Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________

FORM 10-Q

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

For the Quarterly Period ended September 30, 2011March 31, 2012

Commission file number 1-2198

The Detroit Edison Company meets the conditions set forth in General Instruction H (1) (a) and (b) of Form 10-Q and is, therefore, filing this Form with the reduced disclosure format.
THE DETROIT EDISON COMPANY
(Exact name of registrant as specified in its charter)

Michigan38-0478650
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
  
One Energy Plaza, Detroit, Michigan48226-1279
(Address of principal executive offices)(Zip Code)

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

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.

Yes þ No o

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No o
 
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.
Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ
Smaller reporting company o 
 (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).

Yes o No þ

All of the registrant's 138,632,324 outstanding shares of common stock are owned by DTE Energy Company.
 


Table of Contents

THE DETROIT EDISON COMPANY
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2011MARCH 31, 2012

TABLE OF CONTENTS

 Page
 
 
Item 1. Legal Proceedings
EX-4.276EX-12-43 
EX-4.277EX-31.73 
EX-4.278EX-31.74 
EX-31.69EX-32.73 
EX-31.70
EX-32.69
EX-32.70EX-32.74 
EX-101 INSTANCE DOCUMENT 
EX-101 SCHEMA DOCUMENT 
EX-101 CALCULATION LINKBASE DOCUMENT 
EX-101 LABELS LINKBASE DOCUMENT 
EX-101 PRESENTATION LINKBASE DOCUMENT 
EX-101 DEFINITION LINKBASE DOCUMENT 



Table of Contents

DEFINITIONS

ASCAccounting Standards Codification
ASUAccounting Standards Update
CIMA Choice Incentive Mechanism authorized by the MPSC that allows Detroit Edison to recover or refund non-fuel revenues lost or gained as a result of fluctuations in electric Customer Choice sales.
Customer ChoiceMichigan legislation giving customers the option to choose alternative suppliers for electricity.
Detroit EdisonThe Detroit Edison Company (a direct wholly owned subsidiary of DTE Energy) and subsidiary companies
DTE EnergyDTE Energy Company, directly or indirectly the parent of Detroit Edison, Michigan Consolidated Gas Company and numerous non-utility subsidiaries
EPAUnited States Environmental Protection Agency
FASBFinancial Accounting Standards Board
FERCFederal Energy Regulatory Commission
FTRsFinancial transmission rights are financial instruments that entitle the holder to receive payments related to costs incurred for congestion on the transmission grid.
MCITMichigan Corporate Income Tax
MDEQMichigan Department of Environmental Quality
MISOMidwest Independent System Operator is an Independent System Operator and the Regional Transmission Organization serving the Midwest United States and Manitoba, Canada.
MPSCMichigan Public Service Commission
NRCUnited States Nuclear Regulatory Commission
PSCRA Power Supply Cost Recovery mechanism authorized by the MPSC that allows Detroit Edison to recover through rates its fuel, fuel-related and purchased power costs.
RDMA Revenue Decoupling Mechanism authorized by the MPSC that is designed to minimize the impact on revenues of changes in average customer usage of electricity
SecuritizationDetroit Edison financed specific stranded costs at lower interest rates through the sale of rate reduction bonds by a wholly-owned special purpose entity, The Detroit Edison Securitization Funding LLC.
VIEVariable Interest Entity

Units of Measurement

kWhKilowatthour of electricity
MWMegawatt of electricity
MWhMegawatthour of electricity


1

Table of Contents

FORWARD-LOOKING STATEMENTS

Certain information presented herein includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations and business of Detroit Edison. Words such as "anticipate," "believe," "expect," "projected" and "goals" signify forward-looking statements. Forward-looking statements are not guarantees of future results and conditions, but rather are subject to numerous assumptions, risks and uncertainties that may cause actual future results to be materially different from those contemplated, projected, estimated or budgeted. Many factors may impact forward-looking statements including, but not limited to, the following:

impact of regulation by the FERC, MPSC, NRC and other applicable governmental proceedings and regulations, including any associated impact on rate structures;
the amount and timing of cost recovery allowed as a result of regulatory proceedings, related appeals or new legislation;
impact of electric utility restructuring in Michigan, including legislative amendments and Customer Choice programs;
economic conditions and population changes in our geographic area resulting in changes in demand, customer conservation, increased thefts of electricity and high levels of uncollectible accounts receivable;

environmental issues, laws, regulations, and the increasing costs of remediation and compliance, including actual and potential new federal and state requirements;
health, safety, financial, environmental and regulatory risks associated with ownership and operation of nuclear facilities;
changes in the economiccost and financial viabilityavailability of supplierscoal and trading counterparties,other raw materials and the continued ability of such parties to perform their obligations to the Detroit Edison;

purchased power;
access to capital markets 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;

the timing and extent of changes in interest rates;

the level of borrowings;

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

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

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

the potential for increased costs or delays in completion of significant construction projects;

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

environmental issues, laws, regulations, and the increasing costs of remediation and compliance, including actual and potential new federal and state requirements;

health, safety, financial, environmental and regulatory risks associated with ownership and operation of 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;

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 effects of weather and other natural phenomena on operations and sales to customers, and purchases from suppliers;
unplanned outages;
the cost of protecting assets against, or damage due to, terrorism or cyber attacks;

2

Tableemployee relations and the impact of Contents


collective bargaining agreements;
the availability, cost, coverage and terms of insurance and stability of insurance providers;

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

binding arbitration, litigation and related appeals; and

the risks discussed in our public filings with the Securities and Exchange Commission.

New factors emerge from time to time. We cannot predict what factors may arise or how such factors may cause our results to differ materially from those contained in any forward-looking statement. Any forward-looking statements refer only as of the date on which such statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.


32

Table of Contents

Part I — Item 1.



THE DETROIT EDISON COMPANY

CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONOPERATIONS (UNAUDITED)

(in Millions)September 30,
2011
 December 31,
2010
ASSETS   
Current Assets   
Cash and cash equivalents$20
 $30
Restricted cash, principally Securitization58
 104
Accounts receivable (less allowance for doubtful accounts of $85 and $93, respectively)   
Customer701
 690
Affiliates12
 8
Other45
 204
Inventories   
Fuel219
 224
Materials and supplies178
 170
Notes receivable   
Affiliates
 97
Other2
 
Regulatory assets201
 58
Prepaid property taxes91
 44
Other16
 7
 1,543
 1,636
    
Investments   
Nuclear decommissioning trust funds893
 939
Other113
 118
 1,006
 1,057
    
Property   
Property, plant and equipment16,643
 16,068
Less accumulated depreciation and amortization(6,632) (6,418)
 10,011
 9,650
    
Other Assets   
Regulatory assets3,237
 3,277
Securitized regulatory assets618
 729
Intangible assets35
 25
Notes receivable   
Affiliates


 6
Other

6
 
Other139
 142
 4,035
 4,179
    
Total Assets$16,595
 $16,522
 Three Months Ended
 March 31
(in Millions)2012 2011
Operating Revenues$1,198
 $1,192
    
Operating Expenses   
Fuel and purchased power377
 378
Operation and maintenance355
 329
Depreciation and amortization185
 202
Taxes other than income68
 59
Asset (gains) and losses, net
 19
 985
 987
    
Operating Income213
 205
    
Other (Income) and Deductions   
Interest expense69
 71
Other income(16) (10)
Other expenses6
 6
 59
 67
    
Income Before Income Taxes154
 138
    
Income Tax Expense57
 53
    
Net Income$97
 $85

See Notes to Consolidated Financial Statements (Unaudited)


43

Table of Contents

THE DETROIT EDISON COMPANY

CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONCOMPREHENSIVE INCOME (UNAUDITED)

(in Millions, Except Shares)September 30,
2011
 December 31,
2010
LIABILITIES AND SHAREHOLDER'S EQUITY   
Current Liabilities   
Accounts payable   
Affiliates$36
 $50
Other340
 349
Accrued interest75
 81
Current portion long-term debt, including capital leases179
 308
Regulatory liabilities20
 60
Short-term borrowing - affiliates33
 
Short-term borrowing - other49
 
Other250
 279
 982
 1,127
    
Long-Term Debt (net of current portion)   
Mortgage bonds, notes and other4,395
 4,046
Securitization bonds479
 643
Capital lease obligations7
 20
 4,881
 4,709
    
Other Liabilities   
Deferred income taxes2,586
 2,235
Regulatory liabilities467
 714
Asset retirement obligations1,413
 1,354
Unamortized investment tax credit60
 67
Nuclear decommissioning141
 149
Accrued pension liability - affiliates789
 960
Accrued postretirement liability - affiliates1,029
 1,060
Other119
 138
 6,604
 6,677
    
Commitments and Contingencies (Notes 6 and 9)

 

    
Shareholder's Equity   
Common stock, $10 par value, 400,000,000 shares authorized, and 138,632,324 shares issued and outstanding3,196
 3,196
Retained earnings947
 829
Accumulated other comprehensive income (loss)(15) (16)
 4,128
 4,009
    
Total Liabilities and Shareholder's Equity$16,595
 $16,522
 Three Months Ended March 31
(in Millions)2012 2011
Net income97
 $85
Other comprehensive income, net of tax:   
Benefit obligations, net of taxes1
 1
Comprehensive income$98
 $86

See Notes to Consolidated Financial Statements (Unaudited)



4

Table of Contents

THE DETROIT EDISON COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 Three Months Ended
 March 31
(in Millions)2012 2011
Operating Activities   
Net income$97
 $85
Adjustments to reconcile net income to net cash from operating activities:   
Depreciation and amortization185
 202
Deferred income taxes23
 19
Asset (gains) and losses, net
 19
Changes in assets and liabilities, exclusive of changes shown separately (Note 10)48
 (225)
Net cash from operating activities353
 100
    
