corresp
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DTE Energy Company |
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One Energy Plaza, Detroit, MI 48226-1279 |
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![(DTE ENERGY LOGO)](k49348k4934800.gif) |
June 18, 2010
VIA ELECTRONIC TRANSMISSION (EDGAR)
H. Christopher Owings
Assistant Director
Securities and Exchange Commission
Division of Corporation Finance
Mail Stop 3561
100 F Street, NE
Washington, DC 20549
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Re:
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DTE Energy Company |
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Form 10-K for the Fiscal Year Ended December 31, 2009 |
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Filed February 23, 2010 |
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Definitive Proxy Statement on Schedule 14A |
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Filed March 29, 2010 |
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File No. 001-11607 |
Dear Mr. Owings:
Set forth below are the responses of DTE Energy Company to the comments of the staff of the
Securities and Exchange Commission (the “SEC” or the “Commission”) contained in its letter to the
Company dated May 25, 2010 (the “Comment Letter”). References in this letter to “DTE,” “we,” “us,”
“our,” or the “Company” mean DTE Energy Company and its consolidated subsidiaries. Capitalized
terms used but not defined in this letter have the meanings given to such terms in our Form 10-K
for the year ended December 31, 2009.
For convenience of reference, each SEC staff comment is reprinted in italics, numbered to
correspond with the paragraph numbers assigned in the Comment Letter, and is followed by the
corresponding response. Where we have provided sample disclosure language for future filings, the
text is marked to show changes from the language in our 2009 Form 10-K and 2010 Proxy Statement, as
applicable.
June 18, 2010
Page 2
Form 10-K for the Fiscal Year Ended December 31, 2009
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,
page 31
Utility Operations, page 31
Impact of National and Regional Economic Conditions, page 32
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1. |
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We note your statements in the second paragraph on page 32 that Detroit Edison
experienced decreases in sales predominantly in the industrial class, and that MichCon’s
revenues were lower primarily due to lower natural gas costs and customer conservation.
Please expand your disclosure here, and elsewhere as appropriate, to address why these
changes occurred, and whether you believe they are trends that will have, or are reasonably
likely to have, a material impact on your revenues or income or result in your liquidity
decreasing or increasing in any material way. For guidance please refer to Instruction 4
to Item 303(a) of Regulation S-K and SEC Release No. 33-8350. |
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2. |
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Please expand your disclosure in the second paragraph on page 32 to describe the
regulatory mechanisms you expect to utilize that “will decouple [your] revenue levels from
sales volumes.” We note that you make a similar reference to the “revenue decoupling
mechanism” on page 39. |
Response (#1 and #2):
In future
filings, beginning with the 2010 Second Quarter Form
10-Q, we will update our disclosure
on page 32 as follows. Further revisions will be made as needed to reflect actual results, new
events and changes in trends as they occur.
During
2009 2010, Detroit Edison has continued to experienced decreases
in sales, predominantly in the industrial class, and to a lesser extent in the residential
and commercial classes, partially offset by higher interconnection sales. The sales
reductions are a result of lower demand from customers in the automotive and steel
industries and their related suppliers and other ancillary businesses, due primarily to
reduced production levels in response to the continuing negative regional and national
economic conditions. MichCon’s revenues were lower due primarily to lower natural gas
costs and customer conservation. MichCon’s revenues include a component for the cost of
natural gas sold that is recoverable through the Gas Cost Recovery (GCR) mechanism. As the
cost of natural gas increases or decreases, the corresponding revenues collected under the
GCR mechanism are also higher or lower. MichCon has also experienced lower revenues
resulting from reduced natural gas usage by customers due to economic conditions in its
service territory and an increased emphasis on conservation of energy usage. We expect
to minimize the impacts of declines in average customer usage through regulatory mechanisms
which will decouple our revenue levels from sales volumes. The January 2010 MPSC order
in Detroit Edison’s 2009 rate case provided for, among other items, the implementation of a
pilot electric Revenue Decoupling Mechanism (RDM). The electric RDM enables Detroit Edison
to recover or refund the change in revenue resulting from the difference between actual
average sales per
June 18, 2010
Page 3
customer compared to the base level of average sales per customer established in the
MPSC order. The June 2010 MPSC order in MichCon’s 2009 rate case provided for, among other
items, the implementation of a pilot gas RDM. The gas RDM enables MichCon to recover or
refund the change in distribution revenue resulting from the difference in weather-adjusted
average sales per customer by rate schedule compared to the base average sales per customer
by rate schedule established in the MPSC order. The RDMs for Detroit Edison and MichCon
address changes in customer usage due to general economic conditions and conservation, but
do not shield the utilities from the impacts of lost customers. In addition, the pilot
electric RDM shields Detroit Edison from the impact of weather on customer usage. The pilot
gas RDM does not shield MichCon from the impact of weather on customer usage. We expect
to be have been impacted by the challenges in the domestic automotive and steel
industries and the timing and level of recovery in the national and regional economies.
