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DTE Energy (NYSE:DTE)

Q4 2011 Earnings Call

February 16, 2012 9:00 am ET

Executives

David E. Meador - Chief Financial officer, Executive Vice President and Member of Internal Risk Management Committee

Gerard M. Anderson - Chairman of The Board, Chief Executive Officer, President, Group President of Energy Resources and Member of Internal Risk Management Committee

Analysts

Dan Eggers - Crédit Suisse AG, Research Division

Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division

Jonathan P. Arnold - Deutsche Bank AG, Research Division

Brian Chin - Citigroup Inc, Research Division

Paul Patterson - Glenrock Associates LLC

Andrew Levi - Caris & Company, Inc., Research Division

Operator

Good day, everyone, and welcome to the DTE Energy Year End 2011 Earnings Release Conference Call. Today's conference is being recorded. At this time, I'd like to turn the call over to Mr. Dave Meador. Please go ahead, sir.

David E. Meador

Thanks, Dana, and I apologize for that music while you were on hold there. We'll get a better selection next time. But good morning, everybody. This is Dave Meador, and welcome to our 2011 Year End Earnings Call. Before we get started, I'd like to remind you to read the Safe Harbor statement on Page 2, including the reference to the forward-looking statements. And with us this morning is Gerry Anderson, our Chairman, President and CEO; Peter Oleksiak, our Vice President and Controller; Nick Khouri, our Vice President and Treasurer; and Mark Rolling, our Director of Investor Relations. We also have members of the management team with us to call on during the Q&A session if needed. And with that opening, I'll turn the call over to Gerry.

Gerard M. Anderson

Thank you, Dave. Good morning to all of you. Thanks for being here with us. I want to start the call by saying that I feel really good about what DTE Energy accomplished in 2011, and that's true on almost every front. As you probably already seen, our earnings for last year finished well ahead of our plan on our most recent guidance, and our cash flow and balance sheet results were strong for the year as well.

So 2011 continued a string of solid earnings and cash flow results for the company in recent years. But our performance is about a lot more than financial results, and in fact, I believe it's only by focusing on a lot of things outside of your financial results that your earnings picture has a chance to be strong and sustainable long-term. And so I spent a lot of time with my leadership team focused on a system of interconnected priorities that I believe are the things we need to be very good at consistently in order to make our recent strong financial performance sustain long-term. There are a lot of companies who produce strong financial performance short-term or for a few years, but the trick is to make that sustain long-term and a lot of discussion here and a lot of focus on how to make that happen. And the system of priorities that we're using to do that is shown on Slide 5, and I'll start by saying I realize that Slide 5 may look like a lot of boxes and arrows to you, but it really is how we're thinking about managing DTE Energy for the long-term. So I want to take a little bit of time describing that system to you and then tell you about the progress we've made against it.

And the priorities start on the left side with what I call the kind of the kingpin or key priority, which is highly engaged employees, and the bottom line is you can't have an excellent company that outperforms if your employees' focus and engagement and energy level is average. And so we really do spend a lot of time trying to build the energy engagement and focus of our people. And if you pull that off, then you have a chance at the next 3 things, which is to deliver really good service to your customers and improve that over time to use a tool that we've spent a lot of time developing here at DTE Energy, continuous improvement, in order to manage the quality and affordability of your products and also, to have your people drive creative growth and value creation. And if you do those 3 things well, then I think you have a shot at sustaining a constructive political and regulatory context, because if your customers are well-served, they're all voters and they shape the political arena. If you don't keep your cost in line by constantly working on affordability that eventually finds its way into the political and regulatory discussion. It's also true that if you can pursue constructive productive growth and that helps from an economic development standpoint in the state it shapes the political and regulatory context. And if you combine a good regulatory context with solid growth, then you have the formula for sustainable financial performance.

So in terms of how we are progressing against these priorities, Slide 6 steps into that. On the employee engagement front, we use something called the Gallup survey. Thousands of U.S. companies do use that. 2011 was the fifth consecutive year that our Gallup score increased. We're now on the 71st percentile of U.S. companies. So that's a good thing, although we have a clear goal of wanting to take that up into the top decile or top 10%.

