UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

~~ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES~~
~~EXCHANGE ACT OF 1934~~


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~For the fiscal year ended December 31, 2008~~

Commission file number 1-2198

The Detroit Edison Company, a Michigan corporation, meets the conditions set forth in General Instruction I (1) (a) and (b) of Form 10-K and is, therefore, filing this form with the reduced disclosure format.

THE DETROIT EDISON COMPANY

(Exact name of registrant as specified in its charter)


Michigan		~~38-0478650~~
(State or other jurisdiction of incorporation or		~~(I.R.S. Employer~~
organization)		38-0478650 (I.R.S. Employer Identification No.)


One Energy Plaza, Detroit, Michigan		~~48226-1279~~
(Address of principal executive offices)		48226-1279 (Zip Code)

313-235-4000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yeso Noþ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yeso Noþ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.oþ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filero	Accelerated filero	Non-accelerated filerþ	Smaller reporting companyo
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yeso Noþ

All of the registrant’s 138,632,324 outstanding shares of common stock, par value $10 per share, are owned by DTE Energy Company.

DOCUMENTS INCORPORATED BY REFERENCE
None

Definitions


ASC		Accounting Standards Codification

ASU		Accounting Standards Update

CTA		Costs to achieve, consisting of project management, consultant support and employee severance, related to the Performance Excellence Process

Customer Choice		Statewide initiatives giving customers in Michigan the option to choose alternative suppliers for electricity.

Detroit Edison		The Detroit Edison Company (a direct wholly owned subsidiary of DTE Energy Company) and subsidiary companies

DTE Energy		DTE Energy Company, the parent of Detroit Edison and directly or indirectly the parent company of numerous utility and non-utility subsidiaries

EPA		United States Environmental Protection Agency

FASB		Financial Accounting Standards Board

FERC		Federal Energy Regulatory Commission

FSP		FASB Staff Position

FTRs		Financial transmission rights

MDEQ		Michigan Department of Environmental Quality

MISO		Midwest Independent System Operator, ais an Independent System Operator and the Regional Transmission Organization serving the Midwest United States and Manitoba, Canada.

MPSC		Michigan Public Service Commission

NRC		Nuclear Regulatory Commission

PSCR		A power supply cost recovery mechanism authorized by the MPSC that allows Detroit Edison to recover through rates its fuel, fuel-related and purchased power ~~expenses.~~costs.

Securitization		Detroit Edison financed specific stranded costs at lower interest rates through the sale of rate reduction bonds by a ~~wholly owned~~wholly-owned special purpose entity, ~~the~~The Detroit Edison Securitization Funding LLC.

SFAS		Statement of Financial Accounting Standards

Units of Measurement

GWh		Gigawatthour of electricity

kWh		Kilowatthour of electricity

MW		Megawatt of electricity

MWh		Megawatthour of electricity

Forward-Looking Statements

Certain information presented herein includes ~~forward-looking statements~~“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of ~~1995.~~1995 with respect to the financial condition, results of operations and business of Detroit Edison. Forward-looking statements ~~involve certain~~are subject to numerous assumptions, risks and uncertainties that may cause actual future results to ~~differ~~be materially different from those ~~presently~~ contemplated, projected, estimated or budgeted. Many factors may impact forward-looking statements including, but not limited to, the following:

•		the length and severity of ongoing economic decline resulting in lower demand, customer conservation and increased thefts of electricity;

•		changes in the economic and financial viability of our customers, suppliers, and trading counterparties, and the continued ability of such parties to perform their obligations to the Company;

•		economic climate and population growth or decline in the geographic areas where we do business;

•		high levels of uncollectible accounts receivable;

•		access to capital markets and capital market conditions and the results of other financing efforts which can be affected by credit agency ratings;

	•		instability in capital markets which could impact availability of short and long-term financing;

	•		~~potential for continued loss on cash equivalents and investments, including nuclear decommissioning and benefit plan assets;~~

	•		~~the length and severity of ongoing economic decline;~~

	•		the timing and extent of changes in interest rates;

	•		the level of borrowings;

•		potential for losses on investments, including nuclear decommissioning and benefit plan assets and the related increases in future expense and contributions;

•		the ~~availability, cost, coverage and terms~~potential for increased costs or delays in completion of ~~insurance and stability of insurance providers;~~significant construction projects;

	•		~~changes in the economic and financial viability of our customers, suppliers, and trading counterparties, and the continued ability of such parties to perform their obligations to Detroit Edison;~~

	•		the effects of weather and other natural phenomena on operations and sales to customers, and purchases from suppliers;

	•		~~economic climate and population growth or decline in the geographic areas where we do business;~~

	•		environmental issues, laws, regulations, and the increasing costs of remediation and compliance, including actual and potential new federal and state requirements that include or could include carbon and more stringent mercury emission controls, a renewable portfolio standard, ~~and~~ energy efficiency ~~mandates;~~mandates, carbon tax or cap and trade structure and ash landfill regulations;

	•		nuclear regulations and operations associated with nuclear facilities;

	•		impact of electric utility restructuring in Michigan, including legislative amendments and Customer Choice programs;

	•		employee relations and the impact of collective bargaining agreements;

	•		unplanned outages;

	•		changes in the cost and availability of coal and other raw materials and purchased power;

•		cost reduction efforts and the maximization of plant and distribution system performance;

•		the effects of competition;

~~resulted in many former electric Customer Choice customers migrating back to Detroit Edison for electric generation service.~~suppliers will represent approximately 10% of retail sales. When market conditions are favorable, we sell power into the wholesale market, in order to lower costs to full-service customers.

Competition in the regulated electric distribution business is primarily from the on-site generation of industrial customers and from distributed generation applications by industrial and commercial customers. We do not expect significant competition for distribution to any group of customers in the near term. In 2008, the Michigan legislature passed a comprehensive reform package that requires Michigan utilities to serve ten percent of their retail sales from renewable energy sources by 2015. In December 2008, Detroit Edison issued a request for proposal to purchase Michigan-based renewable energy credits.

ENVIRONMENTAL MATTERS

We are subject to extensive environmental regulation. Additional costs may result as the effects of various substances on the environment are studied and governmental regulations are developed and implemented. Actual costs to comply could vary substantially. We expect to continue recovering environmental costs through rates charged to our customers. The following table summarizes our estimated significant future environmental expenditures based upon current regulations:


(in Millions)
Air	$	2,800	$	2,200
Water		55		55
MGP sites		3		5
Other sites		9		21

Estimated total future expenditures through 2018	$	2,867
Estimated total future expenditures through 2019			$	2,281

Estimated 2010 expenditures			$	82

Estimated 2009 expenditures	$	100
Estimated 2011 expenditures			$	253

~~greenhouse gases, including carbon dioxide,~~Landfill— Detroit Edison owns and operates a permitted engineered ash storage facility at the Monroe Power Plant to dispose of fly ash from the coal fired power plant. Detroit Edison performed an engineering analysis in 2009 and identified the need for embankment side slope repairs and reconstruction.

The EPA has expressed its intentions to develop new federal regulations for coal ash under the authority of the Resources Conservation and Recovery Act (RCRA). A proposed regulation is expected in the ~~atmosphere. We cannot predict~~first quarter of 2010. Among the ~~impact any legislative~~options EPA is currently considering, is a ruling that may designate coal ash as a “Hazardous Waste” as defined by RCRA. However, agencies and legislatures have urged EPA to regulate coal ash as a non-hazardous waste. If EPA were to designate coal ash as a hazardous waste, the agency could apply some, or all, of the disposal and reuse standards that have been applied to other existing hazardous wastes. Some of the regulatory ~~action may~~actions currently being contemplated could have a material adverse impact on our operations and financial ~~position.~~position and the rates we charge our customers.

Global Climate Change— Climate regulation and/or legislation is being proposed and discussed within the U.S. Congress and the EPA. On June 26, 2009, the U.S. House of Representatives passed the American Clean Energy and Security Act (ACESA). The ACESA includes a cap and trade program that would start in 2012 and provides for costs to emit greenhouse gases. Despite action by the Senate Environmental and Public Works Committee to pass a similar but more stringent bill in October 2009, full Senate action on a climate bill is not expected before the spring of 2010. Meanwhile, the EPA is beginning to implement regulatory actions under the Clean Air Act to address emission of greenhouse gases. Pending or future legislation or other regulatory actions could have a material impact on our operations and financial position and the rates we charge our customers. Impacts include expenditures for environmental equipment beyond what is currently planned, financing costs related to additional capital expenditures and the purchase of emission allowances from market sources. We would seek to recover these incremental costs through increased rates charged to our utility customers. Increased costs for energy produced from traditional sources could also increase the economic viability of energy produced from renewable and/or nuclear sources and energy efficiency initiatives and the development of market-based trading of carbon offsets providing business opportunities for our utility and non-utility segments. It is not possible to quantify these impacts on Detroit Edison or its customers at this time.

See Notes 410 and 1517 of the Notes to Consolidated Financial Statements in Item 8 of this Report.

EMPLOYEES

We had ~~4,682~~4,864 employees as of December 31, ~~2008,~~2009, of which ~~1,897~~2,782 were represented by unions. The majority of our union employees are under contracts that expire in June 2010 and August 2012.

Item 1A. Risk Factors

There are various risks associated with the operations of Detroit Edison. To provide a framework to understand ~~our~~the operating environment, we are providing a brief explanation of the more significant risks associated with our business. Although we have tried to identify and discuss key risk factors, others could emerge in the future. Each of the following risks could affect our performance.

Regional and national economic conditions can have an unfavorable impact on us.Our business follows the economic cycles of the customers we serve. We provide services to the domestic automotive ~~industry~~and steel industries which ~~is under~~have undergone considerable financial distress, exacerbating the decline in regional economic conditions. Should national or regional economic conditions further decline, reduced volumes of electricity and collections of accounts receivable will result in decreased earnings and cash flow.

Adverse changes in our credit ratings may negatively affect us.Regional and national economic ~~condition~~s,conditions, increased scrutiny of the energy industry and regulatory changes, as well as changes in our economic performance, could result in credit agencies reexamining our credit rating. While credit ratings reflect the opinions of the credit agencies issuing such ratings and may not necessarily reflect actual performance, a downgrade in our credit rating below investment grade could restrict or discontinue our ability to access capital markets and could result in an increase in our borrowing costs, a reduced level of capital expenditures and could impact future earnings and cash flows. In addition, a reduction in credit rating may require us to post collateral related to various physical or financially settled contracts for the purchase of energy-related commodities, products and services, which ~~would~~could impact our liquidity.

Our ability to access capital markets ~~at attractive interest rates~~ is important.Our ability to access capital markets is important to operate our businesses. In ~~recent months,~~ the ~~global financial markets have experienced unprecedented instability. This systemic marketplace distress is impacting our access to capital and cost of capital. This recent~~past, turmoil in credit markets has constrained, and may again in the future constrain, our ability as well as the ability of our subsidiaries to issue new debt, including commercial paper, and refinance existing ~~debt. We cannot predict the length of time the current worldwide credit situation will continue or the impact on our future operations and our ability to issue~~ debt at reasonable interest rates. In addition, the level of borrowing by other energy companies and the market as a whole could limit our access to capital markets. We have ~~substantial amounts of short-term~~a five-year credit ~~facilities~~facility that ~~expire~~expires in ~~2009.~~2010. We intend to seek to renew the ~~facilities~~facility on or before the expiration ~~dates.~~date. However, we cannot predict the outcome of these efforts, which could result in a decrease in amounts available and/or an increase in our borrowing costs and negatively impact our financial performance.

Poor investment performance of pension and other postretirement benefit plan holdings and other factors impacting benefit plan costs could unfavorably impact our liquidity and results of operations.~~Our~~Detroit Edison participates in various plans that provide pension and other postretirement benefits for DTE Energy and its affiliates.Our costs of providing non-contributory defined benefit pension plans and other postretirement benefit plans are dependent upon a number of factors, such as the rates of return on plan assets, the level of interest rates used to measure the required minimum funding levels of the plans, future government regulation, and our required or voluntary contributions made to the plans. The performance of the ~~capital~~debt and equity markets affects the value of assets that are held in trust to satisfy future obligations under our plans. We have significant benefit obligations and hold significant assets in trust to satisfy these obligations. These assets are subject to market fluctuations and will yield uncertain returns, which may fall below our projected return rates. A decline in the market value of the pension and postretirement benefit plan assets ~~as was experienced in 2008,~~ will increase the funding requirements under our pension and postretirement benefit plans if the actual asset returns do not recover these declines in the foreseeable future. Additionally, our pension and postretirement benefit plan liabilities are sensitive to changes in interest rates. As interest rates

Michigan’s electric Customer Choice program could negatively impact our financial performance.The electric Customer Choice program, as originally contemplated in Michigan, anticipated an eventual transition to a totally deregulated and competitive environment where customers would be charged market-based rates for their electricity. The State of Michigan currently experiences a hybrid market, where the MPSC continues to regulate electric rates for our customers, while alternative electric suppliers charge market-based rates. In addition, such regulated electric rates for certain groups of our customers exceed the cost of service to those customers. Due to distorted pricing mechanisms during the initial implementation period of electric Customer Choice, many commercial customers chose alternative electric suppliers. MPSC rate orders and recent energy legislation enacted by the State of Michigan are phasing out the pricing disparity over five years and have placed a cap on the total potential Customer Choice related migration. ~~Recent higher wholesale electric prices have also resulted in some former electric Customer Choice customers migrating back to Detroit Edison for electric generation service.~~ However, even with the electric Customer Choice-related relief received in recent Detroit Edison rate orders and the legislated 10 percent cap on participation in the electric Customer Choice program, there continues to be financial risk associated with the electric Customer Choice program. Electric Customer Choice migration is sensitive to market price and bundled electric service price increases.

electricity. We have hedging strategies and regulatory recovery mechanisms in place to mitigate negative fluctuations in commodity supply prices, but there can be no assurances that our financial performance will not be negatively impacted by price fluctuations.

The supply and/or price other industrial raw and finished inputs and/or related services may impact our financial results.We are dependent on supplies of certain commodities, such as copper and limestone, among others, and industrial materials and services in order to maintain day-to-day operations and maintenance of our facilities. Price fluctuations or supply interruptions for these commodities and other items could have a negative impact on the amounts we charge our customers for our products.

Unplanned power plant outages may be costly.Unforeseen maintenance may be required to safely produce electricity or comply with environmental regulations. As a result of unforeseen maintenance, we may be required to make spot market purchases of electricity that exceed our costs of generation. Our financial performance may be negatively affected if we are unable to recover such increased costs.

Environmental laws and liability may be costly.We are subject to numerous environmental regulations. These regulations govern air emissions, water quality, wastewater discharge and disposal of solid and hazardous waste. Compliance with these regulations can significantly increase capital spending, operating expenses and plant down times. These laws and regulations require us to seek a variety of environmental licenses, permits, inspections and other regulatory approvals. We could be required to install expensive pollution control measures or limit or cease activities based on these regulations. Additionally, we may become a responsible party for environmental cleanup at sites identified by a regulatory body. We cannot predict with certainty the amount and timing of future expenditures related to environmental matters because of the difficulty of estimating clean up costs. There is also uncertainty in quantifying liabilities under environmental laws that impose joint and several liability on potentially responsible parties.

We may also incur liabilities as a result of potential future requirements to address climate change issues. Proposals for voluntary initiatives and mandatory controls are being discussed both in the United States and worldwide to reduce greenhouse gases such as carbon dioxide, a by-product of burning fossil fuels. If increased regulation of greenhouse gas emissions are implemented, the operations of our fossil-fuel generation assets may be significantly impacted.

Since there can be no assurances that environmental costs may be recovered through the regulatory process, our financial performance may be negatively impacted as a result of environmental matters.

~~Terrorism~~Renewable portfolio standards and energy efficiency programs may affect our business.We are subject to Michigan and potential future federal legislation and regulation requiring us to secure sources of renewable energy. Under the current Michigan legislation we will be required in the future to provide a specified percentage of our power from Michigan renewable energy sources. We are developing a strategy for complying with the existing state legislation, but we do not know what requirements may be added by federal legislation. We are actively engaged in developing renewable energy projects and identifying third party projects in which we can invest. We cannot predict the financial impact or costs associated with these future projects.

We are also required by Michigan legislation to implement energy efficiency measures and provide energy efficiency customer awareness and education programs. These requirements necessitate expenditures and implementation of these programs creates the risk of reducing our revenues as customers decrease their energy usage. We do not know how these programs will impact our business and future operating results.

Threats of terrorism or cyber attacks could affect our ~~business~~business.~~. Damage~~We may be threatened by problems such as computer viruses or terrorism that may disrupt our operations and could harm our operating results. Our industry requires the continued operation of sophisticated information technology systems and network infrastructure. Despite our implementation of security measures, all of our technology systems are vulnerable to ~~downstream infrastructure~~disability or failures due to hacking, viruses, acts of war or terrorism and other causes. If our ~~own assets by terrorism would impact~~information technology systems were to fail and we were unable to recover in a timely way, we might be unable to fulfill critical business functions, which could have a material adverse effect on our ~~operations.~~business, operating results, and financial condition.

In addition, our generation plants and electrical distribution facilities in particular may be targets of terrorist activities that could disrupt our ability to produce or distribute some portion of our energy products. We have

increased security as a result of past events and ~~further~~we may be required by our regulators or by the future terrorist threat environment to make investments in security ~~increases are possible.~~that we cannot currently predict.

We may not be fully covered by insurance.We have a comprehensive insurance program in place to provide coverage for various types of risks, including catastrophic damage as a result of acts of God, terrorism or a combination of other significant unforeseen events that could impact our operations. Economic losses might not be covered in full by insurance or our insurers may be unable to meet contractual obligations.

Failure to maintain the security of personally identifiable information could adversely affect us. In connection with our business we collect and retain personally identifiable information of our customers and employees. Our customers and employees expect that we will adequately protect their personal information, and the United States regulatory environment surrounding information security and privacy is increasingly demanding. A significant theft, loss or fraudulent use of customer, employee or Detroit Edison data by cybercrime or otherwise could adversely impact our reputation and could result in significant costs, fines and litigation.

Benefits of continuous improvement initiatives could be less than we expect.We have a continuous improvement program that is expected to result in significant cost savings. Actual results achieved through this program could be less than our expectations.

A work interruption may adversely affect us.Unions represent approximately ~~1,900~~2,800 of our employees. A union choosing to strike would have an impact on our business. A contract with our largest union expires in June 2010. In addition, our contracts with unions representing two small groups of employees expired on December 31, 2009 and another union is currently negotiating its first contract. We cannot predict the outcome of any of these contract negotiations, some of which have not yet commenced. We are unable to predict the effect a work stoppage would have on our costs of operation and financial performance.

Failure to retain and attract key executive officers and other skilled professional and technical employees could have an adverse effect on our operations.Our business is dependent on our ability to recruit, retain, and motivate employees. Competition for skilled employees in some areas is high and the inability to retain and attract these employees could adversely affect our business and future operating results.

Item 1B. Unresolved Staff Comments

None.

Item 3. Legal Proceedings

We are involved in certain legal, regulatory, administrative and environmental proceedings before various courts, arbitration panels and governmental agencies concerning matters arising in the ordinary course of business. These proceedings include certain contract disputes, environmental reviews and investigations, audits, inquiries from various regulators, and pending judicial matters. We cannot predict the final disposition of such proceedings. We

regularly review legal matters and record provisions for claims that are considered probable of loss. The resolution of pending proceedings is not expected to have a material effect on our operations or financial statements in the period they are resolved.

~~We are aware~~In July 2009, DTE Energy received a Notice of ~~attempts by an environmental organization known as~~Violation/Finding of Violation (NOV/FOV) from the ~~Waterkeeper Alliance to initiate a criminal action in Canada against the Company for alleged violations~~EPA alleging, among other things, that five Detroit Edison power plants violated New Source Performance standards, Prevention of ~~the Canadian Fisheries Act. Fines~~Significant Deterioration requirements, and Title V operating permit requirements under the ~~relevant Canadian statute could potentially be significant. To date,~~Clean Air Act. We believe that the ~~Company has not been properly served process in this matter. Nevertheless, as a result of a decision~~plants identified by ~~a Canadian court, a trial schedule has been initiated. The Company believes~~ the ~~claims of the Waterkeeper Alliance in this matter are without legal merit and has appealed the court’s decision. We are not able to predict or assess~~EPA have complied with applicable regulations. Depending upon the outcome of our discussions with the EPA regarding the NOV/FOV, the EPA could bring legal action against Detroit Edison. We could also be required to install additional pollution control equipment at some or all of the power plants in question, engage in Supplemental Environmental Programs, and/or pay fines. We cannot predict the financial impact or outcome of this ~~action at this time.~~matter, or the timing of its resolution.

~~Item 7. Management’s Narrative Analysis of Results of Operations~~


Item 7.		Management’s Narrative Analysis of Results of Operations

The Management’s Narrative Analysis of Results of Operations discussion for Detroit Edison is presented in accordance with General Instruction I (2) (a) of Form 10-K for ~~wholly owned~~wholly-owned subsidiaries (reduced disclosure format).

~~Factors impacting income:~~Net income increased $14 million in 2008 and decreased $4 million in 2007. The 2008 increase was primarily due to lower expenses for operation and maintenance, depreciation and amortization, and taxes other than income, partly offset by lower gross margins and higher income tax expense. The 2007 decrease reflects higher operation and maintenance expenses, partially offset by higher gross margins and lower depreciation and amortization expenses.


Increase (Decrease) in Income Statement Components Compared to Prior Year
(in Millions)	2008			2007
Increase (Decrease) in Income Statement Components Compared to Prior Year (in Millions)							2009			2008

Operating revenues	$	(26	)	$	163		$	(160	)	$	(26	)
Fuel and purchased power		92			120			(287	)		92

Gross margin		(118	)		43			127			(118	)
Operation and maintenance		(100	)		85			(45	)		(100	)
Depreciation and amortization		(21	)		(48	)		101			(21	)
Taxes other than income		(45	)		25			(27	)		(45	)
Asset (gains) losses and reserves, net		(9	)		14			(1	)		(9	)

Operating income		57			(33	)		99			57
Other (income) and deductions		6			(17	)		12			6
Income tax provision		37			(13	)		42			37

Net income before accounting change		14			(3	)
Cumulative effect of accounting change		—			(1	)

Net Income	$	14		$	(4	)	$	45		$	14

~~Asset (gains)losses and reserves, net~~decreased $9 million in 2008 and increased $14 million in 2007 due to a 2007 $13 million reserve for a loan guaranty related to Detroit Edison’s former ownership of a steam heating business now owned by Thermal Ventures II, LP (Thermal).

~~Other (income) and deductions~~expense increased $6 million in 2008 and decreased $17 million in 2007. The 2008 increase is attributable to $15 million of investment losses in a trust utilized for retirement benefits and $3 million of miscellaneous expenses offset by higher capitalized interest of $12 million. The 2007 decrease is attributable to a $10 million contribution to the DTE Energy Foundation in 2006 that did not recur in 2007, $3 million of higher interest income and $17 million of increased miscellaneous utility related services, partially offset by $16 million of higher interest expense.

Outlook— We will move forward in our efforts to continue to improve the operating performance and cash flow of Detroit Edison. We continue to resolve outstanding regulatory issues by pursuing regulatory and/or legislative solutions. Many of these issues and problems have been addressed by the legislation signed by the Governor of Michigan in October 2008, discussed more fully in the Overview section. Looking forward, additional issues, such as volatility in prices for coal and other commodities, investment returns and changes in discount rate assumptions in benefit plans, health care costs and higher levels of capital spending, will result in us taking meaningful action to address our costs while continuing to provide quality customer service. We will continue to seek opportunities to improve productivity, remove waste and decrease our costs while improving customer satisfaction.

Unfavorable national and regional economic trends have resulted in reduced demand for electricity in our service territory and ~~increases~~continued high levels in our uncollectible accounts receivable. The magnitude of these trends will be driven by the impacts of the challenges in the domestic automotive industry and the timing and level of recovery in the national and regional economies. The January 2010 MPSC rate order, provided for an uncollectible expense tracking mechanism and a revenue decoupling mechanism will assist in mitigating these impacts.

~~Due to~~To address the economy and credit market conditions, in the near term, we are reviewing our capital expenditure commitments for potential reductions and deferrals and plan to adjust the timing of projects as appropriate. Long term, we will be required to invest an estimated $2.8 billion on emission controls through 2018. We intend to seek recovery of these investments in future rate cases.

Additionally, our service territory may require additional generation capacity. A new base-load generating plant has not been built within the State of Michigan in over 20 years. Should our economic and regulatory environment be conducive to such a significant capital expenditure, we may build, upgrade or co-invest in a base-load coal facility or a new nuclear plant.

~~On September 18, 2008, Detroit Edison submitted a Combined Operating License Application with the NRC for construction and operation of a possible 1,500 MW nuclear power plant at the site~~challenges of the ~~company’s existing Fermi 2 nuclear plant.~~national and regional economies, we continue to move forward in our efforts to improve the operating performance and cash flow of Detroit Edison. We ~~have not decided~~continue to favorably resolve outstanding regulatory issues, many of which were addressed by Michigan legislation. We expect that our planned significant environmental and renewable expenditures will result in earnings growth. Looking forward, we face additional issues, such as higher levels of capital spending, volatility in prices for coal and other commodities, investment returns and changes in discount rate assumptions in benefit plans and health care costs, and uncertainty of legislative or regulatory actions regarding climate change. We expect to continue an intense focus on construction of a new base-load nuclear plant; however, by completing the license application before the end of 2008, we may qualify for financial incentives under the Federal Energy Policy Act of 2005. In addition, Detroit Edison is also moving ahead with plans for renewable energy resourcesour continuous improvement efforts to improve productivity, remove waste and ~~an aggressive energy efficiency program.~~

~~The following variables, either individually or in combination, could impact~~decrease our ~~future results:~~

	•		~~Access to capital markets and capital market conditions and the results of other financing efforts which can be affected by credit agency ratings;~~

	•		~~Instability in capital markets which could impact availability of short and long-term financing or the potential for loss on cash equivalents and investments;~~

	•		~~Economic conditions within Michigan and corresponding impacts on demand for electricity;~~

	•		~~Collectibility of accounts receivable;~~

	•		~~Increases in future expense and contributions to pension and other postretirement plans due to declines in value resulting from market conditions;~~

	•		~~The amount and timing of cost recovery allowed as a result of regulatory proceedings, related appeals or new legislation;~~

	•		~~Our ability to reduce costs and maximize plant and distribution system performance;~~

	•		~~Variations in market prices of power, coal and gas;~~

	•		~~Weather, including the severity and frequency of storms;~~

	•		~~The level of customer participation in the electric Customer Choice program; and~~

	•		~~Any potential new federal and state environmental, renewable energy and energy efficiency requirements.~~

~~Impact of Regulatory Decisions~~

On December 23, 2008, the MPSC issued an order in Detroit Edison’s February 20, 2008 updated rate case filing. The MPSC approved an annual revenue increase of $84 million effective January 14, 2009 or a 2.0% average increase in Detroit Edison’s annual revenue requirement for 2009. Included in the approved $84 million increase in revenues was a return on equity of 11% on an expected 49% equity and 51% debt capital structure.

~~Other key aspects of the MPSC order include the following:~~

	•		In order to more accurately reflect the actual cost of providing service to business customers, the MPSC adopted an immediate 39% phase out of the residential rate subsidy, with the remaining amount to be eliminated in equal installments over the next five years, every October 1.

	•		Accepted Detroit Edison’s proposal to reinstate and modify the tracking mechanism on Electric Choice sales (CIM) with a base level of 1,561 GWh. The modified mechanism will not have a cap on the amount recoverable.

	•		~~Terminated the Pension Equalization Mechanism.~~

	•		Approved an annual reconciliation mechanism to track expenses associated with restoration costs (storm and non-storm related expenses) and line clearance expenses. Annual reconciliations will be required using a base expense level of $110 million and $51 million, respectively.

