DTE Energy 2013.09.30 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 September 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):
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
At September 30, 2013, 176,797,248 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 September 30, 2013

TABLE OF CONTENTS

 
Page
 
 
EX-10-87
 
EX-12-55
EX-31-85
EX-31-86
EX-32-85
EX-32-86
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

1



 
 
 
 
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


2



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, 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.


3





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,
 
2013
 
2012
 
2013
 
2012
 
(In millions, except per share amounts)
Operating Revenues
$
2,387

 
$
2,190

 
$
7,128

 
$
6,442

Operating Expenses
 
 
 
 
 

 
 

Fuel, purchased power and gas
967

 
761

 
2,931

 
2,347

Operation and maintenance
728

 
687

 
2,168

 
2,111

Depreciation, depletion and amortization
284

 
259

 
811

 
730

Taxes other than income
84

 
78

 
262

 
252

Asset (gains) and losses, reserves and impairments, net
(5
)
 
(1
)
 
(6
)
 
(10
)
 
2,058

 
1,784

 
6,166

 
5,430

Operating Income
329

 
406

 
962

 
1,012

Other (Income) and Deductions
 
 
 
 
 

 
 

Interest expense
106

 
109

 
327

 
331

Interest income
(2
)
 
(2
)
 
(7
)
 
(7
)
Other income
(58
)
 
(47
)
 
(148
)
 
(125
)
Other expenses
7

 
9

 
23

 
27

 
53

 
69

 
195

 
226

Income Before Income Taxes
276

 
337

 
767

 
786

Income Tax Expense
76

 
108

 
225

 
251

Income from Continuing Operations
200

 
229

 
542

 
535

Net Income from Discontinued Operations, net of tax

 
1

 

 

Net Income
200

 
230

 
542

 
535

Less: Net Income Attributable to Noncontrolling Interest
2

 
3

 
5

 
6

Net Income Attributable to DTE Energy Company
$
198

 
$
227

 
$
537

 
$
529

 
 
 
 
 
 
 
 
Basic Earnings per Common Share
 
 
 
 
 
 
 
Income from continuing operations
$
1.13

 
$
1.31

 
$
3.07

 
$
3.09

Income from discontinued operations, net of tax

 
0.01

 

 

Total
$
1.13

 
$
1.32

 
$
3.07

 
$
3.09

 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
Diluted Earnings per Common Share
 
 
 
 
 
 
 
Income from continuing operations
$
1.13

 
$
1.30

 
$
3.07

 
$
3.08

Income from discontinued operations, net of tax

 
0.01

 

 

Total
$
1.13

 
$
1.31

 
$
3.07

 
$
3.08

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted Average Common Shares Outstanding
 
 
 
 
 

 
 

Basic
175

 
172

 
174

 
171

Diluted
176

 
172

 
175

 
171

Dividends Declared per Common Share
$
0.66

 
$
0.62

 
$
1.93

 
$
1.80


See Notes to Consolidated Financial Statements (Unaudited)


4




DTE Energy Company

Consolidated Statements of Comprehensive Income (Unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In millions)
Net income
$
200

 
$
230

 
$
542

 
$
535

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

 
3

 
7

 
9

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

 

 
1

 
1

Foreign currency translation, net of taxes of $—, $1, $(1) and $1
1

 
1

 
(1
)
 
1

Other comprehensive income
4

 
4

 
7

 
11

 
 
 
 
 
 
 
 
Comprehensive income
204

 
234

 
549

 
546

Less comprehensive income attributable to noncontrolling interests
2

 
3

 
5

 
6

Comprehensive income attributable to DTE Energy Company
$
202

 
$
231

 
$
544

 
$
540


See Notes to Consolidated Financial Statements (Unaudited)



5




DTE Energy Company

Consolidated Statements of Financial Position (Unaudited)

 
September 30,
 
December 31,
 
2013
 
2012
 
(In millions)
ASSETS
Current Assets
 
 
 
Cash and cash equivalents
$
71

 
$
65

Restricted cash, principally Securitization
64

 
122

Accounts receivable (less allowance for doubtful accounts of $67 and $62, respectively)
 
 
 
Customer
1,239

 
1,336

Other
81

 
126

Inventories
 
 
 
