportunity if we own. So we don't see converting any current ownership to PPAs. Dave, did you want to add to that?

David S. Ruud

That's exactly right. It's better for our customers. We've gotten really good at developing these projects. And we're the leading renewable developer in the state and continue to do it and what we see as the lowest price, which is kind of borne out through the auctions that we're in. So we think it's better for our customers. And then on an EPS basis, investing the capital is better for our shareholders as well. So I don't know that we'll be converting any. We'll do what we need to do. But and the FCM it's great. It's a great addition for the PPAs that we do, but it's still much better for our customers and much better value if we continue to develop these.

Ryan Michael Levine

And are you still pursuing opportunities to build dedicated pipelines to chemical plants near your service territory, but that you maybe have been pursuing in the last few quarters?

Gerardo Norcia

Are you referring to carbon capture and storage, Ryan, when you're..

Ryan Michael Levine

More on carbon dedicated pipes, right?

Gerardo Norcia

Yes, we are. We've got 3 transactions that are well advanced with large carbon dioxide producers, and we're looking to capture that CO2 source and store it underground essentially under property. These are very short pipelines, a couple of thousand feet each less than a mile. So we're looking to finalize those arrangements and also satisfy some of the technical conditions precedent that we want to accomplish before we get too far into that business.

Operator

I would now like to turn the call back over to Jerry Norcia for closing remarks. Please go ahead.

Gerardo Norcia

Well, thank you, everyone, for joining us today. I'll just close by saying we're feeling great about 2024 and also our long-term plan as well as our position for future years. Have a great morning and stay healthy and safe.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect your lines.