DTE Electric 10-Q 2005 Q2 Quarterly report

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 June 30, 2005

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

(Exact name of registrant as specified in its charter)

Michigan (State or other jurisdiction of incorporation or organization)	38-0478650 (I.R.S. Employer Identification No.)
2000 2nd Avenue, Detroit, Michigan (Address of principal executive offices)	48226-1279 (Zip Code)

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

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

Yesþ Noo

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yeso Noþ

The Detroit Edison Company

Quarterly Report on Form 10-Q
Quarter Ended June 30, 2005

Table of Contents

				Page
Definitions					1
Forward-Looking Statements					2
Part I – Financial Information
	Item 1.	Financial Statements
			Consolidated Statement of Operations		7
			Consolidated Statement of Financial Position		8
			Consolidated Statement of Cash Flows		10
			Consolidated Statement of Changes in Shareholder’s Equity and Comprehensive Income		11
			Notes to Consolidated Financial Statements		12
			Report of Independent Registered Public Accounting Firm		19
	Item  2.	Management’s Narrative Analysis of Results of Operations			3
	Item 4.	Controls and Procedures			6
Part II – Other Information
	Item 1.	Legal Proceedings			20
	Item 6.	Exhibits			20
Signature					21
Computation of Ratio of Earnings to Fixed Charges
Awareness Letter of Deloitte & Touche LLP
Chief Executive Officer Section 302 Certification
Chief Financial Officer Section 302 Certification
Chief Executive Officer Section 906 Certification
Chief Financial Officer Section 906 Certification

Definitions

Customer Choice	Statewide initiatives giving customers in Michigan the option to choose alternative suppliers for electricity.
Detroit Edison	The Detroit Edison Company (a direct wholly owned subsidiary of DTE Energy Company) and subsidiary companies
DTE Energy	DTE Energy Company, the parent of Detroit Edison and directly or indirectly the parent company of numerous non-utility subsidiaries
EPA	United States Environmental Protection Agency
FERC	Federal Energy Regulatory Commission
ITC	International Transmission Company (until February 28, 2003, a wholly owned subsidiary of DTE Energy Company)
MPSC	Michigan Public Service Commission
NRC	Nuclear Regulatory Commission
PSCR	A power supply cost recovery mechanism authorized by the MPSC that allows Detroit Edison to recover through rates its fuel, fuel-related and purchased power expenses. The clause was suspended under Michigan’s restructuring legislation (signed into law June 5, 2000), which lowered and froze electric customer rates. The clause was reinstated by the MPSC effective January 1, 2004.
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.
SFAS	Statement of Financial Accounting Standards
Stranded costs	Costs incurred by utilities in order to serve customers in a regulated environment that absent special regulatory approval would not otherwise expect to be recoverable if customers switch to alternative energy suppliers.
Units of Measurement
gWh	Gigawatthour of electricity
kWh	Kilowatthour of electricity
MW	Megawatt of electricity
MWh	Megawatthour of electricity

1

Forward-Looking Statements

Certain information presented herein includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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. There are many factors that may impact forward-looking statements including, but not limited to, the following:

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

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

• environmental issues, laws and regulations, and the cost of remediation and compliance associated therewith;

• nuclear regulations and operations associated with nuclear facilities;

• implementation of the electric Customer Choice program;

• impact of electric utility restructuring in Michigan, including legislative amendments;

• employee relations and the impact of collective bargaining agreements;

• unplanned outages;

• access to capital markets and capital market conditions and the results of 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 and availability of coal and other raw materials, and purchased power;

• effects of competition;

• impact of regulation by FERC, MPSC, NRC and other applicable governmental proceedings and regulations;

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

• the ability to recover costs through rate increases;

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

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

• changes in 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;

• uncollectible accounts receivable; and

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

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 speak 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.

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.

Factors impacting income:Earnings increased $35 million during the 2005 second quarter and $46 million in the 2005 six-month period. As subsequently discussed, these results primarily reflect higher rates due to the November 2004 MPSC final rate order, warmer weather and lower operations and maintenance expenses, partially offset by increased depreciation and amortization expenses.

