DTE Energy Company

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DTE Energy Company

2000 Second Avenue
Detroit, Michigan 48226-1279
U.S.A.
(313) 235-4000
Fax: (313) 235-8055
Web site: http://www.detroitedison.com

Public Company
Incorporated: 1903 as Detroit Edison Company
Employees: 8,526
Sales: $3.65 billion (1996)
Stock Exchanges: New York Midwest
SICs: 4911 Electrical Services; 4931 Electrical and Other Services; 6719 Holding Company, Not Elsewhere Classified

DTE Energy Company serves roughly 2 million electrical customers in southeastern Michigan. While the company’s market territory only covers 13 percent of Michigan’s total area, it accounts for half of Michigan’s total population, energy consumption, and industrial capacity. Electricity accounts for almost all the revenues of DTE’s Detroit Edison subsidiary, although the company also sells a small amount of steam.

Electric companies sprang up throughout the United States after Thomas Edison’s development of electric lighting in 1879. In Detroit alone Brush Electric Light Company, Fort Wayne Electric Company, Commercial Electric Light Company, Detroit Electric Light and Power Company, Edison Illuminating Company of Detroit, and Peninsular Electric Light Company all simultaneously existed. Edison Illuminating had been formed on April 15, 1886, to supply alternating current to homes and businesses; and Peninsular Electric Light Company had been formed on June 16, 1891, to operate Detroit’s street lights. It was not long before competition became so fierce that the less successful companies were swallowed up, and Peninsular Electric Light Company and Edison Illuminating were all that remained.

Setting the Stage to Power the Motor City; the early decades

On January 1, 1903, Detroit Edison’s founders purchased the securities of the Edison Illuminating Company and the Peninsular Electric Light Company and on January 17 The Detroit Edison Company was incorporated with Edison Illuminating as a subsidiary. For financial reasons, incorporation took place in New York rather than Michigan. Charles W. Wetmore became the company’s first president and remained in that position until 1912. Detroit Edison’s first general manager, Alex Dow, came to the company from its predecessor Edison Illuminating.

At that time the customer base it had acquired through Edison Illuminating had already outgrown its power supply, so one of the company’s first objectives was to create additional generating capacity. In 1903 Detroit Edison began to construct the Delray power house. By 1904 this plant’s two turbine generators were producing 3,000 kilowatts of electricity each, yet the city of Detroit was growing so rapidly that in 1905 another two turbine generators had to be added to the plant, and one more the next year.

In 1905 Detroit Edison began to expand through acquisition, in addition to construction. Among its purchases were Washtenaw Light and Power Company, Michigan Milling Company, and Ann Arbor Agricultural Company, making Detroit Edison the owner of the Argo, Barton, Geddes, and Superior generating dams on the Huron River. On July 24, 1906, the company formed a wholly owned subsidiary, Eastern Michigan Edison Company, and transferred all the Huron River companies to it as subsidiaries.

By 1907 it had become obvious that the company had to add more turbines, and construction began on a second power station at Delray to house a turbine capable of generating 14,000 kilowatts of energy. In 1910 and 1911 two more 14,000-kilowatt turbines were put on line.

In 1912 Dow became president of Detroit Edison. During his tenure Detroit Edison grew substantially. In 1913 a 15,000-kilowatt turbine was added to the new power house at Delray, and Detroit Edison began to construct a power plant at Conners Creek.

For roughly the first decade of Detroit Edison’s existence— the period ranging from 1903 until 1915—the company’s subsidiary Edison Illuminating Company distributed, sold, billed for, and collected on, the energy produced by its parent, Detroit Edison. In 1915, under Dow, Detroit Edison began to serve its customers directly. Edison Illuminating survived as a company handling the parent company’s real estate. Also in 1915, the company put two of the Conners Creek facility’s three 20,000-kilowatt units into service, with the third becoming operational in 1917.

The Detroit Edison Company’s generating capacity continued to grow under Dow, and in 1919 the company bought Port Huron Gas and Electric. In 1920 a 30,000-kilowatt generator was added to the plant at Delray. In 1922 Detroit Edison completed its first in suburban Marysville. Detroit Edison put its second at Trenton Channel in Trenton in July 1924. The Trenton Channel plant burned powdered coal, a technical innovation at the time, but also a process that tended to pollute the air because powdered coal is burned while suspended. Detroit Edison was aware of this fact and consequently equipped the plant—the first of its kind to use these pollution control devices—with electrostatic precipitators.

