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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 March 31, 2020
Or
☐ TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DTECOLORLOGOA04.JPG
Commission File Number: 1-11607
DTE Energy Company
Michigan
 
38-3217752
(State or other jurisdiction of incorporation or organization)
 
(I.R.S Employer Identification No.)
Commission File Number: 1-2198
DTE Electric Company
Michigan
 
38-0478650
(State or other jurisdiction of incorporation or organization)
 
(I.R.S Employer Identification No.)
Registrants address of principal executive offices: One Energy Plaza, Detroit, Michigan 48226-1279
Registrants telephone number, including area code: (313) 235-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol(s)
 
Name of Exchange on which Registered
Common stock, without par value
 
DTE
 
New York Stock Exchange
 
 
 
 
 
2012 Series C 5.25% Junior Subordinated Debentures due 2062
 
DTQ
 
New York Stock Exchange
 
 
 
 
 
2016 Series B 5.375% Junior Subordinated Debentures due 2076
 
DTJ
 
New York Stock Exchange
 
 
 
 
 
2016 Series F 6.00% Junior Subordinated Debentures due 2076
 
DTY
 
New York Stock Exchange
 
 
 
 
 
2017 Series E 5.25% Junior Subordinated Debentures due 2077
 
DTW
 
New York Stock Exchange
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 March 31, 2020:
Registrant
 
Description
 
Shares
DTE Energy
 
Common Stock, without par value
 
192,611,882

 
 
 
 
 
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



DEFINITIONS

ACE
 
Affordable Clean Energy
 
 
 
AFUDC
 
Allowance for Funds Used During Construction
 
 
 
AGS
 
Appalachia Gathering System is a midstream natural gas asset located in Pennsylvania and West Virginia. DTE Energy purchased 100% of AGS in October 2016, and this asset is part of DTE Energy's Gas Storage and Pipelines segment.
 
 
 
AMT
 
Alternative Minimum Tax
 
 
 
ASU
 
Accounting Standards Update issued by the FASB
 
 
 
Blue Union
 
Blue Union gathering system is a midstream natural gas asset located in the Haynesville shale formation of Louisiana. DTE Energy purchased 100% of Blue Union in December 2019 and this asset is part of DTE Energy's Gas Storage and Pipelines segment
 
 
 
CAD
 
Canadian Dollar (C$)
 
 
 
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 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
 
 
 
EGU
 
Electric Generating Unit
 
 
 
ELG
 
Effluent Limitations Guidelines
 
 
 
EPA
 
U.S. Environmental Protection Agency
 
 
 
Equity units
 
DTE Energy's 2019 equity units issued in November 2019, which were used to finance the Gas Storage and Pipelines acquisition on December 4, 2019
 
 
 
FASB
 
Financial Accounting Standards Board
 
 
 
FERC
 
Federal Energy Regulatory Commission
 
 
 
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
 
 
 
Green Bonds
 
A financing option to fund projects that have a positive environmental impact based upon a specified set of criteria. The proceeds are required to be used for eligible green expenditures.
 
 
 
LEAP
 
Louisiana Energy Access Project gathering pipeline is a midstream natural gas asset located in the Haynesville shale formation of Louisiana. DTE Energy purchased 100% of LEAP in December 2019 and this asset is part of DTE Energy's Gas Storage and Pipelines segment
 
 
 
LIBOR
 
London Inter-Bank Offered Rates
 
 
 

1


DEFINITIONS

MGP
 
Manufactured Gas Plant
 
 
 
MPSC
 
Michigan Public Service Commission
 
 
 
MTM
 
Mark-to-market
 
 
 
NAV
 
Net Asset Value
 
 
 
NEXUS
 
NEXUS Gas Transmission, LLC, a joint venture in which DTE Energy owns a 50% partnership interest
 
 
 
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
 
 
 
NOV
 
Notice of Violation
 
 
 
NOX
 
Nitrogen Oxides
 
 
 
NRC
 
U.S. Nuclear Regulatory Commission
 
 
 
PG&E
 
Pacific Gas and Electric Corporation
 
 
 
Production tax credits
 
Tax credits as authorized under Sections 45K and 45 of the Internal Revenue Code that are designed to stimulate investment in and development of alternate fuel sources. The amount of a production tax credit can vary each year as determined by the Internal Revenue Service.
 
 
 
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.
 
 
 
RDM
 
A Revenue Decoupling Mechanism authorized by the MPSC that is designed to minimize the impact on revenues of changes in average customer usage.
 
 
 
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.
 
 
 
RNG
 
Renewable Natural Gas
 
 
 
SEC
 
Securities and Exchange Commission
 
 
 
SGG
 
Stonewall Gas Gathering is a midstream natural gas asset located in West Virginia. DTE Energy purchased 55% of SGG in October 2016, and an additional 30% in May 2019, bringing its ownership to 85%. SGG is part of DTE Energy's Gas Storage and Pipelines segment.
 
 
 
SO2
 
Sulfur Dioxide
 
 
 
TCJA
 
Tax Cuts and Jobs Act of 2017, which reduced the corporate Federal income tax rate from 35% to 21%
 
 
 
TCJA rate reduction liability
 
Reduction in DTE Gas revenue with an offsetting Regulatory liability related to Calculation C of the TCJA. DTE Gas's Calculation C case was approved by the MPSC in August 2019 to address all remaining issues relative to the TCJA, which is primarily the remeasurement of deferred taxes and how the amounts deferred as Regulatory liabilities flow to ratepayers.
 
 
 
Topic 606
 
FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, as amended
 
 
 
TRM
 
A Transitional Reconciliation Mechanism authorized by the MPSC that allows DTE Electric to recover through rates the deferred net incremental revenue requirement associated with the transition of City of Detroit's Public Lighting Department customers to DTE Electric's distribution system
 
 
 
USD
 
United States Dollar ($)
 
 
 
VIE
 
Variable Interest Entity

2


DEFINITIONS

Units of Measurement
 
 
 
Bcf
 
Billion cubic feet of natural gas
 
 
 
BTU
 
British thermal unit, heat value (energy content) of fuel
 
 
 
MMBtu
 
One million BTU
 
 
 
MW
 
Megawatt of electricity
 
 
 
MWh
 
Megawatt-hour of electricity


3


FILING FORMAT


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 2019 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:
•
the duration and impact of the COVID-19 pandemic on the Registrants and customers;
•
impact of regulation by the EPA, the FERC, the MPSC, the NRC, and for DTE Energy, the CFTC, 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 of prices in the oil and gas markets on DTE Energy's gas storage and pipelines operations;
•
impact of volatility in prices in the international steel markets on DTE Energy's power and industrial projects operations;
•
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 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 the short-term natural gas storage markets impacting third-party storage revenues related to DTE Energy;
•
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;

4


•
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 and benefit plan assets and the related increases in future expense and contributions;
•
access to capital markets and the results of other financing efforts which can be affected by credit agency ratings;
•
instability in capital markets which could impact availability of short and long-term financing;
•
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 on operations and sales to customers, and purchases from suppliers;
•
unplanned outages;
•
employee relations and the impact of collective bargaining agreements;
•
the availability, cost, coverage, and terms of insurance and stability of insurance providers;
•
cost reduction efforts and the maximization of plant and distribution system performance;
•
the effects of competition;
•
changes in and application of accounting standards and financial reporting regulations;
•
changes in federal or state laws and their interpretation with respect to regulation, energy policy, and other business issues;
•
contract disputes, binding arbitration, litigation, and related appeals; 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.

5


Part I — Financial Information
Item 1. Financial Statements

DTE Energy Company

Consolidated Statements of Operations (Unaudited)
 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions, except per share amounts)
Operating Revenues
 
 
 
Utility operations
$
1,733

 
$
1,864

Non-utility operations
1,289

 
1,650

 
3,022

 
3,514

 
 
 
 
Operating Expenses
 
 
 
Fuel, purchased power, and gas — utility
467

 
582

Fuel, purchased power, and gas — non-utility
968

 
1,385

Operation and maintenance
579

 
591

Depreciation and amortization
353

 
296

Taxes other than income
119

 
118

Asset (gains) losses and impairments, net
(10
)
 
—

 
2,476

 
2,972

Operating Income
546

 
542

 
 
 
 
Other (Income) and Deductions
 
 
 
Interest expense
175

 
152

Interest income
(10
)
 
(4
)
Non-operating retirement benefits, net
9

 
9

Other income
(65
)
 
(88
)
Other expenses
46

 
11

 
155

 
80

Income Before Income Taxes
391

 
462

 
 
 
 
Income Tax Expense
49

 
54

 
 
 
 
Net Income
342

 
408

 
 
 
 
Less: Net Income Attributable to Noncontrolling Interests
2

 
7

 
 
 
 
Net Income Attributable to DTE Energy Company
$
340

 
$
401

 
 
 
 
Basic Earnings per Common Share
 
 
 
Net Income Attributable to DTE Energy Company
$
1.77

 
$
2.20

 
 
 
 
Diluted Earnings per Common Share
 
 
 
Net Income Attributable to DTE Energy Company
$
1.76

 
$
2.19

 
 
 
 
Weighted Average Common Shares Outstanding
 
 
 
Basic
192

 
182

Diluted
192

 
183

See Combined Notes to Consolidated Financial Statements (Unaudited)

6


DTE Energy Company

Consolidated Statements of Comprehensive Income (Unaudited)

 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions)
Net Income
$
342

 
$
408

 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
Benefit obligations, net of taxes of $1 for both periods
3

 
4

Net unrealized gains (losses) on derivatives during the period, net of taxes of $—, and $(1), respectively
1

 
(3
)
Foreign currency translation
(1
)
 
1

Other comprehensive income
3

 
2

 
 
 
 
Comprehensive income
345

 
410

Less: Comprehensive income attributable to noncontrolling interests
2

 
7

Comprehensive Income Attributable to DTE Energy Company
$
343

 
$
403


See Combined Notes to Consolidated Financial Statements (Unaudited)

7


DTE Energy Company

Consolidated Statements of Financial Position (Unaudited)

 
March 31,
 
December 31,
 
2020
 
2019
 
(In millions)
ASSETS
Current Assets
 
 
 
Cash and cash equivalents
$
552

 
$
93

Restricted cash
124

 
—

Accounts receivable (less allowance for doubtful accounts of $90 and $91, respectively)
 
 
 
Customer
1,482

 
1,642

Other
260

 
245

Inventories
 
 
 
Fuel and gas
294

 
373

Materials and supplies
413

 
386

Derivative assets
112

 
133

Regulatory assets
21

 
5

Other
268

 
209

 
3,526

 
3,086

Investments
 
 
 
Nuclear decommissioning trust funds
1,439

 
1,661

Investments in equity method investees
1,867

 
1,862

Other
228

 
265

 
3,534

 
3,788

Property
 
 
 
Property, plant, and equipment
36,146

 
35,072

Accumulated depreciation and amortization
(9,910
)
 
(9,755
)
 
26,236

 
25,317

Other Assets
 
 
 
Goodwill
2,466

 
2,464

Regulatory assets
4,356

 
4,171

Intangible assets
2,402

 
2,393

Notes receivable
217

 
202

Derivative assets
58

 
41

Prepaid postretirement costs
83

 
69

Operating lease right-of-use assets
164

 
169

Other
190

 
182

 
9,936

 
9,691

Total Assets
$
43,232

 
$
41,882


See Combined Notes to Consolidated Financial Statements (Unaudited)

8


DTE Energy Company

Consolidated Statements of Financial Position (Unaudited) — (Continued)

 
March 31,
 
December 31,
 
2020
 
2019
 
(In millions, except shares)
LIABILITIES AND EQUITY
Current Liabilities
 
 
 
Accounts payable
$
1,028

 
$
1,076

Accrued interest
169

 
147

Dividends payable
195

 
195

Short-term borrowings
1,131

 
828

Current portion long-term debt, including finance leases
387

 
687

Derivative liabilities
88

 
83

Gas inventory equalization
62

 
—

Regulatory liabilities
61

 
65

Operating lease liabilities
32

 
33

Acquisition related deferred payment
382

 
379

Other
437

 
504

 
3,972

 
3,997

Long-Term Debt (net of current portion)
 
 
 
Mortgage bonds, notes, and other
15,870

 
14,778

Junior subordinated debentures
1,146

 
1,146

Finance lease liabilities
10

 
11

 
17,026

 
15,935

Other Liabilities
 

 
 

Deferred income taxes
2,553

 
2,315

Regulatory liabilities
3,244

 
3,264

Asset retirement obligations
2,721

 
2,672

Unamortized investment tax credit
165

 
166

Derivative liabilities
47

 
86

Accrued pension liability
795

 
808

Nuclear decommissioning
215

 
249

Operating lease liabilities
124

 
127

Other
382

 
427

 
10,246

 
10,114

Commitments and Contingencies (Notes 6 and 13)
 
 
 



 


Equity
 
 
 
Common stock (No par value, 400,000,000 shares authorized, and 192,611,882 and 192,208,533 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively)
5,235

 
5,233

Retained earnings
6,732

 
6,587

Accumulated other comprehensive loss
(145
)
 
(148
)
Total DTE Energy Company Equity
11,822

 
11,672

Noncontrolling interests
166

 
164

Total Equity
11,988

 
11,836

Total Liabilities and Equity
$
43,232

 
$
41,882


See Combined Notes to Consolidated Financial Statements (Unaudited)

9


DTE Energy Company

Consolidated Statements of Cash Flows (Unaudited)
 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions)
Operating Activities
 
 
 
Net Income
$
342

 
$
408

Adjustments to reconcile Net Income to Net cash from operating activities:
 
 
 
Depreciation and amortization
353

 
296

Nuclear fuel amortization
13

 
15

Allowance for equity funds used during construction
(6
)
 
(7
)
Deferred income taxes
213

 
49

Equity earnings of equity method investees
(29
)
 
(23
)
Dividends from equity method investees
39

 
44

Asset (gains) losses and impairments, net
(6
)
 
—

Changes in assets and liabilities:
 
 
 
Accounts receivable, net
151

 
143

Inventories
55

 
207

Prepaid postretirement benefit costs
(14
)
 
(31
)
Accounts payable
(24
)
 
(288
)
Gas inventory equalization
62

 
88

Accrued pension liability
(13
)
 
(115
)
Derivative assets and liabilities
(30
)
 
(15
)
Regulatory assets and liabilities
(149
)
 
112

Other current and noncurrent assets and liabilities
104

 
(131
)
Net cash from operating activities
1,061

 
752

Investing Activities
 
 
 
Plant and equipment expenditures — utility
(993
)
 
(641
)
Plant and equipment expenditures — non-utility
(195
)
 
(27
)
Acquisitions related to Business Combinations, net of cash acquired
(128
)
 
—

Proceeds from sale of assets
4

 
—

Proceeds from sale of nuclear decommissioning trust fund assets
439

 
176

Investment in nuclear decommissioning trust funds
(438
)
 
(178
)
Distributions from equity method investees
1

 
1

Contributions to equity method investees
(15
)
 
(22
)
Notes receivable
(14
)
 
(48
)
Other
(3
)
 
(9
)
Net cash used for investing activities
(1,342
)
 
(748
)
Financing Activities
 
 
 
Issuance of long-term debt, net of issuance costs
1,092

 
644

Redemption of long-term debt
(300
)
 
—

Short-term borrowings, net
303

 
(453
)
Dividends paid on common stock
(195
)
 
(172
)
Contributions from noncontrolling interests, principally REF entities
10

 
9

Distributions to noncontrolling interests
(10
)
 
(21
)
Other
(36
)
 
(26
)
Net cash from (used for) financing activities
864

 
(19
)
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash
583

 
(15
)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period
93

 
76

Cash, Cash Equivalents, and Restricted Cash at End of Period
$
676

 
$
61

 
 
 
 
Supplemental disclosure of non-cash investing and financing activities
 
 
 
Plant and equipment expenditures in accounts payable
$
285

 
$
235

See Combined Notes to Consolidated Financial Statements (Unaudited)

10


DTE Energy Company

Consolidated Statements of Changes in Equity (Unaudited)

 
 
 
 
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Noncontrolling Interests
 
 
 
Common Stock
 
 
 
 
 
 
Shares
 
Amount
 
 
 
 
Total
 
(Dollars in millions, shares in thousands)
Balance, December 31, 2019
192,209

 
$
5,233

 
$
6,587

 
$
(148
)
 
$
164

 
$
11,836

Net Income
—

 
—

 
340

 
—

 
2

 
342

Dividends declared on common stock ($1.01 per Common Share)
—

 
—

 
(195
)
 
—

 
—

 
(195
)
Other comprehensive income, net of tax
—

 
—

 
—

 
3

 
—

 
3

Stock-based compensation, net distributions to noncontrolling interests, and other
403

 
2

 
—

 
—

 
—

 
2

Balance, March 31, 2020
192,612

 
$
5,235

 
$
6,732

 
$
(145
)
 
$
166

 
$
11,988



 
 
 
 
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Noncontrolling Interests
 
 
 
Common Stock
 
 
 
 
 
 
Shares
 
Amount
 
 
 
 
Total
 
(Dollars in millions, shares in thousands)
Balance, December 31, 2018
181,925

 
$
4,245

 
$
6,112

 
$
(120
)
 
$
480

 
$
10,717

Implementation of ASU 2018-02
—

 
—

 
25

 
(25
)
 
—

 
—

Net Income
—

 
—

 
401

 
—

 
7

 
408

Dividends declared on common stock ($0.95 per Common Share)
—

 
—

 
(173
)
 
—

 
—

 
(173
)
Contribution of common stock to pension plan
815

 
100

 
—

 
—

 
—

 
100

Other comprehensive income, net of tax
—

 
—

 
—

 
2

 
—

 
2

Stock-based compensation, net contributions from noncontrolling interests, and other
472

 
(21
)
 
(1
)
 
—

 
(12
)
 
(34
)
Balance, March 31, 2019
183,212

 
$
4,324

 
$
6,364

 
$
(143
)
 
$
475

 
$
11,020


See Combined Notes to Consolidated Financial Statements (Unaudited)














11


DTE Electric Company

Consolidated Statements of Operations (Unaudited)

 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions)
Operating Revenues — Utility operations
$
1,212

 
$
1,235

 
 
 
 
Operating Expenses
 
 
 
Fuel and purchased power — utility
297

 
346

Operation and maintenance
360

 
358

Depreciation and amortization
258

 
221

Taxes other than income
83

 
84

 
998

 
1,009

Operating Income
214

 
226

 
 
 
 
Other (Income) and Deductions
 
 
 
Interest expense
81

 
76

Interest income
(2
)
 
(1
)
Other income
(13
)
 
(33
)
Other expenses
41

 
8

 
107

 
50

Income Before Income Taxes
107

 
176

 
 
 
 
Income Tax Expense
13

 
29

 
 
 
 
Net Income
$
94

 
$
147


See Combined Notes to Consolidated Financial Statements (Unaudited)

12


DTE Electric Company

Consolidated Statements of Comprehensive Income (Unaudited)

 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions)
Net Income
$
94

 
$
147

Other comprehensive income
—

 
—

Comprehensive Income
$
94

 
$
147


See Combined Notes to Consolidated Financial Statements (Unaudited)

13


DTE Electric Company

Consolidated Statements of Financial Position (Unaudited)

