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Executives

Dave Meador – Chief Financial Officer

Peter Oleksiak - Vice President and Controller

Nick Khouri - Vice President and Treasurer

Lisa Muschong - Director of Investor Relations

Analysts

DTE Energy Company (DTE) Q3 2009 Earnings Call October 30, 2009 9:00 AM ET

Operator

(Operator Instructions) Welcome to the DTE Energy Third Quarter 2009 Earnings Conference Call. At this time I’d like to turn the conference over to David Meador.

Dave Meador

Good morning and welcome to our third quarter conference call. As we get started I encourage you to read the Safe Harbor statement on page two including the reference to forward looking statements. We will out at EEI on Sunday through Tuesday with Tony Early so we’d like to focus this call on our third quarter.

With me this morning are Peter Oleksiak our Vice President and Controller; Nick Khouri our Vice President and Treasurer, Lisa Muschong our Director of Investor Relations and I also have members of the management team with me that I might call on during the Q&A period.

Let me start the call on slide five. The third quarter came in right where we expected it to and supports the revised guidance that we just provided at our October 19 analyst meeting. The utilities are performing well in a weak economy and we do expect both utilities to return to their full earnings power next year. The non-utility performance remains on track with the Trading Company having a great nine months. The Power & Industrial group expected to have a very strong fourth quarter. The favorability at the holding company is driven by one time tax benefits and we covered that at the analyst meeting.

The balance sheet remains strong with both year to date and forecasted 2009 cash flows which shows significant improvements over 2008. Our metrics are right where we want them to be and we have $1.7 billion in available liquidity.

On slide six is a comparison of the year to date results of $427 million or $2.61 a share compared to the revised guidance of $523 to $558 million which we provided at the analyst meeting. The year to date results came in as expected and when coupled with our fourth quarter forecast support the guidance of $3.20 to $3.40 per share for the year.

With that background let me turn it over to Peter who will take you through the quarter.

Peter Oleksiak

Let’s start with slide eight and the third quarter earnings per share by segment. For the quarter, DTE’s operating earnings per share was $0.95. As a reminder there’s a reconciliation to GAAP reported earnings contained in the appendix of the presentation. Detroit Edison contributed $0.95 and MichCon which typically incurs an operating loss in the third quarter came in at a loss of $0.14. The non-utility segments combined to earn $0.15 on the quarter.

The individual segment results within the non-utility businesses are Gas Midstream at $0.08, Power & Industrial at $0.04, Energy Trading contributing $0.04, and Unconventional Gas Production at $0.01 loss. Corporate and other also had a loss of $0.01 in the quarter.

Let’s move to slide nine and a summary of the quarter over quarter performance by segment. Overall, operating earnings are down $16 million for the third quarter 2009. Detroit Edison earnings are essentially flat while MichCon is down $10 million from the third quarter of last year. We’ll go into more detail on the two utilities in a few moments.

Our non-utility segments are down $31 million in total. Gas Midstream is up $2 million due to higher pipeline income. Lower gas prices in 2009 are driving a $5 million decrease in earnings in the unconventional gas production segment. Power & Industrial projects are down $17 million primarily due to lower co-production as a result of the slowdown in the steel sector. This segment also benefited from a holding company true-up related to Synfuel per season 2008 which is causing a year over year variance.

Energy trading had a quarter over quarter earnings decline of $11 million primarily due to lower realized gains in 2009. Year to date economic net income at Energy Trading is comparable with last year and we actually included a page in the appendix of the presentation that shows that.

Finally, our Corporate and Other segment is $28 million favorable due to some one time related tax benefits in 2009 as Dave mentioned and a true-up I just mentioned with the Power & Industrial projects in 2008.

Now I’d like to take you through some quarterly details of the utility companies beginning with Detroit Edison on slide 10. Operating earnings for Detroit Edison is $156 million down slightly from the prior year. Margin for the quarter is down $47 million before rate increases driven by the significant drop in temperature normal sales and a cool summer.

Additionally, O&M expenses is up $5 million due to higher employee benefit costs and the timing of power plant maintenance and restoration expense within the year, partially offset by our continuous improvement initiatives. As I mentioned on the first or second quarter call, the year over year O&M savings will be front end loaded given the fact that we started these cost reduction efforts in the second half of last year. Rate increases overall contributed $59 million quarter over quarter.

