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Dte Energy Co (DTB) SEC Filing 8-K Material Event for the period ending Friday, March 4, 2022

Dte Energy Co

CIK: 936340 Ticker: DTB

Exhibit 99.1
DTE Gas Company
Consolidated Financial Statements as of December 31, 2021 and 2020 and for each of the three years in the period ended December 31, 2021 and Report of Independent Auditors


















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DTE Gas Company
Year Ended December 31, 2021
TABLE OF CONTENTS
Page




DEFINITIONS
AFUDCAllowance for Funds Used During Construction
ASUAccounting Standards Update issued by the FASB
CARES Act
Coronavirus Aid, Relief, and Economic Security Act enacted in March 2020 to assist individuals and employers with the impacts of the COVID-19 pandemic, including certain tax relief provisions
CompanyDTE Gas Company and any subsidiary companies
COVID-19Coronavirus disease of 2019
Customer ChoiceMichigan legislation giving customers the option of retail access to alternative suppliers for natural gas
DTE EnergyDTE Energy Company, directly or indirectly the parent of DTE Electric Company, DTE Gas Company, and numerous non-utility subsidiaries
DTE GasDTE Gas Company (an indirect wholly-owned subsidiary of DTE Energy) and subsidiary companies
EGLEMichigan Department of Environment, Great Lakes, and Energy, formerly known as Michigan Department of Environmental Quality
EPAU.S. Environmental Protection Agency
EWREnergy Waste Reduction program, which includes a mechanism authorized by the MPSC allowing DTE Gas to recover through rates certain costs relating to energy waste reduction
FASBFinancial Accounting Standards Board
FERCFederal Energy Regulatory Commission
GCRA Gas Cost Recovery mechanism authorized by the MPSC that allows DTE Gas to recover through rates its natural gas costs
LLCDTE Energy Corporate Services, LLC, a subsidiary of DTE Energy
MGPManufactured Gas Plant
MPSCMichigan Public Service Commission
NAVNet Asset Value
NEXUSNEXUS Gas Transmission, LLC, a joint venture in which DTE Energy previously owned a 50% partnership interest that separated with DT Midstream effective July 1, 2021
Net zeroCollective efforts to reduce the emissions from DTE Gas operations and gas suppliers, as well as efforts to offset an amount equivalent to any remaining emissions. Emissions include carbon containing compounds such as carbon dioxide and methane that are identified as greenhouse gases. Progress towards this goal is estimated and may vary from the calculations of other utility businesses with similar targets
RepresentedEmployees of DTE Gas covered by collective bargaining agreements
TCJATax Cuts and Jobs Act of 2017, which reduced the corporate Federal income tax rate from 35% to 21%
TCJA rate reduction liabilityReduction in DTE Gas revenue related to Calculation C of the TCJA. DTE Gas' Calculation C case was approved by the MPSC in August 2019 to address all remaining issues relative to the TCJA, which is primarily the remeasurement of deferred taxes and how the amounts deferred as Regulatory liabilities flow to ratepayers
Topic 606FASB issued ASU No. 2014-09, Revenue From Contracts with Customers, as amended
VEBAVoluntary Employees Beneficiary Association
VIEVariable Interest Entity
Units of Measurement
BcfBillion cubic feet of natural gas
1


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:
202120202019
(In millions)
Operating Revenues$1,532 $1,396 $1,462 
Cost of gas 410 346 415 
Utility Margin1,122 1,050 1,047 
Operation and maintenance518 492 510 
Depreciation and amortization174 155 142 
Taxes other than income93 83 79 
Asset (gains) losses and impairments, net4 14 — 
Operating Income333 306 316 
Other (Income) and Deductions82 73 67 
Income Tax Expense38 47 63 
Net Income$213 $186 $186 
Utility Margin increased $72 million in 2021 and $3 million in 2020. 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:
20212020
(In millions)
Implementation of new rates$75 $32 
Home protection program6 
Regulatory mechanism — EWR3 
TCJA rate reduction (9)
Weather(7)(46)
Infrastructure recovery mechanism(15)17 
Other regulatory mechanisms and other10 (4)
Increase in Utility Margin$72 $
2


202120202019
(In Bcf)
Gas Markets
Gas sales125 124 136 
End-user transportation165 180 186 
290 304 322 
Intermediate transportation488 477 498 
Total Gas sales778 781 820 
The change in sales in 2021 was primarily due to a decrease in End-user transportation volumes, including lower generation needs at certain industrial customers. The decrease in sales in 2020 was primarily due to more unfavorable weather compared to 2019. Intermediate transportation volumes fluctuate period to period based on available market opportunities.
Operation and maintenance expense increased $26 million in 2021 and decreased $18 million in 2020. The increase in 2021 was primarily due to higher gas operations expense of $41 million, partially offset by lower uncollectible expense of $15 million. The decrease in 2020 was primarily due to lower gas operations expense of $36 million, partially offset by higher EWR expense of $7 million, higher corporate overhead costs of $3 million, and a $6 million adjustment in 2019 to defer expenses previously accrued for a new customer billing system.
Depreciation and amortization expense increased $19 million in 2021 and $13 million in 2020. The increase in both periods was primarily due to a higher depreciable base and change in depreciation rates effective October 2020.
Taxes other than income increased $10 million in 2021 and $4 million in 2020. The 2021 increase was primarily due to higher property taxes of $6 million and employee retention credits of $3 million recognized in 2020 pursuant to the CARES Act. The 2020 increase was primarily due to higher property taxes of $8 million, partially offset by the employee retention credits of $3 million.
Asset (gains) losses and impairments, net decreased $10 million in 2021 and increased $14 million in 2020. The decrease in 2021 was due to lower activity in the current year, including $4 million of capital write-offs, compared to a $14 million write-off of capital expenditures related to incentive compensation in 2020. The increase in 2020 was primarily due to the $14 million write-off of capital expenditures, which were disallowed in the July 17, 2020 rate case settlement.
Other (Income) and Deductions increased $9 million in 2021 and $6 million in 2020. The increase in 2021 was primarily due to contributions to the DTE Energy Foundation and other not-for-profit organizations. The increase in 2020 was primarily due to lower investment earnings of $2 million and higher interest expense of $2 million.
Income Tax Expense decreased $9 million in 2021 and $16 million in 2020. The decrease in 2021 was primarily due to higher amortization of the TCJA regulatory liability, partially offset by higher earnings. The decrease in 2020 was primarily due to higher amortization of the TCJA regulatory liability and lower earnings.
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.

