Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

EXECUTIVE OVERVIEW

DTE Energy is a diversified energy company and is the parent company of DTE Electric and DTE Gas, regulated electric and natural gas utilities engaged primarily in the business of providing electricity and natural gas sales, distribution, and storage services throughout Michigan. DTE Energy also operates two energy-related non-utility segments with operations throughout the United States.

On July 1, 2021, DTE Energy completed the separation of its natural gas pipeline, storage and gathering non-utility business. Effective with the separation, DTE retains no ownership in the new company, DT Midstream, which was formerly comprised of DTE Energy’s Gas Storage and Pipelines segment and certain DTE Energy holding company activity within the Corporate and Other segment. Gas Storage and Pipelines is no longer a reportable segment of DTE Energy, and financial results of DT Midstream are presented as discontinued operations in the Consolidated Financial Statements. Refer to Note 4 to the Consolidated Financial Statements, “Dispositions and Impairments,” for additional information regarding the separation of DT Midstream and discontinued operations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations below reflect DTE Energy’s continuing operations, unless noted otherwise. The following table summarizes DTE Energy's financial results:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In millions, except per share amounts)
Net Income attributable to DTE Energy — continuing operations	$	58	$	372	$	495	$	844
Diluted Earnings per Common Share — continuing operations	$	0.30	$	1.92	$	2.55	$	4.37

The decrease in Net Income for both periods was primarily due to lower earnings in the Corporate and Other segment, driven primarily by the loss on debt extinguishment incurred in the third quarter 2021. The decrease in Net Income for the three months ended September 30, 2021 was also due to lower earnings in the DTE Electric and Energy Trading segments, partially offset by higher earnings in the DTE Vantage segment. For the nine months ended September 30, 2021, the decrease in Net Income was also due to lower earnings in the Energy Trading segment, partially offset by higher earnings in the Electric and Gas segments.

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 2028, and 80% by 2040 from 2005 carbon emissions levels. DTE Energy is also committed to a net zero carbon emissions goal by 2050 for its electric utility 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 and expects growth opportunities in its DTE Vantage segment. DTE Energy employs disciplined investment criteria when assessing growth opportunities that leverage its assets, skills, and expertise, and provides diversity in earnings and geography. Specifically, DTE Energy invests in targeted energy markets with attractive competitive dynamics where meaningful scale is in alignment with its risk profile.

A key priority for DTE Energy is to maintain a strong balance sheet which facilitates access to capital markets and reasonably priced short-term and long-term financing. Near-term growth will be funded through internally generated cash flows and the issuance of debt and equity. DTE Energy has an enterprise risk management program that, among other things, is designed to monitor and manage exposure to earnings and cash flow volatility related to commodity price changes, interest rates, and counterparty credit risk.

CAPITAL INVESTMENTS

DTE Energy's utility businesses require significant capital investments to maintain and improve the electric generation and electric and natural gas distribution infrastructure and to comply with environmental regulations and renewable energy requirements.

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 six coal-fired generation units at the Trenton Channel, River Rouge, and St. Clair facilities and has announced plans to retire its remaining eleven coal-fired generating units, including five units at Trenton Channel and St. Clair in 2022. The two units at the Belle River facility will cease the use of coal by 2028 and will be evaluated for conversion to cleaner energy resources. The final four units at the Monroe facility are expected to be retired by 2040. Generation from the retired facilities will be replaced or offset 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 in the DTE Vantage segment, including approximately $1 billion to $1.4 billion from 2021-2025 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.

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;
strategic investments in growth projects at DTE Vantage;
employee safety and engagement;
cost structure optimization across all business segments; and
cash, capital, and liquidity to maintain or improve financial strength.

The separation of DT Midstream on July 1, 2021 will result in a reduction to DTE Energy's net income and cash flows in the near term. However, DTE Energy remains well-positioned for long-term growth and focused on the key objectives noted above. DTE Energy will continue to pursue opportunities to grow its businesses in a disciplined manner if it can secure opportunities that meet its strategic, financial, and risk criteria.

COVID-19 Pandemic

DTE Energy has been monitoring the COVID-19 pandemic and any related impacts to operating costs, customer demand, and the recoverability of assets in our business segments that could materially impact the Registrants' financial results.

