Item 8. Financial Statements and Supplementary Data

Item 8. Financial Statements and Supplementary Data

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Estimated Useful Lives in Years

Generation

Distribution

DTE Electric

The following Consolidated Financial Statements and financial statement schedules are included herein:



	Page
DTE Energy — Controls and Procedures	56
DTE Energy — Report of Independent Registered Public Accounting Firm	57
DTE Energy — Consolidated Statements of Operations	59
DTE Energy — Consolidated Statements of Comprehensive Income	60
DTE Energy — Consolidated Statements of Financial Position	61
DTE Energy — Consolidated Statements of Cash Flows	63
DTE Energy — Consolidated Statements of Changes in Equity	64
DTE Electric — Controls and Procedures	65
DTE Electric — Report of Independent Registered Public Accounting Firm	66
DTE Electric — Consolidated Statements of Operations	67
DTE Electric — Consolidated Statements of Comprehensive Income	68
DTE Electric — Consolidated Statements of Financial Position	69
DTE Electric — Consolidated Statements of Cash Flows	71
DTE Electric — Consolidated Statements of Changes in Shareholder's Equity	72
Combined Notes to Consolidated Financial Statements	73
Note 1 — Organization and Basis of Presentation	73
Note 2 — Significant Accounting Policies	77
Note 3 — New Accounting Pronouncements	82
Note 4 — Acquisitions and Exit Activities	83
Note 5 — Goodwill	85
Note 6 — Property, Plant, and Equipment	86
Note 7 — Jointly-Owned Utility Plant	88
Note 8 — Asset Retirement Obligations	88
Note 9 — Regulatory Matters	89
Note 10 — Income Taxes	93
Note 11 — Earnings Per Share	97
Note 12 — Fair Value	98
Note 13 — Financial and Other Derivative Instruments	105
Note 14 — Long-Term Debt	110
Note 15 — Preferred and Preference Securities	113
Note 16 — Short-Term Credit Arrangements and Borrowings	113
Note 17 — Capital and Operating Leases	114
Note 18 — Commitments and Contingencies	115
Note 19 — Nuclear Operations	120
Note 20 — Retirement Benefits and Trusteed Assets	122
Note 21 — Stock-Based Compensation	132
Note 22 — Segment and Related Information	135
Note 23 — Related Party Transactions	137
Note 24 — Supplementary Quarterly Financial Information (Unaudited)	139
Financial Statement Schedule
Schedule II — Valuation and Qualifying Accounts	153

DTE Energy — Controls and Procedures

(a) Evaluation of disclosure controls and procedures

Management of DTE Energy carried out an evaluation, under the supervision and with the participation of DTE Energy's Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of DTE Energy's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2017, which is the end of the period covered by this report. Based on this evaluation, DTE Energy's CEO and CFO have concluded that such disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by DTE Energy in reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms and (ii) is accumulated and communicated to DTE Energy's management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Due to the inherent limitations in the effectiveness of any disclosure controls and procedures, management cannot provide absolute assurance that the objectives of its disclosure controls and procedures will be attained.

(b) Management’s report on internal control over financial reporting

Management of DTE Energy 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, DTE Energy's 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 DTE Energy has assessed the effectiveness of DTE Energy’s internal control over financial reporting as of December 31, 2017. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 COSO) in Internal Control - Integrated Framework. Based on this assessment, management concluded that, as of December 31, 2017, DTE Energy’s internal control over financial reporting was effective based on those criteria.

The effectiveness of DTE Energy’s internal control over financial reporting as of December 31, 2017 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm who also audited DTE Energy’s financial statements, as stated in their report which appears herein.

There have been no changes in DTE Energy's internal control over financial reporting during the quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, DTE Energy's internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

DTE Energy Company

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated statements of financial position of DTE Energy Company and its subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of operations, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2017, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2017 listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, 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 the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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 audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

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.

/s/ PricewaterhouseCoopers LLP

Detroit, Michigan

February 16, 2018

We have served as the Company’s auditor since 2008.

DTE Energy Company

Consolidated Statements of Operations



	Year Ended December 31,
	2017			2016			2015
	(In millions, except per share amounts)
Operating Revenues
Utility operations	$	6,434		$	6,497		$	6,238
Non-utility operations	6,173			4,133			4,099
	12,607			10,630			10,337

Operating Expenses
Fuel, purchased power, and gas — utility	1,881			1,968			2,081
Fuel, purchased power, and gas — non-utility	5,283			3,562			3,481
Operation and maintenance	2,335			2,302			2,214
Depreciation and amortization	1,030			976			852
Taxes other than income	391			370			364
Asset (gains) losses and impairments, net	41			7			106
	10,961			9,185			9,098
Operating Income	1,646			1,445			1,239

Other (Income) and Deductions
Interest expense	536			472			450
Interest income	(12		)	(20		)	(13		)
Other income	(268		)	(207		)	(209		)
Other expenses	103			95			61
	359			340			289
Income Before Income Taxes	1,287			1,105			950

Income Tax Expense	175			271			230

Net Income	1,112			834			720

Less: Net Loss Attributable to Noncontrolling Interests	(22		)	(34		)	(7		)

Net Income Attributable to DTE Energy Company	$	1,134		$	868		$	727

Basic Earnings per Common Share
Net Income Attributable to DTE Energy Company	$	6.32		$	4.84		$	4.05

Diluted Earnings per Common Share
Net Income Attributable to DTE Energy Company	$	6.32		$	4.83		$	4.05

Weighted Average Common Shares Outstanding
Basic	179			179			179
Diluted	179			179			179
Dividends Declared per Common Share	$	3.36		$	3.06		$	2.84

See Combined Notes to Consolidated Financial Statements

DTE Energy Company

Consolidated Statements of Comprehensive Income



	Year Ended December 31,
	2017			2016			2015
	(In millions)
Net Income	$	1,112		$	834		$	720

Other comprehensive income (loss), net of tax:
Benefit obligations, net of taxes of $5, $6, and $8, respectively	10			11			13
Net unrealized gains on derivatives during the period, net of taxes of $—, $—, and $—, respectively	1			—			—
Net unrealized gains on investments during the period, net of taxes of $1, $1, and $—, respectively	1			1			1
Foreign currency translation	1			—			(4		)
Other comprehensive income	13			12			10

Comprehensive income	1,125			846			730
Less: Comprehensive loss attributable to noncontrolling interests	(22		)	(34		)	(7		)
Comprehensive Income Attributable to DTE Energy Company	$	1,147		$	880		$	737

See Combined Notes to Consolidated Financial Statements

DTE Energy Company

Consolidated Statements of Financial Position



	December 31,
	2017			2016
	(In millions)
ASSETS
Current Assets
Cash and cash equivalents	$	66		$	92
Restricted cash	23			21
Accounts receivable (less allowance for doubtful accounts of $49 and $41, respectively)
Customer	1,758			1,522
Other	98			71
Inventories
Fuel and gas	399			416
Materials and supplies	380			356
Derivative assets	103			47
Regulatory assets	55			42
Other	199			195
	3,081			2,762
Investments
Nuclear decommissioning trust funds	1,492			1,320
Investments in equity method investees	1,073			752
Other	232			201
	2,797			2,273
Property
Property, plant, and equipment	31,424			30,029
Accumulated depreciation and amortization	(10,703		)	(10,299		)
	20,721			19,730
Other Assets
Goodwill	2,293			2,286
Regulatory assets	3,723			3,871
Intangible assets	867			842
Notes receivable	73			73
Derivative assets	51			34
Other	161			170
	7,168			7,276
Total Assets	$	33,767		$	32,041

See Combined Notes to Consolidated Financial Statements

DTE Energy Company

Consolidated Statements of Financial Position — (Continued)



	December 31,
	2017			2016
	(In millions, except shares)
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable	$	1,171		$	1,079
Accrued interest	111			96
Dividends payable	158			148
Short-term borrowings	621			499
Current portion long-term debt, including capital leases	109			14
Derivative liabilities	99			69
Regulatory liabilities	18			34
Other	525			498
	2,812			2,437
Long-Term Debt (net of current portion)
Mortgage bonds, notes, and other	11,039			10,506
Junior subordinated debentures	1,145			756
Capital lease obligations	1			7
	12,185			11,269
Other Liabilities
Deferred income taxes	1,888			4,162
Regulatory liabilities	2,875			555
Asset retirement obligations	2,320			2,197
Unamortized investment tax credit	122			93
Derivative liabilities	47			98
Accrued pension liability	924			1,152
Accrued postretirement liability	61			36
Nuclear decommissioning	220			194
Other	323			349
	8,780			8,836
Commitments and Contingencies (Notes 9 and 18)

Equity
Common stock, without par value, 400,000,000 shares authorized, and 179,386,967 and 179,432,581 shares issued and outstanding, respectively	3,989			4,030
Retained earnings	5,643			5,114
Accumulated other comprehensive loss	(120		)	(133		)
Total DTE Energy Company Equity	9,512			9,011
Noncontrolling interests	478			488
Total Equity	9,990			9,499
Total Liabilities and Equity	$	33,767		$	32,041

See Combined Notes to Consolidated Financial Statements

DTE Energy Company

Consolidated Statements of Cash Flows



	Year Ended December 31,
	2017			2016			2015
Operating Activities	(In millions)
Net Income	$	1,112		$	834		$	720
Adjustments to reconcile Net Income to Net cash from operating activities:
Depreciation and amortization	1,030			976			852
Nuclear fuel amortization	53			58			46
Allowance for equity funds used during construction	(23		)	(21		)	(21		)
Deferred income taxes	196			265			237
Equity earnings of equity method investees	(102		)	(68		)	(66		)
Dividends from equity method investees	74			68			64
Asset (gains) losses and impairments, net	38			8			107
Changes in assets and liabilities:
Accounts receivable, net	(252		)	(226		)	259
Inventories	(4		)	37			1
Accounts payable	129			145			(158		)
Accrued pension liability	(228		)	19			(147		)
Accrued postretirement liability	25			(192		)	(287		)
Derivative assets and liabilities	(94		)	126			47
Regulatory assets and liabilities	217			(40		)	85
Other current and noncurrent assets and liabilities	(54		)	95			177
Net cash from operating activities	2,117			2,084			1,916
Investing Activities
Plant and equipment expenditures — utility	(2,037		)	(1,898		)	(1,817		)
Plant and equipment expenditures — non-utility	(213		)	(147		)	(203		)
Acquisition, net of cash acquired	—			(1,147		)	(241		)
Restricted cash for debt redemption, principally Securitization, net	(2		)	1			97
Proceeds from sale of nuclear decommissioning trust fund assets	1,240			1,457			885
Investment in nuclear decommissioning trust funds	(1,226		)	(1,463		)	(898		)
Distributions from equity method investees	10			11			19
Contributions to equity method investees	(299		)	(239		)	(98		)
Other	(37		)	37			52
Net cash used for investing activities	(2,564		)	(3,388		)	(2,204		)
Financing Activities
Issuance of long-term debt, net of issuance costs	1,398			2,035			956
Redemption of long-term debt	(385		)	(807		)	(286		)
Repurchase of long-term debt	—			(59		)	—
Issuance of equity units, net of issuance costs	—			654			—
Short-term borrowings, net	122			—			101
Repurchase of common stock	(51		)	(33		)	—
Dividends on common stock	(592		)	(531		)	(501		)
Contributions from noncontrolling interests	50			114			23
Distributions to noncontrolling interests	(40		)	(5		)	(8		)
Other	(81		)	(9		)	(8		)
Net cash from financing activities	421			1,359			277
Net Increase (Decrease) in Cash and Cash Equivalents	(26		)	55			(11		)
Cash and Cash Equivalents at Beginning of Period	92			37			48
Cash and Cash Equivalents at End of Period	$	66		$	92		$	37

Supplemental disclosure of cash information
Cash paid (received) for:
Interest, net of interest capitalized	$	495		$	448		$	428
Income taxes	$	4		$	(1	)	$	14
Supplemental disclosure of non-cash investing and financing activities
Plant and equipment expenditures in accounts payable	$	295		$	312		$	207
Premium on equity units	$	—		$	98		$	—

See Combined Notes to Consolidated Financial Statements

DTE Energy Company

Consolidated Statements of Changes in Equity



						Retained Earnings				Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests
	Common Stock
	Shares		Amount						Total
	(Dollars in millions, shares in thousands)
Balance, December 31, 2014	176,991		$	3,904		$	4,578			$	(155	)	$	15		$	8,342
Net Income (Loss)	—		—			727				—			(7		)	720
Dividends declared on common stock	—		—			(510		)		—			—			(510		)
Issuance of common stock	105		9			—				—			—			9
Contribution of common stock to pension plan	1,428		117			—				—			—			117
Benefit obligations, net of tax	—		—			—				13			—			13
Net change in unrealized gains on investments, net of tax	—		—			—				1			—			1
Foreign currency translation	—		—			—				(4		)	—			(4		)
Stock-based compensation, net contributions from noncontrolling interests, and other	946		93			(1		)		—			15			107
Balance, December 31, 2015	179,470		$	4,123		$	4,794			$	(145	)	$	23		$	8,795
Implementation of ASU 2016-09	—		—			3				—			—			3
Net Income (Loss)	—		—			868				—			(34		)	834
Dividends declared on common stock	—		—			(548		)		—			—			(548		)
Repurchase of common stock	(394	)	(33		)	—				—			—			(33		)
Premium on equity units	—		(98		)	—				—			—			(98		)
Issuance costs of equity units	—		(18		)	—				—			—			(18		)
Acquisition of SGG	—		—			—				—			390			390
Benefit obligations, net of tax	—		—			—				11			—			11
Net change in unrealized gains on investments, net of tax	—		—			—				1			—			1
Stock-based compensation, net contributions from noncontrolling interests, and other	357		56			(3		)		—			109			162
Balance, December 31, 2016	179,433		$	4,030		$	5,114			$	(133	)	$	488		$	9,499
Net Income (Loss)	—		—			1,134				—			(22		)	1,112
Dividends declared on common stock	—		—			(602		)		—			—			(602		)
Repurchase of common stock	(524	)	(51		)	—				—			—			(51		)
Benefit obligations, net of tax	—		—			—				10			—			10
Net change in unrealized gains on derivatives, net of tax	—		—			—				1			—			1
Net change in unrealized gains on investments, net of tax	—		—			—				1			—			1
Foreign currency translation	—		—			—				1			—			1
Stock-based compensation, net contributions from noncontrolling interests, and other	478		10			(3		)		—			12			19
Balance, December 31, 2017	179,387		$	3,989		$	5,643			$	(120	)	$	478		$	9,990

See Combined Notes to Consolidated Financial Statements

DTE Electric — Controls and Procedures

(a) Evaluation of disclosure controls and procedures

Management of DTE Electric carried out an evaluation, under the supervision and with the participation of DTE Electric’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of DTE Electric’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2017, which is the end of the period covered by this report. Based on this evaluation, DTE Electric’s CEO and CFO have concluded that such disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by DTE Electric in reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms and (ii) is accumulated and communicated to DTE Electric’s management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Due to the inherent limitations in the effectiveness of any disclosure controls and procedures, management cannot provide absolute assurance that the objectives of its disclosure controls and procedures will be attained.

(b) Management’s report on internal control over financial reporting

Management of DTE Electric 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, DTE Electric's 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.

Management of DTE Electric has assessed the effectiveness of DTE Electric’s internal control over financial reporting as of December 31, 2017. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 COSO) in Internal Control - Integrated Framework. Based on this assessment, management concluded that, as of December 31, 2017, DTE Electric’s internal control over financial reporting was effective based on those criteria.

This annual report does not include an audit report of DTE Electric’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to audit by DTE Electric’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit DTE Electric to provide only management’s report in this annual report.

There have been no changes in DTE Electric’s internal control over financial reporting during the quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, DTE Electric’s internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholder of

DTE Electric Company

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial position of DTE Electric Company and its subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of operations, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2017, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2017 listed in the accompanying index (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Detroit, Michigan

February 16, 2018

We have served as the Company's auditor since 2008.

DTE Electric Company

Consolidated Statements of Operations



	Year Ended December 31,
	2017			2016			2015
	(In millions)
Operating Revenues — Utility operations	$	5,102		$	5,225		$	4,900

Operating Expenses
Fuel and purchased power — utility	1,454			1,532			1,574
Operation and maintenance	1,428			1,455			1,342
Depreciation and amortization	753			750			633
Taxes other than income	302			284			277
	3,937			4,021			3,826
Operating Income	1,165			1,204			1,074

Other (Income) and Deductions
Interest expense	274			264			258
Interest income	—			(8		)	—
Other income	(77		)	(61		)	(60		)
Other expenses	40			34			40
	237			229			238
Income Before Income Taxes	928			975			836

Income Tax Expense	327			353			292

Net Income	$	601		$	622		$	544

See Combined Notes to Consolidated Financial Statements

DTE Electric Company

Consolidated Statements of Comprehensive Income



	Year Ended December 31,
	2017		2016		2015
	(In millions)
Net Income	$	601	$	622	$	544
Other comprehensive income, net of tax:
Transfer of benefit obligations, net of taxes of $18 in 2015	—		—		27
Net unrealized gains on investments during the period, net of taxes of $1, $—, and $—, respectively	1		—		1
Other comprehensive income	1		—		28
Comprehensive Income	$	602	$	622	$	572

See Combined Notes to Consolidated Financial Statements

DTE Electric Company

Consolidated Statements of Financial Position



	December 31,
	2017			2016
	(In millions)
ASSETS
Current Assets
Cash and cash equivalents	$	15		$	13
Accounts receivable (less allowance for doubtful accounts of $31 and $25, respectively)
Customer	791			728
Affiliates	20			12
Other	37			29
Inventories
Fuel	190			225
Materials and supplies	275			271
Regulatory assets	50			36
Other	68			63
	1,446			1,377
Investments
Nuclear decommissioning trust funds	1,492			1,320
Other	36			36
	1,528			1,356
Property
Property, plant, and equipment	22,972			22,094
Accumulated depreciation and amortization	(7,984		)	(7,721		)
	14,988			14,373
Other Assets
Regulatory assets	3,005			3,113
Intangible assets	25			31
Prepaid postretirement costs — affiliates	113			114
Other	123			125
	3,266			3,383
Total Assets	$	21,228		$	20,489

See Combined Notes to Consolidated Financial Statements

DTE Electric Company

Consolidated Statements of Financial Position — (Continued)



	December 31,
	2017		2016
	(In millions, except shares)
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Accounts payable
Affiliates	$	52	$	58
Other	416		452
Accrued interest	72		65
Current portion long-term debt, including capital leases	5		6
Regulatory liabilities	17		27
Short-term borrowings
Affiliates	116		117
Other	238		62
Other	145		146
	1,061		933
Long-Term Debt (net of current portion)
Mortgage bonds, notes, and other	6,017		5,878
Capital lease obligations	1		7
	6,018		5,885
Other Liabilities
Deferred income taxes	2,088		3,793
Regulatory liabilities	2,137		229
Asset retirement obligations	2,125		2,012
Unamortized investment tax credit	120		90
Nuclear decommissioning	220		194
Accrued pension liability — affiliates	811		1,008
Accrued postretirement liability — affiliates	311		269
Other	72		81
	7,884		7,676
Commitments and Contingencies (Notes 9 and 18)

Shareholder's Equity
Common stock, $10 par value, 400,000,000 shares authorized, and 138,632,324 shares issued and outstanding	4,306		4,206
Retained earnings	1,956		1,787
Accumulated other comprehensive income	3		2
Total Shareholder's Equity	6,265		5,995
Total Liabilities and Shareholder's Equity	$	21,228	$	20,489

See Combined Notes to Consolidated Financial Statements

DTE Electric Company

Consolidated Statements of Cash Flows



	Year Ended December 31,
	2017			2016			2015
Operating Activities	(In millions)
Net Income	$	601		$	622		$	544
Adjustments to reconcile Net Income to Net cash from operating activities:
Depreciation and amortization	753			750			633
Nuclear fuel amortization	53			58			46
Allowance for equity funds used during construction	(18		)	(18		)	(20		)
Deferred income taxes	345			342			320
Changes in assets and liabilities:
Accounts receivable, net	(80		)	(64		)	33
Inventories	31			26			(22		)
Prepaid postretirement benefit costs — affiliates	1			(90		)	(24		)
Accounts payable	(2		)	59			(46		)
Accrued pension liability — affiliates	(197		)	32			(224		)
Accrued postretirement liability — affiliates	42			(38		)	(213		)
Regulatory assets and liabilities	202			10			65
Other current and noncurrent assets and liabilities	(147		)	(34		)	58
Net cash from operating activities	1,584			1,655			1,150
Investing Activities
Plant and equipment expenditures	(1,574		)	(1,503		)	(1,545		)
Acquisitions	—			—			(310		)
Restricted cash for debt redemption, principally Securitization, net	—			—			96
Proceeds from sale of nuclear decommissioning trust fund assets	1,240			1,457			885
Investment in nuclear decommissioning trust funds	(1,226		)	(1,463		)	(898		)
Transfer of Rabbi Trust assets to affiliate	—			—			137
Other	18			36			14
Net cash used for investing activities	(1,542		)	(1,473		)	(1,621		)
Financing Activities
Issuance of long-term debt, net of issuance costs	435			355			495
Redemption of long-term debt	(300		)	(10		)	(135		)
Repurchase of long-term debt	—			(59		)	—
Capital contribution by parent company	100			120			300
Short-term borrowings, net — affiliate	(1		)	41			(8		)
Short-term borrowings, net — other	176			(210		)	222
Dividends on common stock	(432		)	(420		)	(395		)
Other	(18		)	(1		)	(7		)
Net cash from (used for) financing activities	(40		)	(184		)	472
Net Increase (Decrease) in Cash and Cash Equivalents	2			(2		)	1
Cash and Cash Equivalents at Beginning of Period	13			15			14
Cash and Cash Equivalents at End of Period	$	15		$	13		$	15

