DTE ENERGY CO
10-Qs and 10-Ks
PROXIES
Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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FOR THE FISCAL YEAR ENDED DECEMBER 31,
2009
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
Commission file number 1-11607
DTE ENERGY COMPANY
(Exact name of registrant as
specified in its charter)
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Michigan
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38-3217752 | |
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(State or other jurisdiction
of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
|
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One Energy Plaza, Detroit, Michigan
(Address of principal executive offices) |
48226-1279
(Zip Code) |
313-235-4000
(Registrant’s telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, without par value
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New York Stock Exchange | |
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7.8% Trust Preferred Securities*
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New York Stock Exchange | |
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7.50% Trust Originated Preferred Securities**
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New York Stock Exchange |
| * | Issued by DTE Energy Trust I. DTE Energy fully and unconditionally guarantees the payments of all amounts due on these securities to the extent DTE Energy Trust I has funds available for payment of such distributions. | |
| ** | Issued by DTE Energy Trust II. DTE Energy fully and unconditionally guarantees the payments of all amounts due on these securities to the extent DTE Energy Trust II has funds available for payment of such distributions. |
Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
þ
No
o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
o
No
þ
Indicate by check mark whether the
registrant: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past
90 days. Yes
þ
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
(§ 232.405 of this chapter) during the preceding
12 months (or such shorter period that the registrant was
required to submit and post such
files). Yes
þ
No
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
þ
.
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer
þ
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Accelerated filer o |
Non-accelerated
filer
o
(Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
o
No
þ
On June 30, 2009, the aggregate market value of the
Registrant’s voting and non-voting common equity held by
non-affiliates was approximately $5.3 billion (based on the
New York Stock Exchange closing price on such date). There were
165,633,622 shares of common stock outstanding at
January 31, 2010.
Certain information in DTE Energy Company’s definitive
Proxy Statement for its 2010 Annual Meeting of Common
Shareholders to be held May 6, 2010, which will be filed
with the Securities and Exchange Commission pursuant to
Regulation 14A, not later than 120 days after the end
of the Registrant’s fiscal year covered by this report on
Form 10-K,
is incorporated herein by reference to Part III
(Items 10, 11, 12, 13 and 14) of this
Form 10-K.
DTE
Energy Company
Annual Report on Form 10-K
Year Ended December 31, 2009
TABLE OF CONTENTS
Annual Report on Form 10-K
Year Ended December 31, 2009
TABLE OF CONTENTS
1
Table of Contents
DEFINITIONS
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ASC
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Accounting Standards Codification | |
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ASU
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Accounting Standards Update | |
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Company
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DTE Energy Company and any subsidiary companies | |
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CTA
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Costs to achieve, consisting of project management, consultant support and employee severance, related to the Performance Excellence Process | |
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Customer Choice
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Statewide initiatives giving customers in Michigan the option to choose alternative suppliers for electricity and gas. | |
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Detroit Edison
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The Detroit Edison Company (a direct wholly owned subsidiary of DTE Energy Company) and subsidiary companies | |
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DTE Energy
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DTE Energy Company, directly or indirectly the parent of Detroit Edison, MichCon and numerous non-utility subsidiaries | |
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EPA
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United States Environmental Protection Agency | |
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FASB
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Financial Accounting Standards Board | |
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FERC
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Federal Energy Regulatory Commission | |
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FSP
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FASB Staff Position | |
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FTRs
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Financial transmission rights | |
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GCR
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A gas cost recovery mechanism authorized by the MPSC that allows MichCon to recover through rates its natural gas costs. | |
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ISO-NE
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ISO New England Inc. is a Regional Transmission Organization serving Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont. | |
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MDEQ
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Michigan Department of Environmental Quality | |
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MichCon
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Michigan Consolidated Gas Company (an indirect wholly owned subsidiary of DTE Energy) and subsidiary companies | |
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MISO
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Midwest Independent System Operator is an Independent System Operator and the Regional Transmission Organization serving the Midwest United States and Manitoba, Canada. | |
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MPSC
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Michigan Public Service Commission | |
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Non-utility
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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 or the FERC. | |
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NRC
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Nuclear Regulatory Commission | |
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NYMEX
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New York Mercantile Exchange | |
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PJM
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PJM Interconnection LLC is a Regional Transmission Organization serving all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia. | |
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Production tax credits
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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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Proved reserves
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Estimated quantities of natural gas, natural gas liquids and crude oil which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reserves under existing economic and operating conditions. | |
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PSCR
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A power supply cost recovery mechanism authorized by the MPSC that allows Detroit Edison to recover through rates its fuel, fuel-related and purchased power costs. | |
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Securitization
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Detroit Edison 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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SFAS
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Statement of Financial Accounting Standards |
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Table of Contents
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Subsidiaries
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The direct and indirect subsidiaries of DTE Energy Company | |
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Synfuels
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The fuel produced through a process involving chemically modifying and binding particles of coal. Synfuels are used for power generation and coke production. Synfuel production through December 31, 2007 generated production tax credits. | |
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Unconventional Gas
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Includes those oil and gas deposits that originated and are stored in coal bed, tight sandstone and shale formations. |
Units of
Measurement
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Bcf
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Billion cubic feet of gas | |
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Bcfe
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Conversion metric of natural gas, the ratio of 6 Mcf of gas to 1 barrel of oil. | |
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GWh
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Gigawatthour of electricity | |
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kWh
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Kilowatthour of electricity | |
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Mcf
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Thousand cubic feet of gas | |
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MMcf
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Million cubic feet of gas | |
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MW
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Megawatt of electricity | |
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MWh
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Megawatthour of electricity |
3
Table of Contents
Forward-Looking
Statements
Certain information presented herein includes
“forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995 with respect to
the financial condition, results of operations and business of
DTE Energy. Forward-looking statements are subject to numerous
assumptions, risks and uncertainties that may cause actual
future results to be materially different from those
contemplated, projected, estimated or budgeted. Many factors may
impact forward-looking statements including, but not limited to,
the following:
| • | the length and severity of ongoing economic decline resulting in lower demand, customer conservation and increased thefts of electricity and gas; | |
| • | changes in the economic and financial viability of our customers, suppliers, and trading counterparties, and the continued ability of such parties to perform their obligations to the Company; | |
| • | economic climate and population growth or decline in the geographic areas where we do business; | |
| • | high levels of uncollectible accounts receivable; | |
| • | access to capital markets and capital market conditions 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; | |
| • | potential for losses on investments, including nuclear decommissioning and benefit plan assets and the related increases in future expense and contributions; | |
| • | the potential for increased costs or delays in completion of significant construction projects; | |
| • | the effects of weather and other natural phenomena on operations and sales to customers, and purchases from suppliers; | |
| • | environmental issues, laws, regulations, and the increasing costs of remediation and compliance, including actual and potential new federal and state requirements that include or could include carbon and more stringent mercury emission controls, a renewable portfolio standard, energy efficiency mandates, a carbon tax or cap and trade structure and ash landfill regulations; | |
| • | nuclear regulations and operations associated with nuclear facilities; | |
| • | impact of electric and gas utility restructuring in Michigan, including legislative amendments and Customer Choice programs; | |
| • | employee relations and the impact of collective bargaining agreements; | |
| • | unplanned outages; | |
| • | 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; | |
| • | cost reduction efforts and the maximization of plant and distribution system performance; | |
| • | the effects of competition; | |
| • | the uncertainties of successful exploration of gas shale resources and challenges in estimating gas reserves with certainty; | |
| • | impact of regulation by the FERC, MPSC, NRC and other applicable governmental proceedings and regulations, including any associated impact on rate structures; |
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Table of Contents
| • | 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 amount and timing of cost recovery allowed as a result of regulatory proceedings, related appeals or new legislation; | |
| • | the cost of protecting assets against, or damage due to, terrorism or cyber attacks; | |
| • | the availability, cost, coverage and terms of insurance and stability of insurance providers; | |
| • | 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; and | |
| • | binding arbitration, litigation and related appeals. |
New factors emerge from time to time. We cannot predict what
factors may arise or how such factors may cause our results to
differ materially from those contained in any forward-looking
statement. Any forward-looking statements refer only as of the
date on which such statements are made. We undertake no
obligation to update any forward-looking statement to reflect
events or circumstances after the date on which such statement
is made or to reflect the occurrence of unanticipated events.
5
Table of Contents
Part I
Items 1.
and 2.
Business and Properties
General
In 1995, DTE Energy incorporated in the State of Michigan. Our
utility operations consist primarily of Detroit Edison and
MichCon. We also have four other segments that are engaged in a
variety of energy-related businesses.
Detroit Edison is a Michigan corporation organized in 1903 and
is a public utility subject to regulation by the MPSC and the
FERC. Detroit Edison is engaged in the generation, purchase,
distribution and sale of electricity to approximately
2.1 million customers in southeastern Michigan.
MichCon is a Michigan corporation organized in 1898 and is a
public utility subject to regulation by the MPSC. MichCon is
engaged in the purchase, storage, transmission, gathering,
distribution and sale of natural gas to approximately
1.2 million customers throughout Michigan.
Our other segments are involved in 1) gas pipelines and
storage; 2) unconventional gas exploration, development,
and production; 3) power and industrial projects and coal
transportation and marketing; and 4) energy marketing and
trading operations.
Our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
proxy statements, and all amendments to such reports are
available free of charge through the Investor Relations page of
our website:
www.dteenergy.com
, as soon as reasonably
practicable after they are filed with or furnished to the
Securities and Exchange Commission (SEC). Our previously filed
reports and statements are also available at the SEC’s
website:
www.sec.gov
.
The Company’s Code of Ethics and Standards of Behavior,
Board of Directors’ Mission and Guidelines, Board Committee
Charters, and Categorical Standards of Director Independence are
also posted on its website. The information on the
Company’s website is not part of this or any other report
that the Company files with, or furnishes to, the SEC.
Additionally, the public may read and copy any materials the
Company files with the SEC at the SEC’s Public Reference
Room at 100 F Street, NE, Room 1580,
Washington, D.C. 20549. The public may obtain information
on the operation of the Public Reference Room by calling the SEC
at
1-800-SEC-0330.
The SEC also maintains an Internet site that contains reports,
proxy and information statements, and other information
regarding issuers that file electronically with the SEC at
www.sec.gov
.
References in this Report to “we,” “us,”
“our,” “Company” or “DTE” are to
DTE Energy and its subsidiaries, collectively.
Corporate
Structure
Based on the following structure, we set strategic goals,
allocate resources, and evaluate performance. See Note 24
of the Notes to Consolidated Financial Statements in Item 8
of this Report for financial information by segment for the last
three years.
Electric
Utility
| • | The Company’s Electric Utility segment consists of Detroit Edison, which is engaged in the generation, purchase, distribution and sale of electricity to approximately 2.1 million residential, commercial and industrial customers in southeastern Michigan. |
Gas
Utility
| • | The Gas Utility segment consists of MichCon and Citizens. MichCon is engaged in the purchase, storage, transmission, distribution and sale of natural gas to approximately 1.2 million residential, |
6
Table of Contents
| commercial and industrial customers throughout Michigan. Citizens distributes natural gas in Adrian, Michigan to approximately 17,000 customers. |
Non-Utility
Operations
| • | Gas Storage and Pipelines consists of natural gas pipelines and storage businesses. | |
| • | Unconventional Gas Production is engaged in unconventional gas project development and production. | |
| • | Power and Industrial Projects is comprised of coke batteries and pulverized coal projects, reduced emission fuel and steel industry fuel-related projects, on-site energy services, power generation and coal transportation and marketing. | |
| • | Energy Trading consists of energy marketing and trading operations. |
Corporate & Other,
includes various holding
company activities, holds certain non-utility debt and
energy-related investments.
Refer to our Management’s Discussion and Analysis in
Item 7 of this Report for an in-depth analysis of each
segment’s financial results. A description of each business
unit follows.
ELECTRIC
UTILITY
Description
Our Electric Utility segment consists of Detroit Edison. Our
generating plants are regulated by numerous federal and state
governmental agencies, including, but not limited to, the MPSC,
the FERC, the NRC, the EPA and the MDEQ. Electricity is
generated from our several fossil plants, a hydroelectric pumped
storage plant and a nuclear plant, and is purchased from
electricity generators, suppliers and wholesalers. The
electricity we produce and purchase is sold to three major
classes of customers: residential, commercial and industrial,
principally throughout southeastern Michigan.
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Table of Contents
Revenue
by Service
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Residential
|
$ | 1,820 | $ | 1,726 | $ | 1,739 | ||||||
|
Commercial
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1,702 | 1,753 | 1,723 | |||||||||
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Industrial
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730 | 894 | 854 | |||||||||
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Other
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299 | 289 | 384 | |||||||||
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Subtotal
|
4,551 | 4,662 | 4,700 | |||||||||
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Interconnection sales(1)
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163 | 212 | 200 | |||||||||
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Total Revenue
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$ | 4,714 | $ | 4,874 | $ | 4,900 | ||||||
| (1) | Represents power that is not distributed by Detroit Edison. |
Weather, economic factors, competition and electricity prices
affect sales levels to customers. Our peak load and highest
total system sales generally occur during the third quarter of
the year, driven by air conditioning and other cooling-related
demands. Our operations are not dependent upon a limited number
of customers, and the loss of any one or a few customers would
not have a material adverse effect on Detroit Edison.
Fuel
Supply and Purchased Power
Our power is generated from a variety of fuels and is
supplemented with purchased power. We expect to have an adequate
supply of fuel and purchased power to meet our obligation to
serve customers. Our generating capability is heavily dependent
upon the availability of coal. Coal is purchased from various
sources in different geographic areas under agreements that vary
in both pricing and terms. We expect to obtain the majority of
our coal requirements through long-term contracts, with the
balance to be obtained through short-term agreements and spot
purchases. We have nine long-term and nine short-term contracts
for a total purchase of approximately 28 million tons of
low-sulfur western coal to be delivered from 2010 through 2012.
We also have nine long-term and two short-term contracts for the
purchase of approximately 9 million tons of Appalachian
coal to be delivered from 2010 through 2012. All of these
contracts have fixed prices. We have approximately 87% of our
2010 expected coal requirements under contract. Given the
geographic diversity of supply, we believe we can meet our
expected generation requirements. We lease a fleet of rail cars
and have transportation contracts with companies to provide rail
and vessel services for delivery of purchased coal to our
generating facilities.
Detroit Edison participates in the energy market through MISO.
We offer our generation in the market on a day-ahead and
real-time basis and bid for power in the market to serve our
load. We are a net purchaser of power that supplements our
generation capability to meet customer demand during peak cycles.
Properties
Detroit Edison owns generating plants and facilities that are
located in the State of Michigan. Substantially all of our
property is subject to the lien of a mortgage.
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Table of Contents
Generating plants owned and in service as of December 31,
2009 are as follows:
|
Summer Net
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||||||||||||
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Location by
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Rated
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|||||||||||
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Michigan
|
Capability(1) | |||||||||||
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Plant Name
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County |
(MW)
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(%)
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Year in Service
|
||||||||
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Fossil-fueled Steam-Electric
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||||||||||||
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Belle River(2)
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St. Clair | 1,034 | 9.3 | 1984 and 1985 | ||||||||
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Conners Creek
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Wayne | 230 | 2.1 | 1951 | ||||||||
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Greenwood
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St. Clair | 785 | 7.1 | 1979 | ||||||||
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Harbor Beach
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Huron | 103 | 0.9 | 1968 | ||||||||
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Marysville
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St. Clair | 84 | 0.8 | 1943 and 1947 | ||||||||
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Monroe(3)
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Monroe | 3,090 | 27.9 | 1971, 1973 and 1974 | ||||||||
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River Rouge
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Wayne | 523 | 4.7 | 1957 and 1958 | ||||||||
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St. Clair(4)
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St. Clair | 1,365 | 12.3 | 1953, 1954, 1959, 1961 and 1969 | ||||||||
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Trenton Channel
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Wayne | 730 | 6.6 | 1949 and 1968 | ||||||||
| 7,944 | 71.7 | |||||||||||
|
Oil or Gas-fueled Peaking Units
|
Various | 1,101 | 10.0 | 1966-1971, 1981 and 1999 | ||||||||
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Nuclear-fueled Steam-Electric Fermi 2(5)
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Monroe | 1,102 | 10.0 | 1988 | ||||||||
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Hydroelectric Pumped Storage Ludington(6)
|
Mason | 917 | 8.3 | 1973 | ||||||||
| 11,064 | 100.0 | |||||||||||
| (1) | Summer net rated capabilities of generating plants in service are based on periodic load tests and are changed depending on operating experience, the physical condition of units, environmental control limitations and customer requirements for steam, which otherwise would be used for electric generation. | |
| (2) | The Belle River capability represents Detroit Edison’s entitlement to 81.39% of the capacity and energy of the plant. See Note 8 of the Notes to the Consolidated Financial Statements in Item 8 of this Report. | |
| (3) | The Monroe power plant provided 38% of Detroit Edison’s total 2009 power generation. | |
| (4) | Excludes one oil-fueled unit (250 MW) in cold standby status. | |
| (5) | Fermi 2 has a design electrical rating (net) of 1,150 MW. | |
| (6) | Represents Detroit Edison’s 49% interest in Ludington with a total capability of 1,872 MW. | |
| See Note 8 of the Notes to the Consolidated Financial Statements in Item 8 of this Report. |
Detroit Edison owns and operates 677 distribution substations
with a capacity of approximately 33,347,000
kilovolt-amperes
(kVA) and approximately 423,600 line transformers with a
capacity of approximately 21,883,000 kVA.
Circuit miles of electric distribution lines owned and in
service as of December 31, 2009:
| Circuit Miles | ||||||||
|
Operating Voltage-Kilovolts (kV)
|
Overhead | Underground | ||||||
|
4.8 kV to 13.2 kV
|
28,243 | 13,884 | ||||||
|
24 kV
|
177 | 681 | ||||||
|
40 kV
|
2,317 | 363 | ||||||
|
120 kV
|
54 | 13 | ||||||
| 30,791 | 14,941 | |||||||
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Table of Contents
There are numerous interconnections that allow the interchange
of electricity between Detroit Edison and electricity providers
external to our service area. These interconnections are
generally owned and operated by ITC Transmission and connect to
neighboring energy companies.
Regulation
Detroit Edison’s business is subject to the regulatory
jurisdiction of various agencies, including, but not limited to,
the MPSC, the FERC and the NRC. The MPSC issues orders
pertaining to rates, recovery of certain costs, including the
costs of generating facilities and regulatory assets, conditions
of service, accounting and operating-related matters. Detroit
Edison’s MPSC-approved rates charged to customers have
historically been designed to allow for the recovery of costs,
plus an authorized rate of return on our investments. The FERC
regulates Detroit Edison with respect to financing authorization
and wholesale electric activities. The NRC has regulatory
jurisdiction over all phases of the operation, construction,
licensing and decommissioning of Detroit Edison’s nuclear
plant operations. We are subject to the requirements of other
regulatory agencies with respect to safety, the environment and
health.
See Notes 4, 9, 12 and 20 of the Notes to Consolidated
Financial Statements in Item 8 of this Report.
Energy
Assistance Programs
Energy assistance programs, funded by the federal government and
the State of Michigan, remain critical to Detroit Edison’s
ability to control its uncollectible accounts receivable and
collections expenses. Detroit Edison’s uncollectible
accounts receivable expense is directly affected by the level of
government-funded assistance its qualifying customers receive.
We work continuously with the State of Michigan and others to
determine whether the share of funding allocated to our
customers is representative of the number of low-income
individuals in our service territory.
Strategy
and Competition
We strive to be the preferred supplier of electrical generation
in southeast Michigan. We can accomplish this goal by working
with our customers, communities and regulatory agencies to be a
reliable, low-cost supplier of electricity. To ensure generation
reliability, we continue to invest in our generating plants,
which will improve both plant availability and operating
efficiencies. We also are making capital investments in areas
that have a positive impact on reliability and environmental
compliance with the goal of high customer satisfaction.
Our distribution operations focus on improving reliability,
restoration time and the quality of customer service. We seek to
lower our operating costs by improving operating efficiencies.
Revenues from year to year will vary due to weather conditions,
economic factors, regulatory events and other risk factors as
discussed in the “Risk Factors” in Item 1A. of
this Report. We expect to minimize the impacts of declines in
average customer usage through regulatory mechanisms which will
partially decouple our revenue levels from sales volumes.
The electric Customer Choice program in Michigan allows all of
our electric customers to purchase their electricity from
alternative electric suppliers of generation services, subject
to limits. Customers choosing to purchase power from alternative
electric suppliers represented approximately 3% of retail sales
in 2009 and 2008, and 4% of such sales in 2007. Customers
participating in the electric Customer Choice program consist
primarily of industrial and commercial customers whose
MPSC-authorized full service rates exceed their cost of service.
MPSC rate orders and recent energy legislation enacted by the
State of Michigan are phasing out the pricing disparity over
five years and have placed a 10% cap on the total potential
Customer Choice related migration, mitigating some of the
unfavorable effects of electric Customer Choice on our financial
performance. We expect that in 2010 customers choosing to
purchase power from alternative electric suppliers will
represent approximately 10% of retail sales. When market
conditions are favorable, we sell power into the wholesale
market, in order to lower costs to full-service customers.
10
Table of Contents
Competition in the regulated electric distribution business is
primarily from the
on-site
generation of industrial customers and from distributed
generation applications by industrial and commercial customers.
We do not expect significant competition for distribution to any
group of customers in the near term.
GAS
UTILITY
Description
Our Gas Utility segment consists of MichCon and Citizens.
Revenue is generated by providing the following major classes of
service: gas sales, end user transportation, intermediate
transportation, and gas storage.
Revenue
by Service
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Gas sales
|
$ | 1,443 | $ | 1,824 | $ | 1,536 | ||||||
|
End user transportation
|
144 | 143 | 140 | |||||||||
|
Intermediate transportation
|
69 | 73 | 59 | |||||||||
|
Storage and other
|
132 | 112 | 140 | |||||||||
|
Total Revenue
|
$ | 1,788 | $ | 2,152 | $ | 1,875 | ||||||
| • | Gas sales — Includes the sale and delivery of natural gas primarily to residential and small-volume commercial and industrial customers. | |
| • | End user transportation — Gas delivery service provided primarily to large-volume commercial and industrial customers. Additionally, the service is provided to residential customers, and small-volume commercial and industrial customers who have elected to participate in our Customer Choice program. End user transportation customers purchase natural gas directly from producers or brokers and utilize our pipeline network to transport the gas to their facilities or homes. | |
| • | Intermediate transportation — Gas delivery service provided to producers, brokers and other gas companies that own the natural gas, but are not the ultimate consumers. Intermediate transportation customers utilize our gathering and high-pressure transmission system to transport the gas to storage fields, processing plants, pipeline interconnections or other locations. | |
| • | Storage and other — Includes revenues from gas storage, appliance maintenance, facility development and other energy-related services. |
Our gas sales, end user transportation and intermediate
transportation volumes, revenues and net income are impacted by
weather. Given the seasonal nature of our business, revenues and
net income are concentrated in the first and fourth quarters of
the calendar year. By the end of the first quarter, the heating
season is largely over, and we typically realize substantially
reduced revenues and earnings in the second quarter and losses
in the third quarter.
Our operations are not dependent upon a limited number of
customers, and the loss of any one or a few customers would not
have a material adverse effect on our Gas Utility segment.
Natural
Gas Supply
Our gas distribution system has a planned maximum daily send-out
capacity of 2.6 Bcf, with approximately 67% of the volume
coming from underground storage for 2009. Peak-use requirements
are met through utilization of our storage facilities, pipeline
transportation capacity, and purchased gas supplies. Because of
our geographic diversity of supply and our pipeline
transportation and storage capacity, we are able to reliably
meet our supply requirements. We believe natural gas supply and
pipeline capacity will be sufficiently available to meet market
demands in the foreseeable future.
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We purchase natural gas supplies in the open market by
contracting with producers and marketers, and we maintain a
diversified portfolio of natural gas supply contracts. Supplier,
producing region, quantity, and available transportation
diversify our natural gas supply base. We obtain our natural gas
supply from various sources in different geographic areas (Gulf
Coast, Mid-Continent, Canada and Michigan) under agreements that
vary in both pricing and terms. Gas supply pricing is generally
tied to NYMEX and published price indices to approximate current
market prices.
We are directly connected to interstate pipelines, providing
access to most of the major natural gas supply producing regions
in the Gulf Coast, Mid-Continent and Canadian regions. Our
primary long-term transportation supply contracts are as follows:
|
Availability
|
Contract
|
|||||||
| (MMcf/d) | Expiration | |||||||
|
TransCanada PipeLines Limited
|
53 | 2010 | ||||||
|
Great Lakes Gas Transmission L.P.
|
30 | 2010 | ||||||
|
Vector Pipeline L.P.
|
50 | 2012 | ||||||
|
ANR Pipeline Company
|
245 | 2013 | ||||||
|
Viking Gas Transmission Company
|
51 | 2013 | ||||||
|
Panhandle Eastern Pipeline Company
|
75 | 2029 | ||||||
Properties
We own distribution, transmission and storage properties that
are located in the State of Michigan. Our distribution system
includes approximately 19,000 miles of distribution mains,
approximately 1,177,000 service lines and approximately
1,312,000 active meters. We own approximately 2,100 miles
of transmission lines that deliver natural gas to the
distribution districts and interconnect our storage fields with
the sources of supply and the market areas.
We own properties relating to four underground natural gas
storage fields with an aggregate working gas storage capacity of
approximately 132 Bcf. These facilities are important in
providing reliable and cost-effective service to our customers.
In addition, we sell storage services to third parties. Most of
our distribution and transmission property is located on
property owned by others and used by us through easements,
permits or licenses. Substantially all of our property is
subject to the lien of a mortgage.
We own 666 miles of transportation and gathering
(non-utility) pipelines in the northern lower peninsula of
Michigan. We lease a portion of our pipeline system to the
Vector Pipeline Partnership (an affiliate) through a
capital-lease arrangement. See Note 19 of the Notes to
Consolidated Financial Statements in Item 8 of this Report.
Regulation
MichCon’s business is subject to the regulatory
jurisdiction of the MPSC, which issues orders pertaining to
rates, recovery of certain costs, including the costs of
regulatory assets, conditions of service, accounting and
operating-related matters. MichCon’s MPSC-approved rates
charged to customers have historically been designed to allow
for the recovery of costs, plus an authorized rate of return on
our investments. MichCon operates natural gas transportation and
storage facilities in Michigan as intrastate facilities
regulated by the MPSC and provides intrastate transportation and
storage services pursuant to an MPSC-approved tariff. MichCon
also provides interstate transportation and storage services in
accordance with an Operating Statement on file with the FERC. We
are subject to the requirements of other regulatory agencies
with respect to safety, the environment and health.
See Note 12 of the Notes to the Consolidated Financial
Statements in Item 8 of this Report.
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Energy
Assistance Program
Energy assistance programs, funded by the federal government and
the State of Michigan, remain critical to MichCon’s ability
to control its uncollectible accounts receivable and collections
expenses. MichCon’s uncollectible accounts receivable
expense is directly affected by the level of government-funded
assistance its qualifying customers receive. We work
continuously with the State of Michigan and others to determine
whether the share of funding allocated to our customers is
representative of the number of low-income individuals in our
service territory.
Strategy
and Competition
Our strategy is to be the preferred provider of natural gas in
Michigan. As a result of more efficient furnaces and appliances,
and customer conservation due to high natural gas prices and
economic conditions, we expect future sales volumes to decline.
We expect to minimize the impacts of declines in usage through
regulatory mechanisms we have requested in our current rate
case, which will partially decouple our revenue levels from
sales volumes. We continue to provide energy-related services
that capitalize on our expertise, capabilities and efficient
systems. We continue to focus on lowering our operating costs by
improving operating efficiencies.
Competition in the gas business primarily involves other natural
gas providers, as well as providers of alternative fuels and
energy sources. The primary focus of competition for end user
transportation is cost and reliability. Some large commercial
and industrial customers have the ability to switch to
alternative fuel sources such as coal, electricity, oil and
steam. If these customers were to choose an alternative fuel
source, they would not have a need for our end-user
transportation service. In addition, some of these customers
could bypass our pipeline system and have their gas delivered
directly from an interstate pipeline. We compete against
alternative fuel sources by providing competitive pricing and
reliable service, supported by our storage capacity.
Our extensive transmission pipeline system has enabled us to
market 400 to 500 Bcf annually for intermediate
transportation services and storage services for Michigan gas
producers, marketers, distribution companies and other pipeline
companies. We operate in a central geographic location with
connections to major Midwestern interstate pipelines that extend
throughout the Midwest, eastern United States and eastern Canada.
MichCon’s storage capacity is used to store natural gas for
delivery to MichCon’s customers as well as sold to third
parties, under a variety of arrangements for periods up to three
years. Prices for storage arrangements for shorter periods are
generally higher, but more volatile than for longer periods.
Prices are influenced primarily by market conditions and natural
gas pricing.
GAS
STORAGE AND PIPELINES
Description
Gas Storage and Pipelines owns partnership interests in two
interstate transmission pipelines and two natural gas storage
fields. The pipeline and storage assets are primarily supported
by long-term, fixed-price revenue contracts. We have a
partnership interest in Vector Pipeline (Vector), an interstate
transmission pipeline, which connects Michigan to Chicago and
Ontario. We also hold partnership interests in Millennium
Pipeline Company which indirectly connects southern New York
State to Upper Midwest/Canadian supply, while providing
transportation service into the New York City markets. We have
storage assets in Michigan capable of storing up to 90 Bcf
in natural gas storage fields located in Southeast Michigan. The
Washington 10 and 28 storage facilities are high deliverability
storage fields having bi-directional interconnections with
Vector Pipeline and MichCon providing our customers access to
the Chicago, Michigan, other Midwest and Ontario markets.
Our customers include various utilities, pipelines, and
producers and marketers.
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Properties
The Gas Storage and Pipelines business holds the following
property:
|
Property Classification
|
% Owned |
Description
|
Location
|
|||||
|
Pipelines
|
||||||||
|
Vector Pipeline
|
40 | % | 348-mile pipeline with 1,300 MMcf per day capacity | IN, IL, MI & Ontario | ||||
|
Millennium Pipeline
|
26 | % | 182-mile pipeline with 525 MMcf per day capacity | New York | ||||
|
Storage
|
||||||||
|
Washington 10 (includes Shelby 2 Storage)
|
100 | % | 74 Bcf of storage capacity | MI | ||||
|
Washington 28
|
50 | % | 16 Bcf of storage capacity | MI | ||||
The assets of these businesses are well integrated with other
DTE Energy operations. Pursuant to an operating agreement,
MichCon provides physical operations, maintenance, and technical
support for the Washington 28 and Washington 10 storage
facilities.
Regulation
The Gas Storage and Pipelines business operates natural gas
storage facilities in Michigan as intrastate facilities
regulated by the MPSC and provides intrastate storage and
related services pursuant to an MPSC-approved tariff. We also
provide interstate services in accordance with an Operating
Statement on file with the FERC. Vector and Millennium Pipelines
provide interstate transportation services in accordance with
their FERC-approved tariffs.
Strategy
and Competition
Our Gas Storage and Pipelines business expects to continue its
steady growth plan by expanding existing assets and developing
new assets that are typically supported with long-term customer
commitments. The Gas Storage and Pipelines business focuses on
asset development opportunities in the
Midwest-to-Northeast
region to supply natural gas to meet growing demand. We expect
much of the growth in the demand for natural gas in the
U.S. to occur within the Mid-Atlantic and New England
regions. We forecast these regions will require incremental
pipeline and gas storage infrastructure necessary to deliver gas
volumes to meet growing demand. Vector is an interstate pipeline
that is filling a large portion of that need, and is
complemented by our Michigan storage facilities. In 2009, we
completed the Shelby 2 storage field at our Washington 10
storage complex which increased the capacity by 3 Bcf. Also
in 2009, Vector Pipeline completed its Athens, Michigan
Compressor Station expansion which increased its long-haul
capacity by approximately
100 MMcf/d
to 1.3 Bcf/d. Due to the proximity of the Millennium
Pipeline to the Marcellus Shale in Southern New York/Northern
Pennsylvania, we anticipate that the Millennium Pipeline may
have opportunities to expand in the future.
UNCONVENTIONAL
GAS PRODUCTION
Description
Our Unconventional Gas Production business is engaged in natural
gas exploration, development and production primarily within the
Barnett shale in north Texas.
In 2009, we added proved reserves of 67 Bcfe resulting in
year-end total proved reserves of 234 Bcfe. The Barnett
shale wells yielded 5 Bcfe of production in 2009. Barnett
shale leasehold acres increased to 69,272 gross acres
(63,367 net of interest of others) excluding impairments.
Due to economic conditions and
14
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low natural gas prices during the year, we chose to do minimal
lease acquisitions and reduce the number of new wells. We
drilled a total of 11 wells in the Barnett shale acreage in
2009.
Our Barnett Shale gas production requires processing to extract
natural gas liquids. Therefore, our wells are dedicated to
various gathering and processing companies in the
Fort Worth Basin. The revenues received for all products
are based on prevailing market prices.
Properties
and Other
The following information pertains to our interests in the
Barnett shale as of December 31:
| 2009 | 2008 | 2007 | ||||||||||
|
Producing Wells(1)(2)(3)
|
168 | 155 | 120 | |||||||||
|
Developed Lease Acreage(1)(3)(4)
|
14,968 | 14,248 | 9,880 | |||||||||
|
Undeveloped Lease Acreage(1)(3)(5)
|
48,399 | 46,187 | 38,066 | |||||||||
|
Production Volume (Bcfe)
|
5.0 | 5.0 | 3.0 | |||||||||
|
Proved Reserves (Bcfe)(6)
|
234 | 167 | 144 | |||||||||
|
Capital Expenditures (in millions)(3)
|
$ | 26 | $ | 100 | $ | 89 | ||||||
|
Future Undiscounted Cash Flows (in millions)(7)
|
$ | 392 | $ | 324 | $ | 521 | ||||||
|
Average Gas Price, excluding hedge contracts (per Mcf)
|
$ | 4.34 | $ | 8.69 | $ | 6.29 | ||||||
| (1) | Excludes the interest of others. | |
| (2) | Producing wells are the number of wells that are found to be capable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of the production exceed production expenses and taxes. | |
| (3) | Excludes sold and impaired properties. | |
| (4) | Developed lease acreage is the number of acres that are allocated or assignable to productive wells or wells capable of production. | |
| (5) | Undeveloped lease acreage is the number of acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of natural gas and oil regardless of whether such acreage contains proved reserves. | |
| (6) | The increase in proved reserves in 2009 is primarily due to a definitional change in the disclosure rule issued by the SEC and technological improvements. | |
| (7) | Represents the standardized measure of undiscounted future net cash flows utilizing extensive estimates. The estimated future net cash flow computations should not be considered to represent our estimate of the expected revenues or the current value of existing proved reserves and do not include the impact of hedge contracts. |
Strategy
and Competition
We manage and operate our properties to maximize returns on
investment and increase earnings. We continue to develop our
holdings in the western portion of the Barnett shale and seek
opportunities for acquisitions or divestitures of select
properties within our asset base, when conditions are
appropriate. Competitive pressures in the Barnett shale have
decreased due to lower commodity prices resulting in reduced
investment by industry participants. This downward pressure has
created opportunities for us to reduce operating expenses and
grow at lower cost than in prior periods.
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Table of Contents
From time to time, we use financial derivative contracts to
manage a portion of our exposure to changes in the price of
natural gas on our forecasted natural gas sales. The following
is a summary of the financial contracts in place at
December 31, 2009 related to Barnett shale production:
| 2010 | ||||
|
Long-term fixed price obligations
|
||||
|
Volume (Bcf)
|
1.2 | |||
|
Price (per Mcf)
|
$ | 7.16 | ||
In 2010, we expect to drill approximately 10 to 15 wells in
the Barnett shale. Investment for the area is expected to be
approximately $25 million during 2010.
POWER AND
INDUSTRIAL PROJECTS
Description
Power and Industrial Projects is comprised primarily of projects
that deliver energy products and services to industrial,
commercial and institutional customers; provide coal
transportation and marketing; and sell electricity from
biomass-fired energy projects. This business segment provides
services using project assets usually located on or near the
customers’ premises in the steel, automotive, pulp and
paper, airport and other industries.
Products and services include pulverized coal and petroleum coke
supply, metallurgical coke supply, power generation, steam
production, chilled water production, wastewater treatment,
compressed air supply and reduced emission fuel. We own and
operate one gas-fired peaking electric generating plant, two
biomass-fired electric generating plants and own one coal-fired
power plant. Two additional biomass-fired electric generating
plants are currently under development pending certain
regulatory approvals with expected in-service dates of August
2010 and March 2013. Production tax credits related to two of
the coke battery facilities expired on December 31, 2009.
We also provide coal transportation services including fuel,
transportation, storage, blending and rail equipment management
services. Our external customers include electric utilities,
merchant power producers, integrated steel mills and large
industrial companies with significant energy requirements.
Additionally, we participate in coal marketing and the purchase
and sale of emissions credits. We own and operate a coal
transloading terminal in South Chicago, Illinois.
We develop, own and operate landfill gas recovery systems
throughout the United States. Landfill gas, a byproduct of solid
waste decomposition, is composed of approximately equal portions
of methane and carbon dioxide. We develop landfill gas recovery
systems that capture the gas and provide local utilities,
industry and consumers with an opportunity to use a competitive,
renewable source of energy, in addition to providing
environmental benefits by reducing greenhouse gas emissions.
This business segment performs coal mine methane extraction, in
which we recover methane gas from mine voids for processing and
delivery to natural gas pipelines.
We deliver reduced emission fuel to utilities with coal-fired
electric generation power plants. We own and operate five
facilities that process raw coal into reduced emission fuel
resulting in significant reductions in Nitrogen Oxide (NO),
Sulfur Dioxide
(SO
2
),
and Mercury (Hg) emissions. Production tax credits are expected
to be generated by these facilities beginning in 2010 and
continuing for ten years upon achieving certain criteria,
including entering into transactions with unrelated equity
partners or third-party customers for the reduced emission fuel.
We expect to reduce our ownership interests in these facilities
in 2010. We are investors in steel industry fuel entities which
sell steel industry fuel to unrelated parties at three coke
battery sites. Steel industry fuels facilities recycle tar
decanter sludge, a byproduct of the coking process. Tax credits
were generated in 2009 and we expect to generate additional
credits in 2010. The ability to generate tax credits from the
steel industry fuel process expires at the end of 2010.
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Table of Contents
Properties
and Other
The following are significant properties operated by the Power
and Industrial projects segment:
|
Facility
|
Location
|
Service Type
|
||
|
Steel
|
||||
|
Pulverized Coal Operations
|
MI & MD | Pulverized Coal | ||
|
Coke Production
|
MI, PA & IN | Metallurgical Coke Supply/Steel Industry Fuels | ||
|
Other Investment in Coke Production
|
IN | Metallurgical Coke Supply/Steel Industry Fuels | ||
|
On-Site
Energy
|
||||
|
Automotive
|
Various sites in
MI, IN, OH, NY & PA |
Electric Distribution, Chilled Water, Waste Water, Steam, Cooling Tower Water, Reverse Osmosis Water, Compressed Air, Mist and Dust Collectors, Steam and Chilled Water | ||
|
Airports
|
MI & PA | Electricity, Hot and Chilled Water | ||
|
Power & Renewables
|
||||
|
Pulp and Paper
|
AL | Electric Generation and Steam | ||
|
Power Generation
|
MI | Natural Gas | ||
|
Other Industries
|
||||
|
Reduced Emission Fuel
|
MI | Reduced Emission Fuel Supply | ||
|
Coal Terminaling
|
IL | Coal Terminal and Blending | ||
|
Pulverized PetCoke
|
MS | Pulverized Petroleum Coke | ||
|
Landfill Gas Recovery
|
Various U.S. Sites | Landfill Gas Production |
Landfill
Gas Recovery
| 2009 | 2008 | 2007 | ||||||||||
|
Landfill Sites
|
23 | 23 | 28 | |||||||||
|
Gas Produced (in Bcf)
|
19.6 | 18.6 | 23.5 | |||||||||
Coal
Transportation and Marketing
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Tons of Coal Shipped(1)
|
20 | 18 | 35 | |||||||||
| (1) | Includes intercompany transactions of 1 million, 2 million, and 19 million tons in 2009, 2008, and 2007, respectively, primarily related to synfuel operations in 2007. |
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Production Tax Credits Generated (Allocated to DTE
Energy)
|
||||||||||||
|
Coke Battery(1)
|
$ | 5 | $ | 5 | $ | 5 | ||||||
|
Steel Industry Fuels(2)
|
4 | — | — | |||||||||
|
Power Generation
|
2 | 2 | 2 | |||||||||
|
Landfill Gas Recovery
|
1 | — | 3 | |||||||||
| (1) | Tax laws enabling production tax credits related to two coke battery facilities expired on December 31, 2009. | |
| (2) | IRS regulations enabling the steel industry fuel tax credits are scheduled to expire on December 31, 2010. |
17
Table of Contents
Strategy
and Competition
Power and Industrial Projects will continue leveraging its
energy-related operating experience and project management
capability to develop and grow our steel; renewable power;
on-site
energy; coal transportation, marketing, storage and blending;
landfill gas recovery; and reduced emission fuel businesses. We
also will continue to pursue opportunities to provide asset
management and operations services to third parties. There are
limited competitors for our existing disparate businesses who
provide similar products and services.
We anticipate building around our core strengths in the markets
where we operate. In determining the markets in which to
compete, we examine closely the regulatory and competitive
environment, the number of competitors and our ability to
achieve sustainable margins. We plan to maximize the
effectiveness of our inter-related businesses as we expand. As
we pursue growth opportunities, our first priority will be to
achieve value-added returns.
We intend to focus on the following areas for growth:
| • | Acquiring and developing landfill gas recovery facilities, renewable energy projects, and other energy projects qualifying for tax credits; and | |
| • | Providing operating services to owners of industrial and power plants. |
After experiencing a weakened U.S. economy including
constricted capital and credit markets, we expect a return to
normal demand for our steel-related products in 2010 improving
the financial performance of our coke battery and pulverized
coal operations. In addition, our two primary automotive
customers, General Motors and Chrysler, have emerged from
bankruptcy and we continue providing onsite products and
services. We will continue to monitor the steel and automotive
industries closely during 2010.
Our Coal Transportation and Marketing business will continue to
leverage its existing business in 2010. Trends such as carbon
and greenhouse gas legislation, railroad and mining
consolidation and the lack of certainty in developing new mines
could have an impact on how we compete in the future. In 2011,
our existing long-term rail transportation contract, which is at
rates significantly below the current market, will expire and we
anticipate a decrease in transportation-related revenue of
approximately $120 million as a result. We will continue to
work with suppliers and the railroads to promote secure and
competitive access to coal to meet the energy requirements of
our customers. We will seek to build our capacity to transport,
store and blend greater amounts of coal and expect to continue
to grow our business in a manner consistent with, and
complementary to, the growth of our other business segments.
ENERGY
TRADING
Description
Energy Trading focuses on physical and financial power and gas
marketing and trading, structured transactions, enhancement of
returns from DTE Energy’s asset portfolio, optimization of
contracted natural gas pipeline transportation and storage, and
power transmission and generating capacity positions. Our
customer base is predominantly utilities, local distribution
companies, pipelines, and other marketing and trading companies.
We enter into derivative financial instruments as part of our
marketing and hedging activities. Most of the derivative
financial instruments are accounted for under the
mark-to-market
method, which results in the recognition in earnings of
unrealized gains and losses from changes in the fair value of
the derivatives. We utilize forwards, futures, swaps and option
contracts to mitigate risk associated with our marketing and
trading activity as well as for proprietary trading within
defined risk guidelines. Energy Trading also provides commodity
risk management services to the other businesses within DTE
Energy.
Significant portions of the electric and gas marketing and
trading portfolio are economically hedged. The portfolio
includes financial instruments and gas inventory, as well as
contracted natural gas pipelines and storage and power
transmission and generation capacity positions. Most financial
instruments are deemed derivatives; however, gas inventory,
power transmission, pipelines and certain storage assets are not
derivatives. As a result, this segment may experience earnings
volatility as derivatives are
marked-to-market
without revaluing the underlying non-derivative contracts and
assets. This results in gains and losses that are
18
Table of Contents
recognized in different accounting periods. We may incur
mark-to-market
gains or losses in one period that could reverse in subsequent
periods.
Regulation
Energy Trading has market-based rate authority from the FERC to
sell power and authority from FERC to sell natural gas at market
prices. Energy Trading is subject to FERC reporting requirements
and market behavior rules. Energy Trading also complies with
position limits and reporting requirements related to financial
trading set by the Commodity Futures Trading Commission.
Strategy
and Competition
Our strategy for the energy trading business is to deliver
value-added services to our customers. We seek to manage this
business in a manner consistent with and complementary to the
growth of our other business segments. We focus on physical
marketing and the optimization of our portfolio of energy
assets. We compete with electric and gas marketers, financial
institutions, traders, utilities and other energy providers. The
trading business is dependent upon the availability of capital
and an investment grade credit rating. The Company believes it
has ample available capital capacity to support Energy Trading
activities. We monitor our use of capital closely to ensure that
our commitments do not exceed capacity. A material credit
restriction would negatively impact our financial performance.
Competitors with greater access to capital or at a lower cost
may have a competitive advantage. We have risk management and
credit processes to monitor and mitigate risk.
CORPORATE &
OTHER
Description
Corporate & Other includes various holding company
activities and holds certain non-utility debt and energy-related
investments.
DISCONTINUED
OPERATIONS
Synthetic
Fuel
Description
Due to the expiration of synfuel production tax credits at the
end of 2007, the Synthetic Fuel business ceased operations and
was classified as a discontinued operation as of
December 31, 2007. Synfuel plants chemically changed coal
and waste coal into a synthetic fuel as determined under the
Internal Revenue Code. Production tax credits were provided for
the production and sale of solid synthetic fuel produced from
coal and were available through December 31, 2007.
| 2007 | ||||
| (in Millions) | ||||
|
Production Tax Credits Generated
|
||||
|
Allocated to DTE Energy
|
$ | 21 | ||
|
Allocated to partners
|
186 | |||
| $ | 207 | |||
ENVIRONMENTAL
MATTERS
We 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. We expect to continue recovering environmental
costs related
19
Table of Contents
to utility operations through rates charged to our customers.
The following table summarizes our estimated significant future
environmental expenditures based upon current regulations:
| Electric | Gas | Total | ||||||||||
| (in Millions) | ||||||||||||
|
Air
|
$ | 2,200 | $ | — | $ | 2,200 | ||||||
|
Water
|
55 | — | 55 | |||||||||
|
MGP sites
|
5 | 36 | 41 | |||||||||
|
Other sites
|
21 | 2 | 23 | |||||||||
|
Estimated total future expenditures through 2019
|
$ | 2,281 | $ | 38 | $ | 2,319 | ||||||
|
Estimated 2010 expenditures
|
$ | 82 | $ | 5 | $ | 87 | ||||||
|
Estimated 2011 expenditures
|
$ | 253 | $ | 6 | $ | 259 | ||||||
Air —
Detroit Edison is subject to the EPA
ozone transport and acid rain regulations that limit power plant
emissions of sulfur dioxide and nitrogen oxides. Since 2005, EPA
and the State of Michigan have issued additional emission
reduction regulations relating to ozone, fine particulate,
regional haze and mercury air pollution. The new rules will lead
to additional controls on fossil-fueled power plants to reduce
nitrogen oxide, sulfur dioxide and mercury emissions. Further,
additional rulemakings are expected over the next few years
which could require additional controls for sulfur dioxide,
nitrogen oxides and hazardous air pollutants. It is not possible
to quantify the impact of those expected rulemakings at this
time.
Water —
In response to an EPA regulation,
Detroit Edison is required to examine alternatives for reducing
the environmental impacts of the cooling water intake structures
at several of its facilities. Based on the results of completed
studies and expected future studies, Detroit Edison may be
required to perform some mitigation activities, including the
possible installation of additional control technologies to
reduce the environmental impact of the intake structures.
However, a January 2007 circuit court decision remanded back to
the EPA several provisions of the federal regulation, resulting
in a delay in complying with the regulation. In 2008, the
U.S. Supreme Court agreed to review the remanded
cost-benefit analysis provision of the rule and in April 2009
upheld EPA’s use of this provision in determining best
available technology for reducing environmental impacts.
Concurrently, the EPA continues to develop a revised rule, a
draft of which is expected to be published by summer 2010. The
EPA has also proposed an information collection request to begin
a review of steam electric effluent guidelines. It is not
possible at this time to quantify the impacts of these
developing requirements.
Manufactured Gas Plant (MGP) 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 for heating and other uses, have
been designated as MGP sites. Gas Utility owns, or previously
owned, fifteen such former MGP sites. Detroit Edison owns, or
previously owned, three former MGP sites. In addition to the MGP
sites, we are also in the process of cleaning up other sites
where contamination is present as a result of historical and
ongoing utility operations. These other sites include an
engineered ash storage facility, electrical distribution
substations, gas pipelines, and underground and aboveground
storage tank locations. Cleanup activities associated with these
sites will be conducted over the next several years.
Landfill
— Detroit Edison owns and operates a
permitted engineered ash storage facility at the Monroe Power
Plant to dispose of fly ash from the coal fired power plant.
Detroit Edison performed an engineering analysis in 2009 and
identified the need for embankment side slope repairs and
reconstruction.
The EPA has expressed its intentions to develop new federal
regulations for coal ash under the authority of the Resources
Conservation and Recovery Act (RCRA). A proposed regulation is
expected in the first quarter of 2010. Among the options EPA is
currently considering, is a ruling that may designate coal ash
as a “Hazardous Waste” as defined by RCRA. However,
agencies and legislatures have urged EPA to regulate coal ash as
a non-hazardous waste. If EPA were to designate coal ash as a
hazardous waste, the agency could apply some, or all, of the
disposal and reuse standards that have been applied to other
existing hazardous wastes.
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Some of the regulatory actions currently being contemplated
could have a material adverse impact on our operations and
financial position and the rates we charge our customers.
Global Climate Change —
Climate regulation
and/or
legislation is being proposed and discussed within the
U.S. Congress and the EPA. On June 26, 2009, the
U.S. House of Representatives passed the American Clean
Energy and Security Act (ACESA). The ACESA includes a cap and
trade program that would start in 2012 and provides for costs to
emit greenhouse gases. Despite action by the Senate
Environmental and Public Works Committee to pass a similar but
more stringent bill in October 2009, full Senate action on a
climate bill is not expected before the spring of 2010.
Meanwhile, the EPA is beginning to implement regulatory actions
under the Clean Air Act to address emission of greenhouse gases.
Pending or future legislation or other regulatory actions could
have a material impact on our operations and financial position
and the rates we charge our customers. Impacts include
expenditures for environmental equipment beyond what is
currently planned, financing costs related to additional capital
expenditures and the purchase of emission allowances from market
sources. We would seek to recover these incremental costs
through increased rates charged to our utility customers.
Increased costs for energy produced from traditional sources
could also increase the economic viability of energy produced
from renewable
and/or
nuclear sources and energy efficiency initiatives and the
development of market-based trading of carbon offsets providing
business opportunities for our utility and non-utility segments.
It is not possible to quantify these impacts on DTE Energy or
its customers at this time.
Non-utility —
Our non-utility affiliates are
subject to a number of environmental laws and regulations
dealing with the protection of the environment from various
pollutants. Our non-utility affiliates are substantially in
compliance with all environmental requirements.
See Notes 12 and 20 of the Notes to Consolidated Financial
Statements in Item 8 of this Report and Management’s
Discussion and Analysis in Item 7 of this Report.
EMPLOYEES
We had 10,244 employees as of December 31, 2009, of
which 5,186 were represented by unions. The majority of our
union employees are under contracts that expire in June and
October 2010 and August 2012.
| Item 1A. | Risk Factors |
There are various risks associated with the operations of DTE
Energy’s utility and non-utility businesses. To provide a
framework to understand the operating environment of DTE Energy,
we are providing a brief explanation of the more significant
risks associated with our businesses. Although we have tried to
identify and discuss key risk factors, others could emerge in
the future. Each of the following risks could affect our
performance.
Regional and national economic conditions can have an
unfavorable impact on us.
Our utility and
non-utility businesses follow the economic cycles of the
customers we serve. Our utilities and certain non-utility
businesses provide services to the domestic automotive and steel
industries which have undergone considerable financial distress,
exacerbating the decline in regional economic conditions. Should
national or regional economic conditions further decline,
reduced volumes of electricity and gas, and demand for energy
services we supply, collections of accounts receivable and
potentially higher levels of lost or stolen gas will result in
decreased earnings and cash flow.
Adverse changes in our credit ratings may negatively affect
us.
Regional and national economic
condition
s
, increased scrutiny of the energy industry and
regulatory changes, as well as changes in our economic
performance, could result in credit agencies reexamining our
credit rating. While credit ratings reflect the opinions of the
credit agencies issuing such ratings and may not necessarily
reflect actual performance, a downgrade in our credit rating
below investment grade could restrict or discontinue our ability
to access capital markets and could result in an increase in our
borrowing costs, a reduced level of capital expenditures and
could impact future earnings and cash flows. In addition, a
reduction in credit rating may
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require us to post collateral related to various physical or
financially settled contracts for the purchase of energy-related
commodities, products and services, which could impact our
liquidity.
Our ability to access capital markets is
important.
Our ability to access capital markets
is important to operate our businesses. In the past, turmoil in
credit markets has constrained, and may again in the future
constrain, our ability as well as the ability of our
subsidiaries to issue new debt, including commercial paper, and
refinance existing debt at reasonable interest rates. In
addition, the level of borrowing by other energy companies and
the market as a whole could limit our access to capital markets.
