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EXCEL - IDEA: XBRL DOCUMENT - DTE Electric Co | Financial_Report.xls |
EX-31.96 - CHIEF FINANCIAL OFFICER SECTION 302 FORM 10-K CERTIFICATION OF PERIODIC REPORT - DTE Electric Co | a20141231ex_3196.htm |
EX-12.52 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - DTE Electric Co | a20141231ex_1252.htm |
EX-23.29 - CONSENT OF PRICEWATERHOUSECOOPERS LLP - DTE Electric Co | a20141231ex_2329.htm |
EX-32.95 - CHIEF EXECUTIVE OFFICER SECTION 906 FORM 10-K CERTIFICATION OF PERIODIC REPORT - DTE Electric Co | a20141231ex_3295.htm |
EX-31.95 - CHIEF EXECUTIVE OFFICER SECTION 302 FORM 10-K CERTIFICATION OF PERIODIC REPORT - DTE Electric Co | a20141231ex_3195.htm |
EX-32.96 - CHIEF FINANCIAL OFFICER SECTION 906 FORM 10-K CERTIFICATION OF PERIODIC REPORT - DTE Electric Co | a20141231ex_3296.htm |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________
Form 10-K
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2014 | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 1-2198
DTE Electric Company, a Michigan corporation, meets the conditions set forth in General Instruction I (1) (a) and (b) of Form 10-K and is, therefore, filing this form with the reduced disclosure format.
DTE ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Michigan | 38-0478650 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
One Energy Plaza, Detroit, Michigan | 48226-1279 | |
(Address of principal executive offices) | (Zip Code) |
313-235-4000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
All of the registrant’s 138,632,324 outstanding shares of common stock, par value $10 per share, are owned by DTE Energy Company.
DOCUMENTS INCORPORATED BY REFERENCE
None
TABLE OF CONTENTS
Page | ||
Business and Properties | ||
Risk Factors | ||
Unresolved Staff Comments | ||
Legal Proceedings | ||
Mine Safety Disclosures | ||
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | ||
Selected Financial Data | ||
Management’s Narrative Analysis of Results of Operations | ||
Quantitative and Qualitative Disclosures About Market Risk | ||
Financial Statements and Supplementary Data | ||
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | ||
Controls and Procedures | ||
Other Information | ||
Directors, Executive Officers and Corporate Governance | ||
Executive Compensation | ||
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | ||
Certain Relationships and Related Transactions, and Director Independence | ||
Principal Accountant Fees and Services | ||
Exhibits and Financial Statement Schedule | ||
EX-12.52 | ||
EX-23.29 | ||
EX-31.95 | ||
EX-31.96 | ||
EX-32.95 | ||
EX-32.96 | ||
101.INS XBRL Instance Document | ||
101.SCH XBRL Taxonomy Extension Schema | ||
101.CAL XBRL Taxonomy Extension Calculation Linkbase | ||
101.DEF XBRL Taxonomy Extension Definition Database | ||
101.LAB XBRL Taxonomy Extension Label Linkbase | ||
101.PRE XBRL Taxonomy Extension Presentation Linkbase |
DEFINITIONS
AFUDC | Allowance for Funds Used During Construction | |
COA | U.S Court of Appeals for the District of Columbia | |
Company | DTE Electric Company and any subsidiary companies | |
Customer Choice | Michigan legislation giving customers the option of retail access to alternative suppliers for electricity | |
DOE | U.S. Department of Energy | |
DTE Electric | DTE Electric Company (a direct wholly owned subsidiary of DTE Energy Company) and subsidiary companies | |
DTE Energy | DTE Energy Company, directly or indirectly the parent of DTE Electric, DTE Gas Company and numerous non-utility subsidiaries | |
EPA | United States Environmental Protection Agency | |
FASB | Financial Accounting Standards Board | |
FERC | Federal Energy Regulatory Commission | |
FOV | Finding of Violation | |
FTRs | Financial transmission rights are financial instruments that entitle the holder to receive payments related to costs incurred for congestion on the transmission grid. | |
IRS | Internal Revenue Service | |
MBT | Michigan Business Tax | |
MCIT | Michigan Corporate Income Tax | |
MCOA | Michigan Court of Appeals | |
MDEQ | Michigan Department of Environmental Quality | |
MGP | Manufactured Gas Plant | |
MISO | Midcontinent Independent System Operator, Inc. | |
MPSC | Michigan Public Service Commission | |
MTM | Mark-to-market | |
NAV | Net Asset Value | |
NEIL | Nuclear Electric Insurance Limited | |
NOV | Notice of Violation | |
NRC | U.S. Nuclear Regulatory Commission | |
PLD | City of Detroit's Public Lighting Department | |
Production tax credits | Tax credits as authorized under Sections 45K and 45 of the Internal Revenue Code that are designed to stimulate investment in and development of alternate fuel sources. The amount of a production tax credit can vary each year as determined by the Internal Revenue Service. | |
PSCR | A Power Supply Cost Recovery mechanism authorized by the MPSC that allows DTE Electric to recover through rates its fuel, fuel-related and purchased power costs | |
RDM | A Revenue Decoupling Mechanism authorized by the MPSC that is designed to minimize the impact on revenues of changes in average customer usage | |
SEC | Securities and Exchange Commission | |
1
DEFINITIONS
Securitization | DTE Electric financed specific stranded costs at lower interest rates through the sale of rate reduction bonds by a wholly-owned special purpose entity, The Detroit Edison Securitization Funding LLC | |
TRIA | Terrorism Risk Insurance Extension Act of 2005 | |
TRM | A Transitional Reconciliation Mechanism authorized by the MPSC that allows DTE Electric to recover through rates the deferred net incremental revenue requirement associated with the transition of PLD customers to DTE Electric's distribution system | |
VEBA | Voluntary Employees Beneficiary Association | |
VIE | Variable Interest Entity |
Units of Measurement | ||
kWh | Kilowatthour of electricity | |
MW | Megawatt of electricity | |
MWh | Megawatthour of electricity |
2
FORWARD-LOOKING STATEMENTS
Certain information presented herein includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations and business of DTE Electric. Words such as “anticipate,” “believe,” “expect,” “projected,” “aspiration” and “goals” signify forward-looking statements. Forward-looking statements are not guarantees of future results and conditions, but rather are subject to numerous assumptions, risks and uncertainties that may cause actual future results to be materially different from those contemplated, projected, estimated or budgeted. Many factors may impact forward-looking statements including, but not limited to, the following:
• | impact of regulation by the EPA, FERC, MPSC, NRC and other applicable governmental proceedings and regulations, including any associated impact on rate structures; |
• | the amount and timing of cost recovery allowed as a result of regulatory proceedings, related appeals or new legislation; including legislative amendments and retail access programs; |
• | economic conditions and population changes in our geographic area resulting in changes in demand, customer conservation and thefts of electricity; |
• | environmental issues, laws, regulations, and the increasing costs of remediation and compliance, including actual and potential new federal and state requirements; |
• | health, safety, financial, environmental and regulatory risks associated with ownership and operation of nuclear facilities; |
• | changes in the cost and availability of coal and other raw materials and purchased power; |
• | the potential for losses on investments, including nuclear decommissioning and benefit plan assets and the related increases in future expense and contributions; |
• | access to capital markets and the results of other financing efforts which can be affected by credit agency ratings; |
• | instability in capital markets which could impact availability of short and long-term financing; |
• | the timing and extent of changes in interest rates; |
• | the level of borrowings; |
• | the potential for increased costs or delays in completion of significant construction projects; |
• | changes in and application of federal, state and local tax laws and their interpretations, including the Internal Revenue Code, regulations, rulings, court proceedings and audits; |
• | the effects of weather and other natural phenomena on operations and sales to customers, and purchases from suppliers; |
• | unplanned outages; |
• | the cost of protecting assets against, or damage due to, terrorism or cyber attacks; |
• | employee relations and the impact of collective bargaining agreements; |
• | the risk of a major safety incident at an electric distribution or generation facility; |
• | the availability, cost, coverage and terms of insurance and stability of insurance providers; |
• | cost reduction efforts and the maximization of plant and distribution system performance; |
• | the effects of competition; |
• | changes in and application of accounting standards and financial reporting regulations; |
• | changes in federal or state laws and their interpretation with respect to regulation, energy policy and other business issues; |
• | contract disputes, binding arbitration, litigation and related appeals; and |
• | the risks discussed in our public filings with the Securities and Exchange Commission. |
New factors emerge from time to time. We cannot predict what factors may arise or how such factors may cause our results to differ materially from those contained in any forward-looking statement. Any forward-looking statements speak only as of the date on which such statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.
3
Part I
Items 1. and 2. Business and Properties
General
DTE Electric is a Michigan corporation organized in 1903 and is a wholly-owned subsidiary of DTE Energy. DTE Electric is a public utility subject to regulation by the MPSC and the FERC. DTE Electric is engaged in the generation, purchase, distribution and sale of electricity to approximately 2.1 million customers in southeastern Michigan.
References in this report to “we,” “us,” “our” or “Company” are to DTE Electric and its subsidiaries, collectively.
DTE Electric is regulated by numerous federal and state governmental agencies, including, but not limited to, the MPSC, the FERC, the NRC, the EPA and the MDEQ. Electricity is generated from our fossil-fuel plants, a hydroelectric pumped storage plant, a nuclear plant and our wind and other renewable assets, and is purchased from electricity generators, suppliers and wholesalers. The electricity we produce and purchase is sold to three major classes of customers: residential, commercial and industrial, throughout southeastern Michigan.
Revenue by Service
2014 | 2013 | 2012 | |||||||||
(In millions) | |||||||||||
Residential | $ | 2,168 | $ | 2,351 | $ | 2,354 | |||||
Commercial | 1,761 | 1,883 | 1,898 | ||||||||
Industrial | 767 | 799 | 784 | ||||||||
Other (a) | 493 | 43 | 150 | ||||||||
Subtotal | 5,189 | 5,076 | 5,186 | ||||||||
Interconnection sales (b) | 93 | 121 | 105 | ||||||||
Total Revenue | $ | 5,282 | $ | 5,197 | $ | 5,291 |
_______________________________________
(a) | Includes revenue associated with under or over recoveries of tracking mechanisms and deferred gain amortization of the previously reversed RDM liability. |
(b) | Represents power that is not distributed by DTE Electric. |
Weather, economic factors, competition and electricity prices affect sales levels to customers. Our peak load and highest total system sales generally occur during the third quarter of the year, driven by air conditioning and other cooling-related demands. Our operations are not dependent upon a limited number of customers, and the loss of any one or a few customers would not have a material adverse effect on DTE Electric.
Fuel Supply and Purchased Power
Our power is generated from a variety of fuels and is supplemented with purchased power. We expect to have an adequate supply of fuel and purchased power to meet our obligation to serve customers. Our generating capability is heavily dependent upon the availability of coal. Coal is purchased from various sources in different geographic areas under agreements that vary in both pricing and terms. We expect to obtain the majority of our coal requirements through long-term contracts, with the balance to be obtained through short-term agreements and spot purchases. We have long-term and short-term contracts for the purchase of approximately 30.3 million tons of low-sulfur western coal and approximately 3.5 million tons of Appalachian coal to be delivered from 2015 through 2017. All of these contracts have pricing schedules. We have approximately 91% of our 2015 expected coal requirements under contract. Given the geographic diversity of supply, we believe we can meet our expected generation requirements. We lease a fleet of rail cars and have our expected western coal rail requirements under contract through 2018. All of our expected eastern coal rail requirements are under contract through 2016. Contracts covering expected vessel transportation requirements for delivery of purchased coal to our generating facilities are currently being negotiated.
DTE Electric participates in the energy market through MISO. We offer our generation in the market on a day-ahead and real-time basis and bid for power in the market to serve our load. We are a net purchaser of power that supplements our generation capability to meet customer demand during peak cycles or during major plant outages.
