Annual Statements Open main menu

DTE ENERGY CO - Quarter Report: 2018 June (Form 10-Q)



 
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, 2018
Commission File Number
 
Registrants, State of Incorporation, Address, and Telephone Number
 
I.R.S. Employer Identification No.
1-11607
 
DTE Energy Company
(a Michigan corporation)
One Energy Plaza
Detroit, Michigan 48226-1279
313-235-4000
 
38-3217752
 
 
 
 
 
1-2198
 
DTE Electric Company
(a Michigan corporation)
One Energy Plaza
Detroit, Michigan 48226-1279
313-235-4000
 
38-0478650
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
DTE Energy Company (DTE Energy)
Yes x No o
 
DTE Electric Company (DTE Electric)
Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
DTE Energy
Yes x No o
 
DTE Electric
Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
DTE Energy
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
 
 
 
(Do not check if a smaller
reporting company)
 
 
DTE Electric
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x
Smaller reporting company o
Emerging growth company o
 
 
 
(Do not check if a smaller
reporting company)
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
DTE Energy
Yes o No x
 
DTE Electric
Yes o No x
Number of shares of Common Stock outstanding at June 30, 2018:
Registrant
 
Description
 
Shares
DTE Energy
 
Common Stock, without par value
 
181,772,574

 
 
 
 
 
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.
 





















THIS PAGE INTENTIONALLY LEFT BLANK





TABLE OF CONTENTS

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




DEFINITIONS

AFUDC
Allowance for Funds Used During Construction
 
 
AGS
Appalachia Gathering System is a midstream natural gas asset located in Pennsylvania and West Virginia. DTE Energy purchased 100% of AGS in October 2016, and this asset is part of DTE Energy's Gas Storage and Pipelines segment.
 
 
ANPR
Advanced Notice of Proposed Rulemaking
 
 
ASU
Accounting Standards Update issued by the FASB
 
 
CCR
Coal Combustion Residuals
 
 
CFTC
U.S. Commodity Futures Trading Commission
 
 
CON
Certificate of Necessity
 
 
DTE Electric
DTE Electric Company (a direct wholly-owned subsidiary of DTE Energy) and subsidiary companies
 
 
DTE Energy
DTE Energy Company, directly or indirectly the parent of DTE Electric, DTE Gas, and numerous non-utility subsidiaries
 
 
DTE Gas
DTE Gas Company (an indirect wholly-owned subsidiary of DTE Energy) and subsidiary companies
 
 
EGU
Electric Generating Unit
 
 
ELG
Effluent Limitations Guidelines
 
 
EPA
U.S. Environmental Protection Agency
 
 
Equity units
DTE Energy's 2016 Equity Units issued in October 2016, which were used to finance the October 1, 2016 Gas Storage and Pipelines acquisition
 
 
FASB
Financial Accounting Standards Board
 
 
FERC
Federal Energy Regulatory Commission
 
 
FOV
Finding of Violation
 
 
FTRs
Financial Transmission Rights are financial instruments that entitle the holder to receive payments related to costs incurred for congestion on the transmission grid.
 
 
GCR
A Gas Cost Recovery mechanism authorized by the MPSC that allows DTE Gas to recover through rates its natural gas costs.
 
 
GHGs
Greenhouse gases
 
 
Green Bonds
A financing option to fund projects that have a positive environmental impact. 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
 
 
NOX
Nitrogen Oxides
 
 

1



DEFINITIONS

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.
 
 
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 DTE Energy's significant customers and strategic partners;
the potential for losses on investments, including nuclear decommissioning and benefit plan assets and the related increases in future expense and contributions;

3



access to capital markets and the results of other financing efforts which can be affected by credit agency ratings;
instability in capital markets which could impact availability of short and long-term financing;
the timing and extent of changes in interest rates;
the level of borrowings;
the potential for increased costs or delays in completion of significant capital projects;
changes in, and application of, federal, state, and local tax laws and their interpretations, including the Internal Revenue Code, regulations, rulings, court proceedings, and audits;
the effects of weather and other natural phenomena on operations and sales to customers, and purchases from suppliers;
unplanned outages;
employee relations and the impact of collective bargaining agreements;
the risk of a major safety incident at an electric distribution or generation facility and, for DTE Energy, a gas storage, transmission, or distribution facility;
the availability, cost, coverage, and terms of insurance and stability of insurance providers;
cost reduction efforts and the maximization of plant and distribution system performance;
the effects of competition;
changes in and application of accounting standards and financial reporting regulations;
changes in federal or state laws and their interpretation with respect to regulation, energy policy, and other business issues;
contract disputes, binding arbitration, litigation, and related appeals; and
the risks discussed in the Registrants' public filings with the Securities and Exchange Commission.
New factors emerge from time to time. The Registrants cannot predict what factors may arise or how such factors may cause results to differ materially from those contained in any forward-looking statement. Any forward-looking statements speak only as of the date on which such statements are made. The Registrants undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.

4



Part I — Financial Information
Item 1. Financial Statements

DTE Energy Company

Consolidated Statements of Operations (Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions, except per share amounts)
Operating Revenues
 
 
 
 
 
 
 
Utility operations
$
1,514

 
$
1,423

 
$
3,254

 
$
3,141

Non-utility operations
1,645

 
1,432

 
3,658

 
2,950

 
3,159

 
2,855

 
6,912

 
6,091

 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
Fuel, purchased power, and gas — utility
434

 
396

 
987

 
925

Fuel, purchased power, and gas — non-utility
1,443

 
1,248

 
3,216

 
2,428

Operation and maintenance
583

 
542

 
1,117

 
1,126

Depreciation and amortization
272

 
249

 
553

 
498

Taxes other than income
97

 
97

 
208

 
206

Asset (gains) losses and impairments, net
1

 
3

 
(2
)
 
3

 
2,830

 
2,535

 
6,079

 
5,186

Operating Income
329

 
320

 
833

 
905

 
 
 
 
 
 
 
 
Other (Income) and Deductions
 
 
 
 
 
 
 
Interest expense
135

 
133

 
270

 
258

Interest income
(3
)
 
(2
)
 
(6
)
 
(5
)
Non-operating retirement benefits, net
9

 
17

 
18

 
33

Other income
(82
)
 
(66
)
 
(163
)
 
(130
)
Other expenses
15

 
6

 
40

 
13

 
74

 
88

 
159

 
169

Income Before Income Taxes
255

 
232

 
674

 
736

 
 
 
 
 
 
 
 
Income Tax Expense
19

 
57

 
87

 
167

 
 
 
 
 
 
 
 
Net Income
236

 
175

 
587

 
569

 
 
 
 
 
 
 
 
Less: Net Income (Loss) Attributable to Noncontrolling Interests
2

 
(2
)
 
(8
)
 
(8
)
 
 
 
 
 
 
 
 
Net Income Attributable to DTE Energy Company
$
234

 
$
177

 
$
595

 
$
577

 
 
 
 
 
 
 
 
Basic Earnings per Common Share
 
 
 
 
 
 
 
Net Income Attributable to DTE Energy Company
$
1.29

 
$
0.99

 
$
3.29

 
$
3.21

 
 
 
 
 
 
 
 
Diluted Earnings per Common Share
 
 
 
 
 
 
 
Net Income Attributable to DTE Energy Company
$
1.29

 
$
0.99

 
$
3.29

 
$
3.21

 
 
 
 
 
 
 
 
Weighted Average Common Shares Outstanding
 
 
 
 
 
 
 
Basic
181

 
179

 
180

 
179

Diluted
181

 
179

 
180

 
179

Dividends Declared per Common Share
$
1.77

 
$
1.65

 
$
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 June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions)
Net Income
$
236

 
$
175

 
$
587

 
$
569

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

 
3

 
5

 
7

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

 
1

 

 
1

Foreign currency translation
(1
)
 

 
(1
)
 

Other comprehensive income
2

 
4

 
4

 
8

 
 
 
 
 
 
 
 
Comprehensive income
238

 
179

 
591

 
577

Less: Comprehensive income (loss) attributable to noncontrolling interests
2

 
(2
)
 
(8
)
 
(8
)
Comprehensive Income Attributable to DTE Energy Company
$
236

 
$
181

 
$
599

 
$
585


See Combined Notes to Consolidated Financial Statements (Unaudited)

6



DTE Energy Company

Consolidated Statements of Financial Position (Unaudited)

 
June 30,
 
December 31,
 
2018
 
2017
 
(In millions)
ASSETS
Current Assets
 
 
 
Cash and cash equivalents
$
63

 
$
66

Restricted cash
23

 
23

Accounts receivable (less allowance for doubtful accounts of $70 and $49, respectively)
 
 
 
Customer
1,690

 
1,758

Other
147

 
98

Inventories
 
 
 
Fuel and gas
313

 
399

Materials and supplies
362

 
380

Derivative assets
78

 
103

Regulatory assets
57

 
55

Other
162

 
199

 
2,895

 
3,081

Investments
 
 
 
Nuclear decommissioning trust funds
1,484

 
1,492

Investments in equity method investees
1,326

 
1,073

Other
231

 
232

 
3,041

 
2,797

Property
 
 
 
Property, plant, and equipment
32,122

 
31,424

Accumulated depreciation and amortization
(10,883
)
 
(10,703
)
 
21,239

 
20,721

Other Assets
 
 
 
Goodwill
2,293

 
2,293

Regulatory assets
3,729

 
3,723

Intangible assets
862

 
867

Notes receivable
69

 
73

Derivative assets
45

 
51

Prepaid postretirement costs
9

 

Other
148

 
161

 
7,155

 
7,168

Total Assets
$
34,330

 
$
33,767


See Combined Notes to Consolidated Financial Statements (Unaudited)

7



DTE Energy Company

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

 
June 30,
 
December 31,
 
2018
 
2017
 
(In millions, except shares)
LIABILITIES AND EQUITY
Current Liabilities
 
 
 
Accounts payable
$
1,059

 
$
1,171

Accrued interest
113

 
111

Dividends payable
321

 
158

Short-term borrowings
474

 
621

Current portion long-term debt, including capital leases
5

 
109

Derivative liabilities
43

 
99

Gas inventory equalization
37

 

Regulatory liabilities
39

 
18

Other
408

 
525

 
2,499

 
2,812

Long-Term Debt (net of current portion)
 
 
 
Mortgage bonds, notes, and other
11,560

 
11,039

Junior subordinated debentures
1,145

 
1,145

Capital lease obligations

 
1

 
12,705

 
12,185

Other Liabilities
 

 
 

Deferred income taxes
1,936

 
1,888

Regulatory liabilities
3,038

 
2,875

Asset retirement obligations
2,394

 
2,320

Unamortized investment tax credit
142

 
122

Derivative liabilities
64

 
47

Accrued pension liability
727

 
924

Accrued postretirement liability

 
61

Nuclear decommissioning
219

 
220

Other
288

 
323

 
8,808

 
8,780

Commitments and Contingencies (Notes 5 and 11)
 
 
 



 


Equity
 
 
 
Common stock, without par value, 400,000,000 shares authorized, and 181,772,574 and 179,386,967 shares issued and outstanding, respectively
4,205

 
3,989

Retained earnings
5,760

 
5,643

Accumulated other comprehensive loss
(121
)
 
(120
)
Total DTE Energy Company Equity
9,844

 
9,512

Noncontrolling interests
474

 
478

Total Equity
10,318

 
9,990

Total Liabilities and Equity
$
34,330

 
$
33,767


See Combined Notes to Consolidated Financial Statements (Unaudited)

8



DTE Energy Company

Consolidated Statements of Cash Flows (Unaudited)

 
Six Months Ended June 30,
 
2018
 
2017
 
(In millions)
Operating Activities
 
 
 
Net Income
$
587

 
$
569

Adjustments to reconcile Net Income to Net cash from operating activities:
 
 
 
Depreciation and amortization
553

 
498

Nuclear fuel amortization
25

 
24

Allowance for equity funds used during construction
(13
)
 
(12
)
Deferred income taxes
80

 
164

Equity earnings of equity method investees
(53
)
 
(51
)
Dividends from equity method investees
34

 
37

Asset (gains) losses and impairments, net

 
3

Changes in assets and liabilities:
 
 
 
Accounts receivable, net
20

 
49

Inventories
104

 
32

Prepaid postretirement benefit costs
(9
)
 

Accounts payable
(34
)
 
23

Gas inventory equalization
37

 
35

Accrued pension liability
(197
)
 
(133
)
Accrued postretirement liability
(61
)
 

Derivative assets and liabilities
(8
)
 
(123
)
Regulatory assets and liabilities
230

 
216

Other current and noncurrent assets and liabilities
138

 
(148
)
Net cash from operating activities
1,433

 
1,183

Investing Activities
 
 
 
Plant and equipment expenditures — utility
(1,027
)
 
(968
)
Plant and equipment expenditures — non-utility
(130
)
 
(68
)
Proceeds from sale of nuclear decommissioning trust fund assets
616

 
705

Investment in nuclear decommissioning trust funds
(613
)
 
(688
)
Distributions from equity method investees
5

 
7

Contributions to equity method investees
(233
)
 
(175
)
Other
2

 
(61
)
Net cash used for investing activities
(1,380
)
 
(1,248
)
Financing Activities
 
 
 
Issuance of long-term debt, net of issuance costs
520

 
495

Redemption of long-term debt
(102
)
 
(6
)
Short-term borrowings, net
(147
)
 
(79
)
Issuance of common stock
6

 

Repurchase of common stock

 
(51
)
Dividends on common stock
(309
)
 
(296
)
REF contributions from noncontrolling interests
22

 
21

Distributions to noncontrolling interests
(17
)
 
(20
)
Other
(29
)
 
(28
)
Net cash from (used for) financing activities
(56
)
 
36

Net Decrease in Cash, Cash Equivalents, and Restricted Cash
(3
)
 
(29
)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period
89

 
113

Cash, Cash Equivalents, and Restricted Cash at End of Period
$
86

 
$
84

 
 
 
 
Supplemental disclosure of non-cash investing and financing activities
 
 
 
Plant and equipment expenditures in accounts payable
$
216

 
$
218

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)

 

 
595

 

 
(8
)
 
587

Dividends declared on common stock

 

 
(481
)
 

 

 
(481
)
Issuance of common stock
160

 
16

 

 

 

 
16

Contribution of common stock to pension plan
1,751

 
175

 

 

 

 
175

Benefit obligations, net of tax

 

 

 
5

 

 
5

Foreign currency translation

 

 

 
(1
)
 

 
(1
)
Stock-based compensation, net contributions from noncontrolling interests, and other
475

 
25

 
(2
)
 

 
4

 
27

Balance, June 30, 2018
181,773

 
$
4,205

 
$
5,760

 
$
(121
)
 
$
474

 
$
10,318


See Combined Notes to Consolidated Financial Statements (Unaudited)

10



DTE Electric Company

Consolidated Statements of Operations (Unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions)
Operating Revenues — Utility operations
$
1,276

 
$
1,218

 
$
2,481

 
$
2,393

 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
Fuel and purchased power — utility
386

 
355

 
725

 
669

Operation and maintenance
345

 
336

 
665

 
719

Depreciation and amortization
202

 
180

 
414

 
361

Taxes other than income
74

 
75

 
155

 
155

 
1,007

 
946

 
1,959

 
1,904

Operating Income
269

 
272

 
522

 
489

 
 
 
 
 
 
 
 
Other (Income) and Deductions
 
 
 
 
 
 
 
Interest expense
69

 
72

 
137

 
138

Other income
(22
)
 
(17
)
 
(49
)
 
(36
)
Other expenses
15

 
5

 
40

 
12

 
62

 
60

 
128

 
114

Income Before Income Taxes
207

 
212

 
394

 
375

 
 
 
 
 
 
 
 
Income Tax Expense
44

 
74

 
91

 
131

 
 
 
 
 
 
 
 
Net Income
$
163

 
$
138

 
$
303

 
$
244


See Combined Notes to Consolidated Financial Statements (Unaudited)

11



DTE Electric Company

Consolidated Statements of Comprehensive Income (Unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions)
Net Income
$
163

 
$
138

 
$
303

 
$
244

Other comprehensive income

 

 

 

Comprehensive Income
$
163

 
$
138

 
$
303

 
$
244


See Combined Notes to Consolidated Financial Statements (Unaudited)

12



DTE Electric Company

Consolidated Statements of Financial Position (Unaudited)

 
June 30,
 
December 31,
 
2018
 
2017
 
(In millions)
ASSETS
Current Assets
 
 
 
Cash and cash equivalents
$
8

 
$
15

Accounts receivable (less allowance for doubtful accounts of $38 and $31, respectively)
 
 
 
Customer
849

 
791

Affiliates
14

 
20

Other
71

 
37

Inventories
 
 
 
Fuel
165

 
190

Materials and supplies
276

 
275

Regulatory assets
56

 
50

Other
70

 
68

 
1,509

 
1,446

Investments
 
 
 
Nuclear decommissioning trust funds
1,484

 
1,492

Other
35

 
36

 
1,519

 
1,528

Property
 
 
 
Property, plant, and equipment
23,410

 
22,972

Accumulated depreciation and amortization
(8,101
)
 
(7,984
)
 
15,309

 
14,988

Other Assets
 
 
 
Regulatory assets
3,035

 
3,005

Intangible assets
31

 
25

Prepaid postretirement costs — affiliates
113

 
113

Other
115

 
123

 
3,294

 
3,266

Total Assets
$
21,631

 
$
21,228


See Combined Notes to Consolidated Financial Statements (Unaudited)

13



DTE Electric Company

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

 
June 30,
 
December 31,
 
2018
 
2017
 
(In millions, except shares)
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
 
 
 
Accounts payable
 
 
 
Affiliates
$
54

 
$
52

Other
339

 
416

Accrued interest
74

 
72

Accrued vacation
45

 
41

Current portion long-term debt, including capital leases
2

 
5

Regulatory liabilities
26

 
17

Short-term borrowings
 
 
 
Affiliates
75

 
116

Other
130

 
238

Other
75

 
104

 
820

 
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
2,146

 
2,088

Regulatory liabilities
2,266

 
2,137

Asset retirement obligations
2,196

 
2,125

Unamortized investment tax credit
140

 
120

Nuclear decommissioning
219

 
220

Accrued pension liability — affiliates
629

 
811

Accrued postretirement liability — affiliates
264

 
311

Other
76

 
72

 
7,936

 
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
4,306

 
4,306

Retained earnings
2,032

 
1,956

Accumulated other comprehensive income

 
3

Total Shareholder’s Equity
6,338

 
6,265

Total Liabilities and Shareholder’s Equity
$
21,631

 
$
21,228


See Combined Notes to Consolidated Financial Statements (Unaudited)

14



DTE Electric Company

Consolidated Statements of Cash Flows (Unaudited)

 
Six Months Ended June 30,
 
2018
 
2017
 
(In millions)
Operating Activities
 
 
 
Net Income
$
303

 
$
244

Adjustments to reconcile Net Income to Net cash from operating activities:
 
 
 
Depreciation and amortization
414

 
361

Nuclear fuel amortization
25

 
24

Allowance for equity funds used during construction
(9
)
 
(10
)
Deferred income taxes
91

 
130

Changes in assets and liabilities:
 
 
 
Accounts receivable, net
(86
)
 
(36
)
Inventories
24

 
23

Accounts payable
(2
)
 
(4
)
Accrued pension liability — affiliates
(182
)
 
(122
)
Accrued postretirement liability — affiliates
(47
)
 
2

Regulatory assets and liabilities
158

 
193

Other current and noncurrent assets and liabilities
(4
)
 
(91
)
Net cash from operating activities
685

 
714

Investing Activities
 
 
 
Plant and equipment expenditures
(825
)
 
(737
)
Proceeds from sale of nuclear decommissioning trust fund assets
616

 
705

Investment in nuclear decommissioning trust funds
(613
)
 
(688
)
Other
(4
)
 

Net cash used for investing activities
(826
)
 
(720
)
Financing Activities
 
 
 
Issuance of long-term debt, net of issuance costs
520

 

Short-term borrowings, net — affiliate
(41
)
 
(39
)
Short-term borrowings, net — other
(108
)
 
264

Dividends on common stock
(230
)
 
(216
)
Other
(7
)
 
(7
)
Net cash from financing activities
134

 
2

Net Decrease in Cash and Cash Equivalents
(7
)
 
(4
)
Cash and Cash Equivalents at Beginning of Period
15

 
13

Cash and Cash Equivalents at End of Period
$
8

 
$
9

 
 
 
 
Supplemental disclosure of non-cash investing and financing activities
 
 
 
Plant and equipment expenditures in accounts payable
$
117

 
$
133


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

 

 

 
303

 

 
303

Dividends declared on common stock

 

 

 
(230
)
 

 
(230
)
Balance, June 30, 2018
138,632

 
$
1,386

 
$
2,920

 
$
2,032

 
$

 
$
6,338


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 and six months ended June 30, 2017 on DTE Energy’s Consolidated Statements of Operations were revised to reflect two dividend declarations in the second quarter of 2017, or $1.65 and $2.48 per share, for the three and six month periods, respectively.  The financial statements previously reflected one dividend declaration of $0.83 and $1.65 per share for the three and six-months period ended June 30, 2017, respectively.  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 is in the process of constructing a 255-mile pipeline to transport Utica and Marcellus shale gas to Ohio, Michigan, and Ontario market centers. NEXUS is a VIE as it has insufficient equity at risk to finance its activities. The Registrants are not the primary beneficiaries, as the power to direct significant activities is shared between the owners of the equity interests. DTE Energy accounts for its ownership interest in NEXUS under the equity method.
The Registrants hold ownership interests in certain limited partnerships. The limited partnerships include investment funds which support regional development and economic growth, as well as an operational business providing energy-related products. These entities are generally VIEs as a result of certain characteristics of the limited partnership voting rights. The ownership interests are accounted for under the equity method as the Registrants are not the primary beneficiaries.

