Significant Accounting Policies

3 Months Ended

Mar. 31, 2021

SIGNIFICANT ACCOUNTING POLICIES

Other Income

The following is a summary of DTE Energy's Other income:


	Three Months Ended March 31,
		2021		2020
		(In millions)
Equity earnings of equity method investees		$	32	$	29
Income from REF entities		24		23
Contract services		8		7
Allowance for equity funds used during construction		7		6
Gains from rabbi trust securities(a)		2		—
Other		3		—
		$	76	$	65

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(a)Losses from rabbi trust securities are recorded separately to Other expenses on the Consolidated Statements of Operations.

The following is a summary of DTE Electric's Other income:


	Three Months Ended March 31,
		2021		2020
		(In millions)
Contract services		8		7
Allowance for equity funds used during construction		6		6
Gains from rabbi trust securities allocated from DTE Energy(a)		$	2	$	—

Other		3		—
		$	19	$	13

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(a)Losses from rabbi trust securities are recorded separately to Other expenses on the Consolidated Statements of Operations.

Changes in Accumulated Other Comprehensive Income (Loss)

Comprehensive income (loss) is the change in common shareholders' equity during a period from transactions and events from non-owner sources, including Net Income. The amounts recorded to Accumulated other comprehensive income (loss) for DTE Energy include changes in benefit obligations, consisting of deferred actuarial losses and prior service costs, unrealized gains and losses from derivatives accounted for as cash flow hedges, and foreign currency translation adjustments. DTE Energy releases income tax effects from accumulated other comprehensive income when the circumstances upon which they are premised cease to exist.

Changes in Accumulated other comprehensive income (loss) are presented in DTE Energy's Consolidated Statements of Changes in Equity and DTE Electric's Consolidated Statements of Changes in Shareholder's Equity. For the three months ended March 31, 2021 and 2020, reclassifications out of Accumulated other comprehensive income (loss) were not material.

Income Taxes

The interim effective tax rates of the Registrants are as follows:


		Effective Tax Rate
	Three Months Ended March 31,
		2021		2020
DTE Energy		7	%	13	%
DTE Electric		9	%	12	%

These tax rates are affected by estimated annual permanent items, including AFUDC equity, production tax credits, and other flow-through items, as well as discrete items that may occur in any given period, but are not consistent from period to period.

The 6% decrease in DTE Energy's effective tax rate for the three months ended March 31, 2021 was primarily due to an increase in production tax credits of 3% and higher amortization of the TCJA regulatory liability of 2%.

The 3% decrease in DTE Electric's effective tax rate for the three months ended March 31, 2021 was primarily due to an increase in production tax credits of 2% and higher amortization of the TCJA regulatory liability of 1%.

DTE Electric had income tax receivables with DTE Energy of $3 million and $8 million at March 31, 2021 and December 31, 2020, respectively.

Unrecognized Compensation Costs

As of March 31, 2021, DTE Energy had $111 million of total unrecognized compensation cost related to non-vested stock incentive plan arrangements. That cost is expected to be recognized over a weighted-average period of 1.85 years.

Allocated Stock-Based Compensation

DTE Electric received an allocation of costs from DTE Energy associated with stock-based compensation of $14 million and $9 million for the three months ended March 31, 2021 and 2020, respectively.

Cash, Cash Equivalents, and Restricted Cash

Cash and cash equivalents include cash on hand, cash in banks, and temporary investments purchased with remaining maturities of three months or less. Restricted cash consists of funds held in separate bank accounts to satisfy contractual obligations and guarantee performance. Restricted cash designated for payments within one year is classified as a Current Asset.

Financing Receivables

Financing receivables are primarily composed of trade receivables, notes receivable, and unbilled revenue. The Registrant's financing receivables are stated at net realizable value.

The Registrants monitor the credit quality of their financing receivables on a regular basis by reviewing credit quality indicators and monitoring for trigger events, such as a credit rating downgrade or bankruptcy. Credit quality indicators include, but are not limited to, ratings by credit agencies where available, collection history, collateral, counterparty financial statements and other internal metrics. Utilizing such data, the Registrants have determined three internal grades of credit quality. Internal grade 1 includes financing receivables for counterparties where credit rating agencies have ranked the counterparty as investment grade. To the extent credit ratings are not available, the Registrants utilize other credit quality indicators to determine the level of risk associated with the financing receivable. Internal grade 1 may include financing receivables for counterparties for which credit rating agencies have ranked the counterparty as below investment grade; however, due to favorable information on other credit quality indicators, the Registrants have determined the risk level to be similar to that of an investment grade counterparty. Internal grade 2 includes financing receivables for counterparties with limited credit information and those with a higher risk profile based upon credit quality indicators. Internal grade 3 reflects financing receivables for which the counterparties have the greatest level of risk, including those in bankruptcy status.

