Merrill Lynch Global Power & Gas Leaders Conference

Merrill Lynch Global Power & Gas Leaders Conference

Gerard M. Anderson

President – DTE Energy

September 28, 2004

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Safe Harbor Statement

The information contained in this document is as of the date of this presentation. DTE Energy expressly disclaims any current intention to update any forward-looking statements contained in this document as a result of new information or future events or developments. Words such as “anticipate,” “believe,” “expect,” “projected” and “goals” signify forward-looking statements. Forward-looking statements are not guarantees of future results and conditions but rather are subject to various assumptions, risks and uncertainties. This presentation contains forward-looking statements about DTE Energy’s financial results and estimates of future prospects, and actual results may differ materially. Factors that may impact forward-looking statements include, but are not limited to: the effects of weather and other natural phenomena on operations and sales to customers, and purchases; economic climate and growth or decline in the geographic areas where we do business; environmental issues, laws and regulations, and the cost of remediation and compliance associated therewith; nuclear regulations and operations associated with nuclear facilities; the ability to utilize Section 29 tax credits and/or sell interests in facilities producing such credits; implementation of electric and gas Customer Choice programs; impact of electric and gas utility restructuring in Michigan, including legislative amendments; employee relations and the impact of collective bargaining agreements; unplanned outages; access to capital markets and capital market conditions and the results of other financing efforts which can be affected by credit agency ratings; the timing and extent of changes in interest rates; the level of borrowings; changes in the cost of coal and availability of coal and other raw materials, purchased power and natural gas; effects of competition; impacts of regulations by FERC, MPSC, NRC and other applicable governmental proceedings and regulations; contributions to earnings by non-regulated businesses; changes in federal, state and local tax laws and their interpretations, including the Internal Revenue Code, regulations, rulings, court proceedings and audits; the ability to recover costs through rate increases; the availability, cost, coverage and terms of insurance; the cost of protecting assets against or damage due to terrorism; changes in accounting standards and financial reporting regulations; changes in federal or state laws and their interpretation with respect to regulation, energy policy and other business issues; and changes in the economic and financial viability of our suppliers, customers and trading counter parties, and the continued ability of such parties to perform their obligations to the company. This press release should also be read in conjunction with the forward-looking statements in each of DTE Energy’s, MichCon’s and Detroit Edison’s 2003 Form 10-K, and in conjunction with other SEC reports filed by DTE Energy, MichCon and Detroit Edison.

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Consistent Business Strategy

• Since 1997, DTE Energy has had a consistent business strategy:

– A stable regulated utility base • Detroit Edison• MichCon

– Coupled with consistent growth in our non-regulated portfolio• Inter-related businesses that leverage the knowledge and expertise

developed in the regulated businesses

• Anchoring this strategy is a commitment to financial discipline

– Focus on value creation

– Emphasis on cash flow

– Growth within balance sheet limits

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Update on Corporate Priorities

• Successful outcome in rate cases for Detroit Edison and MichCon

• Achieve structural fixes to the Electric Choice program

• Redeployment of synfuel cash flows

• Continued growth in non-regulated business portfolio

• Maintain cash and balance sheet strength

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Rate Case ProgressDetroit Edison

June2003

December2003

Rate Case FiledRequested $553 million

MPSC Staff Recommended

$315 million Net Rate Increase *

June 2004

December 2004

Interim Rate Order Granted Net Rate

Increase of $152 million *

Administrative Law Judge Concurs with MPSC Staff

Recommendation Regarding Final Rate Relief

Final Rate Order Expected

• We are nearing the end of Detroit Edison rate case process, and anticipate final resolution next month

* Additional detail included in appendix

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Rate Case ProgressMichCon

September2003

March2004

Rate Case FiledRequested $194 million

MPSC Staff Recommended

Interim Rate Relief of $25 million

September 2004

March2005

Interim Rate Order Granted Relief of

$35.3 million

Final Rate Order Expected

MPSC Staff Recommended Final

Rate Relief of $70 million

Administrative Law Judge

Recommendation Expected

• On September 21, MichCon received an order granting interim rate relief of $35.3 million

• Resolution of the case is anticipated early next year

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Utility Returns are Expected to Improve

• Regulatory deferrals represent an increasing portion of Detroit Edison’s earnings

• With the expected resolution of the rate cases and Electric Choice, utility returns are expected to improve