18


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

DTE Energy has variable interests in VIEs through certain of its long-term purchase and sale contracts. DTE Electric has variable interests in VIEs through certain of its long-term purchase contracts. As of June 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 June 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 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 June 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:
 
June 30, 2018
 
December 31, 2017
 
SGG(a)
 
Other
 
Total
 
SGG(a)
 
Other
 
Total
 
(In millions)
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
28

 
$
16

 
$
44

 
$
23

 
$
14

 
$
37

Restricted cash

 
8

 
8

 

 
8

 
8

Accounts receivable
10

 
32

 
42

 
11

 
42

 
53

Inventories
3

 
67

 
70

 
3

 
114

 
117

Property, plant, and equipment, net
389

 
68

 
457

 
400

 
75

 
475

Goodwill
25

 

 
25

 
25

 

 
25

Intangible assets
564

 

 
564

 
572

 

 
572

Other current and long-term assets
2

 
1

 
3

 
4

 

 
4

 
$
1,021

 
$
192

 
$
1,213

 
$
1,038

 
$
253

 
$
1,291

 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued current liabilities
$
5

 
$
32

 
$
37

 
$
26

 
$
47

 
$
73

Current portion long-term debt, including capital leases

 
3

 
3

 

 
4

 
4

Mortgage bonds, notes, and other

 

 

 

 
1

 
1

Other current and long-term liabilities
7

 
15

 
22

 
1

 
16

 
17

 
$
12

 
$
50

 
$
62

 
$
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:
 
June 30, 2018
 
December 31, 2017
 
(In millions)
Investments in equity method investees
$
1,028

 
$
811

Notes receivable
$
18

 
$
17

Future funding commitments
$
416

 
$
598


NOTE 2SIGNIFICANT ACCOUNTING POLICIES
Other Income
The following is a summary of DTE Energy's Other income:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions)
Equity earnings of equity method investees
$
32

 
$
25

 
$
53

 
$
51

Income from REF entities
25

 
22

 
48

 
40

Contract services
12

 
4

 
32

 
8

Allowance for equity funds used during construction
6

 
5

 
13

 
12

Gains from equity securities
1

 
5

 
1

 
13

Other
6

 
5

 
16

 
6

 
$
82

 
$
66

 
$
163

 
$
130

The following is a summary of DTE Electric's Other income:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions)
Contract services
$
13

 
$
5

 
$
33

 
$
9

Allowance for equity funds used during construction
4

 
4

 
9

 
10

Gains from equity securities allocated from DTE Energy
1

 
5

 
1

 
13

Other
4

 
3

 
6

 
4

 
$
22

 
$
17

 
$
49

 
$
36

Changes in Accumulated Other Comprehensive Income (Loss)
For the three and six months ended June 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 June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
DTE Energy
7
%
 
25
%
 
13
%
 
23
%
DTE Electric
21
%
 
35
%
 
23
%
 
35
%
The 18% decrease and the 10% decrease in DTE Energy's effective tax rate for the three and six months ended June 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 June 30, 2018 was also impacted by an increase in annual production tax credits of 4%. The decrease in the effective tax rate for the six months ended June 30, 2018 was partially offset by true-up adjustments to the remeasurement of deferred taxes in 2018 of $21 million, which increased the effective tax rate by 3%, and the reduction of excess tax benefits on stock-based compensation of $11 million, which increased the effective tax rate by 1%. For further discussion regarding the true-up adjustments, see Note 3 to the Consolidated Financial Statements, "New Accounting Pronouncements."
The 14% decrease and the 12% decrease in DTE Electric's effective tax rate for the three and six months ended June 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 six months ended June 30, 2018 was partially offset by true-up adjustments to the remeasurement of deferred taxes in 2018 of $8 million, which increased the effective tax rate by 2%.
DTE Energy's total amount of unrecognized tax benefits as of June 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 June 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 receivables with DTE Energy of $12 million at June 30, 2018 and December 31, 2017.
Unrecognized Compensation Costs
As of June 30, 2018, DTE Energy had $98 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 1.52 years.
Allocated Stock-Based Compensation
DTE Electric received an allocation of costs from DTE Energy associated with stock-based compensation of $8 million and $10 million for the three months ended June 30, 2018 and 2017, respectively, while such allocation was $17 million and $18 million for the six months ended June 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:
 
June 30,
 
December 31,
 
2018
 
2017
 
(In millions)
Cash and cash equivalents
$
63

 
$
66

Restricted cash
23

 
23

Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows
$
86

 
$
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 six months ended June 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 six months ended June 30, 2018, DTE Energy and DTE Electric recorded true-up adjustments to the remeasurement of deferred taxes of $21 million and $8 million, respectively. The impact of the true-up adjustments was an increase in Income Tax Expense, of which $16 million was attributable to the regulated utilities and offset to Regulatory liabilities. The true-up adjustments were a result of further analysis for items subject to further consideration at December 31, 2017, under SAB 118 and primarily related to timing differences not recoverable from DTE Electric and DTE Gas customers. The Registrants will continue to analyze the amounts throughout 2018, which may result in additional changes.
Recently Issued Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), as amended. This guidance requires a lessee to account for leases as finance or operating leases, and disclose key information about leasing arrangements. Both types of leases will result in the lessee recognizing a right-of-use asset and a corresponding lease liability on its balance sheet, with differing methodology for income statement recognition, depending on the lease classification. The Registrants will adopt the standard on January 1, 2019. As originally issued, the standard requires a modified retrospective approach for leases existing or entered into after the beginning of the earliest comparative period in the Consolidated Financial Statements. The Registrants 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 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. The Registrants are compiling lease contracts and abstracting the required data, as well as evaluating new business processes, internal controls, and accounting policies. In addition, the Registrants are monitoring utility industry implementation issues for purchase power agreements, pipeline laterals, and other industry specific arrangements. While the Registrants expect an increase in assets and liabilities, as well as additional disclosures, they are still assessing the impact of this ASU on their Consolidated Financial Statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this update replace the incurred loss impairment methodology in current generally accepted accounting principles with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Entities will apply the new guidance as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The ASU is effective for the Registrants beginning after December 15, 2019, and interim periods therein. Early adoption is permitted. The Registrants are currently assessing the impact of this standard on their Consolidated Financial Statements.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA. The amendments in this update also require entities to disclose their accounting policy for releasing income tax effects from accumulated other comprehensive income. The ASU is effective for the Registrants for fiscal years beginning after December 15, 2018, and interim periods therein. Early adoption is permitted. The Registrants are currently assessing the impact of this standard on their Consolidated Financial Statements.


23


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

NOTE 4REVENUE
Significant Accounting Policy
Upon the adoption of Topic 606, revenue is measured based upon the consideration specified in a contract with a customer at the time when performance obligations are satisfied. Under Topic 606, a performance obligation is a promise in a contract to transfer a distinct good or service or a series of distinct goods or services to the customer. The Registrants recognize revenue when performance obligations are satisfied by transferring control over a product or service to a customer. The Registrants have determined control to be transferred when the product is delivered or the service is provided to the customer. For the three and six months ended June 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 June 30,
 
Six Months Ended June 30,
 
2018
 
2018
 
(In millions)
Electric(a)
 
 
 
Residential
$
584

 
$
1,170

Commercial
446

 
875

Industrial
178

 
354

Other(b)
68

 
82

Total Electric operating revenues(c)
$
1,276

 
$
2,481

 
 
 
 
Gas
 
 
 
Gas sales
$
180

 
$
637

End User Transportation
49

 
134

Intermediate Transportation
11

 
29

Other(d)
15

 
5

Total Gas operating revenues(e)
$
255

 
$
805

 
 
 
 
Other segment operating revenues(f)
 
 
 
Gas Storage and Pipelines
$
122

 
$
241

Power and Industrial Projects
$
538

 
$
1,105

Energy Trading
$
1,164

 
$
2,662

_______________________________________
(a)
Revenues under the Electric segment generally represent those of DTE Electric.
(b)
Includes decreases of $38 million and $77 million to revenues related to TCJA rate reduction reserves for the three and six months ended June 30, 2018, respectively.
(c)
Includes $4 million and $9 million of other revenues which are outside the scope of Topic 606 for the three and six months ended June 30, 2018, respectively.
(d)
Includes an increase of $5 million and a decrease of $27 million to revenues related to TCJA rate reduction reserves for the three and six months ended June 30, 2018, respectively.
(e)
Includes a reduction of $1 million and $4 million under Alternative Revenue Programs for the three and six months ended June 30, 2018, respectively, and $2 million and $4 million of other revenues, which are both outside the scope of Topic 606 for the three and six months ended June 30, 2018, respectively.
(f)
Includes revenues outside the scope of Topic 606 primarily related to $399 million and $844 million of contracts accounted for as leases at the Power and Industrial Projects segment for the three and six months ended June 30, 2018, respectively, and $937 million and $2.1 billion related to derivatives at the Energy Trading segment for the three and six months ended June 30, 2018, respectively.
Nature of Goods and Services
The following is a description of principal activities, separated by reportable segments, from which DTE Energy generates revenue. For more detailed information about reportable segments, see Note 13 to the Consolidated Financial Statements, “Segment and Related Information.”
The Registrants have contracts with customers which may contain more than one performance obligation. When more than one performance obligation exists in a contract, the consideration under the contract is allocated to the performance obligations based on the relative standalone selling price. DTE Energy generally determines standalone selling prices based on the prices charged to customers or the use of the adjusted market assessment approach. The adjusted market assessment approach involves the evaluation of the market in which DTE Energy sells goods or services and estimating the price that a customer in that market would be willing to pay.
Under Topic 606, when a customer simultaneously receives and consumes the product or service provided, revenue is considered to be recognized over time. Alternatively, if it is determined that the criteria for recognition of revenue over time is not met, the revenue is considered to be recognized at a point in time.

25


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

Electric
Electric consists principally of DTE Electric. Electric revenues are primarily comprised of the supply and delivery of electricity, and related capacity. Revenues are primarily associated with cancelable contracts, with the exception of certain long-term contracts with commercial and industrial customers. Revenues, including estimated unbilled amounts, are generally recognized over time based upon volumes delivered or through the passage of time ratably based upon providing a stand-ready service. The Registrants have determined that the above methods represent a faithful depiction of the transfer of control to the customer. Unbilled revenues are typically determined utilizing approved tariff rates and estimated meter volumes. Estimated unbilled amounts recognized in revenue are subject to adjustment in the following reporting period as actual volumes by customer class are known. Revenues are typically subject to tariff rates based upon customer class and type of service, and are billed and received monthly. Tariff rates are determined by the MPSC on a per unit or monthly basis.
Gas
Gas consists principally of DTE Gas. Gas revenues are primarily comprised of the supply and delivery of natural gas, and other services including storage, transportation, and appliance maintenance. Revenues are primarily associated with cancelable contracts with the exception of certain long-term contracts with commercial and industrial customers. Revenues, including estimated unbilled amounts, are generally recognized over time based upon volumes delivered or through the passage of time ratably based upon providing a stand-ready service. DTE Energy has determined that the above methods represent a faithful depiction of the transfer of control to the customer. Unbilled revenues are typically determined using both estimated meter volumes and estimated usage based upon the number of unbilled days and historical temperatures. Estimated unbilled amounts recognized in revenue are subject to adjustment in the following reporting period as actual volumes by customer class and service type are known. Revenues are typically subject to tariff rates or other rates subject to regulatory oversight and are billed and received monthly. Tariff rates are determined by the MPSC on a per unit or monthly basis.
Gas Storage and Pipelines
Gas Storage and Pipelines revenues generally consist of services related to the gathering, transportation, and storage of natural gas. Contracts are primarily long-term in nature. Revenues, including estimated unbilled amounts, are generally recognized over time based upon services provided or through the passage of time ratably based upon providing a stand-ready service. DTE Energy has determined that the above methods represent a faithful depiction of the transfer of control to the customer. Revenues are typically billed and received monthly. Pricing for such revenues may consist of demand rates, commodity rates, transportation rates, and other associated fees. Consideration may consist of both fixed and variable components. Generally, uncertainties in the variable consideration components are resolved and revenues are known at the time of recognition.
Power and Industrial Projects
Power and Industrial Projects revenues consist primarily of contracts accounted for as leases which are outside of the scope of Topic 606. For performance obligations within the scope of Topic 606, the timing of revenue recognition is dependent upon when control over the associated product or service is transferred.
Revenues at Power and Industrial Projects, within the scope of Topic 606, generally consist of sales of blast furnace coke and coke oven gas, electricity, equipment maintenance services, and other energy related products and services. Revenues, including estimated unbilled amounts, for the sale of blast furnace coke are generally recognized at a point in time when the product is delivered, which represents the transfer of control to the customer. Other revenues are generally recognized over time based upon services provided or through the passage of time ratably based upon providing a stand-ready service. DTE Energy has determined that the above methods represent a faithful depiction of the transfer of control to the customer. Market based pricing structures exist in such contracts including adjustments for consumer price or other indices. Consideration may consist of both fixed and variable components. Generally, uncertainties in the variable consideration components are resolved and revenues are known at the time of recognition. Billing terms vary and are generally monthly with payment terms typically within 30 days following billing.
Energy Trading
Energy Trading revenues consist primarily of derivative contracts outside of the scope of Topic 606. For performance obligations within the scope of Topic 606, the timing of revenue recognition is dependent upon when control over the associated product or service is transferred.

26


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

Revenues, including estimated unbilled amounts, within the scope of Topic 606 arising from the sale of natural gas, electricity, power capacity, and other energy related products are generally recognized over time based upon volumes delivered or through the passage of time ratably based upon providing a stand-ready service. DTE Energy has determined that the above methods represent a faithful depiction of the transfer of control to the customer. Revenues are known at the time of recognition. Payment for the aforementioned revenues is generally due from customers in the month following delivery.
Revenues associated with RECs are recognized at a point in time when control of the RECs are transferred to the customer which is deemed to be when the subject RECs are entered for transfer to the customer in the applicable regulatory tracking system. Revenues associated with RECs under a wholesale full requirements power contract are deferred until control has been transferred. The deferred revenues represent a contract liability for which payment has been received and the amounts have been estimated using the adjusted market assessment approach. With the exception of RECs, generally all other performance obligations associated with wholesale full requirements power contracts are satisfied over time in conjunction with the delivery of power. At the time power is delivered, DTE Energy may not have control over the RECs as the RECs are not self-generated and may not yet have been procured resulting in deferred revenues.
Deferred Revenue
The following is a summary of deferred revenue activity:
 
DTE Energy
 
(In millions)
Beginning Balance, January 1, 2018
$
56

Increases due to cash received or receivable, excluding amounts recognized as revenue during the period
29

Revenue recognized that was included in the deferred revenue balance at the beginning of the period
(18
)
Ending Balance, June 30, 2018
$
67

The deferred revenues at DTE Energy generally represent amounts paid by or receivable from customers for which the associated performance obligation has not yet been satisfied.
Deferred revenues include amounts associated with REC performance obligations under certain wholesale full requirements power contracts. Deferred revenues associated with RECs are recognized as revenue when control of the RECs has transferred.
Other performance obligations associated with deferred revenues include providing products and services related to customer prepayments. Deferred revenues associated with these products and services are recognized when control has transferred to the customer.
The following table represents deferred revenue amounts for DTE Energy that are expected to be recognized as revenue in future periods:
 
DTE Energy
 
(In millions)
2018
$
27

2019
14

2020
2

2021
4

2022
7

2023 and thereafter
13

 
$
67


27


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

Transaction Price Allocated to the Remaining Performance Obligations
In accordance with optional exemptions available under Topic 606, the Registrants did not disclose the value of unsatisfied performance obligations for (1) contracts with an original expected length of one year or less, (2) with the exception of fixed consideration, contracts for which revenue is recognized at the amount to which the Registrants have the right to invoice for goods provided and services performed, and (3) contracts for which variable consideration relates entirely to an unsatisfied performance obligation.
Such contracts consist of varying types of performance obligations across the segments, including the supply and delivery of energy related products and services. Contracts with variable volumes and/or variable pricing, including those with pricing provisions tied to a consumer price or other index, have also been excluded as the related consideration under the contract is variable at inception of the contract. Contract lengths vary from cancelable to multi-year.
The Registrants expect to recognize revenue for the following amounts related to fixed consideration associated with remaining performance obligations in each of the future periods noted:
 
DTE Energy
 
DTE Electric
 
(In millions)
2018
$
102

 
$
5

2019
251

 
8

2020
178

 

2021
135

 

2022
106

 

2023 and thereafter
351

 

Total
$
1,123

 
$
13

Other Matters
DTE Energy has recognized charges of $31 million and $56 million related to expense recognized for estimated uncollectible accounts receivable for the three and six months ended June 30, 2018, respectively. DTE Electric has recognized charges of $17 million and $31 million related to expense recognized for estimated uncollectible accounts receivable for the three and six months ended June 30, 2018, respectively.

NOTE 5REGULATORY MATTERS
2017 Electric Rate Case Filing
DTE Electric filed a rate case with the MPSC on April 19, 2017 requesting an increase in base rates of $231 million based on a projected twelve-month period ending October 31, 2018. On November 1, 2017, DTE Electric self-implemented a base rate increase of $125 million. On April 18, 2018, the MPSC issued an order approving an annual revenue increase of $65.2 million for service rendered on or after May 1, 2018. The MPSC authorized a return on equity of 10.0%. On June 28, 2018, the MPSC issued an order on a rehearing granting in part and denying in part, petitions for rehearings of DTE Electric and other intervenors. As a result, the approved addition to base rates increased from $65.2 million to $74.4 million. DTE Electric has recorded a refund liability of $25 million, representing the total estimated refund due to customers, inclusive of interest, at June 30, 2018. In August 2018, DTE Electric will file to refund its customers based on their pro rata share of the revenue collected through the self-implementation surcharge in effect from November 1, 2017 to May 1, 2018.

28


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

2018 Electric Rate Case Filing
DTE Electric filed a rate case with the MPSC on July 6, 2018 requesting an increase in base rates of $328 million based on a projected twelve-month period ending April 30, 2020. The requested increase in base rates is primarily due to an increase in net plant resulting from infrastructure investments, depreciation expense, as requested in the 2016 DTE Main Electric Depreciation Case Filing, and reliability improvement projects. The rate filing also requests an increase in return on equity from 10.0% to 10.5% and includes projected changes in sales, operation and maintenance expenses, and working capital. In addition, the rate filing requests an Infrastructure Recovery Mechanism to recover the incremental revenue requirement associated with certain distribution, fossil generation, and nuclear generation capital expenditures through 2022. Finally, as noted in the 2017 Tax Reform section below, DTE Electric addressed Calculation C in this filing. A final MPSC order in this case is expected by May 2019.
Certificate of Necessity
On July 31, 2017, DTE Electric filed a request for authority to build a 1,100 megawatt natural gas fueled combined cycle generation facility at DTE Electric's Belle River Power Plant. DTE Electric requested the MPSC to issue three CONs for the following: (1) power supplied by the proposed project is needed, (2) the size, fuel type, and other design characteristics of the proposed project represent the most reasonable and prudent means of meeting the power need, and (3) the estimated capital costs of $989 million for the proposed project will be recoverable in rates from DTE Electric's customers. The MPSC issued an order on April 27, 2018 approving DTE Electric's request for the three CONs with recoverable amounts through rates up to $951.8 million.
2017 Gas Rate Case Filing
DTE Gas filed a rate case with the MPSC on November 22, 2017 requesting an increase in base rates of $85.1 million based on a projected twelve-month period ending September 30, 2019. The requested increase in base rates is primarily due to an increase in net plant. The rate filing also requests an increase in return on equity from 10.1% to 10.5% and includes projected changes in sales, operations and maintenance expenses, and working capital. On May 24, 2018, DTE Gas reduced its initial requested increase in base rates to $38.1 million, primarily due to the effects of the TCJA on the original request. To mitigate the impact to its customers resulting from ASU No. 2017-07, Compensation Retirement Benefits (Topic 715), DTE Gas suggested regulatory accounting treatment, consistent with the methodology approved by the MPSC in the 2017 DTE Electric Rate Case order. As such, beginning January 1, 2018, pension and postretirement cost components previously included as capital overhead are being deferred. For further discussion of ASU No. 2017-07, see Note 3 to the Consolidated Financial Statements, "New Accounting Pronouncements." A final MPSC order in this case is expected by September 2018.
2017 Tax Reform
On December 27, 2017, the MPSC issued an order to consider changes in the rates of all Michigan rate-regulated utilities to reflect the effects of the federal TCJA. On January 19, 2018, DTE Electric and DTE Gas filed information with the MPSC regarding the potential change in revenue requirements due to the TCJA effective January 1, 2018, and outlined their recommended method to flow the current and deferred tax benefits of those impacts to ratepayers.
On February 22, 2018, the MPSC issued an order in this case requiring utilities, including DTE Electric and DTE Gas, to follow a 3-step approach of credits and calculations. The first step is to establish Credit A, through contested cases. Credit A is a going-forward tax credit to reflect the reduction of the corporate tax rate from 35% to 21%. DTE Gas submitted its Credit A filing on March 28, 2018, reflecting a reduction in revenues of $38.2 million. The MPSC approved the $38.2 million reduction on May 30, 2018, to be effective July 1, 2018. DTE Electric filed its Credit A application on May 18, 2018, reflecting a reduction in revenues of $157 million. On July 24, 2018, the MPSC issued an order approving a settlement in DTE Electric's Credit A filing reflecting a reduction in revenues of $157 million. Rates reflecting this reduction will be effective August 1, 2018. The second step is to establish Credit B, through contested cases. Credit B is a backward-looking tax credit to reflect the reduction of the corporate rate of 35% to 21%, for the period January 1, 2018 through the date Credit A is established. The Credit B filing is required within sixty days after Credit A is implemented. For Credit B, DTE Electric and DTE Gas have been deferring the impact of the reduction to the corporate tax rate since January 1, 2018. The third step is to perform Calculation C, through contested cases. Calculation C will address all remaining issues relative to the new tax law, which is primarily the remeasurement of deferred taxes and how the amounts deferred as Regulatory liabilities will flow to ratepayers. DTE Gas is required to file Calculation C no later than October 1, 2018. DTE Electric addressed Calculation C in its general rate case filed July 6, 2018.


