Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following combined discussion is separately filed by DTE Energy and DTE Electric. However, DTE Electric does not make any representations as to information related solely to DTE Energy or the subsidiaries of DTE Energy other than itself.

EXECUTIVE OVERVIEW

DTE Energy is a diversified energy company with 2020 Operating Revenues of approximately $12.2 billion and Total Assets of approximately $45.5 billion. DTE Energy is the parent company of DTE Electric and DTE Gas, regulated electric and natural gas utilities engaged primarily in the business of providing electricity and natural gas sales, distribution, and storage services throughout Michigan. DTE Energy also operates three energy-related non-utility segments with operations throughout the United States.

The following table summarizes DTE Energy's financial results:


	Years Ended December 31,
	2020		2019		2018
	(In millions, except per share amounts)
Net Income Attributable to DTE Energy Company	$	1,368	$	1,169	$	1,120
Diluted Earnings per Common Share	$	7.08	$	6.31	$	6.17

The increase in 2020 Net Income Attributable to DTE Energy Company 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 Energy Trading segment. The increase in 2019 Net Income Attributable to DTE Energy Company was due to higher earnings in the Electric, Gas, Energy Trading, and Corporate and Other segments, partially offset by lower earnings in the Gas Storage and Pipelines and Power and Industrial Projects segments.

COVID-19 Pandemic

During the first quarter of 2020, the COVID-19 pandemic began impacting Michigan and 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 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.

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. The Registrants implemented certain cost savings initiatives to offset some of these impacts, to the extent they did not affect safety or reliability of service. To date, impacts from the COVID-19 pandemic have not had a material effect on the Registrants' uncollectible expense or capital spend.

In addition, the CARES Act was signed into law in March 2020 to assist individuals and employers with the impacts of the COVID-19 pandemic. This legislation resulted in various tax impacts to the Registrants. Refer to Note 11 to the Consolidated Financial Statements in Item 8 of this Report, "Income Taxes," for additional information.

Please see detailed explanations of segment performance in the "Results of Operations" section below, including impacts from the COVID-19 pandemic where applicable. Also refer to the "Capital Resources and Liquidity" section for information on the impact of COVID-19 on the Registrants' liquidity and cost of capital.

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 2023, 50% by 2030, and 80% by 2040 from 2005 carbon emissions levels. DTE Energy is also committed to a net zero carbon emissions goal by 2050 for its electric utility, gas utility, and DTE Midstream 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. These opportunities would be limited to Power and Industrial Projects if DTE Energy completes the planned spin-off of the DTE Midstream business and shifts its strategy to a predominantly pure-play utility, as discussed in the "Outlook" section below.

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 2021-2025 period are estimated at $14 billion, comprised of $5 billion for capital replacements and other projects, $7 billion for distribution infrastructure, and $2 billion for renewable 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 2021-2025 period are estimated at $3 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 2021-2025 period are estimated at $1.2 billion to $1.7 billion for gathering and pipeline investments and expansions. Power and Industrial Projects' capital investments over the 2021-2025 period are estimated at $1 billion to $1.4 billion for industrial energy services and renewable energy 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.

See Items 1. and 2. Business and Properties and Note 19 to the Consolidated Financial Statements in Item 8 of this Report, "Commitments and Contingencies," for further discussion of Environmental Matters.

OUTLOOK

The next few years will be a period of rapid change for DTE Energy and for the energy industry. DTE Energy's strong utility base, combined with its integrated non-utility operations, position it well for long-term growth.

Looking forward, DTE Energy will focus on several areas that are expected to improve future performance:

electric and gas customer satisfaction;
electric distribution system reliability;
new electric generation;
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.

In addition, on October 27, 2020, DTE Energy announced its intention to spin-off the DTE Midstream business, reflecting a shift in strategy to a predominantly pure-play utility. DTE Energy expects to complete the separation by mid-year 2021, subject to final approval by its Board of Directors and satisfaction of other conditions. If the spin-off transaction is completed, it would result in a reduction to DTE Energy's earnings and cash flows. However, DTE Energy would remain well-positioned for long-term growth and focused on the key objectives noted above. DTE Energy will continue to pursue opportunities to grow its businesses in a disciplined manner if it can secure opportunities that meet its strategic, financial, and risk criteria.

COVID-19 Pandemic

DTE Energy 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 reduced electric demand from commercial and industrial customers and increased demand from residential customers to continue as long as businesses maintain more remote operations. Operation and maintenance expenses will also continue to be impacted in the near term 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 potential challenges to 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 10 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. For further discussion of these uncertainties, refer to "Risk Factors" in Item 1A. of this Report.

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 related credits, and electricity, as well as rental income and revenues from utility-type consulting, management, and operational services. For the Energy Trading segment, Non-utility Margin includes revenue and realized and unrealized gains and losses from physical and financial power and gas marketing, optimization, and trading activities, net of Purchased power and gas related to these activities. DTE Energy evaluates its operating performance of these non-utility businesses using the measure of Operating Revenues net of Fuel, purchased power, and gas expenses.

Utility Margin and Non-utility Margin are not measures calculated in accordance with GAAP and should be viewed as a supplement to and not a substitute for the results of operations presented in accordance with GAAP. Utility Margin and Non-utility Margin do not intend to represent operating income, the most comparable GAAP measure, as an indicator of operating performance and are not necessarily comparable to similarly titled measures reported by other companies.

The following sections provide a detailed discussion of the operating performance and future outlook of DTE Energy's segments. Segment information, described below, includes intercompany revenues and expenses, and other income and deductions that are eliminated in the Consolidated Financial Statements.


	2020		2019		2018
	(In millions)
Net Income (Loss) Attributable to DTE Energy by Segment
Electric	$	777	$	714	$	664
Gas	186		185		150
Gas Storage and Pipelines	315		204		235
Power and Industrial Projects	134		133		161
Energy Trading	36		49		39
Corporate and Other	(80)		(116)		(129)


Net Income Attributable to DTE Energy Company	$	1,368	$	1,169	$	1,120

ELECTRIC

The Results of Operations discussion for DTE Electric is presented in a reduced disclosure format in accordance with General Instruction I (2) (a) of Form 10-K for wholly-owned subsidiaries.

The Electric segment consists principally of DTE Electric. Electric results and outlook are discussed below:


	2020		2019		2018
	(In millions)
Operating Revenues — Utility operations	$	5,506	$	5,224	$	5,298
Fuel and purchased power — utility	1,386		1,387		1,552
Utility Margin	4,120		3,837		3,746
Operating Revenues — Non-utility operations	14		5		—
Operation and maintenance	1,489		1,434		1,437
Depreciation and amortization	1,057		949		836
Taxes other than income	297		311		307
Asset (gains) losses and impairments, net	41		13		(1)
Operating Income	1,250		1,135		1,167
Other (Income) and Deductions	365		284		310
Income Tax Expense	108		137		193
Net Income Attributable to DTE Energy Company	$	777	$	714	$	664

See DTE Electric's Consolidated Statements of Operations in Item 8 of this Report for a complete view of its results. Differences between the Electric segment and DTE Electric's Consolidated Statements of Operations are primarily due to non-utility operations at DTE Sustainable Generation and the classification of certain benefit costs. Refer to Note 21 to the Consolidated Financial Statements, "Retirement Benefits and Trusteed Assets" for additional information.

