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, 2009March 31, 2010
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
Michigan
(State or other jurisdiction of
(I.R.S. Employer

incorporation or organization)
 38-0478650
(I.R.S. Employer
Identification No.)
   
One Energy Plaza, Detroit, Michigan48226-1279

(Address of principal executive offices)
 48226-1279
(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.
Yesþ Noo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yesoþ Noo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):Act.
Large accelerated fileroAccelerated fileroNon-accelerated filerþ
Smaller reporting companyo
(Do not check if a smaller reporting company)Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yeso Noþ
All of the registrant’s 138,632,324 outstanding shares of common stock are owned by DTE Energy Company.
 
 

 


 

The Detroit Edison Company
Quarterly Report on Form 10-Q
Quarter Ended September 30, 2009March 31, 2010
Table Of Contents
   
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 EX-12.35EX-31.55
 EX-31.51EX-31.56
 EX-31.52EX-32.55
 EX-32.51
EX-32.52EX-32.56

 


Definitions
   
ASC Accounting Standards Codification
ASUAccounting Standards Update
   
Customer Choice Statewide initiatives giving customers in Michigan the option to choose alternative suppliers for electricity.electricity and gas.
   
Detroit Edison The Detroit Edison Company (a direct wholly owned subsidiary of DTE Energy Company)Energy) and subsidiary companies
   
DTE Energy DTE Energy Company, directly or indirectly the parent of Detroit Edison, MichCon and directly or indirectly the parent company of numerous non-utility subsidiaries
   
EPA United States Environmental Protection Agency
   
FASB Financial Accounting Standards Board
   
FERC Federal Energy Regulatory Commission
   
FSPFASB Staff Position
FTRs Financial Transmission Rightstransmission rights
   
MDEQ Michigan Department of Environmental Quality
   
MISO Midwest Independent System Operator ais an Independent System Operator and the Regional Transmission Organization serving the Midwest United States and Manitoba, Canada.
   
MPSC Michigan Public Service Commission
   
NRC Nuclear Regulatory Commission
   
PSCR A power supply cost recovery mechanism authorized by the MPSC that allows Detroit Edison to recover through rates its fuel, fuel-related and purchased power expenses.costs.
   
Securitization Detroit Edison financed specific stranded costs at lower interest rates through the sale of rate reduction bonds by a wholly ownedwholly-owned special purpose entity, theThe Detroit Edison Securitization Funding LLC.
SFASStatement of Financial Accounting Standards
   
Units of Measurement
  
   
GWhGigawatthour of electricity
kWh Kilowatthour of electricity
MW Megawatt of electricity
MWh Megawatthour of electricity

1


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. Forward-looking statements 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:
  the length and severity of ongoing economic declineconditions resulting in lower demand, customer conservation and increased thefts of electricity;electricity and gas;
 
  changes in the economic and financial viability of our customers, suppliers, and trading counterparties, and the continued ability of such parties to perform their obligations to the Company;
economic climate and population growth or decline in the geographic areas where we do business;
 
  high levels of uncollectible accounts receivable;
 
  access to capital markets and capital market conditions and the results of other financing efforts which can be affected by credit agency ratings;
 
  instability in capital markets which could impact availability of short and long-term financing;
 
  potential for continued loss on investments, including nuclear decommissioning and benefit plan assets and the related increases in future expense and contributions;
the timing and extent of changes in interest rates;
 
  the level of borrowings;
 
  the availability, cost, coveragepotential for losses on investments, including nuclear decommissioning and termsbenefit plan assets and the related increases in future expense and contributions;
the potential for increased costs or delays in completion of insurance and stability of insurance providers;significant construction projects;
 
  the effects of weather and other natural phenomena on operations and sales to customers, and purchases from suppliers;
economic climate and population growth or decline in the geographic areas where we do business;
 
  environmental issues, laws, regulations, and the increasing costs of remediation and compliance, including actual and potential new federal and state requirements that include or could include carbon and more stringent mercury emission controls, a renewable portfolio standard, energy efficiency mandates, and a carbon tax or cap and trade structure;structure and ash landfill regulations;
 
  nuclear regulations and operations associated with nuclear facilities;
 
  impact of electric and gas 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, purchased power and purchased power;natural gas;
volatility in the short-term natural gas storage markets impacting third-party storage revenues;
 
  cost reduction efforts and the maximization of plant and distribution system performance;
 
  the effects of competition;

2


the uncertainties of successful exploration of gas shale resources and challenges in estimating gas reserves with certainty;
 
  impact of regulation by the FERC, MPSC, NRC and other applicable governmental proceedings and regulations, including any associated impact on rate structures;
 
  changes in and application of federal, state and local tax laws and their interpretations, including the Internal Revenue Code, regulations, rulings, court proceedings and audits;
 
  the amount and timing of cost recovery allowed as a result of regulatory proceedings, related appeals or new legislation;

2


  the cost of protecting assets against, or damage due to, terrorism;terrorism or cyber attacks;
the availability, cost, coverage and terms of insurance and stability of insurance providers;
 
  changes in and application of accounting standards and financial reporting regulations;
 
  changes in federal or state laws and their interpretation with respect to regulation, energy policy and other business issues; and
 
  binding arbitration, litigation and related appeals.
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.

3


Part I Item 1.
The Detroit Edison Company
Consolidated Statements of Financial Position (Unaudited)
                
 September 30 December 31  March 31 December 31 
(in Millions) 2009 2008  2010 2009 
ASSETS
  
Current Assets
  
Cash and cash equivalents $69 $30  $161 $34 
Restricted cash 24 84  28 79 
Accounts receivable (less allowance for doubtful accounts of $125 and $121, respectively) 
Accounts receivable (less allowance for doubtful accounts of $114 and $118, respectively) 
Customer 709 709  633 696 
Affiliates 1 5  2 3 
Other 10 34  16 108 
Inventories  
Fuel 174 170  137 135 
Materials and supplies 175 169  176 173 
Notes receivable 
Notes Receivable 
Affiliates 169 41  8 65 
Other 4 3  1 3 
Prepaid property taxes 92 43  71 44 
Other 46 52  31 35 
          
 1,473 1,340  1,264 1,375 
          
  
Investments
  
Nuclear decommissioning trust funds 791 685  859 817 
Other 94 99  104 104 
          
 885 784  963 921 
          
  
Property
  
Property, plant and equipment 15,335 14,977  15,523 15,451 
Accumulated depreciation  (6,058)  (5,828)
Less accumulated depreciation and amortization  (6,174)  (6,133)
          
 9,277 9,149  9,349 9,318 
          
  
Other Assets
  
Regulatory assets 3,255 3,456  3,313 3,333 
Securitized regulatory assets 905 1,001  835 870 
Intangible assets 9 19  10 9 
Notes receivable 
Affiliates 20  
Other  3 
Notes receivable — affiliates 15 17 
Other 112 90  121 118 
          
 4,301 4,569  4,294 4,347 
          
  
Total Assets
 $15,936 $15,842  $15,870 $15,961 
          
See Notes to Consolidated Financial Statements (Unaudited)

4


The Detroit Edison Company
Consolidated Statements of Financial Position (Unaudited)
                
 September 30 December 31  March 31 December 31 
(in Millions, Except Shares) 2009 2008  2010 2009 
LIABILITIES AND SHAREHOLDER’S EQUITY
  
Current Liabilities
  
Accounts payable — affiliates $55 $103 
Accounts payable — other 241 346 
Accounts payable 
Affiliates $168 $74 
Other 265 251 
Accrued interest 88 80  89 83 
Accrued vacation 48 58 
Accrued power supply cost recovery revenue 63 27 
Income taxes payable 83 39 
Short-term borrowings — other  75 
Accrued vacations 46 48 
Current portion of long-term debt, including capital leases 160 153  665 660 
Other 173 197  199 213 
          
 911 1,078  1,432 1,329 
          
  
Long-Term Debt (net of current portion)
  
Mortgage bonds, notes and other 4,079 4,091  3,566 3,579 
Securitization bonds 793 932  717 793 
Capital lease obligations 28 33  23 25 
          
 4,900 5,056  4,306 4,397 
          
  
Other Liabilities
  
Deferred income taxes 1,867 1,894  1,901 1,871 
Regulatory liabilities 630 593  720 711 
Asset retirement obligations 1,269 1,205  1,316 1,285 
Unamortized investment tax credit 78 85  73 75 
Nuclear decommissioning 131 114  142 136 
Accrued pension liability — affiliates 912 978  793 987 
Accrued postretirement liability — affiliates 1,101 1,075  1,064 1,058 
Other 247 208  234 239 
          
 6,235 6,152  6,243 6,362 
          
  
Commitments and Contingencies (Notes 4 and 8)
 
Commitments and Contingencies (Notes 7 and 10)
 
  
Shareholder’s Equity
  
Common stock, $10 par value, 400,000,000 shares authorized, and 138,632,324 shares issued and outstanding 3,196 2,946  3,196 3,196 
Retained earnings 706 622  708 693 
Accumulated other comprehensive income  (12)  (12)
Accumulated other comprehensive income (loss)  (15)  (16)
          
 3,890 3,556  3,889 3,873 
          
  
Total Liabilities and Shareholder’s Equity
 $15,936 $15,842  $15,870 $15,961 
          
See Notes to Consolidated Financial Statements (Unaudited)

5


The Detroit Edison Company
Consolidated Statements of Operations (Unaudited)
                        
 Three Months Ended Nine Months Ended  Three Months Ended 
 September 30 September 30  March 31 
(in Millions) 2009 2008 2009 2008  2010 2009 
Operating Revenues
 $1,300 $1,440 $3,526 $3,766  $1,146 $1,118 
              
  
Operating Expenses
  
Fuel and purchased power 400 586 1,112 1,403  343 340 
Operation and maintenance 306 292 928 1,019  309 316 
Depreciation and amortization 222 193 607 563  204 188 
Taxes other than income 43 54 147 176  65 60 
Asset (gains) and reserves, net   (1)   (1)
Asset gains, net  (1)  
              
 971 1,124 2,794 3,160  920 904 
              
  
Operating Income
 329 316 732 606  226 214 
              
  
Other (Income) and Deductions
  
Interest expense 82 73 245 220  81 79 
Interest income   (1)  (1)  (3)
Other income  (12)  (16)  (29)  (39)  (8)  (7)
Other expenses 5 11 5 34  6 12 
              