 
March 31,
 
December 31,
 
2020
 
2019
 
(In millions)
ASSETS
Current Assets
 
 
 
Cash and cash equivalents
$
13

 
$
12

Accounts receivable (less allowance for doubtful accounts of $43 and $46, respectively)
 
 
 
Customer
694

 
729

Affiliates
9

 
25

Other
38

 
41

Inventories
 
 
 
Fuel
205

 
187

Materials and supplies
280

 
280

Regulatory assets
17

 
5

Prepaid property tax
96

 
52

Other
29

 
26

 
1,381

 
1,357

Investments
 
 
 
Nuclear decommissioning trust funds
1,439

 
1,661

Other
35

 
38

 
1,474

 
1,699

Property
 
 
 
Property, plant, and equipment
24,950

 
24,279

Accumulated depreciation and amortization
(6,810
)
 
(6,706
)
 
18,140

 
17,573

Other Assets
 
 
 
Regulatory assets
3,653

 
3,448

Intangible assets
19

 
15

Prepaid postretirement costs — affiliates
266

 
266

Operating lease right-of-use assets
84

 
87

Other
149

 
143

 
4,171

 
3,959

Total Assets
$
25,166

 
$
24,588


See Combined Notes to Consolidated Financial Statements (Unaudited)

14


DTE Electric Company

Consolidated Statements of Financial Position (Unaudited) — (Continued)

 
March 31,
 
December 31,
 
2020
 
2019
 
(In millions, except shares)
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
 
 
 
Accounts payable
 
 
 
Affiliates
$
92

 
$
59

Other
431

 
406

Accrued interest
83

 
84

Current portion long-term debt, including finance leases
336

 
636

Regulatory liabilities
57

 
40

Short-term borrowings
 
 
 
Affiliates
139

 
97

Other
71

 
354

Operating lease liabilities
12

 
12

Other
150

 
155

 
1,371

 
1,843

Long-Term Debt (net of current portion)
 
 
 
Mortgage bonds, notes, and other
7,638

 
6,548

Finance lease liabilities
3

 
4

 
7,641

 
6,552

Other Liabilities
 
 
 
Deferred income taxes
2,382

 
2,355

Regulatory liabilities
2,531

 
2,546

Asset retirement obligations
2,493

 
2,447

Unamortized investment tax credit
164

 
166

Nuclear decommissioning
215

 
249

Accrued pension liability — affiliates
711

 
717

Accrued postretirement liability — affiliates
359

 
367

Operating lease liabilities
65

 
67

Other
80

 
84

 
9,000

 
8,998

Commitments and Contingencies (Notes 6 and 13)

 

 
 
 
 
Shareholder’s Equity
 
 
 
Common stock ($10 par value, 400,000,000 shares authorized, and 138,632,324 shares issued and outstanding for both periods)
4,811

 
4,811

Retained earnings
2,343

 
2,384

Total Shareholder’s Equity
7,154

 
7,195

Total Liabilities and Shareholder’s Equity
$
25,166

 
$
24,588


See Combined Notes to Consolidated Financial Statements (Unaudited)

15


DTE Electric Company

Consolidated Statements of Cash Flows (Unaudited)

 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions)
Operating Activities
 
 
 
Net Income
$
94

 
$
147

Adjustments to reconcile Net Income to Net cash from operating activities:
 
 
 
Depreciation and amortization
258

 
221

Nuclear fuel amortization
13

 
15

Allowance for equity funds used during construction
(6
)
 
(6
)
Deferred income taxes
7

 
23

Changes in assets and liabilities:
 
 
 
Accounts receivable, net
54

 
47

Inventories
(18
)
 
51

Accounts payable
106

 
(36
)
Accrued pension liability — affiliates
(6
)
 
(103
)
Accrued postretirement liability — affiliates
(8
)
 
(21
)
Regulatory assets and liabilities
(152
)
 
130

Other current and noncurrent assets and liabilities
132

 
(146
)
Net cash from operating activities
474

 
322

Investing Activities
 
 
 
Plant and equipment expenditures
(871
)
 
(531
)
Notes receivable, including affiliates
—

 
(96
)
Proceeds from sale of nuclear decommissioning trust fund assets
439

 
176

Investment in nuclear decommissioning trust funds
(438
)
 
(178
)
Other
(2
)
 
(10
)
Net cash used for investing activities
(872
)
 
(639
)
Financing Activities
 
 
 
Issuance of long-term debt, net of issuance costs
1,092

 
644

Redemption of long-term debt
(300
)
 
—

Short-term borrowings, net — affiliate
42

 
(50
)
Short-term borrowings, net — other
(283
)
 
(149
)
Dividends paid on common stock
(135
)
 
(124
)
Other
(17
)
 
(12
)
Net cash from financing activities
399

 
309

Net Increase (Decrease) in Cash and Cash Equivalents
1

 
(8
)
Cash and Cash Equivalents at Beginning of Period
12

 
18

Cash and Cash Equivalents at End of Period
$
13

 
$
10

 
 
 
 
Supplemental disclosure of non-cash investing and financing activities
 
 
 
Plant and equipment expenditures in accounts payable
$
138

 
$
140


See Combined Notes to Consolidated Financial Statements (Unaudited)

16


DTE Electric Company

Consolidated Statements of Changes in Shareholder's Equity (Unaudited)

 
 
 
 
 
Additional Paid-in Capital
 
Retained Earnings
 
 
 
Common Stock
 
 
 
 
 
Shares
 
Amount
 
 
 
Total
 
(Dollars in millions, shares in thousands)
Balance, December 31, 2019
138,632

 
$
1,386

 
$
3,425

 
$
2,384

 
$
7,195

Net Income
—

 
—

 
—

 
94

 
94

Dividends declared on common stock
—

 
—

 
—

 
(135
)
 
(135
)
Balance, March 31, 2020
138,632

 
1,386

 
3,425

 
2,343

 
7,154


 
 
 
 
 
Additional Paid-in Capital
 
Retained Earnings
 
 
 
Common Stock
 
 
 
 
 
Shares
 
Amount
 
 
 
Total
 
(Dollars in millions, shares in thousands)
Balance, December 31, 2018
138,632

 
$
1,386

 
$
3,245

 
$
2,162

 
$
6,793

Net Income
—

 
—

 
—

 
147

 
147

Dividends declared on common stock
—

 
—

 
—

 
(124
)
 
(124
)
Balance, March 31, 2019
138,632

 
1,386

 
3,245

 
2,185

 
6,816


See Combined Notes to Consolidated Financial Statements (Unaudited)

17

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
 
Acquisitions
 
DTE Energy
Note 5
 
Revenue
 
DTE Energy and DTE Electric
Note 6
 
Regulatory Matters
 
DTE Energy and DTE Electric
Note 7
 
Earnings per Share
 
DTE Energy
Note 8
 
Fair Value
 
DTE Energy and DTE Electric
Note 9
 
Financial and Other Derivative Instruments
 
DTE Energy and DTE Electric
Note 10
 
Long-Term Debt
 
DTE Energy and DTE Electric
Note 11
 
Short-Term Credit Arrangements and Borrowings
 
DTE Energy and DTE Electric
Note 12
 
Leases
 
DTE Energy and DTE Electric
Note 13
 
Commitments and Contingencies
 
DTE Energy and DTE Electric
Note 14
 
Retirement Benefits and Trusteed Assets
 
DTE Energy and DTE Electric
Note 15
 
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 2.2 million customers in southeastern Michigan;
•
DTE Gas is a public utility engaged in the purchase, storage, transportation, distribution, and sale of natural gas to approximately 1.3 million customers throughout Michigan and the sale of storage and transportation capacity; and
•
Other businesses primarily involved in 1) services related to the gathering, transportation, and storage of natural gas; 2) power and industrial projects; and 3) 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, the EGLE, and for DTE Energy, the CFTC.
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 2019 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.

18

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

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, 2020.
The information in these combined notes relates to each of the Registrants as noted in the Index of Combined Notes to Consolidated Financial Statements. However, DTE Electric does not make any representation as to information related solely to DTE Energy or the subsidiaries of DTE Energy other than itself.
Certain prior year balances for the Registrants were reclassified to match the current year's Consolidated Financial Statements presentation.
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 cost method is used. 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 DTE Energy's Power and Industrial Projects 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.
DTE Energy currently owns an 85% interest in SGG, which owns and operates midstream natural gas assets. SGG has contracts through which certain construction risk is designed to pass-through to the customers, with DTE Energy retaining operational and customer default risk. SGG is a VIE with DTE Energy as the primary beneficiary.
The Registrants have variable interests in NEXUS, which include DTE Energy's 50% ownership interest and DTE Electric's transportation services contract. NEXUS is a joint venture which owns a 256-mile pipeline to transport Utica and Marcellus shale gas to Ohio, Michigan, and Ontario market centers. NEXUS also owns Generation Pipeline, LLC, a 23-mile regulated pipeline system located in northern Ohio, which was acquired in September 2019. NEXUS is a VIE as it has insufficient equity at risk to finance its activities. The Registrants are not the primary beneficiaries, as the power to direct significant activities is shared between the owners of the equity interests. DTE Energy accounts for its ownership interest in NEXUS 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, as well as, 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.

19

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

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 March 31, 2020, 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 March 31, 2020, the carrying amount of assets and liabilities in DTE Electric's Consolidated Statements of Financial Position that relate to its variable interests under long-term purchase contracts are predominantly related to working capital accounts and generally represent the amounts owed by DTE Electric for the deliveries associated with the current billing cycle under the contracts. The Registrants have not provided any significant form of financial support associated with these long-term contracts. There is no material potential exposure to loss as a result of DTE Energy's variable interests through these long-term purchase and sale contracts. In addition, there is no material potential exposure to loss as a result of DTE Electric's variable interests through these long-term purchase contracts.
The maximum risk exposure for consolidated VIEs is reflected on the Registrants' Consolidated Statements of Financial Position and, for DTE Energy, in Note 13 to the Consolidated Financial Statements, "Commitments and Contingencies," related to the REF guarantees and indemnities. For non-consolidated VIEs, the maximum risk exposure of the Registrants is generally limited to their investment, notes receivable, future funding commitments, and amounts which DTE Energy has guaranteed. See Note 13 to the Consolidated Financial Statements, "Commitments and Contingencies," for further discussion of the NEXUS guarantee arrangements.
The following table summarizes the major Consolidated Statements of Financial Position items for consolidated VIEs as of March 31, 2020 and December 31, 2019. 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 DTE Energy's consolidated VIEs are as follows:
 
March 31, 2020
 
December 31, 2019
 
SGG(a)
 
Other
 
Total
 
SGG(a)
 
Other
 
Total
 
(In millions)
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
20

 
$
13

 
$
33

 
$
16

 
$
11

 
$
27

Accounts receivable
7

 
19

 
26

 
8

 
19

 
27

Inventories
—

 
101

 
101

 
—

 
74

 
74

Property, plant, and equipment, net
408

 
31

 
439

 
410

 
33

 
443

Goodwill
25

 
—

 
25

 
25

 
—

 
25

Intangible assets
538

 
—

 
538

 
542

 
—

 
542

Other current and long-term assets
2

 
—

 
2

 
2

 
—

 
2

 
$
1,000

 
$
164

 
$
1,164

 
$
1,003

 
$
137

 
$
1,140

 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued current liabilities
$
1

 
$
14

 
$
15

 
$
2

 
$
13

 
$
15

Other current and long-term liabilities
6

 
7

 
13

 
7

 
7

 
14

 
$
7

 
$
21

 
$
28

 
$
9

 
$
20

 
$
29

_____________________________________
(a)Amounts shown are 100% of SGG's assets and liabilities, of which DTE Energy owns 85% at March 31, 2020 and December 31, 2019.

20

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

Amounts for DTE Energy's non-consolidated VIEs are as follows:
 
March 31, 2020
 
December 31, 2019
 
(In millions)
Investments in equity method investees
$
1,510

 
$
1,503

Notes receivable
$
28

 
$
21

Future funding commitments
$
33

 
$
63



NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES
Other Income
The following is a summary of DTE Energy's Other income:
 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions)
Equity earnings of equity method investees
$
29

 
$
23

Income from REF entities
23

 
27

Contract services
7

 
8

Allowance for equity funds used during construction
6

 
7

Gains from equity and fixed income securities
—

 
17

Other
—

 
6

 
$
65

 
$
88

The following is a summary of DTE Electric's Other income:
 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions)
Contract services
$
7

 
$
8

Allowance for equity funds used during construction
6

 
6

Gains from equity and fixed income securities allocated from DTE Energy
—

 
17

Other
—

 
2

 
$
13

 
$
33


Changes in Accumulated Other Comprehensive Income (Loss)
Comprehensive income (loss) is the change in common shareholders' equity during a period from transactions and events from non-owner sources, including Net Income. The amounts recorded to Accumulated other comprehensive income (loss) for DTE Energy include changes in benefit obligations, consisting of deferred actuarial losses and prior service costs, unrealized gains and losses from derivatives accounted for as cash flow hedges, and foreign currency translation adjustments. DTE Energy releases income tax effects from accumulated other comprehensive income when the circumstances upon which they are premised cease to exist.
Changes in Accumulated other comprehensive income (loss) are presented in DTE Energy's Consolidated Statements of Changes in Equity and DTE Electric's Consolidated Statements of Changes in Shareholder's Equity. For the three months ended March 31, 2020, reclassifications out of Accumulated other comprehensive income (loss) were not material.

21

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

For the three months ended March 31, 2019, DTE Energy reclassified $25 million of stranded tax effects resulting from the TCJA from Accumulated other comprehensive income (loss) to Retained Earnings. The reclassification was recorded upon adoption of ASU No. 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income on January 1, 2019. Reclassifications out of Accumulated other comprehensive income (loss) not relating to the adoption of this standard were not material.
Income Taxes
The interim effective tax rates of the Registrants are as follows:
 
Effective Tax Rate
 
Three Months Ended March 31,
 
2020
 
2019
DTE Energy
13
%
 
12
%
DTE Electric
12
%
 
16
%

These tax rates are affected by estimated annual permanent items, including AFUDC equity, production tax credits, and other flow-through items, as well as discrete items that may occur in any given period, but are not consistent from period to period.
The 1% increase in DTE Energy's effective tax rate for the three months ended March 31, 2020 was primarily due to a decrease in annual production tax credits of 2%, a decrease in stock-based compensation tax benefit of 1%, partially offset by higher amortization of the TCJA regulatory liability of 2% in 2020.
The 4% decrease in DTE Electric's effective tax rate for the three months ended March 31, 2020 was primarily due to higher amortization of the TCJA regulatory liability of 3% and an increase in annual production tax credits of 1% in 2020.
DTE Energy had $8 million of unrecognized tax benefits at March 31, 2020, that if recognized, would favorably impact its effective tax rate. DTE Electric had $10 million of unrecognized tax benefits at March 31, 2020, that if recognized, would favorably impact its effective tax rate. The Registrants do not anticipate any material changes in unrecognized tax benefits in the next twelve months.
DTE Electric had income tax receivables with DTE Energy of $8 million and $14 million at March 31, 2020 and December 31, 2019, respectively.
In March 2020, the "Coronavirus Aid, Relief, and Economic Security Act" (CARES Act) was signed into law and included several significant changes to the Internal Revenue Code. The CARES Act includes certain tax relief provisions applicable to the Registrants including a) the immediate refund of the corporate AMT credit, b) the ability to carryback net operating losses five years for tax years 2018 through 2020, c) delayed payment of employer payroll taxes, and d) the employee retention credit.
As of March 31, 2020, DTE Energy had a $153 million AMT credit refund recorded in anticipation of a refund from the U.S. Treasury. DTE Energy was most recently a taxpayer in 2013 and is currently evaluating the ability to recover cash taxes paid in 2013 under the 5-year net operating loss carryback provision. The Registrants also implemented the deferral of employee payroll taxes in April 2020 and are evaluating the impact of the employee retention credit.
Unrecognized Compensation Costs
As of March 31, 2020, 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 1.88 years.
Allocated Stock-Based Compensation
DTE Electric received an allocation of costs from DTE Energy associated with stock-based compensation of $9 million and $13 million for the three months ended March 31, 2020 and 2019, respectively.

22

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents include cash on hand, cash in banks, and temporary investments purchased with remaining maturities of three months or less. Restricted cash consists of funds held in separate bank accounts to satisfy contractual obligations to fund certain construction projects and guarantee performance. Restricted cash designated for payments within one year is classified as a Current Asset.
Financing Receivables
The Registrants monitor the credit quality of their financing receivables on a regular basis by reviewing credit quality indicators and monitoring for trigger events, such as a credit rating downgrade or bankruptcy. Credit quality indicators include, but are not limited to, ratings by credit agencies where available, collection history, collateral, counterparty financial statements and other internal metrics. Utilizing such data, the Registrants have determined three internal grades of credit quality. Internal grade 1 includes financing receivables for counterparties where credit rating agencies have ranked the counterparty as investment grade. To the extent credit ratings are not available, the Registrants utilize other credit quality indicators to determine the level of risk associated with the financing receivable. Internal grade 1 may include financing receivables for counterparties for which credit rating agencies have ranked the counterparty as below investment grade, however, due to favorable information on other credit quality indicators, the Registrants have determined the risk level to be similar to that of an investment grade counterparty. Internal grade 2 includes financing receivables for counterparties with limited credit information and those with a higher risk profile based upon credit quality indicators. Internal grade 3 reflects financing receivables for which the counterparties have the greatest level of risk, including those in bankruptcy status.
The following represents the Registrants' financing receivables by year of origination, classified by internal grade of credit risk. The related credit quality indicators and risk ratings utilized to develop the internal grades have been updated through March 2020.
 
DTE Energy
 
DTE Electric
 
Year of origination
 
2020
 
2019
 
2018 and prior
 
Total
 
2020 and prior
 
(In millions)
Notes receivable
 
 
 
 
 
 
 
 
 
Internal grade 1
$
2

 
$
9

 
$
9

 
$
20

 
$
11

Internal grade 2
10

 
31

 
7

 
48

 
—

Total notes receivable
$
12

 
$
40

 
$
16

 
$
68

 
$
11

 
 
 
 
 
 
 
 
 
 
Net investment in leases
 
 
 
 
 
 
 
 
 
Net investment in leases, internal grade 1
$
—

 
$
—

 
$
43

 
$
43

 
$
—

Net investment in leases, internal grade 2
133

 
—

 
1

 
134

 
—

Total net investment in leases
$
133

 
$
—

 
$
44

 
$
177

 
$
—


The allowance for doubtful accounts on accounts receivable for the utility entities is generally calculated using the 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.

23

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

Notes receivable, or financing receivables, 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, or financing receivables, for DTE Electric are primarily comprised of loans.
Notes receivable are typically considered delinquent when payment is not received for periods ranging from 60 to 120 days. The Registrants cease accruing interest (nonaccrual status), consider a note receivable impaired, and establish an allowance for credit loss when it is probable that all principal and interest amounts due will not be collected in accordance with the contractual terms of the note receivable. In determining the allowance for credit losses for notes receivable, the Registrants consider the historical payment experience and other factors that are expected to have a specific impact on the counterparty's ability to pay including existing and future economic conditions.
DTE Energy has off balance sheet exposure in the form of a revolving credit facility. Refer to Note 13, "Commitments and Contingencies," for additional information. In determining the level of credit reserve needed, DTE considers the likelihood of funding in addition to the other factors noted above. A reserve may be established when it is likely that funding will occur. 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 table presents a roll-forward of the activity for the Registrants' financing receivables credit loss reserves as of March 31, 2020.
 
