EX-99.1 2 dtegas-exhibit991x93020.htm EX-99.1 Document

Exhibit 99.1

DTE Gas Company

Unaudited Consolidated Financial Statements as of and for the Three and Nine Months Ended September 30, 2020





TABLE OF CONTENTS
Page




DEFINITIONS
AFUDCAllowance for Funds Used During Construction
ASUAccounting Standards Update issued by the FASB
CompanyDTE Gas Company and any subsidiary companies
COVID-19Coronavirus disease of 2019
Customer ChoiceMichigan legislation giving customers the option of retail access to alternative suppliers for natural gas
DTE EnergyDTE Energy Company, directly or indirectly the parent of DTE Electric Company, DTE Gas Company, and numerous non-utility subsidiaries
DTE GasDTE Gas Company (an indirect wholly-owned subsidiary of DTE Energy) and subsidiary companies
EGLEMichigan Department of Environment, Great Lakes, and Energy, formerly known as Michigan Department of Environmental Quality
EPAU.S. Environmental Protection Agency
FASBFinancial Accounting Standards Board
FERCFederal Energy Regulatory Commission
LLCDTE Energy Corporate Services, LLC, a subsidiary of DTE Energy
MGPManufactured Gas Plant
MPSCMichigan Public Service Commission
NEXUSNEXUS Gas Transmission, LLC, a joint venture in which a subsidiary of DTE Energy owns a 50% partnership interest
RepresentedEmployees of DTE Gas covered by collective bargaining agreements
TCJATax Cuts and Jobs Act of 2017
Topic 606FASB issued ASU No. 2014-09, Revenue From Contracts with Customers, as amended
VIEVariable Interest Entity

1

DTE Gas Company

Consolidated Statements of Operations (Unaudited)
Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
(In millions)
Operating Revenues$170 $152 $952 $1,028 
Operating Expenses
Cost of gas
11 3 226 280 
Operation and maintenance
116 129 356 372 
Depreciation and amortization
37 35 111 104 
Taxes other than income
18 16 62 59 
Asset (gains) losses and impairments, net— — 14 — 
182 183 769 815 
Operating Income (Loss)(12)(31)183 213 
Other (Income) and Deductions
Interest expense
21 19 60 57 
Interest income
(2)(1)(4)(4)
Other income
(2)(1)(6)(6)
Other expenses
2 2 5 3 
19 19 55 50 
Income (Loss) Before Income Taxes(31)(50)128 163 
Income Tax Expense (Benefit)(11)(13)26 41 
Net Income (Loss)$(20)$(37)$102 $122 

See Notes to Consolidated Financial Statements (Unaudited)

2

DTE Gas Company

Consolidated Statements of Comprehensive Income (Unaudited)
Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
(In millions)
Net Income (Loss)$(20)$(37)$102 $122 
Other comprehensive income— — — — 
Comprehensive Income (Loss)$(20)$(37)$102 $122 

See Notes to Consolidated Financial Statements (Unaudited)

3

DTE Gas Company

Consolidated Statements of Financial Position (Unaudited)
September 30,December 31,
20202019
(In millions)
ASSETS
Current Assets
Cash and cash equivalents
$91 $1 
Accounts receivable (less allowance for doubtful accounts of $29 and $32, respectively)
Customer
130 312 
Affiliates
36 31 
Other
4 1 
Inventories
Gas
80 40 
Materials and supplies
22 16 
Gas customer choice deferred asset
38 47 
Notes receivable
Affiliates
1 1 
Other
3 6 
Regulatory assets
2 — 
Prepaid property tax
35 16 
Other
4 5 
446 476 
Investments
37 37 
Property
Property, plant, and equipment
6,278 5,978 
Accumulated depreciation and amortization(1,986)(1,915)
4,292 4,063 
Other Assets
Regulatory assets
666 706 
Notes Receivable
Net investment in lease39 39 
Other7 8 
Prepaid pension costs — affiliates
183 165 
Prepaid postretirement costs — affiliates
209 188 
Other
5 6 
1,109 1,112 
Total Assets$5,884 $5,688 

