DTE ENERGY CO - Annual Report: 2021 (Form 10-K)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2021
Or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
![dte-20211231_g1.jpg](https://www.sec.gov/Archives/edgar/data/0000936340/000093634022000077/dte-20211231_g1.jpg)
Commission File Number: 1-11607
DTE Energy Company
Michigan | 38-3217752 | |||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S Employer Identification No.) |
Commission File Number: 1-2198
DTE Electric Company
Michigan | 38-0478650 | |||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S Employer Identification No.) |
Registrants address of principal executive offices: One Energy Plaza, Detroit, Michigan 48226-1279
Registrants telephone number, including area code: (313) 235-4000
Securities registered pursuant to Section 12(b) of the Act:
Registrant | Title of Each Class | Trading Symbol(s) | Name of Exchange on which Registered | |||||||||||||||||
DTE Energy Company (DTE Energy) | Common stock, without par value | DTE | New York Stock Exchange | |||||||||||||||||
DTE Energy | 2017 Series E 5.25% Junior Subordinated Debentures due 2077 | DTW | New York Stock Exchange | |||||||||||||||||
DTE Energy | 2019 6.25% Corporate Units | DTP | New York Stock Exchange | |||||||||||||||||
DTE Energy | 2020 Series G 4.375% Junior Subordinated Debentures due 2080 | DTB | New York Stock Exchange | |||||||||||||||||
DTE Energy | 2021 Series E 4.375% Junior Subordinated Debentures due 2081 | DTG | New York Stock Exchange | |||||||||||||||||
DTE Electric Company (DTE Electric) | None | None |
Securities registered pursuant to Section 12(g) of the Act:
DTE Energy | None | DTE Electric | None |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
DTE Energy | Yes | ☒ | No | ☐ | DTE Electric | Yes | ☒ | No | ☐ |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
DTE Energy | Yes | ☐ | No | ☒ | DTE Electric | Yes | ☐ | No | ☒ |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
DTE Energy | Yes | ☒ | No | ☐ | DTE Electric | Yes | ☒ | No | ☐ |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
DTE Energy | Yes | ☒ | No | ☐ | DTE Electric | Yes | ☒ | No | ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
DTE Energy | Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company | Emerging growth company | ||||||||||||
☒ | ☐ | ☐ | ☐ | ☐ | |||||||||||||
DTE Electric | Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company | Emerging growth company | ||||||||||||
☐ | ☐ | ☒ | ☐ | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
DTE Energy | Yes | ☒ | No | ☐ | DTE Electric | Yes | ☐ | No | ☒ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
DTE Energy | Yes | ☐ | No | ☒ | DTE Electric | Yes | ☐ | No | ☒ |
On June 30, 2021, the aggregate market value of DTE Energy's voting and non voting common equity held by non-affiliates was approximately $21.2 billion (based on the New York Stock Exchange closing price on such date).
Number of shares of Common Stock outstanding at January 31, 2022:
Registrant | Description | Shares | ||||||||||||
DTE Energy | Common Stock, without par value | 193,745,891 | ||||||||||||
DTE Electric | Common Stock, $10 par value, indirectly-owned by DTE Energy | 138,632,324 |
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in DTE Energy's definitive Proxy Statement for its 2022 Annual Meeting of Common Shareholders to be held May 5, 2022, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the end of the Registrants' fiscal year covered by this report on Form 10-K, is incorporated herein by reference to Part III (Items 10, 11, 12, 13, and 14) of this Form 10-K.
This combined Form 10-K is filed separately by two registrants: DTE Energy and DTE Electric. Information contained herein relating to any individual registrant is filed by such registrant solely on its own behalf. DTE Electric makes no representation as to information relating exclusively to DTE Energy.
DTE Electric, an indirect wholly-owned subsidiary of DTE Energy, meets the conditions set forth in General Instructions I(1)(a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format specified in General Instruction I(2) of Form 10-K.
TABLE OF CONTENTS
Page | ||||||||
DEFINITIONS
ACE | Affordable Clean Energy | |||||||
AFUDC | Allowance for Funds Used During Construction | |||||||
AMT | Alternative Minimum Tax | |||||||
AMV | Applicable Market Value | |||||||
ASU | Accounting Standards Update issued by the FASB | |||||||
CAD | Canadian Dollar (C$) | |||||||
CARB | California Air Resources Board that administers California's Low Carbon Fuel Standard | |||||||
Carbon emissions | Emissions of carbon containing compounds, including carbon dioxide and methane, that are identified as greenhouse gases | |||||||
CARES Act | Coronavirus Aid, Relief, and Economic Security Act enacted in March 2020 to assist individuals and employers with the impacts of the COVID-19 pandemic, including certain tax relief provisions | |||||||
CCR | Coal Combustion Residuals | |||||||
CFTC | U.S. Commodity Futures Trading Commission | |||||||
COVID-19 | Coronavirus disease of 2019 | |||||||
DOE | U.S. Department of Energy | |||||||
DTE Electric | DTE Electric Company (an indirect wholly-owned subsidiary of DTE Energy) and subsidiary companies | |||||||
DTE Energy | DTE Energy Company, directly or indirectly the parent of DTE Electric, DTE Gas, and numerous non-utility subsidiaries | |||||||
DTE Gas | DTE Gas Company (an indirect wholly-owned subsidiary of DTE Energy) and subsidiary companies | |||||||
DTE Sustainable Generation | DTE Sustainable Generation Holdings, LLC (an indirect wholly-owned subsidiary of DTE Energy) and subsidiary companies | |||||||
DT Midstream | DT Midstream, Inc., formerly DTE Energy's natural gas pipeline, storage, and gathering non-utility business comprising the Gas Storage and Pipelines segment and certain DTE Energy holding company activity in the Corporate and Other segment, which separated from DTE Energy and became an independent public company on July 1, 2021 | |||||||
EGLE | Michigan Department of Environment, Great Lakes, and Energy, formerly known as Michigan Department of Environmental Quality | |||||||
EGU | Electric Generating Unit | |||||||
ELG | Effluent Limitations Guidelines | |||||||
EPA | U.S. Environmental Protection Agency | |||||||
Equity units | DTE Energy's 2019 equity units issued in November 2019, which were used to finance the Gas Storage and Pipelines acquisition on December 4, 2019 | |||||||
ERCOT | Electric Reliability Council of Texas, the independent power market operator responsible for substantially all of the Texas power market. | |||||||
EWR | Energy Waste Reduction program, which includes a mechanism authorized by the MPSC allowing DTE Electric and DTE Gas to recover through rates certain costs relating to energy waste reduction | |||||||
FASB | Financial Accounting Standards Board | |||||||
FERC | Federal Energy Regulatory Commission | |||||||
FGD | Flue Gas Desulfurization | |||||||
FOV | Finding of Violation | |||||||
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DEFINITIONS
FTRs | Financial Transmission Rights are financial instruments that entitle the holder to receive payments related to costs incurred for congestion on the transmission grid | |||||||
GCR | A Gas Cost Recovery mechanism authorized by the MPSC that allows DTE Gas to recover through rates its natural gas costs | |||||||
GHGs | Greenhouse gases | |||||||
Green Bonds | A financing option to fund projects that have a positive environmental impact based upon a specified set of criteria. The proceeds are required to be used for eligible green expenditures | |||||||
IRS | Internal Revenue Service | |||||||
ISO | Independent System Operator | |||||||
LIBOR | London Inter-Bank Offered Rates | |||||||
LLC | DTE Energy Corporate Services, LLC, a subsidiary of DTE Energy | |||||||
MGP | Manufactured Gas Plant | |||||||
MISO | Midcontinent Independent System Operator, Inc. | |||||||
MPSC | Michigan Public Service Commission | |||||||
MTM | Mark-to-market | |||||||
NAV | Net Asset Value | |||||||
NEIL | Nuclear Electric Insurance Limited | |||||||
Net zero | Collective efforts to reduce the carbon emissions of DTE Energy's utility operations and gas suppliers, as well as efforts to offset an amount equivalent to any remaining emissions. Progress towards this goal is estimated and may vary from the calculations of other utility businesses with similar targets | |||||||
NEXUS | NEXUS Gas Transmission, LLC, a joint venture in which DTE Energy previously owned a 50% partnership interest that separated with DT Midstream effective July 1, 2021 | |||||||
Non-utility | An entity that is not a public utility. Its conditions of service, prices of goods and services, and other operating related matters are not directly regulated by the MPSC | |||||||
NOX | Nitrogen Oxides | |||||||
NPDES | National Pollutant Discharge Elimination System | |||||||
NRC | U.S. Nuclear Regulatory Commission | |||||||
PLD | City of Detroit's Public Lighting Department | |||||||
Production tax credits | Tax credits as authorized under Sections 45K and 45 of the Internal Revenue Code that are designed to stimulate investment in and development of alternate fuel sources. The amount of a production tax credit can vary each year as determined by the IRS | |||||||
PSCR | A Power Supply Cost Recovery mechanism authorized by the MPSC that allows DTE Electric to recover through rates its fuel, fuel-related, and purchased power costs | |||||||
REC | Renewable Energy Credit | |||||||
REF | Reduced Emissions Fuel | |||||||
Registrants | DTE Energy and DTE Electric | |||||||
Retail access | Michigan legislation provided customers the option of access to alternative suppliers for electricity and natural gas | |||||||
RPS | Renewable Portfolio Standard program, which includes a mechanism authorized by the MPSC allowing DTE Electric to recover through rates its renewable energy costs | |||||||
RSN | Remarketable Senior Notes | |||||||
RTO | Regional Transmission Organization | |||||||
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DEFINITIONS
SEC | Securities and Exchange Commission | |||||||
SGG | Stonewall Gas Gathering is a midstream natural gas asset that was previously owned 85% by DTE Energy and separated with DT Midstream effective July 1, 2021 | |||||||
SIP | State Implementation Plan | |||||||
SO2 | Sulfur Dioxide | |||||||
TCJA | Tax Cuts and Jobs Act of 2017, which reduced the corporate Federal income tax rate from 35% to 21% | |||||||
TCJA rate reduction | Reduction in DTE Gas revenue related to Calculation C of the TCJA. DTE Gas' Calculation C case was approved by the MPSC in August 2019 to address all remaining issues relative to the TCJA, which is primarily the remeasurement of deferred taxes and how the amounts deferred as Regulatory liabilities flow to ratepayers | |||||||
Topic 606 | FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, as amended | |||||||
Topic 842 | FASB issued ASU No, 2016-02, Leases, as amended | |||||||
TRIA | Terrorism Risk Insurance Program Reauthorization Act of 2015 | |||||||
TRM | A Transitional Reconciliation Mechanism authorized by the MPSC that allows DTE Electric to recover through rates the deferred net incremental revenue requirement associated with the transition of PLD customers to DTE Electric's distribution system | |||||||
USD | United States Dollar ($) | |||||||
VEBA | Voluntary Employees Beneficiary Association | |||||||
VIE | Variable Interest Entity |
Units of Measurement | ||||||||
Bcf | Billion cubic feet of natural gas | |||||||
BTU | British thermal unit, heat value (energy content) of fuel | |||||||
kWh | Kilowatthour of electricity | |||||||
MDth/d | Million dekatherms per day | |||||||
MMBtu | One million BTU | |||||||
MW | Megawatt of electricity | |||||||
MWh | Megawatt-hour of electricity |
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FILING FORMAT
This combined Form 10-K is separately filed by DTE Energy and DTE Electric. Information in this combined Form 10-K relating to each individual Registrant is filed by such Registrant on its own behalf. DTE Electric makes no representation regarding information relating to any other companies affiliated with DTE Energy other than its own subsidiaries. Neither DTE Energy, nor any of DTE Energy’s other subsidiaries (other than DTE Electric), has any obligation in respect of DTE Electric's debt securities, and holders of such debt securities should not consider the financial resources or results of operations of DTE Energy nor any of DTE Energy’s other subsidiaries (other than DTE Electric and its own subsidiaries (in relevant circumstances)) in making a decision with respect to DTE Electric's debt securities. Similarly, none of DTE Electric nor any other subsidiary of DTE Energy has any obligation with respect to debt securities of DTE Energy. This combined Form 10-K should be read in its entirety. No one section of this combined Form 10-K deals with all aspects of the subject matter of this combined Form 10-K.
FORWARD-LOOKING STATEMENTS
Certain information presented herein includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, and businesses of the Registrants. Words such as "anticipate," "believe," "expect," "may," "could," "projected," "aspiration," "plans," and "goals" signify forward-looking statements. Forward-looking statements are not guarantees of future results and conditions, but rather are subject to numerous assumptions, risks, and uncertainties that may cause actual future results to be materially different from those contemplated, projected, estimated, or budgeted. Many factors may impact forward-looking statements of the Registrants including, but not limited to, the following:
•Risks related to the separation of DT Midstream, including that providing DT Midstream with transition services could adversely affect our business and that the transaction may not achieve some or all of the anticipated benefits;
•the duration and impact of the COVID-19 pandemic on the Registrants and customers;
•impact of regulation by the EPA, EGLE, the FERC, the MPSC, the NRC, and for DTE Energy, the CFTC and CARB, as well as other applicable governmental proceedings and regulations, including any associated impact on rate structures;
•the amount and timing of cost recovery allowed as a result of regulatory proceedings, related appeals, or new legislation, including legislative amendments and retail access programs;
•economic conditions and population changes in the Registrants' geographic area resulting in changes in demand, customer conservation, and thefts of electricity and, for DTE Energy, natural gas;
•the operational failure of electric or gas distribution systems or infrastructure;
•impact of volatility in prices in the international steel markets and in prices of environmental attributes generated from renewable natural gas investments on the operations of DTE Vantage (formerly Power and Industrial Projects);
•the risk of a major safety incident;
•environmental issues, laws, regulations, and the increasing costs of remediation and compliance, including actual and potential new federal and state requirements;
•the cost of protecting assets and customer data against, or damage due to, cyber incidents and terrorism;
•health, safety, financial, environmental, and regulatory risks associated with ownership and operation of nuclear facilities;
•volatility in commodity markets, deviations in weather, and related risks impacting the results of DTE Energy's energy trading operations;
•changes in the cost and availability of coal and other raw materials, purchased power, and natural gas;
•advances in technology that produce power, store power, or reduce power consumption;
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•changes in the financial condition of significant customers and strategic partners;
•the potential for losses on investments, including nuclear decommissioning and benefit plan assets and the related increases in future expense and contributions;
•access to capital markets and the results of other financing efforts which can be affected by credit agency ratings;
•instability in capital markets which could impact availability of short and long-term financing;
•impacts of inflation and the timing and extent of changes in interest rates;
•the level of borrowings;
•the potential for increased costs or delays in completion of significant capital projects;
•changes in, and application of, federal, state, and local tax laws and their interpretations, including the Internal Revenue Code, regulations, rulings, court proceedings, and audits;
•the effects of weather and other natural phenomena, including climate change, on operations and sales to customers, and purchases from suppliers;
•unplanned outages;
•employee relations and the impact of collective bargaining agreements;
•the availability, cost, coverage, and terms of insurance and stability of insurance providers;
•cost reduction efforts and the maximization of plant and distribution system performance;
•the effects of competition;
•changes in and application of accounting standards and financial reporting regulations;
•changes in federal or state laws and their interpretation with respect to regulation, energy policy, and other business issues;
•successful execution of new business development and future growth plans;
•contract disputes, binding arbitration, litigation, and related appeals;
•the ability of the electric and gas utilities to achieve net zero emissions goals; and
•the risks discussed in the Registrants' public filings with the Securities and Exchange Commission.
New factors emerge from time to time. The Registrants cannot predict what factors may arise or how such factors may cause results to differ materially from those contained in any forward-looking statement. Any forward-looking statements speak only as of the date on which such statements are made. The Registrants undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.
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Part I
Items 1. and 2. Business and Properties
General
In 1995, DTE Energy incorporated in the State of Michigan. DTE Energy's utility operations consist primarily of DTE Electric and DTE Gas. DTE Energy also has two other segments that are engaged in a variety of energy-related businesses.
DTE Electric is a Michigan corporation organized in 1903 and is an indirect wholly-owned subsidiary of DTE Energy. DTE Electric is a public utility engaged in the generation, purchase, distribution, and sale of electricity to approximately 2.3 million customers in southeastern Michigan.
DTE Gas is a Michigan corporation organized in 1898 and is an indirect wholly-owned subsidiary of DTE Energy. DTE Gas is a public utility engaged in the purchase, storage, transportation, distribution, and sale of natural gas to approximately 1.3 million customers throughout Michigan and the sale of storage and transportation capacity.
DTE Energy's other businesses include 1) DTE Vantage, formerly DTE Energy's Power and Industrial Projects segment, which is primarily involved in renewable natural gas projects, providing industrial energy services, and reduced emissions fuel projects, and 2) energy marketing and trading operations.
On July 1, 2021, DTE Energy completed the separation of its natural gas pipeline, storage, and gathering non-utility business. Effective with the separation, DTE Energy retains no ownership in the new company, DT Midstream.
DTE Electric and DTE Gas are regulated by the MPSC. Certain activities of DTE Electric and DTE Gas, as well as various other aspects of businesses under DTE Energy, are regulated by the FERC. In addition, the Registrants are regulated by other federal and state regulatory agencies including the NRC, the EPA, EGLE, and for DTE Energy, the CFTC and CARB.
The Registrants' annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and all amendments to such reports are available free of charge through the Investor Relations SEC Filings page of DTE Energy's website: www.dteenergy.com, as soon as reasonably practicable after they are filed with or furnished to the SEC.
The DTE Energy Code of Ethics and Standards of Behavior, Board of Directors’ Mission and Guidelines, Board Committee Charters, and Categorical Standards for Director Independence are also posted on the DTE Energy website. The information on DTE Energy’s website is not part of this report or any other report that DTE Energy files with, or furnishes to, the SEC.
Additionally, the public may read and copy any materials the Registrants file electronically with the SEC at www.sec.gov.
Corporate Structure
DTE Energy sets strategic goals, allocates resources, and evaluates performance based on the following structure. For financial information by segment for the last three years, see Note 22 to the Consolidated Financial Statements, "Segment and Related Information."
Electric
•The Electric segment consists principally of DTE Electric, which is engaged in the generation, purchase, distribution, and sale of electricity to approximately 2.3 million residential, commercial, and industrial customers in southeastern Michigan.
Gas
•The Gas segment consists principally of DTE Gas, which is engaged in the purchase, storage, transportation, distribution, and sale of natural gas to approximately 1.3 million residential, commercial, and industrial customers throughout Michigan and the sale of storage and transportation capacity.
6
Non-utility Operations
•DTE Vantage is comprised primarily of projects that deliver energy and utility-type products and services to industrial, commercial, and institutional customers, produce reduced emissions fuel, and sell electricity and pipeline-quality gas from renewable energy projects.
•Energy Trading consists of energy marketing and trading operations.
Corporate and Other
•Corporate and Other includes various holding company activities, holds certain non-utility debt, and holds certain investments, including funds supporting regional development and economic growth.
![dte-20211231_g2.jpg](https://www.sec.gov/Archives/edgar/data/0000936340/000093634022000077/dte-20211231_g2.jpg)
Refer to Management’s Discussion and Analysis in Item 7 of this Report for an in-depth analysis of each segment’s financial results. A description of each business unit follows.
ELECTRIC
Description
DTE Energy's Electric segment consists principally of DTE Electric, an electric utility engaged in the generation, purchase, distribution, and sale of electricity to approximately 2.3 million customers in southeastern Michigan. DTE Electric is regulated by numerous federal and state governmental agencies, including, but not limited to, the MPSC, the FERC, the NRC, the EPA, and EGLE. Electricity is generated from fossil-fuel plants, a hydroelectric pumped storage plant, a nuclear plant, wind and other renewable assets and is supplemented with purchased power. The electricity is sold, or distributed through the retail access program, to three major classes of customers: residential, commercial, and industrial, throughout southeastern Michigan.
Weather, economic factors, competition, energy waste reduction initiatives, and electricity prices affect sales levels to customers. DTE Electric's peak load and highest total system sales generally occur during the third quarter of the year, driven by air conditioning and other cooling-related demands. DTE Electric's operations are not dependent upon a limited number of customers, and the loss of any one or a few customers would not have a material adverse effect on the results of DTE Electric.
The Electric segment also consists of non-utility operations relating to renewable energy projects at DTE Sustainable Generation. These projects have been acquired in support of DTE Energy's renewable energy goals.
For a summary of Electric segment operating revenues by service, see Note 5 to the Consolidated Financial Statements, "Revenue."
Fuel Supply and Purchased Power
DTE Electric's power is generated from a variety of fuels and is supplemented with purchased power. DTE Electric expects to have an adequate supply of fuel and purchased power to meet its obligation to serve customers. DTE Electric's generating capability is dependent upon the availability of coal and natural gas.
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Coal is purchased from various sources in different geographic areas under agreements that vary in both pricing and terms. DTE Electric expects to obtain the majority of its coal requirements through long-term contracts, with the balance to be obtained through short-term agreements and spot purchases. DTE Electric has long-term and short-term contracts for the purchase of approximately 19 million tons of low-sulfur western coal and approximately 1.5 million tons of Appalachian coal to be delivered from 2022 to 2023. All of these contracts have pricing schedules. DTE Electric has 100% of its expected coal requirements under contract for 2022. DTE Electric leases a fleet of rail cars and has the expected western and eastern coal rail requirements under multi-year contracts. DTE Electric's 2022 rail transportation is covered under long-term agreements. DTE Electric expects to cover all of its 2022 vessel transportation requirements for delivery of purchased coal to electric generating facilities through existing agreements. DTE Electric's natural gas supply requirements are expected to be met through a combination of short and long-term agreements, agreements with local distribution companies, and spot market purchases. Natural gas purchase requirements for 2022 are expected to be approximately 52 Bcf. DTE Electric has contracts for firm gas transportation and storage capacity to ensure reliable and flexible gas supply to its power plants. Given the geographic diversity of supply, DTE Electric believes it can meet its expected generation requirements.
DTE Electric participates in the energy market through MISO. DTE Electric offers its generation in the market on a day-ahead and real-time basis and bids for power in the market to serve its load. DTE Electric is a net purchaser of power that supplements its generation capability to meet customer demand during peak cycles or during major plant outages.
Properties
DTE Electric owns generating facilities that are located in the State of Michigan. Substantially all of DTE Electric's property is subject to the lien of a mortgage.
Generating facilities owned and in service as of December 31, 2021 for the electric segment are shown in the following table:
Location by Michigan County | Net Generation Capacity(a) | |||||||||||||||||||
Facility | Year in Service | (MW) | ||||||||||||||||||
Fossil-fueled Steam-Electric | ||||||||||||||||||||
Belle River(b) | St. Clair | 1984 and 1985 | 1,034 | |||||||||||||||||
Greenwood | St. Clair | 1979 | 785 | |||||||||||||||||
Monroe(c) | Monroe | 1971, 1973, and 1974 | 3,066 | |||||||||||||||||
St. Clair | St. Clair | 1953, 1954, 1961, and 1969 | 1,065 | |||||||||||||||||
Trenton Channel | Wayne | 1968 | 495 | |||||||||||||||||
Dearborn | Wayne | 2019 | 35 | |||||||||||||||||
6,480 | ||||||||||||||||||||
Natural gas and Oil-fueled Peaking Units | Various | 1966-1971, 1981, 1999, 2002, and 2003 | 1,998 | |||||||||||||||||
Nuclear-fueled Steam-Electric Fermi 2 | Monroe | 1988 | 1,141 | |||||||||||||||||
Hydroelectric Pumped Storage Ludington(d) | Mason | 1973 | 1,088 | |||||||||||||||||
Renewables(e) | ||||||||||||||||||||
Wind Utility | Various | 2011-2021 | 1,164 | |||||||||||||||||
Wind Non-Utility | Various | 2019-2020 | 106 | |||||||||||||||||
Solar | Various | 2010-2021 | 66 | |||||||||||||||||
1,336 | ||||||||||||||||||||
12,043 |
_______________________________________
(a)Represents summer net rating for all units with the exception of renewable facilities. The summer net rating is based on operating experience, the physical condition of units, environmental control limitations, and customer requirements for steam, which would otherwise be used for electric generation. Wind and solar facilities reflect name plate capacity measured in alternating current.
(b)Represents DTE Electric's 81% interest in Belle River with a total capability of 1,270 MW. See Note 7 to the Consolidated Financial Statements, "Jointly-Owned Utility Plant."
(c)The Monroe generating plant provided 39% of DTE Electric’s total 2021 power plant generation.
(d)Represents DTE Electric’s 49% interest in Ludington with a total capability of 2,220 MW. See Note 7 to the Consolidated Financial Statements, "Jointly-Owned Utility Plant."
(e)In addition to the owned renewable facilities described above, DTE Electric has long-term contracts for 481 MW of renewable power generated from wind, solar, and biomass facilities. Of the 481 MW, currently 52 MW relate to power purchase agreements with DTE Sustainable Generation.
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See "Capital Investments" in Management's Discussion and Analysis in Item 7 of this Report for information regarding plant retirements and future capital expenditures.
DTE Electric owns and operates 698 distribution substations with a capacity of approximately 36,987,000 kilovolt-amperes (kVA) and approximately 449,800 line transformers with a capacity of approximately 32,817,000 kVA.
Circuit miles of electric distribution lines owned and in service as of December 31, 2021 are shown in the following table:
Circuit Miles | ||||||||||||||
Operating Voltage-Kilovolts (kV) | Overhead | Underground | ||||||||||||
4.8 kV to 13.2 kV | 28,536 | 15,652 | ||||||||||||
24 kV | 179 | 741 | ||||||||||||
40 kV | 2,352 | 430 | ||||||||||||
120 kV | 62 | 8 | ||||||||||||
31,129 | 16,831 |
There are numerous interconnections that allow the interchange of electricity between DTE Electric and electricity providers external to the DTE Electric service area. These interconnections are generally owned and operated by ITC Transmission, an unrelated company, and connect to neighboring energy companies.
Regulation
DTE Electric is subject to the regulatory jurisdiction of various agencies, including, but not limited to, the MPSC, the FERC, and the NRC. The MPSC issues orders pertaining to rates, recovery of certain costs, including the costs of generating facilities and regulatory assets, conditions of service, accounting, and operating-related matters. DTE Electric's MPSC-approved rates charged to customers have historically been designed to allow for the recovery of costs, plus an authorized rate of return on investments. The FERC regulates DTE Electric with respect to financing authorization, wholesale electric market activities, certain affiliate transactions, the acquisition and disposition of certain generation and other facilities, and, in conjunction with the NERC, compliance with mandatory reliability standards. The NRC has regulatory jurisdiction over all phases of the operation, construction, licensing, and decommissioning of DTE Electric's nuclear plant operations. DTE Electric is subject to the requirements of other regulatory agencies with respect to safety, the environment, and health.
See Notes 8, 9, 12, 18, and 19 to the Consolidated Financial Statements, "Asset Retirement Obligations," "Regulatory Matters," "Fair Value," "Commitments and Contingencies," and " Nuclear Operations."
Energy Assistance Programs
Energy assistance programs, funded by the federal government and the State of Michigan, remain critical to DTE Electric’s ability to control its uncollectible accounts receivable and collections expenses. DTE Electric’s uncollectible accounts receivable expense is directly affected by the level of government-funded assistance that qualifying customers receive. DTE Electric works continuously with the State of Michigan and others to determine whether the share of funding allocated to customers is representative of the number of low-income individuals in the service territory. DTE Electric also partners with federal, state, and local officials to attempt to increase the share of low-income funding allocated to customers.
Strategy and Competition
DTE Electric's electrical generation operations seek to provide the energy needs of customers in a cost-effective manner and support DTE Energy's goal to reduce carbon emissions by 32% by 2023, 50% by 2028, and 80% by 2040 from 2005 carbon emissions levels, as well as net zero emissions by 2050. An increasing amount of high wind and other extreme weather events driven by climate change, coupled with increasing electric vehicle adoption, will drive a continued need for substantial grid investment over the long-term. In addition, with potential capacity constraints in the MISO region, there will be increased dependency on DTE Electric's generation to provide reliable service and price stability for customers. To maintain reliability and meet the carbon reduction goals in the near-term, DTE Electric plans to put in service a natural gas fueled combined cycle generation facility in 2022 and will continue its energy waste reduction initiatives and transition away from coal-fired plants to renewable energy and other sources. To achieve long-term carbon reduction goals, DTE Electric is monitoring the viability of emerging technologies involving energy storage, carbon capture and sequestration, alternative fuels such as hydrogen, and advanced nuclear power.
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DTE Electric's distribution operations focus is on distributing energy in a safe, cost effective, and reliable manner to customers. DTE Electric seeks to increase operational efficiencies to increase customer satisfaction at an affordable rate.
The electric retail access program in Michigan gives electric customers the option of retail access to alternative electric suppliers, subject to limits. Energy legislation enacted by the State of Michigan has placed a 10% cap on total retail access. This cap mitigates some of the unfavorable effects of electric retail access on DTE Electric's financial performance and full-service customer rates. Customers with retail access to alternative electric suppliers consist primarily of industrial and commercial customers and represented approximately 10%, 8.5%, and 10% of retail sales in 2021, 2020, and 2019, respectively. DTE Electric expects that customers with retail access to alternative electric suppliers will represent approximately 10% of retail sales in 2022.
Competition in the regulated electric distribution business is primarily from the on-site generation of industrial customers and from distributed generation applications by industrial and commercial customers. DTE Electric does not expect significant competition for distribution to any group of customers in the near term.
Revenues from year to year will vary due to weather conditions, economic factors, regulatory events, and other risk factors as discussed in the "Risk Factors" in Item 1A. of this Report.
GAS
Description
DTE Energy's Gas segment consists principally of DTE Gas, a natural gas utility engaged in the purchase, storage, transportation, distribution, and sale of natural gas to approximately 1.3 million residential, commercial, and industrial customers throughout Michigan, and the sale of storage and transportation capacity.
DTE Gas' natural gas sales, end-user transportation, and intermediate transportation volumes, revenues, and Net Income are impacted by weather. Given the seasonal nature of the business, revenues and Net Income are concentrated in the first and fourth quarters of the calendar year. By the end of the first quarter, the heating season is largely over, and DTE Gas typically realizes substantially reduced revenues and earnings in the second quarter, and losses in the third quarter. The impacts of changes in annual average customer usage are minimized by the Revenue Decoupling Mechanism authorized by the MPSC.
DTE Gas operations are not dependent upon a limited number of customers, and the loss of any one or a few customers would not have a material adverse effect on the results of DTE Gas.
For a summary of Gas segment operating revenues by service, see Note 5 to the Consolidated Financial Statements, "Revenue."
Natural Gas Supply
DTE Gas' gas distribution system has a planned maximum daily send-out capacity of 2.4 Bcf, with approximately 66% of the volume coming from underground storage for 2021. Peak-use requirements are met through utilization of storage facilities, pipeline transportation capacity, and purchased gas supplies. Because of the geographic diversity of supply and its pipeline transportation and storage capacity, DTE Gas is able to reliably meet supply requirements. DTE Gas believes natural gas supply and pipeline capacity will be sufficiently available to meet market demands in the foreseeable future.
DTE Gas purchases natural gas supplies in the open market by contracting with producers and marketers and maintains a diversified portfolio of natural gas supply contracts. Supplier, producing region, quantity, and available transportation diversify DTE Gas' natural gas supply base. Natural gas supply is obtained from various sources in different geographic areas (Appalachian, Gulf Coast, Mid-Continent, Canada, and Michigan) under agreements that vary in both pricing and terms. Gas supply pricing is generally tied to the New York Mercantile Exchange and published price indices to approximate current market prices combined with MPSC-approved fixed price supplies with varying terms and volumes through 2024.
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DTE Gas is directly connected to interstate pipelines, providing access to most of the major natural gas supply producing regions in the Appalachian, Gulf Coast, Mid-Continent, and Canadian regions. The primary long-term transportation supply contracts at December 31, 2021 are listed below.
Availability (MDth/d) | Contract Expiration | ||||||||||
Vector Pipeline L.P. | 20 | 2022 | |||||||||
Great Lakes Gas Transmission L.P. | 30 | 2024 | |||||||||
Viking Gas Transmission Company | 21 | 2027 | |||||||||
ANR Pipeline Company | 129 | 2028 | |||||||||
Panhandle Eastern Pipeline Company | 125 | 2029 | |||||||||
NEXUS Pipeline | 75 | 2033 |
Properties
DTE Gas owns distribution, storage, and transportation properties that are located in the State of Michigan. The distribution system includes approximately 20,000 miles of distribution mains, approximately 1,304,000 service pipelines, and approximately 1,305,000 active meters. DTE Gas also owns approximately 2,000 miles of transmission pipelines that deliver natural gas to the distribution districts and interconnect DTE Gas storage fields with the sources of supply and the market areas.
DTE Gas owns storage properties relating to four underground natural gas storage fields with an aggregate working gas storage capacity of approximately 139 Bcf. These facilities are important in providing reliable and cost-effective service to DTE Gas customers. In addition, DTE Gas sells storage services to third parties.
Most of DTE Gas' distribution and transportation property is located on property owned by others and used by DTE Gas through easements, permits, or licenses. Substantially all of DTE Gas' property is subject to the lien of a mortgage.
DTE Gas leases a portion of its pipeline system through a finance lease arrangement. See Note 17 to the Consolidated Financial Statements, "Leases."
Regulation
DTE Gas is subject to the regulatory jurisdiction of the MPSC, which issues orders pertaining to rates, recovery of certain costs, including the costs of regulatory assets, conditions of service, accounting, and operating-related matters. DTE Gas' MPSC-approved rates charged to customers have historically been designed to allow for the recovery of costs, plus an authorized rate of return on investments. DTE Gas operates natural gas storage and transportation facilities in Michigan as intrastate facilities regulated by the MPSC and provides intrastate storage and transportation services pursuant to a MPSC-approved tariff.
DTE Gas also provides interstate storage and transportation services in accordance with an Operating Statement on file with the FERC. The FERC's jurisdiction is limited and extends to the rates, non-discriminatory requirements, and the terms and conditions applicable to storage and transportation provided by DTE Gas in interstate markets. FERC granted DTE Gas authority to provide storage and related services in interstate commerce at market-based rates. DTE Gas provides transportation services in interstate commerce at cost-based rates approved by the MPSC and filed with the FERC.
DTE Gas is subject to the requirements of other regulatory agencies with respect to safety, the environment, and health.
See Notes 9 and 18 to the Consolidated Financial Statements, "Regulatory Matters" and "Commitments and Contingencies."
Energy Assistance Programs
Energy assistance programs, funded by the federal government and the State of Michigan, remain critical to DTE Gas' ability to control its uncollectible accounts receivable and collections expenses. DTE Gas' uncollectible accounts receivable expense is directly affected by the level of government-funded assistance its qualifying customers receive. DTE Gas works continuously with the State of Michigan and others to determine whether the share of funding allocated to customers is representative of the number of low-income individuals in the service territory. DTE Gas also partners with federal, state, and local officials to attempt to increase the share of low-income funding allocated to customers.
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Strategy and Competition
DTE Gas' strategy is to ensure the safe, reliable, and cost effective delivery of natural gas service within its franchised markets in Michigan. In addition, DTE Gas is promoting the extension of its distribution system to underserved markets and the increased use of natural gas furnaces, water heaters, and appliances within its current customer base. DTE Gas continues to focus on the reduction of operating costs and the delivery of energy waste reduction products and services to its customers, making natural gas service the preferred fuel and even more affordable for its customers.
Competition in the gas business primarily involves other natural gas transportation providers, as well as providers of alternative fuels and energy sources. The primary focus of competition for end-user transportation is cost and reliability. Some large commercial and industrial customers have the ability to switch to alternative fuel sources such as coal, electricity, oil, and steam. If these customers were to choose an alternative fuel source, they would not have a need for DTE Gas' end-user transportation service. DTE Gas competes against alternative fuel sources by providing competitive pricing and reliable service, supported by its storage capacity.
Having an extensive transportation pipeline system has enabled marketing of DTE Gas' storage and transportation services to gas producers, marketers, distribution companies, end-user customers, and other pipeline companies. The business operates in a central geographic location with connections to major Midwestern interstate pipelines that extend throughout the Midwest, eastern United States, and eastern Canada.
DTE Gas' storage capacity is used to store natural gas for delivery to its customers and is also sold to third parties under a variety of arrangements. Prices for storage arrangements for shorter periods are generally higher, but more volatile, than for longer periods. Prices are influenced primarily by market conditions, weather, and natural gas pricing.
DTE Energy is also committed to a goal of net zero carbon emissions by 2050 for its gas utility, for both internal operations and from suppliers. To achieve net zero, DTE Gas is working to source gas with lower methane intensity, reduce emissions through its main renewal and pipeline integrity programs, and if necessary, use carbon offsets to address any remaining emissions. DTE Energy is also committed to helping DTE Gas customers reduce their emissions by 35% by 2050 by increasing energy efficiency, pursuing advanced technologies such as hydrogen, and through the CleanVision Natural Gas Balance program which provides customers the option to use carbon offsets and renewable natural gas.
DTE VANTAGE
Description
DTE Vantage is comprised primarily of projects that deliver energy and utility-type products and services to industrial, commercial, and institutional customers, produce reduced emissions fuel, and sell electricity and gas from renewable energy projects. This business segment provides services using project assets usually located on or near the customers' premises in the steel, automotive, pulp and paper, airport, chemical, and other industries as follows:
Renewable Energy
•Renewable Gas Recovery — DTE Vantage has ownership interests in, and operates, twenty-two gas recovery sites in eight states. The sites recover methane from landfills and agricultural businesses and convert the gas to generate electricity and replace fossil fuels in industrial and manufacturing operations. Certain sites also refine the methane to produce pipeline-quality gas, which can then be used as vehicle fuel and generate environmental attributes.
•Wholesale Power and Renewables — DTE Vantage holds ownership interests in, and operates, four renewable generating plants with a capacity of 139 MWs. The electric output is sold under long-term power purchase agreements.
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Industrial Energy Services
•On-Site Energy — DTE Vantage provides power generation, steam production, chilled water production, wastewater treatment, and compressed air supply to industrial customers. DTE Vantage also provides utility-type services using project assets usually located on or near the customers' premises in the automotive, airport, chemical, and other industries.
•Steel and Petroleum Coke — DTE Vantage produces metallurgical coke from a coke battery with a capacity of 1.0 million tons per year and has an investment in a second coke battery with a capacity of 1.2 million tons per year. DTE Vantage also provided pulverized coal through the end of 2021 and continues to supply metallurgical and petroleum coke to the steel, pulp and paper, and other industries.
Environmental Controls
•Reduced Emissions Fuel — DTE Vantage constructed and placed in service REF facilities at ten sites, including facilities located at seven third-party owned coal-fired power plants. DTE Energy sold membership interests in seven of the facilities and entered into lease arrangements in two of the facilities. The facilities blended a proprietary additive with coal used in coal-fired power plants, resulting in reduced emissions of nitrogen oxide and mercury. Qualifying facilities were eligible to generate tax credits for ten years upon achieving certain criteria and ceased operations at the end of 2021 given no further eligibility. The value of a tax credit is adjusted annually by an inflation factor published by the IRS. The value of the tax credit is reduced if the reference price of coal exceeds certain thresholds.
Properties and Other
The following are significant properties owned by DTE Vantage as of December 31, 2021:
Business Areas | Location | Service Type | ||||||||||||
Renewable Energy | ||||||||||||||
Renewable Gas Recovery | AZ, CA, MI, NC, OH, TX, UT, and WI | Electric Generation and Renewable Natural Gas | ||||||||||||
Wholesale Power and Renewables | CA and MN | Electric Generation | ||||||||||||
Industrial Energy Services | ||||||||||||||
On-Site Energy | ||||||||||||||
Automotive | IN, MI, NY, and OH | Electric Distribution, Chilled Water, Wastewater, Steam, Cooling Tower Water, Reverse Osmosis Water, Compressed Air, Mist, and Dust Collectors | ||||||||||||
Airports | MI and PA | Electricity and Hot and Chilled Water | ||||||||||||
Chemical Manufacturing | KY and OH | Electricity, Steam, Natural Gas, Compressed Air, and Wastewater | ||||||||||||
Consumer Manufacturing | OH | Electricity, Steam, Wastewater, and Sewer | ||||||||||||
Hospital and University | CA and IL | Electricity, Steam, and Chilled Water | ||||||||||||
Casino and Gaming | NJ | Electricity, Steam, and Chilled Water | ||||||||||||
Steel and Petroleum Coke | ||||||||||||||
Pulverized Coal Operations(a) | MI | Pulverized Coal | ||||||||||||
Coke Production | MI | Metallurgical Coke Supply | ||||||||||||
Other Investment in Coke Production and Petroleum Coke | IN and MS | Metallurgical Coke Supply and Pulverized Petroleum Coke | ||||||||||||
Environmental Controls(a) | MI, OH, IL, TX, and WI | REF Supply |
_______________________________________
(a)Ceased operations as of December 31, 2021.
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Production Tax Credits Generated (Allocated to DTE Energy) | |||||||||||||||||
REF | $ | 58 | $ | 55 | $ | 72 | |||||||||||
Wholesale Power and Renewables | 8 | 9 | 8 | ||||||||||||||
Renewable Gas Recovery | 2 | 2 | 3 | ||||||||||||||
$ | 68 | $ | 66 | $ | 83 |
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Regulation
Certain electric generating facilities within DTE Vantage have market-based rate authority from the FERC to sell power. The facilities are subject to FERC reporting requirements and market behavior rules. Certain projects of DTE Vantage are also subject to the applicable laws, rules, and regulations related to the EPA, U.S. Department of Homeland Security, DOE, CARB, and various state utility commissions.
Strategy and Competition
DTE Vantage will continue leveraging its energy-related operating experience and project management capability to develop and grow its renewable energy and on-site energy businesses. DTE Vantage will also continue to pursue opportunities to provide asset management and operations services to third parties. There are limited competitors for DTE Vantage's existing disparate businesses who provide similar products and services. DTE Vantage's operations are dependent upon a limited number of customers, and the loss of any one or a few customers could have a material adverse effect on the results of DTE Vantage.
DTE Vantage anticipates building around its core strengths in the markets where it operates. In determining the markets in which to compete, DTE Vantage examines closely the regulatory and competitive environment, new and pending legislation, the number of competitors, and its ability to achieve sustainable margins. DTE Vantage plans to maximize the effectiveness of its related businesses as it expands.
DTE Vantage intends to focus on the following areas for growth:
•Acquiring and developing renewable energy projects and other energy projects
•Providing energy and utility-type services to commercial and industrial customers
•Exploring decarbonization opportunities related to carbon capture and storage projects
ENERGY TRADING
Description
Energy Trading focuses on physical and financial power, natural gas and environmental marketing and trading, structured transactions, enhancement of returns from its asset portfolio, and optimization of contracted natural gas pipeline transportation and storage positions. Energy Trading also provides natural gas, power, environmental and related services which may include the management of associated storage and transportation contracts on the customers’ behalf and the supply or purchase of environmental attributes to various customers. Energy Trading's customer base is predominantly utilities, local distribution companies, pipelines, producers and generators, and other marketing and trading companies. Energy Trading also provides commodity risk management services to the other businesses within DTE Energy.
Energy Trading enters into derivative financial instruments as part of its marketing and hedging activities. These financial instruments are generally accounted for under the MTM method, which results in the recognition in earnings of unrealized gains and losses from changes in the fair value of the derivatives. Energy Trading utilizes forwards, futures, swaps, and option contracts to mitigate risk associated with marketing and trading activity, as well as for proprietary trading within defined risk guidelines.
Significant portions of the Energy Trading portfolio are economically hedged. Most financial instruments, physical power and natural gas contracts, and certain environmental contracts are deemed derivatives; whereas, natural gas and environmental inventory, contracts for pipeline transportation, storage assets, and some environmental contracts are not derivatives. As a result, this segment will experience earnings volatility as derivatives are marked-to-market without revaluing the underlying non-derivative contracts and assets. The business’ strategy is to economically manage the price risk of these underlying non-derivative contracts and assets with futures, forwards, swaps, and options. This results in gains and losses that are recognized in different interim and annual accounting periods.
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Regulation
Energy Trading has market-based rate authority from the FERC to sell power and blanket authority from the FERC to sell natural gas at market prices. Energy Trading is subject to FERC reporting requirements and market behavior rules. Energy Trading is also subject to the applicable laws, rules, and regulations related to the CFTC, U.S. Department of Homeland Security, and DOE. In addition, Energy Trading is subject to applicable laws, rules, and regulations in Canada.
Strategy and Competition
DTE Energy's strategy for the Energy Trading business is to deliver value-added services to DTE Energy customers. DTE Energy seeks to manage this business in a manner complementary to the growth of DTE Energy's other business segments. Energy Trading focuses on physical marketing and the optimization of its portfolio of energy assets. The segment competes with electric and gas marketers, financial institutions, traders, utilities, and other energy providers. The Energy Trading business is dependent upon the availability of capital and an investment grade credit rating. DTE Energy believes it has ample available capital capacity to support Energy Trading activities. DTE Energy monitors its use of capital closely to ensure that its commitments do not exceed capacity. A material credit restriction would negatively impact Energy Trading's financial performance. Competitors with greater access to capital, or at a lower cost, may have a competitive advantage. DTE Energy has risk management and credit processes to monitor and mitigate risk.
CORPORATE AND OTHER
Corporate and Other includes various holding company activities, holds certain non-utility debt, and holds certain investments, including funds supporting regional development and economic growth.
ENVIRONMENTAL MATTERS
The Registrants are subject to extensive environmental regulation and expect to continue recovering environmental costs related to utility operations through rates charged to customers. The following table summarizes DTE Energy's, including DTE Electric's, estimated significant future environmental expenditures based upon current regulations. Pending or future reconsideration of current regulations may impact the estimated expenditures summarized in the table below. Actual costs to comply could vary substantially. Additional costs may result as the effects of various substances on the environment are studied and governmental regulations are developed and implemented.
DTE Electric | DTE Gas | Total | |||||||||||||||
(In millions) | |||||||||||||||||
Water | $ | 10 | $ | — | $ | 10 | |||||||||||
Contaminated and other sites | 12 | 14 | 26 | ||||||||||||||
Coal combustion residuals and effluent limitations guidelines | 417 | — | 417 | ||||||||||||||
Estimated total future expenditures through 2026 | $ | 439 | $ | 14 | $ | 453 | |||||||||||
Estimated 2022 expenditures | $ | 81 | $ | 8 | $ | 89 | |||||||||||
Estimated 2023 expenditures | $ | 65 | $ | 3 | $ | 68 |
For additional information regarding environmental matters, refer to Notes 8, 9, and 18 to the Consolidated Financial Statements, "Asset Retirement Obligations," "Regulatory Matters," and "Commitments and Contingencies."
HUMAN CAPITAL MANAGEMENT
DTE Energy and its subsidiaries had approximately 10,300 employees as of December 31, 2021, of which approximately 5,200 were represented by unions. DTE Electric had approximately 4,700 employees as of December 31, 2021, of which approximately 2,700 were represented by unions. The workforce is comprised almost entirely of full-time employees.
DTE Energy and utilities across the country are managing the turnover of our workforce due to a significant number of retirements expected in the next ten years - a period that will be impacted by major transformation of our business through technology investments, changes to our electric generation portfolio, and upgrades to our distribution infrastructure.
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Amidst this challenge, DTE Energy is building a culture of highly engaged employees with skills and expertise in science, technology, engineering, math, analytics, and skilled trades, which are in high demand and critical to our industry. To attract and retain the best talent, DTE Energy promotes the engagement of its employees through diversity, equity, and inclusion; health, safety, and well-being; and compensation and benefits.
DTE Energy also provides continuous learning to optimize employee performance and engagement. DTE Energy provides tuition reimbursement and an internal learning platform that includes free instructor-led and online courses, learning-focused events with expert guest speakers, and a comprehensive development program for new front-line leaders. DTE Energy also has a Talent Planning Committee that oversees talent and succession planning. These efforts have been critical in supporting employees transitioning to new roles as coal-fired plants are retired and replaced with new, cleaner generation.
Diversity, Equity, and Inclusion (DEI)
DTE Energy is committed to building a diverse, empowered, and engaged team that delivers safe, reliable service and energy to our customers. A diverse workforce and inclusive culture contribute to DTE Energy's success and sustainability by driving innovation and creating trusted relationships with employees, customers, suppliers, and community partners. By tapping into the talent, unique perspectives, and cultural and life experiences of every employee, DTE Energy can ensure its continued success.
As of December 31, 2021, DTE Energy’s workforce was comprised of 28% women and 29% minorities. DTE Energy measures DEI performance by its workforce representation of women, minorities, veterans, and employees with disabilities, as well as the following:
•Diversity of candidates, hires, high potential talent, and leadership promotions
•Employee engagement, including specific elements that measure a culture of inclusion
•Number of DEI related communications and events
•Supplier diversity spend
•Rankings and scores from DEI benchmarking surveys
•Formal training programs, including unconscious bias training for employees and leaders
Health, Safety, and Well-being
The health, safety, and well-being of people is DTE Energy's top priority - for employees, contractors, customers, and everyone in the communities that DTE Energy serves. DTE Energy's health, safety, and well-being culture is maintained and strengthened with the help of multiple safety and well-being committees spanning all levels of the company. Members include union representatives, DTE Energy executives, office workers, and field employees.
Safety
All workplace injuries and incidents that could have caused an injury are documented and thoroughly reviewed for potential preventive measures. DTE Energy directs its employees to be responsible for their own safety and the safety of everyone around them. DTE Energy also administers regular safety training. Hazardous work is identified and categorized according to risk and training is provided to mitigate risk of any serious injuries.
DTE Energy monitors its safety performance by reviewing the rate of safety incidents, as defined by the Office of Safety and Health Administration ("OSHA rate"), and the rate of Days Away, Restricted, or Transferred ("DART").
COVID-19 Response
During the first quarter 2020, the COVID-19 pandemic began impacting Michigan and the other service territories throughout the United States in which DTE Energy operates. DTE Energy took quick action to ensure the safety and well-being of its employees. DTE Energy successfully implemented work from home for over half of its employees and extensive new safety procedures to ensure plant and employee safety, including the use of personal protective equipment, contact tracing, and cleaning of facilities. To further support employees during the pandemic, DTE Energy enhanced communications around its employee assistance programs, established an occupational health call center, and provided clinical case management for cases related to COVID-19.
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DTE Energy continues to actively monitor risks related to COVID-19 and proper application of our safety protocols. DTE Energy is also committed to providing consistent, transparent communication to employees around safe practices, quarantine, monitoring and testing protocols, vaccine availability, and plans for safely returning to office work.
Culture of Health and Well-being
DTE Energy aspires to become the healthiest and most supportive organization of well-being. DTE Energy is focused on supporting employees holistically, including physical health, emotional well-being, social connectivity, and financial security. Resources are provided to promote and support healthier lifestyles, including an on-site clinic, fitness centers, on-site and virtual well-being classes, and a team of well-being coordinators, registered dieticians and athletic trainers. DTE Energy offers a Healthy Living Program to complete both an annual physical with biometric screenings and a Health Risk Assessment to ensure employees have a relationship with a trusted physician and early detection of health conditions. Additionally, DTE Energy offers extensive well-being education and disease management programs.
DTE Energy monitors health and well-being performance across various metrics including an Employer Health Opportunity Assessment, completion of required well-being trainings, and measurement of collective health of the DTE family including medical trends and spend.
Compensation and Benefits
DTE Energy is committed to offering compensation that is competitive, market driven, and internally equitable. Approximately half of DTE Energy's employees are represented by labor unions through which pay is uniformly determined through collectively bargained agreements. For non-represented employees, DTE Energy's human resources professionals establish pay ranges for each job classification and work with hiring leaders to make competitive offers within the range to candidates based on objective factors like years of experience and strength of skills relevant to the job. Annually, DTE Energy conducts a review of compensation practices as part of its affirmative action program and makes adjustments as needed to ensure that pay is fair and equitable.
DTE Energy provides competitive, customizable benefits for all regular full-time and regular part-time employees. Innovative compensation and benefits initiatives at DTE Energy include:
•A 401(k) plan/Employee Stock Ownership Plan that is available to all regular full-time and regular part-time employees, including automatic enrollment of new hires, automatic annual escalation of employee 401(k) contributions up to 10% of pay, and 401(k) matching contributions
•Competitive health and welfare benefits
•Child bonding/parental leave of absence
•Additional vacation days available for employee purchase
•Competitive incentive plans, which are offered to all non-represented employees to create alignment of corporate and individual goals
Incentive Plans
DTE Energy has two primary types of incentives that reward individuals for performance. The incentives are designed to tie compensation to performance and encourage individuals to align their interests with those of the shareholders and customers of the Company.
•Annual incentive plans allow DTE Energy to reward individuals with annual cash bonuses for performance against pre-established objectives based on work performed in the prior year. Objectives are aligned with our core priorities and include metrics for employee engagement and safety, customer satisfaction, utility operating excellence, and financial metrics such as earnings per share and cash flows.
•Long-term incentive plans allow DTE Energy to grant individuals long-term equity incentives to encourage continued employment with DTE Energy, to accomplish pre-defined long-term performance objectives, and to create shareholder alignment. Metrics generally include total shareholder return relative to industry peers, utility return on equity, and balance sheet health.
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For additional information on the metrics above, please see the "Annual and Long-term Incentives" section of DTE Energy's Proxy Statement.
Additionally, refer to DTE Energy’s 2021 Environmental, Social, Governance and Sustainability report for further information on metrics tracked for DEI, health and safety, and other components of DTE Energy’s human capital management, as well as the annual Culture of Health and Well-being report. These reports are available through the Environmental, Social, and Governance section of the Investor Relations page on DTE Energy’s website (www.dteenergy.com), and shall not be deemed incorporated by reference into this Form 10-K.
Item 1A. Risk Factors
There are various risks associated with the operations of the Registrants' utility businesses and DTE Energy's non-utility businesses. To provide a framework to understand the operating environment of the Registrants, below is a brief explanation of the more significant risks associated with their businesses. Although the Registrants have tried to identify and discuss key risk factors, others could emerge in the future. Each of the following risks could affect performance.
Regulatory, Legislative, and Legal Risks
The Registrants are subject to rate regulation. Electric and gas rates for the utilities are set by the MPSC and the FERC and cannot be changed without regulatory authorization. The Registrants may be negatively impacted by new regulations or interpretations by the MPSC, the FERC, or other regulatory bodies. The Registrants' ability to recover costs may be impacted by the time lag between the incurring of costs and the recovery of the costs in customers' rates. Regulators also may decide to disallow recovery of certain costs in customers' rates if they determine that those costs do not meet the standards for recovery under current governing laws and regulations. Regulators may also disagree with the Registrants' rate calculations under the various mechanisms that are intended to mitigate the risk to their utilities related to certain aspects of the business. If the Registrants cannot agree with regulators on an appropriate reconciliation of those mechanisms, it may impact the Registrants' ability to recover certain costs through customer rates. Regulators may also decide to eliminate these mechanisms in future rate cases, which may make it more difficult for the Registrants to recover their costs in the rates charged to customers. The Registrants cannot predict what rates the MPSC will authorize in future rate cases. New legislation, regulations, or interpretations could change how the business operates, impact the Registrants' ability to recover costs through rates or the timing of such recovery, or require the Registrants to incur additional expenses.
Changes to Michigan's electric retail access program could negatively impact the Registrants' financial performance. The State of Michigan currently experiences a hybrid market, where the MPSC continues to regulate electric rates for DTE Electric customers, while alternative electric suppliers charge market-based rates. MPSC rate orders, and energy legislation enacted by the State of Michigan, have placed a 10% cap on the total potential retail access migration. However, even with the legislated 10% cap on participation, there continues to be legislative and financial risk associated with the electric retail access program. Electric retail access migration is sensitive to market price and full service electric price changes. The Registrants are required under current regulation to provide full service to retail access customers that choose to return, potentially resulting in the need for additional generating capacity.
Environmental laws and liability may be costly. The Registrants are subject to, and affected by, numerous environmental regulations. These regulations govern air emissions, water quality, wastewater discharge, and disposal of solid and hazardous waste. Compliance with these regulations can significantly increase capital spending, operating expenses, and plant down times, and can negatively affect the affordability of the rates charged to customers.
Uncertainty around future environmental regulations creates difficulty planning long-term capital projects in the Registrants' generation fleet and, for DTE Energy's gas distribution businesses. These laws and regulations require the Registrants to seek a variety of environmental licenses, permits, inspections, and other regulatory approvals. The Registrants could be required to install expensive pollution control measures or limit or cease activities, including the retirement of certain generating plants, based on these regulations. Additionally, the Registrants may become a responsible party for environmental cleanup at sites identified by a regulatory body. The Registrants cannot predict with certainty the amount and timing of future expenditures related to environmental matters because of the difficulty of estimating cleanup costs. There is also uncertainty in quantifying liabilities under environmental laws that impose joint and several liability on potentially responsible parties.
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The Registrants may also incur liabilities as a result of potential future requirements to address climate change issues. Proposals for voluntary initiatives and mandatory controls are being discussed both in the United States and worldwide to reduce GHGs such as carbon dioxide, a by-product of burning fossil fuels. If increased regulations of GHG emissions are implemented, or if existing deadlines for these regulations are accelerated, the operations of DTE Electric's fossil-fueled generation assets may be significantly impacted. Since there can be no assurances that environmental costs may be recovered through the regulatory process, the Registrants' financial performance may be negatively impacted as a result of environmental matters.
