DTE ENERGY CO - FORM 10-Q

Attached files

file	filename
EX-32.120 - CHIEF FINANCIAL OFFICER SECTION 906 FORM 10-Q CERTIFICATION - DTE ELECTRIC - DTE ENERGY CO	a20160630ex32120.htm
EX-32.119 - CHIEF EXECUTIVE OFFICER SECTION 906 FORM 10-Q CERTIFICATION - DTE ELECTRIC - DTE ENERGY CO	a20160630ex32119.htm
EX-32.118 - CHIEF FINANCIAL OFFICER SECTION 906 FORM 10-Q CERTIFICATION - DTE ENERGY - DTE ENERGY CO	a20160630ex32118.htm
EX-32.117 - CHIEF EXECUTIVE OFFICER SECTION 906 FORM 10-Q CERTIFICATION - DTE ENERGY - DTE ENERGY CO	a20160630ex32117.htm
EX-31.120 - CHIEF FINANCIAL OFFICER SECTION 302 FORM 10-Q CERTIFICATION - DTE ELECTRIC - DTE ENERGY CO	a20160630ex31120.htm
EX-31.119 - CHIEF EXECUTIVE OFFICER SECTION 302 FORM 10-Q CERTIFICATION - DTE ELECTRIC - DTE ENERGY CO	a20160630ex31119.htm
EX-31.118 - CHIEF FINANCIAL OFFICER SECTION 302 FORM 10-Q CERTIFICATION - DTE ENERGY - DTE ENERGY CO	a20160630ex31118.htm
EX-31.117 - CHIEF EXECUTIVE OFFICER SECTION 302 FORM 10-Q CERTIFICATION - DTE ENERGY - DTE ENERGY CO	a20160630ex31117.htm
EX-12.70 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - DTE ELECTRIC - DTE ENERGY CO	a20160630ex1270.htm
EX-12.69 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - DTE ENERGY - DTE ENERGY CO	a20160630ex1269.htm
EX-10.103 - REQUEST FOR EXTENSION OF TERMINATION DATE, DATED MARCH 17, 2016 - DTE ELECTRIC - DTE ENERGY CO	a20160630ex10103.htm
EX-10.102 - REQUEST FOR EXTENSION OF TERMINATION DATE, DATED MARCH 17, 2016 - DTE GAS - DTE ENERGY CO	a20160630ex10102.htm
EX-10.101 - REQUEST FOR EXTENSION OF TERMINATION DATE, DATED MARCH 17, 2016 - DTE ENERGY - DTE ENERGY CO	a20160630ex10101.htm
EX-4.294 - SUPPLEMENTAL INDENTURE, DATED AS OF JUNE 1, 2016 - DTE ENERGY - DTE ENERGY CO	a20160630ex4294.htm
EX-4.293 - SUPPLEMENTAL INDENTURE, DATED AS OF MAY 1, 2016 - DTE ELECTRIC - DTE ENERGY CO	a20160630ex4293.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 June 30, 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 June 30, 2016:



Registrant	Description	Shares
DTE Energy	Common Stock, without par value	179,435,004

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	31
	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	40
	Note 12 — Segment and Related Information	41
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	57
Item 4.	Controls and Procedures	60
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	61
Item 1A.	Risk Factors	61
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 6.	Exhibits	61
	Signatures	64

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

MGP	Manufactured Gas Plant

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.

DEFINITIONS



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.