Supplemental disclosure of cash information
Cash paid (received) for:
Interest, net of interest capitalized	$	252		$	252		$	244
Income taxes	$	(16	)	$	6		$	(53	)
Supplemental disclosure of non-cash investing and financing activities
Plant and equipment expenditures in accounts payable	$	191		$	232		$	150

See Combined Notes to Consolidated Financial Statements

DTE Electric Company

Consolidated Statements of Changes in Shareholder's Equity



				Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)
	Common Stock
	Shares	Amount				Total
	(Dollars in millions, shares in thousands)
Balance, December 31, 2014	138,632	$	1,386	$	2,400		$	1,436		$	(26	)	$	5,196
Net Income	—	—		—			544			—			544
Dividends declared on common stock	—	—		—			(395		)	—			(395		)
Transfer of benefit obligations, net of tax	—	—		—			—			27			27
Net change in unrealized gains on investments, net of tax	—	—		—			—			1			1
Capital contribution by parent company	—	—		300			—			—			300
Balance, December 31, 2015	138,632	$	1,386	$	2,700		$	1,585		$	2		$	5,673
Net Income	—	—		—			622			—			622
Dividends declared on common stock	—	—		—			(420		)	—			(420		)
Capital contribution by parent company	—	—		120			—			—			120
Balance, December 31, 2016	138,632	$	1,386	$	2,820		$	1,787		$	2		$	5,995
Net Income	—	—		—			601			—			601
Dividends declared on common stock	—	—		—			(432		)	—			(432		)
Net change in unrealized gains on investments, net of tax	—	—		—			—			1			1
Capital contribution by parent company	—	—		100			—			—			100
Balance, December 31, 2017	138,632	$	1,386	$	2,920		$	1,956		$	3		$	6,265

See Combined Notes to Consolidated Financial Statements

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements

Index of Combined Notes to Consolidated Financial Statements

The Combined Notes to Consolidated Financial Statements are a combined presentation for DTE Energy and DTE Electric. The following list indicates the Registrant(s) to which each note applies:



Note 1	Organization and Basis of Presentation	DTE Energy and DTE Electric
Note 2	Significant Accounting Policies	DTE Energy and DTE Electric
Note 3	New Accounting Pronouncements	DTE Energy and DTE Electric
Note 4	Acquisitions and Exit Activities	DTE Energy
Note 5	Goodwill	DTE Energy
Note 6	Property, Plant, and Equipment	DTE Energy and DTE Electric
Note 7	Jointly-Owned Utility Plant	DTE Energy and DTE Electric
Note 8	Asset Retirement Obligations	DTE Energy and DTE Electric
Note 9	Regulatory Matters	DTE Energy and DTE Electric
Note 10	Income Taxes	DTE Energy and DTE Electric
Note 11	Earnings Per Share	DTE Energy
Note 12	Fair Value	DTE Energy and DTE Electric
Note 13	Financial and Other Derivative Instruments	DTE Energy and DTE Electric
Note 14	Long-Term Debt	DTE Energy and DTE Electric
Note 15	Preferred and Preference Securities	DTE Energy and DTE Electric
Note 16	Short-Term Credit Arrangements and Borrowings	DTE Energy and DTE Electric
Note 17	Capital and Operating Leases	DTE Energy and DTE Electric
Note 18	Commitments and Contingencies	DTE Energy and DTE Electric
Note 19	Nuclear Operations	DTE Energy and DTE Electric
Note 20	Retirement Benefits and Trusteed Assets	DTE Energy and DTE Electric
Note 21	Stock-Based Compensation	DTE Energy and DTE Electric
Note 22	Segment and Related Information	DTE Energy
Note 23	Related Party Transactions	DTE Electric
Note 24	Supplementary Quarterly Financial Information (Unaudited)	DTE Energy and DTE Electric

NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION

Corporate Structure

DTE Energy owns the following businesses:


•	DTE Electric is a public utility engaged in the generation, purchase, distribution, and sale of electricity to approximately 2.2 million customers in southeastern Michigan;


•	DTE Gas is a public utility engaged in the purchase, storage, transportation, distribution, and sale of natural gas to approximately 1.3 million customers throughout Michigan and the sale of storage and transportation capacity; and


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

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

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Basis of Presentation

The accompanying Consolidated Financial Statements of the Registrants are prepared using accounting principles generally accepted in the United States of America. These accounting principles require management to use estimates and assumptions that impact reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results may differ from the Registrants' estimates.

The information in these combined notes relates to each of the Registrants as noted in the Index of Combined Notes to Consolidated Financial Statements. However, DTE Electric does not make any representation as to information related solely to DTE Energy or the subsidiaries of DTE Energy other than itself.

Certain prior year balances for the Registrants were reclassified to match the current year's Consolidated Financial Statements presentation.

Principles of Consolidation

The Registrants consolidate all majority-owned subsidiaries and investments in entities in which they have controlling influence. Non-majority owned investments are accounted for using the equity method when the Registrants are able to significantly influence the operating policies of the investee. When the Registrants do not influence the operating policies of an investee, the cost method is used. These Consolidated Financial Statements also reflect the Registrants' proportionate interests in certain jointly-owned utility plants. The Registrants eliminate all intercompany balances and transactions.

The Registrants evaluate whether an entity is a VIE whenever reconsideration events occur. The Registrants consolidate VIEs for which they are the primary beneficiary. If a Registrant is not the primary beneficiary and an ownership interest is held, the VIE is accounted for under the equity method of accounting. When assessing the determination of the primary beneficiary, a Registrant considers all relevant facts and circumstances, including: the power, through voting or similar rights, to direct the activities of the VIE that most significantly impact the VIE's economic performance and the obligation to absorb the expected losses and/or the right to receive the expected returns of the VIE. The Registrants perform ongoing reassessments of all VIEs to determine if the primary beneficiary status has changed.

Legal entities within DTE Energy's Power and Industrial Projects segment enter into long-term contractual arrangements with customers to supply energy-related products or services. The entities are generally designed to pass-through the commodity risk associated with these contracts to the customers, with DTE Energy retaining operational and customer default risk. These entities generally are VIEs and consolidated when DTE Energy is the primary beneficiary. In addition, DTE Energy has interests in certain VIEs through which control of all significant activities is shared with partners, and therefore are accounted for under the equity method.

DTE Energy owns a 55% interest in SGG, which owns and operates midstream natural gas assets. SGG has contracts through which certain construction risk is designed to pass-through to the customers, with DTE Energy retaining operational and customer default risk. SGG is a VIE with DTE Energy as the primary beneficiary. See Note 4 to the Consolidated Financial Statements, "Acquisitions and Exit Activities," for more information.

The Registrants hold variable interests in NEXUS, including a 50% ownership interest. NEXUS is a joint venture which is in the process of constructing a 255-mile pipeline to transport Utica and Marcellus shale gas to Ohio, Michigan, and Ontario market centers. NEXUS is a VIE as it has insufficient equity at risk to finance its activities. The Registrants are not the primary beneficiaries, as the power to direct significant activities is shared between the owners of the equity interests. DTE Energy accounts for NEXUS under the equity method.

The Registrants hold ownership interests in certain limited partnerships. The limited partnerships include investment funds which support regional development and economic growth, as well as, an operational business providing energy-related products. These entities are generally VIEs as a result of certain characteristics of the limited partnership voting rights. The ownership interests are accounted for under the equity method as the Registrants are not the primary beneficiaries.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

DTE Energy has variable interests in VIEs through certain of its long-term purchase and sale contracts. DTE Electric has variable interests in VIEs through certain of its long-term purchase contracts. As of December 31, 2017, the carrying amount of assets and liabilities in DTE Energy's Consolidated Statements of Financial Position that relate to its variable interests under long-term purchase and sale contracts are predominantly related to working capital accounts and generally represent the amounts owed by or to DTE Energy for the deliveries associated with the current billing cycle under the contracts. As of December 31, 2017, the carrying amount of assets and liabilities in DTE Electric's Consolidated Statements of Financial Position that relate to its variable interests under long-term purchase contracts are predominantly related to working capital accounts and generally represent the amounts owed by DTE Electric for the deliveries associated with the current billing cycle under the contracts. The Registrants have not provided any significant form of financial support associated with these long-term contracts. There is no significant potential exposure to loss as a result of DTE Energy's variable interests through these long-term purchase and sale contracts. In addition, there is no significant potential exposure to loss as a result of DTE Electric's variable interests through these long-term purchase contracts.

The maximum risk exposure for consolidated VIEs is reflected on the Registrants' Consolidated Statements of Financial Position and in Note 18 to the Consolidated Financial Statements, "Commitments and Contingencies," related to the REF guarantees and indemnities. For non-consolidated VIEs, the maximum risk exposure of the Registrants is generally limited to their investment, notes receivable, future funding commitments, and amounts which DTE Energy has guaranteed. See Note 18 to the Consolidated Financial Statements, "Commitments and Contingencies," for further discussion of the NEXUS guarantee arrangements.

The following table summarizes the major Consolidated Statements of Financial Position items for consolidated VIEs as of December 31, 2017 and 2016. All assets and liabilities of a consolidated VIE are presented where it has been determined that a consolidated VIE has either (1) assets that can be used only to settle obligations of the VIE or (2) liabilities for which creditors do not have recourse to the general credit of the primary beneficiary. VIEs, in which DTE Energy holds a majority voting interest and is the primary beneficiary, that meet the definition of a business and whose assets can be used for purposes other than the settlement of the VIE's obligations have been excluded from the table below.



	December 31, 2017						December 31, 2016
	SGG(a)		Other		Total		SGG(a)		Other		Total
	(In millions)
ASSETS
Cash and cash equivalents	$	23	$	14	$	37	$	36	$	27	$	63
Restricted cash	—		8		8		—		7		7
Accounts receivable	11		42		53		8		34		42
Inventories	3		114		117		3		112		115
Property, plant, and equipment, net	400		75		475		398		76		474
Goodwill	25		—		25		17		—		17
Intangible assets	572		—		572		586		—		586
Other current and long-term assets	4		—		4		1		1		2
	$	1,038	$	253	$	1,291	$	1,049	$	257	$	1,306

LIABILITIES
Accounts payable and accrued current liabilities	$	26	$	47	$	73	$	19	$	32	$	51
Current portion long-term debt, including capital leases	—		4		4		—		5		5
Mortgage bonds, notes, and other	—		1		1		—		5		5
Other current and long-term liabilities	1		16		17		2		15		17
	$	27	$	68	$	95	$	21	$	57	$	78


(a)	Amounts shown are 100% of SGG's assets and liabilities, of which DTE Energy owns 55%.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Amounts for DTE Energy's non-consolidated VIEs are as follows:



	December 31, 2017		December 31, 2016
	(In millions)
Investments in equity method investees	$	811	$	509
Notes receivable	$	17	$	15
Future funding commitments	$	598	$	692

Equity Method Investments

Investments in non-consolidated affiliates that are not controlled by the Registrants, but over which they have significant influence, are accounted for using the equity method. Certain of the equity method investees are also considered VIEs and disclosed in the non-consolidated VIEs table above. At December 31, 2017 and 2016, DTE Energy's share of the underlying equity in the net assets of the investees exceeded the carrying amounts of Investments in equity method investees by $72 million and $73 million, respectively. The difference is being amortized over the life of the underlying assets.

DTE Energy equity method investees are described below:



	Investments				% Owned
Segment	2017		2016		2017	2016	Description
	(In millions)
Significant Equity Method Investees
Gas Storage and Pipelines
NEXUS Pipeline	$	640	$	322	50%	50%	A 255-mile pipeline under construction to transport Utica and Marcellus shale gas to Ohio, Michigan, and Ontario market centers
Vector Pipeline	115		100		40%	40%	348-mile pipeline connecting Chicago, Michigan, and Ontario market centers
Millennium Pipeline	124		116		26%	26%	251-mile pipeline serving markets in the Northeast
	879		538
Other Equity Method Investees
Other Segments	194		214
	$	1,073	$	752

The balances in Other Equity Method Investees are individually insignificant and are primarily from the Power and Industrial Projects segment. These investments are comprised of projects that deliver energy and utility-type products and services to an industrial customer, sell electricity from renewable energy projects under long-term power purchase agreements, and produce and sell metallurgical coke.

For further information by segment, see Note 22 to the Consolidated Financial Statements, "Segment and Related Information."

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES

Revenues

The Registrants' revenues from the sale and delivery of electricity, and DTE Energy's revenues from the sale, delivery, and storage of natural gas are recognized as services are provided. DTE Electric and DTE Gas record revenues for electricity and gas provided but unbilled at the end of each month. Rates for DTE Electric and DTE Gas include provisions to adjust billings for fluctuations in fuel and purchased power costs, cost of natural gas, and certain other costs. Revenues are adjusted for differences between actual costs subject to reconciliation and the amounts billed in current rates. Under or over recovered revenues related to these cost recovery mechanisms are included in Regulatory assets or liabilities on the Registrants' Consolidated Statements of Financial Position and are recovered or returned to customers through adjustments to the billing factors.

For further discussion of recovery mechanisms authorized by the MPSC, see Note 9 to the Consolidated Financial Statements, "Regulatory Matters."

DTE Energy's non-utility businesses recognize revenues as services are provided and products are delivered. For discussion of derivative contracts, see Note 13 to the Consolidated Financial Statements, "Financial and Other Derivative Instruments."

Other Income

Other income for the Registrants is recognized for non-operating income such as equity earnings of equity method investees, allowance for equity funds used during construction, contract services, and gains (losses) from trading securities. DTE Energy's Power and Industrial Projects segment also recognizes Other income in connection with the sale of membership interests in reduced emissions fuel facilities to investors. In exchange for the cash received, the investors will receive a portion of the economic attributes of the facilities, including income tax attributes. The transactions are not treated as a sale of membership interests for financial reporting purposes. Other income is considered earned when refined coal is produced and tax credits are generated.

The following is a summary of DTE Energy's Other income:



	2017		2016		2015
	(In millions)
Equity earnings of equity method investees	$	102	$	68	$	66
Income from REF entities	77		75		83
Gains from trading securities	26		15		1
Allowance for equity funds used during construction	23		21		21
Contract services	19		21		27
Other	21		7		11
	$	268	$	207	$	209

The following is a summary of DTE Electric's Other income:



	2017		2016		2015
	(In millions)
Gains from trading securities allocated from DTE Energy	$	26	$	15	$	1
Contract services	21		20		27
Allowance for equity funds used during construction	18		18		20
Equity earnings of equity method investees	1		2		2
Other	11		6		10
	$	77	$	61	$	60

For information on equity earnings of equity method investees by segment, see Note 22 to the Consolidated Financial Statements, "Segment and Related Information."

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Accounting for ISO Transactions

DTE Electric participates in the energy market through MISO. MISO requires that DTE Electric submit hourly day-ahead, real-time, and FTR bids and offers for energy at locations across the MISO region. DTE Electric 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. In any single hour DTE Electric records net purchases in Fuel, purchased power, and gas — utility and net sales in Operating Revenues — Utility operations on the Registrants' Consolidated Statements of Operations.

The Energy Trading segment participates in the energy markets through various ISOs and RTOs. These markets require that Energy Trading submits hourly day-ahead, real-time bids and offers for energy at locations across each region. Energy Trading submits bids in the annual and monthly auction revenue rights and FTR auctions to the RTOs. 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 trading contracts which, if derivatives, are presented on a net basis in Operating Revenues — Non-utility operations, and if non-derivatives, the realized gains and losses for sales are recorded in Operating Revenues — Non-utility operations and purchases are recorded in Fuel, purchased power, and gas — non-utility in the DTE Energy Consolidated Statements of Operations.

DTE Electric and Energy Trading record accruals for future net purchases adjustments based on historical experience, and reconcile accruals to actual costs when invoices are received from MISO and other ISOs and RTOs.

Changes in Accumulated Other Comprehensive Income (Loss)

Comprehensive income (loss) is the change in common shareholders’ equity during a period from transactions and events from non-owner sources, including Net Income. The amounts recorded to Accumulated other comprehensive income (loss) for the Registrants include unrealized gains and losses on available-for-sale securities and changes in benefit obligations, consisting of deferred actuarial losses and prior service costs. The amounts recorded to Accumulated other comprehensive income (loss) relating solely to DTE Energy also include unrealized gains and losses from derivatives accounted for as cash flow hedges, DTE Energy's interest in other comprehensive income of equity investees which comprise the net unrealized gains and losses on investments, and foreign currency translation adjustments. Refer to Note 20 to the Consolidated Financial Statements, "Retirement Benefits and Trusteed Assets," regarding the transfer of a portion of DTE Electric benefit obligations in 2015.

The following table summarizes the changes in DTE Energy's Accumulated other comprehensive income (loss) by component(a) for the years ended December 31, 2017 and 2016:



	Net Unrealized Gain (Loss) on Derivatives			Net Unrealized Gain (Loss) on Investments			Benefit Obligations(b)			Foreign Currency Translation			Total
	(In millions)
Balance, December 31, 2015	$	(4	)	$	(4	)	$	(131	)	$	(6	)	$	(145	)
Other comprehensive loss before reclassifications	—			—			(3		)	—			(3		)
Amounts reclassified from Accumulated other comprehensive income	—			1			14			—			15
Net current-period Other comprehensive income	—			1			11			—			12
Balance, December 31, 2016	$	(4	)	$	(3	)	$	(120	)	$	(6	)	$	(133	)
Other comprehensive income (loss) before reclassifications	—			1			(3		)	1			(1		)
Amounts reclassified from Accumulated other comprehensive income	1			—			13			—			14
Net current-period Other comprehensive income	1			1			10			1			13
Balance, December 31, 2017	$	(3	)	$	(2	)	$	(110	)	$	(5	)	$	(120	)


(a)	All amounts are net of tax, except for Foreign currency translation.


(b)	The amounts reclassified from Accumulated other comprehensive income (loss) are included in the computation of the net periodic pension and other postretirement benefit costs (see Note 20 to the Consolidated Financial Statements "Retirement Benefits and Trusteed Assets").

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Cash, Cash Equivalents, and Restricted Cash

Cash and cash equivalents include cash on hand, cash in banks, and temporary investments purchased with remaining maturities of three months or less. Restricted cash consists of funds held to satisfy requirements of certain debt and DTE Energy partnership operating agreements. Restricted cash designated for interest and principal payments within one year is classified as a Current Asset.

Receivables

Accounts receivable are primarily composed of trade receivables and unbilled revenue. The Registrants' Accounts receivable are stated at net realizable value.

The allowance for doubtful accounts for DTE Electric and DTE Gas is generally calculated using the aging approach that utilizes rates developed in reserve studies. DTE Electric and DTE Gas 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 received by the due date, which is typically in 21 days, however, factors such as assistance programs may delay aggressive action. DTE Electric and DTE Gas assess late payment fees on trade receivables based on past-due terms with customers. Customer accounts are written off when collection efforts have been exhausted. The time period for write-off is 150 days after service has been terminated.

The customer allowance for doubtful accounts for DTE Energy's other businesses is calculated based on specific review of probable future collections based on receivable balances generally in excess of 30 days.

DTE Energy unbilled revenues of $1 billion and $814 million, including $290 million and $267 million of DTE Electric unbilled revenues, are included in Customer Accounts receivable at December 31, 2017 and 2016, respectively.

Notes Receivable

Notes receivable, or financing receivables, for DTE Energy are primarily comprised of capital lease receivables and loans and are included in Notes receivable and Other current assets on DTE Energy’s Consolidated Statements of Financial Position. Notes receivable, or financing receivables, for DTE Electric are primarily comprised of loans.

Notes receivable are typically considered delinquent when payment is not received for periods ranging from 60 to 120 days. The Registrants cease accruing interest (nonaccrual status), consider a note receivable impaired, and establish an allowance for credit loss when it is probable that all principal and interest amounts due will not be collected in accordance with the contractual terms of the note receivable. Cash payments received on nonaccrual status notes receivable, that do not bring the account contractually current, are first applied to contractually owed past due interest, with any remainder applied to principal. Accrual of interest is generally resumed when the note receivable becomes contractually current.

In determining the allowance for credit losses for notes receivable, the Registrants consider the historical payment experience and other factors that are expected to have a specific impact on the counterparty’s ability to pay. In addition, the Registrants monitor the credit ratings of the counterparties from which they have notes receivable.

Inventories

Inventory related to utility operations is generally valued at average cost. Inventory related to non-utility operations is valued at the lower of cost or net realizable value.

DTE Gas' natural gas inventory of $29 million and $45 million as of December 31, 2017 and 2016, respectively, is determined using the last-in, first-out (LIFO) method. The replacement cost of gas in inventory exceeded the LIFO cost by $81 million and $132 million at December 31, 2017 and 2016, respectively.

Property, Retirement and Maintenance, and Depreciation and Amortization

Property is stated at cost and includes construction-related labor, materials, overheads, and AFUDC for utility property. The cost of utility properties retired is charged to accumulated depreciation. Expenditures for maintenance and repairs are charged to expense when incurred, except for outage-related maintenance repairs for Fermi 2.

