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EX-32.136 - CHIEF FINANCIAL OFFICER SECTION 906 FORM 10-Q CERTIFICATION - DTE ELECTRIC - DTE ENERGY COa20170630ex32136.htm
EX-32.135 - CHIEF EXECUTIVE OFFICER SECTION 906 FORM 10-Q CERTIFICATION - DTE ELECTRIC - DTE ENERGY COa20170630ex32135.htm
EX-32.134 - CHIEF FINANCIAL OFFICER SECTION 906 FORM 10-Q CERTIFICATION - DTE ENERGY - DTE ENERGY COa20170630ex32134.htm
EX-32.133 - CHIEF EXECUTIVE OFFICER SECTION 906 FORM 10-Q CERTIFICATION - DTE ENERGY - DTE ENERGY COa20170630ex32133.htm
EX-31.136 - CHIEF FINANCIAL OFFICER SECTION 302 FORM 10-Q CERTIFICATION - DTE ELECTRIC - DTE ENERGY COa20170630ex31136.htm
EX-31.135 - CHIEF EXECUTIVE OFFICER SECTION 302 FORM 10-Q CERTIFICATION - DTE ELECTRIC - DTE ENERGY COa20170630ex31135.htm
EX-31.134 - CHIEF FINANCIAL OFFICER SECTION 302 FORM 10-Q CERTIFICATION - DTE ENERGY - DTE ENERGY COa20170630ex31134.htm
EX-31.133 - CHIEF EXECUTIVE OFFICER SECTION 302 FORM 10-Q CERTIFICATION - DTE ENERGY - DTE ENERGY COa20170630ex31133.htm
EX-12.78 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - DTE ELECTRIC - DTE ENERGY COa20170630ex1278.htm
EX-12.77 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - DTE ENERGY - DTE ENERGY COa20170630ex1277.htm
EX-10.106 - REQUEST FOR EXTENSION OF TERMINATION DATE, EFFECTIVE APRIL 16, 2017-DTE ELECTRIC - DTE ENERGY COa20170630ex10106.htm
EX-10.105 - REQUEST FOR EXTENSION OF TERMINATION DATE, EFFECTIVE APRIL 16, 2017-DTE GAS - DTE ENERGY COa20170630ex10105.htm
EX-10.104 - REQUEST FOR EXTENSION OF TERMINATION DATE, EFFECTIVE APRIL 16, 2017-DTE ENERGY - DTE ENERGY COa20170630ex10104.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, 2017
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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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)
Emerging growth company o
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)
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
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, 2017:
Registrant
 
Description
 
Shares
DTE Energy
 
Common Stock, without par value
 
179,393,579

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

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





















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TABLE OF CONTENTS

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




DEFINITIONS

AFUDC
Allowance for Funds Used During Construction
 
 
AGS
Appalachia Gathering System is a midstream natural gas asset located in Pennsylvania and West Virginia. DTE Energy purchased 100% of AGS in October 2016, and this asset is part of DTE Energy's Gas Storage and Pipelines segment.
 
 
ASU
Accounting Standards Update issued by the FASB
 
 
CCR
Coal Combustion Residuals
 
 
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
 
 
EGU
Electric Generating Unit
 
 
ELG
Effluent Limitations Guidelines
 
 
EPA
U.S. Environmental Protection Agency
 
 
Equity units
DTE Energy's 2016 Equity Units issued in October 2016, which were used to finance the October 1, 2016 Gas Storage and Pipelines acquisition
 
 
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
 
 
MDEQ
Michigan Department of Environmental Quality
 
 
MGP
Manufactured Gas Plant
 
 
MISO
Midcontinent Independent System Operator, Inc.
 
 
MPSC
Michigan Public Service Commission
 
 
MTM
Mark-to-market
 
 
NAV
Net Asset Value
 
 
NEXUS
NEXUS Gas Transmission, LLC, a joint venture in which DTE Energy own a 50% partnership interest.
 
 
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
 
 
NOX
Nitrogen Oxides
 
 
NRC
U.S. Nuclear Regulatory Commission
 
 
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.
 
 

1



DEFINITIONS

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.
 
 
SGG
Stonewall Gas Gathering is a midstream natural gas asset located in West Virginia. DTE Energy purchased 55% of SGG in October 2016, and this asset is part of DTE Energy's Gas Storage and Pipelines segment.
 
 
SO2
Sulfur Dioxide
 
 
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 City of Detroit's Public Lighting Department customers to DTE Electric's distribution system.
 
