e10vq

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 March 31, 2006

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		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)

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

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

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

Definitions


Customer Choice		Statewide initiatives giving customers in Michigan the option to choose alternative suppliers for electricity.

Company or Detroit Edison		The Detroit Edison Company (a direct wholly owned subsidiary of DTE Energy) and any 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)

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 power supply cost recovery mechanism was suspended under Michigan’s restructuring legislation (signed into law June 5, 2000), which lowered and froze electric customer rates, and 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 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

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 presently contemplated, projected, estimated or budgeted. Many factors 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 population growth or decline in the geographic areas where we do business;

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

•		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 borrowing;

•		changes in the cost and availability of coal and other raw materials, and purchased power;

•		effects of competition;

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

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

•		the 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 and application of accounting standards and financial reporting regulations;

•		changes in federal or state laws and their interpretation with respect to regulation, energy policy and other business issues;

•		uncollectible accounts receivable;

•		litigation and related appeals; 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.

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: Net income increased $4 million for the 2006 first quarter. These results primarily reflect higher gross margins, partially offset by higher operation and maintenance expenses and increased depreciation and amortization expenses.


Increase (Decrease) in Income Statement Components
Compared to Prior Year	Three
(in Millions)	Months
Operating Revenues	$	60
Fuel and Purchased Power		8

Gross Margin		52
Operation and Maintenance		23
Depreciation and Amortization		17
Taxes Other Than Income		—

Operating Income		12
Other (Income) and Deductions		6
Income Tax Provision		2

Net Income	$	4

Gross margins increased $52 million in the 2006 first quarter due to lower electric Customer Choice penetration, increased rates due to the expiration of the residential rate cap on January 1, 2006 and improved economic performance, partially offset by the impacts of milder winter weather in the first quarter of 2006.


Increase (Decrease) in Gross Margin Components Compared
to Prior Year	Three
(in Millions)	Months
Weather related margin impacts	$	(10	)
Removal of residential rate caps effective January 1, 2006		22
Return of customers from electric Customer Choice		29
Service territory economic performance		14
Other, net		(3	)

Increase in gross margin performance	$	52


Power Generated and Purchased
(in Thousands of MWh)	2006					2005
Power Plant Generation
Fossil		9,308		71	%		9,763		74	%
Nuclear		2,197		17			2,053		15

		11,505		88			11,816		89
Purchased Power		1,513		12			1,477		11

System Output		13,018		100	%		13,293		100	%
Less Line Loss and Internal Use		(825	)				(596	)

Net System Output		12,193					12,697


Average Unit Cost ($/MWh)
Generation (1)	$	14.66				$	14.40

Purchased Power	$	50.42				$	49.30

Overall Average Unit Cost	$	18.82				$	18.28


(1)		Represents fuel costs associated with power plants.


	Three Months Ended
	March 31
	2006		2005
Electric Sales
(in Thousands of MWh)
Residential		3,836		4,051
Commercial		4,008		3,364
Industrial		3,154		2,897
Wholesale		675		563
Other		106		104

		11,779		10,979
Interconnection sales (1)		414		1,718

Total Electric Sales		12,193		12,697


Electric Deliveries
(in Thousands of MWh)
Retail and Wholesale		11,779		10,979
Electric Choice		1,139		1,722
Electric Choice – Self Generators (2)		224		192

Total Electric Sales and Deliveries		13,142		12,893


(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 maintenance expense increased $23 million in the first quarter of 2006 due primarily to higher storm related costs and implementation costs associated with our Performance Excellence Process.

Depreciation and amortization expense increased $17 million in the first quarter of 2006 due to increased amortization of regulatory assets, including greater amortization of securitization assets resulting from higher sales volumes.

Other income and deductions increased $6 million primarily due to favorable adjustments in 2005 for settlements related to tax audits.

