密歇根天然氣 (DTE) 2007 Q4 法說會逐字稿

Good day, everyone. Welcome to the DTE Energy Fourth Quarter 2007 earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Dave Meador. Please go ahead, sir.

Thank you, Kim, and good morning, everybody. Welcome to our 2007 year-end Conference Call. I don't know about where you are but in Michigan it's a cold , snowy morning so the gas folks are really happy today.

Before I get started I encourage you to read the Safe Harbor Statement on Page 2 regarding forward-looking statements. And with me this morning is Peter Oleksiak, our Vice President and Controller and Nick Khouri, our Vice President and Treasurer and Lisa Muschong, Director of Investor Relations. I also have members of the management team on hand to help me with Q&A if necessary at the end of the call.

So I'm going to start on Page 5. I want to provide a business overview before I turn this over to Peter to take you through the year-end results. DTE is positioned very well to grow earnings over time, by 5% to 6%, with our two utilities focusing on high customer satisfaction and low operating cost. The regulatory and political environment in Michigan continues to be very constructive and will update you today on legislation.

As a reminder, when we talk about growth, think is an upside to our growth story since our projections do not include the growth and earnings from renewable energy which is currently being negotiated as part of the legislative package. We have a proven track record on value creation on our non- utility businesses, although it's going to be a much smaller portion of our investment story going forward we continue to make modest investments in those businesses. We'll also have a series of catalysts during the year we'll keep you updated on and I'll cover those in the next page. And then just a reminder on our dividend, $2.12 a share, it was increased a little over it year ago and is very attractive today with over a 5% yield.

Let me turn to Slide 6 and talk about some of the catalysts for the year. We updated the Detroit Edison rate case this week, and we expect staff testimony in the second quarter of this year and all of these I'll cover in more detail in the next couple slides. Comprehensive energy legislation is currently progressing through Michigan, right now in the Michigan House Energy Committee and pieces of the legislation is actually being worked on by the full House. What makes significant investments in our two utilities this year which is the significant portion of the growth story. This year, we are going to invest $1.2 billion in the two utilities. Slides 42 and 43 which are in the appendix, demonstrate how this growth will continue to increase rate base over time and again, as a reminder those slides and our other growth slides do not include renewable energy.

Another catalyst this year will be the completion P&I deal and the remaining stock buyback program. While we have been targeting the end of March for the closing of that transaction most likely it's going to move into the Second Quarter of this year. And last is the Millennium Pipeline, which is projected to go into service before the end of the year.

On Slide 7, an overview of our update on the rate case for Detroit Edison. Given the slippage in timing on this case we were concerned we might miss some of the 2008 economics and the 2009 service environmental capital. We updated the case earlier this week for an incremental $85 million rate request. This increase was anticipated when we released our 2009 early outlook projections in January of this year. On the right hand of this slide is the summary of where we stand. April 13, we wanted to remind you there's an expiration of the $79 million rate Settlement Agreement so the rates will increase by $79 million. And the choice tracker also expires, which is worth about $20 million. So one way to think about that is the rate case was delayed, those two events in essence act like an interim rate increase for us. We are targeting 11% return on equity at Detroit Edison this year, even though it is going to be a slight challenge, as the year progress because there is a need for higher rates which we won't see until early 2009.

For 2009, the rate increase should be in effect for all or most of the year, and again, we are also targeting 11% return on equity next year for Detroit Edison. The hearing to reset the timetable for this case should happen soon and we'll be able to communicate the new timetable to you hopefully within a couple weeks.

On Slide 8 is a graphical summary of the updated rate case, and a couple points I wanted to make here was the capital included in the update is now $290 million, and you can also see the PET cost savings of $120 million just about offsets the O&M increase so our early lead on the cost reduction initiative which we started at the end of 2005 is played out just as we had hoped in terms of creating head room in the rate case and then offsetting just about all of the O&M rate increase. We also have included in this update the merger control premium of 60 million. The total deficiency that's in the filing is now a little over $280 million, and it is the first rate base rate increase since 2006. And if you averaged it over that period , the average annual increase of 1.2% rate increase per year over that period.

On Slide 9, I mentioned Michigan legislation, which continues to move forward. This legislation could provide wide ranging benefits for both the customers and both utilities in Michigan. The legislation includes electric choice reform, a renewable energy standard, and energy efficiency program, a file use rate proceeding process that the can help resolve the issue that we're experiencing today over regulatory lag, the certificate of need for new generation and skewing of rates based on cost of service. The RPS and energy efficiency bills were approved the House Energy Committee in January and the rest of the legislation continues to move forward. This is very important for Michigan, and is also a key component of the Governor's State of the State speech in January. It has bipartisan support in the leadership in Michigan is actively working on the details of the legislation as we speak. We're hopeful that we can see passage of the bills by mid year and this is a key focus for the DTE Energy Management team right now.