 
VIE
Variable Interest Entity
Units of Measurement
 
 
 
Bcf
Billion cubic feet of natural gas
 
 
BTU
Heat value (energy content) of fuel
 
 
MMBtu
One million BTU
 
 
MWh
Megawatthour of electricity


2



FILING FORMAT


This combined Form 10-Q is separately filed by DTE Energy and DTE Electric. Information in this combined Form 10-Q relating to each individual Registrant is filed by such Registrant on its own behalf. DTE Electric makes no representation regarding information relating to any other companies affiliated with DTE Energy other than its own subsidiaries. Neither DTE Energy, nor any of DTE Energy’s other subsidiaries (other than DTE Electric), has any obligation in respect of DTE Electric's debt securities, and holders of such debt securities should not consider the financial resources or results of operations of DTE Energy nor any of DTE Energy’s other subsidiaries (other than DTE Electric and its own subsidiaries (in relevant circumstances)) in making a decision with respect to DTE Electric's debt securities. Similarly, none of DTE Electric nor any other subsidiary of DTE Energy has any obligation in respect of debt securities of DTE Energy. This combined Form 10-Q should be read in its entirety. No one section of this combined Form 10-Q deals with all aspects of the subject matter of this combined Form 10-Q. This combined Form 10-Q report should be read in conjunction with the Consolidated Financial Statements and Combined Notes to Consolidated Financial Statements and with Management's Discussion and Analysis included in the combined DTE Energy and DTE Electric 2016 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,” “may,” “could,” “projected,” “aspiration,” “plans,” 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, the FERC, the MPSC, the NRC, and for DTE Energy, the 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;

3



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, cyber crime and terrorism;
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;
implementation of new information systems; and
the risks discussed in the Registrants' public filings with the Securities and Exchange Commission.
New factors emerge from time to time. The Registrants cannot predict what factors may arise or how such factors may cause results to differ materially from those contained in any forward-looking statement. Any forward-looking statements speak only as of the date on which such statements are made. The Registrants undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.

4



Part I — Financial Information
Item 1. Financial Statements

DTE Energy Company

Consolidated Statements of Operations (Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(In millions, except per share amounts)
Operating Revenues
 
 
 
 
 
 
 
Utility operations
$
1,423

 
$
1,435

 
$
3,141

 
$
3,099

Non-utility operations
1,432

 
827

 
2,950

 
1,729

 
2,855

 
2,262

 
6,091

 
4,828

 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
Fuel, purchased power, and gas — utility
396

 
414

 
925

 
979

Fuel, purchased power, and gas — non-utility
1,248

 
717

 
2,428

 
1,493

Operation and maintenance
559

 
542

 
1,159

 
1,058

Depreciation and amortization
249

 
243

 
498

 
472

Taxes other than income
97

 
91

 
206

 
190

Asset (gains) losses and impairments, net
3

 
(1
)
 
3

 
(1
)
 
2,552

 
2,006

 
5,219

 
4,191

Operating Income
303

 
256

 
872

 
637

 
 
 
 
 
 
 
 
Other (Income) and Deductions
 
 
 
 
 
 
 
Interest expense
133

 
114

 
258

 
227

Interest income
(2
)
 
(3
)
 
(5
)
 
(14
)
Other income
(66
)
 
(57
)
 
(130
)
 
(109
)
Other expenses
6

 
7

 
13

 
15

 
71

 
61

 
136

 
119

Income Before Income Taxes
232

 
195

 
736

 
518

 
 
 
 
 
 
 
 
Income Tax Expense
57

 
50

 
167

 
133

 
 
 
 
 
 
 
 
Net Income
175

 
145

 
569

 
385

 
 
 
 
 
 
 
 
Less: Net Loss Attributable to Noncontrolling Interests
(2
)
 
(7
)
 
(8
)
 
(14
)
 
 
 
 
 
 
 
 
Net Income Attributable to DTE Energy Company
$
177

 
$
152

 
$
577

 
$
399

 
 
 
 
 
 
 
 
Basic Earnings per Common Share
 
 
 
 
 
 
 
Net Income Attributable to DTE Energy Company
$
0.99

 
$
0.84

 
$
3.21

 
$
2.22

 
 
 
 
 
 
 
 
Diluted Earnings per Common Share
 
 
 
 
 
 
 
Net Income Attributable to DTE Energy Company
$
0.99

 
$
0.84

 
$
3.21

 
$
2.22

 
 
 
 
 
 
 
 
Weighted Average Common Shares Outstanding
 
 
 
 
 
 
 
Basic
179

 
179

 
179

 
179

Diluted
179

 
180

 
179

 
180

Dividends Declared per Common Share
$
0.825

 
$
0.73

 
$
1.65

 
$
1.46


See Combined Notes to Consolidated Financial Statements (Unaudited)

5



DTE Energy Company

Consolidated Statements of Comprehensive Income (Unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(In millions)
Net Income
$
175

 
$
145

 
$
569

 
$
385

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

 
(1
)
 
7

 
2

Net unrealized gains on investments during the period, net of taxes of $—, respectively
1

 

 
1

 

Foreign currency translation

 
(1
)
 

 
1

Other comprehensive income (loss)
4

 
(2
)
 
8

 
3

 
 
 
 
 
 
 
 
Comprehensive income
179

 
143

 
577

 
388

Less: Comprehensive loss attributable to noncontrolling interests
(2
)
 
(7
)
 
(8
)
 
(14
)
Comprehensive Income Attributable to DTE Energy Company
$
181

 
$
150

 
$
585

 
$
402


See Combined Notes to Consolidated Financial Statements (Unaudited)

6



DTE Energy Company

Consolidated Statements of Financial Position (Unaudited)

 
June 30,
 
December 31,
 
2017
 
2016
 
(In millions)
ASSETS
Current Assets
 
 
 
