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 — Revenue	85
Note 5 — Goodwill	89
Note 6 — Property, Plant, and Equipment	89
Note 7 — Jointly-Owned Utility Plant	91
Note 8 — Asset Retirement Obligations	92
Note 9 — Regulatory Matters	93
Note 10 — Income Taxes	98
Note 11 — Earnings Per Share	102
Note 12 — Fair Value	102
Note 13 — Financial and Other Derivative Instruments	110
Note 14 — Long-Term Debt	115
Note 15 — Preferred and Preference Securities	118
Note 16 — Short-Term Credit Arrangements and Borrowings	118
Note 17 — Capital and Operating Leases	119
Note 18 — Commitments and Contingencies	121
Note 19 — Nuclear Operations	126
Note 20 — Retirement Benefits and Trusteed Assets	127
Note 21 — Stock-Based Compensation	138
Note 22 — Segment and Related Information	141
Note 23 — Related Party Transactions	143
Note 24 — Supplementary Quarterly Financial Information (Unaudited)	145
Financial Statement Schedule
Schedule II — Valuation and Qualifying Accounts	159

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, 2018, which is the end of the period covered by this report. Based on this evaluation, DTE Energy's CEO and CFO have concluded that such disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by DTE Energy in reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms and (ii) is accumulated and communicated to DTE Energy's management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Due to the inherent limitations in the effectiveness of any disclosure controls and procedures, management cannot provide absolute assurance that the objectives of its disclosure controls and procedures will be attained.

(b) 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, 2018. 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, 2018, 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, 2018 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, 2018 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 (the “Company”) as of December 31, 2018 and 2017 , 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, 2018, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2018 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, 2018, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 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, 2018, 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 7, 2019

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

DTE Energy Company

Consolidated Statements of Operations



	Year Ended December 31,
	2018			2017			2016
	(In millions, except per share amounts)
Operating Revenues
Utility operations	$	6,670		$	6,434		$	6,497
Non-utility operations	7,542			6,173			4,133
	14,212			12,607			10,630

Operating Expenses
Fuel, purchased power, and gas — utility	1,981			1,881			1,968
Fuel, purchased power, and gas — non-utility	6,630			5,283			3,562
Operation and maintenance	2,451			2,270			2,261
Depreciation and amortization	1,124			1,030			976
Taxes other than income	405			391			370
Asset (gains) losses and impairments, net	27			41			7
	12,618			10,896			9,144
Operating Income	1,594			1,711			1,486

Other (Income) and Deductions
Interest expense	559			536			472
Interest income	(12		)	(12		)	(20		)
Non-operating retirement benefits, net	37			65			41
Other income	(333		)	(268		)	(207		)
Other expenses	127			103			95
	378			424			381
Income Before Income Taxes	1,216			1,287			1,105

Income Tax Expense	98			175			271

Net Income	1,118			1,112			834

Less: Net Loss Attributable to Noncontrolling Interests	(2		)	(22		)	(34		)

Net Income Attributable to DTE Energy Company	$	1,120		$	1,134		$	868

Basic Earnings per Common Share
Net Income Attributable to DTE Energy Company	$	6.18		$	6.32		$	4.84

Diluted Earnings per Common Share
Net Income Attributable to DTE Energy Company	$	6.17		$	6.32		$	4.83

Weighted Average Common Shares Outstanding
Basic	181			179			179
Diluted	181			179			179

See Combined Notes to Consolidated Financial Statements

DTE Energy Company

Consolidated Statements of Comprehensive Income



	Year Ended December 31,
	2018			2017			2016
	(In millions)
Net Income	$	1,118		$	1,112		$	834

Other comprehensive income (loss), net of tax:
Benefit obligations, net of taxes of $2, $5, and $6, respectively	8			10			11
Net unrealized gains (losses) on derivatives during the period, net of taxes of $— for all periods	(1		)	1			—
Net unrealized gains on investments during the period, net of taxes of $—, $1, and $1, respectively	—			1			1
Foreign currency translation	(2		)	1			—
Other comprehensive income	5			13			12

Comprehensive income	1,123			1,125			846
Less: Comprehensive loss attributable to noncontrolling interests	(2		)	(22		)	(34		)
Comprehensive Income Attributable to DTE Energy Company	$	1,125		$	1,147		$	880

See Combined Notes to Consolidated Financial Statements

DTE Energy Company

Consolidated Statements of Financial Position



	December 31,
	2018			2017
	(In millions)
ASSETS
Current Assets
Cash and cash equivalents	$	71		$	66
Restricted cash	5			23
Accounts receivable (less allowance for doubtful accounts of $91 and $49, respectively)
Customer	1,789			1,758
Other	108			98
Inventories
Fuel and gas	406			399
Materials and supplies	405			380
Derivative assets	102			103
Regulatory assets	153			55
Other	221			199
	3,260			3,081
Investments
Nuclear decommissioning trust funds	1,378			1,492
Investments in equity method investees	1,771			1,073
Other	219			232
	3,368			2,797
Property
Property, plant, and equipment	31,810			31,424
Accumulated depreciation and amortization	(10,160		)	(10,703		)
	21,650			20,721
Other Assets
Goodwill	2,293			2,293
Regulatory assets	4,568			3,723
Intangible assets	849			867
Notes receivable	64			73
Derivative assets	31			51
Prepaid postretirement costs	45			—
Other	160			161
	8,010			7,168
Total Assets	$	36,288		$	33,767

See Combined Notes to Consolidated Financial Statements

DTE Energy Company

Consolidated Statements of Financial Position — (Continued)



	December 31,
	2018			2017
	(In millions, except shares)
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable	$	1,329		$	1,171
Accrued interest	127			111
Dividends payable	172			158
Short-term borrowings	609			621
Current portion long-term debt, including capital leases	1,499			109
Derivative liabilities	67			99
Regulatory liabilities	126			18
Other	509			525
	4,438			2,812
Long-Term Debt (net of current portion)
Mortgage bonds, notes, and other	10,982			11,039
Junior subordinated debentures	1,145			1,145
Capital lease obligations	7			1
	12,134			12,185
Other Liabilities
Deferred income taxes	1,975			1,888
Regulatory liabilities	2,922			2,875
Asset retirement obligations	2,469			2,320
Unamortized investment tax credit	138			122
Derivative liabilities	89			47
Accrued pension liability	837			924
Accrued postretirement liability	—			61
Nuclear decommissioning	205			220
Other	364			323
	8,999			8,780
Commitments and Contingencies (Notes 9 and 18)

Equity
Common stock (No par value, 400,000,000 shares authorized, and 181,925,281 and 179,386,967 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively)	4,245			3,989
Retained earnings	6,112			5,643
Accumulated other comprehensive loss	(120		)	(120		)
Total DTE Energy Company Equity	10,237			9,512
Noncontrolling interests	480			478
Total Equity	10,717			9,990
Total Liabilities and Equity	$	36,288		$	33,767

See Combined Notes to Consolidated Financial Statements

DTE Energy Company

Consolidated Statements of Cash Flows



	Year Ended December 31,
	2018			2017			2016
Operating Activities	(In millions)
Net Income	$	1,118		$	1,112		$	834
Adjustments to reconcile Net Income to Net cash from operating activities:
Depreciation and amortization	1,124			1,030			976
Nuclear fuel amortization	45			53			58
Allowance for equity funds used during construction	(28		)	(23		)	(21		)
Deferred income taxes	114			196			265
Equity earnings of equity method investees	(132		)	(102		)	(68		)
Dividends from equity method investees	74			74			68
Asset (gains) losses and impairments, net	29			38			8
Changes in assets and liabilities:
Accounts receivable, net	(44		)	(252		)	(226		)
Inventories	(32		)	(4		)	37
Prepaid postretirement benefit costs	(45		)	—			—
Accounts payable	146			129			145
Accrued pension liability	(87		)	(228		)	19
Accrued postretirement liability	(61		)	25			(192		)
Derivative assets and liabilities	31			(94		)	126
Regulatory assets and liabilities	15			217			(40		)
Other current and noncurrent assets and liabilities	413			(54		)	95
Net cash from operating activities	2,680			2,117			2,084
Investing Activities
Plant and equipment expenditures — utility	(2,439		)	(2,037		)	(1,898		)
Plant and equipment expenditures — non-utility	(274		)	(213		)	(147		)
Acquisition, net of cash acquired	—			—			(1,147		)
Proceeds from sale of nuclear decommissioning trust fund assets	1,203			1,240			1,457
Investment in nuclear decommissioning trust funds	(1,188		)	(1,226		)	(1,463		)
Distributions from equity method investees	9			10			11
Contributions to equity method investees	(637		)	(299		)	(239		)
Other	(21		)	(37		)	36
Net cash used for investing activities	(3,347		)	(2,562		)	(3,390		)
Financing Activities
Issuance of long-term debt, net of issuance costs	1,432			1,398			2,035
Redemption of long-term debt	(105		)	(385		)	(807		)
Repurchase of long-term debt	—			—			(59		)
Issuance of equity units, net of issuance costs	—			—			654
Short-term borrowings, net	(12		)	122			—
Repurchase of common stock	—			(51		)	(33		)
Dividends on common stock	(620		)	(592		)	(531		)
Contributions from noncontrolling interests, principally REF entities	53			50			114
Distributions to noncontrolling interests	(48		)	(40		)	(5		)
Other	(46		)	(81		)	(9		)
Net cash from financing activities	654			421			1,359
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash	(13		)	(24		)	53
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period	89			113			60
Cash, Cash Equivalents, and Restricted Cash at End of Period	$	76		$	89		$	113

Supplemental disclosure of cash information
Cash paid (received) for:
Interest, net of interest capitalized	$	572		$	495		$	448
Income taxes	$	(26	)	$	4		$	(1	)
Supplemental disclosure of non-cash investing and financing activities
Plant and equipment expenditures in accounts payable	$	307		$	295		$	312
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, 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 ($3.06 per Common Share)	—		—			(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
Other comprehensive income, net of tax	—		—			—				12			—			12
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 ($3.36 per Common Share)	—		—			(602		)		—			—			(602		)
Repurchase of common stock	(524	)	(51		)	—				—			—			(51		)
Other comprehensive income, net of tax	—		—			—				13			—			13
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
Implementation of ASU 2016-01	—		—			5				(5		)	—			—
Net Income (Loss)	—		—			1,120				—			(2		)	1,118
Dividends declared on common stock ($3.60 per Common Share)	—		—			(653		)		—			—			(653		)
Issuance of common stock	255		26			—				—			—			26
Contribution of common stock to pension plan	1,751		175			—				—			—			175
Other comprehensive income, net of tax	—		—			—				5			—			5
Stock-based compensation, net contributions from noncontrolling interests, and other	532		55			(3		)		—			4			56
Balance, December 31, 2018	181,925		$	4,245		$	6,112			$	(120	)	$	480		$	10,717

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, 2018, which is the end of the period covered by this report. Based on this evaluation, DTE Electric’s CEO and CFO have concluded that such disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by DTE Electric in reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms and (ii) is accumulated and communicated to DTE Electric’s management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Due to the inherent limitations in the effectiveness of any disclosure controls and procedures, management cannot provide absolute assurance that the objectives of its disclosure controls and procedures will be attained.

(b) 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, 2018. 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, 2018, 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, 2018 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 (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations, of comprehensive income, of changes in shareholder’s equity and of cash flows for each of the three years in the period ended December 31, 2018, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2018 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, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 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 7, 2019

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

DTE Electric Company

Consolidated Statements of Operations



	Year Ended December 31,
	2018			2017			2016
	(In millions)
Operating Revenues — Utility operations	$	5,298		$	5,102		$	5,225

Operating Expenses
Fuel and purchased power — utility	1,552			1,454			1,532
Operation and maintenance	1,470			1,428			1,455
Depreciation and amortization	836			753			750
Taxes other than income	307			302			284
Asset (gains) losses and impairments, net	(1		)	—			—
	4,164			3,937			4,021
Operating Income	1,134			1,165			1,204

Other (Income) and Deductions
Interest expense	283			274			264
Interest income	—			—			(8		)
Other income	(83		)	(77		)	(61		)
Other expenses	77			40			34
	277			237			229
Income Before Income Taxes	857			928			975

Income Tax Expense	193			327			353

Net Income	$	664		$	601		$	622

See Combined Notes to Consolidated Financial Statements

DTE Electric Company

Consolidated Statements of Comprehensive Income



	Year Ended December 31,
	2018		2017		2016
	(In millions)
Net Income	$	664	$	601	$	622
Other comprehensive income, net of tax:
Net unrealized gains on investments during the period, net of taxes of $—, $1, and $—, respectively	—		1		—
Other comprehensive income	—		1		—
Comprehensive Income	$	664	$	602	$	622

See Combined Notes to Consolidated Financial Statements

DTE Electric Company

Consolidated Statements of Financial Position



	December 31,
	2018			2017
	(In millions)
ASSETS
Current Assets
Cash and cash equivalents	$	18		$	15
Accounts receivable (less allowance for doubtful accounts of $53 and $31, respectively)
Customer	750			791
Affiliates	11			20
Other	54			37
Inventories
Fuel	171			190
Materials and supplies	279			275
Regulatory assets	148			50
Other	89			68
	1,520			1,446
Investments
Nuclear decommissioning trust funds	1,378			1,492
Other	34			36
	1,412			1,528
Property
Property, plant, and equipment	22,747			22,972
Accumulated depreciation and amortization	(7,310		)	(7,984		)
	15,437			14,988
Other Assets
Regulatory assets	3,829			3,005
Intangible assets	21			25
Prepaid postretirement costs — affiliates	189			113
Other	121			123
	4,160			3,266
Total Assets	$	22,529		$	21,228

See Combined Notes to Consolidated Financial Statements

DTE Electric Company

Consolidated Statements of Financial Position — (Continued)