Outlook – We continue to improve the operating performance of Detroit Edison. During the past year, we have resolved many of our regulatory issues and continue to pursue additional regulatory solutions for

structural problems within our competitive environment, mainly electric Customer Choice and the need to adjust rates for each customer class to reflect the full cost of service. In March 2006, the MPSC issued an order directing Detroit Edison to show cause by June 1, 2006 why its retail electric rates should not be reduced in 2007. In April 2006, an MPSC Administrative Law Judge issued a Proposal for Decision indicating that Detroit Edison’s position in the 2004 PSCR Reconciliation and the 2004 Net Stranded Cost Case proceeding is overstated. If this proposal is adopted by the MPSC, net income would be reduced by approximately $17 million. See Note 3.

Concurrently, we will move forward in our efforts to improve performance. Looking forward, additional issues, such as rising prices for coal, uranium and health care, continued under-performance of Michigan’s economy and capital spending, will result in us taking meaningful action to address our costs while continuing to provide quality customer service. We will utilize the DTE Operating System and the Performance Excellence Process to seek opportunities to improve productivity, remove waste, decrease our costs, while improving customer satisfaction.

Long term, we will be required to invest an estimated $2.4 billion on emission controls through 2018. Should we be able to recover these costs in future rate cases, we may experience a growth in earnings. Additionally, our service territory may require additional generation capacity. A new base-load generating plant has not been built within the State of Michigan in the last 20 years. Should our regulatory environment be conducive to such a significant capital expenditure, we may build or expand a new base- load facility, with an estimated cost of $1 billion to $2 billion.

The following variables, either in combination or acting alone, will impact our future results:

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

	•		our ability to reduce costs;

	•		variations in market prices of power, coal and gas;

	•		plant performance;

	•		economic conditions within the state of Michigan;

	•		weather, including the severity and frequency of storms; and

	•		levels of customer participation in the electric Customer Choice program.

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 adequately addressed. We will accrue as regulatory assets any future unrecovered generation-related fixed costs (stranded costs) due to electric Customer Choice that we believe are recoverable under Michigan legislation and MPSC orders. We cannot predict the outcome of these matters. See Note 3.

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 March 31, 2006, 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

There has been no change in the Company’s internal control over financial reporting during the quarter ended March 31, 2006 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Detroit Edison Company

Consolidated Statement of Financial Position


	(Unaudited)
	March 31			December 31
(in Millions)	2006			2005
ASSETS
Current Assets
Cash and cash equivalents	$	20		$	26
Restricted cash		30			84
Accounts receivable
Customer (less allowance for doubtful accounts of $55 and $54, respectively)		380			305
Accrued unbilled revenues		183			223
Accrued power supply cost recovery revenue		169			144
Other		110			112
Inventories
Fuel		119			123
Materials and supplies		114			116
Other		101			43

		1,226			1,176


Investments
Nuclear decommissioning trust funds		678			646
Other		65			65

		743			711


Property
Property, plant and equipment		13,500			13,416
Less accumulated depreciation		(5,566	)		(5,595	)

		7,934			7,821


Other Assets
Regulatory assets		1,970			2,006
Securitized regulatory assets		1,314			1,340
Other		116			115

		3,400			3,461


Total Assets	$	13,303		$	13,169

See Notes to Consolidated Financial Statements (Unaudited)

The Detroit Edison Company
Consolidated Statement of Financial Position


	(Unaudited)
	March 31			December 31
(in Millions, Except Shares)	2006			2005
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
Accounts payable	$	412		$	392
Accrued interest		59			79
Dividends payable		76			76
Accrued payroll		26			12
Accrued vacations		81			80
Short-term borrowings		356			163
Accrued power supply cost recovery refund		132			129
Current portion of long-term debt, including capital leases		136			135
Other		209			196

		1,487			1,262


Other Liabilities
Deferred income taxes		1,942			1,961
Regulatory liabilities		232			224
Asset retirement obligations (Note 1)		969			953
Unamortized investment tax credit		112			115
Nuclear decommissioning		90			85
Accrued pension liability		280			261
Other		761			787