We have substantial amounts of credit facilities that expire in
2010. We intend to seek to renew the facilities on or before the
expiration dates. However, we cannot predict the outcome of
these efforts, which could result in a decrease in amounts
available
and/or
an
increase in our borrowing costs and negatively impact our
financial performance.
Poor investment performance of pension and other
postretirement benefit plan holdings and other factors impacting
benefit plan costs could unfavorably impact our liquidity and
results of operations.
Our costs of providing
non-contributory defined benefit pension plans and other
postretirement benefit plans are dependent upon a number of
factors, such as the rates of return on plan assets, the level
of interest rates used to measure the required minimum funding
levels of the plans, future government regulation, and our
required or voluntary contributions made to the plans. The
performance of the debt and equity markets affects the value of
assets that are held in trust to satisfy future obligations
under our plans. We have significant benefit obligations and
hold significant assets in trust to satisfy these obligations.
These assets are subject to market fluctuations and will yield
uncertain returns, which may fall below our projected return
rates. A decline in the market value of the pension and
postretirement benefit plan assets will increase the funding
requirements under our pension and postretirement benefit plans
if the actual asset returns do not recover these declines in the
foreseeable future. Additionally, our pension and postretirement
benefit plan liabilities are sensitive to changes in interest
rates. As interest rates decrease, the liabilities increase,
potentially increasing benefit expense and funding requirements.
Also, if future increases in pension and postretirement benefit
costs as a result of reduced plan assets are not recoverable
from Detroit Edison or MichCon customers, the results of
operations and financial position of our company could be
negatively affected. Without sustained growth in the plan
investments over time to increase the value of our plan assets,
we could be required to fund our plans with significant amounts
of cash. Such cash funding obligations could have a material
impact on our cash flows, financial position, or results of
operations.
If our goodwill becomes impaired, we may be required to
record a charge to earnings.
We annually review
the carrying value of goodwill associated with acquisitions made
by the Company for impairment. Factors that may be considered
for purposes of this analysis include any change in
circumstances indicating that the carrying value of our goodwill
may not be recoverable such as a decline in stock price and
market capitalization, future cash flows, and slower growth
rates in our industry. We cannot predict the timing, strength or
duration of any economic slowdown or subsequent recovery,
worldwide or in the economy or markets in which we operate,
however, when events or changes in circumstances indicate that
the carrying value of these assets may not be recoverable, the
Company may take a non-cash impairment charge, which could
potentially materially impact our results of operations and
financial position.
Our participation in energy trading markets subjects us to
risk.
Events in the energy trading industry have
increased the level of scrutiny on the energy trading business
and the energy industry as a whole. In certain situations we may
be required to post collateral to support trading operations,
which could be substantial. If access to liquidity to support
trading activities is curtailed, we could experience decreased
earnings potential and cash flows. Energy trading activities
take place in volatile markets and expose us to risks related to
commodity price movements. We routinely have speculative trading
positions in the market, within strict policy guidelines we set,
resulting from the management of our business portfolio. To the
extent speculative trading positions exist, fluctuating
commodity prices can improve or diminish our financial results
and financial position. We manage our exposure by establishing
and enforcing strict risk limits and risk management procedures.
During periods of extreme volatility, these risk limits and risk
management procedures may not work as planned and cannot
eliminate all risks associated with these activities. As a
result, we cannot predict the impact that our energy trading and
risk management decisions may have on our business, operating
results or financial position.
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We are exposed to credit risk of counterparties with whom we
do business.
Adverse economic conditions
affecting, or financial difficulties of, counterparties with
whom we do business could impair the ability of these
counterparties to pay for our services or fulfill their
contractual obligations, or cause them to delay such payments or
obligations. We depend on these counterparties to remit payments
on a timely basis. Any delay or default in payment could
adversely affect our cash flows, financial position, or results
of operations.
We are subject to rate regulation.
Electric
and gas rates for our utilities are set by the MPSC and the FERC
and cannot be increased without regulatory authorization. We may
be negatively impacted by new regulations or interpretations by
the MPSC, the FERC or other regulatory bodies. Our ability to
recover costs may be impacted by the time lag between the
incurrence of costs and the recovery of the costs in
customers’ rates. Our regulators also may decide to
disallow recovery of certain costs in customers’ rates if
they determine that those costs do not meet the standards for
recovery under our governing laws and regulations. The State of
Michigan will elect a new governor and legislature in 2010 and
we cannot predict the outcome of that election. We cannot
predict whether election results or changes in political
conditions will affect the regulations or interpretations
affecting our utilities. New legislation, regulations or
interpretations could change how our business operates, impact
our ability to recover costs through rate increases or require
us to incur additional expenses.
We may be required to refund amounts we collect under
self-implemented rates.
Michigan law allows our
utilities to self-implement rate changes six months after a rate
filing, subject to certain limitations. However, if the final
rate case order provides for lower rates than we have
self-implemented, we must refund the difference, with interest.
We have self-implemented rates in the past and have been ordered
to make refunds to customers. Our financial performance may be
negatively affected if the MPSC sets lower rates in future rate
cases than those we have self-implemented, thereby requiring us
to issue refunds. We cannot predict what rates an MPSC order
will adopt in future rate cases.
Michigan’s electric Customer Choice program could
negatively impact our financial performance.
The
electric Customer Choice program, as originally contemplated in
Michigan, anticipated an eventual transition to a totally
deregulated and competitive environment where customers would be
charged market-based rates for their electricity. The State of
Michigan currently experiences a hybrid market, where the MPSC
continues to regulate electric rates for our customers, while
alternative electric suppliers charge market-based rates. In
addition, such regulated electric rates for certain groups of
our customers exceed the cost of service to those customers. Due
to distorted pricing mechanisms during the initial
implementation period of electric Customer Choice, many
commercial customers chose alternative electric suppliers. MPSC
rate orders and recent energy legislation enacted by the State
of Michigan are phasing out the pricing disparity over five
years and have placed a cap on the total potential Customer
Choice related migration. However, even with the electric
Customer Choice-related relief received in recent Detroit Edison
rate orders and the legislated 10 percent cap on
participation in the electric Customer Choice program, there
continues to be financial risk associated with the electric
Customer Choice program. Electric Customer Choice migration is
sensitive to market price and bundled electric service price
increases.
Weather significantly affects
operations.
Deviations from normal hot and cold
weather conditions affect our earnings and cash flow. Mild
temperatures can result in decreased utilization of our assets,
lowering income and cash flow. Ice storms, tornadoes, or high
winds can damage the electric distribution system infrastructure
and require us to perform emergency repairs and incur material
unplanned expenses. The expenses of storm restoration efforts
may not be fully recoverable through the regulatory process.
Operation of a nuclear facility subjects us to
risk.
Ownership of an operating nuclear
generating plant subjects us to significant additional risks.
These risks include, among others, plant security, environmental
regulation and remediation, and operational factors that can
significantly impact the performance and cost of operating a
nuclear facility. While we maintain insurance for various
nuclear-related risks, there can be no assurances that such
insurance will be sufficient to cover our costs in the event of
an accident or business interruption at our nuclear generating
plant, which may affect our financial performance.
Construction and capital improvements to our power facilities
subject us to risk.
We are managing ongoing and
planning future significant construction and capital improvement
projects at multiple power
23
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generation and distribution facilities. Many factors that could
cause delay or increased prices for these complex projects are
beyond our control, including the cost of materials and labor,
subcontractor performance, timing and issuance of necessary
permits, construction disputes and weather conditions. Failure
to complete these projects on schedule and on budget for any
reason could adversely affect our financial performance and
operations at the affected facilities.
The supply
and/or
price
of energy commodities
and/or
related services may impact our financial
results.
We are dependent on coal for much of our
electrical generating capacity. Price fluctuations, fuel supply
disruptions and increases in transportation costs could have a
negative impact on the amounts we charge our utility customers
for electricity and on the profitability of our non-utility
business. Our access to natural gas supplies is critical to
ensure reliability of service for our utility gas customers. We
have hedging strategies and regulatory recovery mechanisms in
place to mitigate negative fluctuations in commodity supply
prices, but there can be no assurances that our financial
performance will not be negatively impacted by price
fluctuations. The price of natural gas also impacts the market
for our non-utility businesses that compete with utilities and
alternative electric suppliers.
The supply
and/or
price
other industrial raw and finished inputs
and/or
related services may impact our financial
results.
We are dependent on supplies of certain
commodities, such as copper and limestone, among others, and
industrial materials and services in order to maintain
day-to-day
operations and maintenance of our facilities. Price fluctuations
or supply interruptions for these commodities and other items
could have a negative impact on the amounts we charge our
customers for our utility products and on the profitability of
our non-utility businesses.
Unplanned power plant outages may be
costly.
Unforeseen maintenance may be required to
safely produce electricity or comply with environmental
regulations. As a result of unforeseen maintenance, we may be
required to make spot market purchases of electricity that
exceed our costs of generation. Our financial performance may be
negatively affected if we are unable to recover such increased
costs.
Our estimates of gas reserves are subject to
change.
While we cannot provide absolute
assurance that our estimates of our Barnett gas reserves are
accurate, great care is exercised in utilizing historical
information and assumptions to develop reasonable estimates of
future production and cash flow. We estimate proved gas reserves
and the future net cash flows attributable to those reserves.
There are numerous uncertainties inherent in estimating
quantities of proved gas reserves and cash flows attributable to
such reserves, including factors beyond our control. Reserve
engineering is a subjective process of estimating underground
accumulations of gas that cannot be measured in an exact manner.
The accuracy of an estimate of quantities of reserves, or of
cash flows attributable to such reserves, is a function of the
available data, assumptions regarding expenditures for future
development and exploration activities, and of engineering and
geological interpretation and judgment. Additionally, reserves
and future cash flows may be subject to material downward or
upward revisions, based upon production history, development and
exploration activities and prices of gas. Actual future
production, revenue, taxes, development expenditures, operating
expenses, quantities of recoverable reserves and the value of
cash flows from such reserves may vary significantly from the
assumptions and underlying information we used.
Our ability to utilize production tax credits may be
limited.
To reduce U.S. dependence on
imported oil, the Internal Revenue Code provides production tax
credits as an incentive for taxpayers to produce fuels and
electricity from alternative sources. We have generated
production tax credits from synfuel, coke production, landfill
gas recovery, biomass fired electric generation, reduced
emission fuel, steel industry fuel and gas production
operations. We have received favorable private letter rulings on
all of the synfuel facilities. All production tax credits taken
after 2006 are subject to audit by the Internal Revenue Service
(IRS). If our production tax credits were disallowed in whole or
in part as a result of an IRS audit, there could be additional
tax liabilities owed for previously recognized tax credits that
could significantly impact our earnings and cash flows. We have
also provided certain guarantees and indemnities in conjunction
with the sales of interests in the synfuel facilities.
We rely on cash flows from subsidiaries.
DTE
Energy is a holding company. Cash flows from our utility and
non-utility subsidiaries are required to pay interest expenses
and dividends on DTE Energy debt and
24
Table of Contents
securities. Should a major subsidiary not be able to pay
dividends or transfer cash flows to DTE Energy, our ability to
pay interest and dividends would be restricted.
Environmental laws and liability may be
costly.
We are subject to numerous environmental
regulations. These regulations govern air emissions, water
quality, wastewater discharge and disposal of solid and
hazardous waste. Compliance with these regulations can
significantly increase capital spending, operating expenses and
plant down times. These laws and regulations require us to seek
a variety of environmental licenses, permits, inspections and
other regulatory approvals. We could be required to install
expensive pollution control measures or limit or cease
activities based on these regulations. Additionally, we may
become a responsible party for environmental cleanup at sites
identified by a regulatory body. We cannot predict with
certainty the amount and timing of future expenditures related
to environmental matters because of the difficulty of estimating
clean up costs. There is also uncertainty in quantifying
liabilities under environmental laws that impose joint and
several liability on potentially responsible parties.
We may also incur liabilities as a result of potential future
requirements to address climate change issues. Proposals for
voluntary initiatives and mandatory controls are being discussed
both in the United States and worldwide to reduce greenhouse
gases such as carbon dioxide, a by-product of burning fossil
fuels. If increased regulation of greenhouse gas emissions are
implemented, the operations of our fossil-fuel generation assets
and our unconventional gas production assets may be
significantly impacted. Since there can be no assurances that
environmental costs may be recovered through the regulatory
process, our financial performance may be negatively impacted as
a result of environmental matters.
Renewable portfolio standards and energy efficiency programs
may affect our business.
We are subject to
Michigan and potential future federal legislation and regulation
requiring us to secure sources of renewable energy. Under the
current Michigan legislation we will be required in the future
to provide a specified percentage of our power from Michigan
renewable energy sources. We are developing a strategy for
complying with the existing state legislation, but we do not
know what requirements may be added by federal legislation. We
are actively engaged in developing renewable energy projects and
identifying third party projects in which we can invest. We
cannot predict the financial impact or costs associated with
these future projects.
We are also required by Michigan legislation to implement energy
efficiency measures and provide energy efficiency customer
awareness and education programs. These requirements necessitate
expenditures and implementation of these programs creates the
risk of reducing our revenues as customers decrease their energy
usage. We do not know how these programs will impact our
business and future operating results.
Threats of terrorism or cyber attacks could affect our
business.
We may be threatened by problems such
as computer viruses or terrorism that may disrupt our operations
and could harm our operating results. Our industry requires the
continued operation of sophisticated information technology
systems and network infrastructure. Despite our implementation
of security measures, all of our technology systems are
vulnerable to disability or failures due to hacking, viruses,
acts of war or terrorism and other causes. If our information
technology systems were to fail and we were unable to recover in
a timely way, we might be unable to fulfill critical business
functions, which could have a material adverse effect on our
business, operating results, and financial condition.
In addition, our generation plants, gas pipeline and storage
facilities and electrical distribution facilities in particular
may be targets of terrorist activities that could disrupt our
ability to produce or distribute some portion of our energy
products. We have increased security as a result of past events
and we may be required by our regulators or by the future
terrorist threat environment to make investments in security
that we cannot currently predict.
We may not be fully covered by insurance.
We
have a comprehensive insurance program in place to provide
coverage for various types of risks, including catastrophic
damage as a result of acts of God, terrorism or a combination of
other significant unforeseen events that could impact our
operations. Economic losses might not be covered in full by
insurance or our insurers may be unable to meet contractual
obligations.
Failure to maintain the security of personally identifiable
information could adversely affect us.
In
connection with our business we collect and retain personally
identifiable information of our customers,
25
Table of Contents
shareholders and employees. Our customers, shareholders and
employees expect that we will adequately protect their personal
information, and the United States regulatory environment
surrounding information security and privacy is increasingly
demanding. A significant theft, loss or fraudulent use of
customer, shareholder, employee or DTE Energy data by cybercrime
or otherwise could adversely impact our reputation and could
result in significant costs, fines and litigation.
Benefits of continuous improvement initiatives could be less
than we expect.
We have a continuous improvement
program that is expected to result in significant cost savings.
Actual results achieved through this program could be less than
our expectations.
A work interruption may adversely affect
us.
Unions represent approximately 5,000 of our
employees. A union choosing to strike would have an impact on
our business. Contracts with several of our unions, including
our contract with our largest union, representing about 3,800 of
our employees, expire on different dates throughout 2010. In
addition, our contracts with unions representing two small
groups of employees expired on December 31, 2009 and
another union is currently negotiating its first contract. We
cannot predict the outcome of any of these contract
negotiations, some of which have not yet commenced. We are
unable to predict the effect a work stoppage would have on our
costs of operation and financial performance.
Failure to retain and attract key executive officers and
other skilled professional and technical employees could have an
adverse effect on our operations.
Our business is
dependent on our ability to recruit, retain, and motivate
employees. Competition for skilled employees in some areas is
high and the inability to retain and attract these employees
could adversely affect our business and future operating results.
| Item 1B. | Unresolved Staff Comments |
None.
| Item 3. | Legal Proceedings |
We are involved in certain legal, regulatory, administrative and
environmental proceedings before various courts, arbitration
panels and governmental agencies concerning matters arising in
the ordinary course of business. These proceedings include
certain contract disputes, environmental reviews and
investigations, audits, inquiries from various regulators, and
pending judicial matters. We cannot predict the final
disposition of such proceedings. We regularly review legal
matters and record provisions for claims that are considered
probable of loss. The resolution of pending proceedings is not
expected to have a material effect on our operations or
financial statements in the period they are resolved.
In February 2008, DTE Energy was named as one of approximately
24 defendant oil, power and coal companies in a lawsuit filed in
a United States District Court. DTE Energy was served with
process in March 2008. The plaintiffs, the Native Village of
Kivalina and City of Kivalina, which are home to approximately
400 people in Alaska, claim that the defendants’
business activities have contributed to global warming and, as a
result, higher temperatures are damaging the local economy and
leaving the island more vulnerable to storm activity in the fall
and winter. As a result, the plaintiffs are seeking damages of
up to $400 million for relocation costs associated with
moving the village to a safer location, as well as unspecified
attorney’s fees and expenses. On October 15, 2009, the
U.S. District Court granted defendants’ motions
dismissing all of plaintiffs’ federal claims in the case on
two independent grounds: (1) the court lacks subject matter
jurisdiction to hear the claims because of the political
question doctrine; and (2) plaintiffs lack standing to
bring their claims. The court also dismissed plaintiffs’
state law claims because the court lacked supplemental
jurisdiction over them after it dismissed the federal claims;
the dismissal of the state law claims was without prejudice. The
plaintiffs have appealed to the U.S. Court of Appeals for
the Ninth Circuit.
In July 2009, DTE Energy received a Notice of Violation/Finding
of Violation (NOV/FOV) from the EPA alleging, among other
things, that five Detroit Edison power plants violated New
Source Performance standards, Prevention of Significant
Deterioration requirements, and Title V operating permit
requirements under the Clean Air Act. We believe that the plants
identified by the EPA have complied with applicable regulations.
Depending upon the outcome of our discussions with the EPA
regarding the NOV/FOV, the EPA
26
Table of Contents
could bring legal action against Detroit Edison. We could also
be required to install additional pollution control equipment at
some or all of the power plants in question, engage in
Supplemental Environmental Programs,
and/or
pay
fines. We cannot predict the financial impact or outcome of this
matter, or the timing of its resolution.
For additional discussion on legal matters, see Notes 12
and 20 of the Notes to Consolidated Financial Statements in
Item 8 of this Report.
| Item 4. | Submission of Matters to a Vote of Security Holders |
We did not submit any matters to a vote of security holders in
the fourth quarter of 2009.
Part II
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Our common stock is listed on the New York Stock Exchange, which
is the principal market for such stock. The following table
indicates the reported high and low sales prices of our common
stock on the Composite Tape of the New York Stock Exchange and
dividends paid per share for each quarterly period during the
past two years:
|
Dividends
|
||||||||||||||
|
Paid
|
||||||||||||||
|
Year
|
Quarter
|
High | Low | per Share | ||||||||||
|
2009
|
||||||||||||||
| First | $ | 37.11 | $ | 23.32 | $ | 0.530 | ||||||||
| Second | $ | 32.43 | $ | 27.32 | $ | 0.530 | ||||||||
| Third | $ | 36.46 | $ | 30.59 | $ | 0.530 | ||||||||
| Fourth | $ | 44.96 | $ | 33.75 | $ | 0.530 | ||||||||
|
2008
|
||||||||||||||
| First | $ | 45.34 | $ | 37.81 | $ | 0.530 | ||||||||
| Second | $ | 44.82 | $ | 38.95 | $ | 0.530 | ||||||||
| Third | $ | 44.97 | $ | 38.78 | $ | 0.530 | ||||||||
| Fourth | $ | 40.92 | $ | 27.82 | $ | 0.530 | ||||||||
At December 31, 2009, there were 165,400,045 shares of
our common stock outstanding. These shares were held by a total
of 78,903 shareholders of record.
Our Bylaws nullify Chapter 7B of the Michigan Business
Corporation Act (Act). This Act regulates shareholder rights
when an individual’s stock ownership reaches 20% of a
Michigan corporation’s outstanding shares. A shareholder
seeking control of the Company cannot require our Board of
Directors to call a meeting to vote on issues related to
corporate control within 10 days, as stipulated by the Act.
We paid cash dividends on our common stock of $347 million
in 2009, $344 million in 2008, and $364 million in
2007. The amount of future dividends will depend on our
earnings, cash flows, financial condition and other factors that
are periodically reviewed by our Board of Directors. Although
there can be no assurances, we anticipate paying dividends for
the foreseeable future.
See Note 14 of the Notes to Consolidated Financial
Statements in Item 8 of this Report for information on
dividend restrictions.
All of our equity compensation plans that provide for the annual
awarding of stock-based compensation have been approved by
shareholders. See Note 22 of the Notes to Consolidated
Financial Statements in Item 8 of this Report for
additional detail.
27
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See the following table for information as of December 31,
2009.
|
Number of Securities
|
Number of Securities
|
|||||||||||
|
to be Issued Upon
|
Weighted-Average
|
Remaining Available For
|
||||||||||
|
Exercise of
|
Exercise Price of
|
Future Issuance Under Equity
|
||||||||||
| Outstanding Options | Outstanding Options | Compensation Plans | ||||||||||
|
Plans approved by shareholders
|
5,593,392 | $ | 40.50 | 4,078,306 | ||||||||
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
The following table provides information about our purchases of
equity securities that are registered by the Company pursuant to
Section 12 of the Exchange Act for the year ended
December 31, 2009:
|
Number
|
||||||||||||||||||||
|
of Shares
|
Maximum Dollar
|
|||||||||||||||||||
|
Purchased as
|
Value that May
|
|||||||||||||||||||
|
Average
|
Part of Publicly
|
Yet Be
|
||||||||||||||||||
|
Number of
|
Price
|
Announced
|
Average
|
Purchased Under
|
||||||||||||||||
|
Shares
|
Paid per
|
Plans or
|
Price Paid
|
the Plans or
|
||||||||||||||||
| Purchased(1) | Share(1) | Programs(2) | per Share(2) | Programs(2) | ||||||||||||||||
|
01/01/09 — 01/31/09
|
— | — | — | — | $ | 822,895,623 | ||||||||||||||
|
02/01/09 — 02/28/09
|
— | — | — | — | 822,895,623 | |||||||||||||||
|
03/01/09 — 03/31/09
|
— | — | — | — | 822,895,623 | |||||||||||||||
|
04/01/09 — 04/30/09
|
— | — | — | — | 822,895,623 | |||||||||||||||
|
05/01/09 — 05/31/09
|
— | — | — | — | 822,895,623 | |||||||||||||||
|
06/01/09 — 06/30/09
|
— | — | — | — | 822,895,623 | |||||||||||||||
|
07/01/09 — 07/31/09
|
— | — | — | — | 822,895,623 | |||||||||||||||
|
08/01/09 — 08/31/09
|
25,000 | $ | 35.01 | — | — | 822,895,623 | ||||||||||||||
|
09/01/09 — 09/30/09
|
— | — | — | — | 822,895,623 | |||||||||||||||
|
10/01/09 — 10/31/09
|
— | — | — | — | 822,895,623 | |||||||||||||||
|
11/01/09 — 11/30/09
|
— | — | — | — | 822,895,623 | |||||||||||||||
|
12/01/09 — 12/31/09
|
— | — | — | — | — | |||||||||||||||
|
Total
|
25,000 | — | ||||||||||||||||||
| (1) | Represents shares of common stock purchased on the open market to provide shares to participants under various employee compensation and incentive programs. These purchases were not made pursuant to a publicly announced plan or program. | |
| (2) | In May 2007, the DTE Energy Board of Directors authorized the repurchase of up to $850 million of common stock through 2009. During 2009, no repurchases of common stock were made under this authorization that expired on December 31, 2009. |
28
Table of Contents
COMPARISON
OF CUMULATIVE FIVE YEAR TOTAL RETURN
Total
Return To Shareholders
(Includes reinvestment of dividends)
(Includes reinvestment of dividends)
|
Annual Return Percentage
|
||||||||||||||||||||
| Years Ending December | ||||||||||||||||||||
|
Company/Index
|
2005 | 2006 | 2007 | 2008 | 2009 | |||||||||||||||
|
DTE Energy Company
|
4.77 | 17.66 | (5.03 | ) | (14.37 | ) | 30.08 | |||||||||||||
|
S&P 500 Index
|
4.91 | 15.79 | 5.49 | (37.00 | ) | 26.46 | ||||||||||||||
|
S&P 500 Multi-Utilities Index
|
17.04 | 16.74 | 10.86 | (24.34 | ) | 20.93 | ||||||||||||||
|
Base
|
Indexed Returns
|
|||||||||||||||||||||||
|
Period
|
Years Ending December | |||||||||||||||||||||||
|
Company/Index
|
2004 | 2005 | 2006 | 2007 | 2008 | 2009 | ||||||||||||||||||
|
DTE Energy Company
|
100 | 104.77 | 123.28 | 117.07 | 100.25 | 130.40 | ||||||||||||||||||
|
S&P 500 Index
|
100 | 104.91 | 121.48 | 128.16 | 80.74 | 102.11 | ||||||||||||||||||
|
S&P 500 Multi-Utilities Index
|
100 | 117.04 | 136.63 | 151.47 | 114.60 | 138.58 | ||||||||||||||||||
29
Table of Contents
| Item 6. | Selected Financial Data |
The following selected financial data should be read in
conjunction with the accompanying Management’s Discussion
and Analysis in Item 7 of this Report and Notes to the
Consolidated Financial Statements in Item 8 of this Report.
| 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
| (in Millions, except per share amounts) | ||||||||||||||||||||
|
Operating Revenues
|
$ | 8,014 | $ | 9,329 | $ | 8,475 | $ | 8,157 | $ | 8,094 | ||||||||||
|
Net Income Attributable to DTE Energy Company
|
||||||||||||||||||||
|
Income from continuing operations(1)
|
$ | 532 | $ | 526 | $ | 787 | $ | 389 | $ | 272 | ||||||||||
|
Discontinued operations
|
— | 20 | 184 | 43 | 268 | |||||||||||||||
|
Cumulative effect of accounting changes
|
— | — | — | 1 | (3 | ) | ||||||||||||||
|
Net Income Attributable to DTE Energy Company
|
$ | 532 | $ | 546 | $ | 971 | $ | 433 | $ | 537 | ||||||||||
|
Diluted Earnings Per Common Share
|
||||||||||||||||||||
|
Income from continuing operations
|
$ | 3.24 | $ | 3.22 | $ | 4.61 | $ | 2.18 | $ | 1.54 | ||||||||||
|
Discontinued operations
|
— | .12 | 1.08 | .24 | 1.52 | |||||||||||||||
|
Cumulative effect of accounting changes
|
— | — | — | .01 | (.01 | ) | ||||||||||||||
|
Diluted Earnings Per Common Share
|
$ | 3.24 | $ | 3.34 | $ | 5.69 | $ | 2.43 | $ | 3.05 | ||||||||||
|
Financial Information
|
||||||||||||||||||||
|
Dividends declared per share of common stock
|
$ | 2.12 | $ | 2.12 | $ | 2.12 | $ | 2.075 | $ | 2.06 | ||||||||||
|
Total assets
|
$ | 24,195 | $ | 24,590 | $ | 23,742 | $ | 23,785 | $ | 23,335 | ||||||||||
|
Long-term debt, including capital leases
|
$ | 7,370 | $ | 7,741 | $ | 6,971 | $ | 7,474 | $ | 7,080 | ||||||||||
|
Shareholders’ equity
|
$ | 6,278 | $ | 5,995 | $ | 5,853 | $ | 5,849 | $ | 5,769 | ||||||||||
| (1) | 2007 amounts include $580 million after-tax gain on the Antrim sale transaction and $210 million after-tax losses on hedge contracts associated with the Antrim sale. 2008 amounts include $80 million after-tax gain on the sale of a portion of the Barnett shale properties. See Note 10 of Notes to Consolidated Financial Statements in Item 8 of this Report. |
30
Table of Contents
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
OVERVIEW
DTE Energy is a diversified energy company with 2009 operating
revenues in excess of $8 billion and over $24 billion
in assets. We are the parent company of Detroit Edison and
MichCon, regulated electric and gas utilities engaged primarily
in the business of providing electricity and natural gas sales,
distribution and storage services throughout southeastern
Michigan. We operate four energy-related non-utility segments
with operations throughout the United States.
The following table summarizes our financial results:
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions, except earnings per share) | ||||||||||||
|
Income from continuing operations
|
$ | 535 | $ | 531 | $ | 791 | ||||||
|
Diluted earnings per common share from continuing operations
|
$ | 3.24 | $ | 3.22 | $ | 4.61 | ||||||
|
Net income attributable to DTE Energy Company
|
$ | 532 | $ | 546 | $ | 971 | ||||||
|
Diluted earnings per common share
|
$ | 3.24 | $ | 3.34 | $ | 5.69 | ||||||
The decrease in 2009 Net income attributable to DTE Energy from
2008 was primarily due to the $80 million after-tax gain
recorded in the Unconventional Gas Production segment on the
2008 sale of a portion of Barnett shale properties, partially
offset by higher earnings in the Electric Utility and Energy
Trading segments. The decrease in Net income attributable to DTE
Energy in 2008 from 2007 was primarily due to $370 million
in net income resulting from the $580 million after-tax
gain on the 2007 sale of the Antrim shale gas exploration and
production business, partially offset by $210 million
after-tax losses recognized on related hedges, including
recognition of amounts previously recorded in accumulated other
comprehensive income during 2007.
The items discussed below influenced our current financial
performance
and/or
may
affect future results:
| • | Impacts of national and regional economic conditions; | |
| • | Effects of weather on utility operations; | |
| • | Collectibility of accounts receivable on utility operations; | |
| • | Impact of regulatory decisions on utility operations; | |
| • | N on-utility operations; | |
| • | Capital investments, including required renewable, energy-efficiency, environmental, reliability-related and other costs; and | |
| • | Environmental matters. |
Reference in this report to “we,” “us,”
“our,” “Company” or “DTE” are to
DTE Energy and its subsidiaries, collectively.
UTILITY
OPERATIONS
Our Electric Utility segment consists of Detroit Edison, which
is engaged in the generation, purchase, distribution and sale of
electricity to approximately 2.1 million customers in
southeastern Michigan.
Our Gas Utility segment consists of MichCon and Citizens.
MichCon is engaged in the purchase, storage, transmission,
distribution and sale of natural gas to approximately
1.2 million customers throughout Michigan. Citizens
distributes natural gas in Adrian, Michigan to approximately
17,000 customers.
31
Table of Contents
Impact
of National and Regional Economic Conditions
Revenues from our utility operations follow the economic cycles
of the customers we serve. Unfavorable national and regional
economic trends have resulted in reduced demand for electricity
and natural gas in our service territory with corresponding
declines in our revenues.
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Revenues
|
||||||||||||
|
Detroit Edison
|
$ | 4,714 | $ | 4,874 | $ | 4,900 | ||||||
|
MichCon
|
1,788 | 2,152 | 1,875 | |||||||||
During 2009, Detroit Edison experienced decreases in sales,
predominantly in the industrial class, and to a lesser extent in
the residential and commercial classes, partially offset by
higher interconnection sales. MichCon’s revenues were lower
due primarily to lower natural gas costs and customer
conservation. We expect to minimize the impacts of declines in
average customer usage through regulatory mechanisms which will
decouple our revenue levels from sales volumes. We expect to be
impacted by the challenges in the domestic automotive and steel
industries and the timing and level of recovery in the national
and regional economies. Direct and indirect effects of further
automotive and other industrial plant closures could have a
significant impact on the results of Detroit Edison. As
discussed further below, deteriorating economic conditions
impact our ability to collect amounts due from our electric and
gas customers and drive increased thefts of electricity and
natural gas. In the face of these economic conditions, we are
actively managing our cash, capital expenditures, cost structure
and liquidity to maintain our financial strength.
Collectibility
of Accounts Receivable on Utility Operations
Although lower than peak levels in 2008, both utilities continue
to experience high levels of past due receivables primarily
attributable to economic conditions. Our service territories
continue to experience high levels of unemployment,
underemployment and low income households, home foreclosures and
a lack of adequate levels of assistance for low-income
customers. Despite the current economic conditions, total
arrears were reduced during 2009 in our electric and gas
utilities. We have taken actions to manage the level of past due
receivables, including increasing customer disconnections,
contracting with collection agencies and working with Michigan
officials and others to increase the share of low-income funding
allocated to our customers.
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Uncollectible Expense
|
||||||||||||
|
Detroit Edison
|
$ | 78 | $ | 87 | $ | 65 | ||||||
|
MichCon
|
93 | 126 | 70 | |||||||||
| $ | 171 | $ | 213 | $ | 135 | |||||||
The MPSC has provided for an uncollectible expense tracking
mechanism for MichCon since 2005. The uncollectible expense
tracking mechanism enables MichCon to recover or refund
90 percent of the difference between the actual
uncollectible expense for each year and $37 million after
an annual reconciliation proceeding before the MPSC.
The January 2010 MPSC electric rate order provided for an
uncollectible expense tracking mechanism for Detroit Edison. The
uncollectible expense tracking mechanism enables Detroit Edison
to recover or refund 80 percent of the difference between
the actual uncollectible expense for each year and
$66 million after an annual reconciliation proceeding
before the MPSC.
The bankruptcies of General Motors Corporation (GM) and Chrysler
LLC (Chrysler) did not have a significant impact to our
uncollectible expense in 2009.
32
Table of Contents
Impact
of Regulatory Decisions on Utility Operations
On January 11, 2010, the MPSC issued an order in Detroit
Edison’s January 26, 2009 rate case filing. The MPSC
approved an annual revenue increase of $217 million or a
4.8% increase in Detroit Edison’s annual revenue
requirement for 2010. Included in the approved increase in
revenues was a return on equity of 11% on an expected 49% equity
and 51% debt permanent capital structure. Since the final rate
relief ordered was less than the Company’s self-implemented
rate increase of $280 million effective on July 26,
2009, the MPSC ordered refunds for the period the
self-implemented rates were in effect. Detroit Edison has
recorded a refund liability of $27 million at
December 31, 2009 representing the 2009 portion of the
estimated refund due customers, including interest. The MPSC
ordered Detroit Edison to file a refund plan by April 1,
2010.
Other key aspects of the MPSC order include the following:
| • | Continued progress toward correcting the existing rate structure to more accurately reflect the actual cost of providing service to business customers; | |
| • | Continued application of an adjustment mechanism for Electric Choice sales that reconciles actual customer choice sales with a base customer choice sales level of 1,586 GWh; | |
| • | Continued application of adjustment mechanisms to track expenses associated with restoration costs (storm and non-storm related expenses) and line clearance expenses. Annual reconciliations will be required using a base expense level of $117 million and $47 million, respectively. The change in base expense level was applied retroactive to the July 26, 2009 self-implementation date; | |
| • | Implementation of a pilot Revenue Decoupling Mechanism, that will compare actual (non-weather normalized) sales per customer with the base sales per customer level established in this case for the period February 1, 2010 to January 31, 2011; and | |
| • | Implementation of an Uncollectible Expense Tracking Mechanism, based on a $66 million expense level, with an 80/20 percent sharing of the expenses above or below the base amount. The Uncollectible Expenses Tracking Mechanism was implemented retroactive to the July 26, 2009 self-implementation date. |
MichCon filed a general rate case on June 9, 2009 based on
a 2008 historical test year. The filing with the MPSC requested
a $193 million, or 11.5 percent average increase in
MichCon’s annual revenues for a 2010 projected test year.
The requested $193 million increase in revenues is required
to recover the increased costs associated with increased
investments in net plant and working capital, an increase in the
base level of the uncollectible expense tracking mechanism and
the cost of natural gas theft primarily due to economic
conditions in Michigan, sales reductions due to customer
conservation and the trend of warmer weather on MichCon’s
market, and increasing operating costs, largely due to
inflation. Pursuant to the October 2008 Michigan legislation,
and the settlement in MichCon’s last base gas sale case,
MichCon self-implemented $170 million of its requested
annual increase on January 1, 2010. This increase will
remain in place until a final order is issued by the MPSC, which
is expected in June 2010, subject to refund. See Note 12 of
the Notes to Consolidated Financial Statements in Item 8 of
this Report.
NON-UTILITY
OPERATIONS
We have significant investments in non-utility businesses. We
employ disciplined investment criteria when assessing
opportunities that leverage our assets, skills and expertise.
Specifically, we invest in targeted energy markets with
attractive competitive dynamics where meaningful scale is in
alignment with our risk profile. We expect growth opportunities
in the Gas Storage and Pipelines and Power and Industrial
Projects segments in the future. Expansion of these businesses
will also result in our ability to further diversify
geographically.
Gas Storage and Pipelines owns partnership interests in two
natural gas storage fields and two interstate pipelines serving
the Midwest, Ontario and Northeast markets. Much of the growth
in demand for natural gas is expected to occur in the
Mid-Atlantic and New England regions. Forecasts indicate that
these regions will require incremental gas storage and pipeline
infrastructure to meet demand growth. Our Vector and
33
Table of Contents
Millennium pipelines are well-positioned to provide access
routes and low-cost expansion options to these markets.
Our Unconventional Gas Production business is engaged in natural
gas exploration, development and production within the Barnett
shale in north Texas. We continue to develop our holdings in the
western portion of the Barnett shale and to seek opportunities
for additional monetization of select properties within our
Barnett shale holdings, when conditions are appropriate. Due to
economic conditions and low natural gas prices during the year,
we chose to do minimal lease acquisitions and reduce the number
of new wells this year. However, we continue to evaluate leasing
opportunities in active development areas in the Barnett shale
to optimize our existing portfolio.
Power and Industrial Projects is comprised primarily of projects
that deliver energy and products and services to industrial,
commercial and institutional customers; provide coal
transportation and marketing; and sell electricity from
biomass-fired energy projects. This business segment provides
services using project assets usually located on or near the
customers’ premises in the steel, automotive, pulp and
paper, airport and other industries. Renewable energy,
environmental and economic trends are creating growth
opportunities. The increasing number of states with renewable
portfolio standards and energy efficiency mandates provides the
opportunity to market the expertise of the Power and Industrial
Projects segment in landfill gas,
on-site
energy management, waste-wood power generation, and other
related services.
Energy Trading focuses on physical and financial power and gas
marketing and trading, structured transactions, enhancement of
returns from DTE Energy’s asset portfolio, and optimization
of contracted natural gas pipeline transportation and storage,
and power transmission and generating capacity positions. Energy
Trading also provides natural gas, power and ancillary services
to various utilities which may include the management of
associated storage and transportation contracts on the
customers’ behalf.
DISCONTINUED
OPERATIONS
Synthetic
Fuel
The Synthetic Fuel business was presented as a non-utility
segment through the third quarter of 2007. Due to the expiration
of synfuel production tax credits at the end of 2007, the
Synthetic Fuel business ceased operations and was classified as
a discontinued operation as of December 31, 2007.
CAPITAL
INVESTMENTS
We anticipate significant capital investments during the next
three years concentrated primarily in Detroit Edison.
| 2010-2012 | ||||
| (in Billions) | ||||
|
Capital Investments
|
||||
|
Detroit Edison
|
$ | 3.0 — 3.4 | ||
|
MichCon
|
0.4 — 0.5 | |||
|
Non-Utility
|
0.6 — 0.9 | |||
| $ | 4.0 — 4.8 | |||
Our utility businesses require significant capital investments
each year in order to maintain and improve the reliability of
their asset bases, including power generation plants,
distribution systems, storage fields and other facilities and
fleets. In addition, Detroit Edison’s investments
(excluding investments in new base-load generation capacity, if
any) will be driven by renewable investment and environmental
controls expenditures. We plan to seek regulatory approval to
include these capital expenditures within our regulatory rate
base consistent with prior treatment. Non-utility investments
are expected primarily in continued investment in gas storage
and pipeline assets and renewable opportunities in the Power and
Industrial Projects businesses.
34
Table of Contents
ENVIRONMENTAL
MATTERS
We 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. We expect to continue recovering environmental
costs related to utility operations through rates charged to our
customers.
Air —
Detroit Edison is subject to the EPA
ozone transport and acid rain regulations that limit power plant
emissions of sulfur dioxide and nitrogen oxides. Since 2005, EPA
and the State of Michigan have issued additional emission
reduction regulations relating to ozone, fine particulate,
regional haze and mercury air pollution. The new rules will lead
to additional controls on fossil-fueled power plants to reduce
nitrogen oxide, sulfur dioxide and mercury emissions. Further,
additional rulemakings are expected over the next few years
which could require additional controls for sulfur dioxide,
nitrogen oxides and hazardous air pollutants. It is not possible
to quantify the impact of those expected rulemakings at this
time.
In July 2009, DTE Energy received a Notice of Violation/Finding
of Violation (NOV/FOV) from the EPA alleging, among other
things, that five Detroit Edison power plants violated New
Source Performance standards, Prevention of Significant
Deterioration requirements, and Title V operating permit
requirements under the Clean Air Act. We believe that the plants
identified by the EPA have complied with applicable regulations.
Depending upon the outcome of our discussions with the EPA
regarding the NOV/FOV, the EPA could bring legal action against
Detroit Edison. We could also be required to install additional
pollution control equipment at some or all of the power plants
in question, engage in Supplemental Environmental Programs,
and/or
pay
fines. We cannot predict the financial impact or outcome of this
matter, or the timing of its resolution.
Water —
In response to an EPA regulation,
Detroit Edison is required to examine alternatives for reducing
the environmental impacts of the cooling water intake structures
at several of its facilities. Based on the results of studies,
some of which have already been completed, but more are expected
to be conducted over the next several years, Detroit Edison may
be required to perform some mitigation activities, including the
possible installation of additional control technologies to
reduce the environmental impact of the intake structures.
However, a January 2007 circuit court decision remanded back to
the EPA several provisions of the federal regulation, resulting
in a delay in complying with the regulation. In 2008, the
U.S. Supreme Court agreed to review the remanded
cost-benefit analysis provision of the rule and in April 2009
upheld EPA’s use of this provision in determining best
available technology for reducing environmental impacts.
Concurrently, the EPA continues to develop a revised rule, a
draft of which is expected to be published by summer 2010. The
EPA has also proposed an information collection request to begin
a review of steam electric effluent guidelines. It is not
possible at this time to quantify the impacts of these
developing requirements.
Manufactured Gas Plant (MGP) 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 for heating and other uses, have
been designated as MGP sites. Gas Utility owns, or previously
owned, fifteen such former MGP sites. Detroit Edison owns, or
previously owned, three former MGP sites. In addition to the MGP
sites, we are also in the process of cleaning up other sites
where contamination is present as a result of historical and
ongoing utility operations. These other sites include an
engineered ash storage facility, electrical distribution
substations, gas pipelines, and underground and aboveground
storage tank locations. Cleanup activities associated with these
sites will be conducted over the next several years.
Landfill
— Detroit Edison owns and operates a
permitted engineered ash storage facility at the Monroe Power
Plant to dispose of fly ash from the coal fired power plant.
Detroit Edison performed an engineering analysis in 2009 and
identified the need for embankment side slope repairs and
reconstruction. The results of the engineering study show that
the estimated cost to perform the embankment repairs are
$17 million which we expect to incur over the next four
years.
The EPA has expressed its intentions to develop new federal
regulations for coal ash under the authority of the Resources
Conservation and Recovery Act (RCRA). A proposed regulation is
expected in the first
35
Table of Contents
quarter of 2010. Among the options EPA is currently considering,
is a ruling that may designate coal ash as a “Hazardous
Waste” as defined by RCRA. However, agencies and
legislatures have urged EPA to regulate coal ash as a
non-hazardous waste. If EPA were to designate coal ash as a
hazardous waste, the agency could apply some, or all, of the
disposal and reuse standards that have been applied to other
existing hazardous wastes. Some of the regulatory actions
currently being contemplated could have a material adverse
impact on our operations and financial position and the rates we
charge our customers.
Global
Climate Change
Climate regulation
and/or
legislation is being proposed and discussed within the
U.S. Congress and the EPA. On June 26, 2009, the
U.S. House of Representatives passed the American Clean
Energy and Security Act (ACESA). The ACESA includes a cap and
trade program that would start in 2012 and provides for costs to
emit greenhouse gases. Despite action by the Senate
Environmental and Public Works Committee to pass a similar but
more stringent bill in October 2009, full Senate action on a
climate bill is not expected before the spring of 2010.
Meanwhile, the EPA is beginning to implement regulatory actions
under the Clean Air Act to address emission of greenhouse gases.
Pending or future legislation or other regulatory actions could
have a material impact on our operations and financial position
and the rates we charge our customers. Impacts include
expenditures for environmental equipment beyond what is
currently planned, financing costs related to additional capital
expenditures and the purchase of emission allowances from market
sources. We would seek to recover these incremental costs
through increased rates charged to our utility customers.
Increased costs for energy produced from traditional sources
could also increase the economic viability of energy produced
from renewable
and/or
nuclear sources and energy efficiency initiatives and the
development of market-based trading of carbon offsets providing
business opportunities for our utility and non-utility segments.
It is not possible to quantify these impacts on DTE Energy or
its customers at this time.
See Notes 12 and 20 of the Notes to Consolidated Financial
Statements in Item 8 of this Report and Items 1 and 2
Business and Properties.
OUTLOOK
The next few years will be a period of rapid change for DTE
Energy and for the energy industry. Our strong utility base,
combined with our integrated non-utility operations, position us
well for long-term growth.
Looking forward, we will focus on several areas that we expect
will improve future performance:
| • | continuing to pursue regulatory stability and investment recovery for our utilities; | |
| • | managing the growth of our utility asset base; | |
| • | enhancing our cost structure across all business segments; | |
| • | managing cash, capital and liquidity to maintain or improve our financial strength; | |
| • | improving Electric and Gas Utility customer satisfaction; and | |
| • | investing in businesses that integrate our assets and leverage our skills and expertise. |
We will continue to pursue opportunities to grow our businesses
in a disciplined manner if we can secure opportunities that meet
our strategic, financial and risk criteria.
36
Table of Contents
RESULTS
OF OPERATIONS
The following sections provide a detailed discussion of the
operating performance and future outlook of our segments.
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Net Income Attributable to DTE Energy by Segment:
|
||||||||||||
|
Electric Utility
|
$ | 376 | $ | 331 | $ | 317 | ||||||
|
Gas Utility
|
80 | 85 | 70 | |||||||||
|
Gas Storage and Pipelines
|
49 | 38 | 34 | |||||||||
|
Unconventional Gas Production(1)
|
(9 | ) | 84 | (217 | ) | |||||||
|
Power and Industrial Projects
|
31 | 40 | 49 | |||||||||
|
Energy Trading
|
75 | 42 | 32 | |||||||||
|
Corporate & Other(1)
|
(70 | ) | (94 | ) | 502 | |||||||
|
Income (Loss) from Continuing Operations:
|
||||||||||||
|
Utility
|
456 | 416 | 387 | |||||||||
|
Non-utility
|
146 | 204 | (102 | ) | ||||||||
|
Corporate & Other
|
(70 | ) | (94 | ) | 502 | |||||||
| 532 | 526 | 787 | ||||||||||
|
Discontinued Operations
|
— | 20 | 184 | |||||||||
|
Net Income Attributable to DTE Energy Company
|
$ | 532 | $ | 546 | $ | 971 | ||||||
| (1) | 2008 net income of the Unconventional Gas Production segment resulted principally from the gain on the sale of a portion of our Barnett shale properties. 2007 net loss resulted principally from the recognition of losses on hedge contracts associated with the Antrim sale transaction. 2007 net income of the Corporate & Other segment resulted principally from the gain recognized on the Antrim sale transaction. See Note 10 of the Notes to the Consolidated Financial Statements in Item 8 of this Report. |
ELECTRIC
UTILITY
Our Electric Utility segment consists of Detroit Edison.
Electric Utility results are discussed below:
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Operating Revenues
|
$ | 4,714 | $ | 4,874 | $ | 4,900 | ||||||
|
Fuel and Purchased Power
|
1,491 | 1,778 | 1,686 | |||||||||
|
Gross Margin
|
3,223 | 3,096 | 3,214 | |||||||||
|
Operation and Maintenance
|
1,277 | 1,322 | 1,422 | |||||||||
|
Depreciation and Amortization
|
844 | 743 | 764 | |||||||||
|
Taxes Other Than Income
|
205 | 232 | 277 | |||||||||
|
Asset (Gains) Losses, Reserves and Impairments, Net
|
(2 | ) | (1 | ) | 8 | |||||||
|
Operating Income
|
899 | 800 | 743 | |||||||||
|
Other (Income) and Deductions
|
295 | 283 | 277 | |||||||||
|
Income Tax Provision
|
228 | 186 | 149 | |||||||||
|
Net Income Attributable to DTE Energy Company
|
$ | 376 | $ | 331 | $ | 317 | ||||||
|
Operating Income as a Percent of Operating Revenues
|
19 | % | 16 | % | 15 | % | ||||||
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Gross margin
increased $127 million during 2009 and
decreased $118 million in 2008. The following table
displays changes in various gross margin components relative to
the comparable prior period:
| 2009 | 2008 | |||||||
| (in Millions) | ||||||||
|
December 2008 rate order
|
$ | 80 | $ | — | ||||
|
Securitization bond and tax surcharge rate increase
|
62 | — | ||||||
|
July 2009 rate self-implementation, net of refund
|
93 | — | ||||||
|
Energy Optimization and Renewable Energy surcharge
|
54 | — | ||||||
|
April 2008 expiration of show cause rate decrease
|
25 | 46 | ||||||
|
Weather
|
(66 | ) | (37 | ) | ||||
|
Reduction in customer demand and other
|
(121 | ) | (127 | ) | ||||
|
Increase (decrease) in gross margin
|
$ | 127 | $ | (118 | ) | |||
| 2009 | 2008 | 2007 | ||||||||||
| (in Thousands of MWh) | ||||||||||||
|
Electric Sales
|
||||||||||||
|
Residential
|
14,625 | 15,492 | 16,147 | |||||||||
|
Commercial
|
18,200 | 18,920 | 19,332 | |||||||||
|
Industrial
|
9,922 | 13,086 | 13,338 | |||||||||
|
Other
|
3,229 | 3,218 | 3,300 | |||||||||
| 45,976 | 50,716 | 52,117 | ||||||||||
|
Interconnection sales(1)
|
5,156 | 3,583 | 3,587 | |||||||||
|
Total Electric Sales
|
51,132 | 54,299 | 55,704 | |||||||||
|
Electric Deliveries
|
||||||||||||
|
Retail and Wholesale
|
45,976 | 50,716 | 52,117 | |||||||||
|
Electric Customer Choice, including self generators(2)
|
1,477 | 1,457 | 2,239 | |||||||||
|
Total Electric Sales and Deliveries
|
47,453 | 52,173 | 54,356 | |||||||||
| (1) | Represents power that is not distributed by Detroit Edison. | |
| (2) | Includes deliveries for self generators who have purchased power from alternative energy suppliers to supplement their power requirements. |
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Table of Contents
|
Power Generated and Purchased
|
2009 | 2008 | 2007 | |||||||||||||||||||||
| (in Thousands of MWh) | ||||||||||||||||||||||||
|
Power Plant Generation
|
||||||||||||||||||||||||
|
Fossil
|
40,595 | 74 | % | 41,254 | 71 | % | 42,359 | 72 | % | |||||||||||||||
|
Nuclear
|
7,406 | 14 | 9,613 | 17 | 8,314 | 14 | ||||||||||||||||||
| 48,001 | 88 | 50,867 | 88 | 50,673 | 86 | |||||||||||||||||||
|
Purchased Power
|
6,495 | 12 | 6,877 | 12 | 8,422 | 14 | ||||||||||||||||||
|
System Output
|
54,496 | 100 | % | 57,744 | 100 | % | 59,095 | 100 | % | |||||||||||||||
|
Less Line Loss and Internal Use
|
(3,364 | ) | (3,445 | ) | (3,391 | ) | ||||||||||||||||||
|
Net System Output
|
51,132 | 54,299 | 55,704 | |||||||||||||||||||||
|
Average Unit Cost ($/MWh)
|
||||||||||||||||||||||||
|
Generation(1)
|
$ | 18.20 | $ | 17.93 | $ | 15.83 | ||||||||||||||||||
|
Purchased Power
|
$ | 37.74 | $ | 69.50 | $ | 62.40 | ||||||||||||||||||
|
Overall Average Unit Cost
|
$ | 20.53 | $ | 24.07 | $ | 22.47 | ||||||||||||||||||
| (1) | Represents fuel costs associated with power plants. |
Operation and maintenance
expense decreased
$45 million in 2009 and decreased $100 million in
2008. The decrease in 2009 was primarily due to $71 million
from continuous improvement initiatives and other cost
reductions resulting in lower contract labor and outside
services expense, information technology and other staff
expenses, $14 million of lower employee benefit-related
expenses, lower storm expenses of $12 million,
$9 million of reduced uncollectible expenses and
$6 million of reduced maintenance activities, partially
offset by higher pension and health care costs of
$54 million and $14 million of energy optimization and
renewable energy expenses. The decrease in 2008 was due
primarily to lower information systems implementation costs of
$60 million, lower employee benefit-related expenses of
$45 million and $29 million from continuous
improvement initiatives resulting in lower contract labor and
outside services expense, information technology and other staff
expenses, partially offset by higher uncollectible expenses of
$22 million.
Depreciation and amortization
expense increased
$101 million in 2009 due primarily to a higher depreciable
base and increased amortization of regulatory assets and
decreased $21 million in 2008 due primarily to decreased
amortization of regulatory assets.
