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, 2010March 31, 2011
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)
   
Michigan 38-0478650
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
   
One Energy Plaza, Detroit, Michigan 48226-1279
(Address of principal executive offices) (Zip Code)
313-235-4000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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).
Yeso       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.
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, 2010March 31, 2011
Table Of Contents
     
  Page
Definitions
  1 
Forward-Looking Statements
  23
 
Part I—Financial Information
    
Item 1. Financial Statements    
Consolidated Statements of Financial Position (Unaudited)
  4 
Consolidated Statements of Operations (Unaudited)
  5
Consolidated Statements of Financial Position (Unaudited)
6
 
Consolidated Statements of Cash Flows (Unaudited)
  78
 
Consolidated Statements of Changes in Shareholder’s Equity and Comprehensive Income (Unaudited)
  89
 
Notes to Consolidated Financial Statements (Unaudited)
  910
 
Item 2. Management’s Narrative Analysis of Results of Operations
  24 
Item 4. Controls and Procedures
  2827
 
Part II—Other Information
    
Item 1. Legal Proceedings
  2928
 
Item 1A. Risk Factors
  2928
 
Item 6. Exhibits
  30
 
Signature
  31 
 EX-4.269EX-4.274
 EX-4.270EX-12.40
 EX-4.271EX-31.63
 EX-4.272EX-31.64
 EX-12.38EX-32.63
 EX-31.59
EX-31.60
EX-32.59
EX-32.60EX-32.64

 

Definitions
   
ASC Accounting Standards Codification
   
ASU Accounting Standards Update
CIMA Choice Incentive Mechanism authorized by the MPSC that allows Detroit Edison to recover or refund non-fuel revenues lost or gained as a result of fluctuations in electric Customer Choice sales.
   
Customer Choice Michigan legislation giving customers the option to choose alternative suppliers for electricity.
   
Detroit Edison The Detroit Edison Company (a direct wholly owned subsidiary of DTE Energy) and subsidiary companies
   
DTE Energy DTE Energy Company, directly or indirectly the parent of Detroit Edison, Michigan Consolidated Gas Company and numerous non-utility subsidiaries
   
EPA United States Environmental Protection Agency
   
FASB Financial Accounting Standards Board
   
FERC Federal Energy Regulatory Commission
   
FTRs Financial transmission rights are financial instruments that entitle the holder to receive payments related to costs incurred for congestion on the transmission grid.
   
MDEQMichigan Department of Environmental Quality
MISO Midwest Independent System Operator is an Independent System Operator and the Regional Transmission Organization serving the Midwest United States and Manitoba, Canada.
MNREMichigan Department of Natural Resources and Environment
   
MPSC Michigan Public Service Commission
   
NRC United States Nuclear Regulatory Commission
   
PSCR A power supply cost recoveryPower Supply Cost Recovery mechanism authorized by the MPSC that allows Detroit Edison to recover through rates its fuel, fuel-related and purchased power costs.
   
RDM A Revenue Decoupling Mechanism authorized by the MPSC that is designed to minimize the impact on revenues of changes in average customer usage of electricity
   
Securitization Detroit Edison financed specific stranded costs at lower interest rates through the sale of rate reduction bonds by a wholly-owned special purpose entity, The Detroit Edison Securitization Funding LLC.
   
VIE Variable Interest Entity

1

   
Units of Measurement
  
GWhGigawatthour of electricity
   
kWh Kilowatthour of electricity
   
MW Megawatt of electricity
   
MWh Megawatthour of electricity

12

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:
•economic conditions resulting in changes in demand, customer conservation and increased thefts of electricity;
•changes in the economic and financial viability of our customers, suppliers, and trading counterparties, and the continued ability of such parties to perform their obligations to the Company;
•economic climate and population growth or decline in the geographic areas where we do business;
•high levels of uncollectible accounts receivable;
•access to capital markets and capital market conditions and the results of other financing efforts which can be affected by credit agency ratings;
•instability in capital markets which could impact availability of short and long-term financing;
•the timing and extent of changes in interest rates;
•the level of borrowings;
•the potential for losses on investments, including nuclear decommissioning and benefit plan assets and the related increases in future expense and contributions;
•the potential for increased costs or delays in completion of significant construction projects;
•the effects of weather and other natural phenomena on operations and sales to customers, and purchases from suppliers;
•environmental issues, laws, regulations, and the increasing costs of remediation and compliance, including actual and potential new federal and state requirements that include or could include carbon and more stringent mercury emission controls, a renewable portfolio standard, energy efficiency mandates, carbon tax or cap and trade structure and ash landfill regulations;
•nuclear regulations and operations associated with nuclear facilities;
•impact of electric utility restructuring in Michigan, including legislative amendments and Customer Choice programs;
•employee relations and the impact of collective bargaining agreements;
•unplanned outages;
•changes in the cost and availability of coal and other raw materials and purchased power;
•cost reduction efforts and the maximization of plant and distribution system performance;
•the effects of competition;
economic conditions and population changes in our geographic area resulting in changes in demand, customer conservation, increased thefts of electricity and high levels of uncollectible accounts receivable;
changes in the economic and financial viability of suppliers and trading counterparties, and the continued ability of such parties to perform their obligations to the Company;
access to capital markets and the results of other financing efforts which can be affected by credit agency ratings;
instability in capital markets which could impact availability of short and long-term financing;
the timing and extent of changes in interest rates;
the level of borrowings;
the potential for losses on investments, including nuclear decommissioning and benefit plan assets and the related increases in future expense and contributions;
the potential for increased costs or delays in completion of significant construction projects;
the effects of weather and other natural phenomena on operations and sales to customers, and purchases from suppliers;
environmental issues, laws, regulations, and the increasing costs of remediation and compliance, including actual and potential new federal and state requirements;
health, safety, financial, environmental and regulatory risks associated with ownership and operation of nuclear facilities;
impact of electric utility restructuring in Michigan, including legislative amendments and Customer Choice programs;
employee relations and the impact of collective bargaining agreements;
unplanned outages;
changes in the cost and availability of coal and other raw materials and purchased power;
cost reduction efforts and the maximization of plant and distribution system performance;
the effects of competition;
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;
the cost of protecting assets against, or damage due to, 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

23

binding arbitration, litigation and related appeals.
•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;
•the cost of protecting assets against, or damage due to, 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 
(in Millions) 2010  2009 
ASSETS
        
Current Assets
        
Cash and cash equivalents $22  $34 
Restricted cash  43   79 
Accounts receivable (less allowance for doubtful accounts of $99 and $118, respectively)        
Customer  695   696 
Affiliates  15   3 
Other  29   108 
Inventories        
Fuel  180   135 
Materials and supplies  180   173 
Notes Receivable        
Affiliates  89   65 
Other  —   3 
Prepaid property taxes  89   44 
Other  67   35 
       
   1,409   1,375 
       
         
Investments
        
Nuclear decommissioning trust funds  890   817 
Other  107   104 
       
   997   921 
       
         
Property
        
Property, plant and equipment  15,868   15,451 
Less accumulated depreciation and amortization  (6,384)  (6,133)
       
   9,484   9,318 
       
         
Other Assets
        
Regulatory assets  3,260   3,333 
Securitized regulatory assets  767   870 
Intangible assets  21   9 
Notes receivable — affiliates  9   17 
Other  139   118 
       
   4,196   4,347 
       
         
Total Assets
 $16,086  $15,961 
       
See Notes to Consolidated Financial Statements (Unaudited)

4

The Detroit Edison Company
Consolidated Statements of Financial PositionOperations (Unaudited)
         
  September 30  December 31 
(in Millions, Except Shares) 2010  2009 
LIABILITIES AND SHAREHOLDER’S EQUITY
        
Current Liabilities
        
Accounts payable        
Affiliates $54  $74 
Vendors and other  274   251 
Accrued interest  77   83 
Current portion of long-term debt, including capital leases  311   660 
Other  317   261 
       
   1,033   1,329 
       
         
Long-Term Debt (net of current portion)
        
Mortgage bonds, notes and other  4,026   3,579 
Securitization bonds  643   793 
Capital lease obligations  20   25 
       
   4,689   4,397 
       
         
Other Liabilities
        
Deferred income taxes  1,939   1,871 
Regulatory liabilities  758   711 
Asset retirement obligations  1,357   1,285 
Unamortized investment tax credit  69   75 
Nuclear decommissioning  147   136 
Accrued pension liability — affiliates  808   987 
Accrued postretirement liability — affiliates  1,072   1,058 
Other  226   239 
       
   6,376   6,362 
       
         
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   3,196 
Retained earnings  807   693 
Accumulated other comprehensive income (loss)  (15)  (16)
       
   3,988   3,873 
       
         
Total Liabilities and Shareholder’s Equity
 $16,086  $15,961 
       
         
  Three Months Ended 
  March 31 
(in Millions) 2011  2010 
Operating Revenues
 $1,192  $1,146 
       
         
Operating Expenses
        
Fuel and purchased power  378   343 
Operation and maintenance  329   309 
Depreciation and amortization  202   204 
Taxes other than income  59   65 
Asset (gains) and losses, net  19   (1)
       
   987   920 
       
         
Operating Income
  205   226 
       
         
Other (Income) and Deductions
        
Interest expense  71   81 
Other income  (10)  (8)
Other expenses  6   6 
       
   67   79 
       
         
Income Before Income Taxes
  138   147 
         
Income Tax Provision
  53   56 
       
         
Net Income
 $85  $91 
       
See Notes to Consolidated Financial Statements (Unaudited)

5

The Detroit Edison Company
Consolidated Statements of OperationsFinancial Position (Unaudited)
                 
  Three Months Ended  Nine Months Ended 
  September 30  September 30 
(in Millions) 2010  2009  2010  2009 
Operating Revenues
 $1,444  $1,289  $3,798  $3,515 
             
                 
Operating Expenses
                
Fuel and purchased power  484   400   1,217   1,112 
Operation and maintenance  325   306   960   928 
Depreciation and amortization  230   222   644   607 
Taxes other than income  54   43   180   147 
Asset gains, net  —   —   (1)  — 
             
