# DTE ENERGY CO (DTE) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from DTE ENERGY CO's 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/936340/000093634023000073/dte-20221231.htm
Accession: 0000936340-23-000073
Filing date: 2023-02-23
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/DTE/
All MD&A years: /company/DTE/mda/
Previous year: /company/DTE/mda/fy2021/ (FY 2021)
Next year: /company/DTE/mda/fy2023/ (FY 2023)

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 2022 Operating Revenues of approximately $19.2 billion and Total Assets of approximately $42.7 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 two energy-related non-utility segments with operations throughout the United States.

On July 1, 2021, DTE Energy completed the separation of DT Midstream, its former natural gas pipeline, storage, and gathering non-utility business. Financial results of DT Midstream are presented as discontinued operations in the Consolidated Financial Statements. Refer to Note 4 to the Consolidated Financial Statements, “Discontinued Operations,” for additional information.

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:

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["","2022","","2021","","2020"],["","(In millions, except per share amounts)"],["Net Income Attributable to DTE Energy Company \u2014 Continuing operations","$","1,083","","","$","796","","","$","1,054"],["Diluted Earnings per Common Share \u2014 Continuing operations","$","5.52","","","$","4.10","","","$","5.45"]]
[[/GREPCENT_TABLE]]

The increase in 2022 Net Income Attributable to DTE Energy Company was primarily due to higher earnings in the Electric, Gas, and Corporate and Other segments, partially offset by lower earnings in the DTE Vantage and Energy Trading segments. The decrease in 2021 Net Income Attributable to DTE Energy Company was primarily due to lower earnings in the Corporate and Other segment, driven primarily by losses on the extinguishment of debt incurred in 2021. The decrease was also due to lower earnings in the Energy Trading segment, partially offset by higher earnings in the Electric, Gas, and DTE Vantage segments.

STRATEGY

DTE Energy's strategy is to achieve long-term earnings per share growth with a strong balance sheet and attractive dividend.

DTE Energy's utilities are investing capital to support a modern, reliable grid and cleaner, affordable energy through investments in base infrastructure and new generation. Increasing intensity of wind storms and other weather events, coupled with increasing electric vehicle adoption, will drive a continued need for substantial grid investment over the long-term.

DTE Energy plans to reduce the carbon emissions of its electric utility operations by 32% by 2023, 65% in 2028, 85% in 2035, and 90% by 2040 from 2005 carbon emissions levels. These represent accelerated goals compared to the electric utility's prior targets to reduce carbon emissions by 50% by 2028 and 80% by 2040. DTE Energy plans to end its use of coal-fired power plants in 2035 and is committed to a net zero carbon emissions goal by 2050 for its electric and gas utility operations.

To achieve the targeted carbon reduction goals at the electric utility, DTE Energy will continue its transition away from coal-powered energy sources and is replacing or offsetting the generation from these facilities with renewable energy, natural gas, battery storage, and energy waste reduction initiatives. Refer to the "Capital Investments" section below for further discussion regarding DTE Energy's retirement of its aging coal-fired plants and transition to renewable energy and other sources. Over the long-term, DTE Energy is also monitoring the advancement of emerging technologies such as long-duration storage, modular nuclear reactors, hydrogen, and carbon capture and sequestration, and how these technologies may support clean, reliable generation and customer affordability.

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For the gas utility, DTE Energy aims to cut carbon emissions across the entire value chain. DTE Energy plans to reduce the carbon emissions from its gas utility operations by 65% by 2030 and 80% by 2040, and is committed to a goal of net zero emissions by 2050 from internal gas operations and gas suppliers. To achieve net zero, DTE Energy is working to source gas with lower methane intensity, reduce emissions through its gas main renewal and pipeline integrity programs, and if necessary, use carbon offsets to address any remaining emissions. DTE Energy also aims to help DTE Gas customers reduce their emissions by 35% by 2040 by increasing energy efficiency, pursuing advanced technologies such as hydrogen and carbon capture and sequestration, and through the CleanVision Natural Gas Balance program which provides customers the option to use carbon offsets and renewable natural gas.

DTE Energy expects that these initiatives at the electric and gas utilities will continue to provide significant opportunities for capital investments and result in earnings growth. DTE Energy is focused on executing its plans to achieve operational excellence and customer satisfaction with a focus on customer affordability. DTE Energy expects its goals for customer affordability to be aided by operational efficiencies and new opportunities resulting from the Inflation Reduction Act enacted in August 2022. Such opportunities include tax credits for renewable energy, nuclear generation, energy storage, and carbon capture and sequestration, which are expected to reduce the cost of owning related assets and reduce customer rate impacts from any future cost recoveries. DTE Energy's utilities operate in a constructive regulatory environment and have solid relationships with their regulators.

DTE Energy also has significant investments in non-utility businesses and expects growth opportunities in its DTE Vantage segment. DTE Energy employs disciplined investment criteria when assessing growth opportunities that leverage its assets, skills, and expertise, and provides attractive returns and diversity in earnings and geography. Specifically, DTE Energy invests in targeted markets with attractive competitive dynamics where meaningful scale is in alignment with its risk profile.

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

CAPITAL INVESTMENTS

DTE Energy's utility businesses will require significant capital investments to maintain and improve the electric generation and electric and natural gas distribution infrastructure and to comply with environmental regulations and achieve goals for carbon emission reductions. Capital plans may be regularly updated as these requirements and goals evolve and may be subject to regulatory approval.

DTE Electric's capital investments over the 2023-2027 period are estimated at $18 billion, comprised of $9 billion for distribution infrastructure, $4 billion for base infrastructure, and $5 billion for cleaner generation including renewables. DTE Electric has retired all eleven coal-fired generation units at the Trenton Channel, River Rouge, and St. Clair facilities, including five units that were retired in the third quarter 2022, and has announced plans to retire its remaining six coal-fired generating units. DTE Electric plans to convert the two units at the Belle River facility from a base load coal plant to a natural gas peaking resource in 2025-2026. The four units at the Monroe facility are expected to be retired in two stages in 2028 and 2035. Generation from the retired facilities will continue to be replaced or offset with a combination of renewables, energy waste reduction, demand response, battery storage, and natural gas fueled generation, including the Blue Water Energy Center which commenced operations in June 2022.

