UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2002Quarterly Period Ended March 31, 2003
Commission file number 1-2198
The registrant 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
Michigan | 38-0478650 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
2000 2nd Avenue, Detroit, Michigan | 48226-1279 | |
(Address of principal executive offices) | (Zip Code) |
313-235-8000313-235-4000
(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 (Exchange Act) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]No [ ]
Indicate by check mark whether the registrant is an accelerated filer as defined in Rule 12b-2 of the Exchange Act.
Yes [X]No [ ]
THE DETROIT EDISON COMPANY
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED MARCH 31, 2003
TABLE OF CONTENTS
PAGE | ||||||
DEFINITIONS | 3 | |||||
FORWARD-LOOKING STATEMENTS | 4 | |||||
PART I – FINANCIAL INFORMATION | ||||||
Item 1. Financial Statements | ||||||
Consolidated Statement of Operations | 10 | |||||
Consolidated Statement of Financial Position | 11 | |||||
Consolidated Statement of Cash Flows | 13 | |||||
Consolidated Statement of Changes in Shareholder’s Equity and Comprehensive Income | 14 | |||||
Notes to Consolidated Financial Statements | 15 | |||||
Independent Accountants’ Report | 20 | |||||
Item 2. Management’s Narrative Analysis of Results of Operations | 5 | |||||
Item 4. Controls and Procedures | 9 | |||||
PART II – OTHER INFORMATION | ||||||
Item 6. Exhibits and Reports on Form 8-K | 21 | |||||
SIGNATURE | 22 | |||||
CERTIFICATIONS | 23 |
The Detroit Edison Company
Quarterly Report on Form 10-QQuarter Ended September 30, 2002
Table of ContentsDEFINITIONS
Company | Detroit Edison Company and subsidiary companies | |||||
2
Definitions
Customer Choice | ||
Detroit Edison | The Detroit Edison Company (a wholly owned subsidiary of DTE Energy Company) and | |
DTE Energy | DTE Energy Company, the parent of Detroit Edison and Enterprises | |
Enterprises | DTE Enterprises Inc. (successor to MCN Energy), a wholly owned subsidiary of DTE Energy Company | |
EPA | United States Environmental Protection Agency | |
FERC | Federal Energy Regulatory Commission | |
MCN Energy | MCN Energy Group Inc. and subsidiary companies that were merged into Enterprises | |
MichCon | Michigan Consolidated Gas Company and subsidiary companies | |
MPSC | Michigan Public Service Commission | |
MWh | Megawatthour | |
PSCR | A power supply cost recovery mechanism authorized by the MPSC that allowed Detroit Edison to recover through rates its fuel, fuel-related and purchased power electric expenses. The clause was suspended under Michigan’s restructuring legislation signed into law June 5, 2000, which lowered and froze electric customer rates. | |
Securitization | ||
SFAS | Statement of Financial Accounting Standards | |
Stranded Costs | Costs incurred by utilities in order to serve customers in a regulated environment |
3
The Detroit Edison CompanyFORWARD-LOOKING STATEMENTS
Forward-Looking Statements
Certain information presented herein includes forward-looking statements.statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve certain risks and uncertainties that may cause actual future results to differ materially from those contemplated, projected, estimated or budgeted in such forward-looking statements. FactorsThere are many factors that may impact forward-looking statements include,including, but are not limited to, interest rates,the following:
• | the effects of weather and other natural phenomena on operations and sales to customers; | |
• | economic climate and growth in the geographic areas where we do business; | |
• | environmental issues, including changes in the climate, and regulations; | |
• | nuclear regulations and risks associated with nuclear operations; | |
• | implementation of electric Customer Choice programs; | |
• | implementation of electric restructuring in Michigan; | |
• | employee relations; | |
• | unplanned outages; | |
• | capital market conditions and access to capital markets and other financing efforts which can be affected by credit agency ratings; | |
• | the timing and extent of changes in interest rates; | |
• | the level of borrowings; | |
• | changes in the cost of fuel and purchased power; | |
• | effects of competition; | |
• | impact of FERC and MPSC proceedings and regulations; | |
• | changes in federal or state tax laws and their interpretations, including the code, regulations, rulings, court proceedings and audits; | |
• | ability to recover costs through rates; | |
• | property insurance; | |
• | the cost of protecting assets against or damage due to terrorism; and | |
• | changes in accounting standards and financial reporting regulations. |
New factors emerge from time to the capital markets and capital market conditions (including the effect on Detroit Edison’s pension plan investments), the level of borrowings, the effects of weather and other natural phenomena on operations, actual sales, economic climate and growthtime. We cannot predict what factors may arise or how such factors may cause our results to differ materially from those contained in the geographic areas in which Detroit Edison does business, the timing and extent of changes in commodity prices for electricity, unscheduled generation outages, maintenance or repairs, nuclear power plant performance, changes in the cost of fuel and purchased power due to the suspensionany forward-looking statement. Any forward-looking statement speaks only as of the PSCR mechanism,date on which such statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the effectsdate on which such statement is made or to reflect the occurrence of increased competition from other energy suppliers and the implementation of electric Customer Choice programs as well as alternative forms of energy, the implementation of electric utility restructuring in Michigan (which involves pending regulatory and related judicial proceedings, and actual and possible reductions in authorized rates and earnings), the effects of changes in governmental policies including income taxes, environmental compliance and nuclear requirements and the ability to recover these costs through rate increases, the impact of FERC and MPSC proceedings and existing and proposed regulations and the timing of the accretive effects of DTE Energy’s merger with MCN Energy.unanticipated events.
4
THE DETROIT EDISON COMPANY
Management’s Narrative Analysis of the Results of OperationsRESULTS OF OPERATIONS
The Results of Operations discussion for Detroit Edison is presented in accordance with General Instruction H (2) (a) of Form 10-Q.
Detroit Edison reported net incomeOur earnings for the 2003 first quarter were $15 million compared to earnings of $105$92 million for the 2002 three-month period, comparedfirst quarter. The comparability of earnings was impacted by the adoption of a new accounting rule in the 2003 first quarter. As required by generally accepted accounting principles, we adopted a new accounting rule for asset retirement obligations as discussed in Note 2. The cumulative effect of adopting this new accounting rule was to net income of $88 millionreduce 2003 first quarter earnings by $6 million. Results for the same period in 2001. For the nine-month period, net income was $272 million compared to $124 million for the same period in 2001. The earnings comparability for the three- and nine-month periods iscurrent quarter were also affected by $9 million ($5a $14 million net of tax) and $184 million ($119 million nettax loss on the sale of tax), respectively, of merger and restructuring charges that were recordedour steam heating business in 2001.January 2003.
New reporting alignment- Beginning in 2002, Detroit Edison’s parent company, DTE Energy, realigned its internal and external financial reporting structure into three strategic business units (Energy Resources, Energy Distribution and Energy Gas) that have both regulated and non-regulated operations. Based on this structure, management sets strategic goals, allocates resources and evaluates performance. The realignment resulted inEdison has the following two reportable segments for Detroit Edison:segments.
ENERGY RESOURCES
Energy ResourcesPower Generationincludes the
The power generation servicesplants of Detroit Edison. Electricity is generated fromEdison comprise our regulated power generation business. Detroit Edison’s numerous fossil plants, orhydroelectric pumped storage plant and its nuclear plant generate electricity that is sold principally throughout Michigan and sold throughout Southeastern Michiganthe Midwest to residential, commercial, industrial and wholesale customers.
Power Generation earnings declined $40 million during the 2003 first quarter reflecting lower gross margins due to higher fuel and purchased power costs and lost margins from customers participating in the electric Customer Choice program. The higher purchased power costs reflect unfavorable energy market prices in 2003 and lower plant availability. As a result of the electric Customer Choice program, Detroit Edison lost 9% of retail sales in the 2003 first quarter. To partially offset the impact of these lost margins, Detroit Edison recorded a $6 million regulatory asset representing stranded costs that are recoverable under Michigan legislation. The lower earnings were also attributed to higher operation and maintenance expense due to employee pension and health care benefit costs and expenses due to the timing of planned reliability and maintenance work done to improve the production and availability of the generation fleet.
