Item 1. Financial Statements
DTE Energy Company
Consolidated Statements of Operations (Unaudited)
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Three Months Ended June 30,
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Six Months Ended June 30,
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2020
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2019
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2020
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2019
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(In millions, except per share amounts)
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Operating Revenues
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Utility operations
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$
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1,542
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$
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1,417
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$
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3,275
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$
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3,281
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Non-utility operations
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1,041
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1,471
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2,330
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3,121
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2,583
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2,888
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5,605
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6,402
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Operating Expenses
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Fuel, purchased power, and gas — utility
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374
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360
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841
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942
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Fuel, purchased power, and gas — non-utility
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789
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1,258
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1,757
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2,643
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Operation and maintenance
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564
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560
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1,143
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1,151
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Depreciation and amortization
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350
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305
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703
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601
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Taxes other than income
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84
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92
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203
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210
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Asset (gains) losses and impairments, net
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55
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13
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45
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13
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2,216
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2,588
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4,692
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5,560
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Operating Income
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367
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300
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913
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842
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Other (Income) and Deductions
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Interest expense
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179
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154
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354
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306
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Interest income
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(6)
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(3)
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(16)
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(7)
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Non-operating retirement benefits, net
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6
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10
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15
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19
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Other income
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(101)
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(73)
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(166)
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(161)
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Other expenses
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6
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12
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52
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23
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84
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100
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239
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180
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Income Before Income Taxes
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283
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200
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674
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662
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Income Tax Expense
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6
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21
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55
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75
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Net Income
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277
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179
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619
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587
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Less: Net Income (Loss) Attributable to Noncontrolling Interests
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—
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(3)
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2
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4
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Net Income Attributable to DTE Energy Company
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$
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277
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$
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182
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$
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617
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$
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583
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Basic Earnings per Common Share
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Net Income Attributable to DTE Energy Company
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$
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1.44
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$
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0.99
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$
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3.20
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$
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3.19
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Diluted Earnings per Common Share
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Net Income Attributable to DTE Energy Company
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$
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1.44
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$
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0.99
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$
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3.20
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$
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3.18
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Weighted Average Common Shares Outstanding
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Basic
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192
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183
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192
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183
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Diluted
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193
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184
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192
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183
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See Combined Notes to Consolidated Financial Statements (Unaudited)
DTE Energy Company
Consolidated Statements of Comprehensive Income (Unaudited)
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Three Months Ended June 30,
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Six Months Ended June 30,
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2020
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2019
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2020
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2019
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(In millions)
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Net Income
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$
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277
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$
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179
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$
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619
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$
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587
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Other comprehensive income (loss), net of tax:
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Benefit obligations, net of taxes of $1, $1, $2, and $2 respectively
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2
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3
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5
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7
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Net unrealized gains (losses) on derivatives during the period, net of taxes of $1, $(2), $1, and $(3), respectively
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1
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(6)
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2
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(9)
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Foreign currency translation
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1
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—
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—
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1
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Other comprehensive income (loss)
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4
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(3)
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7
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(1)
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Comprehensive income
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281
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176
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626
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586
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Less: Comprehensive income (loss) attributable to noncontrolling interests
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—
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(3)
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2
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4
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Comprehensive Income Attributable to DTE Energy Company
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$
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281
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$
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179
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$
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624
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$
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582
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See Combined Notes to Consolidated Financial Statements (Unaudited)
DTE Energy Company
Consolidated Statements of Financial Position (Unaudited)
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June 30,
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December 31,
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2020
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2019
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(In millions)
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ASSETS
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Current Assets
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Cash and cash equivalents
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$
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579
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$
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93
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Restricted cash
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42
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—
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Accounts receivable (less allowance for doubtful accounts of $84 and $91, respectively)
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Customer
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1,375
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1,642
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Other
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371
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245
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Inventories
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Fuel and gas
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349
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373
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Materials and supplies
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436
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386
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Derivative assets
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105
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133
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Regulatory assets
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59
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5
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Other
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181
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209
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3,497
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3,086
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Investments
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Nuclear decommissioning trust funds
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1,603
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1,661
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Investments in equity method investees
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1,855
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1,862
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Other
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256
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265
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3,714
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3,788
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Property
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Property, plant, and equipment
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36,684
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35,072
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Accumulated depreciation and amortization
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(9,960)
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(9,755)
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26,724
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25,317
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Other Assets
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Goodwill
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2,465
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2,464
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Regulatory assets
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4,239
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4,171
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Intangible assets
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2,380
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2,393
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Notes receivable
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228
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202
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Derivative assets
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43
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41
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Prepaid postretirement costs
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113
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69
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Operating lease right-of-use assets
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161
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169
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Other
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175
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182
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9,804
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9,691
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Total Assets
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$
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43,739
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$
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41,882
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See Combined Notes to Consolidated Financial Statements (Unaudited)
DTE Energy Company
Consolidated Statements of Financial Position (Unaudited) — (Continued)
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June 30,
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December 31,
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2020
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2019
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(In millions, except shares)
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LIABILITIES AND EQUITY
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Current Liabilities
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Accounts payable
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$
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1,025
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$
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1,076
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Accrued interest
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159
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147
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Dividends payable
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390
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195
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Short-term borrowings
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914
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828
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Current portion long-term debt, including finance leases
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670
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|
687
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Derivative liabilities
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52
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83
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Gas inventory equalization
|
29
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—
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Regulatory liabilities
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25
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65
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Operating lease liabilities
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32
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33
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Acquisition related deferred payment
|
384
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379
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Other
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516
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504
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4,196
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3,997
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Long-Term Debt (net of current portion)
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Mortgage bonds, notes, and other
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16,186
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14,778
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Junior subordinated debentures
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1,146
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1,146
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Finance lease liabilities
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9
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11
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17,341
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15,935
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Other Liabilities
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Deferred income taxes
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2,650
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2,315
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Regulatory liabilities
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3,203
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3,264
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Asset retirement obligations
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2,754
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2,672
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Unamortized investment tax credit
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163
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166
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Derivative liabilities
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33
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|
86
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Accrued pension liability
|
779
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|
808
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Nuclear decommissioning
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241
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249
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Operating lease liabilities
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121
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|