DTE Energy
 
DTE Electric
 
Trade accounts receivable
 
Other receivables
 
Total
 
Trade accounts receivable
 
(In millions)
Beginning reserve balance at 1/1/2020
$
87

 
$
4

 
$
91

 
$
46

Current period provision
34

 
1

 
35

 
17

Write-offs charged against allowance
(51
)
 
(1
)
 
(52
)
 
(30
)
Recoveries of amounts previously written off
16

 
—

 
16

 
10

Ending reserve balance at 3/31/2020
$
86

 
$
4

 
$
90

 
$
43


Bad debt expense for the three months ended March 31, 2019 was $29 million and $16 million for DTE Energy and DTE Electric, respectively.
The Registrants are monitoring the impacts from the COVID-19 pandemic on our customers and various counterparties. During the three months ended March 31, 2020, the allowance for doubtful accounts was increased to account for additional risk related to the pandemic. However, these adjustments were not material.
In April 2020, the MPSC issued an order in response to the COVID-19 pandemic and authorized the deferral of certain uncollectible expense that is in excess of the amount used to set current rates. DTE Energy is still evaluating this order for any potential impact to the allowance for doubtful accounts. Refer to Note 6 to the Consolidated Financial Statements, "Regulatory Matters," for further information regarding the order.
There are no material amounts of past due financing receivables for the Registrants as of March 31, 2020.


24

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

NOTE 3 — NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended. The amendments in this update have replaced the previous incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information, including forecasts, to develop credit loss estimates. The ASU requires entities to use the new methodology to measure impairment of financial instruments, including accounts receivable, and may result in earlier recognition of credit losses than under previous generally accepted accounting principles. Entities must apply the new guidance as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Registrants adopted the standard effective January 1, 2020. The adoption of the ASU did not have an impact on the Registrants' financial position or results of operations. Additional required disclosures have been included in Note 2 to the Consolidated Financial Statements, “Significant Accounting Policies”.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820. The Registrants adopted the ASU effective January 1, 2020. The Registrants have updated Note 8 to the Consolidated Financial Statements, Fair Value, to incorporate the disclosure changes required by the ASU.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The Registrants adopted the standard effective January 1, 2020 using the prospective approach. The adoption of the ASU did not have an impact on the Registrants’ Consolidated Financial Statements. On a prospective basis, costs within the scope of this amendment will be accounted for consistent with any underlying service contracts. Capitalized implementation costs will be reflected in Other noncurrent assets on the Consolidated Statements of Financial Position and amortization of these costs will be reflected in Operation and maintenance within the Consolidated Statements of Operations. Cash flow activity will be reflected in the Other current and noncurrent assets and liabilities line within the Operating Activities section of the Consolidated Statements of Cash Flows.
In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in this update modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The Registrants adopted the ASU effective January 1, 2020. The required disclosures for this ASU will be reflected in the 2020 year-end financial statements.
In October 2018, the FASB issued ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. The amendments in this update modify the requirements for determining whether fees paid to a decision maker or service provider are variable interests and require reporting entities to consider indirect interests held through related parties under common control on a proportional basis. The Registrants adopted the ASU effective January 1, 2020. The adoption of the ASU did not have a significant impact on the Registrants’ Consolidated Financial Statements.
Recently Issued Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions, and clarifying certain requirements regarding franchise taxes, goodwill, consolidated tax expenses, and annual effective tax rate calculations. The ASU is effective for the Registrants for fiscal years beginning after December 15, 2020. Early adoption is permitted. The Registrants are currently assessing the impact of this standard on their Consolidated Financial Statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The ASU is effective for the Registrants beginning March 12, 2020 through December 31, 2022. The Registrants are currently assessing the impact of this standard on their Consolidated Financial Statements.

25

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)


NOTE 4 — ACQUISITIONS
Power and Industrial Projects Segment Acquisition
On February 18, 2020, DTE Energy closed on the purchase of an 8 MW combined heat and power generation facility from South Jersey Industries (“SJI”) that provides electricity and hot and chilled water to a hotel and casino in Atlantic City, New Jersey. Direct transaction costs primarily related to advisory fees were immaterial and are included in Operation and maintenance in DTE Energy's Consolidated Statements of Operations. The fair value of consideration provided for the acquisition was approximately $97 million paid in cash.
The acquisition was accounted for using the acquisition method of accounting for business combinations. Accordingly, the cost was allocated to the underlying net assets based on their respective fair values as shown below:
 
(In millions)
Contract intangibles
$
18

Property, plant, and equipment, net
76

Working capital
3

Total
$
97


The intangible assets recorded pertain to existing customer contracts and were estimated by applying the income approach, based on discounted projected cash flows attributable to the existing agreements. The contract intangible assets are amortized on a straight-line basis over a period of 13 years, which is based on the number of years the assets are expected to economically contribute to the business. The pro forma financial information has not been presented for DTE Energy because the effects of the acquisition were not material to the Consolidated Statements of Operations.
Electric Segment Acquisitions
Effective September 12, 2019, DTE Sustainable Generation closed on the purchase of an 89 MW renewable energy project located in Michigan from Heritage Sustainable Energy in support of DTE Energy's renewable energy goals. Direct transaction costs primarily related to advisory fees were immaterial and were included in Operation and maintenance in DTE Energy's Consolidated Statements of Operations for the period incurred. The fair value of consideration provided for the acquisition was approximately $175 million, paid in cash.
The acquisition was accounted for using the acquisition method of accounting for business combinations. Accordingly, the cost was allocated to the underlying net assets based on their respective fair values as shown below:
 
(In millions)
Contract intangibles
$
109

Property, plant, and equipment, net
60

Working capital
6

Total
$
175


The intangible assets recorded pertain to existing customer contracts and were estimated by applying the income approach, based on discounted projected cash flows attributable to the existing agreements. The contract intangible assets are amortized on a straight-line basis with useful lives ranging from 11 years to 13 years, which is based on the remaining number of years the assets are expected to economically contribute to the business. The pro forma financial information has not been presented for DTE Energy because the effects of the acquisition were not material to the Consolidated Statements of Operations.
In conjunction with the above acquisition, DTE Sustainable Generation closed on a purchase and sale agreement with Heritage Sustainable Energy in January 2020 to acquire an additional renewable energy project for approximately $33 million paid in cash.

26

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

Gas Storage and Pipelines Segment Acquisition
On December 4, 2019, DTE Energy closed on the purchase of midstream natural gas assets in support of its strategy to continue to grow and earn competitive returns for shareholders. DTE Energy purchased 100 percent of M5 Louisiana Gathering, LLC and its wholly owned subsidiaries from Momentum Midstream and Indigo Natural Resources. The acquisition includes the Blue Union and LEAP assets which provide natural gas gathering and other midstream services to producers located primarily in Louisiana.
The fair value of the consideration provided for the entities acquired was $2.74 billion and includes $2.36 billion paid in cash and an estimated $380 million of contingent consideration to be paid upon completion of a gathering pipeline in the second half of 2020. The contingent payment will range from $0 million to $385 million, with no payment due until the pipeline is completed. As of March 31, 2020, the liability for the contingent consideration payment and the related accretion expense of $2 million is included in the 'Acquisition related deferred payment' line in the Consolidated Statements of Financial Position. The acquisition was financed through the issuance of Equity Units, common stock, and Senior Notes. The acquired assets are part of DTE Energy's non-utility Gas Storage and Pipelines segment.
The acquisition was accounted for using the acquisition method of accounting for business combinations. The allocation of the purchase price included in the Consolidated Statements of Financial Position is preliminary and may be revised up to one year from the date of acquisition due to adjustments in the estimated fair value of the assets acquired and the liabilities assumed. The purchase price is subject to (i) final working capital settlement adjustments, and (ii) resolution of any indemnification claims that might be deducted from the $100 million of cash consideration paid and held in escrow.
The excess purchase price over the fair value of net assets acquired was classified as goodwill. As of March 31, 2020, total goodwill was approximately $173 million, including $2 million resulting from working capital adjustments recorded during the first quarter of 2020. DTE Energy cannot estimate the potential for any further revisions to the purchase price allocation for the remainder of 2020.
The factors contributing to the recognition of goodwill are based on various strategic benefits that are expected to be realized from the Blue Union and LEAP acquisition. The acquisition will provide DTE Energy with a platform for midstream growth and access to further investment opportunities in the Haynesville basin. The goodwill is expected to be deductible for income tax purposes.
The preliminary allocation of the purchase price is based on estimated fair values of the Blue Union and LEAP assets acquired and liabilities assumed at the date of acquisition, December 4, 2019. The components of the preliminary purchase price allocation, inclusive of purchase accounting adjustments, are as follows:
 
(In millions)
Assets
 
Cash
$
62

Accounts receivable
31

Property, plant, and equipment, net
1,035

Goodwill
173

Customer relationship intangibles
1,473

Other current assets
1

 
$
2,775

Liabilities
 
Accounts payable
$
26

Acquisition related deferred payment
380

Other current liabilities
2

Asset retirement obligations
9

 
$
417

Total cash consideration
$
2,358



27

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

The intangible assets recorded as a result of the acquisition pertain to existing customer relationships, which were valued at approximately $1.47 billion as of the acquisition date. The fair value of the intangible assets acquired was estimated by applying the income approach. The income approach is based upon discounted projected future cash flows attributable to the existing contracts and agreements. The fair value measurement is based on significant unobservable inputs, including management estimates and assumptions, and thus represents a Level 3 measurement, pursuant to the applicable accounting guidance. Key estimates and inputs include revenue and expense projections and discount rates based on the risks associated with the entities. The intangible assets are amortized on a straight-line basis over a period of 40 years, which is based on the number of years the assets are expected to economically contribute to the business. The expected economic benefit incorporates existing customer contracts with a weighted-average amortization life of 13 years and expected renewal rates, based on the estimated volume and production lives of gas resources in the region.
DTE Energy incurred $18 million of direct transaction costs for the year ended December 31, 2019. These costs were primarily related to advisory fees and were included in Operation and maintenance in DTE Energy's Consolidated Statements of Operations. Additionally, DTE Energy incurred $49 million of issuance costs related to the acquisition financing, of which $10 million were included in Mortgage bonds, notes, and other, and $39 million were included in Common Stock in DTE Energy's Consolidated Statements of Financial Position.
DTE Energy's 2019 Consolidated Statements of Operations included Operating Revenues — Non-utility operations of $15 million and Net Income of $3 million associated with the acquired entities for the one-month period following the acquisition date, excluding the $18 million transaction costs described above. The pro forma financial information was not presented for DTE Energy because the effects of the acquisition were not material to the Consolidated Statements of Operations.


28

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

NOTE 5 — REVENUE
Disaggregation of Revenue
The following is a summary of revenues disaggregated by segment for DTE Energy:
 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions)
Electric(a)
 
 
 
Residential
$
599

 
$
553

Commercial
426

 
421

Industrial
156

 
163

Other(b)
35

 
98

Total Electric operating revenues(c)
$
1,216

 
$
1,235

 
 
 
 
Gas
 
 
 
Gas sales
$
394

 
$
477

End User Transportation
77

 
81

Intermediate Transportation
26

 
26

Other(b)
43

 
61

Total Gas operating revenues(d)
$
540

 
$
645

 
 
 
 
Other segment operating revenues
 
 
 
Gas Storage and Pipelines(e)
$
170

 
$
116

Power and Industrial Projects(f)
$
307

 
$
388

Energy Trading(g)
$
913

 
$
1,301

_______________________________________
(a)
Revenues under the Electric segment include $1,212 million related to DTE Electric and $4 million of Other revenues related to DTE Sustainable Generation.
(b)
Includes revenue adjustments related to various regulatory mechanisms.
(c)
Includes $4 million of other revenues outside the scope of Topic 606 for the three months ended March 31, 2020 and 2019.
(d)
Includes $2 million under Alternative Revenue Programs and $2 million of other revenues, which are outside the scope of Topic 606 for the three months ended March 31, 2020 and includes $3 million under Alternative Revenue Programs and $2 million of other revenues, which are both outside the scope of Topic 606 for the three months ended March 31, 2019.
(e)
Includes revenues outside the scope of Topic 606 primarily related to $2 million of contracts accounted for as leases for the three months ended March 31, 2020 and 2019.
(f)
Includes revenues outside the scope of Topic 606 primarily related to $27 million and $31 million of contracts accounted for as leases for the three months ended March 31, 2020 and 2019, respectively.
(g)
Includes revenues outside the scope of Topic 606 primarily related to $637 million and $926 million of derivatives for the three months ended March 31, 2020 and 2019, respectively.
Deferred Revenue
The following is a summary of deferred revenue activity:
 
DTE Energy
 
(In millions)
Beginning Balance, January 1, 2020
$
75

Increases due to cash received or receivable, excluding amounts recognized as revenue during the period
17

Revenue recognized that was included in the deferred revenue balance at the beginning of the period
(9
)
Ending Balance, March 31, 2020
$
83


The deferred revenues at DTE Energy generally represent amounts paid by or receivable from customers for which the associated performance obligation has not yet been satisfied.

29

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

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)
2020
$
6

2021
50

2022
7

2023
3

2024
6

2025 and thereafter
11

 
$
83


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 cancelable 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)
2020
$
186

 
$
6

2021
329

 
7

2022
272

 
7

2023
207

 
7

2024
135

 
7

2025 and thereafter
566

 
1

 
$
1,695

 
$
35




30

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

NOTE 6 — REGULATORY MATTERS
2020 COVID-19 Response
In response to the COVID-19 pandemic, the MPSC issued an order on April 15, 2020 to provide guidance and direction to utilities and other stakeholders on topics including customer protections and affordability, utility accounting, regulatory activities, energy assistance, and energy waste reduction and demand response continuity.  The order authorizes the deferral of uncollectible expense that is in excess of the amount used to set current rates effective March 24, 2020, the date of Michigan's executive order to "Stay Home, Stay Safe".  The Registrants are currently evaluating the impact of this order for potential change in accounting treatment, and will continue to monitor MPSC activities for further guidance on COVID-19 and any other pandemic related costs.
2019 Electric Rate Case Filing
DTE Electric filed a rate case with the MPSC on July 8, 2019 requesting an increase in base rates of $351 million based on a projected twelve-month period ending April 30, 2021. The requested increase in base rates is primarily due to an increase in net plant resulting from infrastructure and generation investments. The rate filing also requests an increase in return on equity from 10.0% to 10.5% and includes projected changes in sales and operating and maintenance expenses. A final MPSC order in this case is expected by May 2020.
2019 Gas Rate Case Filing
DTE Gas filed a rate case with the MPSC on November 25, 2019 requesting an increase in base rates of $204 million based on a projected twelve-month period ending September 30, 2021.  The requested increase in base rates is primarily due to an increase in net plant resulting from infrastructure investments and operating and maintenance expenses.  The rate filing also requests an increase in return on equity from 10.0% to 10.5% and includes projected changes in sales and working capital.  A final MPSC order in this case is expected by September 2020.

NOTE 7 — EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the 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.

31

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

The following is a reconciliation of DTE Energy's basic and diluted income per share calculation:
 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions, except per share amounts)
Basic Earnings per Share
 
 
 
Net Income Attributable to DTE Energy Company
$
340

 
$
401

Less: Allocation of earnings to net restricted stock awards
1

 
1

Net income available to common shareholders — basic
$
339

 
$
400

 
 
 
 
Average number of common shares outstanding — basic
192

 
182

Basic Earnings per Common Share
$
1.77

 
$
2.20

 
 
 
 
Diluted Earnings per Share
 
 
 
Net Income Attributable to DTE Energy Company
$
340

 
$
401

Less: Allocation of earnings to net restricted stock awards
1

 
1

Net income available to common shareholders — diluted
$
339

 
$
400

 
 
 
 
Average number of common shares outstanding — basic
192

 
182

Incremental shares attributable to:
 
 
 
Average dilutive equity units, performance share awards, and stock options
—

 
1

Average number of common shares outstanding — diluted
192

 
183

Diluted Earnings per Common Share(a)
$
1.76

 
$
2.19

_______________________________________
(a)
Equity Units excluded from the calculation of diluted EPS were approximately 9.7 million for the three months ended March 31, 2020 as the dilutive stock price threshold was not met.

NOTE 8 — 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 March 31, 2020 and December 31, 2019. The Registrants believe they use valuation techniques that maximize the use of observable market-based inputs and minimize the use of unobservable inputs.

32

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

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.