		4,386			4,386


Long-Term Debt (net of current portion)
Mortgage bonds, notes and other		3,206			3,221
Securitization bonds		1,238			1,295
Capital lease obligations		56			57

		4,500			4,573


Contingencies (Notes 3 and 4)

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		482			500
Accumulated other comprehensive income		2			2

		2,930			2,948


Total Liabilities and Shareholder’s Equity	$	13,303		$	13,169

See Notes to Consolidated Financial Statements (Unaudited)

The Detroit Edison Company

Consolidated Statement of Cash Flows (Unaudited)


	Three Months Ended
	March 31
(in Millions)	2006			2005
Operating Activities
Net Income	$	59		$	55
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		167			150
Deferred income taxes		27			9
Changes in assets and liabilities, exclusive of changes shown separately (Note 1)		(113	)		(37	)

Net cash from operating activities		140			177


Investing Activities
Plant and equipment expenditures		(245	)		(151	)
Proceeds from sale of other assets, net		18			—
Restricted cash for debt redemptions		54			53
Notes receivable from affiliate		—			85
Proceeds from sale of nuclear decommissioning trust fund assets		37			63
Investment in nuclear decommissioning trust funds		(47	)		(73	)
Other investments		(8	)		(16	)

Net cash used for investing activities		(191	)		(39	)


Financing Activities
Issuance of long-term debt		—			395
Redemption of long-term debt		(69	)		(626	)
Short-term borrowings, net		193			184
Dividends on common stock		(76	)		(76	)
Other		(3	)		(1	)

Net cash used for financing activities		45			(124	)


Net Increase (Decrease) in Cash and Cash Equivalents		(6	)		14
Cash and Cash Equivalents at Beginning of the Period		26			6

Cash and Cash Equivalents at End of the Period	$	20		$	20

See Notes to Consolidated Financial Statements (Unaudited)

The Detroit Edison Company

Consolidated Statement of Changes in Shareholder’s Equity

and Comprehensive Income (unaudited)


					Premium								Accumulated
					on		Common						Other
(Dollars in Millions,	Common Stock				Common		Stock			Retained			Comprehensive
Shares in Thousands)	Shares		Amount		Stock		Expense			Earnings			Income		Total

Balance, December 31, 2005		138,632	$	1,386	$	1,104	$	(44	)	$	500		$	2	$	2,948

Net income		—		—		—		—			59			—		59
Dividends declared on common stock		—		—		—		—			(77	)		—		(77	)

Balance, March 31, 2006		138,632	$	1,386	$	1,104	$	(44	)	$	482		$	2	$	2,930

The following table displays other comprehensive income for the three-month periods ended March 31:


	2006		2005
(in Millions)
Net income	$	59	$	55


Comprehensive income	$	59	$	55

See Notes to Consolidated Financial Statements (Unaudited)

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 our 2005 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.

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:


	Three Months Ended
	March 31
(in Millions)	2006			2005
Changes in Assets and Liabilities, Exclusive of Changes Shown Separately
Accounts receivable, net	$	(71	)	$	(23	)
Accrued unbilled receivables		40			50
Inventories		5			(3	)
Accrued pensions		26			27
Accounts payable		20			(35	)
Accrued power supply cost recovery refund		(22	)		(8	)
Income taxes payable		(1	)		10
General taxes		8			7
Postretirement obligation		(21	)		15
Other assets		(57	)		(54	)
Other liabilities		(40	)		(23	)

	$	(113	)	$	(37	)

Supplementary cash and non-cash information follows:


	Three Months Ended
	March 31
(in Millions)	2006		2005
Cash Paid for:
Interest (excluding interest capitalized)	$	92	$	87
Income taxes	$	—	$	—

Asset Retirement Obligations

We have recorded asset retirement obligations in accordance with SFAS No. 143, Accounting for Asset Retirement Obligations and FASB Interpretation FIN No. 47, Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143. We identified a legal retirement obligation for the decommissioning costs for our Fermi 1 and Fermi 2 nuclear plants. We identified conditional retirement obligations for disposal of asbestos at certain of our power plants. To a lesser extent, we have conditional retirement obligations at certain service centers, and PCB disposal costs within transformers and circuit breakers.

