Fair Value

3 Months Ended

Mar. 31, 2020

Fair Value Disclosures [Abstract]

Fair Value

FAIR VALUE

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 March 31, 2020 and December 31, 2019. The Registrants believe they use valuation techniques that maximize the use of observable market-based inputs and minimize the use of unobservable inputs.

A fair value hierarchy has been established 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). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. All assets and liabilities are required to be classified in their entirety based on the lowest level of input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input may require judgment considering factors specific to the asset or liability and may affect the valuation of the asset or liability and its placement within the fair value hierarchy. The Registrants classify fair value balances based on the fair value hierarchy defined as follows:

• Level 1 — Consists of unadjusted quoted prices in active markets for identical assets or liabilities that the Registrants have the ability to access as of the reporting date.

• Level 2 — Consists of inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.

• Level 3 — Consists of unobservable inputs for assets or liabilities whose fair value is estimated based on internally developed models or methodologies using inputs that are generally less readily observable and supported by little, if any, market activity at the measurement date. Unobservable inputs are developed based on the best available information and subject to cost-benefit constraints.

The following table presents assets and liabilities for DTE Energy measured and recorded at fair value on a recurring basis^(a):

	March 31, 2020																	December 31, 2019
	Level 1			Level 2			Level 3			Other(b)		Netting(c)			Net Balance			Level 1			Level 2			Level 3			Other(b)		Netting(c)			Net Balance
	(In millions)
Assets
Cash equivalents(d)	$	421		$	—		$	—		$	—	$	—		$	421		$	15		$	—		$	—		$	—	$	—		$	15
Nuclear decommissioning trusts
Equity securities	792			—			—			—		—			792			1,046			—			—			—		—			1,046
Fixed income securities	127			376			—			—		—			503			160			378			—			—		—			538
Private equity and other	—			—			—			62		—			62			—			—			—			43		—			43
Cash equivalents	82			—			—			—		—			82			34			—			—			—		—			34
Other investments(e)
Equity securities	115			—			—			—		—			115			140			—			—			—		—			140
Fixed income securities	71			—			—			—		—			71			79			—			—			—		—			79
Cash equivalents	4			—			—			—		—			4			4			—			—			—		—			4
Derivative assets
Commodity contracts(f)
Natural gas	132			78			72			—		(204		)	78			205			76			74			—		(266		)	89
Electricity	—			214			99			—		(242		)	71			—			223			83			—		(225		)	81
Environmental & Other	—			178			1			—		(163		)	16			—			110			3			—		(110		)	3
Foreign currency exchange contracts	—			7			—			—		(2		)	5			—			1			—			—		—			1
Total derivative assets	132			477			172			—		(611		)	170			205			410			160			—		(601		)	174
Total	$	1,744		$	853		$	172		$	62	$	(611	)	$	2,220		$	1,683		$	788		$	160		$	43	$	(601	)	$	2,073
Liabilities
Derivative liabilities
Commodity contracts(f)
Natural gas	$	(170	)	$	(44	)	$	(64	)	$	—	$	204		$	(74	)	$	(221	)	$	(41	)	$	(89	)	$	—	$	266		$	(85	)
Electricity	—			(233		)	(84		)	—		242			(75		)	—			(231		)	(67		)	—		225			(73		)
Environmental & Other	(5		)	(144		)	—			—		163			14			—			(121		)	—			—		110			(11		)
Foreign currency exchange contracts	—			(2		)	—			—		2			—			—			—			—			—		—			—
Total	$	(175	)	$	(423	)	$	(148	)	$	—	$	611		$	(135	)	$	(221	)	$	(393	)	$	(156	)	$	—	$	601		$	(169	)
Net Assets at end of period	$	1,569		$	430		$	24		$	62	$	—		$	2,085		$	1,462		$	395		$	4		$	43	$	—		$	1,904
Assets
Current	$	550		$	350		$	122		$	—	$	(489	)	$	533		$	218		$	320		$	123		$	—	$	(513	)	$	148
Noncurrent	1,194			503			50			62		(122		)	1,687			1,465			468			37			43		(88		)	1,925
Total Assets	$	1,744		$	853		$	172		$	62	$	(611	)	$	2,220		$	1,683		$	788		$	160		$	43	$	(601	)	$	2,073
Liabilities
Current	$	(163	)	$	(325	)	$	(89	)	$	—	$	489		$	(88	)	$	(211	)	$	(300	)	$	(85	)	$	—	$	513		$	(83	)
Noncurrent	(12		)	(98		)	(59		)	—		122			(47		)	(10		)	(93		)	(71		)	—		88			(86		)
Total Liabilities	$	(175	)	$	(423	)	$	(148	)	$	—	$	611		$	(135	)	$	(221	)	$	(393	)	$	(156	)	$	—	$	601		$	(169	)
Net Assets at end of period	$	1,569		$	430		$	24		$	62	$	—		$	2,085		$	1,462		$	395		$	4		$	43	$	—		$	1,904