Taxes other than income
were lower by $27 million
due primarily to a $30 million reduction in property tax
expense due to refunds received in settlement of appeals of
assessments for prior years. Taxes decreased $45 million in
2008 due to the Michigan Single Business Tax (SBT) expense in
2007, which was replaced with the Michigan Business Tax (MBT) in
2008. The MBT is accounted for in the Income Tax provision.
Outlook
— Unfavorable national and regional
economic trends have resulted in reduced demand for electricity
in our service territory and continued high levels in our
uncollectible accounts receivable. The magnitude of these trends
will be driven by the impacts of the challenges in the domestic
automotive industry and the timing and level of recovery in the
national and regional economies. The January 2010 MPSC rate
order, provided for an uncollectible expense tracking mechanism
and a revenue decoupling mechanism will assist in mitigating
these impacts.
To address the challenges of the national and regional
economies, we continue to move forward in our efforts to improve
the operating performance and cash flow of Detroit Edison. We
continue to favorably resolve outstanding regulatory issues,
many of which were addressed by Michigan legislation. We expect
that our planned significant environmental and renewable
expenditures will result in earnings growth. Looking forward, we
face additional issues, such as higher levels of capital
spending, volatility in prices for coal and other commodities,
investment returns and changes in discount rate assumptions in
benefit plans and health care costs, and uncertainty of
legislative or regulatory actions regarding climate change. We
expect to continue
39
Table of Contents
an intense focus on our continuous improvement efforts to
improve productivity, remove waste and decrease our costs while
improving customer satisfaction.
GAS
UTILITY
Our Gas Utility segment consists of MichCon and Citizens.
Gas Utility results are discussed below:
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Operating Revenues
|
$ | 1,788 | $ | 2,152 | $ | 1,875 | ||||||
|
Cost of Gas
|
1,057 | 1,378 | 1,164 | |||||||||
|
Gross Margin
|
731 | 774 | 711 | |||||||||
|
Operation and Maintenance
|
415 | 464 | 429 | |||||||||
|
Depreciation and Amortization
|
107 | 102 | 93 | |||||||||
|
Taxes Other Than Income
|
49 | 48 | 56 | |||||||||
|
Asset (Gains) and Losses, Net
|
(18 | ) | (26 | ) | (3 | ) | ||||||
|
Operating Income
|
178 | 186 | 136 | |||||||||
|
Other (Income) and Deductions
|
59 | 60 | 43 | |||||||||
|
Income Tax Provision
|
39 | 41 | 23 | |||||||||
|
Net Income Attributable to DTE Energy Company
|
$ | 80 | $ | 85 | $ | 70 | ||||||
|
Operating Income as a Percent of Operating Revenues
|
10 | % | 9 | % | 7 | % | ||||||
Gross margin
decreased $43 million in 2009 and
increased $63 million in 2008. The decrease in 2009
reflects $28 million of lower revenues from the
uncollectible tracking mechanism, $15 million of additional
lost and stolen gas, $12 million of continued customer
conservation efforts, $5 million of lower end user
transportation revenue, $5 million of realized hedging
losses, the effects of unfavorable weather of $4 million
and reduced late payment revenue of $4 million, partially
offset by $22 million higher midstream transportation and
storage revenues, $5 million in energy optimization
revenues and $5 million higher appliance service revenues.
The increase in 2008 reflects $49 million from the
uncollectible tracking mechanism, $15 million related to
the impacts of colder weather, $10 million favorable result
of lower lost gas recognized and higher valued gas received as
compensation for transportation of third party customer gas,
$7 million of 2007 GCR disallowances, and $6 million
of appliance repair revenue. The 2008 improvement was partially
offset by $19 million of lower storage services revenue and
$12 million from customer conservation and lower volumes.
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Gas Markets
|
||||||||||||
|
Gas sales
|
$ | 1,443 | $ | 1,824 | $ | 1,536 | ||||||
|
End user transportation
|
144 | 143 | 140 | |||||||||
|
Intermediate transportation
|
69 | 73 | 70 | |||||||||
|
Storage and other
|
132 | 112 | 129 | |||||||||
| $ | 1,788 | $ | 2,152 | $ | 1,875 | |||||||
|
Gas Markets (in Bcf)
|
||||||||||||
|
Gas sales
|
137 | 148 | 148 | |||||||||
|
End user transportation
|
124 | 123 | 132 | |||||||||
| 261 | 271 | 280 | ||||||||||
|
Intermediate transportation
|
463 | 438 | 399 | |||||||||
| 724 | 709 | 679 | ||||||||||
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Table of Contents
Operation and maintenance
expense decreased
$49 million in 2009 and increased $35 million in 2008.
The decrease in 2009 was primarily due to $33 million of
reduced uncollectible expenses, $15 million of lower
employee benefit-related expenses, $14 million from
continuous improvement initiatives and other cost reductions
resulting in lower contract labor and outside services expense,
information technology and other staff expenses, partially
offset by higher health care expenses of $8 million and
$4 million of energy optimization expenses. The 2008
increase is primarily attributable to $56 million of higher
uncollectible expenses, partially offset by $14 million
from continuous improvement initiatives resulting in lower
contract labor and outside services expense, information
technology and other staff expenses and $14 million of
reduced pension and health care expenses. Uncollectible expense
was higher in 2008 due to an analysis of our greater than ninety
day receivables that indicated a change in the mix of customers
in that group and therefore an increased risk of collection. The
changes in uncollectible expenses are substantially offset by
changes in revenues from the uncollectible tracking mechanism
included in the gross margin discussion.
Asset (gains) losses, net
decreased $8 million due
to a lower gain on the sale of base gas of $15 million and
a gain related to the sale of certain gathering and processing
assets. The 2008 increase of $23 million was due primarily
to the sale of base gas.
Outlook —
Unfavorable national and regional
economic trends have resulted in a decrease in the number of
customers in our service territory, customer conservation and
continued high levels of theft and uncollectible accounts
receivable. The magnitude of these trends will be driven by the
impacts of the challenges in the domestic automotive industry
and the timing and level of recovery in the national and
regional economies. The uncollectible tracking mechanism
provided by the MPSC assists in mitigating the continued
pressure on accounts receivable.
To address the challenges of the national and regional
economies, we continue to move forward in our efforts to improve
the operating performance and cash flow of Gas Utility. We
continue to resolve outstanding regulatory issues. Looking
forward, we face additional issues, such as volatility in gas
prices, investment returns and changes in discount rate
assumptions in benefit plans and health care costs. We expect to
continue an intense focus on our continuous improvement efforts
to improve productivity, minimize lost and stolen gas, remove
waste and decrease our costs while improving customer
satisfaction.
GAS
STORAGE AND PIPELINES
Our Gas Storage and Pipelines segment consists of our
non-utility gas pipelines and storage businesses.
Gas Storage and Pipelines results are discussed below:
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Operating Revenues
|
$ | 82 | $ | 71 | $ | 66 | ||||||
|
Operation and Maintenance
|
15 | 12 | 13 | |||||||||
|
Depreciation and Amortization
|
5 | 5 | 6 | |||||||||
|
Taxes Other Than Income
|
2 | 3 | 3 | |||||||||
|
Asset (Gains) and Losses, Net
|
— | 1 | (1 | ) | ||||||||
|
Operating Income
|
60 | 50 | 45 | |||||||||
|
Other (Income) and Deductions
|
(23 | ) | (12 | ) | (7 | ) | ||||||
|
Income Tax Provision
|
33 | 24 | 18 | |||||||||
|
Net Income
|
50 | 38 | 34 | |||||||||
|
Noncontrolling interest
|
1 | — | — | |||||||||
|
Net Income Attributable to DTE Energy
|
$ | 49 | $ | 38 | $ | 34 | ||||||
Net income attributable to DTE Energy increased $11 million
and $4 million in 2009 and 2008, respectively. The 2009
increase was driven by higher operating revenues resulting from
increased capacity sold and higher rates from renewing storage
contracts related to long-term agreements. In addition, there
were
41
Table of Contents
higher equity earnings from our investments in the Vector and
Millennium Pipelines, reflecting a first full year of operations
for Millennium. The 2008 increase is due to higher storage
revenues related to expansion of capacity and higher other
income primarily driven by higher equity earnings in the Vector
and Millennium Pipelines, partially offset by a higher tax
provision due to the MBT in 2008.
Outlook —
Our Gas Storage and Pipelines
business expects to continue its steady growth plan. In 2009, an
additional 3 Bcf of storage capacity was placed in service.
The Vector Pipeline Phase 2 expansion which added approximately
100 MMcf/day,
was placed in service in October 2009 and is supported by
customers under long-term contracts. Millennium Pipeline was
placed in-service in December 2008 and currently has nearly
85 percent of its capacity sold to customers under
long-term contracts. We are also a 50 percent owner in the
proposed Dawn Gateway Pipeline. The Dawn Gateway Project is
designed to initially transport 360,000 dth/d from our Michigan
storage facilities to the Dawn Hub in Ontario, Canada, and upon
successful and timely regulatory approval, is expected to be in
service in the fourth quarter 2010.
UNCONVENTIONAL
GAS PRODUCTION
Our Unconventional Gas Production business is engaged in natural
gas exploration, development and production within the Barnett
shale in northern Texas. In June 2007, we sold our Antrim shale
gas exploration and production business in northern Michigan for
gross proceeds of $1.262 billion. In January 2008, we sold
a portion of our Barnett shale properties for gross proceeds of
approximately $260 million. The properties sold included
75 Bcf of proved reserves on approximately 11,000 net
acres in the core area of the Barnett shale. We recognized a
gain of $128 million ($80 million after-tax) on the
sale in 2008.
Unconventional Gas Production results are discussed below:
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Operating Revenues
|
$ | 31 | $ | 48 | $ | (228 | ) | |||||
|
Operation and Maintenance
|
15 | 22 | 36 | |||||||||
|
Depreciation, Depletion and Amortization
|
16 | 12 | 22 | |||||||||
|
Taxes Other Than Income
|
1 | 1 | 8 | |||||||||
|
Asset (Gains) and Losses, Net
|
6 | (120 | ) | 27 | ||||||||
|
Operating Income (Loss)
|
(7 | ) | 133 | (321 | ) | |||||||
|
Other (Income) and Deductions
|
6 | 2 | 13 | |||||||||
|
Income Tax Provision (Benefit)
|
(4 | ) | 47 | (117 | ) | |||||||
|
Net Income (Loss) Attributable to DTE Energy Company
|
$ | (9 | ) | $ | 84 | $ | (217 | ) | ||||
Operating revenues
decreased $17 million in 2009 and
increased $276 million in 2008. The 2009 decrease is the
result of lower commodity prices, while production remained
relatively flat. The 2008 increase was principally due to the
impact of losses on 2007 financial contracts that hedged our
price risk exposure related to expected Antrim gas production
and sales through 2013. Excluding the impact of the losses on
the Antrim hedges, operating revenues decreased $47 million
in 2008. The decreases were principally due to lower natural gas
sales volumes as a result of our monetization initiatives,
partially offset by higher commodity prices and higher gas and
oil production on retained wells.
Operation and maintenance
expense decreased
$7 million in 2009 due to operational efficiencies and
lower costs for goods and services. The 2008 decrease is
primarily attributable to the sale of a portion of the Barnett
shale in January 2008 and the Antrim sale in June 2007.
Asset (gains) and losses, net
decreased $126 in 2009 and
increased $147 million in 2008. The 2009 decrease as
compared to 2008 was due to the gain of $128 million
($80 million after-tax) on the 2008 sale of a portion of
our Barnett shale properties and $2 million lower
impairment in 2009 of expired or expiring leasehold positions
that the company does not intend to drill at current commodity
prices. The increase in 2008 of $147 million was due to the
gain on sale of Barnett shale core properties, partially offset
by $8 million
42
Table of Contents
of impairment losses primarily related to leases on unproved
acreage that we did not anticipate developing due to economic
conditions.
Outlook —
In the longer-term, we plan to
continue to develop our holdings in the western portion of the
Barnett shale and to seek opportunities for additional
monetization of select properties within our asset base, when
conditions are appropriate. Our strategy for 2010 is to maintain
our focus on reducing operating expenses and optimizing
production volume. During 2010, we expect to invest
approximately $25 million to drill 10 to 15 new wells and
achieve production of approximately 5 Bcfe of natural gas,
compared with 5 Bcfe in 2009.
POWER AND
INDUSTRIAL PROJECTS
Power and Industrial Projects is comprised primarily of projects
that deliver energy and utility-type products and services to
industrial, commercial and institutional customers; provide coal
transportation services and marketing; and sell electricity from
biomass-fired energy projects.
Power and Industrial Projects results are discussed below:
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Operating Revenues
|
$ | 661 | $ | 987 | $ | 1,244 | ||||||
|
Operation and Maintenance
|
593 | 899 | 1,143 | |||||||||
|
Depreciation and Amortization
|
40 | 34 | 41 | |||||||||
|
Taxes other than Income
|
9 | 12 | 13 | |||||||||
|
Other Asset (Gains) and Losses, Reserves and Impairments, Net
|
(6 | ) | 6 | — | ||||||||
|
Operating Income
|
25 | 36 | 47 | |||||||||
|
Other (Income) and Deductions
|
(1 | ) | (20 | ) | (11 | ) | ||||||
|
Income Taxes
|
||||||||||||
|
Provision
|
5 | 18 | 18 | |||||||||
|
Production Tax Credits
|
(12 | ) | (7 | ) | (11 | ) | ||||||
| (7 | ) | 11 | 7 | |||||||||
|
Net Income
|
33 | 45 | 51 | |||||||||
|
Noncontrolling interest
|
2 | 5 | 2 | |||||||||
|
Net Income Attributable to DTE Energy Company
|
$ | 31 | $ | 40 | $ | 49 | ||||||
Operating revenues
decreased $326 million in 2009
and $257 million in 2008. The 2009 decrease is due
primarily to $111 million reduction in certain coal
structured transactions, $176 million of lower pricing and
volumes of coal and emissions and $84 million of lower coke
demand, partially offset by a $107 million increase in coal
related services. The 2008 decrease was primarily attributable
to $177 million of reductions in coal transportation and
trading volumes and $28 million for the impact of a
customer electing to purchase coal directly from the supplier.
Operation and maintenance
expense decreased
$306 million in 2009 and $244 million in 2008. The
2009 decrease is due primarily to $111 million decrease in
certain coal structured transactions and $64 million of
lower coke demand, $141 million of lower pricing and
volumes of coal and emissions and operating expenses, partially
offset by $75 million of higher coal related services. The
2008 decrease mostly reflects $174 million of lower coal
transportation costs driven by reduced sales combined with a
reduction in coal trading results.
Depreciation and amortization
expense increased
$6 million in 2009 and decreased $7 million in 2008.
In 2007, we announced our plans to sell a 50% interest in a
portfolio of select Power and Industrial Projects. As a result,
the assets and liabilities of the Projects were classified as
held for sale at that time and the Company ceased recording
depreciation and amortization expense related to these assets.
During the second quarter of 2008, our work on this planned
monetization was discontinued and the assets and liabilities of
the Projects
43
Table of Contents
were no longer classified as held for sale. Depreciation and
amortization resumed in June 2008 when the assets were
reclassified as held and used.
Other assets (gains) losses, reserves and impairments,
net
increased $12 million in 2009 and expense decreased
$6 million in 2008. This variation in this item is due
primarily to a loss recorded in 2008 of approximately
$19 million related to the valuation adjustment for the
cumulative depreciation and amortization upon reclassification
of certain project assets as held and used, partially offset by
gains attributable to the sale of one of our coke battery
projects where the proceeds were dependent on future production.
Production at this coke battery was operating at lower
production volumes in 2009.
Other (income) and deductions
were lower by
$19 million in 2009 due primarily to higher inter-company
interest associated with project construction and a reduction in
equity earnings in an investment in a coke battery.
Outlook
— The stabilization in the
U.S. economy is having a positive impact on our customers
in the steel industry and we expect a corresponding improvement
in demand for metallurgical coke and pulverized coal supplied to
these customers for 2010. We supply onsite energy services to
the domestic automotive manufacturers who have also experienced
stabilized demand for autos. Chrysler and GM have emerged from
Chapter 11 bankruptcy protection. We have been in
discussions with both automakers and do not anticipate
significant impacts to onsite energy services. Our onsite energy
services will continue to be delivered in accordance with the
terms of long-term contracts. We continue to monitor
developments in this sector.
In 2010, we will continue to capture benefits from production
tax credits generated from our steel industry fuel and our
reduced emission fuel projects. We will also begin to generate
production tax credits from our reduced emission fuel projects.
In 2011, our existing long-term rail transportation contract,
which is at rates significantly below the current market, will
expire and we anticipate a decrease in transportation-related
revenue of approximately $120 million as a result. We will
continue to work with suppliers and the railroads to promote
secure and competitive access to coal to meet the energy
requirements of our customers. 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. We will also continue to look for opportunities to
acquire energy projects and biomass fired generating projects
for favorable prices.
ENERGY
TRADING
Energy Trading focuses on physical and financial power and gas
marketing and trading, structured transactions, enhancement of
returns from DTE Energy’s asset portfolio, and optimization
of contracted natural gas pipeline transportation and storage,
and power transmission and generating capacity positions. Energy
Trading also provides natural gas, power and ancillary services
to various utilities which may include the management of
associated storage and transportation contracts on the
customers’ behalf.
44
Table of Contents
Energy Trading results are discussed below:
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Operating Revenues
|
$ | 804 | $ | 1,388 | $ | 924 | ||||||
|
Fuel, Purchased Power and Gas
|
603 | 1,235 | 806 | |||||||||
|
Gross Margin
|
201 | 153 | 118 | |||||||||
|
Operation and Maintenance
|
71 | 68 | 58 | |||||||||
|
Depreciation and Amortization
|
5 | 5 | 5 | |||||||||
|
Taxes Other Than Income
|
3 | 2 | 1 | |||||||||
|
Operating Income
|
122 | 78 | 54 | |||||||||
|
Other (Income) and Deductions
|
10 | 5 | 5 | |||||||||
|
Income Tax Provision (Benefit)
|
37 | 31 | 17 | |||||||||
|
Net Income Attributable to DTE Energy Company
|
$ | 75 | $ | 42 | $ | 32 | ||||||
Gross margin
increased $48 million in 2009 and
$35 million in 2008. Overall, Operating Revenues and Fuel,
Purchased Power and Gas were impacted by a decrease in gas and
power commodity prices in 2009 as compared to 2008. The
$48 million increase in gross margin in 2009 was due to
increases in realized margins of $69 million, offset by
decreases in unrealized margins of $21 million. The
$69 million increase in realized margins was primarily the
result of increases in our gas trading strategy and
timing-related increases in our gas storage and transportation
optimization strategies. The $21 million decrease in
unrealized margins consisted of unfavorable results of
$58 million from our gas trading and gas marketing and
origination strategies, partially offset by increases of
$29 million in our power trading and timing-related
improvements of $8 million in our oil strategies.
The 2008 increase was due to higher unrealized margin of
$66 million offset by a decrease in realized margin of
$31 million. The increase in unrealized margins includes
gains in our gas strategies and the absence of $30 million
in
mark-to-market
losses in June 2007 reflecting revisions of valuation estimates
for natural gas contracts. The decrease in realized margin was
due to unfavorable results of $28 million primarily from
our power marketing and transmission optimization strategies,
$34 million of unfavorability in our gas storage and full
requirements strategies due to falling prices in 2008, offset by
$31 million of improvement in our gas trading strategy.
Operation and maintenance
expense increased
$3 million and $10 million in 2009 and 2008,
respectively. The 2009 increase was due to higher payroll and
incentive costs and commissions, partially offset by lower
contractor expense and allocated corporate costs. The 2008
increase is due to higher payroll and incentive costs and
allocated corporate costs.
Income tax provision
increased $6 million in 2009
due to an increase in income taxes resulting from higher pretax
income, partially offset by $10 million of favorable
tax-related adjustments primarily resulting from the settlement
of federal income tax audits.
Outlook —
Significant portions of the Energy
Trading portfolio are economically hedged. The portfolio
includes financial instruments, physical commodity contracts and
gas inventory, as well as contracted natural gas pipeline
transportation and storage, and power transmission and
generation capacity positions. Energy Trading also provides
power and ancillary services and natural gas to various
utilities which may include the management of associated storage
and transport contracts on the customers’ behalf. Most
financial instruments and physical power and gas contracts are
deemed derivatives, whereas proprietary gas inventory, power
transmission, pipeline transportation and certain storage assets
are not derivatives. As a result, we will experience earnings
volatility as derivatives are
marked-to-market
without revaluing the underlying non-derivative contracts and
assets. Our 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.
45
Table of Contents
See also the “Fair Value” section that follows.
CORPORATE &
OTHER
Corporate & Other includes various holding company
activities and holds certain non-utility debt and energy-related
investments.
Factors impacting income:
The 2009 net
loss of $70 million decreased from the net loss of
$94 million in 2008 due to $34 million favorable
tax-related adjustments primarily resulting from the settlement
of federal income tax audits, $10 million lower
inter-company interest expense and $9 million lower costs
related to natural gas forward contracts associated with the
2007 sale of the Antrim Shale properties. These favorable
variances were partially offset by a $10 million donation
of cash and
available-for-sale
securities to the DTE Energy Foundation, $10 million
resulting from a realignment of employee benefit expense from
MichCon, $7 million increase in financing fees,
$1 million increased impairment of investments and a
$1 million decrease in interest income. The 2008 net
loss of $94 million was lower than the 2007 net income
of $502 million due to the 2007 gain on the sale of the
Antrim shale gas exploration and production business for
approximately $900 million ($580 million after-tax).
DISCONTINUED
OPERATIONS
Synthetic
Fuel
Due to the expiration of synfuel production tax credits in 2007,
the Synthetic Fuel business ceased operations and was classified
as a discontinued operation as of December 31, 2007.
See Note 10 of the Notes to Consolidated Financial
Statements in Item 8 of this Report.
CUMULATIVE
EFFECT OF ACCOUNTING CHANGES
Effective January 1, 2008, we adopted ASC 820
(SFAS No. 157,
Fair Value Measurements)
. The
cumulative effect adjustment upon adoption of ASC 820
represented a $4 million increase to the January 1,
2008 balance of retained earnings. See also the “Fair
Value” section.
Effective January 1, 2007, we adopted ASC 740 (FASB
Interpretation No. (FIN) 48,
Accounting for Uncertainty in
Income Taxes — an interpretation of FASB Statement
No. 109)
. The cumulative effect of the adoption of ASC
740 represented a $5 million reduction to the
January 1, 2007 balance of retained earnings.
CAPITAL
RESOURCES AND LIQUIDITY
Cash
Requirements
We use cash to maintain and expand our electric and gas
utilities and to grow our non-utility businesses, retire and pay
interest on long-term debt and pay dividends. We believe that we
will have sufficient internal and external capital resources to
fund anticipated capital and operating requirements. In 2010, we
expect that cash from operations will be lower due to higher tax
payments and working capital requirements. We anticipate base
level capital investments and expenditures for existing
businesses in 2010 of up to $1.4 billion. The capital needs
of our utilities will increase due primarily to renewable and
energy optimization related expenditures. We incurred
environmental expenditures of approximately $116 million in
2009 and we expect over $2.2 billion of future capital
expenditures through 2019 to satisfy both existing and proposed
new requirements. We plan to seek regulatory approval to include
these capital expenditures within our 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 our strict risk-return and
value creation criteria.
Debt maturing in 2010 totals approximately $661 million.
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Table of Contents
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Cash and Cash Equivalents
|
||||||||||||
|
Cash Flow From (Used For)
|
||||||||||||
|
Operating activities:
|
||||||||||||
|
Net income
|
$ | 535 | $ | 553 | $ | 787 | ||||||
|
Depreciation, depletion and amortization
|
1,020 | 899 | 926 | |||||||||
|
Deferred income taxes
|
205 | 348 | 144 | |||||||||
|
Gain on sale of non-utility business
|
— | (128 | ) | (900 | ) | |||||||
|
Gain on sale of synfuel and other assets, net and synfuel
impairment
|
(10 | ) | (35 | ) | (253 | ) | ||||||
|
Working capital and other
|
69 | (78 | ) | 421 | ||||||||
| 1,819 | 1,559 | 1,125 | ||||||||||
|
Investing activities:
|
||||||||||||
|
Plant and equipment expenditures — utility
|
(960 | ) | (1,183 | ) | (1,035 | ) | ||||||
|
Plant and equipment expenditures — non-utility
|
(75 | ) | (190 | ) | (264 | ) | ||||||
|
Proceeds from sale of non-utility business
|
— | 253 | 1,262 | |||||||||
|
Proceeds (refunds) from sale of synfuels and other assets
|
83 | (278 | ) | 417 | ||||||||
|
Restricted cash and other investments
|
(112 | ) | (125 | ) | (50 | ) | ||||||
| (1,064 | ) | (1,523 | ) | 330 | ||||||||
|
Financing activities:
|
||||||||||||
|
Issuance of long-term debt
|
427 | 1,310 | 50 | |||||||||
|
Redemption of long-term debt
|
(486 | ) | (446 | ) | (393 | ) | ||||||
|
Repurchase of long-term debt
|
— | (238 | ) | — | ||||||||
|
Short-term borrowings, net
|
(417 | ) | (340 | ) | (47 | ) | ||||||
|
Issuance of common stock
|
35 | — | — | |||||||||
|
Repurchase of common stock
|
— | (16 | ) | (708 | ) | |||||||
|
Dividends on common stock and other
|
(348 | ) | (354 | ) | (370 | ) | ||||||
| (789 | ) | (84 | ) | (1,468 | ) | |||||||
|
Net Decrease in Cash and Cash Equivalents
|
$ | (34 | ) | $ | (48 | ) | $ | (13 | ) | |||
Cash
from Operating Activities
A majority of our operating cash flow is provided by our
electric and gas utilities, which are significantly influenced
by factors such as weather, electric Customer Choice, regulatory
deferrals, regulatory outcomes, economic conditions and
operating costs.
Cash from operations totaling $1.8 billion in 2009,
increased $260 million from the comparable 2008 period. The
operating cash flow comparison primarily reflects lower working
capital requirements and higher net income after adjusting for
non-cash and non-operating items (depreciation, depletion and
amortization, deferred taxes and gains on sales of assets).
Cash from operations totaling $1.6 billion in 2008
increased $434 million from the comparable 2007 period. The
operating cash flow comparison primarily reflects higher net
income after adjusting for non-cash and non-operating items
(depreciation, depletion and amortization, deferred taxes and
gains on sales of assets), and cash payments received related to
our synfuel program hedges.
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Table of Contents
Cash
from Investing Activities
Cash inflows associated with investing activities are primarily
generated from the sale of assets, while cash outflows are
primarily generated from plant and equipment expenditures. In
any given year, we will look to realize cash from
under-performing or non-strategic assets or matured fully valued
assets. Capital spending within the utility business is
primarily to maintain our generation and distribution
infrastructure, comply with environmental regulations and gas
pipeline replacements. Capital spending within our non-utility
businesses is for ongoing maintenance and expansion. The balance
of non-utility spending is for growth, which we manage very
carefully. We look to make 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. We have been disciplined in
how we deploy capital and will not make investments unless they
meet our criteria. For new business lines, we initially invest
based on research and analysis. We start with a limited
investment, we evaluate results and either expand or exit the
business based on those results. In any given year, the amount
of growth capital will be determined by the underlying cash
flows of the Company with a clear understanding of any potential
impact on our credit ratings.
Net cash used for investing activities was approximately
$1.1 billion in 2009, compared with net cash used for
investing activities of $1.5 billion in 2008. The change
was primarily driven by reduced capital expenditures by our
utility and non-utility businesses and the completion of refund
payments to our synfuel partners in 2008.
Net cash used for investing activities increased
$1.9 billion in 2008, due primarily to the sale of our
Antrim shale gas exploration and production business in 2007
which offset most of the capital expenditures during that
period, and the completion of synfuel partner refunds in 2008.
Cash
from Financing Activities
We rely on both short-term borrowing and long-term financing as
a source of funding for our capital requirements not satisfied
by our operations.
Our strategy is to have a targeted debt portfolio blend of fixed
and variable interest rates and maturity. We continually
evaluate our leverage target, which is currently 50% to 52%, to
ensure it is consistent with our objective to have a strong
investment grade debt rating. We have completed a number of
refinancings with the effect of extending the average maturity
of our long-term debt and strengthening our balance sheet. The
extension of the average maturity was accomplished at interest
rates that lowered our debt costs.
Net cash used for financing activities was $789 million in
2009, compared to net cash used for financing activities of
approximately $84 million for the same period in 2008. The
change was primarily attributable to lower proceeds from the
issuance of long-term debt.
Net cash used for financing activities decreased
$1.4 billion in 2008 primarily related to the repurchase of
common stock in 2007 and increased issuances of long-term debt.
Outlook
We expect cash flow from operations to increase over the
long-term primarily as a result of growth from our utilities and
the non-utility businesses. We expect growth in our utilities to
be driven primarily by 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. Our non-utility growth is expected
from additional investments in energy projects as economic
conditions improve.
We have been impacted by unfavorable national and regional
economic trends that have reduced demand for electricity in our
service territory. We may be impacted by the delayed collection
of underrecoveries of our PSCR and GCR costs and electric and
gas accounts receivable as a result of MPSC orders. Energy
prices are likely to be a source of volatility with regard to
working capital requirements for the foreseeable future. We are
continuing our efforts to identify opportunities to improve cash
flow through working capital initiatives and maintaining
flexibility in the timing and extent of our long-term capital
projects.
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Table of Contents
In April 2009, we completed an early renewal of
$975 million of our syndicated revolving credit facilities
before their scheduled expiration in October 2009. The new
$1 billion two-year facility will expire in 2011 and has
similar covenants to the prior facility. A new two-year
$50 million credit facility was completed in May 2009 and a
new one-year $70 million credit facility was completed in
June 2009. We have a $925 million five-year facility that
expires in October 2010. We expect to pursue the renewal of that
facility before its expiration. Given current conditions in the
credit markets, we anticipate that the new facility will be
similar to our April 2009 facility with respect to such items as
bank participation, allocation levels and covenants. We are
evaluating the need to renew our $70 million bi-lateral
credit facility expiring in June 2010 which is used to support
the issuance of letters of credit. See Note 18 of Notes to
Consolidated Financial Statements in Item 8 of this Report.
As a result of losses experienced in the 2008 financial markets,
our benefit plan assets experienced negative returns, which have
resulted in higher benefit costs and contributions in 2009 and
potentially in future years relative to the recent past. During
2009, our pension plan and other postretirement benefit plans
assets experienced positive returns of approximately 20% and
22%, respectively. During 2010, we expect to contribute up to
$200 million to our pension plans and up to
$130 million to our postretirement medical and life
insurance benefit plans.
While the impact of continued market volatility and turmoil in
the credit markets cannot be predicted, we believe we have
sufficient operating flexibility, cash resources and funding
sources to maintain adequate amounts of liquidity and to meet
our future operating cash and capital expenditure needs.
However, virtually all of our 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 12, 13, and 14 of the Notes to Consolidated
Financial Statements in Item 8 of this Report.
Contractual
Obligations
The following table details our contractual obligations for debt
redemptions, leases, purchase obligations and other long-term
obligations as of December 31, 2009:
|
2015
|
||||||||||||||||||||
|
Contractual Obligations
|
Total | 2010 | 2011-2012 | 2013-2014 | and Beyond | |||||||||||||||
| (in Millions) | ||||||||||||||||||||
|
Long-term debt:
|
||||||||||||||||||||
|
Mortgage bonds, notes and other
|
$ | 6,768 | $ | 522 | $ | 1,118 | $ | 1,113 | $ | 4,015 | ||||||||||
|
Securitization bonds
|
933 | 140 | 314 | 374 | 105 | |||||||||||||||
|
Trust preferred-linked securities
|
289 | — | — | — | 289 | |||||||||||||||
|
Capital lease obligations
|
76 | 14 | 21 | 18 | 23 | |||||||||||||||
|
Interest
|
5,763 | 492 | 822 | 687 | 3,762 | |||||||||||||||
|
Operating leases
|
208 | 33 | 54 | 38 | 83 | |||||||||||||||
|
Electric, gas, fuel, transportation and storage purchase
obligations(1)
|
4,649 | 2,513 | 1,307 | 158 | 671 | |||||||||||||||
|
Other long-term obligations(2)(3)(4)
|
298 | 32 | 97 | 33 | 136 | |||||||||||||||
|
Total obligations
|
$ | 18,984 | $ | 3,746 | $ | 3,733 | $ | 2,421 | $ | 9,084 | ||||||||||
| (1) | Excludes amounts associated with full requirements contracts where no stated minimum purchase volume is required. | |
| (2) | Includes liabilities for unrecognized tax benefits of $81 million. | |
| (3) | Excludes other long-term liabilities of $181 million not directly derived from contracts or other agreements. | |
| (4) | At December 31, 2009, we met the minimum pension funding levels required under the Employee Retirement Income Security Act of 1974 (ERISA) and the Pension Protection Act of 2006 for our defined |
49
Table of Contents
| benefit pension plans. We may contribute more than the minimum funding requirements for our pension plans and may also make contributions to our benefit plans and our postretirement benefit plans; however, these amounts are not included in the table above as such amounts are discretionary. Planned funding levels are disclosed in the Critical Accounting Estimates section of MD&A and in Note 21 of the Notes to Consolidated Financial Statements in Item 8 of this Report. |
Credit
Ratings
Credit ratings are intended to provide banks and capital market
participants with a framework for comparing the credit quality
of securities and are not a recommendation to buy, sell or hold
securities. Management believes that our current credit ratings
provide sufficient access to the capital markets. However,
disruptions in the banking and capital markets not specifically
related to us may affect our ability to access these funding
sources or cause an increase in the return required by investors.
As part of the normal course of business, Detroit Edison,
MichCon and various non-utility subsidiaries of the Company
routinely enter into physical or financially settled contracts
for the purchase and sale of electricity, natural gas, coal,
capacity, storage and other energy-related products and
services. Certain of these contracts contain provisions which
allow the counterparties to request that the Company post cash
or letters of credit in the event that the credit rating of DTE
Energy is downgraded below investment grade. Certain of these
contracts for Detroit Edison and MichCon contain similar
provisions in the event that the credit rating of the particular
utility is downgraded below investment grade. The amount of such
collateral which could be requested fluctuates based upon
commodity prices and the provisions and maturities of the
underlying transactions and could be substantial. Also, upon a
downgrade below investment grade, we could have restricted
access to the commercial paper market and if DTE Energy is
downgraded below investment grade our non-utility businesses,
especially the Energy Trading and Power and Industrial Projects
segments, could be required to restrict operations due to a lack
of available liquidity. A downgrade below investment grade could
potentially increase the borrowing costs of DTE Energy and its
subsidiaries and may limit access to the capital markets. The
impact of a downgrade will not affect our ability to comply with
our existing debt covenants. While we currently do not
anticipate such a downgrade, we cannot predict the outcome of
current or future credit rating agency reviews.
In May 2009, Standard & Poor’s Rating Group
(Standard & Poor’s) revised the outlook on DTE
Energy and its subsidiaries to negative from stable, and lowered
the short-term corporate credit and commercial paper ratings for
DTE Energy, Detroit Edison and MichCon to
A-3
from
A-2.
The
revision was primarily due to concerns over Michigan’s
economic climate. Moody’s Investors Service (Moody’s)
affirmed our existing short-term ratings of
P-2.
In
August 2009, Moody’s upgraded the majority of senior
secured debt ratings of investment-grade regulated utilities by
one notch as a result of revised notching guidelines between
senior secured debt ratings and senior unsecured debt ratings.
Both Detroit Edison’s and MichCon’s senior debt
ratings were upgraded to A2 from A3. In January 2010,
Standard & Poor’s raised its outlook on DTE
Energy back to stable and raised the short-term credit ratings
for DTE Energy, Detroit Edison and MichCon back to
A-2
from
A-3.
We have
experienced an improvement in our ability to issue commercial
paper since the restoration of our short-term ratings.
Short-term borrowings, principally in the form of commercial
paper, provide us with the liquidity needed on a daily basis.
Our commercial paper program is supported by our unsecured
credit facilities. Potential instability in the credit markets
and any lowering of ratings may impact future access to the
commercial paper markets, which may require us to draw on our
back-up
facilities.
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Table of Contents
The following table shows our credit rating as determined by
three nationally recognized credit rating agencies. All ratings
are considered investment grade and affect the value of the
related securities.
| Credit Rating Agency | ||||||||
|
Standard &
|
Moody’s
|
Fitch
|
||||||
|
Entity
|
Description | Poor’s | Investors Service | Ratings | ||||
|
DTE Energy
|
Senior Unsecured Debt | BBB− | Baa2 | BBB | ||||
| Commercial Paper | A-2 | P-2 | F2 | |||||
|
Detroit Edison
|
Senior Secured Debt | A− | A2 | A− | ||||
| Commercial Paper | A-2 | P-2 | F2 | |||||
|
MichCon
|
Senior Secured Debt | BBB+ | A2 | BBB+ | ||||
| Commercial Paper | A-2 | P-2 | F2 | |||||
CRITICAL
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles require that management
apply accounting policies and make estimates and assumptions
that affect results of operations and the amounts of assets and
liabilities reported in the financial statements. Management
believes that the areas described below require significant
judgment in the application of accounting policy or in making
estimates and assumptions in matters that are inherently
uncertain and that may change in subsequent periods. Additional
discussion of these accounting policies can be found in the
Notes to Consolidated Financial Statements in Item 8 of
this Report.
Regulation
A significant portion of our business is subject to regulation.
This results in differences in the application of generally
accepted accounting principles between regulated and
non-regulated businesses. Detroit Edison and MichCon are
required to record regulatory assets and liabilities for certain
transactions that would have been treated as revenue or expense
in non-regulated businesses. Future regulatory changes or
changes in the competitive environment could result in the
discontinuance of this accounting treatment for regulatory
assets and liabilities for some or all of our businesses.
Management believes that currently available facts support the
continued use of regulatory assets and liabilities and that all
regulatory assets and liabilities are recoverable or refundable
in the current rate environment.
See Note 12 of the Notes to Consolidated Financial
Statements in Item 8 of this Report.
Derivatives
and Hedging Activities
Derivatives are generally recorded at fair value and shown as
Derivative Assets or Liabilities in the Consolidated Statements
of Financial Position. Changes in the fair value of the
derivative instruments are recognized in earnings in the period
of change, unless the derivative meets certain defined
conditions and qualifies as an effective hedge. The normal
purchases and normal sales exception requires, among other
things, physical delivery in quantities expected to be used or
sold over a reasonable period in the normal course of business.
Contracts that are designated as normal purchases and normal
sales are not recorded at fair value. Substantially all of the
commodity contracts entered into by Detroit Edison and MichCon
meet the criteria specified for this exception.
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
51
Table of Contents
refer broadly to assumptions that market participants use in
pricing assets and liabilities. These inputs can be readily
observable, market corroborated or generally unobservable
inputs. The fair value of derivative contracts is determined
from a combination of active quotes, published indexes and
mathematical valuation models. We generally derive the pricing
for our contracts from active quotes or external resources.
Actively quoted indexes include exchange-traded positions such
as the New York Mercantile Exchange and the Intercontinental
Exchange, and
over-the-counter
positions for which broker quotes are available. For periods in
which external market data is not readily observable, we
estimate value using mathematical valuation models. Valuation
models require various inputs and assumptions, including forward
prices, volatility, interest rates, and exercise periods. For
those inputs which are not observable, we use model-based
extrapolation, proxy techniques or historical analysis to derive
the required valuation inputs. We periodically update our policy
and valuation methodologies for changes in market liquidity and
other assumptions which may impact the estimated fair value of
our derivative contracts.
The fair values we calculate for our derivatives may change
significantly as inputs and assumptions are updated for new
information. Actual cash returns realized on our derivatives may
be different from the results we estimate using models. As fair
value calculations are estimates based largely on commodity
prices, we perform sensitivity analysis on the fair values of
our forward contracts. See sensitivity analysis in Item 7A.
Quantitative and Qualitative Disclosures About Market Risk. See
also the Fair Value section, herein. See Notes 4 and 5 of
the Notes to Consolidated Financial Statements in Item 8 of
this report.
Allowance
for Doubtful Accounts
We establish an allowance for doubtful accounts based on
historical losses and management’s assessment of existing
economic conditions, customer trends, and other factors. The
allowance for doubtful accounts for our two utilities is
calculated using the aging approach that utilizes rates
developed in reserve studies and applies these factors to past
due receivable balances. As a result of the reduction in past
due receivables in 2009, our allowance for doubtful accounts
decreased in 2009 compared to an increase in 2008. We believe
the allowance for doubtful accounts is based on reasonable
estimates. As part of the 2005 gas rate order for MichCon, the
MPSC provided for the establishment of an uncollectible expense
tracking mechanism that partially mitigates the impact
associated with MichCon uncollectible expenses. The MPSC
provided for a similar tracking mechanism for Detroit Edison in
its rate order received January 2010. However, failure to make
continued progress in collecting our past due receivables in
light of volatile energy prices and deteriorating economic
conditions would unfavorably affect operating results and cash
flow.
Asset
Impairments
Goodwill
Certain of our reporting units have goodwill or allocated
goodwill resulting from purchase business combinations. We
perform an impairment test for each of our reporting units with
goodwill annually or whenever events or circumstances indicate
that the value of goodwill may be impaired. In performing Step 1
of the impairment test, we compare the fair value of the
reporting unit to its carrying value including goodwill. If the
carrying value including goodwill were to exceed the fair value
of a reporting unit, Step 2 of the test would be performed. Step
2 of the impairment test requires the carrying value of goodwill
to be reduced to its fair value, if lower, as of the test date.
For Step 1 of the test, we estimate the reporting unit’s
fair value using standard valuation techniques, including
techniques which use estimates of projected future results and
cash flows to be generated by the reporting unit. Such
techniques generally include a terminal value that utilizes an
earnings multiple approach, which incorporates the current
market values of comparable entities. These cash flow valuations
involve a number of estimates that require broad assumptions and
significant judgment by management regarding future performance.
We also employ market-based valuation techniques to test the
reasonableness of the indications of value for the reporting
units determined under the cash flow technique.
We performed our annual impairment test as of October 1,
2009 and determined that the estimated fair value of each
reporting unit exceeded its carrying value, and no impairment
existed. We also compared the
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aggregate fair value of our reporting units to our overall
market capitalization. The implied premium of the aggregate fair
value over market capitalization is likely attributable to
factors such as (1) an acquisition control premium (the
price in excess of a stock’s market price that investors
typically pay to gain control of an entity), and (2) the
market’s apparent discounting of DTE Energy’s stock
price due to ongoing uncertainty regarding the existing
regulatory and automotive industry environment and DTE
Energy’s diverse non-utility business portfolio. The
results of the test and key estimates that were incorporated are
as follows.
As
of October 1, 2009 Valuation Date
|
Fair Value
|
Discount
|
Terminal
|
||||||||||||||||
|
Reporting Unit
|
Goodwill | Reduction %(a) | Rate | Multiple(b) | Valuation Methodology(c) | |||||||||||||
| ($ in Millions) | ||||||||||||||||||
|
Electric Utility
|
$ | 1,206 | 16 | % | 7 | % | 7.5 | x | DCF, assuming stock sale | |||||||||
|
Gas Utility
|
772 | 8 | % | 7 | % | 9.0 | x | DCF, assuming stock sale | ||||||||||
|
Energy Services
|
28 | 64 | % | 13 | % | 8.5 | x | DCF, assuming asset sale | ||||||||||
|
Coal Services
|
4 | 10 | % | 10 | % | 7.5 | x | DCF, assuming asset sale | ||||||||||
|
Gas Storage and Pipelines
|
8 | 68 | % | 9 | % | 8.0 | x | DCF, assuming asset sale | ||||||||||
|
Energy Trading
|
17 | 78 | % | 15 | % | n/a | Blended DCF, economic value of trading portfolio | |||||||||||
|
Unconventional Gas Production
|
2 | 56 | % | 13 | % | n/a | Blended DCF, transaction multiples | |||||||||||
| $ | 2,037 | |||||||||||||||||
| (a) | Percentage by which the fair value of the reporting unit would need to decline to equal its carrying value, including goodwill. | |
| (b) | Multiple of enterprise value (sum of debt plus equity value) to earnings before interest, taxes, depreciation and amortization (EBITDA) | |
| (c) | Discounted cash flows (DCF) incorporated 2010-2014 projected cash flows plus a calculated terminal value. |
The Gas Utility reporting unit passed Step 1 of the impairment
test by a narrow margin. The narrow excess of fair value over
carrying value is largely due to relatively low market values
and market multiples of comparable entities referenced in our
valuation. Further declines in market multiples, negative
regulatory actions or other disruptions in cash flows for the
Gas Utility reporting unit could result in an impairment charge
in the foreseeable future. For example, at the current discount
rate and holding all other variables constant, a 0.5x decrease
in the terminal multiple would lower the fair value by
approximately $130 million. At the lower fair value, the
Gas Utility reporting unit would likely fail Step 1 of the test
potentially resulting in a charge for impairment of goodwill
following completion of the Step 2 analysis.
We perform an annual impairment test each October. In between
annual tests, we monitor our estimates and assumptions regarding
estimated future cash flows, including the impact of movements
in market indicators in future quarters and will update our
impairment analyses if a triggering event occurs. While we
believe our assumptions are reasonable, actual results may
differ from our projections. To the extent projected results or
cash flows are revised downward, the reporting unit may be
required to write down all or a portion of its goodwill, which
would adversely impact our earnings.
We monitor DTE Energy’s stock price in relation to its book
value per share. DTE’s stock price declined significantly
during the first quarter of 2009 and then increased and
continued to recover throughout the rest of 2009. Refer to
Note 6 of the Notes to Consolidated Financial Statements in
Item 8 of this Report, for a discussion of factors that we
considered when assessing triggering events in 2009.
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Due to the duration and severity of the decline in DTE
Energy’s stock price in the first quarter, we performed an
interim impairment test for all reporting units with allocated
goodwill as of February 28, 2009. For the first quarter
interim test, we updated projected future results, cash flows
and discount rates to reflect existing regulatory actions and
negative impacts from the deterioration in the regional and
national economy. Terminal values that utilize an earnings
multiple approach were updated to incorporate the current market
values of comparable entities. As compared to the annual test
performed in the fourth quarter of 2008, the valuations were
negatively impacted by existing market factors with particular
downward pressure on market multiples. All reporting units
passed Step 1 of the impairment test.
We identified a trigger for our Energy Services reporting unit
related to long-lived asset impairment tests that were performed
during the second quarter on certain automotive-related project
companies. The fair value of the reporting unit exceeded its
carrying value including goodwill, therefore, the reporting unit
passed Step 1 of the impairment test. As compared to the first
quarter interim test, the second quarter valuation was favorably
impacted by increased market multiples and an improved discount
rate.
Long-Lived
Assets
We evaluate the carrying value of our long-lived assets,
excluding goodwill, when circumstances indicate that the
carrying value of those assets may not be recoverable.
Conditions that could have an adverse impact on the cash flows
and fair value of the long-lived assets are deteriorating
business climate, condition of the asset, or plans to dispose of
the asset before the end of its useful life. The review of
long-lived assets for impairment requires significant
assumptions about operating strategies and estimates of future
cash flows, which require assessments of current and projected
market conditions. An impairment evaluation is based on an
undiscounted cash flow analysis at the lowest level for which
independent cash flows of long-lived assets can be identified
from other groups of assets and liabilities. Impairment may
occur when the carrying value of the asset exceeds the future
undiscounted cash flows. When the undiscounted cash flow
analysis indicates a long-lived asset is not recoverable, the
amount of the impairment loss is determined by measuring the
excess of the long-lived asset over its fair value. An
impairment would require us to reduce both the long-lived asset
and current period earnings by the amount of the impairment,
which would adversely impact our earnings. See Note 10 of
Notes to Consolidated Financial Statements in Item 8 of
this Report.
The Company’s Power and Industrial Projects segment has
long-term contracts with GM to provide onsite energy services at
certain of its manufacturing and administrative facilities. The
long-term contracts provide for full recovery of its investment
in the event of early termination. At December 31, 2009,
the book value of long-lived assets used in the servicing of
these facilities was approximately $65 million. Certain of
these long-lived assets have been funded by non-recourse
financing totaling approximately $56 million at
December 31, 2009. The Company’s Power and Industrial
Projects segment also has an equity investment of approximately
$51 million in an entity which provides onsite services to
Chrysler manufacturing facilities. Chrysler’s performance
under the long-term contracts for services is guaranteed by
Daimler North America Corporation (Daimler), a subsidiary of
Daimler AG. The long-term contracts and the supporting Daimler
guarantee provide for full recovery of the Company’s
investment in the event of early termination or default.
Chrysler has announced the closure of one site that is under a
long-term service contract with the Company. Through
December 31, 2009, to the extent that Chrysler has not been
performing in accordance with its contracts, Daimler has been
performing under its guarantee. Therefore, the Company believes
that it will recover its investment in the event of a facility
closure or a Chrysler default.
The Company determined that the GM and Chrysler bankruptcy
filings were triggering events to assess certain
automotive-related long-lived assets for impairment and as of
June 30, 2009, the Company performed an impairment analysis
on these assets. Based on its undiscounted cash flow projections
and fair value calculations, the Company determined that it did
not have an impairment loss at June 30, 2009. We also
determined that we did not have an other than temporary decline
in our Chrysler-related equity investment. There were no new
events occurring during the third and fourth quarters that would
negatively impact the assumptions made for the second quarter
impairment analysis. Therefore, no triggering events were
identified during the remainder of 2009. The Company’s
assumptions and conclusions may change in the future, and we
could have an impairment loss if certain facilities are not
utilized as currently anticipated.
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Pension
and Postretirement Costs
We sponsor defined benefit pension plans and postretirement
benefit plans for substantially all of the employees of the
Company. The measurement of the plan obligations and cost of
providing benefits under these plans involve various factors,
including numerous assumptions and accounting elections. When
determining the various assumptions that are required, we
consider historical information as well as future expectations.
The benefit costs are affected by, among other things, the
actual rate of return on plan assets, the long-term expected
return on plan assets, the discount rate applied to benefit
obligations, the incidence of mortality, the expected remaining
service period of plan participants, level of compensation and
rate of compensation increases, employee age, length of service,
the anticipated rate of increase of health care costs and the
level of benefits provided to employees and retirees. Pension
and postretirement benefit costs attributed to the segments are
included with labor costs and ultimately allocated to projects
within the segments, some of which are capitalized.
We had pension costs for pension plans of $58 million in
2009, $24 million in 2008, and $76 million in 2007.
Postretirement benefits costs for all plans were
$205 million in 2009, $142 million in 2008 and
$188 million in 2007. Pension and postretirement benefits
costs for 2009 are calculated based upon a number of actuarial
assumptions, including an expected long-term rate of return on
our plan assets of 8.75%. In developing our expected long-term
rate of return assumption, we evaluated asset class risk and
return expectations, as well as inflation assumptions. Projected
returns are based on broad equity, bond and other markets. Our
2010 expected long-term rate of return on pension plan assets is
based on an asset allocation assumption utilizing active
investment management of 45% in equity markets, 25% in fixed
income markets, and 30% invested in other assets. Because of
market volatility, we periodically review our asset allocation
and rebalance our portfolio when considered appropriate. Given
market conditions, we believe that 8.75% is a reasonable
long-term rate of return on our plan assets for 2010. We will
continue to evaluate our actuarial assumptions, including our
expected rate of return, at least annually.
We calculate the expected return on pension and other
postretirement benefit plan assets by multiplying the expected
return on plan assets by the market-related value (MRV) of plan
assets at the beginning of the year, taking into consideration
anticipated contributions and benefit payments that are to be
made during the year. Current accounting rules provide that the
MRV of plan assets can be either fair value or a calculated
value that recognizes changes in fair value in a systematic and
rational manner over not more than five years. For our pension
plans, we use a calculated value when determining the MRV of the
pension plan assets and recognize changes in fair value over a
three-year period. Accordingly, the future value of assets will
be impacted as previously deferred gains or losses are
recognized. Financial markets in 2009 contributed to our
investment performance resulting in unrecognized net gains. As
of December 31, 2009, we had $612 million of
cumulative losses that remain to be recognized in the
calculation of the MRV of pension assets. For our postretirement
benefit plans, we use fair value when determining the MRV of
postretirement benefit plan assets, therefore all investment
losses and gains have been recognized in the calculation of MRV
for these plans.
The discount rate that we utilize for determining future pension
and postretirement benefit obligations is based on a yield curve
approach and a review of bonds that receive one of the two
highest ratings given by a recognized rating agency. The yield
curve approach matches projected plan pension and postretirement
benefit payment streams with bond portfolios reflecting actual
liability duration unique to our plans. The discount rate
determined on this basis decreased from 6.9% at
December 31, 2008 to 5.9% at December 31, 2009. We
estimate that our 2010 total pension costs will approximate
$110 million compared to $58 million in 2009 due to
2008 financial market losses and a decreased discount rate,
partially offset by substantial 2009 and planned 2010
contributions coupled with greater than expected 2009 financial
market returns. Our 2010 postretirement benefit costs will
approximate $167 million compared to $205 million in
2009 primarily due to company specific health care trends and
favorable 2009 investment returns, mitigated by a decreased
discount rate. Future actual pension and postretirement benefit
costs will depend on future investment performance, changes in
future discount rates and various other factors related to plan
design. The pension cost tracking mechanism that provided for
recovery or refunding of pension costs above or below amounts
reflected in Detroit Edison’s base rates, at the request of
Detroit Edison, was not reauthorized by the MPSC in its rate
order effective
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January 1, 2009. In April 2005, the MPSC approved the
deferral of the non-capitalized portion of MichCon’s
negative pension expense. MichCon records a regulatory liability
for any negative pension costs, as determined under generally
accepted accounting principles.
