Edgar Filing: DTE ENERGY CO

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

(Do not check if a smaller reporting company)

DTE Energy 2013. 06.30 10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended June 30, 2013

Commission file number 1-11607

DTE ENERGY COMPANY

(Exact name of registrant as specified in its charter)



Michigan	38-3217752
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

One Energy Plaza, Detroit, Michigan	48226-1279
(Address of principal executive offices)	(Zip Code)

313-235-4000

(Registrant’s telephone number, including area code)

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.

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).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

At June 30, 2013, 174,960,000 shares of DTE Energy’s common stock were outstanding, substantially all of which were held by non-affiliates.

DTE Energy Company

Quarterly Report on Form 10-Q

Quarter Ended June 30, 2013

TABLE OF CONTENTS



	Page
Definitions	1
Forward-Looking Statements	3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements	4
Consolidated Statements of Operations (Unaudited)	4
Consolidated Statements of Comprehensive Income (Unaudited)	5
Consolidated Statements of Financial Position (Unaudited)	6
Consolidated Statements of Cash Flows (Unaudited)	8
Consolidated Statement of Changes in Equity (Unaudited)	9
Notes to Consolidated Financial Statements (Unaudited)	10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3. Quantitative and Qualitative Disclosures About Market Risk	52
Item 4. Controls and Procedures	55
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	56
Item 1A. Risk Factors	56
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 6. Exhibits	57
SIGNATURE	58
EX-12-54
EX-31-83
EX-31-84
EX-32-83
EX-32-84
EX-101.INS XBRL INSTANCE DOCUMENT
EX-101.SCH XBRL TAXONOMY EXTENSION SCHEMA
EX-101.CAL XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
EX-101.DEF XBRL TAXONOMY EXTENSION DEFINITION DATABASE
EX-101.LAB XBRL TAXONOMY EXTENSION LABEL LINKBASE
EX-101.PRE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

DEFINITIONS



	ASC	Accounting Standards Codification

	ASU	Accounting Standards Update

	Citizens	Citizens Fuel Gas Company, which distributes natural gas in Adrian, Michigan

	Company	DTE Energy Company and any subsidiary companies

	Customer Choice	Michigan legislation giving customers the option to choose alternative suppliers for electricity and natural gas.

	DTE Electric	DTE Electric Company (a direct wholly owned subsidiary of DTE Energy Company) and subsidiary companies. Formerly known as The Detroit Edison Company.

	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. Formerly known as Michigan Consolidated Gas Company.

	EPA	United States Environmental Protection Agency

	FASB	Financial Accounting Standards Board

	FERC	Federal Energy Regulatory Commission

	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.

	MCIT	Michigan Corporate Income Tax

	MDEQ	Michigan Department of Environmental Quality

	MISO	Midwest Independent System Operator is an Independent System Operator and the Regional Transmission Organization serving the Midwest United States and Manitoba, Canada.

	MPSC	Michigan Public Service Commission

	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.

	NRC	United States 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.

	RDM	A Revenue Decoupling Mechanism authorized by the MPSC that is designed to minimize the impact on revenues of changes in average customer usage.

	Securitization	DTE Electric financed specific stranded costs at lower interest rates through the sale of rate reduction bonds by a wholly-owned special purpose entity, The Detroit Edison Securitization Funding LLC.

	Subsidiaries	The direct and indirect subsidiaries of DTE Energy Company

	VIE	Variable Interest Entity




	Units of Measurement

	Bcf	Billion cubic feet of natural gas

	Bcfe	Conversion metric using a standard ratio of one barrel of oil and/or natural gas liquids to 6 Mcf of natural gas equivalents.

