DTE Energy 2010 Annual Report Download - page 18

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16
Interest Rate Risk
MichCon occasionally uses treasury locks and other interest rate derivatives to hedge the risk associated with interest rate market
volatility. In 2004, MichCon entered into an interest rate derivative to limit its sensitivity to market interest rate risk associated with
the issuance of long-term debt. Such instrument was designated as a cash flow hedge. The Company 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 6 — PROPERTY, PLANT AND EQUIPMENT
Summary of property by classification as of December 31:
(in Millions)
2010
2009
Property, Plant and Equipment
Distribution
$ 2,460
$ 2,386
Storage
395
383
Transportation and Other
962
984
Total
3,817
3,753
Less Accumulated Depreciation
Distribution
(1,019)
(972)
Storage
(108)
(113)
Transportation and Other
(495)
(527)
Total
(1,622)
(1,612)
Net Property, Plant and Equipment
$ 2,195
$ 2,141
No AFUDC was capitalized during 2010 and AFUDC capitalized in 2009 was approximately $2 million.
The composite depreciation rate for MichCon was 2.5% in 2010, 3.1% in 2009, and 3.2% in 2008. In March 2010, the MPSC issued
an order reducing MichCon’ s composite depreciation rates effective April 1, 2010.
The average estimated useful life for gas distribution and transportation property was 62 years and 61 years, respectively, at December
31, 2010.
The gross carrying amount and accumulated amortization of capitalized software costs at December 31, 2010 were $96 million and
$51 million, respectively. The gross carrying amount and accumulated amortization of capitalized software costs at December 31,
2009 were $98 million and $50 million, respectively. Capitalized software costs amortization expense was $7 million in 2010, $7
million in 2009 and $6 million in 2008. Amortization expense for capitalized software costs is estimated to be $7 million annually for
2011 through 2015.
The Company amortizes capitalized software costs on a straight-line basis over the expected period of benefit, ranging from 5 to
15 years.
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. The Company recognizes such obligations as liabilities
at fair market value at the time the associated assets are placed in service. Fair value is measured using expected future cash outflows
discounted at our credit-adjusted risk-free rate. The Company defers timing differences that arise in the expense recognition of legal
asset retirement costs that are currently recovered in rates.