Dte Energy Company · NYSE:DTE
Dte Energy — Morgan Stanley 12th Annual Global Electricity & Energy Conference 2005
54 slides from Dte Energy's conference presentation, Mar 10, 2005
Slide 1: Morgan Stanley 12th Annual Global Electricity & Energy Conference
Morgan Stanley 12th Annual Global Electricity & Energy Conference March 10, 2005 Gerard Anderson President Exhibit 99.2
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: Introduction
Introduction Continued Regulatory Progress Execution of Cash Redeployment Strategy
Slide 4: Introduction
Introduction Due primarily to regulatory issues, 2003 and 2004 were difficult from an earnings perspective A primary focus for the company during this period has been working through rate case proceedings at both Detroit Edison and MichCon and reforming Michigan's Electric Choice program During this
Slide 5: Significant Improvement in Earnings Is Expected
Significant Improvement in Earnings Is Expected 2003 2004 2005 Non-Regulated 236 240 310 Regulated Gas 46 10 84 Regulated Electric 282 185 280 Holding Company -30 -10 -65 Choice Impacts 63 80 30 $500 $427 Detroit Edison MichCon Non-Utility EPS $2.97 $2.46 $261 $46 $231 Holding Co. $178 $24 $241 $580
Slide 6: Today's Discussion
Today's Discussion Our primary focus on the regulatory front in 2005 will be the successful implementation of our Rate Restructuring Proposal We will begin execution of our cash redeployment strategy For the 2005-2008 period, we expect to have $1.65B available for redeployment In 2005, we expect to
Slide 7: Continued Regulatory Progress
Introduction Continued Regulatory Progress Execution of Cash Redeployment Strategy
Slide 8: Regulatory Overview
Regulatory Overview 2004 was the trough of a long regulatory cycle for Detroit Edison and MichCon The final order in the Detroit Edison rate case provided substantial rate relief and a strong foundation for financial recovery However, work remains to be done to reform Michigan's Electric Choice prog
Slide 9: The Final Detroit Edison Rate Order Provided Many Substantial Items
The Final Detroit Edison Rate Order Provided Many Substantial Items 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 modif
Slide 10: Progress was Made on Choice, but Work Remains to be Done
Progress was Made on Choice, but Work Remains to be Done The final order addressed a number of Choice related issues: Included revenue in base rates to address Electric Choice at roughly current levels Established a number of return to service provisions Adjusted transition charges to recover $44M i
Slide 11: Choice Volumes Have Declined Slightly, but Remain a Substantial Issue
Choice Volumes Have Declined Slightly, but Remain a Substantial Issue Annualized Electric Choice Sales Volumes (GWh) Jan 2003 May 2003 Aug 2003 Nov 2003 Jan 2004 Feb 2004 Mar 2004 May 2004 Jun 2004 Jul 2004 Sep 2004 Oct 2004 Nov 2004 Dec 2004 Jan 2005 5209 6084 6993 8253 8891 9411 9629 9470 9413 924
Slide 12: Detroit Edison Rate Restructuring Proposal
Detroit Edison Rate Restructuring Proposal Intention is to eliminate subsidies that have historically existed in Detroit Edison's rates and eliminate artificial price signals The Rate Restructuring proposal would: Unbundle rates into power supply and distribution components Establish rates based on
Slide 13: Rate Restructuring Would Shift Detroit Edison's Rate Structure
Rate Restructuring Would Shift Detroit Edison's Rate Structure Pre Post 9.6 10.9 Residential Current Bundled Rates Proposed Unbundled & Cost Based Rates 9.6¢ Pre Post 10.1 8.3 Commercial & Industrial Secondary Current Bundled Rates Proposed Unbundled & Cost Based Rates 10.1¢ Pre Post 5.8 5.2 Commerc
Slide 14: Potential Implications for 2006
Potential Implications for 2006 It is premature to project what changes will ultimately be adopted by the MPSC and how that will impact future Electric Choice participation In addition, a number of additional factors could impact future Electric Choice levels Market prices Duration of current contra
Slide 15: The Final Rate Order in the MichCon Rate Case is Expected Soon
The Final Rate Order in the MichCon Rate Case is Expected Soon Interim rate relief of $35M granted on September 21, 2004 Proposal for Decision (PFD) issued December 10 Recommended final rate relief of $60M vs. MPSC Staff recommendation of $76M 11% ROE on 50% equity Recommended uncollectable expense
Slide 16: Execution of Cash Redeployment Strategy
Introduction Continued Regulatory Progress Execution of Cash Redeployment Strategy
Slide 17: Cash Redeployment Overview
Cash Redeployment Overview Primarily due to synfuels, we expect to have ~$1.65B of cash to redeploy from 2005 - 2008 Redeployment of this cash represents a unique opportunity to increase shareholder value and strengthen the balance sheet Our objectives for cash redeployment are: Strengthen coverage
Slide 18: Synfuel Cash Flows 2005 - 2008
Synfuel Cash Flows 2005 - 2008 Synfuels cash flow fairly evenly distributed over the remaining life ~ 90% of capacity sold to other investors, whereby DTE realizes sales proceeds as synfuel is produced 2005 2006 2007 2008 Total 415 900 1360 Cash from Operations 325 365 380 135 1205 Tax Credit Carryf
Slide 19: Synfuel Update
Synfuel Update Synfuel tax credits (~75% of synfuel cash flow - $1.2 billion) start to phase out when average annual NYMEX oil prices exceed $56 /bbl (for '05); total phase out occurs at average annual price ~$70 /bbl For 2005 we have hedged ~75% of our cash flow The remaining ~25% would begin to be
Slide 20: From 2005 to 2008, We Expect to Generate $1.65B in Cash Available for Redeployment