The following represents the Registrants' financing receivables by year of origination, classified by internal grade of credit risk. The related credit quality indicators and risk ratings utilized to develop the internal grades have been updated through March 31, 2021.


	DTE Energy								DTE Electric
	Year of origination
	2021		2020		2019 and Prior		Total		2021 and Prior
	(In millions)
Notes receivable
Internal grade 1	$	—	$	—	$	23	$	23	$	14
Internal grade 2	1		64		52		117		2
Total notes receivable(a)	$	1	$	64	$	75	$	140	$	16

Net investment in leases
Net investment in leases, internal grade 1	$	—	$	4	$	39	$	43	$	—
Net investment in leases, internal grade 2	—		161		1		162		—
Total net investment in leases(a)	$	—	$	165	$	40	$	205	$	—

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(a)For DTE Energy, included in Current Assets — Other and Other Assets — Notes Receivable on the Consolidated Statements of Financial Position. For DTE Electric, included in Other Assets — Other on the Consolidated Statements of Financial Position.

The allowance for doubtful accounts on accounts receivable for the utility entities is generally calculated using an aging approach that utilizes rates developed in reserve studies. DTE Electric and DTE Gas establish an allowance for uncollectible accounts based on historical losses and management's assessment of existing and future economic conditions, customer trends and other factors. Customer accounts are generally considered delinquent if the amount billed is not received by the due date, which is typically in 21 days, however, factors such as assistance programs may delay aggressive action. DTE Electric and DTE Gas generally assess late payment fees on trade receivables based on past-due terms with customers. Customer accounts are written off when collection efforts have been exhausted. The time period for write-off is 150 days after service has been terminated.

The customer allowance for doubtful accounts for non-utility businesses and other receivables for both utility and non-utility businesses is generally calculated based on specific review of probable future collections based on receivable balances generally in excess of 30 days. Existing and future economic conditions, customer trends and other factors are also considered. Receivables are written off on a specific identification basis and determined based upon the specific circumstances of the associated receivable.

Notes receivable for DTE Energy are primarily comprised of finance lease receivables and loans that are included in Notes Receivable and Other current assets on DTE Energy's Consolidated Statements of Financial Position. Notes receivable for DTE Electric are primarily comprised of loans.

Notes receivable are typically considered delinquent when payment is not received for periods ranging from 60 to 120 days. The Registrants cease accruing interest (nonaccrual status), consider a note receivable impaired, and establish an allowance for credit loss when it is probable that all principal and interest amounts due will not be collected in accordance with the contractual terms of the note receivable. In determining the allowance for credit losses for notes receivable, the Registrants consider the historical payment experience and other factors that are expected to have a specific impact on the counterparty's ability to pay including existing and future economic conditions.

DTE Energy has off balance sheet exposure in the form of a revolving credit facility. Refer to Note 13, "Commitments and Contingencies," for additional information. In determining the level of credit reserve needed, DTE considers the likelihood of funding in addition to the other factors noted above. A reserve may be established when it is likely that funding will occur. Cash payments received on nonaccrual status notes receivable, that do not bring the account contractually current, are first applied to the contractually owed past due interest, with any remainder applied to principal. Accrual of interest is generally resumed when the note receivable becomes contractually current.

The following tables present a roll-forward of the activity for the Registrants' financing receivables credit loss reserves:


	DTE Energy				DTE Electric
	Trade accounts receivable		Other receivables			Total		Trade and other accounts receivable
	(In millions)
Beginning reserve balance, January 1, 2021	$	101	$	3		$	104	$	57
Current period provision	30		—			30		12

Write-offs charged against allowance	(36)		—			(36)		(24)
Recoveries of amounts previously written off	25		—			25		14
Ending reserve balance, March 31, 2021	$	120	$	3		$	123	$	59


	DTE Energy				DTE Electric
	Trade accounts receivable		Other receivables			Total		Trade and other accounts receivable
	(In millions)
Beginning reserve balance, January 1, 2020	$	87	$	4		$	91	$	46
Current period provision	34		1			35		17

Write-offs charged against allowance	(51)		(1)			(52)		(30)
Recoveries of amounts previously written off	16		—			16		10
Ending reserve balance, March 31, 2020	$	86	$	4		$	90	$	43

Uncollectible expense for the Registrants is primarily comprised of the current period provision for allowance for doubtful accounts. For DTE Energy, uncollectible expense was $31 million and $33 million for the three months ended March 31, 2021 and 2020, respectively. For DTE Electric, uncollectible expense was $11 million and $17 million for the three months ended March 31, 2021 and 2020, respectively.

There are no material amounts of past due financing receivables for the Registrants as of March 31, 2021.