Ladies and gentlemen, thank you for standing by and welcome to the DTE Energy Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Barbara Tuckfield, Director of Investor Relations. Please go ahead.

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

Well, thanks, Barb, and good morning everyone, and thanks for joining us today. I hope everyone is staying healthy and safe. This morning, I will start off by giving you a recap of our 2020 business performance and provide highlights on how we are well positioned for future growth. Then David Slater will give some details in our Midstream business and provide an update on the spin transaction. Dave Ruud will provide a financial review of the year and wrap things up before we take your questions. So let's start on Slide 4. 2020 was clearly a challenging year for so many with the COVID-19 pandemic disrupting everyone's lives. And as I reflected on this past year, I think the best word to characterize my thoughts is pride. I cannot be prouder of how our DTE family confronted these challenges and took them head on and created incredible success in every part of our company. I’m proud of how our employees responded to ensure their own safety and the safety of our communities while continuing to deliver for our customers. DTE also delivered very strong financial results, continuing our incredible track record of success. In 2020, we achieved extraordinary engagement and safety performance. We achieved our safest year on record, as you all know the safety of our people and our customers has always been our top priority at DTE. I’m so incredibly proud of our team for this achievement while navigating through a pandemic. Additionally, our team remained highly engaged throughout the year. We were ranked by Gallup among the top 5% globally for employee engagement, earning our eighth consecutive Gallup Great Workplace Award. Best-in-class employee engagement is our secret sauce that defines our strong corporate culture and provides a foundation for long-term value creation and repeated success on…

Thanks, Jerry, for the kind words. The next year will be a defining period for our industry, and I look forward to ensuring that policymakers and regulators understand the importance of natural gas in the lower carbon future. I’ll start on Slide 9. As Jerry mentioned earlier, our spin transaction is well underway, and we recently initiated the Form-10 process. This keeps us firmly on schedule for a midyear spin. I’ll now discuss the successes Midstream achieved across all of our platforms last year and then go over the execution of our spin transaction. We placed LEAP in service last summer, ahead of schedule and under budget. It is a 155 mile, 36 inch pipeline that extends our gathering system to the Gulf Coast Interstate systems and LNG export markets. This asset is a great addition to our portfolio. We delivered strong financial results this year across all of our platforms, producing strong adjusted EBITDA of $713 million, which was above plan. We also executed a three year contract on NEXUS with our Ohio utility, and we continue to see strong interest in NEXUS capacity. Overall, portfolio continues to be well contracted. Our major customers are in solid positions, connected to premium markets and have minimal near-term debt maturities. I also wanted to mention that Midstream recently announced a net zero emissions target by 2050, making us one of the first companies in the Midstream sector to announce such a goal. We intend to use every tool available to reach our sustainability targets and believe this will evolve to become a significant opportunity over time for Midstream. With the position of our assets and the strength of our counterparties and contracts, the Midstream company has highly visible cash flows and a stable long-term outlook. We remain focused on disciplined capital…

Thanks, David. Good morning, everyone. 2020 was the year that brought its share of opportunities and challenges, and hard work of our employees allowed us to continue to deliver for our stakeholders, including delivering strong operational and financial results while providing great service for our customers. As Jerry mentioned, we executed on our economic response plan to offset the impacts of the pandemic and warm winter weather. With our quick action and the incredible performance from the whole team, we were able to achieve solid financial performance across all of our business lines. Let me start on Slide 11 to review our year-end financial results. Total operating earnings for the year were $1.4 billion. This translates into $7.19 per share for the year. You can find a detailed breakdown of EPS by segment, including our reconciliation to GAAP reported earnings in the appendix. I’ll start to review at the top of the page with our utilities. DTE Electric earnings were $813 million for the year. This was $97 million higher than 2019 primarily due to higher residential sales from more people working from home during the year and new rate implementation, offset by rate base growth costs. Moving on to DTE Gas. Operating earnings were $196 million, $15 million higher than last year. The earnings increase was driven primarily by onetime O&M cost savings, new rate implementation and the infrastructure recovery mechanism revenue was offset by warmer-than-normal weather and rate base growth cost. Let’s keep moving down the page to our Gas Storage and Pipelines business on the third row. Operating earnings for GSP were $303 million. This was $90 million higher than last year, with strong performance in each of our platforms driven primarily by a full year of Blue Union earnings and placing the LEAP pipeline in service…

[Operator Instructions] Your first question this morning comes from Michael Weinstein from Credit Suisse. Please go ahead.

