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EX-31.148 - CHIEF FINANCIAL OFFICER SECTION 302 FORM 10-K CERTIFICATION - DTE ELECTRIC - DTE ENERGY COa20180331ex31148.htm
EX-32.148 - CHIEF FINANCIAL OFFICER SECTION 906 FORM 10-K CERTIFICATION - DTE ELECTRIC - DTE ENERGY COa20180331ex32148.htm
EX-32.147 - CHIEF EXECUTIVE OFFICER SECTION 906 FORM 10-K CERTIFICATION - DTE ELECTRIC - DTE ENERGY COa20180331ex32147.htm
EX-32.146 - CHIEF FINANCIAL OFFICER SECTION 906 FORM 10-K CERTIFICATION - DTE ENERGY - DTE ENERGY COa20180331ex32146.htm
EX-32.145 - CHIEF EXECUTIVE OFFICER SECTION 906 FORM 10-K CERTIFICATION - DTE ENERGY - DTE ENERGY COa20180331ex32145.htm
EX-31.147 - CHIEF EXECUTIVE OFFICER SECTION 302 FORM 10-K CERTIFICATION - DTE ELECTRIC - DTE ENERGY COa20180331ex31147.htm
EX-31.146 - CHIEF FINANCIAL OFFICER SECTION 302 FORM 10-K CERTIFICATION - DTE ENERGY - DTE ENERGY COa20180331ex31146.htm
EX-31.145 - CHIEF EXECUTIVE OFFICER SECTION 302 FORM 10-K CERTIFICATION - DTE ENERGY - DTE ENERGY COa20180331ex31145.htm
EX-12.84 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - DTE ELECTRIC - DTE ENERGY COa20180331ex1284.htm
EX-12.83 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - DTE ENERGY - DTE ENERGY COa20180331ex1283.htm


 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended March 31, 2018
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
Emerging growth 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
Emerging growth company o
 
 
 
(Do not check if a smaller
reporting company)
 
 
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 March 31, 2018:
Registrant
 
Description
 
Shares
DTE Energy
 
Common Stock, without par value
 
181,483,163

 
 
 
 
 
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 any individual registrant is filed by such registrant solely on its own 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.
 
 
ANPR
Advanced Notice of Proposed Rulemaking
 
 
ASU
Accounting Standards Update issued by the FASB
 
 
CCR
Coal Combustion Residuals
 
 
CFTC
U.S. Commodity Futures Trading Commission
 
 
CON
Certificate of Necessity
 
 
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
 
 
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
 
 

1



DEFINITIONS

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.
 
 
REC
Renewable Energy Credit
 
 
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
 
 
TCJA
Tax Cuts and Jobs Act of 2017
 
 
TCJA rate reduction reserve
Beginning January 1, 2018, as a result of the change in the corporate tax rate,
DTE Electric and DTE Gas have reduced revenue and recorded an offsetting regulatory liability
 
 
Topic 606
FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, as amended
 
 
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
 
 
 
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 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 2017 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;
the cost of protecting assets against, or damage due to, cyber crime and terrorism;
health, safety, financial, environmental, and regulatory risks associated with ownership and operation of nuclear facilities;
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 cost and availability of coal and other raw materials, purchased power, and natural gas;
advances in technology that produce power or reduce power consumption;
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;

3



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;
employee relations and the impact of collective bargaining agreements;
the risk of a major safety incident at an electric distribution or generation facility and, for DTE Energy, a gas storage, transmission, or distribution facility;
the availability, cost, coverage, and terms of insurance and stability of insurance providers;
cost reduction efforts and the maximization of plant and distribution system performance;
the effects of competition;
changes in and application of accounting standards and financial reporting regulations;
changes in federal or state laws and their interpretation with respect to regulation, energy policy, and other business issues;
contract disputes, binding arbitration, litigation, and related appeals; and
the risks discussed in the Registrants' public filings with the Securities and Exchange Commission.
New factors emerge from time to time. The Registrants cannot predict what factors may arise or how such factors may cause results to differ materially from those contained in any forward-looking statement. Any forward-looking statements speak only as of the date on which such statements are made. The Registrants undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.

4



Part I — Financial Information
Item 1. Financial Statements

DTE Energy Company

Consolidated Statements of Operations (Unaudited)
 
Three Months Ended March 31,
 
2018
 
2017
 
(In millions, except per share amounts)
Operating Revenues
 
 
 
Utility operations
$
1,740

 
$
1,718

Non-utility operations
2,013

 
1,518

 
3,753

 
3,236

 
 
 
 
Operating Expenses
 
 
 
Fuel, purchased power, and gas — utility
553

 
529

Fuel, purchased power, and gas — non-utility
1,773

 
1,180

Operation and maintenance
534

 
584

Depreciation and amortization
281

 
249

Taxes other than income
111

 
109

Asset (gains) losses and impairments, net
(3
)
 

 
3,249

 
2,651

Operating Income
504

 
585

 
 
 
 
Other (Income) and Deductions
 
 
 
Interest expense
135

 
125

Interest income
(3
)
 
(3
)
Non-operating retirement benefits, net
9

 
16

Other income
(81
)
 
(64
)
Other expenses
25

 
7

 
85

 
81

Income Before Income Taxes
419

 
504

 
 
 
 
Income Tax Expense
68

 
110

 
 
 
 
Net Income
351

 
394

 
 
 
 
Less: Net Loss Attributable to Noncontrolling Interests
(10
)
 
(6
)
 
 
 
 
Net Income Attributable to DTE Energy Company
$
361

 
$
400

 
 
 
 
Basic Earnings per Common Share
 
 
 
Net Income Attributable to DTE Energy Company
$
2.01

 
$
2.23

 
 
 
 
Diluted Earnings per Common Share
 
 
 
Net Income Attributable to DTE Energy Company
$
2.00

 
$
2.23

 
 
 
 
Weighted Average Common Shares Outstanding
 
 
 
Basic
180

 
179

Diluted
180

 
179

Dividends Declared per Common Share
$
0.88

 
$
0.83

See Combined Notes to Consolidated Financial Statements (Unaudited)

5



DTE Energy Company

Consolidated Statements of Comprehensive Income (Unaudited)

