DTE Energy Company Q4 FY2025 earnings call

• 2025 was a successful year with significant reliability improvements, achieving best all-weather SAIDI performance in nearly 20 years, with 99.9% of impacted customers restored within 48 hours. - Made progress with data centers, executing first large agreement for 1.4 gigawatts and expecting to reach final terms of another agreement in coming weeks. - Had strong financial year with $7.36 per share in 2025, above guidance range. - 2026 guidance is 6% - 8% operating EPS growth over 2025 guidance midpoint, driven by RNG tax credits at DTE Vantage. - Updated plan includes significant increases in customer-focused utility investment for 6% - 8% operating EPS growth through 2030. - Focused 4-point plan for reliability: transitioning to smarter grid, updating infrastructure, rebuilding grid, and tree trim efforts. - Made progress on cleaner energy transition, placing 330 MW of solar in service, with 745 MW under construction and 2,500 MW of renewables online. - Increased 5-year capital investment plan by $6.5 billion for data center load growth, advanced cleaner generation, and distribution infrastructure.

In 2025, DTE Electric had operating earnings of approximately $1.2 billion, $112 million higher than 2024, driven by base rates, weather favorability, lower storm expenses, and higher earnings from clean energy projects, partially offset by higher O&M and rate base costs. DTE Gas had operating earnings of $295 million, $32 million higher than 2024, driven by colder winter weather and new base rates, partially offset by higher O&M and rate base costs. DTE Vantage had $162 million of operating earnings, up from 2024 due to RNG production tax credits and new project development in custom energy solutions, partially offset by lower investment tax credits and lower steel-related earnings. Energy Trading had operating earnings of $114 million. Corporate and Other was unfavorable by $73 million year-over-year due to higher interest expense and onetime tax items. For 2026, utility growth will be driven by customer-focused investments, DTE Vantage by new custom energy solutions and RNG tax credits, Energy Trading by strength in structured physical power and gas portfolios, and Corporate and Other by higher interest expense. DTE Electric's contribution to overall earnings and DTE Gas's contribution are part of the segment performance details. The revenue contribution % isn't explicitly stated in absolute terms but the breakdown by segments is provided.

• 2025 operating EPS was $7.36 per share, above high end of guidance range. - 2026 operating EPS guidance range is $7.59 to $7.73 per share, 6% to 8% growth over 2025 guidance midpoint, confident in delivering at high end driven by RNG tax credits at DTE Vantage. - 5-year plan provides 6% - 8% operating EPS growth through increased customer-focused utility investments, with utility operating earnings making up 93% of overall earnings by 2030. - Capital investment plan increased by $6.5 billion to $36.5 billion over 5 years due to data center transaction and utility asset modernization. - Additional data center opportunities could provide upside to capital plan and operating EPS growth. - Target annual equity issuances of $500 million to $600 million in 2026 - 2028 to support capital investment plan while maintaining strong credit metrics.

• Concerns in Michigan around data center projects in local communities with moratoriums, but current pipeline projects not impacted as communities not suitable for large load data centers initially. - Uncertainty around regulatory approval processes for data center contracts and their inclusion in the IRP. - Potential impact of macroeconomic factors on borrowing costs and ROEs, as seen in varying ALJ recommendations for ROEs in Michigan. - Volatility in power prices and weather conditions could impact trading performance and reliability efforts.

Q: So just to build a little bit on the prepared. So obviously, the data center announcement is on schedule. It sounds like it will come with material CapEx and accretive to earnings. And obviously, Joi, you mentioned it's significant upside in your prepared. Can you just maybe elaborate as we're thinking about the 6% to 8% that's been out there, could this sort of new customer actually step function change the trajectory or lengthen and strengthen the top end? Or do you need to see more deals materialize before revising the longer-term projections?

A: Yes. As we included in the deck, Shar, and we said all along that 3 gigawatts of incremental data center load would take our compound annual growth rate above 8% between '27 and '30. This additional data center, which is a part of that 3, we believe will take us to at least 8% in that time frame. And so the capital would begin coming into the plan in the 2027 time frame and continue from there. So we feel really great about our 6% to 8% and the potential that this -- we have to reach the high end each year with our current plan. And this new data center would have the opportunity to take the compounded annual growth rate between '27 and '30 to 8% and then anything above that, approaching that 3 gigawatts gets us 8% plus.

Q: Okay. That's helpful clarity there. And then just do you think you'll see the third deal announced by Q3 EEI time frame?

