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, 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.

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

The Detroit Edison Company

Quarterly Report on Form 10-Q
Quarter Ended June 30, 2006

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
	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		21
	Item 6.	Exhibits		21
Signature				22
Twentieth Supplemental Indenture, dated May 15, 2006
Indenture, Dated May 15, 2006
Computation of Ratios of Earnings to Fixed Charges
Chief Executive Officer Section 302
Chief Financial Officer Section 302
Chief Executive Officer Section 906
Chief Financial Officer Section 906

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) 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 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. 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 population growth or decline in the geographic areas where we do business;

• environmental issues, laws, 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 that 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 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.

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: Net income increased $14 million during the 2006 second quarter and $18 million in the 2006 six-month period. These results primarily reflect higher gross margins, partially offset by higher operation and maintenance expenses, including implementation costs associated with our Performance Excellence Process, and increased depreciation and amortization expenses

Increase (Decrease) in Income Statement Components	Three		Six
Compared to Prior Year	Months		Months
(in Millions)
Operating Revenues	$	140	$	200
Fuel and Purchased Power		66		74
Gross Margin		74		126
Operation and Maintenance		39		62
Depreciation and Amortization		8		25
Taxes Other Than Income		2		2
Operating Income		25		37
Other (Income) and Deductions		4		10
Income Tax Provision		7		9
Net Income	$	14	$	18

Gross margins increased $74 million during the 2006 second quarter and $126 million in the 2006 six-month period. The quarterly and year to date improvements were primarily due to lower electric Customer Choice penetration and increased rates due to the expiration of the residential rate cap on January 1, 2006, partially offset by milder weather in 2006.

Increase (Decrease) in Gross Margin Components	Three			Six
Compared to Prior Year	Months			Months
(in Millions)
Weather related margin impacts	$	(21	)	$	(31	)
Removal of residential rate caps effective January 1, 2006		32			54
Return of customers from electric Customer Choice		37			66
Service territory economic performance		5			19
Other, net		21			18
Increase in gross margin performance	$	74		$	126

3

	Three Months Ended						Six Months Ended
	June 30						June 30
Power Generated and Purchased	2006			2005			2006			2005
(in Thousands of MWh)
Power Plant Generation
Fossil		9,206			9,546			18,515			19,310
Nuclear		922			2,272			3,118			4,325
		10,128			11,818			21,633			23,635
Purchased Power		3,318			1,331			4,832			2,809
System Output		13,446			13,149			26,465			26,444
Less Line Loss and Internal Use		(856	)		(752	)		(1,681	)		(1,349	)
Net System Output		12,590			12,397			24,784			25,095
Average Unit Cost ($/MWh)
Generation (1)	$	16.41		$	14.66		$	15.48		$	14.53
Purchased Power	$	54.03		$	85.66		$	52.89		$	66.51
Overall Average Unit Cost	$	25.69		$	21.85		$	22.31		$	20.05

(1) Represents fuel costs associated with power plants.

	Three Months Ended				Six Months Ended
(in Thousands of MWh)	June 30				June 30
	2006		2005		2006		2005
Electric Sales
Residential		3,514		3,766		7,350		7,817
Commercial		4,506		3,820		8,513		7,184
Industrial		3,209		3,024		6,363		5,920
Wholesale		702		557		1,377		1,120
Other		89		88		197		193
		12,020		11,255		23,800		22,234
Interconnections sales (1)		570		1,142		984		2,861
Total Electric Sales		12,590		12,397		24,784		25,095
Electric Deliveries
Retail and Wholesale		12,020		11,255		23,800		22,234
Electric Choice		984		1,996		2,347		3,910
Electric Choice — Self Generators (2)		127		174		478		366
Total Electric Sales and Deliveries		13,131		13,425		26,625		26,510

(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 $39 million in the second quarter of 2006 and $62 million in the 2006 six-month period due primarily to higher plant outage expense and implementation costs associated with the Performance Excellence Process.

Depreciation and amortization expense increased $8 million in the second quarter of 2006 and $25 million in the 2006 six-month period due to increased amortization of regulatory assets.

