DTE Energy (NYSE: DTE) (“DTE Energy” or “the Company”) today
announced that the Company’s Board of Directors has unanimously
authorized management to pursue a plan to spin-off the DTE
Midstream business (“Midstream”) from DTE Energy. Midstream is the
Company’s non-utility natural gas pipeline, storage and gathering
business. The transaction would transform DTE Energy into a
predominantly pure-play regulated electric and natural gas utility.
Midstream would become an independent, publicly traded company well
positioned for sustainable growth. The separation transaction is
not expected to have any adverse impact on DTE Energy’s utility
operations, customers or customer rates.
“DTE Energy has earned a reputation as a premier company in our
industry because the Board and management team have a track record
of value creation through disciplined planning and strong
execution. Today’s announcement is a result of a series of
strategic discussions that began in the summer of 2019 to identify
opportunities that enable us to unlock the significant value we
have created as our utility and non-utility businesses have grown,”
said Jerry Norcia, DTE Energy president and CEO.
“Through a combination of greenfield development and
acquisitions, we have meaningfully increased Midstream’s scale,
diversification and market reach. As a result, Midstream is now an
energy industry leader with the assets, resources and capabilities
to stand on its own. Separating Midstream from DTE Energy sharpens
both companies’ focus on their respective strategic priorities and
stakeholder needs. We believe DTE Energy and Midstream will be even
better positioned to grow, thrive and deliver superior returns with
this transaction,” Norcia continued.
“As a result of our employees’ hard work and accomplishments, we
are able to take this step and position DTE Energy and Midstream
for an even stronger future,” Norcia stated. “As we conducted our
review, serving the best interest of all stakeholders was a key
consideration.”
Under the separation plan, DTE Energy shareholders will retain
their current shares of DTE Energy stock and receive a pro-rata
dividend of shares of the new Midstream company stock in a
transaction that is expected to be tax-free to DTE Energy and its
shareholders for U.S. federal income tax purposes. The actual
number of Midstream shares to be distributed to DTE Energy
shareholders will be determined prior to closing. DTE Energy is
targeting to complete the spin-off by mid-year 2021.
Benefits of the separation
transaction
The separation is expected to create numerous benefits for both
DTE Energy and Midstream, including:
- Transforms DTE Energy into a high growth, predominantly
pure-play, regulated, Michigan-based utility;
- Positions Midstream as a premier independent, natural gas
midstream company with assets in premium basins connected to major
demand markets;
- Empowers Midstream to pursue growth opportunities and fully
capitalize on its go-forward growth platform as an independent
company;
- Aligns the companies’ respective business mix with investor
preferences and overall market trends, leading to expected enhanced
valuations for both DTE Energy and Midstream;
- Enables each business to pursue separate and distinct
strategies led by proven boards and management teams who have
skillsets and experience directly linked to each company’s unique
strategic and financial objectives;
- Provides capital allocation flexibility and capital structures
that support distinct business models and growth objectives;
- Generates a combined dividend that is expected to be higher
than DTE’s current, pre-transaction dividend. Upon closing, DTE
Energy plans to continue a payout ratio and dividend growth target
consistent with pure-play utility companies. Upon closing,
Midstream expects to establish a growing dividend with an initial
level competitive with its midstream peers. Until the planned
separation has been completed, DTE Energy expects to continue to
pay its regular quarterly dividend. All dividends will be subject
to approval by the respective Board of Directors following the
completion of the separation; and
- Enhances opportunities for employees, including providing many
new career opportunities for Midstream employees as part of an
independent, publicly traded company.
DTE Energy: a best-in-class
predominantly pure-play regulated electric and natural gas utility
with superior earnings growth, a
strong capital investment plan and a
proven record of cost management
With the completion of the separation, DTE Energy’s utility
operating earnings would be in-line with its pure-play peers.
Approximately 90% of DTE Energy’s operating earnings would be
generated by its regulated utility business compared to 70% today.
Approximately 92% of capital investments would be devoted to DTE
Energy’s utility operations. The Company is targeting a long-term
operating EPS growth rate of 5% to 7% off its 2020 original
guidance. This includes 7% to 8% long-term operating earnings
growth for its regulated electric business and approximately 9% for
its regulated natural gas business.
This growth is supported by $17 billion of planned utility
capital investments over the next five years – a $2 billion, or
13%, increase over DTE Energy’s prior plan. These investments will
continue to drive the Company’s commitment to cleaner, safe,
reliable and affordable energy.DTE Energy has an undisputed track
record of cost management, far outperforming peer averages. The
Company has consistently earned its authorized return on equity,
reflecting both its operational excellence and constructive
regulatory relationships, which will remain priorities following
the separation. DTE Energy remains committed to a strong investment
grade balance sheet.