127
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Other
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366
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|
427
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10,310
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10,114
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Commitments and Contingencies (Notes 6 and 13)
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Equity
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Common stock (No par value, 400,000,000 shares authorized, and 192,650,741 and 192,208,533 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively)
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5,247
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5,233
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Retained earnings
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6,618
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6,587
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Accumulated other comprehensive loss
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(141)
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(148)
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Total DTE Energy Company Equity
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11,724
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11,672
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Noncontrolling interests
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168
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164
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Total Equity
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11,892
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11,836
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Total Liabilities and Equity
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$
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43,739
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$
|
41,882
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See Combined Notes to Consolidated Financial Statements (Unaudited)
DTE Energy Company
Consolidated Statements of Cash Flows (Unaudited)
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Six Months Ended June 30,
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2020
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2019
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(In millions)
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Operating Activities
|
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Net Income
|
$
|
619
|
|
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$
|
587
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Adjustments to reconcile Net Income to Net cash from operating activities:
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Depreciation and amortization
|
703
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|
601
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Nuclear fuel amortization
|
13
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|
30
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Allowance for equity funds used during construction
|
(13)
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(13)
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Deferred income taxes
|
286
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|
|
80
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|
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Equity earnings of equity method investees
|
(59)
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|
|
(43)
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Dividends from equity method investees
|
81
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|
|
89
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|
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Asset (gains) losses and impairments, net
|
49
|
|
|
13
|
|
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Changes in assets and liabilities:
|
|
|
|
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Accounts receivable, net
|
156
|
|
|
369
|
|
|
Inventories
|
(24)
|
|
|
46
|
|
|
Prepaid postretirement benefit costs
|
(44)
|
|
|
(38)
|
|
|
Accounts payable
|
(78)
|
|
|
(247)
|
|
|
Gas inventory equalization
|
29
|
|
|
45
|
|
|
Accrued pension liability
|
(29)
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|
|
(122)
|
|
|
|
|
|
|
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Derivative assets and liabilities
|
(58)
|
|
|
(20)
|
|
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Regulatory assets and liabilities
|
(67)
|
|
|
142
|
|
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Other current and noncurrent assets and liabilities
|
117
|
|
|
(152)
|
|
|
Net cash from operating activities
|
1,681
|
|
|
1,367
|
|
|
Investing Activities
|
|
|
|
|
Plant and equipment expenditures — utility
|
(1,599)
|
|
|
(1,294)
|
|
|
Plant and equipment expenditures — non-utility
|
(424)
|
|
|
(102)
|
|
|
Acquisitions related to business combinations, net of cash acquired
|
(126)
|
|
|
—
|
|
|
Proceeds from sale of assets
|
4
|
|
|
—
|
|
|
Proceeds from sale of nuclear decommissioning trust fund assets
|
1,238
|
|
|
396
|
|
|
Investment in nuclear decommissioning trust funds
|
(1,238)
|
|
|
(399)
|
|
|
Distributions from equity method investees
|
6
|
|
|
5
|
|
|
Contributions to equity method investees
|
(17)
|
|
|
(38)
|
|
|
Notes receivable
|
(24)
|
|
|
(62)
|
|
|
Other
|
(5)
|
|
|
(20)
|
|
|
Net cash used for investing activities
|
(2,185)
|
|
|
(1,514)
|
|
|
Financing Activities
|
|
|
|
|
Issuance of long-term debt, net of issuance costs
|
1,685
|
|
|
1,438
|
|
|
Redemption of long-term debt
|
(300)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings, net
|
86
|
|
|
(606)
|
|
|
|
|
|
|
|
|
|
|
|
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Dividends paid on common stock
|
(390)
|
|
|
(345)
|
|
|
Contributions from noncontrolling interests, principally REF entities
|
15
|
|
|
17
|
|
|
Distributions to noncontrolling interests
|
(13)
|
|
|
(31)
|
|
|
Purchases of noncontrolling interest, principally SGG
|
—
|
|
|
(300)
|
|
|
Other
|
(51)
|
|
|
(40)
|
|
|
Net cash from financing activities
|
1,032
|
|
|
133
|
|
|
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash
|
528
|
|
|
(14)
|
|
|
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period
|
93
|
|
|
76
|
|
|
Cash, Cash Equivalents, and Restricted Cash at End of Period
|
$
|
621
|
|
|
$
|
62
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities
|
|
|
|
|
Plant and equipment expenditures in accounts payable
|
$
|
340
|
|
|
$
|
270
|
|
|
|
|
|
|
See Combined Notes to Consolidated Financial Statements (Unaudited)
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
—
|
|
|
—
|
|
|
277
|
|
|
—
|
|
|
—
|
|
|
277
|
|
|
Dividends declared on common stock ($2.03 per Common Share)
|
—
|
|
|
—
|
|
|
(390)
|
|
|
—
|
|
|
—
|
|
|
(390)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation, net contributions from noncontrolling interests, and other
|
39
|
|
|
12
|
|
|
(1)
|
|
|
—
|
|
|
2
|
|
|
13
|
|
|
Balance, June 30, 2020
|
192,651
|
|
|
$
|
5,247
|
|
|
$
|
6,618
|
|
|
$
|
(141)
|
|
|
$
|
168
|
|
|
$
|
11,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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|
|
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|
|
|
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 distributions to noncontrolling interests, and other
|
472
|
|
|
(21)
|
|
|
(1)
|
|
|
—
|
|
|
(12)
|
|
|
(34)
|
|
|
Balance, March 31, 2019
|
183,212
|
|
|
$
|
4,324
|
|
|
$
|
6,364
|
|
|
$
|
(143)
|
|
|
$
|
475
|
|
|
$
|
11,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
—
|
|
|
—
|
|
|
182
|
|
|
—
|
|
|
(3)
|
|
|
179
|
|
|
Dividends declared on common stock ($1.89 per Common Share)
|
—
|
|
|
—
|
|
|
(347)
|
|
|
—
|
|
|
—
|
|
|
(347)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(3)
|
|
|
—
|
|
|
(3)
|
|
|
Purchase of noncontrolling interests, principally SGG
|
—
|
|
|
(3)
|
|
|
—
|
|
|
—
|
|
|
(297)
|
|
|
(300)
|
|
|
Stock-based compensation, net distributions to noncontrolling interests, and other
|
90
|
|
|
23
|
|
|
(1)
|
|
|
—
|
|
|
(2)
|
|
|
20
|
|
|
Balance, June 30, 2019
|
183,302
|
|
|
$
|
4,344
|
|
|
$
|
6,198
|
|
|
$
|
(146)
|
|
|
$
|
173
|
|
|
$
|
10,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Combined Notes to Consolidated Financial Statements (Unaudited)
DTE Electric Company
Consolidated Statements of Operations (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Operating Revenues — Utility operations
|
$
|
1,309
|
|
|
$
|
1,190
|
|
|
$
|
2,521
|
|
|
$
|
2,425
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Fuel and purchased power — utility
|
342
|
|
|
322
|
|
|
639
|
|
|
668
|
|
|
Operation and maintenance
|
353
|
|
|
334
|
|
|
713
|
|
|
692
|
|
|
Depreciation and amortization
|
252
|
|
|
229
|
|
|
510
|
|
|
450
|
|
|
Taxes other than income
|
58
|
|
|
69
|
|
|
141
|
|
|
153
|
|
|
Asset (gains) losses and impairments, net
|
41
|
|
|
13
|
|
|
41
|
|
|
13
|
|
|
|
1,046
|
|
|
967
|
|
|
2,044
|
|
|
1,976
|
|
|
Operating Income
|
263
|
|
|
223
|
|
|
477
|
|
|
449
|
|
|
|
|
|
|
|
|
|
|
|
Other (Income) and Deductions
|
|
|
|
|
|
|
|
|
Interest expense
|
85
|
|
|
78
|
|
|
166
|
|
|
154
|
|
|
Interest income
|
—
|
|
|
—
|
|
|
(2)
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
(37)
|
|
|
(25)
|
|
|
(50)
|
|
|
(58)
|
|
|
Other expenses
|
7
|
|
|
12
|
|
|
48
|
|
|
20
|
|
|
|
55
|
|
|
65
|
|
|
162
|
|
|
115
|
|
|
Income Before Income Taxes
|
208
|
|
|
158
|
|
|
315
|
|
|
334
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Expense
|
25
|
|
|
25
|
|
|
38
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
$
|
183
|
|
|
$
|
133
|
|
|
$
|
277
|
|
|
$
|
280
|
|
See Combined Notes to Consolidated Financial Statements (Unaudited)
DTE Electric Company
Consolidated Statements of Comprehensive Income (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Net Income
|
$
|
183
|
|
|
$
|
133
|
|
|
$
|
277
|
|
|
$
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Comprehensive Income
|
$
|
183
|
|
|
$
|
133
|
|
|
$
|
277
|
|
|
$
|
280
|
|
See Combined Notes to Consolidated Financial Statements (Unaudited)
DTE Electric Company
Consolidated Statements of Financial Position (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
(In millions)
|
|
|
|
ASSETS
|
|
|
|
|
Current Assets
|
|
|
|
|
Cash and cash equivalents
|
$
|
336
|
|
|
$
|
12
|
|
|
Accounts receivable (less allowance for doubtful accounts of $44 and $46, respectively)
|
|
|
|
|
Customer
|
763
|
|
|
729
|
|
|
Affiliates
|
23
|
|
|
25
|
|
|
Other
|
71
|
|
|
41
|
|
|
Inventories
|
|
|
|
|
Fuel
|
206
|
|
|
187
|
|
|
Materials and supplies
|
293
|
|
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory assets
|
57
|
|
|
5
|
|
|
|
|
|
|
|
Other
|
70
|
|
|
78
|
|
|
|
1,819
|
|
|
1,357
|
|
|
Investments
|
|
|
|
|
Nuclear decommissioning trust funds
|
1,603
|
|
|
1,661
|
|
|
Other
|
37
|
|
|
38
|
|
|
|
1,640
|
|
|
1,699
|
|
|
Property
|
|
|
|
|
Property, plant, and equipment
|
25,213
|
|
|
24,279
|
|
|
Accumulated depreciation and amortization
|
(6,823)
|
|
|
(6,706)
|
|
|
|
18,390
|
|
|
17,573
|
|
|
Other Assets
|
|
|
|
|
Regulatory assets
|
3,545
|
|
|
3,448
|
|
|
Intangible assets
|
15
|
|
|
15
|
|
|
|
|
|
|
|
Prepaid postretirement costs — affiliates
|
266
|
|
|
266
|
|
|
Operating lease right-of-use assets
|
81
|
|
|
87
|
|
|
Other
|
134
|
|
|
143
|
|
|
|
4,041
|
|
|
3,959
|
|
|
Total Assets
|
$
|
25,890
|
|
|
$
|
24,588
|
|
See Combined Notes to Consolidated Financial Statements (Unaudited)
DTE Electric Company
Consolidated Statements of Financial Position (Unaudited) — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
(In millions, except shares)
|
|
|
|
LIABILITIES AND SHAREHOLDER’S EQUITY
|
|
|
|
|
Current Liabilities
|
|
|
|
|
Accounts payable
|
|
|
|
|
Affiliates
|
$
|
52
|
|
|
$
|
59
|
|
|
Other
|
438
|
|
|
406
|
|
|
Accrued interest
|
93
|
|
|
84
|
|
|
|
|
|
|
|
Current portion long-term debt, including finance leases
|
619
|
|
|
636
|
|
|
Regulatory liabilities
|
13
|
|
|
40
|
|
|
Short-term borrowings
|
|
|
|
|
Affiliates
|
107
|
|
|
97
|
|
|
Other
|
200
|
|
|
354
|
|
|
Operating lease liabilities
|
12
|
|
|
12
|
|
|
Other
|
168
|
|
|
155
|
|
|
|
1,702
|
|
|
1,843
|
|
|
Long-Term Debt (net of current portion)
|
|
|
|
|
Mortgage bonds, notes, and other
|
7,951
|
|
|
6,548
|
|
|
Finance lease liabilities
|
2
|
|
|
4
|
|
|
|
7,953
|
|
|
6,552
|
|
|
Other Liabilities
|
|
|
|
|
Deferred income taxes
|
2,422
|
|
|
2,355
|
|
|
Regulatory liabilities
|
2,498
|
|
|
2,546
|
|
|
Asset retirement obligations
|
2,522
|
|
|
2,447
|
|
|
Unamortized investment tax credit
|
163
|
|
|
166
|
|
|
Nuclear decommissioning
|
241
|
|
|
249
|
|
|
Accrued pension liability — affiliates
|
704
|
|
|
717
|
|
|
Accrued postretirement liability — affiliates
|
338
|
|
|
367
|
|
|
Operating lease liabilities
|
62
|
|
|
67
|
|
|
Other
|
82
|
|
|
84
|
|
|
|
9,032
|
|
|
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
|
2,392
|
|
|
2,384
|
|
|
|
|
|
|
|
Total Shareholder’s Equity
|
7,203
|
|
|
7,195
|
|
|
Total Liabilities and Shareholder’s Equity
|
$
|
25,890
|
|
|
$
|
24,588
|
|
See Combined Notes to Consolidated Financial Statements (Unaudited)
DTE Electric Company
Consolidated Statements of Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
|
(In millions)
|
|
|
|
Operating Activities
|
|
|
|
|
Net Income
|
$
|
277
|
|
|
$
|
280
|
|
|
Adjustments to reconcile Net Income to Net cash from operating activities:
|
|
|
|
|
Depreciation and amortization
|
510
|
|
|
450
|
|
|
Nuclear fuel amortization
|
13
|
|
|
30
|
|
|
Allowance for equity funds used during construction
|
(12)
|
|
|
(12)
|
|
|
Deferred income taxes
|
26
|
|
|
38
|
|
|
Asset (gains) losses and impairments, net
|
41
|
|
|
13
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
Accounts receivable, net
|
(62)
|
|
|
53
|
|
|
Inventories
|
(32)
|
|
|
(12)
|
|
|
Accounts payable
|
42
|
|
|
(13)
|
|
|
Accrued pension liability — affiliates
|
(13)
|
|
|
(105)
|
|
|
Accrued postretirement liability — affiliates
|
(29)
|
|
|
(24)
|
|
|
Regulatory assets and liabilities
|
(91)
|
|
|
137
|
|
|
Other current and noncurrent assets and liabilities
|
87
|
|
|
(169)
|
|
|
Net cash from operating activities
|
757
|
|
|
666
|
|
|
Investing Activities
|
|
|
|
|
Plant and equipment expenditures
|
(1,381)
|
|
|
(1,073)
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable, including affiliates
|
(2)
|
|
|
(5)
|
|
|
Proceeds from sale of nuclear decommissioning trust fund assets
|
1,238
|
|
|
396
|
|
|
Investment in nuclear decommissioning trust funds
|
(1,238)
|
|
|
(399)
|
|
|
Other
|
(4)
|
|
|
(19)
|
|
|
Net cash used for investing activities
|
(1,387)
|
|
|
(1,100)
|
|
|
Financing Activities
|
|
|
|
|
Issuance of long-term debt, net of issuance costs
|
1,685
|
|
|
643
|
|
|
Redemption of long-term debt
|
(300)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings, net — affiliate
|
10
|
|
|
194
|
|
|
Short-term borrowings, net — other
|
(154)
|
|
|
(149)
|
|
|
Dividends paid on common stock
|
(269)
|
|
|
(247)
|
|
|
Other
|
(18)
|
|
|
(16)
|
|
|
Net cash from financing activities
|
954
|
|
|
425
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
324
|
|
|
(9)
|
|
|
Cash and Cash Equivalents at Beginning of Period
|
12
|
|
|
18
|
|
|
Cash and Cash Equivalents at End of Period
|
$
|
336
|
|
|
$
|
9
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities
|
|
|
|
|
Plant and equipment expenditures in accounts payable
|
$
|
170
|
|
|
$
|
159
|
|
See Combined Notes to Consolidated Financial Statements (Unaudited)
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
|
|
|
Net Income
|
—
|
|
|
—
|
|
|
—
|
|
|
183
|
|
|
|
|
183
|
|
|
Dividends declared on common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(134)
|
|
|
|
|
(134)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2020
|
138,632
|
|
|
$
|
1,386
|
|
|
$
|
3,425
|
|
|
$
|
2,392
|
|
|
|
|
$
|
7,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
—
|
|
|
—
|
|
|
—
|
|
|
133
|
|
|
|
|
133
|
|
|
Dividends declared on common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(123)
|
|
|
|
|
(123)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2019
|
138,632
|
|
|
$
|
1,386
|
|
|
$
|
3,245
|
|
|
$
|
2,195
|
|
|
|
|
$
|
6,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Combined Notes to Consolidated Financial Statements (Unaudited)
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 16
|
|
Related Party Transactions
|
|
DTE Energy and DTE Electric
|
|
|
|
|
|
|
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.
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.
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.
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, including the transportation services contract with NEXUS. As of June 30, 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 June 30, 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 June 30, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
SGG(a)
|
|
Other
|
|
Total
|
|
SGG(a)
|
|
Other
|
|
Total
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
26
|
|
|
$
|
16
|
|
|
$
|
42
|
|
|
$
|
16
|
|
|
$
|
11
|
|
|
$
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
8
|
|
|
24
|
|
|
32
|
|
|
8
|
|
|
19
|
|
|
27
|
|
|
Inventories
|
—
|
|
|
98
|
|
|
98
|
|
|
—
|
|
|
74
|
|
|
74
|
|
|
Property, plant, and equipment, net
|
406
|
|
|
28
|
|
|
434
|
|
|
410
|
|
|
33
|
|
|
443
|
|
|
Goodwill
|
25
|
|
|
—
|
|
|
25
|
|
|
25
|
|
|
—
|
|
|
25
|
|
|
Intangible assets
|
535
|
|
|
—
|
|
|
535
|
|
|
542
|
|
|
—
|
|
|
542
|
|
|
Other current and long-term assets
|
—
|
|
|
8
|
|
|
8
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
|
$
|
1,000
|
|
|
$
|
174
|
|
|
$
|
1,174
|
|
|
$
|
1,003
|
|
|
$
|
137
|
|
|
$
|
1,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued current liabilities
|
$
|
—
|
|
|
$
|
13
|
|
|
$
|
13
|
|
|
$
|
2
|
|
|
$
|
13
|
|
|
$
|
15
|
|
|
Short term borrowings
|
—
|
|
|
14
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current and long-term liabilities
|
7
|
|
|
7
|
|
|
14
|
|
|
7
|
|
|
7
|
|
|
14
|
|
|
|
$
|
7
|
|
|
$
|
34
|
|
|
$
|
41
|
|
|
$
|
9
|
|
|
$
|
20
|
|
|
$
|
29
|
|
_____________________________________
(a)Amounts shown are 100% of SGG's assets and liabilities, of which DTE Energy owns 85% at June 30, 2020 and December 31, 2019.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
|
(In millions)
|
|
|
|
Investments in equity method investees
|
$
|
1,500
|
|
|
$
|
1,503
|
|
|
Notes receivable
|
$
|
34
|
|
|
$
|
21
|
|
|
Future funding commitments
|
$
|
32
|
|
|
$
|
63
|
|
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES
Other Income
The following is a summary of DTE Energy's Other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Equity earnings of equity method investees
|
$
|
30
|
|
|
$
|
20
|
|
|
$
|
59
|
|
|
$
|
43
|
|
|
Income from REF entities
|
29
|
|
|
29
|
|
|
52
|
|
|
56
|
|
|
Gains from equity and fixed income securities
|
22
|
|
|
7
|
|
|
22
|
|
|
24
|
|
|
Allowance for equity funds used during construction
|
7
|
|
|
6
|
|
|
13
|
|
|
13
|
|
|
Contract services
|
6
|
|
|
6
|
|
|
13
|
|
|
14
|
|
|
Other
|
7
|
|
|
5
|
|
|
7
|
|
|
11
|
|
|
|
$
|
101
|
|
|
$
|
73
|
|
|
$
|
166
|
|
|
$
|
161
|
|
The following is a summary of DTE Electric's Other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Gains from equity and fixed income securities allocated from DTE Energy
|
$
|
22
|
|
|
$
|
7
|
|
|
$
|
22
|
|
|
$
|
24
|
|
|
Contract services
|
6
|
|
|
8
|
|
|
13
|
|
|
16
|
|
|
Allowance for equity funds used during construction
|
6
|
|
|
6
|
|
|
12
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
3
|
|
|
4
|
|
|
3
|
|
|
6
|
|
|
|
$
|
37
|
|
|
$
|
25
|
|
|
$
|
50
|
|
|
$
|
58
|
|
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 and six months ended June 30, 2020, reclassifications out of Accumulated other comprehensive income (loss) were not material.
On January 1, 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. For the three and six months ended June 30, 2019, reclassifications out of Accumulated other comprehensive income (loss) not relating to the adoption of this standard were not material.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
Income Taxes
The interim effective tax rates of the Registrants are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Tax Rate
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
DTE Energy
|
2
|
%
|
|
11
|
%
|
|
8
|
%
|
|
11
|
%
|
|
DTE Electric
|
12
|
%
|
|
16
|
%
|
|
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 9% decrease in DTE Energy's effective tax rate for the three months ended June 30, 2020 was primarily due to the carryback of the 2018 net operating loss due to the CARES Act of 12% and higher amortization of the TCJA regulatory liability of 2%, partially offset by a decrease in annual production tax credits of 4%. Refer below for additional information regarding the CARES Act and related tax impacts. The 3% decrease in DTE Energy's effective tax rate for the six months ended June 30, 2020 was primarily due to the 2018 net operating loss carryback of 5% and higher amortization of the TCJA regulatory liability of 2%, partially offset by a decrease in production tax credits of 3%.
The 4% decrease in DTE Electric's effective tax rate for the three and six months ended June 30, 2020 was primarily due to higher amortization of the TCJA regulatory liability of 3% and an increase in annual production tax credits of 1%.
DTE Energy had $8 million of unrecognized tax benefits at June 30, 2020, that if recognized, would favorably impact its effective tax rate. DTE Electric had $10 million of unrecognized tax benefits at June 30, 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 $1 million and $14 million at June 30, 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) the employee retention credit, and d) delayed payment of employer payroll taxes.
As of June 30, 2020, DTE Energy had a $220 million receivable recorded in anticipation of a refund from the U.S. Treasury, which is included in Accounts receivable - Other on the Consolidated Statements of Financial Position. The receivable is comprised of $153 million for the immediate refund of the 2018 remaining AMT credit balance and $67 million as a result of carrying back the 2018 net operating loss to 2013.
In addition, the carryback of the 2018 net operating loss to 2013 resulted in a $34 million reduction in Income Tax Expense for the three and six months ended June 30, 2020 due primarily to the difference in rates between the two years (35% in 2013 and 21% in 2018).
The Registrants filed a claim for employee retention credits of $6 million, of which $3 million is attributable to DTE Electric. These amounts are included in Taxes other than income in the Consolidated Statements of Operations for the three and six months ended June 30, 2020. The Registrants also deferred employer payroll taxes of $14 million, of which $8 million is attributable to DTE Electric, increasing the amount of Current Liabilities - Other on the Registrants' Consolidated Statements of Financial Position as of June 30, 2020.
Unrecognized Compensation Costs
As of June 30, 2020, DTE Energy had $99 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 1.66 years.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
Allocated Stock-Based Compensation
DTE Electric received an allocation of costs from DTE Energy associated with stock-based compensation of $7 million and $11 million for the three months ended June 30, 2020 and 2019, respectively, while such allocation was $16 million and $24 million for the six months ended June 30, 2020 and 2019, respectively.
Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents include cash on hand, cash in banks, and temporary investments purchased with remaining maturities of three months or less. Restricted cash 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 June 30, 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
|
38
|
|
|
13
|
|
|
7
|
|
|
58
|
|
|
—
|
|
|
Total notes receivable(a)
|
$
|
40
|
|
|
$
|
22
|
|
|
$
|
16
|
|
|
$
|
78
|
|
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases
|
|
|
|
|
|
|
|
|
|
|
Net investment in leases, internal grade 1
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
42
|
|
|
$
|
50
|
|
|
$
|
—
|
|
|
Net investment in leases, internal grade 2
|
132
|
|
|
—
|
|
|
1
|
|
|
133
|
|
|
—
|
|
|
Total net investment in leases(a)
|
$
|
140
|
|
|
$
|
—
|
|
|
$
|
43
|
|
|
$
|
183
|
|
|
$
|
—
|
|
_______________________________________
(a)For DTE Energy, included in Current Assets — Other and Other Assets — Notes Receivable on the Consolidated Statements of Financial Position. For DTE Electric, included in Current Assets — Other and Other Assets — Other on the Consolidated Statements of Financial Position.
