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Significant Accounting Policies
 9 Months Ended
Sep. 30, 2021
Accounting Policies [Abstract]  
Significant Accounting Policies SIGNIFICANT ACCOUNTING POLICIES
Other Income
The following is a summary of DTE Energy's Other income:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(In millions)
Income from REF entities$57 $43 $102 $95 
Equity earnings of equity method investees17 12 31 21 
Contract services6 7 21 20 
Allowance for equity funds used during construction7 6 20 19 
Gains from rabbi trust securities(a)
— 2 4 24 
Other3 5 9 9 
$90 $75 $187 $188 
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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 September 30,Nine Months Ended September 30,
2021202020212020
(In millions)
Contract services$6 $7 $21 $20 
Allowance for equity funds used during construction6 6 18 18 
Gains from rabbi trust securities allocated from DTE Energy(a)
— 2 4 24 
Other2 3 9 6 
$14 $18 $52 $68 
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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 DTE Energy, this includes a one-time reduction of $10 million in Accumulated other comprehensive loss due to the Separation of DT Midstream in the third quarter 2021. For the three and nine months ended months ended September 30, 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 September 30,Nine Months Ended September 30,
2021202020212020
DTE Energy186 %5 %(34)%2 %
DTE Electric12 %13 %10 %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. DTE Energy's effective tax rates in 2021 have been significantly impacted by pre-tax losses in the third quarter, driven primarily by the loss on extinguishment of debt and reclassification of DT Midstream earnings to discontinued operations.
The 181% increase in DTE Energy's effective tax rate for the three months ended September 30, 2021 was primarily due to a deferred tax remeasurement of 133%, production tax credits of 51%, and amortization of the TCJA regulatory liability of 35%, partially offset by a valuation allowance of 29% and recognition of a deferred intercompany gain of 13%.
The 36% decrease in DTE Energy’s effective tax rate for the nine months ended September 30, 2021 was primarily due to a deferred tax remeasurement of 23%, production tax credits of 13%, and amortization of the TCJA regulatory liability of 9%, partially offset by the 2020 carryback of 2018 net operating losses due to the CARES Act of 4%, a valuation allowance of 4%, recognition of a deferred intercompany gain of 2%, and West Virginia tax law change of 2% in 2021.
The valuation allowance referenced above was established in the third quarter 2021 based on a change in DTE Energy's assessment of its ability to utilize certain charitable contribution carryforwards. The valuation allowance resulted in $18 million of deferred tax expense and was reflected in Income Tax Expense (Benefit) in the Consolidated Statements of Operations for the three and nine months ended September 30, 2021. For the deferred tax remeasurement and deferred intercompany gain noted above, refer to the "Separation of DT Midstream - Tax Impacts" section below for additional information.
The 1% decrease in DTE Electric's effective tax rate for the three months ended September 30, 2021 was primarily due to production tax credits. The 2% decrease in DTE Electric's effective tax rate for the nine months ended September 30, 2021 was primarily due to production tax credits of 1% and amortization of the TCJA regulatory liability of 1%.
DTE Electric had income tax receivables with DTE Energy of $11 million and $8 million at September 30, 2021 and December 31, 2020, respectively.
Separation of DT Midstream - Tax Impacts
On July 1, 2021, DTE Energy completed the separation of its natural gas pipeline, storage and gathering non-utility business, DT Midstream. Refer to Note 4 to the Consolidated Financial Statements, "Dispositions and Impairments" for additional information regarding the separation. The separation was a tax free distribution to shareholders, but triggered certain tax effects at DTE Energy including the remeasurement of state deferred tax assets and liabilities and the recognition of a deferred intercompany gain. The state remeasurement reduced deferred tax liabilities and generated a deferred tax benefit of $85 million. The recognition of the deferred intercompany gain resulted in $9 million of additional deferred tax expense. Both of these impacts were reflected in Income Tax Expense (Benefit) in the Consolidated Statements of Operations for the three and nine months ended September 30, 2021.
Unrecognized Compensation Costs
As of September 30, 2021, DTE Energy had $76 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 1.4 years.
Allocated Stock-Based Compensation
DTE Electric received an allocation of costs from DTE Energy associated with stock-based compensation of $10 million and $12 million for the three months ended September 30, 2021 and 2020, respectively, while such allocation was $35 million and $28 million for the nine months ended September 30, 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 Registrants' 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 September 30, 2021.
DTE EnergyDTE Electric
Year of Origination
202120202019 and PriorTotal2021 and Prior
(In millions)
Notes receivable
Internal grade 1$— $— $19 $19 $14 
Internal grade 22 100 21 123 3 
Internal grade 3— — — — — 
Total notes receivable(a)
$2 $100 $40 $142 $17 
Net investment in leases
Net investment in leases, internal grade 1$— $2 $39 $41 $— 
Net investment in leases, internal grade 2— 159 1 160 — 
Total net investment in leases(a)
$— $161 $40 $201 $— 
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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 Current 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.
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 EnergyDTE Electric
Trade accounts receivableOther receivablesTotalTrade and other accounts receivable
(In millions)
Beginning reserve balance, January 1, 2021$101 $3 $104 $57 
Current period provision 41 1 42 27 
Write-offs charged against allowance(92)(1)(93)(58)
Recoveries of amounts previously written off49 — 49 29 
Ending reserve balance, September 30, 2021$99 $3 $102 $55 

DTE EnergyDTE Electric
Trade accounts receivableOther receivablesTotalTrade and other accounts receivable
(In millions)
Beginning reserve balance, January 1, 2020(a)
$79 $4 $83 $46 
Current period provision102 3 105 61 
Write-offs charged against allowance(130)(4)(134)(80)
Recoveries of amounts previously written off50 — 50 30 
Ending reserve balance, December 31, 2020$101 $3 $104 $57 
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(a)DTE Energy Trade accounts receivable beginning reserve balance excludes $8 million related to the discontinued operations of DT Midstream. Prospective activity includes only the continuing operations of DTE Energy.
Uncollectible expense for the Registrants is primarily comprised of the current period provision for allowance for doubtful accounts and is summarized as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(In millions)
DTE Energy$7 $22 $42 $72 
DTE Electric10 16 26 42 
There are no material amounts of past due financing receivables for the Registrants as of September 30, 2021.