Fitch Affirms DTE & Detroit Edison, Places MichCon on Watch Negative.

Business Editors

CHICAGO--(BUSINESS WIRE)--May 14, 2004

Fitch Ratings has affirmed the 'BBB' senior unsecured, 'BBB-'trust preferred and 'F2' short-term ratings for DTE Energy Co. (DTE). Additionally, the 'A-' senior secured rating, 'BBB+' senior unsecured rating, 'BBB' preferred stock rating and 'F2' short-term rating for DTE's regulated electric subsidiary, Detroit Edison Co. (Detroit Ed) has also been affirmed by Fitch. The Rating Outlook for DTE and Detroit Ed is Stable. Concurrently, Fitch has placed the 'A' senior secured and 'F1' short-term rating of DTE's regulated gas utility, Michigan Consolidated Gas Co. (MichCon), on Rating Watch Negative. Approximately $6.1 billion of debt is affected.

MichCon's ratings have been placed on Rating Watch Negative status reflecting the uncertainty surrounding the final outcome of the gas utility's rate case pending before the Michigan Public Service Commission (MPSC). In September 2003, MichCon filed for $193.6 million base rate increase, as well as a $153.7 million interim request. In May 2004, the Staff of the MPSC recommended an interim increase of $25 million. The staff explained that the difference in its recommendation was primarily due to differences in calculation methodology as well as the deferral of some items to the final rate order. Fitch's Negative Rating Watch considers the potential consequences of an unfavorable interim or final rate order. Higher operating costs have led to lower credit ratios and high leverage relative to other gas companies in the 'A' rating category.

At year-end 2003, MichCon's ratio of EBITDA to Interest was 3.4 times (x) and the ratio of Debt to EBITDA was 5.3x. The Rating Watch will remain in place pending the final decision related to the gas rating case, which is expected in late 2004 or early 2005. Maintaining the current rating will depend upon sufficient interim and final tariff increases in time for the 2004-05 winter gas sales season. On the other hand, if the final rate order is below expected levels, and debt leverage relative to cash flow is likely to remain high, Fitch will take negative rating action.

The rating affirmations of DTE and Detroit Ed reflect the financial performance of Detroit Ed, a regulated electric utility, and improving cash flow at DTE's non-regulated businesses. DTE's credit quality is primarily supported by upstream cash flows from its Detroit Edison to service parent debt and to pay common dividends. While Detroit Ed has experienced some erosion of its business as a result of a poorly designed customer choice plan in Michigan, the utility is nonetheless expected to maintain acceptable financial ratios consistent with its current rating level, incorporating higher revenues from an interim increase in electric tariffs. Detroit Ed's EBITDA to Interest and Debt to EBITDA, excluding transition bonds, are projected to exceed 4.5x and less than 3.0x, respectively, over the forecast period.

Fitch anticipates DTE's consolidated credit ratios to improve in 2004 as the company benefits from the recent interim electric rate increase and successful monetizations of tax-advantaged synthetic fuel (synfuel) projects, along with improved margins and reduced investment in non-regulated businesses. To date, DTE has sold interests in five of its eight synfuel facilities, representing 69% of DTE's total synfuel capacity. DTE's stated goal is to sell production payments covering 99% of all synfuel projects to investors and to use those cash to reduce parent-level debt. DTE's parent debt increased substantially in 2001 following the $3.8 billion acquisition of MCN Energy. Fitch projects DTE's consolidated leverage, as measured by Debt (excluding securitization)-to-EBITDA, to decline to approximately 3.7x by year-end 2004, compared with 4.8x as of year-end 2003. DTE's inability to materially reduce parent-level debt would place pressure on its current ratings.

As mentioned above, Fitch's analysis takes into consideration the pending electric rate case for Detroit Ed before the MPSC, as well as the company's attempts to reach resolution to matters pertaining to Electric Customer Choice in Michigan. In 2003, Detroit Ed requested a $553 million base rate increase, as well as a cumulative $109 million in surcharges to recover regulatory assets. Detroit Ed also filed for $535 million in an interim rate increase. In February 2004, the MPSC issued an order for a $248 million interim electric base rate increase, the reinstatement of the power supply cost recovery (PSCR) mechanism, and a 4 mills/KWH transition charge for customers who purchase generation from a competitive provider. While the flaws in Electric Customer Choice are not corrected by the change in transition charges in the interim order, it appears to Fitch that risks are materially reduced via the reintroduction of PSCR and the revision in transition credits and fees for customers choosing an alternate energy supplier. Fitch considers the MPSC interim order generally constructive and supportive of Detroit Ed's current ratings.

The Stable Outlook for DTE and Detroit Ed incorporates Fitch's assumption that the permanent electricity tariffs will not be less than those now being collected in the interim order and that the transition charges will mitigate the adverse impact of customer switching on the utility. However, negative rating action may occur if the permanent electric rate order is materially less than the interim order or continued exposure to Customer Choice results in a deterioration of Detroit Ed's financial performance. A final order from the MPSC is expected in the third quarter of 2004.

DTE is a holding company whose primary subsidiaries are Detroit Ed, a regulated electric utility, and MichCon, a regulated natural gas distribution company. Unregulated operations include energy services, coal services, energy trading, upstream and midstream gas, and biomass energy.