The allowance for doubtful accounts on accounts receivable for the utility entities is generally calculated using an aging approach that utilizes rates developed in reserve studies. DTE Electric and DTE Gas establish an allowance for uncollectible accounts based on historical losses and management's assessment of existing and future economic conditions, customer trends and other factors. Customer accounts are generally considered delinquent if the amount billed is not received by the due date, which is typically in 21 days, however, factors such as assistance programs may delay aggressive action. DTE Electric and DTE Gas generally assess late payment fees on trade receivables based on past-due terms with customers. Customer accounts are written off when collection efforts have been exhausted. The time period for write-off is 150 days after service has been terminated.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
The customer allowance for doubtful accounts for non-utility businesses and other receivables for both utility and non-utility businesses is generally calculated based on specific review of probable future collections based on receivable balances generally in excess of 30 days. Existing and future economic conditions, customer trends and other factors are also considered. Receivables are written off on a specific identification basis and determined based upon the specific circumstances of the associated receivable.
Notes receivable, 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 June 30, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DTE Energy
|
|
|
|
|
|
|
|
|
|
DTE Electric
|
|
|
Trade accounts receivable
|
|
Other receivables
|
|
|
|
|
|
Total
|
|
Trade and other accounts receivable
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Beginning reserve balance, January 1, 2020
|
$
|
87
|
|
|
$
|
4
|
|
|
|
|
|
|
$
|
91
|
|
|
$
|
46
|
|
|
Current period provision
|
54
|
|
|
2
|
|
|
|
|
|
|
56
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-offs charged against allowance
|
(89)
|
|
|
(2)
|
|
|
|
|
|
|
(91)
|
|
|
(51)
|
|
|
Recoveries of amounts previously written off
|
29
|
|
|
(1)
|
|
|
|
|
|
|
28
|
|
|
17
|
|
|
Ending reserve balance, June 30, 2020
|
$
|
81
|
|
|
$
|
3
|
|
|
|
|
|
|
$
|
84
|
|
|
$
|
44
|
|
The Registrants have been monitoring the impacts from the COVID-19 pandemic on our customers and various counterparties. As of June 30, 2020, the allowance for doubtful accounts has been increased by $8 million at DTE Electric and $3 million at DTE Gas to account for additional risk related to the pandemic.
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. As a result of the order, $6 million and $2 million of uncollectible expense was deferred as Regulatory assets for DTE Electric and DTE Gas, respectively, during the second quarter of 2020. Refer to Note 6 to the Consolidated Financial Statements, "Regulatory Matters," for further information regarding the order.
For DTE Energy, uncollectible expense was $15 million and $48 million for the three and six months ended June 30, 2020, respectively, which is primarily comprised of the current period provision for allowance for doubtful accounts adjusted for regulatory deferrals. DTE Energy uncollectible expense was $24 million and $53 million for the three and six months ended June 30, 2019, respectively.
For DTE Electric, uncollectible expense was $9 million and $26 million for the three and six months ended June 30, 2020, respectively, which is primarily comprised of the current period provision adjusted for regulatory deferrals. DTE Electric uncollectible expense was $14 million and $30 million for the three and six months ended June 30, 2019, respectively.
There are no material amounts of past due financing receivables for the Registrants as of June 30, 2020.
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.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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.
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 $95 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
|
$
|
17
|
|
|
Property, plant, and equipment, net
|
76
|
|
|
Working capital
|
2
|
|
|
Total
|
$
|
95
|
|
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.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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.
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 included $2.36 billion paid in cash and an estimated $380 million of contingent consideration to be paid upon completion of the LEAP gathering pipeline in the second half of 2020. As of June 30, 2020, a liability of $384 million for the contingent consideration payment was included in the Acquisition related deferred payment line in the Consolidated Statements of Financial Position. The liability included related accretion expense of $2 million and $4 million for the three and six months ended June 30, 2020, respectively. In July 2020, the LEAP gathering pipeline achieved the final milestone of its construction and consideration of $385 million was paid on July 27, 2020 in two equal installments.
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 remaining $99 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 June 30, 2020, total goodwill was approximately $172 million, including $1 million resulting from working capital adjustments recorded during the six months ended June 30, 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.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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
|
172
|
|
|
Customer relationship intangibles
|
1,473
|
|
|
Other current assets
|
1
|
|
|
|
$
|
2,774
|
|
|
Liabilities
|
|
|
Accounts payable
|
$
|
26
|
|
|
Acquisition related deferred payment
|
380
|
|
|
Other current liabilities
|
2
|
|
|
Asset retirement obligations
|
9
|
|
|
|
$
|
417
|
|
|
Total cash consideration
|
$
|
2,357
|
|
|
|
|
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.
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 June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Electric(a)
|
|
|
|
|
|
|
|
|
Residential
|
$
|
671
|
|
|
$
|
494
|
|
|
$
|
1,269
|
|
|
$
|
1,047
|
|
|
Commercial
|
389
|
|
|
423
|
|
|
815
|
|
|
843
|
|
|
Industrial
|
120
|
|
|
158
|
|
|
276
|
|
|
322
|
|
|
Other(b)
|
132
|
|
|
115
|
|
|
168
|
|
|
213
|
|
|
Total Electric operating revenues(c)
|
$
|
1,312
|
|
|
$
|
1,190
|
|
|
$
|
2,528
|
|
|
$
|
2,425
|
|
|
|
|
|
|
|
|
|
|
|
Gas
|
|
|
|
|
|
|
|
|
Gas sales
|
$
|
169
|
|
|
$
|
163
|
|
|
$
|
563
|
|
|
$
|
640
|
|
|
End User Transportation
|
43
|
|
|
42
|
|
|
120
|
|
|
122
|
|
|
Intermediate Transportation
|
16
|
|
|
15
|
|
|
42
|
|
|
41
|
|
|
Other(b)
|
23
|
|
|
23
|
|
|
66
|
|
|
85
|
|
|
Total Gas operating revenues(d)
|
$
|
251
|
|
|
$
|
243
|
|
|
$
|
791
|
|
|
$
|
888
|
|
|
|
|
|
|
|
|
|
|
|
Other segment operating revenues
|
|
|
|
|
|
|
|
|
Gas Storage and Pipelines(e)
|
$
|
172
|
|
|
$
|
121
|
|
|
$
|
342
|
|
|
$
|
237
|
|
|
Power and Industrial Projects(f)
|
$
|
219
|
|
|
$
|
402
|
|
|
$
|
526
|
|
|
$
|
790
|
|
|
Energy Trading(g)
|
$
|
740
|
|
|
$
|
1,113
|
|
|
$
|
1,653
|
|
|
$
|
2,414
|
|
_______________________________________
(a)Revenues generally represent those of DTE Electric, except $3 million and $7 million of Other revenues related to DTE Sustainable Generation for the three and six months ended June 30, 2020, respectively.
(b)Includes revenue adjustments related to various regulatory mechanisms.
(c)Includes $5 million of other revenues outside the scope of topic 606 for the three months ended June 30, 2020 and 2019, and $10 million and $8 million for the six months ended June 30, 2020 and 2019, respectively.
(d)Includes $2 million under Alternative Revenue Programs for the six months ended June 30, 2020 and $3 million and $5 million of other revenues for the three and six months ended June 30, 2020, respectively, which are all outside the scope of Topic 606. For prior period, revenues include $3 million under Alternative Revenue Programs for the six months ended June 30, 2019 and $2 million and $4 million of other revenues for the three and six months ended June 30, 2019, respectively, which are all outside the scope of Topic 606.
(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 June 30, 2020 and 2019, and $4 million for the six months ended June 30, 2020 and 2019.
(f)Includes revenues outside the scope of Topic 606 primarily related to $21 million and $30 million of contracts accounted for as leases for the three months ended June 30, 2020 and 2019, respectively, and $48 million and $61 million for the six months ended June 30, 2020 and 2019, respectively.
(g)Includes revenues outside the scope of Topic 606 primarily related to $467 million and $879 million of derivatives for the three months ended June 30, 2020 and 2019, respectively, and $1.1 billion and $1.8 billion of derivatives for the six months ended June 30, 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
|
34
|
|
|
Revenue recognized that was included in the deferred revenue balance at the beginning of the period
|
(12)
|
|
|
Ending Balance, June 30, 2020
|
$
|
97
|
|
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.
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
|
$
|
53
|
|
|
2021
|
16
|
|
|
2022
|
7
|
|
|
2023
|
3
|
|
|
2024
|
7
|
|
|
2025 and thereafter
|
11
|
|
|
|
$
|
97
|
|
Transaction Price Allocated to the Remaining Performance Obligations
In accordance with optional exemptions available under Topic 606, the Registrants did not disclose the value of unsatisfied performance obligations for (1) contracts with an original expected length of one year or less, (2) with the exception of fixed consideration, contracts for which revenue is recognized at the amount to which the Registrants have the right to invoice for goods provided and services performed, and (3) contracts for which variable consideration relates entirely to an unsatisfied performance obligation.
Such contracts consist of varying types of performance obligations across the segments, including the supply and delivery of energy related products and services. Contracts with variable volumes and/or variable pricing, including those with pricing provisions tied to a consumer price or other index, have also been excluded as the related consideration under the contract is variable at inception of the contract. Contract lengths vary from cancellable to multi-year.
The Registrants expect to recognize revenue for the following amounts related to fixed consideration associated with remaining performance obligations in each of the future periods noted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DTE Energy
|
|
DTE Electric
|
|
|
(In millions)
|
|
|
|
2020
|
$
|
122
|
|
|
$
|
4
|
|
|
2021
|
349
|
|
|
8
|
|
|
2022
|
291
|
|
|
7
|
|
|
2023
|
228
|
|
|
7
|
|
|
2024
|
143
|
|
|
7
|
|
|
2025 and thereafter
|
578
|
|
|
1
|
|
|
|
$
|
1,711
|
|
|
$
|
34
|
|
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 implemented the deferral in the second quarter 2020. Refer to Note 2 to the Consolidated Financial Statements, "Significant Accounting Policies" for the impact to uncollectible expense for the period. On July 23, 2020, the MPSC further ordered that utilities seeking to recover COVID-19 related expenses beyond uncollectible expense may make an informational filing no later than November 2, 2020. The Registrants will evaluate this order and continue to monitor MPSC activities involving COVID-19.
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 requested an increase in return on equity from 10.0% to 10.5% and included projected changes in sales and operating and maintenance expenses. On May 8, 2020, the MPSC issued an order approving an annual revenue increase of $188 million for services rendered on or after May 15, 2020 and a return on equity of 9.9%. The order also disallowed $41 million of capital expenditures related to incentive compensation previously recorded during 2018-2020, resulting in an adjustment to Asset (gains) losses and impairment, net during the second quarter.
2020 Accounting Application
On July 9, 2020 the MPSC approved DTE Electric's request to accelerate amortization of the regulatory liability for non-plant-related accumulated deferred income tax balances that resulted from the TCJA. DTE Electric will increase amortization by $102 million beginning in May 2021, which will fully amortize this regulatory liability by the end of 2021 instead of April 2033. The accelerated amortization will not impact customer rates and will allow DTE Electric to defer its next rate case filing previously set for July 2020 to at least March 1, 2021.
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.
On July 17, 2020, DTE Gas reached a settlement with all intervening parties in the case and filed a settlement agreement authorizing the company to increase base rates by $110 million, reflecting a return on equity of 9.9%. The resulting rates are a net increase to customers of $51 million as an existing Infrastructure Recovery Mechanism (IRM) surcharge will be rolled into the new base rates. The settlement agreement also approved a $20 million annual increase to amortization of the regulatory liability for non-plant accumulated deferred income tax balances resulting from the TCJA. This increased amortization will cease upon DTE Gas receiving its next rate order. Pending MPSC approval of the settlement agreement, which is expected by September 2020, DTE Gas will implement the increases to rates and amortization effective October 1, 2020. In addition, the settlement agreement disallowed capitalized expenditures related to incentive compensation, consistent with the MPSC order issued for DTE Electric on May 8, 2020. In anticipation of the disallowance, DTE Gas recorded an adjustment of $14 million to Asset (gains) losses and impairment, net on the Consolidated Statements of Operations during the second quarter 2020.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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.
The following is a reconciliation of DTE Energy's basic and diluted income per share calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions, except per share amounts)
|
|
|
|
|
|
|
|
Basic Earnings per Share
|
|
|
|
|
|
|
|
|
Net Income Attributable to DTE Energy Company
|
$
|
277
|
|
|
$
|
182
|
|
|
$
|
617
|
|
|
$
|
583
|
|
|
Less: Allocation of earnings to net restricted stock awards
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
Net income available to common shareholders — basic
|
$
|
277
|
|
|
$
|
182
|
|
|
$
|
616
|
|
|
$
|
582
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares outstanding — basic
|
192
|
|
|
183
|
|
|
192
|
|
|
183
|
|
|
Basic Earnings per Common Share
|
$
|
1.44
|
|
|
$
|
0.99
|
|
|
$
|
3.20
|
|
|
$
|
3.19
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share
|
|
|
|
|
|
|
|
|
Net Income Attributable to DTE Energy Company
|
$
|
277
|
|
|
$
|
182
|
|
|
$
|
617
|
|
|
$
|
583
|
|
|
Less: Allocation of earnings to net restricted stock awards
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
Net income available to common shareholders — diluted
|
$
|
277
|
|
|
$
|
182
|
|
|
$
|
616
|
|
|
$
|
582
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares outstanding — basic
|
192
|
|
|
183
|
|
|
192
|
|
|
183
|
|
|
Incremental shares attributable to:
|
|
|
|
|
|
|
|
|
Average dilutive equity units, performance share awards, and stock options
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
Average number of common shares outstanding — diluted
|
193
|
|
|
184
|
|
|
192
|
|
|
183
|
|
|
Diluted Earnings per Common Share(a)
|
$
|
1.44
|
|
|
$
|
0.99
|
|
|
$
|
3.20
|
|
|
$
|
3.18
|
|
_______________________________________
(a)Equity Units excluded from the calculation of diluted EPS were approximately 10.3 million for the three and six months ended June 30, 2020, as the dilutive stock price threshold was not met.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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 June 30, 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.
