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DTE_4Q07_earnings DTE_4Q07_earnings Presentation Transcript

  • Business and Financial Update February 22, 2008
  • 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 “anticipate,” “believe,” “expect,” “projected” and “goals” signify forward-looking statements. Forward-looking statements are not guarantees of future results and conditions but rather are subject to various assumptions, risks and uncertainties. This presentation contains forward-looking statements about DTE Energy’s financial results and estimates of future prospects, and actual results may differ materially. Factors that may impact forward-looking statements include, but are not limited to: the higher price of oil and its impact on the value of production tax credits, or the potential requirement to refund proceeds received from synfuel partners; the uncertainties of successful exploration of gas shale resources and inability to estimate gas reserves with certainty; the effects of weather and other natural phenomena on operations and sales to customers, and purchases from suppliers; economic climate and population growth or decline in the geographic areas where we do business; environmental issues, laws and regulations, and the cost of remediation and compliance, including potential new federal and state requirements that could include carbon and more stringent mercury emission controls, a renewable portfolio standard and energy efficiency mandates; nuclear regulations and operations associated with nuclear facilities; impact of electric and gas utility restructuring in Michigan, including legislative amendments and Customer Choice programs; employee relations, and the impact of collective bargaining agreements; unplanned outages; access to capital markets and capital market conditions and the results of other financing efforts which can be affected by credit agency ratings; the timing and extent of changes in interest rates; the level of borrowings; changes in the cost and availability of coal and other raw materials, purchased power and natural gas; effects of competition; impact of regulation by the FERC, MPSC, NRC and other applicable governmental proceedings and regulations, including any associated impact on rate structures; contributions to earnings by non-utility subsidiaries; changes in and application of federal, state and local tax laws and their interpretations, including the Internal Revenue Code, regulations, rulings, court proceedings and audits; the ability to recover costs through rate increases; the availability, cost, coverage and terms of insurance; the cost of protecting assets against, or damage due to, terrorism; changes in and application of accounting standards and financial reporting regulations; changes in federal or state laws and their interpretation with respect to regulation, energy policy and other business issues; amounts of uncollectible accounts receivable; binding arbitration, litigation and related appeals; changes in the economic and financial viability of our suppliers, customers and trading counterparties, and the continued ability of such parties to perform their obligations to the Company; timing, terms and proceeds from any asset sale or monetization; and implementation of new processes and new core information systems. This presentation should also be read in conjunction with the “Forward-Looking Statements” section in each of DTE Energy’s, MichCon’s and Detroit Edison’s 2006 Form 10-K and 2007 Forms 10-Q (which sections are incorporated herein by reference), and in conjunction with other SEC reports filed by DTE Energy and Detroit Edison. Cautionary Note – The Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We use certain terms in this presentation such as quot;probable reservesquot; that the SEC's guidelines strictly prohibit us from including in filings with the SEC. You are urged to consider closely the disclosure in our Forms 10-K and 10-Q, 2 File No. 1-11607, available from our offices or from our website at www.dteenergy.com. You can also obtain these Forms from the SEC by calling 1-800-SEC-0330.
  • Participants • Dave Meador, Executive Vice President and CFO • Peter Oleksiak, VP and Controller • Nick Khouri, VP and Treasurer • Lisa Muschong, Director of Investor Relations 3