29


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

NOTE 6EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the net income, adjusted for income allocated to participating securities, by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect the dilution that would occur if any potentially dilutive instruments were exercised or converted into common shares. DTE Energy’s participating securities are restricted shares under the stock incentive program that contain rights to receive non-forfeitable dividends. Equity units, performance shares, and stock options do not receive cash dividends; as such, these awards are not considered participating securities.
The following is a reconciliation of DTE Energy's basic and diluted income per share calculation:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions, except per share amounts)
Basic Earnings per Share
 
 
 
 
 
 
 
Net Income Attributable to DTE Energy Company
$
234

 
$
177

 
$
595

 
$
577

Less: Allocation of earnings to net restricted stock awards

 

 
1

 
1

Net income available to common shareholders — basic
$
234

 
$
177

 
$
594

 
$
576

 
 
 
 
 
 
 
 
Average number of common shares outstanding — basic
181

 
179

 
180

 
179

Basic Earnings per Common Share
$
1.29

 
$
0.99

 
$
3.29

 
$
3.21

 
 
 
 
 
 
 
 
Diluted Earnings per Share
 
 
 
 
 
 
 
Net Income Attributable to DTE Energy Company
$
234

 
$
177

 
$
595

 
$
577

Less: Allocation of earnings to net restricted stock awards

 

 
1

 
1

Net income available to common shareholders — diluted
$
234

 
$
177

 
$
594

 
$
576

 
 
 
 
 
 
 
 
Average number of common shares outstanding — diluted
181

 
179

 
180

 
179

Diluted Earnings per Common Share(a)
$
1.29

 
$
0.99

 
$
3.29

 
$
3.21

_______________________________________
(a)
The 2016 Equity Units excluded from the calculation of diluted EPS were approximately 6.6 million and 6.3 million for the three months ended June 30, 2018 and 2017, respectively, and 6.6 million for the six months ended June 30, 2018 and 2017, as the dilutive stock price threshold was not met.

NOTE 7FAIR VALUE
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Registrants make certain assumptions they believe that market participants would use in pricing assets or liabilities, including assumptions about risk, and the risks inherent in the inputs to valuation techniques. Credit risk of the Registrants and their counterparties is incorporated in the valuation of assets and liabilities through the use of credit reserves, the impact of which was immaterial at June 30, 2018 and December 31, 2017. The Registrants believe they use valuation techniques that maximize the use of observable market-based inputs and minimize the use of unobservable inputs.

30


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

A fair value hierarchy has been established that prioritizes the inputs to valuation techniques used to measure fair value in three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. All assets and liabilities are required to be classified in their entirety based on the lowest level of input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input may require judgment considering factors specific to the asset or liability, and may affect the valuation of the asset or liability and its placement within the fair value hierarchy. The Registrants classify fair value balances based on the fair value hierarchy defined as follows:
Level 1 — Consists of unadjusted quoted prices in active markets for identical assets or liabilities that the Registrants have the ability to access as of the reporting date.
Level 2 — Consists of inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.
Level 3 — Consists of unobservable inputs for assets or liabilities whose fair value is estimated based on internally developed models or methodologies using inputs that are generally less readily observable and supported by little, if any, market activity at the measurement date. Unobservable inputs are developed based on the best available information and subject to cost-benefit constraints.

31


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

The following table presents assets and liabilities for DTE Energy measured and recorded at fair value on a recurring basis:
 
June 30, 2018
 
December 31, 2017
 
Level
1
 
Level
2
 
Level
3
 
Other(a)
 
Netting(b)
 
Net Balance
 
Level
1
 
Level
2
 
Level
3
 
Other(a)
 
Netting(b)
 
Net Balance
 
(In millions)
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents(c)
$
16

 
$
3

 
$

 
$

 
$

 
$
19

 
$
16

 
$
3

 
$

 
$

 
$

 
$
19

Nuclear decommissioning trusts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
938

 

 

 

 

 
938

 
978

 

 

 

 

 
978

Fixed income securities
6

 
521

 

 

 

 
527

 
18

 
477

 

 

 

 
495

Private equity securities

 

 

 
10

 

 
10

 

 

 

 
5

 

 
5

Cash equivalents
9

 

 

 

 

 
9

 
14

 

 

 

 

 
14

Other investments(d)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
120

 

 

 

 

 
120

 
118

 

 

 

 

 
118

Fixed income securities
69

 

 

 

 

 
69

 
72

 

 

 

 

 
72

Cash equivalents
4

 

 

 

 

 
4

 
4

 

 

 

 

 
4

Derivative assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Natural gas
51

 
80

 
59

 

 
(119
)
 
71

 
148

 
112

 
97

 

 
(256
)
 
101

Electricity

 
159

 
22

 

 
(146
)
 
35

 

 
243

 
42

 

 
(241
)
 
44

Other

 

 
15

 

 

 
15

 

 

 
9

 

 

 
9

Foreign currency exchange contracts

 
2

 

 

 

 
2

 

 
1

 

 

 
(1
)
 

Total derivative assets
51

 
241

 
96



 
(265
)
 
123

 
148

 
356

 
148

 


(498
)
 
154

Total
$
1,213

 
$
765

 
$
96


$
10

 
$
(265
)
 
$
1,819

 
$
1,368

 
$
836

 
$
148

 
$
5


$
(498
)
 
$
1,859

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Natural gas
$
(53
)
 
$
(55
)
 
$
(84
)
 
$

 
$
119

 
$
(73
)
 
$
(141
)
 
$
(111
)
 
$
(126
)
 
$

 
$
263

 
$
(115
)
Electricity
(1
)
 
(144
)
 
(35
)
 

 
146

 
(34
)
 

 
(245
)
 
(30
)
 

 
246

 
(29
)
Other

 

 

 

 

 

 

 

 
(1
)
 

 
1

 

Foreign currency exchange contracts

 

 

 

 

 

 

 
(3
)
 

 

 
1

 
(2
)
Total derivative liabilities
(54
)
 
(199
)
 
(119
)
 

 
265

 
(107
)
 
(141
)
 
(359
)
 
(157
)
 

 
511

 
(146
)
Total
$
(54
)
 
$
(199
)
 
$
(119
)
 
$

 
$
265

 
$
(107
)
 
$
(141
)
 
$
(359
)
 
$
(157
)
 
$

 
$
511

 
$
(146
)
Net Assets (Liabilities) at end of period
$
1,159

 
$
566

 
$
(23
)
 
$
10

 
$

 
$
1,712

 
$
1,227

 
$
477

 
$
(9
)
 
$
5

 
$
13

 
$
1,713

Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
$
67

 
$
181

 
$
62

 
$

 
$
(213
)
 
$
97

 
$
157

 
$
298

 
$
104

 
$

 
$
(437
)
 
$
122

Noncurrent
1,146

 
584

 
34

 
10

 
(52
)
 
1,722

 
1,211

 
538

 
44

 
5

 
(61
)
 
1,737

Total Assets
$
1,213

 
$
765

 
$
96

 
$
10

 
$
(265
)
 
$
1,819

 
$
1,368

 
$
836

 
$
148

 
$
5

 
$
(498
)
 
$
1,859

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
$
(47
)
 
$
(158
)
 
$
(51
)
 
$

 
$
213

 
$
(43
)
 
$
(137
)
 
$
(313
)
 
$
(108
)
 
$

 
$
459

 
$
(99
)
Noncurrent
(7
)
 
(41
)
 
(68
)
 

 
52

 
(64
)
 
(4
)
 
(46
)
 
(49
)
 

 
52

 
(47
)
Total Liabilities
$
(54
)
 
$
(199
)
 
$
(119
)
 
$

 
$
265

 
$
(107
)
 
$
(141
)
 
$
(359
)
 
$
(157
)
 
$

 
$
511

 
$
(146
)
Net Assets (Liabilities) at end of period
$
1,159

 
$
566

 
$
(23
)
 
$
10

 
$

 
$
1,712

 
$
1,227

 
$
477

 
$
(9
)
 
$
5

 
$
13

 
$
1,713

_______________________________________
(a)
Amounts represent assets valued at NAV as a practical expedient for fair value.
(b)
Amounts represent the impact of master netting agreements that allow DTE Energy to net gain and loss positions and cash collateral held or placed with the same counterparties.
(c)
At June 30, 2018, equity securities of $19 million consisted of $8 million and $11 million of cash equivalents included in Restricted cash and Other investments on DTE Energy's Consolidated Statements of Financial Position, respectively. At December 31, 2017, equity securities of $19 million consisted of $8 million and $11 million of cash equivalents included in Restricted cash and Other investments on DTE Energy's Consolidated Statements of Financial Position, respectively.
(d)
Excludes cash surrender value of life insurance investments.

32


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

The following table presents assets for DTE Electric measured and recorded at fair value on a recurring basis as of:
 
June 30, 2018
 
December 31, 2017
 
Level 1
 
Level 2
 
Level 3
 
Other(a)
 
Net Balance
 
Level 1
 
Level 2
 
Level 3
 
Other(a)
 
Net Balance
 
(In millions)
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents(b)
$
8

 
$
3

 
$

 
$

 
$
11

 
$
8

 
$
3

 
$

 
$

 
$
11

Nuclear decommissioning trusts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
938

 

 

 

 
938

 
978

 

 

 

 
978

Fixed income securities
6

 
521

 

 

 
527

 
18

 
477

 

 

 
495

Private equity securities

 

 


 
10

 
10

 

 

 

 
5

 
5

Cash equivalents
9

 

 

 

 
9

 
14

 

 

 

 
14

Other investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
11

 

 

 

 
11

 
11

 

 

 

 
11

Derivative assets — FTRs

 

 
15

 

 
15

 

 

 
9

 

 
9

Total
$
972

 
$
524

 
$
15

 
$
10

 
$
1,521

 
$
1,029

 
$
480

 
$
9

 
$
5

 
$
1,523

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
$
8

 
$
3

 
$
15

 
$

 
$
26

 
$
8

 
$
3

 
$
9

 
$

 
$
20

Noncurrent
964

 
521

 

 
10

 
1,495

 
1,021

 
477

 

 
5

 
1,503

Total Assets
$
972

 
$
524

 
$
15

 
$
10

 
$
1,521

 
$
1,029

 
$
480

 
$
9

 
$
5

 
$
1,523

_______________________________________
(a)
Amounts represent assets valued at NAV as a practical expedient for fair value.
(b)
At June 30, 2018, equity securities of $11 million consisted of cash equivalents included in Other investments on DTE Electric's Consolidated Statements of Financial Position. At December 31, 2017, equity securities of $11 million consisted of cash equivalents included in Other investments on DTE Electric's Consolidated Statements of Financial Position.
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.
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 and commingled funds. Other assets such as private market investments are used to enhance long-term returns while improving portfolio diversification. All pricing for investments in this category are classified as NAV assets. Exchange-traded debt and equity securities held directly are valued using quoted market prices in actively traded markets. Non-exchange-traded fixed income securities are valued based upon quotations available from brokers or pricing services. The institutional mutual funds hold exchange-traded equity or debt securities (exchange and non-exchange traded) and are valued based on publicly available NAVs. 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 preferable. The Registrants have obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices. Additionally, the Registrants selectively corroborate the fair value of securities by comparison of market-based price sources. Investment policies and procedures are determined by DTE Energy's Trust Investments Department which reports to DTE Energy's Vice President and Treasurer.

33


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

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. The Registrants consider 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. The Registrants monitor 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. The Registrants have obtained an understanding of how these prices are derived. Additionally, the Registrants selectively corroborate the fair value of their 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 Registrants have 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 the Registrants' forward price curves has been assigned to DTE Energy's Risk Management Department, which is separate and distinct from the trading functions within DTE Energy.
The following table presents the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for DTE Energy:
 
Three Months Ended June 30, 2018
 
Three Months Ended June 30, 2017
 
Natural Gas
 
Electricity
 
Other
 
Total
 
Natural Gas
 
Electricity
 
Other
 
Total
 
(In millions)
Net Assets (Liabilities) as of March 31
$
(10
)
 
$
(13
)
 
$
4

 
$
(19
)
 
$
(15
)
 
$
(6
)
 
$
(2
)
 
$
(23
)
Transfers into Level 3 from Level 2

 

 

 

 

 

 

 

Transfers from Level 3 into Level 2

 

 

 

 

 

 

 

Total gains (losses)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Included in earnings
(28
)
 
18

 
1

 
(9
)
 
(6
)
 
21

 

 
15

Recorded in Regulatory liabilities

 

 
15

 
15

 

 

 
11

 
11

Purchases, issuances, and settlements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Settlements
13

 
(18
)
 
(5
)
 
(10
)
 
4

 
(9
)
 
(4
)
 
(9
)
Net Assets (Liabilities) as of June 30
$
(25
)
 
$
(13
)
 
$
15

 
$
(23
)
 
$
(17
)
 
$
6

 
$
5

 
$
(6
)
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, 2018 and 2017 and reflected in Operating Revenues — Non-utility operations and Fuel, purchased power, and gas — non-utility in DTE Energy's Consolidated Statements of Operations
$
(20
)
 
$
4

 
$
(2
)
 
$
(18
)
 
$
(20
)
 
$
20

 
$

 
$


34


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

 
Six Months Ended June 30, 2018
 
Six Months Ended June 30, 2017
 
Natural Gas
 
Electricity
 
Other
 
Total
 
Natural Gas
 
Electricity
 
Other
 
Total
 
(In millions)
Net Assets (Liabilities) as of December 31
$
(29
)
 
$
12

 
$
8

 
$
(9
)
 
$
(96
)
 
$
9

 
$
(1
)
 
$
(88
)
Transfers into Level 3 from Level 2

 

 

 
$

 

 

 

 

Transfers from Level 3 into Level 2
(3
)
 

 

 
(3
)
 

 

 

 

Total gains (losses)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Included in earnings
(98
)
 
4

 
1

 
(93
)
 
46

 
11

 
1

 
58

Recorded in Regulatory liabilities

 

 
15

 
15

 

 

 
13

 
13

Purchases, issuances, and settlements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Settlements
105

 
(29
)
 
(9
)
 
67

 
33

 
(14
)
 
(8
)
 
11

Net Assets (Liabilities) as of June 30
$
(25
)
 
$
(13
)
 
$
15

 
$
(23
)
 
$
(17
)
 
$
6

 
$
5

 
$
(6
)
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, 2018 and 2017 and reflected in Operating Revenues — Non-utility operations and Fuel, purchased power, and gas — non-utility in DTE Energy's Consolidated Statements of Operations
$
(78
)
 
$
(6
)
 
$
(2
)
 
$
(86
)
 
$
16

 
$
17

 
$
(1
)
 
$
32

The following table presents the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for DTE Electric:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions)
Net Assets as of beginning of period
$
5

 
$
1

 
$
9

 
$
2

Change in fair value recorded in Regulatory liabilities
15

 
11

 
15

 
13

Purchases, issuances, and settlements
 
 
 
 
 
 
 
Settlements
(5
)
 
(4
)
 
(9
)
 
(7
)
Net Assets as of June 30
$
15

 
$
8

 
$
15

 
$
8

The amount of total gains (losses) included in Regulatory liabilities attributed to the change in unrealized gains (losses) related to assets held at June 30, 2018 and 2017 and reflected in DTE Electric's Consolidated Statements of Financial Position
$
15

 
$
8

 
$
15

 
$
8

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.
There were no transfers between Levels 1 and 2 for the Registrants during the three and six months ended June 30, 2018 and 2017, and there were no transfers from or into Level 3 for DTE Electric during the same periods.
The following tables present the unobservable inputs related to DTE Energy's Level 3 assets and liabilities:
 
 
June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
Commodity Contracts
 
Derivative Assets
 
Derivative Liabilities
 
Valuation Techniques
 
Unobservable Input
 
Range
 
Weighted Average
 
 
(In millions)
 
 
 
 
 
 
 
 
 
 
 
Natural Gas
 
$
59

 
$
(84
)
 
Discounted Cash Flow
 
Forward basis price (per MMBtu)
 
$
(1.28
)
 
$
4.30
/MMBtu
 
$
(0.13
)/MMBtu
Electricity
 
$
22

 
$
(35
)
 
Discounted Cash Flow
 
Forward basis price (per MWh)
 
$
(7
)
 
$
7
/MWh
 
$


35


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

 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
Commodity Contracts
 
Derivative Assets
 
Derivative Liabilities
 
Valuation Techniques
 
Unobservable Input
 
Range
 
Weighted Average
 
 
(In millions)
 
 
 
 
 
 
 
 
 
 
 
Natural Gas
 
$
97

 
$
(126
)
 
Discounted Cash Flow
 
Forward basis price (per MMBtu)
 
$
(1.10
)
 
$
9.75
/MMBtu
 
$
(0.03
)/MMBtu
Electricity
 
$
42

 
$
(30
)
 
Discounted Cash Flow
 
Forward basis price (per MWh)
 
$
(5
)
 
$
15
/MWh
 
$
2
/MWh
The unobservable inputs used in the fair value measurement of the electricity and natural gas commodity types consist of inputs that are less observable due in part to lack of available broker quotes, supported by little, if any, market activity at the measurement date or are based on internally developed models. Certain basis prices (i.e., the difference in pricing between two locations) included in the valuation of natural gas and electricity contracts were deemed unobservable.
The inputs listed above would have a direct impact on the fair values of the above security types if they were adjusted. A significant increase (decrease) in the basis price would result in a higher (lower) fair value for long positions, with offsetting impacts to short positions.
Fair Value of Financial Instruments
The following table presents the carrying amount and fair value of financial instruments for DTE Energy:
 
June 30, 2018
 
December 31, 2017
 
Carrying
 
Fair Value
 
Carrying
 
Fair Value
 
Amount
 
Level 1
 
Level 2
 
Level 3
 
Amount
 
Level 1
 
Level 2
 
Level 3
 
(In millions)
Notes receivable(a), excluding capital leases
$
37

 
$

 
$

 
$
37

 
$
38

 
$

 
$

 
$
38

Dividends payable
$
321

 
$
321

 
$

 
$

 
$
158

 
$
158

 
$

 
$

Short-term borrowings
$
474

 
$

 
$
474

 
$

 
$
621

 
$

 
$
621

 
$

Notes payable — Other(b), excluding capital leases
$
11

 
$

 
$

 
$
11

 
$
12

 
$

 
$

 
$
12

Long-term debt(c)
$
12,708

 
$
1,889

 
$
10,092

 
$
1,122

 
$
12,288

 
$
1,939

 
$
10,571

 
$
764

_______________________________________
(a)
Current portion included in Current Assets — Other on DTE Energy's Consolidated Statements of Financial Position.
(b)
Included in Current Liabilities — Other and Other Liabilities — Other on DTE Energy's Consolidated Statements of Financial Position.
(c)
Includes debt due within one year, unamortized debt discounts, and issuance costs. Excludes Capital lease obligations.
The following table presents the carrying amount and fair value of financial instruments for DTE Electric:
 
June 30, 2018
 
December 31, 2017
 
Carrying
 
Fair Value
 
Carrying
 
Fair Value
 
Amount
 
Level 1
 
Level 2
 
Level 3
 
Amount
 
Level 1
 
Level 2
 
Level 3
 
(In millions)
Short-term borrowings — affiliates
$
75

 
$

 
$

 
$
75

 
$
116

 
$

 
$

 
$
116

Short-term borrowings — other
$
130

 
$

 
$
130

 
$

 
$
238

 
$

 
$
238

 
$

Notes payable — Other(b), excluding capital leases
$
2

 
$

 
$

 
$
2

 
$
2

 
$

 
$

 
$
2

Long-term debt(c)
$
6,537

 
$

 
$
6,305

 
$
495

 
$
6,017

 
$

 
$
6,441

 
$
171

_______________________________________
(a)
Current portion included in Current Assets — Other on DTE Electric's Consolidated Statements of Financial Position.
(b)
Included in Current Liabilities — Other and Other Liabilities — Other on DTE Electric's Consolidated Statements of Financial Position.
(c)
Includes debt due within one year, unamortized debt discounts, and issuance costs. Excludes Capital lease obligations.
For further fair value information on financial and derivative instruments, see Note 8 to the Consolidated Financial Statements, "Financial and Other Derivative Instruments."