4
Properties
DTE Electric owns generating plants and facilities that are located in the State of Michigan. Substantially all of DTE Electric's property is subject to the lien of a mortgage.
Generating plants owned and in service as of December 31, 2014 are shown in the following table. The Company's renewable energy generation, principally wind turbines, is described below.
Location by Michigan County | Summer Net Rated Capability (a) | |||||||||
Plant Name | (MW) | (%) | Year in Service | |||||||
Fossil-fueled Steam-Electric | ||||||||||
Belle River (b) | St. Clair | 1,036 | 9.9 | 1984 and 1985 | ||||||
Greenwood | St. Clair | 785 | 7.5 | 1979 | ||||||
Monroe (c) | Monroe | 3,080 | 29.5 | 1971, 1973 and 1974 | ||||||
River Rouge | Wayne | 542 | 5.2 | 1957 and 1958 | ||||||
St. Clair | St. Clair | 1,398 | 13.4 | 1953, 1954, 1959, 1961 and 1969 | ||||||
Trenton Channel | Wayne | 609 | 5.8 | 1949 and 1968 | ||||||
7,450 | 71.3 | |||||||||
Oil or Gas-fueled Peaking Units | Various | 936 | 9.0 | 1966-1971, 1981 and 1999 | ||||||
Nuclear-fueled Steam-Electric Fermi 2 | Monroe | 1,124 | 10.8 | 1988 | ||||||
Hydroelectric Pumped Storage Ludington (d) | Mason | 917 | 8.9 | 1973 | ||||||
10,427 | 100.0 |
_______________________________________
(a) | Summer net rated capabilities of generating plants in service are based on periodic load tests and are changed depending on operating experience, the physical condition of units, environmental control limitations and customer requirements for steam, which otherwise would be used for electric generation. |
(b) | The Belle River capability represents DTE Electric's entitlement to 81% of the capacity and energy of the plant. See Note 5 of the Notes to the Consolidated Financial Statements "Jointly Owned Utility Plant" in Item 8 of this Report. |
(c) | The Monroe generating plant provided 38% of DTE Electric's total 2014 power plant generation. |
(d) | Represents DTE Electric's 49% interest in Ludington with a total capability of 1,872 MW. See Note 5 of the Notes to the Consolidated Financial Statements "Jointly Owned Utility Plant" in Item 8 of this Report. |
In 2008, a renewable portfolio standard was established for Michigan electric providers targeting 10% of electricity sold to retail customers from renewable energy by 2015. DTE Electric had approximately 1,000 MW of owned or contracted renewable energy generation, principally wind turbines located in Gratiot, Tuscola, Huron and Sanilac counties in Michigan, at December 31, 2014. Approximately 900 MW is in commercial operation at December 31, 2014. DTE Electric expects to meet the 10% renewable portfolio standard in 2015.
DTE Electric expects to retire Trenton Channel Unit 7 (109 MW) in April 2016. Over the next fifteen years, DTE Electric expects to retire additional coal-fired generation and to increase the proportion of its generation mix attributable to natural gas-fired generation and renewables. In January 2015, DTE Electric closed on the acquisition of a 732 MW simple-cycle natural gas facility in Carson City, Michigan (Montcalm County). See Note 19 - Subsequent Event of the Notes to Consolidated Financial Statements in Item 8 of this Report.
DTE Electric owns and operates 675 distribution substations with a capacity of approximately 32,867,000 kilovolt-amperes (kVA) and approximately 432,900 line transformers with a capacity of approximately 23,359,000 kVA.
Circuit miles of electric distribution lines owned and in service as of December 31, 2014:
Circuit Miles | ||||||
Operating Voltage-Kilovolts (kV) | Overhead | Underground | ||||
4.8 kV to 13.2 kV | 27,807 | 14,647 | ||||
24 kV | 182 | 682 | ||||
40 kV | 2,290 | 385 | ||||
120 kV | 60 | 8 | ||||
30,339 | 15,722 |
5
There are numerous interconnections that allow the interchange of electricity between DTE Electric and electricity providers external to our service area. These interconnections are generally owned and operated by ITC Transmission, an unrelated company, and connect to neighboring energy companies.
Regulation
DTE Electric's business is subject to the regulatory jurisdiction of various agencies, including, but not limited to, the MPSC, the FERC and the NRC. The MPSC issues orders pertaining to rates, recovery of certain costs, including the costs of generating facilities and regulatory assets, conditions of service, accounting and operating-related matters. DTE Electric's MPSC-approved rates charged to customers have historically been designed to allow for the recovery of costs, plus an authorized rate of return on our investments. The FERC regulates DTE Electric with respect to financing authorization and wholesale electric activities. The NRC has regulatory jurisdiction over all phases of the operation, construction, licensing and decommissioning of DTE Electric's nuclear plant operations. We are subject to the requirements of other regulatory agencies with respect to safety, the environment and health.
See Notes 4, 8, 9 and 15 of the Notes to Consolidated Financial Statements in Item 8 of this Report.
Energy Assistance Programs
Energy assistance programs, funded by the federal government and the State of Michigan, remain critical to DTE Electric's ability to control its uncollectible accounts receivable and collections expenses. DTE Electric's uncollectible accounts receivable expense is directly affected by the level of government-funded assistance its qualifying customers receive. We work continuously with the State of Michigan and others to determine whether the share of funding allocated to our customers is representative of the number of low-income individuals in our service territory. We also partner with federal, state and local officials to attempt to increase the share of low-income funding allocated to our customers. Changes in the level of funding provided to our low-income customers will affect the level of uncollectible expense.
Strategy and Competition
Our electrical generation operations seek to provide the energy needs of our customers in a cost effective manner. With potential capacity constraints in our MISO region, there will be increased dependency on our generation to provide reliable service and price stability for our customers. This generation will require a large investment driven by our aging coal fleet along with increased environmental regulations.
Our distribution operations focus is on distributing energy in a safe, cost effective, and reliable manner to our customers. We seek to increase operational efficiencies to increase our customer satisfaction at an affordable rate.
The electric Customer Choice program in Michigan gives our electric customers the option of retail access to alternative electric suppliers, subject to limits. Customers with retail access to alternative electric suppliers represented approximately 10% of retail sales in 2014, 2013 and 2012 and consisted primarily of industrial and commercial customers. MPSC rate orders and 2008 energy legislation enacted by the State of Michigan have placed a 10% cap on the total retail access related migration, mitigating some of the unfavorable effects of electric retail access on our financial performance and full service customer rates. We expect that in 2015 customers with retail access to alternative electric suppliers will represent approximately 10% of retail sales.
Competition in the regulated electric distribution business is primarily from the on-site generation of industrial customers and from distributed generation applications by industrial and commercial customers. We do not expect significant competition for distribution to any group of customers in the near term.
Revenues from year to year will vary due to weather conditions, economic factors, regulatory events and other risk factors as discussed in the “Risk Factors” in Item 1A. of this Report.
6
ENVIRONMENTAL MATTERS
We are subject to extensive environmental regulation. We expect to continue recovering environmental costs through rates charged to our customers. The following table summarizes our estimated significant future environmental expenditures based upon current regulations. Actual costs to comply could vary substantially. Additional costs may result as the effects of various substances on the environment are studied and governmental regulations are developed and implemented.
(In millions) | |||
Air | $ | 150 | |
Water | 70 | ||
Contaminated and other sites | 180 | ||
Estimated total future expenditures through 2022 | $ | 400 | |
Estimated 2015 expenditures | $ | 100 | |
Estimated 2016 expenditures | $ | 40 |
Air — DTE Electric is subject to the EPA ozone and fine particulate transport and acid rain regulations that limit power plant emissions of sulfur dioxide and nitrogen oxides. Since 2005, the EPA and the State of Michigan have issued additional emission reduction regulations relating to ozone, fine particulate, regional haze, mercury and other air pollution. These rules have led to additional emission controls on fossil-fueled power plants to reduce nitrogen oxide and sulfur dioxide, with further emission controls planned for reductions of mercury and other emissions. These rulemakings could require additional controls for sulfur dioxide, nitrogen oxides and other hazardous air pollutants over the next few years.
The EPA is implementing regulatory actions under the Clean Air Act to address emissions of greenhouse gases (GHGs) from the utility sector and other sectors of the economy. Among these actions, the EPA is proposing performance standards for emissions of carbon dioxide from new and existing electric generating units (EGUs). The EPA plans to issue a final standard for both new and existing sources by July 2015. The carbon standards for new sources are not expected to have a material impact on the Company, since the Company has no plans to build new coal-fired generation. It is not possible to determine the potential impact of future regulations on existing sources at this time. Pending or future legislation or other regulatory actions could have a material impact on our operations and financial position and the rates we charge our customers. Impacts include expenditures for environmental equipment beyond what is currently planned, financing costs related to additional capital expenditures, the purchase of emission credits from market sources, higher costs of purchased power, and the retirement of facilities where control equipment is not economical. We would seek to recover these incremental costs through increased rates charged to our utility customers as authorized by the MPSC.
Water — The EPA finalized regulations on cooling water intake in August 2014. DTE Electric is conducting studies to determine the best technology for reducing the environmental impacts of the cooling water intake structures at each of its facilities. DTE Electric may be required to install technologies to reduce the impacts of the cooling water intakes. The EPA has also issued proposed steam electric effluent guidelines. These rules are expected to require additional wastewater discharge controls.
Contaminated and Other Sites — Prior to the construction of major interstate natural gas pipelines, gas for heating and other uses was manufactured locally from processes involving coal, coke or oil. The facilities, which produced gas, have been designated as MGP sites. DTE Electric owns, or previously owned, three former MGP sites.
We are also in the process of cleaning up other sites where contamination is present as a result of historical and ongoing utility operations. These other sites include an engineered ash storage facility, electrical distribution substations, electric generating power plants, and underground and aboveground storage tank locations. Cleanup activities associated with these sites will be conducted over the next several years. Any significant change in assumptions, such as remediation techniques, nature and extent of contamination and regulatory requirements, could impact the estimate of remedial action costs for these sites and affect the Company's financial position and cash flows and the rates we charge our customers.
In December 2014, the EPA released a pre-publication version of a rule to regulate coal ash. This rule is based on the continued listing of ash as a non-hazardous waste, and relies on various self-implementation design and performance standards. The rule is still being evaluated and it is not possible to quantify its impact at this time. DTE Electric owns and operates three permitted engineered ash storage facilities to dispose of fly ash from coal fired power plants and operates a number of smaller impoundments at its power plants.
See Notes 7 and 15 of the Notes to Consolidated Financial Statements, "Regulatory Matters" and "Commitments and Contingencies", in Item 8 of this Report.
7
EMPLOYEES
We had approximately 4,900 employees as of December 31, 2014, of which approximately 2,600 were represented by unions. The majority of our represented employees are under contracts that expire in 2016 and 2017.
Item 1A. Risk Factors
There are various risks associated with the operations of DTE Electric. To provide a framework to understand the operating environment of the Company, we are providing a brief explanation of the more significant risks associated with our business. Although we have tried to identify and discuss key risk factors, others could emerge in the future. Each of the following risks could affect our performance.
We are subject to rate regulation. Our electric rates are set by the MPSC and the FERC and cannot be changed without regulatory authorization. We may be negatively impacted by new regulations or interpretations by the MPSC, the FERC or other regulatory bodies. Our ability to recover costs may be impacted by the time lag between the incurrence of costs and the recovery of the costs in customers' rates. Our regulators also may decide to disallow recovery of certain costs in customers' rates if they determine that those costs do not meet the standards for recovery under our governing laws and regulations. We typically self-implement base rate changes six months after rate case filings in accordance with Michigan law. However, if the final rates authorized by our regulators in the final rate order are lower than the amounts we collected during the self-implementation period, we must refund the difference with interest. Our regulators may also disagree with our rate calculations under the various mechanisms that are intended to mitigate the risk of certain aspects of our business. If we cannot agree with our regulators on an appropriate reconciliation of those mechanisms, it may impact our ability to recover certain costs through our customer rates. Our regulators may also decide to eliminate these mechanisms in future rate cases, which may make it more difficult for us to recover our costs in the rates we charge customers. We cannot predict what rates the MPSC will authorize in future rate cases. New legislation, regulations or interpretations could change how our business operates, impact our ability to recover costs through rates or require us to incur additional expenses.
