Feb 10, 2016
Executives
Anastasia Minor - IR Gerry Anderson - Chairman and CEO Peter Oleksiak - SVP and CFO Jerry Norcia - President and COO, DTE Electric and Gas Storage and Pipelines
Analysts
Dan Eggers - Credit Suisse Neel Mitra - Tudor, Pickering Julien Dumoulin-Smith - UBS Greg Gordon - Evercore ISI Jonathan Arnold - Deutsche Bank Paul Ridzon - KeyBanc Andrew Weisel - Macquarie Capital Paul Patterson - Glenrock Associates
Operator
Good day ladies and gentlemen, and welcome to the DTE Energy 2015 Year Ending Earnings Call. Today's conference is being recorded.
And at this time, I would like to turn the conference over to Anastasia Minor. Please go ahead, Ms.
Minor.
Anastasia Minor
Thank you, Shavan [ph], and good morning everyone. Welcome to our 2015 year end earnings call.
Before we get started, I'd like to remind you to read the Safe Harbor statement on Page 2 of the presentation, including the reference to forward-looking statements. Our presentation also includes reference to operating earnings, which is the non-GAAP financial measure.
Please refer to the reconciliation of GAAP net income to operating earnings provided in the appendix of today's presentation. And starting last quarter, we are now including additional sales data in the appendix of our presentation, which has historically been provided in a separate supplemental document.
With us this morning are Gerry Anderson, our Chairman and CEO; Peter Oleksiak, our Senior Vice President and CFO; and Jerry Norcia, President and COO of DTE Electric and Gas Storage and Pipelines. We also have members of our management team with us to call on during the Q&A session.
And now I would like to turn it over to Gerry to start our call this morning.
Gerry Anderson
Well, thanks Anastasia. Good morning everybody.
Thanks for joining us. I'm going to use my time this morning to recap our performance in 2015 and to preview 2016, but in a nutshell, I am glad to be in a position to say that we had a very successful year in 2015, not only financially, but on many other fronts.
And I feel we're well-positioned for a similarly strong year in 2016, and we are off to a good start on that one month into things. So moving on to Slide 4, I'm going to start by recapping our accomplishments in 2015.
Then I'll give you a quick energy policy update, and then move on to long-term growth. Then I'll turn things over to Peter Oleksiak to give you a bit more detail on our financials, and then we'll wrap up.
So I'm going to provide the 2015 recap within the context of our system of priorities that's laid out on Slide 5. And those of you who followed us for a number of years know that we consistently work the system of priorities for the last half-dozen years.
And for those of you less familiar, I'll just give you a quick grounding and then I'll move on to the summary. But system really starts on Slide 5, with employees, and a belief that it's hard to be an excellent or great company when you've got employees who have mediocre energy.
So we put a lot of time and focus on engagement in the energy and focus of our employees. Believing that if we get that right, that we can focus those employees on top-decile customer satisfaction, doing a great job for our customers, on continuous improvement that we focus on intensely, and on growing the company.
And if we do those three things right, if we serve our customers well, manage our costs well, and grow, and connect that growth to the economic development of our communities, then the prospects for constructive political and regulatory treatment are higher. And if you combine constructive regulation with healthy growth, we produce great outcomes for you.
And for us, that means consistent predictable 5% to 6% earnings growth, combined with an attractive dividend and dividend growth, founded on a strong balance sheet. So page six then begins a recap of our accomplishments against that system of priorities this past year.
And I'll start with the employees, and say that for the third consecutive year, we earned Gallup -- the Gallup Organization's Great Workplace Award, that's given to a handful of companies worldwide each year, and we're the only utility company to ever receive it. We were, again, in the top 15% of their worldwide database.
So that was very encouraging. We also achieved the best safety result in our company's history; the lowest OSHA rate we've ever had.
We're now approaching the safest-in-industry level. And that is our explicit goal.
In fact, we had the safest January in our company history by a pretty wide margin recently as well. And then the National Safety Council has us ranked in the top 3% of their 670 participating companies.
So we're in the top-20 of their nearly 700 companies. Moving on to continuous improvement, I was really glad to see our customer outage minutes drop sharply this past year by 65%.
That's been a key focus for us. We got some help from the weather, but we also had really strong underlying change in our performance.
So that's a good thing. Our fossil fleet was top-quartile in its reliability for the fourth consecutive year.
We're nearing top-decile in our gas leak and leak repair program, also an area we're very focused on. And I think importantly for you, our utility O&M costs were down year-over-year, and we remain below 2008 levels, and near the very front of the industry in terms of O&M cost management.
On the customer front, our Electric Company was top-quartile for both residential and business. In fact, our residential was number two in our peer group.
DT Gas ranked number one in 2015 on business customer satisfaction, and number two in residential customer satisfaction. So when you look at the overall set of customer SAT metrics, we had a strong year in 2015.
Moving on to Slide 7, on the political and regulatory front, I'd say we had a constructive outcome on our electric rate case that went final late last year. And we also filed late last year our first gas rate case in four years.
We're entering the final stages of discussions on Michigan energy policy, and I'll talk more about that a little bit later. And we have now reached the point where our spent with Michigan suppliers has doubled since we started the program back in 2011, nearly $1 billion spent with Michigan suppliers, up from 475 million, back in 2011.
That's an important program for us. On the growth and value front, we invested $2.4 billion, 2.1 billion of that was in our utilities, focused on infrastructure, and reliability, and continued investment in renewables.
And we also had significant investments, as I think you're aware, in our gas storage and pipeline business around our Bluestone assets. And we also made significant progress on both the NEXUS Pipeline and expansions of the Millennium pipeline, so significant capital to support future growth.
Then finally on the financial front, operating EPS at $4.82 that compares to our guidance coming into the year of $4.60 was our eighth consecutive year of delivering EPS at or above the top end of our original guidance. And in addition, we increased our dividend by nearly 6%, to $2.92 a share.
So based on that recap of 2015, I hope you can see why I said at the outset that we had a very successful year in 2015, not only financially, but on many other fronts. And though I know it's natural for you to focus most heavily on our financial results, in the end those financial results are closely tied to fairness and the quality of our regulation.