 75 67 220 212  79 84 
              
  
Income Before Income Taxes
 254 249 512 394  147 130 
  
Income Tax Provision
 98 90 199 143  56 52 
              
  
Net Income
 $156 $159 $313 $251  $91 $78 
              
See Notes to Consolidated Financial Statements (Unaudited)

6


The Detroit Edison Company
Consolidated Statements of Cash Flows (Unaudited)
                
 Nine Months Ended  Three Months Ended 
 September 30  March 31 
(in Millions) 2009 2008  2010 2009 
Operating Activities
  
Net income $313 $251  $91 $78 
Adjustments to reconcile net income to net cash from operating activities:  
Depreciation and amortization 607 563  204 188 
Deferred income taxes  (2) 70  5  (4)
Asset (gains) and reserves, net   (1)
Asset gains, net  1   
Changes in assets and liabilities, exclusive of changes shown separately 105  (33) 76 154 
          
Net cash from operating activities 1,023 850  375 416 
          
  
Investing Activities
  
Plant and equipment expenditures  (640)  (651)  (177)  (263)
Restricted cash for debt redemptions 60 101  51 64 
Proceeds from sale of nuclear decommissioning trust fund assets 237 180  59 113 
Investment in nuclear decommissioning trust funds  (251)  (202)  (68)  (113)
Other investments  (176)  (33)
Other 50  (286)
          
Net cash used for investing activities  (770)  (605)  (85)  (485)
          
  
Financing Activities
  
Issuance of long-term debt 65 566 
Redemption of long-term debt  (213)  (166)  (85)  (81)
Repurchase of long-term debt   (238)
Short-term borrowings, net  (82)  (301)
Capital contribution by parent company 250 175    250 
Dividends on common stock  (228)  (228)  (76)  (76)
Other  (6)  (7)  (2)  (3)
          
Net cash used for financing activities  (214)  (199)
Net cash from (used for) financing activities  (163) 90 
          
  
Net Increase (Decrease) in Cash and Cash Equivalents
 39 46 
Cash and Cash Equivalents at Beginning of Period
 30 47 
Net Increase in Cash and Cash Equivalents
 127 21 
Cash and Cash Equivalents at Beginning of the Period
 34 30 
          
Cash and Cash Equivalents at End of Period
 $69 $93 
Cash and Cash Equivalents at End of the Period
 $161 $51 
          
See Notes to Consolidated Financial Statements (Unaudited)

7


The Detroit Edison Company
Consolidated Statements of Changes in Shareholder’s Equity andComprehensive Income (Unaudited)
(Unaudited)
                         
                  Accumulated  
    Additional     Other  
  Common Stock Paid In Retained Comprehensive  
(Dollars in Millions, shares in thousands) Shares Amount Capital Earnings Income Total
   
Balance, December 31, 2008  138,632  $1,386  $1,560  $622  $(12) $3,556 
 
Net income           313      313 
Capital contribution by parent company        250         250 
Dividends declared on common stock           (228)     (228)
Net change in unrealized gains on investments, net of tax              (2)  (2)
Benefits, net of tax              2   2 
Other           (1)     (1)
 
Balance, September 30, 2009
  138,632  $1,386  $1,810  $706  $(12) $3,890 
 
                         
                  Accumulated    
          Additional      Other    
  Common Stock  Paid In  Retained  Comprehensive    
(Dollars in Millions, shares in thousands) Shares  Amount  Capital  Earnings  Loss  Total 
   
Balance, December 31, 2009  138,632  $1,386  $1,810  $693  $(16) $3,873 
   
Net income           91      91 
Dividends declared on common stock           (76)     (76)
Benefit obligations, net of tax              1   1 
   
Balance, March 31, 2010
  138,632  $1,386  $1,810  $708  $(15) $3,889 
   
The following table displays other comprehensive income for the nine-monththree-month periods ended September 30:March 31:
                
(in Millions) 2009 2008  2010 2009 
Net income $313 $251  $91 $78 
Other comprehensive income, net of tax:  
Benefit obligations, net of taxes 1  
Net unrealized gains on investments:  
Amounts reclassified to income, net of taxes  (2)  (1)  1 
Benefits, net of taxes 2  
          
Comprehensive income $313 $250  $92 $79 
          
See Notes to Consolidated Financial Statements (Unaudited)

8


The Detroit Edison Company
Notes to Consolidated Financial Statements (Unaudited)
NOTE 1 — GENERALBASIS OF PRESENTATION
Corporate Structure
Detroit Edison is a Michigan public utility engaged in the generation, purchase, distribution and sale of electric energy to approximately 2.1 million customers in southeastern Michigan. Detroit Edison is regulated by the MPSC and FERC. In addition, we are regulated by other federal and state regulatory agencies including the NRC, the EPA and MDEQ.
References in this report to “we,” “us,’ “our’” 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 20082009 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 our opinion include all adjustments necessary for a fair presentation of such financial statements. 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, 2009.2010.
Certain prior year amounts have beenbalances were reclassified to reflectmatch the current year classifications.year’s financial statement presentation.
Asset Retirement ObligationsPrinciples of Consolidation — Variable Interest Entity (VIE)
As discussed in Note 3, effective January 1, 2010, we adopted the provisions of ASU 2009-17,Amendments to FASB Interpretation 46(R). ASU 2009-17 changed the methodology for determining the primary beneficiary of a VIE from a quantitative risk and rewards-based model to a qualitative determination. There is no grandfathering of previous consolidation conclusions. As a result, the Company re-evaluated all prior VIE and primary beneficiary determinations. The requirements of ASU 2009-17 were adopted on a prospective basis.
The Company hasevaluates whether an entity is a legal retirementVIE whenever reconsideration events occur. We consolidate VIEs for which we are 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, we consider 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 forto absorb the decommissioning costs for its Fermi 1 and Fermi 2 nuclear plants.expected losses and/or the right to receive the expected returns of the VIE. The Company performs ongoing reassessments of all VIEs to determine if the primary beneficiary status has conditional retirement obligationschanged.
Detroit Edison financed specific stranded costs at lower interest rates 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 disposal of asbestos at certain of its power plants. ToSecuritization. This entity is a lesser extent,consolidated VIE for which the Company has conditional retirement obligationsis the primary beneficiary. The maximum risk exposure related to Securitization is reflected on our Consolidated Statements of Financial Position
The following table summarizes the amounts at certain service centers, and disposal costsMarch 31, 2010 for PCB contained within transformers and circuit breakers. The Company recognizes such obligations as liabilities at fair market value when they are incurred, which generally is at the time the associated assets are placed in service. Fair value is measured using expected future cash outflows discounted at our credit-adjusted risk-free rate. The Company defers timing differences that arise in the expense recognition of legal asset retirement costsSecuritization that are currently recovered in rates.
A reconciliationeither (1) assets that can be used only to settle their obligations or (2) liabilities for which creditors do not have recourse to the general credit of the asset retirement obligations for the nine months ended September 30, 2009 follows:
     
(in Millions)    
Asset retirement obligations at January 1, 2009 $1,226 
Accretion  60 
Liabilities settled  (6)
Revision in estimated cash flows  5 
    
Asset retirement obligations at September 30, 2009  1,285 
Less amount included in current liabilities  (16)
    
  $1,269 
    
Approximately $1.2 billion of the asset retirement obligations represent nuclear decommissioning liabilities that are funded through a surcharge to electric customers over the life of the Fermi 2 nuclear power plant.primary beneficiary.

9


     
  March 31, 
(in Millions) 2010 
ASSETS
    
Restricted cash $$27 
Accounts receivable  40 
Securitized regulatory assets  835 
Other assets  18 
    
  $920 
    
     
LIABILITIES
    
Accounts payable and accrued current liabilities $5 
Current portion long-term debt, including capital leases  144 
Other current liabilities  36 
Securitization bonds  717 
Other long term liabilities  6 
    
  $908 
    
Retirement Benefits and Trusteed AssetsNOTE 2 — SIGNIFICANT ACCOUNTING POLICIES
The following details the components of net periodic benefit costs for pension benefits and other postretirement benefits:
                 
(in Millions) Pension Benefits  Other Postretirement Benefits 
Three Months Ended September 30 2009  2008  2009  2008 
Service cost $11  $11  $11  $12 
Interest cost  39   38   26   23 
Expected return on plan assets  (41)  (41)  (10)  (14)
Amortization of:                
Net actuarial loss  9   6   13   7 
Prior service cost  2   2      1 
Net transition liability        1    
             
Net periodic benefit cost $20  $16  $41  $29 
             
                 
(in Millions) Pension Benefits  Other Postretirement Benefits 
Nine Months Ended September 30 2009  2008  2009  2008 
Service cost $32  $34  $34  $36 
Interest cost  119   112   77   70 
Expected return on plan assets  (124)  (123)  (31)  (43)
Amortization of:                
Net actuarial loss  29   19   39   21 
Prior service cost  5   5   1   1 
Net transition liability        2   2 
             
Net periodic benefit cost $61  $47  $122  $87 
             
The Company expects to contribute up to $250 million to its pension plans during 2009. A $20 million contribution was made to the plans in the third quarter of 2009 and approximately $90 million of contributions were made to the plans in the nine-month period ended September 30, 2009.
The Company expects to contribute up to $90 million to its postretirement medical and life insurance benefit plans during 2009. No contributions were made to the plans in the first nine months of 2009.
Income Taxes
UnrecognizedThe Company had $5 million of unrecognized tax benefits at September 30, 2009March 31, 2010 and at December 31, 2008,2009 that, if recognized, would not materiallyfavorably impact ourits effective tax rate. We doThe Company does not anticipate any significant changes in the unrecognized tax benefits during the next twelve months.
Stock-Based Compensation
The Company received an allocation of costs from DTE Energy associated with stock-based compensation. Thecompensation of $6 million in the first quarter of 2010, as compared to no allocation of stock-based compensation expense for the 2009 and 2008 third quarters was approximately $6 million and $3 million, respectively, while such allocation was $11 million and $13 million for the nine months ended September 30, 2009 and 2008, respectively.

