UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended September 30, 2016March 31, 2017
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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 |
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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, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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DTE Energy | Large accelerated filer x | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
| | | (Do not check if a smaller reporting company) | Emerging growth company o |
DTE Electric | Large accelerated filer o | Accelerated filer o | Non-accelerated filer x | Smaller reporting company o |
| | | (Do not check if a smaller reporting company) | Emerging growth company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
DTE Energy Yes o No x DTE Electric Yes o No x
Number of shares of Common Stock outstanding at September 30, 2016:March 31, 2017:
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| | | | | |
Registrant | | Description | | Shares |
DTE Energy | | Common Stock, without par value | | 179,434,907179,387,424 |
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DTE Electric | | Common Stock, $10 par value, directly owned by DTE Energy | | 138,632,324 |
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This combined Form 10-Q is filed separately by two registrants: DTE Energy and DTE Electric. Information contained herein relating to an individual registrant is filed by such registrant solely on its behalf. DTE Electric makes no representation as to information relating exclusively to DTE Energy.
DTE Electric, a wholly-owned subsidiary of DTE Energy, meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format specified in General Instructions H(2) of Form 10-Q.
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ACHDAFUDC | Allegheny County, PA Health DepartmentAllowance for Funds Used During Construction |
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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 non-utility Gas Storage and Pipelines business.segment. |
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ASU | Accounting Standards Update issued by the FASB |
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CCR | Coal Combustion Residuals |
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CFTC | U.S. Commodity Futures Trading Commission |
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DTE Electric | DTE Electric Company (a direct wholly-owned subsidiary of DTE Energy) and subsidiary companies |
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DTE Energy | DTE Energy Company, directly or indirectly the parent of DTE Electric, DTE Gas, and numerous non-utility subsidiaries |
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DTE Gas | DTE Gas Company (an indirect wholly-owned subsidiary of DTE Energy) and subsidiary companies |
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EGU | Electric Generating Unit |
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ELG | Effluent Limitations Guidelines |
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EPA | U.S. Environmental Protection Agency |
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FASB | Financial Accounting Standards Board |
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FERC | Federal Energy Regulatory Commission |
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FOV | Finding of Violation |
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FTRs | Financial Transmission Rights are financial instruments that entitle the holder to receive payments related to costs incurred for congestion on the transmission grid. |
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GCR | A Gas Cost Recovery mechanism authorized by the MPSC that allows DTE Gas to recover through rates its natural gas costs. |
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GHGs | Greenhouse gases |
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IRM | Infrastructure Recovery Mechanism |
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MDEQ | Michigan Department of Environmental Quality |
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MPSC | Michigan Public Service Commission |
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MTM | Mark-to-market |
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NAV | Net Asset Value |
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NEXUS | NEXUS Gas Transmission, LLC |
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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. |
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NOV | Notice of Violation |
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NRCNOX | U.S. Nuclear Regulatory CommissionNitrogen Oxides |
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PADEPNRC | Pennsylvania Department of Environmental Protection |
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PLD | City of Detroit's Public Lighting DepartmentU.S. Nuclear Regulatory Commission |
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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. |
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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. |
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REF | Reduced Emissions Fuel |
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Registrants | DTE Energy and DTE Electric |
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Retail access | Michigan legislation provided customers the option of access to alternative suppliers for electricity and natural gas. |
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RSN | Remarketable Senior Notes |
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Securitization | DTE Electric financed specific stranded costs at lower interest rates through the sale of rate reduction bonds by a wholly-owned special purpose entity, The Detroit Edison Securitization Funding LLC. |
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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 non-utility Gas Storage and Pipelines business. |
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Shenango | Shenango Incorporated is a coke battery plant located in Pittsburgh, PA, that was closed in January 2016 and is included in the Power and Industrial Projects segment. |
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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 PLDCity of Detroit's Public Lighting Department customers to DTE Electric's distribution system. |
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SO2 | Sulfur Dioxide |
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VIE | Variable Interest Entity |
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Units of Measurement | |
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Bcf | Billion cubic feet of natural gas |
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BTU | Heat value (energy content) of fuel |
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MMBtu | One million BTU |
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MWh | Megawatthour of electricity |
This combined Form 10-Q is separately filed by DTE Energy and DTE Electric. Information in this combined Form 10-Q relating to each individual Registrant is filed by such Registrant on its own behalf. DTE Electric makes no representation regarding information relating to any other companies affiliated with DTE Energy other than its own subsidiaries. Neither DTE Energy, nor any of DTE Energy’s other subsidiaries (other than DTE Electric), has any obligation in respect of DTE Electric's debt securities, and holders of such debt securities should not consider the financial resources or results of operations of DTE Energy nor any of DTE Energy’s other subsidiaries (other than DTE Electric and its own subsidiaries (in relevant circumstances)) in making a decision with respect to DTE Electric's debt securities. Similarly, none of DTE Electric nor any other subsidiary of DTE Energy has any obligation in respect of debt securities of DTE Energy. This combined Form 10-Q should be read in its entirety. No one section of this combined Form 10-Q deals with all aspects of the subject matter of this combined Form 10-Q. This combined Form 10-Q report 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 20152016 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,” “projected,” “aspiration,” 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;
health, safety, financial, environmental, and regulatory risks associated with ownership and operation of nuclear facilities;
changes in the cost and availability of coal and other raw materials, purchased power, and natural gas;
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 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;
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;
the cost of protecting assets against, or damage due to, terrorism or cyber attacks;crime and terrorism;
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;
implementation of new information systems; 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.
Part I — Financial Information
Item 1. Financial Statements
DTE Energy Company
Consolidated Statements of Operations (Unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 |
| (In millions, except per share amounts) | (In millions, except per share amounts) |
Operating Revenues | | | | | | | | | | |
Utility operations | $ | 1,748 |
| | $ | 1,528 |
| | $ | 4,847 |
| | $ | 4,726 |
| $ | 1,718 |
| | $ | 1,664 |
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Non-utility operations | 1,180 |
| | 1,070 |
| | 2,909 |
| | 3,124 |
| 1,518 |
| | 902 |
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| 2,928 |
| | 2,598 |
| | 7,756 |
| | 7,850 |
| 3,236 |
| | 2,566 |
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| | | | | | | | | | |
Operating Expenses | | | | | |
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| |
| | |
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Fuel, purchased power, and gas — utility | 503 |
| | 458 |
| | 1,482 |
| | 1,585 |
| 529 |
| | 565 |
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Fuel, purchased power, and gas — non-utility | 1,034 |
| | 870 |
| | 2,527 |
| | 2,644 |
| 1,180 |
| | 776 |
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Operation and maintenance | 562 |
| | 542 |
| | 1,620 |
| | 1,600 |
| 600 |
| | 516 |
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Depreciation and amortization | 230 |
| | 196 |
| | 702 |
| | 625 |
| 249 |
| | 229 |
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Taxes other than income | 92 |
| | 91 |
| | 282 |
| | 282 |
| 109 |
| | 99 |
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Asset (gains) losses and impairments, net | — |
| | 1 |
| | (1 | ) | | 9 |
| |
| 2,421 |
| | 2,158 |
| | 6,612 |
| | 6,745 |
| 2,667 |
| | 2,185 |
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Operating Income | 507 |
| | 440 |
| | 1,144 |
| | 1,105 |
| 569 |
| | 381 |
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Other (Income) and Deductions | | | | | |
| | |
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| | |
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Interest expense | 114 |
| | 116 |
| | 341 |
| | 341 |
| 125 |
| | 113 |
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Interest income | (3 | ) | | (4 | ) | | (17 | ) | | (10 | ) | (3 | ) | | (11 | ) |
Other income | (51 | ) | | (55 | ) | | (160 | ) | | (155 | ) | (64 | ) | | (52 | ) |
Other expenses | 12 |
| | 17 |
| | 27 |
| | 36 |
| 7 |
| | 8 |
|
| 72 |
| | 74 |
| | 191 |
| | 212 |
| 65 |
| | 58 |
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Income Before Income Taxes | 435 |
| | 366 |
| | 953 |
| | 893 |
| 504 |
| | 323 |
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| | | | | | | | | | |
Income Tax Expense | 110 |
| | 102 |
| | 243 |
| | 250 |
| 110 |
| | 83 |
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| | | | | | | | | | |
Net Income | 325 |
| | 264 |
| | 710 |
| | 643 |
| 394 |
| | 240 |
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| | | | | | | | | | |
Less: Net Loss Attributable to Noncontrolling Interests | (13 | ) | | (1 | ) | | (27 | ) | | (4 | ) | (6 | ) | | (7 | ) |
| | | | | | | | | | |
Net Income Attributable to DTE Energy Company | $ | 338 |
| | $ | 265 |
| | $ | 737 |
| | $ | 647 |
| $ | 400 |
| | $ | 247 |
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| | | | | | | | | | |
Basic Earnings per Common Share | | | | | | | | | | |
Net Income Attributable to DTE Energy Company | $ | 1.88 |
| | $ | 1.47 |
| | $ | 4.10 |
| | $ | 3.61 |
| $ | 2.23 |
| | $ | 1.38 |
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| | | | | | | | | | |
Diluted Earnings per Common Share | | | | | | | | | | |
Net Income Attributable to DTE Energy Company | $ | 1.88 |
| | $ | 1.47 |
| | $ | 4.10 |
| | $ | 3.61 |
| $ | 2.23 |
| | $ | 1.37 |
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| | | | | | | | | | |
Weighted Average Common Shares Outstanding | | | | | |
| | |
| |
| | |
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Basic | 179 |
| | 179 |
| | 179 |
| | 179 |
| 179 |
| | 179 |
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Diluted | 180 |
| | 180 |
| | 180 |
| | 179 |
| 179 |
| | 180 |
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Dividends Declared per Common Share | $ | 0.77 |
| | $ | 0.73 |
| | $ | 2.23 |
| | $ | 2.11 |
| $ | 0.825 |
| | $ | 0.73 |
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See Combined Notes to Consolidated Financial Statements (Unaudited)
DTE Energy Company
Consolidated Statements of Comprehensive Income (Unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 |
| (In millions) | (In millions) |
Net Income | $ | 325 |
| | $ | 264 |
| | $ | 710 |
| | $ | 643 |
| $ | 394 |
| | $ | 240 |
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| | | | | | | | | | |
Other comprehensive income, net of tax: | | | | | | | | | | |
Benefit obligations, net of taxes of $2, $2, $3, and $6, respectively | 4 |
| | 3 |
| | 6 |
| | 9 |
| |
Net unrealized gains on investments during the period, net of taxes of $1, $—, $1, and $—, respectively | 1 |
| | — |
| | 1 |
| | — |
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Benefit obligations, net of taxes of $2, for both periods | | 4 |
| | 3 |
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Foreign currency translation | (1 | ) | | (2 | ) | | — |
| | (4 | ) | — |
| | 2 |
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Other comprehensive income | 4 |
| | 1 |
| | 7 |
| | 5 |
| 4 |
| | 5 |
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Comprehensive income | 329 |
| | 265 |
| | 717 |
| | 648 |
| 398 |
| | 245 |
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Less comprehensive loss attributable to noncontrolling interests | (13 | ) | | (1 | ) | | (27 | ) | | (4 | ) | (6 | ) | | (7 | ) |
Comprehensive Income Attributable to DTE Energy Company | $ | 342 |
| | $ | 266 |
| | $ | 744 |
| | $ | 652 |
| $ | 404 |
| | $ | 252 |
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See Combined Notes to Consolidated Financial Statements (Unaudited)
DTE Energy Company
Consolidated Statements of Financial Position (Unaudited)
| | | September 30, | | December 31, | March 31, | | December 31, |
| 2016 | | 2015 | 2017 | | 2016 |
| (In millions) | (In millions) |
ASSETS | Current Assets | | | | | | |
Cash and cash equivalents | $ | 66 |
| | $ | 37 |
| $ | 82 |
| | $ | 92 |
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Restricted cash | 21 |
| | 23 |
| 20 |
| | 21 |
|
Accounts receivable (less allowance for doubtful accounts of $46 and $49, respectively) | | | | |
Accounts receivable (less allowance for doubtful accounts of $32 and $41, respectively) | | | | |
Customer | 1,250 |
| | 1,276 |
| 1,408 |
| | 1,522 |
|
Other | 87 |
| | 72 |
| 101 |
| | 71 |
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Inventories | | | | | | |
Fuel and gas | 467 |
| | 480 |
| 286 |
| | 416 |
|
Materials and supplies | 326 |
| | 323 |
| 354 |
| | 356 |
|
Derivative assets | 56 |
| | 129 |
| 68 |
| | 47 |
|
Regulatory assets | 65 |
| | 32 |
| 26 |
| | 42 |
|
Prepaid property tax | 130 |
| | 62 |
| |
Other | 127 |
| | 141 |
| 222 |
| | 195 |
|
| 2,595 |
| | 2,575 |
| 2,567 |
| | 2,762 |
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Investments | | | | | | |
Nuclear decommissioning trust funds | 1,321 |
| | 1,236 |
| 1,364 |
| | 1,320 |
|
Investments in equity method investees | 706 |
| | 514 |
| 868 |
| | 752 |
|
Other | 199 |
| | 186 |
| 210 |
| | 201 |
|
| 2,226 |
| | 1,936 |
| 2,442 |
| | 2,273 |
|
Property | | | | | | |
Property, plant, and equipment | 28,748 |
| | 28,121 |
| 30,287 |
| | 30,029 |
|
Accumulated depreciation and amortization | (10,198 | ) | | (10,087 | ) | (10,421 | ) | | (10,299 | ) |
| 18,550 |
| | 18,034 |
| 19,866 |
| | 19,730 |
|
Other Assets | | | | | | |
Goodwill | 2,018 |
| | 2,018 |
| 2,292 |
| | 2,286 |
|
Regulatory assets | 3,686 |
| | 3,692 |
| 3,833 |
| | 3,871 |
|
Intangible assets | 91 |
| | 89 |
| 837 |
| | 842 |
|
Notes receivable | 75 |
| | 85 |
| 71 |
| | 73 |
|
Derivative assets | 46 |
| | 54 |
| 73 |
| | 34 |
|
Other | 175 |
| | 179 |
| 168 |
| | 170 |
|
| 6,091 |
| | 6,117 |
| 7,274 |
| | 7,276 |
|
Total Assets | $ | 29,462 |
| | $ | 28,662 |
| $ | 32,149 |
| | $ | 32,041 |
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See Combined Notes to Consolidated Financial Statements (Unaudited)
DTE Energy Company
Consolidated Statements of Financial Position (Unaudited) — (Continued)
| | | September 30, | | December 31, | March 31, | | December 31, |
| 2016 | | 2015 | 2017 | | 2016 |
| (In millions, except shares) | (In millions, except shares) |
LIABILITIES AND EQUITY | Current Liabilities | | | | | | |
Accounts payable | $ | 813 |
| | $ | 809 |
| $ | 910 |
| | $ | 1,079 |
|
Accrued interest | 115 |
| | 89 |
| 131 |
| | 96 |
|
Dividends payable | 138 |
| | 131 |
| 148 |
| | 148 |
|
Short-term borrowings | 410 |
| | 499 |
| 59 |
| | 499 |
|
Current portion long-term debt, including capital leases | 15 |
| | 473 |
| 13 |
| | 14 |
|
Derivative liabilities | 85 |
| | 57 |
| 33 |
| | 69 |
|
Gas inventory equalization | | 86 |
| | — |
|
Regulatory liabilities | 38 |
| | 41 |
| 37 |
| | 34 |
|
Other | 355 |
| | 429 |
| 417 |
| | 498 |
|
| 1,969 |
| | 2,528 |
| 1,834 |
| | 2,437 |
|
Long-Term Debt (net of current portion) | | | | | | |
Mortgage bonds, notes, and other | 8,691 |
| | 8,265 |
| 10,999 |
| | 10,506 |
|
Junior subordinated debentures | 780 |
| | 480 |
| 756 |
| | 756 |
|
Capital lease obligations | 7 |
| | 15 |
| 3 |
| | 7 |
|
| 9,478 |
| | 8,760 |
| 11,758 |
| | 11,269 |
|
Other Liabilities | |
| | |
| |
| | |
|
Deferred income taxes | 4,140 |
| | 3,923 |
| 4,270 |
| | 4,162 |
|
Regulatory liabilities | 552 |
| | 569 |
| 563 |
| | 555 |
|
Asset retirement obligations | 2,268 |
| | 2,194 |
| 2,229 |
| | 2,197 |
|
Unamortized investment tax credit | 89 |
| | 62 |
| 91 |
| | 93 |
|
Derivative liabilities | 99 |
| | 86 |
| 93 |
| | 98 |
|
Accrued pension liability | 1,132 |
| | 1,133 |
| 1,022 |
| | 1,152 |
|
Accrued postretirement liability | 148 |
| | 228 |
| 63 |
| | 36 |
|
Nuclear decommissioning | 195 |
| | 177 |
| 203 |
| | 194 |
|
Other | 243 |
| | 207 |
| 335 |
| | 349 |
|
| 8,866 |
| | 8,579 |
| 8,869 |
| | 8,836 |
|
Commitments and Contingencies (Notes 4 and 10) | | | | |
Commitments and Contingencies (Notes 5 and 11) | | | | |
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Equity | | | | | | |
Common stock, without par value, 400,000,000 shares authorized, and 179,434,907 and 179,470,213 shares issued and outstanding, respectively | 4,137 |
| | 4,123 |
| |
Common stock, without par value, 400,000,000 shares authorized, and 179,387,424 and 179,432,581 shares issued and outstanding, respectively | | 3,958 |
| | 4,030 |
|
Retained earnings | 5,131 |
| | 4,794 |
| 5,365 |
| | 5,114 |
|
Accumulated other comprehensive loss | (138 | ) | | (145 | ) | (129 | ) | | (133 | ) |
Total DTE Energy Company Equity | 9,130 |
| | 8,772 |
| 9,194 |
| | 9,011 |
|
Noncontrolling interests | 19 |
| | 23 |
| 494 |
| | 488 |
|
Total Equity | 9,149 |
| | 8,795 |
| 9,688 |
| | 9,499 |
|
Total Liabilities and Equity | $ | 29,462 |
| | $ | 28,662 |
| $ | 32,149 |
| | $ | 32,041 |
|
See Combined Notes to Consolidated Financial Statements (Unaudited)
DTE Energy Company
Consolidated Statements of Cash Flows (Unaudited)
| | | | | | | Three Months Ended March 31, |
| Nine Months Ended September 30, | 2017 | | 2016 |
| 2016 | | 2015 | (In millions) |
Operating Activities | (In millions) | | | |
Net Income | $ | 710 |
| | $ | 643 |
| $ | 394 |
| | $ | 240 |
|
Adjustments to reconcile Net Income to net cash from operating activities: | | | | | | |
Depreciation and amortization | 702 |
| | 625 |
| 249 |
| | 229 |
|
Nuclear fuel amortization | 44 |
| | 40 |
| 12 |
| | 15 |
|
Allowance for equity funds used during construction | (15 | ) | | (16 | ) | (7 | ) | | (5 | ) |
Deferred income taxes | 244 |
| | 251 |
| 100 |
| | 80 |
|
Equity earnings of equity method investees | (49 | ) | | (49 | ) | (26 | ) | | (15 | ) |
Dividends from equity method investees | 52 |
| | 49 |
| 18 |
| | 18 |
|
Asset (gains) losses and impairments, net | — |
| | 9 |
| |
Changes in assets and liabilities: | | | | | | |
Accounts receivable, net | 6 |
| | 277 |
| 84 |
| | 97 |
|
Inventories | 10 |
| | (36 | ) | 135 |
| | 143 |
|
Accounts payable | 39 |
| | (125 | ) | (33 | ) | | (93 | ) |
Gas inventory equalization | | 86 |
| | 87 |
|
Accrued pension liability | (1 | ) | | (160 | ) | (130 | ) | | (3 | ) |
Accrued postretirement liability | (80 | ) | | (213 | ) | 27 |
| | (29 | ) |
Derivative assets and liabilities | 122 |
| | 32 |
| (100 | ) | | 40 |
|
Regulatory assets and liabilities | 93 |
| | 35 |
| 128 |
| | 34 |
|
Other current and noncurrent assets and liabilities | (110 | ) | | 111 |
| (150 | ) | | (93 | ) |
Net cash from operating activities | 1,767 |
| | 1,473 |
| 787 |
| | 745 |
|
Investing Activities | | | | | | |
Plant and equipment expenditures — utility | (1,267 | ) | | (1,239 | ) | (533 | ) | | (394 | ) |
Plant and equipment expenditures — non-utility | (75 | ) | | (162 | ) | (22 | ) | | (30 | ) |
Acquisition | — |
| | (241 | ) | |
Proceeds from sale of assets | — |
| | 16 |
| |
Restricted cash for debt redemption, principally Securitization, net | 2 |
| | 99 |
| |
Proceeds from sale of nuclear decommissioning trust fund assets | 1,135 |
| | 627 |
| 394 |
| | 260 |
|
Investment in nuclear decommissioning trust funds | (1,140 | ) | | (638 | ) | (378 | ) | | (262 | ) |
Distributions from equity method investees | 8 |
| | 13 |
| 6 |
| | 3 |
|
Contributions to equity method investees | (199 | ) | | (58 | ) | (112 | ) | | (26 | ) |
Other | 33 |
| | 11 |
| 4 |
| | 12 |
|
Net cash used for investing activities | (1,503 | ) | | (1,572 | ) | (641 | ) | | (437 | ) |
Financing Activities | | | | | | |
Issuance of long-term debt, net of issuance costs | 646 |
| | 956 |
| 496 |
| | — |
|
Redemption of long-term debt | (322 | ) | | (260 | ) | (5 | ) | | (11 | ) |
Repurchase of long-term debt | (59 | ) | | — |
| |
Short-term borrowings, net | (89 | ) | | (213 | ) | (440 | ) | | (134 | ) |
Issuance of common stock | — |
| | 9 |
| |
Repurchase of common stock | (33 | ) | | — |
| (51 | ) | | (33 | ) |
Dividends on common stock | (393 | ) | | (370 | ) | (148 | ) | | (131 | ) |
Other | 15 |
| | (4 | ) | (8 | ) | | (1 | ) |
Net cash from (used for) financing activities | (235 | ) | | 118 |
| |
Net Increase in Cash and Cash Equivalents | 29 |
| | 19 |
| |
Net cash used for financing activities | | (156 | ) | | (310 | ) |
Net Decrease in Cash and Cash Equivalents | | (10 | ) | | (2 | ) |
Cash and Cash Equivalents at Beginning of Period | 37 |
| | 48 |
| 92 |
| | 37 |
|
Cash and Cash Equivalents at End of Period | $ | 66 |
| | $ | 67 |
| $ | 82 |
| | $ | 35 |
|
| | | | | | |
Supplemental disclosure of non-cash investing and financing activities | | | | | | |
Plant and equipment expenditures in accounts payable | $ | 168 |
| | $ | 185 |
| $ | 196 |
| | $ | 134 |
|
See Combined Notes to Consolidated Financial Statements (Unaudited)
DTE Energy Company
Consolidated Statements of Changes in Equity (Unaudited)
| | | | | | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests | | | | | | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests | | |
| Common Stock | | | Common Stock | | |
| Shares | | Amount | | Total | Shares | | Amount | | Total |