Utility Margin increased $283 million in 2020 and $91 million in 2019. 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:


	2020		2019
	(In millions)
Implementation of new rates	$	215	$	183
Base sales / rate mix	52		(23)
Regulatory mechanism — RPS	19		27
Regulatory mechanism — EWR	18		(1)
Weather	8		(109)
Regulatory mechanism — TRM	(12)		(11)
COVID-19 voluntary refund	(30)		—
Other regulatory mechanisms and other	13		25
Increase in Utility Margin	$	283	$	91


	2020	2019	2018
	(In thousands of MWh)
DTE Electric Sales
Residential	16,315	15,066	15,959
Commercial	15,648	16,955	17,282
Industrial	8,446	9,826	10,324
Other	220	226	221
	40,629	42,073	43,786
Interconnection sales(a)	1,808	3,046	2,796
Total DTE Electric Sales	42,437	45,119	46,582

DTE Electric Deliveries
Retail and wholesale	40,629	42,073	43,786
Electric retail access, including self-generators(b)	3,746	4,550	4,737
Total DTE Electric Sales and Deliveries	44,375	46,623	48,523

(a)Represents power that is not distributed by DTE Electric.

(b)Represents deliveries for self-generators that have purchased power from alternative energy suppliers to supplement their power requirements.

DTE Electric sales volumes decreased in 2020 primarily due to the impact of the COVID-19 pandemic on customers. Sales volumes decreased for commercial and industrial customers, partially offset by an increase in residential sales. The net decrease to DTE Electric sales volumes was also partially offset by slightly favorable weather in 2020 compared to 2019.

Operating Revenues — Non-utility operations increased $9 million in 2020 and $5 million in 2019. 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 $55 million in 2020 and decreased $3 million in 2019. The increase in 2020 was primarily due to COVID-19 related expenses of $50 million associated with the health and safety of employees, higher benefits expense of $15 million, higher EWR program expense of $11 million, higher RPS program expense of $9 million, and an $11 million adjustment in 2019 to defer expenses previously accrued for a new customer billing system. These increases were partially offset by lower generation expense of $25 million and lower distribution expense of $12 million.

The decrease in 2019 was primarily due to lower uncollectible expense of $19 million, an $11 million deferral of expenses previously accrued for a new customer billing system, and decreased generation expense of $3 million. These decreases were partially offset by higher tree trim expense of $20 million (tree trim expenses increased by $63 million but were offset by amounts deferred to a regulatory asset of $43 million) and higher RPS program expense of $11 million.

Depreciation and amortization expense increased $108 million in 2020 and $113 million in 2019. In 2020, the increase was primarily due to a $108 million increase resulting from a higher depreciable base and change in depreciation rates effective May 2019 and a $10 million increase resulting from new non-utility assets at DTE Sustainable Generation, partially offset by a decrease of $11 million associated with the TRM. In 2019, the increase was primarily due to a $126 million increase resulting from a higher depreciable base and change in depreciation rates effective May 2019 and a $4 million increase resulting from new non-utility assets at DTE Sustainable Generation, partially offset by a decrease of $17 million associated with the TRM.

Taxes other than income decreased $14 million in 2020 and increased $4 million in 2019. In 2020, the decrease was primarily due to lower property taxes of $9 million as a result of a property tax settlement and lower payroll taxes of $3 million, which was primarily attributable to employee retention credits recognized pursuant to the CARES Act. In 2019, the increase was primarily due to a $2 million tax reserve released in 2018, higher property taxes of $1 million, and a $1 million increase resulting from new non-utility assets at DTE Sustainable Generation.

Asset (gains) losses and impairments, net increased $28 million in 2020 and $14 million in 2019. The increase in 2020 was primarily 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 losses of $13 million in 2019. The increase in 2019 was primarily due to previously recorded capital expenditures of $13 million that were disallowed in the May 2, 2019 rate order.

Other (Income) and Deductions increased $81 million in 2020 and decreased $26 million in 2019. The increase in 2020 was primarily due to a change in investment earnings (loss of $3 million in 2020 compared to a gain of $37 million in 2019), $30 million of contributions to the DTE Energy Foundation and other not-for-profit organizations, and $22 million of higher interest expense. These increases were partially offset by a 2019 accrual of $6 million associated with an environmental-related settlement. The decrease in 2019 was primarily due to a change in investment earnings (gain of $37 million in 2019 compared to a loss of $11 million in 2018) and lower non-operating retirement benefits expense of $12 million, partially offset by higher interest expense of $32 million.

Income Tax Expense decreased $29 million in 2020 and $56 million in 2019. The decrease in 2020 was primarily due to higher amortization of the TCJA regulatory liability and higher production tax credits, partially offset by higher earnings. The decrease in 2019 was primarily due to TCJA regulatory liability amortization of $35 million 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.

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 and outlook are discussed below:


	2020		2019		2018
	(In millions)
Operating Revenues — Utility operations	$	1,414	$	1,482	$	1,436
Cost of gas — utility	356		427		446
Utility Margin	1,058		1,055		990
Operation and maintenance	496		515		502
Depreciation and amortization	157		144		133
Taxes other than income	84		80		73
Asset (gains) losses and impairments, net	14		—		—
Operating Income	307		316		282
Other (Income) and Deductions	73		69		65
Income Tax Expense	48		62		67
Net Income Attributable to DTE Energy Company	$	186	$	185	$	150

Utility Margin increased $3 million in 2020 and $65 million in 2019. 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:


	2020		2019
	(In millions)
Implementation of new rates	$	32	$	32
Infrastructure recovery mechanism	17		3
Regulatory mechanism — EWR	9		2
Midstream storage and transportation revenues	4		20

TCJA rate reduction liability	(9)		—

Weather	(46)		8
Other regulatory mechanisms and other	(4)		—
Increase in Utility Margin	$	3	$	65


	2020	2019	2018
	(In Bcf)
Gas Markets
Gas sales	126	139	135
End-user transportation	180	185	187
	306	324	322
Intermediate transportation	477	497	329
Total Gas sales	783	821	651

Sales changes are primarily due to more unfavorable weather in 2020 compared to 2019 and more favorable weather in 2019 compared to 2018. Intermediate transportation volumes fluctuate based on available market opportunities.

Operation and maintenance expense decreased $19 million in 2020 and increased $13 million in 2019. The decrease in 2020 was primarily due to lower gas operations expense of $36 million, partially offset by higher EWR program expenses of $7 million, higher corporate overhead costs of $3 million, and a $6 million adjustment in 2019 to defer expenses previously accrued for a new customer billing system. The increase in 2019 was primarily due to higher gas operations expenses of $22 million, higher customer service costs and related administrative expenses of $7 million, and higher EWR expenses of $2 million, partially offset by decreased uncollectible expense of $14 million and a $6 million adjustment in 2019 to defer expenses previously accrued for a new customer billing system.

Depreciation and amortization expense increased $13 million in 2020 and $11 million in 2019. The increase in 2020 was primarily due to a higher depreciable base and change in depreciation rates effective October 2020. The increase in 2019 was primarily due to a higher depreciable base.

Taxes other than income increased $4 million in 2020 and $7 million in 2019. The 2020 increase was primarily due to higher property taxes of $8 million, partially offset by lower payroll taxes of $3 million, which was primarily attributable to employee retention credits recognized pursuant to the CARES Act. The 2019 increase was primarily due to higher property taxes.