3



Report of Independent Auditors

To the Management and Board of Directors of DTE Gas Company

Opinion
We have audited the accompanying consolidated financial statements of DTE Gas Company and its subsidiaries (the "Company"), which comprise the consolidated statements of financial position as of December 31, 2021 and 2020, and the related consolidated statements of operations, of comprehensive income, of changes in shareholder’s equity and of cash flows for the years then ended, including the related notes (collectively referred to as the "consolidated financial statements").
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (US GAAS). Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management 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, and for 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.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for one year after the date the financial statements are available to be issued.
Auditors' Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with US GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
4


In performing an audit in accordance with US GAAS, we:
Exercise professional judgment and maintain professional skepticism throughout the audit.
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Obtain an understanding of internal control relevant to the audit 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, no such opinion is expressed.
Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements.
Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
March 4, 2022
5


DTE Gas Company
Consolidated Statements of Operations
Year Ended December 31,
202120202019
(In millions)
Operating Revenues$1,532 $1,396 $1,462 
Operating Expenses
Cost of gas 410 346 415 
Operation and maintenance518 492 510 
Depreciation and amortization174 155 142 
Taxes other than income93 83 79 
Asset (gains) losses and impairments, net4 14 — 
1,199 1,090 1,146 
Operating Income333 306 316 
Other (Income) and Deductions
Interest expense80 80 78 
Interest income(5)(5)(6)
Non-operating retirement benefits, net(1)— — 
Other income(7)(9)(8)
Other expenses15 
82 73 67 
Income Before Income Taxes251 233 249 
Income Tax Expense38 47 63 
Net Income$213 $186 $186 
See Notes to Consolidated Financial Statements

6


DTE Gas Company
Consolidated Statements of Comprehensive Income
Year Ended December 31,
202120202019
(In millions)
Net Income$213 $186 $186 
Other comprehensive income — — 
Comprehensive Income$213 $186 $186 
See Notes to Consolidated Financial Statements

7


DTE Gas Company
Consolidated Statements of Financial Position
December 31,
20212020
(In millions)
ASSETS
Current Assets
Cash and cash equivalents$1 $— 
Accounts receivable (less allowance for doubtful accounts of $30 and $32, respectively)
Customer283 281 
Affiliates24 27 
Other2 
Inventories
Gas50 40 
Materials and supplies23 21 
Gas customer choice deferred asset45 40 
Notes receivable
Affiliates 
Other3 
Regulatory assets27 
Other26 21 
484 440 
Investments44 40 
Property
Property, plant, and equipment6,908 6,434 
Accumulated depreciation and amortization(1,845)(1,764)
5,063 4,670 
Other Assets
Regulatory assets498 666 
Notes receivable
Net investment in lease37 38 
Other9 
Prepaid pension costs — affiliates270 211 
Prepaid postretirement costs — affiliates275 227 
Other12 
1,101 1,154 
Total Assets$6,692 $6,304 
See Notes to Consolidated Financial Statements
8


DTE Gas Company
Consolidated Statements of Financial Position — (Continued)
December 31,
20212020
(In millions, except shares)
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Accounts payable
Affiliates$29 $22 
Other178 167 
Short-term borrowings
Affiliates9 167 
Other210 — 
Regulatory liabilities1 21 
Other92 70 
519 447 
Long-Term Debt2,056 1,901 
Other Liabilities
Deferred income taxes764 699 
Regulatory liabilities873 920 
Asset retirement obligations177 170 
Accrued pension liability — affiliates35 100 
Accrued postretirement liability — affiliates5 
Other28 37 
1,882 1,933 
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)1,256 1,109 
Retained earnings979 914 
Total Shareholder's Equity2,235 2,023 
Total Liabilities and Shareholder's Equity$6,692 $6,304 
See Notes to Consolidated Financial Statements

9


DTE Gas Company
Consolidated Statements of Cash Flows
Year Ended December 31,
202120202019
(In millions)
Operating Activities
Net Income$213 $186 $186 
Adjustments to reconcile Net Income to net cash from operating activities:
Depreciation and amortization174 155 142 
Allowance for equity funds used during construction(2)(1)(1)
Deferred income taxes27 43 54 
Asset (gains) losses and impairments, net4 14 — 
Changes in assets and liabilities:
Accounts receivable, net1 34 42 
Inventories(12)(2)
Prepaid pension costs — affiliates(59)(46)(33)
Prepaid postretirement benefit costs — affiliates(48)(39)(38)
Accounts payable28 (21)(21)
Accrued pension liability — affiliates(65)10 (9)
Accrued postretirement liability — affiliates(2)
Regulatory assets and liabilities143 51 22 
Other current and noncurrent assets and liabilities8 25 
Net cash from operating activities410 412 359 
Investing Activities
Plant and equipment expenditures(612)(568)(524)
Notes receivable and other(2)— 
Net cash used for investing activities(614)(568)(520)
Financing Activities
Issuance of long-term debt, net of issuance costs154 249 278 
Redemption of long-term debt (50)(120)
Capital contribution by parent company147 120 120 
Short-term borrowings, net — other210 (194)
Short-term borrowings, net — affiliate(158)167 — 
Dividends paid on common stock(148)(135)(122)
Other (2)— 
Net cash from financing activities205 155 162 
Net Increase (Decrease) in Cash and Cash Equivalents1 (1)
Cash and Cash Equivalents at Beginning of Period — 
Cash and Cash Equivalents at End of Period$1 $— $
Supplemental disclosure of cash information
Cash paid for:
Interest, net of interest capitalized$78 $76 $74 
Income taxes$ $$
Supplemental disclosure of non-cash investing and financing activities
Plant and equipment expenditures in accounts payable$52 $62 $57 
See Notes to Consolidated Financial Statements
10


DTE Gas Company
Consolidated Statements of Changes in Shareholder's Equity
Common StockAdditional
Paid-in
Capital
Retained
Earnings
SharesAmountTotal
(Dollars in millions, shares in thousands)
Balance, December 31, 201810,300 $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, 201910,300 $10 $979 $863 $1,852 
Net Income— — — 186 186 
Capital contribution by parent company— — 120 — 120 
Dividends declared on common stock— — — (135)(135)
Balance, December 31, 202010,300 $10 $1,099 $914 $2,023 
Net Income— — — 213 213 
Capital contribution by parent company— — 147 — 147 
Dividends declared on common stock— — — (148)(148)
Balance, December 31, 202110,300 $10 $1,246 $979 $2,235 
See Notes to Consolidated Financial Statements
11


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 equity investment is valued at cost minus any impairments, if applicable. 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 a natural gas pipeline entity through purchases under a long-term transportation capacity contract. The Company does not have a controlling influence in and does not consolidate the pipeline entity. As of December 31, 2021, 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 generally include cash on hand, cash in banks, and temporary investments purchased with remaining maturities of three months or less.
Financing Receivables
Financing receivables are primarily composed of trade receivables, notes receivable, and unbilled revenue. The Company's financing receivables are stated at net realizable value.
Unbilled revenues of $116 million and $108 million are included in Customer Accounts receivable at December 31, 2021 and 2020, respectively.
12


