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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 Form 10-K FOR ANNUAL REPORT &
TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE OF 1934 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2004 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  Michigan
(State or other jurisdiction of incorporation or
organization)
    
    38-0478650
(I.R.S. Employer
Identification No.)
 2000 2nd Avenue, Detroit, Michigan
(Address of principal executive offices)
    
    48226-1279
(Zip Code)
 313-235-4000
(Registrants telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class
    
    Name of each exchange on which registeredQuarterly Income Debt Securities (QUIDS)
    
    New York Stock Exchange(Junior Subordinated Deferrable InterestDebentures  7.625%, 7.54% and 7.375% Series)
 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
þ   No o
 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. o Indicate
by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2) Yes
o   No þ
 All of the registrants 138,632,324 outstanding shares of common stock, par value $10 per share, are owned by DTE Energy Company. DOCUMENTS INCORPORATED
BY REFERENCE




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The Detroit Edison CompanyAnnual Report on Form 10-KYear Ended December 31, 2004Table of Contents  
 PageDefinitions
    
    
    1Forward-Looking Statements
    
    
    2Part IItems 1. & 2.
    
    Business & Properties
    
    
    3Item 3.
    
    Legal Proceedings
    
    
    12Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    12Part IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    12Item 6.
    
    Selected Financial Data
    
    
    12Item 7.
    
    Managements Narrative Analysis of Results of Operations
    
    
    13Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    17Item 8.
    
    Financial Statements and Supplementary Data
    
    
    19Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    57Item 9A.
    
    Controls and Procedures
    
    
    57Item 9B.
    
    Other Information
    
    
    57Part IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    58Item 11.
    
    Executive Compensation
    
    
    58Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    58Item 13.
    
    Certain Relationships and Related Transactions
    
    
    58Item 14
    
    Principal Accountant Fees and Services
    
    
    58Part IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    58Signatures
    
    
    65Computation of Ratio of Earnings to Fixed ChargesLetter Regarding Change in Accouting PrinciplesConsent of Deloitte & Touche LLPChief Executive Officer Section 302 Form 10-K CertificationChief Financial Officer Section 302 Form 10-K CertificationChief Executive Officer Section 906 Form 10-K CertificationChief Financial Officer Section 906 Form 10-K CertificationAmendment to Trade Receivables Purchase & Sale AgreementAmendment No. 4 to Trade Receivables Purchase & Sale AgreementSixth Amendment to Trust AgreementSeventh Amendment to Trust AgreementEighth Amendment to Trust AgreementNinth Amendment to Trust AgreementTenth Amendment to Trust AgreementEleventh Amendment to Trust AgreementTwelfth Amendment to Trust AgreementThirteenth Amendment to Trust AgreementFourteenth Amendment to Trust AgreementFifteenth Amendment to Trust Agreement




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Definitions Customer Choice
    
    Statewide initiatives giving customers in Michigan the option to choose alternative suppliers for
electricity.Detroit Edison
    
    The Detroit Edison Company (a direct wholly owned subsidiary of
DTE Energy Company) and subsidiary companiesDTE Energy
    
    DTE Energy Company, the parent of Detroit Edison
and directly or indirectly the parent company of
numerous utility and non-utility subsidiariesEPA
    
    United States Environmental Protection AgencyFERC
    
    Federal Energy Regulatory CommissionITC
    
    International Transmission Company (until
February 28, 2003, a wholly owned subsidiary of
DTE Energy Company)MDEQ
    
    Michigan Department of Environmental QualityMPSC
    
    Michigan Public Service CommissionNRC
    
    Nuclear Regulatory CommissionPSCR
    
    A power supply cost recovery mechanism
authorized by the MPSC that allows Detroit
Edison to recover through rates its fuel,
fuel-related and purchased power expenses. The
clause was suspended under Michigans
restructuring legislation (signed into law June
5, 2000), which lowered and froze electric
customer rates. The clause was reinstated by the
MPSC effective January 1, 2004.Securitization
    
    Detroit Edison financed specific stranded costs
at lower interest rates through the sale of rate
reduction bonds by a wholly owned special
purpose entity, the Detroit Edison
Securitization Funding LLC.SFAS
    
    Statement of Financial Accounting StandardsStranded Costs
    
    Costs incurred by utilities in order to serve
customers in a regulated environment that absent
special regulatory approval would not otherwise
expect to be recoverable if customers switch
to alternative energy suppliers.Units of MeasurementgWh
    
    Gigawatthour of electricitykWh
    
    Kilowatthour of electricityMW
    
    Megawatt of electricityMWh
    
    Megawatthour of electricity
 1




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Forward-Looking Statements Certain information presented herein includes forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve certain
risks and uncertainties that may cause actual future results to differ materially from those
contemplated, projected, estimated or budgeted in such forward-looking statements. There are many
factors that may impact forward-looking statements including, but not limited to, the following:  
    the effects of weather and other natural phenomena on operations and sales to customers, and purchases from suppliers;
    economic climate and growth or decline in the geographic areas where we do business;
    environmental issues, laws and regulations, and the cost of remediation and compliance associated therewith;
    nuclear regulations and operations associated with nuclear facilities;
    implementation of the electric Customer Choice program;
    impact of electric utility restructuring in Michigan, including legislative amendments;
    employee relations and the impact of collective bargaining agreements;
    unplanned outages;
    access to capital markets and capital market conditions and the results of other financing efforts that can be affected
by credit agency ratings;
    the timing and extent of changes in interest rates;
    the level of borrowings;
    changes in the cost and availability of coal and other raw materials, and purchased power;
    effects of competition;
    impact of regulation by FERC, MPSC, NRC and other applicable governmental proceedings and regulations;
    changes in federal, state and local tax laws and their interpretations, including the Internal Revenue Code,
regulations, rulings, court proceedings and audits;
    the ability to recover costs through rate increases;
    the availability, cost, coverage and terms of insurance;
    the cost of protecting assets against or damage due to terrorism;
    changes in accounting standards and financial reporting regulations;
    changes in federal or state laws and their interpretation with respect to regulation, energy policy and other business
issues;
    uncollectible accounts receivable; and
    changes in the economic and financial viability of our suppliers, customers and trading counterparties, and the
continued ability of such parties to perform their obligations to Detroit Edison. New factors emerge from time to time. We cannot predict what factors may arise or how such factors
may cause our results to differ materially from those contained in any forward-looking statement.
Any forward-looking statements speak only as of the date on which such statements are made. We
undertake no obligation to update any forward-looking statement to reflect events or circumstances
after the date on which such statement is made or to reflect the occurrence of unanticipated
events. 2




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Part I 
 Items 1. & 2. Business and Properties General Detroit Edison is a Michigan corporation organized in 1903 and is a wholly owned subsidiary of
DTE Energy. Detroit Edison is a public utility subject to regulation by the MPSC and FERC and 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 segments, 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 segment follows. ENERGY RESOURCES Power Generation Description Power Generation comprises our utility power generation business and plants within Detroit Edison.
These plants are regulated by numerous federal and state governmental agencies, including the MPSC,
the FERC, the NRC, the EPA and the MDEQ. Electricity is generated from Detroit Edisons numerous
fossil plants, its hydroelectric pumped storage plant and its nuclear plant, and is purchased from
electricity generators, suppliers and wholesalers. The electricity we produce and purchase is sold
to four major classes of customers: residential, commercial, industrial and wholesale, principally
throughout Michigan, the Midwest and Ontario, Canada. Weather, economic factors and electricity prices affect sales levels to customers. Our peak load
and highest total system sales generally occur during the third quarter of the year, driven by air
conditioning and other cooling-related demands. Power generation sales are made to a diverse base
of customers in both type and number; sales levels are not dependent on any small market segment.
Customers who elect to purchase their electricity from alternative energy suppliers by
participating in the electric Customer Choice program have an unfavorable effect on our financial
performance. Our power is generated from a variety of fuels and is supplemented with market purchases. The
following table details our energy supply mix and average cost per unit: 3




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2004
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    2002(in Thousands of MWh)Power Generated and PurchasedPower Plant GenerationFossil
    
    
    39,432
    
    
    
    75
    %
    
    
    38,052
    
    
    
    72
    %
    
    
    39,017
    
    
    
    67
    %Nuclear (Fermi 2)
    
    
    8,440
    
    
    
    16
    
    
    
    8,114
    
    
    
    16
    
    
    
    9,301
    
    
    
    1647,872
    
    
    
    91
    
    
    
    46,166
    
    
    
    88
    
    
    
    48,318
    
    
    
    83Purchased Power
    
    
    4,650
    
    
    
    9
    
    
    
    6,354
    
    
    
    12
    
    
    
    9,807
    
    
    
    17System Output
    
    
    52,522
    
    
    
    100
    %
    
    
    52,520
    
    
    
    100
    %
    
    
    58,125
    
    
    
    100
    %Average Unit Cost ($/MWh)Generation (1)
    
    $
    12.98
    
    
    
    
    
    
    $
    12.89
    
    
    
    
    
    
    $
    12.53Purchased Power (2)
    
    $
    37.06
    
    
    
    
    
    
    $
    41.73
    
    
    
    
    
    
    $
    39.16Overall Average Unit Cost
    
    $
    15.11
    
    
    
    
    
    
    $
    16.38
    
    
    
    
    
    
    $
    17.02
   (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. The effect of lost sales due to the electric Customer Choice program has reduced our
need for purchased power and increased our ability to sell power in the wholesale market. We have
short and long-term supply contracts for expected fuel and purchased power requirements as detailed
in the following table: 2005Expected Supply
    
    Contracted
    
    
    OpenCoal
    
    
    84
    %
    
    
    16
    %Natural Gas
    
    
    26
    %
    
    
    74
    %Oil
    
    
    20
    %
    
    
    80
    %Purchased Power
    
    
    75
    %
    
    
    25
    %
 Power Generations generating capability is heavily dependent upon the availability of coal.
Coal is purchased from various sources in different geographic areas under agreements that vary in
both pricing and terms. Detroit Edison expects to obtain the majority of its coal requirements
through long-term contracts with the balance to be obtained through short-term agreements and spot
purchases. Detroit Edison has contracts with five coal suppliers and several over-the-counter
brokers for a total purchase of up to 35 million tons of low-sulfur western coal to be delivered
through 2008. Detroit Edison also has contracts with four suppliers for the purchase of
approximately 6 million tons of Appalachian coal to be delivered through 2006. These existing
long-term coal contracts either have fixed prices or include provisions for price escalation as
well as de-escalation. Given the geographic diversity of supply, Detroit Edison believes it can
meet the expected generation requirements. We own and lease a fleet of rail cars and have long-term
transportation contracts with companies to provide rail 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 power facilities. Regulation Detroit Edisons Power Generation business is subject to the regulatory jurisdiction of various
agencies, including the MPSC, the FERC and the NRC. The MPSC issues orders pertaining to rates,
recovery of 4




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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 that affect our Power Generation operations. In 1996, the MPSC began an
initiative designed to give all of Michigans electric customers access to electricity supplied by
other generators and marketers. 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 small business customers through 2004 and for residential customers through
2005. The legislation and an MPSC order issued in 2001 established a methodology to enable Detroit
Edison to recover stranded costs related to its generation operations 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 the electric Customer
Choice program. The MPSC has determined that these costs will 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. In 2004, the MPSC issued interim and final rate orders that authorized electric rate increases
totaling $374 million, and eliminated transition credits and implemented transition charges for
electric Customer Choice customers. The increases were applicable to all customers not subject to a
rate cap. The interim order affirmed the resumption of the Power Supply Cost Recovery (PSCR)
mechanism for both capped and uncapped customers, which reduced PSCR revenues. The MPSC also
authorized the recovery of approximately $385 million in regulatory assets, including stranded
costs. The final order addressed numerous issues relating to regulatory assets, including the
actual amounts recoverable and the recovery mechanism. See Note 4  Regulatory Matters for additional information regarding the 2004 rate orders and our
regulatory environment. Properties Detroit Edison owns generating properties and facilities that are primarily 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, 2004 are as
follows: 5




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Location by
    
    Summer NetMichigan
    
    Rated Capability (1) (2)Plant Name
    
    County
    
    (MW)
    
    
    (%)
    
    
    Year in ServiceFossil-fueled Steam-ElectricBelle River (3)
    
    St. Clair
    
    
    1,026
    
    
    
    9.3
    %
    
    1984 and 1985Conners Creek
    
    Wayne
    
    
    215
    
    
    
    1.9
    
    
    1951Greenwood
    
    St. Clair
    
    
    785
    
    
    
    7.1
    
    
    1979Harbor Beach
    
    Huron
    
    
    103
    
    
    
    0.9
    
    
    1968Marysville
    
    St. Clair
    
    
    84
    
    
    
    0.7
    
    
    1943 and 1947Monroe (4)
    
    Monroe
    
    
    3,080
    
    
    
    27.8
    
    
    1971, 1973 and 1974River Rouge
    
    Wayne
    
    
    510
    
    
    
    4.6
    
    
    1957 and 1958St. Clair
    
    St. Clair
    
    
    1,415
    
    
    
    12.8
    
    
    1953, 1954, 1959, 1961 and 1969Trenton Channel
    
    Wayne
    
    
    730
    
    
    
    6.6
    
    
    1949 and 19687,948
    
    
    
    71.7Oil or Gas-fueled Peaking Units
    
    Various
    
    
    1,102
    
    
    
    10.0
    
    
    1966-1971, 1981 and 1999Nuclear-fueled Steam-ElectricFermi 2 (5)
    
    Monroe
    
    
    1,111
    
    
    
    10.0
    
    
    1988Hydroelectric Pumped StorageLudington (6)
    
    Mason
    
    
    917
    
    
    
    8.3
    
    
    197311,078
    
    
    
    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 6  Jointly Owned
Utility Plant.(4)
    
    The Monroe Power Plant provided 35% of Detroit Edisons total 2004 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. See Note 6. Strategy and Competition We strive to be the preferred electricity supplier in southeast Michigan. We believe that we can
accomplish our goal by working with our customers, communities and regulatory agencies to be a
reliable low cost supplier of electricity. To control expenses, we optimize our fuel blends
thereby taking maximum advantage of low cost, environmentally friendly low-sulfur western coals.
To ensure generation reliability, we will continue to make investments in our generating plants
that will improve both plant availability and operating efficiencies. 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. Effective January 2002, the electric Customer Choice program expanded in Michigan whereby all of
the Companys electric customers can choose to purchase their electricity from alternative
suppliers of generation services. Detroit Edison lost 18% of retail sales in 2004, 12% in 2003 and
5% of such sales in 2002 as a result of customers choosing to purchase power from alternative
suppliers. Customers participating in the electric Customer Choice program consist primarily of
industrial and commercial customers whose MPSC-authorized full service rates exceed the cost of
service. We will continue to utilize the wholesale market to sell the generation made available by
the electric Customer Choice program, in order to lower costs for full service customers. 6




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ENERGY DISTRIBUTION Power Distribution Description The electric distribution services of Detroit Edison comprise our utility Power Distribution
business. This business distributes electricity generated by Energy Resources Power Generation
business and alternative energy suppliers to Detroit Edisons 2.1 million customers in southeastern
Michigan. In January 2003, we sold the steam heating business of Detroit Edison to Thermal Ventures II, LP. 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 other cooling-related demands. Power Distributions sales
are not dependent upon a limited number of customers. Although customers participating in the
electric Customer Choice program do not impact the total number of Power Distribution customers,
they do impact operating revenues. Electric Choice customers currently pay a lower distribution
rate than full service customers. Accordingly, customers participating in the electric Customer
Choice program unfavorably affect revenues. Detroit Edison filed a rate restructuring proposal in
February 2005 to eliminate this intra class rate subsidy (Note 4). The loss of any one or a few
customers is not reasonably likely to have a material adverse effect on Power Distribution. (in thousands of MWh)
    
    2004
    
    
    2003
    
    
    2002Electric DeliveriesResidential
    
    
    15,081
    
    
    
    15,074
    
    
    
    15,958Commercial
    
    
    13,425
    
    
    
    15,942
    
    
    
    18,395Industrial
    
    
    11,472
    
    
    
    12,254
    
    
    
    13,590Wholesale
    
    
    2,197
    
    
    
    2,241
    
    
    
    2,249Other
    
    
    401
    
    
    
    402
    
    
    
    40342,576
    
    
    
    45,913
    
    
    
    50,595Electric Choice
    
    
    9,245
    
    
    
    6,193
    
    
    
    2,967Electric Choice  Self Generators*
    
    
    595
    
    
    
    1,088
    
    
    
    543Total Electric Deliveries
    
    
    52,416
    
    
    
    53,194
    
    
    
    54,105
   *
    
    Represents deliveries for self generators who have purchased power from alternative energy
suppliers to supplement their power requirements Regulation Detroit Edisons Power Distribution is subject to the jurisdiction of the MPSC, which has
regulatory authority over rates, conditions of service and other operating-related matters. As
previously discussed, Michigan legislation prevents Detroit Edison from increasing rates to
residential customers through 2005 and prevented rate increases for small business customers
through 2004. In January 2004, the MPSC issued an order adopting rules governing service quality and
reliability standards for electric distribution systems. The reliability standards establish
performance levels for service restoration, wire-down relief requests, customer call answer time,
customer complaint response, meter reading and new service installations. The order also
establishes penalties for delays in service restoration during normal conditions, catastrophic
storms and repetitive outages. Detroit Edison is required to file an annual report providing
information regarding performance against the measures provided and any penalties incurred. In 2004, the MPSC issued interim and final rate orders that authorized electric rate increases
totaling $374 million, and eliminated transition credits and implemented transition charges for
electric Customer Choice customers. The increases were applicable to all customers not subject to a
rate cap. The MPSC also authorized the recovery of approximately $385 million in regulatory assets,
including stranded costs. 7




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The final order addressed numerous issues relating to regulatory assets, including the actual
amounts recoverable and the recovery mechanism. See Note 4  Regulatory Matters for additional information regarding the 2004 rate orders and our
regulatory environment. Energy Assistance Programs Energy assistance programs, funded by the federal government and the State of Michigan, remain
critical to Detroit Edisons ability to control its uncollectible accounts receivable and
collections expenses. Detroit Edisons uncollectible accounts receivable expense is directly affected by the level of
government funded assistance its qualifying customers receive. We are working with the State of
Michigan and others to increase the share of funding allocated to our customers to be
representative of the number of low-income individuals in our service territory. Properties Detroit Edison owns and operates 667 distribution substations with a capacity of approximately
31,381,500 kilovolt-amperes (kVA) and approximately 415,000 line transformers with a capacity of
approximately 24,792,000 kVA. 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, 2004 are as follows: Electric Distribution
    
    Circuit MilesOperating Voltage-Kilovolts (kV)
    
    Overhead
    
    
    Underground4.8 kV to 13.2 kV
    
    
    28,060
    
    
    
    12,92924 kV
    
    
    101
    
    
    
    69040 kV
    
    
    2,322
    
    
    
    326120 kV
    
    
    70
    
    
    
    1330,553
    
    
    
