TEXT-Fitch rates DTE Energy debentures 'BB+'

Thu Sep 27, 2012 12:40pm EDT

Sept 27 - Fitch Ratings has assigned a rating of 'BB+' to DTE Energy
Company's (DTE, IDR 'BBB' by Fitch) $200 million issuance of 5.25%
Junior Subordinated debentures, 2012 series C, due Dec. 1, 2062. The Junior
Subordinated debentures rank junior to other unsecured debt of DTE. Proceeds
from the issuance will be used for general corporate purposes, including the
purchase of a portfolio of on-site energy projects.

In Fitch's calculations, this instrument qualifies for 50% equity treatment due
to the coupon deferral option, as specified in the criteria report titled
'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit
Analysis' dated Dec. 15, 2011. The Rating Outlook for DTE is Stable.

The Stable Outlook reflects the stable earnings and cash flows of DTE's two
regulated utility companies, Detroit Edison Co. (DECo, IDR 'BBB+'; Outlook
Stable) and Michigan Consolidated Gas Co. (MichCon, IDR 'BBB'; Positive
Outlook). DECo is the primary driver of consolidated cash flows and approximated
76% of consolidated EBITDA for the LTM ending June 30, 2012.

DTE's current ratings reflect the low risk of its utility businesses, a
constructive state regulatory environment in Michigan, and the strong operating
profile of its generating assets. The company also benefits from a sufficient
liquidity position, manageable debt maturities, the ability to fund and manage a
rising capital expenditure budget and an improving economy in Michigan. Credit
concerns considered in the rating include a still weak service-area economy with
above-average unemployment in the Detroit area, high level of parent only debt
(approximately $1.6 billion), and the future effects of more stringent
environmental regulations on DECo's predominantly coal-fired power generation
portfolio. The ability to recover capital and operating costs in the future is
also a concern if the developing turnaround in the Michigan economy does not
continue.

Final MPSC Order: In October of last year, the MPSC authorized a $188 million
permanent rate increase for DECo predicated upon a 10.5% ROE effective Oct. 29,
2011. The final order is consistent with Fitch's expectations and indicative of
continued regulatory support. The rate increase approved by the commission
represents approximately 53% of the $357 million permanent electric revenue
requirement deficiency supported by DECo.

RDM Eliminated: On Sept. 25 the MPSC approved a request by DECo to defer a $127
million gain from the elimination of its revenue decoupling mechanism (RDM) as
stipulated by the Michigan Court of Appeals on April 10, and to amortize the
gain to income in 2014, offsetting the need for new base rates until 2015.

MichCon files 2012 GRC: On April 20, 2012 MichCon filed its 2012 GRC with the
MPSC and requested a rate increase of $77 million predicated on an 11% ROE.
Notably, MichCon is requesting a five-year annual infrastructure tracking
mechanism to recover costs associated with MichCon's meter move out, main
renewal, and pipeline integrity programs. MichCon plans to self-implement new
rates on or after Nov. 1, 2012, and Fitch expects a decision by April 2013.

Large Capital Expenditure Program: Capital expenditures are forecast to average
approximately $1.9 billion per year through 2014, a level that is significantly
higher than prior years. Fitch expects capital expenditures to be funded by
internal cash flows and a balanced 50% mix of debt and equity to maintain the
present capital structures of DTE, DECo, and MichCon. Major projects include
renewable and environmental investments at DECo; distribution system
enhancements, and storage and transportation projects at MichCon; and pipeline
and gathering development in the Marcellus Shale basin. A significant portion of
capital spending will be on environmental compliance and renewable investments
to meet renewable portfolio standards in the state.

Manageable Maturities: Debt maturities over the next five years are manageable
and are as follows (excluding securitization maturities): $65 million in 2012,
$634 million in 2013, $695 million in 2014 and $371 million in 2015. Maturing
debt will be funded through a combination of internal cashflows and external
debt refinancings.

Fitch Forecasts Solid Ratios: DTE's credit metrics are consistent with Fitch's
'BBB' IDR guidelines for utility parent companies. Fitch calculates DTE's EBITDA
and FFO coverage ratios at 4.6 times (x) and 5.0x, respectively, for the latest
12 months (LTM) ending June 30, 2012. DTE's debt to EBITDA ratio was 3.7x. Going
forward, Fitch expects coverage metrics for consolidated operations to
approximate 5x through 2013, and anticipates leverage, as measured by debt to
EBITDA, to remain under 4x during that same time period.

Expected Bonus Depreciation for 2012: DTE Energy expects to generate
approximately $150 million of cash in 2012 from bonus depreciation deductions at
DTE. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation
Act of 2010 provided for a special allowance for bonus depreciation in 2011 and
2012. Bonus depreciation rules allow a tax deduction of 50% this year, as
opposed to 100% last year.

What Could Trigger a Ratings Upgrade?
--No positive rating actions are expected at this time.

What Could Trigger a Rating Downgrade?
--An unexpected increase in leverage to fund the large capital expenditure
program;
--Inadequate or untimely return on capital investments.

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--'Corporate Rating Methodology', Aug. 8, 2012;
--'Rating North American Utilities, Power, Gas and Water Companies', May 3,
2012.

Applicable Criteria and Related Research:
Corporate Rating Methodology
Rating North American Utilities, Power, Gas, and Water Companies
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