DTE ENERGY CO quarterly report, Q2 FY2021

DTE Energy Company and DTE Electric Company — 2021 Q2 Form 10-Q Summary

Business context and reporting period

Unaudited results cover the three and six months ended June 30, 2021. The combined filing covers DTE Energy, a diversified energy company, and DTE Electric, its indirectly owned regulated electric utility. DTE Energy also operated DTE Gas, non-utility gas pipelines and storage, Power and Industrial Projects, and Energy Trading during the reported period.

Results include DT Midstream through June 30, 2021. DTE Energy completed the separation of DT Midstream on July 1, 2021; beginning in the third quarter, the related historical results are expected to be presented as discontinued operations.

Financial performance and key metrics

Metric	Q2 2021	Q2 2020	Six months 2021	Six months 2020
DTE Energy operating revenues	$3.229 billion	$2.583 billion	$7.007 billion	$5.605 billion
Operating income	$322 million	$367 million	$859 million	$913 million
Net income attributable to DTE Energy	$179 million	$277 million	$576 million	$617 million
Diluted EPS	$0.92	$1.44	$2.97	$3.20
Operating cash flow	Not separately provided	Not separately provided	$1.916 billion	$1.681 billion

DTE Energy's approximate operating margin was 10.0% in Q2 2021 versus 14.2% in Q2 2020, and 12.3% for the first six months versus 16.3% in the prior-year period. Net margin attributable to DTE Energy was approximately 5.5% in Q2 2021 versus 10.7% in Q2 2020.

Utility operations revenue increased 7% in Q2 and 10% year to date, while non-utility revenue increased 51% in Q2 and 46% year to date. The non-utility increase was heavily influenced by Energy Trading volumes and commodity prices.
DTE Electric reported Q2 revenue of $1.408 billion, operating income of $340 million, and net income of $238 million, compared with $1.309 billion, $263 million, and $183 million, respectively, in Q2 2020.
DTE Electric's utility margin increased $83 million in Q2 and $165 million year to date, primarily from new rates, rate mix, regulatory mechanisms, and weather.
DTE Energy's Energy Trading segment generated a $66 million Q2 loss and a $121 million year-to-date loss, compared with a $1 million Q2 loss and $33 million year-to-date profit in 2020.
Cash flow from operations was $1.916 billion, capital expenditures were $1.874 billion, and net cash used in investing activities was $1.928 billion for the first six months.

Liquidity, debt, and capital resources

DTE Energy held $3.448 billion of cash and cash equivalents at June 30, 2021, compared with $514 million at December 31, 2020. Management stated that available liquidity was approximately $5.9 billion, including cash and revolving credit availability.
Total DTE Energy long-term debt, including current and noncurrent portions but excluding certain finance lease presentation differences, was approximately $22.9 billion at June 30, 2021, compared with $19.4 billion at year-end 2020 on a fair-value disclosure basis. The balance sheet reported $21.891 billion of noncurrent long-term debt and $1.047 billion of current long-term debt.
DTE Energy had $69 million of short-term borrowings and $1.633 billion of net availability under its principal revolving facilities. The company was in compliance with its debt-to-capitalization covenant; its ratio was 0.64 to 1 versus the amended limit of 0.70 to 1 beginning in the third quarter.
DTE Energy expects approximately $2.7 billion of operating cash flow and approximately $3.9 billion of utility, non-utility, and equity-investee capital investments in 2021. DTE Electric expects approximately $3.0 billion of 2021 capital expenditures.
DTE Energy paid $420 million of common dividends in the first six months and expects approximately $0.8 billion of dividends for full-year 2021, subject to Board approval and future financial conditions.

