DTE Energy Holding Company Earnings Call Nuggets: Detroit Bankruptcy and Weather Aspects

DTE Energy Holding Company (NYSE:DTE) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Detroit Bankruptcy

Kevin Cole – Credit Suisse: I guess the first question on the Detroit bankruptcy. What is the timeline and path to resolution and are there any key issues or headlines really or not that could weigh on the DTE story?

David E. Meador – EVP and CFO: First of all in terms of timeline what the emergency financial manager had laid out was general timeline of initial filing as they did this last week. There is already a series of hearings that have started the Federal judge has already been appointed and they started hearings already this week on a variety of technical issues. Their goal is to have their restructuring plan presented to the judge this fall I believe in October and then they have this wrapped up in the spring and that’s the overall timeframe. In terms to issues and impact on DTE there, we anticipate no impact on us. So, there is no milestones or anything to look for in terms of that. And on the positive side as we mentioned the one thing that we have already started working on because of city exiting the electric business as we are already starting to work on the process to take on the customers that the City previously had laid out, we have some regulatory filings we’ve made with the Public Service Commission because this is going to be about $300 million investment program for us over a 5 to 7 year period. But again, that’s all on track and underway already and I don’t anticipate any issues there either.

Kevin Cole – Credit Suisse: There are no IOUs from the City to DTE?

David E. Meador – EVP and CFO: We have normal receivables that we have and they have been paying timely and we expect that to continue to be paid on a timely basis. The Chapter 9 is different than an 11. So, in 11, you have to go to the judge for stay orders to decide what bills are going to be made. In the Chapter 9, the emergency manager makes that decision, he does not go to the judge and we have every indication that we believe that we’re going to continue to be paid.

Kevin Cole – Credit Suisse: Then lastly David, in your scripted remarks, did you make a comment about increasing the Bluestone CapEx by $150 million? Did I catch that right?

David E. Meador – EVP and CFO: Yes, I did. As we’ve laid out for that segment. When we talked in May we have 1 billion to 1.3 billion of total investment that we’d be making over many years, in that segment of Midstream, and Bluestone specifically, this started out a much smaller project. At one-time, we were talking 200 million to 300 million. By the time we got to the analyst meeting in May, it was 500 million. Right now, with additional work that we’re taking on in the gathering system for Southwestern it’s 650 million and hopefully by the next time, I’ll talk publicly about this, which would be in September, it’s going to be a higher number than that also…

Kevin Cole – Credit Suisse: What would be the timeline of that CapEx being deployed? Would it be towards like the ’16, ’17 timeframe?

David E. Meador – EVP and CFO: No, I think this is playing our generally the way we thought. So, again in May, what we laid out for you for the segment was, as we said by 2017, we want to beat $120 million of earnings. We had $20 million of white space, and so what we feel right now, based on what we have underway that gives us confidence in the $100 million and now the team is working on incremental investments to start filling in the white space, that gets you to $120 million.

Peter Oleksiak – SVP, Finance: This is Peter. One way to think about it, actually is they’re drilling the wells, we’re putting the gathering. So, it’ll be a pretty good pace over the next few years for that spend.

Kevin Cole – Credit Suisse: So, this $150 million CapEx is upside to the Marcellus, blue or purple bar on your guidance, and so this has helped filling up the white space?

Peter Oleksiak – SVP, Finance: It actually helps firm up that $100 million, if you remember in the Analyst Day we were talking about how we are confident on the $85 million we were at the $100 million level with good line of sight on it really helps from the $100 million.

Daniel G. Brudzynski – VP, Treasurer and IR: And the team now is working on the remaining white space. So hopefully when we see you in this fall, we’ll report back to you that there is incremental investments over the (650) which will then give us certainly more confidence as we march towards our goal of $120 million by 2017.

Weather Aspects

Andrew Weisel – Macquarie: First question is on Slide 16, where you show the walk for DTE Electric. It looks like this return to normal weather is for the second half does not embed the upside from a hot July. Should we think of that as leading to maybe upside to the guidance or would any benefit from that heat be reinvested, maybe after the summer is over?

David E. Meador – EVP and CFO: That is something Andrew that we’ll and I gave a range on that second half reinvestment we are going to be monitoring the weather and storm activity now July today, it’s in the 60s and may be 70. So we are seeing how much we are going to get back in July here in the state of Michigan given the back half of the month. And we did have a catastrophe storm in the month as well. Probably the main point there is we are going to be monitoring and adjusting that reinvestment plan based on weather and storm activity.

Andrew Weisel – Macquarie: I have been along those lines. There was a little of reinvestment in the second quarter, obviously ahead of this summer which is seasonally most important can you may be just walk through to strategy of timing as to why you did that more earlier in the year as opposed to waiting to see when most of the 3Q is in the books.

David E. Meador – EVP and CFO: As you know weather variability in the electric business plays out predominantly in July and August if you look at the number of cooling degree days normally in those months, our normal pattern would be to wait until the summer played out before – even I if thought I’d saw some favorability before I would trigger a reinvestment program, and the reason we did it is because of a re-measurement on the benefit programs so that remeasurement, there was – Peter mentioned the salary plan we measured at the end of the last year, the representative plan at the end of the March and those numbers are hardwired, now. So we saw this favorability coming through our forecast relative to retiree medical and based on that and a good start with the gas business and other factors, we started to early on, start the reinvestment program even though we had not been through the summer. So, we staged our reinvestment program at multiple stages because my number one goal is to always hit my authorized return and I didn’t want to reinvest too early and then find ourselves short at the end of the year, but a lot of it had to do with the confidence of the way the accounting works for this retiree medical which is not only going to come in this year, but it’s going to play out over the next several years…

Andrew Weisel – Macquarie: Next question, as you’ve mentioned I think in the second quarter, industrial was up 5%, weather normalized load growth in 1.5% total, can you maybe talk about residential and commercial, how those looked and then also you said 2% for the year, any thoughts on the weather adjusted load growth in ’14 and longer term?

Peter Oleksiak – SVP, Finance: For the quarter, the residential actually was up 2% and the commercial is 1%, industrial, I mentioned was 5%, so, all in around 2% for the quarter. On a year-to-date basis, we are at about a 1% and actually the industrial growth will continue on. We have some larger projects here in the service territory that will play out. So, we’re comfortable, still with the 2% for this year. Now longer term, I think we’ve indicated approximately a 1% growth we’re anticipating.

Andrew Weisel – Macquarie: And that’s after energy efficiency?

Peter Oleksiak – SVP, Finance: That’s after energy efficiency.

Andrew Weisel – Macquarie: My last question is for PIP, you talked a little bit about the near term earnings pickup from REF and renewables and the first half results are a little below half of the full year guidance. Can you maybe just talk about some of the drivers that’ll lead to that acceleration in the second half?

David E. Meador – EVP and CFO: Well, we described that we have multiple business lines there. So, one of the business lines is renewable business line which are the plants that were coal being converted to wood and one of those plants was already online but its capacity factor actually raises during the year and then we have another plant that’s coming online and that’s why the earnings profile for that business line is back end loaded. Then, as we’ve talked about with REF, we’re trying to optimize the nine machines. So, we have some relocations that are going to actually trigger in and that gives us higher tons produced, and again, that’s back end loaded for 2013 and that’s going to drive the earnings there.