DTE Gas Company
Notes to Consolidated Financial Statements — (Continued)
The Company monitors the credit quality of financing receivables on a regular basis by reviewing credit quality indicators and monitoring for trigger events, such as a credit rating downgrade or bankruptcy. Credit quality indicators include, but are not limited to, ratings by credit agencies where available, collection history, collateral, counterparty financial statements and other internal metrics. Utilizing such data, the Company has determined three internal grades of credit quality. Internal grade 1 includes financing receivables for counterparties where credit rating agencies have ranked the counterparty as investment grade. To the extent credit ratings are not available, the Company utilizes other credit quality indicators to determine the level of risk associated with the financing receivable. Internal grade 1 may include financing receivables for counterparties for which credit rating agencies have ranked the counterparty as below investment grade; however, due to favorable information on other credit quality indicators, the Company has determined the risk level to be similar to that of an investment grade counterparty. Internal grade 2 includes financing receivables for counterparties with limited credit information and those with a higher risk profile based upon credit quality indicators. Internal grade 3 reflects financing receivables for which the counterparties have the greatest level of risk, including those in bankruptcy status.
The following represents the Company's financing receivables by year of origination, classified by internal grade of credit risk. The related credit quality indicators and risk ratings utilized to develop the internal grades have been updated through December 31, 2021.
Year of origination
202120202019 and priorTotal
(In millions)
Notes receivable, internal grade 2$$$$11 
Net investment in leases, internal grade 1(a)
$— $— $38 $38 
_______________________________________
(a)Current portion included in Current Assets — Notes receivable — Other on the Consolidated Statements of Financial Position.
The allowance for doubtful accounts on accounts receivable for the Company is generally calculated using an aging approach that utilizes rates developed in reserve studies. The Company establishes an allowance for uncollectible accounts based on historical losses and management's assessment of existing and future economic conditions, customer trends and other factors. Customer accounts are generally considered delinquent if the amount billed is not received by the due date, which is typically in 21 days, however, factors such as assistance programs may delay aggressive action. The Company generally assesses late payment fees on trade receivables based on past-due terms with customers. Customer accounts are written off when collection efforts have been exhausted. The time period for write-off is 150 days after service has been terminated.
The allowance for doubtful accounts for other receivables is generally calculated based on specific review of probable future collections based on receivable balances generally in excess of 30 days. Existing and future economic conditions, customer trends and other factors are also considered. Receivables are written off on a specific identification basis and determined based upon the specific circumstances of the associated receivable.
Notes receivable are primarily comprised of a finance lease receivable and loans that are included in Notes receivable on the Consolidated Statements of Financial Position.
Notes receivable are typically considered delinquent when payment is not received for periods ranging from 60 to 120 days. The Company ceases accruing interest (nonaccrual status), considers a note receivable impaired, and establishes an allowance for credit loss when it is probable that all principal and interest amounts due will not be collected in accordance with the contractual terms of the note receivable. In determining the allowance for credit losses for notes receivable, the Company considers the historical payment experience and other factors that are expected to have a specific impact on the counterparty's ability to pay including existing and future economic conditions.
Cash payments received on nonaccrual status notes receivable that do not bring the account contractually current are first applied to the contractually owed past due interest, with any remainder applied to principal. Accrual of interest is generally resumed when the note receivable becomes contractually current.
13


DTE Gas Company
Notes to Consolidated Financial Statements — (Continued)
The following tables present a roll-forward of the activity for the Company's financing receivables credit loss reserves as of December 31, 2021:
Trade accounts receivableOther receivablesTotal
(In millions)
Beginning reserve balance, January 1, 2021$30 $$32 
Current period provision16 — 16 
Write-offs charged against allowance(42)— (42)
Recoveries of amounts previously written off24 — 24 
Ending reserve balance, December 31, 2021$28 $2 $30 
Trade accounts receivableOther receivablesTotal
(In millions)
Beginning reserve balance, January 1, 2020$29 $$32 
Current period provision33 34 
Write-offs charged against allowance(52)(2)(54)
Recoveries of amounts previously written off20 — 20 
Ending reserve balance, December 31, 2020$30 $2 $32 
Uncollectible expense is primarily comprised of the current period provision for allowance for doubtful accounts. Uncollectible expense was $18 million, $33 million, and $36 million for the years ended December 31, 2021, 2020 and 2019, respectively.
There are no material amounts of past due financing receivables for the Company as of December 31, 2021.
Inventories
Natural gas inventory of $50 million and $40 million as of December 31, 2021 and 2020, respectively, is determined using the last-in, first-out (LIFO) method. The replacement cost of gas in inventory exceeded the LIFO cost by $136 million and $62 million at December 31, 2021 and 2020, respectively.
The Company values materials and supplies inventory at the lower of cost or net realizable value, where cost is generally valued using 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."
14


DTE Gas Company
Notes to Consolidated Financial Statements — (Continued)
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.
Cloud Computing Arrangements
Effective upon the adoption of ASU No. 2018-15 in January 2020, the Company capitalizes implementation costs incurred in a cloud computing arrangement that is a service contract consistent with capitalized implementation costs incurred to develop or obtain internal-use software. Capitalized costs are recorded in Other noncurrent assets on the Consolidated Statements of Financial Position and amortization of the costs is reflected in Operation and maintenance within the Consolidated Statements of Operations. Costs are amortized on a straight-line basis over the life of the contract. Contracts primarily involve the implementation or upgrade of cloud-based solutions for gas operations.
Capitalized cloud computing costs were $4 million at December 31, 2021. Amortization of these costs was not material for the year ended December 31, 2021. There were no cloud computing costs capitalized in Other noncurrent assets at December 31, 2020.
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 2021, 2020, and 2019 for stock-based compensation expense was approximately $11 million, $10 million, and $11 million, respectively.
Subsequent Events
The Company has evaluated subsequent events through March 4, 2022, 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:
NoteTitle
4Revenue
5Property, Plant, and Equipment
6Asset Retirement Obligations
7Regulatory Matters
8Income Taxes
9Fair Value
10Financial and Other Derivative Instruments
14Leases
16Retirement Benefits and Trusteed Assets