And in turn, the quality of our regulation is contingent on how well we do controlling our costs via continuous improvement, and how well we serve our customers, and how we invest in our communities. And so staying focused on the full spectrum of our priorities is really key to our long-term performance.
Moving on to Slide 8, I'm now going to take a minute to update you on energy policy discussions in Michigan. And those are summarized at high level on Slide 9.
As you're well aware, Michigan's been considering updates to its energy laws since last year. And the move to update the current legislation was tied to the need to remake Michigan's power generation fleet.
And it focuses, the legislation focuses on reforming its retail open access provisions, defining an integrated resource planning process to choose our future generation mix, and on clarifying the role of renewables and energy efficiency in the future. So late in 2015, a package of bills moved out of the House Energy Policy Committee.
And early this year, the focus has moved to the Senate. Now Senator Mike Nofs, who is chair of the Senate Energy and Technology Committee, is now leading the effort to define consensus legislation that will be supported by a strong coalition.
And I have to say that Nofs is really well-suited to this role. He was a principal author of our state's 2008 energy legislation.
And he is as knowledgeable and experienced as any legislator in the state in this area. So we continue to work closely with Senator Nofs to define and pass this legislation in the first half of the year.
And we believe that's achievable. As I said a minute ago, the goal of this legislation is to enable the transition, depicted on Slide 10, between 2015, and 2030, driven by the aging of our power plants, and the clear power plan, our generation fleet will transition from one dominated by coal-fired generation to one with a much heavier mix of gas and renewables.
And we began the detailed planning for this transition as you would expect. In fact, some of our early investments will play out this year.
That will add 50 more megawatts of wind to our wind production here in Michigan. And we will invest in our first large scale solar facility, a 50-megawatt installation north to Detroit.
I am sure that you all saw that the Supreme Court yesterday stayed the implementation of Clean Power plan. I must say that that was a surprise to me.
It's unusual to stay a regulation prior to litigation in the lower courts. People speculated about the possibility, but I don't know that lot of people considered it likely; so, somewhat of a surprise.
We'll have to see how the legal challenge continues to evolve. A quick reaction was kind of night to sleep on it is to I am not sure much will change for us at least in the first half of the 15-year Clean Power plan implementation period.
And that's because we and I think many in the industry are dealing with during that period with a replacement of very old smaller and marginally economical plants, especially given gas prices now. We're dealing with those sorts of plants during that period.
But as you look to the latter half of the plan, as you get out in the later years 2025 to 2030, you do start to take on some of the larger facilities. So if it turned that the Clean Power plan were changed in some way, those years I think could be effective.
But that's said, there is a lot of water that needs to flow over the dam before we get to specific about the impacts of the stay. It could range anywhere from the rule being stayed, litigated, some refinements made in the Clean Power plan moves ahead without much change in its impact, few things that are more impactful than that.
So we just have to wait and see as it evolves. Moving on to Slide 11, I am going to turn now to an update on our long-term growth and its drivers.
Beginning with a recap of our 2015 results as well as our 2016 guidance and that's laid out on Slide 12. So we finished with strong results in 2015 as you can see at the top left.
Our initial guidance for last year was 460. We upped that guidance twice over the course of the year, ultimately to 478 at a fall analyst day.
And in the end, we delivered 482. And as I said earlier, that's the eight consecutive year in which we've met or beaten the top end of our guidance.
Though we talk about 5% to 6% earnings per share growth, you can see in the oval at the top right that our actual growth in recent years has been 6.5%. This growth has been driven by our portfolio businesses that have worked well together with steady growth from our two utilities and some growth upside from our non-utility businesses.
For 2016, the midpoint of our guidance as you see it's top right is $4.93. I feel very good about our ability to deliver that result or exceed it.
As we always do, we entered 2016 with specific plan to address potential risks or uncertainties in our budget. And though I entered the year worried about Super El Nino weather, January was pretty close to normal.
And we are off to a good start on the year. And as I sit here talking to you, it's cold and snowing outside, so February is not matching the worries I entered the year with either to this point.
Moving on to the bottom of the slide, we increased our dividend in 2015 by 5.8%. And I have said consistently that it's our intention to grow dividend as we grow earnings and the oval at the bottom right shows that that's been our pattern in recent years and I expect that pattern to continue in 2016.
I am going to turn now from a focus on 2015 and '16 to a focus on our longer term growth and investments and I'll begin that discussion on Slide 13. So the underpinning of our future growth is the investment profile that you see on this slide and as you can see our investment level over the next five years will be up on the order of 30% versus the last five years.
And as I'll describe over the next few minutes, this increased investment is playing out in nearly all of our business units, in our electric and gas utilities to address ageing infrastructure and reliability issues as well as the beginning of our generation fleet renewal, and in our gas storage and pipelines business to capitalize on the opportunity to move Marcellus and Utica gas, which are the highest quality gas reserves in the country, to nearby markets via our Millennium, Bluestone, and NEXUS assets. Moving to Slide 14; within our electric utility, investing in our distribution assets to address ageing infrastructure and improved reliability has emerged as a key area of focus for us.
As you can see on the left-hand side of the slide, of the 18 billion we project we will invest in our electric utility over the next decade, more than a third, 6.5 billion in our base case, is started at our distribution infrastructure. And frankly, the underlying need is larger than that.
And this focus really comes from listening to our customers. So, we're approaching the top end of J.D.
Power's Midwest customer satisfaction rankings. The biggest gap between us and the top rank performer is in distribution reliability.
And so moving on to Slide 15, we are making significant investments in distribution infrastructure resilience that improves reliability. And we are doing that replacing ageing infrastructure and addressing our circuits with lowest reliability.
We're also seeing the need to re-design our distribution infrastructure to address growth in some of our areas. Many of our substations are now overloaded and need to be upgraded or replaced.
We're moving to do this, for example, in Ann Arbor where growth of both community and the university are overwhelming our infrastructure there. And we are doing the same in downtown Detroit.
So we have a new $600 million Red Wings arena and multi-entertainment facility going in and probably over a billion dollars of growth when you take into account everything that's happening around it that is going to require a lot of electric infrastructure. We've a similar project under to enable a new multibillion dollar bridge between Detroit and Canada that requires a lot of infrastructure investment.