    13,958
 There are numerous interconnections that allow the interchange of electricity between Detroit
Edison and electricity providers external to our service area. These interconnections are
generally owned and operated by ITC and connect to neighboring energy companies. Strategy and Competition Our strategy focuses on improving reliability, restoration time and the quality of customer service
and lowering operating costs by improving operating efficiencies. We also are targeting capital
investments in areas that have the greatest impact on reliability improvements with the goal of
managing distribution rates charged to utility customers. Detroit Edison acquires transmission services from International Transmission Company (ITC), a
wholly owned subsidiary of DTE Energy until February 2003. By FERC order, rates charged by ITC to
Detroit Edison were frozen through December 2004. Thereafter, rates became subject to normal FERC
regulation. With the MPSCs November 2004 final rate order, transmission costs are recoverable
through Detroit Edisons PSCR mechanism. Competition in the regulated electric distribution business is primarily from the on-site
generation of industrial customers and from distributed generation applications by industrial and
commercial customers. We do not expect significant competition for distribution to any group of
customers in the near term. 8




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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 through rates
charged to our customers. Greater details on environmental issues are provided in the following
Notes to the Consolidated Financial Statements: Note
    
    Title4
    
    Regulatory Matters5
    
    Nuclear Operations13
    
    Commitments and Contingencies
 Detroit Edison is subject to applicable permit requirements, and to potentially increased
stringent federal, state and local standards covering, among other things, particulate and gaseous
stack emission limitations, the discharge of wastewater into lakes and streams and the handling and
disposal of waste material. Air- The U.S. Environmental Protection Agency (EPA) has ozone transport and acid rain regulations
and, in December 2003, proposed additional emission regulations relating to ozone, fine particulate
and mercury air pollution. The new rules would lead to additional controls on fossil-fueled power
plants to reduce nitrogen oxides, sulfur dioxide and mercury emissions. To comply with existing
requirements, Detroit Edison has spent approximately $580 million through December 2004 and
estimates that it will spend up to $100 million in 2005. Detroit Edison will incur from $700
million to $1.3 billion of additional future capital expenditures over the next five to eight years
to satisfy both the existing and proposed 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. The EPA has not initiated proceedings against Detroit
Edison. In October 2003, the EPA promulgated revised regulations to clarify new source review
provisions going forward. Several states and environmental organizations have challenged these
regulations and, in December 2003, the Court stayed the implementation of the regulations until the
U.S. Court of Appeals D.C. Circuit renders an opinion in the case. We cannot predict the future
impact of this issue upon Detroit Edison. Water- Detroit Edison is required to examine alternatives for reducing the environmental impacts
of the cooling water intake structures at several of its facilities. Based on the results of
studies to be conducted over the next several years, Detroit Edison may be required to install
additional control technologies to reduce the environmental impact of the intakes. Detroit Edison
estimates that it will incur up to $50 million over the next five to seven years in additional
capital expenditures to comply with these requirements. Contaminated Sites- Detroit Edison conducted remedial investigations at contaminated sites,
including two former manufactured gas plant sites, the area surrounding an ash landfill and several
underground and aboveground storage tank locations. The findings of these investigations indicated
that the estimated cost to remediate these sites is approximately $8 million, which is expected to
be incurred over the next several years. As a result of the investigation, Detroit Edison accrued
an $8 million liability during 2004. Various state and federal laws regulate our handling, storage and disposal of waste materials. The
EPA and the MDEQ have aggressive programs to manage the clean up of contaminated property. We have
extensive land holdings and, from time to time, must investigate claims of improperly disposed
contaminants. We anticipate our utility and non-utility companies may periodically be included in
various types of environmental proceedings. 9




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##### Table of Contents



RISK FACTORS There are various risks associated with the operations of Detroit Edison. 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. Michigans electric Customer Choice program is negatively impacting our financial performance. Even
with the Customer Choice-related rate relief received in Detroit Edisons 2004 rate orders, there
continues to be considerable financial risk associated with the Customer Choice program. Choice
migration is sensitive to market price, transition charges and electric bundled price increases. 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. The expenses of storm restoration efforts may not be recoverable
through the regulatory process. Our operations continue to be negatively affected by competition.Deregulation and restructuring in
the electric industry has resulted in increased competition and unrecovered costs that have
affected and may continue to affect our financial condition, results of operations or cash flows.
We are a regulated public utility, and this regulation has hindered our ability to retain customers
in a competitive marketplace. We are subject to rate regulation. We operate in a regulated industry. Our electric rates are set
by the MPSC and the FERC and cannot be increased without regulatory authorization. We may be
impacted by new regulations or interpretations by the MPSC, the 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 require us to incur additional expenses. Adverse changes in our credit ratings may negatively affect us.Increased scrutiny of the energy
industry and regulatory changes, as well as changes in our economic performance could result in
credit agencies reexamining our credit rating. A credit agency currently has a negative outlook
on our ratings. While credit ratings reflect the opinions of the credit agencies issuing such
ratings and may not necessarily reflect actual performance, a downgrade in our credit rating could
restrict or discontinue our ability to access capital markets at attractive rates and increase our
borrowing costs. Regional and national economic conditions may unfavorably impact us.Our business follows 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.
Economic conditions in our service territory also impact our collections of accounts receivable and
financial results. Environmental laws and liability may be costly.We are subject to numerous environmental
regulations. These regulations govern air emissions, water quality, wastewater discharge, and
disposal of solid 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. 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. 10




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##### Table of Contents



Since there can be no assurances that environmental costs may be recovered through the regulatory
process, our financial performance may be negatively impacted as a result of environmental matters. Operation of a nuclear facility subjects us to risk.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 that can
significantly impact the performance and cost of operating a nuclear facility. While Detroit
Edison maintains insurance for various nuclear-related risks, there can be no assurances that such
insurance will be sufficient to cover our costs in the event of an accident or business
interruption at our nuclear generating plant, which may affect our financial performance. The supply and price of fuel and other commodities may impact our financial results.We are
dependent on coal for much of our electrical generating capacity. Price fluctuation and coal and
other fuel supply disruptions could have a negative impact on our ability to profitably generate
electricity. We have hedging strategies in place to mitigate negative fluctuations in commodity
supply prices but there can be no assurances that our financial performance will not be negatively
impacted by price fluctuations. A work interruption may adversely affect us.Unions represent a majority of our employees. A union
choosing to strike as a negotiating tactic would have an impact on our business. Unplanned power plant outages may be costly.Unforeseen maintenance may be required to safely
produce electricity or comply with environmental regulations. Our financial performance may be
negatively affected if we are unable to recover such increased costs. Our ability to access capital markets at attractive interest rates is important.Our ability to
access capital markets is important to operate our business. 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 and
negatively impact our financial performance. Property tax reform may be costly. 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. We may not be fully covered by insurance.While we have a comprehensive insurance program in place
to provide coverage for various types of risks, catastrophic damage as a result of acts of God,
terrorism, war or a combination of significant unforeseen events could impact our operations and
economic losses might not be covered in full by insurance. Terrorism could affect our business. Damage to downstream infrastructure or our own assets by
terrorist groups would impact our operations. We have increased security as a result of recent
events and further security increases are expected. Failure to successfully implement new information systems could interrupt our operations.Our
business depends on numerous information systems for operations and financial information and
billings. We are in the process of launching the first phase of our DTE2 project, a multiyear
Company-wide initiative to improve existing processes and implement new core information systems.
Failure to successfully implement DTE2 could interrupt our operations. EMPLOYEES We had 7,838 employees at December 31, 2004, of which 3,918 were represented by unions. Of the
represented employees, 3,434 are under a three-year contract that was ratified in 2004. The
contract of the remaining represented employees expires in 2005. 11




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##### Table of Contents



Item 3. Legal Proceedings We are involved in certain legal, regulatory, administrative and environmental proceedings
before various courts, arbitration panels and governmental agencies concerning matters arising in
the ordinary course of business. These proceedings include certain contract disputes,
environmental reviews and investigations, audits, inquiries from various regulators, and pending
judicial matters. We cannot predict the final disposition of such proceedings. We regularly
review legal matters and record provisions for claims that are considered probable of loss. The
resolution of pending proceedings is not expected to have a material effect on our operations or
financial statements in the period they are resolved. For additional discussion on legal matters, see the following Notes to the Consolidated Financial
Statements: Note
    
    Title4
    
    Regulatory Matters5
    
    Nuclear Operations13
    
    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, Related Stockholder Matters and
Issuer Purchases of Equity Securities All of the 138,632,324 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 $303 million in 2004 and $295 million in 2003 and 2002. 
 Item 6. Selected Financial Data Omitted per general instruction I (2) (a) of Form 10-K for wholly owned subsidiaries (reduced
disclosure format). 12




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##### 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 $150 million in 2004, compared to net income of $246 million in 2003 and
$356 million in 2002. As subsequently discussed, the comparability of earnings was impacted by the
adoption of a new accounting rule in 2003. The following sections provide a detailed discussion of our segments, operating performance and
future outlook. Segment Performance & Outlook We operate our business through two segments, Energy Resources 
Power Generation and Energy Distribution  Power Distribution. (in Millions)
    
    2004
    
    
    2003
    
    
    2002Net IncomeEnergy Resources   Power Generation
    
    $
    62
    
    
    $
    235
    
    
    $
    245Energy Distribution   Power Distribution
    
    
    88
    
    
    
    17
    
    
    
    111Income Before Accounting Change
    
    
    150
    
    
    
    252
    
    
    
    356Cumulative Effect of Accounting Changes
    
    
    
    
    
    
    (6
    )
    
    
    Net Income
    
    $
    150
    
    
    $
    246
    
    
    $
    356
 ENERGY RESOURCES Power Generation The power generation plants of Detroit Edison comprise our regulated power generation business.
Detroit Edisons numerous fossil plants, its hydroelectric pumped storage plant and its nuclear
plant generate electricity. The generated electricity, supplemented with purchased power, is sold
principally throughout Michigan and the Midwest to residential, commercial, industrial and
wholesale customers. Factors impacting income:Power Generation earnings decreased $173 million in 2004 and $10 million
in 2003, compared to the prior year. As subsequently discussed, these results primarily reflect
reduced gross margins and increased operation and maintenance expenses. (in Millions)
    
    2004
    
    
    2003
    
    
    2002Operating Revenues
    
    $
    2,210
    
    
    $
    2,448
    
    
    $
    2,711Fuel and Purchased Power
    
    
    868
    
    
    
    920
    
    
    
    1,048Gross Margin
    
    
    1,342
    
    
    
    1,528
    
    
    
    1,663Operation and Maintenance
    
    
    672
    
    
    
    628
    
    
    
    622Depreciation and Amortization
    
    
    272
    
    
    
    224
    
    
    
    331Taxes Other Than Income
    
    
    147
    
    
    
    157
    
    
    
    156Operating Income
    
    
    251
    
    
    
    519
    
    
    
    554Other (Income) and Deductions
    
    
    166
    
    
    
    149
    
    
    
    189Income Tax Provision
    
    
    23
    
    
    
    135
    
    
    
    120Net Income
    
    $
    62
    
    
    $
    235
    
    
    $
    245Operating Income as a Percent of Operating Revenues
    
    
    11
    %
    
    
    21
    %
    
    
    20
    %
 13




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##### Table of Contents



Gross marginsdeclined $186 million during 2004 and $135 million in 2003. The declines were
due primarily to lost margins from retail customers choosing to purchase power from alternative
suppliers under the electric Customer Choice program as well as reduced cooling demand resulting
from mild summer weather. As a result of electric Customer Choice penetration, Detroit Edison lost
18% of retail sales in 2004, compared to 12% of such sales during 2003. The loss of retail sales
under the electric Customer Choice program also resulted in lower purchase power requirements, as
well as excess power capacity that was sold in the wholesale market. Under the 2004 interim and
final rate orders previously discussed, revenues from selling excess power reduce the level of
recoverable fuel and purchased power costs and therefore do not impact margins associated with
uncapped customers. The rate orders also lowered Power Supply Cost Recovery (PSCR) revenues, which
were partially offset by increased base rate and transition charge revenues. Weather in 2004 was 3% milder than 2003, resulting in lost margins of $25 million. Weather in 2003
was also milder than the prior year, resulting in lost margins of $114 million. The decline in
margins and revenues in 2004 was also due to the allocation of a smaller portion of Detroit
Edisons billings to Power Generation. (BAR CHART) Operating revenues and fuel and purchased power costs decreased in 2004 and 2003 reflecting a
$1.27 per megawatt hour (MWh) (8%) decline in fuel and purchased power costs during 2004 and a $.64
per MWh (4%) decline during 2003. Fuel and purchased power costs are a pass-through with the
reinstatement of the PSCR in 2004, and therefore do not affect margins or earnings associated with
uncapped customers. The decrease in fuel and purchased power costs is attributable to lower priced
purchases and the use of a more favorable power supply mix driven by higher generation output. The
favorable mix is due to lower purchases, driven by lost sales under the electric Customer Choice
program. The comparison was also affected by higher costs associated with substitute power
purchased to meet customer demand during the August 2003 blackout. We were required to purchase
additional power during the 36-day period it took for our generation fleet to return to
pre-blackout capacity. 2004
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    2002Electric Sales and Use(in Thousands of MWh)Retail
    
    
    40,379
    
    
    
    
    
    
    
    43,672
    
    
    
    
    
    
    
    48,346Wholesale and Other
    
    
    8,569
    
    
    
    
    
    
    
    5,600
    
    
    
    
    
    
    
    6,12848,948
    
    
    
    
    
    
    
    49,272
    
    
    
    
    
    
    
    54,474Internal Use and Line Loss
    
    
    3,574
    
    
    
    
    
    
    
    3,248
    
    
    
    
    
    
    
    3,65152,522
    
    
    
    
    
    
    
    52,520
    
    
    
    
    
    
    
    58,125
 14




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##### Table of Contents



2004
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    2002Power
Generated and Purchased(in Thousands of MWh)Power Plant GenerationFossil
    
    
    39,432
    
    
    
    75
    %
    
    
    38,052
    
    
    
    72
    %
    
    
    39,017
    
    
    
    67
    %Nuclear
(Fermi 2)
    
    
    8,440
    
    
    
    16
    
    
    
    8,114
    
    
    
    16
    
    
    
    9,301
    
    
    
    1647,872
    
    
    
    91
    
    
    
    46,166
    
    
    
    88
    
    
    
    48,318
    
    
    
    83Purchased Power
    
    
    4,650
    
    
    
    9
    
    
    
    6,354
    
    
    
    12
    
    
    
    9,807
    
    
    
    17System Output
    
    
    52,522
    
    
    
    100
    %
    
    
    52,520
    
    
    
    100
    %
    
    
    58,125
    
    
    
    100
    %Average Unit Cost ($/MWh)Generation (1)
    
    $
    12.98
    
    
    
    
    
    
    $
    12.89
    
    
    
    
    
    
    $
    12.53Purchased Power (2)
    
    $
    37.06
    
    
    
    
    
    
    $
    41.73
    
    
    
    
    
    
    $
    39.16Overall Average Unit Cost
    
    $
    15.11
    
    
    
    
    
    
    $
    16.38
    
    
    
    
    
    
    $
    17.02
   (1)
    
    Represents fuel costs associated with power plants.(2)
    
    Includes amounts associated with hedging activities. Operation and maintenanceexpense increased $44 million in 2004 and $6 million in 2003. The
2004 increase reflects costs associated with maintaining our generation fleet, including costs of
scheduled and forced plant outages. Additionally, the increase in 2004 is due to incremental costs
associated with the implementation of our DTE2 project, a Company-wide initiative to improve
existing processes and to implement new core information systems, including finance, human
resources, supply chain and work management. Operation and maintenance expense in both years
includes higher employee pension and health care benefit costs due to financial market performance,
discount rates and health care trend rates. Expenses in 2003 were also affected by $5 million in
costs associated with the August 2003 blackout. Depreciation and amortizationexpense increased $48 million in 2004 and decreased $107 million in
2003. The variations reflect the income effect of recording regulatory assets, which lowered
depreciation and amortization expenses. The regulatory asset deferrals totaled $107 million in 2004
and $153 million in 2003, representing net stranded costs and other costs we believe are
recoverable under Public Act (PA) 141. Other income and deductionsexpense increased $17 million in 2004 and decreased $40 million in
2003. The 2004 increase is primarily due to lower income associated with recording a return on
regulatory assets, as well as costs associated with addressing the structural issues of PA 141.
The 2003 decrease is attributable to lower interest expenses and increased interest income.
Interest expense reflects lower borrowing levels and rates, and interest income includes the
accrual of carrying charges on environmental-related regulatory assets. Outlook Future operating results are expected to vary as a result of external factors such as
regulatory proceedings, new legislation, changes in market prices of power, coal and gas, plant
performance, changes in economic conditions, weather and the levels of customer participation in
the electric Customer Choice program. We expect cash flows and operating performance will continue to be at risk due to the electric
Customer Choice program until the issues associated with this program are addressed. We will accrue
as regulatory assets our unrecovered generation-related fixed costs (stranded costs) due to
electric Customer Choice that we believe are recoverable under Michigan legislation and MPSC
orders. We have addressed certain issues of the electric Customer Choice program in our February
2005 rate restructuring proposal. We cannot predict the outcome of these matters. In conjunction with DTE Energys sale of the transmission assets of ITC in February 2003, the
Federal Energy Regulatory Commission (FERC) froze ITCs transmission rates through December 2004.
It is expected that annual rate adjustments pursuant to a formulistic pricing mechanism beginning
in January 2005 will result in an estimated increase in Detroit Edisons transmission expense of
$50 million annually. Additionally, in a proceeding before the FERC, several Midwest utilities seek
to recover transmission revenues lost as a result of a FERC order modifying the pricing of
transmission service in the Midwest. Detroit Edison estimates that its potential obligation as a
result of this proceeding could be $2.2 million per month from December 2004 through March 2005 and
$1 million per month from April 2005 through
March 2006. Detroit Edison is expected to incur an additional
$15 million in 2005 for charges related to the implementation of
Midwest Independent Transmission System Operators open market. As previously discussed, Detroit Edison
received rate orders in 2004 that allow for the recovery of increased transmission expenses through
the PSCR mechanism. See Note 4  Regulatory Matters. 15




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##### Table of Contents



ENERGY DISTRIBUTION Power Distribution Power Distribution operations include the electric distribution services of Detroit Edison. Power
Distribution distributes electricity generated and purchased by Energy Resources and alternative
energy suppliers to Detroit Edisons 2.1 million customers. Factors impacting income: Power Distribution earnings increased $71 million during 2004 and
decreased $94 million in 2003, compared to the prior year. As subsequently discussed, these results
primarily reflect varying operating revenues and operation and maintenance expenses, as well as a
non-recurring loss recorded in 2003. 2004
    
    
    2003
    
    
    2002(in Millions)Operating Revenues
    
    $
    1,358
    
    
    $
    1,247
    
    
    $
    1,343Fuel and Purchased Power
    
    
    17
    
    
    
    19
    
    
    
    26Operation and Maintenance
    
    
    723
    
    
    
    724
    
    
    
    649Depreciation and Amortization
    
    
    251
    
    
    