Hi, good morning, guys.

Good morning, Michael.

Hey, maybe you could go through some of the highest priorities you’re going to have with the electric filing as it comes up eventually? And what would be the focus of that rate filing?

Sure. The primary focus will be our capital investment plan, continuing to build out, modernize our electric grid. So our investments in the wires business will be front and center in that filing, along with continued investment in clean generation and, of course, typical capital investments to maintain the system in good working order. So those would be the key priorities.

Right. And along those same lines, as you maintain the 5% to 7% growth rate – growth target going forward, what is the – where do you think that most of that backfill will come from, from the elimination of the GT&S segment considering that that was a pretty high growth segment contributing?

Yes. I think as we’ve shown in our growth plans at EEI, we have very large backlog of capital for infrastructure that needs to be deployed, both on our electric business and gas business. And then P&I segment is obviously focused on renewable natural gas and cogeneration, that will drive a nice growth profile there. So overall, based on a large inventory of capital that we need to deploy on behalf of our customers, we see a very good strong growth rate for DTE post-spin of 5% to 7% EPS growth.

Right. And the low end of equity needs, is that through the entire plan or just the early, did I hear that right, just the first-year plan?

Dave Ruud, do you want to take that?

Sure. Yes, over the three-year period, you see the $1.3 billion of converts come in, in 2022. But besides that, we do think we’ll be at the low end of our equity plan during that period.

For the entire period, right?

Yes. The entire three years, sorry.

Okay. And is that driven just by better results, more cash flow?

Yes. We had really strong cash flow in 2020 that positions us even better.

It’s not a reflection of a rating agency – more laxness, I guess, in your credit rating targets?

Well, you can also see that we have it on one of the slides that we were targeting at 18% FFO-to-debt prior to the spin. But we have talked to the rating agencies, and this will be credit-enhancing for the company. And so we are able to reposition that 18% to a 60% FFO-to-debt and still be in a consistent place on our ratings and our positions there.

Is that a driver of being at the low end, though, of equity needs? Or is it mostly just about having more cash flow than you expected?

When we talked to EEI, this was part of how we were able to be at the lower end of our equity needs – or to lower equity needs. And now this additional cash push us down to the lower end of that…

All right. That’s all I’ve got. Thank you.

Thank you.

Your next question comes from Jeremy Tonet from JPMorgan. Please go ahead.

Hi, good morning.

Good morning.

Just wanted to start off on the Midstream side, if I could here. And just want to see if the frigid temperatures that have been coming to the nation, if that, kind of, impacts some of your operations there as far as flows that you might be seeing or even if, I guess, maybe higher gas prices might influence producer activity, just trying to think through the different ramifications of what we’ve seen this past week.

So I’ll start by saying that our assets operated quite well across all of our platforms. Some of our customers in our southern platform had issues, but perhaps I’ll let David Slater describe that in a little more detail.

Sure. Thanks, Jeremy, for the question, and that’s very topical, given it’s on the news every night. So yes, first off, our Midstream assets performed really well. I’m proud of the operating team in the field. They saw that weather coming in and started to take actions in advance of that to make sure our system operated reliably, so it has. We have seen from a customer/producer perspective well freeze-offs, and it’s really driven by an extended period of very frigid weather in the Louisiana, Texas area. And that, over time, does affect production. That said, it looks like the weather is breaking today and tomorrow. We expect that those volumes will come back online over the weekend and into the beginning of next week. So there has been a short-term production reduction that occurred and – but it’s going to be bouncing back fairly quickly.