	•		Approved Detroit Edison’s proposal to recover a return on $15 million in working capital associated with the preparation of an application for a new nuclear generation facility at its current Fermi 2 site.

The MPSC issued an order on August 31, 2006 approving a settlement agreement providing for an annualized rate reduction of $53 million for 2006 for Detroit Edison, effective September 5, 2006. Beginning January 1, 2007, and continuing until April 13, 2008, rates were reduced by an additional $26 million, for a total reduction of $79 million annually. Detroit Edison experienced a rate reduction of approximately $76 million in 2007 and approximately $25 million during the period the rate reduction was in effect for 2008, as a result of this order. The revenue reduction was net of the recovery of costs associated with the Performance Excellence Process. The settlement agreement provided for some level of realignment of the existing rate structure by allocating a larger percentage of the rate reduction to the commercial and industrialwhile improving customer ~~classes than to the residential customer classes.~~

~~Impact of Legislation~~

On September 18, 2008, the Michigan House of Representatives and Michigan Senate passed a package of bills to establish a comprehensive, sustainable, long-term energy plan for Michigan. The Governor of Michigan signed the bills on October 6, 2008.satisfaction.

~~The package of bills includes:~~

	•
Item 7A.		~~2008 Public Act (PA) 286 that reforms Michigan’s utility regulatory framework, including the electric Customer Choice program,~~

	•		~~2008 PA 295 that establishes a renewable portfolio / energy optimization standard~~Quantitative and ~~provides a funding mechanism, and~~

	•		~~2008 PA 287 that provides for an income tax credit for the purchase of energy efficient appliances and a credit to offset a portion of the renewable charge.~~Qualitative Disclosures about Market Risk

~~2008 PA 286 makes the following changes in the regulatory framework for Michigan utilities.~~

	•		~~Electric Customer Choice reform~~— The bill establishes a 10 percent limit on participation in the electric Customer Choice program. In general, customers representing 10 percent of a utility’s load may receive electric generation from an electric supplier that is not a utility. After that threshold is met, the remaining customers will remain on full, bundled utility service. As of December 31, 2008, approximately 3 percent of Detroit Edison’s load was on the electric Customer Choice program. The bill also allows continuation of prior MPSC policies for customers to return to full utility service.

	•		~~Cost-of-service based electric rates (deskewing)~~— The bill requires the MPSC to set rates based on cost-of-service for all customer classes, eliminating over a five-year period the current subsidy by businesses of residential customer rates. This provision does not change total revenue for Detroit Edison. It lowers rates for most commercial and industrial customers and increases rates for residential and certain other industrial customers to match the actual cost of service for each customer class. Rate changes will be phased in over five years, with a 2.5% annual cap on residential rate increases due to deskewing beginning January 1, 2009. Rates for schools and other qualified educational institutions will be set at their cost of service sooner.

	•		~~File and use ratemaking~~— The bill establishes a 12 month deadline for the MPSC to complete a rate case and allows a utility to self-implement rate changes six months after a rate filing, subject to certain limitations. If the final order leads to lower rates than the utility had self-implemented, the utility will refund with interest, the difference. In addition, utility rate cases may be based on a forward test year. The bill also has provisions designed to help the MPSC obtain increased funding for additional staff.

	•		~~Certificate of Need process for major capital investments~~— The bill establishes a certificate of need process for capital projects costing more than $500 million. The process requires the MPSC to review for prudence, prior to construction, proposed investments in new generating assets, acquisitions of existing power plants, major upgrades of power plants, and long-term power purchase agreements. The bill increases the certainty for utilities to recover the cost of projects approved by the MPSC and provides for the utilities to recover interest expenses during construction.

	•		~~Merger & Acquisition approval~~~~— The bill grants the MPSC the authority to review and approve proposed utility mergers and acquisitions in Michigan and sets out evaluation criteria.~~

2008 PA 295 establishes renewable energy and energy optimization (energy efficiency, energy conservation or load management) programs in Michigan and provides for a separate funding surcharge to pay the cost of those programs. In accordance with the new law, the MPSC issued a temporary order on December 4, 2008 implementing this act. Within 90 days following the issuance of the temporary order, Detroit Edison is required to file a Renewable Portfolio Standard (RPS) plan with the MPSC. In addition, Detroit Edison is required to file an Energy Optimization plan with the MPSC.

~~Renewable Energy Standard~~

	•		~~The bill requires electric providers to source 10% of electricity sold to retail customers from renewable energy resources by 2015.~~

	•		~~Qualifying renewable energy resources include wind, biomass, solar, hydro, and geothermal, among others.~~

	•		~~Detroit Edison will be required to have a renewable energy capacity portfolio of 300MW by December 31, 2013 and 600MW by December 31, 2015.~~

	•		~~The MPSC will establish a per meter surcharge to fund the renewable energy requirements. The recovery mechanism starts prior to actual construction in order to smooth the rate impact for customers.~~

	•		~~The bill allows for the lowering of compliance if RPS costs exceed the surcharge/cost cap or if other specified factors adversely affect the availability of renewable energy.~~

	•		The bill specifies that a utility can build or have others build and later sell to the utility up to 50 percent of the generation required to meet the RPS. The other 50 percent would be contracted through power purchase agreements.

	•		~~The bill also provides for a net metering program to be established by MPSC order for on-site customer-owned renewable generation up to 1% of an electric utility’s load.~~

~~Energy Optimization Standard~~

	•		~~Requires utilities to create electric energy optimization plans for each customer class and includes funding surcharges as well as the potential for incentives for exceeding performance goals.~~

	•		~~For electric sales, the program targets 0.3 percent annual savings in 2009, ramping up to 1 percent annual savings by 2012. Savings percentages are based on prior year retail sales.~~

	•		The MPSC will allow utilities to capitalize certain costs of their energy optimization program. The costs which can be capitalized include equipment, materials, installation costs and customer incentives.

	•		Incentives are potentially available for exceeding annual program targets. The financial incentive could be the lesser of 25% of the net cost reduction to our customers or 15% of total program spend, subject to MPSC approval.

	•		~~By March 2016, the MPSC may suspend the program if it determines the program is no longer cost-effective.~~

~~Impact of Financial Markets~~

Recent distress in the financial markets has had an adverse impact on financial market activities, including extreme volatility in security prices and severely diminished liquidity and credit availability. Pursuant to the failures of large financial institutions, the credit situation rapidly evolved into a global crisis resulting in a number of international bank failures and declines in various stock indexes, and large reductions in the market value of equities and commodities worldwide. The crisis has led to increased volatility in the markets for both financial and physical assets, as the failures of large financial institutions resulted in sharply reduced trading volumes and activity. The effects of the credit situation will continue to be monitored.

We have experienced difficulties in accessing the commercial paper markets for short-term financing needs and an extended period of distress in the capital markets could have a negative impact on our liquidity in the future. Short-

term borrowings, principally in the form of commercial paper, provide us with the liquidity needed on a daily basis. Our commercial paper program is supported by our unsecured credit facilities. Beginning late in the third quarter of 2008, access to the commercial paper markets was sharply reduced and, as a result, we drew against our unsecured credit lines to supplement other sources of funds to meet our short-term liquidity needs. We continue to access the long-term bond markets as evidenced by certain financings completed in the fourth quarter of 2008. Since December 31, 2008, we have benefited from substantially improved liquidity and pricing in the commercial paper market.

Approximately $281 million of our total short-term credit arrangements of $350 million expire between July and October 2009, with the remainder expiring in October 2010. In anticipation of a significantly more challenging credit market, we expect to pursue the renewal of our syndicated revolving credit facility before its expiration. Given current conditions in the credit markets, we anticipate that the new facility will vary significantly from our current facilities with respect to such items as bank participation, allocation levels, pricing and covenants. We are currently in discussions with our existing bank group and actively pursuing potential new candidates for inclusion, as we anticipate that a number of banks in our current bank group will elect not to participate in the renewal or will alter their commitment level. Initial indications are that pricing is likely to be significantly higher due to market-wide re-pricing of risk. Multi-year agreements are still possible, however, the recent trend in the marketplace is toward 364 day facilities.

Our benefit plans have not experienced any direct significant impact on liquidity or counterparty risk due to the turmoil in the financial markets. As a result of losses experienced in the financial markets, our benefit plan assets experienced negative returns for 2008, which will result in increased benefit costs and higher contributions in 2009 and future years than in the recent past or than originally planned.

We have assessed the implications of these factors on our current business and determined that there has not been a significant impact to our financial position and results of operations in 2008. While the impact of continued market volatility and turmoil in the credit markets cannot be predicted, we believe we have sufficient operating flexibility, cash resources and funding sources to maintain adequate amounts of liquidity and to meet our future operating cash and capital expenditure needs. However, our business is capital intensive and requires access to capital, and the inability to access adequate capital could adversely impact earnings and cash flows.

~~CUMULATIVE EFFECT OF ACCOUNTING CHANGES~~

~~Effective January 1, 2007, we adopted FASB Interpretation No. (FIN 48),~~~~Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109~~~~. The cumulative effect of the adoption of FIN 48 represented a $0.7 million increase to the January 1, 2007 balance of retained earnings.~~

~~Effective January 1, 2006, we adopted SFAS No. 123(R),~~~~Share-Based Payment,~~using the modified prospective transition method. The cumulative effect of the adoption of SFAS 123(R) was an increase in net income of $1 million as a result of estimating forfeitures for previously granted stock awards and performance shares.

~~Item 7A. Quantitative and Qualitative Disclosures About Market Risk~~

Commodity Price Risk

We have commodity price risk arising from market price fluctuations. We have risks in conjunction with the anticipated purchases of coal, uranium, electricity, and base metals to meet our service ~~obligation. Further, changes in the price of electricity can impact the level of exposure of Customer Choice programs and uncollectible expenses at the Electric Utility.~~obligations. However, the Company does not bear significant exposure to earnings risk as such changes are included in the PSCR regulatory rate-recovery ~~mechanisms. Regulatory rate-recovery occurs in the form of the PSCR (see Note 1 of the Notes to Consolidated Financial Statements in Item 8 of this Report) and a~~mechanism. The Company has tracking mechanisms to mitigate ~~some~~a portion of losses ~~from customer migration due~~related to ~~electric Customer Choice programs.~~uncollectible accounts receivable. The Company is exposed to short-term cash flow or liquidity risk as a result of the time differential between actual cash settlements and regulatory rate recovery.

Credit Risk

Bankruptcies

We purchase and sell electricity from and to numerous companies operating in the steel, automotive, energy, retail and other industries. Certain of our customers have filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. We regularly review contingent matters relating to these customers and our purchase and sale contracts and we record provisions for amounts considered at risk of probable loss. We believe our previously accrued amounts are adequate for probable loss. The final resolution of these matters may have a material effect on our financial statements.

We provide services to the domestic automotive industry, including GM, Ford Motor Company (Ford) and Chrysler and many of their vendors and suppliers. Chrysler filed for bankruptcy protection on April 30, 2009. We have reserved approximately $7 million of pre-petition accounts receivable related to Chrysler as of December 31, 2009. GM ~~and~~filed for bankruptcy protection on June 1, 2009. We have not reserved or written off any pre-petition accounts or notes receivable related to GM as of December 31, 2009. Closing of GM or Chrysler ~~have recently received loans from~~plants or other facilities that operate within Detroit Edison’s service territory will also negatively impact the ~~U.S. Government to provide them with the working capital necessary to continue to operate~~Company’s operating revenues in ~~the short term.~~future periods. In ~~February~~ 2009, GM and Chrysler submitted viability plans to the U.S. Government indicating that additional loans were necessary to continue operations in the short term. Further plant closures, bankruptcies or a federal government mandated restructuring program could have a significant impact oneach represented two percent of our ~~results. As the circumstances surrounding the viability of these entities are dynamic and uncertain, we continue to monitor developments as they occur.~~annual electric sales volumes, respectively.

Other

We engage in business with customers that are non-investment grade. We closely monitor the credit ratings of these customers and, when deemed necessary, we request collateral or guarantees from such customers to secure their obligations.

Interest Rate Risk

Detroit Edison is subject to interest rate risk in connection with the issuance of debt securities. Our exposure to interest rate risk arises primarily from changes in U.S. Treasury rates, commercial paper rates and London Inter-Bank Offered Rates (LIBOR). We estimate that if interest rates were 10% higher or lower, the fair value of long-term debt at December 31, ~~2008~~2009 would decrease ~~$213~~$171 million and increase ~~$194~~$186 million, respectively.

1916

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 ~~the Company’s~~Detroit Edison’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, ~~2008,~~2009, 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 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 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 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.

(b) Management’s report on internal control over financial reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial ~~reporting. The Company’s internal~~reporting as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control ~~system was~~over financial reporting is a process designed by, or under the supervision of, our CEO and CFO, to provide reasonable assurance ~~to the Company’s management and Board of Directors~~ regarding the reliability of financial reporting and the preparation ~~and fair presentation~~ of ~~published~~ financial ~~statements.~~statements for external purposes in accordance with generally accepted accounting principles.

~~All~~Because of its inherent limitations, internal control ~~systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to~~over financial ~~statement preparation and presentation. Projections~~reporting may not prevent or detect misstatements. Also, projections of any evaluation of ~~the~~ effectiveness to future periods are subject to the ~~risks~~risk that ~~a control~~controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

~~The Company’s management~~Management of the Company has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, ~~2008.~~2009. In making this assessment, itmanagement used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control—Integrated Framework.Based on ~~our~~this assessment, management ~~believes~~concluded that, as of December 31, ~~2008,~~2009, the Company’s internal control over financial reporting was effective based on those criteria.

This annual report does not include an audit report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to audit by the Company’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

(c) Changes in internal control over financial reporting

There have been no changes in the Company’s internal control over financial reporting during the quarter ended December 31, ~~2008~~2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

2118

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholder of The Detroit Edison Company

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of The Detroit Edison Company and its subsidiaries at December 31, 2009, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the year ended December 31, 2009 listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Detroit, Michigan
February 23, 2010

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholder of The Detroit Edison Company

We have audited the consolidated ~~statements~~statement of financial position of The Detroit Edison Company and subsidiaries (the “Company”) as of December 31, 2008 and ~~2007 and~~ the related consolidated statements of operations, cash flows, and changes in shareholder’s equity and comprehensive income for ~~each of~~ the ~~three~~ years ~~in the period~~ ended December 31, ~~2008.~~2008 and 2007. Our audits also included the 2008 and 2007 information in the financial statement schedules listed in ~~the Index at Item 15.~~accompanying index. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Detroit Edison Company and subsidiaries at December 31, 2008, and ~~2007, and~~ the results of their operations and their cash flows for ~~each of~~ the ~~three~~ years ~~in the period~~ ended December 31, 2008 and 2007, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such 2008 and 2007 financial statement schedules, when considered in relation to the basic consolidated financial statements of the Company taken as a whole, present fairly, in all material respects, the information set forth therein.

As discussed in Note 7 to the consolidated financial statements, in connection with the required adoption of a new accounting standard, the Company changed its method of accounting for uncertainty in income taxes on January 1, 2007. As discussed in Notes 2 and 15 to the consolidated financial statements, in connection with the required adoption of new accounting standards, in 2006 the Company changed its method of accounting for share based payments and defined benefit pension and other postretirement plans, respectively.

/~~S/ DELOITTE~~s/ Deloitte & ~~TOUCHE~~Touche LLP

Detroit, Michigan
February 27, 2009

2220

The Detroit Edison Company
Consolidated Statements of Financial Position


	December 31					December 31
(in Millions, Except Shares)	2008			2007		2009			2008
Liabilities and Shareholder’s Equity
Current Liabilities
Accounts payable—affiliates	$	103		$	138
Accounts payable other		346			396
Accounts payable
Affiliates						$	74		$	103
Other							251			346
Accrued interest		80			77		83			80
Dividends payable		—			76
Accrued vacations		58			52		48			58
Short-term borrowings—affiliates		—			277
Short-term borrowings other		75			406
Short-term borrowings							—			75
Current portion long-term debt, including capital leases		153			174		660			153
Other		263			243		213			263

		1,078			1,839		1,329			1,078


Long-Term Debt (net of current portion)
Mortgage bonds, notes and other		4,091			3,473		3,579			4,091
Securitization bonds		932			1,065		793			932
Capital lease obligations		33			42		25			33

		5,056			4,580		4,397			5,056


Other Liabilities
Deferred income taxes		1,894			1,825		1,871			1,894
Regulatory liabilities		593			583		711			593
Asset retirement obligations		1,205			1,160		1,285			1,205
Unamortized investment tax credit		85			95		75			85
Nuclear decommissioning		114			134		136			114
Accrued pension liability—affiliates		978			374		987			978
Accrued postretirement liability—affiliates		1,075			816		1,058			1,075
Other		208			176		239			208

		6,152			5,163		6,362			6,152


Commitments and Contingencies (Notes 4, 5 and 13)
Commitments and Contingencies (Notes 10 and 16)

Shareholder’s Equity
Common stock, $10 par value, 400,000,000 shares authorized, and 138,632,324 shares issued and outstanding		2,946			2,771		3,196			2,946
Retained earnings		622			528		693			622
Accumulated other comprehensive income (loss)		(12	)		4		(16	)		(12	)

		3,556			3,303		3,873			3,556


Total Liabilities and Shareholder’s Equity	$	15,842		$	14,885	$	15,961		$	15,842

The Detroit Edison Company

Consolidated Statements of Cash Flows


	Year Ended December 31									Year Ended December 31
(in Millions)	2008			2007			2006			2009			2008			2007

Operating Activities
Net income	$	331		$	317		$	321		$	376		$	331		$	317
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		743			764			812			844			743			764
Deferred income taxes		91			(111	)		2			15			91			(111	)
Asset (gains) losses and reserves, net		(2	)		8			(6	)		(2	)		(2	)		8
Cumulative effect of accounting change		—			—			(1	)
Changes in assets and liabilities, exclusive of changes shown separately (Note 1)		118			(213	)		(213	)
Changes in assets and liabilities, exclusive of changes shown separately (Note 18)											(39	)		118			(213	)

Net cash from operating activities		1,281			765			915			1,194			1,281			765


Investing Activities
Plant and equipment expenditures		(943	)		(809	)		(972	)		(793	)		(943	)		(809	)
Proceeds from sale of assets, net		—			3			28			—			—			3
Restricted cash		50			(3	)		(48	)		5			50			(3	)
Notes receivable from affiliate		(41	)		—			—			(42	)		(41	)		—
Proceeds from sale of nuclear decommissioning trust fund assets		232			286			253			295			232			286
Investment in nuclear decommissioning trust funds		(255	)		(323	)		(284	)		(315	)		(255	)		(323	)
Other investments		(54	)		(33	)		(29	)		(46	)		(54	)		(33	)

Net cash used for investing activities		(1,011	)		(879	)		(1,052	)		(896	)		(1,011	)		(879	)


Financing Activities
Issuance of long-term debt		862			50			314			129			862			50
Redemption of long-term debt		(166	)		(185	)		(126	)		(278	)		(166	)		(185	)
Repurchase of long-term debt		(238	)		—			—			—			(238	)		—
Short-term borrowings, net		(331	)		129			114			(75	)		(331	)		129
Short-term borrowings from affiliate		(277	)		277			—			—			(277	)		277
Capital contribution by parent company		175			175			150			250			175			175
Dividends on common stock		(305	)		(305	)		(305	)		(305	)		(305	)		(305	)
Other		(7	)		(7	)		(9	)		(15	)		(7	)		(7	)

Net cash from (used for) financing activities		(287	)		134			138			(294	)		(287	)		134


Net Increase in Cash and Cash Equivalents		(17	)		20			1
Net Increase (Decrease) in Cash and Cash Equivalents											4			(17	)		20
Cash and Cash Equivalents at Beginning of the Period		47			27			26			30			47			27

Cash and Cash Equivalents at End of the Period	$	30		$	47		$	27		$	34		$	30		$	47

The Detroit Edison Company

Consolidated Statements of Changes in Shareholder’s Equity and Comprehensive income


										Accumulated															Accumulated
					Additional					Other										Additional					Other
	Common Stock				Paid in		Retained			Comprehensive						Common Stock				Paid in		Retained			Comprehensive
(Dollars in Millions, Shares in Thousands)	Shares		Amount		Capital		Earnings			Income			Total			Shares		Amount		Capital		Earnings			Income (Loss)			Total

Balance, December 31, 2005		138,632	$	1,386	$	1,060	$	500		$	2		$	2,948

Net income		—		—		—		321			—			321
Dividends declared on common stock		—		—		—		(305	)		—			(305	)
Net change in unrealized gains on investments, net of tax		—		—		—		—			1			1
Capital contribution by parent company		—		—		150		—			—			150
— — — —
Balance, December 31, 2006		138,632		1,386		1,210		516		$	3			3,115			138,632	$	1,386	$	1,210	$	516		$	3		$	3,115

Net income		—		—		—		317			—			317			—		—		—		317			—			317
Dividends declared on common stock		—		—		—		(305	)		—			(305	)		—		—		—		(305	)		—			(305	)
Net change in unrealized gains on investments, net of tax		—		—		—		—			1			1			—		—		—		—			1			1
Capital contribution by parent company		—		—		175		—			—			175			—		—		175		—			—			175
— — — —

Balance, December 31, 2007		138,632	$	1,386	$	1,385	$	528		$	4		$	3,303			138,632		1,386		1,385		528			4			3,303

Net income		—		—		—		331			—			331			—		—		—		331			—			331
Implementation of SFAS No. 158, measurement date provision, net of tax		—		—		—		(9	)		—			(9	)
Implementation of ASC 715 (SFAS No. 158) measurement date provision, net of tax																	—		—		—		(9	)		—			(9	)
Dividends declared on common stock																	—		—		—		(228	)		—			(228	)
Net change in unrealized gains on investments, net of tax																	—		—		—		—			(2	)		(2	)
Benefit obligations, net of tax																	—		—		—		—			(14	)		(14	)
Capital contribution by parent company																	—		—		175		—			—			175

Balance, December 31, 2008																	138,632		1,386		1,560		622			(12	)		3,556

Net income																	—		—		—		376			—			376
Dividends declared on common stock		—		—		—		(228	)		—			(228	)		—		—		—		(305	)		—			(305	)
Net change in unrealized losses on investments, net of tax		—		—		—		—			(2	)		(2	)		—		—		—		—			(2	)		(2	)
Benefit obligations, net of tax		—		—		—		—			(14	)		(14	)		—		—		—		—			(2	)		(2	)
Capital contribution by parent company		—		—		175		—			—			175			—		—		250		—			—			250

Balance, December 31, 2008		138,632	$	1,386	$	1,560	$	622		$	(12	)	$	3,556
Balance, December 31, 2009																	138,632	$	1,386	$	1,810	$	693		$	(16	)	$	3,873

The Detroit Edison Company

Notes to Consolidated Financial Statements

NOTE 1 — ~~SIGNIFICANT ACCOUNTING POLICIES~~BASIS OF PRESENTATION

Corporate Structure

The Detroit Edison Company (Detroit Edison) is a Michigan public utility engaged in the generation, purchase, distribution and sale of electric energy to approximately ~~2.2~~2.1 million customers in southeastern Michigan. Detroit Edison is regulated by the MPSC and FERC. In addition, we are regulated by other federal and state regulatory agencies including the NRC, the EPA and MDEQ.

References in this report to “we,” “us,’ “our’” ~~“our”~~ or “Company” are to Detroit Edison and its subsidiaries, collectively.

Basis of Presentation

The accompanying consolidated financial statements are prepared using accounting principles generally accepted in the United States of America. These accounting principles require usmanagement to use estimates and assumptions that impact reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results may differ from ~~our~~the Company’s estimates.

Certain prior year balances were reclassified to match the current year’s financial statement presentation.

Principles of Consolidation

~~We consolidate~~The Company consolidates all majority owned subsidiaries and investments in entities in which ~~we have~~it has controlling influence. Non-majority owned investments are accounted for using the equity method when the ~~company~~Company is able to influence the operating policies of the investee. Non-majority owned investments include investments in limited liability companies, partnerships or joint ventures. When ~~we do~~the Company does not influence the operating policies of an investee, the cost method is used. These consolidated financial statements also reflect the Company’s proportionate interests in certain jointly owned utility plant. ~~We eliminate~~The Company eliminates all ~~inter-company~~intercompany balances and transactions.

~~For entities that are considered~~The Company consolidates variable interest entities (VIEs) for which we ~~apply~~are the ~~provisions~~primary beneficiary. In general, the Company determines whether it is the primary beneficiary of ~~FASB Interpretation No. (FIN) 46-R,~~~~Consolidation~~a VIE through a qualitative analysis of ~~Variable Interest Entities, an Interpretation~~risk which indentifies which variable interest holder absorbs the majority of ~~ARB No. 51.~~the financial risk or rewards and variability of the VIE. In performing this analysis, the Company considers all relevant facts and circumstances, including: the design and activities of the VIE, the terms of the contracts the VIE has entered into, the identification of variable interest holders including equity owners, customers, suppliers and debt holders and which parties participated significantly in the design of the entity. If the qualitative analysis is inconclusive, a specific quantitative analysis is performed. Refer to Note 3 for discussion of changes in consolidation guidance applicable to VIEs and Note 16 for discussion of the Company’s involvement with VIE’s.

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES

Revenues

Revenues from the sale and delivery of electricity are recognized as services are provided. We record revenues for electric ~~services~~ provided but unbilled at the end of each month. Detroit Edison’s accrued revenues include a component for the cost of power sold that is recoverable through the PSCR mechanism. Annual PSCR proceedings before the MPSC permit Detroit Edison to recover prudent and reasonable supply costs. Any over-collection or under-collection of costs, including interest, will be reflected in future rates. See Note 4.10.

Accounting for ISO Transactions

Detroit Edison participates in the energy market through MISO. MISO requires that we submit hourly day-ahead, real time and FTR bids and offers for energy at locations across the MISO region. Detroit Edison accounts for MISO

Cash Equivalents and Restricted Cash

Cash and cash equivalents include cash on hand, cash in banks and temporary investments purchased with remaining maturities of three months or less. Restricted cash consists of funds held to satisfy requirements of certain debt agreements. Restricted cash designated for interest and principal payments within one year is classified as a current asset.

Receivables

Accounts receivable are primarily composed of trade receivables and unbilled revenue. Our accounts receivable are stated at net realizable value. ~~Customer accounts are written off based upon approved regulatory and legislative requirements.~~

The allowance for doubtful accounts is calculated using the aging approach that utilizes rates developed in reserve studies. We establish an allowance for uncollectible accounts based on historical losses and management’s assessment of existing economic conditions, customer trends, and other factors. Customer accounts are generally considered delinquent if the amount billed is not received by the ~~time the next bill is issued,~~due date, typically ~~monthly,~~21 days, however, factors such as assistance programs may delay aggressive action. We assess late payment fees on trade receivables based on contractual past-due terms established with customers. Customer accounts are written off when collection efforts have been exhausted, generally one year after service has been terminated.

Unbilled revenues of ~~$282~~$269 million and ~~$267~~$282 million are included in customer accounts receivable at December 31, ~~2008~~2009 and ~~2007,~~2008, respectively.

Inventories

~~We value fuel~~The Company generally values inventory ~~and materials and supplies~~ at average cost.

Property, Retirement and Maintenance, and Depreciation, Depletion and ~~Depletion~~Amortization

~~Summary of property by classification as of December 31:~~

(in Millions) 2008 2007

Property, Plant and Equipment

Generation $ 8,544 $ 8,100
Distribution 6,433 6,272

Total 14,977 14,372

Less Accumulated Depreciation and Depletion

Generation (3,690 ) (3,539 )
Distribution (2,138 ) (2,101 )

Total (5,828 ) (5,640 )

Net Property, Plant and Equipment
$ 9,149 $ 8,732

Property is stated at cost and includes construction-related labor, materials, overheads and an allowance for funds used during construction (AFUDC). ~~AFUDC capitalized during 2008 and 2007 was approximately $44 million and $24 million, respectively.~~ The cost of properties retired, less salvage value is charged to accumulated depreciation.