    249
    
    
    
    246Taxes Other Than Income
    
    
    101
    
    
    
    100
    
    
    
    117Operating Income
    
    
    266
    
    
    
    155
    
    
    
    305Other (Income) and Deductions
    
    
    137
    
    
    
    128
    
    
    
    136Income Tax Provision
    
    
    41
    
    
    
    10
    
    
    
    58Net Income
    
    $
    88
    
    
    $
    17
    
    
    $
    111Operating Income as a Percent of Operating Revenues
    
    
    20
    %
    
    
    12
    %
    
    
    23
    %
 Electric Deliveries 2004
    
    
    2003
    
    
    2002(in Thousands of MWh)Residential
    
    
    15,081
    
    
    
    15,074
    
    
    
    15,958Commercial
    
    
    13,425
    
    
    
    15,942
    
    
    
    18,395Industrial
    
    
    11,472
    
    
    
    12,254
    
    
    
    13,590Wholesale
    
    
    2,197
    
    
    
    2,241
    
    
    
    2,249Other
    
    
    401
    
    
    
    402
    
    
    
    40342,576
    
    
    
    45,913
    
    
    
    50,595Electric Choice
    
    
    9,245
    
    
    
    6,193
    
    
    
    2,967Electric Choice  Self Generations*
    
    
    595
    
    
    
    1,088
    
    
    
    543Total Electric Deliveries
    
    
    52,416
    
    
    
    53,194
    
    
    
    54,105
   *
    
    Represents deliveries for self generators who have purchased power from
alternative energy suppliers to supplement their power requirements. Operating revenuesincreased $111 million in 2004, primarily due to an increase in base rates
resulting from the interim and final rate orders. The 2004 improvement is also attributable to
residential sales growth and the allocation of a higher portion of Detroit Edisons billings to
Power Distribution, partially offset by the effects of milder weather. Operating revenues
decreased $96 million in 2003, reflecting mild summer weather and the impact of slower economic
conditions. Operation and maintenanceexpense decreased $1 million in 2004 and increased $75 million in 2003.
The operation and maintenance expense comparability was affected by 2003 restoration costs
associated with three catastrophic storms and the August 2003 blackout. Both years were also
affected by an increase in reserves for uncollectible accounts receivable, reflecting high past due
amounts attributable to economic conditions, and an increase in employee benefit costs.
Additionally, the comparisons were affected by incremental costs associated with our DTE2 project
implementation, a $22 million pre-tax loss in 2003 from the sale of our steam heating business, and
the accrual of refunds in 2004 and 2003 associated with transmission services. 16




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##### Table of Contents



(BAR CHART) Outlook Operating results are expected to vary as a result of external factors such as weather,
changes in economic conditions and the severity and frequency of storms. We experienced numerous catastrophic storms over the past few years. The effect of the storms on
annual earnings was partially offset by storm insurance. We have been unable to obtain storm
insurance at economical rates and as a result, we do not anticipate having insurance coverage at
levels that would significantly offset unplanned expenses from ice storms, tornadoes, or high winds
that damage our distribution infrastructure. CUMULATIVE EFFECT OF ACCOUNTING CHANGES As required by U.S. generally accepted accounting principles, on January 1, 2003, we adopted a
new accounting rule for asset retirement obligations. The cumulative effect of adopting this new
accounting rule reduced 2003 earnings by $6 million. See Note 2 for further discussion. 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Commodity Price Risk Detroit Edison has commodity price risk arising from market price fluctuations in conjunction with
the anticipated purchase of electricity to meet its obligations during periods of peak demand. To
limit our exposure to commodity price fluctuations, we have entered into electricity option
contracts. Commodity price risk is limited due to the PSCR mechanism (Note 1). See Note 12  Financial and Other Derivative Instruments for further discussion. Interest Rate Risk Detroit Edison is subject to interest rate risk in connection with the issuance of debt
securities. Our exposure to interest rate risk arises primarily from changes in U.S. Treasury
rates, commercial paper rates and London Inter-Bank Offered Rates (LIBOR). We estimate that if
interest rates were 10% higher or lower, the fair value of long-term debt at December 31, 2004
would decrease $189 million and increase $200 million, respectively. Credit Risk We purchase and sell electricity from and to numerous companies operating in the steel,
automotive, energy, retail and other industries. A number of customers have filed for bankruptcy
protection under Chapter 11 of the U.S. Bankruptcy Code. We have negotiated or are currently
involved in negotiations with each of the companies, or 17




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##### Table of Contents



their successor companies, that have filed for bankruptcy protection. We regularly review
contingent matters and record provisions for amounts considered probable of loss. We believe our
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. 18




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data PageReport
of Independent Registered Public Accounting Firm
    
    
    20Consolidated Statement of Operations
    
    
    21Consolidated Statement of Financial Position
    
    
    22Consolidated Statement of Cash Flows
    
    
    24Consolidated Statement of Changes in Shareholders Equity and Comprehensive Income
    
    
    25Notes to Consolidated Financial Statements
    
    
    26Schedule II  Valuation and Qualifying Accounts
    
    
    64
 19




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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, 2004 and 2003 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, 2004. 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 financial statements and financial statement
schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, 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, 2004 and
2003, and the results of their operations and their cash flows for each of the three years in the
period ended December 31, 2004, 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,
presents fairly, in all material respects, the information set forth therein. As discussed in Note 2 to the consolidated financial statements, in connection with the required
adoption of a new accounting principle, in 2003 the Company changed its method of accounting for
asset retirement obligations. /S/ DELOITTE & TOUCHE LLP Detroit, Michigan
March 15, 2005




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##### Table of Contents



The Detroit Edison Company 
 Consolidated Statement of Operations
 Year Ended December 312004
    
    
    2003
    
    
    2002(in Millions)Operating Revenues
    
    $
    3,568
    
    
    $
    3,695
    
    
    $
    4,054Operating ExpensesFuel and purchased power
    
    
    885
    
    
    
    939
    
    
    
    1,074Operation and maintenance
    
    
    1,394
    
    
    
    1,352
    
    
    
    1,271Depreciation and amortization
    
    
    523
    
    
    
    473
    
    
    
    577Taxes other than income
    
    
    249
    
    
    
    257
    
    
    
    2733,051
    
    
    
    3,021
    
    
    
    3,195Operating Income
    
    
    517
    
    
    
    674
    
    
    
    859Other (Income) and DeductionsInterest expense
    
    
    280
    
    
    
    284
    
    
    
    311Interest income
    
    
    
    
    
    
    (7
    )
    
    
    (1
    )Other income
    
    
    (66
    )
    
    
    (93
    )
    
    
    (36
    )Other expenses
    
    
    89
    
    
    
    93
    
    
    
    51303
    
    
    
    277
    
    
    
    325Income Before Income Taxes
    
    
    214
    
    
    
    397
    
    
    
    534Income Tax Provision
    
    
    64
    
    
    
    145
    
    
    
    178Income Before Accounting Change
    
    
    150
    
    
    
    252
    
    
    
    356Cumulative Effect of Accounting Change (Note 2)
    
    
    
    
    
    
    (6
    )
    
    
    Net Income
    
    $
    150
    
    
    $
    246
    
    
    $
    356
   See Notes to Consolidated Financial Statements 21




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##### Table of Contents



The Detroit Edison Company 
 Consolidated Statement of Financial Position
 December 312004
    
    
    2003(in Millions)AssetsCurrent AssetsCash and cash equivalents
    
    $
    6
    
    
    $
    6Restricted cash
    
    
    75
    
    
    
    82Accounts receivableCustomer (less allowance for doubtful accounts of $55 and
$51, respectively)
    
    
    258
    
    
    
    291Accrued unbilled revenues
    
    
    207
    
    
    
    196Other
    
    
    120
    
    
    
    169InventoriesFuel
    
    
    100
    
    
    
    108Materials and supplies
    
    
    118
    
    
    
    124Notes receivable from affiliate (Note 15)
    
    
    85
    
    
    
    7Other
    
    
    46
    
    
    
    221,015
    
    
    
    1,005InvestmentsNuclear decommissioning trust funds
    
    
    590
    
    
    
    518Other
    
    
    55
    
    
    
    54645
    
    
    
    572PropertyProperty, plant and equipment
    
    
    12,931
    
    
    
    12,671Less accumulated depreciation (Note 2)
    
    
    (5,354
    )
    
    
    (5,339
    )7,577
    
    
    
    7,332Other AssetsRegulatory assets (Note 4)
    
    
    2,053
    
    
    
    2,000Securitized regulatory assets (Note 4)
    
    
    1,438
    
    
    
    1,527Other
    
    
    114
    
    
    
    1133,605
    
    
    
    3,640Total Assets
    
    $
    12,842
    
    
    $
    12,549
   See Notes to Consolidated Financial Statements 22




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##### Table of Contents



The Detroit Edison Company Consolidated Statement of Financial Position
 December 312004
    
    
    2003(in Millions, Except Shares)Liabilities and Shareholders EquityCurrent LiabilitiesAccounts payable
    
    $
    346
    
    
    $
    211Accrued interest
    
    
    79
    
    
    
    76Dividends
payable (Note 15)
    
    
    76
    
    
    
    74Accrued payroll
    
    
    12
    
    
    
    27Accrued vacations
    
    
    76
    
    
    
    76Short-term borrowings
    
    
    
    
    
    
    100Accrued PSCR refund
    
    
    112
    
    
    
    Current portion long-term debt, including capital leases
    
    
    499
    
    
    
    144Other
    
    
    130
    
    
    
    2131,330
    
    
    
    921Other LiabilitiesDeferred income taxes
    
    
    1,941
    
    
    
    1,783Regulatory liabilities (Notes 2 and 4)
    
    
    253
    
    
    
    254Asset retirement obligations (Note 2)
    
    
    869
    
    
    
    819Unamortized investment tax credit
    
    
    125
    
    
    
    135Nuclear decommissioning (Notes 2 and 5)
    
    
    77
    
    
    
    67Accrued pension liability
    
    
    247
    
    
    
    321Other
    
    
    676
    
    
    
    6394,188
    
    
    
    4,018Long-Term
Debt (net of current portion) (Note 9)Mortgage bonds, notes and other
    
    
    2,879
    
    
    
    3,076Securitization bonds
    
    
    1,400
    
    
    
    1,496Capital lease obligations
    
    
    66
    
    
    
    754,345
    
    
    
    4,647Commitments and Contingencies (Notes 4, 5 and 13)Shareholders EquityCommon stock, $10 par value, 400,000,000 shares
authorized, 138,632,324 and 134,287,832 shares
issued and outstanding
    
    
    1,386
    
    
    
    1,343Premium on common stock
    
    
    1,104
    
    
    
    977Common stock expense
    
    
    (44
    )
    
    
    (44
    )Retained earnings
    
    
    531
    
    
    
    686Accumulated other comprehensive income
    
    
    2
    
    
    
    12,979
    
    
    
    2,963Total Liabilities and Shareholders Equity
    
    $
    12,842
    
    
    $
    12,549
   See Notes to Consolidated Financial Statements 23




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##### Table of Contents



The Detroit Edison Company 
 Consolidated Statement of Cash Flows
 Year Ended December 312004
    
    
    2003
    
    
    2002(in Millions)Operating ActivitiesNet Income
    
    $
    150
    
    
    $
    246
    
    
    $
    356Adjustments to reconcile net income to net cash from
operating activities:Depreciation and amortization
    
    
    523
    
    
    
    473
    
    
    
    577Deferred income taxes
    
    
    142
    
    
    
    32
    
    
    
    (52
    )Loss (gain) on sale of assets
    
    
    (1
    )
    
    
    21
    
    
    
    Cumulative effect of accounting change
    
    
    
    
    
    
    6
    
    
    
    Changes in assets and liabilities, exclusive of
changes shown separately (Note 1)
    
    
    376
    
    
    
    (13
    )
    
    
    (123
    )Net cash from operating activities
    
    
    1,190
    
    
    
    765
    
    
    
    758Investing ActivitiesPlant and equipment expenditures
    
    
    (702
    )
    
    
    (580
    )
    
    
    (685
    )Proceeds from sale of assets
    
    
    1
    
    
    
    2
    
    
    
    Restricted cash for debt redemptions
    
    
    6
    
    
    
    49
    
    
    
    (63
    )Notes receivable from affiliate
    
    
    (78
    )
    
    
    50
    
    
    
    (57
    )Other investments
    
    
    (66
    )
    
    
    (126
    )
    
    
    (86
    )Net cash used for investing activities
    
    
    (839
    )
    
    
    (605
    )
    
    
    (891
    )Financing ActivitiesIssuance of long-term debt
    
    
    266
    
    
    
    49
    
    
    
    570Redemption of long-term debt
    
    
    (206
    )
    
    
    (504
    )
    
    
    (318
    )Short-term borrowings, net
    
    
    (100
    )
    
    
    100
    
    
    
    Capital contribution by parent company
    
    
    
    
    
    
    470
    
    
    
    Repurchase of common stock
    
    
    
    
    
    
    
    
    
    
    Dividends on common stock
    
    
    (303
    )
    
    
    (295
    )
    
    
    (295
    )Other
    
    
    (8
    )
    
    
    (10
    )
    
    
    (3
    )Net cash used for financing activities
    
    
    (351
    )
    
    
    (190
    )
    
    
    (46
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    
    
    
    
    (30
    )
    
    
    (179
    )Cash and Cash Equivalents at Beginning of the Period
    
    
    6
    
    
    
    36
    
    
    
    215Cash and Cash Equivalents at End of the Period
    
    $
    6
    
    
    $
    6
    
    
    $
    36
   See Notes to Consolidated Financial Statements 24




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##### Table of Contents



The Detroit Edison Company 
 Consolidated Statement of Changes in Shareholders Equity and
Comprehensive income
 Premium
    
    
    
    
    
    
    
    
    
    
    AccumulatedOn
    
    
    Common
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Common
    
    
    Stock
    
    
    Retained
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Stock
    
    
    Expense
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Total(Dollars in Millions,Shares in Thousands)Balance, December 31, 2001
    
    
    134,288
    
    
     $
    1,343
    
    
    $
    507
    
    
    $
    (44
    )
    
    $
    675
    
    
     $
    (23
    )
    
    $
    2,458Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    356
    
    
    
    
    
    
    
    356Dividends declared on
Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (296
    )
    
    
    
    
    
    
    (296
    )Net change in unrealized
losses
on derivatives, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    21Pension
obligation (Note 14)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (417
    )
    
    
    (417
    )Balance, December 31, 2002
    
    
    134,288
    
    
    
    1,343
    
    
    
    507
    
    
    
    (44
    )
    
    
    735
    
    
    
    (419
    )
    
    
    2,122Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    246
    
    
    
    
    
    
    
    246Dividends declared on
Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (295
    )
    
    
    
    
    
    
    (295
    )Net change in unrealized
losses
on derivatives, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Pension
obligation (Note 14)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    417
    
    
    
    417Capital contribution by
parent company
    
    
    
    
    
    
    
    
    
    
    470
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    470Balance, December 31, 2003
    
    
    134,288
    
    
    
    1,343
    
    
    
    977
    
    
    
    (44
    )
    
    
    686
    
    
    
    1
    
    
    
    2,963Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    150Dividends declared on
Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (305
    )
    
    
    
    
    
    
    (305
    )Net change in unrealized gain
on investments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Common stock issued to
parent company
    
    
    4,344
    
    
    
    43
    
    
    
    127
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    170Balance, December 31, 2004
    
    
    138,632
    
    
    $
    1,386
    
    
    $
    1,104
    
    
    $
    (44
    )
    
    $
    531
    
    
    $
    2
    
    
    $
    2,979
   The following table displays comprehensive income (loss): (in Millions)
    
    2004
    
    
    2003
    
    
    2002Net income
    
    $
    150
    
    
    $
    246
    
    

    $
    356Other comprehensive income (loss), net of tax:Net unrealized losses on derivatives:Gains or (losses) arising during the period, net of taxes of $-, $4 and $-
    
    
    
    
    
    
    8
    
    
    
    (1
    )Amounts reclassified to earnings, net of taxes of $-, $(3) and $11
    
    
    
    
    
    
    (5
    )
    
    
    22
    
    
    
    3
    
    
    
    21Net change in unrealized gain on investments, net of taxes of $-, $- and $-
    
    
    1
    
    
    
    
    
    
    
    Pension obligations, net of taxes of $-, $224 and $(224) (Notes 4 and 14)
    
    
    
    
    
    
    417
    
    
    
    (417
    )Comprehensive income (loss)
    
    $
    151
    
    
    $
    666
    
    
    $
    (40
    )
   See Notes to Consolidated Financial Statements 25




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##### Table of Contents



The 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). 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. For entities that are considered variable interest entities we apply the provisions of Financial
Accounting Standards Board (FASB) Interpretation No. (FIN) 46-R, Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51.For a detailed discussion of FIN 46-R see
Note 2  New Accounting Pronouncements. 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 certain prior year balances to match the current years financial statement
presentation. Revenues Revenues from the sale and delivery of electricity are recognized as services are provided. We
record revenues for electric services provided but unbilled at the end of each month. Detroit Edisons accrued revenues include a component for the cost of power sold that is
recoverable through the Power Supply Cost Recovery (PSCR) mechanism. Annual PSCR proceedings
before the MPSC permit Detroit Edison to recover prudent and reasonable supply costs. Any
overcollection or undercollection of costs, including interest, will be reflected in future rates.
Prior to 2004, Detroit Edisons retail rates were frozen under Public Act (PA) 141. See Note 4 for
further discussion. Accordingly, Detroit Edison did not accrue revenues under the PSCR mechanism
prior to 2004. Comprehensive Income We comply with Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, that established standards for reporting comprehensive income. SFAS No. 130 26




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##### Table of Contents



defines comprehensive income as the change in common shareholders equity during a period from
transactions and events from non-owner sources, including net income. As shown in the following
table, amounts recorded to other comprehensive income at December 31, 2004 include: unrealized gains and
losses from derivatives accounted for as cash flow hedges under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. Net
    
    
    Net
    
    
    AccumulatedUnrealized
    
    
    Unrealized
    
    
    OtherGain on
    
    
    Losses on
    
    
    Comprehensive(in Millions)
    
    Investments
    
    
    Derivatives
    
    
    Income (Loss)Beginning balance
    
    $
    
    
    
    $
    1
    
    
    $
    1Current-period change
    
    
    1
    
    
    
    
    
    
    
    1Ending balance
    
    $
    1
    
    
    $
    1
    
    
    $
    2
 Cash Equivalents and Restricted Cash Cash and cash equivalents include cash on hand, cash in banks and temporary investments with
remaining maturities of three months or less. Restricted cash consists of funds held to satisfy
requirements of certain debt agreements. Restricted cash is classified as a current asset as all
restricted cash is designated for interest and principal payments due within one year. Inventories We value fuel inventory and materials and supplies at average cost. Property, Retirement and Maintenance, and Depreciation and Depletion Summary of property by classification as of December 31: (in Millions)
    
