##### Table of Contents



---

---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002
Commission file number 1-2198

The Detroit Edison Company, a Michigan corporation, meets the conditions set forth in General Instruction I (1) (a) and (b) of Form 10-K and is, therefore,
filing this form with the reduced disclosure format.

THE DETROIT EDISON COMPANY

(Exact name of registrant as specified in its charter)


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

313-235-8000
(Registrants telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

|                                                                                                                                |  |                                          
|------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------
|Title of each class                                                                                                             |  | Name of each exchange on which registered
|                                                                                                                                |  |                                          
|Quarterly Income Debt Securities (QUIDS)
(Junior Subordinated Deferrable Interest
Debentures  7.625%, 7.54% and 7.375% Series) |  | New York Stock Exchange                  

Securities registered pursuant to Section 12(g) of the Act:

None



---

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 [X] No [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]

All of the registrants 134,287,832 outstanding shares of common stock, par value $10 per share, are owned by DTE Energy Company.

DOCUMENTS INCORPORATED BY REFERENCE

None



---

---





---

TABLE OF CONTENTS



|                                                  |                                                                                              |  |  |  |  |  |  | 
|------------------------------------------------- | -------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|DEFINITIONS                                      
|FORWARD-LOOKING STATEMENT                        
|PART I                                           
|                                                  | Items 1 & 2. Business & Properties                                                          
|                                                  | Item 3. Legal Proceedings                                                                   
|                                                  | Item 4. Submission of Matters to a Vote of Security Holders                                 
|PART II                                          
|                                                  | Item 5. Market for Registrants Common Equity and Related Stockholder Matters               
|                                                  | Item 6. Selected Financial Data                                                             
|                                                  | Item 7. Managements Narrative Analysis of Results of Operations                            
|                                                  | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                         
|                                                  | Item 8. Financial Statements and Supplementary Data                                         
|                                                  | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|PART III                                         
|                                                  | Item 10. Directors and Executive Officers of the Registrant                                 
|                                                  | Item 11. Executive Compensation                                                             
|                                                  | Item 12. Security Ownership of Certain Beneficial Owners and Management                     
|                                                  | Item 13. Certain Relationships and Related Transactions                                     
|PART IV                                          
|                                                  | Item 14. Controls and Procedures                                                            
|                                                  | Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K                     
|SIGNATURES                                       
|FORM 10-K CERTIFICATION                          
|10-K EXHIBIT INDEX                               
|Suplemental Indenture Dated December 1, 2002     
|Computation of Ratio os Earnings to Fixed Charges
|Consent of Deloitte & Touche LLP                 
|Chief Executive Officer Certification            
|Chief Financial Officer Certification            



---



##### Table of Contents



The Detroit Edison Company

Annual Report on Form 10-K
Year Ended December 31, 2002

Table of Contents

|                           |  |                                                                                      |  |  |    |  |  |  |   |      |  | 
|-------------------------- |  | ------------------------------------------------------------------------------------ |  |  | -- |  |  |  | - | ---- |  | 
|                           |  |                                                                                      |  |  |    |  |  |  |   | Page
|                           |  |                                                                                      |  |  |    |  |  |  |   |     
|DEFINITIONS                |  |                                                                                      |  |  |    |  |  |  | 1 |     
|FORWARD-LOOKING STATEMENTS |  |                                                                                      |  |  |    |  |  |  | 2 |     
|PART I                     |  |                                                                                      |  |  |    |  | 
|Items 1 & 2.               |  | Business & Properties                                                                |  |  | 3  | 
|Item 3.                    |  | Legal Proceedings                                                                    |  |  | 11 | 
|Item 4.                    |  | Submission of Matters to a Vote of Security Holders                                  |  |  | 11 | 
|PART II                    |  |                                                                                      |  |  |    |  |  | 
|Item 5.                    |  | Market for Registrants Common Equity and Related
Stockholder Matters                |  |  | 11 | 
|Item 6.                    |  | Selected Financial Data                                                              |  |  | 11 | 
|Item 7.                    |  | Managements Narrative Analysis of Results of Operations                             |  |  | 12 | 
|Item 7A.                   |  | Quantitative and Qualitative Disclosures About Market Risk                           |  |  | 16 | 
|Item 8.                    |  | Financial Statements and Supplementary Data                                          |  |  | 17 | 
|Item 9.                    |  | Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure |  |  | 51 | 
|PART III                   |  |                                                                                      |  |  |    |  |  |  |  
|Item 10.                   |  | Directors and Executive Officers of the Registrant                                   |  |  | 51 | 
|Item 11.                   |  | Executive Compensation                                                               |  |  | 51 | 
|Item 12.                   |  | Security Ownership of Certain Beneficial Owners and Management                       |  |  | 51 | 
|Item 13.                   |  | Certain Relationships and Related Transactions                                       |  |  | 51 | 
|PART IV                    |  |                                                                                      |  |  |    |  |  | 
|Item 14.                   |  | Controls and Procedures                                                              |  |  | 51 | 
|Item 15.                   |  | Exhibits, Financial Statement Schedule and Reports on Form 8-K                       |  |  | 52 | 
|SIGNATURES                 |  |                                                                                      |  |  | 56 | 
|CERTIFICATIONS             |  |                                                                                      |  |  | 57 | 





---



##### Table of Contents






DEFINITIONS

|                |  |                                                                                                                                                                                                                                                                                                                                    
|--------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Customer Choice |  | The choice program is a statewide initiative giving customers in Michigan the option to choose alternative
suppliers for electricity.                                                                                                                                                                                              
|                |  |                                                                                                                                                                                                                                                                                                                                    
|Detroit Edison  |  | The Detroit Edison Company (a wholly owned subsidiary of
DTE Energy Company) and subsidiary companies                                                                                                                                                                                                                              
|                |  |                                                                                                                                                                                                                                                                                                                                    
|DTE Energy      |  | DTE Energy Company, the parent of Detroit Edison, and subsidiary companies                                                                                                                                                                                                                                                         
|                |  |                                                                                                                                                                                                                                                                                                                                    
|Enterprises     |  | DTE Enterprises Inc. (successor to MCN Energy)                                                                                                                                                                                                                                                                                     
|                |  |                                                                                                                                                                                                                                                                                                                                    
|EPA             |  | United States Environmental Protection Agency                                                                                                                                                                                                                                                                                      
|                |  |                                                                                                                                                                                                                                                                                                                                    
|FERC            |  | Federal Energy Regulatory Commission                                                                                                                                                                                                                                                                                               
|                |  |                                                                                                                                                                                                                                                                                                                                    
|kWh             |  | Kilowatthour                                                                                                                                                                                                                                                                                                                       
|                |  |                                                                                                                                                                                                                                                                                                                                    
|MCN Energy      |  | MCN Energy Group Inc. and subsidiary companies that were merged into Enterprises                                                                                                                                                                                                                                                   
|                |  |                                                                                                                                                                                                                                                                                                                                    
|MichCon         |  | Michigan Consolidated Gas Company and subsidiary companies                                                                                                                                                                                                                                                                         
|                |  |                                                                                                                                                                                                                                                                                                                                    
|MPSC            |  | Michigan Public Service Commission                                                                                                                                                                                                                                                                                                 
|                |  |                                                                                                                                                                                                                                                                                                                                    
|MW              |  | Megawatt                                                                                                                                                                                                                                                                                                                           
|                |  |                                                                                                                                                                                                                                                                                                                                    
|MWh             |  | Megawatthour                                                                                                                                                                                                                                                                                                                       
|                |  |                                                                                                                                                                                                                                                                                                                                    
|NRC             |  | Nuclear Regulatory Commission                                                                                                                                                                                                                                                                                                      
|                |  |                                                                                                                                                                                                                                                                                                                                    
|PSCR            |  | A power supply cost recovery mechanism authorized by the MPSC that allowed Detroit Edison to recover
through rates its fuel, fuel-related and purchased power electric expenses. The clause was suspended
under Michigans restructuring legislation signed into law June 5, 2000, which lowered and froze
electric customer rates.
|                |  |                                                                                                                                                                                                                                                                                                                                    
|Securitization  |  | 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 are not expected to
be recoverable if customers switch to alternative suppliers of electricity.                                                                                                                                            

1



---



##### Table of Contents






FORWARD-LOOKING STATEMENT

Certain information presented herein includes forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve certain risks and uncertainties that may
cause actual future results to differ materially from those contemplated,
projected, estimated or budgeted in such forward-looking statements. There are
many factors that may impact forward-looking statements including, but not
limited to, the following:



| |  | the effects of weather and other natural phenomena on operations and sales to customers;                                               
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | economic climate and growth in the geographic areas where we do business;                                                              
| 
| |  | environmental issues, including changes in the climate, and regulations;                                                               
| 
| |  | nuclear regulations and risks associated with nuclear operations;                                                                      
| 
| |  | implementation of electric Customer Choice programs;                                                                                   
| 
| |  | implementation of electric utility restructuring in Michigan;                                                                          
| 
| |  | employee relations;                                                                                                                    
| 
| |  | unplanned outages;                                                                                                                     
| 
| |  | access to capital markets and capital market conditions and other financing efforts which can be affected by credit agency
ratings;    
| 
| |  | the timing and extent of changes in interest rates;                                                                                    
| 
| |  | the level of borrowings;                                                                                                               
| 
| |  | changes in the cost of fuel and purchased power;                                                                                       
| 
| |  | effects of competition;                                                                                                                
| 
| |  | impact of FERC and MPSC proceedings and regulations;                                                                                   
| 
| |  | changes in federal or state tax laws and their interpretations, including the code, regulations, rulings, court proceedings
and audits;
| 
| |  | ability to recover costs through rate increases;                                                                                       
| 
| |  | property insurance;                                                                                                                    
| 
| |  | the cost of protecting assets against or damage due to terrorism; and                                                                  
| 
| |  | changes in accounting standards and financial reporting regulations.                                                                   

New factors emerge from time to 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 statement
speaks 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



---



##### Table of Contents






PART I




Items 1 & 2. Business & Properties

GENERAL

Detroit Edison, incorporated in Michigan in 1967, is a public utility subject
to regulation by the MPSC and FERC. Detroit Edison is engaged in the
generation, purchase, distribution and sale of electric energy to 2.1 million
customers in a 7,600 square mile area in southeastern Michigan.

References in this report to we, us and our are to Detroit Edison.

We currently operate our businesses through two strategic business units
(Energy Resources  Power Generation and Energy Distribution  Power
Distribution). Based on this structure, we set strategic goals, allocate
resources and evaluate performance. A discussion of each business follows.

ENERGY RESOURCES

Power Generation

Description

Power Generation comprises our regulated power generation business and plants
within Detroit Edison. These plants are regulated by numerous federal and state
governmental agencies, including the MPSC, NRC and the EPA. Electricity is
generated from our numerous fossil plants, our hydroelectric pumped storage
plant and our nuclear plant, and then sold principally throughout Michigan, the
Midwest and Ontario, Canada. The electricity we produce is sold to four major
classes of customers: residential, commercial, industrial and wholesale.

Weather, economic factors and electricity prices affect sales to customers.
Our peak load and highest total system sales generally occur during the third
quarter of the year driven by air conditioning and cooling-related demands.
During 2002, sales to automotive and automotive-related customers accounted for
approximately 17% of total Power Generation operating revenues. Power
Generation sales are not dependent upon a limited number of customers. The loss
of any one or a few customers is not reasonably likely to have a material
adverse effect on Power Generation.

3



---



##### Table of Contents



Our power is generated from a variety of fuels and is supplemented with market
purchases. The table below details our energy supply mix and average cost per
unit:

|                                       |  |   |        |       |        |  |     |    |    |      |        |       |        |  |     |      |    |   |        |       |        |  |     |    |    |  
|-------------------------------------- |  | - | ------ | ----- | ------ |  | --- | -- | -- | ---- | ------ | ----- | ------ |  | --- | ---- | -- | - | ------ | ----- | ------ |  | --- | -- | -- | -
|                                       |  |   |        | 2002  |        |  |     |    |    | 2001 |        |       |        |  |     | 2000 |    |   |        |      
|                                       |  |   |        |       |        |  |     |    |    |      |        |       |        |  |     |      |    |   |        |      
|(in Thousands of MWh)                  |  |   |        |       |        |  |     |    |    |      |        |       |        |  |     |      |    |   |        |       |        |  |     |   
|Power Generated and Purchased          |  |   |        |       |        |  |     |    |    |      |        |       |        |  |     |      |    |   |        |       |        |  |     |   
|Power Plant Generation                 |  |   |        |       |        |  |     |    |    |      |        |       |        |  |     |      |    |   |        |       |        |  |     |   
|Fossil                                 |  |   |        |       |        |  |     |    |    |      |        |       |        |  |     |      |    |   |        |       |        |  |     |   
|Coal                                   |  |   |        |       | 37,381 |  |     |    | 64 | %    |        |       | 38,424 |  |     |      | 69 | % |        |       | 40,039 |  |     |    | 67 | %
|Natural Gas                            |  |   |        |       | 1,414  |  |     |    | 2  |      |        |       | 1,283  |  |     |      | 2  |   |        |       | 1,667  |  |     |    | 3  |  
|Other                                  |  |   |        |       | 222    |  |     |    | 1  |      |        |       | 4      |  |     |      |   |   |        |       | 394    |  |     |    | 1  |  
|Nuclear (Fermi 2)                      |  |   |        | 9,301 |        |  |     | 16 |    |      |        | 8,555 |        |  |     | 16   |    |   |        | 8,239 |        |  |     | 14 |   
|                                       |  |   |        |       |        |  |     |    |    |      |        |       |        |  |     |      |    |   |        |       |        |  |     |    |    |  
|                                       |  |   | 48,318 |       |        |  | 83  |    |    |      | 48,266 |       |        |  | 87  |      |    |   | 50,339 |       |        |  | 85  |   
|Purchased Power                        |  |   | 9,807  |       |        |  | 17  |    |    |      | 7,482  |       |        |  | 13  |      |    |   | 8,877  |       |        |  | 15  |   
|                                       |  |   |        |       |        |  |     |    |    |      |        |       |        |  |     |      |    |   |        |       |        |  |     |    |    |  
|System Output                          |  |   | 58,125 |       |        |  | 100 | %  |    |      | 55,748 |       |        |  | 100 | %    |    |   | 59,216 |       |        |  | 100 | % 
|                                       |  |   |        |       |        |  |     |    |    |      |        |       |        |  |     |      |    |   |        |       |        |  |     |    |    |  
|Average Unit Cost ($/MWh)Generation(1) |  | $ | 12.53  |       |        |  |     |    |    | $    | 12.31  |       |        |  |     |      |    | $ | 12.78  |       |        |  |     |   
|                                       |  |   |        |       |        |  |     |    |    |      |        |       |        |  |     |      |    |   |        |       |        |  |     |   
|Purchased Power(2)                     |  | $ | 39.16  |       |        |  |     |    |    | $    | 78.24  |       |        |  |     |      |    | $ | 62.57  |       |        |  |     |   
|                                       |  |   |        |       |        |  |     |    |    |      |        |       |        |  |     |      |    |   |        |       |        |  |     |   
|Overall Average Unit Cost              |  | $ | 17.02  |       |        |  |     |    |    | $    | 21.15  |       |        |  |     |      |    | $ | 20.24  |       |        |  |     |   
|                                       |  |   |        |       |        |  |     |    |    |      |        |       |        |  |     |      |    |   |        |       |        |  |     |   



---

|(1) |  | Represents fuel costs associated with power plants. 
|--- |  | ----------------------------------------------------
|   
|(2) |  | Includes amounts associated with hedging activities.

We expect an adequate supply of fuel and purchased power to meet our obligation
to serve customers. We have short and long-term supply contracts for expected
fuel and purchased power requirements as detailed in the following table:

|                |  |            |  |      |  |  |    |   |  |  |    |  
|--------------- |  | ---------- |  | ---- |  |  | -- | - |  |  | -- | -
|                |  | 2003      
|                |  |           
|Expected Supply |  | Contracted |  | Open
|                |  |            |  |     
|Coal            |  |            |  |      |  |  | 88 | % |  |  | 12 | %
|Natural Gas     |  |            |  |      |  |  | 10 | % |  |  | 90 | %
|Purchased Power |  |            |  |      |  |  | 90 | % |  |  | 10 | %

Our generating capability is heavily dependent upon coal. The coal is
purchased from various sources in different geographic areas under agreements
that vary in both pricing and terms. We expect to obtain the majority of our
coal requirements through long-term and medium-term contracts with the balance
to be obtained through short-term agreements and spot purchases. We have
contracts with eight coal suppliers for a total purchase of up to 29.6 million
tons of low-sulfur western coal to be delivered from 2003 through 2006. We
also have contracts with three suppliers for the purchase of approximately 4.0
million tons of Appalachian coal to be delivered from 2003 through 2005. These
existing long-term coal contracts include provisions for price escalation as
well as de-escalation. Given the geographic diversity of supply, we believe we
can meet our expected generation requirements. We have long-term transportation
contracts with companies to provide rail car and vessel services for delivery
of purchased coal to our generating facilities.

We purchase power from other electricity generators, suppliers and wholesalers.
These purchases supplement our generation capability to meet customer demand
during peak cycles. For example, when high temperatures occur during the summer
we require additional electricity to meet demand. This access to additional
power is an efficient and economical way to meet our obligation to customers
without increasing capital expenditures to build additional base-load power
facilities.

4



---



##### Table of Contents



Regulation

Our Power Generation business is subject to the regulatory jurisdiction of the
MPSC. The MPSC issues orders pertaining to rates, recovery of certain costs,
including the costs of generating facilities and regulatory assets, conditions
of service, accounting and operating-related matters. Detroit Edisons
MPSC-approved rates charged to customers have historically been designed to
allow for the recovery of costs, plus an authorized rate of return on our
investments. The FERC regulates Detroit Edison with respect to financing
authorization and wholesale electric activities. The NRC has regulatory
jurisdiction over all phases of the operation, construction, licensing and
decommissioning of Detroit Edisons Fermi 2 nuclear plant.

Since 1996 there have been several important acts, orders, court rulings and
legislative actions in the state of Michigan which affect our Power Generation
operations. In 1996, the MPSC began an initiative designed to give all of
Michigans electric customers added choices and the opportunity to benefit from
lower electric generation costs resulting from competition. In 1998, the MPSC
authorized the electric Customer Choice program that allowed for a limited
number of customers to purchase electricity from suppliers other than their
local utility. The local utility would continue to transport the electric
supply to the customers facilities, thereby retaining distribution margins.
The electric Customer Choice program was phased in over a three-year period,
with all customers having the option to choose their electric supplier by
January 2002.

In 2000, the Michigan Legislature enacted legislation that reduced electric
rates by 5% and reaffirmed January 2002 as the date for full implementation of
the electric Customer Choice program. This legislation also contained
provisions freezing rates through 2003 and preventing rate increases for
residential customers through 2005 and for small business customers through
2004. The legislation and an MPSC order issued in 2001 established a
methodology to enable Detroit Edison to recover costs related to its generation
operations (stranded costs) that may not otherwise be recoverable due to
electric Customer Choice related lost sales and margins. The legislation also
provides for the recovery of the costs associated with the implementation of
electric Customer Choice. The MPSC has determined that these costs be treated
as regulatory assets. Additionally, the legislation provides for recovery of
costs incurred as a result of changes in taxes, laws and other governmental
actions including the Clean Air Act.

Due to MPSC orders issued in 1997 and 1998, that altered the regulatory process
in Michigan and provided a plan for transition to competition for the
generation business of Detroit Edison, effective December 1998, Detroit
Edisons generation business no longer met the criteria of SFAS No. 71,
Accounting for the Effects of Certain Types of Regulation. Since the June
2000 legislation was enacted into law and with the issuance of subsequent
clarifying MPSC orders in 2001 and 2002, rates for retail customers and
transition charges for electric Customer Choice customers will be set to
recover Detroit Edisons generation costs. Such costs will be billed and
recovered from both retail and choice customers and thus satisfy the criteria
of SFAS No. 71. In addition, we have the legislative authority to defer
regulatory costs in 2002 and 2003 and to begin recovery of such costs starting
in 2004 after the mandated rate freeze expires. As a result, we resumed
application of SFAS No. 71 for our generation business in the fourth quarter of
2002.

In November 2002, the MPSC requested Michigan gas and electric utilities to
justify why their retail rates should not be lowered due to potential personal
property tax reductions. We have responded and await further MPSC action.

For additional information regarding our regulatory environment, see Note 6 -
Regulatory Matters.

5



---



##### Table of Contents



Properties

We own generating properties and facilities that are all located in the state
of Michigan. Substantially all the net utility properties of Detroit Edison
are subject to the lien of its mortgage. Power Generation plants owned and in
service as of December 31, 2002 are as follows:

|                                              |                 |           |             |      |                        |       |            |                 |      |      |       |                          |                                 |  |  |  | 
|--------------------------------------------- | --------------- | --------- | ----------- | ---- | ---------------------- | ----- | ---------- | --------------- | ---- | ---- | ----- | ------------------------ | ------------------------------- |  |  |  | 
|                                              |                 |           |             |      |                        |       | Summer Net |                 |      |      |      
|                                              |                 |           | Location by |      | Rated Capability(1)(2) |       |            |                 |     
|                                              |                 |           | Michigan    |      |                        |       |            |                 |     
|Plant Name                                    |                 | County    |             | (MW) |                        | (%)   |            | Year in Service
|                                              |                 |           |             |      |                        |       |            |                
|Fossil-fueled Steam-Electric
  Belle River(3) |                 | St. Clair |             |      | 1,026                  |       |            |                 | 9.3  | %    |       | 1984 and 1985           
|                                              | Conners Creek   |           | Wayne       |      |                        | 200   |            |                 |      | 1.8  |       |                          | 1999                            | 
|                                              | Greenwood       |           | St. Clair   |      |                        | 785   |            |                 |      | 7.1  |       |                          | 1979                            | 
|                                              | Harbor Beach    |           | Huron       |      |                        | 103   |            |                 |      | 0.9  |       |                          | 1968                            | 
|                                              | Marysville      |           | St. Clair   |      |                        | 167   |            |                 |      | 1.5  |       |                          | 1930, 1943 and 1947            
|                                              | Monroe(4)       |           | Monroe      |      |                        | 3,000 |            |                 |      | 27.1 |       |                          | 1971, 1973 and 1974            
|                                              | River Rouge     |           | Wayne       |      |                        | 510   |            |                 |      | 4.6  |       |                          | 1957 and 1958                  
|                                              | St. Clair       |           | St. Clair   |      |                        | 1,409 |            |                 |      | 12.7 |       |                          | 1953, 1954, 1959, 1961 and 1969
|                                              | Trenton Channel |           | Wayne       |      |                        | 730   |            |                 |      | 6.6  |       |                          | 1949, 1968 and 1999            
|                                              |                 |           |             |      |                        |       |            |                 |      |      |       |                          |                                 |  |  | 
|                                              |                 |           |             |      |                        |       | 7,930      |                 |      |      | 71.6  |                          |                                 |  |  | 
|Oil or Gas-fueled Peaking Units               |                 | Various   |             |      | 1,102                  |       |            |                 | 10.0 |      |       | 1966-1971, 1981 and 1999
|Nuclear-fueled Steam-Electric
Fermi 2(5)      |                 | Monroe    |             |      | 1,111                  |       |            |                 | 10.1 |      |       | 1988                    
|Hydroelectric Pumped Storage
Ludington(6)     |                 | Mason     |             |      | 917                    |       |            |                 | 8.3  |      |       | 1973                     |                                
|                                              |                 |           |             |      |                        |       |            |                 |      |      |       |                          |                                 |  |  | 
|                                              |                 |           |             |      |                        |       | 11,060     |                 |      |      | 100.0 | %                        |                                 |  |  | 
|                                              |                 |           |             |      |                        |       |            |                 |      |      |       |                          |                                 |  |  | 



---

|(1) |  | Summer net rated capabilities of generating units in service are based on periodic load tests and are changed depending on operating
experience, the physical condition of units, environmental control limitations and customer requirements for steam, which otherwise
would be used for electric generation.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Excludes one oil-fueled unit, St. Clair Unit No. 5 (250 MW), in cold standby status.                                                                                                                                                                                                                           
|   
|(3) |  | The Belle River capability represents Detroit Edisons entitlement to 81.39% of the capacity and energy of the plant. See Note 8 -
Jointly Owned Utility Plant.                                                                                                                                                
|   
|(4) |  | The Monroe Power Plant provided 33% of Detroit Edisons total 2002 power plant generation.                                                                                                                                                                                                                     
|   
|(5) |  | Fermi 2 has a design electrical rating (net) of 1,150 MW.                                                                                                                                                                                                                                                      
|   
|(6) |  | Represents Detroit Edisons 49% interest in Ludington with a total capability of 1,872 MW. Detroit Edison leased 306 MW of Ludington
to First Energy for the six-year period June 1, 1996 through May 31, 2002.                                                                                                

Strategy and Competition

Our strategy for Power Generation is to build upon Detroit Edisons solid
reputation. We will continue to strive to be the preferred electricity
supplier in southeast Michigan. We believe that we can accomplish our goal by
working with our customers and communities to be a reliable supplier of
electricity. To control expenses, we plan to optimize our fuel blends and make
investments in our generating plants that will reduce unplanned plant outages
and improve operating efficiencies, thereby increasing generation output
without proportional additional fuel requirements. Revenues from year to year
will vary due to weather conditions, economic factors, regulatory events and
other risk factors as discussed in the Risk Factors section that follows.

