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EX-32.156 - CHIEF FINANCIAL OFFICER SECTION 906 FORM 10-Q CERTIFICATION - DTE ELECTRIC - DTE ENERGY COa20180930ex32156.htm
EX-32.155 - CHIEF EXECUTIVE OFFICER SECTION 906 FORM 10-Q CERTIFICATION - DTE ELECTRIC - DTE ENERGY COa20180930ex32155.htm
EX-32.154 - CHIEF FINANCIAL OFFICER SECTION 906 FORM 10-Q CERTIFICATION - DTE ENERGY - DTE ENERGY COa20180930ex32154.htm
EX-32.153 - CHIEF EXECUTIVE OFFICER SECTION 906 FORM 10-Q CERTIFICATION - DTE ENERGY - DTE ENERGY COa20180930ex32153.htm
EX-31.156 - CHIEF FINANCIAL OFFICER SECTION 302 FORM 10-Q CERTIFICATION - DTE ELECTRIC - DTE ENERGY COa20180930ex31156.htm
EX-31.155 - CHIEF EXECUTIVE OFFICER SECTION 302 FORM 10-Q CERTIFICATION - DTE ELECTRIC - DTE ENERGY COa20180930ex31155.htm
EX-31.154 - CHIEF FINANCIAL OFFICER SECTION 302 FORM 10-Q CERTIFICATION - DTE ENERGY - DTE ENERGY COa20180930ex31154.htm
EX-31.153 - CHIEF EXECUTIVE OFFICER SECTION 302 FORM 10-Q CERTIFICATION - DTE ENERGY - DTE ENERGY COa20180930ex31153.htm
EX-12.88 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - DTE ELECTRIC - DTE ENERGY COa20180930ex1288.htm
EX-12.87 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - DTE ENERGY - DTE ENERGY COa20180930ex1287.htm
EX-4.301 - SUPPLEMENTAL INDENTURE, DATED AS OF AUGUST 1, 2018 - DTE ENERGY COa20180930ex4301.htm
EX-4.300 - FORTY-NINTH SUPPLEMENTAL INDENTURE, DATED AS OF AUGUST 1, 2018 - DTE ENERGY COa20180930ex4300.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 September 30, 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 every Interactive Data File required to be submitted 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 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, a 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
 
 
 
 
 
 
DTE Electric
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x
Smaller reporting company o
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 September 30, 2018:
Registrant
 
Description
 
Shares
DTE Energy
 
Common Stock, without par value
 
181,925,024

 
 
 
 
 
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.
 
 
AMT
Alternative Minimum Tax
 
 
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
 
 
Green Bonds
A financing option to fund projects that have a positive environmental impact based upon a specified set of criteria. The proceeds are required to be used for eligible green expenditures.
 
 
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
 
 

1



DEFINITIONS

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.
 
 
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.
 
 
SEC
Securities and Exchange Commission
 
 
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 to 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 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;
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 September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions, except per share amounts)
Operating Revenues
 
 
 
 
 
 
 
Utility operations
$
1,669

 
$
1,573

 
$
4,923

 
$
4,714

Non-utility operations
1,881

 
1,672

 
5,539

 
4,622

 
3,550

 
3,245

 
10,462

 
9,336

 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
Fuel, purchased power, and gas — utility
453

 
437

 
1,440

 
1,362

Fuel, purchased power, and gas — non-utility
1,682

 
1,469

 
4,898

 
3,897

Operation and maintenance
604

 
550

 
1,721

 
1,676

Depreciation and amortization
273

 
258

 
826

 
756

Taxes other than income
99

 
91

 
307

 
297

Asset (gains) losses and impairments, net
10

 
6

 
8

 
9

 
3,121

 
2,811

 
9,200

 
7,997

Operating Income
429

 
434

 
1,262

 
1,339

 
 
 
 
 
 
 
 
Other (Income) and Deductions
 
 
 
 
 
 
 
Interest expense
142

 
146

 
412

 
404

Interest income
(3
)
 
(4
)
 
(9
)
 
