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DTE nonutility businesses help offset impacts from federal tax reform law

DTE Energy Co. expects to balance impacts from a new federal tax law on its rate-based revenues with higher earnings from its nonutility businesses.

Overall, tax reform is good for utility customers and shareholders, DTE Chairman and CEO Gerry Anderson said Feb. 16 on the Michigan-headquartered company's fourth-quarter 2017 earnings call. The company plans to refund $190 million annually to its utility customers served by DTE Electric Co. and DTE Gas Co.

Anderson estimates a roughly 3% drop in near-term utility rates as a result of adjustments related to lowering corporate tax rates to 21%. President Donald Trump in late 2017 signed into law the Tax Cuts and Jobs Act, which lowers corporate income tax rates to 21% from 35%.

But Anderson expects less of an impact to rate base in the 2019-2022 period as operating earnings at its utilities increase. DTE raised its 2018 guidance by about 10 cents to $5.57 per share to $5.99 per share, up from a prior range of $5.48 per share to $5.88 per share, according to its Form 8-K.

In addition to the $190 million, DTE is also working with regulators on how to flow back another $70 million a year through future rate cases, Anderson said.

But the CEO expects to have to use "internal mechanisms" to issue additional equity over the next three years.

During an industry conference in November 2017 held by the Edison Electric Institute, DTE had estimated needing to issue $500 million in equity over the next three years, but the recent tax reform impacts contributed to a "modest" increase of $300 million, Anderson said, adding that brings the total equity issuance over the next three years to $800 million.

DTE reported 2017 operating earnings of $1 billion, or $5.59 per share, compared with $948 million, or $5.28 per share, in 2016.

Fourth-quarter 2017 operating earnings grew to $224 million, or $1.26 per share, which beat consensus estimates from S&P Capital IQ of $1.19 per share. The results compare to $144 million, or 81 cents per share, earned in the same quarter of 2016.

Anderson does not expect the NEXUS gas pipeline, a 255-mile interstate pipeline to bring gas to southeastern Michigan from Ohio, to contribute to net income in 2018 given that it is expected in service in the third quarter. Anderson said the late date for startup at NEXUS is not enough time for contracts to add to this year's earnings.

But the CEO expects growth in 2018 from the Link and Bluestone pipeline projects. Link, a gathering pipeline in northern West Virginia and southwestern Pennsylvania, is connected to the NEXUS pipeline.

Regarding the Link project, "We recently doubled capacity with an existing customer at an attractive rate," DTE Energy President and COO Jerry Norcia said.