Slide 1: Strategic Overview & Financial Review
Strategic Overview & Financial Review February 16, 2006
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 Gerry Anderson President and Chief Operating Officer Dave Meador Executive Vice President and Chief Financial Officer Nick Khouri Vice President and Treasurer Peter Oleksiak Corporate Controller Mike McNalley Director of Investor Relations
Slide 4: Overview / agenda
Overview 2005 Earnings Results 2006 Earnings Guidance 2005 & 2006 Cash Flow and Capital Expenditures Summary
Slide 5: Overview
Overview 2005 results show a return to growth Solid financial performance, strong improvement over 2004 Regulatory certainty; significant progress toward achieving 11% ROE Continued focus and increased scale at non-utility businesses Continued execution in 2006 enhances growth 10-20% expected improv
Slide 6: 2005 Results Demonstrate a Return to Growth
DTE Energy's 2005 Results Demonstrate a Return to Growth 2002 2003 2004 2005 2006E DTE 3.63 3.05 2.57 3.27 3.6 0.3 $3.63 DTE Energy Operating Earnings per Share* $3.05 $2.57 $3.27 * Reconciliation to GAAP reported earnings included in the appendix $3.60-3.90** +27% ** 2006 guidance assume no synfuel
Slide 7: Future Utility Income Growth Driven by Significant Investment Opportunities
Future Utility Income Growth Driven by Significant Investment Opportunities Base Electric Environmental Gas System Expansion / Safety Total bars 0 700 1450 0 other 700 750 250 1700 Potential utility asset base growth 2005-2010 Not including new base-load generation ($ millions) ~$1,600-1,800 Base Ut
Slide 8: DTE's Performance Excellence Process
DTE's Performance Excellence Process Mitigate inflation Offset higher commodity prices Reduced need for future rate increases Help fund improved reliability and customer service Help to fund large scale utility investment program The Performance Excellence Process Will Sharpen the Focus on Costs, Pr
Slide 9: Performance Excellence Process Update
Performance Excellence Process Update Broad cost reduction, productivity improvement effort Comprehensive focus on all areas of Detroit Edison, MichCon and Corporate Staffs Targeting first quartile cost/performance/customer satisfaction in all areas Currently completing final evaluations of opportun
Slide 10: Non-Utility Businesses Create Growth and Value
Non-Utility Businesses Create Growth and Value Continue to apply value-focused approach to invest strong near- term cash flows... ....into three core segments capable of achieving near-term income of $50-100M each... ....producing a scale / focus that increases visibility and improves valuation Disc
Slide 11: Power & Industrial Projects: Executing Our Growth Plans
Power & Industrial Projects: Executing Our Growth Plans Increased scale in existing products and industries Five site transaction with DQE Additional multi-site acquisition Biomass acquisition Executed second on-site project in Pulp & Paper sector For 2006, we have a full pipeline of similar project
Slide 12: Fuel Transportation & Marketing: Expansion Continues
Fuel Transportation & Marketing: Expansion Continues Investing $46M to add ~14 Bcf of non-utility storage capacity in Michigan Expect to add additional 15-35 Bcf of capacity over the next five years to serve growing Ontario and Northeast markets Advancing a series of storage projects in New York Mov
Slide 13: Unconventional Gas Production: Antrim Reserves Have Significant Value
Unconventional Gas Production: Antrim Reserves Have Significant Value Antrim Net Income Antrim Reserve Valuation Less: Allocated debt Component Reserves (Bcfe) Valuation Comparable ($/mcf) Proved 338 2.50-3.00 Probable 35 0.50-1.00 ~$400-600 Valuation Net Income ($ millions) Current Natural Gas Pric
Slide 14: Considerable Progress in Developing Our Barnett Position
We Have Made Considerable Progress in Developing Our Barnett Position Production (mmcf/day) 0 4.0 12/31/2005 12/31/2004 Gross Producing Wells 5 65 12/31/2005 12/31/2004 Reserves (Bcfe) Probable Reserves Proven Reserves 8 16 120 59 179 8 12/31/2005 12/31/2004 Acreage Position (thousands) Net Undevelo
Slide 15: Our Compelling Value Proposition