See Notes to Consolidated Financial Statements (Unaudited)
4

DTE Gas Company

Consolidated Statements of Financial Position (Unaudited) - Continued
September 30,December 31,
20202019
(In millions, except shares)
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Accounts payable
Affiliates
$20 $21 
Other
172 184 
Short-term borrowings
100 194 
Current portion of long-term debt
— 50 
Regulatory liabilities
23 25 
Other
66 68 
381 542 
Long-Term Debt (net of current portion)
1,901 1,652 
Other Liabilities
Deferred income taxes
673 640 
Regulatory liabilities
679 712 
Asset retirement obligations
169 163 
Accrued pension liability — affiliates
67 90 
Accrued postretirement liability — affiliates
4 4 
Other
37 33 
1,629 1,642 
Commitments and Contingencies (Note 10)
Shareholder's Equity
Common stock ($1 par value, 15,100,000 shares authorized, and 10,300,000 shares issued and outstanding for both periods)1,109 989 
Retained earnings
864 863 
Total Shareholder's Equity1,973 1,852 
Total Liabilities and Shareholder's Equity$5,884 $5,688 

See Notes to Consolidated Financial Statements (Unaudited)

5

DTE Gas Company

Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended
September 30,
20202019
(In millions)
Operating Activities
Net Income$102 $122 
Adjustments to reconcile Net Income to Net cash from operating activities:
Depreciation and amortization111 104 
Allowance for equity funds used during construction(1)(1)
Deferred income taxes25 27 
Asset (gains) losses and impairments, net14 — 
Changes in assets and liabilities:
Accounts receivable, net174 192 
Inventories(44)(36)
Prepaid pension costs — affiliates(18)(15)
Prepaid postretirement benefit costs — affiliates(21)(15)
Accounts payable(26)(45)
Accrued pension liability — affiliates(23)(49)
Regulatory assets and liabilities51 25 
Other current and noncurrent assets and liabilities3 (14)
Net cash from operating activities347 295 
Investing Activities
Plant and equipment expenditures(381)(371)
Notes receivable and other— 4 
Net cash used for investing activities(381)(367)
Financing Activities
Issuance of long-term debt, net of issuance costs249 — 
Redemption of long-term debt(50)— 
Capital contribution by parent company120 120 
Short-term borrowings, net(94)43 
Dividends paid on common stock(101)(91)
Net cash from financing activities124 72 
Net Increase in Cash and Cash Equivalents90 — 
Cash and Cash Equivalents at Beginning of Period1 — 
Cash and Cash Equivalents at End of Period$91 $— 
Supplemental disclosure of non-cash investing and financing activities
Plant and equipment expenditures in accounts payable$70 $65 

See Notes to Consolidated Financial Statements (Unaudited)

6

DTE Gas Company

Consolidated Statements of Changes in Shareholder's Equity (Unaudited)
Common StockAdditional Paid-in CapitalRetained Earnings
SharesAmountTotal
(Dollars in millions, shares in thousands)
Balance, December 31, 201910,300 $10 $979 $863 $1,852 
Net Income— — — 120 120 
Dividends declared on common stock— — — (33)(33)
Balance, March 31, 202010,300 10 979 950 1,939 
Net Income— — — 2 2 
Dividends declared on common stock— — — (35)(35)
Balance, June 30, 202010,300 10 979 917 1,906 
Net Loss— — — (20)(20)
Dividends declared on common stock— — — (33)(33)
Capital contribution by parent company— — 120 — 120 
Balance, September 30, 202010,300 10 1,099 864 1,973 

Common StockAdditional Paid-in CapitalRetained Earnings
SharesAmountTotal
(Dollars in millions, shares in thousands)
Balance, December 31, 201810,300 $10 $859 $799 $1,668 
Net Income— — — 151 151 
Dividends declared on common stock— — — (31)(31)
Balance, March 31, 201910,300 10 859 919 1,788 
Net Income— — — 8 8 
Dividends declared on common stock— — — (30)(30)
Balance, June 30, 201910,300 10 859 897 1,766 
Net Loss— — — (37)(37)
Dividends declared on common stock— — — (30)(30)
Capital contribution by parent company— — 120 — 120 
Balance, September 30, 201910,300 10 979 830 1,819 

See Notes to Consolidated Financial Statements (Unaudited)

7

DTE Gas Company
Notes to Consolidated Financial Statements (Unaudited)

NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION
Corporate Structure
DTE Gas is a public utility engaged in the purchase, storage, transportation, distribution, and sale of natural gas to approximately 1.3 million customers throughout Michigan and the sale of storage and transportation capacity. The Company is regulated by the MPSC and certain activities are regulated by the FERC. In addition, the Company is regulated by other federal and state regulatory agencies including the EPA and EGLE.
Basis of Presentation
The Consolidated Financial Statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Company's 2019 Consolidated Financial Statements furnished on Form 8-K.
The accompanying Consolidated Financial Statements are prepared using accounting principles generally accepted in the United States of America. These accounting principles require management to use estimates and assumptions that impact reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results may differ from the Company's estimates.
The Consolidated Financial Statements are unaudited but, in the Company's opinion include all adjustments necessary to present a fair statement of the results for the interim periods. All adjustments are of a normal recurring nature, except as otherwise disclosed in these Consolidated Financial Statements and Notes to Consolidated Financial Statements. Financial results for this interim period are not necessarily indicative of results that may be expected for any other interim period or for the fiscal year ending December 31, 2020.
Certain prior year balances were reclassified to match the current year's Consolidated Financial Statements presentation.
Principles of Consolidation
The Company consolidates all majority-owned subsidiaries and investments in entities in which it has controlling influence. Non-majority owned investments are accounted for using the equity method when the Company is able to significantly influence the operating policies of the investee. When the Company does not influence the operating policies of an investee, the cost method is used. The Company eliminates all intercompany balances and transactions.
The Company evaluates whether an entity is a VIE whenever reconsideration events occur. The Company consolidates VIEs for which it is the primary beneficiary. If the Company is not the primary beneficiary and an ownership interest is held, the VIE is accounted for under the equity method of accounting. When assessing the determination of the primary beneficiary, the Company considers all relevant facts and circumstances, including: the power, through voting or similar rights, to direct the activities of the VIE that most significantly impact the VIE's economic performance and the obligation to absorb the expected losses and/or the right to receive the expected returns of the VIE. The Company performs ongoing reassessments of all VIEs to determine if the primary beneficiary status has changed.
The Company holds a variable interest in NEXUS through purchases under a long-term transportation capacity contract. NEXUS, a joint venture with a subsidiary of DTE Energy, owns a 256-mile pipeline to transport Utica and Marcellus shale gas to Ohio, Michigan, and Ontario market centers. NEXUS is a VIE as it has insufficient equity at risk to finance its activities. The Company is not the primary beneficiary, as the power to direct significant activities is shared between the owners of the equity interests.
As of September 30, 2020, the carrying amount of liabilities in the Company's Consolidated Statements of Financial Position that relate to its variable interest under the long-term contract are primarily related to working capital accounts and generally represent the amounts owed by the Company for transportation associated with the current billing cycle under the contract. The Company has not provided any significant form of financial support associated with the long-term contract. There is no material potential exposure to loss as a result of the Company's variable interest through the long-term contract.

8

DTE Gas Company
Notes to Consolidated Financial Statements (Unaudited) - (Continued)
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES
Income Taxes
The interim effective tax rates of DTE Gas are as follows:
Effective Tax Rate
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
DTE Gas36 %26 %20 %25 %
The tax rates are affected by estimated annual permanent items, including AFUDC equity 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 10% increase in the effective tax rate for the three months ended September 30, 2020 was primarily due to the tax benefit from higher amortization of the TCJA regulatory liability in relation to the pre-tax loss generated for the quarter. The 5% decrease in the effective tax rate for the nine months ended September 30, 2020 was primarily due to higher amortization of the TCJA regulatory liability in 2020.
The Company had income tax receivables with DTE Energy of $30 million at September 30, 2020 and December 31, 2019.
In March 2020, the "Coronavirus Aid, Relief, and Economic Security Act" (CARES Act) was signed into law and included several significant changes to the Internal Revenue Code. The CARES Act includes certain tax relief provisions applicable to the Company including the employee retention credit and delayed payment of employer payroll taxes.
The Company filed a claim for employee retention credits of $3 million during the second quarter 2020, which is included in Taxes other than income in the Consolidated Statements of Operations for the nine months ended September 30, 2020. The Company also deferred employer payroll taxes of $5 million, increasing the amount of Other Liabilities - Other on the Consolidated Statements of Financial Position as of September 30, 2020.
Allocated Stock-Based Compensation
The Company received an allocation of costs from DTE Energy associated with stock-based compensation of $3 million and $2 million for the three months ended September 30, 2020 and 2019, respectively, while such allocation was $7 million and $8 million for the nine months ended September 30, 2020 and 2019, respectively.
Financing Receivables
The Company monitors the credit quality of 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 Company has 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 Company utilizes 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 Company has 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.
9