DTE Energy will continue to be led by Jerry Norcia, president
and CEO, and its current management team. Gerry Anderson will
continue to serve as executive chairman, and Ruth Shaw will
continue to serve as the Company’s lead independent director.
The new
Midstream
company:
a premier natural gas pipeline, storage and gathering
provider with significant growth and value creation opportunities
as a standalone, publicly traded company
Midstream is a regulated natural gas pipeline, regulated
storage, and gathering business that serves producers, gas and
electric utilities, marketers, power plants and large industrial
customers. It is recognized as a best-in-class provider of safe,
reliable and economic midstream services in the top tier supply
basins of North America. Midstream’s proven, experienced leadership
and highly engaged employees have enabled among the best safety and
reliability rankings in the industry. Midstream owns 900 miles of
FERC regulated gas transmission lines and 1,450 miles of gathering
lines connected to high quality markets. It also owns and operates
91 Bcf of regulated gas storage capacity in Michigan serving local
distribution companies, power generators and other end-user markets
in major demand regions across the Midwest, the Northeast and
Canada.
Midstream’s 2020 adjusted EBITDA is estimated to be
approximately $700 million. This performance reflects the resource
quality, the strategic location of its assets and the strong,
long-term contracts underpinning the business. The business has
generated over $3 billion of cash since 2008 and is expected to
drive strong future EBITDA growth.
Midstream expects to maintain a competitive capital structure,
initially targeting approximately 4.0x debt / adjusted EBITDA and
approximately 2x dividend coverage ratio in 2021. It will target a
credit rating that is in alignment with its peers.
The new Midstream company would be the only independent,
mid-cap, C-Corp, gas-focused midstream investment opportunity with
exposure to the Marcellus, Utica and Haynesville shales with
connection to major demand markets.
Upon completion of the separation, David Slater, currently
president and COO of DTE Midstream, will become president and CEO
of the new Midstream company. Slater brings over 30 years of
experience in the energy industry where he has worked in both
commercial business development and operational roles. He joined
DTE Energy in 2011 as DTE Gas Storage & Pipelines senior vice
president and has led DTE Midstream since 2014.
Robert Skaggs Jr., a member of the DTE Energy Board, will serve
as executive chairman of the new Midstream Board and will continue
to serve as a member of the DTE Energy Board. Skaggs has over 35
years of experience in the energy industry, including leading
companies in the midstream, pipeline and regulated utility sectors.
He served as president and CEO of NiSource, Inc. from 2005 to 2015
and executed its successful spin-off of Columbia Pipeline Group,
Inc. in mid-2015.
Additional members of Midstream’s management team and Board of
Directors will be announced prior to the separation.
Timing / approvals
DTE Energy is targeting to complete the spin-off by mid-year
2021, subject to final approval by the Company’s Board of
Directors, a Form 10 registration statement being declared
effective by the Securities and Exchange Commission, regulatory
approvals and satisfaction of other conditions. DTE Energy
shareholder approval is not required to effect the separation
transaction. There can be no assurance that any separation
transaction will ultimately occur or, if one does occur, of its
terms or timing.
A force for
growth and
prosperity in
our communities
DTE Energy will remain headquartered in Detroit. Midstream will
also establish its headquarters in Detroit. Both companies are
committed to being a force for growth and prosperity in the
communities they serve.
DTE Energy has a long record of corporate citizenship throughout
its 450 Michigan communities, including through volunteerism,
education and employment initiatives, philanthropy and economic
progress. Among other initiatives, DTE Energy has spent more than
$11.4 billion with Michigan companies since 2010, supporting 34,000
Michigan jobs. The Company also actively supports its communities
through the DTE Energy Foundation, among the state’s largest
foundations committed to Michigan-focused giving. The DTE
Foundation this year invested more than $40 million nationwide with
specific focus on COVID-19 support to first responders, basic
needs, and economic recovery for small businesses.
Strong third quarter 2020
results, increased guidance for 2020, continued
growth in 2021
DTE Energy separately reported today strong third quarter 2020
results across its businesses and increased the midpoint of its
2020 operating earnings guidance by 14% from the Company’s original
2019 guidance. DTE Energy also provided 2021 EPS early outlook and
announced a 7% dividend increase.
Advisors
Barclays and Lazard are serving as financial advisors and
Cravath, Swaine & Moore LLP is acting as legal advisor to DTE
Energy.
Conference call and
webcast
DTE Energy will host a conference call today at 9 a.m. ET to
discuss today’s announcement and its third quarter results. The
associated press releases and presentation slides are available at
dteenergy.com/investors.
Investors, the news media and the public may listen to a live
internet broadcast of the call at dteenergy.com/investors. The
telephone dial-in numbers in the U.S. and Canada are toll free:
(833) 968-2209 or international: (778) 560-2895. The passcode is
8965118. The webcast will be archived on the DTE Energy website at
dteenergy.com/investors.
