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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
Income Tax Summary
DTE Energy files a consolidated federal income tax return. DTE Electric is a part of the consolidated federal income tax return of DTE Energy. DTE Energy and its subsidiaries file consolidated and/or separate company income tax returns in various states and localities, including a consolidated return in the State of Michigan. DTE Electric is part of the Michigan consolidated income tax return of DTE Energy. The federal, state and local income tax expense for DTE Electric is determined on an individual company basis with no allocation of tax expenses or benefits from other affiliates of DTE Energy. DTE Electric had income tax receivables with DTE Energy of $1 million and $31 million at December 31, 2022 and 2021, respectively.
The Registrants' total Income Tax Expense varied from the statutory federal income tax rate for the following reasons:
202220212020
DTE Energy(In millions)
Income Before Income Taxes$1,112 $656 $1,082 
Income tax expense at 21% statutory rate$234 $138 $227 
TCJA regulatory liability amortization(155)(103)(76)
Production tax credits(91)(138)(121)
Net operating loss carryback(5)— (34)
State deferred tax remeasurement due to separation of DT Midstream, net of federal benefit— (85)— 
Enactment of West Virginia income tax legislation, net of federal benefit— 8 — 
Deferred intercompany gain— 9 — 
Valuation allowance on charitable contribution carryforwards9 18 3 
State and local income taxes, excluding items above, net of federal benefit42 30 47 
Other, net(5)(7)(9)
Income Tax Expense (Benefit)$29 $(130)$37 
Effective income tax rate2.6 %(19.9)%3.4 %
202220212020
DTE Electric(In millions)
Income Before Income Taxes$981 $970 $887 
Income tax expense at 21% statutory rate$206 $204 $186 
TCJA regulatory liability amortization(145)(73)(62)
Production tax credits(83)(70)(55)
State and local income taxes, excluding items above, net of federal benefit56 54 50 
Other, net(8)(11)(10)
Income Tax Expense$26 $104 $109 
Effective income tax rate2.7 %10.7 %12.3 %
Components of the Registrants' Income Tax Expense were as follows:
202220212020
DTE Energy(In millions)
Current income tax expense (benefit)
Federal$(13)$(33)$(249)
State and other income tax(2)(12)4 
Total current income taxes(15)(45)(245)
Deferred income tax expense (benefit)
Federal(13)(42)227 
State and other income tax57 (43)55 
Total deferred income taxes44 (85)282 
$29 $(130)$37 
202220212020
DTE Electric(In millions)
Current income tax expense (benefit)
Federal$1 $(11)$15 
State and other income tax— (7)5 
Total current income taxes1 (18)20 
Deferred income tax expense (benefit)
Federal(46)47 30 
State and other income tax71 75 59 
Total deferred income taxes25 122 89 
$26 $104 $109 
Deferred tax assets and liabilities are recognized for the estimated future tax effect of temporary differences between the tax basis of assets or liabilities and the reported amounts in the Registrants' Consolidated Financial Statements.
The Registrants' deferred tax assets (liabilities) were comprised of the following at December 31:
DTE EnergyDTE Electric
2022202120222021
(In millions)
Property, plant, and equipment$(3,897)$(3,826)$(3,188)$(3,164)
Regulatory assets and liabilities(493)(124)(589)(230)
Tax credit carry-forwards1,378 1,260 487 379 
Pension and benefits111 102 103 127 
Federal net operating loss carry-forward266 199 58 5 
State and local net operating loss carry-forwards97 73 38 15 
Investments in equity method investees65 59 — (1)
Other137 145 145 128 
(2,336)(2,112)(2,946)(2,741)
Less: Valuation allowance(58)(51)— — 
Long-term deferred income tax liabilities$(2,394)$(2,163)$(2,946)$(2,741)
Deferred income tax assets$2,317 $2,224 $1,081 $988 
Deferred income tax liabilities(4,711)(4,387)(4,027)(3,729)
$(2,394)$(2,163)$(2,946)$(2,741)
Tax credit carry-forwards for DTE Energy include $1.4 billion of general business credits that expire from 2032 through 2042. No valuation allowance is required for the tax credits carry-forward deferred tax asset.
DTE Energy has a pre-tax federal net operating loss carry-forward of $1.3 billion as of December 31, 2022. The net operating loss carry-forwards generated in 2015 and 2016 will expire in 2035 and 2036 respectively, and the net operating loss carry-forwards generated in 2018 and subsequent years can be carried forward indefinitely. No valuation allowance is required for the federal net operating loss deferred tax asset.