Three Months Ended | ||||||||
March 31 | ||||||||
(in Millions) | 2003 | 2002 | ||||||
Operating Revenues | $ | 617 | $ | 617 | ||||
Fuel and Purchased Power | 240 | 199 | ||||||
Gross Margin | 377 | 418 | ||||||
Operation and Maintenance | 183 | 138 | ||||||
Depreciation and Amortization | 73 | 86 | ||||||
Taxes other than Income | 43 | 40 | ||||||
Operating Income | 78 | 154 | ||||||
Other (Income) and Deductions | 39 | 56 | ||||||
Income Tax Provision | (14 | ) | (33 | ) | ||||
Net Income | $ | 25 | $ | 65 | ||||
Operating Income as a Percent of Operating Revenues | 13 | % | 25 | % |
5
System output and average fuel and purchased power costs were as follows:
Three Months Ended | |||||||||
March 31 | |||||||||
(in Thousands of MWh) | 2003 | 2002 | |||||||
Power generated and purchased | |||||||||
Power plant generation | |||||||||
Fossil | 9,134 | 9,111 | |||||||
Nuclear | 2,248 | 2,290 | |||||||
11,382 | 11,401 | ||||||||
Purchased power | 1,888 | 1,640 | |||||||
System output | 13,270 | 13,041 | |||||||
Average unit cost ($/MWh) | |||||||||
Generation (1) | $ | 13.29 | $ | 12.09 | |||||
Purchased Power (2) | $ | 40.67 | $ | 30.10 | |||||
Overall Average Unit Cost | $ | 17.19 | $ | 14.34 | |||||
(1) Represents fuel costs associated with power plants.
(2) The average purchased power amounts include hedging activities.
Outlook– We expect electric restructuring to continue resulting in increased customer choice in the retail electric generation business. As a result of customers choosing to participate in the electric Customer Choice program, Detroit Edison lost 6% of retail sales in 2002 and estimates losing 10% to 13% of such sales in 2003. Unrecovered generation fixed costs due to electric Customer Choice are allowed for future recovery under Michigan legislation. As a result, Detroit Edison recorded a regulatory asset relating to stranded costs during the first quarter of 2003 and anticipates recording additional regulatory assets during the balance of 2003. The regulatory asset will be subject to review by the MPSC in future regulatory proceedings, and we cannot predict the outcome of this matter. See Note 4 – Regulatory Matters.
The June 2000 Michigan legislation imposed a rate freeze for all classes of customers through 2003. In addition, the MPSC determined that adjusting rates for changes in fuel and purchased power through continuance of the Power Supply Cost Recovery (PSCR) clause would be inconsistent with the rate freeze, therefore the MPSC suspended the PSCR clause. It is unclear at this time whether the PSCR clause will be suspended beyond 2003. Detroit Edison expects to file a rate case in the second quarter of 2003 addressing this and other issues.
Future operating results are expected to vary as a result of factors such as regulatory proceedings, weather, changes in economic conditions and the level of customer participation in the electric Customer Choice program.
ENERGY DISTRIBUTION
EnergyPower Distribution
Power Distribution includes the electric distribution services of Detroit Edison. EnergyPower Distribution distributes electricity generated by Energy Resources and alternative electric suppliers to Detroit Edison’s 2.1 million residential, commercial and industrial customers.
46
Management’s Narrative Analysis and Results of Operations
Three Months Ended | Nine Months Ended | ||||||||||||||||
September 30 | September 30 | ||||||||||||||||
(in Millions) | 2002 | 2001 | 2002 | 2001 | |||||||||||||
Net Income | |||||||||||||||||
Energy Resources | $ | 38 | $ | 30 | $ | 150 | $ | 120 | |||||||||
Energy Distribution | 67 | 63 | 122 | 123 | |||||||||||||
105 | 93 | 272 | 243 | ||||||||||||||
Merger and Restructuring Charges, net of tax | — | (5 | ) | — | (119 | ) | |||||||||||
Total | $ | 105 | $ | 88 | $ | 272 | $ | 124 | |||||||||
Energy Resources
Earnings increased $8 million and $30Power Distribution earnings decreased $31 million during the 2002 three- and nine-month periods, respectively, reflecting higher gross margins2003 first quarter due to lower purchased power costs. The lower purchased power costs reflect favorable energy market prices in 2002. Mark to market accounting for forward and option contracts in 2001 impacted revenues and purchased power, resulting in a favorable impact on marginsnet of $36 million in the 2001 third quarter, and an unfavorable impact on margins of $9 million in the 2001 nine-month period. Margins were also impacted by higher revenues due to greater cooling demand in the 2002 third quarter and thetax loss of revenues resulting from customers switching$14 million on the sale of our unprofitable steam heating business (Note 3) and to alternative electric suppliers under the electric Customer Choice program. Revenues for the 2002 nine-month period also were reduced due to the impact of a 5% legislatively mandated, securitization based, rate reduction for commercialhigher operation and industrial customers that began in April 2001. The higher gross margins weremaintenance expenses, partially offset by increased employee benefit costs and higher operations and maintenance expenses due to planned and unplanned reliability and maintenance work done to improve the production and availability of the generation fleet. Depreciation and amortization expense decreased in the nine-month period reflecting the extension of the amortization period from 7 years to 15 years for certain regulatory assets that were securitized in 2001.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | September 30 | |||||||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||||||
(in Millions) | ||||||||||||||||
Operating revenues | $ | 784 | $ | 766 | $ | 2,052 | $ | 2,172 | ||||||||
Less: Fuel and purchased power | 365 | 397 | 780 | 974 | ||||||||||||
Gross margin | $ | 419 | $ | 369 | $ | 1,272 | $ | 1,198 | ||||||||
Net income | $ | 38 | $ | 30 | $ | 150 | $ | 120 | ||||||||
5
Management’s Narrative Analysis and Results of Operations
System output and average fuel and purchased power costs were as follows:
Three Months Ended | Nine Months Ended | ||||||||||||||||
September 30 | September 30 | ||||||||||||||||
2002 | 2001 | 2002 | 2001 | ||||||||||||||
(in Thousands of MWh) | |||||||||||||||||
Power generated and purchased | |||||||||||||||||
Power plant generation | |||||||||||||||||
Fossil | 11,183 | 11,021 | 29,813 | 30,639 | |||||||||||||
Nuclear | 2,384 | 2,406 | 7,008 | 7,135 | |||||||||||||
Purchased power | 3,439 | 2,092 | 7,257 | 5,360 | |||||||||||||
System output | 17,006 | 15,519 | 44,078 | 43,134 | |||||||||||||
Average unit cost ($/MWh) | |||||||||||||||||
Generation(1) | $ | 12.98 | $ | 12.60 | $ | 12.62 | $ | 12.34 | |||||||||
Purchased power(2) | $ | 52.96 | $ | 148.08 | $ | 43.24 | $ | 92.84 | |||||||||
Outlook-Electric restructuring will continue to result in increased competition in the electric generation business. Effective January 1, 2002, the electric Customer Choice program in Michigan was expanded to allow all electric customers to choose to purchase their electricity from suppliers other than their local utility. Detroit Edison expects to lose between 5% to 8% of retail sales in 2002 and between 10% to 15% of such sales in 2003 as a result of customers choosing to participate in the electric Customer Choice program. To the extent Detroit Edison experiences net stranded costs as a result of customers switching to an alternative electric supplier, Michigan law allows the recovery of all amounts of such net stranded costs. Detroit Edison disagreed with the MPSC initial methodology for determining and recovering net stranded costs and has asked for rehearing, clarification and modification of the December 2001 order. In May 2002, the MPSC denied Detroit Edison’s request for rehearing and clarification on certain aspects of the order. In June 2002, Detroit Edison filed a claim of appeal of the December 2001 MPSC order with the Michigan Court of Appeals.
In May 2002, Detroit Edison filed a new net stranded cost case with the MPSC that seeks to refine the methodology approved by the MPSC in December 2001 and calculates actual net stranded costs for 2000 and 2001. The MPSC Staff and interveners submitted their net stranded cost filings in November 2002. Detroit Edison expects to record 2002 net stranded costs as a regulatory asset with the offsetting entry reducing expense in the fourth quarter of 2002. See Note 3.
Energy Distribution
Earnings increased $4 million during the 2002 three-month period and decreased $1 million during the 2002 nine-month period reflecting higher operating revenues which were offset by increased operation and maintenance expenses. Operating revenues increased due primarily to higher residential sales attributable to greater cooling demand.revenues. The increased operation and maintenance expenses are attributable to heat-related maintenance expenses due to prolonged periods of above normal temperatureshigher employee pension and the related stress placed on the distribution system, higher employeehealth care benefit costs and expensesincreased costs associated with restoring power to customers who lostcustomer service during two stormsprocess improvements, partially offset by lower storm expenses in the 2003 first quarter as compared to the 2002 nine-month period.
6
Management’s Narrative Analysis and Results of Operationsfirst quarter.