Asset (gains) losses and impairments, net increased $14 million in 2020 primarily due to the write-off of capital expenditures related to incentive compensation, which were disallowed in the July 17, 2020 rate case settlement.

Other (Income) and Deductions increased $4 million in 2020 and $4 million in 2019. The increase in 2020 was primarily due to lower investments earnings of $2 million and higher interest expense of $2 million. The increase in 2019 was primarily due to higher interest expense of $8 million, partially offset by lower contributions to the DTE Energy Foundation and other not-for-profit organizations of $6 million.

Income Tax Expense decreased $14 million in 2020 and $5 million in 2019. The decrease in 2020 was primarily due to higher amortization of the TCJA regulatory liability and lower earnings. The decrease in 2019 was primarily due to the absence of a $10 million TCJA expense recorded in 2018, partially offset by higher earnings.

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 February 12, 2021 requesting an increase in base rates of $195 million based on a projected twelve-month period ending December 31, 2022. The requested increase in base rates 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 9.9% to 10.25% and includes projected changes in sales and working capital. A final MPSC order in this case is expected by December 2021.

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 and outlook are discussed below:


	2020		2019		2018
	(In millions)
Operating Revenues — Non-utility operations	$	754	$	501	$	485
Cost of sales — Non-utility	21		18		22
Operation and maintenance	151		120		103
Depreciation and amortization	151		94		82
Taxes other than income	15		8		8
Asset (gains) losses and impairments, net	(2)		1		—
Operating Income	418		260		270
Other (Income) and Deductions	(25)		(34)		(61)
Income Tax Expense	116		74		68
Net Income	327		220		263
Less: Net Income Attributable to Noncontrolling Interests	12		16		28
Net Income Attributable to DTE Energy Company	$	315	$	204	$	235

Operating Revenues — Non-utility operations increased $253 million in 2020 and $16 million in 2019. The increase in 2020 was primarily due to higher pipeline and gathering revenues from the first full year of Blue Union, as well as the LEAP pipeline which was placed in-service during the third quarter 2020. These increases were partially offset by lower physical sales of gas from AGS customers and lower storage revenues. The 2019 increase was primarily due to one month of activity for Blue Union in December 2019 and the first full year of Birdsboro Pipeline operations.

Cost of sales — Non-utility increased $3 million in 2020 and decreased $4 million in 2019. The increase in 2020 was primarily due to the first full year of Blue Union, partially offset by lower physical purchases of gas from AGS customers. The decrease in 2019 was driven primarily by lower physical purchases of gas from AGS customers.

Operation and maintenance expense increased $31 million in 2020 and $17 million in 2019. The 2020 increase was primarily due to the first full year of Blue Union and transaction costs related to the planned spin-off of DTE Midstream, partially offset by cost savings initiatives. The 2019 increase was primarily due to transaction costs associated with the Blue Union and LEAP acquisition and higher labor-related expenses.

Depreciation and amortization expense increased $57 million in 2020 and $12 million in 2019. The 2020 increase was primarily due to the first full year of Blue Union. The 2019 increase was primarily due to additional pipeline and gathering assets placed into service during the year.

Taxes other than income increased $7 million in 2020 primarily related to property taxes incurred during the first full year of Blue Union.

Other (Income) and Deductions decreased $9 million in 2020 and $27 million in 2019. The 2020 decrease was primarily due to interest expense related to the Blue Union acquisition, partially offset by a post-acquisition settlement of $20 million and higher earnings from pipeline investments. The 2019 decrease was primarily due to lower earnings from pipeline investments and higher interest expense.

Income Tax Expense increased $42 million in 2020 and $6 million in 2019. The 2020 increase was primarily due to higher earnings. The 2019 increase was primarily due to tax impacts from placing the NEXUS pipeline in-service in late 2018, partially offset by lower earnings.

Net Income Attributable to Noncontrolling Interests decreased $4 million in 2020 and $12 million in 2019. The decrease in both periods was primarily due to the May 2019 purchase of an additional 30% ownership interest in SGG.

Outlook — 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.

On October 27, 2020, DTE Energy announced that its Board of Directors has authorized management to pursue a plan to spin-off the DTE Midstream business. DTE Energy expects to complete the separation by mid-year 2021, subject to final approval by its Board of Directors and satisfaction of other conditions.

Refer to Note 4 to the Consolidated Financial Statements in Item 8 of this Report, “Acquisitions and Dispositions,” for additional information.

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 and outlook are discussed below:


	2020		2019		2018
	(In millions)
Operating Revenues — Non-utility operations	$	1,224	$	1,560	$	2,204
Fuel, purchased power, and gas — non-utility	901		1,220		1,888
Non-utility Margin	323		340		316
Operation and maintenance	294		328		363
Depreciation and amortization	72		69		67
Taxes other than income	10		11		12
Asset (gains) losses and impairments, net	(18)		1		27
Operating Loss	(35)		(69)		(153)
Other (Income) and Deductions	(120)		(126)		(89)
Income Taxes
Expense (Benefit)	26		20		(7)
Production Tax Credits	(66)		(83)		(188)
	(40)		(63)		(195)
Net Income	125		120		131
Less: Net Loss Attributable to Noncontrolling Interests	(9)		(13)		(30)
Net Income Attributable to DTE Energy Company	$	134	$	133	$	161

Operating Revenues — Non-utility operations decreased $336 million in 2020 and $644 million in 2019. The changes are due to the following:


	2020
	(In millions)
Lower production and sale of membership interests in the REF business	$	(234)
Lower demand in the Steel business	(142)
Expired contracts in the Renewables business	(21)
New projects and higher production in the Renewables business	30
New projects in the On-site business	31
	$	(336)

	2019
	(In millions)
Sale of membership interests and project terminations in the REF business	$	(645)
Expired contract in the Renewables business	(17)
Higher prices in the Steel business	24
Other	(6)
	$	(644)

Non-utility Margin decreased $17 million in 2020 and increased $24 million in 2019. The changes are due to the following:


	2020
	(In millions)
Lower demand in the Steel business	$	(50)
Expired contracts in the Renewables business	(18)
New projects in the On-site business	22
New projects and higher production in the Renewables business	27
Other	2
	$	(17)

	2019
	(In millions)
Sale of membership interests and project terminations in the REF business	$	22
Higher prices in the Steel business	19
Expired contract in the Renewables business	(18)
Other	1
	$	24

Operation and maintenance expense decreased $34 million in 2020 and $35 million in 2019. The 2020 decrease was primarily due to $46 million of lower maintenance spending associated with lower production and terminated contracts, partially offset by $12 million of costs associated with new projects. The 2019 decrease was primarily due to $33 million associated with the sale of membership interests in the REF business and $9 million of lower spend in the Renewables business primarily due to an expired contract, partially offset by $7 million of higher maintenance spend in the Steel business.

Asset (gains) losses and impairments, net increased $19 million in 2020 from the net loss of $1 million in 2019, and increased by $26 million in 2019 from the net loss of $27 million in 2018. The 2020 increase was primarily due to $11 million in the Steel business for an asset sale and the write-off of environmental liabilities upon completing site remediation, $4 million for the sale of assets in the On-site business, and $2 million for the divestiture of a project in the Renewables business.

