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EX-12.67 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - DTE ENERGY - DTE ENERGY COa20160331ex1267.htm
EX-12.68 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - DTE ELECTRIC - DTE ENERGY COa20160331ex1268.htm
EX-31.114 - CHIEF FINANCIAL OFFICER SECTION 302 FORM 10-Q CERTIFICATION - DTE ENERGY - DTE ENERGY COa20160331ex31114.htm
EX-31.116 - CHIEF FINANCIAL OFFICER SECTION 302 FORM 10-Q CERTIFICATION - DTE ELECTRIC - DTE ENERGY COa20160331ex31116.htm
EX-32.114 - CHIEF FINANCIAL OFFICER SECTION 906 FORM 10-Q CERTIFICATION - DTE ENERGY - DTE ENERGY COa20160331ex32114.htm
EX-32.113 - CHIEF EXECUTIVE OFFICER SECTION 906 FORM 10-Q CERTIFICATION - DTE ENERGY - DTE ENERGY COa20160331ex32113.htm
EX-32.116 - CHIEF FINANCIAL OFFICER SECTION 906 FORM 10-Q CERTIFICATION - DTE ELECTRIC - DTE ENERGY COa20160331ex32116.htm
EX-31.113 - CHIEF EXECUTIVE OFFICER SECTION 302 FORM 10-Q CERTIFICATION - DTE ENERGY - DTE ENERGY COa20160331ex31113.htm
EX-32.115 - CHIEF EXECUTIVE OFFICER SECTION 906 FORM 10-Q CERTIFICATION - DTE ELECTRIC - DTE ENERGY COa20160331ex32115.htm
EX-31.115 - CHIEF EXECUTIVE OFFICER SECTION 302 FORM 10-Q CERTIFICATION - DTE ELECTRIC - DTE ENERGY COa20160331ex31115.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 March 31, 2016
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 March 31, 2016:
Registrant
 
Description
 
Shares
DTE Energy
 
Common Stock, without par value
 
179,435,404

 
 
 
 
 
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.
 





















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TABLE OF CONTENTS

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




DEFINITIONS

ARO
Asset Retirement Obligation
 
 
ASU
Accounting Standards Update issued by the FASB
 
 
CFTC
U.S. Commodity Futures Trading Commission
 
 
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.
 
 
GHGs
Greenhouse gases
 
 
IRM
Infrastructure Recovery Mechanism
 
 
MDEQ
Michigan Department of Environmental Quality
 
 
MPSC
Michigan Public Service Commission
 
 
MTM
Mark-to-market
 
 
NAV
Net Asset Value
 
 
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
 
 
Registrants
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.
 
 
Shenango
Shenango Incorporated is a coke battery plant located in Pittsburgh, PA, that was closed in January 2016 and is included in the Power and Industrial Projects segment.
 
 

1



DEFINITIONS

 
 
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.
 
 
VIE
Variable Interest Entity
Units of Measurement
 
 
 
Bcf
Billion cubic feet of natural gas
 
 
BTU
Heat value (energy content) of fuel
 
 
MMBtu
One million BTU
 
 
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 Consolidated Financial Statements and Combined Notes to Consolidated Financial Statements and with Management's Discussion and Analysis included in the combined DTE Energy and DTE Electric 2015 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 businesses 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;
volatility in the short-term natural gas storage markets impacting third-party storage revenues related to DTE Energy;
impact of volatility of prices in the oil and gas markets on DTE Energy's gas storage and pipelines operations;
impact of volatility in prices in the international steel markets on DTE Energy's power and industrial projects operations;
volatility in commodity markets, deviations in weather, and related risks impacting the results of DTE Energy's energy trading operations;
changes in the financial condition of DTE Energy's significant customers and strategic partners;
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;

3



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 capital 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



Part I — Financial Information

Item 1. Financial Statements

DTE Energy Company

Consolidated Statements of Operations (Unaudited)
 
Three Months Ended March 31,
 
2016
 
2015
 
(In millions, except per share amounts)
Operating Revenues
 
 
 
Utility operations
$
1,664

 
$
1,841

Non-utility operations
902

 
1,143

 
2,566

 
2,984

 
 
 
 
Operating Expenses
 

 
 

Fuel, purchased power, and gas — utility
565

 
693

Fuel, purchased power, and gas — non-utility
776

 
1,005

Operation and maintenance
516

 
526

Depreciation and amortization
229

 
209

Taxes other than income
99

 
100

Asset (gains) losses and impairments, net

 
(10
)
 