	Quarter			Six Months
Increase (Decrease) in Income Statement Components Compared to Prior Year (in Millions)
Operating Revenues	$	200		$	304
Fuel and Purchased Power		143			228
Gross Margin		57			76
Operation and Maintenance		(29	)		(51	)
Depreciation and Amortization		38			74
Taxes Other Than Income		1			2
Operating Income		47			51
Other (Income) and Deductions		(4	)		(14	)
Income Tax Provision		16			19
Net Income	$	35		$	46

Gross marginsincreased $57 million during the 2005 second quarter and $76 million in the 2005 six-month period. Operating revenues increased $200 million in the second quarter of 2005 and increased $304 million for the six months ended 2005. The quarterly and year to date improvements were primarily as a result of the MPSC final rate order issued in November 2004 and higher demand due to the warmer weather in 2005 resulting in increased margins from retail customers of $26 million in the 2005 second quarter and $34 million in the 2005 six-month period. The current year periods experienced the return of customers who in the comparable 2004 period participated in the electric Customer Choice program. Detroit Edison lost 15% of retail sales in the first half of 2005, compared to 18% of such sales during the same 2004 period as a result of Customer Choice penetration.

Operating revenues and fuel and purchased power costs increased in the 2005 periods reflecting a $7.01 per megawatt hour (MWh) (47%) increase in fuel and purchased power costs during the current quarter and a $5.22 per MWh (35%) increase during the six-month period. Fuel and purchased power costs are a pass-through with the reinstatement of the PSCR mechanism, except for residential customers whose rate caps expire in January 2006. The increase in power supply costs is driven by higher purchased power rates, higher coal prices and increased power purchases due to the outage at our Fermi 2 nuclear facility, which was offline for 14 days in the first quarter of 2005 and for 6 days in the second quarter of 2005. Pursuant to the MPSC final rate order, transmission expense previously recorded in operation and maintenance expenses are now reflected in purchased power expenses. The PSCR mechanism provides related revenues for the transmission expense.

3

	Three Months Ended						Six Months Ended
	June 30						June 30
	2005			2004			2005			2004
Power Generated and Purchased (in Thousands of MWh)
Power Plant Generation
Fossil		9,546			8,507			19,310			18,291
Nuclear		2,272			2,409			4,325			4,817
		11,818			10,916			23,635			23,108
Purchased Power		1,331			1,226			2,809			2,424
System Output		13,149			12,142			26,444			25,532
Less Line Loss and Internal Use		(752	)		(1,130	)		(1,349	)		(1,911	)
Net System Output		12,397			11,012			25,095			23,621
Average Unit Cost ($/MWh)
Generation (1)	$	14.66		$	12.68		$	14.53		$	12.78
Purchased Power (2)	$	85.66		$	34.04		$	66.51		$	34.29
Overall Average Unit Cost	$	21.85		$	14.84		$	20.05		$	14.83

(1)	Represents fuel costs associated with power plants.
(2)	The average purchased power amounts include hedging activities.

	Three Months Ended				Six Months Ended
	June 30				June 30
	2005		2004		2005		2004
Electric Sales (in Thousands of MWh)
Residential		3,766		3,472		7,817		7,541
Commercial		3,820		3,049		7,184		6,540
Industrial		3,024		2,810		5,920		5,564
Wholesale		557		552		1,120		1,109
Other		88		103		193		212
		11,255		9,986		22,234		20,966
Interconnections sales (1)		1,142		1,026		2,861		2,655
Total Electric Sales		12,397		11,012		25,095		23,621
Electric Deliveries (in Thousands of MWh)
Retail and Wholesale		11,255		9,986		22,234		20,966
Electric Choice		1,996		2,480		3,910		4,622
Electric Choice – Self Generators (2)		174		185		366		352
Total Electric Sales and Deliveries		13,425		12,651		26,510		25,940

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

Operation and maintenanceexpense decreased $29 million in the second quarter of 2005 and $51 million in the 2005 six-month period and included transmission expenses of $25 million in the 2004 second quarter and $39 million in the 2004 six-month period. Pursuant to the MPSC final rate order, transmission expenses in 2005 are included in purchased power expense with related revenues through the PSCR mechanism. In addition, pursuant to the MPSC final rate order, merger interest is no longer allocated to Detroit Edison. The 2005 periods also experienced lower uncollectible accounts receivable expense, partially offset by increased power plant outage expenses, higher costs for the funding of the low-income customer assistance fund and system reliability expenses.

4

Depreciation and amortizationexpense increased $38 million in the second quarter of 2005 and $74 million in the 2005 six-month period. Depreciation expense reflects the income effects of recording regulatory assets. The interim and final electric rate orders in 2004 recover PA 141 costs previously deferred as regulatory assets. As a result, the regulatory asset deferrals totaled $8 million in the second quarter of 2005 and $21 million in the 2005 six month period as compared to $22 million in the second quarter of 2004 and $57 million in the six month period ending June 30, 2004.