   1,093   971   3,000   2,794 
             
                 
Operating Income
  351   318   798   721 
             
                 
Other (Income) and Deductions
                
Interest expense  83   82   241   245 
Interest income  (1)  —   (1)  (1)
Other income  (10)  (12)  (27)  (29)
Other expenses  6   5   23   5 
             
   78   75   236   220 
             
                 
Income Before Income Taxes
  273   243   562   501 
                 
Income Tax Provision
  108   94   219   195 
             
                 
Net Income
 $165  $149  $343  $306 
             
         
  March 31,  December 31, 
(in Millions) 2011  2010 
ASSETS
        
Current Assets
        
Cash and cash equivalents $15  $30 
Restricted cash  55   104 
Accounts receivable (less allowance for doubtful accounts of $83 and $93, respectively)        
Customer  627   690 
Affiliates  18   8 
Other  78   204 
Inventories        
Fuel  201   224 
Materials and supplies  174   170 
Notes receivable        
Affiliates  —   97 
Other  2   — 
Prepaid property taxes  71   44 
Other  79   65 
       
   1,320   1,636 
       
         
Investments
        
Nuclear decommissioning trust funds  961   939 
Other  115   118 
       
   1,076   1,057 
       
         
Property
        
Property, plant and equipment  16,178   16,068 
Less accumulated depreciation and amortization  (6,484)  (6,418)
       
   9,694   9,650 
       
         
Other Assets
        
Regulatory assets  3,243   3,277 
Securitized regulatory assets  692   729 
Intangible assets  28   25 
Notes receivable        
Affiliates  —   6 
Other  6   — 
Other  144   142 
       
   4,113   4,179 
       
         
Total Assets
 $16,203  $16,522 
       
See Notes to Consolidated Financial Statements (Unaudited)

6

The Detroit Edison Company
Consolidated Statements of Cash FlowsFinancial Position (Unaudited)
         
  Nine Months Ended 
  September 30 
(in Millions) 2010  2009 
Operating Activities
        
Net income $343  $306 
Adjustments to reconcile net income to net cash from operating activities:        
Depreciation and amortization  644   607 
Deferred income taxes  78   (2)
Asset gains, net  (1)  — 
Changes in assets and liabilities, exclusive of changes shown separately  (87)  112 
       
Net cash from operating activities  977   1,023 
       
         
Investing Activities
        
Plant and equipment expenditures  (641)  (640)
Restricted cash for debt redemptions  36   60 
Proceeds from sale of nuclear decommissioning trust fund assets  179   237 
Investment in nuclear decommissioning trust funds  (204)  (251)
Notes receivable from affiliates  (30)  (148)
Other  (34)  (28)
       
Net cash used for investing activities  (694)  (770)
       
         
Financing Activities
        
Issuance of long-term debt  595   65 
Redemption of long-term debt  (652)  (213)
Short-term borrowings, net  —   (75)
Capital contribution by parent company  —   250 
Dividends on common stock  (228)  (228)
Other  (10)  (13)
       
Net cash used for financing activities  (295)  (214)
       
         
Net Increase (Decrease) in Cash and Cash Equivalents
  (12)  39 
Cash and Cash Equivalents at Beginning of Period
  34   30 
       
Cash and Cash Equivalents at End of Period
 $22  $69 
       
         
  March 31,  December 31, 
(in Millions, Except Shares) 2011  2010 
LIABILITIES AND SHAREHOLDER’S EQUITY
        
Current Liabilities
        
Accounts payable        
Affiliates $55  $50 
Other  296   349 
Accrued interest  74   81 
Current portion long-term debt, including capital leases  285   308 
Regulatory liabilities  —   60 
Short-term borrowing — affiliates  131   — 
Other  259   279 
       
   1,100   1,127 
       
         
Long-Term Debt (net of current portion)
        
Mortgage bonds, notes and other  4,064   4,046 
Securitization bonds  559   643 
Capital lease obligations  17   20 
       
   4,640   4,709 
       
         
Other Liabilities
        
Deferred income taxes  2,175   2,235 
Regulatory liabilities  749   714 
Asset retirement obligations  1,389   1,354 
Unamortized investment tax credit  64   67 
Nuclear decommissioning  151   149 
Accrued pension liability—affiliates
  770   960 
Accrued postretirement liability—affiliates
  1,028   1,060 
Other  118   138 
       
   6,444   6,677 
       
         
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   3,196 
Retained earnings  838   829 
Accumulated other comprehensive income (loss)  (15)  (16)
       
   4,019   4,009 
       
         
Total Liabilities and Shareholder’s Equity
 $16,203  $16,522 
       
See Notes to Consolidated Financial Statements (Unaudited)

7

The Detroit Edison Company
Consolidated Statements of Changes in Shareholder’s Equity andCash Flows (Unaudited)Comprehensive Income
(Unaudited)
                         
                  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  —   —   —   343   —   343 
Dividends declared on common stock  —   —   —   (229)  —   (229)
Benefit obligations, net of tax  —   —   —   —   1   1 
   
Balance, September 30, 2010
  138,632  $1,386  $1,810  $807  $(15) $3,988 
   
The following table displays other comprehensive income for the nine-month periods ended September 30:
         
(in Millions) 2010  2009 
Net income $343  $306 
Other comprehensive income, net of tax:        
Benefit obligations, net of taxes  1   2 
Net unrealized gains on investments:        
Amounts reclassified to income, net of taxes  —   (2)
       
Comprehensive income $344  $306 
       
         
  Three Months Ended 
  March 31 
(in Millions) 2011  2010 
Operating Activities
        
Net income $85  $91 
Adjustments to reconcile net income to net cash from operating activities:        
Depreciation and amortization  202   204 
Deferred income taxes  19   5 
Asset gains (losses), net  19   (1)
Changes in assets and liabilities, exclusive of changes shown separately (Note 12)  (225)  76 
       
Net cash from operating activities  100   375 
       
         
Investing Activities
        
Plant and equipment expenditures  (219)  (177)
Restricted cash for debt redemptions  49   51 
Proceeds from sale of nuclear decommissioning trust fund assets  20   59 
Investment in nuclear decommissioning trust funds  (28)  (68)
Note receivable — affiliates  103   59 
Other investments  (4)  (9)
       
Net cash used for investing activities  (79)  (85)
       
         
Financing Activities
        
Short-term borrowings  131   — 
Redemption of long-term debt  (89)  (85)
Dividends on common stock  (76)  (76)
Other  (2)  (2)
       
Net cash used for financing activities  (36)  (163)
       
         
Net Increase in Cash and Cash Equivalents
  (15)  127 
Cash and Cash Equivalents at Beginning of the Period
  30   34 
       
Cash and Cash Equivalents at End of the Period
 $15  $161 
       
See Notes to Consolidated Financial Statements (Unaudited)

8

The Detroit Edison Company
Consolidated Statements of Changes in Shareholder’s Equity and Comprehensive Income
(Unaudited)
                         
                  Accumulated  
          Additional     Other  
  Common Stock Paid In Retained Comprehensive  
(Dollars in Millions, shares in thousands) Shares Amount Capital Earnings Loss Total
Balance, December 31, 2010  138,632  $1,386  $1,810  $829  $(16) $4,009 
   
Net income  —   —   —   85   —   85 
Dividends declared on common stock  —   —   —   (76)  —   (76)
Benefit obligations, net of tax  —   —   —   —   1   1 
   
Balance, March 31, 2011  138,632  $1,386  $1,810  $838  $(15) $4,019 
   
The following table displays other comprehensive income for the three-month periods ended March 31:
         
(in Millions) 2011  2010 
Net income $85  $91 
Other comprehensive income, net of tax:        
Benefit obligations, net of taxes  1   1 
       
Comprehensive income $86  $92 
       
See Notes to Consolidated Financial Statements (Unaudited)

9

The Detroit Edison Company
Notes to Consolidated Financial Statements (Unaudited)
NOTE 1—BASIS OF PRESENTATION
Corporate Structure
Detroit Edison is an electric utility engaged in the generation, purchase, distribution and sale of electricity to approximately 2.1 million customers in southeastsoutheastern Michigan. Detroit Edison is regulated by the MPSC and the FERC. In addition, we arethe Company is regulated by other federal and state regulatory agencies including the NRC, the EPA and the MNRE.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 20092010 Annual Report on Form 10-K.
The accompanying Consolidated Financial Statements are prepared using accounting principles generally accepted in the United States of America. These accounting principles require management to use estimates and assumptions that impact reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results may differ from the Company’s estimates.
The Consolidated Financial Statements are unaudited, but in the Company’s opinion include all adjustments necessary 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, 2010.2011.
Certain prior year balances were reclassified to match the current year’s financial statement presentation.
Principles of Consolidation—Variable Interest Entity (VIE)
As discussedThe Company consolidates all majority owned subsidiaries and investments in Note 3, effective January 1, 2010,entities in which it has controlling influence. Non-majority owned investments are accounted for using the equity method when the Company adoptedis able to influence the provisionsoperating policies 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,investee. Non-majority owned investments include investments in limited liability companies, partnerships or joint ventures. When the Company re-evaluateddoes not influence the operating policies of an investee, the cost method is used. These consolidated financial statements also reflect the Company’s proportionate interests in certain jointly owned utility plant. The Company eliminates all prior VIEintercompany balances and primary beneficiary determinations. The requirements of ASU 2009-17 were adopted on a prospective basis.transactions.
The Company evaluates whether an entity is a VIE whenever reconsideration events occur. The Company consolidates VIEs for which it is the primary beneficiary. If the Company is not the primary beneficiary and an ownership interest is held, the VIE is accounted for under the equity method of accounting. When assessing the determination of the primary beneficiary, the Company considers all relevant facts and circumstances, including: the power, through voting or similar rights, to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb the expected losses and/or the right to receive the expected returns of the VIE. The Company performs ongoing reassessments of all VIEs to determine if the primary beneficiary status has changed.
The Company has variable interests in VIEs through certain of its long-term purchase contracts. As of March 31, 2011, the carrying amount of assets and liabilities in the Consolidated Statement of Financial Position that relate to its variable interests under long-term purchase contracts are predominately related to working capital accounts and generally represent the amounts owed by the Company for the deliveries associated with the current billing cycle under the contracts. The Company has not provided any form of financial support associated with these long-term contracts. There is no significant potential exposure to loss as a result of its variable interests through these long-term purchase contracts.