Changes to Michigan's electric Customer Choice program could negatively impact our financial performance. The State of Michigan currently experiences a hybrid market, where the MPSC continues to regulate electric rates for our customers, while alternative electric suppliers charge market-based rates. MPSC rate orders and energy legislation enacted by the State of Michigan in 2008 have placed a 10% cap on the total potential retail access related migration. However, even with the legislated 10% cap on participation, there continues to be legislative and financial risk associated with the electric Customer Choice program. Electric retail access migration is sensitive to market price and full service electric price changes. We are required under current regulation to provide full service to retail access customers that choose to return, potentially resulting in the need for additional generating capacity.
The MISO regional energy market, including the State of Michigan, is expected to face capacity constraints beginning in 2016 due primarily to the retirement of coal-fired generation caused by increasingly stringent environmental requirements. Significant investment in new natural gas-fired generation and renewables will be required. Under the current regulatory structure, retail access customers do not fund capacity costs potentially impacting electric supply reliability and utility customer affordability.
Environmental laws and liability may be costly. We are subject to and affected by numerous environmental regulations. These regulations govern air emissions, water quality, wastewater discharge and disposal of solid and hazardous waste. Compliance with these regulations can significantly increase capital spending, operating expenses and plant down times and can negatively affect the affordability of the rates we charge to our customers.
Uncertainty around future environmental regulations creates difficulty planning long-term capital projects in our generation fleet. These laws and regulations require us to seek a variety of environmental licenses, permits, inspections and other regulatory approvals. We could be required to install expensive pollution control measures or limit or cease activities, including the retirement of certain generating plants, based on these regulations. Additionally, we may become a responsible party for environmental cleanup at sites identified by a regulatory body. We cannot predict with certainty the amount and timing of future expenditures related to environmental matters because of the difficulty of estimating clean-up costs. There is also uncertainty in quantifying liabilities under environmental laws that impose joint and several liability on potentially responsible parties.
8
We may also incur liabilities as a result of potential future requirements to address climate change issues. Proposals for voluntary initiatives and mandatory controls are being discussed both in the United States and worldwide to reduce greenhouse gases such as carbon dioxide, a by-product of burning fossil fuels. If increased regulation of greenhouse gas emissions are implemented, the operations of our fossil-fuel generation assets may be significantly impacted. Since there can be no assurances that environmental costs may be recovered through the regulatory process, our financial performance may be negatively impacted as a result of environmental matters.
Operation of a nuclear facility subjects us to risk. Ownership of an operating nuclear generating plant subjects us to significant additional risks. These risks include, among others, plant security, environmental regulation and remediation, changes in federal nuclear regulation and operational factors that can significantly impact the performance and cost of operating a nuclear facility. While we maintain insurance for various nuclear-related risks, there can be no assurances that such insurance will be sufficient to cover our costs in the event of an accident or business interruption at our nuclear generating plant, which may affect our financial performance. In addition, while we have a nuclear decommissioning trust fund to finance the decommissioning of our nuclear generating plant, there can be no assurances that such fund will be sufficient to fund the cost of decommissioning.
The supply and/or price of energy commodities and/or related services may impact our financial results. We are dependent on coal for much of our electrical generating capacity. Price fluctuations, fuel supply disruptions and changes in transportation costs could have a negative impact on the amounts we charge our utility customers for electricity. We have hedging strategies and regulatory recovery mechanisms in place to mitigate some of the negative fluctuations in commodity supply prices, but there can be no assurances that our financial performance will not be negatively impacted by price fluctuations.
The supply and/or price of other industrial raw and finished inputs and/or related services may impact our financial results. We are dependent on supplies of certain commodities, such as copper and limestone, among others, and industrial materials and services in order to maintain day-to-day operations and maintenance of our facilities. Price fluctuations or supply interruptions for these commodities and other items could have a negative impact on the amounts we charge our customers for our products.
Adverse changes in our credit ratings may negatively affect us. Regional and national economic conditions, increased scrutiny of the energy industry and regulatory changes, as well as changes in our economic performance, could result in credit agencies reexamining our credit rating. While credit ratings reflect the opinions of the credit agencies issuing such ratings and may not necessarily reflect actual performance, a downgrade in our credit rating below investment grade could restrict or discontinue our ability to access capital markets and could result in an increase in our borrowing costs, a reduced level of capital expenditures and could impact future earnings and cash flows. In addition, a reduction in our credit rating may require us to post collateral related to various physical or financially settled contracts for the purchase of energy-related commodities, products and services, which could impact our liquidity.
Poor investment performance of pension and other postretirement benefit plan assets and other factors impacting benefit plan costs could unfavorably impact our liquidity and results of operations. Our costs of providing non-contributory defined benefit pension plans and other postretirement benefit plans are dependent upon a number of factors, such as the rates of return on plan assets, the level of interest rates used to measure the required minimum funding levels of the plans, future government regulation, and our required or voluntary contributions made to the plans. The performance of the debt and equity markets affects the value of assets that are held in trust to satisfy future obligations under our plans. We have significant benefit obligations and hold significant assets in trust to satisfy these obligations. These assets are subject to market fluctuations and will yield uncertain returns, which may fall below our projected return rates. A decline in the market value of the pension and other postretirement benefit plan assets will increase the funding requirements under our pension and other postretirement benefit plans if the actual asset returns do not recover these declines in the foreseeable future. Additionally, our pension and other postretirement benefit plan liabilities are sensitive to changes in interest rates. As interest rates decrease, the liabilities increase, resulting in increasing benefit expense and funding requirements. Also, if future increases in pension and other postretirement benefit costs as a result of reduced plan assets are not recoverable from our customers, the results of operations and financial position of our company could be negatively affected. Without sustained growth in the plan investments over time to increase the value of our plan assets, we could be required to fund our plans with significant amounts of cash. Such cash funding obligations could have a material impact on our cash flows, financial position, or results of operations.
9
Our ability to access capital markets is important. Our ability to access capital markets is important to operate our businesses and to fund capital investments. Turmoil in credit markets may constrain our ability to issue new debt, including commercial paper, and refinance existing debt at reasonable interest rates. In addition, the level of borrowing by other energy companies and the market as a whole could limit our access to capital markets. Our long term revolving credit facility does not expire until 2018, but we regularly access capital markets to refinance existing debt or fund new projects, and we cannot predict the pricing or demand for those future transactions.
Construction and capital improvements to our power facilities subject us to risk. We are managing ongoing and planning future significant construction and capital improvement projects at multiple power generation and distribution facilities. Many factors that could cause delays or increased prices for these complex projects are beyond our control, including the cost of materials and labor, subcontractor performance, timing and issuance of necessary permits, construction disputes and weather conditions. Failure to complete these projects on schedule and on budget for any reason could adversely affect our financial performance and operations at the affected facilities.
Weather significantly affects operations. Deviations from normal hot and cold weather conditions affect our earnings and cash flow. Mild temperatures can result in decreased utilization of our assets, lowering income and cash flow. Ice storms, tornadoes, or high winds can damage the electric distribution system infrastructure and power generation facilities and require us to perform emergency repairs and incur material unplanned expenses. The expenses of storm restoration efforts may not be fully recoverable through the regulatory process.
Unplanned power plant outages may be costly. Unforeseen maintenance may be required to safely produce electricity or comply with environmental regulations. As a result of unforeseen maintenance, we may be required to make spot market purchases of electricity that exceed our costs of generation. Our financial performance may be negatively affected if we are unable to recover such increased costs.
Renewable portfolio standards and energy efficiency programs may affect our business. We are subject to existing Michigan and potential future federal legislation and regulation requiring us to secure sources of renewable energy. We expect to comply with the existing state legislation, but we do not know what requirements may be added by federal legislation. In addition, there could be additional state requirements increasing the percentage of power required to be provided by renewable energy sources. We cannot predict the financial impact or costs associated with complying with potential future legislation and regulations. Compliance with these requirements can significantly increase capital expenditures and operating expenses and can negatively affect the affordability of the rates we charge to our customers.
We are also required by Michigan legislation to implement energy efficiency measures and provide energy efficiency customer awareness and education programs. These requirements necessitate expenditures and implementation of these programs creates the risk of reducing our revenues as customers decrease their energy usage. We cannot predict how these programs will impact our business and future operating results.
Regional and national economic conditions can have an unfavorable impact on us. Our business follows the economic cycles of the customers we serve and the credit risk of counterparties we do business with. Should national or regional economic conditions deteriorate, reduced volumes of electricity, collections of accounts receivable, and reductions in federal and state energy assistance funding, and potentially higher levels of stolen electricity could result in decreased earnings and cash flow.
Threats of terrorism or cyber-attacks could affect our business. We may be threatened by problems such as computer viruses or terrorism that may disrupt our operations and could harm our operating results. Our industry requires the continued operation of sophisticated information technology systems and network infrastructure. Despite our implementation of security measures, all of our technology systems are vulnerable to disability or failures due to hacking, viruses, acts of war or terrorism and other causes. If our information technology systems were to fail and we were unable to recover in a timely way, we might be unable to fulfill critical business functions, which could have a material adverse effect on our business, operating results, and financial condition.
In addition, our generation plants and electrical distribution facilities in particular may be targets of terrorist activities that could disrupt our ability to produce or distribute some portion of our energy products. We have increased security as a result of past events and we may be required by our regulators or by the future terrorist threat environment to make investments in security that we cannot currently predict.
10
Failure to maintain the security of personally identifiable information could adversely affect us. In connection with our business we collect and retain personally identifiable information of our customers, shareholders and employees. Our customers, shareholders and employees expect that we will adequately protect their personal information, and the United States regulatory environment surrounding information security and privacy is increasingly demanding. A significant theft, loss or fraudulent use of customer, shareholder, employee or DTE Electric data by cybercrime or otherwise could adversely impact our reputation and could result in significant costs, fines and litigation.
Failure to attract and retain key executive officers and other skilled professional and technical employees could have an adverse effect on our operations. Our business is dependent on our ability to attract and retain skilled employees. Competition for skilled employees in some areas is high and the inability to attract and retain these employees could adversely affect our business and future operating results. In addition, we have an aging utility workforce and the failure of a successful transfer of knowledge and expertise could negatively impact our operations.
A work interruption may adversely affect us. There are several bargaining units for the Company's approximately 2,600 represented employees. The majority of represented employees are under contracts that expire in 2016 and 2017. A union choosing to strike would have an impact on our business. We are unable to predict the effect a work stoppage would have on our costs of operation and financial performance.
The Company's businesses have safety risks. The Company's electric distribution system, power plants, wind energy equipment and other facilities could be involved in incidents that result in injury or property loss to employees, customers, or the public. Although we have insurance coverage for many potential incidents, depending upon the nature and severity of any incident, the Company could experience financial loss, damage to its reputation, and negative consequences from regulatory agencies or other public authorities.
We may not be fully covered by insurance. We have a comprehensive insurance program in place to provide coverage for various types of risks, including catastrophic damage as a result of acts of God, terrorism or a combination of other significant unforeseen events that could impact our operations. Economic losses might not be covered in full by insurance or our insurers may be unable to meet contractual obligations.
Item 1B. Unresolved Staff Comments
None.
Item 3. Legal Proceedings
For more information on material legal proceedings and matters related to us and our subsidiaries, see Notes 7 and 15 of the Notes to Consolidated Financial Statements, "Regulatory Matters" and "Commitments and Contingencies", in Item 8 of this Report.