The 2019 increase was primarily due to higher losses incurred in 2018, including a $15 million liability adjustment related to contingent consideration and an $8 million asset write-off in the Renewables business in anticipation of a contract ending in 2020.

Other (Income) and Deductions decreased $6 million in 2020 and increased $37 million in 2019. The 2020 decrease was primarily due to a $22 million settlement charge associated with a qualified pension plan in the Steel business and a change in insurance proceeds in the REF and Renewables businesses ($7 million received in 2019). This decrease was partially offset by $12 million of higher interest income associated with lease transactions in the On-site business and $11 million of profit recognized from the sale of membership interests in the REF business. The 2019 increase was primarily due to the sale of membership interests in the REF business and higher equity earnings at various projects.

Income Taxes — Production Tax Credits decreased by $17 million in 2020 and $105 million in 2019. The decrease in both periods was primarily due to the sale of membership interests in the REF business.

Net Loss Attributable to Noncontrolling Interests decreased by $4 million in 2020 and $17 million in 2019. The 2020 decrease was primarily due to lower production in the REF business. The 2019 decrease was primarily due to the sale of membership interests in the REF business.

Outlook — Power and Industrial Projects will continue to leverage its extensive energy-related operating experience and project management capability to develop additional energy and renewable natural gas projects to serve energy intensive industrial customers in addition to optimizing the REF facilities until the phase-out at the end of 2021. Beginning in 2022, Power and Industrial Projects expects decreases in Other Income and Production Tax Credits that will cause a corresponding reduction to Net Income as REF facilities will cease operations. Over the long-term, Power and Industrial Projects expects that growth in industrial energy services projects and renewable energy projects will offset the decreases to Net Income caused by the REF phase-out.

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 and outlook are discussed below:


	2020		2019		2018
	(In millions)
Operating Revenues — Non-utility operations	$	3,863	$	4,610	$	5,557
Purchased power and gas — non-utility	3,725		4,455		5,417
Non-utility Margin	138		155		140
Operation and maintenance	77		75		75
Depreciation and amortization	5		6		5
Taxes other than income	4		4		5
Operating Income	52		70		55
Other (Income) and Deductions	4		4		3
Income Tax Expense	12		17		13
Net Income Attributable to DTE Energy Company	$	36	$	49	$	39

Operating Revenues — Non-utility operations and Purchased power and gas — non-utility were impacted by a decrease in gas prices for the years ended December 31, 2020 and 2019, primarily in the gas structured strategy.

Non-utility Margin decreased $17 million in 2020 and increased $15 million in 2019. The change in both periods was primarily due to timing from the unrealized and realized margins presented in the following tables:


	2020
	(In millions)
Unrealized Margins(a)
Favorable results, primarily in gas structured, environmental trading, and power full requirements strategies	$	83
Unfavorable results, primarily in gas transportation and gas full requirements strategies(b)	(58)
	25
Realized Margins(a)
Favorable results, primarily in power full requirements, gas trading, and gas storage strategies	21
Unfavorable results, primarily in environmental trading, power trading, gas structured, and gas transportation strategies(c)	(63)
	(42)
Decrease in Non-utility Margin	$	(17)

(a)Natural gas structured transactions typically involve a physical purchase or sale of natural gas in the future and/or natural gas basis financial instruments which are derivatives and a related non-derivative pipeline transportation contract. These gas structured transactions can result in significant earnings volatility as the derivative components are marked-to-market without revaluing the related non-derivative contracts.

(b)Amount includes $15 million of timing related losses related to gas strategies which will reverse in future periods as the underlying contracts settle.

(c)Amount includes $10 million of timing related gains related to gas strategies recognized in previous periods that reversed as the underlying contracts settled.


	2019
	(In millions)
Unrealized Margins(a)
Favorable results, primarily in gas structured and gas transportation strategies(b)	$	104
Unfavorable results, primarily in environmental and gas trading, and power full requirements strategies	(28)
	76
Realized Margins(a)
Favorable results, primarily in power full requirements, environmental trading, and gas transportation strategies	74
Unfavorable results, primarily in gas structured and gas full requirements strategies(c)	(135)
	(61)
Increase in Non-utility Margin	$	15

(b)Amount includes $87 million of timing related losses related to gas strategies which will reverse in future periods as the underlying contracts settle.

(c)Amount includes $61 million of timing related gains related to gas strategies recognized in previous periods that reversed as the underlying contracts settled.

Outlook — In the near-term, Energy Trading expects market conditions to remain challenging. The profitability of this segment may be impacted by the volatility in commodity prices and the uncertainty of impacts associated with regulatory changes, and changes in operating rules of RTOs. Significant portions of the Energy Trading portfolio are economically hedged. Most financial instruments, physical power and natural gas contracts, and certain environmental contracts are deemed derivatives; whereas, natural gas and environmental inventory, contracts for pipeline transportation, storage assets, and some environmental contracts are not derivatives. As a result, Energy Trading will experience earnings volatility as derivatives are marked-to-market without revaluing the underlying non-derivative contracts and assets. Energy Trading's strategy is to economically manage the price risk of these underlying non-derivative contracts and assets with futures, forwards, swaps, and options. This results in gains and losses that are recognized in different interim and annual accounting periods.

See also the "Fair Value" section herein and Notes 13 and 14 to the Consolidated Financial Statements in Item 8 of this Report, "Fair Value" and "Financial and Other Derivative Instruments," respectively.

CORPORATE AND OTHER

Corporate and Other includes various holding company activities, holds certain non-utility debt, and holds certain investments, including funds supporting regional development and economic growth. The 2020 net loss of $80 million represents a decrease of $36 million from the 2019 net loss of $116 million. This decrease was primarily due a tax adjustment recorded in 2020 pursuant to the CARES Act, which allowed the carryback of net operating losses five years for tax years 2018 through 2020. This enabled DTE Energy to carryback 2018 net operating losses to 2013 and resulted in a $34 million reduction to Income Tax Expense. Refer to Note 11 to the Consolidated Financial Statements in Item 8 of this Report, "Income Taxes", for additional information regarding the CARES Act and related impacts.

The 2019 net loss of $116 million represents a decrease of $13 million from the 2018 net loss of $129 million. This decrease was primarily due to lower state income taxes and decreased contributions to not-for-profit organizations, partially offset by higher interest expense and impairment of an equity method investment.

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 2021 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 2021 of approximately $4.2 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.

Refer to the "Capital Investments" section above for additional information on DTE Energy's capital strategy and estimated spend over the next five years. Any capital commitments are also included in the disclosure of Purchase Commitments within Note 19 to the Consolidated Financial Statements, "Commitments and Contingencies."


	2020		2019		2018
	(In millions)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period	$	93	$	76	$	89
Net cash from operating activities	3,697		2,649		2,680
Net cash used for investing activities	(4,070)		(5,732)		(3,347)
Net cash from financing activities	796		3,100		654
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash	423		17		(13)
Cash, Cash Equivalents, and Restricted Cash at End of Period	$	516	$	93	$	76

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 $1.0 billion in 2020. The increase was primarily due to an increase in Net Income, Depreciation and amortization, and cash from tax refunds and working capital items.

Net cash from operations decreased $31 million in 2019. The reduction was primarily due to a decrease in cash from working capital items, partially offset by an increase in non-cash items, primarily Deferred income taxes and Depreciation and amortization.

