DTE Energy 2012 Annual Report Download - page 67
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Table of Contents
Nuclear Decommissioning Trusts and Other Investments
The nuclear decommissioning trusts and other investments hold debt and equity securities directly and indirectly through commingled funds and
institutional mutual funds. Exchange-traded debt and equity securities held directly are valued using quoted market prices in actively traded markets. The
commingled funds and institutional mutual funds which hold exchange-traded equity or debt securities are valued based on the underlying securities, using
quoted prices in actively traded markets. Non-exchange-traded fixed income securities are valued based upon quotations available from brokers or pricing
services. A primary price source is identified by asset type, 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 determine that another price source is considered to be
preferable. DTE Energy has obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving
such prices. Additionally, DTE Energy selectively corroborates the fair values of securities by comparison of market-based price sources.
Derivative Assets and Liabilities
Derivative assets and liabilities are comprised of physical and financial derivative contracts, including futures, forwards, options and swaps that are
both exchange-traded and over-the-counter traded contracts. Various inputs are used to value derivatives depending on the type of contract and availability of
market data. Exchange-traded derivative contracts are valued using quoted prices in active markets. DTE Energy considers the following criteria in
determining whether a market is considered active: frequency in which pricing information is updated, variability in pricing between sources or over time and
the availability of public information. Other derivative contracts are valued based upon a variety of inputs including commodity market prices, broker quotes,
interest rates, credit ratings, default rates, market-based seasonality and basis differential factors. DTE Energy monitors the prices that are supplied by
brokers and pricing services and may use a supplemental price source or change the primary price source of an index if prices become unavailable or another
price source is determined to be more representative of fair value. DTE Energy has obtained an understanding of how these prices are derived. Additionally,
DTE Energy selectively corroborates the fair value of its transactions by comparison of market-based price sources. Mathematical valuation models are used
for derivatives for which external market data is not readily observable, such as contracts which extend beyond the actively traded reporting period. The
Company has established a Risk Management Committee whose responsibilities include directly or indirectly ensuring all valuation methods are applied in
accordance with predefined policies. The development and maintenance of our forward price curves has been assigned to our Risk Management Department,
which is separate and distinct from the trading functions within the Company.
The following tables present the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for the years ended
December 31, 2012 and 2011:
Net Assets as of January 1
$1
$ 54
$ 4
$ 59
Transfers into Level 3
—
4
—
4
Transfers out of Level 3
1
(25)
—
(24)
Total gains (losses):
Included in earnings
7
77
3
87
Recorded in regulatory assets/liabilities
—
—
2
2
Purchases, issuances and settlements:
Purchases
—
3
—
3
Settlements
(3)
(81)
(3)
(87)
Net Assets (Liabilities) as of December 31
$ 6
$ 32
$ 6
$ 44
The amount of total gains (losses) included in net income
attributed to the change in unrealized gains (losses) related
to assets and liabilities held at December 31, 2012 and
2011and reflected in Operating revenues and Fuel,
purchased power and gas in the Consolidated Statements
of Operations
$ 8
$ 65
$ 2
$ 75
Derivatives are transferred between levels primarily due to changes in the source data used to construct price curves as a result of changes in market
liquidity. Transfers in and transfers out are reflected as if they had occurred at the beginning of the
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