DTE to spin off Midstream natural-gas pipeline, storage business
DTE Energy Co. intends to spin off its Midstream non-utility natural gas pipeline, storage and gathering business, positioning the company predominantly as an electric and natural-gas utility, the company said Tuesday.
Midstream would become an independent, publicly traded company that would establish its own headquarters in the city of Detroit. The separation would create two streamlined businesses with focuses on their respective functions. It is not expected to have any adverse impact on DTE's utility operations, customers, or electric and gas rates, the company said. The spin-off is expected to occur in mid-2021.
“Through a combination of greenfield development and acquisitions, we have meaningfully increased Midstream’s scale, diversification and market reach," DTE CEO Jerry Norcia said in a statement. "As a result, Midstream is now an energy industry leader with the assets, resources and capabilities to stand on its own. Separating Midstream from DTE Energy sharpens both companies’ focus on their respective strategic priorities and stakeholder needs."
The plan is the result of a series of discussions that began in the summer of 2019 to identify opportunities to increase shareholder value as both parts of DTE's business have grown, Norcia said. The company also had considered selling the business. DTE has made acquisitions of natural-gas gathering systems and pipelines last year in Louisiana and northwest Ohio, and in 2016 in Pennsylvania and West Virginia.
Midstream serves producers, gas and electric utilities, marketers, power plants and large industrial customers. It owns 900 miles of regulated gas transmission lines and 1,450 miles of gathering lines. It operates 91 billion cubic feet of regulated gas storage capacity in Michigan for local distribution companies, power generators and other markets across the Midwest, the Northeast and Canada. DTE estimates Midstream’s pre-tax earnings for 2020 to be $700 million.
Under the separation plan, DTE shareholders will retain their current shares and receive a proportional dividend of share in the new Midstream company. The number of shares to be distributed will be determined prior to closing.
David Slater will be Midstream's president and CEO. He currently is the president and chief operating officer of the pipeline business and brings more than 30 years of experience in the energy industry. Robert Skaggs Jr. will be Midstream's executive chairman and will continue to serve as a member of DTE's board. Skaggs has more than 35 years of experience in the energy industry.
The transaction would result in 90% of DTE's operating earnings coming from its utility business compared to 70% now. The company intends to make $17 million in capital investments over the next five years, a 13% increase over DTE's prior plan, for "cleaner, safe, reliable and affordable energy," according to the company.
DTE on Tuesday also reported an increase by 50% of net income for the third quarter to $476 million. The company increased its 2020 operating earnings-per-share guidance range to $6.90-$7.10 from $6.47-$6.75 and shared its 2021 forecast of $6.88-$7.26.
DTE is the latest power company to retreat from energy pipelines after an aggressive expansion in the face of investor and political resistance against fossil fuel that can make it difficult to build and expand. Virginia-based Dominion Energy Inc. agreed to sell almost all of its gas pipeline and storage facilities in July to Berkshire Hathaway Inc.
Shares of DTE were up 2.3% in trading mid-day Tuesday.