2,185

 
2,523

Operating Income
381

 
461

 
 
 
 
Other (Income) and Deductions
 

 
 

Interest expense
113

 
110

Interest income
(11
)
 
(4
)
Other income
(52
)
 
(51
)
Other expenses
8

 
10

 
58

 
65

Income Before Income Taxes
323

 
396

 
 
 
 
Income Tax Expense
83

 
122

 
 
 
 
Net Income
240

 
274

 
 
 
 
Less: Net Income (Loss) Attributable to Noncontrolling Interests
(7
)
 
1

 
 
 
 
Net Income Attributable to DTE Energy Company
$
247

 
$
273

 
 
 
 
Basic Earnings per Common Share
 
 
 
Net Income Attributable to DTE Energy Company
$
1.38

 
$
1.53

 
 
 
 
Diluted Earnings per Common Share
 
 
 
Net Income Attributable to DTE Energy Company
$
1.37

 
$
1.53

 
 
 
 
Weighted Average Common Shares Outstanding
 

 
 

Basic
179

 
178

Diluted
180

 
178

Dividends Declared per Common Share
$
0.73

 
$
0.69


See Combined Notes to Consolidated Financial Statements (Unaudited)

5



DTE Energy Company

Consolidated Statements of Comprehensive Income (Unaudited)

 
Three Months Ended March 31,
 
2016
 
2015
 
(In millions)
Net Income
$
240

 
$
274

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

 
3

Foreign currency translation
2

 
(3
)
Other comprehensive income
5

 

 
 
 
 
Comprehensive income
245

 
274

Less comprehensive income (loss) attributable to noncontrolling interests
(7
)
 
1

Comprehensive Income Attributable to DTE Energy Company
$
252

 
$
273


See Combined Notes to Consolidated Financial Statements (Unaudited)

6



DTE Energy Company

Consolidated Statements of Financial Position (Unaudited)

 
March 31,
 
December 31,
 
2016
 
2015
 
(In millions)
ASSETS
Current Assets
 
 
 
Cash and cash equivalents
$
35

 
$
37

Restricted cash
23

 
23

Accounts receivable (less allowance for doubtful accounts of $42 and $49, respectively)
 
 
 
Customer
1,185

 
1,276

Other
80

 
72

Inventories
 
 
 
Fuel and gas
351

 
480

Materials and supplies
309

 
323

Derivative assets
109

 
129

Regulatory assets
36

 
32

Other
234

 
203

 
2,362

 
2,575

Investments
 
 
 
Nuclear decommissioning trust funds
1,246

 
1,236

Investments in equity method investees
542

 
514

Other
191

 
186

 
1,979

 
1,936

Property
 
 
 
Property, plant, and equipment
28,273

 
28,121

Less accumulated depreciation and amortization
(10,146
)
 
(10,087
)
 
18,127

 
18,034

Other Assets
 
 
 
Goodwill
2,018

 
2,018

Regulatory assets
3,699

 
3,692

Intangible assets
90

 
89

Notes receivable
79

 
85

Derivative assets
53

 
54

Other
157

 
179

 
6,096

 
6,117

Total Assets
$
28,564

 
$
28,662


See Combined Notes to Consolidated Financial Statements (Unaudited)

7



DTE Energy Company

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

 
March 31,
 
December 31,
 
2016
 
2015
 
(In millions, except shares)
LIABILITIES AND EQUITY
Current Liabilities
 
 
 
Accounts payable
$
649

 
$
809

Accrued interest
119

 
89

Dividends payable
131

 
131

Short-term borrowings
365

 
499

Current portion long-term debt, including capital leases
462

 
473

Derivative liabilities
67

 
57

Gas inventory equalization
87

 

Regulatory liabilities
30

 
41

Other
299

 
429

 
2,209

 
2,528

Long-Term Debt (net of current portion)
 
 
 
Mortgage bonds, notes, and other
8,266

 
8,265

Junior subordinated debentures
480

 
480

Capital lease obligations
12

 
15

 
8,758

 
8,760

Other Liabilities
 

 
 

Deferred income taxes
4,006

 
3,923

Regulatory liabilities
585

 
569

Asset retirement obligations
2,227

 
2,194

Unamortized investment tax credit
60

 
62

Derivative liabilities
96

 
86

Accrued pension liability
1,130

 
1,133

Accrued postretirement liability
199

 
228

Nuclear decommissioning
179

 
177

Other
205

 
207

 
8,687

 
8,579

Commitments and Contingencies (Notes 4 and 10)
 
 
 