	December 31,
	2018		2017
	(In millions, except shares)
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Accounts payable
Affiliates	$	71	$	52
Other	441		416
Accrued interest	74		72
Current portion long-term debt, including capital leases	4		5
Regulatory liabilities	98		17
Short-term borrowings
Affiliates	101		116
Other	149		238
Other	139		145
	1,077		1,061
Long-Term Debt (net of current portion)
Mortgage bonds, notes, and other	6,538		6,017
Capital lease obligations	7		1
	6,545		6,018
Other Liabilities
Deferred income taxes	2,246		2,088
Regulatory liabilities	2,171		2,137
Asset retirement obligations	2,271		2,125
Unamortized investment tax credit	137		120
Nuclear decommissioning	205		220
Accrued pension liability — affiliates	718		811
Accrued postretirement liability — affiliates	278		311
Other	88		72
	8,114		7,884
Commitments and Contingencies (Notes 9 and 18)

Shareholder's Equity
Common stock ($10 par value, 400,000,000 shares authorized, and 138,632,234 shares issued and outstanding for both periods)	4,631		4,306
Retained earnings	2,162		1,956
Accumulated other comprehensive income	—		3
Total Shareholder's Equity	6,793		6,265
Total Liabilities and Shareholder's Equity	$	22,529	$	21,228

See Combined Notes to Consolidated Financial Statements

DTE Electric Company

Consolidated Statements of Cash Flows



	Year Ended December 31,
	2018			2017			2016
Operating Activities	(In millions)
Net Income	$	664		$	601		$	622
Adjustments to reconcile Net Income to Net cash from operating activities:
Depreciation and amortization	836			753			750
Nuclear fuel amortization	45			53			58
Allowance for equity funds used during construction	(19		)	(18		)	(18		)
Deferred income taxes	189			345			342
Changes in assets and liabilities:
Accounts receivable, net	33			(80		)	(64		)
Inventories	15			31			26
Prepaid postretirement benefit costs — affiliates	(76		)	1			(90		)
Accounts payable	54			(2		)	59
Accrued pension liability — affiliates	(93		)	(197		)	32
Accrued postretirement liability — affiliates	(33		)	42			(38		)
Regulatory assets and liabilities	4			202			10
Other current and noncurrent assets and liabilities	101			(147		)	(34		)
Net cash from operating activities	1,720			1,584			1,655
Investing Activities
Plant and equipment expenditures	(1,989		)	(1,574		)	(1,503		)
Proceeds from sale of nuclear decommissioning trust fund assets	1,203			1,240			1,457
Investment in nuclear decommissioning trust funds	(1,188		)	(1,226		)	(1,463		)
Other	(15		)	18			36
Net cash used for investing activities	(1,989		)	(1,542		)	(1,473		)
Financing Activities
Issuance of long-term debt, net of issuance costs	519			435			355
Redemption of long-term debt	—			(300		)	(10		)
Repurchase of long-term debt	—			—			(59		)
Capital contribution by parent company	325			100			120
Short-term borrowings, net — affiliate	(15		)	(1		)	41
Short-term borrowings, net — other	(89		)	176			(210		)
Dividends on common stock	(461		)	(432		)	(420		)
Other	(7		)	(18		)	(1		)
Net cash from (used for) financing activities	272			(40		)	(184		)
Net Increase (Decrease) in Cash and Cash Equivalents	3			2			(2		)
Cash and Cash Equivalents at Beginning of Period	15			13			15
Cash and Cash Equivalents at End of Period	$	18		$	15		$	13

Supplemental disclosure of cash information
Cash paid (received) for:
Interest, net of interest capitalized	$	283		$	252		$	252
Income taxes	$	—		$	(16	)	$	6
Supplemental disclosure of non-cash investing and financing activities
Plant and equipment expenditures in accounts payable	$	181		$	191		$	232

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, 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		)
Other comprehensive income, 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
Implementation of ASU 2016-01	—	—		—			3			(3		)	—
Net Income	—	—		—			664			—			664
Dividends declared on common stock	—	—		—			(461		)	—			(461		)
Capital contribution by parent company	—	—		325			—			—			325
Balance, December 31, 2018	138,632	$	1,386	$	3,245		$	2,162		$	—		$	6,793

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	Revenue	DTE Energy and DTE Electric
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) services related to the gathering, transportation, and storage of natural gas; 2) power and industrial projects; and 3) energy marketing and trading operations.

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

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.

Due to the implementation of ASU 2017-07, amounts previously included in Operation and maintenance were reclassified to Non-operating retirement benefits, net on the Consolidated Statements of Operations. See Note 3 to the Consolidated Financial Statements, "New Accounting Pronouncements."

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 generally accounted for under the equity method.

DTE Energy owns a 55% interest in SGG, which owns and operates midstream natural gas assets. SGG has contracts through which certain construction risk is designed to pass-through to the customers, with DTE Energy retaining operational and customer default risk. SGG is a VIE with DTE Energy as the primary beneficiary.

The Registrants have variable interests in NEXUS, which include DTE Energy's 50% ownership interest and DTE Electric's transportation services contract. NEXUS is a joint venture which owns a 256-mile pipeline to transport Utica and Marcellus shale gas to Ohio, Michigan, and Ontario market centers. NEXUS is a VIE as it has insufficient equity at risk to finance its activities. The Registrants are not the primary beneficiaries, as the power to direct significant activities is shared between the owners of the equity interests. DTE Energy accounts for its ownership interest in NEXUS under the equity method.

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

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, 2018, the carrying amount of assets and liabilities in DTE Energy's Consolidated Statements of Financial Position that relate to its variable interests under long-term purchase and sale contracts are predominantly related to working capital accounts and generally represent the amounts owed by or to DTE Energy for the deliveries associated with the current billing cycle under the contracts. As of December 31, 2018, the carrying amount of assets and liabilities in DTE Electric's Consolidated Statements of Financial Position that relate to its variable interests under long-term purchase contracts are predominantly related to working capital accounts and generally represent the amounts owed by DTE Electric for the deliveries associated with the current billing cycle under the contracts. The Registrants have not provided any significant form of financial support associated with these long-term contracts. There is no significant potential exposure to loss as a result of DTE Energy's variable interests through these long-term purchase and sale contracts. In addition, there is no significant potential exposure to loss as a result of DTE Electric's variable interests through these long-term purchase contracts.

The maximum risk exposure for consolidated VIEs is reflected on the Registrants' Consolidated Statements of Financial Position and for DTE Energy, 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, 2018 and 2017. All assets and liabilities of a consolidated VIE are presented where it has been determined that a consolidated VIE has either (1) assets that can be used only to settle obligations of the VIE or (2) liabilities for which creditors do not have recourse to the general credit of the primary beneficiary. VIEs, in which DTE Energy holds a majority voting interest and is the primary beneficiary, that meet the definition of a business and whose assets can be used for purposes other than the settlement of the VIE's obligations have been excluded from the table below.

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



	December 31, 2018						December 31, 2017
	SGG(a)		Other		Total		SGG(a)		Other		Total
	(In millions)
ASSETS
Cash and cash equivalents	$	25	$	14	$	39	$	23	$	14	$	37
Restricted cash	—		5		5		—		8		8
Accounts receivable	9		37		46		11		42		53
Inventories	1		92		93		3		114		117
Property, plant, and equipment, net	395		46		441		400		75		475
Goodwill	25		—		25		25		—		25
Intangible assets	557		—		557		572		—		572
Other current and long-term assets	3		—		3		4		—		4
	$	1,015	$	194	$	1,209	$	1,038	$	253	$	1,291

LIABILITIES
Accounts payable and accrued current liabilities	$	3	$	31	$	34	$	26	$	47	$	73
Current portion long-term debt, including capital leases	—		—		—		—		4		4
Mortgage bonds, notes, and other	—		—		—		—		1		1
Other current and long-term liabilities	9		10		19		1		16		17
	$	12	$	41	$	53	$	27	$	68	$	95


(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,
	2018		2017
	(In millions)
Investments in equity method investees	$	1,425	$	811
Notes receivable	$	15	$	17
Future funding commitments	$	55	$	598

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, 2018 and 2017, 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 $59 million and $72 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	2018		2017		2018	2017	Description
	(In millions)
Significant Equity Method Investees
Gas Storage and Pipelines
NEXUS Pipeline	$	1,260	$	640	50%	50%	256-mile pipeline to transport Utica and Marcellus shale gas to Ohio, Michigan, and Ontario market centers
Vector Pipeline	123		115		40%	40%	348-mile pipeline connecting Chicago, Michigan, and Ontario market centers
Millennium Pipeline	202		124		26%	26%	269-mile pipeline serving markets in the Northeast
	1,585		879
Other Equity Method Investees
Other Segments	186		194
	$	1,771	$	1,073

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."

The following table presents summarized financial information of subsidiaries not consolidated and 50 percent or less owned by DTE Energy. The amounts included in the table below represents 100% of the results of continuing operations of such entities accounted for under the equity method of accounting.

Summarized balance sheet data is as follows:



	December 31,
	2018		2017
	(In millions)
Current Assets	$	358	$	344
Non-current assets	$	5,101	$	3,576
Current Liabilities	$	391	$	345
Non-current liabilities	$	762	$	858

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Summarized income statement data is as follows:



	December 31,
	2018		2017		2016
	(In millions)
Operating Revenues	$	883	$	756	$	767
Operating Expenses	$	622	$	561	$	526
Net Income	$	365	$	254	$	225

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES

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 related to fixed non-refundable cash payments received from investors for which the earnings process is not contingent upon production of refined coal is recognized on a straight-line basis over the non-cancelable contract term as the economic benefit from the ownership of the facility is transferred to investors. Other income related to cash payments that is contingent upon production of refined coal is considered earned and recognized when the contingency regarding the timing and amount of payment is resolved, generally as refined coal is produced and tax credits are generated.

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



	2018		2017		2016
	(In millions)
Equity earnings of equity method investees	$	132	$	102	$	68
Income from REF entities	98		77		75
Contract services	51		19		21
Allowance for equity funds used during construction	28		23		21
Gains from trading securities	6		26		15
Other	18		21		7
	$	333	$	268	$	207

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



	2018		2017		2016
	(In millions)
Contract services	$	51	$	21	$	20
Allowance for equity funds used during construction	19		18		18
Gains from trading securities allocated from DTE Energy	6		26		15
Other	7		12		8
	$	83	$	77	$	61

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.

The following table summarizes the changes in DTE Energy's Accumulated other comprehensive income (loss) by component(a) for the years ended December 31, 2018 and 2017:



	Net Unrealized Gain (Loss) on Derivatives			Net Unrealized Gain (Loss) on Investments			Benefit Obligations(b)			Foreign Currency Translation			Total
	(In millions)
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	)
Implementation of ASU 2016-01	(7		)	2			—			—			(5		)
Other comprehensive loss before reclassifications	(2		)	—			(1		)	(2		)	(5		)
Amounts reclassified from Accumulated other comprehensive income	1			—			9			—			10
Net current-period Other comprehensive income (loss)	(8		)	2			8			(2		)	—
Balance, December 31, 2018	$	(11	)	$	—		$	(102	)	$	(7	)	$	(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.

The following is a table that provides a reconciliation of DTE Energy's Cash and cash equivalents as well as Restricted cash reported within the Consolidated Statements of Financial Position that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows:



	2018		2017
	(In millions)
Cash and cash equivalents	$	71	$	66
Restricted cash	5		23
Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows	$	76	$	89

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 $1.0 billion at December 31, 2018 and 2017 include $264 million and $290 million of DTE Electric unbilled revenues, respectively, included in Customer Accounts receivable.

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 Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

DTE Gas' natural gas inventory of $48 million and $29 million as of December 31, 2018 and 2017, respectively, is determined using the last-in, first-out (LIFO) method. The replacement cost of gas in inventory exceeded the LIFO cost by $113 million and $81 million at December 31, 2018 and 2017, 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'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 $4 million and $15 million of expenses related to Fermi 2 refueling outages were accrued at December 31, 2018 and 2017, 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.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Intangible Assets

The Registrants have certain Intangible assets as shown below:



		December 31, 2018							December 31, 2017
	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	25 - 40 years(a)	$	779	$	(44	)	$	735	$	770	$	(24	)	$	746
Contract intangibles	6 to 26 years	159		(66		)	93		168		(72		)	96
		938		(110		)	828		938		(96		)	842

DTE Electric renewable energy credits	(b)	20		—			20		24		—			24
DTE Electric emission allowances	(b)	1		—			1		1		—			1
		21		—			21		25		—			25
Long-term intangible assets
DTE Electric		$	21	$	—		$	21	$	25	$	—		$	25
DTE Energy		$	959	$	(110	)	$	849	$	963	$	(96	)	$	867


(a)	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.


(b)	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 2023:



	2019		2020		2021		2022		2023
	(In millions)
Estimated amortization expense	$	27	$	26	$	25	$	25	$	25

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 $27 million in 2018, $29 million in 2017, and $16 million in 2016.

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.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Investments in Debt and Equity Securities

The Registrants generally record investments in debt and equity securities at market value with unrealized gains or losses included in earnings. 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 an impairment exists, 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."

DTE Energy Foundation

DTE Energy's charitable contributions to the DTE Energy Foundation were $22 million, $43 million, and $26 million for the years ended December 31, 2018, 2017, and 2016, 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
4		Revenue
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

NOTE 3 — NEW ACCOUNTING PRONOUNCEMENTS

Recently Adopted Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), as amended. The objectives of this ASU are to improve upon revenue recognition requirements by providing a single comprehensive model to determine the measurement of revenue and timing of recognition. The core principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. This ASU also required expanded qualitative and quantitative disclosures regarding the nature, amount, timing, and uncertainty of revenues and cash flows arising from contracts with customers. The standard is to be applied using either a full retrospective or modified retrospective approach. The Registrants adopted the standard effective January 1, 2018, using the modified retrospective approach. Under the modified retrospective approach, the information for periods prior to the adoption date has not been restated and continues to be reported under the accounting standards in effect for those periods. As permitted under the standard, the Registrants have elected to apply the guidance only to those contracts that were not completed at January 1, 2018, and have elected not to restate the impacts of any contract modifications made prior to the earliest period presented.

