INCOME TAXES

Income Tax Summary

DTE Energy files a consolidated federal income tax return. DTE Electric is a part of the consolidated federal income tax return of DTE Energy. DTE Energy and its subsidiaries file consolidated and/or separate company income tax returns in various states and localities, including a consolidated return in the State of Michigan. DTE Electric is part of the Michigan consolidated income tax return of DTE Energy. The federal, state and local income tax expense for DTE Electric is determined on an individual company basis with no allocation of tax expenses or benefits from other affiliates of DTE Energy. DTE Electric had an income tax receivable from DTE Energy of $6 million and $29 million at December 31, 2015 and 2014, respectively.

The Registrants' total Income Tax Expense varied from the statutory federal income tax rate for the following reasons:



	2015			2014			2013
DTE Energy	(In millions)
Income Before Income Taxes	$	950		$	1,275		$	922
Income tax expense at 35% statutory rate	$	333		$	446		$	323
Production tax credits	(122		)	(119		)	(68		)
Investment tax credits	(7		)	(6		)	(6		)
Depreciation	(4		)	(4		)	(4		)
AFUDC - Equity	(8		)	(7		)	(5		)
Employee Stock Ownership Plan dividends	(5		)	(4		)	(4		)
Domestic production activities deduction	—			—			(14		)
State and local income taxes, net of federal benefit	35			51			37
Enactment of New York Corporate Income Tax Legislation, net of federal benefit	—			8			—
Other, net	8			(1		)	(5		)
Income Tax Expense	$	230		$	364		$	254
Effective income tax rate	24.2		%	28.5		%	27.5		%



	2015			2014			2013
DTE Electric	(In millions)
Income Before Income Taxes	$	836		$	830		$	741
Income tax expense at 35% statutory rate	$	293		$	291		$	260
Production tax credits	(31		)	(22		)	(15		)
Investment tax credits	(5		)	(5		)	(5		)
Depreciation	3			3			3
AFUDC - Equity	(7		)	(7		)	(5		)
Employee Stock Ownership Plan dividends	(3		)	(3		)	(2		)
Domestic production activities deduction	—			(2		)	(18		)
State and local income taxes, net of federal benefit	43			43			41
Other, net	(1		)	—			(5		)
Income Tax Expense	$	292		$	298		$	254
Effective income tax rate	34.9		%	35.9		%	34.3		%

Components of the Registrants' Income Tax Expense were as follows:



	2015			2014			2013
DTE Energy	(In millions)
Current income tax expense (benefit)
Federal	$	(3	)	$	(16	)	$	74
State and other income tax	(4		)	24			16
Total current income taxes	(7		)	8			90
Deferred income tax expense
Federal	178			289			122
State and other income tax	59			67			42
Total deferred income taxes	237			356			164
Total	$	230		$	364		$	254



	2015			2014			2013
DTE Electric	(In millions)
Current income tax expense (benefit)
Federal	$	(26	)	$	(19	)	$	123
State and other income tax	(2		)	20			23
Total current income taxes	(28		)	1			146
Deferred income tax expense
Federal	252			251			68
State and other income tax	68			46			40
Total deferred income taxes	320			297			108
Total	$	292		$	298		$	254

Deferred tax assets and liabilities are recognized for the estimated future tax effect of temporary differences between the tax basis of assets or liabilities and the reported amounts in the Consolidated Financial Statements. Consistent with rate making treatment, deferred taxes are offset in the tables below for temporary differences which have related Regulatory assets and liabilities.

The Registrants' deferred tax assets (liabilities) were comprised of the following at December 31:



	DTE Energy						DTE Electric
	2015			2014			2015			2014
	(In millions)
Property, plant, and equipment	$	(4,211	)	$	(3,832	)	$	(3,468	)	$	(3,152	)
Securitized regulatory assets	5			(2		)	5			(3		)
Tax credit carry-forwards	465			296			53			—
Pension and benefits	(301		)	(152		)	(193		)	(43		)
Federal net operating loss carry-forward	177			—			142			—
State and local net operating loss carry-forwards	63			39			16			—
Investments in equity method investees	(82		)	(84		)	—			—
Other	(4		)	65			(53		)	12
	(3,888		)	(3,670		)	(3,498		)	(3,186		)
Less valuation allowance	(35		)	(31		)	—			—
Long-term deferred income tax liabilities	$	(3,923	)	$	(3,701	)	$	(3,498	)	$	(3,186	)