 


Equity
 
 
 
Common stock, without par value, 400,000,000 shares authorized, and 179,435,404 and 179,470,213 shares issued and outstanding, respectively
4,118

 
4,123

Retained earnings
4,909

 
4,794

Accumulated other comprehensive loss
(140
)
 
(145
)
Total DTE Energy Company Equity
8,887

 
8,772

Noncontrolling interests
23

 
23

Total Equity
8,910

 
8,795

Total Liabilities and Equity
$
28,564

 
$
28,662


See Combined Notes to Consolidated Financial Statements (Unaudited)

8



DTE Energy Company
 
Consolidated Statements of Cash Flows (Unaudited)
 
Three Months Ended March 31,
 
2016
 
2015
Operating Activities
(In millions)
Net Income
$
240

 
$
274

Adjustments to reconcile Net Income to net cash from operating activities:
 
 
 
Depreciation and amortization
229

 
209

Nuclear fuel amortization
15

 
13

Allowance for equity funds used during construction
(5
)
 
(5
)
Deferred income taxes
80

 
84

Equity earnings of equity method investees
(15
)
 
(16
)
Dividends from equity method investees
18

 
16

Asset (gains) losses and impairments, net

 
(10
)
Changes in assets and liabilities:
 
 
 
Accounts receivable, net
97

 
(8
)
Inventories
143

 
172

Accounts payable
(93
)
 
(123
)
Gas inventory equalization
87

 
130

Accrued pension liability
(3
)
 
2

Accrued postretirement liability
(29
)
 
(135
)
Derivative assets and liabilities
40

 
49

Regulatory assets and liabilities
34

 
(4
)
Other current and noncurrent assets and liabilities
(97
)
 
99

Net cash from operating activities
741

 
747

Investing Activities
 
 
 
Plant and equipment expenditures — utility
(394
)
 
(366
)
Plant and equipment expenditures — non-utility
(30
)
 
(39
)
Acquisition

 
(240
)
Proceeds from sale of assets

 
13

Restricted cash for debt redemption, principally Securitization, net

 
96

Proceeds from sale of nuclear decommissioning trust fund assets
260

 
246

Investment in nuclear decommissioning trust funds
(262
)
 
(250
)
Distributions from equity method investees
3

 
3

Contributions to equity method investees
(26
)
 
(22
)
Other
12

 
3

Net cash used for investing activities
(437
)
 
(556
)
Financing Activities
 
 
 
Issuance of long-term debt, net of issuance costs

 
495

Redemption of long-term debt
(11
)
 
(117
)
Short-term borrowings, net
(134
)
 
(398
)
Issuance of common stock

 
9

Repurchase of common stock
(33
)
 

Dividends on common stock
(131
)
 
(122
)
Other
3

 
(7
)
Net cash used for financing activities
(306
)
 
(140
)
Net Increase (Decrease) in Cash and Cash Equivalents
(2
)
 
51

Cash and Cash Equivalents at Beginning of Period
37

 
48

Cash and Cash Equivalents at End of Period
$
35

 
$
99

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

 
$
186

See Combined Notes to Consolidated Financial Statements (Unaudited)

9



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, 2015
179,470

 
$
4,123

 
$
4,794

 
$
(145
)
 
$
23

 
$
8,795

Net Income (Loss)

 

 
247

 

 
(7
)
 
240

Dividends declared on common stock

 

 
(131
)
 

 

 
(131
)
Repurchase of common stock
(394
)
 
(33
)
 

 

 

 
(33
)
Benefit obligations, net of tax

 

 

 
3

 

 
3

Foreign currency translation

 

 

 
2

 

 
2

Stock-based compensation, net contributions from noncontrolling interests, and other
359

 
28

 
(1
)
 

 
7

 
34

Balance, March 31, 2016
179,435

 
$
4,118

 
$
4,909

 
$
(140
)
 
$
23

 
$
8,910


See Combined Notes to Consolidated Financial Statements (Unaudited)

10



DTE Electric Company

Consolidated Statements of Operations (Unaudited)

 
Three Months Ended March 31,
 
2016
 
2015
 
(In millions)
Operating Revenues — Utility operations
$
1,153

 
$
1,203

 
 
 
 
Operating Expenses
 
 
 
Fuel and purchased power — utility
335

 
390

Operation and maintenance
324

 
317

Depreciation and amortization
176

 
155

Taxes other than income
73

 
73

 
908

 
935

Operating Income
245

 
268

 
 
 
 
Other (Income) and Deductions
 
 
 