36


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

Nuclear Decommissioning Trust Funds
DTE Electric has a legal obligation to decommission its nuclear power plants following the expiration of its operating licenses. This obligation is reflected as an Asset retirement obligation on DTE Electric's Consolidated Statements of Financial Position. Rates approved by the MPSC provide for the recovery of decommissioning costs of Fermi 2 and the disposal of low-level radioactive waste.
The following table summarizes DTE Electric's fair value of the nuclear decommissioning trust fund assets:
 
June 30, 2018
 
December 31, 2017
 
(In millions)
Fermi 2
$
1,467

 
$
1,475

Fermi 1
3

 
3

Low-level radioactive waste
14

 
14


$
1,484

 
$
1,492

The costs of securities sold are determined on the basis of specific identification. The following table sets forth DTE Electric's gains and losses and proceeds from the sale of securities by the nuclear decommissioning trust funds:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions)
Realized gains
$
19

 
$
26

 
$
42

 
$
49

Realized losses
$
(6
)
 
$
(8
)
 
$
(15
)
 
$
(16
)
Proceeds from sale of securities
$
280

 
$
311

 
$
616

 
$
705

Realized gains and losses from the sale of securities and unrealized gains and losses incurred by the Fermi 2 trust are recorded to the Regulatory asset and Nuclear decommissioning liability. Realized gains and losses from the sale of securities and unrealized gains and losses on the low-level radioactive waste funds are recorded to the Nuclear decommissioning liability.
The following table sets forth DTE Electric's fair value and unrealized gains and losses for the nuclear decommissioning trust funds:
 
June 30, 2018
 
December 31, 2017
 
Fair
Value
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Gains
 
Unrealized
Losses
 
(In millions)
Equity securities
$
938

 
$
300

 
$
(43
)
 
$
978

 
$
320

 
$
(32
)
Fixed income securities
527

 
7

 
(8
)
 
495

 
13

 
(3
)
Private equity securities
10

 

 

 
5

 

 

Cash equivalents
9

 

 

 
14

 

 

 
$
1,484

 
$
307

 
$
(51
)
 
$
1,492

 
$
333

 
$
(35
)
The following table summarizes the fair value of the fixed income securities held in nuclear decommissioning trust funds by contractual maturity:
 
June 30, 2018
 
(In millions)
Due within one year
$
24

Due after one through five years
103

Due after five through ten years
113

Due after ten years
287

 
$
527


37


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

Other Securities
At June 30, 2018 and December 31, 2017, the Registrants' securities, included in Other investments on the Consolidated Statements of Financial Position, were comprised primarily of money market and equity securities. For the three months ended June 30, 2018 and 2017, gains related to equity securities were $1 million and $5 million, respectively, for the Registrants. For the six months ended June 30, 2018 and 2017, losses related to equity securities were $1 million and gains related to equity securities were $13 million, respectively, for the Registrants. Gains or losses related to the Rabbi Trust assets are allocated from DTE Energy to DTE Electric.

NOTE 8FINANCIAL AND OTHER DERIVATIVE INSTRUMENTS
The Registrants recognize all derivatives at their fair value as Derivative assets or liabilities on their respective Consolidated Statements of Financial Position unless they qualify for certain scope exceptions, including the normal purchases and normal sales exception. Further, derivatives that qualify and are designated for hedge accounting are classified as either hedges of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge); or as hedges of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge). For cash flow hedges, the portion of the derivative gain or loss that is effective in offsetting the change in the value of the underlying exposure is deferred in Accumulated other comprehensive income (loss) and later reclassified into earnings when the underlying transaction occurs. Gains or losses from the ineffective portion of cash flow hedges are recognized in earnings immediately. For fair value hedges, changes in fair values for the derivative and hedged item are recognized in earnings each period. For derivatives that do not qualify or are not designated for hedge accounting, changes in fair value are recognized in earnings each period.
The Registrants’ primary market risk exposure is associated with commodity prices, credit, and interest rates. The Registrants have risk management policies to monitor and manage market risks. The Registrants use derivative instruments to manage some of the exposure. DTE Energy uses derivative instruments for trading purposes in its Energy Trading segment. Contracts classified as derivative instruments include electricity, natural gas, oil, certain coal forwards, futures, options, swaps, and foreign currency exchange contracts. Items not classified as derivatives include natural gas inventory, pipeline transportation contracts, renewable energy credits, and natural gas storage assets.
DTE Electric — DTE Electric generates, purchases, distributes, and sells electricity. DTE Electric uses forward energy contracts to manage changes in the price of electricity and fuel. Substantially all of these contracts meet the normal purchases and normal sales exception and are therefore accounted for under the accrual method. Other derivative contracts are MTM and recoverable through the PSCR mechanism when settled. This results in the deferral of unrealized gains and losses as Regulatory assets or liabilities until realized.
DTE Gas — DTE Gas purchases, stores, transports, distributes, and sells natural gas, and sells storage and transportation capacity. DTE Gas has fixed-priced contracts for portions of its expected natural gas supply requirements through March 2021. Substantially all of these contracts meet the normal purchases and normal sales exception and are therefore accounted for under the accrual method. DTE Gas may also sell forward transportation and storage capacity contracts. Forward transportation and storage contracts are generally not derivatives and are therefore accounted for under the accrual method.
Gas Storage and Pipelines — This segment is primarily engaged in services related to the gathering, transportation, and storage of natural gas. Primarily fixed-priced contracts are used in the marketing and management of transportation and storage services. Generally, these contracts are not derivatives and are therefore accounted for under the accrual method.
Power and Industrial Projects — This segment manages and operates energy and pulverized coal projects, a coke battery, reduced emissions fuel projects, landfill gas recovery, and power generation assets. Primarily fixed-price contracts are used in the marketing and management of the segment assets. These contracts are generally not derivatives and are therefore accounted for under the accrual method.
Energy Trading — Commodity Price Risk — Energy Trading markets and trades electricity, natural gas physical products, and energy financial instruments, and provides energy and asset management services utilizing energy commodity derivative instruments. Forwards, futures, options, and swap agreements are used to manage exposure to the risk of market price and volume fluctuations in its operations. These derivatives are accounted for by recording changes in fair value to earnings unless hedge accounting criteria are met.

38


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

Energy Trading — Foreign Currency Exchange Risk — Energy Trading has foreign currency exchange forward contracts to economically hedge fixed Canadian dollar commitments existing under natural gas and power purchase and sale contracts and natural gas transportation contracts. Energy Trading enters into these contracts to mitigate price volatility with respect to fluctuations of the Canadian dollar relative to the U.S. dollar. These derivatives are accounted for by recording changes in fair value to earnings unless hedge accounting criteria are met.
Corporate and Other — Interest Rate Risk — DTE Energy may use interest rate swaps, treasury locks, and other derivatives to hedge the risk associated with interest rate market volatility.
Credit Risk — DTE Energy maintains credit policies that significantly minimize overall credit risk. These policies include an evaluation of potential customers’ and counterparties’ financial condition, including the viability of underlying productive assets, credit rating, collateral requirements, or other credit enhancements such as letters of credit or guarantees. DTE Energy generally uses standardized agreements that allow the netting of positive and negative transactions associated with a single counterparty. DTE Energy maintains a provision for credit losses based on factors surrounding the credit risk of its customers, historical trends, and other information. Based on DTE Energy's credit policies and its June 30, 2018 provision for credit losses, DTE Energy’s exposure to counterparty nonperformance is not expected to have a material adverse effect on DTE Energy's Consolidated Financial Statements.
Derivative Activities
DTE Energy manages its MTM risk on a portfolio basis based upon the delivery period of its contracts and the individual components of the risks within each contract. Accordingly, it records and manages the energy purchase and sale obligations under its contracts in separate components based on the commodity (e.g. electricity or natural gas), the product (e.g. electricity for delivery during peak or off-peak hours), the delivery location (e.g. by region), the risk profile (e.g. forward or option), and the delivery period (e.g. by month and year). The following describes the categories of activities represented by their operating characteristics and key risks:
Asset Optimization — Represents derivative activity associated with assets owned and contracted by DTE Energy, including forward natural gas purchases and sales, natural gas transportation, and storage capacity. Changes in the value of derivatives in this category typically economically offset changes in the value of underlying non-derivative positions, which do not qualify for fair value accounting. The difference in accounting treatment of derivatives in this category and the underlying non-derivative positions can result in significant earnings volatility.
Marketing and Origination — Represents derivative activity transacted by originating substantially hedged positions with wholesale energy marketers, producers, end-users, utilities, retail aggregators, and alternative energy suppliers.
Fundamentals Based Trading — Represents derivative activity transacted with the intent of taking a view, capturing market price changes, or putting capital at risk. This activity is speculative in nature as opposed to hedging an existing exposure.
Other — Includes derivative activity at DTE Electric related to FTRs. Changes in the value of derivative contracts at DTE Electric are recorded as Derivative assets or liabilities, with an offset to Regulatory assets or liabilities as the settlement value of these contracts will be included in the PSCR mechanism when realized.

39


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

The following table presents the fair value of derivative instruments for DTE Energy:
 
June 30, 2018
 
December 31, 2017
 
Derivative
Assets
 
Derivative Liabilities
 
Derivative
Assets
 
Derivative Liabilities
 
(In millions)
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
Commodity contracts
 
 
 
 
 
 
 
Natural gas
$
190

 
$
(192
)
 
$
357

 
$
(378
)
Electricity
181

 
(180
)
 
285

 
(275
)
Other
15

 

 
9

 
(1
)
Foreign currency exchange contracts
2

 

 
1

 
(3
)
Total derivatives not designated as hedging instruments
$
388

 
$
(372
)
 
$
652

 
$
(657
)
 
 
 
 
 
 
 
 
Current
$
291

 
$
(256
)
 
$
540

 
$
(558
)
Noncurrent
97

 
(116
)
 
112

 
(99
)
Total derivatives
$
388

 
$
(372
)
 
$
652

 
$
(657
)
The following table presents the fair value of derivative instruments for DTE Electric:
 
June 30, 2018
 
December 31, 2017
 
(In millions)
FTRs — Other current assets
$
15

 
$
9

Total derivatives not designated as hedging instruments
$
15

 
$
9

Certain of DTE Energy's derivative positions are subject to netting arrangements which provide for offsetting of asset and liability positions as well as related cash collateral. Such netting arrangements generally do not have restrictions. Under such netting arrangements, DTE Energy offsets the fair value of derivative instruments with cash collateral received or paid for those contracts executed with the same counterparty, which reduces DTE Energy's Total Assets and Liabilities. Cash collateral is allocated between the fair value of derivative instruments and customer accounts receivable and payable with the same counterparty on a pro-rata basis to the extent there is exposure. Any cash collateral remaining, after the exposure is netted to zero, is reflected in Accounts receivable and Accounts payable as collateral paid or received, respectively.
DTE Energy also provides and receives collateral in the form of letters of credit which can be offset against net Derivative assets and liabilities as well as Accounts receivable and payable. DTE Energy had issued letters of credit of $1 million and $4 million outstanding at June 30, 2018 and December 31, 2017, respectively, which could be used to offset net Derivative liabilities. Letters of credit received from third parties which could be used to offset net Derivative assets were $6 million and $4 million at June 30, 2018 and December 31, 2017, respectively. Such balances of letters of credit are excluded from the tables below and are not netted with the recognized assets and liabilities in DTE Energy's Consolidated Statements of Financial Position.
For contracts with certain clearing agents, the fair value of derivative instruments is netted against realized positions with the net balance reflected as either 1) a Derivative asset or liability or 2) an Account receivable or payable. Other than certain clearing agents, Accounts receivable and Accounts payable that are subject to netting arrangements have not been offset against the fair value of Derivative assets and liabilities.
For DTE Energy, the total cash collateral posted, net of cash collateral received, was $19 million and $28 million as of June 30, 2018 and December 31, 2017, respectively. DTE Energy had no cash collateral related to unrealized positions to net against Derivative assets and liabilities as of June 30, 2018. DTE Energy had $9 million of cash collateral related to unrealized positions to net against Derivative assets while Derivative liabilities are shown net of cash collateral of $22 million as of December 31, 2017. DTE Energy recorded cash collateral paid of $24 million and cash collateral received of $5 million not related to unrealized derivative positions as of June 30, 2018. DTE Energy recorded cash collateral paid of $18 million and cash collateral received of $3 million not related to unrealized derivative positions as of December 31, 2017. These amounts are included in Accounts receivable and Accounts payable and are recorded net by counterparty.

40


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

The following table presents the netting offsets of Derivative assets and liabilities for DTE Energy:
 
June 30, 2018
 
December 31, 2017
 
Gross Amounts of Recognized Assets (Liabilities)
 
Gross Amounts Offset in the Consolidated Statements of Financial Position
 
Net Amounts of Assets (Liabilities) Presented in the Consolidated Statements of Financial Position
 
Gross Amounts of Recognized Assets (Liabilities)
 
Gross Amounts Offset in the Consolidated Statements of Financial Position
 
Net Amounts of Assets (Liabilities) Presented in the Consolidated Statements of Financial Position
 
(In millions)
Derivative assets
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts
 
 
 
 
 
 
 
 
 
 
 
Natural gas
$
190

 
$
(119
)
 
$
71

 
$
357

 
$
(256
)
 
$
101

Electricity
181

 
(146
)
 
35

 
285

 
(241
)
 
44

Other
15

 

 
15

 
9

 

 
9

Foreign currency exchange contracts
2

 

 
2

 
1

 
(1
)
 

Total derivative assets
$
388

 
$
(265
)
 
$
123

 
$
652

 
$
(498
)
 
$
154

 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts
 
 
 
 
 
 
 
 
 
 
 
Natural gas
$
(192
)
 
$
119

 
$
(73
)
 
$
(378
)
 
$
263

 
$
(115
)
Electricity
(180
)
 
146

 
(34
)
 
(275
)
 
246

 
(29
)
Other

 

 

 
(1
)
 
1

 

Foreign currency exchange contracts

 

 

 
(3
)
 
1

 
(2
)
Total derivative liabilities
$
(372
)
 
$
265

 
$
(107
)
 
$
(657
)
 
$
511

 
$
(146
)
The following table presents the netting offsets of Derivative assets and liabilities showing the reconciliation of derivative instruments to DTE Energy's Consolidated Statements of Financial Position:
 
June 30, 2018
 
December 31, 2017
 
Derivative Assets
 
Derivative Liabilities
 
Derivative Assets
 
Derivative Liabilities
 
Current
 
Noncurrent
 
Current
 
Noncurrent
 
Current
 
Noncurrent
 
Current
 
Noncurrent
 
(In millions)
Total fair value of derivatives
$
291

 
$
97

 
$
(256
)
 
$
(116
)
 
$
540

 
$
112

 
$
(558
)
 
$
(99
)
Counterparty netting
(213
)
 
(52
)
 
213

 
52

 
(437
)
 
(52
)
 
437

 
52

Collateral adjustment

 

 

 

 

 
(9
)
 
22

 

Total derivatives as reported
$
78

 
$
45

 
$
(43
)
 
$
(64
)
 
$
103

 
$
51

 
$
(99
)
 
$
(47
)

41


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

The effect of derivatives not designated as hedging instruments on DTE Energy's Consolidated Statements of Operations is as follows:
Derivatives not Designated as Hedging Instruments
 
Location of Gain (Loss) Recognized in Income on Derivatives
 
Gain (Loss) Recognized in Income on Derivatives for the Three Months Ended June 30,
 
Gain (Loss) Recognized in Income on Derivatives for the Six Months Ended June 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
 
 
(In millions)
Commodity contracts
 
 
 
 
 
 
 
 
 
 
Natural gas
 
Operating Revenues — Non-utility operations
 
$
(48
)
 
$
20

 
$
(158
)
 
$
77

Natural gas
 
Fuel, purchased power, and gas — non-utility
 
16

 
(15
)
 
68

 
46

Electricity
 
Operating Revenues — Non-utility operations
 
28

 
13

 
11

 
6

Other
 
Operating Revenues — Non-utility operations
 
2

 
(1
)
 
1

 
(1
)
Foreign currency exchange contracts
 
Operating Revenues — Non-utility operations
 
2

 
(1
)
 
4

 
(1
)
Total
 
 
 
$

 
$
16

 
$
(74
)
 
$
127

Revenues and energy costs related to trading contracts are presented on a net basis in DTE Energy's Consolidated Statements of Operations. Commodity derivatives used for trading purposes, and financial non-trading commodity derivatives, are accounted for using the MTM method with unrealized and realized gains and losses recorded in Operating Revenues — Non-utility operations. Non-trading physical commodity sale and purchase derivative contracts are generally accounted for using the MTM method with unrealized and realized gains and losses for sales recorded in Operating Revenues — Non-utility operations and purchases recorded in Fuel, purchased power, and gas — non-utility.
The following represents the cumulative gross volume of DTE Energy's derivative contracts outstanding as of June 30, 2018:
Commodity
 
Number of Units
Natural gas (MMBtu)
 
1,908,431,324

Electricity (MWh)
 
39,463,885

Foreign currency exchange (Canadian dollars)
 
101,077,223

Various subsidiaries of DTE Energy have entered into contracts which contain ratings triggers and are guaranteed by DTE Energy. These contracts contain provisions which allow the counterparties to require that DTE Energy post cash or letters of credit as collateral in the event that DTE Energy’s credit rating is downgraded below investment grade. Certain of these provisions (known as “hard triggers”) state specific circumstances under which DTE Energy can be required to post collateral upon the occurrence of a credit downgrade, while other provisions (known as “soft triggers”) are not as specific. For contracts with soft triggers, it is difficult to estimate the amount of collateral which may be requested by counterparties and/or which DTE Energy may ultimately be required to post. The amount of such collateral which could be requested fluctuates based on commodity prices (primarily natural gas, power, and coal) and the provisions and maturities of the underlying transactions. As of June 30, 2018, DTE Energy's contractual obligation to post collateral in the form of cash or letters of credit in the event of a downgrade to below investment grade, under both hard trigger and soft trigger provisions, was $508 million.
As of June 30, 2018, DTE Energy had $283 million of derivatives in net liability positions, for which hard triggers exist. There is no collateral that has been posted against such liabilities, including cash and letters of credit. Associated derivative net asset positions for which contractual offset exists were $247 million. The net remaining amount of $36 million is derived from the $508 million noted above.


42


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

NOTE 9LONG-TERM DEBT
Debt Issuances
In 2018, the following debt was issued:
Company
 
Month
 
Type
 
Interest Rate
 
Maturity Date
 
Amount
 
 
 
 
 
 
 
 
 
 
(In millions)
DTE Electric
 
May
 
Mortgage Bonds(a)
 
4.05%
 
2048
 
$
525

 
 
 
 
 
 
 
 
 
 
$
525

_______________________________________
(a)
Bonds were issued as Green Bonds and the proceeds will be used to finance expenditures for solar and wind energy, payments under power purchase agreements for solar and wind energy, and energy optimization programs.
Debt Redemptions
In 2018, the following debt was redeemed:
Company
 
Month
 
Type
 
Interest Rate
 
Maturity Date
 
Amount
 
 
 
 
 
 
 
 
 
 
(In millions)
DTE Gas
 
April
 
Senior Notes
 
6.04%
 
2018
 
$
100

DTE Energy
 
Various
 
Other Long-Term Debt
 
Various
 
2018
 
2

 
 
 
 
 
 
 
 
 
 
$
102

In June 2018, DTE Gas agreed to issue $195 million of 3.81% First Mortgage Bonds due 2028 and $125 million of 4.14% First Mortgage Bonds due 2048 to a group of institutional investors in a private placement transaction. These bonds are expected to close and fund in August 2018. Proceeds will be used for the repayment of short-term borrowings and for general corporate purposes.

NOTE 10SHORT-TERM CREDIT ARRANGEMENTS AND BORROWINGS
DTE Energy, DTE Electric, and DTE Gas have unsecured revolving credit agreements that can be used for general corporate borrowings, but are intended to provide liquidity support for each of the companies’ commercial paper programs. Borrowings under the revolvers are available at prevailing short-term interest rates. Additionally, DTE Energy has other facilities to support letter of credit issuance.
The agreements require DTE Energy, DTE Electric, and DTE Gas to maintain a total funded debt to capitalization ratio of no more than 0.65 to 1. In the agreements, “total funded debt” means all indebtedness of each respective company and their consolidated subsidiaries, including capital lease obligations, hedge agreements, and guarantees of third parties’ debt, but excluding contingent obligations, nonrecourse and junior subordinated debt, and certain equity-linked securities and, except for calculations at the end of the second quarter, certain DTE Gas short-term debt. “Capitalization” means the sum of (a) total funded debt plus (b) “consolidated net worth,” which is equal to consolidated total equity of each respective company and their consolidated subsidiaries (excluding pension effects under certain FASB statements), as determined in accordance with accounting principles generally accepted in the United States of America. At June 30, 2018, the total funded debt to total capitalization ratios for DTE Energy, DTE Electric, and DTE Gas were 0.54 to 1, 0.51 to 1, and 0.45 to 1, respectively, and were in compliance with this financial covenant.