Material changes versus the prior comparable period

Net income attributable to DTE Energy declined 35% in Q2 and 7% for the first six months; diluted EPS declined from $1.44 to $0.92 in Q2 and from $3.20 to $2.97 year to date.
Operating income declined despite higher revenue because of unfavorable Energy Trading results, higher operating costs, depreciation, taxes, and a $27 million impairment in Power and Industrial Projects.
Electric segment net income increased $55 million in Q2 and $169 million year to date, benefiting from rate implementation, rate mix, regulatory mechanisms, and weather. The prior-year period included a $41 million asset write-off.
Gas segment net income increased to $7 million in Q2 and $176 million year to date, compared with $1 million and $122 million, respectively, driven primarily by rate-related margin improvements and the absence of the prior-year write-off.
Corporate and Other losses increased to $78 million in Q2 and $110 million year to date, partly due to the absence of a 2020 CARES Act tax benefit, higher interest and state taxes, and DT Midstream separation costs.
DTE Energy recognized $43 million of DT Midstream separation transaction costs through June 30, including $34 million in the first six months. Additional costs were expected in the third quarter.

Guidance, outlook, risks, and unusual items

DTE Energy completed the DT Midstream separation on July 1, 2021. DT Midstream distributed 96.7 million shares to DTE Energy shareholders and paid DTE Energy a $501 million special dividend after issuing $2.1 billion of senior notes and a $1.0 billion term loan.
Using DT Midstream-related proceeds, DTE Energy redeemed approximately $2.247 billion of debt in July and planned to redeem an additional $374 million in August. It incurred $235 million of July prepayment costs; losses on extinguishment and additional costs were expected in the third quarter.
The separation is expected to reduce DTE Energy's near-term earnings and operating cash flows, although management expects long-term growth from the regulated utilities and remaining non-utility businesses.
DTE Electric expects approximately $14 billion of capital investments during 2021–2025, including distribution infrastructure, replacements, and renewable generation. DTE Gas expects approximately $3 billion over the same period.
DTE Electric received approval to securitize up to $236 million of qualified River Rouge plant and tree-trimming costs, with issuance expected in the fourth quarter of 2021. DTE Gas requested a $195 million base-rate increase and an increase in authorized return on equity from 9.9% to 10.25%; a final MPSC order was expected by December 2021.
DTE Energy targets electric carbon reductions of 32% by 2023, 50% by 2030, and 80% by 2040 from 2005 levels, with net-zero electric and gas utility emissions targeted by 2050.
DTE Energy recorded a $19 million impairment of an Utica-related note receivable and a $27 million non-cash impairment of a pulverized coal facility expected to cease operations at the end of 2021.
Energy Trading results remain exposed to commodity-price and mark-to-market volatility. Management identified $141 million of Q2 and $246 million of year-to-date timing-related gas strategy losses expected to reverse as underlying contracts settle.
A downgrade below investment grade could require up to $467 million of cash or letter-of-credit collateral under ratings-trigger provisions. DTE Energy also reported $1.005 billion of net trading counterparty credit exposure at June 30.
Environmental compliance, coal ash and wastewater requirements, nuclear operations, regulatory cost recovery, weather, cyber incidents, capital-market access, commodity prices, COVID-19 effects, and litigation remain material risk areas. DTE Electric estimated CCR and ELG-related capital expenditures of $718 million, including $573 million during 2021–2025.
DTE Energy Trading's Brilliant Energy counterparty entered bankruptcy. Approximately $9 million remained reserved at June 30, and management did not expect additional material exposure.

Most important facts for investors to verify

How the DT Midstream separation and discontinued-operations presentation affect DTE Energy's future revenue, earnings, debt, cash flow, and segment comparability.
The size and timing of third-quarter debt-extinguishment losses, prepayment costs, and the planned August debt redemption.
Whether Energy Trading's timing-related losses reverse as expected and how commodity-price volatility affects future earnings and collateral requirements.
The outcome of DTE Gas's $195 million rate case and the timing and economics of DTE Electric's securitization financing.
Execution of the substantial 2021–2025 utility capital program, including environmental compliance, renewable generation, coal retirements, and rate recovery.
Future impacts of environmental proceedings, climate regulation, nuclear obligations, remediation, guarantees, and other contingencies described in the filing.
Management's forecast of approximately $2.7 billion of 2021 operating cash flow, approximately $3.9 billion of capital investments, and approximately $0.8 billion of dividends.