Investing Activities   
Plant and equipment expenditures(284) (219)
Restricted cash for debt redemptions, principally Securitization60
 49
Proceeds from sale of nuclear decommissioning trust fund assets11
 20
Investment in nuclear decommissioning trust funds(15) (28)
Notes receivable — affiliates26
 103
Other investments(13) (4)
Net cash used for investing activities(215) (79)
    
Financing Activities   
Redemption of long-term debt(84) (89)
Short-term borrowings — affiliates6
 131
Short-term borrowings — other22
 
Dividends on common stock(76) (76)
Other(3) (2)
Net cash used for financing activities(135) (36)
    
Net Increase (Decrease) in Cash and Cash Equivalents3
 (15)
Cash and Cash Equivalents at Beginning of Period13
 30
Cash and Cash Equivalents at End of Period$16
 $15

See Notes to Consolidated Financial Statements (Unaudited)

5

Table of Contents

THE DETROIT EDISON COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONSFINANCIAL POSITION (UNAUDITED)

 Three Months Ended Nine Months Ended
 September 30 September 30
(in Millions)2011 2010 2011 2010
Operating Revenues$1,517
 $1,444
 $3,949
 $3,798
        
Operating Expenses       
Fuel and purchased power553
 484
 1,348
 1,217
Operation and maintenance352
 325
 1,012
 960
Depreciation and amortization215
 230
 619
 644
Taxes other than income63
 54
 182
 180
Asset (gains) and losses, net(1) 
 13
 (1)
 1,182
 1,093
 3,174
 3,000
        
Operating Income335
 351
 775
 798
        
Other (Income) and Deductions       
Interest expense74
 83
 218
 241
Interest income
 (1) 
 (1)
Other income(9) (10) (30) (27)
Other expenses14
 6
 26
 23
 79
 78
 214
 236
        
Income Before Income Taxes256
 273
 561
 562
        
Income Tax Expense98
 108
 214
 219
        
Net Income$158
 $165
 $347
 $343
(in Millions)March 31,
2012
 December 31,
2011
ASSETS   
Current Assets   
Cash and cash equivalents$16
 $13
Restricted cash, principally Securitization68
 127
Accounts receivable (less allowance for doubtful accounts of $79 and $80, respectively)   
Customer676
 709
Affiliates39
 61
Other63
 76
Inventories   
Fuel262
 264
Materials and supplies184
 183
Notes receivable   
Affiliates
 26
Other2
 2
Regulatory assets204
 272
Other93
 63
 1,607
 1,796
    
Investments   
Nuclear decommissioning trust funds1,004
 937
Other125
 121
 1,129
 1,058
    
Property   
Property, plant and equipment16,983
 16,788
Less accumulated depreciation and amortization(6,587) (6,526)
 10,396
 10,262
    
Other Assets   
Regulatory assets3,512
 3,618
Securitized regulatory assets536
 577
Intangible assets34
 36
Notes receivable4
 4
Other136
 142
 4,222
 4,377
    
Total Assets$17,354
 $17,493

See Notes to Consolidated Financial Statements (Unaudited)


6

Table of Contents

THE DETROIT EDISON COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWSFINANCIAL POSITION (UNAUDITED) — (Continued)

 Nine Months Ended
 September 30
(in Millions)2011 2010
Operating Activities   
Net income$347
 $343
Adjustments to reconcile net income to net cash from operating activities:   
Depreciation and amortization619
 644
Deferred income taxes119
 78
Asset (gains) and losses, net13
 (1)
Changes in assets and liabilities, exclusive of changes shown separately (Note 11)(268) (87)
Net cash from operating activities830
 977
    
Investing Activities   
Plant and equipment expenditures(842) (641)
Restricted cash for debt redemptions, principally Securitization47
 36
Proceeds from sale of nuclear decommissioning trust fund assets69
 179
Investment in nuclear decommissioning trust funds(97) (204)
Notes receivable - affiliates103
 (30)
Other investments(24) (34)
Net cash used for investing activities(744) (694)
    
Financing Activities   
Short-term borrowings - affiliates33
 
Short-term borrowings - other50
 
Issuance of long-term debt610
 595
Redemption of long-term debt(554) (652)
Dividends on common stock(229) (228)
Other(6) (10)
Net cash used for financing activities(96) (295)
    
Net Decrease in Cash and Cash Equivalents(10) (12)
Cash and Cash Equivalents at Beginning of Period30
 34
Cash and Cash Equivalents at End of Period$20
 $22
(in Millions, Except Shares)March 31,
2012
 December 31,
2011
LIABILITIES AND SHAREHOLDER'S EQUITY   
Current Liabilities   
Accounts payable   
Affiliates$51
 $67
Other403
 421
Accrued interest76
 69
Current portion long-term debt, including capital leases475
 470
Regulatory liabilities36
 27
Short-term borrowings — affiliates70
 64
Short-term borrowings — other22
 
Other233
 283
 1,366
 1,401
    
Long-Term Debt (net of current portion)   
Mortgage bonds, notes and other4,105
 4,105
Securitization bonds391
 479
Capital lease obligations7
 9
 4,503
 4,593
    
Other Liabilities   
Deferred income taxes2,735
 2,701
Regulatory liabilities441
 454
Asset retirement obligations1,463
 1,440
Unamortized investment tax credit55
 57
Nuclear decommissioning156
 148
Accrued pension liability — affiliates1,244
 1,231
Accrued postretirement liability - affiliates1,123
 1,217
Other110
 115
 7,327
 7,363
    
Commitments and Contingencies (Notes 6 and 8)

 

    
Shareholder's Equity   
Common stock, $10 par value, 400,000,000 shares authorized, and 138,632,324 shares issued and outstanding3,196
 3,196
Retained earnings981
 960
Accumulated other comprehensive income (loss)(19) (20)
 4,158
 4,136
    
Total Liabilities and Shareholder's Equity$17,354
 $17,493

See Notes to Consolidated Financial Statements (Unaudited)

7

Table of Contents

THE DETROIT EDISON COMPANY

CONSOLIDATED STATEMENTSSTATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY AND COMPREHENSIVE INCOME (UNAUDITED)

 Common Stock 
Additional
Paid In Capital
 Retained Earnings 
Accumulated
Other
Comprehensive
Loss
 Total
(Dollars in Millions, shares in thousands)Shares Amount 
Balance, December 31, 2010138,632
 $1,386
 $1,810
 $829
 $(16) $4,009
Net income      347
   347
Dividends declared on common stock      (229)   (229)
Benefit obligations, net of tax        1
 1
Balance, September 30, 2011138,632
 $1,386
 $1,810
 $947
 $(15) $4,128

The following table displays comprehensive income for the nine-month periods ended September 30:

(in Millions)2011 2010
Net income347
 $343
Other comprehensive income, net of tax:   
Benefit obligations, net of taxes1
 1
Comprehensive income$348
 $344
  Common Stock 
Additional
Paid In Capital
 Retained Earnings 
Accumulated
Other
Comprehensive
Loss
 Total
(Dollars in Millions, shares in thousands) Shares Amount 
Balance December 31, 2011 138,632
 $1,386
 $1,810
 $960
 $(20) $4,136
Net income       97
   97
Dividends declared on common stock       (76)   (76)
Benefit obligations, net of tax         1
 1
Balance March 31, 2012 138,632
 $1,386
 $1,810
 $981
 $(19) $4,158

See Notes to Consolidated Financial Statements (Unaudited)


8

Table of Contents

THE DETROIT EDISON COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 — BASIS OF PRESENTATION

Corporate Structure

Detroit Edison is an electric utility engaged in the generation, purchase, distribution and sale of electricity to approximately 2.1 million customers in southeastern Michigan. Detroit Edison is regulated by the MPSC and the FERC. In addition, the Company is regulated by other federal and state regulatory agencies including the NRC, the EPA and the MDEQ.

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

Basis of Presentation

These Consolidated Financial Statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the 20102011 Annual Report on Form 10-K.

The accompanying Consolidated Financial Statements are prepared using accounting principles generally accepted in the United States of America. These accounting principles require management 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 the Company's estimates.

The Consolidated Financial Statements are unaudited, but in the Company's opinion include all adjustments necessary to a fair statement of the results for the interim periods. All adjustments are of a normal recurring nature, except as otherwise disclosed in these Consolidated Financial Statements and Notes to Consolidated Financial Statements. Financial results for this interim period are not necessarily indicative of results that may be expected for any other interim period or for the fiscal year ending December 31, 2011.

Certain prior year balances were reclassified to match the current year's financial statement presentation.2012.

Principles of Consolidation

The Company consolidates all majority owned subsidiaries and investments in entities in which it has controlling influence. Non-majority owned investments are accounted for using the equity method when the 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 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. The Company eliminates all intercompany balances and transactions.

The Company evaluates whether an entity is a VIE whenever reconsideration events occur. The Company consolidates VIEs for which it is the primary beneficiary. If the Company is not the primary beneficiary and an ownership interest is held, the VIE is accounted for under the equity method of accounting. When assessing the determination of the primary beneficiary, the Company considers all relevant facts and circumstances, including: the power, through voting or similar rights, to direct the activities of the VIE that most significantly impact the VIE's economic performance and the obligation to absorb the expected losses and/or the right to receive the expected returns of the VIE. The Company evaluates whether an entity is a VIE whenever reconsideration events occur. The Company performs ongoing reassessments of all VIEs to determine if the primary beneficiary status has changed.

The Company has variable interests in VIEs through certain of its long-term purchase contracts. As of September 30, 2011,March 31, 2012, the carrying amount of assets and liabilities in the Consolidated Statement of Financial Position that relate to its variable interests under long-term purchase contracts are predominately related to working capital accounts and generally represent the amounts owed by the Company for the deliveries associated with the current billing cycle under the contracts. The Company has not provided any form of financial support associated with these long-term contracts. There is no significant potential exposure to loss as a result of its variable interests through these long-term purchase contracts.