The adoption of the ASU did not have a significant impact on the Registrants' financial position or results of operations, but required additional disclosures for revenue. See Note 4 to the Consolidated Financial Statements, "Revenue."

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

In March 2017, the FASB issued ASU No. 2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The amendments in this update required that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside of income from operations. The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable. The Registrants adopted the standard effective January 1, 2018. The standard has been applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. As permitted by the standard, the Registrants have used benefit cost amounts disclosed for prior periods as the basis for retrospective application in the income statement. As a result of regulatory mechanisms, the impact to the Consolidated Financial Statements was not material for the year ended December 31, 2018.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, as amended. The new guidance is intended to improve the recognition and measurement of financial instruments. The guidance primarily impacts accounting for equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) and financial liabilities under the fair value option. The guidance requires equity investments to be generally measured at fair value, with subsequent changes in fair value recognized in net income. The guidance requires entities to make a cumulative-effect adjustment to the Statements of Financial Position as of the beginning of the first reporting period in which the guidance is effective. The Registrants adopted the standard effective January 1, 2018. Upon adoption, DTE Energy and DTE Electric recorded a cumulative-effect adjustment to reclassify $5 million and $3 million of unrealized gains from Accumulated other comprehensive income (loss) to Retained earnings, respectively.

In March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740): Amendments to SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 118. The Amendments in this update add various SEC paragraphs pursuant to the issuance of SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118). SAB 118 directs taxpayers to consider the implications of the TCJA as provisional when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the change in the tax law. As described in Note 10 to the Consolidated Financial Statements, "Income Taxes," within the combined DTE Energy and DTE Electric 2017 Annual Report on Form 10-K and in accordance with SAB 118, the Registrants recorded amounts that were considered provisional. During the year ended December 31, 2018, DTE Energy and DTE Electric finalized their SAB 118 analysis and recorded true-up adjustments to the remeasurement of deferred taxes of $21 million and $7 million, respectively. The impact of the true-up adjustments was an increase in Income Tax Expense, of which $17 million was attributable to the regulated utilities and increased Regulatory liabilities. The true-up adjustments were a result of further analysis for items subject to further consideration at December 31, 2017, under SAB 118 and primarily related to timing differences not recoverable from DTE Electric and DTE Gas customers.

Recently Issued Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), as amended. This guidance requires a lessee to account for leases as finance or operating leases, and disclose key information about leasing arrangements. Both types of leases will result in the lessee recognizing a right-of-use asset and a corresponding lease liability on its balance sheet, with differing methodology for income statement recognition, depending on the lease classification. The Registrants will adopt the standard on January 1, 2019. The standard allows lessees and lessors to apply either, 1) a modified retrospective approach for leases existing or entered into after the beginning of the earliest comparative period in the Consolidated Financial Statements, or 2) a prospective transition approach for leases existing as of January 1, 2019 with a cumulative effect adjustment to be recorded to retained earnings. The Registrants will apply the standard on a prospective basis. The Registrants will elect the package of practical expedients allowing entities to not reassess whether an agreement is a lease, to carryforward the existing lease classification, and to not reassess initial direct costs associated with existing leases. These practical expedients apply to leases that commenced prior to January 1, 2019. The Registrants will also elect to exclude leases from the balance sheet that are for a period of one year or less, as well as, the practical expedient allowing entities to not evaluate land easements under the new guidance at adoption if they were not previously accounted for as leases.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

A third-party software tool has been implemented that will assist with the initial adoption and ongoing compliance of the standard. The Registrants are implementing new business processes, internal controls, and accounting policies. The Registrants are in the process of drafting disclosures to satisfy the standard's requirements. In addition, the Registrants are continuing to monitor utility industry implementation guidance and interpretation. While the Registrants expect an increase in assets and liabilities, as well as additional disclosures, they are still assessing the impact of this ASU on their Consolidated Financial Statements.

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

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

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820. The ASU is effective for the Registrants for fiscal years 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 August 2018, the FASB issued ASU No. 2018-14, Compensation — Retirement Benefits — Defined Benefit Plans (Subtopic 715-20): Disclosure Framework — Changes to the Disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in this update modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The ASU is effective for the Registrants for fiscal years ending after December 15, 2020. Early adoption is permitted. The Registrants are currently assessing the impact of this standard on their Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The ASU is effective for the Registrants for fiscal years 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 October 2018, the FASB issued ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. The amendments in this update modify the requirements for determining whether a decision-making fee is a variable interest and require reporting entities to consider indirect interests held through related parties under common control on a proportional basis. The ASU is effective for the Registrants for fiscal years 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.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

NOTE 4 — REVENUE

Significant Accounting Policy

Upon the adoption of Topic 606, revenue is measured based upon the consideration specified in a contract with a customer at the time when performance obligations are satisfied. Under Topic 606, a performance obligation is a promise in a contract to transfer a distinct good or service or a series of distinct goods or services to the customer. The Registrants recognize revenue when performance obligations are satisfied by transferring control over a product or service to a customer. The Registrants have determined control to be transferred when the product is delivered or the service is provided to the customer. For the year ended December 31, 2018, recognition of revenue for the Registrants subsequent to the adoption of Topic 606 is substantially similar in amount and approach to that prior to adoption.

Rates for DTE Electric and DTE Gas include provisions to adjust billings for fluctuations in fuel and purchased power costs, cost of natural gas, and certain other costs. Revenues are adjusted for differences between actual costs subject to reconciliation and the amounts billed in current rates. Under or over recovered revenues related to these cost recovery mechanisms are included in Regulatory assets or liabilities on the Registrants' Consolidated Statements of Financial Position and are recovered or returned to customers through adjustments to the billing factors.

For discussion of derivative contracts, see Note 13 to the Consolidated Financial Statements, "Financial and Other Derivative Instruments."

Disaggregation of Revenue

The following is a summary of revenues disaggregated by segment for DTE Energy:



	2018
	(In millions)
Electric(a)
Residential	$	2,494
Commercial	1,794
Industrial	690
Other	320
Total Electric operating revenues(b)	$	5,298

Gas
Gas sales	$	1,055
End User Transportation	232
Intermediate Transportation	58
Other	91
Total Gas operating revenues(c)	$	1,436

Other segment operating revenues
Gas Storage and Pipelines	$	485
Power and Industrial Projects(d)	$	2,204
Energy Trading(e)	$	5,557


(a)	Revenues under the Electric segment generally represent those of DTE Electric.


(b)	Includes $21 million under Alternative Revenue Programs and $20 million of other revenues, which are both outside the scope of Topic 606 for the year ended December 31, 2018.


(c)	Includes $2 million under Alternative Revenue Programs and $7 million of other revenues, which are both outside the scope of Topic 606 for the year ended December 31, 2018.


(d)	Includes revenues outside the scope of Topic 606 primarily related to $125 million of contracts accounted for as leases for the year ended December 31, 2018.


(e)	Includes revenues outside the scope of Topic 606 primarily related to $4.5 billion of derivatives for the year ended December 31, 2018.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Nature of Goods and Services

The following is a description of principal activities, separated by reportable segments, from which DTE Energy generates revenue. For more detailed information about reportable segments, see Note 22 to the Consolidated Financial Statements, “Segment and Related Information.”

The Registrants have contracts with customers which may contain more than one performance obligation. When more than one performance obligation exists in a contract, the consideration under the contract is allocated to the performance obligations based on the relative standalone selling price. DTE Energy generally determines standalone selling prices based on the prices charged to customers or the use of the adjusted market assessment approach. The adjusted market assessment approach involves the evaluation of the market in which DTE Energy sells goods or services and estimating the price that a customer in that market would be willing to pay.

Under Topic 606, when a customer simultaneously receives and consumes the product or service provided, revenue is considered to be recognized over time. Alternatively, if it is determined that the criteria for recognition of revenue over time is not met, the revenue is considered to be recognized at a point in time.

Electric

Electric consists principally of DTE Electric. Electric revenues are primarily comprised of the supply and delivery of electricity, and related capacity. Revenues are primarily associated with cancelable contracts, with the exception of certain long-term contracts with commercial and industrial customers. Revenues, including estimated unbilled amounts, are generally recognized over time based upon volumes delivered or through the passage of time ratably based upon providing a stand-ready service. The Registrants have determined that the above methods represent a faithful depiction of the transfer of control to the customer. Unbilled revenues are typically determined utilizing approved tariff rates and estimated meter volumes. Estimated unbilled amounts recognized in revenue are subject to adjustment in the following reporting period as actual volumes by customer class are known. Revenues are typically subject to tariff rates based upon customer class and type of service, and are billed and received monthly. Tariff rates are determined by the MPSC on a per unit or monthly basis.

Gas

Gas consists principally of DTE Gas. Gas revenues are primarily comprised of the supply and delivery of natural gas, and other services including storage, transportation, and appliance maintenance. Revenues are primarily associated with cancelable contracts with the exception of certain long-term contracts with commercial and industrial customers. Revenues, including estimated unbilled amounts, are generally recognized over time based upon volumes delivered or through the passage of time ratably based upon providing a stand-ready service. DTE Energy has determined that the above methods represent a faithful depiction of the transfer of control to the customer. Unbilled revenues are typically determined using both estimated meter volumes and estimated usage based upon the number of unbilled days and historical temperatures. Estimated unbilled amounts recognized in revenue are subject to adjustment in the following reporting period as actual volumes by customer class and service type are known. Revenues are typically subject to tariff rates or other rates subject to regulatory oversight and are billed and received monthly. Tariff rates are determined by the MPSC on a per unit or monthly basis.

Gas Storage and Pipelines

Gas Storage and Pipelines revenues generally consist of services related to the gathering, transportation, and storage of natural gas. Contracts are primarily long-term in nature. Revenues, including estimated unbilled amounts, are generally recognized over time based upon services provided or through the passage of time ratably based upon providing a stand-ready service. DTE Energy has determined that the above methods represent a faithful depiction of the transfer of control to the customer. Revenues are typically billed and received monthly. Pricing for such revenues may consist of demand rates, commodity rates, transportation rates, and other associated fees. Consideration may consist of both fixed and variable components. Generally, uncertainties in the variable consideration components are resolved and revenues are known at the time of recognition.

Power and Industrial Projects

Power and Industrial Projects revenues include contracts accounted for as leases which are outside of the scope of Topic 606. For performance obligations within the scope of Topic 606, the timing of revenue recognition is dependent upon when control over the associated product or service is transferred.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Revenues at Power and Industrial Projects, within the scope of Topic 606, generally consist of sales of refined coal, coal, blast furnace coke, coke oven gas, electricity, equipment maintenance services, and other energy related products and services. Revenues, including estimated unbilled amounts, for the sale of blast furnace coke are generally recognized at a point in time when the product is delivered, which represents the transfer of control to the customer. Other revenues are generally recognized over time based upon services provided or through the passage of time ratably based upon providing a stand-ready service. DTE Energy has determined that the above methods represent a faithful depiction of the transfer of control to the customer. Market based pricing structures exist in such contracts including adjustments for consumer price or other indices. Consideration may consist of both fixed and variable components. Generally, uncertainties in the variable consideration components are resolved and revenues are known at the time of recognition. Billing terms vary and are generally monthly with payment terms typically within 30 days following billing.

Energy Trading

Energy Trading revenues consist primarily of derivative contracts outside of the scope of Topic 606. For performance obligations within the scope of Topic 606, the timing of revenue recognition is dependent upon when control over the associated product or service is transferred.

Revenues, including estimated unbilled amounts, within the scope of Topic 606 arising from the sale of natural gas, electricity, power capacity, and other energy related products are generally recognized over time based upon volumes delivered or through the passage of time ratably based upon providing a stand-ready service. DTE Energy has determined that the above methods represent a faithful depiction of the transfer of control to the customer. Revenues are known at the time of recognition. Payment for the aforementioned revenues is generally due from customers in the month following delivery.

Revenues associated with RECs are recognized at a point in time when control of the RECs are transferred to the customer which is deemed to be when the subject RECs are entered for transfer to the customer in the applicable regulatory tracking system. Revenues associated with RECs under a wholesale full requirements power contract are deferred until control has been transferred. The deferred revenues represent a contract liability for which payment has been received and the amounts have been estimated using the adjusted market assessment approach. With the exception of RECs, generally all other performance obligations associated with wholesale full requirements power contracts are satisfied over time in conjunction with the delivery of power. At the time power is delivered, DTE Energy may not have control over the RECs as the RECs are not self-generated and may not yet have been procured resulting in deferred revenues.

Deferred Revenue

The following is a summary of deferred revenue activity:



	DTE Energy
	(In millions)
Beginning Balance, January 1, 2018	$	56
Increases due to cash received or receivable, excluding amounts recognized as revenue during the period	48
Revenue recognized that was included in the deferred revenue balance at the beginning of the period	(30		)
Ending Balance, December 31, 2018	$	74

The deferred revenues at DTE Energy generally represent amounts paid by or receivable from customers for which the associated performance obligation has not yet been satisfied.

Deferred revenues include amounts associated with REC performance obligations under certain wholesale full requirements power contracts. Deferred revenues associated with RECs are recognized as revenue when control of the RECs has transferred.

Other performance obligations associated with deferred revenues include providing products and services related to customer prepayments. Deferred revenues associated with these products and services are recognized when control has transferred to the customer.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

The following table represents deferred revenue amounts for DTE Energy that are expected to be recognized as revenue in future periods:



	DTE Energy
	(In millions)
2019	$	46
2020	1
2021	5
2022	7
2023	5
2024 and thereafter	10
	$	74

Transaction Price Allocated to the Remaining Performance Obligations

In accordance with optional exemptions available under Topic 606, the Registrants did not disclose the value of unsatisfied performance obligations for (1) contracts with an original expected length of one year or less, (2) with the exception of fixed consideration, contracts for which revenue is recognized at the amount to which the Registrants have the right to invoice for goods provided and services performed, and (3) contracts for which variable consideration relates entirely to an unsatisfied performance obligation.

