How much of DTE's earnings and assets come from the regulated utility versus other businesses?

The Detroit Edison utility accounts for about 96% of the holding company's assets and 97% of its revenues at year-end 1997. Non-regulated subsidiaries contributed about $107 million in revenue. The company itself has no significant operations and no employees; Detroit Edison has 8,506 employees.

What is the financial risk from Michigan electric deregulation?

The MPSC's January 1998 order estimates stranded costs of $2.48 billion and sets a transition charge of 1.25 cents/kWh. Management says this may not fully recover those costs, and a securitization charge was not approved, pending state legislation. Lost sales to customers choosing alternative suppliers are borne by shareholders, and the outcome also depends on pending appeals and legislation expected in 1998.

Is the dividend safe?

The annual dividend has been $2.06 per share since at least 1993 and was maintained in 1997. With 1997 EPS of $2.88, the payout ratio was about 72%. Future dividends depend on earnings, financial condition, and the outcome of utility restructuring, which the board reviews periodically. The filing does not contain explicit dividend guidance.

What are the most significant capital and environmental spending needs?

Detroit Edison expects capital expenditures of about $2.5 billion over 1998-2002, with $575 million in 1998. Proposed EPA ozone transport rules could cost more than $400 million, and the company says costs may increase substantially once proceedings conclude. It also notes that recovery of environmental costs under deregulation is uncertain. Management says internal cash generation should cover capital spending and scheduled debt redemptions.

Are there notable legal or contingent liabilities?

Yes. An employment discrimination claim (Gilford, Sanchez, and Frazier actions) was settled through binding arbitration, with Detroit Edison's liability set between $17.5 million and $65 million; an amount was accrued in 1997. A separate lawsuit challenges the offset of 1998 revenue reductions with storm-cost amortization, and its outcome is uncertain. Both the Michigan Supreme Court appeal on retail wheeling and the FERC transmission litigation remain unresolved.

DTE Energy 10-K FY1997 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed February 24, 1998. Cited figures are marked; the original filing is the authoritative source.

DTE Energy Company's 1997 10-K shows a holding company whose earnings are almost entirely driven by its principal subsidiary, The Detroit Edison Company (about 96%^a of assets and 97% of revenues).

Net income for 1997 was $417 million^b, or $2.88 per share, up from $309 million ($2.13) in 1996, which included a $149 million pre-tax steam heating special charge. Excluding that charge, earnings rose about 2.7%. Operating revenues were $3.764 billion, and total assets were $11.223 billion at year-end.

Operating cash flow was $1.006 billion^c, and the $2.06 annual dividend was held flat, implying a payout of roughly 72% of 1997 EPS. The bigger story for investors is regulatory and strategic. The Michigan Public Service Commission's January 14, 1998 Restructuring Order sets a phased open-access program starting in 1998 and a stranded-cost estimate of $2.48 billion, with a transition charge of 1.25 cents/kWh that management says may not fully recover those costs.

Detroit Edison has said the true-up mechanism may be insufficient, and the outcome depends on pending Michigan legislation and court rulings. Environmental exposure is also material: the company estimates EPA ozone transport controls could cost more than $400 million^d. On the growth side, DTE is building non-regulated businesses, including a coke oven battery, a power marketing subsidiary, a gas and electricity joint venture, a fuel cell venture, and railcar services.

The company's non-regulated revenue was $107 million in 1997. Leadership is changing as well: CEO John Lobbia will retire August 1, 1998, and Anthony Earley, Jr. will assume both the Chairman and CEO roles.

02—Key points

Key Highlights

1997 net income rose to $417 million ($2.88/share) from $309 million ($2.13/share) in 1996, which absorbed a $149 million pre-tax steam heating charge; underlying growth was about 2.7%.
Michigan's January 1998 Restructuring Order phases in retail open access in 225 MW blocks from 1998 to 2001 (full choice by 2002), with an estimated stranded-cost level of $2.48 billion and a 1.25 cents/kWh transition charge that management says may be insufficient.
Dividends were held at $2.06 per share, and 1997 operating cash flow was $1.006 billion against capital expenditure needs of roughly $2.5 billion over 1998-2002.
Environmental exposure: EPA ozone transport rules could require controls costing more than $400 million at fossil plants, and recovery through rates is uncertain under deregulation.
Non-regulated growth push: acquisition of a coke oven battery, a new power marketing subsidiary (DTE Energy Trading), a gas/electric JV with CoEnergy, a Plug Power fuel cell JV, and railcar services. Non-regulated revenue was $107 million in 1997.
Detroit Edison's Fermi 2 nuclear unit (about 11% of summer capability) received an improved NRC SALP rating for plant operations, moving from 'adequate' to 'good.'
Leadership transition: Chairman and CEO John Lobbia retires August 1, 1998, and President Anthony Earley, Jr. takes over both roles.

03—Questions

Frequently Asked Questions

How much of DTE's earnings and assets come from the regulated utility versus other businesses?
The Detroit Edison utility accounts for about 96% of the holding company's assets and 97% of its revenues at year-end 1997. Non-regulated subsidiaries contributed about $107 million in revenue. The company itself has no significant operations and no employees; Detroit Edison has 8,506 employees.
What is the financial risk from Michigan electric deregulation?
The MPSC's January 1998 order estimates stranded costs of $2.48 billion and sets a transition charge of 1.25 cents/kWh. Management says this may not fully recover those costs, and a securitization charge was not approved, pending state legislation. Lost sales to customers choosing alternative suppliers are borne by shareholders, and the outcome also depends on pending appeals and legislation expected in 1998.
Is the dividend safe?
The annual dividend has been $2.06 per share since at least 1993 and was maintained in 1997. With 1997 EPS of $2.88, the payout ratio was about 72%. Future dividends depend on earnings, financial condition, and the outcome of utility restructuring, which the board reviews periodically. The filing does not contain explicit dividend guidance.
What are the most significant capital and environmental spending needs?
Detroit Edison expects capital expenditures of about $2.5 billion over 1998-2002, with $575 million in 1998. Proposed EPA ozone transport rules could cost more than $400 million, and the company says costs may increase substantially once proceedings conclude. It also notes that recovery of environmental costs under deregulation is uncertain. Management says internal cash generation should cover capital spending and scheduled debt redemptions.
Are there notable legal or contingent liabilities?
Yes. An employment discrimination claim (Gilford, Sanchez, and Frazier actions) was settled through binding arbitration, with Detroit Edison's liability set between $17.5 million and $65 million; an amount was accrued in 1997. A separate lawsuit challenges the offset of 1998 revenue reductions with storm-cost amortization, and its outcome is uncertain. Both the Michigan Supreme Court appeal on retail wheeling and the FERC transmission litigation remain unresolved.

04—Continue

← View all 10-K filings