Alternative suppliers of generation services in the retail and wholesale
markets create competition in the electric generating business. Effective
January 1, 2002, the electric Customer Choice program expanded in Michigan
whereby all electric customers can choose to purchase their electricity from
alternative suppliers. Approximately 6% of Detroit Edisons retail generation
sales were lost in 2002 as a result of customers participating in the electric
Customer Choice program. We expect to lose between 10% to 13% of retail sales
in 2003 as a result of customers choosing to participate in the program.

6



---



##### Table of Contents



ENERGY DISTRIBUTION

Power Distribution

Description

Power Distribution comprises our electric distribution services and the steam
heating business of Detroit Edison. This business distributes electricity
generated by Energy Resources Power Generation business and alternative
electric suppliers to Detroit Edisons 2.1 million customers in southeastern
Michigan. Effective January 2001, we transferred our transmission
assets, with a book value of approximately $390 million, to a wholly
owned subsidiary, International Transmission Company (ITC). On May 31,
2001, we distributed 100 percent of the shares of ITC to DTE Energy.
In February 2003, DTE Energy sold ITC. The transmission assets of ITC
are operated by the Midwest Independent System Operator, a regional
transmission operator. ITC provides transmission services to the
Power Distribution business.

Weather and economic factors affect our sales and revenues. Similar to the
Power Generation business, our peak load and highest total system sales
generally occur during the third quarter of the year driven by air conditioning
and cooling-related demands. Power Distribution sales are not dependent upon a
limited number of customers. Additionally, customers participating in the
electric Customer Choice program will not impact Power Distributions operating
revenues or the number of customers served. The loss of any one or a few
customers is not reasonably likely to have a material adverse effect on Power
Distribution.

|                                 |                 |      |        |        |  |      |        |        |  |  |        |        | 
|-------------------------------- | --------------- | ---- | ------ | ------ |  | ---- | ------ | ------ |  |  | ------ | ------ | 
|(in MWh)                         |                 | 2002 |        | 2001   |  | 2000
|                                 |                 |      |        |        |  |     
|Electric Deliveries
 Residential |                 |      | 15,958 |        |  |      | 14,503 |        |  |  | 13,903 |       
|                                 | Commercial      |      |        | 18,395 |  |      |        | 18,777 |  |  |        | 19,762 | 
|                                 | Industrial      |      |        | 13,590 |  |      |        | 14,430 |  |  |        | 16,090 | 
|                                 | Wholesale       |      |        | 2,249  |  |      |        | 2,159  |  |  |        | 2,277  | 
|                                 |                 |      |        |        |  |      |        |        |  |  |        |       
|                                 |                 |      | 50,192 |        |  |      | 49,869 |        |  |  | 52,032 |       
|                                 | Customer Choice |      |        | 3,510  |  |      |        | 1,268  |  |  |        | 202    | 
|                                 |                 |      |        |        |  |      |        |        |  |  |        |       
|                                 |                 |      | 53,702 |        |  |      | 51,137 |        |  |  | 52,234 |       
|                                 |                 |      |        |        |  |      |        |        |  |  |        |       

Regulation

Our Power Distribution business is subject to the regulatory jurisdiction
of the MPSC. The MPSC issues orders pertaining to rates, conditions of service,
accounting and other operating-related matters. As previously discussed,
Michigan legislation prevents Detroit Edison from increasing rates to
residential customers through 2005, for small business customers through 2004,
and remaining customers through 2003.

For additional information regarding our regulatory environment, see Note 6 -
Regulatory Matters.

Properties

Detroit Edison owns and operates 662 distribution substations with a capacity
of 30,843,000 kilovolt- amperes (kV) and 406,176 line transformers with a
capacity of 24,493,806 kV amperes. Substantially all of the net utility
properties of Detroit Edison are subject to the lien of its mortgage. Circuit
miles of distribution lines owned and in service as of December 31, 2002 are as
follows:

7



---



##### Table of Contents



|                       |  |               |        |             |  |  |        | 
|---------------------- |  | ------------- | ------ | ----------- |  |  | ------ | 
|Electric Distribution  |  | Circuit Miles
|                       |  |              
|Operating Voltage - kV |  | Overhead      |        | Underground
|                       |  |               |        |            
|4.8 kV to 13.2 kV      |  |               | 27,429 |             |  |  | 11,510 | 
|24 kV                  |  |               | 102    |             |  |  | 696    | 
|40 kV                  |  |               | 2,350  |             |  |  | 328    | 
|120 kV                 |  |               | 77     |             |  |  | 13     | 
|                       |  |               |        |             |  |  |        | 
|                       |  |               | 29,958 |             |  |  | 12,547 | 
|                       |  |               |        |             |  |  |        | 

Strategy and Competition

Our strategy is to build upon Detroit Edisons solid reputation of being a
reliable distributor of electricity. We plan to focus on improving the quality
of customer service and lowering operating costs by improving operating
efficiencies as well as targeting capital investments in areas that have the
greatest impact on reliability improvements with the goal of managing
distribution rates charged to utility customers.

Competition in the regulated electrical distribution business is provided
primarily by on-site generation by industrial customers and distributed
generation applications by industrial and commercial customers. We do not
expect significant competition for distribution to any group of customers.

ENVIRONMENTAL MATTERS

We are subject to extensive environmental regulation. Additional costs may
result as the effects of various chemicals on the environment are studied and
governmental regulations are developed and implemented. We expect to continue
recovering environmental costs related to utility operations through rates
charged to our customers. Greater details on environmental issues are provided
in the following Notes to the Consolidated Financial Statements:

|     |  |                              
|---- |  | -----------------------------
|Note |  | Title                        
|     |  |                              
|6    |  | Regulatory Matters           
|7    |  | Nuclear Operations           
|15   |  | Commitments and Contingencies

Detroit Edison is subject to applicable permit requirements, and to potentially
increasing stringent federal, state and local standards covering among other
things, particulate and gaseous stack emission limitations, the discharge of
waste into lakes and streams and the handling and disposal of waste material.

The U.S. Environmental Protection Agency (EPA) issued ozone transport
regulations and air quality standards relating to ozone and particulate air
pollution. The new rules have led to additional controls on fossil-fueled
power plants to reduce nitrogen oxides, sulfur dioxide, carbon dioxide and
particulate emissions. To comply with these new controls, Detroit Edison has
spent approximately $460 million through December 2002 and estimates that it
will incur an additional $300 to $400 million of future capital expenditures
over the next five to eight years to satisfy these new control requirements.
The EPA initiated enforcement actions against several major electric utilities
citing violations of new source provisions of the Clean Air Act. Detroit Edison
received and responded to information requests from the EPA on this subject.
We cannot predict the future impact of this issue upon Detroit Edison.

Detroit Edison is required to demonstrate that the cooling water intake
structures at all of its facilities minimize adverse environmental impact.
Detroit Edison filed such demonstrations and in the event of a final adverse
decision, may be required to install additional control technologies to further
minimize the impact.

8



---



##### Table of Contents



Various state and federal laws regulate Detroit Edisons handling, storage and
disposal of its waste materials. The EPA and the Michigan Department of
Environmental Quality (MDEQ) have aggressive programs to manage the clean up of
contaminated property. Detroit Edison has extensive land holdings and, from
time to time, must investigate claims of improperly disposed contaminants.
Detroit Edison anticipates it will be periodically included in these types of
environmental proceedings.

RISK FACTORS

There are various risks associated with the operations of our businesses. To
provide a framework to understand our operating environment, we are providing a
brief explanation of the more significant risks associated with our businesses.
Although we have tried to identify and discuss key risk factors, others could
emerge in the future. Each of the following risks could affect our
performance.

Weather- Weather significantly affects our operations. Deviations from normal
hot and cold weather conditions affect our earnings and cash flow. Mild
temperatures can result in decreased utilization of our assets, lowering income
and cash flow. Damage due to ice storms, tornadoes, or high winds can damage
our infrastructure and require us to perform emergency repairs and incur
material unplanned expenses.

Regional and national economic conditions- Our businesses follow the economic
cycles of the customers we serve. Should national or regional economic
conditions decline, reduced volumes of electricity we supply will result in
decreased earnings and cash flow.

Environmental laws and liability- We are subject to numerous environmental
regulations. These regulations govern air emissions, water quality, wastewater
discharge, solid waste, and hazardous waste. Compliance with these regulations
can significantly increase capital spending, operating expenses and plant down
times. These laws and regulations require us to seek a variety of
environmental licenses, permits, inspections, and other regulatory approvals.
We may also incur liabilities because of our emission of gases that may cause
changes in the climate, including issues related to global warming. The
regulatory environment is subject to significant change, and therefore we
cannot predict future issues.

Additionally, we may become a responsible party for environmental clean up at
sites identified by a regulatory body. We cannot predict with certainty the
amount and timing of future expenditures related to environmental matters
because of the difficulty of estimating clean up costs. There is also
uncertainty in quantifying liabilities under environmental laws that impose
joint and several liability on all potentially responsible parties.

Operation of nuclear facilities Ownership of an operating nuclear generating
plant subjects Detroit Edison to significant additional risks. These risks
among others, include plant security, environmental regulation and remediation,
and operational factors than can significantly impact the performance and cost
of operating a nuclear facility.

Rate regulation- We operate in a regulated industry. Our rates are set by the
MPSC and cannot be increased without their authorization. We may be impacted by
new regulations or interpretations by the MPSC, FERC or other regulatory
bodies. New legislation, regulations or interpretations could change how our
business operates, impact our ability to recover costs through rate increases
or may require us to incur additional expenses.

Competition- Deregulation and restructuring in the electric industry,
including customer choice programs could result in increased competition and
unrecovered costs that could affect the financial condition, results of
operations or cash flows of our business.

9



---



##### Table of Contents



Supply and price of raw materials- We are dependent on coal for much of our
electrical generating capacity. Price fluctuation and supply disruptions could
have a negative impact on our ability to profitably generate electricity. We
have hedging policies in place to mitigate negative fluctuations in commodity
supply prices.

Labor relations- Unions represent a majority of our employees. A union
choosing to strike as a negotiating tactic could have an impact on our
business.

Unplanned outages-Unforeseen maintenance may be required to safely produce
electricity or comply with environmental regulations. This occurrence could
result in spot market purchases of electricity in excess of our costs of
generation.

Access to capital markets and interest rates- Our ability to access capital
markets is important to operate our businesses. Heightened concerns about the
energy industry, the level of borrowing by other energy companies and the
market as a whole could limit our access to capital markets. Changes in
interest rates could increase our borrowing costs.

Property tax reform- We are one of the largest payers of property taxes in the
state of Michigan. Should the legislature change how schools are financed, we
could face increased property taxes on our Michigan facilities.

Credit ratings Increased scrutiny of the energy industry and regulatory
changes could result in credit agencies reexamining our credit rating. A change
in our rating could restrict our ability to access capital markets at
attractive rates and increase our borrowing costs.

Property insurance- While we seek to adequately insure our property,
catastrophic damage as a result of acts of God, terrorism, war or a combination
of significant unforeseen items occurring at one time could impact our
operations and economic losses might not be covered in full by insurance.

Terrorism- Damage to our downstream infrastructure or our own assets by
terrorist groups would impact our operations. At Fermi 2, we have already
increased security as a result of an NRC order and further security increases
are expected. Additionally, we may assist other energy companies if terrorists
were to strike their energy facilities.

EMPLOYEES

We had 8,219 employees at December 31, 2002, of which 4,346 were represented by
unions.

10



---



##### Table of Contents






Item 3. Legal Proceedings

We are involved in certain legal (including commercial matters), administrative
and environmental proceedings before various courts, arbitration panels and
governmental agencies concerning claims arising in the ordinary course of
business. These proceedings include contract disputes, environmental reviews
and investigations, 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 financial
statements in the period they are resolved. For additional discussion on legal
matters, see the following Notes to the Consolidated Financial Statements:

|     |  |                              
|---- |  | -----------------------------
|Note |  | Title                        
|     |  |                              
|6    |  | Regulatory Matters           
|7    |  | Nuclear Operations           
|15   |  | Commitments and Contingencies




Item 4. Submission of Matters to a Vote of Security Holders

Omitted per general instruction I (2) (c) of Form 10-K for wholly owned
subsidiaries (reduced disclosure format).




Part II




Item 5. Market for Registrants Common Equity
and Related Stockholder Matters

All of the 134,287,832 issued and outstanding shares of common stock of Detroit
Edison, par value $10 per share, are owned by DTE Energy, and constitute 100%
of the voting securities of Detroit Edison. Therefore, no market exists for
our common stock.

We paid cash dividends of $295 million in 2002, $306 million in 2001 and $319
million in 2000.




Item 6. Selected Financial Data

Omitted per general instruction I (2) (a) of Form 10-K for wholly owned
subsidiaries (reduced disclosure format).

11



---



##### Table of Contents






Item 7. Managements Narrative Analysis of Results of Operations

The Results of Operations discussion for Detroit Edison is presented in
accordance with General Instruction I (2) (a) of Form 10-K for wholly owned
subsidiaries (reduced disclosure format).

We had net income of $356 million for 2002 compared to net income of $233
million for 2001. The earnings comparability is affected by $186 million ($121
million net of tax) of merger and restructuring charges incurred as a result of
the merger between Detroit Edisons parent company, DTE Energy Company (DTE
Energy), and MCN Energy Group Inc. (MCN Energy) in 2001.

Detroit Edisons net income decreased $178 million in 2001 from 2000. In
addition to the merger and restructuring charges, the decline in 2001 was also
attributable to higher operation and maintenance expenses and lower commercial
and industrial sales reflecting the impact of the current economic recession
and customer participating in the electric Customer Choice program.

ENERGY RESOURCES

Power Generation

The power generation plants of Detroit Edison comprise our regulated power
generation business. Electricity is generated from our numerous fossil plants,
our hydroelectric pumped storage plant and our nuclear plant and sold
principally throughout Michigan and the Midwest to residential, commercial,
industrial and wholesale customers.

Factors impacting income:Power Generation earnings increased $58 million in
2002 and decreased $69 million in 2001, compared to the prior year. As
subsequently discussed, these results reflect changes in gross margins,
increased operation and maintenance expenses, lower depreciation and
amortization expenses and reduced property taxes.

|                                                    |  |      |        |      |  |      |        |   |  |   |        |  
|--------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                    |  | 2002 |        | 2001 |  | 2000
|                                                    |  |      |        |      |  |     
|(in Millions)                                       |  |      |        |      |  |      |        |   |  |   |        |  
|Operating Revenues                                  |  | $    | 2,711  |      |  | $    | 2,788  |   |  | $ | 2,911  |  
|Fuel and Purchased Power                            |  |      | (1,048 | )    |  |      | (1,231 | ) |  |   | (1,242 | )
|                                                    |  |      |        |      |  |      |        |   |  |   |        |  
|Gross Margin                                        |  |      | 1,663  |      |  |      | 1,557  |   |  |   | 1,669  |  
|Operation and Maintenance (1)                       |  |      | (626   | )    |  |      | (571   | ) |  |   | (492   | )
|Depreciation and Amortization                       |  |      | (331   | )    |  |      | (385   | ) |  |   | (468   | )
|Taxes other than Income                             |  |      | (156   | )    |  |      | (148   | ) |  |   | (176   | )
|Operating Income                                    |  |      | 550    |      |  |      | 453    |   |  |   | 533    |  
|Other Income and (Deductions)                       |  |      | (189   | )    |  |      | (184   | ) |  |   | (161   | )
|Income Tax Provision                                |  |      | (120   | )    |  |      | (83    | ) |  |   | (120   | )
|Cumulative Effect of Accounting Change (Note 14)    |  |      |       |      |  |      | (3     | ) |  |   |       |  
|                                                    |  |      |        |      |  |      |        |   |  |   |        |  
|Net Income                                          |  | $    | 241    |      |  | $    | 183    |   |  | $ | 252    |  
|                                                    |  |      |        |      |  |      |        |   |  |   |        |  
|Operating Income as a Percent of Operating Revenues |  |      | 20     | %    |  |      | 16     | % |  |   | 18     | %



---

|(1) |  | Excludes merger and restructuring charges in 2001 and 2000.
|--- |  | -----------------------------------------------------------

Gross marginsin 2002 improved $106 million due primarily to significantly
lower purchased power costs, partially offset by reduced operating revenues.
Average purchased power cost per unit in 2002 declined $39.08 per Megawatthour
(MWh) from 2001 levels. The decline in revenues was due to a full year impact
of a 5% legislatively mandated rate reduction for commercial and industrial
customers that began in April 2001. Revenues from wholesale customers were
reduced reflecting lower power prices. Revenues from retail customers were
affected by customers switching to alternative suppliers under the electric
Customer Choice program (Note 6). Partially offsetting these revenue
reductions was the impact of weather, resulting in a 10% increase in cooling
demand during 2002.

12



---



##### Table of Contents



Gross margins in 2001 declined by $112 million reflecting lower operating
revenues, slightly offset by lower fuel and purchased power costs. The reduced
operating revenues were due to the impact of an economic recession, the
electric Customer Choice program and securitization. Sales rates for
commercial and industrial customers were lowered by the 5% rate reduction in
April 2001. Commercial and industrial sales decreased due to increased
participation of customers in the electric Customer Choice program. Industrial
sales also reflect reduced auto and steel production, and the end of a special
energy sales agreement with a large steel manufacturer in March of 2001.
Partially offsetting these declines were increased revenues from residential
and wholesale customers as well as higher revenues from providing other energy
related services. Residential customer revenues reflect higher demand
resulting from weather, partially offset by the impact of a 5% rate reduction
that began in June 2000. Revenues from wholesale customers increased due to
gains from settling forward sales contracts. The sales contracts were entered
into to effectively close forward purchase contracts that hedged power supply
costs. Accordingly, the gains from forward sales contracts were substantially
offset by losses from forward purchase contracts, which are recorded as part of
fuel and purchased power costs. Fuel and purchased power costs were also
affected by lower system output resulting from reduced electric sales, as well
as the result of using a more favorable power supply mix. The supply mix
reflects an increased usage of lower-cost power from our generating plants and
reduced usage of higher-cost purchased power.

|                                       |                   |   |        |       |        |  |     |    |    |      |        |       |        |  |     |      |    |   |        |       |        |  |     |    |    |  
|-------------------------------------- | ----------------- | - | ------ | ----- | ------ |  | --- | -- | -- | ---- | ------ | ----- | ------ |  | --- | ---- | -- | - | ------ | ----- | ------ |  | --- | -- | -- | -
|                                       |                   |   |        | 2002  |        |  |     |    |    | 2001 |        |       |        |  |     | 2000 |    |   |        |      
|                                       |                   |   |        |       |        |  |     |    |    |      |        |       |        |  |     |      |    |   |        |      
|(in Thousands of MWh)                  |                   |   |        |       |        |  |     |    |    |      |        |       |        |  |     |      |    |   |        |       |        |  |     |   
|Power Generated and Purchased          |                   |   |        |       |        |  |     |    |    |      |        |       |        |  |     |      |    |   |        |       |        |  |     |   
|Power Plant Generation                 |                   |   |        |       |        |  |     |    |    |      |        |       |        |  |     |      |    |   |        |       |        |  |     |   
|                                       | Fossil            |   |        |       |        |  |     |    |    |      |        |       |        |  |     |      |    |   |        |       |        |  |     |    |   
|                                       | Coal              |   |        |       | 37,381 |  |     |    | 64 | %    |        |       | 38,424 |  |     |      | 69 | % |        |       | 40,039 |  |     |    | 67 | %
|                                       | Natural Gas       |   |        |       | 1,414  |  |     |    | 2  |      |        |       | 1,283  |  |     |      | 2  |   |        |       | 1,667  |  |     |    | 3  |  
|                                       | Other             |   |        |       | 222    |  |     |    | 1  |      |        |       | 4      |  |     |      |   |   |        |       | 394    |  |     |    | 1  |  
|                                       | Nuclear (Fermi 2) |   |        | 9,301 |        |  |     | 16 |    |      |        | 8,555 |        |  |     | 16   |    |   |        | 8,239 |        |  |     | 14 |   
|                                       |                   |   |        |       |        |  |     |    |    |      |        |       |        |  |     |      |    |   |        |       |        |  |     |    |    |  
|                                       |                   |   | 48,318 |       |        |  | 83  |    |    |      | 48,266 |       |        |  | 87  |      |    |   | 50,339 |       |        |  | 85  |   
|Purchased Power                        |                   |   | 9,807  |       |        |  | 17  |    |    |      | 7,482  |       |        |  | 13  |      |    |   | 8,877  |       |        |  | 15  |   
|                                       |                   |   |        |       |        |  |     |    |    |      |        |       |        |  |     |      |    |   |        |       |        |  |     |    |    |  
|System Output                          |                   |   | 58,125 |       |        |  | 100 | %  |    |      | 55,748 |       |        |  | 100 | %    |    |   | 59,216 |       |        |  | 100 | % 
|                                       |                   |   |        |       |        |  |     |    |    |      |        |       |        |  |     |      |    |   |        |       |        |  |     |    |    |  
|Average Unit Cost ($/MWh)Generation(1) |                   | $ | 12.53  |       |        |  |     |    |    | $    | 12.31  |       |        |  |     |      |    | $ | 12.78  |       |        |  |     |   
|                                       |                   |   |        |       |        |  |     |    |    |      |        |       |        |  |     |      |    |   |        |       |        |  |     |   
|Purchased Power(2)                     |                   | $ | 39.16  |       |        |  |     |    |    | $    | 78.24  |       |        |  |     |      |    | $ | 62.57  |       |        |  |     |   
|                                       |                   |   |        |       |        |  |     |    |    |      |        |       |        |  |     |      |    |   |        |       |        |  |     |   
|Overall Average Unit Cost              |                   | $ | 17.02  |       |        |  |     |    |    | $    | 21.15  |       |        |  |     |      |    | $ | 20.24  |       |        |  |     |   
|                                       |                   |   |        |       |        |  |     |    |    |      |        |       |        |  |     |      |    |   |        |       |        |  |     |   



---

|(1) |  | Represents fuel costs associated with power plants. 
|--- |  | ----------------------------------------------------
|   
|(2) |  | Includes amounts associated with hedging activities.

Operation and maintenanceexpense increased $55 million in 2002 and $79 million
in 2001. Expense in both periods reflect an increase in planned and unplanned
maintenance and reliability work for our power generation facilities, which
reduces random outages at power plants and our reliance on purchased power.
Additionally, both periods include higher employee pension and health care
benefit costs, costs allocated from DTE Energy corporate for corporate support
services, as well as the cost of funding the low income and energy efficiency
fund. The funding of the low income and energy efficiency program was required
under Michigan legislation and is recovered in current sales rates.

Depreciation and amortizationexpense decreased $54 million in 2002 and $83
million in 2001. The declines reflect the extension of the amortization period
from seven years to 14 years for certain regulatory assets that were
securitized in 2001. See Note 6  Regulatory Matters.

Taxes other than incomeincreased $8 million in 2002 and decreased $28 million
in 2001. The 2001 decrease was due to lower property taxes resulting from new
valuation tables approved by the Michigan State Tax Commission (STC). Several
local taxing jurisdictions have taken legal action against the state of
Michigan to prevent the STC from implementing the new valuation tables. See
Note 15- Commitments and Contingencies.

