Slide 1: DTE Energy 2004 Year End Conference Call
DTE Energy 2004 Year End Conference Call February 11, 2005 EXHIBIT 99.1
Slide 2: Safe Harbor Statement
Safe Harbor Statement The information contained herein is as of the date of this presentation. 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 such as "anti
Slide 3: Participants
Participants Dave Meador Executive Vice President & Chief Financial Officer Dan Brudzynski Vice President & Controller Nick Khouri Vice President & Treasurer Don Stanczak Director - Regulatory Affairs Peter Pintar Outgoing Director of Investor Relations Dina McClung Incoming Director of Investor Rel
Slide 4: Overview
Overview 2004 earnings and cash in line with guidance Balance sheet and cash flow remain strong 2005 guidance remains unchanged at $3.30-3.60 per share Progress continues on the regulatory front Continued execution of our previously announced cash redeployment strategy
Slide 5: Outline
Outline 2004 Review 2004 Results 2005 Overview Cash Redeployment Strategy
Slide 6: Successful Execution of our 2004 Priorities
The Successful Execution of our 2004 Priorities was Consistent with our Strategy Maintain cash and balance sheet strength Continue growth momentum Continue sell-down of synfuel portfolio Successful regulatory agenda Successful outcome in rate cases for Detroit Edison and MichCon Achieve structural f
Slide 7: Detroit Edison Final Rate Order
Detroit Edison Final Rate Order The final rate order provided a significant number of provisions: $374M base rate increase ($248M net of PSCR reduction) Authorized 11% ROE based on 46% equity and $2.9B equity level Power Supply Cost Recovery (PSCR) mechanism modified to include transmission, MISO an
Slide 8: Successful Sell Down of Synfuel Portfolio
Successful Sell Down of Synfuel Portfolio We are selling interests in our facilities to optimize our cash generation Successfully sold approximately 92% of capacity The quality of our facilities has appealed to a broad spectrum of investors DTE is the operating partner at all facilities Focus on eff
Slide 9: Consistent Approach Has Sustained 2004 Growth Momentum
1998 1999 2000 2001 2002 2003 2004 2005 Non-Regulated 42 68 84 162 207 228 241 280 60 Our Consistent Approach Has Sustained 2004 Growth Momentum DaimlerChrysler on-site energy acquisition Mobile Energy Services Co. on-site energy acquisition Coke battery restructuring - new long term contract Energy
Slide 10: 2004 Cash and Balance Sheet Accomplishments
2004 Cash and Balance Sheet Accomplishments Achieved cash generation goal of internally funding capital spending and dividend Maintained targeted leverage Extended short-term credit facility to five years $170M equity contribution to pension fund in Q1; no further contributions expected until at lea
Slide 11: Outline
Outline 2004 Review 2004 Results 2005 Overview Cash Redeployment Strategy
Slide 12: Q4 2004 Operating Performance
Q4 2004 Operating Performance Business Unit View Utility Non Utility Power Generation Energy Services Coal Services Biomass Energy Trading & Co-Energy Portfolio Energy Resources Power Distribution DTE Energy Technologies Energy Distribution Gas Distribution Non Reg Energy Gas Energy Gas Holding Comp
Slide 13: DTE Energy Q4 2004 Results
DTE Energy Q4 2004 Results Operating Earnings (after-tax)* ($ millions) * Reconciliation to GAAP reported earnings included in the appendix Lower electric margins, partially offset by incremental rate relief Higher operating costs due to maintenance and outage work Improved gas margins due to weathe
Slide 14: 2004 Operating Performance
2004 Operating Performance Business Unit View Utility Non Utility 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 Company
Slide 15: DTE Energy 2004 Results
DTE Energy 2004 Results Operating Earnings (after-tax)* ($ millions) * Reconciliation to GAAP reported earnings included in the appendix 2003 Electric Utility Gas Utility Non-Utility Holding Company 2004 455 422 419 429 83 23 10 23 Non Ute 231 257 Gas Ute 46 20 Electric Ute 261 177 $500 ($83) ($22)
Slide 16: Electric Utility 2003 vs. 2004 Variance
Electric Utility 2003 vs. 2004 Variance Operating Earnings (after-tax)* ($ millions) Decreased cooling demand related sales Continued choice margin loss, partially offset by stranded cost and other regulatory deferrals Incremental rate relief Higher employee benefit costs 2003 Weather Choice Lost Ma
Slide 17: Gas Utility 2003 vs. 2004 Variance
