DTE ENERGY CO - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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8-K - 8-K - DTE ENERGY CO	a8-kearningsrelease4th.htm

Exhibit 99.1

DTE Gas Company

Consolidated Financial Statements as of December 31, 2019 and 2018 and for each of the three years in the period ended December 31, 2019 and Report of Independent Auditors

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DTE Gas Company

Year Ended December 31, 2019

TABLE OF CONTENTS



	Page
Definitions	1

Management's Narrative Analysis of Results of Operations	3

Report of Independent Auditors	5

Consolidated Statements of Operations	6

Consolidated Statements of Comprehensive Income	7

Consolidated Statements of Financial Position	8

Consolidated Statements of Cash Flows	10

Consolidated Statements of Changes in Shareholder's Equity	11

Notes to Consolidated Financial Statements	12

Note 1 — Organization and Basis of Presentation	12

Note 2 — Significant Accounting Policies	12

Note 3 — New Accounting Pronouncements	14

Note 4 — Revenue	16

Note 5 — Property, Plant, and Equipment	17

Note 6 — Asset Retirement Obligations	18

Note 7 — Regulatory Matters	19

Note 8 — Income Taxes	22

Note 9 — Fair Value	24

Note 10 — Financial and Other Derivative Instruments	25

Note 11 — Long-Term Debt	26

Note 12 — Preferred and Preference Securities	27

Note 13 — Short-Term Credit Arrangements and Borrowings	27

Note 14 — Leases	27

Note 15 — Commitments and Contingencies	29

Note 16 — Retirement Benefits and Trusteed Assets	30

Note 17 — Related Party Transactions	39

DEFINITIONS



AFUDC		Allowance for Funds Used During Construction

ASU		Accounting Standards Update issued by the FASB

Company		DTE Gas Company and any subsidiary companies

Customer Choice		Michigan legislation giving customers the option of retail access to alternative suppliers for natural gas

DTE Energy		DTE Energy Company, directly or indirectly the parent of DTE Electric Company, DTE Gas Company, and numerous non-utility subsidiaries

DTE Gas		DTE Gas Company (an indirect wholly-owned subsidiary of DTE Energy) and subsidiary companies

EGLE		Michigan Department of Environment, Great Lakes, and Energy, formerly known as Michigan Department of Environmental Quality

EPA		U.S. Environmental Protection Agency

FASB		Financial Accounting Standards Board

FERC		Federal Energy Regulatory Commission

GCR		A Gas Cost Recovery mechanism authorized by the MPSC that allows DTE Gas to recover through rates its natural gas costs

LLC		DTE Energy Corporate Services, LLC, a subsidiary of DTE Energy

MGP		Manufactured Gas Plant

MPSC		Michigan Public Service Commission

NAV		Net Asset Value

NEXUS		NEXUS Gas Transmission, LLC, a joint venture in which a subsidiary of DTE Energy owns a 50% partnership interest

RDM		A Revenue Decoupling Mechanism authorized by the MPSC that is designed to minimize the impact on revenues of changes in average customer usage

Represented		Employees of DTE Gas covered by collective bargaining agreements

TCJA		Tax Cuts and Jobs Act of 2017

TCJA rate reduction liability		Due to the change in the corporate tax rate, from January 1, 2018 to June 30, 2018, the Company reduced revenue and recorded an offsetting regulatory liability

Topic 606		FASB issued ASU No. 2014-09, Revenue From Contracts with Customers, as amended

Topic 840		FASB issued ASC 840, Leases

Topic 842		FASB issued ASU No. 2016-02, Leases, as amended, which replaced Topic 840

VEBA		Voluntary Employees Beneficiary Association

VIE		Variable Interest Entity



Units of Measurement

Bcf		Billion cubic feet of natural gas

MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Results of Operations includes financial information prepared in accordance with GAAP, as well as the non-GAAP financial measure, Utility Margin, discussed below, which the Company uses as a measure of its operational performance. Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position, or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP.

The Company uses Utility Margin, a non-GAAP financial measure, to assess its performance. Utility Margin includes Operating Revenues net of Cost of gas expense. The Company's natural gas supply is passed through to customers, and therefore, result in changes to revenues that are comparable to changes in such expenses. As such, the Company believes Utility Margin provides a meaningful basis for evaluating its operations across periods, as it excludes the revenue effect of fluctuations in these expenses.

Utility Margin is not a measure calculated in accordance with GAAP and should be viewed as a supplement to and not a substitute for the results of operations presented in accordance with GAAP. Utility Margin does not intend to represent operating income, the most comparable GAAP measure, as an indicator of operating performance and is not necessarily comparable to similarly titled measures reported by other companies.

The following section provides a detailed discussion of the operating performance and future outlook of the Company, including the table below which summarizes the financial results for the years ended December 31:



	2019		2018		2017
	(In millions)
Operating Revenues	$	1,462	$	1,415	$	1,368
Cost of gas	415		435		432
Utility Margin	1,047		980		936
Operation and maintenance	510		497		445
Depreciation and amortization	142		132		122
Taxes other than income	79		72		64
Operating Income	316		279		305
Other (Income) and Deductions	67		63		81
Income Tax Expense	63		67		78
Net Income	$	186	$	149	$	146

Utility Margin increased $67 million in 2019 and $44 million in 2018. Revenues associated with certain mechanisms and surcharges are offset by related expenses elsewhere in the Consolidated Statements of Operations.

The following table details changes in various Utility Margin components relative to the comparable prior period for the years ended December 31:



	2019		2018
	(In millions)
Implementation of new rates	$	32	$	15
Midstream storage and transportation revenues	20		15
Weather	8		46
Regulatory mechanism — RDM	2		(3		)
TCJA rate reduction	—		(40		)
Other regulatory mechanisms and other	5		11
Increase in Utility Margin	$	67	$	44



	2019	2018	2017
	(In Bcf)
Gas Markets
Gas sales	136	132	116
End-user transportation	186	187	165
	322	319	281
Intermediate transportation	498	329	260
Total Gas sales	820	648	541

Operation and maintenance expense increased $13 million in 2019 and $52 million in 2018. The increase in 2019 was primarily due to higher gas operations expenses of $22 million, which included higher pipeline integrity and other operating costs, and higher customer service costs of $4 million, partially offset by decreased uncollectible expense of $15 million. The increase in 2018 was primarily due to increased uncollectible expense of $28 million due to customer billing initiatives following implementation of a new customer billing system and higher gas operations expenses of $22 million, which included increased investment spending and higher pipeline integrity expenses.

Depreciation and amortization expense increased $10 million in 2019 and $10 million in 2018. The increase in both periods was primarily due to increases in depreciable base.

Other (Income) and Deductions increased $4 million in 2019 and decreased $18 million in 2018. The increase in 2019 was primarily due to higher interest expense of $8 million, partially offset by lower contributions to the DTE Energy

Foundation and other not-for-profit organizations of $6 million. The decrease in 2018 was primarily due to lower contributions to the DTE Energy Foundation and other not-for-profit organizations of $27 million, partially offset by higher interest expense of $6 million.

Income Tax Expense decreased $4 million in 2019 and $11 million in 2018. The decrease in 2019 was primarily due to

the absence of a $10 million TCJA expense recorded in 2018, partially offset by increased tax expense on higher earnings in

2019. The decrease in 2018 was primarily due to the reduction in the federal tax rate in the TCJA that was enacted in

December 2017, partially offset by a $10 million TCJA expense and the absence of the $7 million favorable depreciation tax

benefit that ended in 2017.