Lowering the expected long-term rate of return on our plan
assets by one percentage point would have increased our 2009
pension costs by approximately $29 million. Lowering the
discount rate and the salary increase assumptions by one
percentage point would have increased our 2009 pension costs by
approximately $15 million. Lowering the health care cost
trend assumptions by one percentage point would have decreased
our postretirement benefit service and interest costs for 2009
by approximately $30 million.
In 2008, we changed the measurement date of our pension and
postretirement benefit plans from November 30 to
December 31. As a result we recognized adjustments of
$17 million ($9 million after-tax) and $4 million
to retained earnings and regulatory liabilities, respectively,
which represents approximately one month of pension and other
postretirement benefit cost for the period from December 1,
2007 to December 31, 2008.
The value of our pension and postretirement benefit plan assets
was $3.4 billion at December 31, 2009 and
$2.8 billion at December 31, 2008. At
December 31, 2009 our pension plans were underfunded by
$887 million and our other postretirement benefit plans
were underfunded by $1.3 billion. The 2009 and 2008 funding
levels were generally similar because of positive investment
performance returns and plan sponsor contributions in 2009,
largely offset by the decreased discount rates.
Pension and postretirement costs and pension cash funding
requirements may increase in future years without typical
returns in the financial markets. We made contributions to our
pension plans of $200 million and $100 million in 2009
and 2008, respectively. Also, we contributed $100 million
to our pension plans in January 2010. At the discretion of
management, consistent with the Pension Protection Act of 2006,
and depending upon financial market conditions, we anticipate
making up to an additional $100 million contribution to our
pension plans in 2010 and up to $1.1 billion over the next
five years. We made postretirement benefit plan contributions of
$205 million and $116 million in 2009 and 2008,
respectively. We are required by orders issued by the MPSC to
make postretirement benefit contributions at least equal to the
amounts included in Detroit Edison’s and MichCon’s
base rates. As a result, we expect to make up to a
$130 million contribution to our postretirement plans in
2010 and, subject to MPSC funding requirements, up to
$765 million over the next five years. The planned
contributions will be made in cash, DTE Energy common stock or a
combination of cash and stock.
See Note 21 of the Notes to Consolidated Financial
Statements in Item 8 of this Report.
Legal
Reserves
We are involved in various legal proceedings, claims and
litigation arising in the ordinary course of business. We
regularly assess our liabilities and contingencies in connection
with asserted or potential matters, and establish reserves when
appropriate. Legal reserves are based upon management’s
assessment of pending and threatened legal proceedings and
claims against us.
Insured
and Uninsured Risks
Our comprehensive insurance program provides coverage for
various types of risks. Our insurance policies cover risk of
loss including property damage, general liability, workers’
compensation, auto liability, and directors’ and
officers’ liability. Under our risk management policy, we
self-insure portions of certain risks up to specified limits,
depending on the type of exposure. The maximum self-insured
retention for various risks is as follows: property damage-
$10 million, general liability- $7 million,
workers’ compensation- $9 million, and auto liability-
$7 million. We have an actuarially determined estimate of
our incurred but not reported (IBNR) liability prepared annually
and we adjust our reserves for self-insured risks as
appropriate. As of December 31, 2009, this IBNR liability
was approximately $38 million.
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Table of Contents
Accounting
for Tax Obligations
We are required to make judgments regarding the potential tax
effects of various financial transactions and results of
operations in order to estimate our obligations to taxing
authorities. We account for uncertain income tax positions using
a benefit recognition model with a two-step approach, a
more-likely-than-not recognition criterion and a measurement
attribute that measures the position as the largest amount of
tax benefit that is greater than 50% likely of being realized
upon ultimate settlement. If the benefit does not meet the more
likely than not criteria for being sustained on its technical
merits, no benefit will be recorded. Uncertain tax positions
that relate only to timing of when an item is included on a tax
return are considered to have met the recognition threshold. We
also have non-income tax obligations related to property, sales
and use and employment-related taxes and ongoing appeals related
to these tax matters.
Accounting for tax obligations requires judgments, including
assessing whether tax benefits are more likely than not to be
sustained, and estimating reserves for potential adverse
outcomes regarding tax positions that have been taken. We also
assess our ability to utilize tax attributes, including those in
the form of carryforwards, for which the benefits have already
been reflected in the financial statements. We do not record
valuation allowances for deferred tax assets related to capital
losses that we believe will be realized in future periods. We
believe the resulting tax reserve balances as of
December 31, 2009 and December 31, 2008 are
appropriately accounted. The ultimate outcome of such matters
could result in favorable or unfavorable adjustments to our
consolidated financial statements and such adjustments could be
material.
See Note 13 of the Notes to Consolidated Financial
Statements in Item 8 of this Report.
NEW
ACCOUNTING PRONOUNCEMENTS
See Note 3 of the Notes to Consolidated Financial
Statements in Item 8 of this Report.
FAIR
VALUE
Derivatives are generally recorded at fair value and shown as
Derivative Assets or Liabilities. Contracts we typically
classify as derivative instruments include power, gas, oil and
certain coal forwards, futures, options and swaps, and foreign
exchange contracts. Items we do not generally account for as
derivatives include proprietary gas inventory, gas storage and
transportation arrangements, and gas and oil reserves. See
Notes 4 and 5 of the Notes to Consolidated Financial
Statements in Item 8 of this Report.
As a result of adherence to generally accepted accounting
principles, the tables below do not include the expected
earnings impact of non-derivative gas storage, transportation
and power contracts. 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 DTE Energy’s 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 Company manages its
mark-to-market
(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
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 tables contain the four
categories of activities represented by their operating
characteristics and key risks:
| • | Economic Hedges — Represents derivative activity associated with assets owned and contracted by DTE Energy, including forward sales of gas production and trades associated with owned transportation and storage capacity. Changes in the value of derivatives in this category 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. |
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| • | Structured Contracts — Represents derivative activity transacted by originating hedged positions with wholesale energy marketers, producers, end users, utilities, retail aggregators and alternative energy suppliers. Substantially all of this activity represents full requirements contracts, whereby the hedged percentage is largely based on estimated load requirements. | |
| • | Proprietary 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 associated with our Unconventional Gas reserves. A portion of the price risk associated with anticipated production from the Barnett natural gas reserves has been mitigated through 2010. Changes in the value of the hedges are recorded as Derivative assets or liabilities, with an offset in Other comprehensive income to the extent that the hedges are deemed effective. The amounts shown in the following tables exclude the value of the underlying gas reserves including changes therein. Other also includes derivative activity at Detroit Edison related to FTR’s and forward contracts related to emissions. Changes in the value of derivative contracts at Detroit Edison 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 tables provide details on changes in our MTM net
asset (or liability) position during 2009:
|
Economic
|
Structured
|
Proprietary
|
||||||||||||||||||
| Hedges | Contracts | Trading | Other | Total | ||||||||||||||||
| (in Millions) | ||||||||||||||||||||
|
MTM at December 31, 2008
|
$ | 18 | $ | (222 | ) | $ | 22 | $ | 9 | $ | (173 | ) | ||||||||
|
Reclassify to realized upon settlement
|
(23 | ) | 98 | (198 | ) | (8 | ) | (131 | ) | |||||||||||
|
Changes in fair value recorded to income
|
9 | (32 | ) | 203 | — | 180 | ||||||||||||||
|
Amounts recorded to unrealized income
|
(14 | ) | 66 | 5 | (8 | ) | 49 | |||||||||||||
|
Changes in fair value recorded in regulatory liabilities
|
— | — | — | (16 | ) | (16 | ) | |||||||||||||
|
Amounts recorded in other comprehensive income, pretax
|
— | — | — | 5 | 5 | |||||||||||||||
|
Change in collateral held by others
|
9 | 21 | 68 | — | 98 | |||||||||||||||
|
Option premiums paid and other
|
— | 3 | (65 | ) | 6 | (56 | ) | |||||||||||||
|
MTM at December 31, 2009
|
$ | 13 | $ | (132 | ) | $ | 30 | $ | (4 | ) | $ | (93 | ) | |||||||
A substantial portion of the Company’s price risk related
to its Antrim shale gas exploration and production business was
mitigated by financial contracts that hedged our price risk
exposure through 2013. The contracts were retained when the
Antrim business was sold and offsetting financial contracts were
put into place to effectively settle these positions. The
contracts will require payments through 2013. These contracts
represent a significant portion of the above net
mark-to-market
liability.
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The following table provides a current and noncurrent analysis
of Derivative assets and liabilities, as reflected on the
Consolidated Statements of Financial Position as of
December 31, 2009. Amounts that relate to contracts that
become due within twelve months are classified as current and
all remaining amounts are classified as noncurrent.
|
Economic
|
Structured
|
Proprietary
|
Assets
|
|||||||||||||||||||||
| Hedges | Contracts | Trading | Eliminations | Other | (Liabilities) | |||||||||||||||||||
| (in Millions) | ||||||||||||||||||||||||
|
Current assets
|
$ | 11 | $ | 171 | $ | 27 | $ | (4 | ) | $ | 4 | $ | 209 | |||||||||||
|
Noncurrent assets
|
8 | 104 | 5 | (1 | ) | — | 116 | |||||||||||||||||
|
Total MTM assets
|
19 | 275 | 32 | (5 | ) | 4 | 325 | |||||||||||||||||
|
Current liabilities
|
(5 | ) | (218 | ) | 4 | 4 | (5 | ) | (220 | ) | ||||||||||||||
|
Noncurrent liabilities
|
(1 | ) | (189 | ) | (6 | ) | 1 | (3 | ) | (198 | ) | |||||||||||||
|
Total MTM liabilities
|
(6 | ) | (407 | ) | (2 | ) | 5 | (8 | ) | (418 | ) | |||||||||||||
|
Total MTM net assets (liabilities)
|
$ | 13 | $ | (132 | ) | $ | 30 | $ | — | $ | (4 | ) | $ | (93 | ) | |||||||||
The table below shows the maturity of our MTM positions:
|
2013
|
||||||||||||||||||||
|
and
|
Total Fair
|
|||||||||||||||||||
|
Source of Fair Value
|
2010 | 2011 | 2012 | Beyond | Value | |||||||||||||||
| (in Millions) | ||||||||||||||||||||
|
Economic Hedges
|
$ | 6 | $ | (3 | ) | $ | (4 | ) | $ | 14 | $ | 13 | ||||||||
|
Structured Contracts
|
(45 | ) | (35 | ) | (22 | ) | (30 | ) | (132 | ) | ||||||||||
|
Proprietary Trading
|
29 | 5 | 2 | (6 | ) | 30 | ||||||||||||||
|
Other
|
(1 | ) | (3 | ) | — | — | (4 | ) | ||||||||||||
|
Total
|
$ | (11 | ) | $ | (36 | ) | $ | (24 | ) | $ | (22 | ) | $ | (93 | ) | |||||
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
Market
Price Risk
DTE Energy has commodity price risk in both utility and
non-utility businesses arising from market price fluctuations.
The Electric and Gas utility businesses have risks in
conjunction with the anticipated purchases of coal, natural gas,
uranium, electricity, and base metals to meet their service
obligations. However, the Company does not bear significant
exposure to earnings risk as such changes are included in the
form of 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 revenue and
uncollectible expenses at the Gas Utility. Gas Utility manages
its market price risk related to storage sales revenue primarily
through the sale of long-term storage contracts. The Company has
tracking mechanisms to mitigate a portion of losses related to
uncollectible accounts receivable at MichCon and Detroit Edison.
The Company is exposed to short-term cash flow or liquidity risk
as a result of the time differential between actual cash
settlements and regulatory rate recovery.
Our Gas Storage and Pipelines business segment has limited
exposure to natural gas price fluctuations and manages its
exposure through the sale of long-term storage and
transportation contracts.
Our Unconventional Gas Production business segment has exposure
to natural gas and, to a lesser extent, crude oil price
fluctuations. These commodity price fluctuations can impact both
current year earnings and reserve valuations. To manage this
exposure we may use forward energy and futures contracts.
Our Power and Industrial Projects business segment is subject to
electricity, natural gas, coal and coal-based product price risk
and other risks associated with the weakened U.S. economy.
To the extent that
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commodity price risk has not been mitigated through the use of
long-term contracts, we manage this exposure using forward
energy, capacity and futures contracts.
Our Energy Trading business segment has exposure to electricity,
natural gas, crude oil, heating oil, and foreign exchange price
fluctuations. These risks are managed by our 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
The Company purchases and sells electricity, gas, coal, coke and
other energy products from and to numerous companies operating
in the steel, automotive, energy, retail, financial and other
industries. Certain of its customers have filed for bankruptcy
protection under Chapter 11 of the U.S. Bankruptcy
Code. The Company regularly reviews contingent matters relating
to these customers and its purchase and sale contracts and
records provisions for amounts considered at risk of probable
loss. The Company believes its accrued amounts are adequate for
probable loss. The final resolution of these matters may have a
material effect on its consolidated financial statements.
The Company’s utilities and certain non-utility businesses
provide services to the domestic automotive industry, including
GM, Ford Motor Company (Ford) and Chrysler and many of their
vendors and suppliers. Chrysler filed for bankruptcy protection
on April 30, 2009. We have reserved approximately
$9 million of pre-petition accounts receivable related to
Chrysler as of December 31, 2009. GM filed for bankruptcy
protection on June 1, 2009. We have reserved or written off
approximately $5 million of pre-petition accounts and notes
receivable related to GM as of December 31, 2009. Closing
of GM or Chrysler plants or other facilities that operate within
Detroit Edison’s service territory will also negatively
impact the Company’s operating revenues in future periods.
In 2009, GM and Chrysler each represented two percent of our
annual electric sales volumes, respectively. GM and Chrysler
have an immaterial impact to MichCon’s revenues.
Other
We engage in business with customers that are non-investment
grade. We closely monitor the credit ratings of these customers
and, when deemed necessary, we request collateral or guarantees
from such customers to secure their obligations.
Trading
Activities
We are exposed to credit risk through trading activities. Credit
risk is the potential loss that may result if our trading
counterparties fail to meet their contractual obligations. We
utilize both external and internally
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generated credit assessments when determining the credit quality
of our trading counterparties. The following table displays the
credit quality of our trading counterparties as of
December 31, 2009:
|
Credit Exposure
|
||||||||||||
|
Before Cash
|
Cash
|
Net Credit
|
||||||||||
| Collateral | Collateral | Exposure | ||||||||||
| (in Millions) | ||||||||||||
|
Investment Grade(1)
|
||||||||||||
|
A− and Greater
|
$ | 254 | $ | (12 | ) | $ | 242 | |||||
|
BBB+ and BBB
|
177 | — | 177 | |||||||||
|
BBB-
|
54 | — | 54 | |||||||||
|
Total Investment Grade
|
485 | (12 | ) | 473 | ||||||||
|
Non-investment grade(2)
|
2 | — | 2 | |||||||||
|
Internally Rated — investment grade(3)
|
99 | — | 99 | |||||||||
|
Internally Rated — non-investment grade(4)
|
10 | — | 10 | |||||||||
|
Total
|
$ | 596 | $ | (12 | ) | $ | 584 | |||||
| (1) | This category includes counterparties with minimum credit ratings of Baa3 assigned by Moody’s Investor Service (Moody’s) and BBB- assigned by Standard & Poor’s Rating Group (Standard & Poor’s). The five largest counterparty exposures combined for this category represented approximately 29 percent of the total gross credit exposure. | |
| (2) | This category includes counterparties with credit ratings that are below investment grade. The five largest counterparty exposures combined for this category represented less than one percent of the total gross credit exposure. | |
| (3) | 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 percent of the total gross credit exposure. | |
| (4) | 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 less than two percent of the total gross credit exposure. |
Interest
Rate Risk
DTE Energy is subject to interest rate risk in connection with
the issuance of debt and preferred securities. In order to
manage interest costs, we may use treasury locks and interest
rate swap agreements. Our 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
December 31, 2009, we had a floating rate
debt-to-total
debt ratio of approximately five percent (excluding securitized
debt).
Foreign
Exchange Risk
The Company has foreign 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 power as well as for long-term
transportation capacity. To limit our exposure to foreign
exchange fluctuations, we have entered into a series of exchange
forward contracts through January 2013. Additionally, we may
enter into fair value exchange hedges to mitigate changes in the
value of contracts or loans.
Summary
of Sensitivity Analysis
The Company performed a sensitivity analysis on the fair values
of our commodity contracts, long-term debt obligations and
foreign exchange forward contracts. The commodity contracts and
foreign exchange risk
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listed below principally relate to our energy marketing and
trading activities. The sensitivity analysis involved increasing
and decreasing forward rates at December 31, 2009 and 2008
by a hypothetical 10% and calculating the resulting change in
the fair values.
The results of the sensitivity analysis calculations as of
December 31, 2009 and 2008:
|
Assuming a
|
Assuming a
|
|||||||||||||||||
| 10% Increase in Rates | 10% Decrease in Rates | |||||||||||||||||
| As of December 31, | As of December 31, | |||||||||||||||||
|
Activity
|
2009 | 2008 | 2009 | 2008 | Change in the Fair Value of | |||||||||||||
| (in Millions) | ||||||||||||||||||
|
Coal Contracts
|
$ | — | $ | 1 | $ | — | $ | (1 | ) | Commodity contracts | ||||||||
|
Gas Contracts
|
$ | (2 | ) | $ | (13 | ) | $ | 1 | $ | 13 | Commodity contracts | |||||||
|
Oil Contracts
|
$ | 1 | $ | 1 | $ | (1 | ) | $ | (1 | ) | Commodity contracts | |||||||
|
Power Contracts
|
$ | (3 | ) | $ | 3 | $ | 2 | $ | (2 | ) | Commodity contracts | |||||||
|
Interest Rate Risk
|
$ | (290 | ) | $ | (317 | ) | $ | 313 | $ | 346 | Long-term debt | |||||||
|
Foreign Exchange Risk
|
$ | 2 | $ | 5 | $ | (2 | ) | $ | (5 | ) | Forward contracts | |||||||
|
Discount Rates
|
$ | — | $ | 1 | $ | — | $ | (1 | ) | Commodity contracts | ||||||||
For further discussion of market risk, see Note 5 of the
Notes to Consolidated Financial Statements in Item 8 of
this Report.
62
Table of Contents
| Item 8. | Financial Statements and Supplementary Data |
The following consolidated financial statements and financial
statement schedule are included herein.
| Page | ||||
| 64 | ||||
|
Consolidated Financial Statements
|
||||
| 65 | ||||
| 67 | ||||
| 68 | ||||
| 70 | ||||
| 71 | ||||
| 72 | ||||
| 73 | ||||
| 73 | ||||
| 74 | ||||
| 79 | ||||
| 82 | ||||
| 87 | ||||
| 92 | ||||
| 93 | ||||
| 94 | ||||
| 94 | ||||
| 96 | ||||
| 97 | ||||
| 98 | ||||
| 107 | ||||
| 110 | ||||
| 110 | ||||
| 112 | ||||
| 114 | ||||
| 114 | ||||
| 116 | ||||
| 117 | ||||
| 121 | ||||
| 132 | ||||
| 135 | ||||
| 136 | ||||
| 139 | ||||
|
Financial Statement Schedule
|
||||
| 151 | ||||
63
Table of Contents
Controls
and Procedures
| (a) | Evaluation of disclosure controls and procedures |
Management of the Company carried out an evaluation, under the
supervision and with the participation of DTE Energy’s
Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company’s
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
as of December 31, 2009, which is the end of the period
covered by this report. Based on this evaluation, the
Company’s Chief Executive Officer and Chief Financial
Officer have concluded that such controls and procedures are
effective in providing reasonable assurance that information
required to be disclosed by the Company in reports that it files
or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
SEC’s rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to
provide reasonable assurance that information required to be
disclosed by the Company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the
Company’s management, including its Chief Executive Officer
and Chief Financial Officer, 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) | Management’s report on internal control over financial reporting |
Management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting
as such term is defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f).
Internal control over financial reporting is a process designed
by, or under the supervision of, our CEO and CFO, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management of the Company has assessed the effectiveness of the
Company’s internal control over financial reporting as of
December 31, 2009. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in
Internal
Control — Integrated Framework.
Based on this
assessment, management concluded that, as of December 31,
2009, the Company’s internal control over financial
reporting was effective based on those criteria.
The effectiveness of the Company’s internal control over
financial reporting as of December 31, 2009 has been
audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm who also audited the Company’s
financial statements, as stated in their report which appears
herein.
| (c) | Changes in internal control over financial reporting |
There have been no changes in the Company’s internal
control over financial reporting during the quarter ended
December 31, 2009 that have materially affected, or are
reasonably likely to materially affect, the Company’s
internal control over financial reporting.
64
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
DTE Energy Company:
DTE Energy Company:
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of DTE Energy Company and its
subsidiaries at December 31, 2009, and the results of their
operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the
financial statement schedule for the year ended
December 31, 2009 listed in the accompanying index presents
fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated
financial statements. Also in our opinion, the Company
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2009, based on
criteria established in
Internal Control —
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Company’s management is responsible for these financial
statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Management’s report on internal control over financial
reporting. Our responsibility is to express opinions on these
financial statements, on the financial statement schedule, and
on the Company’s internal control over financial reporting
based on our integrated audit. We conducted our audit in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our
audit of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 23, 2010
65
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
DTE Energy Company:
DTE Energy Company:
We have audited the consolidated statement of financial position
of DTE Energy Company and subsidiaries (the “Company”)
as of December 31, 2008, and the related consolidated
statements of operations, cash flows, and changes in
shareholders’ equity and comprehensive income for years
ended December 31, 2008 and 2007. Our audits also included
the 2008 and 2007 information in the financial statement
schedules listed in the accompanying index. These financial
statements and financial statement schedules are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on the consolidated
financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of DTE
Energy Company and subsidiaries at December 31, 2008, and
the results of their operations and their cash flows for the
years ended December 31, 2008 and 2007 in conformity with
accounting principles generally accepted in the United States of
America. Also, in our opinion, such 2008 and 2007 financial
statement schedules, when considered in relation to the basic
consolidated financial statements of the Company taken as a
whole, present fairly, in all material respects, the information
set forth therein.
/s/ Deloitte & Touche LLP
Detroit, Michigan
February 27, 2009
(August 20, 2009, as to the effects of the retrospective
adoption of Accounting Standards Codification (“ASC”)
810-10
and
ASC
260-10
as described in Note 3 to the consolidated financial
statements)
66
Table of Contents
DTE
Energy
Company
Consolidated
Statements of
Operations
| Year Ended December 31 | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
(in Millions, except per
|
||||||||||||
| share amounts) | ||||||||||||
|
Operating Revenues
|
$ | 8,014 | $ | 9,329 | $ | 8,475 | ||||||
|
Operating Expenses
|
||||||||||||
|
Fuel, purchased power and gas
|
3,118 | 4,306 | 3,552 | |||||||||
|
Operation and maintenance
|
2,372 | 2,694 | 2,892 | |||||||||
|
Depreciation, depletion and amortization
|
1,020 | 901 | 932 | |||||||||
|
Taxes other than income
|
275 | 304 | 357 | |||||||||
|
Gain on sale of non-utility business
|
— | (128 | ) | (900 | ) | |||||||
|
Other asset (gains) and losses, reserves and impairments, net
|
(20 | ) | (11 | ) | 37 | |||||||
| 6,765 | 8,066 | 6,870 | ||||||||||
|
Operating Income
|
1,249 | 1,263 | 1,605 | |||||||||
|
Other (Income) and Deductions
|
||||||||||||
|
Interest expense
|
545 | 503 | 533 | |||||||||
|
Interest income
|
(19 | ) | (19 | ) | (25 | ) | ||||||
|
Other income
|
(102 | ) | (104 | ) | (93 | ) | ||||||
|
Other expenses
|
43 | 64 | 35 | |||||||||
| 467 | 444 | 450 | ||||||||||
|
Income Before Income Taxes
|
782 | 819 | 1,155 | |||||||||
|
Income Tax Provision
|
247 | 288 | 364 | |||||||||
|
Income from Continuing Operations
|
535 | 531 | 791 | |||||||||
|
Discontinued Operations Income (Loss), net of tax
|
— | 22 | (4 | ) | ||||||||
|
Net Income
|
535 | 553 | 787 | |||||||||
|
Less: Net Income (Loss) Attributable to Noncontrolling
Interests From
|
||||||||||||
|
Continuing operations
|
3 | 5 | 4 | |||||||||
|
Discontinued operations
|
— | 2 | (188 | ) | ||||||||
| 3 | 7 | (184 | ) | |||||||||
|
Net Income Attributable to DTE Energy Company
|
$ | 532 | $ | 546 | $ | 971 | ||||||
|
Basic Earnings per Common Share
|
||||||||||||
|
Income from continuing operations
|
$ | 3.24 | $ | 3.22 | $ | 4.62 | ||||||
|
Discontinued operations
|
— | .12 | 1.08 | |||||||||
|
Total
|
$ | 3.24 | $ | 3.34 | $ | 5.70 | ||||||
|
Diluted Earnings per Common Share
|
||||||||||||
|
Income from continuing operations
|
$ | 3.24 | $ | 3.22 | $ | 4.61 | ||||||
|
Discontinued operations
|
— | .12 | 1.08 | |||||||||
|
Total
|
$ | 3.24 | $ | 3.34 | $ | 5.69 | ||||||
|
Weighted Average Common Shares Outstanding
|
||||||||||||
|
Basic
|
164 | 163 | 170 | |||||||||
|
Diluted
|
164 | 163 | 171 | |||||||||
|
Dividends Declared per Common Share
|
$ | 2.12 | $ | 2.12 | $ | 2.12 | ||||||
See Notes to Consolidated Financial Statements
67
Table of Contents
DTE
Energy Company
Consolidated
Statements of Financial Position
| December 31 | ||||||||
| 2009 | 2008 | |||||||
| (in Millions) | ||||||||
|
ASSETS
|
||||||||
|
Current Assets
|
||||||||
|
Cash and cash equivalents
|
$ | 52 | $ | 86 | ||||
|
Restricted cash
|
84 | 86 | ||||||
|
Accounts receivable (less allowance for doubtful accounts of
$262 and $265, respectively)
|
||||||||
|
Customer
|
1,438 | 1,666 | ||||||
|
Other
|
217 | 166 | ||||||
|
Inventories
|
||||||||
|
Fuel and gas
|
309 | 333 | ||||||
|
Materials and supplies
|
200 | 206 | ||||||
|
Deferred income taxes
|
167 | 227 | ||||||
|
Derivative assets
|
209 | 316 | ||||||
|
Other
|
201 | 242 | ||||||
| 2,877 | 3,328 | |||||||
|
Investments
|
||||||||
|
Nuclear decommissioning trust funds
|
817 | 685 | ||||||
|
Other
|
598 | 595 | ||||||
| 1,415 | 1,280 | |||||||
|
Property
|
||||||||
|
Property, plant and equipment
|
20,588 | 20,065 | ||||||
|
Less accumulated depreciation, depletion and amortization
|
(8,157 | ) | (7,834 | ) | ||||
| 12,431 | 12,231 | |||||||
|
Other Assets
|
||||||||
|
Goodwill
|
2,024 | 2,037 | ||||||
|
Regulatory assets
|
4,110 | 4,231 | ||||||
|
Securitized regulatory assets
|
870 | 1,001 | ||||||
|
Intangible assets
|
54 | 70 | ||||||
|
Notes receivable
|
113 | 115 | ||||||
|
Derivative assets
|
116 | 140 | ||||||
|
Other
|
185 | 157 | ||||||
| 7,472 | 7,751 | |||||||
|
Total Assets
|
$ | 24,195 | $ | 24,590 | ||||
See Notes to Consolidated Financial Statements
68
Table of Contents
DTE
Energy Company
Consolidated
Statements of Financial
Position — (Continued)
| December 31 | ||||||||
| 2009 | 2008 | |||||||
|
(in Millions,
|
||||||||
| except shares) | ||||||||
|
LIABILITIES AND EQUITY
|
||||||||
|
Current Liabilities
|
||||||||
|
Accounts payable
|
$ | 723 | $ | 899 | ||||
|
Accrued interest
|
114 | 119 | ||||||
|
Dividends payable
|
88 | 86 | ||||||
|
Short-term borrowings
|
327 | 744 | ||||||
|
Current portion long-term debt, including capital leases
|
671 | 362 | ||||||
|
Derivative liabilities
|
220 | 285 | ||||||
|
Other
|
502 | 518 | ||||||
| 2,645 | 3,013 | |||||||
|
Long-Term Debt (net of current portion)
|
||||||||
|
Mortgage bonds, notes and other
|
6,237 | 6,458 | ||||||
|
Securitization bonds
|
793 | 932 | ||||||
|
Trust preferred-linked securities
|
289 | 289 | ||||||
|
Capital lease obligations
|
51 | 62 | ||||||
| 7,370 | 7,741 | |||||||
|
Other Liabilities
|
||||||||
|
Deferred income taxes
|
2,096 | 1,958 | ||||||
|
Regulatory liabilities
|
1,337 | 1,202 | ||||||
|
Asset retirement obligations
|
1,420 | 1,340 | ||||||
|
Unamortized investment tax credit
|
85 | 96 | ||||||
|
Derivative liabilities
|
198 | 344 | ||||||
|
Liabilities from transportation and storage contracts
|
96 | 111 | ||||||
|
Accrued pension liability
|
881 | 871 | ||||||
|
Accrued postretirement liability
|
1,287 | 1,434 | ||||||
|
Nuclear decommissioning
|
136 | 114 | ||||||
|
Other
|
328 | 328 | ||||||
| 7,864 | 7,798 | |||||||
|
Commitments and Contingencies (Notes 12 and 20)
|
||||||||
|
Equity
|
||||||||
|
Common stock, without par value, 400,000,000 shares
authorized, 165,400,045 and 163,019,596 shares issued and
outstanding, respectively
|
3,257 | 3,175 | ||||||
|
Retained earnings
|
3,168 | 2,985 | ||||||
|
Accumulated other comprehensive loss
|
(147 | ) | (165 | ) | ||||
|
Total DTE Energy Company Shareholders’ Equity
|
6,278 | 5,995 | ||||||
|
Noncontrolling interests
|
38 | 43 | ||||||
|
Total Equity
|
6,316 | 6,038 | ||||||
|
Total Liabilities and Equity
|
$ | 24,195 | $ | 24,590 | ||||
See Notes to Consolidated Financial Statements
69
Table of Contents
DTE
Energy
Company
Consolidated
Statements of Cash
Flows
| Year Ended December 31 | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Operating Activities
|
||||||||||||
|
Net income
|
$ | 535 | $ | 553 | $ | 787 | ||||||
|
Adjustments to reconcile net income to net cash from operating
activities:
|
||||||||||||
|
Depreciation, depletion and amortization
|
1,020 | 899 | 926 | |||||||||
|
Deferred income taxes
|
205 | 348 | 144 | |||||||||
|
Gain on sale of non-utility business
|
— | (128 | ) | (900 | ) | |||||||
|
Other asset (gains), losses and reserves, net
|
(10 | ) | (4 | ) | (9 | ) | ||||||
|
Gain on sale of interests in synfuel projects
|
— | (31 | ) | (248 | ) | |||||||
|
Impairment of synfuel projects
|
— | — | 4 | |||||||||
|
Contributions from synfuel partners
|
— | 14 | 229 | |||||||||
|
Changes in assets and liabilities, exclusive of changes shown
separately (Note 23)
|
69 | (92 | ) | 192 | ||||||||
|
Net cash from operating activities
|
1,819 | 1,559 | 1,125 | |||||||||
|
Investing Activities
|
||||||||||||
|
Plant and equipment expenditures — utility
|
(960 | ) | (1,183 | ) | (1,035 | ) | ||||||
|
Plant and equipment expenditures — non-utility
|
(75 | ) | (190 | ) | (264 | ) | ||||||
|
Proceeds from sale of interests in synfuel projects
|
— | 84 | 447 | |||||||||
|
Refunds to synfuel partners
|
— | (387 | ) | (115 | ) | |||||||
|
Proceeds from sale of non-utility business
|
— | 253 | 1,262 | |||||||||
|
Proceeds from sale of other assets, net
|
83 | 25 | 85 | |||||||||
|
Restricted cash for debt redemption
|
2 | 54 | 6 | |||||||||
|
Proceeds from sale of nuclear decommissioning trust fund assets
|
295 | 232 | 286 | |||||||||
|
Investment in nuclear decommissioning trust funds
|
(315 | ) | (255 | ) | (323 | ) | ||||||
|
Other investments
|
(94 | ) | (156 | ) | (19 | ) | ||||||
|
Net cash from (used) for investing activities
|
(1,064 | ) | (1,523 | ) | 330 | |||||||
|
Financing Activities
|
||||||||||||
|
Issuance of long-term debt
|
427 | 1,310 | 50 | |||||||||
|
Redemption of long-term debt
|
(486 | ) | (446 | ) | (393 | ) | ||||||
|
Repurchase of long-term debt
|
— | (238 | ) | — | ||||||||
|
Short-term borrowings, net
|
(417 | ) | (340 | ) | (47 | ) | ||||||
|
Issuance of common stock
|
35 | — | — | |||||||||
|
Repurchase of common stock
|
— | (16 | ) | (708 | ) | |||||||
|
Dividends on common stock
|
(348 | ) | (344 | ) | (364 | ) | ||||||
|
Other
|
— | (10 | ) | (6 | ) | |||||||
|
Net cash used for financing activities
|
(789 | ) | (84 | ) | (1,468 | ) | ||||||
|
Net Decrease in Cash and Cash Equivalents
|
(34 | ) | (48 | ) | (13 | ) | ||||||
|
Cash and Cash Equivalents Reclassified (to) from Assets Held
for Sale
|
— | 11 | (11 | ) | ||||||||
|
Cash and Cash Equivalents at Beginning of Period
|
86 | 123 | 147 | |||||||||
|
Cash and Cash Equivalents at End of Period
|
$ | 52 | $ | 86 | $ | 123 | ||||||
See Notes to Consolidated Financial Statements
70
Table of Contents
DTE
Energy Company
Consolidated
Statements of Changes in Equity
|
Accumulated
|
||||||||||||||||||||||||
|
Other
|
Non-
|
|||||||||||||||||||||||
| Common Stock |
Retained
|
Comprehensive
|
Controlling
|
|||||||||||||||||||||
| Shares | Amount | Earnings | Loss | Interest | Total | |||||||||||||||||||
| (Dollars in millions, shares in Thousands) | ||||||||||||||||||||||||
|
Balance, December 31, 2006
|
177,138 | $ | 3,467 | $ | 2,593 | $ | (211 | ) | $ | 42 | $ | 5,891 | ||||||||||||
|
Net income (loss)
|
— | — | 971 | — | (184 | ) | 787 | |||||||||||||||||
|
Implementation of ASC 740 (FIN 48)
|
— | — | (5 | ) | — | — | (5 | ) | ||||||||||||||||
|
Dividends declared on common stock
|
— | — | (358 | ) | — | — | (358 | ) | ||||||||||||||||
|
Repurchase and retirement of common stock
|
(14,440 | ) | (297 | ) | (411 | ) | — | — | (708 | ) | ||||||||||||||
|
Benefit obligations, net of tax
|
— | — | — | 6 | — | 6 | ||||||||||||||||||
|
Net change in unrealized losses on derivatives, net of tax
|
— | — | — | 91 | — | 91 | ||||||||||||||||||
|
Net change in unrealized losses on investments, net of tax
|
— | — | — | 1 | — | 1 | ||||||||||||||||||
|
Contributions from noncontrolling interests
|
— | — | — | — | 229 | 229 | ||||||||||||||||||
|
Stock-based compensation, distributions to noncontrolling
interests and other
|
534 | 6 | — | — | (39 | ) | (33 | ) | ||||||||||||||||
|
Balance, December 31, 2007
|
163,232 | 3,176 | 2,790 | (113 | ) | 48 | 5,901 | |||||||||||||||||
|
Net income
|
— | — | 546 | — | 7 | 553 | ||||||||||||||||||
|
Implementation of ASC 820 (SFAS No. 157), net of tax
|
— | — | 4 | — | — | 4 | ||||||||||||||||||
|
Implementation of ASC 715
(SFAS No. 158) measurement date provision, net of
tax
|
— | — | (9 | ) | — | — | (9 | ) | ||||||||||||||||
|
Dividends declared on common stock
|
— | — | (346 | ) | — | — | (346 | ) | ||||||||||||||||
|
Repurchase and retirement of common stock
|
(479 | ) | (16 | ) | — | — | — | (16 | ) | |||||||||||||||
|
Benefit obligations, net of tax
|
— | — | — | (22 | ) | — | (22 | ) | ||||||||||||||||
|
Foreign exchange translation, net of tax
|
— | — | — | (2 | ) | — | (2 | ) | ||||||||||||||||
|
Net change in unrealized losses on derivatives, net of tax
|
— | — | — | 6 | — | 6 | ||||||||||||||||||
|
Net change in unrealized losses on investments, net of tax
|
— | — | — | (34 | ) | — | (34 | ) | ||||||||||||||||
|
Contributions from noncontrolling interests
|
— | — | — | — | 14 | 14 | ||||||||||||||||||
|
Stock-based compensation, distributions to noncontrolling
interests and other
|
267 | 15 | — | — | (26 | ) | (11 | ) | ||||||||||||||||
|
Balance, December 31, 2008
|
163,020 | 3,175 | 2,985 | (165 | ) | 43 | 6,038 | |||||||||||||||||
|
Net income
|
— | — | 532 | — | 3 | 535 | ||||||||||||||||||
|
Dividends declared on common stock
|
— | — | (349 | ) | — | — | (349 | ) | ||||||||||||||||
|
Issuance of common stock
|
1,109 | 35 | — | — | — | 35 | ||||||||||||||||||
|
Benefit obligations, net of tax
|
— | — | — | 7 | — | 7 | ||||||||||||||||||
|
Foreign exchange translation, net of tax
|
— | — | — | 2 | — | 2 | ||||||||||||||||||
|
Net change in unrealized losses on derivatives, net of tax
|
— | — | — | 1 | — | 1 | ||||||||||||||||||
|
Net change in unrealized losses on investments, net of tax
|
— | — | — | 8 | — | 8 | ||||||||||||||||||
|
Contributions from noncontrolling interests
|
— | — | — | — | 4 | 4 | ||||||||||||||||||
|
Stock-based compensation, distributions to noncontrolling
interests and other
|
1,271 | 47 | — | — | (12 | ) | 35 | |||||||||||||||||
|
Balance, December 31, 2009
|
165,400 | $ | 3,257 | $ | 3,168 | $ | (147 | ) | $ | 38 | $ | 6,316 | ||||||||||||
See Notes to Consolidated Financial Statements
71
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DTE
Energy Company
Consolidated
Statements of Comprehensive Income
The following table displays comprehensive income:
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Net income
|
$ | 535 | $ | 553 | $ | 787 | ||||||
|
Other comprehensive income (loss), net of tax:
|
||||||||||||
|
Foreign exchange translation, net of taxes of $1, $(1) and $-
|
2 | (2 | ) | — | ||||||||
|
Benefit obligations, net of taxes of $4, $(12) and $3
|
7 | (22 | ) | 6 | ||||||||
|
Net unrealized gains (losses) on derivatives:
|
||||||||||||
|
Gains (losses) arising during the period, net of taxes of $2, $2
and $(76)
|
3 | 4 | (141 | ) | ||||||||
|
Amounts reclassified to income, net of taxes of $(1), $1 and $125
|
(2 | ) | 2 | 232 | ||||||||
| 1 | 6 | 91 | ||||||||||
|
Net unrealized gains (losses) on investments:
|
||||||||||||
|
Gains (losses) arising during the period, net of taxes of $3,
$(19) and $2
|
5 | (34 | ) | 4 | ||||||||
|
Amounts reclassified to income, net of taxes of $2, $-and $(2)
|
3 | — | (3 | ) | ||||||||
| 8 | (34 | ) | 1 | |||||||||
|
Comprehensive income
|
553 | 501 | 885 | |||||||||
|
Less: Comprehensive income (loss) attributable to noncontrolling
interests
|
3 | 7 | (184 | ) | ||||||||
|
Comprehensive income attributable to DTE Energy Company
|
$ | 550 | $ | 494 | $ | 1,069 | ||||||
See Notes to Consolidated Financial Statements
72
Table of Contents
DTE
Energy Company
Notes
to Consolidated Financial Statements
NOTE 1 —
ORGANIZATION AND BASIS OF PRESENTATION
Corporate
Structure
DTE Energy owns the following businesses:
| • | Detroit Edison, an electric utility engaged in the generation, purchase, distribution and sale of electric energy to approximately 2.1 million customers in southeast Michigan; | |
| • | MichCon, a natural gas utility engaged in the purchase, storage, transmission, distribution and sale of natural gas to approximately 1.2 million customers throughout Michigan; and | |
| • | Other segments are involved in 1) natural gas pipelines and storage; 2) unconventional gas project development and production; 3) power and industrial projects and coal transportation and marketing; and 4) energy marketing and trading operations. |
Detroit Edison and MichCon are regulated by the MPSC. The FERC
regulates certain activities of Detroit Edison’s business
as well as various other aspects of businesses under DTE Energy.
In addition, the Company is regulated by other federal and state
regulatory agencies including the NRC, the EPA and MDEQ.
References in this report to “Company” or
“DTE” are to DTE Energy and its subsidiaries,
collectively.
Basis
of Presentation
The accompanying consolidated financial statements are prepared
using accounting principles generally accepted in the United
States of America. These accounting principles require
management to use estimates and assumptions that impact reported
amounts of assets, liabilities, revenues and expenses, and the
disclosure of contingent assets and liabilities. Actual results
may differ from the Company’s estimates.
Certain prior year balances were reclassified to match the
current year’s financial statement presentation.
Principles
of Consolidation
The Company consolidates all majority owned subsidiaries and
investments in entities in which it has controlling influence.
Non-majority owned investments are accounted for using the
equity method when the Company is able to influence the
operating policies of the investee. Non-majority owned
investments include investments in limited liability companies,
partnerships or joint ventures. When the Company does not
influence the operating policies of an investee, the cost method
is used. These consolidated financial statements also reflect
the Company’s proportionate interests in certain jointly
owned utility plant. The Company eliminates all intercompany
balances and transactions.
We consolidate variable interest entities (VIEs) for which we
are the primary beneficiary. In general, we determine whether we
are the primary beneficiary of a VIE through a qualitative
analysis of risk which indentifies which variable interest
holder absorbs the majority of the financial risk or rewards and
variability of the VIE. In performing this analysis, we consider
all relevant facts and circumstances, including: the design and
activities of the VIE, the terms of the contracts the VIE has
entered into, the identification of variable interest holders
including equity owners, customers, suppliers and debt holders
and which parties participated significantly in the design of
the entity. If the qualitative analysis is inconclusive, a
specific quantitative analysis is performed. Refer to
Note 3 for discussion of changes in consolidation guidance
applicable to VIEs.
Legal entities within the Company’s Power and Industrial
Projects segments enter into long-term contractual arrangements
with customers to supply energy-related products or services.
The entities are designed to pass-through the commodity risk
associated with these contracts to the customers, with the
Company retaining operational and customer default risk and
generally are VIEs. Potential new arrangements
73
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
are continually under consideration and completed arrangements
in 2009 have resulted in an increase in the number of VIEs with
which the Company is affiliated.
The aforementioned arrangements are assessed on a qualitative
and, if necessary, quantitative basis to determine who is the
primary beneficiary. If the Company is the primary beneficiary,
the VIE is consolidated. If the Company is not the primary
beneficiary, the VIE is accounted for under the equity method of
accounting. The VIEs are reviewed for reconsideration events
each quarter, and the assessment of the primary beneficiary
updated, if necessary.
DTE Energy has interests in various unconsolidated trusts that
were formed for the sole purpose of issuing preferred securities
and lending the gross proceeds to the Company. The sole assets
of the trusts are debt securities of DTE Energy with terms
similar to those of the related preferred securities. Payments
the Company makes are used by the trusts to make cash
distributions on the preferred securities it has issued. We have
reviewed these interests and have determined they are VIEs, but
the Company is not the primary beneficiary as it does not have
variable interests in the trusts.
The maximum risk exposure for consolidated VIEs is reflected on
our Consolidated Statements of Financial Position. For
non-consolidated VIEs, the maximum risk exposure is generally
only the extent of our investment
and/or
the
amount which we have guaranteed. In general, creditors of
consolidated VIEs do not have recourse to the general credit of
the Company.
The following table summarizes the amounts for variable interest
entities with which the Company is affiliated as of
December 31, 2009 and 2008:
| 2009 | 2008 | |||||||
| (in Millions) | ||||||||
|
Variable Interest Entities — Consolidated
|
||||||||
|
Total Assets
|
$ | 96 | $ | 47 | ||||
|
Total Liabilities
|
40 | 39 | ||||||
|
Shareholders’ Equity
|
5 | (4 | ) | |||||
|
Variable Interest Entities — Non-consolidated
|
||||||||
|
Other Investments
|
$ | 178 | $ | 191 | ||||
|
Bank loan guarantee
|
11 | — | ||||||
|
Trust preferred — linked securities
|
289 | 289 | ||||||
NOTE 2
—
SIGNIFICANT ACCOUNTING
POLICIES
Revenues
Revenues from the sale and delivery of electricity, and the
sale, delivery and storage of natural gas are recognized as
services are provided. Detroit Edison and MichCon record
revenues for electric and gas provided but unbilled at the end
of each month.
Detroit Edison’s accrued revenues include a component for
the cost of power sold that is recoverable through the PSCR
mechanism. MichCon’s accrued revenues include a component
for the cost of gas sold that is recoverable through the GCR
mechanism. Annual PSCR and GCR proceedings before the MPSC
permit Detroit Edison and MichCon to recover prudent and
reasonable supply costs. Any overcollection or undercollection
of costs, including interest, will be reflected in future rates.
See Note 12.
Non-utility businesses recognize revenues as services are
provided and products are delivered. Revenues and energy costs
related to trading contracts are presented on a net basis in the
Consolidated Statements of Operations. Commodity derivatives
used for trading purposes are accounted for using the
mark-to-market
method with unrealized gains and losses recorded in Operating
Revenues.
74
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Accounting
for ISO Transactions
Detroit Edison participates in the energy market through MISO.
MISO requires that we submit hourly day-ahead, real time and FTR
bids and offers for energy at locations across the MISO region.
Detroit Edison accounts for MISO transactions on a net hourly
basis in each of the day-ahead, real-time and FTR markets and
net transactions across all MISO energy market locations. We
record net purchases in a single hour in fuel, purchased power
and gas and net sales in a single hour in operating revenues in
the Consolidated Statements of Income. We record net sale
billing adjustments when we receive invoices. We record expense
accruals for future net purchases adjustments base on historical
experience, and reconcile accruals to actual expenses when we
receive invoices.
Energy Trading participates in the energy markets through MISO,
PJM and ISO-NE. These markets require that we submit hourly
day-ahead, real time bids and offers for energy at locations
across each RTO region. We submit bids in the annual and monthly
auction revenue rights and FTR auctions for the all the
RTO’s. Energy Trading accounts for these transactions on a
net hourly basis for the day-ahead, real-time and FTR markets.
These transactions are related to our trading contracts which
are presented on a net basis in operating revenues in the
Consolidated Statements of Income.
Comprehensive
Income
Comprehensive income is the change in Common shareholders’
equity during a period from transactions and events from
non-owner sources, including net income. As shown in the
following table, amounts recorded to Other comprehensive income
for the year ended December 31, 2009 include unrealized
gains and losses from derivatives accounted for as cash flow
hedges, unrealized gains and losses on available for sale
securities, and changes in benefit obligations, consisting of
deferred actuarial losses, prior service costs and transition
amounts related to pension and other postretirement benefit
plans, and foreign exchange translation adjustments.
|
Net
|
Net
|
Accumulated
|
||||||||||||||||||||||
|
Unrealized
|
Unrealized
|
Foreign
|
Other
|
|||||||||||||||||||||
|
Gain/(Loss)
|
Gain/(Loss) |
Benefit
|
Exchange
|
Comprehensive
|
||||||||||||||||||||
| on Derivatives | on Investments | Obligations | Translation | Loss | ||||||||||||||||||||
| (in Millions) | ||||||||||||||||||||||||
|
Beginning balances
|
$ | (7 | ) | $ | (18 | ) | $ | (138 | ) | $ | (2 | ) | $ | (165 | ) | |||||||||
|
Current period change, net of tax
|
1 | 8 | 7 | 2 | 18 | |||||||||||||||||||
|
Ending balance
|
$ | (6 | ) | $ | (10 | ) | $ | (131 | ) | $ | — | $ | (147 | ) | ||||||||||
Cash
Equivalents and Restricted Cash
Cash and cash equivalents include cash on hand, cash in banks
and temporary investments purchased with remaining maturities of
three months or less. Restricted cash consists of funds held to
satisfy requirements of certain debt and partnership operating
agreements. Restricted cash designated for interest and
principal payments within one year is classified as a current
asset.
Receivables
Accounts receivable are primarily composed of trade receivables
and unbilled revenue. Our accounts receivable are stated at net
realizable value.
The allowance for doubtful accounts for Detroit Edison and
MichCon is generally calculated using the aging approach that
utilizes rates developed in reserve studies. We establish an
allowance for uncollectible accounts based on historical losses
and management’s assessment of existing economic
conditions, customer trends, and other factors. Customer
accounts are generally considered delinquent if the amount
billed is not
75
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
received by the due date, typically 21 days, however,
factors such as assistance programs may delay aggressive action.
We assess late payment fees on trade receivables based on
contractual past-due terms established with customers. Customer
accounts are written off when collection efforts have been
exhausted, generally one year after service has been terminated.
The customer allowance for doubtful accounts for our other
businesses is calculated based on specific review of probable
future collections based on receivable balances in excess of
90 days.
Unbilled revenues of $618 million and $812 million are
included in customer accounts receivable at December 31,
2009 and 2008, respectively.
Inventories
The Company generally values inventory at average cost.
Gas inventory of $44 million and $14 million as of
December 31, 2009 and 2008, respectively, at MichCon is
determined using the
last-in,
first-out (LIFO) method. At December 31, 2009, the
replacement cost of gas remaining in storage exceeded the LIFO
cost by $218 million. At December 31, 2008, the
replacement cost of gas remaining in storage exceeded the LIFO
cost by $232 million. During 2008, MichCon liquidated
4.2 Bcf prior years’ LIFO layers. The liquidation
reduced 2008 cost of gas by approximately $21 million, but
had no impact on earnings as a result of the GCR mechanism.
Property,
Retirement and Maintenance, and Depreciation, Depletion and
Amortization
Property is stated at cost and includes construction-related
labor, materials, overheads and an allowance for funds used
during construction (AFUDC). The cost of properties retired,
less salvage value, at Detroit Edison and MichCon is charged to
accumulated depreciation. Expenditures for maintenance and
repairs are charged to expense when incurred, except for Fermi 2.
Approximately $13 million and $25 million of expenses
related to Fermi 2 refueling outages were accrued at
December 31, 2009 and December 31, 2008, respectively.
Amounts are accrued on a pro-rata basis over an
18-month
period that coincides with scheduled refueling outages at Fermi
2. This accrual of outage costs matches the regulatory recovery
of these costs in rates set by the MPSC.
The Company bases depreciation provisions for utility property
at Detroit Edison and MichCon on straight-line and
units-of-production
rates approved by the MPSC.
Non-utility property is depreciated over its estimated useful
life using straight-line, declining-balance or
units-of-production
methods.
The Company credits depreciation, depletion and amortization
expense when it establishes regulatory assets for plant-related
costs such as depreciation or plant-related financing costs. The
Company charges depreciation, depletion and amortization expense
when it amortizes these regulatory assets. The Company credits
interest expense to reflect the accretion income on certain
regulatory assets.
Capitalized software costs are classified as Property, plant and
equipment and the related amortization is included in
Accumulated depreciation, depletion and amortization on the
Consolidated Statements of Financial Position. The Company
capitalizes the costs associated with computer software it
develops or obtains for use in its business. The Company
amortizes capitalized software costs on a straight-line basis
over the expected period of benefit, ranging from 3 to
20 years. See Note 7.
Unconventional
Gas Production
The Company follows the successful efforts method of accounting
for investments in gas properties. Under this method of
accounting, all property acquisition costs and costs of
exploratory and development
76
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
wells are capitalized when incurred, pending determination of
whether the well contains proved reserves. If an exploratory
well does not contain proved reserves, the costs of drilling the
well are expensed. The costs of development wells are
capitalized, whether productive or nonproductive. Geological and
geophysical costs on exploratory prospects and the costs of
carrying and retaining properties without economical quantities
of proved reserves are expensed as incurred. An impairment loss
is recorded if the net capitalized costs of proved gas
properties exceed the aggregate related undiscounted future net
revenues. An impairment loss is recorded to the extent that
capitalized costs of unproved properties, on a
property-by-property
basis, are considered not to be realizable. Depreciation,
depletion and amortization of proved gas properties are
determined using the
units-of-production
method.
Long-Lived
Assets
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate the carrying amount of an
asset may not be recoverable. If the carrying amount of the
asset exceeds the expected future cash flows generated by the
asset, an impairment loss is recognized resulting in the asset
being written down to its estimated fair value. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value, less costs to sell.