| (Dollars in millions, shares in thousands) | (Dollars in millions, shares in thousands) |
Balance, December 31, 2015 | 179,470 |
| | $ | 4,123 |
| | $ | 4,794 |
| | $ | (145 | ) | | $ | 23 |
| | $ | 8,795 |
| |
Implementation of ASU 2016-09 | — |
| | — |
| | 3 |
| | — |
| | — |
| | 3 |
| |
Balance, December 31, 2016 | | 179,433 |
| | $ | 4,030 |
| | $ | 5,114 |
| | $ | (133 | ) | | $ | 488 |
| | $ | 9,499 |
|
Net Income (Loss) | — |
| | — |
| | 737 |
| | — |
| | (27 | ) | | 710 |
| — |
| | — |
| | 400 |
| | — |
| | (6 | ) | | 394 |
|
Dividends declared on common stock | — |
| | — |
| | (400 | ) | | — |
| | — |
| | (400 | ) | — |
| | — |
| | (148 | ) | | — |
| | — |
| | (148 | ) |
Repurchase of common stock | (394 | ) | | (33 | ) | | — |
| | — |
| | — |
| | (33 | ) | (524 | ) | | (51 | ) | | — |
| | — |
| | — |
| | (51 | ) |
Benefit obligations, net of tax | — |
| | — |
| | — |
| | 6 |
| | — |
| | 6 |
| — |
| | — |
| | — |
| | 4 |
| | — |
| | 4 |
|
Net change in unrealized gains on investments, net of tax | — |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
| |
Stock-based compensation, net contributions from noncontrolling interests, and other | 359 |
| | 47 |
| | (3 | ) | | — |
| | 23 |
| | 67 |
| 478 |
| | (21 | ) | | (1 | ) | | — |
| | 12 |
| | (10 | ) |
Balance, September 30, 2016 | 179,435 |
| | $ | 4,137 |
| | $ | 5,131 |
| | $ | (138 | ) | | $ | 19 |
| | $ | 9,149 |
| |
Balance, March 31, 2017 | | 179,387 |
| | $ | 3,958 |
| | $ | 5,365 |
| | $ | (129 | ) | | $ | 494 |
| | $ | 9,688 |
|
See Combined Notes to Consolidated Financial Statements (Unaudited)
DTE Electric Company
Consolidated Statements of Operations (Unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 |
| (In millions) | (In millions) |
Operating Revenues — Utility operations | $ | 1,608 |
| | $ | 1,385 |
| | $ | 3,976 |
| | $ | 3,735 |
| $ | 1,175 |
| | $ | 1,153 |
|
| | | | | | | | | | |
Operating Expenses | | | | | | | | | | |
Fuel and purchased power — utility | 495 |
| | 441 |
| | 1,191 |
| | 1,212 |
| 314 |
| | 335 |
|
Operation and maintenance | 363 |
| | 330 |
| | 1,019 |
| | 966 |
| 383 |
| | 324 |
|
Depreciation and amortization | 176 |
| | 141 |
| | 539 |
| | 461 |
| 181 |
| | 176 |
|
Taxes other than income | 73 |
| | 73 |
| | 216 |
| | 214 |
| 80 |
| | 73 |
|
| 1,107 |
| | 985 |
| | 2,965 |
| | 2,853 |
| 958 |
| | 908 |
|
Operating Income | 501 |
| | 400 |
| | 1,011 |
| | 882 |
| 217 |
| | 245 |
|
| | | | | | | | | | |
Other (Income) and Deductions | | | | | | | | | | |
Interest expense | 66 |
| | 66 |
| | 196 |
| | 196 |
| 66 |
| | 65 |
|
Interest income | — |
| | — |
| | (8 | ) | | — |
| — |
| | (8 | ) |
Other income | (15 | ) | | (14 | ) | | (48 | ) | | (42 | ) | (19 | ) | | (16 | ) |
Other expenses | 9 |
| | 15 |
| | 22 |
| | 32 |
| 7 |
| | 7 |
|
| 60 |
| | 67 |
| | 162 |
| | 186 |
| 54 |
| | 48 |
|
Income Before Income Taxes | 441 |
| | 333 |
| | 849 |
| | 696 |
| 163 |
| | 197 |
|
| | | | | | | | | | |
Income Tax Expense | 156 |
| | 117 |
| | 302 |
| | 244 |
| 57 |
| | 70 |
|
| | | | | | | | | | |
Net Income | $ | 285 |
| | $ | 216 |
| | $ | 547 |
| | $ | 452 |
| $ | 106 |
| | $ | 127 |
|
See Combined Notes to Consolidated Financial Statements (Unaudited)
DTE Electric Company
Consolidated Statements of Comprehensive Income (Unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 |
| (In millions) | (In millions) |
Net Income | $ | 285 |
| | $ | 216 |
| | $ | 547 |
| | $ | 452 |
| $ | 106 |
| | $ | 127 |
|
Other comprehensive income, net of tax: | | | | | | | | |
Transfer of benefit obligations, net of taxes of $— and $18 in 2015, respectively | — |
| | — |
| | — |
| | 28 |
| |
Other comprehensive income | | — |
| | — |
|
Comprehensive Income | $ | 285 |
| | $ | 216 |
| | $ | 547 |
| | $ | 480 |
| $ | 106 |
| | $ | 127 |
|
See Combined Notes to Consolidated Financial Statements (Unaudited)
DTE Electric Company
Consolidated Statements of Financial Position (Unaudited)
| | | September 30, | | December 31, | March 31, | | December 31, |
| 2016 | | 2015 | 2017 | | 2016 |
| (In millions) | (In millions) |
ASSETS | Current Assets | | | | | | |
Cash and cash equivalents | $ | 16 |
| | $ | 15 |
| $ | 11 |
| | $ | 13 |
|
Accounts receivable (less allowance for doubtful accounts of $27 and $28, respectively) | | | | |
Accounts receivable (less allowance for doubtful accounts of $19 and $25, respectively) | | | | |
Customer | 778 |
| | 657 |
| 654 |
| | 728 |
|
Affiliates | 14 |
| | 14 |
| 19 |
| | 12 |
|
Other | 48 |
| | 40 |
| 38 |
| | 29 |
|
Inventories | | | | | | |
Fuel | 231 |
| | 271 |
| 178 |
| | 225 |
|
Materials and supplies | 273 |
| | 251 |
| 276 |
| | 271 |
|
Notes receivable | |
| | |
| |
Affiliates | 64 |
| | — |
| |
Other | 5 |
| | — |
| |
Regulatory assets | 57 |
| | 17 |
| 11 |
| | 36 |
|
Prepaid property tax | 101 |
| | 44 |
| 89 |
| | 45 |
|
Other | 13 |
| | 22 |
| 16 |
| | 18 |
|
| 1,600 |
| | 1,331 |
| 1,292 |
| | 1,377 |
|
Investments | | | | | | |
Nuclear decommissioning trust funds | 1,321 |
| | 1,236 |
| 1,364 |
| | 1,320 |
|
Other | 33 |
| | 35 |
| 34 |
| | 36 |
|
| 1,354 |
| | 1,271 |
| 1,398 |
| | 1,356 |
|
Property | | | | | | |
Property, plant, and equipment | 21,737 |
| | 21,391 |
| 22,276 |
| | 22,094 |
|
Accumulated depreciation and amortization | (7,662 | ) | | (7,646 | ) | (7,812 | ) | | (7,721 | ) |
| 14,075 |
| | 13,745 |
| 14,464 |
| | 14,373 |
|
Other Assets | | | | | | |
Regulatory assets | 2,960 |
| | 2,969 |
| 3,090 |
| | 3,113 |
|
Intangible assets | 44 |
| | 34 |
| 32 |
| | 31 |
|
Prepaid postretirement costs — affiliates | 24 |
| | 24 |
| 114 |
| | 114 |
|
Other | 133 |
| | 144 |
| 125 |
| | 125 |
|
| 3,161 |
| | 3,171 |
| 3,361 |
| | 3,383 |
|
Total Assets | $ | 20,190 |
| | $ | 19,518 |
| $ | 20,515 |
| | $ | 20,489 |
|
See Combined Notes to Consolidated Financial Statements (Unaudited)
DTE Electric Company
Consolidated Statements of Financial Position (Unaudited) — (Continued)
| | | September 30, | | December 31, | March 31, | | December 31, |
| 2016 | | 2015 | 2017 | | 2016 |
| (In millions, except shares) | (In millions, except shares) |
LIABILITIES AND SHAREHOLDER’S EQUITY | Current Liabilities | | | | | | |
Accounts payable | | | | | | |
Affiliates | $ | 50 |
| | $ | 40 |
| $ | 55 |
| | $ | 58 |
|
Other | 350 |
| | 329 |
| 384 |
| | 452 |
|
Accrued interest | 69 |
| | 62 |
| 72 |
| | 65 |
|
Accrued vacation | 43 |
| | 44 |
| |
Current portion long-term debt, including capital leases | 6 |
| | 157 |
| 5 |
| | 6 |
|
Regulatory liabilities | 21 |
| | 19 |
| 33 |
| | 27 |
|
Short-term borrowings | | | | | | |
Affiliates | 112 |
| | 75 |
| 205 |
| | 117 |
|
Other | — |
| | 272 |
| 59 |
| | 62 |
|
Other | 94 |
| | 94 |
| 149 |
| | 146 |
|
| 745 |
| | 1,092 |
| 962 |
| | 933 |
|
Long-Term Debt (net of current portion) | | | | | | |
Mortgage bonds, notes, and other | 5,877 |
| | 5,437 |
| 5,879 |
| | 5,878 |
|
Capital lease obligations | 7 |
| | 15 |
| 3 |
| | 7 |
|
| 5,884 |
| | 5,452 |
| 5,882 |
| | 5,885 |
|
Other Liabilities | | | | | | |
Deferred income taxes | 3,757 |
| | 3,498 |
| 3,850 |
| | 3,793 |
|
Regulatory liabilities | 219 |
| | 199 |
| 241 |
| | 229 |
|
Asset retirement obligations | 2,084 |
| | 2,020 |
| 2,041 |
| | 2,012 |
|
Unamortized investment tax credit | 86 |
| | 58 |
| 88 |
| | 90 |
|
Nuclear decommissioning | 195 |
| | 177 |
| 203 |
| | 194 |
|
Accrued pension liability — affiliates | 985 |
| | 976 |
| 885 |
| | 1,008 |
|
Accrued postretirement liability — affiliates | 255 |
| | 307 |
| 290 |
| | 269 |
|
Other | 75 |
| | 66 |
| 79 |
| | 81 |
|
| 7,656 |
| | 7,301 |
| 7,677 |
| | 7,676 |
|
| | | | |
Commitments and Contingencies (Notes 4 and 10) |
| |
| |
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 | 4,086 |
| | 4,086 |
| 4,206 |
| | 4,206 |
|
Retained earnings | 1,817 |
| | 1,585 |
| 1,786 |
| | 1,787 |
|
Accumulated other comprehensive income | 2 |
| | 2 |
| 2 |
| | 2 |
|
Total Shareholder’s Equity | 5,905 |
| | 5,673 |
| 5,994 |
| | 5,995 |
|
Total Liabilities and Shareholder’s Equity | $ | 20,190 |
| | $ | 19,518 |
| $ | 20,515 |
| | $ | 20,489 |
|
See Combined Notes to Consolidated Financial Statements (Unaudited)
DTE Electric Company
Consolidated Statements of Cash Flows (Unaudited)
| | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2016 | | 2015 | 2017 | | 2016 |
| (In millions) | (In millions) |
Operating Activities | | | | | | |
Net Income | $ | 547 |
| | $ | 452 |
| $ | 106 |
| | $ | 127 |
|
Adjustments to reconcile Net Income to net cash from operating activities: | | | | | | |
Depreciation and amortization | 539 |
| | 461 |
| 181 |
| | 176 |
|
Nuclear fuel amortization | 44 |
| | 40 |
| 12 |
| | 15 |
|
Allowance for equity funds used during construction | (13 | ) | | (15 | ) | (6 | ) | | (4 | ) |
Deferred income taxes | 298 |
| | 269 |
| 57 |
| | 70 |
|
Changes in assets and liabilities: | | | | | | |
Accounts receivable, net | (135 | ) | | (103 | ) | 58 |
| | 57 |
|
Inventories | 18 |
| | (17 | ) | 44 |
| | 31 |
|
Accounts payable | 59 |
| | 3 |
| 26 |
| | 25 |
|
Accrued pension liability — affiliates | 9 |
| | (215 | ) | (123 | ) | | 3 |
|
Accrued postretirement liability — affiliates | (52 | ) | | (164 | ) | 21 |
| | (19 | ) |
Regulatory assets and liabilities | 100 |
| | (12 | ) | 122 |
| | 40 |
|
Other current and noncurrent assets and liabilities | (119 | ) | | 9 |
| (87 | ) | | (68 | ) |
Net cash from operating activities | 1,295 |
| | 708 |
| 411 |
| | 453 |
|
Investing Activities | | | | | | |
Plant and equipment expenditures | (999 | ) | | (1,045 | ) | (408 | ) | | (315 | ) |
Acquisition | — |
| | (241 | ) | |
Proceeds from sale of assets | 6 |
| | — |
| — |
| | 6 |
|
Restricted cash for debt redemption, principally Securitization, net | — |
| | 96 |
| |
Notes receivable — affiliates | (64 | ) | | 4 |
| |
Proceeds from sale of nuclear decommissioning trust fund assets | 1,135 |
| | 627 |
| 394 |
| | 260 |
|
Investment in nuclear decommissioning trust funds | (1,140 | ) | | (638 | ) | (378 | ) | | (262 | ) |
Transfer of Rabbi Trust assets to affiliate | — |
| | 137 |
| |
Other | 34 |
| | 9 |
| 5 |
| | 14 |
|
Net cash used for investing activities | (1,028 | ) | | (1,051 | ) | (387 | ) | | (297 | ) |
Financing Activities | | | | | | |
Issuance of long-term debt, net of issuance costs | 355 |
| | 495 |
| |
Redemption of long-term debt | (10 | ) | | (115 | ) | — |
| | (10 | ) |
Repurchase of long-term debt | (59 | ) | | — |
| |
Capital contribution by parent company | — |
| | 300 |
| |
Short-term borrowings, net — affiliate | 37 |
| | (16 | ) | 88 |
| | 22 |
|
Short-term borrowings, net — other | (272 | ) | | (4 | ) | (3 | ) | | (61 | ) |
Dividends on common stock | (315 | ) | | (297 | ) | (108 | ) | | (105 | ) |
Other | (2 | ) | | (5 | ) | (3 | ) | | — |
|
Net cash from (used for) financing activities | (266 | ) | | 358 |
| |
Net Increase in Cash and Cash Equivalents | 1 |
| | 15 |
| |
Net cash used for financing activities | | (26 | ) | | (154 | ) |
Net Increase (Decrease) in Cash and Cash Equivalents | | (2 | ) | | 2 |
|
Cash and Cash Equivalents at Beginning of Period | 15 |
| | 14 |
| 13 |
| | 15 |
|
Cash and Cash Equivalents at End of Period | $ | 16 |
| | $ | 29 |
| $ | 11 |
| | $ | 17 |
|
| | | | | | |
Supplemental disclosure of non-cash investing and financing activities | | | | | | |
Plant and equipment expenditures in accounts payable | $ | 118 |
| | $ | 134 |
| $ | 134 |
| | $ | 100 |
|
See Combined Notes to Consolidated Financial Statements (Unaudited)
DTE Electric Company
Consolidated Statements of Changes in Shareholder's Equity (Unaudited)
| | | | | | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income | | | | | | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income | | |
| Common Stock | | | Common Stock | | |
| Shares | | Amount | | Total | Shares | | Amount | | Total |
| (Dollars in millions, shares in thousands) | (Dollars in millions, shares in thousands) |
Balance, December 31, 2015 | 138,632 |
| | $ | 1,386 |
| | $ | 2,700 |
| | $ | 1,585 |
| | $ | 2 |
| | $ | 5,673 |
| |
Balance, December 31, 2016 | | 138,632 |
| | $ | 1,386 |
| | $ | 2,820 |
| | $ | 1,787 |
| | $ | 2 |
| | $ | 5,995 |
|
Net Income | — |
| | — |
| | — |
| | 547 |
| | — |
| | 547 |
| — |
| | — |
| | — |
| | 106 |
| | — |
| | 106 |
|
Dividends declared on common stock | — |
| | — |
| | — |
| | (315 | ) | | — |
| | (315 | ) | — |
| | — |
| | — |
| | (108 | ) | | — |
| | (108 | ) |
Balance, September 30, 2016 | 138,632 |
| | $ | 1,386 |
| | $ | 2,700 |
| | $ | 1,817 |
| | $ | 2 |
| | $ | 5,905 |
| |
Other | | — |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
Balance, March 31, 2017 | | 138,632 |
| | $ | 1,386 |
| | $ | 2,820 |
| | $ | 1,786 |
| | $ | 2 |
| | $ | 5,994 |
|
See Combined Notes to Consolidated Financial Statements (Unaudited)
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 | | Acquisition | | DTE Energy |
Note 5 | | Regulatory Matters | | DTE Energy and DTE Electric |
Note 56 | | Earnings per Share | | DTE Energy |
Note 67 | | Fair Value | | DTE Energy and DTE Electric |
Note 78 | | Financial and Other Derivative Instruments | | DTE Energy and DTE Electric |
Note 89 | | Long-Term Debt | | DTE Energy and DTE Electric |
Note 910 | | Short-Term Credit Arrangements and Borrowings | | DTE Energy and DTE Electric |
Note 1011 | | Commitments and Contingencies | | DTE Energy and DTE Electric |
Note 1112 | | Retirement Benefits and Trusteed Assets | | DTE Energy and DTE Electric |
Note 1213 | | Segment and Related Information | | DTE Energy |
Note 13 | | Subsequent Events | | DTE Energy |
NOTE 1 — ORGANIZATION 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 1.21.3 million customers throughout Michigan and the sale of storage and transportation capacity; and
Other businesses involved in 1) natural gas pipelines, gathering, and storage; 2) power and industrial projects; and 3) energy marketing and trading operations.
DTE Electric and DTE Gas are regulated by the MPSC. Certain activities of DTE Electric and DTE Gas, as well as various other aspects of businesses under DTE Energy are regulated by the FERC. In addition, the 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 20152016 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, 2016.2017.
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 the Registrants were reclassified to match the current year's Consolidated Financial Statements presentation. Such revisions for DTE Energy include amounts reclassified to separate Operating Revenues and Fuel, purchased power, and gas between Utility operations and Non-utility operations and from Operations and maintenance to Fuel, purchased power, and gas — non-utility related to the Power and Industrial Projects segment. The reclassifications did not affect DTE Energy's Net Income for the prior periods, as such, they are not deemed material to the previously issued Consolidated Financial Statements. For reclassifications of debt issuance costs arising from ASU 2015-03, see Note 3 to the Consolidated Financial Statements, "New Accounting Pronouncements."
Principles of Consolidation
The Registrants consolidate all majority-owned subsidiaries and investments in entities in which they have controlling influence. Non-majority owned investments are accounted for using the equity method when the Registrants are able to significantly influence the operating policies of the investee. When the Registrants do not influence the operating policies of an investee, the cost method is used. These Consolidated Financial Statements also reflect the Registrants' proportionate interests in certain jointly-owned utility plants. The Registrants eliminate all intercompany balances and transactions.
The Registrants evaluate whether an entity is a VIE whenever reconsideration events occur. The Registrants consolidate VIEs for which they are the primary beneficiary. If a Registrant is not the primary beneficiary and an ownership interest is held, the VIE is accounted for under the equity method of accounting. When assessing the determination of the primary beneficiary, a Registrant considers all relevant facts and circumstances, including: the power, through voting or similar rights, to direct the activities of the VIE that most significantly impact the VIE's economic performance and the obligation to absorb the expected losses and/or the right to receive the expected returns of the VIE. The Registrants perform ongoing reassessments of all VIEs to determine if the primary beneficiary status has changed.
Legal entities within DTE Energy's Power and Industrial Projects segment enter into long-term contractual arrangements with customers to supply energy-related products or services. The entities are generally designed to pass-through the commodity risk associated with these contracts to the customers, with DTE Energy retaining operational and customer default risk. These entities generally are VIEs and consolidated when DTE Energy is the primary beneficiary. In addition, DTE Energy has interests in certain VIEs through which control of all significant activities is shared with partners, and therefore are accounted for under the equity method.
DTE Energy owns a 55% interest in SGG, which owns and operates midstream natural gas assets. SGG has contracts through which certain construction risk is designed to pass-through to the customers, with DTE Energy retaining operational and customer default risk. SGG is a VIE with DTE Energy as the primary beneficiary. See Note 4 to the Consolidated Financial Statements, "Acquisition," for more information.
DTE Energy has variable interests in VIEs through certain of its long-term purchase and sale contracts. DTE Electric has variable interests in VIEs through certain of its long-term purchase contracts. As of September 30, 2016,March 31, 2017, the carrying amount of assets and liabilities in DTE Energy's Consolidated Statements of Financial Position that relate to its variable interests under long-term purchase and sale contracts are predominantly related to working capital accounts and generally represent the amounts owed by or to DTE Energy for the deliveries associated with the current billing cycle under the contracts. As of September 30, 2016,March 31, 2017, 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. For non-consolidated VIEs, the maximum risk exposure is generally limited to its investment, notes receivable, and future funding commitments.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
The following table summarizes the major Consolidated Statements of Financial Position items for consolidated VIEs as of September 30, 2016March 31, 2017 and December 31, 2015.2016. All assets and liabilities of a consolidated VIE are presented where it has been determined that a consolidated VIE has either (1) assets that can be used only to settle obligations of the VIE or (2) liabilities for which creditors do not have recourse to the general credit of the primary beneficiary. VIEs, in which DTE Energy holds a majority voting interest and is the primary beneficiary, that meet the definition of a business and whose assets can be used for purposes other than the settlement of the VIE's obligations have been excluded from the table below.
| | | | | | | | March 31, 2017 | | December 31, 2016 |
| September 30, 2016 | | December 31, 2015 | SGG(a) | | Other | | Total | | SGG(a) | | Other | | Total |
| (In millions) | (In millions) |
ASSETS | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | 26 |
| | $ | 14 |
| $ | 52 |
| | $ | 11 |
| | $ | 63 |
| | $ | 36 |
| | $ | 27 |
| | $ | 63 |
|
Restricted cash | 6 |
| | 8 |
| — |
| | 7 |
| | 7 |
| | — |
| | 7 |
| | 7 |
|
Accounts receivable | 22 |
| | 18 |
| 10 |
| | 19 |
| | 29 |
| | 8 |
| | 34 |
| | 42 |
|
Inventories | 115 |
| | 82 |
| 3 |
| | 59 |
| | 62 |
| | 3 |
| | 112 |
| | 115 |
|
Property, plant, and equipment, net | 70 |
| | 66 |
| 397 |
| | 75 |
| | 472 |
| | 398 |
| | 76 |
| | 474 |
|
Goodwill | | 22 |
| | — |
| | 22 |
| | 17 |
| | — |
| | 17 |
|
Intangible assets | | 583 |
| | — |
| | 583 |
| | 586 |
| | — |
| | 586 |
|
Other current and long-term assets | 1 |
| | 4 |
| — |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 2 |
|
| $ | 240 |
| | $ | 192 |
| $ | 1,067 |
| | $ | 172 |
| | $ | 1,239 |
| | $ | 1,049 |
| | $ | 257 |
| | $ | 1,306 |
|
| | | | | | | | | | | | | | |
LIABILITIES | | | | | | | | | | | | | | |
Accounts payable and accrued current liabilities | $ | 24 |
| | $ | 13 |
| $ | 19 |
| | $ | 21 |
| | $ | 40 |
| | $ | 19 |
| | $ | 32 |
| | $ | 51 |
|
Current portion long-term debt, including capital leases | 6 |
| | 8 |
| — |
| | 5 |
| | 5 |
| | — |
| | 5 |
| | 5 |
|
Mortgage bonds, notes, and other | 5 |
| | 10 |
| — |
| | 4 |
| | 4 |
| | — |
| | 5 |
| | 5 |
|
Other current and long-term liabilities | 16 |
| | 6 |
| 2 |
| | 14 |
| | 16 |
| | 2 |
| | 15 |
| | 17 |
|
| $ | 51 |
| | $ | 37 |
| $ | 21 |
| | $ | 44 |
| | $ | 65 |
| | $ | 21 |
| | $ | 57 |
| | $ | 78 |
|
(a)Amounts shown are 100% of SGG's assets and liabilities, of which DTE Energy owns 55%.
Amounts for DTE Energy's non-consolidated VIEs as of September 30, 2016 and December 31, 2015 are as follows:
| | | September 30, 2016 | | December 31, 2015 | March 31, 2017 | | December 31, 2016 |
| (In millions) | (In millions) |
Investment in equity method investees | $ | 190 |
| | $ | 136 |
| |
Investments in equity method investees | | $ | 186 |
| | $ | 187 |
|
Notes receivable | $ | 15 |
| | $ | 15 |
| $ | 15 |
| | $ | 15 |
|
Future funding commitments | $ | 7 |
| | $ | — |
| $ | 6 |
| | $ | 7 |
|
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES
Other Income
Other income for the RegistrantsThe following is recognized for non-operating income such as equity earnings, allowance for equity funds used during construction, and contract services.a summary of DTE Energy's Power and Industrial Projects segment also recognizes Other income in connection with the saleincome:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2017 | | 2016 |
| (In millions) |
Equity earnings of equity method investees | $ | 26 |
| | $ | 15 |
|
Income from REF investees | 18 |
| | 19 |
|
Gains from trading securities | 8 |
| | 5 |
|
Allowance for equity funds used during construction | 7 |
| | 5 |
|
Contract services | 4 |
| | 6 |
|
Other | 1 |
| | 2 |
|
| $ | 64 |
| | $ | 52 |
|
The following is a summary of membership interests in reduced emissions fuel facilities to investors. In exchange for the cash received, the investors will receive a portion of the economic attributes of the facilities, including income tax attributes. The transactions are not treated as a sale of membership interests for financial reporting purposes.DTE Electric's Other income is considered earned when refined coal is produced and tax credits are generated. Power and Industrial Projects recognized approximately $20 million and $24 million of Other income for the three months ended September 30, 2016 and 2015, respectively, and approximately $59 million and $64 million of Other income for the nine months ended September 30, 2016 and 2015, respectively.income:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2017 | | 2016 |
| (In millions) |
Gains from trading securities allocated from DTE Energy | $ | 8 |
| | $ | 5 |
|
Allowance for equity funds used during construction | 6 |
| | 4 |
|
Contract services | 4 |
| | 6 |
|
Other | 1 |
| | 1 |
|
| $ | 19 |
| | $ | 16 |
|
Changes in Accumulated Other Comprehensive Income (Loss)
For the three and nine months ended September 30,March 31, 2017 and 2016, and 2015, 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.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
Income Taxes
The effective tax rate and unrecognized tax benefits of the Registrants are as follows:
| | | Effective Tax Rate | | Unrecognized Tax Benefits | Effective Tax Rate | | Unrecognized Tax Benefits |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | September 30, | Three Months Ended March 31, | | March 31, |
| 2016 | | 2015 | | 2016 | | 2015 | | 2016 | 2017 | | 2016 | | 2017 |
| | | | | | | | | (In millions) | | | | | (In millions) |
DTE Energy | 25 | % | | 28 | % | | 25 | % | | 28 | % | | $ | 3 |
| 22 | % | | 26 | % | | $ | 10 |
|
DTE Electric | 35 | % | | 35 | % | | 36 | % | | 35 | % | | $ | 4 |
| 35 | % | | 36 | % | | $ | 13 |
|
The 3%4% decrease in DTE Energy's effective tax rate for the three and nine months ended September 30, 2016March 31, 2017 is primarily due to higher production$13 million of excess tax creditsbenefits on stock-based compensation recognized in accordance with ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which was adopted effective July 1, 2016.
