Slide 1: DTE Energy Q1 2005 Conference Call
DTE Energy Q1 2005 Conference Call April 28, 2005
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 of Regulatory Affairs Dina McClung Director of Investor Relations
Slide 4: Overview
Overview Overall operating earnings were flat on a year-over-year basis. Key drivers were: Benefit of Detroit Edison rate relief Deferral of CoEnergy storage earnings to the next storage cycle Deferral of some synfuel net income offset by mark-to-market gains from oil options Cash flow was higher th
Slide 5: Q1 Earnings Results and 2005 Guidance
Q1 Earnings Results and 2005 Guidance Q1 Cash Flow Results and 2005 Guidance 2005 Update 2005 Opportunities
Slide 6: Q1 2005 - Operating Performance Business Unit View
Q1 2005 - Operating Performance Business Unit View Power Generation Energy Services Coal Services Biomass Energy Trading & Co-Energy Portfolio Energy Resources Power Distribution DTE Energy Technologies Energy Distribution Gas Distribution Non Utility Energy Gas Energy Gas Holding Company Energy Tec
Slide 7: DTE Energy Earnings Summary
DTE Energy Earnings Summary Operating Earnings per Share* * Reconciliation to GAAP reported earnings included in the appendix 2004 Electric Utility Gas Utility Non-Utility Holding Company 2005 0.9 0.87 0.87 0.89 0.1 0.13 0.02 0 Non Ute 0.27 0.3 Gas Ute 0.41 0.28 Electric Ute 0.22 0.32 -0.03 -0.05 ho
Slide 8: Electric Utility Q1 2004 vs. Q1 2005 Variance
Electric Utility Q1 2004 vs. Q1 2005 Variance Incremental rate relief and further expiration of rate caps Soft economy (lower on-system sales backfilled with choice migration) Choice volumes down but margins flat due to unfavorable sales mix Other margin and power supply changes Lower regulatory def
Slide 9: Detroit Edison Electric Choice Volumes
Q1 Q2 Q3 Q4 Q1 Commercial Secondary 583 738 948 874 748 Commercial Primary / Industrial 1559 1742 1706 1689 1166 Detroit Edison Electric Choice Volumes GWh Q1 Q2 Q3 Q4 Choice volumes are down 228 GWh from Q1 2004 levels However, the margin impact was flat as lower overall volumes have been offset by
Slide 10: Gas Utility Q1 2004 vs. Q1 2005 Variance
2004 Rate Relief Gas Margins Uncollectibles Pension/Health Care ETR Other 2005 72 72 75 72 67 55 51 51 8 5 3 5 12 4 Gas Utility Q1 2004 vs. Q1 2005 Variance Incremental interim rate relief received in 2004 Gas margins lower due to lower industrial margins and Q1 billing adjustment, partially offset
Slide 11: Non-Utility Q1 2004 vs. Q1 2005 Variance
Q1 2004 Net Synfuel Gas Midstream Coke Trading/CTC Other Q1 2005 45 45 69 74 50 48 51 24 5 7 26 5 5 Non-Utility Q1 2004 vs. Q1 2005 Variance Increased synfuel contribution: Higher production (3.0M vs. 4.9M tons) resulting in $19M of incremental net income Revenue deferred due to oil prices volatilit
Slide 12: Q1 2005 DTE Energy Underlying Operating Earnings
Q1 2005 DTE Energy Underlying Operating Earnings Adjusting for timing related accounting items yields a better understand of the true earnings power of Q1 2005 Positive $32M mark-to-market for 2005 oil options. Synfuel revenue deferred for recognition is $27M Mark-to-market accounting timing at CoEn
Slide 13: Remainder of 2005 Is on Track
Remainder of 2005 Is on Track Detroit Edison's year-over-year performance should improve for the remainder of 2005 Higher margins driven by weather normal sales volumes coupled with the reinstatement of the PSCR Full year rate relief Impact of lower choice levels MichCon's Q1 performance relates pri
Slide 14: DTE Energy 2005 Operating Earnings Guidance
DTE Energy 2005 Operating Earnings 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 Co. $580-635 $270-290 $75-85 $3
Slide 15: Q1 Cash Flow Results and 2005 Guidance
Q1 Earnings Results and 2005 Guidance Q1 Cash Flow Results and 2005 Guidance 2005 Update 2005 Opportunities
Slide 16: Q1 Cash Flow
Q1 Cash Flow ($ millions) * Accounted for as 'investing activity' on statement of cash flows Q1 2004 Q1 2005 Adjusted cash from operations reached $476M in the first quarter, up over 50% from 2004 Synfuel production payments was $63M in the quarter, up $37M from the prior year Stronger cash from ope
Slide 17: The Balance Sheet Remains Strong
The Balance Sheet Remains Strong * Leverage ratios exclude securitization debt, MichCon short-term debt and quasi-equity instruments, calculation included in the appendix ** $1,875M total credit lines less $150M outstanding letters of credit Q1 2004 Q1 2005 49 52 3 Leverage* at 3/31 52% 49% 2003 200