Outlook — The Company will continue to move forward in its efforts to achieve operational excellence, sustain strong cash flows, and earn its authorized return on equity. The Company expects that planned significant infrastructure capital investments will result in earnings growth. Looking forward, additional factors may impact earnings such as weather, the outcome of regulatory proceedings, benefit plan design changes, and investment returns and changes in discount rate assumptions in benefit plans and health care costs. The Company expects to continue its efforts to improve productivity and decrease costs while improving customer satisfaction with consideration of customer rate affordability.

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. A final MPSC order in this case is expected by September 2020. Refer to Note 7 to the Consolidated Financial Statements, “Regulatory Matters” for additional information.

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholder of DTE Gas Company

We have audited the accompanying consolidated financial statements of DTE Gas Company and its subsidiaries, which comprise the consolidated statements of financial position as of December 31, 2019 and 2018, and the related consolidated statements of operations, of comprehensive income, of changes in shareholder’s equity and of cash flows for each of the three years in the period ended December 31, 2019.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of DTE Gas Company and its subsidiaries as of December 31, 2019 and 2018, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2019 in accordance with accounting principles generally accepted in the United States of America.

/s/ PricewaterhouseCoopers LLP

Detroit, Michigan

March 6, 2020

DTE Gas Company

Consolidated Statements of Operations



	Year Ended December 31,
	2019			2018			2017
	(In millions)
Operating Revenues	$	1,462		$	1,415		$	1,368

Operating Expenses
Cost of gas	415			435			432
Operation and maintenance	510			497			445
Depreciation and amortization	142			132			122
Taxes other than income	79			72			64
	1,146			1,136			1,063
Operating Income	316			279			305

Other (Income) and Deductions
Interest expense	78			70			65
Interest income	(6		)	(6		)	(7		)
Other income	(8		)	(12		)	(10		)
Other expenses	3			11			33
	67			63			81
Income Before Income Taxes	249			216			224

Income Tax Expense	63			67			78

Net Income	$	186		$	149		$	146

See Notes to Consolidated Financial Statements

DTE Gas Company

Consolidated Statements of Comprehensive Income



	Year Ended December 31,
	2019		2018		2017
	(In millions)
Net Income	$	186	$	149	$	146
Other comprehensive income	—		—		—
Comprehensive Income	$	186	$	149	$	146

See Notes to Consolidated Financial Statements

DTE Gas Company

Consolidated Statements of Financial Position



	December 31,
	2019			2018
	(In millions)
ASSETS
Current Assets
Cash and cash equivalents	$	1		$	—
Accounts receivable (less allowance for doubtful accounts of $32 and $34, respectively)
Customer	312			342
Affiliates	31			39
Other	1			5
Inventories
Gas	40			48
Materials and supplies	16			16
Gas customer choice deferred asset	47			51
Notes receivable
Affiliates	1			2
Other	6			6
Regulatory assets	—			5
Other	21			19
	476			533

Investments	37			32

Property
Property, plant, and equipment	5,978			5,575
Accumulated depreciation and amortization	(1,915		)	(1,852		)
	4,063			3,723
Other Assets
Regulatory assets	706			726
Net investment in lease	39			44
Prepaid pension costs — affiliates	165			132
Prepaid postretirement costs — affiliates	188			150
Operating lease right-of-use assets	3			—
Other	11			10
	1,112			1,062
Total Assets	$	5,688		$	5,350

See Notes to Consolidated Financial Statements

DTE Gas Company

Consolidated Statements of Financial Position — (Continued)



	December 31,
	2019		2018
	(In millions, except shares)
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Accounts payable
Affiliates	$	21	$	24
Other	184		208
Short-term borrowings — other	194		189
Current portion of long-term debt	50		120
Regulatory liabilities	25		28
Operating lease liabilities	1		—
Other	67		69
	542		638

Long-Term Debt (net of current portion)	1,652		1,423

Other Liabilities
Deferred income taxes	640		585
Regulatory liabilities	712		749
Asset retirement obligations	163		156
Accrued pension liability — affiliates	90		99
Accrued postretirement liability — affiliates	4		1
Operating lease liabilities	2		—
Other	31		31
	1,642		1,621
Commitments and Contingencies (Notes 7 and 15)

Shareholder's Equity
Common stock ($1 par value, 15,100,000 shares authorized, 10,300,000 shares issued and outstanding for both periods)	989		869
Retained earnings	863		799
Total Shareholder's Equity	1,852		1,668
Total Liabilities and Shareholder's Equity	$	5,688	$	5,350

See Notes to Consolidated Financial Statements

DTE Gas Company

Consolidated Statements of Cash Flows



	Year Ended December 31,
	2019			2018			2017
	(In millions)
Operating Activities
Net Income	$	186		$	149		$	146
Adjustments to reconcile Net Income to net cash from operating activities:
Depreciation and amortization	142			132			122
Allowance for equity funds used during construction	(1		)	(7		)	(5		)
Deferred income taxes	54			64			46
Changes in assets and liabilities:
Accounts receivable, net	42			(2		)	(24		)
Inventories	8			(19		)	19
Prepaid pension costs — affiliates	(33		)	13			(24		)
Prepaid postretirement benefit costs — affiliates	(38		)	7			(13		)
Accounts payable	(21		)	25			14
Accrued pension liability — affiliates	(9		)	(8		)	—
Accrued postretirement liability — affiliates	3			—			1
Regulatory assets and liabilities	22			22			16
Other current and noncurrent assets and liabilities	4			(35		)	8
Net cash from operating activities	359			341			306
Investing Activities
Plant and equipment expenditures	(524		)	(454		)	(461		)
Notes receivable and other	4			10			12
Net cash used for investing activities	(520		)	(444		)	(449		)
Financing Activities
Issuance of long-term debt, net of issuance costs	278			318			79
Redemption of long-term debt	(120		)	(100		)	—
Capital contribution by parent company	120			155			—
Short-term borrowings, net — other	6			(111		)	120
Short-term borrowings, net — affiliate	—			(47		)	47
Dividends paid on common stock	(122		)	(112		)	(104		)
Net cash from financing activities	162			103			142
Net Increase (Decrease) in Cash and Cash Equivalents	1			—			(1		)
Cash and Cash Equivalents at Beginning of Period	—			—			1
Cash and Cash Equivalents at End of Period	$	1		$	—		$	—

Supplemental disclosure of cash information
Cash paid for:
Interest, net of interest capitalized	$	74		$	62		$	61
Income taxes	$	2		$	10		$	4

Supplemental disclosure of non-cash investing and financing activities
Plant and equipment expenditures in accounts payable	$	57		$	62		$	48

See Notes to Consolidated Financial Statements

DTE Gas Company

Consolidated Statements of Changes in Shareholder's Equity



	Common Stock			Additional Paid-in Capital		Retained Earnings
	Shares	Amount		Additional Paid-in Capital		Retained Earnings			Total
	(Dollars in millions, shares in thousands)
Balance, December 31, 2016	10,300	$	10	$	704	$	720		$	1,434
Net Income	—	—		—		146			146
Dividends declared on common stock	—	—		—		(104		)	(104		)
Balance, December 31, 2017	10,300	$	10	$	704	$	762		$	1,476
Net Income	—	—		—		149			149
Capital contribution by parent company	—	—		155		—			155
Dividends declared on common stock	—	—		—		(112		)	(112		)
Balance, December 31, 2018	10,300	$	10	$	859	$	799		$	1,668
Net Income	—	—		—		186			186
Capital contribution by parent company	—	—		120		—			120
Dividends declared on common stock	—	—		—		(122		)	(122		)
Balance, December 31, 2019	10,300	$	10	$	979	$	863		$	1,852

See Notes to Consolidated Financial Statements

DTE Gas Company

Notes to Consolidated Financial Statements

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 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.

