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���������ֳ� - New York - 29 Sep 2020: ���������ֳ� has assigned a rating of 'BBB' to DTE Energy Co.'s (BBB/Stable) issuance of $750 million of Series H 0.55% senior unsecured notes. The notes mature in November 2022 and rank pari passu with DTE's existing senior unsecured debt. The Rating Outlook is Stable. Proceeds will be used to refinance a bank funded term loans.

The ratings and Outlook consider uncertainty regarding the effects of the coronavirus pandemic at DTE's midstream business and electric and gas utility business. ���������ֳ� believes DTE is well-positioned to weather the economic effects of the coronavirus within its current rating category. DTE also has a history of successfully implementing contingency plans during events that adversely affect its utility sales, including the 2008-2009 recession.

Key Rating Drivers

Credit Metrics Improving: ���������ֳ� estimates consolidated FFO leverage will be 5.1x-5.2x in 2020-2021. EBITDA growth associated with the Haynesville acquisition beginning in 2020 and the conversion of equity units in 2022 are the main drivers of deleveraging, with ���������ֳ� estimating leverage to decline to 4.7x-4.8x by 2022-2023. ���������ֳ� does not assign equity credit to the equity units. The latest acquisition financing also increased parent-level debt to an above-average level of 44% of total debt as of YE 2019. ���������ֳ� expects parent debt to decline over the forecast period but still remain elevated at about 37% of the total debt by 2023.

Limited Effects from the Coronavirus: The coronavirus pandemic is causing unprecedented disruptions to state and local economies as well as financial markets. While the situation remains fluid, ���������ֳ� believes the affect to DTE will be manageable. DTE Electric Company (DTEE; A-/Stable) derives approximately 33% of MWh sales from residential customers, 38% from commercial and 22% from industrial.

���������ֳ� believes operational savings and an increase in residential sales with much higher margins than industrial and commercial sales can mostly offset a reduction in commercial and industrial sales. Management projects should be able to reduce O&M by around $120 million predominately at the utilities in 2020, which is well above the projected effect on sales from the coronavirus-related economic slowdown of about $60 million. YTD the sales decline from the coronavirus has been slightly better than management projections due to significantly higher residential demand. Most of the O&M reduction is expected to be only temporary but should provide cash flow and earnings protection in the near term. The uncollectible expense is expected to rise but should remain manageable.

DTEE has a bad debt reserve in the rate structure of about $92 million. In addition, Michigan utilities received approval to begin deferring uncollectible expense in excess of the amount in base rates starting March 2020. Liquidity is adequate and was recently increased by term loan issuances. For DTE Gas Company (DTEG; BBB+/Stable), ���������ֳ� projects limited concerns as the coronavirus-related economic slowdown comes during a seasonally low demand period for natural gas. Debt maturities are manageable, and ���������ֳ� expects DTE to have continued access to the capital markets.

Constructive Utility Regulatory Environment: The Michigan regulatory environment remains constructive from a credit perspective, evidenced by general rate case (GRC) outcomes, in which the Michigan Public Service Commission (MPSC) recently approved authorized ROEs of 9.9%, which are above industry averages for electric and gas utilities. The regulatory framework allows full passthrough of fuel and purchased power costs, forward-looking test years and a timely 10-month review period for GRC resolution. ���������ֳ� believes recent DTEE and DTEG orders are constructive and supportive of current credit ratings.

Utility-Focused Capex Program: DTE's $19 billion capital program in 2020-2024 is 80% utility-oriented, and total utility investment is $1 billion higher than the previous five-year plan. There is also an upside potential for capex investment at utilities of about $2 billion. The utilities are investing in distribution, environmental compliance projects, gas, pumped storage, and wind generation. The spending, led by the utility and gas pipeline investments, is expected to render DTE's FCF negative in the intermediate term. ���������ֳ� expects the program to be funded with internal cash flow, debt and equity from the parent to maintain the utilities' regulatory capital structure.

Midstream Acquisitions Drive Business Mix: ���������ֳ� views the Gas Storage & Pipeline (GSP) segment as riskier than the regulated utilities. The GSP segment contributed about 17% of operating earnings in 2019 and is projected to increase to around 22% in 2020. ���������ֳ� expects DTE will continue to grow the non-utility GSP segment to keep pace with the utility investment in DTEE and DTEG. Late last year, DTE acquired 100% of the operational Blue Union Gathering System (BUGS) and LEAP, a 150 mile, 1.0 billion cubic feet per day (bcfd) gathering pipeline under construction from Momentum Midstream and Indigo.

The Haynesville acquisition represented 65% of GSP's five-year capital program from 2018-2022 and pulled forward GSP investments, while also adding geographic diversity. The current five-year capex plan does not contemplate non-organic investment in the GSP segment, but includes about $2.2 billion to $2.7 billion of capital investment, of which about $1 billion was spent in 2020 for LEAP, which recently went into service. ���������ֳ� expects regulated utilities will remain around 75%-80% of EBITDA, contributing to predictable earnings and cash flow, and the non-utility segments, through organic growth and smaller bolt-on acquisitions, contribute around 20%-25% of consolidated EBITDA through 2023.

Increased Midstream Business Risk: DTE's midstream assets primarily operate under long-term contracts with an average contract life of about nine to 10 years. Eighty-five percent of revenues in 2020-2022 are expected to come from payments at minimum volume commitment (MVC) levels, and take or pay demand charges, while 15% is from re-contracting and growth from the MVC and demand charge levels. ���������ֳ� expects that the current low gas price environment, coupled with lower demand due to the coronavirus and trade disputes on the economy could put pressure on the ability to grow beyond current contract levels in the near future.

