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22 Apr 2005
MOODY'S AFFIRMS DTE ENERGY COMPANY (Sr. Unsec. Baa2) AND THE DETROIT EDISON COMPANY (Issuer Rating Baa1) AND REVISES RATING OUTLOOK TO STABLE FROM NEGATIVE
Approximately $7.5 Billion of Debt Securities Affected
New York, April 22, 2005 -- Moody's Investors Service affirmed the ratings of DTE Energy Company
(DTE: senior unsecured Baa2) and The Detroit Edison Company (Issuer
Rating Baa1). Moody's also revised the rating outlook for
both companies to stable from negative.
The change in the rating outlook to stable reflects:
(1) Expected improvement in DTE's financial performance over the
next several years following the recent rate order for The Detroit Edison
Company and an expected base rate increase for Michigan Consolidated Gas
(2) An expected slow down of customer migration as the recent rate order
and the subsequent filing of a rate unbundling and "deskewing"
case will improve Detroit Edison's overall competitive position
with large commercial and industrial customers;
(3) The company's stated intention that it will use a portion of
its free cash flow to de-lever the balance sheet.
In its rate order from the Michigan Public Service Commission (MPSC),
DTE's electric utility subsidiary The Detroit Edison Company (DEC)
received a meaningful base rate increase that provides rate relief for
recent increases in operating costs and is expected to offset the reduced
margins associated with customer losses pursuant to Michigan's Choice
program. The rate order provides for a pass through of fuel,
purchased power and transmission costs beginning in 2006 and allows for
the recovery of stranded costs and past environmental spending.
The rate order also includes the implementation of a tracking mechanism
to account for and recover future pension related expenses should these
costs deviate significantly from the cost basis reflected in the company's
increased base rates. Furthermore, the stable outlook incorporates
the expectation that the rate of customer migration to other providers
under the Choice Program will slow in the near term due to the provisions
incorporated within DEC's rate order and the follow on rate unbundling/deskewing
case filed by DEC to address the residential rate subsidies borne by commercial
and industrial customers.
The stable outlook incorporates the expectation that DTE's gas utility
subsidiary, Michigan Consolidated Gas Company (MichCon), will
be able to obtain a rate order that would include a meaningful base rate
increase to reflect its current cost structure and obtain a mechanism
to recover uncollectible accounts receivables.
The stable outlook also reflects the significant cash flows expected to
be generated from DTE's synfuel business over the next several years.
Moody's expects that management will utilize a portion of this cash
flow to fund substantially larger environmental capital expenditures at
DEC and utilize a portion of its free cash flow after capital spending
to de-lever the parent company's balance sheet prior to implementing
any share repurchases under the company's recently announced stock
buy back program. Based on the rate increases at DEC, the
anticipated base rate increase for MichCon, and the expected implementation
of the company's free cash flow to reduce debt, Moody's
anticipates that the company's consolidated financial performance
will improve, with funds from operations (FFO) to debt of about
20% and FFO to interest coverage of about 4x on an adjusted basis
over the next two to three years.
DTE is a utility holding company headquartered in Detroit, Michigan.
Through its principal regulated electric and gas utility subsidiaries,
The Detroit Edison Company and Michigan Consolidated Gas, the company
serves approximately 2.1 million electric and 1.2 million
gas customers, respectively, in Southeastern Michigan.
Corporate Finance Group
Moody's Investors Service
M. Sanjeeva Senanayake
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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