Such contracts consist of varying types of performance obligations across the segments, including the supply and delivery of energy related products and services. Contracts with variable volumes and/or variable pricing, including those with pricing provisions tied to a consumer price or other index, have also been excluded as the related consideration under the contract is variable at inception of the contract. Contract lengths vary from cancelable to multi-year.

The Registrants expect to recognize revenue for the following amounts related to fixed consideration associated with remaining performance obligations in each of the future periods noted:



	DTE Energy		DTE Electric
	(In millions)
2019	$	267	$	8
2020	263		—
2021	219		—
2022	172		—
2023	139		—
2024 and thereafter	658		—
	$	1,718	$	8

Other Matters

DTE Energy and DTE Electric have recognized charges of $140 million and $85 million related to expense recognized for estimated uncollectible accounts receivable for the year ended December 31, 2018, respectively.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

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:



	2018		2017
	(In millions)
Balance as of January 1	$	2,293	$	2,286
Goodwill attributable to Gas Storage and Pipelines 2016 acquisition of AGS and SGG	—		7
Balance at December 31	$	2,293	$	2,293

NOTE 6 — PROPERTY, PLANT, AND EQUIPMENT

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



	2018			2017
Property, plant, and equipment	(In millions)
DTE Electric
Generation	$	11,027		$	12,166
Distribution	9,153			8,637
Other	2,567			2,169
Total DTE Electric	22,747			22,972
DTE Gas
Distribution	3,823			3,523
Storage	548			533
Transmission and other	1,204			1,118
Total DTE Gas	5,575			5,174
Non-utility and other	3,488			3,278
Total DTE Energy	31,810			31,424
Accumulated depreciation and amortization
DTE Electric
Generation	(3,609		)	(4,403		)
Distribution	(2,974		)	(2,914		)
Other	(727		)	(667		)
Total DTE Electric	(7,310		)	(7,984		)
DTE Gas
Distribution	(1,283		)	(1,238		)
Storage	(165		)	(159		)
Transmission and other	(404		)	(384		)
Total DTE Gas	(1,852		)	(1,781		)
Non-utility and other	(998		)	(938		)
Total DTE Energy	(10,160		)	(10,703		)
Net DTE Energy Property, plant, and equipment	$	21,650		$	20,721
Net DTE Electric Property, plant, and equipment	$	15,437		$	14,988

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

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



	DTE Energy				DTE Electric
	2018		2017		2018		2017
	(In millions)
Allowance for debt funds used during construction and interest capitalized	$	15	$	13	$	9	$	8
Allowance for equity funds used during construction	28		23		19		18
Total	$	43	$	36	$	28	$	26

The composite depreciation rate for DTE Electric was approximately 3.7%, 3.6%, and 3.5% in 2018, 2017 and 2016, respectively. The composite depreciation rate for DTE Gas was 2.7%, in 2018 and 2017, and 2.4% in 2016. The average estimated useful life for each major class of utility Property, plant, and equipment as of December 31, 2018 follows:

The estimated useful lives for DTE Electric's Other utility assets range from 3 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:



	2018		2017		2016
	(In millions)
Property, plant, and equipment	$	912	$	865	$	783
Regulatory assets and liabilities	212		165		193
	$	1,124	$	1,030	$	976

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



	2018		2017		2016
	(In millions)
Property, plant, and equipment	$	657	$	620	$	582
Regulatory assets and liabilities	179		133		168
	$	836	$	753	$	750

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 1 to 15 years for DTE Energy and 3 to 15 years for DTE Electric.

The following balances for capitalized software relate to DTE Energy:



	Year Ended December 31,
	2018		2017		2016
	(In millions)
Amortization expense of capitalized software	$	108	$	101	$	89
Gross carrying value of capitalized software	$	905	$	890
Accumulated amortization of capitalized software	$	534	$	500

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

The following balances for capitalized software relate to DTE Electric:



	Year Ended December 31,
	2018		2017		2016
	(In millions)
Amortization expense of capitalized software	$	101	$	93	$	83
Gross carrying value of capitalized software	$	799	$	774
Accumulated amortization of capitalized software	$	463	$	423

DTE Energy is the lessor under certain operating leases for energy facilities and related equipment. Property under operating leases for DTE Energy is as follows:



	DTE Energy
	2018		2017
	(In millions)
Gross property under operating leases	$	447	$	327
Accumulated amortization of property under operating leases	$	148	$	108

The Registrants are the lessee under certain capital leases related to software and information technology related equipment. Property under capital leases for the Registrants is as follows:



	DTE Energy				DTE Electric
	2018		2017		2018		2017
	(In millions)
Gross property under capital leases	$	18	$	44	$	18	$	18
Accumulated amortization of property under capital leases	$	7	$	38	$	7	$	12

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.

DTE Electric's ownership information of the two utility plants as of December 31, 2018 was as follows:



	Belle River		Ludington Hydroelectric Pumped Storage
In-service date	1984-1985		1973
Ownership interest	81%		49%
Investment in Property, plant, and equipment (in millions)	$	1,819	$	586
Accumulated depreciation (in millions)	$	1,068	$	187

Belle River

The Michigan Public Power Agency (MPPA) has ownership interests 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.

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 2018 follows:



	DTE Energy			DTE Electric
	(In millions)
Asset retirement obligations at December 31, 2017	$	2,320		$	2,125
Accretion	140			129
Liabilities incurred	27			27
Liabilities settled	(16		)	(8		)
Revision in estimated cash flows	(2		)	(2		)
Asset retirement obligations at December 31, 2018	$	2,469		$	2,271

Approximately $2.0 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."

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

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.

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.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

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



	DTE Energy						DTE Electric
	2018			2017			2018			2017
Assets	(In millions)
Recoverable pension and other postretirement costs
Pension	$	1,961		$	2,000		$	1,476		$	1,502
Other postretirement costs	213			278			121			211
Asset retirement obligation	778			569			778			569
Recoverable undepreciated costs on retiring plants	630			—			630			—
Removal costs asset	407			299			407			299
Recoverable Michigan income taxes	201			213			161			171
Accrued PSCR/GCR revenue	116			17			116			17
Deferred environmental costs	69			75			—			—
Unamortized loss on reacquired debt	60			65			43			46
Recoverable income taxes related to AFUDC equity	51			41			41			35
Energy Waste Reduction incentive	49			39			39			30
Nuclear Performance Evaluation and Review Committee Tracker	43			22			43			22
Customer360 deferred costs	42			45			42			45
Other recoverable income taxes	23			26			23			26
Transitional Reconciliation Mechanism	21			46			21			46
Other	57			43			36			36
	4,721			3,778			3,977			3,055
Less amount included in Current Assets	(153		)	(55		)	(148		)	(50		)
	$	4,568		$	3,723		$	3,829		$	3,005



	DTE Energy						DTE Electric
	2018			2017			2018			2017
Liabilities	(In millions)
Refundable federal income taxes	$	2,410		$	2,384		$	1,958		$	1,946
Removal costs liability	253			265			—			—
TCJA rate reduction liability	118			—			93			—
Negative other postretirement offset	101			80			79			67
Renewable energy	86			112			86			112
Refundable self-implemented rates	26			2			26			2
Negative pension offset	9			21			—			—
Fermi 2 refueling outage	4			15			4			15
Other	41			14			23			12
	3,048			2,893			2,269			2,154
Less amount included in Current Liabilities	(126		)	(18		)	(98		)	(17		)
	$	2,922		$	2,875		$	2,171		$	2,137

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.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

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)


•	Recoverable undepreciated costs on retiring plants — Deferral of estimated remaining balances associated with coal power plants expected to be retired within the 2020 to 2023 time-frame.


•	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.


•	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.


•	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.


•	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.


•	Energy Waste Reduction incentive — DTE Electric and DTE Gas operate MPSC approved energy waste reduction programs designed to reduce overall energy usage by their customers. The utilities are eligible to earn an incentive by exceeding statutory savings targets. The utilities have consistently exceeded the savings targets and recognize the incentive as a regulatory asset in the period earned.(a)

•

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.

•

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.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)


•	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.


•	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.


(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.

•

TCJA rate reduction liability — Due to the change in the corporate Federal income tax rate from 35% to 21%, DTE Electric and DTE Gas reduced rates charged to customers during 2018. A regulatory liability equal to the difference between revenues billed based on a 35% rate, and revenues based on a 21% rate, was accrued for the period January 1, 2018 through the date the lower rates were implemented. The refund of the liability will commence on January 1, 2019 through June 30, 2019.

•

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.


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


•	Refundable self-implemented rates — Amounts refundable to customers for base rates implemented from November 1, 2017 to May 1, 2018 in excess of amounts authorized in the June 2018 DTE Electric rate order from the MPSC.


•	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.

2017 Electric Rate Case Filing

DTE Electric filed a rate case with the MPSC on April 19, 2017 requesting an increase in base rates of $231 million based on a projected twelve-month period ending October 31, 2018. On November 1, 2017, DTE Electric self-implemented a base rate increase of $125 million. On April 18, 2018, the MPSC issued an order approving an annual revenue increase of $65.2 million for service rendered on or after May 1, 2018. The MPSC authorized a return on equity of 10.0%. On June 28, 2018, the MPSC issued an order on a rehearing granting in part and denying in part, petitions for rehearings of DTE Electric and other intervenors. As a result, the approved addition to base rates increased from $65.2 million to $74.4 million. In August 2018, DTE Electric filed to refund its customers $26.2 million, inclusive of interest, based on their pro rata share of the revenue collected through the self-implementation surcharge in effect from November 1, 2017 to May 1, 2018. DTE Electric has recorded a refund liability as of December 31, 2018.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

2018 Electric Rate Case Filing

DTE Electric filed a rate case with the MPSC on July 6, 2018 requesting an increase in base rates of $328 million based on a projected twelve-month period ending April 30, 2020. The requested increase in base rates is primarily due to an increase in net plant resulting from infrastructure investments, depreciation expense, as requested in the 2016 DTE Electric Depreciation Case Filing, and reliability improvement projects. The rate filing also requests an increase in return on equity from 10.0% to 10.5% and includes projected changes in sales, operation and maintenance expenses, and working capital. In addition, the rate filing requests an Infrastructure Recovery Mechanism to recover the incremental revenue requirement associated with certain distribution, fossil generation, and nuclear generation capital expenditures through 2022. Finally, as noted in the 2017 Tax Reform section below, DTE Electric addressed Calculation C in this filing. A final MPSC order in this case is expected by May 2019.

Certificate of Necessity

On July 31, 2017, DTE Electric filed a request for authority to build a 1,100 megawatt natural gas fueled combined cycle generation facility at DTE Electric's Belle River Power Plant. DTE Electric requested the MPSC to issue three CONs for the following: (1) power supplied by the proposed project is needed, (2) the size, fuel type, and other design characteristics of the proposed project represent the most reasonable and prudent means of meeting the power need, and (3) the estimated capital costs of $989 million for the proposed project will be recoverable in rates from DTE Electric's customers. The MPSC issued an order April 27, 2018 approving DTE Electric's request for the three CONs with recoverable amounts through rates up to $951.8 million. In August 2018, DTE Electric began construction on its natural gas fueled combined cycle generation facility.

2016 DTE Electric Depreciation Case Filing

DTE Electric filed a depreciation case with the MPSC on November 1, 2016 requesting an increase in depreciation rates for plant in service balances as of December 31, 2015. The MPSC issued an order on December 6, 2018 authorizing DTE Electric to increase its depreciation rates from 3.06% to 3.72%. The new rates will be effective upon a final order in DTE Electric's 2018 rate case filing expected by May 2019.

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 was primarily due to an increase in net plant. The rate filing also requested an increase in return on equity from 10.1% to 10.5% and included projected changes in sales, operations and maintenance expenses, and working capital. On May 24, 2018, DTE Gas reduced its initial requested increase in base rates to $38.1 million, primarily due to the effects of the TCJA on the original request. On September 13, 2018, the MPSC issued an order approving an annual revenue increase of $9 million for services rendered on or after October 1, 2018. The MPSC authorized a return on equity of 10.0%. Refer to the 2017 Tax Reform section below for further detail regarding the impact of the TCJA Credit A filing for DTE Gas.

2017 Tax Reform

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

On February 22, 2018, the MPSC issued an order in this case requiring utilities, including DTE Electric and DTE Gas, to follow a 3-step approach of credits and calculations. The first step is to establish Credit A, through contested cases. Credit A is a going-forward tax credit to reflect the reduction of the corporate tax rate from 35% to 21%. DTE Gas submitted its Credit A filing on March 28, 2018, reflecting a reduction in revenues of $38.2 million. The MPSC approved the $38.2 million reduction on May 30, 2018, effective July 1, 2018. With approval of the DTE Gas Rate Order on September 13, 2018, effective October 1, 2018, this separate Credit A was terminated. DTE Electric filed its Credit A application on May 18, 2018, reflecting a reduction in revenues of $157 million. On July 24, 2018, the MPSC issued an order approving a settlement in DTE Electric's Credit A filing reflecting a reduction in revenues of $157 million. Rates reflecting this reduction were effective August 1, 2018.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

The second step is to establish Credit B, through contested cases. Credit B is a backward-looking tax credit to reflect the reduction of the corporate rate of 35% to 21%, for the period January 1, 2018 up to the date Credit A is implemented. The Credit B filing is required within sixty days after Credit A is implemented. For Credit B, DTE Electric and DTE Gas have been deferring the impact of the reduction to the corporate tax rate since January 1, 2018. DTE Gas submitted its Credit B filing on July 30, 2018, reflecting a $25 million refund effective January 2019 through June 2019. On October 24, 2018, the MPSC issued an order approving the refund in DTE Gas' Credit B filing. DTE Electric submitted its Credit B filing on September 21, 2018, reflecting a $93 million refund effective January 2019 through June 2019. On December 20, 2018, the MPSC issued an order approving the $93 million refund, inclusive of interest, in DTE Electric's Credit B filing, which commenced on January 1, 2019 through June 30, 2019.