  • • Business Update • 2007 Earnings Results • 2008 Guidance • Cash Flow and Capital Expenditures • Summary 4
  • DTE Energy Is an Attractive Investment Strong utility growth outlook – 5-6% annual long-term earnings growth – Well-run utilities – Increasingly constructive regulatory environment – Growth upside from renewable generation Proven track record of non-utility value creation 2008 catalysts ~ 5% dividend yield 5
  • 2008 Catalysts Updated Detroit Edison rate filing on Feb. 20; MPSC Staff testimony expected in second quarter Comprehensive energy legislation in Michigan – Some pieces of legislation have been approved by the House Energy committee; awaiting action by the full House Complete significant utility capital investments to grow rate base Complete Power & Industrial Projects deal and remaining $275M stock buyback Millennium Pipeline expected in service in November 6
  • Detroit Edison Rate Case Updated to Include 2009 Capital Projects • Updated Detroit Edison’s rate case this week Financial Impact to reflect 2009 as the projected test year for • 2008 Impact setting rates (versus 2008) – Expiration of the $79M show – Adding 2009 capital projects results in an cause rate reduction in April incremental $85M rate request provides interim relief – Expiration of Choice tracker – 2009 early operating earnings outlook of $390- combined with Choice decline $410M includes impacts of update decreases need for near-term relief by $20M – Targeting 11% ROE at Detroit • Key factors for decision to update case: Edison in 2008 – Updating the test year avoids setting 2009 • 2009 Impact effective rates based on 2008 economics – Rate increases from the case – Now includes substantial environmental capital should be in effect for all or going into service in 2009 most of 2009 – Targeting 11% ROE at Detroit – Should require only a short extension to the Edison in 2009 current rate case schedule 7
  • Components of Detroit Edison’s Rate Request Detroit Edison’s Estimated Revenue Deficiency ($ millions) ($120) $130 Revenue $14 $284 Deficiency ($60) $60 $290 ($30) 2006 Capital O&M PEP Cost Net Revenue / Merger Net Other 2009 Request Normalized Savings Fuel & Control (Incl. Benefits Purchased Premium & Taxes) Power 8
  • Michigan Legislation Continues to Move Forward Legislation to establish a long-term energy plan for Michigan could Legislation to establish a long-term energy plan for Michigan could have wide-ranging benefits for utilities and customers have wide-ranging benefits for utilities and customers Key Legislation Introduced Legislative Timeline • Package of bills introduced Dec. • Electric Choice reform 2007 • Renewable Portfolio Standard (10% by year end 2015) • RPS and energy efficiency bills approved by the House Energy • Energy efficiency program Committee in Jan. 2008 • File and use process for utility rate proceedings • Awaiting action by the full House • Certificate of need process for major capital • Energy legislation is important to investments (e.g., new generation) Bipartisan leaders • Cost-of-service based electric rates (deskewing) • Potential passage of bills in mid- 2008 9
  • Detroit Edison Growth Investments on Track Monroe Power Plant in 2012 Environmental Construction Future 3 SCR Units (reduce NOx) completed 2005 - Complete Complete 2007 (~$175M per unit) Scrubbers for Units 3&4 (reduce SO2) planned Current for completion in 2009 (~$650M investment 2006-2009) Current Scrubbers for Units 1&2 and SCR for Unit 2 – Future (~$600M investment 2009-2012) Growth Investments through 2012 • Investing ~$1.0B on Clean Air Act compliance at 3,000 MW coal-fired Monroe plant from 2008-2012 • Potential ~$300M Advanced Metering Infrastructure (AMI) program coordinated with MichCon; pilot program in 2008 • License application for new nuclear power plant at the site of DTE’s Fermi 2 plant – on track to submit in 2008 • Potential renewable energy investments (RPS legislation introduced Dec. 2007) 10
  • MichCon Growth Investments on Track Major 2008 Expansion Projects • $90M distribution system expansion in Western Michigan • $90M Utility storage (17 Bcf) • $50M Panhandle Pipeline lateral Growth Investments through 2012 • Potential ~$60M AMI program coordinated with Detroit Edison; pilot program in 2008 • ~$100M meter relocation program 11