On Slide 10, is an update on Detroit Edison's investors program. We continue to make investments in everything that's on track primarily driven by the environmental program at Monroe. We will be investing about a billion dollars in environmental controls between now and 2012 in Detroit Edison. Additional growth investments beyond what we've outlined could come from our AMI program which we're piloting this year, and then down the road a new nuclear plant. We are on track this year to submit our application for the potential new nuclear plant. And then the last as I mentioned is the investments in renewable energy that could provide upside investments in growth.

Slide 10 is a comparable slide for MichCon growth story. This years investments include a $90 million investment in Western Michigan distribution expansion in the Grand Rapids area, a $90 million utility gas storage project, and a $50 million lateral pipe that is going to be constructed to connect the MichCon system to the Panhandle Pipeline. Going forward here also there could be additional growth from AMI program and a meter relocation program.

On Slide 12 is an update on the monetization program. As you know, we started this process by projecting we would have at least $800 million in proceeds in the current projection is $1.7 billion. If you look at some of the pieces there on the right hand side, Antrim, the Peakers and the Core Barnett all have been closed. The PNI transaction as I mentioned earlier, and you know has been delayed due to the credit Markets. We wanted to make sure we communicated that we are still committed to closing this transaction. We're currently in the process of exploring other financing options and focusing on traditional bank project financing at this time. I want to emphasize that we are committed to closing this transaction, and we would have if it would by now if it wasn't for the credit markets.

We assume March 31 closing in our 2008 guidance, if the closing of this transaction happens after that date, you can expect about a $.02 per share increase in earnings per share for each quarter of delay, and we still expect to buyback the remaining $275 million of common stock when we close that deal.

On Slide 13, it's an update on our Western Barnett properties. As you know, we sold the core properties at the end of 2007 that closed in January, with proceeds of $250 million, which was 100% return on our investment. In regard to the Western properties and the table there, the Western proven reserves at year-end were 144 Bcf, which is up 30% over 2006. Our probable reserves are up 7% at 192 Bcf, but you do need to take into consideration that we acquired 10,000 additional acreage in the Western properties last year, so it dilutes down the year-over-year improvement and the probable reserves. And then on the bottom you can see the percent acres developed is 20%, which also was diluted by the additional acres acquired in 2007, but it's still on the upside shows that there's an 80% undeveloped position in its properties.

For 2008 we plan on investing about $100 million and we're going to drill 30 to 40 wells and produce about five Bcf of gas from the 30 to 40 wells is our current projections that could change over time depending on what we experience as we prove up these properties.

On Slide 14 is a summary of our view on the valuation at this time for the Western Barnett. We've taken a very conservative position here and others that the might do valuations, you could go about this differently so it's possible that someone could do a forward projection. This is a point in time projection for us at this point in time. We've also here done a proved and probable analysis. Some people do what is known as the 3P analysis where they include possible reserves in their analysis, and we've not done that because we want to take a conservative view at this point in time. The Western portion of the Barnett is different than the Core, and we're excited about the possibilities here, but it's less mature than the Core properties. We've often talked about the value curve and just wanted to note that these are, if you think about the chart that we've shown in the past, these are on the left-hand side of that curve so it's less mature, and certainly, it's going to take some time to prove up the properties and take it up the value curve, and just as a reference point, the core area of the basin, there's 7,000 wells, so it's much more mature and certainly easy to get comps. In the Western part of the Barnett, currently there's slightly over 100 wells and it's over a much wider portion of the basin. So this is very early stage in its development compared to the core properties.

That said, we made significant progress and we see the value today as outlined here. For the proved reserves we value those reserves at $1.50 to $2.00 in Mcf. So the range there on the right hand side is 220 to $290 million. For the probables we've taken a conservative position of $.25 to $.50 in Mcf, and the value of the Western probables will become clear over time, and certainly as more transactions happen in this area, and as more drilling happens. So you would expect over time is that some of those probables would actually move up into the proved categories and then it would also be reasonable to expect the value of those probables per Mcf would go up over time. The total valuation here is 270 to $390 million, at the high end , that's almost double our current investment. And then as I mentioned, there's upside taking into consideration that 80% of the acreage is still undeveloped.

Also wanted to note that we have written off our capital in the South and we don't assume any value in this analysis for the Southern properties. Overall, we believe that it's a real interesting opportunity but we think it's prudent at this point in time to be conservative in the valuation giving where we are in the developmental curve.

On Slide 15, it's an update on our gas pipeline and storage business. As we outlined for you in the past, we believe we're well positioned to capitalize on the strong market dynamics, basically, with the gas movement from the Midwest to the Northeast. Our 2008 growth projects include our Shelby 2 storage project which is an 8.1 Bcf storage project, the Vector Expansion Project, which will come online in 2009, and the new Millennium Pipeline which I mentioned earlier which will go into service at the end of the year.

Before I turn the call over to Peter, I wanted to comment on last years results. As you know, we talked last year in November, and then at EEI in November, on some of the issues that we are experiencing predominantly our computer system replacement project that we were going through at that time. This is something that the you only do once in a career, at the least for most of us, and from a Company standpoint, it's something you do once every 20 to 30 years. We had systems we were replacing that were over 30 years old. In total we replaced over 160 systems and it caused some disruption in our operations, but now that it's in place and things are certainly settling down, it provides a platform for us to drive continuous improvement going forward.