DTE Gas Company
Notes to Consolidated Financial Statements (Unaudited) - (Continued)
The following represents the Company's 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 September 30, 2020.
Year of origination
202020192018 and priorTotal
(In millions)
Notes receivable, internal grade 2$2 $2 $5 $9 
Net investment in leases, internal grade 1(a)
$— $— $40 $40 
_______________________________________
(a)Current portion included in Current Assets — Notes receivable — Other on the Consolidated Statements of Financial Position.
The allowance for doubtful accounts on accounts receivable for the Company is generally calculated using an aging approach that utilizes rates developed in reserve studies. The Company establishes 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. The Company generally assesses 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 allowance for doubtful accounts for other receivables 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, or financing receivables, are primarily comprised of finance lease receivables and loans that are included in Notes Receivable and Other current assets on the Consolidated Statements of Financial Position.
Notes receivable are typically considered delinquent when payment is not received for periods ranging from 60 to 120 days. The Company ceases accruing interest (nonaccrual status), considers a note receivable impaired, and establishes 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 Company considers 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.
The following table presents a roll-forward of the activity for the Company's financing receivables credit loss reserves as of September 30, 2020.
Trade accounts receivableOther receivablesTotal
(In millions)
Beginning reserve balance, January 1, 2020$29 $3 $32 
Current period provision26 — 26 
Write-offs charged against allowance(44)(1)(45)
Recoveries of amounts previously written off16 — 16 
Ending reserve balance, September 30, 2020$27 $2 $29 
The Company has been monitoring the impacts from the COVID-19 pandemic on our customers and various counterparties, and has increased the allowance for doubtful accounts to account for additional risk related to the pandemic. As of September 30, 2020, the impact of this increase was not material.
In April 2020, the MPSC issued an order in response to the COVID-19 pandemic and authorized the deferral of certain uncollectible expense that is in excess of the amount used to set current rates. As a result of this order, the Company has deferred $1 million of uncollectible expense as Regulatory assets for the nine months ended September 30, 2020. For the three months ended September 30, 2020, the Company reversed $1 million of previously deferred uncollectible expense. Refer to Note 5 to the Consolidated Financial Statements, "Regulatory Matters," for further information regarding the order.
10

DTE Gas Company
Notes to Consolidated Financial Statements (Unaudited) - (Continued)
Uncollectible expense was $5 million and $27 million for the three and nine months ended September 30, 2020, respectively, which is primarily comprised of the current period provision adjusted for the regulatory deferral. Uncollectible expense was $7 million and $29 million for the three and nine months ended September 30, 2019, respectively.
There are no past due financing receivables for the Company as of September 30, 2020.

NOTE 3 — NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended. The amendments in this update have replaced the previous incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information, including forecasts, to develop credit loss estimates. The ASU requires entities to use the new methodology to measure impairment of financial instruments, including accounts receivable, and may result in earlier recognition of credit losses than under previous generally accepted accounting principles. Entities must apply the new guidance as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company adopted the standard effective January 1, 2020. The adoption of the ASU did not have an impact on the Company's financial position or results of operations. Additional required disclosures have been included in Note 2 to the Consolidated Financial Statements, “Significant Accounting Policies”.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820. The Company adopted the ASU effective January 1, 2020; however, no disclosure changes were deemed necessary for DTE Gas through September 30, 2020.  To the extent any disclosure changes required by the ASU are applicable for future periods, they will be incorporated into Note 6 to the Consolidated Financial Statements, "Fair Value".
In August 2018, the FASB issued ASU No. 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The Company adopted the standard effective January 1, 2020 using the prospective approach. The adoption of the ASU did not have an impact on the Company's Consolidated Financial Statements. On a prospective basis, costs within the scope of this amendment will be accounted for consistent with any underlying service contracts. Capitalized implementation costs will be reflected in Other noncurrent assets on the Consolidated Statements of Financial Position and amortization of these costs will be reflected in Operation and maintenance within the Consolidated Statements of Operations. Cash flow activity will be reflected in the Other current and noncurrent assets and liabilities line within the Operating Activities section of the Consolidated Statements of Cash Flows.
In August 2018, the FASB issued ASU No. 2018-14, Compensation — Retirement Benefits — Defined Benefit Plans (Subtopic 715-20): Disclosure Framework — Changes to the Disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in this update modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The Company adopted the ASU effective January 1, 2020. The required disclosures for this ASU will be reflected in the 2020 year-end financial statements.
In October 2018, the FASB issued ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. The amendments in this update modify the requirements for determining whether fees paid to a decision maker or service provider are variable interests and require reporting entities to consider indirect interests held through related parties under common control on a proportional basis. The Company adopted the ASU effective January 1, 2020. The adoption of the ASU did not have a significant impact on the Company's Consolidated Financial Statements.
11