43


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

The availability under the facilities in place at June 30, 2018 is shown in the following table:
 
DTE Energy
 
DTE Electric
 
DTE Gas
 
Total
 
(In millions)
Unsecured letter of credit facility, expiring in February 2019
$
150

 
$

 
$

 
$
150

Unsecured letter of credit facility, expiring in September 2019
70

 

 

 
70

Unsecured revolving credit facility, expiring April 2022
1,200

 
400

 
300

 
1,900

 
1,420

 
400

 
300

 
2,120

Amounts outstanding at June 30, 2018
 
 
 
 
 
 
 
Commercial paper issuances
177

 
130

 
167

 
474

Letters of credit
147

 

 

 
147

 
324

 
130

 
167

 
621

Net availability at June 30, 2018
$
1,096

 
$
270

 
$
133

 
$
1,499

DTE Energy has $9 million of other outstanding letters of credit which are used for various corporate purposes and are not included in the facilities described above.
In conjunction with maintaining certain exchange traded risk management positions, DTE Energy may be required to post collateral with its clearing agent. DTE Energy has a demand financing agreement for up to $100 million with its clearing agent. The agreement, as amended, also allows for up to $50 million of additional margin financing provided that DTE Energy posts a letter of credit for the incremental amount and allows the right of setoff with posted collateral. At June 30, 2018, the capacity under this facility was $125 million. The amount outstanding under this agreement was $30 million and $56 million at June 30, 2018 and December 31, 2017, respectively, and was fully offset by the posted collateral.

NOTE 11COMMITMENTS AND CONTINGENCIES
Environmental
DTE Electric
Air — DTE Electric is subject to the EPA ozone and fine particulate transport and acid rain regulations that limit power plant emissions of SO2 and NOX. The EPA and the State of Michigan have also issued emission reduction regulations relating to ozone, fine particulate, regional haze, mercury, and other air pollution. These rules have led to controls on fossil-fueled power plants to reduce SO2, NOX, mercury, and other emissions. Additional rulemakings may occur over the next few years which could require additional controls for SO2, NOX, and other hazardous air pollutants.
The EPA proposed revised air quality standards for ground level ozone in November 2014 and specifically requested comments on the form and level of the ozone standards. The standards were finalized in October 2015. The State of Michigan recommended to the EPA in October 2016 which areas of the state are not attaining the new standard. On April 30, 2018, the EPA finalized the State of Michigan's recommended non-attainment designation for southeast Michigan. The State is required to develop and implement a plan to address the southeast Michigan ozone non-attainment area by 2021. DTE Electric cannot predict the financial impact of the State's plan to address the ozone non-attainment area at this time.
In July 2009, DTE Energy received a NOV/FOV from the EPA alleging, among other things, that five DTE Electric power plants violated New Source Performance standards, Prevention of Significant Deterioration requirements, and operating permit requirements under the Clean Air Act. In June 2010, the EPA issued a NOV/FOV making similar allegations related to a project and outage at Unit 2 of the Monroe Power Plant. In March 2013, DTE Energy received a supplemental NOV from the EPA relating to the July 2009 NOV/FOV. The supplemental NOV alleged additional violations relating to the New Source Review provisions under the Clean Air Act, among other things.

44


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

In August 2010, the U.S. Department of Justice, at the request of the EPA, brought a civil suit in the U.S. District Court for the Eastern District of Michigan against DTE Energy and DTE Electric, related to the June 2010 NOV/FOV and the outage work performed at Unit 2 of the Monroe Power Plant. In August 2011, the U.S. District Court judge granted DTE Energy's motion for summary judgment in the civil case, dismissing the case and entering judgment in favor of DTE Energy and DTE Electric. In October 2011, the EPA filed a Notice of Appeal to the Court of Appeals for the Sixth Circuit. In March 2013, the Court of Appeals remanded the case to the U.S. District Court for review of the procedural component of the New Source Review notification requirements. In September 2013, the EPA filed a motion seeking leave to amend their complaint regarding the June 2010 NOV/FOV adding additional claims related to outage work performed at the Trenton Channel and Belle River Power Plants as well as additional claims related to work performed at the Monroe Power Plant. In March 2014, the U.S. District Court judge again granted DTE Energy's motion for summary judgment dismissing the civil case related to Monroe Unit 2. In April 2014, the U.S. District Court judge granted motions filed by the EPA and the Sierra Club to amend their New Source Review complaint adding additional claims for Monroe Units 1, 2, and 3, Belle River Units 1 and 2, and Trenton Channel Unit 9. In October 2014, the EPA and the U.S. Department of Justice filed a notice of appeal of the U.S. District Court judge's dismissal of the Monroe Unit 2 case. The amended New Source Review claims were all stayed pending resolution of the appeal by the Court of Appeals for the Sixth Circuit. On January 10, 2017, a divided panel of the Court reversed the decision of the U.S. District Court. On May 8, 2017, DTE Energy and DTE Electric filed a motion to stay the mandate pending filing of a petition for writ of certiorari with the U.S. Supreme Court. The Sixth Circuit granted the motion on May 16, 2017, staying the claims in the U.S. District Court until the U.S. Supreme Court disposes of the case. DTE Electric and DTE Energy filed a petition for writ of certiorari on July 31, 2017. On December 11, 2017, the U.S. Supreme Court denied certiorari. As a result of the Supreme Court electing not to review the matter, the case was sent back to the U.S. District Court for further proceedings and on June 14, 2018 the case was stayed for 180 days pending settlement negotiations. The proceedings at the District Court are currently stayed while the parties discuss potential resolution of the matter.
The Registrants believe that the plants and generating units identified by the EPA and the Sierra Club have complied with all applicable federal environmental regulations. Depending upon the outcome of the litigation and further discussions with the EPA regarding the two NOVs/FOVs, DTE Electric could be required to install additional pollution control equipment at some or all of the power plants in question, implement early retirement of facilities where control equipment is not economical, engage in supplemental environmental programs, and/or pay fines. The Registrants cannot predict the financial impact or outcome of this matter, or the timing of its resolution.
The EPA has implemented regulatory actions under the Clean Air Act to address emissions of GHGs from the utility sector and other sectors of the economy. Among these actions, in 2015 the EPA finalized performance standards for emissions of carbon dioxide from new and existing EGUs. In February 2016, the U.S. Supreme Court granted petitioners' requests for a stay of the carbon rules for existing EGUs (also known as the EPA Clean Power Plan) pending final review by the courts. The Clean Power Plan has no legal effect while the stay is in place. On March 28, 2017, a presidential executive order was issued on "Promoting Energy Independence and Economic Growth." The order instructs the EPA to review, and if appropriate, suspend, revise or rescind the Clean Power Plan rule. Following the issuance of this order, the federal government requested the U.S. Court of Appeals for the D.C. Circuit to hold all legal challenges in abeyance until the review of these regulations is completed. On October 10, 2017, the EPA proposed to rescind the Clean Power Plan and announced its intent to issue an ANPR seeking input as to whether it should replace the rule and, if so, what form it should take. It is not possible to determine the potential impact of the EPA's repeal and possible replacement of the Clean Power Plan on existing sources at this time.
Pending or future legislation or other regulatory actions could have a material impact on DTE Electric's operations and financial position and the rates charged to its customers. Impacts include expenditures for environmental equipment beyond what is currently planned, financing costs related to additional capital expenditures, the purchase of emission credits from market sources, higher costs of purchased power, and the retirement of facilities where control equipment is not economical. DTE Electric would seek to recover these incremental costs through increased rates charged to its utility customers, as authorized by the MPSC.
To comply with air pollution requirements, DTE Electric spent approximately $2.4 billion through 2017. DTE Electric does not anticipate additional capital expenditures through 2024.

45


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

Water — In response to an EPA regulation, DTE Electric was required to examine alternatives for reducing the environmental impacts of the cooling water intake structures at several of its facilities. Based on the results of completed studies and expected future studies, DTE Electric may be required to install technologies to reduce the impacts of the water intake structures. A final rule became effective in October 2014. The final rule requires studies to be completed and submitted as part of the National Pollutant Discharge Elimination System (NPDES) permit application process to determine the type of technology needed to reduce impacts to fish. DTE Electric has initiated the process of completing the required studies. Final compliance for the installation of any required technology will be determined by each state on a case by case, site specific basis. DTE Electric is currently evaluating the compliance options and working with the State of Michigan on evaluating whether any controls are needed. These evaluations/studies may require modifications to some existing intake structures. It is not possible to quantify the impact of this rulemaking at this time.
Contaminated and Other Sites — Prior to the construction of major interstate natural gas pipelines, gas for heating and other uses was manufactured locally from processes involving coal, coke, or oil. The facilities, which produced gas, have been designated as MGP sites. DTE Electric conducted remedial investigations at contaminated sites, including three former MGP sites. The investigations have revealed contamination related to the by-products of gas manufacturing at each MGP site. In addition to the MGP sites, DTE Electric is also in the process of cleaning up other contaminated sites, including the area surrounding an ash landfill, electrical distribution substations, electric generating power plants, and underground and aboveground storage tank locations. The findings of these investigations indicated that the estimated cost to remediate these sites is expected to be incurred over the next several years. At June 30, 2018 and December 31, 2017, DTE Electric had $5 million and $6 million, respectively, accrued for remediation. Any change in assumptions, such as remediation techniques, nature and extent of contamination, and regulatory requirements, could impact the estimate of remedial action costs for the sites and affect DTE Electric’s financial position and cash flows. DTE Electric believes the likelihood of a material change to the accrued amount is remote based on current knowledge of the conditions at each site.
Coal Combustion Residuals and Effluent Limitations Guidelines — A final EPA rule for the disposal of coal combustion residuals, commonly known as coal ash, became effective in October 2015, and was revised in October 2016. On March 15, 2018, the EPA published a proposed rule for public comment that is expected to be issued in final form in 2019. Some of the proposed rule provisions could change compliance and closure plans for CCR units if included in the final rule. DTE Electric owns and operates three permitted engineered coal ash storage facilities to dispose of coal ash from coal-fired power plants and operates a number of smaller impoundments at its power plants. CCR obligations vary based on plant life, but include the installation of monitoring wells, compliance with groundwater standards, and the closure of landfills and basins at the end of the useful life of the associated power plant or as a basin becomes inactive.
In November 2015, the EPA finalized the ELG Rule for the steam electric power generating industry which may require additional controls to be installed between 2018 and 2023. On April 12, 2017, the EPA granted a petition for reconsideration of the ELG Rule. The EPA also signed an administrative stay of the ELG Rule’s compliance deadlines for fly ash transport water, bottom ash transport water, and flue gas desulfurization (FGD) wastewater, among others. On June 6, 2017, the EPA published in the Federal Register a proposed rule to postpone certain applicable deadlines within the ELG rule. The final rule was published on September 18, 2017, which extended the earliest compliance deadlines for the FGD wastewater and bottom ash transport until November 1, 2020 in order for the EPA to propose and finalize a new ruling. The ELG compliance requirements, final deadlines, and compliance costs will not be known until the EPA completes its reconsideration of the ELG Rule.
DTE Gas
Contaminated and Other Sites — DTE Gas owns or previously owned, 14 former MGP sites. Investigations have revealed contamination related to the by-products of gas manufacturing at each site. Cleanup of six of the MGP sites is complete, and the sites are closed. DTE Gas has also completed partial closure of six additional sites. Cleanup activities associated with the remaining sites will continue over the next several years. The MPSC has established a cost deferral and rate recovery mechanism for investigation and remediation costs incurred at former MGP sites. In addition to the MGP sites, DTE Gas is also in the process of cleaning up other contaminated sites, including gate stations, gas pipeline releases, and underground storage tank locations. As of June 30, 2018 and December 31, 2017, DTE Gas had $37 million and $41 million accrued for remediation, respectively.  Any change in assumptions, such as remediation techniques, nature and extent of contamination, and regulatory requirements, could impact the estimate of remedial action costs for the sites and affect DTE Gas' financial position and cash flows. DTE Gas anticipates the cost amortization methodology approved by the MPSC, which allows for amortization of the MGP costs over a ten-year period beginning with the year subsequent to the year the MGP costs were incurred, will prevent environmental costs from having a material adverse impact on DTE Gas' results of operations.

46


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

Non-utility
DTE Energy's non-utility businesses are subject to a number of environmental laws and regulations dealing with the protection of the environment from various pollutants.
Other
In 2010, the EPA finalized a new one-hour SO2 ambient air quality standard that requires states to submit plans and associated timelines for non-attainment areas that demonstrate attainment with the new SO2 standard in phases. Phase 1 addresses non-attainment areas designated based on ambient monitoring data. Phase 2 addresses non-attainment areas with large sources of SO2 and modeled concentrations exceeding the National Ambient Air Quality Standards for SO2. Phase 3 addresses smaller sources of SO2 with modeled or monitored exceedances of the new SO2 standard.
Michigan's Phase 1 non-attainment area includes DTE Energy facilities in southwest Detroit and areas of Wayne County. Modeling runs by the MDEQ suggest that emission reductions may be required by significant sources of SO2 emissions in these areas, including DTE Electric power plants and DTE Energy's Michigan coke battery facility. As part of the state implementation plan process, DTE Energy has worked with the MDEQ to develop air permits reflecting significant SO2 emission reductions that, in combination with other non-DTE Energy sources' emission reduction strategies, will help the state attain the standard and sustain its attainment. Since several non-DTE Energy sources are also part of the proposed compliance plan, DTE Energy is unable to determine the full impact of the final required emissions reductions at this time.
Michigan's Phase 2 non-attainment area includes DTE Electric facilities in St. Clair County. State implementation plan (SIP) submittal and EPA approval describing the control strategy and timeline for demonstrating compliance with the new SO2 standard is the next step in the process, expected to be completed by the end of the year. DTE Energy is currently working with the MDEQ to develop the required SIP. DTE Energy is unable to determine the full impact of the SIP strategy.
Synthetic Fuel Guarantees
DTE Energy discontinued the operations of its synthetic fuel production facilities throughout the United States as of December 31, 2007. DTE Energy provided certain guarantees and indemnities in conjunction with the sales of interests in its synfuel facilities. The guarantees cover potential commercial, environmental, oil price, and tax-related obligations that will survive until 90 days after expiration of all applicable statutes of limitations. DTE Energy estimates that its maximum potential liability under these guarantees at June 30, 2018 was approximately $400 million. Payments under these guarantees are considered remote.
REF Guarantees
DTE Energy has provided certain guarantees and indemnities in conjunction with the sales of interests in or lease of its REF facilities. The guarantees cover potential commercial, environmental, and tax-related obligations that will survive until 90 days after expiration of all applicable statutes of limitations. DTE Energy estimates that its maximum potential liability under these guarantees at June 30, 2018 was $453 million. Payments under these guarantees are considered remote.
NEXUS Guarantees
NEXUS entered into certain 15-year capacity lease agreements for the transportation of natural gas with DTE Gas and Texas Eastern Transmission, LP, an unrelated third party. Pursuant to the terms of those agreements, in December 2016, DTE Energy executed separate guarantee agreements with DTE Gas and Texas Eastern Transmission, LP, with maximum potential payments totaling $84 million and $23 million at June 30, 2018, respectively; each representing 50% of all payment obligations due and payable by NEXUS. Should NEXUS fail to perform under the terms of those agreements, DTE Energy is required to perform on its behalf. Each guarantee terminates at the earlier of (i) such time as all of the guaranteed obligations have been fully performed, or (ii) two months following the end of the primary term of the capacity lease agreements. Subsequent to the NEXUS in-service date, the amount of each guarantee decreases annually as payments are made by NEXUS to each of the aforementioned counterparties. Payments under these guarantees are considered remote.

47


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

Other Guarantees
In certain limited circumstances, the Registrants enter into contractual guarantees. The Registrants may guarantee another entity’s obligation in the event it fails to perform and may provide guarantees in certain indemnification agreements. Finally, the Registrants may provide indirect guarantees for the indebtedness of others. DTE Energy’s guarantees are not individually material with maximum potential payments totaling $56 million at June 30, 2018. Payments under these guarantees are considered remote.
DTE Energy is periodically required to obtain performance surety bonds in support of obligations to various governmental entities and other companies in connection with its operations. As of June 30, 2018, DTE Energy had $59 million of performance bonds outstanding. In the event that such bonds are called for nonperformance, DTE Energy would be obligated to reimburse the issuer of the performance bond. DTE Energy is released from the performance bonds as the contractual performance is completed and does not believe that a material amount of any currently outstanding performance bonds will be called.
Labor Contracts
There are several bargaining units for DTE Energy subsidiaries' approximate 5,000 represented employees, including DTE Electric's approximate 2,700 represented employees. The majority of the represented employees are under contracts that expire in 2020 and 2021.
Purchase Commitments
Utility capital expenditures, expenditures for non-utility businesses, and contributions to equity method investees will be approximately $3.6 billion and $1.9 billion in 2018 for DTE Energy and DTE Electric, respectively. The Registrants have made certain commitments in connection with the estimated 2018 annual capital expenditures and contributions to equity method investees.
Other Contingencies
The Registrants are involved in certain other legal, regulatory, administrative, and environmental proceedings before various courts, arbitration panels, and governmental agencies concerning claims arising in the ordinary course of business. These proceedings include certain contract disputes, additional environmental reviews and investigations, audits, inquiries from various regulators, and pending judicial matters. The Registrants cannot predict the final disposition of such proceedings. The Registrants regularly review legal matters and record provisions for claims that they can estimate and are considered probable of loss. The resolution of these pending proceedings is not expected to have a material effect on the Registrants' Consolidated Financial Statements in the periods they are resolved.
For a discussion of contingencies related to regulatory matters and derivatives, see Notes 5 and 8 to the Consolidated Financial Statements, "Regulatory Matters" and "Financial and Other Derivative Instruments," respectively.

NOTE 12RETIREMENT BENEFITS AND TRUSTEED ASSETS
The following tables detail the components of net periodic benefit costs (credits) for pension benefits and other postretirement benefits for DTE Energy:
 
Pension Benefits
 
Other Postretirement Benefits
 
2018
 
2017
 
2018
 
2017
Three Months Ended June 30,
(In millions)
Service cost
$
25

 
$
23

 
$
7

 
$
6

Interest cost
50

 
53

 
17

 
19

Expected return on plan assets
(83
)
 
(77
)
 
(35
)
 
(32
)
Amortization of:
 
 
 
 
 
 
 
Net actuarial loss
45

 
43

 
2

 
4

Prior service credit

 

 

 
(4
)
Net periodic benefit cost (credit)
$
37

 
$
42

 
$
(9
)
 
$
(7
)

48


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

 
Pension Benefits
 
Other Postretirement Benefits
 
2018
 
2017
 
2018
 
2017
Six Months Ended June 30,
(In millions)
Service cost
$
50

 
$
47

 
$
14

 
$
13

Interest cost
100

 
107

 
34

 
37

Expected return on plan assets
(165
)
 
(155
)
 
(71
)
 
(65
)
Amortization of:
 
 
 
 
 
 
 
Net actuarial loss
89

 
86

 
5

 
7

Prior service credit

 

 

 
(7
)
Net periodic benefit cost (credit)
$
74

 
$
85

 
$
(18
)
 
$
(15
)
DTE Electric participates in various plans that provide pension and other postretirement benefits for DTE Energy and its affiliates. The plans are sponsored by DTE Energy's subsidiary, DTE Energy Corporate Services, LLC. DTE Electric accounts for its participation in DTE Energy's qualified and nonqualified pension plans by applying multiemployer accounting. DTE Electric accounts for its participation in other postretirement benefit plans by applying multiple-employer accounting. Within multiemployer and multiple-employer plans, participants pool plan assets for investment purposes and to reduce the cost of plan administration. The primary difference between plan types is assets contributed in multiemployer plans can be used to provide benefits for all participating employers, while assets contributed within a multiple-employer plan are restricted for use by the contributing employer. As a result of multiemployer accounting treatment, capitalized costs associated with these plans are reflected in Property, plant, and equipment in DTE Electric's Consolidated Financial Statements. The same capitalized costs are reflected as Regulatory assets and liabilities in DTE Energy's Consolidated Financial Statements. Plan participants of all plans are solely DTE Energy and affiliate participants.
DTE Energy's subsidiaries are responsible for their share of qualified and nonqualified pension benefit costs. DTE Electric's allocated portion of pension benefit costs included in capital expenditures and operating and maintenance expense were $30 million and $34 million for the three months ended June 30, 2018 and 2017, respectively, and $60 million and $69 million for the six months ended June 30, 2018 and 2017, respectively. These amounts include recognized contractual termination benefit charges, curtailment gains, and settlement charges.
The following tables detail the components of net periodic benefit costs (credits) for other postretirement benefits for DTE Electric:
 
Other Postretirement Benefits
 
2018
 
2017
Three Months Ended June 30,
(In millions)
Service cost
$
5

 
$
5

Interest cost
14

 
14

Expected return on plan assets
(25
)
 
(22
)
Amortization of:
 
 
 
Net actuarial loss
2

 
2

Prior service credit

 
(3
)
Net periodic benefit credit
$
(4
)
 
$
(4
)
 
Other Postretirement Benefits
 
2018
 
2017
Six Months Ended June 30,
(In millions)
Service cost
$
10

 
$
10

Interest cost
27

 
28

Expected return on plan assets
(49
)
 
(45
)
Amortization of:
 
 
 
Net actuarial loss
4

 
4

Prior service credit

 
(5
)
Net periodic benefit credit
$
(8
)
 
$
(8
)

49


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

Pension and Other Postretirement Contributions
During 2018, DTE Energy contributed the following amounts of DTE Energy common stock to the DTE Energy Company Affiliates Employee Benefit Plans Master Trust:
Date
 
Number of Shares
 
Price per Share
 
Amount
 
 
 
 
 
 
(In millions)
March 7, 2018
 
1,751,401
 
$99.92
 
$
175

The above contribution was made on behalf of DTE Electric, who paid DTE Energy cash consideration of $175 million in March 2018. At the discretion of management and depending upon financial market conditions, DTE Energy may make additional contributions up to $25 million to its pension plans in 2018, with no additional contributions planned from DTE Electric.
DTE Energy does not anticipate making any contributions to the other postretirement benefit plans in 2018.