10


Consolidated Statements of Cash Flows
The following provides detail of the changes in assets and liabilities that are reportedcosts in the Consolidated Statementsfirst quarter of Cash Flows, and supplementary cash information:
         
  Nine Months Ended 
  September 30 
(in Millions) 2009  2008 
Changes in Assets and Liabilities, Exclusive of Changes Shown Separately
        
Accounts receivable, net $22  $(48)
Inventories  (11)  (31)
Accrued pension liability — affiliates  (65)  59 
Accounts payable  (52)  (46)
Accrued PSCR refund  55   22 
Income taxes payable  50   (10)
General taxes     (11)
Postretirement obligation — affiliates  25   12 
Other assets  42   (14)
Other liabilities  39   34 
       
  $105  $(33)
       
Subsequent Events
The Company has evaluated subsequent events through October 30, 2009, the date that these financial statements were issued.2009.
NOTE 23 — NEW ACCOUNTING PRONOUNCEMENTS
FASB Accounting Standards Codification™ (Codification)
In June 2009, the FASB voted to approve that on July 1, 2009, the Codification will become the single source of authoritative nongovernmental U.S. GAAP. The Codification is a reorganization of current GAAP into a topical format that eliminates the current GAAP hierarchy and establishes two levels of guidance — authoritative and non-authoritative. According to the FASB, all “non-grandfathered, non-SEC accounting literature” that is not included in the Codification would be considered non-authoritative. The FASB has indicated that the Codification does not change current GAAP. Instead, the proposed changes aim to (1) reduce the time and effort it takes for users to research accounting questions and (2) improve the usability of current accounting standards. The Codification is effective for interim and annual periods ending after September 15, 2009.
Fair Value Accounting
In September 2006, the FASB issued ASC 820 (SFAS No. 157,Fair Value Measurements). The standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. It emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Fair value measurement should be determined based on the assumptions that market participants would use in pricing an asset or liability. Effective January 1, 2008, the Company adopted ASC 820 (SFAS No. 157). As permitted by ASC 820-10 (FSP No. 157-2), the Company elected to defer the effective date of the standard as it pertains to measurement and disclosures about the fair value of non-financial assets and liabilities made on a nonrecurring basis. The Company has adopted the recognition provisions for non-financial assets and liabilities as of January 1, 2009. See Note 3.
In April 2009, the FASB issued three FSPs intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities. The FSPs are effective for interim and annual periods ending after June 15, 2009.
ASC 825-10 (FSP No. 107-1 and APB No. 28-1),Interim Disclosures about Fair Value of Financial Instruments,expands the fair value disclosures required for all financial instruments within the scope of SFAS No. 107 to interim periods.
ASC 820-10 (FSP No. 157-4),Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,which applies to all assets and liabilities, i.e., financial and nonfinancial, reemphasizes that the objective of fair value remains

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unchanged (i.e., an exit price notion). The FSP provides application guidance on measuring fair value when the volume and level of activity has significantly decreased and identifying transactions that are not orderly. The FSP also emphasizes that an entity cannot presume that an observable transaction price is not orderly even when there has been a significant decline in the volume and level of activity.
ASC 320-10 (FSP No. 115-2 and SFAS No. 124-2),Recognition and Presentation of Other-Than-Temporary Impairments,is intended to bring greater consistency to the timing of impairment recognition, and provide greater clarity to investors about the credit and noncredit components of impaired debt securities that are not expected to be sold.
The Company adopted these FSPs in the second quarter of 2009. The adoption of these FSPs did not have a significant impact on Detroit Edison’s consolidated financial statements.
Noncontrolling Interests in Consolidated Financial Statements
In December 2007, the FASB issued ASC 810-10 (SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51).This standard establishes accounting and reporting standards for the noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The standard is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2008. This standard shall be applied prospectively as of the beginning of the fiscal year in which this standard is initially applied, except for the presentation and disclosure requirements which shall be applied retrospectively for all periods presented. The Company adopted the standard as of January 1, 2009. Adoption of ASC 810-10 (SFAS No. 160) did not have a material effect on the Company’s consolidated financial statements.
Disclosures about Derivative Instruments and Guarantees
In March 2008, the FASB issued ASC 815-10 (SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133). This standard requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under ASC 815 (SFAS No. 133) and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.
The standard is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. Comparative disclosures for earlier periods at initial adoption are encouraged but not required. The Company adopted the standard effective January 1, 2009. See Note 3.
Subsequent Events
In May 2009, the FASB issued ASC 855 (SFAS No. 165,Subsequent Events). This standard provides guidance on management’s assessment of subsequent events. The new standard clarifies that management must evaluate, as of each reporting period, events or transactions that occur after the balance sheet date “through the date that the financial statements are issued or are available to be issued.” Management must perform its assessment for both interim and annual financial reporting periods. The standard does not significantly change the Company’s practice for evaluating such events. ASC 855 (SFAS No. 165) is effective prospectively for interim and annual periods ending after June 15, 2009 and requires disclosure of the date subsequent events are evaluated through. The Company adopted the standard during the quarter ended June 30, 2009. See Note 1.
Transfers of Financial AssetsVariable Interest Entity
In June 2009, the FASB issued SFAS No. 166,Accounting for Transfers of Financial Assets — an amendment of FASB No. 140 (not yet effective nor codified).This standard amends ASC 860, (SFAS No. 140), eliminates the concept of a “qualifying special-purpose entity” (QSPE) and associated guidance and creates more stringent conditions for reporting a transfer of a portion of a financial asset as a sale. SFAS No. 166 is intended to enhance

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reporting in the wake of the subprime mortgage crisis and the deterioration in the global credit markets. The standard is effective for financial asset transfers occurring after the beginning of an entity’s first fiscal year that begins after November 15, 2009. Early adoption is prohibited. SFAS No. 166 must be applied prospectively to transfers of financial assets occurring on or after its effective date. The adoption of SFAS No. 166 will not have a material impact on Detroit Edison’s consolidated financial statements.
Variable Interest Entities (VIE)
In June 2009, the FASB issued SFAS No. 167,ASU 2009-17,Amendments to FASB Interpretation 46(R) (not yet effective nor codified).This standard amends the consolidation guidance that applies to VIEs and affects the overall consolidation analysis under ASC 810 -10(Interpretation 46(R))810-10,Consolidation. The amendments to the consolidation guidance affect all entities and enterprises currently within the scope of ASC 810-10, as well as qualifying special purpose entities that are currently outside the scope of ASC 810-10. Accordingly, the Company will need to reconsiderreconsidered its previous ASC 810-10 conclusions, including (1) whether an entity is a VIE, (2) whether the enterprise is the VIE’s primary beneficiary, and (3) what type of financial statement disclosures are required. SFAS No. 167ASU 2009-17 is effective as of the beginning of the first fiscal year that begins after November 15, 2009. Early adoption is prohibited. The Company is currently assessingadopted the impactstandard as of SFAS No. 167 on Detroit Edison’s consolidated financial statements.January 1, 2010.
Fair Value Measurements and Disclosures
In September and August 2009, respectively,January 2010, the FASB issued Accounting Standards Update (ASU) 2009-12,ASU 2010-06,Improving Disclosures about Fair Value Measurements. ASU 2010-06 requires details of transfers in and Disclosure,out of Level 1 and ASU 2009-05,Measuring Liabilities at Fair Value.ASU 2009-12 provides guidance for2 fair value measurements and the gross presentation of activity within the Level 3 fair value measurement roll forward. The new disclosures are required of investments in certainall entities that calculate the net asset value per share (or its equivalent) determined as of the reporting entity’s measurement date. Certain attributes of the investment (such as restrictions on redemption)are required to provide disclosures about recurring and transaction prices from principal-to-principal or brokered transactions will not be considered in measuring thenonrecurring fair value of the investment.measurements. The amendments in this standard are effective for interim and annual periods ending after December 15, 2009.
ASU 2009-05 provides guidance on measuring the fair value of liabilities under ASC 820. This standard clarifies that in the absence of a quoted price in an active market for an identical liability at the measurement date, companies may apply approaches that use the quoted price of an investment in the identical liability or similar liabilities traded as assets or other valuation techniques consistent with the fair-value measurement principles in ASC 820. The standard permits fair value measurements of liabilities that are based on the price that a company would pay to transfer the liability to a new obligor. It also permits a company to measure the fair value of liabilities using an estimate of the price it would receive to enter into the liability at that date. The new standard is effective for interim and annual periods beginning after August 27, 2009 and applies to all fair-value measurements of liabilities required by GAAP. The Company is currently assessing the impact of ASU 2009-12 and ASU 2009-05 on Detroit Edison’s consolidated financial statements.
Revenue Arrangements
In September 2009, the FASB ratified Issue No. 08-1,Revenue Arrangements with Multiple Deliverables (not yet codified).Issue 08-1 provides principles and application guidance on whether multiple deliverables exist, how the arrangement should be separated, and the consideration allocated. This standard shall be applied prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted. Alternatively, an entity may elect to adopt this standard on a retrospective basis. The Company is currently assessing the impact of Issue No. 08-1 on Detroit Edison’s consolidated financial statements.
NOTE 3 — FINANCIAL AND OTHER DERIVATIVE INSTRUMENTS AND FAIR VALUE
Financial and Other Derivative Instruments
The Company recognizes all derivatives on the Consolidated Statement of Financial Position at their fair value unless they qualify for certain scope exceptions, including normal purchases and normal sales exception. Further, derivatives that qualify and are designated for hedge accounting are classified as either hedges of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge), or as hedges of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge). For cash flow hedges, the portion of the derivative gain or loss that is effective in offsetting the change in the value of the underlying exposure is deferred in Accumulated other comprehensive income and later

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reclassified into earnings whenadopted ASU 2010-06 effective January 1, 2010, except for the underlying transaction occurs. Forgross presentation of the Level 3 fair value hedges, changes in fair valuesmeasurement roll forward which is effective for both the derivativeannual reporting periods beginning after December 15, 2010 and the underlying hedged exposure are recognized in earnings each period. Gains and losses from the ineffective portion of any hedge are recognized in earnings immediately.for interim reporting periods within those years.
The Company’s primary market risk exposure is associated with commodity prices, credit and interest rates. The Company has risk management policies to monitor and manage market risks. The Company uses derivative instruments to manage some of the exposure. Contracts the Company typically classifies as derivative instruments include power, certain coal forwards, futures, options and swaps.
Detroit Edison generates, purchases, distributes and sells electricity. Detroit Edison uses forward energy and capacity contracts to manage changes in the price of electricity and fuel. Substantially all of these contracts meet the normal purchases and sales exemption and are therefore accounted for under the accrual method. Other derivative contracts are recoverable through the PSCR mechanism when realized. This results in the deferral of unrealized gains and losses as Regulatory assets or liabilities, until realized.
The following represents the fair value of derivative instruments as of September 30, 2009:
       
  Balance Sheet Fair 
  Location Value 
FTRs Other current assets $1 
Emissions Other current liabilities  (2)
Emissions Other non-current liabilities  (7)
      