13



---



##### Table of Contents



Outlook- Electric restructuring is expected to continue to result in increased
customer choice in the retail electric generation business. Effective January
1, 2002, the electric Customer Choice program in Michigan was expanded to allow
all electric customers to purchase their electricity from suppliers other than
their local utility. As a result of customers choosing to participate in the
electric Customer Choice program Detroit Edison lost 6% of retail sales in 2002
and estimates losing 10% to 13% of such sales in 2003. If Detroit Edison is
unable to recover its fixed costs from retail customers due to lost sales under
electric Customer Choice (stranded costs), Michigan law allows for the recovery
of all such amounts from electric Customer Choice customers. Detroit Edison
recorded a $21 million regulatory asset in 2002 representing stranded costs and
other recoverable costs under Michigan legislation. The regulatory asset was
calculated based on a refinement to the methodology approved by the Michigan
Public Service Commission (MPSC). The regulatory asset will be subject to
review in future regulatory proceedings and we cannot predict the outcome of
this matter. See Note 6  Regulatory Matters.

Operating results are expected to vary as a result of various external factors
such as weather, changes in economic conditions and the level of customer
participation in the electric Customer Choice program.

ENERGY DISTRIBUTION

Power Distribution

Power Distribution operations include the electric distribution services and
steam heating business of Detroit Edison. This business distributes
electricity generated by Energy Resources Power Generation business and
alternative electric suppliers to Detroit Edisons 2.1 million customers.

Effective January 2001, we transferred our transmission assets, with a book
value of approximately $390 million, to a wholly owned subsidiary, International Transmission
Company (ITC). On May 31, 2001, we distributed 100 percent of the shares of
ITC to DTE Energy. In February 2003, DTE Energy sold ITC. The
transmission assets of ITC are operated by the Midwest Independent
System Operator, a regional transmission operator. ITC provides
transmission services to the Power Distribution business.

|                                                    |  |                                  |       |      |  |      |       |   |  |   |       |  
|--------------------------------------------------- |  | -------------------------------- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                    |  | For the Years Ending December 31
|                                                    |  |                                 
|                                                    |  | 2002                             |       | 2001 |  | 2000
|                                                    |  |                                  |       |      |  |     
|(in Millions)                                       |  |                                  |       |      |  |      |       |   |  |   |       |  
|Operating Revenues                                  |  | $                                | 1,343 |      |  | $    | 1,256 |   |  | $ | 1,218 |  
|Fuel and Purchased Power                            |  |                                  | (26   | )    |  |      | (10   | ) |  |   | (29   | )
|Operation and Maintenance                           |  |                                  | (645  | )    |  |      | (511  | ) |  |   | (460  | )
|Depreciation and Amortization                       |  |                                  | (246  | )    |  |      | (246  | ) |  |   | (251  | )
|Taxes other than Income                             |  |                                  | (117  | )    |  |      | (120  | ) |  |   | (113  | )
|                                                    |  |                                  |       |      |  |      |       |   |  |   |       |  
|Operating Income                                    |  |                                  | 309   |      |  |      | 369   |   |  |   | 365   |  
|Other Income and (Deductions)                       |  |                                  | (136  | )    |  |      | (132  | ) |  |   | (129  | )
|Income Tax Provision                                |  |                                  | (58   | )    |  |      | (66   | ) |  |   | (61   | )
|                                                    |  |                                  |       |      |  |      |       |   |  |   |       |  
|Net Income                                          |  | $                                | 115   |      |  | $    | 171   |   |  | $ | 175   |  
|                                                    |  |                                  |       |      |  |      |       |   |  |   |       |  
|Operating Income as a Percent of Operating Revenues |  |                                  | 23    | %    |  |      | 29    | % |  |   | 30    | %

Factors impacting income:Earnings decreased $56 million in 2002 and $4 million
in 2001. The 2002 decrease is due primarily to increased operating and
maintenance expenses, partially offset by higher operating revenue. Operation
and maintenance expenses were affected by expenses associated with restoring
power to customers who lost service during two catastrophic storms during 2002
as well as heat-related maintenance expenses due to prolonged periods of above
normal summer temperatures and the related stress placed on the distribution
system. Additionally, operation and maintenance expenses reflect increased
costs associated with customer service process improvements, uncollectible
accounts expense, employee benefit expenses and costs allocated from DTE Energy
corporate for corporate support services. Operating revenues increased due
primarily to higher residential sales attributable to greater cooling demand.

The 2001 earnings decrease is due primarily to increased operating and
maintenance expenses, the impact of a 5% rate reduction that began in June
2000, partially offset by the affect of weather.

14



---



##### Table of Contents



Below are volumes associated with the regulated power distribution business:

|                          |  |      |        |      |  |      |        |  |  |  |        | 
|------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                          |  | 2002 |        | 2001 |  | 2000
|                          |  |      |        |      |  |     
|Electric Deliveries       |  |      |        |      |  |      |        |  |  |  |        | 
|(in Thousands of MWh)     |  |      |        |      |  |      |        |  |  |  |        | 
|Residential               |  |      | 15,958 |      |  |      | 14,503 |  |  |  | 13,903 | 
|Commercial                |  |      | 18,395 |      |  |      | 18,777 |  |  |  | 19,762 | 
|Industrial                |  |      | 13,590 |      |  |      | 14,430 |  |  |  | 16,090 | 
|Wholesale                 |  |      | 2,249  |      |  |      | 2,159  |  |  |  | 2,277  | 
|                          |  |      |        |      |  |      |        |  |  |  |        | 
|                          |  |      | 50,192 |      |  |      | 49,869 |  |  |  | 52,032 | 
|Electric Choice           |  |      | 3,510  |      |  |      | 1,268  |  |  |  | 202    | 
|                          |  |      |        |      |  |      |        |  |  |  |        | 
|Total Electric Deliveries |  |      | 53,702 |      |  |      | 51,137 |  |  |  | 52,234 | 
|                          |  |      |        |      |  |      |        |  |  |  |        | 

Outlook- Regulated electric system deliveries are expected to continue to
increase in 2003 due to continued territory and economic growth. Operating
results are expected to vary as a result of various external factors such as
weather, changes in economic conditions and the severity and frequency of
storms. In January 2003, we sold our steam business and will record a net of
tax loss in the 2003 first quarter of approximately $13 million.

Several Midwest utilities seek to recover lost transmission revenues associated
with the creation of multiple regional transmission organizations in the
Midwest. Positions advocated by several parties in a Federal Energy Regulatory
Commission (FERC) proceeding could require that Detroit Edison and its
customers be responsible for increased transmission costs. Detroit Edison
continues to actively participate in this proceeding and depending upon the
outcome would subsequently seek rate recovery of these costs.

CAPITAL RESOURCES AND LIQUIDITY

|                                                     |                      |   |             |      |      |   |       |      |   |   |     |      |  
|---------------------------------------------------- | -------------------- | - | ----------- | ---- | ---- | - | ----- | ---- | - | - | --- | ---- | -
|                                                     |                      |   | December 31
|                                                     |                      |   |            
|                                                     |                      |   | 2002        |      | 2001 |   | 2000 
|                                                     |                      |   |             |      |      |   |      
|Cash and Cash Equivalents                            |                      |   |             |      |      |   |       |      |   |   |     |     
|(in Millions)                                        |                      |   |             |      |      |   |       |      |   |   |     |     
|Cash Flow From (Used For)
Operating activities       |                      | $ | 758         |      |      | $ | 1,146 |      |   | $ | 979 |     
|                                                     | Investing activities |   |             | (891 | )    |   |       | (886 | ) |   |     | (546 | )
|                                                     | Financing activities |   |             | (46  | )    |   |       | (69  | ) |   |     | (413 | )
|                                                     |                      |   |             |      |      |   |      
|Net Increase (Decrease) in Cash and Cash Equivalents |                      | $ | (179        | )    |      | $ | 191   |      |   | $ | 20  |     
|                                                     |                      |   |             |      |      |   |      

Operating Activities

Net cash from operating activities decreased $388 million in 2002. The decrease
reflects higher working capital requirements and a decline in net income, after
adjusting for non-cash items (depreciation and amortization, merger and
restructuring charges and deferred taxes.) The working capital requirements
reflect lower accounts payable balances, to more normalized levels,
representing the internal focus on managing external payments and taking
greater advantage of purchase discounts. Net cash from operating activities
increased $167 million in 2001 due to lower working capital requirements,
partially offset by a decline in net income, after adjusting for non-cash
items.

15



---



##### Table of Contents



Investing Activities

Net cash used for investing activities increased $5 million in 2002 due
primarily to increased investment in plant and equipment. Net cash used for
investing activities increased $340 million in 2001 due to investments in
regulatory assets associated with securitizing the companys Fermi 2 power
generation facility, cash that was restricted for debt redemptions and higher
plant and equipment expenditures.

Financing Activities

Net cash used for financing activities decreased $23 million during 2002 and
decreased $344 million in 2001. The 2001 change is due primarily to the
repurchase of more debt, net of issuances in the 2002 period. Additionally,
the repurchase of $846 million in common stock in 2001 also contributed to the
change.




Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Commodity Price Risk

Detroit Edison is subject to commodity price risk in conjunction with the
anticipated purchase of electricity to meet reliability obligations during
times of peak customer demand. Detroit Edisons exposure to commodity price
risk arises from market fluctuations in commodity prices. To limit the
sensitivity to commodity price fluctuations, Detroit Edison has entered into a
series of forward electricity contracts and option contracts. See Note 14 -
Financial and Other Derivative Instruments herein for a further discussion of
these derivative instruments.

Detroit Edison performed a sensitivity analysis to calculate the impact of
changes in fair values utilizing applicable forward commodity rates in effect
at December 31, 2002. We estimate that if commodity prices were 10% higher or
lower, the net fair value of commodity contracts would increase $2 million and
decrease $2 million, respectively.

Interest Rate Risk

Detroit Edison estimates that if interest rates were 10% higher or lower, the
fair value of long-term debt at December 31, 2002 would decrease $160 million
and increase $171 million, respectively.

Credit Risk

We purchase and sell electricity to numerous companies operating in the steel,
automotive, energy and retail industries. During 2002 and 2001, a number of
customers have filed for bankruptcy protection under Chapter 11 of the U.S.
Bankruptcy Code, including certain Enron Corporation affiliates. We regularly
review contingent matters relating to purchase and sale contracts and record
provisions for amounts considered probable of loss. We believe our previously
accrued amounts are adequate for probable losses. The final resolution of
these matters are not expected to have a material effect on our financial
statements in the period they are resolved.

16



---



##### Table of Contents






Item 8. Financial Statements and Supplementary Data

|                                                                                   |  |      |    | 
|---------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                   |  | Page
|                                                                                   |  |     
|Independent Auditors Report                                                       |  |      | 18 | 
|Consolidated Statement of Operations                                               |  |      | 19 | 
|Consolidated Statement of Financial Position                                       |  |      | 20 | 
|Consolidated Statement of Cash Flows                                               |  |      | 22 | 
|Consolidated Statement of Changes in Shareholders Equity and Comprehensive Income |  |      | 23 | 
|Notes to Consolidated Financial Statements                                         |  |      | 24 | 
|Schedule II  Valuation and Qualifying Accounts                                    |  |      | 55 | 

17



---



##### Table of Contents



INDEPENDENT AUDITORS REPORT

To the Board of Directors and Shareholder of
The Detroit Edison Company

We have audited the consolidated statement of financial position of The Detroit
Edison Company and subsidiaries (the Company) as of December 31, 2002 and
2001 and the related consolidated statements of operations, cash flows, and
changes in shareholders equity and comprehensive income for each of the three
years in the period ended December 31, 2002. Our audits also included the
financial statement schedule listed in the Index at Item 15. These financial
statements and financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an opinion on the
consolidated financial statements and financial statement schedule based on our
audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The Detroit Edison Company and
subsidiaries at December 31, 2002 and 2001, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2002 in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements of the Company taken as a whole, present fairly, in all material
respects, the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for derivative instruments and hedging
activities in 2001.

/s/ DELOITTE & TOUCHE LLP

Detroit, Michigan

February 11, 2003

18



---



##### Table of Contents



THE DETROIT EDISON COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS

|                                                 |                                           |   |                        |       |      |   |       |       |   |   |       |       |  
|------------------------------------------------ | ----------------------------------------- | - | ---------------------- | ----- | ---- | - | ----- | ----- | - | - | ----- | ----- | -
|                                                 |                                           |   | Year Ended December 31
|                                                 |                                           |   |                       
|                                                 |                                           |   | 2002                   |       | 2001 |   | 2000 
|                                                 |                                           |   |                        |       |      |   |      
|(in Millions)                                    |                                           |   |                        |       |      |   |       |       |   |   |       |      
|Operating Revenues                               |                                           | $ | 4,054                  |       |      | $ | 4,044 |       |   | $ | 4,129 |      
|                                                 |                                           |   |                        |       |      |   |       |       |   |   |       |      
|Operating Expenses                               |                                           |   |                        |       |      |   |       |       |   |   |       |      
|                                                 | Fuel and purchased power                  |   |                        | 1,074 |      |   |       | 1,241 |   |   |       | 1,271 |  
|                                                 | Operation and maintenance                 |   |                        | 1,271 |      |   |       | 1,082 |   |   |       | 952   |  
|                                                 | Depreciation and amortization             |   |                        | 577   |      |   |       | 631   |   |   |       | 719   |  
|                                                 | Taxes other than income                   |   |                        | 273   |      |   |       | 268   |   |   |       | 289   |  
|                                                 | Merger and restructuring charges (Note 5) |   |                        |      |      |   |       | 186   |   |   |       | 25    |  
|                                                 |                                           |   |                        |       |      |   |       |       |   |   |       |      
|                                                 |                                           |   | 3,195                  |       |      |   | 3,408 |       |   |   | 3,256 |      
|                                                 |                                           |   |                        |       |      |   |       |       |   |   |       |      
|Operating Income                                 |                                           |   | 859                    |       |      |   | 636   |       |   |   | 873   |      
|                                                 |                                           |   |                        |       |      |   |       |       |   |   |       |      
|Other Income and Deductions                      |                                           |   |                        |       |      |   |       |       |   |   |       |      
|                                                 | Interest expense                          |   |                        | 311   |      |   |       | 306   |   |   |       | 277   |  
|                                                 | Interest income                           |   |                        | (1    | )    |   |       | (3    | ) |   |       | (2    | )
|                                                 | Other income                              |   |                        | (36   | )    |   |       | (63   | ) |   |       |      |  
|                                                 | Other expense                             |   |                        | 51    |      |   |       | 76    |   |   |       | 15    |  
|                                                 |                                           |   |                        |       |      |   |       |       |   |   |       |      
|                                                 |                                           |   | 325                    |       |      |   | 316   |       |   |   | 290   |      
|                                                 |                                           |   |                        |       |      |   |       |       |   |   |       |      
|Income Before Income Taxes                       |                                           |   | 534                    |       |      |   | 320   |       |   |   | 583   |      
|                                                 |                                           |   |                        |       |      |   |       |       |   |   |       |      
|Income Tax Provision                             |                                           |   | 178                    |       |      |   | 84    |       |   |   | 172   |      
|                                                 |                                           |   |                        |       |      |   |       |       |   |   |       |      
|Income Before Accounting Change                  |                                           |   | 356                    |       |      |   | 236   |       |   |   | 411   |      
|Cumulative Effect of Accounting Change (Note 14) |                                           |   |                       |       |      |   | (3    | )     |   |   |      |      
|                                                 |                                           |   |                        |       |      |   |       |       |   |   |       |      
|Net Income                                       |                                           | $ | 356                    |       |      | $ | 233   |       |   | $ | 411   |      
|                                                 |                                           |   |                        |       |      |   |       |       |   |   |       |      

See Notes to Consolidated Financial Statements

19



---



##### Table of Contents



THE DETROIT EDISON COMPANY
CONSOLIDATED STATEMENT OF FINANCIAL POSITION

|               |                                     |   |                                                                              |        |             |     |        |        |   |     | 
|-------------- | ----------------------------------- | - | ---------------------------------------------------------------------------- | ------ | ----------- | --- | ------ | ------ | - | --- | 
|               |                                     |   |                                                                              |        | December 31
|               |                                     |   |                                                                              |        |            
|               |                                     |   |                                                                              |        | 2002        |     | 2001  
|               |                                     |   |                                                                              |        |             |     |       
|(in Millions)  |                                     |   |                                                                              |        |             |     |        |       
|Assets         |                                     |   |                                                                              |        |             |     |        |       
|Current Assets |                                     |   |                                                                              |        |             |     |        |       
|               | Cash and cash equivalents           |   | $                                                                            | 36     |             |     | $      | 215    |  
|               | Restricted cash                     |   |                                                                              | 131    |             |     |        | 68     |  
|               | Accounts receivable                 |   |                                                                              |        |             |     |        |        |  
|               |                                     |   | Customer (less allowance for doubtful accounts of $48 and
$27, respectively) |        |             | 325 |        |        |   | 348 | 
|               |                                     |   | Accrued unbilled revenues                                                    |        |             | 177 |        |        |   | 130 | 
|               |                                     |   | Other                                                                        |        |             | 142 |        |        |   | 101 | 
|               | Inventories                         |   |                                                                              |        |             |     |        |        |  
|               |                                     |   | Fuel                                                                         |        |             | 126 |        |        |   | 162 | 
|               |                                     |   | Materials and supplies                                                       |        |             | 130 |        |        |   | 127 | 
|               | Other                               |   |                                                                              | 14     |             |     |        | 14     |  
|               |                                     |   |                                                                              |        |             |     |        |        |  
|               |                                     |   | 1,081                                                                        |        |             |     | 1,165  |       
|               |                                     |   |                                                                              |        |             |     |        |        |  
|Investments    |                                     |   |                                                                              |        |             |     |        |       
|               | Nuclear decommissioning trust funds |   |                                                                              | 417    |             |     |        | 417    |  
|               | Other                               |   |                                                                              | 82     |             |     |        | 97     |  
|               |                                     |   |                                                                              |        |             |     |        |        |  
|               |                                     |   | 499                                                                          |        |             |     | 514    |       
|               |                                     |   |                                                                              |        |             |     |        |        |  
|Property       |                                     |   |                                                                              |        |             |     |        |       
|               | Property, plant and equipment       |   |                                                                              | 12,121 |             |     |        | 11,572 |  
|               | Less accumulated depreciation       |   |                                                                              | (5,324 | )           |     |        | (5,010 | )
|               |                                     |   |                                                                              |        |             |     |        |        |  
|               |                                     |   | 6,797                                                                        |        |             |     | 6,562  |       
|               |                                     |   |                                                                              |        |             |     |        |        |  
|Other Assets   |                                     |   |                                                                              |        |             |     |        |       
|               | Regulatory assets                   |   |                                                                              | 1,143  |             |     |        | 1,141  |  
|               | Securitized regulatory assets       |   |                                                                              | 1,613  |             |     |        | 1,692  |  
|               | Prepaid pensions                    |   |                                                                              |       |             |     |        | 106    |  
|               | Other                               |   |                                                                              | 128    |             |     |        | 75     |  
|               |                                     |   |                                                                              |        |             |     |        |        |  
|               |                                     |   | 2,884                                                                        |        |             |     | 3,014  |       
|               |                                     |   |                                                                              |        |             |     |        |        |  
|Total Assets   |                                     | $ | 11,261                                                                       |        |             | $   | 11,255 |       
|               |                                     |   |                                                                              |        |             |     |        |        |  

See Notes to Consolidated Financial Statements

20



---



##### Table of Contents



THE DETROIT EDISON COMPANY
CONSOLIDATED STATEMENT OF FINANCIAL POSITION

|                                                  |                                                                                                           |   |        |             |     |      |        |       |     | 
|------------------------------------------------- | --------------------------------------------------------------------------------------------------------- | - | ------ | ----------- | --- | ---- | ------ | ----- | --- | 
|                                                  |                                                                                                           |   |        | December 31
|                                                  |                                                                                                           |   |        |            
|                                                  |                                                                                                           |   |        | 2002        |     | 2001
|                                                  |                                                                                                           |   |        |             |     |     
|(in Millions, Except Shares)                      |                                                                                                           |   |        |             |     |      |        |      
|Liabilities and Shareholders Equity              |                                                                                                           |   |        |             |     |      |        |      
|Current Liabilities                               |                                                                                                           |   |        |             |     |      |        |      
|                                                  | Accounts payable                                                                                          |   | $      | 238         |     |      | $      | 307   |    
|                                                  | Accrued interest                                                                                          |   |        | 83          |     |      |        | 85    |    
|                                                  | Dividends payable                                                                                         |   |        | 74          |     |      |        | 74    |    
|                                                  | Accrued payroll                                                                                           |   |        | 24          |     |      |        | 24    |    
|                                                  | Income taxes                                                                                              |   |        | 30          |     |      |        | 121   |    
|                                                  | Current portion long-term debt, including capital leases                                                  |   |        | 319         |     |      |        | 215   |    
|                                                  | Liabilities from risk management activities                                                               |   |        | 9           |     |      |        | 39    |    
|                                                  | Other                                                                                                     |   |        | 319         |     |      |        | 349   |    
|                                                  |                                                                                                           |   |        |             |     |      |        |       |    
|                                                  |                                                                                                           |   | 1,096  |             |     |      | 1,214  |      
|                                                  |                                                                                                           |   |        |             |     |      |        |       |    
|Other Liabilities                                 |                                                                                                           |   |        |             |     |      |        |      
|                                                  | Deferred income taxes                                                                                     |   |        | 1,501       |     |      |        | 1,751 |    
|                                                  | Unamortized investment tax credit                                                                         |   |        | 146         |     |      |        | 156   |    
|                                                  | Nuclear decommissioning                                                                                   |   |        |             | 416 |      |        |       | 412 | 
|                                                  | Accrued pension liability                                                                                 |   |        |             | 561 |      |        |       | 16  | 
|                                                  | Other                                                                                                     |   |        | 484         |     |      |        | 450   |    
|                                                  |                                                                                                           |   |        |             |     |      |        |       |    
|                                                  |                                                                                                           |   | 3,108  |             |     |      | 2,785  |      
|                                                  |                                                                                                           |   |        |             |     |      |        |       |    
|Long-Term Debt (Note 11)                          |                                                                                                           |   |        |             |     |      |        |      
|                                                  | Mortgage bonds, notes and other                                                                           |   |        | 3,270       |     |      |        | 3,038 |    
|                                                  | Securitization bonds                                                                                      |   |        | 1,585       |     |      |        | 1,673 |    
|                                                  | Capital lease obligations                                                                                 |   |        | 80          |     |      |        | 87    |    
|                                                  |                                                                                                           |   |        |             |     |      |        |       |    
|                                                  |                                                                                                           |   | 4,935  |             |     |      | 4,798  |      
|                                                  |                                                                                                           |   |        |             |     |      |        |       |    
|Commitments and Contingencies (Notes 6, 7 and 15) |                                                                                                           |   |        |             |     |      |        |      
|Shareholders Equity                              |                                                                                                           |   |        |             |     |      |        |      
|                                                  | Common stock, $10 par value, 400,000,000 shares
authorized, and 134,287,832 shares
issued and outstanding |   |        | 1,343       |     |      |        | 1,343 |    
|                                                  | Premium on common stock                                                                                   |   |        | 507         |     |      |        | 507   |    
|                                                  | Common stock expense                                                                                      |   |        | (44         | )   |      |        | (44   | )  
|                                                  | Retained earnings                                                                                         |   |        | 735         |     |      |        | 675   |    
|                                                  | Accumulated other comprehensive loss                                                                      |   |        | (419        | )   |      |        | (23   | )  
|                                                  |                                                                                                           |   |        |             |     |      |        |       |    
|                                                  |                                                                                                           |   | 2,122  |             |     |      | 2,458  |      
|                                                  |                                                                                                           |   |        |             |     |      |        |       |    
|Total Liabilities and Shareholders Equity        |                                                                                                           | $ | 11,261 |             |     | $    | 11,255 |      
|                                                  |                                                                                                           |   |        |             |     |      |        |       |    