DTE Gas Company
Notes to Consolidated Financial Statements (Unaudited) - (Continued)
Recently Issued Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions, and clarifying certain requirements regarding franchise taxes, goodwill, consolidated tax expenses, and annual effective tax rate calculations. The ASU is effective for the Company for fiscal years beginning after December 15, 2020. The Company will adopt the ASU on its effective date using a modified retrospective approach. The ASU will not have a significant impact on the Company's Consolidated Financial Statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The optional expedients are effective for the modification of existing contracts or new arrangements executed March 12, 2020 through December 31, 2022. The Company is currently assessing the impact of this standard on its Consolidated Financial Statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. The amendments in this update simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts indexed to and potentially settled in an entity's own equity. The ASU is effective for the Company for fiscal years beginning after December 15, 2021, and interim periods therein. Early adoption is permitted. The ASU will not have a significant impact on the Company's Consolidated Financial Statements.

NOTE 4 — REVENUE
Disaggregation of Revenue
The following is a summary of disaggregated revenues for the Company:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(In millions)
Gas sales$90 $85 $644 $713 
End User Transportation34 35 154 157 
Intermediate Transportation15 15 57 57 
Other(a)
31 17 97 101 
Total Gas operating revenues(b)
$170 $152 $952 $1,028 
_______________________________________
(a)Includes revenue adjustments related to various regulatory mechanisms.
(b)Includes $2 million under Alternative Revenue Programs for the nine months ended September 30, 2020 and $2 million and $7 million of other revenues for the three and nine months ended September 30, 2020, respectively, which are all outside the scope of Topic 606. For prior period, revenues include $2 million and $6 million of other revenues for the three and nine months ended September 30, 2019, respectively, which are all outside the scope of Topic 606.
Transaction Price Allocated to the Remaining Performance Obligations
In accordance with optional exemptions available under Topic 606, the Company did not disclose the value of unsatisfied performance obligations for (1) contracts with an original expected length of one year or less, (2) with the exception of fixed consideration, contracts for which revenue is recognized at the amount to which the Company has the right to invoice for goods provided and services performed, and (3) contracts for which variable consideration relates entirely to an unsatisfied performance obligation.
Such contracts consist of varying types of performance obligations, including the supply and delivery of energy related products and services. Contracts with variable volumes and/or variable pricing have also been excluded as the related consideration under the contract is variable at inception of the contract. Contract lengths vary from cancellable to multi-year.
12

DTE Gas Company
Notes to Consolidated Financial Statements (Unaudited) - (Continued)
The Company expects to recognize revenue for the following amounts related to fixed consideration associated with remaining performance obligations in each of the future periods noted:
(In millions)
2020$25 
202194 
202287 
202371 
202457 
2025 and thereafter392 
$726 

NOTE 5 — REGULATORY MATTERS
2020 COVID-19 Response
In response to the COVID-19 pandemic, the MPSC issued an order on April 15, 2020 to provide guidance and direction to utilities and other stakeholders on topics including customer protections and affordability, utility accounting, regulatory activities, energy assistance, and energy waste reduction and demand response continuity.  The order authorizes the deferral of uncollectible expense that is in excess of the amount used to set current rates effective March 24, 2020, the date of Michigan's executive order to "Stay Home, Stay Safe".  The Company implemented the deferral in the second quarter 2020, and there is currently no expiration for the ability to defer these costs. Refer to Note 2 to the Consolidated Financial Statements, "Significant Accounting Policies" for the impact to uncollectible expense for the period.
On July 23, 2020, the MPSC further ordered that utilities seeking to recover COVID-19 related expenses beyond uncollectible expense may make an informational filing no later than November 2, 2020. The Company does not plan to make a filing in response to this order, and will continue to monitor MPSC activities involving COVID-19.
2019 Rate Case Filing
DTE Gas filed a rate case with the MPSC on November 25, 2019 requesting an increase in base rates of $204 million based on a projected twelve-month period ending September 30, 2021.  The requested increase in base rates is primarily due to an increase in net plant resulting from infrastructure investments and operating and maintenance expenses.  The rate filing also requests an increase in return on equity from 10.0% to 10.5% and includes projected changes in sales and working capital.
On July 17, 2020, DTE Gas reached a settlement with all intervening parties in the case and filed a settlement agreement authorizing the company to increase base rates by $110 million, reflecting a return on equity of 9.9%. The resulting rates are a net increase to customers of $51 million as an existing Infrastructure Recovery Mechanism (IRM) surcharge will be rolled into the new base rates. The settlement agreement also approved a $20 million annual increase to amortization of the regulatory liability for non-plant accumulated deferred income tax balances resulting from the TCJA. This increased amortization will cease upon DTE Gas receiving its next rate order. The MPSC approved the settlement agreement in August 2020 and DTE Gas implemented the increases to rates and amortization effective October 1, 2020. In addition, the settlement agreement disallowed capitalized expenditures related to incentive compensation previously recorded during 2018-2020. In anticipation of this result, DTE Gas recorded a disallowance of $14 million during the second quarter 2020, which is included in Asset (gains) losses and impairment, net on the Consolidated Statements of Operations for the nine months ended September 30, 2020.