In addition to expanding its generating capacity, Detroit Edison expanded its service area. By 1929 the company supplied more than 4,582 square miles. In 1936 Detroit Edison purchased the Michigan Electric Power Company and acquired the entire “thumb” territory of southeastern Michigan, to increase its service area to 7,587 square miles.

In 1940 Alex Dow retired as company president; two years later he withdrew from the company’s board of directors. Under Dow’s leadership, not only had generating capacity and service area expanded, but Detroit Edison had developed its own engineering research department, founded in 1913, and improved customer service. This included instituting free light bulb service, financing the connection of electricity to customers previously using gas, and lending electrical motors.

From 1944 to 1954 former U.S. Senator Prentiss M. Brown held the post of first chairman of the board, while James W. Parker served as president and general manager. Walker Cisler, who joined Detroit Edison in 1943, became the company’s first executive vice-president in 1948 and, in addition, worked with the U.S. government on the Marshall Plan, developing the economic and electric power of other nations.

When Parker retired in 1951, Cisler took over as president and general manager. Cisler’s primary objectives for the company involved expanding generating capacity and improving transmission to the farthest reaches of Detroit Edison’s service area, as well as exploring research opportunities. By 1954 the St. Clair Power Plant was completely operational, with a total capacity of 624,000 kilowatts. That year Cisler became senior officer of Detroit Edison, which by then was looking into nuclear energy.

In 1952 Cisler assumed the leadership responsibilities for organizing electric utilities to explore the possibilities of nuclear energy, a development he named the Enrico Fermi Breeder Reactor Project. Among the companies he persuaded to join the project was the Public Service Electric and Gas Co. of Newark, New Jersey, and he convinced that company to assign one of its nuclear engineers, Walter J. McCarthy, to join the project as head of the nuclear and analytical division in October 1952. The project was headquartered at Detroit Edison. It was formally organized in 1955, with 34 companies participating, as the Power Reactor Development Company (PRDC). This consortium would eventually own and operate the Enrico Fermi Power Plant. Ground was broken on Fermi’s first unit that year with Cisler as president and principal organizer of the PRDC.

As the possibilities of atomic energy were explored by the PRDC, Cisler continued to build conventional generating capacity. The River Rouge plant was completed in 1956, and by 1958 it had a capacity of 841,500 kilowatts. In 1961 St. Clair’s capacity was upped to 1.35 million kilowatts when its sixth turbine generator went into operation. With its assets growing so rapidly, Detroit Edison authorized a two-for-one common stock split in December 1962.

Company Attempts to Harness Nuclear Power, 1960s

In 1963 Walter McCarthy became general manager of the PRDC, with Cisler continuing as president. McCarthy also formally joined the Detroit Edison staff at this time, while continuing on loan to PRDC. On August 23 of that year, Fermi 1, the first commercial-sized fast breeder nuclear reactor, finally went into operation, beginning its first self-sustaining chain reaction. The plant used uranium to generate steam to produce electricity, and as part of the reaction process it produced plutonium, which was also an atomic fuel. In October 1966 a metal device that had been attached to the reactor’s inside wall after it was built broke away. The device, whose purpose was to direct the flow of liquid sodium—used to transfer heat—through the nuclear core, ended up blocking the flow and caused the fuel to overheat and begin melting, damaging both the reactor and the fuel assemblies. After the partial core meltdown, Fermi I was taken off-line.

Company Perspectives:

More and more people look to DTE Energy every day to help turn their dreams into reality. They have good reason; DTE Energy helps them fuel the engine of progress. The growth of Southeastern Michigan has been driven for nearly a century by the holding company’s major subsidiary. With 2,000,000 customers, Detroit Edison is one of the country’s largest investor-owned electric utilities. DTE Energy’s non-utility subsidiaries have built on employees’ extensive experience working in the hub of the U.S. automotive industry. Today, DTE Energy’s diversified businesses provide energy and related services to customers throughout North America.

In spite of Walker Cisler’s campaign for constant generating plant growth, demand still threatened to outstrip supply, and so, in 1966, peaking units were introduced into the generating system. Peaking generators burn gas and oil, are mobile, and can be brought on-line in 10 minutes. The first peaking units were installed at the company’s generating facility near Monroe, Michigan.

