UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended June 30, 2023
Or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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 | 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 | |||||||||||||||
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 Company (DTE Energy) | Yes | ☒ | No | ☐ | DTE Electric Company (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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).
DTE Energy | Yes | ☐ | No | ☒ | DTE Electric | Yes | ☐ | No | ☒ | |||||||||||||||||||||||
Number of shares of Common Stock outstanding at June 30, 2023:
| Registrant | Description | Shares | ||||||||||||
| DTE Energy | Common Stock, without par value | 206,175,587 | ||||||||||||
| DTE Electric | Common Stock, $10 par value, indirectly-owned by DTE Energy | 138,632,324 | ||||||||||||
This combined Form 10-Q is filed separately by two registrants: DTE Energy and DTE Electric. Information contained herein relating to any individual registrant is filed by such registrant solely on its own behalf. DTE Electric makes no representation as to information relating exclusively to DTE Energy.
DTE Electric, an indirect wholly-owned subsidiary of DTE Energy, meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format specified in General Instructions H(2) of Form 10-Q.
TABLE OF CONTENTS
| Page | ||||||||
| AFUDC | Allowance for Funds Used During Construction | |||||||
| ASU | Accounting Standards Update issued by the FASB | |||||||
| CAD | Canadian Dollar (C$) | |||||||
| 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 | |||||||
| CCR | Coal Combustion Residuals | |||||||
| CFTC | U.S. Commodity Futures Trading Commission | |||||||
| COVID-19 | Coronavirus disease of 2019 | |||||||
| 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 Securitization | DTE Electric Securitization Funding I, LLC, a special purpose entity wholly-owned by DTE Electric. The entity was created to issue securitization bonds for certain qualified costs authorized by the MPSC and to recover debt service costs from DTE Electric customers | |||||||
| DTE Sustainable Generation | DTE Sustainable Generation Holdings, LLC (an indirect wholly-owned subsidiary of DTE Energy) and subsidiary companies | |||||||
| EGLE | Michigan Department of Environment, Great Lakes, and Energy, formerly known as Michigan Department of Environmental Quality | |||||||
| 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 former Gas Storage and Pipelines segment acquisition on December 4, 2019 | |||||||
| 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 | |||||||
| 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 | |||||||
| Interconnection sales | Sales of power by DTE Electric into the energy market through MISO (Midcontinent Independent System Operation, Inc.), generally resulting from excess generation compared to customer demand | |||||||
| MGP | Manufactured Gas Plant | |||||||
| MPSC | Michigan Public Service Commission | |||||||
| MTM | Mark-to-market | |||||||
1
| NAV | Net Asset Value | |||||||
| Net zero | Goal for DTE Energy's utility operations and gas suppliers at DTE Gas that any carbon emissions put into the atmosphere will be balanced by those taken out of the atmosphere. Achieving this goal will include collective efforts to reduce carbon emissions and actions to offset any remaining emissions. Progress towards net zero goals is estimated and methodologies and calculations may vary from those of other utility businesses with similar targets | |||||||
| 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 | |||||||
| 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 | |||||||
| SIP | State Implementation Plan | |||||||
SO2 | Sulfur Dioxide | |||||||
| SOFR | Secured Overnight Financing Rate | |||||||
| TCJA | Tax Cuts and Jobs Act of 2017, which reduced the corporate Federal income tax rate from 35% to 21% | |||||||
| Topic 606 | FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, as amended | |||||||
| VIE | Variable Interest Entity | |||||||
| Units of Measurement | ||||||||
| Bcf | Billion cubic feet of natural gas | |||||||
| BTU | British thermal unit, heat value (energy content) of fuel | |||||||
| MMBtu | One million BTU | |||||||
| MWh | Megawatt-hour of electricity | |||||||
2
This combined Form 10-Q is separately filed by DTE Energy and DTE Electric. Information in this combined Form 10-Q 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 in respect to debt securities of DTE Energy. This combined Form 10-Q should be read in its entirety. No one section of this combined Form 10-Q deals with all aspects of the subject matter of this combined Form 10-Q. This combined Form 10-Q should be read in conjunction with the Consolidated Financial Statements and Combined Notes to Consolidated Financial Statements and with Management's Discussion and Analysis included in the combined DTE Energy and DTE Electric 2022 Annual Report on 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:
•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 international steel markets and in prices of environmental attributes generated from renewable natural gas investments on the operations of DTE Vantage;
•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;
•changes in the financial condition of significant customers and strategic partners;
•the potential for losses on investments, including nuclear decommissioning trust and benefit plan assets and the related increases in future expense and contributions;
3
•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 at our generation plants;
•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.
Part I — Financial Information
Item 1. Financial Statements
4
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions, except per share amounts) | |||||||||||||||||||||||
| Operating Revenues | |||||||||||||||||||||||
| Utility operations | $ | 1,617 | $ | 1,909 | $ | 3,677 | $ | 4,143 | |||||||||||||||
| Non-utility operations | 1,067 | 3,015 | 2,786 | 5,358 | |||||||||||||||||||
| 2,684 | 4,924 | 6,463 | 9,501 | ||||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Fuel, purchased power, and gas — utility | 345 | 607 | 929 | 1,307 | |||||||||||||||||||
| Fuel, purchased power, gas, and other — non-utility | 925 | 3,059 | 2,362 | 5,301 | |||||||||||||||||||
| Operation and maintenance | 505 | 599 | 1,105 | 1,195 | |||||||||||||||||||
| Depreciation and amortization | 396 | 366 | 781 | 724 | |||||||||||||||||||
| Taxes other than income | 114 | 115 | 236 | 238 | |||||||||||||||||||
| Asset (gains) losses and impairments, net | 2 | (5) | 1 | (5) | |||||||||||||||||||
| 2,287 | 4,741 | 5,414 | 8,760 | ||||||||||||||||||||
| Operating Income | 397 | 183 | 1,049 | 741 | |||||||||||||||||||
| Other (Income) and Deductions | |||||||||||||||||||||||
| Interest expense | 192 | 161 | 383 | 315 | |||||||||||||||||||
| Interest income | (13) | (8) | (30) | (16) | |||||||||||||||||||
| Non-operating retirement benefits, net | 5 | (5) | 8 | (8) | |||||||||||||||||||
| Other income | (31) | (11) | (57) | (19) | |||||||||||||||||||
| Other expenses | 9 | 31 | 15 | 44 | |||||||||||||||||||
| 162 | 168 | 319 | 316 | ||||||||||||||||||||
| Income Before Income Taxes | 235 | 15 | 730 | 425 | |||||||||||||||||||
| Income Tax Expense (Benefit) | 34 | (22) | 84 | (6) | |||||||||||||||||||
| Net Income Attributable to DTE Energy Company | $ | 201 | $ | 37 | $ | 646 | $ | 431 | |||||||||||||||
| Basic Earnings per Common Share | |||||||||||||||||||||||
| Net Income Attributable to DTE Energy Company | $ | 0.97 | $ | 0.19 | $ | 3.13 | $ | 2.22 | |||||||||||||||
| Diluted Earnings per Common Share | |||||||||||||||||||||||
| Net Income Attributable to DTE Energy Company | $ | 0.97 | $ | 0.19 | $ | 3.13 | $ | 2.22 | |||||||||||||||
| Weighted Average Common Shares Outstanding | |||||||||||||||||||||||
| Basic | 206 | 193 | 206 | 193 | |||||||||||||||||||
| Diluted | 206 | 194 | 206 | 194 | |||||||||||||||||||
See Combined Notes to Consolidated Financial Statements (Unaudited)
5
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Net Income | $ | 201 | $ | 37 | $ | 646 | $ | 431 | |||||||||||||||
| Other comprehensive income, net of tax: | |||||||||||||||||||||||
Benefit obligations, net of taxes of $1, $1, $1 and $2, respectively | — | 2 | 1 | 5 | |||||||||||||||||||
Net unrealized gains on derivatives, net of taxes of $2, $1, $1, and $1, respectively | 6 | 3 | 2 | 3 | |||||||||||||||||||
| Foreign currency translation | 2 | — | 2 | — | |||||||||||||||||||
| Other comprehensive income | 8 | 5 | 5 | 8 | |||||||||||||||||||
| Comprehensive Income Attributable to DTE Energy Company | $ | 209 | $ | 42 | $ | 651 | $ | 439 | |||||||||||||||
See Combined Notes to Consolidated Financial Statements (Unaudited)
6
| June 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| (In millions) | |||||||||||
| ASSETS | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | 30 | $ | 33 | |||||||
| Restricted cash | 11 | 10 | |||||||||
Accounts receivable (less allowance for doubtful accounts of $83 and $79, respectively) | |||||||||||
| Customer | 1,304 | 2,038 | |||||||||
| Other | 191 | 144 | |||||||||
| Inventories | |||||||||||
| Fuel and gas | 394 | 433 | |||||||||
| Materials, supplies, and other | 544 | 509 | |||||||||
| Derivative assets | 258 | 328 | |||||||||
| Regulatory assets | 285 | 450 | |||||||||
| Other | 186 | 235 | |||||||||
| 3,203 | 4,180 | ||||||||||
| Investments | |||||||||||
| Nuclear decommissioning trust funds | 1,953 | 1,825 | |||||||||
| Investments in equity method investees | 176 | 165 | |||||||||
| Other | 160 | 165 | |||||||||
| 2,289 | 2,155 | ||||||||||
| Property | |||||||||||
| Property, plant, and equipment | 40,576 | 39,346 | |||||||||
| Accumulated depreciation and amortization | (10,880) | (10,579) | |||||||||
| 29,696 | 28,767 | ||||||||||
| Other Assets | |||||||||||
| Goodwill | 1,993 | 1,993 | |||||||||
| Regulatory assets | 3,941 | 3,886 | |||||||||
| Securitized regulatory assets | 188 | 206 | |||||||||
| Intangible assets | 161 | 166 | |||||||||
| Notes receivable | 374 | 331 | |||||||||
| Derivative assets | 112 | 105 | |||||||||
| Prepaid postretirement costs | 611 | 571 | |||||||||
| Operating lease right-of-use assets | 114 | 89 | |||||||||
| Other | 239 | 234 | |||||||||
| 7,733 | 7,581 | ||||||||||
| Total Assets | $ | 42,921 | $ | 42,683 | |||||||
See Combined Notes to Consolidated Financial Statements (Unaudited)
7
| June 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| (In millions, except shares) | |||||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current Liabilities | |||||||||||
| Accounts payable | $ | 1,051 | $ | 1,604 | |||||||
| Accrued interest | 173 | 154 | |||||||||
| Dividends payable | 393 | 196 | |||||||||
| Short-term borrowings | 528 | 1,162 | |||||||||
| Current portion long-term debt, including securitization bonds and finance leases | 697 | 1,124 | |||||||||
| Derivative liabilities | 186 | 342 | |||||||||
| Gas inventory equalization | 41 | — | |||||||||
| Regulatory liabilities | 49 | 34 | |||||||||
| Operating lease liabilities | 15 | 13 | |||||||||
| Other | 463 | 544 | |||||||||
| 3,596 | 5,173 | ||||||||||
| Long-Term Debt (net of current portion) | |||||||||||
| Mortgage bonds, notes, and other | 17,493 | 15,807 | |||||||||
| Securitization bonds | 153 | 172 | |||||||||
| Junior subordinated debentures | 883 | 883 | |||||||||
| Finance lease liabilities | 9 | 11 | |||||||||
| 18,538 | 16,873 | ||||||||||
| Other Liabilities | |||||||||||
| Deferred income taxes | 2,523 | 2,394 | |||||||||
| Regulatory liabilities | 2,647 | 2,673 | |||||||||
| Asset retirement obligations | 3,564 | 3,460 | |||||||||
| Unamortized investment tax credit | 181 | 182 | |||||||||
| Derivative liabilities | 191 | 315 | |||||||||
| Accrued pension liability | 341 | 378 | |||||||||
| Accrued postretirement liability | 283 | 287 | |||||||||
| Nuclear decommissioning | 305 | 282 | |||||||||
| Operating lease liabilities | 91 | 68 | |||||||||
| Other | 176 | 197 | |||||||||
| 10,302 | 10,236 | ||||||||||
| Commitments and Contingencies (Notes 5 and 12) | |||||||||||
| Equity | |||||||||||
Common stock (No par value, 400,000,000 shares authorized, and 206,175,587 and 205,632,393 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively) | 6,676 | 6,651 | |||||||||
| Retained earnings | 3,862 | 3,808 | |||||||||
| Accumulated other comprehensive loss | (57) | (62) | |||||||||
| Total DTE Energy Company Equity | 10,481 | 10,397 | |||||||||
| Noncontrolling interests | 4 | 4 | |||||||||
| Total Equity | 10,485 | 10,401 | |||||||||
| Total Liabilities and Equity | $ | 42,921 | $ | 42,683 | |||||||
See Combined Notes to Consolidated Financial Statements (Unaudited)
8
| Six Months Ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In millions) | |||||||||||
| Operating Activities | |||||||||||
| Net Income | $ | 646 | $ | 431 | |||||||
| Adjustments to reconcile Net Income to Net cash from operating activities: | |||||||||||
| Depreciation and amortization | 781 | 724 | |||||||||
| Nuclear fuel amortization | 31 | 11 | |||||||||
| Allowance for equity funds used during construction | (18) | (14) | |||||||||
| Deferred income taxes | 88 | — | |||||||||
| Equity (earnings) losses of equity method investees | (4) | 15 | |||||||||
| Dividends from equity method investees | 2 | 3 | |||||||||
| Asset (gains) losses and impairments, net | 1 | (5) | |||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable, net | 685 | (328) | |||||||||
| Inventories | 1 | 3 | |||||||||
| Prepaid postretirement benefit costs | (40) | (43) | |||||||||
| Accounts payable | (490) | 363 | |||||||||
| Gas inventory equalization | 41 | 75 | |||||||||
| Accrued pension liability | (37) | (48) | |||||||||
| Accrued postretirement liability | (4) | (9) | |||||||||
| Derivative assets and liabilities | (217) | 85 | |||||||||
| Regulatory assets and liabilities | 381 | (405) | |||||||||
| Other current and noncurrent assets and liabilities | (88) | 278 | |||||||||
| Net cash from operating activities | 1,759 | 1,136 | |||||||||
| Investing Activities | |||||||||||
| Plant and equipment expenditures — utility | (1,851) | (1,489) | |||||||||
| Plant and equipment expenditures — non-utility | (25) | (42) | |||||||||
| Proceeds from sale of nuclear decommissioning trust fund assets | 423 | 513 | |||||||||
| Investment in nuclear decommissioning trust funds | (419) | (516) | |||||||||
| Distributions from equity method investees | 12 | 10 | |||||||||
| Contributions to equity method investees | (22) | (7) | |||||||||
| Notes receivable | (24) | (13) | |||||||||
| Other | (52) | (24) | |||||||||
| Net cash used for investing activities | (1,958) | (1,568) | |||||||||
| Financing Activities | |||||||||||
| Issuance of long-term debt, net of discount and issuance costs | 2,278 | 1,119 | |||||||||
| Redemption of long-term debt | (1,044) | (250) | |||||||||
| Short-term borrowings, net | (634) | 57 | |||||||||
| Repurchase of common stock | — | (55) | |||||||||
| Dividends paid on common stock | (376) | (342) | |||||||||
| Other | (27) | (50) | |||||||||
| Net cash from financing activities | 197 | 479 | |||||||||
| Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | (2) | 47 | |||||||||
| Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | 43 | 35 | |||||||||
| Cash, Cash Equivalents, and Restricted Cash at End of Period | $ | 41 | $ | 82 | |||||||
| Supplemental disclosure of non-cash investing and financing activities | |||||||||||
| Plant and equipment expenditures in accounts payable | $ | 364 | $ | 318 | |||||||
See Combined Notes to Consolidated Financial Statements (Unaudited)
9
| Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests | |||||||||||||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Total | |||||||||||||||||||||||||||||||||
| (Dollars in millions, shares in thousands) | |||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | 205,632 | $ | 6,651 | $ | 3,808 | $ | (62) | $ | 4 | $ | 10,401 | ||||||||||||||||||||||||
| Net Income | — | — | 445 | — | — | 445 | |||||||||||||||||||||||||||||
Dividends declared on common stock ($0.95 per Common Share) | — | — | (196) | — | — | (196) | |||||||||||||||||||||||||||||
| Issuance of common stock | 76 | 9 | — | — | — | 9 | |||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | (3) | — | (3) | |||||||||||||||||||||||||||||
| Stock-based compensation and other | 401 | (8) | (2) | — | — | (10) | |||||||||||||||||||||||||||||
| Balance, March 31, 2023 | 206,109 | $ | 6,652 | $ | 4,055 | $ | (65) | $ | 4 | $ | 10,646 | ||||||||||||||||||||||||
| Net Income | — | — | 201 | — | — | 201 | |||||||||||||||||||||||||||||
Dividends declared on common stock ($1.91 per Common Share) | — | — | (393) | — | — | (393) | |||||||||||||||||||||||||||||
| Issuance of common stock | 76 | 8 | — | — | — | 8 | |||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | 8 | — | 8 | |||||||||||||||||||||||||||||
| Stock-based compensation and other | (9) | 16 | (1) | — | — | 15 | |||||||||||||||||||||||||||||
| Balance, June 30, 2023 | 206,176 | $ | 6,676 | $ | 3,862 | $ | (57) | $ | 4 | $ | 10,485 | ||||||||||||||||||||||||
| Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests | |||||||||||||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Total | |||||||||||||||||||||||||||||||||
| (Dollars in millions, shares in thousands) | |||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | 193,748 | $ | 5,379 | $ | 3,438 | $ | (112) | $ | 8 | $ | 8,713 | ||||||||||||||||||||||||
| Net Income | — | — | 394 | — | — | 394 | |||||||||||||||||||||||||||||
Dividends declared on common stock ($0.89 per Common Share) | — | — | (171) | — | — | (171) | |||||||||||||||||||||||||||||
| Repurchase of common stock | (465) | (55) | — | — | — | (55) | |||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | 3 | — | 3 | |||||||||||||||||||||||||||||
| Stock-based compensation, net distributions to noncontrolling interests, and other | 456 | (14) | 1 | — | (4) | (17) | |||||||||||||||||||||||||||||
| Balance, March 31, 2022 | 193,739 | $ | 5,310 | $ | 3,662 | $ | (109) | $ | 4 | $ | 8,867 | ||||||||||||||||||||||||
| Net Income | — | — | 37 | — | — | 37 | |||||||||||||||||||||||||||||
Dividends declared on common stock ($1.77 per Common Share) | — | — | (343) | — | — | (343) | |||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | 5 | — | 5 | |||||||||||||||||||||||||||||
| Stock-based compensation, net distributions to noncontrolling interests, and other | (3) | 13 | (1) | — | 1 | 13 | |||||||||||||||||||||||||||||
| Balance, June 30, 2022 | 193,736 | $ | 5,323 | $ | 3,355 | $ | (104) | $ | 5 | $ | 8,579 | ||||||||||||||||||||||||
See Combined Notes to Consolidated Financial Statements (Unaudited)
10
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Operating Revenues — Utility operations | $ | 1,326 | $ | 1,566 | $ | 2,701 | $ | 3,052 | |||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Fuel and purchased power — utility | 315 | 516 | 680 | 956 | |||||||||||||||||||
| Operation and maintenance | 317 | 383 | 728 | 764 | |||||||||||||||||||
| Depreciation and amortization | 328 | 301 | 645 | 595 | |||||||||||||||||||
| Taxes other than income | 84 | 84 | 168 | 172 | |||||||||||||||||||
| 1,044 | 1,284 | 2,221 | 2,487 | ||||||||||||||||||||
| Operating Income | 282 | 282 | 480 | 565 | |||||||||||||||||||
| Other (Income) and Deductions | |||||||||||||||||||||||
| Interest expense | 103 | 91 | 205 | 178 | |||||||||||||||||||
| Interest income | (5) | — | (11) | — | |||||||||||||||||||
| Non-operating retirement benefits, net | (1) | — | (2) | (1) | |||||||||||||||||||
| Other income | (20) | (15) | (40) | (31) | |||||||||||||||||||
| Other expenses | 7 | 17 | 13 | 26 | |||||||||||||||||||
| 84 | 93 | 165 | 172 | ||||||||||||||||||||
| Income Before Income Taxes | 198 | 189 | 315 | 393 | |||||||||||||||||||
| Income Tax Expense | 19 | 3 | 36 | 6 | |||||||||||||||||||
| Net Income | $ | 179 | $ | 186 | $ | 279 | $ | 387 | |||||||||||||||
See Combined Notes to Consolidated Financial Statements (Unaudited)
11
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Net Income | $ | 179 | $ | 186 | $ | 279 | $ | 387 | |||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||
| Comprehensive Income | $ | 179 | $ | 186 | $ | 279 | $ | 387 | |||||||||||||||
See Combined Notes to Consolidated Financial Statements (Unaudited)
12
| June 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| (In millions) | |||||||||||
| ASSETS | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | 8 | $ | 15 | |||||||
| Restricted Cash | 10 | 9 | |||||||||
Accounts receivable (less allowance for doubtful accounts of $45 and $49, respectively) | |||||||||||
| Customer | 731 | 727 | |||||||||
| Affiliates | 3 | 8 | |||||||||
| Other | 89 | 75 | |||||||||
| Inventories | |||||||||||
| Fuel | 216 | 167 | |||||||||
| Materials and supplies | 369 | 331 | |||||||||
| Regulatory assets | 282 | 421 | |||||||||
| Other | 77 | 98 | |||||||||
| 1,785 | 1,851 | ||||||||||
| Investments | |||||||||||
| Nuclear decommissioning trust funds | 1,953 | 1,825 | |||||||||
| Other | 50 | 44 | |||||||||
| 2,003 | 1,869 | ||||||||||
| Property | |||||||||||
| Property, plant, and equipment | 31,602 | 30,591 | |||||||||
| Accumulated depreciation and amortization | (8,393) | (8,095) | |||||||||
| 23,209 | 22,496 | ||||||||||
| Other Assets | |||||||||||
| Regulatory assets | 3,314 | 3,219 | |||||||||
| Securitized regulatory assets | 188 | 206 | |||||||||
| Prepaid postretirement costs — affiliates | 369 | 345 | |||||||||
| Operating lease right-of-use assets | 82 | 56 | |||||||||
| Other | 189 | 194 | |||||||||
| 4,142 | 4,020 | ||||||||||
| Total Assets | $ | 31,139 | $ | 30,236 | |||||||
See Combined Notes to Consolidated Financial Statements (Unaudited)
13
| June 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| (In millions, except shares) | |||||||||||
| LIABILITIES AND SHAREHOLDER’S EQUITY | |||||||||||
| Current Liabilities | |||||||||||
| Accounts payable | |||||||||||
| Affiliates | $ | 70 | $ | 71 | |||||||
| Other | 549 | 637 | |||||||||
| Accrued interest | 118 | 105 | |||||||||
| Current portion long-term debt, including securitization bonds and finance leases | 645 | 248 | |||||||||
| Regulatory liabilities | 43 | 33 | |||||||||
| Short-term borrowings | |||||||||||
| Affiliates | — | 27 | |||||||||
| Other | 222 | 568 | |||||||||
| Operating lease liabilities | 12 | 9 | |||||||||
| Other | 188 | 204 | |||||||||
| 1,847 | 1,902 | ||||||||||
| Long-Term Debt (net of current portion) | |||||||||||
| Mortgage bonds, notes, and other | 10,170 | 9,282 | |||||||||
| Securitization bonds | 153 | 172 | |||||||||
| Finance lease liabilities | — | 1 | |||||||||
| 10,323 | 9,455 | ||||||||||
| Other Liabilities | |||||||||||
| Deferred income taxes | 3,014 | 2,946 | |||||||||
| Regulatory liabilities | 1,764 | 1,778 | |||||||||
| Asset retirement obligations | 3,319 | 3,221 | |||||||||
| Unamortized investment tax credit | 181 | 182 | |||||||||
| Nuclear decommissioning | 305 | 282 | |||||||||
| Accrued pension liability — affiliates | 361 | 387 | |||||||||
| Accrued postretirement liability — affiliates | 271 | 275 | |||||||||
| Operating lease liabilities | 63 | 39 | |||||||||
| Other | 73 | 74 | |||||||||
| 9,351 | 9,184 | ||||||||||
| Commitments and Contingencies (Notes 5 and 12) | |||||||||||
| Shareholder’s Equity | |||||||||||
Common stock ($10 par value, 400,000,000 shares authorized, and 138,632,324 shares issued and outstanding for both periods) | 6,602 | 6,602 | |||||||||
| Retained earnings | 3,016 | 3,093 | |||||||||
| Total Shareholder’s Equity | 9,618 | 9,695 | |||||||||
| Total Liabilities and Shareholder’s Equity | $ | 31,139 | $ | 30,236 | |||||||
See Combined Notes to Consolidated Financial Statements (Unaudited)
14
| Six Months Ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In millions) | |||||||||||
| Operating Activities | |||||||||||
| Net Income | $ | 279 | $ | 387 | |||||||
| Adjustments to reconcile Net Income to Net cash from operating activities: | |||||||||||
| Depreciation and amortization | 645 | 595 | |||||||||
| Nuclear fuel amortization | 31 | 11 | |||||||||
| Allowance for equity funds used during construction | (17) | (12) | |||||||||
| Deferred income taxes | 34 | — | |||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable, net | (12) | (124) | |||||||||
| Inventories | (87) | (13) | |||||||||
| Accounts payable | (39) | 90 | |||||||||
| Prepaid postretirement benefit costs — affiliates | (24) | (25) | |||||||||
| Accrued pension liability — affiliates | (26) | (27) | |||||||||
| Accrued postretirement liability — affiliates | (4) | (8) | |||||||||
| Regulatory assets and liabilities | 286 | (408) | |||||||||
| Other current and noncurrent assets and liabilities | (106) | 197 | |||||||||
| Net cash from operating activities | 960 | 663 | |||||||||
| Investing Activities | |||||||||||
| Plant and equipment expenditures | (1,485) | (1,207) | |||||||||
| Proceeds from sale of nuclear decommissioning trust fund assets | 423 | 513 | |||||||||
| Investment in nuclear decommissioning trust funds | (419) | (516) | |||||||||
| Notes receivable and other | (8) | (21) | |||||||||
| Net cash used for investing activities | (1,489) | (1,231) | |||||||||
| Financing Activities | |||||||||||
| Issuance of long-term debt, net of discount and issuance costs | 1,285 | 1,119 | |||||||||
| Redemption of long-term debt | (19) | (250) | |||||||||
| Short-term borrowings, net — affiliates | (27) | (53) | |||||||||
| Short-term borrowings, net — other | (346) | 211 | |||||||||
| Dividends paid on common stock | (356) | (439) | |||||||||
| Other | (14) | (13) | |||||||||
| Net cash from financing activities | 523 | 575 | |||||||||
| Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | (6) | 7 | |||||||||
| Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | 24 | 9 | |||||||||
| Cash, Cash Equivalents, and Restricted Cash at End of Period | $ | 18 | $ | 16 | |||||||
| Supplemental disclosure of non-cash investing and financing activities | |||||||||||
| Plant and equipment expenditures in accounts payable | $ | 285 | $ | 233 | |||||||
See Combined Notes to Consolidated Financial Statements (Unaudited)
15
| Additional Paid-in Capital | Retained Earnings | ||||||||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||||||||
| Shares | Amount | Total | |||||||||||||||||||||||||||
| (Dollars in millions, shares in thousands) | |||||||||||||||||||||||||||||
| Balance, December 31, 2022 | 138,632 | $ | 1,386 | $ | 5,216 | $ | 3,093 | $ | 9,695 | ||||||||||||||||||||
| Net Income | — | — | — | 100 | 100 | ||||||||||||||||||||||||
| Dividends declared on common stock | — | — | — | (182) | (182) | ||||||||||||||||||||||||
| Balance, March 31, 2023 | 138,632 | $ | 1,386 | $ | 5,216 | $ | 3,011 | $ | 9,613 | ||||||||||||||||||||
| Net Income | — | — | — | 179 | 179 | ||||||||||||||||||||||||
| Dividends declared on common stock | — | — | — | (174) | (174) | ||||||||||||||||||||||||
| Balance, June 30, 2023 | 138,632 | $ | 1,386 | $ | 5,216 | $ | 3,016 | $ | 9,618 | ||||||||||||||||||||
| Additional Paid-in Capital | Retained Earnings | ||||||||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||||||||
| Shares | Amount | Total | |||||||||||||||||||||||||||
| (Dollars in millions, shares in thousands) | |||||||||||||||||||||||||||||
| Balance, December 31, 2021 | 138,632 | $ | 1,386 | $ | 4,616 | $ | 2,901 | $ | 8,903 | ||||||||||||||||||||
| Net Income | — | — | — | 201 | 201 | ||||||||||||||||||||||||
| Dividends declared on common stock | — | — | — | (277) | (277) | ||||||||||||||||||||||||
| Balance, March 31, 2022 | 138,632 | $ | 1,386 | $ | 4,616 | $ | 2,825 | $ | 8,827 | ||||||||||||||||||||
| Net Income | — | — | — | 186 | 186 | ||||||||||||||||||||||||
| Dividends declared on common stock | — | — | — | (162) | (162) | ||||||||||||||||||||||||
| Balance, June 30, 2022 | 138,632 | $ | 1,386 | $ | 4,616 | $ | 2,849 | $ | 8,851 | ||||||||||||||||||||
See Combined Notes to Consolidated Financial Statements (Unaudited)
16
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited)
Index of Combined Notes to Consolidated Financial Statements (Unaudited)
The Combined Notes to Consolidated Financial Statements (Unaudited) 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 | Revenue | DTE Energy and DTE Electric | ||||||||||||
| Note 5 | Regulatory Matters | DTE Energy and DTE Electric | ||||||||||||
| Note 6 | Earnings per Share | DTE Energy | ||||||||||||
| Note 7 | Fair Value | DTE Energy and DTE Electric | ||||||||||||
| Note 8 | Financial and Other Derivative Instruments | DTE Energy and DTE Electric | ||||||||||||
| Note 9 | Long-Term Debt | DTE Energy and DTE Electric | ||||||||||||
| Note 10 | Short-Term Credit Arrangements and Borrowings | DTE Energy and DTE Electric | ||||||||||||
| Note 11 | Leases | DTE Energy | ||||||||||||
| Note 12 | Commitments and Contingencies | DTE Energy and DTE Electric | ||||||||||||
| Note 13 | Retirement Benefits and Trusteed Assets | DTE Energy and DTE Electric | ||||||||||||
| Note 14 | Segment and Related Information | 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
•Other businesses include (1) DTE Vantage, which is primarily involved in renewable natural gas projects and providing custom energy solutions to industrial, commercial, and institutional customers, 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.
Basis of Presentation
The Consolidated Financial Statements should be read in conjunction with the Combined Notes to Consolidated Financial Statements included in the combined DTE Energy and DTE Electric 2022 Annual Report on Form 10-K.
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 Consolidated Financial Statements are unaudited but, in the Registrants' opinions, include all adjustments necessary to present a fair statement of the results for the interim periods. All adjustments are of a normal recurring nature, except as otherwise disclosed in these Consolidated Financial Statements and Combined Notes to Consolidated Financial Statements. Financial results for this interim period are not necessarily indicative of results that may be expected for any other interim period or for the fiscal year ending December 31, 2023.
17
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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 DTE Energy were reclassified to match the current year's Consolidated Financial Statements presentation.
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.
Legal 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 June 30, 2023, 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 June 30, 2023, 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.
During 2022, DTE Electric financed regulatory assets for previously deferred costs related to the River Rouge generation plant and tree trimming surge program through the sale of bonds by a wholly-owned special purpose entity, DTE Securitization. DTE Securitization is a VIE. DTE Electric has the power to direct the most significant activities of DTE Securitization, including performing servicing activities such as billing and collecting surcharge revenue. Accordingly, DTE Electric is the primary beneficiary and DTE Securitization is consolidated by the Registrants. Securitization bond holders have no recourse to the Registrants' assets, except for those held by DTE Securitization. Surcharges collected by DTE Electric to pay for bond servicing and other qualified costs reflect securitization property solely owned by DTE Securitization. These surcharges are remitted to a trustee and are not available to other creditors of the Registrants.
18
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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 June 30, 2023 and December 31, 2022. 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.
Amounts for the Registrants' consolidated VIEs are as follows:
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
| DTE Energy | DTE Electric(a) | DTE Energy | DTE Electric(a) | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| ASSETS | |||||||||||||||||||||||
| Cash and cash equivalents | $ | 8 | $ | — | $ | 14 | $ | — | |||||||||||||||
| Restricted cash | 9 | 9 | 9 | 9 | |||||||||||||||||||
| Securitized regulatory assets | 188 | 188 | 206 | 206 | |||||||||||||||||||
| Notes receivable | 82 | — | 81 | — | |||||||||||||||||||
| Other current and long-term assets | 8 | 2 | 14 | 3 | |||||||||||||||||||
| $ | 295 | $ | 199 | $ | 324 | $ | 218 | ||||||||||||||||
| LIABILITIES | |||||||||||||||||||||||
| Short-term borrowings | $ | — | $ | — | $ | 81 | — | ||||||||||||||||
Securitization bonds(b) | 193 | 193 | 211 | 211 | |||||||||||||||||||
| Other current and long-term liabilities | 11 | 8 | 14 | 9 | |||||||||||||||||||
| $ | 204 | $ | 201 | $ | 306 | $ | 220 | ||||||||||||||||
_______________________________________
(a)DTE Electric amounts reflect DTE Securitization.
(b)Includes $40 million and $39 million reported in Current portion of long-term debt on the Registrants' Consolidated Statements of Financial Position for the periods ended June 30, 2023 and December 31, 2022, respectively.
Amounts for DTE Energy's non-consolidated VIEs are as follows:
| June 30, 2023 | December 31, 2022 | ||||||||||
| (In millions) | |||||||||||
| Investments in equity method investees | $ | 126 | $ | 137 | |||||||
| Notes receivable | $ | 15 | $ | 15 | |||||||
| Future funding commitments | $ | 1 | $ | 2 | |||||||
19
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES
Other Income
The following is a summary of DTE Energy's Other income:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Allowance for equity funds used during construction | $ | 9 | $ | 6 | $ | 18 | $ | 14 | |||||||||||||||
| Contract services | 7 | 7 | 13 | 14 | |||||||||||||||||||
Investment income(a) | 4 | — | 9 | — | |||||||||||||||||||
| Equity earnings (losses) of equity method investees | — | (4) | 4 | (15) | |||||||||||||||||||
| Other | 11 | 2 | 13 | 6 | |||||||||||||||||||
| $ | 31 | $ | 11 | $ | 57 | $ | 19 | ||||||||||||||||
_______________________________________
(a)Investment losses are recorded separately to Other expenses on the Consolidated Statements of Operations.