We're also continuing to improve our safety performance. Another important employee outcome. Our injury rate is down 70% since the mid-2000s. We've got both of our utilities performing at top quartile level. In fact, MichCon has been at top decile level in recent years.

Continuous improvement is something that we work every year to push deeper into the organization through education and familiarization and practice. And as a result, our O&M expense level was lower last year than in 2005. We project it'll be lower again in 2012 than it was in back in 2005. That's about $350 million on an inflation adjustment basis. But it isn't only cost, obviously. We're working to focus that CI on reliability and other important operating metrics.

From a customer satisfaction standpoint, our MPSC complaints are down over 50% over the past 5 years. We have a target of bringing that down 10% to 15% year in, year out. 2011 also saw improvement in our J.D. Power customer satisfaction rankings at both utilities. That's the fifth year in a row that we've seen that. MichCon came in first quartile. Detroit Edison wasn't that high. They were above median but not at first quartile, but they did improve. We also put a lot of work into our work on behalf of low-income customers here in the states.

Moving on to Slide 7 on the regulatory and political front. I think when we stepped back from it, the outcome that we had in the Detroit Edison rate case late last year was constructive. The ROE did come down and we'd hope for a little higher outcome there. But when you think the case overall, I think we've got a base that's constructed to work from. And we did continue to see solid and broad political support for the regulatory structure here in the state that was put in place about 4 years ago.

On the growth front, we saw our first major wind project at Detroit Edison. We put about $0.25 billion into that. I'll talk about that a little bit later. We also made significant progress on 2 new Non-Utility growth platforms. Our Bluestone Project related to the Marcellus and Pennsylvania, and our Reduced Emissions Fuel business line. Again, I'll talk about those 2 items a little bit later.

And finally, on the financial front, kind of the outcome of all of the work that I just described, our earnings were $3.73, EPS was $3.73, compared to our original guidance a year ago of $3.55, so we had a nice outperform there. Did earn our ROE at Detroit Edison for the second straight year. MichCon was off slightly on its ROE, principally due to warm weather that we and everybody else saw in November and December last year. And we did increase our dividend 5% last year to $2.35 a share.

So I feel we made good progress last year, I also feel good about our launch point for 2012 and I feel good about our longer-term growth prospects, which is where I want to turn now.

And I will move to Slide 9 to do that. You can see on Slide 9 that we have provided guidance for 2012 of $3.80. That's $0.05 higher than the early outlook that we provided back in November. If you compare that $3.80 to the guidance that we've provided a year ago, which was $3.55, it's up 7%. In fact, if you look at the bottom of the slide, you can see that our growth in recent years has been right at about the 7% level, and we are projecting a future growth of 5% to 6%. We often get asked 5% or 6% from what pace? And we want to be clear that the 5% or 6% is from the midpoint of our 2012 guidance, so it's from that $3.80 level.

Now let me talk for a minute about where that growth would come from, starting with Detroit Edison on Slide 10. Detroit Edison will invest about $6.5 billion over the next 5 years, we project. About $4 billion of that, on the left side, will be put into base infrastructure, which is our investments to ensure the reliability of our generation fleet, our distribution systems. 2012 will be just under $800 million in that area. We also have significant expenditures continuing in environmental compliance. We can see that we've ranged that from $1.3 billion to $1.8 billion for the next 5 years. And the range is simply because we're still finalizing our plans and, as you know, the EPA does continue to evolve regulations, and so we may see some changes in the 5-year period that we don't fully understand now. We'll put a little over $250 million into that area in 2012. And then on Renewable Energy, we project just under $1 billion of investment to meet the RPS requirements here in Michigan. We will put $235 million into that arena in 2012.