DTE Energy had $2$7 million of unrecognized tax benefits that, if recognized, would favorably impact its effective tax rate. DTE Electric had $3$8 million of unrecognized tax benefits that, 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 Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
DTE Electric had income tax receivables with DTE Energy of $6$10 million and $9 million at September 30, 2016March 31, 2017 and December 31, 2015.2016, respectively.
Unrecognized Compensation Costs
As of September 30, 2016,March 31, 2017, DTE Energy had $64$92 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 1.311.82 years.
Allocated Stock-Based Compensation
DTE Electric received an allocation of costs from DTE Energy associated with stock-based compensation of $7$8 million and $10 million for the three months ended September 30,March 31, 2017 and 2016, and 2015, respectively, while such allocation was $26 million and $20 million for the nine months ended September 30, 2016 and 2015, respectively.
NOTE 3 — NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted Pronouncements
In FebruaryJuly 2015, the FASB issued ASU No. 2015-02, 2015-11,Amendments to Inventory (Topic 330), Simplifying the Consolidation AnalysisMeasurement of Inventory, which changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities.. The ASU affects (1) limited partnerships and similar legal entities, (2) evaluating fees paid to a decision maker or a service provider as a variable interest, (3) the effect of fee arrangements on the primary beneficiary determination, (4) the effect of related parties on the primary beneficiary determination, and (5) certain investment funds. It is effective for the Registrants for the first interim period within annual reporting periods beginning after December 15, 2015. The Registrants adopted this ASU at January 1, 2016. The implementation of this guidance is reflected in Note 1 of the Consolidated Financial Statements, "Organization and Basis of Presentation." Certain entities are now deemed to be VIEs and are included in DTE Energy's non-consolidated VIE table. This implementation did not have a significant impact on the Registrants' Consolidated Financial Statements.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. This ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU is effective for reporting periods beginning after December 15, 2015, and interim periods therein. It is to be applied retrospectively. The Registrants adopted this ASU at January 1, 2016. The effect of the adoption decreased assets and liabilities on DTE Energy’s and DTE Electric’s Consolidated Statements of Financial Position by $75 million and $36 million, respectively, at December 31, 2015.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
In May 2015, the FASB issued ASU 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This guidance removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share (or its equivalent) practical expedient. The guidance applies to investments for which there is not a readily determinable fair value (market quote) or the investment is in a mutual fund without a publicly available net asset value. It is effective for the Registrants for the first interim period within annual reporting periods beginning after December 15, 2015. It is to be applied retrospectively. The Registrants adopted this ASU at January 1, 2016. The implementation of this guidance is reflected in Note 6 of the Consolidated Financial Statements, "Fair Value." This implementation did not have a significant impact on the Registrants' Consolidated Financial Statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation— Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The ASU simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the Statements of Cash Flows. Under the new standard, income tax benefits and deficiencies are to be recognized in the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. This provision is to be applied prospectively. Excess tax benefits should be recognized regardless of whether the benefit reduces taxes payable inreplaces the current period, alonglower of cost or market test with any valuation allowance,a lower of cost or net realizable value test when cost is determined on a modified retrospective basis as a cumulative-effect adjustment to the retained earnings as of the date of adoption. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. This provision can be applied prospectivelyfirst-in, first-out or retrospectively for all periods presented. average cost basis. The standard is effective for public entities for annual reporting periods beginning after December 15, 2016, and interim periods therein. Effective JulyIt is applied prospectively. The Registrants adopted this ASU at January 1, 2016 DTE Energy elected to early adopt this standard, as permitted. As a result2017. The adoption of the adoption, DTE Energy recognized $1 million of excess tax benefits on stock-based compensation expense in its Consolidated Statements of Operations asASU did not have a component of the provision for income taxes on a prospective basis. DTE Energy also recognized a $3 million cumulative-effect adjustment to increase Retained earnings under the modified retrospective approach. While there was nosignificant impact to the current period, cash flows related to the excess tax benefits on DTE Energy's Consolidated Statements of Cash Flows will be classified as operating activities on a prospective basis. In addition, cash paid on the employees’ behalf related to restricted shares withheld for tax purposes have been classified as a financing activity on a retrospective basis. This retrospective application resulted in an increase to Net cash from operating activities with a corresponding decrease to Net cash from (used for) for financing activities of $5 million for the nine months ended September 30, 2015. For the nine months ended September 30, 2016, the implementation resulted in an increase to Net cash from operating activities with a corresponding decrease to Net cash from (used for) for financing activities of $4 million. Finally, DTE Energy's stock compensation expense continues to reflect estimated forfeitures.Registrants' Consolidated Financial Statements.
Recently Issued 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 requires 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 effective for the first interim period within annual reporting periods beginning after December 15, 2017. The standard is to be applied retrospectively, and early adoption is permitted in the preceding year. The Registrants do not plan to early adopt the standard. The Registrants are currently assessing the impact of the ASU, as amended, on their Consolidated Financial Statements.
In July 2015,Statements as well as the FASB issuedtransition method the Registrants will use to adopt the guidance. The Registrants have completed the preliminary evaluations of the impact of this guidance and do not expect the ASU No. 2015-11, Inventory (Topic 330), Simplifying the Measurementto significantly affect results of Inventory. The ASU replaces the current loweroperations for tariff-based sales, which represent a majority of cost or market test with a lower of cost or net realizable value test when cost is determined on a first-in, first-out or average cost basis. The standard is effective for public entities for annual reporting periods beginning after December 15, 2016, and interim periods therein. It is to be applied prospectively and early adoption is permitted. The ASU will not have a significant impact on the Registrants' revenues, and the remaining non-tariff revenues. The Registrants will continue to evaluate the impact of the ASU on existing revenue recognition policies and procedures and monitor the unresolved industry-related issues. Specifically, the Registrants are considering whether the new guidance will affect accounting for certain contracts where collectibility is in question, contributions in aid of construction, and other utility industry-related areas. The Registrants are evaluating information that would be useful for users of the Consolidated Financial Statements.
DTE Energy Company — DTE Electric Company
Statements, including information already provided in disclosures outside of the Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments — Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance is intended to improve the recognition and measurement of financial instruments. The ASU 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. Under the new guidance, equity investments will generally be measured at fair value, with subsequent changes in fair value recognized in net income. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Upon adoption, entities will be required 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. Changes to the accounting for equity securities without a readily determinable fair value will be applied prospectively. The ASU will not have a significant impact on the Registrants' Consolidated Financial Statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), a replacement of Leases (Topic 840). This guidance requires a lessee to account for leases as finance or operating leases. Both 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. For lessors, the standard modifies the classification criteria and the accounting for sales-type and direct financing leases. Entities will classify leases to determine how to recognize lease-related revenue and expense. This ASU is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. A modified retrospective approach is required for leases existing or entered into after the beginning of the earliest comparative period in the Consolidated Financial Statements. The Registrants expect an increase in assets and liabilities, however, they are currently assessing the impact of this ASU on their Consolidated Financial Statements.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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 GAAP 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 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 require 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 income from operations. The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable. The standard will be 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. The ASU is effective for the Registrants beginning after December 15, 2017, including interim periods therein. Early adoption is permitted. The components of net periodic benefit costs (credits) for pension benefits and other postretirement benefits are disclosed in Note 12 to the Consolidated Financial Statements, "Retirement Benefits and Trusteed Assets." The ASU will not have a significant impact on the Registrants' Consolidated Financial Statements.
NOTE 4 — ACQUISITION
Gas Storage and Pipelines Acquisition
Effective October 1, 2016, DTE Energy closed on the purchase of midstream natural gas assets in support of the strategy to continue to grow and earn competitive returns for shareholders. DTE Energy purchased 100% of AGS, located in Pennsylvania and West Virginia, and 40% of SGG, located in West Virginia, from M3 Midstream. In addition, DTE Energy purchased 15% of SGG from Vega Energy Partners, resulting in 55% total ownership of SGG by DTE Energy.
Consideration transferred for the entities acquired was approximately $1.2 billion paid in cash and the assumption of SGG debt of $204 million. The $204 million of debt was comprised of DTE Energy's 55% interest in SGG of $112 million and 45% related to noncontrolling interest partners of $92 million. The acquisition was financed through the issuance of Equity Units and Senior Notes. These entities are part of DTE Energy's Gas Storage and Pipelines segment which owns and manages a network of natural gas gathering, transmission, and storage facilities servicing the Midwest, Ontario, and Northeast markets. SGG has been deemed to be a VIE, and DTE Energy is the primary beneficiary. Thus, SGG's assets and liabilities are included in DTE Energy's Consolidated Statements of Financial Position. See Note 1 to the Consolidated Financial Statements, "Organization and Basis of Presentation," for more information.
DTE Energy has applied purchase accounting to the acquired entities. The allocation of the purchase price included in the Consolidated Statements of Financial Position is preliminary and may be revised up to one year from the date of acquisition due to adjustments in the estimated fair value of the assets acquired and the liabilities assumed. The purchase price is subject to (i) final working capital settlement adjustments, and (ii) resolution of any indemnification claims that might be deducted from the $130 million of cash consideration paid and held in escrow. As such, DTE Energy cannot estimate the potential amount of the additional revisions to the purchase price allocation in 2017. The excess purchase price over the fair value of net assets acquired totaled approximately $268 million and was classified as goodwill. During the first quarter of 2017, a final working capital adjustment was recognized resulting in an additional goodwill of approximately $6 million. The factors contributing to the recognition of goodwill are based on various strategic benefits that are expected to be realized from the AGS and SGG acquisition. The acquisition provides DTE Energy with 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 a new set of producer relationships that may lead to more partnering opportunities. The goodwill is expected to be deductible for income tax purposes.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
The preliminary allocation of the purchase price was based on estimated fair values of the AGS and SGG assets acquired and liabilities assumed at the date of acquisition, October 1, 2016. The components of the preliminary purchase price allocation were as follows:
|
| | | |
| (In millions) |
Assets | |
Cash | $ | 83 |
|
Accounts receivable | 24 |
|
Inventory | 6 |
|
Property, plant, and equipment, net | 730 |
|
Goodwill | 268 |
|
Customer relationship intangibles | 770 |
|
Other current assets | 1 |
|
| $ | 1,882 |
|
Liabilities | |
Accounts payable | $ | 19 |
|
Other current liabilities | 14 |
|
Long-term debt | 204 |
|
Other long-term liabilities | 26 |
|
| $ | 263 |
|
Less noncontrolling interest | 390 |
|
Total cash consideration | $ | 1,229 |
|
The intangible assets recorded as a result of the acquisition pertain to existing customer relationships, which were valued at approximately $770 million as of the acquisition date. The fair value of the intangible assets acquired was estimated by applying the income approach. The income approach was based upon discounted projected future cash flows attributable to the existing contracts and agreements. The fair value measurement was based on significant unobservable inputs, including management estimates and assumptions, and thus represents a Level 3 measurement, pursuant to the applicable accounting guidance. Key estimates and inputs included revenue and expense projections and discount rates based on the risks associated with the entities. The intangible assets are amortized on a straight line basis over a period of 40 years, which is based on the number of years the assets are expected to economically contribute to the business. The expected economic benefit incorporates existing customer contracts with a weighted-average amortization life of 10 years and expected renewal rates, based on the estimated volume and production lives of gas resources in the region.
The fair value of the noncontrolling interest in the table above was derived based on the purchase price DTE Energy paid for the 55% interest in SGG.
DTE Energy evaluated pre-acquisition contingencies relating to AGS and SGG that existed as of the acquisition date. Based on the evaluation, DTE Energy determined that $39 million of certain pre-acquisition contingencies, related to repairing existing right-of-ways, are probable in nature and estimable as of the acquisition date. Accordingly, DTE Energy recorded its best estimates for these contingencies as part of the purchase accounting for AGS and SGG.
DTE Energy incurred $15 million of direct transaction costs for the year ended December 31, 2016. These costs were primarily related to advisory fees and included in Operation and maintenance in DTE Energy's 2016 Consolidated Statements of Operations.
DTE Energy's 2016 Consolidated Statements of Operations included Operating Revenues — Non-utility operations of $39 million and Net Income of $4 million associated with the acquired entities for the three-month period following the acquisition date, excluding the $15 million transaction costs described above. The pro forma financial information was not presented for DTE Energy because the effects of the acquisition were not material to the Consolidated Statements of Operations.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
NOTE 5 — REGULATORY MATTERS
2016 Electric Rate Case Filing
DTE Electric filed a rate case with the MPSC on February 1, 2016 requesting an increase in base rates of $344 million based on a projected twelve-month period ending July 31, 2017. On August 1, 2016, DTE Electric self-implemented a base rate increase of $245 million. On January 31, 2017, the MPSC issued an order approving an annual revenue increase of $184 million for service rendered on or after February 7, 2017. The MPSC authorized a return on equity of 10.1%. DTE Electric has recorded a refund liability of $37 million, representing the total estimated refund due to customers, inclusive of interest, at March 31, 2017. DTE Electric will file a self-implementation reconciliation with the MPSC by April 30, 2017.
2017 Electric Rate Case Filing
DTE Electric filed a rate case with the MPSC on April 19, 2017 requesting an increase in base rates of $231 million based on a projected twelve-month period ending October 31, 2018. The requested increase in base rates is due primarily to an increase in net plant resulting from infrastructure investments, environmental compliance, and reliability improvement projects. The rate filing also includes projected changes in sales, operation and maintenance expenses, and working capital. The rate filing also requests an increase in return on equity from 10.3%10.1% to 10.5% on capital structure. DTE Electric anticipates self-implementing a capital structurerate increase in November 2017 with an MPSC order expected by April 2018.
PSCR Proceedings
The PSCR process is designed to allow DTE Electric to recover all of 50% equityits power supply costs if incurred under reasonable and 50% debt. On August 1,prudent policies and practices. DTE Electric's power supply costs include fuel and related transportation costs, purchased and net interchange power costs, NOx and SO2 emission allowances costs, urea costs, transmission costs, MISO, and other related costs. The MPSC reviews these costs, policies, and practices for prudence in annual plan and reconciliation filings.
2015 PSCR Year — In March 2016, DTE Electric self-implementedfiled its 2015 PSCR reconciliation. The Administrative Law Judge and certain intervenors in the reconciliation case have challenged the recovery of approximately $13 million of costs related to a base ratecustomer settlement. Resolution of this matter is expected in 2017.
2016 DTE Main Electric Depreciation Case Filing
DTE Electric filed a depreciation case with the MPSC on November 1, 2016 requesting an increase in depreciation rates of $245 million.$156 million when compared to current depreciation rates for Plant in service balances as of December 31, 2015. An MPSC final order in this case is expected by February 2017.
2015 DTE Gas Rate Case Filing
DTE Gas filed a rate case with the MPSC on December 18, 2015 requesting an increase in base rates of $183 million, inclusive of $41 million of existing IRM surcharges which are expected to be converted into base rates, based on a projected twelve-month period ending October 31, 2017. The requested increase in base rates is due primarily to an increase in net plant, inclusive of IRM capital investments being recovered through approved IRM surcharge filings. The rate filing also includes projected changes in sales, operation and maintenance expenses, and working capital. The rate filing also requests an increase in return on equity from 10.5% to 10.75% on a capital structure of 52% equity and 48% debt. Concurrent with the MPSC order in this rate case, the existing IRM surcharge being billed will be terminated. However, DTE Gas requested to implement a new IRM surcharge of approximately $9 million to become effective in January 2017. On May 11, 2016, DTE Gas filed an application with the MPSC for a $103 million self-implemented base rate increase effective November 1, 2016. An MPSC final order in this case is expected by December 2016.2018.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
NOTE 56 — EARNINGS 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. Stock options andEquity units, performance shares, and stock options do not receive cash dividends,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 for the three and nine months ended September 30:calculation:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2017 | | 2016 |
| (In millions, except per share amounts) |
Basic Earnings per Share | |
| | |
|
Net income attributable to DTE Energy Company | $ | 400 |
| | $ | 247 |
|
Less allocation of earnings to net restricted stock awards | (1 | ) | | — |
|
Net income available to common shareholders — basic | $ | 399 |
| | $ | 247 |
|
| | | |
Average number of common shares outstanding | 179 |
| | 179 |
|
Basic Earnings per Common Share | $ | 2.23 |
| | $ | 1.38 |
|
| | | |
Diluted Earnings per Share | | | |
Net income attributable to DTE Energy Company | $ | 400 |
| | $ | 247 |
|
Less allocation of earnings to net restricted stock awards | (1 | ) | | — |
|
Net income available to common shareholders — diluted | $ | 399 |
| | $ | 247 |
|
| | | |
Average number of common shares outstanding | 179 |
| | 180 |
|
Diluted Earnings per Common Share(a) | $ | 2.23 |
| | $ | 1.37 |
|
| |
(a) | The October 2016 Equity Units are potentially dilutive securities but were excluded from the calculation of diluted EPS for the three months ended March 31, 2017, as the dilutive stock price threshold was not met. |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
| (In millions, except per share amounts) |
Basic Earnings per Share | | | | | | | |
Net Income Attributable to DTE Energy Company | $ | 338 |
| | $ | 265 |
| | $ | 737 |
| | $ | 647 |
|
Average number of common shares outstanding | 179 |
| | 179 |
| | 179 |
| | 179 |
|
Dividends declared — common shares | $ | 138 |
| | $ | 131 |
| | $ | 399 |
| | $ | 378 |
|
Dividends declared — net restricted shares | — |
| | — |
| | 1 |
| | 1 |
|
Total distributed earnings | $ | 138 |
| | $ | 131 |
| | $ | 400 |
| | $ | 379 |
|
Net Income less distributed earnings | $ | 200 |
| | $ | 134 |
| | $ | 337 |
| | $ | 268 |
|
Distributed (dividends per common share) | $ | 0.77 |
| | $ | 0.73 |
| | $ | 2.23 |
| | $ | 2.11 |
|
Undistributed | 1.11 |
| | 0.74 |
| | 1.87 |
| | 1.50 |
|
Total Basic Earnings per Common Share | $ | 1.88 |
| | $ | 1.47 |
| | $ | 4.10 |
| | $ | 3.61 |
|
Diluted Earnings per Share | | | | | | | |
Net Income Attributable to DTE Energy Company | $ | 338 |
| | $ | 265 |
| | $ | 737 |
| | $ | 647 |
|
Average number of common shares outstanding | 179 |
| | 180 |
| | 179 |
| | 179 |
|
Average incremental shares from assumed exercise of options | 1 |
| | — |
| | 1 |
| | — |
|
Common shares for dilutive calculation | 180 |
| | 180 |
| | 180 |
| | 179 |
|
Dividends declared — common shares | $ | 138 |
| | $ | 131 |
| | $ | 399 |
| | $ | 378 |
|
Dividends declared — net restricted shares | — |
| | — |
| | 1 |
| | 1 |
|
Total distributed earnings | $ | 138 |
| | $ | 131 |
| | $ | 400 |
| | $ | 379 |
|
Net Income less distributed earnings | $ | 200 |
| | $ | 134 |
| | $ | 337 |
| | $ | 268 |
|
Distributed (dividends per common share) | $ | 0.77 |
| | $ | 0.73 |
| | $ | 2.23 |
| | $ | 2.11 |
|
Undistributed | 1.11 |
| | 0.74 |
| | 1.87 |
| | 1.50 |
|
Total Diluted Earnings per Common Share | $ | 1.88 |
| | $ | 1.47 |
| | $ | 4.10 |
| | $ | 3.61 |
|
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
NOTE 67 — FAIR VALUE
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The 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 September 30, 2016March 31, 2017 and December 31, 2015.2016. The Registrants believe they use valuation techniques that maximize the use of observable market-based inputs and minimize the use of unobservable inputs.
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.