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30 | September 30 | |||||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||||
2002 | 2001 | 2002 | 2001 | March 31 | ||||||||||||||||||||
(in Millions) | 2003 | 2002 | ||||||||||||||||||||||
Operating revenues | $ | 416 | $ | 355 | $ | 1,040 | $ | 965 | $ | 320 | $ | 313 | ||||||||||||
Fuel and Purchased Power | 7 | 9 | ||||||||||||||||||||||
Operation and Maintenance | 183 | 139 | ||||||||||||||||||||||
Depreciation and Amortization | 62 | 62 | ||||||||||||||||||||||
Taxes other than Income | 30 | 31 | ||||||||||||||||||||||
Net income | $ | 67 | $ | 63 | $ | 122 | $ | 123 | ||||||||||||||||
Operating Income | 38 | 72 | ||||||||||||||||||||||
Other (Income) and Deductions | 44 | 32 | ||||||||||||||||||||||
Income Tax Benefit (Provision) | 2 | (13 | ) | |||||||||||||||||||||
Net Income (Loss) | $ | (4 | ) | $ | 27 | |||||||||||||||||||
Operating Income as a Percent of Operating Revenues | 12 | % | 23 | % |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
Electric Sales and Deliveries | September 30 | September 30 | ||||||||||||||||||||||
2002 | 2001 | 2002 | 2001 | Three Months Ended | ||||||||||||||||||||
March 31 | ||||||||||||||||||||||||
Electric Deliveries | ||||||||||||||||||||||||
(in Thousands of MWh) | 2003 | 2002 | ||||||||||||||||||||||
Electric Sales | ||||||||||||||||||||||||
Residential | 5,131 | 4,415 | 12,377 | 11,321 | 3,856 | 3,720 | ||||||||||||||||||
Commercial | 5,076 | 5,115 | 14,135 | 14,370 | 4,126 | 4,342 | ||||||||||||||||||
Industrial | 3,472 | 3,641 | 10,342 | 10,964 | 3,085 | 3,332 | ||||||||||||||||||
Wholesale | 578 | 506 | 1,670 | 1,623 | 576 | 542 | ||||||||||||||||||
Other | 100 | 90 | 298 | 277 | 107 | 112 | ||||||||||||||||||
14,357 | 13,767 | 38,822 | 38,555 | 11,750 | 12,048 | |||||||||||||||||||
Electric Choice (delivery only) | 935 | 322 | 2,577 | 894 | ||||||||||||||||||||
Electric Customer Choice | 1,284 | 881 | ||||||||||||||||||||||
Total Electric Sales and Deliveries | 15,292 | 14,089 | 41,399 | 39,449 | 13,034 | 12,929 | ||||||||||||||||||
Outlook-– Regulated electric system deliveries are expected to continue to increase for the remainder of 2002 and intoin 2003 due to thecontinued territory and economic recovery.growth. Operating results willare expected to vary as a result of various external factors such as weather, changes in economic conditions and the severity and frequency of storms. As previously discussed, Detroit Edison expects to file a rate case in the second quarter of 2003 to address future operating costs and other issues.
In April 2003, a catastrophic ice storm in our service territory resulted in over 400,000 customers losing power and more than 3,300 downed power lines. Restoration expenses will reduce second quarter 2003 net of tax earnings by approximately $15 million. We expect the impact of the storm will be partially offset by the avoidance of other costs throughout the remainder of the year.
7
Management’s Narrative Analysis and Results of Operations
CAPITAL RESOURCES AND LIQUIDITY
Three Months | |||||||||||||||||||
March 31 | |||||||||||||||||||
(in Millions) | (in Millions) | 2003 | 2002 | ||||||||||||||||
Cash and Cash Equivalents | Cash and Cash Equivalents | ||||||||||||||||||
Cash Flow From (Used For) | Cash Flow From (Used For) | ||||||||||||||||||
Operating activities: | |||||||||||||||||||
Nine Months Ended | Net income, depreciation and amortization and deferred taxes | $ | 285 | $ | 300 | ||||||||||||||
September 30 | Pension contribution | (222 | ) | — | |||||||||||||||
Working capital and other | (224 | ) | (349 | ) | |||||||||||||||
2002 | 2001 | ||||||||||||||||||
(161 | ) | (49 | ) | ||||||||||||||||
Cash and Cash Equivalents | |||||||||||||||||||
(in Millions) | |||||||||||||||||||
Cash Flow From (Used For) | |||||||||||||||||||
Operating activities | $ | 556 | $ | 749 | |||||||||||||||
Investing activities | (508 | ) | (752 | ) | Investing activities | (54 | ) | (134 | ) | ||||||||||
Financing activities | (236 | ) | 1 | Financing activities | 195 | (15 | ) | ||||||||||||
Net Decrease in Cash and Cash Equivalents | Net Decrease in Cash and Cash Equivalents | $ | (188 | ) | $ | (2 | ) | Net Decrease in Cash and Cash Equivalents | $ | (20 | ) | $ | (198 | ) | |||||
Operating Activities
Net cash fromused for operating activities decreased $193increased $112 million induring the 2002 nine-month period2003 first quarter as compared to the same period in 2001.2002 period. The decreaseincrease reflects a $45decline of $15 million decline in net income, after adjusting for non-cash items (depreciation depletion and amortization merger and restructuring charges and deferred taxes), and highera $97 million decrease in working capital levels.and other requirements. The decrease in working capital requirements reflect loweris primarily due to an increase in accounts payable balances in 2003 and a reduction in fuel inventories. We also contributed $222 million of cash to more normalized levels, representing the internal focus on managing external payments and taking greater advantage of purchase discounts.our pension plan in 2003.
Investing Activities
Net cash used forrelating to investing activities decreased $244improved $80 million in the 2002 nine-month period2003 first quarter as compared to the same period2002 period. The improvement is attributed to decreases in 2001 due to lower investments in regulatory assets associated with securitizing the company’s Fermi 2 power generation facility in March 2001. Additionally, a significantly lower amount of cash that was restrictedcontractually designated for debt redemptions also affected the comparison.service and other investments, partially offset by an increase in plant and equipment expenditures.
Financing Activities
Net cash used forfrom financing activities increased $237$210 million during the 2002 nine-month period2003 first quarter as compared to the same period in 2001. This change is due primarily to the repurchase of more debt, net of issuances in the 2002 period. Additionally, the repurchase of $846 million in common stock in 2001 also contributedThe increase is primarily attributed to the change.
PENSION AND POSTRETIREMENT COSTS
Detroit Edison’s costs of providing pensionhigher notes payable to affiliates and postretirement benefits are dependent upon a number of factors, such as the rates of return on plan assets, the discount rate and the rate ofcash infusion from its parent company, partially offset by an increase in health care costs. The market valueredemptions of plan assets has been affected by sharp declines in the equity market since 2000. As a result, at December 31, 2002, Detroit Edison could be required to recognize an additional minimum pension liability as prescribed by SFAS No. 87 “Employers’ Accounting for Pensions” and SFAS No. 132 “Employers’ Disclosures about Pensions and Postretirement Benefits.” The offset to any liability would be recorded as a reduction in shareholder’s equity, net of tax, or as a regulatory asset. The additional minimum pension liability and related accounting entries would be reversed on the balance sheet in future periods if the fair value of plan assets exceeds the accumulated pension benefit obligations. The additional minimum
8
Management’s Narrative Analysis and Results of Operations
pension liability recorded, if any, will depend upon actual returns and interest rates in 2002, but could exceed $300 million pre-tax ($195 million after tax). The recording of any minimum pension liability would not affect net income or cash flow in 2002. Pension and postretirement costs and pension cash funding requirements could increase in future years without a substantial recovery in the equity markets. It is estimated that the increase in 2003 pension and postretirement costs could range from $80 million-$110 million, pre-tax, depending on actual plan asset returns, the discount rate and other actuarial assumptions that will not be determined until December 31, 2002. Detroit Edison will initiate cost saving strategies to significantly offset the earnings impact of higher pension and postretirement costs.long-term debt.
ENVIRONMENTAL MATTERS
EPA ozone transport regulations and final new air quality standards relating to ozone and particulate air pollution will continue to impact the Company.us. Detroit Edison has spent approximately $409$488 million through September 2002March 2003 and estimates that it will incur an additionalapproximately $300 to $400 to $450 million of future capital expenditures over the next five to eight years to comply.comply with the existing air quality standards. We expect to file a rate case during 2003 to securitize costs we have incurred to comply with these standards.
NEW ACCOUNTING PRONOUNCEMENTS
During 2001, the Financial Accounting Standards Board (FASB) issued new accounting pronouncements concerning business combinations, goodwill and other intangible assets, asset retirement obligations and impairment or disposal of long-lived assets. See Note 72 – New Accounting Pronouncements for a discussion of Detroit Edison’s evaluation of the adoption of these new accounting pronouncements.
