DTE Energy Company and DTE Electric Company — Q3 2021 Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods. DTE Energy is a diversified energy company whose principal businesses are DTE Electric, DTE Gas, DTE Vantage, and Energy Trading. DTE Electric serves approximately 2.3 million customers in southeastern Michigan; DTE Gas serves approximately 1.3 million Michigan customers.
On July 1, 2021, DTE Energy completed the tax-free separation of DT Midstream. DT Midstream's former pipeline, storage, and gathering operations are presented as discontinued operations, and prior periods were recast for this presentation. DTE Energy retained no ownership interest in DT Midstream.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| DTE Energy operating revenues | $3.715 billion | $3.080 billion | $10.317 billion | $8.343 billion |
| DTE Energy operating income | $405 million | $479 million | $1.080 billion | $1.187 billion |
| DTE Energy net income attributable to DTE | $25 million | $476 million | $601 million | $1.093 billion |
| DTE Energy diluted EPS | $0.13 | $2.46 | $3.10 | $5.66 |
| DTE Energy continuing-operations diluted EPS | $0.30 | $1.92 | $2.55 | $4.37 |
| DTE Electric operating revenues | $1.700 billion | $1.690 billion | $4.468 billion | $4.211 billion |
| DTE Electric net income | $344 million | $400 million | $790 million | $677 million |
| DTE Energy operating cash flow | Not separately provided | Not separately provided | $2.372 billion | $2.781 billion |
DTE Energy's approximate operating margin was 10.9% in Q3 2021 versus 15.6% in Q3 2020, and 10.5% for the first nine months versus 14.2% in the prior-year period. DTE Electric's approximate operating margin was 27.5% in Q3 2021 versus 32.0% in Q3 2020, and 24.8% for the first nine months versus 24.2% in the prior-year period.
- DTE Energy's 9M utility revenue increased 7%, while non-utility revenue increased 50%, driven principally by Energy Trading and DTE Vantage.
- DTE Energy's 9M net income declined primarily because of the DT Midstream separation, the loss on debt extinguishment, lower Energy Trading results, and higher Corporate and Other losses.
- DTE Electric's 9M net income increased 17%, supported by higher utility margin, new rates, regulatory mechanisms, and the absence of a prior-year asset write-off.
- DTE Energy's total assets were $39.435 billion at September 30, 2021 versus $45.496 billion at December 31, 2020, largely reflecting the DT Midstream separation.
- Cash, cash equivalents, and restricted cash declined to $56 million from $516 million at the beginning of 2021. Management reported approximately $2.1 billion of available liquidity, primarily cash and unused revolving credit capacity.
- DTE Energy reported approximately $17.2 billion of long-term debt, including current maturities and excluding finance leases, at September 30, 2021. DTE Electric reported approximately $8.9 billion on the same basis.
Material changes versus the prior comparable period
- DTE Energy recorded a $376 million Q3 loss on extinguishment of debt, including $361 million of prepayment costs and $15 million of write-offs. The 9M charge was $384 million.
- Using proceeds received in connection with the DT Midstream separation, DTE Energy redeemed approximately $2.6 billion of senior notes during July and August 2021. The redemptions are expected to reduce future interest expense.
- DT Midstream contributed $112 million of discontinued-operations income, net of tax, for the first nine months of 2021, versus $257 million in the prior-year period. Q3 discontinued operations produced a $33 million loss, including $30 million of separation-related costs.
- Energy Trading reported a $173 million 9M loss attributable to DTE Energy versus $5 million of income in 2020. Management attributed the decline to unfavorable mark-to-market results, particularly in gas structured, environmental trading, and gas storage strategies; approximately $278 million of identified timing-related losses were expected to reverse as underlying contracts settle.
- DTE Vantage 9M net income attributable to DTE Energy increased to $115 million from $102 million, despite a $27 million impairment charge related to a pulverized-coal facility expected to cease operations.
- DTE Energy recognized an $85 million deferred tax benefit from state deferred-tax remeasurement related to the DT Midstream separation, partially offset by a $9 million deferred intercompany tax expense and an $18 million valuation allowance for charitable contribution carryforwards.
- DTE Electric's 9M utility margin increased $162 million, while Q3 utility margin decreased $3 million. Q3 results were affected by unfavorable weather and higher storm, distribution, legal, environmental, and energy-waste-reduction expenses.
