DTE Energy 2011 Annual Report Download

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Table of contents

  • Page 1

  • 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
    ...of The Detroit Edison Company, Michigan Consolidated Gas Company and numerous non-utility subsidiaries Financial Accounting Standards Board Federal Energy Regulatory Commission A Gas Recovery Recovery mechanism authorized by the MPSC that allows MichCon to recover through rates its natural gas costs...

  • Page 4
    ...statements have been eliminated at DTE Energy as a result of purchase accounting adjustments. 2011 (in Millions) 2010 2009 Operating Revenues Cost of Gas Gross Margin Operation and Maintenance Depreciation and Amortization Taxes Other Than Income Asset Gains, Net Operating Income Other (Income) and...

  • Page 5
    ..., additional factors may impact earnings such as infrastructure improvement capital programs, the outcome of future regulatory proceedings, investment returns and changes in discount rate assumptions in benefit plans and health care costs. We expect to continue our efforts to improve productivity...

  • Page 6
    Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholder of Michigan Consolidated Gas Company In our opinion, the accompanying consolidated statements of financial position and the related consolidated statements of operations, of cash flows and of changes ...

  • Page 7
    MICHIGAN CONSOLIDATED GAS COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31 (in Millions) 2011 2010 2009 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
    ...) 2011 2010 ASSETS Current Assets Cash and cash equivalents Restricted cash Accounts receivable (less allowance for doubtful accounts of $68 and $94, respectively) Customer Affiliates Other Inventories Gas Materials and supplies Gas customer choice deferred asset Current deferred income taxes Notes...

  • Page 9
    MICHIGAN CONSOLIDATED GAS COMPANY CONSOLIDATED STATEMENTS OF FINANCIAL POSITION December 31 (in Millions, Except Shares) 2011 2010 LIABILITIES AND SHAREHOLDER'S EQUITY Current Liabilities Accounts payable Affiliates Other Short-term borrowings Affiliates Other Current portion of long-term debt, ...

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

  • Page 11
    ... 2008 Net income Dividends declared on common stock Balance, December 31, 2009 Net income Capital contribution Dividends declared on common stock Balance, December 31, 2010 Net income Dividends declared on common stock Transfer of subsidiaries to an affiliate Balance, December 31, 2011 The following...

  • Page 12
    ... Structure MichCon is a Michigan corporation organized in 1898. MichCon is an indirect, wholly-owned subsidiary of DTE Energy. MichCon is a public utility subject to regulation by the MPSC and the FERC. MichCon is engaged in the purchase, storage, transportation, distribution and sale of natural gas...

  • Page 13
    ... such as assistance programs may delay aggressive action. MichCon assesses late payment fees on trade receivables based on contractual past-due terms with customers. Customer accounts are written off when collection efforts have been exhausted, generally one year after service has been terminated...

  • Page 14
    ...-Based Compensation The Company received an allocation of costs from DTE Energy associated with stock-based compensation. Our allocation for stock-based compensation expense was approximately $9 million in 2011 and $7 million in 2010 and 2009. Asset Gains, net In 2009, MichCon sold certain gathering...

  • Page 15
    ... analysis based upon estimated current borrowing rates when quoted market prices are not available. The table below shows the fair value and the carrying value for long-term debt securities. Certain other financial instruments, such as notes payable, customer deposits and notes receivable are not...

  • Page 16
    ...not qualify or are not designated for hedge accounting, changes in the fair value are recognized in earnings each period. The Company's primary market risk exposure is associated with commodity prices, credit and interest rates. MichCon has risk management policies to monitor and manage market risks...

  • Page 17
    ..., 2010 were $96 million and $51 million, respectively. Amortization expense for capitalized software costs is estimated to be $7 million annually for 2012 through 2016. NOTE 6 - ASSET RETIREMENT OBLIGATIONS The Company has conditional retirement obligations for gas pipelines, certain service centers...

  • Page 18
    ..., conditions of service, accounting and operating-related matters. MichCon's MPSC-approved 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 storage and transportation...

  • Page 19
    ... current assets $ Liabilities Asset removal costs Negative pension offset Refundable income taxes Accrued GCR refund Refundable uncollectible expense Energy Optimization Low Income Energy Efficiency Fund Refundable self implemented rates Refundable Michigan income taxes Other Less amount included in...

  • Page 20
    ...surcharges collected on excess of EO plan expenditures incurred. Low Income Energy Efficiency Fund (LIEEF) - Escrow of LIEEF funds collected by MichCon as ordered by the MPSC pursuant to July 2011 Michigan Court of Appeals decision. Refundable self implemented rates - Amounts refundable to customers...

