DTE Energy 2008 Annual Report Download - page 26

The Company maintains a provision for credit losses based on factors surrounding the credit risk of its customers, historical trends, and other
information. Based on the Company’s credit policies and its December 31, 2008 provision for credit losses, the Company’s exposure to
counterparty nonperformance is not expected to result in material effects on the Company’s financial statements.
Interest Rate Risk
We occasionally use treasury locks and other interest rate derivatives to hedge the risk associated with interest rate market volatility. In 2004,
we entered into an interest rate derivative to limit our sensitivity to market interest rate risk associated with the issuance of long-term debt.
Such instrument was designated as a cash flow hedge. We subsequently issued long-term debt and terminated the hedge at a cost that is
included in accumulated other comprehensive loss. Amounts recorded in other comprehensive loss will be reclassified to interest expense as the
related interest affects earnings through 2033.
NOTE 11 — COMMITMENTS AND CONTINGENCIES
Environmental Matters
Contaminated Sites — Prior to the construction of major interstate natural gas pipelines, gas for heating and other uses was manufactured
locally from processes involving coal, coke or oil. We own, or previously owned, 14 such former manufactured gas plant (MGP) sites.
Investigations have revealed contamination related to the by-products of gas manufacturing at each site. In addition to the MGP sites, we are
also in the process of cleaning up other contaminated sites. Cleanup activities associated with these sites will be conducted over the next
several years.
The MPSC has established a cost deferral and rate recovery mechanism for investigation and remediation costs incurred at former MGP sites.
Accordingly, we recognize a liability and corresponding regulatory asset for estimated investigation and remediation costs at former MGP
sites. During 2008, we spent approximately $2 million investigating and remediating these former MGP sites. As of December 31, 2008 and
2007, we had $38 million and $40 million, respectively, accrued for remediation.
Any significant change in assumptions, such as remediation techniques, nature and extent of contamination and regulatory requirements, could
impact the estimate of remedial action costs for the sites and affect the Company’s financial position and cash flows. However, we anticipate
the cost deferral and rate recovery mechanism approved by the MPSC will prevent environmental costs from having a material adverse impact
on our results of operations.
Labor Contracts
There are several bargaining units for our union employees. The majority of our union employees are under contracts that expire in
October 2010.
Purchase Commitments
As of December 31, 2008, we were party to numerous long-term purchase commitments relating to a variety of goods and services required for
our business. These agreements primarily consist of long-term gas purchase and transportation agreements. We estimate that these
commitments will be approximately $2.3 billion through 2051. We also estimate that 2009 capital expenditures will be approximately
$154 million. We have made certain commitments in connection with expected capital expenditures.
Bankruptcies
We buy and sell gas and gas transportation and storage services to numerous companies operating in the steel, automotive, energy, retail and
other industries. Certain of our customers have filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. We regularly
review contingent matters relating to these customers and our sale contracts and we record provisions for amounts considered at risk of
probable loss. We believe our previously accrued amounts are adequate for probable losses. The final resolution of these matters is not
expected to have a material effect on our consolidated financial statements.
We provide services to the domestic automotive industry, including GM, Ford and Chrysler and many of their vendors and suppliers. GM and
Chrysler have recently received loans from the U.S. Government to provide them with the working capital necessary to continue to operate in
the short term. In February 2009, GM and Chrysler submitted viability plans to the U.S. Government indicating
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