Other income and deductions expense increased $4 million in the 2006 second quarter and $10 million in the 2006 six-month period, primarily due to higher interest expense.

4

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. We filed our response on June 1, 2006. We are unable to predict the outcome of this proceeding or its effect. In April 2006, an MPSC Administrative Law Judge issued a Proposal for Decision (PFD) indicating that Detroit Edison’s position in the 2004 PSCR Reconciliation and the 2004 Net Stranded Cost Case proceeding is overstated. The considerations in the case include recovery of stranded cost, associated production operation and maintenance expenses and interest on the 2004 PSCR balance. Based on the recommendations outlined in the PFD, the potential outcome in the case is a reduction of net income in the range of $15 million to $50 million.

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 and higher levels of 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. We anticipate accruing additional implementation charges in 2006 and 2007. Detroit Edison seeks MPSC authorization to defer and amortize Performance Excellence Process implementation costs for accounting purposes to match the expected savings from the Performance Excellence Process program with the related costs to achieve.

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 coal or nuclear facility, with an estimated cost of $1 billion to $2 billion for a new coal plant.

The following variables, either in combination or acting alone, could 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 and maximize plant performance;

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

• 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.

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, 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 June 30, 2006 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)	2006			2005			2006			2005
Operating Revenues	$	1,175		$	1,035		$	2,225		$	2,025
Operating Expenses
Fuel and purchased power		409			343			718			644
Operation and maintenance		369			330			713			651
Depreciation and amortization		168			160			335			310
Taxes other than income		65			63			134			132
		1,011			896			1,900			1,737
Operating Income		164			139			325			288
Other (Income) and Deductions
Interest expense		76			69			148			133
Interest income		(1	)		—			(1	)		(1	)
Other income		(6	)		(7	)		(13	)		(13	)
Other expenses		10			13			20			25
		79			75			154			144
Income Before Income Taxes		85			64			171			144
Income Tax Provision		28			21			55			46
Net Income	$	57		$	43		$	116		$	98

See Notes to Consolidated Financial Statements (Unaudited)

7

The Detroit Edison Company

Consolidated Statement of Financial Position

	(Unaudited)
	June 30			December 31
	2006			2005
(in Millions)
ASSETS
Current Assets
Cash and cash equivalents	$	27		$	26
Restricted cash		82			84
Accounts receivable
Customer (less allowance for doubtful accounts of $61 and $54, respectively)		596			528
Other		132			112
Accrued power supply cost recovery revenue		214			144
Inventories
Fuel		145			123
Materials and supplies		119			116
Other		68			43
		1,383			1,176
Investments
Nuclear decommissioning trust funds		679			646
Other		67			65
		746			711
Property
Property, plant and equipment		13,533			13,416
Less accumulated depreciation		(5,451	)		(5,595	)
		8,082			7,821
Other Assets
Regulatory assets		1,963			2,006
Securitized regulatory assets		1,289			1,340
Other		116			115
		3,368			3,461
Total Assets	$	13,579		$	13,169

See Notes to Consolidated Financial Statements (Unaudited)

8

The Detroit Edison Company
Consolidated Statement of Financial Position

	(Unaudited)
	June 30			December 31
	2006			2005
(in Millions, Except Shares)
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
Accounts payable	$	419		$	392
Accrued interest		80			79
Dividends payable		76			76
Accrued vacations		82			80
Short-term borrowings		176			163
Accrued power supply cost recovery		135			129
Current portion of long-term debt, including capital leases		137			135
Other		225			208
		1,330			1,262
Other Liabilities
Deferred income taxes		1,921			1,961
Regulatory liabilities		241			224
Asset retirement obligations (Note 1)		985			953
Unamortized investment tax credit		110			115
Nuclear decommissioning		90			85
Accrued pension liability		315			261
Other		782			787
		4,444			4,386
Long-Term Debt (net of current portion)
Mortgage bonds, notes and other		3,452			3,221
Securitization bonds		1,238			1,295
Capital lease obligations		53			57
		4,743			4,573
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
Additional paid in capital		1,254			1,104
Common stock expense		(44	)		(44	)
Retained earnings		464			500
Accumulated other comprehensive income		2			2
		3,062			2,948
Total Liabilities and Shareholder’s Equity	$	13,579		$	13,169

