密歇根天然氣 (DTE) 2004 Q4 法說會逐字稿

Welcome to the DTE Energy year-round conference.

[OPERATOR INSTRUCTIONS]

Today's conference is being recorded. Mr. Meador, you may begin.

Thank you, (Operator).

Good morning and welcome to our year-end update. I'm going to start on page 3 of our slides. With me today is Dan Brudzynski, our Vice President and Controller, Nick Khouri, our Vice President and Treasurer. On the regulatory affairs front, Mike Champley is on a well-deserved break and Don Stanczak who is a director in our regulatory affairs group, is with us this morning.

Also with us is Peter Pintar, who will be shifting roles at DTE. So the slide says outgoing Director of Investor Relations. As part of our talent planning process, we rotate our key people to help them continue to learn and grow. And Peter has been doing the investor relations function for over 3 years now and he's done an outstanding job for us there as the head of-- Director of IR. And I would just like to publicly thank Peter for doing a great job for us in that position.

So he's going to be shifting to heading up our trust investment group, where he will oversee about $5 billion of assets in our defined benefit plan, and other trust investments. He will also keep with him our very successful energy technology fund so, he will be heading up all our investments.

Dina McClung will be coming in as our Director of Investor Relations and she is with us this morning. So, to a certain extent she and Peter are switching roles. So she comes from the trust area, where last year she did a great job in overseeing the funds; they earned 11.9 percent on a very large asset base which puts DTE in the top 24 percent of corporate plans with assets over $1 billion. So Dina has a great track record, knows a little bit about investing money, and welcome.

So, I'm going to start on page 4 with an overview of our presentation. Our 2004 earnings and cash flows are within our guidance that we provided last year. The balance sheet is strong. And, the cash flows improved in 2004 and, as we have shown you, they will get much better in 2005. Our guidance for the year is $3.30 to $3.60 per share. We have made significant progress on the regulatory front, in 2004 and we're moving quickly this year with the filings that we have made in the last week. And we continue to be focused on our cash redeployment process.

I'm going to provide an overview of 2004 starting on page 6, and then I will have Dan take you through the numbers.

The priorities that we laid out for 2004 which are listed on page 6, are consistent with our corporate strategy which has also been constant over the last 5 to 6 years. Long-term, we remain focused on maintaining 2 healthy utilities, on pursuing a unique growth strategy, on remaining focused on value and maintaining a strong balance sheet, while paying an attractive dividend.

In 2004, our priorities were to focus on the regulatory agenda. We finished the Detroit Edison case. We are almost done with the MichCon case. We made significant progress on customer choice, but we still have some work to do on that front. We targeted our synfuels to be sold down to enhance cash flows and we made significant progress on that goal.

And while the utilities were in the rate cases, we remain focused on growth and we made progress there, and we continue to improve our cash flows, and maintained our leverage. So we actually, met a lot of our corporate objectives for the year.

On page 7 is a summary of the Detroit Edison rate case. We-- we've had this slide on previous presentations, but just wanted to-- to note a couple of items here. We were very successful in obtaining a $374 million rate increase based on an 11 percent return on equity and a 46 percent equity position. As you will see, the results of this rate case and what we expect out of the MichCon case , will drive improved earnings and cash flows in 2005.

There are many elements in this rate case, such as the treatment of transmission expense, the pension tracker, full recovery of prior environmental costs, which all come together to provide a much lower risk, more stable electric utility and as we've said, we made progress on choice, but we have some remaining work to do.

On page 8, just a review of synfuels real quickly. We had said that we would sell down our position in our synfuel interest to optimize cash flows, and by the end of the year we had sold out 92 percent of our interest. We expect to sell the remain 7 percent this year.

On page 9, we've had consistent growth. We've shown this slide many times. Our non-utility businesses have been very successful. This shows the growth starting in 1998. We had another great year in 2004, with the earnings coming in at $241 million, which is over a 4 percent increase in earnings and the key events and highlights are on the right-hand side of this page. We had made progress in areas like energy services with the Daimler Chrysler transaction, coke batteries, synfuel production and also in gas operations.