The heightened business risk reflects the counterparty credit risk related to the primary customer Indigo Natural Resources on the Haynesville gathering and pipeline system. In addition, several of the counterparties at its other midstream assets in Marcellus and Utica have been downgraded in recent months due to the declining natural gas and oil prices that have put strain on their credit metrics.

DTE's main counterparty on its gathering systems Bluestone and Susquehanna, Southwestern Energy Company (SWN; BB/Negative), was assigned a Negative Outlook in February. Antero Resources Corporation, a primary counterparty on DTE's LINK gathering system, was also downgraded to 'B' from 'BB-', and currently has a Negative Outlook. SWN is in a better position than Antero as it does not have any large near-term maturities. Most of DTE's counterparties are well hedged for 2020 at natural gas price levels of $2.50 per million British Thermal Units or higher with more uncertainty in 2021, due to lower hedges versus 2020 levels. The recent pick up in forward natural gas prices should provide opportunity for hedging at higher levels.

Parent/Subsidiary Linkage: ���������ֳ� applied a bottom-up approach in rating DTE and its subsidiaries. DTE's Long-Term Issuer Default Rating (IDR) reflects a consolidated credit profile. The linkage between the parent and subsidiaries follows a weak parent/strong subsidiary approach. ���������ֳ� considers DTEE stronger than DTE due to the low-risk business-regulated utility operations and predictable cash flow. Legal ties are weak, as DTE does not guarantee the debt obligations of the subsidiaries and no cross defaults exist among DTE and its subsidiaries.

Operational and strategic ties are robust and DTEE remains the primary driver of earnings and cash flow to support parent-level dividends. DTEG also has operational and strategic ties to DTE but does not contribute as large a portion of cash flow to its parent. ���������ֳ� has determined moderate linkage exists between DTE, DTEE and DTEG, and would limit the notching difference between the Long-Term IDRs of DTE and its subsidiaries to one to two notches.

Derivation Summary

The credit profile of DTE is weaker than its peers Dominion Energy, Inc. (DEI; BBB+/Stable) and Sempra Energy (BBB+/Stable), which are parent holding companies anchored by regulated utility operations and midstream assets. All have significant parent-level debt. DTE's consolidated operations are smaller than Dominion and Sempra. In terms of cash flow from regulated utilities, DTE's regulated cash flow of about 78% in 2019 is higher than Dominion's, whose regulated cash flow was around 70% in 2019. Post-closing of the announced gas transmission assets sale and cancellation of Atlantic Coast Pipeline, ���������ֳ� expects approximately 85%-90% of DEI's EBITDA to come from state-regulated utility businesses, and close to Sempra's at around 80%. Utility cash flow is projected to decline to an average of 72% of total cash flow over the forecast period. ���������ֳ� anticipates FFO leverage of 5.1x-5.2x in 2020 and 2021, improving to 4.7x-4.8x in 2022 and 2023, which is similar to Dominion with FFO leverage projected at around 5.0x and less favorable to Sempra at 4.5x after 2020, with Cameron LNG, LLC online.

Key Assumptions

���������ֳ�'s Key Assumptions Within Its Rating Case for the Issuer Include

--Constructive regulatory environment in Michigan with 9.9% ROE for DTEE and DTEG in line with historic results.

--Capex program totaling $19 billion, with $15 billion at utilities, in 2020-2024.

--O&M reduction in 2020 to offset the negative effects of the economic slowdown on sales.

--Industrial and commercial sales declines in 2020 due to the economic effects of the coronavirus, partially offset by an increase in residential sales with gradual recovery to normal levels in 2021 and beyond.

--A 1.5% decline in natural gas deliveries in 2020 and recovery in 2021 to reflect a modest economic impact of the coronavirus on gas utility operations.

--Capital structure commensurate with regulatory structure.

--Midstream EBITDA assumes revenues from existing MCVs and demand charges plus a modest upside growth potential.

RATING SENSITIVITIES

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

--While not anticipated at this time given the sizable capital program and elevated leverage, sustained improvement in FFO-adjusted leverage of 4.7x or lower through the forecast period.

--Decline in business risk resulting in 80% or more earnings coming from regulated utility business.

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

--A significant deviation from the current business risk with the regulated businesses comprising 60%-65% of consolidated cash flow due to growth in the non-utility businesses.

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

--Sustained weakening in FFO-adjusted leverage of 5.3x or higher through the forecast period.

Best/Worst Case Rating Scenario

International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit /site/re/10111579.

Liquidity and Debt Structure

DTE Energy had around $3.4 billion of available liquidity as of June 30, 2020, consisting of cash and amounts available under a revolving credit facility. DTE's LOC and revolving credit facilities expire in April 2024 and have a maximum debt/capitalization covenant of 65%. The facilities are $1.7 billion at DTE, $500 million at DTEE and $300 million at DTEG. DTE Energy, DTEE and DTEG were in compliance with consolidated debt/capitalization of 60%, 55% and 47%, respectively, as defined under the credit agreement, as of June 30, 2020.

Liquidity is adequate and was increased by a $500 million parent-funded term loan issuance in March and another $167 million unsecured term loan in June. DTE anticipates retiring these bank term loans with the proceeds from this offering. In addition, in April 2020, DTEE entered into a total of $400 million of unsecured term loans, of which $200 million has been drawn as of June 30, 2020. Also in April 2020, DTEG entered into a $100 million unsecured term loan, fully drawn as of June 30, 2020. Debt maturities are manageable and ���������ֳ� expects DTE to have continued access to the capital markets.

Date of Relevant Committee

14 April 2020

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.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This 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. For more information on ���������ֳ�'s ESG Relevance Scores, visit .

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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), v7.8.0 (1)

Additional Disclosures

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Endorsement Status