DTE Gas' capital investments over the 2023-2027 period are estimated at $3.6 billion, comprised of $2 billion for base infrastructure and $1.6 billion for the gas renewal program, which includes main and service renewals, meter move-out, and pipeline integrity projects.

DTE Electric and DTE Gas plan to seek regulatory approval for capital expenditures consistent with ratemaking treatment.

DTE Energy's non-utility businesses' capital investments are primarily for expansion, growth, and ongoing maintenance in the DTE Vantage segment, including approximately $1 billion to $1.5 billion from 2023-2027 for renewable energy and custom energy solutions, while expanding into carbon capture and sequestration.

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ENVIRONMENTAL MATTERS

The Registrants are subject to extensive environmental regulations, including those addressing climate change. Additional costs may result as the effects of various substances on the environment are studied and governmental regulations are developed and implemented. Actual costs to comply could vary substantially. The Registrants expect to continue recovering environmental costs related to utility operations through rates charged to customers, as authorized by the MPSC.

Increased costs for energy produced from traditional coal-based sources due to recent, pending, and future regulatory initiatives could also increase the economic viability of energy produced from renewable, natural gas fueled generation, and/or nuclear sources, energy waste reduction initiatives, and the potential development of market-based trading of carbon instruments.

Refer to the "Environmental Matters" section within Items 1. and 2. Business and Properties and Note 18 to the Consolidated Financial Statements, "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 and storage;

•gas distribution system renewal;

•reducing carbon emissions at the electric and gas utilities;

•rate competitiveness and affordability;

•regulatory stability and investment recovery for the electric and gas utilities;

•strategic investments in growth projects at DTE Vantage;

•employee engagement, health, safety and wellbeing, and diversity, equity, and inclusion;

•cost structure optimization across all business segments; and

•cash, capital, and liquidity to maintain or improve financial strength.

DTE Energy will continue to pursue opportunities to grow its businesses in a disciplined manner if it can secure opportunities that meet its strategic, financial, and risk criteria.

RESULTS OF OPERATIONS

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.

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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 renewable natural gas and related credits, metallurgical coke and related by-products, petroleum coke, and electricity, as well as rental income and revenues from utility-type consulting, management, and operational services. For the prior periods, Operating revenues also include sales of refined coal to third parties and the affiliated Electric utility. 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.

[[GREPCENT_TABLE]]
[["","2022","","2021","","2020"],["","(In millions)"],["Net Income (Loss) Attributable to DTE Energy by Segment"],["Electric","$","956","","","$","864","","","$","777"],["Gas","272","","","214","","","186"],["DTE Vantage","92","","","168","","","134"],["Energy Trading","(92)","","","(83)","","","36"],["Corporate and Other","(145)","","","(367)","","","(79)"],["Income From Continuing Operations","1,083","","","796","","","1,054"],["Discontinued Operations","\u2014","","","111","","","314"],["Net Income Attributable to DTE Energy Company","$","1,083","","","$","907","","","$","1,368"]]
[[/GREPCENT_TABLE]]

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ELECTRIC

The Results of Operations discussion for DTE Electric is presented in a reduced disclosure format in accordance with General Instruction 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:

[[GREPCENT_TABLE]]
[["","2022","","2021","","2020"],["","(In millions)"],["Operating Revenues \u2014 Utility operations","$","6,397","","","$","5,809","","","$","5,506"],["Fuel and purchased power \u2014 utility","1,978","","","1,531","","","1,386"],["Utility Margin","4,419","","","4,278","","","4,120"],["Operating Revenues \u2014 Non-utility operations","15","","","12","","","14"],["Operation and maintenance","1,564","","","1,556","","","1,489"],["Depreciation and amortization","1,218","","","1,122","","","1,057"],["Taxes other than income","339","","","321","","","297"],["Asset (gains) losses and impairments, net","8","","","1","","","41"],["Operating Income","1,305","","","1,290","","","1,250"],["Other (Income) and Deductions","324","","","322","","","365"],["Income Tax Expense","25","","","104","","","108"],["Net Income Attributable to DTE Energy Company","$","956","","","$","864","","","$","777"]]
[[/GREPCENT_TABLE]]

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 20 to the Consolidated Financial Statements, "Retirement Benefits and Trusteed Assets" for additional information.

Utility Margin increased $141 million in 2022 and $158 million in 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:

[[GREPCENT_TABLE]]
[["","2022","","2021"],["","(In millions)"],["Voluntary refunds(a)","$","90","","","$","(60)"],["Regulatory mechanism \u2014 RPS","36","","","57"],["COVID-19 voluntary refund amortization","30","","","\u2014"],["Regulatory mechanism \u2014 EWR","29","","","61"],["Regulatory mechanism \u2014 DTE Securitization","29","","","\u2014"],["Implementation of new rates","3","","","71"],["Weather","(10)","","","14"],["Regulatory mechanism \u2014 TRM","(20)","","","6"],["Base sales / rate mix","(68)","","","13"],["Other","22","","","(4)"],["Increase in Utility Margin","$","141","","","$","158"]]
[[/GREPCENT_TABLE]]
______________________________

(a)Variances reflect the $90 million voluntary refund recognized in 2021 for the incremental tree trim surge and the $30 million COVID-19 voluntary refund recognized in 2020. Refer to Note 9 to the Consolidated Financial Statements, "Regulatory Matters," for additional information regarding these refunds and the related regulatory liabilities.