  • Successful Non-Utility Monetization Plan Monetization After-Tax Cash Proceeds ~$1.7B Power & • Closing delayed due to choppy Industrial debt markets • Pursuing alternative financing Closed Core Barnett At least options $800M Peakers Closed • Expect additional 2 cents in EPS per quarter until deal closes Antrim Closed • Expect to buy back $275M of stock immediately following deal close Original Current Guidance Guidance 12
  • Development of Western Barnett Acreage Focused on Near-Term Value Creation 2007 Results • 30% increase in proved reserves Western Acreage • Drilled 50 wells Operating Metric* YE 2006 YE 2007 – 39 in west (2 awaiting completion) Proved Reserves 111 144 (Bcfe) • More than doubled production from Western Probable Reserves 180 192 acreage Total Reserves 291 336 • Sold core area properties for ~$250M Net Producing Wells 83 120 – Generated over 100% IRR Acreage Position 38,000 48,000 2008 Goals % Acreage 28% 20% Developed • Invest ~$100M Annual Net 1.3 3.0 Production (Bcfe) • Drill 30-40 wells • Produce 5 Bcfe net • Opportunistically increase strategic acreage holdings in current areas of operations 13 * Does not include properties sold in 2007 or Bosque County properties
  • Western Barnett Reserves Valuation Reserves Value Low Value High Value (Bcfe) ($ per mcfe) ($ millions) ($ millions) Proved 144 $1.50 - $2.00 $220 $290 Probable 192 $0.25 - $0.50 $50 $100 Total 336 $270 $390 • Value of proved reserves in West is relatively transparent today – Western Basin well economics are attractive but not as large as the Core area • Expect value of probable reserves to become clear over time (undeveloped West vs. Core) – 100’s of wells in West vs. 1,000’s of wells in Core • Approximately $220 million invested to date As the area becomes more developed, DTE anticipates the Western portion of the Barnett will As the area becomes more developed, DTE anticipates the Western portion of the Barnett will move up the value curve, and probable reserve valuation will be more in line with proved move up the value curve, and probable reserve valuation will be more in line with proved 14
  • DTE Energy Gas Pipelines and Storage Assets Are Well-Positioned for Growth Canadian DTE Storage & Arctic MichCon Gas Millennium Michigan We are well positioned We are well positioned Vector Chicago to capitalize on the to capitalize on the strong Northeast US NY City strong Northeast US market dynamics market dynamics Rockies Gulf (LNG) Gas - REX Gas 2007 Accomplishments 2008 Growth Projects • Washington 28 field 6.3 Bcf expansion • Shelby 2 field with 8.1 Bcf working project completed 9/07 capacity expected in-service 4/08 Gas Storage • New Shelby 2 field approved and construction started • Construction on new compressor • Completed 2 new compressor stations Vector Pipeline station (100,000 Dth/d) – expected 11/07 (capacity: 215,000 Dth/d) Expansion completion 11/09 • $53M investment in 30” diameter, 186 • Pipeline completion targeted 11/08 Millennium Pipeline 15 mile pipeline (Capacity: 525,000 Dth/d)
  • • Business Update • 2007 Earnings Results • 2008 Guidance • Cash Flow and Capital Expenditures • Summary 16
  • 2007 Summary • Solid overall utility results – Detroit Edison and MichCon overcame one-time computer system start-up challenges to earn near authorized returns on equity • Strong results in all non-utility segments 17
  • 2007 Operating Earnings Operating Earnings Per Share* $2.82 Non-Utility Corporate & Other MichCon** Detroit Edison $0.83 ($0.49) $0.48 $2.00 Coal & Gas Unconventional Power and Midstream Gas Production Industrial Projects Energy Trading $0.31 $0.06 $0.15 $0.31 Note: Synfuel had reported earnings per share of $1.20 in 2007, but was classified as a discontinued operation as of 12/31/2007, and is therefore excluded from operating earnings * Reconciliation to GAAP reported earnings included in the appendix 18 ** Includes Citizens Gas Utility