Direct and indirect effects of further automotive and other industrial plant closures could
have a significant impact on the results of Detroit Edison. As discussed further below,
deteriorating economic conditions impact our ability to collect amounts due from our
electric and gas customers and drive increased thefts of electricity and natural gas. In
the face of these economic conditions, we are continuing our efforts to identify
opportunities to improve cash flow through working capital initiatives and maintaining
flexibility in the timing and extent of our long-term capital projects. We are actively
managing our cash, capital expenditures, cost structure and liquidity to maintain our
financial strength. See the Capital Resources and Liquidity section in this
Management’s Discussion and Analysis for further discussion of our liquidity outlook.
* * * * *
Other references to the revenue decoupling mechanisms will be similarly revised or
cross-referenced to this revised disclosure.
Item 8. Financial Statements and Supplementary Data, page 63
Controls and Procedures, page 64
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3. |
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You state that your Chief Executive Officer and Chief Financial Officer concluded that
your disclosure controls and procedures are effective in providing reasonable assurance
that information required to be disclosed in your reports filed under the Exchange Act is
recorded, processed, summarized and reported within the required time periods. Please
revise to clarify, if true, that these officers also concluded that your disclosure
controls and procedures are also effective to ensure that information required to be
disclosed in the reports that you file or submit under the Exchange Act is accumulated and
communicated to your management, including your principal executive and principal financial
officer, to allow timely decisions regarding required disclosure. Refer to Exchange Act
Rule 13a-15(e). Alternatively, you may simply state that the officers concluded that your
disclosure controls and procedures are effective. |
June 18, 2010
Page 4
Response:
In future filings, beginning with the 2010 Second Quarter Form 10-Q, the Company will revise our
disclosure as follows:
Controls and Procedures
(a) Evaluation of disclosure controls and procedures
Management of the Company carried out an evaluation, under the supervision and with the
participation of DTE Energy’s Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company’s disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31,
2009 Xxxxxxx xx, 20xx, which is the end of the period covered by this report. Based
on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have
concluded that such disclosure controls and procedures are effective in providing
reasonable assurance that information required to be disclosed by the Company in reports
that it files or submits under the Exchange Act (i) is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures
designed to provide reasonable assurance that information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act and (ii) is
accumulated and communicated to the Company’s management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure. Due to the inherent limitations in the effectiveness of any disclosure
controls and procedures, management cannot provide absolute assurance that the objectives of
its disclosure controls and procedures will be attained.
Definitive Proxy Statement on Schedule 14A Filed March 29, 2010
Corporate Governance, page 7
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4. |
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Please expand your disclosure on page 7, or elsewhere as appropriate, to address
whether, and if so how, your Corporate Governance Committee considers diversity in
identifying nominees for director. We note your statement in the fourth paragraph on page
7 that diversity is a factor in Board nominee selection, but you do not address how this
factor is considered. Refer to Item 407(c)(2)(vi) of Regulation S-K. |
Response:
The Committee believes that it is desirable for Board members to possess diverse characteristics of
experience, gender, race, ethnicity, and age, and proactively considers such factors in the
Committee’s evaluation of candidates for Board membership.