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 June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(In millions, except per share amounts)
Operating Revenues
Utility operations	$	1,435		$	1,357		$	3,099		$	3,198
Non-utility operations	827			911			1,729			2,054
	2,262			2,268			4,828			5,252

Operating Expenses
Fuel, purchased power, and gas — utility	414			434			979			1,127
Fuel, purchased power, and gas — non-utility	717			769			1,493			1,774
Operation and maintenance	542			532			1,058			1,058
Depreciation and amortization	243			220			472			429
Taxes other than income	91			91			190			191
Asset (gains) losses and impairments, net	(1		)	18			(1		)	8
	2,006			2,064			4,191			4,587
Operating Income	256			204			637			665

Other (Income) and Deductions
Interest expense	114			115			227			225
Interest income	(3		)	(2		)	(14		)	(6		)
Other income	(57		)	(49		)	(109		)	(100		)
Other expenses	7			9			15			19
	61			73			119			138
Income Before Income Taxes	195			131			518			527

Income Tax Expense	50			26			133			148

Net Income	145			105			385			379

Less: Net Loss Attributable to Noncontrolling Interests	(7		)	(4		)	(14		)	(3		)

Net Income Attributable to DTE Energy Company	$	152		$	109		$	399		$	382

Basic Earnings per Common Share
Net Income Attributable to DTE Energy Company	$	0.84		$	0.61		$	2.22		$	2.13

Diluted Earnings per Common Share
Net Income Attributable to DTE Energy Company	$	0.84		$	0.61		$	2.22		$	2.13

Weighted Average Common Shares Outstanding
Basic	179			179			179			179
Diluted	180			179			180			179
Dividends Declared per Common Share	$	0.73		$	0.69		$	1.46		$	1.38

See Combined Notes to Consolidated Financial Statements (Unaudited)

DTE Energy Company

Consolidated Statements of Comprehensive Income (Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(In millions)
Net Income	$	145		$	105		$	385		$	379

Other comprehensive income (loss), net of tax:
Benefit obligations, net of taxes of $(1), $2, $1, and $4, respectively	(1		)	3			2			6
Foreign currency translation	(1		)	1			1			(2		)
Other comprehensive income (loss)	(2		)	4			3			4

Comprehensive income	143			109			388			383
Less comprehensive loss attributable to noncontrolling interests	(7		)	(4		)	(14		)	(3		)
Comprehensive Income Attributable to DTE Energy Company	$	150		$	113		$	402		$	386

See Combined Notes to Consolidated Financial Statements (Unaudited)

DTE Energy Company

Consolidated Statements of Financial Position (Unaudited)



	June 30,			December 31,
	2016			2015
	(In millions)
ASSETS
Current Assets
Cash and cash equivalents	$	32		$	37
Restricted cash	22			23
Accounts receivable (less allowance for doubtful accounts of $42 and $49, respectively)
Customer	1,180			1,276
Other	82			72
Inventories
Fuel and gas	385			480
Materials and supplies	332			323
Derivative assets	53			129
Regulatory assets	11			32
Other	161			203
	2,258			2,575
Investments
Nuclear decommissioning trust funds	1,275			1,236
Investments in equity method investees	633			514
Other	193			186
	2,101			1,936
Property
Property, plant, and equipment	28,371			28,121
Less accumulated depreciation and amortization	(10,076		)	(10,087		)
	18,295			18,034
Other Assets
Goodwill	2,018			2,018
Regulatory assets	3,729			3,692
Intangible assets	97			89
Notes receivable	77			85
Derivative assets	35			54
Other	159			179
	6,115			6,117
Total Assets	$	28,769		$	28,662

See Combined Notes to Consolidated Financial Statements (Unaudited)

DTE Energy Company

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



	June 30,			December 31,
	2016			2015
	(In millions, except shares)
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable	$	745		$	809
Accrued interest	91			89
Dividends payable	269			131
Short-term borrowings	175			499
Current portion long-term debt, including capital leases	165			473
Derivative liabilities	47			57
Gas inventory equalization	46			—
Regulatory liabilities	37			41
Other	308			429
	1,883			2,528
Long-Term Debt (net of current portion)
Mortgage bonds, notes, and other	8,551			8,265
Junior subordinated debentures	780			480
Capital lease obligations	12			15
	9,343			8,760
Other Liabilities
Deferred income taxes	4,026			3,923
Regulatory liabilities	572			569
Asset retirement obligations	2,238			2,194
Unamortized investment tax credit	93			62
Derivative liabilities	94			86
Accrued pension liability	1,136			1,133
Accrued postretirement liability	175			228
Nuclear decommissioning	184			177
Other	226			207
	8,744			8,579
Commitments and Contingencies (Notes 4 and 10)

