Slide 1: Q2 2004 Earnings Conference Call
Q2 2004 Earnings Conference Call July 30, 2004 EXHIBIT 99.1
Slide 2: Safe Harbor Statement
Safe Harbor Statement The information contained in this document is as of the date of this press release. DTE Energy expressly disclaims any current intention to update any forward-looking statements contained in this document as a result of new information or future events or developments. Words su
Slide 3: Participants
Participants Dave Meador Executive Vice President & Chief Financial Officer Mike Champley Senior Vice President - Regulatory Affairs Dan Brudzynski Vice President & Controller Nick Khouri Vice President & Treasurer Peter Pintar Director of Investor Relations
Slide 4: Overview
Overview The second quarter highlighted the continued pressure at Detroit Edison and MichCon While progress has been made, the rate cases need to be resolved and Electric Choice needs to be fixed The non-regulated businesses continue to perform well While the rate cases remain our top priority, we a
Slide 5: Outline
Outline Q2 2004 Earnings Review Regulatory / Legislative Update Non-Regulated Update
Slide 6: Q2 2004 Operating Performance Business Unit View
Q2 2004 Operating Performance Business Unit View Regulated Non Regulated Power Generation Energy Services Coal Services Biomass Energy Trading & Co-Energy Portfolio Energy Resources Power Distribution DTE Energy Technologies Energy Distribution Gas Distribution Non Reg Energy Gas Energy Gas Holding
Slide 7: Operating Earnings (after tax) DTE Energy Q2 2004
Operating Earnings (after tax)* DTE Energy Q2 2004 Holding Company Regulated Electric Non- Regulated** Regulated Gas Q2 2004 Earnings Per Share* $39 Key Drivers: ($ millions) * Reconciliation to GAAP reported earnings included in the appendix ** Includes Energy Technology Investments *** 174M averag
Slide 8: Regulated Electric Q2 2003 vs. Q2 2004 Variance
Regulated Electric Q2 2003 vs. Q2 2004 Variance Operating Earnings (after tax)* ($ millions) * Reconciliation to GAAP reported earnings included in the appendix Q2 2003 Q2 2004 Key Drivers include: Weather upside to 2003, but still below normal weather Continuation of Choice lost margin impacts Net
Slide 9: Regulated Electric YTD 2003 vs. YTD 2004 Variance
Regulated Electric YTD 2003 vs. YTD 2004 Variance Operating Earnings (after tax)* ($ millions) * Reconciliation to GAAP reported earnings included in the appendix YTD 2003 YTD 2004 Reg Asset $30 $9 Reg Asset $43 Choice Lost Margin Net Interim Rate Relief Impact Other Margin Changes Weather Pension /
Slide 10: Regulated Gas Q2 2003 vs. Q2 2004 Variance
Regulated Gas Q2 2003 vs. Q2 2004 Variance Operating Earnings (after tax)* ($ millions) * Reconciliation to GAAP reported earnings included in the appendix Key Drivers include: Below normal weather in 2004 versus relatively normal weather in 2003 Slight decline in non-weather revenue and higher syst
Slide 11: Regulated Gas YTD 2003 vs. YTD 2004 Variance
Regulated Gas YTD 2003 vs. YTD 2004 Variance Operating Earnings (after tax)* ($ millions) * Reconciliation to GAAP reported earnings included in the appendix YTD 2003 YTD 2004 $33 Weather $68 ($11) ($3) ($8) ($14) Other Margin Changes Pension/ Health Care Uncollectables Interest / Other Taxes $1
Slide 12: Plan of Action for Uncollectables at MichCon
Plan of Action for Uncollectables at MichCon Uncollectables are a growing problem at MichCon, estimated at $50-60M in 2004. This is driven by economic conditions and higher natural gas prices: Additional factors also contribute: 50% of Michigan's total low income gas households reside within MichCon
Slide 13: Non-Regulated Q2 2003 vs. Q2 2004 Variance
Non-Regulated Q2 2003 vs. Q2 2004 Variance Operating Earnings (after tax)* ($ millions) * Reconciliation to GAAP reported earnings included in the appendix Q2 2003 Q2 2004 $59 ($14) ($20) $20 $15 $56 Synfuels Power Generation Other Energy Resources Non-Reg Tech. Investments (Primarily Plug Power) ($
Slide 14: Non-Regulated YTD 2003 vs. YTD 2004 Variance
Non-Regulated YTD 2003 vs. YTD 2004 Variance Operating Earnings (after tax)* ($ millions) * Reconciliation to GAAP reported earnings included in the appendix YTD 2003 YTD 2004 $139 ($28) ($5) $18 ($3) Synfuels Non-Regulated Gas ($21) $102 Power Generation Other Energy Resources Non-Reg Tech. Investm
Slide 15: Cash Flow and Balance Sheet Strength
Cash Flow and Balance Sheet Strength Balance sheet strength and sustained cash flow improvement remains a key goal for DTE Debt and leverage is declining Leverage of 49%* at the end of Q2 2004 vs. 52%* last year Net operating cash is strengthening as synfuels turn from cash negative in 2003 to cash
