Attached files

file filename
EX-4.292 - SUPPLEMENTAL INDENTURE, DATED AS OF AUGUST 1, 2015 - DTE ENERGY COa20150930ex4292.htm
EX-31.105 - CHIEF EXECUTIVE OFFICER SECTION 302 FORM 10-Q CERTIFICATION - DTE ENERGY - DTE ENERGY COa20150930ex31105.htm
EX-99.59 - 5TH AMENDMENT TO AMENDMENT AND RESTATEMENT OF MASTER TRUST AGRMT - DTE ENERGY COa20150930ex99591.htm
EX-32.106 - CHIEF FINANCIAL OFFICER SECTION 906 FORM 10-Q CERTIFICATION - DTE ENERGY - DTE ENERGY COa20150930ex32106.htm
EX-31.107 - CHIEF EXECUTIVE OFFICER SECTION 302 FORM 10-Q CERTIFICATION - DTE ELECTRIC - DTE ENERGY COa20150930ex31107.htm
EX-12.64 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - DTE ELECTRIC - DTE ENERGY COa20150930ex1264.htm
EX-32.107 - CHIEF EXECUTIVE OFFICER SECTION 906 FORM 10-Q CERTIFICATION - DTE ELECTRIC - DTE ENERGY COa20150930ex32107.htm
EX-32.108 - CHIEF FINANCIAL OFFICER SECTION 906 FORM 10-Q CERTIFICATION - DTE ELECTRIC - DTE ENERGY COa20150930ex32108.htm
EX-99.58 - 4TH AMENDMENT TO AMENDMENT AND RESTATEMENT OF MASTER TRUST AGRMT - DTE ENERGY COa20150930ex99581.htm
EX-31.108 - CHIEF FINANCIAL OFFICER SECTION 302 FORM 10-Q CERTIFICATION - DTE ELECTRIC - DTE ENERGY COa20150930ex31108.htm
EX-32.105 - CHIEF EXECUTIVE OFFICER SECTION 906 FORM 10-Q CERTIFICATION - DTE ENERGY - DTE ENERGY COa20150930ex32105.htm
EX-31.106 - CHIEF FINANCIAL OFFICER SECTION 302 FORM 10-Q CERTIFICATION - DTE ENERGY - DTE ENERGY COa20150930ex31106.htm


 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended September 30, 2015
Commission File Number
 
Registrants; State of Incorporation; Address; and Telephone Number
 
I.R.S. Employer Identification No.
1-11607
 
DTE Energy Company
(a Michigan corporation)
One Energy Plaza
Detroit, Michigan 48226-1279
313-235-4000
 
38-3217752
 
 
 
 
 
1-2198
 
DTE Electric Company
(a Michigan corporation)
One Energy Plaza
Detroit, Michigan 48226-1279
313-235-4000
 
38-0478650
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.
DTE Energy Company (DTE Energy)    Yes x No o            DTE Electric Company (DTE Electric)    Yes x 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).
DTE Energy                Yes x No o            DTE Electric                Yes x No o
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.
DTE Energy
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
 
 
(Do not check if a smaller
reporting company)
 
DTE Electric
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x
Smaller reporting company o
 
 
 
(Do not check if a smaller
reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
DTE Energy                Yes o No x            DTE Electric                Yes o No x
Number of shares of Common Stock outstanding at September 30, 2015:
Registrant
 
Description
 
Shares
DTE Energy
 
Common Stock, without par value
 
179,475,625

 
 
 
 
 
DTE Electric
 
Common Stock, $10 par value, directly owned by DTE Energy
 
138,632,324

This combined Form 10-Q is filed separately by two registrants: DTE Energy and DTE Electric. Information contained herein relating to an individual registrant is filed by such registrant solely on its behalf. DTE Electric makes no representation as to information relating exclusively to DTE Energy.
DTE Electric, a wholly owned subsidiary of DTE Energy, meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format specified in General Instructions H(2) of Form 10-Q.
 




TABLE OF CONTENTS

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




DEFINITIONS

ARO
Asset Retirement Obligation
 
 
ASU
Accounting Standards Update issued by the FASB
 
 
CFTC
U.S. Commodity Futures Trading Commission
 
 
DOE
U.S. Department of Energy
 
 
DTE Electric
DTE Electric Company (a direct wholly owned subsidiary of DTE Energy) and subsidiary companies
 
 
DTE Energy
DTE Energy Company, directly or indirectly the parent of DTE Electric, DTE Gas, and numerous non-utility subsidiaries
 
 
DTE Gas
DTE Gas Company (an indirect wholly owned subsidiary of DTE Energy) and subsidiary companies
 
 
EPA
U.S. 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.
 
 
GCR
A Gas Cost Recovery mechanism authorized by the MPSC that allows DTE Gas to recover through rates its natural gas costs
 
 
MDEQ
Michigan Department of Environmental Quality
 
 
MGP
Manufactured Gas Plant
 
 
MPSC
Michigan Public Service Commission
 
 
MTM
Mark-to-market
 
 
NAV
Net Asset Value
 
 
NEIL
Nuclear Electric Insurance Limited
 
 
NEXUS
NEXUS Gas Transmission, LLC
 
 
Non-utility
An entity that is not a public utility. Its conditions of service, prices of goods and services, and other operating related matters are not directly regulated by the MPSC.
 