The change in working capital items in 2020 was primarily due to an increase in cash related to Accounts receivable, net, Accounts payable, and Other current and noncurrent assets and liabilities, partially offset by a decrease in cash related to Prepaid postretirement benefit costs and Regulatory assets and liabilities. The change in working capital items in 2019 was primarily related to an increase in cash used for Accounts payable and Other current and noncurrent assets and liabilities, partially offset by an increase in cash related to Accounts receivable, net, Accrued pension and postretirement costs, and Regulatory assets and liabilities.

Cash used for Investing Activities

Cash inflows associated with investing activities are primarily generated from the sale of assets, while cash outflows are the result of plant and equipment expenditures and acquisitions. In any given year, DTE Energy looks to realize cash from under-performing or non-strategic assets or matured, fully valued assets.

Capital spending within the utility businesses is primarily to maintain and improve electric generation and the electric and natural gas distribution infrastructure, and to comply with environmental regulations and renewable energy requirements.

Capital spending within the non-utility businesses is primarily for ongoing maintenance, expansion, and growth. DTE Energy looks to make growth investments that meet strict criteria in terms of strategy, management skills, risks, and returns. All new investments are analyzed for their rates of return and cash payback on a risk adjusted basis. DTE Energy has been disciplined in how it deploys capital and will not make investments unless they meet the criteria. For new business lines, DTE Energy initially invests based on research and analysis. DTE Energy starts with a limited investment, evaluates the results, and either expands or exits the business based on those results. In any given year, the amount of growth capital will be determined by the underlying cash flows of DTE Energy, with a clear understanding of any potential impact on its credit ratings.

Net cash used for investing activities decreased $1.7 billion in 2020 due primarily to a decrease in Acquisitions related to business combinations, net of cash acquired, primarily driven by DTE Energy's acquisition of Blue Union and LEAP in 2019 for net cash of $2.3 billion. The decrease was also due to lower Contributions to equity method investees, partially offset by an increase in Plant and equipment expenditures.

Net cash used for investing activities increased $2.4 billion in 2019 due primarily to the acquisition of Blue Union and LEAP and higher Plant and equipment expenditures, partially offset by lower Contributions to equity method investees.

Cash from Financing Activities

DTE Energy relies on both short-term borrowing and long-term financing as a source of funding for capital requirements not satisfied by its operations.

DTE Energy's strategy is to have a targeted debt portfolio blend of fixed and variable interest rates and maturity. DTE Energy targets balance sheet financial metrics to ensure it is consistent with the objective of a strong investment grade debt rating.

Net cash from financing activities decreased $2.3 billion in 2020. The decrease was primarily due to the issuance of equity units and common stock associated with the acquisition of Blue Union and LEAP in 2019, as well as an increase in cash used for Short-term borrowings, net and the Acquisition related deferred payment in 2020. These decreases were partially offset by higher cash from Issuances of long-term debt, net of issuance costs and lower Purchases of noncontrolling interest, principally SGG.

Net cash from financing activities increased $2.4 billion in 2019. The increase was primarily due to an increase in cash from issuances of long-term debt, equity units, common stock, and short-term borrowings, partially offset by an increase in cash used for Redemptions of long-term debt and Purchases of noncontrolling interests, principally SGG. The increased issuances in 2019 were primarily related to the acquisition of Blue Union and LEAP. For further details, refer to the "Acquisition Financing" section of Note 15 to the Consolidated Financial Statements in Item 8. of this Report, "Long-Term Debt."

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. Power and Industrial Projects cash flows are expected to temporarily decrease beginning in 2022 as REF facilities will have ceased operations. Growth from new industrial energy services projects and renewable energy investments are expected to offset these decreases over the long-term.

DTE Energy's intention to spin-off the DTE Midstream business could also reduce cash flows if the separation transaction is completed. However, DTE Energy would still expect higher cash flows from operations over the long-term due to the growth of its utilities and other non-utility operations. DTE Energy will continue to assess the impact of the potential spin-off transaction on its cash flows, including any financing activity related to the separation of DTE Midstream.

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 $469 million in long-term debt, including finance leases, maturing in the next twelve months. The repayment of the debt is expected to be made through internally generated funds or the issuance of new long-term debt.

DTE Energy has approximately $3.1 billion of available liquidity at December 31, 2020, consisting of cash and amounts available under unsecured revolving credit agreements.

At the discretion of management and depending upon economic and financial market conditions, DTE Energy expects to issue equity up to $200 million in 2021. If issued, DTE Energy anticipates up to $100 million of these equity issuances will be made through contributions to the qualified pension plans at DTE Electric. DTE Energy does not anticipate making any contributions to its other postretirement benefit plans in 2021. Any additional equity issuances are expected to be made through the dividend reinvestment plan and other employee benefit plans.

To finance the acquisition of midstream natural gas assets in December 2019, DTE Energy issued equity units that will result in the issuance of common stock in November 2022. This transaction is not expected to impact DTE Energy's cash flows. Future cash flow impacts will relate primarily to the payment of DTE Energy's remaining stock purchase liability associated with the equity units. Refer to Note 15 to the Consolidated Financial Statements, "Long-Term Debt," for additional information. Over the long-term, DTE Energy does not have any other equity commitments and will continue to evaluate equity needs on an annual basis in consideration of economic and financial market conditions.

DTE Energy has paid quarterly cash dividends for more than 100 consecutive years and expects to continue paying regular cash dividends in the future, including approximately $0.8 billion in 2021. Any payment of future dividends is subject to approval by the Board of Directors and may depend on DTE Energy's future earnings, capital requirements, and financial condition. Over the long-term, DTE Energy expects continued dividend growth and is targeting a payout ratio consistent with pure-play utility companies.

Various subsidiaries and equity investees of DTE Energy have entered into contracts which contain ratings triggers and are guaranteed by DTE Energy. These contracts contain provisions which allow the counterparties to require that DTE Energy post cash or letters of credit as collateral in the event that DTE Energy's credit rating is downgraded below investment grade. Certain of these provisions (known as "hard triggers") state specific circumstances under which DTE Energy can be required to post collateral upon the occurrence of a credit downgrade, while other provisions (known as "soft triggers") are not as specific. For contracts with soft triggers, it is difficult to estimate the amount of collateral which may be requested by counterparties and/or which DTE Energy may ultimately be required to post. The amount of such collateral which could be requested fluctuates based on commodity prices (primarily natural gas, power, environmental, and coal) and the provisions and maturities of the underlying transactions. As of December 31, 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 $428 million.

DTE Energy is actively monitoring the impact of the COVID-19 pandemic on capital markets and any related effects to our cost of capital. During 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 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 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 10, 11, 15, 17, 19, and 21 to the Consolidated Financial Statements in Item 8 of this Report, "Regulatory Matters," "Income Taxes," "Long-Term Debt," "Short-Term Credit Arrangements and Borrowings," "Commitments and Contingencies," and "Retirement Benefits and Trusteed Assets," respectively.