    2004
    
    
    2003Property, Plant and EquipmentElectric UtilityGeneration
    
    $
    7,100
    
    
    $
    6,938Distribution
    
    
    5,831
    
    
    
    5,733Total
    
    
    12,931
    
    
    
    12,671Less Accumulated Depreciation and DepletionElectric UtilityGeneration
    
    
    (3,277
    )
    
    
    (3,231
    )Distribution
    
    
    (2,077
    )
    
    
    (2,108
    )Total
    
    
    (5,354
    )
    
    
    (5,339
    )Net Property, Plant and Equipment
    
    $
    7,577
    
    
    $
    7,332
 Property is stated at cost and includes construction-related labor, materials, overheads and
an allowance for funds used during construction (AFUDC). The cost of properties retired, less
salvage, are charged to accumulated depreciation. 27




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##### Table of Contents



Expenditures for maintenance and repairs are charged to expense when incurred, except for Fermi 2.
Approximately $3.8 million of expenses related to the anticipated Fermi 2 refueling outage
scheduled for 2006 were accrued at December 31, 2004. Amounts are being accrued on a pro-rata basis over an 18-month period that began in
November 2004. We have utilized the accrue-in-advance policy for nuclear refueling outage costs
since the Fermi 2 plant was placed in service in 1988. This method also matches the regulatory
recovery of these costs in rates set by the MPSC. We base depreciation provisions for utility property on straight-line rates approved by the MPSC.
The composite depreciation rate for Detroit Edison was 3.4% in 2004, 2003 and 2002. The average estimated useful life for each class of property, plant and equipment as of December
31, 2004 follows: Estimated Useful Lives in YearsGeneration
    
    

Distribution39
    
    
    
    37
 We credit depreciation and amortization expense when we establish regulatory assets for
stranded costs related to the electric Customer Choice program and deferred environmental
expenditures. 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. Intangible Assets, including Software Costs Our intangible assets consist primarily of software. We capitalize the costs associated with
computer software we develop or obtain for use in our business. We amortize intangible assets on a
straight-line basis over expected periods of benefit. Intangible assets amortization expense was
$32 million in 2004, $30 million in 2003 and $36 million in 2002. The gross carrying amount and
accumulated amortization of intangible assets at December 31, 2004 were $253 million and $88
million, respectively. The gross carrying amount and accumulated amortization of intangible assets
at December 31, 2003 were $352 million and $250 million, respectively. Amortization expense of
intangible assets is estimated to be $27 million annually for 2005 through 2009. 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. 28




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##### Table of Contents



Insured and Uninsured Risks We have a comprehensive insurance program in place to provide coverage for various types of
risks. Our insurance policies cover risk of loss from various events, including property damage,
general liability, workers compensation, auto liability and officers liability. Under our risk management policy, we self-insure portions of certain risks up to specified limits,
depending on the type of exposure. We periodically review our insurance coverage. During 2003, we
reviewed our process for estimating and recognizing reserves for self-insured risks. As a result
of this review, we revised the process for estimating liabilities under our self-insured layers to
include an actuarially determined estimate of incurred but not reported (IBNR) claims. We have an
actuarially determined estimate of our IBNR liability prepared annually and adjust the related
reserve as appropriate. Investments in Debt and Equity Securities We generally classify investments in debt and equity securities as trading and have recorded
such investments at market value with unrealized gains or losses included in earnings. Changes in
the fair value of nuclear decommissioning-related investments are recorded as adjustments to
regulatory assets or liabilities (Note 5). Consolidated Statement of Cash Flows A detailed analysis of the changes in assets and liabilities that are reported in the
consolidated statement of cash flows follows: (in Millions)
    
    2004
    
    
    2003
    
    
    2002Changes in Assets and Liabilities,
Exclusive of Changes Shown SeparatelyAccounts receivable, net
    
    $
    91
    
    
    $
    13
    
    
    $
    40Accrued unbilled receivables
    
    
    (11
    )
    
    
    (19
    )
    
    
    (47
    )Inventories
    
    
    14
    
    
    
    18
    
    
    
    34Accrued pensions
    
    
    123
    
    
    
    (179
    )
    
    
    (44
    )Accounts payable
    
    
    135
    
    
    
    (27
    )
    
    
    (78
    )Accrued PSCR refund
    
    
    112
    
    
    
    
    
    
    
    Accrued payroll
    
    
    (15
    )
    
    
    3
    
    
    
    (65
    )Income taxes payable
    
    
    (14
    )
    
    
    (24
    )
    
    
    (75
    )General taxes
    
    
    (13
    )
    
    
    (7
    )
    
    
    (2
    )Risk management and trading activities
    
    
    (1
    )
    
    
    (7
    )
    
    
    (32
    )Postretirement obligation
    
    
    11
    
    
    
    93
    
    
    
    60Other
    
    
    (56
    )
    
    
    123
    
    
    
    86$
    376
    
    
    $
    (13
    )
    
    $
    (123
    )
  (in Millions)
    
    2004
    
    
    2003
    
    
    2002Cash Paid forInterest (excluding interest capitalized)
    
    $
    277
    
    
    $
    291
    
    
    $
    312Income taxes
    
    
    2
    
    
    
    153
    
    
    
    308Non-cash
Financing ActivityCommon stock issued to parent company in
conjunction with parent company common stock contribution to pension
plan
   
    
    170
    
    
    
    
    
    
    
    
 29




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##### Table of Contents



See the following notes for other accounting policies impacting our financial statements: Note
    
    Title2
    
    New Accounting Pronouncements4
    
    Regulatory Matters7
    
    Income Taxes12
    
    Financial and Other Derivative Instruments14
    
    Retirement Benefits and Trusteed Assets
 NOTE 2  NEW ACCOUNTING PRONOUNCEMENTS 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. We identified a legal retirement obligation for the decommissioning costs for
our Fermi 1 and 2 nuclear plants. We believe that adoption of SFAS No. 143 results primarily in
timing differences in the recognition of legal asset retirement costs that we are currently
recovering in rates and are deferring such differences under SFAS No. 71, Accounting for the
Effects of Certain Types of Regulation. As a result of adopting SFAS No. 143 on January 1, 2003, we recorded a plant asset of $278 million
with offsetting accumulated depreciation of $103 million, a retirement obligation liability of $771
million and reversed previously recognized obligations of $366 million, principally nuclear
decommissioning liabilities. We also recorded a cumulative effect amount related to utility
operations as a regulatory asset of $221 million, and a cumulative effect charge against earnings
of $6 million (net of tax of $4 million) for 2003. If a reasonable estimate of fair value cannot be made in the period the asset retirement obligation
is incurred, such as assets with an indeterminate life, the liability is to be recognized when a
reasonable estimate of fair value can be made. Generally, distribution assets have an
indeterminate life, retirement cash flows cannot be determined and there is a low probability of
retirement, therefore no liability has been recorded for these assets. The impact on the twelve-month period of 2003 of SFAS No. 143 and the pro-forma effect for the
comparable 2002 periods as if SFAS No. 143 had been adopted at January 1, 2002 are immaterial. A reconciliation of the asset retirement obligation for 2004 follows: (in Millions)Asset retirement obligations at January 1, 2004
    
    $
    819Accretion
    
    
    55Liabilities settled
    
    
    (5
    )Asset retirement obligations at December 31, 2004
    
    $
    869
 A significant portion of the asset retirement obligations represents nuclear decommissioning
liabilities, which are funded through a surcharge to electric customers over the life of the Fermi
2 nuclear plant. 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
December 31, 2003, we reclassified approximately $238 million of previously accrued asset removal
costs, which had been previously netted against accumulated depreciation to regulatory liabilities.
There is a generic case 30




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before the MPSC to determine the accounting and regulatory treatment of removal costs for Michigan utilities. Consolidation of Variable Interest Entities In January 2003, FASB Interpretation No. (FIN) 46, Consolidation of Variable Interest
Entities, an Interpretation of Accounting Research Bulletin (ARB) No. 51,was issued and requires
an investor with a majority of the variable interests (primary beneficiary) in a variable interest
entity to consolidate the assets, liabilities and results of operations of the entity.
A variable interest entity is an entity in which the equity investors do not have controlling interests,
the equity investment at risk is insufficient to finance the entitys activities without receiving
additional subordinated financial support from other parties, or equity investors do not share
proportionally in gains or losses. In October 2003 and December 2003, the FASB issued Staff Position No. FIN 46-6 and FIN 46-Revised
(FIN 46-R), respectively, which clarified and replaced FIN 46 and also provided for the deferral of
the effective date of FIN 46 for certain variable interest entities. We have evaluated all of our
equity and non-equity interests and have adopted all current provisions of FIN 46-R. The adoption
of FIN 46-R did not have a material effect on our financial statements. Medicare Act Accounting In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003
(Medicare Act) was signed into law. The Medicare Act provides for a non-taxable federal subsidy to
sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially
equivalent to the benefit established by law. We elected at that time to defer the provisions of
the Medicare Act, and its impact on our accumulated postretirement benefit obligation and net
periodic postretirement benefit cost pending, the issuance of specific authoritative accounting
guidance by the FASB. In May 2004, FASB Staff Position (FSP) No. 106-2 was issued on accounting for the effects of the
Medicare Act. The guidance in this FSP is applicable to sponsors of single-employer defined benefit
postretirement health care plans for which (a) the employer has concluded the prescription drug
benefits available under the plan to some or all participants are actuarially equivalent to
Medicare Part D and thus qualify for the subsidy under the Medicare Act and (b) the expected
subsidy will offset or reduce the employers share of the cost of the underlying postretirement
prescription drug coverage on which the subsidy is based. We believe we qualify for the subsidy
under the Medicare Act and the expected subsidy will partially offset our share of the cost of
postretirement prescription drug coverage. In June 2004, we adopted FSP No. 106-2, retroactive to January 1, 2004. As a result of the
adoption, our accumulated postretirement benefit obligation for the subsidy related to benefits
attributed to past service was reduced by approximately $70 million and was accounted for as an
actuarial gain. The effects of the subsidy reduced net postretirement costs by $12 million in 2004. NOTE 3  DISPOSITIONS Steam Heating Business In January 2003, we sold our steam heating business to Thermal Ventures II, LP. Due to our
continuing involvement in the steam heating business, including the commitment to purchase steam
and/or electricity through 2024, fund certain capital improvements and guarantee the buyers credit
facility, we recorded a net of tax loss of approximately $14 million in 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 31




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##### Table of Contents



million at December 31,
2002, and had net losses of $12 million in 2002. See Note 13  Commitments
and Contingencies. NOTE 4 - REGULATORY MATTERS Regulation Detroit Edison is subject to the regulatory jurisdiction of the MPSC, which issues orders
pertaining to retail 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. As subsequently discussed in the Electric Industry Restructuring section, Detroit Edisons rates
were frozen through 2003 and capped for small business customers through 2004 and for residential
customers through 2005 as a result of Public Act (PA) 141. However, Detroit Edison was allowed to
defer certain costs to be recovered once rates could be increased, including costs incurred as a
result of changes in taxes, laws and other governmental actions. Regulatory Assets and Liabilities Detroit Edison applies the provisions of SFAS No. 71, Accounting for the Effects of Certain
Types of Regulation,to its operations. 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 providing regulated services and be charged to and collected from
customers. 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 business and may
require the write-off of the portion of any regulatory asset or liability that was no longer
probable of recovery through regulated rates. Management believes that currently available facts
support the continued application of SFAS No. 71. 32




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The following are balances and a brief description of the regulatory assets and liabilities at
December 31: (in Millions)
    
    2004
    
    
    2003AssetsSecuritized regulatory assets
    
    $
    1,438
    
    
    $
    1,527Recoverable income taxes related to securitized regulatory assets
    
    $
    788
    
    
    $
    837Recoverable minimum pension liability
    
    
    604
    
    
    
    583Asset retirement obligation
    
    
    183
    
    
    
    192Other recoverable income taxes
    
    
    109
    
    
    
    114Recoverable costs under PA 141Net stranded costs
    
    
    122
    
    
    
    68Excess capital investment
    
    
    7
    
    
    
    Deferred Clean Air Act expenditures
    
    
    76
    
    
    
    54Midwest Independent System Operator charges
    
    
    27
    
    
    
    21Transmission integration costs
    
    
    
    
    
    
    10Electric Customer Choice implementation costs
    
    
    95
    
    
    
    84Enhanced security costs
    
    
    8
    
    
    
    6Unamortized loss on reacquired debt
    
    
    29
    
    
    
    28Other
    
    
    5
    
    
    
    3$
    2,053
    
    
    $
    2,000LiabilitiesAsset removal costs
    
    $
    250
    
    
    $
    238Excess securitization savings
    
    
    
    
    
    
    14Customer refund  1997 storm
    
    
    2
    
    
    
    2Accrued PSCR refund
    
    
    112
    
    
    
    Other
    
    
    1
    
    
    
    365
    
    
    
    254Less amount included in current liabilities
    
    
    (112
    )
    
    
    $
    253
    
    
    $
    254
 ASSETS  
    Securitized regulatory assets The net book balance of the
Fermi 2 nuclear plant was written off in 1998 and an
equivalent regulatory asset was established. In 2001, the
Fermi 2 regulatory asset and certain other regulatory assets
were securitized pursuant to PA 142 and an MPSC order. A
non-bypassable securitization bond surcharge recovers the
securitized regulatory asset over a fourteen-year period
ending in 2015.
    Recoverable income taxes related to securitized regulatory
assets Receivable for the recovery of income taxes to be
paid on the non-bypassable securitization bond surcharge. A
non-bypassable securitization tax surcharge recovers the
income tax.
    Recoverable minimum pension liability An additional minimum
pension liability was recorded under generally accepted
accounting principles (Note 14) due to the current under
funded status of certain pension plans. The traditional rate
setting process allows for the recovery of pension costs as
measured by generally accepted accounting principles.
Accordingly, the minimum pension liability is recoverable.
    Asset retirement obligation Asset retirement obligations
were recorded pursuant to adoption of SFAS No. 143 in 2003.
These obligations are primarily for Fermi 2 decommissioning
costs that are recovered in rates.
    Other recoverable income taxes Income taxes receivable from
Detroit Edisons customers representing the difference in
property-related deferred income taxes receivable and amounts
previously reflected in Detroit Edisons rates. 33




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##### Table of Contents




    Net stranded costs PA 141 permits, after MPSC
authorization, the recovery of and a return on fixed cost
deficiency associated with the electric Customer Choice
program. Net stranded costs occur when fixed cost related
revenues do not cover the fixed cost revenue requirements.
    Excess capital investment Starting in 2004, PA 141 permits,
after MPSC authorization, the recovery of and a return on
capital expenditures that exceed a base level of depreciation
expense.
    Deferred Clean Air Act expenditures PA 141 permits, after
MPSC authorization, the recovery of and a return on Clean Air
Act expenditures.
    Midwest Independent System Operator charges PA 141 permits,
after MPSC authorization, the recovery of and a return on
charges from a regional transmission operator such as the
Midwest Independent System Operator.
    Transmission integration costsThe MPSCs November 2004
final rate order denied recovery and determined these costs
to be transaction expenses in DTE Energys sale of ITC.
    Electric Customer Choice implementation costs PA 141
permits, after MPSC authorization, the recovery of and a
return on costs incurred associated with the implementation
of the electric Customer Choice program.
    Enhanced security costs PA 141 permits, after MPSC
authorization, the recovery of enhanced homeland security
costs for an electric generating facility.
    Unamortized loss on reacquired debt The unamortized
discount, premium and expense related to debt redeemed with a
refinancing are deferred, amortized and recovered over the
life of the replacement issue. LIABILITIES  
    Asset removal costs The amount collected from customers for
the funding of future asset removal activities.
    Excess securitization savings Savings associated with the
2001 securitization of Fermi 2 and other costs are refundable
to Detroit Edisons customers.
    Customer refund  1997 storm The over collection of 1997
storm costs, which will be refunded in accordance with the
MPSCs November 2004 rate order.
    Accrued PSCR refund Payable for the temporary over-recovery
of and a return on power supply costs, and beginning with the
MPSCs November 2004 rate order, transmission costs incurred
by Detroit Edison which are recoverable through the PSCR
mechanism. Electric Rate Case Rate Request- In June 2003, Detroit Edison filed an application with the MPSC requesting a
change in retail electric rates, resumption of the PSCR mechanism, and recovery of net stranded
costs. The application and subsequent revisions resulted in a request to increase base rates by
$583 million annually. In addition, Detroit Edison requested recovery of certain regulatory assets. As subsequently
discussed, Detroit Edison received interim and final rate orders relating to its June 2003 rate
application. 34




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A summary of the rate orders follows: Interim
    
    
    FinalRate
    
    
    RateIncrease (1)
    
    
    Increase (1)(in Millions)Base Rate Revenue Deficiency
    
    $
    248
    
    
    $
    336Recovery of SMC Discounts
    
    
    
    
    
    
    38Overall Base Rate Increase
    
    
    248
    
    
    
    374PSCR Savings
    
    
    (126
    )
    
    
    (126
    )Total
    
    $
    122
    
    
    $
    248
 Actual
    
    
    Estimate2004
    
    
    2005 (2)
    
    
    TotalCumulative Recoverable Regulatory AssetsClean Air Act
    
    $
    76
    
    
    $
    68
    
    
    $
    144MISO Transmission Costs
    
    
    27
    
    
    
    49
    
    
    
    76Excess Capital Expenditures
    
    
    7
    
    
    
    15
    
    
    
    22Customer Refund  1997 Storm
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )108
    
    
    
    132
    
    
    
    240Electric Choice Implementation Costs
    
    
    95
    
    
    
    6
    
    
    
    101Net Stranded Costs
    
    
    44
    
    
    
    
    
    
    
    44Total
    
    $
    247
    
    
    $
    138
    
    
    $
    385
   (1)
    
    The impact of rate caps not included.(2)
    
    Represents estimated amounts to be incurred in 2005, as well as carrying costs on unrecovered
balances, that were authorized for recovery by the MPSC. Actual amounts incurred are subject
to review in future MPSC proceedings, and any overcollections or undercollections will be
reflected in future rates. MPSC Interim Rate Order- On February 20, 2004, the MPSC issued an order for interim rate
relief. The order authorized an interim increase in base rates, a transition charge for customers
participating in the electric Customer Choice program and a new PSCR factor. The interim base rate increase totaled $248 million annually, effective February 21, 2004, and was
applicable to all customers not subject to a rate cap. The increase was allocated to both
full-service customers ($240 million) and electric Customer Choice customers ($8 million). However,
because of the rate caps under PA 141, not all of the increase was realized in 2004. The interim
order also terminated certain transition credits and authorized transition charges to electric
Customer Choice customers designed to result in $30 million in additional revenues. Additionally,
the MPSC authorized a reduced PSCR factor for all customers, designed to lower revenues by $126
million annually. However, the MPSC order allowed Detroit Edison to increase base rates for
customers still subject to the cap in an equal and offsetting amount with the required reduction in
the PSCR factor to maintain the total capped rate levels currently in effect for these customers. The MPSC deferred addressing other items in the rate request, including a surcharge to recover
regulatory assets, until a final rate order was issued. MPSC Final Rate Order- On November 23, 2004, the MPSC issued an order for final rate relief. The
MPSC determined that the base rate increase granted to Detroit Edison should be $336 million
annually effective November 24, 2004 and is applicable to all customers not subject to the rate
cap. The final order provides for the future recovery of losses resulting from electric Customer
Choice. Additionally, beginning in 2005, the final order allows Detroit Edison to recover the
discounts previously provided to special manufacturing contract (SMC) customers of $38 million,
resulting in an overall base rate increase of $374 million annually. As subsequently discussed,
Detroit Edison has been deferring certain costs as regulatory assets that it believes are
recoverable under PA 141 once rate caps expire. The final order 35




