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���������ֳ� - Chicago - 05 May 2025: ���������ֳ� has assigned an 'A+' rating to DTE Electric Company's (DTEE; Long-Term Issuer Default Rating [IDR] A-) 2025 series B, C and D general and refunding mortgage bonds. The mortgage bonds will rank pari passu with DTEE's existing secured mortgage debt. Net proceeds of the bonds will be used for the repayment of short-term borrowings and for other general corporate purposes. DTEE's Rating Outlook is Stable.

Key Rating Drivers

Supportive Regulatory Environment: ���������ֳ� views the regulatory environment for electric utilities in Michigan as mostly constructive from a credit perspective. The regulatory framework allows full pass-through of fuel costs, forward-looking test years and a timely 10-month review period for general rate case resolution. DTEE's authorized ROE of 9.9% remains above the 2024 industry average of 9.74%.

Increased Regulatory Scrutiny: DTEE has faced increased regulatory scrutiny over storm outages after a regulator-commissioned audit. The audit cited aging distribution equipment and insufficient vegetation management practices as key factors contributing to extended customer outages. In response, DTEE has committed to reducing power outages by 30% and cutting outage time in half by 2029 by increasing investments in distribution and vegetation management. For YTD 2025, customer outage times decreased by 60% following a 70% improvement in 2024, which is a good development as regulators focus on customer reliability.

New 2025 GRC Filing: DTEE filed its 2025 GRC in April and is requesting a rate increase of $574 million based on a 10.75% ROE and an equity layer of 50.75%. The rate request mainly reflects distribution and clean energy investments. The rate case is predicated on Dec. 31, 2026 test year and a rate base of $23.6 billion (8% larger than prior case). DTEE is also seeking to expand its infrastructure recovery mechanism surcharge to $1 billion through 2029 through a $85 million rate increase effective 2027, a $152 million rate increase in 2028 and $259 million in 2029. We expect a balanced outcome and a final order in Feb. 2026. If fully implemented customer bills are expected to increase 11%.

Recent DTE Electric GRC Order Balanced: ���������ֳ� believes the January 2025 rate order issued is credit supportive, although a little light. The approved $217.4 million revenue requirement increase, representing 49% of the request (down from 63% previously), is based on a 9.9% ROE (unchanged) and 50% equity ratio (unchanged) on a $21.8 billion rate base. Regulators authorized the continuation of the investment recovery mechanism for $300 million in distribution investments through 2025.

Growing Data Center Demand: DTEE recently signed three non-binding agreements to serve up to 2.1GW of data center load which ramps up through 2032. Demand will be met by 1GW of existing generating capacity and new generation will be needed in the near term. Longer term, generation needs will be supported by DTEE's 2026 Integrated Resource Plan (IRP). Retail sales growth driven by datacenter load is projected to increase to 4%-5% in 2028-2032 after being flat in 2024. Michigan has a sale and use tax exemption for data center equipment through 2050.

Elevated Capex Driven by Decarbonization: DTEE plans to invest approximately $24 billion in 2025 through 2029, with $10 billion for clean generation and other projects, $10 billion for distribution infrastructure and $4 billion for base infrastructure. This is a $4 billion increase compared with the previous plan and reflects greater clean energy and distribution investments. The investments will result in negative FCF in the intermediate term. ���������ֳ� expects the capital program will be funded with internal cash flow, debt and equity.

Upward Capex Revisions Likely: ���������ֳ� believes an upward revision in capex is likely given the increasing focus on reliability and clean energy legislation passed in Michigan in 2023 that targets 100% clean generation by 2040 in MISO. Concerns regarding the large capex plan are mitigated by the MPSC's constructive ratemaking policies and alignment of planned capex with state policy. The energy legislation provides expanded incentives for energy efficiency and improved economics for PPAs, which are beneficial in ���������ֳ�'s view.

Decarbonization Path: DTEE is exiting its coal fired generation by 2032 and replacing it with natural gas and renewables. DTEE's current IRP, which aims for net-zero emissions by 2050, aligns with Michigan's clean energy policy, which has a standard of 80% clean energy by 2035 and 100% by 2040 with a renewable standard of 50% by 2030. DTEE is adding about 800MW of renewables per year on average through 2029 and by 2027, an additional 1.2 GW of solar and 350 MW of energy storage are planned with 220MW of storage under construction. By 2042, an additional 15.4 GW of renewables and 1.8 GW of storage are planned.

Solid Financial Profile: ���������ֳ� believes DTEE's credit metrics are consistent with its rating. Debt maturities are manageable, and DTEE is expected to have continued access to capital markets. ���������ֳ�-calculated FFO leverage at 3.9x in 2024, which was 60bps stronger than 2023 and primarily reflects new rates following a constructive GRC outcome in December 2023 along with warmer summer weather and lower storm expense. FFO leverage is expected to average 3.8x through 2025-2027, supported by recent and ongoing rate relief.

Peer Analysis

DTEE compares favorably with regulated single-state peers Consumers Energy Company (A-/Stable) and Northern States Power Company Wisconsin (NSP; A-/Stable). All three operate in supportive regulatory environments with favorable recovery mechanisms. DTEE and Consumers operate in Michigan and are similarly sized, while NSP is smaller and based in Wisconsin.

However, Consumers also operates a gas utility, while DTEE and NSP are both electric utilities. DTEE's financial profile compares favorably with Consumers and is in line with NSP. ���������ֳ� forecasts FFO leverage to average 3.8x at DTEE through 2025-2027, better than Consumers whose FFO leverage is expected to average 4.5x in the near-term and improve to 4.2x in 2029 and in line with NSP whose FFO leverage is projected to average 3.8x-4.2x through 2028.

Key Assumptions

--Constructive regulatory environment in Michigan with ROEs for DTEE in line with currently approved returns;

--Capital spending totaling $24 billion in 2025-2029;

--Securitization debt is excluded from the FFO leverage calculations;

--Capital structure commensurate with regulatory structure.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

--A notch downgrade at the parent DTE;

--An adverse change in Michigan's regulatory environment;

--Sustained FFO leverage greater than 4.5x.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

--Sustained FFO leverage of 3.5x or better.

Liquidity and Debt Structure

DTEE's liquidity position remains adequate. It had approximately $300 million of available liquidity at March 31, 2025, consisting of cash and amounts available under revolving credit facilities. DTEE's $800 million revolver matures in October 2029. DTEE was in compliance with the covenant of 65% debt/capitalization, as defined under the credit agreement, at 53% at March 31, 2025. Proceeds from the debt issuance are expected to used to repay short-term borrowings under the credit facilities. Debt maturities remain manageable, given the history of successful refinancing, and ���������ֳ� expects DTEE to have continued access to capital markets.

Issuer Profile

DTEE is the largest regulated electric generation, transmission and distribution utility in Michigan.

Date of Relevant Committee

11 March 2025

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS

to access ���������ֳ�'s latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. ���������ֳ�'s macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. ���������ֳ�'s ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on ���������ֳ�'s ESG Relevance Scores, visit /topics/esg/products#esg-relevance-scores.

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APPLICABLE MODELS

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).

• Corporate Monitoring & Forecasting Model (COMFORT Model), v8.1.0 (1)

ADDITIONAL DISCLOSURES

• Solicitation Status
• Endorsement Policy

ENDORSEMENT STATUS