##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period ended September 30, 2008
 Commission file number 1-2198
 The Detroit Edison Company meets the conditions set forth in General Instruction H (1) (a) and (b)
of Form 10-Q and is, therefore, filing this Form with the reduced disclosure format.
 THE DETROIT EDISON COMPANY
  Michigan
(State or other jurisdiction of 
incorporation or organization)
    
    38-0478650
(I.R.S. Employer
Identification No.)2000 2nd Avenue, Detroit, Michigan
(Address of principal executive offices)
    
    48226-1279
(Zip Code)
 313-235-4000
  Yes þ No o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  Yes o No þ




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##### 



The Detroit Edison Company  Quarterly Report on Form 10-Q  Quarter Ended September 30, 2008
 Table Of Contents
 PageDefinitions
    
    
    1Forward-Looking Statements
    
    
    2Part I  Financial InformationItem 1.
Financial StatementsConsolidated Statements of Financial Position (Unaudited)
    
    
    10Consolidated Statements of Operations (Unaudited)
    
    
    12Consolidated Statements of Cash Flows (Unaudited)
    
    
    13Consolidated Statements of Changes in Shareholders Equity and Comprehensive Income
(Unaudited)
    
    
    14Notes to Consolidated Financial Statements (Unaudited)
    
    
    15Item 2. Managements Narrative Analysis of Results of Operations
    
    
    3Item 4. Controls and Procedures
    
    
    9Part II  Other InformationItem 1. Legal Proceedings
    
    
    30Item 1A. Risk Factors
    
    
    30Item 6. Exhibits
    
    
    31Signature
    
    
    32EXHIBIT 4.259EXHIBIT 4.260EX-12.31EXHIBIT 31.43EXHIBIT 31.44EXHIBIT 32.43EXHIBIT 32.44




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Definitions
 CTA
    
    Costs to achieve, consisting of project management, consultant support
and employee severance, related to the Performance Excellence ProcessCustomer Choice
    
    Statewide initiatives giving customers in Michigan the option to choose
alternative suppliers for electricity.Detroit Edison
    
    The Detroit Edison Company (a direct wholly owned subsidiary of DTE
Energy Company) and subsidiary companiesDTE Energy
    
    DTE Energy Company, the parent of Detroit Edison and directly or
indirectly the parent company of numerous non-utility subsidiariesEPA
    
    United States Environmental Protection AgencyFERC
    
    Federal Energy Regulatory CommissionMDEQ
    
    Michigan Department of Environmental QualityMISO
    
    Midwest Independent System Operator, a Regional Transmission OrganizationMPSC
    
    Michigan Public Service CommissionNRC
    
    Nuclear Regulatory CommissionPSCR
    
    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.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 StandardsStranded 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 MeasurementkWh
    
    Kilowatthour of electricityMW
    
    Megawatt of electricityMWh
    
    Megawatthour of electricity
 1




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##### Table of Contents



Forward-Looking Statements
  
    
    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,
including potential new federal and state requirements that could include carbon and more
stringent mercury emission controls, a renewable portfolio standard and energy efficiency
mandates;
    
    nuclear regulations and operations associated with nuclear facilities;
    
    impact of electric utility restructuring in Michigan, including legislative amendments
and Customer Choice programs;
    
    employee relations and the impact of collective bargaining agreements;
    
    unplanned outages;
    
    access to capital markets and capital market conditions and the results of other
financing efforts which can be affected by credit agency ratings;
    
    instability in capital markets which could impact availability of short and long-term
financing or the potential for loss on cash equivalents and investments;
    
    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, including any associated impact on rate structures;
    
    changes in and application of federal, state and local tax laws and their
interpretations, including the Internal Revenue Code, regulations, rulings, court
proceedings and audits;
    
    the ability to recover costs through rate increases;
    
    the availability, cost, coverage and terms of insurance and stability of insurance
providers;
    
    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;
    
    amounts of uncollectible accounts receivable;
    
    binding arbitration, 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.
  2




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##### Table of Contents



Part I  Item 2.
 The Detroit Edison Company
 
 Managements Narrative Analysis of Results of Operations
  Factors Impacting Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 30(in Millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Operating Revenues
    
    $
    1,440
    
    
    $
    1,403
    
    
    $
    3,766
    
    
    $
    3,707Fuel and Purchased Power
    
    
    586
    
    
    
    518
    
    
    
    1,403
    
    
    
    1,274Gross Margin
    
    
    854
    
    
    
    885
    
    
    
    2,363
    
    
    
    2,433Operation and Maintenance
    
    
    292
    
    
    
    386
    
    
    
    1,019
    
    
    
    1,114Depreciation and Amortization
    
    
    193
    
    
    
    203
    
    
    
    563
    
    
    
    583Taxes Other Than Income
    
    
    54
    
    
    
    63
    
    
    
    176
    
    
    