So, these are the sort of things that we're undertaking on the distribution front. But as we undertake this investment agenda, we're keeping a very close eye on affordability because our customers are asking for improved reliability and we do need to renew our ageing infrastructure, but we've got to maintain affordability and competitiveness while we do that.
And so the next few slides show that we've done well on that front in recent years as well on the affordability front. So, on Slide 16, you can see that residential bills for both our gas and electric customers are down in recent years.
The electric bills are down principally due to continuous improvement work and rate reductions. Even after our more recent rate case finalized in December, our bills are below 2012 levels.
We filed our next electric rate case just a little while ago, week or so ago. But even after that case plays out, bills will be flat to levels five years earlier.
In our gas utility on the right-hand side, bills this year are down materially from levels in 2012, driven most definitely by gas prices. We also have a gas rate case in process that was filed last year.
But we projected bills still be 10% lower than 5 years earlier after that case is finalized in December. With respect to our industrial customers, you can see on Slide 17, that our rates are below both U.S.
average and the Great Lakes average. And five years ago, this wasn't the case but we've made good progress in recent years.
And pushing to the left on this distribution, our industrial rates have declined 22% since 2013, which had been really important for the competitiveness and economics of this group of customers. I am going to turn now from -- to utilities to an update on our gas storage and pipelines business.
Slide 18 lays out the footprints of this business. And I want to focus on two portions of the footprint today.
The Millennium pipeline in Marcellus Shale, which you see on the right-hand side of the slide, along with the adjacent Bluestone assets, this area has been a source of significant growth in recent years and continues to see expansion opportunities, so a lot of focus on that. In addition, I want to focus on the NEXUS Pipeline in yellow on the slide, which is positioned to play a similar role in the Utica Shale in the years ahead.
Moving on to slide 19, I am going to start with an update on the NEXUS Pipeline. And I'll start by saying that as things have emerged, NEXUS is arguably positioned to tap the best gas reserves geology in North America.
The dry gas well reserves in the region directly adjacent to our NEXUS Pipeline are staggering. When industry observers ranked Shale plays, this region of the Utica shows up at the very front of the industry cost curve, highly competitive.
And so as the gas industry rationalizes supply across basins, which it needs to do, everything suggests that the Utica will be a winner and that investment will concentrate there. And as a result, we believe very strongly in the fundamentals that support this pipe.
Development of the NEXUS projects continues to move along. So we completed our FERC filing late last year.
The pipe is about two-thirds contracted. Significant portion of that volume is with utilities, including the Ontario operations of Spectra and Enbridge.
In late last year, the Ontario Energy Board approved their off-take positions. We're also in what I would characterize as advanced discussions with additional counter parties interested in positions on the pipe.
And importantly, we've signed interconnect agreements in Northern Ohio, which is the root of this pipe, totally 1.4 Bcf per day with gas LDCs, power plants and industrials which should provide additional demand for NEXUS over time. Now we are watching and managing dynamics in the E&P sector closely.
But as I said earlier, we really do believe that as the sector rationalizes supply, the region served by this pipe is going to benefit. So bottom line, we and our partner Spectra continue to move this pipe forward.
And 2016 will be an important year in its development. With respect to our Millennium Pipeline, we continue to see strong interest in expansions.
So we're pursuing a 200 million cubic per day expansion currently. We filed our FERC pre-approval a couple of weeks ago.
And our projected in service is 2018 on that. That expansion is really to access higher prices northeast markets rather than lower priced southern markets.
We are also building a lateral off of Millennium, the 8 mile Valley Lateral which should go into service next year. Additionally, we're seeing interest in expanding Millennium from northeast utilities.
That's serious interest. And I believe our discussions with them will lead to additional Millennium expansions down the road.
What all this means for earnings in the gas storage and pipeline business is laid out on slide 20. Last year was a big year for earnings growth in this business.
Earnings grew by 30% year-over-year to 107 million in 2015. And that growth was driven by our activities in the Marcellus tied to our Millennium Pipeline and the Bluestone assets.
This year the midpoint of our guidance is 110 million. So we're projecting some growth, but slower growth obviously than last year after the big push up and that's really given the reduced activity level we see by E&P players.
I would say that we're also looking carefully for investment or acquisition opportunities that stress in the E&P and MLP spaces might offer us. Longer term, we do continue to target 170 million in earnings by 2020.
And although the current E&P sector dynamics will cause a pause in drilling investment this year, we expect little or no impact long term. The country needs growing gas supplies.
Productions from existing wells declined 15% a year as we can't wait very long before the drilling has to resume and our pipes are in the right locations to benefit and grow if that occurs over the next 5 years. So everybody is watching what happens over the coming months.
But as you look out beyond that, this country is going to have to drill a lot of natural gas wells, just fundamental supply and demand says that. And the Marcellus counties that we are in and Utica are the places the drilling dollar should go.
I am going to wrap up my remarks with a few thoughts on our power and industrial business. Then I'll turn things over to Peter.
On Slide 21, our power and industrial business operates contracted assets at 66 sites across the country in three business lines: industrial energy services, renewable energy, and reduced emission fuels or REF for short. On Slide 22, you see that this business line had earnings of 95 million in 2015.
And the midpoint of guidance for this year is also 95 million, so flat from 2015 to 16. Two dynamics underlie this guidance.
One of our assets that serve steel industry rolled over its contract last year. You are probably aware the steel industry is in a cyclical downturn right now.
So, our earnings from that asset declined. But offsetting that dynamic is the fact that we expect our REF earnings to grow, so 95 million for this year.
And longer term consistent with what we communicated previously, our 2020 earnings target 105 million in this segment as our REF project sunset out in the early 2020, we intend to back drill with investments in co-generation which we are working actively and opportunities on the asset acquisition front. And with that, Peter, I am going to turn it over to you for our financial update.
Peter Oleksiak
Thanks, Gerry, and good morning everyone. As most of you know, I like to take advantage of having the microphone on this earnings call giving update on my Detroit Tigers.
Now with the Super Bowl over, all the focus is going to be on the upcoming baseball season. Speed training will be starting soon.
I have high hopes for my hometown team. If the Tigers were ranked by number one by MLD.com for the improved team after all the off season moves; won't be making any predictions this year.