Slide 18: Q1 Capital Expenditures
Q1 Capital Expenditures Q1 2004 Detroit Edison Operation $129 - - 5 6 MichCon 15 Non-Utility Corporate 6 Total $179 ($ millions) 9 9 Environmental - - SAP Implementation - - Maintenance - - Growth - - Q1 2005 $118 3 23 20 9 $205 15 17 Most of the increase due to the ramp-up in spending for implement
Slide 19: 2005 Guidance Cash Flow
2005 Guidance 2005 Cash Flow ($ millions) * Accounted for as 'investing activity' on statement of cash flows 2004 Actuals ** Excludes potential growth capital
Slide 20: 2005 Capital Expenditures
2004 Actual 2005 Capital Expenditures Detroit Edison Operation $546 - - 22 77 MichCon 113 Non-Utility Corporate 57 Total $940 ($ millions) 45 80 Environmental - - SAP Implementation - - Maintenance - - Growth* - - 2005 Guidance $540-560 100 130-135 110-115 65-75 $1,020-1,070 75-85 - - * 2005 growth
Slide 21: 2005 Update
Q1 Earnings Results and 2005 Guidance Q1 Cash Flow Results and 2005 Guidance 2005 Update 2005 Opportunities
Slide 22: Synfuel Earnings Background
Synfuel Earnings Background Quarterly earnings from synfuels primarily come from two sources: Quarterly payments received from partners in our projects as tax credits are allocated to them These payments are subject to gain recognition accounting Mark-to-market gains/losses from the oil options we p
Slide 23: Recognition of Synfuel Earnings: Payments Received from Buyers
Recognition of Synfuel Earnings: Payments Received from Buyers Accounting principles for gain recognition of our synfuel sales proceeds are very conservative Sale proceeds cannot be recognized until there is evidence they have become determinable and collectability has been reasonably assured Due to
Slide 24: Recognition of 2005 Synfuel Earnings
Recognition of 2005 Synfuel Earnings * Assumes average oil price for the calendar year remains below the phase-out threshold ($ millions, after-tax)
Slide 25: 2005 & 2006 Synfuel Cash Flow Is Significantly Protected
2005 & 2006 Synfuel Cash Flow Is Significantly Protected 2004 2005 420 99 2005 Expected Synfuel Cash $420 ($ millions) Protected Cash Flow $295-315 2004 2005 490 99 2006 Expected Synfuel Cash $490 Protected Cash Flow $270 Note: Additional details in appendix 70-75% of 2005 Expected Synfuel Cash 55%
Slide 26: CoEnergy Storage Optimization
CoEnergy Storage Optimization DTE Energy holds 55 Bcf of non-utility storage, 30 Bcf is contracted and 25 Bcf is optimized by CoEnergy by buying gas in the summer and simultaneously selling it forward for delivery Economic profit is locked in at the time of the transaction Inventory is accounted for
Slide 27: Margin Storage Cycle Illustration
Margin Storage Cycle Illustration 1/1/2005 2/1/2005 3/1/2005 4/1/2005 5/1/2005 6/1/2005 7/1/2005 8/1/2005 9/1/2005 10/1/2005 11/1/2005 12/1/2005 3/31/2005 6.178 6.378 6.457 7.542 7.866 7.918 7.998 8.028 8.043 8.088 8.364 8.692 9/30/2004 6.712 6.852 6.757 6.195 6.058 6.069 6.101 6.118 6.11 6.153 6.35
Slide 28: 2005 Opportunities
Q1 Earnings Results and 2005 Guidance Q1 Cash Flow Results and 2005 Guidance 2005 Update 2005 Opportunities
Slide 29: Progress Continues on the Regulatory Front
Progress Continues on the Regulatory Front Rate Restructuring Proposal Stranded Cost/PSCR Reconciliation Other Post Employment Benefits Tracker June 9, Staff and Intervenor Testimony October 27, ALJ Proposal for Decision (tent.) By Year-End, Anticipated Final Order (U-14399) (U-14474) (U-14428) July
Slide 30: Management Changes
Management Changes Paul Hillegonds Senior Vice President, Corporate Affairs Chris Brown Executive Vice President, Energy Resources & Vice President, DTE Energy Steve Mabry President DTE Energy Trading Jeff Jewell Chief Risk Officer Arrivals Departures S. Martin Taylor - Retiring Executive Vice Presi
Slide 31: Projected Cash Available for Redeployment
Projected Cash Available for Redeployment ($ millions) $450-500 Cash Available for Redeployment Parent Debt Retirement Target Cash Available for Investment or Stock Buyback $200 $250-300 2005 Projected Cash Available $1,650 Cash Available for Redeployment Parent Debt Retirement Target Cash Available
Slide 32: Progress Continues on Our Investment Opportunities