The following is a summary of DTE Electric's Other income:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Allowance for equity funds used during construction | $ | 8 | $ | 5 | $ | 17 | $ | 12 | |||||||||||||||
| Contract services | 6 | 7 | 12 | 14 | |||||||||||||||||||
Investment income(a) | 3 | — | 6 | — | |||||||||||||||||||
| Other | 3 | 3 | 5 | 5 | |||||||||||||||||||
| $ | 20 | $ | 15 | $ | 40 | $ | 31 | ||||||||||||||||
_______________________________________
(a)Investment losses are recorded separately to Other expenses on the Consolidated Statements of Operations.
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, if any. 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 three and six months ended June 30, 2023 and 2022, reclassifications out of Accumulated other comprehensive income (loss) were not material.
20
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
Income Taxes
Tax rates are affected by estimated annual permanent items, production and investment tax credits, regulatory adjustments, and discrete items that may occur in any given period, but are not consistent from period to period. For the second quarter 2022, the impact of these adjustments at DTE Energy was significantly affected by having lower pre-tax income, driven primarily by losses in the Energy Trading segment.
The tables below summarize how the Registrants' effective income tax rates have varied from the statutory federal income tax rate:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| DTE Energy | |||||||||||||||||||||||
| Statutory federal income tax rate | 21.0 | % | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||||||
| Increase (decrease) due to: | |||||||||||||||||||||||
| State and local income taxes, net of federal benefit | 4.4 | 11.0 | 4.4 | 4.6 | |||||||||||||||||||
| Production tax credits | (4.4) | (67.3) | (5.6) | (9.6) | |||||||||||||||||||
| TCJA amortization | (3.1) | (110.4) | (3.8) | (15.8) | |||||||||||||||||||
| Investment tax credits | (1.4) | (1.6) | (2.0) | (0.2) | |||||||||||||||||||
| Enactment of West Virginia income tax legislation, net of federal benefit | — | — | (0.8) | — | |||||||||||||||||||
| State tax audit settlement, net of federal benefit | (1.8) | — | (0.6) | — | |||||||||||||||||||
| Other | (0.3) | 0.8 | (1.1) | (1.5) | |||||||||||||||||||
| Effective income tax rate | 14.4 | % | (146.5) | % | 11.5 | % | (1.5) | % | |||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| DTE Electric | |||||||||||||||||||||||
| Statutory federal income tax rate | 21.0 | % | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||||||
| Increase (decrease) due to: | |||||||||||||||||||||||
| State and local income taxes, net of federal benefit | 5.7 | 5.8 | 5.7 | 5.8 | |||||||||||||||||||
| Production tax credits | (8.2) | (9.0) | (7.8) | (9.0) | |||||||||||||||||||
| TCJA amortization | (5.3) | (15.4) | (5.0) | (15.5) | |||||||||||||||||||
| State tax audit settlement, net of federal benefit | (2.1) | — | (1.3) | — | |||||||||||||||||||
| Other | (1.4) | (0.9) | (1.2) | (0.8) | |||||||||||||||||||
| Effective income tax rate | 9.7 | % | 1.5 | % | 11.4 | % | 1.5 | % | |||||||||||||||
DTE Electric had income tax receivables with DTE Energy of $2 million and $1 million at June 30, 2023 and December 31, 2022, respectively, which are primarily related to state taxes and included in Accounts Receivable - Affiliates on the DTE Electric Consolidated Statements of Financial Position.
During the second quarter 2023, DTE Energy and DTE Electric unrecognized tax benefits decreased by $10 million and $13 million, respectively, as a result of an audit settlement related to state exposures. Recognition of these state tax benefits, net of federal benefit, resulted in a reduction of $8 million and $10 million to Income Tax Expense on the respective DTE Energy and DTE Electric Consolidated Statements of Operations for the three and six months ended June 30, 2023.
As of December 31, 2022, DTE Energy and DTE Electric had $5 million and $8 million of accrued interest pertaining to income taxes, respectively, included in Accrued Interest on the Consolidated Statements of Financial Position. As a result of the tax audit settlement noted above, the Registrants have no remaining accrued interest pertaining to income taxes.
As of June 30, 2023, DTE Energy had unrecognized tax benefits of $5 million remaining that, if recognized, would favorably impact effective tax rates. DTE Energy believes it is reasonably possible that the amount of unrecognized tax benefits may decrease within the next 12 months by $5 million due to an anticipated settlement of a federal claim.
21
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
Unrecognized Compensation Costs
As of June 30, 2023, DTE Energy had $91 million of total unrecognized compensation cost related to non-vested stock incentive plan arrangements. That cost is expected to be recognized over a weighted-average period of 1.6 years.
Allocated Stock-Based Compensation
DTE Electric received an allocation of costs from DTE Energy associated with stock-based compensation of $10 million and $9 million for the three months ended June 30, 2023 and 2022, respectively, while such allocation was $20 million and $21 million for the six months ended June 30, 2023 and 2022, respectively.
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 includes funds held in separate bank accounts and principally consists of amounts at DTE Securitization to pay for debt service and other qualified costs. Restricted cash designated for payments within one year is classified as a Current Asset.
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.
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, including current year-to-date gross write-offs, if any. The related credit quality indicators and risk ratings utilized to develop the internal grades have been updated through June 30, 2023.
| DTE Energy | DTE Electric | ||||||||||||||||||||||||||||
| Year of Origination | |||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 and Prior | Total | 2023 and Prior | |||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
| Notes receivable | |||||||||||||||||||||||||||||
| Internal grade 1 | $ | — | $ | — | $ | 6 | $ | 6 | $ | 2 | |||||||||||||||||||
| Internal grade 2 | 17 | 70 | 18 | 105 | — | ||||||||||||||||||||||||
Total notes receivable(a) | $ | 17 | $ | 70 | $ | 24 | $ | 111 | $ | 2 | |||||||||||||||||||
| Net investment in leases | |||||||||||||||||||||||||||||
| Internal grade 1 | $ | — | $ | — | $ | 37 | $ | 37 | $ | — | |||||||||||||||||||
| Internal grade 2 | — | 67 | 187 | 254 | — | ||||||||||||||||||||||||
Total net investment in leases(a) | $ | — | $ | 67 | $ | 224 | $ | 291 | $ | — | |||||||||||||||||||
_______________________________________
(a)For DTE Energy and DTE Electric, current portion is included in Current Assets — Other on the respective Consolidated Statements of Financial Position.
22
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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.
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 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, 2023 | $ | 78 | $ | 1 | $ | 79 | $ | 49 | |||||||||||||||
| Current period provision | 34 | — | 34 | 17 | |||||||||||||||||||
| Write-offs charged against allowance | (50) | — | (50) | (34) | |||||||||||||||||||
| Recoveries of amounts previously written off | 20 | — | 20 | 13 | |||||||||||||||||||
| Ending reserve balance, June 30, 2023 | $ | 82 | $ | 1 | $ | 83 | $ | 45 | |||||||||||||||
| DTE Energy | DTE Electric | ||||||||||||||||||||||
| Trade accounts receivable | Other receivables | Total | Trade and other accounts receivable | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Beginning reserve balance, January 1, 2022 | $ | 89 | $ | 3 | $ | 92 | $ | 54 | |||||||||||||||
| Current period provision | 49 | — | 49 | 33 | |||||||||||||||||||
| Write-offs charged against allowance | (105) | (2) | (107) | (66) | |||||||||||||||||||
| Recoveries of amounts previously written off | 45 | — | 45 | 28 | |||||||||||||||||||
| Ending reserve balance, December 31, 2022 | $ | 78 | $ | 1 | $ | 79 | $ | 49 | |||||||||||||||
23
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
Uncollectible expense for the Registrants is primarily comprised of the current period provision for allowance for doubtful accounts and is summarized as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| DTE Energy | $ | 13 | $ | 14 | $ | 35 | $ | 34 | |||||||||||||||
| DTE Electric | $ | 9 | $ | 8 | $ | 17 | $ | 16 | |||||||||||||||
There are no material amounts of past due financing receivables for the Registrants as of June 30, 2023.
NOTE 3 — NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted Pronouncements
In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The amendments in this update eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the Current Expected Credit Loss (“CECL”) model under ASC 326 and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. Additionally, the amendments require the disclosure of current period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. The Registrants adopted the ASU effective January 1, 2023 using the prospective approach, with no impact on the Registrants' financial position or results of operations. Gross write-offs, if any, will be disclosed in the Financing Receivables section of Note 2 to the Consolidated Financial Statements, "Significant Accounting Policies."
24
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
NOTE 4 — REVENUE
Disaggregation of Revenue
The following is a summary of revenues disaggregated by segment for DTE Energy:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
Electric(a) | |||||||||||||||||||||||
| Residential | $ | 658 | $ | 691 | $ | 1,312 | $ | 1,391 | |||||||||||||||
| Commercial | 524 | 487 | 1,019 | 964 | |||||||||||||||||||
| Industrial | 186 | 170 | 355 | 331 | |||||||||||||||||||
Other(b) | (39) | 222 | 22 | 374 | |||||||||||||||||||
| Total Electric operating revenues | $ | 1,329 | $ | 1,570 | $ | 2,708 | $ | 3,060 | |||||||||||||||
| Gas | |||||||||||||||||||||||
| Gas sales | $ | 216 | $ | 231 | $ | 817 | $ | 827 | |||||||||||||||
| End User Transportation | 54 | 55 | 140 | 153 | |||||||||||||||||||
| Intermediate Transportation | 16 | 16 | 47 | 45 | |||||||||||||||||||
Other(b) | 25 | 60 | 14 | 103 | |||||||||||||||||||
| Total Gas operating revenues | $ | 311 | $ | 362 | $ | 1,018 | $ | 1,128 | |||||||||||||||
| Other segment operating revenues | |||||||||||||||||||||||
| DTE Vantage | $ | 189 | $ | 220 | $ | 373 | $ | 399 | |||||||||||||||
| Energy Trading | $ | 904 | $ | 2,832 | $ | 2,472 | $ | 5,035 | |||||||||||||||
_______________________________________
(a)Revenues generally represent those of DTE Electric, except $3 million and $4 million of Other revenues related to DTE Sustainable Generation for the three months ended June 30, 2023 and 2022, respectively, and $7 million and $8 million for the six months ended June 30, 2023 and 2022, respectively.
(b)Includes revenue adjustments related to various regulatory mechanisms, including the PSCR at the Electric segment and GCR at the Gas segment. Revenues related to these mechanisms may vary based on changes in the cost of fuel, purchased power, and gas.
Revenues included the following which were outside the scope of Topic 606:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Electric — Other revenues | $ | 5 | $ | 4 | $ | 10 | $ | 8 | |||||||||||||||
| Gas — Alternative Revenue Programs | $ | 1 | $ | — | $ | 4 | $ | — | |||||||||||||||
| Gas — Other revenues | $ | 2 | $ | 2 | $ | 5 | $ | 4 | |||||||||||||||
| DTE Vantage — Leases | $ | 10 | $ | 19 | $ | 25 | $ | 39 | |||||||||||||||
| Energy Trading — Derivatives | $ | 696 | $ | 2,426 | $ | 1,857 | $ | 4,160 | |||||||||||||||
Deferred Revenue
The following is a summary of deferred revenue activity:
| DTE Energy | |||||
| (In millions) | |||||
| Beginning Balance, January 1, 2023 | $ | 94 | |||
| Increases due to cash received or receivable, excluding amounts recognized as revenue during the period | 61 | ||||
| Revenue recognized that was included in the deferred revenue balance at the beginning of the period | (40) | ||||
| Ending Balance, June 30, 2023 | $ | 115 | |||
25
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
The deferred revenues at DTE Energy generally represent amounts paid by or receivables 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) | |||||
| 2023 | $ | 90 | |||
| 2024 | 24 | ||||
| 2025 | 1 | ||||
| 2026 | — | ||||
| 2027 | — | ||||
| 2028 and thereafter | — | ||||
| $ | 115 | ||||
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) | |||||||||||
| 2023 | $ | 74 | $ | 4 | |||||||
| 2024 | 231 | 8 | |||||||||
| 2025 | 156 | — | |||||||||
| 2026 | 94 | — | |||||||||
| 2027 | 64 | — | |||||||||
| 2028 and thereafter | 308 | — | |||||||||
| $ | 927 | $ | 12 | ||||||||
26
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
NOTE 5 — REGULATORY MATTERS
Ludington Accounting Application
During April 2022, DTE Electric and Consumers Energy Company (“Consumers”) filed a complaint against Toshiba America Energy Systems (“TAES”) and its parent corporation for defective and non-conforming work relating to the overhaul and upgrade of the Ludington Hydroelectric Pumped Storage Plant (“Ludington”). Refer to the Ludington Plant Contract Dispute section of Note 12 to the Consolidated Financial Statements, “Commitments and Contingencies,” for additional information regarding the complaint and ongoing legal proceedings.
DTE Electric and Consumers, joint owners of Ludington, believe that certain costs must be incurred in the near term for repairing and/or replacing defective work performed by TAES in order to ensure the continued safe and reliable operation of the plant. In November 2022, DTE Electric and Consumers filed an accounting application with the MPSC for authority to defer these costs as a regulatory asset. DTE Electric and Consumers requested the regulatory asset for their respective 49% and 51% shares of these costs, to be offset by any potential litigation proceeds. The parties also requested that appropriate recovery and ratemaking treatment be granted in a future rate case or other proceeding. In May 2023, the MPSC approved the accounting application as requested. Costs incurred and deferred as regulatory assets will be reviewed in future rate proceedings for cost recovery.
2023 Electric Rate Case Filing
DTE Electric filed a rate case with the MPSC on February 10, 2023 requesting an increase in base rates of $622 million based on a projected twelve-month period ending November 30, 2024, and an increase in return on equity from 9.9% to 10.25%. The requested increase in base rates is primarily due to increased investments in plant involving generation and the electric distribution system, as well as related increases to depreciation and property tax expenses. These investments will support DTE Energy's goals to reduce carbon emissions and improve power reliability. The requested increase in base rates is also due to a projected sales decline from the level included in current rates and inflationary impacts on operating and interest costs. A final MPSC order in this case is expected in December 2023.
2023 Securitization Filing
On April 3, 2023, DTE Electric filed an application with the MPSC requesting a financing order to approve the securitization of $496 million of qualified costs related to the net book value of the St. Clair and Trenton Channel generation plants. The filing requested recovery of these qualifying costs from DTE Electric's customers.
The MPSC issued a financing order on June 22, 2023 authorizing DTE Electric to proceed with the issuance of Securitization bonds for qualified costs up to $602 million, increased for the inclusion of deferred income taxes. The financing order further authorized customer charges for the timely recovery of debt service costs on the Securitization bonds and other ongoing qualified costs. Securitization financing is expected to occur in the fourth quarter 2023.
Integrated Resource Plan
In November 2022, DTE Electric filed an Integrated Resource Plan (IRP) with the MPSC, a comprehensive plan to meet the electricity needs of customers over the next 20 years. The IRP included details on planned coal plant retirements and replacement generation, including investments in renewables and battery storage, with a focus on providing increasingly clean, reliable, and affordable electricity to customers.
On July 12, 2023, DTE Energy announced that DTE Electric reached a settlement agreement with the various stakeholders involved in the IRP. The MPSC issued an order approving the settlement agreement on July 26, 2023. DTE Electric is currently assessing the impacts from the settlement agreement on the consolidated financial statements for the third quarter 2023, including regulatory treatment for the recovery of plant-related costs at the Belle River and Monroe power plants. As a result of the settlement agreement, DTE Electric is also expecting to securitize a portion of these plant-related costs in future periods.
27
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
NOTE 6 — 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.
The following is a reconciliation of DTE Energy's basic and diluted income per share calculation:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions, except per share amounts) | |||||||||||||||||||||||
| Basic Earnings per Share | |||||||||||||||||||||||
| Net Income Attributable to DTE Energy Company | $ | 201 | $ | 37 | $ | 646 | $ | 431 | |||||||||||||||
| Less: Allocation of earnings to net restricted stock awards | 1 | — | 2 | 1 | |||||||||||||||||||
| Net income available to common shareholders — basic | $ | 200 | $ | 37 | $ | 644 | $ | 430 | |||||||||||||||
| Average number of common shares outstanding — basic | 206 | 193 | 206 | 193 | |||||||||||||||||||
| Basic Earnings per Common Share | $ | 0.97 | $ | 0.19 | $ | 3.13 | $ | 2.22 | |||||||||||||||
| Diluted Earnings per Share | |||||||||||||||||||||||
| Net Income Attributable to DTE Energy Company | $ | 201 | $ | 37 | $ | 646 | $ | 431 | |||||||||||||||
| Less: Allocation of earnings to net restricted stock awards | 1 | — | 2 | 1 | |||||||||||||||||||
| Net income available to common shareholders — diluted | $ | 200 | $ | 37 | $ | 644 | $ | 430 | |||||||||||||||
| Average number of common shares outstanding — basic | 206 | 193 | 206 | 193 | |||||||||||||||||||
| Average performance share awards | — | 1 | — | 1 | |||||||||||||||||||
| Average number of common shares outstanding — diluted | 206 | 194 | 206 | 194 | |||||||||||||||||||
Diluted Earnings per Common Share(a) | $ | 0.97 | $ | 0.19 | $ | 3.13 | $ | 2.22 | |||||||||||||||
_______________________________________
(a)Equity units excluded from the calculation of diluted EPS were approximately 10.0 million and 10.3 million for the three and six months ended June 30, 2022, respectively, as the dilutive stock price threshold was not met. The equity units were settled in November 2022 resulting in the issuance of common stock.