Let's just say I am hoping for a playoff run. Enough about the Tigers, like to give you financial update and review of the 2015 earnings before we get to your questions, starting on Slide 24.
And as Gerry mentioned, the DTE Energy operating earnings came in strong at $4.82 per share. For DTE, a detailed breakdown of the EPS by segments including a reconciliation to GAAP reported earnings, please refer to Slide 43 of the appendix.
Slide 24 shows year-over-year operating earnings by segment; first going to focus on the middle column which shows 2015 results. Let me start first with the total earnings for the growth segments.
Earnings for our growth segments were 848 million or $4.73 per share. This is an increase of 52 million or $0.25 per share over 2014.
Our largest subsidiary DTE Electric earned 562 million. It was up 34 million driven by implementation of new rates and return of a more normal weather in 2015.
I will be going over the DTE Electrics earning results in more detail on the next slide, but let me continue on this page. DTE Gas 2015 earnings of 132 million were 8 million below 2014 earnings as we returned to a more normal weather in 2015 after one of the coldest winters on record in 2014.
The weather impact was partially offset by a reinvestment and distribution and transmission assets in 2014. These were not repeated in 2015.
Moving down the page, our gas storage and pipeline segment had a very good year as Gerry Anderson indicated, with operating earnings of 107 million which is 25 million higher than 2014. This is a 30% increase earnings and was driven by higher volumes in Bluestone lateral and gathering assets.
Earnings for power and industrial projects were 95 million, are up 5 million from 2014. This increase is driven by strong performance in our renewable business and REF, partially offset by lower earnings in steel.
Earnings for corporate and other was negative 48 million in 2015 or 4 million lower than 2014, driven by higher interest expense. So as I mentioned, total operating earnings for growth segments were 848 million or $4.73 per share, which is up 5.6% over the 2014 total growth segment EPS.
To round out our operating earnings, we conclude results of our Energy Trading business. At Energy Trading 2015 earnings were 50 million, which were down 50 million for 2014 driven by a lower realized performance on a gas portfolio.
Actually our trading company had a great year economically. The contribution for 2015 was 54 million, which is double our targeted annual level of 20 to 25 million.
As a reminder, slide 42 of the appendix contains our standard Energy Trading reconciliation showing both economic and accounting performance. Let's turn to page to slide 25 and as indicated I want to give a little more detail on our electric utility performance.
DTE Electric's 2015 earnings were 562 million, which was 34 million then higher than 2014. There were three significant drivers of this variance.
First, the return to more normal weather in 2015, if you recall the summer of 2014 was much colder than normal, while this summer was near normal. Second, the new rate implementation midyear to support the capital spent to improve distribution and generation infrastructure.
These rates were subsequently approved by the MPSC in December. The rate implementation is partially offset by the cost associated with these investments such as the depreciation property taxes and interest.
And finally, we experienced lower storm activity in 2015. This is a significant decrease when compared to 2014, we saw multiple storms, including a storm in September in '14 that impacted over 400,000 customers, which represent about 20% of our electric customers.
This lower summer expense was partially offset by 2014 lean initiatives, which were not repeated in 2015. Although not as large of a variance, I did want to touch on year-over-year the sales volume effect was just down 6 million.
We have provided on page 41 of the appendix more details on the sale volumes by customer class. But let me first start by saying that the underlying economic indicators were our service territory in Michigan are solid.
Customer accounts have increased, in total, in our residential and our commercial customer classes. And this reduction of year-over-year sales was driven by lower volumes in our industrial segment, due mainly to the weakness in the steel market.
This impact was partially offset, vindicated by an uptick in commercial sales. And residential are relatively flat, driven by economic and customer growth, but offset by increased energy efficiency.
And we continue to see the benefits of our energy efficiency program to help our customers reduce usage, and help keep their average bills affordable. Now I'd like to review 2016 earnings on Slide 26.
As Gerry mentioned upfront, our guidance range for 2016 is $4.80 per share to $5.05 per share, providing a mid-point of $4.93 per share. Total earnings per share guidance is unchanged from our early outlook introduced at our investor day in September of 2015.
Earnings ranges for each segment have been refined, and our equity issuance target is now reduced to 100 million, providing lower total share outstanding. Compared to 2016 to 2015 actuals, utility earnings are higher due to increased rate supporting our customer-related investments; continue to strengthen our pipeline and gather platforms, drive the increase in the gas storage and pipelines, including a full year contribution of the gathering bill that took place in 2015.
Our P&I earnings into 2016 remain strong, as the increased REF earnings help offset the near-term reduction related to our steel industry assets. Overall, earnings per share for our gross segments are expected to increase from $4.73, in 2015, to $4.93 a share, giving us a year-over-year growth of 4.2%, but when you look back to the initial guidance of '15 to initial guidance of 2016, the growth is 7%.
Moving on to Slide 27, I'd like to touch base on how bonus depreciation extension has impacted our plan. We expect the extension to provide $300 million to $400 million of favorable cash flow over the five-year period.
But based on the change, as well as other adjustments to our plan, we are now targeting a range of 200 million to 300 million of equity issuance for the 2016 to 2018 period, compared to our previous disclosure of 800 million that you can see on the chart. As I mentioned on our guidance page, we expect to issue about 100 million of this in 2016.
We mentioned times in the past that maintaining a strong balance sheet is a priority for us. If you turn to Slide 28, you can see key balance sheet metrics on which we target, and that we also monitor FFO to debt leverage.
And this slide shows that the projected level for each metric. And as you can see, we are in the targeted range for the next three years.
2015, we issued a modest amount of equity, actually needing less than 10% of our capital expenditures to be financed with new equity. The strength of our balance sheet sets us up nicely as we enter a period of historical high capital spend.
Now let me wrap it up, on Slide 30, and then we can move to the Q&A with the summary. 2015 was a very good year.
And we are well-positioned to have a successful 2016. DTE has historically delivered on its growth targets, and actually have exceeded our growth targets over the recent history.
We provided 6.5% annual EPS growth over the last five years. As we look forward, we continue to target operating EPS growth of 5% to 6% for our growth segments.
