DTE Energy Company · NYSE:DTE
DTE Energy — EEI Financial Conference 2006
48 slides from DTE Energy's conference presentation, Nov 7, 2006
Slide 1: Background Information EEI Financial Conference
Background Information EEI Financial Conference November 7, 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: DTE Energy Is an Integrated Energy Company
Power and Industrial Projects Unconventional Gas Production Fuel Transportation and Marketing Detroit Edison MichCon DTE Energy Is an Integrated Energy Company Strong, Stable and Growing Utilities Complementary Non-Utility Growth Businesses
Slide 4: DTE Energy Value Drivers
DTE Energy Value Drivers Higher EPS and cash flows through increased rate base investments Higher EPS X industry P/E multiple Higher proven/possible reserves, increased production, cash from operations, additional acreage Reserve valuation Potential value of our sizable southern acreage Value Driver
Slide 5: Utility Background Information
Utility Background Information Detroit Edison MichCon
Slide 6: DTE Energy's Utility Strategy: Earnings Growth with Reasonable Rate Impact
cleaner air significant emissions reduction 1st quartile performance customer satisfaction, operations and safety + actions results 5-6% potential annual earnings growth (2005-2010) reasonable rates mitigate impact on customer rates customer-focused investment program Performance Excellence Process
Slide 7: Performance Excellence Process
Performance Excellence Process Focused on Improving Service while Reducing Cost Increased Productivity and Reduced Costs Improved Customer Satisfaction Expect total pre-tax savings of $50-100M for shareholders and customers in 2006, increasing to $250-350M in 2008 ~400 employees accepted voluntary s
Slide 8: Performance Excellence Process Financial Benefits
on-going Performance Excellence Process Financial Benefits 2006E 2007E 2008E 2009E 2010E O&M Savings 44 153 218 218 218 Capital Savings 20 25 32 32 32 PSCR Savings 25 45 50 50 50 Potential Benefits of Performance Excellence Process ($ millions, pre-tax) $50-100 $200-250 $250-350 2006E 2007E 2008E 20
Slide 9: Michigan's Constructive Regulatory Environment
Michigan's Constructive Regulatory Environment Detroit Edison receives $384M rate increase Includes recovery of $550M of previously incurred environmental expenditures November 2004 April 2005 MichCon receives $61M rate increase Granted uncollectible expense tracker December 2005 MPSC issues Rate Re
Slide 10: Expect Full and Timely Inclusion of Utility Investments into Rate Base
Expect Full and Timely Inclusion of Utility Investments into Rate Base History of inclusion of all environmental and safety expenditures in rate base $550M included in Detroit Edison's 2004 rate case We are doing our part to reduce cost while improving customer service - Performance Excellence Proce
Slide 11: Current Michigan Economic Conditions
Current Michigan Economic Conditions Service territory output typically grows 1-3% for the electric utility and 0-1% for the gas utility Restructuring in the automobile industry is impacting Michigan's economy These impacts have slowed growth at our two utilities, but not caused a severe negative ea
Slide 12: Detroit Edison Revenue and Margin by Class
Detroit Edison Revenue and Margin by Class Residential Commercial Auto Industrial Other 0.41 0.36 0.09 0.1 0.03 Residential Commercial Auto Industrial Other 0.45 0.39 0.06 0.08 0.02 Detroit Edison Revenues* (2005 % by Class) Detroit Edison Gross Margins (2005 % by Class) * Excludes interconnection s
Slide 13: Profile of Detroit Edison
Profile of Detroit Edison Tenth largest US electric utility with 2.2 million customers 7,600 square mile service territory centered around Detroit $4.5 billion in revenue, $13 billion in assets Regulated by the Michigan Public Service Commission (MPSC) Detroit Michigan Service Territory Coal Nuclear
Slide 14: Detroit Edison Regulatory Framework
Detroit Edison Regulatory Framework Fully regulated by the MPSC 11% allowed return on equity (ROE) ~$3.0B equity base No major rate proceedings underway Full Power Supply Cost Recovery (PSCR) mechanism Passes through fuel, purchased power, transmission and NOx allowance costs to customers Annual rec
Slide 15: Settlement of Show Cause Case Benefits Detroit Edison