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[[GREPCENT_TABLE]]
[["","2022","","2021","","2020"],["","(In thousands of MWh)"],["DTE Electric Sales"],["Residential","15,844","","","16,386","","","16,315"],["Commercial","16,296","","","16,393","","","15,648"],["Industrial","8,548","","","8,487","","","8,446"],["Other","210","","","216","","","220"],["","40,898","","","41,482","","","40,629"],["Interconnection sales(a)","6,615","","","4,263","","","1,808"],["Total DTE Electric Sales","47,513","","","45,745","","","42,437"],["DTE Electric Deliveries"],["Retail and wholesale","40,898","","","41,482","","","40,629"],["Electric retail access, including self-generators(b)","4,486","","","4,357","","","3,746"],["Total DTE Electric Sales and Deliveries","45,384","","","45,839","","","44,375"]]
[[/GREPCENT_TABLE]]

______________________________

(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 and deliveries decreased in 2022, primarily due to a decrease in residential sales as customers resumed more pre-pandemic activities and worked less from their homes. The increase in 2021 was primarily due to commercial customers which were impacted more significantly in 2020 by the COVID-19 pandemic and temporary shut-downs of certain commercial operations.

Operating Revenues — Non-utility operations increased $3 million in 2022 and decreased $2 million in 2021. The increase in 2022 was primarily due to higher sales volumes and prices at DTE Sustainable Generation. The decrease in 2021 was primarily due to lower sales volumes at DTE Sustainable Generation.

Operation and maintenance expense increased $8 million in 2022 and $67 million in 2021. The increase in 2022 was primarily due to higher EWR expense of $29 million and higher distribution operations expense of $7 million, partially offset by lower benefits and other compensation expense of $17 million and lower legal and environmental expense of $12 million.

The increase in 2021 was primarily due to higher EWR expense of $45 million, higher distribution operations expense of $42 million (primarily due to higher storm costs), higher corporate support costs of $21 million, higher legal and environmental expense of $15 million, and higher benefits and other compensation expense of $13 million. These increases were partially offset by lower COVID-19 related expenses of $43 million, lower uncollectible expense of $26 million, and lower plant generation expense of $4 million.

Depreciation and amortization expense increased $96 million in 2022 and $65 million in 2021. In 2022, the increase was primarily due to a $101 million increase from a higher depreciable base, partially offset by a decrease of $9 million associated with the TRM. In 2021, the increase was primarily due to a $64 million increase resulting from a higher depreciable base.

Taxes other than income increased $18 million in 2022 and $24 million in 2021. In 2022, the increase was primarily due to higher property taxes of $16 million as a result of a higher tax base. In 2021, the increase was primarily due to higher property taxes of $22 million as a result of an increase in tax base and a favorable property tax settlement in 2020.

Asset (gains) losses and impairments, net increased $7 million in 2022 and decreased $40 million in 2021. The increase in 2022 was primarily due to previously recorded capital expenditures of $8 million that were disallowed in the November 18, 2022 rate order from the MPSC. The decrease in 2021 was primarily due to a $41 million write-off of capital expenditures related to incentive compensation in 2020.

Other (Income) and Deductions increased $2 million in 2022 and decreased $43 million in 2021. The increase in 2022 was primarily due to a change in rabbi trust and other investment earnings (net loss of $10 million in 2022 compared to a net gain of $9 million in 2021) and higher net interest of $27 million, partially offset by lower non-operating retirement benefits expense of $37 million and a $4 million decrease in non-operational costs that ceased with the retirement of a power plant. The decrease in 2021 was primarily due to lower contributions to the DTE Energy Foundation and other not-for-profit organizations of $28 million, a change in rabbi trust investment earnings (net gain of $7 million in 2021 compared to a net loss of $3 million in 2020), and lower non-operating retirement benefits expense of $4 million.

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Income Tax Expense decreased $79 million in 2022 and $4 million in 2021. The decreases in both periods were primarily due to higher amortization of the TCJA regulatory liability and higher production tax credits, 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, uncertainty of legislative or regulatory actions regarding climate change, and effects of energy waste reduction programs.

DTE Electric filed a rate case with the MPSC on February 10, 2023 requesting an increase in base rates of $622 million based on a projected twelve-month period ending November 30, 2024, and in increase in return on equity from 9.9% to 10.25%. The requested increase in base rates is primarily due to increased investments in plant involving generation and the electric distribution system, as well as related increases to depreciation and property tax expenses. These investments will support DTE Energy's goals to reduce carbon emissions and improve power reliability. The requested increase in base rates is also due to a projected sales decline from the level included in current rates and inflationary impacts on operating and interest costs. A final MPSC order in this case is expected in December 2023.

GAS

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

[[GREPCENT_TABLE]]
[["","2022","","2021","","2020"],["","(In millions)"],["Operating Revenues \u2014 Utility operations","$","1,924","","","$","1,553","","","$","1,414"],["Cost of gas \u2014 utility","632","","","422","","","356"],["Utility Margin","1,292","","","1,131","","","1,058"],["Operation and maintenance","552","","","521","","","496"],["Depreciation and amortization","192","","","177","","","157"],["Taxes other than income","101","","","93","","","84"],["Asset (gains) losses and impairments, net","\u2014","","","4","","","14"],["Operating Income","447","","","336","","","307"],["Other (Income) and Deductions","87","","","84","","","73"],["Income Tax Expense","88","","","38","","","48"],["Net Income Attributable to DTE Energy Company","$","272","","","$","214","","","$","186"]]
[[/GREPCENT_TABLE]]

Utility Margin increased $161 million in 2022 and $73 million in 2021. 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:

[[GREPCENT_TABLE]]
[["","2022","","2021"],["","(In millions)"],["Implementation of new rates","$","80","","","$","75"],["Weather","47","","","(7)"],["Base sales","20","","","7"],["Regulatory mechanism \u2014 EWR","8","","","3"],["Home protection program","6","","","6"],["Infrastructure recovery mechanism","1","","","(15)"],["Voluntary refund(a)","(5)","","","\u2014"],["Other","4","","","4"],["Increase in Utility Margin","$","161","","","$","73"]]
[[/GREPCENT_TABLE]]
______________________________

(a)Refer to Note 9 to the Consolidated Financial Statements, "Regulatory Matters," for additional information regarding the voluntary refund.

