01—Abstract
Summary
Summary of the 10-K filed February 23, 2010. Cited figures are marked; the original filing is the authoritative source.
DTE Energy's 2009 results reflect a challenging economic environment in Michigan offset by strong utility performance and a recovery in its non-utility portfolio.
Net income attributable to DTE Energy was $532 milliona, or $3.24 per diluted share, versus $546 million ($3.34) in 2008. The decline was driven mainly by the absence of the $80 million after-tax gain on the 2008 Barnett shale sale, partially offset by higher earnings in the Electric Utility ($376 million, up from $331 million) and Energy Trading ($75 million, up from $42 million). Operating revenues fell 14% to $8.0 billion, reflecting lower gas prices, weaker industrial electricity demand, and customer conservation, while operating income was roughly flat at $1.25 billion.
For investors, the most important developments are regulatory and liquidity-related. The MPSC's January 2010 order granted Detroit Edison a $217 millionb (4.8%) revenue increase with an 11% allowed return on equity, along with revenue decoupling and uncollectible expense tracking mechanisms, though the company must refund $27 million for the period its self-implemented rates exceeded the final award. MichCon self-implemented $170 million of a requested $193 million increase in January 2010, subject to refund pending a final order expected in June 2010.
Credit conditions improved, with Standard & Poor's restoring a stable outlook in January 2010, but DTE Energy's senior unsecured rating remains BBB-, the lowest investment-grade notch at S&P, and the company faces $661 millionc of debt maturing in 2010 and substantial credit facilities expiring in 2010 and 2011. The balance sheet carries meaningful long-term obligations and risks. Total long-term debt including current portions is roughly $8 billion, pension plans are underfunded by $887 million, and postretirement plans by $1.3 billion, with the company planning up to $200 million of pension and up to $130 million of postretirement contributions in 2010.
Capital investment is projected at $4.0 to $4.8 billiond over 2010-2012, concentrated at Detroit Edison, and environmental expenditures could exceed $2.3 billion through 2019. Gas Utility goodwill passed its impairment test by a narrow margin, and the company is also dealing with an EPA Notice of Violation at five Detroit Edison plants and a pending coal ash regulation.
02—Key points
Key Highlights
- Net income attributable to DTE Energy of $532 million, or $3.24 per diluted share, down from $3.34 in 2008, primarily due to the non-recurring $80 million after-tax Barnett shale gain in 2008.
- Electric Utility (Detroit Edison) net income rose to $376 million from $331 million, helped by rate relief, a securitization and renewable energy surcharge, and cost reductions, despite a 6% decline in total electric sales.
- Operating revenues fell 14% to $8.0 billion, with Gas Utility revenues down 17% to $1.8 billion on lower gas costs and customer conservation, and Power and Industrial Projects revenues down 33% to $661 million.
- MPSC approved a $217 million (4.8%) Detroit Edison rate increase with an 11% ROE, plus revenue decoupling and an uncollectible expense tracker, but ordered a $27 million refund of self-implemented rates.
- MichCon self-implemented $170 million of a requested $193 million rate increase effective January 1, 2010, subject to refund pending a final MPSC order expected around June 2010.
- Cash from operations rose to $1.8 billion, and the company paid $348 million in dividends ($2.12 per share), but credit facilities expiring in 2010 and $661 million of 2010 debt maturities require refinancing.
- Pension and postretirement plans were underfunded by roughly $887 million and $1.3 billion, respectively, creating significant future cash contribution requirements of up to $765 million for postretirement benefits over five years.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 23, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Operating Expenses | $6.76B$8.07B | −16.1% |
| Operating Income | $1.25B$1.26B | −1.1% |
| Interest Expense | $545.00M$503.00M | +8.3% |
| Net Income | $532.00M$546.00M | −2.6% |
| EPS (Basic) | $3.24$3.34 | −3.0% |
| EPS (Diluted) | $3.24$3.34 | −3.0% |
| Shares Outstanding (Basic) | 164.00M163.00M | +0.6% |
| Shares Outstanding (Diluted) | 164.00M163.00M | +0.6% |
05—Questions
Frequently Asked Questions
Why did DTE Energy's earnings decline in 2009 despite stronger utility results?
The 2008 results included an $80 million after-tax gain from selling a portion of the Barnett shale properties, which did not recur in 2009. Unconventional Gas Production swung to a $9 million loss in 2009 from $84 million of income in 2008. Higher earnings in Electric Utility ($45 million increase) and Energy Trading ($33 million increase) only partly offset this.
What is the outlook for DTE's utility earnings after the January 2010 MPSC rate order?
The Detroit Edison order provides a $217 million annual revenue increase, an 11% return on equity on a 49% equity capital structure, a pilot revenue decoupling mechanism, and an uncollectible expense tracker that shares costs 80/20. Management expects these mechanisms to mitigate the effects of lower sales. MichCon's larger pending gas rate case, with a final order expected in June 2010, is a key near-term catalyst that could result in refunds if the MPSC awards less than the $170 million self-implemented.
How much debt and liquidity pressure does DTE face?
Long-term debt including capital leases was $7.4 billion at year-end 2009, with total debt maturing in 2010 of about $661 million. The company had $1.5 billion of net available credit facility capacity at year-end. Credit ratings are investment grade, but DTE's senior unsecured rating of BBB- at S&P is the lowest investment-grade level. A downgrade below investment grade could require collateral postings, with about $250 million of exposure tied to rating triggers, and could restrict access to commercial paper markets.
What are the major risks related to the environment and capital spending?
Environmental expenditures are estimated at $2.3 billion through 2019, with $2.2 billion of air-related capital for new emission controls. The EPA issued a Notice of Violation for five Detroit Edison plants under the Clean Air Act, which could lead to legal action, pollution control equipment requirements, or fines. Potential EPA regulation of coal ash as hazardous waste and possible federal climate legislation could further raise costs, although the company expects to recover many of these costs through rates. Total capital investment for 2010-2012 is projected at $4.0 to $4.8 billion.
How exposed is DTE to its pension and retiree health obligations?
Pension plan assets were $2.5 billion against a $3.4 billion projected benefit obligation, leaving the plans underfunded by $887 million. Postretirement plans were underfunded by $1.3 billion. Pension costs are expected to rise to about $110 million in 2010, and postretirement costs are expected to be about $167 million. The company plans to contribute up to $200 million to its pension plans and up to $130 million to postretirement plans in 2010, with contributions possibly made in cash or DTE common stock.
06—Continue