  • 2007 Operating Earnings Variance Operating Earnings Variance* ($ millions) Earnings Drivers $35 ($43) • Detroit Edison’s temporary $515 ($23) $2 $2 ($24) $16 rate reduction began Sept. $480 2006 • Better 2007 weather at MichCon • Power & Industrial improvement due to restructuring of certain projects in 2006 • Timing-related gains at Energy Trading in 2006 rn tin 7 er re as tio al rn tin 6 Ea era 200 on on ec al g Ea era 200 • Higher holding company uc on th in g st G in oj tri am n in g is hC ts O ad od nti id & Pr us Ed gs gs ic & taxes at Corporate & Other M al Tr Pr ve d M it te In o p as n ro gy C p ra O G nco in 2007 & O et er po er D En U or w Po C 19 * Reconciliation to GAAP reported earnings included in the appendix Note: Synfuel had a reported earnings variance of $158M from 2006 to 2007
  • Detroit Edison Operating Earnings Variance Operating Earnings Variance* Earnings Drivers ($ millions) • Temporary rate reduction from $7 ($32) $20 ($41) Aug. 2006 show cause $363 $12 ($5) $24 ($8) $340 settlement • Reconciliation of power supply cost recovery (PSCR) factor from 2004 and 2005 • Favorable Choice partially offset by Choice tracker • Computer system startup costs in 2007 • Warmer weather partially offset po ng g tio te y e er e or ) / in g os p R m rni tin om ic uc Ra ag rn tin C rtu R rary s n St gin C th by increased storm costs m ho gs rm s Ea era PS ut /O t Ea era on ta ar C iO p rS Ec (M p s O ed O xe te 06 er • Increased SBT and property 07 Ta pu Fe th 20 Te 20 om ea taxes W C ROE 12.0% 10.6% 20 * Reconciliation to GAAP reported earnings included in the appendix
  • MichCon Operating Earnings Variance Operating Earnings Variance* ($ millions) Earnings Drivers $2 ($7) $3 $82 $14 $4 • Favorable weather $66 – 6,257 heating degree days in 2007 (6,667 normal) – 5,779 heating degree days in 2006 • Computer system startup costs in 2007 • Lower interest expense on gas cost recovery factor in 2007 • Strong storage revenues offset rn tin 06 rn tin 07 os r Ea era 20 er e in g C te by lost gas t th / Ea era 20 in g es m O as ts p pu th gs er lu r gs ea G te tu m Vo In e W ar o p as St C p O O B 21 ROE 8.5% 10.7% * Reconciliation to GAAP reported earnings included in the appendix
  • Non-Utility Segment Operating Earnings Operating Earnings* ($ millions) Earnings Drivers 2006 2007 51 53 • Higher gas storage and pipeline revenues of Coal & Gas Midstream $4M partially offset by coal transportation and marketing 9 11 • Increased Barnett production partially offset by Unconventional Gas Production earnings impact from the sale of Antrim (9) 26 • Improvement due to restructured projects and Power & Industrial Projects impairment actions taken in 2006 96 53 • Timing related gains in 2006 not repeated in Energy Trading 2007 $147 $143 Non-Utility 22 * Reconciliation to GAAP reported earnings included in the appendix
  • • Business Update • 2007 Earnings Results • 2008 Guidance • Cash Flow and Capital Expenditures • Summary 23
  • 2008 Earnings Guidance Operating Earnings* 2007 2008 ($ millions) Actual Guidance • Utilities targeted to earn their authorized 11% ROE in 2008 Detroit Edison $340 $340 - 370 MichCon 82 85 - 90 • Power & Industrial guidance assumes 50% Power & Industrial Projects 26 5 - 10 sale is complete 3/31/2008 Unconventional Gas Production 11 3-5 – Expect additional 2 cents in EPS per Coal & Gas Midstream 53 45 - 50 quarter until deal closes Energy Trading 53 40 - 50 Corporate & Other (85) (80 - 85) • Coal & Gas Midstream: Increased gas storage and pipeline Operating Earnings $480 $433 - 495 revenues drive earnings growth of ~$7M offset by impacts from the discontinuation Operating EPS $2.82 $2.70 - 3.10 of synfuel operations at coal transportation Average Shares Outstanding 170 million 159 million** * Reconciliation to GAAP reported earnings included in the appendix 24 ** Assumes $275 million stock buyback on 3/31/2008
  • Detroit Edison 2008 Operating Earnings Drivers Detroit Edison 2008 Guidance Walk* $ millions $30 ($10) ($25) $15-20 ($0-20) $35 ($20-25) $340-370 • Expiration of $340 temporary rate reduction and Choice tracker in April 2008 • Elimination of computer system startup costs • Assuming normal weather in 2008 2007 Rate Choice Economy Computer Normal 2007 Increased 2008 Actual Reduction Startup Weather/ PSCR Rate Guidance Expiration Costs Storm Adjustment Base 25 * Reconciliation to GAAP reported earnings included in the appendix
  • 2009 Early Outlook Shows Growth in All Segments Operating earnings* ($ millions) 2008 2009 Early Guidance Outlook Detroit Edison $340 - 370 $390 - 410 +13% MichCon 85 - 90 90 - 95 +6% Non-Utility 93 - 115 105 - 130 +13% Corporate & Other (80 - 85) (75 - 80) +6% Potential Average Shares Outstanding** ~159M ~158M 26 * Reconciliation to GAAP reported earnings included in the appendix ** Assumes $275 million in stock bought back on March 31, 2008