98
Controls and ProceduresCONTROLS AND PROCEDURES
(a) | Evaluation of disclosure controls and procedures | |
(b) | Changes in internal controls | |
There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in |
109
THE DETROIT EDISON COMPANY
Three Months Ended | |||||||||
March 31 | |||||||||
(in Millions) | 2003 | 2002 | |||||||
Operating Revenues | $ | 937 | $ | 930 | |||||
Operating Expenses | |||||||||
Fuel and purchased power | 247 | 208 | |||||||
Operation and maintenance | 366 | 277 | |||||||
Depreciation and amortization | 135 | 148 | |||||||
Taxes other than income | 73 | 71 | |||||||
821 | 704 | ||||||||
Operating Income | 116 | 226 | |||||||
Other (Income) and Deductions | |||||||||
Interest expense | 75 | 78 | |||||||
Interest income | — | (1 | ) | ||||||
Other income | (11 | ) | (5 | ) | |||||
Other expense | 19 | 16 | |||||||
83 | 88 | ||||||||
Income Before Income Taxes | 33 | 138 | |||||||
Income Tax Provision | 12 | 46 | |||||||
Income Before Accounting Change | 21 | 92 | |||||||
Cumulative Effect of Accounting Change | (6 | ) | — | ||||||
Net Income | $ | 15 | $ | 92 | |||||
See Notes to Consolidated Financial Statements (Unaudited)
10
The Detroit Edison CompanyConsolidated Statement of Operations (Unaudited)THE DETROIT EDISON COMPANY
Three Months | Nine Months | |||||||||||||||||
Ended | Ended | |||||||||||||||||
September 30 | September 30 | |||||||||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||||||||
(in Millions) | ||||||||||||||||||
Operating Revenues | $ | 1,200 | $ | 1,121 | $ | 3,092 | $ | 3,137 | ||||||||||
Operating Expenses | ||||||||||||||||||
Fuel and purchased power | 386 | 414 | 841 | 1,037 | ||||||||||||||
Operation and maintenance | 341 | 279 | 937 | 813 | ||||||||||||||
Depreciation and amortization | 164 | 164 | 449 | 498 | ||||||||||||||
Taxes other than income | 69 | 56 | 206 | 207 | ||||||||||||||
Merger and restructuring charges | — | 9 | — | 184 | ||||||||||||||
Total Operating Expenses | 960 | 922 | 2,433 | 2,739 | ||||||||||||||
Operating Income | 240 | 199 | 659 | 398 | ||||||||||||||
Interest Expense and Other | ||||||||||||||||||
Interest expense | 76 | 75 | 232 | 225 | ||||||||||||||
Interest income | — | — | (1 | ) | (3 | ) | ||||||||||||
Other income | (5 | ) | (11 | ) | (16 | ) | (50 | ) | ||||||||||
Other expenses | 10 | 16 | 34 | 63 | ||||||||||||||
Total Interest Expense and Other | 81 | 80 | 249 | 235 | ||||||||||||||
Income Before Income Taxes | 159 | 119 | 410 | 163 | ||||||||||||||
Income Tax Provision | 54 | 31 | 138 | 36 | ||||||||||||||
Income Before Accounting Change | 105 | 88 | 272 | 127 | ||||||||||||||
Cumulative Effect of Accounting Change | — | — | — | (3 | ) | |||||||||||||
Net Income | $ | 105 | $ | 88 | $ | 272 | $ | 124 | ||||||||||
March 31 | ||||||||||
2003 | December 31 | |||||||||
(in Millions) | (Unaudited) | 2002 | ||||||||
Assets | ||||||||||
Current Assets | ||||||||||
Cash and cash equivalents | $ | 16 | $ | 36 | ||||||
Restricted cash | 45 | 131 | ||||||||
Accounts receivable | ||||||||||
Customer (less allowance for doubtful accounts of $52 and $48, respectively) | 355 | 325 | ||||||||
Accrued unbilled revenues | 147 | 177 | ||||||||
Other | 95 | 142 | ||||||||
Inventories | ||||||||||
Fuel | 100 | 126 | ||||||||
Materials and supplies | 131 | 130 | ||||||||
Property taxes assessed to future periods | 61 | — | ||||||||
Other | 162 | 14 | ||||||||
1,112 | 1,081 | |||||||||
Investments | ||||||||||
Nuclear decommissioning trust funds | 423 | 417 | ||||||||
Other | 26 | 82 | ||||||||
449 | 499 | |||||||||
Property | ||||||||||
Property, plant and equipment | 12,477 | 12,121 | ||||||||
Less accumulated depreciation | (5,446 | ) | (5,324 | ) | ||||||
7,031 | 6,797 | |||||||||
Other Assets | ||||||||||
Regulatory assets (Notes 2 and 4) | 2,011 | 1,143 | ||||||||
Securitized regulatory assets | 1,591 | 1,613 | ||||||||
Other | 136 | 128 | ||||||||
3,738 | 2,884 | |||||||||
Total Assets | $ | 12,330 | $ | 11,261 | ||||||
See Notes to Consolidated Financial Statements (Unaudited)
11
The Detroit Edison CompanyTHE DETROIT EDISON COMPANYConsolidated Statement of Financial PositionCONSOLIDATED STATEMENT OF FINANCIAL POSITION
September 30 | ||||||||||
2002 | December 31 | |||||||||
(Unaudited) | 2001 | |||||||||
(in Millions) | ||||||||||
Assets | ||||||||||
Current Assets | ||||||||||
Cash and cash equivalents | $ | 27 | $ | 215 | ||||||
Restricted cash | 36 | 68 | ||||||||
Accounts receivable | ||||||||||
Customer (less allowance for doubtful accounts of $43 and $27, respectively) | 408 | 348 | ||||||||
Accrued unbilled revenues | 169 | 130 | ||||||||
Other | 98 | 101 | ||||||||
Inventories | ||||||||||
Fuel | 137 | 162 | ||||||||
Materials and supplies | 128 | 127 | ||||||||
Property taxes assessed to future periods | 31 | — | ||||||||
Other | 7 | 14 | ||||||||
1,041 | 1,165 | |||||||||
Investments | ||||||||||
Nuclear decommissioning trust funds | 396 | 417 | ||||||||
Other | 106 | 97 | ||||||||
502 | 514 | |||||||||
Property | ||||||||||
Property, plant and equipment | 11,763 | 11,353 | ||||||||
Property under capital leases | 220 | 219 | ||||||||
11,983 | 11,572 | |||||||||
Less accumulated depreciation | (5,268 | ) | (5,010 | ) | ||||||
6,715 | 6,562 | |||||||||
Other Assets | ||||||||||
Regulatory assets | 1,128 | 1,141 | ||||||||
Securitized regulatory assets | 1,636 | 1,692 | ||||||||
Prepaid pensions | 113 | 106 | ||||||||
Other | 66 | 75 | ||||||||
2,943 | 3,014 | |||||||||
Total Assets | $ | 11,201 | $ | 11,255 | ||||||
March 31 | |||||||||
2003 | December 31 | ||||||||
(in Millions, Except Shares) | (Unaudited) | 2002 | |||||||
Liabilities and Shareholder’s Equity | |||||||||
Current Liabilities | |||||||||
Accounts payable | $ | 175 | $ | 238 | |||||
Accrued interest | 56 | 83 | |||||||
Dividends payable | 74 | 74 | |||||||
Accrued payroll | 16 | 24 | |||||||
Notes payable to affiliates | 408 | — | |||||||
Income taxes | 61 | 30 | |||||||
Current portion long-term debt, including capital leases | 115 | 319 | |||||||
Other | 268 | 328 | |||||||
1,173 | 1,096 | ||||||||
Other Liabilities | |||||||||
Deferred income taxes | 1,812 | 1,501 | |||||||
Asset retirement obligations (Note 2) | 784 | — | |||||||
Unamortized investment tax credit | 143 | 146 | |||||||
Nuclear decommissioning | 54 | 416 | |||||||
Accrued pension liability | 358 | 561 | |||||||
Other | 521 | 484 | |||||||
3,672 | 3,108 | ||||||||
Long-Term Debt | |||||||||
Mortgage bonds, notes and other | 3,214 | 3,270 | |||||||
Securitization bonds | 1,539 | 1,585 | |||||||
Capital lease obligations | 79 | 80 | |||||||
4,832 | 4,935 | ||||||||
Contingencies (Note 4) | |||||||||
Shareholder’s Equity | |||||||||
Common stock, $10 par value, 400,000,000 shares authorized, and 134,287,832 shares issued and outstanding | 1,343 | 1,343 | |||||||
Premium on common stock | 677 | 507 | |||||||
Common stock expense | (44 | ) | (44 | ) | |||||
Retained earnings | 676 | 735 | |||||||
Accumulated other comprehensive income (loss) | 1 | (419 | ) | ||||||
2,653 | 2,122 | ||||||||
Total Liabilities and Shareholder’s Equity | $ | 12,330 | $ | 11,261 | |||||
See Notes to Consolidated Financial Statements (Unaudited)
12
The Detroit Edison CompanyConsolidated Statement of Financial PositionTHE DETROIT EDISON COMPANY
September 30 | |||||||||
2002 | December 31 | ||||||||
(Unaudited) | 2001 | ||||||||
(in Millions, Except Shares) | |||||||||
Liabilities and Shareholder’s Equity | |||||||||
Current Liabilities | |||||||||
Accounts payable | $ | 264 | $ | 307 | |||||
Accrued interest | 46 | 85 | |||||||
Dividends payable | 74 | 74 | |||||||
Accrued payroll | 81 | 89 | |||||||
Short-term borrowings | 224 | — | |||||||
Income taxes payable | 159 | 93 | |||||||
Deferred income taxes | 60 | 28 | |||||||
Current portion long-term debt, including capital leases | 266 | 215 | |||||||
Liabilities from risk management activities | 10 | 39 | |||||||
Other | 237 | 284 | |||||||
1,421 | 1,214 | ||||||||
Other Liabilities | |||||||||
Deferred income taxes | 1,742 | 1,751 | |||||||
Unamortized investment tax credit | 149 | 156 | |||||||
Nuclear decommissioning | 389 | 412 | |||||||
Other | 470 | 466 | |||||||
2,750 | 2,785 | ||||||||
Long-Term Debt | |||||||||