As noted in Note 13 to the Consolidated Financial Statements, "Commitments and Contingencies," the pandemic contributed to a shift in electric sales volumes from commercial and industrial customers to residential customers. DTE Energy expects this shift to continue in the near term as businesses maintain more remote operations. Other impacts from COVID-19 have related primarily to health and safety-related costs at the utilities and volumes at certain non-utility businesses, but these impacts have not been significant in 2021.

DTE Energy will continue to monitor these impacts as well as any regulatory and legislative activities related to COVID-19. The Registrants cannot predict the ultimate impact of these factors to our Consolidated Financial Statements as future developments involving COVID-19 and related impacts on economic and operating conditions are highly uncertain.

RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations includes financial information prepared in accordance with GAAP, as well as the non-GAAP financial measures, Utility Margin and Non-utility Margin, discussed below, which DTE Energy uses as measures of its operational performance. Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP.

DTE Energy uses Utility Margin and Non-utility Margin, non-GAAP financial measures, to assess its performance by reportable segment.

Utility Margin includes electric utility and gas utility Operating Revenues net of Fuel, purchased power, and gas expenses. The utilities’ fuel, purchased power, and natural gas supply are passed through to customers, and therefore, result in changes to the utilities’ revenues that are comparable to changes in such expenses. As such, DTE Energy believes Utility Margin provides a meaningful basis for evaluating the utilities’ operations across periods, as it excludes the revenue effect of fluctuations in these expenses. For the Electric segment, non-utility Operating Revenues are reported separately so that Utility Margin can be used to assess utility performance.

The Non-utility Margin relates to the DTE Vantage and Energy Trading segments. For the DTE Vantage segment, Non-utility Margin primarily includes Operating Revenues net of Fuel, purchased power, and gas expenses. Operating Revenues include sales of refined coal to third parties and the affiliated Electric utility, metallurgical coke and related by-products, petroleum coke, renewable natural gas and related credits, and electricity, as well as rental income and revenues from utility-type consulting, management, and operational services. For the Energy Trading segment, Non-utility Margin includes revenue and realized and unrealized gains and losses from physical and financial power and gas marketing, optimization, and trading activities, net of Purchased power and gas related to these activities. DTE Energy evaluates its operating performance of these non-utility businesses using the measure of Operating Revenues net of Fuel, purchased power, and gas expenses.

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

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In millions)
Net Income (Loss) Attributable to DTE Energy by Segment
Electric	$	342	$	398	$	788	$	675
Gas	(30)		(20)		146		102
DTE Vantage	73		47		115		102
Energy Trading	(52)		(28)		(173)		5
Corporate and Other	(275)		(25)		(381)		(40)
Discontinued Operations	(33)		104		106		249
Net Income Attributable to DTE Energy Company	$	25	$	476	$	601	$	1,093

ELECTRIC

The Results of Operations discussion for DTE Electric is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In millions)
Operating Revenues — Utility operations	$	1,700	$	1,690	$	4,468	$	4,211
Fuel and purchased power — utility	462		449		1,178		1,083
Utility Margin	1,238		1,241		3,290		3,128
Operating Revenues — Non-utility operations	2		3		9		10
Operation and maintenance	408		358		1,116		1,063
Depreciation and amortization	281		262		820		779
Taxes other than income	82		79		245		220
Asset (gains) losses and impairments, net	—		—		—		41
Operating Income	469		545		1,118		1,035
Other (Income) and Deductions	82		89		238		264
Income Tax Expense	45		58		92		96
Net Income Attributable to DTE Energy Company	$	342	$	398	$	788	$	675

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 decreased $3 million in the three months ended September 30, 2021 and increased $162 million in the nine months ended September 30, 2021. Revenues associated with certain mechanisms and surcharges are offset by related expenses elsewhere in the Registrants' Consolidated Statements of Operations.