In 2001, Detroit Edison financed a regulatory asset related to Fermi 2 and certain other regulatory assets through the sale of rate reduction bonds by a wholly-owned special purpose entity, Securitization. Detroit Edison performs servicing activities including billing and collecting surcharge revenue for Securitization. This entity is a VIE, and is consolidated as the Company is the primary beneficiary. The maximum risk exposure related to Securitization is reflected on the Company's Consolidated Statements of Financial Position.


9

Table of Contents

Statements of Financial Position.

The following table summarizes the major balance sheet items at September 30, 2011March 31, 2012 and December 31, 20102011 restricted for Securitization that are either (1) assets that can be used only to settle its obligations or (2) liabilities for which creditors do not have recourse to the general credit of the primary beneficiary.

(in Millions)
September 30,
2011
 
December 31,
2010
March 31,
2012
 December 31,
2011
ASSETS      
Restricted cash$58
 $104
$46
 $107
Accounts receivable38
 42
34
 34
Securitized regulatory assets618
 729
536
 577
Other assets10
 13
9
 10
$724
 $888
$625
 $728
LIABILITIES      
Accounts payable and accrued current liabilities$4
 $17
$3
 $14
Current portion long-term debt, including capital leases164
 150
168
 164
Other current liabilities62
 62
48
 55
Securitization bonds479
 643
391
 479
Other long term liabilities6
 6
Other long-term liabilities7
 7
$715
 $878
$617
 $719

As of September 30, 2011March 31, 2012 and December 31, 2010,2011, Detroit Edison had $5 million and $6$4 million in Notes receivable, respectively, related to non-consolidated VIEs.

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES

Income Taxes

The Company had $4 million and $3 million of unrecognized tax benefits at September 30, 2011March 31, 2012 and December 31, 2010, respectively,2011, that, if recognized, would favorably impact its effective tax rate. The Company has increased its unrecognized tax benefit by $70 million in the nine months ended September 30, 2011, as a result of a change in a tax position taken during a prior period. During the next twelve months, it is reasonably possible that DTE Energy and its subsidiariesthe Company will settle certain federal tax audits. As a result, the Company believes that it is possible that there will be a decrease in unrecognized tax benefits of up to $85$53 million.

Michigan Corporate Income Tax (MCIT)

On May 25, 2011, the Michigan Business Tax (MBT) was repealed and the MCIT was enacted and will become effective January 1, 2012. The MCIT subjects corporations with business activity in Michigan to a 6 percent tax rate onCompany had an apportioned income tax basereceivable of $15 million at March 31, 2012 and eliminates the modified gross receipts tax and nearly all credits available under the MBT. The MCIT also eliminated the future deductions allowed under MBT that enabled companies to establish a one-time deferred tax asset upon enactment of the MBT to offset deferred tax liabilities that resulted$48 million at December 31, 2011 due from enactment of the MBT.DTE Energy.

Effective with the enactment of the MCIT in the second quarter of 2011, the net state deferred tax liability was remeasured to reflect the impact of the MCIT tax rate on cumulative temporary differences expected to reverse after the effective date. The net impact of this remeasurement was a decrease in deferred income tax liabilities of $35 million that was offset against the regulatory asset established upon the enactment of the MBT.

Due to the elimination of the future tax deductions allowed under the MBT, the one-time MBT deferred tax asset that was established upon the enactment of the MBT has been remeasured to zero. The net impact of this remeasurement is a reduction of net deferred tax assets of $342 million which was offset against the regulatory liability established upon enactment of the MBT.

Consistent with the original establishment of this deferred tax liability, no recognition of this non-cash transaction has been reflected in the Consolidated Statements of Cash Flows.

10

Table of Contents


Stock-Based Compensation

The Company received an allocation of costs from DTE Energy associated with stock-based compensation of $6 million and $5$9 million for the three months ended September 30, 2011March 31, 2012 and September 30, 2010, respectively, while such allocation was $20 million and $17 million for the nine months ended September 30, 2011 and 2010, respectively.March 31, 2011.

NOTE 3 — FAIR VALUE

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities. These inputs can be readily observable, market corroborated or generally unobservable inputs. The Company makes certain assumptions it believes that market participants would use in pricing assets or liabilities, including assumptions about risk, and the risks inherent in the inputs to valuation techniques. Credit risk of the Company and its counterparties is incorporated in the valuation of assets and liabilities through the use of credit reserves, the impact of which was immaterial at September 30, 2011March 31, 2012 and December 31, 2010.

2011. The Company believes it uses valuation techniques that maximize the use of observable market-based inputs and minimize the use of unobservable inputs.

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

10

Table of Contents

follows:

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

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

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

The following table presents assets and liabilities measured and recorded at fair value on a recurring basis as of September 30, 2011:March 31, 2012:


11

Table of Contents

(in Millions)Level 1 Level 2 Level 3 
Net Balance at
September 30, 2011
Level 1 Level 2 Level 3 Net Balance at March 31, 2012
Assets:              
Cash equivalents$
 $62
 $
 $62
Nuclear decommissioning trusts$532
 $361
 $
 $893
629
 375
 
 1,004
Other investments45
 56
 
 101
60
 41
 
 101
Derivative assets - FTRs
 
 3
 3
Total$577
 $417
 $3
 $997
Liabilities:       
Derivative liabilities - Emissions
 (1) 
 (1)
Total$
 (1) $
 $(1)$689
 $478
 $
 $1,167
              
Net Assets at September 30, 2011$577
 416
 $3
 $996
Net Assets at March 31, 2012$689
 478
 $
 $1,167

(in Millions)Level 1 Level 2 Level 3 
 
Net Balance at
September 30, 2011
Level 1 Level 2 Level 3 Net Balance at March 31, 2012
Assets:              
Current$
 $
 $3
 $3

 47
 
 47
Noncurrent577
 417
 
 994
689
 431
 
 1,120
Total Assets$577
 $417
 $3
 $997
$689
 $478
 $
 $1,167
Liabilities:       
Current$
 $(1) $
 $(1)
Noncurrent
 
 
 
Total Liabilities$
 $(1) $
 $(1)
              
Net Assets at September 30, 2011$577
 $416
 $3
 $996
Net Assets at March 31, 2012$689
 $478
 $
 $1,167

The following table presents assets and liabilities measured and recorded at fair value on a recurring basis as of December 31, 2010:2011:
(in Millions)Level 1 Level 2 Level 3 
Net Balance at
December 31, 2011
Assets:       
Nuclear decommissioning trusts$577
 $360
 
 $937
Other investments55
 54
 
 109
Derivative assets — FTRs
 
 1
 1
Total$632
 $414
 $1
 $1,047

(in Millions)Level 1 Level 2 Level 3 
Net Balance at
December 31, 2010
Assets:       
Nuclear decommissioning trusts$599
 $340
 
 $939
Other investments52
 55
 
 107
Derivative assets - FTRs
 
 2
 2
Total$651
 $395
 $2
 $1,048
Liabilities:       
Derivative liabilities - Emissions
 (3) 
 (3)
Total
 $(3) 
 $(3)
        
Net Assets at December 31, 2010$651
 $392
 $2
 $1,045
(in Millions)Level 1 Level 2 Level 3 
Net Balance at
December 31, 2011
Assets:       
Current
 
 $1
 $1
Noncurrent632
 414
 
 1,046
Total Assets$632
 $414
 $1
 $1,047





1211

Table of Contents

(in Millions)Level 1 Level 2 Level 3 
Net Balance at
December 31, 2010
Assets:       
Current
 
 $2
 $2
Noncurrent651
 395
 
 1,046
Total Assets$651
 $395
 $2
 $1,048
Liabilities:       
Current
 $(3) 
 $(3)
Noncurrent
 
 
 
Total Liabilities
 $(3) 
 $(3)
        
Net Assets at December 31, 2010$651
 $392
 $2
 $1,045

13

Table of Contents


The following table presents the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for the three and nine months ended September 30, 2011March 31, 2012 and 2010:

2011:
Three Months Ended Nine Months EndedThree Months Ended
September 30 September 30March 31
(in Millions)2011 2010 2011 20102012 2011
Asset balance as of beginning of the period$3
 $3
 $2
 $2
$1
 $2
Changes in fair value recorded in regulatory assets/liabilities
 
 3
 4
1
 (1)
Purchases, issuances and settlements:          
Settlements
 (1) (2) (4)(2) $
Asset balance as of September 30$3
 $2
 $3
 $2
The amount of total gains (losses) included in regulatory assets and liabilities attributed to the change in unrealized gains (losses) related to assets and liabilities held at September 30, 2011 and 2010$
 $
 $3
 $2
Asset balance as of March 31$
 $1

Transfers in and transfers 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 became 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 and transfers out of Level 3 are reflected as if they had occurred at the beginning of the period. No transfers between Levels 1, 2 or 3 occurred in the three and nine months ended September 30, 2011March 31, 2012 and September 30, 2010.March 31, 2011.

Nuclear Decommissioning Trusts and Other Investments

The nuclear decommissioning trusts and other 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 in 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. 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 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 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. The Company's Risk Management group maintains the Company's valuation policies and procedures for, and verifies pricing and fair value of, commodity derivatives. The Risk Management group reports to the Company's Vice President and Treasurer.

Fair Value of Financial Instruments

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

1412

Table of Contents

which reports to the Company's Vice President and Treasurer. The table below shows the fair value and the carrying value for long-term debt securities. CertainThe carrying value of other financial instruments, such as notes payable, customer depositsreceivable and notes receivable are not shown as carrying valueshort-term borrowings approximates fair value. See Note 4 for further fair value information on financial and derivative instruments.

 September 30, 2011March 31, 2012 December 31, 20102011
 Fair Value Carrying Value Fair Value Carrying Value
Long-Term DebtLong-term debt$5.85.6 billion$5.0 billion$5.7 billion $5.1 billion$5.3 billion$5.0 billion

The following table presents fair value of financial instruments as of March 31, 2012:
       Total at
 Level 1 Level 2 Level 3 March 31, 2012
(in Millions) 
Notes receivable, excluding capital leases$
 $
 $6
 $6
Short-term borrowings — affiliates
 
 70
 70
Short-term borrowings — other
 22
 
 22
Long-term debt
 5,500
 50
 5,550

See Note 4 for further fair value information on financial derivative instruments.