As to regulated operations, we believe that adoptions of SFAS No. 143 and FIN 47 result primarily in timing differences in the recognition of legal asset retirement costs that we are currently recovering in rates. We 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 2006 three-month period follows:


(in Millions)
Asset retirement obligations at January 1, 2006	$	953
Accretion		16

Asset retirement obligations at March 31, 2006	$	969

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.

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
(in Millions)	Pension Benefits						Benefits
Three Months Ended March 31	2006			2005			2006			2005
Service Cost	$	13		$	14		$	12		$	11
Interest Cost		34			33			22			20
Expected Return on Plan Assets		(34	)		(34	)		(12	)		(15	)
Amortization of
Net loss		12			13			13			11
Prior service cost		2			2			1			1
Net transition liability		—			—			1			2

Net Periodic Benefit Cost	$	27		$	28		$	37		$	30

During the first quarter of 2006, we made a cash contribution of $40 million to our postretirement health care and life insurance plans.

NOTE 2 — NEW ACCOUNTING PRONOUNCEMENTS

Stock-Based Compensation

Effective January 1, 2006, our parent company DTE Energy adopted SFAS No. 123(R), Share-Based Payment, using the modified prospective transition method. We receive an allocation of costs associated with stock compensation and the related impact of cumulative accounting adjustments.

Our allocation for the first quarter of 2006 for stock-based compensation expense was $4 million. The cumulative effect of the adoption of SFAS 123(R) was a decrease in operation and maintenance expense of $1 million. The cumulative effect adjustment was due to the estimation and subsequent allocation of forfeitures for previously granted stock awards and performance shares. We have not restated any prior periods as a result of the adoption of SFAS 123(R).

NOTE 3 — REGULATORY MATTERS

Electric Rate Restructuring Proposal

In February 2005, Detroit Edison filed a rate restructuring proposal with the MPSC to restructure its electric rates and begin phasing out subsidies within the current pricing structure. In December 2005, the MPSC issued an order that did not provide for the comprehensive realignment of the existing rate structure that Detroit Edison requested in its rate restructuring proposal. The MPSC order did take some initial steps to improve the current competitive imbalance in Michigan’s electric Customer Choice program. The December 2005 order establishes cost-based power supply rates for Detroit Edison’s full service customers. Electric Customer Choice participants will pay cost-based distribution rates, while Detroit Edison’s full service commercial and industrial customers will pay cost-based distribution rates that reflect the cost of the residential rate subsidy. Residential customers continue to pay a subsidized below cost rate for distribution service. These revenue neutral revised rates were effective February 1, 2006. Detroit Edison was also ordered to file a general rate case by July 1, 2007, based on 2006 actual results.

Other Postretirement Benefits Costs Tracker

In February 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. In February 2006, the MPSC denied Detroit Edison’s request and ordered that this issue be addressed in the next general rate case.

2004 PSCR Reconciliation and 2004 Net Stranded Cost Case

In accordance with the MPSC’s direction in Detroit Edison’s November 2004 rate order, in March 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 prior authorized methodology from the last rate order, Detroit Edison incurred approximately $112 million in stranded costs for 2004. Detroit Edison also made approximately $218 million in third party wholesale sales.

In the filing, Detroit Edison proposed the following distribution of the $218 million of third party wholesale sale revenues: $91 million to offset associated 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. The MPSC denied this motion in August 2005. In April 2006, an MPSC Administrative Law Judge issued a Proposal for Decision indicating that Detroit Edison’s position in the combined cases is overstated. If this proposal is adopted by the MPSC, net income would be reduced by approximately $17 million. A final order is expected mid-year 2006.