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addressed numerous issues relating to regulatory assets, including the amounts recoverable and the recovery mechanism. The final order authorized the recovery of a lower level of stranded costs
than had been recorded through February 20, 2004, the date of the interim order. Accordingly,
Detroit Edison adjusted its net stranded costs related regulatory asset, which decreased 2004 net
income by $21 million. The MPSCs final order authorizes the recovery of approximately $385 million of regulatory assets
through three mechanisms:  
    The first mechanism recovers certain
accrued regulatory assets over a
five-year period using a regulatory
asset recovery surcharge (RARS) and is
collectible from all full service
customers as their rate caps expire. The
total amount to be collected is
estimated to be $240 million, plus
carrying costs of 9.74% on unrecovered
balances. The recoverable regulatory
assets include costs associated with
Clean Air Act compliance, deferred
Midwest Independent System Operator
(MISO) transmission fees, and deferred
excess capital expenditures. The MPSC
also authorized the refunding of over
collected 1997 storm costs.  
    The second mechanism includes a
surcharge to recover electric Customer
Choice implementation costs of $101
million and is collectible from both
full service and electric Customer
Choice customers. This charge will not
be implemented until all current rate
caps expire in 2006 and will include
carrying costs of 7% on unrecovered
balances.  
    The third mechanism includes a surcharge
to recover $44 million in historical
stranded costs incurred in 2002, 2003
and January and February 2004 and is
collectible from electric Customer
Choice customers, including carrying
costs of 7% on unrecovered balances. Other significant items authorized by the MPSC in its final order:  
    Rate increase was based on a 54% debt
and 46% equity capital structure, and an
11% rate of return on common equity.  
    Customer rate caps do not expire until
January 2006. As a result, the MPSC
determined that there is a need to
true-up stranded costs for at least
2004. This true-up case must be filed by
March 31, 2005. The MPSC also permits
Detroit Edison to file additional annual
stranded cost true-up proceedings if it
deems appropriate to do so pursuant to
PA 141.  
    Transmission and MISO costs and costs
associated with nitrogen oxide (NOx)
allowances will be recoverable through
the PSCR mechanism and charged to full
service customers; however, costs
associated with sulfur dioxide (SOx)
allowances will not be included in the
PSCR, but recoverable through base
rates.  
    Full cost recovery of $550 million of
Clean Air Act environmental expenditures
was authorized. We believe that future
mandated environmental expenditures will
also be recovered through base rates.  
    A pension tracking mechanism was
established to manage changes in pension
costs. Under the tracking mechanism,
Detroit Edison would recover or refund
pension costs above or below the amount
reflected in base rates. Detroit Edison
was also required to propose a similar
tracking mechanism for retiree health
care costs. In February 2005, Detroit
Edison filed a request with the MPSC
seeking authority to implement a
tracking mechanism for retiree health
care costs (Other Postemployment
Benefits Costs Tracker).  
    Detroit Edison was ordered to file a
rate unbundling and restructuring case
by March 23, 2005. As subsequently
discussed, this rate restructuring
proposal was filed on February 4, 2005. 36




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##### Table of Contents




    Changes to the existing electric
Customer Choice program regarding
customers returning to full utility
service. Customers electing to
participate in the electric Customer
Choice program will not be
permitted to return to Detroit Edisons full service rates for two years. Electric Customer
Choice customers returning to full service must remain on bundled rates for at least one year
following their return. Customers who fail to give the appropriate notice or do not stay on the
electric Customer Choice program for two years are required to pay the higher of the applicable
tariff energy price plus 10%, or the market price of power plus 10%, for any power taken from
Detroit Edison. In December 2004, Detroit Edison and other parties filed petitions for rehearing relating to the
MPSCs November 2004 final rate order. Among other items, Detroit Edisons petition requests a
correction of the capital structure used in determination of the final order and recovery of
certain disallowed costs. Detroit Edison awaits an MPSC decision on
the petitions for rehearing. Electric Rate Restructuring Proposal On February 4, 2005, Detroit Edison filed a rate restructuring proposal with the MPSC to
restructure its electric rates and begin phasing out subsidies that are part of its current pricing
structure. The proposal would adjust rates for each customer class to be reflective of the full
costs incurred to service such customers. Under the proposal, commercial and industrial rates
would be lowered, but residential rates would increase over a five-year period beginning in 2007.
The MPSC anticipates that this proceeding will be completed in time to have new rates in effect no
later than January 1, 2006. Other Postemployment Benefits Costs Tracker On February 10, 2005, Detroit Edison filed an application requesting MPSC approval of a
proposed tracking mechanism for retiree health care costs. The application was filed as required
pursuant to the MPSCs November 2004 order. Electric Industry Restructuring Electric Rates, Customer Choice and Stranded Costs In 2000, the Michigan Legislature enacted
PA 141 that reduced electric retail rates by 5%, as a result of savings derived from the issuance
of securitization bonds. The legislation also contained provisions freezing rates through 2003 and
preventing rate increases (i.e., rate caps) for small business customers through 2004 and for
residential customers through 2005. The price freeze period expired on February 20, 2004 pursuant
to an MPSC order. In addition, PA 141 codified the MPSCs existing electric Customer Choice program
and provided Detroit Edison with the right to recover net stranded costs associated with Customer
Choice. Detroit Edison was also allowed to defer certain costs to be recovered once rates could be
increased, including costs incurred as a result of changes in taxes, laws and other governmental
actions. As required by PA 141, the MPSC conducted a proceeding to develop a methodology for calculating 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 proceeding
or true-up before the MPSC reconciling 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 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. In July 2003, the MPSC issued an order finding that Detroit Edison had no net stranded costs in
2000 and 2001. Detroit Edison filed a petition for rehearing of the July 2003 order, which the
MPSC denied in 37




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##### Table of Contents



December 2003. Detroit Edison has appealed. As previously discussed, the MPSCs
November 2004 final order authorized recovery of $44 million of historical stranded costs incurred
in 2002, 2003 and January and February 2004 collectible from electric Customer Choice customers
through transition charges. Since March 1, 2004, Detroit Edison has recorded $108 million of additional stranded costs as a regulatory
asset as the result of rate caps and higher electric Customer Choice sales losses than included in
the 2004 MPSC interim order. Securitization Detroit Edison formed The Detroit Edison Securitization Funding LLC
(Securitization LLC), a wholly owned subsidiary, for the purpose of securitizing its qualified
costs, primarily related to the unamortized investment in the Fermi 2 nuclear power plant. 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 LLC is independent
of Detroit Edison, as is its ownership of the qualified costs. Due to principles of consolidation,
the qualified costs and 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.
Neither the qualified costs nor funds from an MPSC approved non-bypassable surcharge 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. Excess Securitization Savings In January 2004, the MPSC issued an order directing Detroit Edison
to file a report by March 15, 2004, of the accounting of the savings due to securitization and the
application of those savings through December 2003. In addition, Detroit Edison was requested to
include in the report an estimate of the foregone carrying cost associated with the excess
securitization savings. A report was filed on February 16, 2004 in compliance with the MPSC order. DTE2 Accounting Application In 2003, we began the implementation of DTE2, a Company-wide initiative to improve existing
processes and to implement new core information systems, including finance, human resources, supply
chain and work management. The new information systems are replacing systems that are approaching
the end of their useful lives. We expect the benefits of DTE2 to include lower costs, faster
business cycles, repeatable and optimized processes, enhanced internal controls, improvements in
inventory management and reductions in system support costs. In July 2004, Detroit Edison filed an accounting application with the MPSC requesting authority to
capitalize and amortize DTE2 costs, consisting of computer equipment, software and development
costs, as well as related training, maintenance and overhead costs. Through December 2004, we have
expensed approximately $12 million of training, maintenance and overhead costs pending MPSC action
on our application. Detroit Edison is proposing a 15-year amortization period for the costs,
exclusive of the computer equipment costs. Power Supply Cost Recovery Proceedings 2004 Plan Year An MPSC December 2003 order resumed the PSCR mechanism that had been
suspended while rates were frozen. The order authorized a new PSCR factor for all customers
effective January 1, 2004. The MPSCs February 2004 interim order provided for a credit of 1.05
mills per kWh compared to a 2.04 mills per kWh charge previously in effect. Detroit Edison will
file a 2004 PSCR reconciliation case by March 31, 2005. 2005 Plan Year In September 2004, Detroit Edison filed its 2005 PSCR plan case seeking approval
of a levelized PSCR factor of 1.82 mills per kWh above the amount included in base rates. In
December 2004, Detroit Edison filed revisions to its 2005 PSCR plan case in accordance with the
November 2004 38




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##### Table of Contents



MPSC rate order. The revised filing seeks approval of a levelized PSCR factor of up
to 0.48 mills per kWh above the new base rates established in the final electric rate order.
Included in the factor are power supply costs, transmission expenses and NOx emission allowance
costs. Detroit Edison self-implemented a factor of a negative 2.00 mills per kWh on January 1,
2005. The Michigan Attorney General has filed a motion for summary disposition of this proceeding based on arguments that the PSCR statute requires
a fixed 48-month PSCR factor. We cannot predict the nature or timing of actions the MPSC will take
on this motion. Transmission Proceedings On November 18, 2004, a FERC order approved a transmission pricing structure to facilitate
seamless trading of electricity between MISO and the PJM Interconnection. The pricing structure
eliminates layers of transmission charges between the two regional transmission organizations. The
FERC noted that the new pricing structure may result in transmission owners facing abrupt revenue
shifts. To facilitate the transition to the new pricing structure, the FERC authorized a Seams
Elimination Cost Adjustment (SECA), effective from December 2004 through March 2006. Under MISOs
filing with the FERC, Detroit Edisons SECA obligation would be $2.2 million per month from
December 2004 through March 2005. Detroit Edison has estimated that the SECA charge for the April
2005 through March 2006 period will be approximately $1 million per month. On December 20, 2004,
Detroit Edison filed a request for rehearing with the FERC which states, among other things, that
SECA is retroactive ratemaking and is unlawful under the Federal Power Act. Under the MPSCs
November 2004 final rate order, transmission expenses are recoverable through the PSCR mechanism.
Therefore, SECA charges, if ultimately imposed, should not have a financial impact to Detroit
Edison. Minimum Pension Liability In December 2002, we recorded an additional minimum pension liability as required under SFAS
No. 87, Employers Accounting for Pensions, with offsetting amounts to an intangible asset and
other comprehensive income. During 2003, the MPSC Staff provided an opinion that the MPSCs
traditional rate setting process allowed for the recovery of pension costs as measured by SFAS No.
87. Based on the MPSC Staff opinion, management believes that it will be allowed to recover in
rates the minimum pension liability associated with its utility operations. In 2004 and 2003, we
reclassified approximately $604 million ($393 million net of tax) and $583 million ($379 million
net of tax), respectively, of other comprehensive loss associated with the minimum pension
liability to a regulatory asset (Note 14). Other We are unable to predict the outcome of the regulatory matters discussed herein. Resolution
of these matters is dependent upon future MPSC orders, which may materially impact the financial
position, results of operations and cash flows of the Company. NOTE 5  NUCLEAR OPERATIONS General Fermi 2, our nuclear generating plant, began commercial operation in 1988. 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 4  Regulatory Matters. Detroit Edison also
owns Fermi 1, a nuclear plant that was shut down in 1972 and is currently being decommissioned. The
NRC has jurisdiction over the licensing and operation of Fermi 2 and the decommissioning of Fermi
1. 39




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##### Table of Contents



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. 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 an aggregate $490 million of coverage over a three-year period. 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 caused by acts of terrorism not covered under the Terrorism Risk
Insurance Act (TRIA) of 2002 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. Under the NEIL policies, Detroit Edison could be liable for maximum assessments of up to
approximately $28 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. Public Liability Insurance As required by federal law, Detroit Edison maintains $300 million of public liability
insurance for a nuclear incident. For liabilities arising from a terrorist act outside the scope
of TRIA, the policy is subject to one industry aggregate limit of $300 million. Further, under the
Price-Anderson Amendments Act of 1988 (Act), deferred premium charges up to $101 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.
During 2003, the U.S. Congress extended the Act for commercial nuclear facilities through December
31, 2003. However, provisions of the Act remain in effect for existing commercial reactors.
Legislation to extend the Act in conjunction with comprehensive energy legislation is currently
under debate in Congress. We cannot predict whether Congress will pass the legislation. 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. Detroit Edison collected $38
million in 2004, $36 million in 2003 and $42 million in 2002 from customers for decommissioning and
low-level radioactive waste disposal. Net unrealized investment gains of $17 million and $62
million in 2004 and 2003, respectively, and $39 million in losses in 2002, were recorded as
adjustments to the nuclear 40




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##### Table of Contents



decommissioning trust funds and regulatory assets. At December 31, 2004,
investments in the external trust consisted of approximately 55% in publicly traded equity
securities, 43% in fixed debt instruments and 2% in cash equivalents. At December 31, 2004 and 2003, Detroit Edison had external decommissioning trust funds of $546
million and $474 million, respectively, for the future decommissioning of Fermi 2. At December 31,
2004 and 2003, Detroit Edison had an additional $18 million and $22 million in trust funds for the
decommissioning of Fermi 1. At December 31, 2004 and 2003, Detroit Edison also had an external
decommissioning trust fund for low-level radioactive waste disposal
costs of $26 million and $22
million, respectively. It is estimated that the cost of decommissioning Fermi 2, when its license
expires in 2025, will be $1.0 billion in 2004 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 of
Fermi 1 is expected to be complete by 2009. As a result of adopting SFAS No. 143, Detroit Edison recorded a retirement obligation liability for
the decommissioning of Fermi 1 and 2 and reversed previously recognized decommissioning
liabilities. At December 31, 2004, we have recorded a liability for the removal of the non-nuclear
portion of the plants of $77 million. 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 1 mill per kWh 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 is a party in the litigation against the
DOE for both past and future costs associated with the DOEs failure to accept spent nuclear fuel
under the timetable set forth in the Act. NOTE 6  JOINTLY OWNED UTILITY PLANT Detroit Edison has joint ownership interest in two power plants, Belle River and Ludington
Hydroelectric Pumped Storage. Ownership information of the two utility plants as of December 31,
2004 was as follows: LudingtonHydroelectricBelle River
    
    
    Pumped StorageIn-service date
    
    
    1984-1985
    
    
    
    1973Total plant capacity
    
    1,026 MW
    
    1,872MWOwnership interest
    
    
    *
    
    
    
    49
    %Investment (in Millions)
    
    $
    1,581

    
    
    $
    166Accumulated depreciation (in Millions)
    
    $
    740
    
    
    $
    88
   *
    
    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 and 75% in common facilities used at Unit No. 2. 41




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##### Table of Contents



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 and is responsible for the same percentage of the plants operation, maintenance and capital
improvement costs. Ludington Hydroelectric Pumped Storage Consumers Energy Company has an ownership interest in the Ludington Hydroelectric Pumped
Storage Plant. Consumers Energy is entitled to 51% of the total capacity and energy of the plant
and is responsible for the same percentage of the plants operation, maintenance and capital
improvement costs. NOTE 7  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: (Dollars in Millions)
    
    2004
    
    
    2003
    
    
    2002Effective federal income tax rate
    
    
    29.9
    %
    
    
    36.5
    %
    
    
    33.3
    %Income tax expense at 35% statutory rate
    
    $
    75
    
    
    $
    139
    
    
    $
    187Investment tax credits
    
    
    (7
    )
    
    
    (7
    )
    
    
    (7
    )Depreciation
    
    
    3
    
    
    
    3
    
    
    
    3Employee Stock Ownership Plan dividends
    
    
    (4
    )
    
    
    (4
    )
    
    
    (3
    )Other, net
    
    
    (3
    )
    
    
    14
    
    
    
    (2
    )Total
    
    $
    64
    
    
    $
    145
    
    
    $
    178
 Components of income tax expense were as follows: 2004
    
    
    2003
    
    
    2002(in Millions)Current federal and other income tax expense
    
    $
    (78
    )
    
    $
    109
    
    
    $
    236Deferred federal and other tax expense (benefit)
    
    
    142
    
    
    
    36
    
    
    
    (58
    )Total
    
    $
    64
    
    
    $
    145
    
    
    $
    178
 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. 42




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##### Table of Contents



Deferred income tax assets (liabilities) were comprised of the following at December 31: 2004
    
    
    2003(in Millions)Property
    
    $
    (1,147
    )
    
    $
    (989
    )Securitized regulatory assets
    
    
    (778
    )
    
    
    (827
    )Pension and benefits
    
    
    26
    
    
    
    43Other, net
    
    
    (17
    )
    
    
    (2
    )$
    (1,916
    )
    
    $
    (1,775
    )Deferred income tax liabilities
    
    $
    (2,326
    )
    
    $
    (2,117
    )Deferred income tax assets
    
    
    410
    
    
    
    342$
    (1,916
    )
    
    $
    (1,775
    )
 The Internal Revenue Service is currently conducting audits of Detroit Edison as a component
of the DTE Energy federal income tax returns for the years 1998 through 2001. The Company
accrues tax and interest related to tax uncertainties that arise due to actual or potential
disagreements with governmental agencies about the tax treatment of specific items. At December 31, 2004, the Company had accrued
approximately $10 million for such uncertainties. We believe that our accrued tax liabilities are
adequate for all years. NOTE 8  COMMON STOCK In March 2004, we issued 4,344,492 shares of common stock to DTE Energy. NOTE 9  LONG-TERM DEBT AND PREFERRED SECURITIES Long-Term Debt Our long-term debt outstanding and weighted average interest rates of debt outstanding at December
31, 2004 was: 2004
    
    
    2003(in Millions)Detroit Edison Taxable Debt, Principally Secured6.1% due 2005 to 2032
    
    $
    1,672
    
    
    $
    1,485Detroit Edison Tax Exempt Revenue Bonds5.6% due 2008 to 2032
    
    
    1,145
    
    
    
    1,175Quarterly Income Debt Securities (QUIDS)7.5% due 2026 to 2028
    
    
    385
    
    
    
    385Other Long-Term Debt
    
    
    74
    
    
    
    813,276
    
    
    
    3,126Less amount due within one year
    
    
    (397
    )
    
    
    (50
    )$
    2,879
    
    
    $
    3,076Securitization Bonds
    
    $
    1,496
    
    
    $
    1,585Less amount due within one year
    
    
    (96
    )
    