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 December 31, 2019, 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.

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, cash in banks, and temporary investments purchased with remaining maturities of three months or less.

Receivables

Accounts receivable are primarily composed of trade receivables and unbilled revenue. The Company's accounts receivable are stated at net realizable value.

DTE Gas Company

Notes to Consolidated Financial Statements — (Continued)

The allowance for doubtful accounts is generally calculated using the 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 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 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.

Unbilled revenues of $112 million are included in Customer Accounts receivable at December 31, 2019 and 2018.

Notes Receivable

Notes receivable, or financing receivables, are primarily comprised of finance lease receivables and loans. Finance lease receivables are included in Current Notes receivable and Net investment in lease, while loans are included in Current Notes receivable and Other long-term assets on the Company's 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. Cash payments received on nonaccrual status notes receivable, that do not bring the account contractually current, are first applied to contractually owed past due interest, with any remainder applied to principal. Accrual of interest is generally resumed when the note receivable becomes contractually current.

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. In addition, the Company monitors the credit ratings of the counterparties from which it has notes receivable.

Inventories

Natural gas inventory of $40 million and $48 million as of December 31, 2019 and 2018, respectively, is determined using the last-in, first-out (LIFO) method. The replacement cost of gas in inventory exceeded the LIFO cost by $49 million and $113 million at December 31, 2019 and 2018, respectively.

The Company generally values materials and supplies inventory at average cost.

Gas Customer Choice Deferred Asset

Gas customer choice deferred asset represents gas provided to the Company by suppliers of gas for customers that participate in the Customer Choice program. As the gas is sold and billed to Customer Choice customers, primarily in the December through March heating season, this asset is reduced. At the end of an April through March cycle each year, any balance is reconciled and settled with the various suppliers.

Property, Retirement and Maintenance, and Depreciation and Amortization

Property is stated at cost and includes construction-related labor, materials, overheads, and AFUDC. The cost of properties retired is charged to accumulated depreciation. Expenditures for maintenance and repairs are charged to expense when incurred.

Utility property is depreciated over its estimated useful life using straight-line rates approved by the MPSC. Depreciation and amortization expense also includes the amortization of certain regulatory assets.

See Note 5 to the Consolidated Financial Statements, "Property, Plant, and Equipment."

Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If the carrying amount of the asset exceeds the expected undiscounted future cash flows generated by the asset, an impairment loss is recognized resulting in the asset being written down to its estimated fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell.

DTE Gas Company

Notes to Consolidated Financial Statements — (Continued)

Excise and Sales Taxes

The Company records the billing of excise and sales taxes as a receivable with an offsetting payable to the applicable taxing authority, with no net impact on the Consolidated Statements of Operations.

Deferred Debt Costs

The costs related to the issuance of long-term debt are deferred and amortized over the life of each debt issue. The deferred amounts are included as a direct deduction from the carrying amount of each debt issuance in Long-Term Debt on the Consolidated Statements of Financial Position. In accordance with MPSC regulations, the unamortized discount, premium, and expense related to debt redeemed with a refinancing are amortized over the life of the replacement issue.

Allocated Stock-Based Compensation

The Company received an allocation of costs from DTE Energy associated with stock-based compensation. The allocation for 2019, 2018, and 2017 for stock-based compensation expense was approximately $11 million, $10 million, and $9 million, respectively.

Subsequent Events

The Company has evaluated subsequent events through March 6, 2020, the date that these Consolidated Financial Statements were available to be issued.

Other Accounting Policies

See the following notes for other accounting policies impacting the Company's Consolidated Financial Statements:



Note		Title
4		Revenue
6		Asset Retirement Obligations
7		Regulatory Matters
8		Income Taxes
9		Fair Value
10		Financial and Other Derivative Instruments
14		Leases
16		Retirement Benefits and Trusteed Assets

NOTE 3 — NEW ACCOUNTING PRONOUNCEMENTS

Recently Adopted Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), as amended. This guidance requires a lessee to account for leases as finance or operating leases and disclose key information about leasing arrangements. Both types of leases will result in the lessee recognizing a right-of-use asset and a corresponding lease liability on its balance sheet, with differing methodology for income statement recognition, depending on the lease classification. The Company adopted the standard on January 1, 2019 using the prospective approach. The standard provides a number of transition practical expedients of which the Company elected the package of three expedients that must be taken together, allowing entities to not reassess whether an agreement is a lease, to carryforward the existing lease classification, and to not reassess initial direct costs associated with existing leases; but did not elect to apply hindsight in determining lease term and impairment of the right-of-use assets. The Company also elected to not evaluate land easements under the new guidance at adoption if they were not previously accounted for as leases. These practical expedients apply to leases that commenced prior to January 1, 2019. The adoption of the ASU did not have a significant impact on the Company's Consolidated Statements of Financial Position or Consolidated Statements of Operations but required additional disclosures for leases. See Note 14 to the Consolidated Financial Statements, "Leases."

DTE Gas Company

Notes to Consolidated Financial Statements — (Continued)

In February 2018, the FASB issued ASU No. 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings from stranded tax effects resulting from the TCJA. The amendments in this update also require entities to disclose their accounting policy for releasing income tax effects from accumulated other comprehensive income. The Company adopted the standard effective January 1, 2019. The adoption of the ASU did not have a material impact on the Company's Consolidated Financial Statements.

Recently Issued 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 replace the incurred loss impairment methodology in current generally accepted accounting principles 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 current generally accepted accounting principles. Entities will 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 ASU is effective for the Company beginning after December 15, 2019, and interim periods therein. The Company will adopt the ASU on its effective date. The Company is currently assessing the impact of this standard on its Consolidated Financial Statements.

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 ASU is effective for the Company for fiscal years beginning after December 15, 2019, and interim periods therein. The Company will adopt the ASU on its effective date. The Company is currently assessing the impact of this standard on its Consolidated Financial Statements.

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 ASU is effective for the Company for fiscal years ending after December 15, 2020. Early adoption is permitted. The Company anticipates adopting the ASU on its effective date. The Company is currently assessing the impact of this standard on its Consolidated Financial Statements.

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 ASU is effective for the Company for fiscal years beginning after December 15, 2019, and interim periods therein. The Company will adopt the ASU on its effective date. The ASU may be applied using either a retrospective or prospective approach. The Company will apply the ASU prospectively, and is currently assessing the impact of this standard on its Consolidated 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 a decision-making fee is a variable interest and require reporting entities to consider indirect interests held through related parties under common control on a proportional basis. The ASU is effective for the Company for fiscal years beginning after December 15, 2019, and interim periods therein. The Company will adopt the ASU on its effective date. The Company is currently assessing the impact of this standard on its Consolidated Financial Statements.

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. Early adoption is permitted. The Company is currently assessing the impact of this standard on its Consolidated Financial Statements.

DTE Gas Company

Notes to Consolidated Financial Statements — (Continued)

NOTE 4 — REVENUE

Significant Accounting Policy

Upon the adoption of Topic 606, revenue is measured based upon the consideration specified in a contract with a customer at the time when performance obligations are satisfied. Under Topic 606, a performance obligation is a promise in a contract to transfer a distinct good or service or a series of distinct goods or services to the customer. The Company recognizes revenue when performance obligations are satisfied by transferring control over a product or service to a customer. The Company has determined control to be transferred when the product is delivered or the service is provided to the customer. For the years ended December 31, 2019 and 2018, recognition of revenue for the Company subsequent to the adoption of Topic 606 is substantially similar in amount and approach to that prior to adoption.