In November, we took our guidance down and we asked the DTE Management team to pursue cost reductions beyond their existing PEP cost reduction targets to help offset some of the incremental costs we were experiencing at that point in time. And I'm pleased to report this morning the group rallied around this issue and we delivered on our original 2007 guidance. The results that we're reporting today demonstrate our ability to deliver in spite of challenges, like the higher storm costs we experienced last year, or the system related costs that we experienced as we launched the system.

Another positive that also happened during the year, when we took down our guidance we were forecasting that lower load and as Peter takes you through the earnings report that the load actually came in slightly positive in spite of some is of the economic conditions in Michigan. We also realized that as we report these great results for 2007, it raises the bar for 2008. It's too early right now to revise guidance but internally we've targeted $2.90 per share as the minimum performance level for 2008. And with that overview I'll turn it over to Peter now who will take you through

Thanks, Dave and good morning to everyone. I'd like to start with Slide 17 in a summary of 2007 accomplishments. Overall, our utilities had a solid performance in 2007, as Dave just went over, and we have been communicating since the Second Quarter. Both utilities were impacted by this one-time system start up cost. In spite of that we were able to deliver near authorized return levels really on those cost control initiatives that we put in place through the end of 2007. On the non-utility side of our business we saw earnings improvements in all segments with the exception of energy trading, which returned to normalized earnings level in 2007, after a high income year in 2006. After 2006, with the reversal from accounting losses we had in 2005, but I'll go over that in more detail in this presentation. As I'll go over each segment in more detail.

Let's move on to Slide 18 and a summary of the 2007 results. As you can see on this chart, operating earnings per share per DTE was $2.82. Last week, we put out a press release that earnings would be at least $2.70, but the time that release we knew we would be over guidance but we're still in the midst of our financial audit and management reviews, so we went a bit conservative on the release really in order to get it out early, and to give an indication that the year-end was coming in strong. I'll have to remind everyone that reconciliation to GAAP reported earnings is contained in the appendix.

The main contributor to the years results with Detroit Edison at $2 a share with continued solid earnings performance. MichCon contributed earnings of $.48. The non-utility segments combined contributing $.83 with coal, gas, mid stream and the Trading Company as the main contributors. (inaudible) and other losses for the year was $.49. Finally, I want to point out that we have classified a segment as discontinued operations and is now excluded from operating earnings.

Moving on to page 19, we can can see a summary of each segments performance year-over-year. I'll be covering each segment in more detail later in the presentation. Overall, operating earnings are down $35 million, utility earnings are down slightly from 2006 levels. As the full year impacted the temporary show cause rate reduction, reduced earnings contribution at Detroit Edison, but this is partially offset by higher earnings at MichCon driven by colder weather in 2007. Non-utility earnings were down slightly in 2007, as increased contribution from our power and industrial segment offset by the decline in the energy trading earnings. Which as I indicated returned to near normal levels in 2007. As you may recall, energy trading earnings contribution in 2006 was $97 million, and once again, due to mark-to-market accounting timing. Finally, higher taxes resulted additional losses, at corporate and other.

Let's continue on to Slide 20 and go through some details beginning with Detroit Edison. Operating earnings for Edison are down $23 million from 2006 levels, when earnings resulted in a 12% return on equity. A key driver for the decline in earnings was the full year impact of the $79 million temporary show cause rate reduction. However, this reduction was offset by a positive order and the 2004 and 2005 power supply cost recovery reconciliation case. That allowed Detroit Edison to keep a portion of the recovery for customers whose rates were frozen under the rate freeze in place at the time.

During 2007, we continue to experience a step down in the volume of choice deliveries, however the financial impact of the reduction was reduced due to the Detroit record put in place this year as part of the show cause order. Larger margins also benefit from an increase in economy and weather related sales, but the increase in weather related margin was partially offset by the higher storm restoration cost. As mentioned previously, the higher computer start up costs reduced earnings in 2007. In addition we had a larger scope, refueling outage for a firming new facility which ended up having a longer duration than originally planned. Finally higher taxes also contributed to the decline in earnings. The 2007 return on equity for Edison was 10.6%.

Moving on to Page 21 and a review of MichCon's performance. Earnings at MichCon were up $16 million year-over-year, impacted by colder weather, and a slight reduction in customer conservation. While weather was colder year-over-year, 2007 was still 6% warmer than normal. Some of the Detroit Edison, MichCon earnings were reduced by our major systems implementation during the year. Lower financing costs related to gas cost recovery and the sale of base gas contributed to earnings improvements in MichCon in 2007. As we announced last year, MichCon was able to settle its base gas case with a Michigan Public Service Commission. The settlement allows MichCon to sell approximately 3.6 Bcf of base gas for profit through 2009, a return MichCon will not increase base rates until 2010. During 2007 we realize a significant increase in storage revenues at MichCon due to higher margin and additional storage capacity, however this increase is offset by higher loss in accounting for gas. MichCon's return on equity for 2007 is 10.7% and almost 12% on a weather normalized basis.