 
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
 
 
REF
Reduced Emissions Fuel
 
 
Registrant(s)
DTE Energy and DTE Electric
 
 
Retail access
Michigan legislation provided customers the option of access to alternative suppliers for electricity and natural gas
 
 
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
 
 

1



DEFINITIONS

TRIA
Terrorism Risk Insurance Program Reauthorization Act of 2015
 
 
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
 
 
 
Bcf
Billion cubic feet of natural gas
 
 
BTU
Heat value (energy content) of fuel
 
 
kWh
Kilowatthour of electricity
 
 
MMBtu
One million BTU
 
 
MW
Megawatt of electricity
 
 
MWh
Megawatthour of electricity


2


FILING FORMAT
This combined Form 10-Q is separately filed by DTE Energy and DTE Electric. Information in this combined Form 10-Q relating to each individual Registrant is filed by such Registrant on its own behalf. DTE Electric makes no representation regarding information relating to any other companies affiliated with DTE Energy other than its own subsidiaries. Neither DTE Energy, nor any of DTE Energy’s other subsidiaries (other than DTE Electric), has any obligation in respect of DTE Electric's debt securities and holders of such debt securities should not consider the financial resources or results of operations of DTE Energy nor any of DTE Energy’s other subsidiaries (other than DTE Electric and its own subsidiaries (in relevant circumstances)) in making a decision with respect to DTE Electric's debt securities. Similarly, none of DTE Electric nor any other subsidiary of DTE Energy has any obligation in respect of debt securities of DTE Energy. This combined Form 10-Q should be read in its entirety. No one section of this combined Form 10-Q deals with all aspects of the subject matter of this combined Form 10-Q. This combined Form 10-Q report should be read in conjunction with the separately filed Consolidated Financial Statements and Notes to Consolidated Financial Statements and with Management's Discussion and Analysis included in DTE Energy's 2014 Annual Report on Form 10-K and DTE Electric's 2014 Annual Report on Form 10-K.

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 the Registrants. 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 of the Registrants including, but not limited to, the following:
impact of regulation by the EPA, FERC, MPSC, NRC, and CFTC, as well as 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 the Registrants' geographic area resulting in changes in demand, customer conservation, and thefts of electricity and, for DTE Energy, natural gas;
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, purchased power, and natural gas;
the potential for losses on investments, including nuclear decommissioning and benefit plan assets and the related increases in future expense and contributions;
volatility in the short-term natural gas storage markets impacting third-party storage revenues related to DTE Energy;
volatility in commodity markets, deviations in weather, and related risks impacting the results of DTE Energy's energy trading operations;
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;

3



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 and, for DTE Energy, a gas storage, transmission or distribution 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 the Registrants' public filings with the Securities and Exchange Commission.
New factors emerge from time to time. The Registrants cannot predict what factors may arise or how such factors may cause 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. The Registrants 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.


4


















THIS PAGE INTENTIONALLY LEFT BLANK

5




Part I — Financial Information

Item 1. Financial Statements

DTE Energy Company

Consolidated Statements of Operations (Unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(In millions, except per share amounts)
Operating Revenues
$
2,598

 
$
2,595

 
$
7,850

 
$
9,223

 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 

 
 

Fuel, purchased power, and gas
1,053

 
1,119

 
3,393

 
4,550

Operation and maintenance
817

 
860

 
2,436

 
2,512

Depreciation and amortization
196

 
293

 
625

 
855

Taxes other than income
91

 
86

 
282

 
268

Asset (gains) losses and impairments, net
1

 
(2
)
 
9

 
(10
)
 
2,158

 
2,356

 
6,745

 
8,175

Operating Income
440

 
239

 
1,105

 
1,048

 
 
 
 
 
 
 
 
Other (Income) and Deductions
 
 
 
 
 

 
 

Interest expense
116

 
107

 
341

 
323

Interest income
(4
)
 
(2
)
 
(10
)
 
(7
)
Other income
(55
)
 
(55
)
 
(155
)
 
(136
)
Other expenses
17

 
11

 
36

 
29

 
74

 
61

 
212

 
209

Income Before Income Taxes
366

 
178

 
893

 
839

 
 
 
 
 
 
 
 
Income Tax Expense
102

 
21

 
250

 
229

 
 
 
 
 
 
 
 
Net Income
264

 
157

 
643

 
610

 
 
 
 
 
 
 
 
Less: Net Income (Loss) Attributable to Noncontrolling Interests
(1
)
 
1

 
(4
)
 
4

 
 
 
 
 
 
 
 
Net Income Attributable to DTE Energy Company
$
265

 
$
156

 
$
647

 
$
606

 
 
 
 
 
 
 
 
Basic Earnings per Common Share
 
 
 
 
 
 
 
Net Income Attributable to DTE Energy Company
$
1.47

 
$
0.88

 
$
3.61

 
$
3.42

 
 
 
 
 
 
 
 
Diluted Earnings per Common Share
 
 
 
 
 
 
 
Net Income Attributable to DTE Energy Company
$
1.47

 
$
0.88

 
$
3.61

 
$
3.42

 
 
 
 
 
 
 
 
Weighted Average Common Shares Outstanding
 
 
 
 
 

 
 

Basic
179

 
177

 
179

 
177

Diluted
180

 
177

 
179

 
177

Dividends Declared per Common Share
$
0.73

 
$
0.69

 
$
2.11

 
$
2.00


See Combined Notes to Consolidated Financial Statements (Unaudited)

6



DTE Energy Company

Consolidated Statements of Comprehensive Income (Unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(In millions)
Net Income
$
264

 
$
157

 
$
643

 
$
610

 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Benefit obligations, net of taxes of $2, $1, $6, and $2, respectively
3

 
2

 
9

 
3

Net unrealized gains on investments during the period, net of taxes of $—, $—, $—, and $—, respectively

 

 

 
1

Foreign currency translation
(2
)
 
(1
)
 
(4
)
 
(1
)
Other comprehensive income
1

 
1

 
5

 
3

 
 
 
 
 
 
 
 
Comprehensive income
265

 
158

 
648

 
613

Less comprehensive income (loss) attributable to noncontrolling interests
(1
)
 
1

 
(4
)
 
4

Comprehensive income attributable to DTE Energy Company
$
266

 
$
157

 
$
652

 
$
609


See Combined Notes to Consolidated Financial Statements (Unaudited)

7



DTE Energy Company

Consolidated Statements of Financial Position (Unaudited)