Contractual Obligations

The following table details DTE Energy's, including DTE Electric's, contractual obligations for debt redemptions, leases, purchase obligations, and other long-term obligations as of December 31, 2020:


	Total		2021		2022-2023		2024-2025		2026 and Thereafter
	(In millions)
Long-term debt:
Mortgage bonds, notes, and other(a)	$	18,393	$	462	$	4,643	$	2,645	$	10,643

Junior subordinated debentures(b)	1,210		—		—		—		1,210
Finance lease obligations	34		8		16		3		7
Interest	11,655		682		1,251		1,029		8,693
Stock purchase contract(c)	104		52		52		—		—
Operating leases	172		37		53		21		61
Electric, gas, fuel, transportation, and storage purchase obligations(d)	5,144		2,048		1,663		661		772
Long-term DTE Electric renewable energy power purchase agreements(e)(f)	1,291		81		180		186		844
Other purchase obligations	1,060		869		103		70		18
Total obligations(g)(h)	$	39,063	$	4,239	$	7,961	$	4,615	$	22,248

(a)Excludes $25 million of unamortized debt discount and $104 million of unamortized debt issuance costs.

(b)Excludes $35 million of unamortized debt issuance costs.

(c)Includes $3 million of interest.

(d)Excludes amounts associated with full requirements contracts where no stated minimum purchase volume is required and $58 million of obligations between DTE Electric and affiliates of DTE Energy.

(e)The agreements represent the minimum obligations with suppliers for renewable energy and renewable energy credits under existing contract terms which expire from 2030 through 2035. DTE Electric's share of plant output ranges from 28% to 100%.

(f)Excludes $51 million of power purchase agreements between DTE Electric and non-utility affiliates of DTE Energy.

(g)Excludes $316 million of other long-term liabilities that do not reflect contractual obligations or for which the timing of payments cannot be reasonably estimated, including $10 million of liabilities for unrecognized tax benefits.

(h)At December 31, 2020, DTE Energy met the minimum pension funding levels required under the Employee Retirement Income Security Act of 1974 (ERISA) and the Pension Protection Act of 2006 for the defined benefit pension plans. DTE Energy may contribute more than the minimum funding requirements for the pension plans and may also make contributions to other postretirement benefit plans; however, these amounts are not included in the table above as such amounts are discretionary. Planned funding levels are disclosed in the "Capital Resources and Liquidity" and "Critical Accounting Estimates" sections herein and in Note 21 to the Consolidated Financial Statements in Item 8 of this Report, "Retirement Benefits and Trusteed Assets."

Credit Ratings

Credit ratings are intended to provide banks and capital market participants with a framework for comparing the credit quality of securities and are not a recommendation to buy, sell, or hold securities. DTE Energy, DTE Electric, and DTE Gas' credit ratings affect their costs of capital and other terms of financing, as well as their ability to access the credit and commercial paper markets. DTE Energy, DTE Electric, and DTE Gas' management believes that the current credit ratings provide sufficient access to capital markets. However, disruptions in the banking and capital markets not specifically related to DTE Energy, DTE Electric, and DTE Gas may affect their ability to access these funding sources or cause an increase in the return required by investors.

As part of the normal course of business, DTE Electric, DTE Gas, and various non-utility subsidiaries of DTE Energy routinely enter into physical or financially settled contracts for the purchase and sale of electricity, natural gas, coal, capacity, storage, and other energy-related products and services. Certain of these contracts contain provisions which allow the counterparties to request that DTE Energy posts cash or letters of credit in the event that the senior unsecured debt rating of DTE Energy is downgraded below investment grade. The amount of such collateral which could be requested fluctuates based upon commodity prices and the provisions and maturities of the underlying transactions and could be substantial. Also, upon a downgrade below investment grade, DTE Energy, DTE Electric, and DTE Gas could have restricted access to the commercial paper market, and if DTE Energy is downgraded below investment grade, the non-utility businesses, especially the Energy Trading and Power and Industrial Projects segments, could be required to restrict operations due to a lack of available liquidity. A downgrade below investment grade could potentially increase the borrowing costs of DTE Energy, DTE Electric, and DTE Gas and their subsidiaries and may limit access to the capital markets. The impact of a downgrade will not affect DTE Energy, DTE Electric, and DTE Gas' ability to comply with existing debt covenants. While DTE Energy, DTE Electric, and DTE Gas currently do not anticipate such a downgrade, they cannot predict the outcome of current or future credit rating agency reviews.

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 and Dispositions," for additional information. The downgrade has not negatively impacted DTE Energy's liquidity or access to the capital markets.

In October 2020, DTE Energy announced its intent to spin-off its Midstream business. We do not expect the separation transaction to negatively impact DTE Energy's credit ratings, liquidity, or access to the capital markets.

CRITICAL ACCOUNTING ESTIMATES

The preparation of the Registrants' Consolidated Financial Statements in conformity with generally accepted accounting principles requires that management apply accounting policies and make estimates and assumptions that affect results of operations and the amounts of assets and liabilities reported in the Consolidated Financial Statements. The Registrants' management believes that the areas described below require significant judgment in the application of accounting policy or in making estimates and assumptions in matters that are inherently uncertain and that may change in subsequent periods. Additional discussion of these accounting policies can be found in the Combined Notes to Consolidated Financial Statements in Item 8 of this Report.

Regulation

A significant portion of the Registrants' businesses are subject to regulation. This results in differences in the application of generally accepted accounting principles between regulated and non-regulated businesses. DTE Electric and DTE Gas are required to record regulatory assets and liabilities for certain transactions that would have been treated as revenue or expense in non-regulated businesses. Future regulatory changes or changes in the competitive environment could result in the discontinuance of this accounting treatment for regulatory assets and liabilities for some or all of the Registrants' businesses. The Registrants' management believes that currently available facts support the continued use of regulatory assets and liabilities and that all regulatory assets and liabilities are recoverable or refundable in the current rate environment.

See Note 10 to the Consolidated Financial Statements in Item 8 of this Report, "Regulatory Matters."

Derivatives

Derivatives are generally recorded at fair value and shown as Derivative assets or liabilities. Changes in the fair value of the derivative instruments are recognized in earnings in the period of change. The normal purchases and normal sales exception requires, among other things, physical delivery in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that are designated as normal purchases and normal sales are not recorded at fair value. Substantially all of the commodity contracts entered into by DTE Electric and DTE Gas meet the criteria specified for this exception.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Registrants make certain assumptions they believe that market participants would use in pricing assets or liabilities, including assumptions about risk, and the risks inherent in the inputs to valuation techniques. Credit risk of the Registrants and their counterparties is incorporated in the valuation of assets and liabilities through the use of credit reserves, the impact of which was immaterial at December 31, 2020 and 2019. The Registrants believe they use valuation techniques that maximize the use of observable market-based inputs and minimize the use of unobservable inputs.

The fair values the Registrants calculate for their derivatives may change significantly as inputs and assumptions are updated for new information. Actual cash returns realized on derivatives may be different from the results the Registrants estimate using models. As fair value calculations are estimates based largely on commodity prices, the Registrants perform sensitivity analyses on the fair values of forward contracts. See the sensitivity analysis in Item 7A. of this report, "Quantitative and Qualitative Disclosures About Market Risk." See also the "Fair Value" section herein.

See Notes 13 and 14 to the Consolidated Financial Statements in Item 8 of this Report, "Fair Value" and "Financial and Other Derivative Instruments," respectively.

Goodwill

Certain of DTE Energy's reporting units have goodwill or allocated goodwill resulting from business combinations. DTE Energy performs an impairment test for each of the reporting units with goodwill annually or whenever events or circumstances indicate that the value of goodwill may be impaired.