15


DTE Gas Company
Notes to Consolidated Financial Statements — (Continued)
NOTE 3 — NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions, and clarifying certain requirements regarding franchise taxes, goodwill, consolidated tax expenses, and annual effective tax rate calculations. The Company adopted the ASU effective January 1, 2021 using the modified retrospective and prospective approaches, where applicable. The adoption of the ASU did not have a significant impact on the Company's Consolidated Financial Statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting, as amended. The amendments in this update provide optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The optional relief is temporary and cannot be applied to contract modifications and hedging relationships entered into or evaluated after December 31, 2022. The Company adopted the ASU and elected the optional expedients for contract modifications prospectively. The adoption of the ASU did not have a significant impact on the Company's Consolidated Financial Statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. The amendments in this update simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts indexed to and potentially settled in an entity's own equity. The Company adopted the ASU effective January 1, 2021 using the modified retrospective approach. The adoption of the ASU did not have a significant impact on the Company's Consolidated Financial Statements.
Recently Issued Pronouncements
In July 2021, the FASB issued ASU No. 2021-05, Leases (Topic 842): Lessors – Certain Leases with Variable Lease Payments. The amendments in this update modify lease classification requirements for lessors, providing that lease contracts with variable lease payments that do not depend on a reference index or a rate should be classified as operating leases if they would have been classified as a sales-type or direct financing lease and resulted in the recognition of a selling loss at lease commencement. The ASU is effective for the Company for fiscal years beginning after December 15, 2021, and interim periods therein. The Company will apply the guidance prospectively. The Company is currently assessing the impact of this standard on its Consolidated Financial Statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this update require contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. Historically, such amounts were recognized by the acquirer at fair value in acquisition accounting. The ASU is effective for the Company for fiscal years beginning after December 15, 2022, and interim periods therein. Early adoption is permitted. The Company will apply the guidance prospectively to acquisitions occurring on or after the effective date.

NOTE 4 — REVENUE
Significant Accounting Policy
Revenue is measured based upon the consideration specified in a contract with a customer at the time when performance obligations are satisfied. 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.
16


DTE Gas Company
Notes to Consolidated Financial Statements — (Continued)
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:
202120202019
(In millions)
Gas sales$1,038 $954 $1,024 
End User Transportation234 218 219 
Intermediate Transportation82 79 78 
Other(a)
178 145 141 
Total Gas operating revenues(b)
$1,532 $1,396 $1,462 
_______________________________________
(a)Includes revenue adjustments related to various regulatory mechanisms.
(b)Includes $10 million, $10 million, and $8 million under Alternative Revenue Programs and $6 million, $8 million, and $7 million of Other revenues, all outside the scope of Topic 606, for the years ended December 31, 2021, 2020, and 2019, respectively.
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 cancellable 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.
Transaction Price Allocated to the Remaining Performance Obligations
In accordance with optional exemptions available under Topic 606, the Company did not disclose the value of unsatisfied performance obligations for (1) contracts with an original expected length of one year or less, (2) with the exception of fixed consideration, contracts for which revenue is recognized at the amount to which the Company has the right to invoice for goods provided and services performed, and (3) contracts for which variable consideration relates entirely to an unsatisfied performance obligation.
Such contracts consist of varying types of performance obligations, including the supply and delivery of energy related products and services. Contracts with variable volumes and/or variable pricing have also been excluded as the related consideration under the contract is variable at inception of the contract. Contract lengths vary from cancellable to multi-year.
17


DTE Gas Company
Notes to Consolidated Financial Statements — (Continued)
The Company expects to recognize revenue for the following amounts related to fixed consideration associated with remaining performance obligations in each of the future periods noted:
(In millions)
2022$93 
202385 
202476 
202560 
202654 
2027 and thereafter293 
$661 

NOTE 5 PROPERTY, PLANT, AND EQUIPMENT
The following is a summary of Property, plant, and equipment by classification as of December 31:
20212020
(In millions)
Property, plant, and equipment
Distribution$4,900 $4,517 
Storage593 576 
Transmission and other1,415 1,341 
Total6,908 6,434 
Accumulated depreciation and amortization
Distribution(1,265)(1,215)
Storage(154)(146)
Transmission and other(426)(403)
Total(1,845)(1,764)
Net Property, plant, and equipment$5,063 $4,670 
AFUDC
AFUDC represents the cost of financing construction projects, including the estimated cost of debt and authorized return-on-equity. The debt component is recorded as a reduction to Interest expense and the equity component is recorded as Other income on the Consolidated Statements of Operations. The AFUDC rates were 5.55%, 5.56%, and 5.56% for the years ended December 31, 2021, 2020, and 2019, respectively.
The following is a summary of AFUDC:
Year Ended December 31,
202120202019
(In millions)
Allowance for debt funds used during construction$1 $$
Allowance for equity funds used during construction2 
Total$3 $$
Depreciation and Amortization
The composite depreciation rate for the Company was approximately 2.9%, 2.8%, and 2.7% in 2021, 2020, and 2019, respectively. The average estimated useful life for Distribution and Storage property was 49 and 58 years, respectively, at December 31, 2021. The estimated useful lives for Transmission and other utility assets range from 3 to 80 years.
18


DTE Gas Company
Notes to Consolidated Financial Statements — (Continued)
The following is a summary of Depreciation and amortization expense:
Year Ended December 31,
202120202019
(In millions)
Property, plant, and equipment$131 $120 $111 
Regulatory liabilities43 35 31 
$174 $155 $142 
Capitalized Software
Capitalized software costs are classified as Property, plant, and equipment, and the related amortization is included in Accumulated depreciation and amortization on the Consolidated Statements of Financial Position. 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,
202120202019
(In millions)
Amortization expense of capitalized software$9 $$
Gross carrying value of capitalized software$70 $65 
Accumulated amortization of capitalized software$39 $34 

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. Refer to Note 7 to the Consolidated Financial Statements, "Regulatory Matters," for further information regarding the Company's removal costs regulatory liability.
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 2021, 2020, and 2019 were as follows:
202120202019
(In millions)
Asset retirement obligations at January 1$170 $163 $156 
Accretion9 
Liabilities settled(2)(2)(2)
Asset retirement obligations at December 31$177 $170 $163 

19


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 any unresolved regulatory matters discussed herein. Resolution of these matters is dependent upon future MPSC and FERC 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.
20


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:
20212020
(In millions)
Assets
Recoverable pension and other postretirement costs
Pension
$316 $461 
Other postretirement costs
26 57 
Deferred environmental costs51 57 
Recoverable Michigan income taxes30 34 
Energy Waste Reduction20 19 
Accrued GCR revenue18 — 
Energy Waste Reduction incentive16 13 
Unamortized loss on reacquired debt13 14 
Non-service pension and other postretirement costs9 
Recoverable income taxes related to AFUDC equity7 
Other19 
525 671 
Less amount included in Current Assets(27)(5)
$498 $666 
Liabilities
Removal costs liability$396 $421 
Refundable federal income taxes387 427 
Non-service pension and other postretirement costs45 32 
Negative other postretirement offset44 36 
Accrued GCR refund 20 
Other2 
874 941 
Less amount included in Current Liabilities(1)(21)
$873 $920 
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 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 Regulatory assets 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. Refer to Note 16 to the Consolidated Financial Statements, "Retirement Benefits and Trusteed Assets," for additional information regarding the changes in pension and other postretirement costs for the period and the impact on Regulatory assets.(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)
21