The third step is to perform Calculation C to address all remaining issues relative to the new tax law, which is primarily the remeasurement of deferred taxes and how the amounts deferred as Regulatory liabilities will flow to ratepayers. DTE Gas filed its Calculation C case on November 16, 2018 to reduce the revenue requirement by $12 million related to the amortization of deferred tax remeasurement. DTE Electric addressed Calculation C in its general rate case filed July 6, 2018.

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 $8 million and $12 million at December 31, 2018 and 2017, respectively.

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



	2018			2017			2016
DTE Energy	(In millions)
Income Before Income Taxes	$	1,216		$	1,287		$	1,105
Income tax expense at statutory rate - 21% in 2018 - 35% in 2017 and 2016	$	255		$	450		$	387
Production tax credits	(223		)	(189		)	(145		)
Investment tax credits	(4		)	(4		)	(5		)
Depreciation	2			(4		)	(4		)
Noncontrolling interests	2			8			12
AFUDC equity	(14		)	(18		)	(10		)
Employee Stock Ownership Plan dividends	(3		)	(5		)	(5		)
Stock based compensation	(3		)	(14		)	—
Subsidiary stock loss	—			—			(10		)
State and local income taxes, net of federal benefit	60			51			58
Enactment of the Tax Cuts and Jobs Act	21			(105		)	—
Other, net	5			5			(7		)
Income Tax Expense	$	98		$	175		$	271
Effective income tax rate	8.1		%	13.6		%	24.5		%

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)



	2018			2017			2016
DTE Electric	(In millions)
Income Before Income Taxes	$	857		$	928		$	975
Income tax expense at statutory rate - 21% in 2018 - 35% in 2017 and 2016	$	180		$	325		$	341
Production tax credits	(35		)	(36		)	(30		)
Investment tax credits	(3		)	(4		)	(4		)
Depreciation	2			3			3
AFUDC equity	(3		)	(5		)	(6		)
Employee Stock Ownership Plan dividends	(2		)	(3		)	(3		)
State and local income taxes, net of federal benefit	49			48			56
Enactment of the Tax Cuts and Jobs Act	7			—			—
Other, net	(2		)	(1		)	(4		)
Income Tax Expense	$	193		$	327		$	353
Effective income tax rate	22.5		%	35.2		%	36.2		%

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



	2018			2017			2016
DTE Energy	(In millions)
Current income tax expense (benefit)
Federal	$	(17	)	$	(22	)	$	(1	)
State and other income tax	1			1			7
Total current income taxes	(16		)	(21		)	6
Deferred income tax expense
Federal	38			118			184
State and other income tax	76			78			81
Total deferred income taxes	114			196			265
	$	98		$	175		$	271



	2018		2017			2016
DTE Electric	(In millions)
Current income tax expense (benefit)
Federal	$	—	$	(17	)	$	—
State and other income tax	4		(1		)	11
Total current income taxes	4		(18		)	11
Deferred income tax expense
Federal	131		270			268
State and other income tax	58		75			74
Total deferred income taxes	189		345			342
	$	193	$	327		$	353

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 Registrant's 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.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

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



	DTE Energy						DTE Electric
	2018			2017			2018			2017
	(In millions)
Property, plant, and equipment	$	(3,462	)	$	(3,276	)	$	(2,840	)	$	(2,698	)
Regulatory assets and liabilities	(54		)	(94		)	(3		)	(31		)
Tax credit carry-forwards	1,178			947			250			193
Pension and benefits	311			334			258			302
Federal net operating loss carry-forward	117			83			2			47
State and local net operating loss carry-forwards	59			70			1			5
Investments in equity method investees	(216		)	(82		)	(1		)	—
Other	125			170			87			94
	(1,942		)	(1,848		)	(2,246		)	(2,088		)
Less valuation allowance	(33		)	(40		)	—			—
Long-term deferred income tax liabilities	$	(1,975	)	$	(1,888	)	$	(2,246	)	$	(2,088	)

Deferred income tax assets	$	2,021		$	1,814		$	855		$	830
Deferred income tax liabilities	(3,996		)	(3,702		)	(3,101		)	(2,918		)
	$	(1,975	)	$	(1,888	)	$	(2,246	)	$	(2,088	)

Tax credit carry-forwards for DTE Energy include $871 million of general business credits that expire from 2034 through 2038 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 $555 million as of December 31, 2018. The net operating loss carry-forwards generated in 2015 and 2016 will expire from 2035 through 2036, and the net operating loss carry-forward generated in 2018 will be carried forward indefinitely. 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 $59 million and $70 million at December 31, 2018 and 2017, respectively. The state and local net operating loss carry-forwards expire from 2019 through 2038. DTE Energy has recorded valuation allowances at December 31, 2018 and 2017 of approximately $33 million and $40 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.

Tax credit carry-forwards for DTE Electric include $250 million of general business credits that expire from 2035 through 2038. 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 $11 million as of December 31, 2018, 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 $1 million at December 31, 2018, while there was $5 million state and local deferred tax asset related to net operating loss carry-forwards at December 31, 2017. 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.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

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. Refer to Note 3 to the Consolidated Financial Statements, "New Accounting Pronouncements," for a description of true-up adjustments to the remeasurement of deferred taxes recorded in 2018.

Uncertain Tax Positions

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



	2018		2017		2016
DTE Energy	(In millions)
Balance at January 1	$	10	$	10	$	3
Additions for tax positions of prior years	—		—		7
Balance at December 31	$	10	$	10	$	10



	2018		2017		2016
DTE Electric	(In millions)
Balance at January 1	$	13	$	13	$	4
Additions for tax positions of prior years	—		—		9
Balance at December 31	$	13	$	13	$	13

DTE Energy had $8 million of unrecognized tax benefits at December 31, 2018 and 2017 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, 2018 and 2017 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.

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 $4 million and $3 million at December 31, 2018 and 2017, respectively. DTE Energy recognized interest expense related to income taxes of $1 million in 2018, a nominal amount in 2017, and $2 million in 2016. DTE Energy had accrued no penalties pertaining to income taxes.

Accrued interest pertaining to income taxes for DTE Electric totaled $5 million and $4 million at December 31, 2018 and 2017, respectively. DTE Electric recognized interest expense related to income taxes of $1 million in 2018, a nominal amount in 2017, and $3 million in 2016. DTE Electric had accrued no penalties pertaining to income taxes.

In 2018, DTE Energy, including DTE Electric, settled a federal tax audit for the 2016 tax year. DTE Energy's federal income tax returns for 2017 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.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

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:



	2018			2017			2016
	(In millions, except per share amounts)
Basic Earnings per Share
Net Income Attributable to DTE Energy Company	$	1,120		$	1,134		$	868
Less: Allocation of earnings to net restricted stock awards	(2		)	(2		)	(2		)
Net income available to common shareholders — basic	$	1,118		$	1,132		$	866

Average number of common shares outstanding — basic	181			179			179
Basic Earnings per Common Share	$	6.18		$	6.32		$	4.84

Diluted Earnings per Share
Net Income Attributable to DTE Energy Company	$	1,120		$	1,134		$	868
Less: Allocation of earnings to net restricted stock awards	(2		)	(2		)	(2		)
Net income available to common shareholders — diluted	$	1,118		$	1,132		$	866

Average number of common shares outstanding — diluted	181			179			179
Diluted Earnings per Common Share(a)	$	6.17		$	6.32		$	4.83


(a)	The 2016 Equity Units excluded from the calculation of diluted EPS were approximately 6.3 million for the years ended December 31, 2018 and 2017 as the dilutive stock price threshold was not met. For more information, see Note 14 to the Consolidated Financial Statements, "Long-Term Debt."

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, 2018 and 2017. The Registrants believe they use valuation techniques that maximize the use of observable market-based inputs and minimize the use of unobservable inputs.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

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


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


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


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

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

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



	December 31, 2018																	December 31, 2017
	Level 1			Level 2			Level 3			Other(b)		Netting(c)			Net Balance			Level 1			Level 2			Level 3			Other(b)		Netting(c)			Net Balance
	(In millions)
Assets
Cash equivalents(d)	$	16		$	2		$	—		$	—	$	—		$	18		$	16		$	3		$	—		$	—	$	—		$	19
Nuclear decommissioning trusts
Equity securities	851			—			—			—		—			851			978			—			—			—		—			978
Fixed income securities	12			490			—			—		—			502			18			477			—			—		—			495
Private equity and other	—			—			—			20		—			20			—			—			—			5		—			5
Cash equivalents	5			—			—			—		—			5			14			—			—			—		—			14
Other investments(e)
Equity securities	110			—			—			—		—			110			118			—			—			—		—			118
Fixed income securities	69			—			—			—		—			69			72			—			—			—		—			72
Cash equivalents	4			—			—			—		—			4			4			—			—			—		—			4
Derivative assets:
Commodity Contracts:
Natural Gas	199			87			63			—		(277		)	72			148			112			97			—		(256		)	101
Electricity	—			247			56			—		(252		)	51			—			243			42			—		(241		)	44
Other	—			—			7			—		(1		)	6			—			—			9			—		—			9
Foreign currency exchange contracts	—			4			—			—		—			4			—			1			—			—		(1		)	—
Total derivative assets	199			338			126			—		(530		)	133			148			356			148			—		(498		)	154
Total	$	1,266		$	830		$	126		$	20	$	(530	)	$	1,712		$	1,368		$	836		$	148		$	5	$	(498	)	$	1,859

Liabilities
Derivative liabilities:
Commodity Contracts:
Natural Gas	$	(197	)	$	(71	)	$	(112	)	$	—	$	272		$	(108	)	$	(141	)	$	(111	)	$	(126	)	$	—	$	263		$	(115	)
Electricity	—			(227		)	(58		)	—		240			(45		)	—			(245		)	(30		)	—		246			(29		)
Other	—			(1		)	—			—		1			—			—			—			(1		)	—		1			—
Interest rate contracts	—			(3		)	—			—		—			(3		)	—			—			—			—		—			—
Foreign currency exchange contracts	—			—			—			—		—			—			—			(3		)	—			—		1			(2		)
Total derivative liabilities	(197		)	(302		)	(170		)	—		513			(156		)	(141		)	(359		)	(157		)	—		511			(146		)
Total	$	(197	)	$	(302	)	$	(170	)	$	—	$	513		$	(156	)	$	(141	)	$	(359	)	$	(157	)	$	—	$	511		$	(146	)
Net Assets (Liabilities) at end of period	$	1,069		$	528		$	(44	)	$	20	$	(17	)	$	1,556		$	1,227		$	477		$	(9	)	$	5	$	13		$	1,713
Assets
Current	$	212		$	273		$	96		$	—	$	(461	)	$	120		$	157		$	298		$	104		$	—	$	(437	)	$	122
Noncurrent	1,054			557			30			20		(69		)	1,592			1,211			538			44			5		(61		)	1,737
Total Assets	$	1,266		$	830		$	126		$	20	$	(530	)	$	1,712		$	1,368		$	836		$	148		$	5	$	(498	)	$	1,859
Liabilities
Current	$	(191	)	$	(251	)	$	(76	)	$	—	$	451		$	(67	)	$	(137	)	$	(313	)	$	(108	)	$	—	$	459		$	(99	)
Noncurrent	(6		)	(51		)	(94		)	—		62			(89		)	(4		)	(46		)	(49		)	—		52			(47		)
Total Liabilities	$	(197	)	$	(302	)	$	(170	)	$	—	$	513		$	(156	)	$	(141	)	$	(359	)	$	(157	)	$	—	$	511		$	(146	)
Net Assets (Liabilities) at end of period	$	1,069		$	528		$	(44	)	$	20	$	(17	)	$	1,556		$	1,227		$	477		$	(9	)	$	5	$	13		$	1,713


(a)	See footnotes on following page.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)


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


(c)	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.

(d)

At December 31, 2018, the $18 million consisted of $3 million, $5 million, and $10 million of cash equivalents included in Cash and Cash equivalents, Restricted cash, and Other investments on DTE Energy's Consolidated Statements of Financial Position, respectively. At December 31, 2017, the $19 million consisted of $8 million and $11 million of cash equivalents included in Restricted cash and Other investments on DTE Energy's Consolidated Statements of Financial Position, respectively.