Expenditures for maintenance and repairs are charged to expense when incurred, except for Fermi 2.

Approximately ~~$25~~$13 million and $4$25 million of expenses related to ~~the anticipated~~ Fermi 2 refueling ~~outage scheduled for 2009~~outages were accrued at December 31, ~~2008~~2009 and ~~2007,~~December 31, 2008, respectively. Amounts are ~~being~~ accrued on a pro-rata basis over an ~~18-month~~18-

The average estimated useful life for our generation and distribution property was 40 years and 37 years, respectively, at December 31, ~~2008.~~2009.

~~We credit~~The Company credits depreciation, depletion and amortization expense when we establish regulatory assets for plant-related costs such as depreciation or plant-related financing costs. ~~We charge~~The Company charges depreciation, depletion and amortization expense when we amortize these regulatory assets. ~~We credit~~The Company credits interest expense to reflect the accretion income on certain regulatory assets.

~~Intangible assets relating to capitalized~~Capitalized software ~~are~~is classified as Property, plant and equipment and the related amortization is included in Accumulated depreciation on the Consolidated Statements of Financial Position. ~~We capitalize~~The Company capitalizes the costs associated with computer software ~~we develop~~the Company develops or ~~obtain~~obtains for use in our business. ~~We amortize intangible~~The Company amortizes Intangible assets on a straight-line basis over the expected period of benefit, ranging from 5 to 15 years. Intangible assets amortization expense was $45 million in 2008, $31 million in 2007, and $28 million in 2006. The gross carrying amount and accumulated amortization of intangible assets at December 31, 2008 were $454 million and $126 million, respectively. The gross carrying amount and accumulated amortization of intangible assets at December 31, 2007 were $376 million and $83 million, respectively. Amortization expense of intangible assets is estimated to be $45 million annually for 2009 through 2013.

~~Asset Retirement Obligations~~

~~We have recorded asset retirement obligations in accordance with SFAS No. 143,~~~~Accounting for Asset Retirement Obligations~~~~and FIN No. 47,~~~~Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143~~. We have a legal retirement obligation for the decommissioning costs for our Fermi 1 and Fermi 2 nuclear plants. We have conditional retirement obligations for disposal of asbestos at certain of our power plants. To a lesser extent, we have conditional retirement obligations at certain service centers, and disposal costs for PCB contained within transformers and circuit breakers.

~~Timing differences arise in the expense recognition of legal asset retirement costs that we are currently recovering in rates. We defer such differences under SFAS No. 71,~~~~Accounting for the Effects of Certain Types of Regulation~~.

No liability has been recorded with respect to lead-based paint, as the quantities of lead-based paint in our facilities are unknown. In addition, there is no incremental cost to demolitions of lead-based paint facilities vs. non-lead based paint facilities and no regulations currently exist requiring any type of special disposal of items containing lead-based paint.

Ludington Hydroelectric Power Plant (a jointly owned plant) has an indeterminate life and no legal obligation currently exists to decommission the plant at some future date. Substations, manholes and certain other distribution assets within Detroit Edison have an indeterminate life. Therefore, no liability has been recorded for this asset.

~~A reconciliation of the asset retirement obligation for 2008 follows:~~

(in Millions)
Asset retirement obligations at January 1, 2008 $ 1,170
Accretion 76
Liabilities settled (10 )
Revision in estimated cash flows (10 )

Asset retirement obligations at December 31, 2008 1,226
Less amount included in current liabilities (21 )

$ 1,205

Approximately $1.2 billion of the asset retirement obligations represents nuclear decommissioning liabilities that are funded through a surcharge to electric customers over the life of the Fermi 2 nuclear plant.See Note 6.

Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If the carrying amount of the asset exceeds the expected future cash

flows generated by the asset, an impairment loss is recognized resulting in the asset being written down to its estimated fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less ~~cost~~costs to sell.

Intangible Assets

~~We have~~The Company has certain intangible assets relating to emission allowances. Emission allowances are charged to fuel expense as the allowances are consumed in the operation of the business.

Excise and Sales Taxes

~~We record~~The Company records the billing of excise and sales taxes as a receivable with an offsetting payable to the applicable taxing authority, with no impact on the Consolidated Statements of Operations.

Deferred Debt Costs

The costs related to the issuance of long-term debt are deferred and amortized over the life of each debt issue. In accordance with MPSC regulations, the unamortized discount, premium and expense related to debt redeemed with a refinancing are amortized over the life of the replacement issue.

Investments in Debt and Equity Securities

WeThe Company generally ~~classify~~classifies investments in debt and equity securities as either trading or available-for-sale and ~~have~~has recorded such investments at market value with unrealized gains or losses included in earnings or in other comprehensive income or loss, respectively. Changes in the fair value of Fermi 2 nuclear ~~decommissioning-related~~decommissioning investments are recorded as adjustments to regulatory assets or liabilities, due to a recovery mechanism from customers. ~~Our~~The Company’s investments are reviewed for impairment each reporting period. If the assessment indicates that the impairment is other than temporary, a loss is recognized resulting in the investment being written down to its estimated fair value. See Note ~~12.~~

~~Consolidated Statement of Cash Flows~~

~~A detailed analysis of the changes in assets and liabilities that are reported in the consolidated statement of cash flows follows:~~

(in Millions) 2008 2007 2006

Changes in Assets and Liabilities, Exclusive of Changes Shown Separately

Accounts receivable, net $ 72 $ (163 ) $ (36 )
Inventories (24 ) (47 ) (28 )
Recoverable pension and postretirement costs (852 ) 594 (925 )
Accrued pension liability – affiliates 598 (330 ) 125
Accounts payable (82 ) 73 7
Accrued power supply cost recovery revenue 82 41 (101 )
Accrued payroll 3 (50 ) 47
Income taxes payable (29 ) 10 16
General taxes (12 ) 4 13
Risk management and trading activities 1 (4 ) —
Accrued postretirement liability – affiliates 259 (239 ) 803
Other assets 3 (387 ) (114 )
Other liabilities 99 285 (20 )

$ 118 $ (213 ) $ (213 )

~~Supplementary cash and non-cash information for the years ended December 31 were as follows:~~

(in Millions) 2008 2007 2006

Cash Paid For
Interest (excluding interest capitalized) $ 290 $ 295 $ 278
Income taxes 24 280 141
4.

3128

NOTE 23 — NEW ACCOUNTING PRONOUNCEMENTS

FASB Accounting Standards Codification™ (Codification)

On July 1, 2009, the Codification became the single source of authoritative nongovernmental generally accepted accounting principles (GAAP) in the United States of America. The Codification is a reorganization of current GAAP into a topical format that eliminates the current GAAP hierarchy and establishes two levels of guidance — authoritative and non-authoritative. According to the FASB, all “non-grandfathered, non-SEC accounting literature” that is not included in the Codification would be considered non-authoritative. The FASB has indicated that the Codification does not change current GAAP. Instead, the proposed changes aim to (1) reduce the time and effort it takes for users to research accounting questions and (2) improve the usability of current accounting standards. The Codification is effective for interim and annual periods ending after September 15, 2009.

Fair Value Accounting

In September 2006, the FASB issued ~~SFAS~~ASC 820 (SFAS No. 157,Fair Value ~~Measurements~~Measurements). ~~SFAS No. 157~~The standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. It emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Fair value measurement should be determined based on the assumptions that market participants would use in pricing an asset or liability. Effective January 1, 2008, the Company adopted ~~SFAS~~ASC 820 (SFAS No. ~~157.~~157). As permitted by ~~FASB Staff Position FAS~~ASC 820-10 (FSP No. ~~157-2,~~157-2), the Company ~~has~~ elected to defer the effective date of ~~SFAS No. 157~~the standard as it pertains to measurement and disclosures about the fair value of non-financial assets and liabilities tomade on a nonrecurring basis. The Company has adopted the recognition provisions for non-financial assets and liabilities as of January 1, 2009. See Note 4.

In April 2009, the FASB issued three FSPs intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities. The FSPs are effective for interim and annual periods ending after June 15, 2009.

•ASC 825-10 (FSP No. 107-1 and APB No. 28-1),Interim Disclosures about Fair Value of Financial Instruments,expands the fair value disclosures required for all financial instruments within the scope of ASC 825-10 to interim periods.

•ASC 820-10 (FSP No. 157-4),Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, which applies to all assets and liabilities, i.e., financial and nonfinancial, reemphasizes that the objective of fair value remains unchanged (i.e., an exit price notion). The FSP provides application guidance on measuring fair value when the volume and level of activity has significantly decreased and identifying transactions that are not orderly. The FSP also emphasizes that an entity cannot presume that an observable transaction price is not orderly even when there has been a significant decline in the volume and level of activity.

•ASC 320-10 (FSP No. 115-2 and SFAS No. 124-2),Recognition and Presentation of Other-Than-Temporary Impairments,is intended to bring greater consistency to the timing of impairment recognition, and provide greater clarity to investors about the credit and noncredit components of impaired debt securities that are not expected to be sold.

The Company adopted these FSPs in the second quarter of 2009. The adoption of ~~SFAS No. 157~~these FSPs did not have a significant impact on ~~the Company’s consolidated financial statements. See also Note 12.~~

~~In February 2007, the FASB issued SFAS No. 159,~~~~The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115~~. This Statement permits an entity to choose to measure many financial instruments and certain other items at fair value. The fair value option established by SFAS No. 159 permits all entities to choose to measure eligible items at fair value at specified election dates. An entity will report in earnings unrealized gains and losses on items, for which the fair value option has been elected, at each subsequent reporting date. The fair value option: (a) may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; (b) is irrevocable (unless a new election date occurs); and (c) is applied only to entire instruments and not to portions of instruments. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. At January 1, 2008, the Company elected not to use the fair value option for financial assets and liabilities held at that date.

~~In October 2008, the FASB issued FASB Staff Position (FSP) 157-3,~~~~Determining the Fair Value of a Financial Asset in a Market That is Not Active~~~~. The FSP clarifies the application of SFAS No. 157,~~~~Fair Value Measurements,~~in an inactive market, and provides an illustrative example to demonstrate how the fair value of a financial asset is determined when the market for that financial asset is inactive. The FSP was effective upon issuance, including prior periods for which financial statements have not been issued. The adoption of the FSP did not have a material impact on the Company’s consolidated financial statements.

~~Business Combinations~~

~~In December 2007, the FASB issued SFAS No. 141(R),~~~~Business Combinations,~~to improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. To accomplish this, SFAS No. 141(R) requires the acquiring entity in a business combination to recognize all the assets acquired and liabilities assumed in the transaction; establishes the acquisition date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information needed to evaluate and understand the nature and financial effect of the business combination. SFAS No. 141(R) is applied prospectively to business combinations entered into by the Company after January 1, 2009, with earlier adoption prohibited. The Company will apply the requirements of SFAS No. 141(R) to business combinations consummated after January 1, 2009.

~~GAAP Hierarchy~~

~~In May 2008, the FASB issued SFAS No. 162,~~~~The Hierarchy of Generally Accepted Accounting Principles.~~This statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements under GAAP. SFAS No. 162 is effective 60 days following the approval of the Public Company Accounting Oversight Board amendments to AU section 411,~~The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles~~~~. The Company will adopt SFAS No. 162 once effective. The adoption is not expected to have a material impact on its consolidated financial statements.~~

are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under ASC 815 (SFAS No. ~~161~~133) and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.

The standard is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. Comparative disclosures for earlier periods at initial adoption are encouraged but not required. The Company ~~will adopt SFAS No. 161 on~~adopted the standard effective January 1, 2009. See Note 5.

Subsequent Events

In ~~September 2008,~~May 2009, the FASB issued ~~FSP~~ASC 855 (SFAS No. ~~133-1~~165,Subsequent Events). This standard provides guidance on management’s assessment of subsequent events. The new standard clarifies that management must evaluate, as of each reporting period, events or transactions that occur after the balance sheet date “through the date that the financial statements are issued or are available to be issued.” Management must perform its assessment for both interim and ~~FIN 45-4,~~~~Disclosures about Credit Derivatives~~annual financial reporting periods. The standard does not significantly change the Company’s practice for evaluating such events. ASC 855 (SFAS No. 165) is effective prospectively for interim and ~~Certain Guarantees: An Amendment~~annual periods ending after June 15, 2009 and requires disclosure of the date subsequent events are evaluated through. The Company adopted the standard during the quarter ended June 30, 2009. See Note 2.

Transfers of Financial Assets

In June 2009, the FASB issued ASU 2009-16 (SFAS No. 166,Accounting for Transfers of Financial Assets — an amendment of FASB ~~Statement~~ No. ~~133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161.~~140).This ~~FSP~~standard amends ASC 860, (SFAS No. 140), eliminates the concept of a “qualifying special-purpose entity” (QSPE) and associated guidance and creates more stringent conditions for reporting a transfer of a portion of a financial asset as a sale. ASU 2009-16 (SFAS No. 166) is intended to ~~improve disclosures about credit derivatives by requiring more information about~~enhance reporting in the ~~potential adverse effects of changes in credit risk on the financial position, financial performance, and cash flows~~wake of the ~~sellers of~~subprime mortgage crisis and the deterioration in the global credit ~~derivatives. This FSP also requires additional disclosures about the current status of the payment/performance risk of a guarantee.~~markets. The ~~provisions of the FSP that amend SFAS No. 133 and FIN 45 are~~standard is effective for ~~reporting periods ending~~financial asset transfers occurring after the beginning of an entity’s first fiscal year that begins after November 15, ~~2008.~~2009. Early adoption is prohibited. ASU 2009-16 (SFAS No. 166) must be applied prospectively to transfers of financial assets occurring on or after its effective date. The ~~FSP also clarifies that the disclosures required by SFAS~~adoption of ASU 2009-16 (SFAS No. ~~161 should be provided for any reporting period (annual or interim) beginning after November 15, 2008. The Company has adopted these pronouncements as of December 31, 2008.~~166) will not have a material impact on Detroit Edison’s consolidated financial statements.

~~Noncontrolling Interests in Consolidated Financial Statements~~Variable Interest Entities (VIE)

In ~~December 2007,~~June 2009, the FASB issued ~~SFAS~~ASU 2009-17 (SFAS No. ~~160,~~167,~~Noncontrolling Interests in Consolidated Financial Statements —~~Amendments to FASB Interpretation 46(R)). This standard amends the consolidation guidance that applies to VIEs and affects the overall consolidation analysis under ASC 810 -10 (Interpretation 46(R)). The amendments to the consolidation guidance affect all entities and enterprises currently within the scope of ASC 810-10, as well as qualifying special purpose entities that are currently outside the scope of ASC 810-10. Accordingly, the Company will need to reconsider its previous ASC 810-10 conclusions, including (1) whether an ~~Amendment~~entity is a VIE, (2) whether the enterprise is the VIE’s primary beneficiary, and (3) what type of ~~ARB~~financial statement disclosures are required. ASU 2009-17 (SFAS No. ~~51.~~This Statement establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary167) is ~~an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 is~~ effective ~~for fiscal years, and interim periods within those years, beginning on or after December 15, 2008. Earlier adoption is prohibited. This Statement shall be applied prospectively~~ as of the beginning of the first fiscal year ~~in which this Statement~~that begins after November 15, 2009. Early adoption is ~~initially applied, except~~prohibited. The Company is currently assessing the impact of ASU 2009-17 (SFAS No. 167), however adoption of the standard is not expected to have a material impact to the consolidated financial statements.

Fair Value Measurements and Disclosures

In September and August 2009, respectively, the FASB issued ASU 2009-12,Fair Value Measurements and Disclosure,and ASU 2009-05,Measuring Liabilities at Fair Value.ASU 2009-12 provides guidance for the ~~presentation and disclosure requirements which shall be applied retrospectively for all periods presented. The Company will adopt SFAS No. 160~~fair value measurement of investments in certain entities that calculate the net asset value per share (or its equivalent) determined as of ~~January 1,~~the reporting entity’s measurement date. Certain attributes of the investment (such as restrictions on redemption) and transaction prices from principal-to-principal or brokered transactions will not be considered in measuring the fair value of the investment. The amendments in this standard are effective for interim and annual periods ending after December 15, 2009. ~~Adoption~~

ASU 2009-05 provides guidance on measuring the fair value of ~~SFAS No. 160 will~~liabilities under ASC 820. This standard clarifies that in the absence of a quoted price in an active market for an identical liability at the measurement date, companies may apply approaches that use the quoted price of an investment in the identical liability or similar liabilities traded as assets or other valuation techniques consistent with the fair-value measurement principles in ASC 820. The standard permits fair value measurements of liabilities that are based on the price that a company would pay to transfer the liability to a new obligor. It also permits a company to measure the fair value of liabilities using an estimate of the price it would receive to enter into the liability at that date. The new standard is effective for interim and annual periods beginning after August 27, 2009 and applies to all fair-value measurements of liabilities required by GAAP. The adoption of ASU 2009-12 and ASU 2009-05 did not have a material ~~effect~~impact on ~~the Company’s~~Detroit Edison’s consolidated financial statements.

~~Employers’ Disclosures about Postretirement Benefit Plan Assets~~

~~On December 30, 2008,~~In January 2010, the FASB issued ~~FASB Staff Position (FSP) FAS 132(R)-1,~~ASU 2010-06,~~Employers’~~Improving Disclosures about ~~Postretirement Benefit Plan Assets.~~Fair Value Measurements~~This FSP amends SFAS No. 132 (revised 2003),~~~~Employers’ Disclosures about Pensions~~. ASU 2010-06 requires the gross presentation of activity within the Level 3 fair value measurement roll forward and ~~Other Postretirement Benefits,~~details of transfers in and out of Level 1 and 2 fair value measurements. The new disclosures are required of all entities that are required to provide ~~guidance on an employer’s~~ disclosures about ~~plan assets of a defined benefit pension or other postretirement plan. The disclosure requirements required by this FSP are~~recurring and nonrecurring fair value measurements. ASU 2010-06 is effective for ~~fiscal years ending~~interim and annual reporting periods beginning after December 15, ~~2009.~~2009, except for the gross presentation of the Level 3 fair value measurement roll forward which is effective for annual reporting periods beginning after December 15, 2010 and for interim reporting periods within those years.

Revenue Arrangements

In September 2009, the FASB ratified Issue No. 08-1,Revenue Arrangements with Multiple Deliverables (not yet codified).Issue 08-1 provides principles and application guidance on whether multiple deliverables exist, how the arrangement should be separated, and the consideration allocated. This standard shall be applied prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted. Alternatively, an entity may elect to adopt this standard on a retrospective basis. The Company ~~will adopt~~is currently assessing the impact of Issue No. 08-1 on Detroit Edison’s consolidated financial statements. Adoption of this ~~FSP~~standard is not expected to have a material impact to the consolidated financial statements.

NOTE 4 — 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 is immaterial for the years ended December 31, ~~2009.~~2009 and 2008. The Company believes it uses valuation techniques that maximize the use of observable market-based inputs and minimize the use of unobservable inputs.

~~Stock-Based Compensation~~

~~Effective January 1, 2006, our parent company, DTE Energy, adopted SFAS No. 123(R),~~~~Share-Based Payment,~~~~using~~A fair value hierarchy has been established, which prioritizes the ~~modified prospective transition method. We receive an allocation of costs associated with stock compensation~~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 ~~related impact~~lowest priority to unobservable inputs (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of ~~cumulative accounting adjustments. Our allocation~~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 ~~2008, 2007~~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 ~~2006~~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 December 31, 2009:


								Net Balance at
(in Millions)	Level 1		Level 2			Level 3		December 31, 2009
Assets:
Cash equivalents	$	15	$	—		$	—	$	15
Nuclear decommissioning trusts and other investments		589		325			—		914
Derivative assets		—		—			2		2

Total	$	604	$	325		$	2	$	931

Liabilities:
Derivative liabilities		—		(8	)		—		(8	)

Total	$	—	$	(8	)	$	—	$	(8	)


Net Assets at December 31, 2009	$	604	$	317		$	2	$	923

The following table presents the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for the years ended December 31, 2009 and 2008:


	Year Ended
	December 31
(in Millions)	2009			2008
Asset balance as of beginning of period	$	4			4
Changes in fair value recorded in regulatory assets/liabilities		—			2
Purchases, issuances and settlements		—			(2	)
Transfers in/out of Level 3		(2	)		—

Asset balance as of December 31	$	2		$	4

The amount of total gains (losses) included in regulatory assets and liabilities attributed to the change in unrealized gains (losses) related to regulatory assets and liabilities held at December 31, 2009 and 2008	$	2		$	—

Transfers in/out of Level 3 represent existing assets or liabilities that were either previously categorized as a higher level and for which the inputs to the model become unobservable or assets and liabilities that were previously classified as Level 3 for which the lowest significant input became observable during the period. Transfers in/out of Level 3 are reflected as if they had occurred at the beginning of the period. Transfers out of Level 3 in 2009 reflect a change in the significance of unobservable inputs and an increased reliance on broker quotes for certain transactions.

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 investments in money market funds. The fair values of the shares of these funds are based on observable market prices and, therefore, have been categorized as Level 1 in the fair value hierarchy.

Nuclear Decommissioning Trusts and Other Investments

The nuclear decommissioning trust fund investments have been established to satisfy Detroit Edison’s nuclear decommissioning obligations. The nuclear decommissioning trusts and other fund investments hold debt and equity securities directly and indirectly through commingled funds and institutional mutual funds. Exchange-traded debt and equity securities held directly are valued using quoted market prices on actively traded markets. The commingled funds and institutional mutual funds which hold exchange-traded equity or debt securities are valued based on the underlying securities, using quoted prices in actively traded markets. Non-exchange-traded fixed income securities are valued based upon quotations available from brokers or pricing services. For non-exchange traded fixed income securities, the trustees receive prices from pricing services. A primary price source is identified by asset type, class or issue for each security. The trustees monitor prices supplied by pricing services and may use a supplemental price source or change the primary price source of a given security if the trustees challenge an assigned price and determine that another price source is considered to be preferable. Detroit Edison has obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices. Additionally, Detroit Edison selectively corroborates the fair values of securities by comparison of market-based price sources.

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. The Company 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. The Company monitors the prices that

~~stock-based compensation~~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. The Company has obtained an understanding of how these prices are derived. Additionally, the Company 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.

Fair Value of Financial Instruments

The fair value of long-term debt is determined by using quoted market prices when available and a discounted cash flow analysis based upon estimated current borrowing rates when quoted market prices are not available. The table below shows the fair value relative to the carrying value for long-term debt securities. Certain other financial instruments, such as notes payable, customer deposits and notes receivable are not shown as carrying value approximates fair value. See Note 5 for further fair value information for financial and derivative instruments.

December 31, 2009

December 31, 2008

Fair Value

Carrying Value

Fair Value

Carrying Value

Long-Term Debt

$5.2 billion

$5.0 billion

$5.2 billion

Investments in Debt and Equity Securities

The Company generally classifies investments in debt and equity securities as either trading or available-for-sale and has recorded such investments at market value with unrealized gains or losses included in earnings or in other comprehensive income or loss, respectively. Changes in the fair value of Fermi 2 nuclear decommissioning investments are recorded as adjustments to regulatory assets or liabilities, due to a recovery mechanism from customers. The Company’s investments are reviewed for impairment each reporting period. If the assessment indicates that the impairment is other than temporary, a loss is recognized resulting in the investment being written down to its estimated fair value.

Nuclear Decommissioning Trust Funds

The NRC has jurisdiction over the decommissioning of nuclear power plants and requires decommissioning funding based upon a formula. The MPSC and FERC regulate the recovery of costs of decommissioning nuclear power plants and both require the use of external trust funds to finance the decommissioning of Fermi 2. Rates approved by the MPSC provide for the recovery of decommissioning costs of Fermi 2 and the disposal of low-level radioactive waste. Detroit Edison is continuing to fund FERC jurisdictional amounts for decommissioning even though explicit provisions are not included in FERC rates. The Company believes the MPSC and FERC collections will be adequate to fund the estimated cost of decommissioning using the NRC formula. The decommissioning assets, anticipated earnings thereon and future revenues from decommissioning collections will be used to decommission Fermi 2. The Company expects the liabilities to be reduced to zero at the conclusion of the decommissioning activities. If amounts remain in the trust funds for Fermi 2 following the completion of the decommissioning activities, those amounts will be disbursed based on rulings by the MPSC and FERC.

The decommissioning of Fermi 1 is funded by Detroit Edison. Contributions to the Fermi 1 trust are discretionary.

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


	December 31		December 31
(in Millions)	2009		2008
Fermi 2	$	790	$	649
Fermi 1		3		3
Low level radioactive waste		24		33

Total	$	817	$	685

At December 31, 2009, investments in the nuclear decommissioning trust funds consisted of approximately 51% in publicly traded equity securities, 48% in fixed debt instruments and 1% in cash equivalents. At December 31, 2008, investments in the nuclear decommissioning trust funds consisted of approximately 42% in publicly traded equity securities, 57% in fixed debt instruments and 1% in cash equivalents. The debt securities at both December 31, 2009 and December 31, 2008 had an average maturity of approximately 5 years.

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:


	Year Ended December 31
	2009			2008			2007
(in Millions)
Realized gains	$	37		$	34		$	25
Realized losses	$	(55	)	$	(49	)	$	(17	)
Proceeds from sales of securities	$	295		$	232		$	286

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


(in Millions)
As of December 31, 2009
Equity securities	$	420	$	135
Debt securities		388		17
Cash and cash equivalents		9		—

	$	817	$	152


As of December 31, 2008
Equity securities	$	288	$	65
Debt securities		388		17
Cash and cash equivalents		9		—

	$	685	$	82

Securities held in the nuclear decommissioning trust funds are classified as available-for-sale. As Detroit Edison 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.

Impairment charges for unrealized losses incurred by the Fermi 2 trust are recognized as a regulatory asset. Detroit Edison recognized $48 million and $92 million of unrealized losses as regulatory assets at December 31, 2009 and 2008, respectively. Since the decommissioning of Fermi 1 is funded by Detroit Edison rather than through a regulatory recovery mechanism, there is no corresponding regulatory asset treatment. Therefore, impairment charges for unrealized losses incurred by the Fermi 1 trust are recognized in earnings immediately. There were no impairment charges in 2009 and 2008 for Fermi 1. Detroit Edison recognized impairment charges of $0.2 million for Fermi 1 for the year ended December 31, 2007.

Other Available-For-Sale Securities

The following table summarizes the fair value of the Company’s investment in available-for-sale debt and equity securities, excluding nuclear decommissioning trust fund assets:


	December 31, 2009				December 31, 2008
(in Millions)	Fair Value		Carrying value		Fair Value		Carrying Value
Cash equivalents	$	105	$	105	$	98	$	98
Equity securities	$	4	$	4	$	20	$	20

At December 31, 2009 and 2008, these securities are comprised primarily of money-market and equity securities. Gains (losses) related to trading securities held at December 31, 2009, 2008, and 2007 were $8 million, $(14) million and $3 million respectively.

NOTE 5 — FINANCIAL AND OTHER DERIVATIVE INSTRUMENTS

The Company recognizes all derivatives on the Consolidated Statements of Financial Position at their fair value unless they qualify for certain scope exceptions, including the normal purchases and normal sales exception. Further, derivatives that qualify and are designated for hedge accounting are classified as either hedges of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge), or as hedges of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge). For cash flow hedges, the portion of the derivative gain or loss that is effective in offsetting the change in the value of the underlying exposure is deferred in Accumulated other comprehensive income and later reclassified into earnings when the underlying transaction occurs. For fair value hedges, changes in fair values for the derivative are recognized in earnings each period. Gains and losses from the ineffective portion of any hedge are recognized in earnings immediately. For derivatives that do not qualify or are not designated for hedge accounting, changes in the fair value are recognized in earnings each period.

The Company’s primary market risk exposure is associated with commodity prices, credit and interest rates. The Company has risk management policies to monitor and manage market risks. The Company uses derivative instruments to manage some of the exposure. Contracts the Company typically classifies as derivative instruments include power, certain coal forwards, futures, options and swaps.