In performing the impairment test, DTE Energy compares the fair value of the reporting unit to its carrying value including goodwill. If the carrying value including goodwill were to exceed the fair value of a reporting unit, an impairment loss would be recognized. A goodwill impairment loss is measured as the amount by which a reporting unit's carrying value exceeds fair value, not to exceed the carrying amount of goodwill.

DTE Energy estimates the reporting unit's fair value using standard valuation techniques, including techniques which use estimates of projected future results and cash flows to be generated by the reporting unit. For certain reporting units, the fair values were calculated using a weighted combination of the income approach, which estimates fair value based on discounted cash flows, and the market approach, which estimates fair value based on market comparables within the utility and energy industries. The income approach includes a terminal value that utilizes an assumed long-term growth rate approach, which incorporates management's assumptions regarding sustainable long-term growth of the reporting units. The income approach cash flow valuations involve a number of estimates that require broad assumptions and significant judgment by management regarding future performance.

One of the most significant assumptions utilized in determining the fair value of reporting units under the market approach is implied market multiples for certain peer companies. Management selects comparable peers based on each peer’s primary business mix, operations, and market capitalization compared to the applicable reporting unit and calculates implied market multiples based on available projected earnings guidance and peer company market values as of the test date.

DTE Energy performs an annual impairment test each October. In between annual tests, DTE Energy monitors its estimates and assumptions regarding estimated future cash flows, including the impact of movements in market indicators in future quarters, and will update the impairment analyses if a triggering event occurs. While DTE Energy believes the assumptions are reasonable, actual results may differ from projections. To the extent projected results or cash flows are revised downward, the reporting unit may be required to write down all or a portion of its goodwill, which would adversely impact DTE Energy's earnings.

DTE Energy performed its annual impairment test as of October 1, 2020 and determined that the estimated fair value of each reporting unit exceeded its carrying value, and no impairment existed.

The results of the test and key estimates that were incorporated are as follows as of the October 1, 2020 valuation date:


Reporting Unit	Goodwill		Fair Value Reduction %(a)		Discount Rate		Valuation Methodology(b)(c)
	(In millions)
Electric	$	1,208	49	%	5.0	%	DCF and market multiples analysis
Gas	743		47	%	5.0	%	DCF and market multiples analysis
Gas Storage and Pipelines	472		18	%	7.5	%	DCF and market multiples analysis
Power and Industrial Projects	26		58	%	7.1	%	DCF
Energy Trading	17		68	%	8.2	%	DCF
	$	2,466

(a)Percentage by which the fair value of equity of the reporting unit would need to decline to equal its carrying value, including goodwill.

(b)Discounted cash flows (DCF) incorporated 2021-2025 projected cash flows plus a calculated terminal value. For each of the reporting units, DTE Energy capitalized the terminal year cash flows at the weighted average costs of capital (WACC) less an assumed long-term growth rate of 2.0%. Management applied equal weighting to the DCF and market multiples analysis, where applicable, to determine the fair value of the respective reporting units.

(c)Due to lack of market comparable information for the Power & Industrial and Energy Trading reporting units, DTE Energy did not perform a market multiples analysis.

Business Combinations

The assets acquired and liabilities assumed in a business combination are recorded at their estimated fair values at the date of acquisition. The excess purchase price over the fair value of net assets acquired is recognized as goodwill. The fair value of the assets acquired and liabilities assumed are determined based on significant estimates and assumptions, including projected timing and amount of future cash flows and discount rates reflecting risk inherent in future market prices. In some cases, DTE Energy engages independent third-party valuation firms to assist in determining the fair values. Refer to Note 4 to the Consolidated Financial Statements, "Acquisitions and Dispositions."

Long-Lived Assets

The Registrants evaluate the carrying value of long-lived assets, excluding goodwill, when circumstances indicate that the carrying value of those assets may not be recoverable. Conditions that could have an adverse impact on the cash flows and fair value of the long-lived assets are deteriorating business climate, condition of the asset, or plans to dispose of the asset before the end of its useful life. The review of long-lived assets for impairment requires significant assumptions about operating strategies and estimates of future cash flows, which require assessments of current and projected market conditions. An impairment evaluation is based on an undiscounted cash flow analysis at the lowest level for which independent cash flows of long-lived assets can be identified from other groups of assets and liabilities. Impairment may occur when the carrying value of the asset exceeds the future undiscounted cash flows. When the undiscounted cash flow analysis indicates a long-lived asset is not recoverable, the amount of the impairment loss is determined by measuring the excess of the long-lived asset over its fair value. An impairment would require the Registrants to reduce both the long-lived asset and current period earnings by the amount of the impairment, which would adversely impact their earnings.

Pension and Other Postretirement Costs

DTE Energy sponsors both funded and unfunded defined benefit pension plans and other postretirement benefit plans for eligible employees of the Registrants. The measurement of the plan obligations and cost of providing benefits under these plans involve various factors, including numerous assumptions and accounting elections. When determining the various assumptions that are required, DTE Energy considers historical information as well as future expectations. The benefit costs are affected by, among other things, the actual rate of return on plan assets, the long-term expected return on plan assets, the discount rate applied to benefit obligations, the incidence of mortality, the expected remaining service period of plan participants, level of compensation and rate of compensation increases, employee age, length of service, the anticipated rate of increase of health care costs, benefit plan design changes, and the level of benefits provided to employees and retirees. Pension and other postretirement benefit costs attributed to the segments are included with labor costs and ultimately allocated to projects within the segments, some of which are capitalized.

DTE Energy had pension costs of $148 million in 2020, $112 million in 2019, and $148 million in 2018. Other postretirement benefit credits were $49 million in 2020, $1 million in 2019, and $36 million in 2018. Pension costs and other postretirement benefit credits for 2020 were calculated based upon several actuarial assumptions, including an expected long-term rate of return on plan assets of 7.10% for the pension plans and 7.20% for the other postretirement benefit plans. In developing the expected long-term rate of return assumptions, DTE Energy evaluated asset class risk and return expectations, as well as inflation assumptions. Projected returns are based on broad equity, bond, and other markets. DTE Energy's 2021 expected long-term rate of return on pension plan assets is based on an asset allocation assumption utilizing active and passive investment management of 37% in equity markets, 38% in fixed income markets, including long duration bonds, and 25% invested in other assets. DTE Energy's 2021 expected long-term rate of return on other postretirement plan assets is based on an asset allocation assumption utilizing active and passive investment management of 23% in equity markets, 52% in fixed income markets, and 25% invested in other assets. Because of market volatility, DTE Energy periodically reviews the asset allocation and rebalances the portfolio when considered appropriate. DTE Energy is lowering its long-term rate of return assumption for the pension plans to 7.00% and lowering the other postretirement plans to 6.70% for 2021. DTE Energy believes these rates are reasonable assumptions for the long-term rates of return on the plans' assets for 2021 given their respective asset allocations and DTE's capital market expectations. DTE Energy will continue to evaluate the actuarial assumptions, including its expected rate of return, at least annually.