	BTU	Heat value (energy content) of fuel

	dth/d	Decatherms per day

	kWh	Kilowatthour of electricity

	Mcf	Thousand cubic feet of natural gas

	MMcf	Million cubic feet of natural gas

	MW	Megawatt of electricity

	MWh	Megawatthour of electricity

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 business of DTE Energy. Words such as “anticipate,” “believe,” “expect,” “projected” 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 including, but not limited to, the following:


•	impact of regulation by the FERC, MPSC, NRC and 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;


•	impact of electric and natural gas utility restructuring in Michigan, including legislative amendments and Customer Choice programs;


•	economic conditions and population changes in our geographic area resulting in changes in demand, customer conservation, increased thefts of electricity and natural gas and high levels of uncollectible accounts receivable;


•	environmental issues, laws, regulations, and the increasing costs of remediation and compliance, including actual and potential new federal and state requirements;


•	health, safety, financial, environmental and regulatory risks associated with ownership and operation of nuclear facilities;


•	changes in the cost and availability of coal and other raw materials, purchased power and natural gas;


•	the potential for losses on investments, including nuclear decommissioning and benefit plan assets and the related increases in future expense and contributions;


•	volatility in the short-term natural gas storage markets impacting third-party storage revenues;


•	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 construction projects;


•	changes in and application of federal, state and local tax laws and their interpretations, including the Internal Revenue Code, regulations, rulings, court proceedings and audits;


•	the effects of weather and other natural phenomena on operations and sales to customers, and purchases from suppliers;


•	unplanned outages;


•	the cost of protecting assets against, or damage due to, terrorism or cyber attacks;


•	employee relations and the impact of collective bargaining agreements;


•	the 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;


•	binding arbitration, litigation and related appeals; and


•	the risks discussed in our public filings with the Securities and Exchange Commission.

New factors emerge from time to time. We cannot predict what factors may arise or how such factors may cause our 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. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.

Part I — FINANCIAL INFORMATION

Item 1. Financial Statements

DTE Energy Company

Consolidated Statements of Operations (Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(In millions, except per share amounts)
Operating Revenues	$	2,225		$	2,013		$	4,741		$	4,252
Operating Expenses
Fuel, purchased power and gas	940			697			1,964			1,586
Operation and maintenance	705			703			1,440			1,424
Depreciation, depletion and amortization	268			244			527			471
Taxes other than income	84			79			178			174
Asset (gains) and losses, reserves and impairments, net	5			(4		)	(1		)	(9		)
	2,002			1,719			4,108			3,646
Operating Income	223			294			633			606
Other (Income) and Deductions
Interest expense	112			109			221			222
Interest income	(3		)	(3		)	(5		)	(5		)
Other income	(46		)	(41		)	(90		)	(78		)
Other expenses	9			11			16			18
	72			76			142			157
Income Before Income Taxes	151			218			491			449
Income Tax Expense	44			70			149			143
Income from Continuing Operations	107			148			342			306
Loss from Discontinued Operations, net of tax	—			(1		)	—			(1		)
Net Income	107			147			342			305
Less: Net Income Attributable to Noncontrolling Interest	2			1			3			3
Net Income Attributable to DTE Energy Company	$	105		$	146		$	339		$	302

Basic Earnings per Common Share
Income from continuing operations	$	0.60		$	0.87		$	1.94		$	1.78
Loss from discontinued operations, net of tax	—			(0.01		)	—			(0.01		)
Total	$	0.60		$	0.86		$	1.94		$	1.77


Diluted Earnings per Common Share
Income from continuing operations	$	0.60		$	0.87		$	1.94		$	1.78
Loss from discontinued operations, net of tax	—			(0.01		)	—			(0.01		)
Total	$	0.60		$	0.86		$	1.94		$	1.77


Weighted Average Common Shares Outstanding
Basic	174			170			174			170
Diluted	175			171			174			171
Dividends Declared per Common Share	$	0.66		$	0.59		$	1.28		$	1.18

See Notes to Consolidated Financial Statements (Unaudited)

DTE Energy Company

Consolidated Statements of Comprehensive Income (Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(In millions)
Net income	$	107		$	147		$	342		$	305
Other comprehensive income (loss), net of tax:
Benefit obligations:
Benefit obligations, net of taxes of $1, $1, $2 and $3, respectively	2			3			5			6
	2			3			5			6
Net unrealized gains on investments:
Gains during the period, net of taxes of $—, $—, $— and $—	—			—			—			1
	—			—			—			1
Foreign currency translation, net of taxes of $(1), $—, $(1) and $—	(1		)	(1		)	(2		)	—
Other comprehensive income	1			2			3			7
Comprehensive income	108			149			345			312
Less comprehensive income attributable to noncontrolling interests	2			1			3			3
Comprehensive income attributable to DTE Energy Company	$	106		$	148		$	342		$	309