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In 2001, Detroit Edison financed a regulatory asset related to Fermi 2 and certain other regulatory assets through the sale of rate reduction bonds by a wholly-owned special purpose entity, Securitization. Detroit Edison performs servicing activities including billing and collecting surcharge revenue for Securitization. Under ASU 2009-17, this

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This entity is now a VIE, and continues to beis consolidated as the Company is the primary beneficiary. The maximum risk exposure related to Securitization is reflected on the Company’s Consolidated Statements of Financial Position.
The following table summarizestables summarize the major balance sheet items at September 30,March 31, 2011 and December 31, 2010 restricted for Securitization that are either (1) assets that can be used only to settle theirits obligations or (2) liabilities for which creditors do not have recourse to the general credit of the primary beneficiary.
            
 September 30,  March 31, December 31, 
(in Millions) 2010  2011 2010 
ASSETS
  
Restricted cash $43  $55 $104 
Accounts receivable 48  39 42 
Securitized regulatory assets 767  692 729 
Other assets 14  12 13 
        
 $872  $798 $888 
        
LIABILITIES
  
Accounts payable and accrued current liabilities $4  $4 $17 
Current portion long-term debt, including capital leases 158 150 
Other current liabilities 59  62 62 
Current portion long-term debt, including capital leases 150 
Securitization bonds 643  559 643 
Other long term liabilities 6  6 6 
        
 $862  $789 $878 
        
As of March 31, 2011 and December 31, 2010, Detroit Edison had $5 million and $6 million in Notes receivable, respectively, related to non-consolidated VIEs.
NOTE 2—SIGNIFICANT ACCOUNTING POLICIES
Income Taxes
The Company had $6 million and $5$3 million of unrecognized tax benefits at September 30, 2010March 31, 2011 and December 31, 2009, respectively,2010, that, if recognized, would favorably impact its effective tax rate. The Company has increased its unrecognized tax benefit by $70 million as a result of a change in a tax position taken during the period. During the next twelve months, it is reasonably possible that DTE Energy and its subsidiaries will settle certain federal tax audits. As a result, the Company believes that it is possible that there will be a decrease in unrecognized tax benefits of up to $77$85 million within the next twelve months. The Company had an income tax receivable of $43 million at March 31, 2011 and $152 million at December 31, 2010 due from DTE Energy.
Stock-Based Compensation
The Company received an allocation of costs from DTE Energy associated with stock-based compensation of $5$9 million and $6 million for the three months ended September 30,March 31, 2011 and March 31, 2010, and 2009, respectively, while such allocation was $17 million and $11 million for the nine months ended September 30, 2010 and 2009, respectively.
Government Grants
Grants are recognized when there is reasonable assurance that the grant will be received and that any conditions associated with the grant will be met. When grants are received related to Property, Plant and Equipment, the Company reduces the basis of the assets on the Consolidated Statements of Financial Position, resulting in lower depreciation expense over the life of the associated asset. Grants received related to expenses are reflected as a reduction of the associated expense in the period in which the expense is incurred.
NOTE 3—NEW ACCOUNTING PRONOUNCEMENTS
Variable Interest Entity
In June 2009, the FASB issued ASU 2009-17,Amendments to FASB Interpretation 46(R).This standard amends the consolidation guidance that applies to VIEs and affects the overall consolidation analysis under ASC 810-10,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-

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10. Accordingly, the Company reconsidered 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. ASU 2009-17 is effective as of the beginning of the first fiscal year that begins after November 15, 2009. The Company adopted the standard as of January 1, 2010.
Fair Value Measurements and Disclosures
In January 2010, the FASB issued ASU 2010-06,Improving Disclosures about Fair Value Measurements. ASU 2010-06 requires details of transfers in and out of Level 1 and 2 fair value measurements and the gross presentation of activity within the Level 3 fair value measurement roll forward. The new disclosures are required of all entities that are required to provide disclosures about recurring and nonrecurring fair value measurements. The Company adopted ASU 2010-06 effective January 1, 2010, except for the gross presentation of the Level 3 fair value measurement roll forward provision which is effective for annual reporting periods beginning after December 15, 2010 and for interim reporting periods within those years.was adopted in the first quarter of 2011, as permitted.

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NOTE 4—FAIR VALUE
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities. These inputs can be readily observable, market corroborated or generally unobservable inputs. The Company makes certain assumptions it believes that market participants would use in pricing assets or liabilities, including assumptions about risk, and the risks inherent in the inputs to valuation techniques. Credit risk of the Company and its counterparties is incorporated in the valuation of assets and liabilities through the use of credit reserves, the impact of which was immaterial at September 30, 2010March 31, 2011 and December 31, 2009.2010. 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.

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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, 2010:March 31, 2011:
                                
 Net Balance at  Net Balance at 
(in Millions) Level 1 Level 2 Level 3 September 30, 2010  Level 1 Level 2 Level 3 March 31, 2011 
Assets:
  
Nuclear decommissioning trusts $606 $284 $— $890  $624 $337 $— $961 
Other investments 42 55 — 97  52 53 — 105 
Derivative assets — FTRs — — 2 2  — — 1 1 
                  
Total $648 $339 $2 $989  $676 $390 $1 $1,067 
                  
Liabilities:
  
Derivative liabilities — Emissions —  (7) —  (7) —  (3) —  (3)
                  
Total $— $(7) $— $(7) $— $(3) $— $(3)
                  
  
Net Assets at September 30, 2010 $648 $332 $2 $982 
Net Assets at March 31, 2011 $676 $387 $1 $1,064 
                  

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 Net Balance at  Net Balance at 
(in Millions) Level 1 Level 2 Level 3 September 30, 2010  Level 1 Level 2 Level 3 March 31, 2011 
Assets:
  
Current $— $— $2 $2  $— $— $1 $1 
Noncurrent(1) 648 339 — 987 
Noncurrent 676 390 — 1,066 
                  
Total Assets $648 $339 $2 $989  $676 $390 $1 $1,067 
                  
Liabilities:
  
Current $— $(6) $— $(6) $— $(3) $— $(3)
Noncurrent —  (1) —  (1) — — — — 
                  
Total Liabilities $— $(7) $— $(7) $— $(3) $— $(3)
                  
  
Net Assets at September 30, 2010 $648 $332 $2 $982 
Net Assets at March 31, 2011 $676 $387 $1 $1,064 
                  
The following table presents assets and liabilities measured and recorded at fair value on a recurring basis as of December 31, 2009:2010:
                                
 Net Balance at  Net Balance at 
(in Millions) Level 1 Level 2 Level 3 December 31, 2009  Level 1 Level 2 Level 3 December 31, 2010 
Assets:
  
Cash equivalents $15 $— $— $15 
Nuclear decommissioning trusts and other investments 589 325 — 914 
Derivative assets — — 2 2 
Nuclear decommissioning trusts $599 $340 $— $939 
Other investments 52 55 — 107 
Derivative assets — FTRs — — 2 2 
                  
Total $604 $325 $2 $931  $651 $395 $2 $1,048 
                  
Liabilities:
  
Derivative liabilities —  (8) —  (8)
Derivative liabilities — Emissions —  (3) —  (3)
                  
Total $— $(8) $— $(8) $— $(3) $— $(3)
                  
  
Net Assets at December 31, 2009 $604 $317 $2 $923 
Net Assets at December 31, 2010 $651 $392 $2 $1,045 
                  
                 
              Net Balance at 
(in Millions) Level 1  Level 2  Level 3  December 31, 2010 
Assets:
                
Current $—  $—  $2  $2 
Noncurrent  651   395   —   1,046 
             
Total Assets $651  $395  $2  $1,048 
             
Liabilities:
                
Current $—  $(3) $—  $(3)
Noncurrent  —   —   —   — 
             
Total Liabilities $—  $(3) $—  $(3)
             
                 
Net Assets at December 31, 2010 $651  $392  $2  $1,045 
             
(1)Includes $97 million of other investments that are included in the Consolidated Statements of Financial Position in Other Investments.

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The following table presents the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for the three and nine months ended September 30, 2010March 31, 2011 and 2009:2010:
                 
  Three Months Ended  Nine Months Ended 
  September 30  September 30 
(in Millions) 2010  2009  2010  2009 
Asset balance as of beginning of the period $3  $2  $2  $4 
Changes in fair value recorded in regulatory assets/liabilities  —   (1)  4   (2)
Purchases, issuances and settlements  (1)  —   (4)  1 
Transfers in/out of Level 3  —   —   —   (2)
             
Asset balance as of September 30 $2  $1  $2  $1 
             
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, 2010 and 2009 $—  $(1) $2  $2 
             
         
  Three Months Ended 
  March 31 
(in Millions) 2011  2010 
Asset balance as of beginning of the period $2  $2 
Changes in fair value recorded in regulatory assets/liabilities  (1)  (1)
       
Asset balance as of March 31 $1  $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, 2011 and 2010 $—  $— 
       

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Transfers in/in and transfers out of Level 3 represent existing assets or liabilities that were either previously categorized as a higher level and for which the inputs to the model became unobservable or assets and liabilities that were previously classified as Level 3 for which the lowest significant input became observable during the period. Transfers in/in and transfers 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 and nine months ended September 30,March 31, 2011 and 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 trusts and other investments hold debt and equity securities directly and indirectly through commingled funds and institutional mutual funds. Exchange-traded debt and equity securities held directly are valued using quoted market prices in actively traded markets. The commingled funds and institutional mutual funds which hold exchange-traded equity or debt securities are valued based on the underlying securities, using quoted prices in actively traded markets. Non-exchange-traded fixed income securities are valued based upon quotations available from brokers or pricing services. A primary price source is identified by asset type, class or issue for each security. The trustees monitor prices supplied by pricing services and may use a supplemental price source or change the primary price source of a given security if the trustees determine that another price source is considered to be preferable. Detroit Edison has obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices. Additionally, Detroit Edison selectively corroborates the fair values of securities by comparison of market-based price sources.
Derivative Assets and Liabilities
Derivative assets and liabilities are comprised of physical and financial derivative contracts, including futures, forwards, options and swaps that are both exchange-traded and over-the-counter traded contracts. Various inputs are used to value derivatives depending on the type of contract and availability of market data. Exchange-traded derivative contracts are valued using quoted prices in active markets. The Company considers the following criteria in determining whether a market is considered active: frequency in which pricing information is updated, variability in pricing between sources or over time and the availability of public information. Other derivative contracts are valued based upon a variety of inputs including commodity market prices, broker quotes, interest rates, credit ratings, default rates, market-based seasonality and basis differential factors. The Company monitors the prices that

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are supplied by brokers and pricing services and may use a supplemental price source or change the primary price source of an index if prices become unavailable or another price source is determined to be more representative of fair value. The Company has obtained an understanding of how these prices are derived. Additionally, the Company selectively corroborates the fair value of its transactions by comparison of market-based price sources. Mathematical valuation models are used for derivatives for which external market data is not readily observable, such as contracts which extend beyond the actively traded reporting period.
Fair Value of Financial Instruments
The fair value of long-term debt is determined by using quoted market prices when available and a discounted cash flow analysis based upon estimated current borrowing rates when quoted market prices are not available. The table below shows the fair value relative toand the carrying value for long-term debt securities. Certain other financial instruments, such as notes payable, customer deposits and notes receivable are not shown as carrying value approximates fair value. See Note 5 for further fair value information on financial and derivative instruments.
                 