• Detroit Edison’s improvement will be staggered as rate caps roll off

• Ultimately the utilities will be allowed to earn reasonable returns

2001 2002 2003 MPSC StaffRec

MichCon Return on Equity (%)*

2001 2002 2003 MPSC StaffRec

Return on Equity (%)*

Detroit Edison

*Excludes merger related costs

11.5%

15.4%

11.1% 11.0%

3.8%

9.0%

5.4%

11.0%

*Excludes merger related costs and GCR disallowances

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• Redeployment of synfuel cash flow



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Choice Sales Levels have Flattened, but Margin Loss Remains an Important Issue

• The interim order implemented a transition charge and eliminated Choice credits

• Wholesale market price increases earlier this year reduced savings for prospective Choice customers

• Some customers are reluctant to switch pending the issuance of the final rate order

• Choice sales volumes have stabilized as:– some lower margin customers have

returned – some margin deterioration persists as

high margin (rate subsidy) customers continue to leave for Choice

Detroit Edison Electric Choice Program

Annualized Sales(Gwh)

0

2,000

4,000

6,000

8,000

10,000

May

200

3A

ug 2

003

Nov

200

3D

ec 2

003

Jan

2004

Feb

2004

Mar

200

4A

pr 2

004

May

200

4Ju

ne 2

004

July

200

4A

ug 2

004

Sep

2004

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Paths to Reforming Electric Choice

Remove cross-subsidies between rate classes

Design rates to delineate the cost of service

Recover revenue lost as customers with skewed rates go to Choice

Rate unbundling

Rate de-skew

Class-specific transition charges

Level playing

field initiatives

Remove inconsistent rules that provide marketers an unfair advantage

Desired Outcome Status Update

• Class-specific Choice transition charges requested in main rate case

• Plan to file rate de-skewing case

• Rate redesign included in proposed legislation

• Plan to file rate de-skewing case

• Rate unbundling included in proposed legislation

• Class-specific Choice transition charges requested in main rate case

• Specific calculation of transition charges included in proposed legislation

• Fair return to service provisions and equal responsibility for low-income programs addressed in main rate case

• Level playing field initiatives included in proposed legislation

Issue

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Path to Reforming Electric Choice: Legislative Update

1. SB1331 – Core Bill

2. SB1332 – Increasing Reliability

3. SB1333 – Low-Income Assistance

4. SB 1334 – Special Rates for Schools

5. SB 1335 – Cost of Mandated Environmental Upgrades

6. SB 1336 – Securitization

1. SB1331 – Core Bill

2. SB1332 – Increasing Reliability

3. SB1333 – Low-Income Assistance

4. SB 1334 – Special Rates for Schools

5. SB 1335 – Cost of Mandated Environmental Upgrades

6. SB 1336 – Securitization

• In addition to aggressively pursuing regulatory resolution for these issues, DTE is supporting recently-introduced legislation:

– On July 1, six bills were introduced to amend Michigan Public Acts 141 & 142

– The overall purpose of the bills is to create a fair Electric Choice program and to codify certain policy issues

– Senate hearings on this issue started on August 25, and will continue through mid October

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Synfuel Overview

• DTE Energy’s synfuel business developed from our expertise with coal and coke batteries

• The synfuel portfolio has contributed substantially to net income since its inception

• We believe that current industry issues are facility specific and should not impact us

– We have IRS determination letters at our six EarthCo facilities

– Audits successfully completed at four facilities (two EarthCo, two Covol)

– Reconfirming PLRs attained on two recently sold facilities

2000 2001 2002 2003 2004E

$3

$31

$136

$197

$190-210

$ millions

Synfuel Net Income

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The Sale of our Synfuel Facilities Will Provide Significant Cash Flows

• We are selling our interests in these facilities in order to optimize the cash generated

• To date we have sold 81% of 2004 capacity

– We expect to close two additional transactions in the fourth quarter representing ~10% of capacity

• Through 2008 our synfuel business is expected to generate substantial net income and approximately $1.8 billion in net cash flow

Expected Net Cash Flow from Synfuels($US millions)

2003A 2004E 2005E 2006E 2007E 2008E

($200)

$190

$380$485 $455

$265

Expected Net Income from Synfuels($US millions)

2003A 2004E 2005E 2006E 2007E 2008E

$197

$190-210

$200-230

$200-230

$200-230

$0

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Redeployment of Synfuel Cash

• The redeployment of the synfuel cash will be consistent with our overall investment strategy. Options include:– Pay down a portion of parent company debt– New business opportunities that meet our value

creation objectives– If suitable investments are not found, we will

consider re-purchasing shares

• When considering our options, two issues are at the forefront– What is the best way to replace the value implicit in

the stock that is tied to synfuel cash flow?– Given the finite nature of the synfuel cash flows, what

are our balance sheet targets in 2008 – post synfuel cash flows?