    204Other Asset (Gains), Losses and Reserves, Net
    
    
    (1
    )
    
    
    6
    
    
    
    (1
    )
    
    
    12Operating Income
    
    
    316
    
    
    
    227
    
    
    
    606
    
    
    
    520Other (Income) and Deductions
    
    
    67
    
    
    
    70
    
    
    
    212
    
    
    
    213Income Tax Provision
    
    
    90
    
    
    
    50
    
    
    
    143
    
    
    
    100Net Income
    
    $
    159
    
    
    $
    107
    
    
    $
    251
    
    
    $
    207Operating Income as a Percentage of Operating
Revenues
    
    
    22
    %
    
    
    16
    %
    
    
    16
    %
    
    
    14
    %
 Gross margin
  Increase (Decrease) in Gross Margin Components Compared to Prior Year
 (in Millions)
    
    Three Months
    
    
    Nine MonthsWeather related impacts
    
    $
    (13
    )
    
    $
    (32
    )Return of customers from electric Customer Choice
    
    
    6
    
    
    
    20Service territory performance
    
    
    (17
    )
    
    
    (24
    )Refundable pension cost
    
    
    (6
    )
    
    
    (20
    )2005 PSCR reconciliation order in 2007
    
    
    
    
    
    
    (34
    )April 2008 expiration of show-cause rate decrease
    
    
    18
    
    
    
    30Other, net
    
    
    (19
    )
    
    
    (10
    )Decrease in gross margin
    
    $
    (31
    )
    
    $
    (70
    )
 3




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Three Months Ended
    
    
    Nine Months EndedPower Generated and Purchased
    
    September 30
    
    
    September 30(in Thousands of MWh)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Power Plant GenerationFossil
    
    
    10,566
    
    
    
    11,055
    
    
    
    31,153
    
    
    
    31,729Nuclear
    
    
    2,405
    
    
    
    2,352
    
    
    
    7,156
    
    
    
    7,19512,971
    
    
    
    13,407
    
    
    
    38,309
    
    
    
    38,924Purchased Power
    
    
    2,486
    
    
    
    2,765
    
    
    
    5,725
    
    
    
    5,885System Output
    
    
    15,457
    
    
    
    16,172
    
    
    
    44,034
    
    
    
    44,809Less Line Loss and Internal Use
    
    
    (1,056
    )
    
    
    (1,160
    )
    
    
    (2,623
    )
    
    
    (2,568
    )Net System Output
    
    
    14,401
    
    
    
    15,012
    
    
    
    41,411
    
    
    
    42,241Average Unit Cost ($/MWh)Generation (1)
    
    $
    19.32
    
    
    $
    16.93
    
    
    $
    17.98
    
    
    $
    15.72Purchased Power
    
    $
    88.43
    
    
    $
    69.61
    
    
    $
    73.23
    
    
    $
    68.03Overall Average Unit Cost
    
    $
    30.43
    
    
    $
    25.94
    
    
    $
    25.16
    
    
    $
    22.59
 
 (1)
    
    Represents fuel costs associated with power plants. Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 30(in Thousands of MWh)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Electric SalesResidential
    
    
    4,595
    
    
    
    4,836
    
    
    
    11,955
    
    
    
    12,340Commercial
    
    
    5,072
    
    
    
    5,166
    
    
    
    14,347
    
    
    
    14,345Industrial
    
    
    3,327
    
    
    
    3,278
    
    
    
    10,074
    
    
    
    9,974Wholesale
    
    
    700
    
    
    
    718
    
    
    
    2,123
    
    
    
    2,170Other
    
    
    89
    
    
    
    93
    
    
    
    285
    
    
    
    29213,783
    
    
    
    14,091
    
    
    
    38,784
    
    
    
    39,121Interconnections sales (1)
    
    
    618
    
    
    
    921
    
    
    
    2,627
    
    
    
    3,120Total Electric Sales
    
    
    14,401
    
    
    
    15,012
    
    
    
    41,411
    
    
    
    42,241Electric DeliveriesRetail and Wholesale
    
    
    13,783
    
    
    
    14,091
    
    
    
    38,784
    
    
    
    39,121Electric Customer Choice
    
    
    329
    
    
    
    389
    
    
    
    1,011
    
    
    
    1,163Electric Customer Choice  Self Generators (2)
    
    
    
    
    
    
    180
    
    
    
    70
    
    
    
    447Total Electric Sales and Deliveries
    
    
    14,112
    
    
    
    14,660
    
    
    
    39,865
    
    
    
    40,731
 
 (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
 Depreciation and amortization
 4




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Taxes other than income
 Other asset (gains), losses and reserves, net
 Outlook
     
    
    The 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 and distribution system performance;
    
    Variations in market prices of power, coal and gas;
    
    Economic conditions within Michigan and corresponding impacts on demand for
electricity;
    
    Collectibility of accounts receivable;
    