(9
)
Non-operating retirement benefits, net
9

 
16

 
27

 
49

Other income
(99
)
 
(74
)
 
(262
)
 
(204
)
Other expenses
11

 
13

 
51

 
26

 
60

 
97

 
219

 
266

Income Before Income Taxes
369

 
337

 
1,043

 
1,073

 
 
 
 
 
 
 
 
Income Tax Expense
34

 
74

 
121

 
241

 
 
 
 
 
 
 
 
Net Income
335

 
263

 
922

 
832

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

 
(7
)
 
(7
)
 
(15
)
 
 
 
 
 
 
 
 
Net Income Attributable to DTE Energy Company
$
334

 
$
270

 
$
929

 
$
847

 
 
 
 
 
 
 
 
Basic Earnings per Common Share
 
 
 
 
 
 
 
Net Income Attributable to DTE Energy Company
$
1.84

 
$
1.51

 
$
5.13

 
$
4.72

 
 
 
 
 
 
 
 
Diluted Earnings per Common Share
 
 
 
 
 
 
 
Net Income Attributable to DTE Energy Company
$
1.84

 
$
1.51

 
$
5.13

 
$
4.72

 
 
 
 
 
 
 
 
Weighted Average Common Shares Outstanding
 
 
 
 
 
 
 
Basic
182

 
179

 
181

 
179

Diluted
182

 
179

 
181

 
179

Dividends Declared per Common Share
$

 
$

 
$
2.65

 
$
2.48

See Combined Notes to Consolidated Financial Statements (Unaudited)

5



DTE Energy Company

Consolidated Statements of Comprehensive Income (Unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions)
Net Income
$
335

 
$
263

 
$
922

 
$
832

 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Benefit obligations, net of taxes of $—, $2, $2, and $6, respectively
2

 
3

 
7

 
10

Net unrealized gains on investments during the period, net of taxes of $1 for the nine months ended September 30, 2017

 

 

 
1

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

 

 
1

 

Foreign currency translation

 
2

 
(1
)
 
2

Other comprehensive income
3

 
5

 
7

 
13

 
 
 
 
 
 
 
 
Comprehensive income
338

 
268

 
929

 
845

Less: Comprehensive income (loss) attributable to noncontrolling interests
1

 
(7
)
 
(7
)
 
(15
)
Comprehensive Income Attributable to DTE Energy Company
$
337

 
$
275

 
$
936

 
$
860


See Combined Notes to Consolidated Financial Statements (Unaudited)

6



DTE Energy Company

Consolidated Statements of Financial Position (Unaudited)

 
September 30,
 
December 31,
 
2018
 
2017
 
(In millions)
ASSETS
Current Assets
 
 
 
Cash and cash equivalents
$
84

 
$
66

Restricted cash
20

 
23

Accounts receivable (less allowance for doubtful accounts of $75 and $49, respectively)
 
 
 
Customer
1,690

 
1,758

Other
83

 
98

Inventories
 
 
 
Fuel and gas
390

 
399

Materials and supplies
377

 
380

Derivative assets
97

 
103

Regulatory assets
90

 
55

Other
272

 
199

 
3,103

 
3,081

Investments
 
 
 
Nuclear decommissioning trust funds
1,525

 
1,492

Investments in equity method investees
1,670

 
1,073

Other
241

 
232

 
3,436

 
2,797

Property
 
 
 
Property, plant, and equipment
32,600

 
31,424

Accumulated depreciation and amortization
(10,988
)
 
(10,703
)
 
21,612

 
20,721

Other Assets
 
 
 
Goodwill
2,293

 
2,293

Regulatory assets
3,689

 
3,723

Intangible assets
864

 
867

Notes receivable
67

 
73

Derivative assets
31

 
51

Prepaid postretirement costs
45

 

Other
152

 
161

 
7,141

 
7,168

Total Assets
$
35,292

 
$
33,767


See Combined Notes to Consolidated Financial Statements (Unaudited)

7



DTE Energy Company

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

 
September 30,
 
December 31,
 
2018
 
2017
 
(In millions, except shares)
LIABILITIES AND EQUITY
Current Liabilities
 
 
 
