DTE Energy Presentation

1
38th Annual Edison Electric Institute
Financial Conference
October 28, 2003
2
Safe Harbor Statement
The information contained in this document is as
of the date of this press release. 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 press release contains
forward-looking statements about DTE Energys
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, timing and extent of changes in
interest rates access to the capital markets and
capital market conditions and other financing
efforts which can be affected by credit agency
ratings required resolution of the IRS review of
chemical change at synthetic fuel facilities
ability to utilize Section 29 tax credits or sell
interest in facilities producing such credits
the level of borrowings the effects of weather
and other natural phenomena on operations and
actual sales economic climate and growth in the
geographic areas in which DTE Energy does
business unplanned outages the cost of
protecting assets against or damage due to
terrorism nuclear regulations and risks
associated with nuclear operations the grant of
rate relief by the MPSC for the utilities
changes in the cost of fuel, purchased power and
natural gas the effects of competition the
implementation of electric and gas customer
choice programs the implementation of electric
and gas utility restructuring in Michigan
environmental issues, including changes in the
climate, and regulations, and the contributions
to earnings by non-regulated businesses. This
press release should also be read in conjunction
with the forward-looking statements in DTE
Energys, MichCons and Detroit Edisons 2002
Form 10-K Item 1, and in conjunction with other
SEC reports filed by DTE Energy, MichCon and
Detroit Edison.
3
Outline

• Business Issues Update
• Rate Cases Detroit Edison and MichCon
• Synfuels
• Looking Ahead

4
Highlights of Detroit Edison Rate Case Filing

• Facts
• Filed on June 20, 2003
• Base rate increase for both full service and
  Electric Choice customers totaling 416 million
  (12 increase) in 2006
• Interim relief of 274 million effective 1/1/04
• Surcharge to recover accumulated regulatory
  assets
• 11.5 ROE, 50/50 capital structure
• Proposed ROE sharing provision to align
  incentives
• Reinstates power supply cost recovery mechanism
  concurrent with rate increase
• Goals and Objectives
• Provide a long-term rate structure that addresses
  cost pressures facing the company
• Maintain cash stability and balance sheet strength

5
Review of Detroit Edison Rate Case
Detroit Edison Residential Rates

• Last rate case was in 1992 93 time period
• Residential customers pay 11 less for power now
  than in 1992
• Costs, especially healthcare and pension, have
  risen dramatically in recent years
• Proposed rates are phased in through 2006

/KWh
11
10
9
8
7
6
5
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
6
Review of Detroit Edison Rate Case
Requested ROE in-line with other recent
regulatory outcomes

• Recently authorized ROEs for electric utilities
  have ranged from 10.5 12.3
• Detroit Edisons requested ROE of 11.5 is
  reasonable, and reflective of the companys
  business risks
• Proposed ROE sharing mechanism benefits both
  customers and shareholders

7
Detroit Edison Rate CaseCurrent Status

• Normal rate case activity is well underway
• No ruling yet on our appeal for accelerated
  schedule
• Current schedule calls for
• MPSC staff report on interim relief to be filed
  on December 12
• Interim rate order in March 2004
• Detroit Edisons request calls for
• MPSC staff report on interim relief to be filed
  on November 19
• Interim rate order in February 2004
• Detroit Edison and other parties currently
  submitting briefs regarding the restart of the
  power supply cost recovery factor (PSCR)

8
Rate Case Timing Issues are Important for Detroit
Edison

• Even with the resolution of the Detroit Edison
  rate case, full benefits will not be realized
  immediately
• Residential rates will remain frozen through
  2005, delaying the full benefit of a rate
  increase
• In 2004, we have requested interim rate relief of
  274 million
• The timing and level of interim and permanent
  rates will directly affect earnings
• One month change in January interim rate increase
  affects 2004 earnings 13 million
• Expect both net income and cash to improve
  significantly in 2005 and thereafter

9
Review of Michigans Electric Choice Program

• Program became effective on January 1, 2002 for
  all electric customers
• No deregulation or required divestiture of
  generating assets, and Michigan utilities
  retained the obligation to serve
• Current hybrid structure in Michigan complicates
  traditional regulatory mechanisms such as the
  PSCR
• Full recovery of all costs associated with
  implementing the Choice program is required by
  law
• Net stranded costs from customers choosing an
  alternate supplier
• Development of methodology for calculating net
  stranded costs was delegated to the MPSC
• Choice program implementation costs
• Legislation calls for financially healthy and
  competitive Michigan utilities