    Weather, including the severity and frequency of storms;
    
    The level of customer participation in the electric Customer Choice program;
    
    Any potential new federal and state environmental, renewable energy and energy
efficiency requirements;
    
    Access to capital markets and capital market conditions and the results of other
financing efforts which can be affected by credit agency ratings; and
    
    Instability in capital markets which could impact availability of short and long-term
financing or the potential for loss on cash equivalents and investments.
 5




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Impact
of Legislation
   
    
    2008 Public Act (PA) 286 that reforms Michigans utility regulatory framework, including
the electric Customer Choice program,
    
    2008 PA 295 that establishes a renewable portfolio / energy optimization standard and
provides a funding mechanism, and
    
    2008 PA 287 that provides for an income tax credit for the purchase of energy efficient
appliances and a credit to offset a portion of the renewable charge.
  
    
    Electric Customer Choice reform The bill establishes a 10 percent
limit on participation in the electric Customer Choice program. In
general, customers representing 10 percent of a utilitys load may
receive electric generation from an electric supplier that is not a
utility. After that threshold is met, the remaining customers will
remain on full, bundled utility service. As of September 30, 2008,
approximately 3 percent of Detroit Edisons load was on the electric
Customer Choice program. The bill also allows continuation of prior
MPSC policies for customers to return to full utility service.
    
    Cost-of-service based electric rates (deskewing) The bill requires
the MPSC to set rates based on cost-of-service for all customer
classes, eliminating over a five-year period the current subsidy by
businesses of residential customer rates. This provision does not
change total revenue for Detroit Edison. It lowers rates for most
commercial and industrial customers and increases rates for
residential and certain other industrial customers to match the actual
cost of service for each customer class. Rate changes will be phased
in over five years, with a 2.5% annual cap. Rates for schools and
other qualified educational institutions will be set at their cost of
service sooner.
    
    File and use ratemaking The bill establishes a 12 month deadline for
the MPSC to complete a rate case and allows a utility to
self-implement rate changes six months after a rate filing, subject to
certain limitations. If the final rate case order leads to lower rates
than the utility had self-implemented, the utility will refund, with
interest, the difference. In addition, utility rate cases may be based
on a forward test year. The bill also has provisions designed to help
the MPSC obtain increased funding for additional staff.
    
    Certificate of Need process for major capital investments The bill
establishes a certificate of need process for capital projects costing
more than $500 million. The process requires the MPSC to review for
prudence, prior to construction, proposed investments in new
generating assets, acquisitions of existing power plants, major
upgrades of power plants, and long-term power purchase agreements. The
bill increases the certainty for utilities to recover the cost of
projects approved by the MPSC and provides for the utilities to
recover interest expense during construction.
    
    M&A approval The bill grants the MPSC the authority to review and
approve proposed utility mergers and acquisitions in Michigan and sets
out evaluation criteria.
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##### Table of Contents



Renewable Energy Standard
 
    
    The bill requires electric providers to source 10% of electricity sold
to retail customers from renewable energy resources by 2015.
    
    Qualifying renewable energy resources would include wind, biomass,
solar, hydro, and geothermal, among others.
    
    Detroit Edison will be required to have a renewable energy capacity
portfolio of 300MW by December 31, 2013 and 600MW by December 31,
2015.
    
    The MPSC will establish a per meter surcharge to fund the
renewable energy requirements. The recovery mechanism starts prior to
actual construction in order to smooth the rate impact for customers.
    
    Within 60 days after the passage of the new law, the MPSC is to issue
a temporary order implementing this act.
    
    Within 90 days following the issuance of a temporary order, the
utilities will file a Renewable Portfolio Standard (RPS) plan with the
MPSC.
    
    The bill allows for the lowering of compliance if RPS costs exceed
the surcharge/cost cap or if other specified factors adversely affect
the availability of renewable energy.
    
    The bill specifies that a utility can build or have others build and
later sell to the utility up to 50 percent of the generation required
to meet the RPS. The other 50 percent would be contracted through
long-term power purchase agreements.
    
    The bill also provides for a net metering program to be established by
Commission order for on-site customer-owned renewable generation up to
1% of an electric utilitys load.
 Energy Optimization Standard
 
    
    Requires utilities to create electric and natural gas energy
optimization plans for each customer class and includes funding
surcharges as well as the potential for incentives for exceeding
performance goals.
    
    For electric sales, the program targets 0.3 percent annual savings in
2009, ramping up to 1 percent annual savings by 2012. Savings
percentages are based on prior year retail sales.
 7




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
    
    For natural gas sales, the targeted annual savings start at
0.1 percent in 2009 and ramp up to 0.75 percent by 2012.
    
    The MPSC will allow utilities to capitalize certain costs of their
energy optimization program. The costs which can be capitalized
include equipment, materials and installation costs.
    