28
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
NOTE 7 — 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 June 30, 2023 and December 31, 2022. 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.
29
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
The following table presents assets and liabilities for DTE Energy measured and recorded at fair value on a recurring basis:
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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) | $ | 17 | $ | — | $ | — | $ | — | $ | — | $ | 17 | $ | 10 | $ | — | $ | — | $ | — | $ | — | $ | 10 | |||||||||||||||||||||||||||||||||||||||||||||||
| Nuclear decommissioning trusts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity securities | 752 | — | — | 144 | — | 896 | 701 | — | — | 138 | — | 839 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed income securities | 105 | 362 | — | 92 | — | 559 | 115 | 359 | — | 89 | — | 563 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Private equity and other | — | — | — | 291 | — | 291 | — | — | — | 262 | — | 262 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hedge funds and similar investments | 102 | 62 | — | — | — | 164 | 78 | 41 | — | — | — | 119 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash equivalents | 43 | — | — | — | — | 43 | 42 | — | — | — | — | 42 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other investments(d) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity securities | 56 | — | — | — | — | 56 | 56 | — | — | — | — | 56 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed income securities | 7 | — | — | — | — | 7 | 7 | — | — | — | — | 7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash equivalents | 35 | — | — | — | — | 35 | 72 | — | — | — | — | 72 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative assets | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commodity contracts(e) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Natural gas | 151 | 183 | 167 | — | (335) | 166 | 426 | 183 | 135 | — | (649) | 95 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Electricity | — | 348 | 149 | — | (311) | 186 | — | 720 | 243 | — | (643) | 320 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Environmental & Other | — | 332 | 22 | — | (340) | 14 | — | 201 | 12 | — | (196) | 17 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other contracts | — | 4 | — | — | — | 4 | — | 2 | — | — | (1) | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total derivative assets | 151 | 867 | 338 | — | (986) | 370 | 426 | 1,106 | 390 | — | (1,489) | 433 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 1,268 | $ | 1,291 | $ | 338 | $ | 527 | $ | (986) | $ | 2,438 | $ | 1,507 | $ | 1,506 | $ | 390 | $ | 489 | $ | (1,489) | $ | 2,403 | |||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commodity contracts(e) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Natural gas | $ | (144) | $ | (218) | $ | (221) | $ | — | $ | 350 | $ | (233) | $ | (297) | $ | (331) | $ | (390) | $ | — | $ | 645 | $ | (373) | |||||||||||||||||||||||||||||||||||||||||||||||
| Electricity | — | (334) | (153) | — | 352 | (135) | — | (659) | (276) | — | 665 | (270) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Environmental & Other | — | (351) | (6) | — | 350 | (7) | — | (213) | (1) | — | 201 | (13) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other contracts | — | (2) | — | — | — | (2) | — | (2) | — | — | 1 | (1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | (144) | $ | (905) | $ | (380) | $ | — | $ | 1,052 | $ | (377) | $ | (297) | $ | (1,205) | $ | (667) | $ | — | $ | 1,512 | $ | (657) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net Assets (Liabilities) at end of period | $ | 1,124 | $ | 386 | $ | (42) | $ | 527 | $ | 66 | $ | 2,061 | $ | 1,210 | $ | 301 | $ | (277) | $ | 489 | $ | 23 | $ | 1,746 | |||||||||||||||||||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current | $ | 130 | $ | 612 | $ | 230 | $ | — | $ | (697) | $ | 275 | $ | 360 | $ | 881 | $ | 286 | $ | — | $ | (1,189) | $ | 338 | |||||||||||||||||||||||||||||||||||||||||||||||
| Noncurrent | 1,138 | 679 | 108 | 527 | (289) | 2,163 | 1,147 | 625 | 104 | 489 | (300) | 2,065 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Assets | $ | 1,268 | $ | 1,291 | $ | 338 | $ | 527 | $ | (986) | $ | 2,438 | $ | 1,507 | $ | 1,506 | $ | 390 | $ | 489 | $ | (1,489) | $ | 2,403 | |||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current | $ | (116) | $ | (601) | $ | (201) | $ | — | $ | 732 | $ | (186) | $ | (273) | $ | (876) | $ | (386) | $ | — | $ | 1,193 | $ | (342) | |||||||||||||||||||||||||||||||||||||||||||||||
| Noncurrent | (28) | (304) | (179) | — | 320 | (191) | (24) | (329) | (281) | — | 319 | (315) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Liabilities | $ | (144) | $ | (905) | $ | (380) | $ | — | $ | 1,052 | $ | (377) | $ | (297) | $ | (1,205) | $ | (667) | $ | — | $ | 1,512 | $ | (657) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net Assets (Liabilities) at end of period | $ | 1,124 | $ | 386 | $ | (42) | $ | 527 | $ | 66 | $ | 2,061 | $ | 1,210 | $ | 301 | $ | (277) | $ | 489 | $ | 23 | $ | 1,746 | |||||||||||||||||||||||||||||||||||||||||||||||
_______________________________________
(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 include $11 million and $10 million of cash equivalents recorded in Restricted cash on DTE Energy's Consolidated Statements of Financial Position at June 30, 2023 and December 31, 2022, respectively. All other amounts are included in Cash and cash equivalents on DTE Energy's Consolidated Statements of Financial Position.
(d)Excludes cash surrender value of life insurance investments and certain securities classified as held-to-maturity that are recorded at amortized cost and not material to the consolidated financial statements.
(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.
30
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
The following table presents assets for DTE Electric measured and recorded at fair value on a recurring basis as of:
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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(b) | $ | 9 | $ | — | $ | — | $ | — | $ | 9 | $ | 9 | $ | — | $ | — | $ | — | $ | 9 | |||||||||||||||||||||||||||||||||||||||
| Nuclear decommissioning trusts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity securities | 752 | — | — | 144 | 896 | 701 | — | — | 138 | 839 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed income securities | 105 | 362 | — | 92 | 559 | 115 | 359 | — | 89 | 563 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Private equity and other | — | — | — | 291 | 291 | — | — | — | 262 | 262 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Hedge funds and similar investments | 102 | 62 | — | — | 164 | 78 | 41 | — | — | 119 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Cash equivalents | 43 | — | — | — | 43 | 42 | — | — | — | 42 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other investments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity securities | 20 | — | — | — | 20 | 16 | — | — | — | 16 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Cash equivalents | 11 | — | — | — | 11 | 11 | — | — | — | 11 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative assets — FTRs | — | — | 14 | — | 14 | — | — | 11 | — | 11 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 1,042 | $ | 424 | $ | 14 | $ | 527 | $ | 2,007 | $ | 972 | $ | 400 | $ | 11 | $ | 489 | $ | 1,872 | |||||||||||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current | $ | 9 | $ | — | $ | 14 | $ | — | $ | 23 | $ | 9 | $ | — | $ | 11 | $ | — | $ | 20 | |||||||||||||||||||||||||||||||||||||||
| Noncurrent | 1,033 | 424 | — | 527 | 1,984 | 963 | 400 | — | 489 | 1,852 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total Assets | $ | 1,042 | $ | 424 | $ | 14 | $ | 527 | $ | 2,007 | $ | 972 | $ | 400 | $ | 11 | $ | 489 | $ | 1,872 | |||||||||||||||||||||||||||||||||||||||
_______________________________________
(a)Amounts represent assets valued at NAV as a practical expedient for fair value.
(b)Cash equivalents of $9 million are included in Restricted cash on DTE Electric's Consolidated Statements of Financial Position at June 30, 2023 and December 31, 2022.
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 $162 million and $177 million as of June 30, 2023 and December 31, 2022, respectively.
31
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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 that are valued using quotations from broker or pricing services.
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.
32
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
The following tables present the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for DTE Energy:
| Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| Natural Gas | Electricity | Other | Total | Natural Gas | Electricity | Other | Total | ||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net Assets (Liabilities) as of March 31 | $ | (62) | $ | (38) | $ | 2 | $ | (98) | $ | (230) | $ | (117) | $ | 6 | $ | (341) | |||||||||||||||||||||||||||||||
| Total gains (losses) | |||||||||||||||||||||||||||||||||||||||||||||||
Included in earnings(a) | 11 | 75 | 1 | 87 | (175) | 33 | 3 | (139) | |||||||||||||||||||||||||||||||||||||||
| Recorded in Regulatory liabilities | — | — | 14 | 14 | — | — | 28 | 28 | |||||||||||||||||||||||||||||||||||||||
| Purchases, issuances, and settlements | |||||||||||||||||||||||||||||||||||||||||||||||
| Settlements | (3) | (41) | (1) | (45) | 43 | (12) | (7) | 24 | |||||||||||||||||||||||||||||||||||||||
| Net Assets (Liabilities) as of June 30 | $ | (54) | $ | (4) | $ | 16 | $ | (42) | $ | (362) | $ | (96) | $ | 30 | $ | (428) | |||||||||||||||||||||||||||||||
Total gains (losses) included in Net Income attributed to the change in unrealized gains (losses) related to assets and liabilities held at June 30(a) | $ | (3) | $ | 49 | $ | (32) | $ | 14 | $ | (145) | $ | 25 | $ | (24) | $ | (144) | |||||||||||||||||||||||||||||||
| Total gains (losses) included in Regulatory liabilities attributed to the change in unrealized gains (losses) related to assets and liabilities held at June 30 | $ | — | $ | — | $ | 14 | $ | 14 | $ | — | $ | — | $ | 25 | $ | 25 | |||||||||||||||||||||||||||||||
(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.
| Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| Natural Gas | Electricity | Other | Total | Natural Gas | Electricity | Other | Total | ||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net Assets (Liabilities) as of December 31 | $ | (255) | $ | (33) | $ | 11 | $ | (277) | $ | (179) | $ | (45) | $ | 9 | $ | (215) | |||||||||||||||||||||||||||||||
| Transfers from Level 3 into Level 2 | — | — | — | — | 5 | — | 5 | ||||||||||||||||||||||||||||||||||||||||
| Total gains (losses) | |||||||||||||||||||||||||||||||||||||||||||||||
Included in earnings(a) | 162 | 30 | 2 | 194 | (347) | (18) | 7 | (358) | |||||||||||||||||||||||||||||||||||||||
| Recorded in Regulatory liabilities | — | — | 5 | 5 | — | — | 24 | 24 | |||||||||||||||||||||||||||||||||||||||
| Purchases, issuances, and settlements | |||||||||||||||||||||||||||||||||||||||||||||||
| Settlements | 39 | (1) | (2) | 36 | 159 | (33) | (10) | 116 | |||||||||||||||||||||||||||||||||||||||
| Net Assets (Liabilities) as of June 30 | $ | (54) | $ | (4) | $ | 16 | $ | (42) | $ | (362) | $ | (96) | $ | 30 | $ | (428) | |||||||||||||||||||||||||||||||
Total gains (losses) included in Net Income attributed to the change in unrealized gains (losses) related to assets and liabilities held at June 30a) | $ | 90 | $ | 68 | $ | (31) | $ | 127 | $ | (274) | $ | (39) | $ | (21) | $ | (334) | |||||||||||||||||||||||||||||||
| Total gains (losses) included in Regulatory liabilities attributed to the change in unrealized gains (losses) related to assets and liabilities held at June 30 | $ | — | $ | — | $ | 14 | $ | 14 | $ | — | $ | — | $ | 25 | $ | 25 | |||||||||||||||||||||||||||||||
_______________________________________
(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.
33
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (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:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Net Assets as of beginning of period | $ | 1 | $ | 3 | $ | 11 | $ | 9 | |||||||||||||||
| Total gains recorded in Regulatory liabilities | 14 | 28 | 5 | 24 | |||||||||||||||||||
| Purchases, issuances, and settlements | |||||||||||||||||||||||
| Settlements | (1) | (6) | (2) | (8) | |||||||||||||||||||
| Net Assets as of June 30 | $ | 14 | $ | 25 | $ | 14 | $ | 25 | |||||||||||||||
| Total gains (losses) included in Regulatory liabilities attributed to the change in unrealized gains (losses) related to assets and liabilities held at June 30 | $ | 14 | $ | 25 | $ | 14 | $ | 25 | |||||||||||||||
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 three and six months ended months ended June 30, 2023 and 2022.
The following tables present the unobservable inputs related to DTE Energy's Level 3 assets and liabilities:
| December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Commodity Contracts | Derivative Assets | Derivative Liabilities | Valuation Techniques | Unobservable Input | Range | Weighted Average | |||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Natural Gas | $ | 135 | $ | (390) | Discounted Cash Flow | Forward basis price (per MMBtu) | $ | (1.91) | — | $ | 39.94 | /MMBtu | $ | 0.18 | /MMBtu | ||||||||||||||||||||||||||||||||
| Electricity | $ | 243 | $ | (276) | Discounted Cash Flow | Forward basis price (per MWh) | $ | (29.41) | — | $ | 15.00 | /MWh | $ | (3.04) | /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.
34
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
Fair Value of Financial Instruments
The following table presents the carrying amount and fair value of financial instruments for DTE Energy:
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| 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 | $ | 111 | $ | — | $ | — | $ | 113 | $ | 80 | $ | — | $ | — | $ | 82 | |||||||||||||||||||||||||||||||
| Short-term borrowings | $ | 528 | $ | — | $ | 528 | $ | — | $ | 1,162 | $ | — | $ | 1,162 | $ | — | |||||||||||||||||||||||||||||||
Notes payable(b) | $ | 24 | $ | — | $ | — | $ | 24 | $ | 18 | $ | — | $ | — | $ | 18 | |||||||||||||||||||||||||||||||
Long-term debt(c) | $ | 19,221 | $ | 817 | $ | 15,364 | $ | 1,205 | $ | 17,978 | $ | 710 | $ | 14,084 | $ | 1,199 | |||||||||||||||||||||||||||||||
_______________________________________
(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:
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| 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) | $ | 2 | $ | — | $ | — | $ | 2 | $ | 17 | $ | — | $ | — | $ | 17 | |||||||||||||||||||||||||||||||
| Short-term borrowings — affiliates | $ | — | $ | — | $ | — | $ | — | $ | 27 | $ | — | $ | — | $ | 27 | |||||||||||||||||||||||||||||||
| Short-term borrowings — other | $ | 222 | $ | — | $ | 222 | $ | — | $ | 568 | $ | — | $ | 568 | $ | — | |||||||||||||||||||||||||||||||
Notes payable(b) | $ | 23 | $ | — | $ | — | $ | 23 | $ | 17 | $ | — | $ | — | $ | 17 | |||||||||||||||||||||||||||||||
Long-term debt(c) | $ | 10,965 | $ | — | $ | 9,615 | $ | 133 | $ | 9,696 | $ | — | $ | 8,289 | $ | 128 | |||||||||||||||||||||||||||||||
_______________________________________
(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 8 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.
The following table summarizes DTE Electric's fair value of the nuclear decommissioning trust fund assets:
| June 30, 2023 | December 31, 2022 | ||||||||||
| (In millions) | |||||||||||
| Fermi 2 | $ | 1,939 | $ | 1,807 | |||||||
| Fermi 1 | 3 | 3 | |||||||||
| Low-level radioactive waste | 11 | 15 | |||||||||
| $ | 1,953 | $ | 1,825 | ||||||||
35
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (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:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Realized gains | $ | 11 | $ | 32 | $ | 19 | $ | 46 | |||||||||||||||
| Realized losses | $ | (12) | $ | (18) | $ | (26) | $ | (23) | |||||||||||||||
| Proceeds from sale of securities | $ | 257 | $ | 306 | $ | 423 | $ | 513 | |||||||||||||||
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:
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||
| Fair Value | Unrealized Gains | Unrealized Losses | Fair Value | Unrealized Gains | Unrealized Losses | ||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||
| Equity securities | $ | 896 | $ | 420 | $ | (15) | $ | 839 | $ | 342 | $ | (23) | |||||||||||||||||||||||
| Fixed income securities | 559 | 3 | (39) | 563 | 1 | (56) | |||||||||||||||||||||||||||||
| Private equity and other | 291 | 69 | (6) | 262 | 63 | (5) | |||||||||||||||||||||||||||||
| Hedge funds and similar investments | 164 | 5 | (12) | 119 | — | (18) | |||||||||||||||||||||||||||||
| Cash equivalents | 43 | — | — | 42 | — | — | |||||||||||||||||||||||||||||
| $ | 1,953 | $ | 497 | $ | (72) | $ | 1,825 | $ | 406 | $ | (102) | ||||||||||||||||||||||||
The following table summarizes the fair value of the fixed income securities held in nuclear decommissioning trust funds by contractual maturity:
| June 30, 2023 | |||||
| (In millions) | |||||
| Due within one year | $ | 10 | |||
| Due after one through five years | 106 | ||||
| Due after five through ten years | 89 | ||||
| Due after ten years | 262 | ||||
| $ | 467 | ||||
Fixed income securities held in nuclear decommissioning trust funds include $92 million of non-publicly traded commingled funds that do not have a contractual maturity date.
Other Securities
At June 30, 2023 and December 31, 2022, DTE Energy's 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 is comprised primarily of trading securities recorded at fair value, as well as debt securities classified as held-to-maturity and recorded at amortized cost. The trust was established to fund certain non-qualified pension benefits, and therefore changes in market value of the trading securities and interest on the held-to-maturity securities 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. Gains (losses) related to the trading securities were immaterial for the three and six months ended June 30, 2023 and 2022.