In fact, Slide 11 provides a bit more detail on our renewable investments because this is an area that's really emerged over the past year. You see on the left hand side of Slide 11, our first large investment in wind, and that's a 212-megawatt project that will be fully operational by March. We pursue this 50-50 with Invenergy. And all of our turbines, we have 64 of the turbines on the site, are, in fact, up and operational. We invested about $250 million into that project. The right-hand side shows you the project we are currently in the midst of. This will be 110 megawatts at 3 sites in what we call the thumb area of Michigan, and we project that will be completed by the end of this year. And again, we'll put on the order of $250 million into that project. That one is -- work began on that last year and will -- little out of the market right now due to weather but we'll be back at it soon. And following that, we do have, in our sites, the next project, which is also 110-megawatt project on the order of $250 million of investment that would likely play out in the 2013 to early 2014 time frame in terms of completion.

Moving on to Slide 12 for MichCon, we project that we'll invest about $1 billion over the next 5 years, but 2/3 of that in base capital focused on strengthening and expanding the distribution system, pipeline integrity and so forth, which just over $150 million into that area this year. The other 2 areas that we're working are both programmatic. One of them is main renewal, our undertaking a program to replace 670 miles of main over the next 10 years, that's about $0.5 billion investment over the 10-year period. And that's really focused primarily on cast iron main that has just reached end-of-life and needs to be replaced.

We do plan to file for a capital recovery mechanism or a surcharge mechanism in our upcoming rate case from MichCon, and we are coordinating that carefully with the Public Service Commission. We'll spend about $40 million in this area this year.

We also are pursuing a meter move-out program. We still have meters inside homes and our older urban areas, and we are going to be moving about 27,000 meters per year out. We need to do that. Customer services impacted too much by having these inside, so we, in the commission, have agreed it's time to get them outside, and we will invest $20 million to that end this year.

We also have some healthy growth opportunities in our Non-Utility business, and those are -- the discussion that starts in Slide 13. The 2 areas where strongest growth opportunities are focused is in our Gas Storage & Pipeline business and our Power & Industrial business. Gas Storage & Pipeline is profiled on the left. It's about a $60 million business today, but we do believe it can reach $100 million by 2016. And that expansion is driven heavily by investments that are tied to the Marcellus Shale and the Millennium Pipeline and some of the things that we're working. I'll describe more of that in a minute.

And the right-hand side is the Power & Industrial earnings profile. It's about a $50 million business this year, that's the midpoint of our guidance for 2012. We believe it can grow to about $100 million business or actually above $100 million by 2016. Most of that growth would be driven by our reduced emissions fuel business at least in the near-term.

Slide 14 provides more color on our Gas Storage & Pipeline opportunities. In the upper left, we have talked to you previously about the Bluestone Pipeline and the associated gathering systems. Bluestone is a lateral off of our Millennium pipe. It's really focused on taking Marcellus gas to market. For us, it will total about $280 million in investment in the pipe itself and then gathering that we're going to undertake. We are heavily in the works of making that pipe real right now, permitting it right away or well along and wrapping up. This pipe is going to be built in 2 phases, a northern phase and a southern phase. Our construction on Phase 1 will begin soon. We expect to have that in service this summer. And then Phase 2 will follow and be in service late this year.

This activity and other developments nearby are driving expansions on the Millennium pipe described in the green -- shown on the green and in the box on the upper right. This pipe is full. It was really full at the end of last year. We saw all sorts of activity moving gas in both directions on this pipe just trying to get Marcellus production to market. We have 2 expansions of the pipe locked in. Those will result in a 50% increase in the capacity of the pipe. First expansion coming into play this year and the second next year.

But in addition to these investments, we are working on additional future opportunities as well. The Bluestone is anchored by Southwestern Energy. But we have been approached by other producers with lease holdings that are adjacent to Bluestone, and several of those discussions we expect will continue and eventually progress into additional gas being moved on Bluestone, an additional investment for us. We also continue to work on extensions of the Millennium Pipeline, extensions and expansions, to provide greater access to the Northeast market from Marcellus production, and we are optimistic that we will make projects of that nature happen as well.