Detroit Edison generates, purchases, distributes and sells electricity. Detroit Edison uses forward energy and capacity contracts to manage changes in the price of electricity and fuel. Substantially all of these contracts meet the normal purchases and sales exemption and are therefore accounted for under the accrual method. Other derivative contracts are recoverable through the PSCR mechanism when settled. This results in the deferral of unrealized gains and losses as Regulatory assets or liabilities, until realized.

The following represents the fair value of derivative instruments as of December 31, 2009:


	Balance Sheet	Fair
	Location	Value
(in Millions)
FTRs	Other current assets	$	2
Emissions	Other current liabilities		(5	)
Emissions	Other non-current liabilities		(3	)

Total derivatives not designated as hedging instrument		$	(6	)


Total derivatives:
Current		$	(3	)
Noncurrent			(3	)

Total derivatives as reported		$	(6	)

The effect of derivative instruments recoverable through the PSCR mechanism when realized on the Consolidated Statements of Financial Position for the year ended December 31, 2009 is as follows:


		Year Ended
	Location of Gain	Gain (Loss)
	(Loss) Recognized	Recognized in
	in Regulatory	Regulatory Assets
	Assets / Liabilities	/ Liabilities on
	On Derivative	Derivative
(in Millions)
FTRs and Emissions	Regulatory Asset	$	(14	)
FTRs and Emissions	Regulatory Liability		(2	)

Total		$	(16	)

The following represents the cumulative gross volume of derivative contracts outstanding as of December 31, 2009:


Commodity	Number of Units
Emissions (Tons)		61,927
FTRs (MW)		4,486

NOTE 6 — PROPERTY, PLANT AND EQUIPMENT

Summary of property by classification as of December 31:


(in Millions)	2009			2008
Property, Plant and Equipment
Generation	$	8,833		$	8,544
Distribution		6,618			6,433

Total		15,451			14,977


Less Accumulated Depreciation and Amortization
Generation		(3,890	)		(3,690	)
Distribution		(2,243	)		(2,138	)

Total		(6,133	)		(5,828	)

Net Property, Plant and Equipment	$	9,318		$	9,149

AFUDC capitalized during 2009 and 2008 was approximately $12 million and $44 million, respectively.

The composite depreciation rate for Detroit Edison was 3.3% in 2009, 2008 and 2007.

The average estimated useful life for our generation and distribution property was 40 years and 37 years, respectively, at December 31, 2009.

Capitalized software costs amortization expense was ~~approximately $15~~$55 million ~~$13~~in 2009, $45 million in 2008, and $31 million in 2007. The gross carrying amount and accumulated amortization of capitalized software costs at December 31, 2009 were $488 million and ~~$14~~$161 million, respectively. The ~~cumulative effect~~gross carrying amount and accumulated amortization of capitalized software costs at December 31, 2008 were $454 million and $126 million, respectively. Amortization expense of capitalized software costs is estimated to be $60 million annually for 2010 through 2014.

Gross property under capital leases was $121 million at December 31, 2009 and December 31, 2008. Accumulated amortization of property under capital leases was $88 million and $80 million at December 31, 2009 and December 31, 2008, respectively.

NOTE 7 — JOINTLY OWNED UTILITY PLANT

Detroit Edison has joint ownership interest in two power plants, Belle River and Ludington Hydroelectric Pumped Storage. Detroit Edison’s share of direct expenses of the ~~adoption~~jointly owned plants are included in Fuel, purchased power and gas and Operation and maintenance expenses in the Consolidated Statements of ~~SFAS 123(R)~~Operations. Ownership information of the two utility plants as of December 31, 2009 was as follows:


				Ludington
				Hydroelectric
	Belle River			Pumped Storage
In-service date		1984-1985			1973
Total plant capacity		1,260	MW		1,872	MW
Ownership interest			*		49	%
Investment (in Millions)	$	1,626		$	197
Accumulated depreciation (in Millions)	$	889		$	128


*		Detroit Edison’s ownership interest is 63% in Unit No. 1, 81% of the facilities applicable to Belle River used jointly by the Belle River and St. Clair Power Plants and 75% in common facilities used at Unit No. 2.

Belle River

The Michigan Public Power Agency (MPPA) has an ~~increase~~ownership interest in ~~net income~~Belle River Unit No. 1 and other related facilities. The MPPA is entitled to 19% of ~~$1 million.~~ the total capacity and energy of the plant and is responsible for the same percentage of the plant’s operation, maintenance and capital improvement costs.

Ludington Hydroelectric Pumped Storage

Consumers Energy Company has an ownership interest in the Ludington Hydroelectric Pumped Storage Plant. Consumers Energy is entitled to 51% of the total capacity and energy of the plant and is responsible for the same percentage of the plant’s operation, maintenance and capital improvement costs.

NOTE 8 — ASSET RETIREMENT OBLIGATIONS

The ~~cumulative effect adjustment was due~~Company has a legal retirement obligation for the decommissioning costs for its Fermi 1 and Fermi 2 nuclear plants. The Company has conditional retirement obligations for disposal of asbestos at certain of its power plants. To a lesser extent, the Company has conditional retirement obligations at certain service centers and disposal costs for PCB contained within transformers and circuit breakers. The Company recognizes such obligations as liabilities at fair market value when they are incurred, which generally is at the time the associated assets are placed in service. Fair value is measured using expected future cash outflows discounted at our credit-adjusted risk-free rate. In its regulated operations, the Company defers timing differences that arise in the expense recognition of legal asset retirement costs that are currently recovered in rates.

No liability has been recorded with respect to lead-based paint, as the quantities of lead-based paint in the Company’s facilities are unknown. In addition, there is no incremental cost to demolitions of lead-based paint facilities vs. non-lead-based paint facilities and no regulations currently exist requiring any type of special disposal of items containing lead-based paint.

The Ludington Hydroelectric Power Plant (a jointly owned plant) has an indeterminate life and no legal obligation currently exists to decommission the plant at some future date. Substations, manholes and certain other distribution assets within Detroit Edison have an indeterminate life. Therefore, no liability has been recorded for these assets.

A reconciliation of the asset retirement obligations for 2009 follows:


(in Millions)
Asset retirement obligations at January 1, 2009	$	1,226
Accretion		80
Liabilities settled		(10	)
Revision in estimated cash flows		4

Asset retirement obligations at December 31, 2009		1,300
Less amount included in current liabilities		(15	)

	$	1,285

Detroit Edison 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. Based on the actual or anticipated extended life of the nuclear plant, decommissioning expenditures for Fermi 2 are expected to be incurred primarily during the period of 2025 through 2050. It is estimated that the cost of decommissioning Fermi 2, when its license expires in 2025, will be $1.3 billion in 2009 dollars and $3.4 billion in 2025 dollars, using a 6% inflation rate. In 2001, Detroit Edison began the decommissioning of Fermi 1, with the goal of removing the radioactive material and terminating the Fermi 1 license. The decommissioning of Fermi 1 is expected to be completed by 2012. Approximately $1.2 billion of the asset retirement obligations represent nuclear decommissioning liabilities that are funded through a surcharge to electric customers over the life of the Fermi 2 nuclear plant.

clean-up is not considered a legal liability. Therefore, it is not included in the asset retirement obligation, but is reflected as the nuclear decommissioning liability.

The decommissioning of Fermi 1 is funded by Detroit Edison. Contributions to the ~~estimation and subsequent allocation~~Fermi 1 trust are discretionary. See Note 4 for additional discussion of ~~forfeitures for previously granted stock awards and performance shares.~~Nuclear Decommissioning Trust Fund Assets.

NOTE 39 — RESTRUCTURING

Performance Excellence Process

In 2005, the Company initiated a company-wide review of its operations called the Performance Excellence Process. Specifically, the Company began a series of focused improvement initiatives within Detroit Edison and associated corporate support functions.

The Company incurred costs to achieve (CTA) restructuring expense for employee severance and other costs. Other costs include project management and consultant support. ~~Pursuant~~In September 2006, the MPSC issued an order approving a settlement agreement that allows Detroit Edison, commencing in 2006, to ~~MPSC authorization,~~defer the incremental CTA. Further, the order provides for Detroit Edison to amortize the CTA deferrals over a ten-year period beginning inwith the ~~third quarter of 2006,~~year subsequent to the year the CTA was deferred. Detroit Edison deferred approximately ~~$102~~$24 million and $54 million of CTA in ~~2006. Detroit Edison began amortizing deferred 2006 costs in~~2008 and 2007 as ~~the~~a regulatory asset. The recovery of these costs was provided for by the ~~MPSC.~~MPSC in the order approving the settlement in the show cause proceeding and in the December 23, 2008 MPSC rate order. Amortization ~~expense~~of prior year deferred CTA costs amounted to $18 million in 2009, $16 million in 2008 and $10 million in ~~2008 and 2007, respectively. Detroit Edison deferred $24 million of CTA during 2008 and $54 million during~~ 2007. ~~See Note 4.~~

Amounts expensed are recorded in the Operation and maintenance line on the Consolidated ~~Statement~~Statements of Operations. Deferred amounts are recorded in ~~the regulatory asset line~~Regulatory assets on the Consolidated ~~Statement~~Statements of Financial Position.

Costs incurred in 2008 ~~2007~~ and ~~2006~~2007 are as follows:


	Employee Severance Costs(1)						Other Costs						Total Cost						Employee Severance Costs(1)				Other Costs				Total Cost
(in Millions)	2008		2007		2006		2008		2007		2006		2008		2007		2006		2008		2007		2008		2007		2008		2007

Costs incurred:	$	—	$	15	$	51	$	26	$	50	$	56	$	26	$	65	$	107	$	—	$	15	$	26	$	50	$	26	$	65
Less amounts deferred or capitalized:		—		15		51		26		50		56		26		65		107		—		15		26		50		26		65

Amount expensed	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

NOTE 410 — REGULATORY MATTERS

Regulation

Detroit Edison is subject to the regulatory jurisdiction of the MPSC, which issues orders pertaining to rates, recovery of certain costs, including the costs of generating facilities and regulatory assets, conditions of service, accounting and operating-related matters. Detroit Edison is also regulated by the FERC with respect to financing authorization and wholesale electric activities. Regulation results in differences in the application of generally accepted accounting principles between regulated and non-regulated businesses.

Regulatory Assets and Liabilities

Detroit Edison ~~applies the provisions of SFAS No. 71,~~~~Accounting for the Effects of Certain Types of Regulation,~~is required to ~~its operations. SFAS No. 71 requires the recording of~~record regulatory assets and liabilities for certain transactions that would have been treated as revenue ~~and~~or expense in non-regulated businesses.

Continued applicability of ~~SFAS No. 71~~regulatory accounting treatment requires that rates be designed to recover specific costs of providing regulated services and be charged to and collected from customers. Future regulatory changes or changes in the competitive environment could result in the ~~Company discontinuing the application~~discontinuance of ~~SFAS No. 71~~this accounting treatment for regulatory assets and liabilities for some or all of ~~its business~~our businesses and may require the write-off of the portion of any regulatory asset or liability that was no longer probable of recovery through regulated rates. Management believes that currently available facts support the continued ~~application~~use of ~~SFAS No. 71.~~regulatory assets and liabilities and that all regulatory assets and liabilities are recoverable or refundable in the current rate environment.

The following are balances and a brief description of the regulatory assets and liabilities at December 31:


(in Millions)	2008			2007			2009			2008

Assets
Securitized regulatory assets	$	1,001		$	1,124

Recoverable income taxes related to securitized regulatory assets		549			616
Recoverable pension and postretirement cost
Recoverable pension and postretirement costs:
Pension		1,133			469		$	1,261		$	1,133
Postretirement costs		609			405			515			609
Recoverable income taxes related to securitized regulatory assets								476			549
Asset retirement obligation		452			266			415			452
Deferred income taxes — Michigan Business Tax								343			336
Costs to achieve Performance Excellence Process								136			154
Other recoverable income taxes		89			94			89			89
Enterprise Business Systems costs								24			26
Recoverable costs under PA 141
Excess capital expenditures		4			11
Unamortized loss on reacquired debt								38			40
Electric Customer Choice implementation costs								18			37
Deferred Clean Air Act expenditures		10			28			—			10
Midwest Independent System Operator charges		8			23
Electric Customer Choice implementation costs		37			58
Enhanced security costs		6			10
Unamortized loss on reacquired debt		40			38
Accrued PSCR revenue		20			75			—			20
Costs to achieve Performance Excellence Process		154			146
Enterprise Business Systems costs		26			26
Deferred income taxes — Michigan Business Tax		336			318
Other		3			3			18			21

		3,476			2,586			3,333			3,476
Less amount included in current assets		(20	)		(75	)		—			(20	)

	$	3,456		$	2,511		$	3,333		$	3,456


Securitized regulatory assets							$	870		$	1,001


Liabilities
Deferred income taxes — Michigan Business Tax							$	367		$	335
Asset removal costs	$	182		$	218			157			182
Accrued pension		72			43			75			72
Renewable energy program								32			—
Refundable costs under PA 141								27			16
Refundable self implemented rates								27			—
Refundable restoration expense								15			—
Accrued PSCR refund		11			—			14			11
Refundable costs under PA 141		16
Fermi 2 refueling outage		25			4			13			25
Deferred income taxes — Michigan Business Tax		335			318
Other		4			5			11			4

		645			588			738			645
Less amount included in current liabilities		(52	)		(5	)		(27	)		(52	)

	$	593		$	583		$	711		$	593

As noted below, regulatory assets for which costs have been incurred have been included (or are expected to be included, for costs incurred subsequent to the most recently approved rate case) in Detroit Edison’s rate base, thereby providing a return on invested costs. Certain regulatory assets do not result from cash expenditures and therefore do not represent investments included in rate base or have offsetting liabilities that reduce rate base.

ASSETS

•		~~Securitized regulatory assets~~Recoverable pension and postretirement costs— ~~The net book balance~~In 2007, the Company adopted ASC 715 (SFAS No. 158) which required, among other things, the recognition in other comprehensive income of the ~~Fermi 2 nuclear plant was written off in 1998~~actuarial gains or losses and ~~an equivalent~~the prior service costs that arise during the period but that are not immediately recognized as components of net periodic benefit costs. The Company records the charge related to the additional liability as a regulatory asset ~~was established. In 2001,~~since the ~~Fermi 2 regulatory~~traditional rate setting process allows for the recovery of pension and postretirement costs. The asset ~~and certain other regulatory assets were securitized pursuant to PA 142 and an MPSC order. A non-bypassable securitization bond surcharge recovers~~will reverse as the ~~securitized regulatory asset over a fourteen-year period ending~~deferred items are recognized as benefit expenses in ~~2015.~~net income. (1)

•		Recoverable income taxes related to securitized regulatory assets— Receivable for the recovery of income taxes to be paid on the non-bypassable securitization bond surcharge. A non-bypassable securitization tax surcharge recovers the income tax over a fourteen-year period ending 2015.

•		~~Recoverable pension and postretirement costs~~~~— In 2007, the Company adopted SFAS No. 158 which required, among other things, the recognition in other comprehensive income of the actuarial gains or losses and the prior~~

service costs that arise during the period but that are not immediately recognized as components of net periodic benefit costs. The Company received approval from the MPSC to record the charge related to the additional liability as a regulatory asset since the traditional rate setting process allows for the recovery of pension and postretirement costs. The asset will reverse as the deferred items are recognized as benefit expenses in net income. (1)

•		Asset retirement obligation— ~~Asset retirement obligations were recorded pursuant to adoption of SFAS No. 143 and FIN 47. These obligations are~~This obligation is primarily for Fermi 2 decommissioning costs. The asset captures the timing differences between expense recognition and current recovery in rates and will reverse over the remaining life of the related plant. ~~(1)~~

•		~~Other recoverable income taxes~~— Income taxes receivable from Detroit Edison’s customers representing the difference in property-related deferred income taxes receivable and amounts previously reflected in Detroit Edison’s rates. This asset will reverse over the remaining life of the related plant. (1)

•		~~Excess capital expenditures~~~~— PA 141 permits, after MPSC authorization, the recovery of and a return on capital expenditures that exceed a base level of depreciation expense.~~

•		~~Deferred Clean Air Act expenditures~~~~— PA 141 permits, after MPSC authorization, the recovery of and a return on Clean Air Act expenditures.~~

•		~~Midwest Independent System Operator charges~~~~— PA 141 permits, after MPSC authorization, the recovery of and a return on charges from a regional transmission operator such as the Midwest Independent System Operator.~~

•		~~Electric Customer Choice implementation costs~~~~— PA 141 permits, after MPSC authorization, the recovery of and a return on costs incurred associated with the implementation of the electric Customer Choice program.~~

•		~~Enhanced security costs —~~~~PA 609 of 2002 permits, after MPSC authorization, the recovery of enhanced security costs for an electric generating facility.~~

•		~~Unamortized loss on reacquired debt~~~~— The unamortized discount, premium and expense related to debt redeemed with a refinancing are deferred, amortized and recovered over the life of the replacement issue.~~

•		~~Accrued PSCR revenue~~~~— Receivable for the temporary under-recovery of and a return on fuel and purchased power costs incurred by Detroit Edison which are recoverable through the PSCR mechanism.~~

•		~~Cost to achieve Performance Excellence Process (PEP)~~— The MPSC authorized the deferral of costs to implement the PEP. These costs consist of employee severance, project management and consultant support. These costs will be amortized over a ten-year period beginning with the year subsequent to the year the costs were deferred.

•		~~Enterprise Business Systems (EBS) costs~~~~— The MPSC approved the deferral and amortization over 10 years beginning in January 2009 of EBS costs that would otherwise be expensed.~~ (1)

•		Deferred income taxes — Michigan Business Tax (MBT)— In July 2007, the MBT was enacted by the State of Michigan. State deferred tax liabilities were established for the Company’s utilities, and offsetting regulatory assets were recorded as the impacts of the deferred tax liabilities will be reflected in rates as the related taxable temporary differences reverse and flow through current income tax expense. (1)

•		Cost to achieve Performance Excellence Process (PEP)— The MPSC authorized the deferral of costs to implement the PEP. These costs consist of employee severance, project management and consultant support. These costs will be amortized over a ten-year period beginning with the year subsequent to the year the costs were deferred. (1)

•		Other recoverable income taxes— Income taxes receivable from Detroit Edison’s customers representing the difference in property-related deferred income taxes receivable and amounts previously reflected in Detroit Edison’s rates. This asset will reverse over the remaining life of the related plant. (1)

•		Enterprise Business Systems (EBS) costs— The MPSC approved the deferral and amortization over 10 years beginning in January 2009 of EBS costs that would otherwise be expensed. (1)

•		Unamortized loss on reacquired debt— The unamortized discount, premium and expense related to debt redeemed with a refinancing are deferred, amortized and recovered over the life of the replacement issue. (1)

•		Electric Customer Choice implementation costs— PA 141 permits, after MPSC authorization, the recovery of and a return on costs incurred associated with the implementation of the electric Customer Choice program.

•		Deferred Clean Air Act expenditures— PA 141 permits, after MPSC authorization, the recovery of and a return on Clean Air Act expenditures.

•		Accrued PSCR revenue— Receivable for the temporary under-recovery of and a return on fuel and purchased power costs incurred by Detroit Edison which are recoverable through the PSCR mechanism.

•		Securitized regulatory assets— The net book balance of the Fermi 2 nuclear plant was written off in 1998 and an equivalent regulatory asset was established. In 2001, the Fermi 2 regulatory asset and certain other regulatory assets were securitized pursuant to PA 142 and an MPSC order. A non-bypassable securitization bond surcharge recovers the securitized regulatory asset over a fourteen-year period ending in 2015.

~~(1) Regulatory assets not earning a return.~~


(1)		Regulatory assets not earning a return.

3743

LIABILITIES

•		Deferred income taxes — Michigan Business Tax —In July 2007, the MBT was enacted by the State of Michigan. State deferred tax assets were established for the Company’s utilities, and offsetting regulatory liabilities were recorded as the impacts of the deferred tax assets will be reflected in rates.

•		Asset removal costs— The amount collected from customers for the funding of future asset removal activities.

•		Accrued pension— Pension expense refundable to customers representing the difference created from volatility in the pension obligation and amounts recognized pursuant to MPSC authorization.

•		~~Accrued PSCR refund~~Renewable energy —~~— Payable for the temporary over-recovery~~Amounts collected in rates in excess of ~~and a return on power supply costs and transmission costs incurred by Detroit Edison which are recoverable through the PSCR mechanism.~~renewable energy expenditures.

•		Refundable costs under PA 141 —Detroit Edison’s 2007 Choice Incentive Mechanism (CIM) reconciliation and allocation resulted in the elimination of Regulatory Asset Recovery Surcharge (RARS) balances for commercial and industrial customers. RARS revenues received in 2008 that exceed the regulatory asset balances are required to be refunded to the affected classes.

•		Refundable self implemented rates —Amounts due customers for self implemented rates in excess of amounts provided for in January 2010 Detroit Edison MPSC order.

•		Refundable restoration expense —Amounts refundable for the MPSC approved restoration expenses tracking mechanism that tracks the difference between actual restoration expense and the amount provided for in base rates, recognized pursuant to the MPSC authorization.

•		Accrued PSCR refund— Liability for the temporary over-recovery of and a return on power supply costs and transmission costs incurred by Detroit Edison which are recoverable through the PSCR mechanism.

•		Fermi 2 refueling outage— Accrued liability for refueling outage at Fermi 2 pursuant to MPSC authorization.

•		~~Deferred income taxes — Michigan Business Tax —~~In July 2007, the MBT was enacted by the State of Michigan. State deferred tax assets were established for the Company’s utilities, and offsetting regulatory liabilities were recorded as the impacts of the deferred tax assets will be reflected in rates.

~~MPSC Show Cause Order~~

In March 2006, the MPSC issued an order directing Detroit Edison to show cause by June 1, 2006 why its rates should not be reduced in 2007. Subsequently, Detroit Edison filed its response to this order and the MPSC issued an order approving a settlement agreement in this proceeding on August 31, 2006. The order provided for an annualized rate reduction of $53 million for 2006, effective September 5, 2006. Beginning January 1, 2007, and continuing until April 13, 2008, one year from the filing of the general rate case on April 13, 2007, rates were reduced by an additional $26 million, for a total reduction of $79 million annually. The revenue reduction is net of the recovery of the amortization of the costs associated with the implementation of the Performance Excellence Process. The settlement agreement provided for some level of realignment of the existing rate structure by allocating a larger percentage share of the rate reduction to the commercial and industrial customer classes than to the residential customer classes.

As part of the settlement agreement, a CIM was established with a base level of electric choice sales set at 3,400 GWh. The CIM prescribes regulatory treatment of changes in non-fuel revenue attributed to increases or decreases in electric Customer Choice sales. If electric Customer Choice sales exceed 3,600 GWh, Detroit Edison will be able to recover 90% of its reduction in non-fuel revenue from full service customers, up to $71 million. If electric Customer Choice sales fall below 3,200 GWh, Detroit Edison will credit 100% of the increase in non-fuel revenue to the unrecovered regulatory asset balance. In March 2008, Detroit Edison filed a reconciliation of its CIM for the year 2007. Detroit Edison’s annual Electric Choice sales for 2007 were 2,239 GWh which was below the base level of sales of 3,200 GWh. Accordingly, the Company used the resulting additional non-fuel revenue to reduce unrecovered regulatory asset balances related to the RARS mechanism. This reconciliation did not result in any rate increase.

In November 2008, a settlement was filed in the 2007 CIM reconciliation. In the settlement, the parties agreed that the Detroit Edison 2007 CIM reconciliation and allocation filing was correct. All RARS revenues received in 2008 that exceed the regulatory asset balances will be refunded to the affected customer classes, and the only remaining classes to be reconciled in the RARS reconciliation case are the Residential and Special Manufacturing Contract classes. On January 13, 2009 ~~the MPSC issued an order approving the settlement agreement.~~

~~2007~~ Electric Rate Case Filing

Pursuant to the February 2006 MPSC order in Detroit Edison’s rate restructuring case and the August 2006 MPSC order in the settlement of the show cause case, Detroit Edison filed a general rate case on April 13, 2007 based on a 2006 historical test year. Supplements and updates were filed on August 31, 2007 and February 20, 2008.

On ~~December 23, 2008,~~January 11, 2010, the MPSC issued an order in Detroit Edison’s ~~February 20, 2008 updated~~January 26, 2009 rate case filing. The MPSC approved an annual revenue increase of ~~$84~~$217 million ~~effective January 14, 2009~~ or ~~2.0% average~~a 4.8% increase in Detroit Edison’s annual revenue requirement for ~~2009.~~2010. Included in the approved ~~$84 million~~ increase in revenues iswas a return on equity of 11% on an expected 49% equity and 51% debt capital structure. Since the final rate relief ordered was less than the Company’s self-implemented rate increase of $280 million effective on July 26, 2009, the MPSC ordered refunds for the period the self-implemented rates were in effect. Detroit Edison has recorded a refund liability of $27 million at December 31, 2009 representing the 2009 portion of the estimated refund due customers, including interest. The MPSC ordered Detroit Edison to file a refund plan by April 1, 2010.

Other key aspects of the MPSC order include the following:

	•		In order to more accurately reflect the actual cost of providing service to business customers, the MPSC adopted an immediate 39% phase out of the residential rate subsidy, with the remaining amount to be eliminated in equal installments over the next five years, every October 1.

	•		Accepted Detroit Edison’s proposal to reinstate and modify the tracking mechanism on Electric Choice sales (CIM) with a base level of 1,561 GWh. The modified mechanism will not have a cap on the amount recoverable.

	•		~~Accepted Detroit Edison’s proposal to terminate the Pension Equalization Mechanism.~~

	•		Approved an annual reconciliation mechanism to track expenses associated with restoration costs (storm and non-storm related expenses) and line clearance expenses. Annual reconciliations will be required using a base expense level of $110 million and $51 million, respectively.

	•		Approved Detroit Edison’s proposal to recover a return on $15 million of costs in working capital associated with expenses associated with preparation of an application for a new nuclear generation facility at its current Fermi 2 site.

~~2009 Electric Rate Case Filing~~

Detroit Edison filed a general rate case on January 26, 2009 based on a twelve months ended June 2008 historical test year. The filing with the MPSC requested a $378 million, or 8.1% average increase in Detroit Edison’s annual revenue requirement for the twelve months ended June 30, 2010 projected test year.

The requested $378 million increase in revenues is required to recover the increased costs associated with environmental compliance, operation and maintenance of the Company’s electric distribution system and generation plants, customer uncollectible accounts, inflation, the capital costs of plant additions and the reduction in territory sales.

~~In addition, Detroit Edison’s filing made, among other requests, the following proposals:~~

	•		Continued progress toward correcting the existing rate structure to more accurately reflect the actual cost of providing service to business customers;

	•		Continued application of an adjustment mechanism ~~to enable the Company to address the costs associated~~for Electric Choice sales that reconciles actual customer choice sales with ~~retail electric customers migrating to and from Detroit Edison’s full service retail electric tariff service;~~a base customer choice sales level of 1,586 GWh;

	•		~~Application~~Continued application of ~~an uncollectible expense true-up mechanism based on the $87 million~~adjustment mechanisms to track expenses associated with restoration costs (storm and non-storm related expenses) and line clearance expenses. Annual reconciliations will be required using a base expense level of ~~uncollectible expenses that occurred during~~$117 million and $47 million, respectively. The change in base expense level was applied effective as of the ~~12 month period ended June 2008;~~July 26, 2009 self-implementation date;

3944

	•		~~Continued application~~Implementation of a pilot Revenue Decoupling Mechanism, that will compare actual non-weather normalized sales per customer with the ~~storm restoration expense recovery mechanism and modification~~base sales per customer level established in this case for the period February 1, 2010 to ~~the line clearance expense recovery mechanism;~~January 31, 2011; and

	•		Implementation of an Uncollectible Expense Tracking Mechanism, based on a ~~revenue decoupling mechanism.~~$66 million expense level, with an 80/20 percent sharing of the expenses above or below the base amount. The Uncollectible Expenses Tracking Mechanism was applied effective as of the July 26, 2009 self-implementation date.