Other income and deductionsexpense decreased $4 million in the 2005 second quarter and $14 million in the 2005 six-month period, primarily due to lower interest expense as a result of adjustments due to settlements related to tax audits.

Outlook– Future operating results are expected to vary as a result of factors such as regulatory proceedings, new legislation, changes in market prices of power, coal and natural gas, plant performance, cost containment efforts and process improvements, changes in economic conditions, weather, the levels of customer participation in the electric Customer Choice program and the severity and frequency of storms.

As previously discussed, we expect cash flows and operating performance will continue to be at risk due to the electric Customer Choice program until the issues associated with this program are resolved. We have addressed certain issues of the electric Customer Choice program in our revenue neutral February 2005 rate restructuring proposal. We cannot predict the outcome of these matters.

In conjunction with DTE Energy’s sale of International Transmission Company (ITC) in February 2003, the Federal Energy Regulatory Commission (FERC) froze ITC’s transmission rates through December 2004. Annual rate adjustments pursuant to a formulistic pricing mechanism will result in an estimated increase in Detroit Edison’s transmission expense of $50 million annually, beginning in January 2005. Additionally, in a proceeding before the FERC, several Midwest utilities seek to recover transmission revenues lost as a result of a FERC order modifying the pricing of transmission service in the Midwest. During the first half of 2005, Detroit Edison recorded an estimated $7 million of additional expense. Detroit Edison anticipates additional expenses of approximately $1 million per month through March 2006. Detroit Edison is expected to incur an additional $15 million in 2005 for charges related to the implementation of Midwest Independent Transmission System Operator’s open market. Detroit Edison received rate orders in 2004 that allow for the recovery of increased transmission expenses through the PSCR mechanism.

See Note 3 – Regulatory Matters.

MIDWEST INDEPENDENT TRANSMISSION SYSTEM OPERATOR (MISO)

The MISO was formed in 1996 by its member transmission owners and in December 2001 received FERC approval as a Regional Transmission Organization (RTO) authorized to provide regional transmission services as prescribed by FERC in its Order 2000. Order 2000 requires an RTO to perform eight functions including, tariff administration, transmission system congestion management, provision of ancillary services to support transmission operations, market monitoring, interregional coordination and the coordination of system planning and expansion. MISO’s independence from ownership of either generation or transmission facilities is intended to enable it to ensure fair access to the transmission grid, and through its congestion management role, MISO is also charged with ensuring grid reliability. MISO’s initial provision of transmission services in December 2001 was known as Day 1 operations.

In keeping with Order 2000, which permits RTOs to provide real-time energy imbalance services and a market-based mechanism for congestion management, MISO, on April 1, 2005, launched its Midwest Energy Market, or Day 2 operations, and began regional wholesale electric market operations and transmission service throughout its area. A key feature of the Midwest Energy Market is the establishment of Locational Marginal Prices (LMPs) which provide price transparency for the sale and purchase of wholesale electricity at different locations in the market territory. The LMPs establish the price of the most efficient generation offered for dispatch adjusted to reflect the cost of locational congestion on the transmission system. Detroit Edison participates in the Energy Market by offering its generation on a day-ahead and real time basis and by bidding for power in the market to serve its load. The cost of power procured from the market net of any gain realized from generation sold into the market is included and recovered through the PSCR mechanism. The Midwest Market is expected to yield financial benefits to consumers as a result of generator price competition arising from the price transparency provided by the market. In addition, LMPs are expected to encourage new generation to locate where the power produced is of most value to the load and is expected to identify where new transmission facilities are needed to relieve grid congestion.

MISO is compensated for assuring grid reliability and for supporting the energy market through FERC-approved rates charged to load. Detroit Edison became a non-transmission owning member of MISO in compliance with section 10w (1) of Act 141. The MPSC has ordered that MISO costs charged to Detroit Edison should be recovered through the PSCR mechanism.

5

CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures

Management of the Company carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2005, which is the end of the period covered by this report. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that such controls and procedures are effective in ensuring that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Due to the inherent limitations in the effectiveness of any disclosure controls and procedures, management cannot provide absolute assurance that the objectives of its disclosure controls and procedures will be met.