MPSC Show-Cause Order

In March 2006, the MPSC issued an order directing Detroit Edison to show cause by June 1, 2006 why its retail electric rates should not be reduced in 2007. The MPSC cited certain changes that have occurred since the November 2004 order in Detroit Edison’s last general rate case or are expected to occur. These changes include: declines in electric Customer Choice program participation, expiration of the residential rate caps, and projected reductions in Detroit Edison operating costs. The show-cause filing is to reflect sales, costs and financial conditions that are expected to occur by 2007. A final order is expected by the end 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 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. In September 2005, the MPSC approved Detroit Edison’s 2005 PSCR plan case. At December 31, 2005, Detroit Edison has recorded an under-recovery of approximately $144 million related to the 2005 plan year. In March 2006, Detroit Edison filed its 2005 PSCR reconciliation. The filing seeks approval for recovery of approximately $144 million from its commercial and industrial customers. The filing included a motion for entry of an order to implement immediately a reconciliation surcharge of 4.96 mills per kWh on the bills of its commercial and industrial customers. The under-collected PSCR expense allocated to residential customers could not be recovered due to the PA 141 rate cap for residential customers, which expired January 1, 2006. In addition to the 2005 PSCR Plan Year Reconciliation, the filing included a reconciliation for the Pension Equalization Mechanism (PEM) for the periods from November 24, 2004 through December 31, 2004 and from January 1, 2005 through December 31, 2005. The PEM reconciliation seeks to allocate and refund approximately $12 million to customers based upon their contributions to pension expense during the subject periods.

2006 Plan Year — In September 2005, Detroit Edison filed its 2006 PSCR plan case seeking approval of a levelized PSCR factor of 4.99 mills per kWh above the amount included in base rates for residential customers and 8.29 per kWh above the amount included in base rates for commercial and industrial customers. Included in the factor for all customers are power supply costs, transmission expenses, MISO market participation costs, and nitrogen oxide emission allowance costs. The Company’s PSCR Plan includes a matrix which provides for different maximum PSCR factors contingent on varying electric Customer Choice sales levels. The plan also includes $97 million for recovery of its projected 2005 PSCR under-collection associated with commercial and industrial customers. Additionally, the PSCR plan requests MPSC approval of expense associated with sulfur dioxide emission allowances, mercury emission

allowances, and a fuel additive. In conjunction with DTE Energy’s sale of the transmission assets of ITC in February 2003, the FERC froze ITC’s transmission rates through December 2004. In approving the sale, FERC authorized ITC recovery of the difference between the revenue it would have collected and the actual revenue ITC did collect during the rate freeze period. At December 31, 2005 this amount is estimated to be $66 million which is to be included in ITC’s rates over a five-year period beginning June 1, 2006. It is expected that this amortization will increase Detroit Edison’s transmission expense in 2006 by $7 million. The MPSC authorized Detroit Edison in 2004 to recover transmission expenses through the PSCR mechanism.

In December 2005, the MPSC issued a temporary order authorizing the Company to begin implementation of maximum quarterly PSCR factors on January 1, 2006. The quarterly factors reflect a downward adjustment in the Company’s total power supply costs of approximately 2% to reflect the potential variability in cost projections. The quarterly factors will allow the Company to more closely track the costs of providing electric service to our customers and, because the non-summer factors are well below those ordered for the summer months, effectively delay the higher power supply costs to the summer months at which time our customers will not be experiencing large expenditures for home heating. The MPSC did not adopt the Company’s request to recover its projected 2005 PSCR under-collection associated with commercial and industrial customers nor did it adopt the Company’s request to implement contingency factors based upon the Company’s increased costs associated with providing electric service to returning electric Customer Choice customers. The MPSC deferred both of those Company proposals to the final order on the Company’s entire 2006 PSCR Plan.

Administrative and General Expenses Report to the MPSC

In October 2005, the MPSC ordered Detroit Edison to file a report on why its administrative and general expenses appear to be higher than levels incurred by Consumers Energy, Michigan’s other major electric utility. On February 1, 2006, a report was filed that explained Detroit Edison’s administrative and general expense differences, as well as its overall cost and rate competitiveness.