    
    (89
    )$
    1,400
    
    
    $
    1,496
 43




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##### Table of Contents



We issued and optionally redeemed long-term debt consisting of the following: 2005  
    Issued $400 million of senior notes in two series, $200 million of
4.8% series due 2015 and $200 million of 5.45% series due 2035.
The proceeds were used to redeem the $385 million of 7.5%
Quarterly Income Debt Securities due 2026 to 2028.  
    Redeemed $76 million of 7.5% senior notes and $100 million of 7.0%
remarketed secured notes, which matured February 2005. 2004  
    Issued $36 million of 4-7/8% tax-exempt bonds due 2029, the
proceeds of which were used to redeem $36 million of 6.55%
tax-exempt bonds due 2024.  
    Issued $32 million of 4.65% tax-exempt bonds due in 2028, the
proceeds of which were used to redeem the following tax-exempt
issues: $11.5 million of 6.05% bonds due 2023, $7.5 million of
5.875% bonds due 2024, and $13 million of 6.45% bonds due 2024.  
    Issued $200 million of 5.40% senior notes due in 2014. The
proceeds were used to repay short-term borrowings and for general
corporate purposes. 2003  
    Issued $49 million of 5.5% tax exempt bonds maturing in 2030.  
    Redeemed $314 million of taxable debt with an average interest
rate of 7.4% and maturities from 2003-2023.  
    Redeemed $34 million of 6.875% tax-exempt bonds maturing in 2022. In the years 2005- 2009, our long-term debt maturities are $493 million, $126 million, $135
million, $178 million and $158 million, respectively. Quarterly Income Debt Securities (QUIDS) Detroit Edison had three series of QUIDS outstanding at December 31, 2004. Detroit Edison redeemed
all of its outstanding QUIDS on March 4, 2005. 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 its indebtedness under this mortgage, such
failure will create cross defaults in the indebtedness of DTE Energy. Preferred and Preference Securities  Authorized and Unissued At December 31, 2004, Detroit Edison had approximately 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. NOTE 10  SHORT-TERM CREDIT ARRANGEMENTS AND BORROWINGS In October 2004, Detroit Edison entered into a $206.25 million, five-year unsecured revolving
credit facility and lowered its existing three-year facility from $137.5 million to $68.75 million.
The five-year facility replaces the October 2003 364-day facility, which expired. The three-year
revolving credit facility expires in October 2006. The five- and three-year credit facilities are
with a syndicate of banks 44




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##### Table of Contents



and may be utilized for general corporate borrowings, but primarily are
intended to provide liquidity support for Detroit Edisons commercial paper program. Borrowings
under the facilities will be available at prevailing short-term interest rates. The agreements
require Detroit Edison to maintain a debt to total capitalization ratio of no more than .65 to l
and earnings before interest, taxes, depreciation and amortization (EBITDA) to interest ratio of
no less than 2 to 1. Detroit Edison is currently in compliance with these financial covenants. As of December 31, 2004, we had no outstanding commercial paper. Detroit Edison has a $200 million short-term financing agreement secured by customer accounts
receivable. This agreement contains certain covenants related to the delinquency of accounts
receivable. Detroit Edison is currently in compliance with these covenants. We had no balance
outstanding under this financing agreement at December 31, 2004. NOTE 11  CAPITAL AND OPERATING LEASES Lessee We lease various assets under capital and operating leases, including coal cars,
computers, vehicles and other equipment. The lease arrangements expire at various dates through
2022. Future minimum lease payments under non-cancelable leases at December 31, 2004 were: Capital
    
    
    OperatingLeases
    
    
    Leases(in Millions)2005
    
    $
    11
    
    
    $
    322006
    
    
    13
    
    
    
    312007
    
    
    10
    
    
    
    262008
    
    
    11
    
    
    
    252009
    
    
    11
    
    
    
    23Thereafter
    
    
    38
    
    
    
    155Total minimum lease payments
    
    
    94
    
    
    $
    292Less imputed interest
    
    
    (21
    )Present value of net minimum lease payments
    
    
    73Less imputed interest
    
    
    (7
    )Non-current portion
    
    $
    66
 Total minimum lease payments
for operating leases have not been reduced by future minimum sublease
rentals totaling $3 million under non-cancelable subleases expiring
at various dates to 2020. Rental expense for operating leases was $37 million in 2004, $30 million in 2003 and $26
million in 2002. NOTE 12  FINANCIAL AND OTHER DERIVATIVE INSTRUMENTS We comply with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
as amended by SFAS No. 138 and SFAS No. 149. 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. 45




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##### Table of Contents




    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 likely the forecasted transaction will
not occur, net gains or losses are immediately recorded to
earnings.  
    Special accounting is also 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.
An offsetting loss or gain on the underlying asset, liability or
firm commitment is also recorded to earnings. Our primary market risk exposure is associated with commodity prices and credit. 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. Commodity Price Risk Detroit Edison uses forward energy, capacity, and futures contracts to manage changes in the
price of electricity and fuel. These derivatives are designated as cash flow hedges or meet the
normal purchases and sales exemption and are therefore accounted for under the accrual method.
There were no commodity price risk cash flow hedges at December 31, 2004. Our commodity price risk
is limited due to the PSCR mechanism (Note 1). 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. 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 securities. The carrying value of certain other financial instruments, such as
notes payable, customer deposits and notes receivable approximate fair value and are not shown. 2004
    
    
    2003Fair Value
    
    
    Carrying Value
    
    
    Fair Value
    
    
    Carrying ValueLong-Term Debt
    
    $5.1 billion
    
    $4.8 billion
    
    $5.1 billion
    
    $4.7 billion
 46




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##### Table of Contents



NOTE 13  COMMITMENTS AND CONTINGENCIES Environmental Air- The EPA issued ozone transport and acid rain regulations and, in December 2003, proposed
additional emission regulations relating to ozone, fine particulate and mercury air pollution. The
new rules have led to additional controls on fossil-fueled power plants to reduce nitrogen oxide,
sulfur dioxide, carbon dioxide and particulate emissions. To comply with these new controls,
Detroit Edison has spent approximately $580 million through December 2004, and estimates that it
will spend up to $100 million in 2005 and incur from $700 million to $1.3 billion of additional
future capital expenditures over the next five to eight years to satisfy both the existing and
proposed new control requirements.Under the June 2000 Michigan restructuring legislation,
beginning January 1, 2004, annual return of and on this capital expenditure, in excess of current
depreciation levels, could be deferred in ratemaking, until after the expiration of the rate cap
period, presently expected to end on December 31, 2005 upon MPSC authorization. Under PA 141 and
the MPSCs November 2004 final rate order, we believe that prudently incurred capital expenditures,
in excess of current depreciation levels, are recoverable in rates. Water- Detroit Edison is required to examine alternatives for reducing the environmental impacts
of the cooling water intake structures at several of its facilities. Based on the results of the
studies to be conducted over the next several years, Detroit Edison may be required to install
additional control technologies to reduce the impacts of the intakes. It is estimated that we will
incur up to $50 million over the next five to seven years in additional capital expenditures for
Detroit Edison. Contaminated Sites- Detroit Edison conducted remedial investigations at contaminated sites,
including two former manufactured gas plant sites, the area surrounding an ash landfill and several
underground and aboveground storage tank locations. The findings of these investigations indicated
that the cost to remediate these sites is approximately $8 million, which is expected to be
incurred over the next several years. As a result of the investigation, Detroit Edison accrued an
$8 million liability during 2004. Personal Property Taxes Prior to 1999, Detroit Edison and other Michigan utilities asserted that Michigans valuation
tables result in the substantial overvaluation of utility personal property. Valuation tables
established by the Michigan State Tax Commission (STC) are used to determine the taxable value of
personal property based on the propertys age. In November 1999, the STC approved new valuation
tables that more accurately recognize the value of a utilitys personal property. The new tables
became effective in 2000 and are currently used to calculate property tax expense. However,
several local taxing jurisdictions have taken legal action attempting to prevent the STC from
implementing the new valuation tables and have continued to prepare assessments based on the
superseded tables. The legal actions regarding the appropriateness of the new tables were before
the Michigan Tax Tribunal (MTT) which, in April 2002, issued its decision essentially affirming the
validity of the STCs new tables. In June 2002, petitioners in the case filed an appeal of the
MTTs decision with the Michigan Court of Appeals. In January 2004, the Michigan Court of Appeals
upheld the validity of the new tables. With no further appeal by the petitioners available, the MTT
began to schedule utility personal property valuation cases for Prehearing General Calls. Detroit
Edison has filed motions and the MTT agreed to place the cases in abeyance pending the
conclusion of settlement negotiations being conducted by State of Michigan Treasury officials. On
February 14, 2005, MTT issued a scheduling order that lifts the prior abeyances in a significant
number of Detroit Edison appeals. The scheduling order sets litigation calendars for these cases
extending into mid-2006. Detroit Edison continues to record property tax expense based on the new tables. Detroit Edison
will continue through settlement or litigation to seek to apply the new tables retroactively and to
ultimately resolve the pending tax appeals related to 1997 through 1999. This is a solution
supported by the STC in the past. To the extent that settlements cannot be achieved with the
jurisdictions, litigation regarding the valuation of utility property will delay any recoveries by
Detroit Edison. 47




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##### Table of Contents



Other Commitments Detroit Edison has an Energy Purchase Agreement to purchase steam and electricity from the
Greater Detroit Resource Recovery Authority (GDRRA). Under the Agreement, Detroit Edison will
purchase steam through 2008 and electricity through June 2024. In 1996, a special charge to income
was recorded that included a reserve for steam purchase commitments in excess of replacement costs
from 1997 through 2008. The reserve for steam purchase commitments is being amortized to fuel and
purchased power expense with non-cash accretion expense being recorded through 2008. We purchased
$42 million of steam and electricity in 2004, $39 million in 2003 and $37 million in 2002. We
estimate steam and electric purchase commitments through 2024 will not exceed $472 million.
As discussed in Note 3  Dispositions, in January 2003, we sold our steam heating business to
Thermal Ventures II, LP. Due to terms of the sale, Detroit Edison remains contractually obligated
to buy steam from GDRRA until 2008 and recorded an additional liability of $20 million for future
commitments. Also, we have guaranteed bank loans that Thermal Ventures II, LP may use for capital
improvements to the steam heating system. At December 31, 2004, we have entered into numerous long-term purchase commitments relating to a
variety of goods and services required for our business. These agreements primarily consist of
fuel supply commitments. We estimate that these commitments will be approximately $1.4 billion
through 2018. We also estimate that 2005 base level capital expenditures will be $800 million. We
have made certain commitments in connection with expected capital expenditures. Bankruptcies We purchase and sell electricity from and to numerous companies operating in the steel,
automotive, energy and retail industries. Several customers have filed for bankruptcy protection
under Chapter 11 of the U.S. Bankruptcy Code. We have negotiated or are currently involved in
negotiations with each of the companies, or their successor companies, that have filed for
bankruptcy protection. We regularly review contingent matters relating to purchase and sale
contracts and record provisions for amounts considered probable of loss. We believe our previously
accrued amounts are adequate for probable losses. The final resolution of these matters is not
expected to have a material effect on our financial statements in the period they are resolved. Other We are involved in certain legal, regulatory, administrative and environmental proceedings
before various courts, arbitration panels and governmental agencies concerning claims arising in
the ordinary course of business. These proceedings include certain contract disputes,
environmental reviews and investigations, audits, inquiries from various regulators, and pending
judicial matters. We cannot predict the final disposition of such proceedings. We regularly
review legal matters and record provisions for claims that are considered probable of loss. The
resolution of pending proceedings is not expected to have a material effect on our operations or
financial statements in the period they are resolved. See Note 4 and Note 5 for a discussion of contingencies related to Regulatory Matters and Nuclear
Operations. NOTE 14  RETIREMENT BENEFITS AND TRUSTEED ASSETS Measurement Date In the fourth quarter of 2004, we changed the date for actuarial measurement of our
obligations for benefit programs from December 31 to November 30. We believe the one-month change
of the measurement date is a preferable change as it allows time for management to plan and execute
its review of the 48




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##### Table of Contents



completeness and accuracy of its benefit programs results and to fully reflect
the impact on its financial results. The change did not have a material effect on retained earnings
as of January 1, 2004, and net income amounts for any interim period in 2004. Accordingly, all
amounts reported in the following tables for balances as of December 31, 2004 are based on a
measurement date of November 30, 2004. Amounts reported in tables for the year ended December 31,
2004 and for balances as of December 31, 2003 are based on a measurement date of December 31, 2003.
Amounts reported in tables for the year ended December 31, 2003 are based on a measurement date of
December 31, 2002. Qualified and Nonqualified Pension Plan Benefits Detroit Edison has a defined benefit retirement plan. The 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. Certain represented and
nonrepresented employees are covered under cash balance benefits based on annual employer
contributions and interest credits. Detroit Edison operates as the sponsor of the plan, which is
treated as a plan covering employees of various affiliates of DTE Energy Company. 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 costs by contributing the
minimum amount required by the Employee Retirement Income Security Act (ERISA) and additional
amounts we deem appropriate. We do not anticipate making a
contribution to our qualified pension plan in 2005. We also maintain 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 includes the following components: Qualified Pension Plans
    
    
    Nonqualified Pension Plans2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    

2003
    
    
    2002(in Millions)Service Cost
    
    $
    47
    
    
    $
    40
    
    
    $
    35
    
    
    $
    1
    
    
    $
    1
    
    
    $
    1Interest Cost
    
    
    130
    
    
    
    127
    
    
    
    124
    
    
    
    2
    
    
    
    2
    
    
    
    2Expected Return on Plan Assets
    
    
    (135
    )
    
    
    (129
    )
    
    
    (133
    )
    
    
    
    
    
    
    
    
    
    
    Amortization ofNet loss
    
    
    49
    
    
    
    32
    
    
    
    2
    
    
    
    1
    
    
    
    1
    
    
    
    1Prior service cost
    
    
    9
    
    
    
    9
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    Net transition asset
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    Net Pension Cost
    
    $
    100
    
    
    $
    79
    
    
    $
    36
    
    
    $
    4
    
    
    $
    4
    
    
    $
    4
 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, $247 million and $219 million at December
31, 2004 and 2003, respectively. Qualified Pension Plans
    
    
    Nonqualified Pension Plans2004
    
    
    2003
    
    
    2004
    
    
    2003(In Millions)
    
    November 30
    
    
    December 31
    
    
    November 30
    
    
    December 31Measurement DateAccumulated Benefit Obligation-End of Period
    
    $
    2,447
    
    
    $
    2,316
    
    
    $
    34
    
    
    $
    34Projected Benefit Obligation-Beginning of Period
    
    $
    2,498
    
    
    $
    2,287
    
    
    $
    36
    
    
    $
    31
 49




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##### Table of Contents



Qualified Pension Plans
    
    
    Nonqualified Pension Plans2004
    
    
    2003
    
    
    2004
    
    
    2003(In Millions)
    
    November 30
    
    
    December 31
    
    
    November 30
    
    
    December 31Service Cost
    
    
    53
    
    
    
    44
    
    
    
    1
    
    
    
    1Interest Cost
    
    
    153
    
    
    
    150
    
    
    
    2
    
    
    
    2Actuarial Loss (Gain)
    
    
    69
    
    
    
    166
    
    
    
    (1
    )
    
    
    4Benefits Paid
    
    
    (136
    )
    
    
    (145
    )
    
    
    (2
    )
    
    
    (2
    )Plan Amendments
    
    
    6
    
    
    
    (4
    )
    
    
    
    
    
    
    Projected Benefit Obligation-End of Period
    
    $
    2,643
    
    
    $
    2,498
    
    
    $
    36
    
    
    $
    36Plan Assets at Fair Value-Beginning of Period
    
    $
    2,029
    
    
    $
    1,572
    
    
    $
    
    
    
    $
    -Actual Return on Plan Assets
    
    
    172
    
    
    
    380
    
    
    
    
    
    
    
    -Company Contributions
    
    
    170
    
    
    
    222
    
    
    
    2
    
    
    
    2Benefits Paid
    
    
    (136
    )
    
    
    (145
    )
    
    
    (2
    )
    
    
    (2
    )Plan Assets at Fair Value-End of Period
    
    $
    2,235
    
    
    $
    2,029
    
    
    $
    
    
    
    $
    -Funded Status of the Plans
    
    $
    (408
    )
    
    $
    (469
    )
    
    $
    (36
    )
    
    $
    (36
    )UnrecognizedNet loss
    
    
    790
    
    
    
    753
    
    
    
    11
    
    
    
    13Prior service cost
    
    
    41
    
    
    
    41
    
    
    
    2
    
    
    
    3Net transition assets
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    Net Amount
Recognized-End of Period
    
    $
    422
    
    
    $
    325
    
    
    $
    (23
    )
    
    $
    (20
    )Amount Recorded asAccrued pension liability
    
    $
    (212
    )
    
    $
    (288
    )
    
    $
    (35
    )
    
    $
    (33
    )Regulatory asset
    
    
    594
    
    
    
    572
    
    
    
    10
    
    
    
    11Intangible asset
    
    
    40
    
    
    
    41
    
    
    
    2
    
    
    
    2$
    422
    
    
    $
    325
    
    
    $
    (23
    )
    
    $
    (20
    )
 Assumptions used in determining the projected benefit obligation and net pension costs are
listed below: 2004
    
    
    2003
    
    
    2002Projected Benefit ObligationDiscount rate
    
    
    6.00
    %
    
    
    6.25
    %
    
    
    6.75
    %Annual increase in future compensation levels
    
    
    4.0
    %
    
    
    4.0
    %
    
    
    4.0
    %Net Pension CostsDiscount rate
    
    
    6.25
    %
    
    
    6.75
    %
    
    
    7.25
    %Annual increase in future compensation levels
    
    
    4.0
    %
    
    
    4.0
    %
    
    
    4.0
    %Expected long-term rate of return on Plan assets
    
    
    9.0
    %
    
    
    9.0
    %
    
    
    9.5
    %
 At December 31, 2004, the benefits related to our qualified and nonqualified plans expected to
be paid in each of the next five years and in the aggregate for the five fiscal years thereafter
are as follows: (in Millions)2005
    
    $
    1562006
    
    
    1602007
    
    
    1652008
    
    
    1702009
    
    
    1752010 - 2014
    
    
    981Total
    
    $
    1,807
 50




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##### Table of Contents



We employ a consistent formal process in determining the long-term rate of return for various
asset classes. We evaluate input from our consultants, including their review of historic financial
market risks and returns and long-term historic relationships between the asset classes of
equities, fixed income and other assets, consistent with the widely accepted capital market
principle that asset classes with higher volatility generate a greater return over the long-term.
Current market factors such as inflation, interest rates, asset class risks and asset class returns
are evaluated and considered before long-term capital market assumptions are determined. The
long-term portfolio return is also established employing a consistent formal process, with due
consideration of diversification, active investment management and rebalancing. Peer data is
reviewed to check for reasonableness . We employ a total return investment approach whereby a mix of equities, fixed income and other
investments are used to maximize the long-term return of plan assets consistent with prudent levels
of risk. The intent of this strategy is to minimize plan expenses over the long-term. Risk
tolerance is established through consideration of future plan cash flows, plan funded status, and
corporate financial considerations. The investment portfolio contains a diversified blend of
equity, fixed income and other investments. Furthermore, equity investments are diversified across
U.S. and non-U.S. stocks, growth and value investment styles, and large and small market
capitalizations. Other assets such as private equity and absolute return funds are used judiciously
to enhance long term returns while improving portfolio diversification. Derivatives may be used to
gain market exposure in an efficient and timely manner; however, derivatives may not be used to
leverage the portfolio beyond the market value of the underlying investments. Investment risk is
measured and monitored on an ongoing basis through annual liability measurements, periodic
asset/liability studies, and quarterly investment portfolio reviews. Our plans weighted-average asset allocations by asset category at December 31 were as follows: 2004
    