Our Compelling Value Proposition Utilities with opportunity for 5% annual earnings growth through 2010 Non-utility businesses achieving scale and creating value Stable dividend, attractive yield and strong balance sheet
Slide 16: Overview / agenda
Overview 2005 Earnings Results 2006 Earnings Guidance 2005 & 2006 Cash Flow and Capital Expenditures Summary
Slide 17: Significant Progress Was Made in 2005
Significant Progress Was Made in 2005 Improving earnings and cash performance Operating earnings per share 27% higher than 2004 Adjusted cash from operations 11% higher than 2004 Resolution of Detroit Edison's Rate Restructuring case Represents a significant leveling of choice economics Final order
Slide 18: 2005 Operating Earnings
2005 Operating Earnings Operating Earnings per Share* Detroit Edison $1.54 Unconventional Gas Production $0.02 Non-Utility Portfolio $1.61 Fuel Transportation and Marketing $0.01*** Corporate & Other ($0.30) MichCon** $0.42 $3.27 Power and Industrial Projects $1.58 * Reconciliation to GAAP reported
Slide 19: 2005 vs. 2004 Variance
2005 vs. 2004 Variance 2004 Operating Earnings DECO MichCOn PIP UGP FTM Corp & Other 2005 445 445 539 588 686 618 577 580 94 49 101 2 68 42 Operating Earnings Variance* ($ millions) 2004 Operating Earnings Detroit Edison MichCon Power & Industrial Projects Corporate & Other Unconventional Gas Produc
Slide 20: Overview / agenda
Overview 2005 Earnings Results 2006 Earnings Guidance 2005 & 2006 Cash Flow and Capital Expenditures Summary
Slide 21: 2006 - Continued Earnings Improvement and Strategic Execution
2006 - Continued Earnings Improvement and Strategic Execution Drive the utilities to their allowed 11% ROE Attract Choice customers back to Detroit Edison's full service rates, retain current full service customers Control costs through the aggressive implementation of the Performance Excellence Pro
Slide 22: 2006 Guidance
2006 Guidance Operating Earnings* ($ millions) ** Includes synfuel earnings of $273M and $210-220M in 2005 & 2006, respectively *** Includes Energy Trading earnings of ($39M) and $45-50M in 2005 & 2006, respectively * Reconciliation to GAAP reported earnings included in the appendix
Slide 23: 2006 Drivers: Detroit Edison
2006 Drivers Detroit Edison Weather normal (2005 impact +$63M vs. normal) Normal storm activity (2005 impact +$21M vs. normal) Choice volumes of 4,000-5,000 MWh vs. 6,800 MWh in 2005 Incremental benefit from expiration on residential rate cap of $72M PSCR (fuel clause) is in effect for all customers
Slide 24: 2006 Drivers: MichCon
2006 Drivers MichCon Weather normal - 2005 impact ($3M) vs. normal Customer conservation due to high natural gas prices $7M incremental benefit from uncollectibles tracker Performance Excellence Process more than offsets expected increase in inflation driven costs Assumptions 2005 Actuals $73 2006 G
Slide 25: 2006 Drivers: Non-Utility
2006 Drivers Non-Utility 2005 Actuals $280 2006 Guidance Operating Earnings* ($ millions) Power & Industrial Projects $215-225 2005 Actuals $4 2006 Guidance Unconventional Gas Production $25-30 49 2 36 5 2005 Actuals $2 2006 Guidance Fuel Transportation & Marketing $85-90 Increased oil hedging expen
Slide 26: 2006 Drivers: Power & Industrial Projects: Synfuels
2006 Drivers Power & Industrial Projects: Synfuels Assumes no tax credit phase-out or legislation Legislation that would use the prior year oil prices to determine current year reference price is moving to conference committee The conference committee is likely to begin in a few weeks with a potenti
Slide 27: Synfuels: Impact of Potential Phase Out
2006 Drivers Power & Industrial Projects: Synfuels - Impact of Potential Phase Out 0 0.2 0.4 0.6 0.8 1 215 164 110 57 14 55 Potential Phase Out Impact - 2006 Net Income ($ millions) % Phase Out $210-220 $160- 170 $105- 115 $50-60 $10-20 $50-60 Potential Phase Out Impact - 2006 Cash Flow ($ millions)
Slide 28: 2006 Drivers: Fuel Transportation & Marketing: Energy Trading
2006 Drivers Fuel Transportation & Marketing: Energy Trading The majority of the expected flowback was realized in Q4, with the balance coming in 2006 & 2007 The forward amounts for 2006 & 2007 are based on prices as of Dec. 31, 2005, and remain subject to price shifts until the contracts are settle