  September 30, 2010March 31, 2011 December 31, 20092010
  Fair Value Carrying Value Fair Value Carrying Value
Long-Term Debt $5.55.2 billion $5.04.9 billion $5.25.3 billion $5.0 billion

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Nuclear Decommissioning Trust Funds
Detroit Edison has a legal obligation to decommission its nuclear power plants following the expiration of their operating licenses. This obligation is reflected as an asset retirement obligation on the Consolidated Statements of Financial Position. See Note 6 for additional information.6.
The NRC has jurisdiction over the decommissioning of nuclear power plants and requires decommissioning funding based upon a formula. The MPSC and FERC regulate the recovery of costs of decommissioning nuclear power plants and both require the use of external trust funds to finance the decommissioning of Fermi 2. Rates approved by the MPSC provide for the recovery of decommissioning costs of Fermi 2 and the disposal of low-level radioactive waste. Detroit Edison is continuing to fund FERC jurisdictional amounts for decommissioning even though explicit provisions are not included in FERC rates. The Company believes the MPSC and FERC collections will be adequate to fund the estimated cost of decommissioning using the NRC formula. The decommissioning assets, anticipated earnings thereon and future revenues from decommissioning collections will be used to decommission Fermi 2. The Company expects the liabilities to be reduced to zero at the conclusion of the decommissioning activities. If amounts remain in the trust funds for Fermi 2 following the completion of the decommissioning activities, those amounts will be disbursed based on rulings by the MPSC and FERC. See Note 7.
The decommissioning of Fermi 1 is funded by Detroit Edison. Contributions to the Fermi 1 trust are discretionary.
The following table summarizes the fair value of the nuclear decommissioning trust fund assets:
                
 September 30, December 31,  March 31 December 31 
(in Millions) 2010 2009  2011 2010 
Fermi 2 $861 $790  $930 $910 
Fermi 1 3 3  3 3 
Low level radioactive waste 26 24  28 26 
          
Total $890 $817  $961 $939 
          

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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) 2010 2009 2010 2009 2011 2010
Realized gains $8 $9 $29 $28  $14 $9 
Realized losses  (6)  (12)  (25)  (45)  (8)  (8)
Proceeds from sales of securities 51 55 179 237  20 59 
Realized gains and losses from the sale of securities for the Fermi 2 and the low level radioactive waste funds are recorded to the Regulatory asset and Nuclear decommissioning liability. The following table sets forth the fair value and unrealized gains for the nuclear decommissioning trust funds:
                
 Fair Unrealized  Fair Unrealized 
(in Millions) Value Gains  Value Gains 
As of September 30, 2010 
As of March 31, 2011 
Equity securities $462 $151  $590 $100 
Debt securities 417 29  359 10 
Cash and cash equivalents 11 —  12 — 
          
 $890 $180  $961 $110 
          
 
As of December 31, 2009 
Equity securities $420 $135 
Debt securities 388 17 
Cash and cash equivalents 9 — 
     
 $817 $152 
     
         
  Fair  Unrealized 
(in Millions) Value  Gains 
As of December 31, 2010        
Equity securities $572  $77 
Debt securities  361   11 
Cash and cash equivalents  6   — 
       
  $939  $88 
       

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The debt securities at both September 30, 2010March 31, 2011 and December 31, 20092010 had an average maturity of approximately 5 years.7 and 6 years, respectively. 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 unrealizedUnrealized losses incurred by the Fermi 2 trust are recognized as a Regulatory asset. Detroit Edison recognized $51$27 million and $48$26 million of unrealized losses as Regulatory assets at September 30, 2010March 31, 2011 and December 31, 2009,2010, 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 chargesunrealized losses recognized for the three and nine months ended September 30,March 31, 2011 and March 31, 2010 and September 30, 2009, for Fermi 1.1 trust assets.
Other Available-For-Sale Securities
The following table summarizes the fair value of the Company’s investment in available-for-sale debt and equity securities, excluding nuclear decommissioning trust fund assets:
                                
 September 30, 2010 December 31, 2009 March 31, 2011 December 31, 2010
(in Millions) Fair Value Carrying value Fair Value Carrying Value Fair Value Carrying value Fair Value Carrying Value
Cash equivalents $64 $64 $105 $105  $71 $71 $125 $125 
Equity securities 4 4 4 4  5 5 4 4 
As of September 30, 2010,March 31, 2011, these securities are comprised primarily of money-market and equity securities. Gains related to trading securities held at September 30,March 31, 2011 and March 31, 2010 and September 30, 2009 were $3 million and $6$2 million, respectively.

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NOTE 5—FINANCIAL AND OTHER DERIVATIVE INSTRUMENTS
The Company recognizes all derivatives at their fair value on the Consolidated Statements of Financial Position at their fair value unless they qualify for certain scope exceptions, including the normal purchases and normal sales exception. Further, derivatives that qualify and are designated for hedge accounting are classified as either hedges of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge), or as hedges of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge). For cash flow hedges, the portion of the derivative gain or loss that is effective in offsetting the change in the value of the underlying exposure is deferred in Accumulated other comprehensive income and later reclassified into earnings when the underlying transaction occurs. For fair value hedges, changes in fair values for the derivative are recognized in earnings each period. Gains and losses from the ineffective portion of any hedge are recognized in earnings immediately. For derivatives that do not qualify or are not designated for hedge accounting, changes in the fair value are recognized in earnings each period.
Detroit Edison’s primary market risk exposure is associated with commodity prices, credit and interest rates. The Company has risk management policies to monitor and manage market risks. The Company uses derivative instruments to manage some of the exposure. Detroit Edison generates, purchases, distributes and sells electricity. Detroit Edison uses forward energy and capacity contracts to manage changes in the price of electricity and fuel. Substantially all of these contracts meet the normal purchases and sales exemption and are therefore accounted for under the accrual method. Other derivative contracts are recoverable through the PSCR mechanism when settled. This results in the deferral of unrealized gains and losses as Regulatory assets or liabilities until realized.
The following represents the fair value of derivative instruments as of September 30,March 31, 2011 and December 31, 2010:
       
  Balance Sheet Fair 
(in Millions) Location Value 
FTRs Other current assets $2 
Emissions Other current liabilities  (6)
Emissions Other non-current liabilities  (1)
      
Total derivatives not designated as hedging instrument
   $(5)
      
         
  March 31  December 31 
(in Millions) 2011  2010 
FTRs — Other current assets $1  $2 
Emissions — Other current liabilities  (3)  (3)
       
Total derivatives not designated as hedging instrument $(2) $(1)
       

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The effecteffects of derivative instruments recoverable through the PSCR mechanism when realized on the Consolidated Statements of Financial Position are $1 million in losses relatedwere immaterial to Emissions recognized inboth Regulatory assets and $4 million in gains related to FTRs recognized in Regulatory liabilities for the ninethree months ended September 30, 2010.March 31, 2011.
The following represents the cumulative gross volume of derivative contracts outstanding as of September 30, 2010:March 31, 2011:
     
Commodity Number of Units
Emissions (Tons)  4,6502,250 
FTRs (MW)  87,01321,562 
NOTE 6—ASSET RETIREMENT OBLIGATIONS
A reconciliation of the asset retirement obligations for the ninethree months ended September 30, 2010March 31, 2011 follows:
        
(in Millions)  
Asset retirement obligations at December 31, 2009 $1,300 
Asset retirement obligations at December 31, 2010 $1,366 
Accretion 64  21 
Liabilities incurred 10 
Revision in estimated cash flows 19 
Liabilities settled  (4)  (2)
      
Asset retirement obligations at September 30, 2010 1,370 
Asset retirement obligations at March 31, 2011 1,404 
Less amount included in current liabilities  (13)  (15)
      
 $1,357  $1,389 
      

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Substantially allIn 2001, Detroit Edison began the final decommissioning of Fermi 1, with the asset retirement obligations represent nuclear decommissioning liabilities that are funded through a surcharge to electric customers overgoal of removing the life ofremaining radioactive material and terminating the Fermi 2 nuclear plant.1 license. In the first quarter of 2011, based on management decisions revising the timing and estimate of cash flows, Detroit Edison accrued an additional $19 million with respect to the decommissioning of Fermi 1. Subject to NRC notification, management intends to suspend decommissioning activities and place the facility in safe storage status. The expense amount has been recorded in Asset (gains) and losses, reserves and impairments, net on the Consolidated Statements of Operations.
NOTE 7—REGULATORY MATTERS
2010 Electric Rate Case Filing
Detroit Edison filed a rate case on October 29, 2010 based on a projected twelve-month period ending March 31, 2012. The filing with the MPSC requested a $443 million increase in base rates that is required to recover higher costs associated with environmental compliance, operation and maintenance of the Company’s electric distribution system and generation plants, inflation, the capital costs of plant additions, the reduction in territory sales, the impact from the expiration of certain wholesale for resale contracts and the increased migration of customers to the electric Customer Choice program. Detroit Edison also proposed certain adjustments which could reduce the net impact on the required increase in rates by approximately $190 million. These adjustments relate to electric Customer Choice migration, pension and other postretirement benefits expenses and the Nuclear Decommissioning surcharge.
Detroit Edison Restoration Expense Tracker Mechanism (RETM) and Line Clearance Tracker (LCT) Reconciliation
In March 2011, Detroit Edison filed an application with the MPSC for approval of the reconciliation of its 2010 RETM and LCT. The Company’s 2010 restoration expenses were higher than the amount provided in rates. Accordingly, Detroit Edison has requested recovery of approximately $19.5 million.
Detroit Edison Uncollectible Expense True-Up Mechanism (UETM)
In March 2010,2011, Detroit Edison filed an application with the MPSC for approval of its UETM for 20092010 requesting recovery ofauthority to refund approximately $4.5$7.2 million consisting of costs related to 20092010 uncollectible expense and associated carrying charges. expense.