Got it. That’s helpful. And then just thinking about the volatility in the markets day. I’m wondering if that could create opportunities on the Energy Trading side that could benefit you in the first quarter?

Well, I’ll say this, that at our Energy Trading operations, we’ve got very small positions. And typically, we’re long. So we have seen some favorability that will roll through the Energy Trading business for sure.

Got it. That’s helpful. And just on Midstream, as we think about the shape of earnings across the year, you talked about growth in that business. I’m just wondering, do you see kind of a ramp across the year here? Or any other color you can provide as far as just the shape of Midstream earnings across the year as you see it now?

David, do you want to take that?

Sure. I can take that. I think it should be fairly steady across the year, Jeremy. I don’t see any significant lumpiness over the year. So it should be fairly steady.

Got it. Maybe a last one on Midstream, if I could here. And I’m not sure if you’re in a position to discuss it much at this point. But just when you think about your Midstream business, when you think about what other publicly traded comps out there, are you able to kind of provide any thoughts on how you think your business compares versus others, what you think is the closest comps?

David?

Yes. Jeremy, when we’ve talked about this in the past, the two that I referenced would be Equitrans and Williams, Equitrans is similar size. They focused in the Appalachia. We are more diversified than they are. But in terms of size and portfolio composition, we’re similar to them. And then Williams, they’re larger than we are. But again, in terms of focus primarily on gas and the portfolio composition. So those are the two that we kind of point to as proxies. I believe that we’re going to have a pretty strong portfolio and with a strong, clean future in front of us. So we expect to trade to have a strong multiple on our EBITDA.

Got it. That’s very helpful. I’ll stop there. Thank you.

Your next question comes from Julian Dumoulin-Smith from Bank of America. Please go ahead.

Hey, good morning, team. Thanks for the time.

Good morning, Julien.

Good morning. Couple of clarifications, if you don’t mind. Number one, with respect to what’s happened here in Texas, how do you think about the Energy Trading impact? I just want to clarify the last response that, indeed, your book across its various exposures is intact? And then I’ve got a more substantive question.

So at the highest level, Julien, as I mentioned, we have small positions, but we find ourselves typically long in those positions. So the impact on commodity prices has actually provided favorable trends for our trading business, certainly in the last several days.

Okay. Excellent. Sorry, I just wanted to clarify about trading specifically. Then separately, if I can. Obviously, just very successful 2020. How do you think about taking some of those tailwinds and putting them into 2021 here? I get that there are a number of onetime items, including cost-savings in 2020. But how do you think about that moving forward in 2021 here as it goes? And then if you can speak to it as well, I just noticed the cash flow steps down, probably again off of some onetime items, into 2021. If you can speak to that a little bit?

So Julien, I would say that 2020 positions us extremely well for 2021. As the year begins and progresses here, we are seeing favorability and also likely trending towards the higher end or beyond the midpoint of our guidance but still inside our guidance. So I feel very positive about the year as it’s starting to progress, but more – we’ll speak more about that as the quarters progress here, but feeling really strong about how 2021 is shaping up. Dave Ruud, do you want to add some thoughts on the cash flows or earnings for this year?

Yes. Sure. You’re exactly right, Julien. 2020 was a really good year for cash for us, primarily driven by strong performance in the business. But we also did have some onetime impacts from – particularly from the CARES Act, which gave us some really good favorability. So 2021 cash is lower than 2020 as we adjust for those onetime things that won’t repeat, but it’s still – we feel a good solid cash year for 2021, too.

Excellent, guys. Thank you very much, right.

Thanks.

Your next question comes from Jonathan Arnold from Vertical Research Partners. Please go ahead.

Hey, good morning, guys.

Good morning.

Just back on equity just for a second. Isn’t the low end of the range excluding the unit zero? I just – maybe I’m really slow on that. I just want to…

Dave?