Let us turn to Page 22 and the non-utility business segments. Total non-utility operating earnings for 2007 are $143 million compared to the paired to the $147 million in 2006. Improvement in our coal and gas mid stream segment were driven by increased storage contribution in gas mid stream, offset by slight decline in coal trading business. Increased earnings in our unconventional gas segment was driven by higher production in our Barnett properties, offset by the sale of our Antrim properties in June. Earnings contribution for power and industrial is up significantly at 2007 benefited from increased earnings contributions from our energy services projects, and some by the restructuring actions that we took in 2006. As previously mentioned, energy trading benefited from significant timing related gains in 2006, while 2007 returned to a more normal earnings level.

Let's now move to page 24 and 2008 earnings guidance. Consistent with our guidance release in December, we expect to deliver operating earnings of $433 million to $495 million of income, or earnings per share of $2.70 to $3.10 in 2008. We'll continue to see solid performance in utilities and are targeting authorized returns in both companies. One note to point out, our guidance assumes an end of March completion of our power and industrial project sale. We continue to see growing earning contribution for our gas mid stream storage and pipeline investments, but this growth will be offset by a decline in our coal transportation earnings related to syn fuel in 200. Unconventional gas results reflect earnings from our western Barnett Shale properties and we expect another strong year of earnings from energy trading in 2008. Corporate and other losses will decline slightly as interest cost is reduced from 2007 levels. We will closely monitor progress during 2008 against these targets, and will provide additional updates as we move throughout the year.

Given Edison's importance to overall DTE profitability, I'd like to take to you Page 25 for an overview of the earnings drivers for our Electric utilities in 2008. Earnings this year will benefit from the expiration of the temporary showcase rate reduction and the choice tracker in 2008. As Dave mentioned earlier this is in effect. Interim rate relief as we wait for the finalization of our newly amended rate case. Of the local economy, is also a key swing factor in reaching authorized earnings in 2008. For budgetary and planning purposes we assume that growth in the territory. Our guidance is based on normal storm restoration weather, and we will see higher plant related costs due to growing rate base as we implement the utility growth plans. As indicated earlier, we are targeting Detroit Edison to earn its authorized return to 2008 which is the upper end of this guidance.

Turning to page 26 and a review of our 2009 earnings outlook. As you can see on this page we are expecting significant growth opportunities in all segment for 2009. As always we are targeting both utility toss deliver earnings at authorized return levels and we will continue to focus on creating shareholder value within our non-utility businesses. The Edison outlook is dependent on a successful outcome in the current rate proceeding. With that I'd like to turn the discussion over to Nick Khouri for a review of cash flow and Capital Expenditures.

Thanks, Peter and good morning. As always, improved cash flow and Balance Sheet strength remains a key priority for management and the Board of Directors. In 2007, the combination of Syn Fuel proceeds and non-utility asset sales lead to a strong overall cash year. Page 28 shows sources and uses of cash for 2007 and 2008. Last year was a peak year for Syn Fuel net cash reaching $ 600 million. The combination of Syn Fuel and non-Syn Fuel cash generated $1.5 billion in internal resources. In addition, the execution of our non-utility modernization plan generated $1.3 billion in pre-tax cash. Primarily driven by the sale of our Michigan unconventional gas properties. This supported approximately $500 million in parent company debt reduction and $725 million in share repurchases.

Moving to 2008, as we discussed in the past,Syn Fuel cash is phasing out, generating an estimated $200 million this year in 2008, and $100 million in 2009. Asset sales this year are expected at $1.1 billion, comprised of the January sale of the core properties in Barnett and as discussed previously that power and industrial transaction. Once again this year, the combination of internal cash and asset sales supports further reductions in holding Company debt and share repurchases. Page 29 summarizes capital spending. As you can see, total capital reached $1.3 billion last year, and is expected to grow to $1.5 billion this year. Nearly 70% of the projected capital spend is at Detroit Edison. MichCon capital is also up from historical levels while non- utility capital spending is expected at each of our business segments.

Page 30 shows DTE's improved balance sheet metrics. Both leverage and cash flow metrics improved in 2007 and we expect to end this year well within our leverage target of 50 to 52% and the ratio of cash flow to debt between 22 and 24%. And finally, XLS liquidity remains more than sufficient we believe to offset any unforeseen circumstances. With that let me turn it back over to Dave for a wrap up.