 
Three Months Ended March 31,
 
2018
 
2017
 
(In millions)
Net Income
$
351

 
$
394

 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
Implementation of ASU 2016-01
(5
)
 

Benefit obligations, net of taxes of $1, and $2, respectively
2

 
4

Other comprehensive income (loss)
(3
)
 
4

 
 
 
 
Comprehensive income
348

 
398

Less: Comprehensive loss attributable to noncontrolling interests
(10
)
 
(6
)
Comprehensive Income Attributable to DTE Energy Company
$
358

 
$
404


See Combined Notes to Consolidated Financial Statements (Unaudited)

6



DTE Energy Company

Consolidated Statements of Financial Position (Unaudited)

 
March 31,
 
December 31,
 
2018
 
2017
 
(In millions)
ASSETS
Current Assets
 
 
 
Cash and cash equivalents
$
164

 
$
66

Restricted cash
22

 
23

Accounts receivable (less allowance for doubtful accounts of $54 and $49, respectively)
 
 
 
Customer
1,709

 
1,758

Other
116

 
98

Inventories
 
 
 
Fuel and gas
237

 
399

Materials and supplies
360

 
380

Derivative assets
84

 
103

Regulatory assets
44

 
55

Other
221

 
199

 
2,957

 
3,081

Investments
 
 
 
Nuclear decommissioning trust funds
1,481

 
1,492

Investments in equity method investees
1,141

 
1,073

Other
230

 
232

 
2,852

 
2,797

Property
 
 
 
Property, plant, and equipment
31,656

 
31,424

Accumulated depreciation and amortization
(10,786
)
 
(10,703
)
 
20,870

 
20,721

Other Assets
 
 
 
Goodwill
2,293

 
2,293

Regulatory assets
3,715

 
3,723

Intangible assets
867

 
867

Notes receivable
70

 
73

Derivative assets
58

 
51

Other
159

 
161

 
7,162

 
7,168

Total Assets
$
33,841

 
$
33,767


See Combined Notes to Consolidated Financial Statements (Unaudited)

7



DTE Energy Company

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

 
March 31,
 
December 31,
 
2018
 
2017
 
(In millions, except shares)
LIABILITIES AND EQUITY
Current Liabilities
 
 
 
Accounts payable
$
920

 
$
1,171

Accrued interest
132

 
111

Dividends payable
160

 
158

Short-term borrowings
635

 
621

Current portion long-term debt, including capital leases
106

 
109

Derivative liabilities
69

 
99

Gas inventory equalization
85

 

Regulatory liabilities
23

 
18

Other
411

 
525

 
2,541

 
2,812

Long-Term Debt (net of current portion)
 
 
 
Mortgage bonds, notes, and other
11,040

 
11,039

Junior subordinated debentures
1,145

 
1,145

Capital lease obligations

 
1

 
12,185

 
12,185

Other Liabilities
 

 
 

Deferred income taxes
1,936

 
1,888

Regulatory liabilities
3,001

 
2,875

Asset retirement obligations
2,361

 
2,320

Unamortized investment tax credit
122

 
122

Derivative liabilities
58

 
47

Accrued pension liability
737

 
924

Accrued postretirement liability
25

 
61

Nuclear decommissioning
219

 
220

Other
293

 
323

 
8,752

 
8,780

Commitments and Contingencies (Notes 5 and 10)
 
 
 



 


Equity
 
 
 
Common stock, without par value, 400,000,000 shares authorized, and 181,483,163 and 179,386,967 shares issued and outstanding, respectively
4,163

 
3,989

Retained earnings
5,848

 
5,643

Accumulated other comprehensive loss
(123
)
 
(120
)
Total DTE Energy Company Equity
9,888

 
9,512

Noncontrolling interests
475

 
478

Total Equity
10,363

 
9,990

Total Liabilities and Equity
$
33,841

 
$
33,767


See Combined Notes to Consolidated Financial Statements (Unaudited)

8



DTE Energy Company

Consolidated Statements of Cash Flows (Unaudited)

 
Three Months Ended March 31,
 
2018
 
2017
 
(In millions)
Operating Activities
 
 
 
Net Income
$
351

 
$
394

Adjustments to reconcile Net Income to Net cash from operating activities:
 
 
 
Depreciation and amortization
281

 
249

Nuclear fuel amortization
15

 
12

Allowance for equity funds used during construction
(7
)
 
(7
)
Deferred income taxes
60

 
100

Equity earnings of equity method investees
(21
)
 
(26
)
Dividends from equity method investees
15

 
18

Changes in assets and liabilities:
 
 
 
Accounts receivable, net
33

 
84

Inventories
182

 
135

Accounts payable
(136
)
 
(33
)
Gas inventory equalization
85

 
86

Accrued pension liability
(187
)
 
(130
)
Accrued postretirement liability
(36
)
 
27

Derivative assets and liabilities
(7
)
 
(100
)
Regulatory assets and liabilities
148

 
128

Other current and noncurrent assets and liabilities
62

 
(150
)
Net cash from operating activities
838

 
787

Investing Activities
 
 
 
Plant and equipment expenditures — utility
(466
)
 
(533
)
Plant and equipment expenditures — non-utility
(61
)
 
(22
)
Proceeds from sale of nuclear decommissioning trust fund assets
336

 
394

Investment in nuclear decommissioning trust funds
(337
)
 
(378
)
Distributions from equity method investees
4

 
6

Contributions to equity method investees
(64
)
 
(112
)
Other
2

 
3

Net cash used for investing activities
(586
)
 
(642
)
Financing Activities
 
 
 
Issuance of long-term debt, net of issuance costs

 
496

Short-term borrowings, net
14

 
(440
)
Repurchase of common stock

 
(51
)
Dividends on common stock
(158
)
 
(148
)
REF contributions from noncontrolling interests
12

 
11

Other
(23
)
 
(24
)
Net cash used for financing activities
(155
)
 
(156
)
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash
97

 
(11
)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period
89

 
113

Cash, Cash Equivalents, and Restricted Cash at End of Period
$
186

 
$
102

 
 
 
 
Supplemental disclosure of non-cash investing and financing activities
 
 
 
Plant and equipment expenditures in accounts payable
$
179

 
$
196


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, 2017
179,387

 
$
3,989

 
$
5,643

 
$
(120
)
 