Utility property at DTE Electric and DTE Gas is depreciated over its estimated useful life using straight-line rates approved by the MPSC.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

DTE Energy's non-utility property is depreciated over its estimated useful life using the straight-line method.

Depreciation and amortization expense also includes the amortization of certain regulatory assets for the Registrants.

Approximately $15 million and $27 million of expenses related to Fermi 2 refueling outages were accrued at December 31, 2017 and 2016, respectively. Amounts are accrued on a pro-rata basis, generally 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. See Note 9 to the Consolidated Financial Statements, "Regulatory Matters."

The cost of nuclear fuel is capitalized. The amortization of nuclear fuel is included within Fuel, purchased power, and gas — utility in the DTE Energy Consolidated Statements of Operations, and Fuel and purchased power in the DTE Electric Consolidated Statements of Operations, and is recorded using the units-of-production method.

See Note 6 to the Consolidated Financial Statements, "Property, Plant, and Equipment."

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 undiscounted 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.

Intangible Assets

The Registrants have certain Intangible assets as shown below:



		December 31, 2017							December 31, 2016
	Useful Lives	Gross Carrying Value		Accumulated Amortization			Net Carrying Value		Gross Carrying Value		Accumulated Amortization			Net Carrying Value
		(In millions)
Intangible assets subject to amortization
Customer relationships(a)	40 years(b)	$	770	$	(24	)	$	746	$	770	$	(5	)	$	765
Contract intangibles	6 to 26 years	168		(72		)	96		111		(65		)	46
		938		(96		)	842		881		(70		)	811

DTE Electric renewable energy credits	(c)	24		—			24		30		—			30
DTE Electric emission allowances	(c)	1		—			1		1		—			1
		25		—			25		31		—			31
Long-term intangible assets
DTE Electric		$	25	$	—		$	25	$	31	$	—		$	31
DTE Energy		$	963	$	(96	)	$	867	$	912	$	(70	)	$	842


(a)	In October 2016, DTE Energy acquired midstream natural gas assets that are part of the Gas Storage and Pipelines segment. The intangible assets recorded as a result of the acquisition pertain to existing customer relationships. See Note 4 to the Consolidated Financial Statements, "Acquisitions and Exit Activities," for additional information.


(b)	The useful life of the customer relationship intangible assets is based on the number of years in which the assets are expected to economically contribute to the business. The expected economic benefit incorporates existing customer contracts and expected renewal rates based on the estimated volume and production lives of gas resources in the region.


(c)	Emission allowances and renewable energy credits are charged to expense, using average cost, as the allowances and credits are consumed in the operation of the business.

The following table summarizes DTE Energy's estimated customer relationship and contract intangible amortization expense expected to be recognized during each year through 2022:



	2018		2019		2020		2021		2022
	(In millions)
Estimated amortization expense	$	26	$	26	$	25	$	25	$	25

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

DTE Energy amortizes customer relationship and contract intangible assets on a straight-line basis over the expected period of benefit. DTE Energy's Intangible assets amortization expense was $29 million in 2017, $16 million in 2016, and $11 million in 2015.

Excise and Sales Taxes

The Registrants record the billing of excise and sales taxes as a receivable with an offsetting payable to the applicable taxing authority, with no net impact on the Registrants’ 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. The deferred amounts are included as a direct deduction from the carrying amount of each debt issue in Mortgage bonds, notes, and other and Junior subordinated debentures on DTE Energy's Consolidated Statements of Financial Position and in Mortgage bonds, notes, and other on DTE Electric's Consolidated Statements of Financial Position. In accordance with MPSC regulations applicable to DTE Energy’s electric and gas utilities, the unamortized discount, premium, and expense related to utility debt redeemed with a refinancing are amortized over the life of the replacement issue. Discount, premium, and expense on early redemptions of debt associated with DTE Energy's non-utility operations are charged to earnings.

Investments in Debt and Equity Securities

The Registrants generally classify investments in debt and equity securities as either trading or available-for-sale and have 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 Registrants' equity 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 equity investment being written down to its estimated fair value. See Note 12 of the Consolidated Financial Statements, "Fair Value."

Government Grants

Grants are recognized when there is reasonable assurance that the grant will be received and that any conditions associated with the grant will be met. When grants are received related to Property, plant, and equipment, the Registrants reduce the cost of the assets on their Consolidated Statements of Financial Position, resulting in lower depreciation expense over the life of the associated asset. Grants received related to expenses are reflected as a reduction of the associated expense in the period in which the expense is incurred.

DTE Energy Foundation

DTE Energy's charitable contributions to the DTE Energy Foundation were $43 million, $26 million, and $12 million for the years ended December 31, 2017, 2016, and 2015, respectively. The DTE Energy Foundation is a non-consolidated not-for-profit private foundation, the purpose of which is to contribute to and assist charitable organizations.

Other Accounting Policies

See the following notes for other accounting policies impacting the Registrants’ Consolidated Financial Statements:



Note		Title
8		Asset Retirement Obligations
9		Regulatory Matters
10		Income Taxes
12		Fair Value
13		Financial and Other Derivative Instruments
20		Retirement Benefits and Trusteed Assets
21		Stock-Based Compensation

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

NOTE 3 — NEW ACCOUNTING PRONOUNCEMENTS

Recently Issued Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), as amended. The objectives of this ASU are to improve upon revenue recognition requirements by providing a single comprehensive model to determine the measurement of revenue and timing of recognition. The core principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. This ASU also requires expanded qualitative and quantitative disclosures regarding the nature, amount, timing, and uncertainty of revenues and cash flows arising from contracts with customers. The standard is to be applied retrospectively. The Registrants will adopt the standard effective January 1, 2018 using the modified retrospective approach. The Registrants have substantially completed the assessment of the amended ASU's impact, on their Consolidated Financial Statements. The ASU will not significantly affect the Registrants' financial position or results of operations. The Registrants will continue to monitor the impact of the ASU on existing revenue recognition internal controls, policies, and procedures. Industry-related issues being vetted through the final stages of the American Institute of Certified Public Accountants' Power and Utilities Industry Task Force process, which are not expected to have a significant impact on the Registrants, will continue to be monitored. The ASU will result in additional disclosures for revenue compared to the current guidance. Accordingly, the Registrants are evaluating information that would be useful for users of the Consolidated Financial Statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), a replacement of Leases (Topic 840). This guidance requires a lessee to account for leases as finance or operating leases, and include disclosure of key information about leasing arrangements. Both types of leases will result in the lessee recognizing a right-of-use asset and a corresponding lease liability on its balance sheet, with differing methodology for income statement recognition. For lessors, the standard modifies the classification criteria and the accounting for sales-type and direct financing leases. Entities will classify leases to determine how to recognize lease-related revenue and expense. This standard is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. The Registrants do not plan to early adopt the standard. A modified retrospective approach is required for leases existing or entered into after the beginning of the earliest comparative period in the Consolidated Financial Statements, with certain practical expedients permitted. The Registrants expect an increase in assets and liabilities, as well as additional disclosures, however, they are currently assessing the impact of this ASU on their Consolidated Financial Statements. This assessment includes monitoring unresolved utility industry implementation guidance. The Registrants have conducted outreach activities across their lines of business and have begun implementation of a third-party software tool that will assist with the initial adoption and ongoing compliance.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this update replace the incurred loss impairment methodology in current generally accepted accounting principles with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Entities will apply the new guidance as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The ASU is effective for the Registrants beginning after December 15, 2019, and interim periods therein. Early adoption is permitted. The Registrants are currently assessing the impact of this standard on their Consolidated Financial Statements.

In March 2017, the FASB issued ASU No. 2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The amendments in this update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside income from operations. The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable. The standard will be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The ASU is effective for the Registrants for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted. The Registrants will adopt the standard effective January 1, 2018. The components of net periodic benefit costs (credits) for pension benefits and other postretirement benefits are disclosed in Note 20 to the Consolidated Financial Statements, "Retirement Benefits and Trusteed Assets." The ASU will not have a significant impact on the Registrants' Consolidated Financial Statements.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA. The amendments in this update also require entities to disclose their accounting policy for releasing income tax effects from accumulated other comprehensive income. The ASU is effective for the Registrants for fiscal years beginning after December 15, 2018, and interim periods therein. Early adoption is permitted. The Registrants are currently assessing the impact of this standard on their Consolidated Financial Statements.

NOTE 4 — ACQUISITIONS AND EXIT ACTIVITIES

Gas Storage and Pipelines Acquisition

Effective October 1, 2016, DTE Energy closed on the purchase of midstream natural gas assets in support of the strategy to continue to grow and earn competitive returns for shareholders. DTE Energy purchased 100% of AGS, located in Pennsylvania and West Virginia, and 40% of SGG, located in West Virginia, from M3 Midstream. In addition, DTE Energy purchased 15% of SGG from Vega Energy Partners, resulting in 55% total ownership of SGG by DTE Energy.

Consideration transferred for the entities acquired was approximately $1.2 billion paid in cash and the assumption of SGG debt of $204 million. The $204 million of debt was comprised of DTE Energy's 55% interest in SGG of $112 million and 45% related to noncontrolling interest partners of $92 million. The acquisition was financed through the issuance of Equity Units and Senior Notes. These entities are part of DTE Energy's Gas Storage and Pipelines segment which owns and manages a network of natural gas gathering, transmission, and storage facilities servicing the Midwest, Ontario, and Northeast markets. SGG has been deemed to be a VIE, and DTE Energy is the primary beneficiary. Thus, SGG's assets and liabilities are included in DTE Energy's Consolidated Statements of Financial Position. See Note 1 to the Consolidated Financial Statements, "Organization and Basis of Presentation," for more information.

DTE Energy applied purchase accounting to the acquired entities. The excess purchase price over the fair value of net assets acquired was classified as goodwill. September 30, 2017 marked the expiration of the one-year period from the acquisition to revise the fair value of assets acquired and liabilities assumed. As a result, the purchase accounting adjustments through September 30, 2017 contributed approximately $7 million of additional goodwill. The factors contributing to the recognition of goodwill were based on various strategic benefits that are expected to be realized from the AGS and SGG acquisition. The acquisition provides DTE Energy with a platform for midstream growth and access to further investment opportunities in the Appalachian basin, an additional connection to the NEXUS Pipeline which should drive incremental volumes on the NEXUS Pipeline, and a new set of producer relationships that may lead to more partnering opportunities. The goodwill is expected to be deductible for income tax purposes.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

The final allocation of the purchase price was based on estimated fair values of the AGS and SGG assets acquired and liabilities assumed at the date of acquisition, October 1, 2016. The components of the final purchase price allocation, inclusive of purchase accounting adjustments, are as follows:



	(In millions)
Assets
Cash	$	83
Accounts receivable	24
Inventory	6
Property, plant, and equipment, net	719
Goodwill	275
Customer relationship intangibles	770
Other current assets	1
	$	1,878
Liabilities
Accounts payable	$	19
Other current liabilities	11
Long-term debt	204
Other long-term liabilities	20
	$	254
Less: Noncontrolling interest	392
Total cash consideration	$	1,232

The intangible assets recorded as a result of the acquisition pertain to existing customer relationships, which were valued at approximately $770 million as of the acquisition date. The fair value of the intangible assets acquired was estimated by applying the income approach. The income approach was based upon discounted projected future cash flows attributable to the existing contracts and agreements. The fair value measurement was based on significant unobservable inputs, including management estimates and assumptions, and thus represents a Level 3 measurement, pursuant to the applicable accounting guidance. Key estimates and inputs included revenue and expense projections and discount rates based on the risks associated with the entities. The intangible assets are amortized on a straight-line basis over a period of 40 years, which is based on the number of years the assets are expected to economically contribute to the business. The expected economic benefit incorporates existing customer contracts with a weighted-average amortization life of 10 years and expected renewal rates, based on the estimated volume and production lives of gas resources in the region.

The fair value of the noncontrolling interest in the table above was derived based on the purchase price DTE Energy paid for the 55% interest in SGG.

DTE Energy evaluated pre-acquisition contingencies relating to the purchase that existed as of the acquisition date. Based on the evaluation, DTE Energy determined that $30 million of certain pre-acquisition contingencies, related to repairing existing rights-of-way, were probable in nature and estimable as of the acquisition date. Accordingly, DTE Energy recorded its best estimates for these contingencies as part of purchase accounting, which are included in the Other current and long-term liabilities in the purchase price allocation table above.

DTE Energy incurred $15 million of direct transaction costs for the year ended December 31, 2016. These costs were primarily related to advisory fees and included in Operation and maintenance in DTE Energy's 2016 Consolidated Statements of Operations.

DTE Energy's 2016 Consolidated Statements of Operations included Operating Revenues — Non-utility operations of $39 million and Net Income of $4 million associated with the acquired entities for the three-month period following the acquisition date, excluding the $15 million transaction costs described above. The pro forma financial information was not presented for DTE Energy because the effects of the acquisition were not material to the Consolidated Statements of Operations.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Exit Activities

On December 17, 2015, DTE Energy announced the closure of the Shenango coke battery plant in response to a sharp downturn in the North American steel industry. The plant, which was included in the Power and Industrial Projects segment, is located in Pittsburgh, PA. As a result of the closure, DTE Energy recorded a one-time pre-tax non-cash impairment charge of $111 million. The charge included $96 million to fully impair the long-lived assets, employee severance expenses related to the workforce reduction of approximately 170 employees for $3 million, and other expenses, including write downs of inventory, of $12 million. DTE Energy's coke production has been shifted to a larger, more efficient coke battery plant in the Power and Industrial Projects segment. Production of coke from the Shenango coke battery plant ceased in January 2016.

A summary of the charges in the Consolidated Statements of Operations resulting from DTE Energy's exit activities is shown below:



	2015
	(In millions)
Fuel, purchased power, and gas — non-utility	$	5
Operation and maintenance	10
Asset (gains) losses and impairments, net	96
Total exit activity charges	$	111

As of December 31, 2017, DTE Energy had approximately $1 million accrued related to these exit activities and expects future cash payments of this remaining balance to be made in 2018. DTE Energy does not anticipate incurring significant additional expenses, including required environmental remediation costs, in connection with the closure.

NOTE 5 — GOODWILL

DTE Energy has goodwill resulting from business combinations.

The following is the summary of change in the carrying amount of goodwill for the years ended December 31:



	2017		2016
	(In millions)
Balance as of January 1	$	2,286	$	2,018
Goodwill attributable to Gas Storage and Pipelines acquisition	7		268
Balance at December 31	$	2,293	$	2,286

Refer to Note 4 to the Consolidated Financial Statements, "Acquisitions and Exit Activities," for additional information related to the acquisition.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

NOTE 6 — PROPERTY, PLANT, AND EQUIPMENT

The following is a summary of Property, plant, and equipment by classification as of December 31:



	2017			2016
Property, plant, and equipment	(In millions)
DTE Electric
Generation	$	12,166		$	11,990
Distribution	8,637			8,134
Other	2,169			1,970
Total DTE Electric	22,972			22,094
DTE Gas
Distribution	3,523			3,382
Storage	533			503
Transmission and other	1,118			925
Total DTE Gas	5,174			4,810
Non-utility and other	3,278			3,125
Total DTE Energy	31,424			30,029
Accumulated depreciation and amortization
DTE Electric
Generation	(4,403		)	(4,364		)
Distribution	(2,914		)	(2,769		)
Other	(667		)	(588		)
Total DTE Electric	(7,984		)	(7,721		)
DTE Gas
Distribution	(1,238		)	(1,198		)
Storage	(159		)	(152		)
Transmission and other	(384		)	(370		)
Total DTE Gas	(1,781		)	(1,720		)
Non-utility and other	(938		)	(858		)
Total DTE Energy	(10,703		)	(10,299		)
Net DTE Energy Property, plant, and equipment	$	20,721		$	19,730
Net DTE Electric Property, plant, and equipment	$	14,988		$	14,373

The following is a summary of the Registrants' AFUDC and interest capitalized for the years ended December 31:



	DTE Energy				DTE Electric
	2017		2016		2017		2016
	(In millions)
Allowance for debt funds used during construction and interest capitalized	$	13	$	10	$	8	$	8
Allowance for equity funds used during construction	23		21		18		18
Total	$	36	$	31	$	26	$	26

The composite depreciation rate for DTE Electric was approximately 3.6% in 2017 and 3.5% in 2016 and 2015. The composite depreciation rate for DTE Gas was 2.7%, 2.4%, and 2.6% in 2017, 2016, and 2015, respectively. The average estimated useful life for each major class of utility Property, plant, and equipment as of December 31, 2017 follows:

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

The estimated useful lives for DTE Electric's Other utility assets range from 4 to 62 years, while the estimated useful lives for DTE Gas' Transmission and other utility assets range from 5 to 70 years. The estimated useful lives for major classes of DTE Energy's non-utility assets and facilities range from 3 to 83 years.

The following is a summary of Depreciation and amortization expense for DTE Energy:



	2017		2016		2015
	(In millions)
Property, plant, and equipment	$	865	$	783	$	740
Regulatory assets and liabilities	165		193		150
Securitized regulatory assets(a)	—		—		(38		)
	$	1,030	$	976	$	852


(a)	Securitization surcharges ended in December 2014 with remaining over recovery refunded to customers in 2015. Securitization bonds were paid and Securitization regulatory assets amortization was completed in 2015. The $38 million credit represents the final adjustments to close out the Securitization program.

The following is a summary of Depreciation and amortization expense for DTE Electric:



	2017		2016		2015
	(In millions)
Property, plant, and equipment	$	620	$	582	$	545
Regulatory assets and liabilities	133		168		126
Securitized regulatory assets(a)	—		—		(38		)
	$	753	$	750	$	633


(a)	Securitization surcharges ended in December 2014 with remaining over recovery refunded to customers in 2015. Securitization bonds were paid and Securitization regulatory assets amortization was completed in 2015. The $38 million credit represents the final adjustments to close out the Securitization program.

Capitalized software costs are classified as Property, plant, and equipment and the related amortization is included in accumulated depreciation and amortization on the Registrants' Consolidated Financial Statements. The Registrants capitalize the costs associated with computer software developed or obtained for use in their businesses. The Registrants amortize capitalized software costs on a straight-line basis over the expected period of benefit, ranging from 3 to 15 years for DTE Energy and 4 to 15 years for DTE Electric.

The following balances for capitalized software relate to DTE Energy:



	Year Ended December 31,
	2017		2016		2015
	(In millions)
Amortization expense of capitalized software	$	101	$	89	$	98
Gross carrying value of capitalized software	$	890	$	715
Accumulated amortization of capitalized software	$	500	$	435

The following balances for capitalized software relate to DTE Electric:



	Year Ended December 31,
	2017		2016		2015
	(In millions)
Amortization expense of capitalized software	$	93	$	83	$	80
Gross carrying value of capitalized software	$	774	$	610
Accumulated amortization of capitalized software	$	423	$	365

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Property under capital leases for the Registrants is as follows:



	DTE Energy				DTE Electric
	2017		2016		2017		2016
	(In millions)
Gross property under capital leases	$	44	$	44	$	18	$	18
Accumulated amortization of property under capital leases	$	38	$	32	$	12	$	6

NOTE 7 — JOINTLY-OWNED UTILITY PLANT

DTE Electric has joint ownership interest in two power plants, Belle River and Ludington Hydroelectric Pumped Storage. DTE Electric’s share of direct expenses of the jointly-owned plants are included in Fuel, purchased power, and gas — utility and Operation and maintenance expenses in the DTE Energy Consolidated Statements of Operations and Fuel and purchased power— utility and Operation and maintenance expenses in the DTE Electric Consolidated Statements of Operations.

Ownership information of the two utility plants as of December 31, 2017 was as follows:



	Belle River		Ludington Hydroelectric Pumped Storage
In-service date	1984-1985		1973
Total plant capacity	1,270 MW		2,080 MW
Ownership interest	(a)		49%
Investment in Property, plant, and equipment (in millions)	$	1,814	$	559
Accumulated depreciation (in millions)	$	1,060	$	188


(a)	DTE Electric'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 8 — ASSET RETIREMENT OBLIGATIONS

DTE Electric has a legal retirement obligation for the decommissioning costs for its Fermi 1 and Fermi 2 nuclear plants, dismantlement of facilities located on leased property, and various other operations. DTE Electric has conditional retirement obligations for asbestos and PCB removal at certain of its power plants and various distribution equipment. DTE Gas has conditional retirement obligations for gas pipelines, certain service centers, compressor and gate stations. The Registrants recognize 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 at the Registrants' credit-adjusted risk-free rate. For its utility operations, the Registrants recognize in the Consolidated Statements of Operations removal costs in accordance with regulatory treatment. Any differences between costs recognized related to asset retirement and those reflected in rates are recognized as either a Regulatory asset or liability on the Consolidated Statements of Financial Position.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

If a reasonable estimate of fair value cannot be made in the period in which the retirement obligation is incurred, such as for assets with indeterminate lives, the liability is recognized when a reasonable estimate of fair value can be made. Natural gas storage system and certain other distribution assets for DTE Gas and substations, manholes, and certain other distribution assets for DTE Electric have an indeterminate life. Therefore, no liability has been recorded for these assets.