Fuel and gas
467

 
527

Materials and supplies
258

 
234

Deferred income taxes

 
21

Derivative assets
72

 
108

Regulatory assets
49

 
182

Other
248

 
194

 
2,549

 
2,915

Investments
 
 
 
Nuclear decommissioning trust funds
1,139

 
1,037

Other
584

 
554

 
1,723

 
1,591

Property
 
 
 
Property, plant and equipment
24,795

 
23,631

Less accumulated depreciation, depletion and amortization
(9,284
)
 
(8,947
)
 
15,511

 
14,684

Other Assets
 
 
 
Goodwill
2,018

 
2,018

Regulatory assets
3,700

 
4,235

Securitized regulatory assets
280

 
413

Intangible assets
122

 
135

Notes receivable
104

 
112

Derivative assets
26

 
39

Other
198

 
197

 
6,448

 
7,149

Total Assets
$
26,231

 
$
26,339


See Notes to Consolidated Financial Statements (Unaudited)

6




DTE Energy Company

Consolidated Statements of Financial Position (Unaudited) — (Continued)
 
September 30,
 
December 31,
 
2013
 
2012
 
(In millions, except shares)
LIABILITIES AND EQUITY
Current Liabilities
 
 
 
Accounts payable
$
866

 
$
848

Accrued interest
114

 
93

Dividends payable
116

 
107

Short-term borrowings
271

 
240

Current portion long-term debt, including capital leases
896

 
817

Derivative liabilities
58

 
125

Regulatory liabilities
230

 
89

Other
457

 
449

 
3,008

 
2,768

Long-Term Debt (net of current portion)
 
 
 
Mortgage bonds, notes and other
6,253

 
6,220

Securitization bonds
105

 
302

Junior subordinated debentures
480

 
480

Capital lease obligations
8

 
12

 
6,846

 
7,014

Other Liabilities
 

 
 

Deferred income taxes
3,290

 
3,191

Regulatory liabilities
907

 
1,031

Asset retirement obligations
1,800

 
1,719

Unamortized investment tax credit
49

 
56

Derivative liabilities
21

 
26

Accrued pension liability
1,254

 
1,498

Accrued postretirement liability
684

 
1,160

Nuclear decommissioning
172

 
159

Other
290

 
306

 
8,467

 
9,146

Commitments and Contingencies (Notes 7 and 12)
 
 
 
 
 
 
 
Equity
 
 
 
Common stock, without par value, 400,000,000 shares authorized, 176,797,248 and 172,351,680 shares issued and outstanding, respectively
3,885

 
3,587

Retained earnings
4,142

 
3,944

Accumulated other comprehensive loss
(151
)
 
(158
)
Total DTE Energy Company Equity
7,876

 
7,373

Noncontrolling interests
34

 
38

Total Equity
7,910

 
7,411

Total Liabilities and Equity
$
26,231

 
$
26,339


See Notes to Consolidated Financial Statements (Unaudited)

7




DTE Energy Company

Consolidated Statements of Cash Flows (Unaudited)
 
Nine Months Ended September 30,
 
2013
 
2012
 
(In millions)
Operating Activities
 
 
 
Net income
$
542

 
$
535

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Depreciation, depletion and amortization
811

 
747

Nuclear fuel amortization
25

 
25

Allowance for equity funds used during construction
(10
)
 
(10
)
Deferred income taxes
162

 
96

Asset (gains) and losses, reserves and impairments, net
(5
)
 
(7
)
Changes in assets and liabilities:
 
 
 
Accounts receivable, net
177

 
237

Inventories
35

 
5

Accounts payable
(16
)
 
(35
)
Derivative assets and liabilities
(23
)
 
38

Accrued pension obligation
(44
)
 
(3
)
Accrued postretirement obligation
(191
)
 
(143
)
Regulatory assets and liabilities
327

 
286

Other assets
(62
)
 
(2
)
Other liabilities
(13
)
 
(40
)
Net cash from operating activities
1,715

 
1,729

Investing Activities
 
 
 
Plant and equipment expenditures — utility
(1,101
)
 
(1,008
)
Plant and equipment expenditures — non-utility
(270
)
 
(214
)
Proceeds from sale of assets
20

 
20

Restricted cash for debt redemption, principally Securitization
58

 
55

Proceeds from sale of nuclear decommissioning trust fund assets
40

 
48

Investment in nuclear decommissioning trust funds
(52
)
 