In future filings, beginning with the 2011 Proxy Statement, we will revise our discussion regarding
the consideration of diversity in the selection of Directors as follows:
June 18, 2010
Page 5
Under the Governance Guidelines, the Corporate Governance Committee periodically
assesses the skills, characteristics and composition of the Board, along with the need for
expertise and other relevant factors as it deems appropriate. In light of these
assessments, and in light of the standards set forth in the Governance Guidelines, the
Corporate Governance Committee may seek candidates with specific qualifications and
candidates who satisfy other requirements set by the Board. We believe our Board should be
comprised of directors who have had high-level executive experience, have been
directors on other boards, high-level executive experience, and have been tested
through economic downturns and crises, and have a variety of experience and backgrounds.
Diversity, iIndustry experience, and regional relationships, and broad
diversity of experience and backgrounds are also factors in Board nominee selection.
While we do not have a formal policy relative to diversity in identifying director
nominees, we believe that it is desirable for Board members to possess diverse
characteristics of gender, race, ethnicity, and age, and we consider such factors in Board
evaluation and in the identification of candidates for Board membership. We believe
this type of composition enables the Board to oversee the management of the business and
affairs of the Company effectively. Information about the skills, experiences and
qualifications of our directors is included in their biographies beginning on page
xx 22.
Certain Relationships and Related Transactions, page 20
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5. |
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We note your discussion on page 20 that you have policies in place to address
related-party transactions, and that employees, officers and directors are obligated to
report conflicts or potential conflicts of interest. However, you do not describe the
standards to be applied in the review, approval or ratification of related party
transactions. Please revise. Refer to Item 404(b) of Regulation S-K. |
Response:
In future filings, beginning with the 2011 Proxy Statement, we will revise the first paragraph
under the heading “Certain Relationships and Related Transactions” as follows:
Related-person transactions have the potential to create actual or perceived conflicts of
interest. The Company has policies in place to address related-party transactions. In
addition, our Corporate Governance Committee and Audit Committee review potential dealings or
transactions with related-parties. In conducting such reviews, the Committees consider
various factors as they deem appropriate, which may include (i) the identity of the related
party and his or her relationship to the Company, (ii) the nature and size of the transaction,
including whether it involves the provision of goods or services to the Company that are
available from unrelated third parties and whether the transaction is on terms that are
comparable to the terms available from unrelated third parties, (iii) the nature and size of the
related party’s interest in the transaction, (iv) the benefits to the Company of the
transaction, and (v) whether the transaction could involve an actual or apparent conflict of
interest with the Company.
In general, employees and directors may not be involved in a business transaction where there is
a conflict of interest with the Company. The DTE Energy Way requires non-officer employees to
report conflicts of interest or potential conflicts of interest to their respective superiors;
the Officer Code of Conduct and Ethics requires officers to report conflicts of interest or
potential conflicts of interest to the Company’s General Counsel or to the Company’s Board of
Directors; and the Board of
June 18, 2010
Page 6
Directors Code of Business Conduct and Ethics requires directors to disclose conflicts of
interest or potential conflicts of interest to the Company’s Corporate Governance Committee or
the Chairman of the Board. For directors and officers, any waivers of the Company’s conflict of
interest policy must be approved by the Board or a Board committee, as required under the
Officer Code of Conduct and Ethics or Board of Directors Code of Business Conduct and
Ethics, and disclosed to shareholders.