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[[GREPCENT_TABLE]]
[["","2022","","2021","","2020"],["","(In Bcf)"],["Gas Markets"],["Gas sales","145","","","128","","","126"],["End-user transportation","168","","","165","","","180"],["","313","","","293","","","306"],["Intermediate transportation","527","","","488","","","477"],["Total Gas sales","840","","","781","","","783"]]
[[/GREPCENT_TABLE]]

The change in sales in 2022 was primarily due to favorable weather. The change in sales in 2021 was primarily due to a decrease in End-user transportation volumes, including lower generation needs at certain industrial customers. Intermediate transportation volumes fluctuate period to period based on available market opportunities.

Operation and maintenance expense increased $31 million in 2022 and $25 million in 2021. The increase in 2022 was primarily due to higher gas operations expense of $17 million, higher corporate support costs of $10 million, and higher EWR expense of $7 million, partially offset by lower benefits and other compensation expense of $4 million. The increase in 2021 was primarily due to higher gas operations expense of $41 million, partially offset by lower uncollectible expense of $15 million.

Depreciation and amortization expense increased $15 million in 2022 and $20 million in 2021. The increase in 2022 was primarily due to a higher depreciable base. The increase in 2021 was primarily due to a higher depreciable base and change in depreciation rates effective October 2020.

Taxes other than income increased $8 million in 2022 and $9 million in 2021. The 2022 increase was primarily due to higher property taxes of $7 million. The 2021 increase was primarily due to higher property taxes of $6 million and employee retention credits of $3 million recognized in 2020 pursuant to the CARES Act.

Asset (gains) losses and impairments, net decreased $4 million in 2022 and $10 million in 2021. The decrease in 2022 was primarily due to capital write-offs of $4 million in 2021. The decrease in 2021 was primarily due to the $4 million of capital write-offs compared to $14 million of capital write-offs in 2020 related to incentive compensation.

Other (Income) and Deductions increased $3 million in 2022 and $11 million in 2021. The increase in 2022 was primarily due to a change in investment earnings (loss of $6 million in 2022 compared to a gain of $3 million in 2021) and higher net interest expense of $7 million, partially offset by 2021 contributions to the DTE Energy Foundation and other not-for-profit organizations of $12 million. The increase in 2021 was primarily due to contributions to the DTE Energy Foundation and other not-for-profit organizations.

Income Tax Expense increased $50 million in 2022 and decreased $10 million in 2021. The increase in 2022 was primarily due to higher earnings and lower amortization of the TCJA regulatory liability. The decrease in 2021 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, and benefit plan design changes. DTE Gas expects to continue its efforts to improve productivity and decrease costs while improving customer satisfaction with consideration of customer rate affordability.

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DTE VANTAGE

The DTE Vantage segment is comprised primarily of renewable energy projects that sell electricity and pipeline-quality gas and projects that deliver custom energy solutions to industrial, commercial, and institutional customers. DTE Vantage formerly included projects that produced reduced emissions fuel; however, these projects were closed as planned in 2022 upon REF facilities exhausting their eligibility for generating production tax credits. DTE Vantage results and outlook are discussed below:

[[GREPCENT_TABLE]]
[["","2022","","2021","","2020"],["","(In millions)"],["Operating Revenues \u2014 Non-utility operations","$","848","","","$","1,482","","","$","1,224"],["Fuel, purchased power, and gas \u2014 non-utility","431","","","1,086","","","901"],["Non-utility Margin","417","","","396","","","323"],["Operation and maintenance","267","","","301","","","294"],["Depreciation and amortization","52","","","71","","","72"],["Taxes other than income","10","","","11","","","10"],["Asset (gains) losses and impairments, net","(7)","","","28","","","(18)"],["Operating Income (Loss)","95","","","(15)","","","(35)"],["Other (Income) and Deductions","(15)","","","(142)","","","(120)"],["Income Taxes"],["Expense","27","","","37","","","26"],["Production Tax Credits","(9)","","","(68)","","","(66)"],["","18","","","(31)","","","(40)"],["Net Income","92","","","158","","","125"],["Less: Net Loss Attributable to Noncontrolling Interests","\u2014","","","(10)","","","(9)"],["Net Income Attributable to DTE Energy Company","$","92","","","$","168","","","$","134"]]
[[/GREPCENT_TABLE]]

Operating Revenues — Non-utility operations decreased $634 million in 2022 and increased $258 million in 2021. The changes were due to the following:

[[GREPCENT_TABLE]]
[["","2022"],["","(In millions)"],["Closure of the REF business","$","(766)"],["Termination of a contract in the Steel business in 2021","(39)"],["Higher sales in the Renewables business","9"],["New contract in the Renewables business","18"],["Higher prices partially offset by a terminated contract in the On-site business","27"],["Higher demand and prices in the Steel business","117"],["","$","(634)"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","2021"],["","(In millions)"],["Higher production partially offset by the sale of membership interests in the REF business","$","175"],["Higher demand partially offset by lower prices in the Steel business","104"],["New projects in the Renewables business","42"],["Recognition of revenues from termination of a contract in the Steel business","17"],["Higher volumes partially offset by a terminated contract in the On-site business","15"],["Closed projects in the Renewables business","(7)"],["Site closures in the REF business","(88)"],["","$","258"]]
[[/GREPCENT_TABLE]]

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Non-utility Margin increased $21 million in 2022 and $73 million in 2021. The changes were due to the following:

[[GREPCENT_TABLE]]
[["","2022"],["","(In millions)"],["Higher demand and prices in the Steel business","$","16"],["New contract in the Renewables business","14"],["Higher sales in the Renewables business","7"],["Closure of the REF business","7"],["Termination of a contract in the Steel business in 2021","(23)"],["","$","21"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","2021"],["","(In millions)"],["New projects in the Renewables business","$","42"],["Higher demand partially offset by lower prices in the Steel business","18"],["Recognition of revenues from termination of a contract in the Steel business","17"],["Closed projects in the Renewables business","(6)"],["Other","2"],["","$","73"]]
[[/GREPCENT_TABLE]]

Operation and maintenance expense decreased $34 million in 2022 and increased $7 million in 2021. The 2022 decrease was primarily due to $37 million associated with the closure of the REF business and $6 million of lower corporate overhead costs, partially offset by an $8 million increase due to a new contract in the Renewables business. The 2021 increase was primarily due to higher production and new projects, partially offset by closed projects.