Interest expense
65

 
63

Interest income
(8
)
 

Other income
(16
)
 
(15
)
Other expenses
7

 
9

 
48

 
57

Income Before Income Taxes
197

 
211

 
 
 
 
Income Tax Expense
70

 
74

 
 
 
 
Net Income
$
127

 
$
137


See Combined Notes to Consolidated Financial Statements (Unaudited)

11



DTE Electric Company

Consolidated Statements of Comprehensive Income (Unaudited)

 
Three Months Ended March 31,
 
2016
 
2015
 
(In millions)
Net Income
$
127

 
$
137

Other comprehensive income, net of tax:
 
 
 
Transfer of benefit obligations, net of taxes of $18 in 2015

 
28

Comprehensive income
$
127

 
$
165


See Combined Notes to Consolidated Financial Statements (Unaudited)

12



DTE Electric Company

Consolidated Statements of Financial Position (Unaudited)

 
March 31,
 
December 31,
 
2016
 
2015
 
(In millions)
ASSETS
Current Assets
 
 
 
Cash and cash equivalents
$
17

 
$
15

Accounts receivable (less allowance for doubtful accounts of $26 and $28, respectively)
 
 
 
Customer
618

 
657

Affiliates
8

 
14

Other
43

 
40

Inventories
 
 
 
Fuel
232

 
271

Materials and supplies
259

 
251

Notes receivable
 

 
 

Other
5

 

Regulatory assets
25

 
17

Prepaid property tax
84

 
44

Other
31

 
22

 
1,322

 
1,331

Investments
 
 
 
Nuclear decommissioning trust funds
1,246

 
1,236

Other
34

 
35

 
1,280

 
1,271

Property
 
 
 
Property, plant, and equipment
21,476

 
21,391

Less accumulated depreciation and amortization
(7,681
)
 
(7,646
)
 
13,795

 
13,745

Other Assets
 
 
 
Regulatory assets
2,981

 
2,969

Intangible assets
38

 
34

Prepaid postretirement costs — affiliates
24

 
24

Other
119

 
144

 
3,162

 
3,171

Total Assets
$
19,559

 
$
19,518


See Combined Notes to Consolidated Financial Statements (Unaudited)

13



DTE Electric Company

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

 
March 31,
 
December 31,
 
2016
 
2015
 
(In millions, except shares)
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
 
 
 
Accounts payable
 
 
 
Affiliates
$
56

 
$
40

Other
288

 
329

Accrued interest
66

 
62

Current portion long-term debt, including capital leases
148

 
157

Regulatory liabilities
27

 
19

Short-term borrowings
 
 
 
Affiliates
97

 
75

Other
211

 
272

Other
122

 
138

 
1,015

 
1,092

Long-Term Debt (net of current portion)
 
 
 
Mortgage bonds, notes, and other
5,438

 
5,437

Capital lease obligations
12

 
15

 
5,450

 
5,452

Other Liabilities
 
 
 
Deferred income taxes
3,566

 
3,498

Regulatory liabilities
213

 
199

Asset retirement obligations
2,049

 
2,020

Unamortized investment tax credit
56

 
58

Nuclear decommissioning
179

 
177

Accrued pension liability — affiliates
979

 
976

Accrued postretirement liability — affiliates
288

 
307

Other
69

 
66

 
7,399

 
7,301

 
 
 
 
Commitments and Contingencies (Notes 4 and 10)

 

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

 
4,086

Retained earnings
1,607

 
1,585

Accumulated other comprehensive income
2

 
2

 
5,695

 
5,673

Total Liabilities and Shareholder’s Equity
$
19,559

 
$
19,518


See Combined Notes to Consolidated Financial Statements (Unaudited)

14



DTE Electric Company

Consolidated Statements of Cash Flows (Unaudited)

 
Three Months Ended March 31,
 
2016
 
2015
 
(In millions)
Operating Activities
 
 
 
Net Income
$
127

 
$
137

Adjustments to reconcile Net Income to net cash from operating activities:
 
 
 
Depreciation and amortization
176

 
155

Nuclear fuel amortization
15

 
13

Allowance for equity funds used during construction
(4
)
 
(5
)
Deferred income taxes
70

 
76

Changes in assets and liabilities:
 
 
 
Accounts receivable, net
57

 
(3
)
Inventories
31

 
2

Accounts payable
25

 
(8
)
Accrued pension liability — affiliates
3

 
(88
)
Accrued postretirement liability — affiliates
(19
)
 