Total derivatives not designated as hedging instrument
   $(8)
      
       
Total derivatives:
      
Current   $(1)
Noncurrent    (7)
      
Total derivatives as reported
   $(8)
      
The effect of derivative instruments recoverable through the PSCR mechanism when realized on the Consolidated Statement of Financial Position for the three and nine months ended September 30, 2009 is as follows:
             
      Three Months    
      Ended  Nine Months Ended 
  Location of Gain  Gain (Loss)  Gain (Loss) 
  (Loss) Recognized  Recognized in  Recognized in 
  in Regulatory  Regulatory Assets  Regulatory Assets 
  Assets / Liabilities  / Liabilities on  / Liabilities on 
  On Derivative  Derivative  Derivative 
FTRs and Emissions Regulatory Asset $(1) $(13)
FTRs and Emissions Regulatory Liability     (3)
           
Total
     $(1) $(16)
           
The following represents the cumulative gross volume of derivative contracts outstanding as of September 30, 2009:
CommodityNumber of Units
Emissions (Tons)5,236
FTRs (MW)100,338
Fair ValueNOTE 4 — FAIR VALUE
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants’participants use in pricing assets or liabilities. These inputs can be readily observable, market corroborated or generally unobservable inputs. The Company makes certain assumptions it believes that market participants would use in pricing assets or liabilities, including assumptions about risk, and the risks inherent in the inputs to valuation techniques. Credit risk of the Company and its counterparties is incorporated in the valuation of assets and liabilities through the use of credit reserves, the impact of which is immaterial for the three and nine months ended

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September 30, March 31, 2010 and the year ended December 31, 2009. 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, which prioritizes the inputs to valuation techniques used to measure fair value in three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. All assets and liabilities are required to be classified in their entirety based on the lowest level of input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input may require judgment considering factors specific to the asset or liability, and may affect the valuation of the asset or liability and its placement within the fair value hierarchy. The Company classifies fair value balances based on the fair value hierarchy defined as follows:
Level 1 — Consists of unadjusted quoted prices in active markets for 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.
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, 2009:March 31, 2010:
                                
 Net Balance at  Net Balance at 
(in Millions) Level 1 Level 2 Level 3 September 30, 2009  Level 1 Level 2 Level 3 March 31, 2010 
Assets:
  
Cash equivalents $50 $ $ $50  $137 $ $ $137 
Nuclear decommissioning trusts and other investments 558 320  878 
Derivative assets   1 1 
Nuclear decommissioning trusts 577 282  859 
Other investments 43 54  97 
Derivative assets — FTRs   1 1 
                  
Total $608 $320 $1 $929  $757 $336 $1 $1,094 
                  
Liabilities:
  
Derivative liabilities   (9)   (9)
Derivative liabilities — Emissions   (8)   (8)
                  
Total $ $(9) $ $(9) $ $(8) $ $(8)
                  
  
Net Assets at September 30, 2009 $608 $311 $1 $920 
Net Assets at March 31, 2010 $757 $328 $1 $1,086 
                  
 
Assets:
 
Current(1) $137 $ $1 $138 
Noncurrent(2) 620 336  956 
         
Total Assets $757 $336 $1 $1,094 
         
Liabilities:
 
Current $ $(5) $ $(5)
Noncurrent   (3)   (3)
         
Total Liabilities $ $(8) $ $(8)
         
 
Net Assets at March 31, 2010 $757 $328 $1 $1,086 
         

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(1)Includes $137 million of cash equivalents that are included in the Consolidated Statements of Financial Position in Cash and Cash Equivalents.
(2)Includes $97 million of other investments that are included in the Consolidated Statements of Financial Position in Other Investments.
The following table presents the fair value reconciliation of Level 3 derivative assets and liabilities measured at fair value on a recurring basis for the three and nine months ended September 30, 2009March 31, 2010 and 2008:2009:
                 
  Three Months Ended  Nine Months Ended 
  September 30  September 30 
(in Millions) 2009  2008  2009  2008 
Asset balance as of beginning of period $2  $4  $4   4 
Changes in fair value recorded in income     (1)     2 
Changes in fair value recorded in regulatory assets/liabilities  (1)     (2)   
Purchases, issuances and settlements        1   (3)
Transfers in/out of Level 3        (2)   
             
Asset balance as of September 30 $1  $3  $1  $3 
             
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, 2009 and 2008 $(1) $  $2  $3 
             
         
  Three Months Ended 
  March 31 
(in Millions) 2010  2009 
Asset balance as of January 1 $2   4 
Changes in fair value recorded in regulatory assets/liabilities  (1)  (2)
Transfers in/out of Level 3     (2)
       
Asset balance as of March 31 $1  $ 
       
The amount of total gains (losses) included in regulatory assets and liabilities attributed to the change in unrealized gains (losses) related to regulatory assets and liabilities held at March 31, 2010 and 2009 $  $1 
       

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Transfers in/out of Level 3 represent existing assets or liabilities that were either previously categorized as a higher level and for which the inputs to the model 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/out of Level 3 are reflected as if they had occurred at the beginning of the period. No significant transfers between Levels 1, 2 or 3 occurred in the three months ended March 31, 2010. Transfers out of Level 3 in 2009 reflect increased reliance on broker quotes for certain transactions.
Cash Equivalents
Cash equivalents include investments with maturities of three months or less when purchased. The cash equivalents shown in the fair value table are comprised of investments in money market funds. The fair values of the shares of these funds are based on observable market prices and, therefore, have been categorized as Level 1 in the fair value hierarchy.
Nuclear Decommissioning Trusts and Other Investments
The nuclear decommissioning trust fund investments have been established to satisfy Detroit Edison’s nuclear decommissioning obligations. The nuclear decommissioning trusts and other fund investments hold debt and equity securities directly and indirectly through commingled funds and institutional mutual funds. Exchange-traded debt and equity securities held directly are valued using quoted market prices onin actively traded markets. The commingled funds and institutional mutual funds which hold exchange-traded equity or debt securities are valued based on the underlying securities, using quoted prices in actively traded markets. Non-exchange-traded fixed income securities are valued based upon quotations available from brokers or pricing services. For non-exchange traded fixed income securities, the trustees receive prices from pricing services. A primary price source is identified by asset type, class or issue for each security. The trustees monitor prices supplied by pricing services and may use a supplemental price source or change the primary price source of a given security if the trustees challenge an assigned price and determine that another price source is considered to be preferable. Detroit Edison has obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving

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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.observable, such as contracts which extend beyond the actively traded reporting period.
Fair Value of Financial Instruments
The fair value of long-term debt is determined by using quoted market prices when available and a discounted cash flow analysis based upon estimated current borrowing rates when quoted market prices are not available. The table below shows the fair value relative to the carrying value for long-term debt securities. Certain other financial instruments, such as notes payable, customer deposits and notes receivable are not shown as carrying value approximates fair value. See Note 5 for further information on financial and derivative instruments.
                 
  September 30, 2009March 31, 2010 December 31, 20082009
  Fair Value Carrying Value Fair Value Carrying Value
Long-Term Debt $5.35.1 billion$4.9 billion$5.2 billion $5.0 billion$5.0 billion$5.2 billion
Investments in Debt and Equity SecuritiesNuclear 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 6 for additional information.
The Company generally classifies investments in debtNRC has jurisdiction over the decommissioning of nuclear power plants and equity securities as either trading or available-for-salerequires decommissioning funding based upon a formula. The MPSC and has recorded such investments at market value with unrealized gains or losses included in earnings or in other comprehensive income or loss, respectively. Changes inFERC regulate the fair valuerecovery 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 nuclearand the disposal of low-level radioactive waste. Detroit Edison is continuing to fund FERC jurisdictional amounts for decommissioning investmentseven though explicit provisions are recorded as adjustmentsnot included in FERC rates. The Company believes the MPSC and FERC collections will be adequate to regulatoryfund the estimated cost of decommissioning using the NRC formula. The decommissioning assets, oranticipated earnings thereon and future revenues from decommissioning collections will be used to decommission Fermi 2. The Company expects the liabilities due to a recovery mechanism frombe 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.

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customers. The Company’s investments are reviewed for impairment each reporting period. If the assessment indicates that the impairment is other than temporary, a loss is recognized resulting in the investment being written down to its estimated fair value.
Decommissioning
The following table summarizes the fair value of the nuclear decommissioning trust fund assets.assets:
         
  September 30  December 31 
(in Millions) 2009  2008 
Fermi 2 $762  $649 
Fermi 1  3   3 
Low level radioactive waste  26   33 
       
Total $791  $685 
       
At September 30, 2009, investments in the nuclear decommissioning trust funds consisted of approximately 51% in publicly traded equity securities, 48% in fixed debt instruments and 1% in cash equivalents. At December 31, 2008, investments in the nuclear decommissioning trust funds consisted of approximately 42% in publicly traded equity securities, 57% in fixed income and 1% in cash equivalents. The debt securities at both September 30, 2009 and December 31, 2008 had an average maturity of approximately 5 years.
         
  March 31,  December 31, 
(in Millions) 2010  2009 
Fermi 2 $831  $790 
Fermi 1  2   3 
Low level radioactive waste  26   24 
       
Total $859  $817 
       
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 Ended Three Months Ended 
 September 30 September 30 March 31 
(in Millions) 2009 2008 2009 2008 2010 2009 
Realized gains $9 $7 $28 $18  $9 $17 
Realized losses $(12) $(15) $(45) $(31) $(8) $(26)
Proceeds from sales of securities $55 $68 $237 $180  $59 $113 
Realized gains and losses from the sale of securities for the Fermi 2 and the low level radioactive waste funds are recorded to the assetAsset retirement obligation, regulatoryRegulatory asset and nuclearNuclear decommissioning liability. The following table sets forth the fair value and unrealized gains for the nuclear decommissioning trust funds:
                
 Fair Unrealized  Fair Unrealized 
(in Millions) Value Gains  Value Gains 
As of September 30, 2009 
As of March 31, 2010 
Equity securities $400 $118  $445 $152 
Debt securities 381 19  401 19 
Cash and cash equivalents 10   13  
          
 $791 $137  $859 $171 
          
  
As of December 31, 2008 
As of December 31, 2009 
Equity securities $288 $65  $420 $135 
Debt securities 388 17  388 17 
Cash and cash equivalents 9   9  
          
 $685 $82  $817 $152 
          
The debt securities at both March 31, 2010 and December 31, 2009 had an average maturity of approximately 5 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.
Impairment charges for unrealized losses incurred by the Fermi 2 trust are recognized as a regulatory asset. Detroit Edison recognized $52$44 million and $56$102 million of unrealized losses as regulatory assets at September 30,March 31, 2010 and 2009, and 2008, respectively. Since the decommissioning of Fermi 1 is funded by Detroit Edison rather than through a regulatory recovery mechanism, there is no corresponding regulatory asset treatment. Therefore, impairment charges for unrealized losses incurred by the Fermi 1 trust are recognized in earnings immediately. There were no impairment charges for the three months ended March 31, 2010 and 2009 for Fermi 1.