Slide 16: Cash Flows
Cash Flows Cash from Operations Capital Expenditures Dividends Asset Sales Cash Flow ($ millions) Synfuel Production Payment* Adjusted Cash from Operations * Accounted for as 'investing activity' Through June, 2004 adjusted cash from operations is up $236M from the prior year $45M higher synfuel pay
Slide 17: Capital Expenditures
Capital Expenditures Capital spending totaled $432M through the first six months of 2004 Total spending is close to last year's levels Declines in environmental spending were offset by investment in Detroit Edison and corporate systems (DTE2) Detroit Edison Detroit Edison - NOx MichCon Non Regulated
Slide 18: Outline
Outline Q2 2004 Earnings Review Regulatory / Legislative Update Non-Regulated Update
Slide 19: Regulatory/Legislative Overview
Regulatory/Legislative Overview Successful resolution of our rate cases and reform of Michigan's Electric Choice program remain the top corporate priority Choice sales volume levels have flattened, but a significant and increasing lost margin issue remains due to unfavorable customer mix shift Legis
Slide 20: Choice Sales Levels have Flattened, but Margin Loss Remains an Important Issue
Choice Sales Levels have Flattened, but Margin Loss Remains an Important Issue The interim order began to address the Electric Choice issue by implementing a transition charge and eliminating transition credits for Choice customers The substantial increase in wholesale market prices earlier this yea
Slide 21: Summary of Proposed Legislation
Summary of Proposed Legislation Establishes return to service provisions Creates a transition period and precise method for calculating transition charges Mandates rate redesign (deskewing) Mandates rate unbundling Mandates a minimum 15% reserve margin for alternative suppliers and utilities Establi
Slide 22: Regulatory and Legislative Update - MichCon
Regulatory and Legislative Update - MichCon Final MPSC Staff Recommendation Key components of the Staff recommendation: Proposed ROE of 11% with a 50/50 capital structure Recommended a revenue deficiency of $70M Other elements of the Staff report, such as the approach toward pension and OPEB costs,
Slide 23: Regulatory Calendar
Regulatory Calendar Detroit Edison - Electric Rate Case Proposal for Decision Late July/Early August Final Order Anticipated September 2004 MichCon - Gas Rate Case Interim Order Anticipated Early August Proposal for Decision November 2004 Final Order Anticipated January 2005
Slide 24: Outline
Outline Q2 2004 Earnings Review Regulatory / Legislative Update Non-Regulated Update
Slide 25: Update on 2004 Non-Regulated Targets
Update on 2004 Non-Regulated Targets We have increased 2004 non- regulated earnings guidance from $194-249M to $215-255M Due to the recent successful synfuel selldowns, we expect higher production volumes and net income Coal Services lower due to the delay in the ramp up of PepTec business Energy Tr
Slide 26: Synfuel Update
Synfuel Update In Q2 we successfully sold interest in 2 units, representing 7.3% of our total synfuel production capacity To date we have sold 81% of 2004 capacity Serious sales discussions continue regarding our remaining capacity As previously stated, the company's strategy is to produce synfuel f
Slide 27: Long-Term Synfuel Net Cash Flow Outlook
Long-Term Synfuel Net Cash Flow Outlook * Includes annual tax credits generated from ongoing minority interest ownership Using 2004- 2008 Net Cash Flow and a discount rate between 6-9% produces a per share value between $8-9 ($ millions) 2004E 2005E 2006E 2007E 2008E Production (millions of tons) 15
Slide 28: Non-Regulated Opportunities and Highlights
Non-Regulated Opportunities and Highlights Coke Batteries On-Site Energy Projects Recently closed two on-site energy transactions Acquired the utility service assets at eight DaimlerChrysler sites. Services include steam, chilled water and compressed air under a 20-year contract Acquired the on-site
Slide 29: Summary
Summary Second quarter results demonstrate the clear need for rate relief at Detroit Edison and MichCon Despite the recent flattening of volumes, repairing the flawed Electric Choice program is essential The balance sheet remains strong, with both cash flows and leverage improved from a year ago Dur
Slide 30: Appendix
Appendix DTE Energy > 30
Slide 31: Lost Margin and PA Regulatory Assets