And then part of our shareholder value equation is to continue to grow our dividends in line with these earnings. We have meaningful investments in our non-utilities, that which will drive continued growth in those segments.
And we have significant utility investments in reliability and generation modernization that affordable, clean, and reliable service to our customers. The constructive regulatory environment we have in Michigan, coupled with our focus on operational excellence in delivering high customer satisfaction, provides a good foundation as we move into an era of replacing and upgrading our aging utility infrastructure.
So before I actually turn the call over for questions, I'd like to recognize Anastasia Minor. This is Anastasia Minor's last call, so a little shutout to Anastasia.
I know been easy to receive the email blast yesterday on announcement so I'm sure I'll hear from you when I'm on the road. But I'd like to say that we're leaving it -- and actually Anastasia is not leaving the company, she's a key member of our management team, and moving into a different role.
But we're leaving the job in the good hands. Barb Tuckfield is moving into the role, coming off fresh from her gas utility controller assignment.
So with that I'd like to thank everyone for joining us this morning. So, Shavan [ph], we can open up the lines for questions.
Operator
Thank you, Mr. Oleksiak.
[Operator Instructions] And we will now take our first question from Dan Eggers of Credit Suisse.
Dan Eggers
Hi, good morning guys. Gerry, I think a lot of the legislation discussion has been in part addressing the energy policy but in part kind of trying to get ahead of the CPP a little bit.
With the legislation having taken a lot longer than anybody would have expected, do you see this as a reason or a cause for legislation to slow down again or a reevaluation of kind of some of these priorities would seem to be focused on addressing CPP issues?
Gerry Anderson
I don't think Mike Nofs will see any reason to slow down. I think he understands that we've got a lot to take care of on the energy front over the next 10 to 15 years, and that things come and go in terms of regulation, legislation, and policy.
As I said, I'm not here to speak for consumers, but they've got a bunch of plans retiring in the near-term. We do also.
We've been pretty visible with the older plants that are going to be coming offline. So both companies and the state will need to backfill those with investments, and this legislation is -- really recognizes that we're headed into that period.
So I -- there may be people who really don't like the Clean Power plan, who say, slow down, stop, but Mike Nofs won't be one of them, nor will we.
Dan Eggers
Okay. And I guess just on the NEXUS front, with two-thirds contracted at this point in time, what is your feeling for when you guys might fill in more of that to get to a fully comfortable position on the pipe?
And can you just remind us how much of that is maybe percentage-wise covered by utilities rather than producers?
Gerry Anderson
About half of that is utilities, and half is producers, and so I'd say a couple of things. And then I'll have Jerry Norcia, who's here, and President of the Group to add his thoughts to mine.
But I mentioned during my comments that we have very active discussions with other parties interested in the pipe. So we're hopeful that those will play out this year.
The other thing I'd say is, we and Spectra, both continue to evaluate this pipe and the fundamentals of it are just so strong. When you look at the fact that it's arguably runs into the very best dry gas region in North America, and then connects that to the largest storage of -- market storage hub in the Midwest-Northeast, and supplies into Ontario, Michigan, and the Chicago markets via the pipeline networks, that, we really are strong believers in the fundaments.
To get back to the original question, we would think that we'll bring additional demand on this year from some of the discussions we have underway. And then that 1.4 Bcf of interconnection across Northern Ohio, we think will add demand over time beyond that.
Jerry, any thoughts you'd add in addition to this?
Jerry Norcia
Gerry, you said it extremely well. So, again, I just, really to summarize.
A pipeline with great market access to Ontario, Michigan, and really supported by LDCs. And I think that really distinguishes this pipe from other pipes.
I mean, I think you're seeing that other pipes are somewhat struggling with routing issues out of this basin, as well as market issues. And I think the fact that we've got a strong LDC base distinguished this pipe when we first proposed it, and now it's even a greater distinguishing factor.
So we're still very supportive moving forward. Everything is on schedule from a FERC perspective.
The feedback we're getting from FERC is that we've submitted a high quality product. We've got a great partner in Spectra, who is very experienced in executing these type of projects.
So we're feeling really good about where we're at right now with our market, as well as our supply.
Dan Eggers
Got it, very good. Thank you, guys.
Operator
And we will take our next question now from Neel Mitra from Tudor, Pickering.
Neel Mitra
Hi, good morning.
Gerry Anderson
Good morning, Neel.
Neel Mitra
I had a follow-up question on NEXUS. It seems like on the demand side it's really strong.
How are you -- generally, how are you viewing the discussions with the producers right now on the upstream side? Obviously a lot of guys are feeling pain.
Is there any discussion on delaying on the pipe or do you feel strongly from that perspective?
Gerry Anderson
You know, that's a really good question. And sometimes when you're in some of these developments, and there's stress in the sector, you have people approaching you, trying to restructure or retime things.
And we are just not getting that. And I think it's because of the quality of the assets in the region.
So we continue to get strong support, and no waiver from the participants in the projects, either producer, and obviously not utility. That answer the question?
Neel Mitra
Yes, that's great. Thank you.
And then on the power and industrial segment, in your analyst day you brought up the steel customer. Could you just talk about the general appetite from industrial customers, given that there's some concern over an industrial recession coming up, and specifically how that relates to you, and in your conversations?
Gerry Anderson
So the projects in that industrial portfolio are contracted, but they do roll over. So I think our average duration is seven years or so.
But that means every seven years some of your assets, on average, are going to roll. But in between they don't have volume or commodity price sensitivity.
So we're not worried about the balance of the portfolio. This one was a coke battery, it rolled at a time when pricing was down, and so we had to roll with the market when we re-contracted.
And so that took some earnings out of that segment. But we had growth elsewhere, and we're able to -- the segment is not growing this year, but we're able to hold performance.
So those are the dynamics. We don't have any other important contracts that have exposure to industrial weakness here.
Neel Mitra
Okay, great. Thank you very much.
Gerry Anderson
Welcome.
Operator
And our next question is from Julien Dumoulin-Smith from UBS. Thank you.
Gerry Anderson
Hi, Julien.
Julien Dumoulin-Smith
Hi, good morning.
Gerry Anderson
Good morning.
