Companies continue to embrace the back-to-basics strategy, and investors seem to think that it is paying off.
The Ultimate CEOs: Anthony F. Earley Jr., DTE Energy
The CEO Power Forum: Not all utility CEOs are created equal...
Anthony F. Earley Jr.
Chairman and CEO, DTE Energy
"To enhance that natural utility growth of around 2 percent per year, we want to surround the utilities with a portfolio of non-utility businesses that have higher growth prospects. "
Fortnightly In your letter to shareholders, you speak of the company receiving 30 percent of its earnings from non-regulated businesses. Please explain.
Anthony F. Earley Jr. That is our target. Actually in 2004 it was just over 50 percent of our earnings. That was a bit of an anomaly. In 2004 we were working our way through both gas and electric rate cases, so our gas and electric businesses were under-earning. We're through the electric case, and once we get through the gas case and we get back to a more normal year, we expect that our non-utility businesses will be to 30 to 40 percent of our overall net income. Our strategy is really to have a diversified energy company that has a good solid utility base but is augmented by the higher-growth prospects from our non-utility businesses. And we've been successful over the last decade in building that business. It supplied $240 million in net income to us in 2004. And we expect that would grow to $300 million in 2005.
Fortnightly How do you believe your company distinguishes itself from its peers?
Earley We distinguish ourselves because we announced the strategy that we have been following in 1997. And we may be the only company that hasn't changed its approach in the last eight years. You have seen people swing from, "We hate the utility business and we are going to sell everything off," to "Now the back-to-basics, we are going to sell all the non-utility businesses off and go to our utility roots." Our strategy, as we announced in 1997, and we continue to believe in because it has been successful for us, is that you have a strong utility base. We think the utility business is a good solid business to be in. And that type of utility base supports an attractive reliable dividend for our owners. But the utility businesses by its very nature only grows in the order of 2 percent per year, no matter what you do. Back in the 1990s people were saying their utilities were going to grow at eight or 10 percent per year, and we all found out you could only do that with smoke and mirrors.
To enhance that natural utility growth of around 2 percent per year, we want to surround the utilities with a portfolio of non-utility businesses that have higher growth prospects. But we look for several important characteristics in those [non-utility] businesses.
Fortnightly What important characteristics or criteria do you look for before you invest in a non-utility business?
Earley They generally are closely linked to the core skills and assets that we have developed in our utility business. For example, we are a traditional coal-burning utility and a major player