DTE Energy 2011 Annual Report Download - page 12

10
Michigan Consolidated Gas Company
Notes to Consolidated Financial Statements
NOTE 1 — BASIS OF PRESENTATION
Corporate 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 to approximately 1.2 million customers throughout Michigan and the sale of storage and
transportation capacity.
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 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 Company's estimates.
Certain prior year balances were reclassified to match the current year's financial statement presentation.
Principles of Consolidation
The Company consolidates all majority owned subsidiaries and investments in entities in which it has controlling influence.
Non-majority owned investments are accounted for using the equity method when the Company is able to influence the
operating policies of the investee. Non-majority owned investments include investments in limited liability companies,
partnerships or joint ventures. When the Company does not influence the operating policies of an investee, the cost method is
used. The Company eliminates all intercompany balances and transactions.
The Company evaluates whether an entity is a variable interest entity (VIE) whenever reconsideration events occur. The Company
consolidates VIEs for which it is the primary beneficiary. If the Company 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,
the Company 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 Company performs ongoing reassessments of all VIEs to
determine if the primary beneficiary status has changed.
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES
Revenues
Revenues from the sale, delivery and storage of natural gas are recognized as services are provided. MichCon records revenues
for gas provided but unbilled at the end of each month. Rates for MichCon include provisions to adjust billings for fluctuations
in the cost of natural gas and certain other costs. Revenues are adjusted for differences between actual costs and the amounts
billed in current rates. Under or over recovered revenues related to these cost recovery mechanisms are recorded on the
Consolidated Statement of Financial Position and are recovered or returned to customers through adjustments to the billing
factors.
MichCon has an RDM that is designed to minimize the impact on revenues of changes in average customer usage of natural gas.
The June 2010 MPSC order in MichCon's 2009 rate case provided for, among other items, the implementation of a pilot RDM
effective July 1, 2010, which enables MichCon to recover or refund the change in revenue resulting from the difference in weather-
adjusted average sales per customer compared to the base average sales per customer established in the MPSC order. The pilot
RDM program is subject to review in future MPSC proceedings. The RDM addresses changes in customer usage due to general
economic conditions and conservation, but does not shield MichCon from the impacts of lost customers or weather variations.
See Note 8 for further discussion of recovery mechanisms authorized by the MPSC.