The Renewable Portfolio Standard and energy waste reduction may affect the Registrants' business and federal and state fuel standards may affect DTE Energy's non-utility investments. The Registrants are subject to existing Michigan, and potential future, federal legislation and regulation requiring them to secure sources of renewable energy. The Registrants have complied with the existing federal and state legislation, but do not know what requirements may be added by federal or state legislation in the future. In addition, the Registrants expect to comply with new Michigan legislation increasing the percentage of power required to be provided by renewable energy sources. The Registrants cannot predict the financial impact or costs associated with complying with potential future legislation and regulations. Compliance with these requirements can significantly increase capital expenditures and operating expenses and can negatively affect the affordability of the rates charged to customers.
In addition, the Registrants are also required by Michigan legislation to implement energy waste reduction measures and provide energy waste reduction customer awareness and education programs. These requirements necessitate expenditures, and implementation of these programs creates the risk of reducing the Registrants' revenues as customers decrease their energy usage. The Registrants cannot predict how these programs will impact their business and future operating results.
DTE Energy's non-utility renewable natural gas investments are also dependent on the federal Renewable Fuel Standard and California's Low Carbon Fuel Standard. Changes to these standards may affect DTE Energy's business and result in lower earnings.
DTE Energy's ability to utilize production tax credits may be limited. To reduce U.S. dependence on imported oil, the Internal Revenue Code provides production tax credits as an incentive for taxpayers to produce fuels and electricity from alternative sources. The Registrants generated production tax credits from renewable energy generation and DTE Energy generated production tax credits from renewable gas recovery, reduced emission fuel, and gas production operations. If the Registrants' production tax credits were disallowed in whole or in part as a result of an IRS audit or changes in tax law, there could be additional tax liabilities owed for previously recognized tax credits that could significantly impact the Registrants' earnings and cash flows.
Operational Risks
The Registrants' electric distribution system and DTE Energy's gas distribution system are subject to risks from their operation, which could reduce revenues, increase expenses, and have a material adverse effect on their business, financial position, and results of operations. The Registrants' electric distribution and DTE Energy’s gas distribution systems are subject to many operational risks. These operational systems and infrastructure have been in service for many years. Equipment, even when maintained in accordance with good utility practices, is subject to operational failure, including events that are beyond the Registrants' control, and could require significant operation and maintenance expense or capital expenditures to operate efficiently. Because the Registrants’ distribution systems are interconnected with those of third parties, the operation of the Registrants’ systems could be adversely affected by unexpected or uncontrollable events occurring on the systems of such third parties.
Construction and capital improvements to the Registrants' power facilities and DTE Energy's distribution systems subject them to risk. The Registrants are managing ongoing, and planning future, significant construction and capital improvement projects at the Registrants' multiple power generation and distribution facilities and at DTE Energy's gas distribution system. Many factors that could cause delays or increased prices for these complex projects are beyond the Registrants' control, including the cost of materials and labor, subcontractor performance, timing and issuance of necessary permits or approvals (including required certificates from regulatory agencies), construction disputes, impediments to acquiring rights-of-way or land rights on a timely basis and on acceptable terms, cost overruns, and weather conditions. Failure to complete these projects on schedule and on budget for any reason could adversely affect the Registrants' financial performance, operations, or expected investment returns at the affected facilities, businesses and development projects.
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Operation of a nuclear facility subjects the Registrants to risk. Ownership of an operating nuclear generating plant subjects the Registrants to significant additional risks. These risks include, among others, plant security, environmental regulation and remediation, changes in federal nuclear regulation, increased capital expenditures to meet industry requirements, and operational factors that can significantly impact the performance and cost of operating a nuclear facility compared to other generation options. Insurance maintained by the Registrants for various nuclear-related risks may not be sufficient to cover the Registrants' costs in the event of an accident or business interruption at the nuclear generating plant, which may affect the Registrants' financial performance. In addition, the Registrants' nuclear decommissioning trust fund, to finance the decommissioning of the nuclear generating plant, may not be sufficient to fund the cost of decommissioning. A decline in market value of assets held in decommissioning trust funds due to poor investment performance or other factors may increase the funding requirements for these obligations. Any increase in funding requirements may have a material impact on the Registrants’ liquidity, financial position, or results of operations.
The supply and/or price of energy commodities and/or related services may impact the Registrants' financial results. The Registrants are dependent on coal for much of their electrical generating capacity as well as uranium for their nuclear operations. DTE Energy's access to natural gas supplies is critical to ensure reliability of service for utility gas customers. DTE Energy's non-utility businesses are also dependent upon supplies and prices of energy commodities and services. Price fluctuations, fuel supply disruptions, and changes in transportation costs, could have a negative impact on the amounts DTE Electric charges utility customers for electricity and DTE Gas charges utility customers for gas, and on the profitability of DTE Energy's non-utility businesses. The Registrants' hedging strategies and regulatory recovery mechanisms may be insufficient to mitigate the negative fluctuations in commodity supply prices at their utility or DTE Energy's non-utility businesses, and the Registrants' financial performance may therefore be negatively impacted by price fluctuations.
The price of energy also impacts the market for DTE Energy's non-utility businesses, particularly those that compete with utilities and alternative electric suppliers. The price of environmental attributes generated by DTE Energy's renewable natural gas investments, including those related to the federal Renewable Fuel Standard and California's Low Carbon Fuel Standard, may also impact the market and financial results for DTE Energy's non-utility businesses.
The supply and/or price of other industrial raw and finished inputs and/or related services may impact the Registrants' financial results. The Registrants are dependent on supplies of certain commodities, such as copper and limestone, among others, and industrial materials, and services in order to maintain day-to-day operations and maintenance of their facilities. Price fluctuations, or supply interruptions for these commodities and other items, could have a negative impact on the amounts charged to customers for the Registrants' utility products and, for DTE Energy, on the profitability of the non-utility businesses.
Weather, including extreme weather caused by climate change, significantly affects operations. At both utilities, deviations from normal hot and cold weather conditions affect the Registrants' earnings and cash flows. Mild temperatures can result in decreased utilization of the Registrants' assets, lowering income and cash flows. At DTE Electric, ice storms, floods, tornadoes, or high winds can damage the electric distribution system infrastructure and power generation facilities and require it to perform emergency repairs and incur material unplanned expenses. The expenses of storm restoration efforts may not be fully recoverable through the regulatory process. Prolonged and/or more frequent outages caused by extreme weather could also negatively impact DTE Energy's reputation and customer satisfaction or result in increased regulatory oversight, and related damages to customer assets could subject DTE Energy to litigation. DTE Gas can also experience higher than anticipated expenses from emergency repairs on its gas distribution infrastructure required as a result of weather-related issues.
Unplanned power plant outages may be costly. Unforeseen maintenance may be required to safely produce electricity or comply with environmental regulations. As a result of unforeseen maintenance, the Registrants may be required to make spot market purchases of electricity that exceed the costs of generation. The Registrants' financial performance may be negatively affected if unable to recover such increased costs.
A work interruption may adversely affect the Registrants. There are several bargaining units for DTE Energy's approximately 5,200 and DTE Electric's approximately 2,700 represented employees. The majority of represented employees are under contracts that expire in 2027. A union choosing to strike would have an impact on the Registrants' businesses. The Registrants are unable to predict the effect a work stoppage would have on their costs of operations and financial performance.
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DTE Energy may not achieve the net zero carbon emissions goals of its electric and gas utilities. DTE Energy has announced the voluntary commitments of its electric and gas utilities to achieve net zero carbon emissions by 2050. Technology research and developments, innovations, and advancements are critical to DTE Energy's ability to achieve this commitment. Other factors that may impact DTE Energy's ability to achieve these net zero goals include our service territory size and capacity needs remaining in line with current expectations, the impacts on our business of future regulations or legislation, the price and availability of carbon offsets, adoption of alternative energy products by the public such as greater use of electric vehicles, greater standardization of emissions reporting, and our ability over time to transition our electric generating portfolio. DTE Energy's net zero goals require making assumptions that involve risks and uncertainties. Should one or more of these underlying assumptions prove incorrect, our actual results and ability to achieve net zero emissions by 2050 could differ materially from expectations. In addition, DTE Energy cannot predict the ultimate impact of achieving this objective, or the various implementation aspects on its reliability or its results of operations, financial condition, or liquidity.
Financial, Economic, and Market Risks
DTE Energy's non-utility businesses may not perform to its expectations. DTE Energy relies on non-utility businesses for a portion of earnings and will depend on the successful execution of new business development in its non-utilities to help achieve overall growth targets. DTE Energy also expects that the loss of earnings from ceasing the operations of its REF non-utility business will be offset by growth in renewable energy and industrial services projects over the long term; however, such opportunities may not materialize as anticipated. If DTE Energy's current and contemplated non-utility investments do not perform at expected levels, DTE Energy could experience diminished earnings and a corresponding decline in shareholder value.
Adverse changes in the Registrants' credit ratings may negatively affect them. Regional and national economic conditions, increased scrutiny of the energy industry and regulatory changes, as well as changes in the Registrants' economic performance, could result in credit agencies reexamining their credit ratings. While credit ratings reflect the opinions of the credit agencies issuing such ratings and may not necessarily reflect actual performance, a downgrade in the Registrants' credit ratings below investment grade could restrict or discontinue their ability to access capital markets and could result in an increase in their borrowing costs, a reduced level of capital expenditures, and could impact future earnings and cash flows. In addition, a reduction in the Registrants' credit ratings may require them to post collateral related to various physical or financially settled contracts for the purchase of energy-related commodities, products, and services, which could impact their liquidity.
Poor investment performance of pension and other postretirement benefit plan assets and other factors impacting benefit plan costs could unfavorably impact the Registrants' liquidity and results of operations. The Registrants' costs of providing non-contributory defined benefit pension plans and other postretirement benefit plans are dependent upon a number of factors, such as the rates of return on plan assets, the level of interest rates used to measure the required minimum funding levels of the plans, future government regulation, and the Registrants' required or voluntary contributions made to the plans. The performance of the debt and equity markets affects the value of assets that are held in trust to satisfy future obligations under the Registrants' plans. The Registrants have significant benefit obligations and hold significant assets in trust to satisfy these obligations. These assets are subject to market fluctuations and will yield uncertain returns, which may fall below the Registrants' projected return rates. A decline in the market value of the pension and other postretirement benefit plan assets will increase the funding needs under the pension and other postretirement benefit plans if the actual asset returns do not recover these declines in the foreseeable future. Additionally, the pension and other postretirement benefit plan liabilities are sensitive to changes in interest rates. If interest rates decrease, the liabilities increase, resulting in increasing benefit expense and funding needs. Also, if future increases in pension and other postretirement benefit costs as a result of reduced plan assets are not recoverable from the Registrants' utility customers, the results of operations and financial position of the Registrants could be negatively affected. Without sustained growth in the plan investments over time to increase the value of plan assets, the Registrants could be required to fund these plans with significant amounts of cash. Such cash funding obligations could have a material impact on the Registrants' cash flows, financial position, or results of operations.
The Registrants' ability to access capital markets is important. The Registrants' ability to access capital markets is important to operate their businesses and to fund capital investments. Turmoil in credit markets may constrain the Registrants' ability, as well as the ability of their subsidiaries, to issue new debt, including commercial paper, and refinance existing debt at reasonable interest rates. In addition, the level of borrowing by other energy companies and the market as a whole could limit the Registrants' access to capital markets. The Registrants' long-term revolving credit facilities do not expire until 2024 and 2025, but the Registrants regularly access capital markets to refinance existing debt or fund new projects at the Registrants' utilities and DTE Energy's non-utility businesses, and the Registrants cannot predict the pricing or demand for those future transactions.
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Emerging technologies may have a material adverse effect on the Registrants. Advances in technology that produce power or reduce power consumption include cost-effective renewable energy technologies, distributed generation, energy waste reduction technologies, and energy storage devices. Such developments may impact the price of energy, may affect energy deliveries as customer-owned generation becomes more cost-effective, may require further improvements to our distribution systems to address changing load demands, and could make portions of our electric system power supply and/or distribution facilities obsolete prior to the end of their useful lives. Such technologies could also result in further declines in commodity prices or demand for delivered energy. Each of these factors could materially affect the Registrants’ results of operations, cash flows, or financial position.
DTE Energy's participation in energy trading markets subjects it to risk. Events in the energy trading industry have increased the level of scrutiny on the energy trading business and the energy industry as a whole. In certain situations, DTE Energy may be required to post collateral to support trading operations, which could be substantial. If access to liquidity to support trading activities is curtailed, DTE Energy could experience decreased earnings potential and cash flows. Energy trading activities take place in volatile markets and expose DTE Energy to risks related to commodity price movements, deviations in weather, and other related risks. DTE Energy's trading business routinely has speculative trading positions in the market, within strict policy guidelines DTE Energy sets, resulting from the management of DTE Energy's business portfolio. To the extent speculative trading positions exist, fluctuating commodity prices can improve or diminish DTE Energy's financial results and financial position. DTE Energy manages its exposure by establishing and enforcing strict risk limits and risk management procedures. During periods of extreme volatility, these risk limits and risk management procedures may not work as planned and cannot eliminate all risks associated with these activities.
Regional, national, and international economic conditions can have an unfavorable impact on the Registrants. The Registrants' utility and DTE Energy's non-utility businesses follow the economic cycles of the customers they serve and credit risk of counterparties they do business with. Should the financial conditions of some of DTE Energy's significant customers deteriorate as a result of regional, national or international economic conditions, reduced volumes of electricity and gas, and demand for energy services DTE Energy supplies, collections of accounts receivable, reductions in federal and state energy assistance funding, and potentially higher levels of lost gas or stolen gas and electricity could result in decreased earnings and cash flows.
If DTE Energy's goodwill or other intangible assets become impaired, it may be required to record a charge to earnings. DTE Energy annually reviews the carrying value of goodwill associated with acquisitions it has made for impairment. Goodwill and other intangible assets are also reviewed on a quarterly basis whenever events or circumstances indicate that the carrying value of these assets may not be recoverable. Factors that may be considered for purposes of this analysis include a decline in stock price and market capitalization, slower industry growth rates, or material changes with customers or contracts that could negatively impact future cash flows. DTE Energy cannot predict the timing, strength, or duration of such changes or any subsequent recovery. If the carrying value of any goodwill or other intangible assets are determined to be not recoverable, DTE Energy may take a non-cash impairment charge, which could materially impact DTE Energy's results of operations and financial position.
The Registrants may not be fully covered by insurance. The Registrants have a comprehensive insurance program in place to provide coverage for various types of risks, including catastrophic damage as a result of severe weather or other natural disasters, war, terrorism, cyber incidents, or a combination of other significant unforeseen events that could impact the Registrants' operations. Economic losses might not be covered in full by insurance, or the Registrants' insurers may be unable to meet contractual obligations.
Safety and Security Risks
The Registrants' businesses have safety risks. The Registrants' electric distribution system, power plants, renewable energy equipment, and other facilities, and DTE Energy's gas distribution system, gas infrastructure, and other facilities, could be involved in incidents that result in injury, death, or property loss to employees, customers, third parties, or the public. Although the Registrants have insurance coverage for many potential incidents, depending upon the nature and severity of any incident, they could experience financial loss, damage to their reputation, and negative consequences from regulatory agencies or other public authorities.
Threats of cyber incidents, physical security, and terrorism could affect the Registrants' business. Issues may threaten the Registrants such as cyber incidents, physical security, or terrorism that may disrupt the Registrants' operations, and could harm the Registrants' operating results.
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Information security risks have increased in recent years as a result of the proliferation of new technologies and the increased sophistication and frequency of cyberattacks, and data security breaches. The Registrants' industry requires the continued operation of sophisticated information and control technology systems and network infrastructure. All of the Registrants' technology systems are vulnerable to disability or failures due to cyber incidents, physical security threats, acts of war or terrorism, and other causes, as well as loss of operational control of the Registrants' electric generation and distribution assets and, DTE Energy's gas distribution assets. The Registrants have experienced, and expect to continue to be subject to, cybersecurity threats and incidents. If the Registrants' information technology systems were to fail and they were unable to recover in a timely way, the Registrants may be unable to fulfill critical business functions, which could have a material adverse effect on the Registrants' business, operating results, and financial condition.
Suppliers, vendors, contractors, and information technology providers have access to systems that support the Registrants’ operations and maintain customer and employee data. A breach of these third-party systems could adversely affect the business as if it was a breach of our own system. Also, because the Registrants’ generation and distribution systems are part of an interconnected system, a disruption caused by a cyber incident at another utility, electric generator, system operator, or commodity supplier could also adversely affect the Registrants’ businesses, operating results, and financial condition.
In addition, the Registrants' generation plants and electrical distribution facilities may be targets of physical security threats or terrorist activities that could disrupt the Registrants' ability to produce or distribute some portion of their products. The Registrants have increased security as a result of past events and may be required by regulators or by the future threat environment to make investments in security that the Registrants cannot currently predict.
Failure to maintain the security of personally identifiable information could adversely affect the Registrants. In connection with the Registrants' businesses, they collect and retain personally identifiable information of their customers, shareholders, and employees. Customers, shareholders, and employees expect that the Registrants will adequately protect their personal information. The regulatory environment surrounding information security and privacy is increasingly demanding. A significant theft, loss, or fraudulent use of customer, shareholder, employee, or Registrant data by cybercrime or otherwise, could adversely impact the Registrants' reputation, and could result in significant costs, fines, and litigation.
General and Other Risks
The COVID-19 pandemic and resulting impact on business and economic conditions could negatively affect the Registrants' businesses and operations. The COVID-19 pandemic is currently impacting countries, communities, supply chains and markets. The continued spread of COVID-19 and efforts to contain the virus, such as quarantines, closures, or reduced operations of businesses, governmental agencies and other institutions, have resulted in disruptions in various public, commercial, and industrial activities and have caused employee absences which interfered with certain operation and maintenance of the Registrants' facilities. Travel bans and restrictions, quarantines, and shelter in place orders could also cause us to experience operational delays, delay the delivery of critical infrastructure and other supplies we source globally, or delay the connection of electric or gas service to new customers, and have reduced the use of electricity and gas by certain customers in the commercial and industrial segments. Any of the foregoing circumstances could adversely affect customer demand or revenues, impact the ability of the Registrants' suppliers, vendors or contractors to perform, or cause other unpredictable events, which could adversely affect the Registrants' businesses, results of operations or financial condition. The continued spread of COVID-19 has also led to disruption and volatility in the financial markets, which could increase the Registrants' costs to fund capital requirements and impact the operating results of our energy trading operations. To the extent that the Registrants' access to the capital markets is adversely affected by COVID-19, the Registrants may need to consider alternative sources of funding for our operations and for working capital, any of which could increase the Registrants' cost of capital. The extent to which COVID-19 may continue to impact the Registrants' liquidity, financial condition, and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information concerning the severity of COVID-19 and its related variants, vaccine distribution and public acceptance, and other actions taken to contain it or treat its impact, and the extent to which normal economic and operating conditions can resume, among others. Our business continuity plans and insurance coverage may be insufficient to mitigate these adverse impacts to our business.
Failure to attract and retain key executive officers and other skilled professional and technical employees could have an adverse effect on the Registrants’ operations. The Registrants' businesses are dependent on their ability to attract and retain skilled employees. Competition for skilled employees in some areas is high, and the inability to attract and retain these employees could adversely affect the Registrants' business and future operating results. In addition, the Registrants have an aging utility workforce, and the failure of a successful transfer of knowledge and expertise could negatively impact their operations.
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DTE Energy relies on cash flows from subsidiaries. DTE Energy is a holding company. Cash flows from the utility and non-utility subsidiaries are required to pay interest expenses and dividends on DTE Energy debt and securities. Should a major subsidiary not be able to pay dividends or transfer cash flows to DTE Energy, its ability to pay interest and dividends would be restricted.
The spin-off of DT Midstream (the "Spin-off") may not achieve its intended benefits and may present additional risk to DTE Energy. As a result of the Spin-off, DTE Energy faces new and unique risks, including having fewer assets, reduced financial resources and less diversification of revenue sources. The Spin-off may not achieve some or all of its anticipated benefits and we face risks providing DT Midstream with transition services. Each of these factors may adversely impact DTE Energy's financial condition, results of operations, and cash flows.
In connection with the Spin-off, DTE received a legal opinion that the distribution of shares of DT Midstream to DTE Energy shareholders qualifies as tax-free under Section 355 of the U.S. Internal Revenue Code. However, if the IRS determined on audit that the distribution is taxable, both DTE Energy and our shareholders could incur significant U.S. federal income tax liabilities.
Following the Spin-off, the management and directors of each of DTE Energy and DT Midstream own common stock in both companies, and Robert Skaggs, Jr., who is DT Midstream's Executive Chairman, also serves on DTE Energy's Board and may be required to recuse himself from deliberations relating to arrangements between DTE Energy and DT Midstream in the future. This ownership and directorship overlap could create, or appear to create, potential conflicts of interest when the management and directors of one company face decisions that could have different implications for themselves and the other company. Potential conflicts of interest may also arise out of commercial arrangements that DTE Energy and DT Midstream have or may enter into in the future.
Item 1B. Unresolved Staff Comments
None.
Item 3. Legal Proceedings
For more information on legal proceedings and matters related to the Registrants, see Notes 9 and 18 to the Consolidated Financial Statements, "Regulatory Matters" and "Commitments and Contingencies," respectively.
For environmental proceedings in which the government is a party, the Registrants include disclosures if any sanctions of $1 million or greater are expected.
Item 4. Mine Safety Disclosures
Not applicable.
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Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
DTE Energy common stock is listed under the ticker symbol "DTE" on the New York Stock Exchange, which is the principal market for such stock.
At December 31, 2021, there were 193,747,509 shares of DTE Energy common stock outstanding. These shares were held by a total of 45,230 shareholders of record.
All of the 138,632,324 issued and outstanding shares of DTE Electric common stock, par value $10 per share, are indirectly-owned by DTE Energy, and constitute 100% of the voting securities of DTE Electric. Therefore, no market exists for DTE Electric's common stock.
For information on DTE Energy dividend restrictions, see Note 16 to the Consolidated Financial Statements, "Short-Term Credit Arrangements and Borrowings."
All of DTE Energy's equity compensation plans that provide for the annual awarding of stock-based compensation have been approved by shareholders. For additional detail, see Note 21 to the Consolidated Financial Statements, "Stock-Based Compensation."
See the following table for information as of December 31, 2021:
Number of Securities to be Issued Upon Exercise of Outstanding Options | Weighted-Average Exercise Price of Outstanding Options | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans | |||||||||||||||
Plans approved by shareholders | — | $ | — | 4,221,599 |
UNREGISTERED SALES OF DTE ENERGY EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of DTE Energy Equity Securities by the Issuer and Affiliated Purchasers
The following table provides information about DTE Energy's purchases of equity securities that are registered by DTE Energy pursuant to Section 12 of the Exchange Act of 1934 for the quarter ended December 31, 2021:
Number of Shares Purchased(a) | Average Price Paid per Share(a) | Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Average Price Paid per Share | Maximum Dollar Value that May Yet Be Purchased Under the Plans or Programs | |||||||||||||||||||||||||
10/01/2021 — 10/31/2021 | 1,028 | $ | 108.95 | — | — | — | |||||||||||||||||||||||
11/01/2021 — 11/30/2021 | 2,653 | $ | 105.32 | — | — | — | |||||||||||||||||||||||
12/01/2021 — 12/31/2021 | 505 | $ | 115.23 | — | — | — | |||||||||||||||||||||||
Total | 4,186 | — |
_______________________________________
(a)Represents shares of DTE Energy common stock withheld to satisfy income tax obligations upon the vesting of restricted stock based on the price in effect at the grant date.
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COMPARISON OF CUMULATIVE FIVE YEAR TOTAL RETURN
Total Return to DTE Energy Shareholders
(Includes reinvestment of dividends)
Annual Return Percentage Year Ended December 31, | ||||||||||||||||||||||||||||||||
Company/Index | 2017 | 2018 | 2019 | 2020 | 2021 | |||||||||||||||||||||||||||
DTE Energy Company | 14.59 | 4.19 | 21.36 | (2.90) | 19.42 | |||||||||||||||||||||||||||
S&P 500 Index | 21.82 | (4.39) | 31.48 | 18.39 | 28.68 | |||||||||||||||||||||||||||
S&P 500 Multi-Utilities Index | 12.09 | 1.77 | 24.36 | (5.87) | 17.67 |
Indexed Returns Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||
Base Period | ||||||||||||||||||||||||||||||||||||||
Company/Index | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | ||||||||||||||||||||||||||||||||
DTE Energy Company | 100.00 | 114.59 | 119.39 | 144.90 | 140.69 | 168.01 | ||||||||||||||||||||||||||||||||
S&P 500 Index | 100.00 | 121.82 | 116.47 | 153.14 | 181.29 | 233.29 | ||||||||||||||||||||||||||||||||
S&P 500 Multi-Utilities Index | 100.00 | 112.09 | 114.07 | 141.86 | 133.53 | 157.13 |
![dte-20211231_g3.jpg](https://www.sec.gov/Archives/edgar/data/0000936340/000093634022000077/dte-20211231_g3.jpg)
Item 6. Selected Financial Data
Information is no longer required as the Registrants have adopted the SEC amendment to Regulation S-K to eliminate Item 301, Selected Financial Data.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following combined discussion is separately filed by DTE Energy and DTE Electric. However, DTE Electric does not make any representations as to information related solely to DTE Energy or the subsidiaries of DTE Energy other than itself.
EXECUTIVE OVERVIEW
DTE Energy is a diversified energy company with 2021 Operating Revenues of approximately $15.0 billion and Total Assets of approximately $39.7 billion. DTE Energy is the parent company of DTE Electric and DTE Gas, regulated electric and natural gas utilities engaged primarily in the business of providing electricity and natural gas sales, distribution, and storage services throughout Michigan. DTE Energy also operates two energy-related non-utility segments with operations throughout the United States.
On July 1, 2021, DTE Energy completed the separation of its natural gas pipeline, storage and gathering non-utility business. Effective with the separation, DTE retains no ownership in the new company, DT Midstream, which was formerly comprised of DTE Energy’s Gas Storage and Pipelines segment and certain DTE Energy holding company activity within the Corporate and Other segment. Gas Storage and Pipelines is no longer a reportable segment of DTE Energy, and financial results of DT Midstream are presented as discontinued operations in the Consolidated Financial Statements. Refer to Note 4 to the Consolidated Financial Statements, “Dispositions and Impairments,” for additional information regarding the separation of DT Midstream and discontinued operations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations below reflect DTE Energy’s continuing operations, unless noted otherwise. The following table summarizes DTE Energy's financial results:
Years Ended December 31, | |||||||||||||||||
2021 | 2020 | 2019 | |||||||||||||||
(In millions, except per share amounts) | |||||||||||||||||
Net Income Attributable to DTE Energy Company — Continuing operations | $ | 796 | $ | 1,054 | $ | 955 | |||||||||||
Diluted Earnings per Common Share — Continuing operations | $ | 4.10 | $ | 5.45 | $ | 5.15 |
The decrease in 2021 Net Income Attributable to DTE Energy Company was primarily due to lower earnings in the Corporate and Other segment, driven primarily by losses on the extinguishment of debt incurred in 2021. The decrease was also due to lower earnings in the Energy Trading segment, partially offset by higher earnings in the Electric, Gas, and DTE Vantage segments. The increase in 2020 Net Income Attributable to DTE Energy Company was primarily due to higher earnings in the Electric and Corporate and Other segments, partially offset by lower earnings in the Energy Trading segment.
STRATEGY
DTE Energy's strategy is to achieve long-term earnings growth with a strong balance sheet and an attractive dividend.
DTE Energy's utilities are investing capital to support a modern, reliable grid and cleaner, affordable energy through investments in base infrastructure and new generation. An increasing amount of high wind and other extreme weather events driven by climate change, coupled with increasing electric vehicle adoption, will drive a continued need for substantial grid investment over the long-term.
DTE Energy is committed to reducing the carbon emissions of its electric utility operations by 32% by 2023, 50% by 2028, and 80% by 2040 from 2005 carbon emissions levels. DTE Energy is also committed to a net zero carbon emissions goal by 2050 for its electric and gas utility operations. To achieve the carbon reduction goals at the electric utility, DTE Energy has begun to transition away from coal-powered sources and is replacing or offsetting the generation from these facilities with renewable energy and energy waste reduction initiatives. Refer to the "Capital Investments" section below for further discussion regarding DTE Energy's retirement of its aging coal-fired plants and transition to renewable energy and other sources. Over the long-term, DTE Energy is also monitoring the viability of emerging technologies involving energy storage, carbon capture and sequestration, alternative fuels such as hydrogen, and advanced nuclear power.
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For gas utility operations, DTE Energy aims to cut carbon emissions across the entire value chain. To achieve net zero emissions by 2050 for both internal operations and from suppliers, DTE Energy is working to source gas with lower methane intensity, reduce emissions through its gas main renewal and pipeline integrity programs, and if necessary, use carbon offsets to address any remaining emissions. DTE Energy is also committed to helping DTE Gas customers reduce their emissions by 35% by 2050 by increasing energy efficiency, pursuing advanced technologies such as hydrogen, and through the CleanVision Natural Gas Balance program which provides customers the option to use carbon offsets and renewable natural gas.
DTE Energy expects that these initiatives at the electric and gas utilities will continue to provide significant opportunities for capital investments and result in earnings growth. DTE Energy is focused on executing its plans to achieve operational excellence and customer satisfaction with a focus on customer affordability. DTE Energy's utilities operate in a constructive regulatory environment and have solid relationships with their regulators.
DTE Energy also has significant investments in non-utility businesses and expects growth opportunities in its DTE Vantage segment. DTE Energy employs disciplined investment criteria when assessing growth opportunities that leverage its assets, skills, and expertise, and provides diversity in earnings and geography. Specifically, DTE Energy invests in targeted markets with attractive competitive dynamics where meaningful scale is in alignment with its risk profile.
A key priority for DTE Energy is to maintain a strong balance sheet which facilitates access to capital markets and reasonably priced short-term and long-term financing. Near-term growth will be funded through internally generated cash flows and the issuance of debt and equity. DTE Energy has an enterprise risk management program that, among other things, is designed to monitor and manage exposure to earnings and cash flow volatility related to commodity price changes, interest rates, and counterparty credit risk.
CAPITAL INVESTMENTS
DTE Energy's utility businesses require significant capital investments to maintain and improve the electric generation and electric and natural gas distribution infrastructure and to comply with environmental regulations and renewable energy requirements. Capital plans may be regularly updated as these requirements change.
DTE Electric's capital investments over the 2022-2026 period are estimated at $15 billion, comprised of $8 billion for distribution infrastructure, $4 billion for base infrastructure, and $3 billion for cleaner generation including renewables. DTE Electric has retired six coal-fired generation units at the Trenton Channel, River Rouge, and St. Clair facilities and has announced plans to retire its remaining eleven coal-fired generating units, including five units at Trenton Channel and St. Clair in 2022. The two units at the Belle River facility will cease the use of coal by 2028 and will be evaluated for conversion to cleaner energy resources. The four units at the Monroe facility are expected to be retired by 2040. Generation from the retired facilities will be replaced or offset with a combination of renewables, energy waste reduction, demand response, and natural gas fueled generation, including the Blue Water Energy Center which will commence operations in 2022.
DTE Gas' capital investments over the 2022-2026 period are estimated at $3.1 billion, comprised of $1.5 billion for base infrastructure and $1.6 billion for gas main renewal, meter move out, and pipeline integrity programs.
DTE Electric and DTE Gas plan to seek regulatory approval for capital expenditures consistent with ratemaking treatment.
DTE Energy's non-utility businesses' capital investments are primarily for expansion, growth, and ongoing maintenance in the DTE Vantage segment, including approximately $1 billion to $1.5 billion from 2022-2026 for renewable energy and industrial energy services projects.
ENVIRONMENTAL MATTERS
The Registrants are subject to extensive environmental regulations, including those to address climate change. Additional costs may result as the effects of various substances on the environment are studied and governmental regulations are developed and implemented. Actual costs to comply could vary substantially. The Registrants expect to continue recovering environmental costs related to utility operations through rates charged to customers, as authorized by the MPSC.
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Increased costs for energy produced from traditional coal-based sources due to recent, pending, and future regulatory initiatives could also increase the economic viability of energy produced from renewable, natural gas fueled generation, and/or nuclear sources, energy waste reduction initiatives, and the potential development of market-based trading of carbon instruments which could provide new business opportunities for DTE Energy's utility and non-utility segments. At the present time, it is not possible to quantify the financial impacts of these climate related regulatory initiatives on the Registrants or their customers.
See Items 1. and 2. Business and Properties and Note 18 to the Consolidated Financial Statements, "Commitments and Contingencies," for further discussion of Environmental Matters.
OUTLOOK
The next few years will be a period of rapid change for DTE Energy and for the energy industry. DTE Energy's strong utility base, combined with its integrated non-utility operations, position it well for long-term growth.
Looking forward, DTE Energy will focus on several areas that are expected to improve future performance:
•electric and gas customer satisfaction;
•electric distribution system reliability;
•new electric generation and decarbonization;
•gas distribution system renewal;
•rate competitiveness and affordability;
•regulatory stability and investment recovery for the electric and gas utilities;
•strategic investments in growth projects at DTE Vantage;
•employee engagement, health, safety and well-being, and diversity, equity, and inclusion;
•cost structure optimization across all business segments; and
•cash, capital, and liquidity to maintain or improve financial strength.
The separation of DT Midstream on July 1, 2021 will result in a reduction to DTE Energy's net income and cash flows in the near term. However, DTE Energy remains well-positioned for long-term growth and focused on the key objectives noted above. DTE Energy will continue to pursue opportunities to grow its businesses in a disciplined manner if it can secure opportunities that meet its strategic, financial, and risk criteria.
COVID-19 Pandemic
DTE Energy has been monitoring the COVID-19 pandemic and any related impacts to operating costs, customer demand, and the recoverability of assets in our business segments that could materially impact the Registrants' financial results.
As noted in Note 18 to the Consolidated Financial Statements, "Commitments and Contingencies," the pandemic has contributed to a shift in electric sales volumes from commercial and industrial customers to residential customers. DTE Energy expects this shift to continue in the near term as businesses maintain more remote operations. Other impacts from COVID-19 have related primarily to health and safety-related costs at the utilities and volumes at certain non-utility businesses, but these impacts have not been significant in 2021.
Please see detailed explanations of segment performance in the "Results of Operations" section below, including impacts from the COVID-19 pandemic where applicable.
DTE Energy will continue to monitor these impacts as well as any regulatory and legislative activities related to COVID-19. The Registrants cannot predict the ultimate impact of these factors to our Consolidated Financial Statements as future developments involving COVID-19 and related impacts on economic and operating conditions are highly uncertain. For further discussion of these uncertainties, refer to "Risk Factors" in Item 1A. of this Report.
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RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations includes financial information prepared in accordance with GAAP, as well as the non-GAAP financial measures, Utility Margin and Non-utility Margin, discussed below, which DTE Energy uses as measures of its operational performance. Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP.
DTE Energy uses Utility Margin and Non-utility Margin, non-GAAP financial measures, to assess its performance by reportable segment.
Utility Margin includes electric utility and gas utility Operating Revenues net of Fuel, purchased power, and gas expenses. The utilities’ fuel, purchased power, and natural gas supply are passed through to customers, and therefore, result in changes to the utilities’ revenues that are comparable to changes in such expenses. As such, DTE Energy believes Utility Margin provides a meaningful basis for evaluating the utilities’ operations across periods, as it excludes the revenue effect of fluctuations in these expenses. For the Electric segment, non-utility Operating Revenues are reported separately so that Utility Margin can be used to assess utility performance.
The Non-utility Margin relates to the DTE Vantage and Energy Trading segments. For the DTE Vantage segment, Non-utility Margin primarily includes Operating Revenues net of Fuel, purchased power, and gas expenses. Operating Revenues include sales of refined coal to third parties and the affiliated Electric utility, metallurgical coke and related by-products, petroleum coke, renewable natural gas and related credits, and electricity, as well as rental income and revenues from utility-type consulting, management, and operational services. For the Energy Trading segment, Non-utility Margin includes revenue and realized and unrealized gains and losses from physical and financial power and gas marketing, optimization, and trading activities, net of Purchased power and gas related to these activities. DTE Energy evaluates its operating performance of these non-utility businesses using the measure of Operating Revenues net of Fuel, purchased power, and gas expenses.
Utility Margin and Non-utility Margin are not measures calculated in accordance with GAAP and should be viewed as a supplement to and not a substitute for the results of operations presented in accordance with GAAP. Utility Margin and Non-utility Margin do not intend to represent operating income, the most comparable GAAP measure, as an indicator of operating performance and are not necessarily comparable to similarly titled measures reported by other companies.
The following sections provide a detailed discussion of the operating performance and future outlook of DTE Energy's segments. Segment information, described below, includes intercompany revenues and expenses, and other income and deductions that are eliminated in the Consolidated Financial Statements.
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Net Income (Loss) Attributable to DTE Energy by Segment | |||||||||||||||||
Electric | $ | 864 | $ | 777 | $ | 714 | |||||||||||
Gas | 214 | 186 | 185 | ||||||||||||||
DTE Vantage | 168 | 134 | 133 | ||||||||||||||
Energy Trading | (83) | 36 | 49 | ||||||||||||||
Corporate and Other | (367) | (79) | (126) | ||||||||||||||
Income From Continuing Operations Attributable to DTE Energy Company | 796 | 1,054 | 955 | ||||||||||||||
Discontinued Operations | 111 | 314 | 214 | ||||||||||||||
Net Income Attributable to DTE Energy Company | $ | 907 | $ | 1,368 | $ | 1,169 |
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ELECTRIC
The Results of Operations discussion for DTE Electric is presented in a reduced disclosure format in accordance with General Instruction I (2) (a) of Form 10-K for wholly-owned subsidiaries.
The Electric segment consists principally of DTE Electric. Electric results and outlook are discussed below:
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Operating Revenues — Utility operations | $ | 5,809 | $ | 5,506 | $ | 5,224 | |||||||||||
Fuel and purchased power — utility | 1,531 | 1,386 | 1,387 | ||||||||||||||
Utility Margin | 4,278 | 4,120 | 3,837 | ||||||||||||||
Operating Revenues — Non-utility operations | 12 | 14 | 5 | ||||||||||||||
Operation and maintenance | 1,556 | 1,489 | 1,434 | ||||||||||||||
Depreciation and amortization | 1,122 | 1,057 | 949 | ||||||||||||||
Taxes other than income | 321 | 297 | 311 | ||||||||||||||
Asset (gains) losses and impairments, net | 1 | 41 | 13 | ||||||||||||||
Operating Income | 1,290 | 1,250 | 1,135 | ||||||||||||||
Other (Income) and Deductions | 322 | 365 | 284 | ||||||||||||||
Income Tax Expense | 104 | 108 | 137 | ||||||||||||||
Net Income Attributable to DTE Energy Company | $ | 864 | $ | 777 | $ | 714 |
See DTE Electric's Consolidated Statements of Operations in Item 8 of this Report for a complete view of its results. Differences between the Electric segment and DTE Electric's Consolidated Statements of Operations are primarily due to non-utility operations at DTE Sustainable Generation and the classification of certain benefit costs. Refer to Note 20 to the Consolidated Financial Statements, "Retirement Benefits and Trusteed Assets" for additional information.
Utility Margin increased $158 million in 2021 and $283 million in 2020. Revenues associated with certain mechanisms and surcharges are offset by related expenses elsewhere in the Registrants' Consolidated Statements of Operations.
The following table details changes in various Utility Margin components relative to the comparable prior period:
2021 | 2020 | ||||||||||
(In millions) | |||||||||||
Implementation of new rates | $ | 71 | $ | 215 | |||||||
Regulatory mechanism — EWR | 61 | 18 | |||||||||
Regulatory mechanism — RPS | 57 | 19 | |||||||||
Weather | 14 | 8 | |||||||||
Base sales / rate mix | 13 | 52 | |||||||||
Regulatory mechanism — TRM | 6 | (12) | |||||||||
Voluntary refunds(a) | (60) | (30) | |||||||||
Other regulatory mechanisms and other | (4) | 13 | |||||||||
Increase in Utility Margin | $ | 158 | $ | 283 |
(a)Variances reflect the $90 million voluntary refund recognized in 2021 for the incremental tree trim surge and the $30 million COVID-19 voluntary refund recognized in 2020. Refer to Note 9 to the Consolidated Financial Statements, "Regulatory Matters," for additional information regarding these refunds and the related regulatory liabilities.
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2021 | 2020 | 2019 | |||||||||||||||
(In thousands of MWh) | |||||||||||||||||
DTE Electric Sales | |||||||||||||||||
Residential | 16,386 | 16,315 | 15,066 | ||||||||||||||
Commercial | 16,393 | 15,648 | 16,955 | ||||||||||||||
Industrial | 8,487 | 8,446 | 9,826 | ||||||||||||||
Other | 216 | 220 | 226 | ||||||||||||||
41,482 | 40,629 | 42,073 | |||||||||||||||
Interconnection sales(a) | 4,263 | 1,808 | 3,046 | ||||||||||||||
Total DTE Electric Sales | 45,745 | 42,437 | 45,119 | ||||||||||||||
DTE Electric Deliveries | |||||||||||||||||
Retail and wholesale | 41,482 | 40,629 | 42,073 | ||||||||||||||
Electric retail access, including self-generators(b) | 4,357 | 3,746 | 4,550 | ||||||||||||||
Total DTE Electric Sales and Deliveries | 45,839 | 44,375 | 46,623 |
______________________________
(a)Represents power that is not distributed by DTE Electric.
(b)Represents deliveries for self-generators that have purchased power from alternative energy suppliers to supplement their power requirements.
DTE Electric sales volumes increased in 2021, primarily attributable to commercial customers which were impacted more significantly in 2020 by the COVID-19 pandemic and temporary shut-downs of certain commercial operations.
Operating Revenues — Non-utility operations decreased $2 million in 2021 and increased $9 million in 2020. The decrease in 2021 was primarily due to lower sales volumes at DTE Sustainable Generation. The increase in 2020 was due to renewable energy projects acquired in January 2020.
Operation and maintenance expense increased $67 million in 2021 and $55 million in 2020. The increase in 2021 was primarily due to higher EWR expense of $45 million, higher distribution operations expense of $42 million (primarily due to higher storm costs), higher corporate support costs of $21 million, higher legal and environmental expense of $15 million, and higher benefits expense of $13 million. These increases were partially offset by lower COVID-19 related expenses of $43 million, lower uncollectible expense of $26 million, and lower plant generation expense of $4 million.
The increase in 2020 was primarily due to COVID-19 related expenses of $50 million, higher benefits expense of $15 million, higher EWR expense of $11 million, higher RPS expenses of $9 million, and an $11 million adjustment in 2019 to defer expenses previously accrued for a new customer billing system. These increases were partially offset by lower plant generation expense of $25 million and lower distribution operations expense of $12 million.
Depreciation and amortization expense increased $65 million in 2021 and $108 million in 2020. In 2021, the increase was primarily due to a $64 million increase resulting from a higher depreciable base. In 2020, the increase was primarily due to a $108 million increase resulting from a higher depreciable base and change in depreciation rates effective May 2019 and a $10 million increase resulting from new non-utility assets at DTE Sustainable Generation, partially offset by a decrease of $11 million associated with the TRM.
Taxes other than income increased $24 million in 2021 and decreased $14 million in 2020. In 2021, the increase was primarily due to higher property taxes of $22 million as a result of an increase in tax base and a favorable property tax settlement in 2020. In 2020, the decrease was primarily due to lower property taxes of $9 million as a result of a property tax settlement, partially offset by an increase in tax base. The decrease in 2020 was also due to lower payroll taxes of $3 million, which was primarily attributable to employee retention credits recognized pursuant to the CARES Act.
Asset (gains) losses and impairments, net decreased $40 million in 2021 and increased $28 million in 2020. The decrease in 2021 was primarily due to lower activity in the current year compared to a $41 million write-off of capital expenditures related to incentive compensation in 2020. The increase in 2020 was primarily due to the $41 million write-off of capital expenditures, which were disallowed in the May 8, 2020 rate order from the MPSC, compared to losses of $13 million in 2019.
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Other (Income) and Deductions decreased $43 million in 2021 and increased $81 million in 2020. The decrease in 2021 was primarily due to lower contributions to the DTE Energy Foundation and other not-for-profit organizations of $28 million, a change in rabbi trust investment earnings (net gain of $7 million in 2021 compared to a net loss of $3 million in 2020), and lower non-operating retirement benefits expense of $4 million. The increase in 2020 was primarily due to a change in rabbi trust investment earnings (net loss of $3 million in 2020 compared to a gain of $37 million in 2019), $30 million of contributions to the DTE Energy Foundation and other not-for-profit organizations, and $22 million of higher interest expense. These increases were partially offset by a 2019 accrual of $6 million associated with an environmental-related settlement.
Income Tax Expense decreased $4 million in 2021 and $29 million in 2020. The decrease in both 2021 and 2020 was primarily due to higher amortization of the TCJA regulatory liability and higher production tax credits, partially offset by higher earnings.
Outlook — DTE Electric will continue to move forward in its efforts to achieve operational excellence, sustain strong cash flows, and earn its authorized return on equity. DTE Electric expects that planned significant capital investments will result in earnings growth. DTE Electric will maintain a strong focus on customers by increasing reliability and satisfaction while keeping customer rate increases affordable. Looking forward, additional factors may impact earnings such as weather, the outcome of regulatory proceedings, benefit plan design changes, investment returns and changes in discount rate assumptions in benefit plans and health care costs, uncertainty of legislative or regulatory actions regarding climate change, and effects of energy waste reduction programs.
On March 26, 2021, DTE Electric filed an application requesting a financing order approving the securitization financing of $184 million of qualified costs related to the net book value of the River Rouge generation plant and tree trimming surge program costs. The filing requested recovery of these qualifying costs from DTE Electric's customers. A final MPSC financing order was issued on June 23, 2021 authorizing DTE Electric to proceed with the issuance of securitization bonds for qualified costs of up to $236 million, increased for the inclusion of deferred taxes. The financing order further authorized customer charges for the timely recovery of the debt service costs on the securitization bonds and other ongoing qualified costs. Securitization financing is expected to occur in March 2022.
DTE Electric filed a rate case with the MPSC on January 21, 2022 requesting an increase in base rates of $388 million based on a projected twelve-month period ending October 31, 2023. The requested increase in base rates is primarily due to an increase in net plant resulting from generation and distribution investments, as well as related increases to depreciation and property tax expenses. The rate filing also requests an increase in return on equity from 9.9% to 10.25% and includes projected changes in sales. A final MPSC order in this case is expected in November 2022. Refer to Note 9 to the Consolidated Financial Statements, "Regulatory Matters", for additional information.
GAS
The Gas segment consists principally of DTE Gas. Gas results and outlook are discussed below:
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Operating Revenues — Utility operations | $ | 1,553 | $ | 1,414 | $ | 1,482 | |||||||||||
Cost of gas — utility | 422 | 356 | 427 | ||||||||||||||
Utility Margin | 1,131 | 1,058 | 1,055 | ||||||||||||||
Operation and maintenance | 521 | 496 | 515 | ||||||||||||||
Depreciation and amortization | 177 | 157 | 144 | ||||||||||||||
Taxes other than income | 93 | 84 | 80 | ||||||||||||||
Asset (gains) losses and impairments, net | 4 | 14 | — | ||||||||||||||
Operating Income | 336 | 307 | 316 | ||||||||||||||
Other (Income) and Deductions | 84 | 73 | 69 | ||||||||||||||
Income Tax Expense | 38 | 48 | 62 | ||||||||||||||
Net Income Attributable to DTE Energy Company | $ | 214 | $ | 186 | $ | 185 |
Utility Margin increased $73 million in 2021 and $3 million in 2020. Revenues associated with certain mechanisms and surcharges are offset by related expenses elsewhere in DTE Energy's Consolidated Statements of Operations.
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The following table details changes in various Utility Margin components relative to the comparable prior period:
2021 | 2020 | ||||||||||
(In millions) | |||||||||||
Implementation of new rates | $ | 75 | $ | 32 | |||||||
Home protection program | 6 | 4 | |||||||||
Regulatory mechanism — EWR | 3 | 9 | |||||||||
TCJA rate reduction liability | — | (9) | |||||||||
Weather | (7) | (46) | |||||||||
Infrastructure recovery mechanism | (15) | 17 | |||||||||
Other regulatory mechanisms and other | 11 | (4) | |||||||||
Increase in Utility Margin | $ | 73 | $ | 3 |
2021 | 2020 | 2019 | |||||||||||||||
(In Bcf) | |||||||||||||||||
Gas Markets | |||||||||||||||||
Gas sales | 128 | 126 | 139 | ||||||||||||||
End-user transportation | 165 | 180 | 185 | ||||||||||||||
293 | 306 | 324 | |||||||||||||||
Intermediate transportation | 488 | 477 | 497 | ||||||||||||||
Total Gas sales | 781 | 783 | 821 |
The change in sales in 2021 was primarily due to a decrease in End-user transportation volumes, including lower generation needs at certain industrial customers. The decrease in sales in 2020 was primarily due to more unfavorable weather compared to 2019. Intermediate transportation volumes fluctuate period to period based on available market opportunities.
Operation and maintenance expense increased $25 million in 2021 and decreased $19 million in 2020. The increase in 2021 was primarily due to higher gas operations expense of $41 million, partially offset by lower uncollectible expense of $15 million. The decrease in 2020 was primarily due to lower gas operations expense of $36 million, partially offset by higher EWR expense of $7 million, higher corporate overhead costs of $3 million, and a $6 million adjustment in 2019 to defer expenses previously accrued for a new customer billing system.
Depreciation and amortization expense increased $20 million in 2021 and $13 million in 2020. The increase in both periods was primarily due to a higher depreciable base and change in depreciation rates effective October 2020.
Taxes other than income increased $9 million in 2021 and $4 million in 2020. The 2021 increase was primarily due to higher property taxes of $6 million and employee retention credits of $3 million recognized in 2020 pursuant to the CARES Act. The 2020 increase was primarily due to higher property taxes of $8 million, partially offset by the employee retention credits of $3 million.
Asset (gains) losses and impairments, net decreased $10 million in 2021 and increased $14 million in 2020. The decrease in 2021 was due to lower activity in the current year, including $4 million of capital write-offs, compared to a $14 million write-off of capital expenditures related to incentive compensation in 2020. The increase in 2020 was primarily due to the $14 million write-off of capital expenditures, which were disallowed in the July 17, 2020 rate case settlement.
Other (Income) and Deductions increased $11 million in 2021 and $4 million in 2020. The increase in 2021 was primarily due to contributions to the DTE Energy Foundation and other not-for-profit organizations. The increase in 2020 was primarily due to lower investment earnings of $2 million and higher interest expense of $2 million.
Income Tax Expense decreased $10 million in 2021 and $14 million in 2020. The decrease in 2021 was primarily due to higher amortization of the TCJA regulatory liability, partially offset by higher earnings. The decrease in 2020 was primarily due to higher amortization of the TCJA regulatory liability and lower earnings.
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Outlook — DTE Gas will continue to move forward in its efforts to achieve operational excellence, sustain strong cash flows, and earn its authorized return on equity. DTE Gas expects that planned significant infrastructure capital investments will result in earnings growth. Looking forward, additional factors may impact earnings such as weather, the outcome of regulatory proceedings, benefit plan design changes, and investment returns and changes in discount rate assumptions in benefit plans and health care costs. DTE Gas expects to continue its efforts to improve productivity and decrease costs while improving customer satisfaction with consideration of customer rate affordability.
DTE VANTAGE
The DTE Vantage segment is comprised primarily of projects that deliver energy and utility-type products and services to industrial, commercial, and institutional customers, produce reduced emissions fuel, and sell electricity and pipeline-quality gas from renewable energy projects. DTE Vantage results and outlook are discussed below:
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Operating Revenues — Non-utility operations | $ | 1,482 | $ | 1,224 | $ | 1,560 | |||||||||||
Fuel, purchased power, and gas — non-utility | 1,086 | 901 | 1,220 | ||||||||||||||
Non-utility Margin | 396 | 323 | 340 | ||||||||||||||
Operation and maintenance | 301 | 294 | 328 | ||||||||||||||
Depreciation and amortization | 71 | 72 | 69 | ||||||||||||||
Taxes other than income | 11 | 10 | 11 | ||||||||||||||
Asset (gains) losses and impairments, net | 28 | (18) | 1 | ||||||||||||||
Operating Loss | (15) | (35) | (69) | ||||||||||||||
Other (Income) and Deductions | (142) | (120) | (126) | ||||||||||||||
Income Taxes | |||||||||||||||||
Expense | 37 | 26 | 20 | ||||||||||||||
Production Tax Credits | (68) | (66) | (83) | ||||||||||||||
(31) | (40) | (63) | |||||||||||||||
Net Income | 158 | 125 | 120 | ||||||||||||||
Less: Net Loss Attributable to Noncontrolling Interests | (10) | (9) | (13) | ||||||||||||||
Net Income Attributable to DTE Energy Company | $ | 168 | $ | 134 | $ | 133 |
Operating Revenues — Non-utility operations increased $258 million in 2021 and decreased $336 million in 2020. The changes are due to the following:
2021 | |||||
(In millions) | |||||
Higher production partially offset by the sale of membership interests in the REF business | $ | 175 | |||
Higher demand partially offset by lower prices in the Steel business | 104 | ||||
New projects in the Renewables business | 42 | ||||
Recognition of revenues from termination of a contract in the Steel business | 17 | ||||
Higher volumes partially offset by a terminated contract in the On-site business | 15 | ||||
Closed projects in the Renewables business | (7) | ||||
Site closures in the REF business | (88) | ||||
$ | 258 |
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2020 | |||||
(In millions) | |||||
Sale of membership interests and project terminations in the REF business | $ | (234) | |||
Lower demand in the Steel business | (142) | ||||
Expired contract in the Renewables business | (21) | ||||
New projects and higher production in the Renewables business | 30 | ||||
New projects in the On-site business | 31 | ||||
$ | (336) |
Non-utility Margin increased $73 million in 2021 and decreased $17 million in 2020. The changes are due to the following:
2021 | |||||
(In millions) | |||||
New projects in the Renewables business | $ | 42 | |||
Higher demand partially offset by lower prices in the Steel business | 18 | ||||
Recognition of revenues from termination of a contract in the Steel business | 17 | ||||
Closed projects in the Renewables business | (6) | ||||
Other | 2 | ||||
$ | 73 |
2020 | |||||
(In millions) | |||||
Lower demand in the Steel business | $ | (50) | |||
Expired contracts in the Renewables business | (18) | ||||
New projects in the On-site business | 22 | ||||
New projects and higher production in the Renewables business | 27 | ||||
Other | 2 | ||||
$ | (17) |
Operation and maintenance expense increased $7 million in 2021 and decreased $34 million in 2020. The 2021 increase was primarily due to higher production and new projects, partially offset by closed projects. The 2020 decrease was primarily due to $46 million of lower maintenance spending associated with lower production and terminated contracts, partially offset by $12 million of costs associated with new projects.
Asset (gains) losses and impairments, net changed by $46 million in 2021 from the net gain of $18 million in 2020, and changed by $19 million in 2020 from the net loss of $1 million in 2019. The change in 2021 was primarily due to an asset impairment of $27 million recorded in the Steel business for the closure of a pulverized coal facility and $17 million of activity in 2020. Refer to Note 4 to the Consolidated Financial Statements, "Dispositions and Impairments," for additional information regarding the $27 million asset impairment.
The change in 2020 was primarily due to to $11 million in the Steel business for an asset sale and write-off of environmental liabilities upon completing site remediation, $4 million for the sale of assets in the On-site business, and $2 million for the divestiture of a project in the Renewables business.
Other (Income) and Deductions increased $22 million in 2021 and decreased $6 million in 2020. The 2021 increase was primarily due to a $22 million settlement charge associated with a qualified pension plan in the Steel business recorded in 2020. The 2021 increase also included higher production in the REF business, offset by profit recognized from the sale of membership interests recorded in 2020.
The 2020 decrease was primarily due to the $22 million settlement charge in the Steel business and a change in insurance proceeds in the REF and Renewables businesses ($7 million received in 2019). This decrease was partially offset by $12 million of higher interest income associated with lease transactions in the On-site business and $11 million of profit recognized from the sale of membership interests in the REF business.
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Income Taxes — Production Tax Credits increased by $2 million in 2021 and decreased by $17 million in 2020. The increase in 2021 was primarily due to higher production partially offset by the sale of membership interests in the REF business. The decrease in 2020 was primarily due to the sale of membership interests in the REF business.
Net Loss Attributable to Noncontrolling Interests increased by $1 million in 2021 and decreased by $4 million in 2020. The 2020 decrease was primarily due to lower production in the REF business.
Outlook — DTE Vantage will continue to leverage its extensive energy-related operating experience and project management capability to develop additional energy and renewable natural gas projects to serve energy intensive industrial customers. Beginning in 2022, DTE Vantage expects decreases in Other Income and Production Tax Credits that will cause a corresponding reduction to Net Income as REF facilities will have ceased operations. Over the long-term, DTE Vantage expects that growth in renewable energy and industrial energy services projects will offset the decreases to Net Income caused by the REF phase-out. DTE Vantage is also exploring decarbonization opportunities relating to carbon capture and storage projects.