Rates for the Company include provisions to adjust billings for fluctuations in the cost of natural gas and certain other costs. Revenues are adjusted for differences between actual costs subject to reconciliation and the amounts billed in current rates. Under or over recovered revenues related to these cost recovery mechanisms are included in Regulatory assets or liabilities on the Company's Consolidated Statements of Financial Position and are recovered or returned to customers through adjustments to the billing factors.

Disaggregation of Revenue

The following is a summary of disaggregated revenues for the Company:



	2019		2018
	(In millions)
Gas sales	$	1,024	$	1,035
End User Transportation	219		233
Intermediate Transportation	78		58
Other^(a)	141		89
Total Gas operating revenues^(b)	$	1,462	$	1,415

_______________________________________


(a)	Includes revenue adjustments related to various regulatory mechanisms.


(b)	Includes $8 million and $2 million under Alternative Revenue Programs for the twelve months ended December 31, 2019 and December 31, 2018, respectively, and $7 million of other revenues for the twelve months ended December 31, 2019 and December 31, 2018, which are both outside the scope of Topic 606.

Nature of Goods and Services

The Company has contracts with customers which may contain more than one performance obligation. When more than one performance obligation exists in a contract, the consideration under the contract is allocated to the performance obligations based on the relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged to customers.

Under Topic 606, when a customer simultaneously receives and consumes the product or service provided, revenue is considered to be recognized over time. Alternatively, if it is determined that the criteria for recognition of revenue over time is not met, the revenue is considered to be recognized at a point in time.

Revenues are primarily comprised of the supply and delivery of natural gas, and other services including storage, transportation, and appliance maintenance. Revenues are primarily associated with cancelable contracts with the exception of certain long-term contracts with commercial and industrial customers. Revenues, including estimated unbilled amounts, are generally recognized over time based upon volumes delivered or through the passage of time ratably based upon providing a stand-ready service. The Company has determined that the above methods represent a faithful depiction of the transfer of control to the customer. Unbilled revenues are typically determined using both estimated meter volumes and estimated usage based upon the number of unbilled days and historical temperatures. Estimated unbilled amounts recognized in revenue are subject to adjustment in the following reporting period as actual volumes by customer class and service type are known. Revenues are typically subject to tariff rates or other rates subject to regulatory oversight and are billed and received monthly. Tariff rates are determined by the MPSC on a per unit or monthly basis.

DTE Gas Company

Notes to Consolidated Financial Statements — (Continued)

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 cancelable to multi-year.

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	$	100
2021	92
2022	82
2023	61
2024	55
2025 and thereafter	387
	$	777

Other Matters

The Company has recognized charges of $36 million and $51 million related to expense recognized for estimated uncollectible accounts receivable for the years ended December 31, 2019 and December 31, 2018, respectively.

NOTE 5 — PROPERTY, PLANT, AND EQUIPMENT

The following is a summary of Property, plant, and equipment by classification as of December 31:



	2019			2018
	(In millions)
Property, plant, and equipment
Distribution	$	4,164		$	3,823
Storage	570			548
Transmission and other	1,244			1,204
Total	5,978			5,575
Less accumulated depreciation and amortization
Distribution	(1,334		)	(1,283		)
Storage	(172		)	(165		)
Transmission and other	(409		)	(404		)
Total	(1,915		)	(1,852		)
Net Property, plant, and equipment	$	4,063		$	3,723

The following is a summary of AFUDC and interest capitalized for the years ended December 31:



	2019		2018
	(In millions)
Allowance for debt funds used during construction and interest capitalized	$	1	$	3
Allowance for equity funds used during construction	1		7
Total	$	2	$	10

DTE Gas Company

Notes to Consolidated Financial Statements — (Continued)

The composite depreciation rate for the Company was approximately 2.7% in 2019, 2018 and 2017. The average estimated useful life for Distribution and Storage property was 50 and 56 years, respectively, at December 31, 2019. The estimated useful lives for Transmission and other utility assets range from 3 to 70 years.

The following is a summary of Depreciation and amortization expense:



	Year Ended December 31,
	2019		2018		2017
	(In millions)
Property, plant, and equipment	$	111	$	101	$	92
Regulatory assets and liabilities	31		31		30
	$	142	$	132	$	122

Capitalized software costs are classified as Property, plant, and equipment, and the related amortization is included in accumulated depreciation and amortization on the Consolidated Financial Statements. The Company capitalizes the costs associated with computer software developed or obtained for use in its business. The Company amortizes capitalized software costs on a straight-line basis over the expected period of benefit, ranging from 3 to 15 years.

The Company has the following balances for capitalized software:



	Year Ended December 31,
	2019		2018		2017
	(In millions)
Amortization expense of capitalized software	$	6	$	6	$	5
Gross carrying value of capitalized software	$	57	$	74
Accumulated amortization of capitalized software	$	28	$	44

NOTE 6 — ASSET RETIREMENT OBLIGATIONS

The Company has conditional retirement obligations for gas pipelines, certain service centers, compressor and gate stations. The Company recognizes such obligations as liabilities at fair market value when they are incurred, which generally is at the time the associated assets are placed in service. Fair value is measured using expected future cash outflows discounted at the Company's credit-adjusted risk-free rate. The Company recognizes in the Consolidated Statements of Operations removal costs in accordance with regulatory treatment. Any differences between costs recognized related to asset retirement and those reflected in rates are recognized as either a Regulatory asset or liability on the Consolidated Statements of Financial Position.

If a reasonable estimate of fair value cannot be made in the period in which the retirement obligation is incurred, such as for assets with indeterminate lives, the liability is recognized when a reasonable estimate of fair value can be made. Natural gas storage system and certain other distribution assets have an indeterminate life. Therefore, no liability has been recorded for these assets.

Changes to asset retirement obligations for 2019, 2018, and 2017 were as follows:



	2019			2018			2017
	(In millions)
Asset retirement obligations at January 1	$	156		$	150		$	143
Accretion	9			8			8
Liabilities settled	(2		)	(2		)	(1		)
Asset retirement obligations at December 31	$	163		$	156		$	150

DTE Gas Company

Notes to Consolidated Financial Statements — (Continued)

NOTE 7 — REGULATORY MATTERS

Regulation

The Company is subject to the regulatory jurisdiction of the MPSC, which issues orders pertaining to rates, recovery of certain costs, including the costs of regulatory assets, conditions of service, accounting, and operating-related matters. The Company operates natural gas storage and transportation facilities in Michigan as intrastate facilities regulated by the MPSC and provides intrastate storage and transportation services pursuant to an MPSC-approved tariff.

The Company also provides interstate storage and transportation services in accordance with an Operating Statement on file with the FERC. The FERC's jurisdiction is limited and extends to the rates, non-discriminatory requirements, and terms and conditions applicable to storage and transportation provided by the Company in interstate markets. The FERC granted the Company authority to provide storage and related services in interstate commerce at market-based rates. The Company provides transportation services in interstate commerce at cost-based rates approved by the MPSC and filed with the FERC. The Company is also subject to the requirements of other regulatory agencies with respect to safety, environment, and health.

The Company is unable to predict the outcome of the unresolved regulatory matters discussed herein. Resolution of these matters is dependent upon future MPSC orders and appeals, which may materially impact the Consolidated Financial Statements of the Company.

