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DTE Energy's Cap-Ex Plans Impress Amid Regulatory Hurdles

Zacks Equity Research

We issued an updated research report on DTE Energy Company DTE on May 15. Apart from its utility operation, DTE Energy continues to make progress on its non-utility business, which provides diversity to its earnings stream. Despite that, majority of its electricity generation still comes from coal-fired facilities, thereby exposing it to violations of stringent government regulations to curb carbon emissions.

Nevertheless, in recent times, the company has shifted its focus to generation of renewable assets as source of energy. In this line, over the next 15 years, DTE Electric plans to withdraw a notable portion of its coal-fired generation and boost the natural gas-fired generation and renewables mix.

Toward this end, during the third quarter of 2016, the company retired three coal-fired generation units and announced plans to retire an additional eight coal-fired generating units through 2023 at the Trenton Channel, River Rouge, and St. Clair facilities. The retired facilities will be replaced with natural gas-fired generation and renewables.

Moreover, over the 2017–2021 period, the company expects to invest capital of $13.5 billion, reflecting an improvement of 12.5% from what was initially planned for the 2016–2020 period. DTE Energy follows a disciplined capital spending program to maintain and upgrade the reliability of its electric utility systems, with $6.5 billion investment planned over the next 10 years.

Going ahead, planned regulated electric and gas infrastructure investment in Michigan and expansion of DTE’s existing pipelines as well as development of the NEXUS pipeline will help the utility attain its 5–6% annual EPS growth target.

Buoyed by these positive factors, DTE Energy’s share price gained 16.5% in the last one year, outperforming the Zacks categorized Utility-Electric power industry’s 0.6% decline.

On the flip side, business depends on electric and gas rates fixed by the Michigan Public Service Commission (MPSC) and the Federal Energy Regulatory Commission (FERC) and cannot be revised without regulatory authorization. DTE Energy’s ability to recover costs may be affected by the time lag between the incurrence of costs and the recovery of costs through customer rates.

Moreover, a warm winter this year in DTE Energy’s service territories caused household expenditure on heating to drop. Such unfavorable weather conditions tend to have an adverse impact on demand for utility services, which, in turn, might have lowered the company’s income and cash flow to some extent.

Additionally, DTE Energy faces intense competition from other utilities in the market like CenterPoint Energy, Inc. CNP, Alliant Energy Corporation LNT and Consolidated Edison Inc. ED which have also outperformed the industry in the last one year.

Zacks Rank

DTE Energy currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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CenterPoint Energy, Inc. (CNP): Free Stock Analysis Report
Consolidated Edison Inc (ED): Free Stock Analysis Report
DTE Energy Company (DTE): Free Stock Analysis Report
Alliant Energy Corporation (LNT): Free Stock Analysis Report
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