Julien Dumoulin-Smith
So, perhaps to follow-up on the legislative question, I just wanted to make sure I am hearing you right. Are you feeling comfortable about the outlook for earnings growth sort of even if the legislation is delayed beyond this year or if it just simply doesn't happen?
I just wanted to get a sense of the puts and takes in your budget and your comfort within it. Obviously you work with a certain amount of, quote, whitespace.
How are you feeling about it?
Gerry Anderson
I guess I would say, I don't think implementation of the legislation, if you were to try to draw a direct link between that an earnings, there really isn't one. The legislation was targeted at two things, one is, if we're going to remake our generation infrastructure we should have a good planning process for doing that.
So the legislation focuses on an IRP process. And having a process where variety parties can get their oar in the water, to talk about what the mix of generation should be.
And I still think we need to do that. The second what was really focused on, fairness, which was around retail open access.
If we're going to be investing in generation, everybody should participate economically in those investments. So that's a fairness question.
But if you try to move from those two things, a good planning process and fairness, to our earnings, there really isn't a link between the two. We think the legislation is important to have a really well-defined and fair process for moving forward.
But we're going to move on with the distribution investments, and the power plant retirements, and so forth either way. We really have to.
Some of these power plants are just old. I'll give you an example.
We got one I can see from where we're doing the call here that just had a major component failure. That unit is not going to run.
And we think it's highly likely. And the reason is it's just old enough and marginal enough that we've got to move on.
And so we've got numerous assets in that sort of position, where we really are evaluating just how much longer it makes sense to invest versus move on. And some of the plants that are from the '50s and '60s, it's time to move on.
So what I said earlier, that I don't see the early years of the clear power plant, maybe the first half of it being affected much, that's why. Now when you move out into the later years, closer to 2027, 2030, then you start to get into some of our larger, somewhat newer assets.
They could be affected. But I'll tell you, there's a lot to happen between now and then.
So there's continued action on NOx, and mercury, and other fronts, water, that will be thrown into the mix in terms of how we evaluate those plants and their life. So I think it's really early to talk too much about what this stay might mean for our -- both our earnings, and really for the Clean Power plan, because it's very possible that they'll send it down to have a couple of specific issues reconsidered or reconfigured.
The EPA will address those, and then things move on. Or it could be more fundamental than that.
And we really don't know right now. So hopefully I gave you some help in the way we're thinking about it.
Julien Dumoulin-Smith
And just to follow-up on the whitespace question, I'd be curious, in the slide deck, it seems as if you haven't included the whitespace CapEx again. Is there anything to read between the lines on that?
How are you feeling about, particularly the midstream side of the equation, when it comes to the ability to execute to the upside here? Is there something we should be reading from the slides here?
Gerry Anderson
You're talking specifically GSP or were you talking in the utilities?
Julien Dumoulin-Smith
Well, I was thinking -- well, I mean, you tell me on the white space, either way with the Michigan legislation and/or what's going on in midstream, if that has kind of come in on you. But I suppose the question was more specific to the midstream side.
And I'm thinking more on the gathering potentially, but more broadly, either ability still to execute on the upside case.
Gerry Anderson
[Technical difficulty] I'll address both. So I think we previously have talked, and I mentioned earlier that it, particularly in the distribution side of the electric utility, there's a lot of demand for investment there.
So we've got the 6.5 billion in our base plan. I said that if you look at the fundamentals of the aging of that infrastructure, and the reliability needs, the constraining factor is not how much demand there is for investment.
There's a lot of investment needed. So we're really metering that tide to customer affordability.
And that has not changed since we talked about it at the analyst day in the fall, it's very much the same picture. On the mid stream side nothing has changed in terms of -- if you look out over the five-year period, what we think is going to happen in the Marcellus and Utica regions, and the amount of activity there.
I mentioned, the gas sector is very, very different from the power sector. Put gas wells in the ground, and a year later the average decline is 15%.
So you've just got to continually drill in order to meet the growing demand for natural gas. And in doing that, I think one of the message we've seen out of the stress in the E&P sector, is that it needs to rationalize, and people are going to rationalize it to the very best drilling locations.
And I'm not blowing smoke when I say that the Susquehanna County, and the Marcellus, and the area of the Utica that NEXUS serves are the very best dry gas geology in the country. And so through simple common sense you come back to say and that these are going to be very high activity areas over the next five years.
And so our continued sense that NEXUS is a good project, and that there'll be more development and expansion of Millennium are tied to those factors. Now in the very near-term, this year, does the E&P sector need to work some things out, obviously.
We're watching that closely, we're managing it. But I think long-term fundamentals you get down the road the number of years, this will be in the rearview mirror.
Julien Dumoulin-Smith
All right, great. Well, thank you very much.
Gerry Anderson
Thank you. Appreciate it.
Operator
And our next question comes from Greg Gordon from Evercore ISI.
Gerry Anderson
Hi, Greg.
Greg Gordon
Thanks. Good morning guys.
Gerry Anderson
Good morning.
Greg Gordon
So, it looks to me like you guys just tried to sort of evolve your slide deck a little bit, but one of the other -- and I apologize if you've answered this already -- Slide 14, you no longer have the upside case of -- for potential spend in the utilities. I'm not assuming that you're signaling that that's off the table?
You just kind of modified your slide a little bit? Is that fair?
Gerry Anderson
Yes, that -- and now I guess the last question is this, there was no change in plan or need. We've just got the base case shown here.
But I think it was in the analyst day, we showed that if you talk about what's in our plan, at 6.5, you talk about what we look at as fundamental demand for renewed infrastructure, it's more like 10.5. And how we walk between those two really has to do with demands of customers for reliability versus affordability.
And what we've got in the base plan, the 6.5, we think is a good walk between the two. The makes sense or answers the question, I think it gets at where you were asking.
Greg Gordon
Yes, 100%. Second question, you've always talked about your internal planning is for sort of 7% to 8% overall operating earnings growth.
And then after share issuance and contingency, you seek to be in or at the high-end or above your 5% to 6% earnings growth targets. Your share issuance number, now over the next several years, is obviously going to be a lower number because of bonus appreciation.
But should we assume that if you were to theoretically update that slide, the operating earnings growth rate would be slightly lower, but the share issuance would be slightly lower and you'd be in the same place -- to get the bonus?