(61
)
Other
(32
)
 
(24
)
Net cash used for investing activities
(1,337
)
 
(1,184
)
Financing Activities
 
 
 
Issuance of long-term debt
768

 
495

Redemption of long-term debt
(855
)
 
(447
)
Short-term borrowings, net
31

 
(321
)
Issuance of common stock
29

 
29

Dividends on common stock
(329
)
 
(300
)
Other
(16
)
 
(10
)
Net cash used for financing activities
(372
)
 
(554
)
Net Increase (Decrease) in Cash and Cash Equivalents
6

 
(9
)
Cash and Cash Equivalents at Beginning of Period
65

 
68

Cash and Cash Equivalents at End of Period
$
71

 
$
59

 
 
 
 
Supplemental Disclosure of Non-Cash Investing and Financing Activities
 
 
 
Common stock issued for employee benefit and compensation plans
$
279

 
$
143

Plant and equipment expenditures in accounts payable
$
263

 
$
184


See Notes to Consolidated Financial Statements (Unaudited)

8




DTE Energy Company

Consolidated Statements of Changes in Equity (Unaudited)

 
 
 
 
 
 
 
Accumulated
Other Comprehensive Loss
 
Non-Controlling Interest
 
 
 
Common Stock
 
Retained Earnings
 
 
 
 
 
Shares
 
Amount
 
 
 
 
Total
 
(Dollars in millions, shares in thousands)
Balance, December 31, 2012
172,352

 
$
3,587

 
$
3,944

 
$
(158
)
 
$
38

 
$
7,411

Net income

 

 
537

 

 
5

 
542

Dividends declared on common stock

 

 
(339
)
 

 

 
(339
)
Issuance of common stock
439

 
29

 

 

 

 
29

Contribution of common stock to pension plan
3,026

 
200

 

 

 

 
200

Foreign currency translation, net of tax

 

 

 
(1
)
 

 
(1
)
Benefit obligations, net of tax

 

 

 
7

 

 
7

Net change in unrealized losses on investments, net of tax

 

 

 
1

 

 
1

Stock-based compensation, distributions to noncontrolling interests and other
980

 
69

 

 

 
(9
)
 
60

Balance, September 30, 2013
176,797

 
$
3,885

 
$
4,142

 
$
(151
)
 
$
34

 
$
7,910


See Notes to Consolidated Financial Statements (Unaudited)



9




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 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 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 plants. 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.

10


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 September 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 September 30, 2013 and December 31, 2012. 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 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.
 
September 30, 2013
December 31, 2012
 
Securitization
 
Other
 
Total
 
Securitization
 
Other
 
Total
 
(In millions)
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
10

 
$
10

 
$

 
$
10

 
$
10

Restricted cash
44

 
7

 
51

 
102

 
7

 
109

Accounts receivable
39

 
17

 
56

 
34

 
7

 
41

Inventories

 
112

 
112

 

 
141

 
141

Other current assets

 
1

 
1

 

 
1

 
1

Property, plant and equipment

 
100

 
100

 

 
93

 
93

Securitized regulatory assets
280

 

 
280

 
413

 

 
413

Other assets
5

 
9

 
14

 
7

 
11

 
18

 
$
368

 
$
256

 
$
624

 
$
556

 
$
270

 
$
826

 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued current liabilities
$
2

 
$
35

 
$
37

 
$
11

 
$
14

 
$
25

Current portion long-term debt, including capital leases
196

 
9

 
205

 
177

 
8

 
185

Current regulatory liabilities
48

 

 
48

 
50

 

 
50

Other current liabilities

 
3

 
3

 

 
4

 
4

Mortgage bonds, notes and other

 
22

 
22

 

 
25

 
25

Securitization bonds
105

 

 
105

 
302

 

 
302

Capital lease obligations

 
7

 
7

 

 
11

 
11

Other long-term liabilities
8

 
3

 
11

 
7

 
2

 
9

 
$
359

 
$
79

 
$
438

 
$
547

 
$
64

 
$
611



11


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

Amounts for non-consolidated VIEs as of September 30, 2013 and December 31, 2012 are as follows:
 