    Incentives are potentially available for exceeding annual program
targets. The financial incentive could be the lesser of 25% of the net
cost reductions to our customers or 15% of total program spend,
subject to MPSC approval.
    
    The bill would also allow a natural gas utility that spends at least
0.5 percent of its revenues on energy efficiency programs to implement
a symmetrical decoupling true-up mechanism that adjusts for sales
volumes that are above or below the level reflected in its gas
distribution rates.
    
    By March 2016, the MPSC may suspend the program if it determines the
program is no longer cost-effective.
 Impact
of Financial Markets
      8




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Part I  Item 4.
 
 CONTROLS AND PROCEDURES
 Evaluation of disclosure controls and procedures
  (b) Changes in internal control over financial reporting
  9




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Part I  Item 1.
 The Detroit Edison Company
 
 Consolidated Statements of Financial Position (Unaudited)
 September 30
    
    
    December 31(in Millions)
    
    2008
    
    
    2007ASSETSCurrent AssetsCash and cash equivalents
    
    $
    93
    
    
    $
    47Restricted cash
    
    
    34
    
    
    
    135Accounts receivable (less allowance for
doubtful accounts of $119 and $93,
respectively)Customer
    
    
    754
    
    
    
    727Affiliates
    
    
    4
    
    
    
    3Other
    
    
    109
    
    
    
    90Accrued power supply cost recovery revenue
    
    
    78
    
    
    
    75InventoriesFuel
    
    
    175
    
    
    
    150Materials and supplies
    
    
    171
    
    
    
    165Prepaid property taxes
    
    
    86
    
    
    
    45Other
    
    
    11
    
    
    
    151,515
    
    
    
    1,452InvestmentsNuclear decommissioning trust funds
    
    
    756
    
    
    
    824Other
    
    
    101
    
    
    
    111857
    
    
    
    935PropertyProperty, plant and equipment
    
    
    14,764
    
    
    
    14,372Accumulated depreciation
    
    
    (5,826
    )
    
    
    (5,640
    )8,938
    
    
    
    8,732Other AssetsRegulatory assets
    
    
    2,529
    
    
    
    2,511Securitized regulatory assets
    
    
    1,035
    
    
    
    1,124Intangible assets
    
    
    18
    
    
    
    9Other
    
    
    83
    
    
    
    1223,665
    
    
    
    3,766Total Assets
    
    $
    14,975
    
    
    $
    14,885
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The Detroit Edison Company  Consolidated Statements of Financial Position (Unaudited)
 September 30
    
    
    December 31(in Millions, Except Shares)
    
    2008
    
    
    2007LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable  affiliates
    
    $
    129
    
    
    $
    138Accounts payable other
    
    
    307
    
    
    
    396Accrued interest
    
    
    73
    
    
    
    77Dividends payable
    
    
    
    
    
    
    76Accrued vacations
    
    
    56
    
    
    
    52Short-term borrowings  affiliates
    
    
    8
    
    
    
    277Short-term borrowings  other
    
    
    373
    
    
    
    406Current portion of long-term debt, including capital leases
    
    
    153
    
    
    
    174Other
    
    
    298
    
    
    
    2431,397
    
    
    
    1,839Long-Term Debt (net of current portion)Mortgage bonds, notes and other
    
    
    3,792
    
    
    
    3,473Securitization bonds
    
    
    933
    
    
    
    1,065Capital lease obligations
    
    
    35
    
    
    
    424,760
    
    
    
    4,580Other LiabilitiesDeferred income taxes
    
    
    1,867
    
    
    
    1,825Regulatory liabilities
    
    
    574
    
    
    
    583Asset retirement obligations
    
    
    1,192
    
    
    
    1,160Unamortized investment tax credit
    
    
    87
    
    
    
    95Nuclear decommissioning
    
    
    122
    
    
    
    134Accrued
pension liability  affiliates
    
    
    389
    
    
    
    374Accrued
postretirement liability  affiliates
    
    
    827
    
    
    
    816Other
    
    
    184
    
    
    
    1765,242
    
    
    
    5,163Commitments and Contingencies (Notes 4 and 6)Shareholders EquityCommon stock, $10 par value, 400,000,000 shares
authorized, and 138,632,324 shares issued and outstanding
    
    
    2,946
    
    
    
    2,771Retained earnings
    
    
    627
    
    
    
    528Accumulated other comprehensive income
    
    
    3
    
    
    
    43,576
    
    
    
    3,303Total Liabilities and Shareholders Equity
    
    $
    14,975
    
    
    $
    14,885
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The Detroit Edison Company
 
 Consolidated Statements of Operations (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 30(in Millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Operating Revenues
    
    $
    1,440
    
    
    $
    1,403
    
    
    $
    3,766
    
    
    $
    3,707Operating ExpensesFuel and purchased power
    
    
    586
    
    
    
    518
    
    
    
    1,403
    
    
    
    1,274Operation and maintenance
    
    
    292
    
    
    