Cash flow, capital, debt, and liquidity
| 9M 2021 DTE Energy cash flow | Amount |
|---|---|
| Cash from operating activities | $2.372 billion |
| Cash used in investing activities | $(2.780) billion |
| Cash from financing activities | $(52) million |
| Utility plant and equipment expenditures | $2.591 billion |
| Dividends paid | $631 million |
- Management expects approximately $2.7 billion of 2021 operating cash flow and approximately $3.9 billion of 2021 capital investments and equity-method-investee contributions for DTE Energy; DTE Electric's expected 2021 amount is approximately $3.0 billion.
- At September 30, 2021, net availability under revolving and letter-of-credit facilities was approximately $2.028 billion, including $1.515 billion for DTE Energy, $341 million for DTE Electric, and $172 million for DTE Gas.
- DTE Energy's funded debt-to-capitalization ratio was 0.66 to 1, within the amended 0.70-to-1 covenant limit. DTE Electric's ratio was 0.51 to 1.
- DTE Energy had $324 million of long-term debt, including finance leases, due within twelve months. Management expected repayment through internally generated funds or new long-term debt.
- Management expected approximately $0.8 billion of 2021 common-stock dividends and stated that no equity issuance was expected in 2021.
Guidance, outlook, commentary, and risks
- DTE Energy expects near-term reductions in earnings and cash flow following the DT Midstream separation, but expects long-term growth from utility investment, DTE Vantage projects, and renewable-energy development.
- DTE Electric estimated 2021–2025 capital investments of approximately $14 billion; DTE Gas estimated approximately $3 billion. DTE Energy expects to seek regulatory recovery for qualifying utility investments.
- DTE Energy targets electric-utility carbon-emissions reductions of 32% by 2023, 50% by 2028, and 80% by 2040 from 2005 levels, with a net-zero goal by 2050 for electric and gas utility operations.
- DTE Vantage expects lower income beginning in 2022 as reduced-emissions-fuel facilities cease operations at the end of 2021. Management expects industrial energy services and renewable projects to offset the decline over time.
- DTE Gas requested a $195 million base-rate increase and an increase in its requested return on equity from 9.9% to 10.25%; a Michigan Public Service Commission decision was expected by December 2021.
- DTE Electric received authorization to securitize up to $236 million of qualified River Rouge and tree-trimming costs, with issuance expected in the first quarter of 2022. It also requested approval for a $70 million voluntary customer refund to fund additional tree trimming.
- Principal risks include regulatory cost recovery and rate decisions, environmental and climate regulation, coal-ash and effluent-compliance costs, nuclear operations, weather, commodity-price and mark-to-market volatility, credit and collateral requirements, cyber and operational risks, capital-market access, COVID-19 effects, labor negotiations, and litigation or environmental contingencies.
- DTE Energy estimated $661 million of capital expenditures related to coal-combustion-residual and effluent-limitations requirements, including $516 million during 2021–2025. The filing states that the financial impact of certain environmental proceedings and the EES Coke EPA finding of violation cannot currently be determined.
- Energy Trading had $575 million of potential collateral-posting obligations if DTE Energy were downgraded below investment grade. Reported net credit exposure to trading counterparties was $1.376 billion after cash collateral.
Most important facts for investors to verify
- Whether the DT Midstream separation's reduction in recurring earnings and cash flow is offset by utility rate-base growth and non-utility investments.
- The timing and amount of future reversals of Energy Trading's mark-to-market losses and the segment's exposure to commodity-price volatility.
- Final MPSC outcomes for the DTE Gas rate case, DTE Electric's $70 million tree-trimming refund request, and the planned securitization.
- Actual 2021 operating cash flow and capital spending compared with management's $2.7 billion and $3.9 billion expectations.
- Future environmental compliance costs, particularly the estimated $661 million CCR and ELG program, and any impact from pending EPA or Michigan actions.
- Debt maturities, refinancing needs, covenant headroom, and the potential $575 million collateral requirement following a below-investment-grade downgrade.
- The November 2022 equity-unit settlement, which was expected to require issuance of approximately 9.8 million to 12.2 million DTE Energy shares, subject to contractual adjustments.