September 30, 2013
 
December 31, 2012
 
(In millions)
Other investments
$
138

 
$
130

Notes receivable
$
3

 
$
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 nine months ended September 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 September 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, June 30, 2013
$
(4
)
 
$
(8
)
 
$
(143
)
 
$

 
$
(155
)
Other comprehensive income before reclassifications

 
1

 

 
1

 
2

Amounts reclassified from accumulated other comprehensive income

 

 
2

 

 
2

Net current-period other comprehensive income

 
1

 
2

 
1

 
4

Ending balance, September 30, 2013
$
(4
)
 
$
(7
)
 
$
(141
)
 
$
1

 
$
(151
)


 
Changes in Accumulated Other Comprehensive Loss by Component (a)
 
For The Nine Months Ended September 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

 
1

 

 
(1
)
 

Amounts reclassified from accumulated other comprehensive income

 

 
7

 

 
7

Net current-period other comprehensive income (loss)

 
1

 
7

 
(1
)
 
7

Ending balance, September 30, 2013
$
(4
)
 
$
(7
)
 
$
(141
)
 
$
1

 
$
(151
)
______________________________________
(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).


12


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:
 
September 30,
 
December 31,
 
2013
 
2012
 
(In millions)
Emission allowances
$
3

 
$
6

Renewable energy credits
48

 
44

Contract intangible assets
126

 
139

 
177

 
189

Less accumulated amortization
41

 
34

Intangible assets, net
136

 
155

Less current intangible assets
14

 
20

 
$
122

 
$
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 30 years.

Income Taxes

The Company's effective tax rate from continuing operations for the three months ended September 30, 2013 was 28 percent as compared to 32 percent for the three months ended September 30, 2012. The Company's effective tax rate from continuing operations for the nine months ended September 30, 2013 was 29 percent as compared to 32 percent for the nine months ended September 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 September 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.



13


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 September 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.


14


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 September 30, 2013 and December 31, 2012:
 
September 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)
$

 
$
68

 
$

 
$

 
$
68

 
$

 
$
123

 
$

 
$

 
$
123

Nuclear decommissioning trusts
757

 
382

 

 

 
1,139

 
694

 
343

 

 

 
1,037

Other investments (c) (d)
76

 
48

 

 

 
124

 
66

 
44

 

 

 
110

Derivative assets:
 

 
 

 
 

 
 

 
 
 
 

 
 

 
 

 
 

 
 
Commodity Contracts:
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
Natural Gas
388

 
61

 
34

 
(474
)
 
9

 
555

 
66

 
24

 
(605
)
 
40

Electricity

 
210

 
88

 
(216
)
 
82

 

 
226

 
134

 
(258
)
 
102

Other
48

 
9

 
5

 
(55
)
 
7

 
6

 
3

 
2

 
(6
)
 
5

Total derivative assets
436

 
280

 
127

 
(745
)
 
98

 
561

 
295

 
160

 
(869
)
 
147

Total
$
1,269

 
$
778

 
$
127

 
$
(745
)
 
$
1,429

 
$
1,321

 
$
805

 
$
160

 
$
(869
)
 
$
1,417

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
$

 
$

 
$

 
$

 
$

 
$

 
$
(1
)
 
$

 
$

 
$
(1
)
Commodity Contracts:
 

 
 

 
 

 
 

 
 
 
 

 
 

 
 

 
 

 
 
Natural Gas
(374
)
 
(49
)
 
(48
)
 
445

 
(26
)
 
(526
)
 
(73
)
 
(62
)
 
605

 
(56
)
Electricity

 
(204
)
 
(83
)
 
236

 
(51
)
 

 
(240
)
 
(111
)
 
258

 
(93
)
Other
(52
)
 
(5
)
 

 
55

 
(2
)
 
(6
)
 
(1
)
 

 
6

 
(1
)
Total derivative liabilities
(426
)
 
(258
)
 
(131
)
 
736

 
(79
)
 
(532
)
 
(315
)
 
(173
)
 
869

 
(151
)
Total
$
(426
)
 
$
(258
)
 
$
(131
)
 
$
736

 
$
(79
)
 
$
(532
)
 
$
(315
)
 
$
(173
)
 
$
869

 
$
(151
)
Net Assets (Liabilities) at the end of the period
$
843

 
$
520

 
$
(4
)
 
$
(9
)
 
$
1,350

 
$
789

 
$
490

 
$
(13
)
 