 
September 30,
 
December 31,
 
2015
 
2014
 
(In millions)
ASSETS
Current Assets
 
 
 
Cash and cash equivalents
$
67

 
$
48

Restricted cash
21

 
120

Accounts receivable (less allowance for doubtful accounts of $56 and $54, respectively)
 
 
 
Customer
1,242

 
1,504

Other
79

 
94

Inventories
 
 
 
Fuel and gas
533

 
512

Materials and supplies
307

 
292

Derivative assets
90

 
128

Regulatory assets
15

 
76

Other
346

 
313

 
2,700

 
3,087

Investments
 
 
 
Nuclear decommissioning trust funds
1,199

 
1,241

Other
684

 
628

 
1,883

 
1,869

Property
 
 
 
Property, plant, and equipment
28,014

 
26,538

Less accumulated depreciation and amortization
(10,147
)
 
(9,718
)
 
17,867

 
16,820

Other Assets
 
 
 
Goodwill
2,018

 
2,018

Regulatory assets
3,719

 
3,651

Securitized regulatory assets

 
34

Intangible assets
89

 
102

Notes receivable
82

 
90

Derivative assets
48

 
44

Other
248

 
259

 
6,204

 
6,198

Total Assets
$
28,654

 
$
27,974


See Combined Notes to Consolidated Financial Statements (Unaudited)

8



DTE Energy Company

Consolidated Statements of Financial Position (Unaudited) — (Continued)

 
September 30,
 
December 31,
 
2015
 
2014
 
(In millions, except shares)
LIABILITIES AND EQUITY
Current Liabilities
 
 
 
Accounts payable
$
835

 
$
973

Accrued interest
119

 
86

Dividends payable
131

 
122

Short-term borrowings
185

 
398

Current portion long-term debt, including capital leases
468

 
274

Derivative liabilities
56

 
77

Regulatory liabilities
67

 
153

Other
412

 
494

 
2,273

 
2,577

Long-Term Debt (net of current portion)
 
 
 
Mortgage bonds, notes, and other
8,368

 
7,860

Junior subordinated debentures
480

 
480

Capital lease obligations
8

 
3

 
8,856

 
8,343

Other Liabilities
 

 
 

Deferred income taxes
4,022

 
3,776

Regulatory liabilities
598

 
667

Asset retirement obligations
2,180

 
1,962

Unamortized investment tax credit
50

 
41

Derivative liabilities
27

 
8

Accrued pension liability
1,120

 
1,280

Accrued postretirement liability
302

 
515

Nuclear decommissioning
174

 
182

Other
219

 
281

 
8,692

 
8,712

Commitments and Contingencies (Notes 6 and 12)
 
 
 



 


Equity
 
 
 
Common stock, without par value, 400,000,000 shares authorized, and 179,475,625 and 176,991,231 shares issued and outstanding, respectively
4,117

 
3,904

Retained earnings
4,845

 
4,578

Accumulated other comprehensive loss
(150
)
 
(155
)
Total DTE Energy Company Equity
8,812

 
8,327

Noncontrolling interests
21

 
15

Total Equity
8,833

 
8,342

Total Liabilities and Equity
$
28,654

 
$
27,974


See Combined Notes to Consolidated Financial Statements (Unaudited)

9



DTE Energy Company

Consolidated Statements of Cash Flows (Unaudited)

 
Nine Months Ended September 30,
 
2015
 
2014
 
(In millions)
Operating Activities
 
 
 
Net Income
$
643

 
$
610

Adjustments to reconcile Net Income to net cash from operating activities:
 
 
 
Depreciation and amortization
625

 
855

Nuclear fuel amortization
40

 
33

Allowance for equity funds used during construction
(16
)
 
(16
)
Deferred income taxes
251

 
244

Asset (gains) losses and impairments, net
9

 
(10
)
Changes in assets and liabilities:
 
 
 
Accounts receivable, net
277

 
273

Inventories
(36
)
 
(165
)
Accounts payable
(125
)
 
48

Accrued pension obligation
(160
)
 
(154
)
Accrued postretirement obligation
(213
)
 
(64
)
Derivative assets and liabilities
32

 
(56
)
Regulatory assets and liabilities
35

 
(211
)
Other current and noncurrent assets and liabilities
106

 
(89
)
Net cash from operating activities
1,468

 
1,298

Investing Activities
 
 
 
Plant and equipment expenditures — utility
(1,239
)
 
(1,295
)
Plant and equipment expenditures — non-utility
(162
)
 
(207
)
Acquisition
(241
)
 

Proceeds from sale of assets
16

 
36

Restricted cash for debt redemption, principally Securitization
99

 
62

Proceeds from sale of nuclear decommissioning trust fund assets
627

 
652

Investment in nuclear decommissioning trust funds
(638
)
 
(665
)
Other
(34
)
 
(40
)
Net cash used for investing activities
(1,572
)
 
(1,457
)
Financing Activities
 
 
 
Issuance of long-term debt, net of issuance costs
956

 
1,289

Redemption of long-term debt
(260
)
 
(1,222
)
Short-term borrowings, net
(213
)
 
522

Issuance of common stock
9

 

Repurchase of common stock

 
(52
)
Dividends on common stock
(370
)
 
(348
)
Other
1

 
(22
)
Net cash from financing activities
123

 
167

Net Increase in Cash and Cash Equivalents
19

 
8

Cash and Cash Equivalents at Beginning of Period
48

 
52

Cash and Cash Equivalents at End of Period
$
67

 
$
60

 
 
 
 
Supplemental disclosure of non-cash investing and financing activities
 
 
 
Plant and equipment expenditures in accounts payable
$
185

 
$
192


See Combined Notes to Consolidated Financial Statements (Unaudited)

10



DTE Energy Company

Consolidated Statements of Changes in Equity (Unaudited)

 
 
 
 
 
 
 
Accumulated
Other Comprehensive Income (Loss)
 