ENERGY TRADING
Energy Trading focuses on physical and financial power, natural gas and environmental marketing and trading, structured transactions, enhancement of returns from its asset portfolio, and optimization of contracted natural gas pipeline transportation and storage positions. Energy Trading also provides natural gas, power, environmental and related services, which may include the management of associated storage and transportation contracts on the customers' behalf and the supply or purchase of environmental attributes to various customers. Energy Trading results and outlook are discussed below:
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Operating Revenues — Non-utility operations | $ | 6,831 | $ | 3,863 | $ | 4,610 | |||||||||||
Purchased power and gas — non-utility | 6,825 | 3,725 | 4,455 | ||||||||||||||
Non-utility Margin | 6 | 138 | 155 | ||||||||||||||
Operation and maintenance | 81 | 77 | 75 | ||||||||||||||
Depreciation and amortization | 6 | 5 | 6 | ||||||||||||||
Taxes other than income | 5 | 4 | 4 | ||||||||||||||
Operating Income (Loss) | (86) | 52 | 70 | ||||||||||||||
Other (Income) and Deductions | 24 | 4 | 4 | ||||||||||||||
Income Tax Expense (Benefit) | (27) | 12 | 17 | ||||||||||||||
Net Income (Loss) Attributable to DTE Energy Company | $ | (83) | $ | 36 | $ | 49 |
Operating Revenues — Non-utility operations and Purchased power and gas — non-utility increased in 2021 primarily due to significantly higher gas prices in the gas structured and gas transportation strategies and decreased in 2020 primarily due to lower gas prices, primarily in the gas structured strategy.
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Non-utility Margin decreased by $132 million in 2021 and $17 million in 2020. The change in both periods was primarily due to timing from the unrealized and realized margins presented in the following tables:
2021 | |||||
(In millions) | |||||
Unrealized Margins(a) | |||||
Favorable results, primarily in gas and power trading strategies | $ | 36 | |||
Unfavorable results, primarily in gas structured, environmental trading, and gas storage strategies (b) | (215) | ||||
(179) | |||||
Realized Margins(a) | |||||
Favorable results, primarily in gas structured and gas transportation strategies(c) | 126 | ||||
Unfavorable results, primarily in power ERCOT trading and power full requirements strategies | (79) | ||||
47 | |||||
Decrease in Non-utility Margin | $ | (132) |
_______________________________________
(a)Natural gas structured transactions typically involve a physical purchase or sale of natural gas in the future and/or natural gas basis financial instruments which are derivatives and a related non-derivative pipeline transportation contract. These gas structured transactions can result in significant earnings volatility as the derivative components are marked-to-market without revaluing the related non-derivative contracts.
(b)Amount includes $200 million of timing related losses related to gas strategies which will reverse in future periods as the underlying contracts settle.
(c)Amount includes $20 million of timing related losses related to gas strategies recognized in previous periods that reversed as the underlying contracts settled.
2020 | |||||
(In millions) | |||||
Unrealized Margins(a) | |||||
Favorable results, primarily in gas structured and gas transportation strategies(b) | $ | 83 | |||
Unfavorable results, primarily in environmental and gas trading, and power full requirements strategies | (58) | ||||
25 | |||||
Realized Margins(a) | |||||
Favorable results, primarily in power full requirements, environmental trading, and gas transportation strategies | 21 | ||||
Unfavorable results, primarily in gas structured and gas full requirements strategies(c) | (63) | ||||
(42) | |||||
Decrease in Non-utility Margin | $ | (17) |
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(a)Natural gas structured transactions typically involve a physical purchase or sale of natural gas in the future and/or natural gas basis financial instruments which are derivatives and a related non-derivative pipeline transportation contract. These gas structured transactions can result in significant earnings volatility as the derivative components are marked-to-market without revaluing the related non-derivative contracts.
(b)Amount includes $15 million of timing related losses related to gas strategies which will reverse in future periods as the underlying contracts settle.
(c)Amount includes $10 million of timing related gains related to gas strategies recognized in previous periods that reversed as the underlying contracts settled.
Operation and maintenance expense increased $4 million in 2021 and $2 million in 2020. The increase in 2021 was primarily due to higher compensation costs.
Other (Income) and Deductions increased $20 million in 2021 primarily due to contributions to the DTE Energy Foundation and other not-for-profit organizations.
Outlook — In the near-term, Energy Trading expects market conditions to remain challenging. The profitability of this segment may be impacted by the volatility in commodity prices and the uncertainty of impacts associated with regulatory changes, and changes in operating rules of RTOs. Significant portions of the Energy Trading portfolio are economically hedged. Most financial instruments, physical power and natural gas contracts, and certain environmental contracts are deemed derivatives; whereas, natural gas and environmental inventory, contracts for pipeline transportation, storage assets, and some environmental contracts are not derivatives. As a result, Energy Trading will experience earnings volatility as derivatives are marked-to-market without revaluing the underlying non-derivative contracts and assets. Energy Trading's strategy is to economically manage the price risk of these underlying non-derivative contracts and assets with futures, forwards, swaps, and options. This results in gains and losses that are recognized in different interim and annual accounting periods.
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See also the "Fair Value" section herein and Notes 12 and 13 to the Consolidated Financial Statements, "Fair Value" and "Financial and Other Derivative Instruments," respectively.
CORPORATE AND OTHER
Corporate and Other includes various holding company activities, holds certain non-utility debt, and holds certain investments, including funds supporting regional development and economic growth. The 2021 net loss of $367 million represents an increase of $288 million from the 2020 net loss of $79 million. This increase was primarily due to higher losses on the extinguishment of debt in 2021 following the separation of DT Midstream, which reduced earnings by $294 million, higher net interest expense, and a valuation allowance established in 2021 for certain charitable contribution carryforwards. The higher loss was also due to the carryback of 2018 net operating losses to 2013 pursuant to the CARES Act, which resulted in a $34 million reduction to Income Tax Expense in 2020. The losses in 2021 were partially offset by the remeasurement of state deferred taxes following the separation of DT Midstream, which resulted in an $85 million reduction to Income Tax Expense in 2021.
For additional information regarding the loss on extinguishment of debt, refer to Note 14 to the Consolidated Financial Statements, "Long-term Debt". For additional information regarding the remeasurement of state deferred taxes and valuation allowances, refer to Note 10 to the Consolidated Financial Statements, "Income Taxes".
The 2020 net loss of $79 million represents a decrease of $47 million from the 2019 net loss of $126 million. This decrease was primarily due to the $34 million tax adjustment noted above resulting from the CARES Act. The decrease was also due to higher investment earnings in 2020 and the impairment of an equity method investment in 2019.
CAPITAL RESOURCES AND LIQUIDITY
Cash Requirements
DTE Energy uses cash to maintain and invest in the electric and natural gas utilities, to grow the non-utility businesses, to retire and pay interest on long-term debt, and to pay dividends. DTE Energy believes it will have sufficient internal and external capital resources to fund anticipated capital and operating requirements. DTE Energy expects that cash from operations in 2022 will be approximately $2.6 billion. DTE Energy anticipates base level utility capital investments, including environmental, renewable, and energy waste reduction expenditures, and expenditures for non-utility businesses of approximately $3.7 billion in 2022. DTE Energy plans to seek regulatory approval to include utility capital expenditures in regulatory rate base consistent with prior treatment. Capital spending for growth of existing or new non-utility businesses will depend on the existence of opportunities that meet strict risk-return and value creation criteria.
Refer below for analysis of cash flows relating to operating, investing, and financing activities, which reflect DTE Energy's change in financial condition. Any significant non-cash items are included in the Supplemental disclosure of non-cash investing and financing activities within the the Consolidated Statements of Cash Flows.
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | $ | 516 | $ | 93 | $ | 76 | |||||||||||
Net cash from operating activities | 3,067 | 3,697 | 2,649 | ||||||||||||||
Net cash used for investing activities | (3,863) | (4,070) | (5,732) | ||||||||||||||
Net cash from financing activities | 315 | 796 | 3,100 | ||||||||||||||
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | (481) | 423 | 17 | ||||||||||||||
Cash, Cash Equivalents, and Restricted Cash at End of Period | $ | 35 | $ | 516 | $ | 93 |
Cash from Operating Activities
A majority of DTE Energy's operating cash flows are provided by the electric and natural gas utilities, which are significantly influenced by factors such as weather, electric retail access, regulatory deferrals, regulatory outcomes, economic conditions, changes in working capital, and operating costs.
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Net cash from operations decreased $630 million in 2021. The reduction was primarily due to a decrease in Deferred income taxes, working capital items, and Net Income, adjusted for the Loss on extinguishment of debt to reconcile Net Income to Net cash from operating activities. The decrease was partially offset by an increase in Depreciation and amortization.
Net cash from operations increased $1.0 billion in 2020. The increase was primarily due to an increase in Net Income, Depreciation and amortization, and cash from tax refunds and working capital items.
The change in working capital items in 2021 was primarily due to a decrease related to Accrued pension liability, Accounts receivable, net, Inventories, Accrued postretirement liability, and Other current and noncurrent assets and liabilities, partially offset by an increase related to Regulatory assets and liabilities, Accounts payable, and Derivative assets and liabilities. The change in working capital items in 2020 was primarily due to an increase related to Accounts receivable, net, Accounts payable, and Other current and noncurrent assets and liabilities, partially offset by a decrease related to Prepaid postretirement benefit costs and Regulatory assets and liabilities.
Cash used for Investing Activities
Cash inflows associated with investing activities are primarily generated from the sale of assets, while cash outflows are the result of plant and equipment expenditures and acquisitions. In any given year, DTE Energy looks to realize cash from under-performing or non-strategic assets or matured, fully valued assets.
Capital spending within the utility businesses is primarily to maintain and improve electric generation and the electric and natural gas distribution infrastructure, and to comply with environmental regulations and renewable energy requirements.
Capital spending within the non-utility businesses is primarily for ongoing maintenance, expansion, and growth. DTE Energy looks to make growth investments that meet strict criteria in terms of strategy, management skills, risks, and returns. All new investments are analyzed for their rates of return and cash payback on a risk adjusted basis. DTE Energy has been disciplined in how it deploys capital and will not make investments unless they meet the criteria. For new business lines, DTE Energy initially invests based on research and analysis. DTE Energy starts with a limited investment, evaluates the results, and either expands or exits the business based on those results. In any given year, the amount of growth capital will be determined by the underlying cash flows of DTE Energy, with a clear understanding of any potential impact on its credit ratings.
Net cash used for investing activities decreased $207 million in 2021 due primarily to decreases in non-utility plant and equipment expenditures and Acquisitions related to business combinations, net of cash acquired, partially offset by an increase in utility plant and equipment expenditures.
Net cash used for investing activities decreased $1.7 billion in 2020 due primarily to a decrease in Acquisitions related to business combinations, net of cash acquired, primarily driven by DTE Energy's acquisition of midstream natural gas assets in 2019 for net cash of $2.3 billion. The decrease was also due to lower Contributions to equity method investees, partially offset by an increase in Plant and equipment expenditures.
Cash from Financing Activities
DTE Energy relies on both short-term borrowing and long-term financing as a source of funding for capital requirements not satisfied by its operations.
DTE Energy's strategy is to have a targeted debt portfolio blend of fixed and variable interest rates and maturity. DTE Energy targets balance sheet financial metrics to ensure it is consistent with the objective of a strong investment grade debt rating.
Net cash from financing activities decreased $481 million in 2021. The decrease was primarily due to an increase in Redemption of long-term debt, Prepayment costs for redemption of long-term debt, Repurchase of common stock, and Dividends paid on common stock, partially offset by increases in the Issuance of long-term debt, net of issuance costs and Short-term borrowings, net, as well as the Acquisition related deferred payment made in 2020.
Net cash used for financing activities decreased $2.3 billion in 2020. The decrease was primarily due to to the issuance of equity units and common stock associated with the acquisition of midstream natural gas assets in 2019, as well as an increase in cash used for Short-term borrowings, net and the Acquisition related deferred payment in 2020. These decreases were partially offset by higher cash from the Issuance of long-term debt, net of issuance costs and lower Purchases of noncontrolling interest, principally SGG.
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Outlook
Sources of Cash
DTE Energy expects cash flows from operations to increase over the long-term, primarily as a result of growth from the utility and non-utility businesses. Growth in the utilities is expected to be driven primarily by capital spending which will increase the base from which rates are determined. Non-utility growth is expected from additional investments in the DTE Vantage segment. DTE Vantage cash flows are expected to temporarily decrease beginning in 2022 as REF facilities will have ceased operations. Growth from new renewable energy investments and industrial energy services projects are expected to offset these decreases over the long-term.
DTE Energy's separation of DT Midstream will also reduce operating cash flows in the near term. However, DTE Energy still expects higher cash flows from operations over the long-term due to the growth of its utilities and other non-utility operations.
DTE Energy's utilities may be impacted by the timing of collection or refund of various recovery and tracking mechanisms as a result of timing of MPSC orders. Energy prices are likely to be a source of volatility with regard to working capital requirements for the foreseeable future. DTE Energy continues its efforts to identify opportunities to improve cash flows through working capital initiatives and maintaining flexibility in the timing and extent of long-term capital projects.
To finance the acquisition of midstream natural gas assets in December 2019, DTE Energy issued equity units that will result in the issuance of $1.3 billion of common stock in November 2022. Refer to Note 14 to the Consolidated Financial Statements, "Long-Term Debt," for additional information regarding the equity units. DTE Energy does not anticipate the issuance of any additional equity in 2022. However, at the discretion of management and depending upon economic and financial market conditions, DTE Energy could issue additional equity as part of its financial planning process. If issued, DTE Energy anticipates these discretionary equity issuances to be made through contributions to the dividend reinvestment plan or employee benefit plans.
Over the long-term, DTE Energy does not have any equity commitments other than the 2019 equity units noted above and will continue to evaluate equity needs on an annual basis.
Uses of Cash
DTE Energy has $2.9 billion in long-term debt, including finance leases, maturing in the next twelve months. Repayment of the debt is expected to be made through internally generated funds, the issuance or remarketing of new long-term debt, or equity issuances associated with the 2019 equity units.
Over-the long term, DTE Energy's debt and interest obligations have decreased as a result of the separation of DT Midstream and DTE Energy's ability to optionally redeem $2.6 billion of long-term debt during 2021. Refer to Note 4 to the Consolidated Financial Statements, "Dispositions and Impairments", for additional information regarding the separation of DT Midstream, and refer to Note 15 to the Consolidated Financial Statements, "Long-term Debt", for additional information regarding the optional redemptions as well as DTE Energy's scheduled debt maturities and interest obligations.
DTE Energy has paid quarterly cash dividends for more than 100 consecutive years and expects to continue paying regular cash dividends in the future, including approximately $0.7 billion in 2022. Any payment of future dividends is subject to approval by the Board of Directors and may depend on DTE Energy's future earnings, capital requirements, and financial condition. Over the long-term, DTE Energy expects continued dividend growth and is targeting a payout ratio consistent with pure-play utility companies. Dividends are subject to certain restrictions as discussed in Note 16 to the Consolidated Financial Statements, "Short-Term Credit Arrangements and Borrowings." However, these restrictions are not expected to impact DTE Energy's planned dividend payments.
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Various subsidiaries and equity investees of DTE Energy have entered into contracts which contain ratings triggers and are guaranteed by DTE Energy. These contracts contain provisions which allow the counterparties to require that DTE Energy post cash or letters of credit as collateral in the event that DTE Energy's credit rating is downgraded below investment grade. Certain of these provisions (known as "hard triggers") state specific circumstances under which DTE Energy can be required to post collateral upon the occurrence of a credit downgrade, while other provisions (known as "soft triggers") are not as specific. For contracts with soft triggers, it is difficult to estimate the amount of collateral which may be requested by counterparties and/or which DTE Energy may ultimately be required to post. The amount of such collateral which could be requested fluctuates based on commodity prices (primarily natural gas, power, environmental, and coal) and the provisions and maturities of the underlying transactions. As of December 31, 2021, DTE Energy's contractual obligation to post collateral in the form of cash or letters of credit in the event of a downgrade to below investment grade, under both hard trigger and soft trigger provisions, was $667 million.
For cash obligations related to leases and future purchase commitments, refer to Note 17 and Note 18 to the Consolidated Financial Statements, "Leases" and "Commitments and Contingencies," respectively. Purchase commitments include capital expenditures that are contractually obligated. Also refer to the "Capital Investments" section above for additional information on DTE Energy's capital strategy and estimated spend over the next five years.
Other obligations are further detailed in Notes 9, 10, 14, 16, 18, and 20 to the Consolidated Financial Statements, "Regulatory Matters," "Income Taxes," "Long-Term Debt," "Short-Term Credit Arrangements and Borrowings," "Commitments and Contingencies," and "Retirement Benefits and Trusteed Assets," respectively.
Liquidity
DTE Energy has approximately $2.1 billion of available liquidity at December 31, 2021, consisting primarily of cash and cash equivalents and amounts available under unsecured revolving credit agreements.
DTE Energy believes it will have sufficient operating flexibility, cash resources and funding sources to maintain adequate liquidity and to meet future operating cash and capital expenditure needs. However, virtually all DTE Energy's businesses are capital intensive, or require access to capital, and the inability to access adequate capital could adversely impact earnings and cash flows.
Credit Ratings
Credit ratings are intended to provide banks and capital market participants with a framework for comparing the credit quality of securities and are not a recommendation to buy, sell, or hold securities. DTE Energy, DTE Electric, and DTE Gas' credit ratings affect their costs of capital and other terms of financing, as well as their ability to access the credit and commercial paper markets. DTE Energy, DTE Electric, and DTE Gas' management believes that the current credit ratings provide sufficient access to capital markets. However, disruptions in the banking and capital markets not specifically related to DTE Energy, DTE Electric, and DTE Gas may affect their ability to access these funding sources or cause an increase in the return required by investors.
As part of the normal course of business, DTE Electric, DTE Gas, and various non-utility subsidiaries of DTE Energy routinely enter into physical or financially settled contracts for the purchase and sale of electricity, natural gas, coal, capacity, storage, and other energy-related products and services. Certain of these contracts contain provisions which allow the counterparties to request that DTE Energy posts cash or letters of credit in the event that the senior unsecured debt rating of DTE Energy is downgraded below investment grade. The amount of such collateral which could be requested fluctuates based upon commodity prices and the provisions and maturities of the underlying transactions and could be substantial. Also, upon a downgrade below investment grade, DTE Energy, DTE Electric, and DTE Gas could have restricted access to the commercial paper market, and if DTE Energy is downgraded below investment grade, the non-utility businesses, especially the Energy Trading and DTE Vantage segments, could be required to restrict operations due to a lack of available liquidity. A downgrade below investment grade could potentially increase the borrowing costs of DTE Energy, DTE Electric, and DTE Gas and their subsidiaries and may limit access to the capital markets. The impact of a downgrade will not affect DTE Energy, DTE Electric, and DTE Gas' ability to comply with existing debt covenants. While DTE Energy, DTE Electric, and DTE Gas currently do not anticipate such a downgrade, they cannot predict the outcome of current or future credit rating agency reviews.
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The separation of DT Midstream has resulted in a shift in DTE Energy's strategy to a predominately pure-play utility, but to date has not had any impact on DTE Energy's credit ratings. Since the announcement of the planned separation in October 2020 and completed separation in July 2021, Standard and Poor's Global Ratings, Fitch Ratings, and Moody's Investor Service have all affirmed the ratings and stable outlook of DTE Energy, DTE Electric, and DTE Gas.
CRITICAL ACCOUNTING ESTIMATES
The preparation of the Registrants' Consolidated Financial Statements in conformity with generally accepted accounting principles requires that management apply accounting policies and make estimates and assumptions that affect the results of operations and the amounts of assets and liabilities reported in the Consolidated Financial Statements. The Registrants' management believes that the areas described below require significant judgment in the application of accounting policy or in making estimates and assumptions in matters that are inherently uncertain and that may change in subsequent periods. Additional discussion of these accounting policies can be found in the Combined Notes to Consolidated Financial Statements in Item 8 of this Report.
Regulation
A significant portion of the Registrants' businesses are subject to regulation. This results in differences in the application of generally accepted accounting principles between regulated and non-regulated businesses. DTE Electric and DTE Gas are required to record regulatory assets and liabilities for certain transactions that would have been treated as revenue or expense in non-regulated businesses. Future regulatory changes or changes in the competitive environment could result in the discontinuance of this accounting treatment for regulatory assets and liabilities for some or all of the Registrants' businesses. The Registrants' management believes that currently available facts support the continued use of regulatory assets and liabilities and that all regulatory assets and liabilities are recoverable or refundable in the current rate environment.
See Note 9 to the Consolidated Financial Statements, "Regulatory Matters."
Derivatives
Derivatives are generally recorded at fair value and shown as Derivative assets or liabilities. Changes in the fair value of the derivative instruments are recognized in earnings in the period of change. The normal purchases and normal sales exception requires, among other things, physical delivery in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that are designated as normal purchases and normal sales are not recorded at fair value. Substantially all of the commodity contracts entered into by DTE Electric and DTE Gas meet the criteria specified for this exception.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Registrants make certain assumptions they believe that market participants would use in pricing assets or liabilities, including assumptions about risk, and the risks inherent in the inputs to valuation techniques. Credit risk of the Registrants and their counterparties is incorporated in the valuation of assets and liabilities through the use of credit reserves, the impact of which was immaterial at December 31, 2021 and 2020. The Registrants believe they use valuation techniques that maximize the use of observable market-based inputs and minimize the use of unobservable inputs.
The fair values the Registrants calculate for their derivatives may change significantly as inputs and assumptions are updated for new information. Actual cash returns realized on derivatives may be different from the results the Registrants estimate using models. As fair value calculations are estimates based largely on commodity prices, the Registrants perform sensitivity analyses on the fair values of forward contracts. See the sensitivity analysis in Item 7A. of this report, "Quantitative and Qualitative Disclosures About Market Risk." See also the "Fair Value" section herein.
See Notes 12 and 13 to the Consolidated Financial Statements, "Fair Value" and "Financial and Other Derivative Instruments," respectively.
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Goodwill
Certain of DTE Energy's reporting units have goodwill or allocated goodwill resulting from business combinations. DTE Energy performs an impairment test for each of the reporting units with goodwill annually or whenever events or circumstances indicate that the value of goodwill may be impaired.
In performing the impairment test, DTE Energy compares the fair value of the reporting unit to its carrying value including goodwill. If the carrying value including goodwill were to exceed the fair value of a reporting unit, an impairment loss would be recognized. A goodwill impairment loss is measured as the amount by which a reporting unit's carrying value exceeds fair value, not to exceed the carrying amount of goodwill.
DTE Energy estimates the reporting unit's fair value using standard valuation techniques, including techniques which use estimates of projected future results and cash flows to be generated by the reporting unit. For certain reporting units, the fair values were calculated using a weighted combination of the income approach, which estimates fair value based on discounted cash flows, and the market approach, which estimates fair value based on market comparables within the utility and energy industries. The income approach includes a terminal value that utilizes an assumed long-term growth rate approach, which incorporates management's assumptions regarding sustainable long-term growth of the reporting units. The income approach cash flow valuations involve a number of estimates that require broad assumptions and significant judgment by management regarding future performance.
One of the most significant assumptions utilized in determining the fair value of reporting units under the market approach is implied market multiples for certain peer companies. Management selects comparable peers based on each peer’s primary business mix, operations, and market capitalization compared to the applicable reporting unit and calculates implied market multiples based on available projected earnings guidance and peer company market values as of the test date.
DTE Energy performs an annual impairment test each October. In between annual tests, DTE Energy monitors its estimates and assumptions regarding estimated future cash flows, including the impact of movements in market indicators in future quarters, and will update the impairment analyses if a triggering event occurs. While DTE Energy believes the assumptions are reasonable, actual results may differ from projections. To the extent projected results or cash flows are revised downward, the reporting unit may be required to write down all or a portion of its goodwill, which would adversely impact DTE Energy's earnings.
DTE Energy performed its annual impairment test as of October 1, 2021 and determined that the estimated fair value of each reporting unit exceeded its carrying value, and no impairment existed.
The results of the test and key estimates that were incorporated are as follows as of the October 1, 2021 valuation date:
Reporting Unit | Goodwill | Fair Value Reduction %(a) | Discount Rate | Valuation Methodology(b)(c) | ||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||
Electric | $ | 1,208 | 51 | % | 5.2 | % | DCF and market multiples analysis | |||||||||||||||||||
Gas | 743 | 47 | % | 5.3 | % | DCF and market multiples analysis | ||||||||||||||||||||
DTE Vantage | 25 | 50 | % | 7.7 | % | DCF | ||||||||||||||||||||
Energy Trading | 17 | 95 | % | 9.3 | % | DCF | ||||||||||||||||||||
$ | 1,993 |
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(a)Percentage by which the fair value of equity of the reporting unit would need to decline to equal its carrying value, including goodwill.
(b)Discounted cash flows (DCF) incorporated 2022-2026 projected cash flows plus a calculated terminal value. For each of the reporting units, DTE Energy capitalized the terminal year cash flows at the weighted average costs of capital (WACC) less an assumed long-term growth rate of 2.0%. Management applied equal weighting to the DCF and market multiples analysis, where applicable, to determine the fair value of the respective reporting units.
(c)Due to lack of market comparable information for the DTE Vantage and Energy Trading reporting units, DTE Energy did not perform a market multiples analysis.
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Long-Lived Assets
The Registrants evaluate the carrying value of long-lived assets, excluding goodwill, when circumstances indicate that the carrying value of those assets may not be recoverable. Conditions that could have an adverse impact on the cash flows and fair value of the long-lived assets are deteriorating business climate, condition of the asset, or plans to dispose of the asset before the end of its useful life. The review of long-lived assets for impairment requires significant assumptions about operating strategies and estimates of future cash flows, which require assessments of current and projected market conditions. An impairment evaluation is based on an undiscounted cash flow analysis at the lowest level for which independent cash flows of long-lived assets can be identified from other groups of assets and liabilities. Impairment may occur when the carrying value of the asset exceeds the future undiscounted cash flows. When the undiscounted cash flow analysis indicates a long-lived asset is not recoverable, the amount of the impairment loss is determined by measuring the excess of the long-lived asset over its fair value. An impairment would require the Registrants to reduce both the long-lived asset and current period earnings by the amount of the impairment, which would adversely impact their earnings.
Pension and Other Postretirement Costs
DTE Energy sponsors both funded and unfunded defined benefit pension plans and other postretirement benefit plans for eligible employees of the Registrants. The measurement of the plan obligations and cost of providing benefits under these plans involve various factors, including numerous assumptions and accounting elections. When determining the various assumptions that are required, DTE Energy considers historical information as well as future expectations. The benefit costs are affected by, among other things, the actual rate of return on plan assets, the long-term expected return on plan assets, the discount rate applied to benefit obligations, the incidence of mortality, the expected remaining service period of plan participants, level of compensation and rate of compensation increases, employee age, length of service, the anticipated rate of increase of health care costs, benefit plan design changes, and the level of benefits provided to employees and retirees. Pension and other postretirement benefit costs attributed to the segments are included with labor costs and ultimately allocated to projects within the segments, some of which are capitalized.
DTE Energy had pension costs of $139 million in 2021, $148 million in 2020, and $112 million in 2019. Other postretirement benefit credits were $59 million in 2021, $49 million in 2020, and $1 million in 2019. Pension costs and other postretirement benefit credits for 2021 were calculated based upon several actuarial assumptions, including an expected long-term rate of return on plan assets of 7.00% for the pension plans and 6.70% for the other postretirement benefit plans. In developing the expected long-term rate of return assumptions, DTE Energy evaluated asset class risk and return expectations, as well as inflation assumptions. Projected returns are based on broad equity, bond, and other markets. DTE Energy's 2022 expected long-term rate of return on pension plan assets is based on an asset allocation assumption utilizing active and passive investment management of 29% in equity markets, 48% in fixed income markets, including long duration bonds, and 23% invested in other assets. DTE Energy's 2022 expected long-term rate of return on other postretirement plan assets is based on an asset allocation assumption utilizing active and passive investment management of 22% in equity markets, 54% in fixed income markets, and 24% invested in other assets. Because of market volatility, DTE Energy periodically reviews the asset allocation and rebalances the portfolio when considered appropriate. DTE Energy is lowering its long-term rate of return assumption for the pension plans to 6.80% and lowering the other postretirement plans to 6.40% for 2022. DTE Energy believes these rates are reasonable assumptions for the long-term rates of return on the plans' assets for 2022 given their respective asset allocations and DTE Energy's capital market expectations. DTE Energy will continue to evaluate the actuarial assumptions, including its expected rate of return, at least annually.
DTE Energy calculates the expected return on pension and other postretirement benefit plan assets by multiplying the expected return on plan assets by the market-related value (MRV) of plan assets at the beginning of the year, taking into consideration anticipated contributions and benefit payments that are to be made during the year. Current accounting rules provide that the MRV of plan assets can be either fair value or a calculated value that recognizes changes in fair value in a systematic and rational manner over not more than five years. For the pension plans, DTE Energy uses a calculated value when determining the MRV of the pension plan assets and recognizes changes in fair value over a three-year period. Accordingly, the future value of assets will be impacted as previously deferred gains or losses are recognized. Favorable asset performance in 2021 resulted in unrecognized net gains. As of December 31, 2021, DTE Energy had $241 million of cumulative gains related to investment performance in prior years that were not yet recognized in the calculation of the MRV of pension assets. For other postretirement benefit plans, DTE Energy uses fair value when determining the MRV of plan assets; therefore, all investment gains and losses have been recognized in the calculation of MRV for these plans.
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The discount rate that DTE Energy utilizes for determining future pension and other postretirement benefit obligations is based on a yield curve approach and a review of bonds that receive one of the two highest ratings given by a recognized rating agency. The yield curve approach matches projected pension plan and other postretirement benefit payment streams with bond portfolios reflecting actual liability duration unique to the plans. The discount rate determined on this basis was 2.91% for both the pension and other postretirement plans at December 31, 2021 compared to 2.57% and 2.58%, respectively, for the pension and other postretirement plans at December 31, 2020.
DTE Energy changed the mortality assumptions as of December 31, 2021 to reflect the updated projection scale published by the Society of Actuaries. The mortality assumptions used at December 31, 2021 are the PRI-2012 mortality table projected to 2018 using Scale MP-2019, and projected forward from 2018 using Scale MP-2021 with generational projection. The base mortality tables vary by type of plan, employee's union status and employment status, with additional adjustments to reflect the actual experience and credibility of each population.
DTE Energy estimates that total pension costs will be approximately $30 million in 2022, compared to $139 million in 2021. The expected decrease is primarily due to a higher discount rate and continued recognition of asset returns greater than expected. The 2022 other postretirement benefit credit is estimated at approximately $65 million compared to $59 million in 2021. The expected increase in the credit is primarily due to a higher discount rate.
The health care trend rates for DTE Energy assume 6.75% for pre-65 participants and 7.25% for post-65 participants for 2022, trending down to 4.50% for both pre-65 and post-65 participants in 2034.
Future actual pension and other postretirement benefit costs or credits will depend on future investment performance, changes in future discount rates, and various other factors related to plan design.
Lowering the expected long-term rate of return on the plan assets by one percentage point would have increased the 2021 pension costs by approximately $48 million. Lowering the discount rate and the salary increase assumptions by one percentage point would have increased the 2021 pension costs by approximately $22 million. Lowering the expected long-term rate of return on plan assets by one percentage point would have decreased the 2021 other postretirement credit by approximately $20 million. Lowering the discount rate and the salary increase assumptions by one percentage point would have decreased the 2021 other postretirement credit by approximately $17 million.
The value of the qualified pension and other postretirement benefit plan assets was $7.5 billion at December 31, 2021 and December 31, 2020. At December 31, 2021, DTE Energy's qualified pension plans were underfunded by $201 million and its other postretirement benefit plans were overfunded by $319 million. In 2021, the funded status of the pension plans and other postretirement benefit plans improved due to favorable asset returns and an increase in discount rates.
Pension and other postretirement costs and pension cash funding requirements may increase in future years without typical returns in the financial markets. DTE Energy did not make contributions to its qualified pension plans in 2021 and made contributions of $92 million in 2020. At the discretion of management, consistent with the Pension Protection Act of 2006, and depending upon financial market conditions, DTE Energy anticipates making contributions to its qualified pension plans of up to $7 million in 2022 and up to $23 million over the next five years. In addition, DTE Energy anticipates transferring $50 million of qualified pension plan funds from DTE Gas to DTE Electric in 2022. DTE Energy did not make other postretirement benefit plan contributions in 2021 or 2020. DTE Energy does not anticipate making any contributions to its other postretirement plans in 2022 or over the next five years. The planned pension contributions will be made in cash and/or DTE Energy common stock.
See Note 20 to the Consolidated Financial Statements, "Retirement Benefits and Trusteed Assets."
Legal Reserves
The Registrants are involved in various legal proceedings, claims, and litigation arising in the ordinary course of business. The Registrants regularly assess their liabilities and contingencies in connection with asserted or potential matters and establish reserves when appropriate. Legal reserves are based upon the Registrants' management’s assessment of pending and threatened legal proceedings and claims against the Registrants.
46
Accounting for Tax Obligations
The Registrants are required to make judgments regarding the potential tax effects of various financial transactions and results of operations in order to estimate their obligations to taxing authorities. The Registrants account for uncertain income tax positions using a benefit recognition model with a two-step approach, a more-likely-than-not recognition criterion, and a measurement attribute that measures the position as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement. If the benefit does not meet the more likely than not criteria for being sustained on its technical merits, no benefit will be recorded. Uncertain tax positions that relate only to timing of when an item is included on a tax return are considered to have met the recognition threshold. The Registrants also have non-income tax obligations related to property, sales and use, and employment-related taxes, and ongoing appeals related to these tax matters.
Accounting for tax obligations requires judgments, including assessing whether tax benefits are more likely than not to be sustained, and estimating reserves for potential adverse outcomes regarding tax positions that have been taken. The Registrants also assess their ability to utilize tax attributes, including those in the form of carry-forwards, for which the benefits have already been reflected in the Consolidated Financial Statements. The Registrants believe the resulting tax reserve balances as of December 31, 2021 and 2020 are appropriate. The ultimate outcome of such matters could result in favorable or unfavorable adjustments to the Registrants' Consolidated Financial Statements, and such adjustments could be material.
See Note 10 to the Consolidated Financial Statements, "Income Taxes."
NEW ACCOUNTING PRONOUNCEMENTS
See Note 3 to the Consolidated Financial Statements, "New Accounting Pronouncements."
FAIR VALUE
Derivatives are generally recorded at fair value and shown as Derivative assets or liabilities. Contracts DTE Energy typically classifies as derivative instruments include power, natural gas, some environmental contracts, and certain forwards, futures, options and swaps, and foreign currency exchange contracts. Items DTE Energy does not generally account for as derivatives include natural gas and environmental inventory, pipeline transportation contracts, storage assets, and some environmental contracts. See Notes 12 and 13 to the Consolidated Financial Statements, "Fair Value" and "Financial and Other Derivative Instruments," respectively.
The tables below do not include the expected earnings impact of non-derivative natural gas storage, transportation, certain power contracts, and some environmental contracts which are subject to accrual accounting. Consequently, gains and losses from these positions may not match with the related physical and financial hedging instruments in some reporting periods, resulting in volatility in the Registrants' reported period-by-period earnings; however, the financial impact of the timing differences will reverse at the time of physical delivery and/or settlement.
The Registrants manage their MTM risk on a portfolio basis based upon the delivery period of their contracts and the individual components of the risks within each contract. Accordingly, the Registrants record and manage the energy purchase and sale obligations under their contracts in separate components based on the commodity (e.g. electricity or natural gas), the product (e.g. electricity for delivery during peak or off-peak hours), the delivery location (e.g. by region), the risk profile (e.g. forward or option), and the delivery period (e.g. by month and year).
The Registrants have established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value in three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). For further discussion of the fair value hierarchy, see Note 12 to the Consolidated Financial Statements, "Fair Value."
47
The following table provides details on changes in DTE Energy's MTM net asset (or liability) position:
Total | |||||
(In millions) | |||||
MTM at December 31, 2020 | $ | 28 | |||
Reclassified to realized upon settlement | 14 | ||||
Changes in fair value recorded to income | (184) | ||||
Amounts recorded to unrealized income | (170) | ||||
Changes in fair value recorded in Regulatory liabilities | 19 | ||||
Change in collateral | (36) | ||||
MTM at December 31, 2021 | $ | (159) |
The table below shows the maturity of DTE Energy's MTM positions. The positions from 2025 and beyond principally represent longer tenor gas structured transactions:
Source of Fair Value | 2022 | 2023 | 2024 | 2025 and Beyond | Total Fair Value | |||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||
Level 1 | $ | 54 | $ | 30 | $ | 9 | $ | 3 | $ | 96 | ||||||||||||||||||||||
Level 2 | 37 | (10) | (19) | (6) | 2 | |||||||||||||||||||||||||||
Level 3 | (93) | (38) | (15) | (69) | (215) | |||||||||||||||||||||||||||
MTM before collateral adjustments | $ | (2) | $ | (18) | $ | (25) | $ | (72) | (117) | |||||||||||||||||||||||
Collateral adjustments | (42) | |||||||||||||||||||||||||||||||
MTM at December 31, 2021 | $ | (159) |
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Price Risk
The Electric and Gas businesses have commodity price risk, primarily related to the purchases of coal, natural gas, uranium, and electricity. However, the Registrants do not bear significant exposure to earnings risk, as such changes are included in the PSCR and GCR regulatory rate-recovery mechanisms. In addition, changes in the price of natural gas can impact the valuation of lost and stolen gas, storage sales, and transportation services revenue at the Gas segment. The Gas segment manages its market price risk related to storage sales revenue primarily through the sale of long-term storage contracts. The Registrants are exposed to short-term cash flow or liquidity risk as a result of the time differential between actual cash settlements and regulatory rate recovery.
The DTE Vantage segment is subject to price risk for electricity, natural gas, coal products, and environmental attributes generated from its renewable natural gas investments. DTE Energy manages its exposure to commodity price risk through the use of long-term contracts and hedging instruments, when available.
DTE Energy's Energy Trading business segment has exposure to electricity, natural gas, environmental, crude oil, heating oil, and foreign currency exchange price fluctuations. These risks are managed by the energy marketing and trading operations through the use of forward energy, capacity, storage, options, and futures contracts, within predetermined risk parameters.
Credit Risk
Allowance for Doubtful Accounts
The Registrants regularly review contingent matters, existing and future economic conditions, customer trends and other factors relating to customers and their contracts and record provisions for amounts considered at risk of probable loss in the allowance for doubtful accounts. The Registrants believe their accrued amounts are adequate for probable loss.
48
Trading Activities
DTE Energy is exposed to credit risk through trading activities. Credit risk is the potential loss that may result if the trading counterparties fail to meet their contractual obligations. DTE Energy utilizes both external and internal credit assessments when determining the credit quality of trading counterparties.
The following table displays the credit quality of DTE Energy's trading counterparties as of December 31, 2021:
Credit Exposure Before Cash Collateral | Cash Collateral | Net Credit Exposure | |||||||||||||||
(In millions) | |||||||||||||||||
Investment Grade(a) | |||||||||||||||||
A- and Greater | $ | 325 | $ | — | $ | 325 | |||||||||||
BBB+ and BBB | 238 | — | 238 | ||||||||||||||
BBB- | 50 | (12) | 38 | ||||||||||||||
Total Investment Grade | 613 | (12) | 601 | ||||||||||||||
Non-investment grade(b) | 4 | — | 4 | ||||||||||||||
Internally Rated — investment grade(c) | 979 | (32) | 947 | ||||||||||||||
Internally Rated — non-investment grade(d) | 61 | (8) | 53 | ||||||||||||||
Total | $ | 1,657 | $ | (52) | $ | 1,605 |
_______________________________________
(a)This category includes counterparties with minimum credit ratings of Baa3 assigned by Moody’s Investors Service (Moody’s) or BBB- assigned by Standard & Poor’s Rating Group, a division of McGraw-Hill Companies, Inc. (Standard & Poor’s). The five largest counterparty exposures, combined, for this category represented 10% of the total gross credit exposure.
(b)This category includes counterparties with credit ratings that are below investment grade. The five largest counterparty exposures, combined, for this category represented less than 1% of the total gross credit exposure.
(c)This category includes counterparties that have not been rated by Moody’s or Standard & Poor’s but are considered investment grade based on DTE Energy’s evaluation of the counterparty’s creditworthiness. The five largest counterparty exposures, combined, for this category represented 18% of the total gross credit exposure.
(d)This category includes counterparties that have not been rated by Moody’s or Standard & Poor’s and are considered non-investment grade based on DTE Energy’s evaluation of the counterparty’s creditworthiness. The five largest counterparty exposures, combined, for this category represented 2% of the total gross credit exposure.
Other
The Registrants engage in business with customers that are non-investment grade. The Registrants closely monitor the credit ratings of these customers and, when deemed necessary and permitted under the tariffs, request collateral or guarantees from such customers to secure their obligations.
Interest Rate Risk
DTE Energy is subject to interest rate risk in connection with the issuance of debt. In order to manage interest costs, DTE Energy may use treasury locks and interest rate swap agreements. DTE Energy's exposure to interest rate risk arises primarily from changes in U.S. Treasury rates, commercial paper rates, and other applicable short-term reference rates. As of December 31, 2021, DTE Energy had floating rate debt of $758 million and a floating rate debt-to-total debt ratio of 4.2%.
Foreign Currency Exchange Risk
DTE Energy has foreign currency exchange risk arising from market price fluctuations associated with fixed priced contracts. These contracts are denominated in Canadian dollars and are primarily for the purchase and sale of natural gas and power, as well as for long-term transportation capacity. To limit DTE Energy's exposure to foreign currency exchange fluctuations, DTE Energy has entered into a series of foreign currency exchange forward contracts through June 2030.
Summary of Sensitivity Analyses
Sensitivity analyses were performed on the fair values of commodity contracts for DTE Energy and long-term debt obligations for the Registrants. The commodity contracts listed below principally relate to energy marketing and trading activities. The sensitivity analyses involved increasing and decreasing forward prices and rates at December 31, 2021 and 2020 by a hypothetical 10% and calculating the resulting change in the fair values. The hypothetical losses related to long-term debt would be realized only if DTE Energy transferred all of its fixed-rate long-term debt to other creditors.
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The results of the sensitivity analyses:
Assuming a 10% Increase in Prices/Rates | Assuming a 10% Decrease in Prices/Rates | |||||||||||||||||||||||||||||||
As of December 31, | As of December 31, | |||||||||||||||||||||||||||||||
Activity | 2021 | 2020 | 2021 | 2020 | Change in the Fair Value of | |||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||
Gas contracts | $ | 33 | $ | 23 | $ | (33) | $ | (23) | Commodity contracts | |||||||||||||||||||||||
Power contracts | $ | 9 | $ | 5 | $ | (10) | $ | (5) | Commodity contracts | |||||||||||||||||||||||
Environmental contracts | $ | (8) | $ | (7) | $ | 8 | $ | 5 | Commodity contracts | |||||||||||||||||||||||
Interest rate risk — DTE Energy | $ | (662) | $ | (651) | $ | 687 | $ | 671 | Long-term debt | |||||||||||||||||||||||
Interest rate risk — DTE Electric | $ | (329) | $ | (285) | $ | 348 | $ | 300 | Long-term debt | |||||||||||||||||||||||
For further discussion of market risk, see Management's Discussion and Analysis in Item 7 of this Report and Note 13 to the Consolidated Financial Statements, "Financial and Other Derivative Instruments."
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Item 8. Financial Statements and Supplementary Data
The following Consolidated Financial Statements and financial statement schedules are included herein:
Page | |||||
Financial Statement Schedule | |||||
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DTE Energy — Controls and Procedures
(a) Evaluation of disclosure controls and procedures
Management of DTE Energy carried out an evaluation, under the supervision and with the participation of DTE Energy's Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of DTE Energy's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2021, which is the end of the period covered by this report. Based on this evaluation, DTE Energy's CEO and CFO have concluded that such disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by DTE Energy in reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms and (ii) is accumulated and communicated to DTE Energy's management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Due to the inherent limitations in the effectiveness of any disclosure controls and procedures, management cannot provide absolute assurance that the objectives of its disclosure controls and procedures will be attained.
(b) Management’s report on internal control over financial reporting
Management of DTE Energy is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed by, or under the supervision of, DTE Energy's CEO and CFO, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management of DTE Energy has assessed the effectiveness of DTE Energy’s internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 COSO) in Internal Control - Integrated Framework. Based on this assessment, management concluded that, as of December 31, 2021, DTE Energy’s internal control over financial reporting was effective based on those criteria.
The effectiveness of DTE Energy's internal control over financial reporting as of December 31, 2021 has been audited by PricewaterhouseCoopers, LLP, an independent registered public accounting firm who also audited DTE Energy's financial statements, as stated in their report which appears herein.
(c) Changes in internal control over financial reporting
There have been no changes in DTE Energy's internal control over financial reporting during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, DTE Energy's internal control over financial reporting.
52
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
DTE Energy Company
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of DTE Energy Company and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and financial statement schedule listed in the accompanying index for each of the three years in the period ended December 31, 2021 (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s report on internal control over financial reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Accounting for the Effects of New, or Changes to Existing, Regulatory Matters
As described in Note 9 to the consolidated financial statements, the Company recorded $3,677 million of regulatory assets and $3,262 million of regulatory liabilities as of December 31, 2021. The Company is required to record regulatory assets and liabilities for certain transactions that would have been treated as revenue or expense in non-regulated businesses. Continued applicability of regulatory accounting treatment requires that rates be designed to recover specific costs of providing regulatory services and be charged to and collected from customers. Future regulatory changes could result in a discontinuance of this accounting treatment for regulatory assets and liabilities for some or all of the Company’s regulated businesses and may require the write-off of the portion of any regulatory asset or liability that was no longer probable of recovery through regulated rates. Management believes that currently available facts support the continued use of regulatory assets and liabilities and that all regulatory assets and liabilities are recoverable or refundable in the current regulatory environment.
The principal considerations for our determination that performing procedures relating to the Company's accounting for the effects of new, or changes to existing, regulatory matters is a critical audit matter are the significant judgment by management in assessing the potential outcome and resulting accounting implications of new, or changes to existing, regulatory matters; this in turn led to a high degree of auditor judgment, subjectivity and effort in evaluating the appropriateness of management’s assessment and audit evidence obtained related to the assessment.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s assessment and implementation of new regulatory matters or changes to existing regulatory matters. These procedures also included, among others, assessing (i) the reasonableness of management’s assessment of impacts arising from correspondence with regulators and changes in laws and regulations and (ii) the appropriateness of disclosures in the consolidated financial statements. Testing regulatory assets and liabilities, including those subject to pending rate orders, involved considering the provisions and formulas outlined in the rate orders, other regulatory correspondence, and the application of relevant regulatory precedents.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 10, 2022
We have served as the Company’s auditor since 2008.
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DTE Energy Company
Consolidated Statements of Operations
Year Ended December 31, | |||||||||||||||||
2021 | 2020 | 2019 | |||||||||||||||
(In millions, except per share amounts) | |||||||||||||||||
Operating Revenues | |||||||||||||||||
Utility operations | $ | 7,288 | $ | 6,845 | $ | 6,638 | |||||||||||
Non-utility operations | 7,676 | 4,578 | 5,530 | ||||||||||||||
14,964 | 11,423 | 12,168 | |||||||||||||||
Operating Expenses | |||||||||||||||||
Fuel, purchased power, and gas — utility | 1,904 | 1,719 | 1,798 | ||||||||||||||
Fuel, purchased power, gas, and other — non-utility | 7,304 | 4,120 | 5,035 | ||||||||||||||
Operation and maintenance | 2,420 | 2,305 | 2,316 | ||||||||||||||
Depreciation and amortization | 1,377 | 1,292 | 1,169 | ||||||||||||||
Taxes other than income | 431 | 395 | 406 | ||||||||||||||
Asset (gains) losses and impairments, net | 33 | 37 | 14 | ||||||||||||||
13,469 | 9,868 | 10,738 | |||||||||||||||
Operating Income | 1,495 | 1,555 | 1,430 | ||||||||||||||
Other (Income) and Deductions | |||||||||||||||||
Interest expense | 630 | 601 | 568 | ||||||||||||||
Interest income | (22) | (29) | (9) | ||||||||||||||
Non-operating retirement benefits, net | 17 | 50 | 39 | ||||||||||||||
Loss on extinguishment of debt | 393 | 6 | — | ||||||||||||||
Other income | (254) | (259) | (250) | ||||||||||||||
Other expenses | 75 | 104 | 69 | ||||||||||||||
839 | 473 | 417 | |||||||||||||||
Income Before Income Taxes | 656 | 1,082 | 1,013 | ||||||||||||||
Income Tax Expense (Benefit) (Note 10) | (130) | 37 | 71 | ||||||||||||||
Net Income from Continuing Operations | 786 | 1,045 | 942 | ||||||||||||||
Net Income from Discontinued Operations, Net of Taxes (Note 4) | 117 | 326 | 230 | ||||||||||||||
Net Income | 903 | 1,371 | 1,172 | ||||||||||||||
Less: Net Income (Loss) Attributable to Noncontrolling Interests | |||||||||||||||||
Continuing operations | (10) | (9) | (13) | ||||||||||||||
Discontinued operations | 6 | 12 | 16 | ||||||||||||||
Net Income Attributable to DTE Energy Company | $ | 907 | $ | 1,368 | $ | 1,169 | |||||||||||
Basic Earnings per Common Share | |||||||||||||||||
Continuing operations | $ | 4.11 | $ | 5.46 | $ | 5.16 | |||||||||||
Discontinued operations | 0.57 | 1.63 | 1.16 | ||||||||||||||
Total | $ | 4.68 | $ | 7.09 | $ | 6.32 | |||||||||||
Diluted Earnings per Common Share | |||||||||||||||||
Continuing operations | $ | 4.10 | $ | 5.45 | $ | 5.15 | |||||||||||
Discontinued operations | 0.57 | 1.63 | 1.16 | ||||||||||||||
Total | $ | 4.67 | $ | 7.08 | $ | 6.31 | |||||||||||
Weighted Average Common Shares Outstanding | |||||||||||||||||
Basic | 193 | 193 | 185 | ||||||||||||||
Diluted | 194 | 193 | 185 |
See Combined Notes to Consolidated Financial Statements
55
DTE Energy Company
Consolidated Statements of Comprehensive Income
Year Ended December 31, | |||||||||||||||||
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Net Income | $ | 903 | $ | 1,371 | $ | 1,172 | |||||||||||
Other comprehensive income (loss), net of tax: | |||||||||||||||||
Benefit obligations, net of taxes of $4, $3, and $2, respectively | 8 | 8 | 8 | ||||||||||||||
Net unrealized gains (losses) on derivatives, net of taxes of $2, $1, and $(4), respectively | 7 | 2 | (12) | ||||||||||||||
Foreign currency translation | — | 1 | 1 | ||||||||||||||
Other comprehensive income (loss) | 15 | 11 | (3) | ||||||||||||||
Comprehensive income | 918 | 1,382 | 1,169 | ||||||||||||||
Less: Comprehensive income (loss) attributable to noncontrolling interests | (4) | 3 | 3 | ||||||||||||||
Comprehensive Income Attributable to DTE Energy Company | $ | 922 | $ | 1,379 | $ | 1,166 |
See Combined Notes to Consolidated Financial Statements
56
DTE Energy Company
Consolidated Statements of Financial Position
December 31, | |||||||||||
2021 | 2020 | ||||||||||
(In millions) | |||||||||||
ASSETS | |||||||||||
Current Assets | |||||||||||
Cash and cash equivalents | $ | 28 | $ | 472 | |||||||
Restricted cash | 7 | 2 | |||||||||
Accounts receivable (less allowance for doubtful accounts of $92 and $104, respectively) | |||||||||||
Customer | 1,695 | 1,542 | |||||||||
Other | 135 | 127 | |||||||||
Inventories | |||||||||||
Fuel and gas | 368 | 335 | |||||||||
Materials, supplies, and other | 490 | 373 | |||||||||
Derivative assets | 181 | 116 | |||||||||
Regulatory assets | 195 | 129 | |||||||||
Other | 218 | 185 | |||||||||
Current assets of discontinued operations | — | 217 | |||||||||
3,317 | 3,498 | ||||||||||
Investments | |||||||||||
Nuclear decommissioning trust funds | 2,071 | 1,855 | |||||||||
Investments in equity method investees | 187 | 177 | |||||||||
Other | 194 | 196 | |||||||||
2,452 | 2,228 | ||||||||||
Property | |||||||||||
Property, plant, and equipment | 37,083 | 34,016 | |||||||||
Accumulated depreciation and amortization | (10,139) | (9,517) | |||||||||
26,944 | 24,499 | ||||||||||
Other Assets | |||||||||||
Goodwill | 1,993 | 1,993 | |||||||||
Regulatory assets | 3,482 | 4,125 | |||||||||
Intangible assets | 177 | 199 | |||||||||
Notes receivable | 310 | 261 | |||||||||
Derivative assets | 90 | 40 | |||||||||
Prepaid postretirement costs | 678 | 561 | |||||||||
Operating lease right-of-use assets | 97 | 107 | |||||||||
Other | 179 | 126 | |||||||||
Noncurrent assets of discontinued operations | — | 7,859 | |||||||||
7,006 | 15,271 | ||||||||||
Total Assets | $ | 39,719 | $ | 45,496 |
See Combined Notes to Consolidated Financial Statements
57
DTE Energy Company
Consolidated Statements of Financial Position — (Continued)
December 31, | |||||||||||
2021 | 2020 | ||||||||||
(In millions, except shares) | |||||||||||
LIABILITIES AND EQUITY | |||||||||||
Current Liabilities | |||||||||||
Accounts payable | $ | 1,414 | $ | 1,000 | |||||||
Accrued interest | 140 | 158 | |||||||||
Dividends payable | 171 | 210 | |||||||||
Short-term borrowings | 758 | 38 | |||||||||
Current portion long-term debt, including finance leases | 2,874 | 469 | |||||||||
Derivative liabilities | 238 | 68 | |||||||||
Regulatory liabilities | 156 | 39 | |||||||||
Operating lease liabilities | 14 | 16 | |||||||||
Other | 581 | 594 | |||||||||
Current liabilities of discontinued operations | — | 99 | |||||||||
6,346 | 2,691 | ||||||||||
Long-Term Debt (net of current portion) | |||||||||||
Mortgage bonds, notes, and other | 13,629 | 17,802 | |||||||||
Junior subordinated debentures | 883 | 1,175 | |||||||||
Finance lease obligations | 19 | 24 | |||||||||
14,531 | 19,001 | ||||||||||
Other Liabilities | |||||||||||
Deferred income taxes | 2,163 | 2,069 | |||||||||
Regulatory liabilities | 3,106 | 3,363 | |||||||||
Asset retirement obligations | 3,162 | 2,829 | |||||||||
Unamortized investment tax credit | 158 | 162 | |||||||||
Derivative liabilities | 192 | 60 | |||||||||
Accrued pension liability | 339 | 797 | |||||||||
Accrued postretirement liability | 358 | 407 | |||||||||
Nuclear decommissioning | 321 | 283 | |||||||||
Operating lease liabilities | 74 | 83 | |||||||||
Other | 256 | 326 | |||||||||
Noncurrent liabilities of discontinued operations | — | 836 | |||||||||
10,129 | 11,215 | ||||||||||
Commitments and Contingencies (Notes 9 and 18) | |||||||||||
Equity | |||||||||||
Common stock (No par value, 400,000,000 shares authorized, and 193,747,509 and 193,770,617 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively) | 5,379 | 5,406 | |||||||||
Retained earnings | 3,438 | 7,156 | |||||||||
Accumulated other comprehensive loss | (112) | (137) | |||||||||
Total DTE Energy Company Equity | 8,705 | 12,425 | |||||||||
Noncontrolling interests of continuing operations | 8 | 10 | |||||||||
Noncontrolling interests of discontinued operations | — | 154 | |||||||||
Total Equity | 8,713 | 12,589 | |||||||||
Total Liabilities and Equity | $ | 39,719 | $ | 45,496 |
See Combined Notes to Consolidated Financial Statements
58
DTE Energy Company
Consolidated Statements of Cash Flows
Year Ended December 31, | |||||||||||||||||
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Operating Activities | |||||||||||||||||
Net Income | $ | 903 | $ | 1,371 | $ | 1,172 | |||||||||||
Adjustments to reconcile Net Income to Net cash from operating activities: | |||||||||||||||||
Depreciation and amortization | 1,459 | 1,443 | 1,263 | ||||||||||||||
Nuclear fuel amortization | 58 | 37 | 60 | ||||||||||||||
Allowance for equity funds used during construction | (27) | (25) | (24) | ||||||||||||||
Deferred income taxes | (32) | 407 | 329 | ||||||||||||||
Equity earnings of equity method investees | (97) | (132) | (111) | ||||||||||||||
Dividends from equity method investees | 79 | 142 | 160 | ||||||||||||||
Loss on extinguishment of debt | 393 | 6 | — | ||||||||||||||
Asset (gains) losses and impairments, net | 50 | 47 | 14 | ||||||||||||||
Changes in assets and liabilities: | |||||||||||||||||
Accounts receivable, net | (146) | 111 | 49 | ||||||||||||||
Inventories | (153) | 45 | 59 | ||||||||||||||
Prepaid postretirement benefit costs | (117) | (107) | (24) | ||||||||||||||
Accounts payable | 308 | — | (288) | ||||||||||||||
Accrued pension liability | (458) | (11) | (29) | ||||||||||||||
Accrued postretirement liability | (49) | 22 | — | ||||||||||||||
Derivative assets and liabilities | 187 | (23) | (28) | ||||||||||||||
Regulatory assets and liabilities | 862 | 104 | 160 | ||||||||||||||
Other current and noncurrent assets and liabilities | (153) | 260 | (113) | ||||||||||||||
Net cash from operating activities | 3,067 | 3,697 | 2,649 | ||||||||||||||
Investing Activities | |||||||||||||||||
Plant and equipment expenditures — utility | (3,633) | (3,241) | (2,724) | ||||||||||||||
Plant and equipment expenditures — non-utility | (139) | (616) | (273) | ||||||||||||||
Acquisitions related to business combinations, net of cash acquired | — | (126) | (2,470) | ||||||||||||||
Proceeds from sale of assets | 3 | 13 | — | ||||||||||||||
Proceeds from sale of nuclear decommissioning trust fund assets | 1,047 | 2,350 | 788 | ||||||||||||||
Investment in nuclear decommissioning trust funds | (1,046) | (2,350) | (794) | ||||||||||||||
Distributions from equity method investees | 18 | 24 | 10 | ||||||||||||||
Contributions to equity method investees | (8) | (37) | (149) | ||||||||||||||
Notes receivable | (74) | (85) | (98) | ||||||||||||||
Other | (31) | (2) | (22) | ||||||||||||||
Net cash used for investing activities | (3,863) | (4,070) | (5,732) | ||||||||||||||
See Combined Notes to Consolidated Financial Statements
59
DTE Energy Company
Consolidated Statements of Cash Flows — (Continued)
Year Ended December 31, | |||||||||||||||||
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Financing Activities | |||||||||||||||||
Issuance of long-term debt, net of issuance costs | 4,457 | 3,692 | 2,506 | ||||||||||||||
Redemption of long-term debt | (3,522) | (882) | (821) | ||||||||||||||
Issuance of equity units, net of issuance costs | — | — | 1,265 | ||||||||||||||
Short-term borrowings, net | 720 | (790) | 219 | ||||||||||||||
Issuance of common stock | — | 2 | 1,023 | ||||||||||||||
Repurchase of common stock | (66) | — | — | ||||||||||||||
Dividends paid on common stock | (791) | (760) | (692) | ||||||||||||||
Contributions from noncontrolling interests, principally REF entities | 44 | 36 | 38 | ||||||||||||||
Distributions to noncontrolling interests | (45) | (39) | (59) | ||||||||||||||
Purchases of noncontrolling interest, principally SGG | — | — | (300) | ||||||||||||||
Acquisition related deferred payment, excluding accretion | — | (380) | — | ||||||||||||||
Prepayment cost for extinguishment of long-term debt | (361) | — | — | ||||||||||||||
Transfer of cash to DT Midstream at separation | (37) | — | — | ||||||||||||||
Other | (84) | (83) | (79) | ||||||||||||||
Net cash from financing activities | 315 | 796 | 3,100 | ||||||||||||||
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | (481) | 423 | 17 | ||||||||||||||
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | 516 | 93 | 76 | ||||||||||||||
Cash, Cash Equivalents, and Restricted Cash at End of Period | $ | 35 | $ | 516 | $ | 93 | |||||||||||
Supplemental disclosure of cash information | |||||||||||||||||
Cash paid (received) for: | |||||||||||||||||
Interest, net of interest capitalized | $ | 671 | $ | 679 | $ | 595 | |||||||||||
Income taxes(a) | $ | (3) | $ | (360) | $ | 18 | |||||||||||
Supplemental disclosure of non-cash investing and financing activities | |||||||||||||||||
Plant and equipment expenditures in accounts payable | $ | 353 | $ | 266 | $ | 311 | |||||||||||
Separation of DT Midstream net assets, excluding cash transferred | $ | 3,973 | $ | — | $ | — | |||||||||||
Premium on equity units | $ | — | $ | — | $ | 150 |
_______________________________________
(a)2020 cash received primarily relates to AMT credit and other refunds, of which a portion was accelerated due to the CARES Act
See Combined Notes to Consolidated Financial Statements
60
DTE Energy Company
Consolidated Statements of Changes in Equity
Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests | |||||||||||||||||||||||||||||||||
Common Stock | |||||||||||||||||||||||||||||||||||
Shares | Amount | Total | |||||||||||||||||||||||||||||||||
(Dollars in millions, shares in thousands) | |||||||||||||||||||||||||||||||||||
Balance, December 31, 2018 | 181,925 | $ | 4,245 | $ | 6,112 | $ | (120) | $ | 480 | $ | 10,717 | ||||||||||||||||||||||||
Implementation of ASU 2018-02 | — | — | 25 | (25) | — | — | |||||||||||||||||||||||||||||
Net Income | — | — | 1,169 | — | 3 | 1,172 | |||||||||||||||||||||||||||||
Dividends declared on common stock ($3.85 per Common Share) | — | — | (714) | — | — | (714) | |||||||||||||||||||||||||||||
Issuance of common stock | 8,634 | 1,014 | — | — | — | 1,014 | |||||||||||||||||||||||||||||
Premium on equity units | — | (150) | — | — | — | (150) | |||||||||||||||||||||||||||||
Issuance costs of equity units | — | (30) | — | — | — | (30) | |||||||||||||||||||||||||||||
Contribution of common stock to pension plan | 815 | 100 | — | — | — | 100 | |||||||||||||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | (3) | — | (3) | |||||||||||||||||||||||||||||
Purchase of noncontrolling interests, principally SGG | — | (3) | — | — | (297) | (300) | |||||||||||||||||||||||||||||
Stock-based compensation, net distributions to noncontrolling interests, and other | 835 | 57 | (5) | — | (22) | 30 | |||||||||||||||||||||||||||||
Balance, December 31, 2019 | 192,209 | $ | 5,233 | $ | 6,587 | $ | (148) | $ | 164 | $ | 11,836 | ||||||||||||||||||||||||
Net Income | — | — | 1,368 | — | 3 | 1,371 | |||||||||||||||||||||||||||||
Dividends declared on common stock ($4.12 per Common Share) | — | — | (796) | — | — | (796) | |||||||||||||||||||||||||||||
Issuance of common stock | 192 | 22 | — | — | — | 22 | |||||||||||||||||||||||||||||
Contribution of common stock to pension plan | 694 | 82 | — | — | — | 82 | |||||||||||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | 11 | — | 11 | |||||||||||||||||||||||||||||
Stock-based compensation, net distributions to noncontrolling interests, and other | 676 | 69 | (3) | — | (3) | 63 | |||||||||||||||||||||||||||||
Balance, December 31, 2020 | 193,771 | $ | 5,406 | $ | 7,156 | $ | (137) | $ | 164 | $ | 12,589 | ||||||||||||||||||||||||
Net Income (Loss) | — | — | 907 | — | (4) | 903 | |||||||||||||||||||||||||||||
Dividends declared on common stock ($3.88 per Common Share) | — | — | (752) | — | — | (752) | |||||||||||||||||||||||||||||
Repurchase of common stock | (529) | (66) | — | — | — | (66) | |||||||||||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | 15 | — | 15 | |||||||||||||||||||||||||||||
Stock-based compensation, net distributions to noncontrolling interests, and other | 506 | 39 | (4) | — | (1) | 34 | |||||||||||||||||||||||||||||
Separation of DT Midstream | — | — | (3,869) | 10 | (151) | (4,010) | |||||||||||||||||||||||||||||
Balance, December 31, 2021 | 193,748 | $ | 5,379 | $ | 3,438 | $ | (112) | $ | 8 | $ | 8,713 |
See Combined Notes to Consolidated Financial Statements
61
DTE Electric — Controls and Procedures
(a) Evaluation of disclosure controls and procedures
Management of DTE Electric carried out an evaluation, under the supervision and with the participation of DTE Electric's Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of DTE Electric's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2021, which is the end of the period covered by this report. Based on this evaluation, DTE Electric's CEO and CFO have concluded that such disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by DTE Electric in reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms and (ii) is accumulated and communicated to DTE Electric's management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Due to the inherent limitations in the effectiveness of any disclosure controls and procedures, management cannot provide absolute assurance that the objectives of its disclosure controls and procedures will be attained.