$

 
$
1,266

Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
$
400

 
$
285

 
$
94

 
$
(639
)
 
$
140

 
$
493

 
$
372

 
$
120

 
$
(754
)
 
$
231

Noncurrent (e)
869

 
493

 
33

 
(106
)
 
1,289

 
828

 
433

 
40

 
(115
)
 
1,186

Total Assets
$
1,269

 
$
778

 
$
127

 
$
(745
)
 
$
1,429

 
$
1,321

 
$
805

 
$
160

 
$
(869
)
 
$
1,417

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
$
(379
)
 
$
(189
)
 
$
(100
)
 
$
610

 
$
(58
)
 
$
(466
)
 
$
(269
)
 
$
(144
)
 
$
754

 
$
(125
)
Noncurrent
(47
)
 
(69
)
 
(31
)
 
126

 
(21
)
 
(66
)
 
(46
)
 
(29
)
 
115

 
(26
)
Total Liabilities
$
(426
)
 
$
(258
)
 
$
(131
)
 
$
736

 
$
(79
)
 
$
(532
)
 
$
(315
)
 
$
(173
)
 
$
869

 
$
(151
)
Net Assets (Liabilities) at the end of the period
$
843

 
$
520

 
$
(4
)
 
$
(9
)
 
$
1,350

 
$
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 September 30, 2013, available-for-sale securities of $68 million included $51 million and $17 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 September 30, 2013 and $5 million at December 31, 2012, are included in Other investments on the Consolidated Statements of Financial Position.
(e)
Includes $124 million and $110 million at September 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.

15


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 trustee monitors prices supplied by pricing services and may use a supplemental price source or change the primary price source of a given security if the trustee determines 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 value 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 nine months ended September 30, 2013 and 2012:

 
Three Months Ended September 30, 2013
 
Three Months Ended September 30, 2012
 
Natural Gas
 
Electricity
 
Other
 
Total
 
Natural Gas
 
Electricity
 
Other
 
Total
 
(In millions)
Net Assets (Liabilities) as of June 30
$
(30
)
 
$
12

 
$
2

 
$
(16
)
 
$
2

 
$
50

 
$
5

 
$
57

Transfers into Level 3

 

 

 

 

 

 

 

Transfers out of Level 3

 
(1
)
 

 
(1
)
 

 

 

 

Total gains (losses):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Included in earnings
8

 
17

 

 
25

 
(43
)
 
12

 
1

 
(30
)
Recorded in regulatory assets/liabilities

 

 
3

 
3

 

 

 
7

 
7

Purchases, issuances and settlements:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Settlements
8

 
(23
)
 

 
(15
)
 
(3
)
 
(38
)
 
(7
)
 
(48
)
Net Assets (Liabilities) as of September 30
$
(14
)
 
$
5

 
$
5

 
$
(4
)
 
$
(44
)
 
$
24

 
$
6

 
$
(14
)
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 September 30, 2013 and 2012 and reflected in Operating revenues and Fuel, purchased power and gas in the Consolidated Statements of Operations
$
(8
)
 
$
8

 
$

 
$

 
$
(43
)
 
$
5

 
$
1

 
$
(37
)


16


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

 
Nine Months Ended September 30, 2013
 
Nine Months Ended September 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
(1
)
 
44

 

 
43

 
(38
)
 
53

 

 
15

Recorded in regulatory assets/liabilities

 

 
7

 
7

 

 

 
12

 
12

Purchases, issuances and settlements:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchases

 
(1
)
 

 
(1
)
 

 
1

 

 
1

Settlements
27

 
(61
)
 
(4
)
 
(38
)
 
(11
)
 
(90
)
 
(12
)
 
(113
)
Net Assets (Liabilities) as of September 30
$
(14
)
 
$
5

 
$
5

 
$
(4
)
 
$
(44
)
 
$
24

 
$
6

 
$
(14
)
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 September 30, 2013 and 2012 and reflected in Operating revenues and Fuel, purchased power and gas in the Consolidated Statements of Operations
$
(14
)
 
$
36

 
$

 
$
22

 
$
(39
)
 
$
43

 
$

 
$
4


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 nine months ended September 30, 2013 and 2012:
 
Three Months Ended September 30, 2013
Three Months Ended September 30, 2012
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3