Nuclear Decommissioning Trust Funds

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. See Note 5.

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.See Note 5.

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

(in Millions)
September 30
2011
 
December 31
2010
March 31
2012
 
December 31
2011
Fermi 2$858
 $910
$981
 $915
Fermi 13
 3
3
 3
Low level radioactive waste32
 26
20
 19
Total$893
 $939
$1,004
 $937

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

Three Months Ended Nine Months EndedThree Months Ended
September 30 September 30March 31
(in Millions)2011 2010 2011 20102012 2011
Realized gains$8
 $8
 $34
 $29
$6
 $14
Realized losses(9) (6) (26) (25)(4) (8)
Proceeds from sales of securities10
 51
 69
 179
11
 20

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


1513

Table of Contents

(in Millions)
Fair
Value
 
Unrealized
Gains
Fair
Value
 
Unrealized
Gains
As of September 30, 2011   
As of March 31, 2012   
Equity securities$485
 $52
$594
 $116
Debt securities395
 22
389
 22
Cash and cash equivalents13
 
21
 
893
 74
1,004
 138

(in Millions)
Fair
Value
 
Unrealized
Gains
Fair
Value
 
Unrealized
Gains
As of December 31, 2010   
As of December 31, 2011   
Equity securities$572
 $77
$533
 $80
Debt securities361
 11
385
 22
Cash and cash equivalents6
 
19
 
$939
 $88
$937
 $102

The debt securities at September 30, 2011March 31, 2012 and December 31, 20102011 had an average maturity of approximately 7 and 6 years, respectively.years. 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.

Unrealized losses incurred by the Fermi 2 trust are recognized as a Regulatory asset. Detroit Edison recognized $87$47 million and $26$67 million of unrealized losses as Regulatory assets at September 30, 2011March 31, 2012 and December 31, 2010,2011, 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, unrealized losses incurred by the Fermi 1 trust are recognized in earnings immediately. There were no unrealized losses recognized for the three and nine months ended September 30,March 31, 2012 and March 31, 2011 and September 30, 2010 for Fermi 1 trust assets.

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:

September 30, 2011 December 31, 2010March 31, 2012 December 31, 2011
(in Millions)Fair Value Carrying Value Fair Value Carrying ValueFair Value Carrying Value Fair Value Carrying Value
Cash equivalents(1)$76
 $76
 $125
 $125
$62
 $62
 $129
 $129
Equity securities(2)4
 4
 4
 4
5
 5
 4
 4

(1) Cash equivalents at March 31, 2012 of $47 million and $15 million are included in Restricted cash and Other investments
on the Consolidated Statements of Financial Position, respectively. Cash equivalents at December 31, 2011 of $113 million and $16 million are included in Restricted cash and Other investments on the Consolidated Statements of Financial Position, respectively.

(2) Equity securities at March 31, 2012 and December 31, 2011 of $5 million and $4 million are included in Other investments on the Consolidated Statements of Financial Position, respectively.

As of September 30, 2011,March 31, 2012, these securities were comprised primarily of money-market funds and equity securities. Gains (losses) related to trading securities held at September 30,March 31, 2012 and March 31, 2011 and September 30, 2010 were $(3)$7 million and $3 million, respectively.

NOTE 4 — FINANCIAL AND OTHER DERIVATIVE INSTRUMENTS

The Company recognizes all derivatives at their fair value on the Consolidated Statements of Financial Position 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

14

Table of Contents

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.


16

Table of Contents

Detroit Edison'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. 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.


15

Table of Contents

The following represents the fair value of derivative instruments as of September 30, 2011March 31, 2012 and December 31, 2010:

2011:
(in Millions)
September 30
2011
 
December 31
2010
March 31
2012
 
December 31
2011
FTRs - Other current assets$3
 $2
Emissions - Other current liabilities(1) (3)
FTRs — Other current assets$
 $1
Total derivatives not designated as hedging instruments$2
 $(1)$
 $1

The effectseffect of derivative instruments recoverable through the PSCR mechanism when realized on the Consolidated Statements of Financial Position were $3was a $1 million gain in gains related to FTRs recognized in Regulatory liabilities for the ninethree months ended September 30, 2011.March 31, 2012. There was no material effect for the three months ended September 30,March 31, 2011.

The following represents the cumulative gross volume of derivative contracts outstanding as of September 30, 2011:

March 31, 2012:
Commodity Number of Units
FTRs (MW) 58,94219,785

NOTE 5 — ASSET RETIREMENT OBLIGATIONS

A reconciliation of the asset retirement obligations for the ninethree months ended September 30, 2011March 31, 2012 follows:

(in Millions) 
Asset retirement obligations at December 31, 2010$1,366
Accretion63
Revision in estimated cash flows(1)
Liabilities incurred3
Liabilities settled(8)
Asset retirement obligations at September 30, 20111,423
Less amount included in current liabilities(10)
 $1,413
(in Millions) 
Asset retirement obligations at December 31, 2011$1,442
Accretion22
Liabilities settled(1)
Asset retirement obligations at March 31, 20121,463

In 2001, Detroit Edison began the final decommissioning of Fermi 1, with the goal of removing the remaining radioactive material and terminating the Fermi 1 license. In the first quarter of 2011, based on management decisions revising the timing and estimate of cash flows, Detroit Edison accrued an additional $19 million with respect to the decommissioning of Fermi 1. Management intends to suspend decommissioning activities and place the facility in safe storage status. The expense amount has been recorded in Asset (gains) and losses, net on the Consolidated Statements of Operations. In the second quarter of 2011, based on updated studies revising the timing and estimate of cash flows, a reduction of approximately $20 million was made to the Detroit Edison asset retirement obligation for asbestos removal with approximately $6 million of the decrease associated with Fermi 1 recorded in Asset (gains) and losses, net on the Consolidated Statements of Operations.


17

Table of Contents

NOTE 6 — REGULATORY MATTERS
2010
2009 Electric Rate Case Filing - Court of Appeals Decision

On October 20, 2011, the MPSC issued an order in Detroit Edison's October 29, 2010 rate case filing. The MPSC approved an annual revenue increase of $175 million. Included in the approved increase in revenues was a return on equity of 10.5% on an expected permanent capital structure of 49.2% equity and 50.8% debt.

Detroit Edison self-implemented a rate increase of $107 million on April 28, 2011. The MPSC stated the net revenue collected due to self-implementation be credited to the 2011 Choice Incentive Mechanism (CIM) regulatory asset. Self-implementation revenue of approximately $31 million was credited to the CIM Regulatory Asset as of September 30, 2011. The MPSC required that within ninety days, Detroit Edison file a report regarding the amount of revenue collected through application of its self-implemented rate increase and a proposed reconciliation with the final rates and rate design approved in the order. In addition, a 2011 CIM reconciliation is expected to be filed in early 2012.
Other key aspects of the MPSC order include the following:
adopt a new Revenue Decoupling Mechanism (RDM) effective April 1,10, 2012, that will compare actual revenue (excluding the impacts of weather) by rate class with the base established in this rate case. The RDM has an annual collar of 1.5% in the first year and 3% in the second and subsequent years. The RDM established in the previous rate case, which considered the impact of weather, will be terminated effective October 31, 2011. Therefore, there will be no RDM in place from October 31, 2011 through April 1, 2012;
recognition of the expiration of a wholesale contract. Since the expiration of the wholesale contract is not until December 31, 2011, the MPSC is requiring Detroit Edison to calculate a customer credit for each kWh sold under the wholesale contract from October 29, 2011 through December 31, 2011, with the credit to be applied in its next PSCR reconciliation;
the Restoration Reconciliation Mechanism, Line Clearance Recovery Mechanism, Uncollectible Expense Tracking Mechanism and CIM are terminated as of the date of the order;
due to uncertainty resulting from the Michigan Court of Appeals overturning collectionissued a decision relating to an appeal of the January 2010 MPSC order in Detroit Edison's January 2009 rate case filing. The order by the Court of Appeals is subject to further appellate review.

The Court determined that the MPSC only had statutory authority to implement a Revenue Decoupling Mechanism (RDM) for gas providers, but not for electric providers, thereby reversing the MPSC's decision to authorize an RDM for Detroit Edison. As discussed below, Detroit Edison has accrued RDM refund liabilities of $56 million and $71 million for the 2010 and 2011 RDM reconciliation periods, respectively. If the Court of Appeals decision is not disturbed by further appellate review, then Detroit Edison's RDM liabilities will be reversed. Detroit Edison continues to retain the RDM liabilities until it is able to make a determination that the estimation of the liability should be revised.

The Court also reversed the MPSC's order to approve the funding of the Low Income Energy Efficiency Fund (LIEEF), through customer rates consistent with the Court's July 2011 decision in an appeal of Michigan Consolidated Gas Company's (MichCon) June 2010 rate order. Please refer to discussion of LIEEF below.

The Court found that the record of evidence in the January 2010 rate order was insufficient to support recovery of costs for the pilot advanced metering infrastructure (AMI) program and remanded this matter to the MPSC requiredfor further evidentiary hearing. The MPSC had approved $37 million of rate base related to the continued collectionAMI program in the January 2010 order. Detroit Edison is currently operating its AMI program pursuant to the MPSC's approval set forth in its October 20, 2011 order, which was not reviewed by or subject to the Court of LIEEF amounts in base ratesAppeal's April 10, 2012 decision. Detroit Edison will provide the necessary data and placement into escrow pending further orders byevidence to the MPSC;
approval ofMPSC supporting the AMI program expenditures at the remand hearing. Detroit Edison's proposal to reduceAMI program expenditures are $83 million as of March 31, 2012, net of Department of Energy matching grant funds of $53 million.