(b) Management’s report on internal control over financial reporting
Management of DTE Electric is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed by, or under the supervision of, DTE Electric's CEO and CFO, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management of DTE Electric has assessed the effectiveness of DTE Electric's internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 COSO) in Internal Control - Integrated Framework. Based on this assessment, management concluded that, as of December 31, 2021, DTE Electric's internal control over financial reporting was effective based on those criteria.
This annual report does not include an audit report of DTE Electric's independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to audit by DTE Electric's independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit DTE Electric to provide only management’s report in this annual report.
(c) Changes in internal control over financial reporting
There have been no changes in DTE Electric's internal control over financial reporting during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, DTE Electric's internal control over financial reporting.
62
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholder of
DTE Electric Company
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of DTE Electric Company and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of comprehensive income, of changes in shareholder’s equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and financial statement schedule listed in the accompanying index for each of the three years in the period ended December 31, 2021 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Accounting for the Effects of New, or Changes to Existing, Regulatory Matters
As described in Note 9 to the consolidated financial statements, the Company recorded $3,136 million of regulatory assets and $2,375 million of regulatory liabilities as of December 31, 2021. The Company is required to record regulatory assets and liabilities for certain transactions that would have been treated as revenue or expense in non-regulated businesses. Continued applicability of regulatory accounting treatment requires that rates be designed to recover specific costs of providing regulatory services and be charged to and collected from customers. Future regulatory changes could result in a discontinuance of this accounting treatment for regulatory assets and liabilities for some or all of the Company’s regulated businesses and may require the write-off of the portion of any regulatory asset or liability that was no longer probable of recovery through regulated rates. Management believes that currently available facts support the continued use of regulatory assets and liabilities and that all regulatory assets and liabilities are recoverable or refundable in the current regulatory environment.
63
The principal considerations for our determination that performing procedures relating to the Company's accounting for the effects of new, or changes to existing, regulatory matters is a critical audit matter are the significant judgment by management in assessing the potential outcome and resulting accounting implications of new, or changes to existing, regulatory matters; this in turn led to a high degree of auditor judgment, subjectivity and effort in evaluating the appropriateness of management’s assessment and audit evidence obtained related to the assessment.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s assessment and implementation of new regulatory matters or changes to existing regulatory matters. These procedures also included, among others, assessing (i) the reasonableness of management’s assessment of impacts arising from correspondence with regulators and changes in laws and regulations and (ii) the appropriateness of disclosures in the consolidated financial statements. Testing regulatory assets and liabilities, including those subject to pending rate orders, involved considering the provisions and formulas outlined in the rate orders, other regulatory correspondence, and the application of relevant regulatory precedents.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 10, 2022
We have served as the Company's auditor since 2008.
64
DTE Electric Company
Consolidated Statements of Operations
Year Ended December 31, | |||||||||||||||||
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Operating Revenues | $ | 5,809 | $ | 5,506 | $ | 5,224 | |||||||||||
Operating Expenses | |||||||||||||||||
Fuel and purchased power — utility | 1,541 | 1,397 | 1,390 | ||||||||||||||
Operation and maintenance | 1,569 | 1,505 | 1,452 | ||||||||||||||
Depreciation and amortization | 1,109 | 1,043 | 946 | ||||||||||||||
Taxes other than income | 320 | 296 | 310 | ||||||||||||||
Asset (gains) losses and impairments, net | 1 | 41 | 13 | ||||||||||||||
4,540 | 4,282 | 4,111 | |||||||||||||||
Operating Income | 1,269 | 1,224 | 1,113 | ||||||||||||||
Other (Income) and Deductions | |||||||||||||||||
Interest expense | 335 | 331 | 313 | ||||||||||||||
Interest income | — | (2) | (2) | ||||||||||||||
Non-operating retirement benefits, net | (2) | (1) | (1) | ||||||||||||||
Other income | (71) | (87) | (107) | ||||||||||||||
Other expenses | 37 | 96 | 56 | ||||||||||||||
299 | 337 | 259 | |||||||||||||||
Income Before Income Taxes | 970 | 887 | 854 | ||||||||||||||
Income Tax Expense | 104 | 109 | 138 | ||||||||||||||
Net Income | $ | 866 | $ | 778 | $ | 716 |
See Combined Notes to Consolidated Financial Statements
65
DTE Electric Company
Consolidated Statements of Comprehensive Income
Year Ended December 31, | |||||||||||||||||
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Net Income | $ | 866 | $ | 778 | $ | 716 | |||||||||||
Other comprehensive income | — | — | — | ||||||||||||||
Comprehensive Income | $ | 866 | $ | 778 | $ | 716 |
See Combined Notes to Consolidated Financial Statements
66
DTE Electric Company
Consolidated Statements of Financial Position
December 31, | |||||||||||
2021 | 2020 | ||||||||||
(In millions) | |||||||||||
ASSETS | |||||||||||
Current Assets | |||||||||||
Cash and cash equivalents | $ | 9 | $ | 16 | |||||||
Accounts receivable (less allowance for doubtful accounts of $54 and $57, respectively) | |||||||||||
Customer | 694 | 763 | |||||||||
Affiliates | 36 | 13 | |||||||||
Other | 40 | 62 | |||||||||
Inventories | |||||||||||
Fuel | 171 | 187 | |||||||||
Materials and supplies | 316 | 292 | |||||||||
Regulatory assets | 168 | 123 | |||||||||
Other | 101 | 71 | |||||||||
1,535 | 1,527 | ||||||||||
Investments | |||||||||||
Nuclear decommissioning trust funds | 2,071 | 1,855 | |||||||||
Other | 44 | 42 | |||||||||
2,115 | 1,897 | ||||||||||
Property | |||||||||||
Property, plant, and equipment | 28,849 | 26,171 | |||||||||
Accumulated depreciation and amortization | (7,676) | (7,050) | |||||||||
21,173 | 19,121 | ||||||||||
Other Assets | |||||||||||
Regulatory assets | 2,968 | 3,440 | |||||||||
Prepaid postretirement costs — affiliates | 402 | 335 | |||||||||
Operating lease right-of-use assets | 64 | 75 | |||||||||
Other | 148 | 118 | |||||||||
3,582 | 3,968 | ||||||||||
Total Assets | $ | 28,405 | $ | 26,513 |
See Combined Notes to Consolidated Financial Statements
67
DTE Electric Company
Consolidated Statements of Financial Position — (Continued)
December 31, | |||||||||||
2021 | 2020 | ||||||||||
(In millions, except shares) | |||||||||||
LIABILITIES AND SHAREHOLDER'S EQUITY | |||||||||||
Current Liabilities | |||||||||||
Accounts payable | |||||||||||
Affiliates | $ | 83 | $ | 62 | |||||||
Other | 567 | 410 | |||||||||
Accrued interest | 95 | 91 | |||||||||
Current portion long-term debt, including finance leases | 322 | 468 | |||||||||
Regulatory liabilities | 154 | 18 | |||||||||
Short-term borrowings | |||||||||||
Affiliates | 53 | 101 | |||||||||
Other | 153 | — | |||||||||
Operating lease liabilities | 10 | 11 | |||||||||
Other | 206 | 219 | |||||||||
1,643 | 1,380 | ||||||||||
Long-Term Debt (net of current portion) | |||||||||||
Mortgage bonds, notes, and other | 8,591 | 7,774 | |||||||||
Finance lease obligations | 7 | 13 | |||||||||
8,598 | 7,787 | ||||||||||
Other Liabilities | |||||||||||
Deferred income taxes | 2,741 | 2,525 | |||||||||
Regulatory liabilities | 2,221 | 2,432 | |||||||||
Asset retirement obligations | 2,932 | 2,607 | |||||||||
Unamortized investment tax credit | 158 | 162 | |||||||||
Nuclear decommissioning | 321 | 283 | |||||||||
Accrued pension liability — affiliates | 405 | 731 | |||||||||
Accrued postretirement liability — affiliates | 340 | 384 | |||||||||
Operating lease liabilities | 46 | 56 | |||||||||
Other | 97 | 96 | |||||||||
9,261 | 9,276 | ||||||||||
Commitments and Contingencies (Notes 9 and 18) | |||||||||||
Shareholder's Equity | |||||||||||
Common stock ($10 par value, 400,000,000 shares authorized, and 138,632,324 shares issued and outstanding for both periods) | 6,002 | 5,447 | |||||||||
Retained earnings | 2,901 | 2,623 | |||||||||
Total Shareholder's Equity | 8,903 | 8,070 | |||||||||
Total Liabilities and Shareholder's Equity | $ | 28,405 | $ | 26,513 |
See Combined Notes to Consolidated Financial Statements
68
DTE Electric Company
Consolidated Statements of Cash Flows
Year Ended December 31, | |||||||||||||||||
2021 | 2020 | 2019 | |||||||||||||||
Operating Activities | (In millions) | ||||||||||||||||
Net Income | $ | 866 | $ | 778 | $ | 716 | |||||||||||
Adjustments to reconcile Net Income to Net cash from operating activities: | |||||||||||||||||
Depreciation and amortization | 1,109 | 1,043 | 946 | ||||||||||||||
Nuclear fuel amortization | 58 | 37 | 60 | ||||||||||||||
Allowance for equity funds used during construction | (25) | (23) | (22) | ||||||||||||||
Deferred income taxes | 122 | 89 | 97 | ||||||||||||||
Asset (gains) losses and impairments, net | 1 | 41 | 13 | ||||||||||||||
Changes in assets and liabilities: | |||||||||||||||||
Accounts receivable, net | 68 | (42) | 20 | ||||||||||||||
Inventories | (11) | (12) | (17) | ||||||||||||||
Prepaid postretirement benefit costs — affiliates | (67) | (69) | (77) | ||||||||||||||
Accounts payable | 65 | 20 | (57) | ||||||||||||||
Accrued pension liability — affiliates | (326) | 14 | (1) | ||||||||||||||
Accrued postretirement liability — affiliates | (44) | 17 | 89 | ||||||||||||||
Regulatory assets and liabilities | 716 | 55 | 139 | ||||||||||||||
Other current and noncurrent assets and liabilities | (216) | (43) | (197) | ||||||||||||||
Net cash from operating activities | 2,316 | 1,905 | 1,709 | ||||||||||||||
Investing Activities | |||||||||||||||||
Plant and equipment expenditures | (3,017) | (2,674) | (2,200) | ||||||||||||||
Proceeds from sale of nuclear decommissioning trust fund assets | 1,047 | 2,350 | 788 | ||||||||||||||
Investment in nuclear decommissioning trust funds | (1,046) | (2,350) | (794) | ||||||||||||||
Notes receivable and other | (31) | (8) | (21) | ||||||||||||||
Net cash used for investing activities | (3,047) | (2,682) | (2,227) | ||||||||||||||
Financing Activities | |||||||||||||||||
Issuance of long-term debt, net of issuance costs | 985 | 1,683 | 643 | ||||||||||||||
Redemption of long-term debt | (321) | (632) | — | ||||||||||||||
Capital contribution by parent company | 555 | 636 | 180 | ||||||||||||||
Short-term borrowings, net — affiliate | (48) | 4 | (4) | ||||||||||||||
Short-term borrowings, net — other | 153 | (354) | 205 | ||||||||||||||
Dividends paid on common stock | (588) | (539) | (494) | ||||||||||||||
Other | (12) | (17) | (18) | ||||||||||||||
Net cash from financing activities | 724 | 781 | 512 | ||||||||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | (7) | 4 | (6) | ||||||||||||||
Cash and Cash Equivalents at Beginning of Period | 16 | 12 | 18 | ||||||||||||||
Cash and Cash Equivalents at End of Period | $ | 9 | $ | 16 | $ | 12 | |||||||||||
Supplemental disclosure of cash information | |||||||||||||||||
Cash paid for: | |||||||||||||||||
Interest, net of interest capitalized | $ | 321 | $ | 315 | $ | 295 | |||||||||||
Income taxes | $ | 5 | $ | 14 | $ | 46 | |||||||||||
Supplemental disclosure of non-cash investing and financing activities | |||||||||||||||||
Plant and equipment expenditures in accounts payable | $ | 286 | $ | 174 | $ | 192 |
See Combined Notes to Consolidated Financial Statements
69
DTE Electric Company
Consolidated Statements of Changes in Shareholder's Equity
Additional Paid-in Capital | Retained Earnings | ||||||||||||||||||||||||||||
Common Stock | |||||||||||||||||||||||||||||
Shares | Amount | Total | |||||||||||||||||||||||||||
(Dollars in millions, shares in thousands) | |||||||||||||||||||||||||||||
Balance, December 31, 2018 | 138,632 | $ | 1,386 | $ | 3,245 | $ | 2,162 | $ | 6,793 | ||||||||||||||||||||
Net Income | — | — | — | 716 | 716 | ||||||||||||||||||||||||
Dividends declared on common stock | — | — | — | (494) | (494) | ||||||||||||||||||||||||
Capital contribution by parent company | — | — | 180 | — | 180 | ||||||||||||||||||||||||
Balance, December 31, 2019 | 138,632 | $ | 1,386 | $ | 3,425 | $ | 2,384 | $ | 7,195 | ||||||||||||||||||||
Net Income | — | — | — | 778 | 778 | ||||||||||||||||||||||||
Dividends declared on common stock | — | — | — | (539) | (539) | ||||||||||||||||||||||||
Capital contribution by parent company | — | — | 636 | — | 636 | ||||||||||||||||||||||||
Balance, December 31, 2020 | 138,632 | $ | 1,386 | $ | 4,061 | $ | 2,623 | $ | 8,070 | ||||||||||||||||||||
Net Income | — | — | — | 866 | 866 | ||||||||||||||||||||||||
Dividends declared on common stock | — | — | — | (588) | (588) | ||||||||||||||||||||||||
Capital contribution by parent company | — | — | 555 | — | 555 | ||||||||||||||||||||||||
Balance, December 31, 2021 | 138,632 | $ | 1,386 | $ | 4,616 | $ | 2,901 | $ | 8,903 |
See Combined Notes to Consolidated Financial Statements
70
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements
Index of Combined Notes to Consolidated Financial Statements
The Combined Notes to Consolidated Financial Statements are a combined presentation for DTE Energy and DTE Electric. The following list indicates the Registrant(s) to which each note applies:
Note 1 | Organization and Basis of Presentation | DTE Energy and DTE Electric | ||||||||||||
Note 2 | Significant Accounting Policies | DTE Energy and DTE Electric | ||||||||||||
Note 3 | New Accounting Pronouncements | DTE Energy and DTE Electric | ||||||||||||
Note 4 | Dispositions and Impairments | DTE Energy | ||||||||||||
Note 5 | Revenue | DTE Energy and DTE Electric | ||||||||||||
Note 6 | Property, Plant, and Equipment | DTE Energy and DTE Electric | ||||||||||||
Note 7 | Jointly-Owned Utility Plant | DTE Energy and DTE Electric | ||||||||||||
Note 8 | Asset Retirement Obligations | DTE Energy and DTE Electric | ||||||||||||
Note 9 | Regulatory Matters | DTE Energy and DTE Electric | ||||||||||||
Note 10 | Income Taxes | DTE Energy and DTE Electric | ||||||||||||
Note 11 | Earnings Per Share | DTE Energy | ||||||||||||
Note 12 | Fair Value | DTE Energy and DTE Electric | ||||||||||||
Note 13 | Financial and Other Derivative Instruments | DTE Energy and DTE Electric | ||||||||||||
Note 14 | Long-Term Debt | DTE Energy and DTE Electric | ||||||||||||
Note 15 | Preferred and Preference Securities | DTE Energy and DTE Electric | ||||||||||||
Note 16 | Short-Term Credit Arrangements and Borrowings | DTE Energy and DTE Electric | ||||||||||||
Note 17 | Leases | DTE Energy and DTE Electric | ||||||||||||
Note 18 | Commitments and Contingencies | DTE Energy and DTE Electric | ||||||||||||
Note 19 | Nuclear Operations | DTE Energy and DTE Electric | ||||||||||||
Note 20 | Retirement Benefits and Trusteed Assets | DTE Energy and DTE Electric | ||||||||||||
Note 21 | Stock-Based Compensation | DTE Energy and DTE Electric | ||||||||||||
Note 22 | Segment and Related Information | DTE Energy | ||||||||||||
Note 23 | Related Party Transactions | DTE Electric | ||||||||||||
Note 24 | Supplementary Quarterly Financial Information (Unaudited) | DTE Energy | ||||||||||||
NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION
Corporate Structure
DTE Energy owns the following businesses:
•DTE Electric is a public utility engaged in the generation, purchase, distribution, and sale of electricity to approximately 2.3 million customers in southeastern Michigan;
•DTE Gas is a public utility engaged in the purchase, storage, transportation, distribution, and sale of natural gas to approximately 1.3 million customers throughout Michigan and the sale of storage and transportation capacity; and
•Other businesses include 1) DTE Vantage, formerly DTE Energy's Power and Industrial Projects segment, which is primarily involved in renewable natural gas projects, providing industrial energy services, and reduced emissions fuel projects, and 2) energy marketing and trading operations.
DTE Electric and DTE Gas are regulated by the MPSC. Certain activities of DTE Electric and DTE Gas, as well as various other aspects of businesses under DTE Energy, are regulated by the FERC. In addition, the Registrants are regulated by other federal and state regulatory agencies including the NRC, the EPA, EGLE, and for DTE Energy, the CFTC and CARB.
71
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Basis of Presentation
The accompanying Consolidated Financial Statements of the Registrants are prepared using accounting principles generally accepted in the United States of America. These accounting principles require management to use estimates and assumptions that impact reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results may differ from the Registrants' estimates.
The information in these combined notes relates to each of the Registrants as noted in the Index of Combined Notes to Consolidated Financial Statements. However, DTE Electric does not make any representation as to information related solely to DTE Energy or the subsidiaries of DTE Energy other than itself.
Certain prior year balances for the Registrants were reclassified to match the current year's Consolidated Financial Statements presentation.
Separation of DT Midstream
On July 1, 2021, DTE Energy completed the previously announced separation of its natural gas pipeline, storage and gathering non-utility business. Effective with the separation, DTE retains no ownership in the new company, DT Midstream, which was formerly comprised of DTE Energy's Gas Storage and Pipelines segment and also included certain DTE Energy holding company activity within the Corporate and Other segment. Gas Storage and Pipelines is no longer a reportable segment of DTE Energy, and financial results of DT Midstream are presented as Income from discontinued operations, net of taxes on DTE Energy's Consolidated Statements of Operations. Assets and liabilities of DT Midstream are also presented as discontinued operations on DTE Energy's Consolidated Statements of Financial Position. Prior periods have been recast to reflect this presentation.
No adjustments were made to the historical activity within the Consolidated Statements of Comprehensive Income, Consolidated Statements of Cash Flows, or the Consolidated Statements of Changes in Equity. Unless noted otherwise, discussion in the Notes to the Consolidated Financial Statements relate to continuing operations. Refer to Note 4 to the Consolidated Financial Statements, “Dispositions and Impairments,” for additional information regarding the separation of DT Midstream and discontinued operations.
Principles of Consolidation
The Registrants consolidate all majority-owned subsidiaries and investments in entities in which they have controlling influence. Non-majority owned investments are accounted for using the equity method when the Registrants are able to significantly influence the operating policies of the investee. When the Registrants do not influence the operating policies of an investee, the equity investment is valued at cost minus any impairments, if applicable. These Consolidated Financial Statements also reflect the Registrants' proportionate interests in certain jointly-owned utility plants. The Registrants eliminate all intercompany balances and transactions.
The Registrants evaluate whether an entity is a VIE whenever reconsideration events occur. The Registrants consolidate VIEs for which they are the primary beneficiary. If a Registrant is not the primary beneficiary and an ownership interest is held, the VIE is accounted for under the equity method of accounting. When assessing the determination of the primary beneficiary, a Registrant considers all relevant facts and circumstances, including: the power, through voting or similar rights, to direct the activities of the VIE that most significantly impact the VIE's economic performance and the obligation to absorb the expected losses and/or the right to receive the expected returns of the VIE. The Registrants perform ongoing reassessments of all VIEs to determine if the primary beneficiary status has changed.
During the third quarter of 2021, the Registrants performed reassessments of certain VIEs owned by DT Midstream. Upon the separation of DT Midstream, DTE Energy no longer owns any interest in SGG, owner and operator of certain midstream natural gas assets. Therefore, SGG has been removed from the amounts for DTE Energy's consolidated VIEs in the table below. Additionally, as a result of the separation of DT Midstream, DTE Energy no longer has an equity interest in NEXUS, owner of a pipeline which transports shale gas to Ohio, Michigan, and Ontario market centers. DTE Energy has removed its equity investment in NEXUS from the amounts for its non-consolidated VIEs. The Registrants maintain a variable interest in NEXUS relating to DTE Electric's transportation services contract. Assets, liabilities, and earnings related to SGG and NEXUS are included in discontinued operations in the Consolidated Financial Statements.
72
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
During the fourth quarter of 2021, DTE Energy also performed reassessments of REF entities that were previously concluded to be VIEs. The REF entities have ceased operations as of December 31, 2021 and DTE Energy has concluded the REF entities are no longer VIEs. Therefore, the REF entities have been removed from the VIE tables below.
Other entities within the DTE Vantage segment enter into long-term contractual arrangements with customers to supply energy-related products or services. The entities are generally designed to pass-through the commodity risk associated with these contracts to the customers, with DTE Energy retaining operational and customer default risk. These entities generally are VIEs and consolidated when DTE Energy is the primary beneficiary. In addition, DTE Energy has interests in certain VIEs through which control of all significant activities is shared with partners, and therefore are generally accounted for under the equity method.
The Registrants hold ownership interests in certain limited partnerships. The limited partnerships include investment funds which support regional development and economic growth, and an operational business providing energy-related products. These entities are generally VIEs as a result of certain characteristics of the limited partnership voting rights. The ownership interests are accounted for under the equity method as the Registrants are not the primary beneficiaries.
DTE Energy has variable interests in VIEs through certain of its long-term purchase and sale contracts. DTE Electric has variable interests in VIEs through certain of its long-term purchase contracts. As of December 31, 2021, the carrying amount of assets and liabilities in DTE Energy's Consolidated Statements of Financial Position that relate to its variable interests under long-term purchase and sale contracts are predominantly related to working capital accounts and generally represent the amounts owed by or to DTE Energy for the deliveries associated with the current billing cycle under the contracts. As of December 31, 2021, the carrying amount of assets and liabilities in DTE Electric's Consolidated Statements of Financial Position that relate to its variable interests under long-term purchase contracts are predominantly related to working capital accounts and generally represent the amounts owed by DTE Electric for the deliveries associated with the current billing cycle under the contracts. The Registrants have not provided any significant form of financial support associated with these long-term contracts. There is no material potential exposure to loss as a result of DTE Energy's variable interests through these long-term purchase and sale contracts. In addition, there is no material potential exposure to loss as a result of DTE Electric's variable interests through these long-term purchase contracts.
The maximum risk exposure for consolidated VIEs is reflected on the Registrants' Consolidated Statements of Financial Position. For non-consolidated VIEs, the maximum risk exposure of the Registrants is generally limited to their investment, notes receivable, and future funding commitments.
The following table summarizes the major Consolidated Statements of Financial Position items for consolidated VIEs as of December 31, 2021 and 2020. All assets and liabilities of a consolidated VIE are presented where it has been determined that a consolidated VIE has either (1) assets that can be used only to settle obligations of the VIE or (2) liabilities for which creditors do not have recourse to the general credit of the primary beneficiary. VIEs, in which DTE Energy holds a majority voting interest and is the primary beneficiary, that meet the definition of a business and whose assets can be used for purposes other than the settlement of the VIE's obligations have been excluded from the table below.
73
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Amounts for DTE Energy's consolidated VIEs are as follows:
December 31, | |||||||||||
2021 | 2020 | ||||||||||
(In millions) | |||||||||||
ASSETS | |||||||||||
Cash and cash equivalents | $ | 11 | $ | 20 | |||||||
Restricted cash | 6 | — | |||||||||
Accounts receivable | 1 | 28 | |||||||||
Inventories | 3 | 107 | |||||||||
Property, plant, and equipment, net | 4 | 14 | |||||||||
Notes receivable and other | 70 | 33 | |||||||||
$ | 95 | $ | 202 | ||||||||
LIABILITIES | |||||||||||
Accounts payable | $ | 5 | $ | 22 | |||||||
Short-term borrowings | 75 | 38 | |||||||||
Other current and long-term liabilities | — | 4 | |||||||||
$ | 80 | $ | 64 |
Amounts for DTE Energy's non-consolidated VIEs are as follows:
December 31, | |||||||||||
2021 | 2020 | ||||||||||
(In millions) | |||||||||||
Investments in equity method investees | $ | 172 | $ | 159 | |||||||
Notes receivable | $ | 13 | $ | 21 | |||||||
Future funding commitments | $ | 3 | $ | 6 |
Equity Method Investments
Investments in non-consolidated affiliates that are not controlled by the Registrants, but over which they have significant influence, are accounted for using the equity method. Certain of the equity method investees are also considered VIEs and disclosed in the non-consolidated VIEs table above.
At December 31, 2021 and 2020, DTE Energy's Investments in equity method investees were $187 million and $177 million, respectively. The balances are primarily comprised of investments in the DTE Vantage and Corporate and Other segments, of which no investment is individually significant. DTE Vantage investments include projects that deliver energy and utility-type products and services to industrial customers, sell electricity from renewable energy projects under long-term power purchase agreements, and produce and sell metallurgical coke. Corporate and Other holds various ownership interests in limited partnerships that include investment funds supporting regional development and economic growth. For further information by segment, see Note 22 to the Consolidated Financial Statements, "Segment and Related Information."
At December 31, 2021 and 2020, DTE Energy's share of the underlying equity in the net assets of the investees exceeded the carrying amounts of Investments in equity method investees by $99 million and $93 million, respectively. The difference is being amortized over the life of the underlying assets. As of December 31, 2021 and 2020, DTE Energy's consolidated retained earnings balance includes undistributed earnings from equity method investments of $32 million and $15 million, respectively.
74
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES
Other Income
Other income for the Registrants is recognized for non-operating income such as equity earnings of equity method investees, allowance for equity funds used during construction, contract services, and gains from trading securities, primarily from those held in DTE Energy's rabbi trust. The DTE Vantage segment also recognizes Other income in connection with the sale of membership interests in reduced emissions fuel facilities to investors. In exchange for the cash received, the investors receive a portion of the economic attributes of the facilities, including income tax attributes. The transactions are not treated as a sale of membership interests for financial reporting purposes. Other income related to fixed non-refundable cash payments received from investors for which the earnings process is not contingent upon production of refined coal is recognized on a straight-line basis over the non-cancelable contract term as the economic benefit from the ownership of the facility is transferred to investors. Other income related to cash payments that is contingent upon production of refined coal is considered earned and recognized when the contingency regarding the timing and amount of payment is resolved, generally as refined coal is produced and tax credits are generated.
The following is a summary of DTE Energy's Other income:
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Income from REF entities | $ | 141 | $ | 139 | $ | 130 | |||||||||||
Equity earnings of equity method investees | 38 | 26 | 14 | ||||||||||||||
Contract services | 27 | 28 | 29 | ||||||||||||||
Allowance for equity funds used during construction | 27 | 25 | 24 | ||||||||||||||
Gains from rabbi trust securities(a) | 8 | 28 | 37 | ||||||||||||||
Other | 13 | 13 | 16 | ||||||||||||||
$ | 254 | $ | 259 | $ | 250 |
_______________________________________
(a)Losses from rabbi trust securities are recorded separately to Other expenses on the Consolidated Statements of Operations.
The following is a summary of DTE Electric's Other income:
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Contract services | $ | 27 | $ | 28 | $ | 32 | |||||||||||
Allowance for equity funds used during construction | 25 | 23 | 22 | ||||||||||||||
Gains from rabbi trust securities allocated from DTE Energy(a) | 8 | 28 | 37 | ||||||||||||||
Other | 11 | 8 | 16 | ||||||||||||||
$ | 71 | $ | 87 | $ | 107 |
_______________________________________
(a)Losses from rabbi trust securities are recorded separately to Other expenses on the Consolidated Statements of Operations.
For information on equity earnings of equity method investees by segment, see Note 22 to the Consolidated Financial Statements, "Segment and Related Information."
Accounting for ISO Transactions
DTE Electric participates in the energy market through MISO. MISO requires that DTE Electric submit hourly day-ahead, real-time, and FTR bids and offers for energy at locations across the MISO region. DTE Electric accounts for MISO transactions on a net hourly basis in each of the day-ahead, real-time, and FTR markets. In any single hour, transactions in each of the MISO energy markets are netted based on MWh to determine if DTE Electric is in a net sale or purchase position. Net purchases are recorded in Fuel, purchased power, and gas — utility and net sales are recorded in Operating Revenues — Utility operations on the Registrants' Consolidated Statements of Operations.
75
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The Energy Trading segment participates in the energy markets through various ISOs and RTOs. These markets require that Energy Trading submits hourly day-ahead, real-time bids and offers for energy at locations across each region. Energy Trading submits bids in the annual and monthly auction revenue rights and FTR auctions to the RTOs. Energy Trading accounts for these transactions on a net hourly basis for the day-ahead, real-time, and FTR markets. These transactions are related to trading contracts which, if derivatives, are presented on a net basis in Operating Revenues — Non-utility operations, and if non-derivatives, the realized gains and losses for sales are recorded in Operating Revenues — Non-utility operations and purchases are recorded in Fuel, purchased power, gas, and other — non-utility in the DTE Energy Consolidated Statements of Operations.
DTE Electric and Energy Trading record accruals for future net purchases adjustments based on historical experience and reconcile accruals to actual costs when invoices are received from MISO and other ISOs and RTOs.
Derivatives
Energy Trading classifies derivative transactions as revenue or expense based on the intent of the transaction (buy or sell). Revenues are recorded on a gross or net basis within the income statement depending upon whether it represents a non-trading activity or trading activity, respectively. For additional information, refer to Note 13 to the Consolidated Financial Statements, "Financial and Other Derivative Instruments".
Changes in Accumulated Other Comprehensive Income (Loss)
Comprehensive income (loss) is the change in common shareholders’ equity during a period from transactions and events from non-owner sources, including Net Income. The amounts recorded to Accumulated other comprehensive income (loss) for DTE Energy include changes in benefit obligations, consisting of deferred actuarial losses and prior service costs, unrealized gains and losses from derivatives accounted for as cash flow hedges, and foreign currency translation adjustments. DTE Energy releases income tax effects from accumulated other comprehensive income when the circumstances upon which they are premised cease to exist.
Changes in Accumulated other comprehensive income (loss) are presented in DTE Energy's Consolidated Statements of Changes in Equity and DTE Electric's Consolidated Statements of Changes in Shareholder's Equity, if any. For the years ended December 31, 2021 and 2020, reclassifications out of Accumulated other comprehensive income (loss) were not material.
The following table summarizes the changes in DTE Energy's Accumulated other comprehensive income (loss) by component(a) for the years ended December 31, 2021 and 2020:
Net Unrealized Gain (Loss) on Derivatives | Benefit Obligations(b) | Foreign Currency Translation | Total | ||||||||||||||||||||
(In millions) | |||||||||||||||||||||||
Balance, December 31, 2019 | $ | (25) | $ | (117) | $ | (6) | $ | (148) | |||||||||||||||
Other comprehensive income (loss) before reclassifications | (3) | (2) | 1 | (4) | |||||||||||||||||||
Amounts reclassified from Accumulated other comprehensive loss | 5 | 10 | — | 15 | |||||||||||||||||||
Net current period Other comprehensive income | 2 | 8 | 1 | 11 | |||||||||||||||||||
Balance, December 31, 2020 | $ | (23) | $ | (109) | $ | (5) | $ | (137) | |||||||||||||||
Other comprehensive income before reclassifications | 1 | 1 | — | 2 | |||||||||||||||||||
Amounts reclassified from Accumulated other comprehensive loss | 6 | 7 | — | 13 | |||||||||||||||||||
Net current period Other comprehensive income | 7 | 8 | — | 15 | |||||||||||||||||||
Separation of DT Midstream | 5 | — | 5 | 10 | |||||||||||||||||||
Balance, December 31, 2021 | $ | (11) | $ | (101) | $ | — | $ | (112) |
______________________________________
(a)All amounts are net of tax, except for Foreign currency translation.
(b)The amounts reclassified from Accumulated other comprehensive income (loss) are included in the computation of the net periodic pension and other postretirement benefit costs (see Note 20 to the Consolidated Financial Statements, "Retirement Benefits and Trusteed Assets").
Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents include cash on hand, cash in banks, and temporary investments purchased with remaining maturities of three months or less. Restricted cash consists of funds held in separate bank accounts to satisfy contractual obligations, fund certain construction projects, and guarantee performance. Restricted cash designated for payments within one year is classified as a Current Asset.
76
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Financing Receivables
Financing receivables are primarily composed of trade receivables, notes receivable, and unbilled revenue. The Registrants' financing receivables are stated at net realizable value.
DTE Energy had unbilled revenues of $1.0 billion and $0.8 billion at December 31, 2021 and 2020, respectively, including $270 million and $260 million of DTE Electric unbilled revenues, respectively, included in Customer Accounts receivable.
The Registrants monitor the credit quality of their financing receivables on a regular basis by reviewing credit quality indicators and monitoring for trigger events, such as a credit rating downgrade or bankruptcy. Credit quality indicators include, but are not limited to, ratings by credit agencies where available, collection history, collateral, counterparty financial statements and other internal metrics. Utilizing such data, the Registrants have determined three internal grades of credit quality. Internal grade 1 includes financing receivables for counterparties where credit rating agencies have ranked the counterparty as investment grade. To the extent credit ratings are not available, the Registrants utilize other credit quality indicators to determine the level of risk associated with the financing receivable. Internal grade 1 may include financing receivables for counterparties for which credit rating agencies have ranked the counterparty as below investment grade; however, due to favorable information on other credit quality indicators, the Registrants have determined the risk level to be similar to that of an investment grade counterparty. Internal grade 2 includes financing receivables for counterparties with limited credit information and those with a higher risk profile based upon credit quality indicators. Internal grade 3 reflects financing receivables for which the counterparties have the greatest level of risk, including those in bankruptcy status.
The following represents the Registrants' financing receivables by year of origination, classified by internal grade of credit risk. The related credit quality indicators and risk ratings utilized to develop the internal grades have been updated through December 31, 2021.
DTE Energy | DTE Electric | ||||||||||||||||||||||||||||
Year of origination | |||||||||||||||||||||||||||||
2021 | 2020 | 2019 and prior | Total | 2021 and prior | |||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||||
Notes receivable | |||||||||||||||||||||||||||||
Internal grade 1 | $ | — | $ | — | $ | 21 | $ | 21 | $ | 14 | |||||||||||||||||||
Internal grade 2 | 16 | 107 | 6 | 129 | 3 | ||||||||||||||||||||||||
Total notes receivable(a) | $ | 16 | $ | 107 | $ | 27 | $ | 150 | $ | 17 | |||||||||||||||||||
Net investment in leases | |||||||||||||||||||||||||||||
Net investment in leases, internal grade 1 | $ | — | $ | 1 | $ | 38 | $ | 39 | $ | — | |||||||||||||||||||
Net investment in leases, internal grade 2 | — | 159 | 1 | 160 | — | ||||||||||||||||||||||||
Total net investment in leases(a) | $ | — | $ | 160 | $ | 39 | $ | 199 | $ | — |
_______________________________________
(a)For DTE Energy, included in Current Assets — Other and Other Assets — Notes Receivable on the Consolidated Statements of Financial Position. For DTE Electric, included in Current Assets — Other on the Consolidated Statements of Financial Position.
The allowance for doubtful accounts on accounts receivable for the utility entities is generally calculated using an aging approach that utilizes rates developed in reserve studies. DTE Electric and DTE Gas establish an allowance for uncollectible accounts based on historical losses and management's assessment of existing and future economic conditions, customer trends and other factors. Customer accounts are generally considered delinquent if the amount billed is not received by the due date, which is typically in 21 days, however, factors such as assistance programs may delay aggressive action. DTE Electric and DTE Gas generally assess late payment fees on trade receivables based on past-due terms with customers. Customer accounts are written off when collection efforts have been exhausted. The time period for write-off is 150 days after service has been terminated.
The customer allowance for doubtful accounts for non-utility businesses and other receivables for both utility and non-utility businesses is generally calculated based on specific review of probable future collections based on receivable balances generally in excess of 30 days. Existing and future economic conditions, customer trends and other factors are also considered. Receivables are written off on a specific identification basis and determined based upon the specific circumstances of the associated receivable.
77
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Notes receivable for DTE Energy are primarily comprised of finance lease receivables and loans that are included in Notes Receivable and Other current assets on DTE Energy's Consolidated Statements of Financial Position. Notes receivable for DTE Electric are primarily comprised of loans.
Notes receivable are typically considered delinquent when payment is not received for periods ranging from 60 to 120 days. The Registrants cease accruing interest (nonaccrual status), consider a note receivable impaired, and establish an allowance for credit loss when it is probable that all principal and interest amounts due will not be collected in accordance with the contractual terms of the note receivable. In determining the allowance for credit losses for notes receivable, the Registrants consider the historical payment experience and other factors that are expected to have a specific impact on the counterparty's ability to pay including existing and future economic conditions.
Cash payments received on nonaccrual status notes receivable, that do not bring the account contractually current, are first applied to the contractually owed past due interest, with any remainder applied to principal. Accrual of interest is generally resumed when the note receivable becomes contractually current.
The following tables present a roll-forward of the activity for the Registrants' financing receivables credit loss reserves:
DTE Energy | DTE Electric | ||||||||||||||||||||||
Trade accounts receivable | Other receivables | Total | Trade and other accounts receivable | ||||||||||||||||||||
(In millions) | |||||||||||||||||||||||
Beginning reserve balance, January 1, 2021 | $ | 101 | $ | 3 | $ | 104 | $ | 57 | |||||||||||||||
Current period provision | 53 | 1 | 54 | 36 | |||||||||||||||||||
Write-offs charged against allowance | (126) | (1) | (127) | (77) | |||||||||||||||||||
Recoveries of amounts previously written off | 61 | — | 61 | 38 | |||||||||||||||||||
Ending reserve balance, December 31, 2021 | $ | 89 | $ | 3 | $ | 92 | $ | 54 |
DTE Energy | DTE Electric | ||||||||||||||||||||||
Trade accounts receivable | Other receivables | Total | Trade and other accounts receivable | ||||||||||||||||||||
(In millions) | |||||||||||||||||||||||
Beginning reserve balance, January 1, 2020(a) | $ | 79 | $ | 4 | $ | 83 | $ | 46 | |||||||||||||||
Current period provision | 102 | 3 | 105 | 61 | |||||||||||||||||||
Write-offs charged against allowance | (130) | (4) | (134) | (80) | |||||||||||||||||||
Recoveries of amounts previously written off | 50 | — | 50 | 30 | |||||||||||||||||||
Ending reserve balance, December 31, 2020 | $ | 101 | $ | 3 | $ | 104 | $ | 57 |
_______________________________________
(a)DTE Energy Trade accounts receivable beginning reserve balance excludes $8 million related to the discontinued operations of DT Midstream. Prospective activity includes only the continuing operations of DTE Energy.
Uncollectible expense for the Registrants is primarily comprised of the current period provision for allowance for doubtful accounts and is summarized as follows:
Year Ended December 31, | |||||||||||||||||
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
DTE Energy | $ | 55 | $ | 105 | $ | 106 | |||||||||||
DTE Electric | $ | 36 | $ | 62 | $ | 65 |
There are no material amounts of past due financing receivables for the Registrants as of December 31, 2021.
78
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Inventories
Inventory related to utility and non-utility operations is valued at the lower of cost or net realizable value, where cost is generally valued using average cost. Inventory primarily includes fuel, gas, materials, and supplies. Other inventories include RECs, emission allowances, and other environmental products in the Energy Trading segment.
DTE Gas' natural gas inventory of $50 million and $40 million as of December 31, 2021 and 2020, respectively, is determined using the last-in, first-out (LIFO) method. The replacement cost of gas in inventory exceeded the LIFO cost by $136 million and $62 million at December 31, 2021 and 2020, respectively.
Property, Retirement and Maintenance, and Depreciation and Amortization
Property is stated at cost and includes construction-related labor, materials, overheads, and AFUDC for utility property. The cost of utility properties retired is charged to accumulated depreciation. Expenditures for maintenance and repairs are charged to expense when incurred.
Utility property at DTE Electric and DTE Gas is depreciated over its estimated useful life using straight-line rates approved by the MPSC. DTE Energy's non-utility property is depreciated over its estimated useful life using the straight-line method. Depreciation and amortization expense also includes the amortization of certain regulatory assets for the Registrants.
The cost of nuclear fuel is capitalized. The amortization of nuclear fuel is included within Fuel, purchased power, and gas — utility in the DTE Energy Consolidated Statements of Operations, and Fuel and purchased power in the DTE Electric Consolidated Statements of Operations, and is recorded using the units-of-production method.
See Note 6 to the Consolidated Financial Statements, "Property, Plant, and Equipment."
Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If the carrying amount of the asset exceeds the expected undiscounted future cash flows generated by the asset, an impairment loss is recognized resulting in the asset being written down to its estimated fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell.
Intangible Assets
The Registrants have certain Intangible assets as shown below:
December 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||
Useful Lives | Gross Carrying Value | Accumulated Amortization | Net Carrying Value | Gross Carrying Value | Accumulated Amortization | Net Carrying Value | |||||||||||||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||||||||||||||||
Intangible assets subject to amortization | |||||||||||||||||||||||||||||||||||||||||
Contract intangibles | 6 to 26 years | $ | 271 | $ | (98) | $ | 173 | $ | 271 | $ | (83) | $ | 188 | ||||||||||||||||||||||||||||
Intangible assets not subject to amortization(a) | 4 | — | 4 | 11 | — | 11 | |||||||||||||||||||||||||||||||||||
DTE Energy Long-term intangible assets | $ | 275 | $ | (98) | $ | 177 | $ | 282 | $ | (83) | $ | 199 |
______________________________________
(a)Amounts primarily include Renewable energy credits and Gas carbon offsets that are charged to expense, using average cost, as the credits are consumed in the operation of the business. Amounts include DTE Electric intangible assets of $2 million and $11 million as of December 31, 2021 and 2020, respectively, and are included in Other Assets — Other on the DTE Electric Consolidated Statements of Financial Position.
The following table summarizes DTE Energy's estimated contract intangible amortization expense expected to be recognized during each year through 2026:
2022 | 2023 | 2024 | 2025 | 2026 | |||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||||
Estimated amortization expense | $ | 16 | $ | 16 | $ | 16 | $ | 16 | $ | 14 |
79
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
DTE Energy amortizes contract intangible assets on a straight-line basis over the expected period of benefit. DTE Energy's Intangible assets amortization expense was $16 million in 2021 and 2020 and $9 million in 2019.
Cloud Computing Arrangements
Effective upon the adoption of ASU No. 2018-15 in January 2020, the Registrants capitalize implementation costs incurred in a cloud computing arrangement that is a service contract consistent with capitalized implementation costs incurred to develop or obtain internal-use software. Capitalized costs are recorded in Other noncurrent assets on the Consolidated Statements of Financial Position and amortization of the costs is reflected in Operation and maintenance within the Consolidated Statements of Operations. Costs are amortized on a straight-line basis over the life of the contract. Contracts primarily involve the implementation or upgrade of cloud-based solutions for generation and distribution operations and customer service support.
Capitalized cloud computing costs were $16 million for DTE Energy, including $12 million for DTE Electric, at December 31, 2021. Amortization of these costs was not material for the year ended December 31, 2021. There were no cloud computing costs capitalized in Other noncurrent assets at December 31, 2020.
Excise and Sales Taxes
The Registrants record the billing of excise and sales taxes as a receivable with an offsetting payable to the applicable taxing authority, with no net impact on the Registrants’ Consolidated Statements of Operations.
Deferred Debt Costs
The costs related to the issuance of long-term debt are deferred and amortized over the life of each debt issue. The deferred amounts are included as a direct deduction from the carrying amount of each debt issue in Mortgage bonds, notes, and other and Junior subordinated debentures on DTE Energy's Consolidated Statements of Financial Position and in Mortgage bonds, notes, and other on DTE Electric's Consolidated Statements of Financial Position. In accordance with MPSC regulations applicable to DTE Energy’s electric and gas utilities, the unamortized discount, premium, and expense related to utility debt redeemed with a refinancing are amortized over the life of the replacement issue. Discounts, premiums, and expense on early redemptions of debt associated with DTE Energy's non-utility operations are charged to earnings.
Investments in Debt and Equity Securities
The Registrants generally record investments in debt and equity securities at market value with unrealized gains or losses included in earnings. Changes in the fair value of Fermi 2 nuclear decommissioning investments are recorded as adjustments to Regulatory assets or liabilities, due to a recovery mechanism from customers. The Registrants' equity investments are reviewed for impairment each reporting period. If the assessment indicates that an impairment exists, a loss is recognized resulting in the equity investment being written down to its estimated fair value. See Note 12 of the Consolidated Financial Statements, "Fair Value."
DTE Energy Foundation
DTE Energy's contributions to the DTE Energy Foundation were $25 million and $20 million for the years ended December 31, 2021 and December 31, 2020, respectively. There were no charitable contributions made to the DTE Energy Foundation for the year ended December 31, 2019. The DTE Energy Foundation is a non-consolidated not-for-profit private foundation, the purpose of which is to contribute to and assist charitable organizations.
80
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Other Accounting Policies
See the following notes for other accounting policies impacting the Registrants’ Consolidated Financial Statements:
Note | Title | |||||||
5 | Revenue | |||||||
6 | Property, Plant, and Equipment | |||||||
8 | Asset Retirement Obligations | |||||||
9 | Regulatory Matters | |||||||
10 | Income Taxes | |||||||
12 | Fair Value | |||||||
13 | Financial and Other Derivative Instruments | |||||||
17 | Leases | |||||||
20 | Retirement Benefits and Trusteed Assets | |||||||
21 | Stock-Based Compensation |
NOTE 3 — NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions, and clarifying certain requirements regarding franchise taxes, goodwill, consolidated tax expenses, and annual effective tax rate calculations. The Registrants adopted the ASU effective January 1, 2021 using the modified retrospective and prospective approaches, where applicable. The adoption of the ASU did not have a significant impact on the Registrants' Consolidated Financial Statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting, as amended. The amendments in this update provide optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The optional relief is temporary and cannot be applied to contract modifications and hedging relationships entered into or evaluated after December 31, 2022. The Registrants adopted the ASU and elected the optional expedients for contract modifications prospectively. The adoption of the ASU did not have a significant impact on the registrant's Consolidated Financial Statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. The amendments in this update simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts indexed to and potentially settled in an entity's own equity. The Registrants adopted the ASU effective January 1, 2021 using the modified retrospective approach. The adoption of the ASU did not have a significant impact on the Registrants' Consolidated Financial Statements.
Recently Issued Pronouncements
In July 2021, the FASB issued ASU No. 2021-05, Leases (Topic 842): Lessors – Certain Leases with Variable Lease Payments. The amendments in this update modify lease classification requirements for lessors, providing that lease contracts with variable lease payments that do not depend on a reference index or a rate should be classified as operating leases if they would have been classified as a sales-type or direct financing lease and resulted in the recognition of a selling loss at lease commencement. The ASU is effective for the Registrants for fiscal years beginning after December 15, 2021, and interim periods therein. The Registrants will apply the guidance prospectively. The Registrants are currently assessing the impact of this standard on their Consolidated Financial Statements.
81
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
In October 2021, The FASB issued ASU No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this update require contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. Historically, such amounts were recognized by the acquirer at fair value in acquisition accounting. The ASU is effective for the Registrants for fiscal years beginning after December 15, 2022, and interim periods therein. Early adoption is permitted. The Registrants will apply the guidance prospectively to acquisitions occurring on or after the effective date.
NOTE 4 — DISPOSITIONS AND IMPAIRMENTS
Separation of DT Midstream
On October 27, 2020, DTE Energy announced that its Board of Directors had authorized management to pursue a plan to spin-off its natural gas pipeline, storage and gathering non-utility business. On July 1, 2021, DTE Energy completed the separation of the new company, DT Midstream, through the distribution of 96,732,466 shares of DT Midstream common stock to DTE Energy shareholders. The distribution reflected 100% of the outstanding common stock of DT Midstream as of 5:00 p.m. ET on June 18, 2021 (the “record date”). DTE Energy shareholders received one share of DT Midstream common stock for every two shares of DTE Energy common stock held at the close of business on the record date, with certain shareholders receiving cash in lieu of fractional shares of DT Midstream common stock. For U.S. federal income tax purposes, DTE Energy’s U.S. shareholders generally should not recognize gain or loss as a result of the distribution of DT Midstream stock, except with respect to cash received in lieu of fractional shares.
In June 2021, in order to facilitate the separation and settle intercompany balances with DTE Energy, DT Midstream issued long-term debt in the form of $2.1 billion senior notes and a $1.0 billion term loan. Using the debt proceeds, net of discount and issuance costs of $53 million, DT Midstream made the following cash payments:
•Settled Short-term borrowings due to DTE Energy as of June 30, 2021 of $2,537 million
•Settled affiliate Accounts receivable due from DTE Energy and affiliate Accounts payable due to DTE Energy as of June 30, 2021 for net cash paid to DTE Energy of $9 million
•Provided a one-time special dividend to DTE Energy of $501 million
These payments eliminated in consolidation and had no direct impact on DTE Energy’s Consolidated Financial Statements of Financial Position. During the third quarter 2021, DTE Energy used the proceeds received from DT Midstream to optionally redeem $2.6 billion of long-term debt. Refer to Note 10 to the Consolidated Financial Statements, “Long-term Debt,” for additional information.