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.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 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)
|
$
|
331
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
331
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
Nuclear decommissioning trusts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
973
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
973
|
|
|
1,046
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,046
|
|
|
Fixed income securities
|
137
|
|
|
372
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
509
|
|
|
160
|
|
|
378
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
538
|
|
|
Private equity and other
|
—
|
|
|
—
|
|
|
—
|
|
|
62
|
|
|
—
|
|
|
62
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
43
|
|
|
—
|
|
|
43
|
|
|
Cash equivalents
|
59
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
59
|
|
|
34
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34
|
|
|
Other investments(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
42
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
42
|
|
|
140
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
140
|
|
|
Fixed income securities
|
6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
79
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
79
|
|
|
Cash equivalents
|
177
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
177
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas
|
100
|
|
|
79
|
|
|
71
|
|
|
—
|
|
|
(173)
|
|
|
77
|
|
|
205
|
|
|
76
|
|
|
74
|
|
|
—
|
|
|
(266)
|
|
|
89
|
|
|
Electricity
|
—
|
|
|
155
|
|
|
68
|
|
|
—
|
|
|
(165)
|
|
|
58
|
|
|
—
|
|
|
223
|
|
|
83
|
|
|
—
|
|
|
(225)
|
|
|
81
|
|
|
Environmental & Other
|
—
|
|
|
217
|
|
|
10
|
|
|
—
|
|
|
(217)
|
|
|
10
|
|
|
—
|
|
|
110
|
|
|
3
|
|
|
—
|
|
|
(110)
|
|
|
3
|
|
|
Foreign currency exchange contracts
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Total derivative assets
|
100
|
|
|
454
|
|
|
149
|
|
|
—
|
|
|
(555)
|
|
|
148
|
|
|
205
|
|
|
410
|
|
|
160
|
|
|
—
|
|
|
(601)
|
|
|
174
|
|
|
Total
|
$
|
1,825
|
|
|
$
|
826
|
|
|
$
|
149
|
|
|
$
|
62
|
|
|
$
|
(555)
|
|
|
$
|
2,307
|
|
|
$
|
1,683
|
|
|
$
|
788
|
|
|
$
|
160
|
|
|
$
|
43
|
|
|
$
|
(601)
|
|
|
$
|
2,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas
|
$
|
(123)
|
|
|
$
|
(52)
|
|
|
$
|
(51)
|
|
|
$
|
—
|
|
|
$
|
173
|
|
|
$
|
(53)
|
|
|
$
|
(221)
|
|
|
$
|
(41)
|
|
|
$
|
(89)
|
|
|
$
|
—
|
|
|
$
|
266
|
|
|
$
|
(85)
|
|
|
Electricity
|
—
|
|
|
(159)
|
|
|
(52)
|
|
|
—
|
|
|
165
|
|
|
(46)
|
|
|
—
|
|
|
(231)
|
|
|
(67)
|
|
|
—
|
|
|
225
|
|
|
(73)
|
|
|
Environmental & Other
|
(3)
|
|
|
(199)
|
|
|
—
|
|
|
—
|
|
|
217
|
|
|
15
|
|
|
—
|
|
|
(121)
|
|
|
—
|
|
|
—
|
|
|
110
|
|
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
—
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
(126)
|
|
|
$
|
(411)
|
|
|
$
|
(103)
|
|
|
$
|
—
|
|
|
$
|
555
|
|
|
$
|
(85)
|
|
|
$
|
(221)
|
|
|
$
|
(393)
|
|
|
$
|
(156)
|
|
|
$
|
—
|
|
|
$
|
601
|
|
|
$
|
(169)
|
|
|
Net Assets at end of period
|
$
|
1,699
|
|
|
$
|
415
|
|
|
$
|
46
|
|
|
$
|
62
|
|
|
$
|
—
|
|
|
$
|
2,222
|
|
|
$
|
1,462
|
|
|
$
|
395
|
|
|
$
|
4
|
|
|
$
|
43
|
|
|
$
|
—
|
|
|
$
|
1,904
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
$
|
425
|
|
|
$
|
329
|
|
|
$
|
108
|
|
|
$
|
—
|
|
|
$
|
(426)
|
|
|
$
|
436
|
|
|
$
|
218
|
|
|
$
|
320
|
|
|
$
|
123
|
|
|
$
|
—
|
|
|
$
|
(513)
|
|
|
$
|
148
|
|
|
Noncurrent
|
1,400
|
|
|
497
|
|
|
41
|
|
|
62
|
|
|
(129)
|
|
|
1,871
|
|
|
1,465
|
|
|
468
|
|
|
37
|
|
|
43
|
|
|
(88)
|
|
|
1,925
|
|
|
Total Assets
|
$
|
1,825
|
|
|
$
|
826
|
|
|
$
|
149
|
|
|
$
|
62
|
|
|
$
|
(555)
|
|
|
$
|
2,307
|
|
|
$
|
1,683
|
|
|
$
|
788
|
|
|
$
|
160
|
|
|
$
|
43
|
|
|
$
|
(601)
|
|
|
$
|
2,073
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
$
|
(117)
|
|
|
$
|
(298)
|
|
|
$
|
(63)
|
|
|
$
|
—
|
|
|
$
|
426
|
|
|
$
|
(52)
|
|
|
$
|
(211)
|
|
|
$
|
(300)
|
|
|
$
|
(85)
|
|
|
$
|
—
|
|
|
$
|
513
|
|
|
$
|
(83)
|
|
|
Noncurrent
|
(9)
|
|
|
(113)
|
|
|
(40)
|
|
|
—
|
|
|
129
|
|
|
(33)
|
|
|
(10)
|
|
|
(93)
|
|
|
(71)
|
|
|
—
|
|
|
88
|
|
|
(86)
|
|
|
Total Liabilities
|
$
|
(126)
|
|
|
$
|
(411)
|
|
|
$
|
(103)
|
|
|
$
|
—
|
|
|
$
|
555
|
|
|
$
|
(85)
|
|
|
$
|
(221)
|
|
|
$
|
(393)
|
|
|
$
|
(156)
|
|
|
$
|
—
|
|
|
$
|
601
|
|
|
$
|
(169)
|
|
|
Net Assets at end of period
|
$
|
1,699
|
|
|
$
|
415
|
|
|
$
|
46
|
|
|
$
|
62
|
|
|
$
|
—
|
|
|
$
|
2,222
|
|
|
$
|
1,462
|
|
|
$
|
395
|
|
|
$
|
4
|
|
|
$
|
43
|
|
|
$
|
—
|
|
|
$
|
1,904
|
|
_______________________________________
(a)See footnotes on following page.
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 June 30, 2020, the $331 million consisted of $330 million and $1 million of cash equivalents included in Cash and cash equivalents and Restricted cash 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 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)
|
$
|
205
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
205
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11
|
|
|
Nuclear decommissioning trusts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
973
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
973
|
|
|
1,046
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,046
|
|
|
Fixed income securities
|
137
|
|
|
372
|
|
|
—
|
|
|
—
|
|
|
509
|
|
|
160
|
|
|
378
|
|
|
—
|
|
|
—
|
|
|
538
|
|
|
Private equity and other
|
—
|
|
|
—
|
|
|
—
|
|
|
62
|
|
|
62
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
43
|
|
|
43
|
|
|
Cash equivalents
|
59
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
59
|
|
|
34
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34
|
|
|
Other investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
13
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13
|
|
|
13
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
11
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Derivative assets — FTRs
|
—
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
|
Total
|
$
|
1,398
|
|
|
$
|
372
|
|
|
$
|
10
|
|
|
$
|
62
|
|
|
$
|
1,842
|
|
|
$
|
1,264
|
|
|
$
|
378
|
|
|
$
|
3
|
|
|
$
|
43
|
|
|
$
|
1,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
$
|
205
|
|
|
$
|
—
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
215
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
14
|
|
|
Noncurrent
|
1,193
|
|
|
372
|
|
|
—
|
|
|
62
|
|
|
1,627
|
|
|
1,253
|
|
|
378
|
|
|
—
|
|
|
43
|
|
|
1,674
|
|
|
Total Assets
|
$
|
1,398
|
|
|
$
|
372
|
|
|
$
|
10
|
|
|
$
|
62
|
|
|
$
|
1,842
|
|
|
$
|
1,264
|
|
|
$
|
378
|
|
|
$
|
3
|
|
|
$
|
43
|
|
|
$
|
1,688
|
|
_______________________________________
(a)Amounts represent assets valued at NAV as a practical expedient for fair value.
(b)At June 30, 2020, the $205 million of cash equivalents was included in Cash and cash equivalents on DTE Electric's Consolidated Statements of Financial Position. At December 31, 2019, the $11 million of cash equivalents was 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.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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 $195 million and $151 million as of June 30, 2020 and December 31, 2019, respectively.
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 June 30, 2020
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
Natural Gas
|
|
Electricity
|
|
Other
|
|
Total
|
|
Natural Gas
|
|
Electricity
|
|
Other
|
|
Total
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets (Liabilities) as of March 31
|
$
|
8
|
|
|
$
|
15
|
|
|
$
|
1
|
|
|
$
|
24
|
|
|
$
|
(10)
|
|
|
$
|
(25)
|
|
|
$
|
2
|
|
|
$
|
(33)
|
|
|
Transfers into Level 3 from Level 2
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Transfers from Level 3 into Level 2
|
(5)
|
|
|
—
|
|
|
—
|
|
|
(5)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
12
|
|
|
33
|
|
|
(8)
|
|
|
37
|
|
|
(1)
|
|
|
41
|
|
|
—
|
|
|
40
|
|
|
Recorded in Regulatory liabilities
|
—
|
|
|
—
|
|
|
14
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
9
|
|
|
Purchases, issuances, and settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements
|
3
|
|
|
(32)
|
|
|
3
|
|
|
(26)
|
|
|
—
|
|
|
(6)
|
|
|
(2)
|
|
|
(8)
|
|
|
Net Assets (Liabilities) as of June 30
|
$
|
20
|
|
|
$
|
16
|
|
|
$
|
10
|
|
|
$
|
46
|
|
|
$
|
(10)
|
|
|
$
|
10
|
|
|
$
|
9
|
|
|
$
|
9
|
|
|
Total gains (losses) included in Net Income attributed to the change in unrealized gains (losses) related to assets and liabilities held at June 30, 2020 and 2019(a)
|
$
|
18
|
|
|
$
|
20
|
|
|
$
|
(16)
|
|
|
$
|
22
|
|
|
$
|
(1)
|
|
|
$
|
38
|
|
|
$
|
(4)
|
|
|
$
|
33
|
|
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
_______________________________________
(a)Amounts are reflected in Operating Revenues — Non-utility operations and Fuel, purchased power, and gas — non-utility in DTE Energy's Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
Natural Gas
|
|
Electricity
|
|
Other
|
|
Total
|
|
Natural Gas
|
|
Electricity
|
|
Other
|
|
Total
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets (Liabilities) as of December 31
|
$
|
(15)
|
|
|
$
|
16
|
|
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
(49)
|
|
|
$
|
(2)
|
|
|
$
|
7
|
|
|
$
|
(44)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers from Level 3 into Level 2
|
(4)
|
|
|
—
|
|
|
—
|
|
|
(4)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
36
|
|
|
53
|
|
|
(8)
|
|
|
81
|
|
|
31
|
|
|
10
|
|
|
(1)
|
|
|
40
|
|
|
Recorded in Regulatory liabilities
|
—
|
|
|
—
|
|
|
12
|
|
|
12
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
7
|
|
|
Purchases, issuances, and settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements
|
3
|
|
|
(53)
|
|
|
3
|
|
|
(47)
|
|
|
8
|
|
|
2
|
|
|
(4)
|
|
|
6
|
|
|
Net Assets (Liabilities) as of June 30
|
$
|
20
|
|
|
$
|
16
|
|
|
$
|
10
|
|
|
$
|
46
|
|
|
$
|
(10)
|
|
|
$
|
10
|
|
|
$
|
9
|
|
|
$
|
9
|
|
|
Total gains (losses) included in Net Income attributed to the change in unrealized gains (losses) related to assets and liabilities held at June 30, 2020 and 2019(a)
|
$
|
37
|
|
|
$
|
42
|
|
|
$
|
(16)
|
|
|
$
|
63
|
|
|
$
|
16
|
|
|
$
|
17
|
|
|
$
|
(5)
|
|
|
$
|
28
|
|
_______________________________________
(a)Amounts are reflected in Operating Revenues — Non-utility operations and Fuel, purchased power, and gas — non-utility in DTE Energy's Consolidated Statements of Operations
The following table presents the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for DTE Electric:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Net Assets as of beginning of period
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
6
|
|
|
Change in fair value recorded in Regulatory liabilities
|
14
|
|
|
9
|
|
|
12
|
|
|
7
|
|
|
Purchases, issuances, and settlements
|
|
|
|
|
|
|
|
|
Settlements
|
(5)
|
|
|
(2)
|
|
|
(5)
|
|
|
(4)
|
|
|
Net Assets as of June 30
|
$
|
10
|
|
|
$
|
9
|
|
|
$
|
10
|
|
|
$
|
9
|
|
|
The amount of total gains (losses) included in Regulatory liabilities attributed to the change in unrealized gains (losses) related to assets held at June 30, 2020 and 2019 and reflected in DTE Electric's Consolidated Statements of Financial Position
|
$
|
10
|
|
|
$
|
9
|
|
|
$
|
10
|
|
|
$
|
9
|
|
Derivatives are transferred between levels primarily due to changes in the source data used to construct price curves as a result of changes in market liquidity. Transfers in and transfers out are reflected as if they had occurred at the beginning of the period. There were no transfers from or into Level 3 for DTE Electric during the three and six months ended June 30, 2020 and 2019.
The following tables present the unobservable inputs related to DTE Energy's Level 3 assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity Contracts
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
Valuation Techniques
|
|
Unobservable Input
|
|
Range
|
|
|
|
|
Weighted Average
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas
|
|
$
|
71
|
|
|
$
|
(51)
|
|
|
Discounted Cash Flow
|
|
Forward basis price (per MMBtu)
|
|
$
|
(0.74)
|
|
—
|
|
$
|
4.18
|
/MMBtu
|
|
$
|
(0.06)
|
/MMBtu
|
|
Electricity
|
|
$
|
68
|
|
|
$
|
(52)
|
|
|
Discounted Cash Flow
|
|
Forward basis price (per MWh)
|
|
$
|
(10)
|
|
—
|
|
$
|
14
|
/MWh
|
|
$
|
(1)
|
/MWh
|
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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December 31, 2019
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Commodity Contracts
|
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Derivative Assets
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Derivative Liabilities
|
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Valuation Techniques
|
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Unobservable Input
|
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Range
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Weighted Average
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(In millions)
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|
|
|
|
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|
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|
|
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|
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Natural Gas
|
|
$
|
74
|
|
|
$
|
(89)
|
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|
Discounted Cash Flow
|
|
Forward basis price (per MMBtu)
|
|
$
|
(1.78)
|
|
—
|
|
$
|
5.78
|
/MMBtu
|
|
$
|
(0.09)
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/MMBtu
|
|
Electricity
|
|
$
|
83
|
|
|
$
|
(67)
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|
Discounted Cash Flow
|
|
Forward basis price (per MWh)
|
|
$
|
(10)
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—
|
|
$
|
6
|
/MWh
|
|
$
|
—
|
/MWh
|
The unobservable inputs used in the fair value measurement of the electricity and natural gas commodity types consist of inputs that are less observable due in part to lack of available broker quotes, supported by little, if any, market activity at the measurement date or are based on internally developed models. Certain basis prices (i.e., the difference in pricing between two locations) included in the valuation of natural gas and electricity contracts were deemed unobservable.
The 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.
Fair Value of Financial Instruments
The following table presents the carrying amount and fair value of financial instruments for DTE Energy:
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|
|
June 30, 2020
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|
|
December 31, 2019
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Carrying
|
|
Fair Value
|
|
|
|
|
|
Carrying
|
|
Fair Value
|
|
|
|
|
|
|
Amount
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Amount
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
(In millions)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable — Other(a), excluding lessor finance leases
|
$
|
78
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
78
|
|
|
$
|
184
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
184
|
|
|
Short-term borrowings
|
$
|
914
|
|
|
$
|
—
|
|
|
$
|
914
|
|
|
$
|
—
|
|
|
$
|
828
|
|
|
$
|
—
|
|
|
$
|
828
|
|
|
$
|
—
|
|
|
Notes payable — Other(b)
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
25
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25
|
|
|
Long-term debt(c)
|
$
|
17,997
|
|
|
$
|
2,299
|
|
|
$
|
15,952
|
|
|
$
|
1,845
|
|
|
$
|
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:
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|
|
June 30, 2020
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|
|
|
|
|
|
December 31, 2019
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|
|
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|
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Carrying
|
|
Fair Value
|
|
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|
|
Carrying
|
|
Fair Value
|
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|
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|
|
|
Amount
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Amount
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable — Other(a)
|
$
|
11
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|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11
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|
|
$
|
9
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|
|
$
|
—
|
|
|
$
|
—
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|
|
$
|
9
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|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
Short-term borrowings — affiliates
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$
|
107
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|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
107
|
|
|
$
|
97
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
97
|
|
|
Short-term borrowings — other
|
$
|
200
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|
|
$
|
—
|
|
|
$
|
200
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|
|
$
|
—
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|
|
$
|
354
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|
|
$
|
—
|
|
|
$
|
354
|
|
|
$
|
—
|
|
|
Notes payable — Other(b)
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11
|
|
|
$
|
21
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|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21
|
|
|
Long-term debt(c)
|
$
|
8,566
|
|
|
$
|
—
|
|
|
$
|
9,821
|
|
|
$
|
193
|
|
|
$
|
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."