$
478

 
$
9,990

Implementation of ASU 2016-01

 

 
5

 
(5
)
 

 

Net Income (Loss)

 

 
361

 

 
(10
)
 
351

Dividends declared on common stock

 

 
(160
)
 

 

 
(160
)
Contribution of common stock to pension plan
1,751

 
175

 

 

 

 
175

Benefit obligations, net of tax

 

 

 
2

 

 
2

Stock-based compensation, net contributions from noncontrolling interests, and other
345

 
(1
)
 
(1
)
 

 
7

 
5

Balance, March 31, 2018
181,483

 
$
4,163

 
$
5,848

 
$
(123
)
 
$
475

 
$
10,363


See Combined Notes to Consolidated Financial Statements (Unaudited)

10



DTE Electric Company

Consolidated Statements of Operations (Unaudited)

 
Three Months Ended March 31,
 
2018
 
2017
 
(In millions)
Operating Revenues — Utility operations
$
1,205

 
$
1,175

 
 
 
 
Operating Expenses
 
 
 
Fuel and purchased power — utility
339

 
314

Operation and maintenance
320

 
383

Depreciation and amortization
212

 
181

Taxes other than income
81

 
80

 
952

 
958

Operating Income
253

 
217

 
 
 
 
Other (Income) and Deductions
 
 
 
Interest expense
68

 
66

Other income
(27
)
 
(19
)
Other expenses
25

 
7

 
66

 
54

Income Before Income Taxes
187

 
163

 
 
 
 
Income Tax Expense
47

 
57

 
 
 
 
Net Income
$
140

 
$
106


See Combined Notes to Consolidated Financial Statements (Unaudited)

11



DTE Electric Company

Consolidated Statements of Comprehensive Income (Unaudited)

 
Three Months Ended March 31,
 
2018
 
2017
 
(In millions)
Net Income
$
140

 
$
106

Other comprehensive income, net of tax:
 
 
 
Implementation of ASU 2016-01
3

 

Other comprehensive income
3

 

Comprehensive Income
$
143

 
$
106


See Combined Notes to Consolidated Financial Statements (Unaudited)

12



DTE Electric Company

Consolidated Statements of Financial Position (Unaudited)

 
March 31,
 
December 31,
 
2018
 
2017
 
(In millions)
ASSETS
Current Assets
 
 
 
Cash and cash equivalents
$
16

 
$
15

Accounts receivable (less allowance for doubtful accounts of $31 for both periods)
 
 
 
Customer
754

 
791

Affiliates
14

 
20

Other
39

 
37

Inventories
 
 
 
Fuel
138

 
190

Materials and supplies
277

 
275

Regulatory assets
40

 
50

Prepaid property tax
91

 
48

Other
18

 
20

 
1,387

 
1,446

Investments
 
 
 
Nuclear decommissioning trust funds
1,481

 
1,492

Other
36

 
36

 
1,517

 
1,528

Property
 
 
 
Property, plant, and equipment
23,098

 
22,972

Accumulated depreciation and amortization
(8,023
)
 
(7,984
)
 
15,075

 
14,988

Other Assets
 
 
 
Regulatory assets
3,009

 
3,005

Intangible assets
31

 
25

Prepaid postretirement costs — affiliates
113

 
113

Other
123

 
123

 
3,276

 
3,266

Total Assets
$
21,255

 
$
21,228


See Combined Notes to Consolidated Financial Statements (Unaudited)

13



DTE Electric Company

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

 
March 31,
 
December 31,
 
2018
 
2017
 
(In millions, except shares)
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
 
 
 
Accounts payable
 
 
 
Affiliates
$
61

 
$
52

Other
295

 
416

Accrued interest
70

 
72

Current portion long-term debt, including capital leases
2

 
5

Regulatory liabilities
21

 
17

Short-term borrowings
 
 
 
Affiliates
142

 
116

Other
380

 
238

Other
133

 
145

 
1,104

 
1,061

Long-Term Debt (net of current portion)
 
 
 
Mortgage bonds, notes, and other
6,018

 
6,017

Capital lease obligations

 
1

 
6,018

 
6,018

Other Liabilities
 
 
 
Deferred income taxes
2,127

 
2,088

Regulatory liabilities
2,218

 
2,137

Asset retirement obligations
2,165

 
2,125

Unamortized investment tax credit
120

 
120

Nuclear decommissioning
219

 
220

Accrued pension liability — affiliates
633

 
811

Accrued postretirement liability — affiliates
287

 
311

Other
74

 
72

 
7,843

 
7,884

Commitments and Contingencies (Notes 5 and 10)

 

 
 
 
 
Shareholder’s Equity
 
 
 
Common stock, $10 par value, 400,000,000 shares authorized, and 138,632,324 shares issued and outstanding
4,306

 
4,306

Retained earnings
1,984

 
1,956

Accumulated other comprehensive income

 
3

Total Shareholder’s Equity
6,290

 
6,265

Total Liabilities and Shareholder’s Equity
$
21,255

 
$
21,228


See Combined Notes to Consolidated Financial Statements (Unaudited)

14



DTE Electric Company

Consolidated Statements of Cash Flows (Unaudited)

 
Three Months Ended March 31,
 
2018
 
2017
 
(In millions)
Operating Activities
 
 
 
Net Income
$
140

 
$
106

Adjustments to reconcile Net Income to Net cash from operating activities:
 
 
 
Depreciation and amortization
212

 
181

Nuclear fuel amortization
15

 
12

Allowance for equity funds used during construction
(5
)
 
(6
)
Deferred income taxes
48

 
57

Changes in assets and liabilities:
 
 
 
Accounts receivable, net
39

 
58

Inventories
50

 
44

Accounts payable
(30
)
 
26

Accrued pension liability — affiliates
(178
)
 
(123
)
Accrued postretirement liability — affiliates
(24
)
 
21

Regulatory assets and liabilities
97

 
122

Other current and noncurrent assets and liabilities
(41
)
 
(87
)
Net cash from operating activities
323

 
411

Investing Activities
 
 
 
Plant and equipment expenditures
(370
)
 
(408
)
Proceeds from sale of nuclear decommissioning trust fund assets
336

 
394

Investment in nuclear decommissioning trust funds
(337
)
 