Continuing Involvement
Following the separation on July 1, 2021, DT Midstream became an independent public company listed under the symbol “DTM” on the New York Stock Exchange (NYSE) and DTE Energy no longer retains any ownership in DT Midstream. In order to govern the ongoing relationships between DT Midstream and DTE Energy after the separation and to facilitate an orderly transition, the parties entered into a series of agreements including the following:
•Separation and Distribution Agreement – sets forth the principal actions to be taken in connection with the separation, including the transfer of assets and assumption of liabilities, among others, and sets forth other agreements governing aspects of the relationship between DTE Energy and DT Midstream
•Transition Services Agreement – allows for DTE Energy to provide DT Midstream with specified services for a limited time and no longer than 24 months following the separation, with related costs to be paid by DT Midstream. Services include support for gas operations, information technology, accounting, tax, legal, human resources, and various other administrative services
•Tax Matters Agreement – governs the respective rights, responsibilities and obligations of DTE Energy and DT Midstream after the separation with respect to all tax matters
•Employee Matters Agreement – addresses certain employment, compensation and benefits matters, including the allocation and treatment of certain assets and liabilities relating to DT Midstream employees
82
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
In addition, DTE Energy and its subsidiaries have various commercial agreements that are continuing after the separation. These agreements include certain pipeline, gathering, and storage services and operating and maintenance agreements, and are not considered material to the Consolidated Financial Statements.
Discontinued Operations
The table below reflects the financial results of DT Midstream that have been reclassified from continuing operations and included in discontinued operations within the Consolidated Statements of Operations. These results include the impact of tax-related adjustments and all transaction costs related to the separation. General corporate overhead costs have been excluded and no portion of corporate interest costs were allocated to discontinued operations.
Year Ended December 31, | |||||||||||||||||
2021 | 2020 | 2019 | |||||||||||||||
Operating Revenues — Non-utility operations | $ | 405 | $ | 754 | $ | 501 | |||||||||||
Operating Expenses | |||||||||||||||||
Cost of gas and other — non-utility | 15 | 21 | 18 | ||||||||||||||
Operation and maintenance(a) | 123 | 138 | 103 | ||||||||||||||
Depreciation and amortization | 82 | 151 | 94 | ||||||||||||||
Taxes other than income | 13 | 15 | 8 | ||||||||||||||
Asset (gains) losses and impairments, net | 17 | (2) | 1 | ||||||||||||||
250 | 323 | 224 | |||||||||||||||
Operating Income | 155 | 431 | 277 | ||||||||||||||
Other (Income) and Deductions | |||||||||||||||||
Interest expense | 50 | 113 | 73 | ||||||||||||||
Interest income | (4) | (9) | (8) | ||||||||||||||
Other income | (62) | (129) | (100) | ||||||||||||||
Other expenses | — | — | 1 | ||||||||||||||
(16) | (25) | (34) | |||||||||||||||
Income from Discontinued Operations Before Income Taxes | 171 | 456 | 311 | ||||||||||||||
Income Tax Expense | 54 | 130 | 81 | ||||||||||||||
Net Income from Discontinued Operations, Net of Taxes | 117 | 326 | 230 | ||||||||||||||
Less: Net Income Attributable to Noncontrolling Interests | 6 | 12 | 16 | ||||||||||||||
Net Income from Discontinued Operations | $ | 111 | $ | 314 | $ | 214 |
_______________________________________
(a)Includes separation transaction costs of $59 million and $8 million for the years ended December 31, 2021 and 2020, respectively, for various legal, accounting and other professional services fees.
83
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The table below reflects the major assets and liabilities that were transferred to DT Midstream and presented as discontinued operations in the Consolidated Statements of Financial Position as of December 31, 2020.
December 31, 2020 | |||||
(In millions) | |||||
Total Assets of Discontinued Operations | |||||
Cash | $ | 42 | |||
Accounts receivable | 126 | ||||
Inventories | 8 | ||||
Other | 44 | ||||
Current assets of DT Midstream | 220 | ||||
Less: Previously affiliated amounts eliminated at DTE Energy | 3 | ||||
Current assets of discontinued operations for DTE Energy | 217 | ||||
Investments in equity method investees | 1,691 | ||||
Net property, plant, and equipment | 3,470 | ||||
Goodwill | 473 | ||||
Intangible assets | 2,140 | ||||
Notes receivable | 19 | ||||
Operating lease right-of-use assets | 45 | ||||
Other | 21 | ||||
Noncurrent assets of discontinued operations for DTE Energy | 7,859 | ||||
Total Assets of Discontinued Operations for DTE Energy | $ | 8,076 | |||
Total Liabilities of Discontinued Operations | |||||
Accounts payable | $ | 39 | |||
Operating lease liabilities | 17 | ||||
Short-term borrowings due to DTE Energy | 2,913 | ||||
Other | 53 | ||||
Current liabilities of DT Midstream | 3,022 | ||||
Less: Previously affiliated amounts eliminated at DTE Energy | 2,923 | ||||
Current liabilities of discontinued operations for DTE Energy | 99 | ||||
Deferred income taxes | 753 | ||||
Asset retirement obligations | 10 | ||||
Operating lease liabilities | 28 | ||||
Other | 45 | ||||
Noncurrent liabilities of discontinued operations for DTE Energy | 836 | ||||
Total Liabilities of Discontinued Operations for DTE Energy | $ | 935 |
There were no assets or liabilities from discontinued operations as of December 31, 2021. DT Midstream had net assets of $4.0 billion that separated on July 1, 2021 that resulted in a reduction to DTE Energy's equity. Refer to the Separation of DT Midstream line within DTE Energy's Consolidated Statements of Changes in Equity for further details.
84
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The following table is a summary of significant non-cash items, capital expenditures, and significant financing activities of discontinued operations included in DTE Energy's Consolidated Statements of Cash Flows:
Year Ended December 31, | |||||||||||||||||
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Operating Activities | |||||||||||||||||
Depreciation and amortization | $ | 82 | $ | 151 | $ | 94 | |||||||||||
Deferred income taxes | 53 | 125 | 78 | ||||||||||||||
Equity earnings of equity method investees | (59) | (106) | (97) | ||||||||||||||
Asset (gains) losses and impairments, net | 19 | (2) | 1 | ||||||||||||||
Investing Activities | |||||||||||||||||
Plant and equipment expenditures — non-utility | $ | (60) | $ | (517) | $ | (214) | |||||||||||
Acquisitions related to business combinations, net of cash acquired | — | — | (2,296) | ||||||||||||||
Financing Activities | |||||||||||||||||
Purchase of noncontrolling interest | $ | — | $ | — | $ | (297) | |||||||||||
Acquisition related deferred payment, excluding accretion | — | (380) | — |
DTE Vantage Segment Impairment
DTE Vantage owns a pulverized coal facility located at DTE Electric’s River Rouge power plant. The facility provides pulverized coal to a steel industry customer through a supply agreement expiring in 2028. The River Rouge plant provides operation and maintenance services to the facility through an agreement which also expires in 2028.
During the second quarter 2021, DTE Electric retired the River Rouge plant and provided an early termination notice of the operation and maintenance services agreement with the pulverized coal facility. The termination became effective December 31, 2021 and DTE Vantage has ceased operations at the facility.
In connection with these events, DTE Energy performed an impairment analysis of the pulverized coal facility long-lived assets in accordance with ASC 360, Property, Plant and Equipment. Based on its undiscounted cash flow projections, DTE Energy determined that the carrying value of the pulverized coal facility asset group is not recoverable. As a result, DTE Energy recorded a non-cash impairment charge of $27 million, which is included in Asset (gains) losses and impairments, net on DTE Energy’s Consolidated Statements of Operations for the year ended December 31, 2021. The charge included $18 million to fully impair the long-lived assets recorded to Property, plant and equipment and a $9 million write-down of Other noncurrent assets to fair value. Fair value of the assets was determined using an income approach, which utilized assumptions including management’s best estimates of the expected future cash flows, the estimated useful life of the asset group and discount rate.
During the fourth quarter 2021, DTE Energy terminated the supply agreement with the steel industry customer and settled all outstanding claims. As a result, DTE Energy reversed $17 million of deferred revenues that were previously recorded, which increased Operating Revenues - Non-utility operations for the year ended December 31, 2021.
NOTE 5 — REVENUE
Significant Accounting Policy
Revenue is measured based upon the consideration specified in a contract with a customer at the time when performance obligations are satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service or a series of distinct goods or services to the customer. The Registrants recognize revenue when performance obligations are satisfied by transferring control over a product or service to a customer. The Registrants have determined control to be transferred when the product is delivered, or the service is provided to the customer.
85
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Rates for DTE Electric and DTE Gas include provisions to adjust billings for fluctuations in fuel and purchased power costs, cost of natural gas, and certain other costs. Revenues are adjusted for differences between actual costs subject to reconciliation and the amounts billed in current rates. Under or over recovered revenues related to these cost recovery mechanisms are included in Regulatory assets or liabilities on the Registrants' Consolidated Statements of Financial Position and are recovered or returned to customers through adjustments to the billing factors.
For discussion of derivative contracts, see Note 13 to the Consolidated Financial Statements, "Financial and Other Derivative Instruments."
Disaggregation of Revenue
The following is a summary of revenues disaggregated by segment for DTE Energy:
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Electric(a) | |||||||||||||||||
Residential | $ | 2,926 | $ | 2,825 | $ | 2,427 | |||||||||||
Commercial | 1,908 | 1,739 | 1,795 | ||||||||||||||
Industrial | 628 | 592 | 659 | ||||||||||||||
Other(b) | 359 | 364 | 348 | ||||||||||||||
Total Electric operating revenues | $ | 5,821 | $ | 5,520 | $ | 5,229 | |||||||||||
Gas | |||||||||||||||||
Gas sales | $ | 1,058 | $ | 971 | $ | 1,043 | |||||||||||
End User Transportation | 233 | 218 | 219 | ||||||||||||||
Intermediate Transportation | 82 | 79 | 78 | ||||||||||||||
Other(b) | 180 | 146 | 142 | ||||||||||||||
Total Gas operating revenues | $ | 1,553 | $ | 1,414 | $ | 1,482 | |||||||||||
Other segment operating revenues | |||||||||||||||||
DTE Vantage | $ | 1,482 | $ | 1,224 | $ | 1,560 | |||||||||||
Energy Trading | $ | 6,831 | $ | 3,863 | $ | 4,610 |
_______________________________________
(a)Revenues generally represent those of DTE Electric, except $12 million, $14 million, and $5 million of Other revenues related to DTE Sustainable Generation for the years ended December 31, 2021, 2020, and 2019, respectively.
(b)Includes revenue adjustments related to various regulatory mechanisms.
Revenues included the following which were outside the scope of Topic 606:
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Electric — Alternative Revenue Programs | $ | 36 | $ | 26 | $ | 22 | |||||||||||
Electric — Other revenues | 19 | 22 | 19 | ||||||||||||||
Gas — Alternative Revenue Programs | 10 | 10 | 8 | ||||||||||||||
Gas — Other revenues | 6 | 8 | 7 | ||||||||||||||
DTE Vantage — Leases | 103 | 99 | 121 | ||||||||||||||
Energy Trading — Derivatives | 5,603 | 2,690 | 3,415 |
Nature of Goods and Services
The following is a description of principal activities, separated by reportable segments, from which DTE Energy generates revenue. For more detailed information about reportable segments, see Note 22 to the Consolidated Financial Statements, “Segment and Related Information.”
86
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The Registrants have contracts with customers which may contain more than one performance obligation. When more than one performance obligation exists in a contract, the consideration under the contract is allocated to the performance obligations based on the relative standalone selling price. DTE Energy generally determines standalone selling prices based on the prices charged to customers or the use of the adjusted market assessment approach. The adjusted market assessment approach involves the evaluation of the market in which DTE Energy sells goods or services and estimating the price that a customer in that market would be willing to pay.
Under Topic 606, when a customer simultaneously receives and consumes the product or service provided, revenue is considered to be recognized over time. Alternatively, if it is determined that the criteria for recognition of revenue over time is not met, the revenue is considered to be recognized at a point in time.
Electric
Electric consists principally of DTE Electric. Electric revenues are primarily comprised of the supply and delivery of electricity, and related capacity. Revenues are primarily associated with cancellable contracts, with the exception of certain long-term contracts with commercial and industrial customers. Revenues, including estimated unbilled amounts, are generally recognized over time based upon volumes delivered or through the passage of time ratably based upon providing a stand-ready service. The Registrants have determined that the above methods represent a faithful depiction of the transfer of control to the customer. Unbilled revenues are typically determined utilizing approved tariff rates and estimated meter volumes. Estimated unbilled amounts recognized in revenue are subject to adjustment in the following reporting period as actual volumes by customer class are known. Revenues are typically subject to tariff rates based upon customer class and type of service and are billed and received monthly. Tariff rates are determined by the MPSC on a per unit or monthly basis.
Gas
Gas consists principally of DTE Gas. Gas revenues are primarily comprised of the supply and delivery of natural gas, and other services including storage, transportation, and appliance maintenance. Revenues are primarily associated with cancellable contracts with the exception of certain long-term contracts with commercial and industrial customers. Revenues, including estimated unbilled amounts, are generally recognized over time based upon volumes delivered or through the passage of time ratably based upon providing a stand-ready service. DTE Energy has determined that the above methods represent a faithful depiction of the transfer of control to the customer. Unbilled revenues are typically determined using both estimated meter volumes and estimated usage based upon the number of unbilled days and historical temperatures. Estimated unbilled amounts recognized in revenue are subject to adjustment in the following reporting period as actual volumes by customer class and service type are known. Revenues are typically subject to tariff rates or other rates subject to regulatory oversight and are billed and received monthly. Tariff rates are determined by the MPSC on a per unit or monthly basis.
DTE Vantage
DTE Vantage revenues include contracts accounted for as leases which are outside of the scope of Topic 606. For performance obligations within the scope of Topic 606, the timing of revenue recognition is dependent upon when control over the associated product or service is transferred.
Revenues at DTE Vantage, within the scope of Topic 606, generally consist of sales of refined coal, coal, blast furnace coke, coke oven gas, electricity, equipment maintenance services, and other energy related products and services. Revenues, including estimated unbilled amounts, for the sale of blast furnace coke are generally recognized at a point in time when the product is delivered, which represents the transfer of control to the customer. Other revenues are generally recognized over time based upon services provided or through the passage of time ratably based upon providing a stand-ready service. DTE Energy has determined that the above methods represent a faithful depiction of the transfer of control to the customer. Market based pricing structures exist in such contracts including adjustments for consumer price or other indices. Consideration may consist of both fixed and variable components. Generally, uncertainties in the variable consideration components are resolved, and revenues are known at the time of recognition. Billing terms vary and are generally monthly with payment terms typically within 30 days following billing.
Energy Trading
Energy Trading revenues consist primarily of derivative contracts outside of the scope of Topic 606. For performance obligations within the scope of Topic 606, the timing of revenue recognition is dependent upon when control over the associated product or service is transferred.
87
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Revenues, including estimated unbilled amounts, within the scope of Topic 606 arising from the sale of natural gas, electricity, power capacity, and other energy related products are generally recognized over time based upon volumes delivered or through the passage of time ratably based upon providing a stand-ready service. DTE Energy has determined that the above methods represent a faithful depiction of the transfer of control to the customer. Revenues are known at the time of recognition. Payment for the aforementioned revenues is generally due from customers in the month following delivery.
Revenues associated with RECs and other environmental products are recognized at a point in time when control is transferred to the customer which is deemed to be when these products are entered for transfer to the customer in the applicable tracking system. Revenues associated with RECs under a wholesale full requirements power contract are deferred until control has been transferred. The deferred revenues represent a contract liability for which payment has been received and the amounts have been estimated using the adjusted market assessment approach. With the exception of RECs, generally all other performance obligations associated with wholesale full requirements power contracts are satisfied over time in conjunction with the delivery of power. At the time power is delivered, DTE Energy may not have control over the RECs as the RECs are not self-generated and may not yet have been procured resulting in deferred revenues.
Deferred Revenue
The following is a summary of deferred revenue activity:
DTE Energy | |||||
(In millions) | |||||
Beginning Balance, January 1, 2021(a) | $ | 65 | |||
Increases due to cash received or receivable, excluding amounts recognized as revenue during the period | 72 | ||||
Revenue recognized that was included in the deferred revenue balance at the beginning of the period | (59) | ||||
Ending Balance, December 31, 2021 | $ | 78 |
_______________________________________
(a)Excludes $22 million of deferred revenue related to the discontinued operations of DT Midstream. Prospective activity includes only the continuing operations of DTE Energy.
The deferred revenues at DTE Energy generally represent amounts paid by or receivable from customers for which the associated performance obligation has not yet been satisfied.
Deferred revenues include amounts associated with REC performance obligations under certain wholesale full requirements power contracts. Deferred revenues associated with RECs are recognized as revenue when control of the RECs has transferred.
Other performance obligations associated with deferred revenues include providing products and services related to customer prepayments. Deferred revenues associated with these products and services are recognized when control has transferred to the customer.
The following table represents deferred revenue amounts for DTE Energy that are expected to be recognized as revenue in future periods:
DTE Energy | |||||
(In millions) | |||||
2022 | $ | 75 | |||
2023 | 1 | ||||
2024 | 1 | ||||
2025 | — | ||||
2026 | — | ||||
2027 and thereafter | 1 | ||||
$ | 78 |
88
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Transaction Price Allocated to the Remaining Performance Obligations
In accordance with optional exemptions available under Topic 606, the Registrants did not disclose the value of unsatisfied performance obligations for (1) contracts with an original expected length of one year or less, (2) with the exception of fixed consideration, contracts for which revenue is recognized at the amount to which the Registrants have the right to invoice for goods provided and services performed, and (3) contracts for which variable consideration relates entirely to an unsatisfied performance obligation.
Such contracts consist of varying types of performance obligations across the segments, including the supply and delivery of energy related products and services. Contracts with variable volumes and/or variable pricing, including those with pricing provisions tied to a consumer price or other index, have also been excluded as the related consideration under the contract is variable at inception of the contract. Contract lengths vary from cancellable to multi-year.
The Registrants expect to recognize revenue for the following amounts related to fixed consideration associated with remaining performance obligations in each of the future periods noted:
DTE Energy | DTE Electric | ||||||||||
(In millions) | |||||||||||
2022 | $ | 292 | $ | 8 | |||||||
2023 | 285 | 8 | |||||||||
2024 | 171 | 8 | |||||||||
2025 | 91 | — | |||||||||
2026 | 59 | — | |||||||||
2027 and thereafter | 364 | — | |||||||||
$ | 1,262 | $ | 24 |
89
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
NOTE 6 — PROPERTY, PLANT, AND EQUIPMENT
The following is a summary of Property, plant, and equipment by classification as of December 31:
2021 | 2020 | ||||||||||
Property, plant, and equipment | (In millions) | ||||||||||
DTE Electric | |||||||||||
Zero carbon generation | |||||||||||
Nuclear | $ | 3,394 | $ | 3,295 | |||||||
Renewables | 2,522 | 1,817 | |||||||||
Fossil and other generation | 8,640 | 8,031 | |||||||||
Distribution | 11,414 | 10,354 | |||||||||
Other | 2,879 | 2,674 | |||||||||
Total DTE Electric | 28,849 | 26,171 | |||||||||
DTE Gas | |||||||||||
Distribution | 4,900 | 4,517 | |||||||||
Storage | 593 | 576 | |||||||||
Transmission and other | 1,415 | 1,341 | |||||||||
Total DTE Gas | 6,908 | 6,434 | |||||||||
DTE Vantage | 1,118 | 1,194 | |||||||||
Other | 208 | 217 | |||||||||
Total DTE Energy | $ | 37,083 | $ | 34,016 | |||||||
Accumulated depreciation and amortization | |||||||||||
DTE Electric | |||||||||||
Zero carbon generation | |||||||||||
Nuclear | $ | (413) | $ | (373) | |||||||
Renewables | (357) | (295) | |||||||||
Fossil and other generation | (3,214) | (3,014) | |||||||||
Distribution | (2,842) | (2,686) | |||||||||
Other | (850) | (682) | |||||||||
Total DTE Electric | (7,676) | (7,050) | |||||||||
DTE Gas | |||||||||||
Distribution | (1,265) | (1,215) | |||||||||
Storage | (154) | (146) | |||||||||
Transmission and other | (426) | (403) | |||||||||
Total DTE Gas | (1,845) | (1,764) | |||||||||
DTE Vantage | (545) | (619) | |||||||||
Other | (73) | (84) | |||||||||
Total DTE Energy | $ | (10,139) | $ | (9,517) | |||||||
Net DTE Energy Property, plant, and equipment | $ | 26,944 | $ | 24,499 | |||||||
Net DTE Electric Property, plant, and equipment | $ | 21,173 | $ | 19,121 |
AFUDC and Capitalized Interest
AFUDC represents the cost of financing construction projects for regulated businesses, including the estimated cost of debt and authorized return-on-equity. The debt component is recorded as a reduction to interest expense and the equity component is recorded as other income. Non-regulated businesses record capitalized interest as a reduction to interest expense.
The AFUDC and capitalized interest rates were as follows for the years ended December 31:
2021 | 2020 | 2019 | |||||||||||||||
DTE Electric AFUDC | 5.46 | % | 5.47 | % | 5.43 | % | |||||||||||
DTE Gas AFUDC | 5.55 | % | 5.56 | % | 5.56 | % | |||||||||||
Non-regulated businesses capitalized interest | 3.30 | % | 3.90 | % | 4.00 | % |
90
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The following is a summary of AFUDC and interest capitalized for the years ended December 31:
2021 | 2020 | 2019 | |||||||||||||||
DTE Energy | (In millions) | ||||||||||||||||
Allowance for debt funds used during construction and interest capitalized | $ | 12 | $ | 11 | $ | 14 | |||||||||||
Allowance for equity funds used during construction | 27 | 25 | 24 | ||||||||||||||
Total | $ | 39 | $ | 36 | $ | 38 |
2021 | 2020 | 2019 | |||||||||||||||
DTE Electric | (In millions) | ||||||||||||||||
Allowance for debt funds used during construction | $ | 11 | $ | 10 | $ | 10 | |||||||||||
Allowance for equity funds used during construction | 25 | 23 | 22 | ||||||||||||||
Total | $ | 36 | $ | 33 | $ | 32 |
Depreciation and Amortization
The composite depreciation rate for DTE Electric was approximately 4.2%, 4.2%, and 4.0% in 2021, 2020 and 2019, respectively. The composite depreciation rate for DTE Gas was 2.9%, 2.8%, and 2.7% in 2021, 2020, and 2019, respectively. The average estimated useful life for each major class of utility Property, plant, and equipment as of December 31, 2021 follows:
Estimated Useful Lives in Years | ||||||||||||||||||||
Utility | Generation | Distribution | Storage | |||||||||||||||||
DTE Electric | 34 | 38 | N/A | |||||||||||||||||
DTE Gas | N/A | 49 | 58 |
The estimated useful lives for DTE Electric's Other utility assets range from 3 to 80 years, while the estimated useful lives for DTE Gas' Transmission and other utility assets range from 3 to 80 years. The estimated useful lives for major classes of DTE Energy's non-utility assets and facilities range from 3 to 50 years.
The following is a summary of Depreciation and amortization expense for DTE Energy:
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Property, plant, and equipment | $ | 1,095 | $ | 1,025 | $ | 927 | |||||||||||
Regulatory assets and liabilities | 259 | 244 | 227 | ||||||||||||||
Intangible assets | 16 | 16 | 9 | ||||||||||||||
Other | 7 | 7 | 6 | ||||||||||||||
$ | 1,377 | $ | 1,292 | $ | 1,169 |
The following is a summary of Depreciation and amortization expense for DTE Electric:
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Property, plant, and equipment | $ | 890 | $ | 831 | $ | 748 | |||||||||||
Regulatory assets and liabilities | 214 | 207 | 193 | ||||||||||||||
Other | 5 | 5 | 5 | ||||||||||||||
$ | 1,109 | $ | 1,043 | $ | 946 |
91
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Capitalized Software
Capitalized software costs are classified as Property, plant, and equipment and the related amortization is included in accumulated depreciation and amortization on the Registrants' Consolidated Financial Statements. The Registrants capitalize the costs associated with computer software developed or obtained for use in their businesses. The Registrants amortize capitalized software costs on a straight-line basis over the expected period of benefit, ranging from 3 to 15 years for both DTE Energy and DTE Electric.
The following balances for capitalized software relate to DTE Energy:
Year Ended December 31, | |||||||||||||||||
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Amortization expense of capitalized software | $ | 145 | $ | 128 | $ | 122 | |||||||||||
Gross carrying value of capitalized software | $ | 920 | $ | 863 | |||||||||||||
Accumulated amortization of capitalized software | $ | 493 | $ | 430 |
The following balances for capitalized software relate to DTE Electric:
Year Ended December 31, | |||||||||||||||||
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Amortization expense of capitalized software | $ | 132 | $ | 118 | $ | 112 | |||||||||||
Gross carrying value of capitalized software | $ | 826 | $ | 756 | |||||||||||||
Accumulated amortization of capitalized software | $ | 439 | $ | 363 |
NOTE 7 — JOINTLY-OWNED UTILITY PLANT
DTE Electric has joint ownership interest in two power plants, Belle River and Ludington Hydroelectric Pumped Storage. DTE Electric’s share of direct expenses of the jointly-owned plants are included in Fuel, purchased power, and gas — utility and Operation and maintenance expenses in the DTE Energy Consolidated Statements of Operations and Fuel and purchased power— utility and Operation and maintenance expenses in the DTE Electric Consolidated Statements of Operations.
DTE Electric's ownership information of the two utility plants as of December 31, 2021 was as follows:
Belle River | Ludington Hydroelectric Pumped Storage | ||||||||||
In-service date | 1984-1985 | 1973 | |||||||||
Total plant capacity | 1,270 MW | 2,220 MW | |||||||||
Ownership interest | 81% | 49% | |||||||||
Investment in Property, plant, and equipment (in millions) | $ | 1,952 | $ | 618 | |||||||
Accumulated depreciation (in millions) | $ | 1,007 | $ | 128 |
Belle River
The Michigan Public Power Agency (MPPA) has ownership interests in Belle River Unit No. 1 and other related facilities. The MPPA is entitled to 19% of the total capacity and energy of the plant and is responsible for the same percentage of the plant’s operation, maintenance, and capital improvement costs.
92
Ludington Hydroelectric Pumped Storage
Consumers Energy Company has an ownership interest in the Ludington Hydroelectric Pumped Storage Plant. Consumers Energy is entitled to 51% of the total capacity and energy of the plant and is responsible for the same percentage of the plant’s operation, maintenance, and capital improvement costs.
NOTE 8 — ASSET RETIREMENT OBLIGATIONS
DTE Electric has a legal retirement obligation for the decommissioning costs for its Fermi 1 and Fermi 2 nuclear plants, dismantlement of facilities located on leased property, and various other operations. DTE Electric has conditional retirement obligations for asbestos and PCB removal at certain of its power plants and various distribution equipment. DTE Gas has conditional retirement obligations for gas pipelines, certain service centers, compressor and gate stations. The Registrants recognize such obligations as liabilities at fair market value when they are incurred, which generally is at the time the associated assets are placed in service. Fair value is measured using expected future cash outflows discounted at the Registrants' credit-adjusted risk-free rate. For its utility operations, the Registrants recognize in the Consolidated Statements of Operations removal costs in accordance with regulatory treatment. Any differences between costs recognized related to asset retirement and those reflected in rates are recognized as either a Regulatory asset or liability on the Consolidated Statements of Financial Position.
If a reasonable estimate of fair value cannot be made in the period in which the retirement obligation is incurred, such as for assets with indeterminate lives, the liability is recognized when a reasonable estimate of fair value can be made. Natural gas storage system and certain other distribution assets for DTE Gas and substations, manholes, and certain other distribution assets for DTE Electric have an indeterminate life. Therefore, no liability has been recorded for these assets.
Changes to asset retirement obligations for 2021, 2020, and 2019 were as follows:
2021 | 2020 | 2019 | |||||||||||||||
DTE Energy | (In millions) | ||||||||||||||||
Asset retirement obligations at January 1 | $ | 2,829 | $ | 2,656 | $ | 2,463 | |||||||||||
Accretion | 167 | 156 | 148 | ||||||||||||||
Liabilities incurred | 28 | 24 | 11 | ||||||||||||||
Liabilities settled | (30) | (13) | (17) | ||||||||||||||
Revision in estimated cash flows | 168 | 6 | 51 | ||||||||||||||
Asset retirement obligations at December 31 | $ | 3,162 | $ | 2,829 | $ | 2,656 |
2021 | 2020 | 2019 | |||||||||||||||
DTE Electric | (In millions) | ||||||||||||||||
Asset retirement obligations at January 1 | $ | 2,607 | $ | 2,447 | $ | 2,271 | |||||||||||
Accretion | 155 | 145 | 138 | ||||||||||||||
Liabilities incurred | 29 | 18 | 1 | ||||||||||||||
Liabilities settled | (27) | (8) | (14) | ||||||||||||||
Revision in estimated cash flows | 168 | 5 | 51 | ||||||||||||||
Asset retirement obligations at December 31 | $ | 2,932 | $ | 2,607 | $ | 2,447 |
Approximately $2.4 billion of the asset retirement obligations represent nuclear decommissioning liabilities that are funded through a surcharge to electric customers over the life of the Fermi 2 nuclear plant. The NRC has jurisdiction over the decommissioning of nuclear power plants and requires minimum decommissioning funding based upon a formula. The MPSC and FERC regulate the recovery of costs of decommissioning nuclear power plants and both require the use of external trust funds to finance the decommissioning of Fermi 2. Rates approved by the MPSC provide for the recovery of decommissioning costs of Fermi 2 and the disposal of low-level radioactive waste. DTE Electric believes the MPSC collections will be adequate to fund the estimated cost of decommissioning. The decommissioning assets, anticipated earnings thereon, and future revenues from decommissioning collections will be used to decommission Fermi 2. DTE Electric expects the liabilities to be reduced to zero at the conclusion of the decommissioning activities. If amounts remain in the trust funds for Fermi 2 following the completion of the decommissioning activities, those amounts will be disbursed based on rulings by the MPSC and FERC.
93
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
A portion of the funds recovered through the Fermi 2 decommissioning surcharge and deposited in external trust accounts is designated for the removal of non-radioactive assets and returning the site to greenfield. This removal and greenfielding is not considered a legal liability. Therefore, it is not included in the asset retirement obligation, but is reflected as the Nuclear decommissioning liability. The decommissioning of Fermi 1 is funded by DTE Electric. Contributions to the Fermi 1 trust are discretionary. For additional discussion of Nuclear decommissioning trust fund assets, see Note 12 to the Consolidated Financial Statements, "Fair Value."
NOTE 9 — REGULATORY MATTERS
Regulation
DTE Electric and DTE Gas are subject to the regulatory jurisdiction of the MPSC, which issues orders pertaining to rates, recovery of certain costs, including the costs of generating facilities and regulatory assets, conditions of service, accounting, and operating-related matters. DTE Electric is also regulated by the FERC with respect to financing authorization, wholesale electric market activities, certain affiliate transactions, the acquisition and disposition of certain generation and other facilities, and, in conjunction with the NERC, compliance with mandatory reliability standards. Regulation results in differences in the application of generally accepted accounting principles between regulated and non-regulated businesses.
The Registrants are unable to predict the outcome of any unresolved regulatory matters discussed herein. Resolution of these matters is dependent upon future MPSC and FERC orders and appeals, which may materially impact the Consolidated Financial Statements of the Registrants.
Regulatory Assets and Liabilities
DTE Electric and DTE Gas are required to record Regulatory assets and liabilities for certain transactions that would have been treated as revenue or expense in non-regulated businesses. Continued applicability of regulatory accounting treatment requires that rates be designed to recover specific costs of providing regulated services and be charged to and collected from customers. Future regulatory changes could result in the discontinuance of this accounting treatment for Regulatory assets and liabilities for some or all of the Registrants' businesses and may require the write-off of the portion of any Regulatory asset or liability that was no longer probable of recovery through regulated rates. Management believes that currently available facts support the continued use of Regulatory assets and liabilities and that all Regulatory assets and liabilities are recoverable or refundable in the current regulatory environment.
94
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The following are balances and a brief description of the Registrants' Regulatory assets and liabilities at December 31:
DTE Energy | DTE Electric | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Assets | (In millions) | ||||||||||||||||||||||
Recoverable pension and other postretirement costs | |||||||||||||||||||||||
Pension | $ | 1,372 | $ | 1,938 | $ | 1,056 | $ | 1,477 | |||||||||||||||
Other postretirement costs | 53 | 165 | 27 | 108 | |||||||||||||||||||
Recoverable undepreciated costs on retiring plants | 667 | 664 | 667 | 664 | |||||||||||||||||||
Fermi 2 asset retirement obligation | 613 | 645 | 613 | 645 | |||||||||||||||||||
Enhanced Tree Trimming Program deferred costs | 189 | 119 | 189 | 119 | |||||||||||||||||||
Recoverable Michigan income taxes | 163 | 176 | 133 | 142 | |||||||||||||||||||
Accrued PSCR/GCR revenue | 160 | 100 | 142 | 100 | |||||||||||||||||||
Energy Waste Reduction incentive | 79 | 62 | 63 | 49 | |||||||||||||||||||
Recoverable income taxes related to AFUDC equity | 68 | 64 | 61 | 54 | |||||||||||||||||||
Deferred environmental costs | 51 | 57 | — | — | |||||||||||||||||||
Unamortized loss on reacquired debt | 51 | 55 | 38 | 41 | |||||||||||||||||||
Customer360 deferred costs | 46 | 51 | 46 | 51 | |||||||||||||||||||
Nuclear Performance Evaluation and Review Committee Tracker | 39 | 55 | 39 | 55 | |||||||||||||||||||
Non-service pension and other postretirement costs | 25 | 21 | — | — | |||||||||||||||||||
Energy Waste Reduction | 20 | 19 | — | — | |||||||||||||||||||
Other recoverable income taxes | 16 | 19 | 16 | 19 | |||||||||||||||||||
Transitional Reconciliation Mechanism | 8 | 11 | 8 | 11 | |||||||||||||||||||
Other | 57 | 33 | 38 | 28 | |||||||||||||||||||
3,677 | 4,254 | 3,136 | 3,563 | ||||||||||||||||||||
Less amount included in Current Assets | (195) | (129) | (168) | (123) | |||||||||||||||||||
$ | 3,482 | $ | 4,125 | $ | 2,968 | $ | 3,440 | ||||||||||||||||
DTE Energy | DTE Electric | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Liabilities | (In millions) | ||||||||||||||||||||||
Refundable federal income taxes | $ | 2,117 | $ | 2,255 | $ | 1,729 | $ | 1,827 | |||||||||||||||
Removal costs liability | 679 | 831 | 283 | 410 | |||||||||||||||||||
Negative other postretirement offset | 150 | 122 | 106 | 86 | |||||||||||||||||||
Non-service pension and other postretirement costs | 110 | 78 | 54 | 36 | |||||||||||||||||||
Incremental tree trim surge | 90 | — | 90 | — | |||||||||||||||||||
COVID-19 voluntary refund | 30 | 30 | 30 | 30 | |||||||||||||||||||
Energy Waste Reduction | 27 | 15 | 27 | 15 | |||||||||||||||||||
Renewable energy | 13 | 21 | 13 | 21 | |||||||||||||||||||
Other | 46 | 50 | 43 | 25 | |||||||||||||||||||
3,262 | 3,402 | 2,375 | 2,450 | ||||||||||||||||||||
Less amount included in Current Liabilities | (156) | (39) | (154) | (18) | |||||||||||||||||||
$ | 3,106 | $ | 3,363 | $ | 2,221 | $ | 2,432 |
As noted below, certain Regulatory assets for which costs have been incurred have been included (or are expected to be included, for costs incurred subsequent to the most recently approved rate case) in DTE Electric's or DTE Gas' rate base, thereby providing a return on invested costs (except as noted). Certain other Regulatory assets are not included in rate base but accrue recoverable carrying charges until surcharges to collect the assets are billed. Certain Regulatory assets do not result from cash expenditures and therefore do not represent investments included in rate base or have offsetting liabilities that reduce rate base.
95
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
ASSETS
•Recoverable pension and other postretirement costs — Accounting standards for pension and other postretirement benefit costs require, among other things, the recognition in Other comprehensive income of the actuarial gains or losses and the prior service costs that arise during the period but are not immediately recognized as components of net periodic benefit costs. DTE Electric and DTE Gas record the impact of actuarial gains or losses and prior service costs as Regulatory assets since the traditional rate setting process allows for the recovery of pension and other postretirement costs. The asset will reverse as the deferred items are amortized and recognized as components of net periodic benefit costs. Refer to Note 20 to the Consolidated Financial Statements, "Retirement Benefits and Trusteed Assets," for additional information regarding the changes in pension and other postretirement costs for the period and the impact on Regulatory assets.(a)
•Recoverable undepreciated costs on retiring plants — Deferral of estimated remaining balances associated with coal power plants expected to be retired by the end of 2022. Amounts also include $73 million for the remaining undepreciated cost of the River Rouge power plant, which was retired in 2021 and approved for securitization and recovery in the MPSC's June 2021 order. Refer to the "2021 Securitization Filing" section below for additional information.
•Fermi 2 asset retirement obligation — Obligation for Fermi 2 decommissioning costs. The asset captures the timing differences between expense recognition and current recovery in rates and will reverse over the remaining life of the related plant.(a)
•Enhanced Tree Trimming Program deferred costs — The MPSC approved the deferral of costs for a tree trimming surge through 2022, aimed at reducing the number and duration of customer interruptions. The MPSC also approved the securitization and recovery of up to $157 million of these costs in their June 2021 order. Refer to the "2021 Securitization Filing" section below for additional information. Additional tree trim surge costs are expected to be recovered through future securitization filings. DTE Electric also requested continued deferral of tree trimming surge costs through 2024 in its January 21, 2022 rate case filing, with an MPSC order expected in November 2022.
•Recoverable Michigan income taxes — The State of Michigan enacted a corporate income tax resulting in the establishment of state deferred tax liabilities for DTE Energy's utilities. Offsetting Regulatory assets were also recorded as the impacts of the deferred tax liabilities will be reflected in rates as the related taxable temporary differences reverse and flow through current income tax expense.
•Accrued PSCR/GCR revenue — Receivable for the temporary under-recovery of and carrying costs on fuel and purchased power costs incurred by DTE Electric which are recoverable through the PSCR mechanism and temporary under-recovery of and carrying costs on gas costs incurred by DTE Gas which are recoverable through the GCR mechanism.
•Energy Waste Reduction incentive — DTE Electric and DTE Gas operate MPSC approved energy waste reduction programs designed to reduce overall energy usage by their customers. The utilities are eligible to earn an incentive by exceeding statutory savings targets. The utilities have consistently exceeded the savings targets and recognize the incentive as a Regulatory asset in the period earned.(a)
•Recoverable income taxes related to AFUDC equity — Accounting standards for income taxes require recognition of a deferred tax liability for the equity component of AFUDC. A Regulatory asset is required for the future increase in taxes payable related to the equity component of AFUDC that will be recovered from customers through future rates over the remaining life of the related plant.
•Deferred environmental costs — The MPSC approved the deferral of investigation and remediation costs associated with DTE Gas' former MGP sites. Amortization of deferred costs is over a ten-year period beginning in the year after costs were incurred, with recovery (net of any insurance proceeds) through base rate filings.(a)
•Unamortized loss on reacquired debt — The unamortized discount, premium, and expense related to debt redeemed with a refinancing are deferred, amortized, and recovered over the life of the replacement issue.
96
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
•Customer360 deferred costs — The MPSC approved the deferral and amortization of certain costs associated with implementing Customer360, an integrated software application that enables improved interface among customer service, billing, meter reading, credit and collections, device management, account management, and retail access. Amortization of deferred costs over a 15-year amortization period began after the billing system was put into operation during the second quarter of 2017. The deferred costs are recorded as Regulatory Assets at DTE Electric and DTE Gas receives an intercompany charge for their proportionate share of amortization expense.
•Nuclear Performance Evaluation and Review Committee Tracker — Deferral and amortization of certain costs associated with oversight and review of DTE Electric's nuclear power generation program, including safety and regulatory compliance, nuclear leadership, nuclear facilities, and operational and financial performance, pursuant to MPSC authorization. Deferrals are amortized over a five-year period with recovery through base rate filings.
•Non-service pension and other postretirement costs — Upon adoption of ASU 2017-07 on January 1, 2018, certain non-service pension and other postretirement costs are no longer capitalized into Property, Plant & Equipment. Such costs may be recorded to Regulatory assets for ratemaking purposes and recovered as amortization expense based on the composite depreciation rate for plant-in-service.
•Energy Waste Reduction — Receivable for the under-recovery of energy waste reduction costs incurred by DTE Gas which are recoverable through a surcharge.(a)
•Other recoverable income taxes — Income tax receivable from DTE Electric's customers representing the difference in property-related deferred income taxes and amounts previously reflected in DTE Electric's rates. This asset will reverse over the remaining life of the related plant.
•Transitional Reconciliation Mechanism — The MPSC approved the recovery of the deferred net incremental revenue requirement associated with the transition of PLD customers to DTE Electric's distribution system effective July 1, 2014. Annual reconciliations are filed and surcharges are implemented to recover approved amounts.
________________________________________________
(a)Regulatory assets not earning a return or accruing carrying charges.
LIABILITIES
•Refundable federal income taxes — In December 2017, the TCJA was enacted and reduced the corporate income tax rate, effective January 1, 2018. DTE Electric and DTE Gas remeasured deferred taxes, resulting in a reduction to deferred tax liabilities, to reflect the impact of the TCJA on the cumulative temporary differences expected to reverse after the effective date. Regulatory liabilities were also recorded to offset the impact of the deferred tax remeasurement reflected in rates.
•Removal costs liability — The amounts collected from customers to fund future asset removal activities in excess of removal costs incurred.
•Negative other postretirement offset — DTE Electric and DTE Gas' negative other postretirement costs are not included as a reduction to their authorized rates; therefore, DTE Electric and DTE Gas are accruing a Regulatory liability to eliminate the impact on earnings of the negative other postretirement expense accrual. The Regulatory liabilities will reverse to the extent DTE Electric and DTE Gas' other postretirement expense is positive in future years.
•Non-service pension and other postretirement costs — Upon adoption of ASU 2017-07 on January 1, 2018, certain non-service pension and other postretirement cost activity is no longer credited to Property, Plant & Equipment. Such costs may be recorded to Regulatory liabilities for ratemaking purposes and refunded through credits to amortization expense based on the composite depreciation rate for plant-in-service.
•Incremental tree trim surge — One-time voluntary refund to be administered by investing in tree trimming, incremental to the Enhanced Tree Trimming Program, without seeking future cost recovery. Refer to the “2020-2021 Accounting Applications” section below for additional information regarding the refund.
•COVID-19 voluntary refund — One-time refund obligation owed to DTE Electric customers due to certain sales increases driven by the COVID-19 pandemic. Amortization of the liability will be used to offset the cost of service related to new plant, beginning January 1, 2022 and continuing until the earlier of the implementation of new base rates or December 31, 2022.
97
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
•Energy Waste Reduction — Amounts collected in rates in excess of energy waste reduction costs incurred by DTE Electric.
•Renewable energy — Amounts collected in rates in excess of renewable energy expenditures.
2020-2021 Accounting Applications
On July 9, 2020, the MPSC approved DTE Electric's request to accelerate amortization of the portion of its refundable federal income taxes regulatory liability related to non-plant accumulated deferred income tax balances that resulted from the TCJA. DTE Electric was authorized to increase amortization by $102 million beginning in May 2021, which would fully amortize this portion of the liability by the end of 2021 instead of April 2033. The accelerated amortization would not impact customer rates and would allow DTE Electric to defer its next rate case filing previously set for July 2020 to March 2021.
On February 26, 2021, DTE Electric filed an additional application requesting a delay in the accelerated amortization approved in the 2020 application. DTE Electric requested delaying the start of amortization from May 2021 to December 1, 2021, which would fully amortize these balances by the end of 2022 and allow DTE Electric to further defer its next rate case filing. The accounting application was approved by the MPSC on April 8, 2021.
On August 31, 2021, DTE Electric filed an accounting application with the MPSC requesting approval of a one-time voluntary refund of $70 million collected in 2021 associated with the unexpected customer usage patterns due to the COVID-19 pandemic. This refund will be administered by investing in additional tree trimming without seeking future cost recovery. Such efforts would serve to improve customer reliability without impacting rates, thus providing an affordability benefit to customers. These investments will be incremental to the Tree Trim Surge expenses previously authorized by the MPSC.
On November 4, 2021, the MPSC issued an order authorizing the one-time accounting and a regulatory liability for a minimum of $70 million. In that order, the MPSC directed DTE Electric to file a letter before December 31, 2021 indicating the amount of the final regulatory liability it planned to record.
On December 27, 2021, DTE Electric submitted a letter to the MPSC substantiating that a regulatory liability of $90 million would be recorded. On December 28, 2021, the MPSC Staff confirmed that DTE Electric complied with the requirements set forth in the November 4th order. Accordingly, DTE Electric recognized the regulatory liability of $90 million and will relieve the liability as the additional tree trim expenses are incurred during 2022-2023. If the full $90 million is not spent by the end of 2023, DTE Electric will provide refunds to customers via bill credits for any shortage.
2021 Securitization Filing
On March 26, 2021, DTE Electric filed an application requesting a financing order approving the securitization financing of $184 million of qualified costs related to the net book value of the River Rouge generation plant and tree trimming surge program costs. The filing requested recovery of these qualifying costs from DTE Electric's customers.
A final MPSC financing order was issued on June 23, 2021 authorizing DTE Electric to proceed with the issuance of securitization bonds for qualified costs of up to $236 million, increased for the inclusion of deferred income taxes. The financing order further authorized customer charges for the timely recovery of the debt service costs on the securitization bonds and other ongoing qualified costs. Securitization financing is expected to occur in March 2022.
2021 Gas Rate Case Filing
DTE Gas filed a rate case with the MPSC on February 12, 2021 requesting an increase in base rates of $195 million based on a projected twelve-month period ending December 31, 2022. The requested increase in base rates was primarily due to an increase in net plant resulting from infrastructure investments and operating and maintenance expenses. The rate filing also requested an increase in return on equity from 9.9% to 10.25% and included projected changes in sales and working capital. On December 9, 2021, the MPSC issued an order approving an annual revenue increase of $84 million for services rendered on or after January 1, 2022 and a return on equity of 9.9%.
98
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
2022 Electric Rate Case Filing
DTE Electric filed a rate case with the MPSC on January 21, 2022 requesting an increase in base rates of $388 million based on a projected twelve-month period ending October 31, 2023. The requested increase in base rates is primarily due to an increase in net plant resulting from generation and distribution investments, as well as related increases to depreciation and property tax expenses. The rate filing also requested an increase in return on equity from 9.9% to 10.25% and includes projected changes in sales. A final MPSC order in this case is expected in November 2022.
NOTE 10 — INCOME TAXES
Income Tax Summary
DTE Energy files a consolidated federal income tax return. DTE Electric is a part of the consolidated federal income tax return of DTE Energy. DTE Energy and its subsidiaries file consolidated and/or separate company income tax returns in various states and localities, including a consolidated return in the State of Michigan. DTE Electric is part of the Michigan consolidated income tax return of DTE Energy. The federal, state and local income tax expense for DTE Electric is determined on an individual company basis with no allocation of tax expenses or benefits from other affiliates of DTE Energy. DTE Electric had income tax receivables with DTE Energy of $31 million and $8 million at December 31, 2021 and 2020, respectively.
On July 1, 2021, DTE Energy completed the separation of its natural gas pipeline, storage and gathering non-utility business, DT Midstream. Refer to Note 4 to the Consolidated Financial Statements, "Dispositions and Impairments" for additional information regarding the separation. The separation was a tax free distribution to shareholders, but triggered certain tax effects at DTE Energy including the remeasurement of state deferred tax assets and liabilities and the recognition of a deferred intercompany gain. The state remeasurement reduced deferred tax liabilities and generated a deferred tax benefit of $85 million. The recognition of the deferred intercompany gain resulted in $9 million of additional deferred tax expense. Both of these impacts were reflected in Income Tax Expense (Benefit) in the Consolidated Statements of Operations for the year ended December 31, 2021.
The Registrants' total Income Tax Expense varied from the statutory federal income tax rate for the following reasons:
2021 | 2020 | 2019 | |||||||||||||||
DTE Energy | (In millions) | ||||||||||||||||
Income Before Income Taxes | $ | 656 | $ | 1,082 | $ | 1,013 | |||||||||||
Income tax expense at 21% statutory rate | $ | 138 | $ | 227 | $ | 213 | |||||||||||
Production tax credits | (138) | (121) | (128) | ||||||||||||||
TCJA regulatory liability amortization | (103) | (76) | (38) | ||||||||||||||
State deferred tax remeasurement due to separation of DT Midstream, net of federal benefit | (85) | — | — | ||||||||||||||
Investment tax credits | (3) | (4) | (4) | ||||||||||||||
Net operating loss carryback | — | (34) | — | ||||||||||||||
Enactment of West Virginia income tax legislation, net of federal benefit | 8 | — | — | ||||||||||||||
Deferred intercompany gain | 9 | — | — | ||||||||||||||
Valuation allowance on charitable contribution carryforwards | 18 | 3 | 6 | ||||||||||||||
State and local income taxes, excluding items above, net of federal benefit | 30 | 47 | 29 | ||||||||||||||
Other, net | (4) | (5) | (7) | ||||||||||||||
Income Tax Expense (Benefit) | $ | (130) | $ | 37 | $ | 71 | |||||||||||
Effective income tax rate | (19.9) | % | 3.4 | % | 7.0 | % |
99
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
2021 | 2020 | 2019 | |||||||||||||||
DTE Electric | (In millions) | ||||||||||||||||
Income Before Income Taxes | $ | 970 | $ | 887 | $ | 854 | |||||||||||
Income tax expense at 21% statutory rate | $ | 204 | $ | 186 | $ | 179 | |||||||||||
TCJA regulatory liability amortization | (73) | (62) | (35) | ||||||||||||||
Production tax credits | (70) | (55) | (45) | ||||||||||||||
Investment tax credits | (3) | (4) | (4) | ||||||||||||||
State and local income taxes, excluding items above, net of federal benefit | 54 | 50 | 49 | ||||||||||||||
Other, net | (8) | (6) | (6) | ||||||||||||||
Income Tax Expense | $ | 104 | $ | 109 | $ | 138 | |||||||||||
Effective income tax rate | 10.7 | % | 12.3 | % | 16.2 | % |
Components of the Registrants' Income Tax Expense were as follows:
2021 | 2020 | 2019 | |||||||||||||||
DTE Energy | (In millions) | ||||||||||||||||
Current income tax expense (benefit) | |||||||||||||||||
Federal | $ | (33) | $ | (249) | $ | (183) | |||||||||||
State and other income tax | (12) | 4 | 3 | ||||||||||||||
Total current income taxes | (45) | (245) | (180) | ||||||||||||||
Deferred income tax expense (benefit) | |||||||||||||||||
Federal | (42) | 227 | 218 | ||||||||||||||
State and other income tax | (43) | 55 | 33 | ||||||||||||||
Total deferred income taxes | (85) | 282 | 251 | ||||||||||||||
$ | (130) | $ | 37 | $ | 71 |
2021 | 2020 | 2019 | |||||||||||||||
DTE Electric | (In millions) | ||||||||||||||||
Current income tax expense (benefit) | |||||||||||||||||
Federal | $ | (11) | $ | 15 | $ | 25 | |||||||||||
State and other income tax | (7) | 5 | 16 | ||||||||||||||
Total current income taxes | (18) | 20 | 41 | ||||||||||||||
Deferred income tax expense | |||||||||||||||||
Federal | 47 | 30 | 51 | ||||||||||||||
State and other income tax | 75 | 59 | 46 | ||||||||||||||
Total deferred income taxes | 122 | 89 | 97 | ||||||||||||||
$ | 104 | $ | 109 | $ | 138 |
Deferred tax assets and liabilities are recognized for the estimated future tax effect of temporary differences between the tax basis of assets or liabilities and the reported amounts in the Registrants' Consolidated Financial Statements.
100
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The Registrants' deferred tax assets (liabilities) were comprised of the following at December 31:
DTE Energy | DTE Electric | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
(In millions) | |||||||||||||||||||||||
Property, plant, and equipment | $ | (3,970) | $ | (3,691) | $ | (3,428) | $ | (3,099) | |||||||||||||||
Regulatory assets and liabilities | (117) | (102) | (64) | (53) | |||||||||||||||||||
Tax credit carry-forwards | 1,260 | 1,144 | 379 | 278 | |||||||||||||||||||
Pension and benefits | 310 | 310 | 282 | 264 | |||||||||||||||||||
Federal net operating loss carry-forward | 199 | 109 | 5 | — | |||||||||||||||||||
State and local net operating loss carry-forwards | 73 | 36 | 15 | — | |||||||||||||||||||
Investments in equity method investees | 58 | 51 | (1) | — | |||||||||||||||||||
Other | 75 | 115 | 71 | 85 | |||||||||||||||||||
(2,112) | (2,028) | (2,741) | (2,525) | ||||||||||||||||||||
Less: Valuation allowance | (51) | (41) | — | — | |||||||||||||||||||
Long-term deferred income tax liabilities | $ | (2,163) | $ | (2,069) | $ | (2,741) | $ | (2,525) | |||||||||||||||
Deferred income tax assets | $ | 2,224 | $ | 2,050 | $ | 988 | $ | 883 | |||||||||||||||
Deferred income tax liabilities | (4,387) | (4,119) | (3,729) | (3,408) | |||||||||||||||||||
$ | (2,163) | $ | (2,069) | $ | (2,741) | $ | (2,525) |
Tax credit carry-forwards for DTE Energy include $1.3 billion of general business credits that expire from 2032 through 2041. No valuation allowance is required for the tax credits carry-forward deferred tax asset.
DTE Energy has a pre-tax federal net operating loss carry-forward of $950 million as of December 31, 2021. The net operating loss carry-forwards generated in 2015 and 2016 will expire from 2035 through 2036, and the net operating loss carry-forward generated in 2018 and subsequent years will be carried forward indefinitely. No valuation allowance is required for the federal net operating loss deferred tax asset.
DTE Energy has state and local deferred tax assets related to net operating loss carry-forwards of $73 million and $36 million at December 31, 2021 and 2020, respectively. Most of the state and local net operating loss carry-forwards expire from 2022 through 2041 with the remainder being carried forward indefinitely.
DTE Energy has recorded valuation allowances of $51 million and $41 million at December 31, 2021 and 2020, respectively, including $29 million and $30 million for the respective periods related to the state net operating loss carryforwards noted above. The remaining valuation allowances related to charitable contribution carryforwards. The change in balances in 2021 includes establishing a valuation allowance of $18 million based on a change in expected ability to utilize certain of these charitable contributions carryforwards.
In assessing the realizability of deferred tax assets, DTE Energy considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Tax credit carry-forwards for DTE Electric include $379 million of general business credits that expire from 2036 through 2041. No valuation allowance is required for the tax credits carry-forward deferred tax asset.
DTE Electric has a pre-tax federal net operating loss carry-forward of $24 million as of December 31, 2021. The net operating loss carry-forward will be carried forward indefinitely. No valuation allowance is required for the federal net operating loss deferred tax asset.
DTE Electric has $15 million in state and local deferred tax assets related to net operating loss carry-forwards at December 31, 2021 which will expire in 2030 and 2031. DTE Electric had no state and local deferred tax assets related to net operating loss carry-forwards at December 31, 2020. No valuation allowance is required for the state and local net operating loss deferred tax assets.
101
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The above tables exclude unamortized investment tax credits that are shown separately on the Registrants' Consolidated Statements of Financial Position. Investment tax credits are deferred and amortized to income over the average life of the related property.
Uncertain Tax Positions
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the Registrants is as follows:
2021 | 2020 | 2019 | |||||||||||||||
DTE Energy | (In millions) | ||||||||||||||||
Balance at January 1 | $ | 10 | $ | 10 | $ | 10 | |||||||||||
Additions for tax positions of prior years | — | — | — | ||||||||||||||
Balance at December 31 | $ | 10 | $ | 10 | $ | 10 |
2021 | 2020 | 2019 | |||||||||||||||
DTE Electric | (In millions) | ||||||||||||||||
Balance at January 1 | $ | 13 | $ | 13 | $ | 13 | |||||||||||
Additions for tax positions of prior years | — | — | — | ||||||||||||||
Balance at December 31 | $ | 13 | $ | 13 | $ | 13 |
If recognized, all of the Registrants' unrecognized tax benefits would favorably impact their effective tax rate in future years. The Registrants do not anticipate any material decrease in unrecognized tax benefits in the next twelve months.
The Registrants recognize interest and penalties pertaining to income taxes in Interest expense and Other expenses, respectively, on the Consolidated Statements of Operations.
Accrued interest pertaining to income taxes for DTE Energy totaled $5 million at December 31, 2021 and 2020. DTE Energy recognized a nominal amount of interest expense related to income taxes in 2021 and $1 million in 2020 and 2019. DTE Energy has not accrued any penalties pertaining to income taxes.