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

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



	December 31, 2018										December 31, 2017
	Level 1		Level 2		Level 3		Other(a)		Net Balance		Level 1		Level 2		Level 3		Other		Net Balance
	(In millions)
Assets
Cash equivalents(b)	$	8	$	2	$	—	$	—	$	10	$	8	$	3	$	—	$	—	$	11
Nuclear decommissioning trusts
Equity securities	851		—		—		—		851		978		—		—		—		978
Fixed income securities	12		490		—		—		502		18		477		—		—		495
Private equity and other	—		—		—		20		20		—		—		—		5		5
Cash equivalents	5		—		—		—		5		14		—		—		—		14
Other investments
Equity securities	10		—		—		—		10		11		—		—		—		11
Derivative assets — FTRs	—		—		6		—		6		—		—		9		—		9
Total	$	886	$	492	$	6	$	20	$	1,404	$	1,029	$	480	$	9	$	5	$	1,523

Assets
Current	$	8	$	2	$	6	$	—	$	16	$	8	$	3	$	9	$	—	$	20
Noncurrent	878		490		—		20		1,388		1,021		477		—		5		1,503
Total Assets	$	886	$	492	$	6	$	20	$	1,404	$	1,029	$	480	$	9	$	5	$	1,523


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


(b)	At December 31, 2018, the $10 million consisted of cash equivalents included in Other investments on DTE Electric's Consolidated Statements of Financial Position. At December 31, 2017, the $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 commingled funds. Other assets such as private equity investments are used to enhance long-term returns while improving portfolio diversification. All pricing for private equity 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. Commingled funds that 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. 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:



	Year Ended December 31, 2018												Year Ended December 31, 2017
	Natural Gas			Electricity			Other			Total			Natural Gas			Electricity			Other			Total
	(In millions)
Net Assets (Liabilities) as of January 1	$	(29	)	$	12		$	8		$	(9	)	$	(96	)	$	9		$	(1	)	$	(88	)
Transfers into Level 3 from Level 2	—			—			—			—			—			—			—			—
Transfers from Level 3 into Level 2	(3		)	—			—			(3		)	—			—			—			—
Total gains (losses)
Included in earnings	(146		)	29			1			(116		)	(29		)	109			2			82
Recorded in Regulatory liabilities	—			—			9			9			—			—			25			25
Purchases, issuances, and settlements:
Purchases	—			—			—			—			—			—			—			—
Issuances	—			—			—			—			—			—			—			—
Settlements	129			(43		)	(11		)	75			96			(106		)	(18		)	(28		)
Net Assets (Liabilities) as of December 31	$	(49	)	$	(2	)	$	7		$	(44	)	$	(29	)	$	12		$	8		$	(9	)
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, 2018 and 2017 and reflected in Operating Revenues — Non-utility operations and Fuel, purchased power, and gas — non-utility in DTE Energy's Consolidated Statements of Operations	$	(119	)	$	15		$	(16	)	$	(120	)	$	(30	)	$	50		$	1		$	21

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:



	Year Ended December 31,
	2018			2017
	(In millions)
Net Assets as of January 1	$	9		$	2
Change in fair value recorded in Regulatory liabilities	9			25
Purchases, issuances, and settlements:
Settlements	(12		)	(18		)
Net Assets as of December 31	$	6		$	9
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, 2018 and 2017 and reflected in DTE Electric's Consolidated Statements of Financial Position	$	6		$	9

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, 2018 and 2017, and there were no transfers from or into Level 3 for DTE Electric during the same periods.

The following tables present the unobservable inputs related to DTE Energy's Level 3 assets and liabilities:



	December 31, 2018
Commodity Contracts	Derivative Assets		Derivative Liabilities			Valuation Techniques	Unobservable Input	Range							Weighted Average
	(In millions)
Natural Gas	$	63	$	(112	)	Discounted Cash Flow	Forward basis price (per MMBtu)	$	(2.15	)	—	$	5.59	/MMBtu	$	(0.1	)/MMBtu
Electricity	$	56	$	(58	)	Discounted Cash Flow	Forward basis price (per MWh)	$	(7	)	—	$	9	/MWh	$	1	/MWh



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

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

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

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Fair Value of Financial Instruments

The following table presents the carrying amount and fair value of financial instruments for DTE Energy:



	December 31, 2018								December 31, 2017
	Carrying		Fair Value						Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Amount		Level 1		Level 2		Level 3
	(In millions)
Notes receivable(a), excluding capital leases	$	40	$	—	$	—	$	40	$	38	$	—	$	—	$	38
Dividends payable	$	172	$	172	$	—	$	—	$	158	$	158	$	—	$	—
Short-term borrowings	$	609	$	—	$	609	$	—	$	621	$	—	$	621	$	—
Notes payable — Other(b), excluding capital leases	$	41	$	—	$	—	$	41	$	12	$	—	$	—	$	12
Long-term debt(c)	$	13,622	$	1,796	$	10,712	$	1,317	$	12,288	$	1,939	$	10,571	$	764


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


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


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

The following table presents the carrying amount and fair value of financial instruments for DTE Electric:



	December 31, 2018								December 31, 2017
	Carrying		Fair Value						Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Amount		Level 1		Level 2		Level 3
	(In millions)
Notes receivable, excluding capital leases	$	6	$	—	$	—	$	6	$	—	$	—	$	—	$	—
Short-term borrowings — affiliates	$	101	$	—			$	101	$	116	$	—	$	—	$	116
Short-term borrowings — other	$	149	$	—	$	149	$	—	238		$	—	$	238	$	—
Notes payable — Other(a), excluding capital leases	$	21	$	—	$	—	$	21	$	2	$	—	$	—	$	2
Long-term debt(b)	$	6,538	$	—	$	6,552	$	161	$	6,017	$	—	$	6,441	$	171


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


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

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

Nuclear Decommissioning Trust Funds

DTE Electric has a legal obligation to decommission its nuclear power plants following the expiration of its operating licenses. This obligation is reflected as an Asset retirement obligation on DTE Electric's Consolidated Statements of Financial Position. Rates approved by the MPSC provide for the recovery of decommissioning costs of Fermi 2 and the disposal of low-level radioactive waste. 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,
	2018		2017
	(In millions)
Fermi 2	$	1,372	$	1,475
Fermi 1	3		3
Low-level radioactive waste	3		14
	$	1,378	$	1,492

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

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



	Year Ended December 31,
	2018			2017			2016
	(In millions)
Realized gains	$	65		$	83		$	74
Realized losses	$	(42	)	$	(29	)	$	(63	)
Proceeds from sale of securities	$	1,203		$	1,240		$	1,457

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

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



	December 31, 2018							December 31, 2017
	Fair Value		Unrealized Gains		Unrealized Losses			Fair Value		Unrealized Gains		Unrealized Losses
	(In millions)
Equity securities	$	851	$	235	$	(79	)	$	978	$	320	$	(32	)
Fixed income securities	502		7		(8		)	495		13		(3		)
Private equity and other	20		—		—			5		—		—
Cash equivalents	5		—		—			14		—		—
	$	1,378	$	242	$	(87	)	$	1,492	$	333	$	(35	)

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



	December 31, 2018
	(In millions)
Due within one year	$	29
Due after one through five years	89
Due after five through ten years	113
Due after ten years	271
	$	502

Other Securities

At December 31, 2018 and 2017, the Registrants' securities, included in Other investments on the Consolidated Statements of Financial Position, were comprised primarily of money market and equity securities. Net losses related to equity securities held at December 31, 2018 were $11 million and net gains related to equity securities held at December 31, 2017 and 2016 were $26 million, and $15 million, respectively, for the Registrants. Gains or losses related to the Rabbi Trust assets are allocated from DTE Energy to DTE Electric.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

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

DTE Gas — DTE Gas purchases, stores, transports, distributes and sells natural gas, and sells storage and transportation capacity. DTE Gas has fixed-priced contracts for portions of its expected natural gas supply requirements through March 2021. Substantially all of these contracts meet the normal purchases and normal sales exception and are therefore accounted for under the accrual method. DTE Gas may also sell forward transportation and storage capacity contracts. Forward transportation and storage contracts are generally not derivatives and are therefore accounted for under the accrual method.

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

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

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

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

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

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

Credit Risk — DTE Energy maintains credit policies that significantly minimize overall credit risk. These policies include an evaluation of potential customers’ and counterparties’ financial condition, including the viability of underlying productive assets, credit rating, collateral requirements, or other credit enhancements such as letters of credit or guarantees. DTE Energy generally uses standardized agreements that allow the netting of positive and negative transactions associated with a single counterparty. DTE Energy maintains a provision for credit losses based on factors surrounding the credit risk of its customers, historical trends, and other information. Based on DTE Energy's credit policies and its December 31, 2018 provision for credit losses, DTE Energy’s exposure to counterparty nonperformance is not expected to have a material adverse effect on DTE Energy's Consolidated Financial Statements.

Derivative Activities

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

•

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


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


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


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

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

The following table presents the fair value of derivative instruments for DTE Energy:



	December 31, 2018					December 31, 2017
	Derivative Assets		Derivative Liabilities			Derivative Assets		Derivative Liabilities
	(In millions)
Derivatives designated as hedging instruments
Interest rate contracts	$	—	$	(3	)	$	—	$	—
Derivatives not designated as hedging instruments
Commodity contracts
Natural gas	$	349	$	(380	)	$	357	$	(378	)
Electricity	303		(285		)	285		(275		)
Other	7		(1		)	9		(1		)
Foreign currency exchange contracts	4		—			1		(3		)
Total derivatives not designated as hedging instruments	$	663	$	(666	)	$	652	$	(657	)

Current	$	563	$	(518	)	$	540	$	(558	)
Noncurrent	100		(151		)	112		(99		)
Total derivatives	$	663	$	(669	)	$	652	$	(657	)

The following table presents the fair value of derivative instruments for DTE Electric:



	December 31,
	2018		2017
	(In millions)
FTRs — Other current assets	$	6	$	9
Total derivatives not designated as hedging instruments	$	6	$	9

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

DTE Energy also provides and receives collateral in the form of letters of credit which can be offset against net Derivative assets and liabilities as well as Accounts receivable and payable. DTE Energy had issued letters of credit of approximately $4 million outstanding at December 31, 2018 and 2017, 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 $8 million and $4 million at December 31, 2018 and 2017, respectively. Such balances of letters of credit are excluded from the tables below and are not netted with the recognized assets and liabilities in DTE Energy's Consolidated Statements of Financial Position.

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

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

For DTE Energy, the total cash collateral received, net of cash collateral posted, was $13 million as of December 31, 2018. DTE Energy had $28 million total cash collateral posted, net of cash collateral received, as of December 31, 2017. DTE Energy had $17 million of cash collateral related to unrealized positions to net against Derivative assets and no cash collateral related to unrealized positions to net against Derivative liabilities as of December 31, 2018. DTE Energy had $9 million of cash collateral related to unrealized positions to net against Derivative assets while Derivative liabilities are shown net of cash collateral of $22 million as of December 31, 2017. DTE Energy recorded cash collateral paid of $10 million and cash collateral received of $6 million not related to unrealized derivative positions as of December 31, 2018. DTE Energy recorded cash collateral paid of $18 million and cash collateral received of $3 million not related to unrealized derivative positions as of December 31, 2017. These amounts are included in Accounts receivable and Accounts payable and are recorded net by counterparty.

The following table presents the netting offsets of Derivative assets and liabilities for DTE Energy:



	December 31, 2018									December 31, 2017
	Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts Offset in the Consolidated Statements of Financial Position			Net Amounts of Assets (Liabilities) Presented in the Consolidated Statements of Financial Position			Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts Offset in the Consolidated Statements of Financial Position			Net Amounts of Assets (Liabilities) Presented in the Consolidated Statements of Financial Position
	(In millions)
Derivative assets
Commodity contracts
Natural gas	$	349		$	(277	)	$	72		$	357		$	(256	)	$	101
Electricity	303			(252		)	51			285			(241		)	44
Other	7			(1		)	6			9			—			9
Foreign currency exchange contracts	4			—			4			1			(1		)	—
Total derivative assets	$	663		$	(530	)	$	133		$	652		$	(498	)	$	154

Derivative liabilities
Commodity contracts
Natural gas	$	(380	)	$	272		$	(108	)	$	(378	)	$	263		$	(115	)
Electricity	(285		)	240			(45		)	(275		)	246			(29		)
Other	(1		)	1			—			(1		)	1			—
Interest rate contracts	(3		)	—			(3		)	—			—			—
Foreign currency exchange contracts	—			—			—			(3		)	1			(2		)
Total derivative liabilities	$	(669	)	$	513		$	(156	)	$	(657	)	$	511		$	(146	)

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



	December 31, 2018												December 31, 2017
	Derivative Assets						Derivative Liabilities						Derivative Assets						Derivative Liabilities
	Current			Noncurrent			Current			Noncurrent			Current			Noncurrent			Current			Noncurrent
	(In millions)
Total fair value of derivatives	$	563		$	100		$	(518	)	$	(151	)	$	540		$	112		$	(558	)	$	(99	)
Counterparty netting	(451		)	(62		)	451			62			(437		)	(52		)	437			52
Collateral adjustment	(10		)	(7		)	—			—			—			(9		)	22			—
Total derivatives as reported	$	102		$	31		$	(67	)	$	(89	)	$	103		$	51		$	(99	)	$	(47	)

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

The effect of derivatives not designated as hedging instruments on DTE Energy's Consolidated Statements of Operations is as follows:



	Location of Gain (Loss) Recognized in Income on Derivatives		Gain (Loss) Recognized in Income on Derivatives for Years Ended December 31,
		2018				2017				2016
			(In millions)
Derivatives not Designated as Hedging Instruments
Commodity contracts
Natural gas	Operating Revenues — Non-utility operations		$	(42	)		$	(74	)		$	(153	)
Natural gas	Fuel, purchased power, and gas — non-utility		(94		)		97				(2		)
Electricity	Operating Revenues — Non-utility operations		49				105				43
Other	Operating Revenues — Non-utility operations		(1		)		2				5
Foreign currency exchange contracts	Operating Revenues — Non-utility operations		7				(2		)		(2		)
Total			$	(81	)		$	128			$	(109	)

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, 2018:



Commodity		Number of Units
Natural Gas (MMBtu)		2,171,541,994
Electricity (MWh)		36,163,761
Foreign Currency Exchange (Canadian dollars)		101,975,644

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, 2018, DTE Energy's contractual obligation to post collateral in the form of cash or letters of credit in the event of a downgrade to below investment grade, under both hard trigger and soft trigger provisions, was $638 million.

As of December 31, 2018, DTE Energy had $541 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 $495 million. The net remaining amount of $46 million is derived from the $638 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	2018			2017
			(In millions)
Mortgage bonds, notes, and other
DTE Energy Debt, Unsecured	3.2%	2019 — 2033	$	4,425		$	3,825
DTE Electric Taxable Debt, Principally Secured	4.3%	2020 — 2048	6,280			5,755
DTE Electric Tax-Exempt Revenue Bonds(b)	4.3%	2020 — 2030	310			310
DTE Gas Taxable Debt, Principally Secured	4.5%	2019 — 2048	1,550			1,330
Other Long-Term Debt, including Non-Recourse Debt			1			7
			12,566			11,227
Unamortized debt discount and premium, net			(16		)	(15		)
Unamortized debt issuance costs			(73		)	(69		)
Long-term debt due within one year			(1,495		)	(104		)
			$	10,982		$	11,039
Junior Subordinated Debentures
Subordinated Debentures	5.5%	2062 — 2077	$	1,180		$	1,180
Unamortized debt issuance costs			(35		)	(35		)
			$	1,145		$	1,145


(a)	Weighted average interest rate as of December 31, 2018.