~~Cost-Based Tariffs for Schools~~Renewable Energy Plan

In ~~January~~March 2009, Detroit Edison filed aits Renewable Energy Plan with the MPSC as required under 2008 PA 295. The Renewable Energy Plan application ~~that included two new cost-based tariffs for schools, universities~~requests authority to recover approximately $35 million of additional revenue in 2009. The proposed revenue increase is necessary in order to properly implement Detroit Edison’s 20-year renewable energy plan to address the provisions of 2008 PA 295, to deliver cleaner, renewable electric generation to its customers, to further diversify Detroit Edison’s and ~~community colleges. The filing is in compliance with Public Act 286 which required utilities~~the State of Michigan’s sources of electric supply, and to ~~file tariffs that ensure that eligible educational institutions are charged retail electric rates that reflect~~address the ~~actual cost~~state and national goals of ~~providing service to those customers. In February 2009, an~~increasing energy independence. An MPSC order ~~consolidated this proceeding with~~was issued June 2, 2009 approving the ~~January 26, 2009 electric rate case filing.~~renewable energy plan and customer surcharges. The Renewable Energy Plan surcharges became effective in September 2009.

~~Accounting for Costs Related to Enterprise Business Systems~~Energy Optimization Plans

In ~~July 2004,~~March 2009, Detroit Edison filed an ~~accounting application~~Energy Optimization Plan with the MPSC ~~requesting authority~~as required under 2008 PA 295. The Energy Optimization Plan application is designed to ~~capitalize~~help each customer class reduce their electric usage by: (1) building customer awareness of energy efficiency options and ~~amortize costs related to EBS, consisting~~(2) offering a diverse set of ~~computer equipment, software~~programs and ~~development costs, as well as related training, maintenance and overhead costs. In April 2005, the MPSC approved a settlement agreement providing~~participation options that result in energy savings for each customer class. Detroit Edison’s Energy Optimization Plan application proposed energy optimization expenditures for the ~~deferral~~period 2009-2011 of ~~certain EBS~~$134 million and further requests approval of surcharges that are designed to recover these costs. An MPSC order was issued June 2, 2009 approving the Energy Optimization Plans of $117 million for Detroit Edison. The surcharges to recover these costs ~~which would otherwise be expensed, as~~were implemented effective June 3, 2009. An MPSC order was issued September 29, 2009 approving incentive mechanisms for the utility. The mechanism allows a ~~regulatory asset for future rate recovery starting January 1, 2006. At December 31, 2008, approximately $26 million~~maximum payout of ~~EBS costs have been deferred as a regulatory asset. In~~15% of program expenditures when the ~~MPSC’s December 2008 order in~~utility meets or exceeds the ~~2007~~savings target by 15%.

2009 Detroit Edison ~~rate case, the Commission approved the recovery of deferred EBS costs over a 10-year period beginning in January 2009.~~

~~Fermi 2 Enhanced Security Costs Settlement~~Depreciation Filing

The Customer Choice and Electricity Reliability Act, as amended in 2003, allows for the recovery of reasonable and prudent costs of new and enhanced security measures required by state or federal law, including providing for reasonable security from an act of terrorism. In ~~April~~ 2007, the MPSC ~~approved a settlement agreement~~ordered Michigan utilities to file depreciation studies using the current method, an approach that ~~authorizes Detroit Edison to recover Fermi 2 Enhanced Security Costs (ESC) incurred during~~considers the ~~period~~time value of September 11, 2001 through December 31, 2005. The settlement defined Detroit Edison’s ESC, discounted back to September 11, 2001, as $9.1 million plus carrying charges. A total of $13 million, including carrying charges, has been deferred as a regulatory asset. Detroit Edison is authorized to incorporate into its ratesmoney and an ~~enhanced security factor over a period not to exceed five years. Amortization expense related to this regulatory asset was approximately $4 million and $3 million for~~inflation adjusted method proposed by the ~~years ended December 31, 2008, and 2007, respectively.~~

~~Reconciliation of Regulatory Asset Recovery Surcharge~~

Company that removes excess escalation. In ~~December 2006,~~compliance with the MPSC order, Detroit Edison filed ~~a reconciliation~~its ordered depreciation studies in November 2009. The various required depreciation studies indicate composite depreciation rates from 3.05% to 3.54%. The Company has proposed no change to its current composite depreciation rate of costs underlying its existing RARS. This true-up filing was made to maximize the remaining time for recovery of significant cost increases prior to expiration of the RARS 5-year recovery limit under PA 141. Detroit Edison requested a reconciliation of the regulatory asset surcharge to ensure proper recovery by the end of the 5-year period of: (1) Clean Air Act Expenditures, (2) Capital3.33%. The Company expects an order in Excess of Base Depreciation, (3) MISO Costs and (4) the regulatory liability for the 1997 Storm Charge. In July 2007, the MPSC approved a negotiated RARS deficiency settlement that resulted in a $10 million write-down of RARS-related costs in 2007. As discussed above, the CIMthis proceeding in the MPSC Show-Cause Order will reduce the regulatory asset. Approximately $11 million and $28 million was credited to the unrecovered regulatory asset balance during the years ended December 31, 2008 and 2007, respectively. The CIM expired in April 2008.fourth quarter of 2010.

Power Supply Cost Recovery Proceedings

The PSCR process is designed to allow us to recover all of our power supply costs if incurred under reasonable and prudent policies and practices. Our power supply costs include fuel costs, purchased and net interchange power costs, nitrogen oxide and sulfur dioxide emission allowances costs, transmission costs and MISO costs. The MPSC reviews these costs, policies and practices for prudence in annual plan and reconciliation filings.

~~2005~~2007 Plan Year— In March 2006, Detroit Edison filed its 2005 PSCR reconciliation that sought approval for recovery of an under-collection of approximately $144 million at December 31, 2005 from its commercial and industrial customers. In addition to the 2005 PSCR plan year reconciliation, the filing included reconciliation for the Pension Equalization Mechanism (PEM) for the periods from November 24, 2004 through December 31, 2004 and from January 1, 2005 through December 31, 2005. The PEM reconciliation seeks to allocate and refund approximately $12 million to customers based on their contributions to pension expense during the subject periods.

The ~~refund will be reconciled in the Company’s 2008 PEM reconciliation.~~

~~2007 Plan Year —~~In September 2006, Detroit Edison filed its 2007 PSCR plan case seeking approval of a levelized PSCR factor of 6.98 mills per kWh above the amount included in base rates for all PSCR customers. The Company’s PSCR plan filing included $130 million for the recovery of its projected 2006 PSCR under-collection, bringing the total requested PSCR factor to 9.73 mills/kWh. The Company filed supplemental testimony and briefs in December 2006 supporting its updated request to include approximately $81 million for the recovery of its projected 2006 PSCR under-collection. The MPSC issued a temporary order in December 2006 approving the Company’s request. In addition, Detroit Edison was granted the authority to include all PSCR over/(under) collections in future PSCR plans, thereby reducing the time between refund or recovery of PSCR reconciliation amounts. The Company began to collect its 2007 power supply costs, including the 2006 rollover amount, through a PSCR factor of 8.69 mills/kWh on January 1, 2007. In August 2007, the MPSC approvedfollowing table summarizes Detroit Edison’s 2007 PSCR plan case and authorized the Company to charge a maximum power supply cost recovery factor of 8.69 mills/kWh in 2007. The Company filed its 2007 PSCR reconciliation case in March 2008 and updated the filing in December 2008. The updated filing requests recovery of a $41 million PSCR under-collection through its 2008 PSCR plan. Included in the 2007 PSCR reconciliation filing ~~was~~currently pending with the Company’s 2007 PEM reconciliation that reflects a $21 million over-collection, including interest and prior year refunds. The Company expects an order in this proceeding in the second quarter of 2009.MPSC:

~~2008 Plan Year —~~In September 2007, Detroit Edison filed its 2008 PSCR plan case seeking approval of a levelized PSCR factor of 9.23 mills/kWh above the amount included in base rates for all PSCR customers. Also included in the filing was a request for approval of the Company’s emission compliance strategy which included pre-purchases of emission allowances as well as a request for pre-approval of a contract for capacity and energy associated with a renewable (wind) energy project. On January 31, 2008, Detroit Edison filed a revised PSCR plan case seeking approval of a levelized PSCR factor of 11.22 mills/kWh above the amount included in base rates for all PSCR customers. The revised filing supports a 2008 power supply expense forecast of $1.4 billion and includes $43 million for the recovery of a projected 2007 PSCR under-collection. On July 29, 2008, the MPSC issued a temporary order approving Detroit Edison’s request to increase the PSCR factor to 11.22 mills/kWh. In January 2009, the MPSC approved the Company’s 2008 PSCR plan and authorized the Company to charge a maximum PSCR factor of 11.22 mills/kWh for 2008.
Net Over PSCR Cost of Power Description of Net
PSCR Year Date Filed (Under)-recovery Sold Under-recovery
2008 March 2009 ($15.6) million $1.3 billion The total amount reflects an under-recovery of $14.8 million, plus $0.8 million in accrued interest due from customers

2009 Plan Year— In September 2008, Detroit Edison ~~filed~~submitted its 2009 PSCR plan ~~case seeking approval of a levelized PSCR factor of 17.67 mills/kWh above~~filing to the amount included in base rates for residential customers and a levelized PSCR factor of 17.29 mills/kWh above the amount included in base rates for commercial and industrial customers. The Company is supporting a total power supply expense forecast of $1.73 billion.MPSC. The plan ~~also~~ includes ~~approximately $69 million for~~ the recovery of its ~~projected~~ 2008 PSCR under-collection from all customers and ~~approximately $12 million for~~ the refund of its 2005 PSCR reconciliation surcharge over-collection to commercial and industrial customers only. On June 29, 2009, the parties to this proceeding submitted a Settlement Agreement in this matter agreeing to maximum PSCR factors of 1.67 mills/kWh for residential customers and 1.35 mills/kWh for commercial and industrial customers and otherwise resolving this 2009 PSCR Plan case. An MPSC order was issued on January 25, 2010 approving the settlement.

2010 Plan Year— In September 2009, Detroit Edison submitted its 2010 PSCR plan case seeking approval of a levelized PSCR factor of 5.64 mills/kWh below the amount included in base rates for all PSCR customers. The filing supports a 2010 power supply expense forecast of $1.2 billion. Also included in the filing is a request for approval of the Company’s expense associated with the use of urea in the selective catalytic reduction units at Monroe power plant as well as a request for approval of a contract for capacity and energy associated with a ~~renewable (wind)~~wind energy project. The ~~Company’s PSCR Plan will allow the~~ Company has also requested authority to recover ~~its reasonably~~transfer prices for renewable energy, coke oven gas expense and prudently incurred power supply expense including, fuel costs, purchased and net interchange power costs, nitrogen oxide and sulfur dioxide emission allowance costs, transmission costs and MISO costs. The Company self-implemented a PSCR factor of 11.64 mills/kWh above the amount included in base rates for residential customers and a PSCR factor of 11.22 mills/kWh above the amount included in base rates for commercial and industrial customers on bills rendered in

January 2009. Subsequently, as a result of the December 23, 2008 MPSC order in the 2007 Detroit Edison Rate case, the Company implemented a PSCR factor of 3.18 mills/kWh below the amount included in base rates for residential customers and a PSCR factor of 3.60 mills/kWh below the amount included in base rates for commercial and industrial customers for bills rendered effective January 14, 2009.other potential expenses.

~~Other~~Merger Control Premium Costs

In July 2007, the State of Michigan Court of Appeals published its decision with respect to an appeal by Detroit Edison and others of certain provisions of a November 2004 MPSC order, including reversing the MPSC’s denial of recovery of merger control premium costs. In its published decision, the Court of Appeals held that Detroit Edison is entitled to recover its allocated share of the merger control premium and remanded this matter to the MPSC for further proceedings to establish the precise amount and timing of this recovery. ~~Detroit Edison has filed a supplement to its April 2007 rate case to address the recovery of the merger control premium costs.~~ Other parties filed requests for leave to appeal to the Michigan Supreme Court from the Court of Appeals decision and in September 2008, the Michigan Supreme Court granted the requests to address the merger control premium as well as the recovery of transmission costs through the PSCR. On May 1, 2009, the Michigan Supreme Court issued an order reversing the Court of Appeals decision with respect to recovery of the merger control premium, and reinstated the MPSC’s decision excluding the control premium costs from Detroit Edison’s general rates. The Court affirmed the lower court’s decision upholding the right of Detroit Edison to recover electric transmission costs through the Company’s PSCR clause. The Company ~~is unable to predict~~requested rehearing of the Supreme Court order on the merger premium and the Michigan Attorney General requested rehearing of the transmission portion of the order. On June 26, 2009, the Michigan Supreme Court denied request for a rehearing. The above actions did not have an impact on the Company’s consolidated financial ~~or other outcome of any legal or regulatory proceeding at this time.~~statements.

Other

The Company is unable to predict the outcome of the unresolved regulatory matters discussed herein. Resolution of these matters is dependent upon future MPSC orders and appeals, which may materially impact the financial position, results of operations and cash flows of the Company.

NOTE 511 — ~~NUCLEAR OPERATIONS~~INCOME TAXES

~~General~~Income Tax Summary

Fermi 2, the Company’s nuclear generating plant, began commercial operation in 1988. Fermi 2 has a design electrical rating (net) of 1,150 MW. This plant represents approximately 10% of Detroit Edison’s summer net rated capability. The net book balanceWe are part of the ~~Fermi 2 plant was written off~~consolidated federal income tax return of DTE Energy. The federal income tax expense for Detroit Edison is determined on an individual company basis with no allocation of tax benefits or expenses from other affiliates of DTE Energy. We had an income tax payable of $75 million at December 31, ~~1998,~~2009 and an ~~equivalent~~income tax payable of $33 million at December 31, 2008 due to DTE Energy.

Total income tax expense varied from the statutory federal income tax rate for the following reasons:

(Dollars in Millions) 2009 2008 2007
Income tax expense at 35% statutory rate $ 211 $ 181 $ 163

Investment tax credits (6 ) (6 ) (7 )
Depreciation 3 3 3
Employee Stock Ownership Plan dividends (4 ) (2 ) (4 )
Medicare Part D subsidy (5 ) (4 ) (4 )
Domestic production activities deduction (5 ) (2 ) (2 )
State and other income taxes, net of federal benefit 36 19 1
Other, net (2 ) (3 ) (1 )

Total $ 228 $ 186 $ 149

Effective income tax rate 37.7 % 36.0 % 32.0 %

Components of income tax expense (benefits) were as follows:

(in Millions) 2009 2008 2007
Current income taxes Federal $ 168 $ 66 $ 257
State and other income tax expense 45 30 3

Total current income taxes 213 96 260

Deferred income taxes Federal 4 91 (109 )
State and other income tax expense 11 (1 ) (2 )

Total deferred income taxes 15 90 (111 )

Total $ 228 $ 186 $ 149

Investment tax credits are deferred and amortized to income over the average life of the related property.

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 financial statements. Deferred tax assets and liabilities are classified as current or noncurrent according to the classification of the related assets or liabilities. Deferred tax assets and liabilities not related to assets or liabilities are classified according to the expected reversal date of the temporary differences. Consistent with rate making treatment, deferred taxes are offset in the table below for temporary differences which have related regulatory assets and liabilities.

Deferred tax assets (liabilities) were comprised of the following at December 31:

(in Millions) 2009 2008
Property, plant and equipment $ (1,409 ) $ (1,297 )
Securitized regulatory assets (474 ) (545 )
Pension and benefits 103 110
Other comprehensive income 9 (1 )
Other, net (76 ) (142 )

$ (1,847 ) $ (1,875 )

(in Millions) 2009 2008
Deferred income tax liabilities $ (2,832 ) $ (2,777 )
Deferred income tax assets 985 902

$ (1,847 ) $ (1,875 )

Current deferred income tax asset (included in Current Assets — Other) $ 24 $ 19
Long term deferred income tax liabilities (1,871 ) (1,894 )

$ (1,847 ) $ (1,875 )

The above table excludes deferred tax liabilities associated with unamortized investment tax credits that are shown separately on the Consolidated Statements of Financial Position.

Uncertain Tax Positions

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

(in Millions) 2009 2008 2007
Balance at January 1 $ 70 $ 7 $ 12
Additions for tax positions of current years 10 72 2
Additions for tax positions of prior years 24 (9 ) —
Reductions for tax positions of prior years (8 ) — (7 )

Balance at December 31 $ 96 $ 70 $ 7

Unrecognized tax benefits at December 31, 2009, if recognized, would favorably impact our effective tax rate by $2 million.

The Company recognizes interest and penalties pertaining to income taxes in Interest expense and Other expenses, respectively, on its Consolidated Statements of Operations. Accrued interest pertaining to income taxes totaled $6 million and $1 million at December 31, 2009 and December 31, 2008, respectively. The Company had no accrued penalties pertaining to income taxes. The Company recognized $5 million for interest expense related to income taxes during 2009 and an immaterial amount during 2008.

In 2009, DTE Energy and its subsidiaries settled a federal tax audit for the 2004 through 2006 tax years. The resulting change to unrecognized tax benefits was not significant. The Company’s U.S. federal income tax returns for years 2007 and subsequent years remain subject to examination by the IRS. The Company’s Michigan Business Tax for the year 2008 is subject to examination by the State of Michigan. The Company also files tax returns in numerous state and local jurisdictions with varying statutes of limitation.

Michigan Business Tax

In July 2007, the Michigan Business Tax (MBT) was enacted by the State of Michigan to replace the Michigan Single Business Tax (MSBT) effective January 1, 2008. The MBT is comprised of an apportioned modified gross receipts tax of 0.8 percent and an apportioned business income tax of 4.95 percent. The MBT provides credits for Michigan business investment, compensation, and research and development. Legislation was also enacted, in 2007, by the State of Michigan creating a deduction for businesses that realize an increase in their deferred tax liability due to the enactment of the MBT. The MBT is accounted for as an income tax.

The MBT consolidated deferred tax liability balance is $354 million as of December 31, 2009 and is reported net of the related federal tax benefit. The MBT deferred tax asset balance is $367 million as of December 31, 2009 and is reported net of the related federal deferred tax liability. The regulated asset balance is $343 million and the regulated liability balance is $367 million as of December 31, 2009 and is further discussed in Note 10.

NOTE 12 — LONG-TERM DEBT

Our long-term debt outstanding and weighted average interest rates(1) of debt outstanding at December 31 were:

(in Millions) 2009 2008
Detroit Edison Taxable Debt, Principally Secured

5.9% due 2010 to 2038 $ 2,829 $ 2,841
Detroit Edison Tax- Exempt Revenue Bonds (2)

5.5% due 2011 to 2038 1,263 1,263

4,092 4,104
Less amount due within one year (513 ) (13 )

$ 3,579 $ 4,091

Securitization Bonds

6.5% due 2010 to 2015 $ 933 $ 1,064
Less amount due within one year (140 ) (132 )

$ 793 $ 932


(1)		Weighted average interest rates as of December 31, 2009 are shown below the description of each category of debt.

(2)		Detroit Edison Tax-Exempt Revenue Bonds are issued by a public body that loans the proceeds to Detroit Edison on terms substantially mirroring the Revenue Bonds.

Debt Issuances

In 2009, we issued the following long-term debt:

(in Millions)
Month Issued Type Interest Rate Maturity Amount

April Tax-Exempt Revenue Bonds (1) 6.00 % 2036 69
June Tax-Exempt Revenue Bonds (2) 5.625 % 2020 32
June Tax-Exempt Revenue Bonds (3) 5.25 % 2029 60
June Tax-Exempt Revenue Bonds (4) 5.50 % 2029 59
November Tax-Exempt Revenue Bonds (5) 3.05 % 2024 65

$ 285


(1)		Proceeds were used to refund existing Tax-Exempt Revenue Bonds.

(2)		These Tax-Exempt Revenue Bonds were converted from a variable rate mode and remarketed in a fixed rate mode to maturity.

(3)		These Tax-Exempt Revenue Bonds were converted from a variable rate mode and remarketed in a fixed rate mode with a five-year mandatory put.

(4)		These Tax-Exempt Revenue Bonds were converted from a variable rate mode and remarketed in a fixed rate mode with a seven-year mandatory put.

(5)		These Tax-Exempt Revenue Bonds were issued in a fixed rate mode with a three-year mandatory put. Proceeds were used to refund existing Tax-Exempt Revenue Bonds.

Debt Retirements and Redemptions

The following debt was ~~established. In 2001,~~retired, through optional redemption or payment at maturity, during 2009.

(in Millions)
Month Retired Type Interest Rate Maturity Amount

April Tax-Exempt Revenue Bonds (1) Variable 2036 $ 69
December Tax-Exempt Revenue Bonds (1) 6.40 % 2024 65

$ 134


(1)		These Tax-Exempt Revenue Bonds were redeemed with the proceeds from the issuance of new Detroit Edison Tax-Exempt Revenue Bonds.

The following table shows the ~~Fermi 2 regulatory asset was securitized.~~scheduled debt maturities, excluding any unamortized discount or premium on debt:

2015 &
(in Millions) 2010 2011 2012 2013 2014 thereafter Total
Amount to mature $ 513 $ 152 $ 303 $ 313 $ 341 $ 2,475 $ 4,097

Default Provisions

Substantially all of the net properties of Detroit Edison ~~also owns Fermi 1,~~are subject to the lien of its mortgage. Should Detroit Edison fail to timely pay its indebtedness under this mortgage, such failure may create cross defaults in the indebtedness of DTE Energy.

NOTE 13 — PREFERRED AND PREFERENCE SECURITIES

At December 31, 2009, Detroit Edison had approximately 6.75 million shares of preferred stock with a ~~nuclear~~par value of $100 per share and 30 million shares of preference stock with a par value of $1 per share authorized, with no shares issued.

NOTE 14 — SHORT-TERM CREDIT ARRANGEMENTS AND BORROWINGS

Detroit Edison has a $69 million, five-year unsecured revolving credit agreement expiring in October 2010 and a $212 million, two-year unsecured revolving credit agreement expiring in April 2011. The five-year and two-year credit facilities are with a syndicate of 22 banks and may be used for general corporate borrowings, but are intended to provide liquidity support for our commercial paper program. No one bank provides more than 8.5% of the commitment in any facility. Borrowings under the facilities are available at prevailing short-term interest rates. The above agreements require the Company to maintain a total funded debt to capitalization ratio, as defined in the agreements, of no more than 0.65 to 1. At December 31, 2009, the debt to total capitalization ratio for Detroit Edison is 0.52 to 1. Should we have delinquent obligations of at least $50 million to any creditor; such delinquency will be considered a default under our credit agreements.

We had no outstanding commercial paper of as of December 31, 2009 and December 31, 2008.

Detroit Edison had no short-term borrowings at December 31, 2009 and $75 million outstanding at December 31, 2008. The weighted average interest rate for short-term borrowings was 1.3% at December 31, 2008.

NOTE 15 — CAPITAL AND OPERATING LEASES

Lessee— The Company leases various assets under capital and operating leases, including coal cars, computers, vehicles and other equipment. The lease arrangements expire at various dates through 2023.

Future minimum lease payments under non-cancelable leases at December 31, 2009 were:

Capital Operating
(in Millions) Leases Leases
2010 $ 9 $ 23
2011 7 22
2012 5 22
2013 5 19
2014 4 14
Thereafter 7 77

Total minimum lease payments 37 $ 177

Less imputed interest 5

Present value of net minimum lease payments 32
Less current portion 7

Non-current portion $ 25

Rental expense for operating leases was $48 million in 2009, $39 million in 2008, and $48 million in 2007.

NOTE 16 — COMMITMENTS AND CONTINGENCIES

Environmental

Air— Detroit Edison is subject to EPA ozone transport and acid rain regulations that limit power plant ~~that was shut down~~emissions of sulfur dioxide and nitrogen oxides. Since 2005, EPA and the State of Michigan have 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. To comply with these requirements, Detroit Edison has spent approximately $1.5 billion through 2009. The Company estimates Detroit Edison will make future undiscounted capital expenditures of up to $73 million in ~~1972~~2010 and ~~is currently being decommissioned. The NRC has jurisdiction~~up to $2.2 billion of additional capital expenditures through 2019 based on current regulations. Further, additional rulemakings are expected over the ~~licensing~~next few years which could require additional controls for sulfur dioxide, nitrogen oxides and ~~operation~~hazardous air pollutants (HAPs). It is not possible to quantify the impact of ~~Fermi 2~~those expected rulemakings at this time.

In July 2009, DTE Energy received a Notice of Violation/Finding of Violation (NOV/FOV) from the EPA alleging, among other things, that five Detroit Edison power plants violated New Source Performance standards, Prevention of Significant Deterioration requirements, and Title V operating permit requirements under the ~~decommissioning~~Clean Air Act. We believe that the plants identified by the EPA have complied with applicable regulations. Depending upon the outcome of ~~Fermi 1.~~our discussions with the EPA regarding the NOV/FOV, the EPA could bring legal action against Detroit Edison. We could also be required to install additional pollution control equipment at some or all of the power plants in question, engage in Supplemental Environmental Programs, and/or pay fines. We cannot predict the financial impact or outcome of this matter, or the timing of its resolution.

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 completed studies and expected future studies, Detroit Edison may be required to install additional control technologies to reduce the impacts of the water intakes. Initially, it was estimated that Detroit Edison could incur up to approximately $55 million over the four to six years subsequent to 2008 in additional capital expenditures to comply with these requirements. However, a January 2007 circuit court decision remanded back to the EPA several provisions of the federal regulation that may result in a delay in compliance dates. The decision also raised the possibility that Detroit Edison may have to install cooling towers at some facilities at a cost substantially greater than was initially estimated for other mitigative technologies. In 2008, the Supreme Court agreed to review the remanded cost-benefit analysis provision of the rule and in April 2009 upheld EPA’s use of this provision in determining best technology available for reducing environmental impacts. Concurrently, the EPA continues to

develop a revised rule, a draft of which is expected to be published by summer 2010. The EPA has also proposed an information collection request to begin a review of steam electric effluent guidelines. It is not possible at this time to quantify the impacts of these developing requirements.

Contaminated Sites— Detroit Edison conducted remedial investigations at contaminated sites, including three former manufactured gas plant (MGP) sites. The investigations have revealed contamination related to the by-products of gas manufacturing at each site. In addition to the MGP sites, the Company is also in the process of cleaning up other contaminated sites, including the area surrounding an ash landfill, electrical distribution substations, and underground and aboveground storage tank locations. The findings of these investigations indicated that the estimated cost to remediate these sites is expected to be incurred over the next several years. At December 31, 2009 and 2008, the Company had $9 million and $12 million, respectively, accrued for remediation.

Landfill— Detroit Edison owns and operates a permitted engineered ash storage facility at the Monroe Power Plant to dispose of fly ash from the coal fired power plant. Detroit Edison performed an engineering analysis in 2009 and identified the need for embankment side slope repairs and reconstruction.

Nuclear Operations

Property Insurance

Detroit Edison maintains several different types of property insurance policies specifically for the Fermi 2 plant. These policies cover such items as replacement power and property damage. The Nuclear Electric Insurance Limited (NEIL) is the primary supplier of the insurance policies.

Detroit Edison maintains a policy for extra expenses, including replacement power costs necessitated by Fermi 2’s unavailability due to an insured event. This policy has a 12-week waiting period and provides an aggregate $490 million of coverage over a three-year period.

Detroit Edison has $500 million in primary coverage and $2.25 billion of excess coverage for stabilization, decontamination, debris removal, repair and/or replacement of property and decommissioning. The combined coverage limit for total property damage is $2.75 billion.

In 2007, the Terrorism Risk Insurance Extension Act of 2005 (TRIA) was extended through December 31, 2014. A major change in the extension is the inclusion of “domestic” acts of terrorism in the definition of covered or “certified” acts. For multiple terrorism losses caused by acts of terrorism not covered under the TRIA occurring within one year after the first loss from terrorism, the NEIL policies would make available to all insured entities up to $3.2 billion, plus any amounts recovered from reinsurance, government indemnity, or other sources to cover losses.