Accrued interest pertaining to income taxes for DTE Electric totaled $7 million at December 31, 2021 and $6 million at December 31, 2020. DTE Electric recognized interest expense related to income taxes of $1 million in 2021, 2020, and 2019. DTE Electric has not accrued any penalties pertaining to income taxes.
In 2021, DTE Energy, including DTE Electric, settled a federal tax audit for the 2019 tax year. DTE Energy's federal income tax returns for 2020 and subsequent years remain subject to examination by the IRS. DTE Energy's Michigan Business Tax returns for the years 2008-2011 and Michigan Corporate Income Tax returns for the year 2017 and subsequent years remain subject to examination by the State of Michigan. DTE Energy also files tax returns in numerous state and local jurisdictions with varying statutes of limitation.
102
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
NOTE 11 — EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income, adjusted for income allocated to participating securities, by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect the dilution that would occur if any potentially dilutive instruments were exercised or converted into common shares. DTE Energy's participating securities are restricted shares under the stock incentive program that contain rights to receive non-forfeitable dividends. Equity units and performance shares do not receive cash dividends; as such, these awards are not considered participating securities. For additional information, see Notes 14 and 21 to the Consolidated Financial Statements, "Long-Term Debt" and "Stock-Based Compensation," respectively.
The following is a reconciliation of DTE Energy's basic and diluted income per share calculation for the years ended December 31:
2021 | 2020 | 2019 | |||||||||||||||
(In millions, except per share amounts) | |||||||||||||||||
Basic Earnings per Share | |||||||||||||||||
Net Income Attributable to DTE Energy Company — continuing operations | $ | 796 | $ | 1,054 | $ | 955 | |||||||||||
Less: Allocation of earnings to net restricted stock awards | (2) | (2) | (2) | ||||||||||||||
$ | 794 | $ | 1,052 | $ | 953 | ||||||||||||
Net Income Attributable to DTE Energy Company — discontinued operations | 111 | 314 | 214 | ||||||||||||||
Net income available to common shareholders — basic | $ | 905 | $ | 1,366 | $ | 1,167 | |||||||||||
Average number of common shares outstanding — basic | 193 | 193 | 185 | ||||||||||||||
Income from continuing operations | $ | 4.11 | $ | 5.46 | $ | 5.16 | |||||||||||
Income from discontinued operations | 0.57 | 1.63 | 1.16 | ||||||||||||||
Basic Earnings per Common Share | $ | 4.68 | $ | 7.09 | $ | 6.32 | |||||||||||
Diluted Earnings per Share | |||||||||||||||||
Net Income Attributable to DTE Energy Company — continuing operations | $ | 796 | $ | 1,054 | $ | 955 | |||||||||||
Less: Allocation of earnings to net restricted stock awards | (2) | (2) | (2) | ||||||||||||||
$ | 794 | $ | 1,052 | $ | 953 | ||||||||||||
Net Income Attributable to DTE Energy Company — discontinued operations | 111 | 314 | 214 | ||||||||||||||
Net income available to common shareholders — diluted | $ | 905 | $ | 1,366 | $ | 1,167 | |||||||||||
Average number of common shares outstanding — basic | 193 | 193 | 185 | ||||||||||||||
Average dilutive equity units and performance share awards | 1 | — | — | ||||||||||||||
Average number of common shares outstanding — diluted | 194 | 193 | 185 | ||||||||||||||
Income from continuing operations | $ | 4.10 | $ | 5.45 | $ | 5.15 | |||||||||||
Income from discontinued operations | 0.57 | 1.63 | 1.16 | ||||||||||||||
Diluted Earnings per Common Share(a) | $ | 4.67 | $ | 7.08 | $ | 6.31 |
_______________________________________
(a)Equity units excluded from the calculation of diluted EPS were approximately 11.5 million for the year ended December 31, 2021 and 10.3 million for the years ended December 31, 2020 and 2019, respectively, as the dilutive stock price threshold was not met. For more information regarding equity units, see Note 14 to the Consolidated Financial Statements, "Long-Term Debt."
103
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
NOTE 12 — FAIR VALUE
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Registrants make certain assumptions they believe that market participants would use in pricing assets or liabilities, including assumptions about risk, and the risks inherent in the inputs to valuation techniques. Credit risk of the Registrants and their counterparties is incorporated in the valuation of assets and liabilities through the use of credit reserves, the impact of which was immaterial at December 31, 2021 and 2020. The Registrants believe they use valuation techniques that maximize the use of observable market-based inputs and minimize the use of unobservable inputs.
A fair value hierarchy has been established that prioritizes the inputs to valuation techniques used to measure fair value in three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. All assets and liabilities are required to be classified in their entirety based on the lowest level of input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input may require judgment considering factors specific to the asset or liability and may affect the valuation of the asset or liability and its placement within the fair value hierarchy. The Registrants classify fair value balances based on the fair value hierarchy defined as follows:
•Level 1 — Consists of unadjusted quoted prices in active markets for identical assets or liabilities that the Registrants have the ability to access as of the reporting date.
•Level 2 — Consists of inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.
•Level 3 — Consists of unobservable inputs for assets or liabilities whose fair value is estimated based on internally developed models or methodologies using inputs that are generally less readily observable and supported by little, if any, market activity at the measurement date. Unobservable inputs are developed based on the best available information and subject to cost-benefit constraints.
104
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The following table presents assets and liabilities for DTE Energy measured and recorded at fair value on a recurring basis:
December 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Other (a) | Netting (b) | Net Balance | Level 1 | Level 2 | Level 3 | Other (a) | Netting (b) | Net Balance | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash equivalents(c) | $ | 4 | $ | — | $ | — | $ | — | $ | — | $ | 4 | $ | 438 | $ | — | $ | — | $ | — | $ | — | $ | 438 | |||||||||||||||||||||||||||||||||||||||||||||||
Nuclear decommissioning trusts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity securities | 917 | — | — | 190 | — | 1,107 | 947 | — | — | 222 | — | 1,169 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed income securities | 124 | 418 | — | 102 | — | 644 | 102 | 371 | — | 82 | — | 555 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Private equity and other | — | — | — | 205 | — | 205 | — | — | — | 104 | — | 104 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Hedge funds and similar investments | 58 | 18 | — | — | — | 76 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash equivalents | 39 | — | — | — | — | 39 | 27 | — | — | — | — | 27 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other investments(d) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity securities | 68 | — | — | — | — | 68 | 55 | — | — | — | — | 55 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed income securities | 7 | — | — | — | — | 7 | 8 | — | — | — | — | 8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash equivalents | 86 | — | — | — | — | 86 | 97 | — | — | — | — | 97 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative assets | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commodity contracts(e) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Natural gas | 273 | 115 | 66 | — | (394) | 60 | 99 | 74 | 60 | — | (156) | 77 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Electricity | — | 500 | 143 | — | (441) | 202 | — | 128 | 52 | — | (120) | 60 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Environmental & Other | — | 285 | 9 | — | (285) | 9 | — | 150 | 4 | — | (135) | 19 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total derivative assets | 273 | 900 | 218 | — | (1,120) | 271 | 99 | 352 | 116 | — | (411) | 156 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 1,576 | $ | 1,336 | $ | 218 | $ | 497 | $ | (1,120) | $ | 2,507 | $ | 1,773 | $ | 723 | $ | 116 | $ | 408 | $ | (411) | $ | 2,609 | |||||||||||||||||||||||||||||||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commodity contracts(e) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Natural gas | $ | (177) | $ | (172) | $ | (245) | $ | — | $ | 347 | $ | (247) | $ | (88) | $ | (59) | $ | (76) | $ | — | $ | 151 | $ | (72) | |||||||||||||||||||||||||||||||||||||||||||||||
Electricity | — | (434) | (188) | — | 443 | (179) | — | (126) | (42) | — | 125 | (43) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Environmental & Other | — | (288) | — | — | 288 | — | — | (137) | — | — | 129 | (8) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency exchange contracts | — | (4) | — | — | — | (4) | — | (5) | — | — | — | (5) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | (177) | $ | (898) | $ | (433) | $ | — | $ | 1,078 | $ | (430) | $ | (88) | $ | (327) | $ | (118) | $ | — | $ | 405 | $ | (128) | |||||||||||||||||||||||||||||||||||||||||||||||
Net Assets (Liabilities) at end of period | $ | 1,399 | $ | 438 | $ | (215) | $ | 497 | $ | (42) | $ | 2,077 | $ | 1,685 | $ | 396 | $ | (2) | $ | 408 | $ | (6) | $ | 2,481 | |||||||||||||||||||||||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Current | $ | 227 | $ | 646 | $ | 166 | $ | — | $ | (854) | $ | 185 | $ | 532 | $ | 260 | $ | 92 | $ | — | $ | (330) | $ | 554 | |||||||||||||||||||||||||||||||||||||||||||||||
Noncurrent | 1,349 | 690 | 52 | 497 | (266) | 2,322 | 1,241 | 463 | 24 | 408 | (81) | 2,055 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Assets | $ | 1,576 | $ | 1,336 | $ | 218 | $ | 497 | $ | (1,120) | $ | 2,507 | $ | 1,773 | $ | 723 | $ | 116 | $ | 408 | $ | (411) | $ | 2,609 | |||||||||||||||||||||||||||||||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Current | $ | (168) | $ | (609) | $ | (260) | $ | — | $ | 799 | $ | (238) | $ | (84) | $ | (223) | $ | (79) | $ | — | $ | 318 | $ | (68) | |||||||||||||||||||||||||||||||||||||||||||||||
Noncurrent | (9) | (289) | (173) | — | 279 | (192) | (4) | (104) | (39) | — | 87 | (60) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Liabilities | $ | (177) | $ | (898) | $ | (433) | $ | — | $ | 1,078 | $ | (430) | $ | (88) | $ | (327) | $ | (118) | $ | — | $ | 405 | $ | (128) | |||||||||||||||||||||||||||||||||||||||||||||||
Net Assets (Liabilities) at end of period | $ | 1,399 | $ | 438 | $ | (215) | $ | 497 | $ | (42) | $ | 2,077 | $ | 1,685 | $ | 396 | $ | (2) | $ | 408 | $ | (6) | $ | 2,481 |
_______________________________________
(a)Amounts represent assets valued at NAV as a practical expedient for fair value.
(b)Amounts represent the impact of master netting agreements that allow DTE Energy to net gain and loss positions and cash collateral held or placed with the same counterparties.
(c)Amounts consisted of $1 million and $2 million of cash equivalents included in Restricted cash on DTE Energy's Consolidated Statements of Financial Position at December 31, 2021 and December 31, 2020, respectively. All other amounts are included in Cash and cash equivalents on the Consolidated Statements of Financial Position.
(d)Excludes cash surrender value of life insurance investments.
(e)For contracts with a clearing agent, DTE Energy nets all activity across commodities. This can result in some individual commodities having a contra balance.
105
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The following table presents assets for DTE Electric measured and recorded at fair value on a recurring basis as of:
December 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Other(a) | Net Balance | Level 1 | Level 2 | Level 3 | Other(a) | Net Balance | |||||||||||||||||||||||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash equivalents | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 4 | $ | — | $ | — | $ | — | $ | 4 | ||||||||||||||||||||||||||||||||||||
Nuclear decommissioning trusts | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity securities | 917 | — | — | 190 | 1,107 | 947 | — | — | 222 | 1,169 | ||||||||||||||||||||||||||||||||||||||||||||||
Fixed income securities | 124 | 418 | — | 102 | 644 | 102 | 371 | — | 82 | 555 | ||||||||||||||||||||||||||||||||||||||||||||||
Private equity and other | — | — | — | 205 | 205 | — | — | — | 104 | 104 | ||||||||||||||||||||||||||||||||||||||||||||||
Hedge funds and similar investments | 58 | 18 | — | — | 76 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Cash equivalents | 39 | — | — | — | 39 | 27 | — | — | — | 27 | ||||||||||||||||||||||||||||||||||||||||||||||
Other investments | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity securities | 20 | — | — | — | 20 | 16 | — | — | — | 16 | ||||||||||||||||||||||||||||||||||||||||||||||
Fixed income securities | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Cash equivalents | 11 | — | — | — | 11 | 11 | — | — | — | 11 | ||||||||||||||||||||||||||||||||||||||||||||||
Derivative assets — FTRs | — | — | 9 | — | 9 | — | — | 4 | — | 4 | ||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 1,169 | $ | 436 | $ | 9 | $ | 497 | $ | 2,111 | $ | 1,107 | $ | 371 | $ | 4 | $ | 408 | $ | 1,890 | ||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Current | $ | — | $ | — | $ | 9 | $ | — | $ | 9 | $ | 4 | $ | — | $ | 4 | $ | — | $ | 8 | ||||||||||||||||||||||||||||||||||||
Noncurrent | 1,169 | 436 | — | 497 | 2,102 | 1,103 | 371 | — | 408 | 1,882 | ||||||||||||||||||||||||||||||||||||||||||||||
Total Assets | $ | 1,169 | $ | 436 | $ | 9 | $ | 497 | $ | 2,111 | $ | 1,107 | $ | 371 | $ | 4 | $ | 408 | $ | 1,890 |
_______________________________________
(a)Amounts represent assets valued at NAV as a practical expedient for fair value.
Cash Equivalents
Cash equivalents include investments with maturities of three months or less when purchased. The cash equivalents shown in the fair value table are comprised of short-term investments and money market funds.
Nuclear Decommissioning Trusts and Other Investments
The nuclear decommissioning trusts and other investments hold debt and equity securities directly and indirectly through commingled funds. Exchange-traded debt and equity securities held directly, as well as publicly traded commingled funds, are valued using quoted market prices in actively traded markets. Non-exchange traded fixed income securities are valued based upon quotations available from brokers or pricing services.
Non-publicly traded commingled funds holding exchange-traded equity or debt securities are valued based on stated NAVs. There are no significant restrictions for these funds and investments may be redeemed with 7 to 65 days notice depending on the fund. There is no intention to sell the investment in these commingled funds.
Private equity and other assets include a diversified group of funds that are classified as NAV assets. These funds primarily invest in limited partnerships, including private equity, private real estate and private credit. Distributions are received through the liquidation of the underlying fund assets over the life of the funds. There are generally no redemption rights. The limited partner must hold the fund for its life or find a third-party buyer, which may need to be approved by the general partner. The funds are established with varied contractual durations generally in the range of 7 years to 12 years. The fund life can often be extended by several years by the general partner, and further extended with the approval of the limited partners. Unfunded commitments related to these investments totaled $199 million and $183 million as of December 31, 2021 and 2020, respectively.
Hedge funds and similar investments utilize a diversified group of strategies that attempt to capture uncorrelated sources of return. These investments include publicly traded mutual funds that are valued using quoted prices in actively traded markets, as well as insurance-linked and asset-backed securities and that are valued using quotations from broker or pricing services.
106
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
For pricing the nuclear decommissioning trusts and other investments, a primary price source is identified by asset type, class, or issue for each security. The trustee monitors prices supplied by pricing services and may use a supplemental price source or change the primary source of a given security if the trustee determines that another price source is considered preferable. The Registrants have obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices.
Derivative Assets and Liabilities
Derivative assets and liabilities are comprised of physical and financial derivative contracts, including futures, forwards, options, and swaps that are both exchange-traded and over-the-counter traded contracts. Various inputs are used to value derivatives depending on the type of contract and availability of market data. Exchange-traded derivative contracts are valued using quoted prices in active markets. The Registrants consider the following criteria in determining whether a market is considered active: frequency in which pricing information is updated, variability in pricing between sources or over time, and the availability of public information. Other derivative contracts are valued based upon a variety of inputs including commodity market prices, broker quotes, interest rates, credit ratings, default rates, market-based seasonality, and basis differential factors. The Registrants monitor the prices that are supplied by brokers and pricing services and may use a supplemental price source or change the primary price source of an index if prices become unavailable or another price source is determined to be more representative of fair value. The Registrants have obtained an understanding of how these prices are derived. Additionally, the Registrants selectively corroborate the fair value of their transactions by comparison of market-based price sources. Mathematical valuation models are used for derivatives for which external market data is not readily observable, such as contracts which extend beyond the actively traded reporting period. The Registrants have established a Risk Management Committee whose responsibilities include directly or indirectly ensuring all valuation methods are applied in accordance with predefined policies. The development and maintenance of the Registrants' forward price curves has been assigned to DTE Energy's Risk Management Department, which is separate and distinct from the trading functions within DTE Energy.
The following table presents the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for DTE Energy:
Year Ended December 31, 2021 | Year Ended December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
Natural Gas | Electricity | Other | Total | Natural Gas | Electricity | Other | Total | ||||||||||||||||||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
Net Assets (Liabilities) as of January 1 | $ | (16) | $ | 10 | $ | 4 | $ | (2) | $ | (15) | $ | 16 | $ | 3 | $ | 4 | |||||||||||||||||||||||||||||||
Transfers from Level 3 into Level 2 | — | — | — | — | (2) | — | — | (2) | |||||||||||||||||||||||||||||||||||||||
Total gains (losses) | |||||||||||||||||||||||||||||||||||||||||||||||
Included in earnings(a) | (343) | 54 | — | (289) | (75) | 113 | (7) | 31 | |||||||||||||||||||||||||||||||||||||||
Recorded in Regulatory liabilities | — | — | 19 | 19 | — | — | 20 | 20 | |||||||||||||||||||||||||||||||||||||||
Purchases, issuances, and settlements: | |||||||||||||||||||||||||||||||||||||||||||||||
Settlements | 180 | (109) | (14) | 57 | 76 | (119) | (12) | (55) | |||||||||||||||||||||||||||||||||||||||
Net Assets (Liabilities) as of December 31 | $ | (179) | $ | (45) | $ | 9 | $ | (215) | $ | (16) | $ | 10 | $ | 4 | $ | (2) | |||||||||||||||||||||||||||||||
Total gains (losses) included in Net Income attributed to the change in unrealized gains (losses) related to assets and liabilities held at December 31(a) | $ | (208) | $ | 4 | $ | (72) | $ | (276) | $ | (4) | $ | 70 | $ | (70) | $ | (4) | |||||||||||||||||||||||||||||||
Total gains (losses) included in Regulatory liabilities attributed to the change in unrealized gains (losses) related to assets and liabilities held at December 31 | $ | — | $ | — | $ | 9 | $ | 9 | $ | — | $ | — | $ | 4 | $ | 4 |
_______________________________________
(a)Amounts are reflected in Operating Revenues — Non-utility operations and Fuel, purchased power, gas, and other — non-utility in DTE Energy's Consolidated Statements of Operations.
107
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The following table presents the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for DTE Electric:
Year Ended December 31, | |||||||||||
2021 | 2020 | ||||||||||
(In millions) | |||||||||||
Net Assets as of January 1 | $ | 4 | $ | 3 | |||||||
Total gains recorded in Regulatory liabilities | 19 | 20 | |||||||||
Purchases, issuances, and settlements: | |||||||||||
Settlements | (14) | (19) | |||||||||
Net Assets as of December 31 | $ | 9 | $ | 4 | |||||||
Total gains (losses) included in Regulatory liabilities attributed to the change in unrealized gains (losses) related to assets and liabilities held at December 31 | $ | 9 | $ | 4 |
Derivatives are transferred between levels primarily due to changes in the source data used to construct price curves as a result of changes in market liquidity. Transfers in and transfers out are reflected as if they had occurred at the beginning of the period. There were no transfers from or into Level 3 for DTE Electric during the years ended December 31, 2021 and 2020.
The following tables present the unobservable inputs related to DTE Energy's Level 3 assets and liabilities:
December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
Commodity Contracts | Derivative Assets | Derivative Liabilities | Valuation Techniques | Unobservable Input | Range | Weighted Average | |||||||||||||||||||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
Natural Gas | $ | 66 | $ | (245) | Discounted Cash Flow | Forward basis price (per MMBtu) | $ | (1.36) | — | $ | 3.82 | /MMBtu | $ | (0.04) | /MMBtu | ||||||||||||||||||||||||||||||||
Electricity | $ | 143 | $ | (188) | Discounted Cash Flow | Forward basis price (per MWh) | $ | (12) | — | $ | 7 | /MWh | $ | (2) | /MWh |
December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
Commodity Contracts | Derivative Assets | Derivative Liabilities | Valuation Techniques | Unobservable Input | Range | Weighted Average | |||||||||||||||||||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
Natural Gas | $ | 60 | $ | (76) | Discounted Cash Flow | Forward basis price (per MMBtu) | $ | (0.86) | — | $ | 2.50 | /MMBtu | $ | (0.07) | /MMBtu | ||||||||||||||||||||||||||||||||
Electricity | $ | 52 | $ | (42) | Discounted Cash Flow | Forward basis price (per MWh) | $ | (9) | — | $ | 6 | /MWh | $ | — | /MWh |
The unobservable inputs used in the fair value measurement of the electricity and natural gas commodity types consist of inputs that are less observable due in part to lack of available broker quotes, supported by little, if any, market activity at the measurement date or are based on internally developed models. Certain basis prices (i.e., the difference in pricing between two locations) included in the valuation of natural gas and electricity contracts were deemed unobservable. The weighted average price for unobservable inputs was calculated using the average of forward price curves for natural gas and electricity and the absolute value of monthly volumes.
The inputs listed above would have had a direct impact on the fair values of the above security types if they were adjusted. A significant increase (decrease) in the basis price would have resulted in a higher (lower) fair value for long positions, with offsetting impacts to short positions.
108
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Fair Value of Financial Instruments
The following table presents the carrying amount and fair value of financial instruments for DTE Energy:
December 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
Carrying | Fair Value | Carrying | Fair Value | ||||||||||||||||||||||||||||||||||||||||||||
Amount | Level 1 | Level 2 | Level 3 | Amount | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
Notes receivable(a), excluding lessor finance leases | $ | 150 | $ | — | $ | — | $ | 167 | $ | 141 | $ | — | $ | — | $ | 141 | |||||||||||||||||||||||||||||||
Short-term borrowings | $ | 758 | $ | — | $ | 758 | $ | — | $ | 38 | $ | — | $ | 38 | $ | — | |||||||||||||||||||||||||||||||
Notes payable(b) | $ | 27 | $ | — | $ | — | $ | 27 | $ | 19 | $ | — | $ | — | $ | 19 | |||||||||||||||||||||||||||||||
Long-term debt(c) | $ | 17,378 | $ | 2,284 | $ | 15,425 | $ | 1,207 | $ | 19,439 | $ | 2,547 | $ | 18,230 | $ | 1,397 |
_______________________________________
(a)Current portion included in Current Assets — Other on DTE Energy's Consolidated Statements of Financial Position.
(b)Included in Current Liabilities — Other and Other Liabilities — Other on DTE Energy's Consolidated Statements of Financial Position.
(c)Includes debt due within one year and excludes finance lease obligations. Carrying value also includes unamortized debt discounts and issuance costs.
The following table presents the carrying amount and fair value of financial instruments for DTE Electric:
December 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
Carrying | Fair Value | Carrying | Fair Value | ||||||||||||||||||||||||||||||||||||||||||||
Amount | Level 1 | Level 2 | Level 3 | Amount | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
Notes receivable — Other(a) | $ | 17 | $ | — | $ | — | $ | 17 | $ | 16 | $ | — | $ | — | $ | 16 | |||||||||||||||||||||||||||||||
Short-term borrowings — affiliates | $ | 53 | $ | — | $ | — | $ | 53 | $ | 101 | $ | — | $ | — | $ | 101 | |||||||||||||||||||||||||||||||
Short-term borrowings — other | $ | 153 | $ | — | $ | 153 | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||
Notes payable(b) | $ | 27 | $ | — | $ | — | $ | 27 | $ | 17 | $ | — | $ | — | $ | 17 | |||||||||||||||||||||||||||||||
Long-term debt(c) | $ | 8,907 | $ | — | $ | 9,898 | $ | 150 | $ | 8,236 | $ | — | $ | 9,579 | $ | 379 |
_______________________________________
(a)Included in Current Assets — Other on DTE Electric's Consolidated Statements of Financial Position.
(b)Included in Current Liabilities — Other and Other Liabilities — Other on DTE Electric's Consolidated Statements of Financial Position.
(c)Includes debt due within one year and excludes finance lease obligations. Carrying value also includes unamortized debt discounts and issuance costs.
For further fair value information on financial and derivative instruments, see Note 13 to the Consolidated Financial Statements, "Financial and Other Derivative Instruments."
Nuclear Decommissioning Trust Funds
DTE Electric has a legal obligation to decommission its nuclear power plants following the expiration of its operating licenses. This obligation is reflected as an Asset retirement obligation on DTE Electric's Consolidated Statements of Financial Position. Rates approved by the MPSC provide for the recovery of decommissioning costs of Fermi 2 and the disposal of low-level radioactive waste. See Note 8 to the Consolidated Financial Statements, "Asset Retirement Obligations."
The following table summarizes DTE Electric's fair value of the nuclear decommissioning trust fund assets:
December 31, | |||||||||||
2021 | 2020 | ||||||||||
(In millions) | |||||||||||
Fermi 2 | $ | 2,051 | $ | 1,841 | |||||||
Fermi 1 | 3 | 3 | |||||||||
Low-level radioactive waste | 17 | 11 | |||||||||
$ | 2,071 | $ | 1,855 |
109
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The costs of securities sold are determined on the basis of specific identification. The following table sets forth DTE Electric's gains and losses and proceeds from the sale of securities by the nuclear decommissioning trust funds:
Year Ended December 31, | |||||||||||||||||
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Realized gains | $ | 95 | $ | 192 | $ | 56 | |||||||||||
Realized losses | $ | (12) | $ | (111) | $ | (31) | |||||||||||
Proceeds from sale of securities | $ | 1,047 | $ | 2,350 | $ | 788 |
Realized gains and losses from the sale of securities and unrealized gains and losses incurred by the Fermi 2 trust are recorded to Regulatory assets and the Nuclear decommissioning liability. Realized gains and losses from the sale of securities and unrealized gains and losses on the low-level radioactive waste funds are recorded to the Nuclear decommissioning liability.
The following table sets forth DTE Electric's fair value and unrealized gains and losses for the nuclear decommissioning trust funds:
December 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||
Fair Value | Unrealized Gains | Unrealized Losses | Fair Value | Unrealized Gains | Unrealized Losses | ||||||||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||||||||||
Equity securities | $ | 1,107 | $ | 546 | $ | (9) | $ | 1,169 | $ | 468 | $ | (6) | |||||||||||||||||||||||
Fixed income securities | 644 | 23 | (6) | 555 | 22 | (1) | |||||||||||||||||||||||||||||
Private equity and other | 205 | 58 | (8) | 104 | 11 | — | |||||||||||||||||||||||||||||
Hedge funds and similar investments | 76 | 1 | (2) | — | — | — | |||||||||||||||||||||||||||||
Cash equivalents | 39 | — | — | 27 | — | — | |||||||||||||||||||||||||||||
$ | 2,071 | $ | 628 | $ | (25) | $ | 1,855 | $ | 501 | $ | (7) |
The following table summarizes the fair value of the fixed income securities held in nuclear decommissioning trust funds by contractual maturity:
December 31, 2021 | |||||
(In millions) | |||||
Due within one year | $ | 20 | |||
Due after one through five years | 135 | ||||
Due after five through ten years | 109 | ||||
Due after ten years | 278 | ||||
$ | 542 |
Fixed income securities held in nuclear decommissioning trust funds include $102 million of non-publicly traded commingled funds that do not have a contractual maturity date.
110
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Other Securities
At December 31, 2021 and 2020, the Registrants' securities included in Other investments on the Consolidated Statements of Financial Position were comprised primarily of investments within DTE Energy's rabbi trust. The rabbi trust was established to fund certain non-qualified pension benefits, and therefore changes in market value are recognized in earnings. Gains and losses are allocated from DTE Energy to DTE Electric and are included in Other Income or Other Expense, respectively, in the Registrants' Consolidated Statements of Operations. The following table summarizes the Registrants' gains (losses) related to the trust:
Year Ended December 31, | |||||||||||||||||
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Gains (losses) related to equity securities | $ | 7 | $ | (1) | $ | 27 | |||||||||||
Gains (losses) related to fixed income securities | — | (2) | 10 | ||||||||||||||
$ | 7 | $ | (3) | $ | 37 |
NOTE 13 — FINANCIAL AND OTHER DERIVATIVE INSTRUMENTS
The Registrants recognize all derivatives at their fair value as Derivative assets or liabilities on their respective Consolidated Statements of Financial Position unless they qualify for certain scope exceptions, including the normal purchases and normal sales exception. Further, derivatives that qualify and are designated for hedge accounting are classified as either hedges of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge); or as hedges of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge). For cash flow hedges, the derivative gain or loss is deferred in Accumulated other comprehensive income (loss) and later reclassified into earnings when the underlying transaction occurs. For fair value hedges, changes in fair values for the derivative and hedged item are recognized in earnings each period. For derivatives that do not qualify or are not designated for hedge accounting, changes in fair value are recognized in earnings each period.
The Registrants' primary market risk exposure is associated with commodity prices, credit, and interest rates. The Registrants have risk management policies to monitor and manage market risks. The Registrants use derivative instruments to manage some of the exposure. DTE Energy uses derivative instruments for trading purposes in its Energy Trading segment. Contracts classified as derivative instruments include electricity, natural gas, oil, certain environmental contracts, forwards, futures, options, swaps, and foreign currency exchange contracts. Items not classified as derivatives include natural gas and environmental inventory, pipeline transportation contracts, some environmental contracts, and natural gas storage assets.
DTE Electric — DTE Electric generates, purchases, distributes, and sells electricity. DTE Electric uses forward contracts to manage changes in the price of electricity and fuel. Substantially all of these contracts meet the normal purchases and normal sales exception and are therefore accounted for under the accrual method. Other derivative contracts are MTM and recoverable through the PSCR mechanism when settled. This results in the deferral of unrealized gains and losses as Regulatory assets or liabilities until realized.
DTE Gas — DTE Gas purchases, stores, transports, distributes, and sells natural gas, and buys and sells transportation and storage capacity. DTE Gas has fixed-priced contracts for portions of its expected natural gas supply requirements through March 2024. Substantially all of these contracts meet the normal purchases and normal sales exception and are therefore accounted for under the accrual method. Forward transportation and storage contracts are generally not derivatives and are therefore accounted for under the accrual method.
DTE Vantage — This segment manages and operates renewable gas recovery projects, industrial energy projects, reduced emissions fuel projects, and power generation assets. Primarily fixed-price contracts are used in the marketing and management of the segment assets. These contracts are generally not derivatives and are therefore accounted for under the accrual method.
Energy Trading — Commodity Price Risk — Energy Trading markets and trades electricity, natural gas physical products, and energy financial instruments, and provides energy and asset management services utilizing energy commodity derivative instruments. Forwards, futures, options, and swap agreements are used to manage exposure to the risk of market price and volume fluctuations in its operations. These derivatives are accounted for by recording changes in fair value to earnings unless hedge accounting criteria are met.
111
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Energy Trading — Foreign Currency Exchange Risk — Energy Trading has foreign currency exchange forward contracts to economically hedge fixed Canadian dollar commitments existing under natural gas and power purchase and sale contracts and natural gas transportation contracts. Energy Trading enters into these contracts to mitigate price volatility with respect to fluctuations of the Canadian dollar relative to the U.S. dollar. These derivatives are accounted for by recording changes in fair value to earnings unless hedge accounting criteria are met.
Corporate and Other — Interest Rate Risk — DTE Energy may use interest rate swaps, treasury locks, and other derivatives to hedge the risk associated with interest rate market volatility.
Credit Risk — DTE Energy maintains credit policies that significantly minimize overall credit risk. These policies include an evaluation of potential customers’ and counterparties’ financial condition, including the viability of underlying productive assets, credit rating, collateral requirements, or other credit enhancements such as letters of credit or guarantees. DTE Energy generally uses standardized agreements that allow the netting of positive and negative transactions associated with a single counterparty. DTE Energy maintains a provision for credit losses based on factors surrounding the credit risk of its customers, historical trends, and other information. Based on DTE Energy's credit policies and its December 31, 2021 provision for credit losses, DTE Energy’s exposure to counterparty nonperformance is not expected to have a material adverse effect on DTE Energy's Consolidated Financial Statements.
Derivative Activities
DTE Energy manages its MTM risk on a portfolio basis based upon the delivery period of its contracts and the individual components of the risks within each contract. Accordingly, it records and manages the energy purchase and sale obligations under its contracts in separate components based on the commodity (e.g. electricity or natural gas), the product (e.g. electricity for delivery during peak or off-peak hours), the delivery location (e.g. by region), the risk profile (e.g. forward or option), and the delivery period (e.g. by month and year). The following describes the categories of activities represented by their operating characteristics and key risks:
•Asset Optimization — Represents derivative activity associated with assets owned and contracted by DTE Energy, including forward natural gas purchases and sales, natural gas transportation, and storage capacity. Changes in the value of derivatives in this category typically economically offset changes in the value of underlying non-derivative positions, which do not qualify for fair value accounting. The difference in accounting treatment of derivatives in this category and the underlying non-derivative positions can result in significant earnings volatility.
•Marketing and Origination — Represents derivative activity transacted by originating substantially hedged positions with wholesale energy marketers, producers, end-users, utilities, retail aggregators, and alternative energy suppliers.
•Fundamentals Based Trading — Represents derivative activity transacted with the intent of taking a view, capturing market price changes, or putting capital at risk. This activity is speculative in nature as opposed to hedging an existing exposure.
•Other — Includes derivative activity at DTE Electric related to FTRs. Changes in the value of derivative contracts at DTE Electric are recorded as Derivative assets or liabilities, with an offset to Regulatory assets or liabilities as the settlement value of these contracts will be included in the PSCR mechanism when realized.
112
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The following table presents the fair value of derivative instruments for DTE Energy:
December 31, 2021 | December 31, 2020 | ||||||||||||||||||||||
Derivative Assets | Derivative Liabilities | Derivative Assets | Derivative Liabilities | ||||||||||||||||||||
(In millions) | |||||||||||||||||||||||
Derivatives designated as hedging instruments | |||||||||||||||||||||||
Foreign currency exchange contracts | $ | — | $ | (4) | $ | — | $ | (4) | |||||||||||||||
Derivatives not designated as hedging instruments | |||||||||||||||||||||||
Commodity contracts | |||||||||||||||||||||||
Natural gas | $ | 454 | $ | (594) | $ | 233 | $ | (223) | |||||||||||||||
Electricity | 643 | (622) | 180 | (168) | |||||||||||||||||||
Environmental & Other | 294 | (288) | 154 | (137) | |||||||||||||||||||
Foreign currency exchange contracts | — | — | — | (1) | |||||||||||||||||||
Total derivatives not designated as hedging instruments | $ | 1,391 | $ | (1,504) | $ | 567 | $ | (529) | |||||||||||||||
Current | $ | 1,035 | $ | (1,037) | $ | 446 | $ | (386) | |||||||||||||||
Noncurrent | 356 | (471) | 121 | (147) | |||||||||||||||||||
Total derivatives | $ | 1,391 | $ | (1,508) | $ | 567 | $ | (533) |
The fair value of derivative instruments at DTE Electric was $9 million and $4 million at December 31, 2021 and 2020, respectively, comprised of FTRs recorded to Other current assets on the Consolidated Statements of Financial Position and not designated as hedging instruments.
Certain of DTE Energy's derivative positions are subject to netting arrangements which provide for offsetting of asset and liability positions as well as related cash collateral. Such netting arrangements generally do not have restrictions. Under such netting arrangements, DTE Energy offsets the fair value of derivative instruments with cash collateral received or paid for those contracts executed with the same counterparty, which reduces DTE Energy's Total Assets and Liabilities. Cash collateral is allocated between the fair value of derivative instruments and customer accounts receivable and payable with the same counterparty on a pro-rata basis to the extent there is exposure. Any cash collateral remaining, after the exposure is netted to zero, is reflected in Accounts receivable and Accounts payable as collateral paid or received, respectively.
DTE Energy also provides and receives collateral in the form of letters of credit which can be offset against net Derivative assets and liabilities as well as Accounts receivable and payable. DTE Energy had issued letters of credit of $18 million outstanding at December 31, 2021 and $7 million at December 31, 2020, which could be used to offset net Derivative liabilities. Letters of credit received from third parties which could be used to offset net Derivative assets were $37 million and $9 million at December 31, 2021 and 2020, respectively. Such balances of letters of credit are excluded from the tables below and are not netted with the recognized assets and liabilities in DTE Energy's Consolidated Statements of Financial Position.
For contracts with certain clearing agents, the fair value of derivative instruments is netted against realized positions with the net balance reflected as either 1) a Derivative asset or liability or 2) an Account receivable or payable. Other than certain clearing agents, Accounts receivable and Accounts payable that are subject to netting arrangements have not been offset against the fair value of Derivative assets and liabilities.
The following table presents net cash collateral offsetting arrangements for DTE Energy:
December 31, | |||||||||||
2021 | 2020 | ||||||||||
(In millions) | |||||||||||
Cash collateral netted against Derivative assets | $ | (90) | $ | (12) | |||||||
Cash collateral netted against Derivative liabilities | 48 | 6 | |||||||||
Cash collateral recorded in Accounts receivable(a) | 55 | 14 | |||||||||
Cash collateral recorded in Accounts payable(a) | (21) | (1) | |||||||||
Total net cash collateral posted (received) | $ | (8) | $ | 7 |
_______________________________________
(a)Amounts are recorded net by counterparty.
113
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The following table presents the netting offsets of Derivative assets and liabilities for DTE Energy:
December 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||
Gross Amounts of Recognized Assets (Liabilities) | Gross Amounts Offset in the Consolidated Statements of Financial Position | Net Amounts of Assets (Liabilities) Presented in the Consolidated Statements of Financial Position | Gross Amounts of Recognized Assets (Liabilities) | Gross Amounts Offset in the Consolidated Statements of Financial Position | Net Amounts of Assets (Liabilities) Presented in the Consolidated Statements of Financial Position | ||||||||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||||||||||
Derivative assets | |||||||||||||||||||||||||||||||||||
Commodity contracts | |||||||||||||||||||||||||||||||||||
Natural gas | $ | 454 | $ | (394) | $ | 60 | $ | 233 | $ | (156) | $ | 77 | |||||||||||||||||||||||
Electricity | 643 | (441) | 202 | 180 | (120) | 60 | |||||||||||||||||||||||||||||
Environmental & Other | 294 | (285) | 9 | 154 | (135) | 19 | |||||||||||||||||||||||||||||
Total derivative assets | $ | 1,391 | $ | (1,120) | $ | 271 | $ | 567 | $ | (411) | $ | 156 | |||||||||||||||||||||||
Derivative liabilities | |||||||||||||||||||||||||||||||||||
Commodity contracts | |||||||||||||||||||||||||||||||||||
Natural gas | $ | (594) | $ | 347 | $ | (247) | $ | (223) | $ | 151 | $ | (72) | |||||||||||||||||||||||
Electricity | (622) | 443 | (179) | (168) | 125 | (43) | |||||||||||||||||||||||||||||
Environmental & Other | (288) | 288 | — | (137) | 129 | (8) | |||||||||||||||||||||||||||||
Foreign currency exchange contracts | (4) | — | (4) | (5) | — | (5) | |||||||||||||||||||||||||||||
Total derivative liabilities | $ | (1,508) | $ | 1,078 | $ | (430) | $ | (533) | $ | 405 | $ | (128) |
The following table presents the netting offsets of Derivative assets and liabilities showing the reconciliation of derivative instruments to DTE Energy's Consolidated Statements of Financial Position:
December 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
Derivative Assets | Derivative Liabilities | Derivative Assets | Derivative Liabilities | ||||||||||||||||||||||||||||||||||||||||||||
Current | Noncurrent | Current | Noncurrent | Current | Noncurrent | Current | Noncurrent | ||||||||||||||||||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
Total fair value of derivatives | $ | 1,035 | $ | 356 | $ | (1,037) | $ | (471) | $ | 446 | $ | 121 | $ | (386) | $ | (147) | |||||||||||||||||||||||||||||||
Counterparty netting | (791) | (239) | 791 | 239 | (318) | (81) | 318 | 81 | |||||||||||||||||||||||||||||||||||||||
Collateral adjustment | (63) | (27) | 8 | 40 | (12) | — | — | 6 | |||||||||||||||||||||||||||||||||||||||
Total derivatives as reported | $ | 181 | $ | 90 | $ | (238) | $ | (192) | $ | 116 | $ | 40 | $ | (68) | $ | (60) |
The effect of derivatives not designated as hedging instruments on DTE Energy's Consolidated Statements of Operations is as follows:
Location of Gain (Loss) Recognized in Income on Derivatives | Gain (Loss) Recognized in Income on Derivatives for Years Ended December 31, | |||||||||||||||||||||||||
2021 | 2020 | 2019 | ||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||
Commodity contracts | ||||||||||||||||||||||||||
Natural gas | Operating Revenues — Non-utility operations | $ | (224) | $ | (70) | $ | 44 | |||||||||||||||||||
Natural gas | Fuel, purchased power, gas, and other — non-utility | (89) | 20 | (5) | ||||||||||||||||||||||
Electricity | Operating Revenues — Non-utility operations | 169 | 91 | 44 | ||||||||||||||||||||||
Environmental & Other | Operating Revenues — Non-utility operations | (40) | (118) | (26) | ||||||||||||||||||||||
Foreign currency exchange contracts | Operating Revenues — Non-utility operations | — | (6) | (2) | ||||||||||||||||||||||
Total | $ | (184) | $ | (83) | $ | 55 |
114
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Revenues and energy costs related to trading contracts are presented on a net basis in DTE Energy's Consolidated Statements of Operations. Commodity derivatives used for trading purposes, and financial non-trading commodity derivatives, are accounted for using the MTM method with unrealized and realized gains and losses recorded in Operating Revenues — Non-utility operations. Non-trading physical commodity sale and purchase derivative contracts are generally accounted for using the MTM method with unrealized and realized gains and losses for sales recorded in Operating Revenues — Non-utility operations and purchases recorded in Fuel, purchased power, gas, and other — non-utility.
The following represents the cumulative gross volume of DTE Energy's derivative contracts outstanding as of December 31, 2021:
Commodity | Number of Units | |||||||
Natural gas (MMBtu) | 2,139,606,569 | |||||||
Electricity (MWh) | 32,140,743 | |||||||
Foreign currency exchange ($ CAD) | 116,073,431 | |||||||
Renewable Energy Certificates (MWh) | 7,711,766 | |||||||
Carbon emissions (Metric Ton) | 1,142,009 |
Various subsidiaries of DTE Energy have entered into contracts which contain ratings triggers and are guaranteed by DTE Energy. These contracts contain provisions which allow the counterparties to require that DTE Energy post cash or letters of credit as collateral in the event that DTE Energy’s credit rating is downgraded below investment grade. Certain of these provisions (known as "hard triggers") state specific circumstances under which DTE Energy can be required to post collateral upon the occurrence of a credit downgrade, while other provisions (known as "soft triggers") are not as specific. For contracts with soft triggers, it is difficult to estimate the amount of collateral which may be requested by counterparties and/or which DTE Energy may ultimately be required to post. The amount of such collateral which could be requested fluctuates based on commodity prices (primarily natural gas, power, environmental, and coal) and the provisions and maturities of the underlying transactions. As of December 31, 2021, DTE Energy's contractual obligation to post collateral in the form of cash or letters of credit in the event of a downgrade to below investment grade, under both hard trigger and soft trigger provisions, was $667 million.
As of December 31, 2021, DTE Energy had $1.3 billion of derivatives in net liability positions, for which hard triggers exist. There is $8 million of collateral that has been posted against such liabilities, including cash and letters of credit. Associated derivative net asset positions for which contractual offset exists were $1.0 billion. The net remaining amount of $232 million is derived from the $667 million noted above.
115
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
NOTE 14 — LONG-TERM DEBT
Long-Term Debt
DTE Energy's long-term debt outstanding and weighted average interest rates of debt outstanding at December 31 were:
Interest Rate(a) | Maturity Date | 2021 | 2020 | ||||||||||||||||||||
(In millions) | |||||||||||||||||||||||
Mortgage bonds, notes, and other | |||||||||||||||||||||||
DTE Energy Debt, Unsecured | 2.1% | 2022 — 2030 | $ | 5,555 | $ | 8,175 | |||||||||||||||||
DTE Electric Debt, Principally Secured | 3.7% | 2022 — 2051 | 8,988 | 8,308 | |||||||||||||||||||
DTE Gas Debt, Principally Secured | 3.9% | 2023 — 2051 | 2,065 | 1,910 | |||||||||||||||||||
16,608 | 18,393 | ||||||||||||||||||||||
Unamortized debt discount | (23) | (25) | |||||||||||||||||||||
Unamortized debt issuance costs | (90) | (104) | |||||||||||||||||||||
Long-term debt due within one year | (2,866) | (462) | |||||||||||||||||||||
$ | 13,629 | $ | 17,802 | ||||||||||||||||||||
Junior Subordinated Debentures | |||||||||||||||||||||||
Subordinated Debentures | 4.8% | 2077 — 2081 | $ | 910 | $ | 1,210 | |||||||||||||||||
Unamortized debt issuance costs | (27) | (35) | |||||||||||||||||||||
$ | 883 | $ | 1,175 |
_______________________________________
(a)Weighted average interest rate as of December 31, 2021.
DTE Electric's long-term debt outstanding and weighted average interest rates of debt outstanding at December 31 were:
Interest Rate(a) | Maturity Date | 2021 | 2020 | ||||||||||||||||||||
(In millions) | |||||||||||||||||||||||
Mortgage bonds, notes, and other | |||||||||||||||||||||||
Long Term Debt, Principally Secured | 3.7% | 2022 — 2051 | $ | 8,988 | $ | 8,308 | |||||||||||||||||
Unamortized debt discount | (19) | (16) | |||||||||||||||||||||
Unamortized debt issuance costs | (62) | (56) | |||||||||||||||||||||
Long-term debt due within one year | (316) | (462) | |||||||||||||||||||||
$ | 8,591 | $ | 7,774 | ||||||||||||||||||||
_______________________________________
(a)Weighted average interest rate as of December 31, 2021.
116
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Debt Issuances
In 2021, the following debt was issued:
Company | Month | Type | Interest Rate | Maturity Date | Amount | |||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||
DTE Electric | March | Mortgage bonds(a) | 1.90% | 2028 | $ | 575 | ||||||||||||||||||||||||||
DTE Electric | March | Mortgage bonds(a) | 3.25% | 2051 | 425 | |||||||||||||||||||||||||||
DT Midstream | June | Senior notes(b) | 4.125% | 2029 | 1,100 | |||||||||||||||||||||||||||
DT Midstream | June | Senior notes(b) | 4.375% | 2031 | 1,000 | |||||||||||||||||||||||||||
DT Midstream | June | Term loan facility(b) | Variable | 2028 | 1,000 | |||||||||||||||||||||||||||
DTE Gas | November | Mortgage bonds(c) | 2.07% | 2031 | 60 | |||||||||||||||||||||||||||
DTE Gas | November | Mortgage bonds(c) | 2.85% | 2051 | 95 | |||||||||||||||||||||||||||
DTE Energy | November | Junior subordinated debentures(d) | 4.375% | 2081 | 280 | |||||||||||||||||||||||||||
$ | 4,535 |
_______________________________________
(a)Bonds were issued as Green Bonds and the proceeds will be used to finance qualified expenditures for solar and wind energy, payments under power purchase agreements for solar and wind energy, and energy optimization programs.
(b)Proceeds used for the repayment of short-term borrowings due to DTE Energy to facilitate the separation of DT Midstream, as well as a one-time special dividend provided to DTE Energy. The debt was transferred to DT Midstream upon its separation on July 1, 2021. Refer to Note 4 to the Consolidated Financial Statements, “Dispositions and Impairments,” for additional information and to the Debt Redemptions section below for DTE Energy's use of the proceeds received from DT Midstream.
(c)Proceeds used for the repayment of short-term borrowings and general corporate purposes, including capital expenditures.
(d)Proceeds used for the repayment of $280 million of DTE Energy's 2016 Series F 6.00% Junior Subordinated Debentures due 2076.
In September 2021, DTE Electric completed a mandatory remarketing of $82 million of 1.45% Tax-Exempt Revenue Bonds at the same rate of 1.45% until maturity in 2030 and $59 million of 1.45% Tax-Exempt Revenue Bonds at a rate of 1.35% until maturity in 2029.
Debt Redemptions
In 2021, the following debt was redeemed:
Company | Month | Type | Interest Rate | Maturity Date | Amount | |||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||
DTE Electric | April | Mortgage bonds | 3.90% | 2021 | $ | 250 | ||||||||||||||||||||||||||
DTE Electric | May | Mortgage bonds | 7.00% | 2021 | 33 | |||||||||||||||||||||||||||
DTE Energy | June | Junior subordinated debentures(a) | 5.375% | 2076 | 300 | |||||||||||||||||||||||||||
DTE Energy | July | Senior notes | 3.30% | 2022 | 300 | |||||||||||||||||||||||||||
DTE Energy | July | Senior notes | 2.60% | 2022 | 300 | |||||||||||||||||||||||||||
DTE Energy | July | Senior notes | 3.70% | 2023 | 600 | |||||||||||||||||||||||||||
DTE Energy | July | Senior notes | 3.85% | 2023 | 135 | |||||||||||||||||||||||||||
DTE Energy | July | Senior notes | 3.50% | 2024 | 350 | |||||||||||||||||||||||||||
DTE Energy | July | Senior notes | 3.80% | 2027 | 350 | |||||||||||||||||||||||||||
DTE Energy | July | Senior notes | 3.40% | 2029 | 21 | |||||||||||||||||||||||||||
DTE Energy | July | Senior notes | 6.375% | 2033 | 191 | |||||||||||||||||||||||||||
DTE Energy | August | Senior notes | 3.85% | 2023 | 165 | |||||||||||||||||||||||||||
DTE Energy | August | Senior notes | 6.375% | 2033 | 209 | |||||||||||||||||||||||||||
DTE Electric | August | Mortgage bonds | 6.90% | 2021 | 38 | |||||||||||||||||||||||||||
DTE Energy | December | Junior subordinated debentures(a) | 6.00% | 2076 | 280 | |||||||||||||||||||||||||||
$ | 3,522 |
_______________________________________
(a)Early redemptions and the write-off of unamortized issuance costs resulted in a total loss on extinguishment of debt of $17 million for the year ended December 31, 2021, including $8 million for the June redemption and $9 million for the December redemption.
117
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
During the third quarter 2021, DTE Energy optionally redeemed $2.6 billion of Senior Notes included in the table above using proceeds from DT Midstream's repayment of short-term borrowings and one-time special dividend. To early retire this debt and reduce future interest expense, DTE Energy incurred prepayment costs of $361 million and wrote off $15 million of unamortized issuance costs and discounts related to the debt. These amounts have been included within the Loss on extinguishment of debt line item within the Consolidated Statements of Operations for the year ended December 31, 2021.
The following table shows the Registrants' scheduled debt maturities, excluding any unamortized discount on debt:
2022 | 2023 | 2024 | 2025 | 2026 | 2027 and Thereafter | Total | |||||||||||||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||||||||||||||||
DTE Energy(a) | $ | 2,866 | $ | 277 | $ | 1,075 | $ | 1,220 | $ | 777 | $ | 11,302 | $ | 17,517 | |||||||||||||||||||||||||||
DTE Electric | $ | 316 | $ | 202 | $ | 400 | $ | 350 | $ | 177 | $ | 7,543 | $ | 8,988 |
_______________________________________
(a)Amounts include DTE Electric's scheduled debt maturities.
The following table shows scheduled interest payments related to the Registrants' long-term debt:
2022 | 2023 | 2024 | 2025 | 2026 | 2027 and Thereafter | Total | |||||||||||||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||||||||||||||||
DTE Energy(a) | $ | 575 | $ | 548 | $ | 529 | $ | 494 | $ | 450 | $ | 7,510 | $ | 10,106 | |||||||||||||||||||||||||||
DTE Electric | $ | 330 | $ | 322 | $ | 305 | $ | 292 | $ | 284 | $ | 4,222 | $ | 5,755 |
(a)Amounts include DTE Electric's scheduled interest payments.
Junior Subordinated Debentures
DTE Energy has the right to defer interest payments on the Junior Subordinated Debentures. Should DTE Energy exercise this right, it cannot declare or pay dividends on, or redeem, purchase or acquire, any of its capital stock during the deferral period. Any deferred interest payments will bear additional interest at the rate associated with the related debt issue. As of December 31, 2021, no interest payments have been deferred on the Junior Subordinated Debentures.
Cross Default Provisions
Substantially all of the net utility properties of DTE Electric and DTE Gas are subject to the lien of mortgages. Should DTE Electric or DTE Gas fail to timely pay their indebtedness under these mortgages, such failure may create cross defaults in the indebtedness of DTE Energy.
Acquisition Financing
In December 2019, DTE Energy closed on the purchase of midstream natural gas assets. The acquisition was financed through the issuance of Senior Notes, common stock, and $1.3 billion of equity units. Each equity unit has a stated amount of $50 and was initially issued in the form of a Corporate Unit, comprised of (i) a forward purchase contract to buy DTE Energy common stock (stock purchase contract) and (ii) a 1/20 undivided beneficial ownership interest in a $1,000 principal amount of DTE Energy’s 2019 Series F 2.25% RSNs due 2025. The RSN debt instruments and the stock purchase contract equity instruments are deemed to be separate instruments as the investor may trade the RSNs separately from the stock purchase contracts and may also settle the stock purchase contracts separately. The Corporate Units are listed on the New York Stock Exchange under the symbol DTP.
118
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The stock purchase contract obligates the holder to purchase from DTE Energy on the settlement date, November 1, 2022, for a price of $50 per stock purchase contract, a certain number of shares of DTE Energy's common stock. As a result of the separation of DT Midstream in July 2021, there was a change in the settlement rates in the stock purchase contract to reflect the dividend of DT Midstream stock to DTE Energy shareholders. As adjusted for this change, anti-dilution adjustments to date, and subject to future anti-dilution adjustments, the following number of shares must be purchased:
•if the AMV of DTE Energy’s common stock, which is the average volume-weighted average price of DTE Energy’s common stock for the trading days during the 20 consecutive scheduled trading day period ending on the third scheduled trading day immediately preceding the stock purchase contract settlement date, is equal to or greater than $133.08, 0.3757 shares of common stock;
•if the AMV is less than $133.08 but greater than $106.50, a number of shares of common stock equal to $50 divided by the AMV; and
•if the AMV is less than or equal to $106.50, 0.4695 shares of common stock.
The RSNs bear interest at a rate of 2.25% per year, payable quarterly, and mature on November 1, 2025. The RSNs will be remarketed in 2022. If this remarketing is successful, the interest rate on the RSNs will be reset, and interest thereafter will be payable semi-annually at the reset rate. If there is no successful remarketing, the interest rate on the RSNs will not be reset. The holders of the RSNs would have the right to put the RSNs to DTE Energy at a price equal to 100% of the principal amount, and the proceeds of the put right would be deemed to have been applied against the holders’ obligation under the stock purchase contracts. DTE Energy may also redeem, in whole or in part, the RSNs in the event of a failed final remarketing.
The present value of the future contract adjustment payments of $150 million was recorded as a reduction of shareholders’ equity, offset by the stock purchase contract liability. The stock purchase contract liability is included in Current Liabilities — Other and Other Liabilities —Other on DTE Energy’s Consolidated Statements of Financial Position. On February 1, 2020, DTE Energy began paying the stock purchase contract holders quarterly contract adjustment payments at a rate of 4% per year of the stated amount of $50 per equity unit, or $2 per year. Interest payments on the RSNs are being recorded as Interest expense and stock purchase contract payments are being charged against the liability. Accretion of the stock purchase contract liability is recorded as imputed Interest expense.
The treasury stock method is used to compute diluted EPS for the stock purchase contract. Under the treasury stock method, the stock purchase contract will only have a dilutive effect when the settlement rate is based on the market value of DTE’s common stock that is greater than $133.08 (the threshold appreciation price). At December 31, 2021, the stock purchase price contract was anti-dilutive and, therefore, not included in the computation of diluted earnings per share.
If payments for the stock purchase contract are deferred, DTE Energy may not make any cash distributions related to its capital stock, including dividends, redemptions, repurchases, liquidation payments or guarantee payments. Also, during the deferral period, DTE Energy may not make any payments on or redeem or repurchase any debt securities that are equal in right of payment with, or subordinated to, the RSNs.
Until settlement of the stock purchase contracts, the shares of stock underlying each contract are not outstanding. Under the terms of the stock purchase contracts, assuming no anti-dilution or other adjustments, DTE Energy will issue between 9.8 million and 12.2 million shares of its common stock in November 2022. A total of 13 million shares of DTE Energy’s common stock have been reserved for issuance in connection with the stock purchase contracts.
Selected information about DTE Energy’s equity units is presented below:
Issuance Date | Units Issued | Total Net Proceeds | Total Long-Term Debt | RSN Annual Interest Rate | Stock Purchase Contract Annual Rate | Stock Purchase Settlement Date | Stock Purchase Contract Liability(a) | RSN Maturity Date | ||||||||||||||||||||||||||||||||||||||||||
(In millions, except interest rates) | ||||||||||||||||||||||||||||||||||||||||||||||||||
11/1/19 | 26 | $ | 1,265 | $ | 1,300 | 2.25% | 4.0% | 11/1/2022 | $ | 150 | 11/1/2025 |
_______________________________________
(a)Payments of $50 million and $49 million were made in 2021 and 2020, respectively. The stock purchase contract liability was $51 million and $101 million as of December 31, 2021 and 2020, respectively, exclusive of interest.