33

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(a):
 
March 31, 2020
 
December 31, 2019
 
Level
1
 
Level
2
 
Level
3
 
Other(b)
 
Netting(c)
 
Net Balance
 
Level
1
 
Level
2
 
Level
3
 
Other(b)
 
Netting(c)
 
Net Balance
 
(In millions)
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents(d)
$
421

 
$
—

 
$
—

 
$
—

 
$
—

 
$
421

 
$
15

 
$
—

 
$
—

 
$
—

 
$
—

 
$
15

Nuclear decommissioning trusts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
792

 
—

 
—

 
—

 
—

 
792

 
1,046

 
—

 
—

 
—

 
—

 
1,046

Fixed income securities
127

 
376

 
—

 
—

 
—

 
503

 
160

 
378

 
—

 
—

 
—

 
538

Private equity and other
—

 
—

 
—

 
62

 
—

 
62

 
—

 
—

 
—

 
43

 
—

 
43

Cash equivalents
82

 
—

 
—

 
—

 
—

 
82

 
34

 
—

 
—

 
—

 
—

 
34

Other investments(e)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
115

 
—

 
—

 
—

 
—

 
115

 
140

 
—

 
—

 
—

 
—

 
140

Fixed income securities
71

 
—

 
—

 
—

 
—

 
71

 
79

 
—

 
—

 
—

 
—

 
79

Cash equivalents
4

 
—

 
—

 
—

 
—

 
4

 
4

 
—

 
—

 
—

 
—

 
4

Derivative assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts(f)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Natural gas
132

 
78

 
72

 
—

 
(204
)
 
78

 
205

 
76

 
74

 
—

 
(266
)
 
89

Electricity
—

 
214

 
99

 
—

 
(242
)
 
71

 
—

 
223

 
83

 
—

 
(225
)
 
81

Environmental & Other
—

 
178

 
1

 
—

 
(163
)
 
16

 
—

 
110

 
3

 
—

 
(110
)
 
3

Foreign currency exchange contracts
—

 
7

 
—

 
—

 
(2
)
 
5

 
—

 
1

 
—

 
—

 
—

 
1

Total derivative assets
132

 
477

 
172


—

 
(611
)
 
170

 
205

 
410

 
160

 
—


(601
)
 
174

Total
$
1,744

 
$
853

 
$
172


$
62

 
$
(611
)
 
$
2,220

 
$
1,683

 
$
788

 
$
160

 
$
43


$
(601
)
 
$
2,073

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts(f)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Natural gas
$
(170
)
 
$
(44
)
 
$
(64
)
 
$
—

 
$
204

 
$
(74
)
 
$
(221
)
 
$
(41
)
 
$
(89
)
 
$
—

 
$
266

 
$
(85
)
Electricity
—

 
(233
)
 
(84
)
 
—

 
242

 
(75
)
 
—

 
(231
)
 
(67
)
 
—

 
225

 
(73
)
Environmental & Other
(5
)
 
(144
)
 
—

 
—

 
163

 
14

 
—

 
(121
)
 
—

 
—

 
110

 
(11
)
Foreign currency exchange contracts
—

 
(2
)
 
—

 
—

 
2

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total
$
(175
)
 
$
(423
)
 
$
(148
)
 
$
—

 
$
611

 
$
(135
)
 
$
(221
)
 
$
(393
)
 
$
(156
)
 
$
—

 
$
601

 
$
(169
)
Net Assets at end of period
$
1,569

 
$
430

 
$
24

 
$
62

 
$
—

 
$
2,085

 
$
1,462

 
$
395

 
$
4

 
$
43

 
$
—

 
$
1,904

Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
$
550

 
$
350

 
$
122

 
$
—

 
$
(489
)
 
$
533

 
$
218

 
$
320

 
$
123

 
$
—

 
$
(513
)
 
$
148

Noncurrent
1,194

 
503

 
50

 
62

 
(122
)
 
1,687

 
1,465

 
468

 
37

 
43

 
(88
)
 
1,925

Total Assets
$
1,744

 
$
853

 
$
172

 
$
62

 
$
(611
)
 
$
2,220

 
$
1,683

 
$
788

 
$
160

 
$
43

 
$
(601
)
 
$
2,073

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
$
(163
)
 
$
(325
)
 
$
(89
)
 
$
—

 
$
489

 
$
(88
)
 
$
(211
)
 
$
(300
)
 
$
(85
)
 
$
—

 
$
513

 
$
(83
)
Noncurrent
(12
)
 
(98
)
 
(59
)
 
—

 
122

 
(47
)
 
(10
)
 
(93
)
 
(71
)
 
—

 
88

 
(86
)
Total Liabilities
$
(175
)
 
$
(423
)
 
$
(148
)
 
$
—

 
$
611

 
$
(135
)
 
$
(221
)
 
$
(393
)
 
$
(156
)
 
$
—

 
$
601

 
$
(169
)
Net Assets at end of period
$
1,569

 
$
430

 
$
24

 
$
62

 
$
—

 
$
2,085

 
$
1,462

 
$
395

 
$
4

 
$
43

 
$
—

 
$
1,904


_______________________________________
(a)
See footnotes on following page.

34

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

_______________________________________
(b)
Amounts represent assets valued at NAV as a practical expedient for fair value.
(c)
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.
(d)
At March 31, 2020, the $421 million consisted of $409 million, $1 million, and $11 million of cash equivalents included in Cash and cash equivalents, Restricted cash, and Other investments on DTE Energy's Consolidated Statements of Financial Position, respectively. At December 31, 2019, the $15 million consisted of $4 million and $11 million of cash equivalents included in Cash and cash equivalents and Other investments on DTE Energy's Consolidated Statements of Financial Position, respectively.
(e)
Excludes cash surrender value of life insurance investments.
(f)
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 assets for DTE Electric measured and recorded at fair value on a recurring basis as of:
 
March 31, 2020
 
December 31, 2019
 
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)
$
11

 
$
—

 
$
—

 
$
—

 
$
11

 
$
11

 
$
—

 
$
—

 
$
—

 
$
11

Nuclear decommissioning trusts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
792

 
—

 
—

 
—

 
792

 
1,046

 
—

 
—

 
—

 
1,046

Fixed income securities
127

 
376

 
—

 
—

 
503

 
160

 
378

 
—

 
—

 
538

Private equity and other
—

 
—

 
—

 
62

 
62

 
—

 
—

 
—

 
43

 
43

Cash equivalents
82

 
—

 
—

 
—

 
82

 
34

 
—

 
—

 
—

 
34

Other investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
11

 
—

 
—

 
—

 
11

 
13

 
—

 
—

 
—

 
13

Derivative assets — FTRs
—

 
—

 
1

 
—

 
1

 
—

 
—

 
3

 
—

 
3

Total
$
1,023

 
$
376

 
$
1

 
$
62

 
$
1,462

 
$
1,264

 
$
378

 
$
3

 
$
43

 
$
1,688

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
$
11

 
$
—

 
$
1

 
$
—

 
$
12

 
$
11

 
$
—

 
$
3

 
$
—

 
$
14

Noncurrent
1,012

 
376

 
—

 
62

 
1,450

 
1,253

 
378

 
—

 
43

 
1,674

Total Assets
$
1,023

 
$
376

 
$
1

 
$
62

 
$
1,462

 
$
1,264

 
$
378

 
$
3

 
$
43

 
$
1,688

_______________________________________
(a)
Amounts represent assets valued at NAV as a practical expedient for fair value.
(b)
At March 31, 2020 and December 31, 2019, the $11 million consisted of cash equivalents included in Other investments on DTE Electric's Consolidated Statements of Financial Position.
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 are valued using quoted market prices in actively traded markets. Commingled funds that hold exchange-traded equity or debt securities are valued based on stated NAVs. Non-exchange traded fixed income securities are valued based upon quotations available from brokers or pricing services.
Private equity and other assets include a diversified group of funds that are classified as NAV assets. These funds primarily invest in private equity partnerships, as well as real estate and private debt. 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 $159 million and $151 million as of March 31, 2020 and December 31, 2019, respectively.

35

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

For pricing the nuclear decommissioning trusts and other investments, a primary price source is identified by asset type, class, or issue for each security. The trustee monitors prices supplied by pricing services and may use a supplemental price source or change the primary source of a given security if the trustee determines that another price source is considered preferable. The Registrants have obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices.
Derivative Assets and Liabilities
Derivative assets and liabilities are comprised of physical and financial derivative contracts, including futures, forwards, options, and swaps that are both exchange-traded and over-the-counter traded contracts. Various inputs are used to value derivatives depending on the type of contract and availability of market data. Exchange-traded derivative contracts are valued using quoted prices in active markets. The Registrants consider the following criteria in determining whether a market is considered active: frequency in which pricing information is updated, variability in pricing between sources or over time, and the availability of public information. Other derivative contracts are valued based upon a variety of inputs including commodity market prices, broker quotes, interest rates, credit ratings, default rates, market-based seasonality, and basis differential factors. The Registrants monitor the prices that are supplied by brokers and pricing services and may use a supplemental price source or change the primary price source of an index if prices become unavailable or another price source is determined to be more representative of fair value. The Registrants have obtained an understanding of how these prices are derived. Additionally, the Registrants selectively corroborate the fair value of their transactions by comparison of market-based price sources. Mathematical valuation models are used for derivatives for which external market data is not readily observable, such as contracts which extend beyond the actively traded reporting period. The Registrants have established a Risk Management Committee whose responsibilities include directly or indirectly ensuring all valuation methods are applied in accordance with predefined policies. The development and maintenance of the Registrants' forward price curves has been assigned to DTE Energy's Risk Management Department, which is separate and distinct from the trading functions within DTE Energy.
The following table presents the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for DTE Energy:
 
Three Months Ended March 31, 2020
 
Three Months Ended March 31, 2019
 
Natural Gas
 
Electricity
 
Other
 
Total
 
Natural Gas
 
Electricity
 
Other
 
Total
 
(In millions)
Net Assets (Liabilities) as of January 1
$
(15
)
 
$
16

 
$
3

 
$
4

 
$
(49
)
 
$
(2
)
 
$
7

 
$
(44
)
Transfers into Level 3 from Level 2
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Transfers from Level 3 into Level 2
(1
)
 
—

 
—

 
(1
)
 
—

 
—

 
—

 
—

Total gains (losses)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Included in earnings
24

 
20

 
—

 
44

 
31

 
(31
)
 
(1
)
 
(1
)
Recorded in Regulatory liabilities
—

 
—

 
(2
)
 
(2
)
 
—

 
—

 
(3
)
 
(3
)
Purchases, issuances, and settlements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Settlements
—

 
(21
)
 
—

 
(21
)
 
8

 
8

 
(1
)
 
15

Net Assets (Liabilities) as of March 31
$
8

 
$
15

 
$
1

 
$
24

 
$
(10
)
 
$
(25
)
 
$
2

 
$
(33
)
The amount of total gains (losses) included in Net Income attributed to the change in unrealized gains (losses) related to assets and liabilities held at March 31, 2020 and 2019 and reflected in Operating Revenues — Non-utility operations and Fuel, purchased power, and gas — non-utility in DTE Energy's Consolidated Statements of Operations
$
19

 
$
21

 
$
—

 
$
40

 
$
16

 
$
(21
)
 
$
(1
)
 
$
(6
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

36

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 March 31,
 
2020
 
2019
 
(In millions)
Net Assets as of beginning of period
$
3

 
$
6

Change in fair value recorded in Regulatory liabilities
(2
)
 
(3
)
Purchases, issuances, and settlements
 
 
 
Settlements
—

 
(1
)
Net Assets as of March 31
$
1

 
$
2

The amount of total gains (losses) included in Regulatory liabilities attributed to the change in unrealized gains (losses) related to assets held at March 31, 2020 and 2019 and reflected in DTE Electric's Consolidated Statements of Financial Position
$
—

 
$
—


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 months ended March 31, 2020 and 2019.
The following tables present the unobservable inputs related to DTE Energy's Level 3 assets and liabilities:
 
 
March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
Commodity Contracts
 
Derivative Assets
 
Derivative Liabilities
 
Valuation Techniques
 
Unobservable Input
 
Range
 
Weighted Average
 
 
(In millions)
 
 
 
 
 
 
 
 
 
 
 
Natural Gas
 
$
72

 
$
(64
)
 
Discounted Cash Flow
 
Forward basis price (per MMBtu)
 
$
(0.84
)
—
 
$
4.20
/MMBtu
 
$
(0.07
)/MMBtu
Electricity
 
$
99

 
$
(84
)
 
Discounted Cash Flow
 
Forward basis price (per MWh)
 
$
(10
)
—
 
$
5
/MWh
 
$
—

 
 
December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
Commodity Contracts
 
Derivative Assets
 
Derivative Liabilities
 
Valuation Techniques
 
Unobservable Input
 
Range
 
Weighted Average
 
 
(In millions)
 
 
 
 
 
 
 
 
 
 
 
Natural Gas
 
$
74

 
$
(89
)
 
Discounted Cash Flow
 
Forward basis price (per MMBtu)
 
$
(1.78
)
—
 
$
5.78
/MMBtu
 
$
(0.09
)/MMBtu
Electricity
 
$
83

 
$
(67
)
 
Discounted Cash Flow
 
Forward basis price (per MWh)
 
$
(10
)
—
 
$
6
/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 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.

37

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:
 
March 31, 2020
 
December 31, 2019
 
Carrying
 
Fair Value
 
Carrying
 
Fair Value
 
Amount
 
Level 1
 
Level 2
 
Level 3
 
Amount
 
Level 1
 
Level 2
 
Level 3
 
(In millions)
Notes receivable — Other(a), excluding lessor finance leases
$
68

 
$
—

 
$
—

 
$
68

 
$
184

 
$
—

 
$
—

 
$
184

Short-term borrowings
$
1,131

 
$
—

 
$
1,131

 
$
—

 
$
828

 
$
—

 
$
828

 
$
—

Notes payable — Other(b), excluding lessee finance leases
$
15

 
$
—

 
$
—

 
$
15

 
$
25

 
$
—

 
$
—

 
$
25

Long-term debt(c)
$
17,398

 
$
2,120

 
$
12,108

 
$
3,824

 
$
16,606

 
$
2,572

 
$
14,207

 
$
1,252

_______________________________________
(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, unamortized debt discounts, and issuance costs. Excludes finance lease obligations.
The following table presents the carrying amount and fair value of financial instruments for DTE Electric:
 
March 31, 2020
 
December 31, 2019
 
Carrying
 
Fair Value
 
Carrying
 
Fair Value
 
Amount
 
Level 1
 
Level 2
 
Level 3
 
Amount
 
Level 1
 
Level 2
 
Level 3
 
(In millions)
Notes receivable — Other(a), excluding lessor finance leases
$
11

 
$
—

 
$
—

 
$
11

 
$
9

 
$
—

 
$
—

 
$
9

Short-term borrowings — affiliates
$
139

 
$
—

 
$
—

 
$
139

 
$
97

 
$
—

 
$
—

 
$
97

Short-term borrowings — other
$
71

 
$
—

 
$
71

 
$
—

 
$
354

 
$
—

 
$
354

 
$
—

Notes payable — Other(b), excluding lessee finance leases
$
11

 
$
—

 
$
—

 
$
11

 
$
21

 
$
—

 
$
—

 
$
21

Long-term debt(c)
$
7,970

 
$
—

 
$
7,373

 
$
1,330

 
$
7,180

 
$
—

 
$
7,916

 
$
173

_______________________________________
(a)
Included in Current Assets — Other and Other 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, unamortized debt discounts, and issuance costs. Excludes finance lease obligations.
For further fair value information on financial and derivative instruments, see Note 9 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:
 
March 31, 2020
 
December 31, 2019
 
(In millions)
Fermi 2
$
1,430

 
$
1,650

Fermi 1
3

 
3

Low-level radioactive waste
6

 
8


$
1,439

 
$
1,661



38

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 March 31,
 
2020
 
2019
 
(In millions)
Realized gains
$
31

 
$
11

Realized losses
$
(16
)
 
$
(7
)
Proceeds from sale of securities
$
439

 
$
176


Realized gains and losses from the sale of securities and unrealized gains and losses incurred by the Fermi 2 trust are recorded to the Regulatory asset and 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:
 
March 31, 2020
 
December 31, 2019
 
Fair
Value
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Gains
 
Unrealized
Losses
 
(In millions)
Equity securities
$
792

 
$
244

 
$
(128
)
 
$
1,046

 
$
396

 
$
(39
)
Fixed income securities
503

 
26

 
(6
)
 
538

 
24

 
(1
)
Private equity and other
62

 
—

 
—

 
43

 
—

 
—

Cash equivalents
82

 
—

 
—

 
34

 
—

 
—

 
$
1,439

 
$
270

 
$
(134
)
 
$
1,661

 
$
420

 
$
(40
)

The following table summarizes the fair value of the fixed income securities held in nuclear decommissioning trust funds by contractual maturity:
 
March 31, 2020
 
(In millions)
Due within one year
$
24

Due after one through five years
83

Due after five through ten years
106

Due after ten years
290

 
$
503


Other Securities
At March 31, 2020 and December 31, 2019, the Registrants' securities included in Other investments on the Consolidated Statements of Financial Position were comprised primarily of equity and fixed income securities within DTE Energy's Rabbi Trust. For the three months ended March 31, 2020, losses related to the Trust were $31 million, including $23 million related to equity securities and $8 million related to fixed income securities. For the three months ended March 31, 2019, gains related to the Trust were $17 million, including $13 million related to equity securities and $4 million related to fixed income securities. Gains or losses related to the Rabbi Trust assets 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.


39

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

NOTE 9 — 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, buys and sells transportation capacity, and sells storage capacity. DTE Gas has fixed-priced contracts for portions of its expected natural gas supply requirements through March 2023. Substantially all of these contracts meet the normal purchases and normal sales exception and are therefore accounted for under the accrual method. DTE Gas may also sell forward transportation and storage capacity contracts. Forward transportation and storage contracts are generally not derivatives and are therefore accounted for under the accrual method.
Gas Storage and Pipelines — This segment is primarily engaged in services related to the gathering, transportation, and storage of natural gas. Primarily fixed-priced contracts are used in the marketing and management of transportation and storage services. Generally, these contracts are not derivatives and are therefore accounted for under the accrual method.
Power and Industrial Projects — This segment manages and operates energy and pulverized coal projects, a coke battery, reduced emissions fuel projects, renewable gas recovery, and power generation assets. Primarily fixed-price contracts are used in the marketing and management of the segment assets. These contracts are generally not derivatives and are therefore accounted for under the accrual method.
Energy Trading — Commodity Price Risk — Energy Trading markets and trades electricity, natural gas physical products, and energy financial instruments, and provides energy and asset management services utilizing energy commodity derivative instruments. Forwards, futures, options, and swap agreements are used to manage exposure to the risk of market price and volume fluctuations in its operations. These derivatives are accounted for by recording changes in fair value to earnings unless hedge accounting criteria are met.
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.

40

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

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 March 31, 2020 provision for credit losses, DTE Energy’s exposure to counterparty nonperformance is not expected to have a material adverse effect on DTE Energy's Consolidated Financial Statements.
Derivative Activities
DTE Energy manages its MTM risk on a portfolio basis based upon the delivery period of its contracts and the individual components of the risks within each contract. Accordingly, it records and manages the energy purchase and sale obligations under its contracts in separate components based on the commodity (e.g. electricity or natural gas), the product (e.g. electricity for delivery during peak or off-peak hours), the delivery location (e.g. by region), the risk profile (e.g. forward or option), and the delivery period (e.g. by month and year). The following describes the categories of activities represented by their operating characteristics and key risks:
•
Asset Optimization — Represents derivative activity associated with assets owned and contracted by DTE Energy, including forward natural gas purchases and sales, natural gas transportation, and storage capacity. Changes in the value of derivatives in this category typically economically offset changes in the value of underlying non-derivative positions, which do not qualify for fair value accounting. The difference in accounting treatment of derivatives in this category and the underlying non-derivative positions can result in significant earnings volatility.
•
Marketing and Origination — Represents derivative activity transacted by originating substantially hedged positions with wholesale energy marketers, producers, end-users, utilities, retail aggregators, and alternative energy suppliers.
•
Fundamentals Based Trading — Represents derivative activity transacted with the intent of taking a view, capturing market price changes, or putting capital at risk. This activity is speculative in nature as opposed to hedging an existing exposure.
•
Other — Includes derivative activity at DTE Electric related to FTRs. Changes in the value of derivative contracts at DTE Electric are recorded as Derivative assets or liabilities, with an offset to Regulatory assets or liabilities as the settlement value of these contracts will be included in the PSCR mechanism when realized.
The following table presents the fair value of derivative instruments for DTE Energy:
 
March 31, 2020
 
December 31, 2019
 
Derivative
Assets
 
Derivative Liabilities
 
Derivative
Assets
 
Derivative Liabilities
 
(In millions)
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
Commodity contracts
 
 
 
 
 
 
 
Natural gas
$
282

 
$
(278
)
 
$
355

 
$
(351
)
Electricity
313

 
(317
)
 
306

 
(298
)
Environmental & Other
179

 
(149
)
 
113

 
(121
)
Foreign currency exchange contracts
7

 
(2
)
 
1

 
—

Total derivatives not designated as hedging instruments
$
781

 
$
(746
)
 
$
775

 
$
(770
)
 
 
 
 
 
 
 
 
Current
$
601

 
$
(577
)
 
$
646

 
$
(596
)
Noncurrent
180

 
(169
)
 
129

 
(174
)
Total derivatives
$
781

 
$
(746
)
 
$
775

 
$
(770
)


41

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

The following table presents the fair value of derivative instruments for DTE Electric:
 