Settlement of Show Cause Case Benefits Detroit Edison Strategic Benefits Financial Benefits Gained mechanism to reduce Electric Choice exposure Granted deferral and amortization of $200-250M in costs to achieve savings from ongoing restructuring effort Progress on rate deskewing Remain positioned to
Slide 16: Electric Choice Volumes Have Declined Significantly
7/19/2002 815 3040 3855 10/3/2002 979 3353 4331 11/21/2002 1161 3444 4605 1/3/2003 1308 3901 5209 5/5/2003 1728 4356 6084 8/18/2003 1889 5104 6993 11/13/2003 2588 5665 8253 1/2/2004 2880 6010 8891 2/2/2004 3024 6066 9090 3/2/2004 3160 6326 9485 4/15/2004 3323 6425 9748 5/3/2004 3338 6318 9656 6/2/20
Slide 17: Detroit Edison Investment Program Includes $1B for Clean Air Act Compliance
Detroit Edison Investment Program Includes $1B for Clean Air Act Compliance Potential Cost 2006-2010 Potential In Service Date Unit 3 SCR ~$150M 2007 Unit 4 Scrubber and common infrastructure ~$300M 2008 Unit 3 Scrubber ~$200M 2010 Units 1 and 2 Scrubbers ~$400M Post-2010 Compliance with the Clean A
Slide 18: Investments in Detroit Edison Driven by Required Environmental Investments
Investments in Detroit Edison Driven by Required Environmental Investments 2005A 2006E 2007E 2008E 2009E 2010E Base capex 7821 8304 8728 9077 9367 9697 Capital Expenditures $875-1,065 $800-950 $750-950 $750-950 $750-950 Detroit Edison Potential Net Utility Plant 2005-2010 Not including new base-load
Slide 19: Profile of MichCon
Profile of MichCon Eleventh largest US natural gas utility with 1.3 million customers 14,700 square mile service territory throughout Michigan Significant gas storage capacity benefits customers (11% of total Midwest and Northeast capacity) $2.1 billion in revenue, $3.3 billion in assets Regulated b
Slide 20: MichCon Regulatory Framework
MichCon Regulatory Framework Fully regulated by the MPSC 11% allowed ROE ~$800M equity base No major rate proceedings underway Uncollectible expense tracker 90% of difference from $37M level set in rates is deferred as a regulatory asset or liability and collected in rates 2005 uncollectible expense
Slide 21: MichCon's Gas Distribution System Investments Benefit Customers
MichCon's Gas Distribution System Investments Benefit Customers Distribution system expansion New infrastructure to meet demand growth in W. Michigan ~ $75M capex Regulated gas storage expansion Pipeline Safety Act compliance Increase summer storage capacity by 17 Bcf ~ $75M capex Inspect 400 miles
Slide 22: Investments in MichCon Driven by System Expansion and Pipeline Safety Compliance
2005A 2006E 2007E 2008E 2009E 2010E Base capex 1784 1841 1956 2000 2041 2088 Investments in MichCon Driven by Needed System Expansion and Pipeline Safety Act Compliance Capital Expenditures $150-200 $250-300 $100-200 $100-200 $100-200 MichCon Potential Net Utility Plant 2005-2010 ($ millions) Deprec
Slide 23: Non-Utility Background Information
Non-Utility Background Information Unconventional Gas Production Fuel Transportation & Marketing Power & Industrial Projects
Slide 24: DTE Energy's Non-Utility Strategy
DTE Energy's Non-Utility Strategy Focus on three key, well-defined areas Disciplined Investment with a strict risk/return criteria that has produced solid returns Value Creation with an objective to bring each non- utility business segment to $50-100M of earnings thereby increasing visibility and va
Slide 25: Non-Utility Investment Focused on Three Key Areas
Non-Utility Investment Focused on Three Key Areas Own and operate energy-related assets for large energy-intensive customers Transport and store primary fuels Asset-based trading Shale gas production in the Antrim and Barnett Power & Industrial Projects Fuel Transportation & Marketing Unconventional
Slide 26: The Road to Fort Worth
The Road to Fort Worth * DTE is the largest and lowest cost operator in Michigan 1960's 1970's 1990's 2001 2004 Development of Michigan storage assets Move into gathering and processing Development of Antrim Production* Investment in Coal Bed Methane Initial investment in Barnett Shale 2000 wells 10
Slide 27: Unconventional Gas has a Lower Risk Profile
Unconventional Gas has a Lower Risk Profile Conventional Exploration and Production (E&P) risk includes the exploration risk of finding the reservoir The location of unconventional formations are typically well known and can exist over a large area, reducing the exploration risk Unconventional forma
Slide 28: Unconventional Resources Are Present Throughout The U.S.