Thanks, Nick. Let me wrap up on Slide 32 and then we'll open it up for questions. We believe we're very attractive investment today, especially at the prices that we're currently trading at. We've laid out for you our utility investment plan which will drive 5 to 6% growth. And we'll accomplish that growth by continuing to focus on high customer satisfaction and low costs so as we complete our PEP initiative we're rolling right into an ongoing continuous improvement program to continue to drive cost down. We believe the regulatory and political environment in Michigan is very positive and we're optimistic about the energy legislation which could bring additional upside growth from renewable energy. Our non-utility businesses have a proven track record and we have returned some of that value to you through the $725 million stock repurchase program that we did last year and when we complete the remainder of that program when the PNI deal closes. We've laid out some of the 2008 catalysts this morning and we'll keep you informed on our progress during the year. And last as I said earlier, our dividend of $2.12 per share is a very attractive piece of our total shareholder return story.

And with that, Kim, we'll open it up for questions now. Thank you. (OPERATOR INSTRUCTIONS). Our first question today is from John Kiani from Deutsche Bank.

Good morning.

Good morning, John.

House Bill 5523 obviously if passed along other things could allow for a forward-looking test year in Michigan, which I think clearly would be helpful. But outside of that is there any precedent for the MPSC using a forward-looking test year or using next years Capital Investments outside of known and measurable changes? I'm just trying to understand how the new '09 Detroit Edison test year fits in and how it will be viewed by the Commission.

John, I have Don [Stanzick] with us who is our Director of Regulatory Affairs. I'll let him answer that question.

Okay, thanks.

Well given the current known and measurable policy is a projected test year; however in the not too distant past, particularly on the electric side, the commission used the full test year, so these are semantics in respects, we are projecting rate costs into 2009, but I think if this legislation passes, it would provide for a more comprehensive forecast.

Okay. I see what you're saying so the two are somewhat similar, but you feel that under the known and measurable change clause, you can make those additions. All right, and as far as the P&I, power and industrial, transaction is concerned, can you walk through what steps are left? Is it just the financing and can you remind us how much debt you're looking to raise?

Well it is just the financing that as you know, we sold 50% of the equity in that transaction to GE, and we're working closely with GE. If you went back to the total debt amount, it's 650, and originally, we were trying to do this with term loan and unsecured loans. We've shifted and we're basically working right the now on what I would describe as traditional project financing, and that takes a little bit of time just to go through the documentation and working with the banks. So, hopefully that will provide an avenue for us to close this transaction and as time goes on it's just getting harder to say it's going to be done by the end of March. It will very likely move into the second quarter.

And what credit rating are you targeting for the debt?

Nick, do you want to go ahead? Because we didn't tell you what the original debt was being and the prior structure --

The prior structure we targeted double B, this is a different market in the bank market, and it will have the characteristics of a non-investment grade, investment still, but whether we get it rated or not we'll have to wait and see. So it's a different market, it doesn't always need a rating.

Got it.. So you might do a private placement or something like that?

That's the goal.

Great, okay, thanks a lot.

Okay, thank you.

Okay, bye.

Moving on our next question is from Samantha Dennison from Credit Suisse.

Good morning. Assuming Michigan does pass off on your standards, what do you see as the investment opportunity for you guys?

I'm sorry on the renewable energy?

Yes.

Well, what we said last year was that we saw at least a billion dollars and it certainly could be much more than that. One of the things we'll have to work through here is not only the total investment but over what time frame and then over what percentage would be built by the utilities, versus what might be purchased on the market. But what we said publicly is a billion dollars, it could be much higher than that, but we'll have to wait and see how legislation works out.

Does a billion dollars assume you that South sold 50%, or is that assuming or you billed everything?

The billion dollars was a rough number that assumed that we would bill half and purchase half. But I would also say that as time has gone on, the total number that has grown over time also that would be used for wind.

Have you guys been buying any acreage up for wind?

Yes. Yeah, we have. We have over 40,000 acres basically locked up predominantly in the thumb of Michigan for wind.

Okay, great. Thank you. Also, with Detroit Edison's rate base up about $200 million versus your prior estimate, do you have room to exceed your 2009 guidance range?

I think that it's really too early right now. To say that we'll have to wait and see how predominant driver for 2009 is the rate case that we've talked about right now. So, I would just say that for now I'd like to stick with the numbers and range we put out for 2009. It's really early.

Great. Thanks very much, guys.

Thank you.

We'll take our next question from Barbara Chapman from Bear Stearns.

Good morning.

Good morning, Barbara.

When everything is said and done if you get what you asked for on the electric rate increase, including the effects of the rate subsidies, what would that be percentage wise for an increase in customer bills?

Well if you step back the base rates have not gone up since 2006, so if you look at an average annual increase over that period, 2006 to 2009, it's 1.2% increase annually compounded growth over that period.

Right, but if you look at a 2009 bill, the day that this rate increase, you got everything that you asked, was there a day it went in on an average customer bill what would they be paying more than the month they paid before?

It's 5%. i'm sorry, it's 6%, for an average bill, it's $ 5 a month.

Okay, 6% or $5. And that includes the request on the rate skewing, and does that also include there's an interim increase also; correct? Because there's something falls off?

Why don't you go ahead.

That's a $5 increase is after the impact of the expiration of the show cost settlement rate reduction.

Okay, so if you take the bills though, so, it's actually a bigger percentage; correct? Than if you take it before that falls off?