The Court affirmed the Nuclear Decommissioning Surcharge by approximately $20 million annually;use of tracking mechanisms (restoration, line clearance, uncollectibles expense and
implementation of lower depreciation rates previously choice incentive) and the peak demand computations approved in a June 2011 MPSCthe January 2010 order.

Detroit Edison Uncollectible Expense True-Up Mechanism (UETM)
In March 2011, Detroit Edison filed an application with the MPSC for approval of its UETM for 2010 requesting authority to refund approximately $7 million consisting of costs related to 2010 uncollectible expense. In August 2011, the MPSC approved a settlement agreement for the 2010 UETM authorizing a refund of approximately $7 million to be applied as credits to customer bills beginning September 1, 2011.
Detroit Edison Restoration Expense Tracker Mechanism (RETM) and Line ClearanceTracker (LCT) ReconciliationRDM

In March 2011, Detroit Edison filed an application with the MPSC for approval of the reconciliation of its 2010 RETM and LCT. The Company's 2010 restoration expenses were higher than the amount provided in rates. Accordingly, Detroit Edison requested recovery of $19.5 million. In October 2011, the MPSC approved a settlement agreement reconciling the RETM and approving the LCT report. The MPSC authorized surcharges to recover $19.5 million over a three-month period beginning November 1, 2011.

Detroit Edison Revenue Decoupling Mechanism (RDM)
In May 2011, Detroit Edison filed an application with the MPSC for approval of its initial pilot RDM reconciliation for the period February 2010 through January 2011, requesting authority to refund to customers approximately $56 million, plus interest. This is the initial

1816

Table of Contents

reconciliation filing under the pilot RDM. In addition to the refund liability for the initial reconciliation filing,This amount was accrued by Detroit Edison has accrued an RDM refund for the February 2011 through September 2011 period of approximately $71 million, plus interest.at December 31, 2011. There are various interpretations and alternative calculation methodologies relating to the pilot RDM refund calculation that could ultimately be adopted by the MPSC which may result in a range of customer refund amounts from $56 million to $140 million for this initial reconciliation filing under the pilot RDM.
Detroit Edison accrued a pilot RDM liability for February 2011 through October 2011 of approximately $71 million, plus interest at December 31, 2011. Detroit Edison terminated the pilot RDM effective October 2011, and has requested a rehearing on this issue asserting that for reconciliation purposes, the pilot RDM should have been considered terminated in April 2011, when Detroit Edison self-implemented rates, consistent with prior MPSC orders. An April 2011 termination would result in a decrease to the liability. However, there can be no assurance that Detroit Edison will prevail in this matter. Similar to the initial reconciliation case, there are various interpretations and alternative calculation methodologies that could be adopted which may result in significant adjustmentsa range of refund obligations in excess of the amounts accruedamount accrued. Considering these variables, the potential customer refund amount could range from $10 million to $130 million for the second and final pilot RDM period.
The primary uncertainties involved in the calculation methodologies of the pilot RDM for both reconciliation periods include customer class groupings and treatment of fixed customer charges. The Company believes that the calculation methodology used and the resulting refund estimates recorded follow the requirements and intent of the MPSC orders and represent the most probable amount of Detroit Edison's pilot RDM refund liability as of March 31, 2012.

In light of the Court of Appeals decision, actions related to the RDM reconciliation periods have been suspended pending further appellate review. As noted above, Detroit Edison's RDM liabilities will be retained until Detroit Edison is able to make a determination that the estimation of the liability should be revised.

Energy Optimization (EO) Plans

In September 30, 2011. An2011, Detroit Edison filed its biennial EO Plan with the MPSC as required. Detroit Edison's EO Plan application proposed the recovery of EO expenditures for the period 2012-2015 of $294 million and further requested approval of surcharges to recover these costs. On April 17, 2012, the MPSC approved the EO plans proposed by Detroit Edison subject to Detroit Edison's agreement to certain modifications. Detroit Edison is currently reviewing the proposed modifications. If the MPSC proposed modifications are not accepted by Detroit Edison, the amended 2010 EO plan will remain in effect.

Detroit Edison Uncollectible Expense True-Up Mechanism (UETM)

In February 2012, Detroit Edison filed an application with the MPSC for approval of its UETM for 2011 requesting authority to refund approximately $9 million consisting of costs related to 2011 uncollectible expense.

Renewable Energy Plan (REP)

In August 2010, Detroit Edison filed its reconciliation for the 2009 plan year indicating that the 2009 actual renewable plan revenues and costs approximated the related surcharge revenues and cost of the filed plan. In March 2012, the MPSC issued an order onapproving the initial filing is expected in2009 REP cost reconciliation with the first halfexception of 2012.approximately $3 million of capital expenditures that were deferred to a future rate case.

Power Supply Cost Recovery (PSCR) Proceedings

The PSCR process is designed to allow Detroit Edison to recover all of its power supply costs if incurred under reasonable and prudent policies and practices. Detroit Edison's power supply costs include fuel and related transportation costs, purchased and net interchange power costs, nitrogen oxide and sulfur dioxide emission allowances costs, urea costs, transmission costs and MISO costs. The MPSC reviews these costs, policies and practices for prudence in annual plan and reconciliation filings. The following table summarizes Detroit Edison's PSCR reconciliation filing currently pending with the MPSC:

PSCR YearDate Filed
Net Under-Recovery,
Including Interest
PSCR Cost of
Power Sold
2010March 2011$52.6 million$1.2 billion

20102011 PSCR Year - The— In March 2012, Detroit Edison filed the 2011 PSCR reconciliation calculating a net under-recovery of $148 million that includes an under-recovery of $52.6 million includes an over-recovery of $15.6 million for the 20092010 PSCR year. In addition, the 20102011 PSCR reconciliation includes an under-recovery of $7.1 million for the reconciliation of the 2007-2008 Pension Equalization Mechanism, and an over-refund of $3.8 million for the 2011 refund of the self-implementedself-implementation rate increase related to the 2009 electric rate case filing.filing and a credit of $10.5 million related to the expiration of a wholesale power sales contract.

2011 Plan Year - In September 2010, Detroit Edison filed its 2011 PSCR plan case seeking approval of a levelized PSCR factor of 2.98 mills/kWh below the amount included in base rates for all PSCR customers. The filing supports a total power supply expense forecast of $1.2 billion. The plan also includes approximately $36 million for the recovery of its projected 2010 PSCR under-recovery.
2012 Plan Year - In September 2011, Detroit Edison filed its 2012 PSCR plan case seeking approval of a levelized PSCR factor of 4.18 mills/kWh above the amount included in base rates for all PSCR customers. The filing supports a total power supply expense forecast of $1.4 billion. The plan also includes approximately $158 million for the recovery of its projected 2011 PSCR under-recovery.
Energy Optimization (EO) Plans
In September 2011, Detroit Edison filed a biennial EO Plan with the MPSC as required. Detroit Edison's EO Plan application proposed the recovery of EO expenditures for the period 2012-2015 of $294 million and further requested approval of surcharges to recover these costs.
Low Income Energy Efficiency Fund

The Customer Choice and Electricity Reliability Act of 2000 authorized the creation of the LIEEF administered by the MPSC. The purpose of the fund is to provide shut-off and other protection for low income customers and to promote energy efficiency by all customer classes. Detroit Edison collects funding for the LIEEF as part of its base rates and remits the funds to

17

Table of Contents

the State of Michigan monthly. In July 2011, the Michigan Court of Appeals issued a decision reversing the portion of MichCon's June 2010 MPSC rate order that permitted MichCon to recover funding for the LIEEF in base rates. In response to the Court of Appeals decision, Detroit Edison has ceased remitting payments for LIEEF funding to the State of Michigan. In October 2011, the MPSC issued an order directing Detroit Edison to continue collecting funds for LIEEF in rates and to escrow the collected funds pending further order by the MPSC. AsPursuant to a result of these actions,January 2012 MPSC order, in March 2012, Detroit Edison no longer records Operation and Maintenance expensefiled a plan for refunding previously escrowed LIEEF funds of $22 million. In April 2012, the Michigan Court of Appeals issued a decision reversing the portion of Detroit Edison's January 2010 MPSC rate order that permitted Detroit Edison to recover funding for the paymentsLIEEF. On April 17, 2012, the MPSC issued an order approving the refund plan proposed by Detroit Edison.

In December 2011, The Vulnerable Household Warmth Fund (VHWF) was created under Michigan law. The purpose of the fund is to provide payment or partial payment of bills for electricity, natural gas, propane, heating oil, or any other type of fuel used to heat the primary residence of a vulnerable customer during the 2011-2012 heating season. Effective with the new law, Detroit Edison is to contribute the amounts collected in its base rates, previously remitted for the LIEEF, to the LIEEFnew VHWF. The monthly payments into the VHWF will cease on the earlier of September 30, 2012 or when $48 million has been accumulated in the fund but records an offset to Revenues for the amounts that are being escrowed.from payments by major Michigan electric and gas utilities.

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 7 — LONG-TERM DEBT

19

Table of Contents


Debt Issuances

In 2011, the Company remarketed or issued the following long-term debt:

(in Millions)

Month IssuedTypeInterest RateMaturityAmount
AprilTax-Exempt Revenue Bonds(1)(2)2.35%2024$31
MayMortgage Bonds(3)3.90%2021250
SeptemberMortgage Bonds(4)4.31%2023102
SeptemberMortgage Bonds(4)4.46%202677
SeptemberMortgage Bonds(4)5.67%204146
SeptemberTax-Exempt Revenue Bonds(2)(5)2.13%203082
SeptemberMortgage Bonds(6)4.50%2041140
    $728

(1)These bonds were remarketed for a three-year term ending April 1, 2014. The final maturity of the issue is October 1, 2024.

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

(3) Proceeds were used for general corporate purposes.

(4)Proceeds were used to retire callable tax-exempt revenue bonds, and for general corporate purposes.

(5)These bonds were remarketed for a five year term ending September 1, 2016. The final maturity of the issue is September 1, 2030.