See Notes to Consolidated Financial Statements (Unaudited)

9

The Detroit Edison Company

Consolidated Statement of Cash Flows (Unaudited)

	Six Months Ended
	June 30
	2006			2005
(in Millions)
Operating Activities
Net Income	$	116		$	98
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		335			310
Deferred income taxes		5			(10	)
Changes in assets and liabilities, exclusive of changes shown separately (Note 1)		(111	)		59
Net cash from operating activities		345			457
Investing Activities
Plant and equipment expenditures		(512	)		(321	)
Proceeds from sale of other assets, net		18			—
Restricted cash for debt redemptions		2			6
Notes receivable from affiliate		—			85
Proceeds from sale of nuclear decommissioning trust funds		99			112
Investment in nuclear decommissioning trust funds		(118	)		(130	)
Other investments		(15	)		(29	)
Net cash used for investing activities		(526	)		(277	)
Financing Activities
Issuance of long-term debt		247			395
Redemption of long-term debt		(71	)		(628	)
Short-term borrowings, net		13			219
Capital contribution by parent company		150			—
Dividends on common stock		(152	)		(152	)
Other		(5	)		(3	)
Net cash from (used for) financing activities		182			(169	)
Net Increase in Cash and Cash Equivalents		1			11
Cash and Cash Equivalents at Beginning of the Period		26			6
Cash and Cash Equivalents at End of the Period	$	27		$	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)

													Accumulated
(Dollars in Millions,					Additional		Common						Other
Shares in Thousands)	Common Stock				Paid in		Stock			Retained			Comprehensive
	Shares		Amount		Capital		Expense			Earnings			Income		Total
Balance, December 31, 2005		138,632	$	1,386	$	1,104	$	(44	)	$	500		$	2	$	2,948
Net income		—		—		—		—			116			—		116
Capital contribution by parent company				—		150		—			—			—		150
Dividends declared on common stock		—		—		—		—			(152	)		—		(152	)
Balance, June 30, 2006		138,632	$	1,386	$	1,254	$	(44	)	$	464		$	2	$	3,062

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

	2006		2005
(in Millions)
Net income	$	116	$	98
Comprehensive income	$	116	$	98

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 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.

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
	2006			2005
(in Millions)
Changes in Assets and Liabilities, Exclusive of Changes Shown Separately
Accounts receivable, net	$	(118	)	$	(47	)
Inventories		(25	)		(8	)
Accrued pensions		66			54
Accounts payable		39			18
Accrued power supply cost recovery refund		(63	)		(29	)
Income taxes payable		49			50
General taxes		2			3
Postretirement obligation		—			28
Other assets		(22	)		(29	)
Other liabilities		(39	)		19
	$	(111	)	$	59

Supplementary cash and non-cash information follows:

	Six Months Ended
	June 30
(in Millions)	2006		2005
Cash Paid for:
Interest (excluding interest capitalized)	$	147	$	131
Income taxes	$	1	$	—

12

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 six-month period follows:

(in Millions)
Asset retirement obligations at January 1, 2006	$	953
Accretion		32
Asset retirement obligations at June 30, 2006	$	985

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 June 30	2006			2005			2006			2005
Service Cost	$	13		$	13		$	12		$	11
Interest Cost		34			33			22			20
Expected Return on Plan Assets		(34	)		(33	)		(13	)		(14	)
Amortization of
Net loss		11			12			13			11
Prior service cost		2			3			1			1
Net transition liability		—			—			2			1
Special Termination Benefits		14			—			1			—
Net Periodic Benefit Cost	$	40		$	28		$	38		$	30

13

							Other Postretirement
(in Millions)	Pension Benefits						Benefits
Six Months Ended June 30	2006			2005			2006			2005
Service Cost	$	26		$	27		$	24		$	22
Interest Cost		68			66			44			40
Expected Return on Plan Assets		(68	)		(67	)		(25	)		(29	)
Amortization of
Net loss		23			25			26			22
Prior service cost		4			5			2			2
Net transition liability		—			—			3			3
Special Termination Benefits		14			—			1			—
Net Periodic Benefit Cost	$	67		$	56		$	75		$	60

During the second quarter of 2006, we recorded a $14 million pension cost and a $1 million postretirement benefit cost associated with the initial stage of our Performance Excellence Process program. In 2006, we made cash contributions of $40 million to our postretirement benefit plans.