Mortgage bonds, notes and other | 2,833 | 3,038 | |||||||
Securitization bonds | 1,585 | 1,673 | |||||||
Capital lease obligations | 84 | 87 | |||||||
4,502 | 4,798 | ||||||||
Contingencies (Note 4) | |||||||||
Shareholder’s Equity | |||||||||
Common stock, $10 par value, 400,000,000 shares authorized, and 134,287,832 shares issued and outstanding | 1,343 | 1,343 | |||||||
Premium on common stock | 507 | 507 | |||||||
Common stock expense | (44 | ) | (44 | ) | |||||
Retained earnings | 725 | 675 | |||||||
Accumulated other comprehensive loss | (3 | ) | (23 | ) | |||||
2,528 | 2,458 | ||||||||
Total Liabilities and Shareholder’s Equity | $ | 11,201 | $ | 11,255 | |||||
Three Months Ended | ||||||||||
March 31 | ||||||||||
(in Millions) | 2003 | 2002 | ||||||||
Operating Activities | ||||||||||
Net Income | $ | 15 | $ | 92 | ||||||
Adjustments to reconcile net income to net cash from operating activities: | ||||||||||
Depreciation and amortization | 135 | 147 | ||||||||
Deferred income taxes | 135 | 61 | ||||||||
Loss on sale of assets | 3 | — | ||||||||
Cumulative effect of accounting change | 6 | — | ||||||||
Changes in assets and liabilities, exclusive of changes Shown separately (Note 1) | (455 | ) | (349 | ) | ||||||
Net cash used for operating activities | (161 | ) | (49 | ) | ||||||
Investing Activities | ||||||||||
Plant and equipment expenditures | (178 | ) | (145 | ) | ||||||
Proceeds from sales of assets | 2 | — | ||||||||
Restricted cash for debt redemptions | 86 | 44 | ||||||||
Other investments | 36 | (33 | ) | |||||||
Net cash used for investing activities | (54 | ) | (134 | ) | ||||||
Financing Activities | ||||||||||
Redemption of long-term debt | (307 | ) | (71 | ) | ||||||
Notes payable to affiliates | 408 | 131 | ||||||||
Capital contribution by parent company | 170 | — | ||||||||
Dividends on common stock | (74 | ) | (74 | ) | ||||||
Other | (2 | ) | (1 | ) | ||||||
Net cash from (used for) financing activities | 195 | (15 | ) | |||||||
Net Decrease in Cash and Cash Equivalents | (20 | ) | (198 | ) | ||||||
Cash and Cash Equivalents at Beginning of the Period | 36 | 215 | ||||||||
Cash and Cash Equivalents at End of the Period | $ | 16 | $ | 17 | ||||||
See Notes to Consolidated Financial Statements (Unaudited)
13
THE DETROIT EDISON COMPANY
Nine Months Ended | ||||||||||||
September 30 | ||||||||||||
2002 | 2001 | |||||||||||
(in Millions) | ||||||||||||
Operating Activities | ||||||||||||
Net Income | $ | 272 | $ | 124 | ||||||||
Adjustments to reconcile net income to net cash from operating activities: | ||||||||||||
Depreciation and amortization | 449 | 498 | ||||||||||
Merger and restructuring charges | — | 150 | ||||||||||
Deferred income taxes | 15 | 9 | ||||||||||
Changes in assets and liabilities: | ||||||||||||
Accounts receivable, net | (57 | ) | (65 | ) | ||||||||
Accrued unbilled receivables | (39 | ) | 47 | |||||||||
Inventories | 25 | 52 | ||||||||||
Accounts payable | (51 | ) | 22 | |||||||||
Income taxes payable | 66 | 55 | ||||||||||
General taxes | (28 | ) | (13 | ) | ||||||||
Risk management and trading activities | (32 | ) | 33 | |||||||||
Other | (64 | ) | (163 | ) | ||||||||
Net cash from operating activities | 556 | 749 | ||||||||||
Investing Activities | ||||||||||||
Plant and equipment expenditures | (478 | ) | (503 | ) | ||||||||
Restricted cash for debt redemptions | 32 | (114 | ) | |||||||||
Other investments | (62 | ) | (135 | ) | ||||||||
Net cash used for investing activities | (508 | ) | (752 | ) | ||||||||
Financing Activities | ||||||||||||
Issuance of long-term debt | — | 1,890 | ||||||||||
Redemption of long-term debt | (240 | ) | (861 | ) | ||||||||
Short-term borrowings, net | 224 | 56 | ||||||||||
Capital lease obligations | 2 | (6 | ) | |||||||||
Repurchase of common stock | — | (846 | ) | |||||||||
Dividends on common stock | (222 | ) | (232 | ) | ||||||||
Net cash (used for) from financing activities | (236 | ) | 1 | |||||||||
Net Decrease in Cash and Cash Equivalents | (188 | ) | (2 | ) | ||||||||
Cash and Cash Equivalents at Beginning of the Period | 215 | 24 | ||||||||||
Cash and Cash Equivalents at End of the Period | $ | 27 | $ | 22 | ||||||||
Supplementary Cash Flow Information | ||||||||||||
Interest paid (excluding interest capitalized) | $ | 271 | $ | 231 | ||||||||
Income taxes paid | 55 | 80 | ||||||||||
Noncash Financing Activity | ||||||||||||
Distribution of International Transmission Company to parent | — | 327 |
See Notes to Consolidated Financial Statements (Unaudited)
14
The Detroit Edison CompanyConsolidated Statement of Changes in Shareholder’s Equity (Unaudited)
Premium | Accumulated | |||||||||||||||||||||||||||
Common Stock | On | Common | Other | |||||||||||||||||||||||||
Common | Stock | Retained | Comprehensive | |||||||||||||||||||||||||
Shares | Amount | Stock | Expense | Earnings | Loss | Total | ||||||||||||||||||||||
(Dollars in Millions, Shares in Thousands) | ||||||||||||||||||||||||||||
Balance, January 1, 2002 | 134,288 | 1,343 | 507 | (44 | ) | $ | 675 | $ | (23 | ) | $ | 2,458 | ||||||||||||||||
Net income | — | — | — | — | 272 | — | 272 | |||||||||||||||||||||
Dividends declared on common stock | — | — | — | — | (222 | ) | — | (222 | ) | |||||||||||||||||||
Net change in unrealized losses on derivatives, net of tax | — | — | — | — | — | 20 | 20 | |||||||||||||||||||||
Balance, September 30, 2002 | 134,288 | 1,343 | $ | 507 | $ | (44 | ) | $ | 725 | $ | (3 | ) | $ | 2,528 | ||||||||||||||
Premium | Accumulated | |||||||||||||||||||||||||||
Common Stock | on | Common | Other | |||||||||||||||||||||||||
(Dollars in Millions, | Common | Stock | Retained | Comprehensive | ||||||||||||||||||||||||
Shares in Thousands) | Shares | Amount | Stock | Expense | Earnings | Loss | Total | |||||||||||||||||||||
Balance, December 31, 2002 | 134,288 | $ | 1,343 | $ | 507 | $ | (44 | ) | $ | 735 | $ | (419 | ) | $ | 2,122 | |||||||||||||
Net income | — | — | — | — | 15 | — | 15 | |||||||||||||||||||||
Dividends declared on Common stock | — | — | — | — | (74 | ) | — | (74 | ) | |||||||||||||||||||
Net change in unrealized losses on derivatives, net of tax | — | — | — | — | — | 3 | 3 | |||||||||||||||||||||
Pension obligation ( Note 4) | — | — | — | — | — | 417 | 417 | |||||||||||||||||||||
Capital contribution by parent company | — | — | 170 | — | — | — | 170 | |||||||||||||||||||||
Balance, March 31, 2003 | 134,288 | $ | 1,343 | $ | 677 | $ | (44 | ) | $ | 676 | $ | 1 | $ | 2,653 | ||||||||||||||
The following table displays comprehensive income for nine-monththe three-month periods in 20022003 and 2001:2002:
2002 | 2001 | |||||||||||||||||||||
(in Millions) | (in Millions) | (in Millions) | 2003 | 2002 | ||||||||||||||||||
Net income | Net income | $ | 272 | $ | 124 | Net income | $ | 15 | $ | 92 | ||||||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||||||||
Other comprehensive income, net of tax: | Other comprehensive income, net of tax: | |||||||||||||||||||||
Net unrealized gains (losses) on derivatives: | Net unrealized income on derivatives: | |||||||||||||||||||||
Cumulative effect of a change in accounting principle, net of taxes of $6 | — | 13 | Gains arising during the period, net of taxes of $3 | 5 | — | |||||||||||||||||
Losses arising during the year, net of taxes of $3 and $29, respectively | (5 | ) | (54 | ) | Amounts reclassified to earnings, net of taxes of $(1) and $2, respectively | (2 | ) | 3 | ||||||||||||||
Amounts reclassified to earnings, net of taxes of $16 and $11, respectively | 25 | 20 | ||||||||||||||||||||
3 | 3 | |||||||||||||||||||||
Total other comprehensive income (loss) | 20 | (21 | ) | Pension obligation, net of taxes of $224 (Note 4) | 417 | — | ||||||||||||||||
Comprehensive income | Comprehensive income | $ | 292 | $ | 103 | Comprehensive income | $ | 435 | $ | 95 | ||||||||||||
See Notes to Consolidated Financial Statements (Unaudited)
1514
The Detroit Edison CompanyNotes to Consolidated Financial Statements (Unaudited)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 —– GENERAL
These consolidated financial statements should be read in conjunction with the notes to consolidated financial statements included in the 20012002 Annual Report to the Securities and Exchange Commission on Form 10-K.