(128
)
Regulatory assets and liabilities
40

 
(43
)
Other current and noncurrent assets and liabilities
(68
)
 
65

Net cash from operating activities
453

 
173

Investing Activities
 
 
 
Plant and equipment expenditures
(315
)
 
(311
)
Acquisition

 
(240
)
Proceeds from the sale of assets
6

 

Restricted cash for debt redemption, principally Securitization, net

 
96

Notes receivable from affiliate

 
8

Proceeds from sale of nuclear decommissioning trust fund assets
260

 
246

Investment in nuclear decommissioning trust funds
(262
)
 
(250
)
Transfer of Rabbi Trust assets to affiliate

 
137

Other
14

 
2

Net cash used for investing activities
(297
)
 
(312
)
Financing Activities
 
 
 
Issuance of long-term debt, net of issuance costs

 
496

Redemption of long-term debt
(10
)
 
(115
)
Short-term borrowings, net — affiliate
22

 
(49
)
Short-term borrowings, net — other
(61
)
 
(50
)
Dividends on common stock
(105
)
 
(99
)
Other

 
(4
)
Net cash from (used for) financing activities
(154
)
 
179

Net Increase in Cash and Cash Equivalents
2

 
40

Cash and Cash Equivalents at Beginning of the Period
15

 
14

Cash and Cash Equivalents at End of the Period
$
17

 
$
54

 
 
 
 
Supplemental disclosure of non-cash investing and financing activities
 
 
 
Plant and equipment expenditures in accounts payable
$
100

 
$
154


See Combined Notes to Consolidated Financial Statements (Unaudited)

15



DTE Electric Company

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

 
 
 
 
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income
 
 
 
Common Stock
 
 
 
 
 
 
Shares
 
Amount
 
 
 
 
Total
 
(Dollars in millions, shares in thousands)
Balance, December 31, 2015
138,632

 
$
1,386

 
$
2,700

 
$
1,585

 
$
2

 
$
5,673

Net Income

 

 

 
127

 

 
127

Dividends declared on common stock

 

 

 
(105
)
 

 
(105
)
Balance, March 31, 2016
138,632

 
$
1,386

 
$
2,700

 
$
1,607

 
$
2

 
$
5,695


See Combined Notes to Consolidated Financial Statements (Unaudited)

16


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
 
Regulatory Matters
 
DTE Energy and DTE Electric
Note 5
 
Earnings per Share
 
DTE Energy
Note 6
 
Fair Value
 
DTE Energy and DTE Electric
Note 7
 
Financial and Other Derivative Instruments
 
DTE Energy and DTE Electric
Note 8
 
Long-Term Debt
 
DTE Energy and DTE Electric
Note 9
 
Short-Term Credit Arrangements and Borrowings
 
DTE Energy and DTE Electric
Note 10
 
Commitments and Contingencies
 
DTE Energy and DTE Electric
Note 11
 
Retirement Benefits and Trusteed Assets
 
DTE Energy and DTE Electric
Note 12
 
Segment and Related Information
 
DTE Energy

NOTE 1ORGANIZATION AND BASIS OF PRESENTATION
Corporate Structure
DTE Energy owns the following businesses:
DTE Electric is a public utility engaged in the generation, purchase, distribution, and sale of electricity to approximately 2.2 million customers in southeastern Michigan;
DTE Gas is a public 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 Combined Notes to Consolidated Financial Statements included in the combined DTE Energy and DTE Electric 2015 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.
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, 2016.

17


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

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 the current year's Consolidated Financial Statements presentation. Such revisions include amounts reclassified to separate Operating Revenues and Fuel, purchased power, and gas between Utility operations and Non-utility operations and from Operations and maintenance to Fuel, purchased power, and gas — non-utility related to the Power and Industrial Projects segment. The reclassifications did not affect DTE Energy's Net Income for the prior periods, as such, they are not deemed material to the previously issued Consolidated Financial Statements. For reclassifications of debt issuance costs arising from ASU 2015-03, see Note 3 to the Consolidated Financial Statements, "New Accounting Pronouncements."
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 significantly 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 March 31, 2016, the carrying amount of assets and liabilities in DTE Energy's Consolidated Statements of Financial Position that relate to its variable interests under long-term purchase and sale contracts are predominantly related to working capital accounts and generally represent the amounts owed by or to DTE Energy for the deliveries associated with the current billing cycle under the contracts. As of March 31, 2016, the carrying amount of assets and liabilities in DTE Electric's Consolidated Statements of Financial Position that relate to its variable interests under long-term purchase contracts are predominantly related to working capital accounts and generally represent the amounts owed by DTE Electric 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.
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, notes receivable, and future funding commitments.