On page 10, is just a cash and balance sheet accomplishment slide. Our cash from operations in 2004 was over 1.2 billion that's up over 17 percent compared to 2003. We maintained our targeted leverage. We extended our short-term facility to 5 years, and we also contributed about $170 million of DTE stock to the pension fund, which will put that-- puts the fund in very good position, and we don't expect to make further contributions until at least 2007.

So with that overview of 2004, I'm going to turn it over to Dan who will go through the 2004 results.

Thanks, Dave and good morning to everyone.

Moving on to slide 12, [inaudible] a rundown of fourth quarter results. Operating earnings per share for DTE were $0.94 a share for the quarter. I would like to remind everyone that a reconciliation to GAAP-reported earnings for both the quarter and the year is contained in the appendix.

The energy resources segment of the business contributed $0.65 to the quarter, driven by the regulated power generation and energy services parts of this business. Higher energy marketing and trading margins also provided a portion of fourth quarter performance. Energy distribution, the wires and technology parts of our business, contributed $0.14 per share, driven by sales and incremental rate relief.

The energy gas business contributed $0.29 a share to the quarter, driven by weather-related sales and incremental rate relief also. Corporate and other was a $0.14 loss for the quarter, largely due to interest expense, and tax adjustments at the enterprising level.

Now moving on to slide 13 and a look at the quarter compared to 2003. Our electric utility experienced lower earnings this past quarter, due to decreased electric margins largely a result of electric choice and higher operating costs due to maintenance and outage work. Partially offset by incremental rate relief and cost reductions.

Our regulated gas operations were up in the quarter, driven by weather and incremental rate relief. The non-utility operations were up due to increased synfuel production, partially offset by mark-to-market changes in our oil hedges due to the oil price changes. Wholesale energy and marketing, and co-energy margins were also up in the fourth quarter, due to increased storage profits related to gas prices.

Continuing on to slide 14, and a look at the full year 2004 performance. Operating earnings per share were $2.46. Energy resources contributed $1.84 per share, driven by higher synfuel profits within energy services, and contributions from power generation and energy trading.

Energy distribution contributed $0.43 a share, primarily from the regulated distribution business. Energy gas contributed $0.25 per share in 2004, equally from the regulated utility part of this business, and the non-utility midstream operations. Corporate and other was a $0.06 loss for the year, primarily due to financing costs at the DTE parent level.

Moving on to slide 15, in a comparative look of 2004 to 2003. Beginning with 2003, on the left side of the chart, our 2 regulated parts of the business were down in 2004. And we expect these 2 to turn around in 2005, with the conclusion of the electric and soon to be concluded gas rate proceedings. Non-utility earnings contributed-- continued to experience growth in 2004, and we saw improvements at an enterprise level due to tax savings and lower borrowing costs, as a result of refinancings during the year.

Continuing on to slide 16, and a more detailed look at the components of these drivers. Detroit Edison was down in 2004, primarily due to decreased cooling demand, as the below normal weather pattern over the past 2 years continued. Choice migration continued in 2004, ending the year at approximately 9300 gigawatt hours. These deteriorations were somewhat mitigated by regulatory deferrals and incremental rate relief.

2004 was also negatively impacted by continuing rising employee benefit and healthcare costs. 2004 finished the year with a 6 percent ROE. Another set of key drivers were on the gas side of the business and those are detailed on page 17.

MichCon was also down in 2004, due to decreased heating demand. Somewhat offset by incremental rate relief, but experienced high-- higher uncollectible expense, due to higher gas prices and the local economic conditions. Higher employee benefits, similar to the electric side of the business, also negatively affected 2004's results. 2004's returns were also down but, again, we expect improved results from both of our utilities in 2005.