13

DTE Gas Company
Notes to Consolidated Financial Statements (Unaudited) - (Continued)
NOTE 6 — 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 Company makes certain assumptions it believes 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 Company and its counterparties is incorporated in the valuation of assets and liabilities through the use of credit reserves, the impact of which was immaterial at September 30, 2020 and December 31, 2019. The Company believes it uses 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 Company classifies 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 Company has 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.
As of September 30, 2020, the Company had $94 million of Level 1 assets measured and recorded at fair value on a recurring basis. The assets include $90 million of cash equivalents and $4 million of equity securities recorded in Cash and cash equivalents and Other investments, respectively, on the Consolidated Statements of Financial Position. At December 31, 2019, the Company had $4 million of cash equivalents recorded at fair value and classified as Level 1 assets, which was included in Other investments on the Consolidated Statements of Financial Position.
The following table presents the carrying amount and fair value of financial instruments:
September 30, 2020December 31, 2019
CarryingFair ValueCarryingFair Value
AmountLevel 1Level 2Level 3AmountLevel 1Level 2Level 3
(In millions)
Notes receivable — affiliates
$1 $— $— $1 $1 $— $— $1 
Notes receivable — other, excluding lessor finance leases
$9 $— $— $9 $9 $— $— $9 
Short-term borrowings — other
$100 $— $100 $— $194 $— $194 $— 
Long-term debt(a)
$1,901 $— $991 $1,213 $1,702 $— $734 $939 
_______________________________________
(a)Includes debt due within one year, unamortized debt discounts, and issuance costs.
For further fair value information on financial and derivative instruments, see Note 7 to the Consolidated Financial Statements, "Financial and Other Derivative Instruments."

14

DTE Gas Company
Notes to Consolidated Financial Statements (Unaudited) - (Continued)
NOTE 7 — FINANCIAL AND OTHER DERIVATIVE INSTRUMENTS
The Company recognizes all derivatives at their fair value as Derivative assets or liabilities on the Consolidated Statements of Financial Position unless they qualify for certain scope exceptions, including the normal purchases and normal sales exception. Further, derivatives that qualify and are designated for hedge accounting are classified as either hedges of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge); or as hedges of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge). For cash flow hedges, the derivative gain or loss is deferred in Accumulated other comprehensive income (loss) and later reclassified into earnings when the underlying transaction occurs. For fair value hedges, changes in fair values for the derivative and hedged item are recognized in earnings each period. For derivatives that do not qualify or are not designated for hedge accounting, changes in fair value are recognized in earnings each period.
The Company's primary market risk exposure is associated with commodity prices, credit, and interest rates. The Company has risk management policies to monitor and manage market risks. The Company purchases, stores, transports, distributes, and sells natural gas, and buys and sells transportation and storage capacity. The Company has fixed-priced contracts for portions of its expected natural gas supply requirements through March 2023. Substantially all of these contracts meet the normal purchases and normal sales exception and are therefore accounted for under the accrual method. Forward transportation and storage contracts are generally not derivatives and are therefore accounted for under the accrual method.