In the midst of repairs at Fermi 1 and the company’s efforts to continue building generating capacity, Detroit Edison was reincorporated in Michigan on April 17, 1967. By the time Detroit Edison’s Harbor Beach Power Plant went on-line in 1968, nine peaking units were being used.

In that same year Detroit Edison requested its first electric rate increase in 20 years from the Michigan Public Service Commission (MPSC). The company sought the increase to help meet the expenses of building generating capacity.

In 1970 the first of the Monroe power plant’s coal-fired units went on-line. At the time, the four-unit Monroe plant was the largest in the world, and the company planned to add five more units: the two-unit Belle River coal-burning plant, the Greenwood Energy Center with its oil-burning plant, and two nuclear reactors, Fermi 2 and 3.

In November 1971 William G. Meese took over Cisler’s position as chief executive officer while Cisler remained chairman. Meanwhile, the company was burdened with huge plant costs: it had taken four years to repair the reactor and fuel assemblies at Fermi 1, and when the repairs were finally completed the problem-plagued reactor remained operational only sporadically before being shut down again on September 22, 1972. In November of that year the PRDC executive committee decided to decommission the plant as of December 31, 1975.

OPEC Oil Embargo Causes Drop in Demand; the 1970s

By 1973 the Monroe power plant’s four units had a total capacity of 3 million kilowatts. The Ludington pumped storage plant then began to operate commercially, supplying 49 percent of its generating capacity to Detroit Edison, with the remainder going to Consumers Power, which supplied the area with natural gas. Then the Middle East oil embargo hit, striking the southeastern Michigan auto industry hard, and the demand for energy dropped as automobile production slumped and inflation and environmental protection costs continued to rise.

William Meese began to look for ways to cut Detroit Edison’s overhead costs. The energy-efficient Ludington plant was part of this effort. In 1974 Meese began to implement other important practices, such as the increased hiring of minorities and women, as well as establishing a strategic planning procedure designed to help management anticipate future conditions. To deal with the new difficulties brought about by southeastern Michigan’s economic recession, Meese also temporarily suspended all power plant construction and environmental modifications.

In 1975 Cisler retired and Meese assumed Cisler’s position as chairman of the board. The company reorganized, setting up six divisions within Detroit Edison’s service area, each headed by managers responsible for their division’s business. That year, Walter McCarthy became executive vice-president of operations.

In 1976 another Meese cost-efficient measure was implemented when the Superior Midwest Energy Terminal was opened by a subsidiary of Detroit Edison. All of Detroit Edison’s major power plants consumed coal, but the company did not mine or transport the coal itself. Realizing the company’s dependence on reliable transport and supply of coal, Meese created the energy terminal at Superior, Wisconsin, to provide rail and water shipment of western low-sulfur coal. He also negotiated a 26-year contract for the purchase of coal from Montana, and had the company purchase its own coal cars to ensure shipment.

In 1977 Walter McCarthy became executive vice-president of divisions. That year the temporary suspension on power plant construction was lifted, the Greenwood power plant was set into operation, and construction was started on the Belle River power plant.

In 1979, McCarthy became president and chief operating officer of Detroit Edison and John R. Hamann was elected to the newly created position of vice-chairman of the board. That was also the year that the company’s Greenwood Power Plant became fully operational.

Federal Regulations Slow Nuclear Expansion; the 1980s

In 1979, as Fermi 2 was in the midst of construction, the disaster at Three Mile Island hit. Two weeks later Detroit Edison had formed a 24-member safety review task force to review Fermi 2 again and recheck all its operating systems and safety features. Although the task force found everything to be entirely operational at Fermi 2, it took Detroit Edison several years of readjustments before the reactor could meet the new regulations that arose in response to the Three Mile Island incident. In fact, the added cost of meeting these new standards spun Detroit Edison into financial crisis.

The company began taking steps to help revive southeastern Michigan’s economy. In 1979 it began the Energy Plus advertising campaign on a national and international level to interest companies in bringing their manufacturing facilities to Metro Detroit. With the Greater Detroit Chamber of Commerce, Michigan’s Department of Commerce, and the Southeastern Michigan Council of Governments, Detroit Edison founded the Greater Detroit-Southeastern Michigan Business Attraction and Expansion Council. Detroit Edison also helped develop the Economic Alliance for Business, an organization aimed at improving Michigan’s business climate. In September 1981 Meese retired and was succeeded by McCarthy as chairman and chief executive officer.