Executive Compensation, page 44
Annual and Long-Tem Incentive Plans, page 47
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6. |
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We note that you did not disclose all of the targets upon which you base your NEO’s
payout under your annual incentive plan and you disclosed none of the targets, or “minimum
levels of performance”, under your long-term incentive plan. If you omitted this
information because you believe it would result in competitive harm as provided under
Instruction 4 to Item 402(b), please provide us with a detailed analysis of the basis upon
which you made your determination. Please note that the standard that applies in this
context is the same standard that would apply if you were to file a formal request for
confidential treatment of trade secrets or commercial or financial information contained in
a material contract exhibit to a Securities Act or Exchange Act filing. If disclosure of
the performance-related factors would cause competitive harm, please discuss how difficult
it will be for the executive or how likely it will be for the registrant to achieve the
target levels or other factors. Please refer to Instruction 4 to Item 402(b) of Regulation
S-K and Regulation S-K Compliance and Disclosure Interpretation 118.04 available on our
website. |
Response:
In future filings, beginning with the 2011 Proxy Statement, the Company will further expand its
disclosure in the Compensation Discussion and Analysis to detail the goals and final results for
all the performance measures which are included in the calculation of the Named Executive Officers’
incentive payments, unless the Company believes that the performance targets are not material or
that disclosure of incentive plan goals will cause competitive harm, in which case the Company will
provide to the SEC on a supplemental basis a detailed explanation for its conclusion if required.
The following is illustrative of the type of disclosure the Company will include in future filings
(using the approved 2009 performance measures and results by way of example):
a. Annual Incentive Plan —
* * * * *
For 2009, the performance objectives (and the related weightings),
thresholds, targets, maximums and results for calculating the Named Executive
Officers’
pre-adjusted
awards were as follows:
June 18, 2010
Page 7
For Messrs. Earley, Meador, Anderson and Peterson:
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Weighted |
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Payout |
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Average |
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Measures |
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Weight |
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Threshold |
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Target |
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Maximum |
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Result |
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% |
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Payout % |
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DTE Energy
Adjusted
EPS
Operating Earnings
Per Share |
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30 |
% |
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$ |
2.60 |
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$ |
2.90 |
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$ |
3.20 |
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$ |
3.30 |
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175.0 |
% |
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52.5 |
% |
DTE Energy Adjusted Cash
Flow ($ millions) |
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30 |
% |
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$ |
250 |
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$ |
400 |
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$ |
550 |
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$ |
980 |
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175.0 |
% |
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52.5 |
% |
Customer Satisfaction
Percentile
Ranking —
Residential |
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106.7 |
% |
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45 |
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52 |
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60 |
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39 |
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0.0 |
% |
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0.0 |
% |
Customer Satisfaction
Percentile Ranking —
Business |
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3.3 |
% |
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60 |
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65 |
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70 |
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70 |
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175.0 |
% |
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5.8 |
% |
MPSC Complaints —
Non- Revenue Management &
Protection |
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106.7 |
% |
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1,970 |
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1,820 |
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1,670 |
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1,566 |
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175.0 |
% |
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11.7 |
% |
MPSC Complaints — Revenue
Management & Protection |
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3.3 |
% |
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2,715 |
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2,515 |
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2,315 |
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2,128 |
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175.0 |
% |
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5.8 |
% |
Safety |
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10 |
% |
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1.5 |
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1.1 |
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0.8 |
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1.38 |
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47.5 |
% |
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4.8 |
% |
Diversity Hiring — Minority |
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5 |
% |
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15.3 |
% |
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17.0 |
% |
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18.7 |
% |
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25.0 |
% |
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175.0 |
% |
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8.8 |
% |
Diversity Hiring — Female |
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5 |
% |
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25.8 |
% |
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28.7 |
% |
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31.6 |
% |
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33.8 |
% |
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175.0 |
% |
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8.8 |
% |
Total |
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100 |
% |
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150.7 |
% |
The measures in the above table are defined below:
DTE Energy Adjusted EPS — DTE Energy Net Income after adjustments for certain non-operating
items divided by average shares outstanding.
DTE Energy Adjusted Cash Flow — DTE Energy Net cash from operating activities adjusted by
utility capital expenditures, asset sale proceeds and other items.
Customer Satisfaction Percentile Ranking — The ranking of residential and business customer
satisfaction as compared to 22 peer utilities.
MPSC Complaints — Number of complaints received by the Michigan Public Service Commission
(MPSC) in the calendar year for all business units across DTE Energy. Revenue Management and
Protection complaints relate to customer collections, payments, service disconnections and
similar matters. Non-Revenue Management and Protection complaints are all others.
Safety — Number of Occupational Safety and Health Administration (OSHA) defined recordable
injuries in the calendar year per 100 employees (working an average of 2,000 hours per year, per
employee) divided by the actual number of hours worked.