Our Power and Industrial Projects segment has long-term
contracts with General Motors Corporation (GM) to provide onsite
energy services at certain of their facilities. At
December 31, 2009, the book value of long-lived assets used
in the servicing of these facilities was approximately
$65 million. In addition, we have an equity investment of
approximately $51 million in an entity which provides
similar services to Chrysler LLC (Chrysler). We considered the
2009 bankruptcies of GM and Chrysler as an indication of
possible impairment due to a significant adverse change in the
business climate that could affect the value of our long-lived
assets, performed impairment tests on these assets in the second
quarter of 2009 and determined that we did not have an
impairment. We have also determined that we do not have an other
than temporary decline in our Chrysler-related equity
investment. We will continue to assess these matters in future
periods for possible asset impairments. See Note 11.
Intangible
Assets
The Company has certain intangible assets relating to emission
allowances and non-utility contracts. Emission allowances are
charged to fuel expense as the allowances are consumed in the
operation of the business. Our intangible assets related to
emission allowances were $9 million at December 31,
2009 and $19 million at December 31, 2008. The gross
carrying amount and accumulated amortization of intangible
assets at December 31, 2009 were $64 million and
$19 million, respectively. The gross carrying amount and
accumulated amortization of intangible assets at
December 31, 2008 were $66 million and
$15 million, respectively. The Company amortizes contract
intangible assets on a straight-line basis over the expected
period of benefit, ranging from 4 to 30 years. Intangible
assets amortization expense was $4 million in 2009,
$7 million in 2008 and $2 million in 2007.
Amortization expense of intangible assets is estimated to be
$4 million annually for 2010 through 2014.
Excise
and Sales Taxes
The Company records the billing of excise and sales taxes as a
receivable with an offsetting payable to the applicable taxing
authority, with no impact on the Consolidated Statements of
Operations.
Deferred
Debt Costs
The costs related to the issuance of long-term debt are deferred
and amortized over the life of each debt issue. In accordance
with MPSC regulations applicable to the Company’s electric
and gas utilities, the unamortized discount, premium and expense
related to debt redeemed with a refinancing are amortized over
77
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
the life of the replacement issue. Discount, premium and expense
on early redemptions of debt associated with non-utility
operations are charged to earnings.
Investments
in Debt and Equity Securities
The Company generally classifies investments in debt and equity
securities as either trading or
available-for-sale
and has recorded such investments at market value with
unrealized gains or losses included in earnings or in other
comprehensive income or loss, respectively. Changes in the fair
value of Fermi 2 nuclear decommissioning investments are
recorded as adjustments to regulatory assets or liabilities, due
to a recovery mechanism from customers. The Company’s
investments are reviewed for impairment each reporting period.
If the assessment indicates that the impairment is other than
temporary, a loss is recognized resulting in the investment
being written down to its estimated fair value. See Note 4.
Offsetting
Amounts Related to Certain Contracts
The Company offsets the fair value of derivative instruments
with cash collateral received or paid for those derivative
instruments executed with the same counterparty under a master
netting agreement, which reduces both the Company’s total
assets and total liabilities. As of December 31, 2009 and
December 31, 2008, the total cash collateral posted, net of
cash collateral received, was $117 million and
$30 million, respectively. Derivative assets and derivative
liabilities are shown net of collateral of $34 million and
$120 million, respectively, as of December 31, 2009
and $31 million and $17 million, respectively as of
December 31, 2008. At December 31, 2009, amounts of
cash collateral received or paid not related to unrealized
derivative positions totaling $32 million and
$1 million were included in Accounts receivable and
Accounts payable, respectively. At December 31, 2008,
amounts of cash collateral received or paid not related to
unrealized derivative positions totaling $7 million and
$23 million were included in Accounts receivable and
Accounts payable, respectively.
Subsequent
Events
The Company has evaluated subsequent events through
February 23, 2010, the date that these financial statements
were issued.
Other
Accounting Policies
See the following notes for other accounting policies impacting
the Company’s consolidated financial statements:
|
Note
|
Title
|
||
|
3
|
New Accounting Pronouncements | ||
|
4
|
Fair Value | ||
|
5
|
Financial and Other Derivative Instruments | ||
|
6
|
Goodwill | ||
|
9
|
Asset Retirement Obligation | ||
|
12
|
Regulatory Matters | ||
|
13
|
Income Taxes | ||
|
21
|
Retirement Benefits and Trusteed Assets | ||
|
22
|
Stock-based Compensation | ||
78
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
NOTE 3 —
NEW ACCOUNTING PRONOUNCEMENTS
FASB
Accounting Standards
Codification
tm
(Codification)
On July 1, 2009, the Codification became the single source
of authoritative nongovernmental generally accepted accounting
principles (GAAP) in the United States of America. The
Codification is a reorganization of current GAAP into a topical
format that eliminates the current GAAP hierarchy and
establishes two levels of guidance — authoritative and
non-authoritative. According to the FASB, all
“non-grandfathered, non-SEC accounting literature”
that is not included in the Codification would be considered
non-authoritative. The FASB has indicated that the Codification
does not change current GAAP. Instead, the proposed changes aim
to (1) reduce the time and effort it takes for users to
research accounting questions and (2) improve the usability
of current accounting standards. The Codification is effective
for interim and annual periods ending after September 15,
2009.
Fair
Value Accounting
In September 2006, the FASB issued ASC 820
(SFAS No. 157,
Fair Value Measurements)
. The
standard defines fair value, establishes a framework for
measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value
measurements. It emphasizes that fair value is a market-based
measurement, not an entity-specific measurement. Fair value
measurement should be determined based on the assumptions that
market participants would use in pricing an asset or liability.
Effective January 1, 2008, the Company adopted ASC 820
(SFAS No. 157). The cumulative effect adjustment upon
adoption of ASC 820 represented a $4 million increase to
the January 1, 2008 balance of retained earnings. As
permitted by ASC
820-10
(FSP
No. 157-2),
the Company elected to defer the effective date of the standard
as it pertains to measurement and disclosures about the fair
value of non-financial assets and liabilities made on a
nonrecurring basis. The Company has adopted the recognition
provisions for non-financial assets and liabilities as of
January 1, 2009. See Note 4.
In April 2009, the FASB issued three FSPs intended to provide
additional application guidance and enhance disclosures
regarding fair value measurements and impairments of securities.
The FSPs are effective for interim and annual periods ending
after June 15, 2009.
| • | ASC 825-10 (FSP No. 107-1 and APB No. 28-1), Interim Disclosures about Fair Value of Financial Instruments, expands the fair value disclosures required for all financial instruments within the scope of ASC 825-10 to interim periods. | |
| • | ASC 820-10 (FSP No. 157-4), Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, which applies to all assets and liabilities, i.e., financial and nonfinancial, reemphasizes that the objective of fair value remains unchanged (i.e., an exit price notion). The FSP provides application guidance on measuring fair value when the volume and level of activity has significantly decreased and identifying transactions that are not orderly. The FSP also emphasizes that an entity cannot presume that an observable transaction price is not orderly even when there has been a significant decline in the volume and level of activity. | |
| • | ASC 320-10 (FSP No. 115-2 and SFAS No. 124-2), Recognition and Presentation of Other-Than-Temporary Impairments, is intended to bring greater consistency to the timing of impairment recognition, and provide greater clarity to investors about the credit and noncredit components of impaired debt securities that are not expected to be sold. |
The Company adopted these FSPs in the second quarter of 2009.
The adoption of these FSPs did not have a significant impact on
DTE Energy’s consolidated financial statements.
79
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Determining
Whether Instruments Granted in Share-Based Payment Transactions
Are Participating Securities
In June 2008, the FASB issued ASC
260-10
(FSP
EITF
No. 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions are Participating Securities).
This FSP
addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting and,
therefore, need to be included in the earnings allocation in
computing earnings per share (EPS) under the two-class method
described in ASC
260-10,
section 45, paragraphs 59A and 60B
(SFAS No. 128,
Earnings Per Share).
Unvested
share-based payment awards that contain non-forfeitable rights
to dividends or dividend equivalents (whether paid or unpaid)
are participating securities and shall be included in the
computation of EPS pursuant to the two-class method. Stock
awards granted by the Company under its stock-based compensation
plan qualify as a participating security. This FSP was effective
for financial statements issued for fiscal years and interim
periods beginning after December 15, 2008. The Company
adopted the requirements of the FSP effective January 1,
2009 and applied the requirements retrospectively. The adoption
of the FSP had the effect of reducing previously reported 2008
amounts for basic and diluted earnings per common share by $.03
and $.02, respectively, and reducing previously reported 2007
amounts for basic and diluted earnings per common share by $.03
and $.01, respectively.
Noncontrolling
Interests in Consolidated Financial Statements
In December 2007, the FASB issued ASC
810-10
(SFAS No. 160,
Noncontrolling Interests in
Consolidated Financial Statements — an Amendment of
ARB No. 51).
This standard establishes accounting and
reporting standards for the noncontrolling interests in a
subsidiary and for the deconsolidation of a subsidiary. It
clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. The
standard is effective for fiscal years, and interim periods
within those years, beginning on or after December 15,
2008. This standard shall be applied prospectively as of the
beginning of the fiscal year in which this standard is initially
applied, except for the presentation and disclosure requirements
which shall be applied retrospectively for all periods
presented. The Company adopted the standard as of
January 1, 2009 and applied the new presentation and
disclosure requirements retrospectively. As a result, the
formats and captions of certain 2008 and 2007 financial
statement amounts have been revised to present noncontrolling
interests in accordance with ASC
810-10
(SFAS No. 160). These revisions include reclassifying
minority interest expense as net income attributable to
noncontrolling interests, moving minority interest to
noncontrolling interests in total shareholders’ equity, and
separately reflecting activity of noncontrolling interests in
the Consolidated Statements of Equity and of Comprehensive
Income.
Disclosures
about Derivative Instruments and Guarantees
In March 2008, the FASB issued ASC
815-10
(SFAS No. 161,
Disclosures about Derivative
Instruments and Hedging Activities — an amendment of
FASB Statement No. 133)
. This standard requires
enhanced disclosures about an entity’s derivative and
hedging activities and thereby improves the transparency of
financial reporting. Entities are required to provide enhanced
disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related
hedged items are accounted for under ASC 815
(SFAS No. 133) and its related interpretations,
and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial
performance, and cash flows.
The standard is effective for financial statements issued for
fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged.
Comparative disclosures for earlier periods at initial adoption
are encouraged but not required. The Company adopted the
standard effective January 1, 2009. See Note 5.
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Subsequent
Events
In May 2009, the FASB issued ASC 855 (SFAS No. 165,
Subsequent Events)
. This standard provides guidance on
management’s assessment of subsequent events. The new
standard clarifies that management must evaluate, as of each
reporting period, events or transactions that occur after the
balance sheet date “through the date that the financial
statements are issued or are available to be issued.”
Management must perform its assessment for both interim and
annual financial reporting periods. The standard does not
significantly change the Company’s practice for evaluating
such events. ASC 855 (SFAS No. 165) is effective
prospectively for interim and annual periods ending after
June 15, 2009 and requires disclosure of the date
subsequent events are evaluated through. The Company adopted the
standard during the quarter ended June 30, 2009. See
Note 2.
Transfers
of Financial Assets
In June 2009, the FASB issued ASU
2009-16
(SFAS No. 166,
Accounting for Transfers of
Financial Assets — an amendment of FASB No. 140).
This standard amends ASC 860, (SFAS No. 140),
eliminates the concept of a “qualifying special-purpose
entity” (QSPE) and associated guidance and creates more
stringent conditions for reporting a transfer of a portion of a
financial asset as a sale. ASU
2009-16
(SFAS No. 166) is intended to enhance reporting
in the wake of the subprime mortgage crisis and the
deterioration in the global credit markets. The standard is
effective for financial asset transfers occurring after the
beginning of an entity’s first fiscal year that begins
after November 15, 2009. Early adoption is prohibited. ASU
2009-16
(SFAS No. 166) must be applied prospectively to
transfers of financial assets occurring on or after its
effective date. The adoption of ASU
2009-16
(SFAS No. 166) will not have a material impact on
DTE Energy’s consolidated financial statements.
Variable
Interest Entities (VIE)
In June 2009, the FASB issued ASU
2009-17
(SFAS No. 167,
Amendments to FASB Interpretation
46(R)).
This standard amends the consolidation guidance that
applies to VIEs and affects the overall consolidation analysis
under ASC 810 -10 (Interpretation 46(R)). The amendments to the
consolidation guidance affect all entities and enterprises
currently within the scope of ASC
810-10,
as
well as qualifying special purpose entities that are currently
outside the scope of ASC
810-10.
Accordingly, the Company will need to reconsider its previous
ASC
810-10
conclusions, including (1) whether an entity is a VIE,
(2) whether the enterprise is the VIE’s primary
beneficiary, and (3) what type of financial statement
disclosures are required. ASU
2009-17
(SFAS No. 167) is effective as of the beginning
of the first fiscal year that begins after November 15,
2009. Early adoption is prohibited. The Company is currently
assessing the impact of ASU
2009-17
(SFAS No. 167), however adoption of the standard is
not expected to have a material impact to the consolidated
financial statements.
Fair
Value Measurements and Disclosures
In September and August 2009, respectively, the FASB issued ASU
2009-12,
Fair Value Measurements and Disclosure,
and ASU
2009-05,
Measuring Liabilities at Fair Value.
ASU
2009-12
provides guidance for the fair value measurement of investments
in certain entities that calculate the net asset value per share
(or its equivalent) determined as of the reporting entity’s
measurement date. Certain attributes of the investment (such as
restrictions on redemption) and transaction prices from
principal-to-principal
or brokered transactions will not be considered in measuring the
fair value of the investment. The amendments in this standard
are effective for interim and annual periods ending after
December 15, 2009.
ASU
2009-05
provides guidance on measuring the fair value of liabilities
under ASC 820. This standard clarifies that in the absence of a
quoted price in an active market for an identical liability at
the measurement date, companies may apply approaches that use
the quoted price of an investment in the identical liability or
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
similar liabilities traded as assets or other valuation
techniques consistent with the fair-value measurement principles
in ASC 820. The standard permits fair value measurements of
liabilities that are based on the price that a company would pay
to transfer the liability to a new obligor. It also permits a
company to measure the fair value of liabilities using an
estimate of the price it would receive to enter into the
liability at that date. The new standard is effective for
interim and annual periods beginning after August 27, 2009
and applies to all fair-value measurements of liabilities
required by GAAP. The adoption of ASU
2009-12
and
ASU
2009-05
did not have a material impact on DTE Energy’s consolidated
financial statements.
In January 2010, the FASB issued ASU
2010-06,
Improving Disclosures about Fair Value Measurements
. ASU
2010-06
requires the gross presentation of activity within the
Level 3 fair value measurement roll forward and details of
transfers in and out of Level 1 and 2 fair value
measurements. The new disclosures are required of all entities
that are required to provide disclosures about recurring and
nonrecurring fair value measurements. ASU
2010-06
is
effective for interim and annual reporting periods beginning
after December 15, 2009, except for the gross presentation
of the Level 3 fair value measurement roll forward which is
effective for annual reporting periods beginning after
December 15, 2010 and for interim reporting periods within
those years.
Revenue
Arrangements
In September 2009, the FASB ratified Issue
No. 08-1,
Revenue Arrangements with Multiple Deliverables (not yet
codified).
Issue
08-1
provides principles and application guidance on whether multiple
deliverables exist, how the arrangement should be separated, and
the consideration allocated. This standard shall be applied
prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after
June 15, 2010, with earlier application permitted.
Alternatively, an entity may elect to adopt this standard on a
retrospective basis. The Company is currently assessing the
impact of Issue
No. 08-1
on DTE Energy’s consolidated financial statements. Adoption
of the standard is not expected to have a material impact to the
consolidated financial statements.
NOTE 4 —
FAIR VALUE
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date
in a principal or most advantageous market. Fair value is a
market-based measurement that is determined based on inputs,
which refer broadly to assumptions that market participants use
in pricing assets or liabilities. These inputs can be readily
observable, market corroborated or generally unobservable
inputs. The Company makes certain assumptions it believes that
market participants would use in pricing assets or liabilities,
including assumptions about risk, and the risks inherent in the
inputs to valuation techniques. Credit risk of the Company and
its counterparties is incorporated in the valuation of assets
and liabilities through the use of credit reserves, the impact
of which is immaterial for the years ended December 31,
2009 and 2008. The Company believes it uses valuation techniques
that maximize the use of observable market-based inputs and
minimize the use of unobservable inputs.
A fair value hierarchy has been established, which 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,
82
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
and may affect the valuation of the asset or liability and its
placement within the fair value hierarchy. The Company
classifies fair value balances based on the fair value hierarchy
defined as follows:
| • | Level 1 — Consists of unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date. | |
| • | Level 2 — Consists of inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. | |
| • | Level 3 — Consists of unobservable inputs for assets or liabilities whose fair value is estimated based on internally developed models or methodologies using inputs that are generally less readily observable and supported by little, if any, market activity at the measurement date. Unobservable inputs are developed based on the best available information and subject to cost-benefit constraints. |
The following table presents assets and liabilities measured and
recorded at fair value on a recurring basis as of
December 31, 2009:
|
Netting
|
Net Balance at
|
|||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Adjustments(2) | December 31, 2009 | ||||||||||||||||
| (in Millions) | ||||||||||||||||||||
|
Assets:
|
||||||||||||||||||||
|
Cash equivalents
|
$ | 15 | $ | — | $ | — | $ | — | $ | 15 | ||||||||||
|
Nuclear decommissioning trusts and Other Investments(1)
|
599 | 325 | — | — | 924 | |||||||||||||||
|
Derivative assets
|
1,080 | 1,207 | 385 | (2,347 | ) | 325 | ||||||||||||||
|
Total
|
$ | 1,694 | $ | 1,532 | $ | 385 | $ | (2,347 | ) | $ | 1,264 | |||||||||
|
Liabilities:
|
||||||||||||||||||||
|
Derivative liabilities
|
$ | (1,120 | ) | $ | (1,370 | ) | $ | (361 | ) | $ | 2,433 | $ | (418 | ) | ||||||
|
Total
|
$ | (1,120 | ) | $ | (1,370 | ) | $ | (361 | ) | $ | 2,433 | $ | (418 | ) | ||||||
|
Net Assets at December 31, 2009
|
$ | 574 | $ | 162 | $ | 24 | $ | 86 | $ | 846 | ||||||||||
| (1) | Excludes cash surrender value of life insurance investments. | |
| (2) | Amounts represent the impact of master netting agreements that allow the Company to net gain and loss positions and cash collateral held or placed with the same counterparties. |
83
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
The following table presents the fair value reconciliation of
Level 3 assets and liabilities measured at fair value on a
recurring basis for the years ended December 31, 2009 and
2008:
| Year Ended December 31 | ||||||||
| 2009 | 2008 | |||||||
| (in Millions) | ||||||||
|
Liability balance as of beginning of the period
|
$ | (183 | ) | $ | (366 | ) | ||
|
Changes in fair value recorded in income
|
41 | (10 | ) | |||||
|
Changes in fair value recorded in regulatory assets/liabilities
|
— | 2 | ||||||
|
Changes in fair value recorded in other comprehensive income
|
8 | 6 | ||||||
|
Purchases, issuances and settlements
|
(44 | ) | 195 | |||||
|
Transfers in/out of Level 3
|
202 | (10 | ) | |||||
|
Liability balance as of December 31
|
$ | 24 | $ | (183 | ) | |||
|
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 December 31, 2009 and 2008
|
$ | 93 | $ | 129 | ||||
Transfers in/out of Level 3 represent existing assets or
liabilities that were either previously categorized as a higher
level and for which the inputs to the model become unobservable
or assets and liabilities that were previously classified as
Level 3 for which the lowest significant input became
observable during the period. Transfers in/out of Level 3
are reflected as if they had occurred at the beginning of the
period. Transfers out of Level 3 in 2009 reflect a change
in the significance of unobservable inputs and an increased
reliance on broker quotes for certain gas transactions.
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 investments in money market
funds. The fair values of the shares of these funds are based on
observable market prices and, therefore, have been categorized
as Level 1 in the fair value hierarchy.
Nuclear
Decommissioning Trusts and Other Investments
The nuclear decommissioning trust fund investments have been
established to satisfy Detroit Edison’s nuclear
decommissioning obligations. The nuclear decommissioning trusts
and other fund investments hold debt and equity securities
directly and indirectly through commingled funds and
institutional mutual funds. Exchange-traded debt and equity
securities held directly are valued using quoted market prices
in actively traded markets. The commingled funds and
institutional mutual funds which hold exchange-traded equity or
debt securities are valued based on the underlying securities,
using quoted prices in actively traded markets.
Non-exchange-traded fixed income securities are valued based
upon quotations available from brokers or pricing services. For
non-exchange traded fixed income securities, the trustees
receive prices from pricing services. A primary price source is
identified by asset type, class or issue for each security. The
trustees monitor prices supplied by pricing services and may use
a supplemental price source or change the primary price source
of a given security if the trustees challenge an assigned price
and determine that another price source is considered to be
preferable. DTE Energy has obtained an understanding of how
these prices are derived, including the nature and observability
of the inputs used in deriving such prices. Additionally, DTE
Energy selectively corroborates the fair values of securities by
comparison of market-based price sources.
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (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. DTE Energy considers the
following criteria in determining whether a market is considered
active: frequency in which pricing information is updated,
variability in pricing between sources or over time and the
availability of public information. Other derivative contracts
are valued based upon a variety of inputs including commodity
market prices, broker quotes, interest rates, credit ratings,
default rates, market-based seasonality and basis differential
factors. DTE Energy monitors the prices that are supplied by
brokers and pricing services and may use a supplemental price
source or change the primary price source of an index if prices
become unavailable or another price source is determined to be
more representative of fair value. DTE Energy has obtained an
understanding of how these prices are derived. Additionally, DTE
Energy selectively corroborates the fair value of its
transactions by comparison of market-based price sources.
Mathematical valuation models are used for derivatives for which
external market data is not readily observable, such as
contracts which extend beyond the actively traded reporting
period.
Fair
Value of Financial Instruments
The fair value of long-term debt is determined by using quoted
market prices when available and a discounted cash flow analysis
based upon estimated current borrowing rates when quoted market
prices are not available. The table below shows the fair value
relative to the carrying value for long-term debt securities.
Certain other financial instruments, such as notes payable,
customer deposits and notes receivable are not shown as carrying
value approximates fair value. See Note 5 for further fair
value information on financial and derivative instruments.
| December 31, 2009 | December 31, 2008 | |||||||||||||||
|
Fair Value
|
Carrying Value | Fair Value | Carrying Value | |||||||||||||
|
Long-Term Debt
|
$ | 8.3 billion | $ | 8.0 billion | $ | 7.7 billion | $ | 8.0 billion | ||||||||
Nuclear
Decommissioning Trust Funds
Detroit Edison has a legal obligation to decommission its
nuclear power plants following the expiration of their operating
licenses. This obligation is reflected as an asset retirement
obligation on the Consolidated Statements of Financial Position.
See Note 9 for additional information.
The NRC has jurisdiction over the decommissioning of nuclear
power plants and requires decommissioning funding based upon a
formula. The MPSC and FERC regulate the recovery of costs of
decommissioning nuclear power plants and both require the use of
external trust funds to finance the decommissioning of Fermi 2.
Rates approved by the MPSC provide for the recovery of
decommissioning costs of Fermi 2 and the disposal of low-level
radioactive waste. Detroit Edison is continuing to
fund FERC jurisdictional amounts for decommissioning even
though explicit provisions are not included in FERC rates. The
Company believes the MPSC and FERC collections will be adequate
to fund the estimated cost of decommissioning using the NRC
formula. The decommissioning assets, anticipated earnings
thereon and future revenues from decommissioning collections
will be used to decommission Fermi 2. The Company expects the
liabilities to be reduced to zero at the conclusion of the
decommissioning activities. If amounts remain in the trust funds
for Fermi 2 following the completion of the decommissioning
activities, those amounts will be disbursed based on rulings by
the MPSC and FERC.
The decommissioning of Fermi 1 is funded by Detroit Edison.
Contributions to the Fermi 1 trust are discretionary.
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
The following table summarizes the fair value of the nuclear
decommissioning trust fund assets:
|
December 31
|
December 31
|
|||||||
| 2009 | 2008 | |||||||
| (in Millions) | ||||||||
|
Fermi 2
|
$ | 790 | $ | 649 | ||||
|
Fermi 1
|
3 | 3 | ||||||
|
Low level radioactive waste
|
24 | 33 | ||||||
|
Total
|
$ | 817 | $ | 685 | ||||
At December 31, 2009, investments in the nuclear
decommissioning trust funds consisted of approximately 51% in
publicly traded equity securities, 48% in fixed debt instruments
and 1% in cash equivalents. At December 31, 2008,
investments in the nuclear decommissioning trust funds consisted
of approximately 42% in publicly traded equity securities, 57%
in fixed debt instruments and 1% in cash equivalents. The debt
securities at both December 31, 2009 and December 31,
2008 had an average maturity of approximately 5 years.
The costs of securities sold are determined on the basis of
specific identification. The following table sets forth the
gains and losses and proceeds from the sale of securities by the
nuclear decommissioning trust funds:
| Year Ended December 31 | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Realized gains
|
$ | 37 | $ | 34 | $ | 25 | ||||||
|
Realized losses
|
$ | (55 | ) | $ | (49 | ) | $ | (17 | ) | |||
|
Proceeds from sales of securities
|
$ | 295 | $ | 232 | $ | 286 | ||||||
Realized gains and losses from the sale of securities for the
Fermi 2 and the low level radioactive waste funds are recorded
to the Asset retirement obligation, Regulatory asset and Nuclear
decommissioning liability. The following table sets forth the
fair value and unrealized gains for the nuclear decommissioning
trust funds:
|
Fair
|
Unrealized
|
|||||||
| Value | Gains | |||||||
| (in Millions) | ||||||||
|
As of December 31, 2009
|
||||||||
|
Equity securities
|
$ | 420 | $ | 135 | ||||
|
Debt securities
|
388 | 17 | ||||||
|
Cash and cash equivalents
|
9 | — | ||||||
| $ | 817 | $ | 152 | |||||
|
As of December 31, 2008
|
||||||||
|
Equity securities
|
$ | 288 | $ | 65 | ||||
|
Debt securities
|
388 | 17 | ||||||
|
Cash and cash equivalents
|
9 | — | ||||||
| $ | 685 | $ | 82 | |||||
Securities held in the nuclear decommissioning trust funds are
classified as
available-for-sale.
As Detroit Edison 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.
86
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Impairment charges for unrealized losses incurred by the Fermi 2
trust are recognized as a regulatory asset. Detroit Edison
recognized $48 million and $92 million of unrealized
losses as regulatory assets at December 31, 2009 and 2008,
respectively. Since the decommissioning of Fermi 1 is funded by
Detroit Edison rather than through a regulatory recovery
mechanism, there is no corresponding regulatory asset treatment.
Therefore, impairment charges for unrealized losses incurred by
the Fermi 1 trust are recognized in earnings immediately. There
were no impairment charges in 2009 and 2008 for Fermi 1. Detroit
Edison recognized impairment charges of $0.2 million for
Fermi 1 in 2007.
Other
Available — For — Sale
Securities
The following table summarizes the fair value of the
Company’s investment in
available-for-sale
debt and equity securities, excluding nuclear decommissioning
trust fund assets:
| December 31, 2009 | December 31, 2008 | |||||||||||||||
| Fair Value | Carrying value | Fair Value | Carrying Value | |||||||||||||
| (in Millions) | ||||||||||||||||
|
Cash equivalents
|
$ | 106 | $ | 106 | $ | 99 | $ | 99 | ||||||||
|
Equity securities
|
$ | 11 | $ | 11 | $ | 28 | $ | 28 | ||||||||
At December 31, 2009 and 2008, these securities are
comprised primarily of money-market and equity securities.
During the year ended December 31, 2009, $3 million of
unrealized losses on
available-for-sale
securities were reclassified out of other comprehensive income
into earnings for the period. This reclassification includes an
other than temporary impairment of equity securities of
$4 million. Gains (losses) related to trading securities
held at December 31, 2009, 2008, and 2007 were
$8 million, $(14) million and $3 million
respectively.
NOTE 5 —
FINANCIAL AND OTHER DERIVATIVE INSTRUMENTS
The Company recognizes all derivatives on the Consolidated
Statements of Financial Position at their fair value 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 and later
reclassified into earnings when the underlying transaction
occurs. For fair value hedges, changes in fair values for the
derivative are recognized in earnings each period. Gains and
losses from the ineffective portion of any hedge are recognized
in earnings immediately. For derivatives that do not qualify or
are not designated for hedge accounting, changes in the fair
value are recognized in earnings each period.
The Company’s primary market risk exposure is associated
with commodity prices, credit, interest rates and foreign
exchange. The Company has risk management policies to monitor
and manage market risks. The Company uses derivative instruments
to manage some of the exposure. The Company uses derivative
instruments for trading purposes in its Energy Trading segment
and the coal marketing activities of its Power and Industrial
Projects segment. Contracts classified as derivative instruments
include power, gas, oil and certain coal forwards, futures,
options and swaps, and foreign exchange contracts. Items not
classified as derivatives include proprietary gas inventory, gas
storage and transportation arrangements, and gas and oil
reserves. Derivatives are generally recorded at fair value and
shown as Derivative assets or liabilities on the Consolidated
Statements of Financial Position.
Electric Utility
— Detroit Edison generates,
purchases, distributes and sells electricity. Detroit Edison
uses forward energy and capacity contracts to manage changes in
the price of electricity and fuel. Substantially all
87
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
of these contracts meet the normal purchases and sales exemption
and are therefore accounted for under the accrual method. Other
derivative contracts are recoverable through the PSCR mechanism
when settled. This results in the deferral of unrealized gains
and losses as Regulatory assets or liabilities, until realized.
Gas Utility
— MichCon purchases, stores,
transports and distributes natural gas and sells storage and
transportation capacity. MichCon has fixed-priced contracts for
portions of its expected gas supply requirements through 2013.
These gas-supply contracts are designated and qualify for the
normal purchases and sales exemption and are therefore accounted
for under the accrual method. MichCon may also sell forward
storage and transportation capacity contracts. Forward
transportation and storage contracts are 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 transportation and
storage of natural gas. 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.
Unconventional Gas Production
— The
Unconventional Gas Production business is engaged in
unconventional gas project development and production. The
Company uses derivative contracts to manage changes in the price
of natural gas. These derivatives are designated as cash flow
hedges. Amounts recorded in Accumulated other comprehensive
income will be reclassified to earnings as the related
production affects earnings through 2010. In 2008 and 2007,
$0.5 million of after-tax gains and $222 million of
after-tax losses, respectively, were reclassified to earnings.
The 2007 amounts principally related to the sale of the Antrim
business. Management estimates reclassifying an after-tax gain
of approximately $1 million to earnings within the next
twelve months.
Power and Industrial Projects
— Business units
within this segment manage and operate onsite energy and
pulverized coal projects, coke batteries, landfill gas recovery
and power generation assets. These businesses utilize
fixed-priced contracts in the marketing and management of their
assets. These contracts are generally not derivatives and are
therefore accounted for under the accrual method. The segment
also engages in coal marketing which includes the marketing and
trading of physical coal and coal financial instruments, and
forward contracts for the purchase and sale of emissions
allowances. Certain of these physical and financial coal
contracts and contracts for the purchase and sale of emission
allowances are derivatives and are accounted for by recording
changes in fair value to earnings.
Energy Trading — Commodity Price Risk —
Energy Trading markets and trades wholesale electricity and
natural gas physical products and energy financial instruments,
and provides risk 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 certain hedge accounting criteria are met.
Energy Trading — Foreign Exchange Risk —
Energy Trading has foreign exchange forward contracts to
economically hedge fixed Canadian dollar commitments existing
under power purchase and sale contracts and gas transportation
contracts. The Company 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 certain hedge accounting criteria are met. In 2008 and
2007, $1 million and $7 million, respectively, of
after-tax losses related to a foreign exchange hedge were
reclassified to earnings. The foreign exchange hedge was fully
realized as of December 31, 2008 and therefore, no further
earnings impact is expected.
Corporate and Other — Interest Rate
Risk —
The Company uses interest rate swaps,
treasury locks and other derivatives to hedge the risk
associated with interest rate market volatility. In 2004 and
2000, the Company entered into a series of interest rate
derivatives to limit its sensitivity to market interest rate
risk associated with the issuance of long-term debt. Such
instruments were designated as cash flow hedges. The
88
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Company subsequently issued long-term debt and terminated these
hedges at a cost that is included in other comprehensive loss.
Amounts recorded in other comprehensive loss will be
reclassified to interest expense through 2033. In 2010, the
Company estimates reclassifying $3 million of losses to
earnings.
Credit Risk —
The utility and non-utility
businesses are exposed to credit risk if customers or
counterparties do not comply with their contractual obligations.
The Company maintains credit policies that significantly
minimize overall credit risk. These policies include an
evaluation of potential customers’ and counterparties’
financial condition, credit rating, collateral requirements or
other credit enhancements such as letters of credit or
guarantees. The Company generally uses standardized agreements
that allow the netting of positive and negative transactions
associated with a single counterparty. The Company maintains a
provision for credit losses based on factors surrounding the
credit risk of its customers, historical trends, and other
information. Based on the Company’s credit policies and its
December 31, 2009 provision for credit losses, the
Company’s exposure to counterparty nonperformance is not
expected to result in material effects on the Company’s
financial statements.
Derivative
Activities
The Company 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 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 describe the four categories of activities
represented by their operating characteristics and key risks:
| • | Economic Hedges — Represents derivative activity associated with assets owned and contracted by DTE Energy, including forward sales of gas production and trades associated with owned transportation and storage capacity. Changes in the value of derivatives in this category 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. | |
| • | Structured Contracts — Represents derivative activity transacted by originating substantially hedged positions with wholesale energy marketers, producers, end users, utilities, retail aggregators and alternative energy suppliers. | |
| • | Proprietary 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 associated with our Unconventional Gas reserves. A portion of the price risk associated with anticipated production from the Barnett natural gas reserves has been mitigated through 2010. Changes in the value of the hedges are recorded as Derivative assets or liabilities, with an offset in Other comprehensive income to the extent that the hedges are deemed effective. The amounts shown in the following tables exclude the value of the underlying gas reserves including changes therein. Other also includes derivative activity at Detroit Edison related to FTRs and forward contracts related to emissions. Changes in the value of derivative contracts at Detroit Edison 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. |
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
The following represents the fair value of derivative
instruments as of December 31, 2009:
|
Balance Sheet
|
Balance Sheet
|
||||||||||||||||
| Location | Fair Value | Location | Fair Value | ||||||||||||||
| (in Millions) | |||||||||||||||||
|
Derivatives designated as hedging instruments:
|
|||||||||||||||||
|
Commodity Contracts:
|
|||||||||||||||||
|
Natural Gas
|
Derivative assets | $ | 2 | Derivative liabilities | $ | — | |||||||||||
|
Derivatives not designated as hedging instruments:
|
|||||||||||||||||
|
Foreign exchange contracts
|
Derivative assets | $ | 24 | Derivative liabilities | $ | (31 | ) | ||||||||||
|
Commodity Contracts:
|
|||||||||||||||||
|
Natural Gas
|
Derivative assets | 1,323 | Derivative liabilities | (1,552 | ) | ||||||||||||
|
Electricity
|
Derivative assets | 1,304 | Derivative liabilities | (1,241 | ) | ||||||||||||
|
Coal
|
Derivative assets | 11 | Derivative liabilities | (18 | ) | ||||||||||||
|
Oil
|
Derivative assets | 4 | Derivative liabilities | (1 | ) | ||||||||||||
|
Emissions
|
Derivative assets | 2 | Derivative liabilities | (8 | ) | ||||||||||||
|
FTR’s
|
Derivative assets | 2 | Derivative liabilities | — | |||||||||||||
|
Total derivatives not designated as hedging instruments:
|
$ | 2,670 | $ | (2,851 | ) | ||||||||||||
|
Total derivatives:
|
|||||||||||||||||
|
Current
|
$ | 1,860 | $ | (1,951 | ) | ||||||||||||
|
Noncurrent
|
812 | (900 | ) | ||||||||||||||
|
Total derivatives
|
$ | 2,672 | $ | (2,851 | ) | ||||||||||||
| Current | Noncurrent | Current | Noncurrent | ||||||||||||||||
| (in Millions) | |||||||||||||||||||
|
Reconciliation of derivative instruments to Consolidated
Statements of Financial Position:
|
|||||||||||||||||||
|
Total fair value of derivatives
|
$ | 1,860 | $ | 812 | $ | (1,951 | ) | $ | (900 | ) | |||||||||
|
Counterparty netting
|
(1,644 | ) | (669 | ) | 1,644 | 669 | |||||||||||||
|
Collateral adjustment
|
(7 | ) | (27 | ) | 87 | 33 | |||||||||||||
|
Total derivatives as reported
|
$ | 209 | $ | 116 | $ | (220 | ) | $ | (198 | ) | |||||||||
For the effective portion of natural gas derivatives designated
as cash flow hedges, the Company recognized an after-tax gain of
$3 million in Other comprehensive income and reclassified
an after-tax gain of $5 million from Accumulated other
comprehensive income into Operating revenue for the year ended
December 31, 2009. For the effective portion of interest
swaps representing a discontinued cash flow hedge, the Company
reclassified an after-tax loss of $3 million from
Accumulated other comprehensive income into Interest expense for
the year ended December 31, 2009.
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
The effect of derivative instruments on the Consolidated
Statements of Operations for the year ended December 31,
2009 is as follows:
|
Gain (Loss)
|
||||||
|
Recognized in
|
||||||
|
Income on
|
||||||
|
Derivative for
|
||||||
|
Year Ended
|
||||||
|
Location of Gain (Loss) Recognized
|
December 31,
|
|||||
|
Derivatives Not Designated As Hedging Instruments
|
in Income On Derivative | 2009 | ||||
| (in Millions) | ||||||
|
Foreign exchange contracts
|
Operating Revenue | $ | (24 | ) | ||
|
Commodity Contracts:
|
||||||
|
Electricity
|
Operating Revenue | 19 | ||||
|
Natural Gas
|
Operating Revenue | 179 | ||||
|
Natural Gas
|
Fuel, purchased power and gas | 4 | ||||
|
Oil
|
Operating Revenue | (3 | ) | |||
|
Coal
|
Operating Revenue | (9 | ) | |||
|
Coal
|
Operation and maintenance | 6 | ||||
|
Emissions
|
Operating Revenue | 8 | ||||
|
Total
|
$ | 180 | ||||
The effect of derivative instruments recoverable through the
PSCR mechanism when realized on the Consolidated Statements of
Financial Position is a $16 million loss related to
Emissions, which represents a loss of $14 million and
$2 million recognized in Regulatory assets and Regulatory
liabilities, respectively, for the year ended December 31,
2009.
The following represents the cumulative gross volume of
derivative contracts outstanding as of December 31, 2009:
|
Commodity
|
Number of Units | |||
|
Electricity (MWh)
|
50,066,919 | |||
|
FTRs (MW)
|
61,927 | |||
|
Natural Gas (MMBtu)
|
421,963,381 | |||
|
Coal (Tons)
|
890,648 | |||
|
Foreign Exchange ($ CAD)
|
319,444,012 | |||
|
Emissions (Tons)
|
3,140,302 | |||
Various non-utility subsidiaries of the Company have entered
into contracts which contain ratings triggers and are guaranteed
by DTE Energy. These contracts contain provisions which allow
the counterparties to request that the Company 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 the
Company can be asked 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
the Company may ultimately be required to post. The amount of
such collateral which could be requested fluctuates based on
commodity prices (primarily gas, power and coal) and the
provisions and maturities of the underlying transactions. As of
December 31, 2009, the value of the transactions for which
the Company would have been exposed to collateral requests had
DTE Energy’s credit rating been below investment grade on
such date under both hard trigger and soft trigger provisions
was approximately $250 million. In circumstances where an
entity is downgraded below investment grade and collateral
requests
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
are made as a result, the requesting parties often agree to
accept less than the full amount of their exposure to the
downgraded entity.
NOTE 6 —
GOODWILL
The Company has goodwill resulting from purchase business
combinations.
The change in the carrying amount of goodwill for the fiscal
years ended December 31, 2009 and December 31, 2008 is
as follows:
| 2009 | 2008 | |||||||
| (in Millions) | ||||||||
|
Balance as of January 1
|
$ | 2,037 | $ | 2,037 | ||||
|
Allocated goodwill attributable to sale of Gas Utility
subsidiaries
|
(13 | ) | — | |||||
|
Balance at December 31
|
$ | 2,024 | $ | 2,037 | ||||
In the period from October 1, 2008 to March 31, 2009,
DTE Energy’s stock price declined 31 percent and at
March 31, 2009 was approximately 26 percent below its
book value per share of $37.29. We deemed the duration and
severity of the decline in DTE Energy’s stock price to be a
triggering event to test for potential goodwill impairment for
the first quarter. In performing Step 1 of the impairment test,
we compared the fair value of the reporting unit to its carrying
value including goodwill. All reporting units passed Step 1 of
the impairment test.
For the quarters ended June 30, 2009 and September 30,
2009, DTE Energy’s closing stock price increased
16 percent and 27 percent, respectively, as compared
to the closing stock price at March 31, 2009. Although DTE
Energy was still trading at a discount to book value at the end
of the third quarter, the discount improved to 7 percent at
September 30, 2009 from 26 percent at March 31,
2009. In assessing whether the continuing discount to book value
was an indication of impairment, we considered the following
factors: (1) the severity of the decline in DTE
Energy’s share price experienced since the fourth quarter
of 2008 had diminished and was continuing to recover; and
(2) the assumptions incorporated in the first quarter
impairment test had either improved or had not changed
significantly during the second and third quarters such that
they would change the results of Step 1. As a result of this
assessment, we determined that the continuing discount to book
value was not a triggering event for impairment testing purposes
for the second and third quarters.
We did, however, identify a goodwill impairment test trigger for
our Energy Services reporting unit related to the long-lived
asset impairment tests that were performed during the second
quarter of 2009 on certain automotive-related project companies.
Accordingly, we performed an interim goodwill impairment test
for Energy Services as of June 30, 2009. The fair value of
the reporting unit exceeded its carrying value including
goodwill. Therefore, the reporting unit passed Step 1 of the
impairment test. No new trigger was identified during the third
quarter of 2009.
We performed our annual goodwill impairment test as of
October 1, 2009 and determined that the estimated fair
value of each reporting unit exceeded its carrying value, and no
impairment existed. We performed our valuations in accordance
with the requirements for measuring nonrecurring, nonfinancial
assets and liabilities.
DTE Energy’s stock price continued to improve during the
fourth quarter, and as of December 31, 2009, it closed in
excess of its book value per share of $38.03 by 15 percent.
No triggering events for impairment testing purposes were
identified during the fourth quarter of 2009.
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
NOTE 7 —
PROPERTY, PLANT AND EQUIPMENT
Summary of property by classification as of December 31:
| 2009 | 2008 | |||||||
| (in Millions) | ||||||||
|
Property, Plant and Equipment
|
||||||||
|
Electric Utility
|
||||||||
|
Generation
|
$ | 8,833 | $ | 8,544 | ||||
|
Distribution
|
6,618 | 6,433 | ||||||
|
Total Electric Utility
|
15,451 | 14,977 | ||||||
|
Gas Utility
|
||||||||
|
Distribution
|
2,386 | 2,327 | ||||||
|
Storage
|
383 | 378 | ||||||
|
Other
|
1,013 | 1,090 | ||||||
|
Total Gas Utility
|
3,782 | 3,795 | ||||||
|
Non-utility and other
|
1,355 | 1,293 | ||||||
|
Total
|
20,588 | 20,065 | ||||||
|
Less Accumulated Depreciation, Depletion and Amortization
|
||||||||
|
Electric Utility
|
||||||||
|
Generation
|
(3,890 | ) | (3,690 | ) | ||||
|
Distribution
|
(2,243 | ) | (2,138 | ) | ||||
|
Total Electric Utility
|
(6,133 | ) | (5,828 | ) | ||||
|
Gas Utility
|
||||||||
|
Distribution
|
(972 | ) | (955 | ) | ||||
|
Storage
|
(113 | ) | (107 | ) | ||||
|
Other
|
(543 | ) | (603 | ) | ||||
|
Total Gas Utility
|
(1,628 | ) | (1,665 | ) | ||||
|
Non-utility and other
|
(396 | ) | (341 | ) | ||||
|
Total
|
(8,157 | ) | (7,834 | ) | ||||
|
Net Property, Plant and Equipment
|
$ | 12,431 | $ | 12,231 | ||||
AFUDC capitalized during 2009 and 2008 was approximately
$14 million and $50 million, respectively.
The composite depreciation rate for Detroit Edison was 3.3% in
2009, 2008 and 2007. The composite depreciation rate for MichCon
was 3.1% in 2009, 3.2% in 2008 and 3.1% in 2007.
The average estimated useful life for each major class of
utility property, plant and equipment as of December 31,
2009 follows:
| Estimated Useful Lives in Years | ||||||||||||
|
Utility
|
Generation | Distribution | Transmission | |||||||||
|
Electric
|
40 | 37 | N/A | |||||||||
|
Gas
|
N/A | 40 | 37 | |||||||||
The estimated useful lives for major classes of non-utility
assets and facilities ranges from 3 to 55 years.
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Capitalized software costs amortization expense was
$66 million in 2009, $54 million in 2008 and
$42 million in 2007. The gross carrying amount and
accumulated amortization of capitalized software costs at
December 31, 2009 were $613 million and
$234 million, respectively. The gross carrying amount and
accumulated amortization of capitalized software costs at
December 31, 2008 were $576 million and
$192 million, respectively. Amortization expense of
capitalized software costs is estimated to be $60 million
annually for 2010 through 2014.
Gross property under capital leases was $153 million at
December 31, 2009 and December 31, 2008. Accumulated
amortization of property under capital leases was
$93 million and $85 million at December 31, 2009
and December 31, 2008, respectively.
NOTE 8 —
JOINTLY OWNED UTILITY PLANT
Detroit Edison has joint ownership interest in two power plants,
Belle River and Ludington Hydroelectric Pumped Storage. Detroit
Edison’s share of direct expenses of the jointly owned
plants are included in Fuel, purchased power and gas and
Operation and maintenance expenses in the Consolidated
Statements of Operations. Ownership information of the two
utility plants as of December 31, 2009 was as follows:
|
Ludington
|
||||||||
|
Hydroelectric
|
||||||||
| Belle River | Pumped Storage | |||||||
|
In-service date
|
1984-1985 | 1973 | ||||||
|
Total plant capacity
|
1,260MW | 1,872MW | ||||||
|
Ownership interest
|
* | 49 | % | |||||
|
Investment (in millions)
|
$ | 1,626 | $ | 197 | ||||
|
Accumulated depreciation (in millions)
|
$ | 889 | $ | 128 | ||||
| * | Detroit Edison’s ownership interest is 63% in Unit No. 1, 81% of the facilities applicable to Belle River used jointly by the Belle River and St. Clair Power Plants and 75% in common facilities used at Unit No. 2. |
Belle
River
The Michigan Public Power Agency (MPPA) has an ownership
interest in Belle River Unit No. 1 and other related
facilities. The MPPA is entitled to 19% of the total capacity
and energy of the plant and is responsible for the same
percentage of the plant’s operation, maintenance and
capital improvement costs.
Ludington
Hydroelectric Pumped Storage
Consumers Energy Company has an ownership interest in the
Ludington Hydroelectric Pumped Storage Plant. Consumers Energy
is entitled to 51% of the total capacity and energy of the plant
and is responsible for the same percentage of the plant’s
operation, maintenance and capital improvement costs.
NOTE 9 —
ASSET RETIREMENT OBLIGATIONS
The Company has a legal retirement obligation for the
decommissioning costs for its Fermi 1 and Fermi 2 nuclear
plants. To a lesser extent, the Company has legal retirement
obligations for gas production facilities, gas gathering
facilities and various other operations. The Company has
conditional retirement obligations for gas pipeline retirement
costs and disposal of asbestos at certain of its power plants.
To a lesser extent, the Company has conditional retirement
obligations at certain service centers, compressor and gate
stations, and disposal costs for PCB contained within
transformers and circuit breakers. The Company recognizes such
obligations as liabilities at fair market value when they are
incurred, which generally is at the time the associated assets
are placed in service. Fair value is measured using expected
future cash outflows discounted
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
at our credit-adjusted risk-free rate. In its regulated
operations, the Company defers timing differences that arise in
the expense recognition of legal asset retirement costs that are
currently recovered in rates.
No liability has been recorded with respect to lead-based paint,
as the quantities of lead-based paint in the Company’s
facilities are unknown. In addition, there is no incremental
cost to demolitions of lead-based paint facilities vs.
non-lead-based paint facilities and no regulations currently
exist requiring any type of special disposal of items containing
lead-based paint.
The Ludington Hydroelectric Power Plant (a jointly owned plant)
has an indeterminate life and no legal obligation currently
exists to decommission the plant at some future date.
Substations, manholes and certain other distribution assets
within Detroit Edison have an indeterminate life. Therefore, no
liability has been recorded for these assets.
A reconciliation of the asset retirement obligations for 2009
follows:
| (in Millions) | ||||
|
Asset retirement obligations at January 1, 2009
|
$ | 1,361 | ||
|
Accretion
|
87 | |||
|
Liabilities incurred
|
1 | |||
|
Liabilities settled
|
(15 | ) | ||
|
Revision in estimated cash flows
|
5 | |||
|
Asset retirement obligations at December 31, 2009
|
1,439 | |||
|
Less amount included in current liabilities
|
(19 | ) | ||
| $ | 1,420 | |||
Detroit Edison has a legal obligation to decommission its
nuclear power plants following the expiration of their operating
licenses. This obligation is reflected as an asset retirement
obligation on the Consolidated Statements of Financial Position.
Based on the actual or anticipated extended life of the nuclear
plant, decommissioning expenditures for Fermi 2 are expected to
be incurred primarily during the period of 2025 through 2050. It
is estimated that the cost of decommissioning Fermi 2, when its
license expires in 2025, will be $1.3 billion in 2009
dollars and $3.4 billion in 2025 dollars, using a 6%
inflation rate. In 2001, Detroit Edison began the
decommissioning of Fermi 1, with the goal of removing the
radioactive material and terminating the Fermi 1 license. The
decommissioning of Fermi 1 is expected to be completed by 2012.
Approximately $1.2 billion of the asset retirement
obligations represent nuclear decommissioning liabilities that
are funded through a surcharge to electric customers over the
life of the Fermi 2 nuclear plant.
The NRC has jurisdiction over the decommissioning of nuclear
power plants and requires decommissioning funding based upon a
formula. The MPSC and FERC regulate the recovery of costs of
decommissioning nuclear power plants and both require the use of
external trust funds to finance the decommissioning of Fermi 2.
Rates approved by the MPSC provide for the recovery of
decommissioning costs of Fermi 2 and the disposal of low-level
radioactive waste. Detroit Edison is continuing to
fund FERC jurisdictional amounts for decommissioning even
though explicit provisions are not included in FERC rates. The
Company believes the MPSC and FERC collections will be adequate
to fund the estimated cost of decommissioning using the NRC
formula. The decommissioning assets, anticipated earnings
thereon and future revenues from decommissioning collections
will be used to decommission Fermi 2. The Company expects the
liabilities to be reduced to zero at the conclusion of the
decommissioning activities. If amounts remain in the trust funds
for Fermi 2 following the completion of the decommissioning
activities, those amounts will be disbursed based on rulings by
the MPSC and FERC.
A portion of the funds recovered through the Fermi 2
decommissioning surcharge and deposited in external trust
accounts is designated for the removal of non-radioactive assets
and the
clean-up
of
the Fermi
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Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
site. This removal and
clean-up
is
not considered a legal liability. Therefore, it is not included
in the asset retirement obligation, but is reflected as the
nuclear decommissioning liability. The decommissioning of Fermi
1 is funded by Detroit Edison. Contributions to the Fermi 1
trust are discretionary. See Note 4 for additional
discussion of Nuclear Decommissioning
Trust Fund Assets.
NOTE 10 —
DISPOSALS AND DISCONTINUED OPERATIONS
Sale
of Gathering and Processing Assets
In 2009, the Company sold certain non-strategic gas gathering
and processing assets in northern Michigan for gross proceeds of
approximately $45 million, which approximated its carrying
value, including allocated goodwill.
Sale
of Interest in Barnett Shale Properties
In 2008, the Company sold a portion of its Barnett shale
properties for gross proceeds of approximately
$260 million. The Company recognized a gain of
$128 million ($80 million after-tax) on the sale
during 2008.
Sale
of Antrim Shale Gas Exploration and Production
Business
In 2007, the Company sold its Antrim shale gas exploration and
production business (Antrim) for gross proceeds of
$1.3 billion. The pre-tax gain recognized on this sale
amounted to $900 million ($580 million after-tax) and
is reported on the Consolidated Statements of Operations under
the line item, “Gain on sale of non-utility business,”
and included in the Corporate & Other segment. Prior
to the sale, the operating results of Antrim were reflected in
the Unconventional Gas Production segment. The Antrim business
is not presented as a discontinued operation due to continuation
of cash flows related to the sale of a portion of Antrim’s
natural gas production to Energy Trading under the terms of
natural gas sales contracts that expire in 2010 and 2012.
Prior to the sale, a substantial portion of the Company’s
price risk related to expected gas production from its Antrim
shale business had been hedged through 2013. These financial
contracts were accounted for as cash flow hedges, with changes
in estimated fair value of the contracts reflected in other
comprehensive income. Upon the sale of Antrim, the financial
contracts no longer qualified as cash flow hedges. In
conjunction with the Antrim sale, the Company reclassified
amounts held in accumulated other comprehensive income and
recorded the effective settlements, reducing operating revenues
in 2007 by $323 million.