About Robert Skaggs Jr.
Skaggs has over 35 years of experience in the energy industry,
including leading companies in the midstream, pipeline and
regulated utility sectors.
From 2005 through 2015, Skaggs served as president and CEO of
NiSource, Inc., a Fortune 500 energy holding company engaged in
natural gas and electric utilities and the gas storage and pipeline
business. In this role, he executed NiSource’s successful spin-off
of Columbia Pipeline Group, Inc., a gas pipeline, storage,
gathering and processing business, in mid-2015. Earlier in 2015,
Skaggs executed the successful IPO of Columbia Gas Pipeline
Partners MLP. Skaggs served as chairman and CEO of Columbia
Pipeline Group and Columbia Gas Pipeline Partners from 2015 through
2016.Prior to serving as president of NiSource from 2004 to 2005,
Skaggs was executive vice president, regulated revenue, for
NiSource, responsible for developing regulatory strategies and
leading external relations across all of the corporation’s energy
distribution markets as well as its extensive interstate pipeline
system. He also led regulated commercial activities, including
large customer and marketer relations and energy supply services,
as well as federal governmental relations.
Skaggs has served as director of DTE Energy since 2017. Skaggs
also serves as a director of Team, Inc. He also is past chairman of
the American Gas Association’s board of directors and has served in
leadership roles for a variety of charitable, community and civic
efforts.
Skaggs earned a bachelor’s degree in economics from Davidson
College, a law degree from West Virginia University and a master’s
degree in business administration from Tulane University.
About David Slater
Slater has over 30 years of experience in the energy industry,
where he has worked in both commercial business development and
operational roles.
Currently, Slater is president and COO of DTE Midstream and has
been a member of DTE Energy’s executive leadership team since 2015.
Slater joined DTE Energy in 2011 as senior vice president of DTE
Gas Storage & Pipelines Company and DTE Pipeline Company and
was promoted to executive vice president of DTE Midstream/GS&P
in 2014.
Prior to joining DTE Energy, Slater held various senior
management positions at Goldman Sachs and Nexen Marketing, a top-10
North American Energy merchant.
Slater is a member of the board of directors for Millennium
Pipeline, Vector Pipeline, Nexus Gas Transmission and the elected
chair of INGAA (Interstate Natural Gas Association of America). He
is the elected board chairman of a local faith-based organization
and director of a charitable faith-based foundation.
Slater earned a master’s degree in Business Administration and
an honors degree in Business Commerce from the University of
Windsor.
About DTE Energy
DTE Energy (NYSE: DTE) is a Detroit-based diversified energy
company involved in the development and management of
energy-related businesses and services nationwide. Its operating
units include an electric company serving 2.2 million customers in
Southeast Michigan and a natural gas company serving 1.3 million
customers in Michigan. The DTE portfolio includes energy businesses
focused on power and industrial projects; renewable natural gas;
natural gas pipelines, gathering and storage; and energy marketing
and trading. As an environmental leader, DTE utility operations
will reduce carbon dioxide and methane emissions by more than 80
percent by 2040 to produce cleaner energy while keeping it safe,
reliable and affordable. DTE Electric and Gas aspire to achieve net
zero carbon and greenhouse gas emissions by 2050. DTE is committed
to serving with its energy through volunteerism, education and
employment initiatives, philanthropy and economic progress.
Information about DTE is available at dteenergy.com,
empoweringmichigan.com, twitter.com/dte_energy and
facebook.com.