(b) Changes in internal control over financial reporting

On April 1, 2005, the Midwest Independent System Operator (MISO) Day 2 market became effective which impacted Detroit Edison’s electric generation and purchased power. In connection with the implementation of MISO Day 2, Detroit Edison has implemented new processes and modified existing processes to facilitate participation in and settlement within the MISO market. The impact of the MISO Day 2 market may be considered a material change in internal control over financial reporting. With the exception of this change, there has been no other change in the Company’s internal control over financial reporting during the quarter ended June 30, 2005 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

6

The Detroit Edison Company

Consolidated Statement of Operations (unaudited)

	Three Months Ended						Six Months Ended
	June 30						June 30
(in Millions)	2005			2004			2005			2004
Operating Revenues	$	1,035		$	835		$	2,025		$	1,721
Operating Expenses
Fuel and purchased power		343			200			644			416
Operation and maintenance		330			359			651			702
Depreciation and amortization		160			122			310			236
Taxes other than income		63			62			132			130
		896			743			1,737			1,484
Operating Income		139			92			288			237
Other (Income) and Deductions
Interest expense		69			71			133			143
Interest income		—			—			(1	)		—
Other income		(18	)		(15	)		(30	)		(30	)
Other expenses		24			23			42			45
		75			79			144			158
Income Before Income Taxes		64			13			144			79
Income Tax Provision		21			5			46			27
Net Income	$	43		$	8		$	98		$	52

See Notes to Consolidated Financial Statements (Unaudited)

7

The Detroit Edison Company

Consolidated Statement of Financial Position

	(Unaudited)
	June 30			December 31
(in Millions)	2005			2004
ASSETS
Current Assets
Cash and cash equivalents	$	17		$	6
Restricted cash		69			75
Accounts receivable
Customer (less allowance for doubtful accounts of $52 and $55, respectively)		331			258
Accrued unbilled revenues		200			207
Other		120			120
Inventories
Fuel		111			100
Materials and supplies		115			118
Note receivable from Affiliate		—			85
Other		77			46
		1,040			1,015
Investments
Nuclear decommissioning trust funds		613			590
Other		60			55
		673			645
Property
Property, plant and equipment		13,155			12,931
Less accumulated depreciation		(5,485	)		(5,354	)
		7,670			7,577
Other Assets
Regulatory assets		2,074			2,053
Securitized regulatory assets		1,391			1,438
Other		104			114
		3,569			3,605
Total Assets	$	12,952		$	12,842

See Notes to Consolidated Financial Statements (Unaudited)

8

The Detroit Edison Company

Consolidated Statement of Financial Position

	(Unaudited)
	June 30			December 31
(in Millions, Except Shares)	2005			2004
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
Accounts payable	$	364		$	346
Accrued interest		81			79
Dividends payable		76			76
Accrued payroll		10			12
Accrued vacations		80			76
Short-term borrowings		219			—
Accrued PSCR refund		121			112
Current portion of long-term debt, including capital leases		330			499
Other		179			130
		1,460			1,330
Other Liabilities
Deferred income taxes		1,931			1,941
Regulatory liabilities		263			253
Asset retirement obligations (Note 1)		897			869
Unamortized investment tax credit		120			125
Nuclear decommissioning		80			77
Accrued pension liability		288			247
Other		707			676
		4,286			4,188
Long-Term Debt (net of current portion)
Mortgage bonds, notes and other		2,876			2,879
Securitization bonds		1,345			1,400
Capital lease obligations		61			66
		4,282			4,345
Contingencies (Notes 3 and 5)
Shareholder’s Equity
Common stock, $10 par value, 400,000,000 shares authorized, 138,632,324 shares issued and outstanding		1,386			1,386
Premium on common stock		1,104			1,104
Common stock expense		(44	)		(44	)
Retained earnings		476			531
Accumulated other comprehensive income		2			2
		2,924			2,979
Total Liabilities and Shareholder’s Equity	$	12,952		$	12,842

See Notes to Consolidated Financial Statements (Unaudited)

9

The Detroit Edison Company

Consolidated Statement of Cash Flows (Unaudited)

	Six Months Ended
	June 30
(in Millions)	2005			2004
Operating Activities
Net Income	$	98		$	52
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		310			236
Deferred income taxes		(10	)		89
Changes in assets and liabilities, exclusive of changes shown separately (Note 1)		59			39
Net cash from operating activities		457			416
Investing Activities
Plant and equipment expenditures		(321	)		(320	)
Restricted cash for debt redemptions		6			13
Notes receivable from affiliate		85			7
Other investments		(47	)		(38	)
Net cash used for investing activities		(277	)		(338	)
Financing Activities
Issuance of long-term debt		395			67
Redemption of long-term debt		(628	)		(130	)
Short-term borrowings, net		219			150
Dividends on common stock		(152	)		(150	)
Other		(3	)		(4	)
Net cash used for financing activities		(169	)		(67	)
Net Increase in Cash and Cash Equivalents		11			11
Cash and Cash Equivalents at Beginning of the Period		6			6
Cash and Cash Equivalents at End of the Period	$	17		$	17

