Weather, economic factors, competition and electricity prices affect sales levels to customers. Our peak load and highest total system sales generally occur during the third quarter of the year, driven by air conditioning and other cooling-related demands.

Our operations are not dependent upon a limited number of customers, and the loss of any one or a few customers would not have a material adverse effect on Detroit Edison.

Our power is generated from a variety of fuels and is supplemented with purchased power. We expect to have an adequate supply of fuel and purchased power to meet our obligation to serve customers. Our generating capability is heavily dependent upon the availability of coal. Coal is purchased from various sources in different geographic areas under agreements that vary in both pricing and terms. We expect to obtain the majority of our coal requirements through long-term contracts with the balance to be obtained through short-term agreements and spot purchases. We have severalsix long-term and two short-term contracts for a total purchase of approximately 2635 million tons of low-sulfur western coal to be delivered from 20062007 to 2008.2010. We also have ten contracts with several suppliers for the purchase of approximately 78 million tons of Appalachian coal to be delivered from 20062007 through 2008. These existing long-term coal2009. All of these contracts have fixed prices except for a single contract that has provisions for price escalation as well as de-escalation.prices. We have approximately 90% of our 20062007 expected coal requirements under contract. Given the geographic diversity of supply, we believe we can meet our expected generation requirements. We lease a fleet of rail cars and have long-term transportation contracts with companies to provide rail and vessel services for delivery of purchased coal to our generating facilities.

Detroit Edison participates in the energy market through the Midwest Independent System Operator, a Regional Transmission Organization.MISO. We offer our generation in the market on a day-ahead and real-time basis and bid for power in the market to serve our load. We are a net purchaser of power which supplements our generation capability to meet customer demand during peak cycles. For example, when high temperatures occur during the summer, we require additional electricity to meet demand. This access to additional power is an efficient and economical way to meet our obligation to customers without increasing capital expenditures to build additional base-load power plants.

Detroit Edison owns and operates 670675 distribution substations with a capacity of approximately 32,489,00033,075,000 kilovolt-amperes (kVA) and approximately 421,000426,700 line transformers with a capacity of approximately 25,345,00025,883,000 kVA.

Circuit miles of distribution lines owned and in service as of December 31, 20052006 are as follows:

There are numerous interconnections that allow the interchange of electricity between Detroit Edison and electricity providers external to our service area. These interconnections are generally owned and operated by ITC Transmission and connect to neighboring energy companies.

Our gas sales, end user transportation and intermediate transportation volumes, revenues and net income are impacted by weather. Given the seasonal nature of our business, revenues and net income are concentrated in the first and fourth quarters of the calendar year. By the end of the first quarter, the heating season is largely over, and we typically realize substantially reduced revenues and earnings in the second quarter and losses in the third quarter.

Our operations are not dependent upon a limited number of customers, and the loss of any one or a few customers would not have a material adverse effect on our Gas Utility segment.

Our gas distribution system has a planned maximum daily send-out capacity of 2.8 Bcf, with approximately 67%71% of the volume coming from underground storage for 2005.2006. Peak-use requirements are met through utilization of our storage facilities, pipeline transportation capacity, and purchased storage services.gas supplies. Because of our geographic diversity of supply and our pipeline transportation and storage capacity, we are able to reliably meet our supply requirements. We believe natural gas supply and pipeline capacity will be sufficiently available to meet market demands in the foreseeable future.

We purchase natural gas supplies in the open market by contracting with producers and marketers, and we maintain a diversified portfolio of natural gas supply contracts. Supplier, producing region, quantity, and available transportation diversify our natural gas supply base. We obtain our natural gas supply from various sources in different geographic areas (Gulf Coast, Mid-Continent, Canada and Michigan) under agreements

We own 840 miles of transportation and gathering pipelines in the northern lower peninsula of Michigan. We lease a portion of our pipeline system to the Vector Pipeline Partnership (an affiliate) through a capital lease arrangement. See Note 11. We also own a 2,400 horsepower compressor station located in northern Michigan.13 of the Notes to Consolidated Financial Statements.

