FAIR VALUE

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities. These inputs can be readily observable, market corroborated or generally unobservable inputs. The Company makes certain assumptions it believes that market participants would use in pricing assets or liabilities, including assumptions about risk, and the risks inherent in the inputs to valuation techniques. Credit risk of the Company and its counterparties is incorporated in the valuation of assets and liabilities through the use of credit reserves, the impact of which was immaterial at September 30, 2014 and December 31, 2013. The Company believes it uses valuation techniques that maximize the use of observable market-based inputs and minimize the use of unobservable inputs.

A fair value hierarchy has been established that prioritizes the inputs to valuation techniques used to measure fair value in three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. All assets and liabilities are required to be classified in their entirety based on the lowest level of input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input may require judgment considering factors specific to the asset or liability, and may affect the valuation of the asset or liability and its placement within the fair value hierarchy. The Company classifies fair value balances based on the fair value hierarchy defined as follows:


•	Level 1 — Consists of unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date.


•	Level 2 — Consists of inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.


•	Level 3 — Consists of unobservable inputs for assets or liabilities whose fair value is estimated based on internally developed models or methodologies using inputs that are generally less readily observable and supported by little, if any, market activity at the measurement date. Unobservable inputs are developed based on the best available information and subject to cost-benefit constraints.

The following table presents assets and liabilities measured and recorded at fair value on a recurring basis as of September 30, 2014 and December 31, 2013:



	September 30, 2014															December 31, 2013
	Level 1			Level 2			Level 3			Netting (a)			Net Balance			Level 1			Level 2			Level 3			Netting (a)			Net Balance
	(In millions)
Assets:
Cash equivalents (b)	$	11		$	51		$	—		$	—		$	62		$	10		$	115		$	—		$	—		$	125
Nuclear decommissioning trusts	789			440			—			—			1,229			779			412			—			—			1,191
Other investments (c) (d)	95			51			—			—			146			92			44			—			—			136
Derivative assets:
Commodity Contracts:
Natural Gas	118			98			38			(225		)	29			273			89			34			(382		)	14
Electricity	—			312			74			(322		)	64			—			261			139			(291		)	109
Other	46			2			4			(48		)	4			33			1			3			(34		)	3
Other derivative contracts (e)	—			1			—			(1		)	—			—			—			—			—			—
Total derivative assets	164			413			116			(596		)	97			306			351			176			(707		)	126
Total	$	1,059		$	955		$	116		$	(596	)	$	1,534		$	1,187		$	922		$	176		$	(707	)	$	1,578

Liabilities:
Derivative liabilities:
Commodity Contracts:
Natural Gas	$	(129	)	$	(147	)	$	(66	)	$	268		$	(74	)	$	(277	)	$	(140	)	$	(86	)	$	395		$	(108	)
Electricity	—			(303		)	(91		)	317			(77		)	—			(272		)	(126		)	269			(129		)
Other	(39		)	(8		)	(1		)	48			—			(32		)	(2		)	—			34			—
Other derivative contracts (e)	—			(3		)	—			1			(2		)	—			(1		)	—			—			(1		)
Total derivative liabilities	(168		)	(461		)	(158		)	634			(153		)	(309		)	(415		)	(212		)	698			(238		)
Total	$	(168	)	$	(461	)	$	(158	)	$	634		$	(153	)	$	(309	)	$	(415	)	$	(212	)	$	698		$	(238	)
Net Assets (Liabilities) at the end of the period	$	891		$	494		$	(42	)	$	38		$	1,381		$	878		$	507		$	(36	)	$	(9	)	$	1,340
Assets:
Current	$	155		$	419		$	93		$	(537	)	$	130		$	277		$	400		$	139		$	(592	)	$	224
Noncurrent (f)	904			536			23			(59		)	1,404			910			522			37			(115		)	1,354
Total Assets	$	1,059		$	955		$	116		$	(596	)	$	1,534		$	1,187		$	922		$	176		$	(707	)	$	1,578
Liabilities:
Current	$	(146	)	$	(405	)	$	(145	)	$	562		$	(134	)	$	(268	)	$	(328	)	$	(177	)	$	578		$	(195	)
Noncurrent	(22		)	(56		)	(13		)	72			(19		)	(41		)	(87		)	(35		)	120			(43		)
Total Liabilities	$	(168	)	$	(461	)	$	(158	)	$	634		$	(153	)	$	(309	)	$	(415	)	$	(212	)	$	698		$	(238	)
Net Assets (Liabilities) at the end of the period	$	891		$	494		$	(42	)	$	38		$	1,381		$	878		$	507		$	(36	)	$	(9	)	$	1,340

_______________________________________


(a)	Amounts represent the impact of master netting agreements that allow the Company to net gain and loss positions and cash collateral held or placed with the same counterparties.

(b)

At September 30, 2014, available-for-sale securities of $62 million included $46 million and $16 million of cash equivalents included in Restricted cash and Other investments on the Consolidated Statements of Financial Position, respectively. At December 31, 2013, available-for-sale securities of $125 million, included $109 million and $16 million of cash equivalents included in Restricted cash and Other investments on the Consolidated Statements of Financial Position, respectively.


