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Original Source: FD (FAIR DISCLOSURE) WIRE
. David Meador, DTE Energy Company, Exec. VP & CFO . Peter Oleksiak, DTE Energy Company, VP & Controller . Peter Stadnikia, DTE Energy Company, Assistant Treasurer & Director of Corp. Finance . Dan Eggers, Credit Suisse, Analyst . Dick Redmond, DTE Gas & Oil, President
. Paul Ridzon, KeyBanc, Analyst . Ted Heyn, Citigroup, Analyst
. Don Stansic, DTE Energy Company, Regulatory Affairs . Paul Patterson, Glenrock Associates, Analyst . John Kiani, Deutsche Bank, Analyst
. Kathleen Jidich, WH Reed, Analyst . Daniele Seitz, Dahlman Rose & Co., Analyst . Leon Dubov, Zimmer Lucas Partners, Analyst . David Grumhaus, Copia Capital, Analyst . Erica Piserchia, Merrill Lynch, Analyst
DTE reported 2006 operating earnings excluding synfuels of $2.89 and operating EPS of $3.33. For 2007, the Co. expects operating EPS excluding synfuels to be $2.60-2.87.
A. Key Data From Call 1. 2006 operating earnings excluding synfuels = $2.89. 2. 2006 operating EPS = $3.33. 3. 2006 CapEx = approx. $1.5b. 4. 2007 operating EPS excluding synfuels = $2.60-2.87.
S1. Business Review (D.M.) 1. Highlights: 1. 2006 was a good year for DTE. 2. Operating earnings were higher YoverY driven by stronger performance at Detroit Edison. 3. Performance improvement plan is on track. 1. Delivered strong results in 2006. 2. Laid the groundwork for higher savings in 2007. 4. Continued investment plan in utilities. 1. Invested $1.1b in the two utilities.
5. At EEI last fall, DTE developed a restructuring plan for
non-utility businesses. 6. In 2006, DTE increased the dividend 3% to $2.12 and repurchased 1m shares of stock. 2. Operating Results: 1. Last fall, DTE laid out its growth plans. 2. At both utilities, DTE target an 11% ROE and will target growth in those businesses 5-6%, driven by mandated expenditures like environmental improvements at Detroit Edison. 3. Will continue to increase reliability and customer satisfaction, while reducing cost structure. 4. Goal is to move the higher CapEx that will be making in to rates in a timely fashion. 3. Non-Utility:
1. Restructuring will provide over $800m in proceeds, and when
combined with the higher synfuel cash will provide over a $1b
in proceeds. 2. Expects to make continued investments in all three businesses not only before but after the restructurings.
4. Michigan Plan: 1. The state of Michigan recently released its collaborative 21st Century Energy Plan. 2. Plan point towards annual demand growth in Michigan of 1.2%, which results in a need for an estimated 800-megawatt of base load capacity and 2,200 megawatts of peaking capacity by 2015. 1. Expected to be the state's utilities. 3. Plan also has two other important recommendations. 1. Advocates legislative changes as an option to fix the state's electric regulatory structure and customer choice.
2. Recommends a statewide RPS of 3% by 2009 and 7-10% by 2015.
5. Rate Case: 1. Detroit Edison will file its rate case during 2Q07 and DTE expects new rates would be effective about mid-2008.
2. Some of the areas that this case will focus on includes:
1. Full and timely recovery of CapEx, especially environmental capital. 2. Continued progress on rate deskewing. 3. Continued progress in addressing Michigan's unique regulatory structure.
3. For MichCon, Co. plans to file a case this year and that would
focus on revenue decoupling and capital recovery. 6. Performance Excellence Plan (PEP process): 1. PEP process is focused on customer satisfaction and driving down cost. 1. This will allow DTE to consistently achieve ROE targets and minimize the impact of higher CapEx on customers. 2. Made good process improvements in 2006. 3. Program looks at all elements of performance in order to drive high customer satisfaction and low cost. 4. Has about 2,000 projects underway right now. 1. One of these that Co. is working on. 2. Project underway will enable Co. to clear more miles per year. 1. Has been clearing about 4,800 miles a year. 2. Going to clear 6,800 miles a year, which will put DTE on a 4.5-year cycle. 3. Will do more miles at lower cost. 4. Team spent sometime re-engineering the process. 5. By 2011, expects a 40% reduction in cost per mile. 6. Substantial reduction in cost per mile, more miles cleared, saves money, drives higher customer satisfaction,
and lower storm cost over time. 5. Overall for the PEP process, total O&M and capital savings for 2006 was $45m. 1. Does not include another $50m in PSCR savings that will flow through customers.
6. Run rate at the end of 2006 for O&M and capital was $160m.
1. Leads to $250-350m reduction by 2008. 7. Net headcount reduction was 900 people last year. 7. Detroit Edson: 1. The environment project is meeting all of Co.'s milestones. 2. Two weeks ago, DTE announced for pursuing a license for a new nuclear plant at the Fermi site. 3. Investigating advanced metering and potentially renewable investments enabled by the state's new energy plan (Michael McNalley is working on). 8. MichCon:
1. DTE is on track with: 1. Jamestown expansion in Western Michigan. 2. Regulated storage expansion project. 1. Has regulated storage and non-regulated storage. 3. Has a panhandle pipeline connection project underway and then the ongoing pipeline safety work continues for that business. 9. Non-Utility Restructuring Plan: 1. At EEI, DTE announced restructuring of its non-utility
businesses to provide less earnings volatility to reduce
valuation complexity and to enhance transparency. 2. Key components of the plan: 1. Restructuring of peaker investments. 2. Exploring sale of unconventional gas reserves. 3. Exploring sale and capitalization of the portion of Power & Industrial business.
4. Exploring strategic options for energy trading. 3. As a result of these decisions, DTE took a number of impairments in 2006 as Co. streamlined its businesses and simplified the story. 10. Peaker Update: 1. In Georgetown facility, executed a purchase agreement for that plan. 2. For Crete, sales process have been initiated and Co. will have final bids by 2Q07. 3. On the East China facility since Detroit Edison will need
peaking capacity in the near term, DTE's preference is to move
those units in to the utility. 4. River Rouge was shut down and written off. 1. Made progress on this part of the plan.
2. Last fall, DTE announced that when it completed these actions for the merchant fleet, it will remove $13m of losses on annualized basis from earnings stream. 3. In addition to these actions, DTE took actions to eliminate ongoing losses from PepTec or waste coal operation last year. 4. Closed that facility, and wrote off investment, and recorded an impairment for biomass operation.
5. Operations that had earnings drags and added some complexity
to Co.'s story were all removed from the earnings stream. 11. Power and Industrial Group: 1. This is a group where DTE has a successful portfolio of assets that service large energy intensive industrial customers. 2. Planning a 50% sale of this group and recapitalizing the balance sheet. 3. Project is on track. 4. Retained Morgan Stanley as an adviser and received strong interest from …