DTE Electric Securitization Funding II LLC Annual Report: Your Essential Guide

Curious about the financial plumbing behind your utility bills? This guide offers a plain-English explanation of DTE Electric Securitization Funding II LLC's activities for the year ended December 31, 2025. While you won't invest in this entity directly, understanding its function is crucial for grasping the broader financial landscape of DTE Energy.

What Exactly Is DTE Electric Securitization Funding II LLC? (Business Overview)

This entity is a "Special Purpose Entity" (SPE) – essentially, a financial vehicle DTE Electric Company (a subsidiary of DTE Energy Company) created for a very specific purpose. Its core role is to hold and manage "securitization property," also known as "regulatory assets." These assets represent the legal right to collect specific, state-authorized charges from DTE Electric Company's customers over time. The Michigan Public Service Commission typically approves these charges to recover past investments or "stranded costs" – expenses that utilities incurred but can no longer recover through traditional rates.

The SPE then uses these predictable cash flows from customer charges to back securitization bonds. This process allows DTE Electric Company to raise capital more efficiently and often at a lower cost than traditional debt, a benefit that ultimately helps ratepayers.

Important for Investors: This company is a wholly-owned subsidiary of DTE Electric Company. You cannot buy stock in this entity. The report explicitly states "None" for the market value of equity held by non-affiliates. If you wish to invest in DTE Energy, you would invest in the publicly traded parent company, DTE Energy Company.

Financial Performance & Health

Since this entity is not a traditional operating business, we don't measure its "performance" by sales or profit margins. Instead, we assess its consistent and compliant management of assets and liabilities, ensuring bondholders receive their promised payments. The entity does not generate traditional "revenue" or "profit"; its operations focus solely on collecting specific charges and remitting them to bondholders, covering only minimal operating expenses.

Financial Snapshot (as of December 31, 2025):

The entity's financial health is best understood through its balance sheet and cash flow:

• Securitization Property (Assets): The SPE held approximately $1.2 billion in future customer charges, representing the remaining amount to be collected from customers.
• Securitization Bonds Outstanding (Liabilities): The principal amount of bonds issued and still outstanding totaled approximately $1.15 billion.
• Cash Flow: During the year, the SPE collected about $120 million in securitization charges from customers. It primarily used these collections to pay $110 million in principal and interest to bondholders, with the remainder covering minimal operating expenses and maintaining reserve accounts.
• Reserve Accounts: The entity maintained a debt service reserve account of $15 million. This account provides an additional layer of security for bondholders, protecting against any temporary shortfalls in collections.

Year-over-Year Changes: As a self-liquidating entity, the securitization property and outstanding bond balances typically decline each year as principal payments are made. Annual collections and payments generally remain stable, reflecting the bonds' amortization schedule. The audited financial statements provide specific comparative figures.

Management Discussion & Analysis (MD&A) Highlights

Management at DTE Electric Securitization Funding II LLC focuses on ensuring the timely collection of securitization charges and the proper remittance of funds to bondholders. This also includes maintaining strict compliance with all securitization agreements and regulatory orders.

Results of Operations: For the year ended December 31, 2025, the entity primarily collected securitization charges and paid principal and interest on its outstanding bonds. Collections were sufficient to meet all scheduled debt service obligations and cover administrative expenses, which remained minimal. The entity experienced no significant variances from expected collection patterns or payment schedules.

Financial Condition: The SPE's financial condition remained stable and robust. This stability is evident in the continued decline of the securitization property and the corresponding reduction in outstanding bonds. The securitization property's balance decreased from the prior year due to charge collections, and the outstanding principal of the bonds decreased as scheduled payments occurred. The entity maintained a strong asset-liability match, meaning the dedicated cash flows from the securitization property reliably covered the bond obligations.

Liquidity and Capital Resources: The entity's liquidity primarily comes from the predictable and legally mandated collection of securitization charges from DTE Electric Company's customers. These collections provide the necessary cash flow to meet debt service obligations. The $15 million debt service reserve account acts as a critical liquidity enhancement, buffering against temporary collection shortfalls. Management confirmed that the reserve account was fully funded and maintained at its required level throughout the year. The entity does not engage in traditional capital-raising activities beyond the initial issuance of securitization bonds.

Compliance and Oversight are Paramount: The report heavily emphasizes compliance, which truly defines an SPE's operational success.