Non-Controlling Interests
 
 
 
Common Stock
 
Retained Earnings
 
 
 
 
 
Shares
 
Amount
 
 
 
 
Total
 
(Dollars in millions, shares in thousands)
Balance, December 31, 2014
176,991

 
$
3,904

 
$
4,578

 
$
(155
)
 
$
15

 
$
8,342

Net Income (Loss)

 

 
647

 

 
(4
)
 
643

Dividends declared on common stock

 

 
(379
)
 

 

 
(379
)
Issuance of common stock
105

 
9

 

 

 

 
9

Contribution of common stock to VEBA Trust
1,428

 
117

 

 

 

 
117

Benefit obligations, net of tax

 

 

 
9

 

 
9

Foreign currency translation

 

 

 
(4
)
 

 
(4
)
Stock-based compensation, contributions, and distributions to noncontrolling interests and other
952

 
87

 
(1
)
 

 
10

 
96

Balance, September 30, 2015
179,476

 
$
4,117

 
$
4,845

 
$
(150
)
 
$
21

 
$
8,833


See Combined Notes to Consolidated Financial Statements (Unaudited)

11



DTE Electric Company

Consolidated Statements of Operations (Unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(In millions)
Operating Revenues
$
1,385

 
$
1,357

 
$
3,735

 
$
4,048

 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
Fuel and purchased power
441

 
430

 
1,212

 
1,328

Operation and maintenance
330

 
351

 
966

 
1,022

Depreciation and amortization
141

 
238

 
461

 
695

Taxes other than income
73

 
66

 
214

 
202

Asset (gains) losses and impairments, net

 

 

 
(1
)
 
985

 
1,085

 
2,853

 
3,246

Operating Income
400

 
272

 
882

 
802

 
 
 
 
 
 
 
 
Other (Income) and Deductions
 
 
 
 
 
 
 
Interest expense
66

 
65

 
196

 
189

Other income
(14
)
 
(15
)
 
(42
)
 
(45
)
Other expenses
15

 
11

 
32

 
26

 
67

 
61

 
186

 
170

Income Before Income Taxes
333

 
211

 
696

 
632

 
 
 
 
 
 
 
 
Income Tax Expense
117

 
75

 
244

 
229

 
 
 
 
 
 
 
 
Net Income
$
216

 
$
136

 
$
452

 
$
403


See Combined Notes to Consolidated Financial Statements (Unaudited)

12



DTE Electric Company

Consolidated Statements of Comprehensive Income (Unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(In millions)
Net Income
$
216

 
$
136

 
$
452

 
$
403

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Transfer of benefit obligations, net of taxes of $—, $—, $18, and $—, respectively

 

 
28

 

Benefit obligations, net of taxes of $—, $—, $—, and $—, respectively

 
1

 

 

Comprehensive income
$
216

 
$
137

 
$
480

 
$
403


See Combined Notes to Consolidated Financial Statements (Unaudited)

13



DTE Electric Company

Consolidated Statements of Financial Position (Unaudited)

 
September 30,
 
December 31,
 
2015
 
2014
 
(In millions)
ASSETS
Current Assets
 
 
 
Cash and cash equivalents
$
29

 
$
14

Restricted cash, principally Securitization

 
96

Accounts receivable (less allowance for doubtful accounts of $29, for both periods)
 
 
 
Customer
730

 
688

Affiliates
69

 
31

Other
38

 
15

Inventories
 
 
 
Fuel
267

 
269

Materials and supplies
250

 
231

Notes receivable
 

 
 

Affiliates
4

 
8

Other
6

 
8

Regulatory assets
3

 
46

Prepaid property tax
96

 
44

Other
27

 
31

 
1,519

 
1,481

Investments
 
 
 
Nuclear decommissioning trust funds
1,199

 
1,241

Other
34

 
172

 
1,233

 
1,413

Property
 
 
 
Property, plant, and equipment
21,045

 
19,805

Less accumulated depreciation and amortization
(7,586
)
 
(7,216
)
 
13,459

 
12,589

Other Assets
 
 
 
Regulatory assets
3,002

 
2,913

Securitized regulatory assets

 
34

Intangible assets
39

 
37

Other
171

 
182

 
3,212

 
3,166

Total Assets
$
19,423

 
$
18,649


See Combined Notes to Consolidated Financial Statements (Unaudited)

14



DTE Electric Company

Consolidated Statements of Financial Position (Unaudited) — (Continued)

 
September 30,
 
December 31,
 
2015
 
2014
 
(In millions, except shares)
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
 
 
 
Accounts payable
 
 
 
Affiliates
$
41

 
$
60

Other
360

 
366

Accrued interest
68

 
58

Current portion long-term debt, including capital leases
153

 
118

Regulatory liabilities
36

 
150

Short-term borrowings
 
 
 
Affiliates
68

 
84

Other
46

 
50

Other
159

 
151

 
931

 
1,037

Long-Term Debt (net of current portion)
 
 
 
Mortgage bonds, notes, and other
5,492

 
5,144

Capital lease obligations
8

 

 
5,500

 
5,144

Other Liabilities
 
 
 
Deferred income taxes
3,454

 
3,188

Regulatory liabilities
218

 
245

Asset retirement obligations
2,007

 
1,796

Unamortized investment tax credit
45

 
36

Nuclear decommissioning
174

 
182

Accrued pension liability — affiliates
985

 
1,200

Accrued postretirement liability — affiliates
356

 
520

Other
74

 
105

 
7,313

 
7,272

 
 
 
 
Commitments and Contingencies (Notes 6 and 12)

 

 
 
 
 
Shareholder’s Equity
 
 
 
Common stock, $10 par value, 400,000,000 shares authorized, and 138,632,324 shares issued and outstanding
4,086

 
3,786

Retained earnings
1,591

 
1,436

Accumulated other comprehensive income (loss)
2

 
(26
)
 