NOTE 13SEGMENT AND RELATED INFORMATION
DTE Energy sets strategic goals, allocates resources, and evaluates performance based on the following structure:
Electric segment consists principally of DTE Electric, which is engaged in the generation, purchase, distribution, and sale of electricity to approximately 2.2 million residential, commercial, and industrial customers in southeastern Michigan.
Gas segment consists principally of DTE Gas, which is engaged in the purchase, storage, transportation, distribution, and sale of natural gas to approximately 1.3 million residential, commercial, and industrial customers throughout Michigan and the sale of storage and transportation capacity.
Gas Storage and Pipelines is primarily engaged in services related to the gathering, transportation, and storage of natural gas.
Power and Industrial Projects is comprised primarily of projects that deliver energy and utility-type products and services to industrial, commercial, and institutional customers, produce reduced emissions fuel, and sell electricity and pipeline-quality gas from renewable energy projects.
Energy Trading consists of energy marketing and trading operations.
Corporate and Other includes various holding company activities, holds certain non-utility debt, and holds energy-related investments.
The federal income tax provisions or benefits of DTE Energy’s subsidiaries are determined on an individual company basis and recognize the tax benefit of tax credits and net operating losses, if applicable. The state and local income tax provisions of the utility subsidiaries are determined on an individual company basis and recognize the tax benefit of various tax credits and net operating losses, if applicable. The subsidiaries record federal, state, and local income taxes payable to or receivable from DTE Energy based on the federal, state, and local tax provisions of each company.

50


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

Inter-segment billing for goods and services exchanged between segments is based upon tariffed or market-based prices of the provider and primarily consists of the sale of reduced emissions fuel, power sales, and natural gas sales in the following segments:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions)
Electric
$
13

 
$
13

 
$
26

 
$
25

Gas
4

 
2

 
6

 
5

Gas Storage and Pipelines
14

 
15

 
22

 
22

Power and Industrial Projects
162

 
156

 
317

 
324

Energy Trading
5

 
8

 
12

 
19

Corporate and Other

 

 
1

 
1

 
$
198

 
$
194

 
$
384

 
$
396

Financial data of DTE Energy's business segments follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions)
Operating Revenues — Utility operations
 
 
 
 
 
 
 
Electric
$
1,276

 
$
1,218

 
$
2,481

 
$
2,393

Gas
255

 
220

 
805

 
777

Operating Revenues — Non-utility operations
 
 
 
 
 
 
 
Gas Storage and Pipelines
122

 
113

 
241

 
218

Power and Industrial Projects
538

 
507

 
1,105

 
1,055

Energy Trading
1,164

 
991

 
2,662

 
2,043

Corporate and Other
2

 

 
2

 
1

Reconciliation and Eliminations
(198
)
 
(194
)
 
(384
)
 
(396
)
Total
$
3,159

 
$
2,855

 
$
6,912

 
$
6,091

Net Income (Loss) Attributable to DTE Energy by Segment:
 
 
 
 
 
 
 
Electric
$
163

 
$
138

 
$
303

 
$
244

Gas
14

 
1

 
118

 
108

Gas Storage and Pipelines
60

 
40

 
122

 
85

Power and Industrial Projects
43

 
30

 
88

 
60

Energy Trading
(5
)
 

 
26

 
96

Corporate and Other
(41
)
 
(32
)
 
(62
)
 
(16
)
Net Income Attributable to DTE Energy Company
$
234

 
$
177

 
$
595

 
$
577


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following combined discussion is separately filed by DTE Energy and DTE Electric. However, DTE Electric does not make any representations as to information related solely to DTE Energy or the subsidiaries of DTE Energy other than itself.
EXECUTIVE OVERVIEW
DTE Energy is a diversified energy company and is the parent company of DTE Electric and DTE Gas, regulated electric and natural gas utilities engaged primarily in the business of providing electricity and natural gas sales, distribution, and storage services throughout Michigan. DTE Energy operates three energy-related non-utility segments with operations throughout the United States.

51



The following table summarizes DTE Energy's financial results:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions, except per share amounts)
Net Income Attributable to DTE Energy Company
$
234

 
$
177

 
$
595

 
$
577

Diluted Earnings per Common Share
$
1.29

 
$
0.99

 
$
3.29

 
$
3.21

The increase in Net Income in the second quarter was primarily due to higher earnings in the Electric, Gas, Gas Storage and Pipelines, and Power and Industrial Projects segments. The increase in Net Income in the six-month period was primarily due to higher earnings in the Electric, Gas, Gas Storage and Pipelines, and Power and Industrial Projects segments, partially offset by lower earnings in the Energy Trading and Corporate and Other segments. The increase in the six-month period was impacted by true-up adjustments for the remeasurement of deferred taxes of $21 million. 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. Total Income Tax Expense decreased from the prior year due to the reduction of the corporate tax rate from 35% to 21%, which became effective in 2018.
Please see detailed explanations of segment performance in the following "Results of Operations" section.
DTE Energy's strategy is to achieve long-term earnings growth, a strong balance sheet, and an attractive dividend yield.
DTE Energy's utilities are investing capital to improve customer reliability through investments in base infrastructure and new generation, and to comply with environmental requirements. DTE Energy expects that planned significant capital investments will result in earnings growth. DTE Energy is focused on executing plans to achieve operational excellence and customer satisfaction with a focus on customer affordability. DTE Energy operates in a constructive regulatory environment and has solid relationships with its regulators.
In May 2017, DTE Energy announced its plan to reduce carbon emissions. This goal will be attained by cutting carbon emissions 30% by the early 2020s, 45% by 2030, 75% by 2040, and more than 80% by 2050. To achieve this reduction, DTE Energy will transition away from coal-powered sources and incorporate more renewable energy, energy waste reduction, demand response, and highly-efficient natural gas fueled power plants. DTE Energy has already begun the transition in the way it produces power through the continued retirement of its aging coal-fired plants. In May 2018, DTE Energy announced its plans to accelerate its clean energy initiatives by targeting at least a 50% clean energy goal by 2030, achieved through a combination of investments in renewable energy and energy efficiency projects. Refer to the "Capital Investments" section below for further discussion.
DTE Energy has significant investments in non-utility businesses. DTE Energy employs disciplined investment criteria when assessing growth opportunities that leverage its assets, skills, and expertise, and provides diversity in earnings and geography. Specifically, DTE Energy invests in targeted energy markets with attractive competitive dynamics where meaningful scale is in alignment with its risk profile. DTE Energy expects growth opportunities in the Gas Storage and Pipelines and Power and Industrial Projects segments.
A key priority for DTE Energy is to maintain a strong balance sheet which facilitates access to capital markets and reasonably priced short-term and long-term financing. Near-term growth will be funded through internally generated cash flows and the issuance of debt and equity. DTE Energy has an enterprise risk management program that, among other things, is designed to monitor and manage exposure to earnings and cash flow volatility related to commodity price changes, interest rates, and counterparty credit risk.
CAPITAL INVESTMENTS
DTE Energy's utility businesses require significant capital investments to maintain and improve the electric generation and electric and natural gas distribution infrastructure and to comply with environmental regulations and renewable energy requirements.

52



DTE Electric's capital investments over the 2018-2022 period are estimated at $10.4 billion comprised of $4.1 billion for capital replacements and other projects, $4.3 billion for distribution infrastructure, and $2.0 billion for new generation. DTE Electric has retired four coal-fired generation units at the Trenton Channel, River Rouge, and St. Clair facilities and has announced plans to retire its remaining thirteen coal-fired generating units. Seven of these coal-fired generating units will be retired through 2023 at the Trenton Channel, River Rouge, and St. Clair facilities. The remaining coal-fired generating units at the Belle River and Monroe facilities are expected to be retired by 2040. The retired facilities will be replaced with renewables, energy efficiency, demand response, and natural gas fueled generation. DTE Electric constructed and placed in service 50 megawatts of solar generation in 2017. In April 2018, DTE Electric received approval from the MPSC to build a natural gas fueled combined cycle generation facility to provide approximately 1,100 megawatts of energy beginning in 2022. In March 2018, DTE Electric filed its 2018 Renewable Energy Plan with the MPSC proposing approximately 1,000 additional megawatts of energy from new wind and solar projects to be completed by 2022. The MPSC had previously approved 300 of the 1,000 additional megawatts for wind projects in an MPSC order received in September 2016. In January 2018, DTE Electric filed with the MPSC its five-year distribution operations investment and maintenance plan to improve system reliability. DTE Electric plans to seek regulatory approval for capital expenditures consistent with prior ratemaking treatment. For further discussion of regulatory matters, see Note 5 to the Consolidated Financial Statements, "Regulatory Matters."
DTE Gas' capital investments over the 2018-2022 period are estimated at $2.1 billion comprised of $950 million for base infrastructure, $1.1 billion for gas main renewal, meter move out, and pipeline integrity programs, and $10 million for expenditures related to the NEXUS Pipeline. DTE Gas plans to seek regulatory approval in general rate case filings for base infrastructure capital expenditures consistent with prior ratemaking treatment.
DTE Energy's non-utility businesses' capital investments are primarily for expansion, growth, and ongoing maintenance. Gas Storage and Pipelines' capital investments over the 2018-2022 period are estimated at $2.8 billion to $3.4 billion for gathering and pipeline investments and expansions, including the NEXUS Pipeline. Power and Industrial Projects' capital investments over the 2018-2022 period are estimated at $800 million to $1.2 billion for investments in cogeneration and on-site energy projects.
ENVIRONMENTAL MATTERS
The Registrants are subject to extensive environmental regulation. Additional costs may result as the effects of various substances on the environment are studied and governmental regulations are developed and implemented. Actual costs to comply could vary substantially. The Registrants expect to continue recovering environmental costs related to utility operations through rates charged to customers, as authorized by the MPSC.
DTE Electric is subject to the EPA ozone and fine particulate transport and acid rain regulations that limit power plant emissions of SO2 and NOX. The EPA and the State of Michigan have also issued emission reduction regulations relating to ozone, fine particulate, regional haze, mercury, and other air pollution. These rules have led to controls on fossil-fueled power plants to reduce SO2, NOX, mercury, and other emissions. Additional rulemakings may occur over the next few years which could require additional controls for SO2, NOX, and other hazardous air pollutants. To comply with existing requirements, DTE Electric spent approximately $2.4 billion through 2017. DTE Electric does not anticipate additional capital expenditures through 2024.
The EPA has implemented regulatory actions under the Clean Air Act to address emissions of GHGs from the utility sector and other sectors of the economy. Among these actions, in 2015 the EPA finalized performance standards for emissions of carbon dioxide from new and existing EGUs. In February 2016, the U.S. Supreme Court granted petitioners' requests for a stay of the carbon rules for existing EGUs (also known as the EPA Clean Power Plan) pending final review by the courts. The Clean Power Plan has no legal effect while the stay is in place. On March 28, 2017, a presidential executive order was issued on "Promoting Energy Independence and Economic Growth." The order instructs the EPA to review, and if appropriate, suspend, revise or rescind the Clean Power Plan rule. Following the issuance of this order, the federal government requested the U.S. Court of Appeals for the D.C. Circuit to hold all legal challenges in abeyance until the review of these regulations is completed. On October 10, 2017, the EPA proposed to rescind the Clean Power Plan and announced its intent to issue an ANPR seeking input as to whether it should replace the rule and, if so, what form it should take. It is not possible to determine the potential impact of the EPA's repeal and possible replacement of the Clean Power Plan on existing sources at this time.

53



Pending or future legislation or other regulatory actions could have a material impact on DTE Electric's operations and financial position and the rates charged to its customers. Impacts include expenditures for environmental equipment beyond what is currently planned, financing costs related to additional capital expenditures, the purchase of emission credits from market sources, higher costs of purchased power, and the retirement of facilities where control equipment is not economical. DTE Electric would seek to recover these incremental costs through increased rates charged to its utility customers, as authorized by the MPSC.
Increased costs for energy produced from traditional coal-based sources due to recent, pending, and future regulatory initiatives, could also increase the economic viability of energy produced from renewable, natural gas fueled generation, and/or nuclear sources, energy efficiency initiatives, and the potential development of market-based trading of carbon instruments which could provide new business opportunities for DTE Energy's utility and non-utility segments. At the present time, it is not possible to quantify the financial impacts of these climate related regulatory initiatives on the Registrants or their customers.
For further discussion of environmental matters, see Note 11 to the Consolidated Financial Statements, "Commitments and Contingencies."
OUTLOOK
The next few years will be a period of rapid change for DTE Energy and for the energy industry. DTE Energy's strong utility base, combined with its integrated non-utility operations, position it well for long-term growth.
Looking forward, DTE Energy will focus on several areas that are expected to improve future performance:
electric and gas customer satisfaction;
electric distribution system reliability;
new electric generation;
gas distribution system renewal;
rate competitiveness and affordability;
regulatory stability and investment recovery for the electric and gas utilities;
employee safety and engagement;
cost structure optimization across all business segments;
cash, capital, and liquidity to maintain or improve financial strength; and
investments that integrate assets and leverage skills and expertise.
DTE Energy will continue to pursue opportunities to grow its businesses in a disciplined manner if it can secure opportunities that meet its strategic, financial, and risk criteria.

RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations includes financial information prepared in accordance with GAAP, as well as the non-GAAP financial measures, Utility Margin and Non-utility Margin, discussed below, which DTE Energy uses as measures of its operational performance. Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP.
DTE Energy uses Utility Margin and Non-utility Margin, non-GAAP financial measures, to assess its performance by reportable segment.

54



Utility Margin includes electric and gas Operating Revenues net of Fuel, purchased power, and gas expenses. The utilities’ fuel, purchased power, and natural gas supply are passed through to customers, and therefore, result in changes to the utilities’ revenues that are comparable to changes in such expenses. As such, DTE Energy believes Utility Margin provides a meaningful basis for evaluating the utilities’ operations across periods, as it excludes the revenue effect of fluctuations in these expenses.
The Non-utility Margin relates to the Power and Industrial Projects and Energy Trading segments. For the Power and Industrial Projects segment, Non-utility Margin primarily includes Operating Revenues net of Fuel, purchased power, and gas expenses. Operating Revenues include sales of refined coal to third parties and the affiliated Electric utility, metallurgical coke and related by-products, petroleum coke, renewable natural gas, and electricity, as well as rental income and revenues from utility-type consulting, management, and operational services. For the Energy Trading segment, Non-utility Margin includes revenue and realized and unrealized gains and losses from physical and financial power and gas marketing, optimization, and trading activities, net of Purchased power and gas related to these activities. DTE Energy evaluates its operating performance of these non-utility businesses using the measure of Operating Revenues net of Fuel, purchased power, and gas expenses.
Utility Margin and Non-utility Margin are not measures calculated in accordance with GAAP and should be viewed as a supplement to and not a substitute for the results of operations presented in accordance with GAAP. Utility Margin and Non-utility Margin do not intend to represent operating income, the most comparable GAAP measure, as an indicator of operating performance and are not necessarily comparable to similarly titled measures reported by other companies.
The following sections provide a detailed discussion of the operating performance and future outlook of DTE Energy's segments. Segment information, described below, includes intercompany revenues and expenses, and other income and deductions that are eliminated in the Consolidated Financial Statements.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions)
Net Income (Loss) Attributable to DTE Energy by Segment
 
 
 
 
 
 
 
Electric
$
163

 
$
138

 
$
303

 
$
244

Gas
14

 
1

 
118

 
108

Gas Storage and Pipelines
60

 
40

 
122

 
85

Power and Industrial Projects
43

 
30

 
88

 
60

Energy Trading
(5
)
 

 
26

 
96

Corporate and Other
(41
)
 
(32
)
 
(62
)
 
(16
)
Net Income Attributable to DTE Energy Company
$
234

 
$
177

 
$
595

 
$
577


55



ELECTRIC
The Results of Operations discussion for DTE Electric is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q.
The Electric segment consists principally of DTE Electric. Electric results are discussed below:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions)
Operating Revenues — Utility operations
$
1,276

 
$
1,218

 
$
2,481

 
$
2,393

Fuel and purchased power — utility
386

 
355

 
725

 
669

Utility Margin
890

 
863

 
1,756

 
1,724

Operation and maintenance
337

 
325

 
649

 
696

Depreciation and amortization
202

 
180

 
414

 
361

Taxes other than income
74

 
75

 
155

 
155

Operating Income
277

 
283

 
538

 
512

Other (Income) and Deductions
70

 
71

 
144

 
137

Income Tax Expense
44

 
74

 
91

 
131

Net Income Attributable to DTE Energy Company
$
163

 
$
138

 
$
303

 
$
244

See DTE Electric's Consolidated Statements of Operations for a complete view of its results. For an explanation of differences between the Electric segment and DTE Electric's Consolidated Statements of Operations, refer to Note 12 to the Consolidated Financial Statements, "Retirement Benefits and Trusteed Assets."
Utility Margin increased $27 million and $32 million in the three and six months ended June 30, 2018, respectively. Revenues associated with certain mechanisms and surcharges are offset by related expenses elsewhere in the Registrants' Consolidated Statements of Operations.
The following table details changes in various Utility Margin components relative to the comparable prior period:
 
Three Months
 
Six Months
 
(In millions)
Weather
$
41

 
$
66

Implementation of new rates
17

 
31

PSCR disallowance in 2017
13

 
13

Base sales
(9
)
 
(14
)
TCJA rate reduction reserve
(38
)
 
(77
)
Regulatory mechanisms and other
3

 
13

Increase in Utility Margin
$
27

 
$
32


56



 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In thousands of MWh)
DTE Electric Sales
 
 
 
 
 
 
 
Residential
3,682

 
3,436

 
7,359

 
6,954

Commercial
4,352

 
4,324

 
8,382

 
8,407

Industrial
2,648

 
2,458

 
5,252

 
4,833

Other
51

 
61

 
108

 
140

 
10,733

 
10,279

 
21,101

 
20,334

Interconnection sales(a)
812

 
1,340

 
1,894

 
2,012

Total DTE Electric Sales
11,545

 
11,619

 
22,995

 
22,346

 
 
 
 
 
 
 
 
DTE Electric Deliveries
 
 
 
 
 
 
 
Retail and wholesale
10,733

 
10,279

 
21,101

 
20,334

Electric retail access, including self-generators(b)
1,215

 
1,194

 
2,357

 
2,388

Total DTE Electric Sales and Deliveries
11,948

 
11,473

 
23,458

 
22,722

______________________________
(a)
Represents power that is not distributed by DTE Electric.
(b)
Represents deliveries for self-generators that have purchased power from alternative energy suppliers to supplement their power requirements.
Operation and maintenance expense increased $12 million and decreased $47 million in the three and six months ended June 30, 2018, respectively. The increase in the second quarter was primarily due to increased distribution expenses of $4 million and increased uncollectible expense of $4 million. The decrease in the six-month period was primarily due to decreased power plant generation expenses of $23 million, decreased storm restoration expenses of $19 million, and a one-time benefits expense reimbursement of $9 million, partially offset by increased uncollectible expense of $7 million. The decrease in power plant generation expenses includes a decrease of $17 million of costs related to the 2016 fire at a generation facility incurred in 2017 and $8 million in related insurance proceeds received in 2018.
Depreciation and amortization expense increased $22 million and $53 million in the three and six months ended June 30, 2018, respectively. The increase in the second quarter was primarily due to an increase to depreciable base of $11 million and an increase of $13 million associated with the TRM. The increase in the six-month period was primarily due to an increase to depreciable base of $25 million and an increase of $31 million associated with the TRM.
Other (Income) and Deductions decreased $1 million and increased $7 million in the three and six months ended June 30, 2018, respectively. The decrease in the second quarter was primarily due to decreased debt expense of $2 million and decreased non-operating retirement benefits of $3 million, partially offset by lower investment earnings of $4 million. The increase in the six-month period was primarily due to lower investment earnings of $14 million, partially offset by decreased non-operating retirement benefits of $7 million.
Outlook DTE Electric will continue to move forward in its efforts to achieve operational excellence, sustain strong cash flows, and earn its authorized return on equity. DTE Electric expects that planned significant capital investments will result in earnings growth. DTE Electric expects to continue its efforts to improve productivity and decrease costs while improving customer satisfaction with consideration of customer rate affordability. Looking forward, additional factors may impact earnings, such as weather, the outcome of regulatory proceedings, benefit plan design changes, investment returns and changes in discount rate assumptions in benefit plans and health care costs, uncertainty of legislative or regulatory actions regarding climate change, and effects of energy waste reduction programs.
DTE Electric filed a rate case with the MPSC on April 19, 2017 requesting an increase in base rates of $231 million based on a projected twelve-month period ending October 31, 2018. On November 1, 2017, DTE Electric self-implemented a base rate increase of $125 million. On April 18, 2018, the MPSC issued an order approving an annual revenue increase of $65.2 million for service rendered on or after May 1, 2018. The MPSC authorized a return on equity of 10.0%. On June 28, 2018, the MPSC issued an order on a rehearing granting in part and denying in part, petitions for rehearings of DTE Electric and other intervenors. As a result, the approved addition to base rates increased from $65.2 million to $74.4 million. DTE Electric has recorded a refund liability of $25 million, representing the total estimated refund due to customers, inclusive of interest, at June 30, 2018. In August 2018, DTE Electric will file to refund its customers based on their pro rata share of the revenue collected through the self-implementation surcharge in effect from November 1, 2017 to May 1, 2018.