The accompanying consolidated financial statements wereare prepared in conformity withusing accounting principles generally accepted in the United States of America. In connection with their preparation, management makesThese accounting principles require us to use estimates and assumptions that affectimpact the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results couldmay differ from thoseour estimates.
The consolidated financial statements are unaudited, but in theour opinion of the Company’s management, include all adjustments necessary for a fair statement of the results for the interim periods. 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.
CertainWe reclassified some prior year balances have been reclassified to conform tomatch the current year’s presentation.
Consolidated Statement of Cash Flows
We consider investments purchased with a maturity of three months or less to be cash equivalents. Cash contractually designated for debt service is classified as restricted cash.
Three Months Ended | |||||||||
March 31 | |||||||||
(in Millions) | 2003 | 2002 | |||||||
Changes in Assets and Liabilities, Exclusive of Changes Shown Separately | |||||||||
Accounts receivable, net | $ | (40 | ) | $ | (1 | ) | |||
Accrued unbilled receivables | 30 | (4 | ) | ||||||
Inventories | 24 | (6 | ) | ||||||
Accrued pensions | (204 | ) | (47 | ) | |||||
Accounts payable | (61 | ) | (34 | ) | |||||
Income taxes payable | (18 | ) | (58 | ) | |||||
General taxes | (9 | ) | (19 | ) | |||||
Risk management and trading activities | (5 | ) | (6 | ) | |||||
Other | (172 | ) | (174 | ) | |||||
$ | (455 | ) | $ | (349 | ) | ||||
Other cash and non-cash investing and financing activities for the three months ended March 31 were as follows:
Three Months Ended | |||||||||
March 31 | |||||||||
(in Millions) | 2003 | 2002 | |||||||
Supplementary Cash Flow Information | |||||||||
Interest paid (excluding interest capitalized) | $ | 101 | $ | 102 | |||||
Income taxes paid | 32 | 55 |
15
NOTE 2 — MERGER AND RESTRUCTURING CHARGES– NEW ACCOUNTING PRONOUNCEMENTS
Asset Retirement Obligations -On May 31, 2001, Detroit Edison’s parent company, DTE Energy, completedJanuary 1, 2003, we adopted SFAS No. 143, “Accounting for Asset Retirement Obligations,” which requires the acquisitionfair value of MCN Energy. Detroit Edison incurred merger-related charges and restructuring chargesan asset retirement obligation be recognized in the period in which it is incurred. It applies to legal obligations associated with the acquisition.retirement of long-lived assets resulting from the acquisition, construction, development and (or) the normal operation of a long-lived asset. When a new liability is recorded, an entity capitalizes the costs of the liability by increasing the carrying amount of the related long-lived asset. The merger-related chargesliability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of $7 million ($4 million after tax)the related asset. Upon settlement of the liability, an entity settles the obligation for its recorded amount or incurs a gain or loss upon settlement.
We have identified a legal retirement obligation for the decommissioning costs for our Fermi 1 and 2 nuclear plants. We believe that adoption of SFAS No. 143 results primarily in timing differences in the 2001 three-month periodrecognition of legal asset retirement costs that we are currently recovering in rates and $19 million ($12 million after tax) in the 2001 nine-month period, consisted primarily of system integration, relocation, legal, accounting and consulting costs. Restructuring charges of $2 million ($1 million after tax) in the 2001 three-month period and $165 million ($107 million after tax) in the 2001 nine-month period, were primarily associated with a work force reduction plan. The plan included early retirement incentives along with voluntary separation arrangements for 890 employees, primarily in overlapping corporate support functions. The merger and restructuring costs had the effect of decreasing Detroit Edison’s earnings by $9 million ($5 million after tax) and $184 million ($119 million after tax)will be deferring such differences under SFAS No. 71, “Accounting for the 2001 three-Effects of Certain Types of Regulation.”
As a result of adopting SFAS No. 143, we recorded a plant asset of $278 million with offsetting accumulated depreciation of $103 million, a retirement obligation liability of $771 million and nine-month periods, respectively.reversed previously recognized obligations of $366 million. We also recorded a cumulative effect amount related to regulated operations as a regulatory asset of $221 million, and a cumulative effect charge against earnings of $6 million (net of taxes of $3 million).
The impact on the first quarter of 2003 of SFAS No. 143 and the pro-forma effect for the first quarter of 2002 as if SFAS No. 143 had been adopted at January 1, 2002 are immaterial.
A reconciliation of the asset retirement obligation for the first quarter of 2003 follows:
(In Millions) | ||||
Asset Retirement Obligation at January 1, 2003 | $ | 771 | ||
Accretion | 13 | |||
Asset Retirement Obligation at March 31, 2003 | $ | 784 | ||
SFAS No. 143 also requires the quantification of the estimated cost of removal obligations, arising from other than legal obligations, which have been accrued through depreciation charges. At January 1, 2003 we estimate that we had approximately $300 million of previously accrued asset removal costs related to our regulated operations, for other than legal obligations, included in accumulated depreciation.
NOTE 3 —– DISPOSITION OF STEAM HEATING BUSINESS
In January 2003, we sold Detroit Edison’s steam heating business to Thermal Ventures II, LLP. This disposition is consistent with DTE Energy’s strategy to divest non-strategic assets. Due to the continuing involvement of Detroit Edison in the steam heating business, including the commitment to purchase $176 million in steam for resale through 2008, fund certain capital improvements and guarantee the buyer’s credit facility, we recorded a net of tax loss of $14 million in the first quarter of 2003. As a result of our continuing involvement, this transaction is not considered a sale for accounting purposes. The steam heating business had assets of $6 million at December 31, 2002, and net losses of $12 million in 2002, net income of $3 million in 2001 and a net loss of $18 million in 2000.
16
NOTE 4 – REGULATORY MATTERS
Electric Industry Restructuring
Electric Rates, Customer Choice and Stranded Costs- In June 2000, PA 141 became effective. PA 141 provided Detroit Edison with the right to recover stranded costs, codified and established January 1, 2002 as the date for full implementation of the MPSC’s existing electric Customer Choice program, and required the MPSC to reduce residential electric rates by 5%. At that time, Public Act 142 (PA 142) also became effective. PA 142 provided for the recovery through securitization of “qualified costs” which consist of an electric utility’s regulatory assets, plus various costs, associated with, or resulting from, the establishment of a competitive electric market and the issuance of securitization bonds.
Acting pursuant to PA 141, in an order issued in June 2000, the MPSC reduced Detroit Edison’s residential electric rates by 5% and imposed a rate freeze for all classes of customers through 2003. In April 2001, commercial and industrial rates were lowered by 5% as a result of savings derived from the issuance of securitization bonds in March 2001, as subsequently discussed.
The legislation also contains provisions freezing rates through 2003 and preventing rate increases for residential customers through 2005 and for small business customers through 2004. Certain costs may be deferred and recovered once rates can be increased. This rate cap may be lifted when certain market test provisions are met, specifically, when an electric utility has no more than 30% of generation capacity in its relevant market, with consideration for capacity needed to meet a utility’s responsibility to serve its retail customers. Statewide, multi-utility transmission system improvements also are required. Detroit Edison expects that these market and transmission improvement conditions will be met, and the rate cap will not continue after the dates specified in the legislation.