5,679

 
5,196

Total Liabilities and Shareholder’s Equity
$
19,423

 
$
18,649


See Combined Notes to Consolidated Financial Statements (Unaudited)

15



DTE Electric Company

Consolidated Statements of Cash Flows (Unaudited)

 
Nine Months Ended September 30,
 
2015
 
2014
 
(In millions)
Operating Activities
 
 
 
Net Income
$
452

 
$
403

Adjustments to reconcile Net Income to net cash from operating activities:
 
 
 
Depreciation and amortization
461

 
695

Nuclear fuel amortization
40

 
33

Allowance for equity funds used during construction
(15
)
 
(16
)
Deferred income taxes
269

 
199

Changes in assets and liabilities:
 
 
 
Accounts receivable, net
(103
)
 
36

Inventories
(17
)
 
(38
)
Accounts payable
3

 
7

Accrued pension liability — affiliates
(215
)
 
(122
)
Accrued postretirement liability — affiliates
(164
)
 
(42
)
Regulatory assets and liabilities
(12
)
 
(163
)
Other current and noncurrent assets and liabilities
9

 
(113
)
Net cash from operating activities
708

 
879

Investing Activities
 
 
 
Plant and equipment expenditures
(1,045
)
 
(1,143
)
Acquisition
(241
)
 

Restricted cash for debt redemption, principally Securitization
96

 
60

Notes receivable from affiliate
4

 
164

Proceeds from sale of nuclear decommissioning trust fund assets
627

 
652

Investment in nuclear decommissioning trust funds
(638
)
 
(665
)
Transfer of Rabbi Trust assets to affiliate
137

 

Other
9

 
(16
)
Net cash used for investing activities
(1,051
)
 
(948
)
Financing Activities
 
 
 
Issuance of long-term debt, net of issuance costs
495

 
942

Redemption of long-term debt
(115
)
 
(837
)
Capital contribution by parent company
300

 

Short-term borrowings, net — other
(4
)
 
254

Short-term borrowings, net — affiliate
(16
)
 
(2
)
Dividends on common stock
(297
)
 
(277
)
Other
(5
)
 
(10
)
Net cash from financing activities
358

 
70

Net Increase in Cash and Cash Equivalents
15

 
1

Cash and Cash Equivalents at Beginning of the Period
14

 
27

Cash and Cash Equivalents at End of the Period
$
29

 
$
28

 
 
 
 
Supplemental disclosure of non-cash investing and financing activities
 
 
 
Plant and equipment expenditures in accounts payable
$
134

 
$
139


See Combined Notes to Consolidated Financial Statements (Unaudited)

16



DTE Electric Company

Consolidated Statements of Changes in Shareholder's Equity (Unaudited)

 
 
 
 
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
 
 
Common Stock
 
 
 
 
 
 
Shares
 
Amount
 
 
 
 
Total
 
(Dollars in millions, shares in thousands)
Balance, December 31, 2014
138,632

 
$
1,386

 
$
2,400

 
$
1,436

 
$
(26
)
 
$
5,196

Net Income

 

 

 
452

 

 
452

Dividends declared on common stock

 

 

 
(297
)
 

 
(297
)
Transfer of benefit obligations, net of tax

 

 

 

 
28

 
28

Capital contribution by parent company

 

 
300

 

 

 
300

Balance, September 30, 2015
138,632

 
$
1,386

 
$
2,700

 
$
1,591

 
$
2

 
$
5,679


See Combined Notes to Consolidated Financial Statements (Unaudited)

17


DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited)


Index of Combined Notes to Consolidated Financial Statements (Unaudited)
The Combined Notes to Consolidated Financial Statements (Unaudited) are a combined presentation for DTE Energy and DTE Electric. The following list indicates the Registrant(s) to which each note applies:
Note 1
 
Organization and Basis of Presentation
 
DTE Energy and DTE Electric
Note 2
 
Significant Accounting Policies
 
DTE Energy and DTE Electric
Note 3
 
New Accounting Pronouncements
 
DTE Energy and DTE Electric
Note 4
 
Acquisitions
 
DTE Energy and DTE Electric
Note 5
 
Asset Retirement Obligations
 
DTE Energy and DTE Electric
Note 6
 
Regulatory Matters
 
DTE Energy and DTE Electric
Note 7
 
Earnings per Share
 
DTE Energy
Note 8
 
Fair Value
 
DTE Energy and DTE Electric
Note 9
 
Financial and Other Derivative Instruments
 
DTE Energy and DTE Electric
Note 10
 
Long-Term Debt
 
DTE Energy and DTE Electric
Note 11
 
Short-Term Credit Arrangements and Borrowings
 
DTE Energy and DTE Electric
Note 12
 
Commitments and Contingencies
 
DTE Energy and DTE Electric
Note 13
 
Retirement Benefits and Trusteed Assets
 
DTE Energy and DTE Electric
Note 14
 
Stock-Based Compensation
 
DTE Energy and DTE Electric
Note 15
 
Segment and Related Information
 
DTE Energy

NOTE 1ORGANIZATION AND BASIS OF PRESENTATION
Corporate Structure
DTE Energy owns the following businesses:
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 Gas is a natural gas utility engaged in the purchase, storage, transportation, distribution, and sale of natural gas to approximately 1.2 million customers throughout Michigan and the sale of storage and transportation capacity; and
Other businesses involved in 1) natural gas pipelines, gathering, and storage; 2) power and industrial projects; and 3) energy marketing and trading operations.
DTE Electric and DTE Gas are regulated by the MPSC. Certain activities of DTE Electric and DTE Gas, as well as various other aspects of businesses under DTE Energy are regulated by the FERC. In addition, the Registrants are regulated by other federal and state regulatory agencies including the NRC, the EPA, the MDEQ, and the CFTC.
Basis of Presentation
The Consolidated Financial Statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the DTE Energy 2014 Annual Report on Form 10-K and the Notes to Consolidated Financial Statements included in the DTE Electric 2014 Annual Report on Form 10-K.
The accompanying Consolidated Financial Statements of the Registrants 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 Registrants' estimates.