    386
    
    
    
    1,019
    
    
    
    1,114Depreciation and amortization
    
    
    193
    
    
    
    203
    
    
    
    563
    
    
    
    583Taxes other than income
    
    
    54
    
    
    
    63
    
    
    
    176
    
    
    
    204Asset (gains) and reserves, net
    
    
    (1
    )
    
    
    6
    
    
    
    (1
    )
    
    
    121,124
    
    
    
    1,176
    
    
    
    3,160
    
    
    
    3,187Operating Income
    
    
    316
    
    
    
    227
    
    
    
    606
    
    
    
    520Other (Income) and DeductionsInterest expense
    
    
    73
    
    
    
    73
    
    
    
    220
    
    
    
    222Interest income
    
    
    (1
    )
    
    
    (2
    )
    
    
    (3
    )
    
    
    (5
    )Other income
    
    
    (16
    )
    
    
    (8
    )
    
    
    (39
    )
    
    
    (26
    )Other expenses
    
    
    11
    
    
    
    7
    
    
    
    34
    
    
    
    2267
    
    
    
    70
    
    
    
    212
    
    
    
    213Income Before Income Taxes
    
    
    249
    
    
    
    157
    
    
    
    394
    
    
    
    307Income Tax Provision
    
    
    90
    
    
    
    50
    
    
    
    143
    
    
    
    100Net Income
    
    $
    159
    
    
    $
    107
    
    
    $
    251
    
    
    $
    207
 12




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The Detroit Edison Company
 
 Consolidated Statements of Cash Flows (Unaudited)
 Nine Months EndedSeptember 30(in Millions)
    
    2008
    
    
    2007Operating ActivitiesNet Income
    
    $
    251
    
    
    $
    207Adjustments to reconcile net income to net cash from operating activities:Depreciation and amortization
    
    
    563
    
    
    
    583Deferred income taxes
    
    
    70
    
    
    
    (191
    )Asset (gains) and reserves, net
    
    
    (1
    )
    
    
    12Changes in assets and liabilities, exclusive of changes shown separately
    
    
    (33
    )
    
    
    367Net cash from operating activities
    
    
    850
    
    
    
    978Investing ActivitiesPlant and equipment expenditures
    
    
    (651
    )
    
    
    (598
    )Restricted cash for debt redemptions
    
    
    101
    
    
    
    45Proceeds from sale of nuclear decommissioning trust fund assets
    
    
    180
    
    
    
    227Investment in nuclear decommissioning trust funds
    
    
    (202
    )
    
    
    (254
    )Notes receivable from affiliates
    
    
    
    
    
    
    (139
    )Other investments
    
    
    (33
    )
    
    
    (16
    )Net cash used for investing activities
    
    
    (605
    )
    
    
    (735
    )Financing ActivitiesIssuance of long-term debt
    
    
    566
    
    
    
    Redemption of long-term debt
    
    
    (166
    )
    
    
    (132
    )Repurchase of long-term debt
    
    
    (238
    )
    
    
    Short-term
borrowings other
    
    
    (33
    )
    
    
    (37
    )Short-term
borrowings  affiliates
    
    
    (268
    )
    
    
    Capital contribution by parent company
    
    
    175
    
    
    
    175Dividends on common stock
    
    
    (228
    )
    
    
    (228
    )Other
    
    
    (7
    )
    
    
    (5
    )Net cash used for financing activities
    
    
    (199
    )
    
    
    (227
    )Net Increase in Cash and Cash Equivalents
    
    
    46
    
    
    
    16Cash and Cash Equivalents at Beginning of the Period
    
    
    47
    
    
    
    27Cash and Cash Equivalents at End of the Period
    
    $
    93
    
    
    $
    43
 13




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##### Table of Contents



The Detroit Edison Company
 
 Consolidated Statements of Changes in Shareholders Equity and Comprehensive Income
 (U naudited )
 AccumulatedAdditional
    
    
    
    
    
    OtherCommon Stock
    
    Paid In
    
    Retained
    
    Comprehensive(Dollars in Millions, shares in thousands)
    
    Shares
    
    Amount
    
    Capital
    
    Earnings
    
    Income
    
    TotalBalance, December 31, 2007
    
    
    138,632
    
    
    $
    1,386
    
    
    $
    1,385
    
    
    $
    528
    
    
    $
    4
    
    
    $
    3,303Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    251
    
    
    
    
    
    
    
    251Capital contribution by parent company
    
    
    
    
    
    
    
    
    
    
    175
    
    
    
    
    
    
    
    
    
    
    
    175Dividends declared on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (152
    )
    
    
    
    
    
    
    (152
    )Net change in unrealized losses on
investments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )Balance, September 30, 2008
    
    
    138,632
    
    
    $
    1,386
    
    
    $
    1,560
    
    
    $
    627
    
    
    $
    3
    
    
    $
    3,576
  (in Millions)
    