Lost Margin and PA 141 Regulatory Assets At the end of Q2, Choice volume was ~9,400 GWh Total regulatory assets booked in Q2 were $29M Regulatory asset for Choice lost margin will continue in 2004, given the small transition charge in interim order Remaining PA 141 regulatory assets will be booked o
Slide 32: Key Electric Choice Statistics
Key Electric Choice Statistics Calendar Year Statistics: 2001 2002 2003 2004E Choice Volumes - Calendar Year (Gwh) 1,085 2,990 6,200 9,000-9,500 % of Total Load 2% 6% 12% 18% Calendar Year margin loss (pre tax) $15 $50 $120 $200-220 Calendar Year margin loss (after tax) $10 $33 $78 $130-143 Year ove
Slide 33: Rate Relief Requests
Rate Relief Requests Facts Facts MichCon Filed on September 30, 2003 Requested $194M in total relief; $154M interim relief, effective no later than April 1, 2004 11.5% ROE, 50/50 capital structure Proposed ROE sharing provision to align incentives Detroit Edison (base case) Filed on June 20, 2003 Re
Slide 34: Summary of Detroit Edison Interim Rate Order
Summary of Detroit Edison Interim Rate Order Granted $278 million in interim relief $248 million base rate increase $30 million of transition charge revenue from Choice customers Interim increase reduced by $126M due to the PSCR reinstatement for a net increase of $152M Increases 2004 net revenues b
Slide 35: Recommendations from Staff Filing on Detroit Edison Final Rates
Recommendations from Staff Filing on Detroit Edison Final Rates Capital structure of 54% debt, 46% equity 11.0% ROE, $3.05B equity level Declined to endorse any earnings sharing mechanism Recommended an increase of $441M $275M* from base rates $58M from the retained benefit of mitigation sales $108M
Slide 36: Proposed changes to the Electric Choice program
Proposed changes to the Electric Choice program Modifications of return to utility service provisions applicable to new Choice sales: Customers that leave for Electric Choice would not be able to return to Detroit Edison for three years Customers must provide twelve months notice prior to returning
Slide 37: MichCon - Rate Case Summary
MichCon - Rate Case Summary Case filed September 30, 2003 Seeking $194M final rate increase; $154M interim rate increase Significant increase in routine and mandated infrastructure improvements Increased operating costs and employee pension and healthcare costs Lower margins due to decline in custom
Slide 38: Synfuel Results
Synfuel Results Synfuels Produced (millions of tons) Synfuels Net Income ($millions) 4.3 4.4 1.6 3.2 Q1 Q2 Q3 Q4 2003 54 70 26 47 Q1 Q2 Q3 Q4 2003 Q1 3.0 2004 40 Q1 Q2 3.8 56 Q2 2004
Slide 39: Synfuel Portfolio Ownership Interest as of 6/30/2004
Synfuel Portfolio Ownership Interest as of 6/30/2004 Manufacturer Yearly Production Capacity (000 tons) Sold Facilities Belews Creek 1% EarthCo 3,080 Buckeye (2) 1% EarthCo 6,080 Clover 5% EarthCo 2,640 Smith Branch 1% EarthCo 2,750 Retained Facilities Indy Coke 20% EarthCo 2,640 Red Mountain 2% Cov
Slide 40: 2004 Cash Flows
2004 Cash Flows Cash from Operations $950 $800 Capital Expenditures (751) (750) Dividends (346) (353) Asset Sales 669 40 Cash Flow $611 ($ millions) $12 2003A Low Synfuel Production Payment* Adjusted Cash from Operations 89 175 $1,039 $975 $1,050 (1,060) (353) 40 $2 High 225 $1,275 2004E * Accounted
Slide 41: 2004 Capital Expenditures
2004 Capital Expenditures Detroit Edison NOx MichCon Non Regulated & Corporate* Total ($ millions) $672 38 139 211 $1,060 2004E Capital Expenditures (2004 Based on Rate Case Filings) * 2004 includes $55M of corporate capital $516 64 98 73 $751 2003A
Slide 42: Holding Company Quarterly Effective Tax Rate Adjustment
Holding Company Quarterly Effective Tax Rate Adjustment Each quarter an accounting adjustment is made to reconcile back to DTE's overall effective rate for the year The effective tax rate adjustments net to zero for the total year This adjustment is recognized in reported earnings but is removed fro
Slide 43: Reconciliation of Q2 Operating Earnings to Reported Earnings
Reconciliation of Q2 Operating Earnings to Reported Earnings Use of Operating Earnings Information - DTE Energy management believes that operating earnings provide a more meaningful representation of the company's earnings from ongoing operations and uses operating earnings as the primary performanc
Slide 44: Reconciliation of YTD Operating Earnings to Reported Earnings
Reconciliation of YTD Operating Earnings to Reported Earnings Use of Operating Earnings Information - DTE Energy management believes that operating earnings provide a more meaningful representation of the company's earnings from ongoing operations and uses operating earnings as the primary performan