Yes, the low end there is zero, and we’re just – in case there are some internal equity issuances or something we’re just saying here at the low end, but we don’t see a need for much equity issuance at all beyond the conversion over the next three years.

Yes. That’s what I was hearing, but I wanted to clarify. And thank you. And then just to follow up on the question of sort of seasonality around Midstream. It looked like the fourth quarter was a step back to the $72 million, the range, which is kind of what it was in Q1 and Q2 and then just had this really big third quarter, over $100 million. I mean, are we saying that that was an anomaly in 2020, and we should just have much more – because your guidance would seem to point to the 75-ish each quarter, if it occurs ratably. So I just wanted to maybe get a reminder it will happen in Q3.

David Slater?

Yes. I’m just thinking out loud here in Q3, there may have been a few onetime items that rolled through the portfolio in Q3. But again, I think as I look forward, I don’t see any large bumps quarter-by-quarter right now. So I think a ratable view is probably appropriate.

Good enough. And then just one final thing on – your corporate segment numbers in the fourth quarter, it looked like they came in a good bit better than guidance for the year. What was going on there? Did you have some conservatism? Or were there some onetime results? Just maybe a little more color.

Dave?

Yes. You nailed it there. When we did our revised guidance on the third quarter call, we did still have some conservatism in there to protect ourselves from any other variability that would come up. And then as things played out, we did see some upside as well from onetime interest expense, interest income and some investment returns that caused that to go higher.

Okay. Can you quantify what those onetimers might have been?

There was like some interest expense was down. They were all kind of not small, none are really big. But when they add them together, they kind of give us that increase. So interest expense down. There is some interest income, again, related to the CARES Act that came through. And then we had some investment returns that were slightly up also. So there’s kind of three together that came in.

Right. Thank you. And if I may, just to Jerry, more sort of big picture. Is there – could you potentially look at accelerating your 2015 net zero for the electric side? And if so, how would you go about it? Is that something you’re starting to think about?

We are thinking about it, Jonathan. I – we are running many scenarios right now internally, understand is there an opportunity to accelerate our retirement schedule for our coal assets. As you know, we still have a very large coal operation. And currently, we’re forecasted to retire our Belle River Power Plant, which is about 1,200 megawatts in 2030. So we’re looking at ways to accelerate that, which is our first retirement that – in our lens this decade; and then our Monroe Power Plant, which is a very large coal facility, almost 3,000 megawatts. We’re looking at ways to potentially accelerate the retirement of that up from 2040. So much more to come on that, but we are deep into that analysis right now. And we’re required to file an IRP in 2023. And we will detail all of that then.

Okay. So, you’re doing – there might be some sort of interim updates along the way, because it’s kind of a long way out?

Yes. There’ll be interim updates along the way. We expect that.

Okay. Thank you for your time.

Thank you.

Our next question comes from Durgesh Chopra from Evercore ISI. Please go ahead.

Hey, team. Good morning.

Good morning.

Just one question from me. Good morning. Everything else, you guys have answered. Maybe just give us any color to the extent that you can as to what to expect when you start doing these roadshows. Like should we expect a – for the Midstream business, should we expect a sort of a five-year look? Or just in terms of how many years, what are the projections? And part two of that question, how should we think about dividends? You’re saying the post-spin off, the dividends are going to be higher than pre-spin. That sort of suggests a materially higher growth rate for the – versus the peers on the Midstream business, right? Am I thinking about that the right way?

David, do you want to take that?

Yes, I’ll take it. And Dave Ruud, you can fill in. So maybe I’ll start with the roadshow and what to expect on the roadshow. So that will be the opportunity for the – for DTE Midstream to provide guidance basically for the first time as a stand-alone company. So as we work through the debt raise and sort of lock down a lot of variables, then I think we’ll be in a position to provide more clarity and color. Our goal is to provide best-in-class guidance in the midstream space. As you know, the midstream space, what’s normal there is different than what’s normal in the utility space. So our goal will be to provide as much visibility into the company and really be distinctive in that regard. In terms of some of the details around the dividend, we’re publicly communicating we’ll have a 2 times dividend coverage ratio. We’ve not provided the exact number on the dividend. And again, you should expect that in the roadshow. But Dave Ruud, I don’t know if you wanted to add any more color to the dividend question.