Slide 15 provides an update on the second area of significant growth in our Non-Utility businesses. The reduced emissions fuel business within -- business line is within our Power & Industrial business. On the left-hand side of Slide 15, you see where we stood at year end 2011. We had 3 units in service at Detroit Edison plants, 2 that we have cited in other plants with utilities in the Midwest and at 4 units available for relocation inciting with other utilities. Our earnings contribution last year was under $5 million, and that's low because 3 of the units that we had an operation by end of year were only in operation for weeks. They came on line quite late in the year. And those units also had, for example, 6 months of depreciation, even though they operated for only a few weeks, so that impacted the earnings.

If you look to this year, in the middle of the slide, our focus is on making those 5 units that we have sited and in operation operate very, very well. We're also working on relocating the remaining 4 units, and we are in discussions with a number of other utilities to that end and we expect the earnings contribution to go up to the $30 million level.

And then looking out to 2013 and beyond, we expect to have all 9 units in operation with an average annual contribution moving forward of $50 million or so. That would be the level we'd expect in 2013 could drift up some there from -- because these tax credits do inflate over time. But that's a general feel for the level that we see right now for that business.

And with that, I am going to turn things over to Dave Meador, who's going to give you a fuller update on our financials. Dave, over to you.

David E. Meador

Great. Thanks, Gerry. I will go through the financial updates starting on Slide 17. Operating earnings for 2011 came in strong at $3.73 per share and we'd like to reminded you that a reconciliation to our GAAP reported earnings is contained in the appendix. Starting on the left-hand side, Detroit Edison came in higher than our Fall EEI updated guidance and earned $2.60 per share. This was driven by ongoing cost control and the partial year rate increase that we had last year, and then favorability is driven by a onetime year-end tax adjustment. But second year on the row, Detroit Edison earned its authorized return on equity.

MichCon came in at $0.65 per share. This is at the low end of the guidance and slightly below our targeted 11% return on equity levels. MichCon was on track for almost the entire year due to ongoing cost controls, but mild weather got us at the end of the year and caused a slight miss there.

In the Non-Utility group, Gas Storage & Pipelines earned $0.34 per share. This was better than guidance. It was driven by higher volumes on the pipelines in the fourth quarter. Power & Industrial finished the year in the high-end of the guidance range. This was a transition year for the group and they add several projects to deliver higher-than-expected returns and some onetime items. Energy Trading finished up strong for the year at $0.31. And as you might recall, trading posted solid earnings through the third quarter and we saw that performance continue throughout the remainder of the year. This was aided by favorable timing from contracts that were executed at the beginning of 2011 and also success in both the Power & Gas Trading part of the business.

As Gerry indicated, the total year was not only higher than our original guidance of $3.55, which we projected our 5% to 6% growth off of, but it was also higher than the last guidance that we provided at the Fall EEI, and I'd like to congratulate all of the employees at DTE Energy for another great year on many fronts, including the things that Gerry covered but also our financial performance.

Turning to Slide 18. Gerry talked about our distinctive capability we're building in the continuous improvement area and it's really the way we approach our work. And while we're still building this capability in the company and we feel that we have many more opportunities ahead of us, we're actually getting some really nice results as you can see on this slide. Over the last 7 years, we've driven $350 million of cost savings to the bottom line and we do this because we owe it to our customers to keep rates as low as possible. But also, it's given us the flexibility to achieve our financial goals, and we do this without compromising on our ability to improve customer experience or our operational metrics.

Turning to Slide 19. Although both utilities are revenue decoupled, we watched the local economy very closely. We have said that we see economic recovery in our region and that's going to be slow with the tail on it, but we are certainly seeing continued signs of positive economic health. As you know, Ford and GM and Chrysler have significantly restructured their cost profile and now they're very profitable at much lower volumes. For example, General Motors this morning announced that they earned $7.6 billion last year, and many expected that they'll earn $10 billion a year going forward. All 3 U.S. automakers are profitable and U.S. sales volumes are at about 13 million units, which is down from the 17 million annual sales levels before the 2008 recession.

