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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

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

 
For the quarter ended September 30, 2002

Commission file number 333-51066

The registrant meets the conditions set forth in General Instruction H(1) (a) and (b) of Form 10-Q and is, therefore, filing this Form with the reduced disclosure format.

THE DETROIT EDISON SECURITIZATION FUNDING LLC
(a Michigan limited liability company)

313-235-8000
Registrant’s telephone number, including area code

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

Yes  x    No  

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The Detroit Edison Securitization Funding LLC

Quarterly Report on Form 10-Q
Quarter Ended September 30, 2002

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FORWARD-LOOKING STATEMENTS

Certain information presented herein includes forward-looking statements. 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. Securitization bondholders may suffer payment delays or losses if the Detroit Edison Securitization Funding LLC’s (“Company’s”) assets are not sufficient to pay interest or the scheduled principal of the securitization bonds. Funds for payments are dependent upon the securitization property and the right to collect the securitization surcharge over a period limited by Michigan statute to 15 years. In addition, collections are dependent on the level of Detroit Edison electric deliveries to customers.

MANAGEMENT’S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS

The Results of Operations discussion for the Company is presented in accordance with General Instruction H(2) (a) of Form 10-Q.

The Company is a special purpose entity established by The Detroit Edison Company (“Detroit Edison”) to recover certain stranded costs, called Securitization Property by Michigan statute. The stranded costs primarily represent Detroit Edison’s unamortized investment in the 1,150 megawatt Fermi 2 nuclear power plant that was classified as a regulatory asset. On March 9, 2001 the Company issued securitization bonds (“Bonds”) and used the net proceeds to purchase Securitization Property from Detroit Edison. The Company receives revenues that are intended to recover its costs and service its debt. Amortization expense associated with the Securitization Property is adjusted as necessary so that expenses equal revenues and interest income.

For the three-month period ended September 30, 2002, the Company earned $58,576,000 in surcharge revenues and $298,000 in interest income compared to $48,875,000 in surcharge revenues and $304,000 in interest income for the three-month period of 2001. The increase in surcharge revenues is due to weather driven higher electricity sales by Detroit Edison. Amortization expense consists of amortization of the Securitization Property, overcollateralization fee, and over-recovery of securitization surcharge (“SC”). The amortization expense for the three-month periods ended September 30, 2002 and 2001 was $32,085,000 and $21,973,000, respectively. The increase in amortization expense reflects the adjustment needed to have revenues and interest income equal expenses. The larger adjustment was primarily attributable to the increase in surcharge revenues. During the 2002 three-month period, the Company also incurred interest expense of $26,142,000, amortization of issuance cost of $351,000, servicing fees of $218,000, and administrative fees of $62,000 compared to interest expense of $26,797,000, amortization of issuance cost of $128,000, servicing fees of $218,000, and administrative fees of $63,000 for the 2001 three-month period.

For the nine-month period ended September 30, 2002, the Company earned $157,095,000 in surcharge revenues and $842,000 in interest income compared to $97,462,000 in surcharge revenues and $552,000 in interest income for the nine-month period of 2001. The increase in surcharge revenues is due to weather driven higher electricity sales by Detroit Edison, as well as the fact that the Company was not formed until March 2001. The amortization expense for the nine-month periods ended September 30, 2002 and 2001 was $76,997,000 and $37,014,000, respectively. The increase in amortization expense reflects the adjustment needed to have

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revenues and interest income equal expenses. The larger adjustment was primarily attributable to the increase in surcharge revenues. During the 2002 nine-month period, the Company also incurred interest expense of $79,052,000, amortization of issuance cost of $984,000, servicing fees of $656,000, and administrative fees of $187,000 compared to interest expense of $60,168,000, amortization of issuance cost of $176,000, servicing fees of $510,000, and administrative fees of $146,000 for the 2001 nine-month period.

Detroit Edison, as Servicer, collects a surcharge from its customers for the benefit of the Company and the Securitization Bondholders based on an initial $0.0032 per kilowatthour rate. This surcharge rate was modified to $0.0041 on September 1, 2001 and to $0.00392 effective March 1, 2002. Due to the time lag between the SC billed to customers and amounts collected from those customers, Detroit Edison began cash remittance to the Trustee for SC collections on May 14, 2001.