Item 4. | Mine Safety Disclosures |
Not applicable.
11
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
All of the 138,632,324 issued and outstanding shares of common stock of DTE Electric, par value $10 per share, are owned by DTE Energy, and constitute 100% of the voting securities of DTE Electric. Therefore, no market exists for our common stock.
We paid cash dividends on our common stock of $370 million in 2014, $342 million in 2013, and $317 million in 2012.
Item 6. Selected Financial Data
Omitted per General Instruction I (2) (a) of Form 10-K for wholly owned subsidiaries (reduced disclosure format).
12
Item 7. Management’s Narrative Analysis of Results of Operations
The Management’s Narrative Analysis of Results of Operations discussion for DTE Electric is presented in accordance with General Instruction I (2) (a) of Form 10-K for wholly-owned subsidiaries (reduced disclosure format).
2014 | 2013 | 2012 | |||||||||
(In millions) | |||||||||||
Operating Revenues | $ | 5,282 | $ | 5,197 | $ | 5,291 | |||||
Fuel and purchased power | 1,706 | 1,668 | 1,758 | ||||||||
Gross margin | 3,576 | 3,529 | 3,533 | ||||||||
Operation and maintenance | 1,331 | 1,376 | 1,429 | ||||||||
Depreciation and amortization | 927 | 896 | 822 | ||||||||
Taxes other than income | 267 | 260 | 256 | ||||||||
Asset (gains) losses and impairments, net | (1 | ) | (3 | ) | (2 | ) | |||||
Operating Income | 1,052 | 1,000 | 1,028 | ||||||||
Other (Income) and Deductions | 222 | 259 | 260 | ||||||||
Income Tax Expense | 298 | 254 | 282 | ||||||||
Net Income | $ | 532 | $ | 487 | $ | 486 | |||||
Operating Income as a % of Operating Revenues | 20 | % | 19 | % | 19 | % |
Gross margin increased by $47 million in 2014 and decreased $4 million in 2013. Revenues associated with certain tracking mechanisms and surcharges are offset by related expenses elsewhere in the Consolidated Statements of Operations.
The following table details changes in various gross margin components relative to the comparable prior period:
2014 | 2013 | ||||||
(In millions) | |||||||
Amortization of refundable revenue decoupling/deferred gain | $ | 63 | $ | — | |||
Base sales, inclusive of weather effect | (48 | ) | (54 | ) | |||
Securitization bond and tax surcharge | (10 | ) | 39 | ||||
Renewable energy program | 20 | 19 | |||||
Low income energy efficiency surcharge | 17 | (12 | ) | ||||
Regulatory mechanisms and other | 5 | 4 | |||||
Increase (decrease) in gross margin | $ | 47 | $ | (4 | ) |
2014 | 2013 | 2012 | ||||||
(In thousands of MWh) | ||||||||
Electric Sales | ||||||||
Residential | 14,940 | 15,273 | 15,666 | |||||
Commercial | 16,792 | 16,661 | 16,832 | |||||
Industrial | 10,199 | 10,303 | 9,989 | |||||
Other | 517 | 942 | 958 | |||||
42,448 | 43,179 | 43,445 | ||||||
Interconnection sales (a) | 3,630 | 3,883 | 2,125 | |||||
Total Electric Sales | 46,078 | 47,062 | 45,570 | |||||
Electric Deliveries | ||||||||
Retail and Wholesale | 42,448 | 43,179 | 43,445 | |||||
Electric Customer Choice, including self generators (b) | 5,033 | 5,200 | 5,197 | |||||
Total Electric Sales and Deliveries | 47,481 | 48,379 | 48,642 |
_______________________________________
(a) Represents power that is not distributed by DTE Electric.
(b) Represents deliveries for self generators who have purchased power from alternative energy suppliers to supplement their power requirements.
13
Operation and maintenance expense decreased $45 million in 2014 and decreased $53 million in 2013. The decrease in 2014 is primarily due to decreased employee benefit expenses of $68 million, decreased distribution operations expenses of $36 million, and decreased power plant generation expenses of $7 million, partially offset by higher restoration and line clearance expenses of $19 million, increased low income energy assistance of $17 million, and increased energy optimization and renewable energy expenses of $13 million. In addition, 2014 included $17 million of expenses related to the transition of PLD customers to DTE Electric's distribution system effective July 1, 2014. In May 2014, the MPSC approved a TRM that provides for recovery of the deferred net incremental revenue requirement associated with the transition that is reflected in the Depreciation and amortization line in the Consolidated Statement of Operations. The decrease in 2013 is primarily due to decreased employee benefit expenses of $90 million, decreased power plant generation expenses of $14 million, and decreased low income energy assistance of $12 million, partially offset by increased restoration and line clearance expenses of $19 million, increased corporate administrative expenses of $17 million, increased uncollectible expenses of $11 million, increased energy optimization and renewable energy expenses of $8 million, and increased distribution operations expenses of $8 million.
Depreciation and amortization expense increased $31 million in 2014 and increased $74 million in 2013. The 2014 increase was due to $42 million of increased expense due to an increased depreciable base, increased amortization of regulatory assets of $3 million, primarily related to Securitization, partially offset by $14 million associated with the TRM. The 2013 increase was due to increased amortization of regulatory assets of $57 million, primarily related to Securitization, and increased depreciation of $17 million due to an increased depreciable base.
Other (income) and deductions decreased by $37 million in 2014 and decreased by $1 million in 2013. The decrease in 2014 was primarily due to decreased interest expenses of $19 million and the 2013 contribution to the DTE Energy Foundation of $18 million. The decrease in 2013 was primarily due to 2012 one time expenses of $11 million related to Michigan ballot proposals and increased investment earnings of $10 million, offset by a contribution to the DTE Energy Foundation of $18 million.
Outlook — We continue to move forward in our efforts to achieve operational excellence, sustained strong cash flows and earn our authorized return on equity. We expect that our planned significant capital investments will result in earnings growth. Looking forward, additional factors may impact earnings such as weather, the outcome of regulatory proceedings, benefit plan design changes, investment returns and changes in discount rate assumptions in benefit plans and health care costs, and uncertainty of legislative or regulatory actions regarding climate change and electric retail access. We expect to continue our efforts to improve productivity and decrease our costs while improving customer satisfaction with consideration of customer rate affordability.
In May 2014, DTE Electric filed an application with the NRC requesting a renewal of the license for its Fermi 2 nuclear power plant. DTE Electric has requested a 20-year extension of its original license due to expire in 2025.
In December 2014, DTE Electric filed a rate case with the MPSC requesting an increase in base rates of $370 million based on a projected twelve month period ending June 30, 2016.
As directed by a June 2013 Presidential Memorandum, the EPA is implementing regulatory actions under the Clean Air Act to address emissions of greenhouse gases (GHGs) from the utility sector and other sectors of the economy. Among these actions, the EPA is proposing performance standards for emissions of carbon dioxide from new and existing electric generating units (EGUs). The new source performance standards for new EGUs were proposed in September 2013 and the standards for existing, reconstructed and modified EGUs were proposed in June 2014. The EPA plans to issue a final standard for both new and existing sources by July 2015 as described in the June 2013 Presidential Memorandum.
DTE Electric is an active participant in working with the EPA and other stakeholders to shape the final performance standards for new and existing power plants. The carbon standards for new sources are not expected to have a material impact on the Company, since the Company has no plans to build new coal-fired generation. It is not possible to determine the potential impact of future regulations on existing sources at this time. Pending or future legislation or other regulatory actions could have a material impact on our operations and financial position and the rates we charge our customers. Impacts include expenditures for environmental equipment beyond what is currently planned, financing costs related to additional capital expenditures, the purchase of emission credits from market sources and the retirement of facilities where control equipment is not economical. We would seek to recover these incremental costs through increased rates charged to our utility customers as authorized by the MPSC.
14
Increased costs for energy produced from traditional coal-based sources could also increase the economic viability of energy produced from renewable, natural gas-fired generation and/or nuclear sources, from energy efficiency initiatives, and from the potential development of market-based trading of carbon offsets which could provide new business opportunities for DTE Electric. A June 2014 U.S. Supreme Court decision on the EPA’s authority to regulate GHG emissions under permitting programs of the Clean Air Act is expected to have little effect on DTE Electric since the Supreme Court's decision upholds the EPA’s authority to regulate GHGs at sources that are already subject to permitting due to emissions of conventional pollutants. In addition, the Supreme Court's ruling does not affect the EPA’s current proposed carbon performance standards at new or existing power plants. At the present time, it is not possible to quantify the financial impacts of these climate related regulatory initiatives on DTE Electric or its customers.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Price Risk
We have commodity price risk arising from market price fluctuations. We have risks in conjunction with the anticipated purchases of coal, uranium, electricity, and base metals to meet our service obligations. However, we do not bear significant exposure to earnings risk as such changes are included in the PSCR regulatory rate-recovery mechanism. We are exposed to short-term cash flow or liquidity risk as a result of the time differential between actual cash settlements and regulatory rate recovery.
Credit Risk
Bankruptcies
The Company purchases and sells electricity from and to governmental entities and numerous companies operating in the steel, automotive, energy, retail and other industries. Certain of its customers have filed for bankruptcy protection under the U.S. Bankruptcy Code. The Company regularly reviews contingent matters relating to these customers and its purchase and sale contracts and records provisions for amounts considered at risk of probable loss. The Company believes its accrued amounts are adequate for probable loss.
Other
We engage in business with customers that are non-investment grade. We closely monitor the credit ratings of these customers and, when deemed necessary, we request collateral or guarantees from such customers to secure their obligations.
Interest Rate Risk
We are subject to interest rate risk in connection with the issuance of debt. Our exposure to interest rate risk arises primarily from changes in U.S. Treasury rates, commercial paper rates and London Inter-Bank Offered Rates (LIBOR). We estimate that if interest rates were 10% higher or lower, the fair value of long-term debt at December 31, 2014 would decrease $202 million and increase $216 million, respectively.
15
Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements and financial statement schedule are included herein.
Page | |
Consolidated Financial Statements | |
Financial Statement Schedule | |
16
Controls and Procedures
(a) Evaluation of disclosure controls and procedures
Management of the Company carried out an evaluation, under the supervision and with the participation of DTE Electric’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2014, which is the end of the period covered by this report. Based on this evaluation, the Company’s CEO and CFO have concluded that such disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to the Company’s management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Due to the inherent limitations in the effectiveness of any disclosure controls and procedures, management cannot provide absolute assurance that the objectives of its disclosure controls and procedures will be attained.
(b) Management’s report on internal control over financial reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed by, or under the supervision of, our CEO and CFO, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management of the Company has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 COSO) in Internal Control - Integrated Framework. Based on this assessment, management concluded that, as of December 31, 2014, the Company’s internal control over financial reporting was effective based on those criteria.
