DTE Energy Company and DTE Electric Company — Q2 2022 Form 10-Q Summary
Business Context and Reporting Period
This combined, unaudited Form 10-Q covers the quarter and six months ended June 30, 2022. DTE Energy owns regulated electric and gas utilities serving approximately 2.3 million and 1.3 million customers, respectively, plus DTE Vantage and Energy Trading businesses. DTE Electric is an indirect wholly owned subsidiary and files using reduced disclosure.
Results exclude DT Midstream, which was separated on July 1, 2021 and is presented as discontinued operations in the 2021 comparative periods.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 |
|---|---|---|---|---|
| DTE Energy operating revenue | $4.924 billion | $3.021 billion | $9.501 billion | $6.602 billion |
| DTE Energy operating income | $183 million | $242 million | $741 million | $675 million |
| Net income from continuing operations | $37 million | $114 million | $431 million | $431 million |
| Net income attributable to DTE Energy | $37 million | $179 million | $431 million | $576 million |
| Diluted EPS from continuing operations | $0.19 | $0.60 | $2.22 | $2.25 |
| Net cash from operating activities | Not separately provided | Not separately provided | $1.136 billion | $1.916 billion |
DTE Energy utility revenue increased to $1.909 billion in the second quarter and $4.143 billion for the six-month period. Non-utility revenue increased substantially, primarily because of higher Energy Trading volumes and prices. Energy Trading generated revenue of $2.832 billion in the quarter and $5.035 billion year to date, but produced net losses attributable to DTE Energy of $127 million and $136 million, respectively.
DTE Electric reported second-quarter revenue of $1.566 billion, net income of $186 million, and six-month revenue of $3.052 billion and net income of $387 million. Utility Margin was $1.053 billion in the quarter and $2.102 billion for six months, increasing $1 million and $50 million, respectively, from the comparable periods.
Material Changes Versus Prior Comparable Period
- DTE Energy’s second-quarter continuing-operations earnings attributable to the company declined by $80 million, primarily due to lower Electric and Energy Trading earnings. The six-month decline was $6 million, with lower Electric and Energy Trading earnings largely offset by improved Gas and Corporate and Other results.
- Total second-quarter net income declined by $142 million because 2021 included $65 million of after-tax discontinued-operations income from DT Midstream. Six-month net income declined by $145 million for the same reason.
- Energy Trading’s second-quarter margin decreased by $68 million and its six-month margin decreased by $13 million. Management cited unfavorable gas structured, power trading, gas transportation, and other realized and unrealized results. Some losses reflect timing differences expected to reverse as underlying contracts settle.
- DTE Vantage revenue declined because the reduced emissions fuel business closed after exhausting production tax credit eligibility. Margin nevertheless increased due to stronger steel and renewable-energy results, while 2021 included a $27 million steel-business impairment.
- DTE Electric’s operating costs increased because of planned and unplanned generation outages, storm and tree-trimming costs, higher depreciation, and property taxes. DTE Gas benefited from new rates, weather, and higher base sales.
- Operating cash flow decreased $780 million year over year, primarily from working-capital movements, regulatory assets and liabilities, accounts receivable, derivative positions, and the absence of DT Midstream cash flows.
Cash Flow, Debt, Liquidity, and Capital Investment
- DTE Energy ended June 30, 2022 with $82 million of cash, cash equivalents, and restricted cash, compared with $35 million at December 31, 2021. Six-month investing cash outflow was $1.568 billion, including $1.531 billion of plant and equipment expenditures.
- DTE Energy had $18.278 billion of reported long-term debt, including current maturities, securitization bonds, junior subordinated debentures, and finance lease liabilities. Current liabilities included $815 million of short-term borrowings and $2.670 billion of current long-term debt.
- Available liquidity was approximately $3.1 billion, including cash and borrowing capacity. Net availability under listed revolving and letter-of-credit facilities was $1.873 billion at June 30, 2022.
- DTE Energy’s funded debt-to-capitalization ratio was 0.68 to 1, within its 0.70 covenant limit. DTE Electric’s ratio was 0.52 to 1.
- DTE Electric issued $900 million of mortgage bonds and $236 million of securitization bonds during the period. DTE Energy also entered into a $1.125 billion unsecured term loan maturing in December 2023; no amounts had been drawn at quarter-end, although mandatory draw obligations apply.
- Management expected approximately $2.6 billion of 2022 operating cash flow and approximately $3.7 billion of 2022 capital investment for DTE Energy. DTE Electric estimated $15 billion of capital investments for 2022–2026 and DTE Gas estimated $3.1 billion.
Guidance, Outlook, Risks, and Unusual Items
- Management expects long-term growth from utility infrastructure, reliability, cleaner generation, gas-main renewal, renewable energy, and industrial energy services. DTE Vantage expects lower 2022 earnings because of the reduced emissions fuel closures.
- DTE Energy expects to continue paying regular dividends and indicated approximately $0.7 billion of 2022 cash dividends. The 2019 equity units are expected to result in approximately $1.3 billion of common-stock issuance in November 2022.
- DTE Electric filed a rate case seeking a $388 million base-rate increase and an increase in authorized return on equity from 9.9% to 10.25%; a final MPSC order was expected in November 2022. DTE Gas sought approval to accelerate up to $20 million of TCJA regulatory-liability amortization in the fourth quarter of 2023.
- DTE Energy’s contractual collateral requirement upon a downgrade below investment grade was $1.1 billion. Commodity prices, trading losses, credit ratings, interest rates, weather, regulatory decisions, and working-capital requirements may materially affect liquidity and earnings.
- Environmental and regulatory exposures include coal-ash and wastewater compliance, greenhouse-gas regulation, air-quality proceedings, contaminated-site remediation, and possible future capital requirements. Estimated CCR and effluent-limitations-related capital expenditures were $568 million, including $463 million for 2022–2026.
- EES Coke, a DTE Energy subsidiary, was sued by the U.S. Department of Justice on behalf of the EPA regarding Clean Air Act permitting allegations; management could not predict the outcome or financial impact.
- DTE Electric and Consumers Energy sued Toshiba-related entities concerning the Ludington plant overhaul. Counterclaims seek approximately $15 million, of which DTE Electric would be responsible for 49%; the company could not predict the outcome.
- DTE Energy’s market-to-market position was a net liability of $244 million at June 30, 2022. Derivative accounting and mismatches between derivative and non-derivative positions may create substantial period-to-period earnings volatility.
Investor Verification Checklist
- Verify the final outcome and rate impact of DTE Electric’s $388 million rate case and DTE Gas’s requested regulatory-liability amortization.
- Assess whether Energy Trading losses and mark-to-market timing effects reverse as management expects, particularly in gas structured transactions.
- Monitor the November 2022 equity issuance associated with the 2019 equity units and its effect on share count, leverage, and earnings per share.
- Review liquidity after mandatory term-loan draws, debt maturities, capital spending, dividends, and potential downgrade-related collateral requirements.
- Track environmental rulemaking, coal retirements, CCR and wastewater compliance costs, and potential recovery of related expenditures through customer rates.
- Follow the EES Coke litigation, Ludington contract dispute, remediation liabilities, and other contingencies because outcomes and financial impacts remain uncertain.