While many other energy companies are preaching the wisdom of traditional regulated utility businesses and shedding non-core assets, DTE Energy has its eye on expanding several nonregulated operations that could help make up 40% of company earnings in the near future.

CEO Anthony F. Earley told shareholders at DTE’s annual meeting that the company is planning growth through the waste coal recovery business and in coalbed methane production, both of which utilize the company’s expertise in the coal business. Earley also said DTE will keep an eye out for potential acquisitions.

He noted that coal bed methane production is an unconventional source of gas that is similar to the production of gas from Michigan’s Antrim shale, in which DTE has significant interests. Coalbed 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 coal recovery business, which involves the separation of coal from clay and rock that otherwise renders it useless, “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 one 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. We believe that successful development of this recovery technology could provide $25 million to $50 million in additional earnings within five years.”

The expansion into these 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 said. “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 company’s two large operating subsidiaries, Detroit Edison and MichCon, serve as the foundation of DTE and represent about 70% of its net income. In the future, they will continue at or near that level, with the non-regulated businesses to represent 30% to 40%, Earley said.

“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 for the company, including cost pressures from pension issues, double-digit health care premium increases and customer service. He said the company intends to strengthen its efforts toward improved customer satisfaction, including about $21 million in customer service technology improvement projects this year.

Managing the evolving regulatory climate also will be a major challenge. There are four major issues on the regulatory front:

Earley said the cost recovery process for the customer choice program should be designed by mid-year in a collaborative process sponsored by the Michigan Public Service Commission.

“There’s no doubt it will be a difficult year. While our 2003 plan anticipates year-over-year growth, it will be at a more modest level than in recent years,” he admitted. “To get there, we are concentrating on the items that can make the biggest impact on the way we operate our company.”

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