This annual report does not include an audit report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to audit by the Company’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
(c) Changes in internal control over financial reporting
There have been no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholder of
DTE Electric Company
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of DTE Electric Company and its subsidiaries at December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 13, 2015
18
DTE Electric Company
Consolidated Statements of Operations
Year Ended December 31, | |||||||||||
2014 | 2013 | 2012 | |||||||||
(In millions) | |||||||||||
Operating Revenues | $ | 5,282 | $ | 5,197 | $ | 5,291 | |||||
Operating Expenses | |||||||||||
Fuel and purchased power | 1,706 | 1,668 | 1,758 | ||||||||
Operation and maintenance | 1,331 | 1,376 | 1,429 | ||||||||
Depreciation and amortization | 927 | 896 | 822 | ||||||||
Taxes other than income | 267 | 260 | 256 | ||||||||
Asset (gains) losses and impairments, net | (1 | ) | (3 | ) | (2 | ) | |||||
4,230 | 4,197 | 4,263 | |||||||||
Operating Income | 1,052 | 1,000 | 1,028 | ||||||||
Other (Income) and Deductions | |||||||||||
Interest expense | 250 | 268 | 272 | ||||||||
Interest income | (1 | ) | — | (1 | ) | ||||||
Other income | (62 | ) | (54 | ) | (53 | ) | |||||
Other expenses | 35 | 45 | 42 | ||||||||
222 | 259 | 260 | |||||||||
Income Before Income Taxes | 830 | 741 | 768 | ||||||||
Income Tax Expense | 298 | 254 | 282 | ||||||||
Net Income | $ | 532 | $ | 487 | $ | 486 |
See Notes to Consolidated Financial Statements
19
DTE Electric Company
Consolidated Statements of Comprehensive Income
Year Ended December 31, | |||||||||||
2014 | 2013 | 2012 | |||||||||
(In millions) | |||||||||||
Net Income | $ | 532 | $ | 487 | $ | 486 | |||||
Other comprehensive income (loss), net of tax: | |||||||||||
Benefit obligations, net of tax of $(4), $4 and $(1), respectively | (10 | ) | 5 | (2 | ) | ||||||
Net unrealized gains on investments during the period, net of taxes of $—, $— and $—, respectively | — | 1 | — | ||||||||
Other comprehensive income (loss) | (10 | ) | 6 | (2 | ) | ||||||
Comprehensive income | $ | 522 | $ | 493 | $ | 484 |
See Notes to Consolidated Financial Statements
20
DTE Electric Company
Consolidated Statements of Financial Position
December 31, | |||||||
2014 | 2013 | ||||||
(In millions) | |||||||
ASSETS | |||||||
Current Assets | |||||||
Cash and cash equivalents | $ | 14 | $ | 27 | |||
Restricted cash, principally Securitization | 96 | 100 | |||||
Accounts receivable (less allowance for doubtful accounts of $29 and $28, respectively) | |||||||
Customer | 688 | 723 | |||||
Affiliates | 31 | 24 | |||||
Other | 15 | 24 | |||||
Inventories | |||||||
Fuel | 269 | 188 | |||||
Materials and supplies | 231 | 215 | |||||
Notes receivable | |||||||
Affiliates | 8 | 200 | |||||
Other | 8 | 2 | |||||
Regulatory assets | 46 | 13 | |||||
Other | 75 | 68 | |||||
1,481 | 1,584 | ||||||
Investments | |||||||
Nuclear decommissioning trust funds | 1,241 | 1,191 | |||||
Other | 172 | 160 | |||||
1,413 | 1,351 | ||||||
Property | |||||||
Property, plant and equipment | 19,805 | 18,730 | |||||
Less accumulated depreciation and amortization | (7,216 | ) | (6,951 | ) | |||
12,589 | 11,779 | ||||||
Other Assets | |||||||
Regulatory assets | 2,913 | 2,275 | |||||
Securitized regulatory assets | 34 | 231 | |||||
Intangible assets | 37 | 41 | |||||
Other | 182 | 149 | |||||
3,166 | 2,696 | ||||||
Total Assets | $ | 18,649 | $ | 17,410 |
See Notes to Consolidated Financial Statements
21
DTE Electric Company
Consolidated Statements of Financial Position
December 31, | |||||||
2014 | 2013 | ||||||
(In millions, except shares) | |||||||
LIABILITIES AND SHAREHOLDER’S EQUITY | |||||||
Current Liabilities | |||||||
Accounts payable | |||||||
Affiliates | $ | 60 | $ | 60 | |||
Other | 366 | 424 | |||||
Accrued interest | 58 | 61 | |||||
Current portion long-term debt, including capital leases | 118 | 504 | |||||
Regulatory liabilities | 150 | 278 | |||||
Deferred income taxes | — | 91 | |||||
Short-term borrowings | |||||||
Affiliates | 84 | 58 | |||||
Other | 50 | — | |||||
Other | 151 | 177 | |||||
1,037 | 1,653 | ||||||
Long-Term Debt (net of current portion) | |||||||
Mortgage bonds, notes and other | 5,144 | 4,540 | |||||
Securitization bonds | — | 105 | |||||
Capital lease obligations | — | 4 | |||||
5,144 | 4,649 | ||||||
Other Liabilities | |||||||
Deferred income taxes | 3,188 | 2,807 | |||||
Regulatory liabilities | 245 | 386 | |||||
Asset retirement obligations | 1,796 | 1,667 | |||||
Unamortized investment tax credit | 36 | 41 | |||||
Nuclear decommissioning | 182 | 178 | |||||
Accrued pension liability — affiliates | 1,200 | 705 | |||||
Accrued postretirement liability — affiliates | 520 | 369 | |||||
Other | 105 | 101 | |||||
7,272 | 6,254 | ||||||
Commitments and Contingencies (Notes 7 and 15) | |||||||
Shareholder’s Equity | |||||||
Common stock, $10 par value, 400,000,000 shares authorized, and 138,632,324 shares issued and outstanding | 3,786 | 3,596 | |||||
Retained earnings | 1,436 | 1,274 | |||||
Accumulated other comprehensive loss | (26 | ) | (16 | ) | |||
Total Shareholder's Equity | 5,196 | 4,854 | |||||
Total Liabilities and Shareholder’s Equity | $ | 18,649 | $ | 17,410 |
See Notes to Consolidated Financial Statements
22
DTE Electric Company
Consolidated Statements of Cash Flows
Year Ended December 31, | |||||||||||
2014 | 2013 | 2012 | |||||||||
(In millions) | |||||||||||
Operating Activities | |||||||||||
Net Income | $ | 532 | $ | 487 | $ | 486 | |||||
Adjustments to reconcile net income to net cash from operating activities: | |||||||||||
Depreciation and amortization | 927 | 896 | 822 | ||||||||
Nuclear fuel amortization | 48 | 38 | 29 | ||||||||
Allowance for equity funds used during construction | (21 | ) | (14 | ) | (12 | ) | |||||
Deferred income taxes | 297 | 108 | (52 | ) | |||||||
Asset (gains) losses and impairments, net | (1 | ) | (3 | ) | (2 | ) | |||||
Changes in assets and liabilities: | |||||||||||
Accounts receivable, net | 33 | (30 | ) | 24 | |||||||
Inventories | (97 | ) | 36 | 7 | |||||||
Accounts payable | 11 | (23 | ) | (64 | ) | ||||||
Regulatory assets and liabilities | (926 | ) | 1,029 | 286 | |||||||
Accrued pension liability — affiliates | 495 | (663 | ) | 137 | |||||||
Accrued postretirement liability — affiliates | 151 | (417 | ) | (221 | ) | ||||||
Other assets | (25 | ) | — | 30 | |||||||
Other liabilities | (40 | ) | 44 | 42 | |||||||
Net cash from operating activities | 1,384 | 1,488 | 1,512 | ||||||||
Investing Activities | |||||||||||
Plant and equipment expenditures | (1,561 | ) | (1,325 | ) | (1,230 | ) | |||||
Notes receivable from affiliate | 192 | (200 | ) | 26 | |||||||
Proceeds from sale of nuclear decommissioning trust fund assets | 1,146 | 1,118 | 759 | ||||||||
Investment in nuclear decommissioning trust funds | (1,156 | ) | (1,134 | ) | (764 | ) | |||||
Other | (10 | ) | (31 | ) | (21 | ) | |||||
Net cash used for investing activities | (1,389 | ) | (1,572 | ) | (1,230 | ) | |||||
Financing Activities | |||||||||||
Issuance of long-term debt, net of issuance costs | 942 | 768 | 496 | ||||||||
Redemption of long-term debt | (837 | ) | (590 | ) | (587 | ) | |||||
Capital contribution by parent company | 190 | 400 | — | ||||||||
Short-term borrowings, net — other | 50 | (130 | ) | 130 | |||||||
Short-term borrowings, net — affiliate | 26 | (22 | ) | 16 | |||||||
Dividends on common stock | (370 | ) | (342 | ) | (317 | ) | |||||
Other | (9 | ) | (3 | ) | (3 | ) | |||||
Net cash from (used for) financing activities | (8 | ) | 81 | (265 | ) | ||||||
Net Increase (Decrease) in Cash and Cash Equivalents | (13 | ) | (3 | ) | 17 | ||||||
Cash and Cash Equivalents at Beginning of the Period | 27 | 30 | 13 | ||||||||
Cash and Cash Equivalents at End of the Period | $ | 14 | $ | 27 | $ | 30 | |||||
Supplemental disclosure of cash information | |||||||||||
Cash paid (received) for: | |||||||||||
Interest (net of interest capitalized) | $ | 240 | $ | 256 | $ | 280 | |||||
Income taxes | $ | 4 | $ | 183 | $ | 223 | |||||
Supplemental disclosure of non-cash investing and financing activities | |||||||||||
Plant and equipment expenditures in accounts payable | $ | 162 | $ | 231 | $ | 144 |
See Notes to Consolidated Financial Statements
23
DTE Electric Company
Consolidated Statements of Changes in Shareholder’s Equity
Accumulated | ||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||
Common Stock | Paid in | Retained | Comprehensive | |||||||||||||||||||
Shares | Amount | Capital | Earnings | Income (Loss) | Total | |||||||||||||||||
(Dollars in millions, shares in thousands) | ||||||||||||||||||||||
Balance, December 31, 2011 | 138,632 | $ | 1,386 | $ | 1,810 | $ | 960 | $ | (20 | ) | $ | 4,136 | ||||||||||
Net Income | — | — | — | 486 | — | 486 | ||||||||||||||||
Dividends declared on common stock | — | — | — | (317 | ) | — | (317 | ) | ||||||||||||||
Benefit obligations, net of tax | — | — | — | — | (2 | ) | (2 | ) | ||||||||||||||
Balance, December 31, 2012 | 138,632 | $ | 1,386 | $ | 1,810 | $ | 1,129 | $ | (22 | ) | $ | 4,303 | ||||||||||
Net Income | — | — | — | 487 | — | 487 | ||||||||||||||||
Dividends declared on common stock | — | — | — | (342 | ) | — | (342 | ) | ||||||||||||||
Benefit obligations, net of tax | — | — | — | — | 5 | 5 | ||||||||||||||||
Net change in unrealized losses on investments, net of tax | — | — | — | — | 1 | 1 | ||||||||||||||||
Capital contribution by parent company | — | — | 400 | — | — | 400 | ||||||||||||||||
Balance, December 31, 2013 | 138,632 | $ | 1,386 | $ | 2,210 | $ | 1,274 | $ | (16 | ) | $ | 4,854 | ||||||||||
Net Income | — | — | — | 532 | — | 532 | ||||||||||||||||
Dividends declared on common stock | — | — | — | (370 | ) | — | (370 | ) | ||||||||||||||
Benefit obligations, net of tax | — | — | — | — | (10 | ) | (10 | ) | ||||||||||||||
Capital contribution by parent company | — | — | 190 | — | — | 190 | ||||||||||||||||
Balance, December 31, 2014 | 138,632 | $ | 1,386 | $ | 2,400 | $ | 1,436 | $ | (26 | ) | $ | 5,196 |
See Notes to Consolidated Financial Statements
24
DTE Electric Company
Notes to Consolidated Financial Statements
NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION
Corporate Structure
DTE Electric is an electric utility engaged in the generation, purchase, distribution and sale of electricity to approximately 2.1 million customers in southeastern Michigan. DTE Electric is regulated by the MPSC and the FERC. In addition, we are regulated by other federal and state regulatory agencies including the NRC, the EPA and the MDEQ.
References in this Report to “we,” “us,” “our” or “Company” are to DTE Electric and its subsidiaries, collectively.
Basis of Presentation
The accompanying Consolidated Financial Statements are prepared using accounting principles generally accepted in the United States of America. These accounting principles require management to use estimates and assumptions that impact reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results may differ from the Company’s estimates.