Moving on to slide 18 and a look at the non-utility portfolio. Earnings for 2004 are in at $241 million, up from 2003 levels. Our synthetic fuels business was the largest contributor in 2004. Higher production was somewhat offset by approximately $7 million in mark-to-market losses, recognized in the fourth quarter, as part of our oil hedge program. Our coke battery business was up due to higher prices of coke and some renegotiated contracts. On-site energy projects were up also, due to the Daimler Chrysler deal.

Power generation was down due to contract termination gains realized in 2003. Energy trading and co-energy were up due to storage-related profits as a result of gas price changes. Overheads in the energy resources portfolio were also up due to higher interest expense, realigned from the holding company and higher development costs.

Midstream was down due to gain on sales, some of our-- we divested an interest in the Portland pipeline during 2003. Energy technology was also up due to the sale of the Plug Power shares earlier in the year.

So with that, that's a look at 2004's earnings performance. I would like to turn the discussion over to Nick Khouri and a look at the balance sheet and cash flows.

Thank you. Good morning.

Improved cash flow balance sheet strength remains a key priority for management and the board of directors. Turning to page 19, 2004 saw sharp improvement in ongoing cash flow and a decline in leverage from the prior year. Leverage declined to 48 percent at year-end, falling from 49 percent in 2003. Part of the decline was attributable to February's equity contribution, to the DTE pension fund already mentioned by Dave.

The second reason for the decline in leverage was the improvement in operating cash, led by the flip in our synfuel business from cash negative in 2003, to cash positive in 2004. Funds from operations, a measure of cash flow before changes in working capital, saw significant increase from under $900 million in 2003 to over $1.2 billion in 2004.

FFO divided by debt, a key ratio monitored closely by us and also by the credit rating agencies, FFO to debt improved from 15 percent in 2003, to 21 percent last year, a big step towards our long run goal of 26 to 28 percent. Favorable interest rate environment, coupled with multiple refunding opportunities, lowered DTE's interest costs from approximately $550 million in 2003 to $520 million in 2004.

Interest costs are expected to decline again this year. For example, last month we refinanced 385 million of a quasi-equity instrument, called QUIDS, lowering the interest rate from 7.5 percent to below 5.5 percent. Although the refinancing will save approximately $9 million per year in pre-tax interest, it will increase our measured leverage, by about 3 percentage points.

Page 20 details 2004 cash flows compared to 2003. Adjusted cash from operations reached 1.1-- $1.2 billion during 2004, up $177 million from last year. The largest contribution to the increased cash was a swing in synfuels. Synfuel production payments rose to $221 million in 2004, up from only 89 million in 2003. Even with higher year-over-year capital spending, we achieved our 2004 cash target of funding capital spending and the dividend with internally generated cash.

Page 21 details capital spending by business line. In total, CapEx reached $940 million in 2004, above last year's base but similar to the amount reached in 2002. The largest driver of higher capital spending in 2004 was additional investment in Detroit Edison's base business. Higher spending to replace outdated corporate HR and financial systems, which we call DTE 2, also contributed to the year-over-year rise in capital.

With that, let me turn it over to Dave, to present an overview of 2005.

Thanks, Nick. I'm going to move to page 23 where I want to review our 2005 priorities, which are listed here.

The first one is to develop a stable long-term regulatory structure, and we started that process last Friday, with our filing that I will cover in the next couple of pages. Next, is to continue to improve our operations by making significant progress this year on 2 fronts; 1 is the DTE operating system work that we've talked about before. This is where we are using Toyota-type principals and Six Sigma work to drive higher quality and cost reductions in our operations. And our-- and our SAP implementation, which Nick just spoke to, that we're actually into the thick of this year, and part of Detroit Edison will actually convert into mid-year.

This project will develop substantial savings that we'll begin to phase in in 2007. Next, is the effective redeployment of our cash flow into new investments, our stock repurchases, and last is to remain focused on our credit rating and balance sheet metrics, and when appropriate later this year, to pursue a rating upgrade with S&P.