Depreciation and amortization decreased $19 million in 2022 and $1 million in 2021. The decrease in 2022 was primarily due to the closure of the REF business.

Asset (gains) losses and impairments, net changed by $35 million in 2022 from the net loss of $28 million in 2021, and changed by $46 million in 2021 from the net gain of $18 million in 2020. The change in 2022 was primarily due to an asset impairment of $27 million recorded in the Steel business in 2021 for the anticipated closure of a pulverized coal facility, as well as a $5 million gain recorded in the Renewables business in 2022 related to lower future contingent obligations.

The change in 2021 was primarily due to the asset impairment of $27 million recorded in the Steel business compared to $18 million of gain activity in 2020, which included $11 million in the Steel business for an asset sale and write-off of environmental liabilities, $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.

Other (Income) and Deductions decreased $127 million in 2022 and increased $22 million in 2021. The 2022 decrease was primarily due to $143 million lower income associated with the closure of the REF business, partially offset by $14 million lower interest expense. The 2021 increase was primarily due to a $22 million settlement charge associated with a qualified pension plan in the Steel business recorded in 2020. The 2021 increase also included higher production in the REF business, offset by profit recognized from the sale of membership interests recorded in 2020.

Income Taxes — Expense decreased $10 million in 2022 and increased $11 million in 2021. The change in both periods was primarily due to changes in pre-tax income, inclusive of pre-tax income (loss) at non-controlling interests.

Income Taxes — Production Tax Credits decreased by $59 million in 2022 and increased by $2 million in 2021. The decrease in 2022 was primarily due to the closure of the REF business. The increase in 2021 was primarily due to higher production, partially offset by the sale of membership interests in the REF business.

Net Loss Attributable to Noncontrolling Interests decreased by $10 million in 2022 and increased by $1 million in 2021. The decrease in 2022 was primarily due to the closure of the REF business.

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Outlook — In December 2022, DTE Vantage entered into a series of agreements with a large industrial customer to design, construct, own, and operate certain energy infrastructure assets at the customer's planned electric vehicle and battery manufacturing plant in Tennessee. The project is expected to begin construction in early 2023 and achieve commercial operations in late 2024 for a term of 20 years.

DTE Vantage will continue to leverage its extensive energy-related operating experience and project management capability to develop additional renewable natural gas projects and other projects that provide customer specific energy solutions. DTE Vantage is also developing decarbonization opportunities relating to carbon capture and sequestration projects.

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:

[[GREPCENT_TABLE]]
[["","2022","","2021","","2020"],["","(In millions)"],["Operating Revenues \u2014 Non-utility operations","$","10,308","","","$","6,831","","","$","3,863"],["Purchased power and gas \u2014 non-utility","10,331","","","6,825","","","3,725"],["Non-utility Margin","(23)","","","6","","","138"],["Operation and maintenance","64","","","81","","","77"],["Depreciation and amortization","5","","","6","","","5"],["Taxes other than income","7","","","5","","","4"],["Asset (gains) losses and impairments, net","2","","","\u2014","","","\u2014"],["Operating Income (Loss)","(101)","","","(86)","","","52"],["Other (Income) and Deductions","22","","","24","","","4"],["Income Tax Expense (Benefit)","(31)","","","(27)","","","12"],["Net Income (Loss) Attributable to DTE Energy Company","$","(92)","","","$","(83)","","","$","36"]]
[[/GREPCENT_TABLE]]

Operating Revenues — Non-utility operations and Purchased power and gas — non-utility increased in both periods primarily due to significantly higher gas prices in the gas structured and gas transportation strategies.

Non-utility Margin decreased by $29 million in 2022 and $132 million in 2021. The following tables detail changes in Non-Utility margin relative to the comparable prior periods:

[[GREPCENT_TABLE]]
[["","2022"],["","(In millions)"],["Unrealized Margins(a)"],["Favorable results, primarily in power trading, gas full requirements, and gas trading strategies","$","46"],["Unfavorable results, primarily in gas structured and power full requirements strategies(b)","(88)"],["","(42)"],["Realized Margins(a)"],["Favorable results, primarily in gas transportation, gas full requirements, and environmental trading strategies(c)","92"],["Unfavorable results, primarily in power full requirements and gas trading strategies","(79)"],["","13"],["Decrease in Non-utility Margin","$","(29)"]]
[[/GREPCENT_TABLE]]

_______________________________________

(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 $35 million of timing related losses related to gas strategies which will reverse in future periods as the underlying contracts settle.

(c)Amount includes $71 million of timing related losses related to gas strategies recognized in previous periods that reversed as the underlying contracts settled.

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[[GREPCENT_TABLE]]
[["","2021"],["","(In millions)"],["Unrealized Margins(a)"],["Favorable results, primarily in gas and power trading strategies","$","36"],["Unfavorable results, primarily in gas structured, environmental trading, and gas storage strategies (b)","(215)"],["","(179)"],["Realized Margins(a)"],["Favorable results, primarily in gas structured and gas transportation strategies(c)","126"],["Unfavorable results, primarily in power ERCOT trading and power full requirements strategies","(79)"],["","47"],["Decrease in Non-utility Margin","$","(132)"]]
[[/GREPCENT_TABLE]]

_______________________________________

(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 $200 million of timing related losses related to gas strategies which will reverse in future periods as the underlying contracts settle.