Gas Utility 2003 vs. 2004 Variance Operating Earnings (after-tax)* ($ millions) Decreased heating demand related sales Incremental interim rate relief Higher uncollectable expense due to gas prices, local economy and level of low income funding support Higher employee benefit costs 2003 Weather Inte
Slide 18: Non-Utility 2003 vs. 2004 Variance
Non-Utility 2003 vs. 2004 Variance Operating Earnings (after tax)* ($ millions) Increased synfuel production, offset by larger amount of capacity sold and mark-to-market loss from hedges Higher coke prices Closing of DaimlerChrysler On-Site Energy Project Gain from the termination of power contract
Slide 19: Balance Sheet Strength
Balance Sheet Strength Interest costs continue to decline from $546M in 2003 to $518M in 2004 In February we refinanced $385M of QUIDS saving $9M (pre-tax) per year, but increasing leverage by 3% Parent company debt is expected to decline by $200M in 2005 * Leverage ratios exclude securitization deb
Slide 20: 2004 Cash Flow
2004 Cash Flow ($ millions) * Accounted for as 'investing activity' on statement of cash flows 2003 Actual 2004 Actual Adjusted cash from operations improved 17% from 2003 to 2004, led by higher synfuel payments Capital spending was higher due to the first phase of SAP implementation and higher inve
Slide 21: 2004 Capital Expenditures
2004 Capital Expenditures 2004 Actual 2003 Actual Detroit Edison - - Operation $444 $546 - Environmental 64 22 - SAP Implementation 15 77 MichCon 92 113 Non-Utility Corporate 64 57 Total $785 $940 DTE Energy Capital Expenditures ($ millions) - Maintenance 49 45 - Growth 57 80
Slide 22: Outline
Outline 2004 Review 2004 Results 2005 Overview Cash Redeployment Strategy
Slide 23: Priorities for 2005
Priorities for 2005 Develop stable, long-term regulatory structure by further addressing Electric Choice Continue to improve operations Effectively deploy cash flow Focus on credit rating and balance sheet metrics
Slide 24: 2005 Regulatory Calendar Highlights
2005 Regulatory Calendar Highlights February March October - November Detroit Edison Rate Restructuring proposal filed Retiree Healthcare Expense Tracker proposal filed Final Order in MichCon Rate Case expected Requested timing of order on Rate Restructuring proposal April Proposed timing of Staff t
Slide 25: Detroit Edison Rate Restructuring Proposal
Detroit Edison Rate Restructuring Proposal If implemented, the Rate Restructuring proposal would: Unbundle rates into power supply and distribution components Establish rates based on actual cost of service for all customers Unbundled rates would become effective January 1, 2006 and rate subsidies w
Slide 26: 2005 Guidance
2005 Guidance 2003 2004 2005 Non-Regulated 236 241 310 Regulated Gas 46 23 84 Regulated Electric 282 178 280 Holding Company -30 -15 -65 Choice Impacts 63 80 30 $427 Electric Utility Gas Utility Non-Utility EPS $2.46 $178 $24 $241 Holding Company $580-635 $270-290 $75-85 $300-320 $3.30-3.60 * Reconc
Slide 27: 2005 Non-Utility Operating Earnings Guidance
2005 Non-Utility Operating Earnings Guidance Synfuels Coke Batteries On Site Energy Projects Power Generation Coal Services Biomass Energy Energy Trading & CoEnergy Portfolio Energy Resources overhead & development Upstream & Midstream Gas DTE Energy Technologies Energy Technology Investments & Othe
Slide 28: Synfuel Update
Synfuel Update 2004 2005 92 99 Percent of Capacity Sold At Year End 92% ~99% 2004 2005E 2004 2005 15.6 18 1 Tons Produced Millions 15.6 18-19 2004 2005E 2004 2005 168 420 Cash Flow $ Millions $168 $420 2004 2005E 2004 2005 199 215 10 Net Income $ Millions $198 $215-225 2004 2005E
Slide 29: Synfuel Update
Synfuel Update We anticipate that the value of the section 29 tax credit will begin to decline if the average calendar year NYMEX price of oil exceeds $56 The current NYMEX price is ~$45-46, the year-to-date average is ~$47 Based on year-to-date actuals, oil prices must average $57 in order to excee
Slide 30: Outline
Outline 2004 Review 2004 Results 2005 Overview Cash Redeployment Strategy
Slide 31: 2005-2008 Cash Redeployment Framework
2005-2008 Cash Redeployment Framework Balance Sheet Targets Excess Cash Share Repurchase Growth Investment Cash available for redeployment is expected to total $1.65B from 2005 to 2008 Our first use of this cash will be to reduce parent debt We will continue to pursue growth investments that meet ou
Slide 32: Projected Cash Available for Redeployment