Equity
Common stock, without par value, 400,000,000 shares authorized, and 179,435,004 and 179,470,213 shares issued and outstanding, respectively	4,129			4,123
Retained earnings	4,791			4,794
Accumulated other comprehensive loss	(142		)	(145		)
Total DTE Energy Company Equity	8,778			8,772
Noncontrolling interests	21			23
Total Equity	8,799			8,795
Total Liabilities and Equity	$	28,769		$	28,662

See Combined Notes to Consolidated Financial Statements (Unaudited)

DTE Energy Company

Consolidated Statements of Cash Flows (Unaudited)



	Six Months Ended June 30,
	2016			2015
Operating Activities	(In millions)
Net Income	$	385		$	379
Adjustments to reconcile Net Income to net cash from operating activities:
Depreciation and amortization	472			429
Nuclear fuel amortization	29			28
Allowance for equity funds used during construction	(10		)	(10		)
Deferred income taxes	134			148
Equity earnings of equity method investees	(35		)	(32		)
Dividends from equity method investees	33			30
Asset (gains) losses and impairments, net	—			8
Changes in assets and liabilities:
Accounts receivable, net	81			234
Inventories	86			73
Accounts payable	(10		)	(119		)
Gas inventory equalization	46			56
Accrued pension liability	3			(96		)
Accrued postretirement liability	(53		)	(192		)
Derivative assets and liabilities	93			48
Regulatory assets and liabilities	71			89
Other current and noncurrent assets and liabilities	(53		)	107
Net cash from operating activities	1,272			1,180
Investing Activities
Plant and equipment expenditures — utility	(797		)	(781		)
Plant and equipment expenditures — non-utility	(64		)	(114		)
Acquisition	—			(241		)
Proceeds from sale of assets	—			16
Restricted cash for debt redemption, principally Securitization, net	1			99
Proceeds from sale of nuclear decommissioning trust fund assets	741			440
Investment in nuclear decommissioning trust funds	(744		)	(446		)
Distributions from equity method investees	7			9
Contributions to equity method investees	(121		)	(32		)
Other	39			14
Net cash used for investing activities	(938		)	(1,036		)
Financing Activities
Issuance of long-term debt, net of issuance costs	588			793
Redemption of long-term debt	(313		)	(118		)
Short-term borrowings, net	(324		)	(398		)
Issuance of common stock	—			9
Repurchase of common stock	(33		)	—
Dividends on common stock	(262		)	(246		)
Other	5			(2		)
Net cash from (used for) financing activities	(339		)	38
Net Increase (Decrease) in Cash and Cash Equivalents	(5		)	182
Cash and Cash Equivalents at Beginning of Period	37			48
Cash and Cash Equivalents at End of Period	$	32		$	230

Supplemental disclosure of non-cash investing and financing activities
Plant and equipment expenditures in accounts payable	$	154		$	206

See Combined Notes to Consolidated Financial Statements (Unaudited)

DTE Energy Company

Consolidated Statements of Changes in Equity (Unaudited)



						Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests
	Common Stock
	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)	—		—			399			—			(14		)	385
Dividends declared on common stock	—		—			(400		)	—			—			(400		)
Repurchase of common stock	(394	)	(33		)	—			—			—			(33		)
Benefit obligations, net of tax	—		—			—			2			—			2
Foreign currency translation	—		—			—			1			—			1
Stock-based compensation, net contributions from noncontrolling interests, and other	359		39			(2		)	—			12			49
Balance, June 30, 2016	179,435		$	4,129		$	4,791		$	(142	)	$	21		$	8,799

See Combined Notes to Consolidated Financial Statements (Unaudited)

DTE Electric Company

Consolidated Statements of Operations (Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(In millions)
Operating Revenues — Utility operations	$	1,215		$	1,147		$	2,368		$	2,350