As required by 2000 Public Act (PA)PA 141, the MPSC conducted a proceeding to develop a methodology for calculating the net stranded costs associated with electric Customer Choice. In a December 2001 order, the MPSC determined that Detroit Edison could recover net stranded costs associated with the fixed cost component of its electric generation operations. Specifically, there would be an annual filing with the MPSC comparing the actualreceipt of revenues associated with the fixed cost component of its generation services to the revenue requirement for the fixed cost component of those services, inclusive of an allowance for the cost of capital. Any resulting shortfall in recovery, net of mitigation, would be considered a net stranded cost. The MPSC, in its December 2001 order, also determined that Detroit Edison had no net stranded costs in 2000 and consequently established a zero net stranded cost transition charge for billing purposes in 2002. The MPSC
16
Notes to Consolidated Financial Statements (Unaudited)
authorized Detroit Edison to establish a regulatory asset to defer recovery of its incurred stranded costs, aftersubject to review in a subsequent annual net stranded cost proceeding. The MPSC also determined that Detroit Edison should provide a full and offsetting credit for the securitization and tax charges applied to electric Customer Choice bills in 2002 and maintained2002. In addition, the MPSC ordered an additional credit on bills equivalentequal to the 5% rate reduction benefitingrealized by full service customers, bothcustomers. Both credits were to be funded byfrom savings derived from securitization. The December 2001 order, when combinedcoupled with lower wholesale power prices in 2002, has encouraged additional customer participation in the electric Customer Choice program and has resulted in the loss of margins attributable to generation services. In May 2002, the MPSC denied Detroit Edison’s request for rehearing and clarification. In June 2002, Detroit Edison filed an appeal of the MPSC order at the Michigan Court of Appeals, challenging the legality of specific aspects of the MPSC order. The Court of Appeals has not yet issued a decision on this appeal.
In May 2002, Detroit Edison submitted its 2002 net stranded cost filing with the MPSC. The filing provides refinements to the MPSC Staff’s calculation of net stranded costs that was adopted in the December 2001 order, seeks more timely recovery of net stranded costs, and addresses issues raised by
17
the continuation of securitization offsets and rate reduction equalization credits. Detroit Edison’s filing supports the following conclusions: (i) Detroit Edison had no net stranded costs in 2000 and $13 million of recoverable net stranded costs attributable to electric Customer Choice in 2001; (ii) Detroit Edison requested recovery of 2001 net stranded costs through the use of excess residual securitization savings; (iii) Detroit Edison expects to incur additional net stranded costs in 2002 and 2003 as a result of increased electric Customer Choice participation; and (iv) Detroit Edison recommended that a pro-forma or forward looking transition charge be approved for billing during the remainder of 2002 and for 2003 to eliminate the time lag between the occurrence and recovery of net stranded costs inherent in the methodology approved in the December 2001 order. In November 2002, the MPSC Staff and other interveners submitted their 2002 net stranded cost filings. In the fourth quarter of 2002, Detroit Edison expects to recordrecorded a regulatory asset of $21 million representing 2002 net stranded costs asand the deferral of environmental expenditures recoverable under PA 141. The effect of recording the regulatory asset increased 2002 earnings by $13 million, net of taxes. In the first quarter of 2003, Detroit Edison recorded a regulatory asset withof $12 million representing net stranded costs and the offsetting entry reducing expense in the fourth quarterdeferral of 2002.
In another December 2001 order, theenvironmental expenditures recoverable under PA 141, which increased after tax earnings by $8 million. The MPSC finalized the prices, terms and conditions contained in the Retail Access Service Tariff (RAST). Detroit Edison requested rehearing and clarification on certain aspects of the order. In an order issued in April 2002, the MPSC modified its December 2001 order approving Detroit Edison’s RAST and reduced the requirements imposed on Detroit Edison in the December 2001 order concerning meter installation, meter reading and computer system enhancements for customers that elect to participate in the electric Customer Choice program.
In several orders issued in June 2000, the MPSC determined that adjusting rates for changes in fuel and purchased power expenses through continuance of the PSCR clause would be inconsistent with the rate freeze required by PA 141. Detroit Edison was not permitted to collect the 1998 PSCR under-recovery of $9 million, plus accrued interest of $3 million. Also, Detroit Edison was not required to refund approximately $55 million of liabilities for over-recoveries of PSCR expenses for 1999 and 2000, and disallowances under the Fermi 2 performance standard mechanism. In January and March 2002, the Michigan Court of Appeals rejected appeals and motions for rehearing filed by parties opposing the MPSC’s actions in this proceeding. In March 2002, the Michigan Attorney General applied for leave to appeal at the Michigan Supreme Court. The court has not yet determined whether or notacted upon this Detroit Edison filing.
Minimum Pension Liability
In December 2002, we recorded an additional minimum pension liability as required under SFAS No. 87, “Employers’ Accounting for Pensions,” with offsetting amounts to an intangible asset and other comprehensive income. During the first quarter of 2003, the MPSC Staff provided an opinion that the MPSC’s traditional rate setting process allowed for the recovery of pension costs as measured by SFAS No. 87. Based on the MPSC Staff discussions, management believes that it will hear the case.
17
Notesbe allowed to Consolidated Financial Statements (Unaudited)
Other
In accordance with a November 1997 MPSC order, Detroit Edison reduced rates by $53 million annually to reflect the scheduled reduction in the revenue requirement for Fermi 2. The $53 million reduction was effective in January 1999. In addition, the November 1997 MPSC order authorized the deferral of $30 million of storm damage costs and amortization and recovery of the costs over a 24-month period commencing January 1998. After various legal appeals, the Michigan Court of Appeals remanded the matter to the MPSC. In December 2000, the MPSC issued an order reopening the case for hearing. The parties in the case have agreed to a stipulation of fact and waiver of hearing. In June 2002, the MPSC issued an order modifying in part, and reaffirming in part, previous orders that authorized Detroit Edison to amortize and collectrecover in rates the storm damage costs incurred in 1997. The MPSC modifiedminimum pension liability associated with its 1997 order regarding the calculationregulated operations. Accordingly, we reclassified approximately $641 million ($417 million net of the storm damage costs, and in doing so ordered Detroit Edison to refund approximately $1.5 million after January 1, 2004. The 2004 refund will also include interest accrued from January 1, 2000 at Detroit Edison’s authorized ratetax) of return. In July 2002, the Michigan Attorney General filed an appealother comprehensive loss associated with the Michigan Courtminimum pension liability to a regulatory asset as of Appeals regarding the June 2002 MPSC order.March 31, 2003.
Detroit Edison isWe are unable to predict the outcome of the regulatory matters discussed herein. Resolution of these matters is dependent upon future MPSC orders, which may materially impact the financial position, results of operations and cash flows of Detroit Edison.the company.
NOTE 4 —5 – CONTINGENCIES
Personal Property Taxes
Detroit EdisonWe are involved in certain legal (including commercial matters), administrative and other Michigan utilities have asserted that Michigan’s valuation tables resultenvironmental proceedings before various courts, arbitration panels and governmental agencies concerning claims arising in the substantial overvaluationordinary course of utility personal property. Valuation tables established bybusiness. These proceedings include certain contract disputes, environmental reviews and investigations, and pending judicial matters. We cannot predict the Michigan State Tax Commission (STC) are used to determine the taxable valuefinal disposition of personal property based on the property’s age. In November 1999, the STC approved new valuation tables that more accurately recognize the value of a utility’s personal property. The new tables became effective in 2000such proceedings. We regularly review legal matters and are currently used to calculate property tax expense. However, several local taxing jurisdictions have taken legal action attempting to prevent the STC from implementing the new valuation tables and have continued to prepare assessments based on the superseded tables. The legal actions regarding the appropriateness of the new tables were before the Michigan Tax Tribunal (MTT) which, in April 2002, issued its decision essentially affirming the validity of the STC’s new tables. In June 2002, petitioners in the case filed an appeal of the MTT’s decision with the Michigan Court of Appeals.
Other
Detroit Edison purchases and sells electricity to numerous companies operating in the steel, automotive, energy and retail industries. During 2001 and 2002, a number of customers have filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code, including certain Enron Corporation affiliates and National Steel Company. Management regularly reviews contingent matters relating to purchase and sale contracts and recordsrecord provisions for amountsclaims that are considered probable of loss. Management believes its previously accrued amounts are adequate for losses that are probable of occurring. The final resolution of these matters arepending proceedings is not expected to have a material effect on Detroit Edison’sour financial statements in the period they are resolved.
See Note 4 for a discussion of contingencies related to Regulatory Matters.
18
Notes to Consolidated Financial Statements (Unaudited)
NOTE 5 — LONG-TERM DEBT
On October 23, 2002, Detroit Edison issued $450 million of its senior notes ($225 million due 2012 at 5.20% and $225 million due 2032 at 6.35%). These notes are collateralized by Detroit Edison’s General and Refunding Mortgage Bonds.