119
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
NOTE 15 — PREFERRED AND PREFERENCE SECURITIES
As of December 31, 2021, the amount of authorized and unissued stock is as follows:
Company | Type of Stock | Par Value | Shares Authorized | |||||||||||||||||
DTE Energy | Preferred | $ | — | 5,000,000 | ||||||||||||||||
DTE Electric | Preferred | $ | 100 | 6,747,484 | ||||||||||||||||
DTE Electric | Preference | $ | 1 | 30,000,000 | ||||||||||||||||
DTE Gas | Preferred | $ | 1 | 7,000,000 | ||||||||||||||||
DTE Gas | Preference | $ | 1 | 4,000,000 |
NOTE 16 — SHORT-TERM CREDIT ARRANGEMENTS AND BORROWINGS
DTE Energy, DTE Electric, and DTE Gas have unsecured revolving credit agreements that can be used for general corporate borrowings, but are intended to provide liquidity support for each of the companies’ commercial paper programs. Borrowings under the revolvers are available at prevailing short-term interest rates. DTE Energy also has other facilities to support letter of credit issuance.
In December 2021, DTE Energy entered into a $400 million unsecured term loan to raise additional liquidity, with terms consistent with the unsecured revolving credit agreements. No amount has been drawn as of December 31, 2021 and the loan will expire in June 2022.
The unsecured revolving credit agreements have historically required DTE Energy, DTE Electric, and DTE Gas to maintain a total funded debt to capitalization ratio of no more than 0.65 to 1. In June 2021, DTE Energy amended its total funded debt to capitalization ratio requirement to no more than 0.70 to 1 starting with the third quarter of 2021 and ending December 2022. The amendment was a result of temporary balance sheet impacts resulting from the separation of DT Midstream on July 1, 2021. In the agreements, "total funded debt" means all indebtedness of each respective company and their consolidated subsidiaries, including finance lease obligations, hedge agreements, and guarantees of third parties’ debt, but excluding contingent obligations, nonrecourse and junior subordinated debt, and certain equity-linked securities and, except for calculations at the end of the second quarter, certain DTE Gas short-term debt. "Capitalization" means the sum of (a) total funded debt plus (b) "consolidated net worth," which is equal to consolidated total equity of each respective company and their consolidated subsidiaries (excluding pension effects under certain FASB statements), as determined in accordance with accounting principles generally accepted in the United States of America. At December 31, 2021, the total funded debt to total capitalization ratios for DTE Energy, DTE Electric, and DTE Gas were 0.66 to 1, 0.51 to 1, and 0.48 to 1, respectively, and were in compliance with this financial covenant.
120
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The availability under the facilities in place at December 31, 2021 is shown in the following table:
DTE Energy | DTE Electric | DTE Gas | Total | ||||||||||||||||||||
(In millions) | |||||||||||||||||||||||
Unsecured revolving credit facility, expiring April 2025(a) | $ | 1,500 | $ | 500 | $ | 300 | $ | 2,300 | |||||||||||||||
Unsecured term loan, expiring June 2022 | 400 | — | — | 400 | |||||||||||||||||||
Unsecured Canadian revolving credit facility, expiring May 2023 | 87 | — | — | 87 | |||||||||||||||||||
Unsecured letter of credit facility, expiring February 2023 | 150 | — | — | 150 | |||||||||||||||||||
Unsecured letter of credit facility, expiring July 2023 | 70 | — | — | 70 | |||||||||||||||||||
Unsecured letter of credit facility(b) | 50 | — | — | 50 | |||||||||||||||||||
2,257 | 500 | 300 | 3,057 | ||||||||||||||||||||
Amounts outstanding at December 31, 2021 | |||||||||||||||||||||||
Revolver borrowings | 75 | — | — | 75 | |||||||||||||||||||
Commercial paper issuances | 320 | 153 | 210 | 683 | |||||||||||||||||||
Letters of credit | 258 | — | — | 258 | |||||||||||||||||||
653 | 153 | 210 | 1,016 | ||||||||||||||||||||
Net availability at December 31, 2021 | $ | 1,604 | $ | 347 | $ | 90 | $ | 2,041 |
_______________________________________
(a)Total availability of $102 million expires in April 2024, including $67 million at DTE Energy, $22 million at DTE Electric, and $13 million at DTE Gas. All other availability expires in April 2025.
(b)Uncommitted letter of credit facility with automatic renewal provision for each July and therefore no expiration.
For DTE Energy, the weighted average interest rate for short-term borrowings was 0.3% and 1.1% at December 31, 2021 and 2020, respectively. For DTE Electric, the weighted average interest rate for short-term borrowings was 0.2% at December 31, 2021. There were no short-term borrowings outstanding as of December 31, 2020.
In conjunction with maintaining certain exchange-traded risk management positions, DTE Energy may be required to post collateral with its clearing agents. DTE Energy has demand financing agreements with its clearing agents, including an agreement for up to $50 million with an indefinite term and an agreement for up to $150 million currently contracted through 2022 and subject to renewal. The $50 million agreement, as amended, also allows for up to $50 million of additional margin financing provided that DTE Energy posts a letter of credit for the incremental amount. Both agreements allow the right of setoff with posted collateral. At December 31, 2021, the capacity under these facilities was $250 million. The amount outstanding under these agreements was $103 million and $49 million at December 31, 2021 and 2020, respectively, and was fully offset by the posted collateral.
Dividend Restrictions
Certain of DTE Energy’s credit facilities contain a provision requiring DTE Energy to maintain a total funded debt to capitalization ratio, as defined in the agreements, of no more than 0.65 to 1, which has the effect of limiting the amount of dividends DTE Energy can pay in order to maintain compliance with this provision. As noted above, the total funded debt to capitalization ratio has been temporarily increased to 0.70 to 1 through December 2022. At December 31, 2021, the effect of this provision was a restriction on dividend payments to no more than $1.4 billion of DTE Energy's Retained earnings of $3.4 billion. There are no other effective limitations with respect to DTE Energy’s ability to pay dividends.
NOTE 17 — LEASES
Lessee
Leases at DTE Energy are primarily comprised of various forms of equipment, computer hardware, coal railcars, production facilities, buildings, and certain easement leases with terms ranging from approximately 2 to 40 years. Leases at DTE Electric are primarily comprised of various forms of equipment, computer hardware, coal railcars, and certain easement leases with terms ranging from approximately 2 to 40 years.
121
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
A lease is deemed to exist when the Registrants have the right to control the use of identified property, plant or equipment, as conveyed through a contract, for a certain period of time and consideration paid. The right to control is deemed to occur when the Registrants have the right to obtain substantially all of the economic benefits of the identified assets and the right to direct the use of such assets.
Lease liabilities are determined utilizing a discount rate to determine the present values of lease payments. Topic 842 requires the use of the rate implicit in the lease when it is readily determinable. When the rate implicit in the lease is not readily determinable, the incremental borrowing rate is used. The Registrants have determined their respective incremental borrowing rates based upon the rate of interest that would have been paid on a collateralized basis over similar tenors to that of the leases. The incremental borrowing rates for DTE Electric and DTE Gas have been determined utilizing respective secured borrowing rates for first mortgage bonds with like tenors of remaining lease terms. Incremental borrowing rates for non-utility entities have been determined utilizing an implied secured borrowing rate based upon an unsecured rate for a similar tenor of remaining lease terms, which is then adjusted for the estimated impact of collateral.
Certain leases of the Registrants contain escalation clauses whereby the payments are adjusted for consumer price or labor indices. DTE Energy has leases with non-index based escalation clauses for fixed dollar or percentage increases. DTE Electric has leases with non-index based escalation clauses for fixed dollar increases. DTE Energy also has leases with variable payments based upon usage of, or revenues associated with, the leased assets. DTE Electric also has leases with variable payments based upon the usage of the leased assets.
Certain leases of easements and coal railcars contain provisions whereby the Registrants have the option to terminate the lease agreement by giving notice of such termination during the time frames specified in the respective lease. The Registrants have considered such provisions in the determination of the lease term when it is reasonably certain that the lease would be terminated.
The Registrants have certain leases which contain purchase options. Based upon the nature of the leased property and terms of the purchase options, the Registrants have determined it is not reasonably certain that such purchase options will be utilized. Thus, the impact of the purchase options has not been included in the determination of right-of-use assets and lease liabilities for the subject leases.
The Registrants have certain leases which contain renewal options. Where the renewal options were deemed reasonably certain to occur, the impacts of such options were included in the determination of the right of use assets and lease liabilities.
The Registrants have agreements with lease and non-lease components, which are generally accounted for separately. Consideration in a lease is allocated between lease and non-lease components based upon the estimated relative standalone prices. The Registrants have certain coal railcar leases for which non-lease and lease components are accounted for as a single lease component, as permitted under Topic 842.
The following is a summary of the components of lease cost for the years ended December 31:
DTE Energy | DTE Electric | ||||||||||||||||||||||||||||||||||
2021 | 2020 | 2019 | 2021 | 2020 | 2019 | ||||||||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||||||||||
Operating lease cost | $ | 19 | $ | 21 | $ | 23 | $ | 14 | $ | 14 | $ | 17 | |||||||||||||||||||||||
Finance lease cost: | |||||||||||||||||||||||||||||||||||
Amortization of right-of-use assets | 7 | 5 | 4 | 6 | 4 | 4 | |||||||||||||||||||||||||||||
Interest of lease liabilities | 1 | — | — | — | — | — | |||||||||||||||||||||||||||||
Total finance lease cost | 8 | 5 | 4 | 6 | 4 | 4 | |||||||||||||||||||||||||||||
Variable lease cost | 9 | 10 | 10 | — | — | — | |||||||||||||||||||||||||||||
Short-term lease cost | 14 | 11 | 9 | 6 | 6 | 3 | |||||||||||||||||||||||||||||
$ | 50 | $ | 47 | $ | 46 | $ | 26 | $ | 24 | $ | 24 |
The Registrants have elected not to apply the recognition requirements of Topic 842 to leases with a term of 12 months or less. DTE Energy and DTE Electric record operating, variable, and short-term lease costs as Operating Expenses on the Consolidated Statements of Operations, except for certain amounts that may be capitalized to other assets.
122
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The following is a summary of other information related to leases for the years ended December 31:
DTE Energy | DTE Electric | ||||||||||||||||||||||||||||||||||
2021 | 2020 | 2019 | 2021 | 2020 | 2019 | ||||||||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||||||||||
Supplemental Cash Flows Information | |||||||||||||||||||||||||||||||||||
Cash paid for amounts included in the measurement of these liabilities: | |||||||||||||||||||||||||||||||||||
Operating cash flows for finance leases | $ | 8 | $ | 3 | $ | 5 | $ | 7 | $ | 2 | $ | 5 | |||||||||||||||||||||||
Operating cash flows for operating leases | $ | 19 | $ | 22 | $ | 22 | $ | 14 | $ | 14 | $ | 16 | |||||||||||||||||||||||
Right-of-use assets obtained in exchange for lease obligations: | |||||||||||||||||||||||||||||||||||
Operating leases | $ | 5 | $ | 2 | $ | 42 | $ | 1 | $ | — | $ | 27 | |||||||||||||||||||||||
Finance leases | $ | 3 | $ | 19 | $ | 8 | $ | 1 | $ | 14 | $ | — | |||||||||||||||||||||||
Weighted Average Remaining Lease Term (Years) | |||||||||||||||||||||||||||||||||||
Operating leases | 12.7 | 12.1 | 12.1 | 10.3 | 10.4 | 10.6 | |||||||||||||||||||||||||||||
Finance leases | 7.8 | 7.6 | 9.1 | 2.1 | 3.1 | 2.0 | |||||||||||||||||||||||||||||
Weighted Average Discount Rate | |||||||||||||||||||||||||||||||||||
Operating leases | 3.6 | % | 3.6 | % | 3.5 | % | 3.4 | % | 3.3 | % | 3.3 | % | |||||||||||||||||||||||
Finance leases | 2.2 | % | 2.0 | % | 3.1 | % | 1.0 | % | 1.0 | % | 3.1 | % |
The Registrants' future minimum lease payments under leases for remaining periods as of December 31, 2021 are as follows:
DTE Energy | DTE Electric | ||||||||||||||||||||||
Operating Leases | Finance Leases | Operating Leases | Finance Leases | ||||||||||||||||||||
(In millions) | |||||||||||||||||||||||
2022 | $ | 16 | $ | 8 | $ | 12 | $ | 6 | |||||||||||||||
2023 | 13 | 9 | 10 | 6 | |||||||||||||||||||
2024 | 11 | 3 | 8 | 1 | |||||||||||||||||||
2025 | 8 | 1 | 6 | — | |||||||||||||||||||
2026 | 7 | 1 | 5 | — | |||||||||||||||||||
2027 and thereafter | 56 | 8 | 27 | — | |||||||||||||||||||
Total future minimum lease payments | 111 | 30 | 68 | 13 | |||||||||||||||||||
Imputed interest | (23) | (3) | (12) | — | |||||||||||||||||||
Lease liabilities | $ | 88 | $ | 27 | $ | 56 | $ | 13 |
Finance leases reported on the Consolidated Statements of Financial Position are as follows for the years ended December 31:
DTE Energy | DTE Electric | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
(In millions) | |||||||||||||||||||||||
$ | 26 | $ | 29 | $ | 12 | $ | 16 | ||||||||||||||||
$ | 8 | $ | 7 | $ | 6 | $ | 6 | ||||||||||||||||
Long-term lease liabilities | $ | 19 | $ | 24 | $ | 7 | $ | 13 |
123
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Lessor
During the first quarter 2021, DTE Energy completed construction of and began operating certain energy infrastructure assets for a large industrial customer under a long-term agreement, where the assets will transfer to the customer at the end of the contract term in 2040. DTE Energy has accounted for a portion of the agreement as a finance lease arrangement, recognizing an additional net investment of $31 million. DTE Energy also leases a portion of its pipeline system through a finance lease contract that has been renewed through 2025, with additional renewal options reasonably certain to be exercised through 2040.
DTE Energy also leases various assets under operating leases for a pipeline, energy facilities and related equipment. Such leases are comprised of both fixed payments and variable payments which are contingent on volumes, with terms ranging from 2 to 24 years. Generally, the operating leases do not have renewal provisions or options to purchase the assets at the end of the lease. The operating leases generally do not have termination for convenience provisions. Termination may be allowed under specific circumstances stated in the lease contract, such as under an event of default.
Certain of the finance and operating leases have lease terms that extend to the end of the estimated economic life of the leased assets, thereby resulting in no residual value. Any remaining residual values under the finance and operating leases are expected to be recovered through rates, renewals or new lease contracts. Residual values have been determined using the estimated economic life of the leased assets. The finance and operating leases do not contain residual value guarantees.
Certain of the operating leases have both lease and non-lease components. The lease and non-lease components are allocated based upon estimated relative standalone selling prices.
A lease is deemed to exist when the Registrants have provided other parties with the right to control the use of identified property, plant or equipment, as conveyed through a contract, for a certain period of time and consideration received. The right to control is deemed to occur when the Registrants have provided other parties with the right to obtain substantially all of the economic benefits of the identified assets and the right to direct the use of such assets.
DTE Energy’s lease income associated with operating leases, including the line items in which it was included on the Consolidated Statements of Operations, was as follows:
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Fixed payments | $ | 67 | $ | 57 | $ | 56 | |||||||||||
Variable payments | 131 | 124 | 128 | ||||||||||||||
$ | 198 | $ | 181 | $ | 184 | ||||||||||||
Operating revenues | $ | 103 | $ | 99 | $ | 121 | |||||||||||
Other income | 95 | 82 | 63 | ||||||||||||||
$ | 198 | $ | 181 | $ | 184 |
DTE Energy’s minimum future rental revenues under operating leases for remaining periods as of December 31, 2021 are as follows:
DTE Energy | |||||
(In millions) | |||||
2022 | $ | 15 | |||
2023 | 15 | ||||
2024 | 15 | ||||
2025 | 15 | ||||
2026 | 11 | ||||
2027 and thereafter | 51 | ||||
$ | 122 |
Depreciation expense associated with DTE Energy's property under operating leases was $22 million, $24 million, and $23 million for the years ended December 31, 2021, 2020, and 2019 respectively.
124
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The following is a summary of property under operating leases for DTE Energy as of December 31:
2021 | 2020 | ||||||||||
(In millions) | |||||||||||
Gross property under operating leases | $ | 341 | $ | 389 | |||||||
Accumulated amortization of property under operating leases | $ | 181 | $ | 191 |
The components of DTE Energy’s net investment in finance leases for remaining periods as of December 31, 2021 are as follows:
DTE Energy | |||||
(In millions) | |||||
2022 | $ | 23 | |||
2023 | 22 | ||||
2024 | 22 | ||||
2025 | 21 | ||||
2026 | 21 | ||||
2027 and thereafter | 271 | ||||
Total minimum future lease receipts | 380 | ||||
Residual value of leased pipeline | 17 | ||||
Less unearned income | 198 | ||||
Net investment in finance lease | 199 | ||||
Less current portion | 6 | ||||
$ | 193 |
Interest income recognized under finance leases was $17 million, $16 million, and $5 million for the years ended December 31, 2021, 2020, and 2019, respectively. During 2020, DTE Energy also recognized $11 million of profit from the sale of membership interests in the REF business accounted for as a finance lease arrangement.
NOTE 18 — COMMITMENTS AND CONTINGENCIES
Environmental
DTE Electric
Air — DTE Electric is subject to the EPA ozone and fine particulate transport and acid rain regulations that limit power plant emissions of SO2 and NOX. The EPA and the State of Michigan have also issued emission reduction regulations relating to ozone, fine particulate, regional haze, mercury, and other air pollution. These rules have led to controls on fossil-fueled power plants to reduce SO2, NOX, mercury, and other emissions. Additional rulemakings may occur over the next few years which could require additional controls for SO2, NOX, and other hazardous air pollutants.
The EPA proposed revised air quality standards for ground level ozone in November 2014 and specifically requested comments on the form and level of the ozone standards. The standards were finalized in October 2015. The State of Michigan recommended to the EPA in October 2016 which areas of the state are not attaining the new standard. On April 30, 2018, the EPA finalized the State of Michigan's recommended marginal non-attainment designation for southeast Michigan. The State is planning to submit a request for redesignation of the southeast Michigan ozone non-attainment area to the EPA. However, the State is required to develop and implement a plan to address the non-attainment area. The plan will likely be submitted to the EPA by mid-2022 The Registrants cannot predict the scope and associated financial impact of the State's plan to address the ozone non-attainment area at this time.
125
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The EPA has implemented regulatory actions under the Clean Air Act to address emissions of GHGs from the utility sector and other sectors of the economy. Among these actions, in 2015 the EPA finalized performance standards for emissions of carbon dioxide from new and existing fossil-fuel fired EGUs. The performance standards for existing EGUs, known as the EPA Clean Power Plan, were challenged by petitioners and stayed by the U.S. Supreme Court in February 2016 pending final review by the courts. On October 10, 2017, the EPA, under a new administration, proposed to rescind the Clean Power Plan, and in August 2018, the EPA proposed revised emission guidelines for GHGs from existing EGUs. On June 19, 2019, the EPA Administrator officially repealed the Clean Power Plan and finalized its replacement, named the ACE rule. The ACE rule was vacated and remanded back to the EPA in a D.C. Circuit Court decision on January 19, 2021. Petitions were filed asking the Supreme Court to review the D.C. Circuit's decision vacating the ACE rule, and the petition was granted in October 2021. A decision from the Supreme Court is expected by June 2022. The next steps taken by the EPA with respect to regulation of GHGs from EGUs is uncertain. Regardless of future rules, DTE Energy remains committed for its electric utility operations to reduce carbon emissions 32% by 2023, 50% by 2028, and 80% by 2040 from 2005 carbon emissions levels, and its goal of net zero emissions from its electric utility operations by 2050.
In addition to the GHG standards for existing EGUs, in December 2018, the EPA issued proposed revisions to the carbon dioxide performance standards for new, modified, or reconstructed fossil-fuel fired EGUs. The rule was finalized on January 13, 2021 and immediately challenged. An order vacating the rule was filed by the D.C. Circuit Court of Appeals on April 5, 2021. The carbon standards for new sources are not expected to have a material impact on DTE Electric, since DTE Electric has no plans to build new coal-fired generation and any potential new gas generation will be able to comply with the standards.
Pending or future legislation or other regulatory actions could have a material impact on DTE Electric's operations and financial position and the rates charged to its customers. Impacts include expenditures for environmental equipment beyond what is currently planned, financing costs related to additional capital expenditures, the purchase of emission credits from market sources, higher costs of purchased power, and the retirement of facilities where control equipment is not economical. DTE Electric would seek to recover these incremental costs through increased rates charged to its utility customers, as authorized by the MPSC.
To comply with air pollution requirements, DTE Electric has spent approximately $2.4 billion. DTE Electric does not anticipate additional capital expenditures for air pollution requirements, subject to the results of future rulemakings.
Water — In response to an EPA regulation, DTE Electric was required to examine alternatives for reducing the environmental impacts of the cooling water intake structures at several of its facilities. Based on the results of completed studies and expected future studies, DTE Electric may be required to install technologies to reduce the impacts of the water intake structures. A final rule became effective in October 2014. The final rule requires studies to be completed and submitted as part of the NPDES permit application process to determine the type of technology needed to reduce impacts to fish. DTE Electric has initiated the process of completing the required studies. Final compliance for the installation of any required technology will be determined by the state on a case by case, site specific basis. DTE Electric is currently evaluating the compliance options and working with the State of Michigan on evaluating whether any controls are needed. These evaluations/studies may require modifications to some existing intake structures. It is not possible to quantify the impact of this rule making at this time.
Contaminated and Other Sites — Prior to the construction of major interstate natural gas pipelines, gas for heating and other uses was manufactured locally from processes involving coal, coke, or oil. The facilities, which produced gas, have been designated as MGP sites. DTE Electric conducted remedial investigations at contaminated sites, including three former MGP sites. Cleanup of one of the MGP sites is complete, and the site is closed. The investigations have revealed contamination related to the by-products of gas manufacturing at each MGP site. In addition to the MGP sites, DTE Electric is also in the process of cleaning up other contaminated sites, including the area surrounding an ash landfill, electrical distribution substations, electric generating power plants, and underground and above ground storage tank locations. The findings of these investigations indicated that the estimated cost to remediate these sites is expected to be incurred over the next several years. At December 31, 2021 and 2020, DTE Electric had $14 million and $10 million, respectively, accrued for remediation. These costs are not discounted to their present value. Any change in assumptions, such as remediation techniques, nature and extent of contamination, and regulatory requirements, could impact the estimate of remedial action costs for the sites and affect DTE Electric’s financial position and cash flows. DTE Electric believes the likelihood of a material change to the accrued amount is remote based on current knowledge of the conditions at each site.
126
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Coal Combustion Residuals and Effluent Limitations Guidelines — A final EPA rule for the disposal of coal combustion residuals, commonly known as coal ash, became effective in October 2015, and was revised in October 2016, July 2018, September 2020, and November 2020. The rule is based on the continued listing of coal ash as a non-hazardous waste and relies on various self-implementation design and performance standards. DTE Electric owns and operates three permitted engineered coal ash storage facilities to dispose of coal ash from coal-fired power plants and operates a number of smaller impoundments at its power plants subject to certain provisions in the CCR rule. At certain facilities, the rule currently requires ongoing sampling and testing of monitoring wells, compliance with groundwater standards, and the closure of basins at the end of the useful life of the associated power plant.
On September 28, 2020, the CCR rule "A Holistic Approach to Closure Part A: Deadline to Initiate Closure and Enhancing Public Access to Information" became effective and established April 11, 2021 as the new deadline for all unlined impoundments (including units previously classified as "clay-lined") to initiate closure. Additionally, the rule amends certain reporting requirements and CCR website requirements. On November 12, 2020, an additional revision to the CCR Rule "A Holistic Approach to Closure Part B: Alternate Demonstration for Unlined Surface Impoundments" was published in the Federal Register that provides a process to determine if certain unlined impoundments consist of an alternative liner system that may be as protective as the current liners specified in the CCR rule, and therefore may continue to operate. DTE Electric has submitted applications to the EPA that support continued use of all impoundments through their active lives. The applications are currently under review and the forced closure date of April 11, 2021 is effectively delayed while the EPA completes their review.
At the State level, legislation was signed by the Governor in December 2018 and provides for further regulation of the CCR program in Michigan. Additionally, the statutory revision provides the basis of a CCR program that EGLE has submitted to the EPA for approval to fully regulate the CCR program in Michigan in lieu of a Federal permit program. The EPA is currently working with EGLE in reviewing the submitted State program, and DTE Electric will work with EGLE to implement a State program that may be approved in the future.
On April 12, 2017, the EPA granted a petition for reconsideration of the 2015 ELG Rule. The EPA also signed an administrative stay of the 2015 ELG Rule’s compliance deadlines for fly ash transport water, bottom ash transport water, and flue gas desulfurization (FGD) wastewater, among others. On June 6, 2017, the EPA published in the Federal Register a proposed rule (Postponement Rule) to postpone certain applicable deadlines within the 2015 ELG rule. The Postponement Rule was published on September 18, 2017. The Postponement Rule nullified the administrative stay but also extended the earliest compliance deadlines for only FGD wastewater and bottom ash transport water until November 1, 2020 in order for the EPA to propose and finalize a new ruling. On October 13, 2020, the EPA finalized the ELG Reconsideration Rule which revised the regulations from the 2015 ELG rule. The Reconsideration Rule re-establishes the technology-based effluent limitations guidelines and standards applicable to FGD wastewater and bottom ash transport water. The EPA set the applicability dates for bottom ash transport water "as soon as possible" beginning October 13, 2021 and no later than December 31, 2025. FGD wastewater retrofits must be completed "as soon as possible" beginning October 13, 2021 and no later than December 31, 2025 or December 31, 2028 if a permittee decides to pursue the Voluntary Incentives Program (VIP) subcategory for FGD wastewater. If a facility applies for the VIP, they must meet more stringent standards, but are allowed an extended time period to complete the project.
The Reconsideration Rule also provides additional compliance opportunities by finalizing low utilization and cessation of coal burning subcategories. The Reconsideration Rule provides new opportunities for DTE Electric to evaluate existing ELG compliance strategies and make any necessary adjustments to ensure full compliance with the ELGs in a cost-effective manner.
Compliance schedules for individual facilities and individual waste streams are determined through issuance of new NPDES permits by the State of Michigan. The State of Michigan has issued an NPDES permit for the Belle River power plant establishing compliance deadlines based on the 2020 Reconsideration Rule. On October 11, 2021, in consideration of the deadlines above, DTE Electric submitted the appropriate documentation titled the Notice of Planned Participation (NOPP) to the State of Michigan that formally announced the intent to pursue compliance subcategories as ELG compliance options: the cessation of coal at the Belle River power plant no later than 2028 and the VIP for FGD wastewater at Monroe power plant.
On July 27, 2021, the EPA announced they will revisit some of the compliance requirements that were established in the 2020 Reconsideration Rule and plan to release a new proposed rule in Fall of 2022. The 2020 Reconsideration Rule remains in effect until that time.
DTE Electric continues to evaluate compliance strategies, technologies, and system designs for both FGD wastewater and bottom ash transport water system to achieve compliance with the EPA rules at the Monroe power plant.
127
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
DTE Electric has estimated the impact of the CCR and ELG rules to be $522 million of capital expenditures, including $417 million for 2022 through 2026.
DTE Gas
Air — In June 2020, DTE Energy expanded its net zero goal to include its gas utility operations by committing to reduce greenhouse gas emissions to net zero by 2050 from procurement of natural gas and within its gas utility. DTE Energy is working to source gas with lower methane intensity, reduce emissions through its gas main renewal and pipeline integrity programs, and if necessary, use carbon offsets to achieve net zero. DTE Gas also committed to helping its customers reduce their emissions from natural gas by 35% by 2050. To support this goal, DTE Gas launched its CleanVision Natural Gas Balance program in January 2021 that offers customers a way to reduce their carbon footprint using carbon offsets and renewable natural gas. The carbon offset program is focused on protecting Michigan forests that naturally absorb carbon dioxide.
Contaminated and Other Sites — DTE Gas owns or previously owned 14 former MGP sites. Investigations have revealed contamination related to the by-products of gas manufacturing at each site. Cleanup of eight of the MGP sites is complete and the sites are closed. DTE Gas has also completed partial closure of four additional sites. Cleanup activities associated with the remaining sites will continue over the next several years. The MPSC has established a cost deferral and rate recovery mechanism for investigation and remediation costs incurred at former MGP sites. In addition to the MGP sites, DTE Gas is also in the process of cleaning up other contaminated sites, including gate stations, gas pipeline releases, and underground storage tank locations. As of December 31, 2021 and 2020, DTE Gas had $24 million accrued for remediation. These costs are not discounted to their present value. Any change in assumptions, such as remediation techniques, nature and extent of contamination, and regulatory requirements, could impact the estimate of remedial action costs for the sites and affect DTE Gas' financial position and cash flows. DTE Gas anticipates the cost amortization methodology approved by the MPSC, which allows for amortization of the MGP costs over a ten-year period beginning with the year subsequent to the year the MGP costs were incurred, will prevent the associated investigation and remediation costs from having a material adverse impact on DTE Gas' results of operations.
Non-utility
DTE Energy's non-utility businesses are subject to a number of environmental laws and regulations dealing with the protection of the environment from various pollutants.
In March 2019, the EPA issued an FOV to EES Coke, the Michigan coke battery facility that is a wholly-owned subsidiary of DTE Energy, alleging that the 2008 and 2014 permits issued by EGLE did not comply with the Clean Air Act. In September 2020, the EPA issued another FOV alleging EES Coke's 2018 and 2019 SO2 emissions exceeded projections and hence violated non-attainment new source review requirements. EES Coke evaluated the EPA's alleged violations and believes that the permits approved by EGLE complied with the Clean Air Act. EES Coke also responded to the EPA's September 2020 allegations demonstrating its actual emissions are compliant with non-attainment new source review requirements. Discussions with the EPA are ongoing. At the present time, DTE Energy cannot predict the outcome or financial impact of this FOV.
Other
In 2010, the EPA finalized a new one-hour SO2 ambient air quality standard that requires states to submit plans and associated timelines for non-attainment areas that demonstrate attainment with the new SO2 standard in phases. Phase 1 addresses non-attainment areas designated based on ambient monitoring data. Phase 2 addresses non-attainment areas with large sources of SO2 and modeled concentrations exceeding the National Ambient Air Quality Standards for SO2. Phase 3 addresses smaller sources of SO2 with modeled or monitored exceedances of the new SO2 standard.
128
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Michigan's Phase 1 non-attainment area includes DTE Energy facilities in southwest Detroit and areas of Wayne County. Modeling runs by EGLE suggest that emission reductions may be required by significant sources of SO2 emissions in these areas, including DTE Electric power plants and DTE Energy's Michigan coke battery facility. As part of Michigan's SIP process, DTE Energy has worked with EGLE to develop air permits reflecting significant SO2 emission reductions that, in combination with other non-DTE Energy sources' emission reduction strategies, will help the state attain the standard and sustain its attainment. The Michigan SIP was completed and submitted to the EPA on May 31, 2016 and supplemented on June 30, 2016. On March 19, 2021, the EPA published in the Federal Register partial approval and partial disapproval of Michigan's Detroit SO2 non-attainment area plan. The partial disapproval does not appear to impact DTE's sources and further discussions are underway with the EPA to finalize the plan. Since several non-DTE Energy sources are also part of the proposed compliance plan, DTE Energy is unable to determine the full impact of any further emissions reductions that may be required from DTE's facilities at this time.
Michigan's Phase 2 non-attainment area includes DTE Electric facilities in St. Clair County. The EPA recently approved a clean data determination request submitted by EGLE. This does not automatically redesignate the area to attainment. Until the area is officially redesignated as attainment, DTE Energy is unable to determine the impacts.
Synthetic Fuel Guarantees
DTE Energy discontinued the operations of its synthetic fuel production facilities throughout the United States as of December 31, 2007. DTE Energy provided certain guarantees and indemnities in conjunction with the sales of interests in its synfuel facilities. The guarantees cover potential commercial, environmental, oil price, and tax-related obligations that will survive until 90 days after expiration of all applicable statutes of limitations. DTE Energy estimates that its maximum potential liability under these guarantees at December 31, 2021 was approximately $70 million. Payment under these guarantees is considered remote.
REF Guarantees
DTE Energy has provided certain guarantees and indemnities in conjunction with the sales of interests in or lease of its REF facilities. The guarantees cover potential commercial, environmental, and tax-related obligations that will survive until 90 days after expiration of all applicable statutes of limitations. DTE Energy estimates that its maximum potential liability under these guarantees at December 31, 2021 was $720 million. Payments under these guarantees are considered remote.
Other Guarantees
In certain limited circumstances, the Registrants enter into contractual guarantees. The Registrants may guarantee another entity’s obligation in the event it fails to perform and may provide guarantees in certain indemnification agreements. The Registrants may also provide indirect guarantees for the indebtedness of others. DTE Energy’s guarantees are not individually material with maximum potential payments totaling $40 million at December 31, 2021. Payments under these guarantees are considered remote.
The Registrants are periodically required to obtain performance surety bonds in support of obligations to various governmental entities and other companies in connection with its operations. As of December 31, 2021, DTE Energy had $168 million of performance bonds outstanding, including $119 million for DTE Electric. In the event that such bonds are called for nonperformance, the Registrants would be obligated to reimburse the issuer of the performance bond. The Registrants are released from the performance bonds as the contractual performance is completed and does not believe that a material amount of any currently outstanding performance bonds will be called.
Labor Contracts
There are several bargaining units for DTE Energy subsidiaries' approximately 5,200 represented employees, including DTE Electric's approximately 2,700 represented employees. This represents 50% and 57% of DTE Energy's and DTE Electric's total employees, respectively. Of these represented employees, approximately 15% and 21% have contracts expiring within one year for DTE Energy and DTE Electric, respectively.
129
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Purchase Commitments
As of December 31, 2021, the Registrants were party to numerous long-term purchase commitments relating to a variety of goods and services required for their businesses. These agreements primarily consist of fuel supply commitments and renewable energy contracts for the Registrants, as well as energy trading contracts for DTE Energy. The Registrants estimate the following commitments from 2022 through 2051 for DTE Energy, and 2022 through 2051 for DTE Electric, as detailed in the following tables:
2022 | 2023 | 2024 | 2025 | 2026 | 2027 and Thereafter | Total | |||||||||||||||||||||||||||||||||||
DTE Energy | (In millions) | ||||||||||||||||||||||||||||||||||||||||
Long-term power purchase agreements(a) | $ | 87 | $ | 92 | $ | 103 | $ | 103 | $ | 103 | $ | 986 | $ | 1,474 | |||||||||||||||||||||||||||
Other purchase commitments(b) | 3,203 | 1,704 | 1,174 | 482 | 357 | 980 | 7,900 | ||||||||||||||||||||||||||||||||||
Total commitments | $ | 3,290 | $ | 1,796 | $ | 1,277 | $ | 585 | $ | 460 | $ | 1,966 | $ | 9,374 | |||||||||||||||||||||||||||
2022 | 2023 | 2024 | 2025 | 2026 | 2027 and Thereafter | Total | |||||||||||||||||||||||||||||||||||
DTE Electric | (In millions) | ||||||||||||||||||||||||||||||||||||||||
Long-term power purchase agreements(a) | $ | 92 | $ | 97 | $ | 108 | $ | 108 | $ | 109 | $ | 1,006 | $ | 1,520 | |||||||||||||||||||||||||||
Other purchase commitments(b) | 365 | 402 | 431 | 197 | 118 | 275 | 1,788 | ||||||||||||||||||||||||||||||||||
Total commitments | $ | 457 | $ | 499 | $ | 539 | $ | 305 | $ | 227 | $ | 1,281 | $ | 3,308 |
_______________________________________
(a)The agreements represent the minimum obligations with suppliers for renewable energy and renewable energy credits under existing contract terms which expire from 2030 through 2035. DTE Electric's share of plant output ranges from 28% to 100%. Purchase commitments for DTE Electric include affiliate agreements with DTE Sustainable Generation that are eliminated in consolidation for DTE Energy.
(b)Excludes amounts associated with full requirements contracts where no stated minimum purchase volume is required.
Utility capital expenditures and expenditures for non-utility businesses will be approximately $3.7 billion and $2.7 billion in 2022 for DTE Energy and DTE Electric, respectively. The Registrants have made certain commitments in connection with the estimated 2022 annual capital expenditures.
COVID-19 Pandemic
DTE Energy has been actively monitoring the impact of the COVID-19 pandemic on supply chains, markets, counterparties, and customers, and any related impacts on operating costs, customer demand, and recoverability of assets that could materially impact the Registrants' financial results.
In 2021 and 2020, the COVID-19 pandemic has impacted DTE Electric sales volumes. As businesses have transitioned to more remote operations, related sales volumes have been lower for commercial and industrial customers and higher for residential customers as compared to historical volumes before the pandemic. This impact has contributed to a net reduction in DTE Electric sales for these customers, but has been offset by favorable rate mix. Therefore, there has not been a significant impact to the Registrants' Consolidated Financial Statements.
In 2020, COVID-19 also resulted in incremental operating expenses at the electric and gas utilities related to personal protective equipment and other health and safety-related matters, as well as lower volumes for certain companies within the DTE Vantage segment. For the year ended December 31, 2021, however, there has not been any significant impact to operating expenses or DTE Vantage volumes attributable to the COVID-19 pandemic.
In consideration of the above factors and all other current and expected impacts to the Registrants' performance and cash flows resulting from the COVID-19 pandemic, there have been no material adjustments or reserves deemed necessary as of December 31, 2021. The Registrants cannot predict the future impacts of the COVID-19 pandemic on the Consolidated Financial Statements, as developments involving COVID-19 and its related effects on economic and operating conditions remain highly uncertain.
130
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Other Contingencies
The Registrants are involved in certain other legal, regulatory, administrative, and environmental proceedings before various courts, arbitration panels, and governmental agencies concerning claims arising in the ordinary course of business. These proceedings include certain contract disputes, additional environmental reviews and investigations, audits, inquiries from various regulators, and pending judicial matters. The Registrants cannot predict the final disposition of such proceedings. The Registrants regularly review legal matters and record provisions for claims that they can estimate and are considered probable of loss. The resolution of these pending proceedings is not expected to have a material effect on the Registrants' Consolidated Financial Statements in the periods they are resolved.
For a discussion of contingencies related to regulatory matters and derivatives, see Notes 9 and 13 to the Consolidated Financial Statements, "Regulatory Matters" and "Financial and Other Derivative Instruments," respectively.
NOTE 19 — NUCLEAR OPERATIONS
Property Insurance
DTE Electric maintains property insurance policies specifically for the Fermi 2 plant. These policies cover such items as replacement power and property damage. NEIL is the primary supplier of the insurance policies.
DTE Electric maintains a policy for extra expenses, including replacement power costs necessitated by Fermi 2’s unavailability due to an insured event. This policy has a 12-week waiting period and provides an aggregate $490 million of coverage over a three-year period.
DTE Electric has $1.5 billion in primary coverage and $1.25 billion of excess coverage for stabilization, decontamination, debris removal, repair and/or replacement of property, and decommissioning. The combined coverage limit for total property damage is $2.75 billion. The total limit for property damage for non-nuclear events is $1.8 billion and an aggregate of $328 million of coverage for extra expenses over a two-year period.
On December 20, 2019, the Terrorism Risk Insurance Program Reauthorization Act of 2019 was signed, extending TRIA through December 31, 2027. For multiple terrorism losses caused by acts of terrorism not covered under the TRIA occurring within one year after the first loss from terrorism, the NEIL policies would make available to all insured entities up to $3.2 billion, plus any amounts recovered from reinsurance, government indemnity, or other sources to cover losses.
Under NEIL policies, DTE Electric could be liable for maximum assessments of up to $57 million per event if the loss associated with any one event at any nuclear plant should exceed the accumulated funds available to NEIL.
Public Liability Insurance
As required by federal law, DTE Electric maintains $450 million of public liability insurance for a nuclear incident. For liabilities arising from a terrorist act outside the scope of TRIA, the policy is subject to one industry aggregate limit of $300 million. Further, under the Price-Anderson Amendments Act of 2005, deferred premium charges up to $138 million could be levied against each licensed nuclear facility, but not more than $20 million per year per facility. Thus, deferred premium charges could be levied against all owners of licensed nuclear facilities in the event of a nuclear incident at any of these facilities.
Nuclear Fuel Disposal Costs
In accordance with the Federal Nuclear Waste Policy Act of 1982, DTE Electric has a contract with the DOE for the future storage and disposal of spent nuclear fuel from Fermi 2 that required DTE Electric to pay the DOE a fee of 1 mill per kWh of Fermi 2 electricity generated and sold. The fee was a component of nuclear fuel expense. The 1 mill per kWh DOE fee was reduced to zero effective May 16, 2014.
131
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The DOE's Yucca Mountain Nuclear Waste Repository program for the acceptance and disposal of spent nuclear fuel was terminated in 2011. DTE Electric is a party in the litigation against the DOE for both past and future costs associated with the DOE's failure to accept spent nuclear fuel under the timetable set forth in the Federal Nuclear Waste Policy Act of 1982. In July 2012, DTE Electric executed a settlement agreement with the federal government for costs associated with the DOE's delay in acceptance of spent nuclear fuel from Fermi 2 for permanent storage. The settlement agreement, including extensions, provides for a claims process and payment of delay-related costs experienced by DTE Electric through 2022. DTE Electric's claims are being settled and paid on a timely basis. The settlement proceeds reduce the cost of the dry cask storage facility assets and provide reimbursement for related operating expenses.
DTE Electric currently employs a spent nuclear fuel storage strategy utilizing a fuel pool and a dry cask storage facility. The spent nuclear fuel storage strategy is expected to provide sufficient spent fuel storage capability for the life of the plant as defined by DTE Electric's operating license agreement.
The federal government continues to maintain its legal obligation to accept spent nuclear fuel from Fermi 2 for permanent storage. Issues relating to long-term waste disposal policy and to the disposition of funds contributed by DTE Electric ratepayers to the federal waste fund await future governmental action.
NOTE 20 — RETIREMENT BENEFITS AND TRUSTEED ASSETS
DTE Energy's subsidiary, DTE Energy Corporate Services, LLC, sponsors defined benefit pension plans and other postretirement plans covering certain employees of the Registrants.
The table below represents the pension and other postretirement benefit plans of each Registrant at December 31, 2021:
Registrants | |||||||||||
DTE Energy | DTE Electric | ||||||||||
Qualified Pension Plans | |||||||||||
DTE Energy Company Retirement Plan | X | X | |||||||||
DTE Gas Company Retirement Plan for Employees Covered by Collective Bargaining Agreements | X | ||||||||||
Shenango Inc. Pension Plan(a) | X | ||||||||||
Non-qualified Pension Plans | |||||||||||
DTE Energy Company Supplemental Retirement Plan(b) | X | X | |||||||||
DTE Energy Company Executive Supplemental Retirement Plan(b) | X | X | |||||||||
DTE Energy Company Supplemental Severance Benefit Plan | X | ||||||||||
Other Postretirement Benefit Plans | |||||||||||
The DTE Energy Company Comprehensive Non-Health Welfare Plan | X | X | |||||||||
The DTE Energy Company Comprehensive Retiree Group Health Care Plan | X | X | |||||||||
DTE Supplemental Retiree Benefit Plan | X | X | |||||||||
DTE Energy Company Retiree Reimbursement Arrangement Plan | X | X |
_____________________________________
(a)Sponsored by Shenango, LLC
(b)Sponsored by DTE Energy Company
132
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
DTE Electric participates in various plans that provide pension and other postretirement benefits for DTE Energy and its affiliates. The plans are primarily sponsored by the LLC. DTE Electric accounts for its participation in DTE Energy's qualified and non-qualified pension plans by applying multiemployer accounting. DTE Electric accounts for its participation in other postretirement benefit plans by applying multiple-employer accounting. Within multiemployer and multiple-employer plans, participants pool plan assets for investment purposes and to reduce the cost of plan administration. The primary difference between plan types is assets contributed in multiemployer plans can be used to provide benefits for all participating employers, while assets contributed within a multiple-employer plan are restricted for use by the contributing employer. As a result of multiemployer accounting treatment, capitalized costs associated with these plans are reflected in Property, plant, and equipment in DTE Electric's Consolidated Statements of Financial Position. The same capitalized costs are reflected as Regulatory assets and liabilities in DTE Energy's Consolidated Statements of Financial Position. In addition, the service cost and non-service cost components are presented in Operation and maintenance in DTE Electric's Consolidated Statements of Operations. The same non-service cost components are presented in Other (Income) and Deductions — Non-operating retirement benefits, net in DTE Energy's Consolidated Statements of Operations. Plan participants of all plans are solely DTE Energy and affiliate participants.
Pension Plan Benefits
DTE Energy has qualified defined benefit retirement plans for eligible represented and non-represented employees. The plans are noncontributory and provide traditional retirement benefits based on the employee's years of benefit service, average final compensation, and age at retirement. In addition, certain represented and non-represented employees are covered under cash balance provisions that determine benefits on annual employer contributions and interest credits. DTE Energy also maintains supplemental non-qualified, noncontributory, retirement benefit plans for certain management employees. These plans provide for benefits that supplement those provided by DTE Energy’s other retirement plans.
Net pension cost for DTE Energy includes the following components:
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Service cost | $ | 108 | $ | 99 | $ | 84 | |||||||||||
Interest cost | 158 | 186 | 219 | ||||||||||||||
Expected return on plan assets | (339) | (334) | (325) | ||||||||||||||
Amortization of: | |||||||||||||||||
Net actuarial loss | 196 | 171 | 131 | ||||||||||||||
Prior service cost | — | 1 | 1 | ||||||||||||||
Settlements | 16 | 25 | 2 | ||||||||||||||
Net pension cost | $ | 139 | $ | 148 | $ | 112 |
2021 | 2020 | ||||||||||
(In millions) | |||||||||||
Other changes in plan assets and benefit obligations recognized in Regulatory assets and Other comprehensive income (loss) | |||||||||||
Net actuarial (gain) loss | $ | (376) | $ | 137 | |||||||
Amortization of net actuarial loss | (209) | (193) | |||||||||
Prior service cost | 4 | — | |||||||||
Amortization of prior service cost | (3) | (1) | |||||||||
Total recognized in Regulatory assets and Other comprehensive income (loss) | $ | (584) | $ | (57) | |||||||
Total recognized in net periodic pension cost, Regulatory assets, and Other comprehensive income (loss) | $ | (445) | $ | 91 |
133
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The following table reconciles the obligations, assets, and funded status of the plans as well as the amounts recognized as prepaid pension cost or pension liability in DTE Energy's Consolidated Statements of Financial Position at December 31:
DTE Energy | |||||||||||
2021 | 2020 | ||||||||||
(In millions) | |||||||||||
Accumulated benefit obligation, end of year | $ | 5,448 | $ | 5,843 | |||||||
Change in projected benefit obligation | |||||||||||
Projected benefit obligation, beginning of year | $ | 6,304 | $ | 5,810 | |||||||
Service cost | 108 | 99 | |||||||||
Interest cost | 158 | 186 | |||||||||
Plan amendments | 4 | — | |||||||||
Actuarial (gain) loss | (255) | 619 | |||||||||
Special termination benefits | — | 3 | |||||||||
Benefits paid | (414) | (353) | |||||||||
Settlements | (48) | (60) | |||||||||
Projected benefit obligation, end of year | $ | 5,857 | $ | 6,304 | |||||||
Change in plan assets | |||||||||||
Plan assets at fair value, beginning of year | $ | 5,497 | $ | 4,993 | |||||||
Actual return on plan assets | 460 | 815 | |||||||||
Company contributions | 12 | 102 | |||||||||
Benefits paid | (414) | (353) | |||||||||
Settlements | (48) | (60) | |||||||||
Plan assets at fair value, end of year | $ | 5,507 | $ | 5,497 | |||||||
Funded status | $ | (350) | $ | (807) | |||||||
Amount recorded as: | |||||||||||
Current liabilities | $ | (11) | $ | (10) | |||||||
Noncurrent liabilities | (339) | (797) | |||||||||
$ | (350) | $ | (807) | ||||||||
Amounts recognized in Accumulated other comprehensive income (loss), pre-tax | |||||||||||
Net actuarial loss | $ | 126 | $ | 142 | |||||||
Prior service cost | 1 | 3 | |||||||||
$ | 127 | $ | 145 | ||||||||
Amounts recognized in Regulatory assets(a) | |||||||||||
Net actuarial loss | $ | 1,381 | $ | 1,949 | |||||||
Prior service credit | (9) | (11) | |||||||||
$ | 1,372 | $ | 1,938 |
______________________________________
(a)See Note 9 to the Consolidated Financial Statements, "Regulatory Matters."
The decrease in DTE Energy's pension benefit obligation for the year ended December 31, 2021 was primarily due to an actuarial gain driven by an increase in discount rates. The increase in the pension benefit obligation in 2020 was primarily due to an actuarial loss driven by a decrease in discount rates, partially offset by a one-time settlement.
The Registrants' policy is to fund pension costs by contributing amounts consistent with the provisions of the Pension Protection Act of 2006, and additional amounts when it deems appropriate. There were no contributions made to the qualified pension plans in 2021. The following table provides a summary of annual contributions to the qualified plans:
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
DTE Energy | $ | — | $ | 92 | $ | 150 | |||||||||||
DTE Electric | $ | — | $ | 60 | $ | 100 |
134
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
At the discretion of management and depending upon financial market conditions, DTE Energy anticipates making up to $7 million in contributions to the qualified pension plans in 2022. In addition, DTE Energy anticipates a transfer of up to $50 million of qualified pension plan funds from DTE Gas to DTE Electric in 2022.
DTE Energy's subsidiaries are responsible for their share of qualified and non-qualified pension benefit costs. DTE Electric's allocated portion of pension benefit costs included in capital expenditures and operating and maintenance expense were $107 million, $106 million, and $93 million for the years ended December 31, 2021, 2020, and 2019, respectively. These amounts include recognized contractual termination benefit charges, curtailment gains, and settlement charges.
At December 31, 2021, the benefits related to DTE Energy's qualified and non-qualified pension plans expected to be paid in each of the next five years and in the aggregate for the five fiscal years thereafter are as follows:
(In millions) | |||||
2022 | $ | 346 | |||
2023 | 360 | ||||
2024 | 341 | ||||
2025 | 350 | ||||
2026 | 346 | ||||
2027-2031 | 1,723 | ||||
Total | $ | 3,466 |
Assumptions used in determining the projected benefit obligation and net pension costs of DTE Energy are:
2021 | 2020 | 2019 | |||||||||||||||
Projected benefit obligation | |||||||||||||||||
Discount rate | 2.91% | 2.57% | 3.28% | ||||||||||||||
Rate of compensation increase | 3.80% | 3.80% | 3.85% | ||||||||||||||
Cash balance interest crediting rate | 2.40% | 2.00% | 3.30% | ||||||||||||||
Net pension costs | |||||||||||||||||
Discount rate | 2.57% | 3.28% | 4.40% | ||||||||||||||
Rate of compensation increase | 3.80% | 3.85% | 3.85% | ||||||||||||||
Expected long-term rate of return on plan assets | 7.00% | 7.10% | 7.30% | ||||||||||||||
Cash balance interest crediting rate | 2.00% | 3.30% | 3.70% |
DTE Energy employs a formal process in determining the long-term rate of return for various asset classes. Management reviews historic financial market risks and returns and long-term historic relationships between the asset classes of equities, fixed income, and other assets, consistent with the widely accepted capital market principle that asset classes with higher volatility generate a greater return over the long-term. Current market factors such as inflation, interest rates, asset class risks, and asset class returns are evaluated and considered before long-term capital market assumptions are determined. The long-term portfolio return is also established employing a consistent formal process, with due consideration of diversification, active investment management, and rebalancing. Peer data is reviewed to check for reasonableness. As a result of this process, the Registrants have a long-term rate of return assumption for the pension plans of 6.80%. The Registrants believe this rate is a reasonable assumption for the long-term rate of return on plan assets for 2022 given the current investment strategy.
The DTE Energy Company Affiliates Employee Benefit Plans Master Trust employs a liability driven investment program whereby the characteristics of plan liabilities are considered when determining investment policy. Risk tolerance is established through consideration of future plan cash flows, plan funded status, and corporate financial considerations. The investment portfolio contains a diversified blend of equity, fixed income, and other investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks and large and small market capitalizations. Fixed income investments generally include U.S. Treasuries, other governmental debt, diversified corporate bonds, bank loans, and mortgage-backed securities. Other investments are used to enhance long-term returns while improving portfolio diversification. Derivatives may be utilized in a risk controlled manner, to potentially increase the portfolio beyond the market value of invested assets and/or reduce portfolio investment risk. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies, and quarterly investment portfolio reviews.
135
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Target allocations for DTE Energy's pension plan assets as of December 31, 2021 are listed below:
U.S. Large Capitalization (Cap) Equity Securities | 13 | % | |||
U.S. Small Cap and Mid Cap Equity Securities | 3 | ||||
Non-U.S. Equity Securities | 13 | ||||
Fixed Income Securities | 48 | ||||
Hedge Funds and Similar Investments | 11 | ||||
Private Equity and Other | 12 | ||||
100 | % |
The following tables provide the fair value measurement amounts for DTE Energy's pension plan assets at December 31, 2021 and 2020(a):
December 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
Level 1 | Level 2 | Other(b) | Total | Level 1 | Level 2 | Other(b) | Total | ||||||||||||||||||||||||||||||||||||||||
DTE Energy asset category: | (In millions) | ||||||||||||||||||||||||||||||||||||||||||||||
Short-term Investments(c) | $ | 112 | $ | — | $ | — | $ | 112 | $ | 92 | $ | — | $ | — | $ | 92 | |||||||||||||||||||||||||||||||
Equity Securities | |||||||||||||||||||||||||||||||||||||||||||||||
Domestic(d) | 155 | — | 758 | 913 | 167 | — | 1,093 | 1,260 | |||||||||||||||||||||||||||||||||||||||
International(e) | 88 | — | 588 | 676 | 100 | — | 791 | 891 | |||||||||||||||||||||||||||||||||||||||
Fixed Income Securities | |||||||||||||||||||||||||||||||||||||||||||||||
Governmental(f) | 943 | 83 | — | 1,026 | 459 | 95 | — | 554 | |||||||||||||||||||||||||||||||||||||||
Corporate(g) | — | 1,466 | — | 1,466 | — | 1,404 | — | 1,404 | |||||||||||||||||||||||||||||||||||||||
Hedge Funds and Similar Investments(h) | 139 | 63 | 365 | 567 | 238 | 61 | 411 | 710 | |||||||||||||||||||||||||||||||||||||||
Private Equity and Other(i) | — | — | 747 | 747 | — | — | 586 | 586 | |||||||||||||||||||||||||||||||||||||||
DTE Energy Total | $ | 1,437 | $ | 1,612 | $ | 2,458 | $ | 5,507 | $ | 1,056 | $ | 1,560 | $ | 2,881 | $ | 5,497 |
_______________________________________
(a)For a description of levels within the fair value hierarchy, see Note 12 to the Consolidated Financial Statements, "Fair Value."
(b)Amounts represent assets valued at NAV as a practical expedient for fair value.
(c)This category predominantly represents certain short-term fixed income securities and money market investments that are managed in separate accounts or commingled funds. Pricing for investments in this category are obtained from quoted prices in actively traded markets.
(d)This category represents portfolios of large, medium and small capitalization domestic equities. Investments in this category include exchange-traded securities for which unadjusted quoted prices can be obtained and exchange-traded securities held in a commingled fund classified as NAV assets.
(e)This category primarily consists of portfolios of non-U.S. developed and emerging market equities. Investments in this category include exchange-traded securities for which unadjusted quoted prices can be obtained and exchange-traded securities held in a commingled fund classified as NAV assets.
(f)This category includes U.S. Treasuries, bonds, and other governmental debt. Pricing for investments in this category is obtained from quoted prices in actively traded markets and quotations from broker or pricing services.
(g)This category primarily consists of corporate bonds from diversified industries, bank loans, and mortgage backed securities. Pricing for investments in this category is obtained from quotations from broker or pricing services.
(h)This category utilizes a diversified group of strategies that attempt to capture uncorrelated sources of return and includes publicly traded mutual funds, insurance-linked and asset-backed securities, commingled funds and limited partnership funds. Pricing for mutual funds in this category is obtained from quoted prices in actively traded markets. Pricing for insurance-linked and asset-backed securities is obtained from quotations. from broker or pricing services. Commingled funds and limited partnership funds are classified as NAV assets.
(i)This category includes a diversified group of funds and strategies that primarily invests in private equity partnerships. This category also includes investments in private real estate and private debt. All investments in this category are classified as NAV assets.
The pension trust holds debt and equity securities directly and indirectly through commingled funds. Exchange-traded debt and equity securities held directly, as well as publicly traded commingled funds, are valued using quoted market prices in actively traded markets. Non-publicly traded commingled funds hold exchange-traded equity or debt securities and are valued based on stated NAVs. Non-exchange traded fixed income securities are valued by the trustee based upon quotations available from brokers or pricing services. A primary price source is identified by asset type, class, or issue for each security. The trustee monitors prices supplied by pricing services and may use a supplemental price source or change the primary price source of a given security if the trustee challenges an assigned price and determines that another price source is considered preferable. DTE Energy has obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices.