I can explain why that looks higher in 2022 than would have been together in 2021. So the goal for each company is to have a dividend that's consistent with the best peers that we have in that industry. And so for DTE, we'll have a dividend consistent with the highest performing peers and consistent with where we've been in a payout ratio, that's around 60%. And then Midstream, as David mentioned, we'll have a dividend that set to a dividend coverage ratio of approximately two times the distributed cash flow. When you put those together, if those results in a higher dividend and it's really a result of that two times distributable cash flow equating to what would have been a higher payout ratio. So that's what makes 2022 look higher than what it would have been otherwise how the company has been together.

Understood. Thanks for that color, guys. Appreciate it.

Your next question comes from Steve Fleishman from Wolfe Research. Please go ahead.

Hey, good morning. Thanks for all the updates.

Good morning, Steve.

Good morning, Jerry. So I was actually interested – question, I guess, for Dave, just on both the net zero target for Midstream, and also as incoming head of INGAA, just could you maybe give more of your high level view of how natural gas fits in decarbonization and energy transition? You don't have to go that long, but just high level. Thank you.

Sure. Thanks, Steve. Yes, that's a very good question and topical in the country right now. So first off, in January, we announced a net zero by 2050 target for the Midstream business with a milestone of getting 30% of the way there by the end of this decade. So there'll be lots of actions that we'll take around that, but I'd say at the very highest level, Steve, there is a significant opportunity to decarbonize the energy infrastructure that carries natural gas. Just to frame it up, it carries about a third of the energy we consume every day in North America. So it's a massive energy distribution system and just as DTE has successfully decarbonized and is on a pathway to decarbonize the electric grid. I believe the same opportunity exists for the natural gas energy distribution system. So that I expect that over time, that's going to take capital investments and creating the policy framework to enable those capital investments I think is important. So I'm kind of pivoting now to the INGAA conversation and at INGAA, I announced two weeks ago a statement on behalf of the industry that the industry is committed to a net zero aspiration by 2050. So there's definitely a desire to move in this direction amongst all the industry participants and work closely with the new administration and just societal requirements to move to a lower carbon footprint. So again, I think over time, this is going to create investment opportunities in the infrastructure. And I think the task before us right now is to – we have a lot of great technology that can be deployed quickly. That's what I'll call on-the-shelf technology, working with the regulators to create the framework, to allow that to happen across the industry broadly.

Okay, great. I've got a lot of follow ups to that, but I'll save it for another time. Thank you.

Your next question comes from Andrew Weisel from Scotiabank. Please go ahead.

Hey, guys. Good morning, everybody.

Good morning, Andrew.

My first question I want to follow up on the cost cuts. You did a tremendous job in 2020 offsetting the headwinds from the pandemic and your usual course of constant improvement. You mentioned that it positions you well for 2021. My question is what's your latest thinking on how much of those savings are permanent or sustainable as opposed to being one-time in nature?

Well, I'll start, then I'll turn it over to Dave Ruud, but certainly, the success that we expect in 2021 is driven by some of the work that we did in 2020 as it relates to the cost reductions. And also strengthens our plan long-term as you saw at EEI, we pulled forward $2 billion in investments into the electric business in order to accelerate our modernization program for the electric grid. That was a result of a lot of the learnings that we experienced in 2020. Now some of those cost reductions are one-time in nature, and I'll let Dave Ruud describe some of those as well.