Operating Expenses
Fuel and purchased power — utility	361			381			696			771
Operation and maintenance	332			319			656			636
Depreciation and amortization	187			165			363			320
Taxes other than income	70			68			143			141
	950			933			1,858			1,868
Operating Income	265			214			510			482

Other (Income) and Deductions
Interest expense	65			67			130			130
Interest income	—			—			(8		)	—
Other income	(17		)	(13		)	(33		)	(28		)
Other expenses	6			8			13			17
	54			62			102			119
Income Before Income Taxes	211			152			408			363

Income Tax Expense	76			53			146			127

Net Income	$	135		$	99		$	262		$	236

See Combined Notes to Consolidated Financial Statements (Unaudited)

DTE Electric Company

Consolidated Statements of Comprehensive Income (Unaudited)



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
	(In millions)
Net Income	$	135	$	99	$	262	$	236
Other comprehensive income, net of tax:
Transfer of benefit obligations, net of taxes of $— and $18 in 2015, respectively	—		—		—		28
Comprehensive income	$	135	$	99	$	262	$	264

See Combined Notes to Consolidated Financial Statements (Unaudited)

DTE Electric Company

Consolidated Statements of Financial Position (Unaudited)



	June 30,			December 31,
	2016			2015
	(In millions)
ASSETS
Current Assets
Cash and cash equivalents	$	13		$	15
Accounts receivable (less allowance for doubtful accounts of $24 and $28, respectively)
Customer	694			657
Affiliates	9			14
Other	34			40
Inventories
Fuel	233			271
Materials and supplies	264			251
Notes receivable
Affiliates	62			—
Other	5			—
Regulatory assets	9			17
Other	58			66
	1,381			1,331
Investments
Nuclear decommissioning trust funds	1,275			1,236
Other	31			35
	1,306			1,271
Property
Property, plant, and equipment	21,479			21,391
Less accumulated depreciation and amortization	(7,577		)	(7,646		)
	13,902			13,745
Other Assets
Regulatory assets	2,998			2,969
Intangible assets	47			34
Prepaid postretirement costs — affiliates	24			24
Other	121			144
	3,190			3,171
Total Assets	$	19,779		$	19,518

See Combined Notes to Consolidated Financial Statements (Unaudited)

DTE Electric Company

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



	June 30,		December 31,
	2016		2015
	(In millions, except shares)
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
Accounts payable
Affiliates	$	50	$	40
Other	313		329
Accrued interest	63		62
Accrued vacation	46		44
Current portion long-term debt, including capital leases	148		157
Regulatory liabilities	34		19
Short-term borrowings
Affiliates	108		75
Other	—		272
Other	74		94
	836		1,092
Long-Term Debt (net of current portion)
Mortgage bonds, notes, and other	5,735		5,437
Capital lease obligations	12		15
	5,747		5,452
Other Liabilities
Deferred income taxes	3,605		3,498
Regulatory liabilities	214		199
Asset retirement obligations	2,057		2,020
Unamortized investment tax credit	89		58
Nuclear decommissioning	184		177
Accrued pension liability — affiliates	981		976
Accrued postretirement liability — affiliates	273		307
Other	68		66
	7,471		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	1,637		1,585
Accumulated other comprehensive income	2		2
Total Shareholder’s Equity	5,725		5,673
Total Liabilities and Shareholder’s Equity	$	19,779	$	19,518

See Combined Notes to Consolidated Financial Statements (Unaudited)

DTE Electric Company

Consolidated Statements of Cash Flows (Unaudited)



