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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2003

Commission file number 1-2198

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

THE DETROIT EDISON COMPANY
(Exact name of registrant as specified in its charter)

313-235-4000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (Exchange Act) 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 o

Indicate by check mark whether the registrant is an accelerated filer as defined in Rule 12b-2 of the Exchange Act.

Yes o No x

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The Detroit Edison Company

Quarterly Report on Form 10-Q
Quarter Ended June 30, 2003

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Part I — Financial Information

Part II — Other Information

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DEFINITIONS

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

New factors emerge from time to time. We cannot predict what factors may arise or how such factors may cause our results to differ materially from those contained in any forward-looking statement. Any forward-looking statement speaks only as of the date on which such statement is 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.

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The Detroit Edison Company
Management’s Narrative Analysis of Results of Operations

RESULTS OF OPERATIONS

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

We had income of $30 million in the 2003 second quarter compared to income of $74 million for the 2002 second quarter. For the six-month period, our income was $45 million compared to income of $167 million for the comparable 2002 period. Lower income was due to reduced revenues, higher operation and maintenance expenses and increased fuel and purchased power costs. The comparability of earnings for the six-month period was also impacted by the adoption of a new accounting rule in the 2003 first quarter. As required by generally accepted accounting principles, on January 1, 2003, we adopted a new accounting rule for asset retirement obligations as discussed in Note 2. The cumulative effect of adopting this new accounting rule was to reduce the 2003 six-month period earnings by $6 million. Results for the six-month period were also affected by a $14 million net of tax loss on the sale of our steam heating business in January 2003.

Detroit Edison has the following two reportable segments.

ENERGY RESOURCES

Power Generation

The power generation plants of Detroit Edison comprise our regulated power generation business. Detroit Edison’s numerous fossil plants, hydroelectric pumped storage plant and its nuclear plant generate electricity that is sold principally throughout Michigan and the Midwest to residential, commercial, industrial and wholesale customers.

Power Generation earnings declined $10 million during the 2003 second quarter and $50 million in the 2003 six-month period reflecting lower gross margins driven by decreased cooling demand due to mild weather and lost margins from customers participating in the electric Customer Choice program. As a result of the electric Customer Choice program, Detroit Edison lost 12% of retail sales in 2003. To partially offset the impact of these lost margins, Detroit Edison recorded a $6 million increase in regulatory assets in both the 2003 first and second quarters representing stranded costs that are recoverable under Michigan legislation. The lower earnings were also attributed to higher fuel unit costs, higher employee pension and health care benefit costs and expenses due to the timing of planned reliability and maintenance work done to improve the production and availability of the generation fleet. Operation and maintenance expense in the 2003 second quarter was favorably affected by adjustments recorded that reduced accruals for employee incentive awards due to expected lower 2003 operating performance. Depreciation and amortization expenses reflect the income effect of recording regulatory assets representing net stranded costs and the deferral of other costs recoverable under Public Act 141.

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System output and average fuel and purchased power costs were as follows:

Outlook — We expect electric restructuring to continue resulting in increased customer choice in the retail electric generation business. As a result of customers choosing to participate in the electric Customer Choice program, Detroit Edison lost 6% of retail sales in 2002 and estimates losing up to 13% of such sales in 2003. Unrecovered generation-related fixed costs due to electric Customer Choice are recoverable under Michigan legislation as determined by the MPSC. As a result, Detroit Edison recorded an increased regulatory asset relating to stranded costs during the first half of 2003. There are a number of variables and estimates that impact the level of recoverable stranded costs, including weather, sales mix and wholesale prices. As a result, our estimate of stranded costs could increase or decrease in future periods. The regulatory asset will be subject to review by the MPSC in future regulatory proceedings, and we cannot predict the outcome of this matter. See Note 4 — Regulatory Matters.

The June 2000 Michigan legislation imposed a rate freeze for all classes of customers through 2003. In addition, the MPSC determined that adjusting rates for changes in fuel and purchased power through continuance of the Power Supply Cost Recovery (PSCR) clause would be inconsistent with the rate

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freeze, therefore the MPSC suspended the PSCR clause. It is unclear at this time whether the PSCR clause will remain suspended beyond 2003. Detroit Edison filed a rate case in June 2003 addressing this and other issues. We cannot predict the outcome of this matter. See Note 4 — Regulatory Matters.

Future operating results are expected to vary as a result of factors such as regulatory proceedings, weather, changes in economic conditions and the level of customer participation in the electric Customer Choice program.

ENERGY DISTRIBUTION

Power Distribution

Power Distribution is comprised of the electric distribution services of Detroit Edison. Power Distribution distributes electricity generated by Energy Resources and alternative electric suppliers to Detroit Edison’s 2.1 million customers.

