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...