DTE Energy calculates the expected return on pension and other postretirement benefit plan assets by multiplying the expected return on plan assets by the market-related value (MRV) of plan assets at the beginning of the year, taking into consideration anticipated contributions and benefit payments that are to be made during the year. Current accounting rules provide that the MRV of plan assets can be either fair value or a calculated value that recognizes changes in fair value in a systematic and rational manner over not more than five years. For the pension plans, DTE Energy uses a calculated value when determining the MRV of the pension plan assets and recognizes changes in fair value over a three-year period. Accordingly, the future value of assets will be impacted as previously deferred gains or losses are recognized. Favorable asset performance in 2020 resulted in unrecognized net gains. As of December 31, 2020, DTE Energy had $507 million of cumulative gains related to investment performance in prior years that were not yet recognized in the calculation of the MRV of pension assets. For other postretirement benefit plans, DTE Energy uses fair value when determining the MRV of plan assets, therefore all investment gains and losses have been recognized in the calculation of MRV for these plans.

The discount rate that DTE Energy utilizes for determining future pension and other postretirement benefit obligations is based on a yield curve approach and a review of bonds that receive one of the two highest ratings given by a recognized rating agency. The yield curve approach matches projected pension plan and other postretirement benefit payment streams with bond portfolios reflecting actual liability duration unique to the plans. The discount rate determined on this basis was 2.57% for the pension and 2.58% for the other postretirement plans at December 31, 2020 compared to 3.28% and 3.29%, respectively, for the pension and other postretirement plans at December 31, 2019.

DTE Energy changed the mortality assumptions as of December 31, 2020 to reflect recent plan experience and the updated base tables and projection scales published by the Society of Actuaries. The mortality assumptions used at December 31, 2020 are the PRI-2012 mortality table projected to 2018 using Scale MP-2019, and projected forward from 2018 using Scale MP-2020 with generational projection. The base mortality tables vary by type of plan, employee's union status and employment status, with additional adjustments to reflect the actual experience and credibility of each population.

DTE Energy estimates that total pension costs will be approximately $136 million in 2021, compared to $148 million in 2020. The 2020 total pension costs included $25 million of one-time settlement charges. Excluding these charges, total pension costs are expected to increase from 2020 to 2021, which is primarily due to a lower discount rate and expected rate of return. The 2021 other postretirement benefit credit is estimated at approximately $39 million compared to $49 million in 2020. The expected decrease in the credit is primarily due to a lower discount rate and expected rate of return.

The health care trend rates for DTE Energy assume 6.75% for pre-65 participants and 7.25% for post-65 participants for 2021, trending down to 4.50% for both pre-65 and post-65 participants in 2033.

Future actual pension and other postretirement benefit costs or credits will depend on future investment performance, changes in future discount rates, and various other factors related to plan design.

Lowering the expected long-term rate of return on the plan assets by one percentage point would have increased the 2020 pension costs by approximately $47 million. Lowering the discount rate and the salary increase assumptions by one percentage point would have increased the 2020 pension costs by approximately $23 million. Lowering the expected long-term rate of return on plan assets by one percentage point would have decreased the 2020 other postretirement credit by approximately $18 million. Lowering the discount rate and the salary increase assumptions by one percentage point would have decreased the 2020 other postretirement credit by approximately $18 million.

The value of the qualified pension and other postretirement benefit plan assets was $7.5 billion at December 31, 2020 and $6.8 billion at December 31, 2019. At December 31, 2020, DTE Energy's qualified pension plans were underfunded by $653 million and its other postretirement benefit plans were overfunded by $153 million. In 2020, the funded status of the pension plans improved as plan sponsor contributions and favorable asset returns were partially offset by a decrease in discount rates. The funded status of the other postretirement benefit plans improved as favorable asset returns and a favorable change in healthcare cost assumptions were partially offset by a decrease in discount rates.

Pension and other postretirement costs and pension cash funding requirements may increase in future years without typical returns in the financial markets. DTE Energy made contributions to its qualified pension plans of $92 million in 2020 and $150 million in 2019. At the discretion of management, consistent with the Pension Protection Act of 2006, and depending upon financial market conditions, DTE Energy anticipates making contributions to its qualified pension plans of up to $107 million in 2021 and up to $128 million over the next five years. DTE Energy did not make other postretirement benefit plan contributions in 2020 or 2019. DTE Energy does not anticipate making any contributions to its other postretirement plans in 2021 or over the next five years. The planned pension contributions will be made in cash and/or DTE Energy common stock.

See Note 21 to the Consolidated Financial Statements in Item 8 of this Report, "Retirement Benefits and Trusteed Assets."

Legal Reserves

The Registrants are involved in various legal proceedings, claims, and litigation arising in the ordinary course of business. The Registrants regularly assess their liabilities and contingencies in connection with asserted or potential matters and establish reserves when appropriate. Legal reserves are based upon the Registrants' management’s assessment of pending and threatened legal proceedings and claims against the Registrants.

Accounting for Tax Obligations

The Registrants are required to make judgments regarding the potential tax effects of various financial transactions and results of operations in order to estimate their obligations to taxing authorities. The Registrants account for uncertain income tax positions using a benefit recognition model with a two-step approach, a more-likely-than-not recognition criterion, and a measurement attribute that measures the position as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement. If the benefit does not meet the more likely than not criteria for being sustained on its technical merits, no benefit will be recorded. Uncertain tax positions that relate only to timing of when an item is included on a tax return are considered to have met the recognition threshold. The Registrants also have non-income tax obligations related to property, sales and use, and employment-related taxes, and ongoing appeals related to these tax matters.

Accounting for tax obligations requires judgments, including assessing whether tax benefits are more likely than not to be sustained, and estimating reserves for potential adverse outcomes regarding tax positions that have been taken. The Registrants also assess their ability to utilize tax attributes, including those in the form of carry-forwards, for which the benefits have already been reflected in the Consolidated Financial Statements. The Registrants believe the resulting tax reserve balances as of December 31, 2020 and 2019 are appropriate. The ultimate outcome of such matters could result in favorable or unfavorable adjustments to the Registrants' Consolidated Financial Statements, and such adjustments could be material.

See Note 11 to the Consolidated Financial Statements in Item 8 of this Report, "Income Taxes."

NEW ACCOUNTING PRONOUNCEMENTS

See Note 3 to the Consolidated Financial Statements in Item 8 of this Report, "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 13 and 14 to the Consolidated Financial Statements in Item 8 of this Report, "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 13 to the Consolidated Financial Statements in Item 8 of this Report, "Fair Value."

The following table provides details on changes in DTE Energy's MTM net asset (or liability) position:


	Total
	(In millions)
MTM at December 31, 2019	$	5
Reclassified to realized upon settlement	92
Changes in fair value recorded to income	(83)
Amounts recorded to unrealized income	9
Changes in fair value recorded in regulatory liabilities	20


Change in collateral	(6)
MTM at December 31, 2020	$	28

The table below shows the maturity of DTE Energy's MTM positions. The positions from 2024 and beyond principally represent longer tenor gas structured transactions:


Source of Fair Value	2021		2022		2023		2024 and Beyond		Total Fair Value
	(In millions)
Level 1	$	10	$	1	$	(1)	$	—	$	10
Level 2	39		—		(5)		(8)		26
Level 3	11		3		—		(16)		(2)
MTM before collateral adjustments	$	60	$	4	$	(6)	$	(24)	34
Collateral adjustments									(6)
MTM at December 31, 2020									$	28

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