Unconventional Resources Are Present Throughout The U.S. Coal Bed Methane Tight Sand Shale DTE presently operates in the Antrim Shale and the Barnett Shale Currently, resource plays are a strong destination for onshore capital DTE has deep historical experience (15+ years) with unconventional gas DT
Slide 29: Unconventional Gas: 2006 Antrim Shale Progress
Area of detail Antrim Shale DTE Acreage DTE CO2 Plants Goal Progress Drill 130 Wells Drilled 118 to date and expect to meet or exceed target Produce 22 Bcfe net On forecast to meet 100% reserve replacement On forecast to meet or exceed Drill 10 horizontal wells Drilled 7 horizontal wells to date Unc
Slide 30: Antrim Shale Operating Metrics
Net Production Rate (mmcf/day) 59 Gross Producing Wells 2,010 1/1/05 Reserves (Bcfe) Probable Reserves Proven Reserves 335 35 338 373 12/31/2005 1/1/2005 Acreage Position (thousands) Net Undeveloped Acres Net Developed Acres 79 214 12/31/05 1/1/05 Antrim Shale Operating Metrics 1,878 12/31/05 1/1/05
Slide 31: The Barnett Shale Is Becoming a World Class Gas Reservoir
The Barnett Shale Is Becoming a World Class Gas Reservoir Historic Core Area 1,120 square miles 15 Tcf undiscovered resource (USGS '04) Currently Producing 900 MMcfd The Core Area has been expanding to the west and south as production volumes increase The Barnett is a thick, continuous, highly organ
Slide 32: Unconventional Gas: 2006 Barnett Shale Progress
Unconventional Gas: 2006 Barnett Shale Progress Goal Progress Drill 55 Wells Drilled 45 as of 10/15/06 6 rigs operating Produce 4.1 Bcfe net (~500% increase over 2005) On forecast to meet or exceed Increase proved reserves to 100 Bcfe by year end On forecast to meet or exceed Drill 4 additional test
Slide 33: Horizontal Well Technology Has Driven Activity in the Barnett Expansion Area
Horizontal Well Technology Has Driven Activity in the Barnett Expansion Area Some areas, such as Jack County, are still well-suited for vertical wells Completion of Barnett wells requires large hydraulic fracture stimulations to crack the rock Holding the stimulation in the Barnett is key to product
Slide 34: Barnett Shale Operating Metrics
Unconventional Gas: 2006 Barnett Shale Progress Unconventional Gas Fuel Trans. & Marketing Power & Industrial Net Production Rate (mmcf/day) 0 19 Gross Producing Wells 5 104 10/15/06 1/1/05 Reserves (Bcfe) Probable Reserves Proven Reserves 8 16 120 59 179 8 12/31/2005 1/1/2005 Acreage Position (thou
Slide 35: Why Unconventional Gas Production Makes Sense for DTE Energy
Why Unconventional Gas Production Makes Sense for DTE Energy Extension of a core business skill Deep historical experience (15+ years) with unconventional gas Expertise acquired through the MCN Energy merger Premium Returns Targeted ROIC of 15-20% for new investment Manageable risk Active in lower r
Slide 36: Fuel Transportation & Marketing Has a Clear Focus on Natural Gas and Coal
Fuel Transportation & Marketing Has a Clear Focus on Natural Gas and Coal Going forward this segment will focus on two key areas where we have extensive experience Natural gas pipelines & storage Ownership interest in Vector and Millennium pipelines Own 75 Bcf of non-utility storage Coal transportat
Slide 37: Investment Outlook for Coal Transportation & Marketing
Investment Outlook for Coal Transportation & Marketing Environmental requirements and declining Central Appalachian production are providing new investment opportunities Changing Coal Flows Projects that provide efficiency and lever marketing, trading and transportation strengths: Transportation and
Slide 38: Projects Provides Private Utility-Like Services to Energy Intensive Industries
Power & Industrial Projects Provides Private Utility-Like Services to Energy Intensive Industries The Power and Industrial (P&I) group leverages our heritage in operating utilities to provide "private utility-like" services in select energy- intensive industries Value is created through reliable and
Slide 39: Projects Focus on On-Site Projects & Biomass
Power & Industrial Projects Focus on On-Site Projects & Biomass This business is analogous to a private utility, with long-term contracts replacing regulation Energy Input Electricity Steam Compressed Air Chilled Water Waste Water Treatment Coal Petcoke Landfill Gas Industrial User Auto Steel Pulp &
Slide 40: How We Do It: Illustrative Economics of a Typical Transaction
How We Do It: Illustrative Economics of a Typical Transaction Project Parameters: Customers Gain Material Savings Customer bears commodity risk Contracted term and minimum volumes All fuel requirements to be served by DTE Energy facility Potential Savings Through Fuel Switching Representative Econom
Slide 41: Appendix: Reconciliations
Appendix: Reconciliations DTE Energy
Slide 42: Reconciliations: Use of Adjusted Cash from Operations Information
Reconciliations Use of Adjusted Cash from Operations Information - DTE Energy management believes that adjusted cash from operations provide a more meaningful representation of the company's operating cash flow and uses adjusted cash from operations as the primary performance measurement for externa
Slide 43: Reconciliations: Use of Operating Earnings Information
Reconciliations 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 performance measurement for external communications wit
Slide 44: 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 45: Reconciliations: 2006 Reported Earnings to Operating Earnings
Reconciliations In this release, DTE Energy discusses 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 reported earnings guidance is not provided because
Slide 46: Reconciliations: Non-Utility Operating Earnings
Reconciliations Non-Utility Operating Earnings in areas of Expected Future Capital Investment to Non-Utility Reported Earnings (excludes Corporate & Other) Use of Non-Utility Operating Earnings - DTE Energy management believes that non-utility operating earnings provides a more meaningful representa
Slide 47: Reconciliations
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Slide 48: For More Information
For More Information DTE Energy Investor Relations www.dteenergy.com/investors 313-235-8030