36
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
NOTE 8 — 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, certain 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 2026. 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, power generation assets, and other customer specific energy solutions. Long-term contracts and hedging instruments are used in the marketing and management of the segment assets. These contracts and hedging instruments 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.
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 June 30, 2023 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.
37
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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.
The following table presents the fair value of derivative instruments for DTE Energy:
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Derivative Assets | Derivative Liabilities | Derivative Assets | Derivative Liabilities | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Derivatives designated as hedging instruments | |||||||||||||||||||||||
| Interest rate contracts | $ | 4 | $ | — | $ | 1 | $ | — | |||||||||||||||
| Foreign currency exchange contracts | — | (2) | — | (2) | |||||||||||||||||||
| Total derivatives designated as hedging instruments | $ | 4 | $ | (2) | $ | 1 | $ | (2) | |||||||||||||||
| Derivatives not designated as hedging instruments | |||||||||||||||||||||||
| Commodity contracts | |||||||||||||||||||||||
| Natural gas | $ | 501 | $ | (583) | $ | 744 | $ | (1,018) | |||||||||||||||
| Electricity | 497 | (487) | 963 | (935) | |||||||||||||||||||
| Environmental & Other | 354 | (357) | 213 | (214) | |||||||||||||||||||
| Foreign currency exchange contracts | — | — | 1 | — | |||||||||||||||||||
| Total derivatives not designated as hedging instruments | $ | 1,352 | $ | (1,427) | $ | 1,921 | $ | (2,167) | |||||||||||||||
| Current | $ | 955 | $ | (918) | $ | 1,517 | $ | (1,535) | |||||||||||||||
| Noncurrent | 401 | (511) | 405 | (634) | |||||||||||||||||||
| Total derivatives | $ | 1,356 | $ | (1,429) | $ | 1,922 | $ | (2,169) | |||||||||||||||
The fair value of derivative instruments at DTE Electric was $14 million and $11 million at June 30, 2023 and December 31, 2022, respectively, comprised of FTRs recorded to Current Assets - Other on the Consolidated Statements of Financial Position and not designated as hedging instruments.
38
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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 no of letters of credit issued and outstanding at June 30, 2023 and $81 million at December 31, 2022, 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 $33 million and $82 million at June 30, 2023 and December 31, 2022, 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:
| June 30, 2023 | December 31, 2022 | ||||||||||
| (In millions) | |||||||||||
| Cash collateral netted against Derivative assets | $ | — | $ | (90) | |||||||
| Cash collateral netted against Derivative liabilities | 66 | 113 | |||||||||
Cash collateral recorded in Accounts receivable(a) | 53 | 77 | |||||||||
Cash collateral recorded in Accounts payable(a) | (3) | (27) | |||||||||
| Total net cash collateral posted (received) | $ | 116 | $ | 73 | |||||||
_______________________________________
(a)Amounts are recorded net by counterparty.
39
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
The following table presents the netting offsets of Derivative assets and liabilities for DTE Energy:
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||
| 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(a) | |||||||||||||||||||||||||||||||||||
| Natural gas | $ | 501 | $ | (335) | $ | 166 | $ | 744 | $ | (649) | $ | 95 | |||||||||||||||||||||||
| Electricity | 497 | (311) | 186 | 963 | (643) | 320 | |||||||||||||||||||||||||||||
| Environmental & Other | 354 | (340) | 14 | 213 | (196) | 17 | |||||||||||||||||||||||||||||
| Interest rate contracts | 4 | — | 4 | 1 | — | 1 | |||||||||||||||||||||||||||||
| Foreign currency exchange contracts | — | — | — | 1 | (1) | — | |||||||||||||||||||||||||||||
| Total derivative assets | $ | 1,356 | $ | (986) | $ | 370 | $ | 1,922 | $ | (1,489) | $ | 433 | |||||||||||||||||||||||
| Derivative liabilities | |||||||||||||||||||||||||||||||||||
Commodity contracts(a) | |||||||||||||||||||||||||||||||||||
| Natural gas | $ | (583) | $ | 350 | $ | (233) | $ | (1,018) | $ | 645 | $ | (373) | |||||||||||||||||||||||
| Electricity | (487) | 352 | (135) | (935) | 665 | (270) | |||||||||||||||||||||||||||||
| Environmental & Other | (357) | 350 | (7) | (214) | 201 | (13) | |||||||||||||||||||||||||||||
| Foreign currency exchange contracts | (2) | — | (2) | (2) | 1 | (1) | |||||||||||||||||||||||||||||
| Total derivative liabilities | $ | (1,429) | $ | 1,052 | $ | (377) | $ | (2,169) | $ | 1,512 | $ | (657) | |||||||||||||||||||||||
_______________________________________
(a)For contracts with a clearing agent, DTE Energy nets all activity across commodities. This can result in some individual commodities having a contra balance.
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:
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Assets | Derivative Liabilities | Derivative Assets | Derivative Liabilities | ||||||||||||||||||||||||||||||||||||||||||||
| Current | Noncurrent | Current | Noncurrent | Current | Noncurrent | Current | Noncurrent | ||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Total fair value of derivatives | $ | 955 | $ | 401 | $ | (918) | $ | (511) | $ | 1,517 | $ | 405 | $ | (1,535) | $ | (634) | |||||||||||||||||||||||||||||||
| Counterparty netting | (697) | (289) | 697 | 289 | (1,127) | (272) | 1,127 | 272 | |||||||||||||||||||||||||||||||||||||||
| Collateral adjustment | — | — | 35 | 31 | (62) | (28) | 66 | 47 | |||||||||||||||||||||||||||||||||||||||
| Total derivatives as reported | $ | 258 | $ | 112 | $ | (186) | $ | (191) | $ | 328 | $ | 105 | $ | (342) | $ | (315) | |||||||||||||||||||||||||||||||
40
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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 the Three Months Ended June 30, | Gain (Loss) Recognized in Income on Derivatives for the Six Months Ended June 30, | ||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
| Commodity contracts | ||||||||||||||||||||||||||||||||
| Natural gas | Operating Revenues — Non-utility operations | $ | 59 | $ | (32) | $ | 130 | $ | (263) | |||||||||||||||||||||||
| Natural gas | Fuel, purchased power, gas, and other — non-utility | (65) | (165) | 83 | (100) | |||||||||||||||||||||||||||
| Electricity | Operating Revenues — Non-utility operations | 60 | 110 | (55) | 112 | |||||||||||||||||||||||||||
| Environmental & Other | Operating Revenues — Non-utility operations | — | 22 | (1) | 18 | |||||||||||||||||||||||||||
| Foreign currency exchange contracts | Operating Revenues — Non-utility operations | (1) | 2 | (1) | — | |||||||||||||||||||||||||||
| Total | $ | 53 | $ | (63) | $ | 156 | $ | (233) | ||||||||||||||||||||||||
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 June 30, 2023:
| Commodity | Number of Units | |||||||
| Natural gas (MMBtu) | 2,121,182,323 | |||||||
| Electricity (MWh) | 45,914,461 | |||||||
| Oil (Gallons) | 5,688,000 | |||||||
| Foreign currency exchange ($ CAD) | 159,105,250 | |||||||
| FTR (MWh) | 140,020 | |||||||
| Renewable Energy Certificates (MWh) | 11,341,187 | |||||||
| Carbon emissions (Metric Tons) | 1,413,896 | |||||||
| Interest rate contracts ($ USD) | 500,000,000 | |||||||
Various subsidiaries of DTE Energy have entered into derivative and non-derivative 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, and environmental) and the provisions and maturities of the underlying transactions. As of June 30, 2023, 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 $448 million.
As of June 30, 2023, DTE Energy had $1.2 billion of derivatives in net liability positions, for which hard triggers exist. There is $47 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 $958 million. The net remaining amount of $165 million is derived from the $448 million noted above.
41
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
NOTE 9 — LONG-TERM DEBT
Debt Issuances
In 2023, the following debt was issued:
| Company | Month | Type | Interest Rate | Maturity Date | Amount | |||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
| DTE Electric | March | Mortgage bonds(a) | 5.20% | 2033 | $ | 600 | ||||||||||||||||||||||||||
| DTE Electric | March | Mortgage bonds(a) | 5.40% | 2053 | 600 | |||||||||||||||||||||||||||
| DTE Energy | March | Term loan facility draw(b) | Variable | 2023 | 200 | |||||||||||||||||||||||||||
| DTE Energy | May | Senior notes(c) | 4.875% | 2028 | 800 | |||||||||||||||||||||||||||
| DTE Electric | June | Tax-exempt revenue bonds(d) | 3.875% | 2053 | 100 | |||||||||||||||||||||||||||
| $ | 2,300 | |||||||||||||||||||||||||||||||
_______________________________________
(a)Proceeds used for the repayment of short-term borrowings, for capital expenditures, and for other general corporate purposes.
(b)Proceeds used for general corporate purposes.
(c)Proceeds used for the repayment of amounts outstanding under the term loan facility.
(d)Tax-exempt revenue bonds are issued by a public body that loans the proceeds to DTE Electric with terms substantially mirroring the revenue bonds. Proceeds were used to finance costs relating to solid waste disposal facilities at the Monroe and St. Clair power plants. The bonds will be subject to mandatory tender in June 2030.
In June 2022, DTE Energy entered into a $1.125 billion unsecured term loan with a maturity date of December 2023. Any borrowings on the loan were determined to be long-term debt, as the term of the facility exceeded one year. Through the first quarter 2023, DTE Energy had drawn $1.0 billion on the term loan, bearing interest at SOFR plus 0.90% per annum. These borrowings were repaid in May and June 2023, as noted in the debt redemptions table below. Unused term loan capacity of $125 million terminated in June 2023 per the terms of the credit agreement.
Debt Redemptions
In 2023, the following debt was redeemed:
| Company | Month | Type | Interest Rate | Maturity Date | Amount | |||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
| DTE Gas | April | Senior notes | 6.44% | 2023 | $ | 25 | ||||||||||||||||||||||||||
| DTE Energy | May | Term loan facility | Variable | 2023 | 800 | |||||||||||||||||||||||||||
| DTE Electric | June | Securitization bonds | 2.64% | 2023 | 19 | |||||||||||||||||||||||||||
| DTE Energy | June | Term loan facility | Variable | 2023 | 200 | |||||||||||||||||||||||||||
| $ | 1,044 | |||||||||||||||||||||||||||||||
42
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
NOTE 10 — 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. Letters of credit of up to $500 million may also be issued under the DTE Energy revolver. DTE Energy and DTE Electric also have other facilities to support letter of credit issuance and increase liquidity.
The unsecured revolving credit agreements require a total funded debt to capitalization ratio of no more than 0.70 to 1 for DTE Energy and 0.65 to 1 for DTE Electric and DTE Gas. 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 June 30, 2023, the total funded debt to total capitalization ratios for DTE Energy, DTE Electric, and DTE Gas were 0.64 to 1, 0.53 to 1, and 0.46 to 1, respectively, and were in compliance with this financial covenant.
During May 2023, DTE Energy paid the amount outstanding and terminated its unsecured Canadian revolving credit facility. In June 2023, DTE Energy entered into a new $100 million uncommitted letter of credit facility, with availability to either DTE Energy or DTE Electric. DTE Energy also amended the terms of several other letter of credit facilities, including capacity and maturity date.
The availability under these facilities as of June 30, 2023 is shown in the following table:
| DTE Energy | DTE Electric | DTE Gas | Total | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Unsecured revolving credit facility, expiring October 2027 | $ | 1,500 | $ | 800 | $ | 300 | $ | 2,600 | |||||||||||||||
| Unsecured letter of credit facility, expiring June 2024 | 275 | — | — | 275 | |||||||||||||||||||
| Unsecured letter of credit facility, expiring February 2025 | 150 | — | — | 150 | |||||||||||||||||||
Unsecured letter of credit facility(a) | 100 | — | — | 100 | |||||||||||||||||||
Unsecured letter of credit facility(b) | — | 100 | — | 100 | |||||||||||||||||||
| 2,025 | 900 | 300 | 3,225 | ||||||||||||||||||||
| Amounts outstanding at June 30, 2023 | |||||||||||||||||||||||
| Commercial paper issuances | 306 | 222 | — | 528 | |||||||||||||||||||
| Letters of credit | 289 | — | — | 289 | |||||||||||||||||||
| 595 | 222 | — | 817 | ||||||||||||||||||||
| Net availability at June 30, 2023 | $ | 1,430 | $ | 678 | $ | 300 | $ | 2,408 | |||||||||||||||
_______________________________________
(a)Uncommitted letter of credit facility with automatic renewal provision and therefore no expiration.
(b)Uncommitted letter of credit facility with automatic renewal provision and therefore no expiration. DTE Energy may also utilize availability under this facility.
In conjunction with maintaining certain exchange-traded risk management positions, DTE Energy may be required to post collateral with a clearing agent. DTE Energy has a demand financing agreement with its clearing agent, which allows the right of setoff with posted collateral. At June 30, 2023, the capacity under the facility was $200 million. The amounts outstanding under demand financing agreements were $130 million and $166 million at June 30, 2023 and December 31, 2022, respectively, and were fully offset by posted collateral.
43
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
NOTE 11 — LEASES
Lessor
Interest income recognized under finance leases was $7 million and $6 million for the three months ended June 30, 2023 and 2022, respectively, and $14 million and $11 million for the six months ended June 30, 2023 and 2022, respectively.
DTE Energy’s lease income associated with operating leases, included in Operating Revenues — Non-utility operations in the Consolidated Statements of Operations, was as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Fixed payments | $ | 3 | $ | 4 | $ | 7 | $ | 8 | |||||||||||||||
| Variable payments | 7 | 15 | 18 | 31 | |||||||||||||||||||
| $ | 10 | $ | 19 | $ | 25 | $ | 39 | ||||||||||||||||
NOTE 12 — 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 rule making may occur over the next few years which could require additional controls for SO2, NOX, and other hazardous air pollutants.
In 2015, the EPA finalized National Ambient Air Quality Standards ("NAAQS") for ground level ozone. In August 2018, the EPA designated southeast Michigan as "marginal non-attainment" with the 2015 ozone NAAQS. In January 2022, after collecting several years of data, the State submitted a request to the EPA for redesignation of the southeast Michigan ozone non-attainment area to attainment, and to accept their maintenance plan and emission inventories as a revision to the Michigan SIP. On May 19, 2023, the EPA posted in the Federal Register the redesignation of attainment of the ozone standard for the seven-county Southeast Michigan region. DTE Electric does not expect a significant financial impact related to the ozone NAAQS at this time, pending finalization of the state rules and implementation plans.
In May 2023, the EPA proposed new rules to address emissions of GHGs from existing, new, modified, or reconstructed sources in the power sector. DTE Electric is reviewing the proposal and working with industry partners to provide comments on the proposed rules. The financial impact cannot be estimated until a final rule is issued, which is currently expected in the second half of 2024.
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. Potential 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.
44
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
Water — In response to EPA regulations and in accordance with the Clean Water Act section 316(b), DTE Electric was required to examine alternatives for reducing the environmental impacts of the cooling water intake structures at several of its facilities. A final rule became effective in October 2014, which required 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 completed the required studies and submitted reports for most of its generation plants, and a final study is in-process for Monroe power plant. Final compliance for the installation of any required technology to reduce the impacts of water intake structures 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 determining 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.
As part of the Monroe power plant NPDES permit, EGLE has added requirements to evaluate the thermal discharge of the facility as it relates to Clean Water Act section 316(a) regulations. DTE Electric will submit to EGLE a biological demonstration study plan to evaluate the thermal discharge impacts to an aquatic community. After approval of the plan by EGLE and completion of field sampling, data will be processed and compiled into a comprehensive report. At the present time, DTE Electric cannot predict the outcome of this evaluation or financial impact.
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 that 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 June 30, 2023 and December 31, 2022, DTE Electric had $10 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 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.
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 has continued to be updated in subsequent years. 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 August 28, 2020, Part A of the CCR rule was published in the Federal Register and required all unlined impoundments to initiate closure as soon as technically feasible, but no later than April 11, 2021. Additionally, the rule amends certain reporting requirements and CCR website requirements. On November 12, 2020, Part B of the CCR Rule was published in the Federal Register and provides a process to determine if certain unlined impoundments with an alternative liner system may be sufficiently protective and therefore may continue to operate.
DTE Electric submitted applications to the EPA that support continued use of all impoundments through their active lives. The forced closure date of April 11, 2021 was effectively delayed, pending the EPA completing review of the applications. On September 1, 2022, DTE Electric ceased receipt of CCR and non-CCR waste streams at the St. Clair power plant bottom ash basins and initiated closure. Therefore, DTE Electric withdrew the Part A rule demonstration for St. Clair, as it was no longer necessary for the EPA to issue an extension of the April 11, 2021 deadline to cease receipt of waste.
On January 25, 2023, DTE Electric received notice of the EPA's proposed denial of Part B applications. DTE Electric provided comments on April 10, 2023, in response to the proposed decision. If the EPA's final decision remains unchanged, DTE Electric does not expect the denied applications to have a significant operational or financial impact; however, DTE Electric is continuing to review and analyze potential outcomes of this matter.
45
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
On May 18, 2023, the EPA posted in the Federal Register a proposed rule to regulate legacy CCR surface impoundments and CCR management units. The rule proposes to expand the reach of the CCR rule to inactive electric generation sites and previously unregulated locations of CCR at a regulated facility. DTE Electric is currently evaluating the proposed rule. The financial impact of the proposed rule cannot be estimated until a final rule is issued, which is currently expected in mid-2024.