Power Distribution earnings decreased $34 million during the 2003 second quarter and $66 million in the 2003 six-month period. Results were affected by a catastrophic ice storm that resulted in over 400,000 customers losing power. Restoration costs associated with the ice storm reduced after tax earnings by approximately $25 million, net of insurance. Both periods were also impacted by higher operation and maintenance expenses and reduced electric deliveries and operating revenues due to milder weather. The increased operation and maintenance expenses are attributable to higher employee pension and healthcare benefit costs and increased costs associated with customer service process improvements. Results for the 2003 six-month period also reflect a net of tax loss of $14 million on the sale of our unprofitable steam heating business (Note 3).

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Outlook — Regulated electric system deliveries are expected to increase in the remainder of 2003 due to continued territory and economic growth. 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. As previously mentioned, Detroit Edison filed a rate case in June 2003 to address future operating costs and other issues.

In July 2003, a catastrophic windstorm in our service territory resulted in over 190,000 customers losing power. We incurred restoration costs totaling approximately $20 million, and a substantial portion of such costs are covered by storm insurance.

CAPITAL RESOURCES AND LIQUIDITY

Operating Activities

Net cash from operating activities decreased $170 million during the 2003 six-month period as compared to the same 2002 period. The decrease reflects a decline of $25 million in net income, after adjusting for non-cash items (depreciation and amortization and deferred taxes) and a $145 million increase in working capital and other requirements. The increase in working capital requirements is primarily due to a decrease in accounts payable balances in 2003. We also contributed $222 million of cash to our pension plan in 2003.

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Investing Activities

Net cash relating to investing activities improved $101 million in the 2003 six-month period as compared to the same 2002 period. The improvement is attributed to decreases in cash contractually designated for debt service and other investments, partially offset by an increase in plant and equipment expenditures.

Financing Activities

Net cash from financing activities increased $239 million during the 2003 six-month period as compared to the same 2002 period. The increase is primarily attributed to higher notes payable to affiliates and a cash infusion from its parent company, partially offset by an increase in redemptions of long-term debt.

ELECTRIC CUSTOMER CHOICE PROGRAM

The electric Customer Choice program as originally structured in Michigan anticipated an eventual transition to a totally competitive environment where customers would be charged market-based rates for their electricity. Various developments in the energy industry have caused the deregulation of electric generation to proceed at a much slower rate. As a result, Detroit Edison’s rates continue to be regulated by the MPSC. This continued regulation has hindered Detroit Edison’s ability to retain customers that are choosing alternative suppliers under the electric Customer Choice program. Detroit Edison’s results have been unfavorably impacted by the lack of full recovery of lost margins and other costs associated with the electric Customer Choice program. Although the MPSC has encouraged a collaborative process to address issues relating to customer choice, they continue to delay finalizing a mechanism to provide for the recovery of stranded costs. Detroit Edison has been an active participant in this collaborative process. However, efforts to date have not been effective in resolving the issue of the recovery of stranded costs. Detroit Edison has addressed this issue in its June 2003 rate filing and is also considering a legislative solution to this problem later this year. The continued delay in the timely and full recovery of stranded costs unfavorably impacts operating results.

ENVIRONMENTAL MATTERS

EPA ozone transport regulations and final new air quality standards relating to ozone and particulate air pollution will continue to impact us. Detroit Edison spent approximately $500 million through June 2003 and estimates that it will incur approximately $300 to $400 million of future capital expenditures over the next five to eight years to comply with the existing air quality standards. Recovery of these costs is included in our June 2003 electric rate case. In addition, we maintain the option to securitize these costs after the completion of this rate case.

The Environmental Protection Agency (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. The United States District Court for the Southern District of Ohio Eastern Division issued a decision on August 7, 2003 finding Ohio Edison in violation of the new source provisions of the Clean Air Act. If the Court’s decision is upheld, the electric utility industry could be required to invest substantial amounts in pollution control equipment. We cannot predict the future impact of this issue upon Detroit Edison.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 2 — New Accounting Pronouncements for discussion of new accounting pronouncements.

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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 the Exchange Act Rules 13a – 15(e) and 15d – 15(e)) as of the end of the period covered by this report, and have concluded that, 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.

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The Detroit Edison Company
Consolidated Statement of Operations (Unaudited)

See Notes to Consolidated Financial Statements (Unaudited)

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The Detroit Edison Company
Consolidated Statement of Financial Position

See Notes to Consolidated Financial Statements (Unaudited)

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The Detroit Edison Company
Consolidated Statement of Financial Position

See Notes to Consolidated Financial Statements (Unaudited)

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The Detroit Edison Company
Consolidated Statement of Cash Flows (Unaudited)