    2008
    
    
    2007Net income
    
    $
    251
    
    
    $
    207Other comprehensive income (loss), net of tax:Net unrealized gains (losses) on investments:Amounts reclassified to income, net of taxes of $- and $1
    
    
    (1
    )
    
    
    2Comprehensive income
    
    $
    250
    
    
    $
    209
 14




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##### Table of Contents



The Detroit Edison Company
 
 Notes to Consolidated Financial Statements (Unaudited)
 NOTE 1  GENERAL
     Asset Retirement Obligations
 Accounting for
Asset Retirement Obligations Accounting for Conditional Asset Retirement Obligations,
an interpretation of FASB Statement No. 143
 Accounting for the Effects of Certain Types of Regulation
  (in Millions)Asset retirement obligations at January 1, 2008
    
    $
    1,170Accretion
    
    
    58Liabilities settled
    
    
    (8
    )Revision in estimated cash flows
    
    
    (10
    )Asset retirement obligations at September 30, 2008
    
    
    1,210Less amount included in current liabilities
    
    
    (18
    )$
    1,192
  15




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##### Table of Contents



Retirement Benefits and Trusteed Assets
  (in Millions)
    
    Pension Benefits
    
    
    Other Postretirement BenefitsThree Months Ended September 30
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Service cost
    
    $
    11
    
    
    $
    13
    
    
    $
    12
    
    
    $
    13Interest cost
    
    
    38
    
    
    
    36
    
    
    
    23
    
    
    
    21Expected return on plan assets
    
    
    (41
    )
    
    
    (36
    )
    
    
    (14
    )
    
    
    (13
    )Amortization of:Net actuarial loss
    
    
    6
    
    
    
    12
    
    
    
    7
    
    
    
    13Prior service cost
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    1Net transition liability
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    2Special termination benefits
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    16
    
    
    $
    30
    
    
    $
    29
    
    
    $
    37
 (in Millions)
    
    Pension Benefits
    
    
    Other Postretirement BenefitsNine Months Ended September 30
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Service cost
    
    $
    34
    
    
    $
    38
    
    
    $
    36
    
    
    $
    36Interest cost
    
    
    112
    
    
    
    104
    
    
    
    70
    
    
    
    67Expected return on plan assets
    
    
    (123
    )
    
    
    (111
    )
    
    
    (43
    )
    
    
    (40
    )Amortization of:Net actuarial loss
    
    
    19
    
    
    
    34
    
    
    
    21
    
    
    
    38Prior service cost
    
    
    5
    
    
    
    5
    
    
    
    1
    
    
    
    3Net transition liability
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    5Special termination benefits
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    2Net periodic benefit cost
    
    $
    47
    
    
    $
    78
    
    
    $
    87
    
    
    $
    111
     Income Taxes
  16




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##### Table of Contents



Short-Term Credit Arrangements and Borrowings
  Stock-Based Compensation
 Share-Based Payment,
 Consolidated Statements of Cash Flows
  Nine Months EndedSeptember 30(in Millions)
    
    2008
    
    
    2007Changes in Assets and Liabilities, Exclusive of Changes Shown SeparatelyAccounts receivable, net
    
    $
    (48
    )
    
    $
    (103
    )Inventories
    
    
    (31
    )
    
    
    (25
    )Pension liability  affiliates
    
    
    59
    
    
    
    36Accounts payable
    
    
    (46
    )
    
    
    329Accrued PSCR refund
    
    
    22
    
    
    
    2Income taxes payable
    
    
    (10
    )
    
    
    173General taxes
    
    
    (11
    )
    
    
    32Postretirement
liability  affiliates
    
    
    12
    
    
    
    9Other assets
    
    
    (14
    )
    
    
    (303
    )Other liabilities
    
    
    34
    
    
    
    217$
    (33
    )
    
    $
    367Supplementary Cash InformationCash paid for interest (net of interest capitalized)
    
    $
    224
    
    
    $
    235Cash paid for income taxes
    
    $
    2
    
    
    $
    112
 Asset (gains) and reserves, net
  17




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##### Table of Contents



NOTE 2  NEW ACCOUNTING PRONOUNCEMENTS
 Fair Value Accounting
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an Amendment of FASB Statement No. 115
 Determining the Fair Value of a
Financial Asset in a Market That is Not Active. Fair Value Measurements
 Business Combinations
 Business Combinations,
 GAAP Hierarchy
 The Hierarchy of Generally Accepted Accounting
Principles. The Meaning of Present Fairly in Conformity with Generally Accepted
Accounting Principles
 18




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##### Table of Contents



Useful Life of Intangible Assets
 Determination of the Useful Life of Intangible Assets. Goodwill and
Other Intangible Assets
 Disclosures about Derivative Instruments and Guarantees
 Disclosures about Derivative Instruments and Hedging
Activities  an amendment of FASB Statement No. 133
 Disclosures about Credit Derivatives
and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and
Clarification of the Effective Date of FASB Statement No. 161.
 Noncontrolling Interests in Consolidated Financial Statements
 Noncontrolling Interests in Consolidated Financial
Statements  an Amendment of ARB No. 51.
 Offsetting Amounts Related to Certain Contracts
 Amendment of FASB Interpretation No. 39
 19




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##### Table of Contents



NOTE 3  FAIR VALUE
   
 
    
    Level 1  Consists of unadjusted quoted prices in active markets for identical assets
or liabilities that the Company has the ability to access as of the reporting date.
    
