DTE Energy said Tuesday that it will cut $60 million in operations and maintenance expenses to counteract sagging energy sales caused by social distancing measures in Michigan.

CEO Jerry Norcia said he expects lower electricity sales from the state’s COVID-19 pandemic shutdown to shave anywhere from $30 million to $50 million off DTE’s 2020 operating earnings. The company’s estimates are based on Michigan starting to return to work in mid-May.

“We have spent a lot of time over the last few weeks understanding the potential financial impacts of the pandemic [and] building and implementing a plan to react to these challenges,” Norcia said during an earnings call.

CFO Peter Oleksiak said operating earnings for the first quarter were $320 million ($1.66/share) compared to the $374 million ($2.05/share) earned in the first quarter of 2019.

The lower earnings were also attributable to a mild winter in the utility’s territory.

“Overall, this quarter was warmer than normal and was the sixth warmest on record. DTE Electric earnings were $94 million for the quarter, which was $53 million lower than in 2019,” Oleksiak said.

Norcia said that while DTE’s financial team was updating its year-end forecast, it found that higher winter temperatures along with “potential sales impacts and additional costs associated with COVID-19” dashed its 2020 financial plan.

“These changes are larger than the contingency that we normally carry in our annual plan. When we rolled all of this up, we saw $60 million of earnings pressure that we needed to offset,” he said.

The $60 million reduction in spending will involve “a list of one-time items to reduce cost in the near term that are not sustainable over the long-term.” DTE will freeze hiring, minimize overtime, tap its own employees for some consultancy and contract work, and cut business travel, Norcia said.

He also said DTE will “postpone nonessential work, always with maintaining safety as our highest priority.”

“With all these lean actions, I am confident we will achieve our financial goals for the year without sacrificing safety or customer service,” Norcia said.

Residential load has “been stronger with more people at home,” increasing 10 to 11%, while commercial has dropped by 16 to 18% and industrial has fallen 40 to 46%, according to the CEO.

“We believe we have seen the bottom for our load at this point. Michigan remains under the stay-at-home order with only essential businesses operating, and our load has been pretty consistent over the last several weeks,” Norcia said.

For the entire year, Norcia said DTE projects a 3 to 4% increase ($40 million to $50 million) in residential electricity sales, a 6 to 9% decline ($50 million $75 million) in commercial sales and an 18 to 22% decline ($20 million to $25 million) in industrial sales.

“Under a less favorable scenario, we would have to reassess our economic recovery plans,” Norcia said. “The pace at which load returns is one of the largest variables of our economic recovery plan.”

Spending Plans

Norcia also said DTE is prepared to cut more spending, should it come to that.

“We have over $2.5 billion in operations and maintenance to manage through lean times, as well as the benefit of investing in incremental operations and maintenance ahead of schedule in previous years,” he said.

“We faced recessionary pressures before in 2008 and 2009, and we came through that time stronger than ever. … We are facing similar pressures, and I am confident that we have built a robust plan to respond to these challenges.”

DTE itself implemented a work-from-home edict in mid-March, with more than half of its employees commuting virtually.

Norcia said the company will restart “construction and maintenance activities in early May and ramp up through the month.” However, he said he expects office employees will remain working from home into summer.

DTE has also recently promised Michigan regulators additional work on its integrated resource plan. Early this year, the Public Service Commission blocked the company’s first 15-year IRP, finding that the utility didn’t adequately factor in the benefits of renewable energy. (See Michigan PSC Orders DTE to Redo IRP.)

The commission  approved a revised IRP in April. This time around, DTE promised energy-efficiency programs, more ambitious energy savings goals and cutting some proposed demand response pilot programs until more is known about them (U-20471).

The PSC also ordered DTE to conduct further analysis of its proposed 2029/2030 retirement of the coal-fired Belle River power plant, saying the first analysis was “inadequately justified because the avoidance of new environmental upgrade costs was not considered in the analysis.”

Finally, DTE committed to filing its next IRP by Sept. 21, 2023, two years sooner than required by state law.

The company on April 23 commissioned its 168-MW Polaris Wind park, currently the largest operating wind facility in Michigan. The facility is the first of four new wind farms DTE plans to bring online in 2020.