DTE ENERGY CO - FORM 10-Q - April 26, 2016

Attached files

file	filename
EX-12.67 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - DTE ENERGY - DTE ENERGY CO	a20160331ex1267.htm
EX-12.68 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - DTE ELECTRIC - DTE ENERGY CO	a20160331ex1268.htm
EX-31.114 - CHIEF FINANCIAL OFFICER SECTION 302 FORM 10-Q CERTIFICATION - DTE ENERGY - DTE ENERGY CO	a20160331ex31114.htm
EX-31.116 - CHIEF FINANCIAL OFFICER SECTION 302 FORM 10-Q CERTIFICATION - DTE ELECTRIC - DTE ENERGY CO	a20160331ex31116.htm
EX-32.114 - CHIEF FINANCIAL OFFICER SECTION 906 FORM 10-Q CERTIFICATION - DTE ENERGY - DTE ENERGY CO	a20160331ex32114.htm
EX-32.113 - CHIEF EXECUTIVE OFFICER SECTION 906 FORM 10-Q CERTIFICATION - DTE ENERGY - DTE ENERGY CO	a20160331ex32113.htm
EX-32.116 - CHIEF FINANCIAL OFFICER SECTION 906 FORM 10-Q CERTIFICATION - DTE ELECTRIC - DTE ENERGY CO	a20160331ex32116.htm
EX-31.113 - CHIEF EXECUTIVE OFFICER SECTION 302 FORM 10-Q CERTIFICATION - DTE ENERGY - DTE ENERGY CO	a20160331ex31113.htm
EX-32.115 - CHIEF EXECUTIVE OFFICER SECTION 906 FORM 10-Q CERTIFICATION - DTE ELECTRIC - DTE ENERGY CO	a20160331ex32115.htm
EX-31.115 - CHIEF EXECUTIVE OFFICER SECTION 302 FORM 10-Q CERTIFICATION - DTE ELECTRIC - DTE ENERGY CO	a20160331ex31115.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.

THIS PAGE INTENTIONALLY LEFT BLANK

TABLE OF CONTENTS



		Page
	Definitions	1
	Filing Format	3
	Forward-Looking Statements	3
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements
	DTE Energy Consolidated Financial Statements (Unaudited)	5
	DTE Electric Consolidated Financial Statements (Unaudited)	11
	Combined Notes to Consolidated Financial Statements (Unaudited)	17
	Note 1 — Organization and Basis of Presentation	17
	Note 2 — Significant Accounting Policies	19
	Note 3 — New Accounting Pronouncements	20
	Note 4 — Regulatory Matters	22
	Note 5 — Earnings Per Share	23
	Note 6 — Fair Value	23
	Note 7 — Financial and Other Derivative Instruments	30
	Note 8 — Long-Term Debt	35
	Note 9 — Short-Term Credit Arrangements and Borrowings	35
	Note 10 — Commitments and Contingencies	36
	Note 11 — Retirement Benefits and Trusteed Assets	39
	Note 12 — Segment and Related Information	39
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	55
Item 4.	Controls and Procedures	58
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	59
Item 1A.	Risk Factors	59
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 6.	Exhibits	60
	Signatures	61

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.

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

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;


•	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.

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)

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)

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)

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)

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)

DTE Energy Company

Consolidated Statements of Changes in Equity (Unaudited)



									Accumulated Other Comprehensive Income (Loss)			Non-Controlling Interests
	Common Stock					Retained Earnings
	Shares		Amount			Retained Earnings									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)

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)

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)

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)

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)

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)

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)

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 1 — ORGANIZATION 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.

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.

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 2 — SIGNIFICANT 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.

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 3 — NEW 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.

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.

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 4 — REGULATORY 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.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)

NOTE 5 — EARNINGS 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 6 — FAIR 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.

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.

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		$