See Notes to Consolidated Financial Statements

21



---



##### Table of Contents



THE DETROIT EDISON COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS

|                                                     |                                                                            |                                        |                                                                                   |      |                        |      |      |        |      |       |    |      |      |      |  
|---------------------------------------------------- | -------------------------------------------------------------------------- | -------------------------------------- | --------------------------------------------------------------------------------- | ---- | ---------------------- | ---- | ---- | ------ | ---- | ----- | -- | ---- | ---- | ---- | -
|                                                     |                                                                            |                                        |                                                                                   |      | Year Ended December 31
|                                                     |                                                                            |                                        |                                                                                   |      |                       
|                                                     |                                                                            |                                        |                                                                                   |      | 2002                   |      | 2001 |        | 2000
|                                                     |                                                                            |                                        |                                                                                   |      |                        |      |      |        |     
|(in Millions)                                        |                                                                            |                                        |                                                                                   |      |                        |      |      |        |      |       |    |     
|Operating Activities                                 |                                                                            |                                        |                                                                                   |      |                        |      |      |        |      |       |    |     
|                                                     | Net Income                                                                 |                                        | $                                                                                 | 356  |                        |      | $    | 233    |      |       | $  | 411  |     
|                                                     | Adjustments to reconcile net income to net cash from
operating activities: |                                        |                                                                                   |      |                        |      |      |        |      |       |    |      |     
|                                                     |                                                                            |                                        | Depreciation and amortization                                                     |      |                        | 577  |      |        |      | 631   |    |      |      | 719  |  
|                                                     |                                                                            |                                        | Merger and restructuring charges                                                  |      |                        |     |      |        |      | 147   |    |      |      |     |  
|                                                     |                                                                            |                                        | Deferred income taxes                                                             |      |                        | (52  | )    |        |      | (72   | )  |      |      | (79  | )
|                                                     |                                                                            |                                        | Changes in assets and liabilities, exclusive of
changes shown separately (Note 1) |      |                        | (123 | )    |        |      | 207   |    |      |      | (72  | )
|                                                     |                                                                            |                                        |                                                                                   |      |                        |      |      |        |      |       |    |      |     
|                                                     |                                                                            |                                        | Net cash from operating activities                                                |      |                        | 758  |      |        |      | 1,146 |    |      |      | 979  |  
|                                                     |                                                                            |                                        |                                                                                   |      |                        |      |      |        |      |       |    |      |     
|Investing Activities                                 |                                                                            |                                        |                                                                                   |      |                        |      |      |        |      |       |    |     
|                                                     | Plant and equipment expenditures                                           |                                        |                                                                                   | (685 | )                      |      |      | (673   | )    |       |    | (587 | )   
|                                                     | Restricted cash for debt redemptions                                       |                                        |                                                                                   | (63  | )                      |      |      | (68    | )    |       |    |     |     
|                                                     | Other investments                                                          |                                        |                                                                                   | (143 | )                      |      |      | (145   | )    |       |    | 41   |     
|                                                     |                                                                            |                                        |                                                                                   |      |                        |      |      |        |      |       |    |      |     
|                                                     |                                                                            | Net cash used for investing activities |                                                                                   |      | (891                   | )    |      |        | (886 | )     |    |      | (546 | )   
|                                                     |                                                                            |                                        |                                                                                   |      |                        |      |      |        |      |       |    |      |     
|Financing Activities                                 |                                                                            |                                        |                                                                                   |      |                        |      |      |        |      |       |    |     
|                                                     | Issuance of long-term debt                                                 |                                        |                                                                                   | 570  |                        |      |      | 2,679  |      |       |    | 270  |     
|                                                     | Redemption of long-term debt                                               |                                        |                                                                                   | (318 | )                      |      |      | (1,271 | )    |       |    | (245 | )   
|                                                     | Short-term borrowings, net                                                 |                                        |                                                                                   |     |                        |      |      | (245   | )    |       |    | (117 | )   
|                                                     | Capital lease obligations                                                  |                                        |                                                                                   | (3   | )                      |      |      | (80    | )    |       |    | (2   | )   
|                                                     | Repurchase of common stock                                                 |                                        |                                                                                   |     |                        |      |      | (846   | )    |       |    |     |     
|                                                     | Dividends on common stock                                                  |                                        |                                                                                   | (295 | )                      |      |      | (306   | )    |       |    | (319 | )   
|                                                     |                                                                            |                                        |                                                                                   |      |                        |      |      |        |      |       |    |      |     
|                                                     |                                                                            |                                        | Net cash used for financing activities                                            |      |                        | (46  | )    |        |      | (69   | )  |      |      | (413 | )
|                                                     |                                                                            |                                        |                                                                                   |      |                        |      |      |        |      |       |    |      |     
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                                            |                                        | (179                                                                              | )    |                        |      | 191  |        |      |       | 20 |     
|Cash and Cash Equivalents at Beginning of the Period |                                                                            |                                        | 215                                                                               |      |                        |      | 24   |        |      |       | 4  |     
|                                                     |                                                                            |                                        |                                                                                   |      |                        |      |      |        |      |       |    |      |     
|Cash and Cash Equivalents at End of the Period       |                                                                            | $                                      | 36                                                                                |      |                        | $    | 215  |        |      | $     | 24 |     
|                                                     |                                                                            |                                        |                                                                                   |      |                        |      |      |        |      |       |    |      |     

See Notes to Consolidated Financial Statements

22



---



##### Table of Contents



THE DETROIT EDISON COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY AND
COMPREHENSIVE INCOME

|                                                             |  |              |         |        |  |        |       |          |  |               |     |       |  |       |     |   |  |   |       |             |  |   |      |   |  |   |       |  
|------------------------------------------------------------ |  | ------------ | ------- | ------ |  | ------ | ----- | -------- |  | ------------- | --- | ----- |  | ----- | --- | - |  | - | ----- | ----------- |  | - | ---- | - |  | - | ----- | -
|                                                             |  |              |         |        |  |        |       |          |  | Premium       |     |       |  |       |     |   |  |   |       | Accumulated |  |   |      |  
|                                                             |  | Common Stock |         | On     |  | Common |       |          |  |               |     | Other |  |       |     |  
|                                                             |  |              |         | Common |  | Stock  |       | Retained |  | Comprehensive |     |       |  |      
|                                                             |  | Shares       |         | Amount |  | Stock  |       | Expense  |  | Earnings      |     | Loss  |  | Total
|                                                             |  |              |         |        |  |        |       |          |  |               |     |       |  |      
|(Dollars in Millions,
Shares in Thousands)                   |  |              |         |        |  |        |       |          |  |               |     |       |  |       |     |   |  |   |       |             |  |   |      |   |  |   |       |  
|Balance, December 31, 1999                                   |  |              | 145,120 |        |  | $      | 1,451 |          |  | $             | 548 |       |  | $     | (48 | ) |  | $ | 1,677 |             |  | $ |     |   |  | $ | 3,628 |  
|                                                             |  |              |         |        |  |        |       |          |  |               |     |       |  |       |     |   |  |   |       |             |  |   |      |   |  |   |       |  
|Net income                                                   |  |              |        |        |  |        |      |          |  |               |    |       |  |       |    |   |  |   | 411   |             |  |   |     |   |  |   | 411   |  
|Dividends declared on
Common stock                           |  |              |        |        |  |        |      |          |  |               |    |       |  |       |    |   |  |   | (319  | )           |  |   |     |   |  |   | (319  | )
|Other                                                        |  |              |        |        |  |        |      |          |  |               |    |       |  |       |    |   |  |   | 3     |             |  |   |     |   |  |   | 3     |  
|                                                             |  |              |         |        |  |        |       |          |  |               |     |       |  |       |     |   |  |   |       |             |  |   |      |   |  |   |       |  
|Balance, December 31, 2000                                   |  |              | 145,120 |        |  |        | 1,451 |          |  |               | 548 |       |  |       | (48 | ) |  |   | 1,772 |             |  |   |     |   |  |   | 3,723 |  
|                                                             |  |              |         |        |  |        |       |          |  |               |     |       |  |       |     |   |  |   |       |             |  |   |      |   |  |   |       |  
|Net income                                                   |  |              |        |        |  |        |      |          |  |               |    |       |  |       |    |   |  |   | 233   |             |  |   |     |   |  |   | 233   |  
|Dividends declared on
Common stock                           |  |              |        |        |  |        |      |          |  |               |    |       |  |       |    |   |  |   | (301  | )           |  |   |     |   |  |   | (301  | )
|Distribution of International
Transmission Company
to Parent |  |              |        |        |  |        |      |          |  |               |    |       |  |       |    |   |  |   | (327  | )           |  |   |     |   |  |   | (327  | )
|Repurchase and retirement
of common stock                    |  |              | (10,832 | )      |  |        | (108  | )        |  |               | (41 | )     |  |       | 4   |   |  |   | (701  | )           |  |   |     |   |  |   | (846  | )
|Net change in unrealized
losses
on derivatives, net of tax   |  |              |        |        |  |        |      |          |  |               |    |       |  |       |    |   |  |   |      |             |  |   | (23  | ) |  |   | (23   | )
|Other                                                        |  |              |        |        |  |        |      |          |  |               |    |       |  |       |    |   |  |   | (1    | )           |  |   |     |   |  |   | (1    | )
|                                                             |  |              |         |        |  |        |       |          |  |               |     |       |  |       |     |   |  |   |       |             |  |   |      |   |  |   |       |  
|Balance, December 31, 2001                                   |  |              | 134,288 |        |  |        | 1,343 |          |  |               | 507 |       |  |       | (44 | ) |  |   | 675   |             |  |   | (23  | ) |  |   | 2,458 |  
|                                                             |  |              |         |        |  |        |       |          |  |               |     |       |  |       |     |   |  |   |       |             |  |   |      |   |  |   |       |  
|Net income                                                   |  |              |        |        |  |        |      |          |  |               |    |       |  |       |    |   |  |   | 356   |             |  |   |     |   |  |   | 356   |  
|Dividends declared on
Common stock                           |  |              |        |        |  |        |      |          |  |               |    |       |  |       |    |   |  |   | (296  | )           |  |   |     |   |  |   | (296  | )
|Net change in unrealized losses
on derivatives, net of tax   |  |              |        |        |  |        |      |          |  |               |    |       |  |       |    |   |  |   |      |             |  |   | 21   |   |  |   | 21    |  
|Other                                                        |  |              |         |        |  |        |       |          |  |               |     |       |  |       |     |   |  |   |       |             |  |   | (417 | ) |  |   | (417  | )
|                                                             |  |              |         |        |  |        |       |          |  |               |     |       |  |       |     |   |  |   |       |             |  |   |      |   |  |   |       |  
|Balance, December 31, 2002                                   |  |              | 134,288 |        |  | $      | 1,343 |          |  | $             | 507 |       |  | $     | (44 | ) |  | $ | 735   |             |  | $ | (419 | ) |  | $ | 2,122 |  
|                                                             |  |              |         |        |  |        |       |          |  |               |     |       |  |       |     |   |  |   |       |             |  |   |      |   |  |   |       |  

Detroit Edison did not have other comprehensive income (loss) in 2000. The
following table displays comprehensive income (loss) for 2001:

|                                               |                                          |   |                                                                             |      |      |    |      |   |  |     |  
|---------------------------------------------- | ---------------------------------------- | - | --------------------------------------------------------------------------- | ---- | ---- | -- | ---- | - |  | --- | -
|                                               |                                          |   |                                                                             |      | 2002 |    | 2001
|(in Millions)                                  |                                          |   |                                                                             |      |      |    |      |  
|Net income                                     |                                          | $ | 356                                                                         |      |      | $  | 233  |  
|                                               |                                          |   |                                                                             |      |      |    |      |  
|Other comprehensive income (loss), net of tax: |                                          |   |                                                                             |      |      |    |      |  
|                                               | Net unrealized losses on derivatives:    |   |                                                                             |      |      |    |      |   | 
|                                               |                                          |   | Cumulative effect of a change in accounting principle, net
of taxes of $6   |      |      |   |      |   |  | 13  |  
|                                               |                                          |   | Losses arising during the year, net of taxes of $30 in 2001                 |      |      | (1 | )    |   |  | (55 | )
|                                               |                                          |   | Amounts reclassified to earnings, net of taxes of $11 and
$10, respectively |      |      | 22 |      |   |  | 19  |  
|                                               |                                          |   |                                                                             |      |      |    |      |  
|                                               |                                          |   | 21                                                                          |      |      |    | (23  | )
|                                               | Pension obligation, net of taxes of $224 |   |                                                                             | (417 | )    |    |      |  | 
|                                               |                                          |   |                                                                             |      |      |    |      |  
|Comprehensive income                           | $                                        |   | (40)                                                                        |      | $    |    | 210  |  
|                                               |                                          |   |                                                                             |      |      |    |      |  

See Notes to Consolidated Financial Statements

23



---



##### Table of Contents



DETROIT EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  SIGNIFICANT ACCOUNTING POLICIES

Corporate Structure

Detroit Edison is a Michigan public utility engaged in the generation,
purchase, distribution and sale of electric energy to 2.1 million customers in
a 7,600 square-mile area in southeastern Michigan. Detroit Edison is regulated
by the Michigan Public Service Commission (MPSC) and the Federal Energy
Regulatory Commission (FERC).

On May 31, 2001, our parent company, DTE Energy, completed the acquisition of
MCN Energy, now referred to as Enterprises. Enterprises is an exempt holding
company under the Public Utility Holding Company Act of 1935. Enterprises is a
Michigan corporation primarily engaged in natural gas production, gathering,
processing, transmission, storage, distribution and energy marketing.
Enterprises largest subsidiary is MichCon, a natural gas utility serving 1.2
million customers throughout the state of Michigan.

Effective January 2001, we transferred our transmission assets, with a book
value of approximately $390 million, to a wholly owned subsidiary,
International Transmission Company (ITC). On May 31, 2001, we distributed 100
percent of the shares of ITC to DTE Energy.

References in this report to we, us and our are to Detroit Edison and its
subsidiaries, collectively.

Principles of Consolidation

We consolidate all majority owned subsidiaries and investments in entities in
which we have controlling influence. Non-majority owned investments are
accounted for using the equity method when the company is able to influence the
operating policies of the investee. Non-majority owned investments include
investments in limited liability companies, partnerships or joint ventures.
When we do not influence the operating policies of an investee, the cost method
is used. The company eliminates all intercompany balances and transactions.

Basis of Presentation

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
reported amounts of assets, liabilities, revenues, expenses, and the disclosure
of contingent assets and liabilities. Actual results may differ from our
estimates.

We reclassified some prior year balances to match the 2002 financial statement
presentation.

Revenues

Revenues from the sale and delivery of electricity are recognized as services
are provided. We record revenues for electric and steam heating services
provided but unbilled at the end of each month. Under agreement with the MPSC,
we are not allowed to raise rates through 2003.

Comprehensive Income

We comply with SFAS No. 130, Reporting Comprehensive Income, that established
standards for reporting comprehensive income. SFAS No. 130 defines
comprehensive income as the change in

24



---



##### Table of Contents



common shareholders equity during a period from transactions and events from
non-owner sources, including net income. Significant amounts recorded to
comprehensive income include minimum pension liabilities as prescribed by SFAS
No. 87, Employers Accounting for Pensions, and unrealized gains and losses
associated with cash flow hedging activities under SFAS No. 133.

Inventories

Fuel inventory and materials and supplies at Detroit Edison are valued at
average cost.

Property, Retirement and Maintenance, and Depreciation and Depletion

Summary of property by classification as of December 31:

|                                            |                  |              |       |        |        |      |       |        |        |  
|------------------------------------------- | ---------------- | ------------ | ----- | ------ | ------ | ---- | ----- | ------ | ------ | -
|                                            |                  |              |       | 2002   |        | 2001
|                                            |                  |              |       |        |        |     
|(in Millions)                               |                  |              |       |        |        |      |       |       
|Property, Plant and Equipment               |                  |              |       |        |        |      |       |       
|                                            | Electric Utility |              |       |        |        |      |       |        |       
|                                            |                  | Generation   |       | $      | 6,515  |      |       | $      | 6,165  |  
|                                            |                  | Distribution |       |        | 5,606  |      |       |        | 5,407  |  
|                                            |                  |              |       |        |        |      |       |        |        |  
|                                            | Total            |              |       | 12,121 |        |      |       | 11,572 |       
|                                            |                  |              |       |        |        |      |       |        |        |  
|Less Accumulated Depreciation and Depletion |                  |              |       |        |        |      |       |       
|                                            | Electric Utility |              |       |        |        |      |       |        |       
|                                            |                  | Generation   |       |        | (3,117 | )    |       |        | (2,948 | )
|                                            |                  | Distribution |       |        | (2,207 | )    |       |        | (2,062 | )
|                                            |                  |              |       |        |        |      |       |        |        |  
|                                            | Total            |              |       | (5,324 | )      |      |       | (5,010 | )     
|                                            |                  |              |       |        |        |      |       |        |        |  
|Net Property, Plant and Equipment           |                  | $            | 6,797 |        |        | $    | 6,562 |       
|                                            |                  |              |       |        |        |      |       |        |        |  

Property is stated at cost and includes construction-related labor and
materials. The cost of properties retired plus removal costs, less salvage,
are charged to accumulated depreciation.

Expenditures for maintenance and repairs are charged to expense when incurred,
except for Fermi 2. Approximately $25 million of expenses related to the
anticipated Fermi 2 refueling outage scheduled for 2003 are being accrued on a
pro-rata basis over an 18-month period that began in November 2001.

We base depreciation provisions for utility property on straight-line and units
of production rates approved by the MPSC. The composite depreciation rate for
Detroit Edison was 3.4 % in 2002, 2001 and 2000.

The average estimated useful life for each class of property, plant and
equipment as of December 31, 2002 follows:

|                                |  |            |    |              |  |  |    | 
|------------------------------- |  | ---------- | -- | ------------ |  |  | -- | 
|Estimated Useful Lives in Years
|                               
|Utility                         |  | Generation |    | Distribution
|                                |  |            |    |             
|Electric                        |  |            | 39 |              |  |  | 37 | 
|                               

25



---



##### Table of Contents



Long-Lived Assets

Long-lived assets that we own are reviewed for impairment whenever events or
changes in circumstances indicate the carrying amount of an asset may not be
recoverable. If the carrying amount of the asset exceeds the expected future
cash flows generated by the asset, an impairment loss is recognized resulting
in the asset being written down to its estimated fair value. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
cost to sell.

Software Costs

We capitalize the cost of software developed for internal use. These costs are
amortized on a straight-line basis over five years. Amortization begins when
the software project is complete.

Excise and Sales Taxes

We record the billing of excise and sales taxes as receivables with an
offsetting payable to the applicable taxing authority, with no impact on the
statement of operations.

Deferred Debt Costs

The costs related to the issuance of long-term debt are deferred and amortized
over the life of each debt issue. In accordance with MPSC regulations
applicable to Detroit Edison the unamortized discount, premium and expense
related to debt redeemed with a refinancing are amortized over the life of the
replacement issue.

Consolidated Statement of Cash Flows

We consider investments purchased with a maturity of three months or less to be
cash equivalents. Cash contractually designated for debt service is classified
as restricted cash.

|                                                                         |                                        |   |      |     |      |   |      |     |   |   |     |      |  
|------------------------------------------------------------------------ | -------------------------------------- | - | ---- | --- | ---- | - | ---- | --- | - | - | --- | ---- | -
|                                                                         |                                        |   | 2002 |     | 2001 |   | 2000
|                                                                         |                                        |   |      |     |      |   |     
|(in Millions)                                                            |                                        |   |      |     |      |   |      |     |   |   |     |     
|Changes in Assets and Liabilities,
Exclusive of Changes Shown Separately |                                        |   |      |     |      |   |      |     |   |   |     |     
|                                                                         | Accounts receivable, net               |   | $    | 40  |      |   | $    | 4   |   |   | $   | (1   | )
|                                                                         | Accrued unbilled receivables           |   |      | (47 | )    |   |      | 58  |   |   |     | (22  | )
|                                                                         | Inventories                            |   |      | 34  |      |   |      | 13  |   |   |     | 12   |  
|                                                                         | Accounts payable                       |   |      | (78 | )    |   |      | 67  |   |   |     | 31   |  
|                                                                         | Accrued payroll                        |   |      | (65 | )    |   |      | (65 | ) |   |     | 6    |  
|                                                                         | Income taxes payable                   |   |      | (75 | )    |   |      | 7   |   |   |     | 11   |  
|                                                                         | General taxes                          |   |      | (2  | )    |   |      | 8   |   |   |     | 3    |  
|                                                                         | Prepaid pensions                       |   |      | (44 | )    |   |      | 9   |   |   |     | 65   |  
|                                                                         | Risk management and trading activities |   |      | (32 | )    |   |      | 36  |   |   |     | 1    |  
|                                                                         | Other                                  |   |      | 146 |      |   |      | 70  |   |   |     | (178 | )
|                                                                         |                                        |   |      |     |      |   |     
|                                                                         |                                        | $ | (123 | )   |      | $ | 207  |     |   | $ | (72 | )   
|                                                                         |                                        |   |      |     |      |   |     

26



---



##### Table of Contents



Other cash and non-cash investing and financing activities for the years ended
December 31 were as follows:

|                                           |                                                              |                                                |   |      |     |      |  |      |     |  |  |   |     | 
|------------------------------------------ | ------------------------------------------------------------ | ---------------------------------------------- | - | ---- | --- | ---- |  | ---- | --- |  |  | - | --- | 
|                                           |                                                              |                                                |   | 2002 |     | 2001 |  | 2000
|                                           |                                                              |                                                |   |      |     |      |  |     
|(in Millions)                              |                                                              |                                                |   |      |     |      |  |      |     |  |  |  
|Supplementary Cash Flow Information        |                                                              |                                                |   |      |     |      |  |      |     |  |  |  
|                                           |                                                              | Interest paid (excluding interest capitalized) |   | $    | 312 |      |  | $    | 277 |  |  | $ | 284 | 
|                                           |                                                              | Income taxes paid                              |   |      | 308 |      |  |      | 157 |  |  |   | 276 | 
|Noncash Investing and Financing Activities |                                                              |                                                |   |      |     |      |  |      |     |  |  |  
|                                           | Distribution of International Transmission Company to parent |                                                | $ |     |     |      |  | 327  |     |  |  |  |    

See the following notes for other accounting policies impacting our financial
statements.

|     |  |                                           
|---- |  | ------------------------------------------
|Note |  | Title                                     
|     |  |                                           
|2    |  | New Accounting Pronouncements             
|6    |  | Regulatory Matters                        
|9    |  | Income Taxes                              
|14   |  | Financial and Other Derivative Instruments
|16   |  | Retirement Benefits and Trusteed Assets   

NOTE 2  NEW ACCOUNTING PRONOUNCEMENTS

Derivatives

Effective January 1, 2001, we adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. SFAS No. 133 requires that companies recognize all derivatives as
either assets or liabilities measured at fair value on the statement of
financial position. SFAS No. 133 provides an exception for certain contracts
that qualify as normal purchases and sales. To qualify for this exception,
certain criteria must be met, including a high probability the contract will
result in physical delivery. See Note 14  Financial and Other Derivative
Instruments for additional information.

Goodwill and Other Intangible Assets

Effective January 1, 2002, we adopted SFAS No. 142, Goodwill and Other
Intangible Assets, which addresses the financial accounting and reporting
standards for the acquisition of intangible assets outside of a business
combination and for goodwill and other intangible assets subsequent to their
acquisition. As of the date of adoption, we had no goodwill.

In connection with the adoption of SFAS No. 142, we also reassessed the useful
lives and the classification of identifiable intangible assets and determined
that they continue to be appropriate. Our intangible assets consist primarily
of software and are subject to amortization. Intangible assets amortization
expense was approximately $36 million in 2002 and $38 million in 2001. There
were no material acquisitions of intangible assets during the 2002. The gross
carrying amount and accumulated amortization of intangible assets at December
31, 2002 were $357 million and $269 million, respectively. Amortization
expense of intangible assets is estimated to be $36 million annually for 2003
through 2007.

27



---



##### Table of Contents



Asset Retirement Obligations

On January 1, 2003, we adopted SFAS No. 143, Accounting for Asset Retirement
Obligations, which requires the fair value of an asset retirement obligation
be recognized in the period in which it is incurred. It will apply to legal
obligations associated with the retirement of long-lived assets resulting from
the acquisition, construction, development and (or) the normal operation of a
long-lived asset. When a new liability is recorded, an entity will capitalize
the costs of the liability by increasing the carrying amount of the related
long-lived asset. The liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, an entity settles the obligation for
its recorded amount or incurs a gain or loss upon settlement.