Projected Cash Available for Redeployment ($ millions) $450-500 Cash Available for Redeployment Parent Debt Retirement Target Cash Available for Investment or Stock Buyback $200 $250-300 2005 Cash Available $1,650 Cash Available for Redeployment Parent Debt Retirement Target Cash Available for Inves
Slide 33: Investment Opportunity Update
Investment Opportunity Update Barnett Shale Own a working interest in ~50,000 net acres and currently drilling test wells This summer we expect to provide an initial estimate on scope Coke Battery In discussions on several projects We expect to partner with industry players and take 30-40% equity st
Slide 34: Summary
Summary Despite being a difficult year from an earnings perspective, we successfully met many of our corporate objectives in 2004 We expect substantial earnings improvement in 2005 Throughout 2005 work will continue on the regulatory front, particularly around our rate restructuring proposal We will
Slide 35: Appendix
Appendix
Slide 36: Non-Utility Businesses Have Produced Strong Returns on Investment
Our Non-Utility Businesses Have Produced Strong Returns on Investment 8%* 8%* $440 Gas Production & Midstream Gas 16% 14% $40 Biomass Energy >30% 23% $60 Coal Services 28% 21% $810 Energy Services After-Tax ROE Unlevered After-Tax Return on Capital Capital Invested Through 2003 ($M) Average 2001 - 2
Slide 37: Potential Investments Focus on Three Key Areas
Power and Industrial Projects Unconventional Gas Production Fuel Transportation and Marketing Cumulative 2005-2008 Capital ($M) $300-450 $250-350 $50-100 $600-900 Total Range of Expected Investment Returns* 10-20% 15-20% 10-15% * After-tax return on DTE Energy capital Coal transportation and marketi
Slide 38: Power and Industrial Project Opportunities
Power and Industrial Project Opportunities Recently closed DaimlerChrysler transaction led to active discussions with other auto manufacturers Potential opportunities for investment in new coke production Recently signed agreement with industrial host to develop 200 MW coal-fired power plant Project
Slide 39: Unconventional Gas Production Opportunities: Barnett Shale
Drilling in lower risk expansion areas in Michigan Own a working interest in ~ 50,000 net acres in Barnett Shale, and continue to develop additional opportunities Barnett Shale drilling plan Drilling of first wells began Dec. 2004 Plan for significant number of test wells in first half of 2005 Nearb
Slide 40: Fuel Transportation and Marketing Opportunities
Fuel Transportation and Marketing Opportunities Likely expansion of Vector pipeline from 1.0 Bcfd to 1.2 Bcfd by 2006, and possibly to 1.5 Bcfd by 2008 Pipe currently running full, demand is growing Low-cost expansion capability exists Economic expansions of our Michigan storage fields Potential dev
Slide 41: 2005 Adjusted Cash from Operations
2005 Adjusted Cash from Operations ($ millions) * Accounted for as 'investing activity' on statement of cash flows 2004 Actual 2005 Guidance
Slide 42: 2005 Capital Expenditures
2005 Capital Expenditures 2005 Guidance 2004 Actual * Excludes growth capital Detroit Edison - - Operation $546 $540-560 - Environmental 22 100 - SAP Implementation 77 130-135 MichCon 113 110-115 Non-Utility 125 75-85* Corporate 57 65-75 Total $940 $1,020-1,070 DTE Energy Capital Expenditures ($ mil
Slide 43: Substantial Cash Available for Redeployment in 2005
In 2005 There Will Be Substantial Cash Available for Redeployment DTE Energy Cash Available for Redeployment ($ millions)
Slide 44: Synfuel Portfolio Ownership Interest
Synfuel Portfolio Ownership Interest as of 12/31/2004 Manufacturer Yearly Production Capacity (000 tons) Sold Facilities Belews Creek 1% EarthCo 2,960 Buckeye (2) 1% EarthCo 5,920 Clover 5% EarthCo 2,640 Smith Branch 1% EarthCo 2,750 Retained Facilities Indy Coke 1% EarthCo 2,640 Red Mountain 1% Cov
Slide 45: (Gritions)
(Gritions) short-term borrawinge ‘utrent potion LTD + cap lnares long-term debt curation bond capital eas o= tees QUDS. lees MehCon shor term debt lees securtzaton debt including current potion Total debt Tht prefered ‘us Mandatory convertible Teta preferred other Equty Total oxo ett Prater stock ‘C
Slide 46: Reconciliation of Q4 Operating Earnings to Reported Earnings
Reconciliation of Q4 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 47: Reconciliation of Total Year Operating Earnings to Reported Earnings
Reconciliation of Total Year 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 pe