On page 24 is the regulatory highlights calendar that we wanted to lay out. Last week we filed our rate restructuring proposal which was almost 2 months early to the date that was mandated by the MPSC, and then this week we filed the retiree healthcare filing. In March there will be a lot of activity. The schedule will be set for the restructuring proposal that was just filed, so the calendar will be laid out. We'll file our 2004 stranded cost true up and we also expect the MichCon gas rate case to become final in that month.

April, we are projecting on the restructuring filing, that we'll actually see staff testimony then. Mid-year we'll actually have a change in the commission. Commissioner Nelson's term expires in June, and then in the fall we expect to resolve the restructuring case and hopefully to have that resolved in time for changes effective 1/1/06.

On page 25 is the overview of the Detroit Edison rate restructuring proposal that was mandated and we filed last Friday. If implemented as we had proposed, the MPSC would unbundle rates into a power supply rate and a distribution rate, and then all rates would be based on actual cost of service, therefore removing subsidies that exist today. Unbundled rates would be effective based on our proposal starting January 1, 2006, and residential customers would see small increases phased in over 5 years beginning January of 2007.

It's important to note that this case does not request any new revenue requirements. It's just a case to re-- create cost-based rates. And it's also important to note that this filing could lower business rates by as much as 25 percent, provide lower rates for up 175,000 businesses in Michigan.

On page 26 is a repeat of the guidance page that we provided in December in New York. Our 2005 guidance is $580 million to $635 million or 42 percent higher than 2004 actuals. This is driven by utility performance and then improvements at almost all of our non-utility businesses.

Page 27 is a non-utility guidance page, which is similar to what we showed you in New York. The total remains the same at 300 million to 320 million, which is almost $70 million higher than 2003 at midpoint. While the total is the same we included this in this presentation because there's been slight adjustments on a couple of lines that we wanted to point out to you. The power generation and the trading, and the overhead slides have minor adjustments compared to what I provided in December, but, again, the total remains the same.

On page 28 is a dashboard that we have created for our synfuel operations. On the top left, you can see that we expect to be 99 percent sold down this year. Which is up over the 92 percent at the end of last year. Tons produced will improve to 18 to million-- 18 to 19 million tons per year. The cash flow up on the right-hand side, jumps up to $420 million in 2005, and the net income on the bottom right will be in the $215 million to $225 million range.

On page 29, I want to provide a further update on synfuels. Last year, we took you through the relationship of section 29 credits, and oil, and what we pointed out, was that if the average annual price of oil exceeds $56 per barrel, the value of the credit begins to phase out. We believe the chance of a phaseout in 2005 is unlikely our the guidance for synfuel earnings is $215 to $225 million. The spot price of oil today is about $45 to $46 a barrel. While the average price year-to-date is about $47.

Given the year-to-date average, the price of oil would then have to average $57 for the rest of the year, to trip the lower end of the phaseout range. We have hedged, as we pointed out in December, two-thirds of our 2005 synfuel cash flow. This is like an insurance policy that costs us $17 million after-tax to ensure those cash flows.

But we wanted to point out that the accounting literature says that these hedges that we put in place have to be mark-to-market. As a rule of thumb, for you to use, a dollar change in the average price of oil, not-- not the spot price of oil, but the average, will result in a 2 to $3 million after-tax mark-to-market gain or loss for us. And this will show up in the synfuel earnings line.

Given that the results-- given that the results for 2004, included as was pointed out, a $7 million mark-to-market loss after-tax, and again that was in the synfuel line. The other clarification I want to make is regarding how the accounting literature addresses revenue recognition in this area. When we sell down a synfuel investment, we are selling a partnership interest and this is earned out over time as we produced tons of synfuel.

The accounting for this type of transaction is found in the area of recognizing gains, which is much more stringent, much more conservative than other revenue recognition criteria. It's possible, for example that oil prices could be below $56, so there's no phaseout and it could be volatile and we would not recognize revenue in a given quarter.