57



DTE Electric filed a rate case with the MPSC on July 6, 2018 requesting an increase in base rates of $328 million based on a projected twelve-month period ending April 30, 2020. The requested increase in base rates is primarily due to an increase in net plant resulting from infrastructure investments, depreciation expense, as requested in the 2016 DTE Main Electric Depreciation Case Filing, and reliability improvement projects. The rate filing also requests an increase in return on equity from 10.0% to 10.5% and includes projected changes in sales, operation and maintenance expenses, and working capital. In addition, the rate filing requests an Infrastructure Recovery Mechanism to recover the incremental revenue requirement associated with certain distribution, fossil generation, and nuclear generation capital expenditures through 2022. Finally, as noted below, DTE Electric addressed Calculation C in this filing. A final MPSC order in this case is expected by May 2019.
On January 19, 2018, DTE Electric filed information with the MPSC regarding the potential change in revenue requirements due to the TCJA effective January 1, 2018, and outlined its recommended method to flow the current and deferred tax benefits of those impacts to ratepayers.
On February 22, 2018, the MPSC issued an order in this case requiring utilities, including DTE Electric, to follow a 3-step approach of credits and calculations. The first step is to establish Credit A, through contested cases. Credit A is a going-forward tax credit to reflect the reduction of the corporate tax rate from 35% to 21%. DTE Electric filed its Credit A application on May 18, 2018, reflecting a reduction in revenues of $157 million. On July 24, 2018, the MPSC issued an order approving a settlement in DTE Electric's Credit A filing reflecting a reduction in revenues of $157 million. Rates reflecting this reduction will be effective August 1, 2018. The second step is to establish Credit B, through contested cases. Credit B is a backward-looking tax credit to reflect the reduction of the corporate rate of 35% to 21%, for the period January 1, 2018 through the date Credit A is established. The Credit B filing is required within sixty days after Credit A is implemented. For Credit B, DTE Electric has been deferring the impact of the reduction to the corporate tax rate since January 1, 2018. The third step is to perform Calculation C, through contested cases. Calculation C will address all remaining issues relative to the new tax law, which is primarily the remeasurement of deferred taxes and how the amounts deferred as Regulatory liabilities will flow to ratepayers. DTE Electric addressed Calculation C in its general rate case filed July 6, 2018.
GAS
The Gas segment consists principally of DTE Gas. Gas results are discussed below:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions)
Operating Revenues — Utility operations
$
255

 
$
220

 
$
805

 
$
777

Cost of gas — utility
53

 
45

 
273

 
266

Utility Margin
202

 
175

 
532

 
511

Operation and maintenance
122

 
112

 
233

 
219

Depreciation and amortization
31

 
30

 
63

 
60

Taxes other than income
18

 
18

 
39

 
38

Operating Income
31

 
15

 
197

 
194

Other (Income) and Deductions
13

 
14

 
27

 
27

Income Tax Expense
4

 

 
52

 
59

Net Income Attributable to DTE Energy Company
$
14

 
$
1

 
$
118

 
$
108

Utility Margin increased $27 million and $21 million in the three and six months ended June 30, 2018, respectively. Revenues associated with certain surcharges are offset by related expenses elsewhere in DTE Energy's Consolidated Statements of Operations.

58



The following table details changes in various Utility Margin components relative to the comparable prior period:
 
Three Months
 
Six Months
 
(In millions)
Weather
$
16

 
$
46

Midstream storage and transportation revenues
2

 
4

Revenue decoupling mechanism
(1
)
 
(4
)
TCJA rate reduction reserve
5

 
(27
)
Other
5

 
2

Increase in Utility Margin
$
27

 
$
21

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In Bcf)
Gas Markets
 
 
 
 
 
 
 
Gas sales
21

 
16

 
83

 
69

End-user transportation
45

 
33

 
104

 
85

 
66

 
49

 
187

 
154

Intermediate transportation
62

 
68

 
134

 
150

Total Gas sales
128

 
117

 
321

 
304

Operation and maintenance expense increased $10 million and $14 million in the three and six months ended June 30, 2018, respectively. The increase in the second quarter was primarily due to increased gas operations expenses of $5 million and increased uncollectible expense of $4 million. The increase in the six-month period was primarily due to increased uncollectible expense of $9 million and increased gas operations expenses of $6 million.
Outlook — DTE Gas will continue to move forward in its efforts to achieve operational excellence, sustain strong cash flows, and earn its authorized return on equity. DTE Gas expects that planned significant infrastructure capital investments will result in earnings growth. Looking forward, additional factors may impact earnings such as weather, the outcome of regulatory proceedings, benefit plan design changes, and investment returns and changes in discount rate assumptions in benefit plans and health care costs. DTE Gas expects to continue its efforts to improve productivity and decrease costs while improving customer satisfaction with consideration of customer rate affordability.
DTE Gas filed a rate case with the MPSC on November 22, 2017 requesting an increase in base rates of $85.1 million based on a projected twelve-month period ending September 30, 2019. The requested increase in base rates is primarily due to an increase in net plant. The rate filing also requests an increase in return on equity from 10.1% to 10.5% and includes projected changes in sales, operations and maintenance expenses, and working capital. On May 24, 2018, DTE Gas reduced its initial requested increase in base rates to $38.1 million, primarily due to the effects of the TCJA on the original request. A final MPSC order in this case is expected by September 2018.
On January 19, 2018, DTE Gas filed information with the MPSC regarding the potential change in revenue requirements due to the TCJA effective January 1, 2018, and outlined its recommended method to flow the current and deferred tax benefits of those impacts to ratepayers.
On February 22, 2018, the MPSC issued an order in this case requiring utilities, including DTE Gas, to follow a 3-step approach of credits and calculations. The first step is to establish Credit A, through contested cases. Credit A is a going-forward tax credit to reflect the reduction of the corporate tax rate from 35% to 21%. DTE Gas submitted its Credit A filing on March 28, 2018, reflecting a reduction in revenues of $38.2 million. The MPSC approved the $38.2 million reduction on May 30, 2018, to be effective July 1, 2018. The second step is to establish Credit B, through contested cases. Credit B is a backward-looking tax credit to reflect the reduction of the corporate rate of 35% to 21%, for the period January 1, 2018 through the date Credit A is established. The Credit B filing is required within sixty days after Credit A is implemented. For Credit B, DTE Gas has been deferring the impact of the reduction to the corporate tax rate since January 1, 2018. The third step is to perform Calculation C, through contested cases. Calculation C will address all remaining issues relative to the new tax law, which is primarily the remeasurement of deferred taxes and how the amounts deferred as Regulatory liabilities will flow to ratepayers. DTE Gas is required to file Calculation C no later than October 1, 2018.

59



GAS STORAGE AND PIPELINES
The Gas Storage and Pipelines segment consists of the non-utility gas pipelines and storage businesses. Gas Storage and Pipelines results are discussed below:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions)
Operating Revenues — Non-utility operations
$
122

 
$
113

 
$
241

 
$
218

Cost of gas — Non-utility
9

 
9

 
13

 
15

Operation and maintenance
23

 
19

 
46

 
38

Depreciation and amortization
19

 
19

 
39

 
38

Taxes other than income
2

 
1

 
5

 
4

Asset (gains) losses and impairments, net

 
1

 
(2
)
 
1

Operating Income
69

 
64

 
140

 
122

Other (Income) and Deductions
(16
)
 
(9
)
 
(33
)
 
(23
)
Income Tax Expense
17

 
26

 
36

 
47

Net Income
68

 
47

 
137

 
98

Less: Net Income Attributable to Noncontrolling Interests
8

 
7

 
15

 
13

Net Income Attributable to DTE Energy Company
$
60

 
$
40

 
$
122

 
$
85

Operating Revenues — Non-utility operations increased $9 million and $23 million in the three and six months ended June 30, 2018, respectively. The increase in both periods was primarily due to increased pipeline and gathering volumes.
Operation and maintenance expense increased $4 million and $8 million in the three and six months ended June 30, 2018, respectively. The increase in both periods was primarily due to additional compression activity on the Bluestone Pipeline and Susquehanna gathering systems and increased labor related expenses.
Other (Income) and Deductions increased $7 million and $10 million in the three and six months ended June 30, 2018, respectively. The increase in both periods was primarily due to increased earnings from pipeline investments.
Outlook — The Bluestone Pipeline and Susquehanna gathering system are being expanded with additional compression facilities and gathering lines as needed to accommodate shipper demand. DTE Energy believes its long-term agreement with Southwestern Energy Production Company and the quality of the natural gas reserves in the Marcellus region soundly positions Bluestone Pipeline and Susquehanna gathering system for future growth.
Progress continues on development activities on the NEXUS Pipeline, a transportation path to transport Appalachian Basin shale gas, including Utica and Marcellus shale gas, directly to consuming markets in northern Ohio, southeastern Michigan, and Dawn Ontario. DTE Energy owns a 50% partnership interest in the NEXUS Pipeline, with an investment balance of $868 million at June 30, 2018. The FERC application was approved on August 25, 2017 and construction commenced in October 2017. DTE Energy anticipates a third quarter 2018 in-service date for the NEXUS Pipeline.
AGS and SGG provide a platform for midstream growth and access to further investment opportunities in the Appalachian basin, an additional connection to the NEXUS Pipeline which should drive incremental volumes on the NEXUS Pipeline, and producer relationships that may lead to more partnering opportunities.
Gas Storage and Pipelines expects to maintain its steady growth by developing an asset portfolio with multiple growth platforms through investment in new projects and expansions. Gas Storage and Pipelines will continue to look for additional investment opportunities and other storage and pipeline projects at favorable prices.

60



POWER AND INDUSTRIAL PROJECTS
The Power and Industrial Projects segment is comprised primarily of projects that deliver energy and utility-type products and services to industrial, commercial, and institutional customers, produce reduced emissions fuel, and sell electricity and pipeline-quality gas from renewable energy projects. Power and Industrial Projects results are discussed below:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions)
Operating Revenues — Non-utility operations
$
538

 
$
507

 
$
1,105

 
$
1,055

Fuel, purchased power, and gas — non-utility
464

 
442

 
962

 
928

Non-utility Margin
74

 
65

 
143

 
127

Operation and maintenance
90

 
85

 
172

 
167

Depreciation and amortization
17

 
19

 
33

 
37

Taxes other than income
3

 
2

 
7

 
6

Asset (gains) losses and impairments, net

 
2

 

 
2

Operating Loss
(36
)
 
(43
)
 
(69
)
 
(85
)
Other (Income) and Deductions
(23
)
 
(22
)
 
(41
)
 
(38
)
Income Taxes
 
 
 
 
 
 
 
Benefit
(2
)
 
(4
)
 
(2
)
 
(10
)
Production Tax Credits
(48
)
 
(38
)
 
(91
)
 
(76
)
 
(50
)
 
(42
)
 
(93
)
 
(86
)
Net Income
37

 
21

 
65

 
39

Less: Net Loss Attributable to Noncontrolling Interests
(6
)
 
(9
)
 
(23
)
 
(21
)
Net Income Attributable to DTE Energy Company
$
43

 
$
30

 
$
88

 
$
60

Operating Revenues — Non-utility operations increased $31 million and $50 million in the three and six months ended June 30, 2018, respectively. The increase was due to the following:
 
Three Months
 
Six Months
 
(In millions)
Higher demand due to improved conditions in the steel business
$
10

 
$
37

Higher production in the renewables business
11

 
17

Higher production offset by lower coal prices in the REF business
6

 

Lower coal prices offset by higher production in the REF business

 
(3
)
Other
4

 
(1
)
 
$
31

 
$
50

Non-utility Margin increased $9 million and $16 million in the three and six months ended June 30, 2018, respectively. The increase was due to the following:
 
Three Months
 
Six Months
 
(In millions)
New projects and higher production in the renewables business
$
10

 
$
15

Other
(1
)
 
1

 
$
9

 
$
16

Operation and maintenance expense increased $5 million in the three and six months ended June 30, 2018. The increase in the second quarter and six-month period was primarily due to higher production in the REF business.
Income Taxes — Production Tax Credits increased $10 million and $15 million in the three and six months ended June 30, 2018, respectively. The increase in the second quarter and six-month period was primarily due to higher production in the REF business.

61



Outlook — Power and Industrial Projects has constructed and placed in service REF facilities at ten sites including facilities located at seven third-party owned coal-fired power plants. DTE Energy has sold membership interests in four of the facilities and entered into lease arrangements in two of the facilities. DTE Energy is currently negotiating two additional lease transactions at existing facilities and will continue to optimize the remaining facilities.
Power and Industrial Projects will continue to leverage its extensive energy-related operating experience and project management capability to develop additional energy projects to serve energy intensive industrial customers.
ENERGY TRADING
Energy Trading focuses on physical and financial power and natural gas marketing and trading, structured transactions, enhancement of returns from its asset portfolio, and optimization of contracted natural gas pipeline transportation and storage positions. Energy Trading also provides natural gas, power, and related services, which may include the management of associated storage and transportation contracts on the customers' behalf, and the supply or purchase of renewable energy credits to various customers. Energy Trading results are discussed below:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions)
Operating Revenues — Non-utility operations
$
1,164

 
$
991

 
$
2,662

 
$
2,043

Purchased power and gas — non-utility
1,149

 
972

 
2,585

 
1,845

Non-utility Margin
15

 
19

 
77

 
198

Operation and maintenance
17

 
16

 
34

 
35

Depreciation and amortization
2

 
1

 
3

 
2

Taxes other than income
1

 
2

 
3

 
3

Operating Income (Loss)
(5
)
 

 
37

 
158

Other (Income) and Deductions
1

 

 
2

 
1

Income Tax Expense (Benefit)
(1
)
 

 
9

 
61

Net Income (Loss) Attributable to DTE Energy Company
$
(5
)
 
$

 
$
26

 
$
96

Operating Revenues — Non-utility operations increased $173 million and $619 million in the three and six months ended June 30, 2018, respectively. The increase in the second quarter was primarily due to higher volumes offset by lower gas prices in the gas structured strategy. The increase in the six-month period was primarily due to higher volumes and higher gas prices in the gas structured strategy.
Non-utility Margin decreased $4 million and $121 million in the three and six months ended June 30, 2018, respectively. The decreases were due to the unrealized and realized margins presented in the following table:
 
Three Months
 
(In millions)
Unrealized Margins(a)
 
Favorable results, primarily in power full requirements and gas trading strategies
$
9

Unfavorable results, primarily in the gas structured strategy(b)
(31
)
 
(22
)
Realized Margins(a)
 
Favorable results, primarily in gas structured and power trading strategies(c)
26

Unfavorable results, primarily in the environmental trading strategy
(8
)
 
18

Decrease in Non-utility Margin
$
(4
)
_______________________________________
(a)
Natural gas structured transactions typically involve a physical purchase or sale of natural gas in the future and/or natural gas basis financial instruments which are derivatives and a related non-derivative pipeline transportation contract. These gas structured transactions can result in significant earnings volatility as the derivative components are marked-to-market without revaluing the related non-derivative contracts.
(b)
Amount includes $28 million of timing related losses related to gas strategies which will reverse in future periods as the underlying contracts settle.
(c)
Amount includes $15 million of timing related losses related to gas strategies recognized in previous periods that reversed as the underlying contracts settled.

62



 
Six Months
 
(In millions)
Unrealized Margins(a)
 
Favorable results, primarily in the gas trading strategy
$
9

Unfavorable results, primarily in gas structured and gas storage strategies(b)
(106
)
 
(97
)
Realized Margins(a)
 
Favorable results, primarily in the gas storage strategy(c)
38

Unfavorable results, primarily in power and gas full requirements, gas trading, and gas structured strategies
(62
)
 
(24
)
Decrease in Non-utility Margin
$
(121
)
_______________________________________
(a)
Natural gas structured transactions typically involve a physical purchase or sale of natural gas in the future and/or natural gas basis financial instruments which are derivatives and a related non-derivative pipeline transportation contract. These gas structured transactions can result in significant earnings volatility as the derivative components are marked-to-market without revaluing the related non-derivative contracts.
(b)
Amount includes $106 million of timing related losses related to gas strategies which will reverse in future periods as the underlying contracts settle.
(c)
Amount includes $7 million of timing related losses related to gas strategies recognized in previous periods that reversed as the underlying contracts settled.
Outlook — In the near-term, Energy Trading expects market conditions to remain challenging, and the profitability of this segment may be impacted by the volatility in commodity prices and the uncertainty of impacts associated with financial reform, regulatory changes, and changes in operating rules of Regional Transmission Organizations. Significant portions of the Energy Trading portfolio are economically hedged. Most financial instruments and physical power and natural gas contracts are deemed derivatives, whereas natural gas inventory, pipeline transportation, renewable energy credits, and storage assets are not derivatives. As a result, Energy Trading will experience earnings volatility as derivatives are marked-to-market without revaluing the underlying non-derivative contracts and assets. Energy Trading's strategy is to economically manage the price risk of these underlying non-derivative contracts and assets with futures, forwards, swaps, and options. This results in gains and losses that are recognized in different interim and annual accounting periods.
See also the "Fair Value" section herein and Notes 7 and 8 to the Consolidated Financial Statements, "Fair Value" and "Financial and Other Derivative Instruments," respectively.
CORPORATE AND OTHER
Corporate and Other includes various holding company activities, holds certain non-utility debt, and holds energy-related investments. The net losses of $41 million and $62 million in the three and six months ended June 30, 2018, respectively, represent increases of $9 million and $46 million from the net losses of $32 million and $16 million in the comparable 2017 period. The increase in the second quarter was primarily due to a reduction in the corporate tax rate from the TCJA in December 2017 and higher interest expense. For the six-month period, the increase was primarily due to effective tax rate adjustments, a reduction in the corporate tax rate from the TCJA in December 2017, lower excess tax benefits on stock-based compensation, and higher interest expense.

CAPITAL RESOURCES AND LIQUIDITY
Cash Requirements
DTE Energy uses cash to maintain and invest in the electric and natural gas utilities, to grow the non-utility businesses, to retire, and pay interest on long-term debt, and to pay dividends. DTE Energy believes it will have sufficient internal and external capital resources to fund anticipated capital and operating requirements. DTE Energy expects that cash from operations in 2018 will be approximately $2.2 billion. DTE Energy anticipates base level utility capital investments, including environmental, renewable, and energy waste reduction expenditures; expenditures for non-utility businesses; and contributions to equity method investees in 2018 of approximately $3.6 billion. DTE Energy plans to seek regulatory approval to include utility capital expenditures in regulatory rate base consistent with prior treatment. Capital spending for growth of existing or new non-utility businesses will depend on the existence of opportunities that meet strict risk-return and value creation criteria.

63



 
Six Months Ended June 30,
 
2018
 
2017
 
(In millions)
Cash, Cash Equivalents, and Restricted Cash
 
 
 
Cash Flow From (Used For)
 
 
 
Operating Activities
 
 
 
Net Income
$
587

 
$
569

Adjustments to reconcile Net Income to Net cash from operating activities:
 
 
 
Depreciation and amortization
553

 
498

Nuclear fuel amortization
25

 
24

Allowance for equity funds used during construction
(13
)
 
(12
)
Deferred income taxes
80

 
164

Asset (gains) losses and impairments, net

 
3

Working capital and other
201

 
(63
)
Net cash from operating activities
1,433

 
1,183

Investing Activities
 
 
 
Plant and equipment expenditures — utility
(1,027
)
 
(968
)
Plant and equipment expenditures — non-utility
(130
)
 
(68
)
Contributions to equity method investees
(233
)
 
(175
)
Other
10

 
(37
)
Net cash used for investing activities
(1,380
)
 
(1,248
)
Financing Activities
 
 
 
Issuance of long-term debt, net of issuance costs
520

 
495

Redemption of long-term debt
(102
)
 
(6
)
Short-term borrowings, net
(147
)
 
(79
)
Issuance of common stock
6

 

Repurchase of common stock

 
(51
)
Dividends on common stock
(309
)
 
(296
)
REF contributions from noncontrolling interests
22

 
21

Distributions to noncontrolling interests
(17
)
 
(20
)
Other
(29
)
 
(28
)
Net cash from (used for) financing activities
(56
)
 
36

Net Decrease in Cash, Cash Equivalents, and Restricted Cash
$
(3
)
 
$
(29
)
Cash from Operating Activities
A majority of DTE Energy's operating cash flows are provided by the electric and natural gas utilities, which are significantly influenced by factors such as weather, electric retail access, regulatory deferrals, regulatory outcomes, economic conditions, changes in working capital, and operating costs.
Cash from operations increased by $250 million in 2018 due primarily to an increase in Net Income, Depreciation and amortization, and working capital adjustments, partially offset by a decrease to Deferred income taxes.
The change in working capital items in 2018 is primarily related to increases of cash from Inventories, and Other current and noncurrent assets and liabilities, and a decrease in cash used for Derivative assets and liabilities, partially offset by increases in cash used for Accounts payable, Accrued pension obligation, and Accrued postretirement obligation, and a decrease in cash from Accounts receivable, net.
Cash used for Investing Activities
Cash inflows associated with investing activities are primarily generated from the sale of assets, while cash outflows are the result of plant and equipment expenditures. In any given year, DTE Energy looks to realize cash from under-performing or non-strategic assets or matured, fully valued assets.