Principles of Consolidation
The Company consolidates all majority-owned subsidiaries and investments in entities in which it has controlling influence. Non-majority owned investments are accounted for using the equity method when the Company is able to influence the operating policies of the investee. When the Company does not influence the operating policies of an investee, the cost method is used. These Consolidated Financial Statements also reflect the Company’s proportionate interests in certain jointly owned utility plants. The Company eliminates all intercompany balances and transactions.
The Company evaluates whether an entity is a VIE whenever reconsideration events occur. The Company consolidates VIEs for which it is the primary beneficiary. If the Company is not the primary beneficiary and an ownership interest is held, the VIE is accounted for under the equity method of accounting. When assessing the determination of the primary beneficiary, the Company considers all relevant facts and circumstances, including: the power, through voting or similar rights, to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb the expected losses and/or the right to receive the expected returns of the VIE. The Company performs ongoing reassessments of all VIEs to determine if the primary beneficiary status has changed.
The Company has variable interests in VIEs through certain of its long-term purchase contracts. As of December 31, 2014, the carrying amount of assets and liabilities in the Consolidated Statements of Financial Position that relate to its variable interests under long-term purchase contracts are predominately related to working capital accounts and generally represent the amounts owed by the Company for the deliveries associated with the current billing cycle under the contracts. The Company has not provided any significant form of financial support associated with these long-term contracts. There is no significant potential exposure to loss as a result of its variable interests through these long-term purchase contracts.
In 2001, DTE Electric financed a regulatory asset related to Fermi 2 and certain other regulatory assets through the sale of rate reduction bonds by a wholly-owned special purpose entity, Securitization. DTE Electric performs servicing activities including billing and collecting surcharge revenue for Securitization. This entity is a VIE and is consolidated by the Company. The maximum risk exposure related to Securitization is reflected on the Company’s Consolidated Statements of Financial Position.
25
DTE Electric Company
Notes to Consolidated Financial Statements — (Continued)
The following table summarizes the major balance sheet items at December 31, 2014 and 2013 restricted for Securitization that are either (1) assets that can be used only to settle their obligations related to Securitization or (2) liabilities for which creditors do not have recourse to the general credit of the primary beneficiary.
December 31, | |||||||
2014 | 2013 | ||||||
(In millions) | |||||||
ASSETS | |||||||
Restricted cash | $ | 96 | $ | 100 | |||
Accounts receivable | 26 | 34 | |||||
Securitized regulatory assets | 34 | 231 | |||||
Other current and long-term assets | 1 | 4 | |||||
$ | 157 | $ | 369 | ||||
LIABILITIES | |||||||
Accounts payable and accrued current liabilities | $ | 3 | $ | 7 | |||
Current portion long-term debt, including capital leases | 105 | 196 | |||||
Current regulatory liabilities | 32 | 43 | |||||
Securitization bonds | — | 105 | |||||
Other current and long-term liabilities | 9 | 8 | |||||
$ | 149 | $ | 359 |
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES
Revenues
Revenues from the sale and delivery of electricity are recognized as services are provided. The Company records revenues for electricity provided but unbilled at the end of each month. Rates for DTE Electric include provisions to adjust billings for fluctuations in fuel and purchased power costs, and certain other costs. Revenues are adjusted for differences between actual costs subject to reconciliation and the amounts billed in current rates. Under or over recovered revenues related to these cost recovery mechanisms are recorded on the Consolidated Statements of Financial Position and are recovered or returned to customers through adjustments to the billing factors.
See Note 7, "Regulatory Matters", for further discussion of recovery mechanisms authorized by the MPSC.
Accounting for ISO Transactions
DTE Electric participates in the energy market through MISO. MISO requires that we submit hourly day-ahead, real- time and FTR bids and offers for energy at locations across the MISO region. DTE Electric accounts for MISO transactions on a net hourly basis in each of the day-ahead, real-time and FTR markets and net transactions across all MISO energy market locations. In any single hour DTE Electric records net purchases in Fuel and purchased power and net sales in Operating revenues on the Consolidated Statements of Operations. DTE Electric records accruals for future net purchases adjustments based on historical experience, and reconciles accruals to actual costs when invoices are received from MISO.
Changes in Accumulated Other Comprehensive Loss
Comprehensive income (loss) is the change in common shareholder’s equity during a period from transactions and events from non-owner sources, including net income. The amounts recorded to accumulated other comprehensive loss include unrealized gains and losses on available-for-sale securities and changes in benefit obligations, consisting of deferred actuarial losses, and prior service costs.
26
DTE Electric Company
Notes to Consolidated Financial Statements — (Continued)
The following table summarizes the changes in Accumulated other comprehensive loss by component for the years ended December 31, 2014 and 2013:
Changes in Accumulated Other Comprehensive Loss by Component (a) | |||||||||||
Net Unrealized Gain/(Loss) on Investments | Benefit Obligations (b) | Total | |||||||||
(In millions) | |||||||||||
Balance, January 1, 2013 | $ | — | $ | (22 | ) | $ | (22 | ) | |||
Other comprehensive income before reclassifications | 1 | 3 | 4 | ||||||||
Amounts reclassified from accumulated other comprehensive income | — | 2 | 2 | ||||||||
Net current-period other comprehensive income | 1 | 5 | 6 | ||||||||
Balance, December 31, 2013 | $ | 1 | $ | (17 | ) | $ | (16 | ) | |||
Other comprehensive loss before reclassifications | — | (12 | ) | (12 | ) | ||||||
Amounts reclassified from accumulated other comprehensive income | — | 2 | 2 | ||||||||
Net current-period other comprehensive loss | — | (10 | ) | (10 | ) | ||||||
Balance, December 31, 2014 | $ | 1 | $ | (27 | ) | $ | (26 | ) |
________________________________________
(a) | All amounts are net of tax. |
(b) | The amounts reclassified from accumulated other comprehensive income (loss) are included in the computation of the net periodic pension and other postretirement benefit costs (see Note 16 to the Consolidated Financial Statements "Retirement Benefits and Trusteed Assets"). |
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash on hand, cash in banks and temporary investments purchased with remaining maturities of three months or less. Restricted cash consists of funds held to satisfy requirements of certain debt agreements, related to Securitization bonds. Restricted cash designated for interest and principal payments within one year is classified as a current asset.
Receivables
Accounts receivable are primarily composed of trade receivables and unbilled revenue. Our accounts receivable are stated at net realizable value.
The allowance for doubtful accounts is generally calculated using the aging approach that utilizes rates developed in reserve studies. DTE Electric establishes an allowance for uncollectible accounts based on historical losses and management’s assessment of existing economic conditions, customer trends, and other factors. Customer accounts are generally considered delinquent if the amount billed is not received by the due date, which is typically in 21 days, however, factors such as assistance programs may delay aggressive action. We assess late payment fees on trade receivables based on past-due terms with customers. Customer accounts are written off when collection efforts have been exhausted. The time period for write-off is 150 days after service has been terminated.
Unbilled revenues of $250 million and $280 million are included in customer accounts receivable at December 31, 2014 and 2013, respectively.
Notes Receivable
Notes receivable, or financing receivables, are primarily comprised of loans and are typically considered delinquent when payment is not received for periods ranging from 60 to 120 days. The Company ceases accruing interest (nonaccrual status), considers a note receivable impaired, and establishes an allowance for credit loss when it is probable that all principal and interest amounts due will not be collected in accordance with the contractual terms of the note receivable. Cash payments received on nonaccrual status notes receivable, that do not bring the account contractually current, are first applied to contractually owed past due interest, with any remainder applied to principal. Accrual of interest is generally resumed when the note receivable becomes contractually current.
In determining the allowance for credit losses for notes receivable, we consider the historical payment experience and other factors that are expected to have a specific impact on the counterparty’s ability to pay. In addition, the Company monitors the credit ratings of the counterparties from which we have notes receivable.
27
DTE Electric Company
Notes to Consolidated Financial Statements — (Continued)
Inventories
The Company generally values inventory at average cost.
Property, Retirement and Maintenance, and Depreciation, Depletion and Amortization
Property is stated at cost and includes construction-related labor, materials, overheads and AFUDC. The cost of properties retired is charged to accumulated depreciation. Expenditures for maintenance and repairs are charged to expense when incurred, except for Fermi 2.
Utility property is depreciated over its estimated useful life using straight-line rates approved by the MPSC.
Depreciation and amortization expense also includes the amortization of certain regulatory assets.
Approximately $16 million and $26 million of expenses related to Fermi 2 refueling outages were accrued at December 31, 2014 and 2013, respectively. Amounts are accrued on a pro-rata basis, generally over an 18-month period, that coincides with scheduled refueling outages at Fermi 2. This accrual of outage costs matches the regulatory recovery of these costs in rates set by the MPSC. See Note 7 to the Consolidated Financial Statements, "Regulatory Matters".
The cost of nuclear fuel is capitalized. The amortization of nuclear fuel is included within Fuel and purchased power in the Consolidated Statements of Operations and is recorded using the units-of-production method.
Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If the carrying amount of the asset exceeds the expected discounted future cash flows generated by the asset, an impairment loss is recognized resulting in the asset being written down to its estimated fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell.
Intangible Assets
The Company has certain intangible assets relating to emission allowances and renewable energy credits as shown below:
December 31, | |||||||
2014 | 2013 | ||||||
(In millions) | |||||||
Emission allowances | $ | 1 | $ | 2 | |||
Renewable energy credits | 45 | 51 | |||||
46 | 53 | ||||||
Less current intangible assets | 9 | 12 | |||||
$ | 37 | $ | 41 |
Emission allowances and renewable energy credits are charged to expense, using average cost, as the allowances and credits are consumed in the operation of the business.
Excise and Sales Taxes
The Company records the billing of excise and sales taxes as a receivable with an offsetting payable to the applicable taxing authority, with no net impact on the Consolidated Statements of Operations.
Deferred Debt Costs
The costs related to the issuance of long-term debt are deferred and amortized over the life of each debt issue. In accordance with MPSC regulations, the unamortized discount, premium and expense related to debt redeemed with a refinancing are amortized over the life of the replacement issue.
28
DTE Electric Company
Notes to Consolidated Financial Statements — (Continued)
Investments in Debt and Equity Securities
The Company generally classifies investments in debt and equity securities as either trading or available-for-sale and has recorded such investments at market value with unrealized gains or losses included in earnings or in other comprehensive income or loss, respectively. Changes in the fair value of Fermi 2 nuclear decommissioning investments are recorded as adjustments to regulatory assets or liabilities, due to a recovery mechanism from customers. The Company’s equity investments are reviewed for impairment each reporting period. If the assessment indicates that the impairment is other than temporary, a loss is recognized resulting in the equity investment being written down to its estimated fair value. See Note 9 to the Consolidated Financial Statements, "Fair Value".
Stock-Based Compensation
The Company received an allocation of costs from DTE Energy associated with stock-based compensation. Our allocation for 2014, 2013 and 2012 for stock-based compensation expense was approximately $62 million, $58 million and $42 million, respectively.
Government Grants
Grants are recognized when there is reasonable assurance that the grant will be received and that any conditions associated with the grant will be met. When grants are received related to Property, plant and equipment, the Company reduces the cost of the assets on the Consolidated Statements of Financial Position, resulting in lower depreciation expense over the life of the associated asset. Grants received related to expenses are reflected as a reduction of the associated expense in the period in which the expense is incurred.
Other Accounting Policies
See the following notes for other accounting policies impacting the Company’s Consolidated Financial Statements:
Note | Title | |
6 | Asset Retirement Obligations | |
7 | Regulatory Matters | |
8 | Income Taxes | |
9 | Fair Value | |
10 | Financial and Other Derivative Instruments |
NOTE 3 — NEW ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. The objectives of this ASU are to improve upon revenue recognition requirements by providing a single comprehensive model to determine the measurement of revenue and timing of recognition. The core principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. This ASU also requires expanded qualitative and quantitative disclosures regarding the nature, amount, timing, and uncertainty of revenues and cash flows arising from contracts with customers. The revenue standard is effective for the first interim period within annual reporting periods beginning after December 15, 2016 and is to be applied retrospectively. Early adoption is not permitted. The Company is currently assessing the impact of this ASU on its Consolidated Financial Statements.