Compare it to today's rates, yes, it is slightly larger.

Does it make a percentage larger? I'm just trying to judge the magnitude of the increase to judge any political pressure in the current economic environment against the rate increase.

Well I guess I'll give you the absolute numbers. The increase we're looking for is $284 million and the expiration of the show cause reduction is $79 million. So the expiration of the show cause reduction is not that significant.

Right, okay. Thank you.

(OPERATOR INSTRUCTIONS). Our next question is from Paul Patterson from Glenrock Associates.

Good morning, guys.

Good morning, Paul.

I wanted to just go over the power industrial transaction again. What is the actual, what would the impact be if for some reason the transaction were to occur? I know that you said there's $.02 of additional EPS per quarter until the deal closes, but what would happen if in fact for some reason you just weren't able to do the deal?

Well, if that happened, then you would over our guidance because the guidance assumes that it did happen on March 31, would you add $.02 a share for earnings for each quarter, so you'd add $.06 a share for the remainder of the the year to our guidance, and then we would not complete the stock repurchase program.

Okay, so we just add $.06 but then we subtract $650 million worth of stock repurchase?

No.

How much of the proceeds again if you could just remind me, how much of the proceeds of the $650 million go to the stock repurchase? How much stock left to be purchased?

275 million.

$275 million? Okay. Now, when we were talking about the 2007 performance of the power industrial versus 2006, there was a mention of the restructuring and what the have you and it's a little complicated to me and I apologize. Could you just go through what exactly lead to the increase in 2007, particularly I guess the fourth quarter here, versus 2006? Because I know there were some things carved out of operating earnings but it looks like operating earnings themselves did better because of the restructuring. Could you just elaborate a little bit on that the?

You're asking relative to the power industrial business?

Yes.

There were a number of in impairments you'll see that carved out, there were losses for those business, really in our generation assets and part of our restructuring with selling those. So, when we took the impairments out there was losses during 2006 before those impairments, also there was on our PEP tech operations as well, which is part of our power industrial segment so there was some improvements just because the losses were no longer there in 2007.

I got you, so by selling it, there were losses, operating losses but by getting rid of the assets those losses are gone and that's the improvement? Yes, the portion of the improvement and we're also seeing underlying good performance, especially out of our Coke actually had a record production year in 2007.

And the price of Coke and the price of the value of Coke by-products went up in the year, so you had the impairments in 2006, we actually had good business performance in 2007, and as we kept the business the whole year, so we had the benefit of that for 12 months.

Okay, and then when we're talking about the new form of financing, the project financing, I think if I heard correctly on John Kiani's question, you guys suggested it was probably going to move into the second (inaudible)?

Right.

And that's because you now are going to be using a different form of financing. Does that change any costs or is there any element of that we should think about in terms of what the issues are with respect to that type of financing?

No, it doesn't, and very basically just taking the different approach, so it's just the time element of restarting here with a different group and that will just push it into the second quarter.

You mentioned that the markets were choppy, and that's obviously one reason it appears that you guys are going for this methodology. If the markets are still as choppy as they are, do you think that would cause any issue in terms of this new financing or it's just that we are seeing some sort of strange activity here in terms of what's going on in the credit market. Are you seeing this new, this new form of Financing that you're expecting or it actually sounds traditional but are you seeing a better mark ET in that and do you see any issue associated with that at all?

I'll ask Nick to jump in, but the original structure in this environment we can't finance.

There was a point in December where we could have but the interest rates had rose to a point where we just said that this doesn't make sense for our shareholders, so we held back and at the original structure that we proposed including the unsecured debt, you can't finance it today at all. So that's why we shifted to other alternatives and the project financing, right now, it's viewed that it is transaction, and we'll have to work our way through this. And the proof will be in the event that we do close, but we have got enough interest from the banks and we're currently going through the process of getting this put together. That doesn't mean that some unforeseen event couldn't happen. That could even affect that segment of the financing market, but it looks like today, given the conditions that exist today we could pursue this as a financing mechanism.

Okay, great. Thanks a lot.

Okay.

Our next question will come from Paul Ridzon from KeyBanc.

Good morning, Dave, how are you?

Good. Hi, Paul.

Sounds like in the fourth quarter, Tony kind of put out a mandate to slash costs. I don't suspect a lot of that is sustainable, but did you find any nuggets in there that you think you can carry forward?

The answer would be yes. I think we've talked about this before. As we did our PEP program, and as you know we drove over $300 million in cost reductions and a thousand FTE's and headcount reduction. We are driving all of our operations towards first quartile benchmarks. And some of those operations are getting close, some have a ways to go. So a combination of what we are doing in PEP, plus what happened at year-end, I think kind of renewed our conviction that there's more out there. And as we've talked about given the amount of capital we're going to be deploying in the sensitivity around customer rates, cost reductions are going to become a way of life here. So, we've kind of reinvigorated our continuous improvement initiative, and every group in the company is off working on cost reductions already this year, for 2008 with the objective of offsetting inflation and keeping O&M as flat as possible.