On this slide on the upper left, you can see that Michigan's employment has improved dramatically from a high of 14% 2 years ago to now under 10%. On the bottom left, you can see the Michigan auto production numbers are up 67% from the trough in 2009. And on the right-hand side is Detroit Edison LOAD which is up also since 2009. Adjusted for the impacts of energy efficiency, we're expecting LOAD to increase another 1% to 2% in 2012.

And Slide 20 is our updated guidance for 2012. We're taking the midpoint of our guidance up from the early outlook that we've provided last year to $3.80 a share, which is a 7% increase over the 2011 guidance of $3.55 that we provided this time last year.

Let me do a quick walk down the chart here. Detroit Edison's guidance of $438 million to $448 million, which is the same outlook we've provided at the EEI Fall conference. The key drivers of the 2012 guidance to the prior year are the lower ROE from last year's rate case and a favorable tax adjustment at the end of the year. And this is partially offset by a full year of rate increases in 2012 in continued cost control. We might file a rate case for Edison later on this year in the fall but we're going to work hard as we always do to see if we could push that forward, including all the way out into 2013. So we'll update you on our rate case strategy for Detroit Edison as we progress during the year.

MichCon's guidance is $110 million to $115 million. With a warm start of the year, MichCon has been negatively impacted about $5 million in January and another $3 million or so in February. Although MichCon does not had a rate increase since 2009, we'll use continuous improvement to deliver targeted earnings which we outlined here, and this is about $5 million less than our fall outlook. We also plan to file a rate case for MichCon in the second quarter.

Gas Storage & Pipelines is targeted to have a modest earnings increase from existing assets after a very strong performance in 2011. More significant growth in this business comes in 2013 from the Bluestone Pipeline that Gerry just talked about.

Power & Industrial is projected to have significant increase in earnings this year, growing to $45 million to $55 million. That's driven primarily by the REF business line producing at higher volumes.

At Energy Trading, we're targeting an earnings at a traditional level, and we've set our guidance here at $30 million to $50 million, which is lower than our actual earnings in 2011. And the holding company will improve year-over-year due to lower interest rates. So the total 2012 guidance is $650 million at midpoint.

Slide 21 provides our cash flow guidance. Cash from operations is projected at $1.9 billion, it's slightly lower than 2011 due to VEBA contributions and some tax payments in 2012. Capital has increased to $1.9 billion and I'll cover that on the next slide.

We're projecting that we will issue $300 million of equity through our DRIP program and pension plans, and we're also assuming here that we monetize our net properties for approximately our book value of $300 million.

On Slide 22 is our capital spending summary. We expect to spend $1.9 billion this year with about $1.3 billion of that being spent at Detroit Edison. Operational CapEx is higher at Edison as we continue to focus on both power plant and distribution reliability. In addition to the increase in operational capital, environmental spending will increase to $255 million as Gerry outlined, and also the renewable energy investments will continue to be strong at $235 million as we continue to build out our wind portfolio.

MichCon have higher CapEx as infrastructure related as we replaced both cast iron mains and we move meters out of folks homes from the inside to the outside. The Non-Utility spending will increase to $430 million, again, driven by the Bluestone Pipeline and projects with Power & Industrial.

As we spend this level of capital, we are also focused on driving economic growth in Michigan. Last year, we announced with the Governor that we would increase our Michigan spend by $750 million over the next 5 years. Last year, we increased our procurement spend in Michigan by $125 million to close to $600 million, and will continue to increase the Michigan spend as we fulfill our commitment to take our Michigan spend from 41% to 60% by 2016.

The Slide 23 is an update on our balance sheet. As we grow our earnings, we'll remain focused on our balance sheet as we always have. Our leverage and cash flow metrics are within our targeted ranges. In January, the 2 utilities were upgraded by Fitch to reflect the continued financial performance that you see there, and the improvement also has been recognized in the Michigan economy. Last year, we financed over $1 billion in debt and that's going to save $25 million in interest per year. We also renewed and extended our credit facility for 5 years. Now the total facility is $1.8 billion and we have $1.4 billion of that available at this time.