    
    2003Equity Securities
    
    
    69
    %
    
    
    67
    %Debt Securities
    
    
    26
    
    
    
    27Other
    
    
    5
    
    
    
    6100
    %
    
    
    100
    %
 Our plans weighted-average asset target allocations by asset category at December 31, 2004
were as follows: Equity Securities
    
    
    65
    %Debt Securities
    
    
    28Other
    
    
    7100
    %
 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, an intangible asset and other
comprehensive loss. In 2003, we reclassified $572 million of other comprehensive loss related to
the minimum pension liability to a regulatory asset after the MPSC Staff provided an opinion that
the MPSCs traditional rate setting process allowed for the recovery of pension costs as measured
by SFAS No. 87. The additional minimum pension liability, regulatory asset and intangible asset are
adjusted in December of each year based on the plans funded status. 51




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##### Table of Contents



We also sponsor defined contribution retirement savings plans. Participation in one of these plans
is available to substantially all represented and nonrepresented employees. We match employee
contributions up to certain predefined limits based upon eligible compensation and the employees
contribution rate. The cost of these plans was $22 million in 2004, $21 million in 2003 and $20
million in 2002. Other Postretirement Benefits We provide certain postretirement health care and life insurance benefits for employees who
are eligible for these benefits. Our policy is to fund certain trusts to meet our postretirement
benefit obligations. Separate qualified Voluntary Employees Beneficiary Association (VEBA) trusts
exist for represented and nonrepresented employees. Net postretirement cost includes the following components: 2004
    
    
    2003
    
    
    2002(in Millions)Service Cost
    
    $
    33
    
    
    $
    31
    
    
    $
    25Interest Cost
    
    
    69
    
    
    
    66
    
    
    
    59Expected Return on Plan Assets
    
    
    (45
    )
    
    
    (36
    )
    
    
    (44
    )Amortization ofNet loss
    
    
    33
    
    
    
    23
    
    
    
    2Net transition obligation
    
    
    8
    
    
    
    13
    
    
    
    19Net Postretirement Cost
    
    $
    98
    
    
    $
    97
    
    
    $
    61
 The following table 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: 2004
    
    
    2003(in Millions)
    
    November 30
    
    
    December 31Measurement DateAccumulated Postretirement Benefit Obligation-Beginning of Period
    
    $
    1,192
    
    
    $
    1,131Service Cost
    
    
    33
    
    
    
    31Interest Cost
    
    
    69
    
    
    
    66Actuarial Loss
    
    
    106
    
    
    
    122Plan Amendments
    
    
    21
    
    
    
    (106
    )Benefits Paid
    
    
    (60
    )
    
    
    (52
    )Accumulated Postretirement Benefit Obligation-End of Period
    
    $
    1,361
    
    
    $
    1,192Plan Assets at Fair Value-Beginning of Period
    
    $
    468
    
    
    $
    425Actual Return on Plan Assets
    
    
    43
    
    
    
    91Company Contributions
    
    
    40
    
    
    
    Benefits Paid
    
    
    
    
    
    
    (48
    )Plan Assets at Fair Value-End of Period
    
    $
    551
    
    
    $
    468Funded Status of the Plans
    
    $
    (810
    )
    
    $
    (724
    )Unrecognized
 52




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##### Table of Contents



2004
    
    
    2003(in Millions)
    
    November 30
    
    
    December 31Net loss
    
    
    594
    
    
    
    518Prior service cost
    
    
    30
    
    
    
    1Net transition obligation
    
    
    58
    
    
    
    74Accrued
Postretirement Liability at Measurement Date
    
    
    (128
    )
    
    
    (131
    )Company Contribution And Benefit Payments in December 2004
    
    
    (14
    )
    
    
    Accrued
Postretirement Liability-End of Period
    
    $
    (142
    )
    
    $
    (131
    )
 Assumptions used in determining the projected benefit obligation and net benefit costs are
listed below: 2004
    
    
    2003
    
    
    2002Projected Benefit ObligationDiscount rate
    
    
    6.00
    %
    
    
    6.25
    %
    
    
    6.75
    %Net Benefit CostsDiscount rate
    
    
    6.25
    %
    
    
    6.75
    %
    
    
    7.25
    %Expected long-term rate of return on Plan assets
    
    
    9.0
    %
    
    
    9.0
    %
    
    
    9.5
    %
 Benefit costs were calculated assuming health care cost trend rates beginning at 9.0% for 2005
and decreasing to 5.0% in 2010 and thereafter for persons under age 65 and decreasing from 8.0% to
5.0% 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 $15
million and increased the accumulated benefit obligation by $128 million at December 31, 2004. 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 $13 million and would have decreased the
accumulated benefit obligation by $114 million at December 31, 2004. Effective 2005, we amended our postretirement health care plan to provide for some enhancements.
The changes increased our expected 2005 postretirement cost by $6 million. At December 31, 2004, the benefits expected to be paid, including prescription drug benefits, in
each of the next five years and in the aggregate for the five fiscal years thereafter are as
follows: (in Millions)2005
    
    $
    742006
    
    
    812007
    
    
    842008
    
    
    872009
    
    
    922010 - 2014
    
    
    504Total
    
    $
    922
 The process used in determining the long-term rate of return for assets and the investment
approach for our other postretirement benefits plan is similar to those previously described for
our qualified pension plans. 53




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##### Table of Contents



Our plans weighted-average asset allocations by asset category at December 31 were as follows: 2004
    
    
    2003Equity Securities
    
    
    68
    %
    
    
    65
    %Debt Securities
    
    
    28
    
    
    
    30Other
    
    
    4
    
    
    
    5100
    %
    
    
    100
    %
 Our plans weighted-average asset target allocations by asset category at December 31, 2004
were as follows: Equity Securities
    
    
    65
    %Debt Securities
    
    
    28Other
    
    
    7100
    %
 In December 2003, the Medicare Act was signed into law which provides for a non-taxable
federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at
least actuarially equivalent to the benefit established by law. As discussed in Note 2, we
adopted FSP No. 106-2 in 2004, which provides guidance on the accounting for the Medicare Act. As
a result of the adoption, our accumulated postretirement benefit obligation for the subsidy related
to benefits attributed to past service was reduced by approximately $70 million at January 1, 2004
and was accounted for as an actuarial gain. The effects of the subsidy reduced net periodic
postretirement benefit costs by $12 million in 2004. The impact of the Medicare Act on the
components of other postretirement benefit costs for the year ended December 31 was as follows: (in Millions)
    
    2004Reduction in service cost
    
    $
    2Reduction in interest cost
    
    
    4Amortization of actuarial gain
    
    
    6Decrease in postretirement benefit cost
    
    $
    12
 At December 31, 2004, the gross amount of federal subsidies expected to be received in each of
the next five years and in the aggregate for the five fiscal years thereafter was as follows: (in Millions)2005
    
    $
    2006
    
    
    92007
    
    
    92008
    
    
    102009
    
    
    102010 - 2014
    
    
    53Total
    
    $
    91
 54




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##### Table of Contents



NOTE 15  RELATED PARTY TRANSACTIONS We have transactions with affiliated companies to sell energy for resale, provide fuel supply
services and power plant operation and maintenance services for the delivery of electric energy.
Under a service agreement with DTE Energy, various DTE Energy affiliates, including Detroit Edison
provide corporate support functions consisting of financial, auditing, tax, legal, treasury, cash
management, human resources, information technology, regulatory and other services, which are
billed to DTE Energy corporate. As these functions essentially support the entire DTE Energy
Company, their costs are fully allocated to the various DTE Energy affiliates based on services
utilized. The net of these billings included in the consolidated statement of operations was
income of $19 million in 2004 and $18 million in 2003, and expenses of $7 million in 2002. In addition, we had intercompany revenue, primarily from the sale of energy to affiliates, of $255
million, $71 million and $108 million in 2004, 2003 and 2002, respectively. We had intercompany
expenses, primarily for purchased power, of $66 million, $45 million and $100 million in 2004, 2003
and 2002, respectively. Our accounts receivable from affiliated companies totaled $29 million and $34 million at December
31, 2004 and 2003, respectively. Our accounts payable to affiliated companies totaled $56 million
and $67 million at December 31, 2004 and 2003, respectively. We had a short-term note
receivable from DTE Energy of $85 million and $7 million at December 31, 2004 and
2003, respectively. This note is subject to a credit agreement with DTE Energy whereby short-term
excess cash or cash shortfalls are remitted to or funded by DTE Energy. This credit arrangement
involves the charge and payment of interest at market-based rates. We declared dividends to DTE
Energy of $305 million in 2004, $295 million in 2003 and $296 million
in 2002. We paid dividends to DTE Energy of $303 million in 2004 and $295 million in 2003 and 2002. We
received a $470 million capital contribution from DTE Energy in 2003. We issued 4,344,492 shares
of our common stock to DTE Energy and in return DTE Energy contributed 4,344,492 shares of its
common stock, valued at $170 million, to our defined benefit retirement plan. NOTE 16  SEGMENT AND RELATED INFORMATION We operate our business 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. Energy Resourcesincludes the power generation services of Detroit Edison. Electricity is
generated from our numerous fossil plants, our hydroelectric pumped storage plant and 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 and alternative energy suppliers
to Detroit Edisons 2.1 million residential, commercial and industrial customers. 55




---



##### Table of Contents



Financial data of the business segments follows: (in Millions)Depreciation
    
    
    Interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    CapitalOperating Revenue
    
    
    And Amortization
    
    
    Expense
    
    
    Income Taxes
    
    
    Net Income
    
    
    Total Assets
    
    
    Expenditures2004Energy Resources
    
    $
    2,210
    
    
    $
    272
    
    
    $
    167
    
    
    $
    23
    
    
    $
    62
    
    
    $
    8,288
    
    
    $
    332Energy Distribution
    
    
    1,358
    
    
    
    251
    
    
    
    113
    
    
    
    41
    
    
    
    88
    
    
    
    4,554
    
    
    
    370Total
    
    $
    3,568
    
    
    $
    523
    
    
    $
    280
    
    
    $
    64
    
    
    $
    150
    
    
    $
    12,842
    
    
    $
    7022003Energy Resources
    
    $
    2,448
    
    
    $
    224
    
    
    $
    157
    
    
    $
    135
    
    
    $
    235
    
    
    $
    7,216
    
    
    $
    340Energy Distribution
    
    
    1,247
    
    
    
    249
    
    
    
    127
    
    
    
    10
    
    
    
    17
    
    
    
    5,333
    
    
    
    240Cumulative Effect
of Accounting
Change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    Total
    
    $
    3,695
    
    
    $
    473
    
    
    $
    284
    
    
    $
    145
    
    
    $
    246
    
    
     $
    12,549
    
    
    $
    5802002Energy Resources
    
    $
    2,711
    
    
    $
    331
    
    
    $
    184
    
    
    $
    120
    
    
    $
    245
    
    
    $
    7,334
    
    
    $
    395Energy Distribution
    
    
    1,343
    
    
    
    246
    
    
    
    127
    
    
    
    58
    
    
    
    111
    
    
    
    4,154
    
    
    
    290Total
    
    $
    4,054
    
    
    $
    577
    
    
    $
    311
    
    
    $
    178
    
    
    $
    356
    
    
   $
    11,488
    
    
    $
    685
 NOTE 17  SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION (UNAUDITED) First
    
    
    Second
    
    
    Third
    
    
    Fourth(in Millions)
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Year2004Operating Revenues
    
    $
    886
    
    
    $
    835
    
    
    $
    958
    
    
    $
    889
    
    
    $
    3,568Operating Income
    
    $
    145
    (1)
    
    $
    92
    
    
    $
    169
    
    
    $
    111
    
    
    $
    517Net Income
    
    $
    44
    (1)
    
    $
    8
    
    
    $
    62
    
    
    $
    36
    
    
    $
    1502003Operating Revenues
    
    $
    937
    
    
    $
    870
    
    
    $
    1,017
    
    
    $
    871
    
    
    $
    3,695Operating Income
    
    $
    116
    
    
    $
    112
    
    
    $
    219
    
    
    $
    227
    
    
    $
    674Net Income
    
    $
    15

    
    
    $
    30
    
    
    $
    96
    
    
    $
    105
    
    
    $
    246
   (1)
    Previously reported first quarter 2004 amounts have been adjusted to reflect the
retroactive adoption of FSP No. 106-2, relating to the impact of the Medicare Act on
postretirement benefit costs (Note 2).   56




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##### Table of Contents



Item 9. Changes in
and Disagreements with Accountants on Accounting and Financial Disclosure None. 
 Item 9A. Controls and Procedures (a) Evaluation of disclosure controls and procedures Management of the Company carried out an evaluation, under the supervision and with the
participation of the Companys Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the Companys disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of December 31, 2004, which is the end of the period covered by this
report. Based on this evaluation, the Companys Chief Executive Officer and Chief Financial Officer
have concluded that such controls and procedures are effectively designed to ensure that
information required to be disclosed by the Company in reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SECs rules and forms.
Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information  required
to be disclosed by the Company in the reports that it files or
submits under the Exchange Act is accumulated and communicated to the
Companys management, including its Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure. (b) Changes in internal control over financial reporting There has been no change in the Companys internal control over financial reporting during the
fourth quarter of 2004 that has materially affected, or is reasonably likely to materially affect,
the Companys internal control over financial reporting. 
 Item 9B. Other Information None. 57




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##### Table of Contents



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 and Related
Stockholder Matters 
 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). 
 Item 14. Principal Accountant Fees and Services For the years ended December 31, 2004 and 2003, professional services were performed by
Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective
affiliates (collectively, Deloitte). The following table presents fees for professional services
rendered by Deloitte for the audit of Detroit Edisons annual financial statements for the years
ended December 31, 2004 and December 31, 2003, and fees billed for other services rendered by
Deloitte during those periods. 2004
    
    
    2003Audit fees (1)
    
    $
    1,571,645
    
    
    $
    952,527Audit related fees (2)
    
    
    59,750
    
    
    
    33,422Tax fees
    
    
    
    
    
    
    All other fees
    
    
    
    
    
    
    Total
    
    $
    1,631,395
    
    
    $
    985,949
   (1)
    Represents the aggregate fees billed for the audit of Detroit Edisons annual financial
statements and for the reviews of the financial statements
included in Detroit Edisons Quarterly Reports on Form 10-Q.(2)
    Represents the aggregate fees billed for audit-related services. The above listed fees were pre-approved by the DTE Energy audit committee. Prior to engagement, the DTE Energy audit committee pre-approves these services by category of
service. The DTE Energy audit committee may delegate to the chair of the audit committee, or to one
or more other designated members of the audit committee, the authority to grant pre-approvals of
all permitted services or classes of these permitted services to be provided by the independent
auditor up to but not exceeding a pre-defined limit. The decision of the designated member to
pre-approve a permitted service will be reported to the DTE Energy audit committee at least
quarterly. 
 Part IV 
 Item 15. Exhibits and Financial Statement Schedules (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. 58




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##### Table of Contents



Exhibit Index Exhibit
No.
    
    Description(i) Exhibits filed herewith.12-21
    
    Computation of Ratio of Earnings to Fixed Charges.18-1
    
    Letter Regarding Change in Accounting Principles.23-17
    
    Consent of Deloitte & Touche LLP.31-13
    
    Chief Executive Officer Section 302 Form 10-K Certification of Periodic Report.31-14
    
    Chief Financial Officer Section 302 Form 10-K Certification of Periodic Report.99-17
    
    Amendment dated as of January 20, 2005, to the Trade Receivables Purchase and Sale Agreement, dated as of February 28, 1989, as Amended and Restated as of October 1, 1991,
and as further amended by an Amendment dated as of February 28, 1994, an Amendment dated as of February 1, 1999, an Amendment dated as of January 27, 2000, and an Amendment
dated as of January 25, 2001, an Amendment dated as of May 28, 2003 and an Amendment dated February 25, 2004, as so amended and restated, among The Detroit Edison Company,
Citibank, N.A. and Citicorp North America, Inc.99-18
    
    Amendment No. 4, dated as of January 20, 2005, to the Trade Receivables Purchase and Sale Agreement, dated as of February 28, 1989, as Amended and Restated as of October 1,
1991, as Amended and Restated as of March 9, 2001, an Amendment dated as of January 17, 2003, an Amendment dated as of May 28, 2003 and an Amendment dated February 25, 2004,
as so amended and restated, among The Detroit Edison Company, CAFCO, LLC (successor to Corporate Asset Funding Company, Inc.), Citibank, N.A. and Citicorp North America, Inc.99-19
    
    Sixth Amendment, dated as of September 1, 1998, to Master Trust Agreement (Master Trust), dated as of June 30, 1994, between The Detroit Edison Company and Fidelity
Management Trust Company.99-20
    
    Seventh Amendment, dated as of December 15, 1999, to Master Trust.99-21
    
    Eighth Amendment, dated as of February 1, 2000, to Master Trust.99-22
    
    Ninth Amendment, dated as of April 1, 2000, to Master Trust.99-23
    
    Tenth Amendment, dated as of May 1, 2000, to Master Trust.99-24
    
    Eleventh Amendment, dated as of July 1, 2000, to Master Trust.99-25
    
    Twelfth Amendment, dated as of August 1, 2000, to Master Trust.99-26
    
    Thirteenth Amendment, dated as of December 21, 2001, to Master Trust.99-27
    
    Fourteenth Amendment, dated as of March 1, 2002, to Master Trust.99-28
    
    Fifteenth Amendment, dated as of January 1, 2002, to Master Trust.(ii) Exhibits incorporated herein by reference.3(a)
    
    Restated Articles of The Detroit Edison Company, as filed December 10, 1991. (Exhibit 13-3 to Form 10-Q for quarter ended June 30, 1999)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 The Detroit Edison Company (File No. 1-2198) and First Chicago Trust Company of New York as trustee (Exhibit
B-1 to Registration Statement No. 2-1630) and indentures supplemental thereto, dated as of dates indicated below, and filed as exhibits to the filings set forth below:
 59




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##### Table of Contents



September 1, 1947
    
    Exhibit B-20 to Registration Statement No. 2-7136.November 15, 1971
    
    Exhibit 2-B-38 to Registration Statement No. 2-42160.January 15,1973
    
    Exhibit 2-B-39 to Registration Statement No. 2-46595.June 1, 1978
    
    Exhibit 2-B-51 to Registration Statement No. 2-61643.June 30, 1982
    
    Exhibit 4-30 to Registration
Statement No. 2-78941. (reconfirming obligations following merger)August 15, 1982
    