You indicated Detroit Edison earned a 10-6 ROE. Is that inclusive of the SAP implementation over runs?

Yes, it is.

It's all in.

And clearly, I think your stock price is a reflection of some investor sentiment that the state of the debt markets is going to preclude getting the P&I done, kind of how are you handicapping that internally, given your new focus on looking for alternatives?

We are cautiously optimistic I would describe it to say that we think this project financing provides a path to us but I think everybody has been caught off guard by what's happened and you don't know when the next shoe is going to drop that's going to affect even something like traditional project financing, but as of today, we think it's a viable alternative and we're pressing forward on that.

Is the right way to think about this is this financing is almost like a bridge until we get stabilization in the deeper debt Markets?

No. Paul, this is Nick. I wouldn't think of it that way. This would be a permanent financing structure for these assets.

Okay, thank you very much.

Okay.

We'll take our next question from Yiktat Fung from Zimmer Lucas Partners.

Good morning.

Good morning.

First of all with regards to the rate case update that you recently filed at the Michigan PSC, I was wondering if you have gotten any sort of feedback from either staff or commission whether that update is acceptable to them or what the sort of extra time the staff would need to review that update and for (inaudible).

Don?

Sure. As you'd expect, we have had some preliminary conversations with the commission staff and there will be some delay but as we've indicated, I expect we'll get an order in early '09 so I don't think there will be a very significant delay.

So when should we expect staff testimony, would it be in April or May, versus the original March date?

Well I think it will be some time in the Second Quarter. What will happen next is there there will be another pre- hearing to reset the schedule and we'll know more once that happens.

Okay. As for the P&I transaction, is there a termination date of this agreement, and how far back could DTE potentially pushback at this date?

Well in terms of termination, there's really not a termination date. Originally, both DTE and GE were targeting to get this done by the end of March, and we were just doing that just to keep the pressure on ourselves to get this thing closed, and with it moving into the Second Quarter, I wouldn't think about this having a cliff date that we're targeting towards. And the second part of your question was?

Basically I was just wondering if there's anymore room, how much room there is to push this back.

It really depends, as we are talking about with earlier questions on when we get ready to actually execute on this financing, what's happening in the broader Markets at that point in time So, part of the answer is we'll see when we get there. As I said, we're cautiously optimistic, but we just don't know what the unforeseen events might creep up in the broader markets.

Finally with regards to the Barnett Shale research that you put out, can you just give us some sort of color with regards to how you derived the value per Mcf E?

Paul, are you still with us?

Yes, I am.

I've got the Paul online, and Paul heads up the group down in Fort Worth and I'll let him comment on that.

Yes, we looked at the two categories of proved and probable. For the proved, we've got a reserve report, the value is relatively transparent as it relates to that. On the probable side, it's not an easy thing to come up with those multiples. There are not a lot of comps, there haven't been a lot of transactions in this part of the play, so this is our best internal judgment, related on how we feel about the resource and it's really relative maturity as it relates to the value curve that Dave talked about earlier.

So basically the proved portion was based on comps?

The comps and our own internal reserve report and valuation of that. Yes.

Thank you.

We'll move on to Raymond [Lung] from Goldman Sachs.

Hi, guys. A couple of questions. With respect to short-term debt, it was about a billion dollars with MichCon about 455. Is that really just working capital at MichCon for gas?

Yes, it is. MichCon is a cyclical pattern and as they put gas in the ground they build up Cp balances and run it off as they sell the gas.

What's your expectations with respect to the remaining balance with the short-term debt. Will you need to tap the Capital Markets? You didn't show anything like that in your sources.

No. Without talking explicitly about the plans, the two utilities will be accessing the Capital Markets as they fund their investment, the capital investment over the next two years, but there's no immediate requirement to tap the Capital Markets.

And can you, Nick, can you also talk about any option rate exposure and what's happening there, are you guys thinking of maybe terming anything out if you do some exposure? I think do you have some.

Let's put it in context. We have about $7 billion in total debt at DTE Energy. We do have about $200 million of option rate securities and like the rest of the world, the options have failed the last few weeks, so we are thinking about terming out those option rate securities.

What's the average rate of the two option rates currently ?

Well, without getting too much detail, it's about $200 million outstanding, most of it is 7.5% right now, the maximum rate. There's a small piece that's higher than that but generally, it's about 7 to 8%.

Okay, great. And finally last question, any, can you give us any color on billings, i.e. is there or has there been any rise in delinquency and how the economy just sort of, has there been any impact with the slowdown in the economy for you guys?

As you know, the Michigan economy actually has slowed down slightly before the rest of the country, so we experience that several years ago. And as a result of what we were seeing we actually have pursued and were able to get a bad debt tracker at MichCon is where we tend to see more issues on the bad debt, so with the bad debt tracker in place, and putting MichCon and Edison side by side, there's really not much difference than at this point in time versus a year ago or two years ago.

Okay, great. Thanks, guys.

Okay.

Our next question is from Ben Sung from Luminous Management.