Of course, as long as oil stays below $56 on average for the year, this is just a shift in earnings from a quarter to a quarter and the total year would still come in at the $215 to $225 million range. But in the spirit of transparency, we wanted to make you aware of this accounting issue, and that the fact that the accounting for this is much more conservative than normal revenue recognition criteria.

We will be in a much better position at the end of the first quarter to update you on our outlook and also on any-- any other updates regarding how the revenue recognition will be accounted for, for synfuels.

Now, let me shift a little bit. On page 31, as a review of our cash redeployment framework that we walked you through in December, first use of the expected cash flow, as you know, the 1.65 billion is to pay down parent company debt, and we'll continue to pursue growth investments with a strict focus on risk and value. We will use share repurchase, if we don't find the best method. And in January we put in place an authorization covering $700 million of stock to cover us over multiple years on the stock repurchase front if we choose to do that.

On page 31, are the charts that Jerry Anderson and I presented in December. -- or 32, excuse me. On the left-hand side is an overview of the cash available between now and 2008, which shows you the $1.65 billion and then our targeted parent company debt paydown of 6 to $700 million, leaving $950 million to 1 billion 50 available for investments or stock repurchase over that timeframe.

On the right-hand side is the same chart for 2005. We are targeting $200 million of tet-- debt paydown this year. And that would leave 250 to $300 million of cash available for investments or repurchase of stock.

On page 33 is just a brief update on our investment opportunities. It's very early in the year. And while we have a broader set of opportunities that we're exploring and those were outlined for you in December, some of the areas that we wanted to note and highlight today are listed here.

For example, Barnett Shale project, here we own an interest in over 50,000 acres in the Fort Worth, Texas area. We're currently drilling test wells. We expect to provide you an update this summer on the results of those test wells and the range in timing of possible Barnett investments that we might make.

On the coke battery front, we are in discussion on several projects where we could take up to a 30 to 40 percent equity stake in these projects. And what we outlined in December, was that we could make investments in that area in the range of 50 to $70 million. And then last was the on-site energy project. The Daimler Chrysler project for us has provided the scale and recognition that has resulted in a series of discussions with other auto manufacturers, and we're also exploring on-site energy projects in other industries.

Last year we did have an on-site energy project with Kimberly-Clark and we are also providing solid fuels now to multiple paper mills that are also not affiliated with Kimberly-Clark. As I mentioned, we'll provide a more detailed update mid-year at investor conference in New York.

In conclusion, on page 34, 2004 was a challenging year. From an earnings [inaudible] standpoint, it was clearly disappointing. But there were many positive accomplishments for us that laid the framework for improved earnings and cash flows, across all business lines, both in-- both utilities and then all of our non-utility businesses.

Throughout the year, there will be key milestones on the regulatory front, and we will communicate with you regularly on our progress on those milestones. And we'll continue with our execution of our cash redeployment strategy.

So, thank you for joining our call this morning and (Operator) we will now open it up for questions.

[OPERATOR INSTRUCTIONS]

The first question comes from Carrie Stevens from Morgan Stanley.

Hi, good morning.

Hi, Carrie.

A couple of questions. I was noticing in your presentation, a discussion about an attractive dividend, and I know you had-- you've talked a lot about cash flow redeployment, investments, and buyback. I was curious if you are reconsidering a slight increase in the dividend on a going-forward basis and maybe you could just address that.

Sure.

As we have said in the past, we look at our dividends, at least annually, and we take a deep dive in conjunction with an annual review with our board of directors. If you went back historically, our payout was-- we were growing out our payout and then as the utilities went through the rate case, our payout percentage actually increased back up.

Today we pay, as we laid out in December, about 6 percent of the S&P electric index dividend and we've held that constant over the last four years while the actual sector dividend declined 18 percent. So that being said, now when I think about how the year will play out in the 2006 time frame, we-- as you look forward to our earnings, we're going to start back approaching a 50 percent payout.