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(a) See footnotes on following page.

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(b) Amounts represent assets valued at NAV as a practical expedient for fair value.

(c) Amounts represent the impact of master netting agreements that allow DTE Energy to net gain and loss positions and cash collateral held or placed with the same counterparties.

(d) At March 31, 2020, the $421 million consisted of $409 million, $1 million, and $11 million of cash equivalents included in Cash and cash equivalents, Restricted cash, and Other investments on DTE Energy's Consolidated Statements of Financial Position, respectively. At December 31, 2019, the $15 million consisted of $4 million and $11 million of cash equivalents included in Cash and cash equivalents and Other investments on DTE Energy's Consolidated Statements of Financial Position, respectively.

(e) Excludes cash surrender value of life insurance investments.

(f) For contracts with a clearing agent, DTE Energy nets all activity across commodities. This can result in some individual commodities having a contra balance.

The following table presents assets for DTE Electric measured and recorded at fair value on a recurring basis as of:

	March 31, 2020										December 31, 2019
	Level 1		Level 2		Level 3		Other(a)		Net Balance		Level 1		Level 2		Level 3		Other(a)		Net Balance
	(In millions)
Assets
Cash equivalents(b)	$	11	$	—	$	—	$	—	$	11	$	11	$	—	$	—	$	—	$	11
Nuclear decommissioning trusts
Equity securities	792		—		—		—		792		1,046		—		—		—		1,046
Fixed income securities	127		376		—		—		503		160		378		—		—		538
Private equity and other	—		—		—		62		62		—		—		—		43		43
Cash equivalents	82		—		—		—		82		34		—		—		—		34
Other investments
Equity securities	11		—		—		—		11		13		—		—		—		13
Derivative assets — FTRs	—		—		1		—		1		—		—		3		—		3
Total	$	1,023	$	376	$	1	$	62	$	1,462	$	1,264	$	378	$	3	$	43	$	1,688
Assets
Current	$	11	$	—	$	1	$	—	$	12	$	11	$	—	$	3	$	—	$	14
Noncurrent	1,012		376		—		62		1,450		1,253		378		—		43		1,674
Total Assets	$	1,023	$	376	$	1	$	62	$	1,462	$	1,264	$	378	$	3	$	43	$	1,688

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(a) Amounts represent assets valued at NAV as a practical expedient for fair value.

(b) At March 31, 2020 and December 31, 2019, the $11 million consisted of cash equivalents included in Other investments on DTE Electric's Consolidated Statements of Financial Position.

Cash Equivalents

Cash equivalents include investments with maturities of three months or less when purchased. The cash equivalents shown in the fair value table are comprised of short-term investments and money market funds.

Nuclear Decommissioning Trusts and Other Investments

The nuclear decommissioning trusts and other investments hold debt and equity securities directly and indirectly through commingled funds. Exchange-traded debt and equity securities held directly are valued using quoted market prices in actively traded markets. Commingled funds that hold exchange-traded equity or debt securities are valued based on stated NAVs. Non-exchange traded fixed income securities are valued based upon quotations available from brokers or pricing services.