DTE Gas Company
Notes to Consolidated Financial Statements — (Continued)
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.
Energy Waste Reduction — Receivable for the under-recovery of energy waste reduction costs incurred by the Company which are recoverable through a surcharge.(a)
Accrued GCR revenue — Receivable for the temporary under-recovery of and carrying costs on gas costs incurred by the Company which are recoverable through the GCR mechanism.
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)
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.
Non-service pension and other postretirement costs — Upon adoption of ASU 2017-07 on January 1, 2018, certain non-service pension and other postretirement costs are no longer capitalized into Property, Plant & Equipment. Such costs may be recorded to Regulatory assets for ratemaking purposes and recovered as amortization expense based on the composite depreciation rate for plant-in-service.
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
Removal costs liability — The amounts collected from customers to fund future asset removal activities in excess of removal costs incurred.
Refundable federal income taxes — In December 2017, the TCJA was enacted and reduced the corporate income tax rate, effective January 1, 2018. The Company remeasured deferred taxes, resulting in a reduction to deferred tax liabilities, to reflect the impact of the TCJA on the cumulative temporary differences expected to reverse after the effective date. A regulatory liability was also recorded to offset the impact of the deferred tax remeasurement reflected in rates.
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.
Negative other postretirement offset — The Company's negative other postretirement costs are not included as a reduction to its authorized rates; therefore, the Company is 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.
22


DTE Gas Company
Notes to Consolidated Financial Statements — (Continued)
2021 Gas Rate Case Filing
DTE Gas filed a rate case with the MPSC on February 12, 2021 requesting an increase in base rates of $195 million based on a projected twelve-month period ending December 31, 2022. The requested increase in base rates was primarily due to an increase in net plant resulting from infrastructure investments and operating and maintenance expenses. The rate filing also requested an increase in return on equity from 9.9% to 10.25% and included projected changes in sales and working capital. On December 9, 2021, the MPSC issued an order approving an annual revenue increase of $84 million for services rendered on or after January 1, 2022 and a return on equity of 9.9%.

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. The Company 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 income tax receivables from DTE Energy of $15 million and $26 million at December 31, 2021 and 2020, respectively, which is included in Accounts receivable - Affiliates on the Consolidated Statements of Financial Position.
Total Income Tax Expense varied from the statutory federal income tax rate for the following reasons for the years ended December 31:
202120202019
(In millions)
Income Before Income Taxes$251 $233 $249 
Income tax expense at 21% statutory rate$53 $49 $52 
State and local income taxes, net of federal benefit15 14 15 
TCJA regulatory liability amortization(30)(14)(3)
Other, net (2)(1)
Income Tax Expense$38 $47 $63 
Effective income tax rate14.9 %20.2 %25.3 %
Components of Income Tax Expense were as follows for the years ended December 31:
202120202019
(In millions)
Current income tax expense
Federal
$11 $$
State and other income tax
 — 
Total current income taxes11 
Deferred income tax expense
Federal
8 25 37 
State and other income tax
19 18 17 
Total deferred income taxes27 43 54 
$38 $47 $63 
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.
23


DTE Gas Company
Notes to Consolidated Financial Statements — (Continued)
Deferred tax assets (liabilities) were comprised of the following at December 31:
20212020
(In millions)
Property, plant, and equipment$(682)$(630)
Regulatory assets and liabilities(62)(54)
Pension and benefits(65)(60)
State net operating loss carry-forwards9 
Other, net36 37 
Long-term deferred income tax liabilities$(764)$(699)
Deferred income tax assets$152 $155 
Deferred income tax liabilities(916)(854)
$(764)$(699)
The Company has state and local deferred tax assets related to net operating loss carry-forwards of $9 million and $8 million at December 31, 2021 and 2020, respectively. The state and local net operating loss carry-forwards begin to expire in 2029. The Company does not have a valuation allowance with respect to any of these deferred tax assets.
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Uncertain Tax Positions
The Company had approximately $1 million of unrecognized tax benefits at December 31, 2021 and 2020, 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, 2021 and 2020. The Company recognized interest expense related to income taxes of a nominal amount in 2021, 2020, and 2019. The Company has not accrued any penalties pertaining to income taxes.
In 2021, DTE Energy, including DTE Gas, settled a federal tax audit for the 2019 tax year. DTE Energy's federal income tax returns for 2020 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 2017 and subsequent years remain subject to examination by the State of Michigan. DTE Energy also files tax returns in numerous state and local jurisdictions with varying statutes of limitation.

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, 2021 and 2020. The Company believes it uses valuation techniques that maximize the use of observable market-based inputs and minimize the use of unobservable inputs.
24


DTE Gas Company
Notes to Consolidated Financial Statements — (Continued)
A fair value hierarchy has been established that prioritizes the inputs to valuation techniques used to measure fair value in three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. All assets and liabilities are required to be classified in their entirety based on the lowest level of input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input may require judgment considering factors specific to the asset or liability and may affect the valuation of the asset or liability and its placement within the fair value hierarchy. The Company classifies fair value balances based on the fair value hierarchy defined as follows:
Level 1 — Consists of unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date.
Level 2 — Consists of inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.
Level 3 — Consists of unobservable inputs for assets or liabilities whose fair value is estimated based on internally developed models or methodologies using inputs that are generally less readily observable and supported by little, if any, market activity at the measurement date. Unobservable inputs are developed based on the best available information and subject to cost-benefit constraints.
As of December 31, 2021 and 2020, the Company had $5 million and $4 million of equity securities, respectively, which are recorded at fair value on a recurring basis and classified as Level 1 assets. These assets, which exclude the cash surrender value of life insurance investments, are included in Other investments on the Consolidated Statements of Financial Position for both periods.
The following table presents the carrying amount and fair value of financial instruments:
December 31, 2021December 31, 2020
CarryingFair ValueCarryingFair Value
AmountLevel 1Level 2Level 3AmountLevel 1Level 2Level 3
(In millions)
Notes receivable — affiliates$ $ $ $ $$— $— $
Notes receivable — other, excluding lessor finance leases$11 $ $ $11 $$— $— $
Short-term borrowings — affiliates$9 $ $ $9 $167 $— $— $167 
Short-term borrowings — other$210 $ $210 $ $— $— $— $— 
Long-term debt(a)
$2,056 $ $1,187 $1,058 $1,901 $— $1,179 $1,019 
_______________________________________
(a)Carrying value includes 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.
25


DTE Gas Company
Notes to Consolidated Financial Statements — (Continued)
The Company's primary market risk exposure is associated with commodity prices, credit, and interest rates. The Company has risk management policies to monitor and manage market risks. The Company purchases, stores, transports, distributes, and sells natural gas, and buys and sells transportation and storage capacity. The Company has fixed-priced contracts for portions of its expected natural gas supply requirements through March 2024. Substantially all of these contracts meet the normal purchases and normal sales exception and are therefore accounted for under the accrual method. Forward transportation and storage contracts are generally not derivatives and are therefore accounted for under the accrual method.