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 as of September 30, 2016 and December 31, 2015:basis:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2016 | | December 31, 2015 |
| 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) | $ | 14 |
| | $ | 3 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 17 |
| | $ | 13 |
| | $ | 3 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 16 |
|
Nuclear decommissioning trusts | 891 |
| | 430 |
| | — |
| | — |
| | — |
| | 1,321 |
| | 759 |
| | 473 |
| | — |
| | 4 |
| | — |
| | 1,236 |
|
Other investments (d) | 165 |
| | — |
| | — |
| | — |
| | — |
| | 165 |
| | 149 |
| | — |
| | — |
| | — |
| | — |
| | 149 |
|
Derivative assets: | |
| | |
| | |
| | |
| | |
| | | | |
| | |
| | |
| | |
| | |
| | |
Commodity Contracts: | |
| | |
| | |
| | |
| | |
| | | | | | | | | | |
| | | | |
Natural Gas | 114 |
| | 106 |
| | 44 |
| | — |
| | (209 | ) | | 55 |
| | 193 |
| | 91 |
| | 103 |
| | — |
| | (285 | ) | | 102 |
|
Electricity | — |
| | 175 |
| | 38 |
| | — |
| | (169 | ) | | 44 |
| | — |
| | 239 |
| | 68 |
| | — |
| | (232 | ) | | 75 |
|
Other | 2 |
| | 2 |
| | 3 |
| | — |
| | (4 | ) | | 3 |
| | 2 |
| | — |
| | 3 |
| | — |
| | (2 | ) | | 3 |
|
Foreign currency exchange contracts | — |
| | 5 |
| | — |
| | — |
| | (5 | ) | | — |
| | — |
| | 12 |
| | — |
| | — |
| | (9 | ) | | 3 |
|
Total derivative assets | 116 |
| | 288 |
| | 85 |
|
| — |
| | (387 | ) | | 102 |
| | 195 |
| | 342 |
| | 174 |
| | — |
|
| (528 | ) | | 183 |
|
Total | $ | 1,186 |
| | $ | 721 |
| | $ | 85 |
|
| $ | — |
| | $ | (387 | ) | | $ | 1,605 |
| | $ | 1,116 |
| | $ | 818 |
| | $ | 174 |
| | $ | 4 |
|
| $ | (528 | ) | | $ | 1,584 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | | | | | | | | |
Derivative liabilities: | | | | | | | | | | | | | | | | | | | | | | | |
Commodity Contracts: | |
| | |
| | |
| | | | |
| | | | |
| | |
| | |
| | | | |
| | |
Natural Gas | $ | (135 | ) | | $ | (82 | ) | | $ | (144 | ) | | $ | — |
| | $ | 218 |
| | $ | (143 | ) | | $ | (218 | ) | | $ | (57 | ) | | $ | (108 | ) | | $ | — |
| | $ | 294 |
| | $ | (89 | ) |
Electricity | — |
| | (182 | ) | | (44 | ) | | — |
| | 185 |
| | (41 | ) | | — |
| | (243 | ) | | (62 | ) | | — |
| | 253 |
| | (52 | ) |
Other | (4 | ) | | (3 | ) | | (4 | ) | | — |
| | 11 |
| | — |
| | (2 | ) | | — |
| | (8 | ) | | — |
| | 8 |
| | (2 | ) |
Foreign currency exchange contracts | — |
| | (3 | ) | | — |
| | — |
| | 3 |
| | — |
| | — |
| | (7 | ) | | — |
| | — |
| | 7 |
| | — |
|
Total derivative liabilities | (139 | ) | | (270 | ) | | (192 | ) | | — |
| | 417 |
| | (184 | ) | | (220 | ) | | (307 | ) | | (178 | ) | | — |
| | 562 |
| | (143 | ) |
Total | $ | (139 | ) | | $ | (270 | ) | | $ | (192 | ) | | $ | — |
| | $ | 417 |
| | $ | (184 | ) | | $ | (220 | ) | | $ | (307 | ) | | $ | (178 | ) | | $ | — |
| | $ | 562 |
| | $ | (143 | ) |
Net Assets (Liabilities) at the end of the period | $ | 1,047 |
| | $ | 451 |
| | $ | (107 | ) | | $ | — |
| | $ | 30 |
| | $ | 1,421 |
| | $ | 896 |
| | $ | 511 |
| | $ | (4 | ) | | $ | 4 |
| | $ | 34 |
| | $ | 1,441 |
|
Assets: | | | | | | | | | | | | | | | | | | | | | | | |
Current | $ | 104 |
| | $ | 220 |
| | $ | 52 |
| | $ | — |
| | $ | (303 | ) | | $ | 73 |
| | $ | 174 |
| | $ | 284 |
| | $ | 128 |
| | $ | — |
| | $ | (441 | ) | | $ | 145 |
|
Noncurrent | 1,082 |
| | 501 |
| | 33 |
| | — |
| | (84 | ) | | 1,532 |
| | 942 |
| | 534 |
| | 46 |
| | 4 |
| | (87 | ) | | 1,439 |
|
Total Assets | $ | 1,186 |
| | $ | 721 |
| | $ | 85 |
| | $ | — |
| | $ | (387 | ) | | $ | 1,605 |
| | $ | 1,116 |
| | $ | 818 |
| | $ | 174 |
| | $ | 4 |
| | $ | (528 | ) | | $ | 1,584 |
|
Liabilities: | | | | | | | | | | | | | | | | | | | | | | | |
Current | $ | (109 | ) | | $ | (207 | ) | | $ | (92 | ) | | $ | — |
| | $ | 323 |
| | $ | (85 | ) | | $ | (174 | ) | | $ | (260 | ) | | $ | (87 | ) | | $ | — |
| | $ | 464 |
| | $ | (57 | ) |
Noncurrent | (30 | ) | | (63 | ) | | (100 | ) | | — |
| | 94 |
| | (99 | ) | | (46 | ) | | (47 | ) | | (91 | ) | | — |
| | 98 |
| | (86 | ) |
Total Liabilities | $ | (139 | ) | | $ | (270 | ) | | $ | (192 | ) | | $ | — |
| | $ | 417 |
| | $ | (184 | ) | | $ | (220 | ) | | $ | (307 | ) | | $ | (178 | ) | | $ | — |
| | $ | 562 |
| | $ | (143 | ) |
Net Assets (Liabilities) at the end of the period | $ | 1,047 |
| | $ | 451 |
| | $ | (107 | ) | | $ | — |
| | $ | 30 |
| | $ | 1,421 |
| | $ | 896 |
| | $ | 511 |
| | $ | (4 | ) | | $ | 4 |
| | $ | 34 |
| | $ | 1,441 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2017 | | December 31, 2016 |
| Level 1 | | Level 2 | | Level 3 | | Netting(a) | | Net Balance | | Level 1 | | Level 2 | | Level 3 | | Netting(a) | | Net Balance |
| (In millions) |
Assets: | | | | | | | | | | | | | | | | | | | |
Cash equivalents(b) | $ | 14 |
| | $ | 3 |
| | $ | — |
| | $ | — |
| | $ | 17 |
| | $ | 14 |
| | $ | 3 |
| | $ | — |
| | $ | — |
| | $ | 17 |
|
Nuclear decommissioning trusts(c) | | | | | | | | | | | | | | | | | | | |
Equity securities | 890 |
| | — |
| | — |
| | — |
| | 890 |
| | 887 |
| | — |
| | — |
| | — |
| | 887 |
|
Fixed income securities | 11 |
| | 460 |
| | — |
| | — |
| | 471 |
| | 11 |
| | 414 |
| | — |
| | — |
| | 425 |
|
Cash equivalents | 3 |
| | — |
| | — |
| | — |
| | 3 |
| | 8 |
| | — |
| | — |
| | — |
| | 8 |
|
Other investments(d) | | | | | | | | | | | | | | | | | | | |
Equity securities | 110 |
| | — |
| | — |
| | — |
| | 110 |
| | 104 |
| | — |
| | — |
| | — |
| | 104 |
|
Fixed income securities | 63 |
| | — |
| | — |
| | — |
| | 63 |
| | 61 |
| | — |
| | — |
| | — |
| | 61 |
|
Derivative assets | |
| | |
| | |
| | |
| | | | |
| | |
| | |
| | |
| | |
Commodity Contracts | |
| | |
| | |
| | |
| | | | | | | | | | | | |
Natural Gas | 82 |
| | 151 |
| | 71 |
| | (206 | ) | | 98 |
| | 216 |
| | 79 |
| | 53 |
| | (306 | ) | | 42 |
|
Electricity | — |
| | 152 |
| | 34 |
| | (146 | ) | | 40 |
| | — |
| | 154 |
| | 39 |
| | (157 | ) | | 36 |
|
Other | — |
| | — |
| | 1 |
| | — |
| | 1 |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Foreign currency exchange contracts | — |
| | 5 |
| | — |
| | (3 | ) | | 2 |
| | — |
| | 6 |
| | — |
| | (5 | ) | | 1 |
|
Total derivative assets | 82 |
| | 308 |
| | 106 |
|
| (355 | ) | | 141 |
| | 216 |
| | 239 |
| | 94 |
| | (468 | ) | | 81 |
|
Total | $ | 1,173 |
| | $ | 771 |
| | $ | 106 |
|
| $ | (355 | ) | | $ | 1,695 |
| | $ | 1,301 |
| | $ | 656 |
| | $ | 94 |
| | $ | (468 | ) | | $ | 1,583 |
|
Liabilities: | | | | | | | | | | | | | | | | | | | |
Derivative liabilities | | | | | | | | | | | | | | | | | | | |
Commodity Contracts | |
| | |
| | |
| | |
| | | | |
| | |
| | |
| | |
| | |
Natural Gas | $ | (82 | ) | | $ | (121 | ) | | $ | (86 | ) | | $ | 202 |
| | $ | (87 | ) | | $ | (226 | ) | | $ | (86 | ) | | $ | (149 | ) | | $ | 321 |
| | $ | (140 | ) |
Electricity | — |
| | (157 | ) | | (40 | ) | | 158 |
| | (39 | ) | | — |
| | (159 | ) | | (30 | ) | | 163 |
| | (26 | ) |
Other | — |
| | — |
| | (3 | ) | | 3 |
| | — |
| | — |
| | — |
| | (3 | ) | | 2 |
| | (1 | ) |
Foreign currency exchange contracts | — |
| | (2 | ) | | — |
| | 2 |
| | — |
| | — |
| | (3 | ) | | — |
| | 3 |
| | — |
|
Total derivative liabilities | (82 | ) | | (280 | ) | | (129 | ) | | 365 |
| | (126 | ) | | (226 | ) | | (248 | ) | | (182 | ) | | 489 |
| | (167 | ) |
Total | $ | (82 | ) | | $ | (280 | ) | | $ | (129 | ) | | $ | 365 |
| | $ | (126 | ) | | $ | (226 | ) | | $ | (248 | ) | | $ | (182 | ) | | $ | 489 |
| | $ | (167 | ) |
Net Assets (Liabilities) at end of period | $ | 1,091 |
| | $ | 491 |
| | $ | (23 | ) | | $ | 10 |
| | $ | 1,569 |
| | $ | 1,075 |
| | $ | 408 |
| | $ | (88 | ) | | $ | 21 |
| | $ | 1,416 |
|
Assets: | | | | | | | | | | | | | | | | | | | |
Current | $ | 78 |
| | $ | 228 |
| | $ | 60 |
| | $ | (281 | ) | | $ | 85 |
| | $ | 205 |
| | $ | 199 |
| | $ | 60 |
| | $ | (400 | ) | | $ | 64 |
|
Noncurrent | 1,095 |
| | 543 |
| | 46 |
| | (74 | ) | | 1,610 |
| | 1,096 |
| | 457 |
| | 34 |
| | (68 | ) | | 1,519 |
|
Total Assets | $ | 1,173 |
| | $ | 771 |
| | $ | 106 |
| | $ | (355 | ) | | $ | 1,695 |
| | $ | 1,301 |
| | $ | 656 |
| | $ | 94 |
| | $ | (468 | ) | | $ | 1,583 |
|
Liabilities: | | | | | | | | | | | | | | | | | | | |
Current | $ | (63 | ) | | $ | (213 | ) | | $ | (36 | ) | | $ | 279 |
| | $ | (33 | ) | | $ | (203 | ) | | $ | (211 | ) | | $ | (79 | ) | | $ | 424 |
| | $ | (69 | ) |
Noncurrent | (19 | ) | | (67 | ) | | (93 | ) | | 86 |
| | (93 | ) | | (23 | ) | | (37 | ) | | (103 | ) | | 65 |
| | (98 | ) |
Total Liabilities | $ | (82 | ) | | $ | (280 | ) | | $ | (129 | ) | | $ | 365 |
| | $ | (126 | ) | | $ | (226 | ) | | $ | (248 | ) | | $ | (182 | ) | | $ | 489 |
| | $ | (167 | ) |
Net Assets (Liabilities) at end of period | $ | 1,091 |
| | $ | 491 |
| | $ | (23 | ) | | $ | 10 |
| | $ | 1,569 |
| | $ | 1,075 |
| | $ | 408 |
| | $ | (88 | ) | | $ | 21 |
| | $ | 1,416 |
|
| |
(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)(b) | At September 30,March 31, 2017 and December 31, 2016, available-for-sale securities of $17 million, included $6$7 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, 2015, available-for-sale securities of $16 million, included $8 million and $8$10 million of cash equivalents included in Restricted cash and Other investments on DTE Energy's Consolidated Statements of Financial Position, respectively. |
| |
(c) | At March 31, 2017, the Nuclear Decommissioning Master Trust had outstanding commitments to invest in private equity investments of approximately $15 million. These commitments will be funded by existing nuclear decommissioning trust funds. |
| |
(d) | Excludes cash surrender value of life insurance investments. |
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 September 30, 2016 and December 31, 2015:of:
| | | September 30, 2016 | | December 31, 2015 | March 31, 2017 | | December 31, 2016 |
| Level 1 | | Level 2 | | Level 3 | | Other (a) | | Net Balance | | Level 1 | | Level 2 | | Level 3 | | Other (a) | | Net Balance | Level 1 | | Level 2 | | Level 3 | | Net Balance | | Level 1 | | Level 2 | | Level 3 | | Net Balance |
| (In millions) | (In millions) |
Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash equivalents (b)(a) | $ | 8 |
| | $ | 3 |
| | $ | — |
| | $ | — |
| | $ | 11 |
| | $ | 5 |
| | $ | 3 |
| | $ | — |
| | $ | — |
| | $ | 8 |
| $ | 8 |
| | $ | 3 |
| | $ | — |
| | $ | 11 |
| | $ | 8 |
| | $ | 3 |
| | $ | — |
| | $ | 11 |
|
Nuclear decommissioning trusts(b) | 891 |
| | 430 |
| | — |
| | — |
| | 1,321 |
| | 759 |
| | 473 |
| | — |
| | 4 |
| | 1,236 |
| | | | | | | | | | | | | | | |
Equity securities | | 890 |
| | — |
| | — |
| | 890 |
| | 887 |
| | — |
| | — |
| | 887 |
|
Fixed income securities | | 11 |
| | 460 |
| | — |
| | 471 |
| | 11 |
| | 414 |
| | — |
| | 425 |
|
Cash equivalents | | 3 |
| | — |
| | — |
| | 3 |
| | 8 |
| | — |
| | — |
| | 8 |
|
Other investments | 8 |
| | — |
| | — |
| | — |
| | 8 |
| | 8 |
| | — |
| | — |
| | — |
| | 8 |
| | | | | | | | | | | | | | | |
Equity securities | | 9 |
| | — |
| | — |
| | 9 |
| | 9 |
| | — |
| | — |
| | 9 |
|
Derivative assets — FTRs | — |
| | — |
| | 3 |
| | — |
| | 3 |
| | — |
| | — |
| | 3 |
| | — |
| | 3 |
| — |
| | — |
| | 1 |
| | 1 |
| | — |
| | — |
| | 2 |
| | 2 |
|
Total | $ | 907 |
| | $ | 433 |
| | $ | 3 |
| | $ | — |
| | $ | 1,343 |
| | $ | 772 |
| | $ | 476 |
| | $ | 3 |
| | $ | 4 |
| | $ | 1,255 |
| $ | 921 |
| | $ | 463 |
| | $ | 1 |
| | $ | 1,385 |
| | $ | 923 |
| | $ | 417 |
| | $ | 2 |
| | $ | 1,342 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | $ | 8 |
| | $ | 3 |
| | $ | 3 |
| | $ | — |
| | $ | 14 |
| | $ | 5 |
| | $ | 3 |
| | $ | 3 |
| | $ | — |
| | $ | 11 |
| $ | 8 |
| | $ | 3 |
| | $ | 1 |
| | $ | 12 |
| | $ | 8 |
| | $ | 3 |
| | $ | 2 |
| | $ | 13 |
|
Noncurrent | 899 |
| | 430 |
| | — |
| | — |
| | 1,329 |
| | 767 |
| | 473 |
| | — |
| | 4 |
| | 1,244 |
| 913 |
| | 460 |
| | — |
| | 1,373 |
| | 915 |
| | 414 |
| | — |
| | 1,329 |
|
Total Assets | $ | 907 |
| | $ | 433 |
| | $ | 3 |
| | $ | — |
| | $ | 1,343 |
| | $ | 772 |
| | $ | 476 |
| | $ | 3 |
| | $ | 4 |
| | $ | 1,255 |
| $ | 921 |
| | $ | 463 |
| | $ | 1 |
| | $ | 1,385 |
| | $ | 923 |
| | $ | 417 |
| | $ | 2 |
| | $ | 1,342 |
|
| |
(a) | Amounts represent assets valued at NAV as a practical expedient for fair value. |
| |
(b) | At September 30,March 31, 2017 and December 31, 2016, available-for-sale securities of $11 million consisted of cash equivalents included in Other investments on DTE Electric's Consolidated Statements of Financial Position. Position, respectively. |
| |
(b) | At DecemberMarch 31, 2015, available-for-sale securities2017, the Nuclear Decommissioning Master Trust had outstanding commitments to invest in private equity investments of $8 million consisted of cash equivalents included in Other investments on DTE Electric's Consolidated Statements of Financial Position.approximately $15 million. These commitments will be funded by existing nuclear decommissioning trust funds. |
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. 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. The commingled funds hold exchange-traded equity or debt securities (exchange and non-exchange traded) and are valued based on a calculated NAV as a practical expedient. A primary price source is identified by asset type, class, or issue for each security. The trustee monitors prices supplied by pricing services and may use a supplemental price source or change the primary price source of a given security if the trustee determines that another price source is considered to be preferable. 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.
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 tables presenttable presents the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for DTE Energy for the three and nine months ended September 30, 2016 and 2015:Energy:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2016 | | Three Months Ended September 30, 2015 |
| Natural Gas | | Electricity | | Other | | Total | | Natural Gas | | Electricity | | Other | | Total |
| (In millions) |
Net Assets (Liabilities) as of June 30 | $ | (62 | ) | | $ | (6 | ) | | $ | (1 | ) | | $ | (69 | ) | | $ | (8 | ) | | $ | 3 |
| | $ | 1 |
| | $ | (4 | ) |
Transfers into Level 3 from Level 2 | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Transfers from Level 3 into Level 2 | (1 | ) | | — |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
|
Total gains (losses): | | | | | | | | | | | | | | | |
Included in earnings | (65 | ) | | 24 |
| | — |
| | (41 | ) | | 24 |
| | 18 |
| | (3 | ) | | 39 |
|
Recorded in Regulatory liabilities | — |
| | — |
| | 2 |
| | 2 |
| | — |
| | — |
| | 3 |
| | 3 |
|
Purchases, issuances, and settlements: | | | | | | | | | | | | | | | |
Settlements | 28 |
| | (24 | ) | | (2 | ) | | 2 |
| | 5 |
| | (18 | ) | | (2 | ) | | (15 | ) |
Net Assets (Liabilities) as of September 30 | $ | (100 | ) | | $ | (6 | ) | | $ | (1 | ) | | $ | (107 | ) | | $ | 21 |
| | $ | 3 |
| | $ | (1 | ) | | $ | 23 |
|
The amount of total gains (losses) included in Net Income attributed to the change in unrealized gains (losses) related to assets and liabilities held at September 30, 2016 and 2015 and reflected in Operating Revenues — Non-utility operations and Fuel, purchased power, and gas — non-utility in DTE Energy's Consolidated Statements of Operations | $ | (50 | ) | | $ | 6 |
| | $ | — |
| | $ | (44 | ) | | $ | 18 |
| | $ | (3 | ) | | $ | (3 | ) | | $ | 12 |
|
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2016 | | Nine Months Ended September 30, 2015 |
| Natural Gas | | Electricity | | Other | | Total | | Natural Gas | | Electricity | | Other | | Total |
| (In millions) |
Net Assets (Liabilities) as of December 31 | $ | (5 | ) | | $ | 6 |
| | $ | (5 | ) | | $ | (4 | ) | | $ | 30 |
| | $ | (5 | ) | | $ | (1 | ) | | $ | 24 |
|
Transfers into Level 3 from Level 2 | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Transfers from Level 3 into Level 2 | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total gains (losses): | | | | | | | | | | | | | | | |
Included in earnings | (123 | ) | | (22 | ) | | 1 |
| | (144 | ) | | (11 | ) | | 42 |
| | (5 | ) | | 26 |
|
Recorded in Regulatory liabilities | — |
| | — |
| | 6 |
| | 6 |
| | — |
| | — |
| | 14 |
| | 14 |
|
Purchases, issuances, and settlements: | | | | | | | | | | | | | | | |
Purchases | — |
| | 1 |
| | — |
| | 1 |
| | — |
| | 2 |
| | — |
| | 2 |
|
Settlements | 28 |
| | 9 |
| | (3 | ) | | 34 |
| | 2 |
| | (36 | ) | | (9 | ) | | (43 | ) |
Net Assets (Liabilities) as of September 30 | $ | (100 | ) | | $ | (6 | ) | | $ | (1 | ) | | $ | (107 | ) | | $ | 21 |
| | $ | 3 |
| | $ | (1 | ) | | $ | 23 |
|
The amount of total gains (losses) included in Net Income attributed to the change in unrealized gains (losses) related to assets and liabilities held at September 30, 2016 and 2015 and reflected in Operating Revenues — Non-utility operations and Fuel, purchased power, and gas — non-utility in DTE Energy's Consolidated Statements of Operations | $ | (165 | ) | | $ | (1 | ) | | $ | 2 |
| | $ | (164 | ) | | $ | (94 | ) | | $ | 8 |
| | $ | (4 | ) | | $ | (90 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2017 | | Three Months Ended March 31, 2016 |
| Natural Gas | | Electricity | | Other | | Total | | Natural Gas | | Electricity | | Other | | Total |
| (In millions) |
Net Assets (Liabilities) as of January 1 | $ | (96 | ) | | $ | 9 |
| | $ | (1 | ) | | $ | (88 | ) | | $ | (5 | ) | | $ | 6 |
| | $ | (5 | ) | | $ | (4 | ) |
Transfers into Level 3 from Level 2 | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Transfers from Level 3 into Level 2 | — |
| | — |
| | — |
| | — |
| | (1 | ) | | — |
| | — |
| | (1 | ) |
Total gains (losses) | | | | | | | | | | | | | | | |
Included in earnings | 52 |
| | (9 | ) | | 1 |
| | 44 |
| | (20 | ) | | (58 | ) | | (1 | ) | | (79 | ) |
Recorded in Regulatory liabilities | — |
| | — |
| | 2 |
| | 2 |
| | — |
| | — |
| | (2 | ) | | (2 | ) |
Purchases, issuances, and settlements | | | | | | | | | | | | | | | |
Settlements | 29 |
| | (6 | ) | | (4 | ) | | 19 |
| | (8 | ) | | 36 |
| | 1 |
| | 29 |
|
Net Liabilities as of March 31 | $ | (15 | ) | | $ | (6 | ) | | $ | (2 | ) | | $ | (23 | ) | | $ | (34 | ) | | $ | (16 | ) | | $ | (7 | ) | | $ | (57 | ) |
The amount of total gains (losses) included in Net Income attributed to the change in unrealized gains (losses) related to assets and liabilities held at March 31, 2017 and 2016 and reflected in Operating Revenues — Non-utility operations and Fuel, purchased power, and gas — non-utility in DTE Energy's Consolidated Statements of Operations | $ | 35 |
| | $ | (3 | ) | | $ | — |
| | $ | 32 |
| | $ | (72 | ) | | $ | (3 | ) | | $ | (1 | ) | | $ | (76 | ) |
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 for the three and nine months ended September 30, 2016 and 2015:Electric:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
| (In millions) |
Net Assets as of beginning of period | $ | 4 |
| | $ | 5 |
| | $ | 3 |
| | $ | 3 |
|
Change in fair value recorded in Regulatory liabilities | 2 |
| | 3 |
| | 6 |
| | 14 |
|
Purchases, issuances, and settlements: | | | | | | | |
Settlements | (3 | ) | | (3 | ) | | (6 | ) | | (12 | ) |
Net Assets as of September 30 | $ | 3 |
| | $ | 5 |
| | $ | 3 |
| | $ | 5 |
|
The amount of total gains (losses) included in Regulatory liabilities attributed to the change in unrealized gains (losses) related to assets held at September 30, 2016 and 2015 and reflected in DTE Electric's Consolidated Statements of Financial Position | $ | 1 |
| | $ | 1 |
| | $ | 3 |
| | $ | 5 |
|
|
| | | | | | | |
| Three Months Ended March 31, |
| 2017 | | 2016 |
| (In millions) |
Net Assets as of January 1 | $ | 2 |
| | $ | 3 |
|
Change in fair value recorded in Regulatory liabilities | 2 |
| | (2 | ) |
Purchases, issuances, and settlements | | | |
Settlements | (3 | ) | | — |
|
Net Assets as of March 31 | $ | 1 |
| | $ | 1 |
|
The amount of total gains (losses) included in Regulatory liabilities attributed to the change in unrealized gains (losses) related to assets held at March 31, 2017 and 2016 and reflected in DTE Electric's Consolidated Statements of Financial Position | $ | — |
| | $ | — |
|
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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 nine months ended September 30,March 31, 2017 and 2016, and 2015, and there were no transfers from or into Level 3 for DTE Electric during the same periods.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
The following tables present the unobservable inputs related to DTE Energy's Level 3 assets and liabilities as of September 30, 2016 and December 31, 2015:liabilities:
| | | | September 30, 2016 | | | | | | | | March 31, 2017 | | | | | | |
Commodity Contracts | | Derivative Assets | | Derivative Liabilities | | Valuation Techniques | | Unobservable Input | | Range | | Weighted Average | | Derivative Assets | | Derivative Liabilities | | Valuation Techniques | | Unobservable Input | | Range | | Weighted Average |
| | (In millions) | | | | | | | | (In millions) | | | | | | |
Natural Gas | | $ | 44 |
| | $ | (144 | ) | | Discounted Cash Flow | | Forward basis price (per MMBtu) | | $ | (2.08 | ) — | | $ | 5.75 | /MMBtu | | $ | (0.07 | )/MMBtu | | $ | 71 |
| | $ | (86 | ) | | Discounted Cash Flow | | Forward basis price (per MMBtu) | | $ | (0.87 | ) | — | | $ | 6.25 | /MMBtu | | $ | (0.14 | )/MMBtu |
Electricity | | $ | 38 |
| | $ | (44 | ) | | Discounted Cash Flow | | Forward basis price (per MWh) | | $ | (10 | ) — | | $ | 14 | /MWh | | $ | 1 | /MWh | | $ | 34 |
| | $ | (40 | ) | | Discounted Cash Flow | | Forward basis price (per MWh) | | $ | (6 | ) | — | | $ | 8 | /MWh | | $ | 1 | /MWh |
| | | | December 31, 2015 | | | | | | | | December 31, 2016 | | | | | | |
Commodity Contracts | | Derivative Assets | | Derivative Liabilities | | Valuation Techniques | | Unobservable Input | | Range | | Weighted Average | | Derivative Assets | | Derivative Liabilities | | Valuation Techniques | | Unobservable Input | | Range | | Weighted Average |
| | (In millions) | | | | | | | | (In millions) | | | | | | |
Natural Gas | | $ | 103 |
| | $ | (108 | ) | | Discounted Cash Flow | | Forward basis price (per MMBtu) | | $ | (1.50 | ) — | | $ | 2.77 | /MMBtu | | $ | (0.19 | )/MMBtu | | $ | 53 |
| | $ | (149 | ) | | Discounted Cash Flow | | Forward basis price (per MMBtu) | | $ | (1.00 | ) | — | | $ | 7.90 | /MMBtu | | $ | (0.05 | )/MMBtu |
Electricity | | $ | 68 |
| | $ | (62 | ) | | Discounted Cash Flow | | Forward basis price (per MWh) | | $ | (11 | ) — | | $ | 14 | /MWh | | $ | 2 | /MWh | | $ | 39 |
| | $ | (30 | ) | | Discounted Cash Flow | | Forward basis price (per MWh) | | $ | (6 | ) | — | | $ | 12 | /MWh | | $ | 1 | /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 fair value of financial instruments included in the table below is determined by using quoted market prices when available. When quoted prices are not available, pricing services may be used to determine the fair value with reference to observable interest rate indexes. The Registrants have obtained an understanding of how the fair values are derived. The Registrants also selectively corroborate the fair value of their transactions by comparison of market-based price sources. Discounted cash flow analyses based upon estimated current borrowing rates are also used to determine fair value when quoted market prices are not available. The fair values of notes receivable, excluding capital leases, and notes payable are generally estimated using discounted cash flow techniques that incorporate market interest rates as well as assumptions about the remaining life of the loans and credit risk. Depending on the information available, other valuation techniques may be used that rely on internal assumptions and models. Valuation policies and procedures for the Registrants are determined by DTE Energy's Treasury Department which reports to DTE Energy's Vice President and Treasurer.Treasurer and DTE Energy's Controller's Department which reports to DTE Energy's Vice President and Controller.