We have completed a preliminary review and have identified a legal retirement
obligation for the decommissioning costs for our Fermi 2 nuclear
plant and other assets. As to
regulated operations, we believe that adoption of SFAS No. 143 results
primarily in timing differences in the recognition of legal asset retirement
costs that we are currently recovering in rates and will be deferring such
differences under SFAS No. 71.

As a result of adopting SFAS No. 143, we expect to record a capitalized asset
of approximately $200 million, a corresponding retirement obligation liability
of approximately $400 million and a cumulative effect amount related to
regulated operations as a regulatory asset of approximately $200 million. We
will finalize these preliminary estimates in the first quarter of 2003.

SFAS No. 143 also requires the quantification of the estimated cost of removal
obligations, arising from other than legal obligations, which have been accrued
through depreciation charges. At January 1, 2003 we estimate that we had
approximately $300 million of previously accrued asset removal costs related to
our regulated operations, for other than legal obligations, included in
accumulated depreciation.

Long-Lived Assets

SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of. This statement establishes a
single accounting model for long-lived assets to be disposed of by sale,
whether previously held and used, or newly acquired. We adopted this statement
on January 1, 2002, with no impact on the consolidated financial statements.

Reporting Gains and Losses from Extinguishment of Debt and Accounting for
Leases

SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections, eliminates SFAS No. 4
Reporting Gains and Losses from Extinguishment of Debt and allows for only
those gains or loses on the extinguishment of debt that meet the criteria of
extraordinary items to be treated as such in the financial statements. SFAS
No. 145 also amends SFAS No. 13 Accounting for Leases to require
sale-leaseback accounting for certain lease transactions. We adopted the
provisions of this statement in 2002 with no impact on the consolidated
financial statements.

Exit and Disposal Activities

SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities, requires that the liability for costs associated with exit or
disposal activities be recognized when incurred, rather than at the date of a
commitment to an exit or disposal plan. Application of SFAS No. 146 is
required prospectively for exit or disposal activities entered into on or after
January 1, 2003.

28



---



##### Table of Contents



Guarantors Accounting and Disclosure

FASB Interpretation No. 45 requires a guarantor to recognize, at the inception
of a guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. It also requires disclosure in interim and annual
financial statements of its obligations under certain guarantees it has issued.
The initial recognition and measurement provisions of Interpretation No. 45 are
to be applied prospectively to guarantees issued or modified after December 31,
2002. The disclosure requirements are effective for financial statements for
periods ending after December 15, 2002. We expect no impact on the
consolidated financial statements upon adoption.

Consolidation of Variable Interest Entities

FASB Interpretation No. 46 requires variable interest entities, previously
referred to as special-purpose entities or off-balance sheet structures, to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the entitys activities or is entitled to receive a majority of
the entitys returns or both. The consolidation provisions of Interpretation
No. 46 apply immediately to variable interest entities created after January
31, 2003 and to existing entities in the first fiscal year or interim period
beginning after June 15, 2003. Certain disclosure provisions apply in financial
statements issued after January 31, 2003.

We believe that it is reasonably possible that we will consolidate the
following entity upon the adoption of FASB Interpretation No. 46 in the third
quarter of 2003.

In 1999, a trust was established to acquire certain railcars and other coal
transportation-related equipment for lease to Detroit Edison. The trust issued
$101 million of secured notes and trust certificates, due in 2009, to finance
the railcars and other equipment. Detroit Edison is unconditionally obligated
to make rental payments in amounts that are sufficient to pay all payments of
principal and interest on the notes and the yield on the certificates. Title to
the railcars and other equipment will not transfer to Detroit Edison at the end
of the lease term and there are no options to renew the lease at its
expiration. The lease agreement includes an option on the part of Detroit
Edison to purchase the equipment at the end of the lease term. If the purchase
option is not exercised, Detroit Edison must make a termination payment equal
to the unamortized note balance and will be responsible for arranging an
orderly disposition of the railcars and equipment.

NOTE 3  CHANGE IN ACCOUNTING FOR REGULATION

In 1998, based on MPSC Orders, the Power Generation business of Detroit Edison
started transitioning to market-based rates with the start of a customer choice
program. In compliance with EITF Issue No. 97-4, Deregulation of the Pricing
of Electricity, we ceased application of SFAS No. 71, Accounting for the
Effects of Certain Types of Regulation, for the generation business in 1998.
Since that time, there have been significant legislative and regulatory changes
in Michigan that have resulted in our generation business being fully regulated
with cost-based ratemaking.

On June 5, 2000, the Customer Choice and Electric Reliability Act (PA 141) was
enacted into law providing the regulatory framework to maintain cost-based
rates for retail customers and ensuring the recovery of all amounts of
generation-related stranded costs from choice customers. Subsequent MPSC
Orders required a cost-based methodology to set a transition charge applicable
to choice customers for recovery of our stranded costs. Since rates for retail
customers and transition charges for choice customers are set by the regulator,
recover Detroit Edisons generation costs and are billed and recovered from
retail and choice customers, the criteria of SFAS No. 71 are satisfied. In
addition, we have both the legislative

29



---



##### Table of Contents



and regulatory authority to defer regulatory costs and to begin recovery of
such costs starting in 2004 after the PA 141 mandated rate freeze expires. As
a result of discussions with the SEC staff, the SEC has no objection to Detroit
Edison resuming application of SFAS No. 71 for its generation business.
Detroit Edison applied SFAS No. 71 starting in the fourth quarter of 2002 and
recorded $15 million of additional regulatory assets for the equity component
of Allowance for Funds Used During Construction and costs related to reacquired
debt that was refinanced with lower cost debt. Included in the $15 million
regulatory asset is $11 million of recoverable regulatory assets not recognized
prior to the 2002 fourth quarter application of SFAS No. 71. Prior period
financial statements have not been restated due to the immaterial effect of
retroactively applying SFAS No. 71 to Detroit Edisons generation business.

NOTE 4  DISPOSITION OF STEAM HEATING BUSINESS

In January 2003, we sold our steam heating business to
Thermal Ventures II, LLP. This disposition is consistent with our strategy of
divestiture of non-strategic assets. Due to the continuing involvement of
Detroit Edison in the steam heating business, including the commitment to
purchase $176 million in steam for resale through 2008, fund certain capital
improvements and guarantee the buyers credit facility, we will record a net of
tax loss of approximately $13 million in the first quarter of 2003. As a
result of our continuing involvement, this transaction is not considered a sale
for accounting purposes. The steam heating business had assets of $6 million at
December 31, 2002, and had net losses of $12 million in 2002, net income of $3
million in 2001 and a net loss of $18 million in 2000. See Note 15 -
Commitments and Contingencies.

NOTE 5  MERGER AND RESTRUCTURING CHARGES

On May 31, 2001, our parent company, DTE Energy, completed the acquisition of
MCN Energy. We incurred merger-related charges and restructuring charges
associated with the acquisition. The merger-related charges of $20 million
($13 million after tax) in 2001 and $25 million ($16 million after tax) in
2000, consisted primarily of system integration, relocation, legal, accounting
and consulting costs. Restructuring charges of $166 million ($108 million
after tax) in 2001, were primarily associated with a work force reduction plan.
The plan included early retirement incentives along with voluntary separation
arrangements for 890 employees, primarily in overlapping corporate support
functions. The merger and restructuring costs had the effect of decreasing
Detroit Edisons earnings by $186 million ($121 million after tax) and $25
million ($16 million after tax) in 2001 and 2000, respectively. Approximately
$39 million of the merger and restructuring charges were paid as of December
31, 2001 and remaining benefit payments have been or will be paid from
retirement plans.

NOTE 6  REGULATORY MATTERS

Regulation

Detroit Edison is subject to the regulatory jurisdiction of the MPSC, which
issues orders pertaining to rates, recovery of certain costs, including the
costs of generating facilities and regulatory assets, conditions of service,
accounting and operating-related matters. Detroit Edison is also regulated by
the FERC with respect to financing authorization and wholesale electric
activities.

The operations of Detroit Edison meet the criteria of SFAS No. 71, Accounting
for the Effects of Certain Types of Regulation. This accounting standard
recognizes the cost-based ratemaking process, which results in differences in
the application of generally accepted accounting principles between regulated
and non-regulated businesses. SFAS No. 71 requires the recording of regulatory
assets and liabilities for certain transactions that would have been treated as
revenue and expense in non-regulated businesses. Continued applicability of
SFAS No. 71 requires that rates be designed to recover specific costs of

30



---



##### Table of Contents



providing regulated services and be charged to and collected from customers.
Management believes that currently available facts support the continued
application of SFAS No. 71. Future regulatory changes or changes in the
competitive environment could result in the company discontinuing the
application of SFAS No. 71 for some or all of its businesses and require the
write-off of the portion of any regulatory asset or liability that was no
longer probable of recovery through regulated rates.

Regulatory Assets and Liabilities

The following are the balances of the regulatory assets and liabilities at
December 31:

|              |                                                                   |                   |   |       |    |      |   |       |    | 
|------------- | ----------------------------------------------------------------- | ----------------- | - | ----- | -- | ---- | - | ----- | -- | 
|              |                                                                   |                   |   | 2002  |    | 2001
|              |                                                                   |                   |   |       |    |     
|(in Millions) |                                                                   |                   |   |       |    |      |   |      
|Assets        |                                                                   |                   |   |       |    |      |   |      
|              | Securitized regulatory assets                                     |                   | $ | 1,613 |    |      | $ | 1,692 |   
|              | Recoverable income taxes related to securitized regulatory assets |                   |   | 884   |    |      |   | 942   |   
|              | Other recoverable income taxes                                    |                   |   | 117   |    |      |   | 120   |   
|              | Stranded costs and other costs recoverable under PA 141           |                   |   | 21    |    |      |   |      |   
|              | Unamortized loss on reacquired debt                               |                   |   | 20    |    |      |   | 20    |   
|              | Electric Choice implementation costs                              |                   |   | 76    |    |      |   | 53    |   
|              | Other                                                             |                   |   | 25    |    |      |   | 6     |   
|              |                                                                   |                   |   |       |    |      |   |       |   
|              | Total Assets                                                      |                   | $ | 2,756 |    |      | $ | 2,833 |   
|              |                                                                   |                   |   |       |    |      |   |       |   
|Liabilities   |                                                                   |                   |   |       |    |      |   |      
|              | Excess securitized savings                                        |                   |   | 37    |    |      |   | 43    |   
|              |                                                                   |                   |   |       |    |      |   |       |   
|              |                                                                   | Total Liabilities |   | $     | 37 |      |   | $     | 43 | 
|              |                                                                   |                   |   |       |    |      |   |       |   

Electric Industry Restructuring

Electric Rates, Customer Choice and Stranded Costs- In June 2000, PA 141
became effective. PA 141 provided Detroit Edison with the right to recover
stranded costs, codified and established January 1, 2002 as the date for full
implementation of the MPSCs existing Electric Choice program, and required the
MPSC to reduce residential electric rates by 5%. At that time, Public Act 142
(PA 142) also became effective. PA 142 provided for the recovery through
securitization of qualified costs which consist of an electric utilitys
regulatory assets, plus various costs, associated with, or resulting from, the
establishment of a competitive electric market and the issuance of
securitization bonds.

Acting pursuant to PA 141, in an order issued in June 2000, the MPSC reduced
Detroit Edisons residential electric rates by 5% and imposed a rate freeze for
all classes of customers through 2003. In April 2001, commercial and
industrial rates were lowered by 5% as a result of savings derived from the
issuance of securitization bonds in March 2001, as subsequently discussed.

The legislation also contains provisions freezing rates through 2003 and
preventing rate increases for residential customers through 2005 and for small
business customers through 2004. Certain costs may be deferred and recovered
once rates can be increased. This rate cap may be lifted when certain market
test provisions are met, specifically, when an electric utility has no more
than 30% of generation capacity in its relevant market, with consideration for
capacity needed to meet a utilitys responsibility to serve its retail
customers. Statewide, multi-utility transmission system improvements also are
required. Detroit Edison expects that these market and transmission
improvement conditions will be met, and the rate cap will not continue after
the dates specified in the legislation.

31



---



##### Table of Contents



As required by PA 141, the MPSC conducted a proceeding to develop a methodology
for calculating the net stranded costs associated with electric Customer
Choice. In a December 2001 order, the MPSC determined that Detroit Edison
could recover net stranded costs associated with the fixed cost component of
its electric generation operations. Specifically, there would be an annual
filing with the MPSC comparing the receipt of revenues associated with the
fixed cost component of its generation services to the revenue requirement for
the fixed cost component of those services, inclusive of an allowance for the
cost of capital. Any resulting shortfall in recovery, net of mitigation, would
be considered a net stranded cost. The MPSC, in its December 2001 order, also
determined that Detroit Edison had no net stranded costs in 2000 and
consequently established a zero net stranded cost transition charge for billing
purposes in 2002. The MPSC authorized Detroit Edison to establish a regulatory
asset to defer recovery of its incurred stranded costs, subject to review in a
subsequent annual net stranded cost proceeding. The MPSC also determined that
Detroit Edison should provide a full and offsetting credit for the
securitization and tax charges applied to electric Customer Choice bills in
2002. In addition, the MPSC ordered an additional credit on bills equal to the
5% rate reduction realized by full service customers. Both credits were to be
funded from savings derived from securitization. The December 2001 order,
coupled with lower wholesale power prices in 2002, has encouraged additional
customer participation in the electric Customer Choice program and has resulted
in the loss of margins attributable to generation services. In May 2002, the
MPSC denied Detroit Edisons request for rehearing and clarification. In June
2002, Detroit Edison filed an appeal of the MPSC order at the Michigan Court of
Appeals, challenging the legality of specific aspects of the MPSC order. The
Court of Appeals has not yet issued a decision on this appeal.

In May 2002, Detroit Edison submitted its 2002 net stranded cost filing with
the MPSC. The filing provides refinements to the MPSC Staffs calculation of
net stranded costs that was adopted in the December 2001 order, seeks more
timely recovery of net stranded costs, and addresses issues raised by the
continuation of securitization offsets and rate reduction equalization credits.
Detroit Edisons filing supports the following conclusions: (i) Detroit Edison
had no net stranded costs in 2000 and $13 million of recoverable net stranded
costs attributable to electric Customer Choice in 2001; (ii) Detroit Edison
requested recovery of 2001 net stranded costs through the use of excess
securitization savings; (iii) Detroit Edison expects to incur additional net
stranded costs in 2002 and 2003 as a result of increased electric Customer
Choice participation; and (iv) Detroit Edison recommended that a pro-forma or
forward looking transition charge be approved for billing during the remainder
of 2002 and for 2003 to eliminate the time lag between the occurrence and
recovery of net stranded costs inherent in the methodology approved in the
December 2001 order. In November 2002, the MPSC Staff and other interveners
submitted their 2002 net stranded cost filings. In the fourth quarter of 2002,
Detroit Edison recorded a regulatory asset of $21 million representing 2002 net
stranded costs and the deferral of other costs recoverable under PA 141. The
effect of recording the regulatory asset increased 2002 earnings by $13
million, net of taxes. The MPSC has not yet acted upon this Detroit Edison
filing.

In several orders issued in June 2000, the MPSC determined that adjusting rates
for changes in fuel and purchased power expenses through continuance of the
Power Supply Cost Recovery (PSCR) clause would be inconsistent with the rate
freeze required by PA 141. Detroit Edison was not permitted to collect the
1998 PSCR under-recovery of $9 million, plus accrued interest of $3 million.
Also, Detroit Edison was not required to refund approximately $55 million of
liabilities for over-recoveries of PSCR expenses for 1999 and 2000, and
disallowances under the performance standard mechanism for our Fermi 2 nuclear
power plant. In January and March 2002, the Michigan Court of Appeals rejected
appeals and motions for rehearing filed by parties opposing the MPSCs actions
in this proceeding. In March 2002, the Michigan Attorney General applied for
leave to appeal at the Michigan Supreme Court. The court has issued an order
indicating that it will not hear the case.

It is unclear at this time whether the PSCR clause will be suspended beyond
2003.

32



---



##### Table of Contents



Securitization In an order issued in November 2000 and clarified in January
2001, the MPSC approved the issuance of securitization bonds to recover
qualified costs that include the unamortized investment in Fermi 2, costs of
certain other regulatory assets, Electric Choice implementation costs, costs of
issuing securitization bonds, and the costs of retiring securities with the
proceeds of securitization. The order permits the collection of these
qualifying costs from Detroit Edisons customers.

Detroit Edison formed The Detroit Edison Securitization Funding LLC
(Securitization LLC), a wholly owned subsidiary, for the purpose of
securitizing its qualified costs. In March 2001, the Securitization LLC issued
$1.75 billion of Securitization Bonds, and Detroit Edison sold $1.75 billion of
qualified costs to the Securitization LLC. The Securitization Bonds mature
over a 14-year period and have an annual average interest rate of 6.3% over the
life of the bonds. Detroit Edison used the proceeds to retire debt and equity
in approximately equal amounts. DTE Energy likewise retired approximately 50%
debt and 50% equity with the proceeds received as the sole shareholder of
Detroit Edison. Detroit Edison implemented a non-bypassable surcharge on its
customer bills, effective March 26, 2001, for the purpose of collecting amounts
sufficient to provide for the payment of interest and principal and the payment
of income tax on the additional revenue from the surcharge. As a result of
securitization, Detroit Edison established a regulatory asset for securitized
costs including costs that had previously been recorded in other regulatory
asset accounts.

The Securitization LLC is independent of Detroit Edison, as is its ownership of
the qualified costs. Due to principles of consolidation, qualified costs sold
by Detroit Edison to the Securitization LLC and the $1.75 billion of
securitization bonds appear on the companys consolidated statement of
financial position. The company makes no claim to these assets. Ownership of
such assets has vested in the Securitization LLC and been assigned to the
trustee for the Securitization Bonds. Funds collected by Detroit Edison,
acting in the capacity of a service for the Securitization LLC, are remitted to
the trustee for the Securitization Bonds. Neither the qualified costs which
were sold nor funds collected from Detroit Edisons customers for the payment
of costs related to the Securitization LLC and Securitization Bonds are
available to Detroit Edisons creditors.

Other

In accordance with a November 1997 MPSC order, Detroit Edison reduced rates by
$53 million annually to reflect the scheduled reduction in the revenue
requirement for Fermi 2. The $53 million reduction was effective in January
1999. In addition, the November 1997 MPSC order authorized the deferral of $30
million of storm damage costs and amortization and recovery of the costs over a
24-month period commencing January 1998. After various legal appeals, the
Michigan Court of Appeals remanded back to the MPSC for hearing the November
1997 order. In December 2000, the MPSC issued an order reopening the case for
hearing. The parties in the case have agreed to a stipulation of fact and
waiver of hearing. In June 2002, the MPSC issued an order modifying its 1997
order that will require Detroit Edison to refund approximately $1.5 million
after January 1, 2004. In July 2002, the Michigan Attorney General filed an
appeal with the Michigan Court of Appeals regarding the June 2002 MPSC Order.

In November 2002, the MPSC requested Michigan gas and electric utilities to
justify why their retail rates should not be lowered due to potential personal
property tax reductions. We have responded and await further MPSC action.

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

33



---



##### Table of Contents



NOTE 7  NUCLEAR OPERATIONS

General

Fermi 2, our nuclear generating plant, began commercial operation in 1988. The
Nuclear Regulatory Commission (NRC) has jurisdiction over the licensing and
operation of Fermi 2. Fermi 2 has a design electrical rating (net) of 1,150
Megawatts. This plant represents approximately 10% of Detroit Edisons summer
net rated capability. The net book balance of the Fermi 2 plant was written
off at December 31, 1998, and an equivalent regulatory asset was established.
In 2001, the Fermi 2 regulatory asset was securitized. See Note 6  Regulatory
Matters. Detroit Edison also owns Fermi 1, a nuclear plant that was shut down
in 1972 and is currently being decommissioned.

Property Insurance

Detroit Edison maintains several different types of property insurance policies
specifically for the Fermi 2 plant. These policies cover such items as
replacement power and property damage. The Nuclear Electric Insurance Limited
(NEIL) is the primary supplier of these insurance polices. Under the NEIL
policies, Detroit Edison could be liable for maximum assessments of up to
approximately $27 million per event if the loss associated with any one event
at any nuclear plant in the United States should exceed the accumulated funds
available to NEIL.

Detroit Edison maintains a policy for extra expenses, including replacement
power costs necessitated by Fermi 2s unavailability due to an insured event.
These policies have a 12-week waiting period and provide three years of
coverage.

Detroit Edison has $500 million in primary coverage and $2.25 billion of excess
coverage for stabilization, decontamination, debris removal, repair and/or
replacement of property and decommissioning. The combined coverage limit for
total property damage is $2.75 billion.

For multiple terrorism losses occurring within one year after the first loss
from terrorism, the NEIL policies would make available to all insured entities
up to $3.2 billion plus any amounts recovered from reinsurance, government
indemnity, or other sources to cover losses.

Public Liability Insurance

As required by federal law, Detroit Edison increased the amount of public
liability insurance for a nuclear incident from $200 million to $300 million,
effective January 1, 2003. For liabilities arising out of terrorist acts, the
policy is now subject to one industry aggregate limit of $300 million.
Further, under the Price-Anderson Amendments Act of 1988 (Act), deferred
premium charges up to $84 million could be levied against each licensed nuclear
facility, but not more than $10 million per year per facility. Thus, deferred
premium charges could be levied against all owners of licensed nuclear
facilities in the event of a nuclear incident at any of these facilities. The
Act expired on August 1, 2002, however the provisions of the Act remain in
effect for existing reactors. Legislation to extend the Act is currently under
debate in Congress. President Bush has expressed his support to extend the Act.
We cannot predict whether the legislation will pass the Congress.

34



---



##### Table of Contents



Decommissioning

The NRC has jurisdiction over the decommissioning of nuclear power plants and
requires decommissioning funding based upon a formula. The MPSC and FERC
regulate the recovery of costs of decommissioning nuclear power plants and both
require the use of external trust funds to finance the decommissioning of Fermi
2. Rates approved by the MPSC provide for the recovery of decommissioning
costs of Fermi 2. Detroit Edison is continuing to fund FERC jurisdictional
amounts for decommissioning even though explicit provisions are not included in
FERC rates. We believe the MPSC and FERC collections will be adequate to fund
the estimated cost of decommissioning using the NRC formula.

Detroit Edison has established a restricted external trust to hold funds
collected from customers for decommissioning and the disposal of low-level
radioactive waste. During 2002, Detroit Edison collected $42 million and in
2001 and 2000, Detroit Edison collected a total of $38 million each year from
customers for decommissioning and low-level radioactive waste disposal. Such
amounts were recorded as components of depreciation, depletion and amortization
expense, and in other liabilities. Net unrealized investment losses of $39
million and $23 million in 2002 and 2001, respectively, were recorded as
adjustments to the nuclear decommissioning trust funds and other liabilities.
At December 31, 2002, investments in the external trust consisted of
approximately 42.7% in publicly traded equity securities, 43.7% in fixed debt
instruments and 13.6% in cash equivalents. Investments in debt and equity
securities held within the external trust are classified as available for
sale.

At December 31, 2002 and 2001, Detroit Edison had reserves of $377 million and
$372 million, respectively, for the future decommissioning of Fermi 2, and $22
million and $26 million, respectively, for the decommissioning of Fermi 1.
Detroit Edison also had a reserve of $17 million for low-level radioactive
waste disposal costs at December 31, 2002 and $14 million as of December 31,
2001. These reserves are included in other liabilities, with an equivalent
amount invested in an external trust. It is estimated that the cost of
decommissioning Fermi 2, when its license expires in 2025, will be $947 million
in 2002 dollars and $3.4 billion in 2025 dollars, using a 6% inflation rate.
In 2001, the company began the decommissioning of Fermi 1, with the goal of
removing the radioactive material and terminating the Fermi 1 license. The
decommissioning is expected to be complete by 2008.

Nuclear Fuel Disposal Costs

In accordance with the Federal Nuclear Waste Policy Act of 1982, Detroit Edison
has a contract with the U.S. Department of Energy (DOE) for the future storage
and disposal of spent nuclear fuel from Fermi 2. Detroit Edison is obligated
to pay the DOE a fee of one mill per net kilowatthour of Fermi 2 electricity
generated and sold. The fee is a component of nuclear fuel expense. Delays
have occurred in the DOEs program for the acceptance and disposal of spent
nuclear fuel at a permanent repository. Until the DOE is able to fulfill its
obligation under the contract, Detroit Edison is responsible for the spent
nuclear fuel storage. Detroit Edison estimates that existing storage capacity
will be sufficient until 2007. Detroit Edison has entered into litigation
against the DOE for damages caused by the DOE not accepting spent nuclear fuel
on a timely basis.