(6)Proceeds were used to retire approximately $140 million of callable tax-exempt revenue bonds and for general corporate purposes.



Debt Retirements and Redemptions

In 2011, the following debt was retired:

(in Millions)

Month RetiredTypeInterest RateMaturityAmount
MayTax-Exempt Revenue Bonds6.95%2011$26
SeptemberTax-Exempt Revenue Bonds5.55%2029118
SeptemberTax-Exempt Revenue Bonds5.65%202967
SeptemberTax-Exempt Revenue Bonds5.65%202940
SeptemberTax-Exempt Revenue Bonds5.45%2029140
    $391

NOTE 8 — SHORT-TERM CREDIT ARRANGEMENTS AND BORROWINGS

In August 2010, Detroit Edison entered into an amended and restated $212has a $300 million two-year unsecured revolving credit agreement and a new $63 million three-year unsecured revolving credit agreement with a syndicate of 2320 banks that may be used for general corporate borrowings, but areis intended to provide liquidity support for the Company's commercial paper program. No one bank provides more than 8.25%8.5% of the commitment in anythe facility. Borrowings under the facilitiesfacility are

20

Table of Contents

available at prevailing short-term interest rates. The facility will expire in October 2016. At March 31, 2012, Detroit Edison had $22 million outstanding against this facility.

The above agreementsagreement require the Company to maintain a total funded debt to capitalization ratio of no more than 0.65 to 1. In the agreements, “total funded debt” means all indebtedness of the Company and its consolidated subsidiaries, including capital lease obligations, hedge agreements and guarantees of third parties' debt, but excluding contingent obligations and nonrecourse and junior subordinated debt. “Capitalization” means the sum of (a) total funded debt plus (b) “consolidated net worth,” which is equal to consolidated total stockholders' equity of the Company and its consolidated subsidiaries (excluding pension effects under certain FASB statements), as determined in accordance with accounting principles generally accepted in the United States of America. At September 30, 2011,March 31, 2012, the total funded debt to total capitalization ratio for Detroit Edison was 0.52 to 1. Should Detroit Edison have delinquent obligations of at least $50 million to any creditor, such delinquency will be considered a default under its credit agreements. Detroit Edison had $49 million in outstanding short-term borrowings at September 30, 2011.

In October 2011, the Company completed an early renewal of its $212 million and $63 million syndicated unsecured revolving credit facilities before their scheduled expiration in August 2012 and August 2013, respectively. A new $300 million five-year facility will expire in October 2016 and has covenants similar to the prior facilities.


NOTE 98 COMMITMENTS AND CONTINGENCIES

Environmental

Air - Detroit Edison is subject to the EPA ozone and fine particulate transport and acid rain regulations that limit power plant emissions of sulfur dioxide and nitrogen oxides. Since 2005, the EPA and the State of Michigan have issued additional emission reduction regulations relating to ozone, fine particulate, regional haze, mercury, and mercuryother air pollution. TheThese rules have led to additional controls on fossil-fueled power plants to reduce nitrogen oxide, sulfur dioxide, mercury and mercuryother emissions. To comply with these requirements, Detroit Edison has spent approximately $1.5$1.7 billion through 2010.2011. The Company estimates Detroit Edison will make capital expenditures of approximately $200$255 million in 20112012 and up to $2approximately $1.9 billion of additional capital expenditures through 20202021 based on current regulations. Further, additional rulemakings are expected over the next few years which could require additional controls for sulfur dioxide, nitrogen oxides and hazardous air pollutants. The EPA's proposed National Emission Standards for Hazardous Air Pollutants from Coal and Oil-Fired Electric Utility Steam Generating Units rule (covering mercury and other air pollutants) was issued on March 16, 2011 for review and comment. The EPA accepted comments on the proposal and may modify it prior to finalization, scheduled for November 2011. Also, on July 6, 2011, the EPA finalized the Cross-StateCross State Air Pollution Rule (CSAPR) which replaces, finalized in July 2011, requires further reductions of sulfur dioxide and nitrogen oxides emissions beginning in 2012. On December 30, 2011, the United States Court of Appeals for the District of Columbia Circuit granted the motions to stay the rule, leaving Detroit Edison temporarily subject to the previously existing Clean Air Interstate Rule (CAIR), requiring further. The Mercury and Air Toxics Standard (MATS) rule, formerly known as the Electric Generating Unit Maximum Achievable Control Technology (EGU MACT) Rule was finalized on December 16, 2011. The MATS rule requires reductions of sulfur dioxidesmercury and nitrogen oxides. Detroit Edison is reviewing potential impacts of the proposed andother hazardous air pollutants beginning in 2015. Because these rules were recently finalized rules, butand technologies to comply are still being tested, it is not ablepossible to quantify the financial impact of these and other expected rulemakings at this time.rulemakings.

18

Table of Contents


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 operating permit requirements under the Clean Air Act. An additional NOV/FOV was received in June 2010 related to a recent project and outage at Unit 2 of the Monroe Power Plant.

On August 5, 2010, the United States Department of Justice, at the request of the EPA, brought a civil suit in the U.S. District Court for the Eastern District of Michigan against DTE Energy and Detroit Edison, related to the June 2010 NOV/FOV and the outage work performed at Unit 2 of the Monroe Power Plant, but not relating to the July 2009 NOV/FOV. Among other relief, the EPA requested the court to require Detroit Edison to install and operate the best available control technology at Unit 2 of the Monroe Power Plant. Further, the EPA requested the court to issue a preliminary injunction to require Detroit Edison to (i) begin the process of obtaining the necessary permits for the Monroe Unit 2 modification and (ii) offset the pollution from Monroe Unit 2 through emissions reductions from Detroit Edison's fleet of coal-fired power plants until the new control equipment is operating. In January 2011, the EPA's motion for preliminary injunction was denied.

On August 23, 2011, the U.S. District judge granted DTE Energy's motion for summary judgment in the civil case, dismissing the case and entering judgment in favor of DTE Energy and Detroit Edison. Energy.On October 20, 2011, the EPA caused to be filed a Notice of Appeal to the U.S. Court of Appeals for the Sixth Circuit.
Briefs are being filed with the Court of Appeals during the first and second quarter of 2012. A decision by the Court of Appeals is not expected until late 2012. DTE Energy and Detroit Edison believe that the plants identified by the EPA, including Unit 2 of the Monroe Power Plant, have complied with all applicable federal environmental regulations. Depending upon the outcome of discussions with the EPA regarding the NOV/FOV Detroit Edisonand the result of the appeals process, the Company could also be required to install additional pollution control equipment at some or all of the power plants in question, implement early retirement of facilities where control equipment is not economical, engage in supplemental environmental programs, and/or pay fines. DTE Energy and Detroit EdisonThe Company cannot predict the financial impact or outcome of these matters,this matter, or the timing of its resolution.

21


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 $80$55 million in additional capital expenditures over the 4four to 6six years subsequent to 2008 to comply with these requirements. However, a January 2007 circuit court decision remanded back to the EPA several provisions of the federal regulation that has resulted 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 the EPA's use of this provision in determining best technology available for reducing environmental impacts. On April 20, 2011, theThe EPA published a proposed rule.rule in 2011 that extended the time line to 2020 with an estimated expected increase in costs to $80 million. A final rule is scheduled to be issuedexpected in mid-2012. Themid-2012.The EPA has also issued an information collection request to begin a review of steam electric effluent guidelines. It is not possible at this time to quantify the financial impacts of these developing requirements.

Contaminated and Other Sites - Prior to the construction of major interstate natural gas pipelines, gas for heating and other uses was manufactured locally from processes involving coal, coke or oil. The facilities, which produced gas, have been designated as manufactured gas plant (MGP) sites. Detroit Edison conducted remedial investigations at contaminated sites, including three former 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 September 30, 2011March 31, 2012 and December 31, 2010,2011, the Company had $8 million and $9 million, respectively, accrued for remediation. Any significant change in assumptions, such as remediation techniques, nature and extent of contamination and regulatory requirements, could impact the estimate of remedial action costs for the sites and affect the Company's financial position and cash flows.
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. ThoseThe repairs are ongoing andto the landfill embankment are expected to be completed by 2013.

The EPA has published proposed rules to regulate coal ash under the authority of the Resources Conservation and Recovery Act (RCRA). The proposed rule published onin June 21, 2010 contains two primary regulatory options to regulate coal ash residue. The EPA is currently considering either designating coal ash as a “Hazardous Waste” as defined by RCRA or regulating coal ash as non-hazardous waste under RCRA. Agencies and legislatures have urged the EPA to regulate coal ash as a non-hazardous waste. If the EPA designates 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 to disposal and reuse of coal ash. Some of the regulatory actions currently being contemplated could have a significant impact on our operations and financial position and the rates we charge our customers. It is not

19


possible to quantify the financial impact of those expected rulemakings at this time.

Other
In March 2011, the EPA finalized a new set of regulations regarding the identification of non-hazardous secondary materials that are considered solid waste, industrial boiler and process heater maximum achievable control technologies (IBMACT) for major and area sources, and commercial/industrial solid waste incinerator new source performance standard and emission guidelines (CISWI). Both IBMACT and CISWI regulations were stayed and a re-proposal is expected by the end of 2011. The re-proposed rules may impact our existing operations and may require us, in certain instances, to install new air pollution control devices. The re-proposed regulations will provide a minimum period of three years for compliance with the applicable standards. Based on the final approved regulations, anticipated in the first half of 2012, the Company will assess the financial impact, if any, on current operations for compliance with the applicable new standards.


Nuclear Operations

Property Insurance

Detroit Edison maintains 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

22


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 $29$31 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, 2011,2012, as required by federal law, Detroit Edison maintains $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.