From 2005 to 2008, We Expect to Generate $1.65B in Cash Available for Redeployment Synfuel Free Cash Generated Non-Regulated Free Cash Generated Equity Infusion Total Free Cash for Redeployment 1600 1650 1600 400 350 1650 Synfuel Free Cash Flow Other Non- Utility Free Cash Equity Investment into Det
Slide 21: 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 $1.65B from 2005 to 2008 Our first use of this cash will be to reduce parent debt We will continue to pursue growth investments that meet ou
Slide 22: Parent Company Debt
Parent Company Debt 2005 2006 2100 1900 1700 1450 1450 200 200 250 To Achieve Our Credit Metrics, We Will Reduce Parent Company Debt Parent Company Debt ($ millions) $2,100 From 2005-2008, intend to paydown $600-700M of parent company debt Will align parent company's ability to service debt with und
Slide 23: Cash Available for Redeployment after Debt Reduction
Cash Available for Redeployment after Debt Reduction Cash Available for Redeployment ($ millions) $450-500 Cash Available for Redeployment Parent Debt Retirement Target Cash Available for Investment or Stock Buyback $200 $250-300 $1,650 Cash Available for Redeployment Parent Debt Retirement Target C
Slide 24: Power and Industrial Projects
Power and Industrial Projects Total Cumulative 2005-2008 Capital ($ millions) $300 - 450 $600 - 900 Range of Expected Investment Returns* 10-20% * After-tax return on DTE Energy capital Fuel Transportation and Marketing $50 - 100 10-15% Coal transportation and marketing Gas pipelines and storage Ene
Slide 25: 2005 Investment Opportunity Update - Power and Industrial Projects
2005 Investment Opportunity Update - Power and Industrial Projects On-site energy projects Looking at 6 site transaction for auto manufacturer, similar to 2004 DaimlerChrysler transaction In negotiations on 2 projects in pulp and paper industry Constructing facility in Vicksburg, MS, to supply multi
Slide 26: 2005 Investment Opportunity Update - Fuel Transportation and Marketing
2005 Investment Opportunity Update - Fuel Transportation and Marketing Coal transportation and marketing Strength of eastern coal prices is allowing coal delivery business to increase sales of lower cost western coal Gas pipelines and storage Playing an active role in developing the Millennium pipel
Slide 27: 2005 Investment Opportunity Update - Unconventional Gas Production
2005 Investment Opportunity Update - Unconventional Gas Production Landfill gas The landfill gas industry is currently in consolidation mode, and DTE is well positioned to be an acquirer Could close 1-2 transactions of $10-25M each in this segment in 2005 Currently in start-up mode on recent acquisi
Slide 28: DTE Energy Has Established a Position in the Barnett Shale
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Building on Our Unconventional Gas Expertise, DTE Energy Has Established a Position in the Barnett Shale The Barnett Shale has become a leading unconventional gas field in North America over the last 5 years Largest gas field in Texas w
Slide 29: Our Barnett Position Could Represent a Significant Growth Opportunity
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Our Barnett Position Could Represent a Significant Growth Opportunity DTE Energy has leased more than 50,000 net acres in the Barnett Continue to add to this position Most of DTE's acreage is located in the southern portion of the expan
Slide 30: Share Repurchase as an Option for Cash Redeployment
Share Repurchase as an Option for Cash Redeployment From a shareholder value perspective, successful redeployment into strong investment opportunities would yield the best long-term results We have committed to return value to shareholders in a timely manner Therefore we will engage in share repurch
Slide 31: Summary
Summary Throughout 2005, progress on our Rate Restructuring Proposal will be a major priority As events merit during the year, we are committed to providing updates regarding our cash redeployment strategy In late July we will provide a comprehensive business review in New York January December Rate
Slide 32: Appendix
Appendix 2004 Results 2005 Guidance Balance Sheet Regulatory
Slide 33: 2004 Results Operating Earnings
2004 Results Operating Earnings Operating Earnings (after tax)* ($ millions) * Reconciliation to GAAP reported earnings included in the appendix
Slide 34: 2004 Results Cash Flow
2004 Results Cash Flow ($ millions) * Accounted for as 'investing activity' on statement of cash flows 2003 Actual 2004 Actual
Slide 35: 2004 Results Capital Expenditures
2004 Results 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 36: 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
Slide 37: 2005 Guidance Assumptions
2005 Guidance Assumptions Detroit Edison Service territory sales growth of 3% over 2004 Customer Choice volumes remain at 2004 levels Recognition of stranded cost regulatory asset to account for rate caps Requested capitalization treatment of SAP implementation investment MichCon $80M of final rate
Slide 38: 2005 Guidance Operating Earnings
2005 Guidance Operating Earnings Operating Earnings* ($ millions) * Reconciliation to GAAP reported earnings included in the appendix
Slide 39: 2005 Guidance Return on Equity
2005 Guidance Return on Equity 1997 1998 1999 2000 2001 2002 2003 2004 2005E Detroit Edison ROE 11.6 11.6 12.2 11.6 11.5 14.1 9.5 6 9 1 Detroit Edison Return on Equity* 11.6% 12.2% 11.6% 11.5% 14.1% 6.0% 9.5% 9-10% 1997 1998 1999 2000 2001 2002 2003 2004 2005E Detroit Edison ROE 10 12.2 15.4 14.9 3.
