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DTE Energy Company Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 1, 2009 12:21AM
DTE Energy Company (DTE) filed Quarterly Report for the period ended 2009-06-30. DTE Energy is a Detroit-based diversified energy company involved in the development and management of energy-related businesses and services nationwide. Its largest operating units are Detroit Edison an electric utility serving 2.1 million customers in Southeastern Michigan and MichCon a natural gas utility serving 1.2 million customers in Michigan. Detroit Edison is the Company\'s principal operating subsidiary. Affiliates of the Company are engaged in non-regulated businesses including energy-related services and products. DTE Energy Company has a market cap of $5.65 billion; its shares were traded at around $34.46 with a P/E ratio of 10.8 and P/S ratio of 0.6. The dividend yield of DTE Energy Company stocks is 6.3%. DTE Energy Company had an annual average earning growth of 7.5% over the past 5 years.
Highlight of Business Operations:
DTE Energy is a diversified energy company with 2008 revenues in excess of $9 billion and approximately $24 billion of assets. We are the parent company of Detroit Edison and MichCon, regulated electric and gas utilities engaged primarily in the business of providing electricity and natural gas sales, distribution and storage services throughout southeastern Michigan. We operate four energy-related non-utility segments with operations throughout the United States.
Net income attributable to DTE Energy in the second quarter of 2009 was $83 million, or $0.51 per diluted share, compared to net income attributable to DTE Energy of $28 million, or $0.17 per diluted share, in the second quarter of 2008. Net income attributable to DTE Energy for the six months ended June 30, 2009 was $261 million, or $1.59 per diluted share, compared to net income attributable to DTE Energy of $240 million, or $1.47 per diluted share, in the comparable period of 2008. The increases are primarily due to higher earnings in the electric utility and energy trading segments, partially offset in the six-month period, by the $80 million after-tax gain recorded in the Unconventional Gas production segment on the 2008 sale of a portion of Barnett shale properties.
Collectibility of Accounts Receivable on Utility Operations Both utilities continue to experience high levels of past due receivables, which is primarily attributable to economic conditions. Our service territories continue to experience high levels of unemployment, underemployment and low income households, home foreclosures and a lack of adequate levels of assistance for low-income customers. We have taken actions to manage the level of past due receivables, including increasing customer disconnections, contracting with collection agencies and working with Michigan officials and others to increase the share of low-income funding allocated to our customers. The April 2005 MPSC gas rate order provided for an uncollectible true-up mechanism for MichCon. The uncollectible true-up mechanism enables MichCon to recover ninety percent of the difference between the actual uncollectible expense for each year and $37 million after an annual reconciliation proceeding before the MPSC. We experienced a decrease in our uncollectible accounts expense for the two utilities to approximately $71 million in the 2009 second quarter from approximately $94 million in the 2008 second quarter. Uncollectible accounts expense was approximately $114 million during the six months ended June 30, 2009, in comparison to $136 million during the six months ended June 30, 2008. The 2008 periods experienced higher expense due to an analysis of our greater than ninety day receivables that indicated a change in the mix of customers in that group and therefore an increased risk of collection. The bankruptcies of General Motors Corporation (GM) and Chrysler LLC (Chrysler) did not have a significant impact to our uncollectible expense in the 2009 periods.
Detroit Edison filed a general rate case on January 26, 2009 based on a twelve months ended June 2008 historical test year. The filing with the MPSC requested a $378 million, or 8.1 percent average increase in Detroit Edisons annual revenues for the twelve months ended June 30, 2010 projected test year. The requested $378 million increase in revenues is required to recover the increased costs associated with environmental compliance, operation and maintenance of the Companys electric distribution system and generation plants, customer uncollectible accounts, inflation, the capital costs of plant additions and the reduction in territory sales. Pursuant to an MPSC order issued May 26, 2009, Detroit Edison filed proposed tariffs on June 26, 2009 to implement $280 million of its requested annual increase on July 26, 2009. On July 16, 2009, the MPSC issued an order requiring Detroit Edison to implement the increase by applying the rate design reflected in its January 26, 2009 application. Detroit Edison expects the impact of this self-implemented increase would be significantly offset by its plan to begin reducing its PSCR factor beginning August 1, 2009. This increase will remain in place until a final order is issued by the MPSC, which is expected in January 2010. If the final rate case order provides for lower rates than we have self-implemented, we must refund the difference with interest.
MichCon filed a general rate case on June 9, 2009 based on a 2008 historical test year. The filing with the MPSC requested a $193 million, or 11.5 percent average increase in MichCons annual revenues for a 2010 projected test year. The requested $193 million increase in revenues is required to recover the increased costs associated with the revenue requirement associated with increased investments in net plant and working capital, the impact of high levels of uncollectible expense and the cost of natural gas theft primarily due to economic conditions in Michigan, sales reductions due to customer conservation and the trend of warmer weather on MichCons market, and increasing operating costs, largely due to inflation. Pursuant to the October 2008 Michigan legislation, and the settlement in MichCons last base gas sale case, MichCon anticipates self-implementing a rate increase on January 1, 2010.
Gross margin decreased $22 million in the second quarter of 2009 and increased $5 million in the six-month period ended June 30, 2009. The following table details changes in various gross margin components relative to the comparable prior period:John Hussman of Hussman Economtrics Advisors, Inc., Kenneth Fisher of Fisher Asset Management, LLC.
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