See Notes to Consolidated Financial Statements (Unaudited)

DTE Energy Company

Consolidated Statements of Financial Position (Unaudited)



	June 30,			December 31,
	2013			2012
	(In millions)
ASSETS
Current Assets
Cash and cash equivalents	$	46		$	65
Restricted cash, principally Securitization	112			122
Accounts receivable (less allowance for doubtful accounts of $63 and $62, respectively)
Customer	1,314			1,336
Other	102			126
Inventories
Fuel and gas	378			527
Materials and supplies	249			234
Deferred income taxes	—			21
Derivative assets	90			108
Regulatory assets	90			182
Other	115			194
	2,496			2,915
Investments
Nuclear decommissioning trust funds	1,080			1,037
Other	574			554
	1,654			1,591
Property
Property, plant and equipment	24,356			23,631
Less accumulated depreciation, depletion and amortization	(9,166		)	(8,947		)
	15,190			14,684
Other Assets
Goodwill	2,018			2,018
Regulatory assets	3,790			4,235
Securitized regulatory assets	326			413
Intangible assets	138			135
Notes receivable	106			112
Derivative assets	27			39
Other	199			197
	6,604			7,149
Total Assets	$	25,944		$	26,339

See Notes to Consolidated Financial Statements (Unaudited)

DTE Energy Company

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



	June 30,			December 31,
	2013			2012
	(In millions, except shares)
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable	$	808		$	848
Accrued interest	97			93
Dividends payable	229			107
Short-term borrowings	216			240
Current portion long-term debt, including capital leases	879			817
Derivative liabilities	90			125
Gas inventory equalization	73			—
Other	570			538
	2,962			2,768
Long-Term Debt (net of current portion)
Mortgage bonds, notes and other	6,116			6,220
Securitization bonds	201			302
Junior subordinated debentures	480			480
Capital lease obligations	9			12
	6,806			7,014
Other Liabilities
Deferred income taxes	3,280			3,191
Regulatory liabilities	954			1,031
Asset retirement obligations	1,784			1,719
Unamortized investment tax credit	51			56
Derivative liabilities	16			26
Accrued pension liability	1,355			1,498
Accrued postretirement liability	702			1,160
Nuclear decommissioning	164			159
Other	283			306
	8,589			9,146
Commitments and Contingencies (Notes 7 and 12)
Equity
Common stock, without par value, 400,000,000 shares authorized, 174,960,000 and 172,351,680 shares issued and outstanding, respectively	3,762			3,587
Retained earnings	3,945			3,944
Accumulated other comprehensive loss	(155		)	(158		)
Total DTE Energy Company Equity	7,552			7,373
Noncontrolling interests	35			38
Total Equity	7,587			7,411
Total Liabilities and Equity	$	25,944		$	26,339

See Notes to Consolidated Financial Statements (Unaudited)

DTE Energy Company

Consolidated Statements of Cash Flows (Unaudited)



	Six Months Ended June 30,
	2013			2012
	(In millions)
Operating Activities
Net income	$	342		$	305
Adjustments to reconcile net income to net cash from operating activities:
Depreciation, depletion and amortization	527			482
Deferred income taxes	123			81
Asset (gains) and losses, reserves and impairments, net	—			(7		)
Changes in assets and liabilities, exclusive of changes shown separately (Note 15)	275			300
Net cash from operating activities	1,267			1,161
Investing Activities
Plant and equipment expenditures — utility	(708		)	(708		)
Plant and equipment expenditures — non-utility	(197		)	(131		)
Proceeds from sale of assets	15			15
Restricted cash for debt redemption, principally Securitization	10			15
Proceeds from sale of nuclear decommissioning trust fund assets	27			36
Investment in nuclear decommissioning trust funds	(35		)	(44		)
Other	(23		)	(15		)
Net cash used for investing activities	(911		)	(832		)
Financing Activities
Issuance of long-term debt	371			496
Redemption of long-term debt	(515		)	(140		)
Short-term borrowings, net	(24		)	(380		)
Issuance of common stock	19			20
Dividends on common stock	(215		)	(199		)
Other	(11		)	(9		)
Net cash used for financing activities	(375		)	(212		)
Net Increase (Decrease) in Cash and Cash Equivalents	(19		)	117
Cash and Cash Equivalents at Beginning of Period	65			68
Cash and Cash Equivalents at End of Period	$	46		$	185

