Slide 1: Q3 2005 Earnings
Q3 2005 Earnings November 3, 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 Mike McNalley Director of Investor Relations
Slide 4: Overview
Overview The underlying operating performance of the company showed significant year-over-year improvement This improvement was largely driven by strong results at both Detroit Edison and MichCon However, two timing-related accounting items*, each resulting from increased energy commodity prices, co
Slide 5: Q3 2005 Financial Results
Q3 2005 Financial Results Operating Earnings Synfuel & Oil Prices Timing-Related Accounting Impacts Cash Flow and Capital Expenditures 2005 Guidance Summary & EEI Preview
Slide 6: Q3 2005 Operating Earnings
Q3 2005 Operating Earnings Operating Earnings per Share* Detroit Edison $0.55 Power and Industrial Projects $0.27 Unconventional Gas Production $0.01 Non-Utility Portfolio ($0.45) Fuel Transportation and Marketing ($0.73) Corporate & Other $0.02 MichCon ($0.09) * Reconciliation to GAAP reported earn
Slide 7: Excluding Timing-Related Items, Q3 Operating Earnings Improved
Excluding Timing-Related Items, Q3 Operating Earnings Improved Q3 2004 Operating Earnings Impacts Detroit Edison MichCon Non-Utility Excluding Timing-Related Items Corporate & Other Q3 2005 Operating Earnings Before Timing-Related Items Deferred Recognition of Synfuel Revenue Mark-to-Market Gain of
Slide 8: Detroit Edison Results - Q3 2004 vs. Q3 2005
Lower regulatory deferrals primarily driven by the final rate order Higher gross margins driven by weather and net rate order impacts More frequent storms driving increased expense Merger interest expense no longer being allocated from the holding company Detroit Edison Results - Q3 2004 vs. Q3 2005
Slide 9: Detroit Edison Q3 2005 Gross Margin Analysis
Detroit Edison Q3 2005 Gross Margin Analysis Weather Rate Relief Economy Choice Total Electric Margin Improvement 66 84 99 66 18 15 12 111 69 42 69 Detroit Edison Gross Margin Variance Q3 2005 vs. Q3 2004 ($ millions, after-tax) Rate Order Margin Improvement Before Residential Rate Cap Impact Weathe
Slide 10: MichCon Results - Q3 2004 vs. Q3 2005
Impact of final rate order Increased gas margins, due to higher storage revenue Merger interest expense no longer being allocated from the holding company Seasonal nature of this business, Q3 typically results in an operating loss 2004 Rate Relief Gas Margins Merger Interest Other 2005 -31 -26 -23 -
Slide 11: Excluding Timing-Related Items, Non-Utility Performance Remains Strong
Excluding Timing-Related Items, Non- Utility Performance Remains Strong Accounting losses resulting from the impact of increasing natural gas and electricity prices on energy contracts with different accounting treatment applied to each side of the contract - one side at cost/accrual, the other at m
Slide 12: Non-Utility Operating Earnings Variance
Non-Utility Operating Earnings Variance* ($ millions) Non-Utility Portfolio Q3 2004 vs. Q3 2005 Variance Higher year-over-year synfuel production, 5.6M tons in 2005 vs. 4.4M tons in 2004 Unconventional Gas production up slightly due to Barnett Shale activity Timing-related accounting items had an im
Slide 13: Q3 2005 Earnings Summary
Q3 2005 Earnings Summary Electric Utility earnings up due to the impacts of much warmer weather and incremental benefits of the November 2004 rate increase Gas Utility earnings improved due to the benefits of the April 2005 rate increases Base non-utility earnings increased on higher synfuel product
Slide 14: Q3 2005 Financial Results
Q3 2005 Financial Results Operating Earnings Synfuel & Oil Prices Timing-Related Accounting Impacts Cash Flow and Capital Expenditures 2005 Guidance Summary & EEI Preview
Slide 15: Synfuel Revenue Recognition
Synfuel Revenue Recognition As was the case in the first and second quarters, we deferred recognition of the portion of synfuel earnings tied to the variable payments from facilities we have sold We believe that the likelihood for any phase-out in 2005 is low, but still unable to be predicted with c
Slide 16: Recognition of 2005 Synfuel Earnings
($ millions, after-tax) NOTE: Assumes average oil price for the calendar year remains below the phase-out threshold Recognition of 2005 Synfuel Earnings