See Notes to Consolidated Financial Statements (Unaudited)

10

The Detroit Edison Company

Consolidated Statement of Changes in Shareholder’s Equity
and Comprehensive Income (unaudited)

					Premium								Accumulated
(Dollars in Millions,					on		Common						Other
Shares in Thousands)	Common Stock				Common		Stock			Retained			Comprehensive
	Shares		Amount		Stock		Expense			Earnings			Income		Total
Balance, December 31, 2004		138,632	$	1,386	$	1,104	$	(44	)	$	531		$	2	$	2,979
Net income		—		—		—		—			98			—		98
Dividends declared on common stock		—		—		—		—			(153	)		—		(153	)
Balance, June 30, 2005		138,632	$	1,386	$	1,104	$	(44	)	$	476		$	2	$	2,924

     The following table displays other comprehensive income for the six-month periods ended June 30:

(in Millions)	2005		2004
Net income	$	98	$	52
Comprehensive income	$	98	$	52

See Notes to Consolidated Financial Statements (Unaudited)

11

The Detroit Edison Company

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 2004 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 us to use estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results may differ from our estimates.

The consolidated financial statements are unaudited, but in our opinion 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.

Through the first quarter of 2005, we operated our business through two strategic business units (Energy Resources and Energy Distribution). In the second quarter of 2005, we have combined the previous two segments into a single segment that more closely reflects how we operate and manage our business. Based on their structure we set strategic goals, allocate resources and evaluate performance.

We reclassified certain prior year balances to match the current year’s financial statement presentation.

Consolidated Statement of Cash Flows

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

	Six Months Ended
	June 30
(in Millions)	2005			2004
Changes in Assets and Liabilities, Exclusive of Changes Shown Separately
Accounts receivable, net	$	(54	)	$	(12	)
Accrued unbilled receivables		7			9
Inventories		(8	)		1
Accrued pensions		54			51
Accounts payable		18			63
Accrued PSCR refund		(29	)		45
Income taxes payable		50			(62	)
General taxes		3			(12	)
Risk management and trading activities		—			(1	)
Other		18			(43	)
	$	59		$	39

12

Supplementary cash and non-cash information follows:

	Six Months Ended
	June 30
(in Millions)	2005		2004
Cash Paid
Interest (excluding interest capitalized)	$	131	$	144
Income taxes	$	—	$	1
Non-cash Financing Activity
Common stock issued to parent company in conjunction with parent company common stock contribution to pension plan	$	—	$	170

Asset Retirement Obligations

SFAS No. 143, “Accounting for Asset Retirement Obligations,” requires that the fair value of an asset retirement obligation be recognized in the period in which it is incurred. We identified a legal retirement obligation for the decommissioning costs for our Fermi 1 and Fermi 2 nuclear plants. We believe that adoption of SFAS No. 143 results primarily in timing differences in the recognition of legal asset retirement costs that we are currently recovering in rates and will be deferring such differences under SFAS No. 71, “Accounting for the Effects of Certain Types of Regulation.”

A reconciliation of the asset retirement obligation for the 2005 six-month period follows:

(in Millions)
Asset retirement obligations at January 1, 2005	$	869
Accretion		29
Liabilities settled		(1	)
Asset retirement obligations at June 30, 2005	$	897

A significant portion of the asset retirement obligations represents nuclear decommissioning liabilities which are funded through a surcharge to electric customers over the life of the Fermi 2 nuclear plant.

13

Retirement Benefits and Trusteed Assets

The components of net periodic benefit costs for qualified and non-qualified pension benefits and other postretirement benefits follow:

							Other Postretirement
	Pension Benefits						Benefits
(in Millions)	2005			2004			2005			2004
Three Months Ended June 30
Service Cost	$	13		$	11		$	11		$	8
Interest Cost		33			33			20			17
Expected Return on Plan Assets		(33	)		(36	)		(14	)		(11	)
Amortization of
Net loss		12			12			11			8
Prior service cost		3			3			1			—
Net transition liability		—			—			1			2
Net Periodic Benefit Cost	$	28		$	23		$	30		$	24
Six Months Ended June 30
Service Cost	$	27		$	24		$	22		$	16
Interest Cost		66			66			40			35
Expected Return on Plan Assets		(67	)		(67	)		(29	)		(23	)
Amortization of
Net loss		25			24			22			17
Prior service cost		5			5			2			—
Net transition liability		—			—			3			4
Net Periodic Benefit Cost	$	56		$	52		$	60		$	49