Cash and cash equivalents
$
62

 
$
92

Restricted cash
22

 
21

Accounts receivable (less allowance for doubtful accounts of $36 and $41, respectively)
 
 
 
Customer
1,451

 
1,522

Other
92

 
71

Inventories
 
 
 
Fuel and gas
353

 
416

Materials and supplies
390

 
356

Derivative assets
81

 
47

Regulatory assets
12

 
42

Other
168

 
195

 
2,631

 
2,762

Investments
 
 
 
Nuclear decommissioning trust funds
1,392

 
1,320

Investments in equity method investees
941

 
752

Other
217

 
201

 
2,550

 
2,273

Property
 
 
 
Property, plant, and equipment
30,599

 
30,029

Accumulated depreciation and amortization
(10,536
)
 
(10,299
)
 
20,063

 
19,730

Other Assets
 
 
 
Goodwill
2,291

 
2,286

Regulatory assets
3,861

 
3,871

Intangible assets
890

 
842

Notes receivable
70

 
73

Derivative assets
58

 
34

Other
168

 
170

 
7,338

 
7,276

Total Assets
$
32,582

 
$
32,041


See Combined Notes to Consolidated Financial Statements (Unaudited)

7



DTE Energy Company

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

 
June 30,
 
December 31,
 
2017
 
2016
 
(In millions, except shares)
LIABILITIES AND EQUITY
Current Liabilities
 
 
 
Accounts payable
$
988

 
$
1,079

Accrued interest
105

 
96

Dividends payable
296

 
148

Short-term borrowings
420

 
499

Current portion long-term debt, including capital leases
412

 
14

Derivative liabilities
39

 
69

Gas inventory equalization
35

 

Regulatory liabilities
61

 
34

Other
391

 
498

 
2,747

 
2,437

Long-Term Debt (net of current portion)
 
 
 
Mortgage bonds, notes, and other
10,600

 
10,506

Junior subordinated debentures
756

 
756

Capital lease obligations
2

 
7

 
11,358

 
11,269

Other Liabilities
 

 
 

Deferred income taxes
4,293

 
4,162

Regulatory liabilities
551

 
555

Asset retirement obligations
2,261

 
2,197

Unamortized investment tax credit
138

 
93

Derivative liabilities
63

 
98

Accrued pension liability
1,019

 
1,152

Accrued postretirement liability
36

 
36

Nuclear decommissioning
206

 
194

Other
339

 
349

 
8,906

 
8,836

Commitments and Contingencies (Notes 5 and 11)
 
 
 



 


Equity
 
 
 
Common stock, without par value, 400,000,000 shares authorized, and 179,393,579 and 179,432,581 shares issued and outstanding, respectively
3,968

 
4,030

Retained earnings
5,245

 
5,114

Accumulated other comprehensive loss
(125
)
 
(133
)
Total DTE Energy Company Equity
9,088

 
9,011

Noncontrolling interests
483

 
488

Total Equity
9,571

 
9,499

Total Liabilities and Equity
$
32,582

 
$
32,041


See Combined Notes to Consolidated Financial Statements (Unaudited)

8



DTE Energy Company

Consolidated Statements of Cash Flows (Unaudited)

 
Six Months Ended June 30,
 
2017
 
2016
 
(In millions)
Operating Activities
 
 
 
Net Income
$
569

 
$
385

Adjustments to reconcile Net Income to net cash from operating activities:
 
 
 
Depreciation and amortization
498

 
472

Nuclear fuel amortization
24

 
29

Allowance for equity funds used during construction
(12
)
 
(10
)
Deferred income taxes
164

 
134

Equity earnings of equity method investees
(51
)
 
(35
)
Dividends from equity method investees
37

 
33

Asset (gains) losses and impairments, net
3

 

Changes in assets and liabilities:
 
 
 
Accounts receivable, net
49

 
81

Inventories
32

 
86

Accounts payable
23

 
(10
)
Gas inventory equalization
35

 
46

Accrued pension liability
(133
)
 
3

Accrued postretirement liability

 
(53
)
Derivative assets and liabilities
(123
)
 
93

Regulatory assets and liabilities
216

 
71

Other current and noncurrent assets and liabilities
(148
)
 
(49
)
Net cash from operating activities
1,183

 
1,276

Investing Activities
 
 
 
Plant and equipment expenditures — utility
(968
)
 
(797
)
Plant and equipment expenditures — non-utility
(68
)
 
(64
)
Proceeds from sale of nuclear decommissioning trust fund assets
705

 
741

Investment in nuclear decommissioning trust funds
(688
)
 
(744
)
Distributions from equity method investees
7

 
7

Contributions to equity method investees
(175
)
 
(121
)
Other
(62
)
 
40

Net cash used for investing activities
(1,249
)
 
(938
)
Financing Activities
 
 
 
Issuance of long-term debt, net of issuance costs
495

 
588

Redemption of long-term debt
(6
)
 
(313
)
Short-term borrowings, net
(79
)
 
(324
)
Repurchase of common stock
(51
)
 
(33
)
Dividends on common stock
(296
)
 
(262
)
Other
(27
)
 
1

Net cash from (used for) financing activities
36

 
(343
)
Net Decrease in Cash and Cash Equivalents
(30
)
 