Slide 40: 2005 Guidance Regulated Electric - Detroit Edison
2003 2004 2005 Regulated Electric 261 178 270 20 2005 Guidance Detroit Edison Significant improvement over 2004 due to rate relief, but ROE is expected to be 1-2% below its allowed rate of return of 11% due to rate caps Expected incremental base rate increase of $146M Pension tracker implemented Wea
Slide 41: 2005 Guidance Detroit Edison - Regulatory Impacts
2004 2005 Non-Regulated 32 178 128 67 2005 Guidance Detroit Edison - Regulatory Impacts 2004 Estimate $128 $178 Rate Relief and Regulatory Deferrals Pre-Tax ($ millions) Estimated net rate relief (net of PSCR reductions) grows to $178M in 2005 Regulatory deferrals are reduced in 2005 as the rate cap
Slide 42: 2005 Guidance MichCon
2005 Guidance MichCon 2003 2004 2005 Regulated Gas 46 24 75 10 $46 $24 2003 2004 $75-85 5.6% ROE 2.8% 9-10% MichCon Operating Earnings* ($ millions) Rate relief in Q1 provides uplift in 2005 Uncollectable tracking mechanism in effect Weather normal sales planning Improved gas margins 2005 Guidance *
Slide 43: 2005 Guidance Synfuel
2005 Guidance Synfuel 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 $215-225 2004 2005E
Slide 44: Synfuel Portfolio
Synfuel Portfolio Ownership Interest as of 12/31/2004 Manufacturer Yearly Production Capacity (000 tons) Sold Facilities Belews Creek 1% EarthCo 2,960 Buckeye (2) 1% EarthCo 5,920 Clover 5% EarthCo 2,640 Smith Branch 1% EarthCo 2,750 Retained Facilities Indy Coke 1% EarthCo 2,640 Red Mountain 1% Cov
Slide 45: 2005 Guidance Cash Flow
2005 Guidance Cash Flow ($ millions) * Accounted for as 'investing activity' on statement of cash flows 2004 Actual 2005 Guidance
Slide 46: 2005 Guidance Capital Expenditures
2005 Guidance 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 $1,020-1,070 DTE Energy Capital Expenditur
Slide 47: 2005 Guidance Cash Available for Redeployment
2005 Guidance Cash Available for Redeployment DTE Energy Cash Available for Redeployment ($ millions)
Slide 48: 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 49: Balance Sheet Leverage Target
Balance Sheet Leverage Target * Excludes securitization debt, MichCon short-term debt and quasi-equity instruments 2003A 2004A 2005E 2006E Non-Regulated 49 48 47 45 1 2 49% 48% 47-48% 45-47% DTE Energy Leverage* Leverage has remained strong in recent years Leverage is expected to continue to decline
Slide 50: Funds From Operation/Debt Target
2003A 2004A 2005E 2006E Non-Regulated 15 21 23 27 2 2 Balance Sheet Funds From Operation/Debt Target * Excludes securitization debt, MichCon short-term debt and quasi-equity instruments 21% 23-25% 27-29% Funds From Operation/Debt* 15% Leverage has remained strong in recent years and is expected to b
Slide 51: Balance Sheet Dividend
Balance Sheet Dividend We are currently paying a dividend of $2.06 per share per year with a current yield of over 4.5% Regarding our cash redeployment strategy, we are not planning a dividend increase in the near-term Potential future dividend increase will be based on underlying long-term cash flo
Slide 52: Balance Sheet Leverage Calculation
Balance Sheet Leverage Calculation
Slide 53: Regulatory Proposed Unbundled Rates and Rate Subsidies
Regulatory Proposed Unbundled Rates and Rate Subsidies
Slide 54: Regulatory Potential Shifts in Revenues Due to Rate Restructuring
Regulatory Potential Shifts in Revenues Due to Rate Restructuring
DTE Energy — Morgan Stanley 12th Annual Global Electricity & Energy Conference 2005 on 6ix