In April 1983, in order to consolidate the company, which was operating under dual incorporation in the states of New York and Michigan, Detroit Edison stockholders agreed to a merger plan. This plan was put into effect on June 30, 1983, when both the New York and the Michigan corporations merged with Detroit Edison’s wholly owned inoperative subsidiary, Peninsular Electric Light Company. The Detroit Edison Company was the merger’s sole surviving company, and retained only its Michigan incorporation. All liabilities, capital, assets, and operations remained unchanged.

In 1985 Fermi 2 was completed, and low-power testing began. McCarthy, having been general manager of Fermi 1 during its early stages, felt experienced operating management was needed. With the delays involved in bringing in new plant management and in receiving approval of the Nuclear Regulatory Commission, Fermi 2 resumed low-power testing in July 1986.

In 1987 Detroit Edison’s wholly owned subsidiary, Washtenaw Energy Corporation, was merged into the company. Later that year, the company bought the electric business and properties serving the city of Pontiac from Consumers Power and began to supply the people of Pontiac directly, increasing the company’s total service area to 7,598 square miles. Consumers Power had served Pontiac with electricity bought from Detroit Edison.

On January 15, 1988, Fermi 2 began full-power operation. By November Fermi 2 had passed its warranty run and was on its way to long-term operation. However, after-tax write-offs of $968 million—resulting partially from the MPSC’s disallowances of costs connected with the unit, dating from a 1986 rate case—caused Detroit Edison to post a net loss of $378.8 million in 1988.

McCarthy began to implement programs designed to increase sales and cut costs, keeping close watch on operating and maintenance expenses, capital expenditures, and the size of the company’s staff, reducing it to its smallest size in 12 years— 9,669 at the end of 1990. Perhaps most important was the resolution of rate-making issues involving Fermi 2. In December 1988 the MPSC had increased Detroit Edison’s base rates by adding $29.5 million to a previously authorized $404.2 million—for a total of $433.7 million—to partly cover the cost of building Fermi 2. This increase was to be phased in over five years beginning January 1, 1989. That year Fermi 2 was taken off the Nuclear Regulatory Commission’s list of plants requiring special attention. It completed its first scheduled shutdown for refueling in December 1989, and it produced more than 5 billion kilowatt-hours of electricity during the year. By June 1989 The Detroit Edison Company stock had risen to its highest price in 17 years, positioning Detroit Edison as one of the top-performing U.S. utilities.

In 1989 Fermi 2 had represented 31 percent of Detroit Edison’s assets. In 1990 this grew to 33 percent as the company purchased the minority share of Fermi 2 from Wolverine Power Supply Cooperative, Inc. for $539.6 million, giving the company total ownership of the plant. On May 1, 1990, McCarthy retired as chairman and chief executive officer of Detroit Edison and John E. Lobbia was elected to replace him. As a result of strong lobbying in Washington, D.C., Detroit Edison was already in compliance with the first phase of the requirements of the 1990 Clean Air Act amendments, scheduled to take effect in 1995.

A Decade of Transition, the 1990s

By keeping ahead of Federal regulations, in 1990 the company achieved record revenues as well as record earnings for its common stock. Detroit Edison’s common stock hit its highest point in 23 years, when it reached $30.25, closing at $28.25, a full 11 percent higher than 1989’s close. Sales during the year were reported at $3.31 billion, $104 million over 1989 levels.

However, things were soon to change. The recessionary economy of the early 1990s hit southeastern Michigan hard, slowing production at many automotive and steel plants and reducing demand for electricity from these industries. In response, Detroit Edison aggressively marketed its services to other industries, so much so that it had record sales to the commercial segment. In 1991, with record sales reaching $3.59 billion, the company received the “Electric Utility of the Year’’ award from the trade magazine Electric Light & Power. Based on the company’s record revenues and earnings, in mid-December 1991 its common stock reached $35 per share, the highest price in 25 years.