The following table details changes in various Utility Margin components relative to the comparable prior period:


	Three Months		Nine Months
	(In millions)
Implementation of new rates	$	—	$	71
Regulatory mechanism — RPS	22		43
Regulatory mechanism — EWR	10		34
Base sales / rate mix	(3)		25
Weather	(40)		(19)


Other regulatory mechanisms and other	8		8
Increase (decrease) in Utility Margin	$	(3)	$	162


	Three Months Ended September 30,		Nine Months Ended September 30,
	2021	2020	2021	2020
	(In thousands of MWh)
DTE Electric Sales
Residential	4,998	5,154	12,705	12,646
Commercial	4,625	4,507	12,532	11,936
Industrial	2,214	2,321	6,431	6,205
Other	49	49	155	157
	11,886	12,031	31,823	30,944
Interconnection sales(a)	1,008	295	2,812	823
Total DTE Electric Sales	12,894	12,326	34,635	31,767

DTE Electric Deliveries
Retail and wholesale	11,886	12,031	31,823	30,944
Electric retail access, including self-generators(b)	1,232	1,030	3,260	2,865
Total DTE Electric Sales and Deliveries	13,118	13,061	35,083	33,809

(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.

Operation and maintenance expense increased $50 million and $53 million in the three and nine months ended September 30, 2021, respectively. The increase in the third quarter was primarily due to higher distribution operations expense of $41 million (primarily due to higher storm costs), higher legal and environmental expense of $10 million, higher EWR expense of $9 million, and higher corporate support costs of $6 million, partially offset by lower uncollectible expense of $6 million, 2020 COVID-19 related expenses of $5 million, and lower benefits expense of $5 million. The increase in the nine-month period was primarily due to higher distribution operations expense of $36 million (primarily due to higher storm costs), higher EWR expense of $30 million, higher benefits expense of $19 million, higher legal and environmental expense of $13 million, and higher corporate support costs of $11 million, partially offset by 2020 COVID-19 related expenses of $34 million, lower uncollectible expense of $16 million, and lower plant generation expense of $10 million.

Depreciation and amortization expense increased $19 million and $41 million in the three and nine months ended September 30, 2021, respectively. The increase in both periods was primarily due to a higher depreciable base.

Taxes other than income increased $3 million and $25 million in the three and nine months ended September 30, 2021, respectively. The increase in the third quarter was primarily due to higher property taxes of $3 million. The increase in the nine-month period was primarily due to higher property taxes of $24 million, which resulted primarily from a favorable property tax settlement in 2020.

Asset (gains) losses and impairments, net decreased $41 million in the nine months ended September 30, 2021. The decrease was primarily due to a 2020 write-off of capital expenditures related to incentive compensation, which were disallowed in the May 8, 2020 rate order from the MPSC.

Other (Income) and Deductions decreased $7 million and $26 million in the three and nine months ended September 30, 2021, respectively. The decrease in the third quarter was primarily due to $10 million of contributions to not-for-profit organizations in 2020, partially offset by a change in rabbi trust investment earnings (loss of $1 million in 2021 compared to a gain of $2 million in 2020). The decrease in the nine-month period was primarily due to $10 million of contributions to not-for-profit organizations in 2020, a change in rabbi trust investment earnings (gain of $3 million in 2021 compared to a loss of $7 million in 2020), and lower non-operating retirement benefits expense of $5 million.

Income Tax Expense decreased $13 million and $4 million in the three and nine months ended September 30, 2021, respectively. The decrease in the third quarter was primarily due to lower earnings and higher production tax credits. The decrease in the nine-month period was primarily due to higher production tax credits and higher amortization of the TCJA regulatory liability, partially offset by higher earnings.

Outlook — DTE Electric will continue to move forward in its efforts to achieve operational excellence, sustain strong cash flows, and earn its authorized return on equity. DTE Electric expects that planned significant capital investments will result in earnings growth. DTE Electric will maintain a strong focus on customers by increasing reliability and satisfaction while keeping customer rate increases affordable. Looking forward, additional factors may impact earnings such as weather, the outcome of regulatory proceedings, benefit plan design changes, investment returns and changes in discount rate assumptions in benefit plans and health care costs, uncertainty of legislative or regulatory actions regarding climate change, and effects of energy waste reduction programs.

