DTE Energy Company · NYSE:DTE
DTE Energy — Q1 2004 Earnings Presentation
42 slides from DTE Energy's earnings presentation, Apr 29, 2004
Slide 1: Q1 2004 Earnings Conference Call
Q1 2004 Earnings Conference Call April 29, 2004
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 forw ard-looking statements contained in this document as a result of new information or future events or developments. Words s
Slide 3: Participants
Participants • Dave Meador – Senior 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 3
Slide 4: Overview
Overview • Q1 operating earnings lower year-over-year due to Electric Choice impacts, lower synfuel production and lower trading earnings • Detroit Edison earnings, without PA 141 regulatory deferrals is down almost 6% to $17M • Continued balance sheet strength • Progress on the legislative and regu
Slide 5: Outline
Outline • Q1 2004 Earnings Review • Legislative / Regulatory Update • Non-Regulated Update 5
Slide 6: Q1 2004 Operating Performance Business Unit View
Q1 2004 Operating Performance Business Unit View Operating Earnings per Share* $0.89 Energy $0.35 Energy $0.13 Energy $0.44 Corporate ($0.03) Resources Distribution Gas & Other Power Power Gas Regulated Generation $0.09 Distribution $0.15 Distribution $0.41 Energy DT E Energy Non Reg Holding $0.23 (
Slide 7: DTE Energy Q1 2004
DTE Energy Q1 2004 ($ millions) Q1 2004 Operating $151 Earnings (after tax)* Key Drivers: Regulated $41 • Normal weather Electric • Continued impacts from Electric Choice – Lost margin Regulated – Regulatory assets Gas $70 – Choice transition charge • Detroit Edison interim rate order – Base rate in
Slide 8: Regulated Electric Q1 2003 vs. Q1 2004 Variance
Regulated Electric Q1 2003 vs. Q1 2004 Variance Operating Earnings (after tax)* ($ millions) • Operating income, before $41 regulatory assets, is flat year $35 Reg Reg over year. Asset Asset $17 $24 • Choice margin loss is a major impact in the quarter-over- $5 ($19) quarter variance $18 $8 $17 • Th
Slide 9: Power Supply Cost Recovery (PSCR) Reinstated
Power Supply Cost Recovery (PSCR) Reinstated • The interim rate order mandated a decrease in the PSCR factor for all retail customers effective Jan 1, 2004 – For the period Jan 1 – Feb 20*, all customers were given a rate reduction associated with the PSCR restart – With the interim order, an equal
Slide 10: The PSCR Will Levelize Power Supply Cost Throughout the Year
The PSCR Will Levelize Power Supply Cost Throughout the Year ($ Millions) PSCR Over / Under Recovery Illustrative • The PSCR will levelize the average Ov er Recov ery cost of power supply throughout the year. Costs are typically higher in summer Under Recov ery • Normally the PSCR mechanism reduces
Slide 11: Regulated Gas Q1 2003 vs. Q1 2004 Variance
Regulated Gas Q1 2003 vs. Q1 2004 Variance Operating Earnings (after tax)* ($ millions) $76 ($5) ($9) $70 $8 • Relatively normal weather in 2004 versus colder than normal in 2003 • Higher uncollectables due to higher gas prices • Lower effective tax rate, lower property taxes, partially offset by he
Slide 12: Non-Regulated Q1 2003 vs. Q1 2004 Variance
Non-Regulated Q1 2003 vs. Q1 2004 Variance Operating Earnings (after tax)* ($ millions) • Total year non-regulated earnings $80 ($14) expectations remain at $194-249M ($19) • Lower year-over-year synfuel production, due to optimization of our tax position, and a higher level of $5 ($6) capacity sold
Slide 13: Continued Balance Sheet Strength
Continued Balance Sheet Strength • Improved balance sheet strength is a key strategic goal for DTE • Leverage ended Q1 at 49%*, compared to Q1 2003 leverage of 51% • Pension contribution in Q1 2004 of $170M was funded with 4.3M shares of common stock • Liquidity position of almost $900M of borrowing
Slide 14: Cash Flows
Cash Flows • Cash improved in Q1 2004 ($ millions) Q1 Q1 compared to last year. Some of 2003 2004 the improvement was timing- related, but a portion is expected Cash from Operations to flow through for the full year $141 $280 • Adjusted cash from operations Synfuel Production Payment* 16 26 was up $
Slide 15: Capital Expenditures
Capital Expenditures ($ millions) Q1 Q1 2003 • Capital spending was below 2004 prior year, led by a $23M Detroit Edison $135 $129 reduction in environmental spending Detroit Edison - NOx 28 5 • We intend to match actual MichCon 12 11 2004 capital spending with Non Regulated 20 18 available cash flow