Plan
to Sell Interest in Certain Power and Industrial
Projects
During the third quarter of 2007, the Company announced its
plans to sell a 50% interest in a portfolio of select Power and
Industrial Projects. As a result, the assets and liabilities of
the Projects were classified as held for sale at that time and
the Company ceased recording depreciation and amortization
expense related to these assets. During 2008, the Company’s
work on this planned monetization was discontinued. As of
June 30, 2008, the assets and liabilities of the Projects
were no longer classified as held for sale. Depreciation and
amortization resumed in June 2008 when the assets were
reclassified as held and used. During the second quarter of
2008, the Company recorded a loss of $19 million related to
the valuation adjustment for the cumulative depreciation and
amortization not recorded during the held for sale period.
Synthetic
Fuel Business
The Company discontinued the operations of its synthetic fuel
production facilities throughout the United States as of
December 31, 2007. Synfuel plants chemically changed coal
and waste coal into a synthetic fuel as determined under the
Internal Revenue Code. Production tax credits were provided for
the production and sale of solid synthetic fuel produced from
coal and were available through December 31, 2007. The
synthetic fuel business generated operating losses that were
substantially offset by production tax credits.
96
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
The Company has 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 and will
survive until 90 days after expiration of all applicable
statutes of limitations. The Company estimates that its maximum
potential liability under these guarantees at December 31,
2009 is $2.8 billion.
The Company has reported the business activity of the synthetic
fuel business as a discontinued operation. The following amounts
exclude general corporate overhead costs:
| 2008 | 2007 | |||||||
| (in Millions) | ||||||||
|
Operating Revenues
|
$ | 7 | $ | 1,069 | ||||
|
Operation and Maintenance
|
9 | 1,265 | ||||||
|
Depreciation and Amortization
|
(2 | ) | (6 | ) | ||||
|
Taxes other than Income
|
(1 | ) | 5 | |||||
|
Asset (Gains) and Losses, Reserves and Impairments, Net(1)
|
(31 | ) | (280 | ) | ||||
|
Operating Income (Loss)
|
32 | 85 | ||||||
|
Other (Income) and Deductions
|
(2 | ) | (9 | ) | ||||
|
Income Taxes
|
||||||||
|
Provision
|
13 | 98 | ||||||
|
Production Tax Credits
|
(1 | ) | (21 | ) | ||||
| 12 | 77 | |||||||
|
Net Income
|
22 | 17 | ||||||
|
Noncontrolling interests
|
2 | (188 | ) | |||||
|
Net Income Attributable to DTE Energy Company(1)
|
$ | 20 | $ | 205 | ||||
| (1) | Includes intercompany pre-tax gain of $32 million ($21 million after-tax) for 2007. |
NOTE 11 —
OTHER IMPAIRMENTS AND RESTRUCTURING
Other
Impairments — Barnett Shale
Our Unconventional Gas Production segment recorded pre-tax
impairment losses of $6 million, $8 million and
$27 million in 2009, 2008 and 2007, respectively. The
impairments related primarily to the write-off of leases that
expired or will expire within the next twelve months that are
not expected to be developed under current economic conditions.
Restructuring
Costs
In 2005, the Company initiated a company-wide review of its
operations called the Performance Excellence Process.
Specifically, the Company began a series of focused improvement
initiatives within Detroit Edison and MichCon, and associated
corporate support functions. The Company incurred costs to
achieve (CTA) restructuring expense for employee severance and
other costs. Other costs include project management and
consultant support. In September 2006, the MPSC issued an order
approving a settlement agreement that allows Detroit Edison and
MichCon, commencing in 2006, to defer the incremental CTA.
Further, the order provides for Detroit Edison and MichCon to
amortize the CTA deferrals over a ten-year period beginning with
the year subsequent to the year the CTA was deferred. Detroit
Edison deferred approximately $24 million and
$54 million of CTA in 2008 and 2007 as a regulatory asset.
The recovery of these costs was provided for by the MPSC in the
order approving the settlement in the show cause proceeding and
in the December 23, 2008
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
MPSC rate order. Amortization of prior year deferred CTA costs
amounted to $18 million in 2009, $16 million in 2008
and $10 million in 2007. MichCon cannot defer CTA costs at
this time because a regulatory recovery mechanism has not been
established by the MPSC. MichCon is seeking a recovery mechanism
in its rate case filed in June 2009.
Amounts expensed are recorded in Operation and maintenance
expense on the Consolidated Statements of Operations. Deferred
amounts are recorded in Regulatory assets on the Consolidated
Statements of Financial Position. Costs incurred in 2008 and
2007 are as follows:
|
Employee
|
||||||||||||||||||||||||
| Severance Costs | Other Costs | Total Cost | ||||||||||||||||||||||
| 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |||||||||||||||||||
| (in Millions) | ||||||||||||||||||||||||
|
Costs incurred:
|
||||||||||||||||||||||||
|
Electric Utility
|
$ | — | $ | 15 | $ | 26 | $ | 50 | $ | 26 | $ | 65 | ||||||||||||
|
Gas Utility
|
— | 3 | 7 | 6 | 7 | 9 | ||||||||||||||||||
|
Other
|
— | 1 | 3 | 1 | 3 | 2 | ||||||||||||||||||
|
Total costs
|
— | 19 | 36 | 57 | 36 | 76 | ||||||||||||||||||
|
Less amounts deferred or capitalized:
|
||||||||||||||||||||||||
|
Electric Utility
|
— | 15 | 26 | 50 | 26 | 65 | ||||||||||||||||||
|
Amount expensed
|
$ | — | $ | 4 | 10 | $ | 7 | $ | 10 | $ | 11 | |||||||||||||
NOTE 12 —
REGULATORY MATTERS
Regulation
Detroit Edison and MichCon are subject to the regulatory
jurisdiction of the MPSC, which issues orders pertaining to
rates, recovery of certain costs, including the costs of
generating facilities and regulatory assets, conditions of
service, accounting and operating-related matters. Detroit
Edison is also regulated by the FERC with respect to financing
authorization and wholesale electric activities. Regulation
results in differences in the application of generally accepted
accounting principles between regulated and non-regulated
businesses.
Regulatory
Assets and Liabilities
Detroit Edison and MichCon are required to record regulatory
assets and liabilities for certain transactions that would have
been treated as revenue or expense in non-regulated businesses.
Continued applicability of regulatory accounting treatment
requires that rates be designed to recover specific costs of
providing regulated services and be charged to and collected
from customers. Future regulatory changes or changes in the
competitive environment could result in the discontinuance of
this accounting treatment for regulatory assets and liabilities
for some or all of our businesses and may require the write-off
of the portion of any regulatory asset or liability that was no
longer probable of recovery through regulated rates. Management
believes that currently available facts support the continued
use of regulatory assets and liabilities and that all regulatory
assets and liabilities are recoverable or refundable in the
current rate environment.
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
The following are balances and a brief description of the
regulatory assets and liabilities at December 31:
| 2009 | 2008 | |||||||
| (in Millions) | ||||||||
|
Assets
|
||||||||
|
Recoverable pension and postretirement costs:
|
||||||||
|
Pension
|
$ | 1,670 | $ | 1,505 | ||||
|
Postretirement costs
|
665 | 787 | ||||||
|
Recoverable income taxes related to securitized regulatory assets
|
476 | 549 | ||||||
|
Asset retirement obligation
|
415 | 452 | ||||||
|
Deferred income taxes — Michigan Business Tax
|
407 | 394 | ||||||
|
Recoverable uncollectible expense
|
138 | 122 | ||||||
|
Cost to achieve Performance Excellence Process
|
136 | 154 | ||||||
|
Other recoverable income taxes
|
89 | 89 | ||||||
|
Unamortized loss on reacquired debt
|
70 | 73 | ||||||
|
Deferred environmental costs
|
40 | 43 | ||||||
|
Enterprise Business Systems costs
|
24 | 26 | ||||||
|
Recoverable costs under PA 141
|
||||||||
|
Excess capital expenditures
|
— | 4 | ||||||
|
Deferred Clean Air Act expenditures
|
— | 10 | ||||||
|
Midwest Independent System Operator charges
|
— | 8 | ||||||
|
Electric Customer Choice implementation costs
|
18 | 37 | ||||||
|
Accrued PSCR/GCR revenue
|
— | 22 | ||||||
|
Other
|
15 | 8 | ||||||
| 4,163 | 4,283 | |||||||
|
Less amount included in current assets
|
(53 | ) | (52 | ) | ||||
| $ | 4,110 | $ | 4,231 | |||||
|
Securitized regulatory assets
|
$ | 870 | $ | 1,001 | ||||
|
Liabilities
|
||||||||
|
Asset removal costs
|
$ | 506 | $ | 534 | ||||
|
Deferred income taxes — Michigan Business Tax
|
423 | 388 | ||||||
|
Accrued pension:
|
||||||||
|
Negative pension offset
|
133 | 110 | ||||||
|
Pension equalization mechanism
|
75 | 72 | ||||||
|
Refundable income taxes
|
88 | 93 | ||||||
|
Accrued PSCR/GCR refund
|
39 | 11 | ||||||
|
Refundable costs under PA 141
|
27 | 16 | ||||||
|
Fermi 2 refueling outage
|
13 | 25 | ||||||
|
Renewable energy
|
32 | — | ||||||
|
Refundable self implemented rates
|
27 | — | ||||||
|
Refundable restoration expense
|
15 | — | ||||||
|
Other
|
11 | 5 | ||||||
| 1,389 | 1,254 | |||||||
|
Less amount included in current liabilities
|
(52 | ) | (52 | ) | ||||
| $ | 1,337 | $ | 1,202 | |||||
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
As noted below, regulatory assets for which costs have been
incurred have been included (or are expected to be included, for
costs incurred subsequent to the most recently approved rate
case) in Detroit Edison or MichCon’s rate base, thereby
providing a return on invested costs. Certain regulatory assets
do not result from cash expenditures and therefore do not
represent investments included in rate base or have offsetting
liabilities that reduce rate base.
ASSETS
| • | Recoverable pension and postretirement costs — In 2007, the Company adopted ASC 715 (SFAS No. 158) which required, among other things, the recognition in other comprehensive income of the actuarial gains or losses and the prior service costs that arise during the period but that are not immediately recognized as components of net periodic benefit costs. Detroit Edison and MichCon record the charge related to the additional liability as a regulatory asset since the traditional rate setting process allows for the recovery of pension and postretirement costs. The asset will reverse as the deferred items are recognized as benefit expenses in net income. (1) | |
| • | Recoverable income taxes related to securitized regulatory assets — Receivable for the recovery of income taxes to be paid on the non-bypassable securitization bond surcharge. A non-bypassable securitization tax surcharge recovers the income tax over a fourteen-year period ending 2015. | |
| • | Asset retirement obligation — This obligation is primarily for Fermi 2 decommissioning costs. The asset captures the timing differences between expense recognition and current recovery in rates and will reverse over the remaining life of the related plant. (1) | |
| • | Deferred income taxes — Michigan Business Tax (MBT) — In July 2007, the MBT was enacted by the State of Michigan. State deferred tax liabilities were established for the Company’s utilities, and offsetting regulatory assets were recorded as the impacts of the deferred tax liabilities will be reflected in rates as the related taxable temporary differences reverse and flow through current income tax expense. (1) | |
| • | Recoverable uncollectible expense — MichCon and Detroit Edison receivable for the MPSC approved uncollectible expense tracking mechanism that tracks the difference in the fluctuation in uncollectible accounts and amounts recognized pursuant to the MPSC authorization. | |
| • | Cost to achieve Performance Excellence Process (PEP) — The MPSC authorized the deferral of costs to implement the PEP. These costs consist of employee severance, project management and consultant support. These costs will be amortized over a ten-year period beginning with the year subsequent to the year the costs were deferred. (1) | |
| • | Other recoverable income taxes — Income taxes receivable from Detroit Edison’s customers representing the difference in property-related deferred income taxes receivable and amounts previously reflected in Detroit Edison’s rates. This asset will reverse over the remaining life of the related plant. (1) | |
| • | Unamortized loss on reacquired debt — The unamortized discount, premium and expense related to debt redeemed with a refinancing are deferred, amortized and recovered over the life of the replacement issue. (1) | |
| • | Deferred environmental costs — The MPSC approved the deferral and recovery of investigation and remediation costs associated with Gas Utility’s former MGP sites. This asset is offset in working capital by an environmental liability reserve. The amortization of the regulatory asset is not included in MichCon’s current rates because it is offset by the recognition of insurance proceeds. MichCon will request recovery of the remaining asset balance in future rate filings after the recognition of insurance proceeds is complete. (1) |
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
| • | Enterprise Business Systems (EBS) costs — The MPSC approved the deferral and amortization over 10 years beginning in January 2009 of EBS costs that would otherwise be expensed. (1) | |
| • | Excess capital expenditures — PA 141 permits, after MPSC authorization, the recovery of and a return on capital expenditures that exceed a base level of depreciation expense. | |
| • | Deferred Clean Air Act expenditures — PA 141 permits, after MPSC authorization, the recovery of and a return on Clean Air Act expenditures. | |
| • | Midwest Independent System Operator charges — PA 141 permits, after MPSC authorization, the recovery of and a return on charges from a regional transmission operator such as the Midwest Independent System Operator. | |
| • | Electric Customer Choice implementation costs — PA 141 permits, after MPSC authorization, the recovery of and a return on costs incurred associated with the implementation of the electric Customer Choice program. | |
| • | Accrued PSCR revenue — Receivable for the temporary under-recovery of and a return on fuel and purchased power costs incurred by Detroit Edison which are recoverable through the PSCR mechanism. | |
| • | Accrued GCR revenue — Receivable for the temporary under-recovery of and a return on gas costs incurred by MichCon which are recoverable through the GCR mechanism. | |
| • | Securitized regulatory assets — The net book balance of the Fermi 2 nuclear plant was written off in 1998 and an equivalent regulatory asset was established. In 2001, the Fermi 2 regulatory asset and certain other regulatory assets were securitized pursuant to PA 142 and an MPSC order. A non-bypassable securitization bond surcharge recovers the securitized regulatory asset over a fourteen-year period ending in 2015. |
| (1) | Regulatory assets not earning a return. |
LIABILITIES
| • | Asset removal costs — The amount collected from customers for the funding of future asset removal activities. | |
| • | Deferred income taxes — Michigan Business Tax — In July 2007, the MBT was enacted by the State of Michigan. State deferred tax assets were established for the Company’s utilities, and offsetting regulatory liabilities were recorded as the impacts of the deferred tax assets will be reflected in rates. | |
| • | Pension equalization mechanism — Pension expense refundable to customers representing the difference created from volatility in the pension obligation and amounts recognized pursuant to MPSC authorization. | |
| • | Negative pension offset — MichCon’s negative pension costs are not included as a reduction to its authorized rates; therefore, the Company is accruing a regulatory liability to eliminate the impact on earnings of the negative pension expense accrued. This regulatory liability will reverse to the extent MichCon’s pension expense is positive in future years. | |
| • | Refundable income taxes — Income taxes refundable to MichCon’s customers representing the difference in property-related deferred income taxes payable and amounts recognized pursuant to MPSC authorization. | |
| • | Accrued PSCR refund — Liability for the temporary over-recovery of and a return on power supply costs and transmission costs incurred by Detroit Edison which are recoverable through the PSCR mechanism. |
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
| • | Accrued GCR refund — Liability for the temporary over-recovery of and a return on gas costs incurred by MichCon which are recoverable through the GCR mechanism. | |
| • | Refundable costs under PA 141 — Detroit Edison’s 2007 Choice Incentive Mechanism (CIM) reconciliation and allocation resulted in the elimination of Regulatory Asset Recovery Surcharge (RARS) balances for commercial and industrial customers. RARS revenues received that exceed the regulatory asset balances are required to be refunded to the affected classes. | |
| • | Fermi 2 refueling outage — Accrued liability for refueling outage at Fermi 2 pursuant to MPSC authorization. | |
| • | Renewable energy — Amounts collected in rates in excess of renewable energy expenditures. | |
| • | Refundable self implemented rates — Amounts refundable to customers for base rates implemented from July 26, 2009 to December 31, 2009 in excess of amounts authorized in the January 2010 Detroit Edison MPSC order. | |
| • | Refundable restoration expense — Amounts refundable for the MPSC approved restoration expenses tracking mechanism that tracks the difference between actual restoration expense and the amount provided for in base rates, recognized pursuant to the MPSC authorization. |
2009
Electric Rate Case Filing
On January 11, 2010, the MPSC issued an order in Detroit
Edison’s January 26, 2009 rate case filing. The MPSC
approved an annual revenue increase of $217 million or a
4.8% increase in Detroit Edison’s annual revenue
requirement for 2010. Included in the approved increase in
revenues was a return on equity of 11% on an expected 49% equity
and 51% debt capital structure. Since the final rate relief
ordered was less than the Company’s self-implemented rate
increase of $280 million effective on July 26, 2009,
the MPSC ordered refunds for the period the self-implemented
rates were in effect. Detroit Edison has recorded a refund
liability of $27 million at December 31, 2009
representing the 2009 portion of the estimated refund due
customers, including interest. The MPSC ordered Detroit Edison
to file a refund plan by April 1, 2010.
Other key aspects of the MPSC order include the following:
| • | Continued progress toward correcting the existing rate structure to more accurately reflect the actual cost of providing service to business customers; | |
| • | Continued application of an adjustment mechanism for Electric Choice sales that reconciles actual customer choice sales with a base customer choice sales level of 1,586 GWh; | |
| • | Continued application of adjustment mechanisms to track expenses associated with restoration costs (storm and non-storm related expenses) and line clearance expenses. Annual reconciliations will be required using a base expense level of $117 million and $47 million, respectively. The change in base expense level was applied effective as of the July 26, 2009 self-implementation date; | |
| • | Implementation of a pilot Revenue Decoupling Mechanism, that will compare actual non-weather normalized sales per customer with the base sales per customer level established in this case for the period February 1, 2010 to January 31, 2011; and | |
| • | Implementation of an Uncollectible Expense Tracking Mechanism, based on a $66 million expense level, with an 80/20 percent sharing of the expenses above or below the base amount. The Uncollectible Expenses Tracking Mechanism was applied effective as of the July 26, 2009 self-implementation date. |
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Renewable
Energy Plan
In March 2009, Detroit Edison filed its Renewable Energy Plan
with the MPSC as required under 2008 PA 295. The Renewable
Energy Plan application requests authority to recover
approximately $35 million of additional revenue in 2009.
The proposed revenue increase is necessary in order to properly
implement Detroit Edison’s
20-year
renewable energy plan to address the provisions of 2008 PA 295,
to deliver cleaner, renewable electric generation to its
customers, to further diversify Detroit Edison’s and the
State of Michigan’s sources of electric supply, and to
address the state and national goals of increasing energy
independence. An MPSC order was issued June 2, 2009
approving the renewable energy plan and customer surcharges. The
Renewable Energy Plan surcharges became effective in September
2009.
Energy
Optimization Plans
In March 2009, Detroit Edison and MichCon filed Energy
Optimization Plans with the MPSC as required under 2008 PA 295.
The Energy Optimization Plan applications are designed to help
each customer class reduce their electric and gas usage by:
(1) building customer awareness of energy efficiency
options and (2) offering a diverse set of programs and
participation options that result in energy savings for each
customer class. Detroit Edison’s Energy Optimization Plan
application proposed energy optimization expenditures for the
period
2009-2011
of
$134 million and further requests approval of surcharges
that are designed to recover these costs. MichCon’s Energy
Optimization Plan application proposed energy optimization
expenditures for the period
2009-2011
of
$55 million and further requests approval of surcharges
that are designed to recover these costs. An MPSC order was
issued June 2, 2009 approving the Energy Optimization Plans
of $117 million and $48 million for Detroit Edison and
MichCon, respectively. The surcharges to recover these costs
were implemented effective June 3, 2009. An MPSC order was
issued September 29, 2009 approving incentive mechanisms
for both utilities. The mechanism allows a maximum payout of 15%
of program expenditures when the utility meets or exceeds the
savings target by 15%.
2009
Detroit Edison Depreciation Filing
In 2007, the MPSC ordered Michigan utilities to file
depreciation studies using the current method, an approach that
considers the time value of money and an inflation adjusted
method proposed by the Company that removes excess escalation.
In compliance with the MPSC order, Detroit Edison filed its
ordered depreciation studies in November 2009. The various
required depreciation studies indicate composite depreciation
rates from 3.05% to 3.54%. The Company has proposed no change to
its current composite depreciation rate of 3.33%. The Company
expects an order in this proceeding in the fourth quarter of
2010.
Power
Supply Cost Recovery Proceedings
The PSCR process is designed to allow us to recover all of our
power supply costs if incurred under reasonable and prudent
policies and practices. Our power supply costs include fuel
costs, purchased and net interchange power costs, nitrogen oxide
and sulfur dioxide emission allowances costs, transmission costs
and MISO costs. The MPSC reviews these costs, policies and
practices for prudence in annual plan and reconciliation filings.
2007 Plan Year
— An MPSC order was issued on
January 25, 2010 approving a 2007 PSCR under collection
amount of $38 million inclusive of a $2.7 million
outage disallowance and the recovery of this amount as part of
the 2008 PSCR reconciliation. In addition, the order approved
Detroit Edison’s Pension Equalization Mechanism
reconciliation and authorized the Company to refund the
$21 million over recovery, including interest, to customers
in February 2010.
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Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
The following table summarizes Detroit Edison’s PSCR
reconciliation filing currently pending with the MPSC:
|
Net Over
|
PSCR Cost of
|
Description of Net
|
||||||
|
PSCR Year
|
Date Filed | (Under)-recovery | Power Sold |
Under-recovery
|
||||
|
2008
|
March 2009 | $(15.6) million | $1.3 billion | The total amount reflects an under-recovery of $14.8 million, plus $0.8 million in accrued interest due from customers |
2009 Plan Year
— In September 2008, Detroit
Edison submitted its 2009 PSCR plan filing to the MPSC. The plan
includes the recovery of its 2008 PSCR under-collection from all
customers and the refund of its 2005 PSCR reconciliation
surcharge over-collection to commercial and industrial customers
only. On June 29, 2009, the parties to this proceeding
submitted a Settlement Agreement in this matter agreeing to
maximum PSCR factors of 1.67 mills/kWh for residential customers
and 1.35 mills/kWh for commercial and industrial customers and
otherwise resolving this 2009 PSCR Plan case. An MPSC order was
issued on January 25, 2010 approving the settlement.
2010 Plan Year
— In September 2009, Detroit
Edison submitted its 2010 PSCR plan case seeking approval of a
levelized PSCR factor of 5.64 mills/kWh below the amount
included in base rates for all PSCR customers. The filing
supports a 2010 power supply expense forecast of
$1.2 billion. Also included in the filing is a request for
approval of the Company’s expense associated with the use
of urea in the selective catalytic reduction units at Monroe
power plant as well as a request for approval of a contract for
capacity and energy associated with a wind energy project. The
Company has also requested authority to recover transfer prices
for renewable energy, coke oven gas expense and other potential
expenses.
2009
Gas Rate Case Filing
MichCon filed a general rate case on June 9, 2009 based on
a 2008 historical test year. The filing with the MPSC requested
a $193 million, or 11.5 percent average increase in
MichCon’s annual revenues for a 2010 projected test year.
The requested $193 million increase in revenues is required
to recover the increased costs associated with increased
investments in net plant and working capital, the impact of high
levels of uncollectible expense and the cost of natural gas
theft primarily due to economic conditions in Michigan, sales
reductions due to customer conservation and the trend of warmer
weather on MichCon’s market, and increasing operating
costs, largely due to inflation.
In addition, MichCon’s filing made, among other requests,
the following proposals:
| • | Implementation of a Lost Gas and Company Use — Expense Tracking Mechanism; | |
| • | Continued application of an uncollectible expense tracking mechanism based on a $70 million expense level of uncollectible expenses; and, | |
| • | Implementation of a revenue decoupling mechanism. Revenue decoupling is an adjustment mechanism that would provide revenues consistent with the allowed revenue requirement with a periodic adjustment for changes in sales levels. |
Pursuant to the October 2008 Michigan legislation, and the
settlement in MichCon’s last base gas sale case, MichCon
self-implemented $170 million of its requested annual
increase on January 1, 2010. This increase will remain in
place until a final order is issued by the MPSC, which is
expected in June 2010. If the final rate case order does not
support the self-implemented rate increase, MichCon must refund
the difference with interest.
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
2008
MichCon Depreciation Filing
In 2007, the MPSC ordered Michigan utilities to file
depreciation studies using the current method, an approach that
considers the time value of money and an inflation adjusted
method proposed by the Company that removes excess escalation.
In compliance with the MPSC order MichCon filed its ordered
depreciation studies in November 2008. The various required
depreciation studies indicate composite depreciation rates from
2.07% to 2.55%. The Company has proposed no change to its
current composite depreciation rate of 2.97%. The Company
expects an order in this proceeding in 2010.
Gas
Cost Recovery Proceedings
The GCR process is designed to allow us to recover all of our
gas supply costs if incurred under reasonable and prudent
policies and practices. The MPSC reviews these costs, policies
and practices for prudence in annual plan and reconciliation
filings.
The following table summarizes MichCon’s GCR reconciliation
filing currently pending with the MPSC:
|
Description of Net
|
||||||||
|
Net Over
|
Over (Under)
|
|||||||
| GCR Year | Date Filed | (Under)-recovery | GCR Cost of Gas Sold | Recovery | ||||
|
2008-2009
|
June 2009 | $5.4 million | $1.2 billion | The total amount reflects an overrecovery of $5.9 million, less $0.5 million in accrued interest due from customers |
2009-2010
Plan Year —
In December 2008, MichCon filed its
GCR plan case for the
2009-2010
GCR plan year. The MPSC issued an order in this case on
November 12, 2009 authorizing a base gas cost recovery
factor of $8.46 per Mcf.
2010-2011
Plan Year —
In December 2009, MichCon filed its
GCR plan case for the
2010-2011
GCR plan year. MichCon filed for a maximum GCR factor of $7.06
per Mcf, adjustable by a contingent mechanism.
2009 Base Gas Sale
— In July 2008, MichCon
filed an application with the MPSC requesting permission to sell
an additional 4 Bcf of base gas that will become available
for sale as a result of better than expected operations at its
storage fields. In February 2009, a settlement agreement was
filed with the MPSC, which will allow MichCon to sell and retain
the profits of 2 Bcf of base gas, with the remaining
2 Bcf to be used for the benefit of GCR customers as
colder-than-normal
weather protection. An MPSC order was issued March 5, 2009
approving the settlement. MichCon sold 2 Bcf of base gas in
December 2009 at a pre-tax gain of $9 million.
2007-2008
Plan Year / Base Gas Sale Consolidated —
In August
2006, MichCon filed an application with the MPSC requesting
permission to sell base gas that would become accessible with
storage facilities upgrades. In August 2007, a settlement
agreement in this proceeding was reached by all intervening
parties that provided for a sharing with customers of the
proceeds from the sale of base gas. In addition, the agreement
provided for a rate case filing moratorium until January 1,
2009, unless certain unanticipated changes occur that impact
income by more than $5 million. The settlement agreement
was approved by the MPSC in August 2007. Under the settlement
terms, MichCon delivered 13.4 Bcf of this gas to its customers
through 2007 at a savings to market-priced supplies of
approximately $41 million. This settlement also provided
for MichCon to retain the proceeds from the sale of 3.6 Bcf of
base gas, of which MichCon sold
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
0.75 Bcf of base gas in 2007 at a pre-tax gain of
$5 million and 2.84 Bcf in December 2008 at a pre-tax gain
of $22 million.
Merger
Control Premium Costs
In July 2007, the State of Michigan Court of Appeals published
its decision with respect to an appeal by Detroit Edison and
others of certain provisions of a November 2004 MPSC order,
including reversing the MPSC’s denial of recovery of merger
control premium costs. In its published decision, the Court of
Appeals held that Detroit Edison is entitled to recover its
allocated share of the merger control premium and remanded this
matter to the MPSC for further proceedings to establish the
precise amount and timing of this recovery. In September 2007,
the Court of Appeals remanded to the MPSC, for reconsideration,
the MichCon recovery of merger control premium costs. Other
parties filed requests for leave to appeal to the Michigan
Supreme Court from the Court of Appeals decision and in
September 2008, the Michigan Supreme Court granted the requests
to address the merger control premium as well as the recovery of
transmission costs through the PSCR. On May 1, 2009, the
Michigan Supreme Court issued an order reversing the Court of
Appeals decision with respect to recovery of the merger control
premium, and reinstated the MPSC’s decision excluding the
control premium costs from Detroit Edison’s general rates.
The Court affirmed the lower court’s decision upholding the
right of Detroit Edison to recover electric transmission costs
through the Company’s PSCR clause. The Company requested
rehearing of the Supreme Court order on the merger premium and
the Michigan Attorney General requested rehearing of the
transmission portion of the order. On June 26, 2009, the
Michigan Supreme Court denied both requests for rehearing. On
September 29, 2009, the MPSC granted MichCon’s
June 1, 2009 Motion for Commission’s Decision and
Remand for Control Premium Recovery but denied MichCon’s
requested rate relief by reaffirming the MPSC’s denial of
recovery of MichCon’s portion of the control premium in
MichCon’s last rate case. The above actions did not have an
impact on the Company’s consolidated financial statements.
Other
The Company is unable to predict the outcome of the unresolved
regulatory matters discussed herein. Resolution of these matters
is dependent upon future MPSC orders and appeals, which may
materially impact the financial position, results of operations
and cash flows of the Company.
106
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
NOTE 13 —
INCOME TAXES
Income
Tax Summary
The Company files a consolidated federal income tax return.
Total income tax expense varied from the statutory federal
income tax rate for the following reasons:
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Income before income taxes
|
$ | 782 | $ | 819 | $ | 1,155 | ||||||
|
Income tax expense at 35% statutory rate
|
$ | 274 | $ | 287 | $ | 404 | ||||||
|
Production tax credits
|
(12 | ) | (7 | ) | (11 | ) | ||||||
|
Investment tax credits
|
(7 | ) | (7 | ) | (8 | ) | ||||||
|
Depreciation
|
(4 | ) | (4 | ) | (4 | ) | ||||||
|
Employee Stock Ownership Plan dividends
|
(5 | ) | (4 | ) | (5 | ) | ||||||
|
Medicare part D subsidy
|
(6 | ) | (5 | ) | (6 | ) | ||||||
|
Domestic production activities deduction
|
(5 | ) | (2 | ) | (2 | ) | ||||||
|
Goodwill attributed to the sale of Gas Utility subsidiaries
|
4 | — | — | |||||||||
|
Settlement of Federal tax audit
|
(11 | ) | — | — | ||||||||
|
State and local income taxes, net of federal benefit
|
25 | 23 | 2 | |||||||||
|
Other, net
|
(6 | ) | 7 | (6 | ) | |||||||
|
Income tax expense from continuing operations
|
$ | 247 | $ | 288 | $ | 364 | ||||||
|
Effective income tax rate
|
31.6 | % | 35.2 | % | 31.5 | % | ||||||
Components of income tax expense were as follows:
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Continuing operations
|
||||||||||||
|
Current income taxes
|
||||||||||||
|
Federal
|
$ | 25 | $ | 130 | $ | 276 | ||||||
|
State and other income tax expense
|
17 | 17 | 1 | |||||||||
|
Total current income taxes
|
42 | 147 | 277 | |||||||||
|
Deferred income taxes
|
||||||||||||
|
Federal
|
182 | 121 | 85 | |||||||||
|
State and other income tax expense
|
23 | 20 | 2 | |||||||||
|
Total deferred income taxes
|
205 | 141 | 87 | |||||||||
|
Total income taxes from continuing operations
|
247 | 288 | 364 | |||||||||
|
Discontinued operations
|
— | 12 | 66 | |||||||||
|
Total
|
$ | 247 | $ | 300 | $ | 430 | ||||||
Deferred tax assets and liabilities are recognized for the
estimated future tax effect of temporary differences between the
tax basis of assets or liabilities and the reported amounts in
the financial statements. Deferred tax assets and liabilities
are classified as current or noncurrent according to the
classification of the related assets or liabilities. Deferred
tax assets and liabilities not related to assets or liabilities
are classified according to the expected reversal date of the
temporary differences. Consistent with rate making treatment,
deferred taxes are offset in the table below for temporary
differences which have related regulatory assets and liabilities.
107
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Deferred tax assets (liabilities) were comprised of the
following at December 31:
| 2009 | 2008 | |||||||
| (in Millions) | ||||||||
|
Property, plant and equipment
|
$ | (1,932 | ) | $ | (1,734 | ) | ||
|
Securitized regulatory assets
|
(474 | ) | (545 | ) | ||||
|
Alternative minimum tax credit carry-forwards
|
197 | 224 | ||||||
|
Merger basis differences
|
51 | 51 | ||||||
|
Pension and benefits
|
17 | 33 | ||||||
|
Other comprehensive income
|
75 | 81 | ||||||
|
Derivative assets and liabilities
|
59 | 109 | ||||||
|
State net operating loss and credit carry-forwards
|
43 | 42 | ||||||
|
Other
|
78 | 50 | ||||||
| (1,886 | ) | (1,689 | ) | |||||
|
Less valuation allowance
|
(43 | ) | (42 | ) | ||||
| $ | (1,929 | ) | $ | (1,731 | ) | |||
|
Current deferred income tax assets
|
$ | 167 | $ | 227 | ||||
|
Long-term deferred income tax liabilities
|
(2,096 | ) | (1,958 | ) | ||||
| $ | (1,929 | ) | $ | (1,731 | ) | |||
|
Deferred income tax assets
|
$ | 1,462 | $ | 1,406 | ||||
|
Deferred income tax liabilities
|
(3,391 | ) | (3,137 | ) | ||||
| $ | (1,929 | ) | $ | (1,731 | ) | |||
Production tax credits earned in prior years but not utilized
totaled $197 million and are carried forward indefinitely
as alternative minimum tax credits. The majority of the
production tax credits earned, including all of those from our
synfuel projects, were generated from projects that had received
a private letter ruling (PLR) from the Internal Revenue Service
(IRS). These PLRs provide assurance as to the appropriateness of
using these credits to offset taxable income, however, these tax
credits are subject to IRS audit and adjustment.
The above table excludes deferred tax liabilities associated
with unamortized investment tax credits that are shown
separately on the Consolidated Statements of Financial Position.
Investment tax credits are deferred and amortized to income over
the average life of the related property.
The Company has state deferred tax assets related to net
operating loss and credit carry-forwards of $43 million and
$42 million at December 31, 2009 and 2008,
respectively. The state net operating loss and credit
carry-forwards expire from 2010 through 2029. The Company has
recorded valuation allowances at December 31, 2009 and 2008
of approximately $43 million and $42 million,
respectively, a change of $1 million, with respect to these
deferred tax assets. In assessing the realizability of deferred
tax assets, the Company considers whether it is more likely than
not that some portion or all of the deferred tax assets will not
be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during
the periods in which those temporary differences become
deductible. Based upon the level of historical taxable income
and projections for future taxable income over the periods which
the deferred tax assets are deductible, the Company believes it
is more likely than not that it will realize the benefits of
those deductible differences, net of the existing valuation
allowance as of December 31, 2009.
108
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Uncertain
Tax Positions
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Balance at January 1
|
$ | 72 | $ | 22 | $ | 45 | ||||||
|
Additions for tax positions of prior years
|
15 | 12 | 4 | |||||||||
|
Reductions for tax positions of prior years
|
(5 | ) | (5 | ) | (8 | ) | ||||||
|
Additions for tax positions related to the current year
|
7 | 47 | — | |||||||||
|
Settlements
|
(5 | ) | (1 | ) | (15 | ) | ||||||
|
Lapse of statute of limitations
|
(3 | ) | (3 | ) | (4 | ) | ||||||
|
Balance at December 31
|
$ | 81 | $ | 72 | $ | 22 | ||||||
The Company has $7 million of unrecognized tax benefits at
December 31, 2009, that, if recognized, would favorably
impact our effective tax rate. During the next twelve months, it
is reasonably possible that the Company will settle certain
state tax examinations and audits. Furthermore, during the next
twelve months, statutes of limitations will expire for the
Company’s tax returns in various states. Therefore, as of
December 31, 2009, the Company believes that it is
reasonably possible that there will be a decrease in
unrecognized tax benefits of up to $2 million within the
next twelve months.
The Company recognizes interest and penalties pertaining to
income taxes in Interest expense and Other expenses,
respectively, on its Consolidated Statements of Operations.
Accrued interest pertaining to income taxes totaled
$6 million and $8 million at December 31, 2009
and December 31, 2008, respectively. The Company had no
accrued penalties pertaining to income taxes. The Company
recognized interest expense related to income taxes of
$(2) million, $2 million and $1 million in 2009,
2008 and 2007, respectively.
In 2009, the Company settled a federal tax audit for the 2004
through 2006 tax years, which resulted in the recognition of
$9 million of unrecognized tax benefits. The Company’s
U.S. federal income tax returns for years 2007 and
subsequent years remain subject to examination by the IRS. The
Company’s Michigan Business Tax for the year 2008 is
subject to examination by the State of Michigan. The Company
also files tax returns in numerous state and local jurisdictions
with varying statutes of limitation.
Michigan
Business Tax
In July 2007, the Michigan Business Tax (MBT) was enacted by the
State of Michigan to replace the Michigan Single Business Tax
(MSBT) effective January 1, 2008. The MBT is comprised of
an apportioned modified gross receipts tax of 0.8 percent;
and an apportioned business income tax of 4.95 percent. The
MBT provides credits for Michigan business investment,
compensation, and research and development. Legislation was also
enacted, in 2007, by the State of Michigan creating a deduction
for businesses that realize an increase in their deferred tax
liability due to the enactment of the MBT. The MBT is accounted
for as an income tax.
The MBT consolidated deferred tax liability balance is
$357 million as of December 31, 2009 and is reported
net of the related federal tax benefit. The MBT deferred tax
asset balance is $331 million as of December 31, 2009
and is reported net of the related federal deferred tax
liability. The utilities’ regulatory asset balance is
$407 million and the regulatory liability balance is
$423 million as of December 31, 2009 and is further
discussed in Note 12.
109
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
NOTE 14 —
COMMON STOCK
Common
Stock
In May 2007, The DTE Energy Board of Directors authorized the
repurchase of up to $850 million of common stock through
2009. During 2009, no repurchases of common stock were made
under this authorization that expired on December 31, 2009.
Under the DTE Energy Company Long-Term Incentive Plan, the
Company grants non-vested stock awards to key employees,
primarily management. As a result of a stock award, a settlement
of an award of performance shares, or by exercise of a
participant’s stock option, the Company may deliver common
stock from the Company’s authorized but unissued common
stock
and/or
from outstanding common stock acquired by or on behalf of the
Company in the name of the participant.
Dividends
Certain of the Company’s credit facilities contain a
provision requiring the Company to maintain a total funded debt
to capitalization ratio, as defined in the agreements, of no
more than 0.65 to 1, which has the effect of limiting the amount
of dividends the Company can pay in order to maintain compliance
with this provision. The effect of this provision as of
December 31, 2009 was to restrict the payment of
approximately $268 million of total retained earnings of
approximately $3.2 billion. There are no other effective
limitations with respect to the Company’s ability to pay
dividends.
NOTE 15 —
EARNINGS PER SHARE
The Company reports both basic and diluted earnings per share.
The calculation of diluted earnings per share assumes the
issuance of potentially dilutive common shares outstanding
during the period from the exercise of stock options. Effective
January 1, 2009, the adoption of new accounting
requirements clarifying the definition of participating
securities to be included in the earnings per share calculation
had the effect of reducing previously reported 2008 amounts for
basic and diluted earnings per share by $.03 and $.02,
110
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
respectively. The corresponding reduction in 2007 for basic and
diluted earnings per share was $.03 and $.01, respectively. A
reconciliation of both calculations is presented in the
following table as of December 31:
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions, except per share amounts) | ||||||||||||
|
Basic Earnings per Share
|
||||||||||||
|
Net income attributable to DTE Energy Company
|
$ | 532 | $ | 546 | $ | 971 | ||||||
|
Average number of common shares outstanding
|
164 | 163 | 170 | |||||||||
|
Weighted average net restricted shares outstanding
|
1 | 1 | 1 | |||||||||
|
Dividends declared — common shares
|
$ | 347 | $ | 344 | $ | 356 | ||||||
|
Dividends declared — net restricted shares
|
$ | 2 | $ | 2 | $ | 2 | ||||||
|
Total distributed earnings
|
$ | 349 | $ | 346 | $ | 358 | ||||||
|
Net income less distributed earnings
|
$ | 183 | $ | 200 | $ | 613 | ||||||
|
Distributed (dividends per common share)
|
$ | 2.12 | $ | 2.12 | $ | 2.12 | ||||||
|
Undistributed
|
1.12 | 1.22 | 3.58 | |||||||||
|
Total Basic Earnings per Common Share
|
$ | 3.24 | $ | 3.34 | $ | 5.70 | ||||||
|
Diluted Earnings per Share
|
||||||||||||
|
Net income attributable to DTE Energy Company
|
$ | 532 | $ | 546 | $ | 971 | ||||||
|
Average number of common shares outstanding
|
164 | 163 | 170 | |||||||||
|
Average incremental shares from assumed exercise of options
|
— | — | 1 | |||||||||
|
Common shares for dilutive calculation
|
164 | 163 | 171 | |||||||||
|
Weighted average net restricted shares outstanding
|
1 | 1 | 1 | |||||||||
|
Dividends declared — common shares
|
$ | 347 | $ | 344 | $ | 356 | ||||||
|
Dividends declared — net restricted shares
|
$ | 2 | $ | 2 | $ | 2 | ||||||
|
Total distributed earnings
|
$ | 349 | $ | 346 | $ | 358 | ||||||
|
Net income less distributed earnings
|
$ | 183 | $ | 200 | $ | 613 | ||||||
|
Distributed (dividends per common share)
|
$ | 2.12 | $ | 2.12 | $ | 2.12 | ||||||
|
Undistributed
|
1.12 | 1.22 | 3.57 | |||||||||
|
Total Diluted Earnings per Common Share
|
$ | 3.24 | $ | 3.34 | $ | 5.69 | ||||||
Options to purchase approximately 4 million shares,
5 million shares and 2,100 shares of common stock in
2009, 2008 and 2007, respectively, were not included in the
computation of diluted earnings per share because the
options’ exercise price was greater than the average market
price of the common shares, thus making these options
anti-dilutive.
111
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
NOTE 16 —
LONG-TERM DEBT
Long-Term
Debt
The Company’s long-term debt outstanding and weighted
average interest rates (1) of debt outstanding at December
31 were:
| 2009 | 2008 | |||||||
| (in Millions) | ||||||||
|
Mortgage bonds, notes, and other
|
||||||||
|
DTE Energy Debt, Unsecured
|
||||||||
|
6.7% due 2010 to 2033
|
$ | 1,597 | $ | 1,497 | ||||
|
Detroit Edison Taxable Debt, Principally Secured
|
||||||||
|
5.9% due 2010 to 2038
|
2,829 | 2,841 | ||||||
|
Detroit Edison Tax-Exempt Revenue Bonds(2)
|
||||||||
|
5.5% due 2011 to 2036
|
1,263 | 1,263 | ||||||
|
MichCon Taxable Debt, Principally Secured
|
||||||||
|
6.1% due 2012 to 2033
|
889 | 889 | ||||||
|
Other Long-Term Debt, Including Non-Recourse Debt
|
180 | 188 | ||||||
| 6,758 | 6,678 | |||||||
|
Less amount due within one year
|
(521 | ) | (220 | ) | ||||
| $ | 6,237 | $ | 6,458 | |||||
|
Securitization bonds
|
||||||||
|
6.4% due 2010 to 2015
|
$ | 933 | $ | 1,064 | ||||
|
Less amount due within one year
|
(140 | ) | (132 | ) | ||||
| $ | 793 | $ | 932 | |||||
|
Trust preferred-linked securities
|
||||||||
|
7.8% due 2032
|
$ | 186 | $ | 186 | ||||
|
7.5% due 2044
|
103 | 103 | ||||||
| $ | 289 | $ | 289 | |||||
| (1) | Weighted average interest rates as of December 31, 2009 are shown below the description of each category of debt. | |
| (2) | Detroit Edison Tax-Exempt Revenue Bonds are issued by a public body that loans the proceeds to Detroit Edison on terms substantially mirroring the Revenue Bonds. |
112
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Debt
Issuances
In 2009, the Company issued or remarketed the following
long-term debt:
|
Company
|
Month Issued |
Type
|
Interest Rate | Maturity | Amount | |||||||||||
| (in Millions) | ||||||||||||||||
|
Detroit Edison
|
April | Tax-Exempt Revenue Bonds(1) | 6.00 | % | 2036 | $ | 69 | |||||||||
|
DTE Energy
|
May | Senior Notes(2) | 7.625 | % | 2014 | 300 | ||||||||||
|
Detroit Edison
|
June | Tax-Exempt Revenue Bonds(3) | 5.625 | % | 2020 | 32 | ||||||||||
|
Detroit Edison
|
June | Tax-Exempt Revenue Bonds(4) | 5.25 | % | 2029 | 60 | ||||||||||
|
Detroit Edison
|
June | Tax-Exempt Revenue Bonds(5) | 5.50 | % | 2029 | 59 | ||||||||||
|
Detroit Edison
|
November | Tax-Exempt Revenue Bonds(6) | 3.05 | % | 2024 | 65 | ||||||||||
| $ | 585 | |||||||||||||||
| (1) | Proceeds were used to refund existing Tax-Exempt Revenue Bonds. | |
| (2) | Proceeds were used to repay short-term borrowings. | |
| (3) | These Tax-Exempt Revenue Bonds were converted from a variable rate mode and remarketed in a fixed rate mode to maturity. | |
| (4) | These Tax-Exempt Revenue Bonds were converted from a variable rate mode and remarketed in a fixed rate mode with a five-year mandatory put. | |
| (5) | These Tax-Exempt Revenue Bonds were converted from a variable rate mode and remarketed in a fixed rate mode with a seven-year mandatory put. | |
| (6) | These Tax-Exempt Revenue Bonds were issued in a fixed rate mode with a three-year mandatory put. Proceeds were used to refund existing Tax-Exempt Revenue Bonds. |
Debt
Retirements and Redemptions
In 2009, the following debt was retired, through optional
redemption or payment at maturity:
|
Company
|
Month Retired |
Type
|
Interest Rate | Maturity | Amount | |||||||||||
| (in Millions) | ||||||||||||||||
|
Detroit Edison
|
April | Tax-Exempt Revenue Bonds(1) | Variable | 2036 | $ | 69 | ||||||||||
|
DTE Energy
|
April | Senior Notes | 6.65 | % | 2009 | 200 | ||||||||||
|
Detroit Edison
|
December | Tax-Exempt Revenue Bonds(1) | 6.40 | % | 2024 | 65 | ||||||||||
| $ | 334 | |||||||||||||||
| (1) | These Tax-Exempt Revenue Bonds were redeemed with the proceeds from the issuance of new Detroit Edison Tax-Exempt Revenue Bonds. |
The following table shows the scheduled debt maturities,
excluding any unamortized discount or premium on debt:
|
2015 and
|
||||||||||||||||||||||||||||
| 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | ||||||||||||||||||||||
| (in Millions) | ||||||||||||||||||||||||||||
|
Amount to mature
|
$ | 661 | $ | 914 | $ | 517 | $ | 560 | $ | 927 | $ | 4,409 | $ | 7,988 | ||||||||||||||
Trust Preferred-Linked
Securities
DTE Energy has interests in various unconsolidated trusts that
were formed for the sole purpose of issuing preferred securities
and lending the gross proceeds to the Company. The sole assets
of the trusts are
113
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
debt securities of DTE Energy with terms similar to those of the
related preferred securities. Payments the Company makes are
used by the trusts to make cash distributions on the preferred
securities it has issued.
The Company has the right to extend interest payment periods on
the debt securities. Should the Company exercise this right, it
cannot declare or pay dividends on, or redeem, purchase or
acquire, any of its capital stock during the deferral period.
DTE Energy has issued certain guarantees with respect to
payments on the preferred securities. These guarantees, when
taken together with the Company’s obligations under the
debt securities and related indenture, provide full and
unconditional guarantees of the trusts’ obligations under
the preferred securities.
Financing costs for these issuances were paid for and deferred
by DTE Energy. These costs are being amortized using the
straight-line method over the estimated lives of the related
securities.
Cross
Default Provisions
Substantially all of the net utility properties of Detroit
Edison and MichCon are subject to the lien of mortgages. Should
Detroit Edison or MichCon fail to timely pay their indebtedness
under these mortgages, such failure may create cross defaults in
the indebtedness of DTE Energy.
NOTE 17 —
PREFERRED AND PREFERENCE SECURITIES
As of December 31, 2009, the amount of authorized and
unissued stock is as follows:
|
Type of
|
Shares
|
|||||||||
|
Company
|
Stock | Par Value | Authorized | |||||||
|
DTE Energy
|
Preferred | None | 5,000,000 | |||||||
|
Detroit Edison
|
Preferred | $ | 100 | 6,747,484 | ||||||
|
Detroit Edison
|
Preference | $ | 1 | 30,000,000 | ||||||
|
MichCon
|
Preferred | $ | 1 | 7,000,000 | ||||||
|
MichCon
|
Preference | $ | 1 | 4,000,000 | ||||||
NOTE 18 —
SHORT-TERM CREDIT ARRANGEMENTS AND BORROWINGS
DTE Energy and its wholly-owned subsidiaries, Detroit Edison and
MichCon, have entered into revolving credit facilities with
similar terms. The five-year and two-year revolving credit
facilities are with a syndicate of 22 banks and may be used for
general corporate borrowings, but are intended to provide
liquidity support for each of the companies’ commercial
paper programs. No one bank provides more than 8.5% of the
commitment in any facility. Borrowings under the facilities are
available at prevailing short-term interest rates. Additionally,
DTE Energy has other facilities to support letter of credit
issuance. The above agreements require the Company to maintain a
total funded debt to capitalization ratio, as defined in the
agreements, of no more than 0.65 to 1. At December 31,
2009, the debt to total capitalization ratios for DTE Energy,
Detroit Edison and MichCon are 0.51 to 1, 0.52 to 1 and 0.49 to
1, respectively, and are in compliance with this
114
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
financial covenant. The availability under these combined
facilities at December 31, 2009 is shown in the following
table:
|
DTE
|
Detroit
|
|||||||||||||||
| Energy | Edison | MichCon | Total | |||||||||||||
| (in Millions) | ||||||||||||||||
|
Five-year unsecured revolving facility, expiring
October 2010
|
$ | 675 | $ | 69 | $ | 181 | $ | 925 | ||||||||
|
Two-year unsecured revolving facility, expiring April 2011
|
538 | 212 | 250 | 1,000 | ||||||||||||
|
One-year unsecured letter of credit facility, expiring in
June 2010
|
70 | — | — | 70 | ||||||||||||
|
Two-year unsecured letter of credit facility, expiring in
May 2011
|
50 | — | — | 50 | ||||||||||||
|
Total credit facilities at December 31, 2009
|
1,333 | 281 | 431 | 2,045 | ||||||||||||
|
Amounts outstanding at December 31, 2009:
|
||||||||||||||||
|
Commercial paper issuances
|
— | — | 327 | 327 | ||||||||||||
|
Letters of credit
|
206 | — | — | 206 | ||||||||||||
| 206 | — | 327 | 533 | |||||||||||||
|
Net availability at December 31, 2009
|
$ | 1,127 | $ | 281 | $ | 104 | $ | 1,512 | ||||||||
The Company has other outstanding letters of credit which are
not included in the above described facilities totaling
approximately $16 million which are used for various
corporate purposes.
The weighted average interest rate for short-term borrowings was
0.7% and 3.9% at December 31, 2009 and 2008, respectively.
In April 2009, the Company completed an early renewal of
$975 million of its syndicated revolving credit facilities
before their scheduled expiration in October 2009. The new
$1 billion two-year facility will expire in April 2011 and
has similar covenants to the prior facility. A new two-year
$50 million credit facility was completed in May 2009 and a
new one-year $70 million facility was completed in June
2009.
In conjunction with maintaining certain exchange traded risk
management positions, the Company may be required to post cash
collateral with its clearing agent. The Company has a demand
financing agreement for up to $120 million with its
clearing agent which was increased from $50 million in June
2009. The amount outstanding under this agreement was
$1 million and $26 million at December 31, 2009
and 2008, respectively.
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
NOTE 19 —
CAPITAL AND OPERATING LEASES
Lessee
— The Company leases various assets
under capital and operating leases, including coal railcars,
office buildings, a warehouse, computers, vehicles and other
equipment. The lease arrangements expire at various dates
through 2031. Future minimum lease payments under non-cancelable
leases at December 31, 2009 were:
|
Capital
|
Operating
|
|||||||
| Leases | Leases | |||||||
| (in Millions) | ||||||||
|
2010
|
$ | 14 | $ | 33 | ||||
|
2011
|
12 | 29 | ||||||
|
2012
|
9 | 25 | ||||||
|
2013
|
9 | 21 | ||||||
|
2014
|
9 | 17 | ||||||
|
Thereafter
|
23 | 83 | ||||||
|
Total minimum lease payments
|
76 | $ | 208 | |||||
|
Less imputed interest
|
15 | |||||||
|
Present value of net minimum lease payments
|
61 | |||||||
|
Less current portion
|
10 | |||||||
|
Non-current portion
|
$ | 51 | ||||||
Rental expense for operating leases was $58 million in
2009, $49 million in 2008, and $60 million in 2007.