On March 26, 2021, DTE Electric filed an application requesting a financing order approving the securitization of $184 million of qualified costs related to the net book value of the River Rouge generation plant and tree trimming surge program costs. The filing requested collection of these qualifying costs from DTE Electric's customers. A final MPSC order was issued on June 23, 2021 authorizing DTE Electric to proceed with the issuance of securitization bonds for qualified costs of up to $236 million, increased for the inclusion of deferred taxes. The order authorized customer charges for the timely recovery of the amount securitized and other ongoing qualified costs. Securitization is expected in the first quarter 2022.

On August 31, 2021, DTE Electric filed an accounting application with the MPSC requesting approval of a one-time voluntary refund of $70 million collected in 2021 associated with the unexpected customer usage patterns due to the COVID-19 pandemic. This refund would be administered by investing in additional tree trimming without seeking future cost recovery. Such efforts would serve to improve customer reliability without impacting rates, thus providing an affordability benefit to customers. These investments would be incremental to the Tree Trim Surge expenses previously authorized by the MPSC.

DTE Electric anticipates receiving an order by the end of 2021. If approved by the end of the year, a regulatory liability will be recognized at that time. The regulatory liability would be reduced as the additional tree trim expenses are incurred during the remainder of 2021 through 2023. If the full $70 million is not spent by the end of 2023, DTE Electric would provide refunds to customers via bill credits for any shortage.

GAS

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In millions)
Operating Revenues — Utility operations	$	193	$	173	$	1,070	$	964
Cost of gas — utility	23		12		263		232
Utility Margin	170		161		807		732
Operation and maintenance	123		119		380		360
Depreciation and amortization	44		37		130		112
Taxes other than income	20		18		71		62
Asset (gains) losses and impairments, net	1		—		1		14
Operating Income (Loss)	(18)		(13)		225		184
Other (Income) and Deductions	18		18		54		56
Income Tax Expense (Benefit)	(6)		(11)		25		26
Net Income (Loss) Attributable to DTE Energy Company	$	(30)	$	(20)	$	146	$	102

Utility Margin increased $9 million and $75 million in the three and nine months ended September 30, 2021, 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		Nine Months
	(In millions)
Implementation of new rates	$	11	$	74
Home protection program	2		5
Regulatory mechanism — EWR	(1)		5
Weather	(2)		3

Infrastructure recovery mechanism	(5)		(18)

Other regulatory mechanisms and other	4		6
Increase in Utility Margin	$	9	$	75


	Three Months Ended September 30,		Nine Months Ended September 30,
	2021	2020	2021	2020
	(In Bcf)
Gas Markets
Gas sales	7	7	88	85
End-user transportation	34	40	123	135
	41	47	211	220
Intermediate transportation	102	110	370	349
Total Gas sales	143	157	581	569

Operation and maintenance expense increased $4 million and $20 million in the three and nine months ended September 30, 2021, respectively. The increase in the third quarter was primarily due to higher gas operations expense of $14 million, partially offset by lower uncollectible expense of $4 million and lower benefits expense of $4 million. The increase in the nine-month period was primarily due to higher gas operations expense of $30 million and higher EWR expense of $4 million, partially offset by lower uncollectible expense of $11 million.

Depreciation and amortization expense increased $7 million and $18 million in the three and nine months ended September 30, 2021, respectively. The increase in both periods was primarily due to a higher depreciable base and a change in depreciation rates effective October 2020.

Taxes other than income expense increased $2 million and $9 million in the three and nine months ended September 30, 2021, respectively. The increase in the third quarter was primarily due to higher property taxes. The increase in the nine-month period was primarily due to higher property taxes of $5 million and employee retention credits of $3 million recognized in 2020 pursuant to the CARES Act.

Asset (gains) losses and impairments, net increased $1 million in the three months ended September 30, 2021 and decreased $13 million in the nine months ended September 30, 2021. The decrease in the nine-month period was primarily due to a 2020 write-off of capital expenditures related to incentive compensation, which were disallowed in the July 17, 2020 rate case settlement.