Slide 16: Outline
Outline • Q1 2004 Earnings Review • Legislative / Regulatory Update • Non-Regulated Update 16
Slide 17: Regulatory and Legislative Update
Regulatory and Legislative Update • On February 20, the MPSC issued its order granting Detroit Edison interim rate relief of $278M* • On March 5, the MPSC Staff recommended $441M* in final rates as well as a number of changes to the Electric Choice program • Throughout Q1 the Michigan Senate Technol
Slide 18: Regulatory Calendar
Regulatory Calendar Detroit Edison Interim Order Issued February 20, 2004 Staff Recommendation for Final Rates Issued March 5, 2004 Proposal for Decision June 30, 2004 Final Order September 2004 MichCon Staff Interim Report & Intervenor Testimony May 3, 2004 Interim Briefs June 15, 2004 Interim Repl
Slide 19: Legislative Update
Legislative Update • The Michigan Legislature is currently considering reform of Electric Choice legislation • Desired principles of legislation: – Level playing field • Reasonable return to service provisions • Reserve margins for all suppliers – Transition charges to recover Choice lost margin – A
Slide 20: 2004 Electric Choice Margin Impact and Recovery
2004 Electric Choice Margin Impact and Recovery Pre-Interim Order Interim Order to Period Final Order Period (Jan – Feb) (Feb – Sep) Choice Lost Anticipated Choice Lost Anticipated Margin* Recovery Margin* Recovery Base Rates Regulatory Asset Transition Deferrals Charge Regulatory Asset Deferrals *
Slide 21: Electric Choice Margin Impact and Recovery
Electric Choice Margin Impact and Recovery Post Final Order/Legislation Choice Margin Drivers & Recovery Methods Choice Lost Anticipated Margin Recovery • Base rates • Transition charges • Mitigation sales • Rate deskewing • Regulatory assets • Return to service provisions • Market prices 21
Slide 22: Outline
Outline • Q1 2004 Earnings Review • Legislative / Regulatory Update • Non-Regulated Update 22
Slide 23: Non-Regulated Business Remain on Track for 2004 Targets
Non-Regulated Business Remain on Track for 2004 Targets Operating Earnings (after tax)* ($ millions) 2004E Synfuels $150-190 Coke Batteries 6-8 • Synfuel sale program is proceeding as planned On Site Energy Projects 18-22 • The tight market for coke Power Generation (16) continues, yielding near-ter
Slide 24: Synfuel Update
Synfuel Update Synfuel Earnings Distribution ($ millions) • Audits successfully completed $197 $150- at four facilities 190 • Reconfirming PLRs attained on two recently sold facilities • Serious sales discussions with three prospects are underway • Currently 66% of capacity is sold • Facilities will
Slide 25: Summary
Summary • Q1 earnings continue to demonstrate the need for Electric Choice reform and rate relief • Progress continues on the regulatory and legislative fronts • Continued focus on balance sheet strength • Non-Regulated earnings remain on track • Upcoming events: • Annual Shareholder Meeting at 10am
Slide 26: Appendix
Appendix
Slide 27: Lost Margin and PA 141 Regulatory Assets
Lost Margin and PA 141 Regulatory Assets 2003 2004 ($ millions, pre-tax) Q1 Q2 Q3 Q4 Total Q1 • At the end of Q1, Choice volume was ~9,400 gWh Choice Lost Margin $20 $25 $35 $40 $120 $50 • Total regulatory assets Regulatory Assets booked in Q1 was $37M Choice Regulatory • Regulatory asset for $6 $6
Slide 28: Key Electric Choice Statistics
Key Electric Choice Statistics ($ millions) 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
Slide 29: Growing Consensus That Electric Choice Reform is Needed
In Michigan There is Growing Consensus That Electric Choice Reform is Needed CLEAR Coalition includes Michigan citizens, businesses, consumer and community organizations formed to urge the legislature to fix the problems with PA 141 – More than 14,000 individual citizens have joined CLEAR – CLEAR
Slide 30: Rate Relief Requests
Rate Relief Requests 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 Filed on June 20, 2003 Requeste
Slide 31: 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
Slide 32: 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
Slide 33: Recommendations from Staff Filing on Detroit Edison Final Rates (cont.)