Substantially all of the net utility property of Detroit Edison is subject to the lien of a Mortgage and Deed of Trust (Mortgage). Should Detroit Edison fail to timely pay its indebtedness under the Mortgage, such failure will create cross defaults in substantially all of Detroit Edison’s indebtedness.
NOTE 6 — SHORT TERM CREDIT ARRANGEMENTS AND BORROWINGS
On October 25, 2002, Detroit Edison entered into a $135 million, 364-day revolving credit facility and a $65 million, three-year revolving credit facility with a syndicate of banks. These credit facilities may be utilized for general corporate borrowings, but primarily are intended to provide liquidity support for Detroit Edison’s commercial paper program up to $200 million in amount. These agreements require Detroit Edison to maintain a debt to capitalization ratio of no more than 0.65 to 1 and an “earnings before interest, taxes, depreciation and amortization” (EBITDA) to interest ratio of no less than 2 to 1. Detroit Edison is currently in compliance with these financial covenants.
NOTE 7 — NEW ACCOUNTING PRONOUNCEMENTS
Goodwill and Other Intangible Assets- Effective January 1, 2002, Detroit Edison adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” which addresses the financial accounting and reporting standards for the acquisition of intangible assets outside of a business combination and for goodwill and other intangible assets subsequent to their acquisition. As of the date of adoption, Detroit Edison had no goodwill.
In connection with the adoption of SFAS No. 142, Detroit Edison also reassessed the useful lives and the classification of identifiable intangible assets and determined that they continue to be appropriate. Detroit Edison’s intangible assets consist primarily of software and are subject to amortization. Intangible assets amortization expense was approximately $9 million and $27 million in the third quarter and nine-month period, respectively, compared with approximately $10 million and $29 million for the comparable 2001 periods. There were no material acquisitions of intangible assets during the 2002 nine-month period. The gross carrying amount and accumulated amortization of intangible assets at September 30, 2002 were $346 million and $261 million, respectively. Amortization expense of intangible assets is estimated to be $36 million annually for 2002 through 2006.
Asset Retirement Obligations- In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” This statement requires that the fair value of an asset retirement obligation be recognized in the period in which it is incurred. The associated asset retirement costs would be capitalized as part of the carrying amount of the long-lived asset. It would apply to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. Detroit Edison will adopt this statement in January 2003 and has not yet determined the impact of this statement on the consolidated financial statements.
19
Notes to Consolidated Financial Statements (Unaudited)
Long-Lived Assets- On January 1, 2002, Detroit Edison adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,” but retains the fundamental provisions for recognizing and measuring impairment of long-lived assets to be held and used or disposed of by sale. The statement also supersedes the accounting and reporting provisions for the disposal of a segment of a business. SFAS No. 144 eliminates the conflict between accounting models for treating the disposition of long-lived assets that existed between SFAS No. 121 and the guidance for a segment of a business accounted for as a discontinued operation by adopting the methodology established in SFAS No. 121, and also resolves implementation issues related to SFAS No. 121. The adoption of the statement did not have an impact on the consolidated financial statements of Detroit Edison.
NOTE 8 —– SEGMENT INFORMATION
During 2002, Detroit Edison’s parent company, DTE Energy, realigned its financial reporting structure into strategic business units that provide various regulated and non-regulated energy services. The realignment resulted inEdison has the following two reportable segments for Detroit Edison.segments. Inter-segment revenues are not material.
Three Months Ended | Nine Months Ended | ||||||||||||||||
September 30 | September 30 | ||||||||||||||||
2002 | 2001 | 2002 | 2001 | ||||||||||||||
(in Millions) | |||||||||||||||||
Operating Revenues | |||||||||||||||||
Energy Resources | $ | 784 | $ | 766 | $ | 2,052 | $ | 2,172 | |||||||||
Energy Distribution | 416 | 355 | 1,040 | 965 | |||||||||||||
Total | $ | 1,200 | $ | 1,121 | $ | 3,092 | $ | 3,137 | |||||||||
Net Income | |||||||||||||||||
Energy Resources | $ | 38 | $ | 30 | $ | 150 | $ | 120 | |||||||||
Energy Distribution | 67 | 63 | 122 | 123 | |||||||||||||
105 | 93 | 272 | 243 | ||||||||||||||
Merger and Restructuring Charges, net of tax | — | (5 | ) | — | (119 | ) | |||||||||||
Total | $ | 105 | $ | 88 | $ | 272 | $ | 124 | |||||||||
Three Months Ended | |||||||||
March 31 | |||||||||
(in Millions) | 2003 | 2002 | |||||||
Operating Revenues | |||||||||
Energy Resources | $ | 617 | $ | 617 | |||||
Energy Distribution | 320 | 313 | |||||||
$ | 937 | $ | 930 | ||||||
Net Income | |||||||||
Energy Resources | $ | 25 | $ | 65 | |||||
Energy Distribution | (4 | ) | 27 | ||||||
Cumulative Effect of Accounting Change | (6 | ) | — | ||||||
$ | 15 | $ | 92 | ||||||
2019
INDEPENDENT ACCOUNTANTS’ REPORT
To the Board of Directors and Shareholder of
The Detroit Edison Company
We have reviewed the accompanying condensed consolidated statement of financial position of The Detroit Edison Company and subsidiaries as of September 30, 2002,March 31, 2003, and the related condensed consolidated statementstatements of operations, cash flows and changes in shareholders' equity and comprehensive income for the three-month and nine-month periods ended September 30, 2002March 31, 2003 and 2001, the condensed consolidated statement of cash flows for the nine-month periods ended September 30, 2002 and 2001, and the condensed consolidated statement of changes in shareholder’s equity for the nine-month period ended September 30, 2002. These financial statements are the responsibility of The Detroit Edison Company’s management.
We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated statement of financial position of The Detroit Edison Company and subsidiaries as of December 31, 2001,2002, and the related consolidated statements of operations, cash flows and changes in shareholder’s equity for the year then ended (not presented herein); and in our report dated February 26, 2002 (September 17, 2002 as to Note 16),11, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated statement of financial position as of December 31, 20012002 is fairly stated, in all material respects, in relation to the consolidated statement of financial position from which it has been derived.
/s/S/ DELOITTE & TOUCHE LLP
Detroit, MichiganNovember 4, 2002May 2, 2003
2120
Exhibits and Reports on FormEXHIBITS AND REPORTS ON FORM 8-K
(a) | Exhibits. |
Exhibit | ||
Number | Description | |
Eleventh Supplemental Indenture dated December 1, 2002, Supplementing the Collateral Trust Indenture dated as of | ||
Awareness Letter of Deloitte & Touche | ||
Chief Executive Officer Certification of Periodic | ||
Chief Financial Officer Certification of Periodic |
(b) | Reports on Form 8-K. | |
We filed a report on Form 8-K during the first quarter ended March 31, 2003, dated February 28, 2003. |
On September 20, 2002, Detroit Edison filed a Report on Form 8-K, dated September 17, 2002, containing updated information as of year-end 2001 with respect to its two reporting segments.
22
SignatureSIGNATURE
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 | ||||
Date: | /s/ DANIEL G. BRUDZYNSKI Daniel G. Brudzynski | |||
Chief Accounting Officer, | ||||
Vice President and Controller |
2322
FORM 10-Q CERTIFICATION
I, Anthony F. Earley, Jr., Chairman, President, Chief Executive and Chief Operating Officer of The Detroit Edison Company, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of The Detroit Edison Company; | |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; | |
4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
(a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; | ||
(b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and | ||
(c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
(a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | ||
(b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
6. | The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
/s/ ANTHONY F. EARLEY, JR. Anthony F. Earley, Jr. | Date: May 14, 2003 | |||
Chairman, President, Chief Executive and | ||||
Chief Operating Officer of | ||||
The Detroit Edison Company |
2423
FORM 10-Q CERTIFICATION
I, David E. Meador, Senior Vice President and Chief Financial Officer of The Detroit Edison Company, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of The Detroit Edison Company; | |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; | |
4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
(a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; | ||
(b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and | ||
(c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
(a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | ||
(b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
6. | The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
/s/ DAVID E. MEADOR David E. Meador | Date: May 14, 2003 | |||
Senior Vice President and | ||||
Chief Financial Officer of | ||||
The Detroit Edison Company |
2524
The Detroit Edison Company
Quarterly Report on Form 10-Q for Quarter Ended September 30, 2002March 31, 2003
File No.1-2198
Exhibit Index
Exhibit | ||
Number | Description | |
Eleventh Supplemental Indenture dated December 1, 2002, Supplementing the Collateral Trust Indenture dated as of | ||
Awareness Letter of Deloitte & | ||
Chief Executive Officer Certification of Periodic Report | ||
99-10 | Chief Financial Officer Certification of Periodic Report |