    Level 2  Consists of inputs other than quoted prices included within Level 1 that are
directly observable for the asset or liability or indirectly observable through
corroboration with observable market data.
    
    Level 3  Consists of unobservable inputs for assets or liabilities whose fair value is
estimated based on internally developed models or methodologies using inputs that are
generally less readily observable and supported by little, if any, market activity at the
measurement date. Unobservable inputs are developed based on the best available information
and subject to cost-benefit constraints.
  Net Balance at(in Millions)
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    September 30, 2008Assets:Nuclear decommissioning trusts
    
    $
    469
    
    
    $
    287
    
    
    $
    
    
    
    $
    756Employee benefit trust investments
    
    
    
    
    
    
    56
    
    
    
    
    
    
    
    56Derivative assets
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Total
    
    $
    469
    
    
    $
    343
    
    
    $
    3
    
    
    $
    815Liabilities:Deferred compensation
    
    $
    
    
    
    $
    (1
    )
    
    $
    
    
    
    $
    (1
    )Derivative liabilities
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    (15
    )Total
    
    $
    
    
    
    $
    (16
    )
    
    $
    
    
    
    $
    (16
    )Net Assets at September 30, 2008
    
    $
    469
    
    
    $
    327
    
    
    $
    3
    
    
    $
    799
 20




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##### Table of Contents



(in Millions)
    
    DerivativesLiability balance as of January 1, 2008 (1)
    
    $
    4Changes in fair value recorded in income
    
    
    2Changes in fair value recorded in other comprehensive income
    
    
    Purchases, issuances and settlements
    
    
    (3
    )Transfers in/out of Level 3
    
    
    Liability balance as of September 30, 2008
    
    $
    3The amount of total gains (losses) included in net income
attributed to the change in unrealized gains (losses)
related to assets and liabilities held at September 30, 2008
    
    $
    3
 
 (1)
    
    Balance as of January 1, 2008 includes a cumulative effect adjustment which represents
an increase to beginning retained earnings related to Level 3 derivatives upon adoption of
SFAS No. 157.  Nuclear Decommissioning Trusts
  Employee Benefit Trust Investments
  Deferred Compensation Liabilities
  21




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##### Table of Contents



Derivative Assets and Liabilities
  NOTE 4  RESTRUCTURING
 Restructuring  Performance Excellence Process
    Three Months Ended September 30
    
    Employee Severance Costs(1)
    
    
    Other Costs
    
    
    Total Cost(in Millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Costs incurred
    
    
    
    
    
    
    3
    
    
    
    9
    
    
    
    16
    
    
    
    9
    
    
    
    19Less amounts deferred or
capitalized
    
    
    
    
    
    
    3
    
    
    
    9
    
    
    
    16
    
    
    
    9
    
    
    
    19Amount expensed
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Nine Months Ended September 30
    
    Employee Severance Costs(1)
    
    
    Other Costs
    
    
    Total Cost(in Millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Costs incurred
    
    
    
    
    
    
    14
    
    
    
    21
    
    
    
    30
    
    
    
    21
    
    
    
    44Less amounts deferred or
capitalized
    
    
    
    
    
    
    14
    
    
    
    21
    
    
    
    30
    
    
    
    21
    
    
    
    44Amount expensed
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 
 (1)
    
    Includes corporate allocations. 22




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##### Table of Contents



NOTE 5  REGULATORY MATTERS
 Regulation
  MPSC Show-Cause Order
   2007 Electric Rate Case Filing
    
    
    Make progress toward correcting the existing rate structure to more accurately reflect
the actual cost of providing service to business customers;
    
    Equalize distribution rates between Detroit Edison full service and Customer Choice
customers;
    
    Re-establish with modification the CIM originally established in the Detroit Edison
2006 show cause filing. The CIM reconciles changes related to customers moving between
Detroit Edison full service and electric Customer Choice;
    
    Terminate the Pension Equalization Mechanism;
 23




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##### Table of Contents




    
    Establish an emission allowance pre-purchase plan to ensure that adequate emission
allowances will be available for environmental compliance; and
    
    Establish a methodology for recovery of the costs associated with preparation of an
application for a new nuclear generation facility.
    Regulatory Accounting Treatment for Performance Excellence Process
   Accounting for Costs Related to Enterprise Business Systems (EBS)
  24