29
DTE Electric Company
Notes to Consolidated Financial Statements — (Continued)
NOTE 4 — PROPERTY, PLANT AND EQUIPMENT
Summary of property by classification as of December 31:
December 31, | |||||||
2014 | 2013 | ||||||
(In millions) | |||||||
Property, Plant and Equipment | |||||||
Generation | $ | 11,641 | $ | 11,127 | |||
Distribution | 8,164 | 7,603 | |||||
Total | 19,805 | 18,730 | |||||
Less Accumulated Depreciation and Amortization | |||||||
Generation | (4,149 | ) | (4,004 | ) | |||
Distribution | (3,067 | ) | (2,947 | ) | |||
Total | (7,216 | ) | (6,951 | ) | |||
Net Property, Plant and Equipment | $ | 12,589 | $ | 11,779 |
AFUDC capitalized was approximately $32 million and $21 million for the years ended December 31, 2014 and 2013, respectively.
The composite depreciation rate for DTE Electric was approximately 3.4% in 2014 and 2013 and 3.3% in 2012.
The average estimated useful life for our generation and distribution property was 40 years and 41 years, respectively, at December 31, 2014.
Capitalized software costs are classified as Property, plant and equipment and the related amortization is included in Accumulated depreciation and amortization on the Consolidated Statements of Financial Position. The Company capitalizes the costs associated with computer software it develops or obtains for use in its business. The Company amortizes capitalized software costs on a straight-line basis over the expected period of benefit, ranging from 5 to 15 years.
Capitalized software costs amortization expense was $71 million in 2014, $64 million in 2013 and $62 million in 2012. The gross carrying amount and accumulated amortization of capitalized software costs at December 31, 2014 were $590 million and $293 million, respectively. The gross carrying amount and accumulated amortization of capitalized software costs at December 31, 2013 were $521 million and $269 million, respectively.
Gross property under capital leases was $9 million at December 31, 2014 and 2013. Accumulated amortization of property under capital leases was $5 million and $1 million at December 31, 2014 and 2013, respectively.
NOTE 5 — JOINTLY OWNED UTILITY PLANT
DTE Electric has joint ownership interest in two power plants, Belle River and Ludington Hydroelectric Pumped Storage. DTE Electric’s share of direct expenses of the jointly owned plants are included in Fuel and purchased power and Operation and maintenance expenses in the Consolidated Statements of Operations. Ownership information of the two utility plants as of December 31, 2014 was as follows:
Belle River | Ludington Hydroelectric Pumped Storage | ||||||
In-service date | 1984-1985 | 1973 | |||||
Total plant capacity | 1,270 | MW | 1,872 | MW | |||
Ownership interest | (a) | 49 | % | ||||
Investment in property, plant and equipment (in millions) | $ | 1,742 | $ | 412 | |||
Accumulated depreciation (in millions) | $ | 993 | $ | 175 |
_________________________________
(a) | DTE Electric’s ownership interest is 63% in Unit No. 1, 81% of the facilities applicable to Belle River used jointly by the Belle River and St. Clair Power Plants and 75% in common facilities used at Unit No. 2. |
30
DTE Electric Company
Notes to Consolidated Financial Statements — (Continued)
Belle River
The Michigan Public Power Agency (MPPA) has an ownership interest in Belle River Unit No. 1 and other related facilities. The MPPA is entitled to 19% of the total capacity and energy of the plant and is responsible for the same percentage of the plant’s operation, maintenance and capital improvement costs.
Ludington Hydroelectric Pumped Storage
Consumers Energy Company has an ownership interest in the Ludington Hydroelectric Pumped Storage Plant. Consumers Energy is entitled to 51% of the total capacity and energy of the plant and is responsible for the same percentage of the plant’s operation, maintenance and capital improvement costs.
NOTE 6 — ASSET RETIREMENT OBLIGATIONS
The Company has a legal retirement obligation for the decommissioning costs for its Fermi 1 and Fermi 2 nuclear plants, dismantlement of facilities located on leased property and various other operations. The Company has conditional retirement obligations for asbestos and PCB removal at certain of its power plants and various distribution equipment. The Company recognizes such obligations as liabilities at fair market value when they are incurred, which generally is at the time the associated assets are placed in service. Fair value is measured using expected future cash outflows discounted at our credit-adjusted risk-free rate. The Company recognizes regulatory assets or liabilities for timing differences in expense recognition for legal asset retirement costs that are currently recovered in rates.
If a reasonable estimate of fair value cannot be made in the period in which the retirement obligation is incurred, such as for assets with indeterminate lives, the liability is recognized when a reasonable estimate of fair value can be made. Substations, manholes and certain other distribution assets have an indeterminate life. Therefore, no liability has been recorded for these assets.
A reconciliation of the asset retirement obligations for 2014 follows:
(In millions) | |||
Asset retirement obligations at December 31, 2013 | $ | 1,667 | |
Accretion | 103 | ||
Liabilities incurred | 9 | ||
Liabilities settled | (6 | ) | |
Revision in estimated cash flows | 23 | ||
Asset retirement obligations at December 31, 2014 | $ | 1,796 |
Approximately $1.7 billion of the asset retirement obligations represent nuclear decommissioning liabilities that are funded through a surcharge to electric customers over the life of the Fermi 2 nuclear plant. The NRC has jurisdiction over the decommissioning of nuclear power plants and requires minimum decommissioning funding based upon a formula. The MPSC and FERC regulate the recovery of costs of decommissioning nuclear power plants and both require the use of external trust funds to finance the decommissioning of Fermi 2. Rates approved by the MPSC provide for the recovery of decommissioning costs of Fermi 2 and the disposal of low-level radioactive waste. DTE Electric is continuing to fund FERC jurisdictional amounts for decommissioning even though explicit provisions are not included in FERC rates. The Company believes the MPSC and FERC collections will be adequate to fund the estimated cost of decommissioning. The decommissioning assets, anticipated earnings thereon and future revenues from decommissioning collections will be used to decommission Fermi 2. The Company expects the liabilities to be reduced to zero at the conclusion of the decommissioning activities. If amounts remain in the trust funds for Fermi 2 following the completion of the decommissioning activities, those amounts will be disbursed based on rulings by the MPSC and FERC.
A portion of the funds recovered through the Fermi 2 decommissioning surcharge and deposited in external trust accounts is designated for the removal of non-radioactive assets and returning the site to greenfield. This removal and greenfielding is not considered a legal liability. Therefore, it is not included in the asset retirement obligation, but is reflected as the Nuclear decommissioning liability. The decommissioning of Fermi 1 is funded by DTE Electric. Contributions to the Fermi 1 trust are discretionary. See Note 9 to the Consolidated Financial Statements, "Fair Value", for additional discussion of Nuclear decommissioning trust fund assets.
31
DTE Electric Company
Notes to Consolidated Financial Statements — (Continued)
NOTE 7 — REGULATORY MATTERS
Regulation
DTE Electric is subject to the regulatory jurisdiction of the MPSC, which issues orders pertaining to rates, recovery of certain costs, including the costs of generating facilities and regulatory assets, conditions of service, accounting and operating-related matters. DTE Electric is also regulated by the FERC with respect to financing authorization and wholesale electric activities. Regulation results in differences in the application of generally accepted accounting principles between regulated and non-regulated businesses.
The Company is unable to predict the outcome of the unresolved regulatory matters discussed herein. Resolution of these matters is dependent upon future MPSC orders and appeals, which may materially impact the financial position, results of operations and cash flows of the Company.
Regulatory Assets and Liabilities
DTE Electric is required to record regulatory assets and liabilities for certain transactions that would have been treated as revenue or expense in non-regulated businesses. Continued applicability of regulatory accounting treatment requires that rates be designed to recover specific costs of providing regulated services and be charged to and collected from customers. Future regulatory changes or changes in the competitive environment could result in the discontinuance of this accounting treatment for regulatory assets and liabilities for some or all of our businesses and may require the write-off of the portion of any regulatory asset or liability that was no longer probable of recovery through regulated rates. Management believes that currently available facts support the continued use of regulatory assets and liabilities and that all regulatory assets and liabilities are recoverable or refundable in the current regulatory environment.
The following are balances and a brief description of the regulatory assets and liabilities at December 31:
2014 | 2013 | ||||||
(In millions) | |||||||
Assets | |||||||
Recoverable pension and other postretirement costs: | |||||||
Pension | $ | 1,743 | $ | 1,257 | |||
Other postretirement costs | 191 | — | |||||
Asset retirement obligation | 448 | 394 | |||||
Recoverable Michigan income taxes | 220 | 237 | |||||
Other recoverable income taxes | 66 | 71 | |||||
Cost to achieve Performance Excellence Process | 46 | 64 | |||||
Unamortized loss on reacquired debt | 44 | 38 | |||||
Accrued PSCR revenue | 34 | — | |||||
Recoverable income taxes related to securitized regulatory assets | 19 | 126 | |||||
Removal costs asset | 15 | — | |||||
Transitional Reconciliation Mechanism | 14 | — | |||||
Other | 119 | 101 | |||||
2,959 | 2,288 | ||||||
Less amount included in current assets | (46 | ) | (13 | ) | |||
$ | 2,913 | $ | 2,275 | ||||
Securitized regulatory assets | $ | 34 | $ | 231 |
32
DTE Electric Company
Notes to Consolidated Financial Statements — (Continued)
2014 | 2013 | ||||||
(In millions) | |||||||
Liabilities | |||||||
Renewable energy | $ | 227 | $ | 277 | |||
Over recovery of Securitization | 71 | 72 | |||||
Refundable revenue decoupling / deferred gain | 63 | 127 | |||||
Fermi 2 refueling outage | 16 | 26 | |||||
Energy optimization | 14 | 25 | |||||
Accrued PSCR refund | — | 53 | |||||
Refundable other postretirement costs | — | 48 | |||||
Removal costs liability | — | 33 | |||||
Other | 4 | 3 | |||||
395 | 664 | ||||||
Less amount included in current liabilities | (150 | ) | (278 | ) | |||
$ | 245 | $ | 386 |
As noted below, regulatory assets for which costs have been incurred have been included (or are expected to be included, for costs incurred subsequent to the most recently approved rate case) in DTE Electric's rate base, thereby providing a return on invested costs (except as noted). Certain other regulatory assets are not included in rate base but accrue recoverable carrying charges until surcharges to collect the assets are billed. Certain regulatory assets do not result from cash expenditures and therefore do not represent investments included in rate base or have offsetting liabilities that reduce rate base.