March 31, 2020
 
December 31, 2019
 
(In millions)
FTRs — Other current assets
$
1

 
$
3

Total derivatives not designated as hedging instruments
$
1

 
$
3


Certain of DTE Energy's derivative positions are subject to netting arrangements which provide for offsetting of asset and liability positions as well as related cash collateral. Such netting arrangements generally do not have restrictions. Under such netting arrangements, DTE Energy offsets the fair value of derivative instruments with cash collateral received or paid for those contracts executed with the same counterparty, which reduces DTE Energy's Total Assets and Liabilities. Cash collateral is allocated between the fair value of derivative instruments and customer accounts receivable and payable with the same counterparty on a pro-rata basis to the extent there is exposure. Any cash collateral remaining, after the exposure is netted to zero, is reflected in Accounts receivable and Accounts payable as collateral paid or received, respectively.
DTE Energy also provides and receives collateral in the form of letters of credit which can be offset against net Derivative assets and liabilities as well as Accounts receivable and payable. DTE Energy had issued letters of credit of $9 million and $4 million outstanding at March 31, 2020 and December 31, 2019, respectively, 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 $5 million and $8 million at March 31, 2020 and December 31, 2019, 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:
 
March 31, 2020
 
December 31, 2019
 
(In millions)
Cash collateral recorded in Accounts receivable(a)
$
10

 
$
13

Cash collateral recorded in Accounts payable(a)
(3
)
 
(3
)
Total net cash collateral posted (received)
$
7

 
$
10

_______________________________________
(a)
Amounts are recorded net by counterparty.

42

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:
 
March 31, 2020
 
December 31, 2019
 
Gross Amounts of Recognized Assets (Liabilities)
 
Gross Amounts Offset in the Consolidated Statements of Financial Position
 
Net Amounts of Assets (Liabilities) Presented in the Consolidated Statements of Financial Position
 
Gross Amounts of Recognized Assets (Liabilities)
 
Gross Amounts Offset in the Consolidated Statements of Financial Position
 
Net Amounts of Assets (Liabilities) Presented in the Consolidated Statements of Financial Position
 
(In millions)
Derivative assets
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts
 
 
 
 
 
 
 
 
 
 
 
Natural gas
$
282

 
$
(204
)
 
$
78

 
$
355

 
$
(266
)
 
$
89

Electricity
313

 
(242
)
 
71

 
306

 
(225
)
 
81

Environmental & Other
179

 
(163
)
 
16

 
113

 
(110
)
 
3

Foreign currency exchange contracts
7

 
(2
)
 
5

 
1

 
—

 
1

Total derivative assets
$
781

 
$
(611
)
 
$
170

 
$
775

 
$
(601
)
 
$
174

 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts
 
 
 
 
 
 
 
 
 
 
 
Natural gas
$
(278
)
 
$
204

 
$
(74
)
 
$
(351
)
 
$
266

 
$
(85
)
Electricity
(317
)
 
242

 
(75
)
 
(298
)
 
225

 
(73
)
Environmental & Other
(149
)
 
163

 
14

 
(121
)
 
110

 
(11
)
Interest rate contracts
—

 
—

 
—

 
—

 
—

 
—

Foreign currency exchange contracts
(2
)
 
2

 
—

 
—

 
—

 
—

Total derivative liabilities
$
(746
)
 
$
611

 
$
(135
)
 
$
(770
)
 
$
601

 
$
(169
)

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:
 
March 31, 2020
 
December 31, 2019
 
Derivative Assets
 
Derivative Liabilities
 
Derivative Assets
 
Derivative Liabilities
 
Current
 
Noncurrent
 
Current
 
Noncurrent
 
Current
 
Noncurrent
 
Current
 
Noncurrent
 
(In millions)
Total fair value of derivatives
$
601

 
$
180

 
$
(577
)
 
$
(169
)
 
$
646

 
$
129

 
$
(596
)
 
$
(174
)
Counterparty netting
(489
)
 
(122
)
 
489

 
122

 
(513
)
 
(88
)
 
513

 
88

Collateral adjustment
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total derivatives as reported
$
112

 
$
58

 
$
(88
)
 
$
(47
)
 
$
133

 
$
41

 
$
(83
)
 
$
(86
)

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 March 31,
 
 
2020
 
2019
 
 
 
 
(In millions)
Commodity contracts
 
 
 
 
Natural gas
 
Operating Revenues — Non-utility operations
 
$
(11
)
 
$
(15
)
Natural gas
 
Fuel, purchased power, and gas — non-utility
 
36

 
70

Electricity
 
Operating Revenues — Non-utility operations
 
1

 
(49
)
Environmental & Other
 
Operating Revenues — Non-utility operations
 
21

 
1

Foreign currency exchange contracts
 
Operating Revenues — Non-utility operations
 
5

 
(1
)
Total
 
 
 
$
52

 
$
6



43

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

Revenues and energy costs related to trading contracts are presented on a net basis in DTE Energy's Consolidated Statements of Operations. Commodity derivatives used for trading purposes, and financial non-trading commodity derivatives, are accounted for using the MTM method with unrealized and realized gains and losses recorded in Operating Revenues — Non-utility operations. Non-trading physical commodity sale and purchase derivative contracts are generally accounted for using the MTM method with unrealized and realized gains and losses for sales recorded in Operating Revenues — Non-utility operations and purchases recorded in Fuel, purchased power, and gas — non-utility.
The following represents the cumulative gross volume of DTE Energy's derivative contracts outstanding as of March 31, 2020:
Commodity
 
Number of Units
Natural gas (MMBtu)
 
1,756,620,693

Electricity (MWh)
 
36,261,221

Foreign currency exchange (CAD)
 
82,707,523

Renewable Energy Certificates (MWh)
 
11,761,761


Various subsidiaries of DTE Energy have entered into contracts which contain ratings triggers and are guaranteed by DTE Energy. These contracts contain provisions which allow the counterparties to require that DTE Energy post cash or letters of credit as collateral in the event that DTE Energy’s credit rating is downgraded below investment grade. Certain of these provisions (known as "hard triggers") state specific circumstances under which DTE Energy can be required to post collateral upon the occurrence of a credit downgrade, while other provisions (known as "soft triggers") are not as specific. For contracts with soft triggers, it is difficult to estimate the amount of collateral which may be requested by counterparties and/or which DTE Energy may ultimately be required to post. The amount of such collateral which could be requested fluctuates based on commodity prices (primarily natural gas, power, environmental, and coal) and the provisions and maturities of the underlying transactions. As of March 31, 2020, 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 $381 million.
As of March 31, 2020, DTE Energy had $676 million of derivatives in net liability positions, for which hard triggers exist. There is no 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 $601 million. The net remaining amount of $75 million is derived from the $381 million noted above.

NOTE 10 — LONG-TERM DEBT
Debt Issuances
In 2020, the following debt was issued:
Company
 
Month
 
Type
 
Interest Rate
 
Maturity Date
 
Amount
 
 
 
 
 
 
 
 
 
 
(In millions)
DTE Electric
 
February
 
Mortgage Bonds(a)
 
2.25%
 
2030
 
$
600

DTE Electric
 
February
 
Mortgage Bonds(a)
 
2.95%
 
2050
 
500

 
 
 
 
 
 
 
 
 
 
$
1,100


_______________________________________
(a)
Proceeds were used for the repayment of $300 million of DTE Electric's 2010 Series A 4.89% Senior Notes due 2020, for the repayment of short-term borrowings, for capital expenditures, and for other general corporate purposes.
In March 2020, DTE Energy entered into a $200 million unsecured term loan with a maturity date of March 2022. The purpose of the loan is to enhance liquidity and reduce reliance on the commercial paper market. No amounts have been drawn on the loan as of March 31, 2020. The loan will terminate in August 2020 if no amounts have been drawn. Other terms are consistent with DTE Energy’s unsecured revolving credit agreements. Refer to Note 11 to the Consolidated Financial Statements, "Short-Term Credit Arrangements and Borrowings," for additional information regarding the credit agreements.

44

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

In April 2020, DTE Electric issued $600 million of 2.625% Mortgage Bonds due 2031. Proceeds will be used for the repayment of $300 million of DTE Electric's 2010 Series B 3.45% Senior Notes due 2020, for the repayment of $32 million of DTE Electric's 2008 Series KT Variable Rate Senior Notes due 2020, for the repayment of short-term borrowings, for capital expenditures, and for other general corporate purposes.
Debt Redemptions
In 2020, the following debt was redeemed:
Company
 
Month
 
Type
 
Interest Rate
 
Maturity Date
 
Amount
 
 
 
 
 
 
 
 
 
 
(In millions)
DTE Electric
 
March
 
Senior Notes
 
4.89%
 
2020
 
$
300

 
 
 
 
 
 
 
 
 
 
$
300



NOTE 11 — 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. In addition, DTE Energy entered into a $500 million unsecured term loan in March 2020 with terms consistent with the unsecured revolving credit agreements. DTE Energy has drawn the full $500 million available under this term loan, which expires in March 2021. DTE Energy also has other facilities to support letter of credit issuance.
The agreements require DTE Energy, DTE Electric, and DTE Gas to maintain a total funded debt to capitalization ratio of no more than 0.65 to 1. In 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 March 31, 2020, the total funded debt to total capitalization ratios for DTE Energy, DTE Electric, and DTE Gas were 0.59 to 1, 0.53 to 1, and 0.47 to 1, respectively, and were in compliance with this financial covenant.
The availability under the facilities in place at March 31, 2020 is shown in the following table:
 
DTE Energy
 
DTE Electric
 
DTE Gas
 
Total
 
(In millions)
Unsecured letter of credit facility, expiring in February 2021
$
150

 
$
—

 
$
—

 
$
150

Unsecured letter of credit facility, expiring in August 2021
110

 
—

 
—

 
110

Unsecured term loan, expiring in March 2021
500

 
—

 
—

 
500

Unsecured revolving credit facility, expiring April 2024
1,500

 
500

 
300

 
2,300

 
2,260

 
500

 
300

 
3,060

Amounts outstanding at March 31, 2020
 
 
 
 
 
 
 
Commercial paper issuances
107

 
71

 
3

 
181

Letters of credit
231

 
—

 
—

 
231

Unsecured term loan
500

 
—

 
—

 
500

Revolver borrowings
300

 
—

 
150

 
450

 
1,138

 
71

 
153

 
1,362

Net availability at March 31, 2020
$
1,122

 
$
429

 
$
147

 
$
1,698



45

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

In April 2020, DTE Electric entered into a $200 million unsecured term loan, of which DTE Electric has drawn the full $200 million available, and a $200 million unsecured term loan, of which no amount has been drawn. In addition, in April 2020, DTE Gas entered into a $100 million unsecured term loan, of which DTE Gas has drawn the full $100 million available. All three loans expire in April 2021 and have terms consistent with the unsecured revolving credit agreements.
DTE Energy has $9 million of other outstanding letters of credit which are used for various corporate purposes and are not included in the facilities described above.
In conjunction with maintaining certain exchange traded risk management positions, DTE Energy may be required to post collateral with its clearing agent. DTE Energy has a demand financing agreement for up to $100 million with its clearing agent. The agreement, as amended, also allows for up to $50 million of additional margin financing provided that DTE Energy posts a letter of credit for the incremental amount and allows the right of setoff with posted collateral. At March 31, 2020, the capacity under this facility was $150 million. The amount outstanding under this agreement was $96 million and $114 million at March 31, 2020 and December 31, 2019, respectively, and was fully offset by the posted collateral.

NOTE 12 — LEASES
Lessor
During the first quarter of 2020, DTE Energy completed construction of and began operating certain energy infrastructure assets for a large industrial customer under a long-term agreement, where the assets will transfer to the customer at the end of the contract term in 2040. DTE Energy has accounted for a portion of the agreement as a finance lease arrangement, recognizing a net investment of $133 million.
The components of DTE Energy’s net investment in finance leases for remaining periods were as follows:
 
DTE Energy
 
March 31, 2020
 
(In millions)
2020
$
17

2021
19

2022
19

2023
19

2024
19

2025 and Thereafter
273

Total minimum future lease receipts
366

Residual value of leased pipeline
19

Less unearned income
208

Net investment in finance lease
177

Less current portion
7

 
$
170


Interest income recognized under finance leases was $4 million and $1 million for the three months ended March 31, 2020 and 2019, respectively.
DTE Energy’s lease income associated with operating leases was as follows:
 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions)
Fixed payments
$
16

 
$
17

Variable payments
23

 
27

 
$
39

 
$
44



46

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)


NOTE 13 — COMMITMENTS AND CONTINGENCIES
Environmental
DTE Electric
Air — DTE Electric is subject to the EPA ozone and fine particulate transport and acid rain regulations that limit power plant emissions of SO2 and NOX. The EPA and the State of Michigan have also issued emission reduction regulations relating to ozone, fine particulate, regional haze, mercury, and other air pollution. These rules have led to controls on fossil-fueled power plants to reduce SO2, NOX, mercury, and other emissions. Additional rulemakings may occur over the next few years which could require additional controls for SO2, NOX, and other hazardous air pollutants.
The EPA proposed revised air quality standards for ground level ozone in November 2014 and specifically requested comments on the form and level of the ozone standards. The standards were finalized in October 2015. The State of Michigan recommended to the EPA in October 2016 which areas of the state are not attaining the new standard. On April 30, 2018, the EPA finalized the State of Michigan's recommended marginal non-attainment designation for southeast Michigan. The State is required to develop and implement a plan to address the southeast Michigan ozone non-attainment area by 2021. The Registrants cannot predict the scope and associated financial impact of the State's plan to address the ozone non-attainment area at this time.
In July 2009, the Registrants received a NOV/FOV from the EPA alleging, among other things, that five DTE Electric power plants violated New Source Performance standards, Prevention of Significant Deterioration requirements, and operating permit requirements under the Clean Air Act. In June 2010, the EPA issued a NOV/FOV making similar allegations related to a project and outage at Unit 2 of the Monroe Power Plant. In March 2013, DTE Energy received a supplemental NOV from the EPA relating to the July 2009 NOV/FOV. The supplemental NOV alleged additional violations relating to the New Source Review provisions under the Clean Air Act, among other things.
In August 2010, the U.S. Department of Justice, at the request of the EPA, brought a civil suit in the U.S. District Court for the Eastern District of Michigan against DTE Energy and DTE Electric, related to the June 2010 NOV/FOV and the outage work performed at Unit 2 of the Monroe Power Plant. In August 2011, the U.S. District Court judge granted DTE Energy's motion for summary judgment in the civil case, dismissing the case and entering judgment in favor of DTE Energy and DTE Electric. In October 2011, the EPA filed a Notice of Appeal to the Court of Appeals for the Sixth Circuit. In March 2013, the Court of Appeals remanded the case to the U.S. District Court for review of the procedural component of the New Source Review notification requirements. In September 2013, the EPA filed a motion seeking leave to amend their complaint regarding the June 2010 NOV/FOV adding additional claims related to outage work performed at the Trenton Channel and Belle River Power Plants as well as additional claims related to work performed at the Monroe Power Plant. In March 2014, the U.S. District Court judge again granted DTE Energy's motion for summary judgment dismissing the civil case related to Monroe Unit 2. In April 2014, the U.S. District Court judge granted motions filed by the EPA and the Sierra Club to amend their New Source Review complaint adding additional claims for Monroe Units 1, 2, and 3, Belle River Units 1 and 2, and Trenton Channel Unit 9. In October 2014, the EPA and the U.S. Department of Justice filed a notice of appeal of the U.S. District Court judge's dismissal of the Monroe Unit 2 case. The amended New Source Review claims were all stayed pending resolution of the appeal by the Court of Appeals for the Sixth Circuit. On January 10, 2017, a divided panel of the Court reversed the decision of the U.S. District Court. On May 8, 2017, DTE Energy and DTE Electric filed a motion to stay the mandate pending filing of a petition for writ of certiorari with the U.S. Supreme Court. The Sixth Circuit granted the motion on May 16, 2017, staying the claims in the U.S. District Court until the U.S. Supreme Court disposes of the case. DTE Electric and DTE Energy filed a petition for writ of certiorari on July 31, 2017. On December 11, 2017, the U.S. Supreme Court denied certiorari. As a result of the Supreme Court electing not to review the matter, the case was sent back to the U.S. District Court for further proceedings and on June 14, 2018 the case was stayed pending settlement negotiations. The proceedings at the District Court remain stayed until May 2020 while the parties discuss potential resolution of the matter.
The Registrants believe that the plants and generating units identified by the EPA and the Sierra Club have complied with all applicable federal environmental regulations. Depending upon the outcome of the litigation and further discussions with the EPA regarding the two NOVs/FOVs, DTE Electric could be required to install additional pollution control equipment at some or all of the power plants in question, implement early retirement of facilities where control equipment is not economical, engage in supplemental environmental programs, and/or pay fines. The Registrants do not expect the outcome of this matter to have a material impact on their Consolidated Financial Statements.

47

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

The EPA has implemented regulatory actions under the Clean Air Act to address emissions of GHGs from the utility sector and other sectors of the economy. Among these actions, in 2015 the EPA finalized performance standards for emissions of carbon dioxide from new and existing fossil-fuel fired EGUs. The performance standards for existing EGUs, known as the EPA Clean Power Plan, were challenged by petitioners and stayed by the U.S. Supreme Court in February 2016 pending final review by the courts. On October 10, 2017, the EPA, under a new administration, proposed to rescind the Clean Power Plan, and in August 2018, the EPA proposed revised emission guidelines for GHGs from existing EGUs. On June 19, 2019, the EPA Administrator officially repealed the Clean Power Plan and finalized its replacement, named the ACE rule. The ACE Rule requires the state of Michigan to submit a plan in 2022 that includes GHG standards for existing coal-fired power plant units in Michigan. These final rules do not impact DTE Energy's commitments for its electric utility operations to reduce carbon emissions 32% by the early 2020s, 50% by 2030, and 80% by 2040, or its goal of net zero emissions for its electric utility operations by 2050, from the 2005 carbon emissions levels.
In addition to the GHG standards for existing EGUs, in December 2018, the EPA issued proposed revisions to the carbon dioxide performance standards for new, modified, or reconstructed fossil-fuel fired EGUs. The carbon standards for new sources are not expected to have a material impact on DTE Electric, since DTE Electric has no plans to build new coal-fired generation and any potential new gas generation will be able to comply with the standards.
Pending or future legislation or other regulatory actions could have a material impact on DTE Electric's operations and financial position and the rates charged to its customers. Impacts include expenditures for environmental equipment beyond what is currently planned, financing costs related to additional capital expenditures, the purchase of emission credits from market sources, higher costs of purchased power, and the retirement of facilities where control equipment is not economical. DTE Electric would seek to recover these incremental costs through increased rates charged to its utility customers, as authorized by the MPSC.
To comply with air pollution requirements, DTE Electric spent approximately $2.4 billion through 2019. DTE Electric does not anticipate additional capital expenditures for air pollution requirements through 2026, subject to the results of future rulemakings.
Water — In response to an EPA regulation, DTE Electric was required to examine alternatives for reducing the environmental impacts of the cooling water intake structures at several of its facilities. Based on the results of completed studies and expected future studies, DTE Electric may be required to install technologies to reduce the impacts of the water intake structures. A final rule became effective in October 2014. The final rule requires studies to be completed and submitted as part of the National Pollutant Discharge Elimination System (NPDES) permit application process to determine the type of technology needed to reduce impacts to fish. DTE Electric has initiated the process of completing the required studies. Final compliance for the installation of any required technology will be determined by the state on a case by case, site specific basis. DTE Electric is currently evaluating the compliance options and working with the State of Michigan on evaluating whether any controls are needed. These evaluations/studies may require modifications to some existing intake structures. It is not possible to quantify the impact of this rulemaking at this time.
Contaminated and Other Sites — Prior to the construction of major interstate natural gas pipelines, gas for heating and other uses was manufactured locally from processes involving coal, coke, or oil. The facilities, which produced gas, have been designated as MGP sites. DTE Electric conducted remedial investigations at contaminated sites, including three former MGP sites. 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 aboveground 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 March 31, 2020 and December 31, 2019, DTE Electric had $8 million accrued for remediation. 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.