(c)	Excludes cash surrender value of life insurance investments.


(d)	Available-for-sale equity securities of $7 million at both September 30, 2014 and December 31, 2013, are included in Other investments on the Consolidated Statements of Financial Position.


(e)	Primarily includes Foreign currency exchange contracts.


(f)	Includes $146 million and $136 million at September 30, 2014 and December 31, 2013, respectively, of other investments that are included in the Consolidated Statements of Financial Position in Other investments.

Cash Equivalents

Cash equivalents include investments with maturities of three months or less when purchased. The cash equivalents shown in the fair value table are comprised of short-term investments and money market funds.

Nuclear Decommissioning Trusts and Other Investments

The nuclear decommissioning trusts and other investments hold debt and equity securities directly and indirectly through institutional mutual funds. Exchange-traded debt and equity securities held directly are valued using quoted market prices in actively traded markets. The institutional mutual funds hold exchange-traded equity or debt securities and are valued based on stated net asset values (NAV). 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 trustee monitors prices supplied by pricing services and may use a supplemental price source or change the primary price source of a given security if the trustee determines 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 value of securities by comparison of market-based price sources. Investment policies and procedures are determined by the Company's Trust Investments Department which reports to the Company's Vice President and Treasurer.

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 three and nine months ended September 30, 2014 and 2013:



	Three Months Ended September 30, 2014												Three Months Ended September 30, 2013
	Natural Gas			Electricity			Other			Total			Natural Gas			Electricity			Other		Total
	(In millions)
Net Assets (Liabilities) as of June 30	$	(20	)	$	(27	)	$	7		$	(40	)	$	(30	)	$	12		$	2	$	(16	)
Transfers into Level 3	1			—			—			1			—			—			—		—
Transfers out of Level 3	(4		)	—			—			(4		)	—			(1		)	—		(1		)
Total gains (losses):
Included in earnings	(2		)	13			(1		)	10			8			17			—		25
Recorded in regulatory assets/liabilities	—			—			(3		)	(3		)	—			—			3		3
Purchases, issuances and settlements:
Settlements	(3		)	(3		)	—			(6		)	8			(23		)	—		(15		)
Net Assets (Liabilities) as of September 30	$	(28	)	$	(17	)	$	3		$	(42	)	$	(14	)	$	5		$	5	$	(4	)
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 September 30, 2014 and 2013 and reflected in Operating revenues and Fuel, purchased power and gas in the Consolidated Statements of Operations	$	(7	)	$	14		$	(1	)	$	6		$	(8	)	$	8		$	—	$	—



	Nine Months Ended September 30, 2014												Nine Months Ended September 30, 2013
	Natural Gas			Electricity			Other			Total			Natural Gas			Electricity			Other			Total
	(In millions)
Net Assets (Liabilities) as of December 31	$	(52	)	$	13		$	3		$	(36	)	$	(38	)	$	23		$	2		$	(13	)
Transfers into Level 3	—			—			—			—			—			—			—			—
Transfers out of Level 3	2			—			—			2			(2		)	—			—			(2		)
Total gains (losses):
Included in earnings	(45		)	26			(2		)	(21		)	(1		)	44			—			43
Recorded in regulatory assets/liabilities	—			—			9			9			—			—			7			7
Purchases, issuances and settlements:
Purchases	—			1			—			1			—			(1		)	—			(1		)
Issuances	—			(2		)	—			(2		)	—			—			—			—
Settlements	67			(55		)	(7		)	5			27			(61		)	(4		)	(38		)
Net Assets (Liabilities) as of September 30	$	(28	)	$	(17	)	$	3		$	(42	)	$	(14	)	$	5		$	5		$	(4	)
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 September 30, 2014 and 2013 and reflected in Operating revenues and Fuel, purchased power and gas in the Consolidated Statements of Operations	$	(23	)	$	(6	)	$	(1	)	$	(30	)	$	(14	)	$	36		$	—		$	22

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 period. There were no transfers between levels 1 and 2 during the three and nine months ended September 30, 2014 and 2013.

The following table presents the unobservable inputs related to Level 3 assets and liabilities as of September 30, 2014:



	September 30, 2014
Commodity Contracts	Derivative Assets		Derivative Liabilities			Valuation Techniques	Unobservable Input	Range						Weighted Average
	(In millions)
Natural Gas	$	38	$	(66	)	Discounted Cash Flow	Forward basis price (per MMBtu)	$	(2.28	) —	$	9.97	/MMBtu	$	(0.13	)/MMBtu
Electricity	$	74	$	(91	)	Discounted Cash Flow	Forward basis price (per MWh)	$	(15	) —	$	24	/MWh	$	4	/MWh

The following table presents the unobservable inputs related to Level 3 assets and liabilities as of December 31, 2013:



	December 31, 2013
Commodity Contracts	Derivative Assets		Derivative Liabilities			Valuation Techniques	Unobservable Input	Range						Weighted Average
	(In millions)
Natural Gas	$	34	$	(86	)	Discounted Cash Flow	Forward basis price (per MMBtu)	$	(0.88	) —	$	5.07	/MMBtu	$	(0.16	)/MMBtu
Electricity	$	139	$	(126	)	Discounted Cash Flow	Forward basis price (per MWh)	$	(7	) —	$	15	/MWh	$	3	/MWh

The unobservable inputs used in the fair value measurement of the electricity and natural gas commodity types consist of inputs that are less observable due in part to lack of available broker quotes, supported by little, if any, market activity at the measurement date or are based on internally developed models. Certain basis prices (i.e. the difference in pricing between two locations) included in the valuation of natural gas and electricity contracts were deemed unobservable.