Turning to page 11, we’ve included quarter over quarter and year to date details on our temperature normal electric sales. In the third quarter we experienced a quarter over quarter sales drop of 7% which was larger then our original projections for the year. This was driven mainly by reductions in industrial load which we anticipate will improve in the fourth quarter.

Actually when you look at the third quarter of this year compared to the second quarter we’ve actually experienced a 6% increase in industrial load. The year over year drop in our industrial load is not projected to be 22% versus the 15% embedded in our original guidance. Those reductions in the commercial and residential segments are now forecasted at -2% and -3% versus the -5% and -1% embedded in our original projections. In total, our current projection for the year is temperature normal sales drop of 7% to 8%.

Moving on to page 12 and a review of MichCon’s performance. As I mentioned earlier, the third quarter is typically a loss in the seasonal gas utility business. MichCon had an operating loss of $23 million, $10 million unfavorable compared to the prior year. This is primarily due to higher employee benefit costs, partially offset by our continuous improvement initiatives. Additionally, there is an increased depreciation and interest in 2009 and a tax refund benefit in the third quarter of last year.

This concludes my comments on the third quarter earnings results. Now I’d like to turn the discussion over to Nick Khouri who will cover cash flow and capital expenditures.

Nick Khouri

As always, improved cash flow and balance sheet strength remained a key priority for management and the Board of Directors. This year, even in the face of a weak local economy, DTE’s cash flow and balance sheet health improved significantly from 2008. Page 14 details cash flow and capital for the first three quarters of 2009.

Cash from operations reached $1.7 billion through October while free cash flow before dividends was $900 million, far exceeding the -$400 million of free cash flow last year at this time. Year over year improvement was reflected in almost every business line including working capital improvements of both MichCon and Detroit Edison, increased net cash at the non-utility businesses and lower parent company taxes. As a result, outstanding net debt was approximately $600 million lower at the end of the third quarter this year compared to 2008.

We are expecting a flat fourth quarter for operating cash, reflecting year end cash requirements and normal seasonality. Year end balance sheet metrics are expected to fall well within our targets of 50% to 52% leverage and approximately 20% cash flow to debt.

Capital expenditure detail is shown on page 15. DTE capital spending totaled $840 million through the third quarter, down about 20% from last year. Detroit Edison’s total capital was about flat with lower environmental spending offsetting higher operational capital. MichCon’s year over year capital decline is due to last year’s completion of our major expansion project.

On the non-utility side capital in our unconventional gas drilling is down about $60 million from last year reflecting current market conditions. For the full year, DTE capital is on track to reach about $1.15 billion about a 20% decline year over year from 2008. Even in the face of the soft local economy DTE’s cash and balance sheet targets are exceeding 2008 and exceeding our original expectations for the year.

Now let me turn it back over to Dave to wrap up.

Dave Meador

Let me wrap up on slide 17. Our regulated growth plan is built on a very constructive regulatory relationship and a fair framework which will enable the utilities to consistently earn their authorized return on equity of 11%. The non-utility businesses have abundant investment opportunities which provide a premium return to the utility investments and offer diversification of earnings from both and earnings driver and a geography standpoint.

Earlier this year we laid out our plans for earnings, cash flow and our balance sheet knowing that the environment would be tough and we’re exceeding all of those financial goals. At the same time we’re improving on all operational and customer service metrics. Our growth opportunities are well supported by a strong balance sheet, ample liquidity, and an attractive dividend.

In terms of some upcoming events, as I mentioned, we will be at EEI next week. The week after that, we have a European non-deal road show that Tony and Nick will be on. A couple of other upcoming events, on the MichCon rate case, staff files on November 12 and our self implementation filing is on November 25.

On the Detroit Edison rate case we expect the ALJ ruling on November 13 and then that case will play out in mid January. Our expectation on that case is that the order will include at least $280 million of value including a bad debt tracker and decoupling. When that order comes out in January we will analyze it and get a reconciliation out to your as soon as possible.

That wraps up this call and we can open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) As there are no questions, at this time I’d like to turn the conference back to David Meador for closing remarks or additional comments.

David Meador

I get a sense just coming off our analyst meeting where we spent a good portion of the day with a very large group of investors, and the fact that we will be at EEI starting Sunday night I can understand the fact that there would be very little questions. We look forward to seeing everybody in Florida starting Sunday evening. We have a dinner with the group and we’re all looking forward to being down there.

Operator

That concludes today’s conference. Thank you for your participation.

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