    Exhibit 4-32 to Registration Statement No. 2-79674.February 15, 1990
    
    Exhibit 4-212 to Form 10-K for year ended December 31, 2000. (1990 Series A, B, C, D, E and F)April 1, 1991
    
    Exhibit 4-15 to Form 10-K for year ended December 31, 1995. (1991 Series AP)May 1, 1991
    
    Exhibit 4-178 to Form 10-K for year ended December 31, 1996. (1991 Series BP and 1991 Series CP)May 15, 1991
    
    Exhibit 4-179 to Form 10-K for year ended December 31, 1996. (1991 Series DP)February 29, 1992
    
    Exhibit 4-187 to Form 10-Q for quarter ended March 31, 1998. (1992 Series AP)January 1, 1993
    
    Exhibit 4-131 to Registration Statement No. 33-56496.April 26, 1993
    
    Exhibit 4-215 to Form 10-K for year ended December 31, 2000. (amending indenture)May 31, 1993
    
    Exhibit 4-148 to Registration Statement No. 33-64296.June 30, 1993
    
    Exhibit 4-216 to Form 10-K for year ended December 31, 2000. (1993 Series AP)August 15, 1994
    
    Exhibit 4-219 to Form 10-K for year ended December 31, 2000. (1994 Series C)August 1, 1995
    
    Exhibit 4-221 to Form 10-K for year ended December 31, 2000. (1995 Series AP and 1995 Series BP)August 1, 1999
    
    Exhibit 4-204 to Form 10-Q for quarter ended September 30, 1999. (1999 Series AP, 1999 Series BP and 1999 Series CP)January 1, 2000
    
    Exhibit 4-205 to Form 10-K for year ended December 31, 1999. (2000 Series A)April 15, 2000
    
    Exhibit 206 to Form 10-Q for quarter ended March 31, 2000. (relating to successor trustee)August 1, 2000
    
    Exhibit 4-210 to Form 10-Q for quarter ended September 30, 2000. (2000 Series BP)March 15, 2001
    
    Exhibit 4-222 to Form 10-Q for quarter ended March 31, 2001. (2001 Series AP)May 1, 2001
    
    Exhibit 4-226 to Form 10-Q for quarter ended June 30, 2001. (2001 Series BP)August 15, 2001
    
    Exhibit 4-227 to Form 10-Q for quarter ended September 30, 2001. (2001 Series CP)September 15, 2001
    
    Exhibit 4-228 to Form 10-Q for quarter ended September 30, 2001. (2001 Series D and 2001 Series E)September 17, 2002
    
    Exhibit 4-1 to Registration Statement No. 333-100000. (relating to successor trustee)October 15, 2002
    
    Exhibit 4-230 to Form 10-Q for quarter ended September 30, 2002. (2002 Series A and 2002 Series B)December 1, 2002
    
    Exhibit 4-232 to Form 10-K for year ended December 31, 2002. (2002 Series C and 2002 Series D)August 1, 2003
    
    Exhibit 4-235 to Form 10-Q for quarter ended September 30, 2003. (2003 Series A)March 15, 2004
    
    Exhibit 4-238 to Form 10-Q for quarter ended March 31, 2004. (2004 Series A and 2004 Series B)July 1, 2004
    
    Exhibit 4-240 to Form 10-Q for quarter ended June 30, 2004. (2004 Series D)February 1, 2005
    
    Exhibit 4-2 to Form 8-K dated February 7, 2005. (2005 Series A and 2005 Series B)4(b)
    
    Collateral Trust Indenture, dated as of June 30, 1993, between The Detroit Edison Company and Bankers Trust Company, as trustee. (Exhibit 4-152 to
Registration
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##### Table of Contents



Statement No. 33-50325)4(c)
    
    First Supplemental Indenture, dated as of June 30, 1993. (Exhibit 4-153 to Registration Statement No. 33-50325)4(d)
    
    First Amendment, dated as of July 17, 2000, to the First Supplemental Indenture amending the Multi-Mode Remarketed Secured Notes 1993 Series A due
2028. (Exhibit 4-209 to Form 10-Q for quarter ended September 30, 2000)4(e)
    
    Second Supplemental Indenture, dated as of September 15, 1993, providing for Remarketed Secured Notes 1993 Series B due 2033. (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 Indenture. (Exhibit 4-177 to Form 10-Q for quarter ended September 30, 1996)4(g)
    
    Third Supplemental Indenture, dated as of August 15, 1994, providing for Remarketed Secured Notes 1994 Series C due 2034. (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 Indenture, dated as of August 15, 1994. (Exhibit 4-13 to Registration
Statement No. 333-00023)4(i)
    
    Eighth Supplemental Indenture, dated as of April 15, 2000, appointing Bank One Trust Company, National Association as successor trustee. (Exhibit
4-207 to Form 10-Q for quarter ended March 31, 2000)4(j)
    
    Ninth Supplemental Indenture, dated as of October 10, 2001, providing for 5.050% Senior Notes due 2005 and 6.125% Senior Notes due 2010. (Exhibit
4-229 to Form 10-Q for quarter ended September 30, 2001)4(k)
    
    Tenth Supplemental Indenture, dated as of October 23, 2002, providing for 5.20% Senior Notes due 2012 and 6.35% Senior Notes due 2032. (Exhibit
4-231 to Form 10-Q for quarter ended September 30, 2002)4(l)
    
    Eleventh Supplemental Indenture, dated as of December 1, 2002, providing for 5.45% Senior Notes due 2032 and 5.25% Senior Notes due 2032. (Exhibit
4-233 to Form 10-Q for quarter ended March 31, 2003)4(m)
    
    Twelfth Supplemental Indenture, dated as of August 1, 2003, providing for 51/2% Senior Notes due 2030. (Exhibit 4-236 to Form 10-Q for quarter ended
September 30, 2003)4(n)
    
    Thirteenth Supplemental Indenture, dated as of April 1, 2004, with J. P. Morgan Trust Company, National Association as successor trustee, providing
for 4.875% Senior Notes Due 2029 and 4.65% Senior Notes due 2028. (Exhibit 4-237 to Form 10-Q for quarter ended March 31, 2004)4(o)
    
    Fourteenth Supplemental Indenture, dated as of July 15, 2004, providing for 2004 Series D 5.40% Senior Notes due 2014. (Exhibit 4-239 to Form 10-Q
for quarter ended June 30, 2004)4(p)
    
    Fifteenth Supplemental Indenture, dated as of February 1, 2005, providing for 2005 Series A 4.80% Senior Notes due 2015 and 2005 Series B 5.45%
Senior Notes due 2035. (Exhibit 4-1 to Form 8-K dated February 7, 2005)4(q)
    
    Trust Agreement of Detroit Edison Trust I. (Exhibit 4-9 to Registration Statement No. 333-100000)4(r)
    
    Trust Agreement of Detroit Edison Trust II. (Exhibit 4-10 to Registration Statement
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##### Table of Contents



No. 333-100000)4(s)
    
    Registration Rights Agreement, dated as of February 7, 2005, between The
Detroit Edison Company and the Initial Purchasers named therein. (Exhibit 4-3
to Form 8-K dated February 7, 2005)10(a)
    
    Securitization Property Sales Agreement dated as of March 9, 2001, between The
Detroit Edison Securitization Funding LLC and The Detroit Edison Company.
(Exhibit 10-42 to Form 10-Q for quarter ended March 31, 2001)10(b)
    
    Five-Year Credit Agreement, dated as of October 15, 2004, among The Detroit
Edison Company, Citibank, N.A. as Administrative Agent and the Initial Lenders
named therein ($206,250,000). (Exhibit 10-1 to Form 8-K
dated October 15, 2004)10(c)
    
    Form of Indemnification Agreement between The Detroit Edison Company and its
officers. (Exhibit 10-40 to Form 10-K for year ended December 31, 2000)10(d)
    
    Certain arrangements pertaining to the employment of Anthony F. Earley, Jr.
with The Detroit Edison Company, dated April 25, 1994. (Exhibit 10-53 to Form
10-Q for quarter ended March 31, 1994)10(e)
    
    Certain arrangements pertaining to the employment of Gerard M. Anderson with
The Detroit Edison Company, dated October 6, 1993. (Exhibit 10-48 to Form 10-K
for year ended December 31, 1993)10(f)
    
    Certain arrangements pertaining to the employment of David E. Meador with The
Detroit Edison Company, dated January 14, 1997. (Exhibit 10-5 to Form 10-K for
year ended December 31, 1996)10(g)
    
    Amended and Restated Post-Employment Income Agreement, dated March 23, 1998,
between The Detroit Edison Company and Anthony F. Earley, Jr. (Exhibit 10-21
to Form 10-Q for quarter ended March 31, 1998)10(h)
    
    Executive Post-Employment Income Arrangement, dated March 27, 1989, between
The Detroit Edison Company and S. Martin Taylor. (Exhibit 10-22 to Form 10-Q
for quarter ended March 31, 1998)10(i)
    
    Restricted Stock Agreement, dated March 23, 1998, between The Detroit Edison
Company and Anthony F. Earley, Jr. (Exhibit 10-20 to Form 10-Q for quarter
ended March 31, 1998)10(j)
    
    The Detroit Edison Company Supplemental Long-Term Disability Plan, dated
January 27, 1997. (Exhibit 10-4 to Form 10-K for year ended December 31, 1996)10(k)
    
    Executive Vehicle Plan of The Detroit Edison Company, dated as of September 1,
1999. (Exhibit 10-41 to Form 10-Q for quarter ended March 31, 2001)99(a)
    
    Belle River Participation Agreement, dated as of December 1, 1982, between The
Detroit Edison Company and Michigan Public Power Agency. (Exhibit 28-5 to
Registration Statement No. 2-81501)99(b)
    
    Belle River Transmission Ownership and Operating Agreement, dated as of
December 1, 1982, between The Detroit Edison Company and Michigan Public Power
Agency. (Exhibit 28-6 to Registration Statement No. 2-81501)99(c)
    
    Inter-Creditor Agreement, dated as of March 9, 2001, among Citicorp North
America, Inc., Citibank, N.A., The Bank of New York, The Detroit Edison
Securitization Funding LLC and The Detroit Edison Company.
(Exhibit 99-41 to Form 10-Q for quarter ended March 31, 2001)99(d)
    
    Amendment to Trade Receivables Purchase and Sale Agreement, dated as of March
9,
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##### Table of Contents



2001, among The Detroit Edison Company, as seller, Citibank, N.A., and
Citicorp North America, Inc. (Exhibit 99-42 to Form 10-Q
for quarter ended March 31, 2001)99(e)
    
    Amended and Restated Trade Receivables Purchase and Sale Agreement, dated as
of March 9, 2001, among The Detroit Edison Company, as seller, Corporate Asset
Funding, Inc., Citibank, N.A., and Citicorp North America, Inc. (Exhibit
99-43 to Form 10-Q for quarter ended March 31, 2001)99(f)
    
    Amendment dated as of May 28, 2003, to the Trade Receivables Purchase and Sale
Agreement, dated as of February 28, 1989, and an Amendment and Restatement
thereof, dated as of October 1, 1991, and as further amended by an Amendment
dated as of February 28, 1994, an Amendment dated as of February 1, 1999, an
Amendment dated as of January 27, 2000 and an Amendment dated as of January
25, 2001, among The Detroit Edison Company, as seller, Citibank, N.A., and
Citicorp North America, Inc. (Exhibit 99-11 to Form 10-Q for quarter ended
June 30, 2003)99(g)
    
    Amendment No. 2, dated as of May 28, 2003, to the Trade Receivables Purchase
and Sale Agreement, dated as of February 28, 1989, an Amendment and
Restatement thereof, dated as of October 1, 1991, an Amendment and Restatement
thereof dated as of March 9, 2001 and an Amendment dated as of January 17,
2003, among The Detroit Edison Company, as seller, Corporate Asset Funding
Company, Inc., Citibank, N.A., and Citicorp North America, Inc. (Exhibit 99-12
to Form 10-Q for quarter ended June 30, 2003)99(h)
    
    Amendment, dated as of February 25, 2004, to the Trade Receivables Purchase
and Sale Agreement, dated as of February 28, 1989, and an Amendment and
Restatement thereof, dated as of October 1, 1991, and as further amended by an
Amendment dated as of February 28, 1994, an Amendment dated as of February 1,
1999, an Amendment dated as of January 27, 2000, and an Amendment dated as of
January 25, 2001 and an Amendment dated as of May 28, 2003, as so amended and
restated, among The Detroit Edison Company, Citibank, N.A. and Citicorp North
America, Inc. (Exhibit 99-15 to Form 10-Q for quarter ended March 31, 2004)99(i)
    
    Amendment No. 3, dated as of February 25, 2004, to the Trade Receivables
Purchase and Sale Agreement, dated as of February 28, 1989, and an Amendment
and Restatement thereof, dated as of October 1, 1991, an Amendment and
Restatement thereof dated as of March 9, 2001, an Amendment dated as of
January 17, 2003, and an Amendment dated as of May 28, 2003, as so amended and
restated, among The Detroit Edison Company, CAFCO, LLC successor to Corporate
Asset Funding Company, Inc.), Citibank, N.A., and Citicorp North America, Inc.
(Exhibit 99-16 to Form 10-Q for quarter ended March 31, 2004)99(j)
    
    Three-Year Credit Agreement, dated as of October 24, 2003, (as amended by the
Five-Year Credit Agreement identified as Exhibit 10(b) above, $68,750,000).
(Exhibit 99-14 to Form 10-Q for quarter ended September 30, 2003)99(k)
    
    Master Trust Agreement (Master Trust), dated as of June 30, 1994, between
The Detroit Edison Company and Fidelity Management Trust Company relating to
the Savings and Investment Plans. (Exhibit 4-167 to
Form 10-Q for quarter ended June 30, 1994)99(l)
    
    First Amendment, dated as of
February 1, 1995, to Master Trust. (Exhibit 4-10 to Registration Statement No. 333-00023)99(m)
    
    Second Amendment, dated as of February 1, 1995, to Master Trust. (Exhibit 4-11
to Registration Statement No. 333-00023)
 99(n)
    
    Third Amendment, effective January 1, 1996, to Master Trust. (Exhibit 4-12 to
Registration Statement No. 333-00023)99(o)
    
    Fourth Amendment, dated as of August 1, 1996, to Master Trust. (Exhibit 4-185
to Form 10-K for year ended December 31, 1997)99(p)
    
    Fifth Amendment, dated as of January 1, 1998, to Master Trust. (Exhibit 4-186
to Form 10-K for year ended December 31, 1997)(iii) Exhibits furnished herewith.32-13
    
    Chief Executive Officer Section 906 Form 10-K Certification of Periodic Report.32-14
    
    Chief Financial Officer Section 906 Form 10-K Certification of Periodic Report.
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The Detroit Edison Company 
 Schedule II 
Valuation and Qualifying Accounts
  Year Ending December 31,(in Millions)
    
    2004
    
    
    2003
    
    
    2002Allowance for Doubtful Accounts (shown as
Deduction from accounts receivable in
the consolidated statement of financial
position)Balance at Beginning of Period
    
    $
    51
    
    
    $
    48
    
    
    $
    27Additions:Charged to costs and expenses
    
    
    45
    
    
    
    39
    
    
    
    24Charged to other accounts (1)
    
    
    5
    
    
    
    3
    
    
    
    9Deductions (2)
    
    
    (46
    )
    
    
    (39
    )
    
    
    (12
    )Balance At End of Period
    
    $
    55
    
    
    $
    51
    
    
    $
    48
   (1)
    
    Collection of accounts previously written off.(2)
    
    Non-collectible accounts written off. 64




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##### 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 15, 2005
    
    By
    
    /s/ DANIEL G. BRUDZYNSKIDaniel 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.
    
    By
    
    /s/ DANIEL G. BRUDZYNSKIAnthony F. Earley, Jr.
    
    
    
    Daniel G. BrudzynskiChairman of the Board,
    
    
    
    Chief Accounting Officer,President, Chief Executive
    
    
    
    Vice President and Controllerand Chief Operating OfficerBy
    
    
    
    By
    
    /s/ DAVID E. MEADORSusan M. Beale
    
    
    
    David E. MeadorDirector, Vice President and
    
    
    
    Director, Executive Vice PresidentCorporate Secretary
    
    
    
    and Chief Financial Officer
 Date: March 15, 2005 65




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Exhibit Index ExhibitNo.
    
    Description(i) Exhibits filed herewith.12-21
    
    Computation of Ratio of Earnings to Fixed Charges.18-1
    
    Letter Regarding Change in Accounting Principles.23-17
    
    Consent of Deloitte & Touche LLP.31-13
    
    Chief Executive Officer Section 302 Form 10-K Certification of Periodic Report.31-14
    
    Chief Financial Officer Section 302 Form 10-K Certification of Periodic Report.99-17
    
    Amendment dated as of January 20, 2005, to the Trade Receivables Purchase and Sale Agreement, dated as of February 28, 1989, as Amended and Restated as of October 1, 1991,
and as further amended by an Amendment dated as of February 28, 1994, an Amendment dated as of February 1, 1999, an Amendment dated as of January 27, 2000, and an Amendment
dated as of January 25, 2001, an Amendment dated as of May 28, 2003 and an Amendment dated February 25, 2004, as so amended and restated, among The Detroit Edison Company,
Citibank, N.A. and Citicorp North America, Inc.99-18
    
    Amendment No. 4, dated as of January 20, 2005, to the Trade Receivables Purchase and Sale Agreement, dated as of February 28, 1989, as Amended and Restated as of October 1,
1991, as Amended and Restated as of March 9, 2001, an Amendment dated as of January 17, 2003, an Amendment dated as of May 28, 2003 and an Amendment dated February 25, 2004,
as so amended and restated, among The Detroit Edison Company, CAFCO, LLC (successor to Corporate Asset Funding Company, Inc.), Citibank, N.A. and Citicorp North America, Inc.99-19
    
    Sixth Amendment, dated as of September 1, 1998, to Master Trust Agreement (Master Trust), dated as of June 30, 1994, between The Detroit Edison Company and Fidelity
Management Trust Company.99-20
    
    Seventh Amendment, dated as of December 15, 1999, to Master Trust.99-21
    
    Eighth Amendment, dated as of February 1, 2000, to Master Trust.99-22
    
    Ninth Amendment, dated as of April 1, 2000, to Master Trust.99-23
    
    Tenth Amendment, dated as of May 1, 2000, to Master Trust.99-24
    
    Eleventh Amendment, dated as of July 1, 2000, to Master Trust.99-25
    
    Twelfth Amendment, dated as of August 1, 2000, to Master Trust.99-26
    
    Thirteenth Amendment, dated as of December 21, 2001, to Master Trust.99-27
    
    Fourteenth Amendment, dated as of March 1, 2002, to Master Trust.99-28
    
    Fifteenth Amendment, dated as of January 1, 2002, to Master Trust.