Slide 29: Improving Cash from Operations
2003 2004 2005 2006 East 1039 1216 1350 1425 100 $1,216 $1,039 $1,350 $1,425-1,525 2003 2004 2005 2006E** Adjusted Cash from Operations* ($ millions) Improving Cash from Operations * Includes synfuel production payment, reconciliation included in the appendix ** 2006 guidance assume no synfuel tax c
Slide 30: Increasing Investment in our Businesses
Increasing Investment in our Businesses Capital Expenditures ($ millions) 2005 Actuals 2006 Estimate * Includes maintenance and growth expenditures
Slide 31: Cash Flow Forecast
Cash Flow Forecast 2005 Actuals 2006 Estimate ($ millions)
Slide 32: Balance Sheet Position Remains Strong
Balance Sheet Position Remains Strong Balance Sheet Metrics * Excludes securitization debt and MichCon short term borrowings ** Assumes midpoint of applicable estimates
Slide 33: Overview / agenda
Overview 2005 Earnings Results 2006 Earnings Guidance 2005 & 2006 Cash Flow and Capital Expenditures Summary
Slide 34: Summary
Summary The financial improvement demonstrated in 2005 is expected to continue into 2006 Targeting 11% ROE at each utility Excluding synfuels, continued growth is expected at the non- utility businesses Continued execution of our Cash Redeployment Strategy Implementation of the Performance Excellenc
Slide 35: Upcoming Events
Upcoming Events March 16 - Morgan Stanley Global Electricity & Energy Conference Tony Earley, Chairman and CEO, will present April 6 - DTE Energy Analyst Meeting in New York City
Slide 36: Appendix
Appendix DTE Energy
Slide 37: Unconventional Gas Production Statistics
Unconventional Gas Production Statistics 2005 2006E $25-30 $4 Net Income ($ millions)
Slide 38: Q4 2005 Operating Earnings
Q4 2005 Operating Earnings Operating Earnings per Share* Detroit Edison $0.40 Power and Industrial Projects $0.81 Unconventional Gas Production $0.00 Non-Utility Portfolio $1.60 Fuel Transportation and Marketing $0.79*** Corporate & Other ($0.14) MichCon** $0.26 $2.12 * Reconciliation to GAAP report
Slide 39: Q4 2005 vs. Q4 2004 Earnings Variance
Q4 2005 vs. Q4 2004 Earnings Variance Detroit Edison results driven by the incremental impacts of rate relief partially offset by lower regulatory deferrals Improved results at MichCon due to the benefits of the rate order granted in April 2005 Q4 recognition on deferred synfuel variable note paymen
Slide 40: Detroit Edison Operating Earnings 2005 vs. 2004 Variance
Detroit Edison Operating Earnings 2005 vs. 2004 Variance 2004 Margin Reg Def Merger Interest Storm Other O&M 2005 178 178 264 264 279 270 272 150 64 37 22 9 Operating Earnings Variance* ($ millions) 2004 Operating Earnings Gross Margin Higher Storm Expense Benefits Lower Reg. Deferrals * Reconciliat
Slide 41: Detroit Edison Gross Margin 2005 vs. 2004 Variance
Detroit Edison Gross Margin 2005 vs. 2004 Variance Weather Rate Releif Choice Other Total Electric Margin Imporvement 96 96 172 200 197 150 150 76 33 8 47 Detroit Edison Gross Margin Variance ($ millions, after-tax) Rate Increase Margin Improvement Before Residential Rate Cap Impact Weather Choice O
Slide 42: MichCon Operating Earnings 2005 vs. 2004 Variance
MichCon Operating Earnings 2005 vs. 2004 Variance 2004 Rates Weather Merger Interest Benefits Other 2005 23 23 54 59 70 71 72 31 5 18 7 2 Operating Earnings Variance* ($ millions) 2004 Operating Earnings Rate Increase Merger Interest * Reconciliation to GAAP reported earnings included in this append
Slide 43: Non-Utility Operating Earnings 2005 vs. 2004 Variance
Non-Utility Operating Earnings 2005 vs. 2004 Variance 2004 PIP UGP FTM 2005 PIP 179 254 353 283 279 UCG 6 101 2 68 4 FTM 70 2 Operating Earnings Variance* ($ millions) 2004 Operating Earnings Power & Industrial Projects Fuel Transportation & Marketing * Reconciliation to GAAP reported earnings inclu
Slide 44: Synfuel Earnings
Synfuel Earnings ($ millions, after-tax) NOTE: Assumes average oil price for the calendar year remains below the phase-out threshold. The exact 2005 threshold will not be verified by the IRS until April 2006 2005 Synfuel Earnings
Slide 45: Timing-Related Accounting Losses Impacted Fuel Transportation & Marketing Results