(c)Amount includes $20 million of timing related losses related to gas strategies recognized in previous periods that reversed as the underlying contracts settled.

Operation and maintenance expense decreased $17 million in 2022 and increased $4 million in 2021. The decrease in 2022 and increase in 2021 were primarily due to lower and higher compensation costs, respectively.

Other (Income) and Deductions decreased $2 million in 2022 and increased $20 million in 2021. The decrease in 2022 was primarily due to $10 million of lower contributions to not-for-profit organizations, partially offset by higher net interest expense of $7 million. The increase in 2021 was primarily due to contributions to the DTE Energy Foundation and other not-for-profit organizations.

Outlook — In the near-term, Energy Trading expects market conditions to remain challenging. The profitability of this segment may be impacted by the volatility in commodity prices and the uncertainty of impacts associated with regulatory changes, and changes in operating rules of 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 12 and 13 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 2022 net loss of $145 million represents a decrease of $222 million from the 2021 net loss of $367 million. This decrease was primarily due to one-time items following the separation of DT Midstream in 2021, including a $294 million earnings impact from losses on debt extinguishment, partially offset by a reduction to Income Tax Expense of $85 million for the remeasurement of state deferred taxes. The remaining decrease of $13 million in 2022 was primarily due to lower state income taxes, lower valuation allowances, and a gain on sale of assets, partially offset by equity investment losses and one-time benefits expenses.

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The 2021 net loss of $367 million represents an increase of $288 million from the 2020 net loss of $79 million. This increase was primarily due to higher losses on the extinguishment of debt in 2021 following the separation of DT Midstream, which reduced earnings by $294 million, higher net interest expense, and a valuation allowance established in 2021 for certain charitable contribution carryforwards. 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 2021 were partially offset by the remeasurement of state deferred taxes following the separation of DT Midstream, which resulted in an $85 million reduction to Income Tax Expense in 2021.

CAPITAL RESOURCES AND LIQUIDITY

Cash Requirements

DTE Energy uses cash to maintain and invest in the electric and natural gas utilities, to grow the non-utility businesses, to retire and pay interest on long-term debt, and to pay dividends. DTE Energy believes it will have sufficient internal and external capital resources to fund anticipated capital and operating requirements. DTE Energy expects that cash from operations in 2023 will be approximately $3.2 billion. DTE Energy anticipates base level utility capital investments, including environmental, renewable, and energy waste reduction expenditures, and expenditures for non-utility businesses of approximately $4.2 billion in 2023. DTE Energy plans to seek regulatory approval to include utility capital expenditures in regulatory rate base consistent with prior treatment. Capital spending for growth of existing or new non-utility businesses will depend on the existence of opportunities that meet strict risk-return and value creation criteria.

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

[[GREPCENT_TABLE]]
[["","2022","","2021","","2020"],["","(In millions)"],["Cash, Cash Equivalents, and Restricted Cash at Beginning of Period","$","35","","","$","516","","","$","93"],["Net cash from operating activities","1,977","","","3,067","","","3,697"],["Net cash used for investing activities","(3,431)","","","(3,863)","","","(4,070)"],["Net cash from financing activities","1,462","","","315","","","796"],["Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash","8","","","(481)","","","423"],["Cash, Cash Equivalents, and Restricted Cash at End of Period","$","43","","","$","35","","","$","516"]]
[[/GREPCENT_TABLE]]

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 $1.1 billion in 2022. The reduction was primarily due to lower cash from working capital items. The reduction was also partially due to changes in Net income, which decreased year-over-year if adjusted for the Loss on extinguishment of debt in 2021, primarily driven by the separation of DT Midstream in July 2021 and the closure of the REF business at DTE Vantage in 2022.

Net cash from operations decreased $630 million in 2021. The reduction was primarily due to a decrease in Deferred income taxes, working capital items, and Net Income, adjusted for the Loss on extinguishment of debt. The decrease was partially offset by an increase in Depreciation and amortization.

The change in working capital items in 2022 was primarily due to a decrease in cash related to Regulatory assets and liabilities, Accounts receivable, net, and Accounts payable, partially offset by increases related to Prepaid postretirement benefit costs, Accrued pension liability, and Other current and noncurrent assets and liabilities. The change in working capital items in 2021 was primarily due to a decrease related to Accrued pension liability, Accounts receivable, net, Inventories, Accrued postretirement liability, and Other current and noncurrent assets and liabilities, partially offset by an increase related to Regulatory assets and liabilities, Accounts payable, and Derivative assets and liabilities.

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Changes in working capital during 2022 were significantly impacted by higher prices for natural gas and electricity, including Accounts receivable at the utilities, Accounts payable in the Electric and Energy Trading segments, and Regulatory assets attributed to the PSCR mechanism at DTE Electric. Refer to "Quantitative and Qualitative Disclosures About Market Risk" within Item 7A of this Report for additional information regarding DTE Energy's management of commodity price and other market risks.

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 $432 million in 2022 due primarily to decreases in utility plant and equipment expenditures and non-utility plant and equipment expenditures.

Net cash used for investing activities decreased $207 million in 2021 due primarily to decreases in non-utility plant and equipment expenditures and Acquisitions related to business combinations, net of cash acquired, partially offset by an increase in utility plant and equipment expenditures.

Cash from Financing Activities

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

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

Net cash from financing activities increased $1.1 billion in 2022. The increase was primarily due to the Issuance of common stock in 2022, decreases in Redemption of long-term debt and Prepayment costs for extinguishment of long-term debt, and lower Dividends on common stock. The increase was partially offset by decreases in Issuance of long-term debt, net of issuance costs and Short-term borrowings, net. The lower amount of long-term debt activity was primarily due to $3.1 billion of new issuances and $2.6 billion of redemptions in 2021 related to the separation of DT Midstream.