18


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 March 31, 2016 and December 31, 2015. 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. 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.
 
March 31, 2016
 
December 31, 2015
 
(In millions)
ASSETS
 
 
 
Cash and cash equivalents
$
9

 
$
14

Restricted cash
7

 
8

Accounts receivable
14

 
18

Inventories
70

 
82

Property, plant, and equipment, net
62

 
66

Other current and long-term assets
3

 
4

 
$
165

 
$
192

 
 
 
 
LIABILITIES
 
 
 
Accounts payable and accrued current liabilities
$
8

 
$
13

Current portion long-term debt, including capital leases
7

 
8

Mortgage bonds, notes, and other
8

 
10

Other current and long-term liabilities
6

 
6

 
$
29

 
$
37

Amounts for DTE Energy's non-consolidated VIEs as of March 31, 2016 and December 31, 2015 are as follows:
 
March 31, 2016
 
December 31, 2015
 
(In millions)
Investment in equity method investees
$
194

 
$
136

Notes receivable
$
15

 
$
15

Future funding commitments
$
9

 
$


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 and 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 and Industrial Projects recognized approximately $19 million of Other income for the three months ended March 31, 2016 and 2015, respectively.
Changes in Accumulated Other Comprehensive Income (Loss)
For the three months ended March 31, 2016 and 2015, reclassifications out of Accumulated other comprehensive income (loss) for the Registrants were not material. 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.

19


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

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 March 31,
 
March 31,
 
2016
 
2015
 
2016
 
 
 
 
 
(In millions)
DTE Energy
26
%
 
31
%
 
$
3

DTE Electric
36
%
 
35
%
 
$
4

The 5% decrease in DTE Energy's effective tax rate for the three months ended March 31, 2016 is primarily due to higher production tax credits in 2016.
DTE Energy had $2 million of unrecognized tax benefits that, if recognized, would favorably impact its effective tax rate. DTE Electric had $3 million of unrecognized tax benefits that, if recognized, would favorably impact its effective tax rate. 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 $6 million at March 31, 2016 and December 31, 2015, respectively.
Unrecognized Compensation Costs
As of March 31, 2016, DTE Energy had $82 million of total unrecognized compensation cost related to non-vested stock incentive plan arrangements. That cost is expected to be recognized over a weighted-average period of 1.79 years.
Allocated Stock-Based Compensation
DTE Electric received an allocation of costs from DTE Energy associated with stock-based compensation of $10 million and $4 million for the three months ended March 31, 2016 and 2015, respectively.

NOTE 3NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted Pronouncements
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 after December 15, 2015. The Registrants adopted this ASU at January 1, 2016. The implementation of this guidance is reflected in Note 1 of the Consolidated Financial Statements, "Organization and Basis of Presentation." Certain entities are now deemed to be VIEs and are included in DTE Energy's non-consolidated VIE table. This implementation did not have a significant impact on the Registrants' 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. The Registrants adopted this ASU at January 1, 2016. The effect of the adoption decreased assets and liabilities on DTE Energy’s and DTE Electric’s Consolidated Statements of Financial Position by $75 million and $36 million, respectively, at December 31, 2015.

20


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

In May 2015, the FASB issued ASU 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This guidance removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share (or its equivalent) practical expedient. The guidance applies to investments for which there is not a readily determinable fair value (market quote) or the investment is in a mutual fund without a publicly available net asset value. It is effective for the Registrants for the first interim period within annual reporting periods beginning after December 15, 2015. It is to be applied retrospectively. The Registrants adopted this ASU at January 1, 2016. The implementation of this guidance is reflected in Note 6 of the Consolidated Financial Statements, "Fair Value." This implementation did not have a significant impact on the Registrants' Consolidated Financial Statements.
Recently Issued 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. In March 2016, the FASB issued an ASU that amends and clarifies the implementation guidance on principal versus agent considerations for reporting revenue gross rather than net. In April 2016, the FASB issued an ASU that amends and clarifies the identification of performance obligations and accounting for licenses of intellectual property. Both ASUs issued in 2016 have the same deferred effective date. The Registrants are currently assessing the impact of these ASUs on their Consolidated Financial Statements.
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 Financial Statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance is intended to improve the recognition and measurement of financial instruments. The ASU primarily impacts accounting for equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) and financial liabilities under the fair value option. Under the new guidance, equity investments will generally be measured at fair value, with subsequent changes in fair value recognized in net income. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Upon adoption, entities will be required to make a cumulative-effect adjustment to the Statements of Financial Position as of the beginning of the first reporting period in which the guidance is effective. Changes to the accounting for equity securities without a readily determinable fair value will be applied prospectively. The Registrants are currently assessing the impact of this ASU on their Consolidated Financial Statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), a replacement of Leases (Topic 840). This guidance requires a lessee to account for leases as finance or operating leases. Both leases will result in the lessee recognizing a right-of-use asset and a corresponding lease liability on its balance sheet, with differing methodology for income statement recognition. For lessors, the standard modifies the classification criteria and the accounting for sales-type and direct financing leases. Entities will classify leases to determine how to recognize lease-related revenue and expense. This ASU is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. A modified retrospective approach is required for leases existing or entered into after the beginning of the earliest comparative period in the Consolidated Financial Statements. The Registrants are currently assessing the impact of this ASU on their Consolidated Financial Statements.