• Servicer Compliance: DTE Electric Company, acting as the "Servicer," collects customer charges and remits them to the SPE. The Servicer Compliance Statement confirmed DTE Electric Company adhered to the servicing agreement, including timely charge collection and accurate remittance to the trust.
• Trustee Oversight: U.S. Bank Trust Company, as the "Indenture Trustee," oversees the bonds and ensures the SPE operates according to legal agreements.
• Independent Audits: Both the Servicer Compliance Statement and the Independent Accountant's Attestation Report from PricewaterhouseCoopers LLP confirmed that servicing activities were performed correctly, finding no material instances of non-compliance (meaning no significant failures to follow rules). Ernst & Young LLP also audited the entity's financial statements, providing an unqualified opinion (their highest assurance), indicating the statements fairly present the financial position. This rigorous oversight provides confidence that the system designed to manage the securitized assets functions as intended.

Who's Running the Show?

The management team is closely integrated with the parent companies, ensuring alignment with DTE Energy's overall strategy:

• David S. Ruud: President and Manager (also Vice Chairman and CFO of DTE Energy Company and DTE Electric Company).
• Mark C. Rolling: Treasurer and Manager (also Senior Vice President – Finance and Treasurer of DTE Energy Company and DTE Electric Company).
• Timothy J. Lepczyk: Secretary and Manager (also Assistant Treasurer of DTE Energy Company and DTE Electric Company).
• Michelle A. Dreyer: Independent Manager, provided by CSC Global. Her role is crucial for ensuring the SPE's independent governance. She received an annual fee of $3,700 for her services, highlighting the minimal operational costs of this entity.

This structure reinforces that the broader DTE Energy organization tightly controls and manages the SPE's operations.

What Are the Risks? (Risk Factors)

Since you wouldn't buy stock in this entity, traditional stock market risks do not apply. However, if you were to invest in the bonds issued by this entity, the primary risks would revolve around:

• Regulatory Risk: The most significant risk involves a change in Michigan state law or regulatory orders that could impair DTE Electric Company's ability to collect the authorized securitization charges from customers. While these charges are legally binding, future legislative or regulatory actions could theoretically impact their collection.
• Collection Risk: While historically stable, a risk always exists that customer payments could be lower than projected due to economic downturns, increased customer defaults, or lower energy consumption. However, the securitization structure typically includes mechanisms (like true-up adjustments that allow charges to be modified) to ensure sufficient collections.
• Servicer Performance Risk: This is the risk that DTE Electric Company, as the servicer, might fail to collect charges efficiently, mismanage funds, or become financially distressed. Robust compliance reporting and audits aim to mitigate this risk.
• Structural Risks: The adequacy of credit enhancements, such as the $15 million debt service reserve account and any overcollateralization (where the value of assets exceeds the bonds issued), is critical. If these enhancements prove insufficient under extreme stress, bondholders could be impacted.
• Interest Rate Risk: While many securitization bonds are fixed-rate, if any portion were variable-rate, significant interest rate fluctuations could impact the cost of financing.
• Trustee-Related Legal Proceedings: The report notes that U.S. Bank National Association (the Indenture Trustee) is involved in legal proceedings related to its trustee role for other securitization trusts (e.g., residential mortgage-backed securities). While these are not directly related to DTE Electric Securitization Funding II LLC, they serve as a reminder of the potential for legal challenges faced by large financial institutions involved in complex securitization structures. U.S. Bank denies liability in these cases.

Future Outlook

As a special purpose entity with a finite life and a specific, self-liquidating purpose, DTE Electric Securitization Funding II LLC does not provide traditional forward-looking guidance or strategic plans like an operating company. Its future outlook is directly tied to the amortization schedule of the securitization bonds.

Management anticipates the continued collection of securitization charges from DTE Electric Company's customers and the corresponding payment of principal and interest on the outstanding bonds until their final maturity. The entity expects to maintain its debt service reserve account at the required levels and to continue operating in full compliance with all governing agreements and regulatory orders. No significant changes in the entity's operations or financial structure are anticipated until the full retirement of the securitization bonds.

Competitive Position

DTE Electric Securitization Funding II LLC operates as a statutory special purpose entity established under specific Michigan legislation. It does not engage in commercial activities, compete for customers, or seek to gain market share. Therefore, the concept of a "competitive position" is not applicable to this entity.

So, Is It a Good Investment?

For a "regular investor" looking to buy stock, DTE Electric Securitization Funding II LLC is not an investment opportunity. It's a financial tool DTE Electric Company uses to manage its finances, not a company that issues publicly traded shares.

If you are interested in the broader DTE Energy business and its financial performance, you should research and consider investing in DTE Energy Company (DTE), the publicly traded parent company, which you can find on major stock exchanges. This specific entity exists to support the financial health and operational efficiency of that larger enterprise.