Also, as we get towards the end of this year, we're going to be in a position where most of the regulatory proceedings are going to be behind us. We'll have the gas case behind us. The rate restructuring case will come to a conclusion this fall, and I will have a good line of sight on utility cash flows.

So all of that coming together, I think the appropriate time for us to step back and really look at that, is later in this year. We are open to an increase, but it's-- it's early at this point in time, for us to say anything any-- with any more conclusions than that, other than, we're open to it, we'll look at it later in the year and we'll see what we can do, given where we are with our-- both of our utilities at that point in time

Okay. Great. That sounds good.

Looking at the rate deskewing case, I wasn't sure-- I know the rate-- the changes in the rates are going to come in over time. I didn't know if you had, at this point, a forecast for potential margin upside, in the 2006 and 2007 time frame.

We really don't. You know, when we're asked about this case, what we are really trying to do is we're trying to set rates based on cost of service. If done right, we're well aware that the amount of choice that exists today will go down and there will be customers that will return to you at the bundled rate, but it's really early to project any outcomes in terms of the case. We've literally just filed the case and the calendar has not been set.

So, as this plays out and we understand what happens on both fronts, the unbundling and deskewing, because there's-- there's really 2 elements to this. That we would then have a better understanding of what might happen to choice, and the resulting increase and customers that would come back to DTE or Detroit Edison at bundled rates.

It is fair, though, the loss margin you've incurred to date has it been about $200 million pre-tax?

Yes, roughly.

That-- it's hard to - to continue to track this loss margin, because what happened in the rate case is the revenue deficiency related to that loss margin was part of the $374 million that was provided in rates but it's-- but that-- there's-- a better way to think about it is the gigawatt hours of electricity that have gone to choice and thinking through that, some percentage of that could come back to you at bundled rates, if we are successful in this case.

Is there any structural delay in terms of when-- in terms of the notice customers have to give you to come back, that when the rates go into effect, starting in the '06 time frame that it would be, X plus 6 months, X plus 12 months 'til you would start to be able to take them back on to your system with the new rate case so that really the impact wouldn't be in '06 or later out? Is there anything I should be aware of when I think of that?

I will let Don take that question.

Yes, there should be. As part of our rate order last November, the commission established a new return to service provision. And what that entails is, once the customer is on choice, they have to stay on choice for 2 years. And in addition, it-- when they want to come back, they need to give us notice by December 1st of one year to be on our service for the next summer.

So, there could be a situation that if the order came out too late in the year, it could prevent people from coming back; however, in the November order, the commission extended that deadline to December 31st. So we'll work through that.

Okay. So as long as they notify you by December 31st '05.

Well, it does-- the rule is actually December 1st, but this last December, the commission extended it to December 31st.

Oh, I see what you are saying. So they could change it?

It was basically an amnesty of another month.

Okay, and maybe next year they would do something similar?

That would be what we propose--

Okay.

--if the order kind of languished.

Okay. I see. Okay. And then, for -- and I may have missed this, just for your 3 areas of reinvestment opportunity for this year, I know you said coke battery 50 to 70.

Did you say an amount for the Barnett Shale and the on-site that would be an '05 possibility?

Well, the coke battery was not an '05 indication, as much as just saying that's the range of possibilities for coke batteries.

Okay.

If you went back to our December presentation on Barnett, and the whole area of--

I have those numbers.

You have those numbers. We-- right now, we don't have a sense yet, because of the test wells we are drilling right now and until mid-year we'll have sense of, not only the dollar amounts that we might or might not invest, but how rapidly that could be invested. So, when we get to the mid-year update, I think we'll provide details to say-- on all these growth opportunities, here's what we see for the remaining months of '05, as possible investments versus forward years investments. But it's too early right now.

Okay. Thank you.