Under the NEIL policies, Detroit Edison could be liable for maximum assessments of up to approximately ~~$30~~$28 million per event if the loss associated with any one event at any nuclear plant in the United States should exceed the accumulated funds available to NEIL.

Public Liability Insurance

As of January 1, 2010, as required by federal law, Detroit Edison maintains ~~$300~~$375 million of public liability insurance for a nuclear incident. For liabilities arising from a terrorist act outside the scope of TRIA, the policy is subject to one industry aggregate limit of $300 million. Further, under the Price-Anderson Amendments Act of 2005, deferred premium charges up to $117.5 million could be levied against each licensed nuclear facility, but not more than $17.5 million per year per facility. Thus, deferred premium charges could be levied against all owners of licensed nuclear facilities in the event of a nuclear incident at any of these facilities.

~~Decommissioning~~

Detroit Edison 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. Based on the actual or anticipated extended life of the nuclear plant, decommissioning expenditures for Fermi 2 are expected to be incurred primarily during the period of 2025 through 2050. It is estimated that the cost of decommissioning Fermi 2, when its license expires in 2025, will be $1.3 billion in 2008 dollars and $3.4 billion in 2025 dollars, using a 6% inflation rate. In 2001, Detroit Edison began the decommissioning of Fermi 1, with the goal of removing the radioactive material and terminating the Fermi 1 license. The decommissioning of Fermi 1 is expected to be completed by 2012.

A portion of the funds recovered through the Fermi 2 decommissioning surcharge and deposited in external trust accounts is designated for the removal of non-radioactive assets and the clean-up of the Fermi site. This removal and clean-up is not considered a legal liability. Therefore, it is not included in the asset retirement obligation, but is reflected as the nuclear decommissioning regulatory liability.

~~The decommissioning of Fermi 1 is funded by Detroit Edison. Contributions to the Fermi 1 trust are discretionary.~~

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

As of December 31
(in Millions) 2008 2007
Fermi 2 $ 649 $ 778
Fermi 1 3 13
Low level radioactive waste 33 33

Total $ 685 $ 824

At December 31, 2008, investments in the external nuclear decommissioning trust funds consisted of approximately 42% in publicly traded equity securities, 57% in fixed debt instruments and 1% in cash equivalents. The debt securities had an average maturity of approximately 5 years. At December 31, 2007, investments in the external nuclear decommissioning trust funds consisted of approximately 54% in publicly traded equity securities, 45% in fixed income and 1% in cash equivalents. The debt securities had an average maturity of approximately 5.3 years.

Year Ended December 31
(in Millions) 2008 2007 2006
Realized gains $ 34 $ 25 $ 21
Realized losses $ (49 ) $ (17 ) $ (9 )
Proceeds from sales of securities $ 232 $ 286 $ 253

Realized gains and losses and proceeds from sales of securities for the Fermi 2 and the low level Radioactive Waste funds are recorded to the asset retirement obligation regulatory asset and nuclear decommissioning regulatory liability, respectively. The following table sets forth the fair value and unrealized gains for the nuclear decommissioning trust funds:

Fair Unrealized
(in Millions) Value Gains
As of December 31, 2008
Equity Securities $ 288 $ 65
Debt Securities 388 17
Cash and Cash Equivalents 9 —

$ 685 $ 82

As of December 31, 2007
Equity Securities $ 443 $ 170
Debt Securities 373 9
Cash and Cash Equivalents 8 —

$ 824 $ 179

Impairment charges for unrealized losses incurred by the Fermi 2 trust are recognized as a regulatory asset. Detroit Edison recognized $92 million and $22 million of unrealized losses as regulatory assets for the years ended December 31, 2008 and 2007, respectively. Since the decommissioning of Fermi 1 is funded by Detroit Edison rather than through a regulatory recovery mechanism, there is no corresponding regulatory asset treatment. Therefore, impairment charges for unrealized losses incurred by the Fermi 1 trust are recognized in earnings immediately. For the year ended December 31, 2008 no impairment charges were recognized by Detroit Edison for unrealized losses incurred by the Fermi 1 trust. For the year ended December 31, 2007, Detroit Edison recognized impairment charges of $0.2 million, for unrealized losses incurred by the Fermi 1 trust.

Nuclear Fuel Disposal Costs

In accordance with the Federal Nuclear Waste Policy Act of 1982, Detroit Edison has a contract with the U.S. Department of Energy (DOE) for the future storage and disposal of spent nuclear fuel from Fermi 2. Detroit

~~NOTE 6 — JOINTLY OWNED UTILITY PLANT~~Guarantees

In certain limited circumstances, the Company enters into contractual guarantees. The Company may guarantee another entity’s obligation in the event it fails to perform. The Company may provide guarantees in certain indemnification agreements. Finally, the Company may provide indirect guarantees for the indebtedness of others.

Detroit Edison has ~~joint ownership interest in two power plants, Belle River and Ludington Hydroelectric Pumped Storage. Ownership information~~guaranteed a bank term loan of $11 million related to the sale of its steam heating business to Thermal Ventures II, L.P. In conjunction with a refinancing of the ~~two utility plants as of December 31, 2008 was as follows:~~

Ludington
Hydroelectric
Belle River Pumped Storage
In-service date 1984-1985 1973
Total plant capacity 1,260 MW 1,872 MW
Ownership interest * 49 %
Investment (in Millions) $ 1,588 $ 165
Accumulated depreciation (in Millions) $ 853 $ 106


*		Detroit Edison’s ownership interest is 63% in Unit No. 1, 81% of the facilities applicable to Belle River used jointly by the Belle River and St. Clair Power Plants and 75% in common facilities used at Unit No. 2.

~~Belle River~~

~~The Michigan Public Power Agency (MPPA) has an ownership interest~~steam heating business in ~~Belle River Unit No. 1~~2009, the Company performed a reconsideration analysis and ~~other related facilities. The MPPA is entitled to 19% of~~determined the ~~total capacity and energy of the plant and is responsible for the same percentage of the plant’s operation, maintenance and capital improvement costs.~~

~~Ludington Hydroelectric Pumped Storage~~

~~NOTE 7 — INCOME TAXES~~

~~Income Tax Summary~~

We are part of the consolidated federal income tax return of DTE Energy. The federal income tax expense for Detroit Edison is determined on an individual company basis with no allocation of tax benefits or expenses from other affiliates of DTE Energy. We have an income tax payable of $33 million at December 31, 2008 and an income tax receivable of $34 million at December 31, 2007 due to/from DTE Energy.

~~Total income tax expense varied from the statutory federal income tax rate for the following reasons:~~

(Dollars in Millions) 2008 2007 2006
Income tax expense at 35% statutory rate $ 181 $ 163 $ 169

Investment tax credits (6 ) (7 ) (7 )
Depreciation 3 3 3
Employee Stock Ownership Plan dividends (2 ) (4 ) (4 )
Medicare Part D subsidy (4 ) (4 ) (5 )
State and other income taxes, net of federal benefit 19 1 2
Other, net (5 ) (3 ) 4

Total $ 186 $ 149 $ 162

Effective income tax rate 36.0 % 32.0 % 33.6 %

~~Components of income tax expense (benefits) were as follows:~~

(in Millions) 2008 2007 2006
Current income taxes Federal $ 66 $ 257 $ 157
State and other income tax expense 30 3 3

Total current income taxes 96 260 160

Deferred federal and other income tax expense Federal 91 (109 ) 1
State and other income tax expense (1 ) (2 ) 1

Total deferred income taxes 90 (111 ) 2

Total $ 186 $ 149 $ 162

~~Investment tax credits are deferred and amortized to income over the average life of the related property.~~

~~Deferred tax assets (liabilities) were comprised of the following at December 31:~~

(in Millions) 2008 2007
Property, plant and equipment $ (1,297 ) $ (1,156 )
Securitized regulatory assets (545 ) (621 )
Pension and benefits 110 101
Other comprehensive income (1 ) (2 )
Other, net (142 ) (176 )

$ (1,875 ) $ (1,854 )

Deferred income tax liabilities $ (2,777 ) $ (2,662 )
Deferred income tax assets 902 808

$ (1,875 ) $ (1,854 )

Current deferred income tax asset (liabilities) included in Current Assets — Other or Current Liabilities — Other $ 19 $ (29 )
Long term deferred income tax liabilities (1,894 ) (1,825 )

$ (1,875 ) $ (1,854 )

~~The above table excludes deferred tax liabilities associated with unamortized investment tax credits that are shown separately on the Consolidated Statement of Financial Position.~~

~~Uncertain Tax Positions~~

~~The Company adopted the provisions of FASB Interpretation No. 48,~~~~Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (FIN 48)~~~~on January 1, 2007. This interpretation prescribes a more-likely-than-not recognition threshold and a measurement attribute for the financial statement reporting of tax positions taken or expected~~steam heating business entity to be ~~taken on~~ a ~~tax return. As~~variable interest entity as a result of ~~the implementation of FIN 48,~~insufficient equity at risk. It was determined that the Company ~~recognized a decrease in liabilities that was accounted for as an increase to~~is not the ~~January 1, 2007 balance of retained earnings in an immaterial amount. A reconciliation of the beginning~~primary beneficiary and ~~ending amount of unrecognized tax benefits is as follows:~~

(in Millions) 2008 2007
Balance at January 1 $ 7 $ 12
Additions for tax positions of current years 72 2
Reductions for tax positions of prior years (9 ) —
Settlements — (7 )

Balance at December 31 $ 70 $ 7

Unrecognized tax benefits at December 31, 2008, if recognized, would favorably impact our effective tax rate by $2 million. During the next twelve months, it is reasonably possible that DTE Energy Company and its subsidiaries will settle certain federal tax audits. The anticipated changes in the unrecognized tax benefits will not be significant.

The Company recognizes interest and penalties pertaining to income taxes in Interest expense and Other expenses, respectively, on its Consolidated Statements of Operations. Accrued interest pertaining to income taxes totaled $1 million at December 31, 2008 and December 31, 2007. The Company had no accrued penalties pertaining to income taxes. The Company recognized an immaterial amount for interest expense related to income taxes during 2008 and $1 million during 2007.

The U.S. federal income tax returns for years 2004 and subsequent years remain subject to examination by the IRS for DTE Energy Company and its subsidiaries. The Michigan Business Tax for the year 2008 is subject to examination by the State of Michigan for DTE Energy and its subsidiaries. The Company also files tax returns in various state and local tax jurisdictions with varying statutes of limitation.

~~Michigan Business Tax~~

In 2007 a state deferred tax liability of $318 million was recognized by the Company for cumulative differences between book and tax assets and liabilities for the Company. Effective September 30, 2007, legislation was adopted by the State of Michigan creating a deduction for businesses that realize an increase in their deferred tax liability due to the enactment of the MBT. Therefore, a deferred tax asset of $318 million was established related to the future deduction. The deduction will be claimed during the period of 2015 through 2029. The recognition of the enactment of the MBT did not have an impact on our income tax provision for 2007.

~~The 2007 MBT deferred tax liability was increased in 2008 by $17 million to $335 million to reflect changes in federal income tax temporary differences primarily due to an approved IRS change in~~historical accounting method for the Company for the tax year 2007. The related one-time deferred tax asset for the tax deduction created for businesses that realize an increase in their deferred tax liability due to the enactment of the MBT was also increased by $17 million to $335 million. The corresponding regulatory assets and liabilities were also increased by $17 million to $335 million in accordance with SFAS No. 71,~~Accounting for the Effects of Certain Types of Regulation,~~~~as the impacts of the deferred tax liabilities and assets recognized upon enactment and amendment of the MBT will be reflected in our rates.~~

~~In 2008, the state deferred tax liability increased by $1 million to $336 million as of December 31, 2008 and the related regulatory asset increased to $336 million as of December 31, 2008.~~

~~NOTE 8 — LONG-TERM DEBT~~

~~Our long-term debt outstanding and weighted average interest rates(1) of debt outstanding at December 31 were:~~

(in Millions) 2008 2007
Detroit Edison Taxable Debt, Principally Secured

5.9% due 2010 to 2038 $ 2,841 $ 2,305
Detroit Edison Tax- Exempt Revenue Bonds (2)

5.2% due 2011 to 2036 1,263 1,213

4,104 3,518
Less amount due within one year (13 ) (45 )

$ 4,091 $ 3,473

Securitization Bonds

6.4% due 2009 to 2015 $ 1,064 $ 1,185
Less amount due within one year (132 ) (120 )

$ 932 $ 1,065


~~(1)~~		~~Weighted average interest rates as of December 31, 2008 are shown below the description of each category of debt.~~

~~(2)~~		~~Detroit Edison Tax Exempt Revenue Bonds are issued by a public body that loans the proceeds to Detroit Edison on terms substantially mirroring the Revenue Bonds.~~

~~Debt Issuances~~

~~In 2008, we issued the following long-term debt:~~

(in Millions)
Month Issued Type Interest Rate Maturity Amount

April Tax-Exempt Revenue Bonds (2) (3) Variable 2036 69
May Tax-Exempt Revenue Bonds (2) (3) Variable 2029 118
May Tax-Exempt Revenue Bonds (2) (4) 5.30 % 2030 51
June Senior Notes (1) 5.60 % 2018 300
July Tax-Exempt Revenue Bonds (2) (6) Variable 2020 32
October Senior Notes (1) 6.40 % 2013 250
December Tax-Exempt Revenue Bonds (2) (5) 6.75 % 2038 50

$ 870


~~(1)~~		~~Proceeds were used to pay down short-term debt and for general corporate purposes.~~

~~(2)~~		~~Detroit Edison Tax-Exempt Revenue Bonds are issued by a public body that loans the proceeds to Detroit Edison on terms substantially mirroring the Revenue Bonds.~~

~~(3)~~		~~Proceeds were used to refinance auction rate Tax-Exempt Revenue Bonds.~~

~~(4)~~		~~These Tax-Exempt Revenue Bonds were converted from an auction rate mode and remarketed in a fixed rate mode to maturity.~~

~~(5)~~		~~Proceeds to be used to finance the construction, acquisition, improvement and installation of certain solid waste disposal facilities at Detroit Edison’s Monroe Power Plant.~~

~~(6)~~		~~Proceeds were used to refinance Tax-Exempt Revenue Bonds that matured July 2008.~~

~~Debt Retirements and Redemptions~~

~~The following debt was retired, through optional redemption or payment at maturity, during 2008.~~

(in Millions)
Month Retired Type Interest Rate Maturity Amount

April Tax-Exempt Revenue Bonds (1) Variable 2036 $ 69
May Tax-Exempt Revenue Bonds (1) Variable 2029 118
July Tax-Exempt Revenue Bonds (2) 7.00 % 2008 32

$ 219


~~(1)~~		~~These Tax-Exempt Revenue Bonds were converted from auction rate mode and subsequently redeemed with proceeds from the issuance of new Detroit Edison Tax-Exempt Revenue Bonds.~~

~~(2)~~		~~These Tax-Exempt Revenue Bonds were redeemed with the proceeds from the issuance of new Detroit Edison Tax-Exempt Revenue Bonds.~~

~~The following table shows the scheduled debt maturities, excluding any unamortized discount or premium on debt:~~

2014 &
(in Millions) 2009 2010 2011 2012 2013 thereafter Total

Amount to mature $ 145 $ 652 $ 303 $ 402 $ 490 $ 3,183 $ 5,175

~~Default Provisions~~

Substantially all of the net properties of Detroit Edison are subject to the lien of its mortgage. Should Detroit Edison fail to timely pay its indebtedness under this mortgage, such failure may create cross defaults in the indebtedness of DTE Energy.

~~NOTE 9 — PREFERRED SECURITIES~~

remains unchanged. At December 31, 2008, Detroit Edison had approximately 6.75 million shares of preferred stock with a par value of $100 per share and 30 million shares of preference stock with a par value of $1 per share authorized, with no shares issued.

~~NOTE 10 — SHORT-TERM CREDIT ARRANGEMENTS AND BORROWINGS~~

~~Detroit Edison has a $206 million, five-year unsecured revolving credit facility expiring in October~~ 2009, and a $69 million, five-year unsecured revolving credit agreement expiring in October 2010. The five-year credit facilities are with a syndicate of banks and may be utilized for general corporate borrowings, but are intended to provide liquidity support for our commercial paper program. Borrowings under the facilities are available at prevailing short-term interest rates. In addition, Detroit Edison has a short-term unsecured bank loan facility expiring in July 2009, under which $75 million was outstanding at December 31, 2008. The agreements require us to maintain a debt to total capitalization ratio of no more than 0.65 to 1. Should we have delinquent obligations of at least $50 million to any creditor, such delinquency will be considered a default under our credit agreements.

~~Detroit Edison is currently in compliance with its covenants.~~

~~We had no outstanding commercial paper of as of December 31, 2008 and $181 million at December 31, 2007.~~

~~The weighted average interest rate for short-term borrowings were 1.3% at December 31, 2008 and 5.4% at December 31, 2007.~~

~~Detroit Edison terminated a $200 million short-term financing agreement secured by customer accounts receivable in 2008.~~

~~NOTE 11 — CAPITAL AND OPERATING LEASES~~

~~Lessee~~~~— We lease various assets under capital and operating leases, including coal cars, computers, vehicles and other equipment. The lease arrangements expire at various dates through 2023.~~

~~Future minimum lease payments under non-cancelable leases at December 31, 2008 were:~~

Capital Operating
(in Millions) Leases Leases
2009 $ 11 $ 27
2010 9 21
2011 7 20
2012 5 22
2013 5 18
Thereafter 12 91

Total minimum lease payments 49 $ 199

Less imputed interest (8 )

Present value of net minimum lease payments 41
Less current portion (8 )

Non-current portion $ 33

~~Rental expense for operating leases was $39 million in 2008, $48 million in 2007, and $44 million in 2006.~~

~~NOTE 12 — FAIR VALUE~~

Effective January 1, 2008, the Company adopted SFAS No. 157. This Statement defines fair value, establishes a framework for measuring fair value and expands the disclosures about fair value measurements. The Company has elected the option to defer the effective date of SFAS No. 157 as it pertains to non-financial assets and liabilities to January 1, 2009.

SFAS No. 157 defines fair value 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 is immaterial for the year ended December 31, 2008. The Company believes it uses valuation techniques that maximize the use of observable market-based inputs and minimize the use of unobservable inputs.

SFAS No. 157 establishes a fair value hierarchy, which 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. SFAS No. 157 requires that assets and liabilities 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 by SFAS No. 157 as follows:

~~Level 1 — Consists of unadjusted quoted prices in active markets for identical assets or liabilities that~~ the Company has reserves for the ~~ability to access as~~entire amount 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 December 31, 2008:~~

Net Balance at
(in Millions) Level 1 Level 2 Level 3 December 31, 2008
Assets:

Cash equivalents $ 9 $ — $ — $ 9
Nuclear decommissioning trusts and other investments 464 310 — 774
Derivative assets — — 4 4

Total $ 473 $ 310 $ 4 $ 787

Liabilities:

Derivative liabilities — (1 ) — (1 )

Total $ — $ (1 ) $ — $ (1 )

Net Assets (Liabilities) at December 31, 2008 $ 473 $ 309 $ 4 $ 786

~~The following table presents the fair value reconciliation of Level 3 derivative assets and liabilities measured at fair value on a recurring basis for the year ended December 31, 2008:~~

(in Millions) Derivatives
Asset balance as of January 1, 2008 $ 4
Changes in fair value recorded in regulatory liabilities 2
Changes in fair value recorded in other comprehensive income —
Purchases, issuances and settlements (2 )
Transfers in/out of Level 3 —

Asset balance as of December 31, 2008 $ 4

The amount of total gains included in net income attributed to the change in unrealized gains (losses) related to assets and liabilities held at December 31, 2008 $ —

~~Net gains of $2 million related to Level 3 derivative assets and liabilities are reported in regulatory liabilities for the year ended December 31, 2008.~~

~~Cash Equivalents~~

~~Nuclear Decommissioning Trusts~~

The trust fund investments have been established to satisfy Detroit Edison’s nuclear decommissioning obligations. The nuclear decommissioning trust fund investments hold debt and equity securities directly and indirectly through commingled funds and institutional mutual funds. The commingled funds and institutional mutual funds which hold exchange-traded equity or debt securities are valued using quoted prices in actively traded markets. Non-exchange traded fixed income securities are valued based upon quotations available from brokers or pricing services. For

non-exchange traded fixed income securities, the trustees receive prices from pricing services. A primary price source is identified by asset type, class or issue for each security. The trustees monitor prices supplied by pricing services and may use a supplemental price source or change the primary price source of a given security if the trustees challenge an assigned price and determine that another price source is considered to be preferable. Detroit Edison has obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices. Additionally, Detroit Edison selectively corroborates the fair values of securities by comparison of market-based price sources.

~~Derivative Assets and Liabilities~~

Derivative assets and liabilities are comprised of physical and financial derivative contracts, including forwards, options and financial transmission rights. 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. Other derivative contracts are valued based upon a variety of inputs including commodity market prices, interest rates, credit ratings, default rates, market-based seasonality and basis differential factors. Mathematical valuation models are used for derivatives for which external market data is not readily observable.

~~Fair Value of Financial Instruments~~

The fair value of financial instruments is determined by using various market data and other valuation techniques. The table below shows the fair value relative to the carrying value for long-term debt securities. The carrying value of certain other financial instruments, such as notes payable, customer deposits and notes receivable approximate fair value and are not shown. As of December 31, 2008, the Company had approximately $747 million of tax exempt securities insured by insurers. Since December 31, 2007, overall credit market conditions have resulted in credit rating downgrades and may result in future credit rating downgrades for these insurers. The Company does not expect the impact on interest rates or fair value to be material.

2008 2007
Fair Value Carrying Value Fair Value Carrying Value
Long-Term Debt $5.0 billion $5.2 billion $4.8 billion $4.7 billion

~~NOTE 13 — FINANCIAL AND OTHER DERIVATIVE INSTRUMENTS~~

~~We comply with SFAS No. 133,~~~~Accounting for Derivative Instruments and Hedging Activities~~, as amended and interpreted. Under SFAS No. 133, all derivatives are recognized on the Consolidated Statements of Financial Position at their fair value unless they qualify for certain scope exceptions, including normal purchases and normal sales exception. Further, derivatives that qualify and are designated for hedge accounting are classified as either hedges of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge), or as hedges of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge). For cash flow hedges, the portion of the derivative gain or loss that is effective in offsetting the change in the value of the underlying exposure is deferred in Accumulated other comprehensive income and later reclassified into earnings when the underlying transaction occurs. For fair value hedges, changes in fair values for both the derivative and the underlying hedged exposure are recognized in earnings each period. Gains and losses from the ineffective portion of any hedge are recognized in earnings immediately. For derivatives that do not qualify or are not designated for hedge accounting, changes in the fair value are recognized in earnings each period.

Our primary market risk exposure is associated with commodity prices and credit. We have risk management policies to monitor and decrease market risks. We use derivative instruments to manage some of the exposure. We do not hold or issue derivative instruments for trading purposes.

~~Commodity Price Risk~~

Detroit Edison uses forward energy and capacity contracts to manage changes in the price of electricity and fuel. Contracts that are derivatives and meet the normal purchases and sales exemption are accounted for under the accrual method. Other derivative contracts are recoverable through the PSCR mechanism when realized. This results in the deferral of unrealized gains and losses or regulatory assets or liabilities until realized.

~~Credit Risk~~

We are exposed to credit risk if customers or counterparties do not comply with their contractual obligations. We maintain credit policies that significantly minimize overall credit risk. These policies include an evaluation of potential customers’ and counterparties’ financial condition, credit rating, collateral requirements or other credit enhancements such as letters of credit or guarantees. We generally use standardized agreements that allow the netting of positive and negative transactions associated with a single counterparty.

The Company maintains a provision for credit losses based on factors surrounding the credit risk of its customers, historical trends, and other information. Based on the Company’s credit policies and its December 31, 2008 provision for credit losses, the Company’s exposure to counterparty nonperformance is not expected to result in material effects on the Company’s financial statements.

~~NOTE 14 — COMMITMENTS AND CONTINGENCIES~~

~~Environmental~~

~~Air~~— Detroit Edison is subject to EPA ozone transport and acid rain regulations that limit power plant emissions of sulfur dioxide and nitrogen oxides. Since 2005, EPA and the State of Michigan 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. To comply with these requirements, Detroit Edison has spent approximately $1.4 billion through 2008. The Company estimates future undiscounted capital expenditures at up to $100 million in 2009 and up to $2.8 billion of additional capital expenditures through 2018 based on current regulations.

~~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 the studies to be conducted over the next several years, Detroit Edison may be required to install additional control technologies to reduce the impacts of the water intakes. Initially, it was estimated that Detroit Edison could incur up to approximately $55 million over the four to six years subsequent to 2008 in additional capital expenditures to comply with these requirements. However, a January 2007 circuit court decision remanded back to the EPA several provisions of the federal regulation that may result in a delay in compliance dates. The decision also raised the possibility that Detroit Edison may have to install cooling towers at some facilities at a cost substantially greater than was initially estimated for other mitigative technologies. In 2008, the Supreme Court agreed to review the remanded cost-benefit analysis provision of the rule. A decision is expected in the first quarter of 2009. Concurrently, the EPA continues to develop a revised rule, which is expected to be published in early 2009.

~~Contaminated Sites~~— Detroit Edison conducted remedial investigations at contaminated sites, including three former manufactured gas plant (MGP) sites, the area surrounding an ash landfill and several underground and aboveground storage tank locations. The findings of these investigations indicated that the estimated cost to remediate these sites is expected to be incurred over the next several years. At December 31, 2008 and 2007, the Company had $12 million and $15 million, respectively, accrued for remediation.bank loan guarantee.

Labor Contracts

There are several bargaining units for the Company’s union employees. The majority of our union employees are under contracts that expire in June 2010 and August 2012.

Purchase Commitments

Detroit Edison has an Energy Purchase Agreement to purchase electricity from the Greater Detroit Resource Recovery Authority (GDRRA). Under the Agreement, Detroit Edison purchased steam through 2008. The term of the Energy Purchase Agreement for the purchase of electricity runs through June 2024. We purchased approximately $42 million of steam and electricity in each of 2008, 2007 and 2006. We estimate electric purchase commitments from 2009 through 2024 will not exceed $300 million in the aggregate.

In January 2003, the Company sold the steam heating business of Detroit Edison to Thermal Ventures II, LP. Under the terms of sale, Detroit Edison guaranteed bank loans of $13 million that Thermal Ventures II, LP used for capital improvements to the steam heating system. At December 31, 2008 and 2007, the Company had reserves of $13 million related to the bank loan guarantee.

As of December 31, ~~2008,~~2009, the Company was party to numerous long-term purchase commitments relating to a variety of goods and services required for the Company’s business. These agreements primarily consist of fuel supply commitments and energy trading contracts. The Company estimates that these commitments will be approximately ~~$1.2~~$1.5 billion from ~~2009~~2010 through ~~2024.~~2025. The Company also estimates that ~~2009~~2010 capital expenditures will be approximately ~~$800~~$940 million. The Company has made certain commitments in connection with expected capital expenditures. Certain of these commitments are with variable interest entities where the Company determined it was not the primary beneficiary as it does not have significant exposure to losses.

Bankruptcies

~~We purchase~~The Company purchases and ~~sell~~sells electricity from and to numerous companies operating in the steel, automotive, energy, retail and other industries. Certain of ~~our~~its customers have filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. WeThe Company regularly ~~review~~reviews contingent matters relating to these customers and ~~our~~its purchase and sale contracts and ~~we record~~records provisions for amounts considered at risk of probable loss. ~~We believe our previously~~The Company believes its accrued amounts are adequate for probable ~~losses.~~loss. The final resolution of these matters may have a material effect on ~~our~~its consolidated financial statements.