(5
)
Cash and Cash Equivalents at Beginning of Period
92

 
37

Cash and Cash Equivalents at End of Period
$
62

 
$
32

 
 
 
 
Supplemental disclosure of non-cash investing and financing activities
 
 
 
Plant and equipment expenditures in accounts payable
$
218

 
$
154


See Combined Notes to Consolidated Financial Statements (Unaudited)

9



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, 2016
179,433

 
$
4,030

 
$
5,114

 
$
(133
)
 
$
488

 
$
9,499

Net Income (Loss)

 

 
577

 

 
(8
)
 
569

Dividends declared on common stock

 

 
(444
)
 

 

 
(444
)
Repurchase of common stock
(524
)
 
(51
)
 

 

 

 
(51
)
Benefit obligations, net of tax

 

 

 
7

 

 
7

Net change in unrealized gains on investments, net of tax

 

 

 
1

 

 
1

Stock-based compensation, net contributions from noncontrolling interests, and other
485

 
(11
)
 
(2
)
 

 
3

 
(10
)
Balance, June 30, 2017
179,394

 
$
3,968

 
$
5,245

 
$
(125
)
 
$
483

 
$
9,571


See Combined Notes to Consolidated Financial Statements (Unaudited)

10



DTE Electric Company

Consolidated Statements of Operations (Unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(In millions)
Operating Revenues — Utility operations
$
1,218

 
$
1,215

 
$
2,393

 
$
2,368

 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
Fuel and purchased power — utility
355

 
361

 
669

 
696

Operation and maintenance
336

 
332

 
719

 
656

Depreciation and amortization
180

 
187

 
361

 
363

Taxes other than income
75

 
70

 
155

 
143

 
946

 
950

 
1,904

 
1,858

Operating Income
272

 
265

 
489

 
510

 
 
 
 
 
 
 
 
Other (Income) and Deductions
 
 
 
 
 
 
 
Interest expense
72

 
65

 
138

 
130

Interest income

 

 

 
(8
)
Other income
(17
)
 
(17
)
 
(36
)
 
(33
)
Other expenses
5

 
6

 
12

 
13

 
60

 
54

 
114

 
102

Income Before Income Taxes
212

 
211

 
375

 
408

 
 
 
 
 
 
 
 
Income Tax Expense
74

 
76

 
131

 
146

 
 
 
 
 
 
 
 
Net Income
$
138

 
$
135

 
$
244

 
$
262


See Combined Notes to Consolidated Financial Statements (Unaudited)

11



DTE Electric Company

Consolidated Statements of Comprehensive Income (Unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(In millions)
Net Income
$
138

 
$
135

 
$
244

 
$
262

Other comprehensive income

 

 

 

Comprehensive Income
$
138

 
$
135

 
$
244

 
$
262


See Combined Notes to Consolidated Financial Statements (Unaudited)

12



DTE Electric Company

Consolidated Statements of Financial Position (Unaudited)

 
June 30,
 
December 31,
 
2017
 
2016
 
(In millions)
ASSETS
Current Assets
 
 
 
Cash and cash equivalents
$
9

 
$
13

Accounts receivable (less allowance for doubtful accounts of $20 and $25, respectively)
 
 
 
Customer
742

 
728

Affiliates
15

 
12

Other
48

 
29

Inventories
 
 
 
Fuel
184

 
225

Materials and supplies
292

 
271

Regulatory assets
8

 
36

Other
62

 
63

 
1,360

 
1,377

Investments
 
 
 
Nuclear decommissioning trust funds
1,392

 
1,320

Other
35

 
36

 
1,427

 
1,356

Property
 
 
 
Property, plant, and equipment
22,436

 
22,094

Accumulated depreciation and amortization
(7,881
)
 
(7,721
)
 
14,555

 
14,373

Other Assets
 
 
 
Regulatory assets
3,129

 
3,113

Intangible assets
34

 
31

Prepaid postretirement costs — affiliates
114

 
114

Other
125

 
125

 
3,402

 
3,383

Total Assets
$
20,744

 
$
20,489


See Combined Notes to Consolidated Financial Statements (Unaudited)

13



DTE Electric Company

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

 
June 30,
 
December 31,
 
2017
 
2016
 
(In millions, except shares)
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
 
 
 
Accounts payable
 
 
 
Affiliates
$
48

 
$
58

Other
359

 
452

Accrued interest
66

 
65

Current portion long-term debt, including capital leases
305

 
6

Regulatory liabilities
56

 
27

Short-term borrowings
 
 
 
Affiliates
78

 
117

Other
326

 
62

Other
133

 
146

 
1,371

 
933

Long-Term Debt (net of current portion)
 
 
 
Mortgage bonds, notes, and other
5,580

 
5,878

Capital lease obligations
2

 
7

 
5,582

 
5,885

Other Liabilities
 
 
 
Deferred income taxes
3,872

 
3,793

Regulatory liabilities
248

 
229

Asset retirement obligations
2,070

 
2,012

Unamortized investment tax credit
135

 
90

Nuclear decommissioning
206

 
194

Accrued pension liability — affiliates
886

 
1,008

Accrued postretirement liability — affiliates
271

 
269

Other
80

 
81

 
7,768

 
7,676

Commitments and Contingencies (Notes 5 and 11)