Okay. Thank you, Carrie.

And, the next question comes from Paul Patterson from Glenrock Associates.

Good morning.

Hello, Paul.

Just to follow up on Carrie's question. I wonder if I could ask it a little bit different on the electric choice issue. What would happen if you don't get-- if this wasn't to happen. What would-- what would-- would you guys think that you might have to go for a rate case again or-- I'm just trying to get an idea as to what the impact of this-- of this rate design case might be, if you follow me.

Sure.

If you go back to the December meeting, we received questions about the electric utility's ability to earn its authorized return in 2006, and what we said then was that there's several things that will come together next year. One is just ongoing revenue growth through service territory growth, which is tied to the economy. Another factor is cost reductions and cost management. So that's DTE's operating system, the SAP implementation will not start benefiting us until probably 2007, 2008.

And then, the third factor is this case that was filed, the unbundling and deskewing case and then also the healthcare case. So, all of these factors coming together will work together to - to help us get to 11 percent. Then the question is-- If nothing changed, would we have to file a rate case, a general rate case? We hope not to. But, I'm just saying it's really too early.

We're going to have wait and see what happens at the end of this case, and if we didn't make a lot of progress, we'll have to sit back and evaluate what our options are in terms of topline growth, cost management, and assess whether the revenue deficiency projections are such that we'd have to file a general rate case. I think the flip side is true too. If we do well in the unbundling and deskewing, combined with other factors, there's every possibility we will not have to file a general rate case in 2006.

Okay.

It's too early to call that right now.

Okay. You guys mentioned about a 25 percent reduction for commercial customers under the plan. What would be the increase for residential customers that you guys are looking at?

Well, now the increase for residential customers, there's the current rate case, so in January 2006, residential rates will go up approximately 10 percent.

And then the-- relative to the restructuring case, our proposal is that residential customers will not be impacted until 2007. And in 2007, the increase for residential customers would be 2.5 percent. And then if you went out to 2012, so there's a 5-year phase-in, what that means is, the average residential customer by 2012, is an increase in their monthly bill of $6.50.

Okay, well, I will follow up with you guys afterwards on some more of that. Let me ask you on the trading situation. It looks like what you guys had in the December meeting was a little bit less in 2004, and a little bit more in 2005.

Actually a lot less in 2004 in terms of what you guys are planning on earning at the energy trading and CoEnergy portfolio. And, I was just wondering if you could elaborate a little bit on what's going on there in terms of the 2004 results and your expectation for 2005?

Well, there's 2 pieces to this business. We have energy trading and then we have our CoEnergy portfolio which is the-- the assets that came with the MCN acquisition. Energy trading, as a component of that, actually in 2004 was up over 2003 and, they-- going forward we look-- we're looking at modest increases.

The other piece that's playing in there, is the CoEnergy Portfolio and that is where, for example, we have our non-regulated storage assets that-- we have this accounting situation where the gas and the storage is accounted for one way and then the forward sale is mark-to-market. So last year-- in the storage cycle by the way, also bridges over year-end. So last year we had had mark-to-market losses that we had projected were going to come in in 2005.

Some of that showed up in December of 2004 and that's some of the-- some of the movement you see in the slide tends to relate to the mark-to-market movement on storage, and nothing more than that.

And that was driven by pricing?

Gas prices on the forward.

Okay. Okay. And then on the same-- same sort of question on power generation.

That also seemed to have a bit more of a loss in 2004 that what you guys had expected, and I just was wondering if you could just tell us a little bit more what happened there.

The-- in that line, we have our-- a group of merchant power plants, and we realigned some-- there was another small loss that came out of the overhead line that we had previously had sitting in overhead that we wanted to be just more clear and get anything related to our merchant power generation fleet on that line.

So we wanted it to be-- I would just describe it as more fully costive. So that there was nothing more that happened there than some realignment in geography in terms of our reporting.

So it's just an allocation issue?

Yes.