Accounts payable
$
1,160

 
$
1,171

Accrued interest
143

 
111

Dividends payable
161

 
158

Short-term borrowings
77

 
621

Current portion long-term debt, including capital leases
1

 
109

Derivative liabilities
79

 
99

Regulatory liabilities
34

 
18

Other
462

 
525

 
2,117

 
2,812

Long-Term Debt (net of current portion)
 
 
 
Mortgage bonds, notes, and other
12,475

 
11,039

Junior subordinated debentures
1,145

 
1,145

Capital lease obligations

 
1

 
13,620

 
12,185

Other Liabilities
 

 
 

Deferred income taxes
1,974

 
1,888

Regulatory liabilities
3,029

 
2,875

Asset retirement obligations
2,428

 
2,320

Unamortized investment tax credit
140

 
122

Derivative liabilities
66

 
47

Accrued pension liability
719

 
924

Accrued postretirement liability

 
61

Nuclear decommissioning
224

 
220

Other
285

 
323

 
8,865

 
8,780

Commitments and Contingencies (Notes 5 and 11)
 
 
 



 


Equity
 
 
 
Common stock (No par value, 400,000,000 shares authorized, and 181,925,024 and 179,386,967 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively)
4,232

 
3,989

Retained earnings
6,093

 
5,643

Accumulated other comprehensive loss
(118
)
 
(120
)
Total DTE Energy Company Equity
10,207

 
9,512

Noncontrolling interests
483

 
478

Total Equity
10,690

 
9,990

Total Liabilities and Equity
$
35,292

 
$
33,767


See Combined Notes to Consolidated Financial Statements (Unaudited)

8



DTE Energy Company

Consolidated Statements of Cash Flows (Unaudited)

 
Nine Months Ended September 30,
 
2018
 
2017
 
(In millions)
Operating Activities
 
 
 
Net Income
$
922

 
$
832

Adjustments to reconcile Net Income to Net cash from operating activities:
 
 
 
Depreciation and amortization
826

 
756

Nuclear fuel amortization
39

 
39

Allowance for equity funds used during construction
(20
)
 
(17
)
Deferred income taxes
118

 
261

Equity earnings of equity method investees
(99
)
 
(77
)
Dividends from equity method investees
48

 
55

Asset (gains) losses and impairments, net
11

 
5

Changes in assets and liabilities:
 
 
 
Accounts receivable, net
85

 
43

Inventories
11

 
(41
)
Prepaid postretirement benefit costs
(45
)
 

Accounts payable
9

 
25

Accrued pension liability
(205
)
 
(230
)
Accrued postretirement liability
(61
)
 
(30
)
Derivative assets and liabilities
24

 
(133
)
Regulatory assets and liabilities
283

 
260

Other current and noncurrent assets and liabilities
101

 
(198
)
Net cash from operating activities
2,047

 
1,550

Investing Activities
 
 
 
Plant and equipment expenditures — utility
(1,562
)
 
(1,439
)
Plant and equipment expenditures — non-utility
(217
)
 
(133
)
Proceeds from sale of nuclear decommissioning trust fund assets
810

 
951

Investment in nuclear decommissioning trust funds
(810
)
 
(936
)
Distributions from equity method investees
8

 
10

Contributions to equity method investees
(545
)
 
(194
)
Other
(20
)
 
(61
)
Net cash used for investing activities
(2,336
)
 
(1,802
)
Financing Activities
 
 
 
Issuance of long-term debt, net of issuance costs
1,433

 
1,010

Redemption of long-term debt
(105
)
 
(385
)
Short-term borrowings, net
(544
)
 
160

Issuance of common stock
7

 

Repurchase of common stock

 
(51
)
Dividends on common stock
(459
)
 
(444
)
REF contributions from noncontrolling interests
43

 
34

Distributions to noncontrolling interests
(31
)
 
(29
)
Other
(40
)
 
(70
)
Net cash from financing activities
304

 
225

Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash
15

 
(27
)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period
89

 
113

Cash, Cash Equivalents, and Restricted Cash at End of Period
$
104

 
$
86

 
 