~~We provide~~The Company provides services to the domestic automotive industry, including GM, Ford Motor Company (Ford) and Chrysler and many of their vendors and suppliers. Chrysler filed for bankruptcy protection on April 30, 2009. We have reserved approximately $7 million of pre-petition accounts receivable related to Chrysler as of December 31, 2009. GM ~~and~~filed for bankruptcy protection on June 1, 2009. We have not reserved or written off any pre-petition accounts receivable related to GM as of December 31, 2009. Closing of GM or Chrysler ~~have recently received loans from~~plants or other facilities that operate within Detroit Edison’s service territory will also negatively impact the ~~U.S. Government to provide them with the working capital necessary to continue to operate~~Company’s operating revenues in ~~the short term.~~future periods. In ~~February~~ 2009, GM and Chrysler submitted viability plans to the U.S. Government indicating that additional loans were necessary to continue operations in the short term. Further plant closures, bankruptcies or a federal government mandated restructuring program could have a significant impact on our results. As the circumstances surrounding the viabilityeach represented two percent of ~~these entities are dynamic and uncertain, we continue to monitor developments as they occur.~~its annual electric sales volumes, respectively.

postretirement plans in its financial statements, (2) recognize as a component of other comprehensive income, net of tax, the actuarial gains or losses and the prior service costs or credits that arise during the period but are not immediately recognized as components of net periodic benefit cost, (3) recognize adjustments to other comprehensive income when the actuarial gains or losses, prior service costs or credits, and transition assets or obligations are recognized as components of net periodic benefit cost, (4) measure postretirement benefit plan assets and plan obligations as of the date of the employer’s statement of financial position, and (5) disclose additional information in the notes to financial statements about certain effects on net periodic benefit cost in the upcoming fiscal year that arise from delayed recognition of the actuarial gains and losses and the prior service cost and credits.

The requirement to recognize the funded status of a postretirement benefit plan and the related disclosure requirements is effective for fiscal years ending after December 15, 2006. The Company adopted this requirement as of December 31, 2006. In 2008, ~~as required by SFAS 158,~~ the Company changed the measurement date of its pension and postretirement benefit plans from November 30 to December 31. As a result, the Company recognized an adjustment of $15 million ($9 million after-tax) to retained earnings, which represents approximately one month of pension and other postretirement benefit costs for the period from December 1, 2007 to December 31, 2008. ~~Retrospective application of the changes required by SFAS No. 158 is prohibited; therefore certain disclosures below are not comparable.~~

Detroit Edison received approval from the MPSC to record the impact of the adoption of SFAS 158 provision related to the funded status as a regulatory asset since the traditional rate setting process allows for the recovery of pension and other postretirement plan costs.

~~Measurement Date~~

All amounts and balances reported in the following tables as of December 31, ~~2008~~2009 and December 31, ~~2007~~2008 are based on measurement dates of December 31, ~~2008~~2009 and ~~November 30, 2007,~~December 31, 2008, respectively.

Pension Plan Benefits

Detroit Edison participates in various plans that provide pension and other postretirement benefits for DTE Energy and its affiliates. Detroit Edison is allocated net periodic benefit costs for its share of the amounts of the combined plans. In prior years, Detroit Edison served as the plan sponsor for a pension plan that changed in 2008 to be sponsored by DTE Energy Corporate Services, LLC, (LLC) a subsidiary of DTE Energy. The change in plan sponsorship did not change the pension cost or contributions allocated to Detroit Edison, or the benefits of plan participants.

The Company’s policy is to fund pension costs by contributing amounts consistent with the Pension Protection Act of 2006 provisions and additional amounts we deem appropriate. ~~In December 2008, the Company contributed $100 million to the pension plans. Also, the Company contributed $50 million to its pension plans in January 2009.~~ The Company anticipates making up to a ~~$250~~$200 million contribution to the pension plans in ~~2009.~~2010.

Net pension cost includes the following components:


	Pension Plans									Pension Plans
(in Millions)	2008			2007			2006			2009			2008			2007
Service cost	$	45		$	51		$	51		$	43		$	45		$	51
Interest cost		148			138			136			158			148			138
Expected return on plan assets		(163	)		(148	)		(135	)		(165	)		(163	)		(148	)
Amortization of:
Net actuarial loss		27			46			45			38			27			46
Prior service cost		5			6			8			7			5			6
Special termination benefits		—			8			38			—			—			8

Net pension cost	$	62		$	101		$	143		$	81		$	62		$	101

Pension Plans
(in Millions) 2008 2007
Amount recorded as:
Noncurrent assets $ — $ 372
Current liabilities (3 ) (3 )
Noncurrent liabilities (978 ) (374 )

$ (981 ) $ (5 )

Amounts recognized in regulatory assets

Net actuarial loss $ 1,106 $ 454
Prior service cost 27 15

Regulatory assets $ 1,133 $ 469

The aggregate accumulated benefit obligation, projected benefit obligation and fair value of plan assets as of December 31, 2008 for plans with benefit obligations in excess of plan assets was $2.2 billion, $2.4 billion and $1.4 billion, respectively.

The aggregate accumulated benefit obligation and projected benefit obligation of plan assets as of December 31, 2007 for plans with benefit obligations in excess of plan assets was $48 million and $50 million, respectively. There was no fair value related to plans with benefit obligations in excess of plan assets as of December 31, 2007. The aggregate accumulated benefit obligation, projected benefit obligation and fair value of plan assets as of December 31, 2007 for plans with plan assets in excess of benefit obligations was $2.5 billion, $2.7 billion and $2.6 billion, respectively.

Assumptions used in determining the projected benefit obligation and net pension costs are listed below:


	2008			2007			2006			2009			2008			2007
Projected benefit obligation
Discount rate		6.90	%		6.50	%		5.70	%		5.90	%		6.90	%		6.50	%
Rate of compensation increase		4.00	%		4.00	%		4.00	%		4.00	%		4.00	%		4.00	%

Net pension costs
Discount rate		6.50	%		5.70	%		5.90	%		6.90	%		6.50	%		5.70	%
Rate of compensation increase		4.00	%		4.00	%		4.00	%		4.00	%		4.00	%		4.00	%
Expected long-term rate of return on Plan assets		8.75	%		8.75	%		8.75	%
Expected long-term rate of return on plan assets											8.75	%		8.75	%		8.75	%

Target allocations for plan assets as of December 31, 2009 are listed below:


U.S. Large Cap Equity Securities	25	%
U.S. Small Cap and Mid Cap Equity Securities	6
Non U.S. Equity Securities	14
Fixed Income Securities	26
Hedge Funds and Similar Investments	20
Private Equity and Other	6
Short-Term Investments	3

	100	%

The ~~plans’ weighted-average asset allocations~~fair values of the Company’s plans assets at December 31, 2009, by asset category ~~at December 31 were~~are as follows:

2008 2007 Target
U.S. equity securities 31 % 48 % 35 %
Non U.S. equity securities 16 % 18 % 20 %
Debt securities 24 % 19 % 20 %
Hedge funds and similar 22 % 12 % 20 %
Private equity and other 7 % 3 % 5 %

100 % 100 % 100 %

Fair Value Measurements at

December 31, 2009

Balance at
(in Millions)(a) Level 1 Level 2 Level 3 December 31, 2009
Asset Category:

Short-term investments (b) $ — $ 42 $ — $ 42
Equity securities
U.S. Large Cap(c) 436 20 — 456
U.S. Small/Mid Cap(d) 101 2 — 103
Non U.S(e) 153 79 — 232
Fixed income securities(f) 31 397 — 428
Other types of investments
Hedge Funds and Similar Investments(g) — — 320 320
Private Equity and Other(h) — — 106 106

Total $ 721 $ 540 $ 426 $ 1,687


(a)		See Note 4 — Fair Value for a description of levels within the fair value hierarchy.

(b)		This category predominantly represents certain short-term fixed income securities and money market investments that are managed in separate accounts or commingled funds. Pricing for investments in this category are obtained from quoted prices in actively traded markets or valuations from brokers or pricing services.

(c)		This category comprises both actively and not actively managed portfolios that track the S&P 500 low cost equity index funds. Investments in this category are exchange-traded securities whereby unadjusted quote prices can be obtained. Exchange-traded securities held in a commingled fund are classified as Level 2 assets.

(d)		This category represents portfolios of small and medium mid capitalization domestic equities. Investments in this category are exchange-traded securities whereby unadjusted quote prices can be obtained. Exchange-traded securities held in a commingled fund are classified as Level 2 assets.

(e)		This category primarily consists of portfolios of non-U.S. developed and emerging market equities. Investments in this category are exchange-traded securities whereby unadjusted quote prices can be obtained. Exchange-traded securities held in a commingled fund are classified as Level 2 assets.

(f)		This category includes corporate bonds from diversified industries, U.S. Treasuries, and mortgage backed securities. Pricing for investments in this category is obtained from quoted prices in actively traded markets and quotations from broker or pricing services. Non-exchange traded securities and exchange-traded securities held in commingled funds are classified as Level 2 assets.

(g)		This category includes a diversified group of funds and strategies that attempt to capture financial market inefficiencies. Pricing for investments in this category is based on limited observable inputs as there is little, if any, publicly available pricing. Valuations for assets in this category may be based on relative publicly-traded securities, derivatives, and privately-traded securities.

(h)		This category includes a diversified group of funds and strategies that primarily invests in private equity partnerships. This category also includes investments in timber and private mezzanine debt. Pricing for investments in this category is based on limited observable inputs as there is little, if any, publicly available


		pricing. Valuations for assets in this category may be based on discounted cash flow analyses, relative publicly-traded comparables and comparable transactions.

The pension trust holds debt and equity securities directly and indirectly through commingled funds and institutional mutual funds. Exchange-traded debt and equity securities held directly are valued using quoted market prices in actively traded markets. The commingled funds and institutional mutual funds which hold exchange-traded equity or debt securities are valued based on underlying securities, using quoted prices in actively traded markets. Non-exchange traded fixed income securities are valued by the trustee 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 trustees monitor prices supplied by pricing services and may use a supplemental price source or change the primary price source of a given security if the trustees challenge an assigned price and determine that another price source is considered to be preferable. Detroit Edison has obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices. Additionally, Detroit Edison selectively corroborates the fair values of securities by comparison of market-based price sources.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3):

Hedge Funds
and Similar Private Equity
(in Millions) Investments and Other Total
Beginning Balance at January 1, 2009 $ 310 $ 105 $ 415
Total realized/unrealized gains (losses) 20 (7 ) 13
Purchases, sales and settlements (10 ) 8 (2 )

Ending Balance at December 31, 2009 $ 320 $ 106 $ 426

The amount of total gains (losses) for the period attributable to the change in unrealized gains or losses related to assets still held at the end of the period $ 23 $ (7 ) $ 16

The Company also sponsors defined contribution retirement savings plans. Participation in one of these plans is available to substantially all represented and non-represented employees. The Company matches employee contributions up to certain predefined limits based upon eligible compensation and the employee’s contribution rate. The cost of these plans was $16 million in 2009, $16 million in 2008, and $17 million in ~~2007, and $23 million in 2006.~~2007.

Other Postretirement Benefits

The Company participates in plans sponsored by LLC that provide certain postretirement health care and life insurance benefits for employees who are eligible for these benefits. The Company’s policy is to fund certain trusts to meet our postretirement benefit obligations. Separate qualified Voluntary Employees Beneficiary Association (VEBA) trusts exist for represented and non-represented employees. ~~In 2008, the Company made a cash contribution of $76 million to the postretirement benefit plans.~~ At the discretion of management, subject to MPSC requirements, the Company may make up to a $90 million contribution to the VEBA trusts in ~~2009.~~2010.

Net postretirement cost includes the following components:


(in Millions)	2008			2007			2006			2009			2008			2007
Service cost	$	48		$	48		$	45		$	45		$	48		$	48
Interest cost		94			90			88			102			94			90
Expected return on plan assets		(58	)		(54	)		(49	)		(42	)		(58	)		(54	)
Amortization of:
Net loss		27			51			53			53			27			51
Prior service costs		2			4			4			2			2			4
Net transition obligation		2			7			7			2			2			7
Special termination benefits		—			2			6			—			—			2

Net postretirement cost	$	115		$	148		$	154		$	162		$	115		$	148

The following table reconciles the obligations, assets and funded status of the plans including amounts recorded as accrued postretirement cost in the ~~consolidated statement~~Consolidated Statements of ~~financial position~~Financial Position at December 31:

(in Millions) 2008 2007
Change in accumulated post retirement benefit obligation during the year

Accumulated postretirement benefit obligation, beginning of year $ 1,479 $ 1,660
December 2007 cash flow (4 ) —
Service cost 48 48
Interest cost 94 90
Plan amendments (1 ) (39 )
Actuarial gain (7 ) (214 )
Measurement date change 11 —
Benefits paid (72 ) (73 )
Special termination benefits — 2
Medicare Part D 5 5

Accumulated postretirement benefit obligation , end of year $ 1,553 $ 1,479

Change in plan assets during the year

Plan assets at fair value, beginning of year $ 658 $ 636
December 2007 cash flow 1 —
Actual return on plan assets (189 ) 56
Measurement date change 5 —
Company contributions 76 36
Benefits paid (73 ) (70 )

Plan assets at fair value, end of year $ 478 $ 658


(in Millions)	2008			2007			2009			2008
Funded status of the Plans, as of November 30	$	—		$	(821	)
December adjustment		—			5
Change in accumulated post retirement benefit obligation during the year
Accumulated postretirement benefit obligation, beginning of year							$	1,553		$	1,479
December 2007 cash flow								—			(4	)
Service cost								45			48
Interest cost								102			94
Plan amendments								—			(1	)
Actuarial (gain)/loss								21			(7	)
Measurement date change								—			11
Benefits paid								(75	)		(72	)
Medicare Part D								4			5

Accumulated postretirement benefit obligation , end of year							$	1,650		$	1,553


Change in plan assets during the year
Plan assets at fair value, beginning of year							$	478		$	658
December 2007 cash flow								—			1
Actual return on plan assets								99			(189	)
Measurement date change								—			5
Company contributions								90			76
Benefits paid								(75	)		(73	)

Plan assets at fair value, end of year							$	592		$	478



Funded status, as of December 31	$	(1,075	)	$	(816	)	$	(1,058	)	$	(1,075	)


Non-current liabilities	$	(1,075	)	$	(816	)	$	(1,058	)	$	(1,075	)


Amounts recognized in regulatory assets
Amounts recognized in regulatory assets (see Note 10)
Net actuarial loss	$	600		$	391		$	510		$	600
Prior service cost	$	—		$	3			(2	)		—
Net transition obligation	$	9		$	11			7			9

	$	609		$	405		$	515		$	609

At December 31, ~~2008,~~2009, the benefits expected to be paid, including prescription drug benefits, in each of the next five years and in the aggregate for the five fiscal years thereafter are as follows:

2014 &
(in Millions) 2009 2010 2011 2012 2013 thereafter Total

Amount to be paid $ 96 $ 102 $ 105 $ 106 $ 110 $ 595 $ 1,114

The process used in determining the long-term rate of return for assets and the investment approach for the other postretirement benefits plans is similar to those previously described for the pension plans.

~~The plans’ weighted-average asset allocations and related targets by asset category at December 31 were as follows:~~

2008 2007 Target
U.S. equity securities 39 % 50 % 27 %
Non U.S. equity securities 17 % 18 % 24 %
Debt securities 26 % 20 % 16 %
Hedge funds and similar 13 % 11 % 28 %
Private equity and other 5 % 1 % 5 %

100 % 100 % 100 %

(in Millions)
2010 $ 92
2011 97
2012 100
2013 104
2014 108
2015 - 2019 611

Total $ 1,112

In December 2003, the Medicare Act was signed into law which provides for a non-taxable federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least “actuarially equivalent” to the benefit established by law. The effects of the subsidy reduced net periodic postretirement benefit costs by $17 million in 2009, $11 million in 2008 and $12 million in ~~2007 and $16 million in 2006.~~2007.

At December 31, ~~2008,~~2009, the gross amount of federal subsidies expected to be received in each of the next five years and in the aggregate for the five fiscal years thereafter was as follows:


											2014 &
(in Millions)	2009		2010		2011		2012		2013		thereafter		Total		(in Millions)
2010																$	5
2011																	6
2012																	6
2013																	6
2014																	7
2015 - 2019																	39

Amount to be paid	$	3	$	4	$	4	$	5	$	5	$	29	$	50
Total																$	69


(b)		This category predominantly represents certain short-term fixed income securities and money market investments that are managed in separate accounts or commingled funds. Pricing for investments in this category are obtained from quoted prices in actively traded markets or valuations from brokers or pricing services.

(c)		This category comprises both actively and not actively managed portfolios that track the S&P 500 low cost equity index funds. Investments in this category are exchange-traded securities whereby unadjusted quote prices can be obtained. Exchange-traded securities held in a commingled fund are classified as Level 2 assets.

(d)		This category represents portfolios of small and medium mid capitalization domestic equities. Investments in this category are exchange-traded securities whereby unadjusted quote prices can be obtained. Exchange-traded securities held in a commingled fund are classified as Level 2 assets.

(e)		This category primarily consists of portfolios of non-U.S. developed and emerging market equities. Investments in this category are exchange-traded securities whereby unadjusted quote prices can be obtained. Exchange-traded securities held in a commingled fund are classified as Level 2 assets.

(f)		This category includes corporate bonds from diversified industries, U.S. Treasuries, and mortgage backed securities. Pricing for investments in this category is obtained from quoted prices in actively traded markets and quotations from broker or pricing services. Non-exchange traded securities and exchange-traded securities held in commingled funds are classified as Level 2 assets.

(g)		This category includes a diversified group of funds and strategies that attempt to capture financial market inefficiencies. Pricing for investments in this category is based on limited observable inputs as there is little, if any, publicly available pricing. Valuations for assets in this category may be based on relative publicly-traded securities, derivatives, and privately-traded securities.

(h)		This category includes a diversified group of funds and strategies that primarily invests in private equity partnerships. This category also includes investments in timber and private mezzanine debt. Pricing for investments in this category is based on limited observable inputs as there is little, if any, publicly available pricing. Valuations for assets in this category may be based on discounted cash flow analyses, relative publicly-traded comparables and comparable transactions.

The VEBA trusts hold debt and equity securities directly and indirectly through commingled funds and institutional mutual funds. Exchange-traded debt and equity securities held directly are valued using quoted market prices in actively traded markets. The commingled funds and institutional mutual funds which hold exchange-traded equity or debt securities are valued based on underlying securities, using quoted prices in actively traded markets. Non-exchange traded fixed income securities are valued by the trustee 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 trustees monitor prices supplied by pricing services and may use a supplemental price source or change the primary price source of a given security if the trustees challenge an assigned price and determine that another price source is considered to be preferable. Detroit Edison has obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices. Additionally, Detroit Edison selectively corroborates the fair values of securities by comparison of market-based price sources.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3):

HedgeFunds Similar Private Equityand
(in Millions) Investments Other Total
Beginning Balance at January 1, 2009 $ 52 $ 26 $ 78
Total realized/unrealized gains (losses) 4 3 7
Purchases, sales and settlements 7 3 10

Ending Balance at December 31, 2009 $ 63 $ 32 $ 95

The amount of total gains (losses) for the period attributable to the change in unrealized gains or losses related to assets still held at the end of the period $ 4 $ 2 $ 6

~~Item 9B. Other Information~~
Item 9B. Other Information

None.

Part III

~~Item 10. Directors, Executive Officers and Corporate Governance~~
Item 10. Directors, Executive Officers and Corporate Governance

~~Item 11. Executive Compensation~~
Item 11. Executive Compensation

~~Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters~~
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

~~Item 13. Certain Relationships and Related Transactions, and Director Independence~~
Item 13. Certain Relationships and Related Transactions, and Director Independence

All omitted per General Instruction I (2) (c) of Form 10-K for wholly owned subsidiaries (reduced disclosure format).

~~Item 14. Principal Accountant Fees and Services~~
Item 14. Principal Accountant Fees and Services

For the ~~years~~year ended December 31, 2009 professional services were performed by PricewaterhouseCoopers LLP (PwC). For the year ended December 31, 2008, ~~and 2007,~~ professional services were performed by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, “Deloitte”). The following table presents fees for professional services rendered by PwC and Deloitte for the audit of Detroit Edison’s annual financial statements for the years ended December 31, ~~2008~~2009 and December 31, ~~2007,~~2008, respectively, and fees billed for other services rendered by PwC and Deloitte during those periods.


	2008		2007		2009		2008
Audit fees (1)	$	1,206,038	$	1,275,216	$	1,231,865	$	1,466,413
Audit-related fees (2)		7,000		6,179		37,400		45,500

Total	$	1,213,038	$	1,281,395	$	1,269,265	$	1,511,913

Part IV

~~Item 15. Exhibits and Financial Statement Schedules~~
Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this Annual Report on Form 10-K.

~~(1)~~
(1) Consolidated financial statements. See “Item 8 — Financial Statements and Supplementary Data.”
(2) Financial statement schedule. See “Item 8 — Financial Statements and Supplementary Data.”
(3) Exhibits.

~~(2) Financial statement schedule. See “Item 8 — Financial Statements and Supplementary Data.”~~

~~(3) Exhibits.~~

~~(i) Exhibits filed herewith.~~
(i) Exhibits filed herewith.


	~~4-261~~4-267		Supplemental Indenture, dated as of ~~December~~November 1, ~~2008~~2009 to the Mortgage and Deed of Trust dated as of October 1, 1924 between The Detroit Edison Company and The Bank of New York Mellon Trust Company N.A., as successor trustee ~~providing for General and Refunding Mortgage Bonds, 2008~~(2009 Series ~~LT.~~CT).

4-268
	~~4-262~~		~~Twenty-Eighth~~Thirtieth Supplemental Indenture, dated as of ~~December~~November 1, ~~2008~~2009 to the Collateral Trust Indenture, dated as of June 30, 1993 between The Detroit Edison Company and The Bank of New York Mellon Trust Company, ~~N.A, providing for 2008~~N.A., as successor trustee (2009 Series ~~LT 6.75%~~CT Variable Rate Senior Notes due ~~2038.~~2024).

	~~12-32~~12-36		Computation of Ratio of Earnings to Fixed Charges.

23-22		Consent of PricewaterhouseCoopers LLP.

	~~23-21~~23-23		Consent of Deloitte & Touche LLP.

	~~31-45~~31-53		Chief Executive Officer Section 302 Form 10-K Certification of Periodic Report.

	~~31-46~~31-54		Chief Financial Officer Section 302 Form 10-K Certification of Periodic Report.

~~(ii) Exhibits incorporated herein by reference.~~
(ii) Exhibits incorporated herein by reference.


	3	~~(a)~~3(a)	Restated Articles of Incorporation of The Detroit Edison Company, as filed December 10, 1991. (Exhibit 3-13 to Form 10-Q for the quarter ended June 30, 1999).

	3	~~(b)~~3(b)	Bylaws of The Detroit Edison Company, as amended through September 22, 1999. (Exhibit 3-14 to Form 10-Q for the quarter ended September 30, 1999).

	4	~~(a)~~4(a)	Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit B-1 to Registration Statement on Form A-2 (File No. 2-1630)) and indentures supplemental thereto, dated as of dates indicated below, and filed as exhibits to the filings set forth below:

Supplemental Indenture, dated as of December 1, 1940, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit B-14 to Registration Statement on Form A-2 (File No. 2-4609)). (amendment)

Supplemental Indenture, dated as of September 1, 1947, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit B-20 to Registration Statement on Form S-1 (File No. 2-7136)). (amendment)


		Company, N.A., as successor trustee (Exhibit B-22 to Registration Statement on Form S-1 (File No. 2-8290)). (amendment)

		Supplemental Indenture, dated as of November 15, 1951, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit B-23 to Registration Statement on Form S-1 (File No. 2-9226)). (amendment)

		Supplemental Indenture, dated as of August 15, 1957, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 3-B-30 to Form 8-K dated September 11, 1957). (amendment)

		Supplemental Indenture, dated as of December 1, 1966, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 2-B-32 to Registration Statement on Form S-9 (File No. 2-25664)). (amendment)

		Supplemental Indenture, dated as of February 15, 1990, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-212 to Form 10-K for the year ended December 31, 2000). (1990 Series B, C, E and F) Supplemental Indenture, dated as of May 1, 1991, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-178 to Form 10-K for the year ended December 31, 1996). (1991 Series BP and CP)

		Supplemental Indenture, dated as of May 15, 1991, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-179 to Form 10-K for the year ended December 31, 1996). (1991 Series DP)

		Supplemental Indenture, dated as of February 29, 1992, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-187 to Form 10-Q for the quarter ended March 31, 1998). (1992 Series AP)

		Supplemental Indenture, dated as of April 26, 1993, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-215 to Form 10-K for the year ended December 31, 2000). (amendment) Supplemental Indenture, dated as of June 30, 1993, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-216 to Form 10-K for the year ended December 31, 2000). (1993 Series AP)

		Supplemental Indenture, dated as of August 1, 1999, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-204 to Form 10-Q for the quarter ended September 30, 1999). (1999 Series AP, BP and CP)


		Supplemental Indenture, dated as of May 1, 2001, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between Detroit Edison and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-226 to Form 10-Q for the quarter ended June 30, 2001). (2001 Series BP)

		Supplemental Indenture, dated as of August 15, 2001, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-227 to Form 10-Q for the quarter ended September 30, 2001). (2001 Series CP)

		Supplemental Indenture, dated as of September 15, 2001, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-228 to Form 10-Q for the quarter ended September 30, 2001). (2001 Series D and E)

		Supplemental Indenture, dated as of September 17, 2002, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4.1 to Registration Statement on Form S-3 (File No. 333-100000)). (amendment and successor trustee)

		Supplemental Indenture, dated as of October 15, 2002, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-230 to Form 10-Q for the quarter ended September 30, 2002). (2002 Series A and B)

		Supplemental Indenture, dated as of December 1, 2002, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-232 to Form 10-K for the year ended December 31, 2002). (2002 Series C and D)

		Supplemental Indenture, dated as of August 1, 2003, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-235 to Form 10-Q for the quarter ended September 30, 2003). (2003 Series A)

		Supplemental Indenture, dated as of March 15, 2004, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-238 to Form 10-Q for the quarter ended March 31, 2004). (2004 Series A and B)

		Supplemental Indenture, dated as of July 1, 2004, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-240 to Form 10-Q for the quarter ended June 30, 2004). (2004 Series D)

		Supplemental Indenture, dated as of April 1, 2005, to the Mortgage and Deed of Trust, dated as


		Supplemental Indenture, dated as of May 15, 2006, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-250 to Form 10-Q for the quarter ended June 30, 2006). (2006 Series A)

		Supplemental Indenture, dated as of December 1, 2007, to the Mortgage and Deed of Trust, dated as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4.2 to Form 8-K dated December 18, 2007). (2007 Series A) Supplemental Indenture, dated as of April 1, 2008 to Mortgage and Deed of Trust as of October 1, 1924, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-251 to Form 10-Q for the quarter ended March 31, 2008. (2008 Series DT)

		Supplemental Indenture, dated as of May 1, 2008 to Mortgage and Deed of Trust dated as of October 1, 1924 between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-253 to Form 10-Q for the quarter ended June 30, 2008). (2008 Series ET)

		Supplemental Indenture, dated as of June 1, 2008 to Mortgage and Deed of Trust dated as of October 1, 1924 between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-255 to Form 10-Q for the quarter ended June 30, 2008). (2008 Series G)

		Supplemental Indenture, dated as of July 1, 2008 to Mortgage and Deed of Trust dated as of October 1, 1924 between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-257 to Form 10-Q for the quarter ended June 30, 2008). (2008 Series KT)

		Supplemental Indenture, dated as of October 1, 2008 to Mortgage and Deed of Trust dated as of October 1, 1924 between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-259 to Form 10-Q for the quarter ended September 30, 2008). (2008 Series J)


		Supplemental Indenture, dated as of December 1, 2008 to Mortgage and Deed of Trust dated as of October 1, 1924 between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee, providing for General and Refunding Mortgage Bonds. (Exhibit 4-261 to Form 10-K for the year ended December 31, 2008). (2008 Series LT)
	4	~~(b)~~
		Supplemental Indenture, dated as of March 15, 2009 to Mortgage and Deed of Trust dated as of October 1, 1924 between The Detroit Edison Company and The Bank of New York Mellon Trust Company N.A., as successor trustee (Exhibit 4-263 to Form 10-Q for the quarter ended March 31, 2009). (2009 Series BT)

4(b)		Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-152 to Registration Statement on Form S-3 (File No. 33-50325)).