The following table presents the carrying amount and fair value of financial instruments for DTE Energy as of September 30, 2016 and December 31, 2015:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2016 | | December 31, 2015 |
| Carrying | | Fair Value | | Carrying | | Fair Value |
| Amount | | Level 1 | | Level 2 | | Level 3 | | Amount | | Level 1 | | Level 2 | | Level 3 |
| (In millions) |
Notes receivable, excluding capital leases | $ | 33 |
| | $ | — |
| | $ | — |
| | $ | 33 |
| | $ | 32 |
| | $ | — |
| | $ | — |
| | $ | 32 |
|
Dividends payable | $ | 138 |
| | $ | 138 |
| | $ | — |
| | $ | — |
| | $ | 131 |
| | $ | 131 |
| | $ | — |
| | $ | — |
|
Short-term borrowings | $ | 410 |
| | $ | — |
| | $ | 410 |
| | $ | — |
| | $ | 499 |
| | $ | — |
| | $ | 499 |
| | $ | — |
|
Notes payable (a) | $ | 15 |
| | $ | — |
| | $ | — |
| | $ | 15 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Long-term debt, excluding capital leases | $ | 9,481 |
| | $ | 802 |
| | $ | 8,588 |
| | $ | 1,322 |
| | $ | 9,210 |
| | $ | 496 |
| | $ | 8,136 |
| | $ | 1,203 |
|
| |
(a) | Included in Current Liabilities — Other and Other Liabilities — Other on DTE Energy's Consolidated Statements of Financial Position. |
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
The following table presents the carrying amount and fair value of financial instruments for DTE Electric as of September 30, 2016 and December 31, 2015:Energy:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2016 | | December 31, 2015 |
| Carrying | | Fair Value | | Carrying | | Fair Value |
| Amount | | Level 1 | | Level 2 | | Level 3 | | Amount | | Level 1 | | Level 2 | | Level 3 |
| (In millions) |
Notes receivable, excluding capital leases | $ | 5 |
| | $ | — |
| | $ | — |
| | $ | 5 |
| | $ | 5 |
| | $ | — |
| | $ | — |
| | $ | 5 |
|
Notes receivable — affiliates | $ | 64 |
| | $ | — |
| | $ | — |
| | $ | 64 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Short-term borrowings — affiliates | $ | 112 |
| | $ | — |
| | $ | — |
| | $ | 112 |
| | $ | 75 |
| | $ | — |
| | $ | — |
| | $ | 75 |
|
Short-term borrowings — other | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 272 |
| | $ | — |
| | $ | 272 |
| | $ | — |
|
Notes payable — other (a) | $ | 4 |
| | $ | — |
| | $ | — |
| | $ | 4 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Long-term debt, excluding capital leases | $ | 5,877 |
| | $ | — |
| | $ | 6,082 |
| | $ | 602 |
| | $ | 5,588 |
| | $ | — |
| | $ | 5,432 |
| | $ | 545 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2017 | | December 31, 2016 |
| Carrying | | Fair Value | | Carrying | | Fair Value |
| Amount | | Level 1 | | Level 2 | | Level 3 | | Amount | | Level 1 | | Level 2 | | Level 3 |
| (In millions) |
Notes receivable, excluding capital leases | $ | 31 |
| | $ | — |
| | $ | — |
| | $ | 31 |
| | $ | 36 |
| | $ | — |
| | $ | — |
| | $ | 36 |
|
Dividends payable | $ | 148 |
| | $ | 148 |
| | $ | — |
| | $ | — |
| | $ | 148 |
| | $ | 148 |
| | $ | — |
| | $ | — |
|
Short-term borrowings | $ | 59 |
| | $ | — |
| | $ | 59 |
| | $ | — |
| | $ | 499 |
| | $ | — |
| | $ | 499 |
| | $ | — |
|
Notes payable — Other(a) | $ | 18 |
| | $ | — |
| | $ | — |
| | $ | 18 |
| | $ | 17 |
| | $ | — |
| | $ | — |
| | $ | 17 |
|
Long-term debt(b) | $ | 11,762 |
| | $ | 1,505 |
| | $ | 9,874 |
| | $ | 1,044 |
| | $ | 11,270 |
| | $ | 1,465 |
| | $ | 9,384 |
| | $ | 1,056 |
|
| |
(a) | Included in Current Liabilities — Other and Other Liabilities — Other on DTE Energy's Consolidated Statements of Financial Position. |
| |
(b) | Includes debt due within one year, unamortized debt discounts, premiums, and issuance costs. Excludes Capital lease obligations. |
The following table presents the carrying amount and fair value of financial instruments for DTE Electric:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2017 | | December 31, 2016 |
| Carrying | | Fair Value | | Carrying | | Fair Value |
| Amount | | Level 1 | | Level 2 | | Level 3 | | Amount | | Level 1 | | Level 2 | | Level 3 |
| (In millions) |
Notes receivable, excluding capital leases | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | — |
| | $ | 5 |
|
Short-term borrowings — affiliates | $ | 205 |
| | $ | — |
| | $ | — |
| | $ | 205 |
| | $ | 117 |
| | $ | — |
| | $ | — |
| | $ | 117 |
|
Short-term borrowings — other | $ | 59 |
| | $ | — |
| | $ | 59 |
| | $ | — |
| | $ | 62 |
| | $ | — |
| | $ | 62 |
| | $ | — |
|
Notes payable — Other(a) | $ | 6 |
| | $ | — |
| | $ | — |
| | $ | 6 |
| | $ | 6 |
| | $ | — |
| | $ | — |
| | $ | 6 |
|
Long-term debt(b) | $ | 5,879 |
| | $ | — |
| | $ | 6,016 |
| | $ | 262 |
| | $ | 5,878 |
| | $ | — |
| | $ | 6,026 |
| | $ | 264 |
|
| |
(a) | Included in Current Liabilities — Other and Other Liabilities — Other on DTE Electric's Consolidated Statements of Financial Position. |
| |
(b) | 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 78 to the Consolidated Financial Statements, "Financial and Other Derivative Instruments."
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:
| | | September 30, 2016 | | December 31, 2015 | March 31, 2017 | | December 31, 2016 |
| (In millions) | (In millions) |
Fermi 2 | $ | 1,292 |
| | $ | 1,211 |
| $ | 1,350 |
| | $ | 1,291 |
|
Fermi 1 | 3 |
| | 3 |
| 3 |
| | 3 |
|
Low-level radioactive waste | 26 |
| | 22 |
| 11 |
| | 26 |
|
Total | $ | 1,321 |
| | $ | 1,236 |
| $ | 1,364 |
| | $ | 1,320 |
|
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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 September 30, | | Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
| (In millions) |
Realized gains | $ | 13 |
| | $ | 8 |
| | $ | 59 |
| | $ | 30 |
|
Realized losses | $ | (8 | ) | | $ | (10 | ) | | $ | (48 | ) | | $ | (23 | ) |
Proceeds from sale of securities | $ | 394 |
| | $ | 187 |
| | $ | 1,135 |
| | $ | 627 |
|
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
|
| | | | | | | |
| Three Months Ended March 31, |
| 2017 | | 2016 |
| (In millions) |
Realized gains | $ | 23 |
| | $ | 9 |
|
Realized losses | $ | (8 | ) | | $ | (15 | ) |
Proceeds from sale of securities | $ | 394 |
| | $ | 260 |
|
Realized gains and losses from the sale of securities for Fermi 2 are recorded to the Regulatory asset and Nuclear decommissioning liability. Realized gains and losses from the sale of securities for 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:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2016 | | December 31, 2015 |
| Fair Value | | Unrealized Gains | | Unrealized Losses | | Fair Value | | Unrealized Gains | | Unrealized Losses |
| (In millions) |
Equity securities | $ | 872 |
| | $ | 213 |
| | $ | (47 | ) | | $ | 731 |
| | $ | 195 |
| | $ | (68 | ) |
Debt securities | 439 |
| | 25 |
| | (1 | ) | | 499 |
| | 16 |
| | (4 | ) |
Cash and cash equivalents | 10 |
| | — |
| | — |
| | 6 |
| | — |
| | — |
|
| $ | 1,321 |
| | $ | 238 |
| | $ | (48 | ) | | $ | 1,236 |
| | $ | 211 |
| | $ | (72 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2017 | | December 31, 2016 |
| Fair Value | | Unrealized Gains | | Unrealized Losses | | Fair Value | | Unrealized Gains | | Unrealized Losses |
| (In millions) |
Equity securities | $ | 890 |
| | $ | 250 |
| | $ | (38 | ) | | $ | 887 |
| | $ | 222 |
| | $ | (46 | ) |
Fixed income securities | 471 |
| | 12 |
| | (4 | ) | | 425 |
| | 11 |
| | (5 | ) |
Cash equivalents | 3 |
| | — |
| | — |
| | 8 |
| | — |
| | — |
|
| $ | 1,364 |
| | $ | 262 |
| | $ | (42 | ) | | $ | 1,320 |
| | $ | 233 |
| | $ | (51 | ) |
The debtfollowing table summarizes the fair value of the fixed income securities at September 30, 2016 and December 31, 2015 had an average maturity of approximately 7 and 6 years, respectively. held in nuclear decommissioning trust funds by contractual maturity:
|
| | | |
| March 31, 2017 |
| (In millions) |
Due within one year | $ | 19 |
|
Due after one through five years | 109 |
|
Due after five through ten years | 91 |
|
Due after ten years | 252 |
|
| $ | 471 |
|
Securities held in the Nuclear decommissioning trust funds are classified as available-for-sale. As DTE Electric does not have the ability to hold impaired investments for a period of time sufficient to allow for the anticipated recovery of market value, all unrealized losses are considered to be other-than-temporary impairments.
Unrealized losses incurred by the Fermi 2 trust are recognized as a Regulatory asset and Nuclear decommissioning liability. Unrealized losses on the low-level radioactive waste funds are recognized as a Nuclear decommissioning liability.
Other Securities
At September 30, 2016March 31, 2017 and December 31, 2015,2016, the Registrants' securities were comprised primarily of money market and equity securities. There were no unrealized losses on available-for-sale securities which were reclassified out of Other comprehensive income (loss) and realized into Net Income for DTE Energy or DTE Electric during the three and nine months ended September 30, 2016March 31, 2017 and 2015.2016. Gains related to trading securities held at September 30,March 31, 2017 and 2016 were $15$8 million and losses related to trading securities held at September 30, 2015 were $2$5 million, respectively, for the Registrants. The trading gains or losses related to the Rabbi Trust assets, included in Other investments at DTE Energy, are allocated from DTE Energy to DTE Electric.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
NOTE 78 — FINANCIAL 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 Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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 2019.2020. 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.
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.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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 September 30, 2016March 31, 2017 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.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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.
The following table presents the fair value of derivative instruments as of September 30, 2016 and December 31, 2015 for DTE Energy:
| | | September 30, 2016 | | December 31, 2015 | March 31, 2017 | | December 31, 2016 |
| Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities |
| (In millions) | (In millions) |
Derivatives not designated as hedging instruments: | | | | | | | | |
Commodity Contracts: | | | | | |
| | |
| |
Derivatives not designated as hedging instruments | | | | | | | | |
Commodity Contracts | | | | | | |
| | |
|
Natural Gas | $ | 264 |
| | $ | (361 | ) | | $ | 387 |
| | $ | (383 | ) | $ | 304 |
| | $ | (289 | ) | | $ | 348 |
| | $ | (461 | ) |
Electricity | 213 |
| | (226 | ) | | 307 |
| | (305 | ) | 186 |
| | (197 | ) | | 193 |
| | (189 | ) |
Other | 7 |
| | (11 | ) | | 5 |
| | (10 | ) | 1 |
| | (3 | ) | | 2 |
| | (3 | ) |
Foreign currency exchange contracts | 5 |
| | (3 | ) | | 12 |
| | (7 | ) | 5 |
| | (2 | ) | | 6 |
| | (3 | ) |
Total derivatives not designated as hedging instruments: | $ | 489 |
| | $ | (601 | ) | | $ | 711 |
| | $ | (705 | ) | |
Total derivatives not designated as hedging instruments | | $ | 496 |
| | $ | (491 | ) | | $ | 549 |
| | $ | (656 | ) |
| | | | | | | | | | | | | | |
Current | $ | 359 |
| | $ | (408 | ) | | $ | 570 |
| | $ | (521 | ) | $ | 349 |
| | $ | (312 | ) | | $ | 447 |
| | $ | (493 | ) |
Noncurrent | 130 |
| | (193 | ) | | 141 |
| | (184 | ) | 147 |
| | (179 | ) | | 102 |
| | (163 | ) |
Total derivatives | $ | 489 |
| | $ | (601 | ) | | $ | 711 |
| | $ | (705 | ) | $ | 496 |
| | $ | (491 | ) | | $ | 549 |
| | $ | (656 | ) |
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
The following table presents the fair value of derivative instruments as of September 30, 2016 and December 31, 2015 for DTE Electric:
| | | September 30, 2016 | | December 31, 2015 | March 31, 2017 | | December 31, 2016 |
| (In millions) | (In millions) |
FTRs — Other current assets | $ | 3 |
| | $ | 3 |
| $ | 1 |
| | $ | 2 |
|
Total derivatives not designated as hedging instrument | $ | 3 |
| | $ | 3 |
| $ | 1 |
| | $ | 2 |
|
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 approximately $1$3 million and $7$2 million outstanding at September 30, 2016March 31, 2017 and December 31, 2015,2016, 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 $4 million and $2 million at September 30, 2016March 31, 2017 and December 31, 2015,2016, 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.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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. Certain contracts that have netting arrangements have not been offset in DTE Energy's Consolidated Statements of Financial Position. The impact of netting these derivative instruments and cash collateral related to such contracts is not material. Only the gross amounts for these derivative instruments are included in the table below.
For DTE Energy, the total cash collateral posted, net of cash collateral received, was $37$48 million and $34 million as of September 30, 2016March 31, 2017 and December 31, 2015,2016, respectively. DTE Energy had $6$3 million of cash collateral related to unrealized positions to net against Derivative assets while Derivative liabilities are shown net of cash collateral of $36$13 million as of September 30, 2016.March 31, 2017. DTE Energy had $2$7 million of cash collateral related to unrealized positions to net against Derivative assets while Derivative liabilities are shown net of cash collateral of $36$28 million as of December 31, 2015. DTE Energy recorded cash collateral paid of $8 million and cash collateral received of $1 million not related to unrealized derivative positions as of September 30, 2016. DTE Energy recorded cash collateral paid of $6$41 million and cash collateral received of $3 million not related to unrealized derivative positions as of March 31, 2017. DTE Energy recorded cash collateral paid of $18 million and cash collateral received of $5 million not related to unrealized derivative positions as of December 31, 2015.2016. These amounts are included in Accounts receivable and Accounts payable and are recorded net by counterparty.
The following table presents the netting offsets of Derivative assets and liabilities for DTE Energy at September 30, 2016 and December 31, 2015:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2016 | | December 31, 2015 |
| 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 | $ | 264 |
| | $ | (209 | ) | | $ | 55 |
| | $ | 387 |
| | $ | (285 | ) | | $ | 102 |
|
Electricity | 213 |
| | (169 | ) | | 44 |
| | 307 |
| | (232 | ) | | 75 |
|
Other | 7 |
| | (4 | ) | | 3 |
| | 5 |
| | (2 | ) | | 3 |
|
Foreign currency exchange contracts | 5 |
| | (5 | ) | | — |
| | 12 |
| | (9 | ) | | 3 |
|
Total derivative assets | $ | 489 |
| | $ | (387 | ) | | $ | 102 |
| | $ | 711 |
| | $ | (528 | ) | | $ | 183 |
|
| | | | | | | | | | | |
Derivative liabilities: | | | | | | | | | | | |
Commodity Contracts: | | | | | | | | | | | |
Natural Gas | $ | (361 | ) | | $ | 218 |
| | $ | (143 | ) | | $ | (383 | ) | | $ | 294 |
| | $ | (89 | ) |
Electricity | (226 | ) | | 185 |
| | (41 | ) | | (305 | ) | | 253 |
| | (52 | ) |
Other | (11 | ) | | 11 |
| | — |
| | (10 | ) | | 8 |
| | (2 | ) |
Foreign currency exchange contracts | (3 | ) | | 3 |
| | — |
| | (7 | ) | | 7 |
| | — |
|
Total derivative liabilities | $ | (601 | ) | | $ | 417 |
| | $ | (184 | ) | | $ | (705 | ) | | $ | 562 |
| | $ | (143 | ) |
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:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2017 | | December 31, 2016 |
| 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 | $ | 304 |
| | $ | (206 | ) | | $ | 98 |
| | $ | 348 |
| | $ | (306 | ) | | $ | 42 |
|
Electricity | 186 |
| | (146 | ) | | 40 |
| | 193 |
| | (157 | ) | | 36 |
|
Other | 1 |
| | — |
| | 1 |
| | 2 |
| | — |
| | 2 |
|
Foreign currency exchange contracts | 5 |
| | (3 | ) | | 2 |
| | 6 |
| | (5 | ) | | 1 |
|
Total derivative assets | $ | 496 |
| | $ | (355 | ) | | $ | 141 |
| | $ | 549 |
| | $ | (468 | ) | | $ | 81 |
|
| | | | | | | | | | | |
Derivative liabilities | | | | | | | | | | | |
Commodity Contracts | | | | | | | | | | | |
Natural Gas | $ | (289 | ) | | $ | 202 |
| | $ | (87 | ) | | $ | (461 | ) | | $ | 321 |
| | $ | (140 | ) |
Electricity | (197 | ) | | 158 |
| | (39 | ) | | (189 | ) | | 163 |
| | (26 | ) |
Other | (3 | ) | | 3 |
| | — |
| | (3 | ) | | 2 |
| | (1 | ) |
Foreign currency exchange contracts | (2 | ) | | 2 |
| | — |
| | (3 | ) | | 3 |
| | — |
|
Total derivative liabilities | $ | (491 | ) | | $ | 365 |
| | $ | (126 | ) | | $ | (656 | ) | | $ | 489 |
| | $ | (167 | ) |
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 at September 30, 2016 and December 31, 2015:Position:
| | | September 30, 2016 | | December 31, 2015 | March 31, 2017 | | December 31, 2016 |
| Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities |
| Current | | Noncurrent | | Current | | Noncurrent | | Current | | Noncurrent | | Current | | Noncurrent | Current | | Noncurrent | | Current | | Noncurrent | | Current | | Noncurrent | | Current | | Noncurrent |
| (In millions) | (In millions) |
Total fair value of derivatives | $ | 359 |
| | $ | 130 |
| | $ | (408 | ) | | $ | (193 | ) | | $ | 570 |
| | $ | 141 |
| | $ | (521 | ) | | $ | (184 | ) | $ | 349 |
| | $ | 147 |
| | $ | (312 | ) | | $ | (179 | ) | | $ | 447 |
| | $ | 102 |
| | $ | (493 | ) | | $ | (163 | ) |
Counterparty netting | (299 | ) | | (82 | ) | | 299 |
| | 82 |
| | (441 | ) | | (85 | ) | | 441 |
| | 85 |
| (278 | ) | | (74 | ) | | 278 |
| | 74 |
| | (396 | ) | | (65 | ) | | 396 |
| | 65 |
|
Collateral adjustment | (4 | ) | | (2 | ) | | 24 |
| | 12 |
| | — |
| | (2 | ) | | 23 |
| | 13 |
| (3 | ) | | — |
| | 1 |
| | 12 |
| | (4 | ) | | (3 | ) | | 28 |
| | — |
|
Total derivatives as reported | $ | 56 |
| | $ | 46 |
| | $ | (85 | ) | | $ | (99 | ) | | $ | 129 |
| | $ | 54 |
| | $ | (57 | ) | | $ | (86 | ) | $ | 68 |
| | $ | 73 |
| | $ | (33 | ) | | $ | (93 | ) | | $ | 47 |
| | $ | 34 |
| | $ | (69 | ) | | $ | (98 | ) |
The effect of derivatives not designated as hedging instruments on DTE Energy's Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015 for DTE Energy 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 September 30, | | Gain (Loss) Recognized in Income on Derivatives for the Nine Months Ended September 30, | | Location of Gain (Loss) Recognized in Income on Derivatives | | Gain (Loss) Recognized in Income on Derivatives for the Three Months Ended March 31, |
| | 2016 | | 2015 | | 2016 | | 2015 | | | 2017 | | 2016 |
| | (In millions) | | (In millions) |
Commodity Contracts: | | | | | | | | | |
Commodity Contracts | | | | | |
Natural Gas | | Operating Revenues — Non-utility operations | | $ | 16 |
| | $ | 55 |
| | $ | (70 | ) | | $ | (75 | ) | | Operating Revenues — Non-utility operations | | $ | 57 |
| | $ | (56 | ) |
Natural Gas | | Fuel, purchased power, and gas — non-utility | | (59 | ) | | (24 | ) | | (27 | ) | | 9 |
| | Fuel, purchased power, and gas — non-utility | | 61 |
| | 41 |
|
Electricity | | Operating Revenues — Non-utility operations | | 23 |
| | 14 |
| | 18 |
| | 60 |
| | Operating Revenues — Non-utility operations | | (7 | ) | | (24 | ) |
Other | | Operating Revenues — Non-utility operations | | 1 |
| | (4 | ) | | (1 | ) | | (4 | ) | | Operating Revenues — Non-utility operations | | — |
| | (2 | ) |
Foreign currency exchange contracts | | Operating Revenues — Non-utility operations | | — |
| | 1 |
| | (4 | ) | | 2 |
| | Operating Revenues — Non-utility operations | | — |
| | (5 | ) |
Total | | $ | (19 | ) | | $ | 42 |
| | $ | (84 | ) | | $ | (8 | ) | | $ | 111 |
| | $ | (46 | ) |
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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 September 30, 2016:March 31, 2017:
|
| | | |
Commodity | | Number of Units |
Natural Gas (MMBtu) | | 1,855,468,8491,781,816,780 |
|
Electricity (MWh) | | 26,131,03135,032,431 |
|
Oil (Gallons) | | 16,464,00012,936,000 |
|
Foreign Currency Exchange (Canadian dollars) | | 78,709,98673,633,072 |
|
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 September 30, 2016,March 31, 2017, 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 approximately $354$437 million.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
As of September 30, 2016,March 31, 2017, DTE Energy had approximately $443$397 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 approximately $366$342 million. The net remaining amount of approximately $77$55 million is derived from the $354$437 million noted above.
NOTE 89 — LONG-TERM DEBT
Debt Issuances
In 2016,2017, the following debt was issued:
| | Company | | Month | | Type | | Interest Rate | | Maturity | | Amount | | Month | | Type | | Interest Rate | | Maturity | | Amount |
| | | | (In millions) | | (In millions) |
DTE Electric | | May | | Mortgage Bonds | | 3.70% | | 2046 | | $ | 300 |
| |
DTE Energy | | May | | Junior Subordinated Debentures | | 5.375% | | 2076 | | 300 |
| | March | | Senior Notes(a) | | 3.80% | | 2027 | | $ | 500 |
|
| | $ | 600 |
| | $ | 500 |
|
| |
(a) | Proceeds were used for repayment of short-term borrowings and general corporate purposes. |
Debt Redemptions
In 2016,2017, the following debt was redeemed:
| | Company | | Month | | Type | | Interest Rate | | Maturity | | Amount | | Month | | Type | | Interest Rate | | Maturity | | Amount |
| | | | (In millions) | | (In millions) |
DTE Electric | | March | | Mortgage Bonds | | 7.904% | | 2016 | | $ | 10 |
| |
DTE Energy | | June | | Senior Notes | | 6.35% | | 2016 | | 300 |
| |
DTE Energy | | Various | | Other Long-Term Debt | | Various | | 2016 | | 12 |
| | Various | | Other Long-Term Debt | | Various | | 2017 | | $ | 5 |
|
| | $ | 322 |
| | $ | 5 |
|
Remarketed Bonds
In August 2016, DTE Electric repurchased $59 million of 5.50% Tax Exempt Revenue Bonds. In September 2016, DTE Electric reissued the $59 million of Tax Exempt Revenue Bonds in a long-term mode at 1.45% for a five-year term. The final maturity is August 1, 2029.
In September 2016, DTE Electric remarketed $82 million of Tax Exempt Revenue Bonds in a long-term mode at 1.45% for a five-year term. The final maturity is September 1, 2030.37
Acquisition Financing
On October 20, 2016, DTE Energy closed on the purchase of gathering assets for a total purchase price of $1.3 billion. The acquisition was financed through the issuance of Equity Units and Senior Notes. See Note 13 to the Consolidated Financial Statements, "Subsequent Events," for more information on the acquisition.
In October 2016, DTE Energy issued $675 million of 2016 6.50% Equity Units, initially in the form of Corporate Units. The Corporate Units are listed on the New York Stock Exchange under the symbol DTV. The proceeds from the Equity Units were used for the acquisition.
Each Corporate Unit consists of a stock purchase contract and 1/20 interest in an RSN issued by DTE Energy. The stock purchase contracts obligate the holders to purchase shares of DTE Energy common stock on October 1, 2019. The purchase price to be paid under the stock purchase contracts is $50 per Corporate Unit, and the number of shares to be purchased will be determined under a formula based upon the average closing price of DTE Energy common stock near the settlement date. The RSNs are pledged as collateral to secure the purchase of common stock under the related stock purchase contracts.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
DTE Energy will make quarterly interest payments on the RSNs and quarterly contract adjustment payments on the stock purchase contracts, at the rates described below. DTE Energy may defer payments on the stock purchase contracts for one or more consecutive periods but not beyond the purchase contract settlement date. Under the terms of the stock purchase contracts, assuming no anti-dilution or other adjustments, DTE Energy will issue between 5.8 million and 7.3 million shares of its common stock in October 2019. A total of 9 million shares of DTE Energy’s common stock have been reserved for issuance in connection with the stock purchase contracts.