 
 
Supplemental disclosure of non-cash investing and financing activities
 
 
 
Plant and equipment expenditures in accounts payable
$
275

 
$
222

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)

 

 
929

 

 
(7
)
 
922

Dividends declared on common stock

 

 
(481
)
 

 

 
(481
)
Issuance of common stock
255

 
26

 

 

 

 
26

Contribution of common stock to pension plan
1,751

 
175

 

 

 

 
175

Benefit obligations, net of tax

 

 

 
7

 

 
7

Net unrealized gains on derivatives, net of tax

 

 

 
1

 

 
1

Foreign currency translation

 

 

 
(1
)
 

 
(1
)
Stock-based compensation, net contributions from noncontrolling interests, and other
532

 
42

 
(3
)
 

 
12

 
51

Balance, September 30, 2018
181,925

 
$
4,232

 
$
6,093

 
$
(118
)
 
$
483

 
$
10,690


See Combined Notes to Consolidated Financial Statements (Unaudited)

10



DTE Electric Company

Consolidated Statements of Operations (Unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions)
Operating Revenues — Utility operations
$
1,521

 
$
1,434

 
$
4,002

 
$
3,827

 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
Fuel and purchased power — utility
438

 
428

 
1,163

 
1,097

Operation and maintenance
360

 
349

 
1,025

 
1,068

Depreciation and amortization
202

 
188

 
616

 
549

Taxes other than income
77

 
74

 
232

 
229

 
1,077

 
1,039

 
3,036

 
2,943

Operating Income
444

 
395

 
966

 
884

 
 
 
 
 
 
 
 
Other (Income) and Deductions
 
 
 
 
 
 
 
Interest expense
73

 
68

 
210

 
206

Non-operating retirement benefits, net
(1
)
 

 
(1
)
 

Other income
(23
)
 
(21
)
 
(72
)
 
(57
)
Other expenses
9

 
11

 
49

 
23

 
58

 
58

 
186

 
172

Income Before Income Taxes
386

 
337

 
780

 
712

 
 
 
 
 
 
 
 
Income Tax Expense
81

 
118

 
172

 
249

 
 
 
 
 
 
 
 
Net Income
$
305

 
$
219

 
$
608

 
$
463


See Combined Notes to Consolidated Financial Statements (Unaudited)

11



DTE Electric Company

Consolidated Statements of Comprehensive Income (Unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions)
Net Income
$
305

 
$
219

 
$
608

 
$
463

Other comprehensive income

 

 

 

Comprehensive Income
$
305

 
$
219

 
$
608

 
$
463


See Combined Notes to Consolidated Financial Statements (Unaudited)

12



DTE Electric Company

Consolidated Statements of Financial Position (Unaudited)

 
September 30,
 
December 31,
 
2018
 
2017
 
(In millions)
ASSETS
Current Assets
 
 
 
Cash and cash equivalents
$
12

 
$
15

Accounts receivable (less allowance for doubtful accounts of $43 and $31, respectively)
 
 
 
Customer
894

 
791

Affiliates
4

 
20

Other
40

 
37

Inventories
 
 
 
Fuel
145

 
190

Materials and supplies
277

 
275

Regulatory assets
89

 
50

Prepaid property tax
111

 
48

Other
15

 
20

 
1,587

 
1,446

Investments
 
 
 
Nuclear decommissioning trust funds
1,525

 
1,492

Other
40

 
36

 
1,565

 
1,528

Property
 
 
 
Property, plant, and equipment
23,683

 
22,972

Accumulated depreciation and amortization
(8,156
)
 
(7,984
)
 
15,527

 
14,988

Other Assets
 
 
 
Regulatory assets
3,003

 
3,005

Intangible assets
29

 
25

Prepaid postretirement costs — affiliates
113

 
113

Other
117

 
123

 
3,262

 
3,266

Total Assets
$
21,941

 
$
21,228


See Combined Notes to Consolidated Financial Statements (Unaudited)