Diversity Hiring — The percentage of minority and women non-represented placements (new
hires and promotions).
The DTE Energy operating EPS target was $2.90, and the actual result for 2009 was $3.30
resulting in a payout of 175% of the target amount for that objective. The DTE Energy cash
flow
June 18, 2010
Page 8
target was $400 million, and the actual result as defined for 2009 was $980 million,
resulting in a payout of 175% of the target amount for that objective.
For 2009, the performance targets for MPSC complaints, diversity hiring — minority and
diversity hiring — female were met or exceeded. Actual results for the customer
satisfaction rating percentile ranking and safety measures were below target but exceeded
threshold. The aggregate weighted payment percentage for Messrs. Meador and Peterson’s
pre-adjusted calculated award was 150.7%. Due to two work-related fatalities during 2009,
the O&C Committee decided that Messrs. Earley and Anderson should not receive any credit for
the safety measure. Other corporate executives and leaders received a similar adjustment.
Messrs. Earley and Anderson’s pre-adjusted calculated award was adjusted down to 145.9%.
For Mr. Kurmas:
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Weighted |
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Payout |
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Average |
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Measures |
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Weight |
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Threshold |
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Target |
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Maximum |
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Result |
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% |
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Payout % |
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DTE Energy
Adjusted EPS
Operating Earnings Per
Share |
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|
10 |
% |
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$ |
2.60 |
|
|
$ |
2.90 |
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$ |
3.20 |
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$ |
3.30 |
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175.0 |
% |
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17.5 |
% |
Detroit Edison Adjusted
Operating Net Income ($ millions)
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20 |
% |
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$ |
335 |
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$ |
375 |
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$ |
415 |
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$ |
380 |
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109.4 |
% |
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21.9 |
% |
Detroit Edison Adjusted
Cash Flow ($ millions)
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20 |
% |
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$ |
190 |
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$ |
260 |
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$ |
330 |
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$ |
401 |
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175.0 |
% |
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35.0 |
% |
Customer Satisfaction
Percentile Ranking —
Residential
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1510 |
% |
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45 |
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52 |
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60 |
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39 |
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0.0 |
% |
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0.0 |
% |
Customer Satisfaction
Percentile Ranking — Business
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5 |
% |
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60 |
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65 |
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70 |
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70 |
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175.0 |
% |
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8.8 |
% |
MPSC Complaints —
Non- Revenue Management &
Protection
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1510 |
% |
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1,970 |
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1,820 |
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1,670 |
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1,566 |
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175.0 |
% |
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17.5 |
% |
MPSC Complaints — Revenue
Management & Protection
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5 |
% |
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|
2,715 |
|
|
|
2,515 |
|
|
|
2,315 |
|
|
|
2,128 |
|
|
|
175.0 |
% |
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8.8 |
% |
Safety |
|
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10 |
% |
|
|
1.9 |
|
|
|
1.5 |
|
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1.0 |
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1.6 |
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79.4 |
% |
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7.9 |
% |
Diversity Hiring — Minority |
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5 |
% |
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16.7 |
% |
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18.6 |
% |
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|
20.4 |
% |
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23.4 |
% |
|
|
175.0 |
% |
|
|
8.8 |
% |
Diversity Hiring — Female |
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5 |
% |
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15.1 |
% |
|
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16.8 |
% |
|
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18.5 |
% |
|
|
26.5 |
% |
|
|
175.0 |
% |
|
|
8.8 |
% |
Total
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100 |
% |
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135.0 |
% |
The measures in the above table are defined below:
DTE Energy Adjusted EPS — DTE Energy Net Income after adjustments for certain non-operating
items divided by average shares outstanding.
Detroit Edison Adjusted Net Income — Detroit Edison Net Income after adjustments for
certain non-operating items.
Detroit Edison Adjusted Cash Flow — Detroit Edison Net cash from operating activities
adjusted by Detroit Edison capital expenditures and other items.