Lessor
— MichCon leases a portion of its
pipeline system to the Vector Pipeline through a capital lease
contract that expires in 2020, with renewal options extending
for five years. We own a 40% interest in the Vector Pipeline.
The components of the net investment in the capital lease at
December 31, 2009, were as follows:
| (in Millions) | ||||
|
2010
|
$ | 9 | ||
|
2011
|
9 | |||
|
2012
|
9 | |||
|
2013
|
9 | |||
|
2014
|
9 | |||
|
Thereafter
|
53 | |||
|
Total minimum future lease receipts
|
98 | |||
|
Residual value of leased pipeline
|
40 | |||
|
Less unearned income
|
63 | |||
|
Net investment in capital lease
|
75 | |||
|
Less current portion
|
2 | |||
| $ | 73 | |||
116
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
NOTE 20 —
COMMITMENTS AND CONTINGENCIES
Environmental
Electric
Utility
Air
— Detroit Edison is subject to EPA ozone
transport and acid rain regulations that limit power plant
emissions of sulfur dioxide and nitrogen oxides. Since 2005, EPA
and the State of Michigan have issued additional emission
reduction regulations relating to ozone, fine particulate,
regional haze and mercury air pollution. The new rules will lead
to additional controls on fossil-fueled power plants to reduce
nitrogen oxide, sulfur dioxide and mercury emissions. To comply
with these requirements, Detroit Edison has spent approximately
$1.5 billion through 2009. The Company estimates Detroit
Edison will make future undiscounted capital expenditures of up
to $73 million in 2010 and up to $2.2 billion of
additional capital expenditures through 2019 based on current
regulations. Further, additional rulemakings are expected over
the next few years which could require additional controls for
sulfur dioxide, nitrogen oxides and hazardous air pollutants. It
is not possible to quantify the impact of those expected
rulemakings at this time.
In July 2009, DTE Energy received a Notice of Violation/Finding
of Violation (NOV/FOV) from the EPA alleging, among other
things, that five Detroit Edison power plants violated New
Source Performance standards, Prevention of Significant
Deterioration requirements, and Title V operating permit
requirements under the Clean Air Act. We believe that the plants
identified by the EPA have complied with applicable regulations.
Depending upon the outcome of our discussions with the EPA
regarding the NOV/FOV, the EPA could bring legal action against
Detroit Edison. We could also be required to install additional
pollution control equipment at some or all of the power plants
in question, engage in Supplemental Environmental Programs,
and/or
pay
fines. We cannot predict the financial impact or outcome of this
matter, or the timing of its resolution.
Water
— In response to an EPA regulation,
Detroit Edison is required to examine alternatives for reducing
the environmental impacts of the cooling water intake structures
at several of its facilities. Based on the results of completed
studies and expected future studies, Detroit Edison may be
required to install additional control technologies to reduce
the impacts of the water intakes. Initially, it was estimated
that Detroit Edison could incur up to approximately
$55 million over the four to six years subsequent to 2008
in additional capital expenditures to comply with these
requirements. However, a January 2007 circuit court decision
remanded back to the EPA several provisions of the federal
regulation that may result in a delay in compliance dates. The
decision also raised the possibility that Detroit Edison may
have to install cooling towers at some facilities at a cost
substantially greater than was initially estimated for other
mitigative technologies. In 2008, the Supreme Court agreed to
review the remanded cost-benefit analysis provision of the rule
and in April 2009 upheld EPA’s use of this provision in
determining best technology available for reducing environmental
impacts. Concurrently, the EPA continues to develop a revised
rule, a draft of which is expected to be published by summer
2010. The EPA has also proposed an information collection
request to begin a review of steam electric effluent guidelines.
It is not possible at this time to quantify the impacts of these
developing requirements.
Contaminated Sites
— Detroit Edison conducted
remedial investigations at contaminated sites, including three
former manufactured gas plant (MGP) sites. The investigations
have revealed contamination related to the by-products of gas
manufacturing at each site. In addition to the MGP sites, the
Company is also in the process of cleaning up other contaminated
sites, including the area surrounding an ash landfill,
electrical distribution substations, 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 December 31, 2009 and 2008, the Company had
$9 million and $12 million, respectively, accrued for
remediation.
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Landfill
— Detroit Edison owns and operates a
permitted engineered ash storage facility at the Monroe Power
Plant to dispose of fly ash from the coal fired power plant.
Detroit Edison performed an engineering analysis in 2009 and
identified the need for embankment side slope repairs and
reconstruction.
Gas
Utility
Contaminated 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. Gas Utility owns, or previously owned, 15
such former MGP sites. Investigations have revealed
contamination related to the by-products of gas manufacturing at
each site. In addition to the MGP sites, the Company is also in
the process of cleaning up other contaminated sites. Cleanup
activities associated with these sites will be conducted 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. Accordingly, Gas Utility recognizes a
liability and corresponding regulatory asset for estimated
investigation and remediation costs at former MGP sites. During
2009, the Company spent approximately $1 million
investigating and remediating these former MGP sites. As of
December 31, 2009 and 2008, the Company had
$36 million and $38 million, respectively, accrued for
remediation.
Any significant 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 the Company’s financial position
and cash flows. However, the Company anticipates the cost
deferral and rate recovery mechanism approved by the MPSC will
prevent environmental costs from having a material adverse
impact on our results of operations.
Non-Utility
The Company’s non-utility affiliates are subject to a
number of environmental laws and regulations dealing with the
protection of the environment from various pollutants. The
Michigan coke battery facility received and responded to
information requests from the EPA resulting in the issuance of a
notice of violation regarding potential maximum achievable
control technologies and new source review violations. The EPA
is in the process of reviewing the Company’s position of
demonstrated compliance and has not initiated escalated
enforcement. At this time, the Company cannot predict the impact
of this issue. Furthermore, the Company is in the process of
settling historical air violations at its coke battery facility
located in Pennsylvania. At this time, we cannot predict the
impact of this settlement. The Company is investigating
wastewater treatment technology upgrades for the coke battery
facility located in Pennsylvania. This investigation may result
in capital expenditures to meet regulatory requirements. The
Company’s non-utility affiliates are substantially in
compliance with all environmental requirements, other than as
noted above.
Other
In February 2008, DTE Energy was named as one of approximately
24 defendant oil, power and coal companies in a lawsuit filed in
a United States District Court. DTE Energy was served with
process in March 2008. The plaintiffs, the Native Village of
Kivalina and City of Kivalina, which are home to approximately
400 people in Alaska, claim that the defendants’
business activities have contributed to global warming and, as a
result, higher temperatures are damaging the local economy and
leaving the island more vulnerable to storm activity in the fall
and winter. As a result, the plaintiffs are seeking damages of
up to $400 million for relocation costs associated with
moving the village to a safer location, as well as unspecified
attorney’s fees and expenses. On October 15, 2009, the
U.S. District Court granted defendants’ motions
dismissing all of plaintiffs’ federal claims in the case on
two independent grounds: (1) the court lacks subject matter
jurisdiction to hear the claims because of the political
question doctrine; and (2) plaintiffs lack standing to
bring their
118
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
claims. The court also dismissed plaintiffs’ state law
claims because the court lacked supplemental jurisdiction over
them after it dismissed the federal claims; the dismissal of the
state law claims was without prejudice. The plaintiffs have
appealed to the U.S. Court of Appeals for the Ninth Circuit.
Nuclear
Operations
Property
Insurance
Detroit Edison maintains several different types of property
insurance policies specifically for the Fermi 2 plant. These
policies cover such items as replacement power and property
damage. The Nuclear Electric Insurance Limited (NEIL) is the
primary supplier of the insurance policies.
Detroit Edison maintains a policy for extra expenses, including
replacement power costs necessitated by Fermi 2’s
unavailability due to an insured event. This policy has a
12-week waiting period and provides an aggregate
$490 million of coverage over a three-year period.
Detroit Edison has $500 million in primary coverage and
$2.25 billion of excess coverage for stabilization,
decontamination, debris removal, repair
and/or
replacement of property and decommissioning. The combined
coverage limit for total property damage is $2.75 billion.
In 2007, the Terrorism Risk Insurance Extension Act of 2005
(TRIA) was extended through December 31, 2014. A major
change in the extension is the inclusion of “domestic”
acts of terrorism in the definition of covered or
“certified” acts. For multiple terrorism losses caused
by acts of terrorism not covered under the TRIA occurring within
one year after the first loss from terrorism, the NEIL policies
would make available to all insured entities up to
$3.2 billion, plus any amounts recovered from reinsurance,
government indemnity, or other sources to cover losses.
Under the NEIL policies, Detroit Edison could be liable for
maximum assessments of up to approximately $28 million per
event if the loss associated with any one event at any nuclear
plant in the United States should exceed the accumulated funds
available to NEIL.
Public
Liability Insurance
As of January 1, 2010, as required by federal law, Detroit
Edison maintains $375 million of public liability insurance
for a nuclear incident. For liabilities arising from a terrorist
act outside the scope of TRIA, the policy is subject to one
industry aggregate limit of $300 million. Further, under
the Price-Anderson Amendments Act of 2005, deferred premium
charges up to $117.5 million could be levied against each
licensed nuclear facility, but not more than $17.5 million
per year per facility. Thus, deferred premium charges could be
levied against all owners of licensed nuclear facilities in the
event of a nuclear incident at any of these facilities.
Nuclear
Fuel Disposal Costs
In accordance with the Federal Nuclear Waste Policy Act of 1982,
Detroit Edison has a contract with the U.S. Department of
Energy (DOE) for the future storage and disposal of spent
nuclear fuel from Fermi 2. Detroit Edison is obligated to pay
the DOE a fee of 1 mill per kWh of Fermi 2 electricity generated
and sold. The fee is a component of nuclear fuel expense. Delays
have occurred in the DOE’s program for the acceptance and
disposal of spent nuclear fuel at a permanent repository and the
proposed fiscal year 2011 federal budget recommends termination
of funding for completion of the government’s long-term
storage facility. Detroit Edison is a party in the litigation
against the DOE for both past and future costs associated with
the DOE’s failure to accept spent nuclear fuel under the
timetable set forth in the Federal Nuclear Waste Policy Act of
1982. Detroit Edison currently employs a spent nuclear fuel
storage strategy utilizing a fuel pool. We have begun work on an
on-site
dry
cask storage facility which is expected to provide sufficient
storage capability for the life of the plant as defined by the
original operating license. Issues relating to long-
119
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
term waste disposal policy and to the disposition of funds
contributed by Detroit Edison ratepayers to the federal waste
fund await future governmental action.
Guarantees
In certain limited circumstances, the Company enters into
contractual guarantees. The Company may guarantee another
entity’s obligation in the event it fails to perform. The
Company may provide guarantees in certain indemnification
agreements. Finally, the Company may provide indirect guarantees
for the indebtedness of others. Below are the details of
specific material guarantees the Company currently provides.
Millennium
Pipeline Project Guarantee
The Company owns a 26 percent equity interest in the
Millennium Pipeline Project (Millennium). Millennium is
accounted for under the equity method. Millennium began
commercial operations in December 2008. In August 29, 2007,
Millennium entered into a borrowing facility to finance the
construction costs of the project. The total facility amounts to
$800 million and is guaranteed by the project partners,
based upon their respective ownership percentages. The facility
expires on August 29, 2010 and was fully drawn as of
December 31, 2009. Millennium anticipates refinancing its
$800 million borrowing facility with a long-term financing
non-recourse to the Company. The Company expects to make an
additional equity contribution to Millennium in conjunction with
the refinancing. The actual amount of the Company’s equity
contribution will depend on the amount of the net proceeds from
the long-term financing.
The Company has agreed to guarantee 26 percent of the
borrowing facility and in the event of default by Millennium the
maximum potential amount of future payments under this guarantee
is approximately $210 million. The guarantee includes DTE
Energy’s revolving credit facility’s covenant and
default provisions by reference. Related to this facility, the
Company has also agreed to guarantee 26 percent of
Millennium’s forward-starting interest rate swaps with a
notional amount of $420 million. The Company’s
exposure on the forward-starting interest rate swaps varies with
changes in Treasury rates and credit swap spreads and was
approximately $10 million at December 31, 2009.
Because the Company is unable to accurately anticipate changes
in Treasury rates and credit swap spreads, it is unable to
estimate its maximum exposure under its share of
Millennium’s forward-starting interest rate swaps. An
incremental 0.25 percent decrease in the forward interest
rate swap rates will increase its exposure by approximately
$3 million. There are no recourse provisions or collateral
that would enable the Company to recover any amounts paid under
the guarantees, other than its share of project assets.
Other
Guarantees
Detroit Edison has guaranteed a bank term loan of
$11 million related to the sale of its steam heating
business to Thermal Ventures II, L.P. At December 31, 2009,
the Company has reserves for the entire amount of the bank loan
guarantee.
The Company’s other guarantees are not individually
material with maximum potential payments totaling
$10 million at December 31, 2009.
The Company 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 December 31, 2009, the Company had approximately
$12 million of performance bonds outstanding. In the event
that such bonds are called for nonperformance, the Company would
be obligated to reimburse the issuer of the performance bond.
The Company 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.
120
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Labor
Contracts
There are several bargaining units for the Company’s union
employees. The majority of our union employees are under
contracts that expire in June and October 2010 and August 2012.
Purchase
Commitments
As of December 31, 2009, the Company was party to numerous
long-term purchase commitments relating to a variety of goods
and services required for the Company’s business. These
agreements primarily consist of fuel supply commitments and
energy trading contracts. The Company estimates that these
commitments will be approximately $5 billion from 2010
through 2051. The Company also estimates that 2010 capital
expenditures will be approximately $1.4 billion. The
Company has made certain commitments in connection with expected
capital expenditures.
Bankruptcies
The Company purchases and sells electricity, gas, coal, coke and
other energy products from and to numerous companies operating
in the steel, automotive, energy, retail, financial and other
industries. Certain of its customers have filed for bankruptcy
protection under Chapter 11 of the U.S. Bankruptcy
Code. The Company regularly reviews contingent matters relating
to these customers and its purchase and sale contracts and
records provisions for amounts considered at risk of probable
loss. The Company believes its accrued amounts are adequate for
probable loss. The final resolution of these matters may have a
material effect on its consolidated financial statements.
The Company’s utilities and certain non-utility businesses
provide services to the domestic automotive industry, including
General Motors Corporation (GM), Ford Motor Company (Ford) and
Chrysler LLC (Chrysler) and many of their vendors and suppliers.
Chrysler filed for bankruptcy protection on April 30, 2009.
We have reserved approximately $9 million of pre-petition
accounts receivable related to Chrysler as of December 31,
2009. GM filed for bankruptcy protection on June 1, 2009.
We have reserved or written off approximately $5 million of
pre-petition accounts and notes receivable related to GM as of
December 31, 2009.
Other
Contingencies
The Company is 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 Company
cannot predict the final disposition of such proceedings. The
Company regularly reviews legal matters and records provisions
for claims that it can estimate and are considered probable of
loss. The resolution of these pending proceedings is not
expected to have a material effect on the Company’s
operations or financial statements in the periods they are
resolved.
See Notes 5 and 12 for a discussion of contingencies
related to derivatives and regulatory matters.
NOTE 21 —
RETIREMENT BENEFITS AND TRUSTEED ASSETS
Measurement
Date
In 2008, we changed the measurement date of our pension and
postretirement benefit plans from November 30 to
December 31. As a result, we recognized adjustments of
$17 million ($9 million after-tax) and $4 million
to retained earnings and regulatory liabilities, respectively,
which represents approximately one month of pension and other
postretirement benefit costs for the period from
December 1, 2007 to December 31, 2008. All amounts and
balances reported in the following tables as of
December 31, 2009 and December 31, 2008 are based on
measurement dates of December 31, 2009 and
December 31, 2008, respectively.
121
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Pension
Plan Benefits
The Company has qualified defined benefit retirement plans for
eligible represented and non-represented employees. The plans
are noncontributory and cover substantially all employees. The
plans provide traditional retirement benefits based on the
employees’ years of benefit service, average final
compensation and age at retirement. In addition, certain
represented and non-represented employees are covered under cash
balance provisions that determine benefits on annual employer
contributions and interest credits. The Company also maintains
supplemental nonqualified, noncontributory, retirement benefit
plans for selected management employees. These plans provide for
benefits that supplement those provided by DTE Energy’s
other retirement plans.
The Company’s policy is to fund pension costs by
contributing amounts consistent with the Pension Protection Act
of 2006 provisions and additional amounts when it deems
appropriate. The Company anticipates making up to a
$200 million contribution to its pension plans in 2010.
Net pension cost includes the following components:
| Pension Plans | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Service cost
|
$ | 52 | $ | 55 | $ | 62 | ||||||
|
Interest cost
|
203 | 190 | 178 | |||||||||
|
Expected return on plan assets
|
(255 | ) | (259 | ) | (237 | ) | ||||||
|
Amortization of:
|
||||||||||||
|
Net actuarial loss
|
52 | 32 | 59 | |||||||||
|
Prior service cost
|
6 | 6 | 6 | |||||||||
|
Special termination benefits
|
— | — | 8 | |||||||||
|
Net pension cost
|
$ | 58 | $ | 24 | $ | 76 | ||||||
Special termination benefits in the above tables represent costs
associated with our Performance Excellence Process.
| Pension Plans | ||||||||
| 2009 | 2008 | |||||||
| (in Millions) | ||||||||
|
Other changes in plan assets and benefit obligations
recognized in other comprehensive income and regulatory
assets
|
||||||||
|
Net actuarial loss
|
$ | 216 | $ | 1,061 | ||||
|
Amortization of net actuarial loss
|
(52 | ) | (32 | ) | ||||
|
Prior service cost
|
— | 13 | ||||||
|
Amortization of prior service cost
|
(6 | ) | (6 | ) | ||||
|
Total recognized in other comprehensive income and regulatory
assets
|
$ | 158 | $ | 1,036 | ||||
|
Total recognized in net periodic pension cost, Other
comprehensive income and regulatory assets
|
$ | 216 | $ | 1,060 | ||||
|
Estimated amounts to be amortized from accumulated other
comprehensive income and regulatory assets into net periodic
benefit cost during next fiscal year
|
||||||||
|
Net actuarial loss
|
$ | 100 | $ | 52 | ||||
|
Prior service cost
|
4 | 5 | ||||||
122
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
The following table reconciles the obligations, assets and
funded status of the plans as well as the amounts recognized as
prepaid pension cost or pension liability in the Consolidated
Statements of Financial Position at December 31:
| Pension Plans | ||||||||
| 2009 | 2008 | |||||||
| (in Millions) | ||||||||
|
Accumulated benefit obligation, end of year
|
$ | 3,193 | $ | 2,828 | ||||
|
Change in projected benefit obligation
|
||||||||
|
Projected benefit obligation, beginning of year
|
$ | 3,032 | $ | 3,050 | ||||
|
December 2007 benefit payments
|
— | (19 | ) | |||||
|
Service cost
|
52 | 55 | ||||||
|
Interest cost
|
203 | 191 | ||||||
|
Actuarial (gain) loss
|
351 | (79 | ) | |||||
|
Benefits paid
|
(202 | ) | (201 | ) | ||||
|
Measurement date change
|
— | 22 | ||||||
|
Plan amendments
|
— | 13 | ||||||
|
Projected benefit obligation, end of year
|
$ | 3,436 | $ | 3,032 | ||||
|
Change in plan assets
|
||||||||
|
Plan assets at fair value, beginning of year
|
$ | 2,155 | $ | 2,980 | ||||
|
December 2007 contributions
|
— | 150 | ||||||
|
December 2007 payments
|
— | (18 | ) | |||||
|
Actual return on plan assets
|
390 | (884 | ) | |||||
|
Company contributions
|
206 | 106 | ||||||
|
Measurement date change
|
— | 22 | ||||||
|
Benefits paid
|
(202 | ) | (201 | ) | ||||
|
Plan assets at fair value, end of year
|
$ | 2,549 | $ | 2,155 | ||||
|
Funded status of the plans
|
$ | (887 | ) | $ | (877 | ) | ||
|
Amount recorded as:
|
||||||||
|
Current liabilities
|
$ | (6 | ) | $ | (6 | ) | ||
|
Noncurrent liabilities
|
(881 | ) | (871 | ) | ||||
| $ | (887 | ) | $ | (877 | ) | |||
|
Amounts recognized in Accumulated other comprehensive loss,
pre-tax
|
||||||||
|
Net actuarial loss
|
$ | 196 | $ | 204 | ||||
|
Prior service (credit)
|
(5 | ) | (6 | ) | ||||
| $ | 191 | $ | 198 | |||||
|
Amounts recognized in regulatory assets (see Note 12)
|
||||||||
|
Net actuarial loss
|
$ | 1,653 | $ | 1,482 | ||||
|
Prior service cost
|
17 | 23 | ||||||
| $ | 1,670 | $ | 1,505 | |||||
123
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DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Assumptions used in determining the projected benefit obligation
and net pension costs are listed below:
| 2009 | 2008 | 2007 | ||||||||||
|
Projected benefit obligation
|
||||||||||||
|
Discount rate
|
5.90 | % | 6.90 | % | 6.50 | % | ||||||
|
Rate of compensation increase
|
4.00 | % | 4.00 | % | 4.00 | % | ||||||
|
Net pension costs
|
||||||||||||
|
Discount rate
|
6.90 | % | 6.50 | % | 5.70 | % | ||||||
|
Rate of compensation increase
|
4.00 | % | 4.00 | % | 4.00 | % | ||||||
|
Expected long-term rate of return on plan assets
|
8.75 | % | 8.75 | % | 8.75 | % | ||||||
The Company employs a formal process in determining the
long-term rate of return for various asset classes. Management
reviews historic financial market risks and returns and
long-term historic relationships between the asset classes of
equities, fixed income and other assets, consistent with the
widely accepted capital market principle that asset classes with
higher volatility generate a greater return over the long-term.
Current market factors such as inflation, interest rates, asset
class risks and asset class returns are evaluated and considered
before long-term capital market assumptions are determined. The
long-term portfolio return is also established employing a
consistent formal process, with due consideration of
diversification, active investment management and rebalancing.
Peer data is reviewed to check for reasonableness.
At December 31, 2009, the benefits related to the
Company’s qualified and nonqualified pension plans expected
be paid in each of the next five years and in the aggregate for
the five fiscal years thereafter are as follows:
| (in Millions) | ||||
|
2010
|
$ | 205 | ||
|
2011
|
210 | |||
|
2012
|
214 | |||
|
2013
|
222 | |||
|
2014
|
228 | |||
|
2015 - 2019
|
1,250 | |||
| $ | 2,329 | |||
The Company employs a total return investment approach whereby a
mix of equities, fixed income and other investments are used to
maximize the long-term return on plan assets consistent with
prudent levels of risk, with consideration given to the
liquidity needs of the plan. The intent of this strategy is to
minimize plan expenses over the long-term. Risk tolerance is
established through consideration of future plan cash flows,
plan funded status, and corporate financial considerations. The
investment portfolio contains a diversified blend of equity,
fixed income and other investments. Furthermore, equity
investments are diversified across U.S. and
non-U.S. stocks,
growth and value investment styles, and large and small market
capitalizations. Fixed income securities generally include
corporate bonds of companies from diversified industries,
mortgage-backed securities, and U.S. Treasuries. Other
assets such as private equity and hedge funds are used to
enhance long-term returns while improving portfolio
diversification. Derivatives may be utilized in a risk
controlled manner, to potentially increase the portfolio beyond
the market value of invested assets and reduce portfolio
investment risk. Investment risk is measured and monitored on an
ongoing basis through annual liability measurements, periodic
asset/liability studies, and quarterly investment portfolio
reviews.
124
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Target allocations for plan assets as of December 31, 2009
are listed below:
|
U.S. Large Cap Equity Securities
|
25 | % | ||
|
U.S. Small Cap and Mid Cap Equity Securities
|
6 | |||
|
Non U.S. Equity Securities
|
14 | |||
|
Fixed Income Securities
|
26 | |||
|
Hedge Funds and Similar Investments
|
20 | |||
|
Private Equity and Other
|
6 | |||
|
Short-Term Investments
|
3 | |||
| 100 | % |
Fair
Value Measurements at December 31, 2009
|
Balance at
|
||||||||||||||||
|
December 31,
|
||||||||||||||||
| Level 1 | Level 2 | Level 3 | 2009 | |||||||||||||
| (in Millions)(a) | ||||||||||||||||
|
Asset Category:
|
||||||||||||||||
|
Short-term investments(b)
|
$ | — | $ | 63 | $ | — | $ | 63 | ||||||||
|
Equity securities
|
||||||||||||||||
|
U.S. Large Cap(c)
|
659 | 30 | — | 689 | ||||||||||||
|
U.S. Small/Mid Cap(d)
|
153 | 3 | — | 156 | ||||||||||||
|
Non U.S(e)
|
231 | 120 | — | 351 | ||||||||||||
|
Fixed income securities(f)
|
47 | 599 | — | 646 | ||||||||||||
|
Other types of investments
|
||||||||||||||||
|
Hedge Funds and Similar Investments(g)
|
— | — | 484 | 484 | ||||||||||||
|
Private Equity and Other(h)
|
— | — | 160 | 160 | ||||||||||||
|
Total
|
$ | 1,090 | $ | 815 | $ | 644 | $ | 2,549 | ||||||||
| (a) | See Note 4 — Fair Value for a description of levels within the fair value hierarchy. | |
| (b) | This category predominantly represents certain short-term fixed income securities and money market investments that are managed in separate accounts or commingled funds. Pricing for investments in this category are obtained from quoted prices in actively traded markets or valuations from brokers or pricing services. | |
| (c) | This category comprises both actively and not actively managed portfolios that track the S&P 500 low cost equity index funds. Investments in this category are exchange-traded securities whereby unadjusted quote prices can be obtained. Exchange-traded securities held in a commingled fund are classified as Level 2 assets. | |
| (d) | This category represents portfolios of small and medium mid capitalization domestic equities. Investments in this category are exchange-traded securities whereby unadjusted quote prices can be obtained. Exchange-traded securities held in a commingled fund are classified as Level 2 assets. | |
| (e) | This category primarily consists of portfolios of non-U.S. developed and emerging market equities. Investments in this category are exchange-traded securities whereby unadjusted quote prices can be obtained. Exchange-traded securities held in a commingled fund are classified as Level 2 assets. | |
| (f) | This category includes corporate bonds from diversified industries, U.S. Treasuries, and mortgage backed securities. Pricing for investments in this category is obtained from quoted prices in actively traded |
125
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
| markets and quotations from broker or pricing services. Non-exchange traded securities and exchange-traded securities held in commingled funds are classified as Level 2 assets. | ||
| (g) | This category includes a diversified group of funds and strategies that attempt to capture financial market inefficiencies. Pricing for investments in this category is based on limited observable inputs as there is little, if any, publicly available pricing. Valuations for assets in this category may be based on relative publicly-traded securities, derivatives, and privately-traded securities. | |
| (h) | This category includes a diversified group of funds and strategies that primarily invests in private equity partnerships. This category also includes investments in timber and private mezzanine debt. Pricing for investments in this category is based on limited observable inputs as there is little, if any, publicly available pricing. Valuations for assets in this category may be based on discounted cash flow analyses, relative publicly-traded comparables and comparable transactions. |
The pension trust holds debt and equity securities directly and
indirectly through commingled funds and institutional mutual
funds. Exchange-traded debt and equity securities held directly
are valued using quoted market prices in actively traded
markets. The commingled funds and institutional mutual funds
which hold exchange-traded equity or debt securities are valued
based on underlying securities, using quoted prices in actively
traded markets. Non-exchange traded fixed income securities are
valued by the trustee based upon quotations available from
brokers or pricing services. A primary price source is
identified by asset type, class or issue for each security. The
trustees monitor prices supplied by pricing services and may use
a supplemental price source or change the primary price source
of a given security if the trustees challenge an assigned price
and determine that another price source is considered to be
preferable. DTE Energy has obtained an understanding of how
these prices are derived, including the nature and observability
of the inputs used in deriving such prices. Additionally, DTE
Energy selectively corroborates the fair values of securities by
comparison of market-based price sources.
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3):
|
Hedge Funds
|
||||||||||||
|
and Similar
|
Private Equity
|
|||||||||||
| Investments | and Other | Total | ||||||||||
| (in Millions) | ||||||||||||
|
Beginning Balance at January 1, 2009
|
$ | 468 | $ | 159 | $ | 627 | ||||||
|
Total realized/unrealized gains (losses)
|
31 | (11 | ) | 20 | ||||||||
|
Purchases, sales and settlements
|
(15 | ) | 12 | (3 | ) | |||||||
|
Ending Balance at December 31, 2009
|
$ | 484 | $ | 160 | $ | 644 | ||||||
|
The amount of total gains (losses) for the period attributable
to the change in unrealized gains or losses related to assets
still held at the end of the period
|
$ | 34 | $ | (10 | ) | $ | 24 | |||||
The Company also sponsors defined contribution retirement
savings plans. Participation in one of these plans is available
to substantially all represented and non-represented employees.
The Company matches employee contributions up to certain
predefined limits based upon eligible compensation, the
employee’s contribution rate and, in some cases, years of
credited service. The cost of these plans was $33 million,
$33 million, and $29 million in each of the years
2009, 2008, and 2007, respectively.
Other
Postretirement Benefits
The Company provides certain postretirement health care and life
insurance benefits for employees who are eligible for these
benefits. The Company’s policy is to fund certain trusts to
meet its postretirement benefit obligations. Separate qualified
Voluntary Employees Beneficiary Association (VEBA) and 401(h)
trusts exist for represented and non-represented employees. At
the discretion of management, the Company may make up to an
additional $130 million contribution to its VEBA trusts in
2010.
126
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Net postretirement cost includes the following components:
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Service cost
|
$ | 59 | $ | 62 | $ | 62 | ||||||
|
Interest cost
|
133 | 121 | 118 | |||||||||
|
Expected return on plan assets
|
(55 | ) | (75 | ) | (67 | ) | ||||||
|
Amortization of
|
||||||||||||
|
Net loss
|
72 | 38 | 69 | |||||||||
|
Prior service (credit)
|
(6 | ) | (6 | ) | (3 | ) | ||||||
|
Net transition obligation
|
2 | 2 | 7 | |||||||||
|
Special termination benefits
|
— | — | 2 | |||||||||
|
Net postretirement cost
|
$ | 205 | $ | 142 | $ | 188 | ||||||
Special termination benefits in the above tables represent costs
associated with our Performance Excellence Process.
| 2009 | 2008 | |||||||
| (in Millions) | ||||||||
|
Other changes in plan assets and APBO recognized in other
comprehensive income and regulatory assets
|
||||||||
|
Net actuarial loss (gain)
|
$ | (59 | ) | $ | 334 | |||
|
Amortization of net actuarial loss
|
(73 | ) | (39 | ) | ||||
|
Prior service (credit)
|
— | (1 | ) | |||||
|
Amortization of prior service credit
|
7 | 6 | ||||||
|
Amortization of transition (asset)
|
(2 | ) | (2 | ) | ||||
|
Total recognized in other comprehensive income and regulatory
assets
|
$ | (127 | ) | $ | 298 | |||
|
Total recognized in net periodic pension cost, other
comprehensive income and regulatory assets
|
$ | 78 | $ | 440 | ||||
| (in Millions) | ||||||||
|
Estimated amounts to be amortized from accumulated other
comprehensive income and regulatory assets into net periodic
benefit cost during next fiscal year
|
||||||||
|
Net actuarial loss
|
$ | 53 | $ | 69 | ||||
|
Prior service (credit)
|
$ | (3 | ) | $ | (6 | ) | ||
|
Net transition obligation
|
$ | 2 | $ | 2 | ||||
127
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
The following table reconciles the obligations, assets and
funded status of the plans including amounts recorded as accrued
postretirement cost in the Consolidated Statements of Financial
Position at December 31:
| 2009 | 2008 | |||||||
| (in Millions) | ||||||||
|
Change in accumulated postretirement benefit obligation
|
||||||||
|
Accumulated postretirement benefit obligation, beginning of year
|
$ | 2,032 | $ | 1,922 | ||||
|
December 2007 cash flow
|
— | (6 | ) | |||||
|
Service cost
|
59 | 62 | ||||||
|
Interest cost
|
133 | 121 | ||||||
|
Actuarial loss
|
22 | 10 | ||||||
|
Plan amendments
|
— | (1 | ) | |||||
|
Medicare Part D subsidy
|
6 | 7 | ||||||
|
Measurement date change
|
— | 15 | ||||||
|
Benefits paid
|
(101 | ) | (98 | ) | ||||
|
Accumulated postretirement benefit obligation, end of year
|
$ | 2,151 | $ | 2,032 | ||||
|
Change in plan assets
|
||||||||
|
Plan assets at fair value, beginning of year
|
$ | 598 | $ | 835 | ||||
|
December 2007 VEBA cash flow
|
— | (13 | ) | |||||
|
Actual return on plan assets
|
135 | (251 | ) | |||||
|
Measurement date change
|
— | 6 | ||||||
|
Company contributions
|
205 | 116 | ||||||
|
Benefits paid
|
(74 | ) | (95 | ) | ||||
|
Plan assets at fair value, end of year
|
$ | 864 | $ | 598 | ||||
|
Funded status, end of year
|
$ | (1,287 | ) | $ | (1,434 | ) | ||
|
Amount recorded as:
|
||||||||
|
Noncurrent liabilities
|
$ | (1,287 | ) | $ | (1,434 | ) | ||
|
Amounts recognized in Accumulated other comprehensive loss,
pre-tax
|
||||||||
|
Net actuarial loss
|
$ | 51 | $ | 68 | ||||
|
Prior service (credit)
|
(27 | ) | (36 | ) | ||||
|
Net transition (asset)
|
(12 | ) | (15 | ) | ||||
| $ | 12 | $ | 17 | |||||
|
Amounts recognized in regulatory assets (See Note 12)
|
||||||||
|
Net actuarial loss
|
$ | 646 | $ | 760 | ||||
|
Prior service cost
|
1 | 3 | ||||||
|
Net transition obligation
|
18 | 24 | ||||||
| $ | 665 | $ | 787 | |||||
128
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Assumptions used in determining the projected benefit obligation
and net benefit costs are listed below:
| 2009 | 2008 | 2007 | ||||||||||
|
Projected benefit obligation
|
||||||||||||
|
Discount rate
|
5.90 | % | 6.90 | % | 6.50 | % | ||||||
|
Net benefit costs
|
||||||||||||
|
Discount rate
|
6.90 | % | 6.50 | % | 5.70 | % | ||||||
|
Expected long-term rate of return on plan assets
|
8.75 | % | 8.75 | % | 8.75 | % | ||||||
|
Health care trend rate pre-65
|
7.00 | % | 7.00 | % | 8.00 | % | ||||||
|
Health care trend rate post-65
|
7.00 | % | 6.00 | % | 7.00 | % | ||||||
|
Ultimate health care trend rate
|
5.00 | % | 5.00 | % | 5.00 | % | ||||||
|
Year in which ultimate reached
|
2016 | 2011 | 2011 | |||||||||
A one percentage point increase in health care cost trend rates
would have increased the total service cost and interest cost
components of benefit costs by $30 million and increased
the accumulated benefit obligation by $265 million at
December 31, 2009. A one percentage point decrease in the
health care cost trend rates would have decreased the total
service and interest cost components of benefit costs by
$27 million and would have decreased the accumulated
benefit obligation by $261 million at December 31, 2009.
At December 31, 2009, the benefits expected to be paid,
including prescription drug benefits, in each of the next five
years and in the aggregate for the five fiscal years thereafter
are as follows:
| (in Millions) | ||||
|
2010
|
$ | 120 | ||
|
2011
|
126 | |||
|
2012
|
130 | |||
|
2013
|
135 | |||
|
2014
|
140 | |||
|
2015 - 2019
|
789 | |||
| $ | 1,440 | |||
In December 2003, the Medicare Act was signed into law which
provides for a non-taxable federal subsidy to sponsors of
retiree health care benefit plans that provide a benefit that is
at least “actuarially equivalent” to the benefit
established by law. The effects of the subsidy reduced net
periodic postretirement benefit costs by $20 million in
2009, $14 million in 2008, and $16 million in 2007.
At December 31, 2009, the gross amount of federal subsidies
expected to be received in each of the next five years and in
the aggregate for the five fiscal years thereafter was as
follows:
| (in Millions) | ||||
|
2010
|
$ | 7 | ||
|
2011
|
8 | |||
|
2012
|
7 | |||
|
2013
|
8 | |||
|
2014
|
9 | |||
|
2015 - 2019
|
50 | |||
|
Total
|
$ | 89 | ||
129
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
The process used in determining the long-term rate of return for
assets and the investment approach for the Company’s other
postretirement benefits plans is similar to those previously
described for its pension plans.
Target allocations for plan assets as of December 31, 2009
are listed below:
|
U.S. Large Cap Equity Securities
|
20 | % | ||
|
U.S. Small Cap and Mid Cap Equity Securities
|
5 | |||
|
Non U.S. Equity Securities
|
20 | |||
|
Fixed Income Securities
|
25 | |||
|
Hedge Funds and Similar Investments
|
20 | |||
|
Private Equity and Other
|
10 | |||
|
Short-Term Investments
|
0 | |||
| 100 | % |
Fair
Value Measurements at December 31, 2009
|
Balance at
|
||||||||||||||||
| Level 1 | Level 2 | Level 3 | December 31, 2009 | |||||||||||||
| (in Millions)(a) | ||||||||||||||||
|
Asset Category:
|
||||||||||||||||
|
Short-term investments(b)
|
$ | — | $ | 18 | $ | — | $ | 18 | ||||||||
|
Equity securities
|
||||||||||||||||
|
U.S. Large Cap(c)
|
148 | 80 | — | 228 | ||||||||||||
|
U.S. Small/Mid Cap(d)
|
46 | 50 | — | 96 | ||||||||||||
|
Non U.S(e)
|
73 | 69 | — | 142 | ||||||||||||
|
Fixed income securities(f)
|
8 | 234 | — | 242 | ||||||||||||
|
Other types of investments
|
||||||||||||||||
|
Hedge Funds and Similar Investments(g)
|
— | — | 92 | 92 | ||||||||||||
|
Private Equity and Other(h)
|
— | — | 46 | 46 | ||||||||||||
|
Total
|
$ | 275 | $ | 451 | $ | 138 | $ | 864 | ||||||||
| (a) | See Note 4 — Fair Value for a description of levels within the fair value hierarchy. | |
| (b) | This category predominantly represents certain short-term fixed income securities and money market investments that are managed in separate accounts or commingled funds. Pricing for investments in this category are obtained from quoted prices in actively traded markets or valuations from brokers or pricing services. | |
| (c) | This category comprises both actively and not actively managed portfolios that track the S&P 500 low cost equity index funds. Investments in this category are exchange-traded securities whereby unadjusted quote prices can be obtained. Exchange-traded securities held in a commingled fund are classified as Level 2 assets. | |
| (d) | This category represents portfolios of small and medium mid capitalization domestic equities. Investments in this category are exchange-traded securities whereby unadjusted quote prices can be obtained. Exchange-traded securities held in a commingled fund are classified as Level 2 assets. | |
| (e) | This category primarily consists of portfolios of non-U.S. developed and emerging market equities. Investments in this category are exchange-traded securities whereby unadjusted quote prices can be obtained. Exchange-traded securities held in a commingled fund are classified as Level 2 assets. |
130
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
| (f) | This category includes corporate bonds from diversified industries, U.S. Treasuries, and mortgage backed securities. Pricing for investments in this category is obtained from quoted prices in actively traded markets and quotations from broker or pricing services. Non-exchange traded securities and exchange-traded securities held in commingled funds are classified as Level 2 assets. | |
| (g) | This category includes a diversified group of funds and strategies that attempt to capture financial market inefficiencies. Pricing for investments in this category is based on limited observable inputs as there is little, if any, publicly available pricing. Valuations for assets in this category may be based on relative publicly-traded securities, derivatives, and privately-traded securities. | |
| (h) | This category includes a diversified group of funds and strategies that primarily invests in private equity partnerships. This category also includes investments in timber and private mezzanine debt. Pricing for investments in this category is based on limited observable inputs as there is little, if any, publicly available pricing. Valuations for assets in this category may be based on discounted cash flow analyses, relative publicly-traded comparables and comparable transactions. |
The VEBA trusts hold debt and equity securities directly and
indirectly through commingled funds and institutional mutual
funds. Exchange-traded debt and equity securities held directly
are valued using quoted market prices in actively traded
markets. The commingled funds and institutional mutual funds
which hold exchange-traded equity or debt securities are valued
based on underlying securities, using quoted prices in actively
traded markets. Non-exchange traded fixed income securities are
valued by the trustee based upon quotations available from
brokers or pricing services. A primary price source is
identified by asset type, class or issue for each security. The
trustees monitor prices supplied by pricing services and may use
a supplemental price source or change the primary price source
of a given security if the trustees challenge an assigned price
and determine that another price source is considered to be
preferable. DTE Energy has obtained an understanding of how
these prices are derived, including the nature and observability
of the inputs used in deriving such prices. Additionally, DTE
Energy selectively corroborates the fair values of securities by
comparison of market-based price sources.
Fair
Value Measurements Using Significant Unobservable Inputs
(Level 3):
|
Hedge Funds
|
||||||||||||
|
and Similar
|
Private Equity
|
|||||||||||
| Investments | and Other | Total | ||||||||||
| (in Millions) | ||||||||||||
|
Beginning Balance at January 1, 2009
|
$ | 76 | $ | 38 | $ | 114 | ||||||
|
Total realized/unrealized gains (losses)
|
6 | 5 | 11 | |||||||||
|
Purchases, sales and settlements
|
10 | 3 | 13 | |||||||||
|
Ending Balance at December 31, 2009
|
$ | 92 | $ | 46 | $ | 138 | ||||||
|
The amount of total gains (losses) for the period attributable
to the change in unrealized gains or losses related to assets
still held at the end of the period
|
$ | 7 | $ | 2 | $ | 9 | ||||||
Grantor
Trust
MichCon maintains a Grantor Trust to fund other postretirement
benefit obligations that invests in life insurance contracts and
income securities. Employees and retirees have no right, title
or interest in the assets of the Grantor Trust, and MichCon can
revoke the trust subject to providing the MPSC with prior
notification. The Company accounts for its investment at fair
value with unrealized gains and losses recorded to earnings.
131
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
NOTE 22 —
STOCK-BASED COMPENSATION
The Company’s stock incentive program permits the grant of
incentive stock options, non-qualifying stock options, stock
awards, performance shares and performance units to employees
and members of its Board of Directors. Key provisions of the
stock incentive program are:
| • | Authorized limit is 9,000,000 shares of common stock; | |
| • | Prohibits the grant of a stock option with an exercise price that is less than the fair market value of the Company’s stock on the date of the grant; and | |
| • | Imposes the following award limits to a single participant in a single calendar year, (1) options for more than 500,000 shares of common stock; (2) stock awards for more than 150,000 shares of common stock; (3) performance share awards for more than 300,000 shares of common stock (based on the maximum payout under the award); or (4) more than 1,000,000 performance units, which have a face amount of $1.00 each. |
The Company records compensation expense at fair value over the
vesting period for all awards it grants. In addition, the
Company is required to record compensation expense at fair value
(as previous awards continue to vest) for the unvested portion
of previously granted stock option awards that were outstanding
as of January 1, 2006. As of December 31, 2008, all
such awards have been fully expensed.
Stock-based compensation for the reporting periods is as follows:
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Stock-based compensation
|
$ | 56 | $ | 38 | $ | 28 | ||||||
|
Tax benefit of compensation
|
$ | 22 | $ | 13 | $ | 10 | ||||||
Approximately $3.3 million, $1.6 million, and
$1.4 million of compensation cost was capitalized as part
of fixed assets during 2009, 2008, and 2007, respectively.
Options
Options are exercisable according to the terms of the individual
stock option award agreements and expire 10 years after the
date of the grant. The option exercise price equals the fair
value of the stock on the date that the option was granted.
Stock options vest ratably over a three-year period.
Stock option activity was as follows:
|
Weighted
|
Aggregate
|
|||||||||||
|
Number of
|
Average
|
Intrinsic
|
||||||||||
| Options | Exercise Price | Value | ||||||||||
| (in Millions) | ||||||||||||
|
Options outstanding at January 1, 2009
|
5,013,699 | $ | 42.45 | |||||||||
|
Granted
|
812,500 | $ | 27.75 | |||||||||
|
Exercised
|
(83,845 | ) | $ | 32.08 | ||||||||
|
Forfeited or expired
|
(148,962 | ) | $ | 40.52 | ||||||||
|
Options outstanding at December 31, 2009
|
5,593,392 | $ | 40.50 | $ | 10 | |||||||
|
Options exercisable at December 31, 2009
|
4,128,877 | $ | 42.60 | $ | 1 | |||||||
As of December 31, 2009, the weighted average remaining
contractual life for the exercisable shares is 4.17 years.
As of December 31, 2009, 1,464,515 options were non-vested.
During 2009, 588,105 options vested.
132
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
The weighted average grant date fair value of options granted
during 2009, 2008, and 2007 was $4.41, $4.76, and $6.46,
respectively. The intrinsic value of options exercised for the
years ended December 31, 2009, 2008 and 2007 was
$3 million, $1 million, and $16 million,
respectively. Total option expense recognized during 2009, 2008
and 2007 was $3 million, $3 million and
$4 million, respectively.
The number, weighted average exercise price and weighted average
remaining contractual life of options outstanding were as
follows:
|
Weighted
|
||||||||||||
|
Average
|
||||||||||||
|
Weighted
|
Remaining
|
|||||||||||
|
Range of
|
Number of
|
Average
|
Contractual Life
|
|||||||||
|
Exercise Prices
|
Options | Exercise Price | (Years) | |||||||||
|
$27.00-$38.00
|
840,089 | $ | 27.91 | 8.82 | ||||||||
|
$38.01-$42.00
|
2,626,876 | $ | 40.96 | 4.56 | ||||||||
|
$42.01-$45.00
|
1,382,208 | $ | 43.91 | 4.99 | ||||||||
|
$45.01-$50.00
|
744,219 | $ | 46.75 | 4.69 | ||||||||
| 5,593,392 | $ | 40.50 | 5.33 | |||||||||
The Company determined the fair value for these options at the
date of grant using a Black-Scholes based option pricing model
and the following assumptions:
| December 31 | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Risk-free interest rate
|
2.04 | % | 3.05 | % | 4.71 | % | ||||||
|
Dividend yield
|
4.98 | % | 5.20 | % | 4.38 | % | ||||||
|
Expected volatility
|
27.88 | % | 20.45 | % | 17.99 | % | ||||||
|
Expected life
|
6 years | 6 years | 6 years | |||||||||
The Company includes both historical and implied share-price
volatility in option volatility. Implied volatility is derived
from exchange traded options on DTE Energy common stock. The
Company’s expected life estimate is based on industry
standards.
Stock
Awards
Stock awards granted under the plan are restricted for varying
periods, generally for three years. Participants have all rights
of a shareholder with respect to a stock award, including the
right to receive dividends and vote the shares. Prior to vesting
in stock awards, the participant: (i) may not sell,
transfer, pledge, exchange or otherwise dispose of shares;
(ii) shall not retain custody of the share certificates;
and (iii) will deliver to the Company a stock power with
respect to each stock award.
The stock awards are recorded at cost that approximates fair
value on the date of grant. The cost is amortized to
compensation expense over the vesting period.
Stock award activity for the periods ended December 31 was:
| 2009 | 2008 | 2007 | ||||||||||
|
Fair value of awards vested (in Millions)
|
$ | 18 | $ | 18 | $ | 10 | ||||||
|
Restricted common shares awarded
|
523,660 | 389,055 | 620,125 | |||||||||
|
Weighted average market price of shares awarded
|
$ | 28.73 | $ | 41.96 | $ | 49.48 | ||||||
|
Compensation cost charged against income (in Millions)
|
$ | 18 | $ | 20 | $ | 16 | ||||||
133
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
The following table summarizes the Company’s stock awards
activity for the period ended December 31, 2009:
|
Weighted Average
|
||||||||
|
Restricted
|
Grant Date
|
|||||||
| Stock | Fair Value | |||||||
|
Balance at January 1, 2009
|
931,722 | $ | 45.31 | |||||
|
Grants
|
523,660 | $ | 28.73 | |||||
|
Forfeitures
|
(27,656 | ) | $ | 38.69 | ||||
|
Vested
|
(402,961 | ) | $ | 45.09 | ||||
|
Balance at December 31, 2009
|
1,024,765 | $ | 37.11 | |||||
Performance
Share Awards
Performance shares awarded under the plan are for a specified
number of shares of common stock that entitle the holder to
receive a cash payment, shares of common stock or a combination
thereof. The final value of the award is determined by the
achievement of certain performance objectives and market
conditions. The awards vest at the end of a specified period,
usually three years. The Company accounts for performance share
awards by accruing compensation expense over the vesting period
based on: (i) the number of shares expected to be paid
which is based on the probable achievement of performance
objectives; and (ii) the closing stock price market value.
The settlement of the award is at based on the closing price at
the settlement date.
The Company recorded compensation expense as follows:
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Compensation expense
|
$ | 35 | $ | 15 | $ | 7 | ||||||
|
Cash settlements(1)
|
$ | 1 | $ | 3 | $ | 5 | ||||||
|
Stock settlements(1)
|
$ | 8 | $ | — | $ | — | ||||||
| (1) | Sum of cash and stock settlements approximates the intrinsic value of the liability. |
During the vesting period, the recipient of a performance share
award has no shareholder rights. However, for performance shares
granted in or before 2009, recipients will be paid an amount
equal to the dividend equivalent on such shares. Performance
shares granted in 2010 or later will not be entitled to dividend
equivalent payments before the performance shares granted are
earned and vested. Performance share awards are nontransferable
and are subject to risk of forfeiture.
The following table summarizes the Company’s performance
share activity for the period ended December 31, 2009:
|
Performance
|
||||
| Shares | ||||
|
Balance at January 1, 2009
|
1,321,501 | |||
|
Grants
|
564,340 | |||
|
Forfeitures
|
(40,143 | ) | ||
|
Payouts
|
(390,656 | ) | ||
|
Balance at December 31, 2009
|
1,455,042 | |||
134
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Unrecognized
Compensation Costs
As of December 31, 2009, there was $41 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 1.36 years.
|
Unrecognized
|
||||||||
|
Compensation
|
Weighted Average
|
|||||||
| Cost | to be Recognized | |||||||
| (in Millions) | (In Years) | |||||||
|
Stock awards
|
$ | 12 | .98 | |||||
|
Performance shares
|
26 | 1.51 | ||||||
|
Options
|
3 | 1.60 | ||||||
| $ | 41 | 1.36 | ||||||
NOTE 23 —
SUPPLEMENTAL CASH FLOW INFORMATION
A detailed analysis of the changes in assets and liabilities
that are reported in the Consolidated Statements of Cash Flows
follows:
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Changes in Assets and Liabilities, Exclusive of Changes Shown
Separately
|
||||||||||||
|
Accounts receivable, net
|
$ | 167 | $ | 328 | $ | (163 | ) | |||||
|
Accrued GCR revenue
|
27 | (71 | ) | (10 | ) | |||||||
|
Inventories
|
28 | 96 | 80 | |||||||||
|
Recoverable pension and postretirement costs
|
(19 | ) | (1,324 | ) | 738 | |||||||
|
Accrued/prepaid pensions
|
11 | 944 | (401 | ) | ||||||||
|
Accounts payable
|
(162 | ) | (286 | ) | 5 | |||||||
|
Accrued PSCR refund
|
7 | 82 | 41 | |||||||||
|
Income taxes payable
|
43 | (22 | ) | (19 | ) | |||||||
|
Derivative assets and liabilities
|
(81 | ) | (178 | ) | 222 | |||||||
|
Postretirement obligation
|
(147 | ) | 340 | (320 | ) | |||||||
|
Other assets
|
36 | (51 | ) | (430 | ) | |||||||
|
Other liabilities
|
159 | 50 | 449 | |||||||||
| $ | 69 | $ | (92 | ) | $ | 192 | ||||||
Supplementary cash and non-cash information for the years ended
December 31, were as follows:
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Cash paid (received) for:
|
||||||||||||
|
Interest (net of interest capitalized)
|
$ | 550 | $ | 496 | $ | 537 | ||||||
|
Income taxes
|
$ | 18 | $ | (59 | ) | $ | 326 | |||||
|
Noncash financing activities:
Common stock issued for employee benefit plans |
$ | 47 | $ | 15 | $ | 6 | ||||||
135
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
NOTE 24 —
SEGMENT AND RELATED INFORMATION
The Company sets strategic goals, allocates resources and
evaluates performance based on the following structure:
Electric Utility
segment consists of Detroit Edison,
which is engaged in the generation, purchase, distribution and
sale of electricity to approximately 2.1 million
residential, commercial and industrial customers in southeastern
Michigan.
Gas Utility
segment consists of MichCon and Citizens.
MichCon is engaged in the purchase, storage, transmission,
gathering, distribution and sale of natural gas to approximately
1.2 million residential, commercial and industrial
customers throughout Michigan. Citizens distributes natural gas
in Adrian, Michigan to approximately 17,000 customers.
Gas Storage and Pipelines
consists of natural gas
pipelines and storage businesses.
Unconventional Gas Production
is engaged in
unconventional gas project development and production.
Power and Industrial Projects
is comprised of coke
batteries and pulverized coal projects, reduced emission fuel
and steel industry fuel-related projects,
on-site
energy services, power generation and coal transportation and
marketing.
Energy Trading
consists of energy marketing and trading
operations.