At the State level, legislation was signed 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 the State program that may be approved in the future.
On October 13, 2020, the EPA finalized the ELG Reconsideration Rule which revised the regulations from the 2015 ELG rule for FGD wastewater and bottom ash transport water only. 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 meet the compliance requirements.
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 a 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 December 31, 2028 and the VIP for FGD wastewater at Monroe power plant by December 31, 2028.
On March 29, 2023, the EPA published two draft proposals to revise existing ELG rules. The first draft proposal would reopen the cessation of coal compliance subcategory from the 2020 ELG rule and allow for compliance by committing to such cessation no later than December 31, 2028. This proposal was finalized by the EPA on May 30, 2023. The second draft proposal is a broader update to the ELG rules that includes revised compliance standards for FGD wastewater, bottom ash transport water, and other wastewater streams with a compliance date no later than December 31, 2029. DTE Electric's compliance strategy includes the proposed conversion of the two generating units at the Belle River power plant to a natural gas peaking resource in 2025-2026, which was included in the NOPP filed in 2021. DTE Electric also submitted a new NOPP to apply for the cessation of coal compliance subcategory for generating units 3 and 4 at the Monroe power plant. DTE Electric plans to retire Monroe's generating units 1 and 2 in 2032, pending approval by the MPSC.
DTE Electric continues to evaluate compliance strategies, technologies and system designs to achieve compliance with the EPA rules at the Monroe power plant.
DTE Electric currently estimates the impact of the CCR and ELG rules to be $481 million of capital expenditures, including $416 million for 2023 through 2027. This estimate may change in future periods as DTE Electric continues to evaluate the proposed EPA rule from May 18, 2023 to regulate legacy CCR surface impoundments and CCR management units, as noted above.
46
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
DTE Gas
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 MGP sites is complete and those 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 June 30, 2023 and December 31, 2022, DTE Gas had $20 million and $23 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 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.
Air — The EPA recently finalized its Good Neighbor Rule, which includes provisions for compressor engines operated for the transportation of natural gas. DTE Gas is assessing the applicability of the rule on its engines and what impacts that could have on operations. DTE Gas has not determined whether there will be a financial impact at this time.
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 Battery, LLC ("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 permitting 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 responded to the EPA's September 2020 allegations demonstrating its actual emissions are compliant with non-attainment new source review requirements. On June 1, 2022, the U.S. Department of Justice, on behalf of the EPA, filed a complaint against EES Coke in the U.S. District Court for the Eastern District of Michigan alleging that EES Coke failed to comply with non-attainment new source review requirements under the Clean Air Act when it applied for the 2014 permit. In November 2022, the Sierra Club and City of River Rouge were granted intervention. At the present time, DTE Energy cannot predict the outcome or financial impact of this matter.
Separately, in December 2021, EGLE issued a Notice of Violation to EES Coke alleging excess visible emissions from pushing operations. In January 2022, EES Coke provided EGLE a response describing the corrective actions taken to prevent future recurrences. At the present time, EES Coke cannot predict the outcome or financial impact of this matter.
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.
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 in 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. On June 1, 2022, the EPA published a Federal Implementation Plan (FIP) which aligned with the partial approval and partial disapproval of the State's plan. The proposed FIP underwent a public comment period and was finalized on September 30, 2022. No DTE Electric sources were materially impacted by the final FIP.
47
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
Michigan's Phase 2 non-attainment area includes DTE Electric facilities in St. Clair County. The EPA approved a clean data determination request submitted by EGLE. This determination suspends certain planning requirements and sanctions for the non-attainment area for as long as the area continues to attain the 2010 SO2 air quality standards, but 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.
REF Guarantees
DTE Energy provided certain guarantees and indemnities in conjunction with the sales of interests in or lease of its previously operated 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 June 30, 2023 was $414 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 June 30, 2023. 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 June 30, 2023, DTE Energy had $313 million of performance bonds outstanding, including $138 million for DTE Electric. Performance bonds are not individually material, except for $130 million of bonds supporting Energy Trading operations. These bonds are meant to provide counterparties with additional assurance that Energy Trading will meet its contractual obligations for various commercial transactions. The terms of the bonds align with those of the underlying Energy Trading contracts and are estimated to be outstanding approximately 1 to 3 years. In the event that any performance 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 4,950 represented employees, including DTE Electric's approximately 2,550 represented employees. This represents 49% and 56% of DTE Energy's and DTE Electric's total employees, respectively. Of these represented employees, approximately 1% have contracts expiring within one year for DTE Energy. None of the represented employees have contracts expiring within one year for DTE Electric.
Purchase Commitments
Utility capital expenditures and expenditures for non-utility businesses will be approximately $4.2 billion and $3.2 billion in 2023 for DTE Energy and DTE Electric, respectively. The Registrants have made certain commitments in connection with the estimated 2023 annual capital expenditures
Ludington Plant Contract Dispute
DTE Electric and Consumers Energy Company ("Consumers"), joint owners of the Ludington Hydroelectric Pumped Storage plant ("Ludington"), are parties to a 2010 engineering, procurement, and construction agreement with Toshiba America Energy Systems ("TAES"), under which TAES contracted to perform a major overhaul and upgrade of Ludington. The overhauled Ludington units are operational, but TAES' work has been defective and non-conforming. DTE Electric and Consumers have demanded that TAES provide a comprehensive plan to resolve quality control concerns, including adherence to its warranty commitments and other contractual obligations. DTE Electric and Consumers have taken extensive efforts to resolve these issues with TAES, including a formal demand to TAES' parent, Toshiba Corporation, under a parent guaranty it provided in the contract. TAES has not provided a comprehensive plan or otherwise met its performance obligations. In order to enforce the contract, DTE Electric and Consumers filed a complaint against TAES and Toshiba Corporation in the U.S. District Court for the Eastern District of Michigan in April 2022.
48
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
In June 2022, TAES and Toshiba Corporation filed a motion to dismiss the complaint, along with counterclaims seeking approximately $15 million in damages related to payments allegedly owed under the parties' contract. During September 2022, the motion to dismiss the complaint was denied. DTE Electric believes the outstanding counterclaims are without merit, but would be liable for 49% of the damages if approved. In October 2022, the combined parties submitted a joint discovery plan to proceed with the litigation process and a potential trial during the second half of 2024. DTE Electric cannot predict the financial impact or outcome of this matter.
Refer to the Ludington Accounting Application section within Note 5 to the Consolidated Financial Statements, "Regulatory Matters," for additional information regarding costs to address TAES defective work and regulatory accounting treatment.
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 5 and 8 to the Consolidated Financial Statements, "Regulatory Matters" and "Financial and Other Derivative Instruments," respectively.
49
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
NOTE 13 — RETIREMENT BENEFITS AND TRUSTEED ASSETS
DTE Energy's subsidiary, DTE Energy Corporate Services, LLC, sponsors defined benefit pension plans and other postretirement benefit plans covering certain employees of the Registrants. Participants of all plans are solely DTE Energy and affiliate participants.
The following tables detail the components of net periodic benefit costs (credits) for pension benefits and other postretirement benefits for DTE Energy:
| Pension Benefits | Other Postretirement Benefits | ||||||||||||||||||||||
| Three Months Ended June 30, | |||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Service cost | $ | 14 | $ | 23 | $ | 5 | $ | 7 | |||||||||||||||
| Interest cost | 53 | 42 | 16 | 12 | |||||||||||||||||||
| Expected return on plan assets | (87) | (86) | (27) | (31) | |||||||||||||||||||
| Amortization of: | |||||||||||||||||||||||
| Net actuarial loss | 1 | 28 | 2 | 1 | |||||||||||||||||||
| Prior service credit | — | — | (6) | (5) | |||||||||||||||||||
| Settlements | 5 | — | — | — | |||||||||||||||||||
| Net periodic benefit cost (credit) | $ | (14) | $ | 7 | $ | (10) | $ | (16) | |||||||||||||||
| Pension Benefits | Other Postretirement Benefits | ||||||||||||||||||||||
| Six Months Ended June 30, | |||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Service cost | $ | 28 | $ | 47 | $ | 9 | $ | 14 | |||||||||||||||
| Interest cost | 107 | 83 | 32 | 24 | |||||||||||||||||||
| Expected return on plan assets | (175) | (173) | (55) | (63) | |||||||||||||||||||
| Amortization of: | |||||||||||||||||||||||
| Net actuarial loss | 3 | 57 | 5 | 2 | |||||||||||||||||||
| Prior service credit | (1) | — | (10) | (10) | |||||||||||||||||||
| Settlements | 7 | — | — | — | |||||||||||||||||||
| Net periodic benefit cost (credit) | $ | (31) | $ | 14 | $ | (19) | $ | (33) | |||||||||||||||
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 that 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. For service costs recognized in earnings, these costs have historically been presented in Operation and maintenance in the Registrants' Consolidated Statements of Operations. For non-service costs recognized in earnings, these costs have historically been presented in Other (Income) and Deductions — Non-operating retirement benefits, net in DTE Energy's Consolidated Statements of Operations and Operation and maintenance in DTE Electric's Consolidated Statements of Operations.
In November 2022, DTE Electric received a rate order from the MPSC approving the deferral of qualified pension plan service and non-service costs that were previously being recognized in earnings. Therefore, the Registrants are recording these costs as Regulatory assets beginning in December 2022.
50
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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 regulatory assets, operation and maintenance expense, other income and deductions, and capital expenditures was a credit of $7 million and $16 million for the three and six months ended June 30, 2023, and a cost of $9 million and $18 million for the three and six months ended June 30, 2022. These amounts may include recognized contractual termination benefit charges, curtailment gains, and settlement charges.
The following table details the components of net periodic benefit costs (credits) for other postretirement benefits for DTE Electric:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Service cost | $ | 4 | $ | 5 | $ | 7 | $ | 10 | |||||||||||||||
| Interest cost | 13 | 9 | 25 | 18 | |||||||||||||||||||
| Expected return on plan assets | (19) | (21) | (37) | (42) | |||||||||||||||||||
| Amortization of: | |||||||||||||||||||||||
| Net actuarial loss | — | 1 | — | 2 | |||||||||||||||||||
| Prior service credit | (4) | (3) | (7) | (6) | |||||||||||||||||||
| Net periodic benefit credit | $ | (6) | $ | (9) | $ | (12) | $ | (18) | |||||||||||||||
Pension and Other Postretirement Contributions
No contributions are currently expected for DTE Energy's qualified pension plans or postretirement benefit plans in 2023. Plans may be updated at the discretion of management and depending on economic and financial market conditions. DTE Energy anticipates a transfer of up to $50 million of qualified pension plan funds from DTE Gas to DTE Electric during 2023 in exchange for cash consideration.
NOTE 14 — 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 is comprised primarily of renewable energy projects that sell electricity and pipeline-quality gas and projects that deliver custom energy solutions to industrial, commercial, and institutional customers.
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.
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DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
Inter-segment billing for goods and services exchanged between segments is based upon tariffed or market-based prices of the provider. Such billing primarily consists of power sales, sale and transportation of natural gas, and renewable natural gas sales in the segments below, as well as charges from Electric to other segments for use of the shared capital assets of DTE Electric.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Electric | $ | 18 | $ | 18 | $ | 35 | $ | 34 | |||||||||||||||
| Gas | 4 | 3 | 9 | 6 | |||||||||||||||||||
| DTE Vantage | 9 | 17 | 19 | 42 | |||||||||||||||||||
| Energy Trading | 18 | 22 | 45 | 39 | |||||||||||||||||||
| Corporate and Other | — | — | — | — | |||||||||||||||||||
| $ | 49 | $ | 60 | $ | 108 | $ | 121 | ||||||||||||||||
All inter-segment transactions and balances are eliminated in consolidation for DTE Energy. 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.
Financial data of DTE Energy's business segments follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Operating Revenues — Utility operations | |||||||||||||||||||||||
| Electric | $ | 1,326 | $ | 1,566 | $ | 2,701 | $ | 3,052 | |||||||||||||||
| Gas | 311 | 362 | 1,018 | 1,128 | |||||||||||||||||||
| Operating Revenues — Non-utility operations | |||||||||||||||||||||||
| Electric | 3 | 4 | 7 | 8 | |||||||||||||||||||
| DTE Vantage | 189 | 220 | 373 | 399 | |||||||||||||||||||
| Energy Trading | 904 | 2,832 | 2,472 | 5,035 | |||||||||||||||||||
| Corporate and Other | — | — | — | — | |||||||||||||||||||
| Reconciliation and Eliminations | (49) | (60) | (108) | (121) | |||||||||||||||||||
| Total | $ | 2,684 | $ | 4,924 | $ | 6,463 | $ | 9,501 | |||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Net Income (Loss) Attributable to DTE Energy by Segment | |||||||||||||||||||||||
| Electric | $ | 178 | $ | 186 | $ | 279 | $ | 387 | |||||||||||||||
| Gas | 24 | 6 | 195 | 202 | |||||||||||||||||||
| DTE Vantage | 26 | 28 | 53 | 42 | |||||||||||||||||||
| Energy Trading | 31 | (127) | 169 | (136) | |||||||||||||||||||
| Corporate and Other | (58) | (56) | (50) | (64) | |||||||||||||||||||
| Net Income Attributable to DTE Energy Company | $ | 201 | $ | 37 | $ | 646 | $ | 431 | |||||||||||||||
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Item 2. 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 and 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.
The following table summarizes DTE Energy's financial results:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions, except per share amounts) | |||||||||||||||||||||||
| Net Income Attributable to DTE Energy Company | $ | 201 | $ | 37 | $ | 646 | $ | 431 | |||||||||||||||
| Diluted Earnings per Common Share | $ | 0.97 | $ | 0.19 | $ | 3.13 | $ | 2.22 | |||||||||||||||
The increases in Net Income Attributable to DTE Energy Company for both the three and six months ended June 30, 2023 were primarily due to higher earnings in the Energy Trading segment. The increase for the six-month period was also due to higher earnings in the DTE Vantage and Corporate and Other segments, partially offset by lower earnings in the Electric and Gas segments.
STRATEGY
DTE Energy's strategy is to achieve long-term earnings per share growth with a strong balance sheet and 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. Increasing intensity of wind storms and other weather events, coupled with increasing electric vehicle adoption, will drive a continued need for substantial grid investment over the long-term.
DTE Energy plans to reduce the carbon emissions of its electric utility operations by 32% by the end of 2023, 65% in 2028, 85% in 2032, and 90% by 2040 from 2005 carbon emissions levels. DTE Energy plans to end its use of coal-fired power plants in 2032, pending approval by the MPSC, and is committed to a net zero carbon emissions goal by 2050 for its electric and gas utility operations.
To achieve the targeted carbon reduction goals at the electric utility, DTE Energy will continue its transition away from coal-powered energy sources and is replacing or offsetting the generation from these facilities with renewable energy, natural gas, battery storage, 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 advancement of emerging technologies such as long-duration storage, modular nuclear reactors, and carbon capture and sequestration, and how these technologies may support clean, reliable generation and customer affordability.
For the gas utility, DTE Energy aims to cut carbon emissions across the entire value chain. DTE Energy plans to reduce the carbon emissions from its gas utility operations by 65% by 2030 and 80% by 2040, and is committed to a goal of net zero emissions by 2050 from internal gas operations and gas suppliers. To achieve net zero, 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 also aims to help DTE Gas customers reduce their emissions by approximately 35% by 2040 by increasing energy efficiency, pursuing advanced technologies such as hydrogen and carbon capture and sequestration, and through the CleanVision Natural Gas Balance program which provides customers the option to use carbon offsets and renewable natural gas.
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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 expects its goals for customer affordability to be aided by operational efficiencies and new opportunities resulting from the Inflation Reduction Act enacted in August 2022. Such opportunities include tax credits for renewable energy, nuclear generation, energy storage, and carbon capture and sequestration, which are expected to reduce the cost of owning related assets and reduce customer rate impacts from any future cost recoveries. 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 attractive returns and 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 financing. 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 will 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 achieve goals for carbon emission reductions. Capital plans may be regularly updated as these requirements and goals evolve and may be subject to regulatory approval.
DTE Electric's capital investments over the 2023-2027 period are estimated at $18 billion, comprised of $9 billion for distribution infrastructure, $4 billion for base infrastructure, and $5 billion for cleaner generation including renewables. DTE Electric has retired all eleven coal-fired generation units at the Trenton Channel, River Rouge, and St. Clair facilities and has announced plans to retire its remaining six coal-fired generating units. DTE Electric plans to convert the two units at the Belle River facility from a base load coal plant to a natural gas peaking resource in 2025-2026. The four units at the Monroe facility are expected to be retired in two stages in 2028 and 2032. Generation from the retired facilities will continue to be replaced or offset with a combination of renewables, energy waste reduction, demand response, battery storage, and natural gas fueled generation.
DTE Gas' capital investments over the 2023-2027 period are estimated at $3.6 billion, comprised of $2.0 billion for base infrastructure and $1.6 billion for the gas renewal program, which includes main and service renewals, meter move-out, and pipeline integrity projects.
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 $1.0 billion to $1.5 billion from 2023-2027 for renewable energy projects and custom energy solutions, while expanding into carbon capture and sequestration.
ENVIRONMENTAL MATTERS
The Registrants are subject to extensive environmental regulations, including those addressing 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.
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.