On Slide 24, our dividend is $2.35 and it's well supported. Since 2009, we have grown our dividend by over 5% annually, in line with our long-term earnings growth target. The current yield is about 4.4% and our targeted payout ratio is 60% to 70% and future increases will be supported by our projected earnings growth.

Let me wrap up on Slide 25 and then we can take your questions. We will continue to execute on our plan, which has delivered and will deliver 5% to 6% earnings growth going forward. And when you put that together with our dividend, this provides a targeted 9% to 10% total shareholder return. Our Utility growth is set in a constructive environment. We continue to make significant investment in the Utilities that we've outlined for you, driven by mandated investments and also infrastructure investments. And over the next 5 years, we will invest $7.5 billion in the 2 utilities.

We continue to focus on maintaining constructive regulatory environment and we understand that's something that we have to earn every day. We also have a highly engaged workforce. And as Gerry outlined, they are committed to using continuous improvement tools, and on both of those fronts, both employee engagement and continuous improvement, we're going to continue to focus our efforts as we look to improve customer service and drive efficiencies in the business.

We also have substantial growth ahead of us in our Non-Utility businesses, driven by the Bluestone and REF projects. And our goal is to have our Gas Midstream and Power & Industrial businesses earn a combined $225 million by 2016.

And thank you for joining us. And Dana, now, we'd be happy to open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll go first to Kevin Cole with Crédit Suisse.

Dan Eggers - Crédit Suisse AG, Research Division

It's actually Dan. First question, I guess, just kind of on the REF business and the timing of getting the earnings contributions in. To hit the $30 million for '12, when do you have to have those additional units placed? And where are you in the contracting process and our ability to kind of see that turn from discussions into something tangible?

Gerard M. Anderson

We have some of the placements targeted in the summer like time frame and some late in the year. And in terms of where we are, we have quite serious discussions underway with a number of utilities. So we're feeling like we'll continue to make progress in place of those. Did that answer the question?

Dan Eggers - Crédit Suisse AG, Research Division

Yes. I guess, when you're looking at those projects, is there some variability potential base in the size of the plants you're looking? I know this is a volumetric business but are you seeing when you might be able to do better based on -- kind of the size of plants you're discussing with right now?

Gerard M. Anderson

Yes, we are talking to a range of plant sizes, so you could be talking to plants that are in the 3 million to 4 million ton range. There are also plants that are up in the 8 million to 10 million ton range. And to your point, depending on where you end up placing them, if you ended up with a collection of them that were toward the high-end, you'd strengthen the outcome and they all end up at the low-end, it would weaken it, which we don't expect. And what we've got in our projection here is a mix of those. We end up with something in between the high and the low-end.

Dan Eggers - Crédit Suisse AG, Research Division

Okay. And then, I guess, my other question is kind of on the Barnett sale. In the slides, I noticed you gave a little more detail about the breakdown of reserve base between liquids and gas. When you look at monetizing those assets, are you having a better conversation because they're probably more liquids-rich for the Barnett versus what you'd normally expect?

Gerard M. Anderson

Yes, the whole premise of this monetization has been that there's an oil-rich zone at Marble Falls beneath our properties. The wells that we're drilling, the oil wells are producing very good results, really attractive returns and we're able to hedge in prices at the wellhead now at about $100. As you can see, a lot of the revenue does come from oil and the vast majority of it -- the rest is from NGL. So anybody looking at this -- in this environment in particular is going to be focused on oil and NGLs. And that's a good environment for that.

Dan Eggers - Crédit Suisse AG, Research Division

And then, I guess if I look at the reserves on 31, there really wasn't a big change in proved or probable on a cumulative basis. Were there some gas write-downs to the move in gas prices that lowered that number relative to activity there, or is that just kind of based on your joint activity was a pretty static outlook?

David E. Meador

No, I'm not sure I would read that into this. We are -- have been shifting acreage at the same time as part of what happened here, so the focus is really just been on the oil in particular, so we actually have been drilling in different places. And also, these reserve numbers are a 5-year projected number under the SEC calculations. So I would not look at that as much as I would be more inclined to look at Slide 32 and just see where the revenue and reserves are by oil and NGL.