64



Capital spending within the utility businesses is primarily to maintain and improve electric generation and the electric and natural gas distribution infrastructure, and to comply with environmental regulations and renewable energy requirements.
Capital spending within the non-utility businesses is primarily for ongoing maintenance, expansion, and growth. DTE Energy looks to make growth investments that meet strict criteria in terms of strategy, management skills, risks, and returns. All new investments are analyzed for their rates of return and cash payback on a risk adjusted basis. DTE Energy has been disciplined in how it deploys capital and will not make investments unless they meet the criteria. For new business lines, DTE Energy initially invests based on research and analysis. DTE Energy starts with a limited investment, evaluates the results, and either expands or exits the business based on those results. In any given year, the amount of growth capital will be determined by the underlying cash flows of DTE Energy, with a clear understanding of any potential impact on its credit ratings.
Net cash used for investing activities increased by $132 million in 2018 due primarily to an increase in capital expenditures, and Contributions to equity method investees, primarily to the NEXUS pipeline, partially offset by a decrease in Investing Activities - Other, primarily the result of two 2017 acquisitions of landfill gas facilities, which are presented in Investing Activities - Other.
Cash from (used for) Financing Activities
DTE Energy relies on both short-term borrowing and long-term financing as a source of funding for capital requirements not satisfied by its operations.
DTE Energy's strategy is to have a targeted debt portfolio blend of fixed and variable interest rates and maturity. DTE Energy continually evaluates its leverage target, which is currently 50% to 54%, to ensure it is consistent with the objective of a strong investment grade debt rating.
Net cash used for financing activities increased by $92 million in 2018 due primarily to an increase in Redemptions of long-term debt and Short-term borrowings, partially offset by an increase in Issuances of long-term term, and a decrease in Repurchases of common stock.
Outlook
DTE Energy expects cash flows from operations to increase over the long-term, primarily as a result of growth from the utility and non-utility businesses. Growth in the utilities is expected to be driven primarily by capital spending to maintain and improve the electric generation and electric and natural gas distribution infrastructure and to comply with new and existing state and federal regulations that will result in additional environmental and renewable energy investments which will increase the base from which rates are determined. Non-utility growth is expected from additional investments, primarily in the Gas Storage and Pipelines and Power and Industrial Projects segments.
DTE Energy may be impacted by the timing of collection or refund of various recovery and tracking mechanisms, as a result of timing of MPSC orders. Energy prices are likely to be a source of volatility with regard to working capital requirements for the foreseeable future. DTE Energy continues its efforts to identify opportunities to improve cash flows through working capital initiatives and maintaining flexibility in the timing and extent of long-term capital projects.
DTE Energy has approximately $5 million in long-term debt, including capital leases, maturing in the next twelve months. The repayment of the debt is expected to be paid through internally generated funds or the issuance of long-term debt.
DTE Energy has approximately $1.6 billion of available liquidity at June 30, 2018, consisting of cash and amounts available under unsecured revolving credit agreements.
DTE Energy expects to issue equity up to $300 million in 2018 through the dividend reinvestment plan and pension and other employee benefit plans.
At the discretion of management, and depending upon financial market conditions, DTE Energy may make additional contributions up to $25 million to its pension plans in 2018. DTE Energy does not anticipate making any contributions to the other postretirement benefit plans in 2018.

65



Various subsidiaries and equity investees of DTE Energy have entered into contracts which contain ratings triggers and are guaranteed by DTE Energy. These contracts contain provisions which allow the counterparties to require that DTE Energy post cash or letters of credit as collateral in the event that DTE Energy's credit rating is downgraded below investment grade. Certain of these provisions (known as "hard triggers") state specific circumstances under which DTE Energy can be required to post collateral upon the occurrence of a credit downgrade, while other provisions (known as "soft triggers") are not as specific. For contracts with soft triggers, it is difficult to estimate the amount of collateral which may be requested by counterparties and/or which DTE Energy may ultimately be required to post. The amount of such collateral which could be requested fluctuates based on commodity prices (primarily natural gas, power, and coal) and the provisions and maturities of the underlying transactions. As of June 30, 2018, DTE Energy's contractual obligation to post collateral in the form of cash or letters of credit in the event of a downgrade to below investment grade, under both hard trigger and soft trigger provisions, was $508 million.
DTE Energy believes it will have sufficient operating flexibility, cash resources, and funding sources to maintain adequate amounts of liquidity and to meet future operating cash and capital expenditure needs. However, virtually all of DTE Energy's businesses are capital intensive, or require access to capital, and the inability to access adequate capital could adversely impact earnings and cash flows.
See Notes 5, 9, 10, 11, and 12 to the Consolidated Financial Statements, "Regulatory Matters," "Long-Term Debt," "Short-Term Credit Arrangements and Borrowings," "Commitments and Contingencies," and "Retirement Benefits and Trusteed Assets," respectively.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 3 to the Consolidated Financial Statements, "New Accounting Pronouncements."
FAIR VALUE
Derivatives are generally recorded at fair value and shown as Derivative assets or liabilities. Contracts DTE Energy typically classifies as derivative instruments include power, natural gas, oil, and certain coal forwards, futures, options and swaps, and foreign currency exchange contracts. Items DTE Energy does not generally account for as derivatives include natural gas inventory, pipeline transportation contracts, renewable energy credits, and storage assets. See Notes 7 and 8 to the Consolidated Financial Statements, "Fair Value" and "Financial and Other Derivative Instruments," respectively.
The tables below do not include the expected earnings impact of non-derivative natural gas storage, transportation, certain power contracts, and renewable energy credits which are subject to accrual accounting. Consequently, gains and losses from these positions may not match with the related physical and financial hedging instruments in some reporting periods, resulting in volatility in the Registrants' reported period-by-period earnings; however, the financial impact of the timing differences will reverse at the time of physical delivery and/or settlement.
The Registrants manage their MTM risk on a portfolio basis based upon the delivery period of their contracts and the individual components of the risks within each contract. Accordingly, the Registrants record and manage the energy purchase and sale obligations under their contracts in separate components based on the commodity (e.g. electricity or natural gas), the product (e.g. electricity for delivery during peak or off-peak hours), the delivery location (e.g. by region), the risk profile (e.g. forward or option), and the delivery period (e.g. by month and year).
The Registrants have established a fair value hierarchy 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). For further discussion of the fair value hierarchy, see Note 7 to the Consolidated Financial Statements, "Fair Value."

66



The following table provides details on changes in DTE Energy's MTM net asset (or liability) position:
 
DTE Energy
 
(In millions)
MTM at December 31, 2017
$
8

Reclassified to realized upon settlement
81

Changes in fair value recorded to income
(74
)
Amounts recorded to unrealized income
7

Changes in fair value recorded in regulatory liabilities
15

Change in collateral
(14
)
MTM at June 30, 2018
$
16

The table below shows the maturity of DTE Energy's MTM positions. The positions from 2021 and beyond principally represent longer tenor gas structured transactions:
Source of Fair Value
 
2018
 
2019
 
2020
 
2021 and Beyond
 
Total Fair Value
 
 
(In millions)
Level 1
 
$
2

 
$
(1
)
 
$
(2
)
 
$
(2
)
 
$
(3
)
Level 2
 
18

 
10

 
5

 
9

 
42

Level 3
 
(7
)
 
15

 
6

 
(37
)
 
(23
)
MTM before collateral adjustments
 
$
13

 
$
24

 
$
9

 
$
(30
)
 
16

Collateral adjustments
 
 
 
 
 
 
 
 
 

MTM at June 30, 2018
 
 
 
 
 
 
 
 
 
$
16


67



Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Price Risk
The Electric and Gas businesses have commodity price risk, primarily related to the purchases of coal, natural gas, uranium, and electricity. However, the Registrants do not bear significant exposure to earnings risk, as such changes are included in the PSCR and GCR regulatory rate-recovery mechanisms. In addition, changes in the price of natural gas can impact the valuation of lost and stolen gas, storage sales, and transportation services revenue at the Gas segment. The Gas segment manages its market price risk related to storage sales revenue primarily through the sale of long-term storage contracts. The Registrants are exposed to short-term cash flow or liquidity risk as a result of the time differential between actual cash settlements and regulatory rate recovery.
DTE Energy's Gas Storage and Pipelines segment has exposure to natural gas price fluctuations which impact the pricing for natural gas storage, gathering, and transportation. DTE Energy manages its exposure through the use of short, medium, and long-term storage, gathering, and transportation contracts.
DTE Energy's Power and Industrial Projects business segment is subject to electricity, natural gas, and coal product price risk. DTE Energy manages its exposure to commodity price risk through the use of long-term contracts.
DTE Energy's Energy Trading business segment has exposure to electricity, natural gas, coal, crude oil, heating oil, and foreign currency exchange price fluctuations. These risks are managed by the energy marketing and trading operations through the use of forward energy, capacity, storage, options, and futures contracts, within pre-determined risk parameters.
Credit Risk
The Registrants regularly review contingent matters relating to customers and their contracts and record provisions for amounts considered at risk of probable loss in the allowance for doubtful accounts. The Registrants believe their accrued amounts are adequate for probable loss.

68



Trading Activities
DTE Energy is exposed to credit risk through trading activities. Credit risk is the potential loss that may result if the trading counterparties fail to meet their contractual obligations. DTE Energy utilizes both external and internal credit assessments when determining the credit quality of trading counterparties.
The following table displays the credit quality of DTE Energy's trading counterparties as of June 30, 2018:
 
Credit Exposure
Before Cash
Collateral
 
Cash
Collateral
 
Net Credit
Exposure
 
(In millions)
Investment Grade(a)
 
 
 
 
 
A− and Greater
$
285

 
$

 
$
285

BBB+ and BBB
237

 

 
237

BBB−
75

 

 
75

Total Investment Grade
597

 

 
597

Non-investment grade(b)
27

 

 
27

Internally Rated — investment grade(c)
234

 

 
234

Internally Rated — non-investment grade(d)
23

 
(4
)
 
19

Total
$
881

 
$
(4
)
 
$
877

_______________________________________
(a)
This category includes counterparties with minimum credit ratings of Baa3 assigned by Moody’s Investors Service (Moody’s) or BBB- assigned by Standard & Poor’s Rating Group, a division of McGraw-Hill Companies, Inc. (Standard & Poor’s). The five largest counterparty exposures, combined, for this category represented 18% of the total gross credit exposure.
(b)
This category includes counterparties with credit ratings that are below investment grade. The five largest counterparty exposures, combined, for this category represented 3% of the total gross credit exposure.
(c)
This category includes counterparties that have not been rated by Moody’s or Standard & Poor’s, but are considered investment grade based on DTE Energy’s evaluation of the counterparty’s creditworthiness. The five largest counterparty exposures, combined, for this category represented 12% of the total gross credit exposure.
(d)
This category includes counterparties that have not been rated by Moody’s or Standard & Poor’s, and are considered non-investment grade based on DTE Energy’s evaluation of the counterparty’s creditworthiness. The five largest counterparty exposures, combined, for this category represented 2% of the total gross credit exposure.
Other
The Registrants engage in business with customers that are non-investment grade. The Registrants closely monitor the credit ratings of these customers and, when deemed necessary and permitted under the tariffs, request collateral or guarantees from such customers to secure their obligations.
Interest Rate Risk
DTE Energy is subject to interest rate risk in connection with the issuance of debt. In order to manage interest costs, DTE Energy may use treasury locks and interest rate swap agreements. DTE Energy's exposure to interest rate risk arises primarily from changes in U.S. Treasury rates, commercial paper rates, and London Inter-Bank Offered Rates (LIBOR). As of June 30, 2018, DTE Energy had a floating rate debt-to-total debt ratio of 3.6%.
Foreign Currency Exchange Risk
DTE Energy has foreign currency exchange risk arising from market price fluctuations associated with fixed priced contracts. These contracts are denominated in Canadian dollars and are primarily for the purchase and sale of natural gas and power, as well as for long-term transportation capacity. To limit DTE Energy's exposure to foreign currency exchange fluctuations, DTE Energy has entered into a series of foreign currency exchange forward contracts through June 2022.

69



Summary of Sensitivity Analyses
Sensitivity analyses were performed on the fair values of commodity contracts for DTE Energy and long-term debt obligations for the Registrants. The commodity contracts listed below principally relate to energy marketing and trading activities. The sensitivity analyses involved increasing and decreasing forward prices and rates at June 30, 2018 and 2017 by a hypothetical 10% and calculating the resulting change in the fair values.
The results of the sensitivity analyses:
 
 
Assuming a
10% Increase in Prices/Rates
 
Assuming a
10% Decrease in Prices/Rates
 
 
 
 
As of June 30,
 
As of June 30,
 
 
Activity
 
2018
 
2017
 
2018
 
2017
 
Change in the Fair Value of
 
 
(In millions)
 
 
Gas contracts
 
$
5

 
$
15

 
$
(5
)
 
$
(15
)
 
Commodity contracts
Power contracts
 
$
3

 
$
11

 
$
(7
)
 
$
(11
)
 
Commodity contracts
Interest rate risk — DTE Energy
 
$
(633
)
 
$
(529
)
 
$
608

 
$
521

 
Long-term debt
Interest rate risk — DTE Electric
 
$
(283
)
 
$
(226
)
 
$
306

 
$
242

 
Long-term debt
For further discussion of market risk, see Note 8 to the Consolidated Financial Statements, "Financial and Other Derivative Instruments."


70



Item 4. Controls and Procedures
DTE Energy
(a) Evaluation of disclosure controls and procedures
Management of DTE Energy carried out an evaluation, under the supervision and with the participation of DTE Energy's Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of DTE Energy's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2018, which is the end of the period covered by this report. Based on this evaluation, DTE Energy's CEO and CFO have concluded that such disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by DTE Energy in reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms and (ii) is accumulated and communicated to DTE Energy's management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Due to the inherent limitations in the effectiveness of any disclosure controls and procedures, management cannot provide absolute assurance that the objectives of its disclosure controls and procedures will be attained.
(b) Changes in internal control over financial reporting
There have been no changes in DTE Energy's internal control over financial reporting during the quarter ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, DTE Energy's internal control over financial reporting.
DTE Electric
(a) Evaluation of disclosure controls and procedures
Management of DTE Electric carried out an evaluation, under the supervision and with the participation of DTE Electric's Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of DTE Electric's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2018, which is the end of the period covered by this report. Based on this evaluation, DTE Electric's CEO and CFO have concluded that such disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by DTE Electric in reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms and (ii) is accumulated and communicated to DTE Electric's management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Due to the inherent limitations in the effectiveness of any disclosure controls and procedures, management cannot provide absolute assurance that the objectives of its disclosure controls and procedures will be attained.
(b) Changes in internal control over financial reporting
There have been no changes in DTE Electric's internal control over financial reporting during the quarter ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, DTE Electric's internal control over financial reporting.


71



Part II — Other Information
Item 1. Legal Proceedings
An FOV was issued by the EPA to DTE Electric in 2017 alleging violations related to exceedances of mercury emission limits for the Monroe Power Plant. DTE Electric is currently working with the EPA to address the alleged violations through a consent agreement. At this time, DTE Electric cannot predict the impact of the final settlement.
In March 2018, the Trenton Channel Power Plant experienced exceedances of its mercury emission limits. The exceedances were reported to the EPA and the MDEQ. DTE Electric is currently working with the EPA to address the exceedances. At this time, DTE Electric cannot predict the impact of the exceedances.
For more information on legal proceedings and matters related to the Registrants, see Notes 5 and 11 to the Consolidated Financial Statements, "Regulatory Matters" and "Commitments and Contingencies," respectively.

Item 1A. Risk Factors
There are various risks associated with the operations of the Registrants' businesses. To provide a framework to understand the operating environment of the Registrants, a brief explanation of the more significant risks associated with the Registrants' businesses is provided in Part 1, Item 1A. Risk Factors in DTE Energy's and DTE Electric's combined 2017 Annual Report on Form 10-K. Although the Registrants have tried to identify and discuss key risk factors, others could emerge in the future.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of DTE Energy Equity Securities by the Issuer and Affiliated Purchasers
The following table provides information about DTE Energy purchases of equity securities that are registered by DTE Energy pursuant to Section 12 of the Exchange Act of 1934 for the quarter ended June 30, 2018:
 
Number of
Shares
Purchased(a)
 
Average
Price
Paid per
Share(a)
 
Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
 
Average
Price Paid
per Share
 
Maximum Dollar
Value that May
Yet Be
Purchased Under
the Plans or
Programs
04/01/2018 — 04/30/2018
8,026

 
$
104.75

 

 

 

05/01/2018 — 05/31/2018
1,490

 
$
100.92

 

 

 

06/01/2018 — 06/30/2018
2,600

 
$
96.30

 

 

 

Total
12,116

 
 
 

 
 
 
 
_______________________________________
(a)
Represents shares of common stock withheld to satisfy income tax obligations upon the vesting of restricted stock based on the price in effect at the grant date.


72



Item 6. Exhibits
Exhibit Number
 
Description
 
DTE
Energy
 
DTE
Electric
 
 
 
 
 
 
 
 
 
(i) Exhibits filed herewith:
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental Indenture dated as of May 1, 2018, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between DTE Electric Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (2018 Series A)
 
X
 
X
 
 
 
 
 
 
 
 
Computation of Ratio of Earnings to Fixed Charges
 
X
 
 
 
 
 
 
 
 
 
 
Computation of Ratio of Earnings to Fixed Charges
 
 
 
X
 
 
 
 
 
 
 
 
Chief Executive Officer Section 302 Form 10-Q Certification of Periodic Report
 
X
 
 
 
 
 
 
 
 
 
 
Chief Financial Officer Section 302 Form 10-Q Certification of Periodic Report
 
X
 
 
 
 
 
 
 
 
 
 
Chief Executive Officer Section 302 Form 10-Q Certification of Periodic Report
 
 
 
X
 
 
 
 
 
 
 
 
Chief Financial Officer Section 302 Form 10-Q Certification of Periodic Report
 
 
 
X
 
 
 
 
 
 
 
101.INS
 
XBRL Instance Document
 
X
 
X
 
 
 
 
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema
 
X
 
X
 
 
 
 
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
 
X
 
X
 
 
 
 
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Database
 
X
 
X
 
 
 
 
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase
 
X
 
X
 
 
 
 
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase
 
X
 
X
 
 
 
 
 
 
 
 
 
(ii) Exhibits furnished herewith:
 
 
 
 
 
 
 
 
 
 
 
 
Chief Executive Officer Section 906 Form 10-Q Certification of Periodic Report
 
X
 
 
 
 
 
 
 
 
 
 
Chief Financial Officer Section 906 Form 10-Q Certification of Periodic Report
 
X
 
 
 
 
 
 
 
 
 
 
Chief Executive Officer Section 906 Form 10-Q Certification of Periodic Report
 
 
 
X
 
 
 
 
 
 
 
 
Chief Financial Officer Section 906 Form 10-Q Certification of Periodic Report
 
 
 
X
 
 
 
 
 
 
 
 
 
(iii) Exhibits incorporated by reference:
 
 
 
 
 
 
 
 
 
 
 
 
DTE Energy Company Long-Term Incentive Plan Amended and Restated Effective May 3, 2018 (Exhibit 4.3 to DTE Energy's Form S-8 filed on June 27, 2018)
 
X
 
 

73



Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized. The signature for each undersigned Registrant shall be deemed to relate only to matters having reference to such Registrant and any subsidiaries thereof.
Date:
July 25, 2018
 
 
 
 
 
DTE ENERGY COMPANY
 
 
 
 
 
 
By:
/S/ JEFFREY A. JEWELL
 
 
 
Jeffrey A. Jewell
Vice President, Controller, and Chief Accounting Officer
 
 
 
(Duly Authorized Officer)
 
 
 
 
 
 
 
 
 
 
 
DTE ELECTRIC COMPANY
 
 
 
 
 
 
By:
/S/ JEFFREY A. JEWELL
 
 
 
Jeffrey A. Jewell
Vice President, Controller, and Chief Accounting Officer
 
 
 
(Duly Authorized Officer)

74