10
Fair Implementation of Electric Choice Has Not
Occurred

• The MPSC has failed to implement critical
  provisions of Michigans restructuring
  legislation
• No recovery of net stranded costs has been
  authorized to date
• 165 million estimated Choice lost margin through
  year-end 2003
• No recovery of Choice program implementation
  costs authorized to date
• 100 million estimated regulatory asset balance
  at year-end 2003
• The structure of the Choice program is flawed
• MPSC has required subsidies for Choice customers,
  giving them incentives to leave Detroit Edison to
  enter an artificially attractive market
• As a result, Choice penetration continues to rise
  beyond original estimates
• Michigan utilities are prohibited from competing
  to retain their current customers

11
The Financial Impact is Growing
Detroit Edison Pre-Tax Loss ( Millions)
Detroit Edison Customer Choice Penetration(GWh)
8,940 - 11,200
140-200
5,300 - 6,400
80-100
2,990
50
1,085
15
210
0
2000
2001
2002
2003E
2004E
2000
2001
2002
2003E
2004E
Low end of range is estimate contained in
Detroit Edison rate case. High end of range is
based on current company estimates.
12
DTE is Pursuing Two Paths to Resolution
Legislative
Regulatory

• DTEs proposal includes the following
• Limit choice to customers with electric demand of
  1MW or greater
• Customers who return to regulated service do so
  at market prices for generation
• Legislative mandate for a 5-year surcharge to be
  collected from all Choice customers

• DTE included a proposed fix for the program in
  Detroit Edisons rate case and other filings
• Eliminate transition credits for Choice customers
• Establish appropriate customer transition charges
  to recover net stranded costs
• Implement 5-year surcharge to recover Choice
  program implementation costs
• Modify PSCR mechanism to reflect impact of Choice
  program

13
DTE is Aggressively Pursuing Resolution

• DTE is focused on bringing a timely resolution to
  the problems with the structure and
  implementation of the Choice program
• Our regulatory and legislative proposals
• Bring clarity to and resolve net stranded cost
  and Choice program implementation cost recovery
  issues
• Maintain a structure for an Electric Choice
  program in Michigan that resolves the economic
  distortions and regulatory challenges
• Provide the ability for Michigan utilities to
  compete

14
Highlights of MichCon Rate Case and GCR Filing

• Facts
• Filed on September 30, 2003
• Requested 194 million in total relief 154
  million interim relief, effective no later than
  April 1, 2004
• 11.5 ROE, 50/50 capital structure
• Proposed ROE sharing provision to align
  incentives
• Gas Cost Recovery factor (GCR) reduced to 5.36
  per Mcf effective January 1, 2004
• Goals and Objectives
• Restore earnings and ROE to level that reflects
  current authorized 11.5 ROE
• Restore cash flow to fund capital expenditure and
  dividend requirements

15
Review of MichCon Rate Filing
MichCon Gas Distribution Rates Residential
Customers

• Last rate case was in 1992 93 time period
• Customers pay the same base rate charges for
  natural gas service that they did in 1994
• MichCon is the last Michigan utility to file for
  a base rate increase
• No negative political or media attention

16
Review of MichCon Rate Filing
Requested ROE in-line with other recent
regulatory outcomes

• Recently authorized ROEs for gas utilities have
  ranged from 11.3 11.5
• Proposed ROE sharing mechanism benefits both
  customers and shareholders

17
Synfuel Update

• Nature of the issue
• The IRS is assessing the scientific validity of
  tests used to determine chemical change in the
  production of synthetic fuel
• The IRS focus is highly technical in nature, and
  focuses on the testing protocols utilized by
  independent testing laboratories
• Clarification from the Treasury indicated that
• The degree of feedstock beneficiation is not the
  issue
• The government relied upon independent experts
  reports, not taxpayer representation, to conclude
  that chemical change occurred
• This is broadly viewed as making retroactive
  revocation difficult to sustain
• DTE Energy and other taxpayers have retained a
  number of the foremost experts on chemical change
  in North America
• Our team of chemical change experts has been very
  active in assessing the government experts
  alleged concerns
• We believe the concerns can be addressed, and
  that the procedures used by the testing
  laboratories are scientifically supportable

18
Outline

• Business Issues Update
• Rate Cases Detroit Edison and MichCon
• Synfuels
• Looking Ahead

19
Business Vision

• We continue to prefer a business mix of regulated
  and non-regulated businesses
• Stability provided by regulated business
• Growth provided by non-regulated business
• Short Term Priorities
• Regulated Business Achieve success in pending
  rate cases and fix Electric Choice Program
• Non Regulated Business Positive outcome on
  synfuels (PLRs and monetizations)
• Long Term Priorities
• We are committed to maintaining our solid
  financial position
• Regulated Business Enhance our operational
  performance through the DTE Operating System and
  DTE 2
• Non Regulated Business Continue growth in
  related businesses utilizing existing knowledge
  and competencies