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##### Table of Contents



Fermi 2 Enhanced Security Costs Settlement
  Reconciliation of Regulatory Asset Recovery Surcharge (RARS)
  Power Supply Costs Recovery Proceedings
 2005 Plan Year
 2006 Plan Year 
 25




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##### Table of Contents



2007 Plan Year  2
 2008 Plan Year 
 2009 Plan Year
 26




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##### Table of Contents



Other
   NOTE 6  SHAREHOLDERS EQUITY
  NOTE 7  LONG-TERM DEBT
  Debt Issuances
  (in Millions)Month Issued
    
    
    Type
    
    Interest Rate
    
    
    Maturity
    
    
    AmountApril
    
    Tax-Exempt Revenue Bonds (2) (3)
    
    Variable
    
    
    2036
    
    
    $
    69May
    
    Tax-Exempt Revenue Bonds (2) (3)
    
    Variable
    
    
    2029
    
    
    
    118May
    
    Tax-Exempt Revenue Bonds (2) (4)
    
    
    5.30
    %
    
    
    2030
    
    
    
    51June
    
    Senior Notes (1)
    
    
    5.60
    %
    
    
    2018
    
    
    
    300July
    
    Tax-Exempt Revenue Bonds (2) (5)
    
    Variable
    
    
    2020
    
    
    
    32October
    
    Senior Notes (1)
    
    
    6.40
    %
    
    
    2013
    
    
    
    250$
    820
 
 (1)
    
    Proceeds were used to pay down short-term debt and for general corporate purposes.(2)
    
    Detroit Edison Tax-Exempt Revenue Bonds are issued by a public body that loans the proceeds
to Detroit Edison on terms substantially mirroring the Revenue Bonds.(3)
    
    Proceeds were used to refinance auction rate Tax-Exempt Revenue Bonds.(4)
    
    These Tax-Exempt Revenue Bonds were converted from an auction rate mode and remarketed in a
fixed rate mode to maturity.(5)
    
    Proceeds were used to refinance Tax-Exempt Revenue Bonds that matured July 2008. 27




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##### Table of Contents



Debt Retirements and Redemptions
  (in Millions)Month Retired
    
    
    Type
    
    Interest Rate
    
    
    Maturity
    
    
    AmountApril
    
    Tax-Exempt Revenue Bonds (1)
    
    Variable
    
    
    2036
    
    
    $
    69May
    
    Tax-Exempt Revenue Bonds (1)
    
    Variable
    
    
    2029
    
    
    
    118July
    
    Tax-Exempt Revenue Bonds (2)
    
    
    7.00
    %
    
    
    2008
    
    
    
    32$
    219
 
 (1)
    
    These Tax-Exempt Revenue Bonds were converted from auction rate mode, then repurchased and
reissued in a weekly rate mode.(2)
    
    These Tax-Exempt Revenue Bonds were redeemed with the proceeds from the issuance of new
Detroit Edison Tax-Exempt Revenue Bonds. NOTE 8  COMMITMENTS AND CONTINGENCIES
 Environmental
 Air .
 Water
 Contaminated Sites
 Labor Contracts
  Purchase Commitments
  28




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##### Table of Contents



Bankruptcies
  Other Contingencies
   29




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##### Table of Contents



Part II
 
 Item 1.  Legal Proceedings
   
 Item 1A.  Risk Factors
  Michigans electric Customer Choice program could negatively impact our financial performance.
 30




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##### Table of Contents



Item 6.  Exhibits
 ExhibitNumber
    
    DescriptionExhibits filed herewith:4-259
    
    Supplemental Indenture, dated as of October 1, 2008 to Mortgage and
Deed of Trust dated as of October 1, 1924 between The Detroit Edison
Company and The Bank of New York Mellon Trust Company, N.A.,
as successor trustee, providing for General and Refunding
Mortgage Bonds, 2008 Series J.4-260
    
    Twenty-Seventh Supplemental Indenture, dated as of October 1,
2008 to the Collateral Trust Indenture, dated as of June 30,
1993 between The Detroit Edison Company and The Bank of New
York Mellon Trust Company, N.A. providing for 2008 Series J
6.40% Senior Notes due 2013.12-31
    
    Computation of Ratio of Earnings to
Fixed Charges31-43
    
    Chief Executive Officer Section 302 Form 10-Q Certification31-44
    
    Chief Financial Officer Section 302 Form 10-Q CertificationExhibits furnished herewith:32-43
    
    Chief Executive Officer Section 906 Form 10-Q Certification32-44
    
    Chief Financial Officer Section 906 Form 10-Q Certification
 31




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##### Table of Contents



SIGNATURE
  THE DETROIT EDISON COMPANY
(Registrant)Date: November 14, 2008
    /s/ PETER B. OLEKSIAKPeter B. OleksiakVice President and Controller and
Chief Accounting Officer 32