(378
)
Other

 
5

Net cash used for investing activities
(371
)
 
(387
)
Financing Activities
 
 
 
Short-term borrowings, net — affiliate
26

 
88

Short-term borrowings, net — other
142

 
(3
)
Dividends on common stock
(115
)
 
(108
)
Other
(4
)
 
(3
)
Net cash from (used for) financing activities
49

 
(26
)
Net Increase (Decrease) in Cash and Cash Equivalents
1

 
(2
)
Cash and Cash Equivalents at Beginning of Period
15

 
13

Cash and Cash Equivalents at End of Period
$
16

 
$
11

 
 
 
 
Supplemental disclosure of non-cash investing and financing activities
 
 
 
Plant and equipment expenditures in accounts payable
$
109

 
$
134


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, 2017
138,632

 
$
1,386

 
$
2,920

 
$
1,956

 
$
3

 
$
6,265

Implementation of ASU 2016-01

 

 

 
3

 
(3
)
 

Net Income

 

 

 
140

 

 
140

Dividends declared on common stock

 

 

 
(115
)
 

 
(115
)
Balance, March 31, 2018
138,632

 
$
1,386

 
$
2,920

 
$
1,984

 
$

 
$
6,290


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
 
Revenue
 
DTE Energy and DTE Electric
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
 
Short-Term Credit Arrangements and Borrowings
 
DTE Energy and DTE Electric
Note 10
 
Commitments and Contingencies
 
DTE Energy and DTE Electric
Note 11
 
Retirement Benefits and Trusteed Assets
 
DTE Energy and DTE Electric
Note 12
 
Segment and Related Information
 
DTE Energy

NOTE 1ORGANIZATION AND BASIS OF PRESENTATION
Corporate Structure
DTE Energy owns the following businesses:
DTE Electric is a public utility engaged in the generation, purchase, distribution, and sale of electricity to approximately 2.2 million customers in southeastern Michigan;
DTE Gas is a public utility engaged in the purchase, storage, transportation, distribution, and sale of natural gas to approximately 1.3 million customers throughout Michigan and the sale of storage and transportation capacity; and
Other businesses involved in 1) services related to the gathering, transportation, and storage of natural gas; 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 2017 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, 2018.

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 DTE Energy were reclassified to match the current year's Consolidated Financial Statements presentation. Due to the implementation of ASU 2017-07, amounts previously included in Operation and maintenance were reclassified to Non-operating retirement benefits, net on the Consolidated Statements of Operations. 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 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.
The Registrants have variable interests in NEXUS, which include DTE Energy's 50% ownership interest and DTE Electric's transportation services contract. NEXUS is a joint venture which is in the process of constructing a 255-mile pipeline to transport Utica and Marcellus shale gas to Ohio, Michigan, and Ontario market centers. NEXUS is a VIE as it has insufficient equity at risk to finance its activities. The Registrants are not the primary beneficiaries, as the power to direct significant activities is shared between the owners of the equity interests. DTE Energy accounts for its ownership interest in NEXUS under the equity method.
The Registrants hold ownership interests in certain limited partnerships. The limited partnerships include investment funds which support regional development and economic growth, as well as an operational business providing energy-related products. These entities are generally VIEs as a result of certain characteristics of the limited partnership voting rights. The ownership interests are accounted for under the equity method as the Registrants are not the primary beneficiaries.

18


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

DTE Energy has variable interests in VIEs through certain of its long-term purchase and sale contracts. DTE Electric has variable interests in VIEs through certain of its long-term purchase contracts. As of March 31, 2018, the carrying amount of assets and liabilities in DTE Energy's Consolidated Statements of Financial Position that relate to its variable interests under long-term purchase and sale contracts are predominantly related to working capital accounts and generally represent the amounts owed by or to DTE Energy for the deliveries associated with the current billing cycle under the contracts. As of March 31, 2018, 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 and in Note 10 to the Consolidated Financial Statements, "Commitments and Contingencies," related to the REF guarantees and indemnities. For non-consolidated VIEs, the maximum risk exposure of the Registrants is generally limited to their investment, notes receivable, future funding commitments, and amounts which DTE Energy has guaranteed. See Note 10 to the Consolidated Financial Statements, "Commitments and Contingencies," for further discussion of the NEXUS guarantee arrangements.
The following table summarizes the major Consolidated Statements of Financial Position items for consolidated VIEs as of March 31, 2018 and December 31, 2017. All assets and liabilities of a consolidated VIE are presented where it has been determined that a consolidated VIE has either (1) assets that can be used only to settle obligations of the VIE or (2) liabilities for which creditors do not have recourse to the general credit of the primary beneficiary. VIEs, in which DTE Energy holds a majority voting interest and is the primary beneficiary, that meet the definition of a business and whose assets can be used for purposes other than the settlement of the VIE's obligations have been excluded from the table below.
 
March 31, 2018
 
December 31, 2017
 
SGG(a)
 
Other
 
Total
 
SGG(a)
 
Other
 
Total
 
(In millions)
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
29

 
$
12

 
$
41

 
$
23

 
$
14

 
$
37

Restricted cash

 
8

 
8

 

 
8

 
8

Accounts receivable
11

 
37

 
48

 
11

 
42

 
53

Inventories
3

 
66

 
69

 
3

 
114

 
117

Property, plant, and equipment, net
386

 
73

 
459

 
400

 
75

 
475

Goodwill
25

 

 
25

 
25

 

 
25

Intangible assets
568

 

 
568

 
572

 

 
572

Other current and long-term assets
2

 

 
2

 
4

 

 
4

 
$
1,024

 
$
196

 
$
1,220

 
$
1,038

 
$
253

 
$
1,291

 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued current liabilities
$
2

 
$
35

 
$
37

 
$
26

 
$
47

 
$
73

Current portion long-term debt, including capital leases

 
4

 
4

 

 
4

 
4

Mortgage bonds, notes, and other

 

 

 

 
1

 
1

Other current and long-term liabilities
2

 
15

 
17

 
1

 
16

 
17

 
$
4

 
$
54

 
$
58

 
$
27

 
$
68

 
$
95

_____________________________________
(a)Amounts shown are 100% of SGG's assets and liabilities, of which DTE Energy owns 55%.