A reconciliation of the asset retirement obligations for 2017 follows:



	DTE Energy			DTE Electric
	(In millions)
Asset retirement obligations at December 31, 2016	$	2,197		$	2,012
Accretion	131			120
Liabilities incurred	2			1
Liabilities settled	(6		)	(2		)
Revision in estimated cash flows	(4		)	(6		)
Asset retirement obligations at December 31, 2017	$	2,320		$	2,125

Approximately $1.9 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 minimum 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. DTE Electric believes the MPSC collections will be adequate to fund the estimated cost of decommissioning. The decommissioning assets, anticipated earnings thereon, and future revenues from decommissioning collections will be used to decommission Fermi 2. DTE Electric 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 returning the site to greenfield. This removal and greenfielding 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 DTE Electric. Contributions to the Fermi 1 trust are discretionary. For additional discussion of Nuclear decommissioning trust fund assets, see Note 12 to the Consolidated Financial Statements, "Fair Value."

NOTE 9 — REGULATORY MATTERS

Regulation

DTE Electric and DTE Gas 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. DTE Electric 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.

The Registrants are 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 Consolidated Financial Statements of the Registrants.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Regulatory Assets and Liabilities

DTE Electric and DTE Gas 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 the Registrants' 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 regulatory environment.

The following are balances and a brief description of the Registrants' Regulatory assets and liabilities at December 31:



	DTE Energy						DTE Electric
	2017			2016			2017			2016
Assets	(In millions)
Recoverable pension and other postretirement costs
Pension	$	2,000		$	2,159		$	1,502		$	1,642
Other postretirement costs	278			286			211			207
Asset retirement obligation	569			613			569			613
Removal costs asset	299			193			299			193
Recoverable Michigan income taxes	213			231			171			187
Deferred environmental costs	75			78			—			—
Unamortized loss on reacquired debt	65			59			46			39
Transitional Reconciliation Mechanism	46			30			46			30
Customer360 deferred costs	45			33			45			33
Recoverable income taxes related to AFUDC equity	41			59			35			53
Other recoverable income taxes	26			57			26			57
Nuclear Performance Evaluation and Review Committee Tracker	22			—			22			—
Accrued PSCR/GCR revenue	17			22			17			19
Other	82			93			66			76
	3,778			3,913			3,055			3,149
Less amount included in Current Assets	(55		)	(42		)	(50		)	(36		)
	$	3,723		$	3,871		$	3,005		$	3,113



	DTE Energy						DTE Electric
	2017			2016			2017			2016
Liabilities	(In millions)
Refundable federal income taxes	$	2,384		$	—		$	1,946		$	—
Removal costs liability	265			266			—			—
Renewable energy	112			145			112			145
Negative other postretirement offset	80			56			67			55
Negative pension offset	21			36			—			—
Fermi 2 refueling outage	15			27			15			27
Refundable self-implemented rates	2			27			2			27
Other	14			32			12			2
	2,893			589			2,154			256
Less amount included in Current Liabilities	(18		)	(34		)	(17		)	(27		)
	$	2,875		$	555		$	2,137		$	229

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

As noted below, certain 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 DTE Electric's or DTE Gas' rate base, thereby providing a return on invested costs (except as noted). Certain other regulatory assets are not included in rate base but accrue recoverable carrying charges until surcharges to collect the assets are billed. 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 other postretirement costs — Accounting standards for pension and other postretirement benefit costs require, 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. DTE Electric and DTE Gas record the impact of actuarial gains or losses and prior service costs as a Regulatory asset since the traditional rate setting process allows for the recovery of pension and other postretirement costs. The asset will reverse as the deferred items are amortized and recognized as components of net periodic benefit costs.(a)


•	Asset retirement obligation — This obligation is 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.(a)


•	Removal costs asset — Receivable for the recovery of asset removal expenditures in excess of amounts collected from customers.(a)

•

Recoverable Michigan income taxes — The State of Michigan enacted a corporate income tax resulting in the establishment of state deferred tax liabilities for DTE Energy's utilities. Offsetting Regulatory assets were also 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.


•	Deferred environmental costs — The MPSC approved the deferral of investigation and remediation costs associated with DTE Gas' former MGP sites. Amortization of deferred costs is over a ten-year period beginning in the year after costs were incurred, with recovery (net of any insurance proceeds) through base rate filings.(a)


•	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.


•	Transitional Reconciliation Mechanism — The MPSC approved the recovery of the deferred net incremental revenue requirement associated with the transition of PLD customers to DTE Electric's distribution system, effective July 1, 2014. Annual reconciliations will be filed and surcharges will be implemented to recover approved amounts.

•

Customer360 deferred costs — The MPSC approved the deferral and amortization of certain costs associated with implementing Customer360, which is an integrated software application that enables improved interface among customer service, billing, meter reading, credit and collections, device management, account management, and retail access. Amortization of deferred costs over a 15-year amortization period began after the billing system was put into operation during the second quarter of 2017.


•	Recoverable income taxes related to AFUDC equity — Accounting standards for income taxes require recognition of a deferred tax liability for the equity component of AFUDC. A regulatory asset is required for the future increase in taxes payable related to the equity component of AFUDC that will be recovered from customers through future rates over the remaining life of the related plant.


•	Other recoverable income taxes — Income taxes receivable from DTE Electric's customers representing the difference in property-related deferred income taxes and amounts previously reflected in DTE Electric's rates. This asset will reverse over the remaining life of the related plant.

•

Nuclear Performance Evaluation and Review Committee Tracker — Deferral and amortization of certain costs associated with oversight and review of DTE Electric's nuclear power generation program, including safety and regulatory compliance, nuclear leadership, nuclear facilities, as well as operation and financial performance, pursuant to the MPSC authorization. The approved five-year amortization period began January 1, 2018, with recovery (net of carrying costs) through base rate filings.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)


•	Accrued PSCR/GCR revenue — Receivable for the temporary under-recovery of and carrying costs on fuel and purchased power costs incurred by DTE Electric which are recoverable through the PSCR mechanism and temporary under-recovery of and carrying costs on gas costs incurred by DTE Gas which are recoverable through the GCR mechanism.


(a)	Regulatory assets not earning a return or accruing carrying charges.

LIABILITIES


•	Refundable federal income taxes — DTE Electric and DTE Gas' remeasurement of deferred taxes due to the enactment of the TCJA, which reflects the net impact of the tax rate change on cumulative temporary differences expected to reverse after the effective date of January 1, 2018. Refer to "2017 Tax Reform" section below for additional information.


•	Removal costs liability — The amount collected from customers for the funding of future asset removal activities.


•	Renewable energy — Amounts collected in rates in excess of renewable energy expenditures.

•

Negative other postretirement offset — DTE Electric and DTE Gas' negative other postretirement costs are not included as a reduction to their authorized rates; therefore, DTE Electric and DTE Gas are accruing a Regulatory liability to eliminate the impact on earnings of the negative other postretirement expense accrual. The Regulatory liabilities will reverse to the extent DTE Electric and DTE Gas' other postretirement expense is positive in future years.


•	Negative pension offset — DTE Gas' negative pension costs are not included as a reduction to its authorized rates; therefore, DTE Gas 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 DTE Gas' pension expense is positive in future years.


•	Fermi 2 refueling outage — Accrued liability for refueling outage at Fermi 2 pursuant to MPSC authorization.


•	Refundable self-implemented rates — Amounts refundable to customers for base rates implemented from August 1, 2016 to December 31, 2016 in excess of amounts authorized in the January 2017 DTE Electric rate order from the MPSC.

2016 Electric Rate Case Filing

DTE Electric filed a rate case with the MPSC on February 1, 2016 requesting an increase in base rates of $344 million based on a projected twelve-month period ending July 31, 2017. On August 1, 2016, DTE Electric self-implemented a base rate increase of $245 million. On January 31, 2017, the MPSC issued an order approving an annual revenue increase of $184 million for service rendered on or after February 7, 2017. The MPSC authorized a return on equity of 10.1%. On April 28, 2017, DTE Electric filed to refund its customers their pro-rata share of the revenue collected through the self-implementation surcharge in effect from August 1, 2016 through February 7, 2017. On September 15, 2017, the MPSC approved a settlement authorizing DTE Electric to refund its customers $38.5 million of the self-implementation surcharge during the months of October through December 2017. DTE Electric has refunded the majority of the settlement liability as of December 31, 2017.

2017 Electric Rate Case Filing

DTE Electric filed a rate case with the MPSC on April 19, 2017 requesting an increase in base rates of $231 million based on a projected twelve-month period ending October 31, 2018. The requested increase in base rates is primarily due to an increase in net plant resulting from infrastructure investments, environmental compliance, and reliability improvement projects. The rate filing also includes projected changes in sales, operation and maintenance expenses, and working capital. The rate filing also requests an increase in return on equity from 10.1% to 10.5%. To mitigate the impact to its customers resulting from ASU No. 2017-07, Compensation — Retirement Benefits (Topic 715), DTE Electric suggested regulatory accounting treatment for the pension and postretirement cost components previously included as capital overhead. If the MPSC adopts DTE Electric's suggestion, the rate request will be reduced. For further discussion of ASU No. 2017-07, see Note 3 to the Consolidated Financial Statements, "New Accounting Pronouncements." On November 1, 2017, DTE Electric self-implemented a base rate increase of $125 million. A final MPSC order in this case is expected by April 2018.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

PSCR Proceedings

The PSCR process is designed to allow DTE Electric to recover all of its power supply costs if incurred under reasonable and prudent policies and practices. DTE Electric's power supply costs include fuel and related transportation costs, purchased and net interchange power costs, NOx and SO2 emission allowances costs, urea costs, transmission costs, MISO, and other related costs. The MPSC reviews these costs, policies, and practices for prudence in annual plan and reconciliation filings.

2015 PSCR Year — In March 2016, DTE Electric filed its 2015 PSCR reconciliation that included the recovery of approximately $13 million of costs related to the pass through of a billing adjustment associated with a previous MPSC ordered customer refund. On July 12, 2017, the MPSC issued an order that disallowed recovery of this 2015 PSCR billing adjustment pass through of approximately $16 million, inclusive of interest. DTE Electric recorded the impact of the disallowance in the second quarter of 2017 and filed a claim of appeal with the Michigan Court of Appeals in August 2017.

Certificate of Necessity

On July 31, 2017, DTE Electric filed a request for authority to build a 1,100 megawatt natural gas fueled combined cycle generation facility at DTE Electric's Belle River Power Plant. DTE Electric requested the MPSC to issue three CONs for the following: (1) power supplied by the proposed project is needed, (2) the size, fuel type, and other design characteristics of the proposed project represent the most reasonable and prudent means of meeting the power need, and (3) the estimated capital costs of $989 million for the proposed project will be recoverable in rates from DTE Electric's customers. DTE Electric expects an order in this proceeding from the MPSC by April 27, 2018.

2017 Gas Rate Case Filing

DTE Gas filed a rate case with the MPSC on November 22, 2017 requesting an increase in base rates of $85.1 million based on a projected twelve-month period ending September 30, 2019. The requested increase in base rates is primarily due to an increase in net plant. The rate filing also includes projected changes in sales, operations, maintenance expenses, and working capital. The rate filing also requests an increase in return on equity from 10.1% to 10.5%. To mitigate the impact to its customers resulting from ASU No. 2017-07, Compensation — Retirement Benefits (Topic 715), DTE Gas suggested regulatory accounting treatment for the pension and postretirement cost components previously included as capital overhead. If the MPSC adopts DTE Gas' suggestion, the rate request will be reduced. For further discussion of ASU No. 2017-07, see Note 3 to the Consolidated Financial Statements, "New Accounting Pronouncements." A final MPSC order in this case is expected by September 2018.

2017 Tax Reform

On December 27, 2017, the MPSC issued an order to consider changes in the rates of all Michigan rate-regulated utilities to reflect the effects of the federal TCJA. On January 19, 2018, DTE Electric and DTE Gas filed information with the MPSC regarding the potential change in revenue requirements due to the TCJA effective January 1, 2018, and outlined our recommended method to flow the current and deferred tax benefits of those impacts to ratepayers.

NOTE 10 — INCOME TAXES

Income Tax Summary

DTE Energy files a consolidated federal income tax return. DTE Electric is a part of the consolidated federal income tax return of DTE Energy. DTE Energy and its subsidiaries file consolidated and/or separate company income tax returns in various states and localities, including a consolidated return in the State of Michigan. DTE Electric is part of the Michigan consolidated income tax return of DTE Energy. The federal, state and local income tax expense for DTE Electric is determined on an individual company basis with no allocation of tax expenses or benefits from other affiliates of DTE Energy. DTE Electric had income tax receivables with DTE Energy of $12 million and $9 million at December 31, 2017 and 2016, respectively.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

The Registrants' total Income Tax Expense varied from the statutory federal income tax rate for the following reasons:



	2017			2016			2015
DTE Energy	(In millions)
Income Before Income Taxes	$	1,287		$	1,105		$	950
Income tax expense at 35% statutory rate	$	450		$	387		$	333
Production tax credits	(189		)	(145		)	(122		)
Investment tax credits	(4		)	(5		)	(7		)
Depreciation	(4		)	(4		)	(4		)
Noncontrolling interests	8			12			2
AFUDC equity	(18		)	(10		)	(8		)
Employee Stock Ownership Plan dividends	(5		)	(5		)	(5		)
Stock based compensation	(14		)	—			—
Subsidiary stock loss	—			(10		)	—
State and local income taxes, net of federal benefit	51			58			35
Enactment of the Tax Cuts and Jobs Act	(105		)	—			—
Other, net	5			(7		)	6
Income Tax Expense	$	175		$	271		$	230
Effective income tax rate	13.6		%	24.5		%	24.2		%



	2017			2016			2015
DTE Electric	(In millions)
Income Before Income Taxes	$	928		$	975		$	836
Income tax expense at 35% statutory rate	$	325		$	341		$	293
Production tax credits	(36		)	(30		)	(31		)
Investment tax credits	(4		)	(4		)	(5		)
Depreciation	3			3			3
AFUDC equity	(5		)	(6		)	(7		)
Employee Stock Ownership Plan dividends	(3		)	(3		)	(3		)
State and local income taxes, net of federal benefit	48			56			43
Other, net	(1		)	(4		)	(1		)
Income Tax Expense	$	327		$	353		$	292
Effective income tax rate	35.2		%	36.2		%	34.9		%

Components of the Registrants' Income Tax Expense were as follows:



	2017			2016			2015
DTE Energy	(In millions)
Current income tax expense (benefit)
Federal	$	(22	)	$	(1	)	$	(3	)
State and other income tax	1			7			(4		)
Total current income taxes	(21		)	6			(7		)
Deferred income tax expense
Federal	118			184			178
State and other income tax	78			81			59
Total deferred income taxes	196			265			237
	$	175		$	271		$	230

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)



	2017			2016		2015
DTE Electric	(In millions)
Current income tax expense (benefit)
Federal	$	(17	)	$	—	$	(26	)
State and other income tax	(1		)	11		(2		)
Total current income taxes	(18		)	11		(28		)
Deferred income tax expense
Federal	270			268		252
State and other income tax	75			74		68
Total deferred income taxes	345			342		320
	$	327		$	353	$	292

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 Consolidated Financial Statements. Consistent with the original establishment of these deferred tax liabilities (assets), no recognition of these non-cash transactions have been reflected in the Consolidated Statements of Cash Flows.

The Registrants' deferred tax assets (liabilities) were comprised of the following at December 31:



	DTE Energy						DTE Electric
	2017			2016			2017			2016
	(In millions)
Property, plant, and equipment	$	(3,276	)	$	(4,880	)	$	(2,698	)	$	(3,819	)
Regulatory assets and liabilities	(94		)	(879		)	(31		)	(778		)
Tax credit carry-forwards	947			643			193			116
Pension and benefits	334			643			302			518
Federal net operating loss carry-forward	83			190			47			42
State and local net operating loss carry-forwards	70			59			5			1
Investments in equity method investees	(82		)	(119		)	—			—
Other	170			217			94			127
	(1,848		)	(4,126		)	(2,088		)	(3,793		)
Less valuation allowance	(40		)	(36		)	—			—
Long-term deferred income tax liabilities	$	(1,888	)	$	(4,162	)	$	(2,088	)	$	(3,793	)

Deferred income tax assets	$	1,814		$	1,463		$	830		$	569
Deferred income tax liabilities	(3,702		)	(5,625		)	(2,918		)	(4,362		)
	$	(1,888	)	$	(4,162	)	$	(2,088	)	$	(3,793	)

Tax credit carry-forwards for DTE Energy include $640 million of general business credits that expire from 2034 through 2037 and $307 million of alternative minimum tax credits that will be refundable over the next four years. The alternative minimum tax credits are production tax credits earned prior to 2006 but not utilized. The majority of these alternative minimum tax credits were generated from projects that had received a private letter ruling (PLR) from the 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. No valuation allowance is required for the tax credits carry-forward deferred tax asset.

DTE Energy has a federal net operating loss carry-forward of $397 million as of December 31, 2017, which will expire from 2035 through 2037. No valuation allowance is required for the federal net operating loss deferred tax asset.

DTE Energy has state and local deferred tax assets related to net operating loss carry-forwards of $70 million and $59 million at December 31, 2017 and 2016, respectively. The state and local net operating loss carry-forwards expire from 2018 through 2037. DTE Energy has recorded valuation allowances at December 31, 2017 and 2016 of approximately $40 million and $36 million, respectively, with respect to these deferred tax assets. In assessing the realizability of deferred tax assets, DTE Energy 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.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Tax credit carry-forwards for DTE Electric include $193 million of general business credits that expire from 2035 through 2037. No valuation allowance is required for the tax credits carry-forward deferred tax asset.

DTE Electric has a federal net operating loss carry-forward of $226 million as of December 31, 2017, which will expire in 2035. No valuation allowance is required for the federal net operating loss deferred tax asset.

DTE Electric has state and local deferred tax assets related to net operating loss carry-forwards of $5 million at December 31, 2017, while there was $1 million state and local deferred tax asset related to net operating loss carry-forwards at December 31, 2016. No valuation allowance is required for DTE Electric's state and local net operating loss carry-forwards.

The above tables exclude unamortized investment tax credits that are shown separately on the Registrants' Consolidated Statements of Financial Position. Investment tax credits are deferred and amortized to income over the average life of the related property.

Tax Cuts and Jobs Act

On December 22, 2017, the TCJA was enacted reducing the corporate income tax rate from 35% to 21%, effective January 1, 2018. As a result of the enactment, the deferred tax assets and liabilities were remeasured to reflect the impact of the TCJA on the cumulative temporary differences expected to reverse after the effective date. The net impact of this remeasurement was a decrease in deferred tax liabilities of $2.56 billion, of which $2.45 billion was attributable to regulated utilities and offset to regulatory assets and liabilities. This regulatory treatment is consistent with prior precedent set by the MPSC from previous tax law changes. The remaining $105 million was attributable to the non-utility entities and was recognized as a net reduction to income tax expense in 2017.

On December 22, 2017, the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), directing taxpayers to consider the implications of the TCJA as provisional when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the change in the tax law. The amounts above represent our best estimate based on interpretations of the TCJA. In accordance with SAB 118, the amounts recorded are considered provisional and will continue to be analyzed throughout 2018, which may result in additional changes.

Uncertain Tax Positions

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the Registrants is as follows:



	2017		2016		2015
DTE Energy	(In millions)
Balance at January 1	$	10	$	3	$	9
Additions for tax positions of prior years	—		7		—
Lapse of statute of limitations	—		—		(6		)
Balance at December 31	$	10	$	10	$	3



	2017		2016		2015
DTE Electric	(In millions)
Balance at January 1	$	13	$	4	$	4
Additions for tax positions of prior years	—		9		—
Balance at December 31	$	13	$	13	$	4

DTE Energy had $8 million of unrecognized tax benefits at December 31, 2017 and 2016 that, if recognized, would favorably impact its effective tax rate. DTE Energy does not anticipate any material decrease in unrecognized tax benefits in the next twelve months.

DTE Electric had $10 million of unrecognized tax benefits at December 31, 2017 and 2016 that, if recognized, would favorably impact its effective tax rate. DTE Electric does not anticipate any material decrease in unrecognized tax benefits in the next twelve months.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

The Registrants recognize interest and penalties pertaining to income taxes in Interest expense and Other expenses, respectively, on their Consolidated Statements of Operations.

Accrued interest pertaining to income taxes for DTE Energy totaled $3 million at December 31, 2017 and 2016. DTE Energy recognized interest expense related to income taxes of a nominal amount in 2017, $2 million in 2016, and a nominal amount in 2015. DTE Energy had accrued no penalties pertaining to income taxes.

Accrued interest pertaining to income taxes for DTE Electric totaled $4 million at December 31, 2017 and 2016. DTE Electric recognized interest expense related to income taxes of a nominal amount in 2017, $3 million in 2016, and a nominal amount in 2015. DTE Electric had accrued no penalties pertaining to income taxes.

In 2017, DTE Energy, including DTE Electric, settled a federal tax audit for the 2015 tax year. DTE Energy's federal income tax returns for 2016 and subsequent years remain subject to examination by the IRS. DTE Energy's Michigan Business Tax and Michigan Corporate Income Tax returns for the year 2008 and subsequent years remain subject to examination by the State of Michigan. DTE Energy also files tax returns in numerous state and local jurisdictions with varying statutes of limitation.