Private equity and other assets include a diversified group of funds that are classified as NAV assets. These funds primarily invest in private equity partnerships, as well as real estate and private debt. Distributions are received through the liquidation of the underlying fund assets over the life of the funds. There are generally no redemption rights. The limited partner must hold the fund for its life or find a third-party buyer, which may need to be approved by the general partner. The funds are established with varied contractual durations generally in the range of 7 years to 12 years. The fund life can often be extended by several years by the general partner, and further extended with the approval of the limited partners. Unfunded commitments related to these investments totaled $159 million and $151 million as of March 31, 2020 and December 31, 2019, respectively.

For pricing the nuclear decommissioning trusts and other investments, a primary price source is identified by asset type, class, or issue for each security. The trustee monitors prices supplied by pricing services and may use a supplemental price source or change the primary source of a given security if the trustee determines that another price source is considered preferable. The Registrants have obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices.

Derivative Assets and Liabilities

Derivative assets and liabilities are comprised of physical and financial derivative contracts, including futures, forwards, options, and swaps that are both exchange-traded and over-the-counter traded contracts. Various inputs are used to value derivatives depending on the type of contract and availability of market data. Exchange-traded derivative contracts are valued using quoted prices in active markets. The Registrants consider the following criteria in determining whether a market is considered active: frequency in which pricing information is updated, variability in pricing between sources or over time, and the availability of public information. Other derivative contracts are valued based upon a variety of inputs including commodity market prices, broker quotes, interest rates, credit ratings, default rates, market-based seasonality, and basis differential factors. The Registrants monitor the prices that are supplied by brokers and pricing services and may use a supplemental price source or change the primary price source of an index if prices become unavailable or another price source is determined to be more representative of fair value. The Registrants have obtained an understanding of how these prices are derived. Additionally, the Registrants selectively corroborate the fair value of their transactions by comparison of market-based price sources. Mathematical valuation models are used for derivatives for which external market data is not readily observable, such as contracts which extend beyond the actively traded reporting period. The Registrants have established a Risk Management Committee whose responsibilities include directly or indirectly ensuring all valuation methods are applied in accordance with predefined policies. The development and maintenance of the Registrants' forward price curves has been assigned to DTE Energy's Risk Management Department, which is separate and distinct from the trading functions within DTE Energy.

The following table presents the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for DTE Energy:

	Three Months Ended March 31, 2020												Three Months Ended March 31, 2019
	Natural Gas			Electricity			Other			Total			Natural Gas			Electricity			Other			Total
	(In millions)
Net Assets (Liabilities) as of January 1	$	(15	)	$	16		$	3		$	4		$	(49	)	$	(2	)	$	7		$	(44	)
Transfers into Level 3 from Level 2	—			—			—			—			—			—			—			—
Transfers from Level 3 into Level 2	(1		)	—			—			(1		)	—			—			—			—
Total gains (losses)
Included in earnings	24			20			—			44			31			(31		)	(1		)	(1		)
Recorded in Regulatory liabilities	—			—			(2		)	(2		)	—			—			(3		)	(3		)
Purchases, issuances, and settlements
Settlements	—			(21		)	—			(21		)	8			8			(1		)	15
Net Assets (Liabilities) as of March 31	$	8		$	15		$	1		$	24		$	(10	)	$	(25	)	$	2		$	(33	)
The amount of total gains (losses) included in Net Income attributed to the change in unrealized gains (losses) related to assets and liabilities held at March 31, 2020 and 2019 and reflected in Operating Revenues — Non-utility operations and Fuel, purchased power, and gas — non-utility in DTE Energy's Consolidated Statements of Operations	$	19		$	21		$	—		$	40		$	16		$	(21	)	$	(1	)	$	(6	)

The following table presents the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for DTE Electric:

	Three Months Ended March 31,
	2020			2019
	(In millions)
Net Assets as of beginning of period	$	3		$	6
Change in fair value recorded in Regulatory liabilities	(2		)	(3		)
Purchases, issuances, and settlements
Settlements	—			(1		)
Net Assets as of March 31	$	1		$	2
The amount of total gains (losses) included in Regulatory liabilities attributed to the change in unrealized gains (losses) related to assets held at March 31, 2020 and 2019 and reflected in DTE Electric's Consolidated Statements of Financial Position	$	—		$	—

Derivatives are transferred between levels primarily due to changes in the source data used to construct price curves as a result of changes in market liquidity. Transfers in and transfers out are reflected as if they had occurred at the beginning of the period. There were no transfers from or into Level 3 for DTE Electric during the three months ended March 31, 2020 and 2019.

The following tables present the unobservable inputs related to DTE Energy's Level 3 assets and liabilities:

	March 31, 2020
Commodity Contracts	Derivative Assets		Derivative Liabilities			Valuation Techniques	Unobservable Input	Range							Weighted Average
	(In millions)
Natural Gas	$	72	$	(64	)	Discounted Cash Flow	Forward basis price (per MMBtu)	$	(0.84	)	—	$	4.20	/MMBtu	$	(0.07	)/MMBtu
Electricity	$	99	$	(84	)	Discounted Cash Flow	Forward basis price (per MWh)	$	(10	)	—	$	5	/MWh	$	—

	December 31, 2019
Commodity Contracts	Derivative Assets		Derivative Liabilities			Valuation Techniques	Unobservable Input	Range							Weighted Average
	(In millions)
Natural Gas	$	74	$	(89	)	Discounted Cash Flow	Forward basis price (per MMBtu)	$	(1.78	)	—	$	5.78	/MMBtu	$	(0.09	)/MMBtu
Electricity	$	83	$	(67	)	Discounted Cash Flow	Forward basis price (per MWh)	$	(10	)	—	$	6	/MWh	$	—

The unobservable inputs used in the fair value measurement of the electricity and natural gas commodity types consist of inputs that are less observable due in part to lack of available broker quotes, supported by little, if any, market activity at the measurement date or are based on internally developed models. Certain basis prices (i.e., the difference in pricing between two locations) included in the valuation of natural gas and electricity contracts were deemed unobservable.

The inputs listed above would have had a direct impact on the fair values of the above security types if they were adjusted. A significant increase (decrease) in the basis price would have resulted in a higher (lower) fair value for long positions, with offsetting impacts to short positions.

Fair Value of Financial Instruments

The following table presents the carrying amount and fair value of financial instruments for DTE Energy:

	March 31, 2020								December 31, 2019
	Carrying		Fair Value						Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Amount		Level 1		Level 2		Level 3
	(In millions)
Notes receivable — Other(a), excluding lessor finance leases	$	68	$	—	$	—	$	68	$	184	$	—	$	—	$	184
Short-term borrowings	$	1,131	$	—	$	1,131	$	—	$	828	$	—	$	828	$	—
Notes payable — Other(b), excluding lessee finance leases	$	15	$	—	$	—	$	15	$	25	$	—	$	—	$	25
Long-term debt(c)	$	17,398	$	2,120	$	12,108	$	3,824	$	16,606	$	2,572	$	14,207	$	1,252

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(a) Current portion included in Current Assets — Other on DTE Energy's Consolidated Statements of Financial Position.

(b) Included in Current Liabilities — Other and Other Liabilities — Other on DTE Energy's Consolidated Statements of Financial Position.

(c) Includes debt due within one year, unamortized debt discounts, and issuance costs. Excludes finance lease obligations.