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impairment charges for the nine months ended September 30, 2009 and 2008 for Fermi 1 due to an immaterial amount remaining in the fund as a result of ongoing decommissioning activities.
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, 2009 December 31, 2008 March 31, 2010 December 31, 2009 
(in Millions) Fair Value Carrying value Fair Value Carrying Value Fair Value Carrying value Fair Value Carrying Value 
Cash equivalents $47 $47 $98 $98  $53 $53 $105 $105 
Equity securities $3 $3 $20 $20  $4 $4 $4 $4 
As of September 30, 2009,March 31, 2010 these securities are comprised primarily of money-market and equity instruments. Additionally, gainssecurities. Gains (losses) related to trading securities held at September 30,March 31, 2010 and March 31, 2009 were $6 million.$2 million and $(3) million, respectively.
NOTE 45REGULATORY MATTERSFINANCIAL AND OTHER DERIVATIVE INSTRUMENTS
2009 Electric Rate Case FilingThe Company recognizes all derivatives on the Consolidated Statements of Financial Position at their fair value unless they qualify for certain scope exceptions, including the normal purchases and normal sales exception. Further, derivatives that qualify and are designated for hedge accounting are classified as either hedges of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge), or as hedges of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge). For cash flow hedges, the portion of the derivative gain or loss that is effective in offsetting the change in the value of the underlying exposure is deferred in Accumulated other comprehensive income and later reclassified into earnings when the underlying transaction occurs. For fair value hedges, changes in fair values for the derivative are recognized in earnings each period. Gains and losses from the ineffective portion of any hedge are recognized in earnings immediately. For derivatives that do not qualify or are not designated for hedge accounting, changes in fair value are recognized in earnings each period.
Detroit Edison filed a general rate case on January 26, 2009 based on a twelve months ended June 2008 historical test year. The filing with the MPSC requested a $378 million, or 8.1 percent average increase in Detroit Edison’s annual revenues for the twelve months ended June 30, 2010 projected test year. The requested $378 million increase in revenuesprimary market risk exposure is required to recover the increased costs associated with environmental compliance, operationcommodity prices, credit and maintenanceinterest rates. The Company has risk management policies to monitor and manage market risks. The Company uses derivative instruments to manage some of the Company’s electric distribution systemexposure. Detroit Edison generates, purchases, distributes and generation plants, customer uncollectible accounts, inflation, the capital costs of plant additionssells electricity. Detroit Edison uses forward energy and the reduction in territory sales.
In addition, Detroit Edison’s filing made, among other requests, the following proposals:
Continued progress toward correcting the existing rate structurecapacity contracts to more accurately reflect the actual cost of providing service to business customers;
Continued application of an adjustment mechanism to enable the Company to address the costs associated with retail electric customers migrating to and from Detroit Edison’s full service retail electric tariff service;
Application of an uncollectible expense true-up mechanism based on the $87 million expense level of uncollectible expenses that occurred during the 12 month period ended June 2008;
Continued application of the storm restoration expense recovery mechanism and modification to the line clearance expense recovery mechanism; and
Implementation of a revenue decoupling mechanism. Revenue decoupling is an adjustment mechanism that would provide revenues consistent with the allowed revenue requirement with a periodic adjustment formanage changes in the price of electricity and fuel. Substantially all of these contracts meet the normal purchases and sales levels.
Pursuant to an MPSC order issued May 26, 2009, Detroit Edison filed proposed tariffs on June 26, 2009 to implement $280 million of its requested annual increase on July 26, 2009. On July 16, 2009,exemption and are therefore accounted for under the MPSC issued an order requiring Detroit Edison to implementaccrual method. Other derivative contracts are recoverable through the increase by applying the rate design reflected in its January 26, 2009 application.PSCR mechanism when settled. This increase will remain in place until a final order is issued by the MPSC, which is expected in January 2010. Detroit Edison recorded approximately $40 million of increased revenuesresults in the third quarterdeferral of 2009unrealized gains and losses as a resultRegulatory assets or liabilities, until realized.
The following represents the fair value of the self-implemented rates. If the final rate case order does not support the self-implemented rate increase, Detroit Edison must refund the difference with interest. We have assessed whether a refund will be likely in accordance with the requirements of ASC 450-20 “Loss Contingencies” and believe that it is reasonably possible, but not probable, that Detroit Edison will be required to refund some or all of its self-implemented rate increase and therefore have not recorded a refund liabilityderivative instruments as of September 30, 2009.March 31, 2010:
Renewable Energy Plan
In March 2009, Detroit Edison filed its Renewable Energy Plan with the MPSC as required under 2008 PA 295. The Renewable Energy Plan application requests authority to recover approximately $35 million of additional revenue in
         
  Balance Sheet  Fair 
(in Millions) Location  Value 
FTRs Other current assets $1 
Emissions Other current liabilities  (5)
Emissions Other non-current liabilities  (3)
        
Total derivatives not designated as hedging instrument
     $(7)
        
         
Total derivatives:
        
Current     $(4)
Noncurrent      (3)
        
Total derivatives as reported
     $(7)
        

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2009. The proposed revenue increaseeffect of derivative instruments recoverable through the PSCR mechanism when realized on the Consolidated Statements of Financial Position is necessarya $1 million loss related to FTRs recognized in order to properly implement Detroit Edison’s 20-year renewable energy plan to addressRegulatory liabilities for the provisionsthree months ended March 31, 2010.
The following represents the cumulative gross volume of 2008 PA 295, to deliver new, cleaner, renewable electric generation to its customers, to further diversify Detroit Edison’s and the Statederivative contracts outstanding as of Michigan’s sources of electric supply, and to address the state and national goals of increasing energy independence. An MPSC order was issued June 2, 2009 approving the renewable energy plan and customer surcharges. The Renewable Energy Plan surcharges became effective in September 2009.March 31, 2010:
CommodityNumber of Units
Emissions (Tons)4,486
FTRs (MW)6,142
NOTE 6 — ASSET RETIREMENT OBLIGATIONS
A reconciliation of the asset retirement obligations for the three months ended March 31, 2010 follows:
     
(in Millions)    
Asset retirement obligations at January 1, 2010 $1,300 
Accretion  21 
Liabilities incurred  9 
Liabilities settled  (1)
    
Asset retirement obligations at March 31, 2010  1,329 
Less amount included in current liabilities  (13)
    
  $1,316 
    
Substantially all of the asset retirement obligations represent nuclear decommissioning liabilities that are funded through a surcharge to electric customers over the life of the Fermi 2 nuclear plant.
NOTE 7 — REGULATORY MATTERS
Energy Optimization Plans
In March 2009, Detroit Edison filed an Energy Optimization Plan with the MPSC as required under 2008 PA 295. The Energy Optimization Plan applications areapplication is designed to help each customer class reduce their electric usage by: (1) building customer awareness of energy efficiency options and (2) offering a diverse set of programs and participation options that result in energy savings for each customer class. In March 2010, Detroit Edison filed an amended Energy Optimization Plan with the MPSC. Detroit Edison’s amended Energy Optimization Plan application proposed the recovery of energy optimization expenditures for the period 2009-20112010-2015 of $134$406 million and further requests approval of surcharges that are designed to recover these costs. An MPSC order was issued June 2,In April 2010, Detroit Edison filed its 2009 approving the Energy Optimization Plansreconciliation. This filing reconciles 2009 actual Energy Optimization billed revenues with 2009 actual Energy Optimization costs by rate class. Any 2009 over/under recovery of $117 millioncosts have been carried forward and reflected as part of the utility’s March 2010 amended Energy Optimization filing. Also addressed in this filing is the effectiveness of the 2009 Energy Optimization programs relative to legislative targets for Detroit Edison. The surcharges to recover these costs were implemented effective June 3, 2009. A new financialenergy savings and the calculation of the 2009 performance incentive proposal was filed on July 2, 2009. An MPSC order was issued September 29, 2009 approving incentive mechanisms for Detroit Edison. The mechanism allows a maximum payout of 15% of program expenditures when the utility meetsbased on meeting or exceedsexceeding legislative targets.
Detroit Edison Uncollectible Expense True-Up Mechanism (UETM)
In March 2010, Detroit Edison filed an application with the savings target by 15%.MPSC for approval of its UETM for 2009 requesting recovery of approximately $4.5 million consisting of costs related to 2009 uncollectible expense and associated carrying charges.