Yes, you're right, Jerry. As we look at the initiatives we implemented in 2020, our goal is going to be to keep as much of that going forward as we can. We consistently have through our normal processes, always looking at costs, but in 2020, we did see some additional reductions. Some of those, of course, are one-time. We had more people working capital, and we had some delays in some of our work due to COVID. But some of the things will be real and will stay with us. I'm confident that we're going to find some real efficiencies by how we learned to work this year and having more people work remotely. So we're going to be able to take a lot of what we learned and roll that forward, somewhere in probably half of what we saw, we're going to be able to look at trying to find ways to continue that in 2021 and then continue cost savings. Again as Jerry said, so that we can have more room for additional capital that we need to help serve our customers.

Okay. Terrific. So about half, I think I heard. Then on the regulatory front, you’ve historically been an annual filer. Now you’re staying out rate cases for both electric and gas. Could this be something of a paradigm shift? Or is it a unique onetime thing given the economic challenges so many of your customers are facing?

Well, certainly, we will target the delay rate cases as long as we possibly can. We think that that’s a benefit to our customers, and we’ll continue to look for creative ways to do that. We are exploring ways to do that right now with the commission staff. So we’ll report more on that as the year progresses, and that’s related to our electric rate case. Right now, we’re targeting a May filing, but we’re looking at creative ways perhaps to delay that even further. So more to come on that, but always working on ways to reduce the impact of our investments on our customers.

Great. One last one, a bit of a curveball here. I’m well aware that auto isn’t a huge exposure for you in terms of volume or margin. But with all the headlines around chip shortages impacting manufacturing for the automakers and their supply chain, are you seeing any disruptions or reduced operations from those customers?

We’ve not seen anything that’s impactful to our earnings this year, our guidance this year. But Dave Ruud, any further thoughts on that?

No. I agree, Jerry. At this point, we haven’t seen the impacts. Our – overall, our industrial load outside of a few key customers has come back really well from where it was at the low points in the pandemic. And so we’re – we have not seen those impacts yet.

Okay. Terrific. Thank you very much.

Your next question comes from Sophie Karp from KeyBanc. Please go ahead.

Hi. Good morning. Thank you for taking my questions.

Good morning.

I have two questions for you, guys. First, just can you discuss if we might see some creative approaches to your gas rate case, like litigation measures similar to what you had done recently in the electric? Or should we expect the gas case to be fairly straightforward?

Yes. At this point in time, we expect our gas rate case to be pretty straightforward. It’s really about our main replacement program and our meter newbuild program. So it’s really all about infrastructure renewal. So we expect it to be pretty straightforward.

Got it. Thank you. And secondly, a little bit of a high-level question. Would the situation in Texas, right, and the failure of basically electric heating with electricity, electric grid failed or generators failed and people couldn’t heat their homes. Do you see that dynamic can affect in the conversation around building electrification and sort of the gas utilities and their roles in the infrastructure mix moving forward?

Well, certainly, I expect the conversation to be around making sure that there’s enough baseload generation and a well-functioning capacity market in certain deregulated markets. What I will say about Michigan is that we’re a highly regulated market here and – such that you can allow for good planning, good long-term planning and making sure that we have reliable sources of generation. So I feel really good about our position in Michigan. I think in deregulated states, there’ll probably be a pretty robust conversation about the suitability of capacity markets.

Thank you.

Your next question comes from Anthony Crowdell from Mizuho. Please go ahead.

Hey, good morning, Jerry. Good morning, Dave.

Good morning, Anthony.

Hi, Anthony.

Hey, Jeff. Congratulations on the new position also. Well deserved. I guess, my first question maybe follows a little off of some of the previous questions. I guess, it’s related to your gas utility. And I don’t know if Michigan has experienced the volatility in natural gas prices at other parts of the Midwest fab. But I just want to know, with that volatility – or if you’ve experienced it, how does it impact customer bills? I mean, is there a chance customer bills could really ramp up because of the high cost of gas? Or is it just ETE have storage? Or does that kind of sit on your balance sheet and deferred for a future rate case? And then I have a follow-up.

Sure. Great question, Anthony. So first, I’ll say that the volatility in Michigan was much more muted than it was in the rest of the country, so that’s one. Two, our gas utility, when it enters the winter, it’s usually 95% fixed already in terms of price. And then for the prompt year, it’s about 50%; and then the third year, 25%. So we have a good hedging program, if you will, for commodity prices. So this volatility, even though it was muted in Michigan, will have, I would say, negligible impacts on our customers.