NOTE 2 – NEW ACCOUNTING PRONOUNCEMENTS

Accounting for Conditional Asset Retirement Obligations

In March 2005, the FASB issued Interpretation No. 47 (FIN 47), “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143.”FIN 47 seeks to clarify the requirement to record liabilities stemming from a legal obligation to perform asset retirement activities on fixed assets when that retirement is conditioned on a future event. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. The Company is currently assessing the effects of this interpretation, and has not yet determined the impact on the consolidated financial statements.

NOTE 3 – REGULATORY MATTERS

Electric Rate Case

In December 2004, Detroit Edison and other parties filed petitions for rehearing related to the MPSC’s November 2004 final rate order. Among other items, Detroit Edison’s petition requested a correction of the capital structure used in the determination of the final order and recovery of certain disallowed costs. On June 30, 2005, the MPSC issued a series of orders denying Detroit Edison’s and other parties petitions for rehearing.

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Electric Rate Restructuring Proposal

On February 4, 2005, Detroit Edison filed a rate restructuring proposal with the MPSC to restructure its electric rates and begin phasing out subsidies that are part of its current pricing structure. The proposal would adjust rates for each customer class to be reflective of the full costs incurred to service such customers. Under the proposal, commercial and industrial rates would be lowered, but residential rates would increase over a five-year period beginning in 2007. The MPSC indicated in the November 2004 final rate order that this proceeding is expected to be completed in time to have new rates in effect no later than January 1, 2006.

Other Postretirement Benefits Costs Tracker

On February 10, 2005, Detroit Edison filed an application, pursuant to the MPSC’s November 2004 final rate order, requesting MPSC approval of a proposed tracking mechanism for retiree health care costs. This mechanism would recognize differences between cost levels collected in rates and the actual costs under current accounting rules as regulatory assets or regulatory liabilities with an annual reconciliation proceeding before the MPSC.

2004 PSCR Reconciliation and 2004 Net Stranded Cost Case

In accordance with the MPSC’s direction in Detroit Edison’s November 2004 final rate order, on March 31, 2005, Detroit Edison filed a joint application and testimony in its 2004 PSCR Reconciliation Case and its 2004 Net Stranded Cost Recovery Case. The combined proceeding will provide a comprehensive true-up of the 2004 PSCR and production fixed cost stranded cost calculations, including treatment of Detroit Edison’s third party wholesale sales revenues. Under the MPSC’s preferred methodology, Detroit Edison incurred approximately $112 million in stranded costs in 2004. Detroit Edison also received approximately $218 million in third party wholesale sales.

In the filing, Detroit Edison recommended the following distribution of the $218 million of third party wholesale sale revenues: $91 million to offset PSCR fuel expense and $74 million to offset 2004 production operation and maintenance expense. The remaining $53 million would be allocated between bundled customers and electric Customer Choice customers. This allocation would result in a refund of approximately $8 million to bundled customers and a net stranded cost amount to be collected from electric Customer Choice customers of approximately $99 million.

Included with the application was the filing of a motion for a temporary interim order requesting the continuation of the existing electric Customer Choice transition charges until a final order is issued. An order is expected in the first quarter of 2006.

Power Supply Recovery Proceedings

2005 Plan Year– In September 2004, Detroit Edison filed its 2005 PSCR plan case seeking approval of a levelized PSCR factor of 1.82 mills per kWh above the amount included in base rates. In December 2004, Detroit Edison filed revisions to its 2005 PSCR plan case in accordance with the November 2004 MPSC rate order. The revised filing seeks approval of a levelized PSCR factor of up to 0.48 mills per kWh above the new base rates established in the final electric rate order. Included in the factor are power supply costs, transmission expenses and nitrogen oxide emission allowance costs. Detroit Edison self-implemented a factor of a negative 2.00 mills per kWh on January 1, 2005. Effective June 1, 2005, Detroit Edison began billing the maximum allowable factor of 0.48 mills per kWh due to increased power supply costs. At June 30, 2005, Detroit Edison has recorded an under-recovery of approximately $38 million related to the 2005 plan year. The Michigan Attorney General filed a motion for summary disposition of this proceeding based on arguments that the PSCR statute requires a fixed 48-month PSCR factor. The MPSC denied the Attorney General’s motion and affirmed Detroit Edison’s ability to make annual filings for PSCR plan approval.