 

 
 
 
 
Shareholder’s Equity
 
 
 
Common stock, $10 par value, 400,000,000 shares authorized, and 138,632,324 shares issued and outstanding
4,206

 
4,206

Retained earnings
1,815

 
1,787

Accumulated other comprehensive income
2

 
2

Total Shareholder’s Equity
6,023

 
5,995

Total Liabilities and Shareholder’s Equity
$
20,744

 
$
20,489


See Combined Notes to Consolidated Financial Statements (Unaudited)

14



DTE Electric Company

Consolidated Statements of Cash Flows (Unaudited)

 
Six Months Ended June 30,
 
2017
 
2016
 
(In millions)
Operating Activities
 
 
 
Net Income
$
244

 
$
262

Adjustments to reconcile Net Income to net cash from operating activities:
 
 
 
Depreciation and amortization
361

 
363

Nuclear fuel amortization
24

 
29

Allowance for equity funds used during construction
(10
)
 
(9
)
Deferred income taxes
130

 
146

Changes in assets and liabilities:
 
 
 
Accounts receivable, net
(36
)
 
(32
)
Inventories
23

 
25

Accounts payable
(4
)
 
32

Accrued pension liability — affiliates
(122
)
 
5

Accrued postretirement liability — affiliates
2

 
(34
)
Regulatory assets and liabilities
193

 
82

Other current and noncurrent assets and liabilities
(91
)
 
(44
)
Net cash from operating activities
714

 
825

Investing Activities
 
 
 
Plant and equipment expenditures
(737
)
 
(640
)
Proceeds from sale of assets

 
6

Notes receivable, including affiliates
5

 
(62
)
Proceeds from sale of nuclear decommissioning trust fund assets
705

 
741

Investment in nuclear decommissioning trust funds
(688
)
 
(744
)
Other
(5
)
 
36

Net cash used for investing activities
(720
)
 
(663
)
Financing Activities
 
 
 
Issuance of long-term debt, net of issuance costs

 
297

Redemption of long-term debt

 
(10
)
Short-term borrowings, net — affiliate
(39
)
 
33

Short-term borrowings, net — other
264

 
(272
)
Dividends on common stock
(216
)
 
(210
)
Other
(7
)
 
(2
)
Net cash from (used for) financing activities
2

 
(164
)
Net Decrease in Cash and Cash Equivalents
(4
)
 
(2
)
Cash and Cash Equivalents at Beginning of Period
13

 
15

Cash and Cash Equivalents at End of Period
$
9

 
$
13

 
 
 
 
Supplemental disclosure of non-cash investing and financing activities
 
 
 
Plant and equipment expenditures in accounts payable
$
133

 
$
112


See Combined Notes to Consolidated Financial Statements (Unaudited)

15



DTE Electric Company

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

 
 
 
 
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income
 
 
 
Common Stock
 
 
 
 
 
 
Shares
 
Amount
 
 
 
 
Total
 
(Dollars in millions, shares in thousands)
Balance, December 31, 2016
138,632

 
$
1,386

 
$
2,820

 
$
1,787

 
$
2

 
$
5,995

Net Income

 

 

 
244

 

 
244

Dividends declared on common stock

 

 

 
(216
)
 

 
(216
)
Balance, June 30, 2017
138,632

 
$
1,386

 
$
2,820

 
$
1,815

 
$
2

 
$
6,023


See Combined Notes to Consolidated Financial Statements (Unaudited)

16


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

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

NOTE 1ORGANIZATION AND BASIS OF PRESENTATION
Corporate Structure
DTE Energy owns the following businesses:
DTE Electric is a public utility engaged in the generation, purchase, distribution, and sale of electricity to approximately 2.2 million customers in southeastern Michigan;
DTE Gas is a public utility engaged in the purchase, storage, transportation, distribution, and sale of natural gas to approximately 1.3 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 for DTE Energy, 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 2016 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, 2017.

17


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

The information in these combined notes relates to each of the Registrants as noted in the Index of Combined Notes to Consolidated Financial Statements. However, DTE Electric does not make any representation as to information related solely to DTE Energy or the subsidiaries of DTE Energy other than itself.
Certain prior year balances for the Registrants were reclassified to match the current year's Consolidated Financial Statements presentation.
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 owns a 55% interest in SGG, which owns and operates midstream natural gas assets. SGG has contracts through which certain construction risk is designed to pass-through to the customers, with DTE Energy retaining operational and customer default risk. SGG is a VIE with DTE Energy as the primary beneficiary. See Note 4 to the Consolidated Financial Statements, "Acquisition," for more information.
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, 2017, 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, 2017, the carrying amount of assets and liabilities in DTE Electric's Consolidated Statements of Financial Position that relate to its variable interests under long-term purchase contracts are predominantly related to working capital accounts and generally represent the amounts owed by DTE Electric for the deliveries associated with the current billing cycle under the contracts. The Registrants have not provided any significant form of financial support associated with these long-term contracts. There is no significant potential exposure to loss as a result of DTE Energy's variable interests through these long-term purchase and sale contracts. In addition, there is no significant potential exposure to loss as a result of DTE Electric's variable interests through these long-term purchase contracts.
The maximum risk exposure for consolidated VIEs is reflected on the Registrants' Consolidated Statements of Financial Position. For non-consolidated VIEs, the maximum risk exposure is generally limited to its investment, notes receivable, and future funding commitments.