1996 Deregulation Sparks Reorganization

Into the mid-1990s, Michigan’s economy and state policy continued to be uncertain as its basic industries struggled to compete with foreign manufacturers. In addition, a new governor was redefining state goals. For these reasons, Detroit Edison continued to minimize staff levels, reduce its use of foreign crude, and cut its dependence on industrial sales, thereby maximizing the company’s flexibility. Net income in 1993 reflected these efforts: $588 million, a jump of 14 percent over 1990’s record levels.

As the decade advanced, it became increasingly clear that the utility industry was on the brink of major changes. In late 1992 Congress passed the Energy Policy Act, which allowed competition in the utility industry’s wholesale sector by mandating existing utilities to transmit electricity generated by other producers through their lines. The company received yet another setback on Christmas Day 1993, when a turbine generator fire at Fermi 2 caused the high-production plant to close while repairs were made. The plant returned to partial service in 1995, as the company posted sales of $3.64 billion against net income of $406 million.

The Federal Energy Regulatory Commission issued a new set of rules in April 1996 that affected transmission capacity, wholesale and retail competition, and other issues. The following year the industry was deregulated when Congress repealed the Public Utility Holding Company Act of 1935, which had allowed utility companies such as Detroit Edison to operate as monopolies. Under the new federal law, the shift to a fully competitive industry could be phased in over a period of as little as two years. Where its primary concern had been to produce power and expand and maintain its plants and equipment, Detroit Edison now looked to its economic structure, further streamlining costs in preparation for battling competition on a level playing field.

To supplement the new federal legislation, the MPSC designed a framework for the gradual restructuring of Michigan’s electricity business. Beginning July 1, 1997, the state’s utility load would be gradually opened to competition through a bidding process, with all customers able to select their energy supplier by January 1, 2002. Technical, environmental, and business-related issues would also be addressed and responded to during this five-year period.

In response to these industry-wide changes, Detroit Edison was reorganized in late 1995. On January 1, 1996, DTE Energy Company became the holding company for subsidiaries that included Detroit Edison and several non-utility assets, among them Biomass Energy Systems, Edison Energy Services, and Midwest Energy Resources. The new structure allowed the company greater financial flexibility in creating new energy-related businesses and separated regulated subsidiaries from those not under state or federal regulations.

The biggest challenge facing DTE and CEO John E. Lobbia in a competitive market was the company’s high cost of production, as well as the huge investment the company had made in its Fermi 2 plant. With deregulation and competition from other providers, electrical rates would be sure to drop drastically, and DTE feared it would be priced out of the market it had controlled for decades. In preparation for full-scale deregulation in 2002, DTE strong-armed its major commercial and industrial electricity customers—including the Big Three automakers— into 10-year contracts in order to help recover the company’s high capital equipment costs. These capital costs would also diminish as a result of debt refinancing through the Michigan Legislature’s approval of the issuance rate-reduction bonds in mid-1997.

DTE also began to leverage its extensive expertise in energy-related systems’ engineering and installation. In an effort to increase consumption and attract new residential customers, new programs were developed, including an interruptible air conditioning program that promised to improve system management and also lower electricity rates by up to 20 percent. Over 250,000 customers were enrolled in the system in its first years of operation.

Continuing Its Commitment to Consumers in a Changing Climate

In addition to navigating in a changing business climate, DTE has continued its support of the communities that it serves, providing funding and other support to over 30 schools in the metropolitan Detroit area in tandem with other business and community leaders. Educational programs are aimed at teaching younger children how to use electricity safely, and DTE’s The Heat and Warmth Fund (THAW) helps low-income families and the elderly pay their winter utility bills by matching company funds with those donated by generous electricity customers.

In addressing its portion of the upcoming statewide rate decrease to electric customers—predicted at $300 million— DTE remained guardedly optimistic. “The challenge will be for all of us to work together constructively to create a competitive utility environment in a way that meets the needs of all interests—our customers, our communities, our company and our state,” president and chief operating officer Anthony F. Earley Jr. told the MPSC in early 1997. “The effort will require courage, foresight and trust.” By continuing to implement its four-tiered strategy—debt reduction, investment recovery, divestiture of underperforming holdings, and broadening investment in non-utilities—DTE Energy intends to reward both its customers and shareholders in a deregulated industry.

Principal Subsidiaries

Detroit Edison; DE Energy Services, Inc.; Midwest Energy Resources Company; St. Clair Energy Corporation; Edison Illuminating Company; SYNDECO, Incorporated; UTS Systems, Inc.