Selected information about DTE Energy’s 2016 Equity Units is presented below: |
| | | | | | | | | | | | | | | | | | |
Issuance Date | | Units Issued | | Total Net Proceeds | | Total Long-Term Debt | | RSN Annual Interest Rate | | Stock Purchase Contract Annual Rate | | Stock Purchase Settlement Date | | RSN Maturity Date |
(In millions, except interest rates) |
10/05/2016 | | 13.5 | | $ | 654 |
| | $ | 675 |
| | 1.5% | | 5.0% | | 10/01/2019 | | 10/01/2024 |
In October 2016, DTE Energy issued $400 million of 2016 Series D 1.50% Senior Notes due 2019 and $600 million of Series E 2.85% Senior Notes due 2026. The proceeds from the Senior Notes were used for the acquisition and general corporate purposes.
NOTE 910 — SHORT-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 September 30, 2016,March 31, 2017, the total funded debt to total capitalization ratios for DTE Energy, DTE Electric, and DTE Gas were 0.500.53 to 1, 0.50 to 1, and 0.45 to 1, respectively, and were in compliance with this financial covenant.
The availability under the facilities in place at September 30, 2016March 31, 2017 is shown in the following table:
| | | DTE Energy | | DTE Electric | | DTE Gas | | Total | DTE Energy | | DTE Electric | | DTE Gas | | Total |
| (In millions) | (In millions) |
Unsecured letter of credit facility, expiring in February 2017 | $ | 100 |
| | $ | — |
| | $ | — |
| | $ | 100 |
| |
Unsecured letter of credit facility, expiring in February 2019(a) | | $ | 150 |
| | $ | — |
| | $ | — |
| | $ | 150 |
|
Unsecured letter of credit facility, expiring in September 2017 | 70 |
| | — |
| | — |
| | 70 |
| 70 |
| | — |
| | — |
| | 70 |
|
Unsecured revolving credit facility, expiring April 2021 | 1,200 |
| | 400 |
| | 300 |
| | 1,900 |
| 1,200 |
| | 400 |
| | 300 |
| | 1,900 |
|
| 1,370 |
| | 400 |
| | 300 |
| | 2,070 |
| 1,420 |
| | 400 |
| | 300 |
| | 2,120 |
|
Amounts outstanding at September 30, 2016 | | | | | | | | |
Amounts outstanding at March 31, 2017 | | | | | | | | |
Commercial paper issuances | 271 |
| | — |
| | 139 |
| | 410 |
| — |
| | 59 |
| | — |
| | 59 |
|
Letters of credit | 144 |
| | — |
| | — |
| | 144 |
| 139 |
| | — |
| | — |
| | 139 |
|
| 415 |
| | — |
| | 139 |
| | 554 |
| 139 |
| | 59 |
| | — |
| | 198 |
|
Net availability at September 30, 2016 | $ | 955 |
| | $ | 400 |
| | $ | 161 |
| | $ | 1,516 |
| |
Net availability at March 31, 2017 | | $ | 1,281 |
| | $ | 341 |
| | $ | 300 |
| | $ | 1,922 |
|
| |
(a) | In February 2017, DTE Energy amended its $100 million letter of credit facility. The facility's maturity date was amended from February 2017 to February 2019. As part of this amendment, DTE Energy increased its $100 million letter of credit facility to $150 million. |
In April 2017, DTE Energy, DTE Electric, and DTE Gas exercised the extension features in their revolving credit agreements to add one year to the existing maturities. Each of these revolvers' expirations were extended from April 2021 to April 2022.
DTE Energy has other outstanding letters of credit which are not included in the above described facilities totaling approximately $17 million which are used for various corporate purposes.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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 September 30, 2016,March 31, 2017, a $35 million letter of credit was in place, raising the capacity under this facility to $135 million. The $35 million letter of credit is included in the table above. The amount outstanding under this agreement was $49$16 million and $103$50 million at September 30, 2016March 31, 2017 and December 31, 2015,2016, respectively, and was fully offset by the posted collateral.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
NOTE 1011 — COMMITMENTS 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 sulfur dioxideSO2 and nitrogen oxides.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 nitrogen oxide, sulfur dioxide,NOx, SO2, mercury, and other emissions. Additional rulemakings are expectedmay occur over the next few years which could require additional controls for sulfur dioxide, nitrogen oxides,SO2, NOx, and other hazardous air pollutants.
The Cross State Air Pollution Rule (CSAPR), required further reductions of sulfur dioxideSO2 and nitrogen oxides (NOX)NOx emissions beginning in January 2015. On September 7, 2016, the EPA finalized an update to the CSAPR ozone season program by issuing the CSAPR Update Rule. Beginning in May 2017, this rule is expected to reduce summertime (May - September) NOXNOx emissions from power plants in 22 states in the eastern half of the U.S., including DTE EnergyElectric facilities. The CSAPR Update Rule is intended to reduce air quality impacts of the interstate transport of air pollution on downwind areas' ability to meet the 2008 ozone National Ambient Air Quality Standards implementing power sector emission budgets and NOXNOx allowance trading programs. DTE Electric expects to meet its obligations under CSAPR. DTE Electric does not expect this rule to have a material effect on its compliance program.
The MercuryEPA proposed revised air quality standards for ground level ozone in November 2014 and Air Toxics Standards (MATS) rule, formerly known asspecifically requested comments on the Electric Generating Unit Maximum Achievable Control Technology (EGU MACT) Rule wasform and level of the ozone standards. The standards were finalized in December 2011.October 2015. The MATS rule required reductionsState of mercury and other hazardous air pollutants beginning in April 2015. DTE Electric requested and was granted compliance date extensions for all relevant units to April 2016. In November 2014, the U.S. Supreme Court agreed to review a challenge to the MATS rule based on a narrowly focused question of how the EPA considered costs in regulating air pollutants emitted by electric utilities. In June 2015, the U.S. Supreme Court reversed the decision of the Court of Appeals for the D.C. District and remanded the MATS rule to the Court of Appeals for further consideration based on their decision that the EPA must consider costs prior to deciding to regulate under the provisions of the Clean Air Act. Subsequently, in December 2015, the Court of Appeals ordered a remand of the MATS rule backMichigan recommended to the EPA without staying the rule. A petition to the U.S. Supreme Court for reviewin October 2016 which areas of the D.C. Circuit’s remandstate are not attaining the new standard. The EPA will designate areas as either attainment or non-attainment with ozone standards by October 2017. DTE Electric cannot predict the financial impact of the rule was denied in April 2016, leaving the MATS rule in place. DTE Electric is currently substantially in compliance with the rule at all regulated units. Although various issues surrounding the MATS rule remain subject to litigation in the D.C. Circuit,revised ozone standards at this time DTE Electric does not expect future decisions to have a material effect on its compliance program.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.
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 caused to be 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 caused to be 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 granted again 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 arewere all stayed until the appeal is resolved by the Court of Appeals for the Sixth Circuit. Oral arguments for the appeal occurred in December 20152015. On January 10, 2017, a divided panel of the Court reversed the decision of the U.S. District Court. On February 24, 2017, DTE Energy and DTE Electric filed a petition with the Sixth Circuit Court for a rehearing and a rehearing en banc. The Court decision remains pending.requested responses to the petition from the EPA and the Sierra Club, which were filed on April 3, 2017.
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.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
The EPA is implementinghas 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, the EPA finalized performance standards for emissions of carbon dioxide from new and existing electric generating units (EGUs).EGUs. The carbon standards for new sources are not expected to have a material impact on DTE Electric, since DTE Electric has no plans to build new coal-fired generation and any potential new gas generation will be able to comply with the standards. 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. Additionally, federal agencies have been directed to conduct a review of all existing regulations that potentially burden the development and use of domestically produced energy resources. 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. It is not possible to determine the potential impact of the EPA Clean Power Planthis order 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 $2.3$2.4 billion through 2015.2016. DTE Electric estimates makingdoes not anticipate additional capital expenditures through 2023.
Water — In response to an EPA regulation, DTE Electric was required to examine alternatives for reducing the environmental impacts of approximately $45the 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 2015. The final rule requires studies to be completed by April 2018 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 March 31, 2017 and December 31, 2016, DTE Electric had $8 million accrued for remediation. Any change in 2016.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,CCR, commonly known as coal ash, became effective in October 2015. 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. At certain facilities, the rule requires the installation of monitoring wells, compliance with groundwater standards, and the closure of basins at the end of the useful life of the associated power plant or as a basin becomes inactive. At other facilities, the rule requires ash laden waters be moved from earthen basins to steel and concrete tanks.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
In November 2015, the EPA finalized effluent limitations guidelinesthe ELG Rule for the steam electric power generating industry which may require additional controls to be installed between 2018 and 2023. Compliance schedules for individual facilities and individual waste streams are determined through issuance of new wastewater permits by the State of Michigan. The State of Michigan has issued a National Pollutant Discharge Elimination System permit for the Belle River Power Plant establishing a compliance deadline of December 31, 2021. No new permits have been issued for other facilities, consequently no compliance timelines have been established. Certain effluent limitations guidelinesUnder the current rule, certain ELG requirements willwould be required to be performed in conjunction with the coal combustion residuals requirements. CostsCCR. Over the next six years, to comply with the ELG requirements of the November 2015 rules and for CCR requirements, costs associated with the building of new facilities or installation of controls over the next seven years to comply with coal combustion residuals requirements and effluent limitations guidelines are estimated to be approximately $315$309 million.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
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 wastewater, among others. The administrative stay will become effective when published in the Federal Register. The ELG compliance requirements, 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 manufactured gas plant (MGP)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 twofour 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 September 30, 2016March 31, 2017 and December 31, 2015,2016, DTE Gas had $40$41 million and $22$43 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.
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.
The District Attorney's office of Yolo County, California ishas been investigating the ash management and disposition practices of Woodland Biomass Power, Ltd., and DTE Woodland, LLC, wholly-owned subsidiaries of DTE Energy (the Woodland Companies), a renewable wood-fired power generation facility. The District Attorney has alleged that some of the ash generated at the Woodland Companies' generating facility should have been characterized and handled as hazardous waste under California regulation. WoodlandDTE Energy is cooperating with the investigation, and has committed to remove or remediate any ash that was improperly characterized. The investigation will likely result incurrently working through a negotiatedfinal settlement, includingwhich includes reimbursement of the District Attorney's investigation costs. As of September 30, 2016,March 31, 2017, DTE Energy had approximately $3$4 million accrued for this matter. ChangesDTE Energy does not expect changes in estimated remediation and settlement costs if any,to be materially different than the amounts accrued at March 31, 2017.
Other
In 2010, the EPA finalized a new one-hour SO2 ambient air quality standard that occur upon completionrequires states to submit plans and associated timelines for non-attainment areas that demonstrate attainment with the new SO2 standard in three 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 investigation are not expectednew SO2 standard.
DTE Energy Company — DTE Electric Company
Combined Notes to have a material impact on DTE Energy’s Consolidated Financial Statements.Statements (Unaudited) — (Continued)
Nuclear Operations
Nuclear Fuel Disposal Costs
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 currently employs a spent nuclear fuel storage strategy utilizing a fuel poolpower plants and a dry cask storageDTE Energy's Michigan coke battery facility. The spent nuclear fuel storage strategy is expected to provide sufficient spent fuel storage capability for the lifeAs part of the plant as defined bystate implementation plan process, DTE Energy has worked with 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 original operating license.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.
The federal government continues to maintain its legal obligation to accept spent nuclear fuel from FermiMichigan's Phase 2 non-attainment area includes DTE Electric facilities in St. Clair County. State implementation plans (SIPs) for permanent storage. Issues relating to long-term waste disposal policyPhase 2 areas describing the control strategy and timeline for demonstrating compliance with the new SO2 standard are due to the dispositionEPA by mid-2018. DTE Energy is currently working with the MDEQ to develop the required SIP. DTE Energy is unable to determine the full impact of funds contributed by DTE Electric ratepayers to the federal waste fund await future governmental action.SIP strategy as it currently is under development.
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 September 30, 2016March 31, 2017 is approximately $620 million. Payment under these guarantees is 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 September 30, 2016March 31, 2017 is approximately $341$308 million. Payment under these guarantees is 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 Company —executed separate guarantee agreements with DTE Electric Company
Combined NotesGas and Texas Eastern Transmission, LP, with maximum potential payments totaling $53 million and $8 million, respectively; each representing 50% of all payment obligations due and payable by NEXUS. Should NEXUS fail to Consolidated Financial Statements (Unaudited) — (Continued)
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.
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 $55 million at September 30, 2016.March 31, 2017. Payment under these guarantees is 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 September 30, 2016,March 31, 2017, DTE Energy had approximately $54$56 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.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
Labor Contracts
There are several bargaining units for DTE Energy's approximately 4,800 represented employees, including DTE Electric's approximately 2,5002,600 represented employees. The majority of the represented employees are under contracts that expire in 2017 and 2020.
Purchase Commitments
DTE Energy and DTE Electric expect that 20162017 annual capital expenditures and contributions to equity method investees will be approximately $3.8$3.0 billion and $1.6$1.5 billion, respectively. The Registrants have made certain commitments in connection with the estimated 20162017 annual capital expenditures and contributions to equity method investees, including the Gas Storage and Pipelines acquisition of gas midstream assets discussed in Note 13 of the Consolidated Financial Statements, "Subsequent Events."
Bankruptcies
Certain of the Registrants' customers and suppliers have filed for bankruptcy protection under the U.S. Bankruptcy Code. The Registrants regularly review contingent matters relating to these customers and suppliers and their purchase and sale 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.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 45 and 78 to the Consolidated Financial Statements, "Regulatory Matters"Matters," and "Financial and Other Derivative Instruments," respectively.
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
NOTE 1112 — RETIREMENT 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 |
| 2016 | | 2015 | | 2016 | | 2015 |
Three Months Ended September 30, | (In millions) |
Service cost | $ | 23 |
| | $ | 27 |
| | $ | 7 |
| | $ | 8 |
|
Interest cost | 55 |
| | 52 |
| | 20 |
| | 20 |
|
Expected return on plan assets | (77 | ) | | (74 | ) | | (33 | ) | | (33 | ) |
Amortization of: | | | | | | | |
Net actuarial loss | 43 |
| | 51 |
| | 6 |
| | 10 |
|
Prior service credit | — |
| | — |
| | (29 | ) | | (31 | ) |
Net periodic benefit cost (credit) | $ | 44 |
| | $ | 56 |
| | $ | (29 | ) | | $ | (26 | ) |
| | | Pension Benefits | | Other Postretirement Benefits | Pension Benefits | | Other Postretirement Benefits |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 | | 2017 | | 2016 |
Nine Months Ended September 30, | (In millions) | |
Three Months Ended March 31, | | (In millions) |
Service cost | $ | 69 |
| | $ | 76 |
| | $ | 20 |
| | $ | 25 |
| $ | 24 |
| | $ | 23 |
| | $ | 7 |
| | $ | 6 |
|
Interest cost | 164 |
| | 158 |
| | 60 |
| | 61 |
| 54 |
| | 54 |
| | 18 |
| | 20 |
|
Expected return on plan assets | (232 | ) | | (222 | ) | | (97 | ) | | (98 | ) | (78 | ) | | (77 | ) | | (33 | ) | | (32 | ) |
Amortization of: | | | | | | | | | | | | | | |
Net actuarial loss | 124 |
| | 154 |
| | 22 |
| | 32 |
| 43 |
| | 40 |
| | 3 |
| | 8 |
|
Prior service credit | — |
| | — |
| | (88 | ) | | (94 | ) | — |
| | — |
| | (3 | ) | | (30 | ) |
Net periodic benefit cost (credit) | $ | 125 |
| | $ | 166 |
| | $ | (83 | ) | | $ | (74 | ) | $ | 43 |
| | $ | 40 |
| | $ | (8 | ) | | $ | (28 | ) |
The following tables detail the components of net periodic benefit costs (credits) for pension benefits and other postretirement benefits for DTE Electric:
| | | Pension Benefits | | Other Postretirement Benefits | Pension Benefits | | Other Postretirement Benefits |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 | | 2017 | | 2016 |
Three Months Ended September 30, | (In millions) | |
Three Months Ended March 31, | | (In millions) |
Service cost | $ | 18 |
| | $ | 21 |
| | $ | 5 |
| | $ | 6 |
| $ | 18 |
| | $ | 18 |
| | $ | 5 |
| | $ | 5 |
|
Interest cost | 42 |
| | 39 |
| | 15 |
| | 15 |
| 41 |
| | 41 |
| | 14 |
| | 15 |
|
Expected return on plan assets | (55 | ) | | (53 | ) | | (23 | ) | | (23 | ) | (55 | ) | | (55 | ) | | (23 | ) | | (23 | ) |
Amortization of: | | | | | | | | | | | | | | |
Net actuarial loss | 31 |
| | 36 |
| | 4 |
| | 8 |
| 31 |
| | 29 |
| | 2 |
| | 6 |
|
Prior service credit | — |
| | — |
| | (22 | ) | | (24 | ) | — |
| | — |
| | (2 | ) | | (22 | ) |
Net periodic benefit cost (credit) | $ | 36 |
| | $ | 43 |
| | $ | (21 | ) | | $ | (18 | ) | $ | 35 |
| | $ | 33 |
| | $ | (4 | ) | | $ | (19 | ) |
|
| | | | | | | | | | | | | | | |
| Pension Benefits | | Other Postretirement Benefits |
| 2016 | | 2015 | | 2016 | | 2015 |
Nine Months Ended September 30, | (In millions) |
Service cost | $ | 53 |
| | $ | 59 |
| | $ | 15 |
| | $ | 19 |
|
Interest cost | 125 |
| | 120 |
| | 46 |
| | 46 |
|
Expected return on plan assets | (165 | ) | | (158 | ) | | (68 | ) | | (68 | ) |
Amortization of: | | | | | | | |
Net actuarial loss | 88 |
| | 110 |
| | 15 |
| | 24 |
|
Prior service cost (credit) | 1 |
| | 1 |
| | (66 | ) | | (71 | ) |
Net periodic benefit cost (credit) | $ | 102 |
| | $ | 132 |
| | $ | (58 | ) | | $ | (50 | ) |
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
Pension and Other Postretirement Contributions
During the first three months of 2017, DTE Energy made cash contributions of $126 million, including contributions from DTE Electric of $125 million, to its pension plans. At the discretion of management and depending upon financial market conditions, DTE Energy may make additional contributions up to $175$180 million, including additional contributions from DTE Electric of $145 million, to its pension plans in 2016.2017.
At the discretion of management, DTE Energy may makedoes not anticipate making any contributions up to $20 million, through contributions from DTE Gas, to itsthe other postretirement benefit plans in 2016.2017.
NOTE 1213 — SEGMENT 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 1.21.3 million residential, commercial, and industrial customers throughout Michigan and the sale of storage and transportation capacity.
Gas Storage and Pipelines consists of natural gas pipeline, gathering, and storage businesses.
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 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.
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 September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 |
| (In millions) | (In millions) |
Inter-segment Revenues | | | | | | | | |
Electric | $ | 15 |
| | $ | 9 |
| | $ | 32 |
| | $ | 27 |
| $ | 12 |
| | $ | 9 |
|
Gas | 5 |
| | 1 |
| | 8 |
| | 2 |
| 3 |
| | — |
|
Gas Storage and Pipelines | 2 |
| | 1 |
| | 7 |
| | 7 |
| 7 |
| | 2 |
|
Power and Industrial Projects | 178 |
| | 204 |
| | 476 |
| | 599 |
| 168 |
| | 148 |
|
Energy Trading | 10 |
| | 7 |
| | 28 |
| | 23 |
| 11 |
| | 10 |
|
Corporate and Other | — |
| | 1 |
| | 2 |
| | 2 |
| 1 |
| | — |
|
| $ | 210 |
| | $ | 223 |
| | $ | 553 |
| | $ | 660 |
| $ | 202 |
| | $ | 169 |
|
DTE Energy Company — DTE Electric Company
Combined Notes to Consolidated Financial Statements (Unaudited) — (Continued)
Financial data of DTE Energy's business segments follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 |
| (In millions) | (In millions) |
Operating Revenues — Utility operations | | | | | | | | | | |
Electric | $ | 1,608 |
| | $ | 1,386 |
| | $ | 3,976 |
| | $ | 3,737 |
| $ | 1,175 |
| | $ | 1,153 |
|
Gas | 160 |
| | 153 |
| | 911 |
| | 1,018 |
| 557 |
| | 520 |
|
Operating Revenues — Non-utility operations | | | | | | | | | | |
Gas Storage and Pipelines | 63 |
| | 61 |
| | 199 |
| | 175 |
| 105 |
| | 67 |
|
Power and Industrial Projects | 524 |
| | 585 |
| | 1,414 |
| | 1,708 |
| 548 |
| | 446 |
|
Energy Trading | 782 |
| | 635 |
| | 1,807 |
| | 1,870 |
| 1,052 |
| | 549 |
|
Corporate and Other | 1 |
| | 1 |
| | 2 |
| | 2 |
| 1 |
| | — |
|
Reconciliation and Eliminations | (210 | ) | | (223 | ) | | (553 | ) | | (660 | ) | (202 | ) | | (169 | ) |
Total | $ | 2,928 |
| | $ | 2,598 |
| | $ | 7,756 |
| | $ | 7,850 |
| $ | 3,236 |
| | $ | 2,566 |
|
| | Net Income (Loss) Attributable to DTE Energy by Segment: | | | | | | | | | | |
Electric | $ | 285 |
| | $ | 214 |
| | $ | 547 |
| | $ | 449 |
| $ | 106 |
| | $ | 127 |
|
Gas | (4 | ) | | (11 | ) | | 96 |
| | 93 |
| 107 |
| | 87 |
|
Gas Storage and Pipelines | 28 |
| | 27 |
| | 93 |
| | 79 |
| 45 |
| | 30 |
|
Power and Industrial Projects | 34 |
| | 32 |
| | 66 |
| | 73 |
| 30 |
| | 17 |
|
Energy Trading | (4 | ) | | 12 |
| | (34 | ) | | — |
| 96 |
| | (7 | ) |
Corporate and Other | (1 | ) | | (9 | ) | | (31 | ) | | (47 | ) | 16 |
| | (7 | ) |
Net Income Attributable to DTE Energy Company | $ | 338 |
| | $ | 265 |
| | $ | 737 |
| | $ | 647 |
| $ | 400 |
| | $ | 247 |
|
NOTE 13 — SUBSEQUENT EVENTS
In September 2016, DTE Energy executed an agreement to purchase midstream natural gas assets in support of its strategy to continue to grow and earn competitive returns for shareholders. The agreement called for DTE Energy to purchase 100 percent of AGS, located in Pennsylvania and West Virginia, and 40 percent of SGG, in West Virginia, from M3 Midstream. In addition, DTE Energy agreed to purchase 15 percent of SGG from Vega Energy Partners. On October 20, 2016, DTE Energy closed on the purchase of these gathering assets. The combined purchase price for the assets acquired by DTE Energy was $1.3 billion, which consists of $1.2 billion paid in cash and the assumption of approximately $110 million of debt. These assets are part of DTE Energy’s non-utility Gas Storage and Pipelines business which currently owns and manages a network of natural gas gathering, transmission, and storage facilities serving the Midwest, Ontario, and Northeast markets. The acquisition was financed through the issuance of Equity Units and Senior Notes. See Note 8 to the Consolidated Financial Statements, "Long-Term Debt," for more information.
Effective upon closing, DTE Energy has obtained control over and will apply acquisition accounting to the acquired entities. Due to the limited time since the acquisition date, the initial accounting for the business combination is incomplete. As a result, DTE Energy is unable to provide amounts recognized as of the acquisition date for major classes of assets and liabilities acquired as well as pro forma financial information. DTE Energy will include the required information in the combined DTE Energy and DTE Electric Annual Report on Form 10-K for the year ending December 31, 2016.
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.
Net Income attributable toThe following table summarizes DTE Energy in the third quarter of 2016 was $338 million, or $1.88 per diluted share, compared to Net Income attributable to DTE Energy of $265 million, or $1.47 per diluted share, in the third quarter of 2015. Net Income attributable to DTE Energy in the nine months ended September 30, 2016 was $737 million, or $4.10 per diluted share, compared to Net Income attributable to DTE Energy of $647 million, or $3.61 per diluted share, in the nine months ended September 30, 2015. The increase in net income in the third quarter is primarily due to increased earnings in the Electric segment, partially offset by decreased earnings in the Energy Trading segment. Energy's financial results:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2017 | | 2016 |
| (In millions, except per share amounts) |
Net Income Attributable to DTE Energy Company | $ | 400 |
| | $ | 247 |
|
Diluted Earnings per Common Share | $ | 2.23 |
| | $ | 1.37 |
|
The increase in Net Income for the ninethree months ended September 30, 2016March 31, 2017 is primarily due to increasedhigher earnings in the ElectricEnergy Trading and Gas Storage and Pipelines segments, partially offset by decreasedlower earnings in the Energy TradingElectric segment.