Regulatory Assets and Liabilities

The Company is required to record Regulatory assets and liabilities for certain transactions that would have been treated as revenue or expense in non-regulated businesses. Continued applicability of regulatory accounting treatment requires that rates be designed to recover specific costs of providing regulated services and be charged to and collected from customers. Future regulatory changes could result in the discontinuance of this accounting treatment for Regulatory assets and liabilities for some or all of the Company's businesses and may require the write-off of the portion of any Regulatory asset or liability that was no longer probable of recovery through regulated rates. Management believes that currently available facts support the continued use of Regulatory assets and liabilities and that all Regulatory assets and liabilities are recoverable or refundable in the current regulatory environment.

DTE Gas Company

Notes to Consolidated Financial Statements — (Continued)

The following are balances and a brief description of the Regulatory assets and liabilities at December 31:



	2019			2018
	(In millions)
Assets
Recoverable pension and other postretirement costs
Pension	$	486		$	485
Other postretirement costs	70			92
Deferred environmental costs	66			68
Recoverable Michigan income taxes	37			40
Unamortized loss on reacquired debt	16			17
Energy Waste Reduction incentive	11			10
Recoverable income taxes related to AFUDC equity	6			6
Other	14			13
	706			731
Less amount included in Current Assets	—			(5		)
	$	706		$	726
Liabilities
Refundable federal income taxes	$	447		$	451
Removal costs liability	217			253
Negative other postretirement offset	24			22
Accrued GCR refund	23			3
Non-service pension and other postretirement costs	19			9
TCJA rate reduction liability	1			25
Other	6			14
	737			777
Less amount included in Current Liabilities	(25		)	(28		)
	$	712		$	749

As noted below, certain Regulatory assets for which costs have been incurred have been included (or are expected to be included, for costs incurred subsequent to the most recently approved rate case) in the Company's rate base, thereby providing a return on invested costs (except as noted). Certain other Regulatory assets are not included in rate base but accrue recoverable carrying charges until surcharges to collect the assets are billed. Certain Regulatory assets do not result from cash expenditures and therefore do not represent investments included in rate base or have offsetting liabilities that reduce rate base.

ASSETS

•

Recoverable pension and other postretirement costs — Accounting standards for pension and other postretirement benefit costs require, among other things, the recognition in Other comprehensive income of the actuarial gains or losses and the prior service costs that arise during the period but that are not immediately recognized as components of net periodic benefit costs. The Company records the impact of actuarial gains or losses and prior service costs as a Regulatory asset since the traditional rate setting process allows for the recovery of pension and other postretirement costs. The asset will reverse as the deferred items are amortized and recognized as components of net periodic benefit costs.^(a)


•	Deferred environmental costs — The MPSC approved the deferral of investigation and remediation costs associated with former MGP sites. Amortization of deferred costs is over a ten-year period beginning in the year after costs were incurred, with recovery (net of any insurance proceeds) through base rate filings.^(a)

•

Recoverable Michigan income taxes — The State of Michigan enacted a corporate income tax resulting in the establishment of state deferred tax liabilities for DTE Energy's utilities. Offsetting Regulatory assets were also recorded as the impacts of the deferred tax liabilities will be reflected in rates as the related taxable temporary differences reverse and flow through current income tax expense.


•	Unamortized loss on reacquired debt — The unamortized discount, premium, and expense related to debt redeemed with a refinancing are deferred, amortized, and recovered over the life of the replacement issue.

DTE Gas Company

Notes to Consolidated Financial Statements — (Continued)


•	Energy Waste Reduction incentive — The Company operates MPSC approved energy waste reduction programs designed to reduce overall energy usage by its customers. The Company is eligible to earn an incentive by exceeding statutory savings targets. The Company has consistently exceeded the savings targets and recognizes the incentive as a regulatory asset in the period earned.^(a)


•	Recoverable income taxes related to AFUDC equity — Accounting standards for income taxes require recognition of a deferred tax liability for the equity component of AFUDC. A regulatory asset is required for the future increase in taxes payable related to the equity component of AFUDC that will be recovered from customers through future rates over the remaining life of the related plant.

______________________________________


(a)	Regulatory assets not earning a return or accruing carrying charges.

LIABILITIES


•	Refundable federal income taxes — The Company's remeasurement of deferred taxes due to the enactment of the TCJA, which reflects the net impact of the tax rate change on cumulative temporary differences expected to reverse after the effective date of January 1, 2018. Refer to "2017 Tax Reform" section below for additional information.


•	Removal costs liability — The amount collected from customers for the funding of future asset removal activities.

•

Negative other postretirement offset — The Company's negative other postretirement costs are not included as a reduction to their authorized rates; therefore, as of December 2016, the Company began accruing a Regulatory liability to eliminate the impact on earnings of the negative other postretirement expense accrual. The Regulatory liabilities will reverse to the extent the Company's other postretirement expense is positive in future years.


•	Accrued GCR refund — Liability for the temporary over-recovery of and a return on gas costs incurred by the Company which are recoverable through the GCR mechanism.


•	Non-service pension and other postretirement costs — Upon adoption of ASU 2017-07 on January 1, 2018, certain non-service cost activity is no longer credited to Property, Plant & Equipment. Such costs may be recorded to regulatory liabilities for ratemaking purposes and refunded through credits to amortization expense based on the composite depreciation rate for plant-in-service.

•

TCJA rate reduction liability — Due to the change in the corporate Federal income tax rate from 35% to 21%, the Company reduced rates charged to customers during 2018. A regulatory liability equal to the difference between revenues billed based on a 35% rate, and revenues based on a 21% rate, was accrued for the period January 1, 2018 through the date the lower rates were implemented. The refund of the liability occurred from January 1, 2019 through June 30, 2019.

2017 Tax Reform

On December 27, 2017, the MPSC issued an order to consider changes in the rates of all Michigan rate-regulated utilities to reflect the effects of the federal TCJA. On January 19, 2018, the Company filed information with the MPSC regarding the potential change in revenue requirements due to the TCJA effective January 1, 2018 and outlined its recommended method to flow the current and deferred tax benefits of those impacts to ratepayers.

DTE Gas Company

Notes to Consolidated Financial Statements — (Continued)

On February 22, 2018, the MPSC issued an order in this case requiring utilities, including DTE Gas, to follow a 3-step approach of credits and calculations. In 2018, MPSC orders for the first two steps, Credit A and Credit B, were issued for the Company. The third step is to perform Calculation C to address all remaining issues relative to the new tax law, which is primarily the remeasurement of deferred taxes and how the amounts deferred as Regulatory liabilities will flow to ratepayers. The Company filed its Calculation C case on November 16, 2018 to reduce the annual revenue requirement by $12 million related to the amortization of deferred tax remeasurement. On August 20, 2019, the MPSC issued an order in this case approving a $13 million reduction to the Company's annual revenue requirement. This reduction in revenue is offset by a corresponding reduction in income tax expense within the Consolidated Statements of Operations.

2019 Rate Case Filing

NOTE 8 — INCOME TAXES

Income Tax Summary

The Company is 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 Gas is part of the Michigan consolidated income tax return of DTE Energy. The federal, state, and local income tax expense for the Company is determined on an individual company basis with no allocation of tax expenses or benefits from other affiliates of DTE Energy. The Company had an income tax receivable from DTE Energy of $30 million and $36 million at December 31, 2019 and 2018, respectively.