Operator

Then we'll go next with Paul Ridzon with KeyBanc.

Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division

Dave, did you say that you'd kind of baked in the weather to date in your MichCon number?

David E. Meador

We have. So as I've said, year-to-date, we're with this mild winter. We were off about $8 million, and that's baked in on our guidance, it's assumed in our guidance right now. As you saw, we took our guidance down from the EEI 5 million and we're going to work offset the remainder.

Gerard M. Anderson

Yes, we saw 5 million in January, we're projecting 3 million in February. We aren't through February yet, but it's warm, has been everywhere. So that's what we think the impact will be. And as Dave said, we're going to work some of that off and some of it shows up in a bit lower guidance.

Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division

And then just in Michigan, if there's any lapse in the PTC, what -- how do you react to that? How does the state react to that? And then just any update on choice legislation.

Gerard M. Anderson

On the PTC, we have a requirement at 10% by 2015, so we will continue to invest and make that happen. We're right on track to make that happen. So what it really raises is what's the ultimate cost to the customers. And the most recent round of investments that we saw when you're able to internalize PTC, we have projected wind cost in the $0.0625 range. But if you lose a PTC, it takes us up a couple of cents. So you're going to be more like $0.08 to $0.085. So that's the real question, the investment will happen but PTC lower the cost of customers. And then on choice legislation, we had some discussions of that last year. It really played out late in the year with the review in the Senate Energy Committee, where they took a broad look at the laws that were passed in 2008 and how they felt about them. And if you go and look at the findings of that committee, what they essentially said was done a full review. We like the way they're working and we're going to stand firm. And if you go into the administration with the Governor and his key aides, I think not only is their focus elsewhere, they don't see any modification to the regulatory constructing Michigan as a priority either. So I feel good about the political climate for that.

Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division

Is there a time frame in '12 when you'd like to have the monetization done at the Barnett?

Gerard M. Anderson

Well, we're looking towards moving into that midyear and would try to wrap up by year end. Sometime this summer, we'd kick it off and try to wrap up by year end.

Operator

And our next question comes from Jonathan Arnold with Deutsche Bank.

Jonathan P. Arnold - Deutsche Bank AG, Research Division

My question is I think you've said the EEI that you would anticipate being done with your testing of DSI by the end of the year. I apologize if I missed comments on this earlier, but did you provide an update on that on this call?

Gerard M. Anderson

We didn't. but I will provide a quick one. We continue to be encouraged by the DSI testing results. We are a little bit delayed. A couple of units that we were using for DSI testing ran into operational issues. We have one of the units down per period that delayed our testing. So we are a couple of months behind where we hope to be at this point with the testing. But everything we're seeing suggests that we're going to have good success with that. Were trying to. But we do need to finalize the testing on the remaining units to determine that, that, in fact, is the case. So instead of being done by early this year, we're probably going to play this out through the first quarter, early into the second quarter before we have a clear read on it.

Jonathan P. Arnold - Deutsche Bank AG, Research Division

Do you think maybe by the next quarterly call, you'll be telling us what your plan is based on...

Gerard M. Anderson

I think we will have a much better idea, yes.

Operator

We'll go next to Brian Chin with Citigroup.

Brian Chin - Citigroup Inc, Research Division

I may have missed this a little bit earlier but I think you had commented on the decoupler and then you jumped straight into commentary on the Michigan economy. Just to be absolutely clear on this, when you got your new decoupler at Detroit Edison, that's only for energy efficiencies, so there is upside in case the Michigan economy continues to improve here, right?

Gerard M. Anderson

Well, a couple of things. The decoupler is weather adjusted, so if weather were strong, there's upside. If weather is weak, you're exposed to that. In addition, there's a dead band around your sales levels of 1.5% in the first year and then 3%. So you actually are decoupled from weather-adjusted LOAD movements within that band. If you get outside of the band, if you have a particularly strong or weak year, then you are protected, or you get the upside either, depending on which direction it goes. Did that answer the question?