NOTE 8 — LONG-TERM DEBT
Debt Issuances
In 2020, the following debt was issued:
MonthTypeInterest RateMaturity DateAmount
(In millions)
August
Mortgage Bonds(a)
2.35%2030125 
August
Mortgage Bonds(a)
3.20%2050125 
$250 
_______________________________________
(a)Proceeds used for the repayment of $50 million of the Company's 2008 Series I 6.36% Senior Notes due 2020 and for general corporate purposes, including capital expenditures.
Debt Redemptions
In 2020, the following debt was redeemed:
MonthTypeInterest RateMaturity DateAmount
(In millions)
SeptemberSenior Notes6.36%202050 

NOTE 9 — SHORT-TERM CREDIT ARRANGEMENTS AND BORROWINGS
The Company has a $300 million unsecured revolving credit agreement that can be used for general corporate borrowings but is intended to provide liquidity support for the Company's commercial paper program. Borrowings under the revolver are available at prevailing short-term interest rates. The facility will expire in April 2024. As of September 30, 2020, the Company did not have any commercial paper or revolver borrowings outstanding.
In April 2020, the Company entered into a $100 million unsecured term loan to raise additional liquidity with terms consistent with the unsecured revolving credit agreement. The full $100 million was drawn and outstanding as of September 30, 2020. The term loan was scheduled to expire in April 2021; however, the Company repaid the $100 million loan in October 2020.
15

DTE Gas Company
Notes to Consolidated Financial Statements (Unaudited) - (Continued)
The unsecured revolving credit agreement requires the Company to maintain a total funded debt to capitalization ratio of no more than 0.65 to 1. In the agreement, "total funded debt" means all indebtedness of the Company and its consolidated subsidiaries, including finance lease obligations, hedge agreements, and guarantees of third parties' debt, but excluding contingent obligations, nonrecourse and junior subordinated debt, and, except for calculations at the end of the second quarter, certain short-term debt. "Capitalization" means the sum of (a) total funded debt plus (b) "consolidated net worth," which is equal to consolidated total equity of the Company and its consolidated subsidiaries (excluding pension effects under certain FASB statements), as determined in accordance with accounting principles generally accepted in the United States of America. At September 30, 2020, the total funded debt to total capitalization ratio for the Company was 0.49 to 1 and was in compliance with this financial covenant.

NOTE 10 — COMMITMENTS AND CONTINGENCIES
Environmental
Air — In June 2020, DTE Energy expanded its long-term goal of net zero emissions to include DTE Gas, including a commitment to reduce greenhouse gas emissions to net zero by 2050 from procurement of natural gas through delivery. In addition, DTE Gas committed to partner with customers to help them reduce greenhouse gas emissions through energy efficiency and participation in a voluntary emissions offset program. Further details of the DTE Gas net zero goal will emerge as the Company evaluates strategies and technologies for reducing emissions.
Contaminated and Other Sites — Prior to the construction of major interstate natural gas pipelines, gas for heating and other uses was manufactured locally from processes involving coal, coke, or oil. The facilities, which produced gas, have been designated as MGP sites. The Company owns or previously owned, 14 former MGP sites. Investigations have revealed contamination related to the by-products of gas manufacturing at each site. Cleanup of eight of the MGP sites is complete, and the sites are closed. The Company has also completed partial closure of four additional sites. Cleanup activities associated with the remaining sites will continue over the next several years. The MPSC has established a cost deferral and rate recovery mechanism for investigation and remediation costs incurred at former MGP sites. In addition to the MGP sites, the Company is also in the process of cleaning up other contaminated sites, including gate stations, gas pipeline releases, and underground storage tank locations. At September 30, 2020 and December 31, 2019, the Company had $24 million and $25 million, respectively, accrued for remediation. These costs are not discounted to their present value. Any change in assumptions, such as remediation techniques, nature and extent of contamination, and regulatory requirements, could impact the estimate of remedial action costs for the sites and affect the Company's financial position and cash flows. The Company anticipates the cost amortization methodology approved by the MPSC, which allows for amortization of the MGP costs over a ten-year period beginning with the year subsequent to the year the MGP costs were incurred, will prevent the associated investigation and remediation costs from having a material adverse impact on the Company's results of operations.
Guarantees
In certain limited circumstances, the Company enters into contractual guarantees. The Company may guarantee another entity’s obligation in the event it fails to perform and may provide guarantees in certain indemnification agreements. The Company may also provide indirect guarantees for the indebtedness of others.
Labor Contracts
There are several bargaining units for the Company's approximate 1,200 represented employees. The majority of the represented employees are under contracts that expire in 2021.
Purchase Commitments
The Company has made certain commitments in connection with 2020 annual capital expenditures that are expected to be approximately $570 million.
COVID-19 Pandemic
The Company is actively monitoring the impact of the COVID-19 pandemic on supply chains, markets, counterparties, and customers, and any related impacts on operating costs, customer demand, and recoverability of assets that could materially impact the Company's financial results.
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DTE Gas Company
Notes to Consolidated Financial Statements (Unaudited) - (Continued)
COVID-19 has resulted in higher costs for personal protective equipment and other health and safety related matters, including shift premiums and related expenses associated with the sequestration of certain employees critical to continued operations. These costs did not result in a significant change in the Company's operation and maintenance expenses for the three and nine months ended September 30, 2020, relative to the comparable prior period.
Additionally, as discussed in Note 2, "Significant Accounting Policies", the allowance for doubtful accounts was increased due to additional risk relating to COVID-19. However, the impact of this increase is not material.
In consideration of these limited impacts and any expected impacts to future performance and cash flows resulting from the COVID-19 pandemic, there have been no material adjustments or reserves deemed necessary to the Consolidated Financial Statements as of September 30, 2020.
The Company cannot predict the future impacts of the COVID-19 pandemic on the Consolidated Financial Statements, as developments involving COVID-19 and its related effects on economic and operating conditions remain highly uncertain.
Other Contingencies
The Company is involved in certain other legal, regulatory, administrative, and environmental proceedings before various courts, arbitration panels, and governmental agencies concerning claims arising in the ordinary course of business. These proceedings include certain contract disputes, additional environmental reviews and investigations, audits, inquiries from various regulators, and pending judicial matters. The Company cannot predict the final disposition of such proceedings. The Company regularly reviews legal matters and records provisions for claims that it can estimate and are considered probable of loss. The resolution of these pending proceedings is not expected to have a material effect on the Consolidated Financial Statements in the periods they are resolved.
For a discussion of contingencies related to regulatory matters, see Note 5 to the Consolidated Financial Statements, "Regulatory Matters."