Deferred income tax assets	$	1,088		$	861		$	453		$	357
Deferred income tax liabilities	(5,011		)	(4,562		)	(3,951		)	(3,543		)
	$	(3,923	)	$	(3,701	)	$	(3,498	)	$	(3,186	)

Tax credit carry forwards for DTE Energy include $181 million of general business credits that expire from 2034 through 2035 and $284 million of alternative minimum tax credits that may be carried forward indefinitely. The alternative minimum tax credits are production tax credits earned prior to 2006 but not utilized. The majority of these alternative minimum tax credits were generated from projects that had received a private letter ruling (PLR) from the IRS. These PLRs provide assurance as to the appropriateness of using these credits to offset taxable income, however, these tax credits are subject to IRS audit and adjustment.

DTE Energy has a federal net operating loss carry-forward available for use on the tax return of $517 million as of December 31, 2015, which includes approximately $9 million related to windfall tax benefits attributable to stock-based compensation for which a benefit will be recorded in additional paid-in capital if and when realized. The federal net operating loss carry-forward expires in 2035. No valuation allowance is required for the federal net operating loss deferred tax asset.

The above tables exclude unamortized investment tax credits that are shown separately on the Registrants' Consolidated Statements of Financial Position. Investment tax credits are deferred and amortized to income over the average life of the related property.

DTE Energy has state and local deferred tax assets related to net operating loss carry-forwards of $63 million and $39 million at December 31, 2015 and 2014, respectively. The state and local net operating loss carry-forwards expire from 2016 through 2035. DTE Energy has recorded valuation allowances at December 31, 2015 and 2014 of approximately $35 million and $31 million, respectively, with respect to these deferred tax assets. In assessing the realizability of deferred tax assets, DTE Energy considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

DTE Electric has state and local deferred tax assets related to net operating loss carry-forwards of $16 million at December 31, 2015, while there was no state and local deferred tax asset related to net operating loss carry-forwards at December 31, 2014. No valuation allowance is required for DTE Electric's state and local net operating loss carry-forwards.

Uncertain Tax Positions

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the Registrants is as follows:



	2015			2014			2013
DTE Energy	(In millions)
Balance at January 1	$	9		$	10		$	11
Lapse of statute of limitations	(6		)	(1		)	(1		)
Balance at December 31	$	3		$	9		$	10



	2015		2014		2013
DTE Electric	(In millions)
Balance at January 1	$	4	$	4	$	4
Balance at December 31	$	4	$	4	$	4

DTE Energy had $2 million of unrecognized tax benefits at December 31, 2015 and 2014, that, if recognized, would favorably impact its effective tax rate. DTE Energy does not anticipate any material decrease in unrecognized tax benefits in the next twelve months.

DTE Electric had $3 million and $2 million of unrecognized tax benefits at December 31, 2015 and 2014, respectively, that, if recognized, would favorably impact its effective tax rate. DTE Electric does not anticipate any material decrease in unrecognized tax benefits in the next twelve months.

The Registrants recognize interest and penalties pertaining to income taxes in Interest expense and Other expenses, respectively, on their Consolidated Statements of Operations. Accrued interest pertaining to income taxes for both DTE Energy and DTE Electric totaled $1 million at December 31, 2015 and 2014. The Registrants had no accrued penalties pertaining to income taxes. The Registrants recognized interest expense (income) related to income taxes of a nominal amount in 2015, 2014, and 2013.

In 2015, DTE Energy, including DTE Electric, settled a federal tax audit for the 2013 tax year. DTE Energy's federal income tax returns for 2014 and subsequent years remain subject to examination by the IRS. DTE Energy's MBT and MCIT returns for the year 2008 and subsequent years remain subject to examination by the State of Michigan. DTE Energy also files tax returns in numerous state and local jurisdictions with varying statutes of limitation.