Please see detailed explanations of segment performance in the following Results"Results of OperationsOperations" 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.
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.
DTE Electric's capital investments over the 2016-20202017-2021 period are estimated at $8.2$8.4 billion comprised of $3.8$3.2 billion for maintenancecapital replacements and other projects, $3.2 billion for distribution infrastructure, and $1.2$2.0 billion for new generation. DTE Electric has retired three coal-fired generation units at the Trenton Channel and River Rouge facilities and has announced plans to retire an additional eight coal-fired generating units through 2023 at the Trenton Channel, River Rouge, and St. Clair facilities. The retired facilities will be replaced with natural gas-fired generation and renewables. DTE Electric plans to build natural gas turbine plants to provide approximately 1,000 megawatts of energy between 2021 and 2023. DTE Electric is currently constructing 50 megawatts of solar generation and is completing another 50 megawatts of wind generation along with its continuing commitment to reduce usage through energy optimization programs. In September 2016, DTE Electric received an order from the MPSC in its amended Renewable Energy Plan approving two 150 megawatt wind projects expected to come onlinebe constructed and in about 2018-2020service between 2018 and 2020, and 25 megawatts of company-owned solar projects which will be constructed and in service between 20172019 and 2019.2020. DTE Electric is also currently constructing 50 megawatts of solar generation expected to be in service mid-2017. DTE Electric plans to seek regulatory approval for capital expenditures consistent with prior ratemaking treatment.
DTE Gas' capital investments over the 2016-20202017-2021 period are estimated at $1.6$1.8 billion comprised of $800 million$1.0 billion for base infrastructure, $600$700 million for gas main renewal, meter move out, and pipeline integrity programs, and $200$100 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 2016-20202017-2021 period are estimated upat $2.2 billion to $4.0$2.8 billion for gathering and pipeline investments and expansions, including the NEXUS Pipeline and the Gas Storage and Pipelines acquisition of gas midstream assets discussed in Note 13 to the Consolidated Financial Statements, "Subsequent Events."Pipeline. Power and Industrial Projects' capital investments over the 2016-20202017-2021 period are estimated at $600 million to $900 million$1.0 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.
DTE Electric is subject to the EPA ozone and fine particulate transport and acid rain regulations that limit power plant emissions of sulfur dioxideSO2 and nitrogen oxides.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 nitrogen oxide, sulfur dioxide,NOx, SO2, mercury and other emissions. Additional rulemakings are expected over the next few years which could require additional controls for sulfur dioxide, nitrogen oxides,SO2, NOx, and other hazardous air pollutants. To comply with these requirements, DTE Electric spent approximately $2.3$2.4 billion through 2015. It is estimated that2016. DTE Electric will makedoes not anticipate additional capital expenditures of approximately $45 million in 2016.through 2023.
The EPA is implementinghas 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, the EPA finalized performance standards for emissions of carbon dioxide from new and existing electric generating units (EGUs).EGUs. The carbon standards for new sources are not expected to have a material impact on DTE Electric, since DTE Electric has no plans to build new coal-fired generation and any potential new gas generation will be able to comply with the standards. 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. Additionally, federal agencies have been directed to conduct a review of all existing regulations that potentially burden the development and use of domestically produced energy resources. 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. It is not possible to determine the potential impact of the EPA 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.
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-fired 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 1011 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;
growth of utility asset base;
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
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 September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 |
| (In millions) | (In millions) |
Net Income (Loss) Attributable to DTE Energy by Segment: | | | | | | | | |
Net Income (Loss) Attributable to DTE Energy by Segment | | | | |
Electric | $ | 285 |
| | $ | 214 |
| | $ | 547 |
| | $ | 449 |
| $ | 106 |
| | $ | 127 |
|
Gas | (4 | ) | | (11 | ) | | 96 |
| | 93 |
| 107 |
| | 87 |
|
Gas Storage and Pipelines | 28 |
| | 27 |
| | 93 |
| | 79 |
| 45 |
| | 30 |
|
Power and Industrial Projects | 34 |
| | 32 |
| | 66 |
| | 73 |
| 30 |
| | 17 |
|
Energy Trading | (4 | ) | | 12 |
| | (34 | ) | | — |
| 96 |
| | (7 | ) |
Corporate and Other | (1 | ) | | (9 | ) | | (31 | ) | | (47 | ) | 16 |
| | (7 | ) |
Net Income Attributable to DTE Energy Company | $ | 338 |
| | $ | 265 |
| | $ | 737 |
| | $ | 647 |
| $ | 400 |
| | $ | 247 |
|
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. Results for Electric segment with a reconciliation to DTE Electric are discussed below:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 |
| (In millions) | (In millions) |
Operating Revenues — Utility operations | $ | 1,608 |
| | $ | 1,386 |
| | $ | 3,976 |
| | $ | 3,737 |
| $ | 1,175 |
| | $ | 1,153 |
|
Fuel and purchased power — utility | 495 |
| | 441 |
| | 1,191 |
| | 1,212 |
| 314 |
| | 335 |
|
Gross Margin | 1,113 |
| | 945 |
| | 2,785 |
| | 2,525 |
| 861 |
| | 818 |
|
Operation and maintenance | 363 |
| | 333 |
| | 1,019 |
| | 969 |
| 383 |
| | 324 |
|
Depreciation and amortization | 176 |
| | 142 |
| | 539 |
| | 465 |
| 181 |
| | 176 |
|
Taxes other than income | 73 |
| | 73 |
| | 216 |
| | 214 |
| 80 |
| | 73 |
|
Operating Income | 501 |
| | 397 |
| | 1,011 |
| | 877 |
| 217 |
| | 245 |
|
Other (Income) and Deductions | 60 |
| | 67 |
| | 162 |
| | 186 |
| 54 |
| | 48 |
|
Income Tax Expense | 156 |
| | 116 |
| | 302 |
| | 242 |
| 57 |
| | 70 |
|
Segment Net Income Attributable to DTE Energy Company | $ | 285 |
| | $ | 214 |
| | $ | 547 |
| | $ | 449 |
| |
Reconciliation of Segment Net Income Attributable to DTE Energy Company to DTE Electric Net Income | — |
| | 2 |
| | — |
| | 3 |
| |
DTE Electric Net Income Attributable to DTE Energy Company | $ | 285 |
| | $ | 216 |
| | $ | 547 |
|
| $ | 452 |
| $ | 106 |
|
| $ | 127 |
|
See DTE Electric's Consolidated Statements of Operations for a complete view of its results.
Gross Margin increased $168 million and $260$43 million in the three and nine months ended September 30, 2016, respectively.March 31, 2017. 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 gross margin components relative to the comparable prior period:
|
| | | | | | | |
| Three Months | | Nine Months |
| (In millions) |
Base rates | $ | 10 |
| | $ | 130 |
|
Weather | 82 |
| | 78 |
|
Self-implementation of rates in 2016 | 49 |
| | 49 |
|
PSCR disallowance in 2015 | — |
| | 19 |
|
Amortization of refundable revenue decoupling/deferred gain in 2015 | — |
| | (63 | ) |
Regulatory mechanisms and other | 27 |
| | 47 |
|
Increase in gross margin | $ | 168 |
| | $ | 260 |
|
|
| | | |
| Three Months |
| (In millions) |
Implementation of new rates | $ | 46 |
|
Base sales | 2 |
|
Weather | (13 | ) |
Regulatory mechanisms and other | 8 |
|
Increase in gross margin | $ | 43 |
|
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 |
| (In thousands of MWh) | (In thousands of MWh) |
DTE Electric Sales | | | | | | | | | | |
Residential | 5,174 |
| | 4,511 |
| | 12,361 |
| | 11,687 |
| 3,518 |
| | 3,618 |
|
Commercial | 5,085 |
| | 4,665 |
| | 13,427 |
| | 13,102 |
| 4,083 |
| | 4,109 |
|
Industrial | 2,618 |
| | 2,277 |
| | 7,596 |
| | 7,275 |
| 2,375 |
| | 2,421 |
|
Other | 57 |
| | 62 |
| | 193 |
| | 209 |
| 79 |
| | 78 |
|
| 12,934 |
| | 11,515 |
| | 33,577 |
| | 32,273 |
| 10,055 |
| | 10,226 |
|
Interconnection sales (a) | 456 |
| | 958 |
| | 1,992 |
| | 3,603 |
| 672 |
| | 693 |
|
Total DTE Electric Sales | 13,390 |
| | 12,473 |
| | 35,569 |
| | 35,876 |
| 10,727 |
| | 10,919 |
|
| | | | | | | | | | |
DTE Electric Deliveries | |
| | |
| | | | | | | |
Retail and wholesale | 12,934 |
| | 11,515 |
| | 33,577 |
| | 32,273 |
| 10,055 |
| | 10,226 |
|
Electric retail access, including self generators (b) | 1,241 |
| | 1,263 |
| | 3,731 |
| | 3,749 |
| |
Electric retail access, including self-generators(b) | | 1,194 |
| | 1,159 |
|
Total DTE Electric Sales and Deliveries | 14,175 |
| | 12,778 |
| | 37,308 |
| | 36,022 |
| 11,249 |
| | 11,385 |
|
| |
(a) | Represents power that is not distributed by DTE Electric. |
| |
(b) | Represents deliveries for self generatorsself-generators that have purchased power from alternative energy suppliers to supplement their power requirements. |
Operation and maintenance expense increased $30 million and $50$59 million in the three and nine months ended September 30, 2016, respectively.March 31, 2017. The increase in the third quarter was primarily due primarily to increased power plant generation expenses of $20$28 million higher employee benefitsrelated to outages, increased storm restoration expenses of $4$21 million, higher energy optimizationincreased distribution operations expenses of $4$6 million, and higher expenses related to the transitionincreased benefits expense of PLD customers to DTE Electric's distribution system of $3$4 million. The increase in the nine month period was due primarily to higher employee benefits expenses of $22 million, increased power plant generation expenses include $9 million of $21 million, higher line clearance expenses of $17 million, and higher energy optimization expenses of $2 million, partially offset by lower restoration expenses of $6 million and lower expensescosts related to the transition of PLD customers2016 fire at a generation facility, which DTE Electric expects to DTE Electric's distribution system of $3 million. The MPSC approved a TRM that provides for recovery of the deferred net incremental revenue requirement associated with the transition of PLD customers that is reflected in the Depreciation and amortization line in DTE Energy's and DTE Electric's Consolidated Statements of Operations.be partially reimbursed by insurance proceeds.
Depreciation and amortization expense increased $34 million and $74$5 million in the three and nine months ended September 30, 2016, respectively.March 31, 2017. The increase in the third quarter was due primarily to $26 million of increased amortization of regulatory assets, primarily related to final Securitization adjustments in 2015 which did not recur in 2016, and $9 million of increased expenses due to an increase in depreciable base, partially offset by a $1 million decrease associated with the TRM. The increase in the nine month period was due primarily to $31$4 million of increased expenses due to an increased depreciable base $26 millionand an increase of increased amortization of regulatory assets, primarily related to final Securitization adjustments in 2015 which did not recur in 2016, and $17$4 million associated with the TRM.TRM, partially offset by a decrease of $3 million in amortization of regulatory assets.
Other (Income) and Deductions decreased $7 million and $24increased $6 million in the three and nine months ended September 30, 2016, respectively.March 31, 2017. The decrease in the third quarterincrease was primarily due primarily to lower interest income of $8 million of higher investment earnings. The decrease in the nine month period was due primarily to $16 million of higher investment earnings and $8 million of interest income related to a sales and use tax settlement.settlement received in 2016, partially offset by $3 million of higher investment earnings.
Outlook — DTE Electric will continue to move forward in its efforts to achieve operational excellence, sustained 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, impact of 2016 Michigan energy legislation, uncertainty of legislative or regulatory actions regarding climate change, and electric retail access, and effects of energy efficiency programs. DTE Electric expects to continue its efforts to improve productivity and decrease costs while improving customer satisfaction with consideration of customer rate affordability.
DTE Electric filed a rate case with the MPSC on February 1, 2016April 19, 2017 requesting an increase in base rates of $344$231 million based on a projected twelve-month period ending JulyOctober 31, 2017.2018. The requested increase in base rates is due primarily to an increase in net plant resulting from infrastructure investments, environmental compliance, and reliability improvement projects. The rate filing also includes projected changes in sales, operation and maintenance expenses, and working capital. The rate filing also requests an increase in return on equity from 10.3%10.1% to 10.5% on a capital structure of 50% equity and 50% debt. On August 1, 2016,structure. DTE Electric self-implementedanticipates self-implementing a base rate increase of $245 million. Anin November 2017 with an MPSC final order in this case is expected by February 2017.
April 2018.
GAS
The Gas segment consists principally of DTE Gas. Gas results are discussed below:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 |
| (In millions) | (In millions) |
Operating Revenues — Utility operations | $ | 160 |
| | $ | 153 |
| | $ | 911 |
| | $ | 1,018 |
| $ | 557 |
| | $ | 520 |
|
Cost of gas — utility | 15 |
| | 19 |
| | 306 |
| | 387 |
| 221 |
| | 233 |
|
Gross Margin | 145 |
| | 134 |
| | 605 |
| | 631 |
| 336 |
| | 287 |
|
Operation and maintenance | 99 |
| | 101 |
| | 293 |
| | 323 |
| 107 |
| | 96 |
|
Depreciation and amortization | 27 |
| | 25 |
| | 79 |
| | 76 |
| 30 |
| | 26 |
|
Taxes other than income | 13 |
| | 13 |
| | 49 |
| | 49 |
| 20 |
| | 19 |
|
Operating Income (Loss) | 6 |
| | (5 | ) | | 184 |
| | 183 |
| |
Operating Income | | 179 |
| | 146 |
|
Other (Income) and Deductions | 13 |
| | 13 |
| | 35 |
| | 38 |
| 13 |
| | 11 |
|
Income Tax Expense (Benefit) | (3 | ) | | (7 | ) | | 53 |
| | 52 |
| |
Net Income (Loss) Attributable to DTE Energy Company | $ | (4 | ) | | $ | (11 | ) | | $ | 96 |
| | $ | 93 |
| |
Income Tax Expense | | 59 |
| | 48 |
|
Net Income Attributable to DTE Energy Company | | $ | 107 |
| | $ | 87 |
|
Gross Margin increased $11 million and decreased $26$49 million in the three and nine months ended September 30, 2016, respectively.March 31, 2017. Revenues associated with certain surcharges are offset by related expenses elsewhere in DTE Energy's Consolidated Statements of Operations.
The following table details changes in various gross margin components relative to the comparable prior period:
|
| | | | | | | |
| Three Months | | Nine Months |
| (In millions) |
Weather | $ | — |
| | $ | (48 | ) |
Midstream storage and transportation revenues | 1 |
| | (2 | ) |
Infrastructure recovery mechanism | 3 |
| | 9 |
|
Revenue decoupling mechanism | (2 | ) | | (2 | ) |
Energy optimization revenue | 1 |
| | (2 | ) |
Other | 8 |
| | 19 |
|
Increase (decrease) in gross margin | $ | 11 |
| | $ | (26 | ) |
|
| | | |
| Three Months |
| (In millions) |
Implementation of new rates | $ | 54 |
|
Revenue decoupling mechanism | 5 |
|
Weather | (12 | ) |
Other | 2 |
|
Increase in gross margin | $ | 49 |
|
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 |
Gas Markets (in Bcf) | | | | | | | | |
| | (In Bcf) |
Gas Markets | | | | |
Gas sales | 7 |
| | 7 |
| | 80 |
| | 92 |
| 53 |
| | 55 |
|
End user transportation | 38 |
| | 33 |
| | 136 |
| | 130 |
| |
End-user transportation | | 52 |
| | 56 |
|
| 45 |
| | 40 |
| | 216 |
| | 222 |
| 105 |
| | 111 |
|
Intermediate transportation | 44 |
| | 64 |
| | 164 |
| | 226 |
| 82 |
| | 67 |
|
| 89 |
| | 104 |
| | 380 |
| | 448 |
| |
Total Gas sales | | 187 |
| | 178 |
|
Operation and maintenance expense decreased $2 million and $30increased $11 million in the three and nine months ended September 30, 2016, respectively.March 31, 2017. The decrease in the third quarterincrease was primarily due primarily to decreased transmissionincreased employee benefits expenses of $3$8 million, decreased uncollectibleincreased corporate expenses of $3$2 million, and decreased gas operationsincreased energy optimization expenses of $2 million, partially offset by an increase in employee benefits expenses of $5 million. The decrease in the nine month period was due primarily to decreased uncollectible expensesexpense of $12 million, decreased transmission expenses of $6 million, decreased gas operations expenses of $6 million, decreased engineering expenses of $3 million, and decreased corporate administrative expenses of $3$1 million. The decreased uncollectible, gas operations and transmission expenses for the three and nine months ended September 30, 2016 were primarily the result of weather-related impacts of warm weather in the first quarter of 2016. Additionally, DTE Gas took actions to reduce costs to partially offset the negative impacts to revenue and gross margin resulting from the warm weather in the first quarter of 2016.
Outlook — DTE Gas will continue to move forward in its efforts to achieve operational excellence, sustained 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 December 18, 2015 requesting an increase in base rates of $183 million, inclusive of $41 million of existing IRM surcharges which are expected to be converted into base rates, based on a projected twelve-month period ending October 31, 2017. The requested increase in base rates is due primarily to an increase in net plant, inclusive of IRM capital investments being recovered through approved IRM surcharge filings. The rate filing also includes projected changes in sales, operation and maintenance expenses, and working capital. The rate filing also requests an increase in return on equity from 10.5% to 10.75% on a capital structure of 52% equity and 48% debt. Concurrent with the MPSC order in this rate case, the existing IRM surcharge being billed will be terminated. However, DTE Gas requested to implement a new IRM surcharge of approximately $9 million to become effective in January 2017. On May 11, 2016, DTE Gas filed an application with the MPSC for a $103 million self-implemented base rate increase effective November 1, 2016. An MPSC final order in this case is expected by December 2016.
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 September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 |
| (In millions) | (In millions) |
Operating Revenues — Non-utility operations | $ | 63 |
| | $ | 61 |
| | $ | 199 |
| | $ | 175 |
| $ | 105 |
| | $ | 67 |
|
Cost of gas — Non-utility | | 6 |
| | — |
|
Operation and maintenance | 15 |
| | 14 |
| | 47 |
| | 39 |
| 19 |
| | 16 |
|
Depreciation and amortization | 8 |
| | 8 |
| | 27 |
| | 22 |
| 19 |
| | 8 |
|
Taxes other than income | 1 |
| | 1 |
| | 3 |
| | 3 |
| 3 |
| | 1 |
|
Operating Income | 39 |
| | 38 |
| | 122 |
| | 111 |
| 58 |
| | 42 |
|
Other (Income) and Deductions | (9 | ) | | (8 | ) | | (28 | ) | | (22 | ) | (14 | ) | | (8 | ) |
Income Tax Expense | 19 |
| | 18 |
| | 55 |
| | 52 |
| 21 |
| | 19 |
|
Net Income | 29 |
| | 28 |
| | 95 |
| | 81 |
| 51 |
| | 31 |
|
Less: Net Income Attributable to Noncontrolling Interests | 1 |
| | 1 |
| | 2 |
| | 2 |
| 6 |
| | 1 |
|
Net Income Attributable to DTE Energy Company | $ | 28 |
| | $ | 27 |
| | $ | 93 |
| | $ | 79 |
| $ | 45 |
| | $ | 30 |
|
Operating Revenues — Non-utility operations increased $2 million and $24$38 million in the three and nine months ended September 30, 2016, respectively.March 31, 2017. The increases wereincrease was primarily due primarily to the acquisition of AGS and SGG and increased volumes from Susquehanna gathering.
Depreciation and amortization expenseincreased$11 million in the three months endedMarch 31, 2017. The increase is primarily due to the acquisition of AGS and SGG.
Other (Income) and Deductions increased $6 million in the three months ended March 31, 2017. This increase is primarily due to higher pipeline earnings from AFUDC recorded on the Bluestone Pipeline and Susquehanna gathering systems.NEXUS Pipeline.
Net Income Attributable to DTE Energy CompanyNoncontrolling Interests increased $1$5 million and $14 million in the three and nine months ended September 30, 2016, respectively.March 31, 2017. The increases wereincrease is primarily due primarily to increased volumes on the Bluestone Pipeline and Susquehanna gathering systems and increased earnings from pipeline investments.acquisition of SGG.
Outlook — In September 2016, DTE Energy executed an agreement to purchase midstream natural gas assets in support of its strategy to continue to grow and earn competitive returns for shareholders. The agreement called for DTE Energy to purchase 100 percent of AGS, located in Pennsylvania and West Virginia, and 40 percent of SGG, in West Virginia, from M3 Midstream. In addition, DTE Energy agreed to purchase 15 percent of SGG from Vega Energy Partners. The combined purchase price for the assets acquired by DTE Energy was $1.3 billion. These assets are part of the Gas Storage and Pipelines business. On October 20, 2016, DTE Energy closed on the transaction. See Note 134 to the Consolidated Financial Statements, "Subsequent Events,"Acquisition," for more information ondiscussion of the acquisition.acquisition of AGS and SGG in October 2016.
Procurement activities are underway forOutlook — The Bluestone Pipeline's 2016Pipeline expansion is expected to be in Broome County, New York.service in the second quarter of 2017. Additionally, the Susquehanna gathering system is beingwill be expanded with additional compression facilities and gathering lines.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 approximately $281$435 million at September 30, 2016.March 31, 2017. A FERC application was filed in the fourth quarter of 2015 and an2015. With the departure of one of the three remaining FERC commissioners on February 3, 2017, a necessary quorum of three FERC commissioners no longer exists, thereby delaying pipeline approvals until at least one new commissioner is appointed. Construction will commence as soon as the FERC order is expectedreceived. Premised on a timely appointment of at least one FERC Commissioner, DTE Energy is targeting a year-end 2017 in-service date for the NEXUS Pipeline.
The October 2016 acquisition of AGS and SGG provides a platform for midstream growth and access to further investment opportunities in the first quarter of 2017. TheAppalachian basin, an additional connection to the NEXUS Pipeline has an estimated in service date inwhich should drive incremental volumes on the fourth quarterNEXUS Pipeline, and a new set of 2017.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.
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 from renewable energy projects. Power and Industrial Projects results are discussed below:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 |
| (In millions) | (In millions) |
Operating Revenues — Non-utility operations | $ | 524 |
| | $ | 585 |
| | $ | 1,414 |
| | $ | 1,708 |
| $ | 548 |
| | $ | 446 |
|
Fuel, purchased power, and gas — non-utility | 451 |
| | 476 |
| | 1,218 |
| | 1,420 |
| 486 |
| | 383 |
|
Gross Margin | 73 |
| | 109 |
| | 196 |
| | 288 |
| 62 |
| | 63 |
|
Operation and maintenance | 78 |
| | 93 |
| | 236 |
| | 267 |
| 82 |
| | 75 |
|
Depreciation and amortization | 18 |
| | 20 |
| | 54 |
| | 60 |
| 18 |
| | 18 |
|
Taxes other than income | 3 |
| | 3 |
| | 10 |
| | 12 |
| 4 |
| | 5 |
|
Asset (gains) losses and impairments, net | (1 | ) | | 1 |
| | (1 | ) | | 9 |
| |
Operating Loss | (25 | ) | | (8 | ) | | (103 | ) | | (60 | ) | (42 | ) | | (35 | ) |
Other (Income) and Deductions | (12 | ) | | (20 | ) | | (44 | ) | | (54 | ) | (16 | ) | | (14 | ) |
Income Taxes | | | | | | | | | | |
Expense (Benefit) | 1 |
| | 5 |
| | (11 | ) | | (2 | ) | |
Benefit | | (6 | ) | | (5 | ) |
Production Tax Credits | (34 | ) | | (23 | ) | | (85 | ) | | (71 | ) | (38 | ) | | (25 | ) |
| (33 | ) | | (18 | ) | | (96 | ) | | (73 | ) | (44 | ) | | (30 | ) |
Net Income | 20 |
| | 30 |
| | 37 |
| | 67 |
| 18 |
| | 9 |
|
Less: Net Loss Attributable to Noncontrolling Interests | (14 | ) | | (2 | ) | | (29 | ) | | (6 | ) | (12 | ) | | (8 | ) |
Net Income Attributable to DTE Energy Company | $ | 34 |
| | $ | 32 |
| | $ | 66 |
| | $ | 73 |
| $ | 30 |
| | $ | 17 |
|
Operating Revenues — Non-utility operations increased $102 million in the three months ended March 31, 2017. The increase was primarily due to $96 million associated with higher production in the REF business, and a $9 million increase primarily due to higher sales as a result of improved conditions in the steel business.
Gross Margin decreased $36 million and $92$1 million in the three and nine months ended September 30, 2016, respectively.March 31, 2017. The decrease was primarily due to $4 million of lower sales associated with expired contracts in the third quarter was due primarily toon-site business, and a $28 million decrease due to lower demand in the steel business, including a $15$3 million decrease associated with production in the closure of the Shenango coke battery, andREF business, offset by a $7$9 million decreaseincrease primarily due to higher sales as a terminationresult of a lease arrangementimproved business conditions in the REF business. The decrease in the nine month period was due primarily to a $86 million decrease due to lower demand in the steel business, including $43 million associated with the closure of the Shenango coke battery, and an $11 million decrease primarily due to a termination of a lease arrangement in the REF business.