The following table presents the carrying amount and fair value of financial instruments for DTE Electric:

	March 31, 2020								December 31, 2019
	Carrying		Fair Value						Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Amount		Level 1		Level 2		Level 3
	(In millions)
Notes receivable — Other(a), excluding lessor finance leases	$	11	$	—	$	—	$	11	$	9	$	—	$	—	$	9
Short-term borrowings — affiliates	$	139	$	—	$	—	$	139	$	97	$	—	$	—	$	97
Short-term borrowings — other	$	71	$	—	$	71	$	—	$	354	$	—	$	354	$	—
Notes payable — Other(b), excluding lessee finance leases	$	11	$	—	$	—	$	11	$	21	$	—	$	—	$	21
Long-term debt(c)	$	7,970	$	—	$	7,373	$	1,330	$	7,180	$	—	$	7,916	$	173

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(a) Included in Current Assets — Other and Other Assets — Other on DTE Electric's Consolidated Statements of Financial Position.

(b) Included in Current Liabilities — Other and Other Liabilities — Other on DTE Electric's Consolidated Statements of Financial Position.

(c) Includes debt due within one year, unamortized debt discounts, and issuance costs. Excludes finance lease obligations.

For further fair value information on financial and derivative instruments, see Note 9 to the Consolidated Financial Statements, "Financial and Other Derivative Instruments."

Nuclear Decommissioning Trust Funds

DTE Electric has a legal obligation to decommission its nuclear power plants following the expiration of its operating licenses. This obligation is reflected as an Asset retirement obligation on DTE Electric's Consolidated Statements of Financial Position. Rates approved by the MPSC provide for the recovery of decommissioning costs of Fermi 2 and the disposal of low-level radioactive waste.

The following table summarizes DTE Electric's fair value of the nuclear decommissioning trust fund assets:

	March 31, 2020		December 31, 2019
	(In millions)
Fermi 2	$	1,430	$	1,650
Fermi 1	3		3
Low-level radioactive waste	6		8
	$	1,439	$	1,661

The costs of securities sold are determined on the basis of specific identification. The following table sets forth DTE Electric's gains and losses and proceeds from the sale of securities by the nuclear decommissioning trust funds:

	Three Months Ended March 31,
	2020			2019
	(In millions)
Realized gains	$	31		$	11
Realized losses	$	(16	)	$	(7	)
Proceeds from sale of securities	$	439		$	176

Realized gains and losses from the sale of securities and unrealized gains and losses incurred by the Fermi 2 trust are recorded to the Regulatory asset and Nuclear decommissioning liability. Realized gains and losses from the sale of securities and unrealized gains and losses on the low-level radioactive waste funds are recorded to the Nuclear decommissioning liability.

The following table sets forth DTE Electric's fair value and unrealized gains and losses for the nuclear decommissioning trust funds:

	March 31, 2020							December 31, 2019
	Fair Value		Unrealized Gains		Unrealized Losses			Fair Value		Unrealized Gains		Unrealized Losses
	(In millions)
Equity securities	$	792	$	244	$	(128	)	$	1,046	$	396	$	(39	)
Fixed income securities	503		26		(6		)	538		24		(1		)
Private equity and other	62		—		—			43		—		—
Cash equivalents	82		—		—			34		—		—
	$	1,439	$	270	$	(134	)	$	1,661	$	420	$	(40	)

The following table summarizes the fair value of the fixed income securities held in nuclear decommissioning trust funds by contractual maturity:

	March 31, 2020
	(In millions)
Due within one year	$	24
Due after one through five years	83
Due after five through ten years	106
Due after ten years	290
	$	503

Other Securities

At March 31, 2020 and December 31, 2019, the Registrants' securities included in Other investments on the Consolidated Statements of Financial Position were comprised primarily of equity and fixed income securities within DTE Energy's Rabbi Trust. For the three months ended March 31, 2020, losses related to the Trust were $31 million, including $23 million related to equity securities and $8 million related to fixed income securities. For the three months ended March 31, 2019, gains related to the Trust were $17 million, including $13 million related to equity securities and $4 million related to fixed income securities. Gains or losses related to the Rabbi Trust assets are allocated from DTE Energy to DTE Electric and are included in Other Income or Other Expense, respectively, in the Registrants' Consolidated Statements of Operations.