Hi. It looks as if slide 24, you're saying that without a rate increase you're going to get to your authorized 11% ROE in 2008, so is it appropriate to think of the $248 million rate increase request as being to cover cost increases and capital that's going to be invested during 2009?

Yes, but I would also offer that as we progress in 2008, without that rate increase, it just makes it more challenging to actually earn your authorized return, so as the year plays out, certainly we'll have to look towards cost reductions and some of those cost reductions could be non-recurring one-time cost reductions just to help us prior to that rate increase to earn our authorized. And then the second part of the answer is basically, what you stated which the rate increase helps cover the higher cost and the capital going into service.

It's significant in service 2009.

What's the right way to think about how much of the one-time sort of cost reductions there are in 2008?

Well, there's two parts to that answer. One is that we still have one piece left of our continuous improvement in PEP initiatives, so we have 20 to $30 million of what I would describe as planned embedded cost reductions. And then certainly we are trying to create head room on the cost reduction side for unforeseen events and that could be everything from higher storm to a mild summer at Detroit Edison. So, we have a pre-programmed amount and we're looking to actually build up up some head room for unforseen events to make sure we can earn our authorized in 2008.

Okay, thank you. Thank you.

And we have a question from Bill [Apacheli] from Citigroup.

Hi, good morning.

Good morning, Bill.

Just a quick question. Assuming the P&I deal closes, on Slide 28 you just mentioned about the potential for further debt and equity repurchases, do you have any of that baked into your 2009 preliminary 2009 guidance?

Well, we assume right now in our 2008 guidance that happens on March 31 so then the answer for 2009 will be yes, that it happened in the prior year is the way to think about it.

Right but I guess above and beyond the 275 repurchase?

No. No, right now, that would be the remainder of what the we previously announced was a billion dollar stock repurchase program that was tied to the cash flows. The combined cash flows that was coming from the restructuring of the non-utility businesses and syn fuel cash.

Okay, thank you.

Thank you.

Our next question today comes from Mark Siegel from Canaccord Adams.

Hi, good morning. Just a quick question regarding your AMI pile going on. Can you give us a status update there, how that's progressing and what the timetable looks like?

Give you a high level, it's just going to be throughout this year, there's different gates, you know, during that process, one of them is going to be mid year, and we'll make a decision whether to progress or not and there's another gate at the end of the year, that is really just a small pilot, really proven out the technology.

Okay, so are you anywhere near as close as to narrowing down a technology or committing to a particular vendor?

No. No, we are in that process right now. The operation groups in the procurement and legal teams are in the process of narrowing down, making the selection, and negotiating a contract. We have not announced yet who we will work with on this pilot program.

Okay. And then lastly, has there been any inclusion of metering so far in your rate case filings thus far or will you need PUC approval and what will the timetable look like?

Don, why don't you answer that?

In our current request, and even the original request in the rate case we did include some Capital Expenditures for AMI in the forecast.

Okay, all right, thanks very much.

Thank you. Kim, I don't know if there's anymore questions, if there are, we'll take one more question?

All right, Ashar Kahn from SAC Capital

I'm wondering what happened in the creating business this quarter? It had a break even or negative result in the fourth quarter of 2007.

For the trading business, you really need to take a look at the annual level. There is accounting, essentially noise that happens due to the derivative accounting of marking you FASB held, and that your inventory. It is nothing unusual that happened in the fourth quarter. And actually earnings came in right as projected in the original guidance.

So, you were expecting to earn nothing in the fourth quarter.

Yes

And that's because of what? Because of the way accounting works? Is that what we should expect going forward, that you should earn zero from creating in the fourth quarter?

No. The big mark to market movement there has to do with the trading that they do around storage that we have talked about in the past where you have this mismatch in current accounting rules. The accounting rules coming down the road on fair value might rectify this, but we account for gas and storage at average inventory cost. Then the forward sales mark to market. So, they don't move in tandem. So, in any given quarter you can have a mark to market gain or a mark to market loss with that storage and accounting basis moving up and down. Ultimately, it settles at the realized economics. So, it's just part of the accounting noise that we have to deal with today. And as I mentioned the FASB is addressing this issue. Hopefully, a lot of that storage accounting mismatch will go away.

Okay. And if I can end up. You might have mentioned this, there is a negative 20 for the PSER adjustment for 2007 in the '08 guidance. Could you help us to understand why is that getting reflected again this year?

I think what your looking at is basically a year over year impact. Were it's in one year and not repeated.

This is 2007, as I was mentioning, even in my speaking notes that we had a favorable order. So this is the opposite side. We have some favorability in 2007. We're not going to see that favorability in 2008. I t was just a one time tied to that reconciliation case.

So, that was a one time boost in '07. Which is not there is '08.

That is correct.

Okay, so we can take it one time out in '07. Okay. Thank you.

Okay, thank you. I thank everybody for joining us today. Thank you for the great questions. And we look forward to seeing you soon.

That does conclude our conference call for today. Thank you for your participation.