  • • Business Update • 2007 Earnings Results • 2008 Guidance • Cash Flow and Capital Expenditures • Summary 27
  • Positive Net Cash Flow Expected in 2008 DTE Energy Cash Flow ($ billions) • In 2007, the combination of internal 2007 2008 resources and synfuel proceeds Actual Guidance generated $1.5B in adjusted cash Sources from operations Cash from Operations $ 0.9 $ 0.9 (non synfuel) Synfuel Net Cash * 0.6 0.2 • Non-utility asset sales supported $725M of share repurchases and Asset Sales 1.3 1.1 approximately $500M of parent- Utility / Other Debt 0.1 0.1 company debt reduction Total Sources $ 2.9 $ 2.3 Uses • Looking to 2008, cash from Capital Spending $ (1.3) $ (1.5) operations and synfuel proceeds is Dividends (0.4) (0.3) projected at $1.1B Parent Company Debt Reduction (0.5) (0.2) Stock Buyback (0.7) (0.3) • The remaining asset sale program Total Uses $ (2.9) $ (2.3) supports further parent company debt and equity repurchases 28 * includes cash accounted for as quot;investing activityquot;
  • Utilities Account for 80% of Expected 2008 Capital Expenditures DTE Energy Capital Expenditures 2007 ($ billions) 2008 Actual Guidance • Capital expenditures at Detroit Detroit Edison Edison should reach $1B in 2008, $0.5 $0.6 Operational substantially above the average of 0.2 0.3 Environmental the past 5 years 0.1 0.1 IT / Facilities $0.8 $1.0 • MichCon’s capital is projected at MichCon $200M, about equal to 2007, but $0.1 $0.1 Operational twice the historical average of 0.1 0.1 Expansion approximately $100M $0.2 $0.2 Non-Utility • Non-utility spending is expected in 0.0 0.1 Power & Industrial all three segments. Actual 0.2 0.1 Unconventional Gas spending will depend on the 0.1 0.1 Coal & Gas Midstream availability of projects meeting $0.3 $0.3 risk-adjusted return requirements Total $1.3 $1.5 29
  • A Strong Balance Sheet Continues to Be a Priority for DTE Energy Leverage* 53.4% 51.7% ~52% • Balance sheet metrics improved in 2007 from the prior year • We have the balance sheet capacity to fund utility growth plans 12/31/06 12/31/07 12/31/08E Funds from Operations / Debt* • Liquidity remains solid 25.0% – ~$2.1B in credit facilities ~23% 19.5% – Over $1.0B current excess liquidity 12/31/06 12/31/07 12/31/08E** 30 * Excludes securitization debt and MichCon short-term borrowing **2008 assumes midpoint of applicable estimates
  • • Business Update • 2007 Earnings Results • 2008 Guidance • Cash Flow and Capital Expenditures • Summary 31
  • DTE Energy Is an Attractive Investment Strong utility growth outlook – 5-6% annual long-term earnings growth – Well-run utilities – Increasingly constructive regulatory environment – Growth upside from renewable generation Proven track record of non-utility value creation 2008 catalysts ~ 5% dividend yield 32
  • For More Information DTE Energy Investor Relations www.dteenergy.com/investors 313-235-8030 33
  • Appendix
  • Fourth Quarter 2007 Operating Earnings Operating Earnings Per Share* $1.01 Non-Utility Corporate & Other MichCon** Detroit Edison $0.18 ($0.13) $0.27 $0.69 Coal & Gas Unconventional Power and Energy Trading Midstream Gas Production Industrial Projects $0.0 $0.09 $0.01 $0.08 Note: Synfuel had reported earnings per share of $0.52 in Q4 2007, but was classified as a discontinued operation as of 12/31/2007, and is therefore excluded from operating earnings * Reconciliation to GAAP reported earnings included in the appendix 35 ** Includes Citizens Gas Utility
  • Q 4 ($ millions) 20 06 O p Ea era rn tin in g $138 gs D Ed etr is oit Operating Earnings Variance* on $42 M ic hC $8 on Po w er & * Reconciliation to GAAP reported earnings included in the appendix In d Pr us oj tri $11 ec al ts U G nco as n Pr ve od nti uc on tio al ($2) n C o M al id & Fourth Quarter Operating Earnings st G re as ($2) am En er gy Tr ad in g ($27) C or po ra O te th & ($5) Q 4 er 20 07 O p Ea era rn tin in g $163 gs 36