48

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

Coal Combustion Residuals and Effluent Limitations Guidelines — A final EPA rule for the disposal of coal combustion residuals, commonly known as coal ash, became effective in October 2015, and was revised in October 2016 and July 2018. 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 the installation of monitoring wells, compliance with groundwater standards, and the closure of basins at the end of the useful life of the associated power plant. At other facilities, the rule requires ash laden waters be moved from earthen basins to steel and concrete tanks. DTE Electric has estimated the impact of the current rule to be $592 million of capital expenditures.
On December 2, 2019 a proposed revision to the CCR Rule was published in the Federal Register to address the D.C. Circuit's 2018 decision regarding CCR impoundments that are not lined with an engineered liner system. The rule proposes that all CCR impoundments that do not meet the engineered liner requirements must close by specific dates, and it further confirms that all clay lined impoundments are viewed as unlined. On March 3, 2020 an additional proposed revision to the CCR Rule was published in the Federal Register that provides a process to determine if certain unlined impoundments consist of an alternative liner system that may be as protective as the current liners specified in the CCR rule, and therefore may continue to operate. DTE Electric is currently evaluating options including the alternative liner system demonstration for our clay lined impoundments based on the range of outcomes of the current proposed rules to determine any changes to DTE Electric's plans in the operation and closure of coal ash impoundments.
At the State level, legislation was signed by the Governor in December 2018 and provides for further regulation of the CCR program in Michigan. Additionally, the bill provides the basis of a CCR program that EGLE will submit to the EPA for approval to fully regulate the CCR program in Michigan in lieu of a Federal permit program.
In November 2015, the EPA finalized the ELG Rule for the steam electric power generating industry which requires additional controls to be installed between 2018 and 2023. Compliance schedules for individual facilities and individual waste streams are determined through issuance of new National Pollutant Discharge Elimination System (NPDES) permits by the State of Michigan. The State of Michigan has issued a NPDES permit for the Belle River Power Plant establishing a compliance deadline of December 31, 2021. No new permits that would require ELG compliance have been issued for other facilities, consequently no compliance timelines have been established.
On April 12, 2017, the EPA granted a petition for reconsideration of the 2015 ELG Rule. The EPA also signed an administrative stay of the ELG Rule’s compliance deadlines for fly ash transport water, bottom ash transport water, and flue gas desulfurization (FGD) wastewater, among others. On June 6, 2017, the EPA published in the Federal Register a proposed rule (Postponement Rule) to postpone certain applicable deadlines within the 2015 ELG rule. The Postponement Rule was published on September 18, 2017. The Postponement Rule nullified the administrative stay but also extended the earliest compliance deadlines for only FGD wastewater and bottom ash transport water until November 1, 2020 in order for the EPA to propose and finalize a new ruling. On November 22, 2019, the EPA issued a proposed rule to revise the technology-based effluent limitations guidelines and standards applicable to flue gas desulfurization wastewater and bottom ash transport water. The ELG compliance requirements and final deadlines for bottom ash transport water and FGD wastewater, and total ELG related compliance costs will not be known until the EPA completes its reconsideration of the ELG Rule expected by the end of 2020.
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 of the MGP sites is complete, and the sites are closed. DTE Gas has also completed partial closure of four additional sites. Cleanup activities associated with the remaining sites will continue over the next several years. The MPSC has established a cost deferral and rate recovery mechanism for investigation and remediation costs incurred at former MGP sites. In addition to the MGP sites, DTE Gas is also in the process of cleaning up other contaminated sites, including gate stations, gas pipeline releases, and underground storage tank locations. As of March 31, 2020 and December 31, 2019, DTE Gas had $24 million and $25 million, respectively, accrued for remediation. 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.

49

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

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 a finding of violation to EES Coke, the Michigan coke battery facility that is a wholly-owned subsidiary of DTE Energy, alleging that the 2008 and 2014 permits issued by EGLE did not comply with the Clean Air Act. EES Coke evaluated the EPA's alleged violations and believes that the permits approved by EGLE complied with the Clean Air Act. Discussions with the EPA are ongoing. At the present time, DTE Energy cannot predict the outcome or financial impact of this FOV.
Other
In 2010, the EPA finalized a new one-hour SO2 ambient air quality standard that requires states to submit plans and associated timelines for non-attainment areas that demonstrate attainment with the new SO2 standard in phases. Phase 1 addresses non-attainment areas designated based on ambient monitoring data. Phase 2 addresses non-attainment areas with large sources of SO2 and modeled concentrations exceeding the National Ambient Air Quality Standards for SO2. Phase 3 addresses smaller sources of SO2 with modeled or monitored exceedances of the new SO2 standard.
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 the state implementation plan (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. Since several non-DTE Energy sources are also part of the proposed compliance plan, DTE Energy is unable to determine the full impact of the final required emissions reductions on DTE's facilities at this time.
Michigan's Phase 2 non-attainment area includes DTE Electric facilities in St. Clair County. State implementation plan submittal and EPA approval describing the control strategy and timeline for demonstrating compliance with the new SO2 standard is the next step in the process and is expected to be completed in 2020. DTE Energy is unable to determine the full impact of the SIP strategy.
Synthetic Fuel Guarantees
DTE Energy discontinued the operations of its synthetic fuel production facilities throughout the United States as of December 31, 2007. DTE Energy provided certain guarantees and indemnities in conjunction with the sales of interests in its synfuel facilities. The guarantees cover potential commercial, environmental, oil price, and tax-related obligations that will survive until 90 days after expiration of all applicable statutes of limitations. DTE Energy estimates that its maximum potential liability under these guarantees at March 31, 2020 was approximately $400 million. Payment under these guarantees are considered remote.
REF Guarantees
DTE Energy has provided certain guarantees and indemnities in conjunction with the sales of interests in or lease of its REF facilities. The guarantees cover potential commercial, environmental, and tax-related obligations that will survive until 90 days after expiration of all applicable statutes of limitations. DTE Energy estimates that its maximum potential liability under these guarantees at March 31, 2020 was $547 million. Payments under these guarantees are considered remote.
NEXUS Guarantees
NEXUS is party to certain 15-year capacity agreements for the transportation of natural gas with DTE Gas and Texas Eastern Transmission, LP, an unrelated third party. In conjunction with these agreements, DTE Energy provided certain guarantees on behalf of NEXUS to DTE Gas and Texas Eastern Transmission, LP, with maximum potential payments totaling $226 million and $360 million at March 31, 2020, respectively; each representing 50% of all payment obligations due and payable by NEXUS. Each guarantee terminates at the earlier of (i) such time as all of the guaranteed obligations have been fully performed, or (ii) two months following the end of the primary term of the capacity agreements in 2033. The amount of each guarantee decreases annually as payments are made by NEXUS to each of the aforementioned counterparties.

50

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

NEXUS is also party to certain 15-year capacity agreements for the transportation of natural gas with Vector, an equity method investee of DTE Energy. Pursuant to the terms of those agreements, in October 2018, DTE Energy executed a guarantee agreement with Vector, with a maximum potential payment totaling $7 million at March 31, 2020, representing 50% of the first-year payment obligations due and payable by NEXUS. The guarantee terminates at the earlier of (i) such time as all of the guaranteed obligations have been fully performed or (ii) 15 years from the date DTE Energy entered into the guarantee.
Should NEXUS fail to perform under the terms of these agreements, DTE Energy is required to perform on its behalf. 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. Finally, the Registrants may provide indirect guarantees for the indebtedness of others. DTE Energy’s guarantees are not individually material with maximum potential payments totaling $56 million at March 31, 2020. Payments under these guarantees are considered remote.
DTE Energy is 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 March 31, 2020, DTE Energy had $122 million of performance bonds outstanding. In the event that such bonds are called for nonperformance, DTE Energy would be obligated to reimburse the issuer of the performance bond. DTE Energy is 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.
Vector Line of Credit
In July 2019, DTE Energy, as lender, entered into a revolving term credit facility with Vector, as borrower, in the amount of C$70 million. The credit facility was executed in response to the passage of Canadian regulations requiring oil and gas pipelines to demonstrate their financial ability to respond to a catastrophic event and exists for the sole purpose of satisfying these regulations. Vector may only draw upon the facility if the funds are required to respond to a catastrophic event. The maximum potential payments under the line of credit at March 31, 2020 is $49 million. The funding of a loan under the terms of the credit facility is considered remote.
Labor Contracts
There are several bargaining units for DTE Energy subsidiaries' approximate 5,300 represented employees, including DTE Electric's approximate 2,900 represented employees. The majority of the represented employees are under contracts that expire in 2021 and 2022.
Purchase Commitments
Utility capital expenditures, expenditures for non-utility businesses, and contributions to equity method investees will be approximately $4.5 billion and $2.6 billion in 2020 for DTE Energy and DTE Electric, respectively. The Registrants have made certain commitments in connection with the estimated 2020 annual capital expenditures and contributions to equity method investees.
Bankruptcies
DTE Energy's Power and Industrial Projects segment holds ownership interests in, and operates, five generating plants that sell electric output from renewable sources under long-term power purchase agreements with PG&E. PG&E filed for Chapter 11 bankruptcy protection on January 29, 2019. As of March 31, 2020, PG&Es account is substantially current and outstanding accounts receivable from PG&E are not material. Therefore, DTE Energy determined no reserve was necessary.

51

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

As of March 31, 2020, the book value of long-lived assets and operating lease right-of-use assets used in producing electric output for sale to PG&E was approximately $100 million and $7 million, respectively. The Power and Industrial Projects segment also has equity investments, including a note receivable, of approximately $69 million in entities that sell power to PG&E. In January 2019, following the bankruptcy filing, DTE Energy performed an impairment analysis on its long-lived assets. Based on its undiscounted cash flow projections, DTE Energy determined it did not have an impairment loss as of December 31, 2018. DTE Energy also determined there was not an other-than-temporary decline in its equity investments. DTE has not identified subsequent facts or circumstances that would cause a change to these conclusions through March 31, 2020. DTE Energy's assumptions and conclusions may change, and it could have impairment losses if any of the terms of the contracts are not honored by PG&E or the contracts are rejected through the bankruptcy process.
COVID-19 Pandemic
DTE Energy will continue to monitor the impact of the COVID-19 pandemic on supply chains, markets, counterparties, and customers, and any related impacts on operating costs, customer demand, and recoverability of assets that could materially impact the Registrants financial results. At this time, the Registrants cannot predict the ultimate impact of these factors to our Consolidated Financial Statements, as future developments involving the severity of COVID-19, actions to contain or treat its impact, and the extent to which normal economic and operating conditions can resume are highly uncertain.
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 6 and 9 to the Consolidated Financial Statements, "Regulatory Matters" and "Financial and Other Derivative Instruments," respectively.

NOTE 14 — RETIREMENT BENEFITS AND TRUSTEED ASSETS
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 March 31,
 
2020
 
2019
 
2020
 
2019
 
(In millions)
Service cost
$
25

 
$
21

 
$
6

 
$
5

Interest cost
46

 
55

 
14

 
18

Expected return on plan assets
(83
)
 
(81
)
 
(32
)
 
(31
)
Amortization of:
 
 
 
 
 
 
 
Net actuarial loss
43

 
32

 
5

 
3

Prior service credit
—

 
—

 
(5
)
 
(2
)
Net periodic benefit cost (credit)
$
31

 
$
27

 
$
(12
)
 
$
(7
)

52

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

DTE Electric participates in various plans that provide pension and other postretirement benefits for DTE Energy and its affiliates. The plans are sponsored by DTE Energy's subsidiary, DTE Energy Corporate Services, LLC. DTE Electric accounts for its participation in DTE Energy's qualified and nonqualified pension plans by applying multiemployer accounting. DTE Electric accounts for its participation in other postretirement benefit plans by applying multiple-employer accounting. Within multiemployer and multiple-employer plans, participants pool plan assets for investment purposes and to reduce the cost of plan administration. The primary difference between plan types is assets contributed in multiemployer plans can be used to provide benefits for all participating employers, while assets contributed within a multiple-employer plan are restricted for use by the contributing employer. As a result of multiemployer accounting treatment, capitalized costs associated with these plans are reflected in Property, plant, and equipment in DTE Electric's Consolidated Statements of Financial Position. The same capitalized costs are reflected as Regulatory assets and liabilities in DTE Energy's Consolidated Statements of Financial Position. In addition, the service cost and non-service cost components are presented in Operation and maintenance in DTE Electric's Consolidated Statements of Operations. The same non-service cost components are presented in Other (Income) and Deductions — Non-operating retirement benefits, net in DTE Energy's Consolidated Statements of Operations. Plan participants of all plans are solely DTE Energy and affiliate participants.
DTE Energy's subsidiaries are responsible for their share of qualified and nonqualified pension benefit costs. DTE Electric's allocated portion of pension benefit costs included in capital expenditures and operating and maintenance expense were $26 million and $23 million for the three months ended March 31, 2020 and 2019, respectively. These amounts include recognized contractual termination benefit charges, curtailment gains, and settlement charges.
The following tables detail the components of net periodic benefit costs (credits) for other postretirement benefits for DTE Electric:
 
Other Postretirement Benefits
 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions)
Service cost
$
5

 
$
4

Interest cost
11

 
13

Expected return on plan assets
(22
)
 
(21
)
Amortization of:
 
 
 
Net actuarial loss
3

 
1

Prior service credit
(4
)
 
(1
)
Net periodic benefit credit
$
(7
)
 
$
(4
)

At the discretion of management, and depending upon economic and financial market conditions, DTE Energy anticipates making up to $185 million in contributions to the qualified pension plans during 2020, including $160 million of DTE Electric contributions. DTE Energy does not anticipate making any contributions to its other postretirement benefit plans in 2020.

NOTE 15 — 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 2.2 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.
Gas Storage and Pipelines is primarily engaged in services related to the gathering, transportation, and storage of natural gas.
Power and Industrial Projects is comprised primarily of projects that deliver energy and utility-type products and services to industrial, commercial, and institutional customers, produce reduced emissions fuel, and sell electricity and pipeline-quality gas from renewable energy projects.

53

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

Energy Trading consists of energy marketing and trading operations.
Corporate and Other includes various holding company activities, holds certain non-utility debt, and holds energy-related investments.
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 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.
Inter-segment billing for goods and services exchanged between segments is based upon tariffed or market-based prices of the provider and primarily consists of the sale of reduced emissions fuel, power sales, and natural gas sales in the following segments:
 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions)
Electric
$
15

 
$
14

Gas
4

 
2

Gas Storage and Pipelines
4

 
3

Power and Industrial Projects
94

 
145

Energy Trading
6

 
7

Corporate and Other
1

 
1

 
$
124

 
$
172



54

DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

Financial data of DTE Energy's business segments follows:
 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions)
Operating Revenues — Utility operations
 
 
 
Electric
$
1,212

 
$
1,235

Gas
540

 
645

Operating Revenues — Non-utility operations
 
 
 
Electric
4

 
—

Gas Storage and Pipelines
170

 
116

Power and Industrial Projects
307

 
388

Energy Trading
913

 
1,301

Corporate and Other
—

 
1

Reconciliation and Eliminations
(124
)
 
(172
)
Total
$
3,022

 
$
3,514


 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions)
Net Income (Loss) Attributable to DTE Energy by Segment:
 
 
 
Electric
$
94

 
$
147

Gas
121

 
151

Gas Storage and Pipelines
72

 
48

Power and Industrial Projects
30

 
26

Energy Trading
34

 
32

Corporate and Other
(11
)
 
(3
)
Net Income Attributable to DTE Energy Company
$
340

 
$
401




55


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 three energy-related non-utility segments with operations throughout the United States.
The following table summarizes DTE Energy's financial results:
 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions, except per share amounts)
Net Income Attributable to DTE Energy Company
$
340

 
$
401

Diluted Earnings per Common Share
$
1.76

 
$
2.19

The decrease in Net Income for the first quarter was primarily due to lower earnings in the Electric and Gas segments, partially offset by higher earnings in the Gas Storage and Pipelines segment.
During the first quarter 2020, the COVID-19 pandemic began impacting Michigan and the other service territories throughout the United States in which the Registrants operate. DTE Energy has taken certain safety precautions, including directing employees to work remotely whenever possible and pausing all non-critical construction projects. DTE Energy has complied with Michigan and other states' "stay-at-home" orders, which require employees to stay home unless their work is necessary to sustain or protect life, such as providing safe and reliable energy.
The spread of COVID-19 and efforts to contain the virus have resulted in closures and reduced operations of businesses, governmental agencies, and other institutions. This has also contributed to disruption and volatility in the financial markets. For certain non-qualified benefit plan trusts for which gains and losses affect earnings, this impact to financial markets resulted in pre-tax investment losses of $31 million for the Electric segment and $3 million for the Gas segment for the three months ended March 31, 2020.
Other impacts from the COVID-19 pandemic have included decreased demand within the Electric segment, which contributed to lower base sales for the quarter, and lower production within the Power and Industrial Projects segment, due to certain customers reducing their operations. The allowance for doubtful accounts was also increased for our utility customers. These impacts were not material to the Registrants' financial results for the three months ended March 31, 2020.
Please see detailed explanations of segment performance in the following "Results of Operations" section.
STRATEGY
DTE Energy's strategy is to achieve long-term earnings growth, a strong balance sheet, and an attractive dividend yield.
DTE Energy's utilities are investing capital to improve customer reliability through investments in base infrastructure and new generation, and to comply with environmental requirements. DTE Energy expects that planned significant capital investments will result in earnings growth. DTE Energy is focused on executing plans to achieve operational excellence and customer satisfaction with a focus on customer affordability. DTE Energy operates in a constructive regulatory environment and has solid relationships with its regulators.