NOTE 11 — EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the net income, adjusted for income allocated to participating securities, by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect the dilution that would occur if any potentially dilutive instruments were exercised or converted into common shares. DTE Energy's participating securities are restricted shares under the stock incentive program that contain rights to receive non-forfeitable dividends. Equity units, performance shares, and stock options do not receive cash dividends; as such, these awards are not considered participating securities. For additional information, see Notes 14 and 21 to Consolidated Financial Statements, "Long-Term Debt" and "Stock-Based Compensation," respectively.

The following is a reconciliation of DTE Energy's basic and diluted income per share calculation for the years ended December 31:



	2017			2016			2015
	(In millions, except per share amounts)
Basic Earnings per Share
Net Income Attributable to DTE Energy Company	$	1,134		$	868		$	727
Less: Allocation of earnings to net restricted stock awards	(2		)	(2		)	(2		)
Net income available to common shareholders — basic	$	1,132		$	866		$	725

Average number of common shares outstanding	179			179			179
Basic Earnings per Common Share	$	6.32		$	4.84		$	4.05

Diluted Earnings per Share
Net Income Attributable to DTE Energy Company	$	1,134		$	868		$	727
Less: Allocation of earnings to net restricted stock awards	(2		)	(2		)	(2		)
Net income available to common shareholders — diluted	$	1,132		$	866		$	725

Average number of common shares outstanding	179			179			179
Diluted Earnings per Common Share(a)	$	6.32		$	4.83		$	4.05


(a)	The 2016 Equity Units excluded from the calculation of diluted EPS were approximately 6 million and 7.1 million for the years ended December 31, 2017 and 2016, respectively, as the dilutive stock price threshold was not met. For more information, see Note 14 to the Consolidated Financial Statements, "Long-Term Debt."

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

NOTE 12 — FAIR VALUE

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Registrants make certain assumptions they believe that market participants would use in pricing assets or liabilities, including assumptions about risk, and the risks inherent in the inputs to valuation techniques. Credit risk of the Registrants and their counterparties is incorporated in the valuation of assets and liabilities through the use of credit reserves, the impact of which was immaterial at December 31, 2017 and 2016. The Registrants believe they use valuation techniques that maximize the use of observable market-based inputs and minimize the use of unobservable inputs.

A fair value hierarchy has been established that prioritizes the inputs to valuation techniques used to measure fair value in three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. All assets and liabilities are required to be classified in their entirety based on the lowest level of input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input may require judgment considering factors specific to the asset or liability, and may affect the valuation of the asset or liability and its placement within the fair value hierarchy. The Registrants classify fair value balances based on the fair value hierarchy defined as follows:


•	Level 1 — Consists of unadjusted quoted prices in active markets for identical assets or liabilities that the Registrants have the ability to access as of the reporting date.


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


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

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

The following table presents assets and liabilities for DTE Energy measured and recorded at fair value on a recurring basis:



	December 31, 2017																	December 31, 2016
	Level 1			Level 2			Level 3			Other(a)		Netting(b)			Net Balance			Level 1			Level 2			Level 3			Netting(b)			Net Balance
	(In millions)
Assets:
Cash equivalents(c)	$	16		$	3		$	—		$	—	$	—		$	19		$	14		$	3		$	—		$	—		$	17
Nuclear decommissioning trusts
Equity securities	978			—			—			—		—			978			887			—			—			—			887
Fixed income securities	18			477			—			—		—			495			11			414			—			—			425
Private equity securities	—			—			—			5		—			5			—			—			—			—			—
Cash equivalents	14			—			—			—		—			14			8			—			—			—			8
Other investments(d)
Equity securities	118			—			—			—		—			118			104			—			—			—			104
Fixed income securities	72			—			—			—		—			72			58			—			—			—			58
Cash equivalents	4			—			—			—		—			4			3			—			—			—			3
Derivative assets:
Commodity Contracts:
Natural Gas	148			112			97			—		(256		)	101			216			79			53			(306		)	42
Electricity	—			243			42			—		(241		)	44			—			154			39			(157		)	36
Other	—			—			9			—		—			9			—			—			2			—			2
Foreign currency exchange contracts	—			1			—			—		(1		)	—			—			6			—			(5		)	1
Total derivative assets	148			356			148			—		(498		)	154			216			239			94			(468		)	81
Total	$	1,368		$	836		$	148		$	5	$	(498	)	$	1,859		$	1,301		$	656		$	94		$	(468	)	$	1,583

Liabilities:
Derivative liabilities:
Commodity Contracts:
Natural Gas	$	(141	)	$	(111	)	$	(126	)	$	—	$	263		$	(115	)	$	(226	)	$	(86	)	$	(149	)	$	321		$	(140	)
Electricity	—			(245		)	(30		)	—		246			(29		)	—			(159		)	(30		)	163			(26		)
Other	—			—			(1		)	—		1			—			—			—			(3		)	2			(1		)
Foreign currency exchange contracts	—			(3		)	—			—		1			(2		)	—			(3		)	—			3			—
Total derivative liabilities	(141		)	(359		)	(157		)	—		511			(146		)	(226		)	(248		)	(182		)	489			(167		)
Total	$	(141	)	$	(359	)	$	(157	)	$	—	$	511		$	(146	)	$	(226	)	$	(248	)	$	(182	)	$	489		$	(167	)
Net Assets (Liabilities) at end of period	$	1,227		$	477		$	(9	)	$	5	$	13		$	1,713		$	1,075		$	408		$	(88	)	$	21		$	1,416
Assets:
Current	$	157		$	298		$	104		$	—	$	(437	)	$	122		$	205		$	199		$	60		$	(400	)	$	64
Noncurrent	1,211			538			44			5		(61		)	1,737			1,096			457			34			(68		)	1,519
Total Assets	$	1,368		$	836		$	148		$	5	$	(498	)	$	1,859		$	1,301		$	656		$	94		$	(468	)	$	1,583
Liabilities:
Current	$	(137	)	$	(313	)	$	(108	)	$	—	$	459		$	(99	)	$	(203	)	$	(211	)	$	(79	)	$	424		$	(69	)
Noncurrent	(4		)	(46		)	(49		)	—		52			(47		)	(23		)	(37		)	(103		)	65			(98		)
Total Liabilities	$	(141	)	$	(359	)	$	(157	)	$	—	$	511		$	(146	)	$	(226	)	$	(248	)	$	(182	)	$	489		$	(167	)
Net Assets (Liabilities) at end of period	$	1,227		$	477		$	(9	)	$	5	$	13		$	1,713		$	1,075		$	408		$	(88	)	$	21		$	1,416


(a)	Amounts represent assets valued at NAV as a practical expedient for fair value.


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

(c)

At December 31, 2017, available-for-sale securities of $19 million included $8 million and $11 million of cash equivalents included in Restricted cash and Other investments on DTE Energy's Consolidated Statements of Financial Position, respectively. At December 31, 2016, available-for-sale securities of $17 million, included $7 million and $10 million of cash equivalents included in Restricted cash and Other investments on DTE Energy's Consolidated Statements of Financial Position, respectively.


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

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

The following table presents assets for DTE Electric measured and recorded at fair value on a recurring basis:



	December 31, 2017										December 31, 2016
	Level 1		Level 2		Level 3		Other(a)		Net Balance		Level 1		Level 2		Level 3		Net Balance
	(In millions)
Assets:
Cash equivalents(b)	$	8	$	3	$	—	$	—	$	11	$	8	$	3	$	—	$	11
Nuclear decommissioning trusts
Equity securities	978		—		—		—		978		887		—		—		887
Fixed income securities	18		477		—		—		495		11		414		—		425
Private equity securities	—		—		—		5		5		—		—		—		—
Cash equivalents	14		—		—		—		14		8		—		—		8
Other investments
Equity securities	11		—		—		—		11		9		—		—		9
Derivative assets — FTRs	—		—		9		—		9		—		—		2		2
Total	$	1,029	$	480	$	9	$	5	$	1,523	$	923	$	417	$	2	$	1,342

Assets:
Current	$	8	$	3	$	9	$	—	$	20	$	8	$	3	$	2	$	13
Noncurrent	1,021		477		—		5		1,503		915		414		—		1,329
Total Assets	$	1,029	$	480	$	9	$	5	$	1,523	$	923	$	417	$	2	$	1,342


(a)	Amounts represent assets valued at NAV as a practical expedient for fair value.


(b)	At December 31, 2017, available-for-sale securities of $11 million consisted of cash equivalents included in Other investments on DTE Electric's Consolidated Statements of Financial Position. At December 31, 2016, available-for-sale securities of $11 million consisted of cash equivalents included in Other investments on DTE Electric's Consolidated Statements of Financial Position.

Cash Equivalents

Cash equivalents include investments with maturities of three months or less when purchased. The cash equivalents shown in the fair value table are comprised of short-term investments and money market funds.

Nuclear Decommissioning Trusts and Other Investments

The nuclear decommissioning trusts and other investments hold debt and equity securities directly and indirectly through institutional mutual funds and commingled funds. Other assets such as private market investments are used to enhance long-term returns while improving portfolio diversification. All pricing for investments in this category are classified as NAV assets. Exchange-traded debt and equity securities held directly are valued using quoted market prices in actively traded markets. Non-exchange-traded fixed income securities are valued based upon quotations available from brokers or pricing services. The institutional mutual funds hold exchange-traded equity or debt securities (exchange and non-exchange traded) and are valued based on publicly available NAVs. A primary price source is identified by asset type, class, or issue for each security. The trustee monitors prices supplied by pricing services and may use a supplemental price source or change the primary price source of a given security if the trustee determines that another price source is considered preferable. The Registrants have obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices. Additionally, the Registrants selectively corroborate the fair value of securities by comparison of market-based price sources. Investment policies and procedures are determined by DTE Energy's Trust Investments Department which reports to DTE Energy's Vice President and Treasurer.

DTE Energy Company — DTE Electric Company

Combined 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. The Registrants consider the following criteria in determining whether a market is considered active: frequency in which pricing information is updated, variability in pricing between sources or over time, and the availability of public information. Other derivative contracts are valued based upon a variety of inputs including commodity market prices, broker quotes, interest rates, credit ratings, default rates, market-based seasonality, and basis differential factors. The Registrants monitor the prices that are supplied by brokers and pricing services and may use a supplemental price source or change the primary price source of an index if prices become unavailable or another price source is determined to be more representative of fair value. The Registrants have obtained an understanding of how these prices are derived. Additionally, the Registrants selectively corroborate the fair value of their transactions by comparison of market-based price sources. Mathematical valuation models are used for derivatives for which external market data is not readily observable, such as contracts which extend beyond the actively traded reporting period. The Registrants have established a Risk Management Committee whose responsibilities include directly or indirectly ensuring all valuation methods are applied in accordance with predefined policies. The development and maintenance of the Registrants' forward price curves has been assigned to DTE Energy's Risk Management Department, which is separate and distinct from the trading functions within DTE Energy.

The following table presents the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for DTE Energy for the years ended December 31, 2017 and 2016:



	Year Ended December 31, 2017												Year Ended December 31, 2016
	Natural Gas			Electricity			Other			Total			Natural Gas			Electricity			Other			Total
	(In millions)
Net Assets (Liabilities) as of January 1	$	(96	)	$	9		$	(1	)	$	(88	)	$	(5	)	$	6		$	(5	)	$	(4	)
Transfers into Level 3 from Level 2	—			—			—			—			—			—			—			—
Transfers from Level 3 into Level 2	—			—			—			—			—			—			—			—
Total gains (losses)
Included in earnings	(29		)	109			2			82			(159		)	(2		)	1			(160		)
Recorded in Regulatory liabilities	—			—			25			25			—			—			6			6
Purchases, issuances, and settlements:
Purchases	—			—			—			—			—			1			—			1
Settlements	96			(106		)	(18		)	(28		)	68			4			(3		)	69
Net Assets (Liabilities) as of December 31	$	(29	)	$	12		$	8		$	(9	)	$	(96	)	$	9		$	(1	)	$	(88	)
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, 2017 and 2016 and reflected in Operating Revenues — Non-utility operations and Fuel, purchased power, and gas — non-utility in DTE Energy's Consolidated Statements of Operations	$	(30	)	$	50		$	1		$	21		$	(166	)	$	7		$	2		$	(157	)

DTE Energy Company — DTE Electric Company

Combined 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 DTE Electric for the years ended December 31, 2017 and 2016:



	Year Ended December 31,
	2017			2016
	(In millions)
Net Assets as of January 1	$	2		$	3
Change in fair value recorded in Regulatory liabilities	25			6
Purchases, issuances, and settlements:
Settlements	(18		)	(7		)
Net Assets as of December 31	$	9		$	2
The amount of total gains (losses) included in Regulatory liabilities attributed to the change in unrealized gains (losses) related to assets and liabilities held at December 31, 2017 and 2016 and reflected in DTE Electric's Consolidated Statements of Financial Position	$	9		$	2

Derivatives are transferred between levels primarily due to changes in the source data used to construct price curves as a result of changes in market liquidity. Transfers in and transfers out are reflected as if they had occurred at the beginning of the period.

There were no transfers between Levels 1 and 2 for the Registrants during the years ended December 31, 2017 and 2016, and there were no transfers from or into Level 3 for DTE Electric during the same periods.

The following tables present the unobservable inputs related to DTE Energy's Level 3 assets and liabilities as of December 31, 2017 and 2016:



	December 31, 2017
Commodity Contracts	Derivative Assets		Derivative Liabilities			Valuation Techniques	Unobservable Input	Range							Weighted Average
	(In millions)
Natural Gas	$	97	$	(126	)	Discounted Cash Flow	Forward basis price (per MMBtu)	$	(1.10	)	—	$	9.75	/MMBtu	$	(0.03	)/MMBtu
Electricity	$	42	$	(30	)	Discounted Cash Flow	Forward basis price (per MWh)	$	(5	)	—	$	15	/MWh	$	2	/MWh



	December 31, 2016
Commodity Contracts	Derivative Assets		Derivative Liabilities			Valuation Techniques	Unobservable Input	Range							Weighted Average
	(In millions)
Natural Gas	$	53	$	(149	)	Discounted Cash Flow	Forward basis price (per MMBtu)	$	(1.00	)	—	$	7.90	/MMBtu	$	(0.05	)/MMBtu
Electricity	$	39	$	(30	)	Discounted Cash Flow	Forward basis price (per MWh)	$	(6	)	—	$	12	/MWh	$	1	/MWh

The unobservable inputs used in the fair value measurement of the electricity and natural gas commodity types consist of inputs that are less observable due in part to lack of available broker quotes, supported by little, if any, market activity at the measurement date or are based on internally developed models. Certain basis prices (i.e., the difference in pricing between two locations) included in the valuation of natural gas and electricity contracts were deemed unobservable.

The inputs listed above would have a direct impact on the fair values of the above security types if they were adjusted. A significant increase (decrease) in the basis price would result in a higher (lower) fair value for long positions, with offsetting impacts to short positions.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Fair Value of Financial Instruments

The fair value of financial instruments included in the table below is determined by using quoted market prices when available. When quoted prices are not available, pricing services may be used to determine the fair value with reference to observable interest rate indexes. The Registrants have obtained an understanding of how the fair values are derived. The Registrants also selectively corroborate the fair value of their transactions by comparison of market-based price sources. Discounted cash flow analyses based upon estimated current borrowing rates are also used to determine fair value when quoted market prices are not available. The fair values of notes receivable, excluding capital leases, and notes payable are generally estimated using discounted cash flow techniques that incorporate market interest rates as well as assumptions about the remaining life of the loans and credit risk. Depending on the information available, other valuation techniques may be used that rely on internal assumptions and models. Valuation policies and procedures for the Registrants are determined by DTE Energy's Treasury Department which reports to DTE Energy's Vice President and Treasurer and DTE Energy's Controller's Department which reports to DTE Energy's Vice President, Controller, and Chief Accounting Officer.

The following table presents the carrying amount and fair value of financial instruments for DTE Energy as of December 31, 2017 and 2016:



	December 31, 2017								December 31, 2016
	Carrying		Fair Value						Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Amount		Level 1		Level 2		Level 3
	(In millions)
Notes receivable(a), excluding capital leases	$	38	$	—	$	—	$	38	$	36	$	—	$	—	$	36
Dividends payable	$	158	$	158	$	—	$	—	$	148	$	148	$	—	$	—
Short-term borrowings	$	621	$	—	$	621	$	—	$	499	$	—	$	499	$	—
Notes payable — Other(b), excluding capital leases	$	12	$	—	$	—	$	12	$	17	$	—	$	—	$	17
Long-term debt(c)	$	12,288	$	1,939	$	10,571	$	764	$	11,270	$	1,465	$	9,384	$	1,056


(a)	Current portion included in Current Assets — Other on DTE Energy's Consolidated Statements of Financial Position.


(b)	Included in Current Liabilities — Other and Other Liabilities — Other on DTE Energy's Consolidated Statements of Financial Position.


(c)	Includes debt due within one year, unamortized debt discounts, premiums, and issuance costs. Excludes Capital lease obligations.

The following table presents the carrying amount and fair value of financial instruments for DTE Electric as of December 31, 2017 and 2016:



	December 31, 2017								December 31, 2016
	Carrying		Fair Value						Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Amount		Level 1		Level 2		Level 3
	(In millions)
Notes receivable(a), excluding capital leases	$	—	$	—	$	—	$	—	$	5	$	—	$	—	$	5
Short-term borrowings — affiliates	$	116	$	—	$	—	$	116	$	117	$	—	$	—	$	117
Short-term borrowings — other	$	238	$	—	$	238	$	—	62		$	—	$	62	$	—
Notes payable — Other(b), excluding capital leases	$	2	$	—	$	—	$	2	$	6	$	—	$	—	$	6
Long-term debt(c)	$	6,017	$	—	$	6,441	$	171	$	5,878	$	—	$	6,026	$	264


(a)	Current portion included in Current Assets — Other on DTE Electric's Consolidated Statements of Financial Position.


(b)	Included in Current Liabilities — Other and Other Liabilities — Other on DTE Electric's Consolidated Statements of Financial Position.


(c)	Includes debt due within one year, unamortized debt discounts, and issuance costs. Excludes Capital lease obligations.

For further fair value information on financial and derivative instruments, see Note 13 to the Consolidated Financial Statements, "Financial and Other Derivative Instruments."

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Nuclear Decommissioning Trust Funds

DTE Electric has a legal obligation to decommission its nuclear power plants following the expiration of its operating licenses. This obligation is reflected as an Asset retirement obligation on DTE Electric's Consolidated Statements of Financial Position. Rates approved by the MPSC provide for the recovery of decommissioning costs of Fermi 2 and the disposal of low-level radioactive waste. See Note 8 to the Consolidated Financial Statements, "Asset Retirement Obligations."

The following table summarizes DTE Electric's fair value of the nuclear decommissioning trust fund assets:



	December 31, 2017		December 31, 2016
	(In millions)
Fermi 2	$	1,475	$	1,291
Fermi 1	3		3
Low-level radioactive waste	14		26
	$	1,492	$	1,320

The costs of securities sold are determined on the basis of specific identification. The following table sets forth DTE Electric's gains and losses and proceeds from the sale of securities by the nuclear decommissioning trust funds:



	Year Ended December 31,
	2017			2016			2015
	(In millions)
Realized gains	$	83		$	74		$	39
Realized losses	$	(29	)	$	(63	)	$	(33	)
Proceeds from sale of securities	$	1,240		$	1,457		$	885

Realized gains and losses from the sale of securities for Fermi 2 are recorded to the Regulatory asset and Nuclear decommissioning liability. Realized gains and losses from the sale of securities for low-level radioactive waste funds are recorded to the Nuclear decommissioning liability.

The following table sets forth DTE Electric's fair value and unrealized gains and losses for the nuclear decommissioning trust funds:



	December 31, 2017							December 31, 2016
	Fair Value		Unrealized Gains		Unrealized Losses			Fair Value		Unrealized Gains		Unrealized Losses
	(In millions)
Equity securities	$	978	$	320	$	(32	)	$	887	$	222	$	(46	)
Fixed income securities	495		13		(3		)	425		11		(5		)
Private equity securities	5		—		—			—		—		—
Cash equivalents	14		—		—			8		—		—
	$	1,492	$	333	$	(35	)	$	1,320	$	233	$	(51	)

The following table summarizes the fair value of the fixed income securities held in nuclear decommissioning trust funds by contractual maturity:



	December 31, 2017
	(In millions)
Due within one year	$	23
Due after one through five years	102
Due after five through ten years	115
Due after ten years	255
	$	495

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Securities held in the Nuclear decommissioning trust funds are classified as available-for-sale. As DTE Electric does not have the ability to hold impaired investments for a period of time sufficient to allow for the anticipated recovery of market value, all unrealized losses are considered to be other-than-temporary impairments.

Unrealized losses incurred by the Fermi 2 trust are recognized as a Regulatory asset and Nuclear decommissioning liability. Unrealized losses on the low-level radioactive waste funds are recognized as a Nuclear decommissioning liability.

Other Securities

At December 31, 2017 and 2016, the Registrants' securities were comprised primarily of money market and equity securities. There were no unrealized losses on available-for-sale securities which were reclassified out of Other comprehensive income (loss) and realized into Net Income for DTE Energy or DTE Electric during the years ended December 31, 2017 and 2016. Gains related to trading securities held at December 31, 2017, 2016, and 2015 were $26 million, $15 million, and $1 million, respectively, for the Registrants. The trading gains or losses related to the Rabbi Trust assets, included in Other investments at DTE Energy, are allocated from DTE Energy to DTE Electric.