Total Income Tax Expense varied from the statutory federal income tax rate for the following reasons for the years ended December 31:



	2019			2018			2017
	(In millions)
Income Before Income Taxes	$	249		$	216		$	224
Income tax expense at statutory rate — 21% in 2019 and 2018 — 35% in 2017	$	52		$	45		$	78
Depreciation	—			—			(7		)
State and local income taxes, net of federal benefit	15			13			10
TCJA regulatory liability amortization	(3		)	—			—
Enactment of the Tax Cuts and Jobs Act	—			10			—
Other, net	(1		)	(1		)	(3		)
Income Tax Expense	$	63		$	67		$	78
Effective income tax rate	25.3		%	31.0		%	34.8		%

DTE Gas Company

Notes to Consolidated Financial Statements — (Continued)

Components of Income Tax Expense were as follows for the years ended December 31:



	2019		2018			2017
	(In millions)
Current income tax expense
Federal	$	7	$	(2	)	$	24
State and other income tax	2		5			8
Total current income taxes	9		3			32
Deferred income tax expense
Federal	37		53			38
State and other income tax	17		11			8
Total deferred income taxes	54		64			46
	$	63	$	67		$	78

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 Consolidated Financial Statements.

Deferred tax assets (liabilities) were comprised of the following at December 31:



	2019			2018
	(In millions)
Property, plant, and equipment	$	(587	)	$	(523	)
Regulatory assets and liabilities	(49		)	(50		)
Pension and benefits	(50		)	(38		)
Federal net operating loss carry-forward	6			—
State net operating loss carry-forwards	7			2
Other	33			24
Long-term deferred income tax liabilities	$	(640	)	$	(585	)

Deferred income tax assets	$	163		$	148
Deferred income tax liabilities	(803		)	(733		)
	$	(640	)	$	(585	)

The above table excludes unamortized investment tax credits of $1 million at December 31, 2019 and 2018. Investment tax credits are deferred and amortized to income over the average life of the related property.

The Company has a federal deferred tax asset related to net operating loss carry-forwards of $6 million at December 31, 2019. There was no deferred tax asset as of December 31, 2018. The net operating loss carry-forward will be carried forward indefinitely.

The Company also has state and local deferred tax assets related to net operating loss carry-forwards of $7 million and $2 million at December 31, 2019 and 2018, respectively. The state and local net operating loss carry-forwards begin to expire in 2029. DTE Gas does not have a valuation allowance with respect to any of these deferred tax assets.

Tax Cuts and Jobs Act

On December 22, 2017, the TCJA was enacted reducing the corporate income tax rate from 35% to 21%, effective January 1, 2018. As a result of the enactment, the deferred tax assets and liabilities were remeasured to reflect the impact of the TCJA on the cumulative temporary differences expected to reverse after the effective date. The impact of this remeasurement was a decrease in deferred tax liabilities of $441 million, which was attributable to the regulated utility and offset to regulatory assets and liabilities. This regulatory treatment is consistent with prior precedent set by the MPSC from previous tax law changes.

During the year ended December 31, 2018, the Company finalized its analysis and recorded true-up adjustments to the remeasurement of deferred taxes of $10 million. The impact of the true-up adjustments was an increase in Income Tax Expense and Regulatory liabilities.

DTE Gas Company

Notes to Consolidated Financial Statements — (Continued)

During 2019, DTE Gas began amortizing excess deferred tax liabilities in accordance with an order issued by the Michigan Public Service Commission. Refer to Note 7 to the Consolidated Financial Statements, "Regulatory Matters," for further detail regarding this order.

Uncertain Tax Positions

The Company had approximately $1 million of unrecognized tax benefits at December 31, 2019 and 2018, that, if recognized, would favorably impact its effective tax rate. The Company does not anticipate any material changes to the unrecognized tax benefits in the next twelve months.

The Company recognizes interest and penalties pertaining to income taxes in Interest expense and Other expenses, respectively, on its Consolidated Statements of Operations. The Company had $1 million of accrued interest at December 31, 2019 and 2018. The Company had no accrued penalties pertaining to income taxes. The Company recognized interest expense related to income taxes of a nominal amount in 2019, 2018, and 2017.

In 2019, DTE Energy settled a federal tax audit for the 2017 tax year. DTE Energy's federal income tax returns for 2018 and subsequent years remain subject to examination by the Internal Revenue Service. DTE Energy's Michigan Business Tax returns for the years 2008-2011 and Michigan Corporate Income Tax returns for the year 2015 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.

NOTE 9 — 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 December 31, 2019 and 2018. 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.

DTE Gas Company

Notes to Consolidated Financial Statements — (Continued)


•	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 the carrying amount and fair value of financial instruments:



	December 31, 2019								December 31, 2018
	Carrying		Fair Value						Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Amount		Level 1		Level 2		Level 3
	(In millions)
Notes receivable — affiliates	$	1	$	—	$	—	$	1	$	2	$	—	$	—	$	2
Notes receivable — other^(a), excluding lessor finance leases	$	9	$	—	$	—	$	9	$	8	$	—	$	—	$	8
Short-term borrowings — other	$	194	$	—	$	194	$	—	$	189	$	—	$	189	$	—
Long-term debt^(b)	$	1,702	$	—	$	734	$	939	$	1,543	$	—	$	411	$	1,154

_______________________________________


(a)	Noncurrent portion included in Other Assets — Other on the Consolidated Statements of Financial Position.


(b)	Includes debt due within one year, unamortized debt discounts, and issuance costs.

For further fair value information on financial and derivative instruments, see Note 10 to the Consolidated Financial Statements, "Financial and Other Derivative Instruments."

NOTE 10 — 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, buys and sells transportation capacity, and sells storage capacity. The Company has fixed-priced contracts for portions of its expected natural gas supply requirements through March 2022. 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.

DTE Gas Company

Notes to Consolidated Financial Statements — (Continued)

NOTE 11 — LONG-TERM DEBT

Long-Term Debt

The Company's long-term debt outstanding and interest rates of debt outstanding at December 31 were:



	Interest Rate^(a)	Maturity Date	2019			2018
			(In millions)
Mortgage Bonds and Senior Notes, Principally Secured	4.3%	2020 - 2049	$	1,710		$	1,550
Unamortized debt issuance costs			(8		)	(7		)
Long-term debt due within one year			(50		)	(120		)
			$	1,652		$	1,423

______________________________________


(a)	Weighted average interest rate as of December 31, 2019.

Debt Issuances

In 2019, the following debt was issued:



Month	Type	Interest Rate	Maturity	Amount
				(In millions)
October	First Mortgage Bonds^(a)	2.95%	2029	$	140
October	First Mortgage Bonds^(a)	3.72%	2049	140
				$	280

______________________________________


(a)	Proceeds were used for repayment of short-term borrowings and general corporate purposes.

Debt Redemptions

In 2019, the following debt was redeemed:



Month	Type	Interest Rate	Maturity	Amount
				(In millions)
October	Senior Notes	5.00%	2019	$	120

The following table shows the scheduled debt maturities, excluding any unamortized discount or premium on debt:



	2020		2021		2022		2023		2024		2025 and Thereafter		Total
	(In millions)
Amount to mature	$	50	$	—	$	—	$	75	$	—	$	1,585	$	1,710

Cross Default Provisions

Substantially all of the net properties of the Company are subject to the lien of mortgages. Should the Company fail to timely pay its indebtedness under these mortgages, such failure may create cross defaults in the indebtedness of DTE Energy.

DTE Gas Company

Notes to Consolidated Financial Statements — (Continued)

NOTE 12 — PREFERRED AND PREFERENCE SECURITIES

At December 31, 2019, the Company had 7 million shares of preferred stock with a par value of $1 per share and 4 million shares of preference stock with a par value of $1 per share authorized, with no shares issued.

NOTE 13 — 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. The Company had $194 million outstanding against the revolver at December 31, 2019.