For further discussion of environmental matters, see Note 12 to the Consolidated Financial Statements, "Commitments and Contingencies."
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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 storage;
•gas distribution system renewal;
•reducing carbon emissions at the electric and gas utilities;
•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 wellbeing, and diversity, equity, and inclusion;
•cost structure optimization across all business segments; and
•cash, capital, and liquidity to maintain or improve financial strength.
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.
RESULTS OF OPERATIONS
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.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Net Income (Loss) Attributable to DTE Energy by Segment | |||||||||||||||||||||||
| Electric | $ | 178 | $ | 186 | $ | 279 | $ | 387 | |||||||||||||||
| Gas | 24 | 6 | 195 | 202 | |||||||||||||||||||
| DTE Vantage | 26 | 28 | 53 | 42 | |||||||||||||||||||
| Energy Trading | 31 | (127) | 169 | (136) | |||||||||||||||||||
| Corporate and Other | (58) | (56) | (50) | (64) | |||||||||||||||||||
| Net Income Attributable to DTE Energy Company | $ | 201 | $ | 37 | $ | 646 | $ | 431 | |||||||||||||||
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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 H(2) of Form 10-Q.
The Electric segment consists principally of DTE Electric. Electric results and outlook are discussed below:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Operating Revenues | |||||||||||||||||||||||
| Utility operations | $ | 1,326 | $ | 1,566 | $ | 2,701 | $ | 3,052 | |||||||||||||||
| Non-utility operations | 3 | 4 | 7 | 8 | |||||||||||||||||||
| 1,329 | 1,570 | 2,708 | 3,060 | ||||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Fuel and purchased power — utility | 313 | 513 | 675 | 950 | |||||||||||||||||||
| Operation and maintenance | 313 | 391 | 723 | 779 | |||||||||||||||||||
| Depreciation and amortization | 332 | 305 | 652 | 602 | |||||||||||||||||||
| Taxes other than income | 83 | 84 | 168 | 172 | |||||||||||||||||||
| 1,041 | 1,293 | 2,218 | 2,503 | ||||||||||||||||||||
| Operating Income | 288 | 277 | 490 | 557 | |||||||||||||||||||
| Other (Income) and Deductions | 91 | 88 | 175 | 164 | |||||||||||||||||||
| Income Tax Expense | 19 | 3 | 36 | 6 | |||||||||||||||||||
| Net Income Attributable to DTE Energy Company | $ | 178 | $ | 186 | $ | 279 | $ | 387 | |||||||||||||||
See DTE Electric's Consolidated Statements of Operations 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 (some of which includes intra-segment activity that is eliminated in consolidation) and the classification of certain benefit costs. Refer to Note 13 to the Consolidated Financial Statements, "Retirement Benefits and Trusteed Assets" for additional information.
Operating Revenues decreased $241 million and $352 million in the three and six months ended June 30, 2023, respectively. Revenues associated with certain mechanisms and surcharges, including recovery of fuel and purchased power, are offset by related expenses elsewhere in the Registrants' Consolidated Statements of Operations. The decrease in both periods was due to the following:
| Three Months | Six Months | ||||||||||
| (In millions) | |||||||||||
| Power Supply Cost Recovery | $ | (144) | $ | (232) | |||||||
| Weather | (68) | (117) | |||||||||
| Base sales | (27) | (57) | |||||||||
| COVID-19 voluntary refund amortization in 2022 | (8) | (16) | |||||||||
| Interconnection sales volumes and rates | (32) | (3) | |||||||||
| Rate mix | (5) | 10 | |||||||||
| Implementation of new rates | 7 | 15 | |||||||||
| Regulatory mechanism - RPS | 22 | 25 | |||||||||
Other regulatory mechanisms and other(a) | 14 | 23 | |||||||||
| $ | (241) | $ | (352) | ||||||||
(a)Primarily includes regulatory mechanisms relating to DTE Securitization and EWR.
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Revenue results are impacted by changes in sales volumes, which are summarized in the table below:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In thousands of MWh) | |||||||||||||||||||||||
| DTE Electric Sales | |||||||||||||||||||||||
| Residential | 3,314 | 3,751 | 6,778 | 7,590 | |||||||||||||||||||
| Commercial | 3,884 | 4,010 | 7,730 | 7,960 | |||||||||||||||||||
| Industrial | 2,159 | 2,139 | 4,275 | 4,193 | |||||||||||||||||||
| Other | 44 | 46 | 100 | 103 | |||||||||||||||||||
| 9,401 | 9,946 | 18,883 | 19,846 | ||||||||||||||||||||
| Interconnection sales | 1,320 | 1,191 | 2,915 | 1,785 | |||||||||||||||||||
| Total DTE Electric Sales | 10,721 | 11,137 | 21,798 | 21,631 | |||||||||||||||||||
| DTE Electric Deliveries | |||||||||||||||||||||||
| Retail and wholesale | 9,401 | 9,946 | 18,883 | 19,846 | |||||||||||||||||||
Electric retail access, including self-generators(a) | 1,098 | 1,126 | 2,140 | 2,216 | |||||||||||||||||||
| Total DTE Electric Sales and Deliveries | 10,499 | 11,072 | 21,023 | 22,062 | |||||||||||||||||||
______________________________
(a)Represents deliveries for self-generators that have purchased power from alternative energy suppliers to supplement their power requirements.
Fuel and purchased power — utility expense decreased $200 million and $275 million in the three and six months ended June 30, 2023, respectively. The decrease in both periods was due to the following:
| Three Months | Six Months | ||||||||||
| (In millions) | |||||||||||
| Purchased power - lower market prices and lower purchase volumes due to lower demand | $ | (114) | $ | (245) | |||||||
| Coal - lower consumption due to coal plant retirements, partially offset by higher prices | (60) | (71) | |||||||||
| Nuclear fuel - higher amortization due to refueling outage in 2022 | 9 | 21 | |||||||||
| Gas - higher consumption primarily due to Blue Water Energy Center, offset by lower prices | (20) | 30 | |||||||||
| Other | (15) | (10) | |||||||||
| $ | (200) | $ | (275) | ||||||||
Operation and maintenance expense decreased $78 million and $56 million in the three and six months ended June 30, 2023, respectively. The decrease in the second quarter was primarily due to lower plant generation expense of $44 million, lower corporate support costs of $11 million, lower legal expense of $11 million, and lower benefits and other compensation expense of $10 million. The decrease in the six-month period was primarily due to lower plant generation expense of $94 million, lower benefits and other compensation expense of $30 million, lower corporate support costs of $15 million, and lower legal expense of $8 million. These decreases were partially offset by higher distribution operations expense of $81 million (primarily due to higher storm restoration costs), higher EWR expense of $5 million, and higher RPS expense of $5 million. For both the second quarter and six-month period, the lower plant generation expense was primarily due to lower outage costs and coal plant retirements, and the lower benefits and other compensation expense was primarily due to the deferral of pension costs authorized in the November 2022 rate order from the MPSC.
Depreciation and amortization expense increased $27 million and $50 million in the three and six months ended June 30, 2023, respectively. The increase in both periods was primarily due to a higher depreciable base.
Taxes other than income decreased $1 million and $4 million in the three and six months ended June 30, 2023, respectively. The decrease in both periods was primarily due to lower payroll taxes.
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Other (Income) and Deductions increased $3 million and $11 million in the three and six months ended June 30, 2023, respectively. The increase in the second quarter was primarily due to higher non-operating retirement benefits expense of $9 million and higher net interest expense of $7 million, partially offset by a favorable change in investment earnings of $11 million and higher AFUDC equity of $3 million. The increase in the six-month period was primarily due to higher non-operating benefits expense of $17 million and higher net interest expense of $16 million, partially offset by a favorable change in investment earnings of $17 million and higher AFUDC equity of $5 million.
Income Tax Expense increased $16 million and $30 million in the three and six months ended June 30, 2023, respectively. The increase in the second quarter was primarily due to lower amortization of the TCJA regulatory liability, partially offset by state tax benefits resulting from the settlement of a state tax audit. The increase in the six-month period was primarily due to lower amortization of the TCJA regulatory liability, partially offset by lower taxes resulting from lower earnings and the state tax audit settlement.
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, uncertainty of legislative or regulatory actions regarding climate change, and effects of energy waste reduction programs.
DTE Electric filed a rate case with the MPSC on February 10, 2023 requesting an increase in base rates of $622 million based on a projected twelve-month period ending November 30, 2024, and an increase in return on equity from 9.9% to 10.25%. The requested increase in base rates is primarily due to increased investments in plant involving generation and the electric distribution system, as well as related increases to depreciation and property tax expenses. These investments will support DTE Energy's goals to reduce carbon emissions and improve power reliability. The requested increase in base rates is also due to a projected sales decline from the level included in current rates and inflationary impacts on operating and interest costs. A final MPSC order in this case is expected in December 2023.
On April 3, 2023, DTE Electric filed an application with the MPSC requesting a financing order to approve the securitization of $496 million of qualified costs related to the net book value of the St. Clair and Trenton Channel generation plants. The filing requested recovery of these qualifying costs from DTE Electric's customers. The MPSC issued a financing order on June 22, 2023 authorizing DTE Electric to proceed with the issuance of Securitization bonds for qualified costs up to $602 million, increased for the inclusion of deferred income taxes. The financing order further authorized customer charges for the timely recovery of debt service costs on the Securitization bonds and other ongoing qualified costs. Securitization financing is expected to occur in the fourth quarter 2023.
In November 2022, DTE Electric filed an Integrated Resource Plan (IRP) with the MPSC, a comprehensive plan to meet the electricity needs of customers over the next 20 years. The IRP included details on planned coal plant retirements and replacement generation, including investments in renewables and battery storage, with a focus on providing increasingly clean, reliable, and affordable electricity to customers. On July 12, 2023, DTE Energy announced that DTE Electric reached a settlement agreement with the various stakeholders involved in the IRP. The MPSC issued an order approving the settlement agreement on July 26, 2023. DTE Electric is currently assessing the impacts from the settlement agreement on the consolidated financial statements for the third quarter 2023, including regulatory treatment for the recovery of plant-related costs at the Belle River and Monroe power plants. As a result of the settlement agreement, DTE Electric is also expecting to securitize a portion of these plant-related costs in future periods.
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GAS
The Gas segment consists principally of DTE Gas. Gas results and outlook are discussed below:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Operating Revenues — Utility operations | $ | 311 | $ | 362 | $ | 1,018 | $ | 1,128 | |||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Cost of gas — utility | 54 | 117 | 308 | 397 | |||||||||||||||||||
| Operation and maintenance | 126 | 140 | 251 | 275 | |||||||||||||||||||
| Depreciation and amortization | 51 | 46 | 102 | 93 | |||||||||||||||||||
| Taxes other than income | 28 | 27 | 59 | 55 | |||||||||||||||||||
| Asset (gains) losses and impairments, net | — | — | (1) | — | |||||||||||||||||||
| 259 | 330 | 719 | 820 | ||||||||||||||||||||
| Operating Income | 52 | 32 | 299 | 308 | |||||||||||||||||||
| Other (Income) and Deductions | 19 | 23 | 41 | 43 | |||||||||||||||||||
| Income Tax Expense | 9 | 3 | 63 | 63 | |||||||||||||||||||
| Net Income Attributable to DTE Energy Company | $ | 24 | $ | 6 | $ | 195 | $ | 202 | |||||||||||||||
Operating Revenues — Utility operations decreased $51 million and $110 million in the three and six months ended June 30, 2023, respectively. Revenues associated with certain mechanisms and surcharges, including recovery of the cost of gas, are offset by related expenses elsewhere in DTE Energy's Consolidated Statements of Operations. The decrease in both periods was due to the following:
| Three Months | Six Months | ||||||||||
| (In millions) | |||||||||||
| Gas Cost Recovery | $ | (63) | $ | (89) | |||||||
| Weather | (7) | (62) | |||||||||
| Voluntary refund | 2 | 2 | |||||||||
| Regulatory mechanism - EWR | 3 | 3 | |||||||||
| Base sales | 1 | 7 | |||||||||
| Infrastructure recovery mechanism | 9 | 19 | |||||||||
| Other | 4 | 10 | |||||||||
| $ | (51) | $ | (110) | ||||||||
Revenue results are impacted by changes in sales volumes, which are summarized in the table below:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In Bcf) | |||||||||||||||||||||||
| Gas Markets | |||||||||||||||||||||||
| Gas sales | 19 | 21 | 81 | 92 | |||||||||||||||||||
| End-user transportation | 39 | 36 | 89 | 91 | |||||||||||||||||||
| 58 | 57 | 170 | 183 | ||||||||||||||||||||
| Intermediate transportation | 132 | 129 | 280 | 279 | |||||||||||||||||||
| Total Gas sales | 190 | 186 | 450 | 462 | |||||||||||||||||||
Cost of gas — utility expense decreased $63 million and $89 million in the three and six months ended June 30, 2023, respectively. The decrease in the second quarter was primarily due to a lower cost of gas of $49 million and lower sales volumes of $14 million. The decrease in the six-month period was primarily due to lower sales volumes of $57 million and a lower cost of gas of $32 million.
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Operation and maintenance expense decreased $14 million and $24 million in the three and six months ended June 30, 2023, respectively. The decrease in the second quarter was primarily due to lower gas operations expense of $13 million and lower corporate support costs of $5 million, partially offset by higher legal expense of $3 million and higher benefits and other compensation expense of $2 million. The decrease in the six-month period was primarily due to lower gas operations expense of $19 million and lower corporate support costs of $9 million, partially offset by higher legal expense of $3 million and higher uncollectible expense of $2 million.
Depreciation and amortization expense increased $5 million and $9 million in the three and six months ended June 30, 2023, respectively. The increase in both periods was primarily due to a higher depreciable base.
Taxes other than income expense increased $1 million and $4 million in the three and six months ended June 30, 2023, respectively. The increase in both periods was primarily due to higher property taxes.
Other (Income) and Deductions decreased $4 million and $2 million in the three and six months ended June 30, 2023, respectively. The decrease in the second quarter was primarily due to a favorable change in investment earnings of $5 million. The decrease in the six-month period was primarily due to a favorable change in investment earnings of $8 million, partially offset by higher net interest expense of $5 million.
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, and benefit plan design changes. 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 renewable energy projects that sell electricity and pipeline-quality gas and projects that deliver custom energy solutions to industrial, commercial, and institutional customers. DTE Vantage results and outlook are discussed below:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Operating Revenues — Non-utility operations | $ | 189 | $ | 220 | $ | 373 | $ | 399 | |||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Fuel, purchased power, and gas — non-utility | 96 | 113 | 190 | 193 | |||||||||||||||||||
| Operation and maintenance | 63 | 65 | 121 | 130 | |||||||||||||||||||
| Depreciation and amortization | 12 | 13 | 25 | 26 | |||||||||||||||||||
| Taxes other than income | 2 | 1 | 5 | 5 | |||||||||||||||||||
| Asset (gains) losses and impairments, net | 3 | (5) | 3 | (5) | |||||||||||||||||||
| 176 | 187 | 344 | 349 | ||||||||||||||||||||
| Operating Income | 13 | 33 | 29 | 50 | |||||||||||||||||||
| Other (Income) and Deductions | (9) | (2) | (18) | (1) | |||||||||||||||||||
| Income Taxes | |||||||||||||||||||||||
| Expense | 6 | 8 | 13 | 12 | |||||||||||||||||||
| Tax credits | (10) | (1) | (19) | (3) | |||||||||||||||||||
| (4) | 7 | (6) | 9 | ||||||||||||||||||||
| Net Income Attributable to DTE Energy Company | $ | 26 | $ | 28 | $ | 53 | $ | 42 | |||||||||||||||
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Operating Revenues — Non-utility operations decreased $31 million and $26 million in the three and six months ended June 30, 2023, respectively. The decrease in both periods was due to the following:
| Three Months | Six Months | ||||||||||
| (In millions) | |||||||||||
| Lower sales and prices in the Renewables business | $ | (9) | $ | (26) | |||||||
| Lower demand and prices in the On-site business | (13) | (18) | |||||||||
| Sale of project in the On-site business | (5) | (10) | |||||||||
| Demand and prices in the Steel business | (6) | 29 | |||||||||
| Other | 2 | (1) | |||||||||
| $ | (31) | $ | (26) | ||||||||
Fuel, purchased power, and gas — non-utility expense decreased $17 million and $3 million in the three and six months ended June 30, 2023, respectively. The decrease in both periods was due to the following:
| Three Months | Six Months | ||||||||||
| (In millions) | |||||||||||
| Lower demand and prices in the On-site business | $ | (13) | $ | (18) | |||||||
| Sale of project in the On-site business | — | (2) | |||||||||
| Demand and prices in the Steel business | (4) | 19 | |||||||||
| Other | — | (2) | |||||||||
| $ | (17) | $ | (3) | ||||||||
Operation and maintenance expense decreased $2 million and $9 million in the three and six months ended June 30, 2023, respectively. The decrease in both periods was primarily due to the sale of a project in the On-site business, which decreased expense by $3 million in the second quarter and $6 million for the six-month period.
Asset (gains) losses and impairments, net changed $8 million in the three and six months ended June 30, 2023. The change was primarily due to the settlement of contingent consideration relating to a 2017 acquisition in the Renewables business. The settlement resulted in a loss of $2 million in the second quarter 2023 compared to a gain of $3 million recorded in the second quarter 2022.