June 18, 2010
Page 9
Customer Satisfaction Percentile Ranking — The ranking of residential and business customer
satisfaction as compared to 22 peer utilities.
MPSC Complaints — Number of complaints submitted to the MPSC in the calendar year for all
business units across DTE Energy. Revenue Management and Protection complaints relate to
customer collections, payments, service disconnections and similar matters. Non-Revenue
Management and Protection complaints are all others.
Safety — Number of OSHA defined recordable injuries in the calendar year per 100 employees
(working an average of 2,000 hours per year, per employee) divided by the actual number of hours
worked for Detroit Edison.
Diversity Hiring — The percentage of minority and women non-represented placements at
Detroit Edison (new hires and promotions).
As stated above, the DTE Energy operating EPS target of $2.90 was met, resulting in a payout
of 175% of the target amount for that objective. The Detroit Edison operating net income
target was $375 million, and the actual result for 2009 for incentive purposes was $380
million resulting in a payout of 109.4% of the target amount for that objective. The
Detroit Edison cash flow target was $260 million, and the actual result as defined for 2009
was $401 million, resulting in a payout of 175% of the target for that objective.
For 2009, the performance targets for MPSC complaints, diversity hiring — minority and
diversity hiring — female, were met or exceeded. Actual results for the customer
satisfaction percentile ranking and safety measures were below target but exceeded
threshold. Due to a work-related fatality at Detroit Edison during 2009, the O&C Committee
decided that Mr. Kurmas should not receive any credit for the safety measure. Other Detroit
Edison executives and leaders received a similar adjustment. The aggregate weighted payment
percentage for the pre-adjusted calculated award for Mr. Kurmas, after adjusting for the
safety measure, was 127.1%.
* * * * *
b. Long-Term Incentive Plan —
* * * * *
The payout amount was based upon the following performance measures (and related
weighting):
June 18, 2010
Page 10
Long-Term Incentive Plan (2009 Payout of Awards Granted in 2006)
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Weighted |
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Payout |
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Average |
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Measures |
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Weight |
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Threshold |
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Target |
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Maximum |
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Result |
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% |
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Payout % |
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Total Shareholder
Return: DTE vs.
Peer Group (as
defined below) |
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70 |
% |
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25th percentile |
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50th percentile |
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75th percentile |
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34th percentile |
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68.0 |
% |
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47.6 |
% |
Balance Sheet
Health Coverage Ratio (FFO/Debt) |
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15 |
% |
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20 |
% |
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23 |
% |
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26 |
% |
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22.6 |
% |
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93.3 |
% |
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14.0 |
% |
Employee Engagement |
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15 |
% |
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30th percentile |
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50th percentile |
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75th percentile |
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45.3 percentile |
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88.3 |
% |
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13.2 |
% |
Total |
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100 |
% |
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74.8 |
% |
The measures in the above table are defined below:
Total Shareholder Return — Total shareholder return compared to 22 peer group companies (as
defined below) based on the average share prices for the month of December.
Balance Sheet Coverage Ratio — Funds from operations divided by debt (less certain
exclusions).
Employee Engagement — Three-year average employee satisfaction survey results ranked within
the utility sector.
* * * * *
The amounts paid under the plans will continue to be disclosed and properly footnoted in the
Summary Compensation Table.
* * * * *
In connection with this letter, the Company acknowledges that:
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the Company is responsible for the adequacy and accuracy of the disclosure in the
filing; |
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• |
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staff comments or changes to disclosure in response to staff comments do not foreclose
the Commission from taking any action with respect to the filing; and |
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the Company may not assert staff comments as a defense in any proceeding initiated by
the Commission or any person under the federal securities laws of the United States. |
June 18, 2010
Page 11
We appreciate your assistance in this matter and will be pleased to provide any additional
information you may need. We hope this letter responds adequately to your comments, but if you
have any further questions or comments regarding this letter or our 2009 Form 10-K or 2010 Proxy
Statement, please contact me at (313) 235-7134.
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Very truly yours,
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/s/ Peter B. Oleksiak
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Peter B. Oleksiak |
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Vice President and Controller
and Chief Accounting Officer |
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