  • Synthetic Fuel Reported Earnings Detail ($ millions, after-tax) 2006 1Q07 2Q07 3Q07 4Q07 2007 Production Income DTE Energy ownership $ 17 $ 15 $ 15 $ 15 $ 36 $ 62 Fixed gain 22 16 24 49 28 111 Variable gain 51 56 45 38 77 190 $ 90 $ 87 $ 84 $ 102 $ 141 $ 363 Mark-to-Market Gain on Oil Hedges $ 3 $ (16) $ 42 $ 98 $ 38 $ 127 Deferrals & Reserves Production tax credit phase out $ (2) $ (6) $ (15) $ (16) $ (13) $ (39) Partner capital contribution reserve 4 3 (27) (65) (50) (85) Variable gain (48) (38) (44) (33) (68) (163) Fixed gain 2 2 2 7 - 13 Notes receivable (11) 4 3 (7) - (11) $ (55) $ (35) $ (81) $ (114) $ (131) $ (285) $ 38 $ 37 $ 45 $ 86 Earnings $ 48 $ 205 Tons Produced (millions) 5.6 5.4 5.4 4.7 14.5 21.1 37
  • Sources and Uses of Monetization Proceeds and Synfuel Cash Monetization Proceeds and Synfuel Cash Sources and Uses $ millions ~$2,600 ~$2,600 • Expect to complete $1B common stock Debt Redemption Synfuel repurchase in early $700 $900 2008 (2007 - 2009) – ~$725M done as of Antrim Forward Sales year end 2007 – Additional ~$275M Share Repurchase* upon closing of $1,000 Monetization Power & Industrial Proceeds sale ~$1,700 (2007 - 2008) Utility Equity/Other $700 Sources Uses 38 * Includes ~ $725M of common stock bought back under this program as of 12/31/07
  • Performance Excellence Process Reduces Fixed Cost Structure PEP Benefits 2006 – 2008 Employees at Year End: O&M, Capital & Other Detroit Edison, MichCon & Corporate Support $ millions, pre-tax ~$70 ~$330 10,300 12% 9,300 9,075 Reduction ~$260 2005 2006 2007 Com pleted Projects in Total Expected 39 Projects Process Program Benefits
  • Growing Electric Load Despite Michigan Economy Detroit Edison Service Area: Temperature-Normalized Electric Sales (Gwh) (including Electric Choice) Annualized Sales (GWH) 53.8 53.3 53.2 52.7 52.1 52.0 2002 2003 2004 2005 2006 2007 Temperature-normalized electric sales grew more than 3% from 2002 to 2007 40
  • DTE Energy Trading Earnings Reconciliation DTE Energy Trading: 2007 Operating Earnings reconciliation to Economic Net Income ($ millions) • Economic net income equals $56 $3 economic gross margin*** $53 minus YTD O&M expenses less taxes at 35%. • DTE Energy management uses Economic Net Income as one of the performance measures for external communications with analysts and investors. • Internally, DTE Energy uses Economic Net Income as one of the measures to review Operating Economic Net EITF 02-3** performance against financial Earnings* Income targets and budget. * Reconciliation to GAAP reported earnings included in the appendix ** Consists of the income statement effect of not recognizing changes in the fair market value of certain non derivative contracts including physical inventory and capacity contracts for transportation, transmission and storage. These contracts are not MTM, instead are recognized for accounting purposes on an accrual basis. 41 *** Economic gross margin is the change in net fair value of realized and unrealized purchase and sale contracts including certain non derivative contract costs
  • Detroit Edison Capital Driven by Investments in System Reliability and Environmental Compliance Projected Detroit Edison Capital Investment (2007-2012) $ millions • Growing rate base: 1,000 $850-950 – $8.7B in 2007 to ~$10.5B by $810 end of 2012 800 • Longer term projects: – Environmental improvements: 600 ~$1.3B through 2012 – AMI: ~$300M through 2013 400 Base plan excludes opportunities for: 200 Renewable generation Energy efficiency investments 0 2007 2008 2009 2010 2011 2012 Nuclear construction Base Environmental AMI Depreciation Potential Average ~$3,200 ~$3,400 ~$3,700 ~$3,900 ~$4,200 ~$4,400 42 Equity
  • MichCon Capital Investments Focus on Pipeline and Storage Optimization Projected MichCon Capital Investment (2007-2012) $ millions • Growing rate base: 240 $226 – $2.0B in 2007 to ~$2.3B by end of $150-200 2012 200 • Existing Expansion projects : 160 – $90M pipeline in W. Michigan – $90M utility storage 120 – $50M Panhandle Pipeline connection 80 • Longer term projects: 40 – AMI through 2012: ~$60M – Meter relocation program: ~$100M 0 – Pipeline inspection: $10-$20M per 2007 2008 2009 2010 2011 2012 year Base Expansion AMI / Meter Relocation Depreciation Potential Average ~$770 ~$820 ~$880 ~$920 ~$970 ~$1,000 43 Equity