	Six Months Ended June 30,
	2016			2015
	(In millions)
Operating Activities
Net Income	$	262		$	236
Adjustments to reconcile Net Income to net cash from operating activities:
Depreciation and amortization	363			320
Nuclear fuel amortization	29			28
Allowance for equity funds used during construction	(9		)	(10		)
Deferred income taxes	146			127
Changes in assets and liabilities:
Accounts receivable, net	(32		)	(43		)
Inventories	25			(15		)
Accounts payable	32			(28		)
Accrued pension liability — affiliates	5			(183		)
Accrued postretirement liability — affiliates	(34		)	(150		)
Regulatory assets and liabilities	82			38
Other current and noncurrent assets and liabilities	(44		)	48
Net cash from operating activities	825			368
Investing Activities
Plant and equipment expenditures	(640		)	(665		)
Acquisition	—			(241		)
Proceeds from the sale of assets	6			—
Restricted cash for debt redemption, principally Securitization, net	—			96
Notes receivable from affiliate	(62		)	8
Proceeds from sale of nuclear decommissioning trust fund assets	741			440
Investment in nuclear decommissioning trust funds	(744		)	(446		)
Transfer of Rabbi Trust assets to affiliate	—			137
Other	36			14
Net cash used for investing activities	(663		)	(657		)
Financing Activities
Issuance of long-term debt, net of issuance costs	297			495
Redemption of long-term debt	(10		)	(115		)
Capital contribution by parent company	—			300
Short-term borrowings, net — affiliate	33			(30		)
Short-term borrowings, net — other	(272		)	(50		)
Dividends on common stock	(210		)	(199		)
Other	(2		)	(3		)
Net cash from (used for) financing activities	(164		)	398
Net Increase (Decrease) in Cash and Cash Equivalents	(2		)	109
Cash and Cash Equivalents at Beginning of the Period	15			14
Cash and Cash Equivalents at End of the Period	$	13		$	123

Supplemental disclosure of non-cash investing and financing activities
Plant and equipment expenditures in accounts payable	$	112		$	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	—	—		—		262			—		262
Dividends declared on common stock	—	—		—		(210		)	—		(210		)
Balance, June 30, 2016	138,632	$	1,386	$	2,700	$	1,637		$	2	$	5,725

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 June 30, 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 June 30, 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 June 30, 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.



	June 30, 2016		December 31, 2015
	(In millions)
ASSETS
Cash and cash equivalents	$	11	$	14
Restricted cash	6		8
Accounts receivable	29		18
Inventories	101		82
Property, plant, and equipment, net	59		66
Other current and long-term assets	2		4
	$	208	$	192

LIABILITIES
Accounts payable and accrued current liabilities	$	21	$	13
Current portion long-term debt, including capital leases	6		8
Mortgage bonds, notes, and other	7		10
Other current and long-term liabilities	6		6
	$	40	$	37

Amounts for DTE Energy's non-consolidated VIEs as of June 30, 2016 and December 31, 2015 are as follows:



	June 30, 2016		December 31, 2015
	(In millions)
Investment in equity method investees	$	195	$	136
Notes receivable	$	15	$	15
Future funding commitments	$	8	$	—

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 $20 million of Other income for the three months ended June 30, 2016 and 2015, respectively, and approximately $39 million of Other income for the six months ended June 30, 2016 and 2015, respectively.

Changes in Accumulated Other Comprehensive Income (Loss)

For the three and six months ended June 30, 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 June 30,				Six Months Ended June 30,				June 30,
	2016		2015		2016		2015		2016
									(In millions)
DTE Energy	26	%	20	%	26	%	28	%	$	3
DTE Electric	36	%	35	%	36	%	35	%	$	4

The 6% increase in DTE Energy's effective tax rate for the three months ended June 30, 2016 is primarily due to higher production tax credits in the second quarter of 2015.

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 $8 million and $6 million at June 30, 2016 and December 31, 2015, respectively.

Unrecognized Compensation Costs

As of June 30, 2016, DTE Energy had $77 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 1.56 years.