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Detroit Edison Choice Incentive Mechanism (CIM)
In August 2010,March 2011, Detroit Edison filed an application with the MPSC determined that the UETM was effective withfor approval of its JanuaryCIM reconciliation for 2010 order inrequesting recovery of approximately $105.2 million.
Energy Optimization (EO) Plans
In April 2011, Detroit Edison filed an application for approval of its reconciliation of its 2010 EO plan expenses. Detroit Edison’s rate case and dismissedEO reconciliation includes a cumulative $21 million net over-recovery at year end 2010 for the request for UETM expenses for 2009.2010 EO plan.
Power Supply Cost Recovery Proceedings
The PSCR process is designed to allow Detroit Edison to recover all of its power supply costs if incurred under reasonable and prudent policies and practices. Detroit Edison’s power supply costs include fuel costs, purchased and net interchange power costs, nitrogen oxide and sulfur dioxide emission allowances costs, urea costs, transmission costs and MISO costs. The MPSC reviews these costs, policies and practices for prudence in annual plan and reconciliation filings.
The following table summarizes Detroit Edison’s PSCR reconciliation filing currently pending with the MPSC:
Net Over/(Under)-Recovery,PSCR Cost of
PSCR YearDate FiledIncluding InterestPower Sold
2009March 2010$15.6 million$1.2 billion
2010March 2011$(52.6) million$1.2 billion
2010 PSCR Year— The 2010 PSCR reconciliation includes $15.6 million net over-recovery for the 2009 PSCR year. In addition to the net under-recovery of $52.6 million, the 2010 PSCR reconciliation includes an under-recovery of $7.1 million for the reconciliation of the 2007-2008 Pension Equalization Mechanism and an over-refund of $3.8 million for the 2011 refund of the self-implemented rate increase related to the 2009 electric rate case filing.
2011 Plan Year— In September 2010, Detroit Edison filed its 2011 PSCR plan case seeking approval of a levelized PSCR factor of 2.98 mills/kWh below the amount included in base rates for all PSCR customers. The filing supports a total power supply expense forecast of $1.2 billion. The plan also includes approximately $36 million for the recovery of its projected 2010 PSCR under-recovery.
The following table summarizes Detroit Edison’s PSCR reconciliation filing currently pending with the MPSC:
Net Over-recovery,PSCR Cost of
PSCR YearDate Filedincluding interestPower Sold
2009March 2010$15.6 million$1.1 billion
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.

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NOTE 8—LONG-TERM DEBT
Debt Issuances
In 2010,April 2011, Detroit Edison remarketed $31 million of Tax-Exempt Revenue Bonds in a long-term rate mode at 2.35% for a three-year term. The final maturity of the Company has issued the following long-term debt:issue is October 1, 2024.
(in Millions)
                 
Month Issued Type  Interest Rate  Maturity  Amount 
 
August Senior Notes(1)  3.45%  2020  $300 
September Senior Notes(1)(2)  4.89%  2020   300 
                
              $600 
                
(1)Proceeds were used to repay a portion of Detroit Edison’s $500 million 6.125% Senior Notes due October 1, 2010 and for general corporate purposes.
(2)These bonds were priced in March 2010 in a private placement transaction which was closed and funded in September 2010.
Debt Retirements and Redemptions
In 2010, the following debt has been retired:
(in Millions)
                 
Month Retired Type  Interest Rate  Maturity  Amount 
 
September Senior Notes(1)  6.125%  2010  $500 
                
(1)These Senior Notes, maturing October 1, 2010, were optionally redeemed on September 30, 2010.
NOTE 9—SHORT-TERM CREDIT ARRANGEMENTS AND BORROWINGS
In August 2010, Detroit Edison entered into an amended and restated $212 million two-year unsecured revolving credit agreement and a new $63 million three-year unsecured revolving credit agreement with a syndicate of 23 banks that may be used for general corporate borrowings, but are intended to provide liquidity support for the Company’s commercial paper program. No one bank provides more than 8.25% of the commitment in any facility. Borrowings under the facilities are available at prevailing short-term interest rates.
The above agreements require the Company to maintain a total funded debt to capitalization ratio of no more than 0.65 to 1. In the agreements, “total funded debt” means all indebtedness of the Company and its consolidated

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subsidiaries, including capital lease obligations, hedge agreements and guarantees of third parties’ debt, but excluding contingent obligations and nonrecourse and junior subordinated debt. “Capitalization” means the sum of (a) total funded debt plus (b) “consolidated net worth,” which is equal to consolidated total stockholders’ equity of the Company and its consolidated subsidiaries (excluding pension effects under certain FASB statements), as determined in accordance with accounting principles generally accepted in the United States of America. At September 30, 2010,March 31, 2011, the total funded debt to total capitalization ratio for Detroit Edison was 0.51 to 1. Should weDetroit Edison have delinquent obligations of at least $50 million to any creditor, such delinquency will be considered a default under ourits credit agreements. Detroit Edison had no outstanding short-term borrowings at March 31, 2011.

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NOTE 10—COMMITMENTS AND CONTINGENCIES
Environmental
Air— Detroit Edison is subject to the EPA ozone transport and acid rain regulations that limit power plant emissions of sulfur dioxide and nitrogen oxides. Since 2005, the EPA and the State of Michigan have issued additional emission reduction regulations relating to ozone, fine particulate, regional haze and mercury air pollution. The new rules will lead to additional controls on fossil-fueled power plants to reduce nitrogen oxide, sulfur dioxide and mercury emissions. To comply with these requirements, Detroit Edison has spent approximately $1.5 billion through 2009.2010. The Company estimates Detroit Edison will make capital expenditures of approximately $70over $230 million in 20102011 and up to $2.2$2.1 billion of additional capital expenditures through 20192020 based on current regulations. Further, additional rulemakings are expected over the next few years which could require additional controls for sulfur dioxide, nitrogen oxides and hazardous air pollutants. The EPA’s proposed National Emission Standards for Hazardous Air Pollutants from Coal and Oil-Fired Electric Utility Steam Generating Units rule (covering mercury and other air pollutants) was issued on March 16, 2011 for review and comment. DTE Energy is reviewing potential impacts of the proposed rule. The EPA will be accepting input on the proposal and may modify it prior to finalization, scheduled for November 2011. It is not possible to quantify the impact of thosethis and other 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 of Detroit Edison’s power plants violated New Source Performance standards, Prevention of Significant Deterioration requirements, and Title V operating permit requirements under the Clean Air Act. In June 2010, the EPA issued a NOV/FOV making similar allegations related to a recent project and outage at Unit 2 of the Monroe Power Plant.
On August 5, 2010, the United States Department of Justice, at the request of the EPA, brought a civil suit in the U.S. District Court for the Eastern District of Michigan against DTE Energy and Detroit Edison, related to the June 2010 NOV/FOV and the outage work performed at Unit 2 of the Monroe Power Plant, but not relating to the July 2009 NOV/FOV. Among other relief, the EPA is requesting the court to require Detroit Edison to install and operate the best available control technology at Unit 2 of the Monroe Power Plant. Further, the EPA is requesting the court to issue a preliminary injunction to require Detroit Edison to (i) begin the process of obtaining the necessary permits for the Monroe Unit 2 modification and (ii) offset the pollution from Monroe Unit 2 through emissions reductions from Detroit Edison’s fleet of coal-fired power plants until the new control equipment is operating. In January 2011, the EPA’s motion for preliminary injunction was denied and the liability phase of the civil suit has been scheduled for trial in September 2011.
DTE Energy and Detroit Edison believesbelieve that the plants identified by the EPA, including Unit 2 of the Monroe Power Plant, have complied with all applicable federal environmental regulations. Depending upon the outcome of discussions with the EPA regarding the NOV/FOV and the result of the civil action, Detroit Edison could also be required to install additional pollution control equipment at some or all of the power plants in question, considerimplement early retirement of facilities where control equipment is not economical, engage in supplemental environmental programs, and/or pay fines. DTE Energy and Detroit Edison cannot predict the financial impact or outcome of this matter, or the timing of its resolution.
Water— In response to an EPA regulation, Detroit Edison is required to examine alternatives for reducing the environmental impacts of the cooling water intake structures at several of its facilities. Based on the results of completed studies and expected future studies, Detroit Edison may be required to install additional control technologies to reduce the impacts of the water intakes. Initially, it was estimated that Detroit Edison could incur up

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to approximately $55 million in additional capital expenditures over the four to six years subsequent to 2008 to comply with these requirements. However, a January 2007 circuit court decision remanded back to the EPA several provisions of the federal regulation that has resulted in a delay in compliance dates. The decision also raised the possibility that Detroit Edison may have to install cooling towers at some facilities at a cost substantially greater than was initially estimated for other mitigative technologies. In 2008, the Supreme Court agreed to review the remanded cost-benefit analysis provision of the rule and in April 2009 upheld the EPA’s use of this provision in determining best technology available for reducing environmental impacts. Concurrently,On March 28, 2011, the EPA continues to developissued a revised rule, a draft of which is expectedcurrently under review. A final rule is scheduled to be publishedissued in the first quarter of 2011, with a final rule scheduled for mid-2012. The EPA has also issued an information collection request to begin a review of steam electric effluent guidelines. It is not possible at this time to quantify the impacts of these developing requirements.
Contaminated Sites— Prior to the construction of major interstate natural gas pipelines, gas for heating and other uses was manufactured locally from processes involving coal, coke or oil. The facilities, which produced gas, have

