PSE and Photoshop, itself, uses the ACR (Adobe Camera Raw) plug-in to read the raw (NEF) files. DNG only enters into the process if you cannot update ACR to a new enough version to understand your raw files and you have an older version of ACR installed.
In your situation, there should be a new enough ACR plug-in that works with PSE12 so you don’t have to use DNGs.
Since there isn’t any ACR plug-in listed, the normal way to fix this is to uninstall and reinstall PSE12. This will reset it back to ACR 8.0 and you should verify this is the situation before you try to update to a newer version of ACR.