See Notes to Consolidated Financial Statements (Unaudited)

DTE Energy Company

Consolidated Statements of Changes in Equity (Unaudited)



							Accumulated Other Comprehensive Loss			Non-Controlling Interest
	Common Stock			Retained Earnings
	Shares	Amount		Retained Earnings									Total
	(Dollars in millions, shares in thousands)
Balance, December 31, 2012	172,352	$	3,587	$	3,944		$	(158	)	$	38		$	7,411
Net income	—	—		339			—			3			342
Dividends declared on common stock	—	—		(338		)	—			—			(338		)
Issuance of common stock	296	19		—			—			—			19
Contribution of common stock to pension plan	1,504	100		—			—			—			100
Foreign currency translation, net of tax	—	—		—			(2		)	—			(2		)
Benefit obligations, net of tax	—	—		—			5			—			5
Stock-based compensation, distributions to noncontrolling interests and other	808	56		—			—			(6		)	50
Balance, June 30, 2013	174,960	$	3,762	$	3,945		$	(155	)	$	35		$	7,587

See Notes to Consolidated Financial Statements (Unaudited)

DTE Energy Company

Notes to Consolidated Financial Statements (Unaudited)

NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION

Corporate Structure

DTE Energy owns the following businesses:


•	DTE Electric, an electric utility engaged in the generation, purchase, distribution and sale of electricity to approximately 2.1 million customers in southeastern Michigan;


•	DTE Gas, a natural gas utility engaged in the purchase, storage, transportation, distribution and sale of natural gas to approximately 1.2 million customers throughout Michigan and the sale of storage and transportation capacity; and


•	Other businesses involved in 1) natural gas pipelines, gathering and storage; 2) power and industrial projects; and 3) energy marketing and trading operations.

DTE Electric and DTE Gas are regulated by the MPSC. Certain activities of DTE Electric and DTE Gas, as well as various other aspects of businesses under DTE Energy are regulated by the FERC. In addition, the Company is regulated by other federal and state regulatory agencies including the NRC, the EPA and the MDEQ.

References in this Report to “Company” or “DTE” are to DTE Energy and its subsidiaries, collectively.

Basis of Presentation

These Consolidated Financial Statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the 2012 Annual Report on Form 10-K.

The accompanying Consolidated Financial Statements 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 Company’s estimates.

The Consolidated Financial Statements are unaudited, but in the Company's opinion include all adjustments necessary to 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 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, 2013.

Certain prior year balances were reclassified to match the current year's financial statement presentation.

Principles of Consolidation

The Company consolidates all majority-owned subsidiaries and investments in entities in which it has controlling influence. Non-majority owned investments are accounted for using the equity method when the Company is able to influence the operating policies of the investee. When the Company does not influence the operating policies of an investee, the cost method is used. These consolidated financial statements also reflect the Company's proportionate interests in certain jointly owned utility plant. The Company eliminates all intercompany balances and transactions.

The Company evaluates whether an entity is a VIE whenever reconsideration events occur. The Company consolidates VIEs for which it is the primary beneficiary. If the Company 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, the Company 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 Company performs ongoing reassessments of all VIEs to determine if the primary beneficiary status has changed.

DTE Energy Company

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

Legal entities within the Company'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 the Company retaining operational and customer default risk. These entities generally are VIEs and consolidated when the Company is the primary beneficiary. In addition, we have interests in certain VIEs that we share control of all significant activities for those entities with our partners, and therefore are accounted for under the equity method.

The Company has variable interests in VIEs through certain of its long-term purchase contracts. As of June 30, 2013, the carrying amount of assets and liabilities in the Consolidated Statements of Financial Position that relate to its variable interests under long-term purchase contracts are predominately related to working capital accounts and generally represent the amounts owed by the Company for the deliveries associated with the current billing cycle under the contracts. The Company has not provided any form of financial support associated with these long-term contracts. There is no significant potential exposure to loss as a result of its variable interests through these long-term purchase contracts.

In 2001, DTE Electric financed a regulatory asset related to Fermi 2 and certain other regulatory assets through the sale of rate reduction bonds by a wholly-owned special purpose entity, Securitization. DTE Electric performs servicing activities including billing and collecting surcharge revenue for Securitization. This entity is a VIE, and is consolidated by the Company.