  • Summary of Bills Introduced in Michigan Legislature A package of bills to reform Michigan’s electric industry and A package of bills to reform Michigan’s electric industry and establish a long-term energy plan was introduced in early Dec. establish a long-term energy plan was introduced in early Dec. • House Bill #5520: Gives the MPSC authority to approve generation asset sales over 200 MW • HB 5521: Certificate of Need process for major capital investments in electric generation • HB 5522: Cost-of-service based electric rates (deskewing) • HB 5523: File and use process for utility rate proceedings (similar to FERC) • HB 5524: Electric Choice Reform – Establishes a one-time opportunity for customers to opt into Electric Choice – New provisions for Choice customers wanting to return to full utility service • HB 5525: Energy efficiency program • HB 5548/5549: Renewable portfolio standard – 10% by year end 2015 • Senate Bill #947: Implements recommendations of Michigan’s 21st Century Energy Plan 44
  • Reconciliation of 2007 Reported to Operating Earnings Use of Operating Earnings Information – DTE Energy management believes that operating earnings provide a more meaningful representation of the company’s earnings from ongoing operations and uses operating earnings as the primary performance measurement for external communications with analysts and investors. Internally, DTE Energy uses operating earnings to measure performance against budget and to report to the Board of Directors. 2007 Net Income ($ millions) Power & Uncov. DTE Electric Gas Coal & Gas Energy Indust. Gas Corporate Energy Utility Utility Midstream Trading Projects Prod. & Other Synfuel Reported Earnings $971 $317 $70 $53 $32 $30 ($217) $481 $205 Performance Excellence Process (CTA) 7 - 6 - - 1 - - - GCR Disallowance 6 - 6 - - - - - - Detroit Thermal 17 17 - - - - - - - Regulatory Asset Surcharge 6 6 - - - - - - - Antrim Sale (334) - - - 21 - 211 (566) - Exploratory Well Adjustment 17 - - - - - 17 - - Synfuel Discontinued Operations (205) - - - - - - - (205) Crete Sale (5) - - - - (5) - - - Operating Earnings $480 $340 $82 $53 $53 $26 $11 ($85) $0 EITF 02-3* $3 Energy Trading Economic Net Income** $56 * Consists of the income statement effect of not recognizing changes in the fair market value of certain non derivative contracts including physical inventory and capacity contracts for transportation, transmission and storage. These contracts are not MTM, instead are recognized for accounting purposes on an accrual basis. 45 **Internally, DTE Energy uses Economic Net Income as one of the measures to review performance against financial targets and budget
  • Reconciliation of 2007 Reported to Operating Earnings per Share 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 with analysts and investors. Internally, DTE Energy uses operating earnings to measure performance against budget and to report to the Board of Directors. 2007 $EPS Power & DTE Electric Coal & Gas Energy Indust. Uncov. Gas Corporate & Energy Utility Gas Utility Midstream Trading Projects Prod. Other Synfuel Reported Earnings $5.70 $1.86 $0.41 $0.31 $0.19 $0.18 ($1.27) $2.82 $1.20 Performance Excellence Process (CTA) 0.04 - 0.04 - - - - - - GCR Disallowance 0.03 - 0.03 - - - - - - Detroit Thermal 0.10 0.10 - - - - - - - Regulatory Asset Surcharge 0.04 0.04 - - - - - - - Antrim Sale (1.96) - - - 0.12 - 1.23 (3.31) - Exploratory Well Adjustment 0.10 - - - - - 0.10 - - Synfuel Discontinued Operations (1.20) - - - - - - - (1.20) Crete Sale (0.03) - - - - (0.03) - - - Operating Earnings $2.82 $2.00 $0.48 $0.31 $0.31 $0.15 $0.06 ($0.49) $0.00 0.55 46
  • Reconciliation of Q4 2007 Reported 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 performance measurement for external communications with analysts and investors. Internally, DTE Energy uses operating earnings to measure performance against budget and to report to the Board of Directors. Q4 2007 Power & Uncov. DTE Electric Gas Coal & Gas Energy Indust. Gas Corporate Energy Utility Utility Midstream Trading Projects Prod. & Other Synfuel Reported Earnings $255 $110 $39 $15 ($1) $17 ($9) ($1) $85 Performance Excellence Process (CTA) 4 - 3 - - 1 - - - GCR Disallowance 6 - 6 - - - - - - Detroit Thermal 3 3 - - - - - - - Crete Sale (5) - - - - (5) - - - Antrim Sale 3 - - - - - - 3 - Exploratory Well Adjustment 11 - - - - - 11 - - Synfuel Discontinued Operations (85) - - - - - - - (85) Effective tax rate normalization (29) (1) (4) - - - - (24) - Operating Earnings $163 $112 $44 $15 ($1) $13 $2 ($22) $0 47