Great. And I guess, the follow-up is a little off of Sophie’s question earlier. Just – I think we’ve talked about natural gas as maybe a bridge fuel or we view different things to describe it. We talked about maybe cold weather, LDCs get treated differently. But I guess that’s also the investing community. I’m just curious, when you talk to regulators or policymakers in your state, do they share the same view as – or how do they view gas, I guess? I’ll leave it at that.

Well, I’ll say this, when we speak to legislators and regulators in the State of Michigan, they view gas as fundamental to our energy future and to our current status. It was minus five degrees here in Detroit a couple of days ago. And I got to tell you when it’s minus five degrees. I think there’s a very strong appreciation for our ability to deliver natural gas to homes and businesses to make sure that they stay warm and comfortable. So in cold climates, natural gas is highly valued by our customers and by our legislators and by our regulators.

Great. Thanks so much. Looking forward to catching a wind game with you guys.

Thank you. Look forward to it as well.

Your next question comes from David Fishman from Goldman Sachs. Please go ahead.

Hey, good morning.

Good morning.

Just a question on RNG here. I think Paul has been pretty thorough so far. But I was just wondering on your guys’ perspective on how you’ve seen the economics kind of evolve for RNG over the past couple of years. We’ve seen a range of kind of companies start to announce similar projects, especially as the LCFS market has tightened. So I was just wondering if competition could start to impact returns or just overall demand for low carbon technology likely outweighs this over time.

So David, we’re still seeing a strong pipeline of growth opportunities. And I have not seen our unlevered IRRs being impacted by new entrants. We’re still able to originate and find really strong-returning RNG projects. And I would say the simple cash feedbacks are still in the order of three to five years.

Okay. Thank you. And then just also thinking about what’s been your guidance, both on the five-year and kind of the one-year basis when you think about P&I? It tends to – I guess, similar to most of your business, ends up being a little bit conservative. But I’m just wondering how you kind of guide around kind of the LCFS and the RFS kind of prices? Do you take more of a conservative approach? Or is it kind of where they currently trade?

Well, we’re seeing the – the LCFS has been a very stable market and well defined by the California regulators. And they continue to advance interest and requirements in that space to make that market very attractive. The RFS market had a little bit of volatility over the last several years. So we took a pretty conservative view of that market and continue to do so. But we are starting to see – last year, we saw more stabilization there, and it was really around volume requirements where we needed things to see things stabilize. And we have started to see that. And with the new administration and leadership at EPA, I think that trend will continue the stabilization and certainty of the federal markets. So it makes our R&D projects quite attractive to have a strong, stable LCFS market as well as a stabilizing federal market.

That makes sense. And then just the last question on that. I know you’ve talked about it in the past, Energy Trading can provide a little bit of a hedge. But have you guys – or do you have much interest in potentially – or are you even able to enter into kind of longer term contracts, maybe five to 10 years or something like that with some of these projects, or…

Right now – go ahead.

No.

We’re seeing – our trading company has actually been able to take contracts out as far as three years. And so we have a pretty robust hedging program. We also have some longer-term fixed-price contracts that are bilateral in nature. And then, of course, we leave a little bit open. So that’s the way we’re approaching that market right now.

Okay. I appreciate all the insights. Congrats on a good year.

Thank you.

This concludes the time that we have for the Q&A portion of our call. And I would like to turn it back to Jerry Norcia for final comments.

Well, look, thank you, everyone, for joining us today. I’ll just close by saying again that I’m extremely proud of our team and how we’ve delivered during 2020. We are well positioned to achieve our 5% to 7% operating earnings growth target in the future. And I hope everyone has a great morning, and stay healthy and safe.

Ladies and gentlemen, this concludes today's conference call. Thank you once again for participating. You may now disconnect.