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Other

We 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 the Company.

NOTE 4 – LONG -TERM DEBT

In February 2005, we issued $400 million of senior notes in two series, $200 million of 4.8% series due 2015 and $200 million of 5.45% series due 2035. The proceeds were used to redeem the $385 million of 7.5% Quarterly Income Debt Securities due 2026 to 2028.

Also in February 2005, we redeemed $76 million of 7.5% senior notes and $100 million of 7.0% remarketed secured notes, which matured February 2005.

In July 2005, we entered into a Note Purchase Agreement pursuant to which we agreed to issue and sell to a group of institutional investors in a private placement transaction $100 million aggregate principal amount of our 2005 Series C, 5.19% Senior Notes due October 1, 2023. The sale of the notes pursuant to the agreement is expected to close on or about September 29, 2005. The proceeds will be used to redeem Detroit Edison senior notes due in October 2005.

NOTE 5 – COMMITMENTS AND CONTINGENCIES

Environmental

Air- Detroit Edison is subject to United States Environmental Protection Agency (EPA) ozone transport and acid rain regulations that limit power plant emissions of sulfur dioxide and nitrogen oxides. In March 2005, EPA 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 $580 million through 2004, and estimates that it will spend up to $100 million in 2005 and incur up to $1.8 billion of additional future capital expenditures through 2018 to satisfy both the existing and proposed new control requirements. Under the June 2000 Michigan restructuring legislation, beginning January 1, 2004, annual return of and on this capital expenditure, could be deferred in ratemaking, until after the expiration of the rate cap period, presently expected to end on December 31, 2005 upon MPSC authorization. Under PA 141 and the MPSC’s November 2004 final rate order, we believe that prudently incurred capital expenditures, in excess of current depreciation levels, are recoverable in rates.

Water- Detroit Edison is required to examine alternatives for reducing the environmental impacts of the cooling water intake structures at several of its facilities. Based on the results of the studies to be conducted over the next several years, Detroit Edison may be required to install additional control technologies to reduce the impacts of the intakes. It is estimated that we will incur up to $50 million over the next five to seven years in additional capital expenditures for Detroit Edison.

Contaminated Sites- Detroit Edison conducted remedial investigations at contaminated sites, including two former manufactured gas plant sites, the area surrounding an ash landfill and several underground and aboveground storage tank locations. The findings of these investigations indicated that the cost to remediate these sites is approximately $8 million, which is expected to be incurred over the next several years. As a result of the investigation, Detroit Edison accrued an $8 million liability during 2004.

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Personal Property Taxes

Prior to 1999, Detroit Edison and other Michigan utilities asserted that Michigan’s valuation tables result in the substantial overvaluation of utility personal property. Valuation tables established by the Michigan State Tax Commission (STC) are used to determine the taxable value 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 2000 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. In January 2004, the Michigan Court of Appeals upheld the validity of the new tables. With no further appeal by the petitioners available, the MTT began to schedule utility personal property valuation cases for Prehearing General Calls. Detroit Edison has filed motions and the MTT agreed to place the cases in abeyance pending the conclusion of settlement negotiations being conducted by State of Michigan Treasury officials. On February 14, 2005, MTT issued a scheduling order that lifts the prior abeyances in a significant number of Detroit Edison appeals. The scheduling order sets litigation calendars for these cases extending into mid-2006.

Detroit Edison continues to record property tax expense based on the new tables. Detroit Edison will continue through settlement or litigation to seek to apply the new tables retroactively and to ultimately resolve the pending tax appeals related to 1997 through 1999. This is a solution supported by the STC in the past. To the extent that settlements cannot be achieved with the jurisdictions, litigation regarding the valuation of utility property will delay any recoveries by Detroit Edison.

Other Commitments

Detroit Edison has an Energy Purchase Agreement to purchase steam and electricity from the Greater Detroit Resource Recovery Authority (GDRRA). Under the agreement, Detroit Edison will purchase steam through 2008 and electricity through June 2024. In 1996, a special charge to income was recorded that included a reserve for steam purchase commitments in excess of replacement costs from 1997 through 2008. The reserve for steam purchase commitments is being amortized to fuel, purchased power and gas expense with non-cash accretion expense being recorded through 2008. During the first six months of 2005 we purchased $18 million of steam and electricity. For the full year 2004, we purchased $42 million of steam and electricity. We estimate steam and electric purchase commitments through 2024 will not exceed $472 million. In January 2003, we sold the steam heating business of Detroit Edison to Thermal Ventures II, LP. Due to terms of the sale, Detroit Edison remains contractually obligated to buy steam from GDRRA until 2008 and recorded an additional liability of $20 million for future commitments. Also, we have guaranteed bank loans that Thermal Ventures II, LP may use for capital improvements to the steam heating system.