35



---



##### Table of Contents



NOTE 8  JOINTLY OWNED UTILITY PLANT

Detroit Edisons share of jointly owned utility plants at December 31, 2002 was
as follows:

|                                       |  |             |           |                |  |               |      |  
|-------------------------------------- |  | ----------- | --------- | -------------- |  | ------------- | ---- | -
|                                       |  |             |           |                |  | Ludington    
|                                       |  |             |           |                |  | Hydroelectric
|                                       |  | Belle River |           | Pumped Storage
|                                       |  |             |           |               
|In-service date                        |  |             | 1984-1985 |                |  |               | 1973 |  
|Ownership interest                     |  |             | *         |                |  |               | 49   | %
|Investment (in Millions)               |  | $           | 1,021     |                |  | $             | 196  |  
|Accumulated depreciation (in Millions) |  | $           | 478       |                |  | $             | 108  |  



---

|* |  | Detroit Edisons ownership interest is 63% in Unit No. 1, 81% of the
facilities applicable to Belle River used jointly by the Belle River and
St. Clair Power Plants, 49% in certain transmission lines, and 75% in
common facilities used at Unit No. 2.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Belle River

The Michigan Public Power Agency (MPPA) has an ownership interest in Belle
River Unit No. 1 and other related facilities. The MPPA is entitled to 19% of
the total capacity and energy of the plant (1,026 MW) and is responsible for
the same percentage of the plants operation, maintenance and capital
improvements costs.

Ludington Hydroelectric Pumped Storage

Operation, maintenance and other expenses of the Ludington Hydroelectric Pumped
Storage Plant (1,872 MW) are shared by Detroit Edison and Consumers Energy
Company in proportion to their respective plant ownership interests.

NOTE 9  INCOME TAXES

We are part of the consolidated federal income tax return of DTE Energy. The
federal income tax expense for Detroit Edison is determined on an individual
company basis with no allocation of tax benefits or expenses from other
affiliates of DTE Energy.

Total income tax expense varied from the statutory federal income tax rate for
the following reasons:

|                                         |       |   |      |     |      |   |      |    |  |   |      |     | 
|---------------------------------------- | ----- | - | ---- | --- | ---- | - | ---- | -- |  | - | ---- | --- | 
|                                         |       |   | 2002 |     | 2001 |   | 2000
|                                         |       |   |      |     |      |   |     
|(Dollars in Millions)                    |       |   |      |     |      |   |      |    |  |   |      |    
|Effective federal income tax rate        |       |   | 33.3 | %   |      |   | 26.3 | %  |  |   | 29.5 | %  
|                                         |       |   |      |     |      |   |      |    |  |   |      |    
|Income tax expense at 35% statutory rate |       | $ | 187  |     |      | $ | 112  |    |  | $ | 204  |    
|Removal costs                            |       |   |     |     |      |   |     |    |  |   | (24  | )  
|Investment tax credits                   |       |   | (7   | )   |      |   | (7   | )  |  |   | (10  | )  
|Depreciation                             |       |   | 3    |     |      |   | 3    |    |  |   | 11   |    
|Research expenditures tax credits        |       |   |     |     |      |   | (7   | )  |  |   |     |    
|Employee Stock Ownership Plan dividends  |       |   | (3   | )   |      |   | (2   | )  |  |   |     |    
|Other-net                                |       |   | (2   | )   |      |   | (15  | )  |  |   | (9   | )  
|                                         |       |   |      |     |      |   |      |    |  |   |      |    
|                                         | Total |   | $    | 178 |      |   | $    | 84 |  |   | $    | 172 | 
|                                         |       |   |      |     |      |   |      |    |  |   |      |    

36



---



##### Table of Contents



Components of income tax expense were as follows:

|                                             |       |   |      |     |      |   |      |    |  |   |     |     | 
|-------------------------------------------- | ----- | - | ---- | --- | ---- | - | ---- | -- |  | - | --- | --- | 
|                                             |       |   | 2002 |     | 2001 |   | 2000
|                                             |       |   |      |     |      |   |     
|(in Millions)                                |       |   |      |     |      |   |      |    |  |   |     |    
|Current federal and other income tax expense |       | $ | 236  |     |      | $ | 199  |    |  | $ | 245 |    
|Deferred federal income tax benefit          |       |   | (58  | )   |      |   | (115 | )  |  |   | (73 | )  
|                                             |       |   |      |     |      |   |      |    |  |   |     |    
|                                             | Total |   | $    | 178 |      |   | $    | 84 |  |   | $   | 172 | 
|                                             |       |   |      |     |      |   |      |    |  |   |     |    

Deferred tax assets and liabilities are recognized for the estimated future tax
effect of temporary differences between the tax basis of assets or liabilities
and the reported amounts in the financial statements. Deferred tax assets and
liabilities are classified as current or noncurrent according to the
classification of the related assets or liabilities. Deferred tax assets and
liabilities not related to assets or liabilities are classified according to
the expected reversal date of the temporary differences.

Deferred income tax assets (liabilities) were comprised of the following at
December 31:

|                                |  |      |        |      |  |   |        |  
|------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                                |  | 2002 |        | 2001
|                                |  |      |        |     
|(in Millions)                   |  |      |        |      |  |   |        |  
|Property                        |  | $    | (1,009 | )    |  | $ | (986   | )
|Securitized regulatory assets   |  |      | (871   | )    |  |   | (909   | )
|Pension and benefits            |  |      | 292    |      |  |   | 56     |  
|Other                           |  |      | 74     |      |  |   | 62     |  
|                                |  |      |        |      |  |   |        |  
|                                |  | $    | (1,514 | )    |  | $ | (1,777 | )
|                                |  |      |        |      |  |   |        |  
|Deferred income tax liabilities |  | $    | (2,062 | )    |  | $ | (2,275 | )
|Deferred income tax assets      |  |      | 548    |      |  |   | 498    |  
|                                |  |      |        |      |  |   |        |  
|                                |  | $    | (1,514 | )    |  | $ | (1,777 | )
|                                |  |      |        |      |  |   |        |  

NOTE 10  PREFERRED AND PREFERENCE SECURITIES

At December 31, 2002, Detroit Edison had 6.75 million shares of preferred stock
with a par value of $100 per share and 30 million shares of preference stock
with a par value of $1 per share authorized, with no shares issued.

37



---



##### Table of Contents



NOTE 11  LONG-TERM DEBT

Our long-term debt outstanding and weighted average interest rates of debt
outstanding at December 31 were:

|                                                 |                       |   |       |       |      |   |       |       | 
|------------------------------------------------ | --------------------- | - | ----- | ----- | ---- | - | ----- | ----- | 
|                                                 |                       |   | 2002  |       | 2001
|                                                 |                       |   |       |       |     
|(in Millions)                                    |                       |   |       |       |      |   |       |      
|Detroit Edison Taxable Debt, Principally Secured |                       |   |       |       |      |   |       |      
|                                                 | 6.3% due 2003 to 2034 |   | $     | 1,812 |      |   | $     | 1,548 | 
|Detroit Edison Tax Exempt Revenue Bonds          |                       |   |       |       |      |   |       |      
|                                                 | 5.8% due 2004 to 2032 |   |       | 1,208 |      |   |       | 1,144 | 
|Quarterly Income Debt Securities                 |                       |   |       |       |      |   |       |      
|                                                 | 7.5% due 2026 to 2028 |   |       | 385   |      |   |       | 385   | 
|Other Long-Term Debt                             |                       |   | 87    |       |      |   | 90    |      
|                                                 |                       |   |       |       |      |   |       |       | 
|                                                 |                       |   | 3,492 |       |      |   | 3,167 |      
|Less amount due within one year                  |                       |   | (222  | )     |      |   | (129  | )    
|                                                 |                       |   |       |       |      |   |       |       | 
|                                                 |                       | $ | 3,270 |       |      | $ | 3,038 |      
|                                                 |                       |   |       |       |      |   |       |       | 
|Securitization Bonds                             |                       | $ | 1,673 |       |      | $ | 1,746 |      
|Less amount due within one year                  |                       |   | (88   | )     |      |   | (73   | )    
|                                                 |                       |   |       |       |      |   |       |       | 
|                                                 |                       | $ | 1,585 |       |      | $ | 1,673 |      
|                                                 |                       |   |       |       |      |   |       |       | 

During 2002 and 2001, we issued and repurchased long-term debt consisting of
the following:

2002



| |  | Issued $225 million of Detroit Edison senior notes bearing interest at 5.20 % and maturing in 2012                                                                                         
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Issued $225 million of Detroit Edison senior notes bearing interest at 6.35 % and maturing in 2032                                                                                         
| 
| |  | Issued $64 million of Detroit Edison tax exempt bonds bearing interest at 5.45% and issued $56 million of Detroit Edison
tax exempt bonds bearing interest at 5.25%, both maturing in 2032.

2001



| |  | Issued $1.75 billion of Securitization Bonds by the Securitization LLC                                                                                                                                             
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Redeemed $1.3 billion of Detroit Edison debt, of which $1.1 billion represented unscheduled redemptions                                                                                                            
| 
| |  | Entered into a Detroit Edison financing arrangement for certain equipment with a value of approximately $90 million. The
arrangement has an implicit interest rate of 7.6% with a term of approximately nine years.

In the years 2003  2007, our long-term debt maturities are $310 million, $138
million, $496 million, $126 million and $138 million, respectively.

Quarterly Income Debt Securities (QUIDS)

Each series of QUIDS provides that interest will be paid quarterly. However,
we have the right to extend the interest payment period on the QUIDS for up to
20 consecutive interest payment periods. Interest would continue to accrue
during the deferral period. If this right is exercised, we may not declare or
pay dividends on, or redeem, purchase or acquire, any of its capital stock
during the deferral period.

38



---



##### Table of Contents



Cross Default Provisions

Substantially all of the net utility properties of Detroit Edison are subject
to the lien of its mortgage. Should Detroit Edison fail to timely pay their
indebtedness under this mortgage, such failure will create cross defaults in
substantially all of our indebtedness.

NOTE 12  SHORT-TERM CREDIT ARRANGEMENTS AND BORROWINGS

In October 2002, we entered into a $135 million, 364-day revolving facility and
a $65 million, three-year revolving facility. These credit facilities can be
used for general corporate purposes, but are primarily intended to provide
liquidity for our commercial paper program. Important aspects of these
agreements require us to maintain a debt to total capitalization ratio of not
more than .65 to 1, and a earnings before interest, taxes, depreciation and
amortization to interest ratio of no less than 2 to 1. There were no
borrowings outstanding at December 31, 2002 and 2001.

Detroit Edison has a $200 million short-term financing agreement secured by
customer accounts receivable and unbilled revenues. There were no outstanding
amounts under this financing agreement at December 31, 2002 and 2001.

NOTE 13  CAPITAL AND OPERATING LEASES

Lessee- We lease various assets under capital and operating leases, including
lake vessels, locomotives, coal cars, computers, vehicles and other equipment.
The lease arrangements expire at various dates through 2022 with renewal
options extending beyond that date.

Future minimum lease payments under non-cancelable leases at December 31, 2002
were:

|                                            |  |         |     |           |  |   |     | 
|------------------------------------------- |  | ------- | --- | --------- |  | - | --- | 
|                                            |  | Capital |     | Operating
|                                            |  | Leases  |     | Leases   
|                                            |  |         |     |          
|(in Millions)                               |  |         |     |           |  |   |     | 
|2003                                        |  | $       | 15  |           |  | $ | 26  | 
|2004                                        |  |         | 12  |           |  |   | 28  | 
|2005                                        |  |         | 11  |           |  |   | 29  | 
|2006                                        |  |         | 13  |           |  |   | 29  | 
|2007                                        |  |         | 10  |           |  |   | 28  | 
|2008 and thereafter                         |  |         | 62  |           |  |   | 129 | 
|                                            |  |         |     |           |  |   |     | 
|Total minimum lease payments                |  |         | 123 |           |  | $ | 269 | 
|                                            |  |         |     |           |  |   |     | 
|Less imputed interest                       |  |         | (34 | )         |  |   |     | 
|                                            |  |         |     |           |  |   |     | 
|Present value of net minimum lease payments |  |         | 89  |           |  |   |     | 
|Less current portion                        |  |         | (9  | )         |  |   |     | 
|                                            |  |         |     |           |  |   |     | 
|Non-current portion                         |  | $       | 80  |           |  |   |     | 
|                                            |  |         |     |           |  |   |     | 

Rental expenses for operating leases was $26 million in 2002, $9 million in
2001 and $9 million in 2000.

39



---



##### Table of Contents



NOTE 14  FINANCIAL AND OTHER DERIVATIVE INSTRUMENTS

In 1998, FASB issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 133, establishes accounting and reporting
standards for derivative instruments and hedging activities. Listed below are
important SFAS No. 133 requirements:



| |  | All derivative instruments must be recognized as assets or liabilities
and measured at fair value, unless they meet the normal purchases and
sales exemption.                                                                                                                                                                                                                                                                                                                     
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The accounting for changes in fair value depends upon the purpose of
the derivative instrument and whether it is designated as a hedge and
qualifies for hedge accounting.                                                                                                                                                                                                                                                                                                          
| 
| |  | Special accounting is allowed for a derivative instrument qualifying
as a hedge and designated as a hedge for the variability of cash flow
associated with a forecasted transaction. Gain or loss associated with
the effective portion of the hedge is recorded in other comprehensive
income. The ineffective portion is recorded to earnings. Amounts
recorded in other comprehensive income will be reclassified to net
income when the forecasted transaction affects earnings.
| 
| |  | If a cash flow hedge is discontinued because it is unlikely the
forecasted transaction will not occur, net gains or losses are
immediately recorded into earnings.                                                                                                                                                                                                                                                                                                                  
| 
| |  | Special accounting is allowed for a derivative instrument qualifying
as a hedge and designated as a hedge of the changes in fair value of
an existing asset, liability or firm commitment. Gain or loss on the
hedging instrument is recorded into earnings. The gain or loss on the
underlying asset, liability or firm commitment is also recorded into
earnings.                                                                                                                 

SFAS No. 133 requires that as of the date of initial adoption, the difference
between the fair value of derivative instruments and the previous carrying
amount of those derivatives be reported in net income or other comprehensive
income as the cumulative effect of a change in accounting principle.

In 2001 we adopted SFAS No. 133. The financial statement impact of recording
the various SFAS No. 133 transactions at January 1, 2001 was as follows:

|                                                        |                          |   |            |    |  
|------------------------------------------------------- | ------------------------ | - | ---------- | -- | -
|                                                        |                          |   | Increase  
|                                                        |                          |   | (Decrease)
|                                                        |                          |   |           
|(in Millions)                                           |                          |   |            |   
|Financial Statement Line Item                           |                          |   |            |   
|Assets from risk management and trading activities      |                          | $ | 26         |   
|Liabilities from risk management and trading activities |                          | $ | 10         |   
|Deferred income taxes payable                           |                          | $ | 6          |   
|Cumulative effect of a change in accounting principle:  |                          |   |            |   
|                                                        | Other comprehensive loss |   | $          | 13 |  
|                                                        | Net income               |   | $          | (3 | )

Our primary market risk exposure is associated with commodity prices and
interest rates. We have risk management policies to monitor and decrease
market risks. We use derivative instruments to manage some of the exposure. We
do not hold or issue derivative instruments for trading purposes. The fair
value of all derivatives is shown as assets or liabilities from risk
management and trading activities in the consolidated statement of financial
position.

40



---



##### Table of Contents



Credit Risk

We are exposed to credit risk if customers or counterparties do not comply with
their contractual obligations. We maintain credit policies that significantly
minimize overall credit risk. These policies include an evaluation of
potential customers and counterparties financial condition, credit rating,
collateral requirements or other credit enhancements such as letters of credit
or guarantees. We use standardized agreements that allow the netting of
positive and negative transactions associated with a single counterparty.

Commodity Price Risk

We use forward energy, capacity, and futures contracts to manage changes in the
price of electricity and natural gas. Certain contracts have been designated
as cash flow hedges of forecasted purchases of power and natural gas. For the
year ended December 31, 2002, we recorded a loss of $0.7 million, net of tax,
in other comprehensive loss for these hedges. Amounts recorded in other
comprehensive income will be reclassified to fuel and purchased power expense
as the forecasted purchases of electricity affect earnings. During 2003 we
estimate $2.1 million of existing losses will be reclassified to fuel and
purchased power expense. Two years is the maximum length of time Detroit
Edison is hedging exposure to the variability of future cash flows.
Ineffectiveness recognized in hedging relationships was immaterial for the year
ended December 31, 2002.

In 2001, the FASB provided additional guidance on SFAS No. 133 for certain
contracts in the power generation industry. In particular, issue No. C15,
Scope Exceptions: Normal Purchases and Normal Sales Exception for Option-Type
Contracts and Forward Contracts in Electricity. Since electricity cannot be
readily stored in significant quantities, and the entity engaged in selling
electricity is obligated to maintain sufficient capacity to meet the needs of
customers, the FASB concluded an option contract for the purchase of
electricity meeting certain criteria is eligible for the normal purchases and
sales exception. Detroit Edison adopted this new guidance on July 1, 2001,
classified certain contracts as normal, and began amortizing the previously
recorded liability on option-like contracts over their remaining lives. Later
in 2001, the FASB issued additional revisions to issue No. C15 which were
effective in April 2002. The revised guidance differentiates traditional
capacity contracts used by electric utilities to meet electric load and
financial options on electricity. Traditional capacity contracts are eligible
for settlement accounting under the normal purchases and sales exception.
Financial options on electricity are not eligible for settlement accounting.
Financial options on electricity are recorded at fair value on the statement of
financial position using mark-to-market accounting. Certain of Detroit Edisons
forward electric contracts are considered normal purchases and sales and
therefore are excluded from the scope of SFAS No. 133.

Fair Value of Other Financial Instruments

The fair value of financial instruments is determined by using various market
data and other valuation techniques. The table below shows the fair value
relative to the carrying value for long-term debt:

|               |  |              |  |                |  |              |  |                |  |  |  |  |  |  |  | 
|-------------- |  | ------------ |  | -------------- |  | ------------ |  | -------------- |  |  |  |  |  |  |  | 
|               |  | 2002         |  | 2001          
|               |  |              |  |               
|               |  | Fair Value   |  | Carrying Value |  | Fair Value   |  | Carrying Value
|               |  |              |  |                |  |              |  |               
|Long-Term Debt |  | $5.6 billion |  | $5.2 billion   |  | $5.1 billion |  | $4.9 billion  

41



---



##### Table of Contents



NOTE 15  COMMITMENTS AND CONTINGENCIES

Personal Property Taxes

Detroit Edison and other Michigan utilities have asserted that Michigans
valuation tables result in the substantial overvaluation of utility personal
property. Valuation tables established by the Michigan State Tax Commission
(STC) are used to determine the taxable value of personal property based on the
propertys age. In November 1999, the STC approved new valuation tables that
more accurately recognize the value of a utilitys personal property. The new
tables became effective in 2000 and are currently used to calculate property
tax expense. However, several local taxing jurisdictions have taken legal
action attempting to prevent the STC from implementing the new valuation tables
and have continued to prepare assessments based on the superseded tables. The
legal actions regarding the appropriateness of the new tables were before the
Michigan Tax Tribunal (MTT) which, in April 2002, issued its decision
essentially affirming the validity of the STCs new tables. In June 2002,
petitioners in the case filed an appeal of the MTTs decision with the Michigan
Court of Appeals. The Michigan Court of Appeals has not yet issued a decision
on this appeal.

We record property tax expense based on the new tables. We will seek to apply
the new tables retroactively and to ultimately settle the pending tax appeals
related to 1997 through 1999. This is a solution supported by the STC in the
past. The legal action, along with possible additional appeals by local taxing
jurisdictions, is expected to delay any recoveries.

Commitments

We have Energy Purchase Agreement to purchase steam and electricity from the
Greater Detroit Resource Recovery Authority (GDRRA). Under the Agreement, we
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 and
purchased power expense with non-cash accretion expense being recorded through
2008. In 2001, due to changes in estimated future replacement costs we reduced
the reserve for future steam purchase commitments by $22 million. We purchased
$37 million of steam and electricity in 2002, $41 million in 2001 and $35
million in 2000. We estimate annual steam and electric purchase commitments
from 2003 until 2007 will not exceed $46 million per year. As discussed in
Note 4, in January 2003, we sold the steam heating business of Detroit Edison
to Thermal Ventures II, LLP. Due to terms of the sale, Detroit Edison will
remain contractually obligated to GDRRA until 2008 and will also record an
additional liability of $20 million for future commitments.

The EPA has issued ozone transport regulations and final new air quality
standards relating to ozone and particulate air pollution. In September 1998,
the EPA issued a State Implementation Plan (SIP) call giving states a year to
develop new regulations to limit nitrogen oxide emissions because of their
contribution to ozone formation. We have spent approximately $460 million
through December 2002 and estimate that we will incur approximately $300
million to $400 million of future capital expenditures over the next five to
eight years. In March 2000, the U.S. Court of Appeals ruled in favor of the
EPAs SIP call regulations. The new air quality standards have been upheld in
legal challenges in the U.S. Court of Appeals, but the U.S. Supreme Court has
agreed to hear the appeal. Until the legal issues are resolved, management is
unable to predict the full impact of the new air quality standards. Under the
June 2000 Michigan restructuring legislation, beginning January 1, 2004, annual
return of and on this capital expenditure, in excess of current depreciation
levels, would be deferred in ratemaking, until after the expiration of the rate
cap period, presently expected to end December 31, 2005.

42



---



##### Table of Contents



We have also entered into long-term fuel supply commitments of approximately
$450 million at December 31, 2002. We estimate that 2003 base level capital
expenditures will be $530 million. We have made commitments in connection with
expected capital expenditures.

Other Contingencies

We purchase and sell electricity to numerous companies operating in the steel,
automotive, energy and retail industries. During 2002 and 2001, a number of
customers have filed for bankruptcy protection under Chapter 11 of the U.S.
Bankruptcy Code, including certain Enron Corporation affiliates, National Steel
Company and Bethlehem Steel Company. We regularly review contingent matters
relating to purchase and sale contracts and record provisions for amounts
considered probable of loss. We believe our previously accrued amounts are
adequate for probable losses. The final resolution of these matters is not
expected to have a material effect on our financial statements in the period
they are resolved.

We are involved in certain legal (including commercial matters), 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, 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 financial statements in the period they are resolved.

See Note 6 and Note 7 for a discussion of contingencies related to Regulatory
Matters and Nuclear operations.

NOTE 16  RETIREMENT BENEFITS AND TRUSTEED ASSETS

Qualified Pension Plan Benefits

Detroit Edison has a defined benefit retirement plan. Effective December 31,
2001, the MCN Energy Group Retirement Plan, that covered nonunion employees,
merged into Detroit Edisons retirement plan. The combined plan is
noncontributory, covers substantially all employees and provides retirement
benefits based on the employees years of benefit service, average final
compensation and age at retirement. Detroit Edison operates as the sponsor of
the merged plan, which is treated as a multiemployer plan from the affiliates
perspective. The annual expense disclosed below is Detroit Edisons portion of
the total plan expense. Each affiliate is charged their portion of the
expense. Our policy is to fund pension cost by contributing the minimum amount
required by the Employee Retirement Income Security Act, and additional
amounts we deem appropriate.