Timing-Related Accounting Losses Impacted Fuel Transportation & Marketing Results Time Gross Margin $ Economic Benefit Accounting Margin Contract Inception Mark-to-Market Adjustments Interim Time Between Inception and Settlement Contract Settlement Accounting Implications of Certain Energy Trading C
Slide 46: 2005 Flowback of Timing-Related Impacts of Energy Trading Contracts
2005 Flowback of Timing-Related Impacts of Energy Trading Contracts The flowback of timing- related impacts in Q4 was very near to the forecast provided at the Q3 earnings release Rollback -202 -79 -86 -123 -116 ($ millions) $123 Q1-Q3 2005 Actuals Q4 2005 Actuals Total 2005 Impact from Energy Tradi
Slide 47: Definition of Reserve Classifications
Definition of Reserve Classifications Proved Reserves - quantities of natural gas, natural gas liquids and crude oil which geological and engineering data demonstrate with reasonable certainty to be recoverable under existing economic and operating conditions Unproved Reserves - recovery of unproved
Slide 48: Definition of Timing-Related Accounting Items
Definition of Timing-Related Accounting Items Timing-related accounting adjustments include synfuel-related items and certain gas and power transactions where forward contracts are used to economically hedge physical and capacity contracts These contracts experience an accounting misalignment, as re
Slide 49: Synfuel Earnings Background
Synfuel Earnings Background Quarterly earnings from synfuels primarily come from two sources: Quarterly payments received from partners in our projects as tax credits are allocated to them These payments are subject to gain recognition accounting Mark-to-market gains/losses from the oil options we p
Slide 50: Recognition of Synfuel Earnings: Payments Received from Buyers
Recognition of Synfuel Earnings: Payments Received from Buyers Accounting principles for gain recognition of our synfuel sales proceeds are conservative Sale proceeds cannot be recognized until there is evidence they have become determinable and collectability has been reasonably assured Due to the
Slide 51: Synfuel Cash Protected
Synfuel Cash Protected Assumptions No prior year tax credit phase out for 2005 No reduction in forecasted taxable income - AMT carryforwards used by 2009 Excludes impact of potential future incremental hedging Production forecast is realized
Slide 52: Oil Price / Synfuel Key Statistics
Oil Price / Synfuel Key Statistics Estimated Phase Out Bands Current Avg Price Lower Band Upper Band 59.25 63.5 73 Upper Band 60.25 66.5 74.25 Avg. Price Actual & Forward Lower Band Upper Band $59.25 $63.50 $73.00 Lower Band Upper Band $60.25 $66.50 $74.25 2006 2007 $ Price per barrel - Through 2/14
Slide 53: Book Tax Timing at MichCon Substantially Impacts Reported Earnings
Book Tax Timing at MichCon Substantially Impacts Reported Earnings Due to the amortization of permanent items, MichCon's effective tax rate will differ from the statutory rate for the foreseeable future Identical to the Holding Company, MichCon must adjust the effective tax rate quarterly to remain
Slide 54: Reconciliation of 2003-2006 Adjusted Cash from Operation to Cash from Operations
Reconciliation of 2003-2006 Adjusted Cash from Operation to Cash from Operations
Slide 55: Reconciliation of 2002 & 2003 Reported Earnings to Operating Earnings
Reconciliation of 2002 & 2003 Reported Earnings to Operating 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 p
Slide 56: Reconciliation of Q4 2004 & 2005 Reported Earnings to Operating Earnings
Reconciliation of Q4 2004 & 2005 Reported Earnings to Operating 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 primar
Slide 57: Reconciliation of 2004 & 2005 Reported Earnings to Operating Earnings
Reconciliation of 2004 & 2005 Reported Earnings to Operating 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 p
Slide 58: Reconciliation of 2006 Reported Earnings to Operating Earnings
Reconciliation of 2006 Reported Earnings to Operating Earnings In this presentation, DTE Energy provides 2006 operating earnings guidance. It is likely that certain items that impact the company's 2006 reported results will be excluded from operating results. A reconciliation to the comparable 2006