13



DTE Electric Company

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

 
September 30,
 
December 31,
 
2018
 
2017
 
(In millions, except shares)
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
 
 
 
Accounts payable
 
 
 
Affiliates
$
56

 
$
52

Other
391

 
416

Accrued interest
78

 
72

Current portion long-term debt, including capital leases
1

 
5

Regulatory liabilities
13

 
17

Short-term borrowings
 
 
 
Affiliates
143

 
116

Other
51

 
238

Other
143

 
145

 
876

 
1,061

Long-Term Debt (net of current portion)
 
 
 
Mortgage bonds, notes, and other
6,537

 
6,017

Capital lease obligations

 
1

 
6,537

 
6,018

Other Liabilities
 
 
 
Deferred income taxes
2,210

 
2,088

Regulatory liabilities
2,259

 
2,137

Asset retirement obligations
2,228

 
2,125

Unamortized investment tax credit
138

 
120

Nuclear decommissioning
224

 
220

Accrued pension liability — affiliates
626

 
811

Accrued postretirement liability — affiliates
240

 
311

Other
76

 
72

 
8,001

 
7,884

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 for both periods)
4,306

 
4,306

Retained earnings
2,221

 
1,956

Accumulated other comprehensive income

 
3

Total Shareholder’s Equity
6,527

 
6,265

Total Liabilities and Shareholder’s Equity
$
21,941

 
$
21,228


See Combined Notes to Consolidated Financial Statements (Unaudited)

14



DTE Electric Company

Consolidated Statements of Cash Flows (Unaudited)

 
Nine Months Ended September 30,
 
2018
 
2017
 
(In millions)
Operating Activities
 
 
 
Net Income
$
608

 
$
463

Adjustments to reconcile Net Income to Net cash from operating activities:
 
 
 
Depreciation and amortization
616

 
549

Nuclear fuel amortization
39

 
39

Allowance for equity funds used during construction
(14
)
 
(14
)
Deferred income taxes
156

 
248

Changes in assets and liabilities:
 
 
 
Accounts receivable, net
(89
)
 
(104
)
Inventories
43

 
32

Accounts payable
18

 
32

Accrued pension liability — affiliates
(185
)
 
(182
)
Accrued postretirement liability — affiliates
(71
)
 
(17
)
Regulatory assets and liabilities
195

 
223

Other current and noncurrent assets and liabilities
(71
)
 
(174
)
Net cash from operating activities
1,245

 
1,095

Investing Activities
 
 
 
Plant and equipment expenditures
(1,248
)
 
(1,103
)
Proceeds from sale of nuclear decommissioning trust fund assets
810

 
951

Investment in nuclear decommissioning trust funds
(810
)
 
(936
)
Other
(7
)
 

Net cash used for investing activities
(1,255
)
 
(1,088
)
Financing Activities
 
 
 
Issuance of long-term debt, net of issuance costs
520

 
435

Redemption of long-term debt

 
(300
)
Short-term borrowings, net — affiliate
27

 
(51
)
Short-term borrowings, net — other
(187
)
 
249

Dividends on common stock
(346
)
 
(324
)
Other
(7
)
 
(17
)
Net cash from (used for) financing activities
7

 
(8
)
Net Decrease in Cash and Cash Equivalents
(3
)
 
(1
)
Cash and Cash Equivalents at Beginning of Period
15

 
13

Cash and Cash Equivalents at End of Period
$
12

 
$
12

 
 
 
 
Supplemental disclosure of non-cash investing and financing activities
 
 
 
Plant and equipment expenditures in accounts payable
$
152

 
$
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, 2017
138,632

 
$
1,386

 
$
2,920

 
$
1,956

 
$
3

 
$
6,265

Implementation of ASU 2016-01

 

 

 
3

 
(3
)
 

Net Income

 

 

 
608

 

 
608

Dividends declared on common stock

 

 

 
(346
)
 