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Power Supply Cost Recovery Proceedings
2008 Plan Year —In September 2007, Detroit Edison filed its 2008The PSCR plan case seeking approvalprocess is designed to allow us to recover all of a levelized PSCR factor of 9.23 mills/kWh above the amount included in base rates for all PSCR customers. Also included in the filing was a request for approval of the Company’s emission compliance strategy which included pre-purchases of emission allowances as well as a request for pre-approval of a contract for capacity and energy associated with a renewable (wind) energy project. On January 31, 2008, Detroit Edison filed a revised PSCR plan case seeking approval of a levelized PSCR factor of 11.22 mills/kWh above the amount included in base rates for all PSCR customers. The revised filing supports a 2008our power supply expense forecast of $1.4 billioncosts if incurred under reasonable and includes $43 million for the recovery of a projected 2007 PSCR under-collection. On July 29, 2008, the MPSC issued a temporary order approving Detroit Edison’s request to increase the PSCR factor to 11.22 mills/kWh. In January 2009, the MPSC approved the Company’s 2008 PSCR planprudent policies and authorized the Company to charge a maximum PSCR factor of 11.22 mills/kWh for 2008. The Company filed its 2008 PSCR reconciliation case in March 2009. The filing requests recovery of a $19 million PSCR under-collection. In addition, the filing requests authorization to refund its total 2005 PSCR under-collection surcharge at year-end 2008 of $10 million, including interest, to all commercial and industrial customers. Included in the 2008 PSCR reconciliation filing was the Company’s 2008 pension expense mechanism reconciliation that reflects a $50 million over-collection. The Company expects an order in this proceeding in the second quarter of 2010.
2009 Plan Year— In September 2008, Detroit Edison filed its 2009 PSCR plan case seeking approval of a levelized PSCR factor of 17.67 mills/kWh above the amount included in base rates for residential customers and a levelized PSCR factor of 17.29 mills/kWh above the amount included in base rates for commercial and industrial customers. The Company is supporting a totalpractices. Our power supply expense forecast of $1.73 billion. The plan also includes approximately $69 million for the recovery of its projected 2008 PSCR under-collection from all customers and approximately $12 million for the refund of its 2005 PSCR reconciliation surcharge over-collection to commercial and industrial customers only. Also included in the filing is a request for approval of the Company’s expense associated with the use of urea in the selective catalytic reduction units at Monroe power plant as well as a request for approval of a contract for capacity and energy associated with a renewable (wind) energy project. The Company’s PSCR Plan will allow the Company to recover its reasonably and prudently incurred power supply expense including,costs include fuel costs, purchased and net interchange power costs, nitrogen oxide and sulfur dioxide emission allowanceallowances costs, transmission costs and MISO costs. The Company self-implemented aMPSC reviews these costs, policies and practices for prudence in annual plan and reconciliation filings.
The following table summarizes Detroit Edison’s PSCR factor of 11.64 mills/kWh above the amount included in base rates for residential customers and a PSCR factor of 11.22 mills/kWh above the amount included in base rates for commercial and industrial customers on bills rendered in January 2009. Subsequently, as a result of the December 23, 2008 MPSC order in the 2007 Detroit Edison rate case, the Company implemented a PSCR factor of 3.18 mills/kWh below the amount included in base rates for residential customers and a PSCR factor of 3.60 mills/kWh below the amount included in base rates for commercial and

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industrial customers for service rendered effective January 14, 2009. The Company self-implemented a PSCR factor of 10.18 mills/kWh below the amount included in base rates for residential customers and a PSCR factor of 10.46 mills/kWh below the amount included in base rates for commercial and industrial customers for bills rendered effective August 1, 2009. On June 29, 2009, the parties to this proceeding executed a Settlement Agreement in this matter agreeing to maximum PSCR factors of 1.67 mills/kWh for residential customers and 1.35 mills/kWh for commercial and industrial customers and otherwise resolving this 2009 PSCR Plan case. The Company awaits an MPSC order approving the settlement.
2010 Plan Year— In September 2009, Detroit Edison filed its 2010 PSCR plan case seeking approval of a levelized PSCR factor of 5.64 mills/kWh below the amount included in base rates for all PSCR customers. Thereconciliation filing supports a 2010 power supply expense forecast of $1.2 billion. Also included in the filing is a request for approval of the Company’s expense associatedcurrently pending with the use of urea in the selective catalytic reduction units at Monroe power plant as well as a request for approval of a contract for capacity and energy associated with a wind energy project. The Company’s PSCR Plan will allow the Company to recover its reasonably and prudently incurred power supply expense including, fuel costs, purchased and net interchange power costs, nitrogen oxide and sulfur dioxide emission allowance costs, transmission costs and MISO costs. The Company has also requested authority to recover transfer prices for renewable energy, coke oven gas expense, and other potential expenses.MPSC:
Merger Control Premium Costs
In July 2007, the State of Michigan Court of Appeals published its decision with respect to an appeal by Detroit Edison and others of certain provisions of a November 2004 MPSC order, including reversing the MPSC’s denial of recovery of merger control premium costs. In its published decision, the Court of Appeals held that Detroit Edison is entitled to recover its allocated share of the merger control premium and remanded this matter to the MPSC for further proceedings to establish the precise amount and timing of this recovery. Other parties filed requests for leave to appeal to the Michigan Supreme Court from the Court of Appeals decision and in September 2008, the Michigan Supreme Court granted the requests to address the merger control premium as well as the recovery of transmission costs through the PSCR. On May 1, 2009, the Michigan Supreme Court issued an order reversing the Court of Appeals decision with respect to recovery of the merger control premium, and reinstated the MPSC’s decision excluding the control premium costs from Detroit Edison’s general rates. The Court affirmed the lower court’s decision upholding the right of Detroit Edison to recover electric transmission costs through the Company’s PSCR clause. The Company requested rehearing of the Supreme Court order on the merger premium and the Michigan Attorney General requested rehearing of the transmission portion of the order. On June 26, 2009, the Michigan Supreme Court denied request for a rehearing.
PSCR Cost ofDescription of Net
PSCR YearDate FiledNet Over-recoveryPower SoldOver-recovery
2009March 2010$15.6 million$1.1 billionThe total amount reflects an over-recovery of $10.9 million, plus $4.7 million in accrued interest due to customers
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 5 — SHAREHOLDER’S EQUITY
In March 2009, DTE Energy made a capital contribution of $250 million to the Company.

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NOTE 68 — LONG-TERM DEBT
Debt Issuances
In 2009, the Company has issued or remarketed the following long-term debt:
(March 2010, Detroit Edison agreed to issue and sell $300 million of 4.89%, 10-year Senior Notes to a group of institutional investors in Millions)
               
Month Issued Type Interest Rate  Maturity  Amount 
April Tax-Exempt Revenue Bonds (1)(2)  6.00%  2036  $69 
June Tax-Exempt Revenue Bonds (1)(3)  5.625%  2020   32 
June Tax-Exempt Revenue Bonds (1)(4)  5.25%  2029   60 
June Tax-Exempt Revenue Bonds (1)(5)  5.50%  2029   59 
              
            $220 
              
(1)Detroit Edison Tax-Exempt Revenue Bonds are issued by a public body that loans the proceeds to Detroit Edison on terms substantially mirroring the Revenue Bonds.
(2)Proceeds were used to refund existing Tax-Exempt Revenue Bonds.
(3)These Tax-Exempt Revenue Bonds were converted from a variable rate mode and remarketed in a fixed rate mode to maturity.
(4)These Tax-Exempt Revenue Bonds were converted from a variable rate mode and remarketed in a fixed rate mode to maturity with a five-year mandatory put.
(5)These Tax-Exempt Revenue Bonds were converted from a variable rate mode and remarketed in a fixed rate mode to maturity with a seven-year mandatory put.
Debt Retirementsa private placement transaction. The notes are expected to close and Redemptions
In 2009, the following debt has been retired through optional redemption:
(fund in Millions)September 2010 with proceeds used to repay a portion of Detroit Edison’s 6.125% Senior Notes due October 2010.
               
Month Retired Type Interest Rate  Maturity  Amount 
April Tax-Exempt Revenue Bonds (1) Variable  2036  $69 
              
            $69 
              
(1)These Tax-Exempt Revenue Bonds were redeemed with the proceeds from the issuance of new Detroit Edison Tax-Exempt Revenue Bonds.
NOTE 79 — SHORT-TERM CREDIT ARRANGEMENTS AND BORROWINGS
Detroit Edison has a $69 million, five-year unsecured revolving credit agreement expiring in October 2010 and a $212 million, two-year unsecured revolving credit agreement expiring in April 2011. The five-year and two-year revolving credit facilities are with a syndicate of 22 banks and may be utilizedused for general corporate borrowings, but are intended to provide liquidity support for our commercial paper program. No one bank provides more than 8.5% of the combined credit facilities.commitment in any facility. Borrowings under the facilities are available at prevailing short-term interest rates. The above agreements require usthe Company to maintain a total funded debt to capitalization ratio, as defined in the agreements, of no more than 0.65 to 1. At March 31, 2010, the debt to total capitalization ratio of no more than 0.65for Detroit Edison is 0.51 to 1. Should we have delinquent obligations of at least $50 million to any creditor,creditor; such delinquency will be considered a default under our credit agreements. Detroit Edison is currently in compliance with its covenants.

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NOTE 8 10COMMITMENTS AND CONTINGENCIES
Environmental
Electric Utility
Air— Detroit Edison is subject to EPA ozone transport and acid rain regulations that limit power plant emissions of sulfur dioxide and nitrogen oxides. Since 2005, EPA and the State of Michigan have issued additional emission reduction regulations and continue to develop additional rules and emission standards relating to ozone, fine particulate, regional haze and mercury air pollution. The new rules will lead to additional controls on fossil-fueled power plants to reduce nitrogen oxide, sulfur dioxide and mercury emissions. To comply with these requirements, Detroit Edison has spent approximately $1.4$1.5 billion through 2008.2009. The Company estimates Detroit Edison’sEdison will make future undiscounted capital expenditures atof up to approximately $100$73 million in 20092010 and up to approximately $2.3$2.2 billion of additional capital expenditures through 2019 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. It is not possible to quantify the impact of those expected rulemakings at this time.
In July 2009, DTE Energy received a Notice of Violation/Finding of Violation (NOV/FOV) from the EPA alleging, among other things, that five Detroit Edison power plants violated New Source Performance standards, Prevention of Significant Deterioration requirements, and Title V operating permit requirements under the Clean Air Act. We