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
|
(In millions)
|
|
|
|
Fermi 2
|
$
|
1,592
|
|
|
$
|
1,650
|
|
|
Fermi 1
|
3
|
|
|
3
|
|
|
Low-level radioactive waste
|
8
|
|
|
8
|
|
|
|
$
|
1,603
|
|
|
$
|
1,661
|
|
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:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Realized gains
|
$
|
103
|
|
|
$
|
17
|
|
|
$
|
134
|
|
|
$
|
28
|
|
|
Realized losses
|
$
|
(76)
|
|
|
$
|
(10)
|
|
|
$
|
(92)
|
|
|
$
|
(17)
|
|
|
Proceeds from sale of securities
|
$
|
799
|
|
|
$
|
220
|
|
|
$
|
1,238
|
|
|
$
|
396
|
|
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:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
Fair
Value
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
$
|
973
|
|
|
$
|
262
|
|
|
$
|
(25)
|
|
|
$
|
1,046
|
|
|
$
|
396
|
|
|
$
|
(39)
|
|
|
Fixed income securities
|
509
|
|
|
35
|
|
|
(2)
|
|
|
538
|
|
|
24
|
|
|
(1)
|
|
|
Private equity and other
|
62
|
|
|
—
|
|
|
—
|
|
|
43
|
|
|
—
|
|
|
—
|
|
|
Cash equivalents
|
59
|
|
|
—
|
|
|
—
|
|
|
34
|
|
|
—
|
|
|
—
|
|
|
|
$
|
1,603
|
|
|
$
|
297
|
|
|
$
|
(27)
|
|
|
$
|
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:
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
(In millions)
|
|
Due within one year
|
$
|
5
|
|
|
Due after one through five years
|
90
|
|
|
Due after five through ten years
|
114
|
|
|
Due after ten years
|
300
|
|
|
|
$
|
509
|
|
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
Other Securities
At June 30, 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. The rabbi trust was established to fund certain non-qualified pension benefits, and therefore changes in market value are recognized in earnings. Gains and losses are allocated from DTE Energy to DTE Electric and are included in Other Income or Other Expense, respectively, in the Registrants' Consolidated Statements of Operations. The following table summarizes DTE Energy's gains (losses) related to the trust:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Gains (losses) related to equity securities
|
$
|
16
|
|
|
$
|
4
|
|
|
$
|
(6)
|
|
|
$
|
17
|
|
|
Gains (losses) related to fixed income securities
|
6
|
|
|
3
|
|
|
(3)
|
|
|
7
|
|
|
|
$
|
22
|
|
|
$
|
7
|
|
|
$
|
(9)
|
|
|
$
|
24
|
|
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, and buys and sells transportation and storage capacity. DTE Gas has fixed-priced contracts for portions of its expected natural gas supply requirements through March 2023. Substantially all of these contracts meet the normal purchases and normal sales exception and are therefore accounted for under the accrual method. Forward transportation and storage contracts are generally not derivatives and are therefore accounted for under the accrual method.
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.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
Energy Trading — Commodity Price Risk — Energy Trading markets and trades electricity, natural gas physical products, and energy financial instruments, and provides energy and asset management services utilizing energy commodity derivative instruments. Forwards, futures, options, and swap agreements are used to manage exposure to the risk of market price and volume fluctuations in its operations. These derivatives are accounted for by recording changes in fair value to earnings unless hedge accounting criteria are met.
Energy Trading — Foreign Currency Exchange Risk — Energy Trading has foreign currency exchange forward contracts to economically hedge fixed Canadian dollar commitments existing under natural gas and power purchase and sale contracts and natural gas transportation contracts. Energy Trading enters into these contracts to mitigate price volatility with respect to fluctuations of the Canadian dollar relative to the U.S. dollar. These derivatives are accounted for by recording changes in fair value to earnings unless hedge accounting criteria are met.
Corporate and Other — Interest Rate Risk — DTE Energy may use interest rate swaps, treasury locks, and other derivatives to hedge the risk associated with interest rate market volatility.
Credit Risk — DTE Energy maintains credit policies that significantly minimize overall credit risk. These policies include an evaluation of potential customers’ and counterparties’ financial condition, including the viability of underlying productive assets, credit rating, collateral requirements, or other credit enhancements such as letters of credit or guarantees. DTE Energy generally uses standardized agreements that allow the netting of positive and negative transactions associated with a single counterparty. DTE Energy maintains a provision for credit losses based on factors surrounding the credit risk of its customers, historical trends, and other information. Based on DTE Energy's credit policies and its June 30, 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.
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 Energy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
December 31, 2019
|
|
|
|
|
Derivative
Assets
|
|
Derivative Liabilities
|
|
Derivative
Assets
|
|
Derivative Liabilities
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
|
|
|
|
|
|
|
Natural gas
|
$
|
250
|
|
|
$
|
(226)
|
|
|
$
|
355
|
|
|
$
|
(351)
|
|
|
Electricity
|
223
|
|
|
(211)
|
|
|
306
|
|
|
(298)
|
|
|
Environmental & Other
|
227
|
|
|
(202)
|
|
|
113
|
|
|
(121)
|
|
|
Foreign currency exchange contracts
|
3
|
|
|
(1)
|
|
|
1
|
|
|
—
|
|
|
Total derivatives not designated as hedging instruments
|
$
|
703
|
|
|
$
|
(640)
|
|
|
$
|
775
|
|
|
$
|
(770)
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
$
|
531
|
|
|
$
|
(478)
|
|
|
$
|
646
|
|
|
$
|
(596)
|
|
|
Noncurrent
|
172
|
|
|
(162)
|
|
|
129
|
|
|
(174)
|
|
|
Total derivatives
|
$
|
703
|
|
|
$
|
(640)
|
|
|
$
|
775
|
|
|
$
|
(770)
|
|
The following table presents the fair value of derivative instruments for DTE Electric:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
|
(In millions)
|
|
|
|
FTRs — Other current assets
|
$
|
10
|
|
|
$
|
3
|
|
|
Total derivatives not designated as hedging instruments
|
$
|
10
|
|
|
$
|
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 $6 million outstanding at June 30, 2020 and December 31, 2019 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 $4 million at June 30, 2020 and December 31, 2019. Such balances of letters of credit are excluded from the tables below and are not netted with the recognized assets and liabilities in DTE Energy's Consolidated Statements of Financial Position.
For contracts with certain clearing agents, the fair value of derivative instruments is netted against realized positions with the net balance reflected as either 1) a Derivative asset or liability or 2) an Account receivable or payable. Other than certain clearing agents, Accounts receivable and Accounts payable that are subject to netting arrangements have not been offset against the fair value of Derivative assets and liabilities.
The following table presents net cash collateral offsetting arrangements for DTE Energy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash collateral recorded in Accounts receivable(a)
|
$
|
15
|
|
|
$
|
13
|
|
|
Cash collateral recorded in Accounts payable(a)
|
(3)
|
|
|
(3)
|
|
|
Total net cash collateral posted (received)
|
$
|
12
|
|
|
$
|
10
|
|
_______________________________________
(a)Amounts are recorded net by counterparty.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
The following table presents the netting offsets of Derivative assets and liabilities for DTE Energy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 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
|
$
|
250
|
|
|
$
|
(173)
|
|
|
$
|
77
|
|
|
$
|
355
|
|
|
$
|
(266)
|
|
|
$
|
89
|
|
|
Electricity
|
223
|
|
|
(165)
|
|
|
58
|
|
|
306
|
|
|
(225)
|
|
|
81
|
|
|
Environmental & Other
|
227
|
|
|
(217)
|
|
|
10
|
|
|
113
|
|
|
(110)
|
|
|
3
|
|
|
Foreign currency exchange contracts
|
3
|
|
|
—
|
|
|
3
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
Total derivative assets
|
$
|
703
|
|
|
$
|
(555)
|
|
|
$
|
148
|
|
|
$
|
775
|
|
|
$
|
(601)
|
|
|
$
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas
|
$
|
(226)
|
|
|
$
|
173
|
|
|
$
|
(53)
|
|
|
$
|
(351)
|
|
|
$
|
266
|
|
|
$
|
(85)
|
|
|
Electricity
|
(211)
|
|
|
165
|
|
|
(46)
|
|
|
(298)
|
|
|
225
|
|
|
(73)
|
|
|
Environmental & Other
|
(202)
|
|
|
217
|
|
|
15
|
|
|
(121)
|
|
|
110
|
|
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
(1)
|
|
|
—
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total derivative liabilities
|
$
|
(640)
|
|
|
$
|
555
|
|
|
$
|
(85)
|
|
|
$
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 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
|
$
|
531
|
|
|
$
|
172
|
|
|
$
|
(478)
|
|
|
$
|
(162)
|
|
|
$
|
646
|
|
|
$
|
129
|
|
|
$
|
(596)
|
|
|
$
|
(174)
|
|
|
Counterparty netting
|
(426)
|
|
|
(129)
|
|
|
426
|
|
|
129
|
|
|
(513)
|
|
|
(88)
|
|
|
513
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives as reported
|
$
|
105
|
|
|
$
|
43
|
|
|
$
|
(52)
|
|
|
$
|
(33)
|
|
|
$
|
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 June 30,
|
|
|
|
Gain (Loss) Recognized in Income on Derivatives for the Six Months Ended June 30,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Commodity contracts
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas
|
|
Operating Revenues — Non-utility operations
|
|
$
|
(25)
|
|
|
$
|
24
|
|
|
$
|
(36)
|
|
|
$
|
9
|
|
|
Natural gas
|
|
Fuel, purchased power, and gas — non-utility
|
|
43
|
|
|
(30)
|
|
|
79
|
|
|
40
|
|
|
Electricity
|
|
Operating Revenues — Non-utility operations
|
|
41
|
|
|
16
|
|
|
42
|
|
|
(33)
|
|
|
Environmental & Other
|
|
Operating Revenues — Non-utility operations
|
|
(63)
|
|
|
(1)
|
|
|
(41)
|
|
|
—
|
|
|
Foreign currency exchange contracts
|
|
Operating Revenues — Non-utility operations
|
|
(3)
|
|
|
(2)
|
|
|
2
|
|
|
(3)
|
|
|
Total
|
|
|
|
$
|
(7)
|
|
|
$
|
7
|
|
|
$
|
46
|
|
|
$
|
13
|
|
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 June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
Commodity
|
|
Number of Units
|
|
Natural gas (MMBtu)
|
|
1,653,522,670
|
|
|
Electricity (MWh)
|
|
33,708,087
|
|
|
|
|
|
|
Foreign currency exchange (CAD)
|
|
181,720,213
|
|
|
|
|
|
|
Renewable Energy Certificates (MWh)
|
|
9,495,615
|
|
|
Carbon emissions (Metric Ton)
|
|
14,170,710
|
|
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 June 30, 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 $368 million.
As of June 30, 2020, DTE Energy had $577 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 $540 million. The net remaining amount of $37 million is derived from the $368 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
|
|
|
DTE Electric
|
|
April
|
|
Mortgage Bonds(b)
|
|
2.63%
|
|
2031
|
|
600
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,700
|
|
_______________________________________
(a)Proceeds used for the repayment of $300 million of DTE Electric's 2010 Series A 4.89% Senior Notes due 2020, repayment of short-term borrowings, capital expenditures, and for other general corporate purposes.
(b)Proceeds used for the repayment of $300 million of DTE Electric's 2010 Series B 3.45% Senior Notes due 2020, repayment of $32 million of DTE Electric's 2008 Series KT Variable Rate Senior Notes due 2020, repayment of short-term borrowings, 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 June 30, 2020. The loan will terminate if no amounts have been drawn by August 27, 2020. 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.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
In May 2020, DTE Gas agreed to issue $125 million of 2.35% First Mortgage Bonds due September 1, 2030 and $125 million of 3.20% First Mortgage Bonds due September 1, 2050 to a group of institutional investors in a private placement transaction. These bonds are expected to close and fund in August 2020. Proceeds will be used for the repayment of short-term borrowings and 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On July 1, 2020, DTE Electric redeemed at maturity $32 million of DTE Electric Series 2008 KT Variable Rate Senior Notes and optionally redeemed its $300 million 2010 Series B 3.45% Senior Notes originally due October 1, 2020.
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. DTE Energy also has other facilities to support letter of credit issuance.
During 2020, the Registrants have entered into a series of unsecured term loans to raise additional liquidity, including terms consistent with the unsecured revolving credit agreements. In March 2020, DTE Energy entered into a $500 million unsecured term loan expiring in March 2021, of which the full $500 million has been drawn.
In April 2020, DTE Electric entered into a $200 million unsecured term loan, of which the full $200 million has been drawn, and a $200 million unsecured term loan, of which no amount has been drawn. Additionally, in April 2020, DTE Gas entered into a $100 million unsecured term loan, of which the full $100 million has been drawn. All three loans expire in April 2021.
In May 2020, DTE Lake Erie Generation, Inc., an indirect wholly-owned subsidiary of DTE Energy, entered into a C$110 million unsecured revolving credit agreement to fund construction of on-site electric generation and related infrastructure projects at a Canadian integrated steel manufacturing facility in Ontario, Canada. The revolving credit agreement is guaranteed by DTE Energy and there was C$19 million outstanding as of June 30, 2020. The revolving credit agreement expires in May 2023 and has terms consistent with DTE Energy's unsecured revolving credit agreements.
In June 2020, DTE Energy entered into a $167 million unsecured term loan expiring in June 2021, of which no amount has been drawn. The loan will terminate if no amounts have been drawn by September 28, 2020.
The unsecured revolving credit 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 June 30, 2020, the total funded debt to total capitalization ratios for DTE Energy, DTE Electric, and DTE Gas were 0.60 to 1, 0.55 to 1, and 0.47 to 1, respectively, and were in compliance with this financial covenant.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
The availability under these facilities as of June 30, 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 term loans, expiring in April 2021
|
—
|
|
|
400
|
|
|
100
|
|
|
500
|
|
|
Unsecured term loan, expiring in June 2021
|
167
|
|
|
—
|
|
|
—
|
|
|
167
|
|
|
Unsecured Canadian revolving credit facility, expiring May 2023
|
81
|
|
|
—
|
|
|
—
|
|
|
81
|
|
|
Unsecured revolving credit facility, expiring April 2024
|
1,500
|
|
|
500
|
|
|
300
|
|
|
2,300
|
|
|
|
2,508
|
|
|
900
|
|
|
400
|
|
|
3,808
|
|
|
Amounts outstanding at June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of credit
|
201
|
|
|
—
|
|
|
—
|
|
|
201
|
|
|
Unsecured term loan
|
500
|
|
|
200
|
|
|
100
|
|
|
800
|
|
|
Revolver borrowings
|
114
|
|
|
—
|
|
|
—
|
|
|
114
|
|
|
|
815
|
|
|
200
|
|
|
100
|
|
|
1,115
|
|
|
Net availability at June 30, 2020
|
$
|
1,693
|
|
|
$
|
700
|
|
|
$
|
300
|
|
|
$
|
2,693
|
|
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 July 2020, DTE Energy entered into a $50 million uncommitted letter of credit facility, of which no amount is outstanding. The facility expires in July 2021 with an automatic renewal provision.
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 June 30, 2020, the capacity under this facility was $150 million. The amount outstanding under this agreement was $70 million and $114 million at June 30, 2020 and December 31, 2019, respectively, and was fully offset by the posted collateral.
NOTE 12 — LEASES
Lessor
During the second quarter of 2020, DTE Energy executed a sale of membership interests in the REF business accounted for as a finance lease arrangement with a term of less than 2 years, resulting in a net investment in finances leases of $8 million and selling profit of $11 million.