Other (Income) and Deductions increased $7 million and $17 million in the three and six months ended June 30, 2023, respectively. The increase in the second quarter was primarily due to $3 million higher equity investment earnings in the Renewables business and $2 million higher interest income associated with a new project in the Steel business. The increase in the six-month period was primarily due to $11 million higher equity investment earnings in the Renewables business and $4 million higher interest income associated with a new project in the Steel business.
Income Taxes — Tax credits increased $9 million and $16 million in the three and six months ended June 30, 2023, respectively. The increase in the second quarter was primarily due to investment tax credits related to a new project in the On-site business. The increase in the six-month period was primarily due to investment tax credits related to new projects in the On-site and Renewables businesses.
Outlook — DTE Vantage will continue to leverage its extensive energy-related operating experience and project management capability to develop additional renewable natural gas projects and other projects that will provide customer specific energy solutions. DTE Vantage is also developing decarbonization opportunities relating to carbon capture and sequestration projects.
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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:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Operating Revenues — Non-utility operations | $ | 904 | $ | 2,832 | $ | 2,472 | $ | 5,035 | |||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Purchased power, gas, and other — non-utility | 839 | 2,969 | 2,195 | 5,159 | |||||||||||||||||||
| Operation and maintenance | 18 | 16 | 39 | 35 | |||||||||||||||||||
| Depreciation and amortization | 1 | 1 | 2 | 2 | |||||||||||||||||||
| Taxes other than income | 1 | 2 | 4 | 5 | |||||||||||||||||||
| 859 | 2,988 | 2,240 | 5,201 | ||||||||||||||||||||
| Operating Income (Loss) | 45 | (156) | 232 | (166) | |||||||||||||||||||
| Other (Income) and Deductions | 4 | 13 | 7 | 15 | |||||||||||||||||||
| Income Tax Expense (Benefit) | 10 | (42) | 56 | (45) | |||||||||||||||||||
| Net Income (Loss) Attributable to DTE Energy Company | $ | 31 | $ | (127) | $ | 169 | $ | (136) | |||||||||||||||
Operating Revenues — Non-utility operations decreased $1,928 million and $2,563 million in the three and six months ended June 30, 2023, respectively. The following tables detail changes relative to comparable prior periods:
| Three Months | |||||
| (In millions) | |||||
| Gas structured and gas transportation strategies - ($1,891) primarily due to lower gas prices, ($46) settled financial hedges | $ | (1,937) | |||
| Unrealized MTM - $88 gains compared to $25 gains in the prior period | 63 | ||||
| Other realized gain (loss) | (54) | ||||
| $ | (1,928) | ||||
| Six Months | |||||
| (In millions) | |||||
| Gas structured and gas transportation strategies - ($2,626) primarily due to lower gas prices, ($16) settled financial hedges | $ | (2,642) | |||
| Unrealized MTM - $84 gains compared to ($103) losses in the prior period | 187 | ||||
| Other realized gain (loss) | (108) | ||||
| $ | (2,563) | ||||
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Purchased power, gas, and other — non-utility expense decreased $2,130 million and $2,964 million in the three and six months ended June 30, 2023, respectively. The following tables detail changes relative to comparable prior periods:
| Three Months | |||||
| (In millions) | |||||
| Gas structured and gas transportation strategies - primarily lower gas prices | $ | (1,933) | |||
| Unrealized MTM - $64 losses compared to $165 losses in the prior period | (101) | ||||
| Other realized (gain) loss | (96) | ||||
| $ | (2,130) | ||||
| Six Months | |||||
| (In millions) | |||||
| Gas structured and gas transportation strategies - primarily lower gas prices | $ | (2,658) | |||
| Unrealized MTM - ($83) gains compared to $100 losses in the prior period | (183) | ||||
| Other realized (gain) loss | (123) | ||||
| $ | (2,964) | ||||
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.
Operating Income (Loss) increased $201 million for the three months ended June 30, 2023, which includes $168 million of timing related gains primarily related to gas strategies that will reverse in future periods as the underlying contracts settle. The increase also includes $4 million of timing related losses primarily related to gas strategies that were recognized in previous periods and reversed in the current period as the underlying contracts settled.
Operating Income (Loss) increased $398 million for the six months ended June 30, 2023, which includes $438 million of timing related gains primarily related to gas strategies that will reverse in future periods as the underlying contracts settle. The increase also includes $26 million of timing related losses primarily related to gas strategies that were recognized in previous periods that reversed in the current period as the underlying contracts settled.
Other (Income) and Deductions decreased $9 million and $8 million in the three and six months ended June 30, 2023, respectively. The decrease in both periods was primarily due to $10 million lower contributions to 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 Regional Transmission Organizations. 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.
See also the "Fair Value" section herein and Notes 7 and 8 to the Consolidated Financial Statements, "Fair Value" and "Financial and Other Derivative Instruments," respectively.
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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 net loss of $58 million and $50 million for the three and six months ended June 30, 2023, respectively, represents an increase of $2 million and a decrease of $14 million from the net loss of $56 million and $64 million in the comparable 2022 periods. The increase in the second quarter was primarily due to higher net interest expense, partially offset by effective income tax rate adjustments and lower state income taxes. The decrease in the six-month period was primarily due to effective income tax rate adjustments, lower equity investment losses, lower corporate overhead costs, and lower state income taxes, partially offset by higher net interest expense.
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 2023 will be approximately $3.2 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 $4.2 billion in 2023. 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 Consolidated Statements of Cash Flows, as applicable.
| Six Months Ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (in millions) | |||||||||||
| Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | $ | 43 | $ | 35 | |||||||
| Net cash from operating activities | 1,759 | 1,136 | |||||||||
| Net cash used for investing activities | (1,958) | (1,568) | |||||||||
| Net cash from financing activities | 197 | 479 | |||||||||
| Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | (2) | 47 | |||||||||
| Cash, Cash Equivalents, and Restricted Cash at End of Period | $ | 41 | $ | 82 | |||||||
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.
Net cash from operations increased by $623 million in 2023. The increase was primarily due to increases in Net Income, Depreciation and amortization, Deferred income taxes, and cash from working capital items.
The change in working capital items in 2023 was primarily due to increases in cash related to Accounts receivable and Regulatory assets and liabilities, partially offset by decreases in cash related to Accounts payable, Derivative assets and liabilities, and Other current and noncurrent 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.
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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 goals.
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 increased by $390 million in 2023 primarily due to an increase in utility 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 by $282 million in 2023 primarily due to decreases in cash related to Redemption of long-term debt and Short-term borrowings, net, partially offset by increases in cash related to the Issuance of long-term debt, net of issuance costs and Repurchase of common stock.
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. DTE Energy expects long-term growth in sales related to vehicle electrification, but no significant impacts in the near-term. Non-utility growth is expected from additional investments in the DTE Vantage segment, primarily related to renewable energy and custom energy solutions, while expanding into carbon capture and sequestration. DTE Vantage expects enhanced growth opportunities in decarbonization as a result of the Inflation Reduction Act enacted in August 2022, including tax credits for renewable natural gas and carbon capture projects.
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.
At the discretion of management and depending upon economic and financial market conditions, DTE Energy expects to issue up to $100 million of equity in 2023. DTE Energy anticipates these discretionary equity issuances to be made through contributions to the dividend reinvestment plan and/or employee benefit plans.
Over the long-term, DTE Energy does not have any equity commitments and will continue to evaluate equity needs on an annual basis. DTE Energy currently expects its primary source of long-term financing to be the issuance of debt and is monitoring the impact of rising interest rates on the cost of borrowing.
Uses of Cash
DTE Energy has $697 million in long-term debt, including securitization bonds and finance leases, maturing within twelve months. Repayment of the debt is expected to be made through internally generated funds and the issuance of short-term and/or long-term debt.
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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 $0.8 billion in 2023. 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.
Various subsidiaries and equity investees of DTE Energy have entered into derivative and non-derivative 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, and environmental) and the provisions and maturities of the underlying transactions. As of June 30, 2023, 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 $448 million.
Other obligations are further described in the following Combined Notes to the Consolidated Financial Statements:
| Note | Title | |||||||
| 1 | Organization and Basis of Presentation | |||||||
| 2 | Significant Accounting Policies | |||||||
| 5 | Regulatory Matters | |||||||
| 8 | Financial and Other Derivative Instruments | |||||||
| 9 | Long-Term Debt | |||||||
| 10 | Short-Term Credit Arrangements and Borrowings | |||||||
| 12 | Commitments and Contingencies | |||||||
| 13 | Retirement Benefits and Trusteed Assets | |||||||
Also refer to the "Capital Investments" section above regarding DTE Energy's capital strategy and estimated spend over the next five years. For additional information regarding DTE Energy's future cash obligations, including scheduled debt maturities and interest payments, minimum lease payments, and future purchase commitments, refer to DTE Energy's Annual Report on Form 10-K for the year ended December 31, 2022.
Liquidity
DTE Energy has approximately $2.4 billion of available liquidity at June 30, 2023, 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 amounts of liquidity and to meet future operating cash and capital expenditure needs. However, virtually all of 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.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 3 to the Consolidated Financial Statements, "New Accounting Pronouncements."
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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 7 and 8 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 7 to the Consolidated Financial Statements, "Fair Value."
The following table provides details on changes in DTE Energy's MTM net asset (or liability) position:
| DTE Energy | |||||
| (In millions) | |||||
| MTM at December 31, 2022 | $ | (224) | |||
| Reclassified to realized upon settlement | 9 | ||||
| Changes in fair value recorded to income | 157 | ||||
| Amounts recorded to unrealized income | 166 | ||||
| Changes in fair value recorded in Regulatory liabilities | 5 | ||||
| Amounts recorded in other comprehensive income, pre-tax | 3 | ||||
| Change in collateral | 43 | ||||
| MTM at June 30, 2023 | $ | (7) | |||
The table below shows the maturity of DTE Energy's MTM positions. The positions from 2026 and beyond principally represent longer tenor gas structured transactions:
| Source of Fair Value | 2023 | 2024 | 2025 | 2026 and Beyond | Total Fair Value | |||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
| Level 1 | $ | (17) | $ | 18 | $ | 7 | $ | (1) | $ | 7 | ||||||||||||||||||||||
| Level 2 | 13 | (34) | 1 | (18) | (38) | |||||||||||||||||||||||||||
| Level 3 | (25) | 40 | 3 | (60) | (42) | |||||||||||||||||||||||||||
| MTM before collateral adjustments | $ | (29) | $ | 24 | $ | 11 | $ | (79) | (73) | |||||||||||||||||||||||
| Collateral adjustments | 66 | |||||||||||||||||||||||||||||||
| MTM at June 30, 2023 | $ | (7) | ||||||||||||||||||||||||||||||
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Item 3. 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. Earnings may be indirectly impacted if PSCR or GCR charges increase such that it impacts the collectability of receivables and increases uncollectible expense. Refer to the Allowance for Doubtful Accounts section below for additional information.
Changes in the price of natural gas can also impact the valuation of lost and unaccounted for 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. The Registrants manage this risk by working at the state and federal levels to promote funding programs for low-income customers, providing energy assistance programs and support, and promoting timely customer payments through adherence to MPSC billing practice rules relating to payment arrangements, energy disconnects, and restores.
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.
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The following table displays the credit quality of DTE Energy's trading counterparties as of June 30, 2023:
| Credit Exposure Before Cash Collateral | Cash Collateral | Net Credit Exposure | |||||||||||||||
| (In millions) | |||||||||||||||||
Investment Grade(a) | |||||||||||||||||
| A- and Greater | $ | 445 | $ | — | $ | 445 | |||||||||||
| BBB+ and BBB | 345 | (1) | 344 | ||||||||||||||
| BBB- | 21 | — | 21 | ||||||||||||||
| Total Investment Grade | 811 | (1) | 810 | ||||||||||||||
Non-investment grade(b) | 7 | — | 7 | ||||||||||||||
Internally Rated — investment grade(c) | 342 | — | 342 | ||||||||||||||
Internally Rated — non-investment grade(d) | 15 | — | 15 | ||||||||||||||
| Total | $ | 1,175 | $ | (1) | $ | 1,174 | |||||||||||
_______________________________________
(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 25% 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 10% 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 1% 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, credit spreads, and SOFR. As of June 30, 2023, DTE Energy had floating rate debt of $528 million and a floating rate debt-to-total debt ratio of 2.7%.
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 December 2032.
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 June 30, 2023 and 2022 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 June 30, | As of June 30, | |||||||||||||||||||||||||||||||
| Activity | 2023 | 2022 | 2023 | 2022 | Change in the Fair Value of | |||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
| Environmental contracts | $ | (2) | $ | (9) | $ | 3 | $ | 9 | Commodity contracts | |||||||||||||||||||||||
| Gas contracts | $ | 37 | $ | 31 | $ | (37) | $ | (31) | Commodity contracts | |||||||||||||||||||||||
| Power contracts | $ | 3 | $ | 18 | $ | (4) | $ | (19) | Commodity contracts | |||||||||||||||||||||||
| Oil contracts | $ | 1 | $ | 3 | $ | (1) | $ | (3) | Commodity contracts | |||||||||||||||||||||||
| Interest rate risk — DTE Energy | $ | (732) | $ | (764) | $ | 787 | $ | 808 | Long-term debt | |||||||||||||||||||||||
| Interest rate risk — DTE Electric | $ | (481) | $ | (420) | $ | 525 | $ | 455 | Long-term debt | |||||||||||||||||||||||
For further discussion of market risk, see Note 8 to the Consolidated Financial Statements, "Financial and Other Derivative Instruments."
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Item 4. Controls and Procedures
DTE Energy
(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 June 30, 2023, 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) 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 June 30, 2023 that have materially affected, or are reasonably likely to materially affect, DTE Energy's internal control over financial reporting.
DTE Electric
(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 June 30, 2023, 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) 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 June 30, 2023 that have materially affected, or are reasonably likely to materially affect, DTE Electric's internal control over financial reporting.
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Part II — Other Information
Item 1. Legal Proceedings
For information on legal proceedings and matters related to the Registrants, see Notes 5 and 12 to the Consolidated Financial Statements, "Regulatory Matters" and "Commitments and Contingencies," respectively.
For environmental proceedings in which the government is a party, the Registrants have included disclosures if any sanctions of $1 million or greater are expected.
Item 1A. Risk Factors
There are various risks associated with the operations of the Registrants' businesses. To provide a framework to understand the operating environment of the Registrants, a brief explanation of the more significant risks associated with the Registrants' businesses is provided in Part 1, Item 1A. Risk Factors in DTE Energy's and DTE Electric's combined 2022 Annual Report on Form 10-K. Although the Registrants have tried to identify and discuss key risk factors, others could emerge in the future.
Item 2. Unregistered Sales of 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 June 30, 2023:
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 | ||||||||||||||||||||||||||||
| 04/01/2023 — 04/30/2023 | 12,128 | $ | 114.72 | — | — | — | ||||||||||||||||||||||||||
| 05/01/2023 — 05/31/2023 | 7,110 | $ | 116.47 | — | — | — | ||||||||||||||||||||||||||
| 06/01/2023 — 06/30/2023 | — | $ | — | — | — | — | ||||||||||||||||||||||||||
| Total | 19,238 | — | ||||||||||||||||||||||||||||||
_______________________________________
(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.
Item 5. Insider Trading Arrangements and Policies
For the quarter ended June 30, 2023, no DTE Energy directors or officers have adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements.
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Item 6. Exhibits
| Exhibit Number | Description | DTE Energy | DTE Electric | |||||||||||||||||
| (i) Exhibits filed herewith: | ||||||||||||||||||||
| Supplemental Indenture dated as of May 1, 2023, to the Amended and Restated Indenture, dated as of April 9, 2001, by and between DTE Energy Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee. (2023 Series C) | X | |||||||||||||||||||
| Supplemental Indenture dated as of May 1, 2023 to Mortgage and Deed of Trust dated as of October 1, 1924, between DTE Electric Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (2023 Series DT) | X | X | ||||||||||||||||||
| Chief Executive Officer Section 302 Form 10-Q Certification of Periodic Report | X | |||||||||||||||||||
| Chief Financial Officer Section 302 Form 10-Q Certification of Periodic Report | X | |||||||||||||||||||
| Chief Executive Officer Section 302 Form 10-Q Certification of Periodic Report | X | |||||||||||||||||||
| Chief Financial Officer Section 302 Form 10-Q Certification of Periodic Report | X | |||||||||||||||||||
| 101.INS | XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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 | |||||||||||||||||
(ii) Exhibits furnished herewith: | ||||||||||||||||||||
| Chief Executive Officer Section 906 Form 10-Q Certification of Periodic Report | X | |||||||||||||||||||
| Chief Financial Officer Section 906 Form 10-Q Certification of Periodic Report | X | |||||||||||||||||||
| Chief Executive Officer Section 906 Form 10-Q Certification of Periodic Report | X | |||||||||||||||||||
| Chief Financial Officer Section 906 Form 10-Q Certification of Periodic Report | X | |||||||||||||||||||
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized. The signature for each undersigned Registrant shall be deemed to relate only to matters having reference to such Registrant and any subsidiaries thereof.
Date: | July 27, 2023 | ||||||||||
| DTE ENERGY COMPANY | |||||||||||
| By: | /S/ TRACY J. MYRICK | ||||||||||
| Tracy J. Myrick Chief Accounting Officer | |||||||||||
| (Duly Authorized Officer) | |||||||||||
| DTE ELECTRIC COMPANY | |||||||||||
| By: | /S/ TRACY J. MYRICK | ||||||||||
| Tracy J. Myrick Chief Accounting Officer | |||||||||||
| (Duly Authorized Officer) | |||||||||||
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