  • Reconciliation of Q4 2007 Reported to Operating Earnings per Share 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 with analysts and investors. Internally, DTE Energy uses operating earnings to measure performance against budget and to report to the Board of Directors. Q4 2007 $EPS Power & DTE Electric Coal & Gas Energy Indust. Uncov. Gas Corporate & Energy Utility Gas Utility Midstream Trading Projects Prod. Other Synfuel Reported Earnings $1.56 $0.67 $0.24 $0.09 $0.00 $0.10 ($0.06) $0.00 $0.52 Performance Excellence Process (CTA) 0.01 - 0.01 - - - - - - GCR Disallowance 0.05 - 0.04 - - 0.01 - - - Detroit Thermal 0.02 0.02 - - - - - - - Crete Sale (0.03) - - - - (0.03) - - - Antrim Sale 0.02 - - - - - - 0.02 - Exploratory Well Adjustment 0.07 - - - - - 0.07 - - Synfuel Discontinued Operations (0.52) - - - - - - - (0.52) Effective tax rate normalization (0.17) - (0.02) - - - - (0.15) - Operating Earnings $1.01 $0.69 $0.27 $0.09 $0.00 $0.08 $0.01 ($0.13) $0.00 48
  • Reconciliation of 2006 Reported to Operating Earnings Use of Operating Earnings Information – DTE Energy management believes that operating earnings provide a more meaningful representation of the company’s earnings from ongoing operations and uses operating earnings as the primary performance measurement for external communications with analysts and investors. Internally, DTE Energy uses operating earnings to measure performance against budget and to report to the Board of Directors. 2006 Net Income ($ millions) EPS Power & Uncov. DTE DTE Electric Gas Coal & Gas Energy Indust. Gas Corporate Energy Energy Utility Utility Midstream Trading Projects Prod. & Other Synfuel Reported Earnings $2.43 $433 $325 $50 $50 $96 ($80) $9 ($65) $48 Dtech Discontinued Ops 0.02 4 - - - - - - 4 - Georgetown Discontinued Ops 0.01 1 - - - - - - 1 - Change in Accounting (FASB 123- R) (0.01) (1) - - - - - - (1) - PepTec Impairment 0.10 13 - - - - 13 - - - Performance Excellence Process (CTA) 0.08 18 - 16 1 - 1 - - - Crete Impairment 0.12 21 - - - - 21 - - - River Rouge Impairment 0.15 27 - - - - 27 - - - Biomass Impairment 0.05 9 - - - - 9 - - - Stranded Costs 0.21 38 38 - - - - - - - Synfuel Discontinued Operations (0.27) (48) - - - - - - - (48) Operating Earnings $2.89 $515 $363 $66 $51 $96 ($9) $9 ($61) $0 49
  • Reconciliation of Q4 2006 Reported to Operating Earnings Use of Operating Earnings Information – DTE Energy management believes that operating earnings provide a more meaningful representation of the company’s earnings from ongoing operations and uses operating earnings as the primary performance measurement for external communications with analysts and investors. Internally, DTE Energy uses operating earnings to measure performance against budget and to report to the Board of Directors. Q4 2006 Net Income ($ millions) EPS Power & Uncov. DTE DTE Electric Gas Coal & Gas Energy Indust. Gas Corporate Energy Energy Utility Utility Midstream Trading Projects Prod. & Other Synfuel Reported Earnings $0.79 142 68 34 17 26 (6) 4 (19) 18 Dtech Discontinued Ops 0.01 1 - - - - - 1 - - Georgetown Discontinued Ops 0.01 1 - - - - - 1 - - Performance Excellence Process (CTA) 0.03 5 - 5 - - - - - - Effective Tax Rate Normalization (0.01) (1) 2 (3) - - - - - - Crete Impairment 0.01 1 - - - 1 - - - - Biomass Impairment 0.04 7 - - - 7 - - - - Synfuel Discontinued Operations (0.10) (18) - - - - - - - (18) Operating Earnings $0.77 $138 $70 $36 $17 $26 $2 $4 ($17) $0 50
  • Reconciliation of 2008 and 2009 Reported 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 performance measurement for external communications with analysts and investors. Internally, DTE Energy uses operating earnings to measure performance against budget and to report to the Board of Directors. In this presentation, DTE Energy provides 2008 guidance and 2009 early outlook for operating earnings. It is likely that certain items that impact the company’s 2008 and 2009 reported results will be excluded from operating results. A reconciliation to the comparable 2008 and 2009 reported earnings/net income guidance/early outlook is not provided because it is not possible to provide a reliable forecast of specific line items. These items may fluctuate significantly from period to period and may have a significant impact on reported earnings. 51