Recommendations from Staff Filing on Detroit Edison Final Rates (cont.) • 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 f
Slide 34: MichCon – Rate Case Summary
MichCon – Rate Case Summary Facts • Case filed September 30, 2003 • Seeking $194M final rate increase; $154M interim rate increase Key Cost Drivers • Significant increase in routine and mandated infrastructure improvements • Increased operating costs and employee pension and healthcare costs • Lower
Slide 35: DTE Energy 2004 Cash Flows
DTE Energy 2004 Cash Flows 2004E ($ millions) 2003A Low High Cash from Operations $950 $800 $1,050 Synfuel Production Payment* 89 175 225 Adjusted Cash from Operations $1,039 $975 $1,275 Capital Expenditures (751) (750) (1,060) Cash Improvement Initiative 100 100 Asset Sales 669 40 40 Dividends (346
Slide 36: DTE Energy Capital Expenditures
DTE Energy Capital Expenditures Capital Expenditures (2004 Ba sed on Rate Case Filings) ($ millions) 2003A 2004E Detroit Edison $516 $672 NOx 64 38 MichCon 98 139 Non Regulated & 73 211 Corporate* Total $751 $1,060 36 * 2004 includes $55M of corporate capital
Slide 37: Synfuel Portfolio
Synfuel Portfolio Yearly Production Ownership Capacity Interest Manufacturer (000 tons) Sold Facilities Belews Creek 1% EarthCo 2,960 Buckeye (2) 1% EarthCo 5,920 Clover 5% EarthCo 2,640 Smith Branch 5% EarthCo 2,750 14,270 Retained Facilities Indy Coke 100% EarthCo 2,640 Red Mountain 100% Covol 1,5
Slide 38: Synfuel Results
Synfuel Results Synfuels Produced Synfuels Net Income (millions of tons) ($millions) 2003 2004 2003 2004 4.4 70 4.3 3.2 54 3.0 47 40 1.6 26 Q1 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 Q1 38
Slide 39: Long-Term Synfuel Net Cash Flow Outlook
Long-Term Synfuel Net Cash Flow Outlook ($ millions) 2004E 2005E 2006E 2007E 2008E Synfuel Cash Flow $135 $355 $380 $390 $45 Tax Credit 0 90 130 140 90 Carryforward Utilized* Net Cash Flow $135 $445 $510 $530 $135 • 2005 cash improvement driven by higher tons produced and higher after-tax cash value
Slide 40: DTE Energy Trading / CoEnergy Portfolio- Contract Termination
DTE Energy Trading / CoEnergy Portfolio- Contract Termination • CoEnergy Portfolio terminated an out-of-market, seasonal gas exchange contract and significantly reduced the quantities of gas under a long-term transportation contract • This transaction resulted in a one-time, non-operating gain as fo
Slide 41: Holding Company Quarterly Effective Tax Rate Adjustment
Holding Company Quarterly Effective Tax Rate Adjustment $ millions • Each quarter an accounting adjustment is made to 82 reconcile back to DTE’s overall effective rate for 70 the year • The effective tax rate adjustments net to zero for the total year • This adjustment is recognized in reported earn
Slide 42: Reconciliation of Operating Earnings to Reported Earnings
Reconciliation of Operating Earnings to Reported Earnings Earnings Per Share Net Income DTE Ene rgy DTE Energy Regulated Regulated Non- Holding Q1 2003 Consolidated Consolidated Electric Gas Regulate d Company Operating Earnings 1.06 178 35 76 80 (13) One-Time Items Adjustment for rescission of EITF