			4	~~(c)~~	Ninth Supplemental Indenture, dated as of October 10, 2001, to the Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-229 to Form 10-Q for the quarter ended September 30, 2001). (6.125% Senior Notes due 2010)

			4	~~(d)~~	Tenth Supplemental Indenture, dated as of October 23, 2002, to the Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-231 to Form 10-Q for the quarter ended September 30, 2002). (5.20% Senior Notes due 2012 and 6.35% Senior Notes due 2032)


4	~~(g)~~	Thirteenth Supplemental Indenture, dated as of April 1, 2004, to the Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-237 to Form 10-Q for the quarter ended March 31, 2004). (4.875% Senior Notes Due 2029 and 4.65% Senior Notes due 2028)

4	~~(h)~~	Fourteenth Supplemental Indenture, dated as of July 15, 2004, to the Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-239 to Form 10-Q for the quarter ended June 30, 2004). (2004 Series D 5.40% Senior Notes due 2014)

4	~~(i)~~	Sixteenth Supplemental Indenture, dated as of April 1, 2005, to the Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4.1 to Registration Statement on Form S-4 (File No. 333-123926)). (2005 Series AR 4.80% Senior Notes due 2015 and 2005 Series BR 5.45% Senior Notes due 2035)

4	~~(j)~~	Eighteenth Supplemental Indenture, dated as of September 15, 2005, to the Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4.1 to Form 8-K dated September 29, 2005). (2005 Series C 5.19% Senior Notes due October 1, 2023)

4	~~(k)~~	Nineteenth Supplemental Indenture, dated as of September 30, 2005, to the Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-247 to Form 10-Q for the quarter ended September 30, 2005). (2005 Series E 5.70% Senior Notes due 2037)

4	~~(l)~~	Twentieth Supplemental Indenture, dated as of May 15, 2006, to the Collateral Trust Indenture dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-249 to Form 10-Q for the quarter ended June 30, 2006). (2006 Series A Senior Notes due 2036)

4	~~(m)~~	Twenty-Second Supplemental Indenture, dated as of December 1, 2007, to the Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Trust Company, N.A., as successor trustee (Exhibit 4.1 to Form 8-K dated December 18, 2007). (2007 Series A Senior Notes due 2038)

4	~~(n)~~	Twenty-Third Supplemental Indenture, dated as of April 1, 2008, to the Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Trust Company, N.A., as successor trustee (Exhibit 4-252 to Form 10-Q for the quarter ended March 31, 2008). (2008 Series DT Variable Rate Senior Notes due 2036)


	4	~~(o)~~	Twenty-Fourth Supplemental Indenture, dated as of May 1, 2008, to the Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Trust Company, N.A., as successor trustee (Exhibit 4-254 to Form 10-Q for the quarter ended June 30, 2008). (2008 Series ET Variable Rate Senior Notes due 2029)

Amendment dated June 1, 2009 to the Twenty-fourth Supplemental Indenture, dated as of May 1, 2008 to the Collateral Trust Indenture, dated as of June 30, 1993 between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A. as successor trustee (2008 Series ET Variable Rate Senior Notes due 2029) (Exhibit 4-265 to Form 10-Q for the quarter ended June 30, 2009)

	4	~~(p)~~	Twenty-Fifth Supplemental Indenture, dated as of June 1, 2008, to the Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Trust Company, N.A., as successor trustee (Exhibit 4-256 to Form 10-Q for the quarter ended June 30, 2008). (2008 Series G 5.60% Senior Notes due 2018)

	4	~~(q)~~	Twenty-Sixth Supplemental Indenture, dated as of July 1, 2008, to the Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Trust Company, N.A., as successor trustee (Exhibit 4-258 to Form 10-Q for the quarter ended June 30, 2008). (2008 Series KT Variable Rate Senior Notes due 2020)

Amendment dated June 1, 2009 to the Twenty-sixth Supplemental Indenture, dated as of July 1, 2008 to the Collateral Trust Indenture, dated as of June 30, 1993 between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (2008 Series KT Variable Rate Senior Notes due 2020) (Exhibit 4-266 to Form 10-Q for the quarter ended June 30, 2009)


			4	~~(r)~~	Twenty-Seventh Supplemental Indenture, dated as of October 1, 2008, to the Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and The Bank of New York Trust Company, N.A., as successor trustee (Exhibit 4-260 to Form 10-Q for the quarter ended September 30, 2008). (2008 Series J 6.40% Senior Notes due 2013)

		Twenty-Eighth Supplemental Indenture, dated as of December 1, 2008 to the Collateral Trust Indenture, dated as of June 30, 1993 between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A. (Exhibit 4-262 to Detroit Edison’s Form 10-K for the year ended December 31, 2008). (2008 Series LT 6.75% Senior Notes due 2038)

		Twenty-Ninth Supplemental Indenture, dated as of March 15, 2009, to the Collateral Trust Indenture, dated as of June 30, 1993 between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (Exhibit 4-264 to Detroit Edison’s Form 10-Q for the quarter ended March 31, 2009). (2009 Series BT 6.00% Senior Notes due 2036)
	4	~~(s)~~
4(c)		Trust Agreement of Detroit Edison Trust I. (Exhibit 4.9 to Registration Statement on Form S-3 (File No. 333-100000)).

			4	~~(t)~~4(d)	Trust Agreement of Detroit Edison Trust II. (Exhibit 4.10 to Registration Statement on Form S-3 (File No. 333-100000)).

			10	~~(a)~~10(a)	Securitization Property Sales Agreement dated as of March 9, 2001, between The Detroit Edison Securitization Funding LLC and The Detroit Edison Company. (Exhibit 10-42 to Form 10-Q for the quarter ended March 31, 2001).

10(b)		Certain arrangements pertaining to the employment of Anthony F. Earley, Jr. with The Detroit Edison Company, dated April 25, 1994. (Exhibit 10-53 to Form 10-Q for the quarter ended March 31, 1994).

10(c)		Certain arrangements pertaining to the employment of Gerard M. Anderson with The Detroit Edison Company, dated October 6, 1993. (Exhibit 10-48 to Form 10-K for year ended December 31, 1993).

1010(d)	~~(b)~~	Certain arrangements pertaining to the employment of David E. Meador with The Detroit Edison Company, dated January 14, 1997. (Exhibit 10-5 to Form 10-K for the year ended December 31, 1996).

10(e)		Amended and Restated Post-Employment Income Agreement, dated March 23, 1998, between The Detroit Edison Company and Anthony F. Earley, Jr. (Exhibit 10-21 to Form 10-Q for the quarter ended March 31, 1998).

10(f)		The Detroit Edison Company Supplemental Long-Term Disability Plan, dated January 27, 1997. (Exhibit 10-4 to Form 10-K for the year ended December 31, 1996).

10(g)		Form of The Detroit Edison Company’s Five-Year Credit Agreement, dated as of October 17, 2005, by and among The Detroit Edison Company, the lenders party thereto, Barclays Bank PLC, as Administrative Agent, and Citibank, N.A. and JPMorgan Chase Bank, N.A., as Co-Syndication Agents (Exhibit 10.1 to Form 8-K dated October 17, 2005).

			10	~~(c)~~10(h)	Form of ~~Amendment No.1 to The~~ Detroit Edison ~~Company’s Five-Year~~Two-Year Credit Agreement, dated as of ~~January 10, 2007,~~April 29, 2009, by and among ~~The~~ Detroit Edison, ~~Company,~~ the lenders party thereto, Barclays, ~~Bank PLC,~~ as Administrative Agent, and Citibank, ~~N.A.~~JPMorgan and ~~JPMorgan Chase Bank, N.A.,~~RBS, as Co-Syndication ~~Agents~~Agents. (Exhibit 10.1 to Form 8-K ~~dated January 10, 2007)~~filed May 5, 2009).

			10	~~(d)~~	Form of Second Amended and Restated Five-Year Credit Agreement, dated as of October 17, 2005, by and among The Detroit Edison Company, the lenders party thereto, Barclays Bank PLC, as Administrative Agent, and Citibank, N.A. and JPMorgan Chase Bank, N.A., as Co-Syndication Agents (Exhibit 10.2 to Form 8-K dated October 17, 2005).

			10	~~(e)~~	Form of Amendment No. 1. to Second Amended and Restated Five-Year Credit Agreement dated as of January 10, 2007, by and among The Detroit Edison Company, the lenders party thereto, Barclays Bank PLC, as Administrative Agent, and Citibank, N.A. and JPMorgan Chase Bank, N.A., as Co-Syndication Agents (Exhibit 10.2 to Form 8-K dated January 10, 2007).

			10	~~(f)~~	Certain arrangements pertaining to the employment of Anthony F. Earley, Jr. with The Detroit Edison Company, dated April 25, 1994. (Exhibit 10-53 to Form 10-Q for the quarter ended March 31, 1994).

			10	~~(g)~~	~~Certain arrangements pertaining to the employment of Gerard M. Anderson with The Detroit Edison Company, dated October 6, 1993. (Exhibit 10-48 to Form 10-K for year ended December 31, 1993).~~

							��
Revenue by Service
(in Millions)	2008		2007		2006			2009		2008		2007
Residential	$	1,726	$	1,739	$	1,671		$	1,820	$	1,726	$	1,739
Commercial		1,753		1,723		1,603			1,702		1,753		1,723
Industrial		894		854		835			730		894		854
Wholesale		119		125		109
Other		170		259		350			299		289		384

Subtotal		4,662		4,700		4,568			4,551		4,662		4,700
Interconnection sales (1)		212		200		169			163		212		200

Total Revenue	$	4,874	$	4,900	$	4,737		$	4,714	$	4,874	$	4,900


	Location by	Summer Net							Location by		Summer Net
	Michigan	Rated Capability (1) (2)							Michigan		Rated Capability (1)
Plant Name	County	(MW)		(%)		Year in Service		County		(MW)			(%)		Year in Service
Fossil-fueled Steam-Electric
Belle River ~~(3)~~(2)	St. Clair		1,026		9.2		1984 and 1985		St. Clair			1,034		9.3		1984 and 1985
Conners Creek	Wayne		230		2.1		1951		Wayne			230		2.1		1951
Greenwood	St. Clair		785		7.1		1979		St. Clair			785		7.1		1979
Harbor Beach	Huron		103		0.9		1968		Huron			103		0.9		1968
Marysville	St. Clair		84		0.8		1943 and 1947		St. Clair			84		0.8		1943 and 1947
Monroe ~~(4)~~(3)	Monroe		3,115		28.0		1971, 1973 and 1974		Monroe			3,090		27.9		1971, 1973 and 1974
River Rouge	Wayne		523		4.7		1957 and 1958		Wayne			523		4.7		1957 and 1958
St. Clair(4)	St. Clair		1,368		12.3		1953, 1954, 1959, 1961 and 1969		St. Clair			1,365		12.3		1953, 1954, 1959, 1961 and 1969
Trenton Channel	Wayne		730		6.6		1949 and 1968		Wayne			730		6.6		1949 and 1968

			7,964		71.7							7,944		71.7
Oil or Gas-fueled Peaking Units	Various		1,101		9.9		1966-1971, 1981 and 1999		Various			1,101		10.0		1966-1971, 1981 and 1999
Nuclear-fueled Steam-Electric Fermi 2 (5)	Monroe		1,122		10.1		1988		Monroe			1,102		10.0		1988
Hydroelectric Pumped Storage Ludington(6)	Mason		917		8.3		1973		Mason			917		8.3		1973

			11,104		100.0							11,064		100.0


Electric Distribution	Circuit Miles
					Circuit Miles
Operating Voltage-Kilovolts (kV)	Overhead		Underground		Overhead		Underground
4.8 kV to 13.2 kV		28,114		13,875		28,243		13,884
24 kV		102		690		177		681
40 kV		2,324		335		2,317		363
120 kV		72		13		54		13

		30,612		14,913		30,791		14,941


(in Thousands of MWh)	2009		2008		2007

Electric Sales
Residential		14,625		15,492		16,147
Commercial		18,200		18,920		19,332
Industrial		9,922		13,086		13,338
Other		3,229		3,218		3,300

		45,976		50,716		52,117
Interconnection sales (1)		5,156		3,583		3,587

Total Electric Sales		51,132		54,299		55,704


Electric Deliveries
Retail and Wholesale		45,976		50,716		52,117
Electric Customer Choice, including self generators (2)		1,477		1,457		2,239

Total Electric Sales and Deliveries		47,453		52,173		54,356


Power Generated and Purchased
(in Thousands of MWh)	2008					2007					2006					2009					2008					2007
Power Plant Generation
Fossil		41,254		71	%		42,359		72	%		39,686		70	%		40,595		74	%		41,254		71	%		42,359		72	%
Nuclear		9,613		17			8,314		14			7,477		13			7,406		14			9,613		17			8,314		14

		50,867		88			50,673		86			47,163		83			48,001		88			50,867		88			50,673		86
Purchased Power		6,877		12			8,422		14			9,861		17			6,495		12			6,877		12			8,422		14

System Output		57,744		100	%		59,095		100	%		57,024		100	%		54,496		100	%		57,744		100	%		59,095		100	%
Less Line Loss and Internal Use		(3,445	)				(3,391	)				(3,603	)				(3,364	)				(3,445	)				(3,391	)

Net System Output		54,299					55,704					53,421					51,132					54,299					55,704

Average Unit Cost ($/MWh)
Generation (1)	$	17.93				$	15.83				$	15.61				$	18.20				$	17.93				$	15.83

Purchased Power	$	69.50				$	62.40				$	53.71				$	37.74				$	69.50				$	62.40

Overall Average Unit Cost	$	24.07				$	22.47				$	22.20				$	20.53				$	24.07				$	22.47


	Page
Definitions		1

Forward-Looking Statements		2

Part I
Items 1., 1A., 1B. &2. Business, Risk Factors, Unresolved Staff Comments and Properties		3	4

Item 3. Legal Proceedings		9	12

Item 4. Submission of Matters to a Vote of Security Holders		11	13

Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		11	13

Item 6. Selected Financial Data		11	13

Item 7. Management’s Narrative Analysis of Results of Operations		12	14

Item 7A. Quantitative and Qualitative Disclosures About Market Risk		18	16

Item 8. Financial Statements and Supplementary Data		20	17

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		61	65

Item 9A. Controls and Procedures		61	65

Item 9B. Other Information		62	65

Part III
Item 10. Directors, Executive Officers and Corporate Governance		62	65

Item 11. Executive Compensation		62	65

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		62	65

Item 13. Certain Relationships and Related Transactions, and Director Independence		62	65

Item 14. Principal Accountant Fees and Services		62	65

Part IV
Item 15. Exhibits and Financial Statement Schedules		63	66

Signatures		71	74
~~Supplemental Indenture dated as of December 1, 2008~~EX-4.267
~~Twenty-Eighth Supplemental Indenture, dated as of December 1, 2008~~EX-4.268
~~Computation of Ratio of Earnings to Fixed Charges~~EX-12.36
~~Consent of Deloitte & Touche LLP~~EX-23.22
~~Chief Executive Officer Section 302 Form 10-K Certification~~EX-23.23
~~Chief Financial Officer Section 302 Form 10-K Certification~~EX-31.53
~~Chief Executive Officer Section 906 Form 10-K Certification~~EX-31.54
~~Chief Financial Officer Section 906 Form 10-K Certification~~EX-32.53
EX-32.54


	•		impact of regulation by the FERC, MPSC, NRC and other applicable governmental proceedings and regulations, including any associated impact on rate structures;

	•		changes in and application of federal, state and local tax laws and their interpretations, including the Internal Revenue Code, regulations, rulings, court proceedings and audits;

	•		the ~~ability to recover costs through rate increases;~~amount and timing of cost recovery allowed as a result of regulatory proceedings, related appeals or new legislation;

	•		the cost of protecting assets against, or damage due to, ~~terrorism;~~terrorism or cyber attacks;

•		the availability, cost, coverage and terms of insurance and stability of insurance providers;

•		changes in and application of accounting standards and financial reporting regulations;

	•		changes in federal or state laws and their interpretation with respect to regulation, energy policy and other business issues; and

	•		~~amounts of uncollectible accounts receivable;~~binding arbitration, litigation and related appeals.


(1)		Represents power that is not distributed by Detroit Edison.


(1)		Summer net rated capabilities of generating plants in service are based on periodic load tests and are changed depending on operating experience, the physical condition of units, environmental control limitations and customer requirements for steam, which otherwise would be used for electric generation.

(2)		~~Excludes one oil-fueled unit, St. Clair Unit No. 5 (250 MW) in cold standby status.~~

~~(3)~~		The Belle River capability represents Detroit Edison’s entitlement to 81.39% of the capacity and energy of the plant. See Note 67 of the Notes to the Consolidated Financial Statements in Item 8 of this Report.

~~(4)~~(3)		The Monroe ~~Power Plant~~power plant provided 38% of Detroit Edison’s total ~~2008~~2009 power ~~plant~~ generation.

(4)		Excludes one oil-fueled unit (250 MW) in cold standby status.

(5)		Fermi 2 has a design electrical rating (net) of 1,150 MW.

(6)		Represents Detroit Edison’s 49% interest in Ludington with a total capability of 1,872 MW. See Note 67 of the Notes to the Consolidated Financial Statements in Item 8 of this Report.


Note		Title

4
10		Regulatory Matters
5		~~Nuclear Operations~~
1416		Commitments and Contingencies


Increase (Decrease) in Gross Margin Components Compared to Prior Year
(in Millions)	2008			2007
Weather-related margin impacts	$	(37	)	$	31
Return of customers from electric Customer Choice		35			43
Service territory economic performance		(100	)		28
Refundable pension cost		(30	)		—
April 2008 expiration of show cause rate decrease		46			—
Impact of 2006 MPSC show cause order		—			(64	)
Impact of 2005 MPSC PSCR reconciliation order		(38	)		38
Impact of 2004 MPSC PSCR reconciliation order		—			(39	)
Other, net		6			6

Increase (decrease) in gross margin	$	(118	)	$	43


Increase (Decrease) in Gross Margin Components Compared to Prior Year (in Millions)	2009			2008
December 2008 rate order	$	80		$	—
Securitization bond and tax surcharge rate increase		62			—
July 2009 rate self-implementation		93			—
Energy Optimization and Renewable Energy surcharge		54			—
April 2008 expiration of show cause rate decrease		25			46
Weather		(66	)		(37	)
Reduction in customer demand and other		(121	)		(127	)

Increase (decrease) in gross margin	$	127		$	(118	)


(1)		Represents power that is not distributed by Detroit Edison

(2)		Includes deliveries for self generators who have purchased power from alternative energy suppliers to supplement their power requirements


(in Thousands of MWh)	2008		2007		2006
Electric Sales
Residential		15,492		16,147		15,769
Commercial		18,920		19,332		17,948
Industrial		13,086		13,338		13,235
Wholesale		2,825		2,902		2,826
Other		393		398		402

		50,716		52,117		50,180
Interconnection sales (1)		3,583		3,587		3,241

Total Electric Sales		54,299		55,704		53,421


Electric Deliveries
Retail and Wholesale		50,716		52,117		50,180
Electric Customer Choice		1,382		1,690		2,694
Electric Customer Choice-Self Generators (2)		75		549		909

Total Electric Sales and Deliveries		52,173		54,356		53,783


~~(1)~~		~~Represents power that is not distributed by Detroit Edison.~~

~~(2)~~		~~Represents deliveries for self generators who have purchased power from alternative energy suppliers to supplement their power requirements.~~


		Page
Controls and Procedures		18
	21
Consolidated Financial Statements

~~Report~~Reports of Independent Registered Public Accounting ~~Firm~~Firms		19
22

Consolidated Statements of Operations		21
23

Consolidated Statements of Financial Position		22
24

Consolidated Statements of Cash Flows		24
26

Consolidated Statements of Changes in Shareholder’s Equity and Comprehensive Income		25
27

Notes to Consolidated Financial Statements		26
	28
Financial Statement Schedule

Schedule II — Valuation and Qualifying Accounts			70	73


(in Millions)
Asset retirement obligations at January 1, 2008	$	1,170
Accretion		76
Liabilities settled		(10	)
Revision in estimated cash flows		(10	)

Asset retirement obligations at December 31, 2008		1,226
Less amount included in current liabilities		(21	)

	$	1,205


Note		Title

23		New Accounting Pronouncements
4		~~Regulatory Matters~~
7		~~Income Taxes~~
124		Fair Value
135		Financial and Other Derivative Instruments
1510		Regulatory Matters
11		Income Taxes
17		Retirement Benefits and Trusteed Assets


		Net Over	PSCR Cost of Power	Description of Net
PSCR Year	Date Filed	(Under)-recovery	Sold	Under-recovery

2008	March 2009	($15.6) million	$1.3 billion	The total amount reflects an under-recovery of $14.8 million, plus $0.8 million in accrued interest due from customers


(Dollars in Millions)	2009			2008			2007
Income tax expense at 35% statutory rate	$	211		$	181		$	163

Investment tax credits		(6	)		(6	)		(7	)
Depreciation		3			3			3
Employee Stock Ownership Plan dividends		(4	)		(2	)		(4	)
Medicare Part D subsidy		(5	)		(4	)		(4	)
Domestic production activities deduction		(5	)		(2	)		(2	)
State and other income taxes, net of federal benefit		36			19			1
Other, net		(2	)		(3	)		(1	)

Total	$	228		$	186		$	149


Effective income tax rate		37.7	%		36.0	%		32.0	%


(in Millions)
Month Issued	Type	Interest Rate			Maturity		Amount

April	Tax-Exempt Revenue Bonds (1)		6.00	%		2036		69
June	Tax-Exempt Revenue Bonds (2)		5.625	%		2020		32
June	Tax-Exempt Revenue Bonds (3)		5.25	%		2029		60
June	Tax-Exempt Revenue Bonds (4)		5.50	%		2029		59
November	Tax-Exempt Revenue Bonds (5)		3.05	%		2024		65

							$	285


(in Millions)
Month Retired	Type	Interest Rate			Maturity		Amount

April	Tax-Exempt Revenue Bonds (1)	Variable				2036	$	69
December	Tax-Exempt Revenue Bonds (1)		6.40	%		2024		65

							$	134


											2015 &
(in Millions)	2010		2011		2012		2013		2014		thereafter		Total
Amount to mature	$	513	$	152	$	303	$	313	$	341	$	2,475	$	4,097


	Capital		Operating
(in Millions)	Leases		Leases
2010	$	9	$	23
2011		7		22
2012		5		22
2013		5		19
2014		4		14
Thereafter		7		77

Total minimum lease payments		37	$	177

Less imputed interest		5

Present value of net minimum lease payments		32
Less current portion		7

Non-current portion	$	25


	As of December 31
(in Millions)	2008		2007
Fermi 2	$	649	$	778
Fermi 1		3		13
Low level radioactive waste		33		33

Total	$	685	$	824


	Fair		Unrealized
(in Millions)	Value		Gains
As of December 31, 2008
Equity Securities	$	288	$	65
Debt Securities		388		17
Cash and Cash Equivalents		9		—

	$	685	$	82

As of December 31, 2007
Equity Securities	$	443	$	170
Debt Securities		373		9
Cash and Cash Equivalents		8		—

	$	824	$	179


(in Millions)	Derivatives
Asset balance as of January 1, 2008	$	4
Changes in fair value recorded in regulatory liabilities		2
Changes in fair value recorded in other comprehensive income		—
Purchases, issuances and settlements		(2	)
Transfers in/out of Level 3		—

Asset balance as of December 31, 2008	$	4

The amount of total gains included in net income attributed to the change in unrealized gains (losses) related to assets and liabilities held at December 31, 2008	$	—


	2008			2007			Target
U.S. equity securities		31	%		48	%		35	%
Non U.S. equity securities		16	%		18	%		20	%
Debt securities		24	%		19	%		20	%
Hedge funds and similar		22	%		12	%		20	%
Private equity and other		7	%		3	%		5	%

		100	%		100	%		100	%


							Balance at
(in Millions)(a)	Level 1		Level 2		Level 3		December 31, 2009
Asset Category:
Short-term investments (b)	$	—	$	42	$	—	$	42
Equity securities
U.S. Large Cap(c)		436		20		—		456
U.S. Small/Mid Cap(d)		101		2		—		103
Non U.S(e)		153		79		—		232
Fixed income securities(f)		31		397		—		428
Other types of investments
Hedge Funds and Similar Investments(g)		—		—		320		320
Private Equity and Other(h)		—		—		106		106

Total	$	721	$	540	$	426	$	1,687


	Hedge Funds
	and Similar			Private Equity
(in Millions)	Investments			and Other			Total
Beginning Balance at January 1, 2009	$	310		$	105		$	415
Total realized/unrealized gains (losses)		20			(7	)		13
Purchases, sales and settlements		(10	)		8			(2	)

Ending Balance at December 31, 2009	$	320		$	106		$	426


The amount of total gains (losses) for the period attributable to the change in unrealized gains or losses related to assets still held at the end of the period	$	23		$	(7	)	$	16


(in Millions)
Estimated amounts to be amortized from regulatory assets into net periodic benefit cost during next fiscal year
Net actuarial loss	$	49	$	27	$	38	$	49
Prior service cost	$	2	$	2		2		2
Net transition obligation	$	2	$	2		2		2


	HedgeFunds Similar		Private Equityand
(in Millions)	Investments		Other		Total
Beginning Balance at January 1, 2009	$	52	$	26	$	78
Total realized/unrealized gains (losses)		4		3		7
Purchases, sales and settlements		7		3		10

Ending Balance at December 31, 2009	$	63	$	32	$	95


The amount of total gains (losses) for the period attributable to the change in unrealized gains or losses related to assets still held at the end of the period	$	4	$	2	$	6


	December 31,				December 31,
(in Millions)	2008		2007		2009		2008
Assets
Accounts receivable	$	5	$	3	$	3	$	5
Notes receivable		41		—		82		41
Liabilities & Equity
Accounts payable		103		138		74		103
Short-term borrowings		—		277
Other liabilities
Accrued pension liability		978		374		987		978
Accrued postretirement liability		1,075		816		1,058		1,075
Dividends payable		—		76


	First		Second		Third		Fourth				First		Second		Third		Fourth
(in Millions)	Quarter		Quarter		Quarter		Quarter(1)		Year		Quarter		Quarter		Quarter(1)		Quarter		Year
2009
Operating Revenues											$	1,118	$	1,108	$	1,289	$	1,199	$	4,714
Operating Income												214		189		318		178		899
Net Income												78		79		149		70		376

2008
Operating Revenues	$	1,153	$	1,173	$	1,440	$	1,108	$	4,874		1,153		1,173		1,440		1,108		4,874
Operating Income		139		151		316		194		800		139		151		316		194		800
Net Income		41		51		159		80		331		41		51		159		80		331

2007
Operating Revenues		1,094		1,210		1,403		1,193		4,900
Operating Income		131		162		227		223		743
Net Income		40		60		107		110		317


(1)		InThe 2009 Third Quarter results were adjusted for the ~~fourth quarter~~effect of ~~2007,~~the January 2010 Detroit Edison ~~recorded~~MPSC rate order that required the refund of a portion of the self implemented rate increase effective on July 26, 2009. The adjustments ~~that increased operating income by $27~~resulted in a reduction of Operating Revenues of $11 million, ~~($18~~Operating Income of $11 million ~~after-tax) to correct prior amounts. These adjustments were primarily to record property, plant~~ and ~~equipment and deferred CTA costs for expenditures that had been expensed in earlier quarters~~Net Income of ~~2007, including $14 million ($9 million after-tax) expensed in the second quarter of 2007.~~$7 million.