Corporate & Other,
includes various holding
company activities, holds certain non-utility debt and
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 production tax
credits and net operating losses if applicable. The Michigan
Business Tax provision of the utility subsidiaries is determined
on an individual company basis and recognizes the tax benefit of
various tax credits and net operating losses if applicable. The
subsidiaries record federal and state income taxes payable to or
receivable from DTE Energy based on the federal and state 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 power sales, gas sales and
coal transportation services in the following segments:
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Electric Utility
|
$ | 28 | $ | 16 | $ | 36 | ||||||
|
Gas Utility
|
2 | 7 | 5 | |||||||||
|
Gas Storage and Pipelines
|
5 | 10 | 17 | |||||||||
|
Unconventional Gas Production
|
— | — | 64 | |||||||||
|
Power and Industrial Projects
|
11 | 80 | 197 | |||||||||
|
Energy Trading
|
93 | 145 | 7 | |||||||||
|
Corporate & Other
|
(74 | ) | (80 | ) | (35 | ) | ||||||
| $ | 65 | $ | 178 | $ | 291 | |||||||
136
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Financial data of the business segments follows:
|
Net Income
|
||||||||||||||||||||||||||||||||||||
|
Attributable
|
||||||||||||||||||||||||||||||||||||
|
To
|
||||||||||||||||||||||||||||||||||||
|
Depreciation,
|
DTE
|
|||||||||||||||||||||||||||||||||||
|
Operating
|
Depletion &
|
Interest
|
Interest
|
Income
|
Energy
|
Total
|
Capital
|
|||||||||||||||||||||||||||||
| Revenue | Amortization | Income | Expense | Taxes | Company | Assets | Goodwill | Expenditures | ||||||||||||||||||||||||||||
| (in Millions) | ||||||||||||||||||||||||||||||||||||
|
2009
|
||||||||||||||||||||||||||||||||||||
|
Electric Utility
|
$ | 4,714 | $ | 844 | $ | (1 | ) | $ | 324 | $ | 228 | $ | 376 | $ | 15,879 | $ | 1,206 | $ | 794 | |||||||||||||||||
|
Gas Utility
|
1,788 | 107 | (8 | ) | 68 | 39 | 80 | 3,832 | 759 | 166 | ||||||||||||||||||||||||||
|
Gas Storage and Pipelines
|
82 | 5 | (1 | ) | 10 | 33 | 49 | 367 | 9 | 2 | ||||||||||||||||||||||||||
|
Unconventional Gas Production(1)
|
31 | 16 | — | 6 | (4 | ) | (9 | ) | 309 | 2 | 26 | |||||||||||||||||||||||||
|
Power and Industrial Projects
|
661 | 40 | (3 | ) | 30 | (7 | ) | 31 | 1,118 | 31 | 45 | |||||||||||||||||||||||||
|
Energy Trading
|
804 | 5 | (1 | ) | 10 | 37 | 75 | 552 | 17 | 2 | ||||||||||||||||||||||||||
|
Corporate & Other
|
— | 3 | (55 | ) | 147 | (79 | ) | (70 | ) | 2,138 | — | — | ||||||||||||||||||||||||
|
Reconciliation and Eliminations
|
(66 | ) | — | 50 | (50 | ) | — | — | — | — | — | |||||||||||||||||||||||||
|
Total
|
$ | 8,014 | $ | 1,020 | $ | (19 | ) | $ | 545 | $ | 247 | $ | 532 | $ | 24,195 | $ | 2,024 | $ | 1,035 | |||||||||||||||||
|
Net Income
|
||||||||||||||||||||||||||||||||||||
|
Attributable
|
||||||||||||||||||||||||||||||||||||
|
To
|
||||||||||||||||||||||||||||||||||||
|
Depreciation,
|
DTE
|
|||||||||||||||||||||||||||||||||||
|
Operating
|
Depletion &
|
Interest
|
Interest
|
Income
|
Energy
|
Total
|
Capital
|
|||||||||||||||||||||||||||||
| Revenue | Amortization | Income | Expense | Taxes | Company | Assets | Goodwill | Expenditures | ||||||||||||||||||||||||||||
| (in Millions) | ||||||||||||||||||||||||||||||||||||
|
2008
|
||||||||||||||||||||||||||||||||||||
|
Electric Utility
|
$ | 4,874 | $ | 743 | $ | (6 | ) | $ | 293 | $ | 186 | $ | 331 | $ | 15,798 | $ | 1,206 | $ | 944 | |||||||||||||||||
|
Gas Utility
|
2,152 | 102 | (8 | ) | 66 | 41 | 85 | 3,884 | 772 | 239 | ||||||||||||||||||||||||||
|
Gas Storage and Pipelines
|
71 | 5 | (1 | ) | 7 | 24 | 38 | 316 | 9 | 19 | ||||||||||||||||||||||||||
|
Unconventional Gas Production(1)
|
48 | 12 | — | 2 | 47 | 84 | 314 | 2 | 101 | |||||||||||||||||||||||||||
|
Power and Industrial Projects
|
987 | 34 | (7 | ) | 20 | 11 | 40 | 1,126 | 31 | 65 | ||||||||||||||||||||||||||
|
Energy Trading
|
1,388 | 5 | (5 | ) | 10 | 31 | 42 | 787 | 17 | 5 | ||||||||||||||||||||||||||
|
Corporate & Other
|
(13 | ) | — | (41 | ) | 154 | (52 | ) | (94 | ) | 2,365 | — | — | |||||||||||||||||||||||
|
Reconciliation and Eliminations
|
(178 | ) | — | 49 | (49 | ) | — | — | — | — | — | |||||||||||||||||||||||||
|
Total from Continuing Operations
|
$ | 9,329 | $ | 901 | $ | (19 | ) | $ | 503 | $ | 288 | 526 | 24,590 | 2,037 | 1,373 | |||||||||||||||||||||
|
Discontinued Operations (Note 10)
|
20 | — | — | — | ||||||||||||||||||||||||||||||||
|
Total
|
$ | 546 | $ | 24,590 | $ | 2,037 | $ | 1,373 | ||||||||||||||||||||||||||||
137
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
|
Net Income
|
||||||||||||||||||||||||||||||||||||
|
Attributable
|
||||||||||||||||||||||||||||||||||||
|
To
|
||||||||||||||||||||||||||||||||||||
|
Depreciation,
|
DTE
|
|||||||||||||||||||||||||||||||||||
|
Operating
|
Depletion &
|
Interest
|
Interest
|
Income
|
Energy
|
Total
|
Capital
|
|||||||||||||||||||||||||||||
| Revenue | Amortization | Income | Expense | Taxes | Company | Assets | Goodwill | Expenditures | ||||||||||||||||||||||||||||
| (in Millions) | ||||||||||||||||||||||||||||||||||||
|
2007
|
||||||||||||||||||||||||||||||||||||
|
Electric Utility
|
$ | 4,900 | $ | 764 | $ | (7 | ) | $ | 294 | $ | 149 | $ | 317 | $ | 14,854 | $ | 1,206 | $ | 809 | |||||||||||||||||
|
Gas Utility
|
1,875 | 93 | (10 | ) | 61 | 23 | 70 | 3,266 | 772 | 226 | ||||||||||||||||||||||||||
|
Gas Storage and Pipelines
|
66 | 6 | (2 | ) | 11 | 18 | 34 | 258 | 9 | 35 | ||||||||||||||||||||||||||
|
Unconventional Gas Production(1)
|
(228 | ) | 22 | — | 13 | (117 | ) | (217 | ) | 355 | 2 | 161 | ||||||||||||||||||||||||
|
Power and Industrial Projects
|
1,244 | 41 | (9 | ) | 28 | 7 | 49 | 753 | 31 | 66 | ||||||||||||||||||||||||||
|
Energy Trading
|
924 | 5 | (5 | ) | 11 | 17 | 32 | 1,113 | 17 | 2 | ||||||||||||||||||||||||||
|
Corporate & Other(1)
|
(15 | ) | 1 | (51 | ) | 174 | 267 | 502 | 2,369 | — | — | |||||||||||||||||||||||||
|
Reconciliation and Eliminations
|
(291 | ) | — | 59 | (59 | ) | — | — | — | — | — | |||||||||||||||||||||||||
|
Total from Continuing Operations
|
$ | 8,475 | $ | 932 | $ | (25 | ) | $ | 533 | $ | 364 | 787 | 22,968 | 2,037 | 1,299 | |||||||||||||||||||||
|
Discontinued Operations (Note 10)
|
205 | 774 | — | — | ||||||||||||||||||||||||||||||||
|
Reconciliation and Eliminations
|
(21 | ) | — | — | — | |||||||||||||||||||||||||||||||
|
Total from Discontinued Operations
|
184 | 774 | — | — | ||||||||||||||||||||||||||||||||
|
Total
|
$ | 971 | $ | 23,742 | $ | 2,037 | $ | 1,299 | ||||||||||||||||||||||||||||
| (1) | Net income attributable to DTE Energy Company of the Unconventional Gas Production segment in 2008 reflects the gain recognized on the sale of Barnett shale properties. Operating revenues and net loss attributable to DTE Energy Company of the Unconventional Gas Production segment in 2007 reflect the recognition of losses on hedge contracts associated with the Antrim sale transaction. Net income attributable to DTE Energy Company of the Corporate & Other segment in 2007 results principally from the gain recognized on the Antrim sale transaction. See Note 10. |
138
Table of Contents
DTE
Energy Company
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
NOTE 25 —
SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
Quarterly earnings per share may not total for the years, since
quarterly computations are based on weighted average common
shares outstanding during each quarter.
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||||||
| Quarter | Quarter | Quarter(1) | Quarter | Year | ||||||||||||||||
| (in Millions, except per share amounts) | ||||||||||||||||||||
|
2009
|
||||||||||||||||||||
|
Operating Revenues
|
$ | 2,255 | $ | 1,688 | $ | 1,950 | $ | 2,121 | $ | 8,014 | ||||||||||
|
Operating Income
|
$ | 395 | $ | 215 | $ | 332 | $ | 307 | $ | 1,249 | ||||||||||
|
Net Income Attributable to DTE Energy Company From Continuing
Operations
|
$ | 178 | $ | 83 | $ | 151 | $ | 120 | $ | 532 | ||||||||||
|
Net Income Attributable to DTE Energy Company
|
$ | 178 | $ | 83 | $ | 151 | $ | 120 | $ | 532 | ||||||||||
|
Basic Earnings per Share
|
||||||||||||||||||||
|
Continuing Operations
|
$ | 1.09 | $ | .51 | $ | .92 | $ | .72 | $ | 3.24 | ||||||||||
|
Total
|
$ | 1.09 | $ | .51 | $ | .92 | $ | .72 | $ | 3.24 | ||||||||||
|
Diluted Earnings per Share
|
||||||||||||||||||||
|
Continuing Operations
|
$ | 1.09 | $ | .51 | $ | .92 | $ | .72 | $ | 3.24 | ||||||||||
|
Total
|
$ | 1.09 | $ | .51 | $ | .92 | $ | .72 | $ | 3.24 | ||||||||||
| (1) | The 2009 Third Quarter results were adjusted for the effect of the January 2010 Detroit Edison MPSC rate order that required the refund of a portion of the self implemented rate increase effective on July 26, 2009. The adjustments resulted in a reduction of Operating Revenues of $11 million, Operating Income of $11 million, Net Income Attributable to DTE Energy From Continuing Operations and Net Income Attributable to DTE Energy Company of $7 million, and Basic and Diluted Earnings per Share of $0.04. |
|
2008
|
||||||||||||||||||||
|
Operating Revenues
|
$ | 2,570 | $ | 2,251 | $ | 2,338 | $ | 2,170 | $ | 9,329 | ||||||||||
|
Operating Income
|
$ | 429 | $ | 157 | $ | 375 | $ | 302 | $ | 1,263 | ||||||||||
|
Net Income Attributable to DTE Energy Company From
|
||||||||||||||||||||
|
Continuing Operations
|
$ | 200 | $ | 28 | $ | 169 | $ | 129 | $ | 526 | ||||||||||
|
Discontinued Operations
|
12 | — | 8 | — | 20 | |||||||||||||||
|
Net Income Attributable to DTE Energy Company
|
$ | 212 | $ | 28 | $ | 177 | $ | 129 | $ | 546 | ||||||||||
|
Basic Earnings per Share
|
||||||||||||||||||||
|
Continuing Operations
|
$ | 1.22 | $ | .18 | $ | 1.03 | $ | .79 | $ | 3.22 | ||||||||||
|
Discontinued Operations
|
.08 | — | .05 | — | .12 | |||||||||||||||
|
Total
|
$ | 1.30 | $ | .18 | $ | 1.08 | $ | .79 | $ | 3.34 | ||||||||||
|
Diluted Earnings (Loss) per Share
|
||||||||||||||||||||
|
Continuing Operations
|
$ | 1.22 | $ | .18 | $ | 1.03 | $ | .79 | $ | 3.22 | ||||||||||
|
Discontinued Operations
|
.07 | — | .05 | — | .12 | |||||||||||||||
|
Total
|
$ | 1.29 | $ | .18 | $ | 1.08 | $ | .79 | $ | 3.34 | ||||||||||
139
Table of Contents
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
| Item 9A. | Controls and Procedures |
See Item 8. Financial Statements and Supplementary Data for
management’s evaluation of disclosure controls and
procedures, its report on internal control over financial
reporting, and its conclusion on changes in internal control
over financial reporting.
| Item 9B. | Other Information |
Part III
| Item 10. | Directors, Executive Officers and Corporate Governance |
| Item 11. | Executive Compensation |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
| Item 14. | Principal Accountant Fees and Services |
Other than the information provided under Executive Officers of
DTE Energy in Part I, information required by Part III
(Items 10, 11, 12, 13 and 14) of this
Form 10-K
is incorporated by reference from DTE Energy’s definitive
Proxy Statement for its 2010 Annual Meeting of Common
Shareholders to be held May 6, 2010. The Proxy Statement
will be filed with the Securities and Exchange Commission,
pursuant to Regulation 14A, not later than 120 days
after the end of our fiscal year covered by this report on
Form 10-K,
all of which information is hereby incorporated by reference in,
and made part of, this
Form 10-K,
except that the information required by Item 10 with
respect to executive officers of the Registrant is included in
Part I of this Report.
Part IV
| Item 15. | Exhibits and Financial Statement Schedules |
| (a) | The following documents are filed as part of this Annual Report on Form 10-K. | |||
| (1) | Consolidated financial statements. See “Item 8 — Financial Statements and Supplementary Data.” | |||
| (2) | Financial statement schedules. See “Item 8 — Financial Statements and Supplementary Data.” | |||
| (3) | Exhibits. | |||
| (i) Exhibits filed herewith. | ||||
| 12 | -45 | Computation of Ratio of Earnings to Fixed Charges. | ||
| 21 | -5 | Subsidiaries of the Company. | ||
| 23 | -22 | Consent of PricewaterhouseCoopers LLP. | ||
| 23 | -23 | Consent of Deloitte & Touche LLP. | ||
| 31 | -55 | Chief Executive Officer Section 302 Form 10-K Certification of Periodic Report. | ||
| 31 | -56 | Chief Financial Officer Section 302 Form 10-K Certification of Periodic Report. | ||
| 99 | -49 | Twenty-first Amendment, dated as of January 24, 2009 to Master Trust. | ||
| 99 | -50 | Twenty-second Amendment, dated as of April 1, 2009 to Master Trust. | ||
| 99 | -51 | Twenty-third Amendment, dated as of May 1, 2009 to Master Trust. | ||
| 99 | -52 | Twenty-fourth Amendment, dated as of June 1, 2009 to Master Trust. |
140
Table of Contents
| 99 | -53 | Twenty-fifth Amendment, dated as of June 10, 2009 to Master Trust. | ||
| (ii) Exhibits incorporated herein by reference. | ||||
| 3(a) | Amended and Restated Articles of Incorporation of DTE Energy Company, dated December 13, 1995 (Exhibit 3-5 to Form 10-Q for the quarter ended September 30, 1997). | |||
| 3(b) | Certificate of Designation of Series A Junior Participating Preferred Stock of DTE Energy Company, dated September 23, 1997 (Exhibit 3-6 to Form 10-Q for the quarter ended September 30, 1997). | |||
| 3(c) | Bylaws of DTE Energy Company, as amended through February 24, 2005 (Exhibit 3.1 to Form 8-K dated February 24, 2005). | |||
| 4(a) | Amended and Restated Indenture, dated as of April 9, 2001, between DTE Energy Company and Bank of New York, as trustee (Exhibit 4.1 to Registration Statement on Form S-3 (File No. 333-58834)). | |||
| Supplemental Indenture, dated as of May 30, 2001, between DTE Energy Company and Bank of New York, as trustee (Exhibit 4-226 to Form 10-Q for the quarter ended June 30, 2001). (7.05% Senior Notes due 2011). | ||||
| Supplemental Indenture, dated as of April 5, 2002 between DTE Energy Company and Bank of New York, as trustee (Exhibit 4-230 to Form 10-Q for the quarter ended March 31, 2002). (2002 Series A 6.65% Senior Notes due 2009). | ||||
| Supplemental Indenture, dated as of April 1, 2003, between DTE Energy Company and Bank of New York, as trustee, creating 2003 Series A 6 3 / 8 % Senior Notes due 2033 (Exhibit 4(o) to Form 10-Q for the quarter ended March 31, 2003). (2003 Series A 6 3 / 8 % Senior Notes due 2033). | ||||
| Supplemental Indenture, dated as of May 15, 2006, between DTE Energy Company and Bank of New York, as trustee (Exhibit 4-239 to Form 10-Q for the quarter ended June 30, 2006). (2006 Series B 6.35% Senior Notes due 2016). | ||||
| 4(b) | Amended and Restated Trust Agreement of DTE Energy Trust I, dated as of January 15, 2002 (Exhibit 4-229 to Form 10-K for the year ended December 31, 2001). | |||
| 4(c) | Amended and Restated Trust Agreement of DTE Energy Trust II, dated as of June 1, 2004 (Exhibit 4(q) to Form 10-Q for the quarter ended June 30, 2004). | |||
| 4(d) | Trust Agreement of DTE Energy Trust III (Exhibit 4-21 to Registration Statement on Form S-3 (File No. 333-99955). | |||
| 4(e) | Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit B-1 to Detroit Edison’s Registration Statement on Form A-2 (File No. 2-1630)) and indentures supplemental thereto, dated as of dates indicated below, and filed as exhibits to the filings set forth below: | |||
| Supplemental Indenture, dated as of December 1, 1940, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit B-14 to Detroit Edison’s Registration Statement on Form A-2 (File No. 2-4609)). (amendment) | ||||
| Supplemental Indenture, dated as of September 1, 1947, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit B-20 to Detroit Edison’s Registration Statement on Form S-1 (File No. 2-7136)). (amendment) | ||||
| Supplemental Indenture, dated as of March 1, 1950, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit B-22 to Detroit Edison’s Registration Statement on Form S-1 (File No. 2-8290)). (amendment) |
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| Supplemental Indenture, dated as of November 15, 1951, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit B-23 to Detroit Edison’s Registration Statement on Form S-1 (File No. 2-9226)). (amendment) | ||||
| Supplemental Indenture, dated as of August 15, 1957, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 3-B-30 to Detroit Edison’s Form 8-K dated September 11, 1957). (amendment) | ||||
| Supplemental Indenture, dated as of December 1, 1966, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 2-B-32 to Detroit Edison’s Registration Statement on Form S-9 (File No. 2-25664)). (amendment) | ||||
| Supplemental Indenture, dated as of February 15, 1990, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-212 to Detroit Edison’s Form 10-K for the year ended December 31, 2000). (1990 Series B, C, E and F) | ||||
| Supplemental Indenture, dated as of May 1, 1991, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-178 to Detroit Edison’s Form 10-K for the year ended December 31, 1996). (1991 Series BP and CP) | ||||
| Supplemental Indenture, dated as of May 15, 1991, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-179 to Detroit Edison’s Form 10-K for the year ended December 31, 1996). (1991 Series DP) | ||||
| Supplemental Indenture, dated as of February 29, 1992, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-187 to Detroit Edison’s Form 10-Q for the quarter ended March 31, 1998). (1992 Series AP) | ||||
| Supplemental Indenture, dated as of April 26, 1993, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-215 to Detroit Edison’s Form 10-K for the year ended December 31, 2000). (amendment) | ||||
| Supplemental Indenture, dated as of August 1, 1999, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-204 to Detroit Edison’s Form 10-Q for the quarter ended September 30, 1999). (1999 Series AP, BP and CP) | ||||
| Supplemental Indenture, dated as of August 1, 2000, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-210 to Detroit Edison’s Form 10-Q for the quarter ended September 30, 2000). (2000 Series BP) | ||||
| Supplemental Indenture, dated as of March 15, 2001, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-222 to Detroit Edison’s Form 10-Q for the quarter ended March 31, 2001). (2001 Series AP) | ||||
| Supplemental Indenture, dated as of May 1, 2001, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between Detroit Edison and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-226 to Detroit Edison’s Form 10-Q for the quarter ended June 30, 2001). (2001 Series BP) |
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| Supplemental Indenture, dated as of August 15, 2001, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-227 to Detroit Edison’s Form 10-Q for the quarter ended September 30, 2001). (2001 Series CP) | ||||
| Supplemental Indenture, dated as of September 15, 2001, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-228 to Detroit Edison’s Form 10-Q for the quarter ended September 30, 2001). (2001 Series D and E) | ||||
| Supplemental Indenture, dated as of September 17, 2002, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4.1 to Detroit Edison’s Registration Statement on Form S-3 (File No. 333-100000)). (amendment and successor trustee) | ||||
| Supplemental Indenture, dated as of October 15, 2002, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-230 to Detroit Edison’s Form 10-Q for the quarter ended September 30, 2002). (2002 Series A and B) | ||||
| Supplemental Indenture, dated as of December 1, 2002, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-232 to Detroit Edison’s Form 10-K for the year ended December 31, 2002). (2002 Series C and D) | ||||
| Supplemental Indenture, dated as of August 1, 2003, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-235 to Detroit Edison’s Form 10-Q for the quarter ended September 30, 2003). (2003 Series A) | ||||
| Supplemental Indenture, dated as of March 15, 2004, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-238 to Detroit Edison’s Form 10-Q for the quarter ended March 31, 2004). (2004 Series A and B) | ||||
| Supplemental Indenture, dated as of July 1, 2004, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-240 to Detroit Edison’s Form 10-Q for the quarter ended June 30, 2004). (2004 Series D) | ||||
| Supplemental Indenture, dated as of April 1, 2005, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between Detroit Edison and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4.3 to Detroit Edison’s Registration Statement on Form S-4 (File No. 333-123926)). (2005 Series AR and BR) | ||||
| Supplemental Indenture, dated as of September 15, 2005, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4.2 to Detroit Edison’s Form 8-K dated September 29, 2005). (2005 Series C) | ||||
| Supplemental Indenture, dated as of September 30, 2005, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between Detroit Edison and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-248 to Detroit Edison’s Form 10-Q for the quarter ended September 30, 2005). (2005 Series E) | ||||
| Supplemental Indenture, dated as of May 15, 2006, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-250 to Detroit Edison’s Form 10-Q for the quarter ended June 30, 2006). (2006 Series A) |
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| Supplemental Indenture, dated as of April 1, 2008 to Mortgage and Deed of Trust dated as of October 1, 1924 between the Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-251 to the Detroit Edison’s Form 10-Q for the quarter ended March 31, 2008). (2008 Series DT) | ||||
| Supplemental Indenture, dated as of May 1, 2008 to Mortgage and Deed of Trust dated as of October 1, 1924 between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-253 to Detroit Edison’s Form 10-Q for the quarter ended June 30, 2008). (2008 Series ET) | ||||
| Supplemental Indenture, dated as of June 1, 2008 to Mortgage and Deed of Trust dated as of October 1, 1924 between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-255 to Detroit Edison’s Form 10-Q for the quarter ended June 30, 2008). (2008 Series G) | ||||
| Supplemental Indenture, dated as of July 1, 2008 to Mortgage and Deed of Trust dated as of October 1, 1924 between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-257 to Detroit Edison’s Form 10-Q for the quarter ended June 30, 2008). (2008 Series KT) | ||||
| Supplemental Indenture, dated as of October 1, 2008 to Mortgage and Deed of Trust dated as of October 1, 1924 between The Detroit Edison Company and The Bank of New York Mellon Trust Company N.A. as successor trustee (Exhibit 4-259 to Detroit Edison’s Form 10-Q for the quarter ended September 30, 2008). (2008 Series J) | ||||
| Supplemental Indenture, dated as of December 1, 2008 to Mortgage and Deed of Trust dated as of October 1, 1924 between The Detroit Edison Company and The Bank of New York Mellon Trust Company N.A., as successor trustee (Exhibit 4-261 to Detroit Edison’s Form 10-K for the year ended December 31, 2008). (2008 Series LT) | ||||
| Supplemental Indenture, dated as of March 15, 2009 to Mortgage and Deed of Trust dated as of October 1, 1924 between The Detroit Edison Company and The Bank of New York Mellon Trust Company N.A., as successor trustee (Exhibit 4-263 to Detroit Edison’s Form 10-Q for the quarter ended March 31, 2009). (2009 Series BT) | ||||
| Supplemental Indenture, dated as of November 1, 2009 to Mortgage and Deed of Trust dated as of October 1, 1924 between The Detroit Edison Company and The Bank of New York Mellon Trust Company N.A., as successor trustee (Exhibit 4-267 to Detroit Edison’s Form 10-K for the year ended December 31, 2009). (2009 Series CT) | ||||
| 4(f) | Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-152 to Detroit Edison’s Registration Statement (File No. 33-50325)) and indentures supplemental thereto, dated as of dates indicated below, and filed as exhibits to the filings set forth below: | |||
| Ninth Supplemental Indenture, dated as of October 10, 2001, to the Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A.,as successor trustee (Exhibit 4-229 to Detroit Edison’s Form 10-Q for the quarter ended September 30, 2001). (6.125% Senior Notes due 2010) | ||||
| Tenth Supplemental Indenture, dated as of October 23, 2002, to the Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A.,as successor trustee (Exhibit 4-231 to Detroit Edison’s Form 10-Q for the quarter ended September 30, 2002). (5.20% Senior Notes due 2012 and 6.35% Senior Notes due 2032) | ||||
| Eleventh Supplemental Indenture, dated as of December 1, 2002, to the Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-233 to Detroit Edison’s Form 10-Q for the quarter ended March 31, 2003). (5.45% Senior Notes due 2032 and 5.25% Senior Notes due 2032) |
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| Twelfth Supplemental Indenture, dated as of August 1, 2003, to the Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-236 to Detroit Edison’s Form 10-Q for the quarter ended September 30, 2003). (5 1/2% Senior Notes due 2030) | ||||
| Thirteenth Supplemental Indenture, dated as of April 1, 2004, to the Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-237 to Detroit Edison’s Form 10-Q for the quarter ended March 31, 2004). (4.875% Senior Notes Due 2029 and 4.65% Senior Notes due 2028) | ||||
| Fourteenth Supplemental Indenture, dated as of July 15, 2004, to the Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-239 to Detroit Edison’s Form 10-Q for the quarter ended June 30, 2004). (2004 Series D 5.40% Senior Notes due 2014) | ||||
| Sixteenth Supplemental Indenture, dated as of April 1, 2005, to the Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4.1 to Detroit Edison’s Registration Statement on Form S-4 (File No. 333-123926)). (2005 Series AR 4.80% Senior Notes due 2015 and 2005 Series BR 5.45% Senior Notes due 2035) | ||||
| Eighteenth Supplemental Indenture, dated as of September 15, 2005, to the Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4.1 to Detroit Edison’s Form 8-K dated September 29, 2005). (2005 Series C 5.19% Senior Notes due October 1, 2023) | ||||
| Nineteenth Supplemental Indenture, dated as of September 30, 2005, to the Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-247 to Detroit Edison’s Form 10-Q for the quarter ended September 30, 2005). (2005 Series E 5.70% Senior Notes due 2037) | ||||
| Twentieth Supplemental Indenture, dated as of May 15, 2006, to the Collateral Trust Indenture dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-249 to Detroit Edison’s Form 10-Q for the quarter ended June 30, 2006). (2006 Series A Senior Notes due 2036) | ||||
| Twenty-second Supplemental Indenture, dated as of December 1, 2007, to the Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4.1 to Detroit Edison’s Form 8-K dated December 18, 2007). (2007 Series A Senior Notes due 2038) | ||||
| Twenty-fourth Supplemental Indenture, dated as of May 1, 2008 to the Collateral Trust Indenture, dated as of June 30, 1993 between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A. as successor trustee (Exhibit 4-254 to Detroit Edison’s Form 10-Q for the quarter ended June 30, 2008). (2008 Series ET Variable Rate Senior Notes due 2029) | ||||
| Amendment dated June 1, 2009 to the Twenty-fourth Supplemental Indenture, dated as of May 1, 2008 to the Collateral Trust Indenture, dated as of June 30, 1993 between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A. as successor trustee (2008 Series ET Variable Rate Senior Notes due 2029) (Exhibit 4-265 to Detroit Edison’s Form 10-Q for the quarter ended June 30, 2009) | ||||
| Twenty-fifth Supplemental Indenture, dated as of June 1, 2008 to the Collateral Trust Indenture, dated as of June 30, 1993 between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-256 to Detroit Edison’s Form 10-Q for the quarter ended June 30, 2008). (2008 Series G 5.60% Senior Notes due 2018) |
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| Twenty-sixth Supplemental Indenture, dated as of July 1, 2008 to the Collateral Trust Indenture, dated as of June 30, 1993 between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-258 to Detroit Edison’s Form 10-Q for the quarter ended June 30, 2008). (2008 Series KT Variable Rate Senior Notes due 2020) | ||||
| Amendment dated June 1, 2009 to the Twenty-sixth Supplemental Indenture, dated as of July 1, 2008 to the Collateral Trust Indenture, dated as of June 30, 1993 between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (2008 Series KT Variable Rate Senior Notes due 2020) (Exhibit 4-266 to Detroit Edison’s Form 10-Q for the quarter ended June 30, 2009) | ||||
| Twenty-seventh Supplemental Indenture, dated as of October 1, 2008 to the Collateral Trust Indenture, dated as of June 30, 1993 between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-260 to Detroit Edison’s Form 10-Q for the quarter ended September 30, 2008). (2008 Series J 6.40% Senior Notes due 2013) | ||||
| Twenty-eighth Supplemental Indenture, dated as of December 1, 2008 to the Collateral Trust Indenture, dated as of June 30, 1993 between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-262 to Detroit Edison’s Form 10-K for the year ended December 31, 2008). (2008 Series LT 6.75% Senior Notes due 2038) | ||||
| Twenty-ninth Supplemental Indenture, dated as of March 15, 2009, to the Collateral Trust Indenture, dated as of June 30, 1993 between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-264 to Detroit Edison’s Form 10-Q for the quarter ended March 31, 2009). (2009 Series BT 6.00% Senior Notes due 2036) | ||||
| Thirtieth Supplemental Indenture, dated as of November 1, 2009, to the Collateral Trust Indenture, dated as of June 30, 1993 between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-268 to Detroit Edison’s Form 10-K for the year ended December 31, 2009). (2009 Series CT Variable Rate Notes due 2024) | ||||
| 4(g) | Trust Agreement of Detroit Edison Trust I. (Exhibit 4.9 to Registration Statement on Form S-3 (File No. 333-100000)) | |||
| 4(h) | Trust Agreement of Detroit Edison Trust II. (Exhibit 4.10 to Registration Statement on Form S-3 (File No. 333-100000)) | |||
| 4(i) | Indenture dated as of June 1, 1998 between Michigan Consolidated Gas Company and Citibank, N.A., as trustee, related to Senior Debt Securities (Exhibit 4-1 to Michigan Consolidated Gas Company Registration Statement on Form S-3 (File No. 333-63370)) and indentures supplemental thereto, dated as of dates indicated below, and filed as exhibits to the filings set forth below: | |||
| Fourth Supplemental Indenture dated as of February 15, 2003, to the Indenture dated as of June 1, 1998 between Michigan Consolidated Gas Company and Citibank, N.A., trustee (Exhibit 4-3 to Michigan Consolidated Gas Company Form 10-Q for the quarter ended March 31, 2003). (5.70% Senior Notes, 2003 Series A due 2033) | ||||
| Fifth Supplemental Indenture dated as of October 1, 2004, to the Indenture dated as of June 1, 1998 between Michigan Consolidated Gas Company and Citibank, N.A., trustee (Exhibit 4-6 to Michigan Consolidated Gas Company Form 10-Q for the quarter ended September 31, 2004). (5.00% Senior Notes, 2004 Series E due 2019) | ||||
| Sixth Supplemental Indenture dated as of April 1, 2008, to the Indenture dated as of June 1, 1998 between Michigan Consolidated Gas Company and Citibank, N.A., trustee (Exhibit 4-241 to Form 10-Q for the quarter ended March 31, 2008). (5.26% Senior Notes, 2008 Series ‘A’ due 2013, 6.04% Senior Notes, 2008 Series ‘B’ due 2018 and 6.44% Senior Notes, 2008 Series ‘C’ due 2023) |
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| Seventh Supplemental Indenture, dated as of June 1, 2008 to Indenture dated as of June 1, 1998 between Michigan Consolidated Gas Company and Citibank, N.A., trustee (Exhibit 4-243 to Form 10-Q for the quarter ended June 30, 2008). (6.78% Senior Notes, 2008 Series F due 2028) | ||||
| Eighth Supplemental Indenture, dated as of August 1, 2008 to Indenture dated as of June 1, 1998 between Michigan Consolidated Gas Company and Citibank, N.A., trustee (Exhibit 4-251 to Form 10-Q for the quarter ended September 30, 2008). (5.94% Senior Notes, 2008 Series H due 2015 and 6.36% Senior Notes, 2008 Series I due 2020) | ||||
| Ninth Supplemental Indenture, dated as of December 1, 2008 to Indenture dated as of June 1, 1998 between Michigan Consolidated Gas Company and Citibank, N.A., Trustee. (Exhibit 4-252 to Form 10-K for the year ended December 31, 2008). (Floating Rate Senior Notes, 2008 Series M due 2009) | ||||
| 4(j) | Indenture of Mortgage and Deed of Trust dated as of March 1, 1944 (Exhibit 7-D to Michigan Consolidated Gas Company Registration Statement No. 2-5252) and indentures supplemental thereto, dated as of dates indicated below, and filed as exhibits to the filings set forth below: | |||
| Twenty-ninth Supplemental Indenture dated as of July 15, 1989, among Michigan Consolidated Gas Company and Citibank, N.A. and Robert T. Kirchner, as trustees, creating an issue of first mortgage bonds and providing for the modification and restatement of the Indenture of Mortgage and Deed of Trust dated as of March 1, 1944 (Exhibit 4-2 to Michigan Consolidated Gas Company Registration Statement on Form S-3 (File No. 333-63370)) | ||||
| Thirty-second Supplemental Indenture dated as of January 5, 1993 to Indenture of Mortgage and Deed of Trust dated as of March 1, 1944 between Michigan Consolidated Gas Company and Citibank, N.A., trustee (Exhibit 4-1 to Michigan Consolidated Gas Company Form 10-K for the year ended December 31, 1992). (First Mortgage Bonds Designated Secured Term Notes, Series B) | ||||
| Thirty-third Supplemental Indenture dated as of May 1, 1995 to Indenture of Mortgage and Deed of Trust dated as of March 1, 1944 between Michigan Consolidated Gas Company and Citibank, N.A., trustee (Exhibit 4-2 to Michigan Consolidated Gas Company Registration Statement on Form S-3 (File No. 33-59093)). (First Mortgage Bonds Designated Secured Medium Term Notes, Series B) | ||||
| Thirty-fourth Supplemental Indenture dated as of November 1, 1996 to Indenture of Mortgage and Deed of Trust dated as of March 1, 1944 between Michigan Consolidated Gas Company and Citibank, N.A., trustee (Exhibit 4-2 to Michigan Consolidated Gas Company Registration Statement on Form S-3 (File No. 333-16285)). (First Mortgage Bonds Designated Secured Medium Term Notes, Series C) | ||||
| Thirty-fifth Supplemental Indenture dated as of June 18, 1998 to Indenture of Mortgage and Deed of Trust dated as of March 1, 1944 between Michigan Consolidated Gas Company and Citibank, N.A., trustee, creating an issue of first mortgage bonds designated as collateral bonds (Exhibit 4-2 to Michigan Consolidated Gas Company Form 8-K dated June 18, 1998) | ||||
| Thirty-seventh Supplemental Indenture dated as of February 15, 2003 to Indenture of Mortgage and Deed of Trust dated as of March 1, 1944 between Michigan Consolidated Gas Company and Citibank, N.A., trustee (Exhibit 4-4 to Michigan Consolidated Gas Company Form 10-Q for the quarter ended March 31, 2003). (5.70% collateral bonds due 2033) | ||||
| Thirty-eighth Supplemental Indenture dated as of October 1, 2004 to Indenture of Mortgage and Deed of Trust dated as of March 1, 1944 between Michigan Consolidated Gas Company and Citibank, N.A., trustee (Exhibit 4-5 to Michigan Consolidated Gas Company Form 10-Q for the quarter ended September 31, 2004). (2004 Series E collateral bonds) | ||||
| Thirty-ninth Supplemental Indenture, dated as of April 1, 2008 to Indenture of Mortgage and Deed of Trust dated as of March 1, 1944 between Michigan Consolidated Gas Company and Citibank, N.A., trustee (Exhibit 4-240 to Form 10-Q for the quarter ended March 31, 2008). (2008 Series A, B and C Collateral Bonds) |
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| Fortieth Supplemental Indenture, dated as of June 1, 2008 to Indenture of Mortgage and Deed of Trust dated as of March 1, 1944 between Michigan Consolidated Gas Company and Citibank, N.A., trustee (Exhibit 4-242 to Form 10-Q for the quarter ended June 30, 2008). (2008 Series F Collateral Bonds) | ||||
| Forty-first Supplemental Indenture, dated as of August 1, 2008 to Indenture of Mortgage and Deed of Trust dated as of March 1, 1944 between Michigan Consolidated Gas Company and Citibank, N.A., trustee (Exhibit 4-250 to Form 10-Q for the quarter ended September 30, 2008). (2008 Series H and I Collateral Bonds) | ||||
| Forty-second Supplemental Indenture, dated as of December 1, 2008 to Indenture of Mortgage and Deed of Trust dated as of March 1, 1944 between Michigan Consolidated Gas Company and Citibank, N.A., Trustee (Exhibit 4-253 to Form 10-K for the year ending December 31, 2008) (2008 Series M Collateral Bonds). | ||||
| 10(a) | Form of Indemnification Agreement between DTE Energy Company and each of Anthony F. Earley, Jr., Gerard M. Anderson, Robert J. Buckler, David E. Meador, Gerardo Norcia, Bruce D. Peterson, and non-employee Directors. (Exhibit 10-1 to Form 8-K dated December 6, 2007). | |||
| 10(b) | Certain arrangements pertaining to the employment of Anthony F. Earley, Jr. with The Detroit Edison Company, dated April 25, 1994 (Exhibit 10-53 to The Detroit Edison Company’s Form 10-Q for the quarter ended March 31, 1994). | |||
| 10(c) | Certain arrangements pertaining to the employment of Gerard M. Anderson with The Detroit Edison Company, dated October 6, 1993 (Exhibit 10-48 to The Detroit Edison Company’s Form 10-K for the year ended December 31, 1993). | |||
| 10(d) | Certain arrangements pertaining to the employment of David E. Meador with The Detroit Edison Company, dated January 14, 1997 (Exhibit 10-5 to Form 10-K for the year ended December 31, 1996). | |||
| 10(e) | Certain arrangements pertaining to the employment of Bruce D. Peterson, dated May 22, 2002 (Exhibit 10-48 to Form 10-Q for the quarter ended June 30, 2002). | |||
| 10(f) | Amended and Restated Post-Employment Income Agreement, dated March 23, 1998, between The Detroit Edison Company and Anthony F. Earley, Jr. (Exhibit 10-21 to Form 10-Q for the quarter ended March 31, 1998). | |||
| 10(g) | DTE Energy Company Annual Incentive Plan (Exhibit 10-44 to Form 10-Q for the quarter ended March 31, 2001). | |||
| 10(h) | DTE Energy Company 2006 Long-Term Incentive Plan (Annex A to DTE Energy’s Definitive Proxy Statement dated March 24, 2006). | |||
| First Amendment, dated February 8, 2007 to the DTE Energy Company 2006 Long-Term Incentive Plan. (Exhibit 10-73 to Form 10-K for the year ended December 31, 2007). | ||||
| Second Amendment, dated March 8, 2007 to the DTE Energy Company 2006 Long-Term Incentive Plan. (Exhibit 10-74 to Form 10-K for the year ended December 31, 2007). | ||||
| 10(i) | DTE Energy Company Retirement Plan for Non-Employee Directors’ Fees (as amended and restated effective as of December 31, 1998) (Exhibit 10-31 to Form 10-K for the year ended December 31, 1998). | |||
| 10(j) | The Detroit Edison Company Supplemental Long-Term Disability Plan, dated January 27, 1997 (Exhibit 10-4 to Form 10-K for the year ended December 31, 1996). | |||
| 10(k) | Description of Executive Life Insurance Plan (Exhibit 10-47 to Form 10-Q for the quarter ended June 30, 2002). | |||
| 10(l) | DTE Energy Affiliates Nonqualified Plans Master Trust, effective as of May 1, 2003 (Exhibit 10-49 to Form 10-Q for the quarter ended March 31, 2003). | |||
| 10(m) | Form of Director Restricted Stock Agreement (Exhibit 10.1 to Form 8-K dated June 23, 2005). |
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| 10(n) | Form of Director Restricted Stock Agreement pursuant to the DTE Energy Company Long-Term Incentive Plan (Exhibit 10.1 to Form 8-K dated June 29, 2006). | |||
| 10(o) | DTE Energy Company Executive Supplemental Retirement Plan as Amended and Restated, effective as of January 1, 2005. (Exhibit 10.75 to Form 10-K for year ended December 31, 2008). | |||
| First Amendment to the DTE Energy Company Executive Supplemental Retirement Plan (Amended and Restated Effective January 1, 2005) dated as of December 2, 2009. (Exhibit 10.1 to Form 8-K dated December 8, 2009) | ||||
| 10(p) | DTE Energy Company Supplemental Retirement Plan as Amended and Restated, effective as of January 1, 2005. (Exhibit 10.76 to Form 10-K for year ended December 31, 2008). | |||
| 10(q) | DTE Energy Company Supplemental Savings Plan as Amended and Restated, effective as of January 1, 2005. (Exhibit 10.77 to Form 10-K for year ended December 31, 2008). | |||
| 10(r) | DTE Energy Company Executive Deferred Compensation Plan as Amended and Restated, effective as of January 1, 2005. (Exhibit 10.78 to Form 10-K for year ended December 31, 2008). | |||
| 10(s) | DTE Energy Company Plan for Deferring the Payment of Directors’ Fees as Amended and Restated, effective as of January 1, 2005. (Exhibit 10.79 to Form 10-K for year ended December 31, 2008). | |||
| 10(t) | DTE Energy Company Deferred Stock Compensation Plan for Non-Employee Directors as Amended and Restated, effective January 1, 2005. (Exhibit 10.80 to Form 10-K for year ended December 31, 2008). | |||
| 10(u) | Form of DTE Energy Five-Year Credit Agreement, dated as of October 17, 2005, by and among DTE Energy, the lenders party thereto, Citibank, N.A., as Administrative Agent, and Barclays Bank PLC and JPMorgan Chase Bank, N.A., as Co-Syndication Agents (Exhibit 10.1 to Form 8-K dated October 17, 2005). | |||
| 10(v) | Form of Five-Year Credit Agreement dated as of October 17, 2005, by and among Michigan Consolidated Gas Company, the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and Barclays Bank PLC and Citibank, N.A., as Co-Syndication Agents (Exhibit 10.1 to Form 8-K dated October 17, 2005). | |||
| 10(w) | Form of The Detroit Edison Company’s Five-Year Credit Agreement, dated as of October 17, 2005, by and among The Detroit Edison Company, the lenders party thereto, Barclays Bank PLC, as Administrative Agent, and Citibank, N.A. and JPMorgan Chase Bank, N.A., as Co-Syndication Agents (Exhibit 10.1 to Form 8-K dated October 17, 2005). | |||
| 10(x) | Form of DTE Energy Two-Year Credit Agreement, dated as of April 29, 2009, by and among DTE Energy, the lenders party thereto, Citibank, as Administrative Agent, and Barclays, BNS and JPMorgan, as Co-Syndication Agents. (Exhibit 10.1 to Form 8-K filed May 5, 2009) | |||
| 10(y) | Form of MichCon Two-Year Credit Agreement, dated as of April 29, 2009, by and among MichCon, the lenders party thereto, JPMorgan, as Administrative Agent, and Barclays, Citibank and Bank of America, as Co-Syndication Agents. (Exhibit 10.2 to Form 8-K filed May 5, 2009) | |||
| 10(z) | Form of Detroit Edison Two-Year Credit Agreement, dated as of April 29, 2009, by and among Detroit Edison, the lenders party thereto, Barclays, as Administrative Agent, and Citibank, JPMorgan and RBS, as Co-Syndication Agents. (Exhibit 10.1 to Form 8-K filed May 5, 2009) | |||
| 99(a) | Master Trust Agreement (“Master Trust”), dated as of June 30, 1994, between DTE Energy Company, as successor, and Fidelity Management Trust Company relating to the Savings and Investment Plans (Exhibit 4-167 to Form 10-Q for the quarter ended June 30, 1994). | |||
| First Amendment, dated as of February 1, 1995, to Master Trust (Exhibit 4-10 to Registration No. 333-00023). | ||||
| Second Amendment, dated as of February 1, 1995, to Master Trust (Exhibit 4-11 to Registration No. 333-00023). |
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| Third Amendment, effective January 1, 1996, to Master Trust (Exhibit 4-12 to Registration No. 333-00023). | ||||
| Fourth Amendment, dated as of August 1, 1996, to Master Trust (Exhibit 4-185 to Form 10-K for the year ended December 31, 1997). | ||||
| Fifth Amendment, dated as of January 1, 1998, to Master Trust (Exhibit 4-186 to Form 10-K for the year ended December 31, 1997). | ||||
| Sixth Amendment, dated as of September 1, 1998, to Master Trust (Exhibit 99-15 to Form 10-K for the year ended December 31, 2004). | ||||
| Seventh Amendment, dated as of December 15, 1999, to Master Trust (Exhibit 99-16 to Form 10-K for the year ended December 31, 2004). | ||||
| Eighth Amendment, dated as of February 1, 2000, to Master Trust (Exhibit 99-17 to Form 10-K for the year ended December 31, 2004). | ||||
| Ninth Amendment, dated as of April 1, 2000, to Master Trust (Exhibit 99-18 to Form 10-K for the year ended December 31, 2004). | ||||
| Tenth Amendment, dated as of May 1, 2000, to Master Trust (Exhibit 99-19 to Form 10-K for the year ended December 31, 2004). | ||||
| Eleventh Amendment, dated as of July 1, 2000, to Master Trust (Exhibit 99-20 to Form 10-K for the year ended December 31, 2004). | ||||
| Twelfth Amendment, dated as of August 1, 2000, to Master Trust (Exhibit 99-21 to Form 10-K for the year ended December 31, 2004). | ||||
| Thirteenth Amendment, dated as of December 21, 2001, to Master Trust (Exhibit 99-22 to Form 10-K for the year ended December 31, 2004). | ||||
| Fourteenth Amendment, dated as of March 1, 2002, to Master Trust (Exhibit 99-23 to Form 10-K for the year ended December 31, 2004). | ||||
| Fifteenth Amendment, dated as of January 1, 2002, to Master Trust (Exhibit 99-24 to Form 10-K for the year ended December 31, 2004). | ||||
| Sixteenth Amendment, dated as of July 30, 2004, to Master Trust (Exhibit 99-25 to Form 10-K for the year ended December 31, 2007). | ||||
| Eighteenth Amendment, dated as of June 1, 2006, to Master Trust (Exhibit 99-26 to Form 10-K for the year ended December 31, 2007). | ||||
| Nineteenth Amendment, dated as of July 31, 2007, to Master Trust (Exhibit 99-27 to Form 10-K for the year ended December 31, 2007). | ||||
| Twentieth Amendment, dated as of April 30, 2008, to Master Trust (Exhibit 99-48 to Form 10-K for the year ended December 31, 2008). | ||||
| (iii) Exhibits furnished herewith: | ||||
| 32 | -55 | Chief Executive Officer Section 906 Form 10-K Certification of Periodic Report. | ||
| 32 | -56 | Chief Financial Officer Section 906 Form 10-K Certification of Periodic Report. |
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DTE
Energy Company
| Year Ending December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (in Millions) | ||||||||||||
|
Allowance for Doubtful Accounts (shown as deduction from
Accounts Receivable in the Consolidated Statements of Financial
Position)
|
||||||||||||
|
Balance at Beginning of Period
|
$ | 265 | $ | 182 | $ | 170 | ||||||
|
Additions:
|
||||||||||||
|
Charged to costs and expenses
|
155 | 198 | 133 | |||||||||
|
Charged to other accounts(1)
|
17 | 18 | 12 | |||||||||
|
Deductions(2)
|
(175 | ) | (133 | ) | (133 | ) | ||||||
|
Balance at End of Period
|
$ | 262 | $ | 265 | $ | 182 | ||||||
| (1) | Collection of accounts previously written off and, in 2008, balances previously held for sale of $4 million. | |
| (2) | Uncollectible accounts written off. |
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Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DTE ENERGY COMPANY
(Registrant)
(Registrant)
| By |
/s/ ANTHONY
F. EARLEY, JR.
|
Anthony F. Earley, Jr.
Chairman of the Board and
Chief Executive Officer
Date: February 23, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
date indicated.
|
By
|
/s/
ANTHONY
F. EARLEY, JR.
|
By |
/s/
DAVID
E. MEADOR
|
|||
| Anthony F. Earley, Jr. | David E. Meador | |||||
|
Chairman of the Board and
Chief Executive Officer |
Executive Vice President and
Chief Financial Officer |
|||||
|
By
|
/s/
PETER
B. OLEKSIAK
|
By |
/s/
GERARD
M. ANDERSON
|
|||
| Peter B. Oleksiak | Gerard M. Anderson | |||||
| Vice President, Controller and Investor Relations, and Chief Accounting Officer |
President, Chief Operating Officer and
Director |
|||||
|
By
|
/s/
LILLIAN
BAUDER
|
By |
/s/
EUGENE
A. MILLER
|
|||
| Lillian Bauder, Director | Eugene A. Miller, Director | |||||
|
By
|
/s/
W.
FRANK FOUNTAIN, JR.
|
By |
/s/
MARK
A. MURRAY
|
|||
| W. Frank Fountain, Jr., Director | Mark A. Murray, Director | |||||
|
By
|
/s/
ALLAN
D. GILMOUR
|
By |
/s/
CHARLES
W. PRYOR, JR.
|
|||
| Allan D. Gilmour, Director | Charles W. Pryor, Jr., Director | |||||
|
By
|
/s/
FRANK
M. HENNESSEY
|
By |
/s/
JOSUE
ROBLES, JR.
|
|||
| Frank M. Hennessey, Director | Josue Robles, Jr., Director | |||||
|
By
|
/s/
JOHN
E. LOBBIA
|
By |
/s/
RUTH
G. SHAW
|
|||
| John E. Lobbia, Director | Ruth G. Shaw, Director | |||||
|
By
|
/s/
GAIL
J. MCGOVERN
|
By |
/s/
JAMES
H. VANDENBERGHE
|
|||
| Gail J. McGovern, Director | James H. Vandenberghe, Director |
Date: February 23, 2010
152
TABLE OF CONTENTS
Part IprintItem 1A. Risk FactorsprintItem 1B. Unresolved Staff CommentsprintItem 3. Legal ProceedingsprintItem 4. Submission Of Matters To A Vote Of Security HoldersprintPart IIprintItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesprintItem 6. Selected Financial DataprintItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 7A. Quantitative and Qualitative Disclosures About Market RiskprintItem 8. Financial Statements and Supplementary DataprintNote 1 Organization and Basis Of PresentationprintNote 2 Significant Accounting PoliciesprintNote 3 New Accounting PronouncementsprintNote 4 Fair ValueprintNote 5 Financial and Other Derivative InstrumentsprintNote 6 GoodwillprintNote 7 Property, Plant and EquipmentprintNote 8 Jointly Owned Utility PlantprintNote 9 Asset Retirement ObligationsprintNote 10 Disposals and Discontinued OperationsprintNote 11 Other Impairments and RestructuringprintNote 12 Regulatory MattersprintNote 13 Income TaxesprintNote 14 Common StockprintNote 15 Earnings Per ShareprintNote 16 Long-term DebtprintNote 17 Preferred and Preference SecuritiesprintNote 18 Short-term Credit Arrangements and BorrowingsprintNote 19 Capital and Operating LeasesprintNote 20 Commitments and ContingenciesprintNote 21 Retirement Benefits and Trusteed AssetsprintNote 22 Stock-based CompensationprintNote 23 Supplemental Cash Flow InformationprintNote 24 Segment and Related InformationprintNote 25 Supplementary Quarterly Financial Information (unaudited)printItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureprintItem 9A. Controls and ProceduresprintItem 9B. Other InformationprintPart IIIprintItem 10. Directors, Executive Officers and Corporate GovernanceprintItem 11. Executive CompensationprintItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersprintItem 13. Certain Relationships and Related Transactions, and Director IndependenceprintItem 14. Principal Accountant Fees and ServicesprintPart IVprintItem 15. Exhibits and Financial Statement Schedulesprint