NOTE 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 Date20212020
(In millions)
Mortgage Bonds and Senior Notes, Principally Secured3.9%2023 - 20512,065 1,910 
Unamortized debt issuance costs(9)(9)
$2,056 $1,901 
______________________________________
(a)Weighted average interest rate as of December 31, 2021.
Debt Issuances
In 2021, the following debt was issued:
MonthTypeInterest RateMaturityAmount
(In millions)
November
Mortgage bonds(a)
2.07%2031$60 
November
Mortgage bonds(a)
2.85%205195 
$155 
______________________________________
(a)Proceeds used for the repayment of short-term borrowings and general corporate purposes, including capital expenditures.
The following table shows scheduled debt maturities, excluding any unamortized discount or premium on debt:
202220232024202520262027 and ThereafterTotal
(In millions)
Amount to mature$— $75 $— $70 $— $1,920 $2,065 
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.

NOTE 12 PREFERRED AND PREFERENCE SECURITIES
As of December 31, 2021, the Company's authorized and unissued stock included 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.

26


DTE Gas Company
Notes to Consolidated Financial Statements — (Continued)
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 2025, except for $13 million of availability that will expire in April 2024. As of December 31, 2021, the Company had $210 million of commercial paper issuances outstanding and no revolver borrowings.
The unsecured revolving credit agreement requires the Company to maintain a total funded debt to capitalization ratio of no more than 0.65 to 1. In the agreement, "total funded debt" means all indebtedness of the Company and its consolidated subsidiaries, including finance lease obligations, hedge agreements, and guarantees of third parties' debt, but excluding contingent obligations, nonrecourse and junior subordinated debt, and, except for calculations at the end of the second quarter, certain short-term debt. "Capitalization" means the sum of (a) total funded debt plus (b) "consolidated net worth," which is equal to consolidated total equity of the Company and its consolidated subsidiaries (excluding pension effects under certain FASB statements), as determined in accordance with accounting principles generally accepted in the United States of America. At December 31, 2021, 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 rate for short-term borrowings was 0.2% at December 31, 2021. There were no short-term borrowings outstanding with third parties as of December 31, 2020. For information related to affiliate short-term borrowings, refer to Note 17 to the Consolidated Financial Statements, "Related Party Transactions."

NOTE 14 LEASES
The Company leases a portion of its pipeline system through a finance lease contract that has been renewed through 2025, with additional renewal options reasonably certain to be exercised through 2040. 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.
The components of the Company's net investment in the finance lease for remaining periods at December 31, 2021 are as follows:
(In millions)
2022$
2023
2024
2025
2026
2027 and thereafter45 
Total minimum future lease receipts65 
Residual value of leased pipeline17 
Less unearned income44 
Net investment in finance lease38 
Less current portion
$37 
Interest income recognized under the finance lease was $3 million, $4 million, and $4 million for the years ended December 31, 2021, 2020, and 2019, respectively.

27


DTE Gas Company
Notes to Consolidated Financial Statements — (Continued)
NOTE 15 COMMITMENTS AND CONTINGENCIES
Environmental
Air — In June 2020, DTE Energy expanded its net zero goal to include DTE Gas by committing to reduce greenhouse gas emissions to net zero by 2050 from procurement of natural gas and within DTE Gas operations. DTE Gas is working to source gas with lower methane intensity, reduce emissions through its gas main renewal and pipeline integrity programs, and if necessary, use carbon offsets to achieve net zero. DTE Gas also committed to helping its customers reduce their emissions from natural gas by 35% by 2050. To support this goal, DTE Gas launched its CleanVision Natural Gas Balance program in January 2021 that offers customers a way to reduce their carbon footprint using carbon offsets and renewable natural gas. The carbon offset program is focused on protecting Michigan forests that naturally absorb carbon dioxide.
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, 2021 and 2020, the Company had $24 million accrued for remediation. These costs are not discounted to their present value. Any change in assumptions, such as remediation techniques, nature and extent of contamination, and regulatory requirements, could impact the estimate of remedial action costs for the sites and affect the Company's financial position and cash flows. The Company anticipates the cost amortization methodology approved by the MPSC, which allows for amortization of the MGP costs over a ten-year period beginning with the year subsequent to the year the MGP costs were incurred, will prevent the associated investigation and remediation costs from having a material adverse impact on the Company's results of operations.
Guarantees
In certain limited circumstances, the Company enters into contractual guarantees. The Company may guarantee another entity’s obligation in the event it fails to perform and may provide guarantees in certain indemnification agreements. The Company may also provide indirect guarantees for the indebtedness of others.
Labor Contracts
There are several bargaining units for the Company's approximate 1,200 represented employees, which represents 65% of the Company's total employees. None of the represented employees have contracts expiring within one year.
Purchase Commitments
As of December 31, 2021, 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 2022 through 2051, as detailed in the following table:
(In millions)
2022$342 
2023271 
2024158 
202541 
202692 
2027 and thereafter158 
$1,062 
The Company has made certain commitments in connection with 2022 annual capital expenditures that are expected to be approximately $670 million.
28