20
Maintain Solid Financial Position Strong Balance
Sheet
DTE Energy Leverage
56

• Continued balance sheet strength is a key
  strategic goal for DTE
• Throughout the industrys financial turmoil,
  DTEs debt/capital has remained within the
  targeted 50-55 range

55
2003 Forecast 51-53
54
Targeted 50-55 Range
53
52
51
50
49
48
1999
2000
2001
2002
2003e
Excludes securitization debt, MichCon seasonal
borrowings, and certain hybrid debt
21
Maintain Solid Financial Position Significant
Liquidity

• Liquidity
• As of September 30, 2003, total short-term debt
  outstanding of 452 million, primarily at Detroit
  Edison
• Recently completed renewal of 1.3 billion
  revolver
• Oversubscribed by 360 million
• 9 banks increased their commitment
• 4 new banks participated
• In total, DTE maintains liquidity of 1.5
  billion
• Commercial paper back-up facilities in the amount
  of 1.3 billion
• 200 million Detroit Edison trade receivable
  facility

22
Maintain Solid Financial Position Dividend is
Attractive and Stable
Dividend Payout Ratio
67
64
63
62
61
61
59
54
54
54

• Dividend of 2.06 per share has been constant for
  10 years
• Current dividend yield of 5.8 is attractive
• Recent dividend tax reduction has increased the
  importance of yield as a component of total return

1998
1999
2000
2001
2002
DTE
Industry Average
SP Electrics Dividend Yield October 16, 2003
7
6
Median 4.4
5
4
3
2
1
0
D
ED
TE
CIN
SO
FE
FPL
DTE
AEE
PEG
PGN
PNW
XEL
AEP
CNP
PPL
ETR
EXC
CEG
TXU
AYE
CMS
EIX
PCG
23
Enhance Operating Performance DTE Operating
System

• How does it work?
• Involves the rigorous, disciplined application of
  tools and operating practices
• Whats the goal?
• To drive sharp performance improvement
• Top performers in other industries deploy similar
  strategies

24
Enhance Operational Performance DTE Operating
System

• 2003 goal to cut 50 million of expenses
• Saved 41 million to date
• Power plant operating efficiency 14M
• Inventory reductions 7.5M
• Corporate services improvement 7.2M
• Technology systems improvement 5M
• Plant outage management 4M
• Fuel optimization 3.5M
• Progress is accelerating across all business
  units
• Continue to drive efficiencies in 2004

Expected Sources of Savings
Productivity
Improvement
25
30
Plant Equip. Reliability
Availability
Internal Fuel Usage
Inventory Optimization
10
Other Savings
25
10
25
Enhance Operational Performance Implementation
of DTE 2

• DTE 2 is a corporate-wide initiative that will
  create a new company from the standpoint of
  core information systems (finance, human
  resources, supply chain and work management)
• Benefits
• Low cost structure and faster business cycles
• Repeatable and optimized processes
• Significant improvement in inventory management
• More accurate allocation of support costs to the
  various business units
• Significant reduction in IT support costs

26
Enhance Operational Performance DTE 2 Best
Practice Targets
27
Continue Non-Regulated Business Growth
DTEs Non Regulated Business Strategy

• We have taken a more conservative stance on
  growth and expenditures
• Near-term focus on transactions that require
  modest up-front cash and maintain balance sheet
  stability
• Large asset acquisitions are off the table
  until we have greater clarity on rate cases and
  synfuels

• Disciplined, strategic growth
• Shareholder value oriented
• Risk adjusted returns
• Dont use leverage to attain hurdle rates
• Continue to see solid opportunities

Whats Changed
What Hasnt Changed
28
Continue Non-Regulated Business Growth

• Current Activities
• Final stages of closing on outsourcing deal with
  Fortune 100 manufacturer
• Waste coal recovery business progressing well
• Continue to develop coal bed methane projects
• Increased our ownership stake in the Vector
  pipeline to 40
• Divested our ownership interest in the Portland
  pipeline

29
Summary

• Focus on near-term business issues will be
  ongoing in 2004, with continued emphasis on
  leaner costs, higher performance
• We have transitioned to a more conservative
  posture on growth opportunities
• We continue to pursue growth at our non-regulated
  businesses, utilizing our existing skills
• We are committed to preserving our dividend
  without sacrificing our balance sheet health