At December 31, 2004, we have entered into numerous long-term purchase commitments relating to a variety of goods and services required for our business. These agreements primarily consist of fuel supply commitments. We estimate that these commitments will be approximately $1.4 billion through 2018. We also estimate that 2005 base level capital expenditures will be $800 million. We have made certain commitments in connection with expected capital expenditures.

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Bankruptcies

We purchase and sell electricity from and to numerous companies operating in the steel, automotive, energy and retail industries. Several customers have filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. We have negotiated or are currently involved in negotiations with each of the companies, or their successor companies, that have filed for bankruptcy protection. We regularly review contingent matters relating to purchase and sale contracts and record provisions for amounts considered probable of loss. We believe our previously accrued amounts are adequate for probable losses. The final resolution of these matters is not expected to have a material effect on our financial statements in the period they are resolved.

Other

We are involved in certain 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, environmental reviews and investigations, audits, inquiries from various regulators, and pending judicial matters. We cannot predict the final disposition of such proceedings. We regularly review legal matters and record provisions for claims that are considered probable of loss. The resolution of pending proceedings is not expected to have a material effect on our operations or financial statements in the period they are resolved.

See Note 3 for a discussion of contingencies related to Regulatory Matters.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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 June 30, 2005, and the related condensed consolidated statement of operations for the three-month and six-month periods ended June 30, 2005 and 2004, the condensed consolidated statement of cash flows for the six-month periods ended June 30, 2005 and 2004, and the condensed consolidated statement of changes in shareholder’s equity and comprehensive income for the six-month period ended June 30, 2005 and the six-month periods ended June 30, 2005 and 2004, respectively. These interim financial statements are the responsibility of The Detroit Edison Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), 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 reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim 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 the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial position of The Detroit Edison Company and subsidiaries as of December 31, 2004, and the related consolidated statements of operations, cash flows and changes in shareholder’s equity and comprehensive income for the year then ended (not presented herein); and in our report dated March 15, 2005 (which report includes an explanatory paragraph relating to the change in the methods of accounting for asset retirement obligations in 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, 2004 is fairly stated, in all material respects, in relation to the consolidated statement of financial position from which it has been derived.

/S/ DELOITTE & TOUCHE LLP

Detroit, Michigan
August 4, 2005

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Other Information

Legal Proceedings

We are involved in certain legal, regulatory and administrative proceedings before various courts, arbitration panels and governmental agencies concerning matters arising in the ordinary course of business. These proceedings include certain contract disputes, environmental reviews and investigations, audits, inquiries from various regulators, and pending judicial matters. We cannot predict the final disposition of such proceedings. We regularly review legal matters and record provisions for claims that are considered probable of loss. The resolution of pending proceedings is not expected to have a material effect on our operations or financial statements in the period they are resolved. For additional discussion on legal matters, see the Notes to the Consolidated Financial Statements.

Exhibits

Exhibit
Number	Description
Filed:
12-22	Computation of Ratio of Earnings to Fixed Charges
15-30	Awareness Letter of Deloitte & Touche LLP
31-17	Chief Executive Officer Section 302 Certification
31-18	Chief Financial Officer Section 302 Certification
Incorporated by reference:
10(1)	The Detroit Edison Company Note Purchase Agreement dated as of July 22, 2005. (Exhibit 10.1 to Form 8-K dated July 22, 2005)
Furnished:
32-17	Chief Executive Officer Section 906 Certification
32-18	Chief Financial Officer Section 906 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
Date: August 4, 2005	/s/ DANIEL G. BRUDZYNSKI
	Daniel G. Brudzynski
	Chief Accounting Officer,
	Vice President and Controller

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Exhibit Index

Exhibit
Number	Description
12-22	Computation of Ratio of Earnings to Fixed Charges
15-30	Awareness Letter of Deloitte & Touche LLP
31-17	Chief Executive Officer Section 302
31-18	Chief Financial Officer Section 302
32-17	Chief Executive Officer Section 906 Certification
32-18	Chief Financial Officer Section 906 Certification

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