DTE Energy 2009 Annual Report Download

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Exhibit 99.1
MICHIGAN CONSOLIDATED GAS COMPANY
Consolidated Financial Statements as of December 31, 2009 and 2008 and for each of the three years in the period ended
December 31, 2009 and Report of Independent Registered Public Accounting Firm

Table of contents

  • Page 1
    Exhibit 99.1 MICHIGAN CONSOLIDATED GAS COMPANY Consolidated Financial Statements as of December 31, 2009 and 2008 and for each of the three years in the period ended December 31, 2009 and Report of Independent Registered Public Accounting Firm

  • Page 2
    MICHIGAN CONSOLIDATED GAS COMPANY TABLE OF CONTENTS PAGE Definitions Management' s Narrative Analysis of Results of Operations Report of Independent Registered Public Accounting Firm Consolidated Statements of Operations Consolidated Statements of Financial Position Consolidated Statements of Cash ...

  • Page 3
    ... FASB Staff Position GCR A gas cost recovery mechanism authorized by the MPSC that allows MichCon to recover through rates its natural gas costs. MichCon Michigan Consolidated Gas Company (an indirect wholly owned subsidiary of DTE Energy) and subsidiary companies MPSC Michigan Public Service...

  • Page 4
    ... statements have been eliminated at DTE Energy as a result of purchase accounting adjustments. MichCon net income increased $13 million in 2009 and $9 million in 2008. Increase (Decrease) in Income Statement Components Compared to Prior Year (in Millions) 2009 2008 Operating revenues Cost of gas...

  • Page 5
    ... of lower employee benefit-related expenses, $14 million from continuous improvement initiatives and other cost reductions resulting in lower contract labor and outside services expense, information technology and other staff expenses, partially offset by higher health care expenses of $8 million...

  • Page 6
    ... December 31, 2008 were audited by other auditors whose report dated March 20, 2009 expressed an unqualified opinion on those statements and includes an explanatory paragraph relating to the adoption of new accounting standards. /s/ PricewaterhouseCoopers LLP Detroit, Michigan March 22, 2010 4

  • Page 7
    MICHIGAN CONSOLIDATED GAS COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (in Millions) Year Ended December 31 2009 2008 2007 Operating Revenues Operating Expenses Cost of gas Operation and maintenance Depreciation and amortization Taxes other than income Asset gains, net Operating Income Other (...

  • Page 8
    MICHIGAN CONSOLIDATED GAS COMPANY CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (in Millions) December 31 2009 2008 ASSETS Current Assets Cash and cash equivalents Accounts receivable (less allowance for doubtful accounts of $134 and $137, respectively) Customer Affiliates Other Inventories Gas ...

  • Page 9
    MICHIGAN CONSOLIDATED GAS COMPANY CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (in Millions, Except Shares) December 31 2009 2008 LIABILITIES AND SHAREHOLDER'S EQUITY Current Liabilities Accounts payable Affiliates Other Short-term borrowings Affiliates Other Other Long-Term Debt Other Liabilities...

  • Page 10
    ...and investment tax credits, net Asset gains, net Changes in assets and liabilities: Accounts receivable, net Inventories Accrued postretirement liability - affiliates Accrued pension liability - affiliates Recoverable pension and postretirement costs Accrued gas cost recovery Accounts payable Income...

  • Page 11
    MICHIGAN CONSOLIDATED GAS COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY AND COMPREHENSIVE INCOME Common Stock (Dollars in Millions, Shares in Thousands) Shares Amount Retained Earnings Accumulated Other Comprehensive Loss Total Balance, December 31, 2006 Net income Capital ...

  • Page 12
    ... and sale of natural gas to approximately 1.2 million customers throughout Michigan. References in this report to "we", "us", "our" or "Company" are to MichCon. Basis of Presentation The accompanying consolidated financial statements are prepared using accounting principles generally accepted...

  • Page 13
    ... aggressive action. MichCon assesses late payment fees on trade receivables based on contractual past-due terms established with customers. Customer accounts are written off when collection efforts have been exhausted, generally one year after service has been terminated. Unbilled revenues of $171...

  • Page 14
    ... Securities The Company generally classifies investments in debt and equity securities as trading and has recorded such investments at market value with unrealized gains or losses included in earnings. Stock-Based Compensation The Company received an allocation of costs from DTE Energy associated...

  • Page 15
    ... for other accounting policies impacting the Company' s consolidated financial statements: Note Title 3 4 5 7 9 10 15 New Accounting Pronouncements Fair Value Financial and Other Derivative Instruments Asset Retirement Obligation Regulatory Matters Income Taxes Retirement Benefits and Trusteed...

  • Page 16
    ...interim and annual periods ending after December 15, 2009. ASU 2009-05 provides guidance on measuring the fair value of liabilities under ASC 820. This standard clarifies that in the absence of a quoted price in an active market for an identical liability at the measurement date, companies may apply...

  • Page 17
    ...-17 (SFAS No. 167) will not have a material impact on MichCon' s consolidated financial statements. Revenue Arrangements In September 2009, the FASB ratified Issue No. 08-1, Revenue Arrangements with Multiple Deliverables (not yet codified). Issue 08-1 provides principles and application guidance...

  • Page 18
    ... a discounted cash flow analysis based upon estimated current borrowing rates when quoted market prices are not available. The table below shows the fair value relative to the carrying value for long-term debt securities. Certain other financial instruments, such as notes payable, customer deposits...