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been designated as manufactured gas plant (MGP) sites. Detroit Edison conducted remedial investigations at contaminated sites, including three former MGP sites. The investigations have revealed contamination related to the by-products of gas manufacturing at each site. In addition to the MGP sites, the Company is also in the process of cleaning up other contaminated sites, including the area surrounding an ash landfill, electrical distribution substations, and underground and aboveground storage tank locations. The findings of these investigations indicated that the estimated cost to remediate these sites is expected to be incurred over the next several years. At September 30, 2010March 31, 2011 and December 31, 2009,2010, the Company had $9 million accrued for remediation. Any significant change in assumptions, such as remediation techniques, nature and extent of contamination and regulatory requirements, could impact the estimate of remedial action costs for the sites and affect the Company’s financial position and cash flows.
Landfill— Detroit Edison owns and operates a permitted engineered ash storage facility at the Monroe Power Plant to dispose of fly ash from the coal fired power plant. Detroit Edison performed an engineering analysis in 2009 and identified the need for embankment side slope repairs and reconstruction.
The EPA has published proposed rules to regulate coal ash under the authority of the Resources Conservation and Recovery Act (RCRA). The proposed rule published on June 21, 2010 contains two primary regulatory options to regulate coal ash residue. The EPA is currently considering either designating coal ash as a “Hazardous Waste” as defined by RCRA or regulating coal ash as non-hazardous waste under RCRA. Agencies and legislatures have urged the EPA to regulate coal ash as a non-hazardous waste. If the EPA designates coal ash as a hazardous waste, the agency could apply some, or all, of the disposal and reuse standards that have been applied to other existing hazardous wastes to disposal and reuse of coal ash. Some of the regulatory actions currently being contemplated could have a significant impact on our operations and financial position and the rates we charge our customers. It is not possible to quantify the impact of those expected rulemakings at this time.
Other
In 2011, the EPA finalized a new set of regulations regarding the identification of non-hazardous secondary materials that are considered solid waste, industrial boiler and process heater maximum achievable control technologies (MACT) for major and area sources, and commercial/industrial solid waste incinerator new source performance standard and emission guidelines. This new set of regulations may impact our existing operations and may require us, in certain instances, to install new air pollution control devices. The new MACT regulations for industrial boilers provide three years for compliance with the major and area source standards. The Company is currently assessing the impact on current operations to determine the financial impact, if any, to comply with the new standards.
Nuclear Operations
Property Insurance
Detroit Edison maintains property insurance policies specifically for the Fermi 2 plant. These policies cover such items as replacement power and property damage. The Nuclear Electric Insurance Limited (NEIL) is the primary supplier of the insurance policies.

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Detroit Edison maintains a policy for extra expenses, including replacement power costs necessitated by Fermi 2’s unavailability due to an insured event. This policy has a 12-week waiting period and provides an aggregate $490 million of coverage over a three-year period.
Detroit Edison has $500 million in primary coverage and $2.25 billion of excess coverage for stabilization, decontamination, debris removal, repair and/or replacement of property and decommissioning. The combined coverage limit for total property damage is $2.75 billion.
In 2007, the Terrorism Risk Insurance Extension Act of 2005 (TRIA) was extended through December 31, 2014. A major change in the extension is the inclusion of “domestic” acts of terrorism in the definition of covered or “certified” acts. For multiple terrorism losses caused by acts of terrorism not covered under the TRIA occurring within one year after the first loss from terrorism, the NEIL policies would make available to all insured entities up to $3.2 billion, plus any amounts recovered from reinsurance, government indemnity, or other sources to cover losses.
Under the NEIL policies, Detroit Edison could be liable for maximum assessments of up to approximately $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.

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Public Liability Insurance
As of January 1, 2010,2011, as required by federal law, Detroit Edison maintains $375 million of public liability insurance for a nuclear incident. For liabilities arising from a terrorist act outside the scope of TRIA, the policy is subject to one industry aggregate limit of $300 million. Further, under the Price-Anderson Amendments Act of 2005, deferred premium charges up to $117.5 million could be levied against each licensed nuclear facility, but not more than $17.5 million per year per facility. Thus, deferred premium charges could be levied against all owners of licensed nuclear facilities in the event of a nuclear incident at any of these facilities.
Nuclear Fuel Disposal Costs
In accordance with the Federal Nuclear Waste Policy Act of 1982, Detroit Edison has a contract with the U.S. Department of Energy (DOE) for the future storage and disposal of spent nuclear fuel from Fermi 2. Detroit Edison is obligated to pay the DOE a fee of 1 mill per kWh of Fermi 2 electricity generated and sold. The fee is accounted for as a component of nuclear fuel expense. Delays have occurred in 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. In 2011, the Company expects to begin loading spent nuclear fuel into 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 certain limited circumstances, the Company enters into contractual guarantees. The Company may guarantee another entity’s obligation in the event it fails to perform. The Company may provide guarantees in certain indemnification agreements. Finally, the Company may provide indirect guarantees for the indebtedness of others.
Detroit Edison has guaranteed a bank term loan of $11 million related to the sale of its steam heating business to Thermal Ventures II, L.P. At September 30, 2010, the Company has reserves for the entire amount of the bank loan guarantee.
Labor Contracts
There are several bargaining units for the Company’s approximately 2,8002,700 represented employees. In the 2010 third quarter, a new three-year agreement was ratified covering approximately 2,400 represented employees. The remaining represented employees are under a contract that expires in August 2012.

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Purchase Commitments
As of September 30, 2010,March 31, 2011, 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 contracts.commitments. The Company estimates that these commitments will be approximately $1.5$2.6 billion from 20102011 through 2025. 2026. Certain of these commitments are with variable interest entities where the Company determined it was not the primary beneficiary as it does not have significant exposure to losses.
The Company also estimates that 20102011 capital expenditures will be approximately $900 million.$1.3 billion. The Company has made certain commitments in connection with expected capital expenditures.
Bankruptcies
The Company purchases and sells electricity from and to 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.

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Bankruptcy Code. The Company regularly reviews contingent matters relating to these customers and its purchase and sale contracts and records provisions for amounts considered at risk of probable loss. The Company believes its accrued amounts are adequate for probable loss. The final resolution of these matters may have a material effect on its consolidated financial statements.
Other Contingencies
The Company is involved in certain other legal, regulatory, administrative and environmental proceedings before various courts, arbitration panels and governmental agencies concerning claims arising in the ordinary course of business. These proceedings include certain contract disputes, additional environmental reviews and investigations, audits, inquiries from various regulators, and pending judicial matters. The Company cannot predict the final disposition of such proceedings. The Company regularly reviews legal matters and records provisions for claims that it can estimate and are considered probable of loss. The resolution of these pending proceedings is not expected to have a material effect on the Company’s operations or financial statements in the periods they are resolved.
See Notes 5 and 7 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                 
 Pension Benefits Benefits  Other Postretirement 
(in Millions)��2010 2009 2010 2009  Pension Benefits Benefits 
Three Months Ended September 30
 
Three Months Ended March 31 2011 2010 2011 2010 
Service cost $13 $11 $12 $11  $15 $13 $13 $13 
Interest cost 38 39 24 26  39 38 23 24 
Expected return on plan assets  (43)  (41)  (13)  (10)  (42)  (43)  (16)  (13)
Amortization of:  
Net actuarial loss 18 9 10 13  23 18 11 9 
Prior service cost 1 2 — —  1 1  (4) — 
Net transition liability — — — 1  — — 1 1 
                  
Net periodic benefit cost $27 $20 $33 $41  $36 $27 $28 $34 
                  
 
Nine Months Ended September 30
 
Service cost $39 $32 $35 $34 
Interest cost 115 119 71 77 
Expected return on plan assets  (129)  (124)  (39)  (31)
Amortization of: 
Net actuarial loss 53 29 29 39 
Prior service cost 4 5 1 1 
Net transition liability — — 2 2 
         
Net periodic benefit cost $82 $61 $99 $122 
         
Pension and Other Postretirement Contributions
TheIn January 2011, the Company contributed $200 million to its pension plans duringplans.
In January 2011, 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 $90contributed $36 million to its other postretirement medical and life insurancebenefit plans. At the discretion of management, the Company may make up to an additional $90 million contribution to its other postretirement benefit plans during 2010. No contributions were made toby the plans for the three and nine month periods ended September 30, 2010.end of 2011.

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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 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:
        
 Nine Months Ended         
 September 30  Three Months Ended
March 31		 
(in Millions) 2010 2009  2011 2010 
Changes in Assets and Liabilities, Exclusive of Changes Shown Separately
  
Accounts receivable, net $(8) $22  $55 $75 
Inventories  (38)  (11) 18 — 
Accrued pension liability — affiliates  (179)  (65)  (190)  (93)
Accounts payable 34  (52)  (15) 21 
Income taxes payable 119 46 
Accrued PSCR refund  (4)  (3)
Income taxes receivable/payable 26 77 
Postretirement obligation — affiliates 14 25   (32) 6 
Other assets  (47) 40   (18)  (9)
Other liabilities 18 107   (65) 2 
          