The maximum risk exposure for consolidated VIEs is reflected on the Company's Consolidated Statements of Financial Position. For non-consolidated VIEs, the maximum risk exposure is generally limited to its investment and amounts which it has guaranteed.

The following table summarizes the major balance sheet items for consolidated VIEs as of June 30, 2013 and December 31, 2012. All amounts included in the tables are considered restricted given they are 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 the Company holds a majority voting interest and is the primary beneficiary, that meet the definition of a business and whose assets can be used for purposes other than the settlement of the VIE's obligations have been excluded from the table below.



	June 30, 2013						December 31, 2012
	Securitization		Other		Total		Securitization		Other		Total
	(In millions)
ASSETS
Cash and cash equivalents	$	—	$	8	$	8	$	—	$	10	$	10
Restricted cash	90		6		96		102		7		109
Accounts receivable	39		16		55		34		7		41
Inventories	—		91		91		—		141		141
Other current assets	—		1		1		—		1		1
Property, plant and equipment	—		103		103		—		93		93
Securitized regulatory assets	326		—		326		413		—		413
Other assets	6		9		15		7		11		18
	$	461	$	234	$	695	$	556	$	270	$	826

LIABILITIES
Accounts payable and accrued current liabilities	$	9	$	33	$	42	$	11	$	14	$	25
Current portion long-term debt, including capital leases	189		8		197		177		8		185
Current regulatory liabilities	45		—		45		50		—		50
Other current liabilities	—		3		3		—		4		4
Mortgage bonds, notes and other	—		23		23		—		25		25
Securitization bonds	201		—		201		302		—		302
Capital lease obligations	—		8		8		—		11		11
Other long-term liabilities	8		2		10		7		2		9
	$	452	$	77	$	529	$	547	$	64	$	611

DTE Energy Company

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

Amounts for non-consolidated VIEs as of June 30, 2013 and December 31, 2012 are as follows:



	June 30, 2013		December 31, 2012
	(In millions)
Other investments	$	136	$	130
Notes receivable	6		6

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES

Comprehensive Income

Comprehensive income is the change in common shareholders’ equity during a period from transactions and events from non-owner sources, including net income. As shown in the following tables, amounts recorded to accumulated other comprehensive loss for the three and six months ended June 30, 2013 include unrealized gains and losses from derivatives accounted for as cash flow hedges, unrealized gains and losses on available-for-sale securities and the Company’s interest in other comprehensive income of equity investees, which comprise the net unrealized gains and losses on investments, changes in benefit obligations, consisting of deferred actuarial losses, prior service costs and transition amounts related to pension and other postretirement benefit plans, and foreign currency translation adjustments.



	Changes in Accumulated Other Comprehensive Loss by Component (a)
	For The Three Months Ended June 30, 2013
	Net Unrealized Gain/(Loss) on Derivatives			Net Unrealized Gain/(Loss) on Investments			Benefit Obligations (b)			Foreign Currency Translation			Total
	(In millions)
Beginning balance, March 31, 2013	$	(4	)	$	(8	)	$	(145	)	$	1		$	(156	)
Other comprehensive income before reclassifications	—			—			—			(1		)	(1		)
Amounts reclassified from accumulated other comprehensive income	—			—			2			—			2
Net current-period other comprehensive income	—			—			2			(1		)	1
Ending balance, June 30, 2013	$	(4	)	$	(8	)	$	(143	)	$	—		$	(155	)



	Changes in Accumulated Other Comprehensive Loss by Component (a)
	For The Six Months Ended June 30, 2013
	Net Unrealized Gain/(Loss) on Derivatives			Net Unrealized Gain/(Loss) on Investments			Benefit Obligations (b)			Foreign Currency Translation			Total
	(In millions)
Beginning balance, December 31, 2012	$	(4	)	$	(8	)	$	(148	)	$	2		$	(158	)
Other comprehensive income before reclassifications	—			—			—			(2		)	(2		)
Amounts reclassified from accumulated other comprehensive income	—			—			5			—			5
Net current-period other comprehensive income	—			—			5			(2		)	3
Ending balance, June 30, 2013	$	(4	)	$	(8	)	$	(143	)	$	—		$	(155	)

______________________________________


(a)	All amounts are net of tax.