43



---



##### Table of Contents



Net pension cost (credit) for the years ended December 31 includes the
following components:

|                                      |                      |   |      |    |      |   |      |    |   |   |      |    |  
|------------------------------------- | -------------------- | - | ---- | -- | ---- | - | ---- | -- | - | - | ---- | -- | -
|                                      |                      |   | 2002 |    | 2001 |   | 2000
|                                      |                      |   |      |    |      |   |     
|(in Millions)                         |                      |   |      |    |      |   |      |    |   |   |      |   
|Service Cost                          |                      | $ | 35   |    |      | $ | 35   |    |   | $ | 35   |   
|Interest Cost                         |                      |   | 124  |    |      |   | 117  |    |   |   | 107  |   
|Expected Return on Plan Assets        |                      |   | (133 | )  |      |   | (139 | )  |   |   | (139 | ) 
|Amortization of                       |                      |   |      |    |      |   |      |    |   |   |      |   
|                                      | Net loss             |   |      | 2  |      |   |      |   |   |   |      |   |  
|                                      | Prior service cost   |   |      | 9  |      |   |      | 10 |   |   |      | 10 |  
|                                      | Net transition asset |   |      | (1 | )    |   |      | (5 | ) |   |      | (4 | )
|Special Termination Benefits (Note 5) |                      |   |     |    |      |   | 119  |    |   |   |     |   
|                                      |                      |   |      |    |      |   |      |    |   |   |      |   
|Net Pension Cost (Credit)             |                      | $ | 36   |    |      | $ | 137  |    |   | $ | 9    |   
|                                      |                      |   |      |    |      |   |      |    |   |   |      |   

The following table reconciles the obligations, assets and funded status of the
plan as well as the amount recognized as pension liability in the consolidated
statement of financial position at December 31. The results include
liabilities and assets for Detroit Edison and all affiliates participating in
the combined plan. The prepaid asset contributed to the combined plan by such
affiliates is reflected as an amount due to affiliates, $187.3 million and
$143.1 million at December 31, 2002 and 2001, respectively.

44



---



##### Table of Contents



|                                                            |                      |   |       |    |      |   |       |     |  
|----------------------------------------------------------- | -------------------- | - | ----- | -- | ---- | - | ----- | --- | -
|                                                            |                      |   | 2002  |    | 2001
|                                                            |                      |   |       |    |     
|(in Millions)                                               |                      |   |       |    |      |   |       |    
|Accumulated Benefit Obligation at the End of the Period     |                      | $ | 2,104 |    |      | $ | 1,857 |    
|                                                            |                      |   |       |    |      |   |       |    
|Projected Benefit Obligation at the Beginning of the Period |                      | $ | 2,036 |    |      | $ | 1,540 |    
|Service Cost                                                |                      |   | 39    |    |      |   | 40    |    
|Interest Cost                                               |                      |   | 148   |    |      |   | 142   |    
|Actuarial Loss                                              |                      |   | 210   |    |      |   | 82    |    
|Special Termination Benefits (Note 5)                       |                      |   |      |    |      |   | 167   |    
|Benefits Paid                                               |                      |   | (146  | )  |      |   | (209  | )  
|Plan Amendments                                             |                      |   |      |    |      |   | (43   | )  
|Plan Merger                                                 |                      |   |      |    |      |   | 317   |    
|                                                            |                      |   |       |    |      |   |       |    
|Projected Benefit Obligation at the End of the Period       |                      | $ | 2,287 |    |      | $ | 2,036 |    
|                                                            |                      |   |       |    |      |   |       |    
|Plan Assets at Fair Value at the Beginning of the Period    |                      | $ | 1,865 |    |      | $ | 1,416 |    
|Actual Return on Plan Assets                                |                      |   | (182  | )  |      |   | (48   | )  
|Company Contributions                                       |                      |   | 35    |    |      |   | 35    |    
|Benefits Paid                                               |                      |   | (146  | )  |      |   | (209  | )  
|Plan Merger                                                 |                      |   |      |    |      |   | 671   |    
|                                                            |                      |   |       |    |      |   |       |    
|Plan Assets at Fair Value at the End of the Period          |                      | $ | 1,572 |    |      | $ | 1,865 |    
|                                                            |                      |   |       |    |      |   |       |    
|Funded Status of the Plans                                  |                      | $ | (715  | )  |      | $ | (171  | )  
|Unrecognized
   Net loss                                    |                      |   | 815   |    |      |   | 256   |    
|                                                            | Prior service cost   |   |       | 58 |      |   |       | 35  |  
|                                                            | Net transition asset |   |       | (8 | )    |   |       | (14 | )
|                                                            |                      |   |       |    |      |   |       |    
|Net Amount Recognized                                       |                      | $ | 150   |    |      | $ | 106   |    
|                                                            |                      |   |       |    |      |   |       |    
|Amount Recorded as:                                         |                      |   |       |    |      |   |       |    
|Prepaid Pension Asset                                       |                      | $ |      |    |      | $ | 106   |    
|Accrued Pension Liability                                   |                      |   | (531  | )  |      |   |      |    
|Accumulated Other Comprehensive Loss                        |                      |   | 632   |    |      |   |      |    
|Intangible Asset                                            |                      |   | 49    |    |      |   |      |    
|                                                            |                      |   |       |    |      |   |       |    
|                                                            |                      | $ | 150   |    |      | $ | 106   |    
|                                                            |                      |   |       |    |      |   |       |    

Assumptions used in determining the projected benefit obligation at December 31
are listed below:

|                                                 |  |      |      |      |  |      |      |   |  |  |     |  
|------------------------------------------------ |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | --- | -
|                                                 |  | 2002 |      | 2001 |  | 2000
|                                                 |  |      |      |      |  |     
|Discount rate                                    |  |      | 6.75 | %    |  |      | 7.25 | % |  |  | 7.5 | %
|Annual increase in future compensation levels    |  |      | 4.0  | %    |  |      | 4.0  | % |  |  | 4.0 | %
|Expected long-term rate of return on Plan assets |  |      | 9.0  | %    |  |      | 9.5  | % |  |  | 9.5 | %

In December 2002, we recognized an additional minimum pension liability as
required under SFAS No. 87, Employers Accounting for Pensions. An
additional pension liability may be required when the accumulated benefit
obligation of the plan exceeds the fair value of plan assets. Under SFAS No.
87, we recorded an additional minimum pension liability of $682 million, ($531
million after netting the previously recognized prepaid pension asset
associated with the nonunion plan), an intangible asset of $49 million and an
other comprehensive loss of $632 million ($411 million after tax).

45



---



##### Table of Contents



In January 2003, we made a $222 million cash contribution to our defined
benefit retirement plan.

We also sponsor defined contribution retirement savings plans. Participation
in one of these plans is available to substantially all union and nonunion
employees. We match employee contributions up to certain predefined limits
based upon eligible compensation, employee contributions and years of credited
service. The cost of these plans was $20 million in 2002, $21 million in 2001
and $22 million in 2000.

Nonqualified Pension Benefit Plans

We maintain three supplemental nonqualified, noncontributory, retirement
benefit plans for selected management employees. These plans provide for
benefits that supplement those provided by Detroit Edisons other retirement
plans.

Net pension cost for the years ended December 31 includes the following
components:

|                                      |                    |   |      |   |      |   |      |   |  |   |   |   | 
|------------------------------------- | ------------------ | - | ---- | - | ---- | - | ---- | - |  | - | - | - | 
|                                      |                    |   | 2002 |   | 2001 |   | 2000
|                                      |                    |   |      |   |      |   |     
|(in Millions)                         |                    |   |      |   |      |   |      |   |  |   |   |  
|Service Cost                          |                    | $ | 1    |   |      | $ | 1    |   |  | $ | 1 |  
|Interest Cost                         |                    |   | 2    |   |      |   | 2    |   |  |   | 1 |  
|Amortization of
   Net loss           |                    |   | 1    |   |      |   |     |   |  |   |  |  
|                                      | Prior service cost |   |      |  |      |   |      | 1 |  |   |   | 1 | 
|Special Termination Benefits (Note 5) |                    |   |     |   |      |   | 1    |   |  |   |  |  
|                                      |                    |   |      |   |      |   |      |   |  |   |   |  
|Net Pension Cost                      |                    | $ | 4    |   |      | $ | 5    |   |  | $ | 3 |  
|                                      |                    |   |      |   |      |   |      |   |  |   |   |  

The table below reconciles the obligations, assets and funded status of the
plans as well as the amounts recognized as an accrued pension liability in the
consolidated statement of financial position at
December 31:

46



---



##### Table of Contents



|                                                            |                    |   |      |   |      |   |     |   | 
|----------------------------------------------------------- | ------------------ | - | ---- | - | ---- | - | --- | - | 
|                                                            |                    |   | 2002 |   | 2001
|                                                            |                    |   |      |   |     
|(in Millions)                                               |                    |   |      |   |      |   |     |  
|Accumulated Benefit Obligation at the End of the Period     |                    | $ | 30   |   |      | $ | 24  |  
|                                                            |                    |   |      |   |      |   |     |  
|Projected Benefit Obligation at the Beginning of the Period |                    | $ | 25   |   |      | $ | 21  |  
|Service Cost                                                |                    |   | 1    |   |      |   | 1   |  
|Interest Cost                                               |                    |   | 2    |   |      |   | 2   |  
|Actuarial Loss                                              |                    |   | 5    |   |      |   | 1   |  
|Special Termination Benefits (Note 5)                       |                    |   |     |   |      |   | 1   |  
|Benefits Paid                                               |                    |   | (2   | ) |      |   | (1  | )
|                                                            |                    |   |      |   |      |   |     |  
|Projected Benefit Obligation at the End of the Period       |                    | $ | 31   |   |      | $ | 25  |  
|                                                            |                    |   |      |   |      |   |     |  
|Plan Assets at Fair Value at the Beginning of the Period    |                    | $ |     |   |      | $ |    |  
|Company Contributions                                       |                    |   | 2    |   |      |   | 1   |  
|Benefits Paid                                               |                    |   | (2   | ) |      |   | (1  | )
|                                                            |                    |   |      |   |      |   |     |  
|Plan Assets at Fair Value at the End of the Period          |                    | $ |     |   |      | $ |    |  
|                                                            |                    |   |      |   |      |   |     |  
|Funded Status of the Plans                                  |                    | $ | (31  | ) |      | $ | (25 | )
|Unrecognized
    Net loss                                   |                    |   | 10   |   |      |   | 6   |  
|                                                            | Prior service cost |   |      | 3 |      |   |     | 3 | 
|                                                            |                    |   |      |   |      |   |     |  
|Net Amount Recognized                                       |                    | $ | (18  | ) |      | $ | (16 | )
|                                                            |                    |   |      |   |      |   |     |  
|Amount Recorded as:                                         |                    |   |      |   |      |   |     |  
|Accrued Pension Liability                                   |                    | $ | (30  | ) |      | $ | (16 | )
|Accumulated Other Comprehensive Loss                        |                    |   | 9    |   |      |   |    |  
|Intangible Asset                                            |                    |   | 3    |   |      |   |    |  
|                                                            |                    |   |      |   |      |   |     |  
|                                                            |                    | $ | (18  | ) |      | $ | (16 | )
|                                                            |                    |   |      |   |      |   |     |  

Assumptions used in determining the projected benefit obligation at December 31
are listed below:

|                                              |  |      |      |      |  |      |      |   |  |  |     |  
|--------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | --- | -
|                                              |  | 2002 |      | 2001 |  | 2000
|                                              |  |      |      |      |  |     
|Discount rate                                 |  |      | 6.75 | %    |  |      | 7.25 | % |  |  | 7.5 | %
|Annual increase in future compensation levels |  |      | 4.0  | %    |  |      | 4.0  | % |  |  | 4.0 | %

Under SFAS No. 87, we recorded an additional minimum pension liability of $12
million, an intangible asset of $3 million and an other comprehensive loss of
$9 million ($6 million after tax).

Other Postretirement Benefits

We provide certain postretirement health care and life insurance benefits for
some employees who may become eligible for these benefits while working for us.
Our policy is to fund certain trusts to meet our postretirement benefit
obligations. Separate qualified Voluntary Employees Beneficiary Association
(VEBA) trusts exist for union and nonunion employees.

47



---



##### Table of Contents



Net postretirement cost for the years ended December 31 includes the following
components:

|                                      |                           |   |      |    |      |   |      |    |  |   |     |    | 
|------------------------------------- | ------------------------- | - | ---- | -- | ---- | - | ---- | -- |  | - | --- | -- | 
|                                      |                           |   | 2002 |    | 2001 |   | 2000
|                                      |                           |   |      |    |      |   |     
|(in Millions)                         |                           |   |      |    |      |   |      |    |  |   |     |   
|Service Cost                          |                           | $ | 25   |    |      | $ | 26   |    |  | $ | 22  |   
|Interest Cost                         |                           |   | 59   |    |      |   | 55   |    |  |   | 48  |   
|Expected Return on Plan Assets        |                           |   | (44  | )  |      |   | (47  | )  |  |   | (46 | ) 
|Amortization of
    Net loss          |                           |   | 2    |    |      |   | 1    |    |  |   |    |   
|                                      | Net transition obligation |   |      | 19 |      |   |      | 20 |  |   |     | 20 | 
|Special Termination Benefits (Note 5) |                           |   |     |    |      |   | 27   |    |  |   |    |   
|                                      |                           |   |      |    |      |   |      |    |  |   |     |   
|Net Postretirement Cost               |                           | $ | 61   |    |      | $ | 82   |    |  | $ | 44  |   
|                                      |                           |   |      |    |      |   |      |    |  |   |     |   

The table below reconciles the obligations, assets and funded status of the
plans including amounts recorded as accrued postretirement cost in the
consolidated statement of financial position at December 31:

|                                                                             |                           |                    |       |      |     |      |      |     |     |  
|---------------------------------------------------------------------------- | ------------------------- | ------------------ | ----- | ---- | --- | ---- | ---- | --- | --- | -
|                                                                             |                           |                    |       | 2002 |     | 2001
|                                                                             |                           |                    |       |      |     |     
|(in Millions)                                                                |                           |                    |       |      |     |      |      |    
|Accumulated Postretirement Benefit Obligation at the Beginning of the Period |                           | $                  | 863   |      |     | $    | 751  |    
|Service Cost                                                                 |                           |                    | 25    |      |     |      | 26   |    
|Interest Cost                                                                |                           |                    | 59    |      |     |      | 55   |    
|Actuarial Loss                                                               |                           |                    | 233   |      |     |      | 57   |    
|Special Termination Benefits (Note 5)                                        |                           |                    |      |      |     |      | 27   |    
|Plan Amendments                                                              |                           |                    |      |      |     |      | (12  | )  
|Benefits Paid                                                                |                           |                    | (49   | )    |     |      | (41  | )  
|                                                                             |                           |                    |       |      |     |      |      |    
|Accumulated Postretirement Benefit Obligation at the End of the Period       |                           | $                  | 1,131 |      |     | $    | 863  |    
|                                                                             |                           |                    |       |      |     |      |      |    
|Plan Assets at Fair Value at the Beginning of the Period                     |                           | $                  | 475   |      |     | $    | 517  |    
|Actual Return on Plan Assets                                                 |                           |                    | (39   | )    |     |      | (14  | )  
|Company Contributions                                                        |                           |                    | 33    |      |     |      | 11   |    
|Benefits Paid                                                                |                           |                    | (44   | )    |     |      | (39  | )  
|                                                                             |                           |                    |       |      |     |      |      |    
|Plan Assets at Fair Value at the End of the Period                           |                           | $                  | 425   |      |     | $    | 475  |    
|                                                                             |                           |                    |       |      |     |      |      |    
|Funded Status of the Plans                                                   |                           | $                  | (706  | )    |     | $    | (388 | )  
|Unrecognized                                                                 |                           |                    |       |      |     |      |      |    
|                                                                             |                           | Net loss           |       |      | 475 |      |      |     | 160 |  
|                                                                             |                           | Prior service cost |       |      | 3   |      |      |     | (12 | )
|                                                                             | Net transition obligation |                    |       | 191  |     |      |      | 226 |    
|                                                                             |                           |                    |       |      |     |      |      |    
|Accrued Postretirement Liability                                             |                           | $                  | (37   | )    |     | $    | (14  | )  
|                                                                             |                           |                    |       |      |     |      |      |    

Assumptions used in determining the projected benefit obligation at December 31
are listed below:

|                                                 |  |      |      |      |  |      |      |   |  |  |     |  
|------------------------------------------------ |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | --- | -
|                                                 |  | 2002 |      | 2001 |  | 2000
|                                                 |  |      |      |      |  |     
|Discount rate                                    |  |      | 6.75 | %    |  |      | 7.25 | % |  |  | 7.5 | %
|Expected long-term rate of return on Plan assets |  |      | 9.0  | %    |  |      | 9.5  | % |  |  | 9.0 | %

48



---



##### Table of Contents



Benefit costs were calculated assuming health care cost trend rates beginning
at 10% for 2003 and decreasing to 5% in 2009 and thereafter for persons under
age 65 and decreasing from 9% to 5% for persons age 65 and over. A
one-percentage-point increase in health care cost trend rates would have
increased the total service cost and interest cost components of benefit costs
by $12 million. The accumulated benefit obligation would have increased by $89
million at December 31, 2002. A one-percentage-point decrease in the health
care cost trend rates would have decreased the total service and interest cost
components of benefit costs by $10 million and would have decreased the
accumulated benefit obligation by $79 million at December 31, 2002.

In 2003, we amended our postretirement health care and life insurance plans to
reduce benefits, modify eligibility criteria and increase retiree co-pays. The
changes reduced the postretirement benefit obligation by $68 million and the
expected 2003 postretirement costs by $17 million. The reduction in
postretirement benefit obligation and costs is not reflected in the previous
tables.

NOTE 17  RELATED PARTY TRANSACTIONS

We have transactions with affiliated companies to provide fuel supply services
and power plant operation and maintenance services for the delivery of electric
energy. Under a service agreement with DTE Energy, we provide corporate
support services and various financial, auditing, tax, legal, treasury and cash
management, human resources, information technology, regulatory and other
services, which were billed to DTE Energy corporate. These administrative and
general expenses along with interest and financing costs were then billed down
to various subsidiaries of DTE Energy, including Detroit Edison. The net
amount of such expenses allocated to Detroit Edison included in the
consolidated statement of operations was $7 million in 2002 and $4 million in
2001.

We continue to bill and collect transmission revenues as currently authorized
in its bundled distribution rates approved by the MPSC. International
Transmission Company (ITC) provides transmission services to Detroit Edison and
other non-affiliated customers. ITC billed Detroit Edison approximately $119
million during 2002 and $57 million in 2001 from June 1, 2001 for the costs of
providing transmission services to utility customers.

As of December 31, 2002 and 2001, Detroit Edison reported net accounts payable
due to affiliated companies of $73 million and $113 million, respectively.

NOTE 18  SEGMENT AND RELATED INFORMATION

Beginning in 2002, we realigned our internal and external financial reporting
structure into two strategic business units (Energy Resources  Power
Generation and Energy Distribution  Power Distribution). Based on this
structure we set strategic goals, allocate resources and evaluate performance.

Energy Resourcesincludes the power generation services of Detroit Edison.
Electricity is generated from our numerous fossil plants or our nuclear plant
and sold throughout Southeastern Michigan to residential, commercial,
industrial and wholesale customers.

Energy Distributionincludes the power distribution services of Detroit Edison.
Energy Distribution distributes electricity generated by Energy Resources to
Detroit Edisons 2.1 million residential, commercial and industrial customers.

Inter-segment revenues are not material. Financial data of the business
segments follows:

49



---



##### Table of Contents



|                                 |  |           |       |              |  |              |     |        |  |        |     |        |  |              |     |   |  |   |      |   |  |   |        |  |  |   |     | 
|-------------------------------- |  | --------- | ----- | ------------ |  | ------------ | --- | ------ |  | ------ | --- | ------ |  | ------------ | --- | - |  | - | ---- | - |  | - | ------ |  |  | - | --- | 
|(in Millions)                    |  |           |       |              |  |              |     |        |  |        |     |        |  |              |     |   |  |   |      |   |  |   |        |  |  |   |     | 
|                                 |  |           |       |              |  | Depreciation |     |        |  |        |     |        |  |              |     |   |  |   |      |   |  |   |        |  |  |  
|                                 |  | Operating |       | And          |  | Interest     |     | Income |  | Net    |     | Total  |  | Capital     
|                                 |  | Revenue   |       | Amortization |  | Expense      |     | Taxes  |  | Income |     | Assets |  | Expenditures
|                                 |  |           |       |              |  |              |     |        |  |        |     |        |  |             
|2002                             |  |           |       |              |  |              |     |        |  |        |     |        |  |              |     |   |  |   |      |   |  |   |        |  |  |   |     | 
|Energy Resources                 |  | $         | 2,711 |              |  | $            | 331 |        |  | $      | 184 |        |  | $            | 120 |   |  | $ | 241  |   |  | $ | 7,356  |  |  | $ | 395 | 
|Energy Distribution              |  |           | 1,343 |              |  |              | 246 |        |  |        | 127 |        |  |              | 58  |   |  |   | 115  |   |  |   | 4,049  |  |  |   | 290 | 
|                                 |  |           |       |              |  |              |     |        |  |        |     |        |  |              |     |   |  |   |      |   |  |   |        |  |  |   |     | 
|Total                            |  | $         | 4,054 |              |  | $            | 577 |        |  | $      | 311 |        |  | $            | 178 |   |  | $ | 356  |   |  | $ | 11,405 |  |  | $ | 685 | 
|                                 |  |           |       |              |  |              |     |        |  |        |     |        |  |              |     |   |  |   |      |   |  |   |        |  |  |   |     | 
|2001                             |  |           |       |              |  |              |     |        |  |        |     |        |  |              |     |   |  |   |      |   |  |   |        |  |  |   |     | 
|Energy Resources                 |  | $         | 2,788 |              |  | $            | 385 |        |  | $      | 181 |        |  | $            | 83  |   |  | $ | 183  |   |  | $ | 7,260  |  |  | $ | 348 | 
|Energy Distribution              |  |           | 1,256 |              |  |              | 246 |        |  |        | 125 |        |  |              | 66  |   |  |   | 171  |   |  |   | 3,995  |  |  |   | 325 | 
|Merger and
Restructuring
Charges |  |           |      |              |  |              |    |        |  |        |    |        |  |              | (65 | ) |  |   | (121 | ) |  |   |       |  |  |   |    | 
|                                 |  |           |       |              |  |              |     |        |  |        |     |        |  |              |     |   |  |   |      |   |  |   |        |  |  |   |     | 
|Total                            |  | $         | 4,044 |              |  | $            | 631 |        |  | $      | 306 |        |  | $            | 84  |   |  | $ | 233  |   |  | $ | 11,255 |  |  | $ | 673 | 
|                                 |  |           |       |              |  |              |     |        |  |        |     |        |  |              |     |   |  |   |      |   |  |   |        |  |  |   |     | 
|2000                             |  |           |       |              |  |              |     |        |  |        |     |        |  |              |     |   |  |   |      |   |  |   |        |  |  |   |     | 
|Energy Resources                 |  | $         | 2,911 |              |  | $            | 468 |        |  | $      | 159 |        |  | $            | 120 |   |  | $ | 252  |   |  | $ | 7,085  |  |  | $ | 195 | 
|Energy Distribution              |  |           | 1,218 |              |  |              | 251 |        |  |        | 118 |        |  |              | 61  |   |  |   | 175  |   |  |   | 3,901  |  |  |   | 392 | 
|Merger and
Restructuring
Charges |  |           |      |              |  |              |    |        |  |        |    |        |  |              | (9  | ) |  |   | (16  | ) |  |   |       |  |  |   |    | 
|                                 |  |           |       |              |  |              |     |        |  |        |     |        |  |              |     |   |  |   |      |   |  |   |        |  |  |   |     | 
|Total                            |  | $         | 4,129 |              |  | $            | 719 |        |  | $      | 277 |        |  | $            | 172 |   |  | $ | 411  |   |  | $ | 10,986 |  |  | $ | 587 | 
|                                 |  |           |       |              |  |              |     |        |  |        |     |        |  |              |     |   |  |   |      |   |  |   |        |  |  |   |     | 

NOTE 19  SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

|                                        |  |         |       |         |  |         |     |         |  |      |       |  |  |   |     |  |  |   |       | 
|--------------------------------------- |  | ------- | ----- | ------- |  | ------- | --- | ------- |  | ---- | ----- |  |  | - | --- |  |  | - | ----- | 
|                                        |  | First   |       | Second  |  | Third   |     | Fourth  |  |      |       | 
|                                        |  | Quarter |       | Quarter |  | Quarter |     | Quarter |  | Year
|                                        |  |         |       |         |  |         |     |         |  |     
|(in Millions, except per share amounts) |  |         |       |         |  |         |     |         |  |      |       |  |  |   |     |  |  |   |       | 
|2002                                    |  |         |       |         |  |         |     |         |  |      |       |  |  |   |     |  |  |   |       | 
|Operating Revenues                      |  | $       | 930   |         |  | $       | 962 |         |  | $    | 1,200 |  |  | $ | 962 |  |  | $ | 4,054 | 
|Operating Income                        |  | $       | 226   |         |  | $       | 192 |         |  | $    | 240   |  |  | $ | 201 |  |  | $ | 859   | 
|Net Income                              |  | $       | 92    |         |  | $       | 74  |         |  | $    | 105   |  |  | $ | 85  |  |  | $ | 356   | 
|2001                                    |  |         |       |         |  |         |     |         |  |      |       |  |  |   |     |  |  |   |       | 
|Operating Revenues                      |  | $       | 1,024 |         |  | $       | 992 |         |  | $    | 1,121 |  |  | $ | 907 |  |  | $ | 4,044 | 
|Operating Income (Loss)                 |  | $       | 246   |         |  | $       | (47 | )       |  | $    | 199   |  |  | $ | 238 |  |  | $ | 636   | 
|Net Income (Loss)                       |  | $       | 113   |         |  | $       | (77 | )       |  | $    | 88    |  |  | $ | 109 |  |  | $ | 233   | 

50



---



##### Table of Contents






Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.