Income Tax Expense (Benefit) decreased $5 million and $1 million in the three and nine months ended September 30, 2021, respectively. The decrease in the third quarter was primarily due to higher amortization of the TCJA regulatory liability. The decrease in the nine-month period was primarily due to higher amortization of the TCJA regulatory liability, 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 VANTAGE

The DTE Vantage segment is comprised primarily of projects that deliver energy and utility-type products and services to industrial, commercial, and institutional customers, produce reduced emissions fuel, and sell electricity and pipeline-quality gas from renewable energy projects. DTE Vantage results and outlook are discussed below:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In millions)
Operating Revenues — Non-utility operations	$	372	$	324	$	1,132	$	850
Fuel, purchased power, and gas — non-utility	267		246		851		624
Non-utility Margin	105		78		281		226
Operation and maintenance	77		71		226		206
Depreciation and amortization	18		18		55		53
Taxes other than income	2		2		8		8
Asset (gains) losses and impairments, net	1		(2)		28		(12)
Operating Income (Loss)	7		(11)		(36)		(29)
Other (Income) and Deductions	(61)		(47)		(108)		(100)
Income Taxes
Expense	18		10		22		21
Production Tax Credits	(20)		(19)		(56)		(47)
	(2)		(9)		(34)		(26)
Net Income	70		45		106		97
Less: Net Loss Attributable to Noncontrolling Interests	(3)		(2)		(9)		(5)
Net Income Attributable to DTE Energy Company	$	73	$	47	$	115	$	102

Operating Revenues — Non-utility operations increased $48 million and $282 million in the three and nine months ended September 30, 2021, respectively. The increase in both periods was due to the following:


	Three Months		Nine Months
	(In millions)
Higher production offset by the sale of membership interests in the REF business	$	10	$	171
Higher demand offset by lower prices in the Steel business	40		81
New projects in the Renewables business	14		41
Higher volumes in the On-site business	2		12
Closed projects in the Renewables business	(1)		(6)

Site closure in the REF business	(17)		(17)
	$	48	$	282

Non-utility Margin increased $27 million and $55 million in the three and nine months ended September 30, 2021, respectively. The following table details changes in Non-utility Margin relative to the comparable prior periods:


	Three Months		Nine Months
	(In millions)
New projects in the Renewables business	$	15	$	41
Higher demand offset by lower prices in the Steel business	13		17

Closed projects in the Renewables business	(1)		(5)
Other	—		2
	$	27	$	55

Operation and maintenance expense increased $6 million and $20 million in the three and nine months ended September 30, 2021, respectively. The increase in both periods was primarily due to higher production and new projects.

Asset (gains) losses and impairments, net changed by $3 million and $40 million in the three and nine months ended September 30, 2021, respectively. The change in the third quarter was primarily due to the divestiture of a project in the Renewables business in 2020. The change in the nine-month period was primarily due to an asset impairment of $27 million recorded in the Steel business for the anticipated closure of a pulverized coal facility. The change in the nine-month period was also due to $12 million of activity in 2020, including the write-off of environmental liabilities upon completing site remediation in the Steel business, the sale of assets in the On-site business, and the divestiture of a project in the Renewables business.

Refer to Note 4 to the Consolidated Financial Statements, “Dispositions and Impairments,” for additional information regarding the $27 million asset impairment and consideration of any additional impacts to future periods.

Other (Income) and Deductions increased $14 million and $8 million in the three and nine months ended September 30, 2021, respectively. The increase in the third quarter was primarily due to higher production in the REF business. The increase in the nine-month period was primarily due to higher production in the REF business, partially offset by $11 million of profit recognized from the sale of membership interests in the REF business recorded in 2020.

Income Taxes — Production Tax Credits increased $1 million and $9 million in the three and nine months ended September 30, 2021, respectively. The increase in the third quarter was primarily due to higher production in the REF business. The increase in the nine-month period was primarily due to higher production partially offset by the sale of membership interests in the REF business.

Net Loss Attributable to Noncontrolling Interests increased $1 million and $4 million in the three and nine months ended September 30, 2021, respectively. The increase in both periods was primarily due to higher production in the REF business.