(b)	The amounts reclassified from accumulated other comprehensive income are included in the computation of the net periodic pension cost (see Retirement Benefits and Trusteed Assets Note 13).

DTE Energy Company

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

Intangible Assets

The Company has certain intangible assets relating to emission allowances, renewable energy credits and non-utility contracts as shown below:



	June 30,		December 31,
	2013		2012
	(In millions)
Emission allowances	$	4	$	6
Renewable energy credits	47		44
Contract intangible assets	141		139
	192		189
Less accumulated amortization	40		34
Intangible assets, net	152		155
Less current intangible assets	14		20
	$	138	$	135

Emission allowances and renewable energy credits are charged to expense, using average cost, as the allowances and credits are consumed in the operation of the business. The Company amortizes contract intangible assets on a straight-line basis over the expected period of benefit, ranging from 3 to 28 years.

Income Taxes

The Company's effective tax rate from continuing operations for the three months ended June 30, 2013 was 29 percent as compared to 32 percent for the three months ended June 30, 2012. The Company's effective tax rate from continuing operations for the six months ended June 30, 2013 was 30 percent as compared to 32 percent for the six months ended June 30, 2012. The decrease in the effective tax rate in 2013 is due primarily to higher production tax credits.

The Company had $3 million of unrecognized tax benefits at June 30, 2013, that, if recognized, would favorably impact its effective tax rate. The Company believes that it is possible that there will be a decrease in the unrecognized tax benefits of up to $1 million in the next twelve months.

DTE Energy Company

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

NOTE 3 — FAIR VALUE

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities. These inputs can be readily observable, market corroborated or generally unobservable inputs. The Company makes certain assumptions it believes 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 Company and its counterparties is incorporated in the valuation of assets and liabilities through the use of credit reserves, the impact of which was immaterial at June 30, 2013 and December 31, 2012. The Company believes it uses valuation techniques that maximize the use of observable market-based inputs and minimize the use of unobservable inputs.

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 Company classifies 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 Company has the ability to access as of the reporting date.


•	Level 2 — Consists of inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.


•	Level 3 — Consists of unobservable inputs for assets or liabilities whose fair value is estimated based on internally developed models or methodologies using inputs that are generally less readily observable and supported by little, if any, market activity at the measurement date. Unobservable inputs are developed based on the best available information and subject to cost-benefit constraints.

DTE Energy Company

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

The following table presents assets and liabilities measured and recorded at fair value on a recurring basis as of June 30, 2013 and December 31, 2012:



	June 30, 2013															December 31, 2012
	Level 1			Level 2			Level 3			Netting (a)			Net Balance			Level 1			Level 2			Level 3			Netting (a)			Net Balance
	(In millions)
Assets:
Cash equivalents (b)	$	—		$	112		$	—		$	—		$	112		$	—		$	123		$	—		$	—		$	123
Nuclear decommissioning trusts	749			331			—			—			1,080			694			343			—			—			1,037
Other investments (c) (d)	72			47			—			—			119			66			44			—			—			110
Derivative assets:
Commodity Contracts:
Natural Gas	365			107			32			(490		)	14			555			66			24			(605		)	40
Electricity	—			219			98			(220		)	97			—			226			134			(258		)	102
Other	45			8			2			(49		)	6			6			3			2			(6		)	5
Total derivative assets	410			334			132			(759		)	117			561			295			160			(869		)	147
Total	$	1,231		$	824		$	132		$	(759	)	$	1,428		$	1,321		$	805		$	160		$	(869	)	$	1,417