18


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

The following table summarizes the major Consolidated Statements of Financial Position items for consolidated VIEs as of June 30, 2017 and December 31, 2016. 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, 2017
 
December 31, 2016
 
SGG(a)
 
Other
 
Total
 
SGG(a)
 
Other
 
Total
 
(In millions)
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
33

 
$
15

 
$
48

 
$
36

 
$
27

 
$
63

Restricted cash

 
7

 
7

 

 
7

 
7

Accounts receivable
9

 
36

 
45

 
8

 
34

 
42

Inventories
3

 
62

 
65

 
3

 
112

 
115

Property, plant, and equipment, net
395

 
71

 
466

 
398

 
76

 
474

Goodwill
22

 

 
22

 
17

 

 
17

Intangible assets
580

 

 
580

 
586

 

 
586

Other current and long-term assets
1

 

 
1

 
1

 
1

 
2

 
$
1,043

 
$
191

 
$
1,234

 
$
1,049

 
$
257

 
$
1,306

 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued current liabilities
$
20

 
$
37

 
$
57

 
$
19

 
$
32

 
$
51

Current portion long-term debt, including capital leases

 
4

 
4

 

 
5

 
5

Mortgage bonds, notes, and other

 
3

 
3

 

 
5

 
5

Other current and long-term liabilities
2

 
15

 
17

 
2

 
15

 
17

 
$
22

 
$
59

 
$
81

 
$
21

 
$
57

 
$
78

_____________________________________
(a)Amounts shown are 100% of SGG's assets and liabilities, of which DTE Energy owns 55%.
Amounts for DTE Energy's non-consolidated VIEs are as follows:
 
June 30, 2017
 
December 31, 2016
 
(In millions)
Investments in equity method investees
$
182

 
$
187

Notes receivable
$
17

 
$
15

Future funding commitments
$
15

 
$
7



19


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

NOTE 2SIGNIFICANT ACCOUNTING POLICIES
Other Income
The following is a summary of DTE Energy's Other income:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(In millions)
Equity earnings of equity method investees
$
25

 
$
20

 
$
51

 
$
35

Income from REF entities
22

 
20

 
40

 
39

Gains from trading securities
5

 
5

 
13

 
10

Allowance for equity funds used during construction
5

 
5

 
12

 
10

Contract services
4

 
5

 
8

 
11

Other
5

 
2

 
6

 
4

 
$
66

 
$
57

 
$
130

 
$
109

The following is a summary of DTE Electric's Other income:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(In millions)
Gains from trading securities allocated from DTE Energy
$
5

 
$
5

 
$
13

 
$
10

Contract services
5

 
5

 
9

 
11

Allowance for equity funds used during construction
4

 
5

 
10

 
9

Equity earnings of equity method investees
1

 
1

 
1

 
1

Other
2

 
1

 
3

 
2

 
$
17

 
$
17

 
$
36

 
$
33

Changes in Accumulated Other Comprehensive Income (Loss)
For the three and six months ended June 30, 2017 and 2016, 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.
Income Taxes
The effective tax rate of the Registrants are as follows:
 
Effective Tax Rate
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
DTE Energy
25
%
 
26
%
 
23
%
 
26
%
DTE Electric
35
%
 
36
%
 
35
%
 
36
%
The 3% decrease in DTE Energy's effective tax rate for the six months ended June 30, 2017 was primarily due to $13 million of excess tax benefits on stock-based compensation recognized in accordance with ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which was adopted effective July 1, 2016.
DTE Energy's total amount of unrecognized tax benefits as of June 30, 2017 and December 31, 2016 was $10 million. The amount, if recognized, that would favorably impact DTE Energy's effective tax rate as of June 30, 2017 and December 31, 2016 was $6 million and $7 million, respectively. DTE Electric's total amount of unrecognized tax benefits as of June 30, 2017 and December 31, 2016 was $13 million, of which $8 million, 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.

20


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

DTE Electric had income tax receivables with DTE Energy of $9 million at June 30, 2017 and December 31, 2016.
Unrecognized Compensation Costs
As of June 30, 2017, DTE Energy had $83 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 1.60 years.
Allocated Stock-Based Compensation
DTE Electric received an allocation of costs from DTE Energy associated with stock-based compensation of $10 million and $9 million for the three months ended June 30, 2017 and 2016, respectively, while such allocation was $18 million and $19 million for the six months ended June 30, 2017 and 2016, respectively.