NOTE 11 — RETIREMENT BENEFITS AND TRUSTEED ASSETS
The Company participates in various plans that provide defined benefit pension and other postretirement benefits for DTE Energy and its affiliates. The plans are sponsored by the LLC and cover substantially all employees of the Company. The Company accounts for its participation in the represented qualified pension plan by applying single-employer accounting. Non-represented participation in qualified and non-qualified pension plans is accounted for by applying multiemployer accounting. Participation in other postretirement benefit plans is accounted for by applying multiple-employer accounting. Within multiemployer and multiple-employer plans, participants pool plan assets for investment purposes and to reduce the cost of plan administration. The primary difference between plan types is assets contributed in multiemployer plans can be used to provide benefits for all participating employers, while assets contributed within a multiple-employer plan are restricted for use by the contributing employer. Plan participants of all plans are solely DTE Energy and affiliate participants.
17

DTE Gas Company
Notes to Consolidated Financial Statements (Unaudited) - (Continued)
The following table details the components of net periodic benefit costs (credits) for represented pension benefits and other postretirement benefits:
Pension BenefitsOther Postretirement Benefits
2020201920202019
(In millions)
Three Months Ended September 30,
Service cost$3 $3 $2 $1 
Interest cost6 6 3 4 
Expected return on plan assets(10)(9)(11)(11)
Amortization of:
Net actuarial loss5 3 1 1 
Prior service credit— — (1)— 
Net periodic benefit cost (credit)$4 $3 $(6)$(5)
Pension BenefitsOther Postretirement Benefits
2020201920202019
(In millions)
Nine Months Ended September 30,
Service cost$10 $9 $5 $4 
Interest cost17 18 9 12 
Expected return on plan assets(29)(27)(31)(31)
Amortization of:
Net actuarial loss14 9 4 2 
Prior service credit— — (4)(1)
Net periodic benefit cost (credit)$12 $9 $(17)$(14)
DTE Energy's subsidiaries accounted for under multiemployer guidance are responsible for their share of qualified and non-qualified pension benefit costs. The Company's allocated portion of pension benefit costs for non-represented plans included in capital expenditures and regulatory liabilities were nominal for the three months ended September 30, 2020 and 2019 and $1 million for the nine months ended September 30, 2020 and 2019. These amounts include recognized contractual termination benefit charges, curtailment gains, and settlement charges.
Pension and Other Postretirement Contributions
In September 2020, the Company paid DTE Energy cash consideration of $22 million to fund a contribution of DTE Energy common stock to the represented pension plans. No contributions were made to the non-represented pension plans in 2020. The Company does not anticipate making any additional contributions to the pension plans or other postretirement benefit plans in 2020.

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