21


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

In March 2016, the FASB issued ASU No. 2016-09, Compensation Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The ASU simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the Statements of Cash Flows. Under the new standard, income tax benefits and deficiencies are to be recognized in the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. This provision is to be applied prospectively. Excess tax benefits should be recognized regardless of whether the benefit reduces taxes payable in the current period, along with any valuation allowance, on a modified retrospective basis as a cumulative-effect adjustment to the retained earnings as of the date of adoption. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. This provision can be applied prospectively or retrospectively for all periods presented. The standard is effective for public entities for annual reporting periods beginning after December 15, 2016, and interim periods therein. Early adoption is permitted. DTE Energy is currently assessing the impact of this ASU on its Consolidated Financial Statements.

NOTE 4REGULATORY 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 an annual revenue 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.
On December 11, 2015, the MPSC issued an order approving an annual revenue increase of $238 million for service rendered on or after December 17, 2015. The rate order also provided for a return on equity of 10.3% on a capital structure of 50% debt and 50% equity. On December 22, 2015, DTE Electric and other intervenors petitioned the MPSC for a rehearing and clarification of several issues related to the December 11, 2015 MPSC rate order. On February 23, 2016, the MPSC issued a final rehearing order in this case that adjusted the annual revenue increase to $243 million for service rendered on or after March 1, 2016.
2016 Electric Rate Case Filing
DTE Electric filed a rate case with the MPSC on February 1, 2016 requesting an increase in base rates of $344 million based on a projected twelve-month period ending July 31, 2017. The requested increase in base rates is due primarily to an increase in net plant resulting from infrastructure investments, environmental compliance, and reliability improvement projects. The rate filing also includes projected changes in sales, operation and maintenance expenses, and working capital. The rate filing also requests an increase in return on equity from 10.3% to 10.5% on a capital structure of 50% equity and 50% debt. DTE Electric anticipates self-implementing a rate increase in August 2016 with an MPSC order expected by February 2017.
2015 DTE Gas Rate Case Filing
DTE Gas filed a rate case with the MPSC on December 18, 2015 requesting an increase in base rates of $183 million, inclusive of $41 million of existing IRM surcharges which are expected to be converted into base rates, based on a projected twelve-month period ending October 31, 2017. The requested increase in base rates is due primarily to an increase in net plant, inclusive of IRM capital investments being recovered through approved IRM surcharge filings. The rate filing also includes projected changes in sales, operation and maintenance expenses, and working capital. The rate filing also requests an increase in return on equity from 10.5% to 10.75% on a capital structure of 52% equity and 48% debt. DTE Gas anticipates self-implementing a rate increase in November 2016 with an MPSC order expected by December 2016. Concurrent with the MPSC order in this rate case, the existing IRM surcharge being billed will be terminated. However, DTE Gas requested to implement a new IRM surcharge of approximately $9 million to become effective in January 2017.


22


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

NOTE 5EARNINGS 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:
 
Three Months Ended March 31,
 
2016
 
2015
 
(In millions, except per share amounts)
Basic Earnings per Share
 
 
 
Net Income Attributable to DTE Energy Company
$
247

 
$
273

Average number of common shares outstanding
179

 
178

Dividends declared — common shares
$
131

 
$
123

Dividends declared — net restricted shares

 
1

Total distributed earnings
$
131

 
$
124

Net Income less distributed earnings
$
116

 
$
149

Distributed (dividends per common share)
$
0.73

 
$
0.69

Undistributed
0.65

 
0.84

Total Basic Earnings per Common Share
$
1.38

 
$
1.53

Diluted Earnings per Share
 
 
 
