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DTE Energy Company Q1 2010 Earnings Call Transcript

DTE Energy Company Q1 2010 Earnings Call Transcript

DTE Energy Company (DTE)

Q1 2010 Earnings Call Transcript

April 28, 2010 9:00 am ET


David Meador – CFO

Peter Oleksiak – Controller

Nick Khouri – VP & Treasurer


Dan Eggers – Credit Suisse

Brian Chin – Citigroup

Greg Gordon – Morgan Stanley

Paul Ridzon – KeyBanc Capital Markets

Yiktat Fung – Zimmer Lucas Partners

Jonathan Arnold – Deutsche Bank

Danielle Seitz – Dudad Research

Mark Segal – Canaccord Adams

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Good day and welcome to the DTE Energy first quarter 2010 earnings conference call. Today’s conference is being recorded. At this time I would like to turn the conference over to Mr. David Meador. Please go ahead, sir.

David Meador

Thank you and

good morning and welcome to our first quarter conference call. Before we get started, I encourage you to read the Safe Harbor statement on page 2 including the reference to forward-looking statements.

With me this morning are Peter Oleksiak, our controller; Nick Khouri, our treasurer and Lisa Muschong our Director of Investor Relations. I also have members of the management team in the room that I might call on during the Q&A session.

Let me start with an overview on page 5. We believe that DTE is a very attractive investment. It is grounded in a robust plan for 5% to 6% long-term growth, and when you put that together with our dividend $2.12 a share, this provides a very attractive total shareholder return. We have a strong utility growth plan, and it is driven by federal and state mandated investments, and we are not dependent on electric load or natural gas usage growth.

At Detroit Edison this growth is driven by four areas of investments. The first is renewable energy, where we will spend $300 million to $400 million between now and 2012; energy efficiency, where we will spend $100 million over that period; environmental expenditures, at our major coal plants, where we will spend $500 million to $600 million, and base infrastructure investments of $2.1 billion to $2.3 billion.

In MichCon over that time frame we will invest about $400 million to $500 million on base infrastructure and growth projects. Growth of the two utilities is underpinned by a very constructive regulatory structure. This will help provide a predictable earnings stream going forward. This also allows us to continue to make investments and contribute to the MichCon’s economic recovery.

We have been able to successfully execute our regulatory proceedings under the new laws. We get some cycles of rate cases behind us. We received a very constructive rate case order at Detroit Edison in January, and we expect the same at MichCon by early June of this year.

While we have a constructive regulatory environment, we also fully understand our role in being a customer centric organization. We have developed a strong continuous improvement culture that has delivered significant decreases in O&M, while improving operational metrics. We have also initiated a comprehensive customer satisfaction initiative that when combined with our continuous improvement muscle will help keep rates affordable for our customers.

In our non-utility businesses, we will be focused on growth. First in our gas midstream business, which is well situated to take advantage of the Marcellus Shale gas flows, and our power and industrial projects, where we will see near-term growth, predominantly in the areas of renewable energy with acquisitions of small coal plants that are being converted to biomass, and qualify for renewable energy credits.

Now if you can turn to page 6, we are very pleased with the strong results in the quarter, which has given us the confidence to raise our operating earnings guidance. Our operating earnings came in at $1.38 per share, a 25% improvement over the first quarter of last year. This was driven first by the two utilities where we saw rate increases and we also have ongoing cost control driven by our continuous improvement work.

The local economy continues to show signs of improvement. Temperature normalized loads is up 2%, led by the industrial sector, where we saw a 12% improvement on load. The industrial sector is driven by recovery in the automotive and steel industries. There continues to be signs of economic recovery, including automotive sales and the profitability of the auto companies even at lower volumes due to the restructuring that happened last year.

And as Michigan's economy restructures, automotive is less critical as only 3% of jobs in Michigan are auto or auto parts manufacturing related. We understand there will be a tail on the economic recovery, but we are seeing a lot of positive signs throughout the state. We also had strong results this quarter in our non-utility businesses driven by the power and industrial group in energy trading.

Our cash flow and balance sheet metrics were strong and right where we want to be where we generated $600 million in free cash flow for the quarter, and we are on track for funding needs this year.

Now let us turn to slide seven, and let me take you through the increases in our guidance, where we are revising guidance in four areas. We are increasing our guidance to $3.45 to $3.80 per share after a great start to the year. The midpoint increases $0.08 a share to $3.63, and is something that we are confident in.

While our long-term growth rate is 5% to 6%, this lift in guidance means 10% year-over-year increase in earnings per share at midpoint. And let me go through the detail, at Detroit Edison we are pulling up the bottom end of guidance $5 million [ph] to $410 million based on first-quarter results, which were driven by the rate case and ongoing continuous improvement effort.

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