17


believe that the plants identified by the EPA have complied with applicable regulations. Depending upon the outcome of our discussions with the EPA regarding the NOV/FOV, the EPA could bring legal action against Detroit Edison. We could also be required to install additional pollution control equipment at some or all of the power plants in question, engage in Supplemental Environmental Programs, and/or pay fines. We cannot predict the financial impact or outcome of this matter, or the timing of its resolution.
Water— In response to an EPA regulation, Detroit Edison is required to examine alternatives for reducing the environmental impacts of the cooling water intake structures at several of its facilities. Based on the results of thecompleted studies to be conducted over the next several years,and expected future studies, Detroit Edison may be required to install additional control technologies to reduce the impacts of the water intakes. Initially, it was estimated that Detroit Edison could incur up to approximately $55 million over the four to six years subsequent to 2008 in additional capital expenditures to comply with these requirements. However, a January 2007 circuit court decision remanded back to the EPA several provisions of the federal regulation that may resulthas 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. Inrule and in April 2009 the Supreme Court ruled that a cost-benefit analysis is a permissibleupheld EPA’s use of this provision of the rule.in determining best technology available for reducing environmental impacts. Concurrently, the EPA continues to develop a revised rule, a draft of which is expected to be published later in 2009.by summer 2010. The EPA has also proposed an information collection request to begin a review of steam electric effluent guidelines. It is not possible at this time to quantify the impacts of these developing requirements.
Landfill— Detroit Edison owns and operates a permitted slurry landfill at the Monroe Power Plant to dispose of fly ash from the coal fired power plant. Detroit Edison performed an engineering analysis in 2009 and identified the need for embankment side slope repairs and reconstruction. The results of the engineering study show that the estimated cost to perform the embankment repairs are $20 million which we expect to incur over the next five years.
Contaminated Sites— Detroit Edison conducted remedial investigations at contaminated sites, including three former manufactured gas plant (MGP) sites. The investigations have revealed contamination related to the by-products of gas manufacturing at each site. In addition to the MGP sites, the Company is also in the process of cleaning up other contaminated sites, including the area surrounding an ash landfill, electrical distribution substations, and several underground and aboveground storage tank locations. The findings of these investigations indicated that the estimated cost to remediate these sites is expected to be incurred over the next several years. At September 30, 2009March 31, 2010 and December 31, 2008,2009, the Company had $10$9 million and $12 million, respectively, accrued for remediation.
Landfill— Detroit Edison owns and operates a permitted engineered ash storage facility at the Monroe Power Plant to dispose of fly ash from the coal fired power plant. Detroit Edison performed an engineering analysis in 2009 and identified the need for embankment side slope repairs and reconstruction.
Nuclear Operations
Property Insurance
Detroit Edison maintains several different types of property insurance policies specifically for the Fermi 2 plant. These policies cover such items as replacement power and property damage. The Nuclear Electric Insurance Limited (NEIL) is the primary supplier of the insurance policies.
Detroit Edison maintains a policy for extra expenses, including replacement power costs necessitated by Fermi 2’s unavailability due to an insured event. This policy has a 12-week waiting period and provides an aggregate $490 million of coverage over a three-year period.
Detroit Edison has $500 million in primary coverage and $2.25 billion of excess coverage for stabilization, decontamination, debris removal, repair and/or replacement of property and decommissioning. The combined coverage limit for total property damage is $2.75 billion.
In 2007, the Terrorism Risk Insurance Extension Act of 2005 (TRIA) was extended through December 31, 2014. A major change in the extension is the inclusion of “domestic” acts of terrorism in the definition of covered or “certified” acts. For multiple terrorism losses caused by acts of terrorism not covered under the TRIA occurring within one year after the first loss from terrorism, the NEIL policies would make available to all insured entities up to $3.2 billion, plus any amounts recovered from reinsurance, government indemnity, or other sources to cover losses.

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Under the NEIL policies, Detroit Edison could be liable for maximum assessments of up to approximately $28 million per event if the loss associated with any one event at any nuclear plant in the United States should exceed the accumulated funds available to NEIL.
Public Liability Insurance
As of January 1, 2010, as required by federal law, Detroit Edison maintains $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 a component of nuclear fuel expense. Delays have occurred in the DOE’s 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. 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. We have begun work on an on-site dry cask storage facility which is expected to provide sufficient 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 January 2003,certain limited circumstances, the Company soldenters into contractual guarantees. The Company may guarantee another entity’s obligation in the steam heating businessevent it fails to perform. The Company may provide guarantees in certain indemnification agreements. Finally, the Company may provide indirect guarantees for the indebtedness of others.
Detroit Edison to Thermal Ventures II, LP. Under the terms of sale, Detroit Edisonhas guaranteed a bank term loan of $12$11 million that was used for capital improvementsrelated to the sale of its steam heating system.business to Thermal Ventures II, L.P. At September 30, 2009,March 31, 2010, the Company has reserves for the entire amount of the bank loan guarantee.

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Labor Contracts
There are several bargaining units for the Company’s union employees. The majority of our union employees are under contracts that expire in June 2010 and August 2012.
Purchase Commitments
Detroit Edison has an Energy Purchase Agreement to purchase electricity from the Greater Detroit Resource Recovery Authority (GDRRA). The term of the Energy Purchase Agreement for the purchase of electricity runs through June 2024. The Company estimates electric purchase commitments from 2009 through 2024 will not exceed $300 million in the aggregate.
As of September 30, 2009,March 31, 2010, the Company was party to numerous long-term purchase commitments relating to a variety of goods and services required for the Company’s business. These agreements primarily consist of fuel supply commitments and energy trading contracts. The Company estimates that these commitments will be approximately $1.2$1.5 billion from 20092010 through 2024.2025. The Company also estimates that 20092010 capital expenditures will be approximately $790$960 million. The Company has made certain commitments in connection with expected capital expenditures.
Bankruptcies
The Company purchases and sells electricity from and to numerous companies operating in the steel, automotive, energy, retail, financial 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

19


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.
The Company provides services to the domestic automotive industry, including General Motors Corporation (GM), Ford Motor Company (Ford) and Chrysler LLC (Chrysler) and many of their vendors and suppliers. Chrysler filed for bankruptcy protection on April 30, 2009. We have reserved approximately $7 million of pre-petition accounts receivable related to Chrysler as of September 30, 2009. GM filed for bankruptcy protection on June 1, 2009. We have no reserves related to GM as of September 30, 2009.
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’s operations or financial statements in the periods they are resolved.
See Notes 35 and 47 for a discussion of contingencies related to derivatives and regulatory matters.
NOTE 11 — RETIREMENT BENEFITS AND TRUSTEED ASSETS
The following details the components of net periodic benefit costs for pension benefits and other postretirement benefits:
                 
          Other Postretirement 
(in Millions) Pension Benefits  Benefits 
Three Months Ended March 31 2010  2009  2010  2009 
Service cost $13  $11  $13  $12 
Interest cost  38   39   24   26 
Expected return on plan assets  (43)  (41)  (13)  (10)
Amortization of:                
Net actuarial loss  18   9   9   12 
Prior service cost  1   2       
Net transition liability        1   1 
             
Net periodic benefit cost $27  $20  $34  $41 
             
Pension and other Postretirement Contributions
The Company contributed $200 million to its pension plans during the first quarter of 2010, including a contribution of DTE Energy stock of $100 million (consisting of approximately 2.2 million shares valued at an average price of $44.97 per share).
The Company expects to contribute $90 million to its postretirement medical and life insurance benefit plans during 2010. No contributions were made to the plans in the first quarter of 2010.
Healthcare Legislation
In March 2010, the Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act (HCERA) were enacted into law (collectively, the “Act”). The Act is a comprehensive health care reform bill. A provision of the PPACA repeals the current rule permitting deduction of the portion of the drug coverage expense that is offset by the Medicare Part D subsidy, effective for taxable years beginning after December 31, 2012.
Detroit Edison’s retiree healthcare plan includes the provision of postretirement prescription drug coverage (“coverage”) which is included in the calculation of the recorded other postemployment benefit (OPEB) obligation. Because the Company’s coverage meets certain criteria, Detroit Edison is eligible to receive the Medicare Part D subsidy. With the enactment of the Act, the subsidy will continue to not be subject to tax, but an equal amount of prescription drug coverage expenditures will not be deductible. Income tax accounting rules require the impact of a

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change in tax law be recognized in continuing operations in the Consolidated Statements of Operations in the period that the tax law change is enacted.
This change in tax law required a remeasurement of the Deferred Tax Asset related to the OPEB obligation and the Deferred Tax Liability related to the OPEB Regulatory Asset. The net impact of the remeasurement is $18 million and has been deferred as a Regulatory Asset as the traditional rate setting process allows for the recovery of income tax costs.
NOTE 12 — 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:
         
  Three Months Ended 
  March 31 
(in Millions) 2010  2009 
Changes in Assets and Liabilities, Exclusive of Changes Shown Separately
        
Accounts receivable, net $75  $35 
Inventories     13 
Accrued pension liability affiliates
  (93)  (42)
Accounts payable  21   (11)
Accrued PSCR refund  (3)  75 
Income taxes payable  77   56 
Postretirement obligation affiliates
  6   10 
Other assets  (9)  60 
Other liabilities  2   (42)
       
  $76  $154 
       

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Part I —Item 2.
Part I —Item 2.
The Detroit Edison Company
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, 2009March 31, 2010 as compared to the comparable periods in 20082009 period are discussed below:
                        
 Three Months Ended Nine Months Ended  Three Months Ended 
 September 30 September 30  March 31 
(in Millions) 2009 2008 2009 2008  2010 2009 
Operating Revenues $1,300 $1,440 $3,526 $3,766  $1,146 $1,118 
Fuel and Purchased Power 400 586 1,112 1,403  343 340 
              
Gross Margin 900 854 2,414 2,363  803 778 
Operation and Maintenance 306 292 928 1,019  309 316 
Depreciation and Amortization 222 193 607 563  204 188 
Taxes Other Than Income 43 54 147 176  65 60 
Asset (Gains) and Reserves, Net   (1)   (1)
Asset Gains, Net  (1)  
              
Operating Income 329 316 732 606  226 214 
Other (Income) and Deductions 75 67 220 212  79 84 
Income Tax Provision 98 90 199 143  56 52 
              
Net Income Attributable to DTE Energy Company $156 $159 $313 $251 
Net Income $91 $78 
              
  
Operating Income as a Percentage of Operating Revenues  25%  22%  21%  16%  20%  19%
Gross marginincreased $46$25 million in the thirdfirst quarter of 2009 and increased $51 million2010 as compared to the same period in the nine-month period ended September 30, 2009. The following table details changes in various gross margin components relative to the comparable prior period:
         
(in Millions) Three Months  Nine Months 
December 2008 rate order $33  $94 
Securitization bond and tax surcharge rate increase  20   45 
July 2009 rate self-implementation  40   40 
Energy Optimization and Renewable Energy surcharge  17   19 
Weather  (41)  (57)
Reduction in customer demand and other  (23)  (90)
       
Increase in gross margin $46  $51 
       
     
(in Millions) Three Months
January 2010 rate order $53 
Securitization bond and tax surcharge rate increase  13 
Restoration tracker  (10)
Regulatory Asset Revenue surcharge  (13)
Other  (18)
     
Increase in gross margin $25 
     
Electric Sales
         
  Three Months Ended 
  March 31 
(in Thousands of MWh) 2010  2009 
Electric Sales
        
Residential  3,665   3,738 
Commercial  3,942   4,423 
Industrial  2,475   2,637 
Other  802   817 
       
   10,884   11,615 
Interconnections sales (1)  1,310   1,035 
       
Total Electric Sales  12,194   12,650 
       
Electric Deliveries
        
Retail and Wholesale  10,884   11,615 
Electric Customer Choice, including self generators (2)  1,103   317 
       
Total Electric Sales and Deliveries  11,987   11,932 
       
                 
  Three Months Ended  Nine Months Ended 
  September 30  September 30 
(in Thousands of MWh) 2009  2008  2009  2008 
Residential  4,107   4,595   10,992   11,955 
Commercial  4,806   5,072   13,764   14,347 
Industrial  2,562   3,327   7,584   10,074 
Wholesale  720   700   2,119   2,123 
Other  79   89   280   285 
             
   12,274   13,783   34,739   38,784 
Interconnections sales (1)  1,644   618   3,868   2,627 
             
Total Electric Sales  13,918   14,401   38,607   41,411 
             
                 
Electric Deliveries
                
Retail and Wholesale  12,274   13,783   34,739   38,784 
Electric Customer Choice (2)  337   329   998   1,081 
             
Total Electric Sales and Deliveries  12,611   14,112   35,737   39,865 
             

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(1) Represents power that is not distributed by Detroit Edison.
 