The inputs listed above would have a direct impact on the fair values of the above security types if they were adjusted. A significant increase (decrease) in the basis price would result in a higher (lower) fair value for long positions, with offsetting impacts to short positions.

Fair Value of Financial Instruments

The fair value of financial instruments included in the table below is determined by using quoted market prices when available. When quoted prices are not available, pricing services may be used to determine the fair value with reference to observable interest rate indexes. DTE Energy has obtained an understanding of how the fair values are derived. DTE Energy also selectively corroborates the fair value of its transactions by comparison of market-based price sources. Discounted cash flow analyses based upon estimated current borrowing rates are also used to determine fair value when quoted market prices are not available. The fair values of notes receivable, excluding capital leases, are estimated using discounted cash flow techniques that incorporate market interest rates as well as assumptions about the remaining life of the loans and credit risk. Depending on the information available, other valuation techniques may be used that rely on internal assumptions and models. Valuation policies and procedures are determined by DTE Energy's Treasury Department which reports to the Company's Vice President and Treasurer.

The following table presents the carrying amount and fair value of financial instruments as of September 30, 2014 and December 31, 2013:



	September 30, 2014								December 31, 2013
	Carrying		Fair Value						Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Amount		Level 1		Level 2		Level 3
	(In millions)
Notes receivable, excluding capital leases	$	45	$	—	$	—	$	45	$	41	$	—	$	—	$	41
Dividends payable	$	122	$	122	$	—	$	—	$	116	$	116	$	—	$	—
Short-term borrowings	$	653	$	—	$	653	$	—	$	131	$	—	$	131	$	—
Long-term debt, excluding capital leases	$	8,171	$	474	$	7,107	$	1,412	$	8,094	$	425	$	7,551	$	499

For further fair value information on financial and derivative instruments see Note 5 to the Consolidated Financial Statements, "Financial and Other Derivative Instruments".

Nuclear Decommissioning Trust Funds

DTE Electric has a legal obligation to decommission its nuclear power plants following the expiration of their operating licenses. This obligation is reflected as an asset retirement obligation on the Consolidated Statements of Financial Position. Rates approved by the MPSC provide for the recovery of decommissioning costs of Fermi 2 and the disposal of low-level radioactive waste. DTE Electric is continuing to fund FERC jurisdictional amounts for decommissioning even though explicit provisions are not included in FERC rates.

The following table summarizes the fair value of the nuclear decommissioning trust fund assets:



	September 30, 2014		December 31, 2013
	(In millions)
Fermi 2	$	1,205	$	1,172
Fermi 1	3		3
Low level radioactive waste	21		16
Total	$	1,229	$	1,191

The costs of securities sold are determined on the basis of specific identification. The following table sets forth the gains and losses and proceeds from the sale of securities by the nuclear decommissioning trust funds:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(In millions)
Realized gains	$	8		$	11		$	24		$	30
Realized losses	$	(3	)	$	(11	)	$	(14	)	$	(25	)
Proceeds from sales of securities	$	177		$	168		$	652		$	477

Realized gains and losses from the sale of securities for the Fermi 2 and the low-level radioactive waste funds are recorded to the Regulatory asset and Nuclear decommissioning liability. The following table sets forth the fair value and unrealized gains for the nuclear decommissioning trust funds:



	September 30, 2014				December 31, 2013
	Fair Value		Unrealized Gains		Fair Value		Unrealized Gains
	(In millions)
Equity securities	$	748	$	209	$	730	$	201
Debt securities	465		18		442		12
Cash and cash equivalents	16		—		19		—
	$	1,229	$	227	$	1,191	$	213

The debt securities at September 30, 2014 and December 31, 2013 had an average maturity of approximately 7 years, respectively. Securities held in the nuclear decommissioning trust funds are classified as available-for-sale. As DTE Electric does not have the ability to hold impaired investments for a period of time sufficient to allow for the anticipated recovery of market value, all unrealized losses are considered to be other-than-temporary impairments.

Unrealized losses incurred by the Fermi 2 trust are recognized as a Regulatory asset. DTE Electric recognized $37 million and $31 million of unrealized losses as Regulatory assets at September 30, 2014 and December 31, 2013, respectively.

Other Securities

At September 30, 2014 and December 31, 2013, the securities were comprised primarily of money market and equity securities. During the three and nine months ended September 30, 2014 and 2013, no amounts of unrealized losses on available-for-sale securities were reclassified out of other comprehensive income and realized into net income for the periods. Gains related to trading securities held at September 30, 2014 and 2013 were $9 million and $14 million, respectively.