NOTE 3NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted Pronouncements
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 was applied prospectively. The Registrants adopted this ASU at January 1, 2017. The adoption of the ASU 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 to be applied retrospectively. The Registrants will adopt the standard effective January 1, 2018. The Registrants are currently assessing the impact of the ASU, as amended, on their Consolidated Financial Statements as well as the transition method the Registrants will use to adopt the guidance. The Registrants have completed the preliminary evaluations of the impact of this guidance and do not expect the ASU to significantly affect results of operations for tariff-based sales, which represent a majority of the Registrants' revenues, and the remaining non-tariff revenues. The Registrants will continue to evaluate the impact of the ASU on existing revenue recognition policies and procedures and monitor the unresolved industry-related issues. The previously disclosed issue regarding contributions in aid of construction (CIAC) has been resolved, subject to finalization of implementation guidance. The Registrants do not expect CIAC to be in the scope of the ASU, therefore, the accounting will not change as a result of ASC 606. Based on recent developments in the industry-related issue resolution process, accounting for certain contracts where collectibility is in question is not expected to result in a significant change. The Registrants are evaluating information that would be useful for users of the Consolidated Financial Statements and have determined the ASU will result in additional disclosures for revenue compared to the current guidance.
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 standard is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. The Registrants do not plan to early adopt the standard. 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 expect an increase in assets and liabilities, however, they are currently assessing the impact of this ASU on their Consolidated Financial Statements. This assessment includes monitoring unresolved utility industry implementation guidance.

21


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

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.
In March 2017, the FASB issued ASU No. 2017-07, Compensation Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The amendments in this update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside income from operations. The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable. The standard will be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The ASU is effective for the Registrants beginning after December 15, 2017, including interim periods therein. Early adoption is permitted. The components of net periodic benefit costs (credits) for pension benefits and other postretirement benefits are disclosed in Note 12 to the Consolidated Financial Statements, "Retirement Benefits and Trusteed Assets." The ASU will not have a significant impact on the Registrants' Consolidated Financial Statements.

NOTE 4ACQUISITION
Gas Storage and Pipelines Acquisition
Effective October 1, 2016, DTE Energy closed on the purchase of midstream natural gas assets in support of the strategy to continue to grow and earn competitive returns for shareholders. DTE Energy purchased 100% of AGS, located in Pennsylvania and West Virginia, and 40% of SGG, located in West Virginia, from M3 Midstream. In addition, DTE Energy purchased 15% of SGG from Vega Energy Partners, resulting in 55% total ownership of SGG by DTE Energy.
Consideration transferred for the entities acquired was approximately $1.2 billion paid in cash and the assumption of SGG debt of $204 million. The $204 million of debt was comprised of DTE Energy's 55% interest in SGG of $112 million and 45% related to noncontrolling interest partners of $92 million. The acquisition was financed through the issuance of equity units and senior notes. These entities are part of DTE Energy's Gas Storage and Pipelines segment which owns and manages a network of natural gas gathering, transmission, and storage facilities servicing the Midwest, Ontario, and Northeast markets. SGG has been deemed to be a VIE, and DTE Energy is the primary beneficiary. Thus, SGG's assets and liabilities are included in DTE Energy's Consolidated Statements of Financial Position. See Note 1 to the Consolidated Financial Statements, "Organization and Basis of Presentation," for more information.
DTE Energy has applied purchase accounting to the acquired entities. The allocation of the purchase price included in the Consolidated Statements of Financial Position is preliminary and may be revised up to one year from the date of acquisition due to adjustments in the estimated fair value of the assets acquired and the liabilities assumed. The purchase price is subject to (i) final working capital settlement adjustments and (ii) resolution of any indemnification claims that might be deducted from the $130 million of cash consideration paid and held in escrow. As such, DTE Energy cannot estimate the potential amount of the additional revisions to the purchase price allocation in 2017. The excess purchase price over the fair value of net assets acquired was classified as goodwill. Through the second quarter of 2017, the final working capital adjustments and certain indemnification claims were settled, resulting in purchase accounting adjustments of approximately $5 million of additional goodwill. As of June 30, 2017, total goodwill was approximately $273 million. The remaining cash consideration held in escrow as of June 30, 2017 was approximately $28 million. The factors contributing to the recognition of goodwill are based on various strategic benefits that are expected to be realized from the AGS and SGG acquisition. The acquisition provides DTE Energy with a platform for midstream growth and access to further investment opportunities in the Appalachian basin, an additional connection to the NEXUS Pipeline which should drive incremental volumes on the NEXUS Pipeline, and a new set of producer relationships that may lead to more partnering opportunities. The goodwill is expected to be deductible for income tax purposes.

22


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

The preliminary allocation of the purchase price was based on estimated fair values of the AGS and SGG assets acquired and liabilities assumed at the date of acquisition, October 1, 2016. The components of the preliminary purchase price allocation, inclusive of purchase accounting adjustments, are as follows:
 