Net cash used for financing activities decreased $481 million in 2021. The decrease was 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 the Issuance of long-term debt, net of issuance costs and Short-term borrowings, net, as well as the Acquisition related deferred payment made in 2020.

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Outlook

Sources of Cash

DTE Energy expects cash flows from operations to increase over the long-term, primarily as a result of growth from the utility and non-utility businesses. Growth in the utilities is expected to be driven primarily by capital spending which will increase the base from which rates are determined. DTE Energy expects long-term growth in sales related to vehicle electrification, but no significant impacts in the near-term. Non-utility growth is expected from additional investments in the DTE Vantage segment, primarily related to renewable energy and custom energy solutions, while expanding into carbon capture and sequestration. DTE Vantage expects enhanced growth opportunities in decarbonization as a result of the Inflation Reduction Act enacted in August 2022, including tax credits for renewable natural gas and carbon capture projects.

DTE Energy's utilities may be impacted by the timing of collection or refund of various recovery and tracking mechanisms as a result of timing of MPSC orders. Energy prices are likely to be a source of volatility with regard to working capital requirements for the foreseeable future. DTE Energy continues its efforts to identify opportunities to improve cash flows through working capital initiatives and maintaining flexibility in the timing and extent of long-term capital projects.

At the discretion of management and depending upon economic and financial market conditions, DTE Energy expects to issue up to $100 million of equity in 2023. If issued, DTE Energy anticipates these discretionary equity issuances would be made through contributions to the dividend reinvestment plan and/or employee benefit plans.

Over the long-term, DTE Energy does not have any equity commitments and will continue to evaluate equity needs on an annual basis. DTE Energy currently expects its primary source of long-term financing to be the issuance of debt and is monitoring the impact of rising interest rates on the cost of borrowing.

Uses of Cash

DTE Energy has $1.1 billion in long-term debt, including finance leases, maturing in the next twelve months. Repayment of the debt is expected to be made through internally generated funds and the issuance of short-term and/or long-term debt.

DTE Energy has paid quarterly cash dividends for more than 100 consecutive years and expects to continue paying regular cash dividends in the future, including approximately $0.8 billion in 2023. Any payment of future dividends is subject to approval by the Board of Directors and may depend on DTE Energy's future earnings, capital requirements, and financial condition. Over the long-term, DTE Energy expects continued dividend growth and is targeting a payout ratio consistent with pure-play utility companies. Dividends are subject to certain restrictions as discussed in Note 16 to the Consolidated Financial Statements, "Short-Term Credit Arrangements and Borrowings." However, these restrictions are not expected to impact DTE Energy's planned dividend payments.

Various subsidiaries and equity investees of DTE Energy have entered into derivative and non-derivative contracts which contain ratings triggers and are guaranteed by DTE Energy. These contracts contain provisions which allow the counterparties to require that DTE Energy post cash or letters of credit as collateral in the event that DTE Energy's credit rating is downgraded below investment grade. Certain of these provisions (known as "hard triggers") state specific circumstances under which DTE Energy can be required to post collateral upon the occurrence of a credit downgrade, while other provisions (known as "soft triggers") are not as specific. For contracts with soft triggers, it is difficult to estimate the amount of collateral which may be requested by counterparties and/or which DTE Energy may ultimately be required to post. The amount of such collateral which could be requested fluctuates based on commodity prices (primarily natural gas, power, and environmental) and the provisions and maturities of the underlying transactions. As of December 31, 2022, 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 $571 million.

For cash obligations related to leases and future purchase commitments, refer to Note 17 and Note 18 to the Consolidated Financial Statements, "Leases." and "Commitments and Contingencies," respectively. Purchase commitments include capital expenditures that are contractually obligated. Also refer to the "Capital Investments" section above for additional information on DTE Energy's capital strategy and estimated spend over the next five years.

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Other obligations are further described in the following Combined Notes to the Consolidated Financial Statements:

[[GREPCENT_TABLE]]
[["Note","","Title"],["1","","Organization and Basis of Presentation"],["9","","Regulatory Matters"],["10","","Income Taxes"],["13","","Financial and Other Derivative Instruments"],["14","","Long-Term Debt"],["16","","Short-Term Credit Arrangements and Borrowings"],["18","","Commitments and Contingencies"],["20","","Retirement Benefits and Trusteed Assets"],["21","","Stock-Based Compensation"]]
[[/GREPCENT_TABLE]]

Liquidity

DTE Energy has approximately $2.1 billion of available liquidity at December 31, 2022, consisting primarily of cash and cash equivalents and amounts available under unsecured revolving credit agreements and term loans.

DTE Energy believes it will have sufficient operating flexibility, cash resources and funding sources to maintain adequate 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.

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 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.

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 the 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.

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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 9 to the Consolidated Financial Statements, "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, 2022 and 2021. 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 12 and 13 to the Consolidated Financial Statements, "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.

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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, 2022 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, 2022 valuation date:

[[GREPCENT_TABLE]]
[["Reporting Unit","","Goodwill","","Fair Value Reduction %(a)","","Discount Rate","","","","Valuation Methodology(b)(c)"],["","","(In millions)"],["Electric","","$","1,208","","","38","%","","7.6","%","","","","DCF and market multiples analysis"],["Gas","","743","","","29","%","","7.7","%","","","","DCF and market multiples analysis"],["DTE Vantage","","25","","","75","%","","9.2","%","","","","DCF and market multiples analysis"],["Energy Trading","","17","","","94","%","","10.7","%","","","","DCF"],["","","$","1,993"]]
[[/GREPCENT_TABLE]]

______________________________________

(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 2023-2027 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 cost of capital (WACC) less an assumed long-term growth rate of 2.5%. 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 Energy Trading reporting unit, DTE Energy did not perform a market multiples analysis.

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.