A: Yes. We're working on the second deal. So we got to get that one nailed down, and we're continuing discussions with the hyperscalers. And we are working hard to see if we can get yet another deal behind that one. But the way this will work out with the second deal and any deals that we achieved in that time frame, we would update our plans and then potentially give you all some indication in Q2. We're going to use the standard process for approval of the contracts associated with this deal. So that will play out over the course of the summer. And we've got to let that process play out. But we figure by Q2, at the latest Q3, we'd be able to communicate how much capital we'd be putting in our plan and, of course, have detailed conversations at EEI.

Q: So to piggyback on that pushback question on data centers, obviously, Michigan is seeing a significant number of moratoriums in local communities. Just wondering if any of the potential projects in your pipeline are located in any of these areas with a moratorium, if you see any risk to advancing these projects or delays?

A: The contract that we are working on right now, we don't see any potential delays. Let me just say the moratorium, some of the moratoriums that you're hearing about, the communities are not suitable for large load data centers to begin with. So there really is no impact to the pipeline. The folks that we've been talking to have land positions. Some have made it through the zoning process already and are working on site plans. And like I said before, they're engaging the local communities, and we believe that's the game changer and really shifting the sentiment so that the communities understand the benefits that they will realize once these data centers land in the backyard.

Q: So obviously, affordability is a concern across the country, but particularly a lot of rhetoric from the midterm election candidates in Michigan talking about rate freezes and the like. In this context, how are you feeling about heading into the final decision in your electric rate case? What gives you confidence you'll land a constructive outcome there?

A: So I'll tell you that we always put affordability as the governor for our growth plans and our investments and affordability remains top of mind for us, which is why as we make these investments, we're trying to keep the bills as low as possible and deliver the reliability improvements and then continue our work to transition to cleaner generation. We've seen support of our investments in the staff testimony, in particular, they supported the expansion of the IRM to roughly $1 billion over the next couple of years. And in fact, they even recommended that we pull forward $200 million worth of pole-top maintenance into 2026. So we feel really good about the prospects for a constructive outcome there. The staff position was generally at what we expected. And we are awaiting -- anxiously awaiting the 19th, so we can have a full view of their support. But at this point, we know that affordability is top of mind, and we're going to work hard to make sure that our customers, particularly those in need, get the support and these investments continue to deliver value.

Q: Given the utility CapEx increases and financing needs, how -- and especially if you are expecting additional couple of megawatts -- gigawatt of load, how does that change the thought process on asset rotations and monetization for Vantage?

A: Yes. So Vantage has served us well for over 20 years, and they continue to have a very strong development pipeline. In fact, we've got data center opportunities that we're looking to close out in the near term here that really represents a really nice vertical in light of the tightness that exists in the market all across the country. That said, we are always looking to deliver value for our shareholders, and we have really big investments that we have to make in our utilities. And you've seen that we've made this strategic shift where we're doubling down in our utilities and holding Vantage essentially flat. But they've got a really solid growth pipeline that we want to continue to explore, particularly around data centers. And as always, we'll continue to examine opportunities to deliver value for our shareholders.

Q: Maybe just to follow up on that Vantage opportunity you just mentioned, Joi. I was just curious if you could give any other details around how big of a potential data center project Vantage is going after here? What's kind of the profile of the different opportunities that you're seeing, is this on-site power, behind-the-meter type power project?

A: Yes. Yes, David, it is behind-the-meter primary power. Think of it as several hundred megawatts of load, and we see these types of opportunities across the country. In fact, when we started this work, I thought it was going to be the unicorn. And clearly, it is not. So there is a pipeline that the team is exploring. We are looking to close out the discussions with the counterparty. Still too early, but we're down to some final terms that we're ironing out. Really excited about it. And the team has come up with, I think, a very creative solution that could be applied to other similarly situated colocators across the country. So it could be a differentiator for us.

Q: Okay. Excellent. And is that an opportunity that you'd be able to kind of quantify in terms of the CapEx investment here also similar to the other regulated data center opportunity for a CapEx addition midyear?

A: Yes. That will be the ideal time to give you an update on the capital for that particular investment, yes.

Q: Then I was just wondering if you could comment on -- we've seen some very widely varying ALJ recommendations when it comes to ROEs in Michigan. I was wondering if you could give your latest perspective on how do you interpret the latest recommendation, the 8.2% ROE that we saw recently, just feedback or what you're expecting from the commission in terms of overall direction of travel with regard to regulation and ROEs in the state?

A: Yes. If you recall, the Chair of the commission has already stated that ROEs are where he would like to see them given the macroeconomics and that they felt appropriate. So we're anticipating that in our case, we will see our ROE remain flat. And if you recall, the ALJ in our case, even recommended a 9.9% ROE. So I think we feel really good about our position. And I believe that given the current borrowing cost, the recommendation for 8.2% ROE is simply not a reasonable benchmark under these conditions. But like I said, we've gotten all the positive indicators that we could possibly hope for in our case, and we'll know for sure on Thursday.