56


DTE Energy is committed to reduce the carbon emissions of its electric utility operations by 32% by the early 2020s, 50% by 2030, and 80% by 2040 from the 2005 carbon emissions levels. DTE Energy is also committed to a net zero carbon emissions goal by 2050 for its electric utility operations. To achieve the reduction goals in the near term, DTE Energy will transition away from coal-powered sources and incorporate more renewable energy, energy waste reduction projects, demand response, and natural gas fueled generation. DTE Energy has already begun the transition in the way it produces power through the continued retirement of its aging coal-fired plants. Refer to the "Capital Investments" section below for further discussion.
DTE Energy has significant investments in non-utility businesses. DTE Energy employs disciplined investment criteria when assessing growth opportunities that leverage its assets, skills, and expertise, and provides diversity in earnings and geography. Specifically, DTE Energy invests in targeted energy markets with attractive competitive dynamics where meaningful scale is in alignment with its risk profile. DTE Energy expects growth opportunities in the Gas Storage and Pipelines and Power and Industrial Projects segments.
A key priority for DTE Energy is to maintain a strong balance sheet which facilitates access to capital markets and reasonably priced short-term and long-term financing. Near-term growth will be funded through internally generated cash flows and the issuance of debt and equity. DTE Energy has an enterprise risk management program that, among other things, is designed to monitor and manage exposure to earnings and cash flow volatility related to commodity price changes, interest rates, and counterparty credit risk.
CAPITAL INVESTMENTS
DTE Energy's utility businesses require significant capital investments to maintain and improve the electric generation and electric and natural gas distribution infrastructure and to comply with environmental regulations and renewable energy requirements.
DTE Electric's capital investments over the 2020-2024 period are estimated at $12.0 billion comprised of $4.0 billion for capital replacements and other projects, $5.0 billion for distribution infrastructure, and $3.0 billion for new generation. DTE Electric has retired five coal-fired generation units at the Trenton Channel, River Rouge, and St. Clair facilities and has announced plans to retire its remaining twelve coal-fired generating units. Six of these coal-fired generating units will be retired through 2022 at the Trenton Channel, River Rouge, and St. Clair facilities. The remaining coal-fired generating units at the Belle River and Monroe facilities are expected to be retired by 2040. The retired facilities will be replaced with renewables, energy waste reduction, demand response, and natural gas fueled generation.
DTE Gas' capital investments over the 2020-2024 period are estimated at $3.0 billion comprised of $1.4 billion for base infrastructure, and $1.6 billion for gas main renewal, meter move out, and pipeline integrity programs.
DTE Electric and DTE Gas plan to seek regulatory approval for capital expenditures consistent with ratemaking treatment.
DTE Energy's non-utility businesses' capital investments are primarily for expansion, growth, and ongoing maintenance. Gas Storage and Pipelines' capital investments over the 2020-2024 period are estimated at $2.2 billion to $2.7 billion for gathering and pipeline investments and expansions. Power and Industrial Projects' capital investments over the 2020-2024 period are estimated at $1.0 billion to $1.4 billion for industrial energy services and RNG projects.
ENVIRONMENTAL MATTERS
The Registrants are subject to extensive environmental regulations. 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 which could provide new business opportunities for DTE Energy's utility and non-utility segments. At the present time, it is not possible to quantify the financial impacts of these climate related regulatory initiatives on the Registrants or their customers.
For further discussion of environmental matters, see Note 13 to the Consolidated Financial Statements, "Commitments and Contingencies."

57


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;
•
gas distribution system renewal;
•
rate competitiveness and affordability;
•
regulatory stability and investment recovery for the electric and gas utilities;
•
employee safety and engagement;
•
cost structure optimization across all business segments;
•
cash, capital, and liquidity to maintain or improve financial strength; and
•
investments that integrate assets and leverage skills and expertise.
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.
In the near term, DTE Energy will continue to monitor the impact of the COVID-19 pandemic on supply chains, markets, counterparties, and customers, and any related impacts on the operating costs, customer demand, and recoverability of assets in our business segments that could materially impact the Registrants financial results. At this time, the Registrants cannot predict the ultimate impact of these factors to our Consolidated Financial Statements, as future developments involving the severity of COVID-19, actions to contain or treat its impact, and the extent to which normal economic and operating conditions can resume are highly uncertain.
DTE Energy will also monitor and evaluate the impact of any regulatory and legislative activities related to the COVID-19 pandemic, including the MPSC order on April 15, 2020 which authorized the deferral of certain uncollectible expenses. Refer to Note 6 to the Consolidated Financial Statements, "Regulatory Matters," for further detail regarding the order.

RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations includes financial information prepared in accordance with GAAP, as well as the non-GAAP financial measures, Utility Margin and Non-utility Margin, discussed below, which DTE Energy uses as measures of its operational performance. Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP.
DTE Energy uses Utility Margin and Non-utility Margin, non-GAAP financial measures, to assess its performance by reportable segment.
Utility Margin includes electric utility and gas utility Operating Revenues net of Fuel, purchased power, and gas expenses. The utilities’ fuel, purchased power, and natural gas supply are passed through to customers, and therefore, result in changes to the utilities’ revenues that are comparable to changes in such expenses. As such, DTE Energy believes Utility Margin provides a meaningful basis for evaluating the utilities’ operations across periods, as it excludes the revenue effect of fluctuations in these expenses. For the Electric segment, non-utility Operating Revenues are reported separately so that Utility Margin can be used to assess utility performance.

58


The Non-utility Margin relates to the Power and Industrial Projects and Energy Trading segments. For the Power and Industrial Projects segment, Non-utility Margin primarily includes Operating Revenues net of Fuel, purchased power, and gas expenses. Operating Revenues include sales of refined coal to third parties and the affiliated Electric utility, metallurgical coke and related by-products, petroleum coke, renewable natural gas, and electricity, as well as rental income and revenues from utility-type consulting, management, and operational services. For the Energy Trading segment, Non-utility Margin includes revenue and realized and unrealized gains and losses from physical and financial power and gas marketing, optimization, and trading activities, net of Purchased power and gas related to these activities. DTE Energy evaluates its operating performance of these non-utility businesses using the measure of Operating Revenues net of Fuel, purchased power, and gas expenses.
Utility Margin and Non-utility Margin are not measures calculated in accordance with GAAP and should be viewed as a supplement to and not a substitute for the results of operations presented in accordance with GAAP. Utility Margin and Non-utility Margin do not intend to represent operating income, the most comparable GAAP measure, as an indicator of operating performance and are not necessarily comparable to similarly titled measures reported by other companies.
The following sections provide a detailed discussion of the operating performance and future outlook of DTE Energy's segments. Segment information, described below, includes intercompany revenues and expenses, and other income and deductions that are eliminated in the Consolidated Financial Statements.
 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions)
Net Income (Loss) Attributable to DTE Energy by Segment
 
 
 
Electric
$
94

 
$
147

Gas
121

 
151

Gas Storage and Pipelines
72

 
48

Power and Industrial Projects
30

 
26

Energy Trading
34

 
32

Corporate and Other
(11
)
 
(3
)
Net Income Attributable to DTE Energy Company
$
340

 
$
401

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 are discussed below:
 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions)
Operating Revenues — Utility operations
$
1,212

 
$
1,235

Fuel and purchased power — utility
294

 
346

Utility Margin
918

 
889

Operating Revenues — Non-utility operations
4

 
—

Operation and maintenance
356

 
352

Depreciation and amortization
261

 
221

Taxes other than income
83

 
84

Operating Income
222

 
232

Other (Income) and Deductions
115

 
56

Income Tax Expense
13

 
29

Net Income Attributable to DTE Energy Company
$
94

 
$
147

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 and the classification of certain benefit costs. Refer to Note 14 to the Consolidated Financial Statements, "Retirement Benefits and Trusteed Assets" for additional information.

59


Utility Margin increased $29 million in the three months ended March 31, 2020. Revenues associated with certain mechanisms and surcharges are offset by related expenses elsewhere in the Registrants' Consolidated Statements of Operations.
The following table details changes in various Utility Margin components relative to the comparable prior period:
 
Three Months
 
(In millions)
Implementation of new rates
$
68

Base sales
(5
)
Regulatory mechanism — TRM
(13
)
Weather
(33
)
Other regulatory mechanisms and other
12

Increase in Utility Margin
$
29

 
Three Months Ended March 31,
 
2020
 
2019
 
(In thousands of MWh)
DTE Electric Sales
 
 
 
Residential
3,570

 
3,688

Commercial
3,909

 
4,077

Industrial
2,302

 
2,460

Other
60

 
63

 
9,841

 
10,288

Interconnection sales(a)
408

 
1,030

Total DTE Electric Sales
10,249

 
11,318

 
 
 
 
DTE Electric Deliveries
 
 
 
Retail and wholesale
9,841

 
10,288

Electric retail access, including self-generators(b)
1,043

 
1,120

Total DTE Electric Sales and Deliveries
10,884

 
11,408

______________________________
(a)
Represents power that is not distributed by DTE Electric.
(b)
Represents deliveries for self-generators that have purchased power from alternative energy suppliers to supplement their power requirements.
Operating Revenues - Non-utility operations increased $4 million in the three months ended March 31, 2020 due to renewable energy projects acquired by DTE Sustainable Generation in September 2019.
Operation and maintenance expense increased $4 million in the three months ended March 31, 2020. The increase was primarily due to $10 million higher generation expense, partially offset by $6 million of lower benefit costs.
Depreciation and amortization expense increased $40 million in the three months ended March 31, 2020. The increase was primarily due to a higher utility depreciable base of $47 million and a $3 million increase resulting from new non-utility assets at DTE Sustainable Generation, partially offset by a decrease of $10 million associated with the TRM.
Other (Income) and Deductions increased $59 million in the three months ended March 31, 2020. The increase was primarily due to a change in investment earnings (loss of $31 million in 2020 compared to a gain of $17 million in 2019) and $7 million of higher interest expense.
Income Tax Expense decreased $16 million in the three months ended March 31, 2020 primarily due to lower earnings and amortization of the TCJA regulatory liability.
Outlook — DTE Electric will continue to move forward in its efforts to achieve operational excellence, sustain strong cash flows, and earn its authorized return on equity. DTE Electric expects that planned significant capital investments will result in earnings growth. DTE Electric will maintain a strong focus on customers by increasing reliability and satisfaction while keeping customer rate increases affordable. Looking forward, additional factors may impact earnings such as weather, the outcome of regulatory proceedings, benefit plan design changes, investment returns and changes in discount rate assumptions in benefit plans and health care costs, uncertainty of legislative or regulatory actions regarding climate change, and effects of energy waste reduction programs.

60


DTE Electric filed a rate case with the MPSC on July 8, 2019 requesting an increase in base rates of $351 million based on a projected twelve-month period ending April 30, 2021. The requested increase in base rates is primarily due to an increase in net plant resulting from infrastructure and generation investments. The rate filing also requests an increase in return on equity from 10.0% to 10.5% and includes projected changes in sales and operating and maintenance expenses. A final MPSC order in this case is expected by May 2020. Refer to Note 6 to the Consolidated Financial Statements, "Regulatory Matters" for additional information.
DTE Electric is also monitoring the impacts of the COVID-19 pandemic on future operations and financial results. Refer to the "Executive Overview" and "Outlook" sections above for DTE Energy's consideration of COVID-19 impacts on our business segments.
GAS
The Gas segment consists principally of DTE Gas. Gas results are discussed below:
 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions)
Operating Revenues — Utility operations
$
540

 
$
645

Cost of gas — utility
178

 
241

Utility Margin
362

 
404

Operation and maintenance
121

 
128

Depreciation and amortization
37

 
35

Taxes other than income
25

 
24

Operating Income
179

 
217

Other (Income) and Deductions
22

 
16

Income Tax Expense
36

 
50

Net Income Attributable to DTE Energy Company
$
121

 
$
151

Utility Margin decreased $42 million in the three months ended March 31, 2020. Revenues associated with certain mechanisms and surcharges are offset by related expenses elsewhere in DTE Energy's Consolidated Statements of Operations.
The following table details changes in various Utility Margin components relative to the comparable prior period:
 
Three Months
 
(In millions)
Weather
$
(43
)
TCJA rate reduction liability
(6
)
Infrastructure recovery mechanism
8

Other regulatory mechanisms and other
(1
)
Increase (decrease) in Utility Margin
$
(42
)
 
Three Months Ended March 31,
 
2020
 
2019
 
(In Bcf)
Gas Markets
 
 
 
Gas sales
58

 
69

End-user transportation
57

 
58

 
115

 
127

Intermediate transportation
128

 
127

Total Gas sales
243

 
254

Operation and maintenance expense decreased $7 million in the three months ended March 31, 2020 primarily due to lower gas operations expense.

61


Other (Income) and Deductions increased $6 million in the three months ended March 31, 2020 primarily due to a change in investment earnings (loss of $3 million in 2020 compared to a gain of $2 million in 2019).
Income Tax Expense decreased $14 million in the three months ended March 31, 2020 primarily due to lower earnings and amortization of the TCJA regulatory liability.
Outlook — DTE Gas will continue to move forward in its efforts to achieve operational excellence, sustain strong cash flows, and earn its authorized return on equity. DTE Gas expects that planned significant infrastructure capital investments will result in earnings growth. Looking forward, additional factors may impact earnings such as weather, the outcome of regulatory proceedings, benefit plan design changes, and investment returns and changes in discount rate assumptions in benefit plans and health care costs. DTE Gas expects to continue its efforts to improve productivity and decrease costs while improving customer satisfaction with consideration of customer rate affordability.
DTE Gas filed a rate case with the MPSC on November 25, 2019 requesting an increase in base rates of $204 million based on a projected twelve-month period ending September 30, 2021.  The requested increase in base rates is primarily due to an increase in net plant resulting from infrastructure investments and operating and maintenance expenses.  The rate filing also requests an increase in return on equity from 10.0% to 10.5% and includes projected changes in sales and working capital.  A final MPSC order in this case is expected by September 2020. Refer to Note 6 to the Consolidated Financial Statements, "Regulatory Matters" for additional information.
DTE Gas is also monitoring the impacts of the COVID-19 pandemic on future operations and financial results. Refer to the "Executive Overview" and "Outlook" sections above for DTE Energy's consideration of COVID-19 impacts on our business segments.
GAS STORAGE AND PIPELINES
The Gas Storage and Pipelines segment consists of the non-utility gas pipelines and storage businesses. Gas Storage and Pipelines results are discussed below:
 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions)
Operating Revenues — Non-utility operations
$
170

 
$
116

Cost of sales — Non-utility
4

 
—

Operation and maintenance
28

 
25

Depreciation and amortization
36

 
22

Taxes other than income
5

 
3

Operating Income
97

 
66

Other (Income) and Deductions
(3
)
 
(6
)
Income Tax Expense
26

 
18

Net Income
74

 
54

Less: Net Income Attributable to Noncontrolling Interests
2

 
6

Net Income Attributable to DTE Energy Company
$
72

 
$
48

Operating Revenues — Non-utility operations increased $54 million in the three months ended March 31, 2020 primarily due to the acquisition of Blue Union.
Cost of sales — Non-utility increased $4 million in the three months ended March 31, 2020 primarily due to the acquisition of Blue Union.
Operation and maintenance expense increased $3 million in the three months ended March 31, 2020. The increase was primarily due to the acquisition of Blue Union, partially offset by cost savings initiatives.
Depreciation and amortization expense increased $14 million in the three months ended March 31, 2020 primarily due to the acquisition of Blue Union.
Other (Income) and Deductions decreased $3 million in the three months ended March 31, 2020. The decrease was primarily due to interest expense related to the Blue Union acquisition, partially offset by higher pipeline earnings.
Income Tax Expense increased $8 million in the three months ended March 31, 2020 primarily due to higher earnings.

62


Net Income Attributable to Noncontrolling Interests decreased $4 million in the three months ended March 31, 2020. The decrease was primarily due to the May 2019 purchase of an additional 30% ownership interest in SGG.
See Note 4 to the Consolidated Financial Statements, "Acquisitions," for discussion of the acquisition of Blue Union and LEAP in December 2019.
Outlook — Significant expansion activities are underway to increase capacity of the Blue Union and LEAP assets, which provide natural gas gathering and other midstream services to producers located primarily in Louisiana.
DTE Energy believes its long-term agreements with producers and the quality of the natural gas reserves in the Marcellus/Utica and Haynesville shale regions soundly position the business for future revenues. Gas Storage and Pipelines will continue to execute quality investments, with a focus on continued organic growth from well-positioned existing assets.
Recent declines in commodity prices can have a negative impact on customers of Gas Storage and Pipelines if sustained for an extended period. DTE Energy continues to work with its customers by executing short, medium, and long-term storage, gathering, and transportation contracts.
Gas Storage and Pipelines is also monitoring the impacts of the COVID-19 pandemic on future operations and financial results. Refer to the "Executive Overview" and "Outlook" sections above for DTE Energy's consideration of COVID-19 impacts on our business segments.
POWER AND INDUSTRIAL PROJECTS
The Power and Industrial Projects segment is comprised primarily of projects that deliver energy and utility-type products and services to industrial, commercial, and institutional customers, produce reduced emissions fuel, and sell electricity and pipeline-quality gas from renewable energy projects. Power and Industrial Projects results are discussed below:
 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions)
Operating Revenues — Non-utility operations
$
307

 
$
388

Fuel, purchased power, and gas — non-utility
225

 
304

Non-utility Margin
82

 
84

Operation and maintenance
69

 
81

Depreciation and amortization
18

 
17

Taxes other than income
4

 
4

Asset (gains) losses and impairments, net
(10
)
 
—

Operating Income (Loss)
1

 
(18
)
Other (Income) and Deductions
(19
)
 
(27
)
Income Taxes
 
 
 
Expense
5

 
3

Production Tax Credits
(15
)
 
(21
)
 
(10
)
 
(18
)
Net Income
30

 
27

Less: Net Income Attributable to Noncontrolling Interests
—

 
1

Net Income Attributable to DTE Energy Company
$
30

 
$
26

Operating Revenues — Non-utility operations decreased $81 million in the three months ended March 31, 2020. The decrease was due to the following:
 
Three Months
 
(In millions)
Lower production in the REF business
$
(69
)
Lower demand and prices in the Steel business
(11
)
Other
(1
)
 
$
(81
)

63


Non-utility Margin decreased $2 million in the three months ended March 31, 2020. The decrease was due to the following:
 
Three Months
 
(In millions)
Lower demand and prices in the Steel business
$
(4
)
New projects offset by lower demand in the On-site business
1

New project in the Renewables business
1

 
$
(2
)
Operation and maintenance expense decreased $12 million in the three months ended March 31, 2020 primarily due to lower maintenance spending and lower production in the REF business.
Asset (gains) losses and impairments, net increased $10 million in the three months ended March 31, 2020. The increase was primarily due to the write-off of environmental liabilities upon completing site remediation in the Steel business and the sale of assets in the On-site business.
Other (Income) and Deductions decreased $8 million in the three months ended March 31, 2020. The decrease in the first quarter was primarily due to lower production in the REF business and insurance proceeds received in 2019 in the Renewables business.
Income Taxes — Production Tax Credits decreased $6 million in the three months ended March 31, 2020 primarily due to lower production in the REF business.
Outlook — Power and Industrial Projects will continue to leverage its extensive energy-related operating experience and project management capability to develop additional energy and renewable natural gas projects to serve energy intensive industrial customers in addition to optimizing the REF facilities until the phase out at the end of 2021.
Power and Industrial Projects is also monitoring the impacts of the COVID-19 pandemic on future operations and financial results. Refer to the "Executive Overview" and "Outlook" sections above for DTE Energy's consideration of COVID-19 impacts on our business segments.
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 are discussed below:
 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions)
Operating Revenues — Non-utility operations
$
913

 
$
1,301

Purchased power and gas — non-utility
841

 
1,235

Non-utility Margin
72

 
66

Operation and maintenance
23

 
19

Depreciation and amortization
1

 
1

Taxes other than income
2

 
2

Operating Income
46

 
44

Other (Income) and Deductions
1

 
1

Income Tax Expense
11

 
11

Net Income Attributable to DTE Energy Company
$
34

 
$
32

Operating Revenues — Non-utility operations decreased $388 million in the three months ended March 31, 2020 primarily due to a decrease in gas prices in the gas structured strategy.