136
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Other Postretirement Benefits
The Registrants participate in defined benefit plans sponsored by the LLC that provide certain other postretirement health care and life insurance benefits for employees who are eligible for these benefits. The Registrants' policy is to fund certain trusts to meet its other postretirement benefit obligations. DTE Energy did not make any contributions to these trusts during 2021 and does not anticipate making any contributions to the trusts in 2022.
DTE Energy and DTE Electric offer a defined contribution VEBA for eligible represented and non-represented employees, in lieu of defined benefit post-employment health care benefits. The Registrants allocate a fixed amount per year to an account in a defined contribution VEBA for each employee. These accounts are managed either by the Registrant (for non-represented and certain represented groups) or by the Utility Workers of America for Local 223 employees. The following table provides contributions to the VEBA in:
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
DTE Energy | $ | 18 | $ | 15 | $ | 13 | |||||||||||
DTE Electric | $ | 8 | $ | 7 | $ | 6 |
The Registrants also contribute a fixed amount to a Retiree Reimbursement Account for certain non-represented and represented retirees, spouses, and surviving spouses when the youngest of the retiree's covered household becomes eligible for Medicare Part A based on age. The amount of the annual allocation to each participant is determined by the employee's retirement date and increases each year for each eligible participant at the lower of the rate of medical inflation or 2%.
Net other postretirement credit for DTE Energy includes the following components:
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Service cost | $ | 30 | $ | 26 | $ | 22 | |||||||||||
Interest cost | 46 | 56 | 70 | ||||||||||||||
Expected return on plan assets | (129) | (128) | (96) | ||||||||||||||
Amortization of: | |||||||||||||||||
Net actuarial loss | 13 | 16 | 12 | ||||||||||||||
Prior service credit | (19) | (19) | (9) | ||||||||||||||
Net other postretirement credit | $ | (59) | $ | (49) | $ | (1) |
2021 | 2020 | ||||||||||
(In millions) | |||||||||||
Other changes in plan assets and accumulated postretirement benefit obligation recognized in Regulatory assets and Other comprehensive income (loss) | |||||||||||
Net actuarial gain | $ | (113) | $ | (38) | |||||||
Amortization of net actuarial loss | (13) | (16) | |||||||||
Prior service cost | 1 | — | |||||||||
Amortization of prior service credit | 19 | 19 | |||||||||
Total recognized in Regulatory assets and Other comprehensive income (loss) | $ | (106) | $ | (35) | |||||||
Total recognized in net periodic benefit cost, Regulatory assets, and Other comprehensive income (loss) | $ | (165) | $ | (84) |
137
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Net other postretirement credit for DTE Electric includes the following components:
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Service cost | $ | 23 | $ | 20 | $ | 16 | |||||||||||
Interest cost | 35 | 43 | 53 | ||||||||||||||
Expected return on plan assets | (86) | (87) | (65) | ||||||||||||||
Amortization of: | |||||||||||||||||
Net actuarial loss | 11 | 11 | 5 | ||||||||||||||
Prior service credit | (14) | (14) | (7) | ||||||||||||||
Net other postretirement cost (credit) | $ | (31) | $ | (27) | $ | 2 |
2021 | 2020 | ||||||||||
(In millions) | |||||||||||
Other changes in plan assets and accumulated postretirement benefit obligation recognized in Regulatory assets | |||||||||||
Net actuarial gain | $ | (84) | $ | (26) | |||||||
Amortization of net actuarial loss | (11) | (11) | |||||||||
Amortization of prior service credit | 14 | 14 | |||||||||
Total recognized in Regulatory assets | $ | (81) | $ | (23) | |||||||
Total recognized in net periodic benefit cost and Regulatory assets | $ | (112) | $ | (50) |
138
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The following table reconciles the obligations, assets, and funded status of the plans including amounts recorded as Accrued postretirement liability in the Registrants' Consolidated Statements of Financial Position at December 31:
DTE Energy | DTE Electric | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
(In millions) | |||||||||||||||||||||||
Change in accumulated postretirement benefit obligation | |||||||||||||||||||||||
Accumulated postretirement benefit obligation, beginning of year | $ | 1,807 | $ | 1,751 | $ | 1,369 | $ | 1,337 | |||||||||||||||
Service cost | 30 | 26 | 23 | 20 | |||||||||||||||||||
Interest cost | 46 | 56 | 35 | 43 | |||||||||||||||||||
Plan amendments | 1 | — | — | — | |||||||||||||||||||
Actuarial (gain) loss | (100) | 54 | (73) | 31 | |||||||||||||||||||
Benefits paid | (82) | (80) | (61) | (62) | |||||||||||||||||||
Accumulated postretirement benefit obligation, end of year | $ | 1,702 | $ | 1,807 | $ | 1,293 | $ | 1,369 | |||||||||||||||
Change in plan assets | |||||||||||||||||||||||
Plan assets at fair value, beginning of year | $ | 1,960 | $ | 1,819 | $ | 1,320 | $ | 1,236 | |||||||||||||||
Actual return on plan assets | 142 | 220 | 96 | 145 | |||||||||||||||||||
Benefits paid | (81) | (79) | (61) | (61) | |||||||||||||||||||
Plan assets at fair value, end of year | $ | 2,021 | $ | 1,960 | $ | 1,355 | $ | 1,320 | |||||||||||||||
Funded status | $ | 319 | $ | 153 | $ | 62 | $ | (49) | |||||||||||||||
Amount recorded as: | |||||||||||||||||||||||
Noncurrent assets | $ | 678 | $ | 561 | $ | 402 | $ | 335 | |||||||||||||||
Current liabilities | (1) | (1) | — | — | |||||||||||||||||||
Noncurrent liabilities | (358) | (407) | (340) | (384) | |||||||||||||||||||
$ | 319 | $ | 153 | $ | 62 | $ | (49) | ||||||||||||||||
Amounts recognized in Accumulated other comprehensive income (loss), pre-tax | |||||||||||||||||||||||
Net actuarial gain | $ | (1) | $ | (7) | $ | — | $ | — | |||||||||||||||
Amounts recognized in Regulatory assets(a) | |||||||||||||||||||||||
Net actuarial loss | $ | 102 | $ | 234 | $ | 61 | $ | 156 | |||||||||||||||
Prior service credit | (49) | (69) | (34) | (48) | |||||||||||||||||||
$ | 53 | $ | 165 | $ | 27 | $ | 108 |
______________________________________
(a)See Note 9 to the Consolidated Financial Statements, "Regulatory Matters."
The decrease in the Registrants' other postretirement benefit obligations for the year ended December 31, 2021 was primarily due to an actuarial gain driven by an increase in discount rates. The increase in the other postretirement benefit obligations in 2020 was primarily due to an actuarial loss driven by a decrease in discount rates, partially offset by favorable changes in healthcare cost assumptions.
The following table reflects other postretirement benefit plans with accumulated postretirement benefit obligations in excess of plan assets as of December 31:
DTE Energy | DTE Electric | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
(In millions) | |||||||||||||||||||||||
Accumulated postretirement benefit obligation | $ | 822 | $ | 878 | $ | 775 | $ | 826 | |||||||||||||||
Fair value of plan assets | 463 | 470 | 435 | 442 | |||||||||||||||||||
Accumulated postretirement benefit obligation in excess of plan assets | $ | 359 | $ | 408 | $ | 340 | $ | 384 |
139
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
At December 31, 2021, the benefits expected to be paid, including prescription drug benefits, in each of the next five years and in the aggregate for the five fiscal years thereafter for the Registrants are as follows:
DTE Energy | DTE Electric | ||||||||||
(In millions) | |||||||||||
2022 | $ | 85 | $ | 64 | |||||||
2023 | 89 | 68 | |||||||||
2024 | 91 | 69 | |||||||||
2025 | 94 | 71 | |||||||||
2026 | 95 | 72 | |||||||||
2027-2031 | 493 | 375 | |||||||||
Total | $ | 947 | $ | 719 |
Assumptions used in determining the accumulated postretirement benefit obligation and net other postretirement benefit costs of the Registrants are:
2021 | 2020 | 2019 | |||||||||||||||
Accumulated postretirement benefit obligation | |||||||||||||||||
Discount rate | 2.91% | 2.58% | 3.29% | ||||||||||||||
Health care trend rate pre- and post- 65 | 6.75 / 7.25% | 6.75 / 7.25% | 6.75 / 7.25% | ||||||||||||||
Ultimate health care trend rate | 4.50% | 4.50% | 4.50% | ||||||||||||||
Year in which ultimate reached pre- and post- 65 | 2034 | 2033 | 2032 | ||||||||||||||
Other postretirement benefit costs | |||||||||||||||||
Discount rate | 2.58% | 3.29% | 4.40% | ||||||||||||||
Expected long-term rate of return on plan assets | 6.70% | 7.20% | 7.30% | ||||||||||||||
Health care trend rate pre- and post- 65 | 6.75 / 7.25% | 6.75 / 7.25% | 6.75 / 7.25% | ||||||||||||||
Ultimate health care trend rate | 4.50% | 4.50% | 4.50% | ||||||||||||||
Year in which ultimate reached pre- and post- 65 | 2033 | 2032 | 2031 |
The process used in determining the long-term rate of return on assets for the other postretirement benefit plans is similar to that previously described for the pension plans. As a result of this process, the Registrants have a long-term rate of return assumption for the other postretirement benefit plans of 6.40% for 2022. The Registrants believe this rate is a reasonable assumption for the long-term rate of return on plan assets for 2022 given the current investment strategy.
The DTE Energy Company Master VEBA Trust employs a liability driven investment program whereby the characteristics of plan liabilities are considered when determining investment policy. Risk tolerance is established through consideration of future plan cash flows, plan funded status, and corporate financial considerations. The investment portfolio contains a diversified blend of equity, fixed income, and other investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks and large and small market capitalizations. Fixed income investments generally include U.S. Treasuries, other governmental debt, diversified corporate bonds, bank loans, and mortgage-backed securities. Other investments are used to enhance long-term returns while improving portfolio diversification. Derivatives may be utilized in a risk controlled manner to potentially increase the portfolio beyond the market value of invested assets and/or reduce portfolio investment risk. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies, and quarterly investment portfolio reviews.
Target allocations for the Registrants' other postretirement benefit plan assets as of December 31, 2021 are listed below:
U.S. Large Cap Equity Securities | 10 | % | |||
U.S. Small Cap and Mid Cap Equity Securities | 2 | ||||
Non-U.S. Equity Securities | 10 | ||||
Fixed Income Securities | 54 | ||||
Hedge Funds and Similar Investments | 10 | ||||
Private Equity and Other | 14 | ||||
100 | % |
140
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The following tables provide the fair value measurement amounts for the Registrants' other postretirement benefit plan assets at December 31, 2021 and 2020(a):
December 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
Level 1 | Level 2 | Other(b) | Total | Level 1 | Level 2 | Other(b) | Total | ||||||||||||||||||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
DTE Energy asset category: | |||||||||||||||||||||||||||||||||||||||||||||||
Short-term Investments(c) | $ | 39 | $ | — | $ | — | $ | 39 | $ | 21 | $ | — | $ | — | $ | 21 | |||||||||||||||||||||||||||||||
Equity Securities | |||||||||||||||||||||||||||||||||||||||||||||||
Domestic(d) | 27 | — | 199 | 226 | 51 | — | 200 | 251 | |||||||||||||||||||||||||||||||||||||||
International(e) | 27 | — | 141 | 168 | 23 | — | 178 | 201 | |||||||||||||||||||||||||||||||||||||||
Fixed Income Securities | |||||||||||||||||||||||||||||||||||||||||||||||
Governmental(f) | 343 | 32 | — | 375 | 40 | 45 | — | 85 | |||||||||||||||||||||||||||||||||||||||
Corporate(g) | — | 355 | 271 | 626 | — | 477 | 379 | 856 | |||||||||||||||||||||||||||||||||||||||
Hedge Funds and Similar Investments(h) | 58 | 26 | 120 | 204 | 61 | 17 | 124 | 202 | |||||||||||||||||||||||||||||||||||||||
Private Equity and Other(i) | — | — | 383 | 383 | — | — | 344 | 344 | |||||||||||||||||||||||||||||||||||||||
DTE Energy Total | $ | 494 | $ | 413 | $ | 1,114 | $ | 2,021 | $ | 196 | $ | 539 | $ | 1,225 | $ | 1,960 | |||||||||||||||||||||||||||||||
DTE Electric asset category: | |||||||||||||||||||||||||||||||||||||||||||||||
Short-term Investments(c) | $ | 26 | $ | — | $ | — | $ | 26 | $ | 14 | $ | — | $ | — | $ | 14 | |||||||||||||||||||||||||||||||
Equity Securities | |||||||||||||||||||||||||||||||||||||||||||||||
Domestic(d) | 18 | — | 132 | 150 | 33 | — | 131 | 164 | |||||||||||||||||||||||||||||||||||||||
International(e) | 18 | — | 93 | 111 | 16 | — | 117 | 133 | |||||||||||||||||||||||||||||||||||||||
Fixed Income Securities | |||||||||||||||||||||||||||||||||||||||||||||||
Governmental(f) | 230 | 21 | — | 251 | 24 | 31 | — | 55 | |||||||||||||||||||||||||||||||||||||||
Corporate(g) | — | 235 | 187 | 422 | — | 321 | 263 | 584 | |||||||||||||||||||||||||||||||||||||||
Hedge Funds and Similar Investments(h) | 39 | 17 | 81 | 137 | 41 | 11 | 83 | 135 | |||||||||||||||||||||||||||||||||||||||
Private Equity and Other(i) | — | — | 258 | 258 | — | — | 235 | 235 | |||||||||||||||||||||||||||||||||||||||
DTE Electric Total | $ | 331 | $ | 273 | $ | 751 | $ | 1,355 | $ | 128 | $ | 363 | $ | 829 | $ | 1,320 |
_______________________________________
(a)For a description of levels within the fair value hierarchy see Note 12 to the Consolidated Financial Statements, "Fair Value."
(b)Amounts represent assets valued at NAV as a practical expedient for fair value.
(c)This category predominantly represents certain short-term fixed income securities and money market investments that are managed in separate accounts or commingled funds. Pricing for investments in this category are obtained from quoted prices in actively traded markets.
(d)This category represents portfolios of large, medium and small capitalization domestic equities. Investments in this category include exchange-traded securities for which unadjusted quoted prices can be obtained and exchange-traded securities held in a commingled fund classified as NAV assets.
(e)This category primarily consists of portfolios of non-U.S. developed and emerging market equities. Investments in this category include exchange-traded securities for which unadjusted quoted prices can be obtained and exchange-traded securities held in a commingled fund classified as NAV assets.
(f)This category includes U.S. Treasuries, bonds and other governmental debt. Pricing for investments in this category is obtained from quoted prices in actively traded markets and quotations from broker or pricing services.
(g)This category primarily consists of corporate bonds from diversified industries, bank loans, and mortgage backed securities. Pricing for investments in this category is obtained from quotations from broker or pricing services. Non-exchange traded securities and exchange-traded securities held in commingled funds are classified as NAV assets.
(h)This category utilizes a diversified group of strategies that attempt to capture uncorrelated sources of income and includes publicly traded mutual funds, insurance-linked and asset-backed securities, commingled funds and limited partnership funds. Pricing for mutual funds in this category is obtained from quoted prices in actively traded markets. Prices for insurance-linked and asset-backed securities are obtained from quotations from broker or pricing services. Commingled funds and limited partnership funds are classified as NAV assets.
(i)This category includes a diversified group of funds and strategies that primarily invests in private equity partnerships. This category also includes investments in private real estate and private debt. All investments in this category are classified as NAV assets.
141
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The DTE Energy Company Master VEBA Trust holds debt and equity securities directly and indirectly through commingled funds. Exchange-traded debt and equity securities held directly, as well as publicly traded commingled funds, are valued using quoted market prices in actively traded markets. Non-publicly traded commingled funds hold exchange-traded equity or debt securities and are valued based on NAVs. Non-exchange traded fixed income securities are valued by the trustee based upon quotations available from brokers or pricing services. A primary price source is identified by asset type, class, or issue for each security. The trustee monitors prices supplied by pricing services and may use a supplemental price source or change the primary price source of a given security if the trustee challenges an assigned price and determines that another price source is considered preferable. The Registrants have obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices.
Defined Contribution Plans
The Registrants also sponsor defined contribution retirement savings plans. Participation in one of these plans is available to substantially all represented and non-represented employees. For substantially all employees, the Registrants match employee contributions up to certain predefined limits based upon eligible compensation and the employee’s contribution rate. Additionally, for eligible represented and non-represented employees who do not participate in the Pension Plans, the Registrants annually contribute an amount equivalent to 4% (8% for certain DTE Gas represented employees) of an employee's eligible pay to the employee's defined contribution retirement savings plan. For DTE Energy, the cost of these plans was $70 million, $73 million, and $65 million for the years ended December 31, 2021, 2020, and 2019, respectively. For DTE Electric, the cost of these plans was $34 million, $34 million, and $31 million for the years ended December 31, 2021, 2020, and 2019, respectively.
NOTE 21 — STOCK-BASED COMPENSATION
DTE Energy’s stock incentive program permits the grant of incentive stock options, non-qualifying stock options, stock awards, performance shares, and performance units to employees and members of its Board of Directors. As a result of a stock award, a settlement of an award of performance shares, or by exercise of a participant’s stock option, DTE Energy may deliver common stock from its authorized but unissued common stock and/or from outstanding common stock acquired by or on behalf of DTE Energy in the name of the participant. Key provisions of the stock incentive program are:
•Authorized limit is 20,162,716 shares of common stock;
•Prohibits the grant of a stock option with an exercise price that is less than the fair market value of DTE Energy’s stock on the date of the grant; and
•Imposes the following award limits to a single participant in a single calendar year, (1) options for more than 500,000 shares of common stock; (2) stock awards for more than 150,000 shares of common stock; (3) performance share awards for more than 300,000 shares of common stock (based on the maximum payout under the award); or (4) more than 1,000,000 performance units, which have a face amount of $1.00 each.
DTE Energy records compensation expense at fair value over the vesting period for all awards it grants.
The following table summarizes the components of stock-based compensation for DTE Energy:
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Stock-based compensation expense | $ | 71 | $ | 63 | $ | 71 | |||||||||||
Tax benefit | $ | 13 | $ | 12 | $ | 13 | |||||||||||
Stock-based compensation cost capitalized in Property, plant, and equipment(a) | $ | — | $ | — | $ | 16 |
_______________________________________
(a)In DTE Electric's May 2020 rate order, the MPSC disallowed certain capital expenditures related to incentive compensation. Therefore, beginning in 2020, no stock-based compensation cost will be capitalized in Property, plant, and equipment.
142
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Restricted Stock Awards
Stock awards granted under the plan are restricted for varying periods, generally for three years. Participants have all rights of a shareholder with respect to a stock award, including the right to receive dividends and vote the shares. Prior to vesting in stock awards, the participant: (i) may not sell, transfer, pledge, exchange, or otherwise dispose of shares; (ii) shall not retain custody of the share certificates; and (iii) will deliver to DTE Energy a stock power with respect to each stock award upon request.
The stock awards are recorded at cost that approximates fair value on the date of grant. The cost is amortized to compensation expense over the vesting period.
The fair value of awards vested were not material for the years ended December 31, 2021, 2020, and 2019. Compensation cost charged against income was $14 million, $13 million, and $11 million for the years ended December 31, 2021, 2020, and 2019, respectively.
Performance Share Awards
Performance shares awarded under the plan are for a specified number of shares of DTE Energy common stock that entitle the holder to receive a cash payment, shares of DTE Energy common stock, or a combination thereof. The final value of the award is determined by the achievement of certain performance objectives and market conditions. The awards vest at the end of a specified period, usually three years. Awards granted in 2021, 2020, and 2019 were primarily deemed to be equity awards. The DTE Energy stock price and number of probable shares attributable to market conditions for such equity awards are fair valued only at the grant date. DTE Energy accounts for performance share awards by accruing compensation expense over the vesting period based on: (i) the number of shares expected to be paid which is based on the probable achievement of performance objectives; and (ii) the closing stock price market value. The settlement of the award is based on the closing price at the settlement date.
DTE Energy recorded activity relating to performance share awards as follows:
2021 | 2020 | 2019 | |||||||||||||||
(In millions, except per share amounts) | |||||||||||||||||
Weighted average grant date fair value of awards granted (per share) | $ | 118.43 | $ | 129.68 | $ | 115.85 | |||||||||||
Awards settled in cash(a) | $ | 12 | $ | 21 | $ | 19 | |||||||||||
Awards settled in stock(a) | $ | 74 | $ | 53 | $ | 79 | |||||||||||
Compensation expense | $ | 58 | $ | 50 | $ | 60 |
_______________________________________
(a)Sum of awards settled in cash and stock approximates the intrinsic value of the awards.
During the vesting period, the recipient of a performance share award has no shareholder rights. During the period beginning on the date the performance shares are awarded and ending on the certification date of the performance objectives, the number of performance shares awarded will be increased, assuming full dividend reinvestment at the fair market value on the dividend payment date. The cumulative number of performance shares will be adjusted to determine the final payment based on the performance objectives achieved. Performance share awards are nontransferable and are subject to risk of forfeiture.
143
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The following table summarizes DTE Energy’s performance share activity for the period ended December 31, 2021:
Performance Shares | Weighted Average Grant Date Fair Value | ||||||||||
Balance at December 31, 2020 | 1,127,437 | $ | 117.06 | ||||||||
Grants(a) | 567,196 | $ | 118.43 | ||||||||
Forfeitures(b) | (162,091) | $ | 123.04 | ||||||||
Payouts | (429,925) | $ | 107.84 | ||||||||
Balance at December 31, 2021 | 1,102,617 | $ | 120.33 |
_______________________________________
(a)Includes 166,686 incremental shares granted in 2021 to DTE Energy employees who did not separate with DT Midstream. The shares were granted to preserve the value of unvested 2019-2021 awards, considering the impact from the spin-off of DT Midstream on DTE Energy's stock price.
(b)Includes the cancellation of 95,923 shares that were held by employees that separated due to the spin-off of DT Midstream.
Unrecognized Compensation Costs
As of December 31, 2021, DTE Energy's total unrecognized compensation cost related to non-vested stock incentive plan arrangements and the weighted average recognition period was as follows:
Unrecognized Compensation Cost | Weighted Average to be Recognized | ||||||||||
(In millions) | (In years) | ||||||||||
Stock awards | $ | 19 | 1.50 | ||||||||
Performance shares | 44 | 1.04 | |||||||||
$ | 63 | 1.18 |
Allocated Stock-Based Compensation
DTE Electric received an allocation of costs from DTE Energy associated with stock-based compensation. DTE Electric's allocation for 2021, 2020, and 2019 for stock-based compensation expense was $45 million, $37 million, and $43 million, respectively.
NOTE 22 — SEGMENT AND RELATED INFORMATION
DTE Energy sets strategic goals, allocates resources, and evaluates performance based on the following structure:
Electric segment consists principally of DTE Electric, which is engaged in the generation, purchase, distribution, and sale of electricity to approximately 2.3 million residential, commercial, and industrial customers in southeastern Michigan.
Gas segment consists principally of DTE Gas, which is engaged in the purchase, storage, transportation, distribution, and sale of natural gas to approximately 1.3 million residential, commercial, and industrial customers throughout Michigan and the sale of storage and transportation capacity.
DTE Vantage, formerly the Power and Industrial Projects segment, is comprised primarily of projects that deliver energy and utility-type products and services to industrial, commercial, and institutional customers, produce reduced emissions fuel, and sell electricity and pipeline-quality gas from renewable energy projects.
Energy Trading consists of energy marketing and trading operations.
Corporate and Other includes various holding company activities, holds certain non-utility debt, and holds certain investments, including funds supporting regional development and economic growth.
144
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
DTE Energy completed the separation of DT Midstream on July 1, 2021, which was comprised of the Gas Storage and Pipelines segment and also certain DTE Energy holding company activity within the Corporate and Other segment. Amounts relating to DT Midstream have been classified as discontinued operations, and Gas Storage and Pipelines is no longer a reportable segment of DTE Energy. Refer to Note 4 to the Consolidated Financial Statements, “Dispositions and Impairments,” for additional information.
Inter-segment billing for goods and services exchanged between segments is based upon tariffed or market-based prices of the provider and primarily consists of the sale of reduced emissions fuel, power sales, natural gas sales, and renewable natural gas sales in the following segments:
Year Ended December 31, | |||||||||||||||||
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Electric(a) | $ | 64 | $ | 61 | $ | 56 | |||||||||||
Gas | 14 | 16 | 12 | ||||||||||||||
DTE Vantage | 575 | 464 | 596 | ||||||||||||||
Energy Trading | 56 | 31 | 22 | ||||||||||||||
Corporate and Other | 2 | 2 | 2 | ||||||||||||||
$ | 711 | $ | 574 | $ | 688 |
_______________________________________
(a)Inter-segment billing for the Electric segment includes $4 million and $2 million relating to Non-utility operations for the years ended December 31, 2021 and 2020, respectively.
Centrally incurred costs such as labor and overheads are assigned directly to DTE Energy's business segments or allocated based on various cost drivers, depending on the nature of service provided.
The federal income tax provisions or benefits of DTE Energy’s subsidiaries are determined on an individual company basis and recognize the tax benefit of tax credits and net operating losses, if applicable. The state and local income tax provisions of the utility subsidiaries are also determined on an individual company basis and recognize the tax benefit of various tax credits and net operating losses, if applicable. The subsidiaries record federal, state, and local income taxes payable to or receivable from DTE Energy based on the federal, state, and local tax provisions of each company.
All inter-segment transactions and balances are eliminated in consolidation for DTE Energy. The Reclassifications and Eliminations group below also includes the reclassification of deferred tax assets, which are netted against deferred tax liabilities for presentation on the DTE Energy Consolidated Statements of Financial Position. Refer to Note 10 to the Consolidated Financial Statements, "Income Taxes," for additional information regarding the Registrants' deferred taxes.
145
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Financial data of DTE Energy's business segments follows:
Electric | Gas | DTE Vantage | Energy Trading | Corporate and Other(a) | Reclassifications and Eliminations | Total from Continuing Operations | Discontinued Operations | Total | |||||||||||||||||||||||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating Revenues — Utility operations | $ | 5,809 | 1,553 | — | — | — | (74) | $ | 7,288 | ||||||||||||||||||||||||||||||||||||||||||||
Operating Revenues — Non-utility operations | $ | 12 | — | 1,482 | 6,831 | 2 | (651) | $ | 7,676 | ||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | $ | 1,122 | 177 | 71 | 6 | 1 | — | $ | 1,377 | ||||||||||||||||||||||||||||||||||||||||||||
Interest expense | $ | 338 | 81 | 28 | 5 | 270 | (92) | $ | 630 | ||||||||||||||||||||||||||||||||||||||||||||
Interest income | $ | — | (6) | (23) | (1) | (84) | 92 | $ | (22) | ||||||||||||||||||||||||||||||||||||||||||||
Equity in earnings of equity method investees | $ | — | 1 | 8 | — | 29 | — | $ | 38 | ||||||||||||||||||||||||||||||||||||||||||||
Income Tax Expense (Benefit) | $ | 104 | 38 | (31) | (27) | (214) | — | $ | (130) | ||||||||||||||||||||||||||||||||||||||||||||
Net Income (Loss) Attributable to DTE Energy Company | $ | 864 | 214 | 168 | (83) | (367) | — | $ | 796 | 111 | $ | 907 | |||||||||||||||||||||||||||||||||||||||||
Investment in equity method investees | $ | 6 | 13 | 118 | — | 50 | — | $ | 187 | ||||||||||||||||||||||||||||||||||||||||||||
Capital expenditures and acquisitions | $ | 3,016 | 621 | 69 | 6 | — | — | $ | 3,712 | 60 | $ | 3,772 | |||||||||||||||||||||||||||||||||||||||||
Goodwill | $ | 1,208 | 743 | 25 | 17 | — | — | $ | 1,993 | ||||||||||||||||||||||||||||||||||||||||||||
Total Assets | $ | 28,524 | 6,729 | 983 | 1,174 | 4,281 | (1,972) | $ | 39,719 | — | $ | 39,719 |
_______________________________________
(a)Corporate and Other results include significant one-time items resulting from the separation of DT Midstream, including a loss on debt extinguishment of $376 million following the settlement of intercompany borrowings with DT Midstream and optional redemption of DTE Energy long-term debt. DTE Energy also recognized a tax benefit of $85 million for the remeasurement of state deferred tax liabilities following the separation of DT Midstream. Refer to Notes 10 and 14 to the Consolidated Financial Statements, "Income Taxes" and "Long-Term Debt," for additional information.
Electric | Gas | DTE Vantage | Energy Trading | Corporate and Other | Reclassifications and Eliminations | Total from Continuing Operations | Discontinued Operations | Total | |||||||||||||||||||||||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating Revenues — Utility operations | $ | 5,506 | 1,414 | — | — | — | (75) | $ | 6,845 | ||||||||||||||||||||||||||||||||||||||||||||
Operating Revenues — Non-utility operations | $ | 14 | — | 1,224 | 3,863 | 2 | (525) | $ | 4,578 | ||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | $ | 1,057 | 157 | 72 | 5 | 1 | — | $ | 1,292 | ||||||||||||||||||||||||||||||||||||||||||||
Interest expense | $ | 337 | 80 | 37 | 6 | 325 | (184) | $ | 601 | ||||||||||||||||||||||||||||||||||||||||||||
Interest income | $ | (4) | (5) | (22) | (2) | (180) | 184 | $ | (29) | ||||||||||||||||||||||||||||||||||||||||||||
Equity in earnings of equity method investees | $ | — | 1 | 17 | — | 8 | — | $ | 26 | ||||||||||||||||||||||||||||||||||||||||||||
Income Tax Expense (Benefit) | $ | 108 | 48 | (40) | 12 | (91) | — | $ | 37 | ||||||||||||||||||||||||||||||||||||||||||||
Net Income (Loss) Attributable to DTE Energy Company | $ | 777 | 186 | 134 | 36 | (79) | — | $ | 1,054 | 314 | $ | 1,368 | |||||||||||||||||||||||||||||||||||||||||
Investment in equity method investees | $ | 6 | 12 | 125 | — | 34 | — | $ | 177 | ||||||||||||||||||||||||||||||||||||||||||||
Capital expenditures and acquisitions | $ | 2,701 | 574 | 186 | 5 | — | — | $ | 3,466 | 517 | $ | 3,983 | |||||||||||||||||||||||||||||||||||||||||
Goodwill | $ | 1,208 | 743 | 25 | 17 | — | — | $ | 1,993 | ||||||||||||||||||||||||||||||||||||||||||||
Total Assets | $ | 26,588 | 6,339 | 696 | 807 | 5,063 | (2,073) | $ | 37,420 | 8,076 | $ | 45,496 |
146
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
Electric | Gas | DTE Vantage | Energy Trading | Corporate and Other | Reclassifications and Eliminations | Total from Continuing Operations | Discontinued Operations | Total | |||||||||||||||||||||||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating Revenues — Utility operations | $ | 5,224 | 1,482 | — | — | — | (68) | $ | 6,638 | ||||||||||||||||||||||||||||||||||||||||||||
Operating Revenues — Non-utility operations | $ | 5 | — | 1,560 | 4,610 | 2 | (647) | $ | 5,530 | ||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | $ | 949 | 144 | 69 | 6 | 1 | — | $ | 1,169 | ||||||||||||||||||||||||||||||||||||||||||||
Interest expense | $ | 315 | 78 | 33 | 8 | 266 | (132) | $ | 568 | ||||||||||||||||||||||||||||||||||||||||||||
Interest income | $ | (2) | (6) | (9) | (4) | (120) | 132 | $ | (9) | ||||||||||||||||||||||||||||||||||||||||||||
Equity in earnings of equity method investees | $ | 1 | 2 | 14 | — | (3) | — | $ | 14 | ||||||||||||||||||||||||||||||||||||||||||||
Income Tax Expense (Benefit) | $ | 137 | 62 | (63) | 17 | (82) | — | $ | 71 | ||||||||||||||||||||||||||||||||||||||||||||
Net Income (Loss) Attributable to DTE Energy Company | $ | 714 | 185 | 133 | 49 | (126) | — | $ | 955 | 214 | $ | 1,169 | |||||||||||||||||||||||||||||||||||||||||
Investment in equity method investees | $ | 5 | 11 | 130 | — | 31 | — | $ | 177 | ||||||||||||||||||||||||||||||||||||||||||||
Capital expenditures and acquisitions | $ | 2,368 | 530 | 54 | 5 | — | — | $ | 2,957 | 2,510 | $ | 5,467 | |||||||||||||||||||||||||||||||||||||||||
Goodwill | $ | 1,208 | 743 | 25 | 17 | — | — | $ | 1,993 | ||||||||||||||||||||||||||||||||||||||||||||
Total Assets | $ | 24,617 | 5,717 | 537 | 798 | 4,779 | (1,843) | $ | 34,605 | 7,663 | $ | 42,268 |
Reclassifications and Eliminations include $14 million, $26 million, and $27 million of Operating Revenues — Non-utility operations for the years ended December 31, 2021, 2020, and 2019, respectively, for eliminations related to DTE Energy's prior Gas Storage and Pipelines segment that remain in continuing operations. Eliminations for these revenues are offset by related cost eliminations and have no impact on DTE Energy net income.
NOTE 23 — RELATED PARTY TRANSACTIONS
DTE Electric has agreements with affiliated companies to sell energy for resale, purchase fuel and power, provide fuel supply services, and provide power plant operation and maintenance services. DTE Electric also has agreements with certain DTE Energy affiliates where it charges the affiliates for their use of the shared capital assets of DTE Electric. A shared services company accumulates various corporate support expenses and charges various subsidiaries of DTE Energy, including DTE Electric. DTE Electric records federal, state, and local income taxes payable to or receivable from DTE Energy based on its federal, state, and local tax provisions.
147
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
The following is a summary of DTE Electric's transactions with affiliated companies:
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Revenues and Other Income | |||||||||||||||||
Energy sales | $ | 9 | $ | 8 | $ | 10 | |||||||||||
Other services and interest | $ | 2 | $ | 2 | $ | 5 | |||||||||||
Shared capital assets | $ | 49 | $ | 47 | $ | 42 | |||||||||||
Costs | |||||||||||||||||
Fuel and purchased power | $ | 13 | $ | 16 | $ | 6 | |||||||||||
Other services and interest | $ | — | $ | 1 | $ | 24 | |||||||||||
Corporate expenses | $ | 391 | $ | 367 | $ | 372 | |||||||||||
Other | |||||||||||||||||
Dividends declared | $ | 588 | $ | 539 | $ | 494 | |||||||||||
Dividends paid | $ | 588 | $ | 539 | $ | 494 | |||||||||||
Capital contribution from DTE Energy | $ | 555 | $ | 636 | $ | 180 |
DTE Electric's Accounts receivable and Accounts payable related to Affiliates are payable upon demand and are generally settled in cash within a monthly business cycle. Notes receivable and Short-term borrowings related to Affiliates are subject to a credit agreement with DTE Energy whereby short-term excess cash or cash shortfalls are remitted to or funded by DTE Energy. This credit arrangement involves the charge and payment of interest at market-based rates. Refer to DTE Electric's Consolidated Statements of Financial Position for affiliate balances at December 31, 2021 and 2020.
There were $2 million and $20 million in charitable contributions made by DTE Electric to the DTE Energy Foundation for the years ended December 31, 2021 and 2020, respectively, and no contributions for the year ended December 31, 2019. The DTE Energy Foundation is a non-consolidated not-for-profit private foundation, the purpose of which is to contribute to and assist charitable organizations.
For a discussion of other related party transactions impacting DTE Electric, see Notes 20 and 21 to the Consolidated Financial Statements, "Retirement Benefits and Trusteed Assets" and "Stock-Based Compensation," respectively.
148
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements — (Continued)
NOTE 24 — SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The Registrants have adopted the SEC amendment to Regulation S-K Item 302(a) which requires disclosure of supplemental quarterly financial data only if material retrospective adjustments have been applied. For DTE Energy, the information has been presented below to reflect the impact of the discontinued operations of DT Midstream. No retrospective adjustments have been applied for DTE Electric.
DTE Energy
The sum of quarterly earnings per share may not equal year-end amounts, since quarterly computations are based on weighted average common shares outstanding during each quarter.
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Year | |||||||||||||||||||||||||
(In millions, except per share amounts) | |||||||||||||||||||||||||||||
2021 | |||||||||||||||||||||||||||||
Operating Revenues | $ | 3,581 | $ | 3,021 | $ | 3,715 | $ | 4,647 | $ | 14,964 | |||||||||||||||||||
Operating Income | 433 | 242 | 405 | 415 | 1,495 | ||||||||||||||||||||||||
Net Income from Continuing Operations(a) | 317 | 114 | 55 | 300 | 786 | ||||||||||||||||||||||||
Net Income (Loss) from Discontinued Operations | 80 | 65 | (33) | 5 | 117 | ||||||||||||||||||||||||
Net Income | 397 | 179 | 22 | 305 | 903 | ||||||||||||||||||||||||
Net Income Attributable to DTE Energy Company | $ | 397 | $ | 179 | $ | 25 | $ | 306 | $ | 907 | |||||||||||||||||||
Basic Earnings per Share | |||||||||||||||||||||||||||||
Continuing Operations | $ | 1.65 | $ | 0.60 | $ | 0.30 | $ | 1.56 | $ | 4.11 | |||||||||||||||||||
Discontinued Operations | 0.40 | 0.32 | (0.17) | 0.02 | 0.57 | ||||||||||||||||||||||||
Total | $ | 2.05 | $ | 0.92 | $ | 0.13 | $ | 1.58 | $ | 4.68 | |||||||||||||||||||
Diluted Earnings per Share | |||||||||||||||||||||||||||||
Continuing Operations | $ | 1.65 | $ | 0.60 | $ | 0.30 | $ | 1.55 | $ | 4.10 | |||||||||||||||||||
Discontinued Operations | 0.40 | 0.32 | (0.17) | 0.02 | 0.57 | ||||||||||||||||||||||||
Total | $ | 2.05 | $ | 0.92 | $ | 0.13 | $ | 1.57 | $ | 4.67 | |||||||||||||||||||
2020 | |||||||||||||||||||||||||||||
Operating Revenues | $ | 2,852 | $ | 2,411 | $ | 3,080 | $ | 3,080 | $ | 11,423 | |||||||||||||||||||
Operating Income | 445 | 263 | 479 | 368 | 1,555 | ||||||||||||||||||||||||
Net Income from Continuing Operations | 268 | 201 | 370 | 206 | 1,045 | ||||||||||||||||||||||||
Net Income from Discontinued Operations | 74 | 76 | 107 | 69 | 326 | ||||||||||||||||||||||||
Net Income | 342 | 277 | 477 | 275 | 1,371 | ||||||||||||||||||||||||
Net Income Attributable to DTE Energy Company | $ | 340 | $ | 277 | $ | 476 | $ | 275 | $ | 1,368 | |||||||||||||||||||
Basic Earnings per Share | |||||||||||||||||||||||||||||
Continuing Operations | $ | 1.39 | $ | 1.06 | $ | 1.93 | $ | 1.08 | $ | 5.46 | |||||||||||||||||||
Discontinued Operations | 0.38 | 0.38 | 0.54 | 0.34 | 1.63 | ||||||||||||||||||||||||
Total | $ | 1.77 | $ | 1.44 | $ | 2.47 | $ | 1.42 | $ | 7.09 | |||||||||||||||||||
Diluted Earnings per Share | |||||||||||||||||||||||||||||
Continuing Operations | $ | 1.39 | $ | 1.06 | $ | 1.92 | $ | 1.08 | $ | 5.45 | |||||||||||||||||||
Discontinued Operations | 0.37 | 0.38 | 0.54 | 0.34 | 1.63 | ||||||||||||||||||||||||
Total | $ | 1.76 | $ | 1.44 | $ | 2.46 | $ | 1.42 | $ | 7.08 |
_______________________________________
(a)Third Quarter 2021 results include significant one-time items resulting from the separation of DT Midstream, including a loss on debt extinguishment of $376 million following the settlement of intercompany borrowings with DT midstream and optional redemption of DTE Energy long-term debt. Refer to Note 14 to the Consolidated Financial Statements, "Long-Term Debt," for additional information. Third Quarter 2021 results also include a tax benefit of $85 million for the remeasurement of state deferred tax liabilities following the separation of DT Midstream. Refer to Note 10 to the Consolidated Financial Statements, "Income Taxes," for additional information.
149
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
See Item 8. Financial Statements and Supplementary Data for management’s evaluation of the Registrants' disclosure controls and procedures, their report on internal control over financial reporting, and their conclusion on changes in internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
150
Part III
Information required of DTE Energy by Part III (Items 10, 11, 12, 13, and 14) of this Form 10-K is incorporated by reference from DTE Energy’s definitive Proxy Statement for its 2022 Annual Meeting of Shareholders to be held May 5, 2022. The Proxy Statement will be filed with the SEC, pursuant to Regulation 14A, not later than 120 days after the end of DTE Energy's fiscal year covered by this report on Form 10-K, all of which information is hereby incorporated by reference in, and made part of, this Form 10-K.
Information required of DTE Electric by Part III (Items 10, 11, 12, and 13) of this Form 10-K is omitted per General Instruction I (2) (c) of Form 10-K for wholly-owned subsidiaries (reduced disclosure format).
Item 10. Directors, Executive Officers, and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
DTE Electric
The following table presents fees for professional services rendered by PricewaterhouseCoopers LLP (PwC) for the audit of DTE Electric’s consolidated annual financial statements for the years ended December 31, 2021 and 2020 and fees billed for other services rendered by PwC during those periods.
2021 | 2020 | ||||||||||
Audit fees(a) | $ | 1,579,000 | $ | 1,492,572 | |||||||
Audit-related fees(b) | 87,000 | 12,000 | |||||||||
Total | $ | 1,666,000 | $ | 1,504,572 |
_______________________________________
(a)Represents the aggregate fees for the audits of DTE Electric’s consolidated financial statements included in the Annual Reports on Form 10-K, reviews of the consolidated financial statements included in the Quarterly Reports on Form 10-Q, and audit services provided in connection with certain regulatory filings and debt issuances. Audit fees are presented on an Audit Year basis in accordance with SEC guidelines and include an estimate of fees incurred for the most recent Audit Year.
(b)Represents the aggregate fees billed for audit-related services and various attest services.
The above listed fees were pre-approved by the DTE Energy Audit Committee. Prior to engagement, the DTE Energy Audit Committee pre-approves these services by category of service. The DTE Energy Audit Committee may delegate to the chair of the Audit Committee, or to one or more other designated members of the Audit Committee, the authority to grant pre-approvals of all permitted services or classes of these permitted services to be provided by the independent auditor. The decision of the designated member to pre-approve a permitted service will be reported to the DTE Energy Audit Committee at the next scheduled meeting.
151
Part IV
Item 15. Exhibits and Financial Statement Schedules
A.The following documents are filed as part of this Annual Report on Form 10-K.
(a)Consolidated Financial Statements. See "Item 8 — Financial Statements and Supplementary Data."
(b)Financial statement schedule. See "Item 8 — Financial Statements and Supplementary Data."
(c)Exhibits.
Exhibit Number | Description | DTE Energy | DTE Electric | |||||||||||||||||
(i) Exhibits filed herewith: | ||||||||||||||||||||
Description of the Company’s 2017 Series E 5.25% Junior Subordinated Debentures due 2077 | X | |||||||||||||||||||
Description of the Company’s 2021 Series E 4.375% Junior Subordinated Debentures due 2081 | X | |||||||||||||||||||
Fifty-second Supplemental Indenture dated as of November 1, 2021, to Indenture of Mortgage and Deed of Trust, dated as of March 1, 1944, between DTE Gas Company and Citibank, N.A., trustee. (2021 Series C and D) | X | |||||||||||||||||||
Amendment No. 1 to Fourth Amended and Restated Five-Year Credit Agreement, dated as of March 26, 2021, by and among DTE Energy Company and the lenders party thereto, Citibank, N.A., as Administrative Agent and as Sole Book Runner | X | |||||||||||||||||||
Amendment No. 1 to Fourth Amended and Restated Five-Year Credit Agreement, dated as of March 26, 2021, by and among DTE Electric Company and the lenders party thereto,Citibank, N.A., as Administrative Agent and as Sole Book Runner | X | |||||||||||||||||||
Amendment No. 1 to Fourth Amended and Restated Five-Year Credit Agreement, dated as of March 26, 2021, by and among DTE Gas Company and the lenders party thereto, Citibank, N.A., as Administrative Agent and as Sole Book Runner | X | |||||||||||||||||||
Amendment No. 2 to Fourth Amended and Restated Five-Year Credit Agreement, dated as of June 3, 2021, by and among DTE Energy Company and the lenders party thereto, Citibank, N.A., as Administrative Agent and as Sole Book Runner | X | |||||||||||||||||||
Credit Agreement, dated as of December 22, 2021, by and among DTE Energy Company and the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and as Sole Book Runner, and JPMorgan Chase Bank, N.A. and The Bank of Nova Scotia as Co-Lead Arrangers | X | |||||||||||||||||||
DTE Energy Company Deferred Stock Compensation Plan for Non-Employee Directors as Amended and Restated, effective January 1, 2022 | X | |||||||||||||||||||
Third Amendment to the DTE Energy Company Supplemental Retirement Plan (Amended and Restated, effective as of January 1, 2005) dated as of February 23, 2018 | X | |||||||||||||||||||
Fourth Amendment to the DTE Energy Company Supplemental Retirement Plan (Amended and Restated, effective as of January 1, 2005) dated as of November 16, 2021 | X | |||||||||||||||||||
Subsidiaries of DTE Energy | X | |||||||||||||||||||
Consent of PricewaterhouseCoopers LLP | X | |||||||||||||||||||
Consent of PricewaterhouseCoopers LLP | X | |||||||||||||||||||
Chief Executive Officer Section 302 Form 10-K Certification of Periodic Report | X | |||||||||||||||||||
Chief Financial Officer Section 302 Form 10-K Certification of Periodic Report | X | |||||||||||||||||||
Chief Executive Officer Section 302 Form 10-K Certification of Periodic Report | X | |||||||||||||||||||
152
Exhibit Number | Description | DTE Energy | DTE Electric | |||||||||||||||||
Chief Financial Officer Section 302 Form 10-K Certification of Periodic Report | X | |||||||||||||||||||
101.INS | XBRL Instance Document | X | X | |||||||||||||||||
101.SCH | XBRL Taxonomy Extension Schema | X | X | |||||||||||||||||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | X | X | |||||||||||||||||
101.DEF | XBRL Taxonomy Extension Definition Database | X | X | |||||||||||||||||
101.LAB | XBRL Taxonomy Extension Label Linkbase | X | X | |||||||||||||||||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase | X | X | |||||||||||||||||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | X | X | |||||||||||||||||
(ii) Exhibits furnished herewith: | ||||||||||||||||||||
Chief Executive Officer Section 906 Form 10-K Certification of Periodic Report | X | |||||||||||||||||||
Chief Financial Officer Section 906 Form 10-K Certification of Periodic Report | X | |||||||||||||||||||
Chief Executive Officer Section 906 Form 10-K Certification of Periodic Report | X | |||||||||||||||||||
Chief Financial Officer Section 906 Form 10-K Certification of Periodic Report | X | |||||||||||||||||||
(iii) Exhibits incorporated by reference: | ||||||||||||||||||||
Certain exhibits listed below refer to "The Detroit Edison Company" and "Michigan Consolidated Gas Company" and were effective prior to the change to DTE Electric Company and DTE Gas Company, respectively, effective January 1, 2013. | ||||||||||||||||||||
2(a) | X | |||||||||||||||||||
3(a) | X | |||||||||||||||||||
3(b) | X | |||||||||||||||||||
3(c) | X | |||||||||||||||||||
3(d) | X | |||||||||||||||||||
4(a) | X | |||||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
X |
153
Exhibit Number | Description | DTE Energy | DTE Electric | |||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
4(b) | Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit B-1 to Detroit Edison's Registration Statement on Form A-2 (File No. 2-1630)) and indentures supplemental thereto, dated as of dates indicated below, and filed as exhibits to the filings set forth below: | X | X | |||||||||||||||||
Supplemental Indenture, dated as of December 1, 1940, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit B-14 to Detroit Edison's Registration Statement on Form A-2 (File No. 2-4609)). (amendment) | X | X | ||||||||||||||||||
Supplemental Indenture, dated as of September 1, 1947, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit B-20 to Detroit Edison's Registration Statement on Form S-1 (File No. 2-7136)). (amendment) | X | X | ||||||||||||||||||
154
Exhibit Number | Description | DTE Energy | DTE Electric | |||||||||||||||||
Supplemental Indenture, dated as of March 1, 1950, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit B-22 to Detroit Edison's Registration Statement on Form S-1 (File No. 2-8290)). (amendment) | X | X | ||||||||||||||||||
Supplemental Indenture, dated as of November 15, 1951, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit B-23 to Detroit Edison's Registration Statement on Form S-1 (File No. 2-9226)). (amendment) | X | X | ||||||||||||||||||
Supplemental Indenture, dated as of August 15, 1957, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 3-B-30 to Detroit Edison's Form 8-K dated September 11, 1957). (amendment) | X | X | ||||||||||||||||||
Supplemental Indenture, dated as of December 1, 1966, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 2-B-32 to Detroit Edison's Registration Statement on Form S-9 (File No. 2-25664)). (amendment) | X | X | ||||||||||||||||||
X | X | |||||||||||||||||||
X | X | |||||||||||||||||||
X | X | |||||||||||||||||||
X | X | |||||||||||||||||||
X | X | |||||||||||||||||||
X | X | |||||||||||||||||||
X | X | |||||||||||||||||||
X | X | |||||||||||||||||||
X | X | |||||||||||||||||||
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156
Exhibit Number | Description | DTE Energy | DTE Electric | |||||||||||||||||
X | X | |||||||||||||||||||
X | X | |||||||||||||||||||
X | X | |||||||||||||||||||
4(c) | Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-152 to Detroit Edison's Registration Statement (File No. 33-50325)) and indentures supplemental thereto, dated as of dates indicated below, and filed as exhibits to the filings set forth below: | X | X | |||||||||||||||||
X | X | |||||||||||||||||||
X | X | |||||||||||||||||||
X | X | |||||||||||||||||||
X | X | |||||||||||||||||||
X | X | |||||||||||||||||||
X | X | |||||||||||||||||||
X | X | |||||||||||||||||||
157
Exhibit Number | Description | DTE Energy | DTE Electric | |||||||||||||||||
4(d) | X | |||||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
4(e) | Indenture of Mortgage and Deed of Trust dated as of March 1, 1944 (Exhibit 7-D to Michigan Consolidated Gas Company Registration Statement No. 2-5252) and indentures supplemental thereto, dated as of dates indicated below, and filed as exhibits to the filings set forth below: | X | ||||||||||||||||||
X | ||||||||||||||||||||
Thirty-ninth Supplemental Indenture, dated as of April 1, 2008 to Indenture of Mortgage and Deed of Trust dated as of March 1, 1944 between Michigan Consolidated Gas Company and Citibank, N.A., trustee (Exhibit 4-240 to DTE Energy’s Form 10-Q for the quarter ended March 31, 2008). (2008 Series C Collateral Bonds) | X | |||||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
158
Exhibit Number | Description | DTE Energy | DTE Electric | |||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
10(a) | X | |||||||||||||||||||
10(b) | Certain arrangements pertaining to the employment of Gerard M. Anderson with The Detroit Edison Company, dated October 6, 1993 (Exhibit 10-48 to The Detroit Edison Company's Form 10-K for the year ended December 31, 1993) | X | X | |||||||||||||||||
10(c) | X | X | ||||||||||||||||||
10(d) | X | |||||||||||||||||||
10(e) | X | |||||||||||||||||||
10(f) | X | |||||||||||||||||||
X | ||||||||||||||||||||
10(g) | X | |||||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
159
Exhibit Number | Description | DTE Energy | DTE Electric | |||||||||||||||||
10(h) | X | |||||||||||||||||||
X | ||||||||||||||||||||
X | ||||||||||||||||||||
10(i) | X | |||||||||||||||||||
X | ||||||||||||||||||||
10(j) | X | |||||||||||||||||||
X | ||||||||||||||||||||
10(k) | X | |||||||||||||||||||
X | ||||||||||||||||||||
10(l) | X | |||||||||||||||||||
10(m) | X | |||||||||||||||||||
10(n) | X | X | ||||||||||||||||||
10(o) | X | |||||||||||||||||||
X | ||||||||||||||||||||
10(p) | X | |||||||||||||||||||
160
Exhibit Number | Description | DTE Energy | DTE Electric | |||||||||||||||||
10(q) | X | |||||||||||||||||||
X | ||||||||||||||||||||
X |
Item 16. Form 10-K Summary
None.
161
DTE Energy Company
Schedule II — Valuation and Qualifying Accounts
Year Ending December 31, | |||||||||||||||||
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Allowance for Doubtful Accounts (shown as deduction from Accounts receivable in DTE Energy's Consolidated Statements of Financial Position) | |||||||||||||||||
Balance at Beginning of Period | $ | 104 | $ | 83 | $ | 91 | |||||||||||
Additions: | |||||||||||||||||
Charged to costs and expenses | 54 | 105 | 103 | ||||||||||||||
Charged to other accounts(a) | 61 | 50 | 56 | ||||||||||||||
Deductions(b) | (127) | (134) | (167) | ||||||||||||||
Balance at End of Period | $ | 92 | $ | 104 | $ | 83 |
_______________________________________
(a)Collection of accounts previously written off
(b)Uncollectible accounts written off.
DTE Electric Company
Schedule II — Valuation and Qualifying Accounts
Year Ending December 31, | |||||||||||||||||
2021 | 2020 | 2019 | |||||||||||||||
(In millions) | |||||||||||||||||
Allowance for Doubtful Accounts (shown as deduction from Accounts receivable in DTE Electric's Consolidated Statements of Financial Position) | |||||||||||||||||
Balance at Beginning of Period | $ | 57 | $ | 46 | $ | 53 | |||||||||||
Additions: | |||||||||||||||||
Charged to costs and expenses | 36 | 61 | 65 | ||||||||||||||
Charged to other accounts(a) | 38 | 30 | 36 | ||||||||||||||
Deductions(b) | (77) | (80) | (108) | ||||||||||||||
Balance at End of Period | $ | 54 | $ | 57 | $ | 46 |
_______________________________________
(a)Collection of accounts previously written off.
(b)Uncollectible accounts written off.
162
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, DTE Energy Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DTE ENERGY COMPANY | ||||||||
(Registrant) | ||||||||
By: | /S/ GERARDO NORCIA | |||||||
Gerardo Norcia President and Chief Executive Officer |
Date: February 10, 2022
163
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of DTE Energy Company and in the capacities and on the date indicated.
By: | /S/ GERARDO NORCIA | By: | /S/ DAVID RUUD | |||||||||||
Gerardo Norcia President, Chief Executive Officer, and Director (Principal Executive Officer) | David Ruud Senior Vice President and Chief Financial Officer (Principal Financial Officer) | |||||||||||||
By: | /S/ TRACY J. MYRICK | By: | /S/ RUTH G. SHAW | |||||||||||
Tracy J. Myrick Chief Accounting Officer (Principal Accounting Officer) | Ruth G. Shaw, Director | |||||||||||||
By: | /S/ GERARD M. ANDERSON | By: | /S/ ROBERT C. SKAGGS, JR. | |||||||||||
Gerard M. Anderson | Robert C. Skaggs, Jr., Director | |||||||||||||
Executive Chairman, and Director | ||||||||||||||
By: | /S/ DAVID A. BRANDON | By: | /S/ DAVID A. THOMAS | |||||||||||
David A. Brandon, Director | David A. Thomas, Director | |||||||||||||
By: | /S/ CHARLES G. MCCLURE JR. | By: | /S/ GARY TORGOW | |||||||||||
Charles G. McClure Jr., Director | Gary Torgow, Director | |||||||||||||
By: | /S/ GAIL J. MCGOVERN | By: | /S/ JAMES H. VANDENBERGHE | |||||||||||
Gail J. McGovern, Director | James H. Vandenberghe, Director | |||||||||||||
By: | /S/ MARK A. MURRAY | By: | /S/ VALERIE M. WILLIAMS | |||||||||||
Mark A. Murray, Director | Valerie M. Williams, Director | |||||||||||||
Date: February 10, 2022
164
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, DTE Electric Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DTE ELECTRIC COMPANY | ||||||||
(Registrant) | ||||||||
By: | /S/ GERARDO NORCIA | |||||||
Gerardo Norcia Chief Executive Officer |
Date: February 10, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of DTE Electric Company and in the capacities and on the date indicated.
By: | /S/ GERARDO NORCIA | By: | /S/ DAVID RUUD | |||||||||||
Gerardo Norcia Chief Executive Officer, and Director (Principal Executive Officer) | David Ruud Chief Financial Officer, and Director (Principal Financial Officer) | |||||||||||||
By: | /S/ TRACY J. MYRICK | By: | /S/ JOANN CHAVEZ | |||||||||||
Tracy J. Myrick Chief Accounting Officer (Principal Accounting Officer) | JoAnn Chavez, Director | |||||||||||||
By: | /S/ LISA A. MUSCHONG | |||||||||||||
Lisa A. Muschong, Director |
Date: February 10, 2022
Supplemental Information to be Furnished with Reports Filed Pursuant to Section 15(d) of the Securities Exchange Act of 1934 by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Securities Exchange Act of 1934.
No annual report, proxy statement, form of proxy, or other proxy soliciting material has been sent to security holders of DTE Electric Company during the period covered by this Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
165