Under a Michigan Public Service Commission financing order, Detroit Edison has implemented an annual adjustment to the SC to provide sufficient funds for timely payments related to the Bonds.

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CONTROLS AND PROCEDURES

(a)

Evaluation of disclosure controls and procedures

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(d)) as of a date within 90 days before the filing of this quarterly report, and have concluded that, as of the evaluation date, such controls and procedures were effective at ensuring that required information will be disclosed on a timely basis in reports filed under the Exchange Act.

(b)

Changes in internal controls

There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the evaluation date referenced in paragraph (a) above.

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THE DETROIT EDISON SECURITIZATION FUNDING LLC
STATEMENT OF OPERATIONS (Unaudited)

See Notes to Financial Statements (Unaudited)

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THE DETROIT EDISON SECURITIZATION FUNDING LLC
STATEMENT OF FINANCIAL POSITION

See Notes to Financial Statements (Unaudited)

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THE DETROIT EDISON SECURITIZATION FUNDING LLC
STATEMENT OF CASH FLOWS (Unaudited)

See Notes to Financial Statements (Unaudited)

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THE DETROIT EDISON SECURITIZATION FUNDING LLC
STATEMENT OF MEMBER’S EQUITY (Unaudited)

See Notes to Financial Statements (Unaudited)

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The Detroit Edison Securitization Funding LLC
Notes to Financial Statements (Unaudited)

NOTE 1 — GENERAL

The financial statements included herein should be read in conjunction with the notes to financial statements contained in the 2001 Annual Report to the Securities and Exchange Commission on Form 10-K.

The accompanying financial statements were prepared in conformity with accounting principles generally accepted in the United States of America. In connection with their preparation, management makes estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

The financial statements are unaudited, but in the opinion of the Company, include all adjustments necessary for a fair statement of the results for the interim periods. Financial results for this interim period are not necessarily indicative of results that may be expected for any other interim period or for the fiscal year.

NOTE 2 — LONG-TERM DEBT

The Company retired $35,395,000 of Bonds during the first quarter of 2002 and $37,126,000 of Bonds during the third quarter of 2002.

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Independent Accountants’ Report

To the Managers of
The Detroit Edison Securitization Funding LLC

We have reviewed the accompanying condensed statement of financial position of The Detroit Edison Securitization Funding LLC as of September 30, 2002, and the related condensed statement of operations for the three-month and nine-month periods ended September 30, 2002 and 2001, and the condensed statements of cash flows and member's equity for the nine-month periods ended September 30, 2002 and 2001. These financial statements are the responsibility of The Detroit Edison Securitization Funding LLC’s management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to such condensed financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the statement of financial position of The Detroit Edison Securitization Funding LLC as of December 31, 2001, and the related statements of operations, cash flows and member’s equity for the year then ended (not presented herein); and in our report dated February 26, 2002, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed statement of financial position as of December 31, 2001 is fairly stated, in all material respects, in relation to the statement of financial position from which it has been derived.

/s/ DELOITTE & TOUCHE LLP

Detroit, Michigan
November 4, 2002

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Exhibits and Reports on Form 8-K

(a)

Exhibits

(b)

Reports on Form 8-K

None.

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SIGNATURE

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

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FORM 10-Q CERTIFICATION

I, David E. Meador, Manager and Chief Executive Officer of The Detroit Edison Securitization Funding LLC, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of The Detroit Edison Securitization Funding LLC;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

(c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

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

(a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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FORM 10-Q CERTIFICATION

I, Daniel G. Brudzynski, Controller and Chief Financial Officer of The Detroit Edison Securitization Funding LLC, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of The Detroit Edison Securitization Funding LLC;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

(c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

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

(a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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The Detroit Edison Securitization Funding LLC
Quarterly Report on Form 10-Q for Quarter Ended September 30, 2002
File No. 333-51066

Exhibit Index