64


Non-utility Margin increased $6 million in the three months ended March 31, 2020. The following table details changes in Non-utility margin relative to the comparable prior period:
 
Three Months
 
(In millions)
Unrealized Margins(a)
 
Favorable results, primarily in environmental trading and gas structured strategies
$
54

Unfavorable results, primarily in the gas transportation strategy(b)
(29
)
 
25

Realized Margins(a)
 
Favorable results, primarily in power trading and gas storage strategies
17

Unfavorable results, primarily in gas structured and environmental trading strategies(c)
(36
)
 
(19
)
Increase in Non-utility Margin
$
6

_______________________________________
(a)
Natural gas structured transactions typically involve a physical purchase or sale of natural gas in the future and/or natural gas basis financial instruments which are derivatives and a related non-derivative pipeline transportation contract. These gas structured transactions can result in significant earnings volatility as the derivative components are marked-to-market without revaluing the related non-derivative contracts.
(b)
Amount includes $15 million of timing related losses related to gas strategies which will reverse in future periods as the underlying contracts settle.
(c)
Amount includes $7 million of timing related gains related to gas strategies recognized in previous periods that reversed as the underlying contracts settled.
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 8 and 9 to the Consolidated Financial Statements, "Fair Value" and "Financial and Other Derivative Instruments," respectively.
Energy Trading is also monitoring the impacts of the COVID-19 pandemic on future operations and financial results. Refer to the "Executive Overview" and "Outlook" sections above for DTE Energy's consideration of COVID-19 impacts on our business segments.
CORPORATE AND OTHER
Corporate and Other includes various holding company activities, holds certain non-utility debt, and holds energy-related investments. The net loss of $11 million for the three months ended March 31, 2020 represents an increase of $8 million from the net loss of $3 million in the comparable 2019 period. The increase was primarily due to lower excess tax benefits on stock-based compensation and effective income tax rate adjustments.

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 2020 will be approximately $3.0 billion. DTE Energy anticipates base level utility capital investments, including environmental, renewable, and energy waste reduction expenditures; expenditures for non-utility businesses; and contributions to equity method investees in 2020 of approximately $4.5 billion. 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.

65


 
Three Months Ended March 31,
 
2020
 
2019
 
(in millions)
Cash, Cash Equivalents, and Restricted Cash, Beginning
$
93

 
$
76

Net cash from operating activities
1,061

 
752

Net cash used for investing activities
(1,342
)
 
(748
)
Net cash from (used for) financing activities
864

 
(19
)
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash
583

 
(15
)
Cash, Cash Equivalents, and Restricted Cash, Ending
$
676

 
$
61

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 $309 million in 2020. The increase is primarily due to an increase in cash flow from working capital items and an increase in Deferred income taxes.
The change in working capital items in 2020 was primarily related to a decrease in cash used for Accounts payable, Accrued pension costs, and Other current and noncurrent assets and liabilities, partially offset by an increase in cash used for Regulatory assets and liabilities and Inventories.
Cash used for Investing Activities
Cash inflows associated with investing activities are primarily generated from the sale of assets, while cash outflows are the result of plant and equipment expenditures and acquisitions. In any given year, DTE Energy looks to realize cash from under-performing or non-strategic assets or matured, fully valued assets.
Capital spending within the utility businesses is primarily to maintain and improve electric generation and the electric and natural gas distribution infrastructure, and to comply with environmental regulations and renewable energy requirements.
Capital spending within the non-utility businesses is primarily for ongoing maintenance, expansion, and growth. DTE Energy looks to make growth investments that meet strict criteria in terms of strategy, management skills, risks, and returns. All new investments are analyzed for their rates of return and cash payback on a risk adjusted basis. DTE Energy has been disciplined in how it deploys capital and will not make investments unless they meet the criteria. For new business lines, DTE Energy initially invests based on research and analysis. DTE Energy starts with a limited investment, evaluates the results, and either expands or exits the business based on those results. In any given year, the amount of growth capital will be determined by the underlying cash flows of DTE Energy, with a clear understanding of any potential impact on its credit ratings.
Net cash used for investing activities increased by $594 million in 2020 primarily due to higher Plant and equipment expenditures and new acquisitions, as described in Note 4 to the Consolidated Financial Statements.
Cash from (used for) 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 increased by $883 million in 2020 primarily due to an increase in issuance of long-term and short-term debt, partially offset by an increase in redemptions of long-term debt.

66


Outlook
DTE Energy expects cash flows from operations to increase over the long-term, primarily as a result of growth from the utility and non-utility businesses. Growth in the utilities is expected to be driven primarily by capital spending which will increase the base from which rates are determined. Non-utility growth is expected from additional investments, primarily in the Gas Storage and Pipelines and Power and Industrial Projects segments.
DTE Energy 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.
DTE Energy has approximately $0.4 billion in long-term debt, including finance leases, maturing in the next twelve months. The repayment of the debt is expected to be paid through internally generated funds or the issuance of unsecured term loans or long-term debt.
DTE Energy has approximately $2.5 billion of available liquidity at March 31, 2020, consisting of cash, amounts available under unsecured revolving credit agreements, and unsecured term loans.
At the discretion of management and depending upon economic and financial market conditions, DTE Energy expects to issue equity up to $300 million in 2020. If issued, DTE Energy anticipates up to $185 million of these equity issuances will be made through contributions to the qualified pension plans, including $160 million of DTE Electric contributions. DTE Energy does not anticipate making any contributions to the other postretirement plans in 2020.
Various subsidiaries and equity investees of DTE Energy have entered into contracts which contain ratings triggers and are guaranteed by DTE Energy. These contracts contain provisions which allow the counterparties to require that DTE Energy post cash or letters of credit as collateral in the event that DTE Energy's credit rating is downgraded below investment grade. Certain of these provisions (known as "hard triggers") state specific circumstances under which DTE Energy can be required to post collateral upon the occurrence of a credit downgrade, while other provisions (known as "soft triggers") are not as specific. For contracts with soft triggers, it is difficult to estimate the amount of collateral which may be requested by counterparties and/or which DTE Energy may ultimately be required to post. The amount of such collateral which could be requested fluctuates based on commodity prices (primarily natural gas, power, and coal) and the provisions and maturities of the underlying transactions. As of March 31, 2020, 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 $381 million.
In April 2020, Fitch Ratings downgraded DTE Energy's unsecured debt rating from BBB+ to BBB. The downgrade primarily reflects increased leverage and business risk associated with DTE Energy's acquisition of midstream natural gas assets in December 2019. Refer to Note 4 to the Consolidated Financial Statements, "Acquisitions," for additional information. We do not expect the downgrade to negatively impact DTE Energy's liquidity or access to the capital markets.
DTE Energy is also actively monitoring the impact of the COVID-19 pandemic on capital markets and any related effects to our cost of capital. During the three months ended March 31, 2020, concerns over the pandemic led to a lack of liquidity in the commercial paper market and increases to related borrowing costs. Despite these impacts, the Registrants have maintained adequate liquidity due to the availability of committed credit facilities and by raising additional liquidity through term loans and the public issuance of utility debt, while paying off maturing commercial paper.
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.
See Notes 6, 10, 11, 13, and 14 to the Consolidated Financial Statements, "Regulatory Matters," "Long-Term Debt," "Short-Term Credit Arrangements and Borrowings," "Commitments and Contingencies," and "Retirement Benefits and Trusteed Assets," respectively.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 3 to the Consolidated Financial Statements, "New Accounting Pronouncements."

67


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 8 and 9 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 8 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, 2019
$
5

Reclassified to realized upon settlement
(20
)
Changes in fair value recorded to income
52

Amounts recorded to unrealized income
32

Changes in fair value recorded in regulatory liabilities
(2
)
MTM at March 31, 2020
$
35

The table below shows the maturity of DTE Energy's MTM positions. The positions from 2023 and beyond principally represent longer tenor gas structured transactions:
Source of Fair Value
 
2020
 
2021
 
2022
 
2023 and Beyond
 
Total Fair Value
 
 
(In millions)
Level 1
 
$
(34
)
 
$
(6
)
 
$
(2
)
 
$
(1
)
 
$
(43
)
Level 2
 
23

 
23

 
3

 
5

 
54

Level 3
 
23

 
10

 
11

 
(20
)
 
24

MTM before collateral adjustments
 
$
12

 
$
27

 
$
12

 
$
(16
)
 
35

Collateral adjustments
 
 
 
 
 
 
 
 
 
—

MTM at March 31, 2020
 
 
 
 
 
 
 
 
 
$
35



68


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. In addition, changes in the price of natural gas can impact the valuation of lost and stolen gas, storage sales, and transportation services revenue at the Gas segment. The Gas segment manages its market price risk related to storage sales revenue primarily through the sale of long-term storage contracts. The Registrants are exposed to short-term cash flow or liquidity risk as a result of the time differential between actual cash settlements and regulatory rate recovery.
DTE Energy's Gas Storage and Pipelines segment has exposure to natural gas price fluctuations which impact the pricing for natural gas storage, gathering, and transportation. DTE Energy manages its exposure through the use of short, medium, and long-term storage, gathering, and transportation contracts.
DTE Energy's Power and Industrial Projects business segment is subject to electricity, natural gas, and coal product price risk. DTE Energy manages its exposure to commodity price risk through the use of long-term contracts.
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 pre-determined risk parameters.
Credit Risk
Bankruptcies
DTE Energy's Power and Industrial Projects segment holds ownership interests in, and operates, five generating plants that sell electric output from renewable sources under long-term power purchase agreements with PG&E. PG&E filed for Chapter 11 bankruptcy protection on January 29, 2019. As of March 31, 2020, PG&Es account is substantially current and outstanding accounts receivable from PG&E are not material. Therefore, DTE Energy determined no reserve was necessary.
As of March 31, 2020, the book value of long-lived assets and operating lease right-of-use assets used in producing electric output for sale to PG&E was approximately $100 million. The Power and Industrial Projects segment also has equity investments, including a note receivable, of approximately $69 million in entities that sell power to PG&E. In January 2019, following the bankruptcy filing, DTE Energy performed an impairment analysis on its long-lived assets. Based on its undiscounted cash flow projections, DTE Energy determined it did not have an impairment loss as of December 31, 2018. DTE Energy also determined there was not an other-than-temporary decline in its equity investments. DTE has not identified subsequent facts or circumstances that would cause a change to these conclusions through March 31, 2020. DTE Energy's assumptions and conclusions may change, and it could have impairment losses if any of the terms of the contracts are not honored by PG&E or the contracts are rejected through the bankruptcy process.
Allowance for Doubtful Accounts
The Registrants regularly review contingent matters 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.

69


Trading Activities
DTE Energy is exposed to credit risk through trading activities. Credit risk is the potential loss that may result if the trading counterparties fail to meet their contractual obligations. DTE Energy utilizes both external and internal credit assessments when determining the credit quality of trading counterparties.
The following table displays the credit quality of DTE Energy's trading counterparties as of March 31, 2020:
 
Credit Exposure
Before Cash
Collateral
 
Cash
Collateral
 
Net Credit
Exposure
 
(In millions)
Investment Grade(a)
 
 
 
 
 
A- and Greater
$
213

 
$
—

 
$
213

BBB+ and BBB
187

 
—

 
187

BBB-
17

 
—

 
17

Total Investment Grade
417

 
—

 
417

Non-investment grade(b)
4

 
—

 
4

Internally Rated — investment grade(c)
362

 
(1
)
 
361

Internally Rated — non-investment grade(d)
20

 
—

 
20

Total
$
803

 
$
(1
)
 
$
802

_______________________________________
(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 17% 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 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 13% 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, and LIBOR. As of March 31, 2020, DTE Energy had a floating rate debt-to-total debt ratio of 6.10%.
Foreign Currency Exchange Risk
DTE Energy has foreign currency exchange risk arising from market price fluctuations associated with fixed priced contracts. These contracts are denominated in Canadian dollars and are primarily for the purchase and sale of natural gas and power, as well as for long-term transportation capacity. To limit DTE Energy's exposure to foreign currency exchange fluctuations, DTE Energy has entered into a series of foreign currency exchange forward contracts through June 2024.

70


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 March 31, 2020 and 2019 by a hypothetical 10% and calculating the resulting change in the fair values.
The results of the sensitivity analyses:
 
 
Assuming a
10% Increase in Prices/Rates
 
Assuming a
10% Decrease in Prices/Rates
 
 
 
 
As of March 31,
 
As of March 31,
 
 
Activity
 
2020
 
2019
 
2020
 
2019
 
Change in the Fair Value of
 
 
(In millions)
 
 
Environmental contracts
 
$
(4
)
 
$
—

 
$
2

 
$
—

 
Commodity contracts
Gas contracts
 
$
18

 
$
20

 
$
(18
)
 
$
(20
)
 
Commodity contracts
Power contracts
 
$
5

 
$
1

 
$
(5
)
 
$
(3
)
 
Commodity contracts
Interest rate risk — DTE Energy
 
$
(701
)
 
$
(636
)
 
$
731

 
$
683

 
Long-term debt
Interest rate risk — DTE Electric
 
$
(328
)
 
$
(310
)
 
$
351

 
$
335

 
Long-term debt
For further discussion of market risk, see Note 9 to the Consolidated Financial Statements, "Financial and Other Derivative Instruments."


71


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 March 31, 2020, 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 March 31, 2020 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 March 31, 2020, 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 March 31, 2020 that have materially affected, or are reasonably likely to materially affect, DTE Electric's internal control over financial reporting.


72


Part II — Other Information
Item 1. Legal Proceedings
For information on legal proceedings and matters related to the Registrants, see Notes 6 and 13 to the Consolidated Financial Statements, "Regulatory Matters" and "Commitments and Contingencies," respectively.

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 2019 Annual Report on Form 10-K. Although the Registrants have tried to identify and discuss key risk factors, others could emerge in the future. For the three months ended March 31, 2020, one additional risk factor was identified as noted below:
The COVID-19 pandemic and resulting impact on business and economic conditions could negatively affect the Registrants' businesses and operations. The COVID-19 pandemic is currently impacting countries, communities, supply chains and markets. The continued spread of COVID-19 and efforts to contain the virus, such as quarantines or closures or reduced operations of businesses, governmental agencies and other institutions, has caused an economic slowdown, and could lead to a recession, result in significant disruptions in various public, commercial or industrial activities and cause employee absences which could interfere with operation and maintenance of the Registrants' facilities. Travel bans and restrictions, quarantines, and shelter-in-place orders (including those in effect in our service areas in the State of Michigan) could also cause us to experience operational delays, delay the delivery of critical infrastructure and other supplies we source globally, delay the connection of electric or gas service to new customers, and significantly reduce the use of electricity and gas by our customers. We have experienced lower sales volumes in some operating segments, and any of the foregoing circumstances could further adversely affect customer demand or revenues, impact the ability of the Registrants' suppliers, vendors or contractors to perform, or cause other unpredictable events, which could adversely affect the Registrants' businesses, results of operations or financial condition. The continued spread of COVID-19 has also led to disruption and volatility in the financial markets, which could increase the Registrants' costs to fund capital requirements and impact the operating results of our energy trading operations. To the extent that the Registrants' access to the capital markets is adversely affected by COVID-19, the Registrants may need to consider alternative sources of funding for our operations and for working capital, any of which could increase the Registrants' cost of capital. The extent to which COVID-19 may impact the Registrants' liquidity, financial condition, and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information concerning the severity of COVID-19 and the actions taken to contain it or treat its impact, and the extent to which normal economic and operating conditions can resume, among others. Our business continuity plans and insurance coverage may be insufficient to mitigate these adverse impacts to our business. In addition, the Registrants’ decision to suspend shut-offs for certain customers may adversely impact the Registrants’ collections process, which could have a negative impact on our results of operations, financial condition, and liquidity.

73


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 March 31, 2020:
 
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
01/01/20 - 01/31/20
7,802

 
$
119.17

 
—

 
—

 
—

02/01/20 - 02/29/20
35,055

 
$
132.61

 
—

 
—

 
—

03/01/20 - 03/31/20
—

 
$
—

 
—

 
—

 
—

Total
42,857

 
 
 
—

 
 
 
 
_______________________________________
(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.

74


Item 6. Exhibits
Exhibit Number
 
Description
 
DTE
Energy
 
DTE
Electric
 
 
 
 
 
 
 
 
 
(i) Exhibits filed herewith:
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental Indenture dated as of February 1, 2020, to the 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. (2020 Series A and B)
 
X
 
X
 
 
 
 
 
 
 
 
Supplemental Indenture dated as of April 1, 2020, to the 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. (2020 Series C)
 
X
 
X
 
 
 
 
 
 
 
 
Transition and Separation Agreement between Peter Oleksiak and DTE Energy Corporate Services, LLC, for the benefit of DTE Energy Company dated March 23, 2020
 
X
 
 
 
 
 
 
 
 
 
 
Fourth Amendment to the DTE Energy Company Executive Supplemental Retirement Plan (Amended and Restated Effective January 1, 2005) dated as of March 13, 2020
 
X
 
 
 
 
 
 
 
 
 
 
Term Loan Credit Agreement, dated as of March 24, 2020, by and among DTE Energy Company and the lenders party thereto, US. Bank National Association as Administrative Agent and Sole Book Runner and U.S. Bank National Association, KeyBanc Capital Markets Inc. and PNC Capital Markets LLC, as Joint Lead Arrangers
 
X
 
 
 
 
 
 
 
 
 
 
Term Loan Credit Agreement, dated as of March 27, 2020, by and among DTE Energy Company and the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and JPMorgan Chase Bank, N.A., as Lead Arranger and Sole Book Runner
 
X
 
 
 
 
 
 
 
 
 
 
Term Loan Credit Agreement, dated as of April 3, 2020, by and among DTE Gas Company and the lenders party thereto, The Bank of Nova Scotia as Administrative Agent and The Bank of Nova Scotia as Lead Arranger and Sole Book Runner
 
X
 
 
 
 
 
 
 
 
 
 
Term Loan Credit Agreement, dated as of April 8, 2020, by and among DTE Electric Company and the lenders party thereto, The Barclays Bank PLC as Administrative Agent and The Barclays Bank PLC as Lead Arranger and Sole Book Runner
 
X
 
X
 
 
 
 
 
 
 
 
Term Loan Agreement, dated as of April 16, 2020, by and among DTE Electric Company and the lenders party thereto, Mizuhu Bank, Ltd. as Administrative Agent, Lead Arranger and Sole Book Runner
 
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
 
 
 
 
 
 
 

75


Exhibit Number
 
Description
 
DTE
Energy
 
DTE
Electric
 
 
 
 
 
 
 
 
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


76


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:
April 28, 2020
 
 
 
 
 
DTE ENERGY COMPANY
 
 
 
 
 
 
By:
/S/ MARK C. ROLLING
 
 
 
Mark C. Rolling
Vice President, Controller, and Chief Accounting Officer
 
 
 
(Duly Authorized Officer)
 
 
 
 
 
 
 
 
 
 
 
DTE ELECTRIC COMPANY
 
 
 
 
 
 
By:
/S/ MARK C. ROLLING
 
 
 
Mark C. Rolling
Vice President, Controller, and Chief Accounting Officer
 
 
 
(Duly Authorized Officer)

77
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