  • Page 21
    ... The Customer Choice and Electricity Reliability Act of 2000 authorized the creation of the LIEEF administered by the MPSC. The purpose of the fund is to provide shut-off and other protection for low income customers and to promote energy efficiency by all customer classes. MichCon collects funding...

  • Page 22
    ... allocation of tax benefits or expenses from other affiliates of DTE Energy. MichCon had an income tax receivable of $42 million at December 31, 2011 and $48 million at December 31, 2010 due from DTE Energy. Total income tax expense varied from the statutory federal income tax rate for the following...

  • Page 23
    ...for the years ended December 31, 2010. In 2010, DTE Energy and its subsidiaries settled a federal tax audit for the 2007 and 2008 tax years, which resulted in the recognition of $9 million of unrecognized tax benefits by MichCon. The Company's federal income tax returns for 2009 and subsequent years...

  • Page 24
    ... AND PREFERRED SECURITIES Long-Term Debt Our long-term debt outstanding and interest rates of debt outstanding at December 31 were: (in Millions) 2011 2010 First Mortgage Bonds, interest payable semi-annually 7.06% series due 2012 8.25% series due 2014 Senior notes, interest payable semi-annually...

  • Page 25
    ... in 2011, 2010 and 2009. $ $ 1 1 2 Lessor -MichCon 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. The components of the net...

  • Page 26
    ... by DTE Energy Corporate Services, LLC (LLC), a subsidiary of DTE Energy. MichCon is allocated net periodic benefit costs (credits) for its share of the amounts of the combined plans. The Company's policy is to fund pension costs by contributing amounts consistent with the Pension Protection Act of...

  • Page 27
    ... Millions) 2011 2010 2009 Service cost Interest cost Expected return on plan assets Amortization of: Net loss Net pension cost (credit) $ 14 $ 41 (72) 30 13 12 $ 42 (81) 17 (10) $ 9 42 (87) 2 (34) $ $ (in Millions) 2011 2010 Other changes in plan assets and benefit obligations recognized...

  • Page 28
    ... in determining the projected benefit obligation and net pension costs are listed below: 2011 2010 2009 Projected benefit obligation Discount rate Rate of compensation increase Net pension costs Discount rate Rate of compensation increase Expected long-term rate of return on Plan assets 5.00% 4.20...

  • Page 29
    ... to 8.25% for 2012. The Company believes this rate is a reasonable assumption for the long-term rate of return on its plan assets for 2012 given its investment strategy. At December 31, 2011, the benefits related to the Company's qualified and nonqualified pension plans expected to be paid in each...

  • Page 30
    ... 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. (c) This category comprises...

  • Page 31
    ...class or issue for each security. The trustees monitor prices supplied by pricing services and may use a supplemental price source or change the primary price source of a given security if the trustees challenge an assigned price and determine that another price source is considered to be preferable...

  • Page 32
    ... some cases, years of credited service. The cost of these plans was $4 million in each of the years 2011, 2010, and 2009. Other Postretirement Benefits The Company participates in plans sponsored by LLC that provide certain postretirement health care and life insurance benefits for employees who are...

  • Page 33
    ...listed below: 2011 2010 2009 $ 346 $ 45 (6) (53) 332 $ 270 70 32 (26) 346 (182) (182) $ $ $ (232) $ (232) $ $ 202 $ (7) 1 196 $ 158 (8) 2 152 $ Projected benefit obligation Discount rate Net benefit costs Discount rate Expected long-term rate of return on plan assets Health care trend rate...

  • Page 34
    ...-term rate of return for assets and the investment approach for our other postretirement benefits plans is similar to those previously described for our pension plans. Target allocations for plan assets as of December 31, 2011 are listed below: U.S. Equity Securities Non U.S. Equity Securities Fixed...

  • Page 35
    ... includes corporate bonds from diversified industries, U.S. Treasuries, and mortgage backed securities. Pricing for investments in this category is obtained from quoted prices in actively traded markets and quotations from broker or pricing services. Non-exchange traded securities and exchange...

  • Page 36
    ... health care reform bill. A provision of the Act repeals the current rule permitting deduction of the portion of the drug coverage expense that is offset by the Medicare Part D subsidy, effective for taxable years beginning after December 31, 2012. MichCon's retiree healthcare plan includes...

  • Page 37
    ...corporate support services expenses and charges various subsidiaries of DTE Energy, including MichCon. MichCon participates in a defined benefit retirement plan sponsored by another affiliate of DTE Energy. The following is a summary of transactions with affiliated companies: (in Millions) 2011 2010...

  • Page 38
    ...Millions) December 31 2011 2010 Assets Accounts and notes receivable (1) Prepaid pension assets Liabilities & Equity Accounts payable (1) Short-term... 50 182 (1) Our accounts and notes receivable from affiliated companies and accounts payable to affiliated companies are payable upon demand and are ...