Forward looking statementsThe
information contained herein is as of the date of this release. DTE
Energy expressly disclaims any current intention to update any
forward-looking statements contained in this release as a result of
new information or future events or developments. Words such as
“anticipate,” “believe,” “expect,” “may,” “could,” “would,”
“projected,” “aspiration,” “plans” and “goals” signify
forward-looking statements. Forward-looking statements are not
guarantees of future results and conditions but rather are subject
to various assumptions, risks and uncertainties. This release
contains forward-looking statements about DTE Energy’s and DTE
Midstream’s financial results and estimates of future prospects,
and actual results may differ materially. This release contains
forward-looking statements about DTE Energy’s intent to spin-off
DTE Midstream and DTE Energy’s preliminary strategic, operational
and financial considerations related thereto. The statements with
respect to the separation transaction are preliminary in nature and
subject to change as additional information becomes available. The
separation transaction will be subject to the satisfaction of a
number of conditions, including the final approval of DTE Energy’s
Board of Directors, and there is no assurance that such separation
transaction will in fact occur. Many factors impact forward-looking
statements including, but not limited to, the following: risks
related to the separation transaction, including that the process
of exploring the transaction and potentially completing the
transaction could disrupt or adversely affect the consolidated or
separate businesses, results of operations and financial condition,
that the transaction may not achieve some or all of any anticipated
benefits with respect to either business, and that the transaction
may not be completed in accordance with DTE Energy’s expected plans
or anticipated timelines, or at all; the duration and impact of the
COVID-19 pandemic on DTE Energy and customers, impact of regulation
by the EPA, the FERC, the MPSC, the NRC, and for DTE Energy, the
CFTC and CARB, as well as other applicable governmental proceedings
and regulations, including any associated impact on rate
structures; the amount and timing of cost recovery allowed as a
result of regulatory proceedings, related appeals, or new
legislation, including legislative amendments and retail access
programs; economic conditions and population changes in our
geographic area resulting in changes in demand, customer
conservation, and thefts of electricity and, for DTE Energy,
natural gas; the operational failure of electric or gas
distribution systems or infrastructure; impact of volatility of
prices in the oil and gas markets on DTE Energy’s gas storage and
pipelines operations and the volatility in the short-term natural
gas storage markets impacting third-party storage revenues related
to DTE Energy; impact of volatility in prices in the international
steel markets on DTE Energy’s power and industrial projects
operations; the risk of a major safety incident; environmental
issues, laws, regulations, and the increasing costs of remediation
and compliance, including actual and potential new federal and
state requirements; the cost of protecting assets against, or
damage due to, cyber incidents and terrorism; health, safety,
financial, environmental, and regulatory risks associated with
ownership and operation of nuclear facilities; volatility in
commodity markets, deviations in weather, and related risks
impacting the results of DTE Energy’s energy trading operations;
changes in the cost and availability of coal and other raw
materials, purchased power, and natural gas; advances in technology
that produce power, store power or reduce power consumption;
changes in the financial condition of significant customers and
strategic partners; the potential for losses on investments,
including nuclear decommissioning and benefit plan assets and the
related increases in future expense and contributions; access to
capital markets and the results of other financing efforts which
can be affected by credit agency ratings; instability in capital
markets which could impact availability of short and long-term
financing; the timing and extent of changes in interest rates; the
level of borrowings; the potential for increased costs or delays in
completion of significant capital projects; changes in, and
application of, federal, state, and local tax laws and their
interpretations, including the Internal Revenue Code, regulations,
rulings, court proceedings, and audits; the effects of weather and
other natural phenomena on operations and sales to customers, and
purchases from suppliers; unplanned outages; employee relations and
the impact of collective bargaining agreements; the availability,
cost, coverage, and terms of insurance and stability of insurance
providers; cost reduction efforts and the maximization of plant and
distribution system performance; the effects of competition;
changes in and application of accounting standards and financial
reporting regulations; changes in federal or state laws and their
interpretation with respect to regulation, energy policy, and other
business issues; contract disputes, binding arbitration,
litigation, and related appeals; and the risks discussed in DTE
Energy’s public filings with the Securities and Exchange
Commission.
Use of Operating Earnings Information – Operating earnings
exclude non-recurring items, certain mark-to-market adjustments and
discontinued operations. DTE Energy management believes that
operating earnings provide a more meaningful representation of the
Company’s earnings from ongoing operations and uses operating
earnings as the primary performance measurement for external
communications with analysts and investors. Internally, DTE Energy
uses operating earnings to measure performance against budget and
to report to the Board of Directors.
In this release, DTE Energy discusses 2020 and 2021 operating
earnings guidance. It is likely that certain items that impact the
Company’s 2020 and 2021 reported results will be excluded from
operating results. Reconciliations to the comparable 2020 and 2021
reported earnings guidance are not provided because it is not
possible to provide a reliable forecast of specific line items
(i.e., future non-recurring items, certain mark-to-market
adjustments and discontinued operations). These items may fluctuate
significantly from period to period and may have a significant
impact on reported earnings.
DTE Energy also discusses adjusted EBITDA in this release. The
reconciliation of net income to adjusted EBITDA as projected for
full-year 2020 is not provided. DTE Energy does not forecast net
income as it cannot, without unreasonable efforts, estimate or
predict with certainty the components of net income. These
components, net of tax, may include, but are not limited to,
impairments of assets and other charges, divesture costs,
acquisition costs, or changes in accounting principles. All of
these components could significantly impact such financial
measures. At this time, DTE Energy is not able to estimate the
aggregate impact, if any, of these items on future period reported
earnings. Accordingly, DTE Energy is not able to provide a
corresponding GAAP equivalent for adjusted EBITDA.
For further information, members of the media may
call:Paula Silver, DTE Energy, 313.235.5555Pete Ternes,
DTE Energy, 313.235.5555
For further information, analysts may
call:Barbara Tuckfield, DTE Energy, 313.235.1018John
Dermody, DTE Energy, 313.235.8750
1 Reconciliation of operating earnings (non-GAAP) to reported
earnings included in the appendix; does not reflect strategic
separation impacts and any post-transaction guidance is expected to
be revisited later in the process
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