Brian Chin - Citigroup Inc, Research Division

Yes, that does.

Operator

[Operator Instructions] We'll go next to Paul Patterson with Glenrock Associates.

Paul Patterson - Glenrock Associates LLC

Just to go back to the REF stuff, at EEI, you guys sort of saw some significant upside potentially. I mean, I think your base numbers look similar for 2015 -- I'm sorry, 2013 through 2016. But I'm just wondering, the upside that you guys saw as a potential, how does that look now, now that you're further along in the process?

Gerard M. Anderson

Well, there still is a bond around these earnings and it's driven by the plants that you end up siting them at. So as I was saying earlier, if you'll site the plants at larger -- resite the units at larger power plants, you play into the upside and the opposite is true if you end up with a string of smaller plants. So I think we're going to -- we'll have a better feel for that as this year plays out, and we'll be able to get people clarity as we start to actually firm up where we're going to relocate these units. The other thing you saw on those charts and for earnings and cash flow is projected as they drift it up over time, and the reason for that is that the tax credits inflate over time. So that continues to be true. What we're giving you here is you can probably see is kind of the middle of that band as we enter it. But we'll know a lot more about precisely where we're going to land within the band as we get these units sited.

Paul Patterson - Glenrock Associates LLC

Okay. So stay tuned, I guess.

Gerard M. Anderson

I would say so.

Paul Patterson - Glenrock Associates LLC

Now the PTC wind tax expiration, I know you guys are renewable portfolio standard, but do you see that as potentially impacting the amount of renewable investment that might happen in the state and affect you guys in any way? Or how should we think about that?

Gerard M. Anderson

No, no. We do have an off-ramp that's cost related for our renewable investments. That was one of the provisions of the RPS when it was put in place. If it got too expensive, you just stop spending. But we do not see that happening with the investments to date and our projected cost of future investments suggest we will be able to invest -- to hit the 10% without the production tax credits. Actually it makes it more expensive. But our experience with the production tax credits, we had a small amount of wind going into production in the state. Early on, that was about $0.11, then it went to $0.09, then it went to $0.06, and this was all due to technology evolution. The turbines went up higher, the blade profiles were changed. And so we've gone from capacity factors on these turbines that were in the low 30s now to the low to mid 40s. And so -- and that, as you may know, capacity factor is a really big impact on the -- that's for kilowatt hour delivered out of these units. So even with the production tax credit potentially going away, we think we'll be able to think we have a high degree of certainty that we will play out the investments and the technology evolution has been helpful to make that happen.

Paul Patterson - Glenrock Associates LLC

Okay. And then just finally, what is sort of your long-term planning for megawatt hour or kilowatt hour sales growth on a retail basis in your service territory?

Gerard M. Anderson

We're looking at -- for one thing, we're investing $100 million a year in energy efficiency, and so that's peeling out part of the growth. It's a good thing. We're supportive of that. It's helping manage affordability for customers, but it's probably 1% to 2% a year over and above that.

Paul Patterson - Glenrock Associates LLC

So is that including -- I'm sorry, is that including the energy efficiency or is that before it?

Gerard M. Anderson

That would be beyond it.

Paul Patterson - Glenrock Associates LLC

Okay. So with energy efficiency what would it be? Would it be less?

David E. Meador

Yes, there's a slight amount that you would take it down to. So it might, over time, push it down to 1%, all in, 1% to 1.5%. We also would expect as the Michigan economy continues to recover here, you're going to see it's -- just more natural low growth.

Operator

And we'll go next to Andy Levi with Caris.

Andrew Levi - Caris & Company, Inc., Research Division

No, no, no, I'm sorry. I thought you heard me. I'm all set.

Operator

And there are no further questions in the queue at this time.

Gerard M. Anderson

Well, great. As we said earlier, we really appreciate you being with us this morning. Look forward to giving you updates as the year progresses on the plan, but we do feel good about what lies ahead this year. Look forward to talking to all of you soon. Thanks.

Operator

Again, that does conclude today's presentation. We thank you for your participation.

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