Liabilities:
Derivative liabilities:
Foreign currency exchange contracts	$	—		$	(1	)	$	—		$	—		$	(1	)	$	—		$	—		$	—		$	—		$	—
Interest rate contracts	—			—			—			—			—			—			(1		)	—			—			(1		)
Commodity Contracts:
Natural Gas	(362		)	(86		)	(62		)	469			(41		)	(526		)	(73		)	(62		)	605			(56		)
Electricity	—			(221		)	(86		)	247			(60		)	—			(240		)	(111		)	258			(93		)
Other	(47		)	(5		)	—			48			(4		)	(6		)	(1		)	—			6			(1		)
Total derivative liabilities	(409		)	(313		)	(148		)	764			(106		)	(532		)	(315		)	(173		)	869			(151		)
Total	$	(409	)	$	(313	)	$	(148	)	$	764		$	(106	)	$	(532	)	$	(315	)	$	(173	)	$	869		$	(151	)
Net Assets (Liabilities) at the end of the period	$	822		$	511		$	(16	)	$	5		$	1,322		$	789		$	490		$	(13	)	$	—		$	1,266
Assets:
Current	$	379		$	389		$	101		$	(667	)	$	202		$	493		$	372		$	120		$	(754	)	$	231
Noncurrent (e)	852			435			31			(92		)	1,226			828			433			40			(115		)	1,186
Total Assets	$	1,231		$	824		$	132		$	(759	)	$	1,428		$	1,321		$	805		$	160		$	(869	)	$	1,417
Liabilities:
Current	$	(368	)	$	(263	)	$	(119	)	$	660		$	(90	)	$	(466	)	$	(269	)	$	(144	)	$	754		$	(125	)
Noncurrent	(41		)	(50		)	(29		)	104			(16		)	(66		)	(46		)	(29		)	115			(26		)
Total Liabilities	$	(409	)	$	(313	)	$	(148	)	$	764		$	(106	)	$	(532	)	$	(315	)	$	(173	)	$	869		$	(151	)
Net Assets (Liabilities) at the end of the period	$	822		$	511		$	(16	)	$	5		$	1,322		$	789		$	490		$	(13	)	$	—		$	1,266

_______________________________________


(a)	Amounts represent the impact of master netting agreements that allow the Company to net gain and loss positions and cash collateral held or placed with the same counterparties.

(b)

At June 30, 2013, available-for-sale securities of $112 million included $96 million and $16 million of cash equivalents included in Restricted cash and Other investments, respectively, on the Consolidated Statements of Financial Position. At December 31, 2012, available-for-sale securities of $123 million, included $109 million and $14 million of cash equivalents included in Restricted cash and Other investments, respectively, on the Consolidated Statements of Financial Position.


(c)	Excludes cash surrender value of life insurance investments.


(d)	Available-for-sale equity securities of $6 million at June 30, 2013 and $5 million at December 31, 2012, are included in Other investments on the Consolidated Statements of Financial Position.


(e)	Includes $119 million and $110 million at June 30, 2013 and December 31, 2012, respectively, of Other investments that are included in the Consolidated Statements of Financial Position in Other investments.

Cash Equivalents

Cash equivalents include investments with maturities of three months or less when purchased. The cash equivalents shown in the fair value table are comprised of short-term investments and money market funds. The fair values of the shares in these investments are based upon observable market prices for similar securities and, therefore, have been categorized as Level 2 in the fair value hierarchy.

DTE Energy Company

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

Nuclear Decommissioning Trusts and Other Investments

The nuclear decommissioning trusts and other investments hold debt and equity securities directly and indirectly through institutional mutual funds. Exchange-traded debt and equity securities held directly are valued using quoted market prices in actively traded markets. The institutional mutual funds which hold exchange-traded equity or debt securities are valued based on the underlying securities, using quoted prices in actively traded markets. Non-exchange-traded fixed income securities are valued based upon quotations available from brokers or pricing services. A primary price source is identified by asset type, class or issue for each security. The trustees monitor prices supplied by pricing services and may use a supplemental price source or change the primary price source of a given security if the trustees determine that another price source is considered to be preferable. DTE Energy has obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices. Additionally, DTE Energy selectively corroborates the fair values of securities by comparison of market-based price sources. Investment policies and procedures are determined by the Company's Trust Investments Department which reports to the Company's Vice President and Treasurer.