PART III




Item 10. Directors and Executive Officers of the Registrant




Item 11. Executive Compensation




Item 12. Security Ownership of Certain Beneficial Owners and Management




Item 13. Certain Relationships and Related Transactions

All omitted per general instruction I (2) (c) of Form 10-K for wholly owned
subsidiaries (reduced disclosure format).




PART IV




Item 14. Controls and Procedures



|(a) |  | Evaluation of disclosure controls and procedures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Companys Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the Companys disclosure controls and
procedures (as defined in the Exchange Act Rules 13a  14(c) and 15d -
14(d)) as of a date within 90 days before the filing of this annual
report (Evaluation Date), and have concluded that, as of the Evaluation
Date, such controls and procedures were effective at ensuring that
required information will be disclosed on a timely basis in reports
filed under the Exchange Act.
|   
|(b) |  | Changes in internal controls                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | There have been no significant changes (including corrective actions with
regard to significant deficiencies or material weaknesses) in the our
internal controls or in other factors that could significantly affect these
controls subsequent to the Evaluation Date referenced in paragraph (a) above.                                                                                                                                                                                                                          

51



---



##### Table of Contents






Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K



|(a) |  | The following documents are filed as part of this Annual Report on
Form 10-K.
|--- |  | -----------------------------------------------------------------------------



| | (1) |  | Consolidated financial statements. See Item 8  Financial Statements and Supplementary Data.
| | --- |  | ----------------------------------------------------------------------------------------------
|
| | (2) |  | Financial statement schedule. See Item 8  Financial Statements and Supplementary Data.      
|
| | (3) |  | Exhibits.                                                                                     

|                  |  |                                                                                                                                                                                                                                                                                                                                   
|----------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit           |  |                                                                                                                                                                                                                                                                                                                                   
|Number            |  | Description                                                                                                                                                                                                                                                                                                                       
|                  |  |                                                                                                                                                                                                                                                                                                                                   
|(i)               |  | Exhibits filed herewith.                                                                                                                                                                                                                                                                                                          
|                  |  |                                                                                                                                                                                                                                                                                                                                   
|4-232             |  | Supplemental Indenture dated as of December 1, 2002, establishing the 2002 Series C and 2002
Series D Mortgage Bonds.                                                                                                                                                                                                             
|                  |  |                                                                                                                                                                                                                                                                                                                                   
|12-19             |  | Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                                                                                                                                                                
|                  |  |                                                                                                                                                                                                                                                                                                                                   
|23-15             |  | Consent of Deloitte & Touche LLP.                                                                                                                                                                                                                                                                                                 
|                  |  |                                                                                                                                                                                                                                                                                                                                   
|99-7              |  | Chief Executive Officer Certification of Periodic Report.                                                                                                                                                                                                                                                                         
|                  |  |                                                                                                                                                                                                                                                                                                                                   
|99-8              |  | Chief Financial Officer Certification of Periodic Report.                                                                                                                                                                                                                                                                         
|                  |  |                                                                                                                                                                                                                                                                                                                                   
|(ii)              |  | Exhibits incorporated herein by reference                                                                                                                                                                                                                                                                                         
|                  |  |                                                                                                                                                                                                                                                                                                                                   
|3(b)              |  | Bylaws of The Detroit Edison Company, as amended through September 22, 1999. (Exhibit 3-14 to
Form 10-Q for quarter ended September 30, 1999).                                                                                                                                                                                    
|                  |  |                                                                                                                                                                                                                                                                                                                                   
|4(a)              |  | Mortgage and Deed of Trust, dated as of October 1, 1924, between Detroit Edison (File No.
1-2198) and First Chicago Trust Company of New York as Trustee (Exhibit B-1 to Registration
No. 2-1630) and indentures supplemental thereto, dated as of dates indicated below, and filed
as exhibits to the filings as set forth below:
|                  |  |                                                                                                                                                                                                                                                                                                                                   
|September 1, 1947 |  | Exhibit B-20 to Registration No. 2-7136.                                                                                                                                                                                                                                                                                          
|                  |  |                                                                                                                                                                                                                                                                                                                                   
|November 15, 1971 |  | Exhibit 2-B-38 to Registration No. 2-42160.                                                                                                                                                                                                                                                                                       
|                  |  |                                                                                                                                                                                                                                                                                                                                   
|January 15,
1973  |  | Exhibit 2-B-39 to Registration No. 2-46595.                                                                                                                                                                                                                                                                                       
|                  |  |                                                                                                                                                                                                                                                                                                                                   
|June 1, 1978      |  | Exhibit 2-B-51 to Registration No. 2-61643.                                                                                                                                                                                                                                                                                       
|                  |  |                                                                                                                                                                                                                                                                                                                                   
|June 30, 1982     |  | Exhibit 4-30 to Registration No. 2 78941.                                                                                                                                                                                                                                                                                         
|                  |  |                                                                                                                                                                                                                                                                                                                                   
|August 15, 1982   |  | Exhibit 4-32 to Registration No. 2-79674.                                                                                                                                                                                                                                                                                         
|                  |  |                                                                                                                                                                                                                                                                                                                                   
|December 1, 1989  |  | Exhibit 4-211 to Form 10-K for year ended December 31, 2000.                                                                                                                                                                                                                                                                      
|                  |  |                                                                                                                                                                                                                                                                                                                                   
|February 15, 1990 |  | Exhibit 4-212 to Form 10-K for year ended December 31, 2000.                                                                                                                                                                                                                                                                      
|                  |  |                                                                                                                                                                                                                                                                                                                                   
|April 1, 1991     |  | Exhibit 4-15 to Form 10-K for year ended December 31, 1996.                                                                                                                                                                                                                                                                       
|                  |  |                                                                                                                                                                                                                                                                                                                                   
|November 1, 1991  |  | Exhibit 4-181 to Form 10-K for year ended December 31, 1996.                                                                                                                                                                                                                                                                      
|                  |  |                                                                                                                                                                                                                                                                                                                                   
|January 15, 1992  |  | Exhibit 4-182 to Form 10-K for year ended December 31, 1996.                                                                                                                                                                                                                                                                      
|                  |  |                                                                                                                                                                                                                                                                                                                                   
|February 29, 1992 |  | Exhibit 4-187 to Form 10-Q for quarter ended March 31, 1998.                                                                                                                                                                                                                                                                      
|                  |  |                                                                                                                                                                                                                                                                                                                                   
|April 15, 1992    |  | Exhibit 4-188 to Form 10-Q for quarter ended March 31, 1998.                                                                                                                                                                                                                                                                      

52



---



##### Table of Contents



|                   |  |                                                                                                                                                                                                                                                 
|------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit            |  |                                                                                                                                                                                                                                                 
|Number             |  | Description                                                                                                                                                                                                                                     
|                   |  |                                                                                                                                                                                                                                                 
|July 15, 1992      |  | Exhibit 4-189 to Form 10-Q for quarter ended March 31, 1998.                                                                                                                                                                                    
|                   |  |                                                                                                                                                                                                                                                 
|November 30, 1992  |  | Exhibit 213 to Form 10-K for year ended December 31, 2000.                                                                                                                                                                                      
|                   |  |                                                                                                                                                                                                                                                 
|January 1, 1993    |  | Exhibit 4-131 to Registration No. 33-56496.                                                                                                                                                                                                     
|                   |  |                                                                                                                                                                                                                                                 
|March 1, 1993      |  | Exhibit 4-191 to Form 10-Q for quarter ended March 31, 1998.                                                                                                                                                                                    
|                   |  |                                                                                                                                                                                                                                                 
|April 1, 1993      |  | Exhibit 4-214 to Form 10-K for year ended December 31, 2000.                                                                                                                                                                                    
|                   |  |                                                                                                                                                                                                                                                 
|April 26, 1993     |  | Exhibit 4-215 to Form 10-K for year ended December 31, 2000.                                                                                                                                                                                    
|                   |  |                                                                                                                                                                                                                                                 
|May 31, 1993       |  | Exhibit 4-148 to Registration No. 33-64296.                                                                                                                                                                                                     
|                   |  |                                                                                                                                                                                                                                                 
|June 30, 1993      |  | Exhibit 4-216 to Form 10-K for year ended December 31, 2000 (1993
Series AP).                                                                                                                                                                   
|                   |  |                                                                                                                                                                                                                                                 
|June 30, 1993      |  | Exhibit 4-150 to Form 10-Q for quarter ended June 30, 1993 (1993
Series H).                                                                                                                                                                     
|                   |  |                                                                                                                                                                                                                                                 
|September 15, 1993 |  | Exhibit 4-217 to Form 10-K for year ended December 31, 2000.                                                                                                                                                                                    
|                   |  |                                                                                                                                                                                                                                                 
|March 1, 1994      |  | Exhibit 4-163 to Registration No. 33-53207                                                                                                                                                                                                      
|                   |  |                                                                                                                                                                                                                                                 
|June 15, 1994      |  | Exhibit 4-218 to Form 10-K for year ended December 31, 2000.                                                                                                                                                                                    
|                   |  |                                                                                                                                                                                                                                                 
|August 15, 1994    |  | Exhibit 4-220 to Form 10-K for year ended December 31, 2000.                                                                                                                                                                                    
|                   |  |                                                                                                                                                                                                                                                 
|August 1, 1995     |  | Exhibit 4-221 to Form 10-K for year ended December 31, 2000.                                                                                                                                                                                    
|                   |  |                                                                                                                                                                                                                                                 
|August 1, 1999     |  | Exhibit 4-204 to Form 10-Q for quarter ended September 30, 1999.                                                                                                                                                                                
|                   |  |                                                                                                                                                                                                                                                 
|August 15, 1999    |  | Exhibit 4-205 to Form 10-Q for quarter ended September 30, 1999.                                                                                                                                                                                
|                   |  |                                                                                                                                                                                                                                                 
|January 1, 2000    |  | Exhibit 4-205 to Form 10-K for year ended December 31, 1999.                                                                                                                                                                                    
|                   |  |                                                                                                                                                                                                                                                 
|April 15, 2000     |  | Exhibit 206 to Form 10-Q for quarter ended March 31, 2000.                                                                                                                                                                                      
|                   |  |                                                                                                                                                                                                                                                 
|August 1, 2000     |  | Exhibit 4-210 to Form 10-Q for quarter ended September 30, 2000.                                                                                                                                                                                
|                   |  |                                                                                                                                                                                                                                                 
|March 15, 2001     |  | Exhibit 4-222 to Form 10-Q for quarter ended March 31, 2001.                                                                                                                                                                                    
|                   |  |                                                                                                                                                                                                                                                 
|May 1, 2001        |  | Exhibit 4-226 to Form 10-Q for quarter ended June 30, 2001.                                                                                                                                                                                     
|                   |  |                                                                                                                                                                                                                                                 
|August 15, 2001    |  | Exhibit 4-227 to Form 10-Q for quarter ended September 30, 2001.                                                                                                                                                                                
|                   |  |                                                                                                                                                                                                                                                 
|September 15, 2001 |  | Exhibit 4-228 to Form 10-Q for quarter ended September 30, 2001.                                                                                                                                                                                
|                   |  |                                                                                                                                                                                                                                                 
|September 17, 2002 |  | Exhibit 4.1 to Registration No. 333-100000.                                                                                                                                                                                                     
|                   |  |                                                                                                                                                                                                                                                 
|October 15, 2002   |  | Exhibit 4-230 to Form 10-Q for quarter ended September 30, 2002.                                                                                                                                                                                
|                   |  |                                                                                                                                                                                                                                                 
|4(b)               |  | Collateral Trust Indenture (notes), dated as of June 30, 1993 (Exhibit 4-152 to Registration No. 33-50325).                                                                                                                                     
|                   |  |                                                                                                                                                                                                                                                 
|4(c)               |  | First Supplemental Note Indenture, dated as of June 30, 1993 (Exhibit 4-153 to Registration No. 33-50325).                                                                                                                                      
|                   |  |                                                                                                                                                                                                                                                 
|4(d)               |  | First Amendment, dated as of July, 2000, to the First Supplemental Indenture, dated as of June 30, 1993,
to the Collateral Trust Indenture (Notes), dated as of June 30, 1993 (Exhibit 4-208 to Form 10-Q for
quarter ended September 30, 2000).
|                   |  |                                                                                                                                                                                                                                                 
|4(e)               |  | Second Supplemental Note Indenture, dated as of September 15, 1993 (Exhibit 4-159 to Form 10-Q for
quarter ended September 30, 1993).                                                                                                           
|                   |  |                                                                                                                                                                                                                                                 
|4(f)               |  | First Amendment, dated as of August 15, 1996, to Second Supplemental Note Indenture (Exhibit 4-17 to Form
10-Q for quarter ended September 30, 1996).                                                                                           
|                   |  |                                                                                                                                                                                                                                                 
|4(g)               |  | Third Supplemental Note Indenture, dated as of August 15, 1994 (Exhibit 4-169 to Form 10-Q for quarter
ended September 30, 1994).                                                                                                               
|                   |  |                                                                                                                                                                                                                                                 
|4(h)               |  | First Amendment, dated as of December 12, 1995, to Third Supplemental Note Indenture, dated as of August 15, 1994
(Exhibit 4-12 to Registration No. 333-00023).                                                                                 

53



---



##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                               
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                               
|Number  |  | Description                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                               
|4(i)    |  | Sixth Supplemental Note Indenture, dated as of May 1, 1998, between Detroit Edison and Bankers Trust Company, as
Trustee, creating the 7.54% Quarterly Income Debt Securities (QUIDS), including form of QUIDS (Exhibit 4-193 to
Form 10-Q for quarter ended June 30, 1998).
|        |  |                                                                                                                                                                                                                                                                               
|4(j)    |  | Seventh Supplemental Note Indenture, dated as of October 15, 1998, between Detroit Edison and Bankers Trust Company,
as Trustee, creating the 7.375% QUIDS, including form of QUIDS (Exhibit 4-198 to Form 10-K for year ended December
31, 1998).                            
|        |  |                                                                                                                                                                                                                                                                               
|4(k)    |  | Eighth Supplemental Indenture, dated as of April 15, 2000, appointing Bank One Trust Company of New York as Trustee
under the Detroit Edison Trust Indenture (Notes), dated as of June 30, 1993 (Exhibit 4-207 to Form 10-Q for the
quarter ended March 31, 2000).            
|        |  |                                                                                                                                                                                                                                                                               
|4(l)    |  | Ninth Supplemental Indenture,
dated as October 10, 2001,
establishing the 5.050% Senior
Notes due 2005 and 6.125%
Senior Notes due 2010 (Exhibit
4-229 to Form 10-Q for the
quarter ended September 30,
2001)                                                                 
|        |  |                                                                                                                                                                                                                                                                               
|4(m)    |  | Tenth Supplemental Indenture,
dated as of October 23, 2002,
establishing the 5.20% Senior
Notes due 2012 and 6.35% Senior
Notes due 2032 (Exhibit 4-231
to Form 10-Q for the quarter
ended September 30, 2002).                                                               
|        |  |                                                                                                                                                                                                                                                                               
|4(n)    |  | Trust Agreement of Detroit
Edison Trust I (Exhibit 4-9 to
Detroit Edison Trust Is
registration statement on Form
S-3 (File No. 333-100000)).                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                               
|4(o)    |  | Trust Agreement of Detroit
Edison Trust II (Exhibit 4-10
to Detroit Edison Trust Is
registration statement on Form
S-3 (File No. 333-100000)).                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                               
|10(a)   |  | Securitization Property Sale
Agreement (Exhibit 10-42 to
Form 10-Q for quarter ended
March 31, 2001).                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                               
|99(a)   |  | Belle River Participation
Agreement between Detroit
Edison and Michigan Public
Power Agency, dated as of
December 1, 1982 (Exhibit 28-5
to Registration No. 2-81501).                                                                                                         
|        |  |                                                                                                                                                                                                                                                                               
|99(b)   |  | Belle River Transmission
Ownership and Operating
Agreement between Detroit
Edison and Michigan Public
Power Agency, dated as of
December 1, 1982 (Exhibit 28-6
to Registration No. 2-81501).                                                                                  
|        |  |                                                                                                                                                                                                                                                                               
|99(c)   |  | Inter-Creditor Agreement
(Exhibit 99-41 to Form 10-Q for
quarter ended March 31, 2001).                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                               
|99(d)   |  | Amendment to Trade Receivables
Purchase and Sale Agreement
(Exhibit 99-42 to Form 10-Q for
quarter ended March 31, 2001).                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                               
|99(e)   |  | Amended and Restated Trade
Receivables Purchase and Sale
Agreement (Exhibit 99-43 to
Form 10-Q for quarter ended
March 31, 2001).                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                               
|99(f)   |  | 364-Day Credit Agreement dated
as of October 25, 2002 ($135
million) (Exhibit 99-3 to Form
10-Q for quarter ended
September 30, 2002).                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                               
|99(g)   |  | Three-Year Credit Agreement
dated as of October 25,
2002($65 million) (Exhibit 99-4
to Form 10-Q for quarter ended
September 30, 2002).                                                                                                                                       



|b) |  | Reports on Form 8-K.
|-- |  | --------------------

On December 4, 2002, Detroit Edison filed a Report on Form 8-K, dated December
3, 2002, announcing a definitive agreement with affiliates of Kohlberg Kravis
Roberts & Co. and Trimaran Capital Partners LLC providing for the sale of
International Transmission Company (ITC), for approximately $610 million in
cash.

54



---



##### Table of Contents



DETROIT EDISON COMPANY
SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS

|                                                                                                                                                            |                               |   |                          |        |      |   |         |        |  |   |         |        | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | - | ------------------------ | ------ | ---- | - | ------- | ------ |  | - | ------- | ------ | 
|                                                                                                                                                            |                               |   | Year Ending December 31,
|                                                                                                                                                            |                               |   |                         
|                                                                                                                                                            |                               |   | 2002                     |        | 2001 |   | 2000   
|                                                                                                                                                            |                               |   |                          |        |      |   |        
|(in Thousands)                                                                                                                                              |                               |   |                          |        |      |   |         |        |  |   |         |       
|Allowance for Doubtful Accounts (shown as
Deduction from accounts receivable in the
consolidated statement of financial
position)                           |                               |   |                          |        |      |   |         |        |  |   |         |       
|Balance at Beginning of Period                                                                                                                              |                               | $ | 27,300                   |        |      | $ | 20,000  |        |  | $ | 20,000  |       
|Additions:                                                                                                                                                  |                               |   |                          |        |      |   |         |        |  |   |         |       
|                                                                                                                                                            | Charged to costs and expenses |   |                          | 23,656 |      |   |         | 22,510 |  |   |         | 18,219 | 
|                                                                                                                                                            | Charged to other accounts(1)  |   |                          | 8,520  |      |   |         | 11,846 |  |   |         | 3,677  | 
|Deductions(2)                                                                                                                                               |                               |   | (11,886                  | )      |      |   | (27,056 | )      |  |   | (21,896 | )     
|                                                                                                                                                            |                               |   |                          |        |      |   |         |        |  |   |         |       
|Balance At End of Period                                                                                                                                    |                               | $ | 47,590                   |        |      | $ | 27,300  |        |  | $ | 20,000  |       
|                                                                                                                                                            |                               |   |                          |        |      |   |         |        |  |   |         |       
|Fermi 2 Refueling Outage Accrual (included in other
current liabilities in the consolidated statement
of financial position)
Balance at Beginning of Period |                               | $ | 1,167                    |        |      | $ | 9,789   |        |  | $ | 18,221  |       
|Charged to costs and expenses                                                                                                                               |                               |   | 25,340                   |        |      |   | 12,837  |        |  |   | 14,002  |       
|Deductions(3)                                                                                                                                               |                               |   | (1,402                   | )      |      |   | (21,459 | )      |  |   | (22,434 | )     
|                                                                                                                                                            |                               |   |                          |        |      |   |         |        |  |   |         |       
|Balance At End of Period                                                                                                                                    |                               | $ | 25,105                   |        |      | $ | 1,167   |        |  | $ | 9,789   |       
|                                                                                                                                                            |                               |   |                          |        |      |   |         |        |  |   |         |       



---

|(1) |  | Collection of accounts previously written off.  
|--- |  | ------------------------------------------------
|   
|(2) |  | Non-collectible accounts written off.           
|   
|(3) |  | Actual amounts paid during the refueling outage.

55



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) 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                                                 
|                     |  |    |  |                                                                            
|                     |  |    |  | (Registrant)                                                               
|                     |  |    |  |                                                                            
|Date: March 20, 2003 |  | By |  | /s/ DANIEL G. BRUDZYNSKI                                                   
|                     |  |    |  |                                                                            
|                     |  |    |  | Daniel G.
BrudzynskiChief Accounting Officer,
Vice President and Controller

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in the
capacities and on the date indicated.

|      |  |                                                                                                              |  | 
|----- |  | ------------------------------------------------------------------------------------------------------------ |  | 
|By    |  | /s/ ANTHONY F. EARLEY, JR.                                                                                   |  | 
|      |  |                                                                                                              |  | 
|      |  | Anthony F. Earley, Jr.
Chairman of the Board,
Chief Executive Officer, President and
Chief Operating Officer |  | 
|      |  |                                                                                                              |  | 
|By    |  | /s/ SUSAN M. BEALE                                                                                           |  | 
|      |  |                                                                                                              |  | 
|      |  | Susan M. Beale
Director, Vice President and
Corporate Secretary                                              |  | 
|      |  |                                                                                                              |  | 
|By    |  | /s/ DAVID E. MEADOR                                                                                          |  | 
|      |  |                                                                                                              |  | 
|      |  | David E. Meador
Director                                                                                     |  | 
|      |  |                                                                                                              |  | 
|Date: |  | March 20, 2003                                                                                               |  | 

56



---



##### Table of Contents






FORM 10-K CERTIFICATION

I, Anthony F. Earley, Jr., Chairman, President, Chief Executive and Chief
Operating Officer of Detroit Edison Company, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Detroit Edison Company;                                                                                                                                                                                                                                              
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                               



| | (a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | (c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                                              |  |                     
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------
|/s/ ANTHONY F. EARLEY, JR.

Anthony F. Earley, Jr.
Chairman, President, Chief Executive and
Chief Operating Officer of Detroit Edison Company |  | Date: March 20, 2003

57



---



##### Table of Contents



FORM 10-K CERTIFICATION

I, David E. Meador, Senior Vice President and Chief Financial Officer of
Detroit Edison Company, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Detroit Edison Company;                                                                                                                                                                                                                                              
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                               



| | (a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | (c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                 |  |                     
|---------------------------------------------------------------------------------------------------------------- |  | --------------------
|/s/ DAVID E. MEADOR

David E. Meador
Senior Vice President and
Chief Financial Officer of Detroit Edison Company |  | Date: March 20, 2003

58



---



##### Table of Contents






10-K EXHIBIT INDEX

|            |  |                                                         
|----------- |  | --------------------------------------------------------
|EXHIBIT NO. |  | DESCRIPTION                                             
|            |  |                                                         
|4-232       |  | Indenture                                               
|            |  |                                                         
|12-19       |  | Computation of Ratio of Earnings to Fixed
Charges       
|            |  |                                                         
|23-15       |  | Consent of Deloitte & Touche LLP                        
|            |  |                                                         
|99-7        |  | Chief Executive Officer Certification of Periodic Report
|            |  |                                                         
|99-8        |  | Chief Financial Officer Certification of Periodic Report