DTE Gas Company
Notes to Consolidated Financial Statements — (Continued)
COVID-19 Pandemic
The Company has been actively monitoring the impact of the COVID-19 pandemic on supply chains, markets, counterparties, and customers, and any related impacts on operating costs, customer demand, and recoverability of assets that could materially impact the Company's financial results.
In 2020, COVID-19 resulted in incremental operating expenses for personal protective equipment and other health and safety related matters. These costs were not significant and continued to be immaterial in 2021.
In consideration of these limited impacts and any expected impacts to future performance and cash flows resulting from the COVID-19 pandemic, there have been no material adjustments or reserves deemed necessary as of December 31, 2021.
The Company cannot predict the future impacts of the COVID-19 pandemic on the Consolidated Financial Statements, as developments involving COVID-19 and its related effects on economic and operating conditions remain highly uncertain.
Other Contingencies
The Company is involved in certain other legal, regulatory, administrative, and environmental proceedings before various courts, arbitration panels, and governmental agencies concerning claims arising in the ordinary course of business. These proceedings include certain contract disputes, additional environmental reviews and investigations, audits, inquiries from various regulators, and pending judicial matters. The Company cannot predict the final disposition of such proceedings. The Company regularly reviews legal matters and records provisions for claims that it can estimate and are considered probable of loss. The resolution of these pending proceedings is not expected to have a material effect on the Consolidated Financial Statements in the periods they are resolved.
For a discussion of contingencies related to regulatory matters, see Note 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 primarily sponsored by DTE Energy's subsidiary, DTE Energy Corporate Services, 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, 2021:
RepresentedNon-represented
Qualified Pension Plans
DTE Energy Company Retirement PlanX
DTE Gas Company Retirement Plan for Employees Covered by Collective Bargaining AgreementsX
Non-qualified Pension Plans
DTE Energy Company Supplemental Retirement Plan(a)
XX
Other Postretirement Benefit Plans
The DTE Energy Company Comprehensive Non-Health Welfare PlanXX
The DTE Energy Company Comprehensive Retiree Group Health Care PlanXX
DTE Supplemental Retiree Benefit PlanXX
DTE Energy Company Retiree Reimbursement Arrangement PlanXX
_____________________________________
(a)Sponsored by DTE Energy Company
29


DTE Gas Company
Notes to Consolidated Financial Statements — (Continued)
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 are 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 non-qualified, noncontributory, retirement benefit plans for selected management employees. These plans provide for benefits that supplement those provided by DTE Energy’s other retirement plans.
Represented net pension cost includes the following components for the years ended December 31:
202120202019
(In millions)
Service cost$16 $14 $12 
Interest cost20 22 25 
Expected return on plan assets(41)(39)(36)
Amortization of:
Net actuarial loss22 18 11 
Settlements12— — 
Net pension cost$29 $15 $12 
20212020
(In millions)
Other changes in plan assets and benefit obligations recognized in Regulatory assets
Net actuarial (gain) loss$(59)$34 
Amortization of net actuarial loss and settlements(34)(18)
Total recognized in Regulatory assets$(93)$16 
Total recognized in net periodic pension cost and Regulatory assets$(64)$31 
30


DTE Gas Company
Notes to Consolidated Financial Statements — (Continued)
The following table reconciles the represented plan obligations, assets, and funded status as well as the amounts recognized as Prepaid pension costs - affiliates or Accrued pension liability - affiliates in the Consolidated Statements of Financial Position at December 31:
20212020
(In millions)
Accumulated benefit obligation, end of year$579 $649 
Change in projected benefit obligation
Projected benefit obligation, beginning of year$746 $661 
Service cost16 14 
Interest cost20 22 
Actuarial (gain) loss(47)90 
Settlements(46)— 
Benefits paid(27)(41)
Projected benefit obligation, end of year$662 $746 
Change in plan assets
Plan assets at fair value, beginning of year$646 $571 
Actual return on plan assets54 94 
Company contributions 22 
Settlements(46)— 
Benefits paid(27)(41)
Plan assets at fair value, end of year$627 $646 
Funded status of the plans$(35)$(100)
Amount recorded as:
Noncurrent liabilities$(35)$(100)
Amounts recognized in Regulatory assets(a)
Net actuarial loss$165 $259 
Prior service credit(1)(2)
$164 $257 
______________________________________
(a)See Note 7 to the Consolidated Financial Statements, "Regulatory Matters," which includes Regulatory assets related to both represented and non-represented pension plans.
The decrease in the Company's pension benefit obligation for the year ended December 31, 2021was primarily due to an actuarial gain driven by an increase in discount rates, as well as settlements arising from higher lump-sum payments to retirees during the year. The increase in the Company's pension benefit obligation for the year ended December 31, 2020 was primarily due to an actuarial loss, which was primarily driven by a decrease in discount rates.
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. In 2020, the Company paid DTE Energy cash consideration of $22 million to fund a contribution of DTE Energy common stock to the represented qualified pension plans. The Company also made a contribution of $50 million to the represented qualified plans in 2019. No contributions were made to the represented qualified pension plans in 2021 or to any non-represented plans in 2021, 2020, and 2019.
At the discretion of management and depending upon financial market conditions, the Company anticipates making up to $7 million in contributions to the represented pension plans and no contributions to the non-represented plans in 2022. In addition, the Company anticipates transferring $50 million from its non-represented qualified plans to DTE Electric in 2022.
DTE Energy's subsidiaries accounted for under multiemployer guidance are responsible for their share of qualified and non-qualified pension benefit costs. The Company's allocated portion of pension benefit costs for non-represented plans included in capital expenditures and regulatory liabilities were $5 million, $1 million, and $1 million for the years ended December 31, 2021, 2020, and 2019, respectively. These amounts include recognized contractual termination benefit charges, curtailment gains, and settlement charges.
31


DTE Gas Company
Notes to Consolidated Financial Statements — (Continued)
At December 31, 2021, 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)
2022$29 
202331 
202431 
202532 
202633 
2027-2031175 
Total$331 
Assumptions used in determining the projected benefit obligation and net pension costs for the represented plans for the years ended December 31 were:
202120202019
Projected benefit obligation
Discount rate
3.04%2.74%3.42%
Rate of compensation increase
3.90%3.90%3.80%
Cash balance interest crediting rate2.40%2.00%3.30%
Net pension costs
Discount rate
2.74%3.42%4.51%
Rate of compensation increase
3.90%3.80%3.80%
Expected long-term rate of return on plan assets
7.00%7.10%7.30%
Cash balance interest crediting rate2.00%3.30%3.70%
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 a long-term rate of return assumption for its represented pension plan of 6.80% for 2022. The Company believes this rate is a reasonable assumption for the long-term rate of return on plan assets for 2022 given the current investment strategy.
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 capitalization. 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.
32