The 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 December 31, 2019, the total funded debt to total capitalization ratio for the Company was 0.48 to 1 and was in compliance with this financial covenant.

The weighted average interest rates for short-term borrowings were 1.9% and 2.9% at December 31, 2019 and 2018, respectively.

NOTE 14 — LEASES

Disclosures related to the year ended December 31, 2019 are presented as required under Topic 842. Prior period disclosures for the year ended December 31, 2018 are presented under Topic 840. The Company has elected to use a practical expedient provided by Topic 842 whereby comparative disclosures for prior periods are allowed to be presented under Topic 840. As a result, the disclosures presented under Topic 842 and Topic 840 will not be fully comparable in specific disclosure requirements.

Topic 842 — The Company leases a portion of its pipeline system to the Vector Pipeline through a finance lease contract that has been renewed through 2025, with additional renewal options reasonably certain to be exercised through 2040. DTE Energy owns a 40% interest in the Vector Pipeline.

The residual value has been determined using the estimated economic life of the leased asset. The lease does not contain a residual value guarantee. Any remaining residual value is expected to be recovered through rates or renewals.

A lease is deemed to exist when the Company has provided other parties with the right to control the use of identified property, plant or equipment, as conveyed through a contract, for a certain period of time and consideration received. The right to control is deemed to occur when the Company has provided other parties with the right to obtain substantially all of the economic benefits of the identified assets and the right to direct the use of such assets.

DTE Gas Company

Notes to Consolidated Financial Statements — (Continued)

The components of the Company's net investment in the finance lease for remaining periods at December 31, 2019 were as follows:



	(In millions)
2020	$	9
2021	4
2022	4
2023	4
2024	4
2025 and thereafter	54
Total minimum future lease receipts	79
Residual value of leased pipeline	19
Less unearned income	54
Net investment in finance lease	44
Less current portion	5
	$	39

Interest income recognized under the finance lease was $4 million for the year ended December 31, 2019.

Topic 840 — The Company leases a portion of its pipeline system to the Vector Pipeline through a capital lease contract that was set to expire in 2020, with renewal options extending for five years. DTE Energy owns a 40% interest in the Vector Pipeline.

The components of the Company's net investment in the capital lease at December 31, 2018 were as follows:



	(In millions)
2019	$	9
2020	8
2021	—
2022	—
2023	—
2024 and thereafter	—
Total minimum future lease receipts	17
Residual value of leased pipeline	40
Less unearned income	(8		)
Net investment in capital lease	49
Less current portion	(5		)
	$	44

DTE Gas Company

Notes to Consolidated Financial Statements — (Continued)

NOTE 15 — COMMITMENTS AND CONTINGENCIES

Environmental

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. As of December 31, 2019 and 2018, the Company had $25 million accrued for remediation. 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 1,300 represented employees. The majority of the represented employees are under contracts that expire in 2021.

Purchase Commitments

As of December 31, 2019, the Company was party to numerous long-term purchase commitments relating to a variety of goods and services required for its business. These agreements primarily consist of long-term natural gas purchase and transportation agreements. The Company estimates the following commitments from 2020 through 2051, as detailed in the following table:



	(In millions)
2020	$	308
2021	206
2022	86
2023	65
2024	117
2025 and thereafter	265
	$	1,047

The Company has made certain commitments in connection with 2020 annual capital expenditures that are expected to be approximately $570 million.

DTE Gas Company

Notes to Consolidated Financial Statements — (Continued)

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 7 to the Consolidated Financial Statements, "Regulatory Matters."

NOTE 16 — 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 table below represents pension and other postretirement benefit plans which the Company's eligible represented and non-represented employees participated at December 31, 2019:



	Represented	Non-represented
Qualified Pension Plans
DTE Energy Company Retirement Plan		X
DTE Gas Company Retirement Plan for Employees Covered by Collective Bargaining Agreements	X
Nonqualified Pension Plans
DTE Energy Company Supplemental Retirement Plan	X	X
Other Postretirement Benefit Plans
The DTE Energy Company Comprehensive Non-Health Welfare Plan	X	X
The DTE Energy Company Comprehensive Retiree Group Health Care Plan	X	X
DTE Supplemental Retiree Benefit Plan	X	X
DTE Energy Company Retiree Reimbursement Arrangement Plan	X	X

The Company accounts for its participation in the represented qualified pension plan by applying single-employer accounting. Non-represented participation in qualified pension plans, and non-represented and represented participation in 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.

Pension Plan Benefits

DTE Energy has qualified defined benefit retirement plans for eligible represented and non-represented employees. The plans are noncontributory and provide traditional retirement benefits based on the employee's years of benefit service, average final compensation, and age at retirement. In addition, certain represented and non-represented employees are covered under cash balance provisions that determine benefits on annual employer contributions and interest credits. DTE Energy also maintains supplemental nonqualified, noncontributory, retirement benefit plans for selected management employees. These plans provide for benefits that supplement those provided by DTE Energy’s other retirement plans.

DTE Gas Company

Notes to Consolidated Financial Statements — (Continued)

Represented net pension cost includes the following components for the years ended December 31:



	2019			2018			2017
	(In millions)
Service cost	$	12		$	14		$	12
Interest cost	25			22			24
Expected return on plan assets	(36		)	(36		)	(33		)
Amortization of:
Net actuarial loss	11			18			17
Net pension cost	$	12		$	18		$	20



	2019			2018
	(In millions)
Other changes in plan assets and benefit obligations recognized in Regulatory assets
Net actuarial (gain) loss	$	40		$	(8	)
Amortization of net actuarial (gain) loss	(11		)	(17		)
Total recognized in Regulatory assets	$	29		$	(25	)
Total recognized in net periodic pension cost and Regulatory assets	$	41		$	(7	)
Estimated amounts to be amortized from Regulatory assets into net periodic benefit cost during next fiscal year
Net actuarial loss	$	18		$	12

The following table reconciles the represented plan obligations, assets, and funded status as well as the amounts recognized as prepaid pension cost or pension liability in the Consolidated Statements of Financial Position at December 31:



	2019			2018
	(In millions)
Accumulated benefit obligation, end of year	$	576		$	489
Change in projected benefit obligation
Projected benefit obligation, beginning of year	$	555		$	615
Service cost	12			14
Interest cost	25			22
Actuarial (gain) loss	101			(69		)
Benefits paid	(32		)	(27		)
Projected benefit obligation, end of year	$	661		$	555
Change in plan assets
Plan assets at fair value, beginning of year	$	456		$	508
Actual return on plan assets	97			(25		)
Company contributions	50			—
Benefits paid	(32		)	(27		)
Plan assets at fair value, end of year	$	571		$	456
Funded status of the plans	$	(90	)	$	(99	)
Amount recorded as:
Noncurrent liabilities	(90		)	(99		)
	$	(90	)	$	(99	)
Amounts recognized in Regulatory assets^(a)
Net actuarial loss	$	243		$	215
Prior service credit	(2		)	(3		)
	$	241		$	212

______________________________________


(a)	See Note 7 to the Consolidated Financial Statements, "Regulatory Matters."

DTE Gas Company

Notes to Consolidated Financial Statements — (Continued)

The Company's policy is to fund pension costs by contributing amounts consistent with the provisions of the Pension Protection Act of 2006 and additional amounts when it deems appropriate. The Company contributed $50 million and $25 million to represented qualified pension plans in 2019 and 2017, respectively. The Company did not make any contributions to represented qualified pension plans in 2018. No contributions were made to non-represented plans in 2019, 2018, and 2017.