18


DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

The Consolidated Financial Statements are unaudited, but in the Registrants' opinions include all adjustments necessary to present a fair statement of the results for the interim periods. All adjustments are of a normal recurring nature, except as otherwise disclosed in these Consolidated Financial Statements and Combined Notes to Consolidated Financial Statements. Financial results for this interim period are not necessarily indicative of results that may be expected for any other interim period or for the fiscal year ending December 31, 2015.
The information in these combined notes relates to each of the Registrants as noted in the Index of Combined Notes to Consolidated Financial Statements. However, DTE Electric does not make any representation as to information related solely to DTE Energy or the subsidiaries of DTE Energy other than itself.
Certain prior year balances for the Registrants were reclassified to match current year's financial statement presentation.
Principles of Consolidation
The Registrants consolidate all majority-owned subsidiaries and investments in entities in which they have controlling influence. Non-majority owned investments are accounted for using the equity method when the Registrants are able to influence the operating policies of the investee. When the Registrants do not influence the operating policies of an investee, the cost method is used. These Consolidated Financial Statements also reflect the Registrants' proportionate interests in certain jointly-owned utility plants. The Registrants eliminate all intercompany balances and transactions.
The Registrants evaluate whether an entity is a VIE whenever reconsideration events occur. The Registrants consolidate VIEs for which they are the primary beneficiary. If a Registrant 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, a Registrant 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 Registrants perform ongoing reassessments of all VIEs to determine if the primary beneficiary status has changed.
Legal entities within DTE Energy's Power and Industrial Projects segment enter into long-term contractual arrangements with customers to supply energy-related products or services. The entities are generally designed to pass-through the commodity risk associated with these contracts to the customers, with DTE Energy retaining operational and customer default risk. These entities generally are VIEs and consolidated when DTE Energy is the primary beneficiary. In addition, DTE Energy has interests in certain VIEs through which control of all significant activities is shared with partners, and therefore are accounted for under the equity method.
DTE Energy has variable interests in VIEs through certain of its long-term purchase and sale contracts. DTE Electric has variable interests in VIEs through certain of its long-term purchase contracts. As of September 30, 2015, the carrying amount of assets and liabilities in the Registrants' Consolidated Statements of Financial Position that relate to its variable interests under long-term purchase and sale contracts are predominately related to working capital accounts and generally represent the amounts owed by or to the Registrants for the deliveries associated with the current billing cycle under the contracts. The Registrants have 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 DTE Energy's variable interests through these long-term purchase and sale contracts. In addition, there is no significant potential exposure to loss as a result of DTE Electric's 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 performed servicing activities including billing and collecting surcharge revenue for Securitization. The remaining amounts due on the rate reduction bonds were paid in March 2015. The associated regulatory assets were fully amortized by March 31, 2015. Securitization has an over-recovery of funds. DTE Electric began to return the funds to customers in September 2015. Remaining funds are expected to be returned to customers during the fourth quarter of 2015. Subsequent to the pay-down of the bonds, Securitization is no longer a VIE but continues to be consolidated by the Registrants as a voting interest entity.
The maximum risk exposure for consolidated VIEs is reflected on the Registrants' Consolidated Statements of Financial Position. For non-consolidated VIEs, the maximum risk exposure is generally limited to its investment and amounts which it has guaranteed.

19


DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

The following table summarizes the major Consolidated Statements of Financial Position items for consolidated VIEs as of September 30, 2015 and December 31, 2014. All assets and liabilities of a consolidated VIE are presented where it has been determined that a consolidated VIE has either (1) assets that can be used only to settle obligations of the VIE or (2) liabilities for which creditors do not have recourse to the general credit of the primary beneficiary. Securitization, included in the DTE Energy table below for December 31, 2014, also relates to DTE Electric. VIEs, in which DTE Energy holds a majority voting interest and is the primary beneficiary, that meet the definition of a business and whose assets can be used for purposes other than the settlement of the VIE's obligations have been excluded from the table below.
 
September 30, 2015
 
December 31, 2014
 
Total
 
Securitization
 
Other
 
Total
 
(In millions)
ASSETS
 
 
 
 
 
 
 
Cash and cash equivalents
$
12

 
$

 
$
7

 
$
7

Restricted cash
6

 
96

 
8

 
104

Accounts receivable
14

 
26

 
15

 
41

Inventories
43

 

 
67

 
67

Property, plant, and equipment, net
70

 

 
81

 
81

Securitized regulatory assets

 
34

 

 
34

Other current and long-term assets
4

 
1

 
6

 
7

 
$
149

 
$
157

 
$
184

 
$
341

 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Accounts payable and accrued current liabilities
$
11

 
$
3

 
$
8

 
$
11

Current portion long-term debt, including capital leases
9

 
105

 
10

 
115

Current regulatory liabilities

 
32

 

 
32

Mortgage bonds, notes, and other
11

 

 
15

 
15

Capital lease obligations

 

 
3

 
3

Other current and long-term liabilities
6

 
9

 
6

 
15

 
$
37

 
$
149

 
$
42

 
$
191

Amounts for DTE Energy's non-consolidated VIEs as of September 30, 2015 and December 31, 2014 are as follows:
 
September 30, 2015
 
December 31, 2014
 
(In millions)
Other investments
$
138

 
$
134

Notes receivable
$
15

 
$
15


NOTE 2SIGNIFICANT ACCOUNTING POLICIES
Other Income
Other income for the Registrants is recognized for non-operating income such as equity earnings, allowance for equity funds used during construction, and contract services. DTE Energy's Power & Industrial Projects segment also recognizes Other income in connection with the sale of membership interests in reduced emissions fuel facilities to investors. In exchange for the cash received, the investors will receive a portion of the economic attributes of the facilities, including income tax attributes. The transactions are not treated as a sale of membership interests for financial reporting purposes. Other income is considered earned when refined coal is produced and tax credits are generated. Power & Industrial Projects recognized approximately $24 million and $25 million of Other income for the three months ended September 30, 2015 and 2014, respectively, and approximately $64 million and $57 million of Other income for the nine months ended September 30, 2015 and 2014, respectively.