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17

1999 2000 2001 2002 2003 2004E

$68 $84

$162

$205$228

$215-$255

Non-Regulated Net Income($ millions)

DTE Energy’s Approach to Non-Regulated Businesses Has Produced Solid Growth

• Build around unique DTE Energy strengths

• Pursue closely inter-related niche businesses

• Seek sound, lower-risk businesses with opportunities for additional value creation

• Focus where competition is manageable

• Build outward from regional base of strength

• Build around broad portfolio, not a single platform

Reconciliation to reported earnings included in the Appendix

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Non-Regulated Opportunities Focus in Three Areas

• On-site energy projects

• Steel-related projects

• Power generation with services

• Waste coal recovery

1. Power & Industrial Projects

1. Power & Industrial Projects

2. Unconventional Gas Production

2. Unconventional Gas Production

3. Fuel Transportation & Marketing

3. Fuel Transportation & Marketing

• Michigan gas production

• Shale and coalbed methane

• Landfill gas

• Coal transportation & marketing

• Gas pipelines & storage

• Energy marketing & trading

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20

Cash Flow and Balance Sheet Strength

• Balance sheet and cash flow strength remain a key goal for DTE

• Debt and leverage is declining

– Leverage of 49%* at the end of Q2 2004 vs. 52%* last year

• Cash from operations is strengthening as synfuels provide significant cash inflow

• We are spending capital very conservatively until regulatory relief is received

• Continued improvement in net cash is dependent on successful resolution of rate cases

* Excludes securitization debt, MichCon short-term debt and quasi-equity instruments

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Summary

• DTE Energy is a strong company with a consistent, successful business strategy

• Successful rate case outcomes and fixing the Electric Choice program remain our top corporate priorities, with resolution expected in the near future

• 2004 will be a transition year for the utilities, but we expect an eventual return to traditional earnings levels

• Synfuel cash flows will be redeployed in a well-managed, balanced manner

• Our non-regulated businesses continue to perform well• The balance sheet and liquidity position remain strong;

we’ll manage our growth capital carefully

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APPENDIX

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Summary of Detroit Edison Interim Rate Order

• Granted $278 million in interim relief– $248 million base rate increase– $30 million of transition charge revenue from Choice customers

• Interim increase reduced by $126M due to the PSCR reinstatement for a net increase of $152M

• Increases 2004 net revenues by $51 million, due to impact of rate caps, effective date, PSCR adjustment and allocation between Choice and full service customers

• Began to address Choice issues by implementing a transition charge and eliminating transition credits for Choice customers

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Recommendations from Staff Filing on Detroit Edison Final Rates

• Capital structure of 54% debt, 46% equity• 11.0% ROE, $3.05B equity level• Declined to endorse any earnings sharing mechanism• Recommended an increase of $441M

– $275M* from base rates– $58M from the retained benefit of mitigation sales– $108M from regulatory asset recovery mechanisms

• Electric Choice Implementation Costs: surcharge to all customers

• Clean Air Act costs: surcharge collected from full service customers

• Prior period lost Choice Margin: Choice transition charge• Recommended increase reduced by $126M due to the PSCR

reinstatement, resulting in a net proposed increase of $315M

* Based on revised MPSC Staff testimony (Aldrich) filed March 18, 2004, which increased the recommendation by $20M from the original filing

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• Proposed changes to the Electric Choice program

– Modifications of return to utility service provisions applicable to new Choice sales:

• Customers that leave for Electric Choice would not be able to return to Detroit Edison for three years

• Customers must provide twelve months notice prior to returning to Detroit Edison

• Upon return, customers would be required to stay with Detroit Edison for twelve months

– Recovery of prospective stranded costs:• Current inter-class rate subsidies to be recovered from full service

customers (rate deskewing)• No transition charge for Choice customers; mitigate future

stranded costs by retaining economic benefit of 90% of wholesale power sales up to 110% of Choice sales volumes

Recommendations from Staff Filing on Detroit Edison Final Rates (cont.)

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Reconciliation of Non-Regulated Operating Earnings to Reported Earnings

Non-Regulated Operating Earnings to Reported Earnings Reconciliation

Full Year 2003Full Year

2003

Operating 228

Adjustment for contract termination/adjustment

16

Asset retirement obligations (SFAS 143) (4)

Adjustment of EITF 98-10 accounting change (cumulative effect) (16)

Reported 224

Net Income ($ millions)

6 months endedJune 2004

92

140

48

Adjustment of EITF 98-10 accounting change (Flowback)

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