  • Page 19
    ... with commodity prices, credit and interest rates. MichCon has risk management policies to monitor and manage market risks. Commodity Price Risk The Company has fixed-priced contracts for portions of its expected gas supply requirements through 2013. These gas supply contracts are designated...

  • Page 20
    ... to be $6 million annually for 2010 through 2014. NOTE 7 - ASSET RETIREMENT OBLIGATIONS The Company has conditional retirement obligations for gas pipeline retirement costs. To a lesser extent, MichCon has conditional retirement obligations at certain service centers, compressor and gate stations...

  • Page 21
    ..., accounting and operating-related matters. MichCon' s MPSCapproved rates charged to customers have historically been designed to allow for the recovery of costs, plus an authorized rate of return on our investments. MichCon operates natural gas transportation and storage facilities in Michigan as...

  • Page 22
    ... Less amount included in current assets Liabilities Asset removal costs Negative pension offset Refundable income taxes Deferred income taxes - Michigan Business Tax Accrued GCR refund Less amount included in current liabilities and other liabilities 2009 2008 $ 409 $ 373 178 150 122 134 58 64...

  • Page 23
    ... in rates. Accrued GCR refund - Liability for the temporary over-recovery of and a return on gas costs incurred by MichCon which are recoverable through the GCR mechanism. • • • 2009 Gas Rate Case Filing MichCon filed a general rate case on June 9, 2009 based on a 2008 historical test year...

  • Page 24
    ... customers 2009-2010 Plan Year - In December 2008, MichCon filed its GCR plan case for the 2009-2010 GCR plan year. The MPSC issued an order in this case on November 12, 2009 authorizing a gas cost recovery factor of $8.46 per Mcf. 2010-2011 Plan Year - In December 2009, MichCon filed its GCR plan...

  • Page 25
    ... of tax benefits or expenses from other affiliates of DTE Energy. We have an income tax receivable of $38 million at December 31, 2009, and an income tax payable of $2 million at December 31, 2008 due from/to DTE Energy. Total income tax expense varied from the statutory federal income tax rate for...

  • Page 26
    ... benefits at December 31, 2009, if recognized, would not have a significant impact on our effective rate. The Company recognizes interest and penalties pertaining to income taxes in Interest expense and Other expenses, respectively, on our Consolidated Statements of Operations. We had $1 million of...

  • Page 27
    ...the year ended December 31, 2008. In 2009, DTE Energy and its subsidiaries settled a federal tax audit for the 2004 through 2006 tax years. The resulting change to unrecognized tax benefits was not significant. The Company' s U.S. federal income tax returns for years 2007 and subsequent years remain...

  • Page 28
    ... MichCon leases certain property under operating lease arrangements expiring at various dates through 2025. Some leases contain renewal options. Future minimum lease payments under non-cancelable leases at December 31, 2009 were: (in Millions) Operating Leases 2010 2011 Total minimum lease payments...

  • Page 29
    ... flows. However, the Company anticipates the cost deferral and rate recovery mechanism approved by the MPSC will prevent environmental costs from having a material adverse impact on our results of operations. Labor Contracts There are several bargaining units for the Company' s union employees. The...

  • Page 30
    ... by DTE Energy Corporate Services, LLC (LLC), a subsidiary of DTE Energy, which also became the plan sponsor for all plans of DTE Energy and its affiliates. The changes in plan sponsorship did not change the pension cost or contributions allocated to MichCon, or the benefits of plan participants...

  • Page 31
    ... the obligations, assets and funded status of the Company' s portion of the pension plans as well as the amounts recognized as prepaid pension cost in the Consolidated Statements of Financial Position at December 31: (in Millions) 2009 2008 Accumulated benefit obligation, end of year Change...

  • Page 32
    ...44 240 449 The Company employs a formal process in determining the long-term rate of return for various asset classes. Management reviews historic financial market risks and returns and long-term historic relationships between the asset classes of equities, fixed income and other assets, consistent...

  • Page 33
    ... 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 broker or pricing services. (c) This category...

  • Page 34
    ... rate and, in some cases, years of credited service. The cost of these plans was $4 million in each of the years 2009, 2008, and 2007. Other Postretirement Benefits The Company participates in plans sponsored by LLC that provide certain postretirement health care and life insurance benefits...

  • Page 35
    ..., assets and funded status of the Company' s portion of the plans including amounts recorded as accrued postretirement cost in the Consolidated Statements of Financial Position at December 31: (in Millions) 2009 2008 Change in accumulated postretirement benefit obligation Accumulated postretirement...

  • Page 36
    ... 5.00% 5.00% 2011 2016 A one-percentage-point increase in health care cost trend rates would have increased the total service cost and interest cost components of benefit costs by $6 million and increased the accumulated benefit obligation by $46 million at December 31, 2009. A one-percentage-point...

  • Page 37
    ... 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 broker or pricing services. (c) This category...

  • Page 38
    ... DTE Energy Company, including MichCon. These administrative and general expenses incurred by DTE Energy Corporate Services, LLC were then billed to various subsidiaries of DTE Energy, including MichCon. MichCon participates in a defined benefit retirement plan sponsored by another affiliate of DTE...

  • Page 39
    The following is a summary of transactions with affiliated companies: (in Millions) 2009 2008 2007 Revenues Transportation and storage services Other services Costs Gas purchases Other services and interest Corporate expenses Other Dividends declared Dividends paid Capital contribution (1) (in ...