Emergency Rules for Electric Bills

In October 2005, the MPSC established emergency billing practices in effect for electric services rendered November 1, 2005 through March 31, 2006. These emergency rules apply to retail electric customers. The rule changes:

	•		lengthen the period of time before a bill is due once it is transmitted to the customer;

	•		prohibit shut off or late payment fees unless an actual meter read is made;

	•		limit the required monthly payment on a settlement agreement;

	•		increase the income level qualifying for shut-off protection and lower the payment required to remain on shut-off protection; and

	•		lessen or eliminate certain deposit requirements.

Other

We are unable to predict the outcome of the regulatory matters discussed herein. Resolution of these matters is dependent upon future MPSC orders and appeals, which may materially impact the financial position, results of operations and cash flows of the Company.

NOTE 4 — COMMITMENTS AND CONTINGENCIES

Environmental

Air - Detroit Edison is subject to 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 $644 million through 2005. We estimate Detroit Edison future capital expenditures at up to $218 million in 2006 and up to $2.2 billion of additional 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 December 31, 2005, the expiration of the rate cap period.

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 four to six years in additional capital expenditures for Detroit Edison.

Contaminated Sites - Detroit Edison conducted remedial investigations at contaminated sites, including two former manufactured gas plant (MGP) sites, the area surrounding an ash landfill and several underground and aboveground storage tank locations. The findings of these investigations indicated that the estimated cost to remediate these sites is approximately $13 million which was accrued in 2005 and is expected to be incurred over the next several years.

Personal Property Taxes

Detroit Edison and other Michigan utilities have 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 a 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. After a period of abeyance the MTT issued a scheduling order in a significant number of Detroit Edison appeals that set litigation calendars for these cases extending into mid-2006. After an extended period of settlement discussions, a Memorandum of Understanding has been reached with six principals in the litigation and the Michigan Department of Treasury that is expected to lead to settlement of all outstanding property tax disputes on a global basis.

On December 8, 2005, executed Stipulations for Consent Judgment, Consent Judgments, and Schedules to Consent Judgment were filed with the MTT on behalf of Detroit Edison and a significant number of the largest jurisdictions, in terms of tax dollars, involved in the litigation. The filing of these documents fulfilled the requirements of the global settlement agreement and resolves a number of claims by the

litigants against each other including both property and non-property issues. The global settlement agreement resulted in an economic benefit to Detroit Edison in 2005 that included the release of a litigation reserve.

Income Taxes

The Internal Revenue Service is currently conducting audits of Detroit Edison as a component of the DTE Energy federal income tax returns for the years 2002 and 2003. The Company accrues tax and interest related to tax uncertainties that arise due to actual or potential disagreements with governmental agencies about the tax treatment of specific items. At March 31, 2006, the Company had accrued approximately $5 million for such uncertainties. We believe that our accrued tax liabilities are adequate for all years.

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. We purchased $42 million of steam and electricity in 2005 and 2004 and $39 million in 2003. We estimate steam and electric purchase commitments through 2024 will not exceed $427 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.

As of December 31, 2005, we were party to 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 $1.3 billion through 2020. We also estimate that 2006 base level capital expenditures will be $800 million. We have made certain commitments in connection with expected capital expenditures.

Bankruptcies

We purchase and sell electricity from and to numerous companies operating in the steel, automotive, energy, retail and other industries. Certain of our customers have filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. We regularly review contingent matters relating to these customers and our purchase and sale contracts and we record provisions for amounts considered at risk of probable 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.

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.

Other Information

Legal Proceedings

We are involved in certain legal, regulatory, administrative and environmental 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.