DTE Energy has state and local deferred tax assets related to net operating loss carry-forwards of $97 million and $73 million at December 31, 2022 and 2021, respectively. Most of the state and local net operating loss carry-forwards expire from 2023 through 2042 with the remainder being carried forward indefinitely.
DTE Energy has recorded valuation allowances of $58 million and $51 million at December 31, 2022 and 2021, respectively, including $31 million and $29 million for the respective periods related to the state net operating loss carryforwards noted above. The remaining valuation allowances are related to charitable contribution carryforwards. The change in balances in 2022 includes establishing a valuation allowance of $9 million based on a change in expected ability to utilize certain of these charitable contribution carryforwards.
In assessing the realizability of deferred tax assets, DTE Energy considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Tax credit carry-forwards for DTE Electric include $487 million of general business credits that expire from 2036 through 2042. No valuation allowance is required for the tax credits carry-forward deferred tax asset.
DTE Electric has a pre-tax federal net operating loss carry-forward of $276 million as of December 31, 2022 which can be carried forward indefinitely. No valuation allowance is required for the federal net operating loss deferred tax asset.
DTE Electric has $38 million and $15 million in state and local deferred tax assets related to net operating loss carry-forwards at December 31, 2022 and 2021, respectively, which will expire from 2030 through 2042. No valuation allowance is required for the state and local net operating loss deferred tax assets.
The above tables exclude unamortized investment tax credits that are shown separately on the Registrants' Consolidated Statements of Financial Position. Investment tax credits are generally deferred and amortized to income over the average life of the related property.
Inflation Reduction Act
During the third quarter 2022, the Inflation Reduction Act (IRA) was signed into law. The IRA included several new tax provisions, including a corporate alternative minimum tax and various tax incentives for energy and climate initiatives. Enactment of this legislation did not impact the Registrants' financial statements for the period ended December 31, 2022. The Registrants do not expect the legislation to have a significant impact in the near term and continue to assess any potential long-term impacts.
Uncertain Tax Positions
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the Registrants is as follows:
202220212020
DTE Energy(In millions)
Balance at January 1$10 $10 $10 
Additions for tax positions of prior years5 — — 
Reductions for tax positions of prior years(2)— — 
Balance at December 31$13 $10 $10 
202220212020
DTE Electric(In millions)
Balance at January 1$13 $13 $13 
Additions for tax positions of prior years— — — 
Reductions for tax positions of prior years— — — 
Balance at December 31$13 $13 $13 
If recognized, all of the Registrants' unrecognized tax benefits would favorably impact their effective tax rate. DTE Energy believes it is reasonably possible that the amount of unrecognized tax benefits may decrease within the next 12 months by $13 million due to anticipated settlements with tax authorities, comprised of $5 million related to a federal refund claim and $8 million related to state exposures.
DTE Electric believes it is reasonably possible that the amount of unrecognized tax benefits may decrease within the next 12 months by $13 million due to an anticipated settlement with tax authorities related to state exposures.
The Registrants recognize interest and penalties pertaining to income taxes in Interest expense and Other expenses, respectively, on the Consolidated Statements of Operations.
Accrued interest pertaining to income taxes for DTE Energy totaled $5 million at December 31, 2022 and 2021. DTE Energy recognized a nominal amount of interest expense related to income taxes in 2022 and 2021 and $1 million in 2020. DTE Energy has not accrued any penalties pertaining to income taxes.
Accrued interest pertaining to income taxes for DTE Electric totaled $8 million at December 31, 2022 and $7 million at December 31, 2021. DTE Electric recognized interest expense related to income taxes of $1 million in 2022, 2021, and 2020. DTE Electric has not accrued any penalties pertaining to income taxes.
In 2022, DTE Energy, including DTE Electric, settled a federal tax audit for the 2020 tax year. DTE Energy's federal income tax returns for 2021 and subsequent years remain subject to examination by the IRS. DTE Energy's Michigan Business Tax returns for the years 2008-2011 and Michigan Corporate Income Tax returns for the year 2017 and subsequent years remain subject to examination by the State of Michigan. DTE Energy also files tax returns in numerous state and local jurisdictions with varying statutes of limitation.