 
(346
)
Balance, September 30, 2018
138,632

 
$
1,386

 
$
2,920

 
$
2,221

 
$

 
$
6,527


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
 
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) 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."
The Dividends Declared per Common Share for the three months ended September 30, 2017 on DTE Energy’s Consolidated Statements of Operations was revised to reflect zero dividend declarations in the third quarter of 2017, or $0.00 for the three-month period.  The financial statements previously reflected one dividend declaration of $0.83 for the three-month period ended September 30, 2017.  This revision was not material to DTE Energy's Consolidated Financial Statements.
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 owns a 256-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 September 30, 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 September 30, 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, for DTE Energy, in Note 11 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 11 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 September 30, 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.
Amounts for DTE Energy's consolidated VIEs are as follows:
 
September 30, 2018
 
December 31, 2017
 
SGG(a)
 
Other
 
Total
 
SGG(a)
 
Other
 
Total
 
(In millions)
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
23

 
$
15

 
$
38

 
$
23

 
$
14

 
$
37

Restricted cash

 
4

 
4

 

 
8

 
8

Accounts receivable
9

 
32

 
41

 
11

 
42

 
53

Inventories
3

 
62

 
65

 
3

 
114

 
117

Property, plant, and equipment, net
392

 
50

 
442

 
400

 
75

 
475

Goodwill
25

 

 
25

 
25

 

 
25

Intangible assets
561

 

 
561

 
572

 

 
572

Other current and long-term assets
1

 

 
1

 
4

 

 
4

 
$
1,014

 
$
163

 
$
1,177

 
$
1,038

 
$
253

 
$
1,291

 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued current liabilities
$
2

 
$
30

 
$
32

 
$
26

 
$
47

 
$
73

Current portion long-term debt, including capital leases

 

 

 

 
4

 
4

Mortgage bonds, notes, and other

 

 

 

 
1

 
1

Other current and long-term liabilities
7

 
6

 
13

 
1

 
16

 
17

 
$
9

 
$
36

 
$
45

 
$
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:
 
September 30, 2018
 
December 31, 2017
 
(In millions)
Investments in equity method investees
$
1,342

 
$
811

Notes receivable
$
18

 
$
17

Future funding commitments
$
135

 
$
598


NOTE 2SIGNIFICANT ACCOUNTING POLICIES
Other Income
The following is a summary of DTE Energy's Other income:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions)
Equity earnings of equity method investees
$
46

 
$
26

 
$
99

 
$
77

Income from REF entities
27

 
20

 
75

 
60

Contract services
11

 
9

 
43

 
17

Allowance for equity funds used during construction
7

 
5

 
20

 
17

Gains from equity securities
5

 
6

 
6

 
19

Other
3

 
8

 
19

 
14

 
$
99

 
$
74

 
$
262

 
$
204

The following is a summary of DTE Electric's Other income:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions)
Contract services
$
11

 
$
9

 
$
44

 
$
18

Allowance for equity funds used during construction
5

 
4

 
14

 
14

Gains from equity securities allocated from DTE Energy
5

 
6

 
6

 
19

Other
2

 
2

 
8

 
6

 
$
23

 
$
21

 
$
72

 
$
57

Changes in Accumulated Other Comprehensive Income (Loss)
For the three and nine months ended September 30, 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 12% 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 September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
DTE Energy
9
%
 