Derivative Assets and Liabilities

Derivative assets and liabilities are comprised of physical and financial derivative contracts, including futures, forwards, options and swaps that are both exchange-traded and over-the-counter traded contracts. Various inputs are used to value derivatives depending on the type of contract and availability of market data. Exchange-traded derivative contracts are valued using quoted prices in active markets. DTE Energy considers the following criteria in determining whether a market is considered active: frequency in which pricing information is updated, variability in pricing between sources or over time and the availability of public information. Other derivative contracts are valued based upon a variety of inputs including commodity market prices, broker quotes, interest rates, credit ratings, default rates, market-based seasonality and basis differential factors. DTE Energy monitors the prices that are supplied by brokers and pricing services and may use a supplemental price source or change the primary price source of an index if prices become unavailable or another price source is determined to be more representative of fair value. DTE Energy has obtained an understanding of how these prices are derived. Additionally, DTE Energy selectively corroborates the fair value of its transactions by comparison of market-based price sources. Mathematical valuation models are used for derivatives for which external market data is not readily observable, such as contracts which extend beyond the actively traded reporting period. The Company has established a Risk Management Committee whose responsibilities include directly or indirectly ensuring all valuation methods are applied in accordance with predefined policies. The development and maintenance of our forward price curves has been assigned to our Risk Management Department, which is separate and distinct from the trading functions within the Company.

The following tables present the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for the three months and six months ended June 30, 2013 and 2012:



	Three Months Ended June 30, 2013												Three Months Ended June 30, 2012
	Natural Gas			Electricity			Other			Total			Natural Gas			Electricity			Other			Total
	(In millions)
Net Assets (Liabilities) as of March 31	$	(34	)	$	(9	)	$	2		$	(41	)	$	6		$	25		$	6		$	37
Transfers into Level 3	—			—			—			—			1			—			—			1
Transfers out of Level 3	—			—			—			—			—			—			—			—
Total gains (losses):
Included in earnings	(2		)	18			(1		)	15			(1		)	56			(3		)	52
Recorded in regulatory assets/liabilities	—			—			3			3			—			—			4			4
Purchases, issuances and settlements:
Settlements	6			3			(2		)	7			(4		)	(31		)	(2		)	(37		)
Net Assets (Liabilities) as of June 30	$	(30	)	$	12		$	2		$	(16	)	$	2		$	50		$	5		$	57
The amount of total gains (losses) included in net income attributed to the change in unrealized gains (losses) related to assets and liabilities held at June 30, 2013 and 2012 and reflected in Operating revenues and Fuel, purchased power and gas in the Consolidated Statements of Operations	$	(1	)	$	33		$	(1	)	$	31		$	(2	)	$	38		$	(3	)	$	33

DTE Energy Company

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



	Six Months Ended June 30, 2013												Six Months Ended June 30, 2012
	Natural Gas			Electricity			Other			Total			Natural Gas			Electricity			Other			Total
	(In millions)
Net Assets (Liabilities) as of December 31	$	(38	)	$	23		$	2		$	(13	)	$	6		$	32		$	6		$	44
Transfers into Level 3	—			—			—			—			1			28			—			29
Transfers out of Level 3	(2		)	—			—			(2		)	(2		)	—			—			(2		)
Total gains (losses):
Included in earnings	(10		)	26			(1		)	15			6			41			(2		)	45
Recorded in regulatory assets/liabilities	—			—			4			4			—			—			5			5
Purchases, issuances and settlements:
Purchases	—			1			—			1			—			—			—			—
Settlements	20			(38		)	(3		)	(21		)	(9		)	(51		)	(4		)	(64		)
Net Assets (Liabilities) as of June 30	$	(30	)	$	12		$	2		$	(16	)	$	2		$	50		$	5		$	57
The amount of total gains (losses) included in net income attributed to the change in unrealized gains (losses) related to assets and liabilities held at June 30, 2013 and 2012 and reflected in Operating revenues and Fuel, purchased power and gas in the Consolidated Statements of Operations	$	(6	)	$	27		$	(1	)	$	20		$	4		$	38		$	(2	)	$	40

Derivatives are transferred between levels primarily due to changes in the source data used to construct price curves as a result of changes in market liquidity. Transfers in and transfers out are reflected as if they had occurred at the beginning of the period. The following table shows transfers between the levels of the fair value hierarchy for the three months and six months ended June 30, 2013 and 2012:



	Three Months Ended June 30, 2013					Three Months Ended June 30, 2012
	Level 1	Level 2		Level 3		Level 1	Level 2		Level 3
	(In millions)
Transfers into Level 1 from	$ N/A	$	—	$	—	$ N/A	$	—	$	—
Transfers into Level 2 from	—	N/A		—		—	N/A		—
Transfers into Level 3 from	—	—		N/A		—	1		N/A