19


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

Amounts for DTE Energy's non-consolidated VIEs are as follows:
 
March 31, 2018
 
December 31, 2017
 
(In millions)
Investments in equity method investees
$
866

 
$
811

Notes receivable
$
17

 
$
17

Future funding commitments
$
551

 
$
598


NOTE 2SIGNIFICANT ACCOUNTING POLICIES
Other Income
The following is a summary of DTE Energy's Other income:
 
Three Months Ended March 31,
 
2018
 
2017
 
(In millions)
Income from REF entities
$
23

 
$
18

Equity earnings of equity method investees
21

 
26

Contract services
20

 
4

Allowance for equity funds used during construction
7

 
7

Gains from equity securities

 
8

Other
10

 
1

 
$
81

 
$
64

The following is a summary of DTE Electric's Other income:
 
Three Months Ended March 31,
 
2018
 
2017
 
(In millions)
Contract services
$
20

 
$
4

Allowance for equity funds used during construction
5

 
6

Gains from equity securities allocated from DTE Energy

 
8

Other
2

 
1

 
$
27

 
$
19

Changes in Accumulated Other Comprehensive Income (Loss)
For the three months ended March 31, 2018 and 2017, 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. For further discussion regarding changes in Accumulated other comprehensive income (loss), see Note 3 to the Consolidated Financial Statements, "New Accounting Pronouncements."

20


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

Income Taxes
The 2018 estimated annual effective tax rates for DTE Energy and DTE Electric are 13% and 22%, respectively. These tax rates are affected by estimated annual permanent items, including AFUDC equity, production tax credits, and other flow-through items, as well as discrete items that may occur in any given period, but are not consistent from period to period.
The interim effective tax rate of the Registrants are as follows:
 
Effective Tax Rate
 
Three Months Ended March 31,
 
2018
 
2017
DTE Energy
16
%
 
22
%
DTE Electric
25
%
 
35
%
The 6% decrease in DTE Energy's effective tax rate for the three months ended March 31, 2018 was primarily due to the reduction of the corporate tax rate from 35% to 21%, which became effective in 2018. The decrease in the effective tax rate was partially offset by true-up adjustments to the remeasurement of deferred taxes in 2018 of $21 million, which increased the effective tax rate by 5%, and the reduction of excess tax benefits on stock-based compensation of $10 million, which increased the effective tax rate by 2%. For further discussion regarding the true-up adjustments, see Note 3 to the Consolidated Financial Statements, "New Accounting Pronouncements."
The 10% decrease in DTE Electric's effective tax rate for the three months ended March 31, 2018 was primarily due to the reduction of the corporate tax rate from 35% to 21%, which became effective in 2018, partially offset by true-up adjustments to the remeasurement of deferred taxes in 2018 of $8 million, which increased the effective tax rate by 4%.
DTE Energy's total amount of unrecognized tax benefits as of March 31, 2018 was $8 million, of which $8 million, if recognized, would favorably impact its effective tax rate. DTE Electric's total amount of unrecognized tax benefits as of March 31, 2018 was $10 million, of which $10 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.
DTE Electric had income tax receivables with DTE Energy of $13 million and $12 million at March 31, 2018 and December 31, 2017, respectively.
Unrecognized Compensation Costs
As of March 31, 2018, DTE Energy had $111 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 1.75 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 March 31, 2018 and 2017, respectively.
Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents include cash on hand, cash in banks, and temporary investments purchased with remaining maturities of three months or less. Restricted cash consists of funds held to satisfy requirements of certain debt and DTE Energy partnership operating agreements. Restricted cash designated for interest and principal payments within one year is classified as a Current Asset.

21


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

The following is a table that provides a reconciliation of DTE Energy's Cash and cash equivalents as well as Restricted cash reported within the Consolidated Statements of Financial Position that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows:
 
Three Months Ended March 31,
 
2018
 
2017
 
(In millions)
Cash and cash equivalents
$
164

 
$
82

Restricted cash
22

 
20

Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows
$
186

 
$
102


NOTE 3NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted 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 required 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 adopted the standard effective January 1, 2018 using the modified retrospective approach. Under the modified retrospective approach, the information for periods prior to the adoption date has not been restated and continues to be reported under the accounting standards in effect for those periods. As permitted under the standard, the Registrants have elected to apply the guidance only to those contracts that were not completed at January 1, 2018, and have elected not to restate the impacts of any contract modifications made prior to the earliest period presented.
The adoption of the ASU did not have a significant impact on the Registrants' financial position or results of operations, but required additional disclosures for revenue. See Note 4 to the Consolidated Financial Statements, "Revenue."
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 required 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 of income from operations. The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable. The Registrants adopted the standard effective January 1, 2018. The standard has been 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. As permitted by the standard, the Registrants have used benefit cost amounts disclosed for prior periods as the basis for retrospective application in the income statement. As a result of regulatory mechanisms, the impact to the Consolidated Financial Statements was not material for the first quarter of 2018.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, as amended. The new guidance is intended to improve the recognition and measurement of financial instruments. The guidance 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. The guidance requires equity investments to be generally measured at fair value, with subsequent changes in fair value recognized in net income. The guidance requires entities 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. The Registrants adopted the standard effective January 1, 2018. Upon adoption, DTE Energy and DTE Electric recorded a cumulative-effect adjustment to reclassify $5 million and $3 million of unrealized gains from Accumulated other comprehensive income (loss) to Retained earnings, respectively.

