DTE Energy’s board has approved a plan to spin off the nonutility natural gas pipeline, storage and gathering business, transforming the company “into a predominantly pure-play regulated electric and natural gas utility.”

DTE Midstream would become an independent, publicly traded company under the planned transaction, the Detroit-based utility said Tuesday. 

The separation would align “the companies’ respective business mix with investor preferences and overall market trends, leading to expected enhanced valuations for both DTE Energy and Midstream,” management said.

The transaction provides “capital allocation flexibility and capital structures that support distinct business models and growth objectives,” management continued, adding that the spinoff will generate “a combined dividend that is expected to be higher than DTE’s current, pre-transaction dividend.”

Upon completion of the transaction, about 90% of DTE Energy’s operating earnings would be generated from its regulated utility business, versus 70% today.

The utility business currently serves 2.2 million electric customers in Southeast Michigan and 1.3 million natural gas customers statewide.

DTE Midstream, meanwhile, owns 900 miles of Federal Energy Regulatory Commission-regulated gas transmission lines, 1,450 miles of gathering lines and 91 Bcf of storage capacity.

Under the spinoff, the new midstream company “would be the only independent, mid-cap, C-Corp, gas-focused midstream investment opportunity with exposure to the Marcellus, Utica and Haynesville shales with connection to major demand markets,” management said.

The spin-off is set to be completed by mid-2021. Under the planned transaction, DTE Energy shareholders would retain their current shares of stock and receive a pro-rata dividend of shares of the new midstream company. Management said the transaction would be federal income tax-free.

“Separating Midstream from DTE Energy sharpens both companies’ focus on their respective strategic priorities and stakeholder needs,” said DTE Energy CEO Jerry Norcia. “We believe DTE Energy and Midstream will be even better positioned to grow, thrive and deliver superior returns with this transaction.”

DTE Energy has outlined a $19 billion capital expenditures (capex) plan for the 2020-2024 period, with about 80% or $15 billion of investment going toward expanding and upgrading its utility infrastructure.

Of the $15 billion, the company has allocated $12 billion for electric power infrastructure and $3 billion for natural gas.

The company is targeting an 80% reduction in carbon dioxide and methane emissions from its utility operations by 2040, and net zero greenhouse gas emissions by 2050. The company also plans for renewables to account for 17% of power generation by 2023, and 25-30% by 2030.

The spinoff announcement coincided with the release of DTE’s third quarter 2020 earnings.

Net income was $476 million ($2.46/share) for the period, up from $319 million ($1.73) in 3Q2019.