Progress Continues on Our Investment Opportunities On-site energy projects Looking at 6 site transaction for auto manufacturer In negotiations on 2 projects in pulp and paper industry Constructing facility to supply pulp and paper mills with petroleum coke Steel-related projects In discussions on se
Slide 33: Summary
Summary We continue to expect significant earnings and cash flow growth in 2005 Our improved credit outlook from Moody's is indicative of our overall balance sheet strength Progress continues on the regulatory front As part of our cash redeployment strategy, we are pursuing numerous investment oppor
Slide 34: Appendix
Appendix DTE Energy’
Slide 35: Non-Utility Q1 2004 vs. Q1 2005 Variance
Non-Utility Q1 2004 vs. Q1 2005 Variance Operating Earnings (after tax)* ($ millions) * Reconciliation to GAAP reported earnings included in the appendix
Slide 36: 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 37: Reconciliation of Q1 Reported Earnings to Operating Earnings
Reconciliation of Q1 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 performanc
Slide 38: 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 39: Leverage Calculation
Leverage Calculation * Leverage would have been ~52%, if QUIDS were treated as debt
Slide 40: Synfuel Forecast
Synfuel Forecast 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 41: Synfuel Facilities Ownership and Production
Belews Creek Buckeye (2 facilities) Clover Smith Branch Indy Coke Red Mountain River Hill Utah Estimated Ownership Recently Annual Interest as of Determination Completed Production 3/31/2005 _-Manfacturer Letter Audit (000 tons) 1% EarthCo Yes No 3,080 1% EarthCo Yes No 6,080 5% EarthCo Yes Yes 2,64
Slide 42: Recognition of Synfuel Earnings Payments Received from Buyers (Cont.)
Recognition of Synfuel Earnings Payments Received from Buyers (Cont.) Synfuel sale proceeds are received from our partners on a quarterly basis, and are comprised of two parts: Fixed Note Payments of principal and interest, which are not tied to tax credits generated Earnings from these payments are
Slide 43: Recognition of 2005 Synfuel Earnings: Payments Received from Buyers
Q1 Q2 Q3 Q4 Fixed 25 25 25 25 Variable 0 0 108 36 Recognition of 2005 Synfuel Earnings: Payments Received from Buyers Q1 Q2 Q3 Q4 Fixed 25 25 25 25 Variable 36 36 36 36 No Recognition Issues Payments Received, but Remote Probability of Phase-Out Until Q3 Fixed Note Payment Variable Note Payment ILLU
Slide 44: Synfuel Cash Flow Update
Synfuel Cash Flow Update 2005 Approximately 70-75% of the $420M in synfuel cash flow is protected through a combination of the following: use of prior year tax credits, cash payments received to date, and the purchase of option contracts* We spent $17M after-tax in option premiums; $7M impacted 2004
Slide 45: Implications of Changes in Average Price of Oil
Implications of Changes in Average Price of Oil 2005 NYMEX Average Price (through 4/26/05) Synfuel tax credits start to phase out when the average annual NYMEX oil price is ~$58 /bbl (for '05); total phase out occurs at an average annual price ~$71 /bbl Oil prices would need to average above ~$61 /b
Slide 46: Detroit Edison Rate Restructuring Proposal
Detroit Edison Rate Restructuring Proposal Intention is to eliminate subsidies that have historically existed in Detroit Edison's rates and eliminate artificial price signals The Rate Restructuring proposal would: Unbundle rates into power supply and distribution components Establish rates based on
Slide 47: Our Potential Investments Will Focus in Three Key Areas
Power and Industrial Projects Unconventional Gas Production Fuel Transportation and Marketing Cumulative 2005-2008 Capital ($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 48: Diversification in Michigan's Economy
Industrial Services Other East 40 58 2 Diversification in Michigan's Economy 1980 2006 Est. Michigan Gross State Product by Sector Source: U.S. Department of Commerce, Bureau of Economic Analysis, "Regional Economic Accounts" Industrial Services Other 54 44 2 Industrial 54% Services 44% Other 2% Ind
Slide 49: Automotive Production Data
Automotive Production Data Thousands of Vehicles Produced The automobile sector accounts for ~14% of Detroit Edison's sales and ~10% of revenue Within Detroit Edison's service territory, the Big 3 automakers generally produce more popular and higher margin vehicles Over the past 15 years, area auto