At the discretion of management, and depending upon financial market conditions, the Company anticipates making up to $22 million in contributions to the represented pension plans, and no contributions to the non-represented pension plans in 2020.

DTE Energy's subsidiaries accounted for under multiemployer guidance are responsible for their share of qualified and nonqualified pension benefit costs. The Company's allocated portion of pension benefit costs for non-represented plans included in capital expenditures and regulatory liabilities were $1 million, $2 million and $4 million for the years ended December 31, 2019, 2018, and 2017, respectively. These amounts include recognized contractual termination benefit charges, curtailment gains, and settlement charges.

At December 31, 2019, the benefits related to represented qualified pension plans expected to be paid in each of the next five years and in the aggregate for the five fiscal years thereafter are as follows:



	(In millions)
2020	$	25
2021	26
2022	28
2023	29
2024	30
2025-2029	169
Total	$	307

Assumptions used in determining the projected benefit obligation and net pension costs for the represented plan for the years ended December 31 were:



	2019	2018	2017
Projected benefit obligation
Discount rate	3.42%	4.51%	3.80%
Rate of compensation increase	5.00%	5.00%	5.00%
Net pension costs
Discount rate	4.51%	3.80%	4.45%
Rate of compensation increase	5.00%	5.00%	4.80%
Expected long-term rate of return on plan assets	7.30%	7.50%	7.50%

The Company employs a formal process in determining the long-term rate of return for various asset classes. Management reviews historic financial market risks and returns and long-term historic relationships between the asset classes of equities, fixed income, and other assets, consistent with the widely accepted capital market principle that asset classes with higher volatility generate a greater return over the long-term. Current market factors such as inflation, interest rates, asset class risks, and asset class returns are evaluated and considered before long-term capital market assumptions are determined. The long-term portfolio return is also established employing a consistent formal process, with due consideration of diversification, active investment management, and rebalancing. Peer data is reviewed to check for reasonableness. As a result of this process, the Company has long-term rate of return assumptions for its represented pension plan of 7.10% and other postretirement benefit plans of 7.20% for 2020. The Company believes these rates are a reasonable assumption for the long-term rate of return on plan assets for 2020 given the current investment strategy.

DTE Gas Company

Notes to Consolidated Financial Statements — (Continued)

The DTE Energy Company Affiliates Employee Benefit Plans Master Trust employs a liability driven investment program whereby the characteristics of plan liabilities are considered when determining investment policy. Risk tolerance is established through consideration of future plan cash flows, plan funded status, and corporate financial considerations. The investment portfolio contains a diversified blend of equity, fixed income, and other investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks, and large and small market capitalizations. Fixed income investments generally include U.S. Treasuries, diversified corporate bonds, bank loans, mortgage-backed securities, and other governmental debt. Other investments are used to enhance long-term returns while improving portfolio diversification. Derivatives may be utilized in a risk controlled manner, to potentially increase the portfolio beyond the market value of invested assets and/or reduce portfolio investment risk. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies, and quarterly investment portfolio reviews.

Target allocations for the represented pension plan assets as of December 31, 2019 are listed below:



U.S. Large Capitalization (Cap) Equity Securities	16	%
U.S. Small Cap and Mid Cap Equity Securities	4
Non-U.S. Equity Securities	15
Fixed Income Securities	42
Hedge Funds and Similar Investments	14
Private Equity and Other	9
	100	%

DTE Gas Company

Notes to Consolidated Financial Statements — (Continued)

The following table provides the fair value measurement amounts for represented pension plan assets at December 31, 2019 and 2018^(a):



	December 31, 2019								December 31, 2018
	Level 1		Level 2		Other^(b)		Total		Level 1		Level 2		Other^(b)		Total
	(In millions)
Asset category:
Short-term Investments^(c)	$	11	$	—	$	—	$	11	$	—	$	3	$	—	$	3
Equity Securities
Domestic^(d)	20		—		99		119		78		—		—		78
International^(e)	44		—		37		81		36		1		25		62
Fixed Income Securities
Governmental^(f)	65		—		—		65		—		93		—		93
Corporate^(g)	—		166		—		166		1		109		—		110
Hedge Funds and Other^(h)	20		—		57		77		9		—		58		67
Private Equity and Other⁽ⁱ⁾	—		—		52		52		—		—		43		43
Total	$	160	$	166	$	245	$	571	$	124	$	206	$	126	$	456

______________________________________


(a)	For a description of levels within the fair value hierarchy, see Note 9 to the Consolidated Financial Statements, "Fair Value."


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


(c)	This category predominantly represents certain short-term fixed income securities and money market investments that are managed in separate accounts or commingled funds. Pricing for investments in this category are obtained from quoted prices in actively traded markets or valuations from brokers or pricing services.


(d)	This category represents portfolios of large, medium and small capitalization domestic equities. Investments in this category include exchange-traded securities for which unadjusted quoted prices can be obtained and exchange-traded securities held in a commingled fund classified as NAV assets.


(e)	This category primarily consists of portfolios of non-U.S. developed and emerging market equities. Investments in this category are exchange-traded securities whereby unadjusted quoted prices can be obtained. Exchange-traded securities held in a commingled fund are classified as NAV assets.


(f)	This category includes U.S. Treasuries, bonds, and other governmental debt. Pricing for investments in this category is obtained from quoted prices in actively traded markets and quotations from broker or pricing services.


(g)	This category primarily consists of corporate bonds from diversified industries, bank loans, and mortgage-backed securities. Pricing for investments in this category is obtained from quoted prices in actively traded markets and quotations from broker or pricing services.


(h)	This category utilizes a diversified group of strategies that attempt to capture financial market inefficiencies and includes publicly traded mutual funds, commingled funds and limited partnership funds. Pricing for mutual funds in this category is obtained from quoted prices in actively traded markets. Commingled funds or limited partnership funds are classified as NAV assets.


(i)	This category includes a diversified group of funds and strategies that primarily invests in private equity partnerships. This category also includes investments in real estate and private debt. All pricing for investments in this category are classified as NAV assets.

The pension trust holds 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. The commingled funds hold exchange-traded equity or debt securities and are valued based on stated NAVs. Non-exchange traded fixed income securities are valued by the trustee based upon quotations available from brokers or pricing services. 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 price source of a given security if the trustee challenges an assigned price and determines that another price source is considered to be preferable. The Company has obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices.

DTE Gas Company

Notes to Consolidated Financial Statements — (Continued)



	2019	2018	2017
Accumulated postretirement benefit obligation
Discount rate	3.29%	4.40%	3.70%
Health care trend rate pre- and post- 65	6.75 / 7.25%	6.75 / 7.25%	6.75 / 7.25%
Ultimate health care trend rate	4.50%	4.50%	4.50%
Year in which ultimate reached pre- and post- 65	2032	2031	2030
Other postretirement benefit costs
Discount rate	4.40%	3.70%	4.25%
Expected long-term rate of return on plan assets	7.30%	7.75%	7.75%
Health care trend rate pre- and post-65	6.75 / 7.25%	6.75 / 7.25%	6.50 / 6.75%
Ultimate health care trend rate	4.50%	4.50%	4.50%
Year in which ultimate reached pre- and post- 65	2031	2030	2028

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U.S. Large Cap Equity Securities	16	%
U.S. Small Cap and Mid Cap Equity Securities	3
Non-U.S. Equity Securities	16
Fixed Income Securities	37
Hedge Funds and Similar Investments	14
Private Equity and Other	14
	100	%



Note		Title
1		Organization and Basis of Presentation
14		Leases
16		Retirement Benefits and Trusteed Assets