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

ENERGY TRADING

Energy Trading focuses on physical and financial power, natural gas and environmental marketing and trading, structured transactions, enhancement of returns from its asset portfolio, and optimization of contracted natural gas pipeline transportation and storage positions. Energy Trading also provides natural gas, power, environmental, and related services, which may include the management of associated storage and transportation contracts on the customers' behalf and the supply or purchase of environmental attributes to various customers. Energy Trading results and outlook are discussed below:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In millions)
Operating Revenues — Non-utility operations	$	1,602	$	1,061	$	4,208	$	2,714
Purchased power and gas — non-utility	1,630		1,076		4,347		2,636
Non-utility Margin	(28)		(15)		(139)		78
Operation and maintenance	17		19		60		60
Depreciation and amortization	1		1		4		4
Taxes other than income	1		1		4		4
Operating Income (Loss)	(47)		(36)		(207)		10
Other (Income) and Deductions	22		1		23		3
Income Tax Expense (Benefit)	(17)		(9)		(57)		2
Net Income (Loss) Attributable to DTE Energy Company	$	(52)	$	(28)	$	(173)	$	5

Operating Revenues — Non-utility operations increased $541 million and $1,494 million in the three and nine months ended September 30, 2021, respectively. The increase in both periods was primarily due to an increase in gas prices in the gas structured and gas transportation strategies.

Non-utility Margin decreased $13 million and $217 million in the three and nine months ended September 30, 2021, 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 gas transportation, environmental trading, and power full requirements strategies	$	87
Unfavorable results, primarily in gas structured and gas storage strategies(b)	(127)
	(40)
Realized Margins(a)
Favorable results, primarily in gas structured, gas transportation, and power trading strategies(c)	72
Unfavorable results, primarily in environmental trading and power full requirements strategies	(45)
	27
Decrease in Non-utility Margin	$	(13)

(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 $82 million of timing related losses related to gas strategies which will reverse in future periods as the underlying contracts settle.

(c)Amount includes $54 million of timing related losses related to gas strategies recognized in previous periods that reversed as the underlying contracts settled.


	Nine Months
	(In millions)
Unrealized Margins(a)
Favorable results, primarily in the power full requirements strategy	$	25
Unfavorable results, primarily in gas structured, environmental trading, and gas storage strategies(b)	(297)
	(272)
Realized Margins(a)
Favorable results, primarily in gas structured, gas trading, and environmental trading strategies(c)	132
Unfavorable results, primarily in power ERCOT trading and power full requirements strategies	(77)
	55
Decrease in Non-utility Margin	$	(217)

(b)Amount includes $278 million of timing related losses related to gas strategies which will reverse in future periods as the underlying contracts settle.

(c)Amount includes $16 million of timing related losses related to gas strategies recognized in previous periods that reversed as the underlying contracts settled.

Other (Income) and Deductions increased $21 million and $20 million in the three and nine months ended September 30, 2021, respectively. The increase in both periods was primarily due to contributions to not-for-profit organizations including the DTE Energy Foundation.

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.

CORPORATE AND OTHER

Corporate and Other includes various holding company activities, holds certain non-utility debt, and holds certain investments, including funds supporting regional development and economic growth. The net loss of $275 million and $381 million for the three and nine months ended September 30, 2021, respectively, represents an increase of $250 million and $341 million from the net loss of $25 million and $40 million in the comparable 2020 periods.

The increase in both periods was primarily due to the loss on extinguishment of debt incurred in 2021, which reduced earnings by $286 million and $292 million for the three and nine months ended September 30, 2021, respectively. The increase in both periods was also driven by effective income tax rate adjustments, higher net interest expense, and a valuation allowance established in the third quarter 2021 for certain charitable contribution carryforwards. For the nine-month period, the higher loss was also due to the carryback of 2018 net operating losses to 2013 pursuant to the CARES Act, which resulted in a $34 million reduction to Income Tax Expense in 2020. The losses in both periods were partially offset by the remeasurement of state deferred taxes following the separation of DT Midstream, which resulted in a $85 million reduction to Income Tax Expense in the third quarter 2021.

For additional information regarding the loss on extinguishment of debt, refer to Note 10 to the Consolidated Financial Statements, "Long-term Debt." For additional information regarding the remeasurement of state deferred taxes and valuation allowance, refer to the Income Taxes section of Note 2 to the Consolidated Financial Statements, "Significant Accounting Policies."

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 $2.7 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 $3.9 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 13 to the Consolidated Financial Statements, "Commitments and Contingencies."