Allocated Stock-Based Compensation

DTE Electric received an allocation of costs from DTE Energy associated with stock-based compensation of $9 million and $8 million for the three months ended June 30, 2016 and 2015, respectively while such allocation was $19 million and $12 million for the six months ended June 30, 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 (Topic 606), as amended. The objectives of this ASU are to improve upon revenue recognition requirements by providing a single comprehensive model to determine the measurement of revenue and timing of recognition. The core principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. This ASU also requires expanded qualitative and quantitative disclosures regarding the nature, amount, timing, and uncertainty of revenues and cash flows arising from contracts with customers. The standard is effective for the first interim period within annual reporting periods beginning after December 15, 2017. The standard is to be applied retrospectively and early adoption is permitted in the preceding year. The Registrants are currently assessing the impact of the ASU, as amended 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 ASU will not have a significant impact on the Registrants' 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. The ASU will not have a significant impact on DTE Energy's Consolidated Financial Statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Entities will apply the new guidance as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The ASU is effective for the Registrants beginning after December 15, 2019, and interim periods therein. Early adoption is permitted. The Registrants are currently assessing the impact of this standard on their Consolidated Financial Statements.

NOTE 4 — REGULATORY MATTERS

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. On July 1, 2016, DTE Electric filed an application with the MPSC for a $245 million self-implemented base rate increase effective August 1, 2016. A final MPSC order in this case is 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. 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. On May 11, 2016, DTE Gas filed an application with the MPSC for a $103 million self-implemented base rate increase effective November 1, 2016. A final MPSC order in this case is expected by December 2016.

DTE Energy Company — DTE Electric Company

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

NOTE 5 — EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the net income, adjusted for income allocated to participating securities, by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect the dilution that would occur if any potentially dilutive instruments were exercised or converted into common shares. DTE Energy’s participating securities are restricted shares under the stock incentive program that contain rights to receive non-forfeitable dividends. Stock options do not receive cash dividends, as such, these awards are not considered participating securities.

The following is a reconciliation of DTE Energy's basic and diluted income per share calculation for the three and six months ended June 30:



	Three Months Ended June 30,					Six Months Ended June 30,
	2016		2015			2016		2015
	(In millions, except per share amounts)
Basic Earnings per Share
Net Income Attributable to DTE Energy Company	$	152	$	109		$	399	$	382
Average number of common shares outstanding	179		179			179		179
Dividends declared — common shares	$	131	$	124		$	261	$	247
Dividends declared — net restricted shares	—		—			1		1
Total distributed earnings	$	131	$	124		$	262	$	248
Net Income less distributed earnings	$	21	$	(15	)	$	137	$	134
Distributed (dividends per common share)	$	0.73	$	0.69		$	1.46	$	1.38
Undistributed	0.11		(0.08		)	0.76		0.75
Total Basic Earnings per Common Share	$	0.84	$	0.61		$	2.22	$	2.13
Diluted Earnings per Share
Net Income Attributable to DTE Energy Company	$	152	$	109		$	399	$	382
Average number of common shares outstanding	179		179			179		179
Average incremental shares from assumed exercise of options	1		—			1		—
Common shares for dilutive calculation	180		179			180		179
Dividends declared — common shares	$	131	$	124		$	261	$	247
Dividends declared — net restricted shares	—		—			1		1
Total distributed earnings	$	131	$	124		$	262	$	248
Net Income less distributed earnings	$	21	$	(15	)	$	137	$	134
Distributed (dividends per common share)	$	0.73	$	0.69		$	1.46	$	1.38
Undistributed	0.11		(0.08		)	0.76		0.75
Total Diluted Earnings per Common Share	$	0.84	$	0.61		$	2.22	$	2.13

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 June 30, 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 June 30, 2016 and December 31, 2015:



	June 30, 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)	$	6	$	3	$	—	$	—	$	—		$	9	$	13	$	3	$	—	$	—	$	—		$	16
Nuclear decommissioning trusts	853		422		—		—		—			1,275		759		473		—		4		—			1,236
Other investments (d)	159		—		—		—		—			159		149		—		—		—		—			149
Derivative assets:
Commodity Contracts:
Natural Gas	171		65		62		—		(248		)	50		193		91		103		—		(285		)	102
Electricity	—		196		43		—		(207		)	32		—		239		68		—		(232		)	75
Other	1

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

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