Q: I wanted to ask on just the resource planning for some of these incremental load opportunities that you have, particularly with regards to new gas. Can you -- it sounds like you got a couple gigawatts in the hopper on top of what's planned to replace Monroe. But yes, can you just square like the timing of when you think you can get new gas to serve some of these load opportunities?

A: Yes. So just given some of the lead times, we've taken steps to get into the MISO queue and put down payments on turbines so that we are well positioned towards the tail end of our plan to bring on the replacements of Monroe and address any other new load that may come into our plan. That said, the IRP will be the ultimate determinant of the resource mix that is required to serve new load. And that process will begin in Q3 when we file our next case. But I will tell you from our last run of our IRP, we know that we have to have a large dispatchable 24/7 resource once Monroe retires, which is why we've set ourselves up for CCGT that's CCS capable, and we'll begin the work of vetting that with intervenor stakeholders as we file our IRP.

Q: Maybe this one is for Dave. Just given some of the weather to start the year and volatility in power prices across the country, are we potentially looking at another year of trading outperformance? Or any color you can give there?

A: As you saw, trading had a great year in '25 as we saw some of those good margins continue in gas and power. And we do see some of that, that -- because some of those contracts are 1 to 3 years, some of that continues into 2026. We're still -- we guide to the $50 million to $60 million for trading, but there are some tailwinds, as you mentioned, based on some of the contracts that we've had in place that are fully structured and hedged through the year.

Q: And if I could just sneak one more in, sticking with you, Dave. Just remind us how much incremental equity as a percent of increased CapEx general rule of thumb?

A: Yes. Any incremental equity we bring in is approximately 40% of the CapEx that we would have. That always will vary in some of the years based on the timing of the cash flows and tax credits. But over time, it does work out to about 40% of equity for the additional capital that will come in.

Q: The answer to that question just brought up another quick question for me and then I had my original question. But on that 40% of equity, is that in line -- if we tie that to the data center contracts, is that in line with the way the data center financing portion of the contract is? Or is that extra leverage relative to the data center contract, if that makes sense?

A: Well, I think for the capital we would bring in 40% of that we would see as equity. I don't follow the data center contract part of that. But I think as we brought the capital in, it would be 40% would be equity over time.

Q: Okay. I was just tying back to the implied return on capital within the data center contract, but that makes sense. Okay. Original question was, how does the data center growth impact your rate case cadence, do you think over the next 4, 5 years with the ramps coming on? Any change to that since it sounds like a lot of the CapEx is covered in the data center contracts themselves?

A: Yes. I mean this will have to play out over time. Listen, the biggest way for us to stay out of rate cases is to grow the IRM. That's the biggest lever that we have before us. And we're continuing to work that with the commission staff, and they seem supportive of at least our first go round of expanding the IRM. And of course, as we bring on data center load, that gives us more opportunities as well to potentially look at putting distance in rate cases.

Q: Congrats on the quarter. Quickly, just where did you end the year on FFO to debt?

A: Yes. We ended the year at 15 -- almost 15.5%, 15.4% FFO to debt.

Q: And then just Joi or Dave, I know Dave gets upset when I don't ask him the question. Just you have big gubernatorial races going on there. I think there's 10 candidates, just any conversations, any color you could have on DTE's position with the large slate of candidates.

A: Yes. Well, let me start by saying DTE is always committed to a bipartisan approach for policymaking, which means we've had strong relationships on both sides of the aisle and really durable policies. Obviously, affordability is a top question on the campaign trail, and we take it very seriously for obvious reasons. What we're seeing in the latest round of data is that Americans clearly are concerned about the cost of groceries, health care, housing and utilities in that order. And as you've heard in my opening remarks, we're ramping up our outreach to candidates. We're delivering solid focused messages around our achievements, particularly as it relates to reliability and the fact that DTE Electric bill growth since 2021 has been top decile at only 3% when the national average is at more like 24%. These investments are working, and that also drives down the emergent costs related to storms. And we had the best year we've had in 20 years for reliability. Lastly, we talked to them about the things that we're doing to protect the most vulnerable around us, and that's advocating for energy assistance, but the biggest lever we have to address affordability is economic development that comes with load growth done right. And case in point, the Oracle deal is going to yield $300 million worth of affordability benefits once they reach their full ramp. That's the kind of conversation that we're having. These are the solutions that we want to address, among other things. And I think the candidates are receiving the message well, and we're going to continue those conversations as the elections unfold.

Q: Yes, there's a 21-day period, I believe, that the commission has to file their response to the Attorney General's request.