(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	2018			2017
			(In millions)
Mortgage bonds, notes, and other
Taxable Debt, Principally Secured	4.3%	2020 — 2048	$	6,280		$	5,755
Tax-Exempt Revenue Bonds(b)	4.3%	2020 — 2030	310			310
			6,590			6,065
Unamortized debt discount			(11		)	(10		)
Unamortized debt issuance costs			(41		)	(38		)
			$	6,538		$	6,017


(a)	Weighted average interest rate as of December 31, 2018.


(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 2018, the following debt was issued:



Company	Month	Type	Interest Rate	Maturity Date	Amount
					(In millions)
DTE Electric	May	Mortgage Bonds(a)	4.05%	2048	$	525
DTE Energy	August	Senior Notes(b)	3.70%	2023	600
DTE Gas	August	Mortgage Bonds(b)	3.81%	2028	195
DTE Gas	August	Mortgage Bonds(b)	4.14%	2048	125
					$	1,445


(a)	Bonds were issued as Green Bonds and the proceeds will be used to finance expenditures for solar and wind energy, payments under power purchase agreements for solar and wind energy, and energy optimization programs.


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

Debt Redemptions

In 2018, the following debt was redeemed:



Company	Month	Type	Interest Rate	Maturity Date	Amount
					(In millions)
DTE Gas	April	Senior Notes	6.04%	2018	$	100
DTE Energy	Various	Other Long-Term Debt	Various	2018	5
					$	105

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



	2019		2020		2021		2022		2023		2024 and Thereafter		Total
	(In millions)
DTE Energy(a)	$	1,495	$	682	$	462	$	616	$	1,177	$	9,314	$	13,746
DTE Electric	$	—	$	632	$	462	$	316	$	202	$	4,978	$	6,590


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

Junior Subordinated Debentures

At December 31, 2018, 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, 2018, no interest payments have been deferred on the debt securities.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

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. 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. The acquisition was financed through the issuance of Equity Units and Senior Notes.

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.

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, 2018, 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.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

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 $33 million and $32 million were made in 2018 and 2017, respectively. The stock purchase contract liability, exclusive of interest, was $33 million and $66 million at December 31, 2018 and 2017, respectively.

NOTE 15 — PREFERRED AND PREFERENCE SECURITIES

As of December 31, 2018, 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.

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, 2018, the total funded debt to total capitalization ratios for DTE Energy, DTE Electric, and DTE Gas were 0.55 to 1, 0.50 to 1, and 0.48 to 1, respectively, and were in compliance with this financial covenant.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

The availability under the facilities in place at December 31, 2018 is shown in the following table:



	DTE Energy		DTE Electric		DTE Gas		Total
	(In millions)
Unsecured letter of credit facility, expiring in February 2019	$	150	$	—	$	—	$	150
Unsecured letter of credit facility, expiring in September 2019	70		—		—		70
Unsecured revolving credit facility, expiring April 2022	1,200		400		300		1,900
	1,420		400		300		2,120
Amounts outstanding at December 31, 2018
Commercial paper issuances	271		149		189		609
Letters of credit	168		—		—		168
	439		149		189		777
Net availability at December 31, 2018	$	981	$	251	$	111	$	1,343

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

The weighted average interest rate for short-term borrowings was 2.9% and 1.9% at December 31, 2018 and 2017, respectively, for DTE Energy. The weighted average interest rate for short-term borrowings was 2.9% and 1.5% at December 31, 2018 and 2017, 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, 2018, the capacity under this facility was $125 million. The amount outstanding under this agreement was $93 million and $56 million at December 31, 2018 and 2017, 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, 2018, the effect of this provision was to restrict the payment of approximately $2.4 billion of Retained earnings totaling $6.1 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 2051 and 2046 for DTE Energy and DTE Electric, respectively.

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, 2018 were:



	DTE Energy		DTE Electric
	(In millions)
2019	$	42	$	17
2020	30		12
2021	18		10
2022	11		7
2023	8		5
2024 and thereafter	45		29
Total minimum lease payments	$	154	$	80

Rental expense for DTE Energy operating leases was $44 million in 2018, $51 million in 2017, and $43 million in 2016, including rental expense for DTE Electric operating leases of $18 million in 2018 and $28 million in 2017 and 2016.

Lessor

Operating Lease — DTE Energy leases various assets under operating leases for energy facilities and related equipment. DTE Energy's minimum future rental revenues under non-cancelable operating leases as of December 31, 2018 were:



	DTE Energy
	(In millions)
2019	$	66
2020	66
2021	64
2022	20
2023	20
2024 and thereafter	196
Total minimum future rental revenue under non-cancelable operating leases	$	432

The amounts listed above do not include contingent rentals associated with the leased assets. DTE Energy had contingent rental revenues of $107 million, $91 million, and $101 million in 2018, 2017, and 2016, respectively.

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 expire in 2019 and 2026.

The components of DTE Energy's net investment in capital leases at December 31, 2018, were as follows:



	DTE Energy
	(In millions)
2019	$	10
2020	9
2021	—
2022	—
2023	—
2024 and thereafter	1
Total minimum future lease receipts	20
Residual value of leased pipeline	40
Less unearned income	(9		)
Net investment in capital lease	51
Less current portion	(5		)
	$	46

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

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.

The EPA proposed revised air quality standards for ground level ozone in November 2014 and specifically requested comments on the form and level of the ozone standards. The standards were finalized in October 2015. The State of Michigan recommended to the EPA in October 2016 which areas of the state are not attaining the new standard. On April 30, 2018, the EPA finalized the state of Michigan's recommended non-attainment designation for southeast Michigan. The State is required to develop and implement a plan to address the southeast Michigan ozone non-attainment area by 2021. DTE Electric cannot predict the financial impact of the State's plan to address the ozone non-attainment area at this time.

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

In August 2010, the U.S. Department of Justice, at the request of the EPA, brought a civil suit in the U.S. District Court for the Eastern District of Michigan against DTE Energy and DTE Electric, related to the June 2010 NOV/FOV and the outage work performed at Unit 2 of the Monroe Power Plant. In August 2011, the U.S. District Court judge granted DTE Energy's motion for summary judgment in the civil case, dismissing the case and entering judgment in favor of DTE Energy and DTE Electric. In October 2011, the EPA filed a Notice of Appeal to the Court of Appeals for the Sixth Circuit. In March 2013, the Court of Appeals remanded the case to the U.S. District Court for review of the procedural component of the New Source Review notification requirements. In September 2013, the EPA filed a motion seeking leave to amend their complaint regarding the June 2010 NOV/FOV adding additional claims related to outage work performed at the Trenton Channel and Belle River Power Plants as well as additional claims related to work performed at the Monroe Power Plant. In March 2014, the U.S. District Court judge again granted DTE Energy's motion for summary judgment dismissing the civil case related to Monroe Unit 2. In April 2014, the U.S. District Court judge granted motions filed by the EPA and the Sierra Club to amend their New Source Review complaint adding additional claims for Monroe Units 1, 2, and 3, Belle River Units 1 and 2, and Trenton Channel Unit 9. In October 2014, the EPA and the U.S. Department of Justice filed a notice of appeal of the U.S. District Court judge's dismissal of the Monroe Unit 2 case. The amended New Source Review claims were all stayed pending resolution of the appeal by the Court of Appeals for the Sixth Circuit. On January 10, 2017, a divided panel of the Court reversed the decision of the U.S. District Court. On May 8, 2017, DTE Energy and DTE Electric filed a motion to stay the mandate pending filing of a petition for writ of certiorari with the U.S. Supreme Court. The Sixth Circuit granted the motion on May 16, 2017, staying the claims in the U.S. District Court until the U.S. Supreme Court disposes of the case. DTE Electric and DTE Energy filed a petition for writ of certiorari on July 31, 2017. On December 11, 2017, the U.S. Supreme Court denied certiorari. As a result of the Supreme Court electing not to review the matter, the case was sent back to the U.S. District Court for further proceedings and on June 14, 2018 the case was stayed pending settlement negotiations. The proceedings at the District Court remain stayed while the parties discuss potential resolution of the matter.

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

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, in 2015 the EPA finalized performance standards for emissions of carbon dioxide from new and existing fossil-fuel fired EGUs. In February 2016, the U.S. Supreme Court granted petitioners' requests for a stay of the carbon rules for existing EGUs (also known as the EPA Clean Power Plan) pending final review by the courts. The Clean Power Plan has no legal effect while the stay is in place. On March 28, 2017, a presidential executive order was issued on "Promoting Energy Independence and Economic Growth." The order instructs the EPA to review, and if appropriate, suspend, revise or rescind the Clean Power Plan rule. Following the issuance of this order, the federal government requested the U.S. Court of Appeals for the D.C. Circuit to hold all legal challenges in abeyance until the review of these regulations is completed. On October 10, 2017, the EPA proposed to rescind the Clean Power Plan and in August 2018, the EPA proposed revised emission guidelines for GHGs from existing electric utility generating units. This proposed rule, named the Affordable Clean Energy (ACE) rule, is intended to replace the Clean Power Plan rule. In addition, in December 2018, the EPA issued proposed revisions to the carbon dioxide performance standards for new, modified, or reconstructed fossil-fuel fired 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. These proposed rules do not impact DTE Energy's goal to reduce carbon emissions 30% by the early 2020s, 45% by 2030, 75% by 2040, and more than 80% by 2050.

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 2018. DTE Electric does not anticipate additional capital expenditures through 2025.

Water — In response to an EPA regulation, DTE Electric was required to examine alternatives for reducing the environmental impacts of the cooling water intake structures at several of its facilities. Based on the results of completed studies and expected future studies, DTE Electric may be required to install technologies to reduce the impacts of the water intake structures. A final rule became effective in October 2014. The final rule requires studies to be completed and submitted as part of the National Pollutant Discharge Elimination System (NPDES) permit application process to determine the type of technology needed to reduce impacts to fish. DTE Electric has initiated the process of completing the required studies. Final compliance for the installation of any required technology will be determined by each state on a case by case, site specific basis. DTE Electric is currently evaluating the compliance options and working with the State of Michigan on evaluating whether any controls are needed. These evaluations/studies may require modifications to some existing intake structures. It is not possible to quantify the impact of this rulemaking at this time.

Contaminated and Other Sites — Prior to the construction of major interstate natural gas pipelines, gas for heating and other uses was manufactured locally from processes involving coal, coke, or oil. The facilities, which produced gas, have been designated as MGP sites. DTE Electric conducted remedial investigations at contaminated sites, including three former MGP sites. The investigations have revealed contamination related to the by-products of gas manufacturing at each MGP site. In addition to the MGP sites, DTE Electric is also in the process of cleaning up other contaminated sites, including the area surrounding an ash landfill, electrical distribution substations, electric generating power plants, and underground and aboveground storage tank locations. The findings of these investigations indicated that the estimated cost to remediate these sites is expected to be incurred over the next several years. At December 31, 2018 and 2017, DTE Electric had $7 million and $6 million, respectively, accrued for remediation. Any change in assumptions, such as remediation techniques, nature and extent of contamination, and regulatory requirements, could impact the estimate of remedial action costs for the sites and affect DTE Electric’s financial position and cash flows. DTE Electric believes the likelihood of a material change to the accrued amount is remote based on current knowledge of the conditions at each site.

Coal Combustion Residuals and Effluent Limitations Guidelines — A final EPA rule for the disposal of coal combustion residuals, commonly known as coal ash, became effective in October 2015, and was revised in October 2016 and July 2018. Additionally, a D.C. District Court Decision on August 21, 2018 (effective October 12, 2018) may affect the timing of closure of coal ash impoundments that are not lined with an engineered liner system. In 2019, the EPA is expected to affirmatively undertake rulemaking to implement the D.C. District Court's decision that will determine any changes to DTE Electric's plans in the operation and closure of coal ash impoundments.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

At the State level, legislation was signed by the Governor in December 2018. The bill provides for a CCR program to be regulated in Michigan once approval is requested and received from the EPA.

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. Under the current CCR rules and uncertainty regarding the D.C. District Court decision, capital costs and timing associated with the building of new CCR facilities or retirement of existing CCR facilities are being evaluated.

In November 2015, the EPA finalized the ELG Rule for the steam electric power generating industry which requires additional controls to be installed between 2018 and 2023. Compliance schedules for individual facilities and individual waste streams are determined through issuance of new National Pollutant Discharge Elimination System (NPDES) permits by the State of Michigan. The State of Michigan has issued a NPDES permit for the Belle River Power Plant establishing a compliance deadline of December 31, 2021. No new permits that would require ELG compliance have been issued for other facilities, consequently no compliance timelines have been established.

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. The final rule nullified the administrative stay but also extended the earliest compliance deadlines for the FGD wastewater and bottom ash transport water until November 1, 2020 in order for the EPA to propose and finalize a new ruling. The ELG compliance requirements and final deadlines for bottom ash transport water and FGD wastewater, and total ELG related compliance costs will not be known until the EPA completes its reconsideration of the ELG Rule.

Over the next six years, to comply with the November 2015 ELG requirements and CCR requirements, costs associated with the building of new facilities or installation of controls are estimated to be approximately $565 million.

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, 2018 and 2017, DTE Gas had $25 million and $41 million, respectively, accrued for remediation. Any change in assumptions, such as remediation techniques, nature and extent of contamination, and regulatory requirements, could impact the estimate of remedial action costs for the sites and affect DTE 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.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

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

Michigan's Phase 2 non-attainment area includes DTE Electric facilities in St. Clair County. State implementation plan (SIP) submittal and EPA approval describing the control strategy and timeline for demonstrating compliance with the new SO2 standard is the next step in the process and is expected to be completed by the end of 2019. DTE Energy is currently working with the MDEQ to develop the required SIP. DTE Energy is unable to determine the full impact of the SIP strategy.