Affiliate Transactions

Detroit Edison shares costs with or incurs costs on behalf of unconsolidated affiliated companies. Prior to September 2005, we recorded such costs within “Other expenses” and related reimbursement within “Other income” in the Consolidated Statement of Operations. These transactions do not affect combined other income and deductions or net income. Our financial statements now reflect such affiliate transactions exclusively within affiliate accounts receivable. Consistent with the current period’s presentation, previously reported amounts within the Consolidated Statement of Operations have been adjusted accordingly.

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 six months of 2006 for stock-based compensation expense was approximately $8 million. The cumulative effect of the adoption of SFAS 123(R) was a decrease in operation and maintenance expense of $1 million in the first quarter of 2006. 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).

Accounting for Uncertainty in Income Taxes

In July 2006, the FASB issued Financial Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109 — Accounting for Income Taxes. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109. Additionally, it prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or

14

expected to be taken in the tax return. FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition and is effective for fiscal years beginning after December 15, 2006. We plan to adopt FIN 48 on January 1, 2007. We are currently assessing the effects of this interpretation, and have not yet determined the impact on the consolidated financial statements.

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 established 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.

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 (ALJ) issued a Proposal for Decision (PFD) indicating that Detroit Edison’s position in the combined cases is overstated. The potential outcome in the case is a reduction of net income in the range of $15 million to $50 million. A final order is expected in the latter half of 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

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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. On June 1, 2006, Detroit Edison filed its response explaining why its electric rates should not be reduced in 2007. Detroit Edison indicated that it will have a revenue deficiency of approximately $45 million beginning in 2007 due to significant capital investments over the next several years for infrastructure improvements to enhance electric service reliability and for mandated environmental expenditures. The impacts of these investments will be partially offset by efficiency and cost-savings measures that have been initiated. Therefore, Detroit Edison requested that the show cause proceeding allow for rate increase adjustments based on the combined effects of investment expenditures and cost-savings programs. The MPSC denied this request and indicated that a full review of rates will be made in Detroit Edison’s next general rate case, which is due to be filed by July 1, 2007. A final order in the show cause proceeding 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.

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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.

Electric Shut-Off and Restoration

In June 2006, the MPSC approved a settlement agreement with Detroit Edison regarding issues related to service restoration. The MPSC had determined that restoration of certain electric service shut-offs effected between October 28, 2005 and March 14, 2006 did not conform to MPSC rules. The settlement agreement directs Detroit Edison to bring its service restoration process into compliance with MPSC rules and submit monthly reports identifying progress toward compliance. Detroit Edison also agreed to pay a fine of $105,000 and file a plan with the MPSC by September 1, 2006 detailing assistance customers can receive to avoid service shut-offs.

Regulatory Accounting Treatment for Performance Excellence Process

In May 2006, Detroit Edison filed an application with the MPSC to allow deferral of costs associated with the implementation of the Performance Excellence Process, a company-wide cost-savings and performance improvement program. Implementation costs include project management, consultant support and employee severance expenses. Detroit Edison seeks MPSC authorization to defer and amortize Performance Excellence Process implementation costs for accounting purposes to match the expected savings from the Performance Excellence Process program with the related costs to achieve. Detroit Edison anticipates that the Performance Excellence Process will be carried out over a two to three year period beginning in 2006. Detroit Edison’s implementation costs are estimated to total between $160 million and $190 million.