ASSETS
• | Recoverable pension and other postretirement costs — Accounting rules for pension and other postretirement benefit costs require, among other things, the recognition in other comprehensive income of the actuarial gains or losses and the prior service costs that arise during the period but that are not immediately recognized as components of net periodic benefit costs. The Company records the impact of actuarial gains and losses and prior service costs as a regulatory asset since the traditional rate setting process allows for the recovery of pension and other postretirement costs. The asset will reverse as the deferred items are amortized and recognized as components of net periodic benefit costs. (a) |
• | Asset retirement obligation — This obligation is primarily for Fermi 2 decommissioning costs. The asset captures the timing differences between expense recognition and current recovery in rates and will reverse over the remaining life of the related plant. (a) |
• | Recoverable Michigan income taxes — In July 2007, the MBT was enacted by the State of Michigan. A State deferred tax liability was established, and an offsetting regulatory asset was recorded as the impact of the deferred tax liability will be reflected in rates as the related taxable temporary difference reverses and flows through current income tax expense. In May 2011, the MBT was repealed and the MCIT was enacted. The regulatory asset was remeasured to reflect the impact of the MCIT tax rate. (a) |
• | Other recoverable income taxes — Income taxes receivable from DTE Electric customers representing the difference in property-related deferred income taxes and amounts previously reflected in DTE Electric's rates. This asset will reverse over the remaining life of the related plant. (a) |
• | Cost to achieve Performance Excellence Process (PEP) — The MPSC authorized the deferral of costs to implement the PEP. These costs consist of employee severance, project management and consultant support. These costs are amortized over a ten-year period beginning with the year subsequent to the year the costs were deferred. |
• | Unamortized loss on reacquired debt — The unamortized discount, premium and expense related to debt redeemed with a refinancing are deferred, amortized and recovered over the life of the replacement issue. |
• | Accrued PSCR revenue — Receivable for the temporary under-recovery of and carrying costs on fuel and purchased power costs incurred by DTE Electric which are recoverable through the PSCR mechanism. |
• | Recoverable income taxes related to securitized regulatory assets — Receivable for the recovery of income taxes to be paid on the non-bypassable securitization bond surcharge. A non-bypassable securitization tax surcharge, which ended in December 2014, was in place to recover the income tax over a fourteen-year period. (a) |
33
DTE Electric Company
Notes to Consolidated Financial Statements — (Continued)
• | Removal costs asset — Receivable for the recovery of asset removal expenditures in excess of amounts collected from customers. |
• | Transitional Reconciliation Mechanism (TRM) — The MPSC approved the recovery of the deferred net incremental revenue requirement associated with the transition of PLD customers to DTE Electric's distribution system, effective July 1, 2014. Annual reconciliations will be filed and surcharges will be implemented to recover approved amounts. (a) |
• | Securitized regulatory assets — The net book balance of the Fermi 2 nuclear plant was written off in 1998 and an equivalent regulatory asset was established. In 2001, the Fermi 2 regulatory asset and certain other regulatory assets were securitized pursuant to PA 142 and an MPSC order. A non-bypassable securitization bond surcharge, which ended in December 2014, was in place to recover the securitized regulatory asset over a fourteen-year period. |
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(a) | Regulatory assets not earning a return or accruing carrying charges. |
LIABILITIES
• | Renewable energy — Amounts collected in rates in excess of renewable energy expenditures. |
• | Over recovery of Securitization — Over recovery of securitization bond expenses. |
• | Refundable revenue decoupling / deferred gain — Amounts were originally accrued as refundable to DTE Electric customers for the change in revenue resulting from the difference between actual average sales per customer compared to the base level of average sales per customer established by the MPSC. In 2012, the Michigan Court of Appeals issued a decision reversing the MPSC's decision to authorize a RDM for DTE Electric. The revenue decoupling liability was reversed and, after receiving an order from the MPSC to defer the resulting gain for future amortization, DTE Electric created a regulatory liability representing its obligation to refund the gain. The deferred gain is being amortized into earnings in 2014 and 2015. |
• | Fermi 2 refueling outage — Accrued liability for refueling outage at Fermi 2 pursuant to MPSC authorization. |
• | Energy optimization (EO) — Amounts collected in rates in excess of energy optimization expenditures. |
• | Accrued PSCR refund — Liability for the temporary over-recovery of and a return on power supply costs and transmission costs incurred by DTE Electric which are recoverable through the PSCR mechanism. |
• | Refundable other postretirement costs — Accounting rules for other postretirement benefit costs require, among other things, the recognition in other comprehensive income of the actuarial gains or losses and the prior service costs or credits that arise during the period but that are not immediately recognized as components of net periodic benefit costs. DTE Electric records the favorable impact of actuarial gains or losses and prior service credits as a regulatory liability since the impact will reduce expense in a future rate setting process as the deferred items are recognized as a component of net periodic benefit costs. |
• | Removal costs liability — The amount collected from customers for the funding of future asset removal activities. |
2014 Electric Rate Case Filing
DTE Electric filed a rate case with the MPSC on December 19, 2014 requesting an increase in base rates of $370 million based on a projected twelve-month period ending June 30, 2016. The requested in base rates is due primarily to an increase in net plant resulting from infrastructure investments, plant acquisitions, environmental compliance and reliability improvement projects. The rate filing also included projected changes in sales, working capital, operation and maintenance expenses, return on equity and capital structure. New rates could be self-implemented in July 2015, with a final order expected in December 2015.
34
DTE Electric Company
Notes to Consolidated Financial Statements — (Continued)
2010 Electric Rate Case Filing - Court of Appeals Decision
In July 2013, the MCOA issued a decision relating to an appeal of the October 2011 MPSC order in DTE Electric's October 2010 rate case filing. The MCOA found that the record of evidence in the 2010 rate case order was insufficient to support the MPSC's authorization to recover costs for the AMI program and remanded this matter to the MPSC. The MPSC had approved an approximately $11 million rate increase related to the AMI program in the October 2011 order. DTE Electric is currently operating its AMI program pursuant to the MPSC's approval set forth in the October 2011 order. In August 2013, the MPSC reopened the 2010 electric rate case for the limited purpose of addressing the MCOA's opinion on AMI. On November 6, 2014, the MPSC issued an order affirming the recovery of costs associated with the AMI program.
Customer360 Accounting Authority
In July 2014, DTE Electric filed an application for accounting authority to defer certain costs associated with implementing Customer360, which is an integrated software application that enables improved interface among customer service, billing, meter reading, credit and collections, device management, account management, and retail access. The estimated implementation cost of Customer360 is approximately $215 million and DTE Electric proposed an amortization period of 15 years. On September 26, 2014, the MPSC approved the accounting request.
Refundable Revenue Decoupling / Deferred Gain Amortization
In September 2012, the MPSC approved DTE Electric's accounting application to defer for future amortization the gain resulting from the reversal of the Company's $127 million regulatory liability associated with the operation of the RDM. The approved application provided for the amortization of the regulatory liability to income, at a monthly rate of approximately $10.6 million, beginning January 2014. On April 1, 2014, the MPSC approved DTE Electric's accounting application to suspend the amortization of the RDM regulatory liability as of June 30, 2014 and to complete the amortization over the period January 2015 to June 2015. If DTE Electric's base rates are increased prior to July 1, 2015, the Company will cease amortization and refund to customers the remaining unamortized balance of the regulatory liability.
Transition of PLD Customers to DTE Electric's Distribution System
On July 19, 2013, DTE Electric filed its TRM application proposing a transitional tariff option for certain former PLD customers and a modified line extension provision. The application also proposed a recovery mechanism for the deferred net incremental revenue requirement associated with the transition. The net incremental revenue requirement includes costs to install meters and attach customers; system and customer facility upgrades and repairs; and the difference between DTE Electric's tariff rates and any transitional rates approved in the future. On May 13, 2014, the MPSC approved the TRM as requested and also ordered DTE Electric to include in the TRM the PLD transmission delivery service costs incurred while DTE Electric is temporarily relying upon PLD to operate and maintain PLD's system during the system conversion period. The meter installation phase of the transition was completed in June 2014. On July 1, 2014, former PLD customers became customers of DTE Electric.
PSCR Proceedings
The PSCR process is designed to allow DTE Electric to recover all of its power supply costs if incurred under reasonable and prudent policies and practices. DTE Electric's power supply costs include fuel and related transportation costs, purchased and net interchange power costs, nitrogen oxide and sulfur dioxide emission allowances costs, urea costs, transmission costs and MISO costs. The MPSC reviews these costs, policies and practices for prudence in annual plan and reconciliation filings.
2012 PSCR Year — In March 2013, DTE Electric filed the 2012 PSCR reconciliation calculating a net under-recovery of approximately $87 million that includes an under-recovery of approximately $148 million for the 2011 PSCR year. The reconciliation includes purchased power costs related to the manual shutdown of our Fermi 2 nuclear power plant in June 2012 caused by the failure of one of the plant's two non-safety related feed-water pumps. The plant was restarted on July 30, 2012, which restored production to approximately 68% of full capacity. In September 2013, the repair to the plant was completed and production was returned to full capacity. DTE Electric was able to purchase sufficient power from MISO to continue to provide uninterrupted service to our customers. Certain intervenors in the reconciliation case have challenged the recovery of up to $32 million of the Fermi 2 related purchased power costs. Resolution of this matter is expected in 2015.
35
DTE Electric Company
Notes to Consolidated Financial Statements — (Continued)
NOTE 8 — INCOME TAXES
Income Tax Summary
We are part of the consolidated federal income tax return of DTE Energy. The federal income tax expense for DTE Electric is determined on an individual company basis with no allocation of tax expenses or benefits from other affiliates of DTE Energy. We had an income tax receivable from DTE Energy of $29 million and $23 million at December 31, 2014 and 2013, respectively.
Total income tax expense varied from the statutory federal income tax rate for the following reasons:
Year Ended December 31, | |||||||||||
2014 | 2013 | 2012 | |||||||||
(In millions) | |||||||||||
Income before income taxes | $ | 830 | $ | 741 | $ | 768 | |||||
Income tax expense at 35% statutory rate | $ | 291 | $ | 260 | $ | 269 | |||||
Production tax credits | (22 | ) | (15 | ) | (5 | ) | |||||
Investment tax credits | (5 | ) | (5 | ) | (6 | ) | |||||
Depreciation | 3 | 3 | 3 | ||||||||
AFUDC - Equity | (7 | ) | (5 | ) | (4 | ) | |||||
Employee Stock Ownership Plan dividends | (3 | ) | (2 | ) | (3 | ) | |||||
Domestic production activities deduction | (2 | ) | (18 | ) | (16 | ) | |||||
State and other income taxes, net of federal benefit | 43 | 41 | 40 | ||||||||
Other, net | — | (5 | ) | 4 | |||||||
Income tax expense | $ | 298 | $ | 254 | $ | 282 | |||||
Effective income tax rate | 35.9 | % | 34.3 | % | 36.7 | % |
Components of income tax expense were as follows:
Year Ended December 31, | |||||||||||
2014 | 2013 | 2012 | |||||||||
(In millions) | |||||||||||
Current income tax expense (benefit) | |||||||||||
Federal | $ | (19 | ) | $ | 123 | $ | 267 | ||||
State and other income tax | 20 | 23 | 67 | ||||||||
Total current income taxes | 1 | 146 | 334 | ||||||||
Deferred income tax expense (benefit) | |||||||||||
Federal | 251 | 68 | (47 | ) | |||||||
State and other income tax | 46 | 40 | (5 | ) | |||||||
Total deferred income taxes | 297 | 108 | (52 | ) | |||||||
Total | $ | 298 | $ | 254 | $ | 282 |
Deferred tax assets and liabilities are recognized for the estimated future tax effect of temporary differences between the tax basis of assets or liabilities and the reported amounts in the financial statements. Deferred tax assets and liabilities are classified as current or noncurrent according to the classification of the related assets or liabilities. Deferred tax assets and liabilities not related to assets or liabilities are classified according to the expected reversal date of the temporary differences. Consistent with rate making treatment, deferred taxes are offset in the table below for temporary differences which have related regulatory assets and liabilities.
36
DTE Electric Company
Notes to Consolidated Financial Statements — (Continued)
Deferred tax assets (liabilities) were comprised of the following at December 31:
2014 | 2013 | ||||||
(In millions) | |||||||
Property, plant and equipment | $ | (3,152 | ) | $ | (2,807 | ) | |
Securitized regulatory assets | (3 | ) | (130 | ) | |||
Pension and benefits | (43 | ) | 27 | ||||
Other | 12 | 12 | |||||
$ | (3,186 | ) | $ | (2,898 | ) | ||
Current deferred income tax assets (liabilities) | $ | 2 | $ | (91 | ) | ||
Long-term deferred income tax liabilities | (3,188 | ) | (2,807 | ) | |||
$ | (3,186 | ) | $ | (2,898 | ) | ||
Deferred income tax assets |