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DTE Energy had pension costs of $123 million in 2022, $139 million in 2021, and $148 million in 2020. Other postretirement benefit credits were $66 million in 2022, $59 million in 2021, and $49 million in 2020. Pension costs and other postretirement benefit credits for 2022 were calculated based upon several actuarial assumptions, including an expected long-term rate of return on plan assets of 6.80% for the pension plans and 6.40% 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 2023 expected long-term rate of return on pension plan assets is based on an asset allocation assumption utilizing active and passive investment management of 30% in equity markets, 48% in fixed income markets, including long duration bonds, and 22% invested in other assets. DTE Energy's 2023 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 10% in equity markets, 61% in fixed income markets - including long duration bonds, and 29% 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 increasing its long-term rate of return assumption for the pension plans to 7.60% and increasing the other postretirement plans to 7.20% for 2023. DTE Energy believes these rates are reasonable assumptions for the long-term rates of return on the plans' assets for 2023 given their respective asset allocations and DTE Energy'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. Unfavorable asset performance in 2022 resulted in unrecognized net losses. As of December 31, 2022, DTE Energy had $895 million of cumulative losses 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 5.19% for both the pension and other postretirement plans at December 31, 2022 compared to 2.91% for both the pension and other postretirement plans at December 31, 2021.

DTE Energy periodically changes its mortality assumptions to reflect any updated projection scales published by the Society of Actuaries. The mortality assumptions used at December 31, 2022 are the PRI-2012 mortality table projected to 2018 using Scale MP-2019, and projected forward from 2018 using Scale MP-2021 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 a total pension credit of approximately $70 million for 2023, compared to the total pension cost of $123 million in 2022. The expected change is primarily related to one-time settlement charges in 2022 that are not expected to occur in 2023, along with a higher discount rate and higher expected rate of return on plan assets. The 2023 other postretirement benefit credit is estimated at approximately $40 million compared to $66 million in 2022. The expected decrease in the credit is primarily due to recognition of asset returns that were less than expected, partially offset by a higher discount rate and higher expected rate of return on plan assets.

The health care trend rates for DTE Energy assume 6.75% for pre-65 participants and 7.25% for post-65 participants for 2023, trending down to 4.50% for both pre-65 and post-65 participants in 2035.

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.

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Lowering the expected long-term rate of return on the plan assets by one percentage point would have increased the 2022 pension costs by approximately $51 million. Lowering the discount rate and the salary increase assumptions by one percentage point would have increased the 2022 pension costs by approximately $21 million. Lowering the expected long-term rate of return on plan assets by one percentage point would have decreased the 2022 other postretirement credit by approximately $20 million. Lowering the discount rate and the salary increase assumptions by one percentage point would have decreased the 2022 other postretirement credit by approximately $13 million.

The value of the qualified pension and other postretirement benefit plan assets was $5.5 billion at December 31, 2022 and $7.5 billion at December 31, 2021. At December 31, 2022, DTE Energy's qualified pension plans were underfunded by $282 million and its other postretirement benefit plans were over-funded by $284 million. In 2022, the funded status of the pension plans and other postretirement benefit plans remained relatively stable, as significant losses in plan assets were largely offset by increases 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. Any required pension funding will be made by contributing amounts consistent with the provisions of the Pension Protection Act of 2006. DTE Energy did not make contributions to its qualified pension plans in 2022 or 2021, and does not anticipate making any such contributions in 2023. DTE Gas transferred $50 million of qualified pension plan funds to DTE Electric in 2022 in exchange for cash consideration, and anticipates transferring up to $50 million again in 2023. DTE Energy does not expect a material amount of contributions to its qualified pension plans over the next five years. DTE Energy did not make other postretirement benefit plan contributions in 2022 or 2021 and does not anticipate making any contributions to the other postretirement plans in 2023 or over the next five years. All planned contributions will be at the discretion of management and subject to any changes in financial market conditions.

See Note 20 to the Consolidated Financial Statements, "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, 2022 and 2021 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 10 to the Consolidated Financial Statements, "Income Taxes."

NEW ACCOUNTING PRONOUNCEMENTS

See Note 3 to the Consolidated Financial Statements, "New Accounting Pronouncements."

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FAIR VALUE

Derivatives are generally recorded at fair value and shown as Derivative assets or liabilities. Contracts DTE Energy typically classifies as derivative instruments include power, natural gas, some environmental contracts, and certain forwards, futures, options and swaps, and foreign currency exchange contracts. Items DTE Energy does not generally account for as derivatives include natural gas and environmental inventory, pipeline transportation contracts, storage assets, and some environmental contracts. See Notes 12 and 13 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 12 to the Consolidated Financial Statements, "Fair Value."

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

[[GREPCENT_TABLE]]
[["","Total"],["","(In millions)"],["MTM at December 31, 2021","$","(159)"],["Reclassified to realized upon settlement","(48)"],["Changes in fair value recorded to income","(106)"],["Amounts recorded to unrealized income","(154)"],["Changes in fair value recorded in Regulatory liabilities","21"],["Amounts recorded in other comprehensive income, pretax","3"],["Change in collateral","65"],["MTM at December 31, 2022","$","(224)"]]
[[/GREPCENT_TABLE]]

The table below shows the maturity of DTE Energy's MTM positions. The positions from 2026 and beyond principally represent longer tenor gas structured transactions:

[[GREPCENT_TABLE]]
[["Source of Fair Value","","2023","","2024","","2025","","2026 and Beyond","","Total Fair Value"],["","","(In millions)"],["Level 1","","$","78","","","$","37","","","$","12","","","$","2","","","$","129"],["Level 2","","5","","","(58)","","","(17)","","","(29)","","","(99)"],["Level 3","","(101)","","","(68)","","","(39)","","","(69)","","","(277)"],["MTM before collateral adjustments","","$","(18)","","","$","(89)","","","$","(44)","","","$","(96)","","","(247)"],["Collateral adjustments","","","","","","","","","","23"],["MTM at December 31, 2022","","","","","","","","","","$","(224)"]]
[[/GREPCENT_TABLE]]

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