Gerry Anderson
Yes, Peter, you might want to just take the topic of bonus, and the way it impacts us as a company. Because it's a little different from the way it may impact some other companies.
I'll let Peter answer that, and see if it gets at your question. If it doesn't we'll pick it up from there.
Peter Oleksiak
Hi, Greg.
Greg Gordon
Thank you.
Peter Oleksiak
Let me first -- I'll first start with the bonus. And of course, I was happy to see a five-year plan.
Every year we went in guessing what would happen with bonus the following year. So I was actually happy to see that.
And we have looked at it and we're going to be maximizing the bonus benefits, great for customers in terms of affordability and for us as a great cash benefit. And we're in an equity-issuance mode.
So actually the EPS impact is minimal on a go-forward basis. So we are down from the 800 million, to 200 million to 300 million of equity issuance.
So that's how we're thinking about bonus. Also, if you compare us to other companies, we are less than others.
We're already in an AMT position, and we have tax credit, some tax planning that puts us there. So our 20%, versus 35% rate gives us a little of a lower-end benefit.
And also from a tax planning, we are in a position of tax NOL so the near-term benefit is also pushed out because of that.
Gerry Anderson
That answer it?
Greg Gordon
Got you. Yes, yes.
So if I were to summarize, if you were -- if I go to page 12 of your December business update, you give a bar that says we aspire to grow operating earnings 7% to 8%, and then after share issuance and contingency, we're at 5% to 6%. Theoretically, 7% to 8% is slightly lower, but the share issuance is also lower.
And you -- net-net, you're still in that 5% to 6% range. Is that fair?
Peter Oleksiak
That's a fair way, and if you look at the remix of the guidance from the early outlook, we did temper down the electric segment a bit because of the rate case. And the ROE, we did temper down a little bit as we refined the impact of the contracts in the power industrial segment.
So that was offset by the reduced share issuance to hold us at the mid-point of the early outlook.
Gerry Anderson
And then I think more broadly your take is right, that given our combination of our tax position and equity issuance, when your bonus does affect growth in the utility some because it's effectively zero return cost to capital. But it's very minimal impact on EPS, given the dilution offset we have.
So it doesn't turn out for us to be a material factor.
Greg Gordon
Okay, thanks, guys.
Gerry Anderson
Thank you.
Operator
And our next question comes from Jonathan Arnold from Deutsche Bank.
Jonathan Arnold
Hi, good morning guys.
Gerry Anderson
Good morning.
Peter Oleksiak
Hi, Jonathan.
Jonathan Arnold
Gerry, one comment you made was that you see opportunities in the face of market dislocation in the pipeline space. Can you be a little more specific about what kinds of things you might be alluding to?
How significant they could potentially be? And how close you are -- we are, you think, to a point where something might actually materialize?
And how do you manage the sort of quality bias in the portfolio through something like that?
Gerry Anderson
Couple of comments, so we -- you've been watching the sector and there are obviously company stress. Now companies tend to first hold on and then try to push out assets that they really don't want.
They really don't want them. We don't either, generally speaking.
We've had some people approach us with assets of interest. I wouldn't say we're close on those.
But I think we got to watch across the balance of the year as companies continue to deal with pressures. And I think there will be asset sales that result from that.
Our cost to capital is much better positioned than it was year ago to look at those. So, we don't have anything built into our plan right now tied to this.
We're simply signaling that the environment is pretty different than it was a year ago. We think that there are going to be assets to change hands and we're open to that if the right one comes along.
That said, we're not going to do things that aren't strategic or that we don't feel good about. No sense buying things that really don't have much upside or strategic value to you.
So, we are going to wait through it and we will see what comes.
Jonathan Arnold
Could you talk a little more about what you would see as being particularly strategically interesting? Is it more pipe?
Is it storage? Is it…?
Gerry Anderson
It would be pipe and potentially gathering. But I would let Jerry Norcia to comment on that as president of the union.
Jerry Norica
Yes, so we have got a handful of conversations underway what we are looking at I would say primarily assets that are tied to gathering and transmission to main lines. I think as we see producers on under a lot of stress, they are looking to monetize assets.
And I think as Gerry said, we are being very selective. Some of the first opportunities that we've seen are perhaps not as strategic as we would like.
But like I said, we continue with a handful of conversations that we're hopeful would yield some value for us here.
Jonathan Arnold
Okay, great. Thank you.
Just on one other -- on another topic, we were slightly surprised that you filed your electric case so soon after the last one. We thought you were kind of trying to leave a little bit more time.
But any comments about what drove the timing there? Something we should -- some context we could put around it?
Gerry Anderson
Well, I think a couple of things, one it has been a very long time since our prior rate case. So there was a lot that we were addressing in the rate case directly proceeding.
And that if you simply look at the pace of capital expenditure last year and projected this year and the forward test year, it's a significant spend that we have underway and we need a rate case to deal with that. So I think historically, we've tried to spread our rate cases out and have been pretty successful in doing that.
Our prior case had been four years since the proceeding case. That won't be the case in the future given where things stand.
We are investing in both distribution and generation at a healthy enough pace that we're going to need to be in a year, year and half.
Peter Oleksiak
I think just to add on that to give you a perspective, the case we just filed is a billion dollar rate based increase in the final order we just received. This gives you the sense of pace of capital spend that we have over and above depreciation.
Jonathan Arnold
So that comment you just made every year to 18 months is kind of the new expectation?
Gerry Anderson
Yes, I think it is.
Peter Oleksiak
Yes, probably in every calendar year at some point in the year we will be filing.
Jonathan Arnold
Okay, great. Thank you, guys.
Gerry Anderson
Thank you.
Operator
And out next question is from Mr. Paul Ridzon of KeyBanc.
Paul Ridzon
Good morning.
Gerry Anderson
Good morning, Paul.
Paul Ridzon
Did you talk about the earnings impact of bonus depreciation?
Gerry Anderson
We did. As generally said, that given the share issuance effect the combination of two makes it a very modest impact for us.
So, it's not a significant player in our plan. We are -- pulls our share issuance is down fundamentally; does have some impact in utility earnings, but the two heavily offset each other.
Paul Ridzon
Did you -- can you quantify the impact before the dilution offset?