NOTE 13 — FINANCIAL AND OTHER DERIVATIVE INSTRUMENTS

The Registrants recognize all derivatives at their fair value as Derivative assets or liabilities on their respective Consolidated Statements of Financial Position unless they qualify for certain scope exceptions, including the normal purchases and normal sales exception. Further, derivatives that qualify and are designated for hedge accounting are classified as either hedges of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge); or as hedges of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge). For cash flow hedges, the portion of the derivative gain or loss that is effective in offsetting the change in the value of the underlying exposure is deferred in Accumulated other comprehensive income (loss) and later reclassified into earnings when the underlying transaction occurs. Gains or losses from the ineffective portion of cash flow hedges are recognized in earnings immediately. For fair value hedges, changes in fair values for the derivative and hedged item are recognized in earnings each period. For derivatives that do not qualify or are not designated for hedge accounting, changes in fair value are recognized in earnings each period.

The Registrants' primary market risk exposure is associated with commodity prices, credit, and interest rates. The Registrants have risk management policies to monitor and manage market risks. The Registrants use derivative instruments to manage some of the exposure. DTE Energy uses derivative instruments for trading purposes in its Energy Trading segment. Contracts classified as derivative instruments include electricity, natural gas, oil, certain coal forwards, futures, options, swaps, and foreign currency exchange contracts. Items not classified as derivatives include natural gas inventory, pipeline transportation contracts, renewable energy credits, and natural gas storage assets.

DTE Electric — DTE Electric generates, purchases, distributes, and sells electricity. DTE Electric uses forward energy contracts to manage changes in the price of electricity and fuel. Substantially all of these contracts meet the normal purchases and normal sales exception and are therefore accounted for under the accrual method. Other derivative contracts are MTM and recoverable through the PSCR mechanism when settled. This results in the deferral of unrealized gains and losses as Regulatory assets or liabilities until realized.

DTE Gas — DTE Gas purchases, stores, transports, distributes and sells natural gas, and sells storage and transportation capacity. DTE Gas has fixed-priced contracts for portions of its expected natural gas supply requirements through March 2020. Substantially all of these contracts meet the normal purchases and normal sales exception and are therefore accounted for under the accrual method. DTE Gas may also sell forward transportation and storage capacity contracts. Forward transportation and storage contracts are generally not derivatives and are therefore accounted for under the accrual method.

Gas Storage and Pipelines — This segment is primarily engaged in services related to the gathering, transportation, and storage of natural gas. Primarily fixed-priced contracts are used in the marketing and management of transportation and storage services. Generally, these contracts are not derivatives and are therefore accounted for under the accrual method.

Power and Industrial Projects — This segment manages and operates energy and pulverized coal projects, a coke battery, reduced emissions fuel projects, landfill gas recovery, and power generation assets. Primarily fixed-price contracts are used in the marketing and management of the segment assets. These contracts are generally not derivatives and are therefore accounted for under the accrual method.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Energy Trading — Commodity Price Risk — Energy Trading markets and trades electricity, natural gas physical products, and energy financial instruments, and provides energy and asset management services utilizing energy commodity derivative instruments. Forwards, futures, options, and swap agreements are used to manage exposure to the risk of market price and volume fluctuations in its operations. These derivatives are accounted for by recording changes in fair value to earnings unless hedge accounting criteria are met.

Energy Trading — Foreign Currency Exchange Risk — Energy Trading has foreign currency exchange forward contracts to economically hedge fixed Canadian dollar commitments existing under natural gas and power purchase and sale contracts and natural gas transportation contracts. Energy Trading enters into these contracts to mitigate price volatility with respect to fluctuations of the Canadian dollar relative to the U.S. dollar. These derivatives are accounted for by recording changes in fair value to earnings unless hedge accounting criteria are met.

Corporate and Other — Interest Rate Risk — DTE Energy may use interest rate swaps, treasury locks, and other derivatives to hedge the risk associated with interest rate market volatility.

Credit Risk — DTE Energy maintains credit policies that significantly minimize overall credit risk. These policies include an evaluation of potential customers’ and counterparties’ financial condition, including the viability of underlying productive assets, credit rating, collateral requirements, or other credit enhancements such as letters of credit or guarantees. DTE Energy generally uses standardized agreements that allow the netting of positive and negative transactions associated with a single counterparty. DTE Energy maintains a provision for credit losses based on factors surrounding the credit risk of its customers, historical trends, and other information. Based on DTE Energy's credit policies and its December 31, 2017 provision for credit losses, DTE Energy’s exposure to counterparty nonperformance is not expected to have a material adverse effect on DTE Energy's Consolidated Financial Statements.

Derivative Activities

DTE Energy manages its MTM risk on a portfolio basis based upon the delivery period of its contracts and the individual components of the risks within each contract. Accordingly, it records and manages the energy purchase and sale obligations under its contracts in separate components based on the commodity (e.g. electricity or natural gas), the product (e.g. electricity for delivery during peak or off-peak hours), the delivery location (e.g. by region), the risk profile (e.g. forward or option), and the delivery period (e.g. by month and year). The following describes the categories of activities represented by their operating characteristics and key risks:

•

Asset Optimization — Represents derivative activity associated with assets owned and contracted by DTE Energy, including forward natural gas purchases and sales, natural gas transportation, and storage capacity. Changes in the value of derivatives in this category typically economically offset changes in the value of underlying non-derivative positions, which do not qualify for fair value accounting. The difference in accounting treatment of derivatives in this category and the underlying non-derivative positions can result in significant earnings volatility.


•	Marketing and Origination — Represents derivative activity transacted by originating substantially hedged positions with wholesale energy marketers, producers, end-users, utilities, retail aggregators, and alternative energy suppliers.


•	Fundamentals Based Trading — Represents derivative activity transacted with the intent of taking a view, capturing market price changes, or putting capital at risk. This activity is speculative in nature as opposed to hedging an existing exposure.


•	Other — Includes derivative activity at DTE Electric related to FTRs. Changes in the value of derivative contracts at DTE Electric are recorded as Derivative assets or liabilities, with an offset to Regulatory assets or liabilities as the settlement value of these contracts will be included in the PSCR mechanism when realized.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

The following table presents the fair value of derivative instruments as of December 31, 2017 and 2016 for DTE Energy:



	December 31, 2017					December 31, 2016
	Derivative Assets		Derivative Liabilities			Derivative Assets		Derivative Liabilities
	(In millions)
Derivatives not designated as hedging instruments:
Commodity Contracts:
Natural Gas	$	357	$	(378	)	$	348	$	(461	)
Electricity	285		(275		)	193		(189		)
Other	9		(1		)	2		(3		)
Foreign currency exchange contracts	1		(3		)	6		(3		)
Total derivatives not designated as hedging instrument	$	652	$	(657	)	$	549	$	(656	)

Current	$	540	$	(558	)	$	447	$	(493	)
Noncurrent	112		(99		)	102		(163		)
Total derivatives	$	652	$	(657	)	$	549	$	(656	)

The following table presents the fair value of derivative instruments as of December 31, 2017 and 2016 for DTE Electric:



	December 31,
	2017		2016
	(In millions)
FTRs — Other current assets	$	9	$	2
Total derivatives not designated as hedging instruments	$	9	$	2

Certain of DTE Energy's derivative positions are subject to netting arrangements which provide for offsetting of asset and liability positions as well as related cash collateral. Such netting arrangements generally do not have restrictions. Under such netting arrangements, DTE Energy offsets the fair value of derivative instruments with cash collateral received or paid for those contracts executed with the same counterparty, which reduces DTE Energy's Total Assets and Liabilities. Cash collateral is allocated between the fair value of derivative instruments and customer accounts receivable and payable with the same counterparty on a pro-rata basis to the extent there is exposure. Any cash collateral remaining, after the exposure is netted to zero, is reflected in Accounts receivable and Accounts payable as collateral paid or received, respectively.

DTE Energy also provides and receives collateral in the form of letters of credit which can be offset against net Derivative assets and liabilities as well as Accounts receivable and payable. DTE Energy had issued letters of credit of approximately $4 million and $2 million outstanding at December 31, 2017 and 2016, respectively, which could be used to offset net Derivative liabilities. Letters of credit received from third parties which could be used to offset net Derivative assets were $4 million and $2 million at December 31, 2017 and 2016, respectively. Such balances of letters of credit are excluded from the tables below and are not netted with the recognized assets and liabilities in DTE Energy's Consolidated Statements of Financial Position.

For contracts with certain clearing agents, the fair value of derivative instruments is netted against realized positions with the net balance reflected as either 1) a Derivative asset or liability or 2) an Account receivable or payable. Other than certain clearing agents, Accounts receivable and Accounts payable that are subject to netting arrangements have not been offset against the fair value of Derivative assets and liabilities.

For DTE Energy, the total cash collateral posted, net of cash collateral received, was $28 million and $34 million as of December 31, 2017 and 2016, respectively. DTE Energy had $9 million of cash collateral related to unrealized positions to net against Derivative assets while Derivative liabilities are shown net of cash collateral of $22 million as of December 31, 2017. DTE Energy had $7 million of cash collateral related to unrealized positions to net against Derivative assets while Derivative liabilities are shown net of cash collateral of $28 million as of December 31, 2016. DTE Energy recorded cash collateral paid of $18 million and cash collateral received of $3 million not related to unrealized derivative positions as of December 31, 2017. DTE Energy recorded cash collateral paid of $18 million and cash collateral received of $5 million not related to unrealized derivative positions as of December 31, 2016. These amounts are included in Accounts receivable and Accounts payable and are recorded net by counterparty.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

The following table presents the netting offsets of Derivative assets and liabilities for DTE Energy at December 31, 2017 and 2016:



	December 31, 2017									December 31, 2016
	Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts Offset in the Consolidated Statements of Financial Position			Net Amounts of Assets (Liabilities) Presented in the Consolidated Statements of Financial Position			Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts Offset in the Consolidated Statements of Financial Position			Net Amounts of Assets (Liabilities) Presented in the Consolidated Statements of Financial Position
	(In millions)
Derivative assets:
Commodity Contracts:
Natural Gas	$	357		$	(256	)	$	101		$	348		$	(306	)	$	42
Electricity	285			(241		)	44			193			(157		)	36
Other	9			—			9			2			—			2
Foreign currency exchange contracts	1			(1		)	—			6			(5		)	1
Total derivative assets	$	652		$	(498	)	$	154		$	549		$	(468	)	$	81

Derivative liabilities:
Commodity Contracts:
Natural Gas	$	(378	)	$	263		$	(115	)	$	(461	)	$	321		$	(140	)
Electricity	(275		)	246			(29		)	(189		)	163			(26		)
Other	(1		)	1			—			(3		)	2			(1		)
Foreign currency exchange contracts	(3		)	1			(2		)	(3		)	3			—
Total derivative liabilities	$	(657	)	$	511		$	(146	)	$	(656	)	$	489		$	(167	)

The following table presents the netting offsets of Derivative assets and liabilities showing the reconciliation of derivative instruments to DTE Energy's Consolidated Statements of Financial Position at December 31, 2017 and 2016:



	December 31, 2017												December 31, 2016
	Derivative Assets						Derivative Liabilities						Derivative Assets						Derivative Liabilities
	Current			Noncurrent			Current			Noncurrent			Current			Noncurrent			Current			Noncurrent
	(In millions)
Total fair value of derivatives	$	540		$	112		$	(558	)	$	(99	)	$	447		$	102		$	(493	)	$	(163	)
Counterparty netting	(437		)	(52		)	437			52			(396		)	(65		)	396			65
Collateral adjustment	—			(9		)	22			—			(4		)	(3		)	28			—
Total derivatives as reported	$	103		$	51		$	(99	)	$	(47	)	$	47		$	34		$	(69	)	$	(98	)

The effect of derivatives not designated as hedging instruments on DTE Energy's Consolidated Statements of Operations for years ended December 31, 2017 and 2016 is as follows:



	Location of Gain (Loss) Recognized in Income on Derivatives		Gain (Loss) Recognized in Income on Derivatives for Years Ended December 31,
Derivatives not Designated as Hedging Instruments		2017				2016
			(In millions)
Commodity Contracts:
Natural Gas	Operating Revenues — Non-utility operations		$	(74	)		$	(153	)
Natural Gas	Fuel, purchased power, and gas — non-utility		97				(2		)
Electricity	Operating Revenues — Non-utility operations		105				43
Other	Operating Revenues — Non-utility operations		2				5
Foreign currency exchange contracts	Operating Revenues — Non-utility operations		(2		)		(2		)
Total			$	128			$	(109	)

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Revenues and energy costs related to trading contracts are presented on a net basis in DTE Energy's Consolidated Statements of Operations. Commodity derivatives used for trading purposes, and financial non-trading commodity derivatives, are accounted for using the MTM method with unrealized and realized gains and losses recorded in Operating Revenues — Non-utility operations. Non-trading physical commodity sale and purchase derivative contracts are generally accounted for using the MTM method with unrealized and realized gains and losses for sales recorded in Operating Revenues — Non-utility operations and purchases recorded in Fuel, purchased power, and gas — non-utility.

The following represents the cumulative gross volume of DTE Energy's derivative contracts outstanding as of December 31, 2017:



Commodity		Number of Units
Natural Gas (MMBtu)		1,822,796,301
Electricity (MWh)		29,715,268
Foreign Currency Exchange (Canadian dollars)		108,023,948

Various subsidiaries of DTE Energy have entered into contracts which contain ratings triggers and are guaranteed by DTE Energy. These contracts contain provisions which allow the counterparties to require that DTE Energy post cash or letters of credit as collateral in the event that DTE Energy’s credit rating is downgraded below investment grade. Certain of these provisions (known as “hard triggers”) state specific circumstances under which DTE Energy can be required to post collateral upon the occurrence of a credit downgrade, while other provisions (known as “soft triggers”) are not as specific. For contracts with soft triggers, it is difficult to estimate the amount of collateral which may be requested by counterparties and/or which DTE Energy may ultimately be required to post. The amount of such collateral which could be requested fluctuates based on commodity prices (primarily natural gas, power, and coal) and the provisions and maturities of the underlying transactions. As of December 31, 2017, DTE Energy's contractual obligation to post collateral in the form of cash or letters of credit in the event of a downgrade to below investment grade, under both hard trigger and soft trigger provisions, was approximately $456 million.

As of December 31, 2017, DTE Energy had approximately $535 million of derivatives in net liability positions, for which hard triggers exist. There is no collateral that has been posted against such liabilities, including cash and letters of credit. Associated derivative net asset positions for which contractual offset exists were approximately $468 million. The net remaining amount of approximately $67 million is derived from the $456 million noted above.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

NOTE 14 — LONG-TERM DEBT

Long-Term Debt

DTE Energy's long-term debt outstanding and weighted average interest rates of debt outstanding at December 31 were:



	Interest Rate(a)	Maturity Date	2017			2016
			(In millions)
Mortgage bonds, notes, and other
DTE Energy Debt, Unsecured	3.1%	2019 — 2033	$	3,825		$	3,325
DTE Electric Taxable Debt, Principally Secured	4.3%	2020 — 2047	5,755			5,615
DTE Electric Tax-Exempt Revenue Bonds(b)	4.3%	2020 — 2030	310			310
DTE Gas Taxable Debt, Principally Secured	4.8%	2018 — 2047	1,330			1,250
Other Long-Term Debt, including Non-Recourse Debt			7			92
			11,227			10,592
Unamortized debt discount and premium, net			(15		)	(10		)
Unamortized debt issuance costs			(69		)	(67		)
Long-term debt due within one year			(104		)	(9		)
			$	11,039		$	10,506
Junior Subordinated Debentures
Subordinated Debentures	5.5%	2062 — 2077	$	1,180		$	780
Unamortized debt issuance costs			(35		)	(24		)
			$	1,145		$	756


(a)	Weighted average interest rate as of December 31, 2017.


(b)	DTE Electric Tax-Exempt Revenue Bonds are issued by a public body that loans the proceeds to DTE Electric on terms substantially mirroring the Revenue Bonds.

DTE Electric's long-term debt outstanding and weighted average interest rates of debt outstanding at December 31 were:



	Interest Rate(a)	Maturity Date	2017			2016
			(In millions)
Mortgage bonds, notes, and other
Taxable Debt, Principally Secured	4.3%	2020 — 2047	$	5,755		$	5,615
Tax-Exempt Revenue Bonds(b)	4.3%	2020 — 2030	310			310
			6,065			5,925
Unamortized debt discount			(10		)	(10		)
Unamortized debt issuance costs			(38		)	(37		)
			$	6,017		$	5,878


(a)	Weighted average interest rate as of December 31, 2017.


(b)	Tax-Exempt Revenue Bonds are issued by a public body that loans the proceeds to DTE Electric on terms substantially mirroring the Revenue Bonds.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Debt Issuances

In 2017, the following debt was issued:



Company	Month	Type	Interest Rate	Maturity Date	Amount
					(In millions)
DTE Energy	March	Senior Notes(a)	3.80%	2027	$	500
DTE Electric	August	General and Refunding Mortgage Bonds(b)	3.75%	2047	440
DTE Gas	September	First Mortgage Bonds(a)	3.08%	2029	40
DTE Gas	September	First Mortgage Bonds(a)	3.75%	2047	40
DTE Energy	November	Junior Subordinated Debentures(a)	5.25%	2077	400
					$	1,420


(a)	Proceeds were used for repayment of short-term borrowings and general corporate purposes.


(b)	Proceeds were used to repay $300 million of DTE Electric's 2008 series G 5.60% Senior Notes due on June 15, 2018, for the repayment of short-term borrowings and general corporate purposes.

Debt Redemptions

In 2017, the following debt was redeemed:



Company	Month	Type	Interest Rate	Maturity Date	Amount
					(In millions)
DTE Electric	August	Senior Notes	5.60%	2018	$	300
DTE Energy	September	Secured Note(a)	7.29%	2029	77
DTE Energy	Various	Other Long-Term Debt	Various	2017	8
					$	385


(a)	DTE Energy's Gas Storage and Pipelines segment recognized a $16 million net loss on extinguishment of debt associated with early repayment, consisting of $20 million of early redemption premiums and $4 million of unamortized debt premiums. The loss is reflected in Other (Income) and Deductions — Interest Expense on the Consolidated Statements of Operations.

The following table shows the Registrants' scheduled debt maturities, excluding any unamortized discount or premium on debt:



	2018		2019		2020		2021		2022		2023 and Thereafter		Total
	(In millions)
DTE Energy(a)	$	104	$	1,497	$	683	$	462	$	616	$	9,045	$	12,407
DTE Electric	$	—	$	—	$	632	$	462	$	316	$	4,655	$	6,065


(a)	Amounts include DTE Electric's scheduled debt maturities.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Junior Subordinated Debentures

At December 31, 2017, DTE Energy had the following Junior Subordinated Debentures:



	Interest Rate	Maturity Date	Amount
			(In millions)
2012 Series C	5.25%	2062	$	200
2016 Series B	5.375%	2076	300
2016 Series F	6.00%	2076	280
2017 Series E	5.25%	2077	400
			$	1,180

DTE Energy has the right to defer interest payments on the debt securities. Should DTE Energy exercise this right, it cannot declare or pay dividends on, or redeem, purchase or acquire, any of its capital stock during the deferral period. Any deferred interest payments will bear additional interest at the rate associated with the related debt issue. As of December 31, 2017, no interest payments have been deferred on the debt securities.

Cross Default Provisions

Substantially all of the net utility properties of DTE Electric and DTE Gas are subject to the lien of mortgages. Should DTE Electric or DTE Gas fail to timely pay their indebtedness under these mortgages, such failure may create cross defaults in the indebtedness of DTE Energy.

Acquisition Financing

Effective October 1, 2016, DTE Energy closed on the purchase of midstream natural gas assets. The acquisition was financed through the issuance of Equity Units and Senior Notes. See Note 4 to the Consolidated Financial Statements, "Acquisitions and Exit Activities," for more information on the acquisition.

In October 2016, DTE issued $675 million of Equity Units. Each Equity Unit has a stated amount of $50, initially in the form of a Corporate Unit, is comprised of (i) a forward purchase contract to buy DTE Energy common stock (stock purchase contract) and (ii) a 1/20 undivided beneficial ownership interest in $1,000 principal amount of DTE Energy’s 2016 Series C 1.5% RSNs due 2024. The RSN debt instruments and the stock purchase contract equity instruments are deemed to be separate instruments as the investor may trade the RSNs separately from the stock purchase contracts and may also settle the stock purchase contracts separately. The Corporate Units are listed on the New York Stock Exchange under the symbol DTV.

The stock purchase contract obligates the holder to purchase from DTE Energy on the settlement date, October 1, 2019, for a price of $50 per stock purchase contract, the following number of shares of DTE Energy’s common stock, subject to anti-dilution adjustments:


•	if the AMV of DTE Energy’s common stock, which is the average volume-weighted average price of DTE Energy’s common stock for the trading days during the 20 consecutive scheduled trading day period ending on the third scheduled trading day immediately preceding the stock purchase contract settlement date, is equal to or greater than $116.31, 0.4299 shares of common stock;


•	if the AMV is less than $116.31 but greater than $93.05, a number of shares of common stock equal to $50 divided by the AMV, rounded to the nearest 1/10,000th of a share; and


•	if the AMV is less than or equal to $93.05, 0.5373 shares of common stock.