22


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

In March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740): Amendments to SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 118. The Amendments in this update add various SEC paragraphs pursuant to the issuance of SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118). SAB 118 directs taxpayers to consider the implications of the TCJA as provisional when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the change in the tax law. As described in Note 10 to the Consolidated Financial Statements, "Income Taxes," within the combined DTE Energy and DTE Electric 2017 Annual Report on Form 10-K and in accordance with SAB 118, the Registrants recorded amounts that were considered provisional. In first quarter of 2018, DTE Energy and DTE Electric recorded true-up adjustments to the remeasurement of deferred taxes of $21 million and $8 million, respectively. The impact of the true-up adjustments was an increase in Income Tax Expense, of which $16 million was attributable to the regulated utilities and offset to Regulatory liabilities. The true-up adjustments were a result of further analysis for items subject to further consideration at December 31, 2017 under SAB 118 and primarily related to timing differences not recoverable from DTE Electric and DTE Gas customers. The Registrants will continue to analyze the amounts throughout 2018, which may result in additional changes.
Recently Issued Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), as amended. This guidance requires a lessee to account for leases as finance or operating leases, and disclose key information about leasing arrangements. Both types of 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, depending on the lease classification. The Registrants will adopt the standard on January 1, 2019. As originally issued, the standard requires a modified retrospective approach for leases existing or entered into after the beginning of the earliest comparative period in the Consolidated Financial Statements. The Registrants are evaluating the transition practical expedients available under the guidance, such as retaining the current lease assessment and classifications for existing leases at the effective date, and not applying the new guidance to land easements that exist or expire before the effective date.
A third-party software tool is being implemented that will assist with the initial adoption and ongoing compliance of the standard. The Registrants are evaluating contracts for leases and abstracting the required data, as well as evaluating new business processes, internal controls, and accounting policies. In addition, the Registrants are monitoring utility industry implementation issues for purchase power agreements, pipeline laterals, and other industry specific arrangements. While the Registrants expect an increase in assets and liabilities, as well as additional disclosures, they are still assessing the impact of this ASU on their 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 generally accepted accounting principles 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 February 2018, the FASB issued ASU No. 2018-02, Income Statement Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA. The amendments in this update also require entities to disclose their accounting policy for releasing income tax effects from accumulated other comprehensive income. The ASU is effective for the Registrants for fiscal years beginning after December 15, 2018, and interim periods therein. Early adoption is permitted. The Registrants are currently assessing the impact of this standard on their Consolidated Financial Statements.


23


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

NOTE 4REVENUE
Significant Accounting Policy
Upon the adoption of Topic 606, revenue is measured based upon the consideration specified in a contract with a customer at the time when performance obligations are satisfied. Under Topic 606, a performance obligation is a promise in a contract to transfer a distinct good or service or a series of distinct goods or services to the customer. The Registrants recognize revenue when performance obligations are satisfied by transferring control over a product or service to a customer. The Registrants have determined control to be transferred when the product is delivered or the service is provided to the customer. For the three months ended March 31, 2018, recognition of revenue for the Registrants subsequent to the adoption of Topic 606 is substantially similar in amount and approach to that prior to adoption.
Rates for DTE Electric and DTE Gas include provisions to adjust billings for fluctuations in fuel and purchased power costs, cost of natural gas, and certain other costs. Revenues are adjusted for differences between actual costs subject to reconciliation and the amounts billed in current rates. Under or over recovered revenues related to these cost recovery mechanisms are included in Regulatory assets or liabilities on the Registrants' Consolidated Statements of Financial Position and are recovered or returned to customers through adjustments to the billing factors.
For discussion of derivative contracts, see Note 8 to the Consolidated Financial Statements, "Financial and Other Derivative Instruments."
Disaggregation of Revenue
The following is a summary of revenues disaggregated by segment for DTE Energy:
 
Three Months Ended March 31, 2018
 
(In millions)
Electric(a)
 
Residential
$
586

Commercial
429

Industrial
176

Other(b)
14

Total Electric operating revenues(c)
$
1,205

 
 
Gas
 
Gas sales
$
457

End User Transportation
85

Intermediate Transportation
18

Other(d)
(10
)
Total Gas operating revenues(e)
$
550

 
 
Other segment operating revenues(f)
 
Gas Storage and Pipelines
$
119

Power and Industrial Projects
$
567

Energy Trading
$
1,498

_______________________________________
(a)
Revenues under the Electric segment generally represent those of DTE Electric.
(b)
Includes a reduction of $39 million in revenues related to TCJA rate reduction reserve.
(c)
Includes $5 million of other revenues which are outside the scope of Topic 606.
(d)
Includes a reduction of $32 million in revenues related to TCJA rate reduction reserve.
(e)
Includes a reduction of $3 million under Alternative Revenue Programs and $2 million of other revenues which are both outside the scope of Topic 606.
(f)
Includes revenues outside the scope of Topic 606 primarily related to $445 million of contracts accounted for as leases at the Power and Industrial Projects segment and $1.2 billion related to derivatives at the Energy Trading segment.

24


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

Nature of Goods and Services
The following is a description of principal activities, separated by reportable segments, from which DTE Energy generates revenue. For more detailed information about reportable segments, see Note 12 to the Consolidated Financial Statements, “Segment and Related Information.”
The Registrants have contracts with customers which may contain more than one performance obligation. When more than one performance obligation exists in a contract, the consideration under the contract is allocated to the performance obligations based on the relative standalone selling price. DTE Energy generally determines stand alone selling prices based on the prices charged to customers or the use of the adjusted market assessment approach. The adjusted market assessment approach involves the evaluation of the market in which DTE Energy sells goods or services and estimating the price that a customer in that market would be willing to pay.
Under Topic 606, when a customer simultaneously receives and consumes the product or service provided, revenue is considered to be recognized over time. Alternatively, if it is determined that the criteria for recognition of revenue over time is not met, the revenue is considered to be recognized at a point in time.
Electric
Electric consists principally of DTE Electric. Electric revenues are primarily comprised of the supply and delivery of electricity, and related capacity. Revenues are primarily associated with cancelable contracts, with the exception of certain long-term contracts with commercial and industrial customers. Revenues, including estimated unbilled amounts, are generally recognized over time based upon volumes delivered or through the passage of time ratably based upon providing a stand-ready service. The Registrants have determined that the above methods represent a faithful depiction of the transfer of control to the customer. Unbilled revenues are typically determined utilizing approved tariff rates and estimated meter volumes. Estimated unbilled amounts recognized in revenue are subject to adjustment in the following reporting period as actual volumes by customer class are known. Revenues are typically subject to tariff rates based upon customer class and type of service, and are billed and received monthly. Tariff rates are determined by the MPSC on a per kWh or monthly basis.
Gas
Gas revenues are primarily comprised of the supply and delivery of natural gas, and other services including storage, transportation, and appliance maintenance. Revenues are primarily associated with cancelable contracts with the exception of certain long-term contracts with commercial and industrial customers. Revenues, including estimated unbilled amounts, are generally recognized over time based upon volumes delivered or through the passage of time ratably based upon providing a stand-ready service. DTE Energy has determined that the above methods represent a faithful depiction of the transfer of control to the customer. Unbilled revenues are typically determined using both estimated meter volumes and estimated usage based upon the number of unbilled days and historical temperatures. Estimated unbilled amounts recognized in revenue are subject to adjustment in the following reporting period as actual volumes by customer class and service type are known. Revenues are typically subject to tariff rates or other rates subject to regulatory oversight and are billed and received monthly. Tariff rates are determined by the MPSC on a per unit or monthly basis.
Gas Storage and Pipelines
Gas Storage and Pipelines revenues generally consist of services related to the gathering, transportation, and storage of natural gas. Contracts are primarily long-term in nature. Revenues, including estimated unbilled amounts, are generally recognized over time based upon services provided or through the passage of time ratably based upon providing a stand-ready service. DTE Energy has determined that the above methods represent a faithful depiction of the transfer of control to the customer. Revenues are typically billed and received monthly. Pricing for such revenues may consist of demand rates, commodity rates, transportation rates, and other associated fees. Consideration may consist of both fixed and variable components. Generally, uncertainties in the variable consideration components are resolved and revenues are known at the time of recognition.
Power and Industrial Projects
Power and Industrial Projects revenues consist primarily of contracts accounted for as leases which are outside of the scope of Topic 606. For performance obligations within the scope of Topic 606, the timing of revenue recognition is dependent upon when control over the associated product or service is transferred.