(In millions)
Assets
 
Cash
$
83

Accounts receivable
24

Inventory
6

Property, plant, and equipment, net
730

Goodwill
273

Customer relationship intangibles
770

Other current assets
1

 
$
1,887

Liabilities
 
Accounts payable
$
19

Other current liabilities
14

Long-term debt
204

Other long-term liabilities
26

 
$
263

Less: Noncontrolling interest
392

Total cash consideration
$
1,232

The intangible assets recorded as a result of the acquisition pertain to existing customer relationships, which were valued at approximately $770 million as of the acquisition date. The fair value of the intangible assets acquired was estimated by applying the income approach. The income approach was based upon discounted projected future cash flows attributable to the existing contracts and agreements. The fair value measurement was based on significant unobservable inputs, including management estimates and assumptions, and thus represents a Level 3 measurement, pursuant to the applicable accounting guidance. Key estimates and inputs included revenue and expense projections and discount rates based on the risks associated with the entities. The intangible assets are amortized on a straight-line basis over a period of 40 years, which is based on the number of years the assets are expected to economically contribute to the business. The expected economic benefit incorporates existing customer contracts with a weighted-average amortization life of 10 years and expected renewal rates, based on the estimated volume and production lives of gas resources in the region.
The fair value of the noncontrolling interest in the table above was derived based on the purchase price DTE Energy paid for the 55% interest in SGG.
DTE Energy evaluated pre-acquisition contingencies relating to AGS and SGG that existed as of the acquisition date. Based on the evaluation, DTE Energy determined that $39 million of certain pre-acquisition contingencies, related to repairing existing rights-of-way, are probable in nature and estimable as of the acquisition date. Accordingly, DTE Energy recorded its best estimates for these contingencies as part of the purchase accounting for AGS and SGG.
DTE Energy incurred $15 million of direct transaction costs for the year ended December 31, 2016. These costs were primarily related to advisory fees and included in Operation and maintenance in DTE Energy's 2016 Consolidated Statements of Operations.
DTE Energy's 2016 Consolidated Statements of Operations included Operating Revenues — Non-utility operations of $39 million and Net Income of $4 million associated with the acquired entities for the three-month period following the acquisition date, excluding the $15 million transaction costs described above. The pro forma financial information was not presented for DTE Energy because the effects of the acquisition were not material to the Consolidated Statements of Operations.


23


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

NOTE 5REGULATORY 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. On August 1, 2016, DTE Electric self-implemented a base rate increase of $245 million. On January 31, 2017, the MPSC issued an order approving an annual revenue increase of $184 million for service rendered on or after February 7, 2017. The MPSC authorized a return on equity of 10.1%. On April 28, 2017, DTE Electric filed to refund its customers their pro-rata share of the revenue collected through the self-implementation surcharge in effect from August 1, 2016 through February 7, 2017. As of June 30, 2017, DTE Electric has recorded a refund liability of $37 million, representing the total estimated refund due to customers, inclusive of interest.
2017 Electric Rate Case Filing
DTE Electric filed a rate case with the MPSC on April 19, 2017 requesting an increase in base rates of $231 million based on a projected twelve-month period ending October 31, 2018. The requested increase in base rates is primarily due 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 10.1% to 10.5% on capital structure. To mitigate the impact to its customers regarding ASU No. 2017-07, Compensation Retirement Benefits (Topic 715), DTE Electric suggested regulatory accounting treatment for the pension and postretirement cost components previously included as capital overhead. If the MPSC adopts DTE Electric's suggestion, the rate request will be reduced. For further discussion of ASU No. 2017-07, see Note 3 to the Consolidated Financial Statements, "New Accounting Pronouncements." DTE Electric anticipates self-implementing a rate increase in November 2017, with an MPSC order expected by April 2018.
PSCR Proceedings
The PSCR process is designed to allow DTE Electric to recover all of its power supply costs if incurred under reasonable and prudent policies and practices. DTE Electric's power supply costs include fuel and related transportation costs, purchased and net interchange power costs, NOx and SO2 emission allowances costs, urea costs, transmission costs, MISO, and other related costs. The MPSC reviews these costs, policies, and practices for prudence in annual plan and reconciliation filings.
2015 PSCR Year — In March 2016, DTE Electric filed its 2015 PSCR reconciliation that included the recovery of approximately $13 million of costs related to the pass through of a billing adjustment associated with a previous MPSC ordered customer refund. On July 12, 2017, the MPSC issued an order that disallowed recovery of this 2015 PSCR billing adjustment pass through of approximately $16 million, inclusive of interest. DTE Electric recorded the impact of this disallowance in the second quarter of 2017.


24


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

NOTE 6EARNINGS 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. Equity units, performance shares, and 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:
<
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(In millions, except per share amounts)
Basic Earnings per Share
 
 
 
 
 
 
 
Net Income Attributable to DTE Energy Company
$
177

 
$
152

 
$
577

 
$
399

Less: Allocation of earnings to net restricted stock awards

 

 
1

 
1

Net income available to common shareholders — basic
$
177

 
$
152

 
$
576

 
$
398

 
 
 
 
 
 
 
 
Average number of common shares outstanding
179

 
179

 
179

 
179

Basic Earnings per Common Share
$
0.99

 
$
0.84

 
$
3.21

 
$
2.22

 
 
 
 
 
 
 
 
Diluted Earnings per Share
 
 
 
 
 
 
 
Net Income Attributable to DTE Energy Company
$
177

 
$
152

 
$
577

 
$
399

Less: Allocation of earnings to net restricted stock awards

 

 
1

 
1

Net income available to common shareholders — diluted
$
177

 
$
152

 
$
576

 
$
398

 
 
 
 
 
 
 
 
Average number of common shares outstanding
179

 
179

 
179

 
179

Incremental shares attributable to:
 
 
 
 
 
 
 
Average dilutive performance share awards and stock options(a)

 
1

 

 
1

Average number of common shares outstanding — diluted
179

 
180