Okay. That's helpful. Thanks a lot.

Okay.

The next question comes from David Dickens with Deephaven Capital Management.

Good morning, David.

Good morning.

Can you maybe give us a little more color about the Barnett Shale investment? I know that your accounts trend to give us outlook in terms of what you expect there, but maybe just some of the factual data.

Can you tell us, know where the acreage is? What counties it's in and what your working acreage is in that-- or working interest is in that acreage position?

Yes, I can comment a little bit on this. We're trying to be careful about-- we're not trying to dodge the questions, but we're trying to be careful because we're very early in our investment exploration phase, as you know.

We have about 50,000 acres that are-- we have under control, and it's in the Fort Worth area. I think there's probably public data, you can probably figure out where the acreage is, but it's--

The information I was given, is it's mostly in Hill County but components also in Johnson and Bosque, is that correct?

I honestly don't have that information available--

Okay.

--to me right now. We are drilling test wells and we are aware that nearby wells and other acreage is promising, but beyond that, until these test wells get driven and we're-- or drilled and we're drilling a significant number of wells in the first 6 months, it's really premature to jump in, and unfair projecting what this might be worth to us because, as this shifts from unproven to proven reserves that's when we're going to have a better understanding of the potential benefit to DTE.

So we're trying to be careful. We don't want to get out too far ahead of ourselves here. So, what we've said is nearby wells are promising. We'll talk about the scale of this opportunity and the types of investments, how rapidly we might invest mid-year, because we'll have a better sense out of the test wells that we are doing right now.

Okay, have you shot seismic yet? Are you in the process of shooting seismic?

I'm not-- I don't know. I'm not close enough to that to know.

All right. Thank you.

We have invested $20 million and I-- we are still optimistic that this is a business that by 2008 can produce net income of $50 million for us. And then in addition with the growth that we see in our Antrim business, which today earns 50 million-- 15million and could grow to 30 million. Between the 2 of these, we have a business line that could grow to the $80 million range by 2008, and the big missing piece right now-- we know a lot about Antrim, the big missing piece is to understand the test flows at Barnett. And we'll provide an update mid-year on that.

All right, thank you.

The next question comes from Daniele Seitz with Maxcor Financial.

Thanks. One small question.

On the fuel (ph) estimates for 2005, you are expecting holding company to have a 60 to 65 million negative earning. Could you tell me what that comes from?

Yes. The majority of that is the merger-related interests. If you recall in the Detroit Edison case, the MPSC disallowed what they had-- what is called the merger premium. The way to think about is interest at the holding company that's pushed down. We are appealing that. We don't think-- we disagree with that. We don't think it's good public policy. And we also are continuing to pursue the merger interest on the MichCon case, which, as you know is coming up to final in March.

Okay. Of the 450 million of investments you anticipate for this year. Is there anything that is already earmarked? I mean, aside from the 50 million you mentioned before?

No. No. There's -- there's -- you there are a lot of things that I would describe that are in the investment pipeline that are-- we are currently reviewing. But there's been-- there's been no investments of scale that have come before the executive team and received approval yet, if that's what you are asking.

We have a lot of things that are currently being explored and as the year plays out we will have investment opportunities brought before for us for review and approval and that will be, probably more in the middle of the year.

Okay. Just could you remind me of the 2000-- the type of savings you are looking for in 2007 after those programs are implemented?

The-- this is the SAP implementation?

Yes.

The range is $70 to $100 million per year. And it would start in 2007. It would phase in and then grow in the forward years.

Okay. Great. Thanks a lot.

Thank you.

At this time, I would like to turn the conference over for closing remarks.

Thank you.

And I appreciate everybody working through last year with us, as we said it was a disappointing year, but we made so much progress on many fronts, that as we all came back to work this year, it really feels like a new day for DTE and a lot of exciting opportunities. And we look forward to updating you as we meet with you at conferences and AGA this spring and our mid-year update in New York. Thanks again.