Revenue Sufficiency Guarantee

Since the April 2005 implementation of Midwest Independent Transmission System Operator Inc. (MISO) market operations, MISO’s business practice manuals and other instructions to market participants have stated that Revenue Sufficiency Guarantee (RSG) charges will not be imposed on day-ahead virtual offers to supply power not supported by actual generation. RSG charges are collected by MISO from Load Serving Entities in order to compensate generators that are standing by to supply electricity when called upon by MISO. In an April 2006 order, FERC interpreted MISO’s tariff to require that virtual supply offers should also be subject to RSG charges. Thus FERC found MISO’s RSG calculation methodology to be in violation of its tariff and ordered charges to those entities submitting virtual supply offers and ordered refunds to qualifying Load Serving Entities in an amount equal to those charges. The recalculation of RSG charges and refunds is to be retroactive to April 1, 2005. MISO may also retroactively impose RSG charges on market participants who submitted virtual supply offers during the recalculation period. Detroit Edison is among the MISO Load Serving Entities that paid RSG charges. Detroit Edison could receive a refund as a result of the order. Numerous requests for rehearing have been filed and the matter remains pending before FERC. The Company is unable to predict the outcome of this proceeding.

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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 and appeals, which may materially impact the financial position, results of operations and cash flows of the Company.

NOTE 4 — LONG-TERM DEBT

Debt Issuances

In 2006, we issued the following long-term debt:

							(in Millions)
	Month
Company	Issued	Type	Interest Rate			Maturity	Amount
Detroit Edison	May	Senior Notes (1)		6.625	%	June 2036	$	250

(1) The proceeds from the issuance were used to repay short-term borrowings of Detroit Edison and for general corporate purposes

NOTE 5 — 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

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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 a pre-tax 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 our federal income tax returns for the years 2002 and 2003. We have accrued 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 June 30, 2006, we have 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.

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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.

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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.

See Note 3 for a discussion of contingencies related to Regulatory Matters and Note 5 for a discussion of specific non-regulatory matters.

Exhibits

Exhibit
Number	Description
Filed:
4-249	Twentieth Supplemental Indenture, dated as of May 15, 2006 to the Collateral Trust Indenture, dated as of June 30, 1993 between The Detroit Edison Company and J.P. Morgan Trust Company, National Association, as successor trustee, providing for 2006 Series A Senior Notes due 2036.
4-250	Supplemental Indenture, dated as of May 15, 2006 to Mortgage and Deed of Trust dated as of October 1, 1924 between The Detroit Edison Company and J.P. Morgan Trust Company, National Association, as successor trustee, providing for General and Refunding Mortgage Bonds, 2006 Series A.
12-25	Computation of Ratios of Earnings to Fixed Charges
31-25	Chief Executive Officer Section 302 Form 10-Q Certification
31-26	Chief Financial Officer Section 302 Form 10-Q Certification
Incorporated by reference:
1-1	Underwriting Agreement dated May 17, 2006 among The Detroit Edison Company, Barclays Capital Inc., Citigroup Global Markets Inc. and J.P. Morgan Securities Inc. (Exhibit 1.1 to Form 8-K dated May 17, 2006).
Furnished:
32-25	Chief Executive Officer Section 906 Form 10-Q Certification
32-26	Chief Financial Officer Section 906 Form 10-Q Certification

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Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	THE DETROIT EDISON COMPANY
Date: August 8, 2006	/s/ PETER B. OLEKSIAK
	Peter B. Oleksiak
	Controller

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Exhibit Index

Exhibit
Number	Description
4-249	Twentieth Supplemental Indenture, dated as of May 15, 2006 to the Collateral Trust Indenture, dated as of June 30, 1993 between The Detroit Edison Company and J.P. Morgan Trust Company, National Association, as successor trustee, providing for 2006 Series A Senior Notes due 2036.
4-250	Supplemental Indenture, dated as of May 15, 2006 to Mortgage and Deed of Trust dated as of October 1, 1924 between The Detroit Edison Company and J.P. Morgan Trust Company, National Association, as successor trustee, providing for General and Refunding Mortgage Bonds, 2006 Series A.
12-25	Computation of Ratios of Earnings to Fixed Charges
31-25	Chief Executive Officer Section 302 Form 10-Q Certification
31-26	Chief Financial Officer Section 302 Form 10-Q Certification
32-25	Chief Executive Officer Section 906 Form 10-Q Certification
32-26	Chief Financial Officer Section 906 Form 10-Q Certification