In June 2005, Detroit Edison was named as one of approximately 21 defendant utility companies in a class action lawsuit filed in the Superior Court of Justice in Ontario, Canada. The plaintiffs, a class comprised of current and prior residents living in Ontario (and their respective family members and/or heirs), claim that the defendants emitted and continue to emit pollutants that have harmed the plaintiffs. As a result, the plaintiffs were seeking damages (in Canadian dollars) of approximately $49 billion for alleged negligence, approximately $4 billion per year until the defendants cease emitting pollutants, punitive and exemplary damages of $1 billion, and such other relief as the court deemed appropriate. Detroit Edison was never served with the complaint as required by Canadian rules of civil procedure. As a result, this action has lapsed procedurally.

See Note 3 for a discussion of contingencies related to Regulatory Matters and Note 4 for a discussion of specific non-regulatory matters.

Exhibits


Exhibit
Number		Description

Filed:

12-24		Computation of Ratio of Earnings to Fixed Charges
31-23		Chief Executive Officer Section 302 Form 10-Q Certification
31-24		Chief Financial Officer Section 302 Form 10-Q Certification



Furnished:

32-23		Chief Executive Officer Section 906 Form 10-Q Certification
32-24		Chief Financial Officer Section 906 Form 10-Q Certification


		THE DETROIT EDISON COMPANY

Date: May 10, 2006		/s/ PETER B. OLEKSIAK

		Peter B. Oleksiak
		Controller and Chief Accounting Officer,


	Three Months
	Ended March 31		Twelve Months Ended December 31
	2006		2005		2004		2003		2002		2001
(Millions of Dollars)
Earnings:
Pretax earnings	$	86	$	426	$	214	$	397	$	534	$	320
Fixed charges		76		280		294		294		322		314

Net earnings	$	162	$	706	$	508	$	691		856	$	634


Fixed charges:
Interest expense	$	72	$	267	$	280	$	284	$	319	$	306
Adjustments		4		13		14		10		3		8

Fixed charges	$	76	$	280	$	294	$	294	$	322	$	314


Ratio of earnings to fixed charges		2.13		2.52		1.73		2.35		2.66		2.02

	a.		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

	b.		(Intentionally omitted)

	c.		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d.		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	a.		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b.		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	a.		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

	b.		(Intentionally omitted)

	c.		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d.		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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	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

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		19

Item 6. Exhibits		19

Signature		20
Computation of Ratio of Earnings to Fixed Charges
Chief Executive Officer Section 302 Form 10-Q Certification
Chief Financial Officer Section 302 Form 10-Q Certification
Chief Executive Officer Section 906 Form 10-Q Certification
Chief Financial Officer Section 906 Form 10-Q Certification


EXHIBIT NO.		DESCRIPTION

12-24		Computation of Ratio of Earnings to Fixed Charges

31-23		Chief Executive Officer Section 302 Form 10-Q Certification

31-24		Chief Financial Officer Section 302 Form 10-Q Certification

32-23		Chief Executive Officer Section 906 Form 10-Q Certification

32-24		Chief Financial Officer Section 906 Form 10-Q Certification

	1.		I have reviewed this Form 10-Q for the quarterly period ended March 31, 2006 of The Detroit Edison Company;

	2.		Based on my knowledge, this 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 report;

	3.		Based on my knowledge, the financial statements, and other financial information included in this 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 report;

	4.		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:


/s/ ANTHONY F. EARLEY, JR.		Date: May 10, 2006


Anthony F. Earley, Jr. Chairman of the Board and Chief Executive Officer of The Detroit Edison Company


/s/ DAVID E. MEADOR		Date: May 10, 2006


David E. Meador Executive Vice President and Chief Financial Officer of The Detroit Edison Company


Dated: May 10, 2006		/s/ ANTHONY F. EARLEY, JR.

		Anthony F. Earley, Jr.
		Chairman of the Board and Chief Executive
		Officer of The Detroit Edison Company


Dated: May 10, 2006		/s/ DAVID E. MEADOR

		David E. Meador
		Executive Vice President and Chief Financial
		Officer of The Detroit Edison Company