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.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
The components of DTE Energy’s net investment in finance leases for remaining periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
DTE Energy
|
|
|
|
|
June 30, 2020
|
|
|
|
|
(In millions)
|
|
|
|
2020
|
$
|
14
|
|
|
|
|
2021
|
24
|
|
|
|
|
2022
|
20
|
|
|
|
|
2023
|
19
|
|
|
|
|
2024
|
19
|
|
|
|
|
2025 and Thereafter
|
273
|
|
|
|
|
Total minimum future lease receipts
|
369
|
|
|
|
|
Residual value of leased pipeline
|
19
|
|
|
|
|
Less unearned income
|
205
|
|
|
|
|
Net investment in finance lease
|
183
|
|
|
|
|
Less current portion
|
11
|
|
|
|
|
|
$
|
172
|
|
|
|
Interest income recognized under finance leases was $4 million and $1 million for the three months ended June 30, 2020 and 2019, respectively, and $8 million and $2 million for the six months ended June 30, 2020 and 2019, respectively.
DTE Energy’s lease income associated with operating leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Fixed payments
|
$
|
17
|
|
|
$
|
17
|
|
|
$
|
33
|
|
|
$
|
34
|
|
|
Variable payments
|
16
|
|
|
25
|
|
|
39
|
|
|
52
|
|
|
|
$
|
33
|
|
|
$
|
42
|
|
|
$
|
72
|
|
|
$
|
86
|
|
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.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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.
In May 2020, the Registrants, the United States, and the Sierra Club reached a settlement, which was memorialized in the form of a Consent Decree and a separate settlement agreement between the Registrants and Sierra Club. The Consent Decree was submitted and received by the US District Court and the public comment period ended on June 14, 2020. The United States is currently responding to the comments that were submitted during the public comment period. As of June 30, 2020, approximately $7 million has been accrued for the settlement. A final determination regarding the settlement is expected in the third quarter of 2020. The Registrants do not expect the final settlement to have a material financial impact.
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.
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 from the 2005 carbon emissions levels, or its goal of net zero emissions for its electric utility operations by 2050.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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 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 above ground storage tank locations. The findings of these investigations indicated that the estimated cost to remediate these sites is expected to be incurred over the next several years. At June 30, 2020 and December 31, 2019, DTE Electric had $7 million and $8 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 Electric’s financial position and cash flows. DTE Electric believes the likelihood of a material change to the accrued amount is remote based on current knowledge of the conditions at each site.
Coal Combustion Residuals and Effluent Limitations Guidelines — A final EPA rule for the disposal of coal combustion residuals, commonly known as coal ash, became effective in October 2015, and 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 $609 million of capital expenditures.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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 has submitted 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 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 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 FGD 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
Air — In June 2020, DTE Energy expanded its net zero goal to include its gas utility operations by committing to reduce greenhouse gas emissions to net zero by 2050 from procurement of natural gas through delivery. In addition, DTE Gas committed to partner with customers to help them reduce GHG emissions through energy efficiency and participation in a voluntary emissions offset program. Further details of the DTE Gas net zero goal will emerge as the company evaluates strategies and technologies for reducing emissions.
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 June 30, 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.
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.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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 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. SIP 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 June 30, 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 June 30, 2020 was $470 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 June 30, 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.
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 June 30, 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.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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 $51 million at June 30, 2020. Payments under these guarantees are considered remote.
The Registrants are periodically required to obtain performance surety bonds in support of obligations to various governmental entities and other companies in connection with its operations. As of June 30, 2020, DTE Energy had $123 million of performance bonds outstanding, including $68 million for DTE Electric. In the event that such bonds are called for nonperformance, the Registrants would be obligated to reimburse the issuer of the performance bond. The Registrants are released from the performance bonds as the contractual performance is completed and does not believe that a material amount of any currently outstanding performance bonds will be called.
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 June 30, 2020 is $51 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 5,200 represented employees, including DTE Electric's approximate 2,800 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. PG&E emerged from Chapter 11 bankruptcy effective July 1, 2020. DTE's renewable power purchase agreements were assumed under PG&E's Reorganization Plan and payment has been received for all past due receivables related to these agreements.
COVID-19 Pandemic
DTE Energy is actively monitoring the impact of the COVID-19 pandemic on supply chains, markets, counterparties, and customers, and any related impacts on operating costs, customer demand, and recoverability of assets that could materially impact the Registrants' financial results.
The uncertainty around COVID-19 and its impact has contributed to volatility in financial markets, generally including significant losses in the first quarter 2020 and gains in the second quarter 2020. For certain non-qualified benefit plan trusts for which gains and losses affect earnings, the impacts to financial markets resulted in pre-tax investment losses of $9 million for DTE Electric and $1 million for DTE Gas for the six months ended June 30, 2020. For the three months ended June 30, 2020, DTE Electric and DTE Gas recognized pre-tax investment gains of $22 million and $2 million, respectively.
Additional impacts from the COVID-19 pandemic for the three and six months ended June 30, 2020 include a reduction in DTE Electric sales volumes from commercial and industrial customers and an increase in residential customer sales volumes given closures and change to remote operations for many businesses and other institutions. This shift contributed to a net
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
reduction in DTE Electric sales volumes for the three and six months ended June 30, 2020, but the impact to earnings has been largely mitigated by favorable rate mix.
Operation and maintenance expenses has also been impacted by COVID-19, primarily at DTE Electric, due to higher costs for personal protective equipment and other health and safety related costs, including shift premiums and related expenses associated with the sequestration of certain employees critical to continued operations.
For non-utility businesses, COVID-19 has primarily impacted the Power and Industrial Projects segment, contributing to lower production in the REF business and lower demand in the Steel business. These impacts were most significant in March and April 2020 when government orders to cease non-essential business activity resulted in temporary shut-down of certain operations. While these impacts have adversely affected Operating revenues and Other income from REF entities, Net income has not been significantly impacted due to related decreases in Operating expenses.
Finally, as discussed in Note 2, "Significant Accounting Policies", the allowance for doubtful accounts was increased at our utilities due to additional risk relating to COVID-19. However, as a portion of this increase has been deferred as Regulatory assets, there has not been a material impact to uncollectible expense.
In consideration of the above factors and all other current and expected impacts to the Registrants' performance and cash flows resulting from the COVID-19 pandemic, there have been no material adjustments or reserves deemed necessary to the Consolidated Financial Statements as of June 30, 2020.
The Registrants cannot predict the future impacts of the COVID-19 pandemic on the Consolidated Financial Statements, as developments involving COVID-19 and its related effects on economic and operating conditions remain highly uncertain.
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 June 30,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Service cost
|
$
|
24
|
|
|
$
|
21
|
|
|
$
|
7
|
|
|
$
|
6
|
|
|
Interest cost
|
47
|
|
|
54
|
|
|
14
|
|
|
17
|
|
|
Expected return on plan assets
|
(83)
|
|
|
(81)
|
|
|
(32)
|
|
|
(31)
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
43
|
|
|
34
|
|
|
3
|
|
|
3
|
|
|
Prior service credit
|
—
|
|
|
—
|
|
|
(5)
|
|
|
(2)
|
|
|
Net periodic benefit cost (credit)
|
$
|
31
|
|
|
$
|
28
|
|
|
$
|
(13)
|
|
|
$
|
(7)
|
|
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
Other Postretirement Benefits
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Service cost
|
$
|
49
|
|
|
$
|
42
|
|
|
$
|
13
|
|
|
$
|
11
|
|
|
Interest cost
|
93
|
|
|
109
|
|
|
28
|
|
|
35
|
|
|
Expected return on plan assets
|
(166)
|
|
|
(162)
|
|
|
(64)
|
|
|
(62)
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
86
|
|
|
66
|
|
|
8
|
|
|
6
|
|
|
Prior service credit
|
—
|
|
|
—
|
|
|
(10)
|
|
|
(4)
|
|
|
Net periodic benefit cost (credit)
|
$
|
62
|
|
|
$
|
55
|
|
|
$
|
(25)
|
|
|
$
|
(14)
|
|
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 non-qualified pension plans by applying multiemployer accounting. DTE Electric accounts for its participation in other postretirement benefit plans by applying multiple-employer accounting. Within multiemployer and multiple-employer plans, participants pool plan assets for investment purposes and to reduce the cost of plan administration. The primary difference between plan types is assets contributed in multiemployer plans can be used to provide benefits for all participating employers, while assets contributed within a multiple-employer plan are restricted for use by the contributing employer. As a result of multiemployer accounting treatment, capitalized costs associated with these plans are reflected in Property, plant, and equipment in DTE Electric's Consolidated Statements of Financial Position. The same capitalized costs are reflected as Regulatory assets and liabilities in DTE Energy's Consolidated Statements of Financial Position. In addition, the service cost and non-service cost components are presented in Operation and maintenance in DTE Electric's Consolidated Statements of Operations. The same non-service cost components are presented in Other (Income) and Deductions — Non-operating retirement benefits, net in DTE Energy's Consolidated Statements of Operations. Plan participants of all plans are solely DTE Energy and affiliate participants.
DTE Energy's subsidiaries are responsible for their share of qualified and non-qualified pension benefit costs. DTE Electric's allocated portion of pension benefit costs included in capital expenditures and operating and maintenance expense were $25 million and $22 million for the three months ended June 30, 2020 and 2019, respectively, and $51 million and $45 million for the six months ended June 30, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions)
|
|
|
|
(In millions)
|
|
|
|
Service cost
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
10
|
|
|
$
|
8
|
|
|
Interest cost
|
10
|
|
|
14
|
|
|
21
|
|
|
27
|
|
|
Expected return on plan assets
|
(22)
|
|
|
(21)
|
|
|
(44)
|
|
|
(42)
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
3
|
|
|
1
|
|
|
6
|
|
|
2
|
|
|
Prior service credit
|
(3)
|
|
|
(3)
|
|
|
(7)
|
|
|
(4)
|
|
|
Net periodic benefit credit
|
$
|
(7)
|
|
|
$
|
(5)
|
|
|
$
|
(14)
|
|
|
$
|
(9)
|
|
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.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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.
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 June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Electric
|
$
|
15
|
|
|
$
|
13
|
|
|
$
|
30
|
|
|
$
|
27
|
|
|
Gas
|
4
|
|
|
3
|
|
|
8
|
|
|
5
|
|
|
Gas Storage and Pipelines
|
5
|
|
|
3
|
|
|
9
|
|
|
6
|
|
|
Power and Industrial Projects
|
80
|
|
|
157
|
|
|
174
|
|
|
302
|
|
|
Energy Trading
|
8
|
|
|
5
|
|
|
14
|
|
|
12
|
|
|
Corporate and Other
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
|
$
|
112
|
|
|
$
|
181
|
|
|
$
|
236
|
|
|
$
|
353
|
|
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 June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Operating Revenues — Utility operations
|
|
|
|
|
|
|
|
|
Electric
|
$
|
1,309
|
|
|
$
|
1,190
|
|
|
$
|
2,521
|
|
|
$
|
2,425
|
|
|
Gas
|
251
|
|
|
243
|
|
|
791
|
|
|
888
|
|
|
Operating Revenues — Non-utility operations
|
|
|
|
|
|
|
|
|
Electric
|
3
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
Gas Storage and Pipelines
|
172
|
|
|
121
|
|
|
342
|
|
|
237
|
|
|
Power and Industrial Projects
|
219
|
|
|
402
|
|
|
526
|
|
|
790
|
|
|
Energy Trading
|
740
|
|
|
1,113
|
|
|
1,653
|
|
|
2,414
|
|
|
Corporate and Other
|
1
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
Reconciliation and Eliminations
|
(112)
|
|
|
(181)
|
|
|
(236)
|
|
|
(353)
|
|
|
Total
|
$
|
2,583
|
|
|
$
|
2,888
|
|
|
$
|
5,605
|
|
|
$
|
6,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to DTE Energy by Segment:
|
|
|
|
|
|
|
|
|
Electric
|
$
|
183
|
|
|
$
|
133
|
|
|
$
|
277
|
|
|
$
|
280
|
|
|
Gas
|
1
|
|
|
8
|
|
|
122
|
|
|
159
|
|
|
Gas Storage and Pipelines
|
70
|
|
|
50
|
|
|
142
|
|
|
98
|
|
|
Power and Industrial Projects
|
25
|
|
|
29
|
|
|
55
|
|
|
55
|
|
|
Energy Trading
|
(1)
|
|
|
(6)
|
|
|
33
|
|
|
26
|
|
|
Corporate and Other
|
(1)
|
|
|
(32)
|
|
|
(12)
|
|
|
(35)
|
|
|
Net Income Attributable to DTE Energy Company
|
$
|
277
|
|
|
$
|
182
|
|
|
$
|
617
|
|
|
$
|
583
|
|
NOTE 16 — RELATED PARTY TRANSACTIONS
DTE Energy enters into related party transactions with certain equity method investees, primarily NEXUS.
DTE Gas is party to a 15-year capacity lease agreement with NEXUS for the transportation of natural gas. Under the lease agreement, DTE Gas provides firm pipeline capacity in the DTE Gas system in order for NEXUS to provide service to its customers from an interconnect between NEXUS and DTE Gas. DTE Gas charges NEXUS a fixed daily pipeline reservation charge for this capacity.
DTE Electric and DTE Gas are also party to respective 20-year and 15-year service agreements with NEXUS for the transportation of natural gas. Under the service agreements, NEXUS provides firm pipeline capacity to transport natural gas to DTE Electric and to service DTE Gas customers. DTE Electric and DTE Gas incur a firm daily pipeline reservation charge, which is recovered through the respective PSCR and GCR mechanisms.
DTE Energy Trading also enters into related party transactions with NEXUS for the transportation of natural gas.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
The following table summarizes the amounts resulting from these transactions included in the Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Operating Revenues — Utility operations
|
|
|
|
|
|
|
|
|
DTE Gas
|
$
|
8
|
|
|
$
|
8
|
|
|
$
|
16
|
|
|
$
|
16
|
|
|
Fuel, purchased power, and gas — utility
|
|
|
|
|
|
|
|
|
DTE Electric
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
DTE Gas
|
$
|
6
|
|
|
$
|
6
|
|
|
$
|
12
|
|
|
$
|
13
|
|
|
Fuel, purchased power, and gas — non-utility
|
|
|
|
|
|
|
|
|
DTE Energy Trading
|
$
|
6
|
|
|
$
|
1
|
|
|
$
|
13
|
|
|
$
|
3
|
|
Other related party transactions with equity method investees include transactions with Vector Pipeline and Millennium Pipeline. These transactions were not material for the three and six months ended June 30, 2020 and 2019.
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 June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions, except per share amounts)
|
|
|
|
|
|
|
|
Net Income Attributable to DTE Energy Company
|
$
|
277
|
|
|
$
|
182
|
|
|
$
|
617
|
|
|
$
|
583
|
|
|
Diluted Earnings per Common Share
|
$
|
1.44
|
|
|
$
|
0.99
|
|
|
$
|
3.20
|
|
|
$
|
3.18
|
|
The increase in Net Income for the three months ended June 30, 2020 was primarily due to higher earnings in the Electric, Gas Storage and Pipelines, and Corporate and Other segments, partially offset by lower earnings in the Gas segment. The increase in Net Income for the six months ended June 30, 2020 was primarily due to higher earnings in the Gas Storage and Pipelines and Corporate and Other segments, partially offset by lower earnings in the Gas 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 took certain safety precautions including directing employees to work remotely whenever possible and pausing all non-critical business activities. The spread of COVID-19 and efforts to contain the virus resulted in closures and reduced operations of businesses, governmental agencies, and other institutions.