	Nine Months Ended September 30,
	2021		2020
	(in millions)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period	$	516	$	93
Net cash from operating activities	2,372		2,781
Net cash used for investing activities	(2,780)		(3,093)
Net cash from (used for) financing activities	(52)		1,181
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash	(460)		869
Cash, Cash Equivalents, and Restricted Cash at End of Period	$	56	$	962

Refer below for analysis of cash flows relating to operating, investing, and financing activities, which reflect DTE Energy's change in financial condition. Any significant non-cash items are included in the Supplemental disclosure of non-cash investing and financing activities within the the Consolidated Statements of Cash Flows.

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 decreased by $409 million in 2021. The decrease was primarily due to a decrease in Deferred income taxes and Net Income, adjusted for the Loss on extinguishment of debt to reconcile Net Income to Net cash from operating activities. The decrease was partially offset by an increase from working capital items and Depreciation and amortization.

The change in working capital items in 2021 was primarily due to an increase in cash related to Accounts payable, Regulatory assets and liabilities, and Derivative assets and liabilities, partially offset by a decrease in cash related to Accounts receivable, net, Inventories, 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 decreased by $313 million in 2021 primarily due to a decrease in non-utility plant and equipment expenditures and a decrease in Acquisitions related to business combinations, net of cash acquired, partially offset by an increase in utility plant and equipment expenditures.

Cash from (used for) Financing Activities

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

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

Net cash from financing activities decreased by $1.2 billion in 2021 primarily due to an increase in Redemption of long-term debt, Prepayment costs for redemption of long-term debt, Repurchase of common stock, and Dividends paid on common stock, partially offset by increases in Issuance of long-term debt and Short-term borrowings, net. The change is also due to the Acquisition related deferred payment during the nine months ended September 30, 2020.

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

DTE Energy's separation of DT Midstream will also reduce operating cash flows in the near term. However, DTE Energy still expects higher cash flows from operations over the long-term due to the growth of its utilities and other non-utility operations.

DTE Energy 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.

In July and August 2021, DTE Energy optionally redeemed $2.6 billion of long-term debt and incurred prepayment costs of $361 million. These redemptions were made using proceeds from DT Midstream's repayment of intercompany borrowings and one-time special dividend and will reduce interest expense in future periods. Refer to Notes 4 and 10 to the Consolidated Financial Statements, "Dispositions and Impairments" and "Long-term Debt," respectively, for additional information.

DTE Energy has $324 million in long-term debt, including finance leases, maturing within twelve months. 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 $2.1 billion of available liquidity at September 30, 2021, consisting primarily of cash and cash equivalents and amounts available under unsecured revolving credit agreements.

DTE Energy does not expect any equity issuances for 2021. Any contributions to the qualified pension plans are expected to be made in cash and DTE Energy does not anticipate making any contributions to its other postretirement benefit plans in 2021.

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. Cash flow impacts in 2021-2022 will relate primarily to the payment of the remaining stock purchase liability associated with the equity units, which remain with DTE Energy after the separation of DT Midstream. 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 September 30, 2021, DTE Energy's contractual obligation to post collateral in the form of cash or letters of credit in the event of a downgrade to below investment grade, under both hard trigger and soft trigger provisions, was $575 million.

The separation of DT Midstream has resulted in a shift in DTE Energy's strategy to a predominately pure-play utility, but to date has not had any impact on DTE Energy's credit ratings. Since the announcement of the planned separation in October 2020 and completed separation in July 2021, Standard and Poor's Global Ratings, Fitch Ratings, and Moody's Investor Service have all affirmed the ratings and stable outlook of DTE Energy, DTE Electric, and DTE Gas.

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:


	DTE Energy
	(In millions)
MTM at December 31, 2020	$	28
Reclassified to realized upon settlement	16
Changes in fair value recorded to income	(281)
Amounts recorded to unrealized income	(265)
Changes in fair value recorded in regulatory liabilities	14

Change in collateral	(58)
MTM at September 30, 2021	$	(281)

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	$	21	$	86	$	35	$	12	$	154
Level 2	31		11		(22)		(28)		(8)
Level 3	(74)		(155)		(37)		(97)		(363)
MTM before collateral adjustments	$	(22)	$	(58)	$	(24)	$	(113)	(217)
Collateral adjustments									(64)
MTM at September 30, 2021									$	(281)

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