DTE Gas Company
Notes to Consolidated Financial Statements — (Continued)
Target allocations for the represented pension plan assets as of December 31, 2021 are listed below:
U.S. Large Capitalization (Cap) Equity Securities13 %
U.S. Small Cap and Mid Cap Equity Securities
Non-U.S. Equity Securities13 
Fixed Income Securities48 
Hedge Funds and Similar Investments11 
Private Equity and Other12 
100 %
The following table provides the fair value measurement amounts for represented pension plan assets at December 31, 2021 and 2020(a):
December 31, 2021December 31, 2020
Level 1Level 2
Other(b)
TotalLevel 1Level 2
Other(b)
Total
(In millions)
Asset category:
Short-term Investments(c)
$13 $ $ $13 $11 $— $— $11 
Equity Securities
Domestic(d)
18  86 104 19 — 129 148 
International(e)
10  67 77 12 — 93 105 
Fixed Income Securities
Governmental(f)
107 9  116 54 11 — 65 
Corporate(g)
 167  167 — 165 — 165 
Hedge Funds and Similar Investments(h)
16 7 42 65 28 48 83 
Private Equity and Other(i)
  85 85 — — 69 69 
Total$164 $183 $280 $627 $124 $183 $339 $646 
______________________________________
(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.
(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 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.
(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 quotations from broker or pricing services.
(h)This category utilizes a diversified group of strategies that attempt to capture uncorrelated sources of return and includes publicly traded mutual funds, insurance-linked and asset-backed securities, commingled funds and limited partnership funds. Pricing for mutual funds in this category is obtained from quoted prices in actively traded markets. Pricing for insurance-linked and asset-backed securities is obtained from quotations from broker or pricing services. Commingled funds and 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 private real estate and private debt. All 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, as well as publicly traded commingled funds, are valued using quoted market prices in actively traded markets. Non-publicly traded 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.
33


DTE Gas Company
Notes to Consolidated Financial Statements — (Continued)
Other Postretirement Benefits
The Company participates in defined benefit plans sponsored by the LLC that provide certain other postretirement health care and life insurance benefits for employees who are eligible for these benefits. The Company's policy is to fund certain trusts to meet its other postretirement benefit obligations. The Company did not make a contribution to the defined benefit other postretirement medical and life insurance benefit plans during 2021 and does not anticipate making any contributions to the trusts in 2022.
The Company also offers a defined contribution VEBA for eligible represented and non-represented employees, in lieu of defined benefit post-employment health care benefits, and allocates a fixed amount per year to an account in a defined contribution VEBA for each employee. These accounts are managed either by the Company (for non-represented and certain represented groups) or by the Utility Workers of America (UWUA) for Local 223 employees. Contributions to the VEBA for these accounts were $2 million in 2021, 2020 and 2019.
The Company also contributes a fixed amount to a Retiree Reimbursement Account for current and future non-represented and represented retirees, spouses, and surviving spouses when the youngest of the retiree's covered household becomes eligible for Medicare Part A based on age. The amount of the annual allocation to each participant is determined by the employee's retirement date and increases each year for each eligible participant at the lower of the rate of medical inflation or 2%.
Net other postretirement credit includes the following components for the years ended December 31:
202120202019
(In millions)
Service cost$7 $$
Interest cost11 13 16 
Expected return on plan assets(40)(41)(33)
Amortization of:
Net actuarial loss8 
Prior service credit(6)(5)(2)
Net other postretirement credit$(20)$(22)$(12)
20212020
(In millions)
Other changes in plan assets and accumulated postretirement benefit obligation recognized
in Regulatory assets
Net actuarial gain$(30)$(13)
Amortization of net actuarial loss(8)(5)
Prior service cost1 — 
Amortization of prior service credit6 
Total recognized in Regulatory assets$(31)$(13)
Total recognized in net periodic benefit cost and Regulatory assets$(51)$(35)
34


DTE Gas Company
Notes to Consolidated Financial Statements — (Continued)
The following table reconciles the obligations, assets, and funded status of the plans including amounts recorded as Prepaid postretirement costs - affiliates or Accrued postretirement liability affiliates in the Consolidated Statements of Financial Position at December 31:
20212020
(In millions)
Change in accumulated postretirement benefit obligation
Accumulated postretirement benefit obligation, beginning of year$417 $397 
Service cost7 
Interest cost11 13 
Actuarial (gain) loss(22)20 
Benefits paid(20)(19)
Accumulated postretirement benefit obligation, end of year$393 $417 
Change in plan assets
Plan assets at fair value, beginning of year$637 $581 
Actual return on plan assets46 75 
Benefits paid(20)(19)
Plan assets at fair value, end of year$663 $637 
Funded status, end of year$270 $220 
Amount recorded as:
Noncurrent assets$275 $227 
Noncurrent liabilities(5)(7)
$270 $220 
Amounts recognized in Regulatory assets(a)
Net actuarial loss$41 $78 
Prior service credit(15)(21)
$26 $57 
______________________________________
(a)See Note 7 to the Consolidated Financial Statements, "Regulatory Matters."
The decrease in the Company's other postretirement benefit obligation for the year ended December 31, 2021 was primarily due to an actuarial gain driven by an increase in discount rates. The increase in the Company's other postretirement benefit obligation for the year ended December 31, 2020 was primarily due to an actuarial loss, which was primarily driven by a decrease in discount rates.
The following table reflects other postretirement benefit plans with accumulated postretirement benefit obligations in excess of plan assets at December 31:
20212020
(In millions)
Accumulated postretirement benefit obligation$30 $32 
Fair value of plan assets25 25 
Accumulated postretirement benefit obligation in excess of plan assets$5 $
35


DTE Gas Company
Notes to Consolidated Financial Statements — (Continued)
At December 31, 2021, the other postretirement benefits expected to be paid, including prescription drug benefits, in each of the next five years and in the aggregate for the five fiscal years thereafter are as follows:
(In millions)
2022$20 
202320 
202421 
202522 
202622 
2027-2031113 
Total$218 
Assumptions used in determining the accumulated postretirement benefit obligation and net other postretirement benefit costs for the years ended December 31 were:
202120202019
Accumulated postretirement benefit obligation
Discount rate
2.91%2.58%3.29%
Health care trend rate pre- and post- 65
6.75 / 7.256.75 / 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
203420332032
Other postretirement benefit costs
Discount rate
2.58%3.29%4.40%
Expected long-term rate of return on plan assets
6.70%7.20%7.30%
Health care trend rate pre- and post-65
6.75 / 7/256.75 / 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
203320322031
The process used in determining the long-term rate of return on assets for the other postretirement benefit plans is similar to that previously described for the pension plans. As a result of this process, the Company has a long-term rate of return assumption for its other postretirement benefit plans of 6.40% for 2022. The Company believes this rate is a reasonable assumption for the long-term rate of return on plan assets for 2022 given the current investment strategy.
The DTE Energy Company Master VEBA 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 other postretirement benefit plan assets as of December 31, 2021 are listed below:
U.S. Large Cap Equity Securities10 %
U.S. Small Cap and Mid Cap Equity Securities
Non-U.S. Equity Securities10 
Fixed Income Securities53 
Hedge Funds and Similar Investments10 
Private Equity and Other14 
100 %
36


DTE Gas Company
Notes to Consolidated Financial Statements — (Continued)
The following table provides the fair value measurement amounts for other postretirement benefit plan assets at December 31, 2021 and 2020(a):
December 31, 2021December 31, 2020
Level 1Level 2
Other(b)