Beginning in May and continuing into June 2020, DTE Energy resumed business activities that had been temporarily suspended. Local businesses and other institutions also resumed operations as new cases of COVID-19 began to decline and government restrictions were reduced.
The uncertainty around COVID-19 and its impact has contributed to volatility in financial markets, generally including significant losses in the first quarter 2020 and gains in the second quarter 2020. For certain non-qualified benefit plan trusts for which gains and losses affect earnings, the impacts to financial markets resulted in pre-tax investment losses of $9 million for the Electric segment and $1 millions for the Gas segment for the six months ended June 30, 2020. For the three months ended June 30, 2020, the Electric and Gas segments recognized pre-tax investment gains of $22 million and $2 million, respectively.
Other impacts from the COVID-19 pandemic have included a reduction in sales volumes from commercial and industrial customers and an increase in sales volumes from residential customers within the Electric segment. COVID-19 has also impacted the Power and Industrial Projects segment, contributing to lower production in the REF business and lower demand in the Steel business.
Operation and maintenance expense has been impacted by COVID-19,primarily in the Electric segment, due to higher costs for personal protective equipment and other health and safety related costs, including shift premiums and related expenses associated with the sequestration of certain employees critical to continued operations.
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.
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 and gas 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. River Rouge's final unit will retire in 2021 and five additional coal-fired generating units at Trenton Channel and St. Clair will be retired in 2022. 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."
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.
DTE Energy expects the reduction in electric demand from commercial and industrial customers and increased demand from residential customers to continue in the near term. Operation and maintenance expenses will also continue to be impacted by the need for personal protective equipment and other safety-related costs.
DTE Energy will continue to review the allowance for doubtful accounts for any additional risk related to COVID-19 and will monitor any ongoing challenges to production and demand in the Power and Industrial Projects segment. DTE Energy will also continue to monitor and evaluate the impact of any regulatory and legislative activities related to the COVID-19 pandemic. Refer to Note 6 to the Consolidated Financial Statements, "Regulatory Matters," for further information on current regulatory issues.
The Registrants cannot predict the ultimate impact of these factors to our Consolidated Financial Statements as future developments involving COVID-19 and related impacts on economic and operating conditions are highly uncertain.
RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations includes financial information prepared in accordance with GAAP, as well as the non-GAAP financial measures, Utility Margin and Non-utility Margin, discussed below, which DTE Energy uses as measures of its operational performance. Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP.
DTE Energy uses Utility Margin and Non-utility Margin, non-GAAP financial measures, to assess its performance by reportable segment.
Utility Margin includes electric utility and gas utility Operating Revenues net of Fuel, purchased power, and gas expenses. The utilities’ fuel, purchased power, and natural gas supply are passed through to customers, and therefore, result in changes to the utilities’ revenues that are comparable to changes in such expenses. As such, DTE Energy believes Utility Margin provides a meaningful basis for evaluating the utilities’ operations across periods, as it excludes the revenue effect of fluctuations in these expenses. For the Electric segment, non-utility Operating Revenues are reported separately so that Utility Margin can be used to assess utility performance.
The Non-utility Margin relates to the 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.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to DTE Energy by Segment
|
|
|
|
|
|
|
|
|
Electric
|
$
|
183
|
|
|
$
|
133
|
|
|
$
|
277
|
|
|
$
|
280
|
|
|
Gas
|
1
|
|
|
8
|
|
|
122
|
|
|
159
|
|
|
Gas Storage and Pipelines
|
70
|
|
|
50
|
|
|
142
|
|
|
98
|
|
|
Power and Industrial Projects
|
25
|
|
|
29
|
|
|
55
|
|
|
55
|
|
|
Energy Trading
|
(1)
|
|
|
(6)
|
|
|
33
|
|
|
26
|
|
|
Corporate and Other
|
(1)
|
|
|
(32)
|
|
|
(12)
|
|
|
(35)
|
|
|
Net Income Attributable to DTE Energy Company
|
$
|
277
|
|
|
$
|
182
|
|
|
$
|
617
|
|
|
$
|
583
|
|
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:
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Operating Revenues — Utility operations
|
$
|
1,309
|
|
|
$
|
1,190
|
|
|
$
|
2,521
|
|
|
$
|
2,425
|
|
|
Fuel and purchased power — utility
|
340
|
|
|
322
|
|
|
634
|
|
|
668
|
|
|
Utility Margin
|
969
|
|
|
868
|
|
|
1,887
|
|
|
1,757
|
|
|
Operating Revenues — Non-utility operations
|
3
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
Operation and maintenance
|
349
|
|
|
330
|
|
|
705
|
|
|
682
|
|
|
Depreciation and amortization
|
256
|
|
|
229
|
|
|
517
|
|
|
450
|
|
|
Taxes other than income
|
58
|
|
|
69
|
|
|
141
|
|
|
153
|
|
|
Asset (gains) losses and impairments, net
|
41
|
|
|
13
|
|
|
41
|
|
|
13
|
|
|
Operating Income
|
268
|
|
|
227
|
|
|
490
|
|
|
459
|
|
|
Other (Income) and Deductions
|
60
|
|
|
69
|
|
|
175
|
|
|
125
|
|
|
Income Tax Expense
|
25
|
|
|
25
|
|
|
38
|
|
|
54
|
|
|
Net Income Attributable to DTE Energy Company
|
$
|
183
|
|
|
$
|
133
|
|
|
$
|
277
|
|
|
$
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Utility Margin increased $101 million and $130 million in the three and six months ended June 30, 2020, respectively. 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:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Six Months
|
|
|
(In millions)
|
|
|
|
Implementation of new rates
|
$
|
53
|
|
|
$
|
121
|
|
|
Weather
|
44
|
|
|
11
|
|
|
Base sales
|
15
|
|
|
10
|
|
|
Regulatory mechanism — TRM
|
(2)
|
|
|
(15)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other regulatory mechanisms and other
|
(9)
|
|
|
3
|
|
|
Increase in Utility Margin
|
$
|
101
|
|
|
$
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In thousands of MWh)
|
|
|
|
|
|
|
|
DTE Electric Sales
|
|
|
|
|
|
|
|
|
Residential
|
3,922
|
|
|
3,209
|
|
|
7,492
|
|
|
6,897
|
|
|
Commercial
|
3,520
|
|
|
4,068
|
|
|
7,429
|
|
|
8,145
|
|
|
Industrial
|
1,582
|
|
|
2,498
|
|
|
3,884
|
|
|
4,958
|
|
|
Other
|
48
|
|
|
48
|
|
|
108
|
|
|
111
|
|
|
|
9,072
|
|
|
9,823
|
|
|
18,913
|
|
|
20,111
|
|
|
Interconnection sales(a)
|
120
|
|
|
711
|
|
|
528
|
|
|
1,741
|
|
|
Total DTE Electric Sales
|
9,192
|
|
|
10,534
|
|
|
19,441
|
|
|
21,852
|
|
|
|
|
|
|
|
|
|
|
|
DTE Electric Deliveries
|
|
|
|
|
|
|
|
|
Retail and wholesale
|
9,072
|
|
|
9,823
|
|
|
18,913
|
|
|
20,111
|
|
|
Electric retail access, including self-generators(b)
|
792
|
|
|
1,114
|
|
|
1,835
|
|
|
2,234
|
|
|
Total DTE Electric Sales and Deliveries
|
9,864
|
|
|
10,937
|
|
|
20,748
|
|
|
22,345
|
|
______________________________
(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 $3 million and $7 million in the three and six months ended June 30, 2020, respectively. The increase in both periods was due to renewable energy projects acquired by DTE Sustainable Generation in September 2019 and January 2020.
Operation and maintenance expense increased $19 million and $23 million in the three and six months ended June 30, 2020, respectively. The increase in the second quarter was primarily due to COVID-19 related expenses of $29 million associated with the health and safety of employees, and a deferral in 2019 of previously accrued expenses for the customer billing system allowed in the May 2019 order in rate proceeding U-20162 of $11 million, partially offset by lower generation expense of $12 million, lower distribution operations expense of $9 million, and lower benefit expense of $1 million. The increase in the six-month period was primarily due to COVID-19 related expenses of $34 million associated with the health and safety of employees, and a deferral in 2019 of previously accrued expenses for the customer billing system allowed in the May 2019 order in rate proceeding U-20162 of $11 million, partially offset by lower benefit expense of $7 million, lower distribution operations expense of $8 million, lower energy waste reduction expense of $4 million, and lower generation expense of $3 million.
Depreciation and amortization expense increased $27 million and $67 million in the three and six months ended June 30, 2020, respectively. The increase in the second quarter was primarily due to a $25 million increase resulting from a higher depreciable base at DTE Electric and a $4 million increase resulting from new non-utility assets at DTE Sustainable Generation, partially offset by a decrease of $2 million associated with the TRM. The increase in the six-month period was primarily due to a $72 million increase resulting from a higher depreciable base at DTE Electric and a $7 million increase resulting from new non-utility assets at DTE Sustainable Generation, partially offset by a decrease of $12 million associated with the TRM
Taxes other than income decreased $11 million and $12 million in the three and six months ended June 30, 2020, respectively. The decrease in the second quarter was primarily due to lower property taxes of $10 million as a result of a property tax settlement and lower payroll taxes of $2 million, which was primarily attributable to employee retention credits recognized pursuant to the CARES Act. The decrease in the six-month period was primarily due to lower property taxes of $9 million as a result of a property tax settlement and lower payroll taxes of $2 million, which was primarily attributable to employee retention credits recognized pursuant to the CARES Act.
Asset (gains) losses and impairments, net increased $28 million in the three and six months ended June 30, 2020, respectively. The increase in both periods was due to a $41 million write-off of capital expenditures related to incentive compensation, which were disallowed in the May 8, 2020 rate order from the MPSC, compared to a loss of $13 million for disallowance of other capital expenditures in 2019.
Other (Income) and Deductions decreased $9 million and increased $50 million in the three and six months ended June 30, 2020, respectively. The decrease in the second quarter was primarily due to an increase in investment earnings (gain of $22 million in 2020 compared to a gain of $7 million in 2019), partially offset by $9 million of higher interest expense. The increase in the six-month period was primarily due to a change in investment earnings (loss of $9 million in 2020 compared to a gain of $24 million in 2019) and $15 million of higher interest expense.
Income Tax Expense did not change and decreased $16 million in the three and six months ended June 30, 2020, respectively. For the second quarter, increases due to higher earnings were offset by amortization of the TCJA regulatory liability and higher production tax credits. The decrease in the six-month period was primarily due to lower earnings, amortization of the TCJA regulatory liability, and higher production tax credits.
Outlook — DTE Electric will continue to move forward in its efforts to achieve operational excellence, sustain strong cash flows, and earn its authorized return on equity. DTE Electric expects that planned significant capital investments will result in earnings growth. DTE Electric will maintain a strong focus on customers by increasing reliability and satisfaction while keeping customer rate increases affordable. Looking forward, additional factors may impact earnings such as weather, the outcome of regulatory proceedings, benefit plan design changes, investment returns and changes in discount rate assumptions in benefit plans and health care costs, uncertainty of legislative or regulatory actions regarding climate change, and effects of energy waste reduction programs.
On July 9, 2020, the MPSC approved DTE Electric's request to accelerate amortization of the regulatory liability for non-plant-related accumulated deferred income tax balances that resulted from the TCJA. DTE Electric will increase amortization by $102 million beginning in May 2021, which will fully amortize this regulatory liability by the end of 2021 instead of April 2033. The accelerated amortization will not impact customer rates and will allow DTE Electric to defer its next rate case filing previously set for July 2020 to at least March 1, 2021. 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 June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Operating Revenues — Utility operations
|
$
|
251
|
|
|
$
|
243
|
|
|
$
|
791
|
|
|
$
|
888
|
|
|
Cost of gas — utility
|
42
|
|
|
43
|
|
|
220
|
|
|
284
|
|
|
Utility Margin
|
209
|
|
|
200
|
|
|
571
|
|
|
604
|
|
|
Operation and maintenance
|
120
|
|
|
118
|
|
|
241
|
|
|
246
|
|
|
Depreciation and amortization
|
38
|
|
|
34
|
|
|
75
|
|
|
69
|
|
|
Taxes other than income
|
19
|
|
|
19
|
|
|
44
|
|
|
43
|
|
|
Asset (gains) losses and impairments, net
|
14
|
|
|
—
|
|
|
14
|
|
|
—
|
|
|
Operating Income
|
18
|
|
|
29
|
|
|
197
|
|
|
246
|
|
|
Other (Income) and Deductions
|
16
|
|
|
17
|
|
|
38
|
|
|
33
|
|
|
Income Tax Expense
|
1
|
|
|
4
|
|
|
37
|
|
|
54
|
|
|
Net Income Attributable to DTE Energy Company
|
$
|
1
|
|
|
$
|
8
|
|
|
$
|
122
|
|
|
$
|
159
|
|
Utility Margin increased $9 million and decreased $33 million in the three and six months ended June 30, 2020, respectively. 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
|
|
Six Months
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Infrastructure recovery mechanism
|
7
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
TCJA rate reduction
|
(2)
|
|
|
(8)
|
|
|
Weather
|
9
|
|
|
(34)
|
|
|
|
|
|
|
|
Other regulatory mechanisms and other
|
(5)
|
|
|
(6)
|
|
|
Increase (decrease) in Utility Margin
|
$
|
9
|
|
|
$
|
(33)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In Bcf)
|
|
|
|
|
|
|
|
Gas Markets
|
|
|
|
|
|
|
|
|
Gas sales
|
20
|
|
|
19
|
|
|
78
|
|
|
88
|
|
|
End-user transportation
|
38
|
|
|
38
|
|
|
95
|
|
|
96
|
|
|
|
58
|
|
|
57
|
|
|
173
|
|
|
184
|
|
|
Intermediate transportation
|
111
|
|
|
106
|
|
|
239
|
|
|
233
|
|
|
Total Gas sales
|
169
|
|
|
163
|
|
|
412
|
|
|
417
|
|
Operation and maintenance expense increased $2 million and decreased $5 million in the three and six months ended June 30, 2020, respectively. The increase in the second quarter was primarily due to a $6 million adjustment in 2019 to defer expenses previously accrued for a new customer billing system, partially offset by lower gas operations expenses of $3 million in 2020. The decrease in the six-month period was primarily due to lower gas operations expenses of $10 million, partially offset by the $6 million adjustment in 2019 to defer new customer billing system expenses.
Depreciation and amortization expense increased $4 million and $6 million in the three and six months ended June 30, 2020, respectively. The increase in both periods was primarily due to higher depreciable base.
Asset (gains) losses and impairments, net increased $14 million in both the three and six months ended June 30, 2020. The increase in both periods was primarily due to the write-off of capital expenditures related to incentive compensation that were determined to be probable of disallowance.
Other (Income) and Deductions decreased $1 million and increased $5 million in the three and six months ended June 30, 2020, respectively. The decrease in the second quarter was primarily due to higher investment earnings of $2 million, partially offset by higher interest expense of $1 million. The increase in the six-month period was primarily due to change in investment earnings (loss of $1 million in 2020 compared to a gain of $2 million in 2019) and higher interest expense of $2 million.
Income Tax Expense decreased $3 million and $17 million in the three and six months ended June 30, 2020, respectively. The decrease in the second quarter was primarily due to lower earnings and amortization of the TCJA regulatory liability. The decrease in the six-month period was 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 requested an increase in return on equity from 10.0% to 10.5% and included projected changes in sales and working capital.