(2) Includes deliveries for self generators who have purchased power from alternative energy suppliers to supplement their power requirements.

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Power Generated and Purchased
                        
 Three Months Ended Nine Months Ended  Three Months Ended 
 September 30 September 30 
Power Generated and Purchased March 31 
(in Thousands of MWh) 2009 2008 2009 2008  2010 2009 
Power Plant Generation  
Fossil 10,729 10,566 30,424 31,153  9,520 9,842 
Nuclear 2,367 2,405 6,106 7,156  2,200 2,254 
              
 13,096 12,971 36,530 38,309  11,720 12,096 
Purchased Power 1,753 2,486 4,569 5,725  1,322 1,352 
              
System Output 14,849 15,457 41,099 44,034  13,042 13,448 
Less Line Loss and Internal Use  (931)  (1,056)  (2,492)  (2,623)  (848)  (798)
              
Net System Output 13,918 14,401 38,607 41,411  12,194 12,650 
              
Average Unit Cost ($/MWh)  
Generation (1) $18.01 $19.32 $18.07 $17.98  $18.78 $17.30 
              
Purchased Power $35.50 $88.43 $37.07 $73.23  $32.30 $33.94 
              
Overall Average Unit Cost $20.08 $30.43 $20.18 $25.16  $20.15 $18.97 
              
 
(1) Represents fuel costs associated with power plants.
Operation and maintenanceexpense increased $14decreased $7 million in the thirdfirst quarter of 2009 and decreased $91 million2010 compared to the same period in the nine-month period ended September 30, 2009. The increase in the third quarter is2009 primarily due to higher pension and healthcare costs of $10 million, and $6 million of energy optimization and renewable energy expenses. The decrease for the nine-month period is primarily due to $61 million from continuous improvement initiatives and other cost reductions resulting in lower contract labor and outside services expense, information technology and other staff expenses, $38 million from the timing of maintenance activities, $19 million of employee benefit-related expenses and lower stormother expenses of $22$6 million and reduced maintenance expenses of $4 million, partially offset by higher pension and healthcare costsemployee benefit-related expenses of $41$7 million and $6 million ofhigher energy optimization and renewable energy expenses.
Taxes other than incomewere lower by $11 million in the 2009 third quarter and $29 million in the 2009 nine-month period due primarily to a $17 million and $30 million, respectively, reduction in property tax expense due to refunds received in partial settlementexpenses of appeals of assessments for prior years.$5 million.
OutlookWe willEconomic conditions have resulted in reduced demand for electricity in our service territory and continued high levels in our uncollectible accounts receivable. The January 2010 MPSC rate order, provided for an uncollectible expense tracking mechanism and a revenue decoupling mechanism which assists in mitigating these impacts.
To address the impacts of economic conditions, we continue to move forward in our efforts to continue to improve the operating performance and cash flow of Detroit Edison. We continue to favorably resolve outstanding regulatory issues. Manyissues, many of these issues have beenwhich were addressed by the October 2008 Michigan legislation. We expect that our planned significant environmental and renewable expenditures will result in earnings growth. Looking forward, we face additional issues, such as higher levels of capital spending, volatility in prices for coal and other commodities, investment returns and changes in discount rate assumptions in benefit plans and health care costs, will result in us continuingand uncertainty of legislative or regulatory actions regarding climate change. We expect to pursue opportunitiescontinue an intense focus on our continuous improvement efforts to improve productivity remove waste and decrease our costs while improving customer satisfaction.
UnfavorableCapital Resources and Liquidity
We expect cash flow from operations to increase over the long-term primarily as a result of new and existing state and federal regulations that will result in additional environmental and renewable energy investments which will increase the base from which rates are determined.
We have been impacted by unfavorable national and regional economic trends that have resulted in reduced demand for electricity in our service territory and increases in our uncollectible accounts receivable. The magnitude of these trends willterritory. We may be drivenimpacted by the impactsdelayed collection of underrecoveries of our PSCR costs and accounts receivable as a result of MPSC orders. Energy prices are likely to be a source of volatility with regard to working capital requirements for the challengesforeseeable future. We are continuing our efforts to identify

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opportunities to improve cash flow through working capital initiatives and maintaining flexibility in the domestic automotive industry and the timing and levelextent of recovery in the national and regional economies. Direct and indirect effects of further automotive and other industrial plant closures couldour long-term capital projects.
We have a significant impact on$69 million, five-year unsecured revolving credit agreement expiring in October 2010. We expect to pursue the resultsrenewal of Detroit Edison. We continue to monitor developments in this sector. Due to the economy and credit marketthat facility before its expiration. Given current conditions in the near term,credit markets, we anticipate that the new facility will be similar to our April 2009 facility with respect to such items as bank participation, allocation levels and covenants. See Note 9 of the Notes to Consolidated Financial Statements.
We have approximately $660 million in long-term debt maturing in the next twelve months. In March 2010, Detroit Edison agreed to issue and sell $300 million of 4.89%, 10-year Senior Notes to a group of institutional investors in a private placement transaction. The notes are reviewingexpected to close and fund in September 2010 with proceeds used to repay a portion of Detroit Edison’s $500 million 6.125% Senior Notes due October 2010. The additional $200 million maturing in October 2010 is expected to be funded through a planned debt issuance later in 2010. Substantially all of the remaining debt maturities relate to Securitization. The principal amount of the Securitization debt is funded through a surcharge payable by Detroit Edison’s electric customers.
In March 2010, the Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act (HCERA) were enacted into law (collectively, the “Act”). The Act is a comprehensive health care reform bill. A provision of the PPACA repeals the current rule permitting deduction of the portion of the drug coverage expense that is offset by the Medicare Part D subsidy, effective for taxable years beginning after December 31, 2012. The Company is currently assessing other impacts the legislation may have on its healthcare costs. The Company contributed $200 million to its pension plans during the first quarter of 2010, including a contribution of DTE Energy stock of $100 million made on behalf of the Company. The Company has accrued a liability to repay to DTE Energy the value of the stock contribution in cash in April 2010. The Company expects to contribute $90 million to its postretirement medical and life insurance benefit plans during 2010. No contributions were made to the plans in the first quarter of 2010. See Note 11 of the Notes to Consolidated Financial Statements.
We believe we have sufficient operating flexibility, cash resources and funding sources to maintain adequate amounts of liquidity and to meet our future operating cash and capital expenditure commitments for potential adjustments as appropriate.needs. However, our business is capital intensive, and requires access to capital, and the inability to access adequate capital could adversely impact earnings and cash flows.

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Part I —Item 4.
Part I —Item 4.
CONTROLS AND PROCEDURES
(a)(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 and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2009,March 31, 2010, which is the end of the period covered by this report. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that such controls and procedures are effective in providing reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Due to the inherent limitations in the effectiveness of any disclosure controls and procedures, management cannot provide absolute assurance that the objectives of its disclosure controls and procedures will be attained.
(b) 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, 2009March 31, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II — Other 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 Detroit Edison power plants violated New Source Performance standards, Prevention of Significant Deterioration requirements, and Title V operating permit requirements under the Clean Air Act. We believe that the plants identified by the EPA have complied with applicable regulations. Depending upon the outcome of our discussions with the EPA regarding the NOV/FOV, the EPA could bring legal action against Detroit Edison. We could also be required to install additional pollution control equipment at some or all of the power plants in question, engage in Supplemental Environmental Programs, and/or pay fines. We cannot predict the financial impact or outcome of this matter, or the timing of its resolution.
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 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’s operations or financial statements in the periods they are resolved.
Item 1A. — Risk Factors
In addition to the other information set forth in this report, the risk factors discussed in Part 1, Item 1A. Risk Factors in the Company’s 2008 Form 10-K, which could materially affect the Company’s businesses, financial condition, future operating results and/ or cash flows should be carefully considered. Additional risks and uncertainties not currently known to the Company, or that are currently deemed to be immaterial, also may materially adversely affect the Company’s business, financial condition, and/ or future operating results.
We may be required to refund amounts we collect under self-implemented rates.Recent Michigan legislation allows us to self-implement rate changes six months after a rate filing, subject to certain limitations. However, if the final rate case order provides for lower rates than we have self-implemented, we must refund the difference, with interest. Our financial performance may be negatively affected if the MPSC sets lower rates than those we have self-implemented, thereby forcing us to issue refunds. We cannot predict what rates the MPSC order will adopt.
Adverse changes in our credit ratings may negatively affect us.Regional and national economic conditions, increased scrutiny of the energy industry and regulatory changes, as well as changes in our economic performance, could result in credit agencies reexamining our credit rating. While credit ratings reflect the opinions of the credit agencies issuing such ratings and may not necessarily reflect actual performance, a downgrade in our credit rating could restrict or discontinue our ability to access capital markets, including commercial paper markets, and could result in an increase in our borrowing costs, a reduced level of capital expenditures and could impact future earnings and cash flows. In addition, a reduction in credit rating may require us to post collateral related to various physical or financially settled contracts for the purchase of energy-related commodities, products and services, which would impact our liquidity.

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Item 6. — Exhibits
   
Exhibit  
Number Description
Exhibits filed herewith:
   
12-35Computation of Ratio of Earnings to Fixed Charges
31-5131-55 Chief Executive Officer Section 302 Form 10-Q Certification
   
31-5231-56 Chief Financial Officer Section 302 Form 10-Q Certification
   
Exhibits furnished herewith:
   
32-5132-55 Chief Executive Officer Section 906 Form 10-Q Certification
   
32-5232-56 Chief Financial Officer Section 906 Form 10-Q Certification

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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: October 30, 2009April 28, 2010 /s/ PETER B. OLEKSIAK   
 Peter B. Oleksiak  
 Vice President, Controller and ControllerInvestor Relations and Chief Accounting Officer  
 

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