The RSNs bear interest at a rate of 1.5% per year, payable quarterly, and mature on October 1, 2024. The RSNs will be remarketed in 2019. If this remarketing is successful, the interest rate on the RSNs will be reset, and thereafter interest will be payable semi-annually at the reset rate. If there is no successful remarketing, the interest rate on the RSNs will not be reset, and the holders of the RSNs will have the right to put the RSNs to DTE Energy at a price equal to 100% of the principal amount, and the proceeds of the put right will be deemed to have been applied against the holders’ obligation under the stock purchase contracts. DTE Energy may also redeem, in whole or in part, the RSNs in the event of a failed final remarketing.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

On January 1, 2017, DTE Energy began paying the stock purchase contract holders quarterly contract adjustment payments at a rate of 5% per year of the stated amount of $50 per Equity Unit, or $2.50 per year. The present value of the future contract adjustment payments of $98 million was recorded as a reduction of shareholders’ equity, offset by the stock purchase contract liability. The stock purchase contract liability is included in Current Liabilities — Other and Other Liabilities — Other on DTE Energy’s Consolidated Statements of Financial Position. Interest payments on the RSNs are recorded as interest expense and stock purchase contract payments are charged against the liability. Accretion of the stock purchase contract liability is recorded as imputed interest expense. The treasury stock method is used to compute diluted EPS for the stock purchase contract. Under the treasury stock method, the stock purchase contract will only have a dilutive effect when the settlement rate is based on the market value of DTE’s common stock that is greater than $116.31 (the threshold appreciation price). At December 31, 2017, the stock purchase price contract was anti-dilutive and, therefore, not included in the computation of diluted earnings per share. If payments for the stock purchase contract are deferred, DTE Energy may not make any cash distributions related to its capital stock, including dividends, redemptions, repurchases, liquidation payments or guarantee payments. Also, during the deferral period, DTE Energy may not make any payments on or redeem or repurchase any debt securities that are equal in right of payment with, or subordinated to, the RSNs.

Until settlement of the stock purchase contracts, the shares of stock underlying each contract are not outstanding. Under the terms of the stock purchase contracts, assuming no anti-dilution or other adjustments, DTE Energy will issue between 5.8 million and 7.3 million shares of its common stock in October 2019. A total of 9 million shares of DTE Energy’s common stock have been reserved for issuance in connection with the stock purchase contracts.

Selected information about DTE Energy’s 2016 Equity Units is presented below:



Issuance Date	Units Issued	Total Net Proceeds		Total Long-Term Debt		RSN Annual Interest Rate	Stock Purchase Contract Annual Rate	Stock Purchase Settlement Date	Stock Purchase Contract Liability(a)		RSN Maturity Date
(In millions, except interest rates)
10/5/2016	13.5	$	654	$	675	1.5%	5.0%	10/1/2019	$	98	10/1/2024


(a)	Payments of $32 million were made in 2017. The stock purchase contract liability was $66 million and $98 million at December 31, 2017 and 2016, respectively, exclusive of interest.

In October 2016, DTE Energy issued $400 million of 2016 Series D 1.50% Senior Notes due 2019 and $600 million of Series E 2.85% Senior Notes due 2026. The proceeds from the Senior Notes were used for the acquisition and general corporate purposes.

NOTE 15 — PREFERRED AND PREFERENCE SECURITIES

As of December 31, 2017, the amount of authorized and unissued stock is as follows:



Company	Type of Stock	Par Value		Shares Authorized
DTE Energy	Preferred	$	—	5,000,000
DTE Electric	Preferred	$	100	6,747,484
DTE Electric	Preference	$	1	30,000,000
DTE Gas	Preferred	$	1	7,000,000
DTE Gas	Preference	$	1	4,000,000

NOTE 16 — SHORT-TERM CREDIT ARRANGEMENTS AND BORROWINGS

DTE Energy, DTE Electric, and DTE Gas have unsecured revolving credit agreements that can be used for general corporate borrowings, but are intended to provide liquidity support for each of the companies’ commercial paper programs. Borrowings under the revolvers are available at prevailing short-term interest rates. Additionally, DTE Energy has other facilities to support letter of credit issuance.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

The agreements require DTE Energy, DTE Electric, and DTE Gas to maintain a total funded debt to capitalization ratio of no more than 0.65 to 1. In the agreements, “total funded debt” means all indebtedness of each respective company and their consolidated subsidiaries, including capital lease obligations, hedge agreements, and guarantees of third parties’ debt, but excluding contingent obligations, nonrecourse and junior subordinated debt, and certain equity-linked securities and, except for calculations at the end of the second quarter, certain DTE Gas short-term debt. “Capitalization” means the sum of (a) total funded debt plus (b) “consolidated net worth,” which is equal to consolidated total equity of each respective company and their consolidated subsidiaries (excluding pension effects under certain FASB statements), as determined in accordance with accounting principles generally accepted in the United States of America. At December 31, 2017, the total funded debt to total capitalization ratios for DTE Energy, DTE Electric, and DTE Gas were 0.54 to 1, 0.50 to 1, and 0.48 to 1, respectively, and were in compliance with this financial covenant.

The availability under the facilities in place at December 31, 2017 is shown in the following table:



	DTE Energy		DTE Electric		DTE Gas		Total
	(In millions)
Unsecured letter of credit facility, expiring in February 2019	$	150	$	—	$	—	$	150
Unsecured letter of credit facility, expiring in September 2019	70		—		—		70
Unsecured revolving credit facility, expiring April 2022	1,200		400		300		1,900
	1,420		400		300		2,120
Amounts outstanding at December 31, 2017
Commercial paper issuances	83		238		300		621
Letters of credit	124		—		—		124
	207		238		300		745
Net availability at December 31, 2017	$	1,213	$	162	$	—	$	1,375

DTE Energy has approximately $9 million of other outstanding letters of credit which are used for various corporate purposes and are not included in the facilities described above.

The weighted average interest rate for short-term borrowings was 1.9% and 0.9% at December 31, 2017 and 2016, respectively, for DTE Energy. The weighted average interest rate for short-term borrowings was 1.5% and 0.8% at December 31, 2017 and 2016, respectively, for DTE Electric.

In conjunction with maintaining certain exchange traded risk management positions, DTE Energy may be required to post collateral with its clearing agent. DTE Energy has a demand financing agreement for up to $100 million with its clearing agent. The agreement, as amended, also allows for up to $50 million of additional margin financing provided that DTE Energy posts a letter of credit for the incremental amount and allows the right of setoff with posted collateral. At December 31, 2017, the capacity under this facility was $100 million. The amount outstanding under this agreement was $56 million and $50 million at December 31, 2017 and 2016, respectively, and was fully offset by the posted collateral.

Dividend Restrictions

Certain of DTE Energy’s credit facilities contain a provision requiring DTE Energy 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 DTE Energy can pay in order to maintain compliance with this provision. At December 31, 2017, the effect of this provision was to restrict the payment of approximately $1.8 billion of Retained earnings totaling $5.6 billion. There are no other effective limitations with respect to DTE Energy’s ability to pay dividends.

NOTE 17 — CAPITAL AND OPERATING LEASES

Lessee — Operating Lease — The Registrants lease various assets under operating leases, including coal railcars, office buildings, a warehouse, computers, vehicles, and other equipment. The lease arrangements expire at various dates through 2046.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

The Registrants' future minimum lease payments under non-cancelable operating leases at December 31, 2017 were:



	DTE Energy		DTE Electric
	(In millions)
2018	$	40	$	15
2019	34		14
2020	22		9
2021	13		9
2022	9		6
2022 and thereafter	48		38
Total minimum lease payments	$	166	$	91

Rental expense for DTE Energy operating leases was $51 million in 2017 and $43 million in 2016 and 2015, including rental expense for DTE Electric operating leases of $28 million in 2017, $28 million in 2016, and $32 million in 2015.

Lessor — Capital Lease — DTE Energy 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. DTE Energy owns a 40% interest in the Vector Pipeline. In addition, DTE Energy has two energy services agreements, for which a portion of are accounted for as capital leases. These agreements were extended during the year and expire in 2019 and 2026.

The components of DTE Energy's net investment in capital leases at December 31, 2017, were as follows:



	DTE Energy
	(In millions)
2018	$	13
2019	10
2020	9
2021	—
2022	—
2023 and thereafter	1
Total minimum future lease receipts	33
Residual value of leased pipeline	40
Less unearned income	(15		)
Net investment in capital lease	58
Less current portion	(7		)
	$	51

NOTE 18 — COMMITMENTS AND CONTINGENCIES

Environmental

DTE Electric

Air — DTE Electric is subject to the EPA ozone and fine particulate transport and acid rain regulations that limit power plant emissions of SO2 and NOx. The EPA and the State of Michigan have also issued emission reduction regulations relating to ozone, fine particulate, regional haze, mercury, and other air pollution. These rules have led to controls on fossil-fueled power plants to reduce SO2, NOx, mercury, and other emissions. Additional rulemakings may occur over the next few years which could require additional controls for SO2, NOx, and other hazardous air pollutants.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

The Cross State Air Pollution Rule (CSAPR), required further reductions of SO2 and NOx emissions beginning in January 2015. On September 7, 2016, the EPA finalized an update to the CSAPR ozone season program by issuing the CSAPR Update Rule. This rule is expected to reduce summertime (May - September) NOx emissions from power plants in 22 states in the eastern half of the U.S., including DTE Electric facilities. The CSAPR Update Rule is intended to reduce air quality impacts of the interstate transport of air pollution on downwind areas' ability to meet the 2008 ozone National Ambient Air Quality Standards implementing power sector emission budgets and NOx allowance trading programs. DTE Electric expects to meet its obligations under CSAPR. DTE Electric does not expect this rule to have a material effect on its compliance program.

The EPA proposed revised air quality standards for ground level ozone in November 2014 and specifically requested comments on the form and level of the ozone standards. The standards were finalized in October 2015. The State of Michigan recommended to the EPA in October 2016 which areas of the state are not attaining the new standard. In November 2017, the EPA completed the majority of the United States attainment/unclassifiable area designations. The Registrants expect the EPA to complete the remaining designations, including the non-attainment area designations with the 2015 ozone standards by the first quarter in 2018. DTE Electric cannot predict the financial impact of the revised ozone standards at this time.

In July 2009, DTE Energy received a NOV/FOV from the EPA alleging, among other things, that five DTE Electric power plants violated New Source Performance standards, Prevention of Significant Deterioration requirements, and operating permit requirements under the Clean Air Act. In June 2010, the EPA issued a NOV/FOV making similar allegations related to a project and outage at Unit 2 of the Monroe Power Plant. In March 2013, DTE Energy received a supplemental NOV from the EPA relating to the July 2009 NOV/FOV. The supplemental NOV alleged additional violations relating to the New Source Review provisions under the Clean Air Act, among other things.

In August 2010, the U.S. Department of Justice, at the request of the EPA, brought a civil suit in the U.S. District Court for the Eastern District of Michigan against DTE Energy and DTE Electric, related to the June 2010 NOV/FOV and the outage work performed at Unit 2 of the Monroe Power Plant. In August 2011, the U.S. District Court judge granted DTE Energy's motion for summary judgment in the civil case, dismissing the case and entering judgment in favor of DTE Energy and DTE Electric. In October 2011, the EPA filed a Notice of Appeal to the Court of Appeals for the Sixth Circuit. In March 2013, the Court of Appeals remanded the case to the U.S. District Court for review of the procedural component of the New Source Review notification requirements. In September 2013, the EPA filed a motion seeking leave to amend their complaint regarding the June 2010 NOV/FOV adding additional claims related to outage work performed at the Trenton Channel and Belle River Power Plants as well as additional claims related to work performed at the Monroe Power Plant. In March 2014, the U.S. District Court judge again granted DTE Energy's motion for summary judgment dismissing the civil case related to Monroe Unit 2. In April 2014, the U.S. District Court judge granted motions filed by the EPA and the Sierra Club to amend their New Source Review complaint adding additional claims for Monroe Units 1, 2, and 3, Belle River Units 1 and 2, and Trenton Channel Unit 9. In October 2014, the EPA and the U.S. Department of Justice filed a notice of appeal of the U.S. District Court judge's dismissal of the Monroe Unit 2 case. The amended New Source Review claims were all stayed pending resolution of the appeal by the Court of Appeals for the Sixth Circuit. On January 10, 2017, a divided panel of the Court reversed the decision of the U.S. District Court. On May 8, 2017, DTE Energy and DTE Electric filed a motion to stay the mandate pending filing of a petition for writ of certiorari with the U.S. Supreme Court. The Sixth Circuit granted the motion on May 16, 2017, staying the claims in the U.S. District Court until the U.S. Supreme Court disposes of the case. DTE Electric and DTE Energy filed a petition for writ of certiorari on July 31, 2017. On December 11, 2017, the U.S. Supreme Court denied certiorari. As a result of the Supreme Court electing not to review the matter, the case was sent back to the U.S. District Court for further proceedings. The Registrants are in discussion with the EPA regarding this matter.

The Registrants believe that the plants and generating units identified by the EPA and the Sierra Club have complied with all applicable federal environmental regulations. Depending upon the outcome of the litigation and further discussions with the EPA regarding the two NOVs/FOVs, DTE Electric could be required to install additional pollution control equipment at some or all of the power plants in question, implement early retirement of facilities where control equipment is not economical, engage in supplemental environmental programs, and/or pay fines. The Registrants cannot predict the financial impact or outcome of this matter, or the timing of its resolution.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

The EPA has implemented regulatory actions under the Clean Air Act to address emissions of GHGs from the utility sector and other sectors of the economy. Among these actions, the EPA finalized performance standards for emissions of carbon dioxide from new and existing EGUs. The carbon standards for new sources are not expected to have a material impact on DTE Electric, since DTE Electric has no plans to build new coal-fired generation and any potential new gas generation will be able to comply with the standards. In February 2016, the U.S. Supreme Court granted petitioners' requests for a stay of the carbon rules for existing EGUs (also known as the EPA Clean Power Plan) pending final review by the courts. The Clean Power Plan has no legal effect while the stay is in place. On March 28, 2017, a presidential executive order was issued on "Promoting Energy Independence and Economic Growth." The order instructs the EPA to review, and if appropriate, suspend, revise or rescind the Clean Power Plan rule. Additionally, federal agencies have been directed to conduct a review of all existing regulations that potentially burden the development and use of domestically produced energy resources. Following the issuance of this order, the federal government requested the U.S. Court of Appeals for the D.C. Circuit to hold all legal challenges in abeyance until the review of these regulations is completed. On October 10, 2017, the EPA proposed to rescind the Clean Power Plan and announced its intent to issue an ANPR seeking input as to whether it should replace the rule and, if so, what form it should take. It is not possible to determine the potential impact of the EPA's repeal and possible replacement of the Clean Power Plan on existing sources at this time.

Pending or future legislation or other regulatory actions could have a material impact on DTE Electric's operations and financial position and the rates charged to its customers. Impacts include expenditures for environmental equipment beyond what is currently planned, financing costs related to additional capital expenditures, the purchase of emission credits from market sources, higher costs of purchased power, and the retirement of facilities where control equipment is not economical. DTE Electric would seek to recover these incremental costs through increased rates charged to its utility customers, as authorized by the MPSC.

To comply with air pollution requirements, DTE Electric spent approximately $2.4 billion through 2017. DTE Electric does not anticipate additional capital expenditures through 2024.

Water — In response to an EPA regulation, DTE Electric was required to examine alternatives for reducing the environmental impacts of the cooling water intake structures at several of its facilities. Based on the results of completed studies and expected future studies, DTE Electric may be required to install technologies to reduce the impacts of the water intake structures. A final rule became effective in October 2015. The final rule requires studies to be completed and submitted as part of the National Pollutant Discharge Elimination System (NPDES) permit application process to determine the type of technology needed to reduce impacts to fish. DTE Electric has initiated the process of completing the required studies. Final compliance for the installation of any required technology will be determined by each state on a case by case, site specific basis. DTE Electric is currently evaluating the compliance options and working with the State of Michigan on evaluating whether any controls are needed. These evaluations/studies may require modifications to some existing intake structures. It is not possible to quantify the impact of this rulemaking at this time.

Contaminated and Other Sites — Prior to the construction of major interstate natural gas pipelines, gas for heating and other uses was manufactured locally from processes involving coal, coke, or oil. The facilities, which produced gas, have been designated as MGP sites. DTE Electric conducted remedial investigations at contaminated sites, including three former MGP sites. The investigations have revealed contamination related to the by-products of gas manufacturing at each MGP site. In addition to the MGP sites, DTE Electric is also in the process of cleaning up other contaminated sites, including the area surrounding an ash landfill, electrical distribution substations, electric generating power plants, and underground and aboveground storage tank locations. The findings of these investigations indicated that the estimated cost to remediate these sites is expected to be incurred over the next several years. At December 31, 2017 and 2016, DTE Electric had $6 million and $8 million accrued for remediation, respectively. Any change in assumptions, such as remediation techniques, nature and extent of contamination, and regulatory requirements, could impact the estimate of remedial action costs for the sites and affect DTE Electric’s financial position and cash flows. DTE Electric believes the likelihood of a material change to the accrued amount is remote based on current knowledge of the conditions at each site.

Coal Combustion Residuals and Effluent Limitations Guidelines — A final EPA rule for the disposal of coal combustion residuals, commonly known as coal ash, became effective in October 2015, and was revised in October 2016. In September 2017, the EPA indicated that it intends to reconsider certain provisions of the CCR Rule, but the nature and timing of such a reconsideration is unknown. DTE Electric owns and operates three permitted engineered coal ash storage facilities to dispose of coal ash from coal-fired power plants and operates a number of smaller impoundments at its power plants. CCR obligations vary based on plant life, but include the installation of monitoring wells, compliance with groundwater standards, and the closure of landfills and basins at the end of the useful life of the associated power plant or as a basin becomes inactive.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

In November 2015, the EPA finalized the ELG Rule for the steam electric power generating industry which may require additional controls to be installed between 2018 and 2023. Compliance schedules for individual facilities and individual waste streams are determined through issuance of new wastewater permits by the State of Michigan. The State of Michigan has issued a National Pollutant Discharge Elimination System permit for the Belle River Power Plant establishing a compliance deadline of December 31, 2021. No new permits have been issued for other facilities, consequently no compliance timelines have been established. Under the current rule, certain ELG requirements would be required to be performed in conjunction with the CCR. Over the next six years, to comply with the ELG requirements of the November 2015 rules and for the CRR requirements, costs associated with the building of new facilities or installation of controls are estimated to be approximately $295 million.

On April 12, 2017, the EPA granted a petition for reconsideration of the ELG Rule. The EPA also signed an administrative stay of the ELG Rule’s compliance deadlines for fly ash transport water, bottom ash transport water, and flue gas desulfurization (FGD) wastewater, among others. On June 6, 2017, the EPA published in the Federal Register a proposed rule to postpone certain applicable deadlines within the ELG rule. The final rule was published on September 18, 2017, which extended the earliest compliance deadlines for the FGD wastewater and bottom ash transport until November 1, 2020 in order for the EPA to propose and finalize a new ruling. The ELG compliance requirements, final deadlines, and compliance costs will not be known until the EPA completes its reconsideration of the ELG Rule.

DTE Gas

Contaminated and Other Sites — DTE Gas owns or previously owned, 14 former MGP sites. Investigations have revealed contamination related to the by-products of gas manufacturing at each site. Cleanup of six of the MGP sites is complete and the sites are closed. DTE Gas has also completed partial closure of six additional sites. Cleanup activities associated with the remaining sites will continue over the next several years. The MPSC has established a cost deferral and rate recovery mechanism for investigation and remediation costs incurred at former MGP sites. In addition to the MGP sites, DTE Gas is also in the process of cleaning up other contaminated sites, including gate stations, gas pipeline releases, and underground storage tank locations. As of December 31, 2017 and 2016, DTE Gas had $41 million and $43 million accrued for remediation, respectively. Any change in assumptions, such as remediation techniques, nature and extent of contamination, and regulatory requirements, could impact the estimate of remedial action costs for the sites and affect DTE Gas' financial position and cash flows. DTE Gas anticipates the cost amortization methodology approved by the MPSC, which allows for amortization of the MGP costs over a ten-year period beginning with the year subsequent to the year the MGP costs were incurred, will prevent environmental costs from having a material adverse impact on DTE Gas' results of operations.

Non-utility

DTE Energy's non-utility businesses are subject to a number of environmental laws and regulations dealing with the protection of the environment from various pollutants.

Other

In 2010, the EPA finalized a new one-hour SO2 ambient air quality standard that requires states to submit plans and associated timelines for non-attainment areas that demonstrate attainment with the new SO2 standard in phases. Phase 1 addresses non-attainment areas designated based on ambient monitoring data. Phase 2 addresses non-attainment areas with large sources of SO2 and modeled concentrations exceeding the National Ambient Air Quality Standards for SO2. Phase 3 addresses smaller sources of SO2 with modeled or monitored exceedances of the new SO2 standard.

Michigan's Phase 1 non-attainment area includes DTE Energy facilities in southwest Detroit and areas of Wayne County. Modeling runs by the MDEQ suggest that emission reductions may be required by significant sources of SO2 emissions in these areas, including DTE Electric power plants and DTE Energy's Michigan coke battery facility. As part of the state implementation plan process, DTE Energy has worked with the MDEQ to develop air permits reflecting significant SO2 emission reductions that, in combination with other non-DTE Energy sources' emission reduction strategies, will help the state attain the standard and sustain its attainment. Since several non-DTE Energy sources are also part of the proposed compliance plan, DTE Energy is unable to determine the full impact of the final required emissions reductions at this time.