Slide 17: Q3 2005 Financial Results
Q3 2005 Financial Results Operating Earnings Synfuel & Oil Prices Timing-Related Accounting Impacts Cash Flow and Capital Expenditures 2005 Guidance Summary & EEI Preview
Slide 18: Timing-Related Accounting Losses Impacted Fuel Transportation & Marketing Results
Timing-Related Accounting Losses Impacted Fuel Transportation & Marketing Results Forward contracts are used to economically hedge certain physical and capacity contracts Current accounting practice, as required by FAS 133, creates a recognition misalignment between the two sides of these transactio
Slide 19: Flowback of Timing-Related Accounting Impacts of Energy Trading Contracts
Flowback of Timing-Related Accounting Impacts of Energy Trading Contracts While Q3 was impacted by timing- related accounting losses attributable to higher energy prices, we expect to ultimately realize offsetting positive earnings as we settle the transactions We expect to see a majority of the flo
Slide 20: Continued Value Creation Expected at Energy Trading
Continued Value Creation Expected at Energy Trading 2002 2003 2004 2005 2006 2007 35 28 44 -32.5 60 25 20 20 2002A 2003A 2004A 2005E* 2006E* 2007E* $35 $28 $44** ($30-35) Energy Trading Operating Earnings ($ millions) * Assumes market prices remain constant and no new activity Expected flowback of y
Slide 21: Q3 2005 Financial Results
Q3 2005 Financial Results Operating Earnings Synfuel & Oil Prices Timing-Related Accounting Impacts Cash Flow and Capital Expenditures 2005 Guidance Summary & EEI Preview
Slide 22: Year-to-Date Cash Flow
YTD 9/30/2005 Year-to-Date Cash Flow ($ millions) * Accounted for as 'investing activity' on statement of cash flows YTD 9/30/2004 Through Q3, DTE Energy's cash flow has improved from last year Adjusted cash from operations is up 14%, or over $100M from the same period last year Including capital ex
Slide 23: Year-to-Date Capital Expenditures
YTD 9/30/2005 Year-to-Date Capital Expenditures ($ millions) Capital spending is up slightly from last year, primarily at the non-utility business Total capital reached $709M though September, up $66M from prior year The largest spending increases were in non-utility businesses ($55M) and the full r
Slide 24: We Remain Committed to a Strong Balance Sheet
We Remain Committed to a Strong Balance Sheet We continue to maintain a strong balance sheet On track to reduce parent company debt in 2005 by $200M Solid liquidity position Successful 5 year renewal of $1.9 billion of revolving credit agreements $1.0B current excess liquidity Refinanced approximate
Slide 25: Q3 2005 Financial Results
Q3 2005 Financial Results Operating Earnings Synfuel & Oil Prices Timing-Related Accounting Impacts Cash Flow and Capital Expenditures 2005 Guidance Summary & EEI Preview
Slide 26: 2005 Operating Earnings Guidance
2005 Operating Earnings Guidance 2004 2005 2005 2005 Non-Regulated 241 315 315 265 Regulated Gas 23 70 70 70 Regulated Electric 178 290 297.5 297.5 Holding Company -15 -65 -65 -65 Detroit Edison MichCon Non-Utility EPS Corporate & Other $580-635 2005 Previous Guidance Operating Earnings ($ millions)
Slide 27: 2005 Non-Utility Earnings Guidance
2005 Non-Utility Earnings Guidance Non-Utility Operating Earnings ($ millions) Guidance remains the same for all non-utility businesses, except trading which is revised downward to reflect the accounting timing- related accounting impact Trading and marketing guidance subject to Q4 mark-to-market ad
Slide 28: 2006 Earnings Drivers and Assumptions
2006 Earnings Drivers and Assumptions Detroit Edison and MichCon have the foundation to earn 11% ROE Significant step up in cost reductions Continued non-utility growth in each segment Expected flowback of most 2005 timing-related accounting losses 100% of synfuel earnings recognized Targeting to pr
Slide 29: Q3 2005 Financial Results
Q3 2005 Financial Results Operating Earnings Synfuel & Oil Prices Timing-Related Accounting Impacts Cash Flow and Capital Expenditures 2005 Guidance Summary & EEI Preview
Slide 30: Summary
Summary Year-over-year utility earnings have significantly improved Underlying earnings improvement impacted by timing-related accounting items Cash flow and balance sheet metrics remain on track 2005 earnings guidance of $3.10-$3.30