Peter Oleksiak
Yes. We did revise down our electric segment a bit.
Just to reiterate what Gerry said there was minimal impact. I will say it's relatively small in terms of the earnings growth.
But there is a bit of -- the utility growth has taken off just because of the bonus depreciation being used versus equity. But there is an offset corporately on the earnings per share.
It's pretty minimal.
Paul Ridzon
That lower utility earnings is all bonus depreciation?
Peter Oleksiak
There is bonus depreciation. And for the electric segment, there was a fine tuning of the ROE that came up [technical difficulty].
Paul Ridzon
Okay. Can you -- I was surprised to see gas segment earnings up in the fourth quarter.
Can you give a little more finer detail around what drove that?
Peter Oleksiak
Which gas segment are you talking? Utility or…
Paul Ridzon
I am sorry. DTE Gas, the LDC.
Gerry Anderson
Yes. The combination of that we knew going into the fourth quarter that some of the weather impact.
So we did go in a bit of a lean mode in that fourth quarter so that helped the earnings out and there was also some timing taxes that played up in between years.
Paul Ridzon
But we did not have new rates, is that correct?
Gerry Anderson
That's correct. And the other as I mentioned in my speaker notes 2014 we had a really strong weather year, so we had a reinvestment plan.
Lot of it took place in the fourth quarter of 2014. So you are seeing investment that occurred in 2014.
And then a lean that offset, went the other way in 2015.
Peter Oleksiak
So put differently we started talking about El Nino in July. And we knew it was a distinct possibility.
So, we had plans lined up for our gas utility that if it reared its head, we would implement lean late in the fourth quarter, and we did. And it turned out -- we are glad we did.
It turned out to be an incredibly warm December. We had the opposite, the flip a year before, coming off that really cold winter we invested ahead.
But we invested ahead in 2014 to enable something like we ran into in 2015. And that's kind of the way we do things that we invest in stronger years to give you the flexibility to do the opposite in years when you need to.
And you can do that without affecting the quality of your assets as long as you keep that even handed.
Paul Ridzon
Thank you. And then lastly, at gas storage and pipes, as you look at your counterparties or potential counterparties, are there any parties out there that are causing you a little bit of credit concern?
Peter Oleksiak
Well, I think if you look at the whole sector, there's quite a few that share prices have come down fundamentally and are sub investment grade. So, we're watching those.
But as I said earlier, we don't -- so they are sub investment grade, but we aren't picking up in our counterparties kind of the scramble to rework timing or rework commitments. In fact on one of our pipe positions, we had credit requirements that caused them post collateral and they went ahead and did it because the position is important to them and they want to continue on.
So we would be selling that to be watching our counterparties carefully. But we haven't seen any yet that have tilted into the mode where we think there's something near term.
Paul Ridzon
Okay, thank you very much.
Gerry Anderson
Thank you.
Peter Oleksiak
Thanks.
Operator
And our next question comes from Andrew Weisel of Macquarie Capital.
Andrew Weisel
Hey, good morning everybody.
Gerry Anderson
Good morning, Andrew.
Andrew Weisel
Just one quick one here, as I look at the past few years of EPS growth versus DPS growth, your earnings have been growing by about almost 100 basis points faster. Obviously, that's going to be putting downward pressure on the payout ratio.
Any thoughts on potentially increasing the growth rate going forward? Obviously, you are still planning 5% to 6% earnings growth, as you talked about, but in order to catch up the payout ratio, any thoughts on maybe accelerating the dividend growth?
Gerry Anderson
We have been working the payout ratio. So we have a stated payout ratio.
And what we've generally done is push it up into the middle of the payout range and it falls back to the front-end. Then we push it back up to the middle.
So, that pattern is probably what you can expect in the future. You're right.
We have grown earnings a bit faster than we have dividend. So, we'll keep an eye on what you suggested.
Andrew Weisel
Okay. Thank you.
That's all I had.
Gerry Anderson
Thank you.
Peter Oleksiak
Thanks.
Operator
And our final question comes from Paul Patterson of Glenrock Associates.
Paul Patterson
Good morning.
Gerry Anderson
Good morning.
Peter Oleksiak
Good morning, Paul.
Paul Patterson
Just very quickly, I think you've answered all of my -- most of my questions, but -- so, basically if I'm to understand it, there's -- you see turmoil. You are monitoring it in the E&P and other energy sector or commodity sectors.
But you really see no potential or significant potential at least in the near-term of anybody not being able to meet their commitments as a counterparty or as a partner or anything like that, correct?
Gerry Anderson
Right, we don't see any evidence of that. And we have the chance to deal with counterparties across a lot of fronts including our utility.
So generally you know when somebody is in that position, they start to dance on commitment and we are just not seeing that.
Paul Patterson
Okay, great. And then just finally on the legislation, how should we think about the delays and stuff?
I mean what are the sticking points, if there are any? Is there any particular issue that seems to be sort of holding it up or causing more of a problem in terms of sort of nailing it down?
Gerry Anderson
Well, I think there was - there were -- predictably there are some parties down the retail open access side who would prefer to thing simply stay the way they are. So, there was some noise about that.
I think the key to that and we are putting together I mentioned the coalition. Senator Knox is working on a coalition.
I think the key is to get a business coalition that comes together and says actually these are right things to do. It's the right future direction for the state and it's fair.
And I think we'll be able to put that business coalition together. So, you can probably imagine who it was saying that retail open access is fine just the way it is.
It was some alternative providers and a few people that they were backing. But I do think we will be able to deal with that issue.
Beyond that, there are - I would say there is some back and forth on exactly what they IRP process should look like, but I don't think that will be a holdup.
Paul Patterson
Okay, great. Thanks a lot.
Gerry Anderson
Okay. Thank you.
Operator
As there are no further questions in the queue I would like to turn the call back to our speakers and presenters today for any additional or closing remarks. Thank you.
Gerry Anderson
Well, we don't really have any additional information for you. I would just say that we appreciate you being with us this morning and your support, and look forward to any follow-up questions that you have.
Thanks very much for joining us. We look forward to a good 2016.
Operator
That will conclude today's conference call. Ladies and gentlemen, thank you all for your participation.
You may now disconnect.