20


DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

Changes in Accumulated Other Comprehensive Income (Loss)
For the three and nine months ended September 30, 2015 and 2014, reclassifications out of Accumulated other comprehensive income (loss) for the Registrants were not material. Refer to Note 13 to the Consolidated Financial Statements, "Retirement Benefits and Trusteed Assets", regarding the transfer of a portion of DTE Electric benefit obligations during the year. Changes in Accumulated other comprehensive income (loss) are presented in DTE Energy's Consolidated Statements of Changes in Equity and DTE Electric's Consolidated Statements of Changes in Shareholder's Equity.
Intangible Assets
DTE Energy has certain intangible assets relating to emission allowances, renewable energy credits and non-utility contracts as shown below:
 
September 30,
 
December 31,
 
2015
 
2014
 
(In millions)
Emission allowances
$
1

 
$
1

Renewable energy credits
49

 
45

Contract intangible assets
109

 
122

 
159

 
168

Less accumulated amortization
59

 
57

Intangible assets, net
100

 
111

Less current intangible assets
11

 
9

 
$
89

 
$
102

DTE Electric has certain intangible assets relating to emission allowances and renewable energy credits as shown below:
 
September 30,
 
December 31,
 
2015
 
2014
 
(In millions)
Emission allowances
$
1

 
$
1

Renewable energy credits
49

 
45

 
50

 
46

Less current intangible assets
11

 
9

 
$
39

 
$
37

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 businesses by the Registrants. DTE Energy amortizes contract intangible assets on a straight-line basis over the expected period of benefit, ranging from 1 to 26 years.
Income Taxes
The effective tax rate and unrecognized tax benefits of the Registrants are as follows:
 
Effective Tax Rate
 
Unrecognized
Tax Benefits
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
2015
 
 
 
 
 
 
 
 
 
(In millions)
DTE Energy
28
%
 
12
%
 
28
%
 
27
%
 
$
3

DTE Electric
35
%
 
36
%
 
35
%
 
36
%
 
$
4

The increase in DTE Energy's effective tax rate for the three months ended September 30, 2015 is primarily due to higher annual forecasted production tax credits in 2014 as compared to 2015.

21


DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

The increase in DTE Energy's effective tax rate for the nine months ended September 30, 2015 is primarily due to lower production tax credits partially offset by the inclusion in 2014 of $8 million of deferred tax expense resulting from the New York state income tax reform enacted on March 31, 2014.
The decrease in DTE Electric's effective tax rate for the three and nine months ended September 30, 2015 is due primarily to higher production tax credits in 2015.
If recognized, $2 million of the unrecognized tax benefits of the Registrants would favorably impact their effective tax rates. During the 2015 third quarter, there was a decrease of $6 million of unrecognized tax benefits at DTE Energy due to the expiration of statute of limitations. The $6 million decrease did not impact tax expense because the unrecognized tax benefit was offset by a net operating loss. The Registrants do not anticipate any material changes to the unrecognized tax benefits in the next twelve months.
DTE Electric had income tax receivables with DTE Energy of $68 million and $29 million at September 30, 2015 and December 31, 2014, respectively.

NOTE 3NEW ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issued 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. In July 2015, the FASB deferred implementation of the revenue standard to be effective for the first interim period within annual reporting periods beginning after December 15, 2017. The standard is to be applied retrospectively and early adoption is permitted in the preceding year. The Registrants are currently assessing the impact of this ASU on their Consolidated Financial Statements.
In February 2015, the FASB issued ASU No. 2015-02, Amendments to the Consolidation Analysis, which changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The ASU affects (1) limited partnerships and similar legal entities, (2) evaluating fees paid to a decision maker or a service provider as a variable interest, (3) the effect of fee arrangements on the primary beneficiary determination, (4) the effect of related parties on the primary beneficiary determination, and (5) certain investment funds. It is effective for the Registrants for the first interim period within annual reporting periods beginning on or after December 15, 2015 and early adoption is permitted. The Registrants are currently assessing the impact of this ASU on their Consolidated Financial Statements.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. This ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU is effective for reporting periods beginning after December 15, 2015 and interim periods therein. It is to be applied retrospectively and early adoption is permitted. The adoption of this ASU will not have a significant impact on the Registrants' Consolidated Statements of Financial Position.
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330), Simplifying the Measurement of Inventory. The ASU replaces the current lower of cost or market test with a lower of cost or net realizable value test when cost is determined on a first-in, first-out or average cost basis. The standard is effective for public entities for annual reporting periods beginning after December 15, 2016, and interim periods therein. It is to be applied prospectively and early adoption is permitted. The ASU will not have a significant impact on the Registrants' Consolidated Statements of Financial Position.


22


DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

NOTE 4ACQUISITIONS
On January 21, 2015, DTE Electric closed on an acquisition of a 732 MW simple-cycle natural gas facility in Carson City, Michigan from The LS Power Group. The facility will serve to meet customer needs during periods of peak demand. DTE Electric has completed its valuation analysis to arrive at the fair value of the assets acquired. The cash consideration and total purchase price of approximately $241 million was allocated based on the underlying fair value of the assets acquired, which was primarily Property, plant, and equipment. The pro forma results of operations have not been presented for DTE Electric as the effects of the acquisition were not material to either Registrant's Consolidated Statements of Operations.
On October 1, 2015, DTE Electric closed on an acquisition of a 350 MW simple-cycle natural gas facility in East China Township, Michigan from a non-utility affiliate of DTE Energy. The facility will serve to meet customer needs during periods of peak demand. DTE Electric has completed its purchase accounting. The cash consideration and total purchase price of approximately $69 million was based on the net book value of the assets acquired, which was primarily Property, plant, and equipment. The pro forma results of operations have not been presented for DTE Electric as the effects of the acquisition were not material to its Consolidated Statements of Operations.