 $(87) $112  $(225) $76 
          

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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.
Overview
Detroit Edison has experienced increased electric sales in 2010 driven by higher residential and interconnection sales, partially offset by decreases in industrial and commercial sales. The residential sales increase is a result of warmer summer weather. Industrial sales are lower due to reduced demand from customers in the automotive and steel industries and their related suppliers and other ancillary businesses. Commercial sales continue to be lower due primarily to customers participating in the electric Customer Choice program. The impact of customers participating in the electric Customer Choice program is mitigated by the Choice Incentive Mechanism (CIM). The CIM is an over/under recovery mechanism which measures non-fuel revenues that are lost or gained as a result of fluctuations in electric Customer Choice sales. If annual electric Customer Choice sales exceed the baseline amount from Detroit Edison’s most recent rate case, 90 percent of its lost non-fuel revenues associated with sales above that level may be recovered from bundled customers. If annual electric Customer Choice sales decrease below the baseline, the Company must refund 100 percent of its increase in non-fuel revenues associated with sales below that level to bundled customers.
We have an RDM that is designed to minimize the impact on revenues of changes in average customer usage of electricity. The January 2010 MPSC order in Detroit Edison’s 2009 rate case provided for, among other items, the implementation of a pilot RDM effective February 1, 2010. The RDM enables Detroit Edison to recover or refund the change in revenue resulting from the difference between actual average sales per customer compared to the base level of average sales per customer established in the MPSC order. The RDM for Detroit Edison addresses changes in customer usage due to general economic conditions and conservation, but does not shield Detroit Edison from the impacts of lost customers. In addition, the pilot RDM materially shields Detroit Edison from the impact of weather on customer usage. The RDM is subject to review by the MPSC after the initial one-year pilot program.
As discussed further below, economic conditions impact our ability to collect amounts due from our customers and drive increased thefts of electricity. In the face of these economic conditions, we are continuing our efforts to identify opportunities to improve cash flow through working capital initiatives and maintaining flexibility in the timing and extent of our long-term capital projects. We are actively managing our cash, capital expenditures, cost structure and liquidity to maintain our financial strength. See the Capital Resources and Liquidity section that follows for further discussion of our liquidity outlook.
We continue to experience high levels of past due receivables primarily attributable to economic conditions. Our service territory continues to experience high levels of unemployment, underemployment and low income households, home foreclosures and a lack of adequate levels of assistance for low-income customers. We have taken actions to manage the level of past due receivables, including customer assistance forums, contracting with collection agencies, working with Michigan officials and others to increase the share of low-income funding allocated to our customers, and increasing customer disconnections. As a result of actions taken to manage the level of past due receivables, arrears were reduced in 2010. Detroit Edison has an uncollectible expense tracking mechanism that enables it to recover or refund 80 percent of the difference between the actual uncollectible expense for each year and the $66 million level reflected in base rates. The uncollectible tracking mechanism requires an annual reconciliation proceeding before the MPSC.

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Results of Operations
Detroit Edison’s results for the three and nine months ended September 30, 2010March 31, 2011 as compared to the comparable 2009 periods2010 period are discussed below:
                        
 Three Months Ended Nine Months Ended  Three Months Ended 
 September 30 September 30  March 31 
(in Millions) 2010 2009 2010 2009  2011 2010 
Operating Revenues $1,444 $1,289 $3,798 $3,515  $1,192 $1,146 
Fuel and Purchased Power 484 400 1,217 1,112  378 343 
              
Gross Margin 960 889 2,581 2,403  814 803 
Operation and Maintenance 325 306 960 928  329 309 
Depreciation and Amortization 230 222 644 607  202 204 
Taxes Other Than Income 54 43 180 147  59 65 
Asset Gains, Net — —  (1) — 
Asset (Gains) and Losses, Net 19  (1)
              
Operating Income 351 318 798 721  205 226 
Other (Income) and Deductions 78 75 236 220  67 79 
Income Tax Provision 108 94 219 195  53 56 
              
Net Income $165 $149 $343 $306  $85 $91 
              
 
Operating Income as a Percentage of Operating Revenues  24%  25%  21%  21%  17%  20%
Gross marginincreased $71$11 million in the thirdfirst quarter of 2010 and $178 million in the nine-month period ended September 30, 2010.2011. Revenues associated with certain tracking mechanisms and surcharges are offset by related expenses elsewhere in the Statement of Operations. The following table details changes in various gross margin components relative to the comparable prior period:
         
(in Millions) Three Months  Nine Months 
Weather, net of RDM  50   50 
Restoration and line clearance tracker  29   27 
Customer Choice, net of CIM  (9)  (17)
2010 rate order, surcharges and other  1  118
       
Increase in gross margin $71  $178 
       
     
(in Millions) Three Months 
Base sales, net of RDM and CIM $7 
Energy optimization incentive  9 
Restoration tracker  5 
Electric Choice implementation surcharge elimination  (6)
Securitization bond and tax surcharge  (3)
Other  (1)
    
Increase in gross margin $11 
    

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 Three Months Ended Nine Months Ended Three Months Ended
 September 30 September 30 March 31
(in Thousands of MWh) 2010 2009 2010 2009 2011 2010
Electric Sales
                 
Residential  5,034   4,107   12,301   10,992  3,889 3,665 
Commercial  4,730   4,806   12,660   13,764  3,993 3,942 
Industrial  2,357   2,562   7,438   7,584  2,341 2,475 
Other  798   799   2,398   2,399  798 802 
                     
  12,919   12,274   34,797   34,739  11,021 10,884 
Interconnections sales (1)  1,270   1,644   4,031   3,868 
Interconnection sales (1) 306 1,310 
                     
Total Electric Sales  14,189   13,918   38,828   38,607  11,327 12,194 
                     
                 
Electric Deliveries
                 
Retail and Wholesale  12,919   12,274   34,797   34,739  11,021 10,884 
Electric Customer Choice, including self generators (2)  1,289   337   3,675   998 
Electric Customer Choice, including self generators(2) 1,302 1,103 
                     
Total Electric Sales and Deliveries  14,208   12,611   38,472   35,737  12,323 11,987 
                     
 
(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) 2010 2009 2010 2009  2011 2010 
Power Plant Generation  
Fossil 11,224 10,729 30,339 30,424  8,058 9,520 
Nuclear 2,368 2,367 6,656 6,106  1,706 2,200 
              
 13,592 13,096 36,995 36,530  9,764 11,720 
Purchased Power 1,669 1,753 4,465 4,569  2,477 1,322 
              
System Output 15,261 14,849 41,460 41,099  12,241 13,042 
Less Line Loss and Internal Use  (1,072)  (931)  (2,632)  (2,492)  (914)  (848)
              
Net System Output 14,189 13,918 38,828 38,607  11,327 12,194 
              
  
Average Unit Cost ($/MWh)  
Generation (1) $19.81 $18.01 $19.22 $18.07  $20.80 $18.78 
              
Purchased Power $51.07 $35.50 $43.71 $37.07  $40.79 $32.30 
              
Overall Average Unit Cost $23.23 $20.08 $21.85 $20.18  $24.84 $20.15 
              
 
(1) Represents fuel costs associated with power plants.
Operation and maintenanceexpense increased $19$20 million in the thirdfirst quarter of 2010 and $322011 due primarily to increased power plant generation outages of $9 million, in the nine-month period ended September 30, 2010. The increase for the third quarter is primarily due to higher restorationemployee benefit related expenses of $8 million, higher storm and line clearance expenses of $28$6 million and higher energy optimization and renewable energy expenses of $3 million, partially offset by lower generation expenses of $6 million, lower employee benefit-related expenses of $3 million and reduced uncollectible expenses of $3 million. The increase for the nine-month period is primarily due to higher restoration and line clearance expenses of $33 million, higher energy optimization and renewable energy expenses of $16 million, higher legal expenses of $11 million and higher employee benefit-related expenses of $6$4 million, partially offset by reduced uncollectible expenses of $22 million and lower generation expenses of $14$6 million.
Taxes other than incomeAsset (gains) and losses, netwere higher by $11decreased $20 million due to an accrual of $19 million in the 2010 thirdfirst quarter of 2011 resulting from management’s revisions of the timing and $33 million inestimate of cash flows for the 2010 nine-month period due primarilydecommissioning of Fermi 1. See Note 6 of the Notes to a $17 million and $30 million, respectively, reduction in property tax expense in 2009 due to refunds received in partial settlement of appeals of assessments for prior years.the Consolidated Financial Statements.
Outlook—We continue to move forward in our efforts to improve the operating performance and cash flow of Detroit Edison. The 2010 MPSC order provided for an uncollectible expense tracking mechanism which financially assists in mitigating the impacts of economic conditions in our service territory and a revenue decoupling mechanism that addresses changes in average customer usage due to general economic conditions, weather and conservation. These and other tracking mechanisms and surcharges are expected to result in lower earnings volatility in the future. volatility.

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We expect that our planned significant environmental and renewable expendituresenergy investments will result in earnings growth. Looking forward, we face additional issues,factors may impact earnings such as higher levels of capital spending, volatility in prices for coal and other commodities, increased transportation costs, investment returns and changes in discount rate assumptions in benefit plans and health care costs, lower levels of wholesale sales due to contract expirations, and uncertainty of legislative or regulatory actions regarding climate change. We expect to continue an intense focus on our continuous improvement efforts to improve productivity and decrease our costs while improving customer satisfaction with consideration of customer rate affordability.
Detroit Edison filed a rate case on October 29, 2010 based on a projected twelve-month period ending March 31, 2012. The filing with the MPSC requested a $443 million increase in base rates. Detroit Edison also proposed certain adjustments which could reduce the net impact on the required increase in rates by approximately $190 million. Detroit Edison plans to self-implement $107 million of its requested annual increase on April 28, 2011. This increase will remain in place until a final order is issued by the MPSC, which is expected by October 2011. If the final rate case order does not support the self-implemented rate increase, Detroit Edison must refund the difference with interest.
Environmental Matters
Global Climate Change
Climate regulation and/orThe EPA has promulgated the Greenhouse Gas Tailoring rule that regulates greenhouse gases as pollutants under the EPA’s new source permitting and major source operating permit programs, and that requires a Best Available Control Technology (BACT) determination for new and modified major sources of GHG. In addition, the EPA will be issuing proposed GHG performance standards for new and modified electric generating units in July 2011. Comprehensive climate change and energy legislation is being proposed and discussed within the U.S. Congress and the EPA. In June 2009,was passed out of the U.S. House of Representatives passed the American Clean Energy and Security Act (ACESA). The ACESA includes a cap and trade program that would start in 2012 and provides for costs to emit greenhouse gases.