We are subject to the regulatory jurisdiction of the MPSC, which issues orders pertaining to rates, recovery of certain costs, including the costs of regulatory assets, conditions of service, accounting and other operating-related matters. We are subject to the requirements of other regulatory agencies with respect to safety, the environment and health.

In the late 1990s, the MPSC began an initiative designed to give all of Michigan’s natural gas customers added choices and the opportunity to benefit from lower gas costs resulting from competition. In 1999, the MPSC approved a comprehensive experimental three-year gas Customer Choice program that allowed an increasing number of customers to purchase natural gas from suppliers other than their local utility. In December 2001, the MPSC issued an order that continued the gas Customer Choice program on a permanent and expanding basis. The permanent gas Customer Choice program was phased in over a three-year period, with all customers having the option to choose their gas supplier by April 2004. Since MichCon continues to transport and deliver the gas to the participating customer premises at prices comparable to margins earned on gas sales, customers switching to other suppliers have little impact on MichCon’s earnings.

We operate peaking, gas-fired and biomass-fired electric generating plants. We have four natural gas-fired electric generating plants that

The following are located in the Great Lakes region, and in 2005 we acquired a 99% interestsignificant properties operated by Non-Utility Power Generation:

Production tax credits are available at one biomass-fired electric generating plant in California.Non-Utility Power Generation facility. The facility produces electricity using renewable resources.

We develop, own and operate landfill gas recovery systems in the U.S. Landfill gas, a byproduct of solid waste decomposition, is composed of approximately equal portions of methane and carbon dioxide. We develop landfill gas recovery systems that capture the gas and use it productively. Landfill gas recovery systems provide local utilities, industry and consumers with an opportunity to use a competitive, renewable source of energy. During 2005, we acquiredenergy, in addition to providing environmental benefits by reducing greenhouse gas emissions. We also co-own, with the Coal Transportation and placed in commercial operationMarketing segment, a coal mine methane gathering system and gas processing facility in southern Illinois. This processed methane is sold into the natural gas transmission system. Converting the methane into a renewable energy resource conserves fossil fuels. Many of our facilities generate production tax credits that will expire inat the end of 2007.

Landfill gas recovery has operations in 1312 states.

Air- Detroit Edison is subject to EPA ozone transport and acid rain regulations that limit power plant emissions of sulfur dioxide and nitrogen oxides. In March 2005, EPA issued additional emission reduction regulations relating to ozone, fine particulate, regional haze and mercury air pollution. The new rules will lead to additional controls on fossil-fueled power plants to reduce nitrogen oxide, sulfur dioxide and mercury emissions. The cost to address environmental air issues is estimated through 2018.

Water-– In response to an EPA regulation, Detroit Edison is required to examine alternatives for reducing the environmental impacts of the cooling water intake structures at several of its facilities. Based on the results of studies to be conducted over the next fourone to sixtwo years, Detroit Edison may be required to installperform some mitigation activities, including, the possible installation of additional control technologies to reduce the environmental impact of the intake structures. However, a recent court decision remanded back to the EPA several provisions of the federal regulation resulting in a delay in complying with the regulation.

MGP Sites- Prior to the construction of major interstate natural gas pipelines, gas for heating and other uses was manufactured locally from processes involving coal, coke or oil. The facilities, which produced gas for heating and other uses, have been designated as MGP sites. Gas Utility owns, or previously owned, fifteen such former MGP sites. In addition to the MGP sites, the company is also in the process of cleaning up other contaminated sites. As a result of these determinations, we have recorded liabilities related to these sites. Cleanup activities associated with these sites will be conducted over the next several years.

Detroit Edison conducted remedial investigations at contaminated sites, including two MGP sites, the area surrounding an ash landfill and several underground and aboveground storage tank locations. The findings of