Detroit DTE Energy plans to expand into new, non-regulated businesses that build on the company’s expertise, Anthony F. Earley, DTE Energy chairman and CEO, told shareholders at the company’s annual meeting.
He noted that waste coal recovery, which involves the separation of coal from clay and rock that otherwise renders it useless, holds good promise.
“This potential business … builds on our company’s strong knowledge of coal markets and relationships with coal companies,” Earley said. “It offers good earnings potential and it provides a significant environmental benefit.”
There are an estimated 1 billion tons of waste coal in refuse ponds that could be recovered and reused with the right technology, Earley said, and there are additional opportunities to recover this coal even before it is rejected to refuse.
“We have secured the rights to a proprietary waste coal recovery technology and we are currently working with several coal companies to prove its viability,” Earley said. “We believe that successful development of this recovery technology could provide $25 (million) to $50 million in additional earnings within five years.”
Earley said DTE Energy also is expanding its non-regulated gas business by developing the production of coal bed methane gas. This unconventional source of gas is similar to the production of gas from Antrim shale — a process with which the company has expertise. Coal bed methane production also draws on the company’s knowledge of and relationships in the coal industry and is projected to earn up to $25 million per year within a few years.
The expansion into new, non-regulated businesses is one of several ways DTE Energy plans to grow. Earley said prudent asset acquisitions are another way.
“The key is getting the right asset at the right price,” he added. “We will not overpay for an asset and we will only consider opportunities that offer strong synergies with our other businesses and strong financial returns.”
The growth strategy, however, starts with maintaining a solid utility base through the largest operating subsidiaries, Detroit Edison and MichCon. These businesses serve as the foundation of DTE Energy and represent about 70 percent of net income. In the future, they will continue at or near that level, with the non-regulated businesses to represent 30 percent to 40 percent.
“Unlike many of our competitors over the last five years, we believe in our utility businesses and have worked hard to keep them healthy,” Earley said. “It’s important to note that while we aggressively seek opportunities to grow, we will not pursue growth at the expense of our balance sheet. Many of our competitors grew rapidly in the 1990s by borrowing heavily to finance investments. We prefer a more balanced approach.”
Earley said 2003 will pose many challenges, including cost pressures from pension issues, double-digit health care premium increases and customer service.
He announced a major initiative to achieve top-flight performance in customer satisfaction.
“We are devoting significant resources to improving our systems, processes, training and staffing, and quality control,” Earley said. “A disciplined program management structure is in place to oversee customer service projects.”
About $21 million in customer service technology improvement projects are scheduled this year, he added.
Managing the evolving regulatory climate has emerged recently as a key issue and it appears that regulation will be a part of DTE Energy business for years to come, Earley said, noting there are four major issues on the regulatory front:
· Implementing the mechanics to recover costs from the state’s Customer Choice programs; Defining a mechanism to recover mandated environmental expenditures;
· Establishing electric rate levels that reflect the cost structure at Detroit Edison;
· Filing a natural gas rate case to cover escalating costs.
Earley said he is hopeful a system to recover lost margins and implementation costs for Customer Choice will be designed by mid-year in the collaborative process sponsored by the Michigan Public Service Commission.
“There’s no doubt it will be a difficult year,” Earley said. “While our 2003 plan anticipates year-over-year growth, it will be at a more modest level than in recent years. To get there, we are concentrating on the items that can make the biggest impact on the way we operate our company.”