Slide 31: EEI Presentation Preview
EEI Presentation Preview On Tuesday, Nov. 8, Gerry Anderson will present at the EEI Conference in Hollywood, FL The presentation will begin at 10:30 a.m. EST and will be webcast at www.dteenergy.com\investors The presentation will provide a discussion of: Our accelerated cost reduction program Poten
Slide 32: Appendix
Appendix DTE Energy
Slide 33: 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 34: 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 35: 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 36: 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 37: Oil Price / Synfuel Key Statistics
Oil Price / Synfuel Key Statistics Estimated Phase Out Bands Current Avg Price Lower Band Upper Band 57.15 58.5 72 Current Avg Price Lower Band Upper Band 59.25 62 73 Upper Band 60 61 74 Avg. Price Actual & Forward* Lower Band Upper Band $57.15 $58.50 $72.00 Avg. Forward Price Lower Band Upper Band
Slide 38: Natural Gas Prices
1st Qtr 12/27/2004 6.16 12/28/2004 6.213 12/29/2004 6.402 12/30/2004 6.149 1/3/2005 5.79 1/4/2005 5.902 1/5/2005 5.833 1/6/2005 6.049 1/7/2005 6.001 1/10/2005 6.159 1/11/2005 6.095 1/12/2005 5.943 1/13/2005 6.445 1/14/2005 6.395 1/18/2005 6.137 1/19/2005 6.293 1/20/2005 6.308 1/21/2005 6.24 1/24/200
Slide 39: Rising Electricity Prices
Rising Electricity Prices 1st Qtr 12/29/2004 29.31 12/30/2004 31.47 1/3/2005 33.21 1/4/2005 33.14 1/5/2005 38.87 1/6/2005 44.92 1/7/2005 34.99 1/10/2005 37.36 1/11/2005 40.32 1/12/2005 41.23 1/13/2005 50.82 1/14/2005 65.22 1/18/2005 67.71 1/19/2005 54.49 1/20/2005 57.01 1/21/2005 54.11 1/24/2005 52.
Slide 40: 2005 Cash Flow & Capital Expenditures
2005 Cash Flow & Capital Expenditures ($ millions) * Accounted for as 'investing activity' on statement of cash flows ** Excludes potential growth capital 2005 Guidance Cash Flow Detroit Edison Operation - - MichCon Non-Utility Corporate Total ($ millions) Environmental - - SAP Implementation - - Ma
Slide 41: Map of Old Segments to New Segments - Non-Utility
Map of Old Segments to New Segments - Non-Utility Synfuels Coke Batteries On-Site Energy Projects Power Generation Coal Services Biomass Energy Trading Energy Resources Overhead Upstream & Midstream Gas Waste Coal Recovery Coal Transportation Power & Industrial Overhead Fuel Transport Overhead Pipel
Slide 42: 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 43: Recent Regulatory Actions
Recent Regulatory Actions Proposal for Decision for Detroit Edison's Rate Restructuring Case On October 21, the Administrative Law Judge issued a Proposal for Decision (PFD) Generally, the PFD was supportive of Detroit Edison's proposal, including a five-year phase out of rate subsidies and uniform
Slide 44: Reconciliation of Q3 2005 Reported Earnings to Operating Earnings
Reconciliation of Q3 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 perfo
Slide 45: Reconciliation of Q3 2004 Reported Earnings to Operating Earnings
Reconciliation of Q3 2004 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 perfo
Slide 46: Reconciliation of Year-to-Date Reported Earnings to Operating Earnings
Reconciliation of Year-to-Date 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
Slide 47: Reconciliation of 2004 Reported Earnings to Operating Earnings
Reconciliation of 2004 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 performa
Slide 48: 2004 Reconciliation of Previously Stated Operating Earnings
2004 Reconciliation of Previously Stated Operating Earnings For comparability, we have adjusted prior period operating earnings to reflect a number of items including removing the effective tax rate adjustment from all of the company's business segments ($ millions)
Slide 49: 2005 Reconciliation of Previously Stated Operating Earnings
2005 Reconciliation of Previously Stated Operating Earnings For comparability, we have adjusted prior period operating earnings to reflect a number of items including removing the effective tax rate adjustment from all of the company's business segments ($ millions)
Slide 50: Reconciliation of Energy Trading Operating Earnings
Reconciliation of Energy Trading Operating Earnings 50 ($ millions)