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 Edison is obligated to pay the DOE a fee of 1 mill per kWh of Fermi 2 electricity generated and sold. The fee is accounted for as a component of nuclear fuel expense. Delays have occurred in theThe DOE's Yucca Mountain Nuclear Waste Repository program for the acceptance and disposal of spent nuclear fuel at a permanent repository and the proposed fiscal year 2011 federal budget recommends termination of funding for completion of the government's long-term storage facility.was terminated in 2011. Detroit Edison is a party in the litigation against the DOE for both past and future costs associated with the DOE's failure to accept spent nuclear fuel under the timetable set forth in the Federal Nuclear Waste Policy Act of 1982. Detroit Edison currently employs a spent nuclear fuel storage strategy utilizing a fuel pool. The Company continues to develop its on-site dry cask storage facility and has postponed the initial offload from the spent fuel pool until 2013. The dry cask storage facility is expected to provide sufficient spent fuel storage capability for the life of the plant as defined by the original operating license. Issues relating to long-term waste disposal policy and to the disposition of funds contributed by Detroit Edison ratepayers to the federal waste fund await future governmental action.

Guarantees

In certain limited circumstances, the Company enters into contractual guarantees. The Company may guarantee another entity'sentity’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.

Labor Contracts

There are several bargaining units for the Company'sCompany’s approximately 2,700 represented employees. In the 2010 third quarter, a new three-year agreement was ratified covering approximately 2,4002,800 represented employees. The remainingmajority of represented employees are under a contractcontracts that expiresexpire in August 2012.2012 and June 2013.

20



Purchase Commitments

As of September 30,December 31, 2011, the Company was party to numerous long-term purchase commitments relating to a variety of goods and services required for the Company'sCompany’s business. These agreements primarily consist of fuel supply commitments. The Company estimates that these commitments will be approximately $1.4 billion from 20112012 through 2026. 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.2027.

23



The Company also estimates that 20112012 capital expenditures will be approximately $1.3 billion. The Company has made certain commitments in connection with expected capital expenditures.

Bankruptcies

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

Other Contingencies

The Company is involved in certain other legal, regulatory, administrative and environmental proceedings before various courts, arbitration panels and governmental agencies concerning claims arising in the ordinary course of business. These proceedings include certain contract disputes, additional environmental reviews and investigations, audits, inquiries from various regulators, and pending judicial matters. The Company cannot predict the final disposition of such proceedings. The Company regularly reviews legal matters and records provisions for claims that it can estimate and are considered probable of loss. The resolution of these pending proceedings is not expected to have a material effect on the Company'sCompany’s operations or financial statements in the periods they are resolved.

See Notes 4 and 6 for a discussion of contingencies related to derivatives and regulatory matters.

NOTE 109 RETIREMENT BENEFITS AND TRUSTEED ASSETS

The following details the components of net periodic benefit costs for pension benefits and other postretirement benefits:

Pension Benefits 
Other Postretirement
Benefits
Pension Benefits Other Postretirement Benefits
(in Millions)2011 2010 2011 20102012 2011 2012 2011
Three Months Ended September 30       
Three Months Ended March 31       
Service cost$11
 $13
 $11
 $12
$16
 $15
 $13
 $13
Interest cost39
 38
 21
 24
39
 39
 23
 23
Expected return on plan assets(42) (43) (16) (13)(41) (42) (15) (16)
Amortization of:              
Net actuarial loss27
 18
 9
 10
30
 23
 14
 11
Prior service cost (credit)1
 1
 (4) 

 1
 (4) (4)
Net transition liability
 
 1
 

 
 1
 1
Settlements2
 
 
 
Net periodic benefit cost$36
 $27
 $22
 $33
$46
 $36
 $32
 $28

 Pension Benefits 
Other Postretirement
Benefits
(in Millions)2011 2010 2011 2010
Nine Months Ended September 30       
Service cost$41
 $39
 $37
 $35
Interest cost116
 115
 68
 71
Expected return on plan assets(126) (129) (47) (39)
Amortization of:       
Net actuarial loss74
 53
 30
 29
Prior service cost (credit)3
 4
 (12) 1
Net transition liability
 
 2
 2
Special termination benefits2
 
 
 
Net periodic benefit cost$110
 $82
 $78
 $99

24

Table of Contents


Pension and Other Postretirement Contributions

At the discretion of management, and depending upon financial market condition, the Company may make up to a $200 million
contribution to its pension plans in 2012.

In January 2011,2012, the Company contributed $200 million to its pension plans.

In January 2011, the Company contributed $36$95 million to its other postretirement benefit plans. At the discretion of
management, the Company may make up to an additional $125$120 million contribution to its other postretirement benefit plans by the end of 2011.VEBA trusts in 2012.


21

Table of Contents

NOTE 1110 SUPPLEMENTAL CASH FLOW INFORMATION

The following provides detail of the changes in assets and liabilities that are reported in the Consolidated Statements of Cash Flows:

Nine Months EndedThree Months Ended
September 30March 31
(in Millions)2011 20102012 2011
Changes in Assets and Liabilities, Exclusive of Changes Shown Separately      
Accounts receivable, net$(22) $(8)$30
 $55
Inventories(3) (38)1
 18
Accrued pension liability - affiliates(171) (179)
Accrued pension liability — affiliates13
 (190)
Accounts payable(24) 34
(9) (15)
Accrued PSCR refund(121) (59)
Income taxes receivable/payable71
 119
33
 26
Postretirement obligation - affiliates(31) 14
Postretirement obligation — affiliates(94) (32)
Other assets56
 12
106
 (22)
Other liabilities(23) 18
(32) (65)
$(268) $(87)$48
 $(225)

2522

Table of Contents

Part 1  — Item 2.

The Detroit Edison CompanyTHE DETROIT EDISON COMPANY
Management's Narrative Analysis of Results of Operations
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 H(2) (a) of Form 10-Q.

Detroit Edison's results for the three and nine months ended September 30, 2011March 31, 2012 as compared to the comparable 20102011 period are discussed below:

Three Months Ended Nine Months EndedThree Months Ended
September 30 September 30March 31
(in Millions)2011 2010 2011 20102012 2011
Operating Revenues$1,517
 $1,444
 $3,949
 $3,798
$1,198
 $1,192
Fuel and Purchased Power553
 484
 1,348
 1,217
377
 378
Gross Margin964
 960
 2,601
 2,581
821
 814
Operation and Maintenance352
 325
 1,012
 960
355
 329
Depreciation and Amortization215
 230
 619
 644
185
 202
Taxes Other Than Income63
 54
 182
 180
68
 59
Asset (Gains) and Losses, Net(1) 
 13
 (1)
 19
Operating Income335
 351
 775
 798
213
 205
Other (Income) and Deductions79
 78
 214
 236
59
 67
Income Tax Expense98
 108
 214
 219
57
 53
Net Income$158
 $165
 $347
 $343
$97
 $85
Operating Income as a Percentage of Operating Revenues22% 24% 20% 21%18% 17%

Gross margin increased $4$7 million in the thirdfirst quarter of 2011 and $20 million in the nine-month period ended September 30, 2011.2012. Revenues associated with certain tracking mechanisms and surcharges are offset by related expenses elsewhere in the Statement of Operations. The following table details changes in various gross margin components relative to the comparable prior period:

(in Millions)Three Months Nine Months
Base sales, net of RDM and CIM$17
 $49
Securitization bond and tax surcharge(13) (27)
Electric Choice implementation surcharge elimination(7) (18)
Energy optimization incentive
 9
Restoration tracker22
 27
Low Income Energy Efficiency Fund revenue deferral(13) (13)
Other(2) (7)
Increase in gross margin$4
 $20
(in Millions)Three Months
Renewable energy program$11
Base rate increase, partially offset by weather3
Energy optimization performance incentive(9)
Regulatory mechanisms and other2
Increase in gross margin$7


2623

Table of Contents

Three Months Ended Nine Months EndedThree Months Ended
September 30 September 30March 31
(in Thousands of MWh)2011 2010 2011 20102012 2011
Electric Sales          
Residential4,863
 5,034
 12,358
 12,301
3,700
 3,889
Commercial4,759
 4,730
 12,750
 12,660
3,885
 3,993
Industrial2,606
 2,357
 7,353
 7,438
2,374
 2,341
Other782
 798
 2,343
 2,398
259
 798
13,010
 12,919
 34,804
 34,797
10,218
 11,021
Interconnection sales (1)884
 1,270
 2,346
 4,031
527
 306
Total Electric Sales13,894
 14,189
 37,150
 38,828
10,745
 11,327
          
Electric Deliveries          
Retail and Wholesale13,010
 12,919
 34,804
 34,797
10,218
 11,021
Electric Customer Choice1,393
 1,289
 4,104
 3,675
1,254
 1,302
Total Electric Sales and Deliveries14,403
 14,208
 38,908
 38,472
11,472
 12,323
____________

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


Power Generated and Purchased

 Three Months Ended Nine Months Ended
 September 30 September 30
(in Thousands of MWh)2011 2010 2011 2010
Power Plant Generation       
Fossil10,143
 11,224
 27,007
 30,339
Nuclear2,386
 2,368
 6,500
 6,656
 12,529
 13,592
 33,507
 36,995
Purchased Power2,353
 1,669
 6,403
 4,465
System Output14,882
 15,261
 39,910
 41,460
Less Line Loss and Internal Use(988) (1,072) (2,760) (2,632)
Net System Output13,894
 14,189
 37,150
 38,828
        
Average Unit Cost ($/MWh)       
Generation (1)$25.45
 $19.81
 $22.90
 $19.22
Purchased Power$49.15
 $51.07
 $44.81
 $43.71
Overall Average Unit Cost$29.20
 $23.23
 $26.41
 $21.85
____________

(1)Represents fuel costs associated with power plants.

Operation and maintenanceexpense increased $27 million and $52$26 million in the three and nine months ended September 30, 2011, respectively. The increase for the 2011 thirdfirst quarter isof 2012 due primarily due to higher restoration and
line clearance expenses of $26$11 million, increased power plant generation maintenance and outagehigher employee benefit-related expenses of $15$8 million and higher energy optimization and renewable energyincreased uncollectible expenses of $4 million, partially offset by $13
$6 million.