25


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

Revenues at Power and Industrial Projects, within the scope of Topic 606, generally consist of sales of blast furnace coke and coke oven gas, electricity, equipment maintenance services, and other energy related products and services. Revenues, including estimated unbilled amounts, for the sale of blast furnace coke are generally recognized at a point in time when the product is delivered, which represents the transfer of control to the customer. Other revenues are generally recognized over time based upon services provided or through the passage of time ratably based upon providing a stand-ready service. DTE Energy has determined that the above methods represent a faithful depiction of the transfer of control to the customer. Market based pricing structures exist in such contracts including adjustments for consumer price or other indices. Consideration may consist of both fixed and variable components. Generally, uncertainties in the variable consideration components are resolved and revenues are known at the time of recognition. Billing terms vary and are generally monthly with payment terms typically within 30 days following billing.
Energy Trading
Energy Trading revenues consist primarily of derivative contracts outside of the scope of Topic 606. For performance obligations within the scope of Topic 606, the timing of revenue recognition is dependent upon when control over the associated product or service is transferred.
Revenues, including estimated unbilled amounts, within the scope of Topic 606 arising from the sale of natural gas, electricity, power capacity, and other energy related products are generally recognized over time based upon volumes delivered or through the passage of time ratably based upon providing a stand-ready service. DTE Energy has determined that the above methods represent a faithful depiction of the transfer of control to the customer. Revenues are known at the time of recognition. Payment for the aforementioned revenues is generally due from customers in the month following delivery.
Revenues associated with RECs are recognized at a point in time when control of the RECs are transferred to the customer which is deemed to be when the subject RECs are entered for transfer to the customer in the applicable regulatory tracking system. Revenues associated with RECs under a wholesale full requirements power contract are deferred until control has been transferred. The deferred revenues represent a contract liability for which payment has been received and the amounts have been estimated using the adjusted market assessment approach. With the exception of RECs, generally all other performance obligations associated with wholesale full requirements power contracts are satisfied over time in conjunction with the delivery of power. At the time power is delivered, DTE Energy may not have control over the RECs as the RECs are not self-generated and may not yet have been procured resulting in deferred revenues.
Deferred Revenue
The following is a summary of deferred revenue activity:
 
DTE Energy
 
(In millions)
Beginning Balance, January 1, 2018
$
56

Increases due to cash received or receivable, excluding amounts recognized as revenue during the period
14

Revenue recognized that was included in the deferred revenue balance at the beginning of the period
(16
)
Ending Balance, March 31, 2018
$
54

The deferred revenues at DTE Energy generally represent amounts paid by or receivable from customers for which the associated performance obligation has not yet been satisfied.
Deferred revenues include amounts associated with REC performance obligations under certain wholesale full requirements power contracts. Deferred revenues associated with RECs are recognized as revenue when control of the RECs has transferred.
Other performance obligations associated with deferred revenues include providing products and services related to customer prepayments. Deferred revenues associated with these products and services are recognized when control has transferred to the customer.

26


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

The following table represents deferred revenue amounts for DTE Energy that are expected to be recognized as revenue in future periods:
 
DTE Energy
 
(In millions)
2018
$
23

2019
9

2020
1

2021
5

2022
6

2023 and thereafter
10

 
$
54

Transaction Price Allocated to the Remaining Performance Obligations
In accordance with optional exemptions available under Topic 606, the Registrants did not disclose the value of unsatisfied performance obligations for (1) contracts with an original expected length of one year or less, (2) with the exception of fixed consideration, contracts for which revenue is recognized at the amount to which the Registrants have the right to invoice for goods provided and services performed, and (3) contracts for which variable consideration relates entirely to an unsatisfied performance obligation.
Such contracts consist of varying types of performance obligations across the segments, including the supply and delivery of energy related products and services. Contracts with variable volumes and/or variable pricing, including those with pricing provisions tied to a consumer price or other index, have also been excluded as the related consideration under the contract is variable at inception of the contract. Contract lengths vary from cancelable to multi-year.
The Registrants expect to recognize revenue for the following amounts related to fixed consideration associated with remaining performance obligations in each of the future periods noted:
 
DTE Energy
 
DTE Electric
 
(In millions)
2018
$
159

 
$
6

2019
238

 
8

2020
168

 

2021
128

 

2022
103

 

2023 and thereafter
351

 

Total
$
1,147

 
$
14

Other Matters
DTE Energy has recognized charges of $25 million related to expense recognized for estimated uncollectible accounts receivable for the three months ended March 31, 2018. DTE Electric has recognized charges of $14 million related to expense recognized for estimated uncollectible accounts receivable for the three months ended March 31, 2018.