Michigan's Phase 2 non-attainment area includes DTE Electric facilities in St. Clair County. State implementation plans (SIPs) for Phase 2 areas describing the control strategy and timeline for demonstrating compliance with the new SO2 standard are due to the EPA by April 2018. DTE Energy is currently working with the MDEQ to develop the required SIP. DTE Energy is unable to determine the full impact of the SIP strategy, as it is currently under development.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Synthetic Fuel Guarantees

DTE Energy discontinued the operations of its synthetic fuel production facilities throughout the United States as of December 31, 2007. DTE Energy provided certain guarantees and indemnities in conjunction with the sales of interests in its synfuel facilities. The guarantees cover potential commercial, environmental, oil price, and tax-related obligations that will survive until 90 days after expiration of all applicable statutes of limitations. DTE Energy estimates that its maximum potential liability under these guarantees at December 31, 2017 was approximately $620 million. Payment under these guarantees is considered remote.

REF Guarantees

DTE Energy has provided certain guarantees and indemnities in conjunction with the sales of interests in or lease of its REF facilities. The guarantees cover potential commercial, environmental, and tax-related obligations that will survive until 90 days after expiration of all applicable statutes of limitations. DTE Energy estimates that its maximum potential liability under these guarantees at December 31, 2017 was approximately $386 million. Payment under these guarantees is considered remote.

NEXUS Guarantees

NEXUS entered into certain 15-year capacity lease agreements for the transportation of natural gas with DTE Gas and Texas Eastern Transmission, LP, an unrelated third party. Pursuant to the terms of those agreements, in December 2016, DTE Energy executed separate guarantee agreements with DTE Gas and Texas Eastern Transmission, LP, with maximum potential payments totaling $80 million and $10 million at December 31, 2017, respectively; each representing 50% of all payment obligations due and payable by NEXUS. Should NEXUS fail to perform under the terms of those agreements, DTE Energy is required to perform on its behalf. Each guarantee terminates at the earlier of (i) such time as all of the guaranteed obligations have been fully performed, or (ii) two months following the end of the primary term of the capacity lease agreements. Subsequent to the NEXUS in-service date, the amount of each guarantee decreases annually as payments are made by NEXUS to each of the aforementioned counterparties. Payments under these guarantees are considered remote.

Other Guarantees

In certain limited circumstances, the Registrants enter into contractual guarantees. The Registrants may guarantee another entity’s obligation in the event it fails to perform and may provide guarantees in certain indemnification agreements. Finally, the Registrants may provide indirect guarantees for the indebtedness of others. DTE Energy’s guarantees are not individually material with maximum potential payments totaling $55 million at December 31, 2017. Payment under these guarantees is considered remote.

DTE Energy is periodically required to obtain performance surety bonds in support of obligations to various governmental entities and other companies in connection with its operations. As of December 31, 2017, DTE Energy had approximately $58 million of performance bonds outstanding. In the event that such bonds are called for nonperformance, DTE Energy would be obligated to reimburse the issuer of the performance bond. DTE Energy is released from the performance bonds as the contractual performance is completed and does not believe that a material amount of any currently outstanding performance bonds will be called.

Labor Contracts

There are several bargaining units for DTE Energy subsidiaries' approximate 5,000 represented employees, including DTE Electric's approximate 2,700 represented employees. The majority of the represented employees are under contracts that expire in 2020 and 2021.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Purchase Commitments

As of December 31, 2017, the Registrants were party to numerous long-term purchase commitments relating to a variety of goods and services required for their businesses. These agreements primarily consist of fuel supply commitments and renewable energy contracts for the Registrants, as well as energy trading contracts for DTE Energy. The Registrants estimate the following commitments from 2018 through 2051 for DTE Energy, and 2018 through 2033 for DTE Electric, as detailed in the following table:



	DTE Energy		DTE Electric
	(In millions)
2018	$	2,731	$	930
2019	1,045		320
2020	638		192
2021	474		149
2022	371		88
2023 and thereafter	2,277		820
	$	7,536	$	2,499

Utility capital expenditures, expenditures for non-utility businesses, and contributions to equity method investees will be approximately $3.6 billion and $1.9 billion in 2018 for DTE Energy and DTE Electric, respectively. The Registrants have made certain commitments in connection with the estimated 2018 annual capital expenditures and contributions to equity method investees.

Other Contingencies

The Registrants are involved in certain other legal, regulatory, administrative, and environmental proceedings before various courts, arbitration panels, and governmental agencies concerning claims arising in the ordinary course of business. These proceedings include certain contract disputes, additional environmental reviews and investigations, audits, inquiries from various regulators, and pending judicial matters. The Registrants cannot predict the final disposition of such proceedings. The Registrants regularly review legal matters and record provisions for claims that they can estimate and are considered probable of loss. The resolution of these pending proceedings is not expected to have a material effect on the Registrants' Consolidated Financial Statements in the periods they are resolved.

For a discussion of contingencies related to regulatory matters and derivatives, see Notes 9 and 13 to the Consolidated Financial Statements, "Regulatory Matters" and "Financial and Other Derivative Instruments," respectively.

NOTE 19 — NUCLEAR OPERATIONS

Property Insurance

DTE Electric maintains property insurance policies specifically for the Fermi 2 plant. These policies cover such items as replacement power and property damage. NEIL is the primary supplier of the insurance policies.

DTE Electric 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.

DTE Electric has $1.5 billion in primary coverage and $1.25 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. The total limit for property damage for non-nuclear events is $2 billion and an aggregate of $328 million of coverage for extra expenses over a two-year period.

On January 13, 2015, the Terrorism Risk Insurance Program Reauthorization Act of 2015 was signed, extending TRIA through December 31, 2020. 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.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Under NEIL policies, DTE Electric could be liable for maximum assessments of up to approximately $47 million per event if the loss associated with any one event at any nuclear plant should exceed the accumulated funds available to NEIL.

Public Liability Insurance

As required by federal law, DTE Electric maintains $450 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 $127 million could be levied against each licensed nuclear facility, but not more than $19 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, DTE Electric has a contract with the DOE for the future storage and disposal of spent nuclear fuel from Fermi 2 that required DTE Electric to pay the DOE a fee of 1 mill per kWh of Fermi 2 electricity generated and sold. The fee was a component of nuclear fuel expense. The 1 mill per kWh DOE fee was reduced to zero effective May 16, 2014.

The DOE's Yucca Mountain Nuclear Waste Repository program for the acceptance and disposal of spent nuclear fuel was terminated in 2011. DTE Electric 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. In July 2012, DTE Electric executed a settlement agreement with the federal government for costs associated with the DOE's delay in acceptance of spent nuclear fuel from Fermi 2 for permanent storage. The settlement agreement, including extensions, provides for a claims process and payment of delay-related costs experienced by DTE Electric through 2019. DTE Electric's claims are being settled and paid on a timely basis. The settlement proceeds reduce the cost of the dry cask storage facility assets and provide reimbursement for related operating expenses.

DTE Electric currently employs a spent nuclear fuel storage strategy utilizing a fuel pool and a dry cask storage facility. The spent nuclear fuel storage strategy is expected to provide sufficient spent fuel storage capability for the life of the plant as defined by the original operating license.

The federal government continues to maintain its legal obligation to accept spent nuclear fuel from Fermi 2 for permanent storage. Issues relating to long-term waste disposal policy and to the disposition of funds contributed by DTE Electric ratepayers to the federal waste fund await future governmental action.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

NOTE 20 — RETIREMENT BENEFITS AND TRUSTEED ASSETS

DTE Energy's subsidiary, DTE Energy Corporate Services, LLC (LLC), sponsors defined benefit pension plans and other postretirement plans covering substantially all employees of the Registrants.

The table below represents the pension and other postretirement benefit plans which employees of each Registrant participated at December 31, 2017:



	Registrants
	DTE Energy	DTE Electric
Qualified Pension Plans
DTE Energy Company Retirement Plan	X	X
DTE Gas Company Retirement Plan for Employees Covered by Collective Bargaining Agreements	X
Shenango Inc. Pension Plan	X
Nonqualified Pension Plans
DTE Energy Company Supplemental Retirement Plan	X	X
DTE Energy Company Executive Supplemental Retirement Plan(a)	X	X
DTE Energy Company Supplemental Severance Benefit Plan	X
Other Postretirement Benefit Plans
The DTE Energy Company Comprehensive Non-Health Welfare Plan	X	X
The DTE Energy Company Comprehensive Retiree Group Health Care Plan	X	X
DTE Supplemental Retiree Benefit Plan	X	X
DTE Energy Company Retiree Reimbursement Arrangement Plan	X	X


(a)	Sponsored by the DTE Energy subsidiary, DTE Energy Holding Company.

DTE Electric participates in various plans that provide pension and other postretirement benefits for DTE Energy and its affiliates. The plans are sponsored by the LLC. DTE Electric accounts for its participation in DTE Energy's qualified and nonqualified pension plans by applying multiemployer accounting. DTE Electric accounts for its participation in other postretirement benefit plans by applying multiple-employer accounting. Within multiemployer and multiple-employer plans, participants pool plan assets for investment purposes and to reduce the cost of plan administration. The primary difference between plan types is assets contributed in multiemployer plans can be used to provide benefits for all participating employers, while assets contributed within a multiple-employer plan are restricted for use by the contributing employer. Plan participants of all plans are solely DTE Energy and affiliate employees.

Pension Plan Benefits

DTE Energy has qualified defined benefit retirement plans for eligible represented and non-represented employees. The plans are noncontributory and provide traditional retirement benefits based on the employee's 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. DTE Energy 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.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Net pension cost for DTE Energy includes the following components:



	2017			2016			2015
	(In millions)
Service cost	$	92		$	92		$	100
Interest cost	214			219			210
Expected return on plan assets	(311		)	(309		)	(296		)
Amortization of:
Net actuarial loss	176			164			205
Prior service cost	1			1			—
Other	—			—			2
Net pension cost	$	172		$	167		$	221



	2017			2016
	(In millions)
Other changes in plan assets and benefit obligations recognized in Regulatory assets and Other comprehensive income (loss)
Net actuarial loss	$	27		$	197
Amortization of net actuarial loss	(176		)	(164		)
Prior service cost (credit)	(11		)	7
Amortization of prior service cost	(1		)	(1		)
Total recognized in Regulatory assets and Other comprehensive income (loss)	$	(161	)	$	39
Total recognized in net periodic pension cost, Regulatory assets, and Other comprehensive income (loss)	$	11		$	206
Estimated amounts to be amortized from Regulatory assets and Accumulated other comprehensive income (loss) into net periodic benefit cost during next fiscal year
Net actuarial loss	$	178		$	172
Prior service cost	$	—		$	1

DTE Energy Company — DTE Electric Company

Combined 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 DTE Energy's Consolidated Statements of Financial Position at December 31:



	DTE Energy
	2017			2016
	(In millions)
Accumulated benefit obligation, end of year	$	5,149		$	4,753
Change in projected benefit obligation
Projected benefit obligation, beginning of year	$	5,171		$	4,971
Service cost	92			92
Interest cost	214			219
Plan amendments	(11		)	7
Actuarial loss	391			141
Benefits paid	(281		)	(259		)
Projected benefit obligation, end of year	$	5,576		$	5,171
Change in plan assets
Plan assets at fair value, beginning of year	$	4,012		$	3,832
Actual return on plan assets	674			253
Company contributions	231			186
Benefits paid	(281		)	(259		)
Plan assets at fair value, end of year	$	4,636		$	4,012
Funded status	$	(940	)	$	(1,159	)
Amount recorded as:
Current liabilities	$	(16	)	$	(7	)
Noncurrent liabilities	(924		)	(1,152		)
	$	(940	)	$	(1,159	)
Amounts recognized in Accumulated other comprehensive income (loss), pre-tax
Net actuarial loss	$	163		$	163
Prior service cost	6			8
	$	169		$	171
Amounts recognized in Regulatory assets(a)
Net actuarial loss	$	2,014		$	2,163
Prior service credit	(14		)	(4		)
	$	2,000		$	2,159


(a)	See Note 9 to the Consolidated Financial Statements, "Regulatory Matters."

The Registrants' policy is to fund pension costs by contributing amounts consistent with the provisions of the Pension Protection Act of 2006, and additional amounts when it deems appropriate. The following table provides cash contributions to the qualified pension plans as of December 31:



	2017		2016		2015
	(In millions)
DTE Energy	$	223	$	179	$	177
DTE Electric	185		145		145

At the discretion of management, and depending upon financial market conditions, DTE Energy anticipates making up to $200 million in contributions, including $175 million of DTE Electric contributions, to the qualified pension plans in 2018.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

DTE Energy's subsidiaries are responsible for their share of qualified and nonqualified pension benefit costs. DTE Electric's allocated portion of pension benefit costs included in capital expenditures and operating and maintenance expense were $136 million for the years ended December 31, 2017 and 2016, and $176 million for the year ended December 31, 2015. These amounts include recognized contractual termination benefit charges, curtailment gains, and settlement charges.

At December 31, 2017, the benefits related to DTE Energy's qualified and nonqualified pension plans expected to be paid in each of the next five years and in the aggregate for the five fiscal years thereafter are as follows:



	(In millions)
2018	$	299
2019	301
2020	316
2021	317
2022	323
2023-2027	1,692
Total	$	3,248

Assumptions used in determining the projected benefit obligation and net pension costs of DTE Energy are:



	2017	2016	2015
Projected benefit obligation
Discount rate	3.70%	4.25%	4.50%
Rate of compensation increase	4.98%	4.65%	4.65%
Net pension costs
Discount rate	4.25%	4.50%	4.12%
Rate of compensation increase	4.65%	4.65%	4.65%
Expected long-term rate of return on plan assets	7.50%	7.75%	7.75%

DTE Energy 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. As a result of this process, the Registrants have long-term rate of return assumptions for the pension plans of 7.50% and other postretirement benefit plans of 7.75% for 2018. The Registrants believe these rates are a reasonable assumption for the long-term rate of return on plan assets for 2018 given the current investment strategy.

DTE Energy 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. 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 stocks, and large and small market capitalizations. Fixed income securities generally include market duration bonds of companies from diversified industries, mortgage-backed securities, non-U.S. securities, bank loans, and U.S. Treasuries. Pension assets include long duration U.S. government and diversified corporate bonds intended to partially mitigate liability volatility caused by changes in discount rates. Other assets, such as private markets 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/or 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.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Target allocations for DTE Energy's pension plan assets as of December 31, 2017 are listed below:



U.S. Large Capitalization (Cap) Equity Securities	18	%
U.S. Small Cap and Mid Cap Equity Securities	5
Non-U.S. Equity Securities	17
Fixed Income Securities	32
Hedge Funds and Similar Investments	20
Private Equity and Other	8
	100	%

The following tables provide the fair value measurement amounts for DTE Energy's pension plan assets at December 31, 2017 and 2016(a):



	December 31, 2017											December 31, 2016
	Level 1			Level 2			Other(b)		Total			Level 1			Level 2			Other(b)		Total
	(In millions)
DTE Energy asset category:
Short-term Investments(c)	$	—		$	114		$	—	$	114		$	—		$	22		$	—	$	22
Equity Securities
U.S. Large Cap(d)	821			5			—		826			875			5			—		880
U.S. Small Cap and Mid Cap(e)	229			5			—		234			229			3			—		232
Non-U.S.(f)	529			13			280		822			479			18			269		766
Fixed Income Securities(g)	1			1,453			—		1,454			1			1,037			52		1,090
Hedge Funds and Similar Investments(h)	265			—			593		858			231			—			578		809
Private Equity and Other(i)	—			—			328		328			—			—			213		213
Securities Lending(j)	(53		)	(13		)	—		(66		)	(53		)	(25		)	—		(78		)
Securities Lending Collateral(j)	53			13			—		66			53			25			—		78
DTE Energy Total	$	1,845		$	1,590		$	1,201	$	4,636		$	1,815		$	1,085		$	1,112	$	4,012


(a)	For a description of levels within the fair value hierarchy, see Note 12 to the Consolidated Financial Statements, "Fair Value."


(b)	Amounts represent assets valued at NAV as a practical expedient for fair value.


(c)	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.


(d)	This category represents portfolios of large capitalization domestic equities. Investments in this category are exchange-traded securities whereby unadjusted quote prices can be obtained.


(e)	This category represents portfolios of small and medium capitalization domestic equities. Investments in this category are exchange-traded securities whereby unadjusted quote prices can be obtained.


(f)	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 NAV assets.


(g)	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 NAV assets.


(h)	This category utilizes a diversified group of strategies that attempt to capture financial market inefficiencies and includes publicly traded mutual funds, commingled funds and limited partnership funds. Pricing for mutual funds in this category is obtained from quoted prices in actively traded markets. Commingled funds or limited partnership funds are classified as NAV assets.


(i)	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. All pricing for investments in this category are classified as NAV assets.


(j)	DTE Energy has a securities lending program with a third-party agent. The program allows the agent to lend certain securities from DTE Energy's pension trusts to selected entities against receipt of collateral (in the form of cash) as provided for and determined in accordance with their securities lending agency agreements.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

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 hold exchange-traded equity or debt securities and are valued based on stated NAVs. 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 trustee monitors prices supplied by pricing services and may use a supplemental price source or change the primary price source of a given security if the trustee challenges an assigned price and determines that another price source is considered preferable. DTE Energy has obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices. Additionally, DTE Energy selectively corroborates the fair value of securities by comparison of market-based price sources.

There were no significant transfers between Level 2 and Level 1 in the years ended December 31, 2017 and 2016 for DTE Energy.



U.S. Large Cap Equity Securities	16	%
U.S. Small Cap and Mid Cap Equity Securities	4
Non-U.S. Equity Securities	20
Fixed Income Securities	26
Hedge Funds and Similar Investments	20
Private Equity and Other	14
	100	%



	Number of Options		Weighted Average Exercise Price		Aggregate Intrinsic Value (In millions)
Options outstanding and exercisable at December 31, 2016	171,517		$	41.59
Exercised	(65,523	)	$	39.37
Options outstanding and exercisable at December 31, 2017	105,994		$	42.95	$	7



Range of Exercise Prices					Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
$	27.00	—	$	38.00	6,194	$	27.70	1.16
$	38.01	—	$	42.00	2,300	$	41.79	0.15
$	42.01	—	$	45.00	97,500	$	43.95	2.15
					105,994	$	42.95	2.05



	Restricted Stock		Weighted Average Grant Date Fair Value
Balance at December 31, 2016	385,285		$	80.10
Grants	136,825		$	99.53
Forfeitures	(11,745	)	$	90.24
Vested and issued	(144,601	)	$	72.08
Balance at December 31, 2017	365,764		$	90.26



	Performance Shares		Weighted Average Grant Date Fair Value
Balance at December 31, 2016	1,392,512		$	79.97
Grants	494,688		$	98.47
Forfeitures	(49,547	)	$	87.12
Payouts	(513,252	)	$	70.60
Balance at December 31, 2017	1,324,401		$	90.31



	Unrecognized Compensation Cost		Weighted Average to be Recognized
	(In millions)		(In years)
Stock awards	$	13	1.12
Performance shares	51		1.11
	$	64	1.11



	Electric		Gas		Gas Storage and Pipelines		Power and Industrial Projects		Energy Trading		Corporate and Other		Reclassifications and Eliminations		Total
	(In millions)
2017
Operating Revenues — Utility operations	$	5,102	1,388		—		—		—		—		(56	)	$	6,434
Operating Revenues — Non-utility operations	$	—	—		453		2,089		4,277		2		(648	)	$	6,173
Depreciation and amortization	$	753	123		76		72		5		1		—		$	1,030
Interest expense	$	274	65		77		29		5		192		(106	)	$	536
Interest income	$	—	(7	)	(14	)	(7	)	(2	)	(88	)	106		$	(12	)
Equity in earnings of equity method investees	$	1	2		90		9		—		—		—		$	102
Income Tax Expense (Benefit)(a)	$	321	78		(30	)	(195	)	49		(48	)	—		$	175
Net Income (Loss) Attributable to DTE Energy Company	$	606	146		275		138		72		(103	)	—		$	1,134
Investment in equity method investees	$	7	11		879		150		—		26		—		$	1,073
Capital expenditures and acquisitions	$	1,574	463		137		56		7		13		—		$	2,250
Goodwill	$	1,208	743		299		26		17		—		—		$	2,293
Total Assets	$	21,163	5,072		2,594		593		725		5,324		(1,704	)	$	33,767



	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Year
	(In millions, except per share amounts)
2017
Operating Revenues	$	3,236	$	2,855	$	3,245	$	3,271	$	12,607
Operating Income	$	569	$	303	$	418	$	356	$	1,646
Net Income Attributable to DTE Energy Company(a)	$	400	$	177	$	270	$	287	$	1,134
Basic Earnings per Share	$	2.23	$	0.99	$	1.51	$	1.60	$	6.32
Diluted Earnings per Share	$	2.23	$	0.99	$	1.51	$	1.60	$	6.32
2016
Operating Revenues	$	2,566	$	2,262	$	2,928	$	2,874	$	10,630
Operating Income	$	381	$	256	$	507	$	301	$	1,445
Net Income Attributable to DTE Energy Company	$	247	$	152	$	338	$	131	$	868
Basic Earnings per Share	$	1.38	$	0.84	$	1.88	$	0.73	$	4.84
Diluted Earnings per Share	$	1.37	$	0.84	$	1.88	$	0.73	$	4.83