Depreciation and amortization expense decreased $17 million in reduced contributionsthe first quarter of 2012 due primarily to lower depreciation
rates of $10 million and lower amortization of regulatory assets of $5 million.

Taxes other than income were higher by $9 million in the first quarter of 2012 due primarily to a low income and energy efficiency fund due toreduction of $7 million for a recent court order. The increase for the 2011 nine-month period is attributable to higher restoration and line clearance expenses of $27 million, increased power plant generation

27

Table of Contents

maintenance and outage expenses of $24 million, higher energy optimization and renewable energy expenses of $14 million, partially offset by $13 millionproperty tax settlement in reduced contributions to a low income and energy efficiency fund due to a recent court order. See Note 6 of the Notes to Consolidated Financial Statements.2011.

Asset (gains) and losses, net increased $1 million and decreased $14 million in the three and nine months ended September 30, 2011, respectively. The change in the nine month period is primarily attributable to an accrual of $19 million in the first quarter of 2012 due to a 2011 accrual of $19 million resulting from
management's revisions of the timing and estimate of cash flows for the decommissioning of Fermi 1, partially offset by a second quarter 2011 revision of $6 million in the timing and estimate of cash flows for the Fermi 1 asbestos removal obligation. See Note 5 of the Notes to the Consolidated Financial Statements.1.

Outlook - We continue to move forward in our efforts to improve the operating performanceachieve operational excellence, sustained strong cash flows and cash flow of Detroit Edison.earn our authorized return on equity. We expect that our planned significant environmental and renewable energy investmentsexpenditures will result in earnings growth. Looking forward, additional factors may impact earnings such as the outcome of regulatory proceedings, 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 our efforts to improve productivity and decrease our costs while improving customer satisfaction with consideration of customer rate affordability.
In July 2011, Detroit Edison notified the NRC that it intends to apply for renewal
See Note 6 of the operating licenseNotes to the Consolidated Financial Statements for the Fermi 2 nuclear power plant. The current license expires in 2025 and NRC approvaldiscussion of the application would permitApril 10, 2012 Michigan Court of Appeals decision relating to an appeal of the plant to operate an additional 20 years. The application is expected to be filed with the NRCJanuary 2010 MPSC order in 2014.Detroit Edison's January 2009 rate case filing.


24

Table of Contents

Environmental Matters

Global Climate Change

The EPAregulation and/or legislation has promulgated the Greenhouse Gas Tailoring rule that regulates greenhouse gases as pollutants under the EPA's new source permittingbeen proposed and major source operating permit programs, and that requires a Best Available Control Technology (BACT) determination for new and modified major sources of greenhouse gas (GHG). In addition, the EPA will be issuing proposed GHG performance standards for new and modified electric generating units in late 2011. Indiscussed within the U.S. Congress efforts are focused on delayingand the EPA'sEPA, however the
current 112th Congress is not expected to pass any major energy or climate bills. Meanwhile, the EPA is implementing regulatory
actions under the Clean Air Act to address emissions of greenhouse gases. EPA regulation of GHGs with no expectationgreenhouse gases (GHGs) began in 2011
and requires the best available control technology (BACT) for new major sources or modifications to existing major sources that cause
significant increases in GHG emissions. The impact of enacting a comprehensive national climate program. this rule is uncertain until BACT is better defined by the permitting agencies.
Pending or future regulatorylegislation or legislativeother 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, the purchase of emission offsets from market sources and the retirement of
facilities where control equipment is not economical. 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-basedmarket
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 Note 98 of the Notes to Consolidated Financial Statements for additional information regarding environmental matters.



2825

Table of Contents

Part I  — Item 4.

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 Detroit Edison's Chief Executive Officer (CEO) and Chief Financial Officer (CFO), 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 September 30, 2011,March 31, 2012, which is the end of the period covered by this report. Based on this evaluation, the CEO and CFO have concluded that such disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) is accumulated and communicated to the Company's management, including its CEO and CFO, 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) 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 September 30, 2011March 31, 2012 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.


2926

Table of Contents

Part II — Other InformationOTHER INFORMATION

Item 1. - Legal Proceedings

In July 2009, DTE Energy received a Notice of Violation/Finding of Violation (NOV/FOV) from the EPA alleging, among other things, that five of Detroit Edison's power plants violated New Source Performance standards, Prevention of Significant Deterioration requirements, and Title V operating permit requirements under the Clean Air Act. In June 2010, EPA issued a NOV/FOV making similar allegations related to a recent project and outage at Unit 2 of the Monroe Power Plant.

On August 5, 2010, the United States Department of Justice, at the request of EPA, brought a civil suit in the U.S. District Court for the Eastern District of Michigan against DTE Energy and Detroit Edison, related to the June 2010 NOV/FOV and the outage work performed at Unit 2 of the Monroe Power Plant, but not relating to the July 2009 NOV/FOV. Among other relief, the EPA requested the court to require Detroit Edison to install and operate the best available control technology at Unit 2 of the Monroe Power Plant. Further, the EPA requested the court to issue a preliminary injunction to require Detroit Edison to (i) begin the process of obtaining the necessary permits for the Monroe Unit 2 modification and (ii) offset the pollution from Monroe Unit 2 through emissions reductions from Detroit Edison's fleet of coal-fired power plants until the new control equipment is operating. In January 2011 the EPA's motion for preliminary injunction was denied. On August 23, 2011, the U.S. District Court judge granted DTE Energy's motion for summary judgment in the civil case, dismissing the case and entering judgment in favor of DTE Energy and Detroit Edison. On October 20, 2011, the EPA caused to be filed a Notice of Appeal to the U.S. Court of Appeals for the Sixth Circuit. Briefs are being filed with the Court of Appeals during the first and second quarter of 2012. A decision by the Court of Appeals is not expected until late 2012.

DTE Energy and Detroit Edison believe that the plants identified by the EPA, including Unit 2 of the Monroe Power Plant, have complied with all applicable federal environmental regulations. Depending upon the outcome of discussions with the EPA regarding the two NOVs/FOVs, Detroit Edison could also be required to install additional pollution control equipment at some or all of the power plants in question, consider early retirement of facilities where control equipment is not economical, engage in supplemental environmental programs, and/or pay fines. DTE Energy and Detroit Edison cannot predict the financial impact or outcome of these matters, or the timing of its resolution.




Item 1A.  — Risk Factors

There are various risks associated with the operations of Detroit Edison. To provide a framework to understand the operating environment of Detroit Edison, we have provided a brief explanation of the more significant risks associated with our businesses in Part 1, Item 1A. Risk Factors in the Company's 20102011 Form 10-K. Although we have tried to identify and discuss key risk factors, others could emerge in the future. In addition to the risk factors set forth in our 10-K, the following updated risks could affect our performance.

Operation of a nuclear facility subjects us to risk. Ownership of an operating nuclear generating plant subjects us to significant additional risks. These risks include, among others, plant security, environmental regulation and remediation, changes in federal nuclear regulation and operational factors that can significantly impact the performance and cost of operating a nuclear facility. While we maintain insurance for various nuclear-related risks, there can be no assurances that such insurance will be sufficient to cover our costs in the event of an accident or business interruption at our nuclear generating plant, which may affect our financial performance.

Construction and capital improvements to our power facilities subject us torisk. We are managing ongoing and planning future significant construction and capital improvement projects at multiple power generation anddistribution facilities. Many factors that could cause delays or increased prices for these complex projects are beyond our control, including the cost of materials and labor, subcontractor performance, timing and issuance of necessary permits, construction disputes and weather conditions. Failure to complete these projects on schedule and on budget for any reason could adversely affect our financial performance and operations at the affected facilities.


3027

Table of Contents

Item 6. — Exhibits

Exhibit
Number
 Description
Exhibits filed herewith:
   
4-276 Supplemental Indenture, dated as
12-43Computation of August 1, 2011,Ratio of Earnings to the Mortgage and Deed of Trust, dated as of October 1, 1924, by and between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A. as successor trustee. (2011 Series GT)Fixed Charges
   
4-277Supplemental Indenture, dated as of August 15, 2011, to the Mortgage and Deed of Trust, dated as of October 1, 1924, by and between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A. as successor trustee. (2011 Series D, 2011 Series E, 2011 Series F)
4-278Supplemental Indenture, dated as of September 1, 2011, to the Mortgage and Deed of Trust, dated as of October 1, 1924, by and between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A. as successor trustee. (2011 Series H)
31-6931-73 Chief Executive Officer Section 302 Form 10-Q Certification
   
31-7031-74 Chief Financial Officer Section 302 Form 10-Q Certification
   
   
Exhibits incorporated herein by reference:
10-1
Form of Amended and Restated Detroit Edison Five-Year Credit Agreement, dated as of August 20, 2010 and amended and restated as of October 21, 2011, by and among Detroit Edison, the lenders party thereto, Barclays Bank PLC, as Administrative Agent, and Citibank, N.A., JPMorgan Chase Bank, N.A. and The Royal Bank of Scotland plc, as Co-Syndication Agents (Exhibit 10.1 to Form 8-K filed on October 26, 2011).


   
   
Exhibits furnished herewith:
   
32-6932-73 Chief Executive Officer Section 906 Form 10-Q Certification
   
32-7032-74 Chief Financial Officer Section 906 Form 10-Q Certification
   
101.INS XBRL Instance Document
   
101.SCH XBRL Taxonomy Extension Schema
   
101.CAL XBRL Taxonomy Extension Calculation Linkbase
   
101.DEF XBRL Taxonomy Extension Definition Database
   
101.LAB XBRL Taxonomy Extension Label Linkbase
   
101.PRE XBRL Taxonomy Extension Presentation Linkbase


3128

Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  THE DETROIT EDISON COMPANY
  (Registrant)
   
Date:November 4, 2011April 27, 2012/S/s/ PETER B. OLEKSIAK
  Peter B. Oleksiak
  Vice President and Controller and Chief Accounting Officer
  Chief Accounting Officer


3229