27


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

NOTE 5REGULATORY MATTERS
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%. To mitigate the impact to its customers resulting from ASU No. 2017-07, Compensation Retirement Benefits (Topic 715), DTE Electric implemented regulatory accounting treatment. As such, beginning January 1, 2018, pension and postretirement cost components previously included as capital overhead are being deferred. For further discussion of ASU No. 2017-07, see Note 3 to the Consolidated Financial Statements, "New Accounting Pronouncements." On November 1, 2017, DTE Electric self-implemented a base rate increase of $125 million. On April 18, 2018, the MPSC issued an order approving an annual revenue increase of $65.2 million for service rendered on or after May 1, 2018. The MPSC authorized a return on equity of 10.0%. DTE Electric has recorded a refund liability of $25 million, representing the total estimated refund due to customers, inclusive of interest, at March 31, 2018.
Certificate of Necessity
On July 31, 2017, DTE Electric filed a request for authority to build a 1,100 megawatt natural gas fueled combined cycle generation facility at DTE Electric's Belle River Power Plant. DTE Electric requested the MPSC to issue three CONs for the following: (1) power supplied by the proposed project is needed, (2) the size, fuel type, and other design characteristics of the proposed project represent the most reasonable and prudent means of meeting the power need, and (3) the estimated capital costs of $989 million for the proposed project will be recoverable in rates from DTE Electric's customers. DTE Electric expects an order in this proceeding from the MPSC by April 27, 2018.
2017 Gas Rate Case Filing
DTE Gas filed a rate case with the MPSC on November 22, 2017 requesting an increase in base rates of $85.1 million based on a projected twelve-month period ending September 30, 2019. The requested increase in base rates is primarily due to an increase in net plant. The rate filing also requests an increase in return on equity from 10.1% to 10.5% and includes projected changes in sales, operations, maintenance expenses, and working capital. To mitigate the impact to its customers resulting from ASU No. 2017-07, Compensation Retirement Benefits (Topic 715), DTE Gas suggested regulatory accounting treatment, consistent with the methodology approved by the MPSC in the 2017 DTE Electric Rate Case order. As such, beginning January 1, 2018, pension and postretirement cost components previously included as capital overhead are being deferred. For further discussion of ASU No. 2017-07, see Note 3 to the Consolidated Financial Statements, "New Accounting Pronouncements." A final MPSC order in this case is expected by September 2018.
2017 Tax Reform
On December 27, 2017, the MPSC issued an order to consider changes in the rates of all Michigan rate-regulated utilities to reflect the effects of the federal TCJA. On January 19, 2018, DTE Electric and DTE Gas filed information with the MPSC regarding the potential change in revenue requirements due to the TCJA effective January 1, 2018, and outlined their recommended method to flow the current and deferred tax benefits of those impacts to ratepayers.
On February 22, 2018, the MPSC issued an order in this case requiring utilities, including DTE Electric and DTE Gas, to follow a 3-step approach of credits and calculations. The first step is to establish Credit A, through contested cases. Credit A is a going-forward tax credit to reflect the reduction of the corporate tax rate from 35% to 21%. DTE Gas submitted its Credit A filing on March 28, 2018, reflecting a reduction in revenues of $38.2 million. The proposed new rates are expected to be effective July 1, 2018. DTE Electric is required to file its Credit A application by May 18, 2018. The second step is to establish Credit B, through contested cases. Credit B is a backward-looking tax credit to reflect the reduction of the corporate rate of 35% to 21%, for the period January 1, 2018 through the date Credit A is established. The Credit B filing is required within sixty days after Credit A is implemented. DTE Electric and DTE Gas have been deferring the impact of the reduction to the corporate tax rate since January 1, 2018. The third step is to perform Calculation C, through contested cases. Calculation C will address all remaining issues relative to the new tax law, which is primarily the remeasurement of deferred taxes and how the amounts deferred as Regulatory liabilities will flow to ratepayers. DTE Electric and DTE Gas are required to file Calculation C no later than October 1, 2018, unless they file a new general rate case prior to October 1, 2018, and address Calculation C within that filing.

28


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 March 31,
 
2018
 
2017
 
(In millions, except per share amounts)
Basic Earnings per Share
 
 
 
Net Income Attributable to DTE Energy Company
$
361

 
$
400

Less: Allocation of earnings to net restricted stock awards
1

 
1

Net income available to common shareholders — basic
$
360

 
$
399

 
 
 
 
Average number of common shares outstanding
180

 
179

Basic Earnings per Common Share
$
2.01

 
$
2.23

 
 
 
 
Diluted Earnings per Share
 
 
 
Net Income Attributable to DTE Energy Company
$
361

 
$
400

Less: Allocation of earnings to net restricted stock awards
1

 
1

Net income available to common shareholders — diluted
$
360

 
$
399

 
 
 
 
Average number of common shares outstanding
180

 
179

Diluted Earnings per Common Share(a)
$
2.00

 
$
2.23

_______________________________________
(a)
The 2016 Equity Units excluded from the calculation of diluted EPS were approximately 6.6 million and 6.8 million for the three months ended March 31, 2018 and 2017, respectively, as the dilutive stock price threshold was not met.

NOTE 7FAIR VALUE
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Registrants make certain assumptions they believe that market participants would use in pricing assets or liabilities, including assumptions about risk, and the risks inherent in the inputs to valuation techniques. Credit risk of the Registrants and their counterparties is incorporated in the valuation of assets and liabilities through the use of credit reserves, the impact of which was immaterial at March 31, 2018 and December 31, 2017. The Registrants believe they use valuation techniques that maximize the use of observable market-based inputs and minimize the use of unobservable inputs.

29


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.

30


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:
 
March 31, 2018
 
December 31, 2017
 
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)
$
16

 
$

 
$

 
$

 
$

 
$
16

 
$
16

 
$
3

 
$

 
$

 
$

 
$
19

Nuclear decommissioning trusts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
933

 

 

 

 

 
933

 
978

 

 

 

 

 
978

Fixed income securities
14

 
516

 

 

 

 
530

 
18

 
477

 

 

 

 
495

Private equity securities

 

 

 
5

 

 
5

 

 

 

 
5

 

 
5

Cash equivalents
13

 

 

 

 

 
13

 
14

 

 

 

 

 
14

Other investments(d)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
117

 

 

 

 

 
117

 
118

 

 

 

 

 
118

Fixed income securities
70

 

 

 

 

 
70

 
72