On July 17, 2020, DTE Gas reached a settlement with all intervening parties in the case and filed a settlement agreement authorizing the company to increase base rates by $110 million, reflecting a return on equity of 9.9%. The resulting rates are a net increase to customers of $51 million as an existing Infrastructure Recovery Mechanism (IRM) surcharge will be rolled into the new base rates. The settlement agreement also approved a $20 million annual increase to amortization of the regulatory liability for non-plant accumulated deferred income tax balances resulting from the TCJA. This increased amortization will cease upon DTE Gas receiving its next rate order. Pending MPSC approval of the settlement agreement, which is expected by September 2020, DTE Gas will implement the increases to rates and amortization effective October 1, 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 June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Operating Revenues — Non-utility operations
|
$
|
172
|
|
|
$
|
121
|
|
|
$
|
342
|
|
|
$
|
237
|
|
|
Cost of sales — Non-utility
|
4
|
|
|
1
|
|
|
8
|
|
|
1
|
|
|
Operation and maintenance
|
27
|
|
|
25
|
|
|
55
|
|
|
50
|
|
|
Depreciation and amortization
|
36
|
|
|
22
|
|
|
72
|
|
|
44
|
|
|
Taxes other than income
|
4
|
|
|
2
|
|
|
9
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
101
|
|
|
71
|
|
|
198
|
|
|
137
|
|
|
Other (Income) and Deductions
|
1
|
|
|
(3)
|
|
|
(2)
|
|
|
(9)
|
|
|
Income Tax Expense
|
27
|
|
|
19
|
|
|
53
|
|
|
37
|
|
|
Net Income
|
73
|
|
|
55
|
|
|
147
|
|
|
109
|
|
|
Less: Net Income Attributable to Noncontrolling Interests
|
3
|
|
|
5
|
|
|
5
|
|
|
11
|
|
|
Net Income Attributable to DTE Energy Company
|
$
|
70
|
|
|
$
|
50
|
|
|
$
|
142
|
|
|
$
|
98
|
|
Operating Revenues — Non-utility operations increased $51 million and $105 million in the three and six months ended June 30, 2020, respectively. The increase in both periods was primarily due to the acquisition of Blue Union.
Cost of sales — Non-utility increased $3 million and $7 million in the three and six months ended June 30, 2020, respectively. The increase in both periods was primarily due to the acquisition of Blue Union.
Operation and maintenance expense increased $2 million and $5 million in the three and six months ended June 30, 2020, respectively. The increase in both periods was primarily due to the acquisition of Blue Union, partially offset by cost savings initiatives.
Taxes other than income increased $2 million and $4 million in the three and six months ended June 30, 2020, respectively. The increase in both periods was primarily due to the acquisition of Blue Union.
Depreciation and amortization expense increased $14 million and $28 million in the three and six months ended June 30, 2020, respectively. The increase in both periods was primarily due to the acquisition of Blue Union.
Other (Income) and Deductions decreased $4 million and $7 million in the three and six months ended June 30, 2020, respectively. The decrease in both periods was primarily due to interest expense related to the Blue Union acquisition, partially offset by higher earnings from pipeline investments.
Income Tax Expense increased $8 million and $16 million in the three and six months ended June 30, 2020, respectively. The increase in both periods was primarily due to higher earnings.
Net Income Attributable to Noncontrolling Interests decreased $2 million and $6 million in the three and six months ended June 30, 2020, respectively. The decrease in both periods 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. In July 2020, the LEAP gathering pipeline achieved the final milestone of its construction and the assets are expected to be placed in service in August 2020.
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 June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Operating Revenues — Non-utility operations
|
$
|
219
|
|
|
$
|
402
|
|
|
$
|
526
|
|
|
$
|
790
|
|
|
Fuel, purchased power, and gas — non-utility
|
153
|
|
|
320
|
|
|
378
|
|
|
624
|
|
|
Non-utility Margin
|
66
|
|
|
82
|
|
|
148
|
|
|
166
|
|
|
Operation and maintenance
|
66
|
|
|
83
|
|
|
135
|
|
|
164
|
|
|
Depreciation and amortization
|
17
|
|
|
17
|
|
|
35
|
|
|
34
|
|
|
Taxes other than income
|
2
|
|
|
2
|
|
|
6
|
|
|
6
|
|
|
Asset (gains) losses and impairments, net
|
—
|
|
|
—
|
|
|
(10)
|
|
|
—
|
|
|
Operating Loss
|
(19)
|
|
|
(20)
|
|
|
(18)
|
|
|
(38)
|
|
|
Other (Income) and Deductions
|
(34)
|
|
|
(26)
|
|
|
(53)
|
|
|
(53)
|
|
|
Income Taxes
|
|
|
|
|
|
|
|
|
Expense
|
6
|
|
|
3
|
|
|
11
|
|
|
6
|
|
|
Production Tax Credits
|
(13)
|
|
|
(18)
|
|
|
(28)
|
|
|
(39)
|
|
|
|
(7)
|
|
|
(15)
|
|
|
(17)
|
|
|
(33)
|
|
|
Net Income
|
22
|
|
|
21
|
|
|
52
|
|
|
48
|
|
|
Less: Net Loss Attributable to Noncontrolling Interests
|
(3)
|
|
|
(8)
|
|
|
(3)
|
|
|
(7)
|
|
|
Net Income Attributable to DTE Energy Company
|
$
|
25
|
|
|
$
|
29
|
|
|
$
|
55
|
|
|
$
|
55
|
|
Operating Revenues — Non-utility operations decreased $183 million and $264 million in the three and six months ended June 30, 2020, respectively. The decrease in both periods was due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Six Months
|
|
|
(In millions)
|
|
|
|
Lower production and sale of membership interests in the REF business
|
$
|
(125)
|
|
|
$
|
(194)
|
|
|
|
|
|
|
|
Lower demand in the Steel business
|
(56)
|
|
|
(66)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
(2)
|
|
|
(4)
|
|
|
|
$
|
(183)
|
|
|
$
|
(264)
|
|
Non-utility Margin decreased $16 million and $18 million in the three and six months ended June 30, 2020, respectively. The following table details changes in Non-utility Margin relative to the comparable prior periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Six Months
|
|
|
(In millions)
|
|
|
|
Lower demand in the Steel business
|
$
|
(17)
|
|
|
$
|
(21)
|
|
|
|
|
|
|
|
New projects offset by lower demand in the On-site business
|
3
|
|
|
4
|
|
|
|
|
|
|
|
Other
|
(2)
|
|
|
(1)
|
|
|
|
$
|
(16)
|
|
|
$
|
(18)
|
|
Operation and maintenance expense decreased $17 million and $29 million in the three and six months ended June 30, 2020, respectively. The decrease in both periods was primarily due to lower maintenance spending associated with lower production in the current year.
Asset (gains) losses and impairments, net increased $10 million in the six months ended June 30, 2020. The increase in the six-month period 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 increased $8 million and did not change in the three and six months ended June 30, 2020, respectively. The increase in the second quarter was primarily due to $11 million of selling profit associated with the sale of membership interests in the REF business and new investment in lease, $3 million of higher interest income associated with lease transactions in the On-site business, and $5 million higher equity earnings at various projects. These increases were partially offset by $10 million of lower production in the REF business. For the six-month period, selling profit of $11 million associated with the sale of membership interest in the REF business and new investment in lease and $6 million of higher interest income associated with lease transactions in the On-site business were offset primarily by $13 million of lower production in the REF business and change in insurance proceeds in the Renewables business ($3 million received in 2019).
Income Taxes — Production Tax Credits decreased $5 million and $11 million in the three and six months ended June 30, 2020, respectively. The decrease in both periods was primarily due to lower production in the REF business.
Net Loss Attributable to Noncontrolling Interests decreased $5 million and $4 million in the three and six months ended June 30, 2020, respectively. The decrease in both periods was primarily due to lower production in the REF business.
Outlook — During June 2020, DTE Energy executed an Energy Services Agreement with a Canadian integrated steel manufacturing facility in Nanticoke, Ontario, Canada to construct, own, and operate a 65 MW steam turbine generator, refurbish existing boilers, and ancillary equipment. The project is expected to achieve commercial operations in 2022 for a term of 20 years.
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 currently assessing expected demand of metallurgical coke and pulverized coal supplied to steel industry customers in consideration of COVID-19 and other challenges within the steel industry.
Power and Industrial Projects is also monitoring all other impacts from 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 June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Operating Revenues — Non-utility operations
|
$
|
740
|
|
|
$
|
1,113
|
|
|
$
|
1,653
|
|
|
$
|
2,414
|
|
|
Purchased power and gas — non-utility
|
719
|
|
|
1,100
|
|
|
1,560
|
|
|
2,335
|
|
|
Non-utility Margin
|
21
|
|
|
13
|
|
|
93
|
|
|
79
|
|
|
Operation and maintenance
|
18
|
|
|
17
|
|
|
41
|
|
|
36
|
|
|
Depreciation and amortization
|
2
|
|
|
2
|
|
|
3
|
|
|
3
|
|
|
Taxes other than income
|
1
|
|
|
1
|
|
|
3
|
|
|
3
|
|
|
Operating Income (Loss)
|
—
|
|
|
(7)
|
|
|
46
|
|
|
37
|
|
|
Other (Income) and Deductions
|
1
|
|
|
1
|
|
|
2
|
|
|
2
|
|
|
Income Tax Expense (Benefit)
|
—
|
|
|
(2)
|
|
|
11
|
|
|
9
|
|
|
Net Income (Loss) Attributable to DTE Energy Company
|
$
|
(1)
|
|
|
$
|
(6)
|
|
|
$
|
33
|
|
|
$
|
26
|
|
Operating Revenues — Non-utility operations decreased $373 million and $761 million in the three and six months ended June 30, 2020, respectively. The decrease in both periods was primarily due to a decrease in gas prices in the gas structured strategy.
Non-utility Margin increased $8 million and $14 million in the three and six months ended June 30, 2020, respectively. The following tables detail changes in Non-utility margin relative to the comparable prior periods:
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
(In millions)
|
|
Unrealized Margins(a)
|
|
|
Favorable results, primarily in power and gas trading, and gas structured strategies(b)
|
$
|
25
|
|
|
Unfavorable results, primarily in the environmental trading strategy
|
(16)
|
|
|
|
9
|
|
|
Realized Margins(a)
|
|
|
Favorable results, primarily in gas structured, power full requirements, and gas transportation strategies(c)
|
21
|
|
|
Unfavorable results, primarily in environmental and power trading strategies
|
(22)
|
|
|
|
(1)
|
|
|
Increase in Non-utility Margin
|
$
|
8
|
|
_______________________________________
(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 $6 million of timing related gains related to gas strategies which will reverse in future periods as the underlying contracts settle.
(c)Amount includes $5 million of timing related losses related to gas strategies recognized in previous periods that reversed as the underlying contracts settled.
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
(In millions)
|
|
Unrealized Margins(a)
|
|
|
Favorable results, primarily in environmental trading, gas structured, power trading, and power full requirements strategies
|
$
|
66
|
|
|
Unfavorable results, primarily in gas transportation and gas full requirements strategies(b)
|
(19)
|
|
|
|
47
|
|
|
Realized Margins(a)
|
|
|
Favorable results, primarily in power full requirements, gas storage, and gas transportation strategies
|
19
|
|
|
Unfavorable results, primarily in environmental trading, gas structured, and gas trading strategies(c)
|
(52)
|
|
|
|
(33)
|
|
|
Increase in Non-utility Margin
|
$
|
14
|
|
_______________________________________
(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 $7 million of timing related losses related to gas strategies which will reverse in future periods as the underlying contracts settle.
(c)Amount includes $4 million of timing related gains related to gas strategies recognized in previous periods that reversed as the underlying contracts settled.
Operation and maintenance increased $1 million and $5 million in the three and six months ended June 30, 2020, respectively. The increase in the second quarter was due primarily to higher broker fees. The increase in the six-month period was primarily due to higher broker fees and compensation costs.
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 $1 million and $12 million for the three and six months ended June 30, 2020, respectively, represents a decrease of $31 million and $23 million from the net loss of $32 million and $35 million in the comparable 2019 period. The decrease in both periods was primarily due to the carryback of 2018 net operating losses to 2013 pursuant to the CARES Act, which resulted in a $34 million reduction in Income Tax Expense. The decrease in both periods was partially offset by effective income tax rate adjustments. Refer to Note 2 to the Consolidated Financial Statements, "Significant Accounting Policies" for additional information.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
|
(in millions)
|
|
|
|
Cash, Cash Equivalents, and Restricted Cash, Beginning
|
$
|
93
|
|
|
$
|
76
|
|
|
Net cash from operating activities
|
1,681
|
|
|
1,367
|
|
|
Net cash used for investing activities
|
(2,185)
|
|
|
(1,514)
|
|
|
Net cash from financing activities
|
1,032
|
|
|
133
|
|
|
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash
|
528
|
|
|
(14)
|
|
|
Cash, Cash Equivalents, and Restricted Cash, Ending
|
$
|
621
|
|
|
$
|
62
|
|
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 $314 million in 2020. The increase is primarily due to an increase in Net Income, Deferred income taxes, and Depreciation and amortization, partially offset by a decrease in cash from working capital items.
The change in working capital items in 2020 was primarily related to a decrease in cash from Accounts receivable, net, Regulatory assets and liabilities, and Inventories, partially offset by a decrease in cash used for Accounts payable and Other current and noncurrent assets and liabilities.
Cash used for Investing Activities
Cash inflows associated with investing activities are primarily generated from the sale of assets, while cash outflows are the result of plant and equipment expenditures and acquisitions. In any given year, DTE Energy looks to realize cash from under-performing or non-strategic assets or matured, fully valued assets.
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 $671 million in 2020 primarily due to an increase in Plant and equipment expenditures and Acquisitions related to business combinations, net of cash acquired, as described in Note 4 to the Consolidated Financial Statements.
Cash from Financing Activities
DTE Energy relies on both short-term borrowing and long-term financing as a source of funding for capital requirements not satisfied by its operations.
DTE Energy's strategy is to have a targeted debt portfolio blend of fixed and variable interest rates and maturity. DTE Energy targets balance sheet financial metrics to ensure it is consistent with the objective of a strong investment grade debt rating.
Net cash from financing activities increased by $899 million in 2020 primarily due to an increase in cash from Short-term borrowings, net and Issuance of long-term debt, net of issuance costs, partially offset by an increase in Redemptions of long-term debt. The change is also due to the Purchases of noncontrolling interests, principally SGG, during the six months ended June 30, 2019.
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 $0.7 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 long-term debt.
DTE Energy has approximately $3.4 billion of available liquidity at June 30, 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, environmental, and coal) and the provisions and maturities of the underlying transactions. As of June 30, 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 $368 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 six months ended June 30, 2020, concerns over the pandemic led to an impact in 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."
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:
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DTE Energy
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(In millions)
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MTM at December 31, 2019
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$
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5
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Reclassified to realized upon settlement
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—
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Changes in fair value recorded to income
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46
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Amounts recorded to unrealized income
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46
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Changes in fair value recorded in regulatory liabilities
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12
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|
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|
|
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MTM at June 30, 2020
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$
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63
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|
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:
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|
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Source of Fair Value
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2020
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2021
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2022
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2023 and Beyond
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Total Fair Value
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(In millions)
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Level 1
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$
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(21)
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$
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(1)
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$
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(3)
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|
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$
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(1)
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|
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$
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(26)
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Level 2
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|
19
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|
|
30
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(1)
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(5)
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|
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43
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Level 3
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|
32
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|
|
15
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|
|
13
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(14)
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|
|
46
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MTM before collateral adjustments
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$
|
30
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|
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$
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44
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$
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9
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$
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(20)
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|
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63
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|
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Collateral adjustments
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|
|
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|
|
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|
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—
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MTM at June 30, 2020
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|
|
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|
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$
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63
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