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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 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

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 Company

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

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Definitions

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The Detroit Edison Company

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. Factors that may impact forward-looking statements include, but are not limited to, interest rates, access to the capital markets and capital market conditions (including the effect on Detroit Edison’s pension plan investments), the level of borrowings, the effects of weather and other natural phenomena on operations, actual sales, economic climate and growth in the geographic areas in which Detroit Edison does business, the timing and extent of changes in commodity prices for electricity, unscheduled generation outages, maintenance or repairs, nuclear power plant performance, changes in the cost of fuel and purchased power due to the suspension of the PSCR mechanism, the effects of increased competition from other energy suppliers and the implementation of electric Customer Choice programs as well as alternative forms of energy, the implementation of electric utility restructuring in Michigan (which involves pending regulatory and related judicial proceedings, and actual and possible reductions in authorized rates and earnings), the effects of changes in governmental policies including income taxes, environmental compliance and nuclear requirements and the ability to recover these costs through rate increases, the impact of FERC and MPSC proceedings and existing and proposed regulations and the timing of the accretive effects of DTE Energy’s merger with MCN Energy.

Management’s Narrative Analysis of the 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.

Detroit Edison reported net income of $105 million for the 2002 three-month period, compared to net income of $88 million for the same period in 2001. For the nine-month period, net income was $272 million compared to $124 million for the same period in 2001. The earnings comparability for the three- and nine-month periods is affected by $9 million ($5 million net of tax) and $184 million ($119 million net of tax), respectively, of merger and restructuring charges that were recorded in 2001.

New reporting alignment - Beginning in 2002, Detroit Edison’s parent company, DTE Energy, realigned its internal and external financial reporting structure into three strategic business units (Energy Resources, Energy Distribution and Energy Gas) that have both regulated and non-regulated operations. Based on this structure, management sets strategic goals, allocates resources and evaluates performance. The realignment resulted in the following two reportable segments for Detroit Edison:

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

Energy Distribution includes the electric distribution services of Detroit Edison. Energy Distribution distributes electricity generated by Energy Resources and alternative electric suppliers to Detroit Edison’s 2.1 million residential, commercial and industrial customers.

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Management’s Narrative Analysis and Results of Operations

Energy Resources

Earnings increased $8 million and $30 million during the 2002 three- and nine-month periods, respectively, reflecting higher gross margins due to lower purchased power costs. The lower purchased power costs reflect favorable energy market prices in 2002. Mark to market accounting for forward and option contracts in 2001 impacted revenues and purchased power, resulting in a favorable impact on margins of $36 million in the 2001 third quarter, and an unfavorable impact on margins of $9 million in the 2001 nine-month period. Margins were also impacted by higher revenues due to greater cooling demand in the 2002 third quarter and the loss of revenues resulting from customers switching to alternative electric suppliers under the electric Customer Choice program. Revenues for the 2002 nine-month period also were reduced due to the impact of a 5% legislatively mandated, securitization based, rate reduction for commercial and industrial customers that began in April 2001. The higher gross margins were partially offset by increased employee benefit costs and higher operations and maintenance expenses due to planned and unplanned reliability and maintenance work done to improve the production and availability of the generation fleet. Depreciation and amortization expense decreased in the nine-month period reflecting the extension of the amortization period from 7 years to 15 years for certain regulatory assets that were securitized in 2001.

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Management’s Narrative Analysis and Results of Operations

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

Outlook -Electric restructuring will continue to result in increased competition in the electric generation business. Effective January 1, 2002, the electric Customer Choice program in Michigan was expanded to allow all electric customers to choose to purchase their electricity from suppliers other than their local utility. Detroit Edison expects to lose between 5% to 8% of retail sales in 2002 and between 10% to 15% of such sales in 2003 as a result of customers choosing to participate in the electric Customer Choice program. To the extent Detroit Edison experiences net stranded costs as a result of customers switching to an alternative electric supplier, Michigan law allows the recovery of all amounts of such net stranded costs. Detroit Edison disagreed with the MPSC initial methodology for determining and recovering net stranded costs and has asked for rehearing, clarification and modification of the December 2001 order. In May 2002, the MPSC denied Detroit Edison’s request for rehearing and clarification on certain aspects of the order. In June 2002, Detroit Edison filed a claim of appeal of the December 2001 MPSC order with the Michigan Court of Appeals.