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Despite action by2009, but the Senate Environmental and Public Works Committeewas unable to pass a similar but more stringent bill in October 2009 and the releaseagree on passage of the American Power Act discussion draft by Senators Kerry and Lieberman in 2010, full Senate action on a climate bill is unlikely in 2010. Meanwhile,bill. In the EPA is beginning to implement regulatory actions undercurrent U.S. Congress, efforts are focused on delaying the Clean Air Act to address emissionEPA’s regulation of greenhouse gases.GHGs with no expectation of enacting a comprehensive national climate program. Pending or future legislationregulatory or other regulatorylegislative actions could have a material impact on our operations and financial position and the rates we charge our customers. Impacts include expenditures for environmental equipment beyond what is currently planned, financing costs related to additional capital expenditures, and the purchase of emission allowancesoffsets from market sources.sources and the retirement of facilities where control equipment is not economical. We would seek to recover these incremental costs through increased rates charged to our utility customers. Increased costs for energy produced from traditional sources could also increase the economic viability of energy produced from renewable and/or nuclear sources and energy efficiency initiatives and the development of market-based trading of carbon offsets providing business opportunities.opportunities for our utility and non-utility segments. It is not possible to quantify these impacts on Detroit Edison or its customers at this time.
See Note 10 of the Notes to Consolidated Financial Statements for additional information regarding environmental matters.
Capital 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 may be impacted by the delayed collection of underrecoveries of our PSCR costs and the impact of the UETM on 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 foreseeable future. We are continuing our efforts to identify opportunities to improve cash flow through working capital initiatives and maintaining flexibility in the timing and extent of our long-term capital projects.
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. We are currently assessing other impacts the legislation may have on our active and retiree 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 repaid DTE Energy the value of the stock contribution in cash. 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 nine months ended September 30, 2010. As a result of the continued downward trend in long-term interest rates, we expect our 2011 pension and other postretirement benefit costs to increase as compared to 2010.
In April 2010, the Company signed an agreement with the U.S. Department of Energy for a grant of approximately $84 million in matching funds on total anticipated spending of approximately $168 million related to the accelerated deployment of smart grid technology in Michigan through 2012. The smart grid technology includes the establishment of an advanced metering infrastructure and other technologies that address improved electric distribution service. See Note 2 of the Notes to Consolidated Financial Statements.
The Company filed a rate case on October 29, 2010 that requests an increase in base rates that is required to recover higher costs associated with environmental compliance, operation and maintenance of the Company’s electric distribution system and generation plants, inflation, the capital costs of plant additions, the reduction in territory sales, the impact from the expiration of certain wholesale for resale contracts and the increased migration of customers to the electric Customer Choice program. See Note 7 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 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.
CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
Management of the Company carried out an evaluation, under the supervision and with the participation of Detroit Edison’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2010,March 31, 2011, which is the end of the period covered by this report. Based on this evaluation, the Company’s Chief Executive OfficerCEO and Chief Financial OfficerCFO have concluded that such disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to the Company’s management, including its Chief Executive OfficerCEO and Chief Financial Officer,CFO, as appropriate to allow timely decisions regarding required disclosure. Due to the inherent limitations in the effectiveness of any disclosure controls and procedures, management cannot provide absolute assurance that the objectives of its disclosure controls and procedures will be attained.
(b) Changes in internal control over financial reporting
There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2010March 31, 2011 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.
Item 1.—Legal Proceedings
The Company is involved in certain legal, regulatory, administrative and environmental proceedings before various courts, arbitration panels and governmental agencies concerning claimsmatters 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 andthat are considered probable of loss. The resolution of these pending proceedings is not expected to have a material effect on the Company’sits operations or financial statements in the periods they are resolved.
In July 2009, DTE Energy received a Notice of Violation/Finding of Violation (NOV/FOV) from the EPA alleging, among other things, that five of Detroit Edison’s power plants violated New Source Performance standards, Prevention of Significant Deterioration requirements, and Title V operating permit requirements under the Clean Air Act. In June 2010, the EPA issued a NOV/FOV making similar allegations related to a recent project and outage at Unit 2 of the Monroe Power Plant.
On August 5, 2010, the United States Department of Justice, at the request of the EPA, brought a civil suit in the U.S. District Court for the Eastern District of Michigan against DTE Energy and Detroit Edison, related to the June 2010 NOV/FOV and the outage work performed at Unit 2 of the Monroe Power Plant, but not relating to the July 2009 NOV/FOV. Among other relief, the EPA is requestingrequested the court to require Detroit Edison to install and operate the best available control technology at Unit 2 of the Monroe Power Plant. Further, the EPA is requestingrequested the court to issue a preliminary injunction to require Detroit Edison to (i) begin the process of obtaining the necessary permits for the Monroe Unit 2 modification and (ii) offset the pollution from Monroe Unit 2 through emissions reductions from Detroit Edison’s fleet of coal-fired power plants until the new control equipment is operating. In January 2011, the EPA’s motion for preliminary injunction was denied and the liability phase of the civil suit has been scheduled for trial in September 2011.
DTE Energy and Detroit Edison believesbelieve that the plants identified by the EPA, including Unit 2 of the Monroe Power Plant, have complied with all applicable federal environmental regulations. Depending upon the outcome of discussions with the EPA regarding the NOV/FOV and the result of the civil action, Detroit Edison could also be required to install additional pollution control equipment at some or all of the power plants in question, considerimplement early retirement of facilities where control equipment is not economical, engage in supplemental environmental programs, and/or pay fines. DTE Energy and Detroit Edison cannot predict the financial impact or outcome of this matter, or the timing of its resolution.
For additional discussion on legal matters, see Note 10 of the Notes to Consolidated Financial Statements
Item 1A.
Item 1A.—Risk Factors
There are various risks associated with the operations of Detroit Edison. To provide a framework to understand the operating environment of Detroit Edison, we have provided a brief explanation of the more significant risks associated with our businesses in Part 1, Item 1A. Risk Factors in the Company’s 2009
There are various risks associated with the operations of Detroit Edison. To provide a framework to understand the operating environment of Detroit Edison, we have provided a brief explanation of the more significant risks associated with our businesses in Part 1, Item 1A. Risk Factors in the Company’s 2010 Form 10-K. Although we have tried to identify and discuss key risk factors, others could emerge in the future. In addition to the risk factors set forth in our 10-K, the following updated risk could emerge in the future. In addition to the risk factors set forth in our 10-K, the following updated risks could affect our performance.
Operation of a nuclear facility subjects us to risk.Ownership of an operating nuclear generating plant subjects us to significant additional risks. These risks include, among others, plant security, environmental regulation and remediation, changes in federal nuclear regulation and operational factors that can significantly impact the performance and cost of operating a nuclear facility. While we maintain insurance for various nuclear-related risks, there can be no assurances that such insurance will be sufficient to cover our costs in the event of an accident or business interruption at our nuclear generating plant, which may affect our performance.
A work interruption may adversely affect us.Unions represent approximately 2,800 of our employees. A union choosing to strike would have an impact on our business. We are unable to predict the effect a work stoppage would have on our costs of operation and financial performance.
Construction and capital improvements to our power facilities subject us to risk.We are managing ongoing and planning future significant construction and capital improvement projects at multiple power generation and

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distribution facilities. Many factors that could cause delay or increased prices for these complex projects are beyond our control, including the cost of materials and labor, subcontractor performance, timing and issuance of necessary permits, construction disputes and weather conditions. Failure to complete these projects on schedule and on budget for any reason could adversely affect our financial performance and operations at the affected facilities.

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Item 6.—Exhibits
 — Exhibits
Exhibit
NumberDescription
Exhibits filed herewith:
4-269Supplemental Indenture, dated as of August 1, 2010, to the Mortgage and Deed of Trust, dated as of October 1, 1924, by and between the Company and The Bank of New York Mellon Trust Company, N.A. as successor trustee. (2010 Series B)
4-270Thirty-First Supplemental Indenture, dated as of August 1, 2010 to the Collateral Trust Indenture, dated as of June 1, 1993 by and between the Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee. (2010 Series B 3.45% Senior Notes due 2020)
4-271Supplemental Indenture, dated as of September 1, 2010, to the Mortgage and Deed of Trust, dated as of October 1, 1924, by and between the Company and The Bank of New York Mellon Trust Company, N.A. as successor trustee. (2010 Series A)
4-272Thirty-Second Supplemental Indenture, dated as of September 1, 2010, by and between the Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee. (2010 Series A 4.89% Senior Notes due 2020)
12-38Computation of Ratio of Earnings to Fixed Charges
31-59Chief Executive Officer Section 302 Form 10-Q Certification
31-60Chief Financial Officer Section 302 Form 10-Q Certification
Exhibits incorporated herein by reference:
4-273Form of Amended and Restated Detroit Edison Two-Year Credit Agreement, dated as of April 29, 2009 and amended and restated as of August 20, 2010, by and among The Detroit Edison Company the lenders party thereto, Barclays Bank plc, as Administrative Agent, and Citibank N.A., JPMorgan Chase Bank, N.A. and the Royal Bank of Scotland plc, as Co-Syndication Agents (Exhibit 10.1 to Detroit Edison Form 8-K filed on August 26, 2010).
4-274Form of Detroit Edison Three-Year Credit Agreement, dated as of August 20, 2010, by and among The Detroit Edison Company, the lenders party thereto, Barclays Bank plc, as Administrative Agent, and Citibank N.A., JPMorgan Chase Bank, N.A. and the Royal Bank of Scotland plc, as Co-Syndication Agents (Exhibit 10.2 to Detroit Edison Form 8-K filed on August 26, 2010).
Exhibits furnished herewith:
32-59Chief Executive Officer Section 906 Form 10-Q Certification
32-60
Exhibit
NumberDescription
Exhibits filed herewith:
4-274Supplemental Indenture, dated as of March 1, 2011, to the Mortgage and Deed of Trust, dated as of October 1, 1924, by and between The Detroit Edison Company and The Bank of New York Mellon Trust Company, N.A. as successor trustee (2011 Series AT)
12-40Computation of Ratio of Earnings to Fixed Charges
31-63Chief Executive Officer Section 302 Form 10-Q Certification
31-64Chief Financial Officer Section 302 Form 10-Q Certification
Exhibits furnished herewith:
32-63Chief Executive Officer Section 906 Form 10-Q Certification
32-64 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: April 27, 2011/S/ PETER B. OLEKSIAK
Peter B. Oleksiak
Vice President and Controller and
Chief Accounting Officer  
THE DETROIT EDISON COMPANY
(Registrant)
Date: October 29, 2010 /s/ PETER B. OLEKSIAK  
Peter B. Oleksiak 
Vice President and Controller
and Chief Accounting Officer 

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