22
%
 
12
%
 
22
%
DTE Electric
21
%
 
35
%
 
22
%
 
35
%
The 13% decrease and the 10% decrease in DTE Energy's effective tax rate for the three and nine months ended September 30, 2018 and 2017, respectively, 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 for the three months ended September 30, 2018 was also impacted by an increase in annual production tax credits, offset by a $20 million valuation allowance for the AMT credit carryover. The decrease in the effective tax rate for the nine months ended September 30, 2018 was also impacted by an increase in annual production tax credits, partially offset by true-up adjustments to the remeasurement of deferred taxes in 2018 of $21 million, $20 million valuation allowance for the AMT credit carryover, a reduction of excess tax benefits on stock-based compensation and other adjustments. For further discussion regarding the true-up adjustments, and the valuation allowance, see Note 3 to the Consolidated Financial Statements, "New Accounting Pronouncements."
The 14% decrease and the 13% decrease in DTE Electric's effective tax rate for the three and nine months ended September 30, 2018 and 2017, respectively, 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 for the nine months ended September 30, 2018 was partially offset by true-up adjustments to the remeasurement of deferred taxes in 2018 of $7 million.
DTE Energy's total amount of unrecognized tax benefits as of September 30, 2018 was $8 million, which if recognized, would favorably impact its effective tax rate. DTE Electric's total amount of unrecognized tax benefits as of September 30, 2018 was $10 million, which 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 payables of $4 million with DTE Energy at September 30, 2018 and income tax receivables with DTE Energy of $12 million at December 31, 2017.
Unrecognized Compensation Costs
As of September 30, 2018, DTE Energy had $86 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 1.29 years.
Allocated Stock-Based Compensation
DTE Electric received an allocation of costs from DTE Energy associated with stock-based compensation of $11 million and $10 million for the three months ended September 30, 2018 and 2017, respectively, while such allocation was $27 million and $28 million for the nine months ended September 30, 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:
 
September 30,
 
December 31,
 
2018
 
2017
 
(In millions)
Cash and cash equivalents
$
84

 
$
66

Restricted cash
20

 
23

Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows
$
104

 
$
89


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 three and nine months ended September 30, 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. During the nine months ended September 30, 2018, DTE Energy and DTE Electric recorded true-up adjustments to the remeasurement of deferred taxes of $21 million and $7 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. Additionally, during the three and nine months ended September 30, 2018, DTE Energy recorded a valuation allowance of $20 million against AMT credits that are expected to be subject to sequestration when refunded in accordance with TCJA. This adjustment increased Income Tax Expense and reduced the deferred tax asset related to AMT credits determined to be unrealizable. The valuation allowance adjustment was the result of further analysis for items subject to further consideration at December 31, 2017 under SAB 118. 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. The standard allows lessees and lessors to apply either, 1) a modified retrospective approach for leases existing or entered into after the beginning of the earliest comparative period in the Consolidated Financial Statements, or 2) a prospective transition approach for leases existing as of January 1, 2019 with a cumulative effect adjustment to be recorded to retained earnings. The Registrants plan to apply the standard on a prospective basis. The Registrants expect to elect the package of practical expedients allowing entities to not reassess whether an agreement is a lease, to carryforward the existing lease classification, and to not reassess initial direct costs associated with existing leases. The Registrants also plan to elect to exclude leases from the balance sheet that are for a period of one year or less, as well as, the practical expedient allowing entities to not evaluate land easements under the new guidance at adoption if they were not previously accounted for as leases.
A third-party software tool is being implemented that will assist with the initial adoption and ongoing compliance of the standard. Preliminary system configuration has been completed and testing is in progress. The Registrants are continuing procedures to ensure all leases are captured, as well as, evaluating and implementing, 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.

23


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

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.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820. The ASU is effective for the Registrants for fiscal years 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 August 2018, the FASB issued ASU No. 2018-14, Compensation Retirement Benefits Defined Benefit Plans (Subtopic 715-20): Disclosure Framework Changes to the Disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in this update modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The ASU is effective for the Registrants for fiscal years ending after December 15, 2020. Early adoption is permitted. The Registrants are currently assessing the impact of this standard on their Consolidated Financial Statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The ASU is effective for the Registrants for fiscal years beginning after December 15, 2019, and interim periods therein. Early adoption is permitted. The Registrants are currently assessing the impact of this standard on their Consolidated Financial Statements.

NOTE 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 and nine months ended September 30, 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."

24


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

Disaggregation of Revenue
The following is a summary of revenues disaggregated by segment for DTE Energy:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2018
 
(In millions)
Electric(a)
 
 
 
Residential
$
773

 
$
1,943

Commercial
495

 
1,370

Industrial
173

 
527

Other
80

 
162

Total Electric operating revenues(b)
$
1,521

 
$
4,002

 
 
 
 
Gas
 
 
 
Gas sales
$
89

 
$
726

End User Transportation
34

 
168

Intermediate Transportation
9

 
38

Other
32

 
37

Total Gas operating revenues