Net Income Attributable to DTE Energy Company
$
247

 
$
273

Average number of common shares outstanding
180

 
178

Dividends declared — common shares
$
131

 
$
123

Dividends declared — net restricted shares

 
1

Total distributed earnings
$
131

 
$
124

Net Income less distributed earnings
$
116

 
$
149

Distributed (dividends per common share)
$
0.73

 
$
0.69

Undistributed
0.64

 
0.84

Total Diluted Earnings per Common Share
$
1.37

 
$
1.53


NOTE 6FAIR 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 March 31, 2016 and December 31, 2015. The Registrants believe they use valuation techniques that maximize the use of observable market-based inputs and minimize the use of unobservable inputs.

23


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.

24


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 March 31, 2016 and December 31, 2015:
 
March 31, 2016
 
December 31, 2015
 
Level
1
 
Level
2
 
Level
3
 
Other
(a)
 
Netting
(b)
 
Net Balance
 
Level
1
 
Level
2
 
Level
3
 
Other
(a)
 
Netting
(b)
 
Net Balance
 
(In millions)
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents (c)
$
11

 
$
3

 
$

 
$

 
$

 
$
14

 
$
13

 
$
3

 
$

 
$

 
$

 
$
16

Nuclear decommissioning trusts
752

 
491

 

 
3

 

 
1,246

 
759

 
473

 

 
4

 

 
1,236

Other investments (d)
154

 

 

 

 

 
154

 
149

 

 

 

 

 
149

Derivative assets:
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

 
 

 
 

 
 

 
 
Commodity Contracts:
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 

 
 
 
 
Natural Gas
133

 
89

 
76

 

 
(216
)
 
82

 
193

 
91

 
103

 

 
(285
)
 
102

Electricity

 
305

 
72

 

 
(299
)
 
78

 

 
239

 
68

 

 
(232
)
 
75

Other
3

 

 
1

 

 
(3
)
 
1

 
2

 

 
3

 

 
(2
)
 
3

Foreign currency exchange contracts

 
6

 

 

 
(5
)
 
1

 

 
12

 

 

 
(9
)
 
3

Total derivative assets
136

 
400

 
149



 
(523
)
 
162

 
195

 
342

 
174

 


(528
)
 
183

Total
$
1,053

 
$
894

 
$
149


$
3

 
$
(523
)
 
$
1,576

 
$
1,116

 
$
818

 
$
174

 
$
4


$
(528
)
 
$
1,584

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Contracts:
 

 
 

 
 

 
 
 
 

 
 
 
 

 
 

 
 

 
 
 
 

 
 
Natural Gas
$
(188
)
 
$
(52
)
 
$
(110
)
 
$

 
$
258

 
$
(92
)
 
$
(218
)
 
$
(57
)
 
$
(108
)
 
$

 
$
294

 
$
(89
)
Electricity

 
(308
)
 
(88
)
 

 
327

 
(69
)
 

 
(243
)
 
(62
)
 

 
253

 
(52
)
Other
(5
)
 

 
(8
)
 

 
12

 
(1
)
 
(2
)
 

 
(8
)
 

 
8

 
(2
)
Foreign currency exchange contracts

 
(4
)
 

 

 
3

 
(1
)
 

 
(7
)
 

 

 
7

 

Total derivative liabilities
(193
)
 
(364
)
 
(206
)
 

 
600

 
(163
)
 
(220
)
 
(307
)
 
(178
)
 

 
562

 
(143
)
Total
$
(193
)
 
$
(364
)
 
$
(206
)
 
$

 
$
600

 
$
(163
)
 
$
(220
)
 
$
(307
)
 
$
(178
)
 
$

 
$
562

 
$
(143
)
Net Assets (Liabilities) at the end of the period
$
860

 
$
530

 
$
(57
)
 
$
3

 
$
77

 
$
1,413

 
$
896

 
$
511

 
$
(4
)
 
$
4

 
$
34

 
$
1,441

Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
$
118

 
$
325

 
$
98

 
$

 
$
(418
)
 
$
123

 
$
174

 
$
284

 
$
128

 
$

 
$
(441
)
 
$
145

Noncurrent
935

 
569

 
51

 
3

 
(105
)
 
1,453

 
942

 
534

 
46

 
4

 
(87
)
 
1,439

Total Assets
$
1,053

 
$
894

 
$
149

 
$
3

 
$
(523
)
 
$
1,576

 
$
1,116

 
$
818

 
$
174

 
$
4