In May 2002, Detroit Edison filed a new net stranded cost case with the MPSC that seeks to refine the methodology approved by the MPSC in December 2001 and calculates actual net stranded costs for 2000 and 2001. The MPSC Staff and interveners submitted their net stranded cost filings in November 2002. Detroit Edison expects to record 2002 net stranded costs as a regulatory asset with the offsetting entry reducing expense in the fourth quarter of 2002. See Note 3.

Energy Distribution

Earnings increased $4 million during the 2002 three-month period and decreased $1 million during the 2002 nine-month period reflecting higher operating revenues which were offset by increased operation and maintenance expenses. Operating revenues increased due primarily to higher residential sales attributable to greater cooling demand. The increased operation and maintenance expenses are attributable to heat-related maintenance expenses due to prolonged periods of above normal temperatures and the related stress placed on the distribution system, higher employee benefit costs, and expenses associated with restoring power to customers who lost service during two storms in the 2002 nine-month period.

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Management’s Narrative Analysis and Results of Operations

Outlook - Regulated electric system deliveries are expected to continue to increase for the remainder of 2002 and into 2003 due to the economic recovery. Operating results will vary as a result of various external factors such as weather, changes in economic conditions and the severity and frequency of storms.

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CAPITAL RESOURCES AND LIQUIDITY

Operating Activities

Net cash from operating activities decreased $193 million in the 2002 nine-month period compared to the same period in 2001. The decrease reflects a $45 million decline in net income, after adjusting for non-cash items (depreciation, depletion and amortization, merger and restructuring charges and deferred taxes), and higher working capital levels. The working capital requirements reflect lower accounts payable balances, to more normalized levels, representing the internal focus on managing external payments and taking greater advantage of purchase discounts.

Investing Activities

Net cash used for investing activities decreased $244 million in the 2002 nine-month period compared to the same period in 2001 due to lower investments in regulatory assets associated with securitizing the company’s Fermi 2 power generation facility in March 2001. Additionally, a significantly lower amount of cash that was restricted for debt redemptions also affected the comparison.

Financing Activities

Net cash used for financing activities increased $237 million during the 2002 nine-month period compared to the same period in 2001. This change is due primarily to the repurchase of more debt, net of issuances in the 2002 period. Additionally, the repurchase of $846 million in common stock in 2001 also contributed to the change.

PENSION AND POSTRETIREMENT COSTS

Detroit Edison’s costs of providing pension and postretirement benefits are dependent upon a number of factors, such as the rates of return on plan assets, the discount rate and the rate of increase in health care costs. The market value of plan assets has been affected by sharp declines in the equity market since 2000. As a result, at December 31, 2002, Detroit Edison could be required to recognize an additional minimum pension liability as prescribed by SFAS No. 87 “Employers’ Accounting for Pensions” and SFAS No. 132 “Employers’ Disclosures about Pensions and Postretirement Benefits.” The offset to any liability would be recorded as a reduction in shareholder’s equity, net of tax, or as a regulatory asset. The additional minimum pension liability and related accounting entries would be reversed on the balance sheet in future periods if the fair value of plan assets exceeds the accumulated pension benefit obligations. The additional minimum

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pension liability recorded, if any, will depend upon actual returns and interest rates in 2002, but could exceed $300 million pre-tax ($195 million after tax). The recording of any minimum pension liability would not affect net income or cash flow in 2002. Pension and postretirement costs and pension cash funding requirements could increase in future years without a substantial recovery in the equity markets. It is estimated that the increase in 2003 pension and postretirement costs could range from $80 million-$110 million, pre-tax, depending on actual plan asset returns, the discount rate and other actuarial assumptions that will not be determined until December 31, 2002. Detroit Edison will initiate cost saving strategies to significantly offset the earnings impact of higher pension and postretirement costs.

ENVIRONMENTAL MATTERS

EPA ozone transport regulations and new air quality standards relating to ozone and particulate air pollution will impact the Company. Detroit Edison has spent approximately $409 million through September 2002 and estimates that it will incur an additional $400 to $450 million of future capital expenditures over the next five years to comply.

NEW ACCOUNTING PRONOUNCEMENTS

During 2001, the Financial Accounting Standards Board (FASB) issued new accounting pronouncements concerning business combinations, goodwill and other intangible assets, asset retirement obligations and impairment or disposal of long-lived assets. See Note 7 for a discussion of Detroit Edison’s evaluation of the adoption of these new accounting pronouncements.

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Controls and Procedures

(a)		Evaluation of disclosure controls and procedures
		Detroit Edison’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of Detroit Edison’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 Detroit Edison’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 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)