Operation and maintenance expense decreased $15 million and $31increased $7 million in the three and nine months ended September 30, 2016, respectively.March 31, 2017. The decreaseincrease was primarily due to $4 million of higher maintenance in the third quarter was due primarily to $15 million of lower spending as a result of the closure of the Shenango coke battery and cost control due to lower demand in the steel business,renewables projects, and $2 million of lowerhigher spending as a result of closure of a renewable power generating facility, partially offset by a $1 million increase associated with a new project in the REF business. The decrease in the nine month period was due primarily to $37 million of lower spending as a result of the closure of the Shenango coke battery and cost control due to lower demand in the steel business, $5 million of lower spending as a result of the closure of a renewable power generating facility,new projects and $2 million of lower general and administrative expenses in the steel business, partially offset by an $11 million increase associated with a new projecthigher production in the REF business.
Asset (gains) losses and impairments, netIncome Tax — Production Tax Credits increased $2 million and $10by $13 million in the three and nine months ended September 30, 2016, respectively.March 31, 2017. The increases were due primarily to 2015 asset impairments resulting from contract terminations, partially offset by a gain associated with the sale of a landfill gas project in 2015.
Net Loss Attributable to Noncontrolling Interests increased $12 million and $23 million in the three and nine months ended September 30, 2016, respectively. The additional loss allocated to noncontrolling interests isincrease was primarily due to new lease arrangements with investors at variousprojects and higher production in the REF facilities.business.
Outlook — Power and Industrial Projects has constructed and placed in service REF facilities at nineeleven sites including facilities located at sixeight third-party owned coal-fired power plants. DTE Energy has sold membership interests in four of the facilities and entered into lease arrangements in three of the facilities. DTE Energy will continue to optimize these facilities by seeking investors or entering into lease arrangements for facilities operating at DTE Electric and other utility sites. DTE Energy is in the process of relocating underutilized facility equipment at an existing site toentering into a new third-party owned coal-fired power plant. DTE Energy has also acquired an REF facility to be located atsub license agreement with a third-party owned coal-fired power plant. In addition, DTE Energy has entered into an agreement to operate anand operated REF facility owned by an outside party located at a third-party owned coal-fired power plant.facility.
DTE Energy expects decreasedimproved production levels of metallurgical coke and pulverized coal supplied to steel industry customers for 2016. A downturn in the steel industry in the United States will continue to negatively impact the volume and pricing of metallurgical coke sales for the near-term.2017. The segment has four renewable power generation facilities in operation. On-site energy services will continue to be delivered in accordance with the terms of long-term contracts. DTE Energy will continue to look for additional investment opportunities and other energy projects at favorable prices.
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 September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 |
| (In millions) | (In millions) |
Operating Revenues — Non-utility operations | $ | 782 |
| | $ | 635 |
| | $ | 1,807 |
| | $ | 1,870 |
| $ | 1,052 |
| | $ | 549 |
|
Purchased power and gas — non-utility | 773 |
| | 597 |
| | 1,810 |
| | 1,813 |
| 873 |
| | 541 |
|
Gross Margin | 9 |
| | 38 |
| | (3 | ) | | 57 |
| 179 |
| | 8 |
|
Operation and maintenance | 14 |
| | 17 |
| | 46 |
| | 51 |
| 19 |
| | 16 |
|
Depreciation and amortization | 1 |
| | 1 |
| | 2 |
| | 1 |
| 1 |
| | 1 |
|
Taxes other than income | 1 |
| | — |
| | 2 |
| | 3 |
| 1 |
| | 1 |
|
Operating Income (Loss) | (7 | ) | | 20 |
| | (53 | ) | | 2 |
| 158 |
| | (10 | ) |
Other (Income) and Deductions | — |
| | 1 |
| | 3 |
| | 3 |
| 1 |
| | 1 |
|
Income Tax Expense (Benefit) | (3 | ) | | 7 |
| | (22 | ) | | (1 | ) | 61 |
| | (4 | ) |
Net Income (Loss) Attributable to DTE Energy Company | $ | (4 | ) | | $ | 12 |
| | $ | (34 | ) | | $ | — |
| $ | 96 |
| | $ | (7 | ) |
Gross MarginOperating Revenues — Non-utility operations decreased $29 million and $60increased$503 million in the three and nine months ended September 30, 2016, respectively.March 31, 2017. The decrease in the third quarterincrease was due primarily to a decrease in unrealized margins of $61 million, partially offset by an increase in realized margins of $32 million. The decrease in unrealized margins of $61 million is due to unfavorable results of $84 million,high gas prices, primarily in the gas structured strategy.
Gross Margin increased $171 million in the three months ended March 31, 2017. The increase was due primarily to timing from MTM adjustments on certain transactions in the gas structured strategy.
The increase in Gross Margin in the three months ended March 31, 2017 represents a $91 million increase in unrealized margins and a $80 million increase in realized margins. The $91 million increase in unrealized margins was due to $103 million of favorable results, primarily in gas structured and power full requirements and gas storage strategies, offset by favorable$12 million of unfavorable results, of $23 million, primarily in gaspower and powergas trading strategies. The $80 million increase in realized margins of $32 million iswas due to $85 million of favorable results, primarily in gas structured, gas storage, gas full requirements, and environmental, power and gas trading strategies, offset by $5 million of $58 million,unfavorable results, primarily in the power full requirements gas structured and gas storage strategies, partially offset by unfavorable results of $26 million, primarily in the power and gas trading strategies.
The decrease in the nine month period was due to a decrease in unrealized margins of $79 million, partially offset by an increase in realized margins of $19 million. The decrease in unrealized margins of $79 million is due to unfavorable results of $84 million, primarily in the gas structured, power trading, power full requirements, and gas full requirements strategies, offset by favorable results of $5 million, primarily in the gas trading strategy. The increase in realized margins of $19 million is due to favorable results of $42 million, primarily in the power, environmental and gas trading strategies, partially offset by unfavorable results of $23 million, primarily in the gas transportation strategy.
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. Included in the unfavorable$103 million of favorable unrealized results of $84 million infor the three months ended September 30, 2016 are timing related lossesMarch 31, 2017, related to gas strategies was $95 million of $49 milliontiming related gains which will reverse in future periods as the underlying contracts settle. Included in the $85 million of favorable realized results of $58 million infor the three months ended September 30, 2016 are timing related lossesMarch 31, 2017 related to gas strategies was $71 million of $7 milliontiming related losses recognized in previous periods that reversed as the underlying contracts were settled.
Included in the unfavorable unrealized results of $84 million in the nine months ended September 30, 2016 are timing related losses related to gas strategies of $48 million which will reverse in future periods as the underlying contracts settle. Included in the unfavorable realized results of $23 million in the nine months ended September 30, 2016 are timing related gains related to gas strategies of $13 million recognized in previous periods that reversed as the underlying contracts were 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.RTOs. 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 67 and 78 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, and holds certain non-utility debt, and holds energy-related investments. The net lossesincome of $1 million and $31$16 million in the three and nine months ended September 30, 2016,March 31, 2017 represents decreasesan increase of $8 million and $16$23 million from the net lossesloss of $9 million and $47$7 million in the comparable 2015 periods.2016 period. The decreases in losses wereincrease was due primarily to effective income tax rate adjustments partially offset by higher employeeand $13 million of excess tax benefits expenses.on stock-based compensation recognized in accordance with ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which was adopted effective July 1, 2016.
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 20162017 will be approximately $2.0 billion, or approximately $100 million higher than 2015.$1.9 billion. DTE Energy anticipates base level utility capital investments; environmental, renewable, and energy optimization expenditures; expenditures for non-utility businesses; and contributions to equity method investees in 20162017 of approximately $3.8 billion, including the Gas Storage and Pipelines acquisition of gas midstream assets discussed in Note 13 of the Combined Notes to Consolidated Financial Statements, "Subsequent Events."$3.0 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.
| | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2016 | | 2015 | 2017 | | 2016 |
Cash and Cash Equivalents | (In millions) | (In millions) |
Cash Flow From (Used For) | | | | | | |
Operating Activities: | | | | |
Operating Activities | | | | |
Net Income | $ | 710 |
| | $ | 643 |
| $ | 394 |
| | $ | 240 |
|
Adjustments to reconcile Net Income to Net cash from operating activities: | | | | | | |
Depreciation and amortization | 702 |
| | 625 |
| 249 |
| | 229 |
|
Nuclear fuel amortization | 44 |
| | 40 |
| 12 |
| | 15 |
|
Allowance for equity funds used during construction | (15 | ) | | (16 | ) | (7 | ) | | (5 | ) |
Deferred income taxes | 244 |
| | 251 |
| 100 |
| | 80 |
|
Asset (gains) losses and impairments, net | — |
| | 9 |
| |
Working capital and other | 82 |
| | (79 | ) | 39 |
| | 186 |
|
Net cash from operating activities | 1,767 |
| | 1,473 |
| 787 |
| | 745 |
|
Investing Activities: | | | | |
Investing Activities | | | | |
Plant and equipment expenditures — utility | (1,267 | ) | | (1,239 | ) | (533 | ) | | (394 | ) |
Plant and equipment expenditures — non-utility | (75 | ) | | (162 | ) | (22 | ) | | (30 | ) |
Acquisition | — |
| | (241 | ) | |
Proceeds from sale of assets | — |
| | 16 |
| |
Restricted cash for debt redemption, principally Securitization, net | 2 |
| | 99 |
| |
Contributions to equity method investees | (199 | ) | | (58 | ) | (112 | ) | | (26 | ) |
Other | 36 |
| | 13 |
| 26 |
| | 13 |
|
Net cash used for investing activities | (1,503 | ) | | (1,572 | ) | (641 | ) | | (437 | ) |
Financing Activities: | | | | |
Financing Activities | | | | |
Issuance of long-term debt, net of issuance costs | 646 |
| | 956 |
| 496 |
| | — |
|
Redemption of long-term debt | (322 | ) | | (260 | ) | (5 | ) | | (11 | ) |
Repurchase of long-term debt | (59 | ) | | — |
| |
Short-term borrowings, net | (89 | ) | | (213 | ) | (440 | ) | | (134 | ) |
Issuance of common stock | — |
| | 9 |
| |
Repurchase of common stock | (33 | ) | | — |
| (51 | ) | | (33 | ) |
Dividends on common stock and other | (378 | ) | | (374 | ) | (156 | ) | | (132 | ) |
Net cash from (used for) financing activities | (235 | ) | | 118 |
| |
Net Increase in Cash and Cash Equivalents | $ | 29 |
| | $ | 19 |
| |
Net cash used for financing activities | | (156 | ) | | (310 | ) |
Net Decrease in Cash and Cash Equivalents | | $ | (10 | ) | | $ | (2 | ) |
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 $42 million in the ninethree months ended September 30, 2016 increased by $294 millionMarch 31, 2017 compared to the ninethree months ended September 30, 2015.March 31, 2016. The increase in operating cash flow comparisonflows reflects an increase into Net Income, Depreciation and adjustments for non-cashamortization, and non-operating items as well as cash from working capital itemsDeferred income taxes, partially offset by decreases in Deferred income taxes and asset impairments.a decrease to working capital adjustments.
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 and acquisitions.expenditures. In any given year, DTE Energy looks to realize cash from under-performing or non-strategic assets or matured, fully valued assets.
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 decreasedincreased by $69$204 million in 20162017 due to an acquisition in 2015 and lowerincreased capital expenditures by the non-utilityutility business partially offset by the decrease in restricted cash for the redemption of Securitization bonds and higherincreased contributions to equity method investees, primarily the NEXUS Pipeline as it continues to develop.
Cash from (used for)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 53%, to ensure it is consistent with the objective of a strong investment grade debt rating.
Net cash used for financing activities increaseddecreased by $353$154 million in 20162017 due primarily to decreased issuances coupled with increased redemptionsan increase in Issuance of long-term debt, partially offset by a decrease to Short-term borrowings, net and increased repurchasesRepurchase of common stock partially offset by decreased short-term borrowings.and Dividends on 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. In October 2016, DTE Energy closed on a $1.3 billion acquisition of gas midstream assets that are part of the Gas Storage and Pipelines segment. The acquisition was financed through the issuance of Equity Units and Senior Notes. See Notes 8 and 13 to the Consolidated Financial Statements, "Long-Term Debt" and "Subsequent Events," respectively, for more information.
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 $20$10 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$2.0 billion of available liquidity at September 30, 2016,March 31, 2017, consisting of cash and amounts available under unsecured revolving credit agreements.
At the discretion of management and depending upon financial market conditions, DTE Energy may make additional contributions up to $175$180 million, including contributions from DTE Electric of $145 million, to its pension plans in 2016. At the discretion of management,2017. DTE Energy may makedoes not anticipate making any contributions up to $20 million, through contributions from DTE Gas, to itsthe other postretirement benefit plans in 2016.
2017.
Various subsidiaries and an equity investee 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”"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”"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 September 30, 2016,March 31, 2017, 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 approximately $354$437 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 4, 8,5, 9, 10, 11, and 1112 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 67 and 78 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 67 to the Consolidated Financial Statements, "Fair Value."
The following tables provide details on changes in DTE Energy's MTM net asset (or liability) position during the nine months ended September 30, 2016:position:
| | | Total | Three Months Ended |
| (In millions) | March 31, 2017 |
MTM at December 31, 2015 | $ | 40 |
| |
| | (In millions) |
MTM at December 31, 2016 | | $ | (86 | ) |
Reclassified to realized upon settlement | (36 | ) | (1 | ) |
Changes in fair value recorded to income | (84 | ) | 111 |
|
Amounts recorded to unrealized income | (120 | ) | 110 |
|
Changes in fair value recorded in regulatory liabilities | 6 |
| 2 |
|
Change in collateral held for others | (4 | ) | (11 | ) |
Option premiums received and other | (4 | ) | |
MTM at September 30, 2016 | $ | (82 | ) | |
MTM at March 31, 2017 | | $ | 15 |
|
The table below shows the maturity of DTE Energy's MTM positions. The positions from 20192020 and beyond principally represent longer tenor gas structured transactions:
| | Source of Fair Value | | 2016 | | 2017 | | 2018 | | 2019 and Beyond | | Total Fair Value | | 2017 | | 2018 | | 2019 | | 2020 and Beyond | | Total Fair Value |
| | (In millions) | | (In millions) |
Level 1 | | $ | (10 | ) | | $ | (14 | ) | | $ | (2 | ) | | $ | 3 |
| | $ | (23 | ) | | $ | (2 | ) | | $ | (1 | ) | | $ | 4 |
| | $ | (1 | ) | | $ | — |
|
Level 2 | | 10 |
| | (2 | ) | | 5 |
| | 5 |
| | 18 |
| | 11 |
| | 5 |
| | 8 |
| | 4 |
| | 28 |
|
Level 3 | | (25 | ) | | (25 | ) | | (9 | ) | | (48 | ) | | (107 | ) | | 1 |
| | 13 |
| | 4 |
| | (41 | ) | | (23 | ) |
MTM before collateral adjustments | | $ | (25 | ) | | $ | (41 | ) | | $ | (6 | ) | | $ | (40 | ) | | (112 | ) | | $ | 10 |
| | $ | 17 |
| | $ | 16 |
| | $ | (38 | ) | | 5 |
|
Collateral adjustments | | | | | | | | | | 30 |
| | | | | | | | | | 10 |
|
MTM at September 30, 2016 | | | | | | | | | | $ | (82 | ) | |
MTM at March 31, 2017 | | | | | | | | | | | $ | 15 |
|
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 business 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
Bankruptcies
Certain of the Registrants' customers and suppliers have filed for bankruptcy protection under the U.S. Bankruptcy Code. The Registrants regularly review contingent matters relating to these customers and suppliers and their purchase and sale 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.
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 September 30, 2016:March 31, 2017:
| | | Credit Exposure Before Cash Collateral | | Cash Collateral | | Net Credit Exposure | Credit Exposure Before Cash Collateral | | Cash Collateral | | Net Credit Exposure |
| (In millions) | (In millions) |
Investment Grade (a) | | | | | | | | | | |
A− and Greater | $ | 189 |
| | $ | (2 | ) | | $ | 187 |
| $ | 210 |
| | $ | (1 | ) | | $ | 209 |
|
BBB+ and BBB | 223 |
| | — |
| | 223 |
| 230 |
| | — |
| | 230 |
|
BBB− | 22 |
| | — |
| | 22 |
| 33 |
| | — |
| | 33 |
|
Total Investment Grade | 434 |
| | (2 | ) | | 432 |
| 473 |
| | (1 | ) | | 472 |
|
Non-investment grade (b) | 15 |
| | (5 | ) | | 10 |
| 4 |
| | — |
| | 4 |
|
Internally Rated — investment grade (c) | 237 |
| | — |
| | 237 |
| 331 |
| | — |
| | 331 |
|
Internally Rated — non-investment grade (d) | 12 |
| | (1 | ) | | 11 |
| 17 |
| | (2 | ) | | 15 |
|
Total | $ | 698 |
| | $ | (8 | ) | | $ | 690 |
| $ | 825 |
| | $ | (3 | ) | | $ | 822 |
|
| |
(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 approximately 21%17% 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 approximately 2%1% 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 approximately 14%15% 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 approximately 1%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 September 30, 2016,March 31, 2017, DTE Energy had a floating rate debt-to-total debt ratio of approximately 4.2%0.6%.
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 JuneDecember 2020.
Summary of Sensitivity Analyses
The Registrants performed sensitivity analyses on the fair values of commodity contracts and long-term debt obligations. The commodity contracts listed below principally relate to energy marketing and trading activities. The sensitivity analysis involved increasing and decreasing forward prices and rates at September 30,March 31, 2017 and 2016 and 2015 by a hypothetical 10% and calculating the resulting change in the fair values.
The results of the sensitivity analysis calculations as of September 30, 2016 and 2015:calculations:
|
| | | | | | | | | | | | | | | | | | |
| | Assuming a 10% Increase in Prices/Rates | | Assuming a 10% Decrease in Prices/Rates | | |
| | As of September 30, | | As of September 30, | | |
Activity | | 2016 | | 2015 | | 2016 | | 2015 | | Change in the Fair Value of |
| | (In millions) | | |
Natural gas contracts | | $ | 17 |
| | $ | (3 | ) | | $ | (17 | ) | | $ | 3 |
| | Commodity contracts |
Electricity contracts | | $ | 14 |
| | $ | 14 |
| | $ | (14 | ) | | $ | (12 | ) | | Commodity contracts |
Oil contracts | | $ | 1 |
| | $ | 2 |
| | $ | (1 | ) | | $ | (2 | ) | | Commodity contracts |
Interest rate risk | | $ | (388 | ) | | $ | (371 | ) | | $ | 408 |
| | $ | 395 |
| | Long-term debt |
|
| | | | | | | | | | | | | | | | | | |
| | Assuming a 10% Increase in Prices/Rates | | Assuming a 10% Decrease in Prices/Rates | | |
| | As of March 31, | | As of March 31, | | |
Activity | | 2017 | | 2016 | | 2017 | | 2016 | | Change in the Fair Value of |
| | (In millions) | | |
Gas contracts | | $ | 21 |
| | $ | 17 |
| | $ | (21 | ) | | $ | (17 | ) | | Commodity contracts |
Power contracts | | $ | 9 |
| | $ | 17 |
| | $ | (10 | ) | | $ | (16 | ) | | Commodity contracts |
Interest rate risk — DTE Energy | | $ | (540 | ) | | $ | (356 | ) | | $ | 526 |
| | $ | 377 |
| | Long-term debt |
Interest rate risk — DTE Electric | | $ | (232 | ) | | $ | (214 | ) | | $ | 249 |
| | $ | 230 |
| | Long-term debt |
For further discussion of market risk, see Note 78 to the Consolidated Financial Statements, "Financial and Other Derivative Instruments."
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 September 30, 2016,March 31, 2017, 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 September 30, 2016March 31, 2017 that have materially affected, or are reasonably likely to materially affect, DTE Energy's internal control over financial reporting. In April 2017, DTE Energy implemented a new customer billing system which is designed to improve efficiency and enhance the customer experience.
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 September 30, 2016,March 31, 2017, 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 September 30, 2016March 31, 2017 that have materially affected, or are reasonably likely to materially affect, DTE Electric's internal control over financial reporting. In April 2017, DTE Electric implemented a new customer billing system which is designed to improve efficiency and enhance the customer experience.
Part II — Other Information
Item 1. Legal Proceedings
As a result of a multimedia inspection by the EPA, EES Coke, the Michigan coke battery facility, a wholly-owned subsidiary of DTE Energy, received two FOVs in 2015 related to: 1) failing to repeat benzene sampling of waste streams due to a process change and use of calibration gas that is inconsistent with the applicable regulation; and 2) alleged deficiencies in its oil pollution prevention measures and spill prevention, control and countermeasures plan. EES Coke is currently working with the EPA to address the alleged violations. At this time, DTE Energy cannot predict the impact of the final settlement.
The decision to close the Shenango facility has prompted the PADEP, the EPA, and the ACHD to submit demand letters under the 2012 consent decree for stipulated penalties related to water and air matters since 2012. The stipulated penalties totaling $534,000 were paid in September 2016.
After closure of the Shenango coke plant, ACHD issued a demand for $481,275 to resolve the facility’s certain alleged clean air act violations. Shenango filed an appeal of such demand on August 19, 2016. The parties are currently in settlement discussion in an attempt to resolve this matter. At this time, DTE Energy cannot predict the impact of any final settlement, if any.
For more information on legal proceedings and matters related to the Registrants, see Notes 45 and 1011 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 20152016 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 September 30, 2016:March 31, 2017:
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| | | | | | | | | | | | | | | |
| 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 |
07/01/2016 — 07/31/2016 | 4,127 |
| | $ | 89.57 |
| | — |
| | — |
| | — |
|
08/01/2016 — 08/31/2016 | 479 |
| | $ | 82.90 |
| | — |
| | — |
| | — |
|
09/01/2016 — 09/30/2016 | 1,941 |
| | $ | 89.02 |
| | — |
| | — |
| | — |
|
Total | 6,547 |
| | |
| | — |
| | |
| | |
|
|
| | | | | | | | | | | | | | | |
| 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 |
01/01/2017 — 01/31/2017 | 2,232 |
| | $ | 95.68 |
| | — |
| | — |
| | — |
|
02/01/2017 — 02/28/2017 | 568,633 |
| | $ | 97.95 |
| | — |
| | — |
| | — |
|
03/01/2017 — 03/31/2017 | 1,014 |
| | $ | 93.45 |
| | — |
| | — |
| | — |
|
Total | 571,879 |
| | |
| | — |
| | |
| | |
|
| |
(a) | Represents shares of DTE Energy common stock purchased on the open market to provide shares to participants under various employee compensation and incentive programs. This also includes 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. |
Item 6. Exhibits
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| | | | | | |
Exhibit Number | | Description | | DTE Energy | | DTE Electric |
| | | | | | |
| | (i) Exhibits filed herewith: | | | | |
| | | | | | |
12.714.298 | | Supplemental Indenture, dated as of March 1, 2017 to the Amended and Restated Indenture, dated as of April 9, 2001, by and between DTE Energy Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (2017 Series A) | | X | | |
| | | | | | |
12.75 | | Computation of Ratio of Earnings to Fixed Charges | | X | | |
| | | | | | |
12.7212.76 | | Computation of Ratio of Earnings to Fixed Charges | | | | X |
| | | | | | |
31.12131.129 | | Chief Executive Officer Section 302 Form 10-Q Certification of Periodic Report | | X | | |
| | | | | | |
31.12231.130 | | Chief Financial Officer Section 302 Form 10-Q Certification of Periodic Report | | X | | |
| | | | | | |
31.12331.131 | | Chief Executive Officer Section 302 Form 10-Q Certification of Periodic Report | | | | X |
| | | | | | |
31.12431.132 | | 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: | | | | |
| | | | | | |
32.12132.129 | | Chief Executive Officer Section 906 Form 10-Q Certification of Periodic Report | | X | | |
| | | | | | |
32.12232.130 | | Chief Financial Officer Section 906 Form 10-Q Certification of Periodic Report | | X | | |
| | | | | | |
32.12332.131 | | Chief Executive Officer Section 906 Form 10-Q Certification of Periodic Report | | | | X |
| | | | | | |
32.12432.132 | | Chief Financial Officer Section 906 Form 10-Q Certification of Periodic Report | | | | X |
| | | | | | |
| | (iii) Exhibits incorporated by reference: | | | | |
| | | | | | |
4.296 | | Supplemental Indenture, dated as of September 1, 2016, to the Amended and Restated Indenture, dated as of April 9, 2001, by and between DTE Energy Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4.1 to DTE Energy's Form 8-K dated October 5, 2016) (2016 Series C) | | X | | |
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.
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| | | |
Date: | OctoberApril 26, 20162017 | | |
| | | DTE ENERGY COMPANY |
| | | |
| | By: | /S/DONNA M. ENGLAND |
| | | Donna M. England Chief Accounting Officer |
| | | (Duly Authorized Officer) |
| | | |
| | | |
| | | DTE ELECTRIC COMPANY |
| | | |
| | By: | /S/DONNA M. ENGLAND |
| | | Donna M. England Chief Accounting Officer |
| | | (Duly Authorized Officer) |