Synthetic Fuel Guarantees

DTE Energy discontinued the operations of its synthetic fuel production facilities throughout the United States as of December 31, 2007. DTE Energy provided certain guarantees and indemnities in conjunction with the sales of interests in its synfuel facilities. The guarantees cover potential commercial, environmental, oil price, and tax-related obligations that will survive until 90 days after expiration of all applicable statutes of limitations. DTE Energy estimates that its maximum potential liability under these guarantees at December 31, 2018 was approximately $400 million. Payment under these guarantees are considered remote.

REF Guarantees

DTE Energy has provided certain guarantees and indemnities in conjunction with the sales of interests in or lease of its REF facilities. The guarantees cover potential commercial, environmental, and tax-related obligations that will survive until 90 days after expiration of all applicable statutes of limitations. DTE Energy estimates that its maximum potential liability under these guarantees at December 31, 2018 was $359 million. Payments under these guarantees are considered remote.

NEXUS Guarantees

NEXUS entered into certain 15-year capacity lease agreements for the transportation of natural gas with DTE Gas and Texas Eastern Transmission, LP, an unrelated third party. Pursuant to the terms of those agreements, in December 2016, DTE Energy executed separate guarantee agreements with DTE Gas and Texas Eastern Transmission, LP, with maximum potential payments totaling $242 million and $377 million at December 31, 2018, respectively; each representing 50% of all payment obligations due and payable by NEXUS. 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. In October 2018, NEXUS Pipeline was placed in service. The amount of each guarantee decreases annually as payments are made by NEXUS to each of the aforementioned counterparties.

NEXUS also entered into certain 15-year capacity lease agreements for the transportation of natural gas with Vector, an equity method investee of DTE Energy. Pursuant to the terms of those agreements, in October 2018, DTE Energy executed a guarantee agreement with Vector, with a maximum potential payment totaling $7 million at December 31, 2018, representing 50% of the first-year payment obligations due and payable by NEXUS. The guarantee terminates at the earlier of (i) such time as all of the guaranteed obligations have been fully performed or (ii) 15 years from the date DTE Energy entered into the guarantee.

Should NEXUS fail to perform under the terms of these agreements, DTE Energy is required to perform on its behalf. 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 $64 million at December 31, 2018. Payments under these guarantees are considered remote.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

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, 2018, DTE Energy had $76 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 5,200 represented employees, including DTE Electric's approximate 2,800 represented employees. The majority of the represented employees are under contracts that expire in 2020 and 2021.

Purchase Commitments

As of December 31, 2018, 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 2019 through 2051 for DTE Energy, and 2019 through 2039 for DTE Electric, as detailed in the following table:



	DTE Energy		DTE Electric
	(In millions)
2019	$	2,691	$	777
2020	1,311		541
2021	632		171
2022	409		88
2023	351		85
2024 and thereafter	1,953		737
	$	7,347	$	2,399

Utility capital expenditures, expenditures for non-utility businesses, and contributions to equity method investees will be approximately $3.9 billion and $2.2 billion in 2019 for DTE Energy and DTE Electric, respectively. The Registrants have made certain commitments in connection with the estimated 2019 annual capital expenditures and contributions to equity method investees.

Bankruptcies

DTE Energy's Power and Industrial Projects segment holds ownership interests in, and operates, five generating plants that sell electric output from renewable sources under long-term power purchase agreements with PG&E. PG&E filed for Chapter 11 bankruptcy protection on January 29, 2019. As of December 31, 2018, uncollected pre-petition accounts receivable from PG&E were approximately $12 million. Currently, PG&E has been paying amounts owed in a timely manner and its account is current. As of December 31, 2018, DTE Energy has not recorded a reserve related to the pre-petition receivables.

As of December 31, 2018, the book value of long-lived assets used in producing electric output for sale to PG&E was approximately $106 million. As of December 31, 2018, DTE Energy performed an impairment analysis on its long-lived assets in accordance with ASC 360, Property, Plant and Equipment. Based on its undiscounted cash flow projections, DTE Energy determined that it did not have an impairment loss as of December 31, 2018. DTE Energy’s assumptions and conclusions may change, and it could have impairment losses if any of the terms of the contracts are not honored by PG&E or the contracts are rejected through the bankruptcy process.

The Power and Industrial Projects segment also has equity investments, including a note receivable, of approximately $77 million in entities that sell power to PG&E. DTE Energy has determined that it does not have an other than temporary decline in its equity investments as described in ASC 323, Investments-Equity Method and Joint Ventures. DTE Energy’s assumptions and conclusions may change in the future, and it could have an impairment loss if certain facilities are not utilized as currently anticipated or the contracts are rejected through the bankruptcy process.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

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 $2.0 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.

Under NEIL policies, DTE Electric could be liable for maximum assessments of up to $41 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 $138 million could be levied against each licensed nuclear facility, but not more than $20 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.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

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.

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 certain employees of the Registrants.

The table below represents the pension and other postretirement benefit plans of each Registrant at December 31, 2018:



	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 Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

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. As a result of multiemployer accounting treatment, capitalized costs associated with these plans are reflected in Property, plant, and equipment in DTE Electric's Consolidated Statements of Financial Position. The same capitalized costs are reflected as Regulatory assets and liabilities in DTE Energy's Consolidated Statements of Financial Position. In addition, the service cost and non-service cost components are presented in Operation and maintenance in DTE Electric's Consolidated Statements of Operations. The same non-service cost components are presented in Other (Income) and Deductions — Non-operating retirement benefits, net in DTE Energy's Consolidated Statements of Operations. Plan participants of all plans are solely DTE Energy and affiliate participants.

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 certain management employees. These plans provide for benefits that supplement those provided by DTE Energy’s other retirement plans.

Net pension cost for DTE Energy includes the following components:



	2018			2017			2016
	(In millions)
Service cost	$	99		$	92		$	92
Interest cost	202			214			219
Expected return on plan assets	(329		)	(311		)	(309		)
Amortization of:
Net actuarial loss	176			176			164
Prior service cost	—			1			1
Net pension cost	$	148		$	172		$	167



	2018			2017
	(In millions)
Other changes in plan assets and benefit obligations recognized in Regulatory assets and Other comprehensive income (loss)
Net actuarial loss	$	125		$	27
Amortization of net actuarial loss	(176		)	(176		)
Prior service credit	—			(11		)
Amortization of prior service cost	—			(1		)
Total recognized in Regulatory assets and Other comprehensive income (loss)	$	(51	)	$	(161	)
Total recognized in net periodic pension cost, Regulatory assets, and Other comprehensive income (loss)	$	97		$	11
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	$	131		$	178
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
	2018			2017
	(In millions)
Accumulated benefit obligation, end of year	$	4,779		$	5,149
Change in projected benefit obligation
Projected benefit obligation, beginning of year	$	5,576		$	5,171
Service cost	99			92
Interest cost	202			214
Plan amendments	—			(11		)
Actuarial (gain) loss	(438		)	391
Benefits paid	(315		)	(281		)
Projected benefit obligation, end of year	$	5,124		$	5,576
Change in plan assets
Plan assets at fair value, beginning of year	$	4,636		$	4,012
Actual return on plan assets	(233		)	674
Company contributions	185			231
Benefits paid	(315		)	(281		)
Plan assets at fair value, end of year	$	4,273		$	4,636
Funded status	$	(851	)	$	(940	)
Amount recorded as:
Current liabilities	$	(14	)	$	(16	)
Noncurrent liabilities	(837		)	(924		)
	$	(851	)	$	(940	)
Amounts recognized in Accumulated other comprehensive income (loss), pre-tax
Net actuarial loss	$	152		$	163
Prior service cost	5			6
	$	157		$	169
Amounts recognized in Regulatory assets(a)
Net actuarial loss	$	1,973		$	2,014
Prior service credit	(12		)	(14		)
	$	1,961		$	2,000


(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 contributions to the qualified pension plans in:



	2018		2017		2016
	(In millions)
DTE Energy	$	175	$	223	$	179
DTE Electric	175		185		145

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

During 2018, DTE Energy contributed the following amounts of DTE Energy common stock to the DTE Energy Company Affiliates Employee Benefit Plans Master Trust:



Date	Number of Shares	Price per Share	Amount
			(In millions)
March 7, 2018	1,751,401	$99.92	$	175

The above contribution was made on behalf of DTE Electric, for which DTE Electric paid DTE Energy cash consideration of $175 million in March 2018.

At the discretion of management, and depending upon financial market conditions, DTE Energy anticipates making up to $150 million in contributions, including $100 million of DTE Electric contributions, to the qualified pension plans in 2019.

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 $120 million for the year ended December 31, 2018 and $136 million for the years ended December 31, 2017 and 2016. These amounts include recognized contractual termination benefit charges, curtailment gains, and settlement charges.

At December 31, 2018, 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)
2019	$	311
2020	317
2021	317
2022	323
2023	332
2024-2028	1,713
Total	$	3,313

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



	2018	2017	2016
Projected benefit obligation
Discount rate	4.40%	3.70%	4.25%
Rate of compensation increase	4.98%	4.98%	4.65%
Net pension costs
Discount rate	3.70%	4.25%	4.50%
Rate of compensation increase	4.98%	4.65%	4.65%
Expected long-term rate of return on plan assets	7.50%	7.50%	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 7.30% and other postretirement benefit plans of 7.75% for 2019. The Registrants believe these rates are a reasonable assumption for the long-term rate of return on plan assets for 2019 given the current investment strategy.

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

The DTE Energy Company Affiliates Employee Benefit Plans Master Trust employs a liability driven investment program whereby the characteristics of plan liabilities are considered when determining investment policy. 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 and large and small market capitalizations. Fixed income investments generally include U.S. Treasuries, other governmental debt, diversified corporate bonds, bank loans, and mortgage-backed securities. Other investments 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.

Target allocations for DTE Energy's pension plan assets as of December 31, 2018 are listed below:



U.S. Large Capitalization (Cap) Equity Securities	16	%
U.S. Small Cap and Mid Cap Equity Securities	4
Non-U.S. Equity Securities	15
Fixed Income Securities	42
Hedge Funds and Similar Investments	15
Private Equity and Other	8
	100	%

DTE Energy Company — DTE Electric Company

Combined Notes to Consolidated Financial Statements — (Continued)

The following tables provide the fair value measurement amounts for DTE Energy's pension plan assets at December 31, 2018 and 2017(a):



	December 31, 2018											December 31, 2017
	Level 1			Level 2			Other(b)		Total			Level 1			Level 2			Other(b)		Total
	(In millions)
DTE Energy asset category:
Short-term Investments(c)	$	—		$	27		$	—	$	27		$	—		$	114		$	—	$	114
Equity Securities
U.S. Large Cap(d)	606			3			—		609			821			5			—		826
U.S. Small Cap and Mid Cap(e)	123			1			—		124			229			5			—		234
Non-U.S.(f)	337			9			240		586			529			13			280		822
Fixed Income Securities(g)	6			1,892			—		1,898			1			1,453			—		1,454
Hedge Funds and Similar Investments(h)	88			—			542		630			265			—			593		858
Private Equity and Other(i)	—			—			399		399			—			—			328		328
Securities Lending(j)	(22		)	(8		)	—		(30		)	(53		)	(13		)	—		(66		)
Securities Lending Collateral(j)	22			8			—		30			53			13			—		66
DTE Energy Total	$	1,160		$	1,932		$	1,181	$	4,273		$	1,845		$	1,590		$	1,201	$	4,636


(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 quoted 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 quoted 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 quoted 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, other governmental debt, bank loans, 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.


(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 and 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 real estate and private 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 trust 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.

The pension trust holds debt and equity securities directly and indirectly through commingled funds. Exchange-traded debt and equity securities held directly are valued using quoted market prices in actively traded markets. The commingled 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.

There were no significant transfers between Level 2 and Level 1 in the years ended December 31, 2018 and 2017 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	19
Fixed Income Securities	28
Hedge Funds and Similar Investments	19
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, 2017	105,994		$	42.95
Exercised	(53,894	)	$	42.62
Options outstanding and exercisable at December 31, 2018	52,100		$	43.30	$	4



Range of Exercise Prices					Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
$	27.00	—	$	38.00	2,100	$	27.70	0.16
$	42.01	—	$	45.00	50,000	$	43.95	1.15
					52,100	$	43.30	1.11



	Restricted Stock		Weighted Average Grant Date Fair Value
Balance at December 31, 2017	365,764		$	90.26
Grants	109,393		$	105.80
Forfeitures	(21,939	)	$	98.59
Vested and issued	(125,813	)	$	85.24
Balance at December 31, 2018	327,405		$	96.79



	Performance Shares		Weighted Average Grant Date Fair Value
Balance at December 31, 2017	1,324,401		$	90.31
Grants	437,508		$	105.64
Forfeitures	(56,435	)	$	96.02
Payouts	(418,788	)	$	84.84
Balance at December 31, 2018	1,286,686		$	97.17



	Unrecognized Compensation Cost		Weighted Average to be Recognized
	(In millions)		(In years)
Stock awards	$	12	1.03
Performance shares	59		1.04
	$	71	1.04



	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Year
	(In millions, except per share amounts)
2018
Operating Revenues	$	3,753	$	3,159	$	3,550	$	3,750	$	14,212
Operating Income	$	504	$	329	$	429	$	332	$	1,594
Net Income Attributable to DTE Energy Company	$	361	$	234	$	334	$	191	$	1,120
Basic Earnings per Share	$	2.01	$	1.29	$	1.84	$	1.05	$	6.18
Diluted Earnings per Share	$	2.00	$	1.29	$	1.84	$	1.05	$	6.17
2017
Operating Revenues	$	3,236	$	2,855	$	3,245	$	3,271	$	12,607
Operating Income(a)	$	585	$	320	$	434	$	372	$	1,711
Net Income Attributable to DTE Energy Company(b)	$	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