NOTE 5ASSET RETIREMENT OBLIGATIONS
A reconciliation of the ARO for the nine months ended September 30, 2015 follows:
 
DTE Energy
 
DTE Electric
 
(In millions)
Asset retirement obligations at December 31, 2014
$
1,962

 
$
1,796

Accretion
90

 
83

Revision in estimated cash flows
128

 
128

Asset retirement obligations at September 30, 2015
$
2,180

 
$
2,007

The Revision in estimated cash flows was principally attributed to the impact of the Coal Combustion Residual Rule on DTE Electric's coal ash storage facility AROs. Refer to Note 12 to the Consolidated Financial Statements, "Commitments and Contingencies", for discussion of the implications of the Coal Combustion Residual Rule.

NOTE 6REGULATORY MATTERS
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 increase 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. On July 1, 2015, DTE Electric realized a rate increase of $230 million consisting of $190 million of self-implemented base rate increase related to the December 19, 2014 rate request and $40 million associated with the required elimination of a credit surcharge. A final order in this rate case is expected in December 2015.
Customer Settlement
In July 2014, an industrial customer of DTE Electric filed a complaint with the MPSC alleging they had been overcharged for the period of February 2008 through March 2014, and sought payment from DTE Electric of $22 million, plus interest. In July 2015, the MPSC issued an order that found the customer is entitled to a refund in the amount of $20 million, plus interest calculated at 7% per annum, until the refund is paid in full. In July 2015, DTE Electric issued a customer refund of $25 million, inclusive of interest. Approximately $16 million of the refund obligation is expected to be recovered through the PSCR and other regulatory mechanisms. DTE Electric does not expect this order to have a material impact to its Consolidated Statements of Operations.


23


DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

NOTE 7EARNINGS PER SHARE
DTE Energy reports both basic and diluted earnings per share. The calculation of diluted earnings per share assumes the issuance of potentially dilutive common shares outstanding during the period from the exercise of stock options. A reconciliation of both calculations is presented in the following table for the three and nine months ended September 30:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(In millions, except per share amounts)
Basic Earnings per Share
 
 
 
 
 
 
 
Net Income Attributable to DTE Energy Company
$
265

 
$
156

 
$
647

 
$
606

Average number of common shares outstanding
179

 
177

 
179

 
177

Dividends declared — common shares
$
131

 
$
122

 
$
378

 
$
353

Dividends declared — net restricted shares

 

 
1

 
1

Total distributed earnings
$
131

 
$
122

 
$
379

 
$
354

Net Income less distributed earnings
$
134

 
$
34

 
$
268

 
$
252

Distributed (dividends per common share)
$
0.73

 
$
0.69

 
$
2.11

 
$
2.00

Undistributed
0.74

 
0.19

 
1.50

 
1.42

Total Basic Earnings per Common Share
$
1.47

 
$
0.88

 
$
3.61

 
$
3.42

Diluted Earnings per Share
 
 
 
 
 
 
 
Net Income Attributable to DTE Energy Company
$
265

 
$
156

 
$
647

 
$
606

Average number of common shares outstanding
180

 
177

 
179

 
177

Dividends declared — common shares
$
131

 
$
122

 
$
378

 
$
353

Dividends declared — net restricted shares

 

 
1

 
1

Total distributed earnings
$
131

 
$
122

 
$
379

 
$
354

Net Income less distributed earnings
$
134

 
$
34

 
$
268

 
$
252

Distributed (dividends per common share)
$
0.73

 
$
0.69

 
$
2.11

 
$
2.00

Undistributed
0.74

 
0.19

 
1.50

 
1.42

Total Diluted Earnings per Common Share
$
1.47

 
$
0.88

 
$
3.61

 
$
3.42


NOTE 8FAIR VALUE
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Registrants make certain assumptions they believe that market participants would use in pricing assets or liabilities, including assumptions about risk, and the risks inherent in the inputs to valuation techniques. Credit risk of the Registrants and their counterparties is incorporated in the valuation of assets and liabilities through the use of credit reserves, the impact of which was immaterial at September 30, 2015 and December 31, 2014. The Registrants believe they use valuation techniques that maximize the use of observable market-based inputs and minimize the use of unobservable inputs.

24


DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

A fair value hierarchy has been established that prioritizes the inputs to valuation techniques used to measure fair value in three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. All assets and liabilities are required to be classified in their entirety based on the lowest level of input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input may require judgment considering factors specific to the asset or liability, and may affect the valuation of the asset or liability and its placement within the fair value hierarchy. The Registrants classify fair value balances based on the fair value hierarchy defined as follows:
Level 1 — Consists of unadjusted quoted prices in active markets for identical assets or liabilities that the Registrants have the ability to access as of the reporting date.
Level 2 — Consists of inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.
Level 3 — Consists of unobservable inputs for assets or liabilities whose fair value is estimated based on internally developed models or methodologies using inputs that are generally less readily observable and supported by little, if any, market activity at the measurement date. Unobservable inputs are developed based on the best available information and subject to cost-benefit constraints.

25


DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

The following table presents assets and liabilities for DTE Energy measured and recorded at fair value on a recurring basis as of September 30, 2015 and December 31, 2014:
 
September 30, 2015
 
December 31, 2014
 
Level 1
 
Level 2
 
Level 3
 
Netting
(a)
 
Net Balance
 
Level 1
 
Level 2
 
Level 3
 
Netting
(a)
 
Net Balance
 
(In millions)
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents (b)
$
11

 
$
3

 
$

 
$

 
$
14

 
$
13

 
$
99

 
$

 
$

 
$